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Annual
Report
2020
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
We are
RHI Magnesita
We create the refractory
products, customised services
and innovative solutions that
help shape tomorrow’s world.
Our purpose
To master heat, enabling global
industries to build sustainable
modern life.
Online
Visit our website
rhimagnesita.com
Contents
Strategic report
01
02
04
06
08
12
14
19
20
24
26
30
36
38
40
42
48
50
52
54
60
64
67
68
72
74
Group highlights
At a glance
Investment case
How we create value
Chairman and CEO review
Trends
Operational review
Our response to COVID-19
Our markets
Our strategic framework
Competitiveness
Business model
Markets
People and culture
Key performance indicators
Financial review
Effective risk management
Our internal control system
Viability statement
Principal risks
Stakeholder engagement
Sustainability governance
Progress against sustainability targets
Climate and environment
Our people
Our communities
Governance
76
78
88
92
94
97
98
102
103
107
117
Chairman’s introduction to corporate
governance
Corporate governance statement
Board of Directors
Executive Management Team
Nomination Committee report
Corporate Sustainability Committee report
Audit Committee report
Remuneration Committee report
Annual remuneration statement
Directors’ Remuneration Policy
Annual Report on Remuneration
Financial statements
Consolidated Statement of Financial Position
Consolidated Statement of Profit or Loss
128
129
130 Consolidated Statement of
131
132
134
213
216
Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated
Financial Statements 2020
Company Financial Statements
of RHI Magnesita N.V.
Notes to the Company
Financial Statements 2020
Other information
Independent auditor’s report
227
238 Alternative performance measures (APMs)
239 Glossary
240
Shareholder information
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Group highlights
Financial highlights
Strategic highlights
Revenue
Working capital intensity1,2
€2.3bn
15.9%
2019: €2.9bn
2019: 18.3%
2020
2019
2.3
2.9
2020
2019
15.9
18.2
Adjusted eBItA
net debt/adjusted eBItDA3,4
€260m
2019 : €408m
1.5x
2019: 1.2x
2020
2019
260
408
2020
2019
1.5
1.2
Adjusted eBItA margin
Available liquidity5
11.5%
€1.2bn
2019: 14.0%
2019: €1.1bn
2020
2019
11.5
14.0
2020
2019
1.2
1.1
€100m
Annualised EBITA cost savings
by 2022
€40-60m
Annualised EBITA contribution from sales
strategies by 2022
€62m
Spend on R&D and Technical
Marketing – 2.7% of
annual revenues
Read more
in Financial review
Page 42
2.4%
Read more
in Strategy
Page 24
Sustainability highlights
0.13
Lost time injury frequency rate
(LTIF) improvement from 0.28
in 2019
5.0%
Use of secondary raw
materials improved from 4.6%
in 2019; target to increase to
10% by 2025
Read more
in Sustainability
Page 64
See Alternative performance
measures definitions on
Page 238
EBITA margin contribution from
backward integration in 2020
(2019: 5.0%)
1 Measured as a percentage of last three
months of annualised revenue.
2 2019 restated to reflect an accounting adjustment
denoted within note 4 of the financial statements.
3 net debt comprises total debt less cash,
cash equivalents, and marketable securities.
4 Following the introduction of IFRS 16 leases,
2020 net debt includes the impact of IFRS 16
of €57 million.
5 Available liquidity comprises cash,
cash equivalent, and €600 million
of undrawn committed facilities.
01
R H I M A G N E S I TA
Business overview
At a glance
What we do
We create the refractory products,
customised services and innovative
solutions that help shape tomorrow’s
world. By mastering heat, we enable
global industries to build sustainable
modern life.
Through our solutions business model, we
provide a broad range of tailored services at
customer sites such as refractory installation,
recycling, digital and supply chain services.
These drive process efficiencies, reduce costs
and generate sustainable benefits, thereby
creating value for our customers, as well as for
the Group.
Refractories are essential for our modern world
Refractory products, which
are made from the minerals
we mine or source, can
withstand temperatures of up
to 2,000 degrees, making
them integral in all high-
temperature industrial
processes, including steel,
cement, glass, copper, nickel
and aluminium production.
Refractories are fundamental
to the construction of our
homes and offices, the
bridges that connect us and
the vehicles that cross them.
Concrete
1 tonne
demands ~1 Kg
of refractories
Copper
1 tonne
demands ~3 Kg
of refractories
Steel
1 tonne
demands ~10-15 Kg
of refractories
Glass
1 tonne
demands ~4 Kg
of refractories
Aluminium
1 tonne
demands ~6 Kg
of refractories
1,500°C
1,350°C
1,760°C
1,650°C
1,250°C
Driven by innovation
We strive for excellence in everything we do and
aim to harness our innovative capabilities, technical
leadership and digital expertise to provide the
products, pioneering solutions and services that
reinforce our position as the leading provider in the
refractory industry.
Committed to people
and culture
Underpinning our business model and our
day-to-day operations are the strengths of our
people and culture. Our open mindset and culture
of performance and accountability are supported
by a diverse and respectful business environment.
Operating cross-functionally and collaboratively
enables us to work efficiently and effectively. The
customer is at the heart of everything we do.
Customer relations are central to our cultural
beliefs, and we focus on providing optimum results
in all our tailor-made products and solutions.
Climate change and
sustainability
We aim to forge an innovative and industry-leading
path in sustainable development and are dedicated
to embedding sustainability within every element of
our business. We are accelerating the execution of
our business strategy and must do so in a way that
prepares RHI Magnesita to succeed in a zero-carbon
and more circular economy (a system aimed at
decoupling economic activity from the consumption
of finite resources and designing waste out of the
system). We aim to support broader recovery among
business partners and host communities, helping to
create a fairer, more resilient and sustainable society.
02
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Where we operate
Europe, CIS, Turkey
29%
Americas
40%
Employees
12,064
Sales offices
70+
China
and
East Asia
14%
India, Africa,
West Asia
17%
Finished goods sites
18
Combined sites
7
R&D hubs and centres
Raw materials sites
5
5
Our divisions
Steel
We deliver value to our customers by providing the
full range of refractory products, services and
solutions required to produce steel, including basic
and non-basic mixes and bricks, machinery and
flow control systems.
Industrial
Our Industrial Division serves customers in cement,
glass, copper, nickel, aluminium and other
industries, providing refractory products and
broader solutions to drive efficiencies and value.
Steel revenue
€1,583m
2019: €2,018m
Steel gross profit
€371m
2019: €467m
Industrial revenue
€676m
2019: €904m
Industrial gross profit
€179m
2019: €250m
With an unrivalled global footprint,
we are optimally positioned to
provide value to our customers
around the world through our
products, services and solutions.
Headquarters
Technology hubs
Raw materials production
Finished refractory products production
Raw materials and finished refractory
products production
Global revenue distribution
03
R H I M A G N E S I TA
Business overview
Investment case
1
2
3
4
Leadership in the
refractory industry
Strong competitive position
Margin resilience and growth
by accelerating and expanding
Investment driven value
creation model
the strategy
• Market leader in refractory products and full heat
management solutions above 1,200°C. Significant
scale benefits, with the largest global footprint,
close proximity to customers and a decentralised,
“local for local” strategy.
• Market share of 15% globally (30% globally excluding
China), within a c.€20 billion industry; clear market
leader in north and South America, europe and the
Middle east.
• 70% of revenue derived from the Steel Division and
30% from Industrial; RHI Magnesita serves end markets
in the construction and infrastructure, automotive,
machinery and heavy equipment industries.
• Backward integration model provides security of
supply, delivering at least 2-3 percentage points
of eBItA margin.
• low-cost operator underpinning double digit eBItA
• Strong cash generation – operating cash flow of €290
margin performance in challenging markets.
million. Resilient balance sheet with liquidity of €1.2
billion and leverage of 1.5x. the Group continues to
target leverage between 0.5x – 1.5x net debt to eBItDA.
• leadership in innovation and digitalisation, annual
R&D and technical Marketing investment of €62 million
with new products representing >15% revenues in 2020.
• Strong progress with cost saving initiatives to add
• Disciplined focus on returns on capital.
€100 million by 2022, through plant consolidation
(largely in europe), specialisation and modernisation,
and reducing SG&A1.
•
Innovating to foster sustainable development – leading
the way in low-carbon refractory technologies.
• expansion of the business model through sales
• Balanced and dynamic capital allocation through
strategies to add €40-60 million by 2022 through
investment in organic growth, sustainability, shareholder
Technical experts globally
+540
Global market share
15%
04
growth in new markets, improved customer
segmentation, further development of our
comprehensive portfolio of refractories and services with
the addition of digital products and a bespoke solutions
model; enabling customers to move up our value curve.
returns and acquisitions.
Adjusted EBITA margin
11.5%
2019: 14.0%
Operating cash flow
€290m
2019: €359m
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
1
2
3
4
Leadership in the
refractory industry
Strong competitive position
• Market leader in refractory products and full heat
• Backward integration model provides security of
supply, delivering at least 2-3 percentage points
of eBItA margin.
management solutions above 1,200°C. Significant
scale benefits, with the largest global footprint,
close proximity to customers and a decentralised,
“local for local” strategy.
Margin resilience and growth
by accelerating and expanding
the strategy
• low-cost operator underpinning double digit eBItA
margin performance in challenging markets.
Investment driven value
creation model
• Strong cash generation – operating cash flow of €290
million. Resilient balance sheet with liquidity of €1.2
billion and leverage of 1.5x. the Group continues to
target leverage between 0.5x – 1.5x net debt to eBItDA.
• Market share of 15% globally (30% globally excluding
• leadership in innovation and digitalisation, annual
• Strong progress with cost saving initiatives to add
• Disciplined focus on returns on capital.
China), within a c.€20 billion industry; clear market
leader in north and South America, europe and the
R&D and technical Marketing investment of €62 million
with new products representing >15% revenues in 2020.
Middle east.
€100 million by 2022, through plant consolidation
(largely in europe), specialisation and modernisation,
and reducing SG&A1.
• 70% of revenue derived from the Steel Division and
•
Innovating to foster sustainable development – leading
• expansion of the business model through sales
• Balanced and dynamic capital allocation through
30% from Industrial; RHI Magnesita serves end markets
the way in low-carbon refractory technologies.
in the construction and infrastructure, automotive,
machinery and heavy equipment industries.
Global market share
15%
Technical experts globally
+540
strategies to add €40-60 million by 2022 through
growth in new markets, improved customer
segmentation, further development of our
comprehensive portfolio of refractories and services with
the addition of digital products and a bespoke solutions
model; enabling customers to move up our value curve.
investment in organic growth, sustainability, shareholder
returns and acquisitions.
Adjusted EBITA margin
11.5%
2019: 14.0%
1 SG&A is selling, general and administrative expense.
Operating cash flow
€290m
2019: €359m
05
R H I M A G N E S I TA
Business overview
How we create value
Our operating model
As the leading company in the refractory industry,
RHI Magnesita has developed a resilient model
to create value sustainably for all our stakeholders.
Foundations
our ability to create
sustainable value is
dependent on these inputs.
Strengths and differentiators
our key strengths differentiate
us as a business and enable us
to fulfil our purpose.
Financial capital
our focus on cost discipline and working capital management
helps to generate sustainable and strong cash flows. We
continue to be well financed with high liquidity and a robust
balance sheet.
Skilled and motivated people
First and foremost, we are focused on customer service and on
meeting their needs. the knowledge, technical capabilities,
and culture of our 12,064 employees are the key to driving
long-term success. We are performance driven and intent on
staying at the forefront of the industry, by leveraging our R&D
strengths and by constantly developing our digital capability.
Strong relationships with stakeholders
We operate with integrity, pragmatism and reliability, ensuring
respectful relationships amongst employees and with all
customers, suppliers, shareholders and business partners.
Backward integration and
natural resources
With an integrated value chain, RHI Magnesita benefits from a
secure and efficient supply of high-quality and low-cost raw
materials, allowing us to deliver sustainable margin accretion.
our focus on recycling and energy efficiency demonstrates our
commitment to using natural resources responsibly.
Global footprint
our global network of raw materials sites, refractory production
plants, technology centres and offices enables us to offer the
full range of products, services and solutions for customers
around the world.
Full range of innovative products and
value-accretive services and solutions
We deliver significant value to our customers through a full
range of bespoke digital, technical and logistical services in
addition to the refractory materials we produce. owing to our
technical leadership and our solutions model, we are able to
drive innovation in all industries we serve, supported by our
in-depth understanding of our customers’ requirements and
the strong relationships we have with them.
Global footprint and network with
regionalised production
We benefit from a global footprint and network yet operate a
decentralised, regional strategy that brings us closer to our
customers, supported by digital technology. the Group has
more than 70 sales offices worldwide and services customers
in more than 125 countries.
Commitment to sustainability
We lead the refractory industry with our ambitious approach
to addressing social and environmental challenges. this
includes, but is not limited to, addressing climate risk and
carbon emissions, accelerating our circular economy strategy,
increasing diversity in our Company and working towards a
zero-accidents workplace.
Our customers sit at the centre of
our activities
this enables us to be agile and to quickly respond to our
customers’ evolving needs. our core values that drive our daily
behaviour include acting innovatively, maintaining openness
in a respectful environment, operating pragmatically and
being performance driven and accountable.
06
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Our core activities
We generate revenue through the provision of refractory solutions
(products and services) to customers around the globe in the steel,
cement, glass, nickel and many other industrial sectors.
Recycling
and disposal
High-quality raw
materials production
and sourcing
Use of secondary
raw materials from
recycling
Installation,
monitoring,
and complex
issues-solving
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Product
marketing, sale
and delivery
Production of
refractories
The long-term value
we create
Shareholders
We aim to consistently deliver
shareholder value through our disciplined
capital allocation policy, which focuses on
organic investment, M&A, shareholder
returns and the delivery of robust financial
performance.
€1.50 per share paid as a dividend
(2019: €0.50 per share)
Share buyback of up to €50 million
initiated in 2020
Employees
our employees are our greatest resource
and we create high-quality, equal
employment opportunities, as well
as offering fair pay, training and
development.
€455 million in wages, salaries and
pension contributions
(2019: €500 million)
Customers
We deliver tailored solutions, specialised
services and innovative products to our
customers to create value through
improved productivity, profitability
and/or efficiency.
€618 million revenue generated in our
solutions business model
(2019: €770 million)
Suppliers
We rely on suppliers to deliver services
and materials and aim to contribute to
a responsible, sustainable, reliable and
thriving supply chain.
€1.2 billion paid to suppliers
(2019: €1.5 billion)
Communities
In our communities, we generate
employment and pay taxes. In addition,
we work with local communities to invest
in projects that support their social and
environmental needs.
60% of community spend directed to
emergency CoVID-19 relief
Governments
We make a meaningful contribution to
the countries in which we operate, via the
payment of direct, indirect, employee and
corporate taxes.
€48 million direct cash taxes
(2019: €68 million)
07
R H I M A G N E S I TA
Chairman and CEO review
Q&A
I am enormously proud of how
our people have responded to
the challenges of 2020.
Herbert Cordt
Chairman
HC
SB
HC Herbert Cordt, Chairman
SB Stefan Borgas, CEO
08
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
What was the Company’s approach to
How did you ensure a healthy and
How was RHI Magnesita affected by
dealing with the outbreak of COVID-19?
the global economy has been confronted
by unprecedented difficulties as a result of
the pandemic. numerous sectors have
suffered tremendously due to the resulting
crisis. Some companies were not able
to survive, and others have thrived by
adapting, developing and growing to meet
and overcome the challenges. today,
we can proudly say that we belong to the
latter. thanks to our strong presence in
China and the experience we have gained
there, we were able to react quickly
worldwide. From the outset, we took the
right measures to ensure the safety of our
employees and to enable us to remain a
reliable partner for our customers in this
uncertain situation. Most importantly,
however, we not only reacted to the crisis,
but saw it as an opportunity to prepare the
Company for future growth. In other words,
we understood very early on that this
crisis would have long-lasting effects and
would change the world dramatically.
While we continued to manage our
business operations during the pandemic,
we also began to strategically prepare the
Company for the time after CoVID-19.
Firstly though, our focus was of course on
the health and wellbeing of our employees.
safe workplace for your staff during
the pandemic?
this was and still is my absolute priority.
As a leader, I worry about the health of our
people – this often keeps me awake at
night. We have done everything we can
to protect our employees at work by
implementing stricter precautions at
our operations, ramping up internal
communications regarding protocols,
restricting travel and enforcing remote
working wherever possible. our safety
measures and regulations go far beyond
the legal requirements in many regions.
And of course everything we do revolves
around the central question of how we
remain a strong and reliable partner for our
customers around the globe in these times
of uncertainty.
In a year characterised by internal
change and transition, how did you
retain focus on your customers?
the needs of our customers are always at
the very heart of RHI Magnesita’s culture.
In this challenging year, we have done
everything possible to ensure this is the
case, no matter the circumstances. We
have maintained strong engagement with
our customers and have worked hard to
address their evolving requirements by
leveraging digital technology, adapting
our ways of working with them, providing
flexibility and maintaining reliability.
the crisis?
We did everything in our power to keep
production up and running for our
customers, which often entailed
convincing authorities of the critical nature
of the refractories industry, especially
during a pandemic. Imagine, in times like
this, if the materials needed for the
production of medical supplies like masks
and syringes or even ambulances could
not be produced. We needed to keep our
production sites open. nevertheless, both
the Steel and Industrial Divisions were
impacted, with Group revenue decreasing
by 23 % to €2,259 million. However, the
decisive steps that we took to reduce costs,
preserve cash and manage liquidity have
served us well. In this difficult year, the
Company managed to maintain a robust
financial position. We were even able to
recommend a full year dividend of €1.50
per share and commence a €50 million
share buyback programme.
Although the depressed market conditions
have presented unique challenges for the
Company, they have also given us an
opportunity to take a closer look at many
factors. these include our workforce
capacity, competitiveness, production
optimisation and raw materials networks
and, of course, ways to further improve our
innovative capabilities. As a result, we have
extended our strategic initiatives to further
reduce costs and support profitability in
order to make sure that our business is
primed for an eventual market recovery.
Furthermore, we continued to progress
our climate strategy, which we consider
to be a vital contributor to becoming even
stronger after the pandemic.
09
R H I M A G N E S I TA
Chairman and CEO review
continued
Can you tell us more about the
Company’s climate strategy?
Climate change remains the next biggest
challenge for our societies, political
systems and the global economy over the
coming years. this is why we are working
swiftly to ensure that RHI Magnesita is able
to succeed in a low-carbon economy.
our climate strategy is a key area of focus
for the Board and we have announced a
€50 million investment over the next four
to five years towards technology research
and pilot plant constructions, designed to
support us in our aspiration to be a carbon
neutral business. the Corporate
Sustainability Committee closely reviews
the Company’s climate performance and
plans. In november 2020, our progress
was recognised, with the Company
receiving a B rating for addressing climate
risk and tackling carbon emissions in its
most recent CDp rating. In addition to this,
we were one of the first refractory
producers to become a supporter of the
taskforce on Climate-related Financial
Disclosures (tCFD).
Recycling and our circular economy
approach are key to achieving our
ambitious emissions reduction goals.
However, we are not only concerned about
reducing our own emissions. one of our
main focuses – especially when it comes
to research and development – is also to
help our customers improve their carbon
footprint. our low-carbon AnKRAl lC
series is just one of many ways we are
working to achieve this.
From COVID-19 to climate change and
economic crisis – the world is changing
quickly. How can a company react in
such uncertain times?
We anticipate major changes in the world
after CoVID-19. the global economy will
be smaller, and I think it will take two to three
years for it to fully recover. the world will
no longer be as globalised as it was.
Regionalisation will be more important in
the future because of political uncertainties,
trade wars and, of course, environmental
politics. the world has become so
unpredictable and volatile that we need to
become much more flexible and adaptable.
Decisions must be made faster, regionally,
in our plants and at customer sites. lastly,
digitalisation has been accelerated across
the entire business to an incredible degree
and we need to continue to take advantage
of this trend. this gives us a competitive
advantage.
When you talk about accelerated
digitalisation, what does it mean for RHI
Magnesita and the refractory industry?
the refractory industry is widely known as
a conservative industry, but the times are
changing and a race for technological
market leadership has begun. We aim
to lead the race for digitalisation in our
industry. to facilitate this, we are investing
heavily in digital transformation projects,
automation and robotics, with increased
data connection to support our solutions
business, smart production processes
and innovative digital supply chain
technology. our vision is to be a 360° heat
management partner for our customers.
We have also introduced a number of
initiatives to further develop our internal
digital capacity to meet the evolving
demands of the 4.0 world. We are
introducing augmented reality solutions to
complement our on-site customer services
and formed a strategic partnership with
Microsoft in 2020 to accelerate our digital
offerings and support new ways of working
with our customers.
What is your strategy for success in the
challenging future you just described?
We have undoubtedly experienced some
major changes over the past year which
have affected the Company. However, our
strategic pillars and their potential to create
value still stand as the key success factors
for our industry. the Company’s strategy
remains valid, albeit with some
adaptations.
our strategy is centred around three
key pillars: executing cost reductions to
improve our competitiveness; enhancing
our business model; and driving market
leadership. Read about our strategy on
pages 24 to 39.
our strategy is enabled by the strength of
our research and development as well as
digitalisation. With the right people, the
right mindset and a clear commitment to
our sustainable strategy, we will extend
our market and technology leadership.
All these factors will ensure that we
provide the greatest possible value to
our customers.
We are convinced that we have the right
strategy, and as Stefan noted, we need the
best minds to bring these visions to life and
develop them further. We seek to attract
and motivate the best global talent and
strive to develop leaders who can embrace
our future and really make a difference,
with our strong focus on diversity being
integral to this strategy.
Can you tell us more about your overall
approach to sustainability?
our approach is underpinned by our
continued commitment to the un Global
Compact, the world’s largest corporate
sustainability initiative. We have pledged
to conduct business responsibly,
implementing its 10 principles in support of
anti-corruption, environment, human
rights and labour rights into our strategy
and operations. We also commit to
strategic action that advances broader
societal goals, such as the un Sustainable
Development Goals (SDGs), with a
particular focus on innovation and
collaboration.
10
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
With our end-
markets now
showing signs of
recovery, we are
confident that the
business is well-
positioned to take
advantage of new
opportunities as
conditions
improve.
Stefan Borgas
Ceo
We will continue to deliver our well-
established strategy (executing cost
reductions to improve our competitiveness,
enhancing our business model, and
driving market leadership). our priorities
are to further increase our competitiveness
through the continued reduction in
the cost of goods sold and SG&A, to
continuously improve and enhance our
effectiveness in serving our customers
and to advance the digitalisation of our
customer offerings.
What are your hopes for the business
environment in 2021?
My hope is that the demonstrated success
of several CoVID-19 vaccinations will help
expedite the global recovery, aided by
improving political stability. However,
uncertainty and volatility are likely to
remain high in the short term on a global
level. As a Company, we are investing in
tomorrow and we will never tire of working
towards a brighter future alongside our
customers, shareholders and other
stakeholders.
As Albert einstein once said: “In the midst
of every crisis, lies great opportunity”. even
though the pandemic was and continues
to present difficulties for all of us,
challenging us in both professional and
personal ways, we also learned a lot about
working together, supporting each other,
adapting and reacting quickly to new
situations. My hope is that we will have
used this opportunity to emerge from this
crisis stronger than ever before.
11
You mention diversity – how is your
approach to this evolving?
We are looking to build the team of
tomorrow at RHI Magnesita and need the
broadest range of talent and perspectives,
especially in leadership, to propagate
innovation and agility. our intention is to
foster diversity of thought, be this through
differences in gender, nationality, age or
other determinants. We are convinced that
teams with diversity of thought are more
successful than those with similar
perspectives.
We feel strongly that our Board should
reflect diversity and are taking steps to
further increase female representation,
with the proposed appointment of
additional women at the upcoming Annual
General Meeting. Currently, 25% of our
Board is female and half of our Committees
are chaired by women.
We have also committed to increasing the
representation of women amongst senior
leaders to 33% by 2025. We made good
progress towards our gender diversity goal
this year by promoting some of our female
top talents as part of the organisational
changes. We increased the proportion of
women in senior leadership positions from
17% in 2019 to 25% in 2020.
Can you provide some detail on
the outlook and focus areas for 2021
and beyond?
We continue to see steady, month-on-
month improvement in demand, however
volatility and uncertainty are likely to
remain elevated in the short term. We
expect overall recovery trends to continue
in both our Steel and Industrial divisions
during 2021, with earnings likely to be
weighted towards the second half.
our expectations for 2021 adjusted
eBItA are in line with current market
expectations1, assuming the recovery in
our end markets is sustained. We have
protected our commercial, operational and
sustainability investments throughout a
period of difficult market conditions and we
are now well positioned to benefit from
these as markets recover.
1. Current market expectation based on Company compiled
consensus of €310 million.
R H I M A G N E S I TA
Trends
We monitor the global
trends that underpin
demand for refractory
solutions, as well as the
key challenges and
opportunities we face
as a business.
The Company aims to respond
in a proactive and agile manner by
ensuring that our overall strategy is
aligned with all prevailing drivers in a
rapidly changing global environment.
1. Continued global
urbanisation, albeit
with short-term
subdued demand in
industrial production
2. Higher short-
term volatility
3. Regionalisation
4. Connectivity
5. Increasing
(digitalisation,
automation and
importance of
climate change
artificial intelligence)
and measures
Why is it important?
Why is it important?
Why is it important?
Why is it important?
Why is it important?
Given the current macro-environment, which
has been heavily impacted by the effects of the
global pandemic and, to a certain extent, by
political developments, higher volatility has been
noted in 2020. this is characterised by varying
performance in different market segments, short-
term disruptions in industrial production, regional
differences in business environment, temporary
fluctuations in customer requirements and
behaviour, leading to lower levels of predictability.
Whilst our world progressively becomes more
there is an increasing demand for digital
Sustainable business practices have become
interconnected, with rising levels of global
technologies amongst our customers. the
increasingly prevalent in most industries.
development and economic growth, there has
global business environment is characterised
Climate change concerns are accelerating the
been an important trend towards increased
by more data interfaces and higher levels of
shift towards renewable energy production and
regionalisation and protectionism.
digitalisation and automation. there has been a
technological developments in conventional
notable acceleration of this trend since the onset
processes such as steel and cement production,
of the CoVID-19 pandemic. new technologies
requiring systemic changes and innovation.
associated with artificial intelligence (AI) and Big
Data are being harnessed to support automation
and have transformed the way we do business.
the long-term trend of global urbanisation is
expected to continue, supporting RHI Magnesita’s
key demand drivers (i.e. construction and
infrastructure, automotive production, machinery
and equipment and electronic and consumer
goods). However, refractory demand has been
impacted in 2020 by the global pandemic,
which also directly affected our end markets.
A gradual recovery is expected in both the steel
and industrial sectors, with emerging economies
seeing potentially higher levels of demand in
2021, albeit from the relatively low base of 2020.
A return to 2019 demand levels is expected
by 2022. over the longer term, we anticipate
particularly strong demand from Asia, as a result
of increasing urbanisation over the next decade.
Our response
Our response
Our response
Our response
Our response
the Group is focused on reducing its cost
base and improving the alignment of its
production capacity with regional demand
to ensure that it is well positioned to take
advantage of market demand recovery.
Good progress is being made on the Group’s
cost savings initiatives, which will improve eBItA
by €100 million by 2022. these comprise
the production optimisation plan, which
encompasses plant rationalisation (involving
the closure of up to 10 sites by H1 2022, with
a focus on europe and South America), plant
modernisation and digitalisation and raw material
investment, as well as the SG&A Reduction plan.
the Group continues to prioritise maintaining
its strong liquidity position, with total
liquidity of €1.2 billion at year end.
to capitalise on demand from Asia, we have
consolidated our position in India, China and east
Asia, by regionalising production, decentralising
decision-making and developing our local
presence in these growth markets. the Group
is also focused on value-enhancing M&A in
key growth regions and market segments.
We responded swiftly to the global pandemic,
enabling the Group to establish CoVID-
secure working conditions, and maintain our
production capabilities and supply chains to
serve our customers. By taking prudent measures
quickly to preserve cash and manage costs, the
Company achieved double digit eBItA margins
and positive operating cash flow in 2020.
the production optimisation plan is structurally
reducing our fixed cost base and, in parallel, we
are seeking to variabilise our cost base (using
methods such as outsourcing to achieve this).
By maintaining financial strength, we look
to sustain positive strategic momentum
to ensure that the Group will be well-
positioned to take advantage of growth
opportunities when markets improve.
We are also increasing the agility of our
business, by working closely with our customers
to better understand their needs, providing
even more customised solutions, prioritising
low-cost production from our plants, and
improving our supply chain and integrated
business planning to enable the Group to
respond more swiftly to their evolving needs.
12
We operate on a global scale with more than
one of the fundamental drivers of our
Climate change poses both opportunities as well
70 sales offices worldwide as well as strong,
business model and strategy is our focus on
as strategic and operational risks to our business.
diversified and agile production networks, which
innovation, digitalisation and automation. We
are supported by specialised regional hubs.
are investing heavily in digital transformation,
to address increased regionalisation, which
we believe is likely to be a characteristic of our
markets moving forward, we have strengthened
with resultant new products and solutions,
supported by a partnership with Microsoft
during 2020 (see detail on page 32).
our climate strategy, which focuses on recycling,
carbon capture and storage, fuel switch, energy
efficiency and innovative customer solutions,
is covered on page 69. our immediate target
is to reduce Scope 1, 2 and 3 emissions (raw
our regional structures to bring us closer to
We leverage data, connectivity, AI and predictive
materials) per tonne by 15% by 2025.
our customers, secure our supply chain and
maintenance to meet the ever-increasing
optimise our sales network. We have also
requirements of our customers in the digital
decentralised managerial decision-making
world. By launching solutions, including 360°
and implementation to the regional level to
customer view, Remote Assist, our customer
promote agility, adaptability and flexibility.
portal, connected field service and the sales
By leveraging our R&D and innovation
capabilities, we can be pioneers in our industry
and capitalise on this opportunity to help
customers reduce their Co2 emissions.
chat function, our customers can now connect
with RHI Magnesita experts to solve issues
remotely, even in times of restricted travel.
over the next four to five years, we will
invest €50 million to trial carbon capture
technologies; read more on page 35.
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
1. Continued global
urbanisation, albeit
with short-term
subdued demand in
industrial production
2. Higher short-
term volatility
3. Regionalisation
4. Connectivity
(digitalisation,
automation and
artificial intelligence)
5. Increasing
importance of
climate change
and measures
Why is it important?
Why is it important?
Why is it important?
Why is it important?
Why is it important?
the long-term trend of global urbanisation is
Given the current macro-environment, which
expected to continue, supporting RHI Magnesita’s
has been heavily impacted by the effects of the
key demand drivers (i.e. construction and
global pandemic and, to a certain extent, by
infrastructure, automotive production, machinery
political developments, higher volatility has been
and equipment and electronic and consumer
noted in 2020. this is characterised by varying
goods). However, refractory demand has been
performance in different market segments, short-
impacted in 2020 by the global pandemic,
term disruptions in industrial production, regional
which also directly affected our end markets.
differences in business environment, temporary
A gradual recovery is expected in both the steel
fluctuations in customer requirements and
and industrial sectors, with emerging economies
behaviour, leading to lower levels of predictability.
Whilst our world progressively becomes more
interconnected, with rising levels of global
development and economic growth, there has
been an important trend towards increased
regionalisation and protectionism.
there is an increasing demand for digital
technologies amongst our customers. the
global business environment is characterised
by more data interfaces and higher levels of
digitalisation and automation. there has been a
notable acceleration of this trend since the onset
of the CoVID-19 pandemic. new technologies
associated with artificial intelligence (AI) and Big
Data are being harnessed to support automation
and have transformed the way we do business.
Sustainable business practices have become
increasingly prevalent in most industries.
Climate change concerns are accelerating the
shift towards renewable energy production and
technological developments in conventional
processes such as steel and cement production,
requiring systemic changes and innovation.
Our response
Our response
Our response
Our response
Our response
We operate on a global scale with more than
70 sales offices worldwide as well as strong,
diversified and agile production networks, which
are supported by specialised regional hubs.
to address increased regionalisation, which
we believe is likely to be a characteristic of our
markets moving forward, we have strengthened
our regional structures to bring us closer to
our customers, secure our supply chain and
optimise our sales network. We have also
decentralised managerial decision-making
and implementation to the regional level to
promote agility, adaptability and flexibility.
one of the fundamental drivers of our
business model and strategy is our focus on
innovation, digitalisation and automation. We
are investing heavily in digital transformation,
with resultant new products and solutions,
supported by a partnership with Microsoft
during 2020 (see detail on page 32).
We leverage data, connectivity, AI and predictive
maintenance to meet the ever-increasing
requirements of our customers in the digital
world. By launching solutions, including 360°
customer view, Remote Assist, our customer
portal, connected field service and the sales
chat function, our customers can now connect
with RHI Magnesita experts to solve issues
remotely, even in times of restricted travel.
Climate change poses both opportunities as well
as strategic and operational risks to our business.
our climate strategy, which focuses on recycling,
carbon capture and storage, fuel switch, energy
efficiency and innovative customer solutions,
is covered on page 69. our immediate target
is to reduce Scope 1, 2 and 3 emissions (raw
materials) per tonne by 15% by 2025.
By leveraging our R&D and innovation
capabilities, we can be pioneers in our industry
and capitalise on this opportunity to help
customers reduce their Co2 emissions.
over the next four to five years, we will
invest €50 million to trial carbon capture
technologies; read more on page 35.
Read more
in Strategy
Pages 24 to 39
13
seeing potentially higher levels of demand in
2021, albeit from the relatively low base of 2020.
A return to 2019 demand levels is expected
by 2022. over the longer term, we anticipate
particularly strong demand from Asia, as a result
of increasing urbanisation over the next decade.
the Group is focused on reducing its cost
We responded swiftly to the global pandemic,
base and improving the alignment of its
enabling the Group to establish CoVID-
production capacity with regional demand
secure working conditions, and maintain our
to ensure that it is well positioned to take
advantage of market demand recovery.
Good progress is being made on the Group’s
cost savings initiatives, which will improve eBItA
by €100 million by 2022. these comprise
production capabilities and supply chains to
serve our customers. By taking prudent measures
quickly to preserve cash and manage costs, the
Company achieved double digit eBItA margins
and positive operating cash flow in 2020.
the production optimisation plan, which
the production optimisation plan is structurally
encompasses plant rationalisation (involving
reducing our fixed cost base and, in parallel, we
the closure of up to 10 sites by H1 2022, with
are seeking to variabilise our cost base (using
a focus on europe and South America), plant
methods such as outsourcing to achieve this).
modernisation and digitalisation and raw material
investment, as well as the SG&A Reduction plan.
By maintaining financial strength, we look
to sustain positive strategic momentum
the Group continues to prioritise maintaining
to ensure that the Group will be well-
its strong liquidity position, with total
liquidity of €1.2 billion at year end.
positioned to take advantage of growth
opportunities when markets improve.
to capitalise on demand from Asia, we have
We are also increasing the agility of our
consolidated our position in India, China and east
business, by working closely with our customers
Asia, by regionalising production, decentralising
to better understand their needs, providing
decision-making and developing our local
even more customised solutions, prioritising
presence in these growth markets. the Group
low-cost production from our plants, and
is also focused on value-enhancing M&A in
improving our supply chain and integrated
key growth regions and market segments.
business planning to enable the Group to
respond more swiftly to their evolving needs.
R H I M A G N E S I TA
Operational
review
Group highlights
Quick and decisive actions were
taken at the outset of the pandemic
to establish COVID-secure and safe
working conditions, preserve cash
and improve cash flow, maintain
liquidity and sustain production
and supply.
In order to address the increased
levels of volatility and uncertainty
triggered by the pandemic, the
Company is developing innovative
approaches for a digitalised and
agile refractory supply chain.
Demand outlook gradually,
sequentially improving, with greater
confidence in the order book across
business units.
Market challenges continue to be
addressed through the Production
Optimisation Plan and raw material
strategy, with a focus on adapting
production networks to operate
on a more regionalised basis,
decentralising managerial
decision-making.
The Group continues to focus on its
strategic initiatives, improving cost
effectiveness and enhancing its
sales strategies.
14
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Steel Division
Demand for refractory products in the
Steel Division, which accounts for 70% of
Group revenue, is driven largely by global
steel production volumes.
As part of our digitalisation initiatives,
Radio Frequency Identification (RFID)
technology has been launched as an
on-site pilot with a european customer.
Steel revenue
€1,583m
2019: €2,018m
Steel gross margin
23.5%
2019: €23.1%
Revenue breakdown by
geography in Steel Division
26%
Europe, CIS, Turkey
44%
Americas
China and East Asia
11%
India, Africa, West Asia 18%
numbers do not add up to 100 due to rounding.
Refractory products in steel plants are used to
protect applications such as the basic oxygen
furnace (BoF), electric arc furnace (eAF) and
ladles from hot liquid steel. the lifetime of the
refractory linings in steel production range from
20 minutes to two months and are therefore
regarded as consumables and an operating
expense by our customers. Refractory products
and services are estimated to contribute c.2-3%
to the total cost base of a steel producer but
can have wider benefits or impacts on energy
consumption, production efficiency and
margins beyond their cost contribution. the
Group is a global leader in the manufacturing of
advanced refractory materials and offers heat
management services to its customers which can
significantly improve steel plant performance.
Read more in our markets on
Pages 21 and 22
Steel Division revenues declined by 22% in
2020 to €1,583 million (2019: €2,018 million),
predominantly impacted by the effects of the
global pandemic. Gross profit for the Division
was €371 million, down from €467 million in
2019. However, gross margin increased over
the same period by 40bps to 23.5%, which was
predominantly due to increased efficiencies
and thereby lowering the cost of sales margin.
Europe, CIS, Turkey
total revenue for the year in europe, CIS and
turkey amounted to €436 million, down 26%
on 2019 (2019: €592 million). the Company’s
overall performance in Western europe was
impacted by CoVID-19 and weaker raw material
prices, as well as overcapacity and a high cost
base, leading to a 31% fall in revenues.
the Group is making good progress in europe
in its strategy to increase its competitiveness
by reducing excess capacity and costs. As
part of the production optimisation plan, the
Company is investing over €40 million at the
Hochfilzen plant, transforming it into a centre
of innovation for dolomite research, as well
as a hub for providing high-quality supply of
dolomite products throughout europe. the
Group has also committed to invest c.€50
million in modernising the Radenthein plant,
expanding RHI Magnesita’s technical leadership.
one of the Group’s new solutions business
models was launched in europe in 2020, and
one contract has already been signed with a
long-standing customer. the Group is also
experiencing increasing demand for Co2
reduction and recycling solutions amongst
its customers in europe, CIS and turkey.
Americas
total revenue for the year of €693 million in
north and South America represented a 21%
decrease on 2019 (2019: €881 million), mainly
as a result of the impact of CoVID-19 on the
regions’ economies and consequently on crude
steel production, but also currency devaluation
(principally of the Brazilian Real). After the strong
performance in Q1 2020 in the Americas, Q2
and Q3 were heavily impacted by the pandemic.
Refractory sales volumes started to gradually
improve in Q4, with some regions returning to
pre-pandemic levels, notably Brazil. Demand for
steel increased faster than supply in late 2020,
and the region faced steel capacity constraints,
particularly in Brazil, which saw strong export
demand from Mexico, which necessitated the
rebuilding of steel customer inventory levels.
the consolidation of the north and South
American sales regions has resulted in
multiple synergies, more effective inventory
and accounts receivable management and
the implementation of a volume initiative
programme to increase market share with a
specific focus on underserved product groups.
the solutions model is well advanced in the
Americas, accounting for approximately 47%
of total revenues. We are currently adapting
business models with select customers and
offering tailored solutions to match specific
requirements and customer profiles. We have
had a strong take up of digital solutions, with
both Automated process optimisation (which
uses artificial intelligence to predict refractory
product service life) and Quick Check (a
smart measurement solution using 3D scans
to monitor lining wear measurements) being
piloted by customers across the Americas.
15
A new R&D centre, which will be fully operational
in H2 2021, is being developed at our Bhiwadi
plant in India to facilitate a greater understanding
of local markets, providing significant value to
our customers, and enable a faster and more
unified technology transfer in the region, with
significant cost competitiveness. In line with our
key strategic priorities, its focus areas will be local
raw material development, operational support
for our three Indian plants, and problem solving
and improvement projects for our customers.
post year end, a merger of the Group’s Indian
entities was approved by the Apex Court,
nClAt of India, enabling the simplification
of the structure in this region. organisational
structures were also reviewed and amended
across Africa and West Asia in 2020 to optimise,
rationalise and implement a simpler framework.
R H I M A G N E S I TA
Operational review
continued
We are working to increase our market position in
flow control, with strong order pipelines and good
levels of customer interest, in addition to positive
results from a number of ongoing customer trials.
the Group has successfully implemented
recycling initiatives in 2020. In north America,
this includes promoting recycling solutions
at customer sites to reduce environmental
impact, generate increased revenues and
strengthen relationships with customers.
In South and Central America, the focus is
predominantly on new refractory formulations
developed using recycled raw materials,
thereby replacing the need for virgin materials
and significantly reducing carbon emissions.
China and East Asia
China, one of the Group’s strategic focus
markets, performed well in 2020, with revenue
increasing by 41% on 2019 to €67 million
(2019: €48 million), thanks to the Group’s
success in developing new business and
increasing market share. China recovered
from the impacts of the global pandemic
far quicker than other markets, enabling the
Company to leverage its strong regional
production facilities, local R&D excellence
and integrated sales channel in the region.
east Asia revenue decreased 24% to €100
million (2019: €131 million) reflecting
the impact of CoVID-19 on customer
demand. Revenue declined in Indonesia,
Malaysia, the philippines and thailand.
China and east Asia were integrated into one
organisational region during the year and the
strengthened local and regional teams, with
greater autonomy and authority, have proven
to be effective. In 2020, the Company signed
its first two Full line Service (FlS) contracts
in China with two eAF plants. We expect to
further grow our market share in this area.
As part of the Company’s ongoing production
optimisation plan, the production of certain
refractories has been transferred to China
from other regions (such as europe) to enable
a more regional and specialised approach.
one of the key focus areas of the Chinese
steel industry over the next five years is the
introduction of more electric arc furnace (eAF)
plants, with approximately 50 new eAF plants
planned for completion by 2023 (representing
circa 75Mt capacity). this provides a significant
opportunity and focus for the Company,
since eAF plants require more refractory
products. In China, we have strategically grown
certain product segments (such as eAF and
flow control) and added value through our
solutions business model during the year.
the Group’s digitalisation strategy is advancing
well in China and we are rolling out a
Manufacturing execution Systems (MeS)
programme in Dalian.
the Company also initiated its first recycling
solutions contract with a Chinese steel customer
during 2020.
India, Africa, West Asia
total revenue for the year in India, Africa
and West Asia amounted to €287 million,
down 22% on 2019 (2019: €366 million).
Following a solid performance in Q1 2020, a
decrease occurred during the second quarter,
which was particularly notable in the Indian
market, as a result of CoVID-19. nevertheless,
some regions, such as Saudi Arabia and oman,
outperformed during this time. Signs of a swift
recovery were evident in India at the year end,
and encouraging signs were noted in Africa and
West Asia in late Q4 in terms of new orders.
In India, one of the Group’s strategic focus
markets, the government has recently introduced
a “Make in India” policy, which encourages
companies to manufacture in India and
incentivise local manufacturing investment.
this represents a positive development for the
Company, given our strong local production
network and we aim to take advantage of this
new policy by increasing local capacity. the
Company is gaining competitive advantage by
manufacturing products for the Indian market
locally, which not only enables faster product
development and concept implementation, but
also provides working capital benefits for both our
customers and the Company, as well as improving
costs. the new Cuttack plant is operating well
and the planned increase in capacity by the end
of 2021 is expected to support local demand.
16
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Industrial Division
Industrial revenue
€676m
2019: €904m
Industrial gross margin
26.4%
2019: 27.7%
Revenue breakdown by
segment in Industrial Division
The Industrial Division (which accounts
for 30% of Group revenue) provides
refractory solutions to customers across
the cement, lime, glass, non-ferrous
metals (NFM), aluminium and
environment, energy and chemicals
(EEC) industries.
the Industrial Division segments are subject
to longer replacement cycles as the lifetime of
a refractory product in these industries varies
anywhere between one year to 20 years.
Read more in our markets on
Pages 22 and 23
Industrial Division revenues declined by
25% in 2020 to €676 million (2019: €904
million), impacted by the effects of the global
pandemic, with customers postponing capital
expenditure projects. Gross profit for the
Division was €179 million, down from €250
million in 2019 and gross margin declined over
the same period by 130bps to 26.4%. this was
predominantly due to the macroeconomic
uncertainty, as a result of CoVID-19 and
oil price volatility, which has precipitated a
contraction in customer capital expenditure
and the postponement of project decisions.
Cement, lime and Industrial projects were
combined under one leadership team in
2020, creating a single organisational unit
that focuses on refractory excellence and
digitalisation, to enable the Company to
continue leading in innovation and being
the partner of choice of our customers.
Cement and Lime
Industrial Projects
40%
60%
Cement and Lime
Revenue for the year was €273 million, down 21%
on 2019 (2019: €344 million). Cement and lime
accounted for 40% of total Industrial Division
revenue in 2020 and 12% of Group revenue.
Following solid performance in Cement and lime
for Q1 2020, reflecting the usual high seasonal
demand during the annual repair cycle, Q2 and
Q3 were negatively impacted by CoVID-19, with
a contraction in demand, leading to reduced
production and some temporary closures of
cement plants in certain regions. performance
started to improve in Q4 and the order intake
for repair activity in Q1 2021 has been strong.
Regional performance varied significantly
depending on the relative impact of the
CoVID-19 pandemic on different geographies.
the market in India reduced by c.25% in 2020,
whereas other markets remained more resilient.
Market share remained largely stable, with some
areas of improvement, such as in China, where
the Company now accounts for over a third of
the market, against a backdrop of a shrinking
cement market and lower clinker capacity. In
Brazil, revenues were maintained at 2019 levels
(in euro terms) in spite of the significant impact of
the pandemic and the weakness in the Brazilian
Real due to a record performance in Q1 2020.
two key product groups in the cement
industry have shown strong traction in 2020.
AnKRAl low Carbon (lC) products, which
reduce environmental impact, have been
rolled out selectively in europe during the
year. Decarbonisation of the cement industry
remains a dominant topic for producers.
Following its launch by RHI Magnesita in
2019, the AnKRAl X series, which combines
clinker melt resistance with flexibility, has seen
excellent demand, representing the fastest
product introduction in the cement industry.
As part of our strategy to drive digitalisation, a
digital emergency sales channel (the Cement
Webshop) was launched with selected
customers in 2020, affording visibility on stock
for immediate shipment, enabling customers to
access materials quickly and providing access
to our products in emergency situations.
17
Operational review
continued
Industrial Projects
Industrial projects, comprising nFM, aluminium,
glass and energy, environment and chemicals,
reported revenue of €403 million in 2020,
representing a 28% decrease on 2019 (€560
million). the weaker revenue performance was
largely due to CoVID-19, which led to heavy
project postponements in nFM and weaker
metal production levels globally, resulting in
some temporary customer plant closures, as
well as significantly reduced refinery activity
throughout the year. the Glass segment was
more resilient, but still experienced some
project postponements in Q2. Industrial projects
accounted for 60% of total Industrial Division
revenue in 2020 and 18% of Group revenue.
We have made progress in developing a
broad product portfolio in different plants
around the world, thereby ensuring supply
stability for our customers. this is expected
to further improve resilience in 2021 and
beyond as we are able to provide products from
facilities in europe, the Americas or Asia.
China saw its first customer uptake of the
Company’s innovative regenerator product
(Innoreg) for the glass industry in 2020, which
addresses challenges of thermal efficiency
and lifetime, representing success in further
expanding our product offering in this market.
In europe we have successfully implemented
Remote Assistance for customer inspection
work in the Glass and nFM segments. We also
successfully installed our electromagnetic
electro-magnetic level indication “eMlI” sensor
solutions (which measure metal slag level)
with several nFM customers and have some
further exciting developments in the pipeline.
R H I M A G N E S I TA
Outlook
We continue to see steady, month-on-month
improvement in demand, however volatility
and uncertainty are likely to remain elevated
in the short term. the Group expects overall
recovery trends to continue in both its Steel and
Industrial divisions during 2021, with earnings
likely to be weighted towards the second half.
our expectations for 2021 adjusted eBItA
are in line with current market expectations1,
assuming the recovery in our end markets
is sustained. the Group has protected its
commercial, operational and sustainability
investments throughout a period of difficult
market conditions and is well positioned to
benefit from these as markets recover.
1. Current market expectation based on Company compiled
consensus of €310 million.
18
Case study
Virtual Reality has
supported our ability to
work effectively during
the pandemic
During 2020, when travel was heavily restricted
or prohibited, RHI Magnesita successfully used
Virtual Reality (VR) to continue activities such as
customer and internal site visits, due diligence,
quality control checks and the transfer of
technological skills. Some examples include:
• Smart Glasses, which were used to inspect
and evaluate new presses manufactured
in China in accordance with design
specifications, known as a Factory
Acceptance Test (FAT). The use of VR in this
instance enabled technical experts from
Brazil and Europe to participate in the
FAT remotely.
• Quality inspections usually performed
physically by customers at our plants were
instead carried out remotely using Remote
Assist mobile applications and Smart
Glasses. This prevented product delivery
delays and reduced working capital.
• As part of the plant network optimisation in
the Americas, R&D and process teams used
Smart Glasses for production technology
transfer from Brazil to Mexico. This enabled
experts in Brazil to provide remote support
and allowed additional colleagues to
participate. All activities were recorded,
thereby facilitating training in the future.
• Smart Glasses were used by the operations
management team to perform a virtual tour of
construction work at Contagem, removing
the need for site visits and enabling more
team members to participate.
• The quality management team in Brazil
used Smart Glasses for remote laboratory
equipment installation and to provide
support from colleagues around the world.
The hands-free nature of Smart Glasses is
particularly well-suited to the laboratory
environment.
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Our response
to COVID-19
RHI Magnesita identified the following three priorities
in response to the pandemic, which have been
cascaded throughout the Group to enable us to
navigate these challenging times:
1. Protecting the health and safety
of our employees
2. Ensuring business continuity
3. Focusing on the liquidity and profitability
of our business
We responded quickly to the CoVID-19 outbreak,
recognising our responsibility as a global business
to remain a reliable partner for our customers and
other stakeholders, at the same time maintaining
our important position in the value chain.
our first priority was to protect the safety and
wellbeing of our employees and others who work
alongside us. Key measures taken included:
• establishing cross-functional regional task
forces for europe, CIS and turkey, the
Americas, India, Africa and West Asia
following the formation of our China and east
Asia task force in Q1. our approach is guided
by the World Health organisation (WHo),
Centers for Disease Control and prevention
(CDC), local governments and other sources.
•
Implementing strict safety protocols for
employees and partner companies at
production facilities, our offices and other
operations worldwide. the measures
implemented included the provision of
personal protective equipment (ppe), daily
temperature checks using infra-red cameras,
increased cleaning and disinfection, testing
strategies, building additional washing
facilities, and controlled entry/exit procedures
to reduce physical interaction during arrival
and departure times.
•
Implementing a remote working strategy
wherever feasible in the corporate offices
and introducing social distancing measures.
Read more about health and safety
Page 72
By taking a holistic view of the potential
impacts of CoVID-19 as early as possible,
we were able to put in place targeted
responses, appropriate for the different market
environments and stakeholder requirements.
our strong regional presence in China and the
first-hand experience we gained in this country
in Q1 meant that the Group was able to take
necessary actions quickly and efficiently in other
regions. owing to our new Integrated Business
planning process, introduced in January 2020,
the Company was able to update demand
forecasts more quickly and align demand with
production planning, supply chain and financial
forecasts, thereby providing more accurate
analysis and enabling more agile responses.
We maintained production capabilities and
supply chains, working closely with authorities
to ensure adherence to relevant restrictions
and legislation whilst also leveraging our global
network, allowing us to consistently serve our
customers throughout this challenging period.
this was reinforced by the World Refractory
Association, which stressed that refractory
companies worldwide should be recognised
as an essential industry. Where travel and site
access were restricted, we implemented digital
solutions to maintain a reliable level of service
– see further detail in the case study on page
18. our experience in 2020 has proved useful
for optimising our supply chain management,
with improved risk assessment, enhancements
in demand, supply maturity planning and for
further capitalising on our global network.
We reacted rapidly to reduced demand by taking
prudent measures to preserve cash and manage
costs, maintaining double-digit operating
margins and positive operating cash flow. the
Group took steps to increase liquidity in January
and maintained robust levels of €1.0– 1.2
billion throughout March to December 2020.
the Group achieved a total short-term fixed
cost saving of €50 million in 2020, as a result
of the consolidation of production, temporary
plant closures, voluntary salary reductions by
Directors, the executive Management team and
some employees. these short-term measures
were then embedded in the business through
the subsequent focus on regionalisation,
digitalisation and cost reduction. Measures
were taken to reorganise and optimise our
organisational structures, bringing us closer to our
customers and decentralising decision-making,
enabling the business to respond in a flexible,
agile and timely manner in all its regions, and
facilitating significant savings in SG&A.
Working capital reduction strategies were
successfully implemented across the Group in
response to lower demand, thereby releasing
cash to the business. By maintaining strong
communications with our customers, we were
able to ensure the timely collection of accounts
receivable and reduced overdue debtors during
the year to the lowest level in the Group’s history.
Read more in the Financial review
Page 42
the severe and far-reaching impacts of CoVID-19
became apparent early in the pandemic, and
we took swift action to help those in our local
communities who have been hit hardest. We
remain committed to supporting longer-term
efforts to rebuild lives and livelihoods.
Read more in our communities
Page 74
In order to address the lasting implications of
CoVID-19, we closely monitor trends and the
market environment to ensure we have the
correct strategic responses to meet challenges
and harness opportunities going forward.
Read more in trends
Page 12
our long-term strategy remains in place,
but we have taken this opportunity to
accelerate and extend elements.
Read more in Strategy
Page 24
19
R H I M A G N E S I TA
Our markets
Key industry demand
drivers for our business
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 (NFM), glass and the
environment, energy and chemicals (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. Construction
Construction and infrastructure are the key
drivers for the Group’s Steel and Industrial
Divisions. Approximately 45% of overall
refractory demand is estimated to be derived
from construction markets, with a strong
inherent link to global economic growth.
Aided by government stimulus, the
construction sector remained more resilient
than other industries throughout 2020 as
many governments focused on implementing
public projects, particularly in developed
economies, and interest rates remained low.
Investment in infrastructure is likely to be at the
core of government stimulus programmes in the
markets in which we operate to aid economic
recovery following the fallout from the pandemic.
A robust recovery in construction is anticipated
for 2021, particularly in emerging economies,
albeit from the relatively low base of 2020.
2. Automotive and transport
the automotive industry is another key
end market for the Group. As part of the
green energy transition, it is experiencing
a substantial restructuring, with increasing
production of electric vehicles (eV) and
evolving mobility requirements influencing
the supply chain. this is expected to benefit
RHI Magnesita, given our strong exposure to
the nFM segment which will be supported by
increased demand for metals required for eV
production and other green technologies.
the industry was among those worst affected
by the coronavirus crisis, with automotive
production declining by between 70-90% in
many countries in April 2020. Global production
fell in by 18% in 2020, with Germany and the
uS registering a 19-27% decrease for the year.
20
Lower volumes across end markets during 2020
% share of
RHI Magnesita revenue
by end market
(6%)1
45%
Construction
t
e
k
r
a
m
d
n
e
y
b
e
c
n
a
m
r
o
f
r
e
p
0
2
0
2
(22%)1
17%
Automotive & transport
(7%)1
10%
Machinery & equipment
(6%)2
15%
Electronics & consumer goods
8%
Others
(1%)3
5%
Energy and petrochemicals
1 CRu.
2 electronics market declined by (6)%, euromonitor.
3 Based on internal estimates.
% of 2020
revenue
by BU
Cement/Lime
12%
(11%)
2
0
2
0
v
o
l
u
m
e
p
e
r
f
o
r
m
a
n
c
e
b
y
b
u
s
i
n
e
s
s
u
n
i
t
Steel
70%
(12%)
Minerals
3%
Glass
NFM
EEC
15%
(18%)
3. Machinery and equipment
4. Electronics and consumer goods
the machinery sector was impacted by
supply chain disruption and order declines
in 2020, as a result of increasing uncertainty
in the outlook for investment projects.
Given the anticipated stimulus measures that
are expected to drive infrastructure projects,
an uptick in demand is anticipated for heavy
machinery and equipment, albeit this is likely
to be slow in the near term. longer term, this
will positively impact demand for the Group’s
Steel Division (with refractory performance
instrumental in end products in this sector,
and therefore likely to support RHI Magnesita
as a supplier), as well as the nFM segment.
the electronics and consumer goods industry
faced challenges given the disruption to
supply chains and production resulting from
regional lockdowns. However, due to increased
urbanisation and the rising middle class,
demand for electronic and consumer goods
is expected to continue in the longer term,
underpinned by rapid developments in new
technology. nFMs are key components for these
industries and their production and demand
is strongly associated with their market prices
(copper and zinc are the most relevant to our
business). Demand for lMe metals (such as
copper, nickel, lead and lithium, which are all
required in the production of eVs) is expected
to be supported by decarbonisation trends.
5. Energy, oil and gas, petrochemicals
In addition to the structural disruption faced in
these industries, as a result of the transition to
renewable energy, these markets were heavily
impacted by CoVID-19 (with regional variances
noted), which significantly disrupted the oil and
gas industry. Global petrochemicals demand
is expected to take between one and three
years to recover, depending on geography.
Data sources: World Steel Association, CRu, McKinsey.
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
2020 market update
Steel Division
Steel production is one of the fundamental
market drivers for the Group, with demand
for refractory products closely correlated
with volumes; steel revenue contributed
c.70% of Group revenue in 2020.
Global steel production contracted by c.1%
globally to 1,864Mt in 2020 (and by c.8%
globally excluding China) as a result of CoVID-19,
which disrupted supply chains, caused steel
plant shutdowns, negatively influenced
confidence, delayed investment projects and
reduced consumption. this directly impacted
our key steel end markets: construction,
automotive and machinery and equipment.
Quarterly performance varied significantly, with
the most notable decrease in volumes of 9%
being seen between Q2 and Q3. the lowest
demand point globally was in April 2020, and
the market has been improving since the middle
of May, albeit with varying levels of recovery
from region to region. Steel demand is expected
to grow by 4% in 2021, recovering to 1,795Mt.
Steel Division contributes
70%
of Group revenue
World steel production
Mt
1,100
1,000
900
800
700
600
500
400
Europe, CIS, Turkey
• the european steel market had already
Case study
weakened at the end of 2019, predominantly
due to lower demand in the manufacturing
sector and some degree of destocking in the
second half of 2019. It was then significantly
impacted by the challenges of the global
pandemic, most notably in the automotive
sector (accounting for a larger proportion of
end demand than in other geographies), but
construction remained resilient. Q2 saw the
most significant effects of CoVID-19, followed
by a slight recovery in Q3, and a continuation
of this trend into Q4. eu steel production
reduced by 12% for the full year; it is expected
to reach 2019 levels between 2021 and 2022.
• the CIS was less impacted by the pandemic,
with steel production increasing by 1.5% on
2019. 2021 production is expected to grow
by c.1%.
• Steel production in turkey increased
year-on-year by 6%, driven by higher
export volumes.
Americas
• Following a strong Q1, both north and South
America suffered precipitous declines in
steel production volumes in Q2 because
of CoVID-19. production began to improve
in Q4, returning to pre-pandemic levels,
specifically in Brazil, supported by Brazilian
exports and the weak Real. production is
expected to show some recovery in 2021, with
supply increases expected in north America
from new steel plants and expansions,
meeting the increase in demand seen at the
end of 2020.
Electric arc furnaces
expected to drive demand
RHI Magnesita supplies refractory materials
to customers that use electric arc furnace
(eAF) applications. eAFs predominantly
use scrap steel as opposed to iron ore, and
are therefore considerably less energy
intensive than the blast furnace-basic
oxygen furnace (BoF) route. the refractory
wear rate, however, is greater given the
abrasive material. eAF applications therefore
require larger volumes of refractory
bricks, albeit at cheaper product prices.
In response to tightening carbon emissions
regulations and the trend of global
industrial decarbonisation, we expect
to see an increasing number of eAFs
coming onstream, with CRu forecasting
an increase in the global share in total steel
production attributable to eAFs from 25%
in 2020 to almost 30% by 2025, driven
specifically by China. As an example,
RHI Magnesita’s customer liberty Steel
uK has committed to offer its customers
a sustainable, high-quality alternative to
traditionally produced steel as part of its
GReenSteel programme, and shipped
its first orders of sustainably-produced
steel reinforcing bars (GreBar) in 2020. By
recycling scrap steel in eAFs, powered by
renewable and low-carbon energy, liberty
is aiming to support the “build back better”
plan following the global pandemic.
World steel production ex-China
Mt
-8%
1,000
950
900
850
800
750
700
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2018
2019
2020
China steel production
World steel production ex-China
Data sources: World Steel Association, CRu, McKinsey.
21
R H I M A G N E S I TA
Our markets
continued
China and East Asia
• Whilst CoVID-19 significantly impacted steel
production in China in Q1, an almost full
recovery was seen by the end of April and a
year-on-year increase of 5% was recorded for
the full year, benefiting from government
infrastructure stimulus and the strong
property market.
• China is implementing its 14th Five-Year plan
(2021-2025), which is expected to be more
domestically driven, and focused on
technological innovation and environmental
sustainability.
• east Asia was harder hit by CoVID-19 than
China and steel production decreased by
c.9% year-on-year.
India, Africa, West Asia
• Steel production in India decreased
significantly in Q2 due to the pandemic but
showed signs of recovery from Q3 onwards.
total production in 2020 decreased by c.11%.
Demand in 2021 is expected to recover
sharply, albeit a severe second wave of
CoVID-19 presents a risk to this outlook.
• the South African steel industry was heavily
impacted by CoVID-19 and the outlook
remains precarious on account of the ongoing
pandemic and high unemployment rates.
• the Middle east and north Africa (MenA)
region was severely impacted by both the
pandemic and falling oil prices. Some
recovery in steel demand is expected in 2021.
Geographical drivers of refractory demand
the 10 largest steel producing countries
China
India
Japan
Russia
united States
South Korea
turkey
Germany
Brazil
Iran
other
2020 (Mt)
Change (%)
1,053
100
83
73
73
67
36
36
31
29
284
+5
-11
-16
+3
-17
-6
+6
-10
-5
+13
-7
Source: World Steel Association.
22
Industrial Division
The Industrial Division supplies various
industries which follow different market
dynamics and demand patterns. They are
predominantly driven by global industrial
production, with related impact from global
GDP, crude oil and base metal prices.
Within the Industrial Division, the majority
of refractory products for nFM, other
process industries, and to a certain extent
cement applications, tend to be treated as
investments from a customer perspective.
they were therefore impacted in 2020 by
customers seeking to reduce their capex
spend to preserve financial liquidity.
Industrial Division contributes
30%
of Group revenue
Cement market
Global cement production declined in 2020
by almost 3% to approximately 3.9 billion
tonnes as a result of the global pandemic.
Governmental stimulus programmes focusing on
infrastructure are expected to lead to a compound
annual growth rate (CAGR) of 2% in cement
production during the period 2021-2025.
the differences in cement production on a
national or regional level were significant:
europe, CIS, turkey
•
In Western europe, cement demand dropped
by 5%, albeit registering varied levels across
the region. Spain was heavily impacted by
CoVID-19, causing a decline of 13%, whereas
Germany saw almost stable cement demand,
thanks to ongoing infrastructure projects.
• eastern europe and CIS saw a comparable
downturn in cement demand to that in
Western europe, but from a lower base,
having experienced a similar drop in 2019.
With low exposure to the most impacted
sectors, poland decreased by only 1%,
however Russia saw a 7% drop, with an
uncertain outlook due to both the pandemic
and low oil prices.
Data sources: World Steel Association, CRu, McKinsey.
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Americas
• South America, which has faced
macroeconomic pressure in recent years,
saw a further drop in cement demand of 6%.
this was most pronounced in countries
such as Argentina, where a combination of
lacking economic reforms and stringent
lockdowns led to a contraction of 15% or
more. Brazil maintained growth of 4%.
• Cement demand in north America dropped
by 6% in 2020 and a rebound is expected to
be delayed until 2022.
China and east Asia
• China, which is responsible for over half
of global cement production, was the
only region to register slight year-on-year
growth of 1% in 2020. Having been impacted
by the pandemic early in 2020, the recovery
was boosted by governmental stimulus.
• the Asia pacific region, which saw steady
growth prior to the pandemic, witnessed a
contraction in cement production of 7% in
2020. However, despite competitive market
conditions with relatively low utilisation rates,
it is expected to remain the fastest growing
region with a return to solid growth rates.
India, Africa, West Asia
•
India (the second largest global cement
producer) suffered a production decline of
20% in 2020 as a result of lockdowns. With
the opening of the economy, it is expected
that construction activities will rebound and
facilitate a CAGR of 5% from 2020-2025.
• production in the near Middle east dropped
by 2% in 2020, following demand growth in
2019. Major infrastructure investments are
still underway, but impacted by low crude oil
prices. Saudi Arabia is the exception, with
cement production increases reported in
2020 for the first time in several years.
Raw material prices
Raw material prices1 rebased to 100
600
500
400
300
200
100
0
Jan 16
Jan 18
Jan 17
High grade DBM (97% – China)
Medium grade DBM (90% – China)
High grade DBM (95% – Europe)
•
In Africa, cement demand was down 4%.
the outlook, especially for sub-Saharan
Africa, remains cautiously optimistic.
NFM
the base metal and ferro alloy markets were
significantly impacted by the global pandemic,
which led to production reductions, plant
closures as well as inventory reductions driven
by customers’ focus on preserving their financial
liquidity. A partial recovery was evidenced in
late Q4 and this improvement is expected to
continue due to postponed projects coming on
stream in 2021. long-term base metal demands
will be driven by the green energy transition.
Process industries
Customer industries in process industries (glass,
eeC and mineral sales) were affected to varying
degrees by CoVID-19.
• the packaging glass market was not
significantly impacted by CoVID-19. there
were minor decreases in the construction
industry glass market, due to project delays.
lower demand levels are expected to
continue in 2021.
• eeC saw a substantial decline in demand, due
to the drop in oil prices, with the majority of
projects postponed and maintenance delayed
or shortened, resulting in a challenging market
environment. Some positive signals of future
project developments appeared towards the
year end.
• Good project levels were maintained in
the aluminium industry, albeit with low
demand in maintenance business due to
weak capacity utilisation of most customers.
Improvements were visible in the market
towards the year end.
External price drivers
Whilst most refractory products are
priced according to the complexity of their
composition and often sold as a solution
package, some are impacted by the price
of certain input raw materials.
Raw material pricing
the main raw materials used for refractory
products are magnesia and doloma, on account
of their thermochemical properties which
enhance refractory performance and are
critical for the safety and productivity of our
customers’ applications. through our backward
integration model, the Company is its own
producer of high-quality, low-cost raw materials,
achieving security of supply for production.
An extensive review of raw material production
was conducted in H1 2020, which confirmed that
the majority of our raw materials are produced
at highly competitive rates, and on the lowest
end of the cost curve. the exception was our
production of electrofused magnesia, and
consequently these operations in norway and
Brazil were suspended in favour of long-term,
low-cost, alternative supply arrangements.
During 2017 and the start of 2018, raw material
prices reached significantly elevated levels,
following the enforcement of Chinese
environmental regulations (which had been
in place for some time but not yet strictly
imposed). this resulted in a widespread ban
of explosives, used to extract raw materials,
thereby disrupting production. the temporary
shortage of supply of magnesite-based raw
materials led to a surge in prices, which has
since dropped back. In 2020, prices continued
the fall to previous long-term averages,
exacerbated by a drop in demand from export
markets impacted by the CoVID-19 pandemic.
% movement from Jan 2019
% movement from Jan 2020
Backward integrated in basic
raw materials
70%
(12)%
(16)%
(5)%
(65)%
(45)%
(24)%
Jan 19
Jan 20
Jan 21
1 Asian Metal.
Data source: CW GRoup.
23
R H I M A G N E S I TA
Our strategic framework
Our overall strategic
direction remains
unchanged and we have
made good progress in
executing and accelerating
a range of initiatives during
2020. We are confident
that our differentiated
strategy will increase our
competitiveness, enhance
our business model and
drive our market leadership.
This is underpinned by our people
and culture as well as our
commitment to sustainability and
focus on digitalisation, which will
facilitate long-term value generation.
24
Our strategic priorities
Competitiveness
Cost-competitive global producer of technologically
advanced refractory materials with safe production
network and a focus on sustainable value generation.
Deliver further cost reduction through rationalisation,
restructuring and network optimisation. Implement
higher level of SG&A containment and increase fixed
costs variability.
Business model
The leading service and solution provider in the
refractory industry, with an extensive portfolio based on
innovative technologies and digitalisation – the
building blocks for a strong and sustainable future.
Maximise value from sales strategies. Increase number
of solutions contracts. Be the partner of choice for
existing and new customers.
Markets
The Group has 15% global market share (30% ex-China)
within a c.€20 billion industry. Worldwide presence
with strong local organisations and solid positions in
all major markets.
Value-adding consolidation opportunities in the
global refractories industry to achieve growth in
under-represented markets.
Enablers of our strategy:
People and culture
Hire, retain and motivate
talent and nurture an
innovative, open, pragmatic
and performance-driven
culture.
Read more in people
and culture
Page 38
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Progress
Outlook
• Execution of SG&A cost reductions of €10
million, and on track to achieve €30 million
by 2021.
•
Investment to optimise the Hochfilzen,
Radenthein, Cuttack, Brumado and
Contagem plants.
• Extended plant optimisation programme
to close up to 10 sites in total by H1 2022
(from 32 sites when the programme was
announced in November 2019), modernise
our network and focus on providing “local
for local” production, with benefits
increased to a run rate of €55 million per
annum by 2022.
• Good progress made with network
rationalisation; closure of Hagen, Trieben
and Burlington in 2020.
• Extensive review of our raw material and
mining costs demonstrated strong
competitiveness, through selectively
sourcing our own raw materials. It also
identified further action to strengthen our
strategy to be the lowest-cost producer of
technologically advanced refractory
materials (including the suspension of
high-cost fused magnesia production, in
favour of long-term alternative supply
arrangements).
• Cumulative strategic cost savings
(including the SG&A Reduction Plan)
achieving a run rate benefit of €100
million per annum by 2022.
optimising our
business and driving
productivity
Page 27
• Further successful development of the
• Whilst customer site access has been
• Expand the business model to
solutions business model.
• Encouraging progress with Flow Control
business.
• Prioritising new digital solutions projects to
invest in our future; this includes strategic
partnerships, for example with Microsoft to
accelerate our digital offering and support
new ways of working with our customers.
restricted by COVID-19 precautions, the
Group has continued to take an active
approach in its sales strategies.
increase value in core markets and
maintain market share.
• Continue to deliver customer value,
by driving process efficiencies,
reducing costs and enabling
sustainable benefits for our
customers.
• Further development of the recycling
business.
• Development and enhancement of
innovative products.
Solutions portfolio
Page 31
Focus on R&D and
technical leadership
Page 34
• Regional demand is now better addressed
by production as a result of the ongoing
Production Optimisation Plan.
• Continued to maintain leadership in core
markets through the expansion of our
offerings in digitalisation, recycling and
low- carbon products.
• Harnessing opportunities in growth
markets.
• Focus on decentralising global functions
and bringing them closer to our production
sites and customers.
• Continue to establish the Group as
the global leader in refractories by
sustaining leadership in core markets
and achieving growth organically.
• Disciplined M&A in key growth
regions and market segments.
• Maintain strong financial position to
enable the Group to take advantage
of opportunities as they arise.
Driving market
leadership
Page 36
Sustainability
Sustainability is integral
to the accomplishment
of the Company’s
strategic priorities.
Read more in
Sustainability
Pages 64 to 75
Read more in
An industry leader in
addressing carbon
emissions
Page 35
25
R H I M A G N E S I TA
Strategic progress in action
Competitiveness
Executing
cost reductions
Cost-competitive global
producer of technologically
advanced refractory materials
with safe production network
and a focus on sustainable
value generation.
26
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Optimising our business and driving productivity
cost reductions
Cost reduction programme
and optimising our
operational structure
Projected run rate EBITA benefit per
annum from cost savings by 2022
€100m
• €50 million investment in modernising and
optimising Radenthein (Austria); and
• progress towards the reorganisation of brick
production at the Contagem plant (Brazil),
although this was delayed during 2020 due to
CoVID-19 and is expected to be completed in
early 2022.
Read more
in operational review
Page 14
• €30 million investment in a new, innovative
rotary kiln in Brumado (Brazil) – see case study
on page 29;
Plant digitalisation
and automation
We are rationalising our plant footprint to
reduce production costs and focus on more
regional, agile and flexible output from our
plants. this is augmented by a specialisation
and cost reduction programme which involves
investing in automation, creating centres of
excellence, and building regional supply chains.
As part of our automation and digitalisation
projects, we are implementing state-of-the-art
technologies to improve cost and environmental
efficiencies, optimise product quality, improve
customer experience and enhance safety.
We are enhancing regionalisation and
de-centralisation of decision-making and
right-sizing SG&A, thereby achieving run
rate SG&A savings of €10 million in 2020,
with a further €30 million forecast in 2021.
In order to preserve cash and support profitability
in light of reduced demand during the global
pandemic, we successfully implemented a
short-term cost savings programme in Q2
2020, which realised a total saving of €50
million in one-off fixed costs over the full year.
the Group made progress with the
following projects in 2020, as part of
its production optimisation plan:
•
the closure of two large european plants;
trieben (Austria) and Hagen (Germany);
• entering into a share sale agreement
for the divestiture of Drogheda (Ireland)
and porsgrunn (norway); the sale of both
plants completed on 1 February 2021;
• progressing as planned with the
c.€45 million investment at Hochfilzen
(Austria) to transform the plant into the
Group’s european dolomite hub;
Resilient adjusted EBITA margin
performance in 2020
11.5%
2019: 14.0%
Automation and process optimisation are being
used to digitalise the Company’s plant network.
As an example of this, we are employing robotics,
Manufacturing execution Systems (MeS) and
advanced technologies at our Radenthein
plant, in Austria. Read more on page 28.
RHI Magnesita uses intelligent machines and
robots to carry out work in our production
facilities that previously would have been
performed manually, such as at loading and
unloading stations, palletising and finishing
lines, tunnel/temper kiln car transportation
and rack stacking. this not only enhances
processes, enables significant efficiencies and
more agile production management, but also
improves safety and allows our employees
to focus on control and optimisation.
27
R H I M A G N E S I TA
Strategic progress in action
continued
Whilst the majority of our raw materials
are produced at highly competitive rates,
following an extensive review of raw material
production in H1 2020, we suspended fused
magnesia production in porsgrunn, norway,
and Contagem, Brazil, in favour of long-
term alternative supply arrangements.
Adjusted EBITA margin contribution
from backward integration in 2020
2.4%
2019: 5.0%
Stock-keeping Unit (SKU)
reduction programme
An SKu reduction programme has been initiated
to create a simpler, global, streamlined portfolio
of brands, shapes and packaging that better
fulfils customer and market requirements. It also
aims to improve the sales experience through
enhanced product life cycle management and
faster distribution of new technologies. With a
reduced SKu base, we look to enhance inventory
and plant productivity, increase sourcing
flexibility to optimise the production network and
reduce supply risk with more sourcing options.
Raw materials optimisation
the Group’s backward integration constitutes
a key competitive advantage. By optimising our
global low-cost raw material assets, we aim to
achieve cost leadership in every regional market.
through the introduction of two new rotary
kilns at operations in Brazil and Austria, we are
increasing backward integration efficiency by
developing a new portfolio of raw materials.
this will provide greater operational flexibility,
the ability to offer differentiated value-accretive
products and further reduce costs (see further
details in the case study on page 29).
Case study
Smart production
processes: Digitalising
our network
As part of our overall drive to improve the
Group’s agility and continuously aim to better
serve our customers, we are adopting smart
production processes to improve efficiencies.
One of the key foundations supporting our
global digital transformation is the technology
we are exploiting to optimise and integrate
production processes across the Group. To
pilot this scheme, computerised networks
called Manufacturing Execution Systems
(MES) are being implemented to track and
document manufacturing processes from
the raw material to the finished refractory
product at our plants in Austria and China.
MES will accelerate and smoothen
manufacturing processes, collect real-time
data, improve efficiency and product quality,
reduce costs and respond quickly to shop floor
innovation and optimisation. We aim to build
an independent, highly scalable and open
source MES platform that can be swiftly rolled-
out to other plants over the next few years.
In addition to the numerous benefits, such as
enhanced customer satisfaction, improved
employee engagement and optimised liquidity
by reducing plant inventory, we anticipate the
following three key measurable advantages:
• A reduction in unexpected downtime to
improve overall equipment effectiveness;
• A reduction in maintenance and energy
costs; and
• An improvement in environmental
performance due to lower energy
requirements.
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AnnuAl RepoRt 2020
Case study
Investment and innovation
in backward integration
In August 2020, we announced a €30 million
investment in a new, innovative rotary kiln
in Brumado, Brazil. this will facilitate the
development of a new portfolio of raw materials,
including noble sinters at competitive costs.
It will also enhance operational flexibility, by
enabling the Company to offer differentiated,
value-added products to customers in
the Brazilian market, thereby putting us
in an even more competitive position.
the R&D team plays a vital role in providing
solutions to optimise production. In the case
of Brumado, R&D developed an innovative
process flowsheet, which aims to make better
use of extracted ore by enabling the processing
of magnesite from material which would
previously have been considered as waste,
and consequently significantly extending
the life of the mine. this new technology is
expected to significantly improve productivity
at the mine, more than double the life of
mine and deliver a structural reduction in
costs, resulting in the operation becoming
the lowest cost producer in the world.
We endeavour to achieve
cost leadership in every
regional market by
optimising our global
portfolio of low-cost raw
material assets.
Gerd Schubert
Chief operations officer
Investment in innovative rotary kiln
€30m
29
R H I M A G N E S I TA
Strategic progress in action continued
Business model
Enhancing
our solutions
model
The leading service and
solution provider in the
refractory industry, with an
extensive portfolio based on
innovative technologies and
digitalisation – the building
blocks for a strong and
sustainable future.
30
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
As a Group, we are also able to derive important
benefits from the solutions model in the form of:
• stronger differentiation from peers;
• opportunities to increase market share in other
applications;
•
improved customer relationships and better
alignment of customer value creation
potential;
• customer retention;
• shared benefits through improved customer
production performance; and
• higher visibility at customer sites, providing
direct insight into market demand and
enabling us to drive technology leadership
and innovation.
Solutions portfolio
Full portfolio of
refractory solutions
the development of our solutions business
model continues to progress and, whilst
customer site access has been restricted as a
result of CoVID-19, thereby moderating the
Company’s performance to a certain extent,
we have continued to take an active approach
in sales strategies. the Group currently has
a leading position in refractory solutions
delivery in north and South America.
Target to drive percentage of sales from
solutions by 2025 to
40%
from 27% in 2020
We offer customer solutions, technical, digital
and supply chain services. We generate
significant value for customers as a result of
our tailored offerings, affording benefits which
include increased productivity, capex savings,
working capital efficiency, improved health and
safety, supply flexibility, direct cost reductions,
environmental benefits, enhanced product
quality and better conversion efficiency.
Case study
Embracing digital
technologies: APO
and QCK
Automated Process Optimisation
(APO) and Quick Check (QCK) are
both fundamental initiatives in the
Group’s digital transformation strategy.
APO is RHI Magnesita’s unique,
digital solution that predicts refractory
product service life using Artificial
Intelligence. This technology
significantly increases safety,
optimises production processes
and facilitates energy cost savings.
Data is collected during each stage
of the production process and
used to make predictions about
performance, required maintenance
and renewal of refractory products.
In February 2021, RHI Magnesita
was named as one of the six
companies that won the Microsoft
Intelligent Manufacturing Award
for its APO technology. The award
recognises industry pioneers that
demonstrate excellence through
digitalisation and that are driving
transformation with innovative
ideas and creative approaches.
QCK is the Group’s smart
measurement solution. Based
on innovative image processing
technology, it uses 3D scans to
monitor lining wear measurements.
QCK produces images 10 times
faster than even the most advanced
laser technology and provides a
significantly higher resolution. This
higher-quality input data can then be
used in the APO solution, optimising
the resultant precision of predictions.
31
R H I M A G N E S I TA
Strategic progress in action
continued
Case study
Strategic partnership for
digital transformation
We signed a strategic partnership with Microsoft
in 2020 to accelerate our digital offering and
support new ways of engaging and working with
our customers. Through this partnership we aim
to align our leadership position in the refractories
industry and Microsoft’s technological
expertise to drive innovation, growth and
business value. Initiatives as part of this
partnership include 360° customer view, Next
Best Action (NBA) Engine, Radio Frequency
Identification (RFID) Traceability, Machinery
Connection, Remote Assist, our connected
field service and our sales chat function.
Our digitalisation journey represents a
significant transformation within our business
that will build our resilience, enable us to
provide outstanding customer experience,
as well as to respond swiftly to the fast-
moving digital future that lies ahead of us.
Digitalisation technologies
and services
Digitalisation remains a key enabler of our
growth strategy, particularly underpinning
the development of our solutions model.
By leveraging digital technologies, we aim to
optimise our customers’ high-temperature
processes, facilitating cost efficiencies
and increased production flexibility.
Current digitalisation initiatives the Group is
working on include artificial intelligence (AI)
technology in Apo, QCK – read more on page
31, Broadband Spectral thermometer (BSt),
Augmented Reality solutions and enhanced
connectivity using Internet of things technology.
Product and inventory
tracking and management
Customer experience sits at the heart of
everything we do. Given the challenging
market backdrop, our customers expect
a service-centred approach from us
more than ever, and we are committed to
responding swiftly to their evolving needs.
RHI Magnesita’s supply chain relies on effective
forecasting and a detailed understanding of
customer requirements. to address the increased
levels of volatility and uncertainty triggered by the
global pandemic, we have developed innovative
approaches, using RFID technology, for a fully
digitalised and more agile refractory supply chain.
Having tested this technology in Brazil and
China, we recently launched an on-site
pilot with one of our european customers,
outokumpu. Key customer benefits are
expected to include efficiency gains, resulting
from a reduction in manual tasks, real-time data
capture and consumption transparency and
accuracy. Benefits for RHI Magnesita include
the optimisation of supply chain processes,
especially with regard to inventories and
invoicing, consistent product availability for our
customers, and a higher level of confidence
in the Integrated Business planning forecast
process, due to higher-quality data.
Fully established Flow
Control business unit
In its first year of operation, RHI Magnesita’s Flow
Control unit has been successfully embedded
within the overall Group operational structure and
has secured several new business opportunities
with key customers, despite difficult market
conditions and customer site restrictions.
Read more about Flow
Control training on
Page 39
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AnnuAl RepoRt 2020
RHI Magnesita offers the full Flow Control
product and services portfolio and brings
highly innovative solutions offerings which
positively impact our customers’ operating
costs and enable them to achieve better
metallurgical results, with enhanced process
performance and improved safety standards.
Working closely with our R&D teams, we are
advancing innovation and optimising the use of
technology within this sphere, specifically with
regard to ISo products and slide gate plates.
through strategic collaboration with partners,
we are strengthening our “ladle to mould”
offering with the use of automation and robotics.
to ensure that we provide the highest safety
standards for our customers and employees,
as well as reliability, RHI Magnesita developed
automated solutions for various processes
within its Flow Control business. As an
example, these automated solutions replace
manual handling of slide gate systems
during ladle preparation, as well as on the
continuous casting area. these automated
solutions significantly reduce some of the most
dangerous risks within the plant – a specific
example is provided in the case study below.
EBITA contribution from sales strategies
by 2022
€40-60m
We are constantly
innovating to find
new ways of
supporting our
customers and being
the partner of choice
in the refractory
industry.
Luis Bittencourt
Chief technology officer
of an emergency, the drive unit allows manual
mounting of the casting cylinder and an integrated
locking mechanism prevents the cylinder from
disengaging during casting operation. The
system offers the incorporation of an automated
slag detection connector and gate air cooling,
connecting the cylinder and all utilities in a single
movement, thereby reducing handling time.
Case study
Automated casting cylinder
handling on continuous
casting floor
From a safety perspective, the casting floor is
one of the highest risk areas in a steel plant and
therefore represents a good opportunity for
automation. Accordingly, we have developed an
automated casting cylinder, which can be installed
on INTERSTOP® slide gates and is designed to be
handled by a robot, with an operator monitoring
the process from the safety of the operating
room. A built-in anti-opening device locks the
slide gate during the transfer process, without
the need for external intervention. In the event
33
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R H I M A G N E S I TA
Strategic progress in action
continued
Focus on R&D and
technical leadership
our industry-leading R&D team is fundamental
to the long-term success of the business and
we aim to be at the forefront of developing
advanced refractory technologies, digital
products and integrated solutions to meet
evolving customer needs. the team of over
5401 people comprises technical experts
across R&D, technical excellence and
solutions and product management.
the Company committed 2.7% of revenues to
R&D and technical Marketing in 2020 (2019:
2.2%) and achieved 16% of total revenue from
new products in the last three years (2019: 16%).
We are dedicated to protecting the considerable
intellectual property within the business
and have approximately 1,550 active patents
(applications and granted) and approximately
1,900 active trademarks (pending or
registered) in different jurisdictions.
Fostering innovation
We have implemented various initiatives in
2020 to foster innovation, which include:
• technology Roadmap: by working together in
a multidisciplinary team, we aim to better
understand the new technologies, trends and
influences that will impact and define the
future of our industry.
• Driving innovation through our “Inno-
challenge”: diverse teams investigate nine
initial ideas which involve new technologies
and agile methodologies. Four of these will go
on to be supported with budget and time
resources during 2021.
• open innovation platform: together with our
partner, nine Sigma, we have found solutions
and suitable experts in 2020 to address eight
different challenges, which range from Co2
reduction to recycling.
1 R&D and technical Marketing were reclassified in 2020 to
include “R&D, product Management and technical excellence
& Solutions”, leading to an increase in total number of people
included within the overall category, when compared to 2019
reported figures.
Sophisticated Technology
Centres
We have seven technology Centres globally,
which capitalise on state-of-the-art technologies
and equipment, technical expertise and strong
partnerships with leading public and private
research institutes around the world. In 2020,
the R&D team continued to collaborate with
external partners, which included commissioning
Imperial College london to produce a study
on the potential to develop carbon capture and
utilisation projects at our european sites. Work
has also been carried out with SInteF Industry in
norway to assess the techno-economic feasibility
of capture technologies for Co2 emitted during
the calcination stage of magnesite and dolomite
production. our multidisciplinary researchers
undergo constant training and technical
education to maintain the excellence of the team.
Read more about engagement
with our partners on
Page 60
Maintaining technical
leadership
the technical Advisory Committee (tAC),
which was established in 2018 and, at the date
of publication, includes representation from
the Board, senior external professionals, R&D
and technical Marketing, seeks to maintain RHI
Magnesita’s position of technical leadership
by identifying innovative technologies,
supporting and challenging the R&D team
and expanding the Company’s technology
network into external partnerships.
In 2020, the tAC considered automation
and digitalisation, functionalisation of
refractory surfaces, sintering technologies,
recycling, the hydrogen economy and its
implications in the steelmaking industry, as
well as the road to carbon-free production.
Read more about our approach to
climate change on
Page 68
Investment in R&D and
Technical Marketing
€62m
Investment in R&D and Technical
Marketing as a % of sales
2.7%
Exceeding annual target of 2.2%
34
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Simulation and modelling
through constant investment in fundamental
research, the Company continues to advance
its modelling and simulation capabilities,
enabling us to effectively predict the behaviour
of our products in use, meet customer
requirements, produce innovative solutions to
achieve production and cost efficiencies and
improve safety. these technologies enable
us to perform high-level research into the
thermal, physical and chemical properties
of refractory materials and link them to the
application of virtual product development.
Innovating to generate value
We are constantly innovating and pioneering the
production of both raw materials and refractories,
aiming to improve refractory properties and
efficiency, reduce emissions and achieve energy
and cost efficiencies. An example of this is the
Spinosphere technology used in our AnKRAl-X
series, with its unique characteristics in terms of
clinker melt resistance and flexibility for rotary
kiln bricks. the same coating process has been
applied to other product groups, facilitating
improved corrosion resistance and mechanical
strength for application in the steel industry. In
addition to this, we have developed low-carbon
technology for use in the cement industry in
the form of our AnKRAl lC series. these have
a significantly lower Co2 footprint compared
with conventional products and, by including
recycled content, they also contribute to a
circular economy, whilst maintaining the required
technical specification and high performance.
the series is also designed to minimise waste
and maximise the usage of recycled material.
Read more on
Page 68
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Sustainability
An industry leader in
addressing carbon emissions
Towards a net-zero and
circular economy
Over the next four to five years,
we will invest
RHI Magnesita is committed to emerging
stronger and greener from the CoVID-19
pandemic. one of our five key corporate
priorities is to work towards net zero emissions.
€50m
We have ramped up our efforts towards our
2025 target: a 15% reduction in Scope 1, 2
and 3 (raw materials) emissions. the energy-
intensive nature of our industry makes this
extremely challenging but we are confident
of reaching this first target. We will do so
largely using conventional means: increasing
recycling, improving energy efficiency,
switching fuel and using green electricity. of
these, recycling offers the greatest immediate
potential to reduce emissions. We have set a
target to include 10% secondary raw material
(SRM) content by 2025 and have established
or are establishing recycling facilities in every
region. Work towards a circular economy will
accelerate pathways to lower emissions.
Yet conventional means alone will not take
us to net zero emissions. Almost 50% of our
emissions are geogenic; they are released
during the processing of the minerals we
use. Carbon dioxide (Co2) is emitted when
the raw magnesite (MgCo3) is processed
into magnesium oxide (Mgo), the basis for
many refractory products. We need new
technologies that allow the released Co2
firstly to be captured and then to be used
as a raw material for industrial purposes.
An entirely new value chain needs to
be built around use of this off-gas.
to trial carbon capture technologies
our R&D function and our technical Advisory
Committee (tAC) have worked with leading
research institutes and industry partners to
identify the most promising technologies to
capture and use these geogenic emissions.
over the next four to five years, we will invest
€50 million to trial these carbon capture
technologies and in 2021, industrial trials start
at our two Austrian raw materials sites. these
trials mark a critical step towards net zero: if
successful, we would then be ready to roll
out technology with the potential to take us to
net zero across our global production sites.
Developing these low-carbon technologies
is highly capital-intensive. to succeed on our
journey to net zero, we need a level playing
field: a political framework that enables
industry leaders working towards net zero
to compete fairly. Governments around the
world must therefore implement supportive
measures to enable industry leaders to
remain competitive. Industry also requires
availability of green energy in sufficient
quantities and at competitive prices, more
responsive “smart” electricity networks to
help reduce emissions and networks for
transportation and sequestration of Co2.
Read more
in Sustainability
Page 64
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Strategic progress in action continued
Markets
Driving
market
leadership
The Group has 15% global
market share (30% ex-China)
within a c.€20 billion
industry, worldwide presence
with strong local
organisations and solid
positions in all major markets.
36
STRATEGIC REPORT market
leadership
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Enhancing
regionalisation
In response to the growing global trend of
increasing regionalisation, we are adapting
production networks to operate on a more
local basis and have decentralised managerial
decision-making, with a realignment of our
Group organisational structure and an increase
in cross-functional collaboration. this initiative
has already started to show benefits throughout
the regions, as covered further below.
Case study
Regionalisation – bringing
us closer to our customers
One of the key elements of our regionalisation
strategy is to match supply with regional
demand. As part of our Production Optimisation
Plan in the Americas, this involves transferring
production from European plants to sites in our
regional network. This has not only reduced
production lead and overseas transit time, but
it has also improved our speed of response
to evolving customer demands, providing
greater agility in this market, both in terms of
product adjustments and inventory reduction.
As part of this process, which will run until 2022,
York will become the regional specialist for
doloma products, Tlalnepantla for non-basic
production and Contagem for magnesia. These
three production sites are also logistically
close to raw material sources, thereby
optimising the entire production network.
Following the closure of the Company’s
Burlington plant in Canada in 2020, part
of its production was reallocated to our
newly acquired Pevely plant, thereby
moving the manufacturing of certain
alumina mixes products closer to our
customer base. For Brazilian customers, we
consolidated the production of Brazilian
alumina mixes in our Contagem plant.
By decentralising
decision-making to
the regions, we aim to
become more flexible,
adaptable and
responsive to evolving
customer needs.
Gustavo Franco
Chief Sales officer
Harnessing potential in core markets
RHI Magnesita is focused on preserving
market share and further strengthening
its position in its core markets and product
segments. this involves a value optimisation
strategy, which concentrates on advancing
our extensive product and solutions portfolio,
with a particular emphasis on digitalisation.
Europe
our global focus on digitalisation, sustainability
and circular economy offerings is showing
traction in europe. one of our solutions business
models was launched in the region in 2020,
with customers benefiting from a tailored
package to optimise metallurgical, economic and
environmental benefits. Read more on page 15.
Americas
We are advancing our solutions offerings in
the Americas and have established our unique
value proposition through a proven ability
to adapt our commercial, technical, service,
and digital offering to fit the specific needs of
each customer, whilst achieving a revenue per
tonne which reflects the value we provide.
As part of our strategy to strengthen our market
position in north America, the Group acquired
Missouri Refractories Co, Inc. (MoRCo) in
January 2020, providing our first production
asset – pevely plant – in the Midwest. With the
majority of new uS steel production capacity
being added in this area, predominantly in
electric arc furnace (eAF) plants, this is a region
of rapidly growing economic importance.
Recycling initiatives are being implemented
in the Americas and further detail can be
found in the operational review on page 15.
Opportunities in growth markets
our strategy is to grow organically and through
value-enhancing M&A in under-represented
markets. these growth markets include India,
Russia, China, India, nMeA and Asia pacific.
In regions with a weaker market share, we
will continue to seek targeted acquisition
opportunities, which either increase the
Group’s backward integration, complement
the geographic production footprint or
strengthen our technical leadership. We will
also look to expand organically, increasing
market share through our sales strategies,
including through solutions contracts.
Group revenue from India and China
16%
2019: 15%
India and China remain priority markets for us.
By leveraging the “Make in India” governmental
policy (read more on page 16), the Group has
further strengthened its position in India; a
market in which we currently have substantial
market share, and which represents one
of the highest growth potential areas for
the Group over the mid to long term.
the Chinese market represents a significant
opportunity for the Group on the basis that it
currently accounts for c.57% of global steel
production, In China, the Group continues to
derive benefit from its investment in local sales
teams and improved production infrastructure
and continues to see growth organically across
both the Steel and Industrial Divisions. the
Group has made significant progress in China
within the industrials business, and currently
represents 38% market share in Cement.
China has a highly fragmented refractory
industry, and the Group continues to seek
consolidation opportunities within the region.
In Q1 2020, we successfully won a second major
solutions contract in oman, within the nMeA
region. the five-year contract will generate
an additional $50 million in revenue, through
providing refractory products as well as services
such as warehouse management, installation
and demolition. Within the nMeA region, we
have also won a significant proportion of orders
with a key customer in Algeria, leading to further
market share gains in this growth market.
the CIS steel market holds robust growth
potential for our products and services, which
we are well positioned to take advantage
of, having recently increased market share
in the Chelyabinsk region, one of the
largest steel-producing areas in Russia.
Read more
in operational review
Page 14
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Strategic progress in action continued
people and culture
Underpinning
our strategy
Our skilled, motivated
people, our customer-centric
culture and our strong
stakeholder partnerships
are critical to the long-term
success of the Group.
Employees
12,064
Employee engagement score
79%
38
STRATEGIC REPORT our strategy
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Our people and culture
In order to progress
our goal of digitalisation,
we need the skills and
pioneering culture to
support technology.
Simone Oremovic
executive Vp people and Culture,
and Communications
Employees by tenure
Up to 3 years
From 4 to 6 years
From 7 to 9 years
Over 10 years
3,419 (28%)
2,218 (18%)
1,605 (13%)
4,822 (40%)
percentages do not add up to 100 due to rounding.
Global workforce profile
South America
Western Europe
Asia Pacific
North America
Near and Middle East
Eastern Europe
Africa
4,193 (35%)
3,824 (32%)
2,531 (21%)
1,076 (9%)
331 (3%)
57 (1%)
52 (1%)
percentages do not add up to 100 due to rounding.
Our purpose and culture
support our strategy
our purpose is to master heat, enabling global
industries to build sustainable modern life.
our culture is fundamental to the way we work
and to the execution of our strategy. Centred
around our customer focus, which remains at
the heart of everything we do, the culture is
supported by four pillars. We live innovation to
create value for our customers, by being bold
and providing the best digital and sustainable
solutions. our open mindset and transparent
way of working is flanked by a diverse, respectful
and friendly business environment, where we
care about our customers and colleagues. We
act pragmatically to enable fast and simple
collaboration across functions and regions to
serve our customers best. our high performance
is rooted in accountability and responsibility.
We are a reliable partner that decides and
delivers based on our customers’ needs.
See our
culture diagram
Page 80
A review process was carried out in 2020
and importantly, our cultural themes have
not changed, but have been reinforced –
they form part of our DnA and we believe
that a strong, steadfast cultural foundation
is particularly important in times of change
and volatility. We further strengthened our
customer focus, which now sits at the centre,
reflecting our business model. this aligns
with our strategy to enhance regionalisation,
bringing us closer to our customers.
to reinforce our culture throughout the
Group, we hold Culture town Halls (virtually,
across different time zones around the
world) and cultural workshops and support
everyday employee behaviour through our
Culture Champions within the business.
Amongst our workforce, we prioritise successful
engagement, cultural cohesion, diversity, training
and development and succession planning.
Read more
in our people
Page 72
Developing the team to
drive a digital future
one of the fundamental drivers of our
digitalisation journey is our people and we
are working hard to ensure we have the skills,
openness to learn and diversity of thought
required to harness our digital future.
As part of this, we have various initiatives to build
digital literacy as well as to attract additional
talent and enhance diversity, including our
new trainee programme, the “Refractory
Factory”, and our FeMale network. our digital
hub, in Vienna, is dedicated to developing
a digital team to revolutionise our industry
and our training hub at Radenthein has been
assigned the role of the Group’s central facility
for the digital future. We also have centres for
data science in China, Brazil and Vienna.
Adapting and developing
our workforce
With the ongoing transformation of our business
and acceleration of our strategy, comes the
requirement to develop and adapt our workforce.
Streamlining our operations in 2020 meant
that we had to make some difficult decisions
in rationalising the overall workforce, and we
have been mindful of the impact this would
have on our people. We have gone to great
lengths, alongside engaging relevant workers’
councils, to provide packages and support
in excess of legal requirements as well as
reinforcing our culture across the business.
Read more
in engaging employees
Page 73
effective leadership development and talent
management are crucial to the achievement of
our strategy and we have various implementation
initiatives in place, including the people Cycle
talent management system. As part of this,
we are focused on fostering diversity across
the business, with our first priorities being
gender, nationality and generation diversity.
Read more
in promoting diversity
Page 73
Flow Control Academy
In support of our Flow Control unit, RHI Magnesita
has launched an academy in leoben, Austria, to
provide our employees with hands-on training
and the skills needed to successfully develop
this side of the business. training is provided
by R&D, technical and product Marketing
and the subjects covered include tundish,
ISo, slide gate and purging plugs. Having
established this centre in europe, training will
be rolled out in the uS, Brazil, India and China.
39
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 reflect the financial and
non-financial performance of the business.
two non-financial KpIs concerning carbon emissions and the use of
secondary raw material have been added in 2020 to reflect the importance
attached to decarbonising the business. Return on invested capital is
included to demonstrate capital allocation management efficiency.
Link to strategy
Competitiveness
Markets
Business model
Safety: LTIF
2020
0.13
2019
2018
0.28
0.43
KPI relevance
Safety is paramount to the successful running of our business. lost time Injury
Frequency (ltIF) is the main indicator used to measure safety performance.
the Group’s goal is zero accidents.
How it is measured
2020 performance
the number of accidents
resulting in lost time of more
than eight hours, per
200,000 working hours,
determined on a monthly
basis.
ltIF reached 0.13 in 2020, representing a
56% improvement compared to 2019. We
also continued to reduce accidents, with a
40% reduction in total recordable injury
frequency.
Relative CO2 emissions (t CO2/t)
Use of secondary raw material
2020
2019
2018
KPI relevance
1.82
1.73
1.811
2020
2019
2018
KPI relevance
5.0%
4.6%1
3.8%
Climate change poses strategic and operational risks to our business, as well as
opportunities. the Group’s target is to reduce scope 1, 2, 3 (raw materials) by 15%
per tonne of product by 2025 (vs 2018).
Recycling plays a critical role in achieving our 2025 emissions reduction target
while also developing the circularity of our business. our target is to reach 10%
secondary raw material (SRM) content in refractories by 20252.
How it is measured
2020 performance
How it is measured
2020 performance
tonnes of total scope 1, 2, 3 (raw
materials) carbon emissions per
tonne of product. Scope 1
emissions consist of on-site
emissions, Scope 2 comprise
purchased electricity, and
Scope 3 are measured from raw
materials production.
Scope 1, 2 and 3 relative emissions (raw
materials) increased by 0.4% compared to the
2018 baseline due to the more energy-
intensive nature of reduced production as a
result of the economic slowdown, which
reduced our capacity utilisation. total
emissions fell for a second consecutive year,
with a 22% reduction from the 2018 baseline.
1 A change in production volume reporting system has
led to an adjustment to the 2018 baseline and KpI.
Share of SRM content as a
percentage of total raw
materials.
1 the value for the recycling rate for
2019 has been revised since the
publication of the 2019 Annual
Report.
2 use of SRM has been added as
a remuneration performance
measure from 2021 – see page 126.
SRM accounted for 5.0% in 2020, compared
with 4.6% in 2019. progress was made in spite
of the challenging market environment, but
was slower than hoped largely due to the
change in demand from our customers during
the CoVID-19 pandemic as they focused on
other issues, leading to postponements in
reverse supply chain sourcing until 2021.
Voluntary employee turnover
Gender diversity in leadership
2020
2019
2018
KPI relevance
5.1%
6.2%1
6.6%
25%
2020
2019
2018
17%
12%
KPI relevance
Voluntary turnover is one way of measuring the Group’s success in retaining its
employees.
Diversity is important in terms of maintaining our competitiveness and economic
success, and gender diversity is our first priority. our target is to increase female
representation on our Board and in senior leadership to 33% by 2025.
How it is measured
2020 performance
How it is measured
2020 performance
the percentage of employees
who voluntarily left the
Company during the year and
were replaced by new
employees.
Voluntary employee turnover was 5.1% for
2020, representing a decrease on 2019. We
believe this to be predominantly due to the
uncertainty of the current global economic
environment.
number of women as a
percentage of all those in
leadership positions (Ceo,
eMt and eMt direct reports).
Female representation at leadership level
increased to 25%, which is over double the
figure in 2018.
1 the 2019 figure has been restated due to a
retrospective change to the basis of analysis.
40
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Revenue
2020
2019
2018
€2,259m
€2,922m
€3,081m
KPI relevance
Adjusted EBITA margin
2020
2019
2018
KPI relevance
11.5%
14.0%
13.9%
this demonstrates the 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.
eBItA margin provides a measure of profitability and demonstrates the
successful execution of the Company’s strategy.
How it is measured
2020 performance
total Group revenue, as
reported in the financial
statements.
Revenue for 2020 amounted to €2,259
million, 23% lower than 2019. this
performance is primarily attributable to lower
refractory volumes, as a result of the effects of
the CoVID-19 pandemic on end-market
demand, and the impact of lower raw material
prices.
How it is measured
2020 performance
Adjusted eBItA divided by
revenue, as reported in the
financial statements.
1 on a constant currency basis.
the Group delivered a robust double-digit
adjusted eBItA margin of 11.5% (250bps lower
than 2019), demonstrating resilience owing to
the successful implementation of cost saving
initiatives, despite the 36%1 decrease in
adjusted eBItA, which was largely caused
by decreased sales volumes as a result of
CoVID-19, lower raw material prices and
inferior fixed cost absorption.
Adjusted EPS
€3.28
2020
2019
2018
KPI relevance
€5.57
€5.31
Leverage
2020
2019
20181
KPI relevance
1.5x
1.2x
1.3x
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
demonstrates shareholder value.
Appropriate leverage provides the business with headroom for compelling
investment opportunities but also enables shareholder distribution. the Board
has defined a long-term leverage target range of 0.5 to 1.5x across the cycle.
How it is measured
2020 performance
How it is measured
2020 performance
earnings per share, excluding
other financial income and
expenses.
Adjusted epS of €3.28 (down from €5.57 in
2019) reflected lower adjusted profit before tax
in 2020 delivered amidst challenging market
conditions, as well as foreign exchange
impacts, particularly from the depreciation of
the Brazilian Real and uS Dollar.
net debt to adjusted eBItDA.
net debt to adjusted eBItDA was 1.5x at the
year end, within the Group’s target range
despite the fall in profitability (2019: 1.2x).
this was due to lower adjusted eBItDA,
with net debt reducing to €582 million
(2019: €650 million).
ROIC
2020
2019
2018
KPI relevance
11.5%
15.3%
16.5%
1 2018 was adjusted to include the impact of IFRS 16
R&D and Technical Marketing spend
2020
2019
2018
KPI relevance
€62m
€64m
€63m
Return on invested capital (RoIC) is used to assess the Group’s efficiency in
executing its capital allocation strategy, which is aimed at enabling organic
growth, disciplined M&A and shareholder returns.
excellence in R&D and strong technical Marketing capabilities are key
contributors to our competitiveness. this demonstrates our commitment to
driving innovation and to being the leading provider of services and solutions
within the refractories industries. the Company aims to invest 2.2% per annum
of revenue in R&D and technical Marketing.
How it is measured
2020 performance
How it is measured
2020 performance
Calculated as net operating
profit after tax, divided by total
invested capital1 for the year.
RoIC decreased from 15.3% in 2019 to 11.5%,
due to lower underlying profitability against
comparative invested capital.
Annual spend on research and
development, before subsidies
and including opex and capex.
€62 million was committed to R&D and
technical Marketing in 2020, equating to
2.7% of revenues, exceeding the Group’s
annual commitment.
1 Invested capital is: total assets less cash and cash
equivalents, other current and non-current financial
assets and non-interest-bearing current liabilities.
41
R H I M A G N E S I TA
Financial review
Revenue
the Group recorded revenue of €2,259 million
in 2020, a decline of 23% against the prior year
(2019: €2,922 million). the reduction is primarily
attributable to lower refractory volumes, as a
result of the effect of the CoVID-19 pandemic on
end-market demand, and the impact of lower raw
material prices over the year compared to 2019.
Raw materials
Raw material prices declined materially
in the first five months of 2020, due to an
overcapacity of supply in China, coupled with
weak underlying raw material demand. prices
softened further between June and August
before recovering in the fourth quarter, due
to reduced supply from Chinese producers
impacted by higher winter power tariffs and
stricter enforcement of environmental legislation.
Read more on raw material pricing
in the Markets section on
Page 23
Steel Division
the Group’s Steel Division delivered revenue of
€1,583 million in 2020, 22% lower than 2019
(2019: €2,018 million). the CoVID-19 impact
on refractory demand had the most notable
impact in europe, CIS, and turkey, where revenue
in the combined region was 26% lower than
the prior year. Refractory prices also reduced
due to lower raw material prices. the Americas
revenue contribution was 21% lower than 2019,
mainly as a result of the impact of CoVID-19
on industrial output, but also due to currency
Revenue by geography
Americas
Europe, CIS, Turkey
China and East Asia
India, Africa, West Asia
40%
27%
15%
19%
numbers do not add up to 100 due to rounding.
Revenue split by industry
Steel
Industrial
Cement/Lime
Industrial Projects
70%
30%
12%
18%
Reporting approach
the Company uses a number of alternative
performance measures (ApMs), in addition
to those reported in accordance with IFRS,
which reflect the way in which the Board and
the executive Management team assesses the
underlying performance of the business. the
Group’s results are presented on an “adjusted”
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
address investors’ requirements for clarity and
transparency of the Group’s underlying financial
performance. the ApMs are used internally in
the management of our business performance,
budgeting and forecasting. A reconciliation
of key metrics to the reported financials is
presented in the section titled ApMs.
All references to comparative 2019 numbers
in this review are on a reported basis, unless
stated otherwise. Figures presented at
constant currency represent 2019 translated
to average 2020 exchange rates of 1 euro
to 1.14 uSD, 1 euro to 7.87 CnY, 1 euro to 5.89
BRl, 1 euro to 84.6 InR, 1 euro to 8.05 tRY
Following the organisational structure
changes that look place is 2020, the Group
is now reporting its operational review
under new business unit groupings.
the Group has considered the FRC’s guidance
to listed companies to lengthen their reporting
timetable for 2021, aligned to the extension to
reporting deadlines announced by the FCA.
However, the Group believes it is well positioned,
in conjunction with its auditors, to accelerate
its timetable for the year end 2020 to bring it
more in line with peer reporting timescales.
Amidst a year of high
volatility and extreme
uncertainty, the Group has
successfully maintained
resilient margins, a strong
balance sheet and solid
cash flow generation.
Ian Botha
CFo
Read more on ApMs on
Page 238
42
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
devaluation (principally of the Brazilian Real).
China and east Asia performed relatively well
by comparison to other regions in 2020, with
revenue decreasing by only 7%. this was largely
thanks to the economic strength in China,
where Group revenue was 41% higher than in
2019. In India, Africa and West Asia, revenue
declined by 22%, with the most significant
decrease in India, resulting from strict nationwide
CoVID-19 lockdowns. Saudi Arabia and oman
outperformed during 2020 and signs of a
recovery in India were evident at the year end.
Industrial Division
Industrial Division revenue reduced by 25%
to €676 million (2019: €904 million), heavily
impacted by the effects of the global pandemic,
with customers postponing capital expenditure
projects faster than in previous downturns. the
Cement and lime business, down by 21% in
2020, recorded a strong performance in Q1,
characteristic of seasonal demand, followed
by a weak Q2 and Q3 when demand was
negatively impacted by CoVID-19. the Industrial
projects business, down by 28% in 2020,
experienced heavy project postponements,
especially in nFM. Demand in both the Cement
and lime and project businesses improved
in Q4, as end markets started to recover.
Read more on Divisional performance
in the operational review on
Pages 14 to 18
Gross profit
the Group achieved gross margin of 24.4%
(2019: 24.5%), demonstrating the resilience
of the business and the benefits from the cost
Adjusted EBITA margin %
reduction initiatives which were swiftly executed
by management during the year. the Group
recorded a gross profit of €550 million in 2020,
a decline on the prior year of 23% (2019: €717
million) due to lower revenue, as cost saving
initiatives offset lower fixed cost absorption.
on a divisional basis, gross profit in the Steel
Division amounted to €371 million, a decline
of 20% against the previous year (2019: €467
million). However, gross margin improved,
at 23.5%, (2019: 23.1%). Gross profit in the
Industrial Division amounted to €179 million
(2019: €250 million), a decline of 29% against
the prior year and gross margin declined
by 130 bps to 26.4% (2019: 27.7%).
Steel
2019
2020
Change
Revenue (€m)
Gross profit (€m)
Gross margin
2,018
467
23.1%
1,583
371
23.5%
(22)%
(20)%
40bps
Depreciation and amortisation
Depreciation for 2020 amounted to €120 million
(2019: €146 million), lower than 2019, mainly due
to currency effects (€12 million). Depreciation is
denominated in local currency and, therefore
impacted by foreign exchange rates, most
notably from the Brazilian Real and uS Dollar.
Depreciation was also lower due to the increase
of useful life of assets given the lower production
levels in 2020 (€10 million) and the reduction of
assets due to the closure of plants. Depreciation
in 2021 is expected to be around €115 million.
Amortisation of intangible assets amounted
to €19 million in 2020 (2019: €26million).
Amortisation was lower than 2019 largely due
to currency effects, given it is denominated
in local currency and therefore impacted by
foreign exchange rates, most notably by the
Brazilian Real and uS Dollar. Amortisation
is anticipated to total €18 million in 2021.
Industrial
2019
2020
Change
Adjusted EBITDA
Revenue (€m)
Gross profit (€m)
Gross margin
904
250
27.7%
676
179
(25)%
(29)%
26.4% (130)bps
SG&A
the Group took swift short-term action early in
2020 to mitigate the negative impacts of the
CoVID-19 pandemic on earnings including
temporary plant shutdowns, short-time work
arrangements, reduced overtime and other SG&A
reduction initiatives. As a result of the measures
taken, total selling, general and administrative
expenses, before R&D related expenses, were
€279 million, representing a 10% reduction
against the prior year (2019: €309 million).
Adjusted eBItDA amounted to €381
million, down by 31% compared to 2019.
the adjusted eBItDA margin for 2020 was
16.8%, compared to 19.0% over the same
period last year, a decrease of 220 bps.
Adjusted EBITA
the Group delivered adjusted eBItA in 2020
of €260 million, a reduction of 36% compared
to 2019 (2019: €408 million), largely due to
lower sales volumes as a result of the CoVID-19
pandemic and lower average raw material prices.
16
14
12
10
8
6
4
2
0
7.9%
5.1%
2016
Backward integration margin
Refractory margin
9.7%
5.9%
2017
RHI standalone RHI Magnesita
13.9%
14.0%
8.4%
9.0%
11.5%
9.1%
2018
2019
2020
43
R H I M A G N E S I TA
(€m)
Revenue
Cost of sales
Gross profit
SG&A
R&D expenses
OIE
EBIT
Amortisation
EBITA
Adjusted items
Adjusted EBITA
2019
reported
2,922
(2,205)
717
(309)
(26)
(109)
273
(26)
300
109
408
2019 at
constant
currency
2,807
(2,089)
718
(298)
(25)
(110)
286
(25)
310
110
420
% change
reported
% change at
constant
currency
(23)%
(23)%
(23)%
(10)%
16%
11%
(56)%
(27)%
(53)%
11%
(20)%
(18)%
(23)%
(6)%
20%
9%
(58)%
(21)%
(55)%
9%
(36)%
(38)%
2020
2,259
(1,709)
550
(279)
(30)
(120)
121
(19)
140
120
260
Despite the reduction in volumes, the Group
delivered a robust double-digit adjusted EBITA
margin of 11.5%, 250bps lower than 2019 (2019:
14.0%). Despite the challenging backdrop of
2020, the Group’s refractory margin was 9.1%,
an increase of 0.1ppts compared with 2019. The
additional burden from significantly lower sales
volumes, arising from the effects of the pandemic,
was offset by structural cost reductions, driven
by the execution of the cost savings initiatives.
The Group’s backward integration margin was
2.4%, contributing €55 million of EBITA.
Net finance costs
Net finance costs in 2020 amounted to
€87 million (2019: €75 million).
Net interest expense amounted to €14 million
(2019: €19 million). Interest expenses on
borrowings amounted to €20 million (2019:
€28 million). The reduction of €8 million
compared to 2019 is predominantly driven
by the refinancing of higher interest-bearing
debt. Interest income amounted to €6
million, against €9 million the prior year.
Foreign exchange amounted to a loss of €43
million, against €17 million in 2019. The Group
was impacted by the significant depreciation of
the Brazilian Real and US Dollar against the Euro
over the year, resulting in an increased effect of
foreign currency translation on the P&L in 2020.
Items excluded from adjusted
performance
In order to accurately assess the performance
of the business, the Group excludes certain
non-recurring items from its adjusted
figures. These adjustments comprise:
• €120 million recorded in “restructurings, other
income and expenses”, relating mainly to the
cost reduction initiatives, including plant
closures and reduction in sales and
administration costs. These included
severance costs of €69 million and non-cash
impairments of €48 million;
• €19 million amortisation of intangible assets;
• €16 million non-cash other net financial
expenses, These include €8 million non-cash
present value adjustment of the provision for
the unfavourable contract required to satisfy EU
remedies and €7 million relating to an FX loss
on a non-recurring intercompany loan; and
• One-time charges excluded from the effective
tax rate (“ETR”), largely the restructuring and
impairment expenses.
Taxation
Total tax for 2020 in the income statement
amounted to €14 million (2019: €51 million),
representing a 33% effective tax rate (2019: 25%).
This tax rate is higher than recent years due to
certain 2020 restructuring charges which are
not tax deductible. Reported profit before tax
amounted to €42 million (2019: €200 million).
Adjusted profit before tax amounted to €197
million (2019: €358 million), with an adjusted
effective tax rate of 17% (2019: 21%), after adjusting
for one-time benefits from the 2020 recognition
of certain deferred tax assets. The adjusted ETR
guidance is between 20%-22% for 2021.
Financial review
continued
Adjusted EBITA
€260m
2019: €408m
Adjusted EBITA margin
11.5%
2019: 14.0%
44
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Profit after tax
on a reported basis, the Group recorded a profit after tax of €28 million (2019: €149 million) and
earnings per share of €0.51 in 2020 (2019: €2.82). Adjusted earnings per share for 2020 were €3.28
(2019: €5.57).
(€m)
EBITA
Amortisation
net financial expenses
Result of profit in joint ventures
Profit before tax
Income tax
Profit after tax
non-controlling interest
profit attributable to shareholders
Shares outstanding1
earnings per share
2020
reported
Items excluded
from adjusted
performance
2020
adjusted
140
(19)
(87)
8
42
(14)
28
3
25
49.0m
€0.51
120
19
16
–
155
(19)
136
260
–
(71)
8
197
(33)
164
3
161
49.0m
€3.28
1 total issued and outstanding share capital as at 31 December 2020 was 49,008,955. the Company held 468,750 ordinary shares in
treasury. Weighted average number of shares used for basic earnings per share 49,075,426.
Working capital
Working capital reduced significantly
compared to the 2019 year end, to €369
million at 31 December 2020 (31 December
20191: €519 million), reflecting lower trading
activity, higher Q4 2020 capex levels and the
ongoing benefits of the Group’s working capital
initiatives. these included the introduction of
our proprietary total network optimisation tool,
which recommends the most cost-effective
source of raw materials for production. In early
2020, the Group implemented an Integrated
Business planning system, which supports
decision-making and financial planning, as well
as enhancing demand and supply planning.
the Group achieved a working capital intensity,
measured as a percentage of the last three
months’ annualised revenue, of 15.9% in 2020.
this represents a significant improvement
of 230bps compared to 2019 and within the
Group’s target range of 15-18%. Working
capital contributed cash inflows of €97 million,
against an outflow of €23 million in 2019.
Inventories decreased to €477 million
(31 December 2019: €603 million), Accounts
Receivable decreased to €210 million
(31 December 20191: €277 million) and
Accounts payable decreased to €319 million
(31 December 20191: €361 million). the
weaker Brazilian Real and uS Dollar provided
an FX tailwind across inventory stock, with
inventories decreasing by €126 million against
only a €64 million cash flow benefit.
1 2019 restated to reflect an accounting adjustment denoted
within note 4 of the financial statements.
the inventory decrease was mainly driven by
the Group’s efforts to reduce finished stock
in its warehouses, as well as improving the
efficiency of raw material and finished goods
inventory by adjusting production to demand
levels. this resulted in raw material coverage
ratios in 2020 reducing from 1.7 to 1.3 months,
and finished goods from 2.3 to 1.9 months.
Accounts receivable reduced by €67
million due to lower revenues, as well as to
ongoing improvement of client terms and a
material reduction of overdue receivables.
Working capital financing, used to provide
low-cost liquidity and support the Group’s
commercial offering to customers, stood at
€222 million at the end of the year (2019:
€290 million). this comprised €178 million of
accounts receivable financing (factoring) and
€44 million of accounts payable financing
(forfeiting). Working capital financing levels vary
according to business activity, and the Group
targets a medium-term level below €320
million. As business activity levels improve,
working capital financing will moderate the
cash outflow from working capital increases.
Capital expenditure
Capital expenditure in 2020 was €157 million
(2019: €156 million), comprising €71 million
of maintenance capex (2019: €110 million)
and €86 million of project capex (2019: €46
million), including pre-payments of €17 million.
the Group reduced its maintenance capex
in 2020 in line with lower production
Adjusted earnings per share
€3.28
2019: €5.57
Capital expenditure
€157m
2019: €156m
volumes and its reduced plant footprint. the
sustainable level of maintenance capex over
the medium term to ensure safe production
and sustain operations is €75-85 million.
the Group continues to prioritise capital
expenditure on its strategic initiatives (being the
cost reduction and sales initiatives). the capital
projects underpinning these programmes are
progressing on-budget and largely on-time,
despite the impact of CoVID-19. As previously
guided, the additional project expenditure on
strategic initiatives will continue until 2022.
In 2020, the Group invested €28 million
(2019: €32 million) towards its backward
integration, comprising maintenance capex
of €6 million (2019: €7 million) and project
capex of €21 million (2019: €24 million).
the Group expects capex to increase
in 2021 to a peak of €260 million, of
which around €80 million will relate to
maintenance expenditure and approximately
€180 million to project expenditure.
In 2022 guidance for capital expenditure is
approximately €165 million, comprising €80
million of maintenance capex and €85 million
of project capex. In 2023, capital expenditure
is expected to reduce to €145 million, of
which €80 million will be directed towards
maintenance expenditure and €65 million
towards projects. In 2024, the Group anticipates
approximately €125 million of capital expenditure,
of which €80 million will be on maintenance
expenditure and €45 million on projects.
45
R H I M A G N E S I TA
Financial review
continued
Cash flow
the Group continued to generate strong and sustainable cash flow in 2020, despite the pandemic.
the Group generated operating cash flow of €290 million in 2020 (2019: €359 million),
representing an improved cash conversion of 112% (2019: 88%), benefiting from working capital
reduction of €97 million in 2020. Free cash flow increased to €101 million (2019: €99 million).
Cash flow
€m
Adjusted eBItA
Working capital
Changes in other assets/liabilities
Capital expenditure (including pre-payments)
Depreciation
Operating free cash flow2
Cash tax
net financial expenses
Restructuring/transaction costs
Dividend payments
Share buyback
Dividends from associates
MoRCo acquisition
Sale of ppe3
Right-of-use assets acquisition
Magnesita minority acquisition
Free cash flow
1 Reported basis.
Operating cash flow
€290m
20191
408
(23)
(17)
(156)
146
359
(68)
(42)
(6)
(76)
(19)
13
–
1
(18)
(45)
99
2020
2019: €359m
Cash conversion
112%
2019: 88%
260
97
(31)
(157)
120
290
(48)
(25)
(52)
(49)
(3)
11
(9)
11
(25)
–
101
2 operating free cash flow is presented to reflect the net cash flow from operating activities before certain items such as restructuring
costs. Full details are shown in the ApM section on page 238.
3 Including the sale of the Burlington site (Canada) in 2020, cash inflow of €8 million.
Net debt
net debt at the end of 2020 was €582 million,
comprising total debt of €1,115 million, cash and
cash equivalents of €589 million, including
€2 million cash forming part of the held for
sale assets, and IFRS 16 leases of €57 million.
this compares to net debt at the end of 2019 of
€650 million including IFRS 16 leases of €62
million. net debt to eBItDA at the year end was
1.5x, 0.3x higher than 2019 (2019: 1.2x) and
within the Group’s target range of 0.5x-1.5x
despite the significant reduction in earnings.
the Group has significant headroom on its
long-term net debt to eBItDA covenant of 3.5x.
total liquidity for the Group at year end was
€1,189 million, including the Group’s undrawn
committed facilities of €600 million. In november
2020, these undrawn committed facilities were
extended from 2025 to 2026. the majority of the
Group’s debt maturities are due on or after 2023.
Return on invested capital
Return on invested capital (RoIC) is used to
assess the Group’s efficiency in executing its
capital allocation strategy, which is aimed at
enabling organic growth, disciplined M&A and
shareholder returns. the Group RoIC recorded
in 2020 was 11.5% (2019: 15.3%), from a total
46
of €1,754 million of invested capital (2019:
€2,064 million) and €201 million recorded net
operating profit after tax (nopAt) (2019: €316
million). Raw material RoIC recorded 13.5%
(2019: 22.3%), from a total of €385 million
of invested capital (2019: €487 million) and
€52 million nopAt (2019: €109 million).
Amortisation schedule
(€m as at 31 December 2020)
1,189
2
587
387
600
188
133
109
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
i
L
q
u
d
i
t
y
i
848
600
1
2
0
2
5
248
53
57
2
0
2
6
2
0
2
7
+
I
F
R
S
1
6
Assets held for sale (cash)
Cash
Revolving credit facility
Debt
Strategic initiatives
the Group is advancing two significant strategic
programmes to sustainably increase earnings:
• Cost savings initiatives representing €100
million of incremental eBItA by 2022. this
requires total capital expenditure of €160
million by 2022 and restructuring costs of
€100 million. In 2020, the cost reduction
initiatives delivered eBItA benefit of €30
million, in line with guidance. In 2021, these
initiatives are expected to deliver a run rate
eBItA benefit of €75 million, an increase of
€45 million against 2020.
• Sales strategies representing €40-60 million
of incremental eBItA benefit by 2022. this
requires total capital expenditure of €30
million by 2022. the sales strategies delivered
€5 million of eBItA in 2020, below the target
level of €10 million, due to restrictions as a
result of worldwide CoVID-19 lockdowns,
which impeded access to customer sites. the
CoVID-19 pandemic continues to present
uncertainty in 2021. the Group is targeting an
eBItA benefit of €10-20 million in 2021 from
its sales strategies.
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
presented in €m
2019
2020
2021
2022
Cost savings initiatives EBITA improvement1
Implementation costs
Capital expenditure
Restructuring costs2
Impairments
Sales initiatives EBITA improvement
Implementation costs
Capital expenditure
15
–
5
50
–
–
30
45
40
36
5
5
75
95
55
12
100
20
–
–
10-20
40-60
Cumulative
amount
Cost saving initiatives
€100m
Annualised EBITA run rate by 2022
160
100
100
15
10
30
Sales strategies
€40-60m
Annualised EBITA run rate by 2022
Given the resilient performance of the
business in an extraordinary year, and its
strong annual cash generation, the Board
has recommended a final dividend of €1.50
per share for the full financial year, and €74
million in aggregate. this represents a dividend
cover of 2.2x adjusted earnings per share.
Subject to approval at the AGM on 10 June
2021, the final dividend will be payable on
30 June 2021 to shareholders on the register
at the close of trading on 11 June 2021.
the ex-dividend date is 10 June 2021.
the Board’s dividend policy remains to target a
dividend cover of below 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.
on 16 December 2020 the Group commenced
a share buyback programme of up to €50
million and purchased a total of €3 million
of shares through the programme in 2020,
which were placed in treasury. on completion
of this programme, the Board will review
the merits of further share purchases.
1 Cost saving initiatives do not include the one-off fixed cost savings of €50 million relating to CoVID-19 mitigation measures.
€10 million of these savings will be recorded in 2021 in the form of lower depreciation.
2 Cash impact.
Cost savings initiatives
Sales strategies
• the cost savings initiatives largely comprise
the production optimisation plan and SG&A
reduction. the production optimisation plan
seeks to rationalise the Group’s global
production footprint with the closure of up to
10 sites (with a focus on europe and South
America), increasing plant specialisation,
reducing raw material costs and implementing
state-of-the-art technologies. During 2020,
the Group successfully closed two european
plants, Hagen (Germany) and trieben
(Austria), and Burlington plant in Canada,
reducing overcapacity in high-cost locations.
the Group is investing c.€45 million at the
Hochfilzen plant (Austria) to transform it into a
european dolomite hub as well as a dolomite
research centre. A c.€50 million investment is
being committed to an additional tunnel kiln
and state-of-the-art technology in its
Radenthein plant (Austria) expanding RHI
Magnesita’s technical leadership. c.€40
million is being spent at the Contagem plant
(Brazil), to improve its production efficiencies.
• the SG&A Reduction plan is reducing
non-operational costs, largely from
headcount reduction (including reducing the
first three levels of management below Ceo
by 20%), greater regionalisation of
management structures and digitalisation.
In addition to the above strategic cost savings
initiatives, in 2020, in response to CoVID-19, the
Group implemented certain one-off fixed cost
reduction measures to mitigate the impact of the
pandemic on Group results. these included
temporary plant shutdowns, short-time work
arrangements, reduced overtime and other
SG&A reduction initiatives. In total, the Group
achieved the guided €50 million in one-off fixed
cost savings in 2020. €10 million of these savings
will continue into 2021 (as business-as-usual
savings), in the form of lower depreciation.
the Group’s sales strategies seek to grow RHI
Magnesita’s presence in new markets, improve
customer segmentation and resource allocation,
increase market share in the flow control product
range and expand the solutions business,
supported by investment in digitalisation.
M&A
In December 2020, the Group entered into an
agreement to sell its two high-cost raw material
plants, porsgrunn (norway) and Drogheda
(Ireland). porsgrunn produces electro focused
magnesia (eFM) and caustic calcined magnesia
(CCM). the eFM operations were stopped in Q1
2020. CCM is not used by RHI Magnesita and is
sold to third parties. Drogheda produces CCM
and DBM, with its DBM largely sold to third parties
and not utilised within the Group’s network. the
sale of both plants completed on 1 February
2021, realising a loss of approximately €5 million,
with a potential further increase by €6 million
resulting from a contingent consideration.
Returns to shareholders
RHI Magnesita’s balance sheet has remained
strong in 2020 and the Company’s capital
allocation strategy has been to prioritise
strategic investment to improve its competitive
position and shareholder returns.
In H1 2020, the Board did not recommend the
payment of a final 2019 dividend as a prudent
measure to preserve cash and maintain its strong
liquidity and financial position, given the significant
uncertainty relating to CoVID-19 at that time.
In response to the improving outlook and
confidence in the second half, the Board
reinstated the interim dividend of €0.50 per
share, and €24 million in aggregate, at the Q3
trading update, paid in December 2020.
47
R H I M A G N E S I TA
Effective risk
management
The COVID-19 crisis
continues to challenge the
Group’s risk management
capabilities. However, our
risk management framework
enables RHI Magnesita to
establish COVID-safe
working conditions, to
continue to run our
production network and
supply chain, and to
successfully preserve
liquidity through risk-based
scenario modelling.
Herbert Cordt
Chairman of the Board of Directors
The Group has established a risk management
approach with the objective of identifying,
assessing and controlling uncertainties and
risks related to RHI Magnesita’s operations.
Our approach to risk management
our risk management efficiency and effectiveness
were further improved in 2020 through a Group-
wide coordinated and consistent approach
integrated with business management processes.
the risk management approach combines
top-down, bottom-up and subject-specific risk
assessments. the top-down risk assessment
is performed by the executive Management
team (eMt), reviewed by the Audit Committee
(AC) and the Board of Directors. Reporting
against these risks is included within each Board
meeting, eMt meeting and strategic review. the
bottom-up risk assessment is based on each of
the operational sites which maintain ongoing
risk management activity linked to the ISo risk
management practices. Subject-specific risk
assessments are performed for areas of emerging
or prevailing risks, including information security,
fraud management and sustainability.
the information coming from the bottom-up
and the subject-specific risk assessments is
integrated into the top-down risk assessments
to ensure that the Group risk profile is complete
and accurate. the Group risk profile is reviewed
by the eMt on a quarterly basis, and by the
Board and the AC during the meetings which
take place on a regular basis during the year.
During 2021 the focus will be on finalising the
delivery of a comprehensive Group-wide risk
management approach and the embedment
of a fully integrated system which includes
all the various risk management activities.
Risks and strategy
our risk management approach helps the Board
and eMt to understand the risks associated
with the adopted strategy, periodically assess
if the strategy works in alignment with our risk
appetite and understand how the chosen
Risk management cycle
5
Reporting
Risks which require
immediate action are
reported immediately to line
management for action. Risks
which do not require
immediate action are
reported periodically to the
operational management and
on a quarterly basis to
the eMt.
4
Monitoring
Risks and associated
mitigating measures are
reassessed quarterly during
the year, with increased
frequency for those areas
experiencing significant
changes in the risk landscape.
the remaining risk level is
evaluated to ensure that it is
aligned with the Group’s risk
appetite and reviewed on a
quarterly basis by the eMt.
1
Identification
Starting from all the possible
categories of risks potentially
impacting the Group, specific
risks relevant to RHI
Magnesita are identified
through several analytical
tools, including comparative
analysis and risk
benchmarking.
2
Assessment
the risks identified are linked
to potential root causes and
assessed for their inherent
likelihood, inherent impact,
and velocity. Risk analysis to
develop an understanding
of the possible
interdependencies between
risks is performed.
5
Reporting
1
Identification
4
Monitoring
2
Assessment
3
Mitigation
3
Mitigation
All risks considered to be outside of the Group risk
appetite, due to their nature or their potential
financial or qualitative impacts, are mitigated by
appropriate risk management strategies. the
implementation and effectiveness of the defined
mitigation measures are reviewed, and additional
actions are defined if necessary. For this purpose,
risks are assessed based on their likelihood and
impact before and after the implementation of
those mitigation measures.
See principal
risks on
Pages 54 to 59
48
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
strategy could affect the Group’s risk profile,
specifically the types and amount of risk to
which the Group is potentially exposed.
the assessment, monitoring and mitigation of key
risks to the strategy are prominent features of the
enhanced approach to risk management adopted
in 2020. Risk workshops have been conducted
with the eMt and Board to review the Group risk
profile in the context of the 2025 strategy and the
risk appetite assigned to the top risks to the Group.
Risk appetite
We define risk appetite as “the nature and
extent of risk RHI Magnesita is willing to accept
in relation to the pursuit of its objectives”. We
look at risk appetite from different angles such
as the severity of the consequences should the
risk materialise, any relevant internal or external
factors influencing the risk, and the status of
management actions to mitigate or control the
risk. A scale is used to help determine the risk
appetite threshold for each risk, recognising
that risk appetite will change over time.
If a particular risk exceeds its risk appetite threshold,
it will threaten our objectives and may require a
change to the strategy. Risks that approach the limit
of the Group’s risk appetite may require acceleration
or enhancement of management actions to
ensure that risks remain within appetite levels.
the risk management approach is based on
an assessment of the risk appetite formed by
the Board, covering the key risk categories.
In 2020, the risk appetite categories have
been refreshed to enhance the clarity of the
definitions and enable a more precise allocation
of the risk appetite to specific principal risks.
the 2019 risk appetite ratings (“averse”,
“minimalist”, “cautious” and “flexible”) have been
renamed “averse”, “limited”, “moderate” and
“high”. In the context of the updated definitions,
the risk appetite assignment to the principal risks
has been reassessed by the eMt and Board.
our principal risks
the principal risks are those the Board
considers may have a significant impact on
the results of the Group and on its ability
to achieve its strategic objectives.
the risks can occur independently from each
other or in combination. extraordinary events,
such as the CoVID-19 pandemic, have the
potential to crystallise multiple principal risks
simultaneously, significantly magnifying the
adverse impact. In 2020, the CoVID-19 crisis
increased the risk management challenges
in key areas of the business. As a response
Group risk chart
Impact
low
moderate
high
critical
very likely
d
o
o
h
i
l
e
k
i
l
likely
possible
unlikely
12
9
7
1
3
11
8
10
2
4
5
6
Rapid –
within 3 months
Moderate –
within 12 months
Slow –
> 12 months
1 Macroeconomic environment and condition of
customer industries leading to significant sales
volume reductions
2 lack of competitiveness of internally sourced
raw materials
7 Sustainability – health and safety risks
8 Regulatory and compliance risks
9 Cyber and information security risks
3 Inability to execute key strategic initiatives
10 product quality failure
4 Significant changes in the competitive environment
11 Inconsistent demonstration of RHI Magnesita
or speed of disruptive innovation
culture, values and related behaviours
5 Business interruption and supply chain disruption
12 Fluctuations in exchange rate and energy prices
6 Sustainability – environmental and climate risks
to the current circumstances, continuous
monitoring of the Group’s risk profile, with
specific reference to potential cumulative
impact arising from the crystallisation of risks
due to CoVID-19, was undertaken by the eMt
during the year and mitigating actions taken.
and “high”, based on the refreshed definition
of risk appetite. 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 by the Board.
this does not represent an exhaustive
list of risks faced by the Group, but
encompasses those considered to be most
material to business performance.
the 11 principal risks included in the 2019 Annual
Report have been confirmed to be equally
relevant in 2020. the principal risk “Raw material
prices drop sharply, fluctuations in exchange
rates and energy prices” has been split into
separate risks to reflect the different nature of
those risks and risk management approach: “lack
of competitiveness of internally sourced raw
materials” and “Fluctuations in exchange rates
and energy prices”. the number of principal risks
increased from 11 to 12 following this change.
A risk appetite rating has been applied to each
risk, ranking from “averse” to “limited”, “moderate”
In 2020, elements of principal risks 1, 3, 5,
7, 9, 12 have crystallised as a result of the
impact of the CoVID-19 pandemic.
As a consequence, these principal risks
increased their potential to exceed the risk
appetite and are being subject to enhanced
monitoring and mitigation through the
measures described in the table below.
CoVID-19 prompted a reassessment of the
rating of extreme scenarios (such as pandemics)
and the rating of our principal risks as more
likely with a more significant potential impact
on the Group. However, the risk scores of
our principal risks have remained consistent
when considered in relation to each other,
and such scores have been discussed in
multiple workshops with the eMt and Board.
49
R H I M A G N E S I TA
Our internal
control system
The Board reviews the
effectiveness of the system
of internal financial,
operational and compliance
controls and the risk
management framework.
RHI Magnesita follows the corporate governance
requirements of the regulations of both the Netherlands,
given the location of its incorporation, and the UK, given
the location of its listing. Where possible the disclosures
are combined in this report, however there are areas
where the respective governance requirements
necessitate similar but separate assessments.
Such an area is the required disclosure
and description of RHI Magnesita’s control
environment and systems. therefore, the
Company provides both a “Management In
Control Statement” as required by the Dutch
Corporate Governance Code and an internal
control system report as required under the
uK Corporate Governance Code. Both outline
the measures that RHI Magnesita takes to
ensure a strong control environment.
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 internal control 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 controls over the accounting process.
In 2020 the Group introduced a framework
of seven Global processes to improve the
standardisation, efficiency and digitalisation
of processes. Whilst process development is
ongoing a key output from the framework will
be to more consistently align the operation
of internal controls with the day-to-day
business operations across the Group.
the Group has an Internal Audit function, with a
reporting line to the Chairman, 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.
In 2020, the Group merged the Internal
Audit, Risk Management and Compliance
functions into a single department. the Audit
Committee and management ensured that
appropriate safeguards are in place to maintain
the independence of Internal Audit. the
Internal Audit, Risk and Compliance function
is structured into four regional teams providing
a locally-focused governance presence to
support regional management in line with the
established Group-wide objectives. the 2020
annual Internal Audit plan was adjusted to reflect
some practical limitations imposed by CoVID-19,
however the overall coverage level was
maintained. the Audit Committee has conducted
an assessment of the effectiveness and capability
of the Internal Audit function in 2020 based on
the outputs delivered and stakeholder feedback
and concluded that the performance of Internal
Audit is appropriate for the requirements of the
Group. Further improvements to Internal Audit
will be delivered in 2021 including increased
alignment of Internal Audit work to end-to-end
global processes and strategic initiatives.
50
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
In 2020, risk management activity focused
on increasing the depth of the assessment
of the top 20 Group risks and the set-up of
consistent reviews to monitor the evolution
of such risks by the eMt, to review the
Group risk profile on a quarterly basis and
to take any additional mitigating action. the
assessment of the top 20 Group risks have
been deepened by the implementation of a
set of Key Risk Indicators and by the linkage
to existing operational risk assessments and
risk assessments of other key areas such as
It, sustainability and fraud risk. An external
assessment of the risk management approach
was performed in 2020 and appropriate
improvement actions implemented by the eMt.
the improvements in the risk management
approach, the milestones achieved, the results
of the external assessment and planned next
steps were reviewed by the Audit Committee.
In addition, the risk appetite was discussed and
approved by the Audit Committee and the Board
following a series of discussion workshops.
During 2021 the focus will be on completing
the establishment of a comprehensive Group-
wide risk management approach by finalising
the delivery and the embedment of a fully
integrated system which includes all the various
risk management activities. Focus will also be
given to continue strengthening the integration
of risk management with the Group strategy, the
investment process and project management.
Management “In-Control” Statement
the Board and eMt are responsible for ensuring
the Company has adequate risk management
and internal controls systems in place.
the core design of the internal control systems
is based on extensive work conducted as part of
the merger activity in 2017. In 2020 the Group’s
operating model was reassessed to create a
more regionally focused and agile structure.
Key oversight and management elements of the
internal control system, such as the Delegation
of Authorities framework, were consequently re-
shaped in 2020. the transactional level controls
operated in line with the established core design
throughout 2020. Given that the internal control
systems are subject to continual evolution and
that key initiatives such as end-to-end global
processes have been launched in the last part of
the financial year and will be fully established in
2021, it is planned to reassess and further update
the design of the internal control systems in 2021.
the key internal control measures include
reviews of financial performance and key control
weaknesses at each Board meeting, monthly
and quarterly eMt review and challenge
of operational financial performance, zero-
based business planning process, improving
the financial reporting processes, continued
deployment of the corporate culture and values
especially to the more remote areas of the
Company, reinforcement of the Code of Conduct
through increased trainings and communication,
deployment of tools to increase leadership
capabilities, enhancing the response to issues
raised via the whistleblowing process and
strengthening the capability of the legal and the
Internal Audit, Risk and Compliance functions.
All key changes in the internal control framework
were reviewed by the eMt. each leader is
accountable for the effectiveness of the internal
controls within their areas of responsibility and is
required to complete a self-certification reporting
their assessment. 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 for review and resolution,
all of which is overseen by the Audit Committee.
During 2020, Internal Audit conducted
23 planned internal audits and 11 special
investigations, reporting the most relevant
observations and recommendations
to the Audit Committee.
In 2020, the Group identified a significant
failing in its internal control system relating to
the management of a sales agent in Mexico.
the actions of the Sales Director – Mexico
and weaknesses in the oversight controls of
the sales agent resulted in commission being
paid to a third party who was not genuinely
performing the role of a sales agent.
Consequently, over a 11-year period (dating
back to the RHI legal entity prior to the merger
with Magnesita) monies totalling approximately
€10 million had been misappropriated through
this theft scheme. An internal investigation
highlighted a number of remedial corrective
actions, the implementation of which was led by
the eMt and overseen by the Audit Committee.
the key initiatives were to introduce external
specialist “tRACe” certification for all sales
agents and stronger validation and challenge of
the activities performed by each sales agent.
the reports by management and Internal
Audit, Risk and Compliance also facilitated
consideration by the Audit Committee
of management actions in respect of the
following key control framework challenges:
• Significantly enhancing It security controls to
address increased cyber security risks;
• Maintaining effective internal control
framework through the challenges presented
by CoVID-19 and the internal reorganisation
performed in 2020;
• enhancing the awareness of the Code of
Conduct; and
• ensuring effective physical controls over
stock movements across the Group’s
operating locations.
the Board considers the Company’s risk
management and internal control system are
appropriate and effective to give reasonable,
but not absolute assurance against material
misstatement or loss. nonetheless, given the
continued evolution and the regionalised
nature of the Group, there is need for further
strengthening of the internal control system in
2021, most notably through the Global process
development activity. this has established
Global process owners for seven end-to-end
processes and will deliver improved governance,
standardisation and efficiencies for these core
elements of the internal control system.
51
R H I M A G N E S I TA
Viability statement
The assessment of the
Group’s prospects is
based upon the Group’s
strategy, its financial plan
and principal risks.
An understanding of our business
model and strategy is key to the
assessment of our prospects.
A financial forecast covering the next three
years is prepared based on the context of the
strategic plan and is reviewed on a regular
basis to reflect changes in circumstances. the
financial forecast is based on a number of key
assumptions, the most important of which include
product prices, exchange rates, raw material
prices, estimates of production, production
costs, future capital expenditure and delivery of
our strategic cost reduction and sales initiatives.
In addition, the forecast does not assume the
renewal of existing debt or the raising of new
debt. A key component of the financial forecast
and strategic plan is the expected growth of steel
production and the output of non-steel clients
in all regions, combined with the development
of the specific refractory consumption taking
account of technological improvements.
the principal risks are those the Board considers
may have a significant impact on the results of
the Group and on its ability to achieve its strategic
objectives. these are set out on pages 54 to 59.
these risks can occur independently from each
other or in combination. extraordinary events,
such as the CoVID-19 pandemic, have the
potential to crystallise multiple principal risks
simultaneously, with the effect that the impact
could be significantly magnified. the Group
continuously monitors its risk profile with specific
reference to the potential cumulative impact
arising from the crystallisation of the principal risks
and defines appropriate mitigating actions.
Context
our strategic priorities are:
• Competitiveness: optimisation of our supply
chain from mine to market to deliver cost-
effective, technically advanced refractory
materials and improve our service levels
to customers.
• Business model: Being the leading service and
solution provider in our industry through
innovative products and customer solutions.
• Markets: Maintain our leadership position in
growing core product and geographic markets.
Read more about our business model
and strategy on
Pages 6-7 and 24-39
In 2020 the Group demonstrated its resilience
and accelerated its strategic delivery. While
there remains uncertainty for 2021 on the
continuing impact of the CoVID-19 pandemic,
we are confident that the Group will continue to
demonstrate its resilience and remain well-
positioned for when recovery takes place.
The assessment process and key
assumptions
the assessment of the Group’s prospects
is based upon the Group’s strategy, its
financial plan and principal risks.
Given the CoVID-19 pandemic, the Group’s
focus during 2020 was to ensure safe and
healthy working conditions were established,
ensure customers were seamlessly supplied
and preserve the Group’s financial liquidity.
this resulted in an acceleration of the Group’s
strategic delivery, in particular, around
its cost reduction and sales initiatives, to
improve cash flow generation, strengthen the
balance sheet and create sustainable value
through disciplined allocation of capital.
52
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Assessment of viability
Viability statement
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.
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 2023. the
Directors have determined that the three-year
period to December 2023 is an appropriate
period having regard to the Group’s business
model, strategy, principal risks and uncertainties.
the assessment of viability has been made with
reference to the Group’s current position and
expected performance over a three-year period,
using forecast product prices, sales volumes
and expected foreign exchange rates. the
financial performance and cash flows have then
been subjected to stress testing and sensitivity
analysis over the three-year period. this data
was aggregated to model a range of severe, but
plausible, downside scenarios for the Group.
the scenarios selected include material
reductions in demand and changes in working
capital as a result of heavy global lockdowns due
to CoVID-19 in 2021. these lockdowns affect our
main sales regions and lead to a 6% reduction of
the Group’s refractory shipments and revenue in
2021, and a 20% reduction in eBItA, compared
to the financial forecast, pre mitigating action.
the consequential financial effects, such as the
under-absorption of fixed costs, were considered.
Additionally, the scenarios for stress testing are
based upon further materialisation of the Group’s
principal risks. the scenarios tested consider:
• unexpected difficulties in executing
key strategic initiatives;
• significant changes in the
competitive environment or speed
of disruptive innovation;
• business interruption and supply
chain disruption;
•
reduction of raw material prices leading
to a lack of competitiveness of internally
sourced raw materials; and
• negative impact of fluctuations in
exchange rates.
the principal risks described above could either
be triggered by CoVID-19 or other circumstances.
the Group’s liquidity amounts to €1,189 million
comprising of cash and cash equivalents of
€589 million and undrawn committed credit
facilities of €600 million as of 31 December
2020. this is sufficient to absorb the financial
impact of the risks modelled in the stress and
sensitivity analysis. However, if these risks were
to materialise, the Group also has a range of
additional mitigating actions that enable us
to maintain our financial strength, including
reduction in fixed costs and capital expenditure,
raising debt or reducing the dividend.
53
R H I M A G N E S I TA
Principal risks
Link to strategy
Appetite
Competitiveness
Business
model
Markets
High
Moderate
limited
Averse
1. Macroeconomic
environment and
condition of customer
industries leading to
significant sales volume
reductions
Risk description
Changes in the global economic environment and adverse political developments may have an impact on the Group’s
revenue and profitability.
the macroeconomic environment changes leading to sales volume reductions can arise from industrial factors or from wider
global issues, such as a pandemic.
the demand for refractory products is directly influenced by steel, cement and non-ferrous metal production, the investment
climate, metal and energy prices and the production methods used by customers.
Link to strategy
Due to the Group’s cost structure, fluctuations in sales volumes have an impact on the utilisation of production capacities, and
consequently on the Group’s profitability.
Examples of specific risks:
• Decreasing investment in infrastructure projects (therefore reducing steel and cement demand) leading to lower refractory.
Target risk appetite
consumption and depressed sales volumes.
• Customers focusing on lower-cost and more commoditised refractories.
• lower sales volumes leading to lower fixed cost absorption.
KPIs
Revenue, Adjusted eBItA Margin,
Adjusted epS, RoIC
Risk mitigation
• Several initiatives aimed at increasing the Group’s
resilience, through establishing leaner processes, lower
fixed cost structures, while increasing the Group’s market
share and the value for our customers, are ongoing.
• Diversification of geographies and industries.
• optimisation of the production network.
• Delivering reductions in SG&A costs.
• Refocusing of strategy to products and markets with
growth potential.
• Several CoVID-19 risk scenarios have been modelled to
evaluate the financial impact of different recovery
scenarios and mitigating actions designed for each
scenario.
Risk movement
Due to the global CoVID-19 pandemic during 2020, this risk
crystallised, impacting the macroeconomy and customer
industries and leading to a reduction in demand. Following the
increase in the overall risk rating, this risk exceeded the Group’s
risk appetite level during the financial year. However, this was
addressed by the broad range of CoVID-19 response measures
aimed to enhance the Group’s resilience to the new challenges
brought about by the pandemic, including the resultant
macroeconomic downturn. the risk fell back within the Group’s
risk appetite by year end.
2. Lack of competitiveness
of internally sourced raw
materials
Risk description
the Group achieves competitive advantage through its backward integration model. However, the resulting benefits are
reduced in periods of low raw material prices.
low raw material prices can cause a reduction of sales margin.
Link to strategy
Examples of specific risks:
• loss of competitiveness of operations due to a reduction in raw material prices.
Target risk appetite
Risk mitigation
• Developing a more agile business with lower fixed cost
base and integrated business planning.
• optimisation of “make or buy” decision-making.
• product price management.
Risk movement
Raw material prices reduced markedly in 2019 and this
continued in H1 2020, before increasing in Q4 2020.
this reduction and volatility has prompted the Group to adopt
mitigating measures to maintain cost competitiveness through
a re-evaluation of “make or buy” decisions. As a result of these
mitigation strategies, this risk is within the risk appetite and is
being consistently monitored.
KPIs
Adjusted eBItA Margin, Adjusted
epS, RoIC
54
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
3. Inability to execute key
strategic initiatives
Risk description
the Group’s strategy encompasses several initiatives including sales expansion, new product and service models, production
network optimisation, digitalisation, SG&A reduction and M&A projects.
Link to strategy
effective prioritisation and execution are key to deliver the Group strategy.
the failure to effectively execute these initiatives because of external or internal circumstances may lead to lower than
planned financial performance, including loss of revenue and margin.
Target risk appetite
KPIs
Voluntary employee turnover,
Revenue, Adjusted eBItA Margin,
Adjusted epS, leverage, RoIC
Examples of specific risks:
• Failure to develop the strategy into specific actions.
• Failure to react in a timely manner to a changing environment.
• Resistance to change.
• Failure to ensure that the Group’s management has the capability to deliver the strategy.
• M&A underperformance.
Risk mitigation
• Group-wide strategy with high focus on key priorities.
• Active postponement or cessation of strategically
non-important projects.
• Strengthening of project management culture and
Risk movement
During 2020, both the potential inherent likelihood and
impact of this risk increased. this change is mainly due to the
increased reliance on the Group’s management to successfully
execute strategic initiatives which are complex in nature.
approach.
• leadership capability enhancement programme.
In addition, the CoVID-19 crisis increased the pressure on the
delivery of these core strategic initiatives, which include key
initiatives to maintain competitiveness.
overall, this risk is within the risk appetite of the Group and
undergoes consistent monitoring to ensure that any further
mitigating action will be implemented if required.
4. Significant changes in
the competitive
environment or speed of
disruptive innovation
Risk description
Customer demand for environmentally-beneficial features, digitalisation and services may evolve more quickly than
expected.
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.
Link to strategy
Target risk appetite
KPIs
Revenue, Adjusted eBItA Margin,
Adjusted epS, RoIC, R&D &
technical Marketing Spend
Examples of specific risks:
• Disruptive product technology introduced by a competitor.
• Failure to identify digitalisation trends and technologies.
• Competitors being faster and more agile in responding to changing customer requirements.
Risk mitigation
• Create a climate which fosters innovation and “out of the
box” thinking.
• Significant focus on and investment in digitalisation to
bring more digital products to market and to enhance
internal processes through digitalisation.
• Continued investment in R&D, including, importantly,
on sustainability.
• Focus development activity on projects aimed at an agile
and fast impact on the market.
Risk movement
Due to the acceleration of digitalisation as a global macro trend
as a result of the CoVID-19 crisis, the potential impact of failing
to leverage digitalisation increased in 2020. During the
financial year, significant digitalisation initiatives have been
initiated to mitigate this risk and to maximise the opportunities
arising from this macro trend. As a consequence, the risk
remains within the risk appetite and is consistently monitored.
55
R H I M A G N E S I TA
Principal risks
continued
5. Business interruption and
supply chain disruption
Risk description
As a refractory producer, the Group is exposed to the risk of business interruption arising from events including natural
catastrophes, pandemics, fire, machinery breakdown, or supply chain disruptions.
Link to strategy
Target risk appetite
the Group relies on a small number of production sites or a small number of external suppliers for certain materials.
the Group has an integrated global supply chain and therefore global operations can be disrupted by issues in a specific
geography.
However, this also constitutes a risk mitigation element as a result of the ability to shift some of the production between
geographies to mitigate the risk of business interruption.
Examples of specific risks:
• production interruption at a single-source manufacturing site.
• Failure of single-source suppliers.
• A natural disaster or major political crisis at one or several manufacturing sites or in one region.
• loss of mining rights.
KPIs
Revenue, Adjusted eBItA Margin,
Adjusted epS, RoIC
Risk mitigation
• Geographical diversification of the production network.
• Implementation of an optimised production footprint to
meet planned requirements.
• establishment of a best-in-class integrated supply chain.
• operational risk management and maintenance policies.
• Risk-based investment policy.
• Global insurance coverage.
• Focus on the minimisation of sole-source materials.
Risk movement
In the context of the CoVID-19 crisis and consequent
challenges in the supply chain and production management
combined with the closure of plant as part of the production
optimisation plan, the likelihood of business disruptions has
increased during the financial year.
the Group recognises the rapidly evolving challenges
associated with managing the global supply chain and sourcing
critical materials and remains focused on monitoring this risk so
as to be able to mitigate it promptly.
As a result, the overall risk rating has increased compared
to the previous year, however it remains within the Group
risk appetite.
6. Sustainability –
environmental and
climate risks
Risk description
Controlled emissions and usage of potentially hazardous materials are inherent to the production of refractory products.
the risk of failing to meet environmental regulatory targets or uncontrolled emissions at our production sites exists and may
result in high financial losses and liabilities.
Link to strategy
the evolving regulatory environment and the Group’s commitment to sustainability lead to increasing investment and effort
being dedicated to achieving environmental and climate goals.
there are future environmental and climate targets which can only be met by new technological solutions to change the
Group’s production processes and by the delivery of environmental improvements by the Group’s suppliers and customers.
Target risk appetite
Examples of specific risks:
• uncontrolled emissions.
• Inability to meet sustainability targets.
KPIs
Relative Co2 emissions, use of
secondary raw material, Revenue,
Adjusted eBItA Margin, Adjusted
epS, RoIC
Risk mitigation
• Regular environmental audits and risk monitoring at all
sites.
• Well-established Board-level Corporate Sustainability
Committee to oversee environmental and climate efforts.
• A climate strategy focused on recycling, carbon capture
and usage, fuel switch, energy efficiency, and innovative
customer solutions (read more in Climate and
environment on pages 68 to 71).
• Increased focus on the use of secondary raw material as a
core element of the Group’s strategy.
• proactive monitoring and engagement in projects to drive
new technological developments aimed at reducing
emissions.
Risk movement
In 2020, this risk saw a slight increase in the overall risk rating
primarily driven by the continuously increasing focus on the
environment and climate as a global macro trend and the
current absence of significant technological breakthroughs to
reduce emissions in the refractory industry.
In 2020, the Group continued to take a leadership role in the
refractory industry to leverage emerging technologies and
develop innovative customer solutions.
the risk is deemed to be within the risk appetite.
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STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
7. Sustainability – health
and safety risks
Risk description
especially at our production sites, employees and contractors may be exposed to health and safety (H&S) hazards which cannot be
completely eliminated.
Link to strategy
Target risk appetite
KPIs
ltIF, Revenue, Adjusted eBItA
Margin, Adjusted epS, RoIC
our activities and products may potentially cause accidents at our customers’ sites.
Beyond the harm to individuals, a H&S incident can lead to high financial penalties, site closure and a loss in reputation for the
Group.
especially in the current context of a pandemic, the health of our employees and contractors is a significant area of risk to the Group.
Examples of specific risks:
• Fatal or serious accident at manufacturing or customer site.
• Site closure due to H&S incidents.
• loss in reputation for the Group due to H&S incidents.
Risk mitigation
• H&S objectives are defined as a core Company objective,
and the performance is constantly monitored.
• H&S approach based on leading global standards and
practices, including regular risk monitoring, emphasis on
“near miss” reporting and root cause analysis.
• Focus on collaboratively enhancing the H&S approach at
customer and supplier sites.
• Continued investment in H&S improvements in our plants.
• Regional CoVID task forces established to prevent and
manage pandemic-related risks at our sites.
• Specific action plans in the event of employee or
contractor health issues.
Risk movement
especially in the current context of the pandemic, the overall
rating of this risk increased in 2020, primarily triggered by the
growing threat to the health of our employees and contractors
due to CoVID-19.
the Safety risk slightly reduced as a result of the continued
focus, investment and management efforts.
the overall H&S risk is evaluated to be within the risk appetite
and is constantly monitored to ensure that any necessary
action is taken promptly.
8. Regulatory and
compliance risks
Link to strategy
Risk description
We strive to establish a culture of compliance throughout the organisation, however the Group faces increasing regulatory
complexity and operates in geographies with inherently high corruption risks.
We are exposed to regulatory and compliance risks which may result in financial losses or operational restrictions.
Regulatory changes could impact the profitability of our operations and require investment to achieve compliance.
Target risk appetite
KPIs
Revenue, Adjusted eBItA Margin,
Adjusted epS, RoIC
Examples of specific risks:
• 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.
Risk mitigation
• ethical values supported by strong corporate culture.
• Code of Conduct and compliance policies and
procedures.
• enhancement of global training, documentation of
compliance matters and communication.
Risk movement
this principal risk has been reassessed during 2020, in the
light of the increase in regulatory complexity and some isolated
instances of lack of ethical behaviours (refer to the section
“Internal Control Framework”) identified during the year.
Consequently, both the likelihood and potential impact of this
risk increased, and a stronger focus on compliance is ongoing.
In 2021 the focus on key compliance risks will continue,
enhanced by ad hoc training, and targeted compliance
communications.
Despite the increased overall risk rating, the risk is within risk
appetite, which is averse, and closely monitored by
management due to its potential to exceed it.
57
R H I M A G N E S I TA
Principal risks
continued
9. Cyber and information
security risks
Risk description
the Group’s reliance on It systems and the greater focus on digitalisation result in a growing exposure to cyber and
information security risk.
Link to strategy
the possible impact of cyber and information security risks could range from operational disruptions, loss of intellectual
property, legal compliance issues, frauds, to significant reputation losses.
Target risk appetite
Examples of specific risks:
• Intellectual property or confidential data theft.
• personal data breach.
• Software or hardware failure leading to critical business process interruption.
• Cyber attacks leading to financial losses.
KPIs
Revenue, Adjusted eBItA Margin,
Adjusted epS, RoIC
Risk mitigation
• Global information and cyber security policies in line
with information security best practices, standards
and frameworks.
• Continuous awareness campaign and training.
• Regular risk assessment and penetration testing.
• Cyber security detection and response team.
• network, device and application protection.
• Cyber insurance.
Risk movement
the fast-evolving cyber and information security global
landscape experienced a significant spike in threats due to the
CoVID-19 crisis leading to the increased adoption of remote
working. these risk factors led to an increase in the overall risk
rating in 2020, mainly triggered by a potential for higher
impact due to the increased reliance on It to support remote
working and strategic digitalisation initiatives.
the Group implemented additional risk-mitigating measures to
respond to this rising threat, including the purchase of cyber
security insurance and expanding the footprint of the Cyber
Security Defence Centre to include all global It assets. the
residual risk was evaluated to be within the risk appetite and
closely monitored to enable fast reaction.
10. Product quality failure
Risk description
the Group’s value proposition is fundamentally based on the performance of high-quality products to agreed specifications
in challenging environments.
Link to strategy
the Group can suffer both reputational and financial loss should the product quality level not meet required standards.
Examples of specific risks:
• Failure of our product might negatively impact or delay our customers’ production processes.
• loss of reputation as a supplier of high-quality products.
• Financial reparation for product quality failures.
Target risk appetite
KPIs
Revenue, Adjusted eBItA Margin,
Adjusted epS, RoIC
Risk mitigation
• Specialist quality management teams and quality
management system covering all production.
• Quality testing of products at all stages of production.
• exhaustive testing of new products.
• Refresh and enhancement of procedures, including
specific risk assessments for transfer of production
between plants.
Risk movement
the CoVID-19 pandemic reinforced the importance of shifting
to a more agile production network as a key strategic initiative.
this entails significantly increasing production transfers
between factories with each transfer requiring specific
attention on product quality and customer acceptance.
this factor has driven the increase of the likelihood and impact
score assigned to this risk in 2020.
Despite the upward adjustment in the residual risk rating, the
risk remains within the risk appetite.
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STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
11. Inconsistent
demonstration of RHI
Magnesita culture,
values and related
behaviours
Risk description
the Group places a high emphasis on pragmatism, openness, performance, and innovation as core behaviours within its
corporate culture.
the embedding of the Company culture is a continuous journey and leadership is pivotal to enhancing the Group values
across geographies and departments.
Link to strategy
A key focus of the Group’s corporate culture is gender and ethnic diversity which is seen as an important driver to enhance
performance.
the Group is focused on being able to retain talent as well as to attract talent from the market.
Target risk appetite
Examples of specific risks:
• Inconsistent behaviour across the Group.
• lack of awareness of corporate governance expectations.
• Inability to attract and retain top talent.
Risk mitigation
• Continuous emphasis on the Company culture as a key
enabler of performance and driver of strategy execution.
• Dedicated leadership capability enhancement
programme.
• “tone from the top” leadership culture.
• Developing talent, enhancing diversity and promoting
Company culture as significant components in the people
Cycle.
Risk movement
Due to the increasing number of strategic initiatives relying on
management’s capability to deliver results, a consistent and
well-established culture is a pivotal enabler of management’s
effectiveness in delivering the strategy. For this reason, the
impact of this risk has been deemed to have risen in 2020, in
line with the increasing significance of the strategic initiatives.
the risk is within the risk appetite.
KPIs
Gender diversity in leadership,
Voluntary employee turnover,
Adjusted eBItA, Adjusted epS,
RoIC
12. Fluctuations in
exchange rate and
energy price
Risk description
Due to the global nature of the Group’s sales and production activities, revenue and profitability may be impacted by currency
fluctuations, which can be caused by many factors.
the Group’s production processes rely on high volumes of energy consumption.
Link to strategy
Target risk appetite
Examples of specific risks:
• Increasing volatility of revenue and profit due to FX volatility.
• Increasing energy price pressure and loss of margin.
• loss of competitiveness of operations.
Risk mitigation
• Active balance sheet and exposure management.
• Improvement of energy efficiency to reduce consumption.
• A strategic approach to energy contract management to
minimise energy costs.
KPIs
Revenue, Adjusted eBItA Margin,
Adjusted epS, leverage, RoIC
Risk movement
Due to the CoVID-19 crisis, global financial markets
experienced increasing volatility of exchange rates which
increased the likelihood of potentially adverse movements in
the Group’s exposure. thanks to the risk mitigation initiatives
implemented and the close monitoring and active
management of such exposure, this risk is within the Group’s
risk appetite.
59
R H I M A G N E S I TA
Stakeholder
engagement
Consistent, effective and transparent
engagement with our stakeholders helps
us better understand their needs and
opinions, thereby informing our strategy.
Stakeholder group
How the Company engages
How the Board engages
outcomes
Customers and
innovation
partners
our customers sit at the heart
of our business model and are
fundamental to the sustainable
future of the business. It is
essential that we retain a strong
understanding of their evolving
requirements. We collaborate
with external partners such as
accelerators, start-ups, open
innovation platforms, companies
and institutions to foster innovation
and drive developments in R&D.
Shareholders
As providers of capital and owners
of the business, our shareholders
play a central role in the Company’s
growth and development. By
fostering and maintaining their
support, we are able to implement
our strategy and objectives.
We work closely with our customers to ensure we are
aware of their needs – this is facilitated via day-to-day
contact with Company representatives as well as
fact-finding, technical consulting, installation and
operations supervision as well as resident expert site
visits. travel restrictions, due to CoVID-19, presented
some challenges in this area, but the Company was able
to quickly adapt and maintain customer relationships
virtually. Customer surveys are conducted every six
months and the results shared with the Board.
Management continues to develop the survey to reach
and engage with as many customers as possible. In a
customer satisfaction survey conducted in Q4 2020,
89% of respondents stated that RHI Magnesita’s remote
service performance over the previous six months
(during CoVID-19 restrictions) was “sufficient” or “more
than sufficient”.
our R&D, product Management and technical
excellence & Solutions teams collaborate and engage
with innovation partners on an ongoing basis, including
higher education institutions and technology leaders in
the steel industry. We are also part of various
consortiums funded by the european Commission.
We engaged with the World Refractory Association
(WRA) during 2020, which supported the Group’s
ability to maintain production throughout regional
lockdowns in order to continue to serve its customer
base. It is the position of the WRA that refractory
companies globally should be recognised as an
essential industry.
Regular engagement with investors and analysts is
facilitated via one-on-one meetings, presentations and
webcasts, the Annual General Meeting (AGM), industry
conferences and events, capital markets days and site
visits. Whilst most face-to-face events were not possible
in 2020 as a result of CoVID-19, the Company
continued investor engagement using digital formats,
which included virtual results presentations and
updates, roadshows and conferences. Additional market
updates were published during the year to address
heightened uncertainty.
the Investor Relations department maintains an
ongoing, transparent dialogue with shareholders and
analysts and reports regularly to the Board.
the executive Directors (eDs) (and other members of the executive
Management team (eMt)) regularly communicate with customers to
discuss joint strategies at industry congresses, seminars and webinars,
and at technology events and fairs.
the Company’s net promoter Score (npS), measured via customer
surveys, is used as a key metric for customer-facing teams to ensure
focus on providing positive customer experiences. npS is considered at
Board meetings and is regarded as a good proxy for engagement with
customers as it brings customer priorities to the boardroom.
updates from our collaboration with innovation partners are
communicated to the Corporate Sustainability Committee (CSC) (via
the technical Advisory Committee), enabling it to consider potential
customer-driven solutions to mitigate environmental impacts, such as
recycled or low-carbon products.
the Board considered the importance of trusted relationships with
customers in respect of accounts receivables and service levels during
the CoVID-19 pandemic, guiding management in this regard.
David Schlaff and Stanislaus prinz zu Sayn-Wittgenstein represent
major shareholders in the Company through their position on the Board
and can provide an important investor perspective to the Board and
management team.
the eDs meet regularly with investors and analysts (in person and via
digital channels).
two remuneration-related shareholder consultations on proposed eD
salary increases and the updated eD Remuneration policy were held in
2020. Celia Baxter, Chairman of the Remuneration Committee, wrote
to our top 15 shareholders (circa 70% of the register), and major proxy
voting agencies, requesting engagement, and held direct calls and
follow-up communications.
In May 2020, Janet Ashdown, Chairman of the CSC, conducted
a sustainability and governance roadshow, meeting four
institutional investors.
All individual Board member interactions with shareholders
were reported to the full Board. Directors also received regular
presentations from Investor Relations, including analyst coverage
of market and shareholder reactions to Company events and analyst
reports on listed competitors.
60
topics raised
• Climate action
• CoVID-19
the global pandemic
travel restrictions
• Consistent and timely delivery of products and services despite
• Continuity of the development of new solutions despite
• Customers remain at the heart of the Company’s culture and as such form a central part of the
strategy and every Board decision.
• Customer feedback provides an important driver for innovation. We aim to continuously update our
product and service offerings based on their specific requirements (e.g. AnKRAl low-carbon bricks
and our Apo solutions – read more on pages 68 and 31 respectively).
• We used virtual reality to ensure continuation of certain customer services in 2020 and launched
Remote Assist solutions to enable customers to connect with our experts and collaborate remotely
– read more on page 18.
• the Board paid close attention to customer perspectives prior to making decisions on
plant closures, ensuring the continuation of product supply routes and safeguarding
• Customer experience and benefits such as shorter delivery routes, leading to better product
delivery and reduced Scope 3 emissions, were central to Board decision-making regarding
• the Board referred to the customer experience when evaluating the business performance outlook.
• Accounts receivables processes took account of the position of customers and relationship with
against interruptions.
plant regionalisation.
the Company.
• Response to CoVID-19: employee protection measures, participation
• Shareholder perspectives were taken into account in Board discussions surrounding the
in government schemes; ability to operate during worldwide
reinstatement of the interim dividend and the commencement of the €50 million buyback in
lockdowns
December 2020.
• Group strategic initiatives: eBItA impact, severance costs,
• the Board’s decisions on shareholder returns considered the Group’s ability to maintain its strong
impairments and capital expenditure
• new organisational structure and footprint rationalisation
• Capital allocation
• liquidity, leverage and balance sheet strength
balance sheet position and financial liquidity, alongside its ability to execute its internal investment
plans and maintain flexibility to pursue value-enhancing M&A as well as investor perception.
• the Board took shareholder feedback on remuneration into account. With an 81% vote in favour of
the Remuneration Report at the June 2020 AGM, an eD salary increase was implemented, but
frozen from April to July 2020 as part of our short-term CoVID-19 cost saving measures. Investor
feedback was taken into account when considering the Remuneration policy to be proposed at the
• Growth opportunities: new markets and differentiated product
segments, including digitalisation
2021 AGM.
• end-market trends
• the role and impact of employee Representative Directors
• Climate change and environmental activity
• Diversity
• Supply chain governance
• Remuneration
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Stakeholder group
How the Company engages
How the Board engages
Customers and
innovation
partners
our customers sit at the heart
of our business model and are
fundamental to the sustainable
future of the business. It is
essential that we retain a strong
understanding of their evolving
requirements. We collaborate
with external partners such as
accelerators, start-ups, open
innovation platforms, companies
and institutions to foster innovation
and drive developments in R&D.
We work closely with our customers to ensure we are
the executive Directors (eDs) (and other members of the executive
aware of their needs – this is facilitated via day-to-day
Management team (eMt)) regularly communicate with customers to
contact with Company representatives as well as
discuss joint strategies at industry congresses, seminars and webinars,
fact-finding, technical consulting, installation and
and at technology events and fairs.
operations supervision as well as resident expert site
visits. travel restrictions, due to CoVID-19, presented
some challenges in this area, but the Company was able
to quickly adapt and maintain customer relationships
virtually. Customer surveys are conducted every six
months and the results shared with the Board.
the Company’s net promoter Score (npS), measured via customer
surveys, is used as a key metric for customer-facing teams to ensure
focus on providing positive customer experiences. npS is considered at
Board meetings and is regarded as a good proxy for engagement with
customers as it brings customer priorities to the boardroom.
Management continues to develop the survey to reach
updates from our collaboration with innovation partners are
and engage with as many customers as possible. In a
communicated to the Corporate Sustainability Committee (CSC) (via
customer satisfaction survey conducted in Q4 2020,
the technical Advisory Committee), enabling it to consider potential
89% of respondents stated that RHI Magnesita’s remote
customer-driven solutions to mitigate environmental impacts, such as
service performance over the previous six months
recycled or low-carbon products.
(during CoVID-19 restrictions) was “sufficient” or “more
than sufficient”.
the Board considered the importance of trusted relationships with
customers in respect of accounts receivables and service levels during
our R&D, product Management and technical
the CoVID-19 pandemic, guiding management in this regard.
topics raised
• Climate action
• CoVID-19
• Consistent and timely delivery of products and services despite
the global pandemic
• Continuity of the development of new solutions despite
travel restrictions
outcomes
• Customers remain at the heart of the Company’s culture and as such form a central part of the
strategy and every Board decision.
• Customer feedback provides an important driver for innovation. We aim to continuously update our
product and service offerings based on their specific requirements (e.g. AnKRAl low-carbon bricks
and our Apo solutions – read more on pages 68 and 31 respectively).
• We used virtual reality to ensure continuation of certain customer services in 2020 and launched
Remote Assist solutions to enable customers to connect with our experts and collaborate remotely
– read more on page 18.
• the Board paid close attention to customer perspectives prior to making decisions on
plant closures, ensuring the continuation of product supply routes and safeguarding
against interruptions.
• Customer experience and benefits such as shorter delivery routes, leading to better product
delivery and reduced Scope 3 emissions, were central to Board decision-making regarding
plant regionalisation.
• the Board referred to the customer experience when evaluating the business performance outlook.
• Accounts receivables processes took account of the position of customers and relationship with
the Company.
excellence & Solutions teams collaborate and engage
with innovation partners on an ongoing basis, including
higher education institutions and technology leaders in
the steel industry. We are also part of various
consortiums funded by the european Commission.
We engaged with the World Refractory Association
(WRA) during 2020, which supported the Group’s
ability to maintain production throughout regional
lockdowns in order to continue to serve its customer
base. It is the position of the WRA that refractory
companies globally should be recognised as an
essential industry.
Shareholders
facilitated via one-on-one meetings, presentations and
major shareholders in the Company through their position on the Board
webcasts, the Annual General Meeting (AGM), industry
and can provide an important investor perspective to the Board and
in government schemes; ability to operate during worldwide
lockdowns
reinstatement of the interim dividend and the commencement of the €50 million buyback in
December 2020.
Regular engagement with investors and analysts is
David Schlaff and Stanislaus prinz zu Sayn-Wittgenstein represent
• Response to CoVID-19: employee protection measures, participation
• Shareholder perspectives were taken into account in Board discussions surrounding the
• Group strategic initiatives: eBItA impact, severance costs,
• the Board’s decisions on shareholder returns considered the Group’s ability to maintain its strong
the eDs meet regularly with investors and analysts (in person and via
impairments and capital expenditure
• new organisational structure and footprint rationalisation
• Capital allocation
• liquidity, leverage and balance sheet strength
• Growth opportunities: new markets and differentiated product
segments, including digitalisation
• end-market trends
• the role and impact of employee Representative Directors
• Climate change and environmental activity
• Diversity
• Supply chain governance
• Remuneration
balance sheet position and financial liquidity, alongside its ability to execute its internal investment
plans and maintain flexibility to pursue value-enhancing M&A as well as investor perception.
• the Board took shareholder feedback on remuneration into account. With an 81% vote in favour of
the Remuneration Report at the June 2020 AGM, an eD salary increase was implemented, but
frozen from April to July 2020 as part of our short-term CoVID-19 cost saving measures. Investor
feedback was taken into account when considering the Remuneration policy to be proposed at the
2021 AGM.
As providers of capital and owners
of the business, our shareholders
play a central role in the Company’s
growth and development. By
fostering and maintaining their
support, we are able to implement
our strategy and objectives.
conferences and events, capital markets days and site
management team.
visits. Whilst most face-to-face events were not possible
in 2020 as a result of CoVID-19, the Company
continued investor engagement using digital formats,
digital channels).
which included virtual results presentations and
two remuneration-related shareholder consultations on proposed eD
updates, roadshows and conferences. Additional market
salary increases and the updated eD Remuneration policy were held in
updates were published during the year to address
2020. Celia Baxter, Chairman of the Remuneration Committee, wrote
heightened uncertainty.
the Investor Relations department maintains an
ongoing, transparent dialogue with shareholders and
follow-up communications.
analysts and reports regularly to the Board.
In May 2020, Janet Ashdown, Chairman of the CSC, conducted
to our top 15 shareholders (circa 70% of the register), and major proxy
voting agencies, requesting engagement, and held direct calls and
a sustainability and governance roadshow, meeting four
institutional investors.
All individual Board member interactions with shareholders
were reported to the full Board. Directors also received regular
presentations from Investor Relations, including analyst coverage
of market and shareholder reactions to Company events and analyst
reports on listed competitors.
61
R H I M A G N E S I TA
Stakeholder engagement
continued
Stakeholder group
How the Company engages
How the Board engages
outcomes
Employees
Attracting, retaining and
developing talent is central to the
success of the Company. We aim to
cultivate an engaged, innovative
and collaborative workforce, with a
strong focus on diversity.
We emphasise the importance of frequent, constructive
and open communication with our employees and have
many channels through which this is facilitated. Internal
communications have been ramped up during
CoVID-19 to address its challenges. Communication
methods include town hall meetings (virtual at present),
social media channels, email and an employee app
(which has proved an effective means of communication
on CoVID-19 related protocols). pulse surveys are
conducted regularly with employees and formal
employee feedback is sought every one to two years,
via an engagement survey, with the most recent one
conducted in September 2020. We have “Culture
Champions” who engage with employees on an
ongoing basis to embed our culture and values,
and are currently focusing on “innovation”.
the Company engages with works councils, trade
unions and other bodies that represent our employees in
line with the core conventions of the International
labour organisation.
Communities
Wherever we operate, our business
depends on maintaining the
acceptance and approval of local
communities. In return for this social
licence to operate, we must
conduct our business ethically and
responsibly. We must also strive
towards sustainability, not only in
our own operations but also to
support socio-economic
development and environmental
protection.
As a member of the united nations (un) Global
Compact, we support the un Sustainable Development
Goals and implement the Global Compact principles
(anti-corruption, human rights, labour rights and
environment). these commitments drive our
engagement with policymakers, nGos and others at
both a national and international level. At a local level,
each operation engages with local communities and
other stakeholders to identify their concerns and how
we can support them.
In light of CoVID-19, most of our engagement in
2020 focused on local authorities, hospitals and
frontline workers, as well as organisations like the
Red Cross/Red Crescent.
two employee Representative Directors provide an effective direct
voice in the boardroom on a range of issues, in particular those which
directly impact the workforce, such as remuneration, pausing of
production and plant closures. See further detail on workforce
engagement on page 81.
As a result of CoVID-19, other forms of Board engagement with
employees were limited as Board site visits were prohibited by the new
travel restrictions. the Board engaged with employees below eMt
level, with specialist managers presenting to the Board and Committees
throughout the year. Directors also met directly with employees to
discuss a range of topics.
employee Representative Directors fed into the formulation and
execution of the employee engagement survey and HR conveyed the
detail of this to the Board. the Board receives employee feedback from
pulse and employee engagement surveys. Directors Janet Ashdown
and Fiona paulus participated in our FeMale network global calls,
thereby facilitating engagement with circa 300 women at RHI
Magnesita on career-related topics. the Board is apprised of key
developments and considerations relating to communication with
works councils and trade unions. the Board can assess opinion via the
MyRHIMagnesita app, which provides employees with the ability to
comment on Company updates and news.
the Board receives regular updates on our community engagement
and investment programmes.
In 2020, both the Ceo and Chairman again took part in our partnership
with teach for All, which focuses on improving educational equity for
young people from disadvantaged backgrounds.
the Board received regular updates on CoVID-19 infection rates and
considered operations in the context of local community situations,
receiving reports from management on the deployment of Company
resources to help communities across our global operations with their
CoVID-19 response.
As well as focusing on the CoVID-19 response, the CSC considered key
aspects of community engagement, including charitable fundraising
for local communities, and received updates from management on
projects in communities in Brazil and Austria. Read more about
communities on page 74.
topics raised
• CoVID-19
• Business restructuring
• Career-related issues
• Workforce remuneration
• production halts and plant closures
• Diversity
• We established a task force of employees from health and safety, sales operations, supply chain, HR
and the works councils in response to the outbreak of the global pandemic and swiftly implemented
protocols to protect the health and safety of our colleagues.
• the Board held ongoing dialogue with management regarding the organisational restructuring,
and considered employee KpIs, particularly relating to voluntary and regrettable turnover, average
retirement age and diversity statistics. Results from pulse surveys also provided useful insight to
inform decision-making.
new talent – read more on page 39.
• We have implemented various initiatives to prepare our employees for the digital future and attract
• CoVID-19
• We pivoted much of our community investment in response to CoVID-19 towards emergency
• Skills and employment programmes
• protecting existing programmes and partners
relief, particularly to hospitals, key workers and relief agencies.
• We launched initiatives to help communities to withstand the economic consequences of the
pandemic. these range from skills training and employment programmes to establishing
nano-businesses.
environmental programmes.
• We continue to provide financial support to existing projects, to protect partners and to maintain
• employees are encouraged to volunteer in our programmes.
Successful, efficient and resilient supply chain
management has been particularly important in 2020.
We adapted quickly to issues arising due to CoVID-19
and ensured consistent and frequent engagement with
our suppliers via digital communications tools (with
physical meetings being less practical in the current
environment). the Company has followed up in critical
supply areas with a specific action plan to enable
mitigation of potential supply interruptions.
Supplier audit and engagement reports were considered in the CSC’s
deliberation of the Modern Slavery Act statement, particularly in light
of heightened scrutiny in the uK on this subject. this Committee also
considers the California transparency in Supply Chains Act Statement
for recommendation to the Board.
In particular, the Board considered the importance of fair treatment of
suppliers, especially smaller suppliers, in respect of accounts payables
during the CoVID-19 pandemic and directed management with this
in mind.
• Demand volatility is currently the main issue, with suppliers
• the Company is implementing a range of innovative, integrated, digital supply chain management
requesting enhanced forecasting of RHI Magnesita demand to
initiatives and investing in digitalisation of its procurement systems. this project is aimed at
ensure stability of supplies
delivering a more integrated process of managing demand, purchases and invoicing.
• CoVID-19
• Climate action
• Safety
• Management will progress supplier audits and engagement further in 2021.
• the Board considered and approved the Modern Slavery Act statement for publication, following
recommendation from the CSC, and this can be found on our website.
• Accounts payable processes took account of the size of suppliers and relationship with the Company.
Supply chain
Strong relationships with our
suppliers are vital for the effective
running of our operations. We rely
on our suppliers to deliver services
and materials, the availability of
which impacts our ability to
operate. We want to ensure that
we are not only able to guarantee
delivery on demand, but also that
we are part of a sustainable supply
chain.
62
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
topics raised
• CoVID-19
• Business restructuring
• Career-related issues
• Workforce remuneration
• production halts and plant closures
• Diversity
outcomes
• We established a task force of employees from health and safety, sales operations, supply chain, HR
and the works councils in response to the outbreak of the global pandemic and swiftly implemented
protocols to protect the health and safety of our colleagues.
• the Board held ongoing dialogue with management regarding the organisational restructuring,
and considered employee KpIs, particularly relating to voluntary and regrettable turnover, average
retirement age and diversity statistics. Results from pulse surveys also provided useful insight to
inform decision-making.
• We have implemented various initiatives to prepare our employees for the digital future and attract
new talent – read more on page 39.
As a member of the united nations (un) Global
the Board receives regular updates on our community engagement
• CoVID-19
• We pivoted much of our community investment in response to CoVID-19 towards emergency
• Skills and employment programmes
• protecting existing programmes and partners
relief, particularly to hospitals, key workers and relief agencies.
• We launched initiatives to help communities to withstand the economic consequences of the
pandemic. these range from skills training and employment programmes to establishing
nano-businesses.
• We continue to provide financial support to existing projects, to protect partners and to maintain
environmental programmes.
• employees are encouraged to volunteer in our programmes.
Successful, efficient and resilient supply chain
Supplier audit and engagement reports were considered in the CSC’s
• Demand volatility is currently the main issue, with suppliers
• the Company is implementing a range of innovative, integrated, digital supply chain management
management has been particularly important in 2020.
deliberation of the Modern Slavery Act statement, particularly in light
We adapted quickly to issues arising due to CoVID-19
of heightened scrutiny in the uK on this subject. this Committee also
and ensured consistent and frequent engagement with
considers the California transparency in Supply Chains Act Statement
our suppliers via digital communications tools (with
for recommendation to the Board.
physical meetings being less practical in the current
environment). the Company has followed up in critical
supply areas with a specific action plan to enable
mitigation of potential supply interruptions.
In particular, the Board considered the importance of fair treatment of
suppliers, especially smaller suppliers, in respect of accounts payables
during the CoVID-19 pandemic and directed management with this
in mind.
requesting enhanced forecasting of RHI Magnesita demand to
ensure stability of supplies
initiatives and investing in digitalisation of its procurement systems. this project is aimed at
delivering a more integrated process of managing demand, purchases and invoicing.
• CoVID-19
• Climate action
• Safety
• Management will progress supplier audits and engagement further in 2021.
• the Board considered and approved the Modern Slavery Act statement for publication, following
recommendation from the CSC, and this can be found on our website.
• Accounts payable processes took account of the size of suppliers and relationship with the Company.
See engaging with stakeholders
Page 65
63
Stakeholder group
How the Company engages
How the Board engages
We emphasise the importance of frequent, constructive
two employee Representative Directors provide an effective direct
and open communication with our employees and have
voice in the boardroom on a range of issues, in particular those which
many channels through which this is facilitated. Internal
directly impact the workforce, such as remuneration, pausing of
communications have been ramped up during
production and plant closures. See further detail on workforce
CoVID-19 to address its challenges. Communication
engagement on page 81.
methods include town hall meetings (virtual at present),
social media channels, email and an employee app
(which has proved an effective means of communication
on CoVID-19 related protocols). pulse surveys are
conducted regularly with employees and formal
employee feedback is sought every one to two years,
via an engagement survey, with the most recent one
conducted in September 2020. We have “Culture
Champions” who engage with employees on an
ongoing basis to embed our culture and values,
and are currently focusing on “innovation”.
the Company engages with works councils, trade
unions and other bodies that represent our employees in
line with the core conventions of the International
labour organisation.
As a result of CoVID-19, other forms of Board engagement with
employees were limited as Board site visits were prohibited by the new
travel restrictions. the Board engaged with employees below eMt
level, with specialist managers presenting to the Board and Committees
throughout the year. Directors also met directly with employees to
discuss a range of topics.
employee Representative Directors fed into the formulation and
execution of the employee engagement survey and HR conveyed the
detail of this to the Board. the Board receives employee feedback from
pulse and employee engagement surveys. Directors Janet Ashdown
and Fiona paulus participated in our FeMale network global calls,
thereby facilitating engagement with circa 300 women at RHI
Magnesita on career-related topics. the Board is apprised of key
developments and considerations relating to communication with
works councils and trade unions. the Board can assess opinion via the
MyRHIMagnesita app, which provides employees with the ability to
comment on Company updates and news.
Compact, we support the un Sustainable Development
and investment programmes.
Goals and implement the Global Compact principles
(anti-corruption, human rights, labour rights and
environment). these commitments drive our
engagement with policymakers, nGos and others at
In 2020, both the Ceo and Chairman again took part in our partnership
with teach for All, which focuses on improving educational equity for
young people from disadvantaged backgrounds.
both a national and international level. At a local level,
the Board received regular updates on CoVID-19 infection rates and
each operation engages with local communities and
considered operations in the context of local community situations,
other stakeholders to identify their concerns and how
receiving reports from management on the deployment of Company
we can support them.
resources to help communities across our global operations with their
In light of CoVID-19, most of our engagement in
2020 focused on local authorities, hospitals and
frontline workers, as well as organisations like the
development and environmental
Red Cross/Red Crescent.
protection.
CoVID-19 response.
As well as focusing on the CoVID-19 response, the CSC considered key
aspects of community engagement, including charitable fundraising
for local communities, and received updates from management on
projects in communities in Brazil and Austria. Read more about
communities on page 74.
Employees
Attracting, retaining and
developing talent is central to the
success of the Company. We aim to
cultivate an engaged, innovative
and collaborative workforce, with a
strong focus on diversity.
Communities
Wherever we operate, our business
depends on maintaining the
acceptance and approval of local
communities. In return for this social
licence to operate, we must
conduct our business ethically and
responsibly. We must also strive
towards sustainability, not only in
our own operations but also to
support socio-economic
Supply chain
Strong relationships with our
suppliers are vital for the effective
running of our operations. We rely
on our suppliers to deliver services
and materials, the availability of
which impacts our ability to
operate. We want to ensure that
we are not only able to guarantee
delivery on demand, but also that
we are part of a sustainable supply
chain.
R H I M A G N E S I TA
Sustainability
governance
The global challenges of COVID-19 and
climate change are profoundly changing
both the way businesses operate and
what stakeholders expect of them.
Companies must not only strive to build
back better from the pandemic, they
must also help business partners and
communities do the same.
Our performance in ESG rankings
AA
Silver
Prime (C+)
B
DISCLOSURE INSIGHT ACTION
Online
The GRI index is
available on our
website.
rhimagnesita.com/gri
64
As we accelerate execution of RHI Magnesita’s
business strategy, we must do so in a way
that prepares our business to succeed in a
zero-carbon and more circular economy.
In addition, we aim to support broader
recovery among business partners and
host communities, helping to create a fairer,
more resilient and sustainable society.
to do so, we are embedding sustainability deep
into our business, weaving it into our purpose,
culture and business processes. We aim to be a
valued employer, a preferred business partner
and a trusted member of our communities.
As the global leader in refractories, we aim
to lead the industry in sustainability, too.
the following chapters show how we are
integrating environment, social and governance
(eSG) issues into our business. this chapter and
our Corporate Sustainability Committee (CSC)
report on page 97 discuss how sustainability
is governed in RHI Magnesita; the following
chapters describe our progress in addressing
climate and other environmental challenges
(pages 68 to 71) and social issues (pages 72 to 75).
Materiality
We focus on the sustainability challenges
that are most material to our business and our
stakeholders. to identify and prioritise issues,
we rely on formal stakeholder consultations
(not conducted in 2020), as well as ongoing
informal engagement with internal and
external stakeholders (as detailed on page
65) and close monitoring of the issues.
In addition to the multi-faceted challenges
posed by CoVID-19, the material
issues we currently focus on are:
• Health and safety
• Climate change
• Recycling
• Diversity
• nox and Sox emissions
For each of these issues, we have set targets to
2025 (on page 67) and discuss our progress
in this report. In addition, we continue work on
other social and environmental issues including:
anti-bribery and corruption, sustainable supply
chain, human rights, forests and biodiversity,
water usage and community investment.
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Suppliers and contractors – CoVID-19,
climate and safety were the three sustainability
issues on which we engaged most in 2020.
We continue to work with suppliers to better
understand emissions in our supply chain so
as to drive them down. on safety, we have
extended coverage to contractors on our sites
and continue our safety integration project.
Communities – CoVID-19 was the main focus
of engagement and support in 2020. Since
our sites lie in relatively remote locations, we
engage directly with local communities. the
CoVID-19 relief we provided ranged from
medical supplies and equipment to hospitals
to emergency food and cash donations to relief
efforts. We are now exploring how to support
longer-term rebuilding efforts. In Brazil, for
example, we have set up schemes to train people
in technical fields, while also creating an income-
generating project for female entrepreneurs.
Multilateral partnerships are another way
we work to address the biggest sustainability
challenges. to advance carbon capture
and usage technologies, for example,
we also work with universities, research
institutions and industry partnerships like the
european Cement Research Academy.
Engaging with stakeholders
two main topics dominated the discussions we
held on sustainability issues with stakeholders
in 2020: CoVID-19 and climate change. Below
is an overview by stakeholder group of our
engagement on these issues during the year. In
addition, our Board of Directors engages directly
with stakeholder groups; details can be found on
pages 60 to 63 in Stakeholder engagement.
Investors – Climate change was the leading
sustainability issue raised by investors in
2020. We held constructive discussions on
our climate strategy, recycling and investment
in emerging technologies. our progress in
building female leadership and protecting
biodiversity were also raised. RHI Magnesita
gained a B for its CDp climate submission in
2020 and is rated AA by MSCI, Silver by eco-
Vadis and prime (C+) by ISS eSG rankings.
Customers – Climate action and CoVID-19 –
both in terms of safety and business continuity
– were the sustainability issues raised the most
in 2020. Since our customers are high-emitting
industries in hard-to-abate sectors, we work
together to reduce emissions in their operations
and value chain. this has included piloting our
new low-carbon bricks and mobile recycling
solutions, as well as rolling out technologies to
reduce energy use and emissions in production.
As part of the new Inno Challenge, our innovation
accelerator programme, we will explore how to
further support customers’ climate strategies
(see further detail on page 70). In addition,
our safety integration project is developing
shared commitments and processes.
Employees – CoVID-19 and our business
restructuring were the topics on which we
engaged most with employees in 2020.
We ramped up internal communications to
ensure employees understood CoVID-19
safety protocols as well as how and why we
are accelerating our strategy to transform our
business. As we streamlined operations, we
worked with unions, works councils and other
employee representatives to develop the most
equitable solutions for affected employees. our
global survey provided valuable feedback from
employees and yielded a 79% engagement
score, exceeding both the global benchmark
and the benchmark for manufacturing.
65
R H I M A G N E S I TA
Sustainability governance
continued
Governance structure
The Corporate Sustainability Committee of the
Board (see page 97) oversees our sustainability
strategy and progress. This Board Committee,
the CEO and Executive Management Team are
regularly updated by our Sustainability Steering
Committee, the senior management body
responsible for identifying risks, driving progress
against key objectives and targets and embedding
sustainability throughout our business.
Standards and reporting
We follow leading sustainability standards and
frameworks. As a participant in the UN Global
Compact, we have committed to support
the UN Sustainable Development Goals.
As we work to decarbonise our business,
we make annual climate submissions to the
CDP and gained a B rating in 2020. We are
also a supporter of the Taskforce on Climate-
related Financial Disclosures (TCFD).
On social sustainability, we report our diversity
progress to the Hampton-Alexander Review.
We are also members of Business for Societal
Impact (formerly LBG, the London Benchmarking
Group) and use this globally recognised
methodology to measure our impacts on society.
Our integrated management system covers
environment (ISO 14001), energy efficiency
(ISO 50001), occupational health and safety
(ISO 45001) and quality (ISO 9001).
We aim to communicate our sustainability
progress in an open and transparent manner.
This report, together with a GRI Content Index,
comprise our GRI Report and is available on our
website. This report was prepared in accordance
with the GRI Standards (Core option). In addition,
this report serves as our Communication on
Progress to the UN Global Compact (self-
assessed as Active). Our contributions to the
UN Sustainable Development Goals (SDGs)
are covered in the GRI Index. Our reporting
adheres to the legislative requirements in
the UK and the Netherlands in implementing
the EU Non-Financial Reporting Directive.
Ethics and compliance
As participants in the UN Global Compact,
we have committed to integrate the UN
Global Compact’s 10 principles into our
business strategy and operations. In addition
to environment (see page 68), these include
human rights, labour rights and anti-corruption.
Our new digital compliance portal is helping
to strengthen our compliance processes.
RHI Magnesita has zero tolerance of bribery
and corruption in our own operations or our
value chain. Our Code of Conduct and Supplier
Code of Conduct, both available on our
website, make clear that our employees and
business partners must fully comply with anti-
bribery and corruption laws. All office-based
employees in RHI Magnesita are required to
complete online training on business ethics.
As participants in the UN Global Compact,
we must bring to life our commitment to
internationally recognised human rights and
labour rights in our business, supply chain and
beyond. More than 66% of our employees are
covered by unions, works councils or collective
bargaining. Our Supplier Code of Conduct
explicitly includes human rights and labour
rights provisions and we are implementing
a new tool to ensure that suppliers commit
to this. The Board considers and approves
annual statements for publication, available
on our website, in accordance with the UK
Modern Slavery Act 2015 and the California
Transparency in Supply Chains Act.
An independently operated hotline allows
confidential and anonymous reporting of any
concerns about our business or suspected
wrongdoing. We publicise the contact details
for the hotline both online and throughout our
business. The Board and the Audit & Compliance
Committee review reports, as well as independent
investigations and follow-up. In 2020, we
received 62 reports; more detail can be found
on page 100 of the Audit Committee report.
We support the UN Sustainable
Development Goals (SDGs)
and have identified these as
the goals our business is best
placed to actively support.
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STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Progress against
sustainability targets
Material issue
1. CO2 emissions
Targets by
2025 vs 2018
baseline year
Progress
in 2020
Reduce by
15% per tonne
of product –
Scope 1, 2, 3
(raw materials)
Production slowdowns led to a
22% drop in absolute emissions
vs 2018 but an 0.4% increase in
carbon intensity due to the more
energy-intensive nature of
reduced production
Absolute
(t CO2)
Relative
(t CO2/t)1
2018
2019
2020
5,372,000
4,612,000
4,203,000
1.81
1.73
1.82
2. Energy
3. Recycling
4. Diversity
Reduce by 5%
per tonne of
product
Total energy consumption fell
20% vs 2018 but there was a
3.5% increase in energy
intensity due to the more
energy-intensive nature of
reduced production
Absolute
energy
consumption
(GWh)
Relative
(MWh / t)2
5,700
5,200
4,600
1.86
1.84
1.92
Increase use
of secondary
raw materials
to 10%
Increase
women on
our Board
and in senior
leadership
to 33%
Use of SRM increased to 5%
Use of
secondary raw
materials
3.8%
4.6%
5.0%
Women now account for 25%
of senior leadership and 25% of
our Board
Board
7%
23%
25%
EMT and
direct reports
12%
17%
25%
5. Safety
Maintain LT IF
at <0.5 (goal:
zero accidents)
Lost time injury frequency (LTIF)
improved 56% over 2019
while total recordable injury
frequency (TRIF) improved 40%
per 200,000
hours worked
0.43
0.28
0.13
6. NOx and SOx
emissions
Reduce by
30% by 2027
(vs 2018),
starting with
China by 2021
30% reduction in NOx and SOx
achieved in China already; work
now focuses on US operations
China – target
achieved 2021
North America
– target 2025
South America
– target 2027
Europe
– target 2027
1 A change in production volume reporting system has led to an adjustment to the 2018 baseline and KpI.
2 Change in both plant footprint and production volume reporting system have led to an adjustment of the 2018 baseline year and KpI.
67
R H I M A G N E S I TA
Climate and
environment
Preparing to succeed in a net zero and circular economy
is vital if we are to emerge stronger from the pandemic.
To ensure this is central to our recovery, one of the
Group’s key corporate projects is a strategic initiative
that aims to drive down RHI Magnesita’s emissions to
net zero.
Innovation and digitalisation are helping to
decarbonise our business. In 2020, spending
on R&D and technical Marketing amounted to
€62 million. We have since committed to invest
a further €50 million over the next four to five
years in new and emerging technologies.
our immediate target is to reduce Scope 1,
2 and 3 (raw materials) emissions by 15% by
2025. In addition, we are exploring how we
could develop a longer-term target aligned
with the paris Agreement. to do so, we are
participating in a two-year Science Based
targets Initiative programme supported by
the Austrian Government and WWF.
We are a supporter of the taskforce on
Climate-related Financial Disclosures
(tCFD) and have developed a roadmap to
implement its recommendations (see table).
Since 2019, we have participated in the CDp
(formerly the Carbon Disclosure project)
and were awarded a B rating in 2020.
In 2020, total emissions fell for a second
consecutive year, marking a 22% reduction
from our baseline year of 2018. Scope 1, 2
and 3 emissions (raw materials) fell by 9%
over the previous year. nevertheless, carbon
intensity increased during the same period
(from 1.73 tonnes per tonne of product in 2019
to 1.82 in 2020). this was due to the economic
slowdown reducing our capacity utilisation.
Case study
Growing customer
demand for reduced-
carbon brick series
The Lafarge Holcim plant in Austria was
the first customer site to pilot our
ANKRAL low-carbon (LC) bricks. With a
13% lower carbon footprint, the series is
designed to support customers as they
reduce emissions in their supply chain.
Our carbon emissions
Absolute emissions (thousand tonnes of Co2)
Relative emissions (t Co2 per tonne of product)1
2018
2,629
2019
2,265
2020
2,110
2018
0.89
2019
0.85
Change
vs 2018
(base
year)2
2020
0.91
3.0%
1,413
1,188
1,143
0.48
0.45
0.49
3.8%
1,165
1,045
932
0.39
0.39
0.40
2.7%
51
207
2,536
5,372
32
190
2,157
4,612
35
143
1,950
4,203
0.02
0.07
0.85
1.81
0.01
0.07
0.81
1.73
0.02
0.06
0.84
-11.9%
-11.3%
-1.3%
1.82
0.4%
Scope 1
of which geogenic
emissions
of which
fuel-based
emissions
of which other
emissions
Scope 2
Scope 3 (raw materials)
Total
1 A change in production volume reporting system has led to an adjustment to the 2018 baseline and KpI.
2 percentage changes stated deviate from relative emissions figures shown due to decimal places used in data presentation.
The ANKRAL LC series includes up to
20% recycled content and its carbon
footprint has been independently
verified. Following the successful pilot,
the bricks are now used at 11 customer
sites and we are extending the LC series
to meet growing customer demand.
Our ANKRAL LC
bricks have a
13%
lower carbon footprint
68
STRATEGIC REPORT
R H I M A G N E S I TA
AnnuAl RepoRt 2020
Official supporter of
CDP rating
TCFD
recommendations
B
for climate submission
Implementing the TCFD recommendations
Governance
• Management role: the Sustainability Steering Committee works with the executive Management team and Ceo to assess climate risks and
opportunities and develop and implement climate strategy.
• Board oversight: the Corporate Sustainability Committee regularly reviews climate risks, strategy and performance.
Risk management
Key climate risks include:
• physical risks, such as flooding and resulting disruption to our operations
• transitional risks, such as regulatory frameworks and price of carbon, viability and customer acceptance of emerging technologies as well as our
ability to set and meet paris-aligned targets
• these are discussed more fully in our CDp submission, which gained a B rating in 2020
Strategy
our immediate target is to reduce Scope 1, 2 and 3 (raw materials) emissions by 15% by 2025. We are also exploring how we could develop a longer-term
Science-Based target.
the main pillars of our approach are:
• Recycling – decreasing the carbon footprint of our raw materials and building the circularity of our business
• Carbon capture and usage – investing in emerging technologies and partnerships to address our geogenic emissions (emitted during processing of
raw magnesite)
• Fuel switch – reducing the carbon intensity of energy by changing to lower-carbon or renewable energy sources
• energy efficiency – reducing our relative use of energy through efficiency projects
• Innovative customer solutions – helping customers reduce their much larger Co2 emissions, thereby gaining competitive advantage
Metrics and targets
• our immediate target is to reduce Scope 1, 2 and 3 emissions (raw materials) per tonne by 15% by 2025.
• We are exploring how to develop a longer-term target aligned to the paris Agreement.
• We measure our carbon emissions using the GHG protocol.
Climate governance
transitional risks include:
• Fuel switch – reducing the carbon intensity
• Regulations: the price of carbon and
changeability in regulatory frameworks
• technology: the viability of our emerging
technologies
• Marketplace: customer acceptance of new
technologies
of the energy we use
• Energy efficiency – reducing our relative use
of energy and associated emissions
•
Innovative customer solutions – enabling
customers to reduce their direct emissions,
further helping to address emissions in our
value chain
• Reputation: our ability to set and meet targets
aligned with the paris Agreement
Recycling
our climate strategy is overseen by the Corporate
Sustainability Committee of the Board. At every
quarterly meeting, the Committee reviews
climate risks, strategy and performance.
At operational level, the Sustainability
Steering Committee works with the
executive Management team and Ceo
to assess climate risks and opportunities
and to develop and implement our climate
strategy. Carbon is increasingly integrated
into decision-making processes, such as our
strategic network optimisation (Sno) tool
and investment planning process, along
with energy efficiency and air emissions.
Climate risk
Climate change poses strategic and operational
risks to our business, as well as opportunities.
the main climate risks have been identified
as physical and transitional risks.
our climate strategy and overall risk management
processes (covered on pages 48 to 49) aim to
mitigate these risks. By taking a leadership role in
our industry, we aim to capitalise on opportunities
too. For example, our innovative solutions
help customers to reduce Co2 emissions in
their production processes and supply chain.
We also work with others to discover whether
emerging technologies can successfully
capture and manage our process emissions
and convert them into useful products.
physical risks include:
Climate strategy
•
Increased severity of extreme weather events,
such as flooding or droughts
to drive down carbon emissions, we focus on the
following areas:
• Resulting disruptions to operations and
supply chain
• Recycling – decreasing the carbon footprint
of our raw materials and building the circularity
of our business
• Carbon capture and usage – investing in
partnerships and technologies that have the
potential to significantly reduce the geogenic
emissions from processing raw materials
Recycling plays a significant role in achieving our
2025 emissions reduction target; it also develops
the circularity of our business. By using more
secondary raw material (SRM) content, we will
reduce the geogenic Co2 emissions from the
processing of virgin materials. At present, more
than half of our Scope 1 emissions result from
processing raw magnesite and other materials.
our target is to reach 10% SRM content in
refractories by 2025. Doing so could avoid
up to 300,000 tonnes of Co2 emissions
and 150,000 tonnes of landfill per year.
our new AnKRAl lC series includes up to 20%
recycled content and has a 13% lower carbon
footprint which has been independently verified.
Following a successful pilot with lafarge Holcim,
the refractories are already in use at 11 customer
sites and we are expanding the AnKRAl lC
series portfolio. We also continue to increase the
recycled content in recipes across our business.
69
Our energy use by source
Natural gas
Fuel oil
Coal and coke
Electricity
Diesel
LPG
53%
17%
17%
11%
1%
1%
R H I M A G N E S I TA
Climate and environment
continued
Innovative customer solutions
our customers account for a significant proportion
of global carbon emissions. Steel and cement
industries – which account for 80% of our
customers – represent up to 13% of global Co2
emissions. enabling such high emitters to reduce
their emissions is therefore another priority.
Digitalisation and innovation are facilitating
customer solutions that yield production
efficiencies while also increasing the lifespan of
our refractories. these solutions are expected
to reduce Co2 emissions on both counts.
During 2020, our digital solutions gained
traction with customers. For example:
• Automated Process Optimisation (Apo) is a
market-leading technology that digitally
supervises kilns, thereby reducing the need
for energy-intensive stoppages to conduct
maintenance checks. three major customers
already use this technology with trials taking
place in another three.
• Remote Assist uses augmented reality (AR)
technology to provide customers with
technical assistance remotely, thereby
reducing on-site visits and transportation
emissions. Fast-tracked to support customers
during CoVID-19 when on-site visits became
more challenging, the technology is already
used to service customers at 20 sites.
Reducing the carbon intensity of energy
to reduce the carbon intensity of the energy
we use, we are switching to lower-carbon
sources of energy, where feasible.
In 2020, we signed a contract for 100% of
electricity used by our German operations to
come from low-carbon or renewable sources.
Starting in 2021, this switch will reduce our
Scope 2 emissions by an estimated 10%. In
Austria, we already source 100% of our electricity
from renewable sources. Similar initiatives at
other locations are being actively explored.
Where viable, we are switching from petroleum
coke and oil to natural gas, the cleanest
fossil fuel. Cost, availability of gas supply
and supply capacity continue to present
challenges, however. In 2020, gas accounted
for 53% of fuel used by our business.
We now have – or are in the process of setting
up – recycling facilities in every region of our
business. these include facilities on our sites
and customer sites, as well as new mobile
treatment facilities that visit customer sites
to remove and process waste refractories.
We are also pioneering new technologies to
maximise the quality and quantity of secondary
raw material available for recycling. these include
automated sorting of brick qualities, mineral
processing techniques to remove impurities and
new processes to stabilise or remove contaminants.
In 2020, recycled content reached 5% despite
CoVID-19 leading to SRM supply challenges.
lastly, we are developing ways to include
primary material previously discarded as
waste. our new rotary kiln in Brumado will use
this waste magnesite ore, for example, almost
halving the amount of magnesite ore we
extract from the local mine and extending the
life of the mine by over 70 years. In 2020, our
business generated 107,000 tonnes of waste,
or 0.05 tonnes per tonne of production. Most
of this waste is non-hazardous ceramic and
mineral waste from production and mines.
Carbon capture and usage
We are actively pursuing technologies that
could potentially capture and use Co2 from
industrial processes. We have now identified
the most advanced carbon capture and
usage (CCu) technologies on which we
will focus. Value chain studies are being
combined with bench and industrial-scale
trials with initial results showing promise.
Around the world, we have set up partnerships
with universities, research institutes, companies
and industry platforms to develop these
technologies as well as a value chain for the
captured Co2. partners include Imperial
College in the uK, the european Cement
Research Association (eCRA), norwegian
research institute SInteF and the Federal
university of São Carlos in Brazil.
We have committed to a €50 million programme
to invest in new and emerging technologies
and to pilot these technologies in our plants.
For example, we are working with a technology
partner to capture geogenic Co2 emissions
directly in our kilns. By separating this source
of Co2 emissions from gases that result from
fuel combustion, the technology allows
efficient capture without the subsequent
need to filter. trials have taken place using
raw material from Hochfilzen and Breitenau,
with industrial trials starting in 2021.
70
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Our water use
Water consumption in
non-scarce areas
Water consumption
in water scarce areas
91%
9%
Responsible use of air, land and water
In addition to climate change, we recognise
the scale and urgency of other environmental
challenges: unprecedented biodiversity
losses, the global challenge of air pollution and
growing water shortages. these issues have
major implications for human health, too. We
work to reduce the impact we have on air, land
and water wherever we operate and aim to be
a responsible user of these shared resources.
Reducing nox and Sox emissions
We continue to reduce emissions of nitrogen
oxides (nox) and sulphur oxides (Sox) across our
business. one year ahead of schedule, we have
met our 30% reduction target in China. We will
achieve the same reduction in our uS operations
by 2025 and across our entire business by 2027.
Starting in 2021, we will introduce process
optimisation to reduce nox emissions in York.
protecting biodiversity
We aim to protect biodiversity across our business.
In Brazil, the tree nursery at our Brumado site
grows native species and planted more than
5,000 trees in 2020, as well as donating many
more to community groups (see further detail
on page 75). Similarly, our eskişehir site planted
a further 2,000 trees on land bordering our
mine and production site in 2020, bringing the
total they have planted to date to 198,500.
We recognise the threat posed by biodiversity
losses and are exploring how we can further
protect biodiversity across our business.
Water
Although the refractory industry is not water-
intensive, we are working to minimise water
withdrawals and enhance our water efficiency.
All production sites have been assessed for
scarcity, with results showing that 10 sites operate
in regions of Mexico, Brazil, India, China and
France where this is or might soon become a risk.
Based on these assessments, we are developing
mitigation plans. In India, for example, we have
launched industrial rainwater harvesting pits
at our Clasil site. We estimate that this system
will harvest 50,000m3 of water per year. In
addition to protecting our site from flooding,
the water recharges the aquifer. Although
there is minimal wastewater from production,
all wastewater from the site’s facilities is treated
and used for irrigation. the site also provides
potable water to local communities.
Across our business, RHI Magnesita used
12.5 million m3 of water in 2020, of which
1.1 million m3 was in water-scarce areas.
71
At present, renewables are not a viable primary
source of energy for our business, given the
high temperatures and quantities required in
production. nevertheless, we continue to explore
other options. We have also installed solar pV
panels at our leoben R&D centre and our mine in
Brumado, where they replaced diesel generators.
our energy use
2018
2019
2020
vs base
year
total energy
consumption
(GWh)
(MWh / t sold)1
5,700
1.86
5,200 4,600 -19.3%
3.5%
1.92
1.84
1 energy efficiency projects were partially implemented but
energy savings were outweighed by low utilisation rates. In
addition, the change in both plant footprint and production
volume reporting system have led to an adjustment of the 2018
baseline year and KpI.
Increasing energy efficiency
new tools and technologies are contributing
to our energy efficiency. For example, our
Strategic network optimisation (Sno) tool
ensures that we use our global production
network efficiently. Carbon emissions are
integrated into this tool, helping to keep
relative emissions as low as possible.
In addition, innovative technologies are reducing
both the duration and temperature of our
production processes which, in turn, improve
our energy efficiency. For example, bricks
used in the production of ultra-low-carbon
interstitial-free steel were previously fired at
temperatures of up to 1,800°C. By contrast, our
new binder system only requires a tempering
treatment at 200°C, reducing Co2 emissions
by 700 kg per tonne of production. other new
energy-saving initiatives include a control
system at our rotary kiln at Contagem and a heat
exchanger for the hot water heating system
at our Marktredwitz plant. energy efficiency
projects are expected to save 25GWh a year.
nevertheless, CoVID-19 meant that we were
not able to fully implement all planned energy
efficiency projects. In addition, low utilisation
of our plants led to a 3.5% decrease in energy
efficiency compared to 2018 (see page 67).
In 2020, we used 4.6 tWh of energy.
R H I M A G N E S I TA
Our people
COVID-19 and digitalisation are fundamentally
changing the world of work. From remote
working to virtual leadership, new skills, roles
and structures are required.
As we transform our business to emerge stronger
from CoVID-19, we will only succeed if we
bring our people along on the journey, too. to
do so, we are embedding a new organisational
structure and culture to maintain employee
engagement. We are also equipping our people
with vital new skills. our first priority, however,
is to ensure that employees and contractors
remain safe and healthy during the pandemic.
Health and safety
A safe workplace is a fundamental right
for our employees and contractors. In
2020, this has meant a focus on both
CoVID-19 and occupational safety.
early in the pandemic, we established tight
entry controls to all sites, as well as a testing
and monitoring service that has since been
rolled out globally. employees who could work
remotely did so and only business-critical travel
was allowed. other measures include increased
cleaning and disinfection, new hygiene stations
and social distancing requirements. Since it is
critical that employees understand and comply
with these measures, we also increased internal
communications. Driven by local, regional and
global crisis committees, these communications
range from more signage at every site to a new app
channel to provide CoVID-19 related updates.
Regrettably, there have been two CoVID-19
related deaths: an employee and a contractor,
both in Mexico.
In 2020, our occupational safety programme
showed a 56% improvement in lost time injury
frequency (ltIF) compared to 2019. We also
continued to reduce accidents, with a 40%
drop in total recordable injury frequency (tRIF)
and a slight reduction in accident severity.
RHI Magnesita believes that the only acceptable
goal is Zero Accidents. We also believe that
this is achievable. In 2020, we experienced
five calendar months with Zero lost time
Accidents. there were no serious accidents or
fatalities in relation to occupational safety.
As we build a strong safety culture,
we continue to focus on:
• Risk assessments to identify hazards and
prevent accident and injury.
• Mitigating unsafe situations to prevent
accidents and learn from near-misses.
• Measuring the timeliness and effectiveness
of mitigation measures.
•
Investigations and root cause analyses,
sharing results across the organisation.
Our safety performance
0.5
0.4
0.3
L
T
F
I
0.2
0.1
0.0
2018
2019
2020
Total recordable injury frequency
Lost time injury frequency
1.2
1.0
0.8
I
F
R
T
0.6
0.4
0.2
0.0
72
Since unsafe behaviours are responsible
for most accidents at work, we use the
poSt safety observation programme to
focus on behaviour-based safety.
Contractors are now included in our ltIF data, as
are employees contracted to work at customer
sites. As part of our new safety integration
project, we work with customers to develop
shared training and reporting practices and in
2021 we will integrate systems to include all
employees on Company and customer sites.
We have now transitioned our safety
certification from oHSAS 18001 to
occupational Health and Safety Management
Systems standard ISo 45001.
Case study
Radenthein becomes
central training hub
for the digital future
As the most technologically advanced
plant in the global refractory industry,
our Radenthein plant will now serve as
our central training hub. In 2020, the
digital flagship plant launched
apprentice training initiatives. Already
the training hub for our German-
speaking region, the plant has launched
a new apprenticeship in Process
Technology. In addition, the plant
participates in the pilot Apprenticeship
and Studies programme, the first such
project in Austria. More than one million
Euros have been invested in expanding
the Radenthein training facility.
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
Our culture
to support the transformation of our business,
we launched our new organisational culture
in 2020. With customer focus at its core,
the four supporting pillars of our new culture
are innovation, openness, pragmatism and
performance. this builds on the same core
values as before. Since it is a key focus area in
our leadership journey, we continue embedding
our new culture in day-to-day behaviours.
Engaging employees
Given the challenges of CoVID-19 and pace
of business change, we are making extra efforts
to engage with employees. In addition to new
communications channels, our business
leaders now speak with employees through
virtual town halls and videos. We also offer
assistance ranging from home-working
guidance to psychological support.
We seek feedback with periodic employee
surveys. In our most recent global survey,
the engagement index stood at 79%. this
score is based on six criteria: satisfaction,
recommendation probability, pride to
work for RHI Magnesita, belief in our future
direction, team motivation and willingness
to go the extra mile. our score compares
positively to a global benchmark of 73%
and 74% for manufacturing industries.
to return stronger from the pandemic, we have
streamlined our organisation with a focus on the
operations network. Inevitably, this had an impact
on jobs, despite efforts to minimise redundancies.
We worked with unions and works councils, which
represent 66% of our workforce, to minimise
the number of people affected and to reach the
best possible solutions. throughout the process,
we endeavoured to communicate transparently
and to treat every employee with respect.
Promoting diversity
to be agile and unleash innovation, we need
the broadest range of talent and perspectives,
especially in our leadership. In late 2020, we
relaunched our diversity strategy, underlining
its importance in our new organisational design.
Diversity is also woven into our new cultural
themes. to drive progress, we have set up six
regional diversity steering committees while
a global steering committee reports to the
Corporate Sustainability Committee of the Board.
our first three priorities are gender, nationality
and generational diversity. to promote female
senior leadership, we have committed that
women will represent 33% of our eMt and direct
reports by 2025 – and the same on our Board
of Directors. our eMt now comprises 29%
women. this means that our senior leadership
(eMt and direct reports) is now 25% female.
Although this marks a 47% improvement over
2019, it still falls short of our target (see page 67).
We must also develop the next generation of
female leaders. During 2020, 10 high-potential
female managers were personally invited
by the Ceo to attend our annual leadership
conference. In addition, women account for
30% of our first intake of trainees for our new
Refractory Factory. our new FeMale network
already has more than 300 members and
our Ceo, eMt and Board Directors have
participated in the network’s monthly global
calls to discuss career-related issues.
our senior leadership should also reflect
the geographic diversity of our business.
We are therefore working to include greater
ethnic diversity in our leadership, as well as
representation from each key geographic region.
We are also working to build a multi-generational
workforce. While our new trainee programme,
the Refractory Factory, will bring young talent
into our business, we are also working to increase
representation from older age groups.
With a sustained commitment to diversity, we
aim to build a highly diverse organisation where
everyone feels welcome and valued, regardless
of gender, age, nationality, ethnicity, religion,
disability, sexuality or any other difference.
Women in leadership in 2020
F
Board
3
2019: 3 | 2018: 1
Direct
reports
12
2019: 12 | 2018: 5
EMT
2
2019: 2 | 2018: 2
EMT + Direct
reports
14
2019: 14 | 2018: 7
M
Board
9
2019: 10 | 2018: 13
EMT
5
2019: 7 | 2018: 7
Direct
reports
36
2019: 60 | 2018: 45
EMT + direct
reports
41
2019: 67 | 2018: 52
Global engagement score
79%
People development
As we continue to transform our business,
people development assumes even greater
importance. We need new skills and new
roles to meet the multifaceted challenges
ranging from digitalisation to decarbonisation.
For example, our Radenthein flagship plant
will become the central training hub to help
develop the digital skills we need (see page 72).
our core focus is to equip leaders at all levels
to lead in the world of tomorrow. they must
manage change and transformation in complex
and volatile times; they must also be strong
virtual leaders, combining leadership and
technology skills to lead remote working teams.
to help build future leaders, in 2020 we
launched our new global trainee programme,
the Refractory Factory. over the next two years,
15 high-potential trainees will participate in
strategic growth projects, as well as cross-
functional and international assignments. We
plan to scale up to 50 recruits a year by 2025.
our talent management system, the people
Cycle, has also been further rolled out. the
scheme provides performance and potential
assessments, a view on cultural fit and allows for
succession planning. the people Cycle is also
the basis for personal development plans which
help RHI Magnesita to promote internal talent.
2018
2019
2020
7%
22%
10%
23%
22%
16%
25%
29%
25%
2025
target
33%
33%
33%
12%
17%
25%
33%
Board1
eMt
Direct reports
eMt + direct
reports
1 percentage of women, excluding employee Representative
Directors.
73
R H I M A G N E S I TA
Our communities
COVID-19 has required businesses around the world not
only to pivot their business models but to be equally agile
in supporting local communities. Since our sites are often
in remote areas, we focus on the communities in the
vicinity of our sites, responding to their specific needs.
By helping these communities build back a stronger
and more sustainable future, we look to ensure our own.
COVID-19 relief
During 2020, we pivoted much of
our community investment to provide
CoVID-19 support, with more than 60% of
spending directed to emergency relief.
our first priority was to support vulnerable
communities, as well as hospitals and
frontline healthcare workers. liaising with
local authorities to determine specific needs,
we provided the following types of support
in almost every country of operation:
• Financial donations to official relief funds
and/or local branches of the International
Red Cross/Red Crescent
• Medical equipment to hospitals including
ventilators and an ambulance
• Personal protective equipment (ppe) to
frontline healthcare workers
• Food donations to foodbanks, vulnerable
communities and frontline healthcare workers
• Sanitation kits (masks, hand sanitiser and
soap) to local communities
our focus also includes how we can support
longer-term efforts to rebuild lives and
livelihoods. As community needs evolve, we
must be agile, supporting new projects and
refocusing existing projects where appropriate.
Education and youth development
With CoVID-19 leading to school closures
around the world, the knock-on effects on
children and families are immense. employment
for young people is another area of major
concern given the global recession.
In Brumado, we engaged with local stakeholders
on how best to support the nearby community
recover from the impact of CoVID-19. Due to
the pandemic, a significant number of residents
lost their livelihoods or left school with limited
opportunities. to support them, we launched
project Hexa, a technical training programme
in partnership with community leaders and
a local non-governmental organisation
(nGo). More than 100 participants are taking
part in this programme, which combines
theoretical and practical education.
In addition, we have teamed up with leading
business school Fundação Dom Cabral to help
these small business entrepreneurs gain the skills
and knowledge to develop successful and
sustainable businesses.
Case study
Supporting
entrepreneurship
In Brazil, we have launched Sewing Love, a new
income-generating project for women whose
livelihoods were lost due to COVID-19. Located
across five cities, an initial group of 50 women
sewed fabric masks, producing 81,000 in 2020.
We provided the materials and purchased the
masks, distributing them to employees and
community groups. The project has already
expanded to 90 participants, including local
nano-business owners.
74
on completion, they will be equipped
to work in construction. With more than
300 people required for the construction
phase of our new rotary kiln in Brumado,
we have requested that the contractor hire
a significant proportion from this group.
We have launched a similar programme in
Contagem, too. Designed to help young people
aged 17-24 find employment opportunities,
Building the Future is a 24-month administrative
training programme that recruits from local
disadvantaged communities. the assistance
we provide to participants extends beyond
education to include practical, financial and
psychological support. on completion, the
participants receive a professional qualification
and practical experience in our operations.
Science, technology, engineering and
mathematics (SteM) remains a key focus
for our programmes. For example:
•
•
•
In Germany, our niederdollendorf plant has
initiated a new schools programme to offer
internships and job advice to help those
seeking technical positions.
In China, the new RHI Magnesita Green Cup
competition, which is run together with local
universities, fosters innovation in tackling
environmental issues.
In Austria, we support a new youth
sustainability competition, with finalists
pitching start-up ideas to a panel of investors
on television.
STRATEGIC REPORT R H I M A G N E S I TA
AnnuAl RepoRt 2020
We also continue our partnership with teach
for Austria, part of a global network of nGos
tackling educational inequity around the
world. Although we could not yet expand to
other countries as planned, our pilot project in
Austria trains graduates to teach in low-income
schools. In 2020, this programme pivoted to
support the Ministry of education’s summer
schools, which were designed to prevent
Austrian schoolchildren from falling behind.
Environmental protection
We recognise the critical role of trees and forests
in mitigating climate change and protecting
biodiversity. In addition to planting trees on
our sites (see page 71), we plant trees in our
local communities. For example, we provided
4,000 trees to the nature park near our German
plant of niederdollendorf in 2020, following
large-scale loss of trees due to drought. We
also support two local biodiversity projects: a
un-recognised initiative to conserve endangered
varieties of apple trees at a local orchard
and a project to conserve insect habitats.
other initiatives include fruit and vegetable
gardens that generate income for local
communities, river clean-ups and
environmental education projects. In 2020,
employee volunteers at 10 sites supported
these and CoVID-19 relief programmes.
75
R H I M A G N E S I TA
Chairman’s introduction
to corporate governance
Dear Shareholder,
When I wrote to you in early 2020, I noted that
this would be a challenging year and it has indeed
proven to be so, but we are proud of how we have
navigated the global crisis, brought about by
the COVID-19 pandemic. After quickly ensuring
safe working conditions for our employees, the
Company was able to demonstrate resilience
and agility for existing and new customers. I
am pleased to report that we have successfully
concluded the year in a stronger position than
we originally thought possible in January, being
able to return value to our shareholders in the
form of an interim dividend and share buyback
programme, as well as being able to propose
a final dividend of €1.00 per share. In order to
succeed, we identified opportunities to accelerate
our strategy, achieving structural reductions
and introducing variability in our costs to design
a business which is well-placed to thrive in an
evolving and volatile world. Given the extent of
change involved, taking such decisions was not
always easy, but we have grappled with many
different perspectives in order to improve the
profitability and resilience of the Company.
In our 2020 Board programme we devoted
considerable time to the deliberation of the
Company’s strategy. This involved detailed
presentations from the Executive Management
Team and senior managers, as well as reviewing
extensive market analysis alongside consideration
of key Company strengths to help us define our
direction and ambitions for the next five years.
As part of the Board strategic session, we also
reviewed our key principal and emerging risks,
while assessing the systems and processes we
have in place to manage and mitigate such.
And not least, we gave deep consideration to
our Company culture and purpose and how
these assist in the delivery of our strategy.
You can read more of my comments on these
items in our Q&A on pages 8 to 11. A more
detailed overview of the matters discussed and
debated by the Board at its meetings during
the year is presented on pages 85 and 86.
Corporate governance and the focus of our
investors continues to evolve to address the
challenges of our world and of business in
general. In the aftermath of one of the biggest
crises to affect business and society as a whole,
we believe it is right that companies are taking
time to examine their place in that world as
well as their responsibility to provide broader
contributions beyond traditional profitability
and shareholder returns. At RHI Magnesita, we
recognise the role we play in the lives of our
employees, customers, suppliers, shareholders
and the communities in which we operate. The
views and opinions of these stakeholder groups
were central to our discussions on strategy and
purpose in 2020, and played an immutable part
in every Board discussion and decision. You can
read more about our purpose on page 39 and
about our stakeholder engagement on pages 60
to 63. Throughout the year we have held various
meetings with shareholders on many different
topics, not least on corporate governance. You
can read more about these meetings on page 60.
As we reported to shareholders in July, Jim
Leng stood down from the Board at the end of
September 2020. As in our communication
at that time, I would like to record the Board’s
appreciation for Jim’s passion, commitment and
extensive contributions to the Company. Andrew
Hosty and Celia Baxter have also indicated that
they do not intend to seek re-election at our
Annual General Meeting (“AGM”) in 2021 at the
end of their three-year term. We have benefited
greatly from Celia’s significant remuneration
experience and wise counsel, guiding and
informing our approach in a listed environment.
Andrew’s substantial scientific and health and
safety knowledge has been highly valuable to
us, particularly in his guidance of management
on key operational matters. We sincerely thank
them for their commitment and guidance since
listing. Full details of our Board and Executive
succession planning and recruitment of
new members can be found on page 96.
I am pleased to note that all our Committees
have undertaken extensive work in 2020
to contribute to our Board decisions and
discussions, specifically on topics of sustainability,
particularly in respect of environmental
matters, whistleblowing, remuneration
and diversity. The reports from each Board
Committee can be found on pages 94 to 102.
76
GOVERNANCE The report of our compliance in respect of
each of the uK Corporate Governance Code
2018 (the uKCGC) and the Dutch Corporate
Governance Code 2016 (the “DCGC” and
together “the Codes”) can be found on page
78. Our corporate governance as a Board has
remained a focus in 2020 and we have closely
considered the changes to our Board in the
context of independence. It is important to us
that, whilst we individually as Directors have a
duty to exercise independent judgement, the
Board as a whole can be viewed as independent
by our stakeholders. With changes in our Board
composition and historical factors contributing
to the assessment against independent
criteria in these Codes, we found that, whilst
we still largely meet the independence
requirements of each Code as we have done
in previous years, we wanted to do more and
took the decision to change our Articles of
Association at the upcoming AGM to give
the casting vote to the Deputy Chairman and
Senior Independent Director to give assurance
to stakeholders that independence would
always prevail in Board decision-making.
Our AGM, in June 2020, was held as a virtual
meeting owing to the restrictions presented
by COVID-19. It was important to us to ensure
we remained available to shareholders, that all
investors should be able to attend and submit
votes on the day as well as by proxy. The virtual
meeting was designed to be as close as possible
to a physical meeting, with investors being
provided with the ability to submit questions as
usual. To our pleasant surprise, we found that a
virtual AGM resulted in enhanced shareholder
engagement, with a larger number of attendees
than in previous years. We will be communicating
the details of our 2021 AGM very shortly and,
circumstances allowing, our intention is to
embrace technology in order to continue to
engage with as many shareholders as possible.
Finally, with the exception of Celia and Andrew,
all Directors will seek re-election at our AGM
on 10 June 2021 and we look forward to
engaging with our shareholders at that event.
Herbert Cordt
Chairman of the Board of Directors
R H I M A G N E S I TA
AnnuAL RE pORT 2020
In a challenging year, our
Board has responded with
flexibility, embracing change
and providing constructive
engagement with our
Executive Management
Team to drive the business
towards a new future.
Herbert Cordt
Chairman of the Board of Directors
77
R H I M A G N E S I TA
Corporate governance
statement
Compliance with the Dutch Corporate
Governance Code (“DCGC”) and the UK
Corporate Governance Code (“UKCGC”)
The Board has applied the principles of, complies
with and intends to continue to comply with
the requirements of both the DCGC and
the uKCGC to the fullest extent possible.
A limited number of deviations from these
Codes are set out with explanations below.
Deviations from the uK Corporate
Governance Code in 2020
As disclosed in last year’s report, the Company
did not comply with provision 9 of uKCGC
which states that the Chairman of the Board
should be independent on appointment. The
Chairman is not considered to be independent
for the purposes of the uKCGC, having served
on the Board of RHI AG for more than nine
years, prior to the merger. This also means the
Company is not compliant with provision 19.
The Board, led by the Senior Independent
Director, believes that Herbert Cordt continues
to demonstrate integrity, objective judgement
and independence of character, and that
his experience as Chairman of RHI AG’s
supervisory board is valuable to the Company,
providing continuity and corporate memory.
Deviations from the Dutch Corporate
Governance Code in 2020
As disclosed in last year’s report, the Company
did not comply 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. The appointment of the non-
Executive Directors (other than Employee
Representative Directors) has been made on
the basis of nominations for three-year terms,
subject to performance and annual re-election
at the AGM, which was consistent with the
uKCGC at the time of appointments. The
Board considers that the three-year term still
remains within the spirit of the new uKCGC
and does not propose to make changes to
the existing non-Executive appointments.
78
Corporate governance declaration
Listing Rules information
Certain information is required to be published by
the Listing Rules (LR 9.8.4C R and LR 9.8.4 R)
and this information can be found in the
Annual Report as set out in the table below:
1.
Interest capitalised
2. publication of unaudited financial
information
n/a
n/a
3. Details of long-term incentive
schemes
pages 110, 112,
115, 120-121
4. Waiver of emoluments by a
page 124
Director
5. Waiver of future emoluments by a
Director
6. non pre-emptive issues of equity
for cash
7.
Item (6) in relation to major
subsidiary undertakings
8. parent participation in a placing by
a listed subsidiary
9. Contracts of significance
n/a
n/a
n/a
n/a
n/a
10. provision of services by a
Refer to note 61
controlling shareholder
11. Shareholder waiver of dividends
12. Shareholder waiver of future
dividends
n/a
n/a
13. Agreements with controlling
Refer to note 61
shareholders
In complying with the requirements of the
DCGC, the Company publishes this corporate
governance statement including its compliance
with the DCGC. The information required
to be included in this corporate governance
statement can be found in the following
chapters, sections and pages of this Annual
Report (the “Annual Report”) and are deemed
to be included and repeated in this statement:
•
•
•
•
•
•
the information concerning compliance with
the DCGC can be found on page 78;
the information concerning the Company’s
main features of the internal risk management
and control systems relating to the financial
reporting process can be found on pages 48
to 51;
the information regarding the functioning of
the General Meeting and its main authorities
and the rights of the Company’s shareholders
and holders of depositary interests in respect
of shares in the Company and how they can be
exercised can be found on pages 76 to 126;
the information regarding the composition and
functioning of the Board and its Committees
can be found on pages 94 to 126;
the diversity policy with regard to the
composition of the Board and their
Committees, can be found on pages 95
and 96; and
the information concerning the disclosure of
the following items, where they exist, may be
found on pages 79 to 87:
– participations in the Company for which
a disclosure obligation exists;
– special control rights attached to shares
and the name of the person entitled to
such rights;
– any limitation of voting rights, deadlines for
exercising voting rights and the issue of
depository interests for shares with the
co-operation of the Company;
– the regulations in respect of the
appointment and dismissal of Executive
Directors and non-Executive Directors and
amendments to the Articles of Association;
– the powers of the Board, in particular to
issue shares and to acquire own shares by
the Company; and
– the number of shares without voting rights
and the number of shares which do not give
any, or only a limited, right to share in the
profits or reserves of the Company, with an
indication of the powers which they confer.
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Major shareholdings
At 28 February 2021, 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
Fidelity Management &
Research Company llC
e. prinzessin zu Sayn-
Wittgenstein Berleburg2
number
of shares
%
based on
13,333,340
27.48%
2,483,166
5.12%
2,088,461
4.30%
K.A. Winterstein3
2,088,461
4.30%
through, and held in the system of, CReSt. the
depositary interest holders hold the beneficial
ownership in the shares instead of legal title.
Computershare Company nominees limited
holds the legal title to the underlying shares.
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. Such designation shall be as set out
in the Company’s Articles of Association. the
Company shall notify each issuance of shares in
the relevant calendar quarter to the Dutch trade
Register, stating the number of shares issued.
W. Winterstein4
1,590,000
3.28%
Transactions with majority shareholders
BlackRock Inc
1,695,591
3.50%
Fidelity Worldwide
Investment (FIl)
1,477,771
3.05%
1 Held directly by MSp Stiftung. MSp Stiftung is a foundation
under liechtenstein law, whose founder is Mag. Martin Schlaff.
2 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.
3 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.
4 Held in part directly and in part indirectly through FeWI
Beteiligungsgesellschaft mbH.
there are no restrictions on voting and profit
rights and no holders of any securities with
special control rights. Depositary interests in
respect of the Company’s shares have been
issued by the Company with the Company’s
co-operation, which can be settled electronically
Corporate governance structure
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.
Outline of anti-takeover measures and
response to Brexit
no anti-takeover measures have been
implemented. In 2019, the Company
acquired a secondary listing on the Vienna
Stock exchange (Wiener Börse) to extend
regulatory protections to its shareholders,
which could have been lost as a result of the
uK’s exit from the european union (eu).
Following the end of the Brexit transition period
on 31 December 2020, the uK ceased to be a
host member state of the Company under the
eu transparency Directive. Austria has therefore
become the sole host member state while the
netherlands continues to be RHI Magnesita’s home
member state. the uK’s Disclosure Guidance
and transparency Rules (DtRs) are based on the
eu transparency Directive and so there are no
significant changes required to the Company’s
reporting of annual and interim financial results.
the main change to the Company’s ongoing
disclosure and reporting obligations relates to the
market abuse regime. In certain circumstances,
the Company will be notifying disclosures to both
the Austrian regulator, as the competent authority
in the eu, and the uK regulator, as competent
authority in the uK. With the Company’s
primary listing remaining on the london Stock
exchange, our Investor Relations team will
continue to follow uK listed company practice.
Share buyback
under the authority given by shareholders at
the Annual General Meeting (AGM) in 2020
to purchase a maximum of 10% of the issued
share capital of the Company at the date of
acquisition, the Company commenced a share
buyback programme on 16 December 2020 to
return value to shareholders. the buyback of
€50 million ordinary shares remains ongoing
at the date of publication, and will end no later
than 16 December 2021. It is being conducted
on a non-discretionary basis with Barclays Bank
Ireland plC, which makes the share purchases
on the Company’s behalf, independently
of, and uninfluenced by, the Company. the
purchases are being made on market terms
and the average price per share is disclosed
in each daily report. the overall average
price will be disclosed in next year’s report.
RHI Magnesita Board
Chief
Executive
Officer
Remuneration
Committee
Nomination
Committee
Audit
Committee
Corporate
Sustainability
Committee
Executive
Management
Team
79
R H I M A G N E S I TA
Corporate governance statement
continued
As at 28 February 2021, the Company has
purchased 563,163 ordinary shares, which are
being held in treasury, and represent 1.14% of
the issued share capital (excluding shares held in
treasury) at the date of acquisition. the remaining
amount authorised under the resolution passed at
the AGM 2020, as at 28 February 2021, is 8.86%.
this will expire at the end of the 2021 AGM or the
date which falls 15 months from the 2020 AGM.
the share buyback is expected to result in
earnings accretion for our shareholders as
a result of the reduction of shares in issue,
excluding treasury shares. Before engaging
on the programme of share buybacks, the
Board discussed the risks and benefits of
such a programme and closely considered
the medium-term liquidity, leverage profile,
outlook and going concern of the Company
with detailed presentations from management
and consultations with our corporate brokers.
the matter was considered in the context of
shareholder returns, within the Group’s broader
capital allocation strategy, and deemed to be
in the best interests of a sustainable company,
its shareholders and its other stakeholders.
Board and Committee structure
the Company has a one-tier board structure,
with a Board consisting of both executive
Directors and non-executive Directors
(collectively the “Directors” or the “Board”).
As at the date of this 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 four Board Committees to ensure
a strong governance framework for decision-
making and assessment of performance
against the Company’s strategy: the Audit &
Compliance Committee (the “Audit Committee”),
the Remuneration Committee, the Corporate
Sustainability Committee and the nomination
Committee. the terms of Reference of these
Committees can be found on our website and
the reports of each Committee, including
membership and attendance at meetings in
2020, can be found on pages 94, 97, 98 and 102.
Board visit
one Board session per annum is usually held at
a location other than the Vienna headquarters
and as such, the Board had intended to travel
to Dalian, China in April 2020 to meet with
local management, plant employees, see
local operations, meet customers and local
government officials in order to gain further
insight into our growing Chinese operations.
this trip had to be postponed in 2020 as a
result of CoVID-19, and every attempt will
be made to complete a Board trip in 2021.
In spite of this missed opportunity, the Board
received detailed presentations from the
Chinese team in the Board strategy session,
in September 2020, and other Board meetings,
giving oversight of the Chinese industry and
market, and engaging on operational topics
such as manufacturing execution systems.
Culture and purpose
In a year of significant change, our culture was
a guiding factor in how projects were executed,
and decisions taken, in recognition that culture is
a bedrock to the success of integration, delivery
of synergies and a sustainable company.
the Company relaunched its cultural values in
2020. the values were not changed significantly
but were augmented to ensure the business’s
central focus on our customers was reflected in
each of the four pillars. the Board also considered
the Company’s purpose statement as part of its
strategy session in September, which is reflected
throughout this Annual Report, demonstrating
the Company’s place within our wider
environment and society. Directors considered
the perspectives of customers, employees and
the Company’s impact on the world as part of
its discussions to refine the corporate purpose.
Read more about our
culture and purpose on
Page 39
Culture has been an integral element of
Board discussions in 2020 and the Board and
its Committees use many sources to assess
culture. Given that culture can arguably best
Our culture
80
innovative
We live innovation to create
value for our customers,
by being bold and providing
the best digital and
sustainable solutions.
customer
focus
performing
Our high performance
is rooted in accountability
and responsibility. We are
a reliable partner that
decides and delivers
based on our
customers' needs.
open
Our open mindset and
transparent way of working is
flanked by a diverse, respectful
and friendly business
environment, where we care
about our customers
and colleagues.
pragmatic
We act pragmatically to
enable fast and simple
collaboration across functions
and regions to serve
our customers best.
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
be described as “the way we do things around
here”, it is difficult to use quantitative metrics
that accurately communicate the culture to the
Board, nonetheless, data used by the Directors
to measure culture include whistleblowing
reports, employee engagement survey results,
health and safety reports, responses to Internal
Audit reports and the corresponding outstanding
actions, workforce remuneration and attrition
levels throughout the annual cycle. Directors
engage directly with management, which
enables their assessment of management culture.
Contact details are publicised throughout the
business and are available externally on the
website. All reports are assessed by the Head
of Internal Audit, Risk & Compliance and then
addressed on a case by case basis, typically
engaging senior leaders from legal and HR.
the Board routinely reviews this process and
the reports arising from its operation, ensuring
there are arrangements in place for the
appropriate and independent investigation
of these cases and that follow-up actions to
address the root causes are completed.
Culture continues to be a central part of
performance evaluations for employees and
the Company’s internal communications
are underpinned by our cultural values. the
Board considered the extent to which cultural
values were promoted and embodied as part
of all succession planning decisions. Given the
multiple global locations of operations, local
culture is also discussed by the Board when
considering the impact and likely success of
initiatives. the compliance reports to Directors
refer to culture, hand in hand with training and
Code of Conduct compliance levels. the internal
audit reports to the Audit Committee demonstrate
that organisational culture is a key factor in
achieving good audit results and, where there
are improvements, culture is a focus to enable
successful implementation. Culture is considered
in discussions to identify trends and challenges
facing the business. the Corporate Sustainability
Committee specifically considers behaviour and
culture as key success factors of health and safety
campaigns – see details on page 72 and 97.
the consideration of culture at Board level
has led the understanding of performance
in teams such as supply chain management,
finance and sales, as well as on the ground
in our plants and operations. the Board has
considered the culture of different teams, and
discussed with management how that culture
has contributed to decision-making and
performance levels of the business. the Board
continues to consider how best to effectively
measure and assess culture at Board level. the
following key cultural themes determine the
actions of the Company and specifically feed
into performance reviews across the Group,
succession planning and risk management:
Whistleblowing
potential concerns about business ethics or any
matters can be reported by all stakeholders to
an independently operated, confidential and
anonymous whistleblowing hotline, available
across all our key operating locations and in
the main languages used within the Company.
the Audit Committee report contains
more details on
Pages 98 to 101
Board workforce engagement
RHI Magnesita’s corporate structure has, from the
beginning, included employee Representative
Directors as a requirement from the merger in
2017. these Directors, Michael Schwarz and Franz
Reiter, have been on the Board from 2017 and they
play an active role at Board meetings, representing
views of the workforce and holding management
to account with the combined benefit of
nearly 80 years of experience at the frontline
of operations. the information and discussions
at Board meetings helps their support of the
workforce and provides a mutually beneficial
link between colleagues and the Board. Specific
details are included in the Board stakeholder
engagement report on pages 60 to 63.
Board composition
the Board is composed of 14 Directors
which includes two executive Directors, two
employee Representative Directors and 10
non-executive Directors, seven of whom are
deemed independent (as set out in the table on
page 82), thereby constituting a Board which
is composed of at least half non-executive
Directors (excluding the Chairman) considered
by the Board to be independent. the size
of the Board provides varied perspectives,
allowing for balanced and healthy debate.
the nomination Committee seeks to ensure
the right balance of skills, knowledge and
experience on the Board, taking account of
the business model, long-term strategy and
the sectors and geographic locations in which
the Group operates. the Board is structured so
that the following experience and capabilities
are present in one or more of its Directors:
• knowledge and understanding of the business
and products of the Company and its
subsidiaries and the markets and geographies
in which the Company and its subsidiaries
operate, in particular the trends and future
developments of these markets and
geographies;
• an international background and geopolitical
exposure;
• broad board experience, including knowledge
of corporate governance issues at main board
level as appropriate for the Company with
reference to its size and international spread
of activities;
• understanding of corporate social
responsibility and sustainability matters;
• practical experience in, and relating to,
financing and accounting and/or experience
in relation to International Financial Reporting
Standards (IFRS), as well as in the areas of risk
management and internal controls;
• understanding of the markets where
the Company is active, in particular
emerging markets;
• science, technology and innovation expertise;
• experience and understanding of human
resources and remuneration related
matters; and
• personal qualities such as impartiality,
integrity, tolerance of other points of view,
ability to challenge constructively and act
critically and independently.
the nomination Committee considers that
all of these aspects are present in a number of
the Directors and well represented across the
Board. the Board continues to pursue a policy
of having at least a third of the seats on the
Board held by women. It is expected that this
will be achieved during 2021. the nomination
Committee continues to explore paths to build
gender diversity. the Board is committed to
encouraging diversity to deliver long-term
sustainable success for the Company and will
continue to pursue its programme in this regard.
Read about Board diversity in the
nomination Committee report on
Pages 94 to 96
the Board has considered the independence
of the non-executive Directors, including
potential conflicts of interest, and the table on
page 82 sets out those Directors considered
independent. each of these Directors has also
confirmed that there is no reason why they should
not continue to be considered independent.
81
R H I M A G N E S I TA
Corporate governance statement
continued
At the date of this Annual Report, the Board is composed as follows:
name
Herbert Cordt
Stefan Borgas
Ian Botha
David Schlaff
position
Chairman1
Executive Director (CEO)4, 5
Executive Director (CFO)4, 5
non-Independent non-Executive Director4, 5
Stanislaus prinz zu Sayn-Wittgenstein-Berleburg
non-Independent non-Executive Director4, 5
John Ramsay
Celia Baxter
Janet Ashdown
Andrew Hosty
Deputy Chairman and Senior Independent Director2, 3
Independent non-Executive Director2, 3
Independent non-Executive Director2, 3
Independent non-Executive Director2, 3
Wolfgang Ruttenstorfer
Independent non-Executive Director6
Independent non-Executive Director2, 3
Independent non-Executive Director2, 3
Karl Sevelda
Fiona paulus
Michael Schwarz
Franz Reiter
Year of birth
Date of
appointment
Expiry/
reappointment date
1947
1964
1971
1978
1965
1957
1958
1959
1965
1950
1950
1959
20 June 2017
20 June 2017
6 June 2019
6 October 2017
6 October 2017
6 October 2017
6 October 2017
6 June 2019
6 October 2017
20 June 2017
6 October 2017
6 June 2019
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
2021 AGM
Employee Representative Director4, 5
1966
8 December 2017
8 December 2021
Employee Representative Director4, 5
1962
26 October 2017
26 October 2021
1 Herbert Cordt was a member of the supervisory board of RHI AG and thus not deemed to be independent on appointment within the meaning of the uKCGC but independent on appointment within the
meaning of the DCGC, due to a difference in independence requirements under the respective codes.
2 Independent within the meaning of the uKCGC.
3 Independent within the meaning of the DCGC.
4 non-Independent within the meaning of the uKCGC.
5 non-Independent within the meaning of the DCGC.
6 Wolfgang Ruttenstorfer is, as a result of having undertaken a management board role for RHI AG on a temporary basis between June and november 2016, not considered to be independent within the
meaning of the DCGC. notwithstanding this historic role, the Board considers Mr. Ruttenstorfer to be independent for the purposes of the uKCGC.
Individual roles
Non-Executive roles
The Board has documented the matters
reserved for its approval including approvals
of major expenditure, investments and key
policies. This was revisited and revised in 2020
to ensure it reflected the current organisational
structure, and provided as much clarity as
possible to the Board and the organisation
as a whole to enable effective delegation of
authority. The roles of Chairman, the CEO,
SID and Deputy Chairman have been formally
recorded by the Board. All of these documents
can be found on the Company website. The
composition of the Board has been structured
such that no one individual can dominate the
decision-making processes of the Board.
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 members
of the Board, regardless of the allocation of tasks.
82
The Employee Representative, non-independent
and Independent non-Executive Directors engage
with the business of the Board from different
perspectives, enabling multifaceted scrutiny
to be applied to the Board’s decision-making
ensuring that the viewpoints of the Company’s
key stakeholders are represented. All Directors
are required to exercise their independent
judgement and act in the best interests of the
Company, taking into account the interests of
its stakeholders, in their decision-making.
the performance of management in meeting
their objectives with the benefit of historical
experience of the operations and industry of the
business. Stanislaus prinz zu Sayn-Wittgenstein-
Berleburg and David Schlaff can provide an
investor perspective to the management team
and challenge them accordingly. The detail of
all the Directors’ independence and the detail of
compliance with the criteria of each Code can
be found above and on page 78 respectively.
The Chairman’s other significant commitments
are set out in the table below:
Non-Independent Non-Executive Director roles
name of company
Function
Herbert Cordt, Stanislaus prinz zu Sayn-
Wittgenstein-Berleburg and David Schlaff are
not considered independent under the uKCGC,
having been members of the supervisory board of
RHI AG for a number of years prior to the merger
in 2017 with Magnesita. However, because of
that experience, they contribute strongly to
the Board’s culture and personality, adding
valuable insight gained through experience of
the markets in which the Group operates and
corporate memory. They can constructively
challenge the Executive Directors and scrutinise
CORDT & pARTnER
Management- und
Finanzierungsconsulting
GesmbH.
Managing partner
Watermill Group Boston
Advisory Board member
Georgetown university’s School
of Foreign Service for its MSFS
program
Advisory Board member
Quality Metalcraft/Experi-
Metal, Inc.
Advisory Board member
Cooper & Turner Group
Advisory Board member
GOVERNANCE R H I M A G N E S I TA
AnnuAL RE pORT 2020
Executive Directors
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 instructing an auditor to audit the Company’s
annual accounts if the General Meeting fails to do
so; or (iii) nominating Directors for appointment.
The role of an Executive Director is, amongst
other things, to bring commercial and
internal perspectives to the boardroom. The
Executive Directors, being the CEO and
CFO, are responsible for the leadership and
management of the Company according to
the strategic direction set by the Board.
Information and support for Directors
upon joining the Board, any new Director is
offered a comprehensive and tailored induction
programme covering all aspects of the value
chain, with visits to key sites and meetings with
senior managers and other colleagues or advisers
as required. Any new members to Committees
are provided with the opportunity for a full and
detailed induction, even if they are existing
members of the Board. Relevant reference
documents are also made available on the Board
portal to new Board and Committee members.
In order to build and increase the non-Executive
Directors’ appreciation and understanding of
the Group’s people, businesses and markets,
particularly growth markets, senior managers
are regularly invited to make presentations
at Board meetings. The strategy meeting
involved multiple break-out sessions to provide
detail on certain areas of business focus such
as CO2 emissions and digitalisation. Training
and additional information sessions on areas
such as pension funding, risk management,
demand planning and cost allocation have
been provided by management on a one-to-
one basis for Directors throughout the year.
Directors also maintain their own individual
non-executive training schedule based on their
areas of need and interest using the resources
available to them from external advisers.
There is an established procedure for
Directors to seek independent professional
advice in the furtherance of their duties,
if they consider this necessary.
The Company maintains Directors’ and Officers’
liability insurance which provides appropriate
cover for legal action brought against its Directors.
In line with Dutch best practice and corporate
law, at each AGM there is a resolution to release
the Directors from liability for the exercise of their
respective duties during the financial year.
Company Secretary
Sally Caswell was appointed by the Board
as Company Secretary in January 2020.
All Directors have access to the advice and
services of the Company Secretary, whose
responsibilities include ensuring that Board
procedures are followed, assisting the Chairman
in relation to corporate governance matters
and, in conjunction with the General Counsel,
ensuring the compliance of the Company
with legal and regulatory requirements.
Conflict of interest
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 and
the rules adopted by the Board (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.
Time commitment
On appointment, and each subsequent year,
non-Executive Directors confirm 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, and the
Board is advised of any changes. The Board is
satisfied that, having considered the demands
of the external appointments of each non-
Executive Director and the time requirements
from the Company, all non-Executive Directors
are contributing effectively to the operation of
the Board. Whilst the non-Executive Directors
are re-elected each year at the AGM, their letters
of appointment state a term of three years.
Board powers, responsibilities
and representation
The Board is collectively responsible for the
leadership and management of the Company
and its business. Its role is to establish the
strategy, purpose and values to ensure the
Group’s long-term and sustainable success. The
Board assesses the strategic risks it is willing to
take in pursuit of this strategy, ensures sufficient
resources, and measures the performance
of management against agreed objectives,
aligned with the strategy. The Board ensures that
appropriate controls and systems are in place
to manage risk and considers the Company
culture and practices, reviewing alignment
with the purpose, values and strategy.
The Board Rules and Matters Reserved to the
Board, which are available on the website, set out
those matters which are reserved for the Board
to consider, including among other items, overall
responsibility for strategy and management,
major acquisitions and investments, structure
and capital, financial reporting and controls,
and corporate governance. You can read
more about the matters considered by the
Board in 2020 on pages 85 and 86.
The Board has delegated responsibility for
day-to-day management of the Company to the
CEO and his Executive Management Team (the
EMT). There is a clear separation of responsibilities
between the Board and the EMT, and the main
responsibilities of the EMT are to assist the Board
with its oversight of strategy, which involves
making strategic recommendations to the Board,
being accountable for implementing the Board’s
decisions, and being responsible for directing
and overseeing the Company’s operations.
The Board has delegated some responsibilities
to Committees of the Board, which are outlined
in the Committee Terms of Reference, available
on the Company website, and summarised in
their individual reports on pages 94 to 106. The
Chairman of each Committee provides a report to
each Board on the matters discussed and resolved
upon in the respective Committee meetings.
Each Board Committee has considered the
required matters from the respective Terms of
Reference and, through the Board evaluation
process, has assessed its performance. The
composition of the Committees, the number
of meetings, attendance at those meetings
and key items discussed can be found in each
Committee Report on pages 94 to 102.
83
R H I M A G N E S I TA
Corporate governance statement
continued
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 by
the General Meeting. 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 AGM 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 nominated for a second term
of three years, at the expiry of which they will not
ordinarily be considered for re-appointment.
The General Meeting has the power to suspend
or remove a Director at any time, by means of a
resolution for suspension or removal as outlined in
the Articles of Association. The General Meeting
is authorised to resolve to amend the Articles
of Association, on the proposal of the Board.
Board attendance
Seven Board meetings were planned for the year
(2019: also 7), with three meetings held at short
notice on specific items. Where short notice was
provided, information was provided to all Directors
in advance and in the event of representation by
another Board member at the meeting, Directors’
comments were considered at the meeting in
respect of the matters discussed. Given the
increased travel restrictions, the Board meetings
were held largely via videoconferencing
facilities in 2020 and the Board made use of
various digital tools to facilitate the meetings.
The table below shows the number of scheduled
meetings attended and the maximum number
of scheduled meetings which the Directors
were eligible to attend. Only in exceptional
circumstances would Directors not attend
Board and Committee meetings. Similarly,
every effort is made to attend ad hoc meetings.
none of our non-Executive Directors have
raised concerns over the time commitment
required of them to fulfil their duties.
Board attendance 2020
Total
attended
Total meetings
eligible to attend
Stefan Borgas
Ian Botha
Herbert Cordt
Celia Baxter
Andrew Hosty
James Leng
Stanislaus prinz zu
Sayn-Wittgenstein
Franz Reiter
Wolfgang Ruttenstorfer
David Schlaff
John Ramsay
Michael Schwarz
Janet Ashdown
Fiona paulus
Karl Sevelda
10
10
10
10
9
7
10
10
10
9
10
9
10
10
10
10
10
10
10
10
8
10
10
10
10
10
10
10
10
10
1 In the year, four Board sub-committees were held to approve
matters specifically delegated by the Board in accordance with
article 17.5 of the Company’s Articles of Association. These are
not included in the table above.
2 Three meetings were called on short notice which restricted
attendance where Directors had existing commitments.
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. 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 or a resolution of the Board. Each
Director has a duty towards the Company to
properly perform the duties assigned to them.
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, (i) the CEO and the
Chairman, (ii) the Senior Independent Director
and Deputy Chairman1 and the Chairman and
(iii) two Executive Directors, acting jointly, are
also authorised to represent the Company.
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.
Board appointment
pursuant to the Articles of Association,
the Directors, other than the Employee
Representative Directors, are appointed by
the General Meeting by a majority of votes
cast, irrespective of the represented capital.
The Board makes nominations to the General
Meeting for such appointments. 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.
1 A dual role held by one individual, currently John Ramsay.
You can read the role description on our website https://ir.
rhimagnesita.com/wp-content/uploads/2019/12/
role-of-the-deputy-chairman-and-senior-independent-
director.pdf
84
GOVERNANCE R H I M A G N E S I TA
AnnuAL RE pORT 2020
Board effectiveness
Operation and decision-making of the Board
The Board meets regularly throughout the year
with seven Board and Committee sessions, which
are usually spread over two days, in person in
Vienna. Board meetings can also be convened as
deemed necessary by the Chairman or the Senior
Independent Director and Deputy Chairman.
In prior years, the Board has held one meeting
in the netherlands, ahead of the AGM, and
then another session in an operational location.
In 2019 this was in Minas Gerais, Brazil and in
2020 it was planned to be in Dalian, China. In
2020, the Board had one meeting in January
where all Directors met in person, with the
remainder being held through a combination of
in-person attendance and video conferencing.
Technology and equipment were developed
wherever possible to achieve the best outcomes
for attendees in the circumstances and optimise
the input from individuals. The structure of the
meetings was adjusted to address the needs
of those attending on video conference and
wherever in-person meeting was permitted
under local guidelines, relevant health and
safety measures were abided by, such as
masks, temperature checks, social distancing,
ventilation of the rooms, and COVID-19 testing.
At the end of each Board meeting, the non-
Executive Directors meet without the Executive
Directors and management present to enable
an open and frank exchange of views and
assessment of performance. Additionally, the
SID holds a meeting with the other Independent
non-Executive Directors to discuss the
Chairman’s performance in the course of the
year, with input from the externally facilitated
review. The Chairman and other non-Executive
Directors hold regular informal, individual,
meetings with the Executive Directors and
other senior managers in the business,
providing the opportunity to raise questions
and cover points of interest, which contributes
to the development of both the non-Executive
Director and the management members.
Board papers are circulated in advance of
meetings, using a secure web-based portal, to
allow Directors sufficient time to consider their
content prior to the meeting. The Chairman is
assisted in this responsibility by the Company
Secretary and CEO through the careful
preparation of agendas and the timely provision
of papers to the Board. The management team
continues to take feedback from the Board via
the evaluation process on how papers and
presentations can be improved to assist the flow
of the meeting. An information room within the
web portal provides access to useful information,
including corporate governance reference
materials, analyst reports, and Company
finance, treasury and strategy information.
The Board takes the views of its key stakeholder
groups into account when challenging
management, and in its discussions and
decision-making. Inputs to this process
include the Company’s net promoter Score,
employee engagement surveys, the Employee
Representative Directors’ views, regular Investor
Relations reports, analyst coverage and views
of the two non-Independent non-Executive
Directors. The Chairman takes care to ensure
that each Director has opportunity to comment
and be heard, whilst enabling an orderly flow
at Board meetings. The Board evaluation in
november 2020, which comprised reviews of
the Board, its Committees, the Chairman and
individual Directors’ self-evaluation, confirmed
that the Board was functioning effectively and
more detail on the Board evaluation process and
outcomes can be found on pages 94 to 95.
The Board recognises the importance of
balancing stakeholder views whilst acting in the
best interests of the Company. In the event of a
decision which has a potentially negative impact
on a specific stakeholder group, efforts are made
to mitigate these – as an example, in the event of
a plant closure, which does not benefit a group
of employees, a social plan (transfergellschaft) is
implemented and a transparent communications
strategy is implemented to explain the decision.
This aligns with the Company values to be
open in decision-making and accountable for
actions taken. See stakeholder engagement
on pages 60 to 63 for more examples of this.
Key areas of Board focus and activity in 2020
Amongst other matters, the Board focused
on the following areas in the year:
• Group strategy
– Held annual strategy meeting session over
two days with members of the EMT to
develop the Group’s future strategic plans.
As part of these discussions, the Board
considered the global outlook of economic
recovery and macroeconomic trends,
developments in key markets in each
region, structural trends, review of the
business model, and the competitive
environment for each region and
product area.
– As part of the strategy session, undertook
risk management workshop aligned with
the strategic opportunities and focused
break-out sessions on future opportunities
such as digitalisation and technologies. The
strategy session also included discussion
and approval of the Company’s purpose.
– Received reports throughout the year
outlining potential business development
opportunities as they arose, including
strategic M&A.
• Succession and leadership
– Reviewed Board Committee
membership and received updates
from the nomination Committee.
– undertook annual review of all conflicts
of interest.
– Considered the executive management
and CEO succession plans and
related actions.
– Considered the 2019 external Board
evaluation and the actions relating to the
review, including progress against the
actions identified in the year. See pages
86 and 87 for further details.
85
R H I M A G N E S I TA
Corporate governance statement
continued
• Financial performance
• Legal and compliance matters
Board evaluation
– Approved the annual budget.
– Received regular updates on
– Reviewed and approved the Group’s
full-year 2019 and half-year 2020 results
together with the 2019 Annual Report,
including ensuring that it is fair, balanced
and understandable and confirming that
the Group was a going concern.
– Received regular financial updates and
reviewed ongoing financial performance at
every Board meeting.
– Reviewed the Group’s debt, capital and
funding arrangements.
– Reviewed liquidity, cash flow and scenario
planning, particularly with reference to the
impact from COVID-19.
whistleblowing, including an annual
review of the process.
– Considered legal and compliance reports,
including review of share dealing
processes and updates on any legal
developments as they related to
the Company.
– Considered and approved revised share
dealing and inside information policies,
Matters Reserved to the Board, Board Rules
and Delegation of Authority.
• Stakeholder engagement and governance
– Approved the notice and business of
the AGM.
– Considered capital allocation and
payment of dividends, including the
approval of the interim dividend and the
share buyback.
– Received regular input from the Employee
Representative Directors on the Board
and the results of employee surveys
throughout the year,
– Appraised the principal risks, mitigating
– Considered the Company culture and
actions and controls in the risk.
reports on the Company values.
– Received regular updates on the Group’s
– Received reports on investor engagement
compliance and data protection
programmes.
• Sales and operational performance
– Received updates at each meeting on
operational performance, including any
impacts to customers and current health
and safety compliance levels.
– Received updates at each meeting on
sales performance, particularly with
reference to customers and the impacts
from COVID-19.
– Considered individual plant performance
and, with reference to the Company’s
strategy and impacts from COVID-19, took
decisions to close or pause production at
plants as required.
at each Board meeting, including
verbatim feedback.
– Received presentations on diversity, the
development of recycling initiatives and
low-carbon products.
– Received report on customer satisfaction
levels, including net promoter Score.
– Reviewed remuneration of senior
management, the Executive Directors
and the Group-wide bonus scheme
on recommendation from the
Remuneration Committee.
– Received reports from the Remuneration
Committee on investor engagement and
the new Remuneration policy.
– Received regular updates on corporate
governance and other matters from the
Company Secretary.
The corporate advisory firm, Lintstock is engaged
on a three-year programme to support the
Board in its evaluation of its performance. The
Company has no other relationship with Lintstock.
prior to commencing this final stage of the
three-year programme, the Board considered
the progress made against actions from the
previous year under the headings of Board
Composition, Stakeholder Engagement, Board
Dynamics, Board Support, Management and
Focus of Meetings, Strategic Oversight, Risk
Management and Internal Control, Succession
planning and Human Resource management,
and Board Committees. Whilst progress in some
areas has been hampered by COVID-19, such
as the recommendation to hold Committee
meetings at a site, other recommendations have
been met, such as a longer and more detailed
Board strategy session which included break-
out sessions for the Board and was felt to have
greatly improved the quality of discussion. The
Board agenda planner and Matters Reserved
were also refreshed and improved in response
to comments from the Board evaluation in
2019 and the approach to remuneration by
the Board was agreed to be more pragmatic
and tailored to the needs of the Company.
In this third year of review, Lintstock issued
detailed questionnaires to all Directors for their
assessment of the Board performance, their
own performance, and that of the Chairman. In
order to promote an open and frank exchange
of views, appropriate arrangements were made
to ensure the anonymity of the respondents.
86
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
the review covered core areas of the Board and
Committee performance, with particular focus on:
• Board composition and diversity;
• stakeholder oversight;
• culture and execution of strategic goals;
• Board dynamics, communication
and cohesion;
• support and challenge of the eMt;
• Board support and effectiveness of
remote meetings;
• meeting management and focus;
• Board Committee effectiveness;
• quality of discussion and relationships
between Directors and management;
• strategic oversight and discussion;
•
risk management and internal controls; and
• succession planning, talent management
and human resource management.
the review also included a case study
on CoVID-19, the business’s response
and the impact on risk management.
A review of the Chairman’s performance was
also completed as part of this process which
supported the SID in leading an assessment
of the Chairman’s performance with the other
Independent non-executive Directors.
the Board has considered the 2020 review
(with outcomes discussed in the nomination
Committee report on pages 94 and 95)
and was pleased to note that, even with the
impacts felt from CoVID-19 restrictions, the
Board was assessed as having maintained
or improved its performance from 2019. An
action plan, aligned to the outcomes of the
2020 review, to drive further progress through
2021 has been drawn up and progress will
be reported in the 2021 Annual Report.
Statement of Directors’ responsibilities
the Directors are responsible for preparing the
Company’s Annual Report. the Company’s
Annual Report comprises, among others, the
Strategic Report, the Governance Report,
the Consolidated Financial Statements. the
Directors are responsible for preparing the Annual
Report for each financial year in accordance
with applicable law and regulations, including
in accordance with 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 Company and its
consolidated Group companies 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, 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.
each of the Directors, whose names and
functions are listed on page 225, 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 its consolidated Group companies 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 53 (the
“Viability Statement”) of the integrated report
and accounts. the consolidated financial
statements on pages 127 to 225 were approved
and signed by the Board on 5 March 2021.
87
R H I M A G N E S I TA
Board of
Directors
3
7
11
4
8
12
Our Board comprises a
wide range of experience
and skills, as well as
broad diversity.
1
5
9
2
6
10
13
14
88
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Board Committee member
nomination Committee
n
Remuneration Committee
R
Audit & Compliance Committee
A
n
Chairman of Committee
S
Corporate Sustainability Committee
eleCt refers to the individual becoming
a member of the committee from
June 2021
Chief Executive Officer
Chief Financial Officer
Chairman
Senior Independent
Director and Deputy
Chairman
1. Herbert Cordt
Chairman
n
2. John Ramsay
Independent Non-Executive Director
A
n
3. Stefan Borgas
Chief Executive Officer
4. Ian Botha
Chief Financial Officer
Appointment date: June 2017
Nationality: Austrian
Appointment date: October 2017
Nationality: British
Appointment date: June 2017
Nationality: German
Appointment date: June 2019
Nationality: South African/British
John has held senior financial executive
roles across the world, including serving
as Chief Financial officer of Syngenta
AG, as well as being their Interim Ceo for
a period. John started with Syngenta AG
as Group Financial Controller in 2000
and prior to that was Finance Head of Asia
pacific for Zeneca Agrochemicals. earlier
in his career he was a Financial Controller
of ICI Malaysia and regional controller
for latin America. He started his career
working in audit and tax at KpMG and his
knowledge in accounting and finance
provides valuable practical experience.
John is a Chartered Accountant and also
holds an Honours Degree in Accounting.
Current external appointments:
Koninklijke DSM n.V. (Supervisory Board
Member), G4S plc (non-executive
Director, Chair of Audit), Croda plc (Chair
of Audit and non-executive Director).
Stefan was Ceo at RHI AG from
December 2016 until october 2017. prior
to that, he was president and Ceo at Israel
Chemicals ltd and between 2004 and
2012, he was Ceo at lonza Group. In his
early career, he worked at BASF Group,
where he held various management
positions. Stefan was elected as president
of the World Refractories Association
for a two-year term in January 2018.
Stefan has a business administration
degree from the university
Saarbrücken and an MBA from the
university of St. Gallen-HSG.
Current external appointments:
Afyren SAS (Chairman) and borgas
advisory GmbH (owner).
Ian enjoyed a highly successful career
with FtSe listed Anglo American plc in
the related mining and metals industry
for over 20 years. Whilst there, he held
a variety of international executive roles
including as Group Financial Controller
and divisional Chief Financial officer,
and most recently as Finance Director
of listed Anglo American platinum. Ian
has significant experience in finance
and accounting, investor relations,
strategy, M&A and governance, as
well as excellent business acumen
and a track record in financial and
performance improvements.
Ian holds a Bachelor’s degree in
Commerce from the university of Cape
town and is a Chartered Accountant.
Current external appointments: none.
Herbert was Chairman of the Supervisory
Board of RHI AG from 2010 until 2017,
as well as Vice-Chairman from 2007 to
2010. He is Managing partner at Cordt
& partner GmbH, his international
boutique corporate finance consultancy,
which advises clients on corporate
finance matters. In the course of his
career he has held a variety of senior
executive and managing director
positions in telecommunications and
financial institutions in european firms,
providing a wide range of business
acumen and international experience.
Herbert obtained a Doctorate in law from
university of Vienna, graduated from
the Diplomatic Academy of Vienna and
received a Master’s of Science degree
in Foreign Service from Georgetown
university Washington D.C.
Current external appointments:
Watermill Group Boston (Advisor),
Cooper & turner Group (Advisory Board
Member), Quality Metalcraft/experi-
Metal, Inc. (Advisory Board Member),
CoRDt & pARtneR Management
und Finanzierungsconsulting
GesmbH (Managing partner),
Georgetown university’s School of
Foreign Service for its MSFS program
(Advisory Board Member).
Board members by gender
Board members by independence
Male (75%)
Female (25%)
Independent
Non-Executive
Directors (50%)
Non-Independent
Non-Executive
Directors (21%)
Executive
Directors (14%)
Employee
Representative
Directors (14%)
Board members by nationality
Board members by length of tenure
Austrian (36%)
British (36%)
German (21%)
SA/British (7%)
3+ years (79%)
1+ year (21%)
89
R H I M A G N E S I TA
Independent Non-Executive Directors
7. Celia Baxter
Independent Non-Executive Director
R
n
8. Janet Ashdown
Independent Non-Executive Director
S
R
9. Wolfgang Ruttenstorfer
Independent Non-Executive Director
A
Appointment date: October 2017
Nationality: British
Appointment date: June 2019
Nationality: British
Appointment date: June 2017
Nationality: Austrian
Celia was Director of Group Human
Resources for Bunzl plc for 13 years.
prior to that she served as Head of
Human Resources of enterprise oil plc,
having been Director of Group Human
Resources at tate & lyle plc. She started
her professional career at the Ford
Motor Company where she held several
management positions and went on to
provide consulting services in Human
Resources at KpMG. She now holds
a number of non-executive positions
which deploy her detailed understanding
of international businesses,
human resources, remuneration,
sustainability and related matters.
Celia holds a phD and BSc in Botany
from the university of Reading.
Current external appointments:
HR tech llp (partner), and Senior
plc (Senior Independent Director,
Chair of Remuneration) and DS
Smith plc (non-executive Director
and Chair of Remuneration).
Janet has had a distinguished career
working for Bp plc for over 30 years,
holding a number of international
executive positions throughout the
value chain. until the end of 2012,
Janet was Ceo of Harvest energy
ltd and throughout her career has
provided leadership through change.
Janet also has a wide range of board
and committee experience as a non-
executive Director, including the uK
nuclear Decommissioning Authority,
a public body where she chairs the
Safety and Sustainability Committee.
Her experience in the energy sector
has provided her with significant skills
in general management, particularly in
environmental and sustainability matters.
Janet holds a BSc in energy engineering
from Swansea university.
Current external appointments:
nuclear Decommissioning Authority
uK (non-executive Director and
Chair of Safety & Sustainability),
Victrex plc (non-executive Director,
Chair of Remuneration) and
Marshalls plc (Senior Independent
Director, Chair of Remuneration).
Wolfgang was a member of the
Supervisory Board of RHI AG from 2012 to
2017, where he acted as the Interim Ceo
for six months, following the sickness-
related absence of the Ceo. He started
his professional career in oil and gas at
oMV, where he became Ceo and then
Chairman of the Management Board.
He has held numerous supervisory
board roles, including as Chairman, in
industries such as telecommunications,
real estate, healthcare and insurance.
Wolfgang also served as Secretary
of State in the Austrian Federal
Ministry of Finance. His varied career
brings a wide range of strategic and
business management experience.
Wolfgang graduated from the Vienna
university of economics and Business.
Current external appointments:
Flughafen Wien Aktiengesellschaft
(Supervisory Board member)
and erne Fittings GmbH
(Supervisory Board member).
Board of Directors
continued
Non-Independent
Non-Executive Directors
5. David Schlaff
Non-Independent Non-Executive
Director
Appointment date: October 2017
Nationality: Austrian
David was a member of the Supervisory
Board at RHI AG from 2010 until 2017.
Currently Chief Investment officer and
joint Managing Director at M-tel, he
has key management and supervisory
experience in international financial
and manufacturing institutions. He
has undertaken roles at lH Financial
Services Corporation and Forstmann-
leff Associates Inc, and he has held
advisory and supervisory board
positions at latrobe Specialty Steel
Company and A/S Ventspils nafta.
David holds a Bachelor’s degree in
Business Administration from the
Interdisciplinary Center Herzliya in Israel.
Current external appointments: M-tel
Holding GmbH (Chief Investment
officer and Joint Managing Director).
6. Stanislaus Prinz zu
Sayn-Wittgenstein-Berleburg
Non-Independent Non-Executive
Director
Appointment date: October 2017
Nationality: German
Stanislaus was a member of the
Supervisory Board of RHI AG between
2001 and 2017. He has been a member
of Supervisory Boards for several
“Stadtwerke” (municipality owned
utilities) and Didier Werke AG as well
as undertaking senior executive roles,
including Ceo and Chief Financial officer,
in the energy industry, and numerous
management roles within the eon
group. He has also been a Director in the
Investment Banking Division, at Deutsche
Bank AG. He has deployed industrial
knowledge combined with financial detail
throughout his career. over the past five
years he has focused on private equity
work in a German mid-cap environment.
Stanislaus holds a Sloan Fellows Master’s
in Business Administration from MIt
Sloan School of Management and
studied Business Administration and
economics at université de Fribourg. He
is a Chartered Financial Analyst (CFA).
Current external appointments:
endurance Capital AG (Supervisory Board
member), Cognostics AG (Supervisory
Board member) and StuV Steinbach
& Vollmann Holding GmbH (Ceo) .
90
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Board Committee member
nomination Committee
n
Remuneration Committee
R
Audit & Compliance Committee
A
n
Chairman of Committee
Independent Non-Executive Directors
S
Corporate Sustainability Committee
10. Karl Sevelda
Independent Non-Executive Director
n
R
eleCt
11. Andrew Hosty
Independent Non-Executive Director
S
12. Fiona Paulus
Independent Non-Executive Director
A
S
R eleCt
eleCt refers to the individual becoming
a member of the committee from
June 2021
Employee Representative
Directors
13. Franz Reiter
Employee Representative Director
Appointment date: October 2017
Nationality: Austrian
Appointment date: October 2017
Nationality: British
Appointment date: June 2019
Nationality: British
Appointment date: October 2017
Nationality: Austrian
Franz has been with the Group since
1977 and is Chairman of the Group Works
Council at Veitsch-Radex GmbH.
Current external appointments: none.
14. Michael Schwarz
Employee Representative Director
Appointment date: December 2017
Nationality: German
Michael has been with the Group since
1983 and is a member of the works council
at RHI Magnesita Deutschland AG.
Current external appointments: none.
Fiona has over 37 years’ global
investment banking experience, having
held senior management roles with
a number of leading international
investment banks, such as Credit Suisse,
Royal Bank of Scotland, Deutsche
Bank and Citigroup. During her career,
Fiona has led and managed a variety
of global banking businesses, from
start-ups to businesses with uS$4
billion in total revenues. Additionally,
Fiona has advised companies in over
70 countries in the global energy and
resources sectors on various strategic
initiatives, including M&A, equity and
debt financings, and risk management.
Fiona has a BA in economics from
the university of Durham.
Current external appointments:
Interpipe Group (non-executive Director)
and Redcliffe Advice (Managing Director).
Karl progressed to Ceo of Raiffeisen
Bank International AG after being Deputy
Ceo and undertaking management
roles in the Raiffeisen Bank group
where he was responsible for corporate
customers and corporate, trade and
export finance worldwide. prior to this,
he held several senior management
positions in Creditanstalt-Bankverein
where he focused on corporate and
export finance. Additionally, he has held
the position of Secretary to the Federal
Minister for trade and Industry of Austria.
Karl holds a Master’s and Doctorate
Degree from Vienna university
of economics and Business.
Current external appointments: SIGnA
prime Selection AG (Supervisory
Board member), liechtensteinische
landesbank AG (non-executive
Director), and Custos privatstiftung
(Management Board member).
Andrew is an international business
leader with over 15 years of non-
executive board experience and 30
years of executive and management
experience. throughout his career he
has held a number of senior executive
roles primarily in specialist materials
manufacturing, including Chief executive
of the Sir Henry Royce Institute for
Advanced Materials and Chief operating
officer at Morgan Advanced Materials
plc. At the latter company he held a
number of senior positions, including
Ceo of Morgan Ceramics. He was
previously a non-executive Director of
Fiberweb plc and has been president
of the British Ceramics Confederation.
Andrew provides technological and
scientific expertise combined with
practical and commercial insights.
He also has a detailed understanding
of health and safety best practice
from his executive career.
Andrew is a Fellow of the Royal
Academy of engineering. He
has a phD in engineering and
a BSc in materials science.
Current external appointments: James
Cropper plc (Senior Independent
Director), Rights and Issues Investment
trust plc (non-executive Director) mom
Incubators ltd (non-executive Director),
and nexeon limited (Chairman).
91
R H I M A G N E S I TA
Executive Management
Team
4
1
5
2
6
3
7
With its depth of experience and
complementary skill sets, our EMT
members are able to provide an
appropriate mix of perspectives to
all strategic discussions.
92
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
1. Stefan Borgas
CEO
2. Ian Botha
CFO
For full biographies, see
Page 89
3. Gustavo Franco
Chief Sales Officer
5. Gerd Schubert
Chief Operations Officer
7. Ticiana Kobel
General Counsel
ticiana has extensive legal experience
in a wide range of global businesses,
such as SR technics Group and Bühler
Group, leading legal departments in
manufacturing, aviation, technology,
service sector and engineering
industries. In these roles, she was in
charge of crucial projects pertaining
to varied matters, such as spin-offs,
sales and acquisitions, and corporate
governance issues, and assisted with
the design and implementation of
compliance functions, mergers and
acquisitions, and partnerships.
ticiana has a law degree with an
emphasis in corporate law from
the Federal university of Minas
Gerais and an llM in International
economic law and european law
at the university of Geneva.
Gustavo was appointed Chief Sales
officer in January 2020, prior to
which he was Senior Vp of process
Industries and Minerals. He joined
Magnesita in 2001 as a technical
Marketing engineer, after finishing
his Bachelor’s degree in Mechanical
engineering at the Federal Center
for technological education of Minas
Gerais and since then has developed
his career in the refractory industry.
over the course of six years, he
progressed through various sales
managerial roles in South and north
America and was part of the executive
Committee of Magnesita Refratários
from 2015 to 2017. In 2018 he completed
the Senior executive programme
with the london Business School.
4. Luis Rodolfo Bittencourt
Chief Technology Officer
luis worked for Magnesita for 31 years
and has held several positions in his
career in the refractory and mining
industry including Mining/Geology
Manager, technical purchasing
Manager, plant Manager, and R&D Vp.
He is currently president of the Brazilian
Refractory producers Association.
He holds a Bachelor’s degree in
mining engineering from the Federal
university of Minas Gerais, a Master’s
degree in Metallurgical engineering
from the university of utah, and a
phD degree on Ceramic engineering
from the university of Missouri.
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 and 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 Chief operating officer at the
pfleiderer Group and was appointed
to the Management Board of RHI
AG as Chief operating officer/Chief
technical officer in January 2017.
6. Simone Oremovic
Executive Vice President People,
Projects and Culture Management
Simone joined RHI Magnesita in an
executive capacity in november
2017, and her role covers people,
Culture, Corporate Communications
as well as all global projects for
the Group. Simone has 20 years of
experience in Human Resources.
She started her career at General electric
where her main focus was on leadership
and talent management, as well as
Human Resources process. She is a
certified Six Sigma Master Black Belt. She
has held leading Human Resources roles
in telekom Austria Group, IBM Austria,
and Baxter AG. Simone has a degree from
the european Business School (paris) and
of the economic university of Vienna.
93
R H I M A G N E S I TA
Nomination
Committee report
Committee purpose, roles and
responsibilities
the Committee’s purpose is to ensure that the
Company has the competencies and depth of
skills within the Board and senior executives
to meet the demands of a global business and
to support the development of the Group’s
strategy. At the heart of the Committee’s
work is an ongoing assessment of the Board’s
collective skills, knowledge, competencies
and experience, whilst paying particular
attention to independence and diversity.
Roles and responsibilities:
•
review the structure, size and composition
(including the skills, knowledge, experience
and diversity) of the Board and its Committees
and to make recommendations to the Board
with regard to any changes;
• succession planning for Directors and other
senior executives;
•
lead the process for recruitment of any new
Directors, including the Chairman, and their
recommendation to shareholders;
• assess annually the time commitment required
from non-executive Directors (neDs); and
•
review the results of the Board performance
evaluation process relating to composition
of the Board or the effectiveness of any
individual Director.
Whilst all Board succession planning,
processes and preparations are led by the
nomination Committee, these are important
Board topics, and as such Director and other
senior executive appointments are agreed by
the Board as a whole and the Board is briefed at
regular intervals about Committee discussions.
More detail on the duties of the Committee
can be found in its terms of Reference on the
corporate governance section of our website.
Activities in 2020
the Committee met five times in 2020,
covering the roles and responsibilities set
out above and in particular, the Committee
considered the following matters:
terms of Reference and Chairman, Ceo and
SID role descriptions
the Committee’s terms of Reference were
reviewed during the year, in addition to the
role descriptions of the Ceo, Chairman of the
Board and the Senior Independent Director
and Deputy Chairman. the Committee was
satisfied that the terms of Reference and
role descriptions remained appropriate, with
no changes being required. these can be
found on the on the corporate governance
section of the Company’s website.
time commitment from neDs
An important part of the uKCGC is that the neDs
dedicate sufficient time to meet their Board
responsibilities. the Committee considered, as
it does annually, the review of time required from
the neDs to fulfil their duties satisfactorily. the
Board received confirmations from all Directors
that they can commit the time required.
Board evaluation
the Committee takes responsibility for the
preparation of the annual Board reviews. the
output of the 2019 review was considered by
the Board in January 2020. each committee
then reviewed the specifics of the evaluation
relating to the respective Committees and agreed
actions to improve operations as required.
the 2020 review, the third year in this programme,
was externally facilitated by lintstock. this review
included for the first time a self-assessment
by Directors which supported the individual
performance conversations with the Chairman.
Herbert Cordt
Chairman of the Committee
Committee members and
meeting attendance
Herbert Cordt
(Chairman)
Celia Baxter
John Ramsay1
James leng2
Attendance
in 2020
Member
since
5/5
october 2017
5/5
1/1
3/4
october 2017
october 2020
october 2017,
resigned
September 2020
1 John Ramsay was appointed to the Committee from
1 october 2020. He was present at the September
meeting as an attendee.
2 James leng resigned as a Director and so ceased to
be a Committee member on 30 September 2020
when he stepped down from the Board.
The Committee has
played a central role in
ensuring the right mix of
skills and experience are
represented on the
Board to accelerate our
long-term strategy and
realise our ambitions.
Herbert Cordt
Chairman of the Committee
94
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
In January 2021, the Board received a presentation
of the 2020 review and discussed the findings,
noting that certain actions from the 2019 review,
such as holding a Corporate Sustainability
Committee meeting on site, or augmenting
the social interactions of Board members and
executive management, were unable to be
satisfactorily implemented in 2020 owing to
CoVID-19 restrictions. these will be carried
forward where possible. the 2020 review
also favourably commented on successfully
implemented actions, such as dedicating more
time to strategy discussions, providing additional
information updates to the neDs and changing
management reporting formats. other areas
of improvement observed in the 2020 review
included oversight of talent development
processes, succession planning, monitoring
of culture and behaviours, and adjustment by
the Board of its priorities and associated risk
management in response to CoVID-19.
the Board agreed a programme for
the year ahead, with a view to further
improving its effectiveness.
Some key points considered included:
•
•
increased female representation and
more diverse ethnicity;
increased overview of relationships
with stakeholders, such as suppliers
and customers;
• sustained focus on execution of
strategy, including greater focus on
sustainability strategy;
• maintaining oversight of the development of
Company culture and continuing to assess
metrics to support this oversight; and
• more structured ongoing training sessions
for neDs.
With the advantage of having had externally
facilitated reviews by lintstock for three years,
the Directors have been able to consider the
trajectory of progress over the period. the Board
was satisfied to see sustained improvement in
Board effectiveness over the past three years.
Board diversity
the Group has a Diversity & Inclusion policy,
which was established in late 2019 and covers
the positive benefits of diversity, the focus areas
for RHI Magnesita and the concrete actions to
engender diversity across the Company’s global
operations, such as the elimination of all-male
shortlists. Board appointments are made on merit
and with reference to the following criteria:
• Skills and experience: the skill set and
experience required by the Board and the
Company at that moment in time. this is
established by reference to the Board profile,
approved by the Committee in 2019 and
which can be found on the website.
• Strategy and industry: the Company’s
leading position in the refractories industry
and its strategy to succeed.
• Corporate governance and investor
expectations: the Company’s inclusion in the
FtSe 350 Index and its Dutch registration,
both of which require compliance or
explanation in respect of the Dutch and uK
Corporate Governance Codes.
• Functions: the specific functions Directors
are required to fulfil on Board Committees,
such as financial experience for the Audit &
Compliance Committee or Remuneration
experience for the Remuneration Committee
Chairman position.
• Diversity: the Board has committed to
achieving 33% female representation by 2021
and looks beyond gender diversity to diversity
of ethnicity, nationality, age and thought in its
search for new Directors.
the Board currently enjoys a rich mix of
nationalities, gender, skills, experience and
expertise, and in 2020 female representation
on the Board increased to 25%, with half of the
Board Committees chaired by women. Female
representation on our executive Management
team (eMt) has grown to 29% during the year,
with their direct reports comprising 23% women,
representing a 5% improvement on 2019.
notwithstanding the considerable progress
that has been made, the Board recognises that
it has further progress to make, specifically with
regard to the aim of achieving one-third female
representation. the Committee has focused
on this when considering candidates for the
roles to be recommended to shareholders
for appointment at the 2021 AGM.
the Chairman and Company Secretary
have engaged with the Hampton Alexander
Review and have clarified that the employee
Representative Directors, in alignment with the
Austrian law applicable to the Company on
merger in 2017, are not able to be influenced
in terms of appointment and therefore
diversity. therefore, the Committee’s view
is that it is inappropriate to include them
in any calculation of Board diversity.
We are convinced that diversity will play a key
role in supporting our business strategy over the
long term, for the benefit of the Group and its
shareholders. Diversity of nationality, culture and
ethnicity are all important considerations for the
Committee. the Committee believes that the
diversity of nationalities and culture represented
amongst the Board and eMt provides a diverse
and global perspective, but appreciates that
the Company would benefit from further ethnic
diversity being represented on the Board. the
Company’s attentions in regard to ethnic diversity
prioritises developing and building a pipeline of
diverse talent through opportunities provided
throughout the Group. 43% of the eMt are of
Brazilian heritage, representing our legacy as
a Company and the spread of our operations.
the Committee will continue to monitor and
consider the Board’s progress with regard to
diversity as whole. All new Board appointments
are, and will continue to be, made on merit and
underpinned by the specific skills and experience
which candidates can bring to the overall Board
composition, but constant consideration will be
given to expanding Board diversity over time.
the Company expects that the parker Review,
and the Company’s reporting to it, will facilitate
this tracking of diversity. the Committee and the
Board will continue to support the Company’s
approach in facilitating people development,
ensuring that talent, regardless of gender and
background, enjoys career progression within
the Group. More details on the Group’s diversity
and inclusion work and the gender balance
of those in the senior management and their
direct reports can be found on page 73.
95
R H I M A G N E S I TA
Nomination Committee report
continued
Succession planning
over the course of the year, the Committee
received updates from management on the
executive Director and senior management
succession planning programme.
the Committee considered the skills and
experience of individuals at different levels
in the organisation with an indication of their
expected time to develop to the next level, and
requirements in order to achieve that progression,
such as experience of a different business function
or additional training. Furthermore, it considered
how succession planning would be treated
in different scenarios (e.g. in an emergency or
in an orderly fashion). A summary of this was
provided to the Board for its consideration.
Board succession planning and Committee
composition
Since the Committee last reported to
shareholders, Jim leng has resigned from the
Board, and Andrew Hosty and Celia Baxter
have indicated their intention not to stand
for re-election at the end of their three-year
terms at the June 2021 AGM. the Board
remains very grateful for their extensive
contributions to the work of the Company and
wishes them all the very best for the future.
Following Jim leng’s resignation, effective
30 September 2020, John Ramsay, who
has been with the Company since listing in
2017, was appointed as the Deputy Chairman
and Senior Independent Director and as a
member of the nomination Committee. Janet
Ashdown, with her extensive remuneration
committee experience, was considered by
the Committee to be an ideal candidate to join
the Remuneration Committee from 1 october
2020, before becoming the Remuneration
Chair in June 2021 on Celia’s departure.
It is proposed that, from June 2021, Karl Sevelda
will join the nomination Committee and Fiona
paulus will join the Remuneration Committee.
Both are Independent neDs with suitable years of
experience on the Board and relevant executive
and non-executive experience to contribute
significantly to these Committees. their
Committee induction programmes commenced
in January 2021. the membership of Board
Committees can be seen on pages 89 to 91.
In thinking about future recruitment to the
Board, the Committee has taken particular note
of previous feedback from Board evaluations to
broaden the Board’s skill set, experience and
gender balance. the Committee considered the
skills required for the future for the delivery of the
corporate strategy, such as digital experience and
additional financial or auditing experience, and
as well as the diversity of the Board to engender
constructive debate and a varied mix of ideas.
egon Zehnder, signatory to the Voluntary Code
of Conduct for executive Search Firms, has been
engaged to recruit additional Directors based on
the Board profile. the recruitment is particularly
focused on financial acumen and technological
expertise to align with the Company’s strategic
aims. egon Zehnder is providing a list of only
female candidates, in support of meeting our
target of one-third female representation on
the Board in 2021 and, wherever possible,
the Board is consciously looking for diverse
ethnicity from these candidates.
Herbert Cordt
Chairman of the Committee
96
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Corporate Sustainability
Committee report
Janet Ashdown
Chairman of the Committee
Committee members and
meeting attendance
Attendance
in 2020
3/3
3/3
3/3
Member
since
June 2019
June 2019
June 2019
Janet Ashdown
(Chairman)
Andrew Hosty
Fiona paulus
During 2020, the
Committee ensured
RHI Magnesita
continued to progress
on climate protection,
safety and diversity,
while overseeing the
Group’s COVID-19
strategy on safety,
health and wellbeing.
Janet Ashdown
Chairman of the Committee
Committee purpose, roles and
responsibilities
the role and purpose of the Committee
is to support the Board and act as an
advisory body to ensure the long-term
sustainability of the business.
• the Committee ensures that the Group’s
activities generate sustainable value, not only
for customers and shareholders, but also for
employees, suppliers and communities in
which the Group operates.
• on behalf of the Board, the Committee
oversees the effective management of risks
associated with climate change, health and
safety, along with other eSG risks.
More detail on the duties of the Committee
can be found in the terms of Reference on the
corporate governance section of our website.
Activities in 2020
the Corporate Sustainability Committee
met three times during 2020. In addition to
addressing the responsibilities outlined above,
the Committee discussed the following:
• COVID-19: Closely monitored RHI
Magnesita’s management of employee safety,
reviewing safety protocols to protect
employees and contractors, infection rates
and sharing of best practice across the Group.
Reviewed Company emergency support to
local communities.
• Climate change: Approved RHI Magnesita’s
latest climate submission to the CDp, which
gained a B, the highest in the global refractory
industry. Assessed progress against emissions
reduction target and reviewed the Company’s
first comprehensive climate risk assessment.
Agreed that RHI Magnesita will become a
Supporter of the taskforce on Climate-related
Financial Disclosures (tCFD). Reviewed
recycling and new carbon capture and usage
(CCu) projects that are designed to facilitate
transition to a low-carbon economy.
• Safety: Continued strong focus on
occupational safety, leading to a 56%
improvement in lost time injury frequency
(ltIF) and a 40% reduction in total recordable
injury frequency (tRIF) compared to 2019.
• Diversity: ensured that female representation
among senior leadership improved despite
restructuring. Gender diversity in senior
leadership, for example, improved to 25%
in 2020.
In addition to our industry-leading score from
CDp, the Committee was pleased to note that RHI
Magnesita has been rated AA by MSCI, Silver by
eco-Vadis and prime (C+) by ISS eSG rankings.
Read more on sustainability on
Pages 64 to 75
Janet Ashdown
Chairman of the Committee
97
R H I M A G N E S I TA
Audit
Committee report
Committee purpose, roles and
responsibilities
the purpose of the Audit Committee is to
ensure the integrity and transparency of
corporate reporting, the quality of work
and independence of the external auditor
and to evaluate the robustness of internal
controls and risk management processes.
the Committee’s main roles and
responsibilities are:
• advising the Board on the Group’s overall risk
appetite, tolerance, current risk exposures and
future risk mitigation strategy;
• supervising the recording, management
and submission of financial information
by the Group and advising the Board on
whether, taken as a whole, the reported
financial information is fair, balanced
and understandable;
• supervising the functioning of the Internal
Audit department, and in particular, review
and approve the annual Internal Audit
work plan and taking note of the findings
and considerations of the Internal
Audit department;
• supervising the relationship with the external
auditor, including in particular, assessing its
independence, effectiveness, remuneration
and non-audit related work for the Group;
• supervising the compliance with
recommendations and observations of the
internal auditor and the external auditor;
• supervising the financing of the Group and the
policy of the Group on tax planning;
•
•
reviewing the adequacy and effectiveness of
the Group’s Compliance function; and
recommending the appointment of an
external auditor by the Annual General
Meeting (AGM).
More detail on the duties of the Committee
can be found in the terms of Reference on the
corporate governance section of our website.
Activities in 2020
the Committee met seven times in
2020. Due to CoVID-19 limitations video
conferencing was used for some members
and attendees during these meetings.
Discussions at the meetings covered the
responsibilities outlined above, with a
particular focus on the impact of CoVID-19
on the risk profile of the Group, the
management of the reorganisation and
changes to the operating model undertaken
in 2020 and the issues arising in 2020.
the Chairman, the Chief executive officer,
the Head of Financial Reporting, the Head of
Internal Audit, Risk and Compliance and the
General Counsel attend the Audit Committee
meetings and the Company Secretary acts as
Secretary to the Committee. the Chairman
of the Committee has had regular private
discussions with the external Auditor, the Head
of Internal Audit, Risk and Compliance and
the Chief Financial officer during the year.
Specific areas of scrutiny for the
Committee in 2020 included:
Impact of CoVID-19 on the risk profile,
viability statement and going concern
evaluation
the Committee received extensive management
presentations and input from the external
Auditors covering scenario modelling for the
projected financial impact of CoVID-19. the
Committee scrutinised the rationale for the
scenarios, the range of the impact assessment
and the conclusions. Additional material
was presented to the Committee showing
the detailed impact on the going concern
status and the financing of the Group. the
clarity, consistency and communication
of the CoVID-19 modelling developed by
management was endorsed by the Committee.
this analysis was used by the Committee as a
key input to the going concern evaluation.
John Ramsay
Chairman of the Committee
Committee members and
meeting attendance
Attendance
in 2020
Member
since
7/7
october 2017
7/7 September 2019
7/7
october 2017
John Ramsay
(Chairman)
Fiona paulus
Wolfgang
Ruttenstorfer
The Audit Committee
effectively delivered
scrutiny, insight and
challenge to respond
to the demands of
2020 and ensure the
continued improvement
of corporate governance
standards within the
Group.
John Ramsay
Chairman of the Committee
98
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
the ability of the Group to continue as a going
concern depends upon continued access to
sufficient financing facilities. Judgement is
required in the estimation of future cash flows
and compliance with the debt covenant in
future years. the Committee assessed the
forecast levels of net debt, headroom on existing
borrowing facilities, compliance with the debt
covenant and the debt maturity profile. this
analysis covered the period to 31 December 2022
and considered a range of downside sensitivities,
including the impact of lower production volumes
and higher costs. In these discussions the
Committee sought the opinion of the external
Auditor and ensured that the external Auditor
challenged management sufficiently on the
breadth, depth, and variety of scenarios, as well as
sought confirmation that sufficient substantiation
to the key assumptions in the scenarios was
validated. the Committee concluded it was
appropriate to adopt the going concern basis.
the Committee also considered potential impacts
of CoVID-19 on the external financial reporting
timeline in the context of regulator statements.
the Committee concurred with management
in seeking to maintain the planned schedule of
reporting to enhance stakeholder transparency.
Impact of the reorganisation on the
finance structure
the Committee received a detailed explanation
from management on the impact of the
reorganisation on each part of the finance
structure. the Committee raised a series of
challenges to ensure that the changes planned
did not adversely impact the effectiveness of
financial management in the Group. A specific
session was held with the Committee to address
talent development, succession planning,
experience levels and professional competencies
of each member of the finance leadership team in
the revised structure. the Committee endorsed
the approach, but recognised the scale of the
changes being undertaken and therefore will
continue to monitor the impacts into 2021.
production optimisation plan impact on
financial statements
Investigation into mismanagement
of business in Mexico
the Group is extending the production
optimisation plan established in 2019 in order
to further increase competitiveness and reduce
its cost base. Building upon approaches used in
2019, the Committee reviewed the management
judgements involved in the determination of
the amounts and timing of impairments and
restructuring provisions. In these discussions the
Committee typically discussed management’s
positions with and sought the opinion of the
external Auditor. Following consideration, the
Committee concluded that these judgements
were appropriate. the disclosures on impairments
and other restructuring expenses can be
found in note 38 to the financial statements.
Alternative performance measures:
Adjusted eBItA and Adjusted epS
RHI Magnesita continues to use a number of
alternative performance measures (“ApMs”),
which reflect the way in which management
assesses the underlying performance of the
business. Read more about ApMs on page 238.
the Group’s ApM policy defines criteria for
calculation of Adjusted eBItA and Adjusted epS.
the Committee considered both the overall
policy and the use of each ApM, as well as the
impact that they may have on the clarity and
understandability of the financial statements
together with regulatory positioning on such
reporting. A robust discussion led by the
Committee reviewed each of the adjustments
made in Adjusted eBItA and Adjusted epS
and concluded that their use is appropriate.
Compliance with Market Abuse
Regulations (MAR)
the Committee reviewed the findings of an
independent expert report into the Group’s
compliance with MAR. Whilst not identifying
any breaches of MAR, the Committee
challenged management as there were
clear areas for improvement against internal
policies. Management proposed a corrective
action plan, which included the submission
to the Committee of an annual report of MAR
compliance and an internal training programme.
Internal Audit undertook an investigation into
an employee and his engagement with a sales
agent in Mexico. together, they engaged in theft
of Company funds over a significant period of
time (see further details in our internal control
system on pages 50 and 51). the performance
of the investigation, outcomes, root causes and
the decisions over possible criminal proceedings
against the individuals concerned, were
examined in depth by the Committee. this
showed that, even though there was and remains
zero-tolerance of misappropriation of assets, the
outflow of Company funds was not material in
any year. the Committee discussed and agreed
the corrective actions, including dismissal of
the employee, were appropriately taken by
management to ensure internal controls were re-
enforced and strict adherence to the Company’s
Code of Conduct reiterated. A particular
concern of the Committee was thematic internal
control failures within locally autonomous
business operations. the Committee received
detailed management plans showing how the
continued focus on the Code of the Conduct,
developments in corporate culture, plans for a
global process framework and increased scrutiny
of empowered local operations would address
the root causes of such cases described above.
Code of Conduct developments
the Committee reviewed progress of the
implementation of the Code of Conduct (Code)
that was rolled out across the Group starting
in 2017 (see further detail on page 66). the
Committee received updates on governance of
the Code, ethical risk assessments performed,
and training provided. throughout 2020, the
Committee made enquiries to assess the culture
in place across the Group and the links between
behavioural and leadership culture and Code
of Conduct breaches. the Committee assessed
the work being conducted to mitigate the risk
of bribery and corruption and, specifically, work
to assess risk from use of agents, approving
plans to strengthen risk mitigation in this area.
the continued importance of this work was
emphasised by the Committee in discussions
and the risk appetite applied to the related risks.
99
R H I M A G N E S I TA
Audit Committee report
continued
pension scheme liabilities
the Committee requested a comprehensive
presentation to gain insight into the various
pension schemes in geographies across the
Group and specific updates on the funding and
liabilities of the schemes. Following a series of
questions, discussions and individual sessions,
the Committee gave positive feedback on
the quality of the information produced and
the management of the pension schemes.
treasury and foreign exchange
risk management
the Committee reviewed the treasury policy
and requested additional reporting in relation
to the management of foreign exchange risk
considering the increased volatility in 2020.
Subsequent challenge from the Committee
resulted in the proposed risk approach being
endorsed and the foreign exchange risk position
being more clearly presented to the Committee.
tax strategy
the Committee reviewed and challenged
the tax strategy and received updates on tax
compliance, significant tax matters and ongoing
tax projects. the Committee considered and
scrutinised management’s risk assessment
related to the netherlands tax position,
associated likely scenarios regarding eu tax
harmonisation impacts and taxation impacts
over the transferring of business activities. the
Committee endorsed the current tax strategy
and will continue to monitor the progress of
the projects impacting the tax position.
Information security risks
the Committee identified increasing
information security risks as a key area of
focus, particularly as specified in the Dutch
Corporate Governance Code. Cyber and
information security risk is included amongst
the Group’s principal risks on pages 54 to 59.
Multiple presentations were received by the
Committee to both inform the Committee
of the emerging risks (e.g. the dark web) and
outline the internal controls. the investment
and risk mitigation plans were discussed and
challenged. Valuable insight was provided by
the Committee in this complex area from their
awareness of experiences of other companies
in this field. the Committee were assured that
the risks were being appropriately mitigated.
100
potential changes in corporate governance
regulatory framework
the Committee has sought to pay close attention
to and encouraged management focus on the
wider regulatory changes under discussion
relating to the external audit profession and
corporate governance more generally. Given
that many of these changes are prompted by
corporate failures, the Committee emphasised
the importance of all learnings and best
practices being applied within the Group.
Management and pricewaterhouseCoopers
Accountants n.V. (pwC) have shared briefings
and engaged in discussion with the Committee
on proposals within the uK, netherlands and
globally. the Committee sought to clarify how
the combination of the range of government-led
reviews being undertaken would impact the
Group and continues to monitor this situation.
Control issues raised by external Auditors
the Committee discussed the Internal Control
recommendations raised by the external Auditors
in their interim reporting with management
to gain an understanding of the scale and
nature of the recommendations made and
the potential impact on the wider assessment
of the effectiveness of internal controls. the
Committee welcomed enhancements in the
reporting received from the external Auditor
following previous Committee feedback. the
majority of the issues were judged to be typical of
a company still completing the system changes
and process developments necessitated
by the major corporate merger of 2017. the
Committee monitored the good progress
made by management in 2020 in addressing
these internal control recommendations.
Captive insurance plans
the Committee received a wide-ranging
overview of the insurance strategy and
challenged the proposals for a captive
insurance scheme before endorsing
the management proposals.
Core Audit Committee activity performed
in 2020 included:
Whistleblowing programme
the whistleblowing programme, which
is monitored by the Audit Committee and
overseen by the Board of Directors, is designed
to enable employees, customers, suppliers,
managers, or other stakeholders to raise
concerns on a confidential basis where
conduct is deemed to be in violation of our
Code of Conduct or contrary to our values.
the Committee discussed with management
the downward trend in whistleblower reports
since 2019 to assess whether this was the
result of improved effectiveness of the Code
of Conduct or potentially the result of the
new way of working, in light of the pandemic.
Management confirmed the 2019 whistleblower
matters contained a number of cases related
to the Group Bonus Scheme. the Committee
also discussed elevated whistleblowing reports
received from China in 2020 at the time of
the reorganisation. the Committee accepted
management’s explanation that these were
attributable to specific one-time local factors.
the Committee made enquiries of management
in relation to the reports received on the
whistleblowing programme in order to
conclude its effectiveness during 2020.
Risk management
Risk management is the responsibility of the
Board and is integral to the achievement of
the Group’s objectives. the Board establishes
the system of risk management, setting risk
appetite and maintaining the system of internal
control to manage risk within the Group. the
Group’s system of risk management and internal
control is monitored by the Audit Committee
under delegation from the Board. Details of
the Group’s risk management approach, risk
appetite and principal risks are outlined in
the Risk, viability, and internal control section
of the Annual Report on pages 48 to 59.
the Committee receives quarterly reports
on risk management and made enquiries
to management to assess and monitor the
effectiveness of the approach. the Committee
also includes risk-based challenge in all its
subject matter deep dives performed in 2020.
Reviewing the results of Internal Audit work
and the 2020 plan
the Committee reviewed the effectiveness
and resources of the Internal Audit department
and concluded that the Internal Audit function
is effective and has adequate resources. In
2020 the Committee paid particular attention
to the proposed merger of Internal Audit, Risk
and Compliance into a single department. the
Committee assessed the benefits and risks of
this approach and emphasised the importance
of safeguards being maintained to protect
Internal Audit independence in line with best
practices from the Institute of Internal Auditors.
After a full consideration and a series of briefings
the Committee endorsed the proposal.
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Based on the reports received on the results of
Internal Audit work, the Committee satisfied
itself that the 2020 plan was on track and
discussed areas where control improvement
opportunities were identified further. the
Committee also reviewed progress in completion
of agreed management actions. the Committee
reviewed the proposed 2021 Internal Audit
plan, assessing whether the plan addressed
the key areas of risk for the business units
and the Group. the Committee approved
the plan, having discussed the scope of work
and its relationship to the Group’s risks.
external audit
the Group’s external Independent Auditor,
pricewaterhouseCoopers Accountants n.V.
(pwC), was first appointed as the Group auditor
following the Company’s first appointment
process at the AGM held on 4 october 2017,
shortly before the listing of the newly formed
RHI Magnesita. pwC has performed this role in
each subsequent year. pwC will be proposed
for re-appointment at the 2021 AGM.
In assessing the performance of pwC, the
Committee discussed and agreed with
pwC three key areas of continued focus:
• Further enhancing the proactivity and
responsiveness of communication;
• Global alignment on audit approach; and
• Adherence to shortened reporting timelines
for 2020.
the Committee also enquired into assurance that
the same level of audit quality would be delivered
through a primarily remote auditing model,
due to restricted travel during the pandemic,
compared to more conventional methods. Having
discussed the proposals from pwC to address
these issues, the Committee approved the audit
plan together with the audit fee. this process
involved active discussion of the audit approach,
(the assessment of work conducted on) key audit
matters, materiality level and audit risks. the
Committee considered and challenged the
document presented describing the rationale
and work performed by pwC in reaching their
assessment of key audit matters and key risks.
the Committee received updates during the
year on the external audit process, including
how the Auditor had challenged the Group’s
assumptions on the issues noted in this report.
the external Auditors had unrestricted access
to, and attended all, Committee meetings in
2020. they also had private meetings with the
Committee in the absence of management.
they were asked for their input and opinion
on a range of topics throughout the year.
external Auditor’s independence
the external Auditor reports to the Committee
on the actions taken to comply with professional
and regulatory requirements, as well as best
practice designed to ensure its independence.
Following due review and scrutiny, the
Committee recommended that pwC and
esther van der Vleuten should continue as the
external Independent Auditor and designated
auditor for the financial year 2020.
In 2020, the Group reviewed its non-audit
services policy to strengthen the external
Auditor’s independence. the policy is consistent
with the applicable eu Directive, Dutch
and uK legislation and guidance, including
recommendations set out in the Financial
Reporting Council’s (FRC’s) Guidance on Audit
Committees (2016) and the requirements of
the FRC’s Revised ethical Standard (2019).
the definition of permitted non-audit services
corresponds with the european Commission’s
recommendations on the auditor’s independence
and with the ethical Standards issued by the
Audit practices Board in the uK. non-audit
work, non-pervasive to the Group, by a local
(non-Dutch) pwC firm, is only undertaken
where there is commercial sense, where pre-
approval is obtained from the Committee and
when the ultimate Responsible Independence
partner at pwC netherlands has approved the
allowance of such non-audit work abroad. During
2020, very limited non-audit work to local
RHI Magnesita entities for a total of €0.1 million
(2019: €0.5 million) was performed by local
pwC offices. non-audit fees represented are
disclosed in note 59 of the financial statements.
the Group confirms compliance during the
year with the provisions of the Competition
and Markets Authority order on mandatory
tendering for the appointment of the external
Auditor and Audit Committee responsibilities.
Fair, balanced and understandable
financial statements
the Group’s financial statements should be
fair, balanced, understandable and provide the
information necessary for shareholders to assess
the Group’s position, performance, business
model and strategy. the Audit Committee and
the Board are satisfied that the 2020 Annual
Report meets this requirement, with appropriate
weight having been applied to both positive and
negative developments throughout the year.
In justifying this statement, the Audit
Committee has taken into consideration
the preparation process for the Annual
Report and Accounts, including:
• detailed timetable and instructions are
provided to all contributors;
• updates and/or revisions to regulatory
reporting requirements are continuously
monitored and provided to contributors;
• early-warning meetings are conducted
between the finance function and the Auditor
in advance of the year-end reporting process;
• external advisers provide advice to
management and the Audit Committee on
best practice regarding the preparation of the
Annual Report;
• Audit Committee meetings were held in Q1
2021 to review and approve the draft 2020
Annual Report and Accounts in advance of
the final sign-off by the Board;
•
review of significant accounting matters as
explained in the notes to the Consolidated
Financial Statements; and
• conclusions drawn by the external Auditor
concerning key audit matters contributing to
their audit opinion, specifically impairments
and taxation, were considered by the Audit
Committee.
Audit Committee performance evaluation
An internal evaluation of the performance of
the Audit Committee has been undertaken in
2020. this review concluded that the Audit
Committee has been operating effectively.
Further improvements in the Committee
performance were enabled in 2020 by the
implementation of additional review and
feedback stages by management to improve the
quality and discussion of the papers submitted
to the Committee. An assessment made by the
Committee of the improved quality of Committee
discussions has been shared with management.
plans to implement additional training for
Committee members have been postponed due
to CoVID-19 and will be enacted when possible.
John Ramsay
Chairman, Audit Committee
101
R H I M A G N E S I TA
Remuneration
Committee report
Committee purpose, roles and
responsibilities
the Remuneration Committee’s purpose is to
develop a reward package for executive Directors
and senior managers that supports our vision and
strategy as a Group, and to ensure the rewards
are performance based, encourage long-term
shareholder value creation and take account
of the remuneration of the whole workforce.
More detail on the duties of the Committee
can be found in the terms of Reference on the
corporate governance section of our website.
Committee membership and operation
Celia Baxter is the Chairman of the Committee,
and Janet Ashdown and Karl Sevelda are current
members of the Committee. James leng was a
member of the Committee until 30 September
2020 and Janet Ashdown joined the Committee
on 1 october 2020. All Committee members
are Independent non-executive Directors
(neDs) 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 executive Vice president people,
projects & Communications (who is responsible
for Human Resources) 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.
Activities in 2020
the key activities and decisions taken through the
year were:
• Reviewing and consulting with shareholders
on the realignment of our reference markets
for the executive Directors’ pay, using the
DACH region as the more relevant market than
the uK, being the key region where we
compete for talent.
• Approving the remuneration arrangements for
joiners and leavers in the executive
Management team.
• Considering the impact of CoVID-19 on the
business when deciding on the appropriate
approach for bonus and the long-term
incentive awards in terms of selecting
performance measures, targets and grant size
for 2020 bonus and ltIp awards and bonus
payments for 2020.
• Reviewing Dutch Remuneration Reporting
requirements.
• Reviewing and amending the terms of
Reference of the Committee.
• Reviewing, consulting with shareholders on
and revising our Remuneration policy for
2021-2024.
• Considering the outturn of the 2019 and 2020
bonus, the 2018 ltIp and reviewing the 2021
bonus and ltIp KpIs and targets.
• undertaking a review of the performance of
the Committee.
Celia Baxter
Chairman of the Committee
Committee members and
meeting attendance
Attendance
in 2020
Member since
8/8
october 2017
8/8
1/1
6/7
october 2017
october 2020
october 2017
Celia Baxter
(Chairman)
Karl Sevelda
Janet Ashdown1
James leng2
1 Janet Ashdown was appointed to the Committee
from 1 october 2020. She was present at the
September meeting as an attendee.
2 James leng resigned as a Director and so ceased to
be a Committee member on 30 September 2020
when he stepped down from the Board.
The Remuneration
Committee continues
to pursue remuneration
objectives which
align the interests of
management with those
of shareholders and the
wider stakeholder group.
Celia Baxter
Chairman of the Committee
102
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Annual remuneration
statement
Dear Shareholders
on behalf of the Board, I am pleased to present
the Remuneration Committee report for the
financial year ended 31 December 2020,
which sets out our implementation in 2020 of
the remuneration policy that was approved by
shareholders at the Annual General Meeting
(AGM) in June 2018. our remuneration policy
is due for renewal this year and will be put to
shareholders for approval at our AGM in June
2021. therefore, this year’s Remuneration Report
also sets out on pages 107 to 116 the proposed
new Remuneration policy (the “Remuneration
policy”) and reasons for our revisions.
RHI Magnesita, being incorporated and registered
in the netherlands making it subject to Dutch
corporate law and having its primary listing
on the london Stock exchange, is required
to comply with both uK and Dutch reporting
requirements and their respective Corporate
Governance Codes. our Remuneration Report is
therefore presented on this basis and, recognising
transparency of reporting, includes certain
additional voluntary disclosures. this letter on
pages 103 to 105, the summary on page 106 and
the Annual Report on Remuneration on pages
117 to 126 will also be presented for approval by
an advisory vote at our AGM in June 2021.
Remuneration is closely aligned with our
strategy, culture and operations
our Remuneration policy continues to be
closely aligned with, and flexible enough, to
support our strategy, culture and operations. our
bonus structures and targets for management
throughout the Company are aligned to those
of the executive and senior management.
this provides a clear line of sight of Company
objectives, supports our organisational culture,
fosters teamworking, and incentivises appropriate
behaviours and the reward for our workforce.
the Directors led the Company’s strategy review
process in September 2020, which supported
the subsequent agreement of bonus KpIs which
are directly aligned with the three pillars of
our strategy. Furthermore, in order to support
achievement of our 2025 strategy to reduce
carbon emissions, putting us on the path towards
net zero carbon emissions and assisting in the
reduction of our customer’s carbon footprint, we
have introduced a new performance condition
“use of Secondary Raw Material” for our 2021
ltIp award. this aligns to our strategic target to
reach 10% of secondary raw material content by
2025. You can read more about this on page 126.
the combination of businesses in 2017 to form
RHI Magnesita has resulted in a business with
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. At the time of the combination, we
developed bonus plans that incentivise growth,
cash flow generation and the achievement
of synergy targets and strategic projects. the
Remuneration policy provides the flexibility
to change bonus KpIs and for 2020 our
management team focused on maintaining profits
and liquidity to reflect the unstable economic
environment due to CoVID-19. Given the
successful completion of the merger synergy
programme in 2019, the Committee removed
the synergy metric for the 2020 annual bonus.
our long-term incentive plan (ltIp) rewards the
creation of shareholder value and profitability.
total shareholder return (tSR) and epS were
implemented as ltIp KpIs in 2020 to incentivise
the creation of long-term value. Due to the
difficulty of setting targets, because of the
CoVID-19, economic profit Growth was removed
as a measure for 2020. ltIp awards vest after
a three-year performance period to the extent
targets are met, with a further two-year holding
period for the executive Management team.
Our response to COVID-19
As a result of CoVID-19, 2020 has been an
unprecedented year, with the impacts of the
pandemic evident in all aspects of our lives as well
as within the business. throughout the Group,
the safety and wellbeing of our workforce has
been our foremost priority, thereby enabling us to
support our customers in maintaining production
of the essential materials upon which we all rely.
the executive Directors took the decision to waive
the 20% salary increase they were awarded in
2020 from 1 April 2020 until 31 July 2020. During
this time, members of the eMt waived between
10% and 15% of their salary, the Chairman and
non-executive Directors waived 10% of their fees
and employees globally saw a reduction in their
earnings due to reduced working. the Committee
is very grateful for the responsible actions being
taken by the executive Directors and members
of the eMt, as well as all of our employees at
this difficult time. In considering performance
against targets and vesting levels of the 2020
bonus and ltIp, the Committee has taken the new
economic context into account, with reference
to the wider workforce and the expectations of
other stakeholders, such as investors, suppliers
and customers. At the same time, it has sought to
balance this with the need to provide fair reward
and meaningful incentivisation for management
for the long-term sustainability of the business.
RHI Magnesita’s performance
during 2020
As laid out in the financial review, amidst a year
of high volatility and extreme uncertainty, the
Group has successfully maintained resilient
margins, a strong balance sheet and solid cash
flow generation. the Group recorded in 2020:
revenue of €2,259 million, a decline of 23%
against the prior year; adjusted eBItA of €260
million, a reduction of 36% compared to 2019;
and resilient operating cash flow of €290 million
compared to €359 million in 2019. Furthermore,
management took quick and decisive action at the
onset of the pandemic to ensure the health and
safety of our employees and took the opportunity
to extend strategic initiatives to further reduce
costs and support profitability to prime the
business for the eventual market recovery. It has
been within this context that the Committee has
considered the annual bonus scheme, the 2020
outturn and the 2021 targets, as well as reviewing
2018 ltIp performance and 2021 targets.
103
R H I M A G N E S I TA
Annual remuneration statement
continued
the Ceo and CFo have managed the business
exceptionally well over a very challenging period
and as a result good business performance
has resulted in a high level of bonus becoming
payable. the Committee, in deciding the
adjustment to the formulaic bonus outcome, has
noted that the Company has not received any
uK government support or CoVID-19 specific
benefits from other governments and there
has been no capital raised from shareholders.
the final dividend for FY 2019 was cancelled
to preserve financial flexibility but dividend
payments have now resumed. the Committee
has noted that with the dividend cash remaining
in the business and the other actions taken by
management there has been robust share price
recovery from the initial CoVID-19 related fall and
continued share price performance. Members
of the Board and the executive Management
team waived a proportion of their salary and
employees globally saw a reduction in their
earnings due to reduced working. In terms of
wider employee experience there have been
limited furloughs and some redundancies
although these have been part of wider
restructuring and not CoVID-19 related cuts.
ltIp
the first ltIp award was made in 2018, following
Admission, based on three performance
conditions. the performance period of this
award was the three financial years 2018, 2019
and 2020 with the tSR performance condition
being measured to 31 January 2021. More
details are available on page 120. unfortunately,
none of the performance targets have been
met and the awards will therefore lapse.
LTIP awards granted in the year
ltIp awards were made to the Ceo and CFo on
8 April 2020 at normal grant levels of 200% of
salary for the Ceo and 150% of salary for the CFo.
the Committee carefully considered appropriate
performance measures, taking into account the
economic and business outlook. the measures
for the 2020 awards of 50% cumulative epS and
50% absolute tSR to support management’s
focus on delivering material increases in the
share price (plus dividends) and sustained
aggregate epS over the performance period.
the Committee felt that in these uncertain times
the narrower focus on the absolute (rather than
relative) total shareholder return and on total
cumulative epS over the three years provides a
significantly simpler incentive, better aligned with
shareholders’ interests. the prevailing share price
used to calculate the number of shares subject to
the awards was lower as a result of the CoVID-19
pandemic than the share price when awards were
made the previous year. the Committee carefully
considered investor guidance and whether
awards levels should be scaled back to reflect the
lower share price. the Committee agreed that
awards would not be scaled back but that it would
review the level of vesting and vesting value and
consider at that time whether it was appropriate
to scale back vesting levels to avoid a “windfall
gain”. Details of the awards and performance
conditions can be found on page 120.
Incentive outcomes for the year
As set out in the Annual Report on Remuneration,
our remuneration outcomes for the year were
as follows:
Annual bonus plan
the formulaic outcome results in a Maximum
annual bonus for the Ceo and CFo. this is as
a result of adjusted eBItA €260 million and
€290 million of operating cash flow. Further
details of our performance against 2020
bonus targets can be seen on page 119.
the Committee reviewed the formulaic outcome
of the bonus taking into account the overall
performance of the Company and wider market
and stakeholder context. no adjustments
have been made to the targets as a result of
CoVID-19. Following its review, the Committee
agreed that it was appropriate to scale back
the bonus amount payable. taking all relevant
factors into consideration it determined that a
“target” level of bonus (50% of the Maximum)
was fair and appropriate taking into account
the wider business and stakeholder context
and shareholder experience, as set out below,
while rewarding the executives for their
resilience and business performance in the
year. Bonuses payable to the wider workforce
based on the same performance criteria were
also subject to the same level of scaleback.
targets were set slightly later in the year than
they would normally be due to lack of visibility
of market and business outlook and this has
been a factor in considering the level of scale
back. the targets set were based on prevailing
market conditions and business outlook. they
focused on driving revenue and liquidity in the
face of an uncertain future and were seen as
very challenging (and no less so than the targets
set in previous years). the Committee notes
that the eBItA for the year is a reduction on
prior year but taken with our cash position and
overall liquidity determined this represents good
underlying business performance demonstrating
the business’s ability to survive the crisis, a
conclusion which is supported by our share price.
104
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Our conversation with our shareholders
the Committee values shareholder feedback as
part of its policy decision process. Shareholders’
views, whether directly or indirectly expressed,
together with relevant proxy agency guidance
and emerging trends, are carefully considered
when reviewing reward design and determining
outcomes. the Committee consulted during
the year with our larger shareholders on the
changes proposed to our Remuneration policy,
who were overall supportive of the limited
changes proposed. We believe that this
Remuneration policy and its implementation
for 2021, as well as the remuneration outcomes
for 2020, remain strongly aligned to the
Company’s strategy, the complex structure of
the business and the long-term shareholder
interests. the Committee believes that the
remuneration policy has operated as intended
during the year and that the discretion
exercised by the Committee is appropriate.
At the 2021 AGM, shareholders will be
asked to vote on both the Remuneration
policy and the Remuneration Report. I hope
that the Committee will have your support.
As Committee Chairman, I continue to
be available to engage with shareholders
wishing to discuss remuneration matters.
Celia Baxter
Chairman of the Remuneration Committee
Our Remuneration Policy for 2021-2024
the Remuneration policy is largely unchanged
from the policy approved by shareholders in 2018,
to the extent there are no proposed amendments
to the remuneration structure or increases to
quantum. Further to our communication to key
shareholders in early 2020, about updating
the Company’s reference market to the DACH
region from the uK, we have made some minor
changes to the policy to ensure consistency
with this. In reviewing the current policy, the
Committee has considered best practice,
changes to Dutch law, which we as an n.V. are
governed by, and expectations of institutional
investors. there are only two substantive
matters that we need to address, namely:
• Post-employment shareholding
requirements: the Committee has carefully
considered the uK Corporate Governance
Code’s requirement for a post-employment
shareholding and determined that this should
be achieved by ensuring that the holding
periods for annual bonus shares and the ltIp
continue post cessation of employment. the
Committee retains the flexibility to adjust the
requirement in certain exceptional
circumstances, such as death or ill health.
• Pension alignment: our incumbent executive
Directors’ pension allowance is already
aligned to that of the workforce in their country
of appointment. As previously reported, new
executive Directors will be offered a pension
contribution rate as a percentage of salary that
is aligned with the contribution available to the
majority of the workforce in the country of
appointment, with the pension capped at this
amount. the policy has been amended to
formally reflect these conditions.
In addition, some limited wording changes are
being made to provide additional information
and clarity. We are also formally incorporating
explanatory wording on the approach to
reviewing the policy, as required by Dutch law
following implementation of the Shareholder
Rights’ Directive, which was included in the
2019 Annual Report on Remuneration. the
changes proposed to our Remuneration policy
for 2021-2024 are set out at the beginning of the
Remuneration policy section on pages 107 to 112.
Implementation of the Remuneration
Policy for 2021
the base salaries of the Ceo and CFo were
increased by 2.5% with effect from 1 January
2021. Both of these executives are employed in
Austria and this compares with an average of 2.5%
for the majority of Austrian-based employees.
Annual bonus maximum opportunity for 2021
is unchanged from 2020 at 150% of salary.
the bonus metrics and weightings were
reviewed for 2021. the bonus will continue to
be based on eBItA and operating cash flow
recognising that both these metrics continue
to reflect our priorities and the Remuneration
policy, which requires a minimum of 70% to
be weighted to financial metrics. In addition,
an element of the bonus will once again be
focused on achievement of our strategic
priorities, including an eSG measure, as drivers
of future profitability and growth. the targets
and performance against them will be disclosed
retrospectively in the 2021 Remuneration
Report, provided they are not considered to
be commercially sensitive at that time.
the quantum of the Ceo’s and CFo’s ltIp
awards remain unchanged with a face value
of 200% and 150% of salary, respectively.
the awards will be made in March 2021 based
on the share price at that time. executives will
receive the award shares in 2026 (subject to a
three-year vesting period and two-year holding
period) if performance targets are met. the
performance targets that will determine vesting
of the share awards, will continue to be based
on absolute tSR and Adjusted epS targets
reflecting the ongoing focus of management
to deliver material increases in the share price
(plus dividends) and sustained epS growth. In
addition, the Committee decided to include a
third eSG-related performance measure, the
“use of Secondary Raw Material” to support
the focus of management on achieving the
2025 Strategy to reduce carbon emissions. the
performance targets are set out on page 126. the
Committee is comfortable, taking into account
the economic and market uncertainty as well
as the business outlook, that the targets are as
challenging as those set for prior ltIp awards.
the Committee has the ability to scale back
the level of vesting if it considers the outcome
to be reasonably unacceptable, or to avoid
any “windfall gain” or if it is not reflective of the
underlying performance of the Company.
105
R H I M A G N E S I TA
Remuneration Committee report
continued
At a glance: Operation of remuneration policy for the financial year
ending 31 December 2020
policy element
Stefan Borgas (Ceo)
Base salary from 1 January 2020
€1,026,0001
% increase from prior year
20%
Ian Botha (CFo)
€600,0001
20%
Retirement allowance
Allowance of 15% of base salary
Allowance of 15% of base salary
Annual bonus
Annual bonus metrics
up to 150% of base salary
up to 150% of base salary
Adjusted eBItA (60%) and operating cash flow (40%) measured on a constant currency basis. the Committee used its discretion to
review the underlying performance of the Company and taking into account wider stakeholder considerations and determine
whether there should be any adjustment to the formulaic outcome.
Amount paid for threshold performance
0%
0%
Amount paid for target performance
75% of salary (50% of maximum annual bonus)
Actual bonus result for 2020 performance
Bonus paid €769,500 (50% of maximum)
Bonus paid €450,000 (50%) of maximum)
Formulaic outcome €1,539,000 (100% of maximum)3
Formulaic outcome €900,000 (100% of maximum)3
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
ltIp award
ltIp metrics
200% of base salary
150% of base salary
50% of the award: absolute tSR
50% of the award: Adjusted epS (cumulative for the three-year performance period)
payment for threshold performance
performance period and post-vesting holding
period
25%
3 years and 2 years respectively
Malus and clawback
Malus applies to the period prior to vesting for ltIp awards and payment of the annual bonus
Dividends on vested awards
Shareholding requirement
Clawback applies to cash bonus and ltIp awards for a period of three years following the date of vesting and
three years following any cash payment
participants are eligible for dividend equivalents on performance shares awarded under the ltIp
200% of base salary to be met within five years
Shareholding as % of salary at 2020 year end
70%
53%2
1 Stefan Borgas and Ian Botha waived their 20% salary increase from 1 April 2020 to 31 July 2020. As a result, the actual salaries received for the year 1 January to 31 December 2020 were €969,000 and
€566,667 respectively.
2 Calculated assuming a tax rate of 50%.
3 See page 119 for details of discretion applied by the Committee to adjust the formulaic bonus outcome.
106
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Directors’ Remuneration
Policy
This Directors’
Remuneration Policy
will be presented to
shareholders at the June
2021 AGM. Subject to
shareholder approval, the
policy will be effective
from 1 January 2021 and
is intended to operate for
the three-year period to
January 2024.
Approach and considerations in
determining and reviewing the Directors’
Remuneration Policy
our Directors’ Remuneration policy was initially
formed in 2018 and has been reviewed and
updated to this current policy which is being
brought to shareholders at our 2021 AGM.
the review process that the Committee
has followed, and that will be followed for
subsequent policy reviews, is set out below.
• the Committee has considered market and
Mission, values and long-term
value creation
the policy is aligned to and supports our
cultural values which are set out below:
•
Innovative
• open
• pragmatic
• performing
the mission of the Company is “taking innovation
to 1200°C and beyond”. Achieving our mission
requires high-performing senior management
and the policy is designed to motivate them
to perform to a high standard and reach the
stretching goals set. In addition, 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;
• 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;
•
requiring executives to acquire and retain
shares in the Company;
governance developments (including the uK
and Dutch Corporate Governance Codes
and uK and Dutch regulation) as well as wider
pay context, such as pay ratios and Group
reward arrangements.
• 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;
• the Committee has considered the guidelines
of shareholder representative bodies and
proxy agencies and investor expectations.
• the Committee has consulted with
shareholders in advance of our 2021 AGM and
the wider RHI Magnesita Board of Directors,
including our employee Representative
Directors, and carefully considered
feedback received.
•
•
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; and
incorporating metrics focused on long-term
shareholder value, such as total shareholder
return and reduction of both our and our
customers’ carbon emissions through the
increased use of secondary raw material.
• All changes to the existing policy are being
brought to the 2021 AGM for shareholder
approval and are set out below.
Factors considered in reviewing the Policy
the Committee has considered as part of its
review, and is comfortable that, the Remuneration
policy and its implementation are fully consistent
with the factors set out in provision 40 of the 2018
uK Corporate Governance Code (set out below)
and the aspects in section 3.1.2 of the Dutch
Corporate Governance Code which comprise:
long-term value creation, scenario analyses, ratio
of fixed to variable remuneration components,
market price of shares, terms and conditions
governing share and share option awards.
• Clarity: the policy and the way it is
implemented is clearly disclosed in this policy
section of the Remuneration Report and the
Annual Statement and supporting reports,
with full transparency of all elements of
Directors’ remuneration.
• Simplicity: the policy is simple and
straightforward, based on a mix of fixed and
variable pay. the annual bonus and ltIp
include performance conditions which are
aligned with key strategic objectives and
drivers of the RHI Magnesita business.
• Risk: the Committee believes that the
performance targets in place for the incentive
schemes provide appropriate rewards for
stretching levels of performance without
driving behaviour which is inconsistent with
the Company’s risk profile. potential reward is
aligned with market levels of peer companies
and the reputational risk from a perception of
“excessive” pay-outs is limited by the
maximum award levels set out in the policy
and the Committee’s discretion to adjust
formulaic remuneration outcomes. to avoid
conflicts of interest, Committee members are
required to disclose any conflicts or potential
conflicts ahead of Committee meetings. no
executive Director or other member of
management is present when their own
remuneration is under discussion.
• predictability: the policy includes full details
of the individual limits in place for the
incentive schemes as well as “scenario charts”
which set out potential pay-outs in the event
of different levels of performance, based on a
number of reasonable assumptions. Any
discretion exercised by the Committee in
implementing the policy will be fully
disclosed.
• proportionality: the link between the delivery
of strategy, long-term performance,
shareholder return and the remuneration of
the executive Directors is set out in the
Remuneration Report.
• Alignment to culture: As explained above and
in the rest of this report, the approach to
Directors’ remuneration is consistent with the
Group’s culture and values.
107
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
Summary of changes to be made from the current Directors’ Remuneration Policy
the changes that have been made to the policy that will be brought to shareholders at the 2021 AGM are as follows and are shown as relevant emboldened
in the policy table for executive Directors.
policy element
Base salary
pension
Current policy and reason for change
policy to be approved at 2021 AGM
Reference to salaries being set at mid-market levels.
to provide clarification of approach.
Reference changed to market competitive levels.
Does not provide that executive Director pension
contribution is to be aligned to the workforce.
Requirement of uK Corporate Government Code.
executive Directors will be offered a pension contribution rate as a percentage of salary that
is aligned with that available to the majority of the workforce in the country of appointment
and pension is capped at this amount.
Share ownership requirement
200% of salary requirement level set out in Annual
Report on Remuneration.
Best practice to be included in the policy.
post-employment shareholding
requirement
none
Requirement of uK Corporate Governance Code.
Additional background and
explanatory wording
n/A
Dutch law and clarity of wording.
Policy table for Executive Directors
200% of salary now included in policy.
Holding periods for annual bonus shares and long-term incentive awards continue post
cessation of employment in respect of any bonus shares acquired with 2021 bonus and ltIp
awards granted in 2021 and future years, thereby providing a post-employment
shareholding requirement.
Background and explanatory wording has been added for example on the approach to
reviewing the policy as required by Dutch law following implementation of the Shareholder
Rights’ Directive.
element and purpose
How it operates
Maximum opportunity
performance-related framework and recovery
Base salary
Salaries are paid monthly and reviewed annually.
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.
the Company’s policy is to set salaries at market
competitive 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.
there is no prescribed
maximum annual base salary or
salary increase.
Salaries will be reviewed by the Committee annually
taking into account the various factors noted in the “How
it operates” section of the policy.
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 of the workforce
across the Group including salary increases;
• Rates of inflation and market-wide increases across
international locations; and
• the geographic location of the executive Director.
executive 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. The pension will be
set at a rate aligned to the majority of the workforce
in the country of the Executive Director’s
appointment, structured as required by the local
regulation in the country of appointment, and in
line with industry norms.
none
Pension is capped at the rate
applicable to the majority of
employees in the country of
appointment for the Executive
Directors (currently Austria
where it is 15% of salary).
Benefits currently provided 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
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.
Retirement allowance
to provide competitive
retirement benefits for
recruitment and retention
purposes.
Other benefits
to provide a competitive benefit
package for recruitment and
retention purposes as well as to
support the personal health and
wellbeing of the executive
Director.
108
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Policy table for Executive Directors continued
element and purpose
How it operates
Maximum opportunity
performance-related framework and recovery
the annual bonus is based on the Group’s
performance as set and assessed by the Committee
on an annual basis.
the annual bonus is paid in cash and the executive
Directors 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.
up to 150% of base salary.
target potential opportunity is
50% of maximum opportunity.
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
objectives.
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 will normally be 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.
109
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
Policy table for Executive Directors continued
element and purpose
How it operates
Maximum opportunity
performance-related framework and recovery
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 granted under the
RHI Magnesita Long-Term
Incentive Plan (LTIP awards)
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.
ltIp 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.
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 ltIp 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 ltIp award is appropriate.
ltIp 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 to promote 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.
200% of salary.
none.
Executive Directors are expected to hold 200% of
salary in shares. the Committee normally expects
this requirement to be met within five years of
appointment and, for the Ceo, 7 June 2018 being the
date of approval of the Company’s first Directors’
Remuneration policy.
Holding periods for annual bonus shares and
long-term incentive awards continue post cessation
of employment in respect of bonus shares acquired
with 2021 bonus and LTIP awards granted in 2021
and future years, thereby providing a post-
employment shareholding requirement.
110
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
the table below sets out the remuneration policy for the non-executive Directors (including the Chairman).
Policy table for Non-Executive Directors
element and purpose
How it operates
Maximum opportunity
performance-related framework and recovery
to provide fees reflecting the
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 the 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.
the cash fee is normally paid quarterly in arrears. the
Chairman’s fee is inclusive of all of his responsibilities.
Reasonable expenses incurred by the non-executive
Directors in carrying out their duties may be reimbursed
by the Company including any personal tax payable by
the non-executive Directors as a result of
reimbursement of those expenses. the Company may
also pay an allowance in lieu of expenses if it deems this
is appropriate.
Fees are reviewed periodically.
there is no prescribed maximum
annual fee or fee increase.
none.
the Board is guided by the
general increase in the
non-executive market and the
Group’s global workforce, 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.
Performance 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 ltIp 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, as it will do for 2021’s award. 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.
the short-term financial and non-financial
criteria of our variable remuneration may, as noted
above, vary from year to year to ensure alignment
with the strategic plans of the Company. Set
out below is a summary of the measures for
2021 and other measures that have been used
since 2018 and may be incorporated again (in
addition to other measures) for future incentives:
Annual bonus
Financial criteria
ltIp
Financial criteria
• Adjusted eBIt and eBItA are a reflection of
the Company’s operating profits, operating
performance and business efficiency
supporting the value of RHI Magnesita
for the shareholders. they reflect the
way in which management assesses the
underlying performance of the business,
excluding certain non-recurring items from
the adjusted figures.
• operating cash flow supports the
Company’s capacity to expand its operations
or investment in additional assets/acquisitions,
as well as dividends paid to shareholders.
It is calculated by taking adjusted eBItDA
plus changes in working capital and in other
assets/liabilities minus capex spend.
Non-financial criteria
• Strategic deliverables supporting financial
targets such as adjusted eBIt or eBItA and
operating cash flow with initiatives and
strategic projects, such as enhancing the
current business model or Company’s
footprint and an environmental Social and
Governance (eSG) measure relating to Co2
emissions reduction.
• tSR – combination of movements in share
price and dividends earned on shares
reflecting the total return earned by holding
the Company’s shares.
• Adjusted epS – reflects the income statement
in a clear way and takes the equity structure
into account; the Board believes adjusted epS
to be one of the indicators which demonstrates
the value created for its shareholders.
• economic profit Growth – measures value
creation, considering all economic resources
employed within the business, taking into
account the costs of making and selling a
product/service.
Non-financial criteria
• use of Secondary Raw Material – measures
the rate at which secondary raw material
is used in our production network compared
to virgin raw materials. Despite this not
being a wholly financial target, this will
nonetheless be independently verified
by an external provider.
the criteria listed above directly link to the
Company’s strategy, long-term interests and
sustainability. performance targets are set at
a level to maintain good financial health. this
enables the Company to perform well, deliver
shareholder returns and invest sustainably
to achieve strategic deliverables. the
assessment of the fulfilment of performance
criteria for the annual bonus and for ltIp
awards is set out on pages 119 and 120.
111
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
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 ltIp
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).
Executive Directors’ service contracts
and payments for loss of office
Service contracts and letters of appointment are
available for inspection at the Company’s
registered office.
Service contracts and loss of office
It is the Company’s policy that notice periods for
executive Directors will not exceed 12 months
and the service contracts for the executive
Directors are terminable by either the Company
or the executive Director on 12 months’ notice.
Service contracts and loss of office
name
position
Date of
appointment
notice
period
Stefan Borgas
Ceo
20 June 2017
12 months
Ian Botha
CFo
1 April 2019
12 months
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.
112
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.
Approach to recruitment and promotions
the recruitment package for a new Director will
be set in accordance with the terms of our policy.
on recruitment, the salary may be set below
the normal market rate, with phased increases
as the Director demonstrates performance
within the Company. Annual bonus opportunity
will reflect the period of service for the year.
the normal annual ltIp 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 for use in exceptional circumstances
for the Company to be able to attract and secure
the right candidate if required. A ltIp award
may be made shortly after an appointment if
the usual annual award date has passed.
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.
With internal appointments, any variable
pay element awarded in respect of the
candidate’s prior role will normally be
allowed to continue according to its terms.
treatment of variable pay awards
on termination
Annual bonuses and ltIp awards are non-
contractual and are dealt with in accordance
with the rules of the relevant plans.
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 ltIp under which 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.
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, 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 ltIp 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.
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
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.
position
Date of initial appointment
period of current term
non-Independent non-executive Director, Chairman
20 June 2017
non-Independent non-executive Director
name
Herbert Cordt
David Schlaff
Karl Sevelda
Fiona paulus
Michael Schwarz
Franz Reiter
Stanislaus prinz zu Sayn-Wittgenstein
non-Independent non-executive Director
John Ramsay
Celia Baxter
Janet Ashdown
Andrew Hosty
Independent non-executive Director
Independent non-executive Director
Independent non-executive Director
Independent non-executive Director
Wolfgang Ruttenstorfer
Independent non-executive Director
Independent non-executive Director
Independent non-executive Director
6 october 2017
6 october 2017
6 october 2017
6 october 2017
6 June 2019
6 october 2017
20 June 2017
6 october 2017
6 June 2019
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
employee Representative Director
8 December 2017
8 December 20211
employee Representative Director
26 october 2017
26 october 20211
1 Mr Schwarz and Mr Reiter are the employee Representative Directors and have been selected in accordance with the applicable local law provisions by the employee representatives. they are appointed
for a term of not more than four years.
How the views of shareholders and
employees are taken into account
owing to the Board members’ wide range of
experience and backgrounds, and with employee
representatives’ members and shareholders
represented in person, there is ample opportunity
for stakeholder feedback on the policy and
its implementation on an ongoing basis.
the Committee formally consults directly with
employees on executive pay via the employee
Representative Directors appointed to the Board.
other engagement activities include employee
surveys, Ceo calls, regular town hall meetings
and an active Ceo Channel, as part of the
MyRHIMagnesita app, where employees can ask
questions on any issues including executive pay.
the Committee receives periodic updates from
the Ceo and the executive Vp people, projects
and Communications, which include employee
feedback received on remuneration practices
across the Group. no substantive questions
have been raised on executive remuneration.
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.
there are representatives of two of the Company’s
major shareholders on the Board and thus regular
consultation on all elements of remuneration
is ongoing. the Committee Chairman seeks
feedback from shareholders on any substantive
remuneration matters and any consultation
exercise would typically cover over 70% of
shareholders. the Committee appreciates
the opportunity to have a clear exchange of
views and engage with shareholders. this
feedback, best practice in the market, and any
views also 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. the Committee has engaged with
shareholders regarding the policy for which
approval will be sought at the 2021 AGM and
investors are supportive of the policy proposals.
In addition to this, the website provides an
important tool for investor engagement.
It contains a wide range of information on
our Company and has a section dedicated
to investors, which includes certain
remuneration information, such as our ltIp
rules, our investor calendar, financial results,
presentations, press releases, with news
relating to RHI Magnesita financial and
operational performance and contact details.
Remuneration market data for companies
of a comparable size and complexity to the
Company was considered as part of the
Committee’s formulation of the policy. this
remuneration data was only one of many
factors considered by the Committee.
the Committee has taken note of the views of the
executive Directors with regard to the amount and
structure of their remuneration and the provisions
of 3.1.2 of the Dutch Corporate Governance Code
(matters that should be taken into consideration
when formulating the remuneration policy)
have been brought to their attention.
113
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
How the Executive Directors’
Remuneration Policy relates to the
wider Group
Base salaries for the whole Group are operated
under broadly the same policy as for the
executive Directors and are reviewed annually.
our approach is to incentivise our employees
to focus on and contribute to the Company’s
key goals.
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 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.
the key difference between the 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. From 2019 on, the bonus structure
and targets are the same for executive Directors
and for all eligible white-collar employees. All our
employees take part in annual discretionary bonus
schemes, which are based on the same metrics as
those applicable to the executive Directors as
shown in Annual Report on Remuneration.
ltIp awards are awarded to those employees
identified as having the greatest potential to
influence Group-level performance. Given the
cost of operating such a plan, the Committee
considers this is the right approach and in the best
interests of the Company and its shareholders.
A comparison of the remuneration structure
between the wider workforce and the Board is
illustrated in the table below.
Competitive pay and cascade of incentives
organisational level
executive Directors
executive Management team
Senior leaders
Functional Directors
Senior managers
Managers
Specialists
professionals
other bonused employees
number of
employees
Maximum bonus as
percentage of
salary
Maximum proportion of
bonus payable in cash
(% of maximum award)
Maximum proportion of
bonus deferred in shares
(% of maximum award)
Maximum ltIp
award based on
annual salary
2
5
c.25
c.100
c.400
c.400
c.1,400
c.1,700
c.7,600
150%
80-140%
40%
30%
25%
20%
10%
5%
various3
75%1
85%2
100%
100%
100%
100%
100%
100%
100%
25%1
15%2
0%
0%
0%
0%
0%
0%
0%
150-200%
80-150%
20-50%
0%
0%
0%
0%
0%
0%
1 Half of annual bonus in excess of target, after tax, is used by the executive to acquire shares that must be held for a minimum of three years.
2 eMt members are required to acquire shares in the Company with 30% of the amount above target (after tax) which must be held for a minimum of three years.
3 Various local bonus programmes are in place for the operational, administrative and blue-collar employees of the Company.
114
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Summary of remuneration structure for employees below the Board
element
Salary
Read more on
Page 108
policy features for the wider workforce
Comparison with executive Director remuneration
Salary is the basis for a competitive total reward
package for all employees, and we conduct an
annual salary review for all employees. As we
determine salaries in this review, we take account of
comparable pay rates from market references, skills,
knowledge and experience of each individual,
individual performance, and the overall budget we
set for each country. In setting the budget each
year, we forecast inflation, unions and collective
agreements and business context related to such
things as growth plans, workforce turnover and
affordability.
We review the salaries of our executive Directors
and executive team annually. the primary purpose
of the review is to stay aligned with relevant market
comparators and stay competitive, as well as to ensure
any increases are aligned with the wider workforce in
europe and north America, except in exceptional
circumstances.
Pensions and benefits
We offer market-aligned benefits packages
reflecting normal practice in each of the countries
where we operate.
We have differences in the executive Directors’
benefits to reflect market practice and role
differentiation.
Read more on
Page 108
Annual bonus and LTIP
Read more on
Pages 109 and 110
our white-collar global workforce participates in
an annual cash bonus plan. the plan is based on
our Company KpIs. this structure places equal
emphasis on the importance of an employee’s
personal contribution to the success of RHI
Magnesita. We operate different bonus plans
for those employees of our business where
remuneration models in the market are markedly
different, such as sales and production areas.
our incumbent executive Directors’ pension
allowance (and that for new appointments) is
aligned to that of the workforce in their country
of appointment.
Annual bonuses for executive Directors are directly
related to the same performance measures and
outcomes as the wider workforce.
ltIps are provided to our senior executives and senior
roles who have influence on the overall performance
of the Company.
115
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
Assumptions
Minimum: Fixed pay only (base salary, pension
and benefits, excluding relocation benefits).
Target: Fixed pay plus 50% of 2021 maximum
annual bonus opportunity for the Ceo and CFo
with 50% vesting of the 2021 ltIp award.
Maximum: Fixed pay plus maximum annual bonus
opportunity and 100% vesting of 2021 ltIp award
with an assumed share price appreciation of 50%
for the ltIp award during the performance period.
As required under the Dutch Corporate
Governance 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, the long-term performance
of the Company and development of the
market value of the shares of the Company.
Pay ratios
the Dutch Corporate Governance Code
recommended from the financial year 2018,
and the uK Directors’ Reporting Regulations
required from 2019, that the Committee report
pay ratios including changes from the prior year
as part of its determination of executive pay
and wider executive remuneration decisions.
the total employee remuneration figure used
for the ratio below 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 100 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.
RHI Magnesita is positioned around the median
Ceo pay ratio of other basic materials and
industrial companies of a similar size listed on
the FtSe. the Committee, however, is aware
that as currently no long-term incentives
have vested, if the 2019 ltIp vests in 2022
the Ceo pay ratio is likely to increase.
pay ratios have been a component taken into
account when reviewing the Remuneration policy
for approval at the 2021 AGM. these were as
follows:
pay ratio
Ceo
CFo
2020
41:11
25:1
2019
34:1
2018
49:1
16:12
n/A3
1 the pay ratio has risen due to the increase in base salary and
bonus payment for the Ceo and CFo in 2020.
2 CFo pay ratio is lower as Ian Botha joined the Company on
1 April 2019; with the full salary and bonus, the ratio would
be 21:1.
3 Ian Botha, CFo, joined the Company on 1 April 2019 and so the
pay ratio for 2018 has not been calculated.
The proportion of fixed and
variable remuneration
to support the policy’s objectives to deliver long-
term sustainable success of the Company, the
remuneration package of our executive Directors
includes a mix of fixed and variable remuneration.
the proportion for 2021 is approximately 40%
for fixed pay and 60% variable remuneration on
a target basis. Variable pay is split between the
annual bonus, with 50% of payment over target
being held in shares, and long-term incentive.
Remuneration scenarios for
Executive Directors
the 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 ltIp award during the performance period
under the maximum payment scenario.
CEO
Values in €
CFO
Values in €
Maximum
20%
27%
35%
18%
5,952,263
Maximum
24%
30%
31%
15%
3,025,200
Target
40% 26%
34%
3,059,623
Target
44%
28%
28%
1,641,450
Minimum
100%
1,218,623
Minimum
100%
718,950
Fixed pay
Annual bonus
Long-term incentives
Share price appreciation 50%
116
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Annual report on
remuneration
The following section
provides details of how the
Company’s Directors were
paid during the financial
year to 31 December 2020.
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 Committee together with the Board has
determined to provide certain additional
voluntary disclosures recognising the
importance of transparency of reporting.
this Annual Report is compiled on this basis.
the Remuneration Committee members,
activities and meetings during the year are set
out on page 102, along with the Committee’s
purpose, roles and responsibilities and are thereby
included in this part of the report by reference.
Advisers
Korn Ferry is a signatory to the uK Remuneration
Consultants Group’s Code of Conduct
(“Code of Conduct”), and was appointed by
the Committee in 2017 having submitted a
proposal which demonstrated their skills and
experience in executive remuneration. Korn
Ferry provides advice to the Committee on
matters relating to executive remuneration.
the Committee was satisfied that the advice
provided by Korn Ferry was objective and
independent having noted their commitment
to the Code of Conduct. Korn Ferry’s fees for
advice to the Committee in 2020 were £85,582.
Korn Ferry’s fees were charged on the basis
of the time spent advising the Committee.
Korn Ferry provided other human capital related
services during the year to a separate part of the
business, but these services were carried out
by a team wholly separate to the remuneration
advisory team. the Committee is comfortable that
the controls in place at Korn Ferry do not result in
the potential for any conflicts of interest to arise.
Statement of voting at AGM
At last year’s AGM, held on 18 June 2020, votes on the business pertaining to remuneration, were cast as follows:
Resolutions
Votes for
% of
votes cast
Votes
against
% of
votes cast
total votes
validly cast
total votes
cast as a % of
the relevant
shares in issue
number
of votes
withheld
Advisory vote on Annual Report on Remuneration
30,616,066
81.17%
7,100,330
18.83%
37,784,288
76.37%
67,892
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 49,077,705. 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.
Directors’ remuneration policy
the Director’s remuneration policy was approved by shareholders on 7 June 2018:
Resolutions
Votes for
% of
votes cast
Votes
against
% of
votes cast
total votes
validly cast
total votes
cast as a % of
the relevant
shares in issue
number
of votes
withheld
Directors remuneration policy
27,139,139
99.51%
134,556
0.49% 27,273,696
60.85%
1
117
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 2020 financial year for each executive and
non-executive Director of the Company, together with comparative figures for 2019.
Director1
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Salary2
taxable benefits3
pension
Bonus4
ltIp
total remuneration
total fixed remuneration
total variable remuneration
Executive Directors
Stefan Borgas
Ian Botha5
€969,000 €855,000
€8,823
€8,823
€145,539
€128,250 €769,500
€498,354
€566,667 €375,000
€21,277
€56,755
€85,110
€56,268 €450,000
€218,576
Non-Executive Directors
Herbert Cordt
£227,167
£220,000
Celia Baxter
£90,287
£87,500
Andrew Hosty6
£77,333
£80,465
James leng7
£78,403
£102,500
Stanislaus prinz zu
Sayn-Wittgenstein
£67,087
£65,000
John Ramsay8
£93,163
£82,500
Wolfgang Ruttenstorfer
£74,820
£72,500
David Schlaff
Karl Sevelda
£67,087
£65,000
£74,820
£72,500
Janet Ashdown
£87,163
£82,500
Fiona paulus
Franz Reiter9
Michael Schwarz9
£79,943
£72,034
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– €1,892,862 €1,490,427
€1,123,362
€992,073
€769,500
€498,354
– €1,123,054 €706,599
€673,054
€488,023
€450,000
€218,576
£227,167
£220,000
£227,167
£220,000
£90,287
£87,500
£90,287
£87,500
£77,333
£80,465
£77,333
£80,465
£78,403
£102,500
£78,403
£102,500
£67,087
£65,000
£67,087
£65,000
£93,163
£82,500
£93,163
£82,500
£74,820
£72,500
£74,820
£72,500
£67,087
£65,000
£67,087
£65,000
£74,820
£72,500
£74,820
£72,500
£87,163
£82,500
£87,163
£82,500
£79,943
£72,034
£79,943
£72,034
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 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.
2 As set out in the 2019 Remuneration Report, at the beginning of 2020 the Committee consulted with our key shareholders regarding realignment of our reference markets for executive Directors’ pay,
using the DACH region as the more relevant market than the uK mainly being the key market where we compete for talent. As a result, the base salaries of the Ceo and CFo were each increased by 20%.
the new annual salary was for the Ceo €1,026,000 and for the CFo €600,000. However, as a result of the CoVID-19 pandemic, the executive Directors waived this 20% salary increase for a
four-month period from 1 April 2020. All non-executive Directors took a voluntarily salary/fee reduction of 10% for a four-month period from 1 April 2020, therefore all the amounts shown including
pension are post-waiver.
3 Benefits in 2020 for Stefan Borgas comprise a car benefit of €8,823 for the year and for Ian Botha a car benefit of €16,114 and € 5,163 relocation costs for the year.
4 the Committee, with the agreement of the executive Directors, determined that the annual bonus payments would be capped at target payment being 75% of salary – see page 119 for more details.
5 Ian Botha joined the Company on 1 April 2019 and therefore his annual salary was prorated accordingly in 2019, from an annual salary of €500,000. the 2019 disclosure of his total remuneration and
fixed remuneration were overstated by €18 and therefore has been restated in the above table.
6 Andrew Hosty stepped down from the Audit Committee on 24 September 2019, therefore the fees decreased.
7 James leng stepped down from his Board duties on 30 September 2020, therefore his fee was prorated accordingly.
8 John Ramsay took on additional roles of Deputy Chairman and Senior Independent Director and nomination Committee member in 2020, therefore his fees increased.
9 employee Representative Directors attending Board meetings do not receive remuneration for that role, they are remunerated as employees of the Group.
no loans, advances or guarantees have been provided to any Director. no long-term incentives vested during the year and so there was no impact of share
price appreciation.
Executive Directors’ external appointments
Stefan Borgas was a non-executive director of SCR-Sibelco nV from 1 January 2020 until 30 September 2020 when he stepped down from his duties.
His retained fees for the period were €50,000.
In october 2020, Stefan Borgas was appointed as Chairman of the Board of Directors of AFYRen SAS and for the period until 31 December 2020 he
retained fees of €8,750 and shares with a nominal value of €100,000.
118
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
2020 annual bonus performance against targets (audited)
the targets set for the annual bonus and performance against them are set out below. owing to the lack of visibility arising from the emerging CoVID-19 crisis,
the Committee set bonus targets on 20 May 2020 as announced to the market at the time. these targets focused on financial measures to drive earnings and
cash flow, thereby preserving the Group’s balance sheet strength and financial liquidity, in the face of an uncertain future. through 2020, the Company
demonstrated its resilience and accelerated the delivery of its strategy (you can read more about this on pages 24 to 25). As set out in the Chairman’s letter, the
Committee noted the strong performance of the executive Directors and the business over the year in very difficult market and economic conditions, which
had resulted in a formulaic annual bonus payment of 100% of maximum (150% of salary). the Committee noted that the eBItA for the year is a reduction on
prior year but taken with the Company’s cash position and overall liquidity determined that this represented good underlying business performance
demonstrating the business’s ability to survive the crisis. However, the Committee also noted the wider economic and social environment, stakeholder context
and investor expectations. As a result, the Committee, with the agreement of the executive Directors, determined that the annual bonus payments would be
capped at target payment being 75% of salary, which is €769,500 for Stefan Borgas (Ceo) and €450,000 for Ian Botha (CFo). the Committee is
comfortable that this bonus payment represents a fair level of reward for the performance achieved by the executive Directors and the business.
threshold
(0% vests)
target
(50% vests)
Maximum3
(100% vests)
Actual
performance
% of
element
% of
salary
payout
(€)4
% of
element
% of
salary
payout
(€)4
2020 outcome
Ceo
CFo
Measure and
weighting
Adjusted eBItA1
(60%)
operating cash flow2
(40%)
Total formulaic
outcome
€200m
€230m
€260m
€260m
100%
90%
923,400
100%
90%
540,000
€190m
€220m
€240m
€290m
100%
60%
615,600
100%
60%
360,000
Actual bonus paid (after Committee discretion applied, as described above)
100%
50%
150% 1,539,000
75%
769,500
100%
50%
150%
900,000
75%
450,000
1 At constant currency.
2 operating cash flow at constant currency. eBItA without restructuring expenses + Capex + change in working capital + cash tax.
3 the maximum Ceo and CFo annual bonus in 2020 was 150% of salary.
4 Although the formulaic outcome is at maximum the actual scaled back bonus payable is at target and is therefore payable wholly in cash.
threshold
(0% vests)
target
(50% vests)
Maximum4
(100% vests)
Actual
performance
2019
Ceo
(% of total
for each
element)
Ceo payment
(% of salary)
maximum total
payout5
Ceo cash
bonus based
on €855,000
salary6
CFo
(% of total
for each
element)
CFo payment
(% of salary)
maximum
total payout5
CFo cash
bonus based
on €375,000
part year
salary6
Measure and
weighting
operating eBIt1
(35%)
Free cash flow
FCF2 (30%)
net synergy
tracking3 (10%)
Strategic
objectives (25%)
total
€440.1m
€481.0m
€521.9m
€381.8m
0%
0%
€0
0%
0%
€0
€247.9m
€273.0m
€298.1m
€285.1m
74.0%
33.3%
€284,726
74.0%
33.3%
€124,880
€35.0m
€38.0m
€45.0m
€42.0m
78.6%
11.8%
€100,768
78.6%
11.8%
€44,196
50%
100%
150%
82.5%
35.2%
13.2%
€112,860
35.2%
13.2%
€49,500
38.9%
58.3%
€498,354
38.9%
58.3%
€218,576
1 At constant currency and without restructuring expenses.
2 operating cash flow at constant currency. eBItDA without restructuring expenses + Capex + change in working capital + cash tax.
3 Synergies are (financial) benefits achieved through the merger of the two companies.
4 the maximum Ceo annual bonus in 2019 was 150% of salary and the maximum for the CFo was 150% of salary earned in the year.
5 Bonus achievement % of maximum opportunity (150%).
6 the Ceo and CFo are required to purchase shares in the Company to the value of 50% of any bonus paid net of tax, for performance above target and to hold the shares for a minimum period of three years.
no bonuses were awarded to non-executive Directors, other than to the employee Representative Directors in relation to their employment activities.
119
R H I M A G N E S I TA
Annual report on remuneration
continued
LTIP awards where vesting is based on performance periods ending during the financial year ending 31 December 2020 (audited)
ltIp awards vesting
the ltIp awards3 granted on 7 June 2018 and vesting in 2021 were based on performance to 31 January 20211,2. the performance targets for these awards
and actual performance against those targets were as follows:
Metric
Relative tSR vs FtSe 350 Index2
Adjusted epS1
eBIt1
Total
Weighting
threshold target
(25% vests)
Stretch target
(100% vests)
Actual
% vesting
33.33%
equal to Index
Index +25%
33.33%
€5.20 per share
€6.50 per share
0.92%
€3.28
33.33%
100%
€390m
€440m
€ 120.6m
0%
0%
0%
0%
1 the performance period for epS and eBIt performance conditions is the three financial years until 31 December 2020.
2 For the tSR performance condition, the performance period is the three financial years and one calendar month until 31 January 2021.
3 Awards are structured as nil cost options.
the details for the ltIps vesting in 2021 are shown below:
executive
Stefan Borgas
Grant date
Vest date
number of
shares at grant
number of
shares to vest
Dividend
equivalent on
shares to vest
€
estimated
value
€
7 June 2018
7 June 2021
28,594
0
0
0
Ian Botha, CFo, joined RHI Magnesita on 1 April 2019 and therefore did not receive a 2018 ltIp award.
LTIP awards awarded during the financial year ending 31 December 2020 (audited)
During the year, the Ceo received an ltIp award of 200% of salary and the CFo received an ltIp award of 150% of salary.
Details of the ltIp award and the performance targets that will determine the extent to which the award vests are set out below.
Director
Stefan Borgas
Ian Botha
Scheme
Basis of award
Date of award
percentage of
salary award
Share price
used1
Face value
€000
percentage
vesting at
threshold
performance
number of
shares
end of
performance
period2
ltIp
ltIp
Annual award3
8 April 2020
Annual award3
8 April 2020
200%
150%
€22.7
€22.7
2,052
900
25%
25%
90,396
8 April 2023
39,647
8 April 2023
1 the face value of the awards was calculated using the average closing price for the five trading days prior to the award being granted being £19.976 converted to € (using average FX rate over the same
five-day period of €1.0881 to £1 = €22.7).
2 For the tSR element, measured from date of grant to third anniversary on 8 April 2023 with a two-month average before each date and for the epS element, three financial years until 31 December 2022.
3 Awards are structured as nil cost options.
the share price at the time awards were made was lower than when the 2019 awards were made as a result of the CoVID-19 pandemic market conditions.
the Committee determined that awards levels would not be scaled back at the time of award but that it would review the level of vesting and vesting value
and consider at that time whether it was appropriate, reflective of the underlying financial performance of the Company, and reasonable to scale back
vesting levels to avoid a “windfall gain”.
120
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
For 2020, the performance measures have been updated to recognise and support the focus of management in delivering material increases in the share
price (plus dividends) and aggregate epS over the three-year performance period. the Committee believes that taking into account the market and
economic outlook and uncertainty, the narrower focus on the absolute (rather than relative) total shareholder return and on total cumulative epS over the
three years provides a significantly simpler incentive, better aligned with shareholders’ interests.
performance measure
Absolute tSR
Weighting
threshold
(25% vesting)
Intermediate
(75% of vesting)
Maximum
(100% vesting)
performance period1
50%
30%
50% 70% and above
1 January 2020 to 8 April 2023
Adjusted epS (cumulative for the three-year performance period)
50%
€6.50
€8.00
€9.50
2020 to 2022
(+2-year holding period post vesting)
1 For the tSR element, measured from the date of grant to the third anniversary on 8 April 2023 with a two-month average before each date and for the epS element, three financial years until
31 December 2022.
2 Awards vest on a straight-line basis between threshold intermediate and maximum.
Performance targets for 2019 LTIP awards
Set out below are the performance targets for the 2019 ltIp awards1.
performance measure
Relative tSR2
Weighting
threshold
(25% vests)
Maximum
(100% vests)
33.3% 50th percentile
75th percentile
and above3
performance period
Adjusted epS (final year of performance period)
33.3% €7.80 per share €9.00 per share
Cumulative economic profit
33.3%
€600 m
€670 m
2019 to 2021
(+2-year holding period post vesting)
1 Awards are structured as nil cost options.
2 Measured against the FtSe 350, excluding sectors with limited direct relevance to RHI Magnesita.
3 Awards vest on a straight-line basis between threshold and maximum.
Directors’ interests in RHI Magnesita’s LTIP
the table below details outstanding share awards including the annual ltIp awards granted to the Ceo and CFo during 2020.
Scheme
Award date
Share
price used
€
Share
awards held
at 1 January
2020
Awarded
during the
year
Vested
during the
year
Share
awards
lapsed
during the
year
Share
awards
held at
31 December
2020
total share
value at award
(face value)
€
Vesting date
Stefan Borgas
performance shares
7 June 2018
57.773
28,594
performance shares
19 August 2019
44.534
38,397
–
–
performance shares
8 April 2020
22.7
90,396
Ian Botha
performance shares
19 August 2019
44.534
16,840
performance shares
19 August 2019
44.534
16,841
performance shares
8 April 2020
22.7
39,647
Conditional award
26 november 2019
45.202
16,592
–
–
–
–
–
–
–
–
–
–
–
28,594
1,652,0001
7 June 20215
38,397
1,709,9722
19 August 2022
90,396
2,052,0004
8 April 2023
16,840
750,0002
19 August 2022
16,841
750,0002
19 August 2022
39,647
900,0004
8 April 2023
16,592
750,0003
26 november 2022
1 the face value of the awards was calculated using the average closing price for the five trading days prior to the ltIp award being granted being £50.62 converted to € (using average FX rate over the
same five-day period of €1.14 to £1 = €57.773).
2 the face value of the awards was calculated using the average closing price for the five trading days prior to the ltIp award being granted being £41.06 converted to € (using average FX rate over the same
five-day period of €1.0846 to £1 = €44.534).
3 the face value of the awards was calculated using the average closing price for the five trading days prior to the ltIp award being granted being £38.73 converted to € (using average FX rate over the same
five-day period of €1.167 to £1 = €45.202).
4 the face value of the awards was calculated using the average closing price for the five trading days prior to the award being granted being £19.976 converted to € (using average FX rate over the same
five-day period of €0,881 to £1 = €22.7).
5 Following the testing of the performance conditions, this award has now lapsed.
121
R H I M A G N E S I TA
Annual report on remuneration
continued
Statement of Directors’ shareholding and share interests (audited)
under the share ownership requirements set out in the Directors’ Remuneration policy, the executive Directors are normally required to build and maintain
over five years a shareholding equivalent to at least 200% of salary. At the 2020 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 2020 of £35.06.
the table below shows how each Director complies with the shareholder guidelines at 31 December 2020:
Executive Directors
Stefan Borgas
Ian Botha
Non-Executive Directors
Herbert Cordt
Celia Baxter
Andrew Hosty3
James leng4
Stanislaus prinz zu Sayn-Wittgenstein5
Franz Reiter
Wolfgang Ruttenstorfer
David Schlaff6
John Ramsay
Michael Schwarz
Janet Ashdown
Fiona paulus
Karl Sevelda
Shares held at
31 December
2020
Shares held by
connected
persons
Shares held at
31 December
2019
unvested and
subject to a
service
requirement
only
unvested and
subject to
performance
conditions
Shareholding
requirement
Current
shareholding
% salary
Requirement
met?
18,6001
1,150
13,600
–
157,387 200% salary
–
350,000
1,002
389
–
–
–
–
–
2,130
–
–
–
1,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,002
389
–
–
–
–
–
2,130
–
–
–
–
16,592
73,328 200% salary
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
70%1
53%2
–
–
–
–
–
–
–
–
–
–
–
–
–
no
no
–
–
–
–
–
–
–
–
–
–
–
–
–
1 Includes shareholdings of connected persons.
2 Includes unvested shares which are subject to a service requirement and assumes a tax rate of 50%.
3 In the course of 2020, the AFM register was updated to reflect the correct figure of 389. the disclosed 2019 figure of 379 shares has been re-stated as above.
4 position as at date of ceasing to be a Director on 30 September 2020 (not 31 December 2020).
5 2,088,461 interests are 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. 2,088,461 interests 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. 1,590,000
interests held in part directly and in part indirectly through FeWI Beteiligungsgesellschaft mbH.
6 13,333,340 interests are held directly by MSp Stiftung. MSp Stiftung is a foundation under liechtenstein law, whose founder is Mag. Martin Schlaff.
there were no changes in the Directors’ shareholdings and share interests between the end of the year and 5 March 2021.
Review of past performance and CEO remuneration table (unaudited)
Share price performance
the closing middle market price of the shares at 31 December 2020 was £35.06 (2019: £38.48). During 2020, the shares traded in the range of £14.30
to £38.20.
122
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
RHI Magnesita total shareholder return
the graph below compares the total shareholder return of the Company with the FtSe 350 Index over the 38-month period from Admission to
31 December 2020. this is considered an appropriate comparator for RHI Magnesita because it is a constituent of this index.
180
160
140
120
100
80
60
40
27/10/17 31/12/17
31/12/18
31/12/19
31/12/20
RHI Magnesita
FTSE 350
Source: Datastream (thomson Reuters).
Remuneration of the CEO
Single figure of total remuneration1
Stefan Borgas
Annual bonus pay-out as % of maximum2, 3
Stefan Borgas
long-term incentive vesting rates as % of maximum4
Stefan Borgas
2017
2018
2019
2020
€476,981 €2,073,350
€1,490,427
€1,892,862
83.16%
88.04%
38.9%
50%
n/A
n/A
n/A
0%
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 the percentage of maximum shown for the 2020 annual bonus is the amount paid to the Ceo. the formulaic bonus outcome is 100% of maximum.
4 A long-term incentive plan was introduced when the Company was formed in october 2017. the first award vests in 2021 based on a performance period ending 31 December 2020 (and to 31 January
2021 for the tSR element).
Annual percentage change in remuneration of the CEO (unaudited)
the table below illustrates the percentage change in annual salary, benefits and bonus between 2019 and 2020 for the Ceo and the average for all
Austrian employees of the Company. the Ceo is an Austrian-based employee; therefore, the Committee feels that a comparator based on all Austrian
employees is appropriate for the purposes of this analysis.
Ceo
Average of employees
Salary change
(2019 to 2020)
Benefits change
(2019 to 2020)
Annual bonus change
(2019 to 2020)
13,3%1
5.1%
12.6%
10.6%
54.4%
31.0%
1 Stefan Borgas waived his 20% of base salary increase from 1 April 2020 to 31 July 2020. As a result, his base salary for the year 1 January to 31 December 2020 was €969,000 which equals a salary
increase of 13.3%. the benefits for Stefan comprise of company car, insurance and the pension (which remained unchanged at 15% of salary).
123
R H I M A G N E S I TA
Annual report on remuneration
continued
Directors’ and employee remuneration over time (unaudited)
the table below shows the Directors’ total remunerations’ year on year change (on a full-time equivalent basis):
Year
Executive Directors2
Stefan Borgas3
Ian Botha4
Non-Executive Directors
Herbert Cordt
Celia Baxter
Andrew Hosty7
James leng8
Stanislaus prinz zu Sayn-Wittgenstein
John Ramsay
Wolfgang Ruttenstorfer
David Schlaff
Karl Sevelda
Janet Ashdown
Fiona paulus
Franz Reiter9
Michael Schwarz9
Company performance
Adjusted epS
Reported eBIt in € million
operating cash flow in € million
Total remuneration in FY 2020
% change 2019 to 2020
% change from 2018 to 20191
€1,892,862
€1,123,054
£227,1676
£90,2876
£77,3336
–5
£67,0876
£93,1636
£74,8206
£67,0876
£74,8206
£87,1636
£79,9436
–
–
3.28
120.6
290
27%
n/A5
3.2%
3.1%
–3.9%
n/A5
3.2%
12.9%
3.2%
3.2%
3.2%
n/A5
n/A5
–
–
-41.1%
-55.8%
1.7%
–28.1%
n/A5
–
6.1%
3.8%
–
–
6.4%
–
–
–
n/A5
n/A5
–
–
4.8%
–4.4%
–23.0%
Average remuneration (on a full-time equivalent basis)
employees of the Company10
€76,562
7.7%
4.1%11
1 For notes on the change from 2018 to 2019, please see the 2019 Annual Report.
5 Where the incumbent did not serve for the full year, the calculation has not been made as it is
2 the executive Directors waived 20% of basic salary and the non-executive Directors took a
unrepresentative.
voluntary fee reduction of 10 % for a four-month period from 1 April 2020. the amounts above
reflect this reduction compared to the table below which shows the 2020 annual salaries/fees
without reduction.
6 the base fee for the Chairman and non-executive Directors was not increased in 2018 and
therefore in 2020, non-executive Director fees were increased by 6.8% in line with the average
employee base pay increase in 2018 and 2019.
3 the basic salary of Stefan Borgas increased from €855,000 to €1,026,000 (20%) based on
7 Andrew Hosty stepped down from the Audit Committee on 24 September 2019, therefore his
performance and due to realignment of our reference markets for executive Directors’ pay, using
Germany as the more relevant market than the uK being the key market where we compete for
talent, and the bonus outturn also increased for 2020.
4
Ian Botha was appointed from 1 April 2019 and therefore in 2019 received a prorated salary of
€375,000. the full-year annual salary in 2019 was €500,000. In 2020 the basic salary
increased to €600,000 (20%) based on performance and due to re-alignment of our reference
markets for executive Directors’ pay, using the DACH region as the more relevant market than the
uK being the key market where we compete for talent.
fees decreased.
8 James leng ceased to be a Director on 30 September 2020.
9 employee Representative Directors attending Board meetings do not receive remuneration for
that role, they are remunerated as employees of the Group.
10 the group of RHI Magnesita employees covers the parent company, namely all employees
within the Austrian subsidiaries.
11 the disclosure on average remuneration last year was overstated. the correct 2019 figure
should have been € 71,071 and therefore the change to 2018 has been re-stated above.
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 2019 compared with the financial
year ended 31 December 2020.
total gross employee pay
Dividends1
1 Dividend is not time apportioned.
124
2019
€ million
2020
€ million
percentage
change
629.7
24.5
575.6
73.5
–8.6%
200%
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Payments to past Directors (audited)
there were no payments to past Directors in the period 1 January to 31 December 2020. James leng retired from the Board on 30 September 2020 and
received fees to that date.
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 2020.
2021 remuneration (unaudited)
Set out below is how the Directors’ Remuneration policy will be implemented during 2021.
Salaries and fees for 2021
Directors’ salaries and fees (on a full-time equivalent basis)
Subject to approval at the 2021 AGM, the Directors’ salaries and fees will be increased in alignment with the general workforce increases (2.5%) from 1 January
2021. owing to rounding, the exact percentages of increase differ but is never more than 2.5% which was the average increase of the Austrian workforce.
Executives
Stefan Borgas
Ian Botha
Non-executives
Chairman (inclusive of all Committee fees)
Non-Executive Directors
Deputy Chairman/Senior Independent Director
Chairmen of Audit Committee and Remuneration Committee
Membership of the Audit and Remuneration Committees
Chairmen of nomination Committee (unless held by the Chairman) and Corporate Sustainability Committee
Membership of the nomination and Corporate Sustainability Committee
2020
20211,2
percentage
change
€1,026,000 €1,052,000
€600,000
€615,000
£235,000
£241,000
£69,400
£71,100
£26,700
£27,300
£18,700
£19,100
£8,000
£8,200
£18,700
£19,100
£5,300
£5,400
2.5%
2.5%
2.5%
2.4%
2.2%
2.1%
2.4%
2.1%
1.9%
1 these are the 2020 annual fees and salaries without the four-month fee and salary reduction voluntarily taken during the year as shown in the table on the previous page.
2 Fee and salary increases are rounded to the nearest 100.
the Company does not contribute to defined benefit pension schemes on behalf of executive Directors or non-executive Directors.
Annual bonus for 2021
the maximum potential annual bonus opportunity for FY 2021 remains at 150% of salary for both the Ceo and CFo. the Committee has set bonus KpIs for
2021 which continue the focus on key financial measures and reintroduce strategic measures which track the delivery of the Company’s strategy and will
grow the value of the business over the medium term.
performance criteria
Adjusted eBItA
operating cash flow
Strategic deliverables¹
Increase global value market share
Reduce conversion cost
Reduce Co2 emissions
Weighting
2020
60%
40%
–
2021
35%
35%
10%
10%
10%
1 the specific targets relating to the 2021 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.
the bonus for 2020 focused on the financial measures to drive revenue and liquidity in the face of an uncertain future bought about by CoVID-19. For 2021,
the Committee has reintroduced a strategic element to the bonus once again to provide drivers for profitability aligned with the Company’s refreshed
strategy. the Ceo and the 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.
125
R H I M A G N E S I TA
Annual report on remuneration
continued
2021 LTIP awards
the Ceo will be granted a ltIp award over shares with a value at grant of 200% and the CFo 150% of salary. taking into account the ongoing market and
economic outlook and uncertainty, the Committee decided to retain the focus on absolute (rather than relative) total shareholder return, and total cumulative
epS. As outlined earlier in this report, the Committee recognises the importance of attaining our targets for the reduction of carbon emissions. A third measure
has therefore been included for 2021, the “use of Secondary Raw Material”, which is a key element to achieving this reduction. the measures and the targets
are set out below.
performance measure
tSR1
Adjusted epS (cumulative for the three-year performance period)
use of Secondary Raw Material3
Weighting
threshold
(25% vesting)
Intermediate
(75% of vesting)
Maximum
(100% vesting)
performance period
25%
50%
25%
13%
€12.00
6.5%
20%
€14.50
7.5%
25%
€16.89
8.0%
2021 to 2023
(+2-year holding period post vesting)
1 Measured from date of grant to third anniversary with a two-month average before each date.
2 Awards vest on a straight-line basis between threshold intermediate and maximum.
3 use of secondary raw material as a percentage of total raw materials used, evaluated at the end of 2023 based on the current production network (and excluding any changes in raw material usage due to
any future M&A activity).
this report was reviewed and approved by the Board on 5 March 2021 and signed on its behalf by order of the Board.
Celia Baxter
Chairman of the Remuneration Committee
126
GOVERNANCE R H I M A G N E S I TA
AnnuAl RepoRt 2020
Financial
Statements
128 Consolidated Statement of
213 Company Financial Statements
Financial position
of RHI Magnesita n.V.
129 Consolidated Statement of profit
216 notes
or loss
130 Consolidated Statement of
Comprehensive Income
Consolidated Statement of Cash Flows
131
132 Consolidated Statement of Changes
in equity
notes
134
Independent auditor’s report
Other Information
227
238 Alternative performance
measures (ApMs)
239 Glossary
240 Shareholder information
127
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
Consolidated Statement of
Financial Position
as of 31.12.2020
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
Assets disposal groups
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
Liabilities disposal groups
128
Note
31.12.2020
31.12.2019
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(5)
(22)
(23)
(24)
(25)
(26)
(16)
(27)
(28)
(29)
(30)
(25)
(26)
(31)
(32)
(33)
(5)
110.8
265.7
958.6
16.3
14.5
26.6
199.2
117.5
319.0
1,106.8
19.5
15.4
39.5
181.9
1,591.7
1,799.6
477.4
351.8
27.7
0.3
587.2
16.6
1,461.0
3,052.7
49.5
596.6
646.1
20.0
666.1
983.0
88.8
45.0
303.6
70.5
62.6
4.8
602.7
432.7
17.3
0.1
467.2
0.0
1,520.0
3,319.6
49.5
774.4
823.9
20.8
844.7
983.5
105.1
54.0
328.1
75.8
98.5
7.3
1,558.3
1,652.3
131.5
44.0
522.7
25.8
86.4
17.9
828.3
3,052.7
71.5
31.9
614.0
35.4
69.8
0.0
822.6
3,319.6
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 2 0
Consolidated Statement of
Profit or Loss
from 01.01.2020 to 31.12.2020
in € million
Revenue
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Restructuring and write-down 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 before income tax
Income tax
Profit after income tax
attributable to shareholders of RHI Magnesita N.V.
attributable to non-controlling interests
in €
Earnings per share - basic
Earnings per share - diluted
Note
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
(13)
(44)
(24)
(51)
2020
2,259.0
(1,708.9)
550.1
(110.9)
(198.3)
(113.8)
19.7
(26.2)
120.6
5.9
(20.1)
(42.8)
(29.7)
(86.7)
7.6
41.5
(13.9)
27.6
24.8
2.8
2019
2,922.3
(2,205.1)
717.2
(126.2)
(209.2)
(112.1)
34.9
(31.3)
273.3
9.1
(28.4)
(17.2)
(38.7)
(75.2)
1.5
199.6
(50.8)
148.8
139.0
9.8
0.51
0.50
2.82
2.81
129
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
Consolidated Statement of
Comprehensive Income
from 01.01.2020 to 31.12.2020
in € million
Profit after income tax
Currency translation differences
Unrealised results from currency translation
Deferred taxes thereon
Current taxes thereon
Unrealised results from net investment hedge
Deferred taxes thereon
Current taxes thereon
Reclassification to profit or loss
Cash flow hedges
Unrealised fair value changes
Deferred taxes thereon
Reclassification to profit or loss
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 income after income tax
Total comprehensive income
attributable to shareholders of RHI Magnesita N.V.
attributable to non-controlling interests
Note
(6)
(44)
(55)
(40)
(54)
(44)
(54)
(27)
(44)
(13)
(24)
2020
27.6
(227.8)
39.9
3.7
15.8
(2.0)
(2.0)
0.3
(3.6)
0.9
0.0
(174.7)
(0.7)
0.6
0.0
(0.1)
2019
148.8
(7.6)
3.9
2.4
(2.9)
0.5
0.2
3.7
(7.4)
1.9
(0.7)
(6.0)
(37.1)
9.1
(0.1)
(28.1)
(174.8)
(34.1)
(147.2)
(147.5)
0.3
114.7
103.4
11.3
130
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 2 0
Consolidated Statement of
Cash Flows
from 01.01.2020 to 31.12.2020
in € million
Cash generated from operations
Income tax paid less refunds
Net cash inflow from operating activities
Investments in property, plant and equipment and intangible assets
Investments in subsidiaries net of cash acquired
Investments in securities
Cash inflows from sale of subsidiaries net of cash disposed of
Cash inflows from the sale of property, plant and equipment
Cash inflows from the sale of securities and shares
Dividends received from joint ventures and associates
Investment subsidies received
Interest received
Cash inflows from non-current receivables
Net cash (outflow) from investing activities
Acquisition of treasury shares
Acquisition of non-controlling interests
Dividend payments to shareholders of the Group
Dividend payments to non-controlling interests
Proceeds from borrowings and loans
Repayments of borrowings and loans
Changes in current borrowings
Interest payments
Repayment of lease obligations
Interest payments from lease obligations
Cash flows from derivatives
Net cash (outflow) 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-end1)
1) thereof shown under assets held for sale € 2.0 million
Note
(47)
(49)
(49)
(48)
(21)
2020
366.6
(47.6)
319.0
(156.9)
(8.5)
0.0
0.0
10.5
0.0
10.8
0.0
6.0
0.2
(137.9)
(2.7)
0.0
(49.1)
(1.1)
97.6
(23.7)
7.4
(30.5)
(15.8)
(1.3)
1.5
(17.7)
163.4
163.4
467.2
(41.4)
589.2
2019
470.4
(67.8)
402.6
(156.1)
(0.5)
(0.4)
2.5
1.4
40.9
13.4
0.2
8.3
0.0
(90.3)
(18.8)
(44.6)
(74.2)
(1.3)
432.0
(550.4)
(2.8)
(49.8)
(14.3)
(1.2)
(14.4)
(339.8)
(27.5)
(27.5)
491.2
3.5
467.2
131
1
3
2
Consolidated Statement of
Changes in Equity
from 01.01.2020 to 31.12.2020
Share
capital
(22)
49.5
Treasury
shares
(23)
(18.8)
Additional
paid-in
capital
(23)
361.3
in € million
Note
31.12.2019
Profit after income tax
Currency translation differences
Market valuation of cash flow hedges
Remeasurement of defined benefit
plans
Other comprehensive income after
income tax
Total comprehensive income
Dividends
Shares repurchased
Share-based payment expenses
Transactions with shareholders
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2.7)
-
(2.7)
(21.5)
31.12.2020
49.5
361.3
288.7
Group reserves
Accumulated other comprehensive income
Mandatory
reserve
Retained
earnings
Cash flow
hedges
Defined
benefit plans
Currency
translation
Accumulated
other
comprehensive
income/expens
es relating to
disposal groups
Equity
attributable
to shareholders
of RHI
Magnesita N.V.
(23)
288.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(23)
379.6
24.8
-
-
-
-
24.8
(24.5)
-
(3.1)
(27.6)
376.8
(23)
(11.0)
-
-
(2.7)
-
(2.7)
(2.7)
-
-
-
-
(23)
(145.6)
-
-
-
(0.1)
(0.1)
(0.1)
-
-
-
-
(23)
(79.8)
-
(177.3)
-
-
(177.3)
(177.3)
-
-
-
-
-
-
7.9
-
(0.1)
7.8
7.8
-
-
-
-
(13.7)
(145.7)
(257.1)
7.8
823.9
24.8
(169.4)
(2.7)
(0.2)
(172.3)
(147.5)
(24.5)
(2.7)
(3.1)
(30.3)
646.1
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
R
H
I
M
A
G
N
E
S
I
T
A
Non-
controlling
interests
(24)
Total
equity
20.8
844.7
2.8
(2.5)
-
-
27.6
(171.9)
(2.7)
(0.2)
(2.5)
(174.8)
0.3
(1.1)
(147.2)
(25.6)
-
-
(2.7)
(3.1)
(1.1)
(31.4)
20.0
666.1
test
in € million
Note
31.12.2018
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
integrated tender offer of Magnesita
Shares repurchased
Disposal of benefit plans
Acquisition in non-controlling interests
without change of control
Share-based payment expenses
Transactions with shareholders
31.12.2019
Share
capital
(22)
48.3
-
-
-
-
-
-
-
-
1.2
-
-
-
-
1.2
49.5
Treasury
shares
(23)
-
-
-
-
-
-
-
-
-
-
(18.8)
-
-
-
Additional
paid-in
capital
(23)
305.5
-
-
-
-
-
-
-
-
55.8
-
-
-
-
(18.8)
(18.8)
55.8
361.3
Group reserves
Accumulated other comprehensive income
Mandatory
reserve
Retained
earnings
Cash flow
hedges
Defined
benefit plans
Currency
translation
Equity
attributable
to
shareholders
of RHI
Magnesita
N.V.
Non-
controlling
interests
Total equity
(23)
288.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
288.7
(23)
351.0
139.0
-
-
-
-
-
139.0
(98.8)
-
-
1.2
(16.9)
4.1
(110.4)
379.6
(23)
(5.0)
-
-
(6.1)
-
-
(6.1)
(6.1)
-
-
-
-
0.1
-
0.1
(23)
(114.2)
-
-
-
(28.0)
(0.1)
(28.1)
(28.1)
-
-
-
(1.2)
(2.1)
-
(3.3)
(11.0)
(145.6)
(23)
(73.8)
-
(1.4)
-
-
-
(1.4)
(1.4)
-
-
-
-
(4.6)
-
(4.6)
(79.8)
800.5
139.0
(1.4)
(6.1)
(28.0)
(0.1)
(35.6)
103.4
(98.8)
57.0
(18.8)
-
(23.5)
4.1
(80.0)
823.9
(24)
84.8
9.8
1.6
(0.1)
-
-
1.5
11.3
(1.3)
-
-
-
(74.0)
-
(75.3)
20.8
885.3
148.8
0.2
(6.2)
(28.0)
(0.1)
(34.1)
114.7
(100.1)
57.0
(18.8)
-
(97.5)
4.1
(155.3)
844.7
1
3
3
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
2
0
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 Consolidated Financial Statements 2020
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”) are 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 non-ferrous 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,
with a second listing on the Vienna Stock Exchange.
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.
For the following German entities the exemption clause pursuant to section 264 paragraph 3 HGB (German commercial Code) was ap-
plied: RHI Urmitz AG & Co. KG (Koblenz), Magnesita Refractories GmbH (Wiesbaden), RHI Dinaris GmbH (Wiesbaden), RHI GLAS GmbH
(Wiesbaden), RHI Magnesita Services Europe GmbH (Cologne), RHI Refractories Site Services GmbH (Wiesbaden), RHI Sales Europe
West GmbH (Coblenz), RHI Magnesita Deutschland AG (Wiesbaden).
The Consolidated Financial Statements for the period from 1 January 2020 to 31 December 2020 were drawn up in accordance with all
International Financial Reporting Standards (IFRSs) mandatory at the time of preparation as adopted by the European Union (EU). The
presentation in the Consolidated Statement of Financial Position distinguishes between current and non-current assets and liabilities.
Assets and liabilities are classified as current if they are due within one year or within a longer normal business cycle 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 receivables and trade payables are generally presented as current items. Deferred tax assets and liabilities as well as assets and
provisions for pensions and termination benefits are generally presented as non-current items.
The Consolidated Statement of Profit or Loss is drawn up in accordance with the cost of sales method.
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 unless otherwise stated.
Update of disclosures related to significant uncertainties and going concern linked to COVID-19
The global economic downturn due to the COVID-19 pandemic during 2020 resulted in a reduction of revenue for the Group as the
economic activities in the Steel and Industrial Segments are closely linked to the global economy. The Group has considerable financial
resources together with long-standing relationships with a number of customers, suppliers and funding providers across different geo-
graphic areas and industries. The forecasts and projections, taking account of reasonably possible changes in trading performance show
that the Group is able to operate within the level of its current bank facilities without the need to renew facilities expiring in the next 12
months. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the un-
certainties inherent in the current economic outlook. After making enquiries, the directors have a reasonable expectation that the Com-
pany and the Group has adequate resources to continue in operational existence for the foreseeable future.
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The preparation of the Consolidated Financial Statements in accordance 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 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 7 March 2021 and is subject to adoption at the Annual General Meeting of shareholders
on 10 June 2021.
2. Initial application of new financial reporting standards
In 2020, 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 2020.
Standard
Title
Amendments of standards
IAS 1, IAS 8
Definition of Material
IFRS 3
Various
IFRS 16
IFRS9, IAS 39, IFRS7
Business Combinations
Amendments to References to the
Conceptual Framework in IFRS
Standards
Amendment to IFRS 16 Leases
Covid 19-Related Rent
Concessions
Amendments to IFRS 9, IAS 39 and
IFRS 7: Interest Rate Benchmark
Reform
1) According to EU Endorsement Status Report of 12.02.2021.
Publication
(EU endorsement)1)
Effects on RHI Magnesita Consolidated
Financial Statements
31.10.2018
(29.11.2019)
22.10.2018
(21.04.2020)
29.03.2018
(29.11.2019)
28.05.2020
(29.10.2020)
26.09.2019
(15.01.2020)
No material effect
No effect
No effect
No effect
No material effect
IFRS 16 “Amendment to IFRS 16 Leases Covid-19-Related Rent Concessions”
The amendment permits lessees, as a practical expedient, not to assess whether particular rent concessions occurring as a direct conse-
quence of the COVID-19 pandemic are lease modifications and instead to account for those rent concessions as if they are not lease
modifications.
The practical expedient only applies to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if the
following conditions are met cumulatively:
•
•
•
The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change;
Any reduction in lease payments affects only payments due on or before 30 June 2021; and
There is no substantive change to other terms and conditions of the lease.
RHI Magnesita has evaluated the effect of applying the amendment to IFRS 16 Leases ‘‘COVID-19-Related Rent Concessions’’ with the
conclusion that the company will not make use of the practical expedient and that there is no effect to be expected to the Group.
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Notes
continued
3. New financial reporting standards not yet applied
The IASB issued further standards, amendments to standards and interpretations, whose application is, however, not yet mandatory as at
31 December 2020. They were not applied early on a voluntary basis. They are not expected to have a significant impact on the RHI Mag-
nesita Consolidated Financial Statements.
Standard
Title
New standards and interpretations
Publication1)
Mandatory application
for
RHI Magnesita
Expected effects on RHI
Magnesita Consolidated
Financial Statements
IFRS 14
IFRS 17
Regulatory Deferral Accounts
Insurance Contracts
30.01.2014
No EU endorsement
18.05.2017
01.01.2023
Not relevant
Not relevant
Amendments of standards
IAS 1
Classification of Liabilities as Current or Non-current
23.01.2020
01.01.2023
Amendments to IFRS 3 Business Combinations; IAS 16
Property Plant and Equipment; IAS 37 Provisions,
Contingent Liabilities and Contingent Assets as well as
Annual Improvements 2018-2020
Amendments to IFRS 4 Insurance Contracts - deferral
of IFRS 9
14.05.2020
01.01.2022
25.06.2020
01.01.2021
Not relevant
No material effects
expected
No material effects
expected
Interest Rate Benchmark Reform - Phase 2
27.08.2020
01.01.2021
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2: Disclosure
of Accounting policies
Amendments to IAS 8 Accounting policies, Changes in
Accounting Estimates and Errors: Definition of
Accounting Estimates
12.02.2021
01.01.2023
12.02.2021
01.01.2023
No material effects
expected
No material effects
expected
No material effects
expected
IFRS 3, IAS 16, IAS 37
IFRS 4
IFRS 9, IAS 39,
IFRS 7, IFRS 4 and
IFRS 16
IAS 1
IAS 8
1) According to EU Endorsement Status Report of 12.02.2021.
IFRS 7, IFRS 9, IAS 39, IFRS 16, IFRS 4 “Interest Rate Benchmark Reform”
In 2019 RHI Magnesita has elected to early adopt the Phase 1 amendments to IAS 39 and IFRS 7 Interest Rate Benchmark Reform (IBOR)
issued in September 2019 and is still applying the Phase 1 amendments in the financial statements of 2020. In accordance with the tran-
sition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the start of the reporting
period and to the amount accumulated in the cash flow hedge reserve at that date. The Phase 1 amendments provide temporary relief
from applying specific hedge accounting requirements to hedging relationships directly affected by the IBOR reform by assuming that
the interest rate benchmark is not altered as a result of the IBOR reform. The reliefs stipulated in the IBOR reform should not cause hedge
accounting to terminate in general. However, any hedge ineffectiveness continues to be recorded in the income statement. Furthermore,
the amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interest rate benchmark reform
no longer being present.
In August 2020 the Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 were issued. The Phase 2 amendments focus on
the treatment of accounting impacts arising from the actual transition from the currently used to an alternative benchmark interest. Due
to the remaining uncertainty regarding the alternative benchmark to be used, RHI Magnesita has elected not to adopt the Phase 2
amendments early. RHI Magnesita’s risk exposure that is directly affected by the IBOR reform concerns its USD 200 million floating-rate
debt with a remaining term until 2023. RHI Magnesita has hedged this debt with an interest rate swap, and it has designated the swap in a
cash flow hedge of the variability in cash flows of the debt, due to changes in USD LIBOR that is the current benchmark interest rate.
Further information is provided under Note (55).
The precise structure of the replacement of the USD LIBOR remains somewhat uncertain after 2021, although it might be possible that
the use of LIBOR could be extended for a certain period as there is still ongoing discussion on its replacement rate. The most likely alter-
native benchmark interest, the Secured Overnight Financing Rate or SOFR, does not yet have term rates available. This uncertainty re-
garding the replacement of USD LIBOR represents a possible source of ineffectiveness because this might affect the hedged item (the
floating-rate debt) and the hedging instrument (the interest rate swap used to hedge the debt) at a different time and have a different
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financial impact on the hedged item and the hedging instrument. Management expects that the hedged debt will move to the same
alternative benchmark rate as the swap as a most likely scenario. Therefore, no material effect on the Group is expected.
The EURIBOR is expected to remain active as the benchmark rate in the Euro area and consequently the risk of discontinuation before
2023 is relatively small, thus the interest rate swap of €290.3 million and its corresponding underlying hedged item, a floating-rate debt,
both maturing in 2023, would most likely remain unaffected. Even in the unlikely scenario of precocious discontinuation of the EURIBOR,
Management considers that the hedged debt would move to the same alternative benchmark rate as the swap.
RHI Magnesita is continuing to closely monitor the developments of the IBOR reform and is in regular communication with the banks to
minimise any mismatches going forward.
4. Other changes in comparative information
Consolidated Statement of Financial Position
Suppliers with debit balance and creditors with credit balance have been repositioned within trade and other current receivables
amounting to €5.0 million and trade payables and other current liabilities amounting to €5.0 million. Previously shown under other
current receivables respectively other current payables, they are now shown within trade receivables and trade payables in order to im-
prove disclosure and display their operative character. The comparative figures have been adjusted accordingly.
Segment reporting
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 allo-
cated to the segments based on the capacity of the assets provided to the segments. The assets that contribute to the raw material pro-
duction for internal use are now allocated to the segment based on their relative revenue contribution. This results in a more transparent
reporting of the revenue generated by the segments’ assets. The comparative figures for segment assets as well as the segmentation for
depreciation and amortisation charges have been adjusted accordingly, resulting in an increase in property, plant and equipment, good-
will and other intangible assets of €213.2 million as well as an increase in depreciation and amortisation charges of €16.6 million in the
Steel segment.
5. 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.
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Notes
continued
The main operating companies of the RHI Magnesita Group and their core business activities are as follows:
Name and registered office of the company
RHI Magnesita Deutschland AG, Germany
Magnesit Anonim Sirketi, Turkey
Magnesita Mineração S.A., Brazil
Magnesita Refractories Company, USA
Magnesita Refractories GmbH, Germany
Magnesita Refratários S.A., Brazil
RHI Magnesita Trading B.V., Netherlands
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
International
India
Core business activity
Production
Mining, production, sales
Mining
Mining, production, sales
Production
Production, sales
Procurement, sales, supply chain
Production, sales
Canada
Production, sales, provision of services
International
International
PR China
Sales, R&D, financing
Sales
Production
USA
Production, sales, provision of services
Latin America
Austria
Sales
Mining, production
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.
This accounting policy choice can be exercised individually for each acquisition. For the acquisition of Magnesita, non-controlling inter-
ests have been measured at their proportionate share of Magnesita’s identifiable net assets.
If a business combination is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at
the acquisition date. Any gains and losses arising from such remeasurement are recognised in profit or loss.
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 in 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 in 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 result in a loss of control.
All intragroup results are fully eliminated.
In accordance with IAS 12, deferred taxes are calculated on temporary differences arising from the consolidation. Subsidiaries are decon-
solidated on the day control ceases.
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Acquisition of MORCO
On 29 January 2020 the Group acquired 100% of shares in Missouri Refractories Co, Inc. (MORCO) in order to strengthen its position in
the North American refractory market. The purchase price amounted to €8.8 million and was paid in cash. The site is strategically located
in the Midsouth of the United States, a region that is growing in importance for RHI Magnesita. It produces over 400 high-quality mono-
lithic mixes, which serve a multitude of industries, including steel, cement, lime and glass.
The fair values of the assets and liabilities recognised as a result of the acquisition are presented as follows:
in € million
Property, plant and equipment
Inventories
Trade and other current receivables
Cash and cash equivalents
Deferred tax liabilities
Trade payables and other current liabilities
Net assets acquired
Goodwill
Purchase price
29.01.2020
2.4
1.4
1.8
0.3
(0.1)
(0.8)
5.0
3.8
8.8
The goodwill created in the course of the acquisition reflects the expected strategic advantage for the Group in the North American re-
fractory market and is allocated to the Cash Generating Unit Linings. The goodwill cannot be deducted for tax purposes.
The acquisition costs related to the acquisition amounted to €0.1 million and are recognised in other expenses.
The fair value of trade and other current receivables acquired amounts to €1.8 million and corresponds to the gross contractual amount
for trade and other current receivables.
In the period from February to December 2020, MORCO generated revenue of €8.2 million and profit after income tax of €1.1 million. If
the acquisition had been carried out at 1 January 2020, consolidated revenue would have amounted to €9.0 million and profit after
income tax to €1.2 million.
IFRS 5 Disposal Groups
In line with the Group’s raw material strategy, the Group entered into an agreement in December 2020 to sell its ownership interest in
RHI Normag AS, Porsgrunn, Norway and Premier Periclase Limited, Drogheda. The transaction does not result in the discontinuation of a
major line of business or a geographical area of operations, and, therefore, does not qualify as a discontinued operation. The assets and
liabilities of the disposal group are consequently presented separately from other assets and liabilities in the Statement of Financial Posi-
tion in accordance with IFRS 5. The sale was completed on 1 February 2021 (see Note 63).
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Notes
continued
The following assets and liabilities were reclassified as held for sale in relation to the disposal group as at 31 December 2020:
in € million
Non-current assets
Inventories
Trade receivables and other current assets
Cash and cash equivalents
Assets classified as held for sale
Non-current liabilities
Current liabilities
Liabilities directly associated with assets classified as held for sale
31.12.2020
5.6
7.0
2.0
2.0
16.6
9.4
8.5
17.9
A write-down expense of €18.7 million was recognised in respect to the non-current assets of the disposal group upon classification as
held for sale, which was determined by reference to the fair value of the consideration less cost of disposal (Level 3). Write-down expens-
es are recorded in restructuring costs in the Consolidated Statement of Profit or Loss. Of these losses, €4.6 million relate to the reportable
segment Steel and €14.1 million relate to the reportable segment Industrial.
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 possibilities (e.g. through seats in the supervisory board) to
influence the company’s financial and operating policy decisions it has significant influence over the investee.
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 carrying amount of investments accounted for using the equity method is adjusted each year to reflect the change in 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 upon 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, an impairment loss is determined as the difference between the recoverable amount and
the carrying amount of the joint ventures and associates and is recognised in profit and loss in the item share of profit of joint ventures and
associates.
When the group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other un-
secured long-term receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on
behalf of the other entity. If the equity-accounted investment subsequently reports profits, the entity resumes recognising its share of
profits only after those profits equal or exceed its share of losses not recognised.
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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6. 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 under net 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. When a non-derivative financial
instrument is designated as the hedging instrument in a net investment hedge in a foreign operation, the effective portion of the foreign
exchange gains and losses is recognised in the currency translation difference reserve within equity. Non-monetary items denominated
in foreign currency are carried at historical rates.
If foreign companies are deconsolidated, the currency translation differences are recycled to 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 or when in case of a net investment hedge the foreign operation is disposed, the currency translation differences previously
recognised in other comprehensive income are reclassified to profit or loss.
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 or loss 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 for-
ward from the prior year are recorded under other comprehensive income without recognition to profit or loss. Monthly cash flows are
translated at the respective closing rates of the previous month. Goodwill and adjustments to the fair value of assets and liabilities related
to the purchase price allocations of a subsidiary outside the European currency area are recognised as assets and liabilities of the respec-
tive subsidiary 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.
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Notes
continued
The Euro exchange rates of currencies important for the RHI Magnesita Group are shown in the following table:
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.
Closing rate
Average rate1)
1 € =
ARS
BRL
CAD
CLP
CNY
INR
MXN
NOK
GBP
CHF
ZAR
USD
31.12.2020
31.12.2019
103.47
6.38
1.57
875.28
8.03
89.83
24.45
10.50
0.90
1.08
17.97
1.23
67.09
4.51
1.46
842.57
7.81
79.90
21.19
9.88
0.85
1.09
15.78
1.12
2020
79.35
5.83
1.53
2019
52.94
4.41
1.49
904.32
792.03
7.89
84.13
24.48
10.76
0.89
1.07
18.72
1.14
7.73
78.84
21.74
9.86
0.88
1.11
16.24
1.12
7. 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 in the Statement of Profit or Loss immediately after a reassessment of the
initial measurement 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 their expected useful life.
Research costs are expensed in the year incurred and included in 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. Amortisation is 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
overhead costs. Software is predominantly amortised on a straight-line basis over a period of four years.
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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 useful lives of the Group’s main classes of intangible assets:
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 construction cost, less accumulated depreciation and accumulated impair-
ment losses. 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.
Construction costs of assets comprise direct costs as well as a proportionate share of capitalisable overhead costs and borrowing costs. If
borrowed funds are directly attributable to an investment, borrowing costs are capitalised as production costs. If no direct connection
between an investment and borrowed funds can be demonstrated, the average rate on borrowed capital of the Group is used as the capi-
talisation rate due to the central funding of the Group.
Expected demolition and disposal costs at the end of an asset’s useful life are capitalised as part of acquisition cost and recorded as a
provision. The recognition criteria are a legal or constructive obligation towards a third party and the ability to reliably estimate future
cost.
Stripping costs incurred in the development phase to gain access to mines are recognised as a separate other non-current asset. These
capitalised prepaid expenses are subsequently depreciated by reference to the actual depletion of the mineral resources of the mine
during the production phase.
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
RHI Magnesita’s leases include mainly arrangements regarding land and buildings, technical equipment and machinery as well as other
equipment, furniture and fixtures. The average lease term is eleven years for land and buildings, five years for technical equipment and
four years for other equipment, furniture and fixtures. Impacts resulting from extension and termination options, as well as residual value
guarantees are immaterial.
RHI Magnesita makes use of the following practical expedients of IFRS 16:
Lease payments for leases whose contractual term is 12 months or less or whose remaining term at adoption is 12 months or less
will continue to be recognised as an expense.
Lease payments for leases for which the underlying asset is of low value will continue to be recognised as an expense.
Applying a single discount rate to a portfolio of leases with reasonably similar characteristics.
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Notes
continued
Since 1 January 2019, leases are recognised as a Right-of-use asset and a corresponding liability at the date at which the leased asset is
available for use by the Group. Each lease payment is allocated between principal payments on the liability and finance cost. The finance
cost is charged to profit or loss over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the
liability for each period. The Right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-
line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of
the following lease payments:
Fixed payments (including in-substance fixed payments), less any lease incentives receivable
Variable lease payments that are based on an index or a rate
Amounts expected to be payable by the lessee under residual value guarantees
The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental
borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value
in a similar economic environment with similar terms and conditions. The incremental borrowing rate is based on the German federal
bond and the US Government Treasury Yield Curve. Based on these two governmental curves, a spread is determined in relation to the
bond rating of RHI Magnesita. This spread is then added with an inflation differential and a country risk premium for each country. The
weighted average incremental borrowing rate applied to these lease liabilities was 2.50%.
Right-of-use assets are measured at cost comprising the following:
The amount of the initial measurement of lease liability
Any lease payments made at or before the commencement date less any lease incentives received
Any initial direct costs, and
Restoration and removal costs.
A lease modification is a change in the scope of a lease or the consideration for a lease, that was not part of the original terms and condi-
tions of the lease. If the modification decreases the scope of the lease, the carrying amount of the Right-of-use asset and the lease liabil-
ity has to be reduced accordingly. If the modification increases the scope of the lease (consideration is not at a stand-alone price), the
carrying amount of the Right-of-use asset and the lease liability has to be increased accordingly.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised as an expense in
profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment, office furniture
and other small items. Expenses for short-term, low-value and variable lease payments in 2020 amount to €4.5 million (31.12.2019: €9.2
million). The total cash outflow for leases in 2020 amounts to €21.7 million (31.12.2019: €24.6 million).
The residual values and economic useful lives are reviewed regularly and adjusted if necessary.
RHI Magnesita Group reviewed its estimates regarding usage and physical wear and tear of property, plant and equipment on plants and
production sites. This reassessment resulted in a decrease of depreciation expenses by €10.2 million in the current reporting period and
will continue to result in decreased depreciation expenses in future periods, although quantifying this effect for future periods is impracti-
cable.
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, including Right-of-use assets, and intangible assets, 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.
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An asset is considered to be impaired if its recoverable amount is less than its 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 in profit or loss.
In the case of impairment losses related to cash-generating units (CGUs) to which goodwill is allocated, the goodwill is reduced first, but
not exceeding the accumulated depreciated book value had the impairment not taken place.. If the impairment loss exceeds the carrying
amount of goodwill, the difference is apportioned proportionately to the remaining non-current tangible and intangible assets of the
CGU on the basis of their carrying amounts. Reversals of impairment losses recognised on goodwill are not permitted and are therefore
not considered.
If there is an indication for an impairment of a specific asset or a group of assets, only this specific asset will be tested for impairment. The
recoverable amount is determined as the asset’s fair value. If the fair value is lower than the carrying amount, an impairment loss is rec-
orded in EBIT. If impairment losses arise due to restructuring, they are recorded in restructuring costs.
Cash-generating units (CGU)
In the Group individual assets do not generate cash inflows independent of one another; therefore, no recoverable amount can be pre-
sented 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 market appearance and are as such responsible for cash
inflows. CGUs 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 the Group’s production process. These factors determine cash inflow to a significant extent
and consequently form the basis for the CGU structures.
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 includes sub-tasks of the administration processes.
Major assumptions
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 assumptions were updated considering the latest developments of the COVID-19
pandemic. RHI Magnesita expects an improvement in refractory volume across all geographies and businesses as customer markets im-
prove. Expectations consider the different speed of recovery for the relevant CGUs. Uncertainty regarding future developments arising
from COVID-19 and its consequences to economic outlooks, were factored into the cash flow prognosis taking into account potentially
lower levels in customer demand and catch-up effects in the mid-term. The group expects to arrive at pre-crisis revenue and cash flow
levels in 2023. Furthermore, the effects from the fixed costs reduction measures have been considered.
The detailed planning of the first five years is congruent with the strategic business and financial planning. Based on the detailed plan-
ning period, it is geared to a steady-state business development, which balances out possible economic or other non-sustainable fluctu-
ations 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 7.4% and 9.5% in the
year 2020. In the previous year, the discount rates ranged between 5.4% and 8.9%.
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Notes
continued
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 in the estimated
future cash flows for impairment testing 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. Cash flows for other
expansion investments are excluded from the DCF model; this applies in particular to expansion investments that have been decided on
but that have 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 2021 Budget and Long-Term Plan 2022 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 re-
gional growth of the steel production and the output of the non-steel clients. In combination with the development of the specific refrac-
tory consumption, which considers 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
2020
Steel Division - Linings
Steel Division - Flow Control
8.2%
8.1%
0.9%
0.9%
84.2
25.0
7.9%
7.7%
0.9%
0.9%
2019
Goodwill
in € million
88.6
27.2
The remaining immaterial portion of goodwill amounting to €1.6 million (31.12.2019: €1.7 million) is allocated to the remaining CGUs, all
of them having sufficient headroom.
Result of impairment test
Based on the impairment test conducted at 31 December 2020, the recoverability of the assets was demonstrated for all CGUs, except for
the CGU Norway, where the property, plant and equipment of CGU Norway has been fully impaired as a result of impairment testing in
previous years.
As in the previous year, no reversals of impairments were made in the financial year 2020.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of an-
other entity. In general, financial instruments can be classified to be measured subsequently as at amortised cost, at fair value through
profit or loss or at fair value through other comprehensive income. Classification of financial assets depends on the contractual terms of
the cash flows as well as on the entity’s business model for managing the financial assets. The business model determines whether cash
flows will result from collecting contractual cash flows, selling the financial assets, or both.
Further information on the Group’s financial assets and liabilities, as well as on the fair value measurement is provided under Note (53).
Other financial assets and liabilities
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 and a financial liability relating to the termination of an energy supply contract.
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
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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 group’s investment in debt securities is subsequently measured at fair value through profit and loss, as the contractual terms of cash
flows do not solely include payments of principal and interest.
The Group’s investments in equity securities are of minor importance and are subsequently measured at fair value through profit or loss,
since the irrevocable option for subsequent measurement at fair value through OCI was not exercised.
Shares in non-consolidated subsidiaries (RHI Magnesita exercises control but the subsidiary is not-fully consolidated due to materiality
reasons), shares 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 approximation 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 do not meet the hedge accounting requirements, must be carried 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 of either contract-
ing party as well as interest rate swaps.
Derivative financial instruments relating to purchase obligations are accounted for in accordance with IFRS 9 and concern long-term
power supply contracts which provide for the purchase of fixed amounts of electricity at fixed prices. The measurement is made taking
into account electricity prices in the futures market. Based on the fixed amounts of electricity, the cash flows for the entire term of the
contract are initially determined as the difference between forward rates and contractually fixed prices and discounted at the reporting
date using a cost of borrowing rate corresponding to the term. The measurement effects resulting from these electricity derivatives 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 of either contracting party 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, including forward premiums and discounts. Unrealised valuation gains or losses and results
from the realisation are recognised in the Statement of Profit or Loss in 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 designated in an effective hedging relationship in accordance with IFRS 9, the provisions
regarding hedge accounting are applied. RHI Magnesita has concluded interest rate swaps to hedge the cash flow risk of financial liabili-
ties carrying variable interest. Hedging transactions are shown as part of cash flow hedge accounting. The interest rate swaps as hedging
instruments are measured at fair value, which corresponds to the amount which RHI Magnesita would receive or has to pay on the report-
ing date when the financial instrument is terminated. The fair value is calculated using the interest rates and yield curves relevant on the
reporting date. The effective part of the fair value changes is initially recorded in other comprehensive income as an unrealised gain or
loss. Only at the time of the realisation of the underlying transaction, the contribution of the hedging instrument is recycled to the State-
ment of Profit or Loss. Ineffective parts of the cash flow hedges are recognised immediately in the Statement of Profit or Loss. If the
hedged transaction is no longer expected to take place, the accumulated amount previously recorded in other comprehensive income is
reclassified to the Statement of Profit or Loss.
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instru-
ment relating to the effective portion of the hedge are recognised in Other Comprehensive Income and presented in the currency trans-
lation difference reserve within equity while any gains or losses relating to the ineffective portion are recognised in the Statement of Profit
or Loss. On disposal of the foreign operation, the cumulative amount of any such gains or losses recorded in Other Comprehensive In-
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Notes
continued
come is reclassified to the Statement of Profit or Loss. The Group uses a loan to hedge its exposure to foreign exchange risk on its invest-
ments in foreign subsidiaries.
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 for puttable non-controlling interests is measured at amortised cost and changes are recorded in net
finance costs.
Impairment of financial assets
Impairment of certain financial assets 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 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 makes 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 regard 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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For those financial instruments where objective evidence of default is present an individual assessment of 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 at 34.0%. Tax rates from 12.5% to 34.0% (31.12.2019: 12.5% to 34.0%) 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 progress 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 recognised initially at the amount of consideration that is unconditional, unless they contain significant financing
components when they are recognised at fair value and subsequently carried at amortised cost minus any valuation allowances. Valua-
tion allowances are calculated in accordance with the simplified approach of the impairment model for financial instruments (see im-
pairment of financial assets above).
In case of factoring arrangements trade receivables are derecognised if RHI Magnesita transfers substantially all the risks and rewards
associated with the financial assets and does not retain control over them.
Receivables denominated in foreign currencies are translated using the closing rate.
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 in accordance with IAS 7.
Cash and cash equivalents denominated in foreign currencies are translated at the closing rate.
Disposal groups held for sale
Non-current assets and disposal groups which can be sold in their present state and whose sale is highly probable are classified as held
for sale. Assets and liabilities which are intended to be sold together in a single transaction represent a disposal group held for sale and
are shown separately from other assets and liabilities in the Statement of Financial Position.
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Notes
continued
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. 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.
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 external funds.
For pension plans financed by way of external funds, the pension obligation according to the projected unit credit method is netted
against the fair value of the plan assets. If the plan assets are not sufficient to cover the obligation, the net obligation is recognised as a
provision 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 presented as an other non-current asset on the face of the statement of financial positions.
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, retire-
ment starting age and probability of employee turnover and actual claims. The calculation is based on local demographic parameters.
Interest rates used are the rates on high-quality corporate bonds issued with comparable maturities and currencies are applied to deter-
mine the present value of pension obligations. In countries where there is not a 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.
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The fluctuation probabilities were estimated specific to age or 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 or when the employee retires. The termination payment depends
on the relevant salary at the time of the termination as well as the number of years of service and ranges between two and 12 monthly
salaries. These obligations are measured in accordance with IAS 19 using the projected unit credit method applying an accumulation
period of 25 years. Remeasurement gains and losses are recorded directly to other comprehensive income after considering tax effects.
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 continuous contributions are treated as
defined contribution pension plans and included in the 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 years of uninterrupted 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.
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 approved 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. Each reporting date the provisional amount per
due date is 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 goods 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.
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 asset retirements are reviewed annually and
adjusted, if appropriate.
A provision for an onerous or unfavourable contract is recognised when the expected benefits to be derived from a contract are lower than
the unavoidable cost of meeting its obligations under the contract. 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.
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Notes
continued
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, income and expenses
Revnue from contracts with customers
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 applies 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.
Regarding delivery contracts of refractory products the goods promised are distinct and control of the goods is passed to the customer
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 turnover rate.
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 to provide services are capable of being distinct and separately identifiable in the context of the contract.
Accordingly, the allocation of the transaction price is based on the relative stand-alone selling prices of the product and services. Reve-
nue from services is recognised over time, using an input method to measure progress towards complete satisfaction of the service, be-
cause 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 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) 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. Therefore, only one single performance obligation exists - the
performance of a management refractory service. Further information is provided under Note (9). With regards to these contracts, reve-
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A N N U A L R E P O R T 2 0 2 0
nue 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. Once
the uncertainty related to guaranteed durabilities ceases to exist, a significant reversal of revenue is highly unlikely. All other warranties
guarantee that the transferred products correspond to the contractually agreed specifications and are classified as assurance type war-
ranties. Consequently, 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 (whichever comes first). 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 prac-
tical expedient, not to disclose the remaining performance obligations for contracts with original expected duration of less than one year.
Further income and expenses
Expenses are recognised in 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.
Current income taxes are recognised according to the local regulations applicable to each company. Current and deferred income taxes
are recognised in the Statement of Profit or Loss unless they are related to items which were recorded directly in equity or in other com-
prehensive income. In such a case, income taxes are also recorded in equity or other comprehensive income.
Since 2020 RHI Magnesita N.V., Vienna branch, Austria, acts as the head of a corporate tax group in Austria. Until 31 December 2019 RHI
Magnesita GmbH, Vienna, Austria, acted as the head of a corporate tax group in Austria. According to the group and tax compensation
agreement, the members of the group have to pay a positive tax compensation of 20% of the taxable profit to the head of the Group if the
result is positive, as long as tax loss carry forwards exist with the head of the group; subsequently 25% of the taxable profit have to be
paid. In case of a tax loss of the group member, the head of the group has to pay a negative tax compensation to the member of the group,
with a rate of 12.5% being applied insofar as the loss can be utilised within the group. In case the losses of a group member were com-
pensated (negative tax allocation payment) and this group member generates taxable income within the next three years (after compen-
sation), 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, RHI Magnesita Deutschland AG, 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 agree-
ment. Additionally, Didier-Werke Aktiengesellschaft, Wiesbaden, acts as the head of a tax group for VAT purposes with ten German tax
group members. Furthermore, Rearden G Holdings Eins GmbH, Hagen, acts as the head of a two-level structure tax group with four group
members for corporate, trade tax and VAT purposes.
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Notes
continued
8. 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, non-ferrous metals and environment, energy, chemicals industries. The main activities of the
two segments consist of market development, global sales of high-grade refractory bricks, mixes and special products as well as providing
services at the customers’ sites.
The 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, restructuring and
write-down 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.
9. 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.
Critical accounting judgments
Revenue recognition
For customer contracts in the Steel segment with variable payment arrangements where the transaction price depends on the customer’s
production performance, (e.g. quantity of steel produced) management has determined that the commitment to transfer each of the
products and services to the customer is not separately identifiable from the other commitments 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 performance obligation, performance of a management refractory service, exists.
Trade payables subject to supply chain finance arrangements
RHI Magnesita participates in supply chain finance arrangements whereby raw material suppliers may elect to receive a discounted early
payment of their invoice from a bank rather than being paid in line with the agreed contractual payment terms. The Group settles the
amount owed to the bank. The invoice due date as well as the value of the original liability remains unaltered. RHI Magnesita assesses
that these arrangements do not modify the terms of the original trade payable, and therefore financial liabilities subject to supply chain
finance arrangements continue to be classified as trade payables.
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.
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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
€1,222.5 million at 31 December 2020 (31.12.2019: €1,424.0 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 consid-
ering all changes resulting from updates of strategic planning. Sensitivity analyses are also performed as part of the impairment test. In
their calculation one of the main parameters is changed as follows: increase in the discount rate by 10%, reduction in the form of the
contribution margin by 10% and reduction of the growth rate in terminal value by 50%. In all CGUs, these simulations do not result in
impairments. Likewise, in all CGUs a reduction of the discount rate by 10%, an increase in profitability in the form of the contribution
margin by 10% and an increase in the growth rate in terminal value by 50% do not result in reversals of impairments.
Impairment of goodwill 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 2020 or by minus 10% in the contribution
margin would not result in an impairment of goodwill recognised (carrying amount 31.12.2020: €110.8 million, 31.12.2019: €117.5 million)
nor in an impairment charge to intangible assets with indefinite useful lives (carrying amount at 31.12.2020: €1.8 million and 31.12.2019:
€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 several factors, which are based on actuarial assumptions
such as interest rates, future salary and pension increases as well as life expectancy. Due to the long-term nature of these obligations,
these assumptions are subject to significant uncertainties.
The following sensitivity analysis shows the change in present value of the pension and termination benefit obligations if one key param-
eter changes, while the other influences are maintained constant. In reality, 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).
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
31.12.2020
Termination
benefits
Pension plans
31.12.2019
Termination
benefits
+0.25
(0.25)
+0.25
(0.25)
+0.25
(0.25)
+1 year
(1) year
523.3
(16.2)
16.9
1.6
(1.5)
12.5
(11.0)
21.3
(20.7)
46.4
(1.3)
1.4
1.3
(1.3)
-
-
-
-
557.9
(17.1)
17.4
1.1
(1.2)
11.6
(11.4)
21.0
(20.7)
52.0
(1.4)
1.4
1.4
(1.3)
-
-
-
-
155
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R H I M A G N E S I T A
Notes
continued
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 €145.7 million (31.12.2019: €168.3 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.
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. When determining the amount of the capitalisable deferred tax assets, an estimate is required of future taxable
income. Should the future taxable profit deviate by 10% from the assumption made on the reporting date within the planning period
defined for the accounting and measurement of deferred taxes, the net position of deferred tax assets amounting to €154.2 million
(31.12.2019: €127.9 million) would have to be increased by €0.3 million (31.12.2019: €1.7 million) or reduced by €0.3 million (31.12.2019:
€2.0 million).
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NOTES TO THE CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
10. Goodwill
Goodwill developed as follows:
in € million
Carrying amount at beginning of the year
Additions initial consolidation
Currency translation
Carrying amount at year-end
2020
117.5
3.8
(10.5)
110.8
11. Other intangible assets
Other intangible assets changed as follows in the financial year 2020:
in € million
Cost at 31.12.2019
Currency translation
Additions
Retirements and disposals
Disposal group IFRS 5
Reclassifications
Cost at 31.12.2020
Accumulated amortisation 31.12.2019
Currency translation
Amortisation charges
Impairment charges
Retirements and disposals
Disposal group IFRS 5
Accumulated amortisation 31.12.2020
Carrying amounts at 31.12.2020
Mining rights
169.1
(36.0)
0.0
0.0
0.0
0.0
133.1
8.0
(1.7)
2.2
0.0
0.0
0.0
8.5
124.6
Customer
relationship
109.3
(14.2)
0.0
0.0
0.0
0.0
95.1
25.2
(3.4)
6.1
0.0
0.0
0.0
27.9
67.2
Internally
generated
intangible assets
Other intangible
assets
52.4
(0.3)
9.9
0.0
0.0
0.0
62.0
37.1
(0.1)
3.7
0.0
0.0
0.0
40.7
21.3
134.1
(8.9)
3.1
(11.0)
(0.2)
4.2
121.3
75.6
(3.6)
7.4
0.3
(10.8)
(0.2)
68.7
52.6
2019
117.4
0.0
0.1
117.5
Total
464.9
(59.4)
13.0
(11.0)
(0.2)
4.2
411.5
145.9
(8.8)
19.4
0.3
(10.8)
(0.2)
145.8
265.7
157
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
continued
Other intangible assets changed as follows in the previous year:
in € million
Cost at 31.12.2018
Currency translation
Additions
Retirements and disposals
Reclassifications
Cost at 31.12.2019
Accumulated amortisation 31.12.2018
Currency translation
Amortisation charges
Impairment charges
Retirements and disposals
Accumulated amortisation 31.12.2019
Carrying amounts at 31.12.2019
Mining rights
Customer
relationship
Internally
generated
intangible assets
Other intangible
assets
169.4
(0.3)
0.0
0.0
0.0
169.1
4.7
0.0
3.3
0.0
0.0
8.0
161.1
108.7
0.6
0.0
0.0
0.0
109.3
17.8
(0.1)
7.5
0.0
0.0
25.2
84.1
50.5
0.1
3.4
(1.6)
0.0
52.4
34.1
0.1
4.5
0.0
(1.6)
37.1
15.3
129.2
0.6
6.3
(4.4)
2.4
134.1
66.8
0.4
11.1
0.6
(3.3)
75.6
58.5
Total
457.8
1.0
9.7
(6.0)
2.4
464.9
123.4
0.4
26.4
0.6
(4.9)
145.9
319.0
Internally generated intangible assets comprise capitalised software and product development costs.
The customer relations of Magnesita have a carrying amount of €66.9 million (31.12.2019: €83.6 million) and a remaining useful life of 8
to 12 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 €21.1 million (31.12.2019: €23.0 million) and a remaining useful life of 17 to 57 years.
There are no restrictions on the sale of intangible assets.
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12. Property, plant and equipment
Property, plant and equipment developed as follows in the year 2020 and in the previous year:
in € million
Cost at 31.12.2019
Currency translation
Additions
Additions initial consolidation
Reassessment / Modification of leases
(IFRS 16)
Retirements and disposals
Disposal group IFRS 5
Reclassifications
Cost at 31.12.2020
Accumulated depreciation 31.12.2019
Currency translation
Depreciation charges
Impairment charges
Retirements and disposals
Disposal group IFRS 5
Reclassifications
Accumulated depreciation 31.12.2020
Carrying amounts at 31.12.2020
in € million
Cost at 31.12.2018
Initial recognition IFRS 16
Currency translation
Additions
Reassessment / Modification of leases
(IFRS 16)
Retirements and disposals
Reclassifications
Cost at 31.12.2019
Accumulated depreciation 31.12.2018
Currency translation
Depreciation charges
Impairment charges
Retirements and disposals
Accumulated depreciation 31.12.2019
Carrying amounts at 31.12.2019
Real
estate,
land and
buildings
641.3
(50.8)
6.3
2.0
0.0
(5.4)
(47.8)
16.1
561.7
283.3
(6.6)
12.3
11.2
(2.8)
(46.3)
2.2
253.3
308.4
Real
estate,
land and
buildings
618.4
0.0
0.4
3.4
0.0
(1.5)
20.6
641.3
261.8
0.5
13.4
8.9
(1.3)
283.3
358.0
Raw material
deposits
Technical
equipment,
machinery
Other plant,
furniture and
fixtures
Prepayments
made and
plant under
construction
Right-of-use
assets
36.6
(2.1)
2.9
0.0
0.0
(0.3)
0.0
(0.2)
36.9
23.6
(0.6)
1.1
0.0
(0.3)
0.0
0.0
23.8
13.1
Raw material
deposits
37.5
0.0
(0.2)
(1.0)
0.0
(0.5)
0.8
36.6
22.5
(0.2)
1.6
0.0
(0.3)
23.6
13.0
1,210.4
(92.3)
13.8
0.3
0.0
(61.2)
(57.6)
26.0
1,039.4
777.1
(37.8)
70.6
26.0
(57.2)
(54.0)
(4.2)
720.5
318.9
Technical
equipment,
machinery
1,166.9
0.0
1.7
11.6
0.0
(21.2)
51.4
1,210.4
657.2
1.5
99.0
38.7
(19.3)
777.1
433.3
321.6
(9.2)
6.7
0.1
0.0
(10.1)
(25.0)
46.8
330.9
237.8
(4.9)
20.3
5.1
(7.5)
(24.9)
5.0
230.9
100.0
173.5
(17.1)
105.2
0.0
0.0
0.0
(1.9)
(94.8)
164.9
6.0
(0.3)
0.0
2.7
0.0
(1.5)
(5.8)
1.1
163.8
76.1
(7.6)
24.5
0.0
2.5
(8.6)
(10.1)
0.0
76.8
24.9
(2.8)
16.0
1.5
(7.1)
(10.1)
0.0
22.4
54.4
Other plant,
furniture and
fixtures
Prepayments
made and
plant under
construction
Right-of-use
assets
311.5
0.0
0.9
7.4
0.0
(12.8)
14.6
321.6
230.3
0.9
17.7
1.1
(12.2)
237.8
83.8
132.4
0.0
(0.5)
132.2
0.0
(0.8)
(89.8)
173.5
0.1
0.0
0.0
5.9
0.0
6.0
167.5
0.0
62.0
0.5
17.7
(3.9)
(0.2)
0.0
76.1
0.0
0.1
14.5
10.5
(0.2)
24.9
51.2
Total
2,459.5
(179.1)
159.4
2.4
2.5
(85.6)
(142.4)
(6.1)
2,210.6
1,352.7
(53.0)
120.3
46.5
(74.9)
(136.8)
(2.8)
1,252.0
958.6
Total
2,266.7
62.0
2.8
171.3
(3.9)
(37.0)
(2.4)
2,459.5
1,171.9
2.8
146.2
65.1
(33.3)
1,352.7
1,106.8
The item prepayments made and plant under construction includes plant under construction with a carrying amount of €147.6 million
(31.12.2019: €163.5 million), with the sinterplant and the brickplant in Chizhou, China, representing the largest investment project under
construction in 2019 and the expansion of a dolomite plant in Austria, representing the largest investment project under construction in
2020. Information on impairment is provided under Note (9).
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Notes
continued
There are no restrictions on the sale of property, plant and equipment.
The Right-of-use assets per category developed as follows as of 31 December 2020:
in € million
Cost at 31.12.2019
Currency translation
Additions
Reassessment / Modification of leases (IFRS 16)
Retirements and disposals
Disposal group IFRS 5
Cost at 31.12.2020
Accumulated depreciation 31.12.2019
Currency translation
Depreciation charges
Impairment charges
Retirements and disposals
Disposal group IFRS 5
Accumulated depreciation 31.12.2020
Carrying amounts at 31.12.2020
Right-of-use assets
land and buildings
Right-of-use assets
technical
equipment and
machinery
Right-of-use assets
other equipment,
furniture and
fixtures
39.5
(2.0)
13.3
2.8
(3.4)
(9.8)
40.4
15.5
(1.1)
7.2
0.0
(2.5)
(9.8)
9.3
31.1
30.0
(5.2)
10.2
0.0
(4.1)
(0.2)
30.7
7.0
(1.4)
6.7
1.3
(3.6)
(0.2)
9.8
20.9
6.6
(0.4)
1.0
(0.3)
(1.1)
(0.1)
5.7
2.4
(0.3)
2.1
0.2
(1.0)
(0.1)
3.3
2.4
The Right-of-use assets per category developed as follows as of 31 December 2019:
in € million
Cost at 31.12.2018
Initial recognition IFRS 16
Currency translation
Additions
Reassessment / Modification of leases (IFRS 16)
Retirements and disposals
Cost at 31.12.2019
Accumulated depreciation 31.12.2018
Currency translation
Depreciation charges
Impairment charges
Retirements and disposals
Accumulated depreciation 31.12.2019
Carrying amounts at 31.12.2019
Right-of-use assets
land and buildings
Right-of-use assets
technical
equipment and
machinery
Right-of-use assets
other equipment,
furniture and
fixtures
0.0
40.0
0.2
3.2
(3.9)
0.0
39.5
0.0
0.0
5.1
10.4
0.0
15.5
24.0
0.0
17.0
0.2
12.9
0.0
(0.1)
30.0
0.0
0.0
7.0
0.1
(0.1)
7.0
23.0
0.0
5.0
0.1
1.6
0.0
(0.1)
6.6
0.0
0.1
2.4
0.0
(0.1)
2.4
4.2
Further detail on IFRS 16 related information is provided under Note (7) and (26).
Total
76.1
(7.6)
24.5
2.5
(8.6)
(10.1)
76.8
24.9
(2.8)
16.0
1.5
(7.1)
(10.1)
22.4
54.4
Total
0.0
62.0
0.5
17.7
(3.9)
(0.2)
76.1
0.0
0.1
14.5
10.5
(0.2)
24.9
51.2
160
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13. 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
Carrying amount at year-end
31.12.2020
31.12.2019
16.3
16.3
19.5
19.5
Joint ventures
The RHI Magnesita Group holds a share of 50% (2019: 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 (loss)/income
Total comprehensive income
2020
32.1
14.6
1.6
0.0
(0.1)
14.5
2019
39.4
20.0
1.5
0.1
(0.3)
19.7
Income taxes on the share of profit of MAGNIFIN are ultimately recognised by the head of the tax group, RHI Magnesita N.V., Vienna,
Austria, due to the legal form of the joint venture and transferred accordingly to Radex Vertriebsgesellschaft m.b.H. Vienna, Austria (2019:
Veitscher Vertriebsgesellschaft m.b.H Vienna), in accordance with the provisions of the tax compensation agreement. The taxable profit
of MAGNIFIN for 2020 was offset by 100% with non-capitalised net operating losses (tax losses incurred prior to the tax group) by Radex
Vetriebsgesellschaft m.b.H and, therefore, there is no income tax recognised on this share of profit for 2020 (2019: €2.5 million). Radex
Vetriebsgesellschaft m.b.H has capitalised all remaining net operating losses due to the positive taxable results forecast in the future
derived from MAGNIFIN.
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
31.12.2020
31.12.2019
7.7
9.3
12.3
(3.9)
(1.1)
(2.7)
21.6
8.3
14.7
13.4
(3.9)
(1.2)
(3.2)
28.1
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Notes
continued
The movement in the carrying amount of the share in MAGNIFIN in the RHI Magnesita’s Consolidated Financial Statements is shown
below:
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
2020
14.1
7.7
(0.1)
(10.9)
0.1
10.9
4.9
15.8
2019
14.3
10.5
(0.1)
(10.5)
(0.1)
14.1
4.9
19.0
In the course of the acquisition of Magnesita in 2017 the Group acquired interests in an immaterial joint venture with a carrying amount of
€0.5 million as of 31 December 2020 (31.12.2019: €0.5 million). The Group’s share of the profit after income tax, other comprehensive
income and total comprehensive income in 2020 amounts to less than €0.1 million (2019: 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
€0.0 million as of 31 December 2020 (31.12.2019: €0.0 million). The Group’s share of the profit after income tax and total comprehen-
sive income for 2020 amounts to €0.0 million. In 2019 the Group’s share of the profit after income tax and total comprehensive income
amounted to €0.7 million.
In 2019 the Group decided to restructure its Sinterdolime sourcing options in Europe and increase its vertical integration. As a result, it
will exit from the equity accounted investment in Sinterco in 2021. In the course of the Magnesita purchase price allocation the fair value
of the investment was determined as zero due to its economic performance. It is RHI Magnesita's best estimate that no additional cash
contributions will be needed to cover the closing cost based on the current operations and determined exit plan. However, the current
shareholders’ loan to Sinterco was fully written off, which resulted in a €9.6 million impairment in 2019, shown in result of joint ventures
and associates.
The other immaterial associated company Krosaki Magnesita Refractories has been liquidated in March 2020.
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14. Other non-current financial assets
Other non-current financial assets consist of the following items:
in € million
Interests in subsidiaries not consolidated
Marketable securities and shares
Other non-current financial receivables
Other non-current financial assets
31.12.2020
31.12.2019
0.6
13.5
0.4
14.5
0.7
13.8
0.9
15.4
Accumulated impairments on investments, securities and shares amounted to €3.7 million (31.12.2019: €3.5 million).
15. 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
31.12.2020
31.12.2019
14.5
8.4
2.9
0.2
0.6
26.6
27.4
6.9
4.5
0.2
0.5
39.5
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.
16. 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
31.12.2020
2020
31.12.2019
2019
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
36.5
20.7
25.1
70.5
26.3
24.8
88.6
(93.3)
199.2
117.4
3.9
4.1
0.8
0.4
11.7
0.0
(93.3)
45.0
11.2
(5.5)
20.8
(5.3)
11.8
(36.6)
16.8
13.2
26.5
27.8
21.0
78.7
25.2
24.2
86.8
(108.3)
181.9
136.4
3.5
11.7
0.0
5.5
5.2
0.0
(108.3)
54.0
30.2
(6.0)
8.5
(1.9)
(4.8)
3.0
(7.1)
21.9
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Notes
continued
As of 31 December 2020, subsidiaries that generated tax losses in the past year or the previous year recognised net deferred tax assets on
temporary differences and tax loss carryforwards of €116.3 million (31.12.2019: €61.5 million). Deferred tax assets have been recognised
because the companies concerned are expected to generate taxable income in the future.
Regarding the recognition of tax expenses, deferred tax assets, and deferred tax liabilities, RHI Magnesita has evaluated the economic
scenario’s impacts arising, mainly, out of COVID-19’s implications to a global downturn. In this context, the relevant uncertainties and
potential negative effects of the downturn for the Group’s financial results were considered when evaluating the recoverability of the tax
assets. Particular focus was given to working with the most reliable forecasts and assumptions to minimize the effects of economic uncer-
tainty to reach an assessment that reflects the best analysis possible, considering the circumstances and information available. Based on
this analysis we concluded that there is no material need for an impairment of deferred tax assets.
Tax loss carryforwards totalled €413.8 million in the RHI Magnesita Group as of 31 December 2020 (31.12.2019: €494.5 million). A signifi-
cant part of the tax loss carryforwards originated in Brazil and Austria where their deduction can be carried forward indefinitely. Further-
more, there are substantial tax loss carryforwards in China expiring within the next five years. The annual compensation of tax loss car-
ryforwards in Austria is limited to 75% and to 30% in Brazil’s respective taxable profits. Deferred taxes were not recognised on tax losses
of €115.3 million (31.12.2019: €212.7 million). Of these losses, €0.4 million will expire in 2022,€5.2 million in 2023, €6.9 million in 2024,
€1.2 million in 2025, €0.2 million in 2027, €0.3 million in 2028 (31.12.2019: €0,1 million in 2020, €0,4 million in 2022, €25,4 million in
2023, €7.8 million in 2024, €1.0 million in 2027 and €1.8 million in 2028), while the remainder will be carried forward indefinitely.
Besides, no deferred tax assets were recognised for temporary differences totalling €89.7 million (31.12.2019: €1.4 million) as it is not
sufficiently probable that they can be used. €82.5 million of those temporary differences relate to plant sales in Norway and Ireland and
€6.5 million are in connection with plant closures in Germany. The temporary deductible differences can be carried forward indefinitely.
Taxable temporary differences of €721.0 million (31.12.2019: €965.0 million) and temporary deductible differences of €456.0 million
(31.12.2019: €545.0 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
69.1
(3.1)
130.1
(41.9)
31.12.2020
Total
199.2
(45.0)
Current
Non-current
140.6
(9.0)
41.3
(45.0)
31.12.2019
Total
181.9
(54.0)
17. 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
31.12.2020
31.12.2019
92.7
102.5
272.2
10.0
477.4
134.5
123.9
334.0
10.3
602.7
Inventories include €1.4 million (31.12.2019: €2.8 million) carried at net realisable value. Net impairment losses amount to €1.4 million
(2019: € 8.0 million).
There are no restrictions on the disposal of inventories.
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18. 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
Contract assets
Other taxes receivable
Receivables from joint ventures and associates
Prepaid expenses
Receivables from property transactions
Emission rights
Receivables from employees
Prepaid transaction costs related to financial liabilities
Receivables from non-consolidated subsidiaries
Other current receivables
Trade and other current receivables
thereof financial assets
thereof non-financial assets
1) Adjusted to reflect the changes in presentation.
31.12.2020
31.12.2019
254.3
1.8
58.4
1.1
4.2
1.6
2.0
8.9
2.3
0.2
17.0
351.8
255.6
96.2
320.71)
1.9
84.9
2.1
2.3
2.7
1.7
3.4
0.0
0.2
12.8
432.7
324.2
108.5
RHI Magnesita entered into factoring agreements and sold trade receivables to financial institutions. The balance sold totalled € 177.6
million as of 31 December 2020 (31.12.2019: € 223.0 million). The trade receivables have been derecognised as substantially all risks and
rewards as well as control have been transferred. Payments received from customers in the period between the last sale of receivables
and the reporting date are recognised in current borrowings.
Other taxes receivable include VAT credits and receivables from energy tax refunds, research, education and apprentice subsidies.
19. Income tax receivables
Income tax receivables amounting to €27.7 million (31.12.2019: €17.3 million) are mainly related to tax prepayments and deductible with-
holding taxes.
20. Other current financial assets
This item of the Consolidated Statement of Financial Position consists of the following components:
in € million
Derivatives in open orders
Forward exchange contracts
Other current financial assets
31.12.2020
31.12.2019
0.0
0.3
0.3
0.1
0.0
0.1
Accumulated impairments on other current financial receivables amounted to €0.6 million (31.12.2019: €0.6 million).
165
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R H I M A G N E S I T A
Notes
continued
21. 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
31.12.2020
31.12.2019
571.2
14.8
1.0
0.2
587.2
391.2
74.7
1.2
0.1
467.2
Cash and cash equivalents include restricted cash totalling €21.6 million at 31 December 2020 (31.12.2019: €23.3 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. €12.2 million (31.12.2019: €13.0 million) are accounted for by sub-
sidiaries with non-controlling interests.
22. Share capital
As at 31 December 2020 the authorised share capital of RHI Magnesita N.V. amounts to €100,000,000 divided into 100,000,000
ordinary shares, of which 49,008,955 (31.12.2019: 49,077,705) fully paid-in ordinary shares are issued and outstanding, taking into con-
sideration the treasury shares amounting to 468,750 (31.12.2019: 400,000). 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 Magne-
sita shares with special control rights.
23. Group reserves
Treasury shares
During August and September 2019 RHI Magnesita N.V. purchased a total of 400,000 of its ordinary shares of one Euro nominal value
each pursuant to its £20 million share repurchase programme to satisfy awards made under employee performance share plans.
On 16 December 2020 RHI Magnesita initiated a share buyback programme to repurchase up to 4,947,770 ordinary shares of one Euro
nominal value each, up to the value of €50 million in total. The programme will end no later than 16 December 2021. Until 31 December
2020 the company acquired additional 68,750 shares in treasury equalling €2.7 million.
Additional paid-in capital
At 31 December 2020 as well as at 31 December 2019, 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.
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 include 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.
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Currency translation includes the accumulated currency translation differences from translating the Financial Statements of foreign
subsidiaries, unrealised currency translation differences from monetary items which are part of a net investment in a foreign operation,
net of related income taxes, as well as the effective portion of foreign exchange gains or losses when a non-financial instrument is desig-
nated as the hedging instrument in net investment hedge in a foreign operation.
24. Non-controlling interests
Non-controlling interests in Orient Refractories Ltd.
Non-controlling interests hold a share of 33.5% (31.12.2019: 33.5%) in the listed company Orient Refractories Ltd. (in the following
“ORL”), based in New Delhi, India. ORL is allocated to the Steel segment.
Based on the net assets of the company, the carrying amount of the non-controlling interests is determined as follows:
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
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/(loss)
Total comprehensive income
thereof attributable to non-controlling interests of ORL
31.12.2020
31.12.2019
29.1
56.1
(3.5)
(23.0)
58.7
(0.1)
58.6
33.5%
19.6
2020
77.0
(68.6)
8.4
0.1
8.5
2.8
2020
8.5
(7.5)
1.0
0.3
30.4
52.1
(3.7)
(17.8)
61.0
(0.2)
60.8
33.5%
20.4
2019
90.8
(79.1)
11.7
0.2
11.9
4.0
2019
11.9
0.0
11.9
4.0
167
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R H I M A G N E S I T A
Notes
continued
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
2020
8.1
(3.5)
(3.2)
1.4
2019
11.9
(9.1)
(3.9)
(1.1)
Net cash flow from financing activities includes dividend payments to non-controlling interests amounting to €1.1 million (2019:
€1.3 million).
In addition, non-controlling interests hold a share of 33.5% in one immaterial subsidiary acquired in 2019. The carrying amount of the
non-controlling interests amounts to €0.4 million as of 31 December 2020 (31.12.2019: €0.4 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 31.12.2019
Unrealised results from currency translation
Accumulated other comprehensive income 31.12.2020
Currency
translation
(1.8)
(2.5)
(4.3)
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25. 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")
Other credit lines and other loans
Accrued interest
Total liabilities to financial institutions
Other financial liabilities
Capitalised transaction costs
Borrowings
in € million
Syndicated & Term Loan
Bonded loans ("Schuldscheindarlehen")
Other credit lines and other loans
Accrued interest
Total liabilities to financial institutions
Other financial liabilities
Capitalised transaction costs
Borrowings
Total
Remaining term
31.12.2020
up to 1 year
2 to 5 years
over 5 years
613.0
400.0
88.2
4.4
1,105.6
11.9
(3.0)
1,114.5
40.6
0.0
83.4
4.4
128.4
4.3
(1.2)
131.5
572.4
100.0
4.8
0.0
677.2
7.6
(1.7)
683.1
0.0
300.0
0.0
0.0
300.0
0.0
(0.1)
299.9
Total
Remaining term
31.12.2019
up to 1 year
2 to 5 years
over 5 years
584.0
400.0
55.0
4.1
1,043.1
15.6
(3.7)
1,055.0
15.3
0.0
50.8
4.1
70.2
2.3
(1.0)
71.5
568.7
100.0
4.2
0.0
672.9
13.1
(2.7)
683.3
0.0
300.0
0.0
0.0
300.0
0.2
0.0
300.2
In January 2020 RHI Magnesita has refinanced its USD 400.0 million revolving credit facility in order to further strengthen the capital
structure and extend the debt maturity. The new revolving fully unutilised credit facility has been converted to EUR and increased to
€600.0 million. Additionally, in December the final maturity has been further extended to 2026. As of 31 December 2018, USD 210.0m
of the RCF was utilised, which was fully repaid during 2019 and was unutilised on 31 December 2019 (USD 400m fully unutilised).
RHI Magnesita strengthened its financial liquidity by signing a new €60.0 million 2-year revolving credit facility guaranteed by the
Austrian export credit agency (OeKB) in April 2020, which was part of the Austrian government’s COVID-19 support program. The inter-
est rate is the OeKB refinancing rate plus a margin between 0.5% and 0.7%, according to Group Leverage. RHI Magnesita borrows cur-
rently at the lowest margin of 0.5%. The final maturity of the loan is March 2022. Cash inflows from the new term loan in the amount of
€60.0 million are shown in the Consolidated Statement of Cash Flows in proceeds from borrowings and loans.
In 2019 RHI Magnesita signed a €100.0 million 5-year term loan guaranteed by the Austrian export credit agency (OeKB). The interest
rate is floating and is based on EURIBOR plus a margin between 0.4% and 1.3%, according to Group Leverage. The final maturity of the
loan is February 2024.
In July and October 2019 RHI Magnesita took out a Schuldscheindarlehen (“SSD”) bonded loan in one tranche of €280.0 million and
another of €20.0 million respectively. With the proceeds from the new and lower interest bearing SSD bonded loans, the Group repaid
€116.0 million of the extinguished legacy SSD bonded loans.
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R H I M A G N E S I T A
Notes
continued
Net debt excluding lease liabilities/adjusted EBITDA is the main financial covenant of the loan agreements and is shown under Note (56).
Compliance with the covenants is measured on a semi-annual basis. Covenant ratio is limited at 3.5. Breach of covenants leads to an
anticipated maturity of loans. In order to provide additional flexibility during the COVID-19 pandemic, the covenant ratio was renegotiated
in the course of the second quarter 2020 and was extended to 5.0x for the testing period of 31 December 2020 and 30 June 2021. Dur-
ing 2020 and 2019, the Group met all covenant requirements.
For liabilities of €1,032.8 million (31.12.2019: €1,008.1 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.
Considering interest swaps, 53% (31.12.2019: 59%) of the liabilities to financial institutions carry fixed interest and 47% (31.12.2019: 41%)
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
2021
EURIBOR + margin
LIBOR + margin
Interbank Deposit Certificate
(CDI) + Margin
Various - Variable rate
Variable rate + margin
2022
1.74%
2023
2024
2026
2029
4.60%
0.28%
3.09%
3.10%
1.10%
1.52%
Cur-
rency
EUR
USD
CNY
Var.
EUR
EUR
EUR
EUR
USD
EUR
EUR
EUR
31.12.2020
Carrying amount
in € million
Interest
terms fixed
until
Effective annual interest rate
380.7 2020
EURIBOR + margin
15.3
19.9
3.3
94.0
LIBOR + margin
Interbank Deposit Certificate
(CDI) + margin
Various - variable rate
62.0 2022
3.0
290.3 2023
162.6
35.0 2024
27.0 2026
8.0 2029
1,101.1
1.74%
4.60%
0.28%
3.09%
3.10%
1.10%
1.52%
Cur-
rency
EUR
USD
CNY
Var.
EUR
EUR
EUR
USD
EUR
EUR
EUR
31.12.2019
Carrying amount
in € million
389.9
15.9
14.0
0.2
62.0
3.0
305.5
178.5
35.0
27.0
8.0
1,039.0
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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26. Other financial liabilities
Other financial liabilities include the negative fair value of derivative financial instruments as well as lease liabilities, fixed-term and put-
table non-controlling interests in Group companies and a liability due to the settlement of a power supply contract in Norway. This item
of the Consolidated Statement of Financial Position consists of the following items:
in € million
Current
Non-current
Derivatives from supply
contracts
Interest rate swaps
Derivatives in open orders
Derivative financial
liabilities
Lease liabilities
Power supply contract
Norway
Fixed-term or puttable non-
controlling interests
Other financial liabilities
1.6
0.0
1.8
3.4
12.2
15.5
12.9
44.0
0.0
18.3
0.0
18.3
44.6
0.0
25.9
88.8
31.12.2020
31.12.2019
Total
1.6
18.3
1.8
21.7
56.8
15.5
38.8
132.8
Current
Non-current
5.9
0.0
0.6
6.5
13.8
0.0
11.6
31.9
18.0
14.8
0.0
32.8
48.1
0.0
24.2
105.1
Total
23.9
14.8
0.6
39.3
61.9
0.0
35.8
137.0
Additional explanation on derivative financial instruments is provided under Note (54).
27. 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
Deficit of funded plans
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
31.12.2020
31.12.2019
523.3
(240.2)
283.1
20.5
303.6
0.0
303.6
557.9
(248.0)
309.9
18.0
327.9
0.2
328.1
31.12.2020
31.12.2019
101.0
72.9
349.4
523.3
115.3
74.6
368.0
557.9
171
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R H I M A G N E S I T A
Notes
continued
The calculation of pension obligations is based on the following actuarial assumptions:
in %
Interest rate
Future salary increase
Future pension increase
31.12.2020
31.12.2019
1.7%
2.4%
1.7%
2.3%
2.6%
2.1%
These are average values which were weighted with the present value of the respective pension obligation.
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 demographic calculation principles for salaried employees from the Actuarial
Association of Austria. In Germany, the Heubeck 2018 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 €111.8 million (31.12.2019: €122.0 million) of the present value of pension obligations and for
€23.0 million (31.12.2019: €23.2 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 €155.2 million (31.12.2019: €160.4 million) of the present value of pen-
sion obligations and for €0.7 million (31.12.2019: €0.7 million) of plan assets. The benefits included in company agreements comprise
pensions, invalidity benefits and benefits for surviving dependents. The amount of the pension depends on the length of service for the
majority of the commitments and is calculated as a percentage of the average monthly wage/salary of the last 12 months prior to retire-
ment. In some cases, commitments to fixed benefits per year of service have been made. The pensions are predominantly paid in the form
of annuities and are adjusted in accordance with the development of the consumer price index for Germany. The pension plans are
closed for new entrants, except one contribution-based plan. There is no defined contribution model on a voluntary basis. Individual
commitments have been made, with major part of them being retired beneficiaries.
The pension plan of the US group company Magnesita Refractories Company, York, USA, accounts for €86.0 million (31.12.2019:
€87.5 million) of the present value of pension obligations and for €70.2 million (31.12.2019: €67.8 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 made 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 2020 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 €63.7 million
(31.12.2019: €63.5 million) of the present value of pension obligations and holds €84.2 million (31.12.2019: €81.5 million) of assets, alt-
hough only €63.7 million (31.12.2019: €63.5 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
172
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A N N U A L R E P O R T 2 0 2 0
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.
The pension liabilities of the Brazilian group company Magnesita Refratários S.A. account for €52.3 million (31.12.2019: €72.5 million) of
the present value of pension obligations and for €26.9 million (31.12.2019: €39.9 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
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
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
Current service cost
Interest cost
Remeasurement (gains)/losses
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
2020
328.1
(13.2)
10.3
0.6
(18.6)
(3.6)
0.0
303.6
2020
557.9
(34.7)
4.6
10.9
(1.0)
24.3
(8.6)
(30.6)
0.5
0.0
523.3
2019
302.2
0.3
12.2
36.9
(18.2)
(4.9)
(0.4)
328.1
2019
506.6
5.2
3.7
16.5
(1.4)
60.1
0.4
(33.1)
0.5
(0.6)
557.9
173
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
continued
The movement in plan assets is shown in the table below:
in € million
Fair value of plan assets at beginning of year
Currency translation
Interest income
Administrative costs (paid from plan assets)
Income/(expense) on plan assets less interest income
Benefits paid
Employers' contributions to external funds
Employee contributions to external funds
Transfer
Fair value of plan assets at year-end
The changes in the asset ceiling are shown below:
in € million
Asset ceiling at beginning of year
Currency translation
Interest expense
Losses/(gains) from changes in asset ceiling less interest expense
Asset ceiling at year-end
At 31 December 2020 the weighted average duration of pension obligations amounts to 13 years (31.12.2019: 12 years).
The following amounts were recorded in the Consolidated Statement of Profit or Loss:
in € million
Current service cost
Gains on settlement
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
Income on plan assets less interest income
Losses/(gains) from changes in asset ceiling less interest expense
Accumulated remeasurement losses at year-end
174
2020
4.6
0.0
10.9
(6.0)
0.4
0.4
10.3
2020
168.0
14.7
(17.4)
3.0
168.3
2020
248.0
(22.9)
6.0
(0.4)
17.4
(12.0)
3.6
0.5
0.0
2019
223.9
5.8
9.1
(0.5)
19.5
(14.9)
4.9
0.5
(0.3)
240.2
248.0
2020
18.0
(1.0)
0.4
3.0
20.4
2019
19.5
1.0
0.6
(3.1)
18.0
2019
3.7
(0.1)
16.7
(9.2)
0.6
0.5
12.2
2019
131.4
59.2
(19.5)
(3.1)
168.0
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 2 0
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
5.5
60.5
2.1
48.7
116.8
41.0
35.4
38.0
6.5
2.5
123.4
31.12.2020
Total
41.0
40.9
98.5
8.6
51.2
240.2
Active market
No active market
0.0
4.1
17.7
38.1
65.8
125.7
40.2
31.0
44.2
4.0
2.9
122.3
31.12.2019
Total
40.2
35.1
61.9
42.1
68.7
248.0
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 2021, RHI Magnesita expects employer contributions to external plan assets to amount to €3.1 million and direct payments to enti-
tled beneficiaries to €22.5 million. In the previous year, employer contributions of €3.7 million and direct pension payments of €21.1
million had been expected for the financial year 2020.
28. Other personnel provisions
Other personnel provisions consist of the following items:
in € million
Termination benefits
Service anniversary bonuses
Legacy share-based payment program
Semi-retirements
Other personnel provisions
31.12.2020
31.12.2019
46.4
19.4
0.1
4.6
70.5
52.0
21.0
0.0
2.8
75.8
Provisions for termination benefits
Provisions for termination benefits were based on the following weighted average measurement assumptions:
in %
Interest rate
Future salary increase
31.12.2020
31.12.2019
0.9%
3.5%
1.3%
3.4%
175
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R H I M A G N E S I T A
Notes
continued
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.
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
Past service cost
Interest cost
Remeasurement losses/(gains)
from changes in financial assumptions
due to experience adjustments
Benefits paid
Gain on settlement
Provisions for termination benefits at year-end
2020
52.0
(0.1)
1.3
0.0
0.6
2.1
(1.9)
(7.5)
(0.1)
46.4
2019
55.5
0.1
1.5
(0.7)
1.1
2.1
(1.8)
(5.8)
0.0
52.0
Payments for termination benefits are expected to amount to €2.9 million in the year 2021. In the previous year, the payments for termi-
nation benefits expected for the year 2020 amounted to €5.8 million.
The following remeasurement gains and losses were recognised in other comprehensive income:
in € million
Accumulated remeasurement losses at beginning of year
Remeasurement losses/(gains)
Accumulated remeasurement losses at year-end
2020
27.5
0.1
27.6
2019
27.2
0.3
27.5
At 31 December 2020 the weighted average duration of termination benefit obligations amounts to 12 years (31.12.2019: 11 years).
Provisions for service anniversary bonuses
The measurement of provisions for service anniversary bonuses is based on an average weighted interest rate of 0.5% (31.12.2019: 0.8%)
and considers salary increases of 3.5% (31.12.2019: 3.4%).
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
31.12.2020
31.12.2019
7.8
(3.2)
4.6
6.3
(3.5)
2.8
External plan assets are ring-fenced from all creditors and exclusively serve to meet semi-retirement obligations.
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29. Other non-current provisions
The development of non-current provisions is shown in the table below:
in € million
31.12.2019
Currency translation
Reversals
Additions
Additions interest
Reclassifications
31.12.2020
Onerous/unfavou
rable contracts
Labour and civil
contingencies
Demolition/disposal
costs,
environmental
damages
77.5
(21.6)
(7.4)
0.0
8.3
(11.6)
45.2
10.2
(3.2)
(1.0)
0.7
0.0
0.0
6.7
10.7
(1.7)
(1.4)
2.9
0.2
0.0
10.7
Other
0.1
0.0
(0.1)
0.0
0.0
0.0
0.0
Total
98.5
(26.5)
(9.9)
3.6
8.5
(11.6)
62.6
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 €45.2 million as of 31.12.2020 (31.12.2019:
€71.2 million).
The provision for labour and civil contingencies primarily comprises labour litigation provisions against RHI Magnesita totalling
301 cases amounting to €5.2 million (31.12.2019: €8.0 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 €2.3 million (31.12.2019: €3.9 million) and various sites in the United States
amounting to €5.3 million (31.12.2019: €6.3 million).
30. Other non-current liabilities
Other non-current liabilities consist of the following items:
in € million
Deferred income for subsidies received
Liabilities to employees
Miscellaneous non-current liabilities
Other non-current liabilities
thereof financial liabilities
thereof non-financial liabilities
31.12.2020
31.12.2019
3.1
0.8
0.9
4.8
0.0
4.8
5.8
1.4
0.1
7.3
0.0
7.3
177
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R H I M A G N E S I T A
Notes
continued
31. 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
Liabilities to employees
Taxes other than income tax
Dividend liabilities
Payables from property transactions
Payables from commissions
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
1) Adjusted to reflect the changes in presentation.
31.12.2020
31.12.2019
318.6
46.2
88.8
27.0
0.4
9.9
5.6
0.7
1.2
24.3
522.7
337.6
185.1
360.71)
45.5
87.5
49.7
25.0
17.0
8.2
0.7
0.7
19.0
614.0
412.3
201.7
Trade payables include an amount of €43.5 million (31.12.2019: €67.4 million) for raw material purchases subject to supply chain finance
arrangements.
Contract liabilities mainly consist of prepayments received on orders. In 2020 €45.5 million revenue was recognised related to contract
liabilities recognised as at 31 December 2019.
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 flextime credits.
Other current liabilities include €0.6 million (31.12.2019: €1.3 million) investment reimbursement obligation to the former subsidiary
Dolomite Franchi S.p.A., and other accrued expenses.
32. Income tax liabilities
Income tax liabilities amounting to €25.8 million (31.12.2019: €35.4 million) primarily include income taxes for the current year and pre-
vious years, which domestic and foreign tax authorities have not definitively assessed. Considering many factors, including the interpreta-
tion and jurisprudence on the respective tax laws and previous experiences, adequate liabilities were recognised.
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33. Current provisions
The development of current provisions is shown in the table below:
in € million
31.12.2019
Currency translation
Utilised
Reversals
Additions
Reclassifications
Disposal groups
31.12.2020
Restructuring costs
Demolition/ disposal
costs,
environmental damages
Warranties
Onerous/unfavourab
le contracts
31.8
(0.8)
(23.8)
(1.1)
47.4
0.0
(0.1)
53.4
5.4
0.0
(0.2)
(0.1)
1.4
1.3
0.0
7.8
9.3
(0.4)
(3.4)
(1.5)
5.9
0.0
0.0
9.9
17.8
(3.4)
(10.2)
(3.3)
2.0
11.6
(1.6)
12.9
Other
5.5
(0.2)
(1.5)
(0.6)
0.5
(1.3)
0.0
2.4
Total
69.8
(4.8)
(39.1)
(6.6)
57.2
11.6
(1.7)
86.4
Provisions for restructuring costs amounting to €53.4 million as of 31 December 2020 (31.12.2019: €31.8 million) primarily consist of
estimated benefit obligations to employees due to termination of employment and dismantling costs. Thereof, €15.4 million relate to a
project to review the Group’s cost base on a long-term basis with the objective to streamline RHI Magnesita’s organisation to preserve
liquidity and restore profitability. Further €22.5 million relate to the plant closure in Mainzlar, Germany, €9.2 million to the plant closure
in Kruft, Germany, €2.6 million (31.12.2019: €12.1 million) to the plant closure in Hagen, Germany, and €1.2 million (31.12.2019: €4.0
million) to the partial shut-down of the plant in Trieben, Austria.
The item demolition and disposal costs, environmental damages includes an amount of €2.5 million (31.12.2019: €2.5 million) which
refers to the former site in Aachen, 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 supply contract obligation amounting to €7.6 million
(31.12.2019: €10.4 million). The amortisation of this provision led to an income of €13.1 million in 2020 (31.12.2019: €15.5 million). Fur-
thermore, provisions for other unfavourable contracts amount to €2.0 million (31.12.2019: €3.5 million). Provisions for unfavourable con-
tracts related to contracts for logistics services and the procurement of raw materials totalling €4.9 million (31.12.2019: €3.9 million) were
reclassified to held for sale (IFRS 5) as of 31 December 2020.
The item other provisions includes a provision for the legacy share-based remuneration programme of the members of the former Man-
agement Board of RHI AG of €0.9 million (31.12.2019: €1.9 million).
In addition, provisions for legal proceedings amounting to €0.3 million (31.12.2019: €0.7 million) are included in the item other provi-
sions. 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.
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Notes
continued
NOTES TO THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS
34. 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).
35. 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.
36. 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.
37. 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 €37.8 million (2019: €35.0 million), of which development costs amounting to €7.2 million
(2019: €9.0 million) were capitalised. Income from research grants amounted to €3.9 million (2019: €4.4 million) in 2020. Amortisation
and impairment of development costs amounting to €3.6 million (2019: €4.4 million) are recognised under cost of sales.
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38. Restructuring and write-down expenses
Production Optimisation Plan
The Group continued the Production Optimisation Plan initiated in 2019 throughout 2020, which led to €46.5 million (2019: €46.7
million) of restructuring expenses and €28.1 million (2019: €51.5 million) of non-current asset write-downs. Thereof €19.1 million (2019:
€45.3 million) are allocated to Segment Steel and €9.0 million (2019: €6.2 million) are allocated to Segment Industrial. They are
outlined below:
Restructuring expenses related to the plant closure in Mainzlar, Germany, amounting to €30.8 million. Thereof, €21.4 million relate to
termination of employment costs and €7.7 million refer to write-down expenses amounted on non-current assets, of which €2.5 million
are attributable to Segment Steel and €5.2 million are attributable to Segment Industrial.
Further, restructuring expenses for the plant closure in Kruft, Germany, amounting to €17.7 million have been recognised. These expenses
mainly relate to termination of employment costs amounting to €8.2 million and write-down expenses recognised on non-current assets
amounting to €7.8 million, of which €6.8 million are attributable to Segment Steel and €1.0 million to Segment Industrial.
Write-down expenses recognised on non-current assets amounting to €15.6 million relate to the plant Refratec in Brazil, of which €12.3
million are attributable to Segment Steel and €3.3 million to Segment Industrial.
In the current reporting period additional restructuring expenses for the plant closure in Hagen, Germany, amounting to €11.2 million
(2019: €55.3 million) have been recognised. These expenses mainly refer to termination of employment costs and other costs incurred in
the course of the closure of the plant.
For the partial shut-down of the plant in Trieben, Austria, additional restructuring expenses amounting to €1.6 million (2019: €13.7
million) have been recognised in 2020, which mainly result from costs incurred in the course of the closure of the plant and the write-
down of the remaining assets.
The sale of the plant in Burlington, Canada, resulted in a gain from disposal in the amount of €6.0 million and asset write-downs of €1.5
million. Further, termination of employment costs amount to €1.2 million.
The Production Optimisation Plan is expected to be completed in 2021.
The recoverable amounts of the assets written down due to restructurings were determined at their fair value less cost of disposal. Except
for land that is available for resale, the fair value less cost of disposal is generally determined by reference to an asset’s scrap value (Level
3 fair value). Scrap value is determined to be zero, unless otherwise stated. The FVLCOD is determined with reference to publicly availa-
ble pricing information in Germany. The FVLCOD of the land exceeds their carrying amount.
Organisational restructuring
Management is conducting a detailed and far-reaching review of the Group’s cost base on a long-term basis, to make sure the business is
right-sized and prepared for the challenges and opportunities ahead. In 2020 these plans included reduction in the first three levels of
management by 20% and the implementation of the new structure on 1 August 2020. As a result, restructuring expenses in the amount
of €22.2 million have been recognised and are related to termination of employment costs. As this project is still ongoing, further restruc-
turing expenses are to be expected in 2021.
Divestment Norway and Ireland
During the year the Group initiated a divestment process for the plants in Drogheda, Ireland, and Porsgrunn, Norway, which was
completed in February 2021. As a result, write-down expenses on non-current assets amounting to €18.7 million were recognised.
Thereof, €4.6 million are attributable to Segment Steel and €14.1 million are attributable to Segment Industrial. In 2019 write-down
expenses amounting to €13.9 million resulted from the impairment testing Norway according to IAS 36, of which €9.3 million were
allocated to Segment Steel and €4.6 million were allocated to Segment Industrial.
Other
Restructuring costs further include the settlement gain on a logistics services contract in the Porsgrunn plant, Norway, amounting to €3.3
million. The settlement of the contract was a pre-requisite for the divestment of the plant.
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Notes
continued
Summary of restructuring and write-down expenses recognised in the current reporting period:
in € million
Plant closure Mainzlar
Plant closure Kruft
Plant closure Refratec
Plant closure Hagen
Plant closure Trieben
Plant closure Evergem
Plant closure Burlington
Production Optimisation Plan
Organisational restructuring
Divestment Norway and Ireland
Other
Restructuring and write-down expenses
39. Other income
The individual components of other income are:
in € million
Amortisation of Oberhausen provision
Income from the disposal of non-current assets
Income from the reversal of provisions
Miscellaneous income
Other income
40. Other expenses
Other expenses include:
in € million
Result from derivatives from supply contracts
Expenses for strategic projects
Losses from the disposal of non-current assets
Result from deconsolidation - recycling currency translation differences
Miscellaneous expenses
Other expenses
2020
(30.8)
(17.7)
(15.6)
(11.2)
(1.6)
(1.0)
3.3
(74.6)
(22.2)
(19.5)
2.5
(113.8)
2019
15.5
1.9
4.6
12.9
34.9
2019
(3.0)
(9.0)
(4.3)
(3.7)
(11.3)
(31.3)
2020
13.1
1.8
0.5
4.3
19.7
2020
(9.6)
(6.9)
(6.4)
(0.3)
(3.0)
(26.2)
RHI Magnesita Group terminated its energy supply contract following the closure of the fused magnesia plant in Porsgrunn, Norway. The
original contract term was December 2023 and the settlement payment amounts to €24.0 million. The first payment installment was
made in July 2020 (€8.5 million), the second in January 2021 (€15.5 million). Since 2015 this energy supply contract has been account-
ed for as a derivative financial instrument in accordance with IFRS 9, as the “own-use-exemption” was no longer applicable as the majori-
ty of the contracted electricity was sold on the market. Since 30 June 2020, measurement of this financial instrument is based on the
settlement payment and recognised as other financial liability.
Expenses for strategic projects amounting to €6.9 million (2019: €9.0 million) mainly include legal and consulting fees related to organi-
sational streamlining and M&A.
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41. Interest income
This item includes interest on cash at banks and similar income amounting to €5.2 million (2019: €8.7 million), interest income on finan-
cial receivables amounting to €0.0 million (2019: €0.2 million) and interest income on securities and shares amounting to €0.7 million
(2019: €0.2 million).
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 financial instruments
Foreign exchange losses
Losses from related derivative financial instruments
Net expense on foreign exchange effects and related derivatives
2020
147.1
1.9
(190.4)
(1.4)
(42.8)
2019
83.3
14.6
(83.4)
(31.7)
(17.2)
The net expense on foreign exchange effects in the current reporting period resulted mainly from the devaluation of the US Dollar and
the Brazilian Real.
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
Interest expense on lease liabilities
Gains from the disposal of securities and shares
Reversal of impairment losses on securities
Impairment losses on securities
Expenses from the valuation of put options
Other interest and similar expenses
Other net financial expenses
2020
5.9
(11.2)
(0.6)
(0.2)
(6.1)
(9.6)
(3.7)
(1.3)
0.0
0.0
(0.2)
(1.6)
(7.2)
(29.7)
2019
8.6
(16.7)
(1.2)
(0.3)
(9.6)
(12.9)
(3.9)
(1.2)
0.9
0.8
0.0
(0.5)
(12.3)
(38.7)
183
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R H I M A G N E S I T A
Notes
continued
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
2020
(27.1)
(3.7)
16.9
13.2
(13.9)
2019
(72.7)
29.8
(7.9)
21.9
(50.8)
The current tax expense of the year 2020 includes tax expenses for previous periods of €2.5 million (2019: €8.4 million) and income
from income tax relating to prior periods of €8.3 million (2019: €1.7 million).
In 2020 the income tax income for prior periods mainly includes income from revised tax returns in the Netherlands amounting to €3.8
million and income from a change in estimate of prior-year tax provisions in Germany amounting to €1.4 million. In 2019 income tax
expenses for prior periods mainly include exit value expenses out of an ongoing transfer of functions between related parties amounting
to €1.8 million and tax audit expenses in APAC and Italy amounting to € 1.2 million.
In addition to the income taxes recognised in the Statement of Profit or Loss, tax income totalling €41.1 million (2019: €18.0 million),
which is attributable to other comprehensive income, was also recognised in other comprehensive income.
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% (2019: 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 taxes not usable due to plant sale
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 %)
2020
41.5
10.4
0.3
14.6
(5.0)
6.4
(3.4)
(14.2)
0.3
16.0
(6.6)
0.4
(5.9)
0.6
13.9
33.5%
2019
199.6
49.9
(4.4)
17.2
(22.5)
9.9
(2.5)
(13.3)
0.6
0.0
(0.6)
8.5
7.6
0.5
50.8
25.5%
In 2020 expenses not deductible for tax purposes included non-deductible voluntary leave payments in Austria of €1.7 million, non-
deductible expenses for a share sale of €0.2 million, € 4.9 million in Brazil, mainly due to taxation on foreign income of Brazilian con-
trolled subsidiaries and non-deductible expenses due to thin capitalisation of €1.1 million in Argentina.
Non-taxable income and tax benefits include non-taxable portions of a capital gain of €0.8 million or statutory adjustments of €0.7
million. On tax losses and temporary differences €3.1 million of potential deferred tax assets have not been recognised in Luxembourg
and in Brazil and €2.9 of tax losses and temporary differences resulted from plant closures and could not be recognised due to limited
planned taxable income in future years. Previously unrecognised tax loss carryforwards of €2.6 million could be utilised in China. Be-
184
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A N N U A L R E P O R T 2 0 2 0
cause of an increase in the planned future taxable income previously unrecognised deferred tax assets could now be recognised leading
to an additional tax income of €2.3 million in the Netherlands and €2.4 million in China. Furthermore, a restructuring in Austria led to
€9.4 million of deferred tax assets being recognised due to increased planned taxable income. Deferred tax assets had to be impaired for
€16.0 million in Norway due to the sale of the company holding those tax assets.
Due to tax rate changes in Brazil from 15,25% to 34% in relation to the SUDENE tax regime an amount of €6.5 million increased the in-
come from deferred income taxes. In 2019 tax expense due to tax rate changes relates mainly to an Indian company, where the tax rate
changed from 34,94% to 27,83%, leading to an additional expense of €1,5 million and to an American company where the tax rate
changed from 23,66% to 24,2%, leading to an additional income of €0,7 million.
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 2020 and the previous year:
in € million
Changes in inventories, own
work capitalised
Cost of materials
Personnel costs
Depreciation and amortisation
charges
Write-down expenses
Other income
Other expenses
Total
Cost of sales
Selling and
marketing expenses
General and
administrative
expenses
Other income/
expenses
Restructuring and
write-down
income/expenses
Total 2020
21.7
1,004.4
313.6
115.7
0.0
(1.7)
255.2
1,708.9
0.0
0.9
76.1
3.6
0.0
0.0
30.3
110.9
(2.4)
7.8
126.5
20.3
0.0
(3.8)
49.9
198.3
0.0
0.0
0.0
0.0
0.0
(19.7)
26.2
6.5
0.0
0.0
59.3
0.0
52.1
(7.2)
9.6
113.8
19.3
1,013.1
575.5
139.6
52.1
(32.4)
371.2
2,138.4
Cost of materials includes expenses for raw materials and supplies and purchased goods of €827.9 million (2019: €1,049.6 million) as
well as expenses for services received, especially energy, amounting to €185.2 million (2019: €223.5 million).
in € million
Changes in inventories, own
work capitalised
Cost of materials
Personnel costs
Depreciation and amortisation
charges
Write-down expenses
Other income
Other expenses
Total
Cost of sales
Selling and
marketing expenses
General and
administrative
expenses
Other income/
expenses
Restructuring and
write-down
income/expenses
60.7
1,269.6
412.2
154.1
0.0
(23.2)
331.7
0.0
(0.7)
76.9
2.7
0.0
(2.0)
49.3
(4.8)
2.4
115.2
15.9
0.0
(4.3)
84.8
2,205.1
126.2
209.2
0.0
0.0
0.0
0.0
0.0
(1.8)
(1.8)
(3.6)
0.0
1.7
25.3
0.0
65.4
0.0
19.7
112.1
Total 2019
55.9
1,273.0
629.6
172.7
65.4
(31.3)
483.7
2,649.0
Amortisation charges of intangible assets are largely recognised in cost of sales. Other expenses mainly include freight costs, commis-
sions, travel costs as well as consulting and other outside services.
185
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R H I M A G N E S I T A
Notes
continued
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
2020
443.3
5.1
6.2
1.7
1.4
19.1
73.7
25.1
2019
489.6
4.1
5.9
0.8
1.4
15.9
79.3
32.7
Personnel expenses (without interest expenses)
575.6
629.7
Personnel costs do not include amounts resulting from the interest accrued on personnel provisions. They amount to €6.0 million (2019:
€9.6 million) and are recorded in other net financial expenses.
The expenses for wages and salaries include €3,0 million (2019: €4.1 million) for share based payments.
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A N N U A L R E P O R T 2 0 2 0
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. Cash generated from operations
in € million
Profit after income tax
Adjustments for
income tax
depreciation
amortisation
write-down 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 working capital
inventories
trade receivables
contract assets
trade payables
contract liabilities
Changes in other assets and liabilities
other receivables and assets
provisions
other liabilities
Cash generated from operations
2020
27.6
14.0
120.3
19.4
46.8
(0.6)
0.2
0.1
0.0
0.3
36.0
(7.6)
23.2
64.2
35.9
(0.1)
(5.8)
3.1
13.1
(4.1)
(19.4)
366.6
2019
148.8
50.8
146.2
26.4
65.5
(0.6)
8.7
2.8
(0.9)
3.7
49.6
(11.1)
26.0
110.9
30.3
0.0
(145.0)
(19.0)
(4.9)
(8.0)
(9.8)
470.4
Other non-cash expenses and income include mainly the net interest expenses for defined benefit pension plans amounting to
€6.1 million (2019: €9.6 million), net remeasurement losses of monetary foreign currency positions and derivative financial instruments
of €4.3 million (2019: €19.8 million), foreign exchange effects and the amortisation of Oberhausen provision (see Note 39).
187
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R H I M A G N E S I T A
Notes
continued
48. Net cash flow from financing activities
The reconciliation of movements of financial liabilities and assets to cash flows arising from financing activities for the current and the
prior year is shown in the tables below:
in € million
Liabilities to financial
institutions
Lease liabilities
Liabilities to fixed-term or
puttable non-controlling
interests
Other financial liabilities and
capitalised transaction costs
Changes of financial
liabilities and assets arising
from financing activities
in € million
Liabilities to financial
institutions
Lease liabilities
Liabilities to fixed-term or
puttable non-controlling
interests
Other financial liabilities and
capitalised transaction costs
Trade payables
Changes of financial
liabilities and assets arising
from financing activities
Cash changes Non-cash changes
Changes in
foreign
exchange rates
Disposal group
IFRS 5
Interest expense
and other
changes
Additions and
modifications of
leases (IFRS 16)
51.1
(17.1)
(1.6)
(2.6)
(15.1)
(6.7)
(0.8)
(1.7)
0.0
(9.6)
0.0
0.0
26.5
1.3
5.4
1.3
0.0
27.0
0.0
0.0
31.12.2019
1,043.1
61.9
35.8
11.9
31.12.2020
1,105.6
56.8
38.8
8.9
1,152.7
29.8
(24.3)
(9.6)
34.5
27.0
1,210.1
Cash changes
Non-cash changes
Changes in
foreign
exchange rates
Initial
recognition
IFRS 16
Interest
expense and
other changes
Additions and
modifications of
leases (IFRS 16)
(161.8)
(15.5)
(5.3)
(2.1)
(1.8)
7.3
0.4
0.3
0.1
0.0
0.0
62.0
0.0
0.0
0.0
44.0
1.2
4.5
1.1
0.0
0.0
13.8
0.0
0.0
0.0
31.12.2018
1,153.6
0.0
36.3
12.8
1.8
31.12.2019
1,043.1
61.9
35.8
11.9
0.0
1,204.5
(186.5)
8.1
62.0
50.8
13.8
1,152.7
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The reconciliation of the cash impact of net financing in 2020 and 2019 is shown in the tables below:
2020
in € million
Interest income
Interest expenses on borrowings
Net expense on foreign exchange effects and related derivatives
Other net financial expenses
Net finance costs
2019
in € million
Interest income
Interest expenses on borrowings
Net expense on foreign exchange effects and related derivatives
Other net financial expenses
Net finance costs
Reconciliation to cash net finance cost
Profit or loss
financing cash
movements
other cash and
non-cash
movements
Cash impact of net
financing costs
5.9
(20.1)
(42.8)
(29.7)
(86.7)
0.0
(4.2)
0.0
(3.1)
(0.1)
(4.4)
(44.3)
(22.2)
6.0
(19.9)
1.5
(10.6)
(23.0)
Reconciliation to cash net finance cost
Profit or loss
financing cash
movements
other cash and
non-cash
movements
Cash impact of net
financing costs
9.1
(28.4)
(17.2)
(38.7)
(75.2)
0.0
(5.7)
0.0
(5.8)
0.8
(4.2)
(2.8)
(24.6)
8.3
(29.9)
(14.4)
(19.9)
(55.9)
Non-cash movements in other net financial expenses are mainly related to net interest expenses on personnel provisions as well as to
expenses from the discount on provisions.
49. Total interest paid and interest received
Total interest paid amounts to €31.7 million in the reporting period (2019: €50.5 million), of which €1.0 million (2019: €0.4 million) is
included in cash flow from operating activities, €0.2 million (2019: €0.3 million) in cash flow from investing activities and €30.5 million
(2019: €49.8 million) in cash flow from financing activities.
Total interest received amounts to €6.1 million for the financial year 2020 (2019: €8.3 million), of which €0.2 million (2019: €0.0 mil-
lion) are included in cash flow from operating activities and €5.9 million (2019: €8.3 million) in cash flow from investing activities.
189
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R H I M A G N E S I T A
Notes
continued
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 2020 and the previous year:
2020 in € million
Revenue
Gross profit
EBIT
Net finance costs
Share of profit of joint ventures and associates
Profit before income tax
Steel
1,582.8
Industrial
Group 2020
676.2
2,259.0
371.4
178.7
550.1
120.6
(86.7)
7.6
41.5
Depreciation and amortisation charges
(99.3)
(40.4)
(139.7)
Segment assets 31.12.2020
Investments in joint ventures and associates 31.12.2020
Reconciliation to total assets
1,526.0
542.6
2,068.6
16.3
967.8
3,052.7
Investments in property, plant and equipment and intangible assets (according to non-
current assets statement)
127.9
46.9
174.8
2019 in € million
Revenue
Gross profit
EBIT
Net finance costs
Share of profit of joint ventures and associates
Profit before income tax
Steel
2,018.0
Industrial
904.3
Group 2019
2,922.3
466.8
250.4
717.2
273.3
(75.2)
1.5
199.6
Depreciation and amortisation charges1)
(125.7)
(46.9)
(172.6)
Segment assets 31.12.20191)
Investments in joint ventures and associates 31.12.2019
Reconciliation to total assets
1,761.3
707.3
2,468.6
19.5
831.5
3,319.6
Investments in property, plant and equipment and intangible assets (according to non-
current assets statement)1)
129.8
51.2
181.0
1) Adjusted to reflect the changes in presentation.
No single customer contributed 10% or more to consolidated revenue in 2020 and in 2019. Companies which are known to be part of a
group are treated as one customer.
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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 (e.g. full line service, contract business, cost per performance) 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 2019, revenue was classified by product group as follows:
in € million
Shaped products
Unshaped products
Management refractory services
Other
Revenue
Steel
745.8
283.6
481.2
72.2
1,582.8
Steel
963.0
323.4
628.8
102.8
2,018.0
Industrial
Group 2020
477.0
139.4
0.0
59.8
676.2
1,222.8
423.0
481.2
132.0
2,259.0
Industrial
Group 2019
613.7
187.6
0.0
103.0
904.3
1,576.7
511.0
628.8
205.8
2,922.3
Total revenue includes revenue from Solution Business amounting to €618.3 million (2019: €770.3 million). Thereof, €537.5million
(2019: €648.5 million) are attributable to Segment Steel and €80.8 million (2019: €121.8 million) are attributable to Segment Industrial.
Solution Business is a customer classification, where RHI Magnesita sums up all customer relations in which we enable our customers to
focus on their core competences. It’s typically characterised by sales of end-to-end solutions covering large parts of the customer pro-
cess chain. Examples of this would be CPP/FLS, but also customers where we focus on technological development of bespoke products
or where we are a strategic partner.
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 €55.2 million (2019: €96.9 million) is transferred over time and
an amount of €76.8 million (2019: €108.9 million) is transferred at a point of time.
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Notes
continued
Segment reporting by country
Revenue in 2020 is classified by customer sites as follows:
in € million
Netherlands
All other countries
USA
Brazil
India
PR China
Mexico
Germany
Italy
Russia
Canada
Other countries, each below €55.6 million
Revenue
Revenue in 2019 is classified by customer sites as follows:
in € million
Netherlands
All other countries
USA
Brazil
India
PR China
Germany
Mexico
Italy
Canada
Russia
Other countries, each below €52.7 million
Revenue
192
Steel
6.3
326.8
176.3
161.7
67.2
82.9
69.8
62.7
59.5
40.0
529.6
1,582.8
Steel
11.4
359.7
273.3
206.3
47.6
96.8
108.1
88.5
47.9
68.8
709.6
2,018.0
Industrial
6.0
57.5
53.8
25.9
99.9
31.1
43.8
23.3
17.9
35.0
282.0
676.2
Industrial
5.0
55.4
58.8
45.5
136.1
74.1
47.4
26.3
55.2
9.6
390.9
904.3
Group
12.3
384.3
230.1
187.6
167.1
114.0
113.6
86.0
77.4
75.0
811.6
2,259.0
Group
16.4
415.1
332.1
251.8
183.7
170.9
155.5
114.8
103.1
78.4
1,100.5
2,922.3
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 2 0
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
Austria
USA
PR China
Germany
India
Mexico
Turkey
France
Other countries, each below €15.9 million (31.12.2019: €22.1 million)
Goodwill, intangible assets and property, plant and equipment
31.12.2020
31.12.2019
338.2
259.4
220.5
177.4
139.6
61.6
34.9
28.5
27.5
47.5
514.0
228.8
233.2
181.9
154.0
64.7
38.9
29.4
27.9
70.5
1,335.1
1,543.3
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 Magnesi-
ta 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 for basic EPS
Effects of dilution from share options
Weighted average number of shares for dilutive EPS
Earnings per share basic (in €)
Earnings per share diluted (in €)
2020
25
2019
139.0
49,075,426
49,220,010
363,519
273,969
49,438,945
49,493,979
0.51
0.50
2.82
2.81
The weighted average number of shares for basic and dilutive EPS considers the weighted average effect of the newly issued ordinary
shares as well the effect of changes in treasury shares during the reporting period. As of 31 December 2020, there are 363,519 diluting
options (31.12.2019: 273,969).
52. Dividend payments and proposed dividend
Given the resilient performance of the business and its strong annual cash generation, the Board will recommend a dividend of €1.00 per
share for the shareholders of RHI Magnesita N.V for 2020. The proposed dividend is subject to the approval of the Annual General Meet-
ing on 10 June 2021 and was not recognised as a liability in the Consolidated Financial Statements 2020. Together with the already paid
interim dividend of €0.50 per share in December, the final proposed dividend for 2020 will amount to €1.50 per share.
On 22 October 2020 the Board declared an interim dividend of €0.50 per share amounting to €24.5m, which is in line with the 2019
interim dividend. The dividend was paid to shareholders on 21 December 2020.
In April 2020 the Board decided not to recommend the payment of a final dividend for 2019 because of the uncertainty relating to
COVID-19 and to prudently preserve cash.
On 23 July 2019 the Board of Directors of RHI Magnesita N.V. approved the 2019 interim dividend of €0.50 per share amounting to
€ 24.5 million. The 2019 interim dividend was paid on 9 January 2020.
Dividend payments to the shareholders of RHI Magnesita N.V. have no income tax consequences for RHI Magnesita N.V.
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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
Marketable securities
Shares
Other non-current financial receivables
Trade and other current receivables
Other current financial assets
Derivatives
Cash and cash equivalents
Financial assets
Non-current and current borrowings
Liabilities to financial institutions
Other financial liabilities and capitalised transaction costs
Non-current and current other financial liabilities
Lease liabilities
Derivatives
Interest derivatives designated as cash flow hedges
Liabilities to fixed-term or puttable non-controlling interests
Power supply contract Norway
Trade payables and other current liabilities
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
31.12.2020
31.12.2019
FVPL
FVPL
FVPL
AC
AC
FVPL
AC
AC
AC
AC
FVPL
-
AC
AC
AC
3
1
3
-
-
2
-
2
2
2
2
2
2
2
-
0.6
13.0
0.5
0.4
255.6
0.3
587.2
857.6
0.6
13.0
0.5
-
-
0.3
-
0.7
13.3
0.5
0.9
324.2
0.1
467.2
806.9
0.7
13.3
0.5
-
-
0.1
-
1,105.6
1,118.3
1,043.1
1,056.6
-
-
24.5
14.8
35.8
-
8.9
56.8
3.4
18.3
38.8
15.5
337.6
1,584.9
14.4
843.2
1,563.2
3.4
-
-
3.4
18.3
38.8
15.5
-
11.9
61.9
24.5
14.8
35.8
412.3
1,604.3
14.6
792.3
1,565.0
24.5
1) FVPL: Financial assets/financial liabilities measured at fair value through profit or loss.
AC: Financial assets/financial liabilities measured at amortised cost.
In the RHI Magnesita Group marketable securities, derivative financial instruments, shares, 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.
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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, 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 exception if 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 short-term power
supply contract. These derivatives are measured using quoted forward rates that are currently observable (Level 2).
Regarding the long-term power supply contract that was classified as a derivative since 2015, measurement of this financial instrument is
based on the settlement payment and now recognised as other financial liability, see Note (40) and (54).
A detailed analysis on COVID-19 and its impact on the Group is provided under Note (1). The effect on the fair value of financial assets
and liabilities as at 31 December 2020 is considered to be immaterial to the Group.
RHI Magnesita takes into account reclassifications in the measurement hierarchy at the end of the reporting period in which the changes
occur. Other than those from the initial application of IFRS 9, there were no shifts between the different measurement levels in the two
reporting periods.
Liabilities to financial institutions, other financial liabilities and capitalised transaction costs, lease 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
liabilities to financial institutions are only disclosed in the notes and calculated at the present value of the discounted future cash flows
using yield curves that are currently observable (Level 2). The carrying amount of other financial liabilities approximate their fair value at
the reporting date.
The carrying amounts of financial receivables approximately correspond to their fair value as due to the amount of the existing receiva-
bles no material deviation between the fair value and the carrying amount is assumed and the credit default risk is accounted for by form-
ing valuation allowances.
Trade and other current receivables and liabilities as well as cash and cash equivalents are predominantly short-term. Therefore, the
carrying amounts of these items approximate fair value at the reporting date.
No contractual netting agreement of financial assets and liabilities were in place as at 31 December 2020 and 31 December 2019.
195
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R H I M A G N E S I T A
Notes
continued
Net results by measurement category in accordance with IFRS 9
The effect of financial instruments on the income and expenses recognised in 2020 and 2019 is shown in the following table, classified
according to the measurement categories defined in IFRS 9:
in € million
Net loss from financial assets and liabilities measured at fair value through profit or loss
Net 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
2020
(4.9)
0.0
(73.9)
2019
(17.7)
0.5
(39.7)
The net gain from financial assets and liabilities measured at fair value through profit or loss includes income from securities and shares,
income from the disposal of securities and shares, impairment losses and income from reversals of impairment losses, unrealised results
from the measurement of a long-term commodity futures contract, 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 IFRS 9 and interest income from securities.
The net gain or loss from financial assets and liabilities designated at fair value through profit or loss at initial recognition includes income
related to the settlement and measurement of securities and personnel obligations.
The net loss from financial assets and liabilities measured at amortised cost 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. The net loss is mainly related to financial liabilities measured at amortised cost.
Net finance costs include interest income amounting to €5.9 million (2019: €9.1 million) and interest expenses of €32.6 million (2019:
€49.9 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 signed 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 no longer applied). Since 30 June 2020, measurement of this financial
instrument is based on the settlement payment and recognised as other financial liability, as RHI Magnesita Group terminated its energy
supply contract following the closure of the fused magnesia plant in Porsgrunn, Norway. The original contract term was December 2023
and the settlement payment amounts to €24.0 million. The first payment installment was made in July 2020 (€8.5 million), the second
in January 2021 (€15.5 million).
The measurement of the entire term of the contract until the end of the year 2023 at market price level lead to a financial liability of
€23.9 million at 31 December 2019. The corresponding present value of the cash flows for the agreed electricity supply totalled €59.5
million at 31 December 2019; the present value of the cash flow at market price amounted to €35.6 million.
In addition, Magnesita Refratários S.A., Contagem, Brazil signed a commodity forward contract for electricity in January 2012 which is
accounted for as a financial instrument in accordance with IFRS 9 since 1 January 2020 as the ‘‘own-use exemption’’ no longer applies.
The measurement of the entire term of the contract until the end of the year 2021 at market price level leads to a financial liability of €1.6
million at 31 December 2020. The corresponding present value of the cash flows for the agreed electricity supply totals €4.2 million at
31 December 2020; the present value of the cash flow at market price amounts to €2.6 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 Group has established a hedge ratio of 1:1
and the cash flow changes of the hedged items, which result from the changes of the variable interest rates, are balanced out by the cash
flow changes of the interest rate swaps. These hedging measures pursue the objective to transform variable-interest financial liabilities
into fixed interest financial liabilities, thus hedging the cash flow from the financial liabilities. Potential hedge ineffectiveness could arise
out of the credit value/debit value adjustment on the interest rate swaps which is not matched by the loan or out of differences in critical
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terms between the interest rate swaps and the loans. Credit risk may affect hedge effectiveness, however this risk is assessed to be very
low at RHI Magnesita as only first class international banks are involved.
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 USD 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.
The fair values of the interest rate swaps totalled €-18.3 million at the reporting date (31.12.2019: €-14.8 million) and are shown in other
non-current financial liabilities in the Consolidated Statement of Financial Position. For the reporting period 2020, €-3.6 million (2019:
€-7.5 million) have been recognised in other comprehensive income and an income amounting to €0.0 million (2019:€0.7) has been
reclassified from other comprehensive to profit or loss and recognised within other net financial expenses. No ineffectiveness has been
recognised in profit and loss.
The financial effect of the hedged item and the hedging instrument for the period 2020 and 2019 is shown as follows:
in € million
2020
2019
in € million
2020
2019
Carrying amount
(18.3)
(14.8)
Statement of
Financial Position
Other non-current
financial liabilities
Other non-current
financial liabilities
Change in fair
value used for
measuring
ineffectiveness
(3.6)
(7.5)
Nominal amount
USD 200 million
EUR 290.3 million
USD 200 million
EUR 305.6 million
Change in fair
value used for
measuring
ineffectiveness
3.6
7.5
Nominal amount
(2.7)
(5.6)
A hedging relationship with a nominal volume of USD 50.0 million (31.12.2019: USD 50.0 million) with an original maturity until 2020
was early settled in 2019. An income of €0.7 million recognised in other comprehensive income was reclassified to profit or loss and
recognised within other net financial expenses in 2019.
Forward exchange contracts
A forward exchange contract was put into place as of 31 December 2020, selling USD 100 million and designed to be renewed on a
monthly basis.
The nominal value and fair value of forward exchange contracts as of 31 December 2020 are shown in the table below:
Purchase
EUR
Forward exchange contracts
Sale
USD
As of 31 December 2019 there were no open forward exchange contracts.
31.12.2020
Nominal value
in million
Fair value in €
million
USD
100.0
0.3
0.3
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R H I M A G N E S I T A
Notes
continued
55. Financial risk management
Financial risks are incorporated in RHI Magnesita’s corporate risk management and are centrally controlled by Corporate 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 €842.2 million (31.12.2019: €806.9 million) and is primarily related
to investments with banks and receivables due from customers.
The credit risk with banks related to investments (especially cash and cash equivalents) is reduced as business transactions are only car-
ried out with prime financial institutions with a good credit rating. Individual counterpart exposures limits are assigned to each financial
institution based on a matrix composed of the credit rating (S&P or Moody’s) and balance sheet assets.
Receivables from customers are hedged as far as possible through credit insurance and collateral arranged through banks (guarantees,
letters of credit) in order to mitigate credit and default risk. Credit and default risks are monitored continuously, and provisions 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.
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
1) Adjusted to reflect the changes in presentation.
31.12.2020
31.12.20191)
183.3
71.0
254.3
(83.2)
171.1
209.0
111.7
320.7
(140.8)
179.9
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:
31.12.2020
31.12.2019
39.8
7.2
6.8
3.7
196.8
254.3
75.9
10.1
5.2
3.5
222.8
317.5
in € million
US Dollar
Euro
Pound Sterling
Other currencies
Other functional currencies
Trade receivables
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The movement in the valuation allowance in respect of trade and other receivables and contract assets during the year and the previous
year was as follows.:
in € million
2020
2019
Accumulated valuation allowance at beginning of year
Currency translation
Addition
Use
Reversal
Net remeasurement of loss allowance
Accumulated valuation allowance at year-end
Individually
assessed -
credit impaired
Collectively
assessed -
not credit impaired
Individually
assessed -
credit impaired
Collectively
assessed -
not credit impaired
32.3
(1.6)
7.7
(6.3)
(2.1)
0.0
30.0
1.3
-
-
-
-
(0.7)
0.6
29.6
0.3
5.9
(1.0)
(2.5)
-
32.3
1.2
-
-
-
-
0.1
1.3
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
31.12.2020
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
Expected credit loss rate in %
0,02-0,53%
0,03-1,23%
0,08-9,46%
0,15-18,77% 0,26-26,25%
0,91-55,39%
Gross carrying amount
Life time expected credit loss
222.8
0.30
13.3
0.04
2.80
0.02
1.30
0.03
2.00
0.05
0.2
0.20
Total
242.4
0.6
Trade receivables - days past due
in € million
31.12.2019
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
Trade receivables - days past due
Expected credit loss rate in %
0.04 - 0.65%
0.08 - 1.50%
0.33 - 10.33% 0.90 - 19.71%
1.43 - 26.35%
3.02 - 46.81%
Gross carrying amount
Life time expected credit loss
260.8
0.4
20.8
0.1
8.0
0.1
1.9
0.1
1.4
0.1
2.8
0.5
295.7
1.3
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 2020, RHI Magne-
sita has a committed Revolving Credit Facility (RCF) of EUR 600.0 million, which was fully unutilised (31.12.2019: committed RCF was
USD 400.0 million and was also unutilised). The EUR 600.0 million committed RCF is a syndicated facility with multiple international
banks and matures in 2026. The subsidiaries of the RHI Magnesita Group are integrated into a clearing process managed by Corporate
Treasury and provided with financing limits in order to minimise the need of borrowings for the Group as a whole.
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R H I M A G N E S I T A
Notes
continued
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:
Non-derivative financial liabilities
1,563.2
1,735.3
in € million
Liabilities to financial institutions
fixed interest
variable interest
Other financial liabilities and capitalised transaction costs
Lease liabilities
Liabilities to fixed-term or puttable non-controlling
interests
Power supply contract Norway
Trade payables and other current liabilities
in € million
Liabilities to financial institutions
fixed interest
variable interest
Other financial liabilities and capitalised transaction costs
Lease liabilities
Liabilities to fixed-term or puttable non-controlling
interests
Trade payables and other current liabilities
Carrying amount
31.12.2020
Cash
outflows
up to 1 year
2 to 5 years
over 5 years
Remaining term
135.0
970.6
8.9
56.8
38.8
15.5
337.6
144.7
994.2
11.3
61.8
170.2
15.5
337.6
2.7
131.2
4.4
14.2
12.9
15.5
337.6
518.5
106.2
594.3
6.9
32.3
11.9
0.0
0.0
751.6
35.8
268.7
0.0
15.3
145.4
0.0
0.0
465.2
Carrying amount
31.12.2019
Cash
outflows
up to 1 year
2 to 5 years
over 5 years
Remaining term
135.0
908.1
11.9
61.9
35.8
412.3
147.4
949.6
13.4
79.5
187.8
412.3
2.7
76.2
2.0
16.2
11.6
412.3
521.0
108.5
601.7
11.2
37.7
13.2
0.0
772.3
36.2
271.7
0.2
25.6
163.0
0.0
496.7
Non-derivative financial liabilities
1,565.0
1,790.0
Derivative financial instruments
The remaining terms of derivative financial instruments based on expected undiscounted cash flow as of 31 December 2020 and
31 December 2019 are shown in the table below:
in € million
Receivables from derivatives with net
settlement
Forward exchange contracts
Liabilities from derivatives with net settlement
Derivatives from supply contracts
Interest rate swaps
Derivatives in open orders
Carrying amount
31.12.2020
Cash flows
up to 1 year
2 to 5 years
over 5 years
Remaining term
0.3
1.6
18.3
1.8
0.3
1.6
9.6
1.8
0.3
1.6
4.7
1.8
0.0
0.0
4.9
0.0
0.0
0.0
0.0
0.0
200
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 2 0
in € million
Receivables from derivatives with net
settlement
Derivatives in open orders
Liabilities from derivatives with net settlement
Derivatives from supply contracts
Interest rate swaps
Derivatives in open orders
Carrying amount
31.12.2019
Cash flows
up to 1 year
2 to 5 years
over 5 years
Remaining term
0.1
23.9
14.8
0.6
0.1
24.6
15.1
0.6
0.1
6.0
5.0
0.6
0.0
18.6
10.1
0.0
0.0
0.0
0.0
0.0
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 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.
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 2020:
in € million
Financial assets
Financial liabilities, provisions
Net foreign currency position
USD
663.6
(358.1)
305.5
EUR
72.6
(98.2)
(25.6)
GBP
21.8
3.5
25.3
The foreign currency positions as of 31 December 2019 are structured as follows:
in € million
Financial assets
Financial liabilities, provisions
Net foreign currency position
USD
813.8
(646.9)
166.9
EUR
57.0
(165.7)
(108.7)
ZAR
12.8
0.0
12.8
INR
9.4
0.0
9.4
CHF
0.8
(11.2)
(10.4)
Other
40.6
(32.9)
7.7
Other
69.0
(34.9)
34.1
Total
808.0
(485.7)
322.3
Total
953.4
(858.7)
94.7
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.
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Notes
continued
A 10% appreciation or devaluation of the relevant functional currency against the following major currencies as of 31 December 2020
would have had the following effect on profit or loss and equity (both excluding income tax):
in € million
US Dollar
Euro
British Pound Sterling
Indian Rupee
Other currencies
Appreciation of 10%
Devaluation of 10%
Gain/(loss)
(42.9)
2.0
(2.0)
(0.9)
(0.7)
Equity
(33.3)
12.0
(2.0)
(0.9)
(0.7)
Gain/(loss)
52.4
(2.5)
2.4
1.0
0.9
Equity
40.7
(14.7)
2.4
1.0
0.9
The hypothetical effect on profit or loss at 31 December 2019 can be summarised as follows:
in € million
US Dollar
Euro
South African Rand
Swiss Franc
Other currencies
Appreciation of 10%
Devaluation of 10%
Gain/(loss)
Equity
Gain/(loss)
(15.2)
9.9
(1.2)
0.9
(3.0)
(4.7)
15.5
(1.2)
0.9
(3.0)
18.6
(12.1)
1.4
(1.2)
3.8
Equity
5.7
(18.9)
1.4
(1.2)
3.9
Net investment hedge
Non-current borrowings as of 31 December 2020 include USD 200.0 million which have been designated as a hedge of the net invest-
ments in two subsidiaries in the USA as of 1 July 2019. This borrowing is used to hedge the Group´s exposure to the USD foreign exchange
risk on these investments. Gains or losses on the translation of this borrowing are reclassified to Other Comprehensive Income to offset
any gains or losses on translation of the net investments in the subsidiaries.
There is an economic relationship between the hedged item and the hedging instrument as the net investment creates a translation risk
that will match the foreign exchange risk on the USD borrowing. The Group has established a hedge ratio of 1:1 as the underlying risk of
the hedging instrument is identical to the hedged risk component. Hedge ineffectiveness could arise when the amount of the investment
in the foreign subsidiary becomes lower than the amount of the fixed rate borrowing. For the reporting period, there was no ineffective-
ness to be recorded from net investments hedges.
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The impact of the hedging instrument for the period 2020 and 2019 is shown as follows:
in € million
2020
2019
Carrying amount
Statement of Financial Position
Change in fair value used for
measuring ineffectiveness
162.6
178.5
Non-current borrowings
Non-current borrowings
15.8
(2.9)
Nominal amount
USD 200 million
USD 200 million
The change in the carrying amount of the non-current borrowing as a result of the foreign currency movements since 1 July 2019 is rec-
ognised in Other Comprehensive Income within the currency translation differences.
The impact of the hedged item for the period 2020 and 2019 is shown as follows:
in € million
2020
2019
Change in fair value used for measuring ineffectiveness
Nominal amount
(15.8)
2.9
(11.9)
2.2
The hedging gain or loss recognised in the currency translation differences is also including the corresponding tax effect. The hedging
gain or loss recognised before tax is equal to the change in the fair value used for measuring effectiveness.
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 2020, interest rate hedges amounting to a nominal value of €290,3 million
(31.12.2019: €305.6 million) and a nominal value of USD 200.0 million (31.12.2019: USD 200.0 million) existed; a variable interest rate
was converted into a fixed interest rate through an interest rate swap. Further information is provided under Note (54). The reduction of
interest expense on borrowings in 2020. is predominantly driven by the refinancing of high-interest-bearing debt in 2019.
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 cash flow hedges to protect against interest rate-related payment
fluctuations are considered with hedge accounting have an effect on equity and are therefore included in the equity-related sensitivity
analysis. If the market interest rate as of 31 December 2020 had been 25 basis points higher or lower, equity would have been €1.9 mil-
lion (31.12.2019: €3.1 million) higher or lower considering 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 2020 had been 25 basis points
higher or lower, the interest result would have been €0.1 million (31.12.2019: €0.1 million) lower or higher.
Other market price risk
RHI Magnesita holds certificates in an investment fund amounting to €13.0 million (31.12.2019: €13.3 million) to provide the legally re-
quired coverage of personnel provisions of Austrian group companies. The market value of these certificates is influenced by fluctuations
of the worldwide volatile stock and bond markets.
In 2020, an energy supply contract with a term until 31 December 2021 was classified as a derivative financial instrument and the fair
value of the financial liability amounts to €1.6 million as at 31 December 2020. If the forward prices at 31 December 2020 had been 20%
higher or lower, EBIT would have been €0.5 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, the impact on EBIT would have been immaterial.
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Notes
continued
56. Capital management
The objectives of the capital management strategy of the RHI Magnesita Group are to continue as a going concern and to provide a capi-
tal base to finance growth and investments, to service debt, and to increase shareholders value, including the payment of dividends to
shareholders.
The RHI Magnesita Group manages its capital structure through careful monitoring and assessment of the overall economic framework
conditions, credit, interest rate and foreign exchange risks and the requirements and risks related to operations and strategic projects.
The capital structure key figures at the reporting date are shown below:
Net debt (in € million)
Net gearing ratio (in %)
Net debt to adjusted EBITDA
31.12.2020
31.12.2019
582.1
87.4%
1.53x
649.7
76.9%
1.17x
Net debt, which reflects borrowings and lease liabilities net of cash and cash equivalents and marketable securities, is managed by Cor-
porate 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 total equity.
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Net debt excluding lease liabilities/adjusted EBITDA is the main financial covenant of loan agreements. The key performance indicator for
net debt in the RHI Magnesita Group is the group leverage, which reflects the ratio of net debt to adjusted EBITDA, including lease liabili-
ties. It is calculated as follows:
in € million
EBIT
Amortisation
Restructuring and write-down expenses
Other operating income and expenses
Adjusted EBITA
Depreciation
Adjusted EBITDA
Total debt
Lease liabilities
Cash and cash equivalents 1)
Marketable securities
Net debt
Net debt excluding IFRS 16 lease liabilities
Net debt to adjusted EBITDA
Net debt to adjusted EBITDA excluding IFRS 16 lease liabilities
1) thereof shown under assets held for sale € 2.0 million
31.12.2020
31.12.2019
120.6
19.4
113.8
6.5
260.3
120.3
380.6
1,114.5
56.8
589.2
0.0
582.1
273.3
26.4
112.1
(3.6)
408.2
146.2
554.4
1,055.0
61.9
467.2
0.0
649.7
525.3
587.8
1.53x
1.38x
1.17x
1.06x
In both 2020 and 2019, 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 2020, warranties, performance guarantees and other guarantees amount to €48.0 million (31.12.2019: €44.0 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 (31.12.2019: €0.3 million) were recorded, of which €0.3 million (31.12.2019:
€0.3 million) are related to contingent liabilities to creditors from joint ventures.
Individual administrative proceedings and lawsuits which result from ordinary activities are pending as of 31 December 2020 or can po-
tentially be exercised against RHI Magnesita in the future. The related risks were analysed with a view to their probability of occurrence.
The Group is a party to several tax proceedings in Brazil which involve an estimated amount of €169.1 million (31.12.2019: €233.5 million).
No provision was recorded to cover the potential disbursements related to such proceedings as, according to IFRS, management classi-
fied the risks of loss (based on the evaluation of legal advisors) as possible but not probable. These tax proceedings are as follows:
In 2011, the Brazilian Tax Authorities issued an assessment regarding Corporate Income Taxes on the amortisation of goodwill related to
the years 2008 and 2009. The tax authorities 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 the Administrative Council of Tax Appeals (“CARF”), which can-
celled more than 90% of the tax assessment. The CARF’s ruling is still subject to appeals filed by both the company and the General
Counsel to the National Treasury (“PGFN”). The final ruling for this proceeding is expected within one to two years. As of 31 December
2020, the potential risk amounts to €59.3 million, including interest and penalties (31.12.2019: €81.7 million).
205
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R H I M A G N E S I T A
Notes
continued
In 2016, the Brazilian Tax Authorities considered the arguments partially accepted by the CARF in the proceeding started in 2011 to chal-
lenge goodwill deductions for the years 2011 and 2012. In December 2016, the company filed a defence against the tax assessment,
which was partially granted by the tax authorities. The parties can appeal to the CARF as soon as the formal notice about the first-tier
decision occurs. The final decision is expected within three to four years. As of 31 December 2020, the potential risk amounts to €27.7
million, including interest and penalties (31.12.2019: €38.1 million).
In 2019, the Brazilian Tax Authorities extended the goodwill challenge also for the years 2013 to 2018. The company will file a defence
against the tax assessment notice. A preliminary first-tier decision by the tax authorities (the Federal Revenue Judgment Office in the city
of Belo Horizonte) is expected within one to two years. As of 31 December 2020, the potential risk amounts to €38.8 million
(31.12.2019:€53.3 million), including interest and penalties.
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 final decision is expected within one to two years. The potential loss
from this proceeding amounts to €3.1 million (including interest and penalties) as at 31 December 2020 (31.12.2019: €4.2 million).
Furthermore, the Brazilian Tax Authorities issued a tax assessment against a former Brazilian holding company. The assessment relates to
the offset of federal taxes’ credits and debits performed by the company up to and including 2008, which have not been approved by the
Tax Authorities. Legal opinions demonstrate that the company’s arguments are solidly based on supporting documentation. The final
decision is expected within four to five years. As of 31 December 2020, the potential risk amounts to €9.5 million, including interest and
penalties (31.12.2019: €12.8 million).
The Brazilian Tax Authorities also issued a tax assessment regarding the Financial Compensation for Exploration of Mineral Resources
(“CFEM”). Based on the opinion of its legal advisors, the company appealed against the assessment and the chances of loss in this pro-
ceeding were considered “possible” due to the applicable case-law of the Brazilian courts. Additionally, changes in the CFEM legislation
mirror the company’s interpretation and, therefore, demonstrate its accurateness. The final decision is expected within four to five years.
As of 31 December 2020, the potential risk amounts to €10.6 million, including interest and penalties (31.12.2019: €14.0 million).
In addition, the Brazilian Tax Authorities issued a tax assessment for an allegedly incurred use of Income Tax credits relating to the year
2015. Legal opinions obtained demonstrate that the company’s arguments are solidly based on substantial supporting documentation.
The final decision is expected within four to five years. As of 31 December 2020, the potential risk amounts to €2.5 million (31.12.2019:
€3.5 million), including interest and penalties.
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. In this context it should be noted that a tax provision is generally recognised when the group has a present obli-
gation as a result of a past event, and when it is considered probable that there will be a future outflow of funds.
Since RHI Magnesita is continually adapting its global presence to improve customer service and maintain its competitive advantage, the
group leads open discussions with tax authorities, mostly about the transfer of functions between related parties and their exit value. In
this regard, disputes may arise, where the group’s management understanding differs from the positions of the local authorities. In such
cases, when an appeal is available, the group’s management judgments are based on a likely outcome approach based on in-house tax
experts, professional firms, and previous experiences when assessing the risks. Magnesita Refratários S.A., Contagem, Brazil, is also in-
volved in other minor lawsuits totalling €17.6million (31.12.2019: €25.9 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 allegedly 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 con-
sidering 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 final decision is expected in 10 years. The potential loss from
this proceeding amounts to €10.6 million as at 31 December 2020 (31.12.2019: €13.3 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.
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58. Other financial commitments
Capital commitments amount to €49.5 million as at 31 December 2020 (31.12.2019: €5.0 million) and are exclusively due to third parties.
They are shown at nominal value.
In addition, the RHI Magnesita Group has purchase commitments related to the supply with raw materials, especially for electricity, natu-
ral 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 €219.2 million at the reporting date (31.12.2019: €175.5 million). The increase in other financial commitments in
2020 compared to the previous year mainly results from raw material purchase contracts concluded in 2020. The remaining terms of the
contracts amount to up to four years. Purchases from these arrangements are recognised in accordance with the usual course of business.
Purchase contracts are regularly reviewed for imminent losses, which may occur, for example, when requirements fall below the agreed
minimum purchase volume or when contractually agreed prices deviate from the current market price level.
59. Expenses for the Group independent auditor
The expensed fees for the activities of the Group independent auditor ‘PricewaterhouseCoopers Accountants N.V.’ 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
Tax compliance services
Other non-audit services
Total fees
2020
2019
2.6
1.2
1.4
0.0
0.1
2.7
3.3
1.1
2.2
0.3
0.2
3.8
In 2020, other audit related services, tax compliance services and other non-audit services amounting to €0.1 million (2019: €0.5 mil-
lion) were performed and invoiced by PwC network firms outside of the Netherlands.
The expensed fees for the audited financial statements in 2020 and 2019 include the half year review procedures.
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
2020
4,733
7,831
12,564
2019
4,860
9,515
14,375
98 full time equivalents of salaried employees work in the Netherlands. In 2019 84 full time equivalents of salaried employees worked 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
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R H I M A G N E S I T A
Notes
continued
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 2020 and 2019, the Group conducted the following transaction with its related companies:
in € million
2020
2019
2020
2019
2020
2019
Joint ventures
Associates
Non-consolidated
subsidiaries
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
2.7
2.7
0.1
0.0
0.2
0.0
3.3
1.6
0.0
0.0
1.3
0.0
0.0
14.6
0.8
0.0
0.0
0.8
0.3
0.0
0.9
10.9
10.5
0.0
0.0
15.7
0.8
0.0
0.0
0.8
0.7
2.9
0.0
0.1
0.0
0.0
0.2
0.0
0.0
0.1
0.0
0.0
0.2
0.0
0.7
0.7
0.0
0.0
In 2020 and 2019, 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 2020 and 2019, the associate Sinterco S.A., Nameche, Belgium, sold sintered
doloma to the RHI Magnesita Group. Furthermore, the Group has a financing receivable of €0.8 million (31.12.2019: €0.8 million) from a
loan agreement with Sinterco.
The balances at the end of 2020 are unsecured and will be paid in cash. Before the acquisition of Magnesita the Group had no associ-
ates.
To secure a pension claim of a former employee of MAGNIFIN, RHI Magnesita has assumed a surety amounting to €0.3 million
(31.12.2019: €0.3 million). A resulting cash outflow is not expected. No guarantees were received.
In 2020 and 2019, 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 (27). At 31 December 2020, no current accounts receivable existed (31.12.2019: €0.0 million). In the past reporting period, employer
contributions amounting to €0.6 million (2019: €0.6 million) were made to the personnel welfare foundation. At 31 December 2020 a
net defined benefit liability of €0.9 million is recognised. At 31 December 2019 the overfunding of the pension plan was recognised as a
non-current asset of €0.2 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 2020, in 2019 and in 2018 as well as the for-
mer Management Board and Supervisory Board of RHI AG until October 2017.
For the financial year 2020, expenses for the remuneration of the Executive Directors and EMT members, active in 2020, recognised in
the Consolidated Statement of Profit or Loss total €9.8 million (2019: €9.8 million including also remuneration of the former Manage-
ment Board). The expenses, not including non-wage labour costs, amount to €9.1 million (2019: €9.2 million), of which €7.7 million
(2019: €6.7 million) were related to current benefits (fixed, variable and other earnings), €0.0 million (2019: €0.0 million) to benefits
related to the termination of employment and €1.4 million (2019: €2.5 million) to share-based remuneration. At 31 December 2020,
liabilities for performance-linked variable earnings and share-based payments for active members of the former Management Board of
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€2.5 million (2019: €2.6 million) are recognised as liabilities. There are no obligations arising from post-employment benefits and legally
required termination benefits.
In addition to the variable remuneration, the members of the former Management Board of RHI AG active in 2017 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 2020, a payment of €1.0 million was made in this regard (2019: €1.0 million).
For Non-Executive Directors, remuneration totalling €1.1 million (2019: €1.2 million) was recognised through profit or loss in the year
2020. The compensation paid to the Non-Executive Directors 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 €0.2 million (2019: €0.2 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 Directors &Officers 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 102 to 126 of the Annual Report of the RHI Magnesita Group.
Earnings of former members of the former Management Board amounted to €0.7 million (2019: €2.7 million), of which €0.2 million
(2019: €0.2 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.
In the ordinary course of business, RHI Magnesita had the following transactions with various organisations with which certain members
of the Board of Directors are associated. All transactions with related parties are conducted on an arm’s-length basis and in accordance
with normal business terms.
Until December 2020, Karl Sevelda held a position as a supervisory board member at Siemens AG Austria. Siemens AG Austria is both a
supplier and customer of the Group with only immaterial transaction volumes. The related party was not involved in the decision making
of any of these transactions.
Furthermore, Fiona Paulus is an independent non-executive board member of Interpipe Group. RHI Magnesita supplied the Interpipe
Group with refractory materials amounting to about € 1.9 million in 2020 (2019: € 3.0 million). However, the materiality of these sales is
not significant for the Group.
Equity-settled share option plan (LTIP)
The company implemented a share option plan for the members of senior management of the Group starting with 2018 which was ap-
proved by shareholders at the Annual General Meeting held on 7 June 2018. The Group operates in three different share option plans,
one applicable for the financial year 2020, 2019 and 2018 each.
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.
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 which are explained in
detail in the Remuneration Committee report.
The vesting period for each share option plan is three years. If the options remain unexercised after a period of seven years from the vest-
ing date the options expire. Options are forfeited if the employee leaves the Group before the options vest.
209
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
continued
LTIP 2020
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
LTIP 2019
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
LTIP 2018
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
2020
2019
Number of options
Number of options
0
370,014
0
(6,495)
363,519
0
0
0
0
0
0
0
2020
2019
Number of options
Number of options
179,775
4,797
0
(15,055)
169,517
0
0
188,856
0
(9,081)
179,775
0
2020
2019
Number of options
Number of options
94,194
4,256
0
(768)
97,682
0
94,105
89
0
0
94,194
0
No options expired or were exercised during the periods covered by the above tables.
The options outstanding at 31 December 2020 have a weighted-average contractual life of 2 years.
The outstanding share options for the LTIP 2018, which were granted on 6 June 2018, will expire on 7 June 2021. The share price at grant
date for the 94,105 options was €53.13. The outstanding share options for the LTIP 2019, which were granted on 19 August 2019, will
expire on 20 August 2022. The share price at grant date for the 188,856 options was €46.32. The outstanding share options for the LTIP
2020, which were granted on 8 April 2020, will expire on 9 April 2023. The share price at grant date for the 370,014 options was €22.7.
The assessed fair value at grant date of options of the LTIP 2018 as 31 December 2020 was €50.56 per option. The assessed fair value at
grant date of options of the LTIP 2019 granted during the year ended 31 December 2020 was €49.12 per option. The assessed fair value
at grant date of options of the LTIP 2020 granted during the year ended 31 December 2020 was €18.31 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 ac-
count 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.
210
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 2 0
The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans for 2020, for 2019
and 2018 were as follows:
LTIP 2020 in € million
Fair value at grant date
Expected volatility (weighted-average)
Expected life (weighted-average)
Expected dividends
Risk-free interest rate
LTIP 2019 in € million
Fair value at grant date
Expected volatility (weighted-average)
Expected life (weighted-average)
Expected dividends
Risk-free interest rate
LTIP 2018 in € million
Fair value at grant date
Expected volatility (weighted-average)
Expected life (weighted-average)
Expected dividends
Risk-free interest rate
2020
6.6
41.75%
36 Months
0.5
0.51%
2019
8.3
30.36%
36 Months
0.5
0.47%
2019
5.0
21.45%
24 Months
0.5
0.89%
2020
8.3
30.36%
24 Months
0.5
0.47%
2020
5.0
21.45%
12 Months
0.5
0.89%
For LTIP 2018 none of the performance targets have been met and the awards are therefore expected to lapse. Amounts recognised in
equity relating to market-related performance condition will not be subsequently reversed.
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.
Expenses for share based payments are disclosed in Note (46).
211
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
continued
62. Board of Directors of RHI Magnesita N.V.
The members of the Board of Directors are as follows:
Executive Directors
Stefan Borgas
Ian Botha
Non-Executive Directors
Herbert Cordt
John Ramsay
Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg
David Schlaff
Celia Baxter
Janet Ashdown
Andrew Hosty
Wolfgang Ruttenstorfer
Karl Sevelda
Fiona Paulus
Employee Representative Directors
Franz Reiter
Michael Schwarz
63. Material events after the reporting date
On 1 February 2021, the Group completed the disposal of RHI Normag AS, Porsgrunn, Norway and Premier Periclase Limited, Drogheda,
Ireland which were classified as held for sale as at the balance sheet date. The fair value less cost of disposal of the disposal group was
determined with reference to the compensation payable to the purchaser. The total gain on loss of control of €6.2 recognised in the
Consolidated Statement of Profit or Loss predominantly relates to the recycling of certain components of Other Comprehensive Income
of the entities within the disposal group. As at the date of issue of the financial statements, this gain is expected to be partially set off by
an expected loss on disposal of €5.5 million, arising from the disposal of certain assets in a related but separate transaction.
The Group continued its share buyback program and acquired from 1 January 2021 until 28 February 2021 additional 479,463 shares in
treasury equalling €20.8 million.
On 5 March 2021 RHI Magnesita signed a new €65.0 million 1-year term loan. The interest rate is fixed at 0.1% and the final maturity of
the loan is March 2022. The proceeds will be used for general corporate purposes and to repay higher interest-bearing debt.
After the reporting date on 31 December 2020, there were no events of special significance which may have a material effect on the
financial position and performance of the RHI Magnesita Group.
212
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 2 0
Company Financial Statements
of RHI Magnesita N.V.
Company Balance Sheet as at 31 December 2020
(before appropriation of result)
in € million
ASSETS
Non-current assets
Property, plant and equipment
Non-current financial assets
Securities
Deferred tax assets
Total non-current assets
Current assets
Receivables from group companies
Other current receivables
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
Treasury shares
Result for the period
Shareholders' Equity
Current liabilities
Other current liabilities
Total current liabilities
Total equity and liabilities
Note
31.12.2020
31.12.2019
(A)
(B)
(C)
(D)
(E)
(F)
(L)
(G)
0.3
480.6
0.5
10.6
492.0
165.8
0.6
3.5
169.9
0.0
815.3
0.0
7.4
822.7
28.5
0.0
0.1
28.6
661.9
851.3
49.5
361.3
25.7
206.3
(21.5)
24.8
646.1
15.8
15.8
49.5
361.3
197.9
95.0
(18.8)
139.0
823.9
27.4
27.4
661.9
851.3
213
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
Company Statement of Profit or Loss for the period 1 January 2020 to 31 December 2020
in € million
General and administrative expenses
Result before taxation
Net financial result
Profit before income tax
Net result from investments
Income tax
Net result for the period
Note
(I)
(J)
(K)
(L)
2020
(18.6)
(18.6)
0.4
(18.2)
40.7
2.3
24.8
2019
(14.7)
(14.7)
(1.5)
(16.2)
147.8
7.4
139.0
214
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 2 0
215
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 2020
Movements in Shareholders’ Equity
in € million
Share
capital
Treasury
shares
Additional
paid-in
capital
Cash flow
hedges
Currency
translation
Mandatory
reserve
Retained
earnings
Net result
Equity
attributable to
shareholders
Legal and mandatory reserves
Other
reserves
31.12.2019
49.5
(18.8)
361.3
(11.0)
(79.8)
288.7
95.0
139.0
823.9
Appropriation of prior
year result
Net result
Shares repurchased
Share-based expenses
Dividends
Net income / (expense)
recognised directly in
equity
-
-
-
-
-
-
-
-
(2.7)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2.7)
(169.5)
-
-
-
-
-
-
139.0
(139.0)
-
-
(3.1)
(24.6)
-
24.8
-
-
-
-
31.12.2020
49.5
(21.5)
361.3
(13.7)
(249.3)
288.7
206.3
24.8
-
24.8
(2.7)
(3.1)
(24.6)
(172.2)
646.1
in € million
Share
capital
Treasury
shares
Additional
paid-in
capital
Cash flow
hedges
Currency
translation
Mandatory
reserve
Retained
earnings
Net result
Equity
attributable to
shareholders
Legal and mandatory reserves
Other
reserves
31.12.2018
48.3
Appropriation of prior year
result
Net result
Acquisition with non-
controlling interests
without change of control
Issue of ordinary shares
related to the integrated
tender offer of Magnesita
Shares repurchased
Share-based expenses
Dividends
Net income / (expense)
recognised directly in
equity
-
-
-
1.2
-
-
-
-
-
-
-
-
-
(18.8)
-
-
-
305.5
(5.0)
(73.8)
288.7
78.7
158.1
800.5
-
-
-
55.8
-
-
-
-
-
-
-
-
0.1
(4.6)
-
-
-
-
(6.1)
(11.0)
-
-
-
-
(1.4)
-
-
-
-
-
-
-
-
158.1
-
(158.1)
139.0
-
139.0
(19.0)
-
-
4.1
(98.8)
(28.1)
95.0
-
-
-
-
-
-
139.0
(23.5)
57.0
(18.8)
4.1
(98.8)
(35.6)
823.9
(79.8)
288.7
31.12.2019
49.5
(18.8)
361.3
216
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 2 0
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, 1100 Vienna, Austria.
The shares of RHI Magnesita N.V. (ISIN code NL0012650360) are listed on the Main Market of the London Stock Exchange and are in-
cluded in the FTSE 250 index.
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.
Fiscal Unity
For corporate income tax and sales tax purposes, RHI Magnesita NV, Vienna Branch, acts as the head of a corporate tax group in Austria
with the following companies:
‐
‐
‐
‐
‐
‐
‐
‐
RHI Magnesita GmbH
Veitscher Vertriebsgesellschaft GmbH
“Veitsch-Radex” Vertriebgesellschaft GmbH
Refractory Intellectual Property GmbH
Veitsch-Radex GmbH
Radex Vertriebsgesellschaft GmbH
RHI Refractories Raw Material GmbH
Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft
Pursuant to the Collection of State Taxes Act, the company and its subsidiaries are both severally and jointly liable for the tax payable of
the combination.
According to the group and tax compensation agreement, the members of the group have to pay a positive tax compensation of 20% of
the taxable profit to the head of the Group if the result is positive, as long as tax loss carry forwards exist with the head of the group; sub-
sequently 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 in-
come 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 termi-
nated, a compensation payment is agreed for unused tax losses of a group member, which were allocated to the head of the group, see
Note (7) .
All income and expenses are settled through their intercompany (current) accounts.
Significant accounting policies
Non-current financial assets
Investments in Group companies in the Company Financial Statements are accounted for using the equity method.
Receivables from Group companies
Accounts receivable are measured at fair value and are subsequently measured at amortized cost, less allowance for credit losses. The
carrying amount of the accounts receivable approximates the fair value.
Net result from investments
The share in the result of investments comprises the share of the Company in the result of these investments.
217
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 2020
Fixed assets
(A) Financial fixed assets
The financial fixed assets comprise investments in:
Name and registered office of the company
RHI Magnesita Deutschland AG, Wiesbaden, Germany
RHI Refractories Raw Material GmbH, Vienna, Austria
RHI Magnesita GmbH, Vienna, Austria
RHI Magnesita Trading B.V., Rotterdam, Netherlands
The investments have developed as follows:
in € million
At beginning of year
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
Dividend distribution
Net result from investments
Balance at year-end
Country of core
activity
Germany
Austria
Austria
Netherlands
31.12.2020
31.12.2019
Share in %
Share in %
12.5
25.0
100.0
100.0
2020
815.3
0.0
0.0
(172.1)
(0.2)
(3.1)
(200.0)
40.7
480.6
12.5
25.0
100.0
100.0
2019
915.5
(23.5)
107.0
(7.5)
(28.1)
4.1
(300.0)
147.8
815.3
218
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 2 0
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.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
RHI Magnesita N.V., Arnhem, Netherlands
Fully consolidated subsidiaries
Agellis Group AB, Lund, Sweden
Baker Refractories Holding Company, Delaware, USA
Baker Refractories I.C., Inc., Delaware, USA
Baker Refractories, Las Vegas, USA
Betriebs- und Baugesellschaft mit beschränkter Haftung - Bebau, Wiesbaden,
Germany
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
RHI Magnesita Deutschland AG, 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, Wiesbaden, Germany
GIX International Limited, Dinnington, United Kingdom
INDRESCO U.K. Ltd., Dinnington, United Kingdom
Intermetal Engineers Private Limited, Mumbai, India
INTERSTOP (Shanghai) Co., Ltd., Shanghai, PR China,i.l.
Liaoning RHI Jinding Magnesia Co., Ltd., Dashiqiao City, PR China 1)
LLC "RHI Wostok Service", Moscow, Russia
LLC "RHI Wostok", Moscow, Russia
Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft, Vienna, Austria
LWB Holding Company, Delaware, USA
31.12.2020
31.12.2019
Share-
holder
Share
in %
Share-
holder
Share
in %
52.
39.
3.
39.
100.0
100.0
100.0
100.0
52.
39.
100.0
100.0
3.
100.0
39.
100.0
10.
100.0
10.
100.0
10.
100.0
10.
100.0
67.,101.
10.
100.0
100.0
1.,52.
100.0
107.
10.
107.
52.
112.
113.
16.
49.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
99.9
106.
100.0
52.
52.,70.
52.,70.
92.
53.
83.3
100.0
100.0
100.0
100.0
67.,101.
100.0
10.
100.0
1.,52.
100.0
107.
100.0
10.
100.0
107.
100.0
52.
112.
113.
16.
49.
100.0
100.0
100.0
100.0
99.9
106.
100.0
52.
83.3
52.,70.
100.0
52.,70.
100.0
92.
53.
100.0
100.0
219
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 2020
Ser. no.
Name and registered office of the company
LWB Refractories Belgium S.A., Liège, Belgium
LWB Refractories Beteiligungs GmbH & Co. KG, Wiesbaden, Germany
LWB Refractories Hagen GmbH, Wiesbaden, Germany
LWB Refractories Holding France S.A.S., Valenciennes, France
Magnesit Anonim Sirketi, Eskisehir, Turkey 2)
Magnesita Asia Refractory Holding Ltd, Hong Kong, PR China
Magnesita Finance S.A., Luxembourg, Luxembourg
Magnesita Grundstücks-Beteiligungs GmbH, Wiesbaden, 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 Refractories (Canada) Inc., Montreal, Canada
Magnesita Refractories (Dalian) Co. Ltd., Dalian, PR China
Magnesita Refractories Company, York, USA
Magnesita Refractories Mexico S.A. de C.V., Monterrey, Mexico
Magnesita Refractories GmbH, Wiesbaden, Germany
Magnesita Refractories Ltd., Dinnington, United Kingdom
Magnesita Refractories Middle East FZE, Dubai, United Arab Emirates
31.12.2020
31.12.2019
Share-
holder
Share
in %
Share-
holder
Share
in %
41.,112.
100.0
41.,112.
100.0
32.,53.
100.0
32.,53.
100.0
112.
112.
52.
28.
46.
46.
46.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
112.
112.
52.
28.
46.
46.
46.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
35.,112.
100.0
35.,112.
100.0
41.,112.
100.0
41.,112.
100.0
31.,46.
100.0
31.,46.
100.0
3.
31.
24.
3.,4.
112.
3.
31.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
3.
100.0
31.
24.
100.0
100.0
3.,4.
100.0
112.
100.0
3.
31.
100.0
100.0
Magnesita Refractories S.C.S., Valenciennes, France
28.,112.
100.0
28.,112.
100.0
Magnesita Refractories S.R.L., Milano, Italy
Magnesita Refratários S.A., Contagem, Brazil
Magnesita Resource (Anhui) Company. Ltd., Chizhou, PR China
Mezubag AG, Freienbach, Switzerland
Orient Refractories Limited, Mumbai, India
Premier Periclase Limited, Drogheda, Ireland
112.
11.
30.
100.0
100.0
100.0
112.
100.0
11.
100.0
30.
100.0
106.
100.0
106.
100.0
13.
13.
66.5
100.0
13.
13.
66.5
100.0
Producción RHI México, S. de R.L. de C.V., Ramos Arizpe, Mexico
85.,113.
100.0
85.,113.
100.0
Radex Vertriebsgesellschaft m.b.H., Leoben, Austria
Rearden G Holdings Eins GmbH, Wiesbaden, Germany
Refractarios Argentinos S.A.I.C.M., San Nicolás, Argentina
Refractarios Magnesita Chile S/A, Santiago, Chile
Refractarios Magnesita Colombia S/A, Sogamoso, Colombia
Refractarios Magnesita del Perú S.A.C., Lima, Peru
Refractory Intellectual Property GmbH & Co KG, Vienna, Austria
Refractory Intellectual Property GmbH, Vienna, Austria
Reframec Manutenção e Montagens de Refratários S.A., Contagem, Brazil
RHI Argentina S.R.L., Buenos Aires, Argentina
RHI Canada Inc., Burlington, Canada
RHI Chile S.A., Santiago, Chile
RHI Clasil Private Limited, Mumbai India 1)
RHI Dinaris GmbH, Wiesbaden, Germany
RHI Finance A/S, Hellerup, Denmark
RHI GLAS GmbH, Wiesbaden, Germany
RHI India Private Limited, Navi Mumbai, India
109.
100.0
31.
100.0
109.
100.0
31.
100.0
46.,56.
100.0
46.,56.
100.0
46.,54.
100.0
46.,54.
100.0
46.
100.0
46.
100.0
46.,56.
100.0
46.,56.
100.0
59.,70.
100.0
59.,70.
100.0
70.
46.
100.0
100.0
70.
46.
100.0
100.0
13.,113.
100.0
13.,113.
100.0
113.
100.0
113.
100.0
16.,113.
100.0
16.,113.
100.0
113.
101.
70.
101.
53.7
100.0
100.0
100.0
113.
101.
70.
101.
53.7
100.0
100.0
100.0
11.,113.
100.0
11.,113.
100.0
25.
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.
220
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 2 0
Ser. no.
Name and registered office of the company
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 Magnesita Vietnam Company Limited, Ho Chi Minh City, Vietnam
RHI Magnesita Services Europe Gerbstedt GmbH, Gerbstedt/Hübitz, Germany
RHI Magnesita Services Europe GmbH, Kerpen, Germany
RHI MARVO S.R.L., Ploiesti, Romania
RHI Magnesita Properties MO, LLC, Missouri, USA
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., Oviedo, Spain
RHI Refractories France SA, Valenciennes, France 3)
RHI Refractories Ibérica, S.L., Oviedo, Spain
RHI Refractories Italiana s.r.l., Brescia, Italy; i.l.
RHI Refractories Liaoning Co., Ltd., Bayuquan, PR China 1)
RHI Refractories Mercosul Ltda., Sao Paulo, Brazil
RHI Refractories Nord AB, Stockholm, Sweden
100.
RHI United Offices Europe, S.L., Oviedo, Spain
RHI Refractories Site Services GmbH, Wiesbaden, Germany
RHI Refractories UK Limited, Bonnybridge, United Kingdom
RHI Refratários Brasil Ltda, Contagem, Brazil; i.l.
RHI Sales Europe West GmbH, Urmitz, Germany
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 Urmitz AG & Co. KG, Mülheim-Kärlich, Germany
RHI US Ltd., Delaware, USA
RHI-Refmex, S.A. de C.V., Ramos Arizpe, Mexico
RHISA Employee Trust, Sandton, South Africa 4)
SAPREF AG für feuerfestes Material, Basel, Switzerland
RHI Magnesita Interstop AG, Hünenberg, Switzerland
Veitscher Vertriebsgesellschaft m.b.H., Vienna, Austria
Veitsch-Radex America LLC., Delaware, USA
Veitsch-Radex GmbH & Co OG, Vienna, Austria
Veitsch-Radex GmbH, Vienna, Austria
Veitsch-Radex Vertriebsgesellschaft m.b.H., Vienna, Austria
69.
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.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
31.12.2020
31.12.2019
Share-
holder
70.
1.
72.
Share
in %
100.0
100.0
100.0
1.
100.0
83.
75.
10.
100.0
100.0
100.0
Share-
holder
Share
in %
70.
100.0
1.
100.0
72.
100.0
1.
-
75.
10.
100.0
-
100.0
100.0
52.,107.
100.0
52.,107.
100.0
108.
100.0
52.
52.
17.
100.0
100.0
100.0
52.
52.
17.
100.0
100.0
100.0
52.,104.
100.0
52.,104.
100.0
113.
70.
100.0
100.0
113.
70.
100.0
100.0
52.,107.
100.0
52.,107.
100.0
10.,12.
100.0
10.,12.
100.0
105.
105.
105.
52.
100.0
100.0
100.0
66.0
105.
105.
105.
52.
100.0
100.0
100.0
66.0
107.,113.
100.0
107.,113.
100.0
105.
100.0
105.
100.0
10.
10.
100.0
100.0
10.
10.
100.0
100.0
13.,36.
100.0
13.,36.
100.0
10.,105.
100.0
10.,105.
100.0
52.
100.0
52.
100.0
52.,107.
100.0
52.,107.
100.0
85.,100.
100.0
85.,100.
100.0
85.
100.0
85.
100.0
9.,10.
100.0
9.,10.
100.0
13.
100.0
13.
100.0
85.,113.
100.0
85.,113.
100.0
.
0.0
113.
100.0
.
0.0
113.
100.0
10.,52.
100.0
10.,52.
100.0
70.
100.0
102.
100.0
70.
100.0
102.
100.0
70.,110.
100.0
70.,110.
100.0
70.
70.
100.0
100.0
70.
70.
100.0
100.0
RHI Refractories Raw Material GmbH, Vienna, Austria
1.,52.,70.
100.0
1.,52.,70.
100.0
Vierte LWB Refractories Holding GmbH, Wiesbaden, Germany
26.,53.
100.0
26.,53.
100.0
221
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 2020
Ser. no.
Name and registered office of the company
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
VRD Americas B.V., Arnhem, Netherlands
Zimmermann & Jansen GmbH, Wiesbaden, Germany
Subsidiaries not consolidated due to minor significance
Dr.-Ing. Petri & Co. Unterstützungsgesellschaft m.b.H., Wiesbaden, Germany
Guapare S.A, Montevideo, Uruguay i.l
Magnesita Refractories A.B., Stocksund, Sweden
Magnesita Refractories PVT Ltd, Mumbai, India
Magnesita Refractories S.A. (Pty) Ltd., Sandton, South Africa
MAG-Tec Participações Ltda. Ltda., Contagem, Brazil; i.l.
MMD Araçuaí Holding Ltda., São Paulo, Brazil, i.l.
Refractarios Especiales Y Moliendas S.A., Buenos Aires, Argentina; i.l.
Refractarios Magnesita Uruguay S/A, Montevideo, Uruguay
RHI Réfractaires Algérie E.U.R.L., Sidi Amar, Algeria
Equity-accounted joint ventures and associated companies
Magnesita Envoy Asia Ltd., Kaohsiung, Taiwan
MAGNIFIN Magnesiaprodukte GmbH & Co KG, St. Jakob, Austria
Sinterco S.A., Nameche, Belgium
Other immaterial investments, measured at cost
31.12.2020
31.12.2019
Share-
holder
Share
in %
Share-
holder
Share
in %
52.,70.
100.0
52.,70.
100.0
10.
100.0
10.
100.0
.
10.
46.
112.
100.0
100.0
100.0
.
10.
46.
112.
100.0
100.0
100.0
53.,112.
100.0
53.,112.
100.0
41.
46.
46.
54.
46.
86.
.
3.
52.,128.
53.
.
100.0
98.7
100.0
100.0
100.0
100.0
50.0
50.0
70.0
41.
46.
46.
54.
46.
86.
.
3.
107.,128.
53.
.
100.0
98.7
100.0
100.0
100.0
100.0
50.0
50.0
70.0
128.
MAGNIFIN Magnesiaprodukte GmbH, St. Jakob, Austria
52.
50.0
107.
50.0
1) In accordance with IAS 32, fixed-term or puttable non-controlling interests are shown under liabilities.
2) Further shareholders are VRD Americas B.V., Lokalbahn Mixnitz St. Erhard Aktien-Gesellschaft and Veitscher Vertriebsgesellschaft mbH.
3) Further shareholders are RHI Magnesita Deutschland AG, RHI Dinaris GmbH and RHI GLAS GmbH.
4) Controlling influence due to contractual terms and conditions.
i.l. in liquidation
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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 2020, RHI Magnesita N.V.’s issued and fully paid-in share capital consists of 49,008,955 ordinary shares
(31.12.2019: 49,077,705 ordinary shares). For additional information on treasury shares see (F).
(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 include gains and losses from the effective part of cash flow hedges less tax effects. Further information on
hedge accounting is included in Note (55) of the Consolidated Financial Statements.
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 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.
(F) Treasury shares
In 2020, the Company repurchased 68,750 shares from the market for a total cash consideration of €2.7 million. In 2019, the Company
repurchased 400,000 shares from the market for a total cash consideration of €18.8 million.
223
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 2020
Current liabilities
(G) Other current liabilities
in € million
Trade payables
Payables to group companies
Dividend payable
Accrued liabilities
Total current liabilities
31.12.2020
31.12.2019
1.0
9.4
0.0
5.4
15.8
0.5
1.0
24.5
1.4
27.4
Accrued liabilities include two outstanding disputes relating to the delisting in Austria and the demerger to the Netherlands. As at 31
December 2020, the resulting liabilities are estimated at €0.2 million. The other current liabilities are due in less than one year. The fair
value of other current liabilities approximates the book value, due to their short-term character.
(H) Employee benefits
in € million
Wages and salaries
Social security charges
Pension contributions
Other employee costs
Total wages and salaries
(I) General and administrative expenses
in € million
External services/consulting expenses
Cost for principal services Austria
Personnel expenses
Other expenses
Total general and administrative expenses
31.12.2020
31.12.2019
9.5
1.0
0.4
0.3
11.2
1.1
0.0
0.0
0.2
1.3
31.12.2020
31.12.2019
3.7
2.2
11.2
1.5
18.6
5.0
8.3
1.3
0.1
14.7
(J) Net financial result
The 2020 net financial result mainly consists of €0.3 million dividends received on shares held.
(K) Net results from investments
In year 2020 the full year results of the investments amount to a profit of €40.7 million (2019: €147.8 million) and are recognised in the
Company Statement of Profit or Loss.
(L) Net result for the period
In 2020, there are no differences in the result between the Company Financial Statements and the Consolidated Financial Statements.
Proposed appropriation of result
It is proposed that pursuant to Article 27 clause 1 of the articles of association of the Company the result shown in RHI Magnesita N.V.
income statement be appropriated as follows:
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
2020
24.8
0.0
24.8
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For 2020, the Board of Directors will propose a dividend of €1.50 per share for the shareholders of RHI Magnesita N.V. The proposed
dividend is subject to the approval by the Annual General Meeting on 10 June 2021.
Other notes
Number of employees
The average number of employees of RHI Magnesita N.V. during 2020 amounts to 48 (2019: nil).
Off balance sheet commitments
RHI Magnesita N.V. as an ultimate parent company provided a corporate guarantee of €1,086.5 million for the borrowings of the Group.
The Borrowings are as disclosed in Note (25). Additionally €36.0 million of corporate guarantees are issued in favor of customers and
suppliers of the Group.
Other information
Information regarding independent auditor's fees, number of employees of RHI Magnesita Group and the remuneration of the Board of
Directors is included in Note (59), (60) to (62) of the Consolidated Financial Statements.
The Company has opened a branch in Vienna, Austria and started as of February 2020 to employ staff in the branch office and undertake
services.
Material events after the reporting date
There were no material events after the reporting date other than those disclosed in note (63) of the Consolidated Financial Statements.
225
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 2020
Vienna, 7 March 2021
Board of Directors
Executive Directors
Stefan Borgas
Ian Botha
Non-Executive Directors
Herbert Cordt
John Ramsay
Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg
David Schlaff
Celia Baxter
Janet Ashdown
Andrew Hosty
Wolfgang Ruttenstorfer
Karl Sevelda
Fiona Paulus
Employee Representative Directors
Franz Reiter
Michael Schwarz
226
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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.
227
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 T A
Independent auditor’s report
To: the general meeting and the board of directors of RHI Magnesita N.V.
Report on the financial statements 2020
Our opinion
In our opinion:
•
•
the consolidated financial statements of RHI Magnesita N.V. together with its subsidiaries (‘the Group’) give a true and fair view
of the financial position of the Group as at 31 December 2020 and of its result and cash flows for the year then ended in accord-
ance 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;
the company financial statements of RHI Magnesita N.V. (‘the Company’) give a true and fair view of the financial position of the
Company as at 31 December 2020 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 2020 of RHI Magnesita N.V., Arnhem. The financial statements include the
consolidated financial statements of the Group and the company financial statements.
The consolidated financial statements comprise:
•
•
•
the consolidated statement of financial position as at 31 December 2020;
the following statements for 2020: the consolidated statement of profit or loss, the consolidated statements of comprehensive
income, changes in equity and cash flows; and
the notes to the consolidated financial statements, comprising the significant accounting policies and other explanatory infor-
mation.
The company financial statements comprise:
•
•
•
the company balance sheet as at 31 December 2020;
the company statement of profit or loss for the period 1 January to 31 December 2020;
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 re-
sponsibilities 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 Union Regulation on specific requirements regarding statu-
tory 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 re-
spect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Ver-
ordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
228
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A N N U A L R E P O R T 2 0 2 0
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 in-
dustrial 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 impact from the COVID-19 pandemic on the world-wide economy characterised the financial year 2020. The global disruption
impacted many of the Company’s customers. This affected the Company’s financial results and as a consequence our determination of
materiality and our audit approach. Management considered the impact of COVID-19 on the financial statements. Primarily these consid-
erations related to the implementation of a production optimisation plan, possible impairment of goodwill and other intangible assets and
the recoverability of deferred tax assets. We have included these items as key audit matters in our auditor’s report. In addition, as dis-
closed in the Company’s viability statement the impact of COVID-19 has been included in the board’s going concern assessment.
Following the COVID-19 outbreak, auditors are also facing challenges in performing their audits. In response to that, we have considered
the impact of the pandemic on our audit approach and in the execution of our audit. The following highlights were part of the overall
impact assessment we performed as part of our audit:
•
•
We are working from home for most of the time now. Inquiries and meetings with management were done via video conferenc-
ing and the frequency of these inquiries and meetings was increased. Within the team we worked together using virtual audit
rooms. The team was reminded of the importance of staying alert to the quality of evidence and to perform sufficient and ap-
propriate tests over the audit evidence obtained to be satisfied that the company’s records are complete, accurate and authen-
tic. To be able to obtain sufficient and appropriate audit evidence, it was necessary to perform certain audit procedures, the
‘business essentials’, physically at our clients. An example is the attendance of inventory counts.
The impact on the Company’s control environment due to remote working. We assessed that the impact of the outbreak, in-
cluding working in a remote environment, on the effective operation of controls during 2020 was limited.
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 9 of the financial state-
ments 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 impairment assessment
of goodwill and other intangible assets, the recognition and recoverability of deferred tax assets and the accounting for the impact of the
production optimisation plan, we considered these matters as key audit matters as set out in the section ‘Key audit matters’ of this report.
Other areas of focus, that were not considered as key audit matters, were the planned divestment of two asset groups (Ireland and Nor-
way), the provision for employee benefits (primarily in Austria and Germany) and the implementation of changes to the Company’s IT
systems in Brazil and India. In addition, we performed audit procedures on the items marked ‘audited’ in the remuneration report such as
reconciling the disclosed remunerations to underlying supporting documents.
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 experts and specialists in the areas of amongst oth-
ers, valuations, employee benefits, IT and corporate income taxes in our team.
229
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 T A
The outline of our audit approach was as follows:
Materiality
•
Overall materiality: €9.7 million.
Audit scope
• We conducted audit work in 14 locations.
•
•
Site visits were not conducted due to the Covid-19 pandemic and related travel re-
strictions. We have performed alternative procedures such as remote file reviews for
Brazil and Austria and held frequent video conferences with teams in Austria, Brazil, USA,
Mexico, China, Switzerland and India.
Audit coverage: 87% of consolidated revenue, 84% of consolidated total assets and 71%
of consolidated profit before tax.
Key audit matters
•
•
•
Accounting for the production optimisation program
Recognition and recoverability of deferred tax assets
Valuation of goodwill and other intangible assets
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.
Overall group materiality
€9.7 million (2019: €14.0 million).
Basis for determining materiality We used our professional judgement to determine overall materiality. As a basis for our judgement
we used 5% of profit before tax adjusted for exceptional items.
Rationale for benchmark applied We used profit before tax adjusted for exceptional or infrequently occurring items as the primary
benchmark, a generally accepted auditing practice, based on our analysis of the common infor-
mation needs of users of the financial statements. On this basis, we believe that profit before tax
adjusted for exceptional items is an important metric for the financial performance of the Compa-
ny.
Component materiality
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 be-
tween €1.2 million and €7.9 million.
We also take misstatements and/or 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 €0.6 million (2019:
€ 0.7 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
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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, in aggregate, provide sufficient coverage of the financial statements for us 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 op-
erations 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.
The group audit primarily focussed on the significant components:
•
•
•
RHI Magnesita GmbH, Austria
RHI US Ltd, USA; and,
Magnesita Refratários S.A., Brazil.
We subjected three components to audits of their complete financial information, as those components are individually financially signif-
icant to the Group. We further subjected ten components to complete audits of their financial statements as they include significant or
higher risk areas. Additionally, we selected fourteen components for audit procedures to achieve appropriate coverage on financial
statement line items in the consolidated financial statements.
In total, in performing these procedures, we achieved the following coverage on the financial line items:
Revenue
Total assets
Profit before tax
87%
84%
71%
None of the remaining components represented more than 3% of total group revenue or total group assets. For those remaining compo-
nents we performed, among other things, analytical procedures to corroborate our assessment that there were no significant risks of
material misstatements within those components.
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 and 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 held
individual calls with each of the in-scope component audit teams during the year and upon conclusion of their work. During these calls,
we discussed the significant accounting and audit issues identified by the component auditors, their reports, the findings of their proce-
dures and other matters, which could be of relevance for the consolidated financial statements.
The group engagement team has previously visited the component teams and local management on a rotational basis. In the current year
the group audit team no visits could be performed as a result of the COVID-19 travel restrictions. Therefore, we have performed remote
file reviews for Brazil and Austria and held frequent video conferences with teams in Austria, Brazil, USA, Mexico, Switzerland, China and
India. For each of these locations we reviewed selected working papers of the respective component auditors.
The group engagement team performed the audit work for the parent company RHI Magnesita N.V. as well as the Integrated Business
Services office activities in Spain on areas such as fixed assets, accounts payable and accounts receivable, cash and cash equivalents and
aspects of accounts receivable and accounts payable. In addition, the group engagement team performed the audit work over the head-
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quarter related activities in Vienna. This includes group consolidation, inventory valuation, financial statement disclosures, remuneration
disclosures and a number of complex items, such as goodwill impairment testing, share based compensation and compliance of account-
ing positions taken by the Group in accordance with EU IFRS.
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 finan-
cial statements.
Our focus on the risk of fraud and non-compliance with laws and regulations
Our objectives
The objectives of our audit are:
In respect to fraud:
•
•
•
•
•
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 de-
signing and implementing appropriate audit responses; and
to respond appropriately to fraud or suspected fraud identified during the audit.
In respect to non-compliance with laws and regulations:
to identify and assess the risk of material misstatement of the financial statements due to non-compliance with laws and regula-
tions; and
to obtain reasonable assurance that the financial statements, taken as a whole, are free from material misstatement, whether
due to fraud or error when considering the applicable legal and regulatory framework.
The primary responsibility for the prevention and detection of fraud and non-compliance with laws and regulations lies with manage-
ment with the oversight of the board of directors.
Our risk assessment
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. We evaluated the fraud risk factors to consider whether those factors indicated a risk of material
misstatement due to fraud.
In addition, we performed procedures to obtain an understanding of the legal and regulatory frameworks that are applicable for the
Group. We identified provisions of those laws and regulations, generally recognised to have a direct effect on the determination of mate-
rial amounts and disclosures in the financial statements such as the financial reporting framework and tax and labour related laws and
regulations.
As in all of our audits, we addressed the risk of management override of internal controls, including evaluating whether there was evi-
dence of bias by the board of directors that may represent a risk of material misstatement due to fraud. We refer to the key audit matters
for examples of our approach related to areas of higher risk due to accounting estimates where management makes significant judg-
ments.
Our response to the risks identified
We performed the following audit procedures to respond to the assessed risks:
We performed data analysis of high-risk journal entries and evaluated key estimates and judgements for bias 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 proce-
dures also included testing of transactions back to source information.
•
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•
•
•
•
•
•
•
•
•
We inquired with executive directors, other members of management and the board of directors as to whether they have any
knowledge of (suspected) fraud, their views on overall fraud risks within the Group and their perspectives on the Groups mitigat-
ing controls addressing the risk of fraud.
We assessed the matters reported on the Group’s whistleblowing and complaints procedures with the entity and results of
management’s investigation of such matters.
With respect to the risk of fraud in revenue we performed testing over the existence of recorded revenue transactions and,
where applicable addressed the risk for improperly shifting revenues to an earlier or later period.
With respect to the risk of bribery and corruption across various countries, we performed specific inquiries with (local) manage-
ment in order to identify higher risk areas.
We paid specific attention to agent contracts and related commission expenses recorded by the Company and the Company’s
agent certification process.
We incorporated an element 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.
We obtained audit evidence regarding compliance with the provisions of those laws and regulations generally recognised to
have a direct effect on the determination of material amounts and disclosures in the financial statements.
As to the other laws and regulations, we inquired with executive directors and/or the board of directors as to whether the entity
is in compliance with such laws and regulations and inspected correspondence, if any, with relevant licensing and regulatory
authorities.
We considered the outcome of our other audit procedures and evaluated whether any findings or misstatements were indicative of fraud.
If so, we re-evaluated our assessment of fraud risk and its resulting impact on our audit procedures.
We obtained audit evidence regarding compliance with the provisions of those laws and regulations generally recognised to have a di-
rect effect on the determination of material amounts and disclosures in the financial statements.
As to the other laws and regulations, we inquired with the board of directors and/or those in charge with governance as to whether the
entity is in compliance with such laws and regulations and inspected correspondence, if any, with relevant licensing and regulatory au-
thorities.
Identified (indications) of fraud
During our audit, the Company disclosed to us instances of (indications of) fraud, which we followed up. We communicated those (indi-
cations of) fraud to the relevant local audit teams who performed sufficient and appropriate audit procedures supplemented by audit
procedures performed at the group level. These procedures include amongst obtaining an understanding of Company’s assessments
and validating aspects of the investigations performed by the Company. With respect to the investigation into the Mexican misappropria-
tion, we have assessed management’s corrective actions for adequacy and assessed whether internal controls were re-enforced and strict
adherence to the Company’s Code of Conduct reiterated. We consulted our forensic specialists where considered appropriate in our
professional judgement.
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 comment or observation
we made on the results of our procedures should be read in this context.
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Key audit matter
Our audit work and observations
Accounting for the production optimisation program
•
Refer to note 9,33 and 38 of the consolidated financial statements
In 2019 the Company commenced with a plant rationalisation
programme resulting in the plant closure in Hagen, Germany and
partial shut-down of the plant in Trieben, Austria. This programme
continued in 2020 with the facilities in Mainzlar and Kruft (Germa-
ny). Furthermore, during 2020 the rationalisation of the Compa-
ny’s production facility Refratec, Brazil was announced (see note
38).
We enquired management about and inspected the latest strategic
plans and minutes of meetings of the board of directors. We evalu-
ated the appropriateness of the Group’s judgements regarding the
preconditions of IAS 37 with regard to restructuring provisions and
asset impairment in accordance with IAS 36. We validated that the
held for sale accounting guidance of IFRS 5 was appropriately
applied to the planned sale of the plants in Norway and Ireland.
As a result, the Group incurred €74.6 million of expenses in rela-
tion to the production optimisation plan consisting of restructuring
expenses for €46.5 million and €28.1 million of asset write-downs
in 2020. In addition, as disclosed in Note 5, the Group entered into
an agreement to sell its plants in Norway and Ireland, resulting in
an impairment loss of €18.7 million. These amounts are reported as
adjusted items in the Group’s alternative performance measures.
This key audit matter relates to the recognition of the restructuring
cost and the expected cost to be incurred (see note 38 to the fi-
nancial statements) as well as the accuracy of the asset write
downs and impairment charges. When calculating the exit costs,
management has estimated future settlement and exit costs where
these are not yet known.
We consider this to represent a key audit matter reflecting the level
of judgement applied by management in the assumptions used to
determine the extent of provisioning required and the magnitude of
the recorded cost and the timing of recognition.
We tested the mathematical and methodological accuracy of the
provisions and assessed the integrity of key inputs, for example
through recalculating the amounts recorded for severance based
on agreed upon social plans and or other (publicly available) evi-
dence. We reconciled the journal entries to the amounts calculat-
ed and validated.
Regarding the asset impairments, we have assessed the appropri-
ateness of the calculations made by the company and reconciled
the asset write-downs to the general and sub ledger accounts. We
challenged management for the underlying assumptions used in
the impairment calculation, e.g. residual values, and likelihood of
transferring assets to alternative locations based on the nature of
the asset.
We assessed the completeness and accuracy of disclosures within
the financial statements in accordance with IFRSs.
Based on the audit procedures performed, we found the Group’s
estimates and judgment used in the accounting for the plant ra-
tionalisation programme reasonable.
Recognition and recoverability of deferred tax assets
•
Refer to note 7,9,16 and 44 of the consolidated financial statements
The Group recorded deferred tax assets for tax loss carry-forwards
and deductible temporary differences arising on various items for
the amount of €199.2 million. During 2020, additional deferred tax
assets were recognised in the Netherlands, primarily for restructur-
ing losses. Reference is made to note 16 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
234
We have requested and obtained evidence for the existence and
accuracy of the tax loss carry-forwards and assessed the expiration
dates per jurisdiction. Where there was uncertainty around the
acceptance of losses by the tax authorities, we requested and
received a tax opinion from the Group’s tax advisor and an
acknowledgement from the tax authorities of the Company’s wav-
ing of the Advanced Pricing Agreement in the Netherlands per
December 2020.
Together with our local tax specialists, we have assessed per tax
jurisdiction the level of potential offsetting of the deferred tax
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effect on income tax, taking into account the available carry-
forward period. 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 judge-
ment involved, we considered the recoverability of deferred tax
assets to be a key audit matter for our audit.
Valuation of goodwill and other intangible assets
•
Refer to note 7, 9, 10, 11, and 38 of the consolidated financial state-
ments
The Group capitalised goodwill for €110.8 million, mainly related
to the acquisition of the Magnesita Group in 2017. In addition, the
company capitalised intangible assets for €265.7 million. 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 in-
definite useful lives or show signs 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 impair-
ment.
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.
assets with the deferred tax liabilities.
Furthermore, we have critically assessed the underlying assump-
tions of the forecasted taxable income through agreeing the fore-
casted 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 re-
maining carry-forward period together with any applicable re-
strictions in recovery for each individual jurisdiction.
We assessed and corroborated the adequacy and appropriateness
of the disclosure made in the consolidated financial statements.
Based on the audit procedures performed, we found the Group’s
estimates and judgment used in the
recoverability assessment of the deferred tax assets to be support-
ed by the available evidence.
As part of our audit procedures, we have evaluated and challenged
the composition of management’s future cash flow forecast and
process applied to identify and define cash-generating units, cal-
culate 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 management
With the support of our valuation specialists, we have evaluated
management’s assumptions such as revenue and margin, the dis-
count 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 tech-
niques, 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
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key assumptions and sensitivities underlying the tests.
Based on the audit procedures performed, we found the assump-
tions to be reasonable and supported by the available evidence.
Report on the other information included in the annual report
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of:
•
•
•
•
•
the section strategic report on pages 0 to 75 of the annual report;
the section governance on pages 76 to 126 of the annual report, which includes the remuneration report on pages 117 to 126
of the annual report;
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 and the sections 2:135b and 2:145 subsection 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 and section 2:135b subsection 7 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, except for the audit performed on information in the remuneration report that marks ‘audited’.
Management is responsible for the preparation of the other information, including the directors’ report and the other information in ac-
cordance with Part 9 of Book 2 of the Dutch Civil Code and the remuneration report in accordance with the sections 2:135b and 2:145
subsection 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 board of directors 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 four 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 statu-
tory audit relates, are disclosed in note 59 to the financial statements.
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Responsibilities for the financial statements and the audit
Responsibilities of management and the board of directors for the financial statements
Management is responsible for:
•
•
the preparation and fair presentation of the financial statements in accordance with EU-IFRS and with Part 9 of Book 2 of the
Dutch Civil Code; and
such internal control as management determines 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, management is responsible for assessing the Company’s ability to continue as a
going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the
going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so. Management 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 evi-
dence to provide a basis for our opinion. 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 and to issue an auditor’s report that includes our opinion. Rea-
sonable assurance is a high but not absolute level of assurance, which makes it possible that we may not detect all material misstate-
ments. 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, 7 March 2021
PricewaterhouseCoopers Accountants N.V.
Original has been signed by E.M.W.H. van der Vleuten RA MSc
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Appendix to our auditor’s report on the financial statements 2020 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 fi-
nancial 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 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 re-
sulting 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 disclo-
sures made by management.
Concluding on the appropriateness of management’s 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 signifi-
cant 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 re-
port 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.
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 ac-
counting 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 actions taken to eliminate threats or safeguards applied.
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.
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Alternative performance
measures (APMs)
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 of 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 contract assets and
liabilities. Working capital intensity is measured as a percentage of the last
three months of 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 borrowings and leases.
Return on invested capital
ROIC is calculated as adjusted net operating profit after tax (NOPAT),
divided by total invested capital for the year. Invested capital is a sum of
non-current assets including deferred tax assets, trade and other current
receivables, inventories and income tax receivables less other non-
current financial assets, deferred tax liabilities, trade and other current
liabilities, income tax liabilities and current provisions.. Adjusted net
operating profit after tax (NOPAT) is calculated as sum of Adjusted EBITA,
Amortisation expense and result from joint ventures less income taxes
paid.
Liquidity
Liquidity is measured by adding up cash and cash equivalents as well as
an unutilised credit facility amounting to €600.0 million.
APMs used by the Group are reviewed
below to provide a definition 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 Full Year Results,
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 results at constant currency
FY 2020 figures presented at constant currency represent FY 2019
reported figures translated at average 2020 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.
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 (Adjusted 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 certain foreign exchange
effects, amortisation, one-off restructuring expenses and impairments,
other non-cash financial income and expenses, that are not directly
related to operational performance. Effective tax rate for adjusted EPS is
calculated by applying the effective tax rate normalised for restructuring
expenses and impairments.
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OTHER INFORMATION R H I M A G N E S I TA
ANNu AL REPORT 2020
Glossary
AC
AGM
AI
APM
APO
Audit Committee
Annual General Meeting
artificial intelligence
alternative performance measures
Automated Process Optimisation
ANKRAL LC RHI Magnesita low-carbon product series, which is
designed to support customers as they reduce emissions in
their supply chain
ANKRAL X RHI Magnesita product series, which combines clinker melt
BOF
BST
CAGR
Capex
CCU
CDC
CDP
CEO
CFO
CIS
CO2
CSC
DBM
resistance with flexibility
basic oxygen furnace
Broadband Spectral Thermometer
compound annual growth rate
capital expenditure
carbon capture and usage
Centers for Disease Control and Prevention
global disclosure system for investors, companies, cities,
states and regions to manage their environmental impacts
Chief Executive Officer
Chief Financial Officer
commonwealth of independent states
carbon dioxide
Corporate Sustainability Committee
dead burned magnesia
DCGC
Dutch Corporate Governance Code 2016
EAF
EBIT
electric arc furnace
earnings before interest and taxes
EBITA
earnings before interest, taxes and amortisation
EBITDA
earnings before interest, taxes, depreciation and
amortisation
ECL
expected credit losses
ECRA
European Cement Research Association
EEC
ED
EMT
EPS
EU
environment, energy and chemicals
Executive Director
Executive Management Team
earnings per share
European union
GRI
IAS
IFRS
KPI
LME
LTIF
LTIP
MAR
M&A
MES
NFM
NGO
Global Reporting Initiative
International Accounting Standards
International Financial Reporting Standards
key performance indicator
London Metals Exchange
lost time injury frequency (per 200,000 working hours)
long-term incentive plan
Market Abuse Regulations
mergers and acquisitions
manufacturing execution systems
non-ferrous metals
non-governmental organisation
NMEA
near Middle East and Africa
NOx
NPS
PV
QCK
ROIC
SDGs
nitrogen oxides
Net Promoter Score
photovoltaic
Quick Check
return on invested capital
united Nations Sustainable Development Goals
SG&A
selling, general and administrative expenses
SKU
SOx
SRM
STEM
TAC
TCFD
TRIF
TSR
stock-keeping unit
sulphur oxides
secondary raw materials
science, technology, engineering and mathematics
Technical Advisory Committee
Task Force on Climate-related Financial Disclosures
total recordable injury frequency
total shareholder return
UKCGC
uK Corporate Governance Code 2018
VR
virtual reality
WHO
World Health Organisation
239
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.
Investor Relations department
Kranichberggasse 6,
1120 Vienna,
Austria
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.
The telephone number of the Issuer is +43 50 2136200.
The Company shares, represented by depository interests, of RHI
Magnesita N.V, are listed on the Premium Segment of the Official List on
the Main Market of the London Stock Exchange, and RHI Magnesita N.V
holds a secondary listing on the Vienna Stock Exchange (Wiener Börse).
Ticker symbol: RHIM
ISIN Code:NL0012650360
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 (https://ir.rhimagnesita.com/ ) contains details on the
current and historical share price, analyst presentations, shareholder
meetings as well as a “Shareholders Information” section. Annual and
Interim Reports can also be downloaded from this section.
You can also subscribe to an “Investors mail alert service” to automatically
receive an email when significant announcements are made.
Shareholding information
T: +43 699 1870 6493
Email: investor.relations@rhimagnesita.com
Corporate brokers
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
united Kingdom
T: +44 20 7418 8900
www.peelhunt.com
Barclays Bank PLC
5 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
Please contact our Registrar, Computershare for all administrative
enquiries about your shareholding, such as dividend payments, or a
change of address:
T: +31 88 792 00 20
www.pwc.nl
Computershare Investor Services PLC
The Pavilions,
Bridgwater Road
Bristol BS99 6ZZ
united Kingdom
www.computershare.com/uk
T: +44 (0) 370 702 0003
Financial calendar
Q1 Trading update
Annual General Meeting
Half Year Results
5 May 2021
10 June 2021
28 July 2021
240
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