Ceramic Industry

Despite Decline in Revenues/Earnings, RHI Posts Profit in First Quarter (posted 5/8/09)

May 8, 2009

The global recession had clearly negative effects on RHI’s business in the first quarter of 2009, as the dramatic decline in world steel output led to a sharp drop in demand in the Steel Division. In contrast, the Industrial Division, which benefited from a high order backlog in the first months of 2009, presented itself in a robust state. The low demand also had a negative impact on the Raw Materials/Production Division.

At €315.8 million (approximately $420.1 million), revenues fell 19.4% compared to the comparative period in 2008. The dramatic drop in demand in the Steel Division caused a lower coverage of fixed costs due to reduced capacity utilization. Consequently, EBITDA fell by 54.6% to €26.9 million (~ $35.8 million) over the comparative period, despite lower energy, transportation and raw material costs, as well as short-term countermeasures. EBIT deteriorated by 69.9% to €14.1 million (~ $18.8 million). The EBIT margin of 4.5% was below the prior-year figure of 12.0%. Profit was positive at €4.7 million (~ $6.3 million), compared with €34.2 million (~ $45.5 million) in the same period of the previous year.

The worldwide steel output recorded a 22.8% decline in the reporting period compared to the previous year, with a particularly massive slump in Western Europe (-43.0%) and North America (-53.9%). RHI’s Steel Division was unable to defy this negative market environment and suffered a 28.9% decline in revenues to €165.3 million (~ $220 million). New products, contracts with new customers and stepped-up sales activities enabled RHI to gain market share in all important regions.

RHI’s Industrial Division recorded a substantially more stable development than the Steel Division in the first quarter of 2009. At €145.9 million (~ $194.1 million), revenues were largely retained at the level of the previous year (down 2.5%). However, as customers were unable to finance their projects, an increasing number of projects was postponed or cancelled in the reporting period.

The development of the Raw Materials/Production Divisions was characterized by low capacity utilization and the resulting fixed cost deficit in the period under review. The availability of magnesitic raw materials was sufficient due to the economic environment, and the pricing development was largely stable.

The global recession will continue to deepen in the year 2009. Persisting weak export markets and low investments in RHI’s customer industries cause declines in sales volume, which are dramatic in some cases. This also has direct effects on the refractories industry. Due to the plummeting steel cycle, a leveling out is the best-case scenario for the Steel Division in the 2009 financial year. In the Industrial Division, liquidity shortages on the customer side increasingly lead to postponements of investment projects and an unsatisfactory order situation.

As a result of the new profit center organization, RHI is able to respond to changes in demand and the market quickly and flexibly in this difficult market environment and to use sales opportunities more efficiently. Sales activities, which have been stepped up since the beginning of the year, will enable RHI to gain further market share worldwide.

Due to the generally difficult economic climate and the development in the first quarter, RHI still expects a considerable decline in revenues and earnings in the financial year 2009, based on the current framework conditions. However, the decline in prices and volume is partially offset by lower raw material and energy costs.

RHI immediately reacted to the deepening recession by worldwide capacity adjustments so that cost savings of €80 million (~ $106 million) are to be expected through the implementation of structural optimization measures. Approximately 50% of this amount is to become effective in the current financial year. In addition, a program to reduce working capital has been initiated in order to further strengthen liquidity.

Additional details are available at www.rhi-ag.com.