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RHI Anticipates Difficult Second Half (posted 8/5/09)

August 5, 2009
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As a result of the global recession, RHI’s incoming orders and revenue development declined in all divisions in the first half.

The global economic situation had significant negative effects on the customers of the RHI Group, where demand plummeted in nearly all industries, causing high-double-digit production cuts compared with the previous year. As a result of the market situation, RHI’s incoming orders and revenue development declined in all divisions in the first half of 2009.

RHI reacted to the changed framework conditions with structural and capacity adjustments, a group-wide cost saving program, and a program to lower working capital. These programs are being implemented according to plan and enabled RHI to generate a positive operating result (EBIT) in the first half of 2009, despite the contraction of the market. “RHI has implemented the change from a boom scenario to a recession scenario within a few weeks, and is prepared for the currently very difficult market and financial situation,” said Thomas Fahnemann, chairman of the management board.

In the first half of 2009, RHI’s revenues fell by 25.1% to €604.5 million (approximately $865.0 million), compared with the record year 2008. The Group’s profit amounted to €2.3 million (~ $3.3 million) in the first six months of 2009, compared to €70.4 million (~ $100.7 million) in the previous year’s first half.

As a result of the international recession, world steel production fell 21.1% period-on-period in the first six months of 2009, with an especially dramatic drop in the European Union (-43.2%) and North America (-48.5%). It was only toward the middle of the year that the steel market started to stabilize at a low level. In this negative environment, RHI gained market share in Europe and America, and recorded double-digit growth in revenues and incoming orders in Asia. Overall, however, the difficult market situation led to a decline in revenues to €317.1 million (~ $453.7 million) in the Steel Division, down from €486.6 million (~ $696.3 million) in the 2008 first half.

While the Industrial Division benefited from existing orders in the first quarter of 2009, incoming orders also declined in this division in the second quarter. The main causes included the slump in the construction industry and a lack of project financing on the customer side, which increasingly led to the postponement or cancellation of investment projects. Accordingly, revenues of the Industrial Division declined in the first half of 2009 to €275.2 million (~ $393.8 million) from €299.9 million (~ $429.1 million) in last year’s first half.

As in the first quarter, the development in the Raw Materials/Production Division was characterized by low capacity utilization and the related fixed cost deficit in the first half of 2009. Raw material prices recorded a largely stable development until mid-year.

Following a sharp drop in orders in the first half of 2009, first signs indicated a bottoming out of this development at a low level at mid-year. However, a first upward trend in the refractories industry cannot be expected before the beginning of the fourth quarter. RHI anticipates that 2009 will therefore be a difficult year. However, based on massive counteractive and restructuring measures, the Group expects to gain market share and to emerge from the crisis stronger than its competitors.

RHI will continue to implement its programs to cut costs and reduce working capital, and the Group expects that cost effects will increasingly have an effect on the result in the second half of the year. In addition, marketing and sales activities have been up in all divisions.

Visit www.rhi-ag.com for additional details.

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