Revenue Increases by Nearly 5% for RHI in 2015 Third Quarter
In the first nine months of the year 2015, the RHI Group’s revenue was up 4.6% compared to the same period in 2014 and amounted to approximately $ 1.4 billion. Revenue in the Steel Division rose by 3.3%, mainly due to positive currency translation effects and a strong business development in India and South America. The Industrial Division’s increase in revenue by 9.8%, compared with the first nine months of 2014, is partly due to higher project deliveries in the glass and environment, energy, and chemicals business units.
Operating earnings before interest and tax (EBIT) amounted to approximately $98.4 million in the first nine months of the current year. Compared with the operating EBIT of $107.7 million in the same period of 2014, this corresponds to a decline by 8.7%. While the Industrial Division benefited from a better utilization of fixed costs resulting from the increment in revenue, an improved margin situation of the glass business unit and several major repairs in the nonferrous metals business unit, the operating EBIT in the Steel Division decreased due to a weaker margin development in Europe and in the Middle East, as well as negative product mix effects related to a volume decline in the electric steel segment. The Raw Materials Division’s lower contribution to earnings is attributable to weaker capacity utilization at the raw material plants related to the declining volumes in the electric steel sector. The operating EBIT margin decreased from 8.0% in the first nine months of the year 2014 to 7.0% in the current financial year.
In the third quarter of 2015, revenue declined by 14.1%, compared with the second quarter of 2015, and amounted to approximately $442 million. The decline is attributable to seasonally weaker business activities in Europe during the summer months, a weak business development in the electric steel segment in the Middle East in the Steel Division and to lower project deliveries in the environment, energy, chemicals, and glass business units.
Operating EBIT amounted to approximately $24.5 million in the past quarter and declined primarily due to negative exchange rate effects related to the valuation of balance sheet items in the amount of approximately $11.1 million, which predominantly resulted from the devaluation of the Brazilian real and are recorded under other expenses. The market environment of the Steel Division is characterized by an aggressive export strategy of Chinese producers resulting from weak domestic demand and high excess capacities. Accordingly, this led to high pressure on steel prices and thus on manufacturers’ profitability and subsequently also on suppliers. Due to the lower fixed cost structure compared with integrated steel plants, the Chinese exports have a negative impact especially on the utilization rates in the electric steel segment. This caused a negative effect on the development of sales volume of the Steel Division in this important customer segment. In the financial year 2014, the Steel Division generated revenue of approximately $296.1 million in the electric arc furnace segment, compared with revenue of approximately $118.4 million in the basic oxygen converter segment. Important products for the electric steel industry are hearth construction and gunning mixes. In this segment, RHI has its own raw materials, which are mined at the Austrian sites in Breitenau and Hochfilzen. Consequently, the decline in sales volume additionally resulted in a weak capacity utilization of the raw material plants.
Despite a significant decrease in trade payables in the third quarter of 2015, the positive trend of working capital reduction continued. Net cash flow from operating activities rose to $98.8 million in the first nine months of 2015, after it had amounted to $43.1 million in the comparative 2014 period. Net debt declined from $502.7 million at the end of 2014 to $479.8 million at September 30, 2015, due to the positive cash flow development.
RHI expects an increase in revenue by more than 3% for this year. Due to negative exchange rate effects related to the valuation of balance sheet items of $11.1 million in the third quarter of 2015, reaching an operating EBIT margin of roughly 8% is becoming increasingly challenging.
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