RHI is a globally operating supplier of high-grade refractory products, systems and services, which are indispensable for industrial high-temperature processes exceeding 1,200 °C.
With roughly 8,000 employees, 32 production facilities and more than 70 sales offices, RHI serves more than 10,000 customers in the steel, cement, nonferrous metals, glass, energy and chemical industries in nearly all countries of the world. RHI produces more than 1.5 million tons of refractory products per year and supplies customized product and system solutions.
Refractory linings made by RHI ensure that a wide range of aggregates including steel ladles, cement rotary kilns, copper converters or glass furnaces withstand extreme thermal, mechanical and chemical stress.
The production of refractories is resource-intensive. The naturally occurring raw materials magnesite and dolomite are used as basic materials. Roughly 70% of the global deposits are located in three countries: China, North Korea and Russia. RHI covers roughly 80% of its requirements from eight Group-owned raw material sites and is therefore largely independent of raw material markets.
The RHI Group attaches great importance to research. The innovative power, which has made RHI the global technology leader, is based on decades of research and development activities, which have given RHI a leading edge. The company invests more than € 20 million annually in this strategically important segment.
Demand for refractory products is primarily driven by growing prosperity, the level of industrial production and infrastructure projects. Although refractory products account for less than 2% of the production costs of customer industries, they are crucial to the quality of the products manufactured.
In the year 2015, RHI generated revenue amounting to € 1,752.5 million. The charts below show revenue by segment and region.
Strategy & financial targets
The RHI Group has pursued a clearly defined strategy for several years, which is based on increased market presence in the growth markets, differentiation through technology and innovation, secured self-sufficiency of magnesia raw materials and an optimized cost structure.
In the year 2015, the strategy was subjected to a structured update due to the market development and the resulting challenges. In the current economic environment, the goal is to increase revenue to roughly € 2.0 billion to € 2.2 billion based on organic, innovation-driven growth by the year 2020. Additional growth will be secured through acquisitions. In the medium term, the targets are an EBIT margin of more than 10% and a return on capital employed of more than 12%. All business units should at least earn their cost of capital and generate positive free cash flow.
In doing so, RHI is confronted with the following central challenges:
- Reduced global growth with significant regional differences
- Increased competitive pressure due to a strong focus of customers on their operating costs
- Increasingly volatile demand by customers
- Low price level for raw materials and basic materials
- Substantial excess capacities in global refractories production, above all in China
In order to face up to these challenges, the following important strategic cornerstones were defined on the basis of the RHI Group’s strengths:
>> Selective business expansion with a focus on growth regions and attractive market niches
In accordance with the forecasts of the International Monetary Fund, economic growth will amount to roughly 2% in the advanced economies in the coming years and range between 4% and 5% in the emerging markets. However, there are considerable regional differences. The most dynamic growth in the advanced economies is predicted for the US, at roughly 2.5%, and in the emerging markets for India, at roughly 7.5%. These two countries were already the two largest individual markets for RHI in the year 2015, with revenue totaling roughly € 186 million in India and roughly € 165 million in the US. Based on this strong presence, RHI should benefit disproportionately from the development in these regions and gain further market share. Moreover, non-basic mixes and a further expansion of the flow control business are considered strategically attractive market segments. The chart below shows the revenue development of the RHI group in India as well as the crude steel consumption in kilogram per capita in selected markets.
>> Differentiation through technology leadership and top-class service in strategically important segments
The RHI Group continuously aligns its offer to specific customer requirements. This means differentiation based on technology leadership and service in strategically important segments, and a product portfolio at competitive costs in the remaining segments. A central issue in differentiation is the development towards a complete system supplier based on research and innovation, partnerships and selective acquisitions. The focus lies on a package offer “from ladle to the mold” in the steel industry, extended automation options using machines, manipulators and sensors and even includes a connection of customer processes with RHI systems in line with the Industry 4.0 approach. For price-sensitive customers, the offer will be extended based on the use of lower priced raw materials and a higher degree of product and service standardization. The picture below displays the ladle to mold area.
>> Alignment of the operating set-up to structural market changes in the refractories industry and in the customer industries
The current market environment is characterized by structural excess capacities in many customer industries and an aggressive export strategy of Chinese steel producers as a result of a weak domestic market. This leads to high pressure on the market prices, and consequently on the profitability of manufacturers and subsequently also on suppliers. Therefore it is necessary for the RHI Group to keep stringent control over costs along the entire value chain. Here, the focus lies on aligning production capacity to local demand. Thus it was decided within the scope of the plant network strategy to concentrate the activities of the two Scottish plants for isostatically pressed products at the Bonnybridge plant. At present, RHI is working on further optimizing the plant structure, which could lead to an adjustment of production capacities in Europe in the current financial year. In addition, several cost measures in the sales and general administrative departments have been defined. The cart below shows revenue generation and installed production capacities of RHI group per region.
>> Raw material integration completed – strategic focus on optimal balance between in-house production and external raw material purchases
Raw material accounts for roughly 60% of the total production costs in the RHI Group. Access to and availability of high-quality raw materials are decisive for refractory products because they have a significant influence on their performance characteristics. Roughly 70% of the global magnesite deposits are located in China, North Korea and Russia. Therefore, RHI regards access to its own raw materials as a strategic advantage and has invested in increasing the level of self-supply with magnesia raw materials in recent years. Today, RHI considers the target of strategic raw material integration accomplished. The focus is now shifting towards optimizing existing deposits and increasing operating flexibility. In this context, the priority is balancing the strategic use of internal magnesia supply and external purchasing and selling options. The chart below shows the price development of fused magnesia and dead-burned magnesia in US-Dollar per ton.
Due to the development in the customer industries, the competitive environment and global excess capacities in refractory production, RHI expects a consolidation within the refractories industry in the medium to long term. Especially in China, the world’s largest refractories market, the industry is highly fragmented with more than 2,000 manufacturers. While China’s share in the global steel production amounts to roughly 50%, the largest local refractories producer reported revenue of roughly € 500 million in the year 2014. In accordance with the directive of the Chinese government, local producers are sounding out their options for mergers. This directive provides for a consolidation to roughly five companies of international size in the coming years and will also put pressure on refractory producers outside of China to consolidate. RHI wants to play an active role in this context.