## Leading the refractory industry in sustainability and technology Annual Report 2021 # We are RHI Magnesita | | | | | --- | --- | --- | | Contents Strategic report 01 Investment case 02 Highlights 03 OurCulture 04 Refractorycustomersandend markets 05 Globalfootprint with local for local strategy 08 Investingincleanertechnologies 10 BusinessModel 12 Chairman’sstatement 13 CEOreview 14 Ourstrategic framework 16 Strategy inaction 24 KeyPerformance Indicators 26 OperationalReview 32 FinancialReview 38 Effective risk management 40 Ourinternalcontrolsystem 42 ViabilityStatement 44 PrincipalRisks 50 Stakeholderengagement 56 Sustainability governance 59 Progressagainst sustainability targets 60 Climate andenvironment 64 OurPeople andCommunities 66 EU Taxonomy Regulation Governance 68 Chairman’sintroductionto corporate governance 70 Corporate governance statement 88 BoardofDirectors 86 Executive Management Team 88 NominationCommittee report 91 Corporate Sustainability Committee report 92 Audit & Compliance Committee report 96 RemunerationCommitteereport 100 Directors’RemunerationPolicy 111 AnnualReport on Remuneration | | We offer refractory products, customised services and innovative solutions that help shape tomorrow’s world. Our advanced products are essential for our customers in the steel, cement, metals and glass industries. Our purpose Our purpose is to master heat, enabling global industries to build sustainable modern life. Our values At RHI Magnesita, we believe in an ethical workplace which means performing our roles with integrity, honesty, reliability and in respectful collaboration with each other. Extending these ethical behaviours to interactions with all business partners is vital for the long term sustainable success of RHI Magnesita. | Financial statements 122 ConsolidatedStatement of FinancialPosition 123 ConsolidatedStatement ofProfit orLoss 124 ConsolidatedStatement of Comprehensive Income 125 ConsolidatedStatement of Cash Flows 126 ConsolidatedStatement of ChangesinEquity 128 Notesto the Consolidated FinancialStatements2021 189 CompanyFinancialStatements ofRHI Magnesita N.V. 190 Notesto the Company Financial Statements2021 Other information 200 Independent Auditor’sreport 209 Alternative performance measures(“APMs”) 210 Glossary 211 Shareholderinformation | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | # Investment case | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Global market share c.15% | | 01 Leadership in the refractory industry | | | Magnesite raw material from own sources c.70% | | 02 Strong competitive position with vertical integration | | | | | | | | | • Marketleaderinrefractoryproductsandheat managementsolutionsforindustrial applications involvingtemperaturesabove 1,200°C.Significantscalebenefitsfrom havingthelargestglobalfootprint, closeproximitytocustomersand“local for local” strategy • Marketshareofc.15%globally(30%excluding China and East Asia) in a c.€20 billion industry. ClearmarketleaderinNorthandSouth America,EuropeandtheMiddleEast • c.70%ofrevenuederivedfromtheSteel Divisionandc.30%fromIndustrial.RHI Magnesita’scustomersserveendmarketsinthe constructionandinfrastructure,automotive, machineryandheavyequipmentindustries | | | | | • Verticalintegrationwithlow-costmagnesite anddolomiterawmaterialassetsproviding securityofsupplyandcontributing3.2 percentage points of EBITA margin in 2021 • Leadershipininnovationanddigitalisationof refractoryproductsandservices. Annual R&DandTechnicalMarketingspend of €63 million,newproductsrepresented 16% of revenuesin2021 • Innovatingto supportsustainable development,leadingthe industry inlow-CO2 refractorytechnologies | | | | | | | Adjusted EBITA margin 11.0% | | 03 Margin resilience and significant growth opportunity | | | Capital expenditure €252m | | 04 Investment driven value creation | | | | | | | | | • Low-costoperationsandessentialnatureof productsunderpindoubledigitEBITAmargin performancethroughthecycle | | | | | • Maintainedsignificantorganicinvestment throughout2020and2021, withcapital expenditureof€252millionin2021 | | | | | | | | | • Costsavinginitiativestodeliver€110million EBITAcontributionby2023,furtherimproving marginsthroughplantconsolidation, specialisation, modernisation andlower relativeSG&A | | | | | • Disciplinedfocusonreturnsoncapital • High-returningprojectsaredueto complete andrampupfrom2022,deliveringmaterial cashflow benefits | | | | | | | | | • GrowthopportunityinFlowControl,new geographicmarketsofChina,IndiaandTurkey, andthroughexpansionofthebusinessmodel intoservices,digitalproductsandfullheat management solutions | | | | | • Balancedanddynamiccapital allocation throughinvestmentinorganic growth, acquisitions,sustainabilityandshareholder returns | | | | | | | Use of secondary raw material, 2021 6.8% | | 05 Sustainability leadership • Proprietarytechnologyforincreasinguseof secondaryrawmaterialwithequallygood refractoryperformance.Reduceswasteand eliminates CO2 emissions from use of new raw materialinshortterm | | | | | | | | | | | • Longerterminvestmentindevelopingnew technologysolutionstocapture and store or utiliseCO2 emittedintherefractory production process • Strongmarketshareinessentialrefractory productsthatareenablersforthe decarbonisationofsteelproductionthrough increaseduseofelectricarcfurnaces R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 0 1 # Highlights #### Financial highlights | | | | | --- | --- | --- | | RHI Magnesita has successfully navigated another challenging year in 2021 whilst continuing to make further structural improvements to our business to strengthen our leadership position in the global refractory industry. Herbert Cordt Chairman | | Revenue Availableliquidity €2.6bn €1.2bn 2020: €2.3bn 31 December2020: €1.2bn Adjusted EBITA Adjusted earnings per share €280m €4.52 2020: €260m 2020: €3.28 AdjustedEBITAmargin Dividendpershare 11.0% €1.50 2020: 11.5% 2020: €1.50 | #### Strategic highlights Capital expenditure Strategic initiatives EBITA(cumulative) €252m €84m2020: €157m 2020: €35m ROIC Shareholder returns 9.6% €167m2020: 11.5% 2020: €52m #### Sustainability highlights Recycling rate Reduced CO2emissions intensity 6.8%1.82t CO 2/t 2020: 5.0% 2020: 1.96 t CO2 /t LTIFR (per 200,000 hours) CDPrating 0.1 8 B 2020: 0.13 2020: B Dalian, China 0 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | # Our culture #### Our corporate culture guides our strategy and day-to-day decision making. | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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 pragmatic Our open mindset and We act pragmatically to transparent way of working is enable fast and simple flanked by a diverse, respectful collaboration across functions and friendly business and regions to serve environment, where we care our customers best. about our customers and colleagues. The swi the supply chain challenges we encountered in 2021 demonstrated our customer focus, pragmatism and reliability as a business partner. Throughout the year, we prioritised keeping our customers supplied with refractories to avoid interruption to their operations during a period of high demand, using alternative sources of supply and new logistics solutions where necessary. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 0 3 # Refractory customers and end markets 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. | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Customer industries Steel Cement | | | | | | Glass & EEC | | | | Non-ferrous metals | | | | | Refractories are specialist materials used in industrial processes which can withstand temperatures of up to 2,000 degrees. They are consumed during use at varying rates, for example up to 15 kg of refractories are required per tonne of steel production. | | ~10 to 15 kg 1,7600C | | Refractory demand for 1 tonne ~1 kg ~4 kg 1,5000C 1,6500C | | | | Copper ~3 kg | | | | Aluminium ~6 kg | | 1,3500C 1,2500C | | | | | | | --- | --- | --- | --- | --- | | Refractories are classified as operating expenses for the steel industry where replacement cycles are between 20 minutes and two months. Other industries have longer replacement cycles, for example refractories in cement kilns are replaced annually, whereas in the glass industry refractory linings within furnaces are replaced up to every 10 years. | | Lifetime 20 minutes to 2 months Annually Glass Up to 10 years | | | --- | | EEC 5 to 10 years EEC c. 1.5% | | | % of customers’ costs c. 3% c. 0.5% cG. l1a%ss | #### 1-10 years (non-ferrous) c. 0.2% | | | | | --- | --- | --- | | Market shares RHI Magnesita serves thousands of industrial sites worldwide. | | % Market share by customer market | c.15% c.35% c.5% c.25% 0 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | #### How our customer industries relate to end-user markets. Demand for refractories is driven in the first instance by demand from industries requiring advanced heat-resistant materials for their production processes, being predominantly the steel, cement/lime, non-ferrous metals, glass, energy and chemicals industries. Over the long term, demand for refractories is linked to production volumes in these industries, which in turn are determined by the end markets for those materials. The most important end markets for the refractory industry are construction, automotive and transport, machinery and equipment, electronics and consumer goods and energy, oil and gas and petrochemicals. | | | | | --- | --- | --- | | Customer industries | | Cement Steel Glass & EEC Metals | % of 2021 revenue. 13% 71% 10% 6% | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | End markets outlook | | 45% 17% 10% 15% Other 5% | | | | | | | | | | | | | | | Whilst previously high growth rates in construction and automotives during the initial recovery from the COVID-19 pandemic are not forecast to continue in 2022- 23, strong growth in electrification and decarbonisation are expected to drive volumes in non- ferrous metals. | | | | Construction Automotive and transport 6.0% 12.1% | | | | | | --- | --- | --- | --- | | | 4.8% 4.5% | | 8.6% | 5.1% | | | Machinery and equipment 7.4% 3.9% 3.7% | | Electronics and consumer goods 5.7% 4.1% 3.4% | | Energy and petrochemicals 3.7% 2.3% 1.7% | | | | | | | | | | | 2021 2022F2023F2021 2022F2023F2021 2022F2023F2021 2022F2023F2021 | | | | | | | | 2022F2023F | | | #### Trends | | | | | | | --- | --- | --- | --- | --- | | We are agile and proactive in pursuing opportunities and managing risks posed by the rapidly changing global environment. | | Continued growth in Asia ex-China | | Green steel transition Connectivity Regionalisation Commoditisation | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 0 5 # Global footprint with local for local strategy | | | | | --- | --- | --- | | Our global network of raw material sites, refractory plants, sales offices and R&D centres enables us to be a trusted partner for our customers. RHI Magnesita can supply a full range of refractory products anywhere in the world. | | Our global networkhas been optimisedby the Production Optimisation Plan,progressing our ‘local for local’ strategy. We aim to reduce movements ofrawmaterials andfinished goods,lowering costs andimproving reliability andsecurity ofsupply for our customers. | #### Key raw material transport routes Steel Division Revenue split by geography North America 28% South America 15% Europe/CIS/Turkey 26% China and East Asia 11% India, West Asia and Africa 20% Industrial Division Revenue split by segment | | | | | | --- | --- | --- | --- | | | Cement/Lime 44% Industrial business 56% | | 2 | 1 Headquarters Technology hubs Raw materials production Finished refractory products production Raw materials and finished refractory products production Key raw material export route 0 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | 3 4 1 Brumado, Brazil, our Americas magnesite hub The Group’s largest magnesite raw material asset with over 100 years of remaining mine life and first quartile cost position, serving production facilities across the Americas. 2 York, United States, our Americas dolomite hub Provides low cost, high-quality dolomite into North and South America. 3 Eskisehir, Turkey, supplies low cost Magnesite raw material to European production plants Our local for local strategy is enhanced through the acquisition of SÖRMAŞ, agreed in 2021 (completion expected in H1 2022). 4 Externally sourced raw material partnerships Externally sourced raw material from China provides Europe with low-cost magnesite and alumina based raw materials, including electro-fused material. Note:Shippingroutesshownareillustrative. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 0 7 # Investing in cleaner technologies #### The future of steelmaking | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Traditional steelmaking process Globally,c.70%ofsteelproductioniscarriedoutusingablastfurnace (“BF”)to reduceironore,combinedwithaBasicOxygenFurnace(“BOF”) forconversionofpigironintosteel.Thesteelindustryaccountsforaround 8% of global CO2 emissionsandisclassifiedasa “hard-to-abate”industry becauseofthehighcapitalcostandtechnologicalchallengesinvolved. Reduction of iron ore in a blast furnace requires the burning of large quantitiesofcoke(700kg)per tonne of steel produced). BOF emit a further0.17 tonnes of CO per tonne of steel produced, as oxygen is 2 injectedtoremovecarbondissolvedinthesteel. | | Existing process Iron ore Coke Natural gas Limestone Oxygen | | CO2 H2O | | Oxygen CO2 | Electric arc furnaces | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | The first step to reduce CO2 emissionsinsteelmakingistheadoptionof electric arcfurnaces(“EAF”),whichcanbepoweredusingelectricity sourcedpartiallyorwhollyfrom renewableenergy generation. | | | | BF (Blast furnace) | | | | BOF 2,1000C 1,6000C (Basic Oxygen Furnace) | | | | | | | EAFusegloballyex-Chinahasgrownsignificantlyoverthelast20years, from 37 % of steel production in 2001 to 47% in 2021. EAF steelmaking requires a source of scrap steel and has therefore grown fastest in developedmarketswherescrapavailabilityishigh.EAFuseisnow growingfastinChina,withcurrentusagerepresentingaround10%of output,forecasttogrowto23%by2030(Source:InternalCompany estimates). | | Future technology Iron ore Hydrogen | | | | H2O | | | | Electricity Scrap or sponge iron | | Zero emissions | | RHIMagnesitahasaleadingmarketpositioninEAF-specificrefractories, servicesandheatmanagementsolutionsandisideallypositionedto benefitfromthisongoingtransition.In2021,16%oftheGroup’srevenues werederivedfromEAFrefractories. | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Direct reduction of iron ore | | | | DRI (Direct Reduction) | | | | EAF 1,4000C 1,8000C (Electric Arc Furnace) | | | | | | Directreductionofironore(“DRI”)usinghydrogenisa newtechnology thatseekstoeliminateCO2 emissionsfromthereductionofironore inblastfurnacesusingcoke.Ifsufficientquantitiesofhydrogen manufacturedfromrenewable sources can be accessed and if a DRI furnace can be paired with an EAF for the second stage of the process that is also powered by renewable energy, CO2 emissionsfromsteel productioncanbelargelyeliminated. | | Tonnes CO2 per tonne of steel 1.77 -63% | | | | | | | | | | | | AnalternativepathwaytoreduceCO2 emissionsistheuseofelectrolysis. RHIMagnesitahaspartneredwithBostonMetaltoproviderefractories forprototypemoltensaltfacilitieswhichoperateattemperaturesof around1,850°. | | | | | | 0.66 | | | | | -92% -92% | | 0.15 0.14 | | | | | | --- | --- | --- | --- | | | BF + BOF DRI-EAF (Nat gas) | | Scrap EAF DRI-EAF (Green H2) | EAF steelmaking by region World ex-China (Mt) China (Mt) China long term forecast % of steel production from EAF +18% +63% 50% 40% 502 160 427 23% 98 10% 2021 2026 2021 2026 2021 2030 2040 2050 0 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | #### The future of refractories | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Recycling RHIMagnesitaisleadingtherefractoryindustryintheuseof secondaryrawmaterials.Foreverytonneofwasterefractory material that we re-use, we can save two tonnes of CO2 emissionswhichwouldotherwisehavebeenemittedinthe extractionandprocessingofnewrawmaterial. | | Recycling rate 2021 6.8% 2020 | | | --- | | 5.0% 4.6% | | | 2019 | | | | | | Historically,theuseofsecondaryrawmaterialintheindustry hasbeenlimitedbecauseofthereducedeffectivenessof refractoriesmadewithrecycledmaterial.RHIMagnesitahas developednewtechnologyforusingsecondaryrawmaterial withoutimpactingperformance. | | | | 2018 3.8% | | | | TheGroup’srecyclingtargetistoincreaseuseofsecondary raw material to 10% of raw material by 2025 and in 2021 this increased to 6.8% (2020: 5.0%). Due to the geogenic CO2 emissionsand energyconsumption involved in theprocessing ofnewrawmaterial,increasingtherecyclingrateisaneffective route for the Group to reduce its CO2 emissionsintheshort term. | | Industry leading recycling technology | | | | | Carbon capture and utilisation RHI Magnesita is investing €50 million over the next four years to developnewtechnologiesforcaptureandthenstorageor utilisationofCO2 emittedduringtherefractoryproduction process.Themajorityofemissionsarereleasedintheraw materialprocessingphaseandarereportedasScope1 emissionsformaterialsourcedfromourownminesandScope 2emissionsinrespectofexternallypurchasedrawmaterial. | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | In 2021 the Group signed a memorandumofunderstanding withAustraliabasedtechnologycompany,CalixLimited,to develop a Calix Flash Calciner at an RHI Magnesita site for the captureandstorageofCO2. This technology is one of a number of different routes that the Group is evaluating to capturegeogenicCO2 emissions. | | Relative CO2 emissions: (t CO2/t) 2021 1.82 2020 | | | --- | | 1.96 1.85 | | | 2019 | | | | | RHIMagnesitaisleadingtherefractoryindustryonthisvital sustainabilityissue,whichwillbeanincreasinglyimportant considerationforourcustomersinthefutureastheyalsoseek to reducetheenvironmentalimpactoftheiractivities. | | | | 2018 1.89 | | Carbon capture andstorage R&Dprojects R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 0 9 # Business model | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | What we do Weofferourcustomershigh-qualityrefractory products,supportedbyindustry-leadingR&D andunderpinnedbyourvertically integrated structurewhichprovidessecurityofsupplyoflow cost,high grademagnesitebasedrawmaterial. | | Raw material production | | | | | | | | | | | | Ourend-to-endvaluechainincludesthemining andprocessingofrawmaterials,themixing, pressingandfiringofrefractories,logistics,design, installation,monitoring,recyclingand disposal. Oursuiteofdigitalproductsprovidesour customerswithunrivalledintelligenceand insightsintotherefractorylifecycleattheirplants, improvingproductivityanddrivingefficiencies. Ourcomprehensiveproductrangeand expertise enables us to offer full heatmanagement solutionstocustomerswhoare seeking toimprove productionefficiency and lower theircostsandenvironmental impacts. | | Mining Firing in rotary kiln Refractory production | | | | | Crushing | | Unshaped refractories Logistics | | | | | Refractoryproductsareusedinallhigh- temperatureindustrialprocesses.Without refractories,keyindustriessuchassteel,cement, metals,glass,energyandchemicals could not function.Refractorieswithstandhostile conditions includingheatandchemical corrosion,maintainingtheirformandfunction attemperaturesover1,200°C.Theyprotect equipmentsuchasfurnacesand kilns against thermal,mechanicalandchemicalstress. | | | | Press Firing and/or heat treatment | | | | | | | Shaped refractories | | #### Our value chain | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Innovation, research and development | | | High-quality raw materials sourcing, production, recycling | | | | Production of refractories | | | | | | Oneofthefundamentaldriversofourbusiness modelisinnovationandR&D,supportedby stronginternalexpertiseinmaterials technologyanddigitalisation.TheGroup continuestodriveinnovation,withsignificant opportunitiesidentifiedinthefieldsof automation,roboticsandsustainability,and aims to devote 2.2% of revenues per year to R&DandTechnicalMarketing.Investmentin R&D and Technical Marketing in 2021 was c. €63million,representing2.5%ofrevenues. | | | | Withthehighestlevelofverticalintegration intheindustry,includingsignificantself- sufficiencyinkeyrawmaterials,wehavea uniqueabilitytocoverandserviceeverystepof thevaluechain,andofferdistinctivecustomer solutionsbasedonourtechnological leadership,expertiseandcostcompetitiveness. Ourlow-costrawmaterialassetsmakea significantcontributiontoGroupmargins comparedtothecostofacquiringequivalent rawmaterialsfromexternalsuppliers. Oneofthemostimportantrawmaterialsfor refractoryproductionismagnesite,amineral thatwemineinbothundergroundandsurface mines.Magnesiteoreiscrushedandfiredat 1,800°Cinspecialkilns.Duringthisprocess, CO2 isreleasedanddensityisincreased. | | | | Rawmaterialsare mixedandcombinedwith technicaladditivestobe sold as mixes or are furtherprocessedintoshapedrefractory products.Shapedrefractorybricksarepressed intodifferentsizesandshapesdepending on the specific application,employingpressures of up to 3,200 tonnes. A undergoheattreatmentattemperaturesof up to 350°C and may be furthersubjected to firing at 1,800°C in tunnel kilns for a number ofdays. Unfiredproductsareprimarilyusedinthesteel industry,whilstthe mainapplicationsfor fired productsare in the cement,non-ferrous metals,processandmineralindustries. | | 1 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | | Heat management solutions | | | | How we generate revenue Wegeneraterevenue fromourglobalfootprintspanningNorth and South America,Europe,China,India,the rest of Asia and the Middle East. | | | | | | | | | | Installation | | | Around70%ofourrevenueisgeneratedfromsellingrefractory products andsolutionstoourSteelcustomers,withthe remaining30% fromthe Industrial Division. 120,000SKUs.Ourmainproductgroupsincluderefractory bricksand mixesandflowcontrolproductssuchasslide gates,nozzlesand plugs. | | | | | | | Wesellafullsuiteofproductstailoredtocustomerrequirements,with over | | | | | | --- | --- | --- | --- | | | Monitoring, repair and process efficiencies | | Ouruniqueservice offeringisone of the keydifferentiatorsof RHI Magnesita. We are able toofferheatmanagementsolutionscontractswhich madeup 29%ofrevenue in 2021 (2020:27%).Inoursolutionsbusinessmodel, we partnerwithourcustomerstoprovide consultancy,engineering and technicalcapabilities,aswellasotherservicessuchasinstallation andrecycling,todrive efficiencygainsforthe customer. | Disposal Removal Recycling | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Product marketing, sale and delivery | | | Installation, monitoring, and complex issue solving | | | | Stakeholder value creation in 2021 | | | | | | The Group has more than 70 sales offices worldwideandservicescustomersinmore than100countries.Ithas28mainproduction hubsand12rawmaterialsites,strategically located in order to serve its customers as efficientlyaspossible. The closer we work with our customers, the greater the difference we can make for them. Havingaglobalnetworkofoffices,research centresandproductionsitesisimportanttous, and to them. Wehavedifferentiatedscale, with a global customerbaseservingaround 1,070out of 1,3001steelplants. 1Approximate numberofplantsworldwide excludingChina, basedoncompanyestimates | | | | AkeycomponentofRHIMagnesita’sabilityto addvalue liesinoursolutionsoffering,which includesthe installation,monitoring,repair andremovalofrefractoryproductsat customersitesbyexperiencedemployees. Digitalmonitoringproductsallowusto monitorrefractoryperformance,safely extendingthe usable lifeoftherefractory, whilstremote gunningsolutionscancarry out intermediate repairsduringuse. A process,residualrefractoryliningsare removedandreusedifpossible assecondary rawmaterialsinthe productionofnew refractories.RHIMagnesitatherefore operates acrosstheentirecycle fromrawmaterial productiontorecyclingofspentmaterial into newfinishedproducts. | | | | Shareholders €1.50 per share paid as a dividend – Employees €548millionintotalgrossemployeepay – Customers €745millionrevenue generated in our solutionsbusinessmodel – Suppliers €1.8billionpaidtosuppliers – Communities 26%ofcommittedcommunityspenddirected toemergencyCOVID-19 relief – Governments €39milliondirectcashtaxes | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 1 | | | | | --- | --- | --- | | Chairman’s statement | | The Board remains committed to the Group’s three-pillared strategy to invest in improving its competitive position, expanding the business model and growing in new markets. | Leading the refractory industry Board review | | | | | | | | --- | --- | --- | --- | --- | --- | | Herbert Cordt Chairman | | I am pleased to report that RHI Magnesita has successfully navigatedanotherchallengingyear in 2021 whilstcontinuingtomake thestructural improvementswhichare necessarytogrowour leadershippositionintheglobalrefractory industry. Sustainability is a key priority for the Board and the Groupis making considerable progresstowards its2025sustainabilitygoals,whilstinvestingin newrecyclingandcarboncapture technologies whichwillmakeitpossibletomateriallyreduce CO2 emissions in the longerterm.The RemunerationCommitteehaslinked management incentivestoimprovingour sustainabilityperformance and the Board is satisfiedwiththeprogressthathasalreadybeen achieved.Transitioningtosustainable business practiceswillbethenext“industrialrevolution” andRHIMagnesitaiscommittedtoextendingits leadershipinthisvital area. | | Each year we carry out a review of Board effectivenesstoassessourperformance and make appropriate improvements,tomaintain highstandardsofcorporategovernance. This exercise is a high priority for me personally and I am pleased to include the findingsand recommendationsfromthe reviewin the Corporate Governancesectionofthis Annual Report. Dividend The Boardhasrecommendedafinaldividend of 1.00 Euro per share in respect of the financial year to 31 December2021.Thislevelofdividend is alignedwithourpolicytomaintaindividend cover ofbelowthree timesadjustedearningswhilst takingintoaccountthe otherfunding requirementsofthe businessaswe manage capital expenditures,M&Aspendandgearing levelsthroughthisimportantperiodinour strategicdevelopment. | | | | | Board changes Strategy and outlook I am pleased to welcome fivenewDirectorsto The Boardremainscommittedtothe Group’s theBoardthisyear,comprisingthreeindependent three-pillaredstrategytoinvestinimprovingits Non-ExecutiveDirectorsandtwoemployee competitiveposition,expandingthebusiness representatives:JannBrown,Marie-Hélène model and growing in new markets where we are Ametsreiter,SigaliaHeifetz,KarinGarciaand currentlyunder-represented,inparticular Dr. Martin Kowatsch. Ms. Garcia and Dr. Kowatsch throughM&AwhichhastheBoard’sfullsupport. wereappointedbythe workscouncils The challengesposedbythe COVID-19 representingouremployeesinSpainandAustria, pandemicin2020andthesubsequentvery respectively.Wehave therefore takenpositive significantandunexpectedsupplychain steps forward in improvinggenderdiversityin disruptionin2021 have not diverted us from these 2021,with38%female representationatBoard goals and we werepleasedthattheGroup level at the year end and 22% in the Executive reachedagreementonthe acquisitionof Management Teamanddirectreports. SÖRMAŞ in Turkey in October. The Board looks Theskillsandexpertiseofthese newDirectors forwardtodemonstratingthebenefitsofthe willbeavaluableandcomplementaryaddition Group’sinvestmentprogrammefrom2022 to theBoard,bringingexperience infinance, onwards, as the projects which make up the governanceandsustainabilitycombinedwith ProductionOptimisationPlanarecompleted and technology, innovation,digitalisationandrelevant begintodeliversignificantvaluetoshareholders. internationalexperience inourtargetmarkets. Readmore aboutourStrategy Following these changes in the year, the Board Page 14 nowhasanoptimumbalance,representingthe interestsofourkeystakeholderswithemployee representativedirectors,directorsrepresenting majorshareholders,executivedirectorsand independent non-executives.Youcanreadmore about the composition of the Board in the CorporateGovernance StatementintheAnnual Report. | | | | 1 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | CEO review Stefan Borgas CEO Demandforrefractoryproductsandserviceswas strongin2021 asourcustomerindustriesbegan theirrecoveryfromthe2020downturncaused bytheCOVID-19pandemicmuchfasterthanwas anticipated.Thiscreatedanunprecedentedstrain on global supply chains, which led to a significant increaseincostsandlogisticsleadtimes. Ourreactiontothesechallengeshasbeen comprehensiveandincluded theallocation of additionalresourcestoplanningandlogistics,a significantincreaseininventorylevels,useofair freightwherenecessaryandmultipleprice increasesduringtheyeartorestoremarginsby passingonadditionalproductionandshipping coststoourcustomers. People and culture Our people and culture are the cornerstone of our achievementsandwithoutastrongteamethos andindividualaccountabilitywewouldnothave beenabletorespondtothesignificantchallenges we faced together in 2021. Our colleagues in logistics,planning,procurement, operations and salesfunctionsdeserve specialpraisefortheir effortsthisyearinrespondingtowidespread disruptiontoglobalsupplychainsandprioritising theneedsofourcustomers. Delivering our strategic initiatives Althoughsomeinvestmentprojectshavebeen impactedbycostinflationandminordelays, logisticaldifficultieshavenotmateriallyimpacted onthedeliveryofourlong-termstrategy.Wehave improvedourcompetitivepositionthroughSG&A savingsandtheProductionOptimisationPlan, whichisadvancingour“localforlocal”production strategywhilstpreservingscalebenefitsfromour globalfootprint.Wehavedeliveredfurthergrowth inoursolutionsbusiness,inFlowControlsalesand | | intargetmarketswhereweareseekingtoincrease ourmarketshare.Progresshasbeenaccelerated throughM&A,akeypillarofourgrowthambitions, withtheagreementtoacquireSÖRMAŞinTurkey andtheestablishmentofanewjointventurein Chongqing,Chinatowidenourproductrange forcementcustomersintheregion. Innovation and sustainability leadership We have an excellent track record in health and safety, with a Lost Time InjuryFrequencyRate of 0.18(2020:0.13),despite manyofouremployees workinginenvironmentswithsignificant occupationalhazardsandaswe have delivered closetorecordhighproductionvolumes.The safety of our people in the workplace will always be a core value for us. RHIMagnesitaisalreadythe leadingglobal supplierofhigh-performance refractory products,systemsandsolutions.We are increasinglyaddingdigital productsalongside ourcoreofferingwhichdifferentiateusfrom competitorsandenable us to offer full heat managementsolutions. Solutionscontractsgrew to represent 29% of Group revenues in 2021 (2020:27%). Wealsoleadtherefractoryindustryinallareas ofsustainability.Nootherrefractoryproduceris taking the same steps as we are to increase the use ofsecondaryrawmaterialsandtoreduceand captureCO2 emissions.Oureffortstoincrease recyclingofrefractoriesoffermajorbenefits throughimprovedwastemanagementandthe avoidanceofCO2 emissionsthatwouldotherwise bereleasedintheprocessingofnewrawmaterial. Tomakethispossible,wehavedeveloped proprietarytechnologyforachievinghighlevels ofperformancefromrecycledrefractorymaterial. Wearealsoinvesting€50millionoverthenext fouryearsintheresearchanddevelopmentofnew technologiestoreduceandcaptureCO2 emissions releasedduringthematerialsmanufacturing processchain. Ourproductportfolioisuniquelypositioned to benefitfromthe shi 2 emitting processesinourcustomerindustries.Insteel, we are global leaders in the supply of specialised refractoriesforelectricarcfurnacesandstand to benefitfromthe ongoingtransitiontowards this technology, which will be a key enabler of thedecarbonisationofglobalsteelproduction. Ourcommitmenttoimprovingoursustainability performancewasdemonstratedthisyearbythe linkingofthe margin on over €1 billionofnew or existingdebtfacilitiestoourEcoVadisrating, whichimprovedto“gold”from“silver”thisyear. We are leading the industry on these issues because of the widerbenefitsforallstakeholders but we are alsoincreasingthevalueofRHI Magnesita’sproductsandservicestoour customers.We believethe value attachedto sustainablebusinesspracticeswilltranslateinto market share opportunitiesorpricingadvantages in the future, as we extendourleadershipposition relativetoourcompetitors. Financial and operational performance TheGroupdeliveredadjustedEBITAof €280millionin2021,inlinewiththeadjusted guidancerangeissuedinOctober.Profitability improvedmateriallyduringthefourthquarteras theGroupbenefitedfrommultiplepriceincreases | | | offsettingover€150millionofadditionalcosts, mainlyfromhigherfreightrates,logistics, purchasedrawmaterialandenergycosts. Salesvolumesin2021 were ahead of our initial expectations,reflectingstrongdemand fromour customersandthe strengthofunderlying end marketsinconstructionandmachinery. To meet this high demand we had to deliver additional volumesfromourproductionfacilitieswhile deployingthelargestinvestmentprogrammein the Company’shistoryatmostofour key sites acrossthenetwork. UnplanneddowntimeatRadentheininthethird quarterimpactedEBITAbyaround €8 millionas customershipmentsofhighmarginrefractories foruseinnon-ferrousmetalsandsteel applicationswere delayed.Inthesedifficult circumstances,withlocalsupplychain bottlenecksaddingtoplanningcomplexity,itis a huge credit to our people that we nevertheless managed to deliver a 15% increase in shipped volumes versus 2020 and 1% above the volume achievedin2019. Key strengths and outlook RHIMagnesitaisuniquelypositioned withinthe refractoryindustryasaleaderintechnology, includingdigitalisationandsustainability. A key differentiatorofourbusinessmodelisour vertical integrationinthesupplyofmagnesitebased raw materials, with assets in the first quartile of the costcurve givingussecurityofsupply over c.70% ofthemagnesiteanddolomitethatweconsume andhighermarginscomparedtonon-integrated peers,especiallyduringperiodsofelevated raw material prices. Inthefourthquarter,energyshortagesinChina significantlyincreasedthecostofexternally purchasedrefractoryrawmaterials.Whilstthis costpressurehaseasedinthefirstmonthsof 2022,magnesite,dolomite,aluminaandfusedraw materialpricesremainabove2021 averagesand thishasincreasedpricingforfinishedrefractory productsacrossthemarket.Thehigherraw materialpriceenvironmentsupportedrefractory priceincreasesof€127millionduring2021 and combinedwithinitialsavingsfromourcost optimisationinitiativestorestoretheGroup’s EBITA margin to 12.5% in Q4. 2021 was the peakyearofcapitalexpenditureon ourProductionOptimisationPlanand we have alreadycompletedworksatourHochfilzen, Urmitz and Vizag plants. As we move through 2022 we willcompleteplantupgrades, expansionsandmodernisationworkatVeitsch, Radenthein,ContagemandBrumado which have beendelayedslightlydue toglobalsupply chain problemsandlabourshortages.Asthenew facilitiesrampupwe willseematerialcash flow benefitsfromthese fast-paybackprojectsand establish a higher EBITA margin that we believe is sustainable in the long term. Whilstuncertaintyandvolatilitywillremain ongoingfeaturesofglobalmarkets,wearewell positionedtonavigateanynewchallengesthat 2022 will bring. This is mainly thanks to the commitmentanddedicationofour employees,as wellasthemajorinvestmentsandrestructurings wehaveundertakentoimprove thecostposition andefficiencyofourbusinessover thelastthree years. | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 3 # Our strategic framework | | | | | --- | --- | --- | | RHI Magnesita’s strategy is based on three pillars, supported by our people and culture. Our strategic goals are to improve competitiveness through cost reductions and network optimisation, to grow revenues and margins by expanding the business model and to increase market share in new geographies or product areas where the Group is currently under-represented. Each strategic pillar represents an opportunity to deliver significant long-term value for shareholders, building on the Group’s existing global footprint. | | Our strategic priorities Competitiveness Reduce operating costs The Group’s cost saving initiatives are targeted to deliver €110 million of annualised EBITA contribution by 2023, which will largely comprise €30 million in SG&A savings and €65 million of annual benefit expected from the Production Optimisation Plan. Business model Expand the business model RHI Magnesita aspires to lead the refractory industry through its extensive product offering, pioneering technology and leadership capabilities in research and development. Markets Grow market share in geographies and products where we are under-represented The Group has c.15% market share (c.30% ex-China and is actively seeking out strategic new organic growth and consolidation opportunities in target geographies and product groups such as flow control. | East Asia) within a c.€20 billion global market. The Group #### People and culture Enablers of our strategy Hire, retain and motivate talent and nurture an innovative, open, pragmatic and performance-driven culture. #### Sustainability Sustainability leadership Sustainability is integral to the accomplishment of the Company’s strategic priorities. 1 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | #### Progress Outlook | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | The Production Optimisation Plan progressed well in 2021, with projects largely on-time and on-budget. In Brazil, the Contagem and Brumado project capex estimates have increased, largely due to capex inflation, and there has been a slight delay to the forecast completion date of Brumado, nevertheless the project economics remain attractive. A cumulative EBITA contribution of €22 million from projects already completed was recognised in 2021 – The Group achieved its SG&A reduction target in 2021, realising an EBITA run rate saving of €29 million per annum | | Complete the Production Optimisation Plan by the end of 2023 to deliver €65 million of annual savings, and €45 million in 2022 – Maintain low-cost position of raw material assets to capture additional value from vertical integration in a higher raw material price environment | | See [Linkto Competitiveness pillar page] Page 16 | | | | | | Expanded the business model through increased solutions contract revenues – Increased sales of digital products and services – Increased recycling of waste refractories | | Continue to grow our service offering and new products – Deliver €40 - 60 million of EBITA contribution from sales strategies in 2023 with c.€30 million in 2022 | | See [Linkto businessmodel pillar page] Page 18 | | | | | | Maintained strong market share in core markets North America, South America and Europe – Organic growth in new markets China, India and Flow Control – “Local for local” strategy progressed, through decentralising global functions and creating regional production hubs – Strengthened market position in under-represented business segments – Acquisitions in Turkey and China | | Continue to grow the Group’s position as the global leader in refractories through maintaining core market share and through actively pursuing value accretive M&A opportunities, supported by organic growth in target markets | | See [Linkto Marketspillar page] Page 20 | | | | | | Strong cross-functional collaboration efforts to overcome supply chain challenges – Supported an innovative, open, pragmatic and performance-driven culture within the organisation | | Continue to develop a workforce of tomorrow at RHI Magnesita, equipping our people with the necessary skills required to face digital disruption, decarbonisation and external market volatility | | See [Linkto Peopleand Culturepillar page] Page 22 | | | | | | CO2 capture R&D ongoing – Recycling rate now at 6.8% – Market leader in EAF refractories, essential for steel emissions reduction | | Further increase in Group recycling rates towards 10% goal, with associated CO2 emissions savings – Work with our customers to reduce their CO2 emissions by applying our leading digital solutions and advanced refractory products – Improve gender diversity in senior roles | | Read more in Sustainability Page 56 Read more in Anindustry leader inaddressing carbonemissions Page 9 | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 5 #### Competitiveness # Execute cost Strategic progress in action # reductions Cost-competitive global producer of technologically advanced refractory materials with safe production network and a focus on sustainable value generation EBITA run rate cost savings by 2023 €110m EBITAmargin 11.0%2020:11.5% | | | | | | --- | --- | --- | --- | | | Refractory production and raw material optimisation In2019,theGroupannounceditsProduction OptimisationPlantoaddressthechallengessuch astransferringcapacityfromhigh-costlocations tolowercostlocations,ensureproductioncloseto rawmaterialsandcustomersandtoupgradeand specialisetheplantsthroughcreatingcentresof excellence.TheGroupachievesthisthrough threefocalareas:consolidationofexisting capacity,plantspecialisationbyinvestingin automation anddigitalisationandraw material optimisation. Investmentstoupgradethe productionnetwork areprogressingwithslightdelays,withfull benefitsbeingrealisedin2023ratherthan2022. Oncecomplete,itwillimprovethe Group’scost positionanddeliverycapabilitiessignificantly,as new facilities start ramping up in 2022. The Group’scapitalallocationpolicyunderpinsits investmentprogrammes,andeachofthese individualprojectswithinthe programmeofwork deliversverydemandinginternalratesofreturn. TheseinvestmentswillimproveGroupoperating marginandcontribute €45 million of run rate EBITA savings by 2022, and €65 million by 2023. EBITA run rate benefit will now be fullyrealisedin 2023 given the project delays at Brumado and thedecisiontoextendtheoperationofMainzlar through2022.Whencomplete,itwillprovide | | astrongplatformfor2023andbeyondthrough its unrivalledproductionnetwork.Theproduction facilityinvestmentswillcontribute torefractory marginaccretion,gearedtowardsthe Group target of a mid-teen EBITA margin over the mediumterm.Itsrawmaterialoptimisation shoulddrive efficienciesinitsrawmaterialassets, increasingthe verticalintegrationmarginto 3-4 ppts by 2023. In2021,wecompletedtheinvestmentprojectat Hochfilzensite,Austria.Theinvestmentat Hochfilzenwill consolidate Europeandolomite productionintoasingle low-costsitewhich will supplyanewportfolioofinternallysourced dolomiticrawmaterial,followingthedecision toexitourpartnershipwithJointVenture, Lhoist, Belgium.The Group’sverticalintegrationin Hochfilzenwilldeliveranalternativesupply of highquality,lowcostdolomitewhilstincreasing the outputofrawmaterialandextendingassetlife. The Groupcommenceddolomiticrawmaterial productioninQ42021,andconstructionofthe new rotary kiln at the site completed in Q4 2021 andwillcontinue to ramp up output in 2022. AttheplantinValenciennes,France,theGroup made progresstowardsexpandingandupgrading the Company’sonlyEuropeanplanttoproduce fireddolomite bricks.Thisplantinvestment includesthe installationofanadditionalpress andatechnicalupgradeofthepowerful tunnel kiln,inauguratedinSeptember2021. | 1 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | We endeavour to achieve cost leadership in every regional market by optimising our global portfolio of low-cost raw material assets. Rajah Jayendran Chief Operations Officer | | | | | | | | --- | --- | --- | --- | --- | --- | | During2021 theGroupcontinuedtoadvance itsfullyautomatedproductionfacilityatits Radentheinsite,Austria,a flagshipdigitaland automatedplant.InJune2021,thenewtunnel kilnatRadentheinwasfiredandinauguratedby PeterKaiser,GovernorofCarinthia.Additional automatedpressesandunmannedvehicleswere installedwhichwilldriveefficiency savings and lowerproductioncosts,andtogetherwiththe high performance of the new kiln, the plant productionisexpected to increase by 30%. In2022,theGroupwillcompleteitscapacity expansionofmagnesia-based finished products,aswellasitsprogrammeofreduced conversioncosts. AtBrumado,Brazil,theGroup’slargestmagnesite raw materialasset,wehavecommissioneda projecttoreplaceeightverticalkilnswithone rotarykiln,whichwillfacilitatethedevelopment of new raw material sinters as well as considerably extending mine life, by more than double and enabletheproductionofvariousdead-burned magnesiagradesannually.TheBrumadositeis thelowestcost,highestqualityproducerof magnesite,andthisprojectwillfurtherincreaseits competitivenessofmagnesia-basedproductsin theAmericasandotherregions.TheGrouphas developedanewinnovativemethodduringthe extractionprocesstomaximisethemagnesite outputthroughusingthetailings,whichwould have previouslybeendiscardedaswaste.Thesite iswell-positionedforrampinguprawmaterial production in H2 2022, following a delay to the projectduetoCOVID-19restrictions. | | InUrmitz,Germany,the Groupismodernising and expandingtheplanttocreate a new hub for non-basicrefractoryproducts,aswellascreating a flagship site forimprovedenergyefficiency and recycling.In2021,the Groupadvancedthe installation of its tunnel kiln and is on track to ramp upproductionin2022. In 2021, the Group took the decisiontodelay theclosure of its Mainzlar site in Germany, given an unprecedentedstrengthofunderlying demand in 2021, to ensure that the Groupcan continuetoserve itsEuropeancustomerbaseas efficientlyaspossible.Thedecisionwastakenin ordertomaintainproductioncapacityinEurope, whilst Radentheinunderwentitsplannedplant maintenanceaspartoftheProduction OptimisationPlan,aswellasunplannedschedule maintenanceinQ32021.The Groupconsulted theappropriate unionsduringitsdecisionmaking processesandhasagreedtodelaytheclosure until the end of 2022. Mainly due to the highinflationaryenvironment for projectconstructionmaterials,some of the individualprojectsareexpectedtorequire higher capitalexpenditure during2022and2023, however otherparametersoftheprojecthave movedfavourably,andthe additionalreturns offset the higher capex such that the economics oftheprojectsremainattractive.Therefore,in 2023 we expect to achieve €65 million of EBITA run rate benefit from the ProductionOptimisation Plan, an increase of €10 million from the original 2022 EBITA run rate target of €55 million. | | | Vertical integration advantage The Groupcontinuestobenefitfromitsvertical integrationinbasicrawmaterial,and in 2021 the totalEBITAcontributionfromitsrawmaterial assetswas3.2%.The Group’sverticalintegration isvitaltoitscompetitiveness,withc.70% of the Group’stotalmagnesiteconsumptionfrom itsowninternallysourcedrawmaterial,and c.50% of its total raw material by value. The Groupstrategicallybenefitsfromitscertainty ofsupplyandhigh-qualityrawmaterialatlow cost.Itbenefitsfromitsstrategically positioned productionsites,closetoitsrawmaterialassets, whichunderpinthe Group’s“localfor local” strategy.Itsrawmaterialassetsinsomecases provide unique productsforspecific applications in the market, with a bespoke blend ofrecipes unrivalledbyitscompetitorsgivenitsportfolio ofbasicrawmaterialsinters. The rawmaterialrequiredforanelectric arc furnaceusesmagnesite-basedoreand RHI Magnesitaisverticallyintegratedinthisraw material.TheAnkerHearthproductseriesisused for the hearth of the electric-arcfurnace, and uses the Group’sunique alpinesinter,which ismined atHochfilzen,itsrawmaterialassetinAustria. The product has proven to be the clear marketleader giventheexcellentspecificationsofthesinter, positioningRHIMagnesitaasaleadingrefractory partner of choice in the green transition of the steelindustry. | | AtContagem,Brazil,weareautomatingthe productionofmagnesitebasedfinishedproducts, aswellasincreasingcapacitybyc.45%. Contagemwillbewellpositionedtoserveits customerbaseintheentireAmericasregionby the end of 2022. Across 2021, two new hydraulic presseswerecommissionedwhichwillincrease productionefficiencyand capacity, servingthe steel,cementandglassmarkets.Civilworkswere concludedtowardsthecompletionofthenew comminutionline,withtheinstallationdueto completein2022.TheGroupiscommissioning newgrindinglines,whereContagemwillbeable to grindelectric-fusedmagnesia,aswellasthe magnesiarawmaterialitcurrentlyprocessesfrom itsrawmaterialasset,Brumado.Thiswillincrease productivity,productquality and stability, whilst loweringoperating costs. | | SG&A savings Inadditiontothecostsavingsidentifiedthrough theProductionOptimisationPlan,theGroup identifiedafurther€30millionofSG&Asavings during 2020, of which €29 million have been realisedin2021.Weareenhancingregionalisation anddecentralisationofmanagerialdecision making,andrestructured540headofficeroles intotheregionalareas,increasingaccountability andacceleratingdecisionmakingaswellas reducingthecostbasebyrelocatingmanagerial roles to lower cost locations. This will enable us to directSG&Aexpensestowardsgrowthand innovationareasofthebusinessaswecontinueto executeourstrategy. | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 7 #### Business model # Enhance Strategic progress in action # business model The leading service and solutions provider in the refractory industry, with an extensive portfolio based on innovative technologies and digitalisation – the building blocks for a strong and sustainable future. Sales strategiesEBITA run rate savings by 2023 €40-60m Revenue fromsolutionscontracts 29%27% in 2020 | | | | | | --- | --- | --- | --- | | | Solutions business model TheGroup’ssolutionsbusinessmodelisakey componentofthe Group’ssalesinitiatives,which willdeliverc.€30millionofadditionalEBITA by 2022, and €40-60m by 2023 given delays relatedtoCOVID-19restrictions.Inthesolutions businessmodel,wepartnerwithourcustomers, providingconsultancy,engineeringandtechnical capabilities,aswellasotherservicessuchas installation and recycling,todrive efficiencygains for the customer. The Groupthenbenefitsfrom highermarginsolutionspackagesoverthe mediumtermaswellascapturingmarketshare. We are committed to derive 40% of all revenue fromthesolutionsbusinessmodelby2025,and in 2021, the Group made goodprogresstowards this target with 29% of all revenue derivedfrom solutions contracts(2020: 27%). Digitalisation at our customer sites Thesolutionsbusinessmodelisaugmented by RHIMagnesita’srange ofdigitalproducts, whichincreasesoursaleseffectivenessthrough allowinganincreasingleveloftransparency for the sales team as well as providing greater insightsforthecustomerintotheiroperations. Thisinnovativeapproachenablesadatadriven andholisticsalesmethod,disruptingthe way theindustryhastraditionallydonebusiness. Increaseduseofdigitaltoolsatourcustomersites also improves ourcustomers’processefficiency andquality.These digitalproductsare provingto drivegreatermarketpenetrationinnewmarkets, as well as defend market share in core markets withexistingcustomers. | | Followingthe successfulrolloutofthe AutomatedProcessOptimisation(“APO”) tool (used in the steelandnon-ferrousmetals(“NFM”) industries),usedtoimprove predictability oflining wearrates,we developedasimilartoolfor the cement industry in 2021. In 2021, we successfully rolled out the APO tool to 20 customers, which is double that of 2020. We alsosuccessfully trialed the APO tool for cement at one major customer site. The APO tool is used by the customer to measurethe wear rates of the refractorylining usinglasersandinfra-redthermocameras. This creates a digital twin which can in turn predict maintenance cyclesandliningdurability,which enhancessafetyandreducesdowntime. In2021, wealsocelebratedthe firstinstallationof the QuickCheck(“QCK”)inUSA,innovative image processingtechnologywhichcanbeused to monitorthe liningwearmeasurements.In 2021 the Groupalsointroducedtoitsdigitalproduct portfoliothe MechanicalKilnAudit,anovelway to evaluatethe mechanicalconditionofarotary kiln. Thisenablesthecustomertoimprove maintenance measuresandtooptimise the refractorylayoutaswellasinstallation procedures.Theauditsupportsearlydetectionof upcomingissuessothatcost-effective preventative maintenance can be carriedout. Weintroducedtheladle slagmodelin2021, where RHI Magnesita,workingwithitscustomers, discoveredanovel solutionwherebycustomers canperformadjustmentsoftheslagwithinthe ladle furnace.Theladle slagmodelprovidesmore accurate calculationsthatallowforfasterdecision making. | 1 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | 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 | | | | | | | --- | --- | --- | --- | --- | | Toensureaseamlesscustomerexperiencewe haverecentlyintroducedconnectedmachinery. Throughconnectedmachinery,ourcustomers haveend-to-endoversightoftherefractory lifecycleintheirplantthroughbothdatadriven predictivemaintenanceandmachine-driven warehousemanagement,basedonmeasured refractoryconsumptionandpredictionoffuture consumption.Connectedmachinerycan independentlytriggermaterialordersand maintenancecycles,andsubsequently,Radio frequencyidentification(RFID)technologycanbe appliedtorecordandtrackallmaterialmovements. Virtualrealityhassupportedourabilitytowork effectivelythroughoutthepandemic,andRHI Magnesita was able to conduct a virtualplant tour and audit using “Smart Glasses” from its ISO plantatBonnybridge,Scotland,attherequest of a customer in April 2021. The customer’s representativeswereaffordedtheopportunityto observeandaskquestionsaboutBonnybridge remotelyfromtheirsitesinFinlandandSweden. The outcome of the audit was positive, withthe customerorderingatrialproductfromtheplant. Our sales teams are able to access their customer dataholisticallythroughthenewCRM tool,which providesvaluableinformationtothesalesteam throughprofilingthecustomer,basedonhistoric data points, and they can then use this data to predictfuturecustomerrequirements.Data obtainedthroughourdigital applications installed withinthecustomerplantsarethenaccessible throughtheportal,providingthesalesteamwith a myriad of data points to support their decision makingtodriveprofitabilityaswellasgenerate efficiencysavings forthecustomer. Digital transformation in operations InpartnershipwithRockwellAutomation,the ManufacturingExecutionSystem(“MES”)was developed,whichcomprisescomputerised systemsthatareinstalledtotrackanddocument manufacturingprocessesfromtherawmaterialto thefinishedproduct. By fosteringcomprehensive real-timevisibility,wewillgraduallyoptimiseour productionnetworkandprocessesacrossthe organisation.Radenthein,AustriaandDalian, China,ourflagshipdigitalisationandautomation plantsarepilotplantstobetransformedinto “SmartFactories”.Bothoftheseplantsstartedthe implementationphaseoftheprocessinQ32021. | | Theunderlyingtechnologyconnectsmultiple locations,integratingmachinery,equipment, quality managementsystemsandotheressential componentsofthemanufacturingprocess.The MESwillautomate productionplanning,collect real-time data,increase overallmanufacturing performanceandspeedupdigitaltransformation andexecution.The MES is scheduled to be complete in the twopilotplantsbyintegrating withotherautomationandplanningsolutions in Q42022,anduponsuccessfulcompletion, will be rolled out more widely across the productionnetwork. Recycling Recycling andourcirculareconomyapproach arekeytoachievingourambitiousemissions reductiontargets.The Groupistargetingto increase its recycling rate to 10% by 2025 from 2018, which will be asignificantdriverofthe Group’swiderCO2 emissionreductiontargetof 15% by 2025. In 2021, we continuedtofocuson circularcontractswithcustomers,andbuild technologyleadershipthroughourownR&D developments.InSouthAmericawe made substantialprogress,registeringarecord collectionofspentrefractories,thankstothe combinedeffortsofourdedicatedcircular economyteam,partneringwiththesalesteamsto providewastedisposalsolutionsforour customers.We signedacircularcontractwith Ternium CSA to dispose of 100% of the plant’s spentrefractory;we’ve collectedmorethan80% ofthespentrefractoryproducedbyallcement companiesinBrazil;andrecentlywepurchased refractorywasteforthefirsttime in the glass industry, tobetterunderstandrecycling technologyfromthisproductsegment.The regionachievedan8%recyclingratein2021. Thespentrefractorymaterialcanthenbe used in newproductsassecondaryrawmaterials, such asinthelow-carbonproductANKRALLC series.Byincludingsecondaryrawmaterial, theseproductsthenhave asignificantlylower CO2 footprintwhilstmaintainingthe technical specificationandhighperformanceofaproduct madeusingvirginrawmaterial. Innovation and R&D Underpinningthebusinessmodelisthe Group’s abilitytoinnovateandadaptitsproductsand servicestobestserve itscustomers'evolving needs andrequirements.Ourindustry-leading R&D teamisfundamentaltothestrategyand long-termaspirationsoftheGroup,witha563 | | workforce whichincludesacombined total of 148 PhDsandmasters,acrossfivetechnologycentres. TheGroupcommitted2.5%revenuetoR&Dand TechnicalMarketingin2021 andachieved16%of totalrevenuefromnewproductsinthelastthree years(2020:16%).Wearecommittedto protectingtheintegrityofourexpanding intellectualproperty,andcurrentlyhave1572 activepatentsand1,707activetrademarksglobally. The TechnicalAdvisoryCommittee(TAC) was establishedin2018andincludesrepresentation fromseniorexternalprofessionals,R&D and technicalmarketingteams.Board directorshave alsoattendedTACmeetingsonoccasionto learn more about areas of innovation. In 2021, the TAC consideredthe topicofhightemperaturesensors forharshenvironmentsandexternalexperts were invited to evaluate how we could utilise technologiesfromextreme environment applicationsforsupportingthe development of our future sensortechnologies. We are constantlyinnovatingand pioneering the productionofbothrawmaterialsand refractories. An example of this is the Spinospheretechnology used in our ANKRAL-X series, with itsunique characteristicsintermsofclinker-meltresistance andflexibilityforrotarykilnbricks.InMarch 2021, we celebrated the opening of the new Spinosphere Tower at our Veitsch site in Austria, which is fully integrated into the already existing fullyautomatedmixingplantinVeitsch to maximise capacity,increasingthecompetitive advantageoftheplant. Werecognisetheimportanceofadaptingtoa changingworld,whichinvolvesmoredigitalisation, increasedconnectivity,disruptivetechnologies andarequirementformoresustainableproducts andprocesses.Forthisreason,wehavedeveloped a15-yearinnovationroadmap,ensuringthatwe continuetoleadtheindustrythroughpioneering technology.Wehaveidentifiedeightinnovation fieldsandareaswhichwillbeoffocus,including recycling,pioneeringproductionroutes,hydrogen compatibility,newrefractorysolutions,newflow controlsolutions,newminingandcarboncapture andutilisation.Thecarboncaptureandutilisation project was launched in 2021, and we aim to have thetechnologysolutionby2025whichwillcreate thepathforafulldecarbonisationoftheCompany. Read more on our Climate strategy Page 61 | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 9 #### Markets # Drive market Strategic progress in action # leadership The Group has c.15% global market share (c.30% ex-China and East Asia) within a c.€20 billion industry, worldwide presence with strong local organisations and solid positions in all major markets. Revenue fromIndia and China in 2021 18%2020:16% | | | | | | --- | --- | --- | --- | | | Enhancing regionalisation RHIMagnesita’srefractoriesbusinessisdrivenby ourcorecustomermarkets;Steel,Cement&Lime and a varietyofotherindustrieslikenon-ferrous metals, glass, foundry,energy,environmentand chemicals and aluminum.Theirdemandisdriven byconstruction (45%),automotive (17%), electronicsandconsumergoods(15%), machinery and equipment(10%),energy,oil and gas (5%), and others (8%). Currently, RHI Magnesitahasac.15%marketshareglobally (c.30% ex-China and East Asia) within a €20 billionindustry;itcommandsworldwidepresence withinstronglocalorganisationsandsolid positionsinallmajormarkets. Underpinningourstrategywithinthese markets arekeymegatrends,whichwillinfluencethe strategyandultimatelyshape theCompanyin thefuture.Thetrendsshapingourindustrytoday includecontinuedgrowthinAsia(ex-China), thedecarbonisationofindustryandtransport, connectivity anddigitalisation,automationand artificialintelligence,volatilityandregionalisation. | | benefitconstructionprojectsglobally,main driversforourSteelandCementbusinesses, andconsumerdemandfordurable goods,a key consumingsectorforSteel,StainlessSteeland NFM.However,thesharpreboundofdemand has ledtosupplychaindisruptioninlogisticalcosts includingfreight,rawmaterialavailability and labourshortages,leadingtounpredictability inourvaluechainandlongerproductionlead times.The supplychainissuesmaterially impactedbothRHIMagnesitaandalsoits end markets,particularlyautomotive.Automotive experiencedasurge incustomerdemand during2021;however,giventhetightsupply ofsemiconductormicrochips,steelandother keyinputs,productionofAutomotive materially so | TheSteelDivisioncontributesc.70%ofGroup revenue, anddemandforrefractoryproducts correlateswithsteelvolumes.In2021,global steelproductionincreasedby4-5%drivenby thestrongeconomicreboundfollowingthe impact of the pandemic during 2020, with the V-shapedrecoveryinsteeldemandexceeding expectations, especiallyinemergingeconomies. Strongdemandwasdrivenbyglobalfiscalstimuli of over $20 trillion as part of worldwide COVID-19 response.Fiscal stimulipackageswill particularly 2 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | 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 | | | | | | | --- | --- | --- | --- | --- | | Growth markets RHIMagnesita’sendmarketgrowthrates excludingChinaarebetween1-2%.TheGroup hasthereforeidentifiedpocketsofgrowthwhich representastrategicopportunityinmarket regions such as India, China and Turkey, as well as intheproductsegment,FlowControland non-basic.TheGroup’sapproachtoM&Ais to capturevalue-addingconsolidationopportunities inunder-representedmarkets.TheGrouphas a disciplinedapproachto M&A and identifies targetswithcompellingsynergiesanda hurdle rate of 15% return on invested capital. In China, the Group continued to make good progressinexpandingitspresenceinbothSteel andIndustrial,with20%revenueincrease compared to 2020. With China being the unrivalledlargeststeel producerintheworld, this marketrepresentsa significantgrowth opportunityfortheGroup.DespitetotalChinese steeloutputbeingcappedbygovernment policies to 2020 levels, many new Electric Arc Furnacesarecurrentlyinthepipelinetostart transitioningtheChinesesteelindustrytoa modernCO2 efficientstate.Theseprojects representamajorgrowthopportunity.The Groupleveragesitsuniquecapabilitiesthrough itssolutionofferingand digitalapplications comparedtoitsregionalcompetitorswhich generallyhaveamorecommoditisedapproach. In 2021 theGroupsuccessfullyagreedtwonew solutionscontracts.On30December2021 the Groupacquireda51%ownershipstakein ‘ChongqingBoliangRefractoryMaterialsCo.Ltd.’ for a cash consideration of €5 million and an investmentofc.€12millioninnewproduction capacity, to be deployed in 2022 and 2023 with an IRR of over 25%. The acquisition and joint ventureinvestmentwillestablishoutputof non-basicrefractoriesalongsidearecently constructedandfullyautomatedplantin Chongqing,China,thatwillcomplementthe Group’sexistingmagnesite-based operations in Daliananddeliverafullrangeofrefractory productsforcementcustomersinChinaand SoutheastAsia. The Group has agreed to acquire a 85% stake inSöğütRefrakterMalzemeleriAnonimŞirketi (“SÖRMAŞ”),aproducerofrefractoriesforthe cement,steel,glassandotherindustriesinTurkey, for a consideration of €39 million in cash. The asset recorded €6m EBITDA in 2020 and we expect to benefit from at least 30% EBITDA synergies.Theacquisitionwillsignificantly expandtheGroup’slocallymanufacturedproduct | | portfolioandserveasaproductionhuband platform for business growth in Turkey and the widerregion.Withanenlargedproductportfolio, furtherpotentialstemsfromtheopportunityto deliverfull-line servicesolutionstocustomersin Turkey. Indiacontinuestobeaveryattractive growth opportunityforthe Group,maintainingsecond positionasthe world’slargeststeelproducerin 2021,drivenbydomesticavailabilityofraw materialsuchasironoreandcompetitive labour costs.TheWorldSteelAssociationshortrange outlook forecasts that steel in India is going to grow significantly by 6.8% in 2022 given India’s comparativelylowpercapitasteelconsumption which is expected to rise. This will be driven by increasedinfrastructure constructionandthe thrivingautomotiveandtransportationsectors. The creation of the single RHIMagnesitaentity in India,followingthemergerofthreeseparate entities,hascreatedastrongplatforminthe India market,primedtobenefitfromthestronggrowth opportunity.Ofproduction,35%issuppliedto customersininternationalmarkets,whilst65%is consumedinIndia’sdomesticmarket.InOctober 2021 a new tunnel kiln was commissioned at the Vizag plant, India. The new tunnel kiln will increasethecapacityofnon-basichighalumina contentrefractorybricksbyalmost20%.The Groupalsoinvestedincapacityexpansionof magnesia-basedrefractoryproductsatits Cuttackplant,increasingproductionsignificantly, and freeing up local capacity in China. The Group will fully start to realise thebenefitsfromits investmentsinitsVizagandCuttackplantsin 2022,inalignmentwiththemarket’sconsiderable growthtrajectory. Core markets RHIMagnesitaisfocusedondefendingand subsequentlyexpandingitsmarketshareincore markets,Europeandthe Americas,andis committedtofurtherstrengtheningitsposition in thesemarketsthoughitsunrivalledsolutions product offering,augmentedbyitsadvanced digitalproductportfolio.We remainthe clear marketleadersintheAmericas,withapproximate marketshare of c.65% in South America and marketshare of c.40% in North and Central America,thankstothe successofthe solutions businessmodel,andthroughitsleadingposition insupplyingelectricarcfurnaces.Marketsharein Europeisaround20%where we focus on our valueoptimisationstrategy,deliveringoursuite of productsascosteffectivelyaspossible. | | Flow control Flow control systems play a crucial role on the continuouscastingfloor,asthey ensurean uninterruptedandhighlyprecise flowregulation fromtheladle to the tundish and from the tundish tothemould.Ourholisticapproach in Flow Controlreachesfromladle tomould,comprising allrelevantaspectsofthe FlowControlprocess fromsystems,torefractories,tometallurgy. Our innovative solutionsensure the highestpossible safetystandards, whilstdelivering better metallurgicalresultsforourcustomers. In 2021, we launched our first global, multi- channel Flow Controlmarketingcampaign “BeyondRefractories”.StartinginSouth America andMexico,the campaigninforms existingand potentialcustomersaboutourFlowControl solutionspackagesforcleansteel,safety, productivity,andgreensteel.Itaddresseskey challengesinFlowControlandshowcaseshowto masterthembyusingRHIMagnesita’scustomised solutions.Thus, the campaignbuildscustomer awarenessanddemonstrateswaysto achieve steelofthehighestpossiblequality,maximise safetyinchallengingworkingenvironments,drive processefficienciesandreducetheir carbon footprint. To find more information on the individual solutions,visitthe campaign website www.beyond-refractories.com FlowControlcontributed€430millionof revenue in 2021 from (€380 million in 2020), and was broadly in line with2019 revenue. Flow Controlcontributed16.9%ofGroup revenuesin 2021,broadlystablecomparedto 2020(16.9%). However,2021 revenuecontributionfromFlow Controlwasamarkedimprovementon2019 (15.3%).We are delayed by one year in the Flow Controlsegment,givenlackofaccessto customersitesduringthe COVID-19restrictions. Itisthereforewellpositionedtoreach itstarget contributiontowardsthe salesinitiativesin2023, ratherthan,aspreviouslyguided,in2022. The salesinitiativeswillcontribute acombined total EBITA run rate of €30 million by 2022, and €40 – 60 million in 2023. | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 2 1 #### People and Culture # The driving force Strategic progress in action # of 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. Tenure Up to 3 years 33% From 4 to 6 years 17% From 7 to 9 years 11% Over 10 years 39% | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Workforce | | | Our purpose and culture support our strategy Ourpurposeistomasterheat,enablingglobal industriestobuildsustainable modernlife. | | the workforce,suchasremunerationand any issues arising as part of the plantchangesand closuresfromtheProductionOptimisationPlan. Readmore on how we engage with our employees Pages 52 and 53 | | | | South America 37% Western Europe 28% Asia Pacific 21% North America 10% Near and Middle East 2% Eastern Europe 1% Africa 0% | | Our culturehas underpinnedourfoundations insupportingourbusinessthroughanother challengingyearin2021,where ourworkforce hascontinuedtodemonstrate thepowerful elementsofourculture,suchascustomer- focusedpragmatismandperformance,a philosophyattheheartofeverythingwe do. The culture is based on four segments. We boldly innovatetocreate value forourcustomers,by providingthebestdigitalandsustainable solutions.Ouropenmindsetandtransparent way of working is centred around a diverse andinclusivebusinessenvironment.We act pragmaticallytoenable fastandsimple collaborationacrossfunctionsandregionsto serveourcustomersbest.Ourhighperformance isrootedinaccountabilityandresponsibility.We areareliableandresilientpartnerthatdecides anddeliversbasedonourcustomers’needs. To reinforce our culture, we regularlyhost regionaland functional townhalls,encouraging collaborationandanopendialoguebetween employeesand seniorleadership.Ourthree employeerepresentativesdirectorsprovide an effective, direct voice in the boardroom on a range ofissues,inparticularthosewhichdirectlyimpact | | Creating the leaders of tomorrow Wefosteremployeedevelopmentandrecognise theunparalleledimportanceofcreatingtheleaders oftomorrowinordertoexecutethestrategy.We haveimprovedourreadinessintheworkforcefor morevolatility,unexpectedmarketchangesand long-termdisruption.Throughvariousinitiatives, weareequippingourselveswiththenecessary skillsrequiredtoprosperinanet-zeroindustry,grow ourdigitalcapabilitiestocreateanincreasingly data-drivenplatformandlastly,thriveingrowth marketssuchasIndiaandChina. In 2021, we rolled out the digital sales transformationprogramme,designedtoenhance the digitalanalyticsculture of the sales organisationacrosstheglobethroughtheCRM tool. This will equip the sales team with new ways to sell our solutions to customers. To be successful,digitalmindsetneedstobe embeddedintoeveryaspectofbusiness. OurdigitalhubinVienna,Austria,isdedicatedto leadingtherefractoryindustry,frombigdatato blockchaininrefractoryapplications,providingour customerswithamarket-leadingdigitalofferingto supportoursuiteofproductsandservices. | | 2 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | In order to progress our goal of digitalisation, we need the skills and pioneering culture to support technology. Simone Oremovic Executive VP People, Project and Value Chain | | | | | | | --- | --- | --- | --- | --- | | Radenthein,Austria,isthemosttechnologically advancedplantintheglobalrefractoryindustry and now serves as the new apprentice hub in Austria.Theplantenjoyeditsfirstfullyearof apprenticetraininginprocesstechnologyin2021, tosupplementitscoretrainingprogrammeand alsolauncheditsnewtrainingfacility. AtthetrainingcentreinLeoben,Austria,we launchedanacademyto provideour employees andourcustomerswithtrainingintheinstallation ofrefractorybrickswithinthelimekiln.The trainingsarebasedontheprovenfundamentals fromthehighlysuccessfulcementcoursesatthe centrebutadaptedtoLimespecificelements.The trainingcentreforcementatLeoben,celebrated its10-yearanniversaryin2021,offering state-of-the-arttraining,andoverthattimehas sharedspecialistknowledgeandexperiencewith morethan550customersfromthecement sector,specialistsfromrelatedindustriesand in-houseprofessionals fromvariouscountries withover50courseshavingbeenheld. Supporting our workforce through achallenging year During2021,theGroup’sfirstpriorityinits COVID-19responsewastoprotectthesafetyand wellbeingofouremployeesandothersthatwork alongsideus.Ourregionaltaskforcesestablished in2020continuedtoworktirelesslyduring2021, respondingtochallengesthroughouttheyear on a regional basis and taking guidance from the WorldHealthOrganization(WHO),Centresfor | | DiseaseControlandPrevention(CDC),local governmentsandothersources.We implementedaremote workingstrategy where possibleinthecorporateoffices.Wecontinued to implementsafetyprotocolsatourproduction facilitiesandofficesworldwide,includingthe provisionofpersonalprotectiveequipment(PPE), infra-red cameratemperaturechecks,increased cleaning,testingstrategiesandaglobal vaccinationdrive.Inresponse tothedevastating secondwave inIndiathroughoutspring2021, wedeployedafocusedvaccinationdrive in the region.Thevaccinationdrive hasmeantthat every employee of any age, their families and residentsofcommunitiesnearbyhave been offered at least one dose of the vaccine,andin October2021,100%ofemployeesinthe Indian plantsincludingcontractualworkforce,had received at least one dose. By December 2021, more than half had received two doses. The plant managementandsafetyteamsconducted vaccinationinitiativesatthe plantsincluding vaccinationregistrationandsupport,helping to achieveitsvaccinationsuccessrate. We ensure that our employees are as protected as possible during the pandemic and we made a concertedeffortinourvaccinationdrive incertain regionsthatwere mostaffectedandhadless accesstohealthcare,likeSouthAmerica.By 31 December 2021, a total of 99% of the entire workforceinSouthAmericahadreceivedtheir first dose of a COVID-19 vaccine, and 81% of employeeshadreceivedtwodoses. Throughoutthispastchallengingyear,ithasbeen more important than ever to make sure thatour employeesareofferedsupportformentalhealth and wellbeing.Tohelpsupportemployeesduring thisextraordinarytime,we launchedthe Head Office(Vienna)basedemployee assistance programme,“Consentiv”,whichoffers anonymousface-to-face servicesincluding counselling,coaching,mediationandconflict interventionforallViennabasedemployeesand theirfamilies.OutsideofVienna,wehave partneredwithlocal external providersaround the world in order to offer support to our employeesinternationally.Webelieve increating anorganisationwhereeveryonehassomeoneto turntoforsupportwithbothprofessionaland personalissues. | | Building a diverse, equitable and inclusive workforce The Grouplauncheditsfirsteverglobalgraduate traineeprogrammein2020,the“Refractory Factory”,withourfirstintakenowapproachingthe endoftheir18-24monthleadership journey. Graduatetraineeshaveworkedonrotational assignmentsacrossFinance,Salesor R&D, participatedinstrategicgrowthprojectsand workedinatleasttwolocations.Thetrainee programmeisdesignedtobringyoungtalentinto our business, helping us to build a multi- generationalworkforce.Ourlatestgraduate intakerecruitedduring2021 for2022included 21 traineesacross11 nationalitiesandwith 57% female representation. The Groupiscommittedtoincreasingitsgender diversityatleadershiplevel,andin2021 welcomedfivenewDirectorstotheBoard, includingthree independentNon-Executive Directorsandtwoemployee representatives. Followingthesenewappointments,Board female representationisnow38%.Currently,22% of all seniorleadershippositionsare held by females whichincludesthe EMTandtheirdirectreports. RHI Magnesita’s goal is to increase the share of female leaders to 33% by 2025. To help us succeed in the future werequirethe broadestrange oftalentandperspectivesfrom avariedworkforce,especiallyintermsofgender diversity,international representationand generationmanagement.AtRHI Magnesita, we arecommittedtoofferinginclusion to everyone, anddiscriminationhasnoplace at our Company. Toincreaseoureffortstoexpanddiversity within ourworkforce,adedicatedGlobalDiversity SteeringCommitteewasestablished in June 2021,followedbyRegionalDiversity Steering Committeesintheregions.Thepurposeofthe committeesistopromoteglobaland regional measurestoincreasediversity,keep trackof progressandcoordinate rolloutwith line functions.InDecember2021,theExecutive ManagementTeamcommittedtoexecuting anewandimpactfuldiversitystrategy with a greaterfocusongenderdiversityin2022. Readmoreondiversityand inclusion Page 65 | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 2 3 # 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. | | Safety: LTIF Relative CO2 emissions (t CO2/t) 2021 0.18 2021 1.82 2020 0.13 2020 1.96 2019 0.28 2019 1.85 2018 0.43 2018 1.89 | | | | | The non-financial information, as presented within the Director’s Report, which in this document comprises the Strategic report and Governance section of this Annual Report, complies with the Dutch Disclosure of Non-Financial Information. | | KPI relevance Safetyis paramount to thesuccessful running of our business.LostTimeInjury Frequency (LTIF) isthemain indicatorused tomeasuresafety performance. TheGroup’s goal iszero accidents. How it is measured Thenumber ofaccidentsresulting inlost timeof more than eighthours,per200,000 working hours, determined onamonthly basis. | | KPI relevance Climatechangeposesstrategic andoperational risks to ourbusiness, aswell asopportunities. TheGroup’s target is to reduceScope1, 2, 3(raw materials) by15% pertonneof product by 2025(vs2018). How it is measured TonnesoftotalScope1,2,3(rawmaterials)carbon emissionspertonneofproduct.Scope1 emissions consistofon-siteemissions,Scope2comprise purchasedelectricity,andScope3aremeasuredfrom rawmaterialsproduction. | | Link to strategy 2021 performance 2021 performance | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Business model Competitiveness Markets | | LTIF was 0.18 in 2021 (2020: 0.13) and TRIF (Total Recordable Injury Frequency) increased slightly to 0.60 (2020: 0.45), broadly in line with industry averages. The rate of occupational injuries increased slightly compared to the prior year as staff returned to workplaces following the COVID-19 pandemic, production volumes increased and as the Group progressed construction projects at several of its sites as part of its network optimisation. | | | | CO2 emissions intensity reduced to 1.82 tCO2 per tonne of product, compared to 1.96 in 2020. Higher Scope 3 emissions from externally purchased raw materials were offset by efficiencies from high plant utilisation, increased purchases of electricity from renewable sources, improved energy efficiency, higher use of secondary raw material and an increase in production of fused magnesia at the Group’s Contagem site in Brazil using renewable electricity. | | | Use of secondary raw materials1 | | | Voluntary employee turnover | | Gender diversity in leadership | | | | 2021 6.8% 2021 6.8% 2021 22% 2020 5.0% 2020 5.1% 2020 25% 2019 4.6%22019 6.2%12019 17% 2018 3.8% 2018 6.6% 2018 12% KPI relevance KPI relevance KPI relevance | | | | | | | --- | --- | --- | --- | --- | | Recyclingplaysa criticalrole inachieving our 2025 emissions reductiontarget while alsodeveloping the circularityofourbusiness. Ourtargetis toreach10% secondaryrawmaterial(SRM) contentin refractories by 20253 | | Voluntaryturnoverisoneway of measuring theGroup’s success in retaining itsemployees. | | Diversity isimportant intermsof maintaining our competitivenessandeconomic success,andgender diversity isourfirst priority. Ourtarget is to increase femalerepresentation insenior leadershipto 33% by 2025. | How it is measured How it is measured How it is measured | | | | | | | --- | --- | --- | --- | --- | | Share of SRMcontent asa percentageoftotal raw materials. | | Thepercentageof employeeswho voluntarily le Companyduring theyearandwerereplacedby new employees. | | Numberof womenasapercentageof all those in leadershippositions(CEO, EMT andEMT direct reports). | 2021 performance 2021 performance 2021 performance | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | SRM accounted for 6.8% in 2021, compared with 5.0% in 2021. The strong progress made during the year was due to new initiatives to increase collection and processing of material from customer sites combined with an internal incentive scheme designed to reward sales of refractories with higher recycling content. | | | | Voluntary employee turnover was 6.8% for 2021, in line with historic averages but an increase on the rate of 5.1% recorded in 2020, when staff turnover was temporarily lower due to the COVID-19 pandemic and associated uncertainty in the global economic environment. | | | Female representation at leadership level decreased to 22% from 25%. The Group is pursuing a number of initiatives to increase female represenation toward target level. | | 1 Achangeinproductionvolumereportingsystem hasledto an adjustment tothe2018baseline andKPI. 2 Thevalueforthe recyclingratefor2019hasbeenrevisedsince thepublicationofthe 2019AnnualReport. 3 UseofSRM hasbeenaddedasaremunerationperformance measurefrom2021 –seepage121. | | 1 The 2019 figure has beenrestatedduetoa retrospective change to the basis ofanalysis. | | | | | | 2 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Revenue Adjusted EBITA margin Adjusted EPS 2021 €2,551m 2021 11.0% 2021 €4.52 2020 €2,259m 2020 11.5% 2020 €3.28 2019 €2,922m 2019 14.0% 2019 €5.57 2018 €3,081m 2018113.9% 2018 €5.31 KPI relevance KPI relevance KPI relevance | | | | | | | --- | --- | --- | --- | --- | | Thisdemonstratesthe growthofthebusiness. Byincreasingourglobalrefractorymarketshare, continually enhancingourproductand serviceoffering, the Company isfocusedon achieving revenuegrowth andaimsto outperform therefractories marketon an annualbasis. | | EBITAmarginprovidesameasureof profitability and demonstratesthesuccessful executionof the Company’sstrategy. | | Reflecting theincomestatement inaclear wayand taking theequity structureinto account, the Board believesAdjustedEPS to beoneof the indicators which demonstratesshareholdervalue. | How it is measured How it is measured How it is measured | | | | | | | --- | --- | --- | --- | --- | | Total Group revenue, asreported in thefinancial statements. | | Adjusted EBITA dividedby revenue, asreportedinthe financial statements. | | Earningspershare, excluding otherfinancial income andexpenses. | 2021 performance 2021 performance 2021 performance | | | | | | | --- | --- | --- | --- | --- | | Revenue for 2021 amounted to €2,551 million, 13% higher than 2020 given increased customer demand driven by the rebound of end market activity, following the adverse impact of the COVID-19 pandemic in 2020. | | The Group delivered a double-digit adjusted EBITA margin of 11.0%, 50bps lower than 2020 due to increases in freight, externally purchased raw material and energy costs that were not fully passed on to customers during 2021. | | Adjusted EPS of €4.52 (2020: €3.28) reflected higher operating profits and a reduced share count due to the €98 million share buyback programme (thereof €96 million share buyback in 2021 and €2 million share buyback in 2020). | Leverage ROIC R&D and Technical Marketing spend 2021 2.6x 2021 9.6% 2021 €63m 2020 1.5x 2020 11.5% 2020 €62m 2019 1.2x 2019 15.3% 2019 €64m 201811.3x 2018 16.5% 2018 €63m KPI relevance KPI relevance KPI relevance | | | | | | | --- | --- | --- | --- | --- | | Appropriate leverage provides thebusiness with headroom forcompellinginvestmentopportunities butalso enablesshareholderdistribution.TheBoard has defineda long-term leveragetargetrangeof0.5 to1.5x acrossthe cycle. | | Return on investedcapital (ROIC) isusedto assessthe Group’s efficiency inexecuting itscapital allocation strategy,which isaimedat enabling organic growth, disciplinedM&A andshareholderreturns. | | ExcellenceinR&D andstrong Technical Marketing capabilitiesarekey contributorsto our competitiveness. Thisdemonstratesourcommitment todriving innovation andto being theleading providerof services and solutionswithintherefractoriesindustries. The Company aimsto invest 2.2% perannum of revenue inR&D andTechnical Marketing. | How it is measured How it is measured How it is measured | | | | | | | --- | --- | --- | --- | --- | | Netdebt to adjustedEBITDA. | | Calculated asnet operating profit a total investedcapital1fortheyear. | | Annual spendon research anddevelopment, beforesubsidiesandincluding opexand capex. | 2021 performance 2021 performance 2021 performance | | | | | | | --- | --- | --- | --- | --- | | Net debt to adjusted EBITDA was 2.6x at the year end, above Group’s target range of 0.5-1.5x due to a material increase in inventory levels during 2021 to mitigate supply chain disruptions and high capital expenditure on strategic initiatives. | | ROIC decreased from 11.5% in 2020 to 9.6%, due to lower underlying profitability against comparative invested capital. | | €63 million was committed to R&D and Technical Marketing in 2021, equating to 2.5% of revenues, exceeding the Group’s annual commitment of 2.2%. | 1 2018wasadjustedtoincludethe impact of IFRS16. 1 Investedcapitalis:totalassets less cashandcashequivalents, othercurrentandnon-currentfinancialassetsand non-interest-bearingcurrentliabilities. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 2 5 # Operational review Strategic initiatives are progressing in building a strong and sustainable platform, despite a challenging supply chain environment. | | | | | | --- | --- | --- | --- | | | Revenueincreased year on year by 13% to €2,551 million (2020: €2,259 million) and by 16% in constantcurrency terms, with shipped volumes now above 2019 levels | | Steel Division | €127 million priceincrease programme realised largely in Q4, to mitigate unprecedented supply chain disruption includinghigher freight,energy and purchased raw material costs | | | | | | | | --- | --- | --- | --- | --- | --- | | | Cost saving initiativesnow expected to deliver c.€90 million of EBITA benefit from cost optimisations in 2022 and €110 million in 2023 Sales strategies now targeting €40-€60 million in 2023 as Flow Control trials and solutions contracts delayed by lack of access to customer sites during pandemic Maintained strong market share in Electric Arc Furnace refractories,whichgenerated 16.2% of Group revenues Digital products support growth in solutionscontracts, now representing 29% of revenue | | Steel revenue €1,823m 2020: €1,570m Steel gross margin 21.6% 2020: 23.4% The Steel Division accounts for roughly 70% of Group revenues, and demand is driven by global steel production volumes. Refractoryproductsare used to line steel applicationsinthe plant,toprotectagainstthe extremetemperaturesofliquidsteelofup to 1,800degreesC.RHIMagnesitaoffersa completeproductandserviceportfolioforall steelapplications,includingprimarysteelmaking suchasbasicoxygenfurnace(BOF),electricarc furnace (EAF) and ladles as well as ingot and | | Revenue breakdown by geography in Steel Division North America 28% South America 15% Europe/CIS/Turkey 26% China and East Asia 11% India, West Asia and Africa 20% continuouscasting.Refractorieshave a finite lifetimeofbetween20minutesandtwomonths insteel applications.Theyare consumableitems andtherefore treatedasanoperatingexpense bysteelproducers,accountingforbetween 2-3% of the costofsteelproduction,onaverage. The Divisionservesover1,000customer sites worldwide,withaglobalmarketshare ofc.15%, or c.30% excluding China and East Asia. SteelDivisionrevenuesincreasedby16%in2021, to€1,823million(2020:€1,570million) | 2 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | reflectingthestrongeconomicrebound globally followingtheimpactofCOVID-19ondemand in2020.WorldSteelAssociationrecordedan increaseinglobalsteel production of 4% in 2021 compared to 2020, and by 4% in 2021 compared to 2019.Comparatively,SteelDivisionrevenues were down by 10% on 2019 (2019: €2,018 million).Grossprofitfor theDivisionwas€394 million,7%higherthan2020(2020:€368 million).However,grossmargindeclinedoverthe sameperiodby180bps,predominantlyduetothe adverseimpactofsupplychaindisruptionswhich increased the cost of sales, and the timing of passingthroughcostincreasestohigherproduct pricesintoH1 2022. | | The Group is making good progress in Europe in itsstrategytoconsolidateitsproductionfootprint anddriveefficienciesthroughautomationand modernisationofplants.The Groupinvested €27 millionatHochfilzen,Austriain2021 to transformitintoaEuropeanhubfordolomite- basedmaterials.In2021,the newmine and automatedconveyorsystemsweresuccessfully commissioned,andthenewrotarykilnbecame operationalinQ42021.Productionfromthe newlyinstalledfacilitiesisexpectedtoramp up over the first half of 2022. ReadmoreaboutourProductionOptimisationPlan progress in the strategy section on pages 16 and 17. | | | Alignedtothe Group’sstrategyofgrowth in currentlyunder-representedregions,theGroup agreedtoacquireinOctober2021 an85.2% ownershipstake inSöğütRefrakter Malzemeleri AnonimŞirketi(“SÖRMAŞ”),aproducer of refractoriesforthe cement,steel,glassand otherindustriesinTurkey,foraconsideration of €38.8 million in cash. The acquisition will significantlyexpandtheGroup’slocally manufacturedproductportfolioand serveas aproductionhubandplatformfor business growth in Turkey and the widerregion. With anenlargedproductportfolio,further potential existsfromtheopportunitytodeliver full-line service solutionstocustomersinTurkey. | | | | | | | | Refractoryproductionincreasedin2021,in responsetoincreasedendmarketdemandas economiesstartedtore-open.However,plant productioncapacitywashamperedbythe construction work at some of our key plants, as partoftheProductionOptimisationPlan,which wasfurtherexacerbatedbythesupplychain disruption. Freightavailability remained poor for themajorityoftheyear,containerisedshipping remaineddisruptedandtightnessinthismarket isexpectedtocontinue into2022.Thisheavily impactedthesupplychainforbothshippingraw materialtoproductionplantsandfinishedgoods to customersites.Regionswhichrelyheavilyon raw materialimportsforrefractoryproductionand finishedgoodswereimpactedmoreseverelyby the supply chain issues, such as the India and WestAsiasteelregion. | | Aspartofitsdigitalisationinitiative,theGroupsigned itsfirstAutomatedProcessOptimisation(“APO”) digitalservicecontract,acloudbasedreal-time monitoringandmaintenancesystem,withacentral Europeancustomerontheoperationalperformance oftheRHdegasserapplication,withsecurity standardsbasedonblockchaintechnology. TheGroupmadegoodprogressingrowingits solutionbusinessmodelintheregionduring 2021.TheGrouprenewedasolutionscontract withalongstandingcustomerinPolandforan additionalfiveyears,followinganexisting10-year relationship.TheGroupalsosecuredalarge solution contract for a CIS customer, in joint collaboration with an OEM partner, for a BOF application,enhancingtheGroup’sgrowth trajectoryinthisstrategicmarket. | | | In2021,theGroupalsosignedandimplemented itsfirston-siterecyclingcontractwithArcelor Mittal,France.Thecontractincludesthesorting andre-useofspentrefractoriesatthecustomer site.Theon-siterecyclingfacilitywillhave theabilitytosortmorethan20,000tonnes ofmaterialperyear,withapproximatelyathird of that expected to be eligible for reuse as secondaryrawmaterial,allowingtheGroupto bothexpanditssolutionsportfolioaswellasdriving itssustainabilityefforts.RHIMagnesitacommits tohelpitspartnerstoreducelandfillcostsby increasingtheshareofsecondaryrawmaterialinto itsownproduction,underpinnedbyappliedR&D. More detailsareavailable on the Group’s website. | | | | | | | FromQ22021,theGroupimplementedprice increasesacrossallbusinessareastotalling €130milliontomitigatetheincreasingly inflationaryenvironmentandwassuccessful inachieving98%oftheseplannedpriceincreases in2021,withfurtherbenefitexpectedin2022. Thepriceincreasenegotiationsweresupportedby agenerallyhigherproductpricingenvironment duringQ4,includingrawmaterialpriceincreases. Europe, CIS, Turkey Total revenue for the year in Europe, CIS and Turkey amounted to €474 million, up 9% on 2020 (2020: €437 million). On a constant currencybasis,revenuesincreasedby9%from €434millionin2020.TheGroup’soverall performanceinthecombinedregionwas positivelyimpactedbytherecoveryofthe Europeansteelmarket, as well as increases in marketshareandhigherfinishedgoodspricing given higher raw material prices in Q4. World SteelAssociationdatarecordeda 11%increasein steelproductionintheregioncomparedto2020. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 2 7 #### Operational reviewcontinued Americas Totalrevenuesfortheyearof€784millionin NorthandSouthAmericarepresenteda15% increaseon2020(2020:€681 million),asdomestic steelproductionenjoyedastrongreboundand steelproductionreturnedto,andinsomecases exceeded,pre-pandemiclevels.Strongdemand forsteelintheAmericasisexpectedtocontinueinto 2022andbeyond,followingtheannouncementof a$1 trillioninfrastructurebillintheUnitedStatesthat isexpectedtobedirectedtowardsnewroadand bridgeconstruction.WorldSteelAssociationdata recordeda17%increaseinproductionover2020in NorthAmericaand18%increaseinSouthAmerica. Onaconstantcurrencybasis,revenuesincreased by 21%, from €645 million in 2020. The Group experiencedaFXrevenuesheadwind,given BRL and USD weakened in 2021. | | | | | | | --- | --- | --- | --- | --- | | During2021,theGroupadvanceditsinvestment projects in Brazil, which are part of the Group’s ProductionOptimisationProgramme.Atthe Brumado mine in Brazil, the installation of a rotary kilnformagnesiteproductionisduetocomplete in H2 2022. The investment will increase the life of the mine from 47 years to 120 years, and further improvethecostcompetitivenessofthemine which is already in the first quartile of the global cost curve for DBM raw material. The Group also continueditsinvestmentinthemodernisation andautomationoftheContagemplant,which willincreaseproductivityandreducecosts, creatingamagnesitehubfortheAmericas. This project is expected to complete in H2 2022. A new primarycrusherinYork,Pennsylvania, UnitedStates,(Americasdolomitehub), was installedandcommissionedin2021 a multi-year€7millioninvestment.Thenew crusherwillincreaseefficiency, reducewaste and extend the life of the dolomitic mine. RHIMagnesitacontinuestoexpanditssolutions contractsintheAmericas,whichaccountsfor approximately41%oftotalrevenues.In2021,the Groupsecuredanewfulllinesolutioncontract withamajorsteelcustomerinTexas,UnitedStates, over a time period of two years, with 14 people on-sitededicatedtorefractoryinstallation. | | In 2021 theGroupexpandeditsmarketposition in FlowControl,withfive projectscommissioned over the year for slide gates and a further four confirmedfor2022.ProductioncapacityinFlow ControlwasincreasedwithaninvestmentatYork, UnitedStates,inatundishworkinglinings,aswell asa newalumina-basedproductionlineand pre-cast nozzleline atTlalnepantla,Mexico. TheAmericasregiondemonstratedexcellent tractioninexpandingitsdigitaloffering,akey part oftheGroup’soverallsalesstrategy.Seven projects for laser measurementtechnologywere successfullyimplemented,withafurtherthree in thepipeline. Initiativestoincrease thepercentage ofrecycled rawmaterialsin ourproductionchainhavegained momentum in the Americas. In the month of March2021,for the first time, we achieveda record10.3%recyclingrate atRamosArizpe, Mexico.R&Dsuccessenabledachange in the compositiontoinclude highersecondaryraw material in the products of the basicand aluminous lines,withoutaffectingperformance. TheGrouphascommitted€1 millionover2022 withatwo-yearpaybackperiodtowards developingRamosArizpe,Mexico,intothe Group’sfirstrecyclingplantinNorthAmerica. Thistransformationwillincludeadedicated refractorywastepurchasingteamandnew refractorywastecrushingline. | | China and East Asia TheChinaandEastAsiaregionrecorded revenuesof€206millionin2021,anincrease of 23% on 2020 (2020: €167 million). On a constantcurrencybasis,theGrouprecorded revenues of €164 million in 2020. World Steel Associationdatarecordeda1%decrease in productionover2020inthecombinedregion, where productioninChinadecreasedby 3%. TheGroupperformedespeciallywellintheEast Asiaregion,where revenuesincreasedby 33% to€132millionfrom2020(2020:€99million) reflectingthe strengthofthe economicrebound in the region,especiallywithinSouthKorea, TaiwanandVietnam.Chinarevenuesincreased to €74 million (2020: €67 million), as the Group continuedtoexecuteitsstrategyindeveloping newbusinessandincreasingmarketshare. However,steelproductioninChinawasadversely impactedbythe Chinese government’ssteel reductionpolicyimplementedinH22021, environmental restrictionsimposedahead of the BeijingWinterOlympicsandpower shortagesinQ4,whichimpededproduction andreducedlocalrefractorydemand.China revenues increased by 10% to €74 million, from €67 million in 2020. | 2 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | We are immensely proud of our newly established R&D centre in Bhiwadi, India, which will become our flagship R&D centre for flow control. Parmod Sagar President of India, Africa & West Asia | | | | | | | --- | --- | --- | --- | --- | | Over the next four years a key focus area for the Group will be to grow its market share in EAF plants,withanadditional75Mtofcapacityin China expected by 2023. In 2021, the Group completedthestartupofitsfirstQuantum-EAF projectinChinawithPinggang.Italsoachieved a new record number of heats for the EAF plant atSJZsteel,drivingefficienciesforthecustomer andcontributingtothe establishmentofa new solutionscontract. AspartoftheGroup’songoingProduction OptimisationPlan,anewtemperfurnacewas installedatDalian,China,whichwill approximatelydoublecapacityatthatsite. Additionally,theproductionplantinstalleda newFlowControlproductionlineforpurgeplugs. Dalian, China, is home to one of the Group’s first ManufacturingExecutionSystems(“MES”), aflagshipsitefortheGroup’sdigitalisation initiatives.TheMESprojectwasinitiatedinAugust 2021 and is due to complete during H2 2022, whichwilloptimiseoperationofmachinery, improvesafetyandreducecosts.TheGroupalso implementedanewRFID-enabled warehouse inChongqing,China.RFID technologyallows customerstoachievereal-time,virtualinventory managementofconsignment stock. TheGroupinitiatedanon-siterecyclingsolutions contractwithamajorChinesesteelcustomerin 2020,andfollowingstrongperformanceduring 2021, will now commission the project as a global pilotgivenitsefficientandcost-effectivesorting, treatmentandrecyclingprocesses. India, Africa and West Asia Total revenues recorded for the year in India, Africa and West Asia was €359 million, an increase of 26% compared to 2020 (2020: €285 million).Thecombinedregionrecorded significantvolumegrowthin2021,withsales volumes higher than in 2019. On a constant currencybasis,revenuesincreasedby30% (2020:€275million).Bycomparison,India, AfricaandWestAsiasteelproductionincreased by 15% in the period according to the World SteelAssociationdata.Thestrongrevenues performance was due to a robusteconomic reboundinthecombinedregion,despitethestrict COVID-19 lockdown in India in H1 2021.Thiswas supportedbythefinancialstimulusprogramme inIndiaforinfrastructuredevelopment.Demand forsteelexportsfromIndiahavealsoincreased, increasingrefractorydemandintheregion,as productioninChinaslowed.Thistrendis expectedtocontinueinto2022. | | OutsideofIndia,the Groupcontinuedto partner withitssolutionscustomersinBahrain andOman,helpingtodriveproduction efficiencies.The Group won market share in Iraq andAlgeriaandexpandeditsbusinessinEgypt. InIndia,theregionhasexpandedcapacityin non-basicshapedproductsatthe Vizagplantas partoftheProductionOptimisationPlan.Anew tunnelkilnwascommissionedinOctober2021 whichwillincreasecapacityofaluminabrick productionandanewshuttle kiln at the plant was installedduring2021,readyforproduction in Q1 2022. In line withthe Indiangovernment’s “Madein India”policy, whichencourages companiestoon-shore manufacturinginIndia for domesticcustomers,theGroupisgaining competitive advantage frommanufacturing products for the Indian market locally. 65% of the plant’sproductionissuppliedtocustomersinthe domesticmarket.TheGroupalsoannounceda €42millioninvestmenttoexpanditsproduction capacityinIndiaandincreaseautomationof existingplantsinBhiwadi,VizagandCuttack, to becompletedby2025. Thecombinedregioncelebratedthefirst installationofthe APO tool in 2021 at a BOF operated by a major steel customer. The India region also won its first contract in the country for electro-magneticlevelindicators(“EMLI”)for a tundishapplicationofamajorsteelcustomer. Othernew productsandservicesinstalledduring the year to improve steel quality at customer sites includePurgebeamand Magfilter,whichhave beendesignedbyRHIMagnesita’sR&Dand innovationdepartmentsusingflowsimulation to imitate the flow of molten steel in moulds and in the tundish. As part of the Group’s efforts to drive itssolutions business,the Groupwonasolutionscontract in October2021 to partner with a major steel customerwhichhasrecentlycommissionedthe largestbrownfieldexpansioninIndia,creatingthe largestplantcapacityinIndia.RHIMagnesitawill providerefractoryproductsforapplicationssuch as the BOF, Ladle and RH degasser as well as flow controlapplications. | | InNovember2021,theGroupopened a new regional R&D centre in India to facilitate a greater understandingof local marketsand enablemore unifiedtechnologytransferinthe region,driving costefficiencies.Focusareaswillbelocalraw material development,providingsolutions supportforcustomerperformanceimprovement projectsandsupportinglocal contentand manufacturingineachofthe Group’sthree plantsinIndia. Over the year the Groupprogressed its flow controlstrategyinthisregion,increasingmarket share in both slide gates and ladle purging and remains the market leaders in the region for the longsegmentoftundishandISOproducts. Indiahashistoricallyrecordedhigh ratesof secondaryrawmaterialusage,giventhelackof virginrawmaterialavailabilityintheregion,and in 2021 it recorded a high recycling rate of 16%. In West Asia and Africa, the Groupconsistently increasedthe amountofsecondary rawmaterial content in products sold to EAF and ladle applicationsandincreasedefforts to collectspent refractorymaterialfromcustomer sites. | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 2 9 #### Operational reviewcontinued | | | | | --- | --- | --- | | Industrial Division | | Readmore inOurmarkets Page 20 | IndustrialDivisionrevenuesincreasedby6% in 2021 to€729million(2020:€689million), led by a strong recovery in the Cementand Lime businesswhichincreasedby18%followinga recordyearofvolumes.Onaconstantcurrency basis,revenuesincreasedby7%,from €679 millionin2020. Gross profit for the Divisionwas€190million, up from €182 million in 2020 and gross margin declinedoverthe same periodby30bps to 26.1% as the impactfromsupplychain disruptionincreasedcosts,especiallyfor the projectbusiness. Cement and Lime | | | | | | | --- | --- | --- | --- | --- | | Industrialrevenue €729m 2020:€689m Industrialgross margin 26.1% 2020:26.4% The Industrial Division accounts for c.30% of Group revenues and provides refractory solutions to customers across cement and lime and industrial projects (non-ferrous metals (‘NFM’), glass, environment, energy and chemicals (‘EEC‘), foundry and mineral sales). TheIndustrialDivisionsegmentsaresubject tolongerreplacementcyclesasthelifetimeof arefractoryproductintheseindustriesranges from one year to 20 years. Refractories used intheIndustrialDivisionaretreatedascapital | | Revenue breakdown by segment in Industrial Division Cement/Lime 44% Industrial business 56% expenditureatourcustomersites,giventhe long replacement cycles of over a year. They account for between 0.2% to 1.5% of the customercost baseandconsume lessrefractorymaterialper tonneofproductionthansteel,onaverage.The IndustrialDivisionservesapproximately2,800 customersworldwide,withasignificantglobal market share of c.35% in Cement and Lime and c.25% in NFM and c.5% in Glass, EEC and Foundry. | | Revenue for the year was €322 million, up by 18% on 2020 (2020: €273 million), and on a constant currencybasisby20%(2020:€267million). Cement and Lime accounted for 44% of total IndustrialDivisionrevenuesin2021 and 13% of Grouprevenues.The CementandLimesegment recordedarecordyearforvolumesattributed to both new orders and from a carry-over of delayed ordersduring2020.End-userdemandremained strongthroughout2021 andthistrendisexpected to continue into 2022 with full order books for repairactivityinQ1 2022.Stimuluspackages, initiatingnewinfrastructure projects,were implementedgloballyto helpstimulate slowed economiesover2020,boostingcementdemand internationally. Therawmaterialsrequiredforthe portfolio of refractoryproductsfortheCementandLime segmentwere in tight supply at the start of the year,whichwasexacerbatedbyglobalfreight disruptionfromQ2onwards.Rawmaterial inventorylevelshavesincebeenrestored ahead of the highseasonaldemandexpectedduringthe 2021-2022northernhemisphere winter months, whentheannualindustryrepaircycletakesplace. Pricingwasso resulting in a lower average price per tonne comparedto2020.Pricingwasestablished at the start of Q3 2020 for H1 2021,whenrefractory raw materialpriceswereattheirlowestlevels for five years.Price increasesimplementedduring2021 inresponsetoinflationarypressuresstarted to comethroughduringQ42021 and will be fully realisedin2022.Thehigherrawmaterial price environmenttowardsthe end of 2021 supported customerpricingnegotiationsfor2022. | 3 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | A state-of-the-art fired alumina brick plant will be built in 2022 which underlines our alumina strategy and opens lots of new opportunities in all industrial sectors. Marco Olszewsky President of China & East Asia | | | | | --- | --- | --- | | On30December2021 theGroupacquired a51%ownershipstakein‘ChongqingBoliang RefractoryMaterialsCo.Ltd.’foracash considerationof€5million.Thejointventure investmentwillestablishproductionofnon-basic refractoriesalongsideanexistingfullyautomated plantthatwillcomplementtheGroup’s magnesite-basedproductioninDalianand deliverafullrangeofrefractoryproductsfor cementcustomersinChinaandSoutheastAsia. In 2021 theGroupcontinuedtomake considerabletractioninitsANKRALLowCarbon (LC) product in Europe based on the circular economyapproachand sustainabletechnology. TheGroupapproximately doubled revenues contributionfromtheseproductscomparedto 2020andincreasedthenumberofcustomers served from 13 to 22. In 2021 theproductionof the ANKRAL LC serieswasalsoextendedfrom Europe to China, at the Dalian site, which will furtherincreaseourmarketshareinsustainable productsinAsia. TheGroupalsoexpandeditsdigitalisation solutionsin2021,launchingthe“LaserScan” previewforcementcustomers.LaserScanuses highspeed3Dlaserstomeasuretheremaining thicknessofrotarykilnliningsaheadofanyrepair work,optimisingrefractoryperformanceandkiln availability. Industrial Projects IndustrialProjects,comprisingNFM,process industries(glass,EEC andfoundry)andmineral salesreportedrevenuesof€407millionin2021, 2%belowrevenuesrecordedin2020(€416 million) and below expectations for the year. On a constantcurrencybasis,2021 revenuewas1% lowerthan2020(2020:€410million).The IndustrialProjectsbusiness experienced significantdemandthroughouttheyearforboth NFM andprocessindustries,fromnewordersas wellascarry-overfrom projectpostponementsin 2020.Demandinthenon-ferrousmetalssector strengthenedinH1 2021,ascommodityprices rallied in the first five months of 2021. NFM recordedrevenuesof€145million,2% higherthantheprioryear(2020:€142million). Processindustriesrevenuesdeclinedby4% to €262 million (2020: €274 million)asthe productioncapabilityinthebusinessand deliveriestocustomers wereimpactedby insufficientproductioncapacity, given the ProductionOptimisationPlanworkatRadenthein, Austria,whichwasthenaggravatedbytheglobal supplychaindisruption. | | DisruptionacrosstheIndustrialProjectsbusiness wasexacerbatedbyunplannedmaintenanceat Radenthein,the Group’smainproductionfacility fortheprojectsbusiness.Anunscheduled shutdownduringQ32021 adverselyimpacted Group EBITA by €8 million. The plant was repairedandfullyoperationalinQ42021. Inresponse tohigherinflationarycosts,the Group implementedprice increasesinitsIndustrial Projects business for new orders, as well as for previouslynegotiatedcontracts.The response fromourcustomershasbeenlargelysuccessful, however the longlead-time characteristicof projectswithreplacementcyclesofoverone year meansthatasignificantportionoftheseprice increaseswillonlybe realisedin2022. Radenthein,Austria,isthe Group’smain productionplantforIndustrialProjects.The Groupismodernisingandautomatingtheplant, aswellasinvestinginnewinfrastructure,centred aroundanewtunnelkiln,whichwasinaugurated inMay2021.Afurtherinvestmenttowardsnew pressesatthe sitewillincreasethe plant’s productioncapacityby30%,withtheinvestment project due to complete in H2 2022. TheGroupstrengtheneditssustainable market share in 2021 andbroadeneditssolutionoffering, signingaconsortiumagreementwithRussia’s ZiO-Podolsktosupplyrefractoryengineering, materialsandinstallationservices.The initiative willconstructfournew waste-to-energyplants in the Moscow area, which is due tocommence in 2023.The plantswillprocessaround 2.8 milliontonnesofwasteannually,supplying up to 1.5 million people witharenewablesource ofelectricity. TheGroup’sAGELLIS®systemsincrease yield, improvequality,reduce maintenance,greatly enhancesafetyandare usedinourcustomer operationsforNFM,aswellassteel.Sensor technologymonitorsprocesscritical parameters withinourcustomers’furnacesusing electromagneticandopticalsensors.AGELLIS® systemsare gainingsignificantmarketshare withinthenon-ferrousmetalssegment. | Outlook In the SteelDivisionthere is a strong order book and visibility for the first half of 2022, although the highcustomerdemandrecoveryexperienced in 2021 isexpectedtonormalise in the second half. The industrialdivisionorderbookcoversmostof 2022 and lead times, in some cases, exceed 12 months.IndustrialsDivisionmarginswillcontinue to benefit, in the first quarter of 2022, from the strongerpricingenvironmentforcement customerscomparedtotheprioryear. Costpressuresfromfreight,energy and raw materialsare continuingin2022with significant labourinflationnowalsoexpected in both local currency and Euro terms, as high inflation leads to wagedemands.Furtherpriceincreaseshave become effective inJanuaryandmoreprice increasesare undernegotiationtopreserve marginsinresponse toongoingcostinflation. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 3 1 | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Financial review Ian Botha CFO We delivered a robust financial performance in spite of the challenging macro environment, and continued to make good progress on the 2022 investment programme. | | Revenue TheGrouprecordedrevenueof€2,551 millionin 2021,anincrease againstthe prior year of 13% (2020:€2,259million).TheGroupbenefited fromincreasedcustomerdemanddrivenbythe rebound of end-marketactivity,followingthe adverseimpactoftheCOVID-19pandemicin 2020. The higher raw material price environment in 2021 comparedto2020supportedhigher refractorypricingacrossallbusinesses. In 2021 theGroupnegotiatedprice increases totalling€130millioninresponsetosignificant costinflationdrivenbyhigherfreightandenergy costs.TheGroupwassuccessfulinrealising98% ofplannedpriceincreasesin2021,withfurther benefitexpectedin2022fromtherestorationof marginstohigherlevels.Price increasesrestored gross margin to 26% in December 2021, establishingarunrateinto2022. Rawmaterial prices Rawmaterialpricesincreasedandthenheld broadly stable levels for eight months of the year beforeincreasinginthe fourthquarterasChinese suppliersreducedproductiondue topower shortages, energyrationingandhighenergy costs. Readmore on raw material pricing in the Markets sectionon Page 20 Steel Division TheGroup’sSteelDivisiondeliveredrevenue of €1,823 million in 2021, 16% higher than 2020 (2020:€1,570million).Onaconstantcurrency basis,SteelDivisionrevenueincreasedby20% (2020:€1,522million).Global economiesstarted to recover in 2021 withthemostnotable impactin India,WestAsiaandAfricawhererevenueswere 26% higher than in 2020. The China & East Asia regionalsoperformedwellin2021,recordingan 23%increaseinyear-on-yearrevenues attributedmostlytoEastAsia.TheAmericasand Europe, CISandTurkeyregionscontributed15% and9%year-on-yeargrowth,respectively.The Americasenjoyedastrongreboundinsteel demand,with steel demandoutweighing productionthroughoutthe year as steel producers constrainedproductionfocusingon priceratherthanvolumes.Onaconstant currencybasis,the Americasregionrecorded revenueincrease of21%,impactedbycurrency devaluationsparticularlyfromBrazilianReaisand | | | | | | USDollaragainstthe Euro.The Europe,CISand Turkeyregionwaspositivelyimpactedbythe recoveryoftheEuropeansteelmarket,as well as anincreaseinmarketshare. IndustrialDivision IndustrialDivisionrevenueincreasedby6% to €729million(2020:€689million)largely due to the strongrecoveryinvolumesinthe Cementand Limebusinesswhichincreasedby18%year-on- yearto€322million(2020:€273million), recordingaverystrongQ1 andQ4,characteristic ofstrongseasonaldemandduringthe northern hemisphere wintermonths.However,pricesfor the CementrepairseasoninQ1 2021 were set in the summer of 2020 when prices were low, aheadofrawmaterialprice increases, contributingtolowerproductpricing.The Industrialprojectsbusinesswasbroadlyflat against2020,recordingrevenue of €407 million (2020:€416million),asproductioncapability in the businesswasimpactedbyglobalsupply chain disruptionandunscheduledtunnel kiln maintenance atRadenthein,Austria.Revenue recoveryacrosstheprojectbusinesswasfurther impactedbythedelayinimplementing Group-widepriceincreasesacrossthesegment, given longer lead times on orders with replacementcyclesofgreaterthanoneyear. Readmore ondivisionalperformancein theOperationalreview Pages 26 to 29 Cost of goods sold The Group cost of goods sold over the period amountedto€1,967million,anincreaseof15% compared to the same period last year. Higher freightcostswerepartiallyoffsetbyfavourable currencymovements,andonaconstantcurrency basis cost of goods sold was 19% higher than in 2020. Inboundandoutboundfreightcostsaccounted for 12% of COGS in 2021, compared to 8% in 2020andamountedto€236million(2020: €137million).The ShanghaiContainerized FreightIndexincreasedby81%sincethe beginningoftheyear.Supplychaindelays causedbylowfreightreliabilityimpacted productionschedulesand deliveriesandthere wascontinueduse ofairfreightwhennecessary toensure customersupply. | | | Read more on APMs on Page 215 | | | | Reporting approach TheCompanyusesanumberofalternative performancemeasures(APMs),inadditionto thosereportedinaccordance withIFRS,which reflect the way in which the Board and the ExecutiveManagementTeamassessesthe underlyingperformance of the business.The Group’sresultsarepresentedonan“adjusted” basis,usingAPMswhichare notdefinedor specifiedunderthe requirementsofIFRS,but arederivedfromtheIFRSfinancialstatements. The APMs are used to improve the comparability ofinformationbetweenreporting periodsandtoaddressinvestors’requirements forclarityandtransparencyoftheGroup’s underlyingfinancial performance.The APMs are used internally in the management of | | | ourbusinessperformance,budgetingand forecasting.Areconciliationofkeymetricsto the reportedfinancialsispresentedinthe section titledAPMs. InJanuary2021,the FoundryDivisionwas reclassifiedintotheIndustrialDivisionfromthe SteelDivision.In2021,the FoundryDivision contributed€13milliontoGrouprevenue. 2020divisionalrevenueshave beenrestated accordingly. Allreferencestocomparative2020numbersin thisrevieware onareportedbasis,unlessstated otherwise.Figurespresentedatconstant currencyrepresent2020translatedtoaverage 2021 exchangeratesasdisclosedinNote 6to the Financial Statements. | | | 3 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | In June 2021, the Group implemented a dedicatedtaskforcetomitigatetheimpactof supplychaindisruption, includingreal-time logisticsmonitoringto helpplan around shipment delays.InDecember2021,theGrouplaunched thefirstphaseofitsTransportManagement System (TMS) in China, ahead of its planned global roll out. The TMS willprovideend-to-end transportmanagementcontrolcovering planning,execution,monitoringand auditing, allowingenhancedvisibilityoffreightstatusand location. TheGrouppurchased€906millionofraw materialsfromexternalsourcesin2021, compared to spending of €807 million in 2020. The cost impact in the 2021 profitandloss statementwas€(69)million.Elevatedraw material prices in Q4 2021 were mainly due to highercostsofproductionandtransportation costsforrawmaterialsuppliers,asenergycosts increasedsignificantly. TheGrouprestockedits raw materialinventoryoverthecourseoftheyear priortoexpectedtightersupplyfromChinaduring Q4 2021 aheadoftheBeijingWinterOlympics. EnergycostssignificantlyincreasedinQ42021, aspost-pandemic demand returned whilst supplyremainedconstrained.Naturalgas and power in Europe and Asia were most impacted. TheGrouppurchasedEuropeannaturalgasand powercontractsinadvanceforQ42021 and Q1 2021,significantlybelowwherespotprices subsequentlymovedto.TheGroupwasalso impactedbyhighercostsofCO2 creditsinEurope, mainlyduetohigherproductionvolumesinour raw materialplants.Duringtheyear,theGroup implementedarollingfive-year hedging programmetoreduceitsexposuretospotCO2 contractprices. Gross profit The Group recorded a 6% increase in gross profit to €584 million in 2021 (2020:€550million)due to highersalesvolumes,pricingandrevenues, offsetbyincreasedfreightandenergycostsand higherpricesforexternallysourcedrawmaterial. Grossmarginsdeclinedto22.9%(2020:24.4%) aspriceincreasesrealisedduringtheyeardidnot fullyoffsetthesignificantincreaseincostsfrom supplychaindisruption and higherenergy costs. | | Ona divisionalbasis,grossprofitinthe Steel Divisionof€394millionrepresentedanincrease of 7% against the previousyear(2020:€368 million),whilegrossmarginreducedby180bpsto 21.6%, (2020: 23.4%). Gross profit in the IndustrialDivisionamountedto€190million (2020: €182 million), up 4% against the prior year, with gross margin declining by 30bps to 26.1%(2020:26.4%). Steel 2021 2020 Change Revenue (€m) 1,823 1,570 16% Gross profit (€m) 394 368 7% Gross margin 21.6% 23.4% (180)bps Industrial 2021 2020 Change Revenue (€m) 729 689 6% Gross profit (€m) 190 182 4% Gross margin 26.1% 26.4% (30)bps SG&A TheGroupcompleteditspermanentSG&Acost savingprogrammein2021,achieving€29million inannualEBITAsavings,throughthe decentralisationof540managerialpositionsinto lowercostlocationsanddrivingincreased regionalisationinordertolocalise decision making, closertocustomersandplants. At the height of the COVID-19pandemicin2020, €50millionoftemporarycostsavingmeasures wereimplemented,includingshorttime work arrangementsandplantsuspensions.In2021, €43 million of these temporarysavingsreturned to the cost base as expected, with €7 million to be capturedasapermanentcostreductioninthe formoflowerdepreciation. Totalselling,generalandadministrative expenses,before R&Drelatedexpenses,were €297million,representinga7% increase against theprioryeargiveninflationandadditional expenditure onstrategicinitiatives,notably digitalisation(2020: €279 million). | | | Depreciation and amortisation Depreciationfor2021 amountedto €109million (2020: €120 million), 9% lower than 2020 given the short-termcostmeasurestakenin2020 whichlowereddepreciationby€7 millionand the reduction of assets due to the closureofplants fromtheProductionOptimisationPlan. Depreciationin2022isexpectedto bearound €125million. Amortisationofintangible assetsamounted to €22 million in 2021 (2020:€19million). Adjusted EBITDA AdjustedEBITDAamountedto€389million,up by 2% compared to 2020 (2020: €380million). The adjustedEBITDAmarginfor2021 was15.2%, compared to 16.8% over the same period last year, adecrease of160bps. | | | | | | Adjusted EBITA margin % | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 16 14 | | | --- | | 12 10 8 6 4 | | | | --- | | 12 10 8 6 4 | 10 8 6 4 2 | | 7.7% 2.6% 5.1% | | RHI standalone RHI Magnesita 13.9% 14.0% 9.7% 3.8% 5.9% | 5.5% 8.4% | | 5.0% 9.0% | | 11.5% 2.4% 9.1% | | 11.0% 3.2% 7.8% | 0 2016 2017 2018 2019 2020 2021 Backward integration margin Refractory margin R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 3 3 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Financial review continued | | Adjusted EBITA TheGroupdeliveredadjustedEBITAin2021 of €280 million, an increase of 8% compared to 2020 (2020:€260million),asthe €292 million increase in revenues was offset by c.€150 million of supply chain,rawmaterialandenergyrelatedcostheadwinds.The Grouprealisedanincremental€49 millionin2021 fromitsstrategicinitiativeprogrammes,withcostsavinginitiativescontributing €36 millionandsalesstrategies€13million.€43millionoftemporarycostsavingsmadein2020to preserveliquiditywere reintroducedtothe costbase in2021. | | | | | | | | | | | | | | (€m) 2021 | | 2020 reported | | 2020 at constant currency | | % change reported | | % change at constant currency | Revenue 2,551 2,259 2,201 12.9% 15.9% Cost of sales (1,967) (1,709) (1,658) 15.1% 18.6% Gross profit 584 550 543 6.2% 7.6% SG&A (297) (279) (275) 6.8% 8.4% R&D expenses (28) (30) (30) (6.7)% (6.7)% OIE (44) (120) (120) 63.3% 63.3% EBIT 214 121 118 76.9% 81.4% Amortisation (22) (19) (19) 15.8% 15.8% EBITA 236 140 137 68.6% 72.3% Adjusted items 44 120 120 (63.3)% (63.3)% Adjusted EBITA 280 260 257 7.7% 8.9% Refractory EBITA 199 205 (2.4)% Vertical integration EBITA 81 55 49.1% | | | | | | | | --- | --- | --- | --- | --- | --- | | AdjustedEBITA €280m 2020:€260m AdjustedEBITA margin 11.0% 2020:11.5% | | Impacted by significantsupplychainheadwinds in 2021, the Group’s price increase programme andothercostreductioninitiativesdeliveredan adjustedEBITAmarginof11.0%(2020:11.5%). TheGroup’srefractorymarginwasdirectly impacted by highersupplychain,energyandraw material costs and declined to 7.8% (2020: 9.1%). However,theGroup’sverticalintegrationmargin ontheproductionofrawmaterialsforinternal consumptionincreasedto3.2%(2020:2.4%), reflectingthehigherraw material price environmentandthelow-costpositionofthe Group’srawmaterialassets.The EBITA contributionofthe Group’srawmaterialassets increasedto€81 million(2020:€55million), basedonexternalmarketpricebenchmarksfor therawmaterialsproduced. Net finance costs Netfinancecostsin2021,includinggainsand lossesrelatingtoforeignexchange,amountedto €(25)million(2020:€(87)million). | | • €(44)millionrecordedin“restructurings,other income andexpenses”,relatingmainly to the costreductioninitiatives,including€16million relatingtotheplantclosure atTrieben,Austria, and €31 millionforimpairmentofDashiqiao, China.Theseincludedseverance costs of €1 millionandnon-cashimpairmentsof €41 million; • €22millionamortisationofintangible assets created at the time of the merger between RHI andMagnesita; • €6millionnon-cashothernetfinancial expenses,theseinclude €6millionnon-cash presentvalue adjustmentoftheprovisionfor the unfavourablecontractrequiredto satisfy EU remedies at the time of the combination of RHIandMagnesitatoformRHIMagnesita;and • One-time chargesexcludedfromtheeffective taxrate(“ETR”),largelythe restructuring, impairmentexpensesandataxdepreciation. | | | | | Netinterestexpenseamountedto€(7)millionin 2021 (2020:€(14)million),withinterestexpenses onborrowingsof€(21)million(2020:€(20) million)andinterestincomeof€14million(2020: €6million).Foreignexchangegainsof€3million were incurred, compared to a €(43) million in 2020, mainly due to the significantdepreciation of the Brazilian Real and US Dollar against the Euro,resultinginanincreasedeffectofforeign currency translation on the P&L in 2020. Items excluded from adjusted performance | | Taxation Total tax for 2021 in the incomestatement amountedto€39million(2020:€14million), representinga14%effective taxrate (2020:33%). The effective tax rate in 2021 decreasedasaresult ofrestructuringexpenses. Reportedprofitbefore tax amounted to €289 million(2020:€42million).Adjustedprofitbefore taxamountedto€270million(2020:€197 million),withanadjustedeffective taxrate of 18.0%(2020:16.7%).The adjustedETRguidance isbetween20%-22% for2022. | | | | | Inordertoaccuratelyassessthe performanceof thebusiness,the Groupexcludescertain non-recurringitemsfromitsadjustedfigures.In 2021,theseadjustmentscomprise: • €91 millionrecordedinshareofjointventures andassociatesfollowingtheproceedsfrom the sale of the Group’s 50% stake in the MagnifinJointVenture; | | Profit a On a reported basis, the Grouprecordeda profit a earnings per share of €5.10 in 2021 (2020: €0.51).Adjustedearningspersharefor2021 were €4.52(2020:€3.28). | | 3 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | Itemsexcluded from adjusted performance 2021 2021 | | | --- | | (€m) 2 EBITAreconciledtorevenue onpage 34. | | | reported adjusted EBITA 236 44 280 Amortisation (22) 22 – Net financial expenses (25) 6 (19) Result of profit in joint ventures 100 (91) 9 Profit before tax 289 (19) 270 Income tax (39) (10) (49) Profit a 250 (28) 222 Non-controlling interest 7 - 7 Profit attributable to shareholders 243 (28) 215 Shares outstanding1 47.6 - 47.6 Earnings per share (€ per share) 5.10 (0.58) 4.52 1 Totalissuedandoutstanding share capital asat 31 December2021 was46,999,019.TheCompanyheld2,478,686ordinaryshares in treasury.Weightedaverage numberof sharesusedforbasic earningspershare47,629,647. | | | | | | | Capital expenditure Capitalexpenditure in 2021 was€252million (2020: €157million),comprising€75 millionof maintenancecapex(2020:€71 million) and €177 millionofprojectcapex(2020:€86 million). In 2021,theGroupincreaseditscapitalexpenditure oncapitalprojects,asguided. Theprojectcapitalspentin2021 wasslightly belowtheguidanceof€180million,largely due tocapitalprojectdelaysatContagemand BrumadoinBrazil.Mainlygiventhehigh inflationaryenvironment,the individualprojects areexpectedtorequirehighercapitalexpenditure during2022and2023,howeverother parametersofthe projecthave moved favourably, and the additionalreturnsoffsetthehigher capex such that the economicsoftheprojectsremain attractive. | | | | | | | | Other assets and liabilities €(90)millionofotherassetsandliabilities includes€19millioninpensioncontributionsand €20 million from a change in bonus provision relative to 2020. €53 million of indirect and other tax,temporarytimingdifferences includes €43 millionrefundableVATpaidonincreasedraw materialpurchases,recognitionofa refundof revenue-basedtaxespreviouslyoverpaidinBrazil, energytaxesandresearch incentives.TheGroup hasrecognised€14millionofotherrevenueand €11 millionofinterestincomefollowingaBrazilian SupremeCourtrulingresultingina refundof revenue-basedtaxespreviouslyoverpaidinthe period2005-2020. Working capital Workingcapitalincreasedto€677million (31 December2020:€369million)assupply chaindelaysincreased the value of material in transitandasinventoriesofrawmaterialsand finishedgoodswereintentionallyincreasedto ensuresufficientlevelsofproductavailabilityfor customers.Cashoutflowfromincreasedworking capitalwas€283millioncomparedwithaninflow of €97 million in 2020. Favourableforeign exchangeeffectsreducedworkingcapitalcash outflowby€25million.Workingcapitalintensity, measuredaspercentageofthelastthreemonths’ annualisedrevenue(€2,911 million),increasedto 23.3% in 2021 (2020:15.9%),outsideofthe targetedrangeof15-18%.Workingcapital intensitylevelswerehigherthanguidedgiventhe higherrawmaterialprices, and intentional build-upofrawmaterialgivenconcernsonlower availability.AnimprovementintheGroup’s workingcapitalintensity is dependent on improvedsupplychainreliability.Ifsupplychain disruptioncontinuesin2022andreturningto withinthetargetedrangemaynotoccuruntil 2023. Workingandrawmaterialavailabilityimproves followingenergyshortagesinChinainthefourth quarterandtheimpact oftheBeijingWinter OlympicsinQ1 2022.Improvementinworking capitalintensityisalsoexpectedtobesupported by the implementation of a newIntegrated BusinessPlanningsystemin2021,which supportsGroup-widedecision makingand financialplanning. | | Inventoriesincreasedto€977million (31 December2020:€477million),accounts receivable increasedto€349million (31 December2020:€210million)andaccounts payableincreasedto€649 million(31 December 2020:€319 million). Thedecisiontoincreaseinventorylevelsacross bothrawmaterialsandfinishedproductswastaken inresponsetoglobalsupplychainissueswithraw materialavailabilitysignificantlydisruptedbypoor freightavailabilityandinanticipationofshortages aheadoftheBeijingWinterOlympicsinQ1 2022. The Group spent a total of €906 million on externallysourcedrawmaterialin2021,compared to€807millionin2020.Rawmaterialcoverage ratiosin2021 increasedfrom1.3monthsin2020to 2.3monthsin2021,andfinishedgoodsfrom1.9 monthsto2.4months,giventhehighercostsofraw materialsandlongerdeliverytimes. Accountsreceivable increasedby€139million, to €349 million, given the higher level of business activity.The accountsreceivableintensitylevel increased by 300 bps to 12.0% (31 December 2020:9.0%),astheprioryearcomparative benefitedfromhighrevenueinthefourthquarter in2020.Accountsreceivableiscalculatedas tradereceivablespluscontractassetsless contractliabilities,asperthe financialstatements. Accountspayable increasedby€330million,to €649million,largelydue topayablesrelatingto thematerialincreaseinexternallypurchasedraw materialoverthe year.Accountspayable intensity increasedto22.3%,by860bps(31 December 2020:13.7%).Accountspayable referstotrade payables,asperthefinancialstatements. Workingcapital financing,used toprovide low-costliquidityandsupportthe Group’s commercialofferingtocustomers,stoodat€320 million at the end of the year(31 December2020: €221 million).Thiscomprised€178millionof accountsreceivable financing(factoring) and €142millionofaccountspayablefinancing (forfeiting).Workingcapitalfinancinglevelsvary accordingtobusinessactivity,andtheGroup targetsa medium-termlevelbelow€320million. Asbusinessactivitylevelsincreasedover2021 from2020,workingcapitalfinancinghashelped tomoderatethecashoutflowfromworkingcapital increases. | | | | In2022guidanceforcapitalexpenditureis approximately€190million,comprising€85 millionofmaintenancecapexand €105 millionof projectcapex,increasingby€20milliondueto €12 million to be invested at Chongqing, €5 millionincreaseatContagemandBrumado and €3millionunderspendin2021 carried forward. In2023,capitalexpenditure isexpected to increase toapproximately€150million,ofwhich €85millionwillbedirectedtowardsmaintenance expenditureand€65milliontowardsprojects. In 2024,theGroupanticipatesapproximately €130 millionofcapitalexpenditure,ofwhich €85 millionwillbeonmaintenanceexpenditureand €45milliononprojects. In 2021, the Groupinvested€61 million(2020: €35million)initsrawmaterialassets,including maintenancecapexof€13million (2020:€14 million1) and project capex of €48 million(2020: €21 million). 1 Restatedfrom€6milliongivenaninternalchangein methodology. Adjustedearnings per share €4.52 2020: €3.28 Capital expenditure €252m 2020: €157m | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 3 5 | | | | | | | | --- | --- | --- | --- | --- | --- | | Financial review continued | | Cash flow TheGroupgeneratedoperatingcashflowof€(236)millionin2021 (2020:€290million), representingcashflowconversionof(84)%(2020:112%).Freecashflowwasadverselyimpacted by highcapitalexpenditure in 2021 on the Group’sstrategicinitiativesaspreviouslyguided,combined withhigherthanusualworkingcapitalrequirementsdue tosupplychaindisruptions.Free cashflow decreasedto€(427)million(2020:€101 million). | | | | | Returnon invested capital 9.6% 2020:11.5% | | | | Cash flow €m 2021 20201 Adjusted EBITA 280 260 Working capital (283) 97 Changes in other assets/liabilities (90) (31) Capital expenditure (including pre-payments) (252) (157) Depreciation 109 120 Operating cash flow2 (236) 290 | | | ESGlinked financing €1.2bn | | | | Cash tax (39) (48) Net financial expenses (25) (26) Restructuring/transaction costs (56) (52) Magnifin disposal proceeds 100 – Dividend payments (71) (50) Share buyback (96) (3) Dividends from associates – 11 MORCO acquisition – (9) Sale of PPE3 8 11 Right-of-use assets acquisition (13) (25) Derivative gains 1 2 Free cash flow (427) 101 | | 1 Reportedbasis. 2 Operatingfree cashflowis presentedtoreflectthenetcashflowfromoperating activities beforecertainitems suchas restructuring costs. Full detailsareshownintheAPMsectiononpage215. 3 Includingthe sale oftheBurlingtonsite(Canada) in2020,cashinflowof€8 million. | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Costsavinginitiatives €110m AnnualisedEBITArunrateby2023 Sales strategies €40-60m AnnualisedEBITArunrateby2023 | | Net debt Net debt at the end of 2021 was€1,014million, comprisingtotaldebtof€1,595millionincluding IFRS 16 leases of €56 million, cash and cash equivalentsof€581 million,thiscomparestonet debt at the end of 2020 of €583 million including IFRS 16 leases of €57 million. Net debt to EBITDA at the year-end was 2.6x, 1.1x higher than 2020 (2020:1.5x)andabove theGroup’stargetrange of 0.5x-1.5x,mainlyduetoinventorybuild. Supportedbylowercapitalexpenditure and earningsgrowthfromorganicandinorganic sources,theGroupexpectstoreduce itsgearing leveltowardsitstargetedrange during2022, beforeconsideringM&A. Additionalrefinancingwasconductedin2021 to maintainliquiditylevels,extenddebtmaturities andestablishlinkstotheGroup’ssustainability performance.On30November2021,the Companyenteredintoa€150millionESGlinked BilateralfacilitywithING,andsuccessfullyplaced a€250millionESG-linkedSchuldscheinbond withinvestors,withmaturitiesrangingfrom5.5 years to 10 years and a weighted average interest rate on issuance of 0.80%. TotalliquidityfortheGroupatyearendwas€1,181 million,includingundrawncommittedfacilitiesof €600million. Return on invested capital Returnoninvestedcapital(ROIC)isusedtoassess theGroup’sefficiencyinexecutingitscapital allocationstrategy,whichisaimedatenabling organicgrowth,disciplinedM&Aandshareholder returns. The Group ROIC in 2021 was 9.6% (2020: 11.5%), from a total of €2,296 million of investedcapital(2020:€1,754million)and€219 millionnetoperatingprofita (2020:€201 million).RawmaterialROICwas 16.2% (2020: 13.5%), from a total of €377 million ofinvestedcapital(2020:€385million)and€61 millionNOPAT(2020:€52million). | | Amortisation schedule (€m as at 31 December 2021) 1,181 581 793 513 600 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 600 | | 218 | | 107 151 | | 248 | 193 109 56 Cash Revolving credit facility Debt Strategic initiatives The Groupisprogressingtwosignificantstrategic programmestosustainablyincrease earnings: • Costsavingsinitiativesrepresenting €110 millionofincrementalEBITAby2023. In2021, the costreductioninitiativesdeliveredEBITA benefitof€66million,representingan increase of €36 million on 2020. The programmetargetstoachieve anadditional €44 million in EBITA run rate savingsin2023, achieving its total EBITA benefit of €110 million,(€90millionin2022).TheProduction OptimisationPlanbenefitswillincreaseits totaltargetto€110million,althoughwith one yeardelaythanpreviousguidancegiventhe projectdelaysatBrumadoandthedecisionto extendtheoperationofMainzlarthrough 2022. | 3 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | • Salesstrategiesrepresentingc.€40-60million ofincrementalEBITAbenefitby2023.Thesales strategiesdelivered€18millionofcumulative EBITAin2021.TheGroupistargetingtoachieve c.€40 – 60 million in 2023, and €30 million in 2022.Therestrictionsfromthepandemicand globalsupplychainissuesresultedindelaysin accessingcustomersites,impactingtherevenue benefitfromFlowControlandtheSolutions business.Newmarketscontinuetodeliver attractiverevenuegrowth,withstrongorganic andinorganicrevenuecontributionexpectedin 2022fromtheJVwithChongqingand acquisitionofSÖRMAŞ. Cost savings initiatives In2021 theGroupstartedtogainmaterialbenefits fromitsstrategicinitiatives,withanincremental EBITAimprovementin2021 of €36 million from its ongoingcostinitiatives,including€17millionfrom theProductionOptimisationPlananda€19million benefitfromtheSG&AReductionprogramme. TheProductionOptimisationPlanseeksto rationalisetheGroup’sglobalproductionfootprint through the closure of up to 10 sites (with a focus onEuropeandSouthAmerica)andinvestmentsin remainingfacilitiestoincreaseplantscaleand specialisation,reducerawmaterialcostsand implementnewtechnologies. During2021,theGroupinvestedinitsHochfilzen site,Austria,toconsolidateEuropeandolomite productionintoasingle low-costsite.TheGroup iscreatingitsflagshipdigitalandautomatedplant atRadenthein,Austria,includingtheinstallation and commissioning of a new tunnel kiln. At Contagem,Brazil,theGroup’slargestproduction facilityintheAmericas,theGroupisautomating theproductionofMagnesitefinishedproducts. KeyprojectmilestonesatContagemincludedthe commissioningoftwonewautomatedpresses whichwillincreaseproduction efficiency and capacityandtheinstallationofnewgrindinglines. AtUrmitz,Germany,theGroupismodernising and expanding the plant to create a new hub for non-basicrefractoryproductsandtheinstallation of a new tunnel kiln which was commissioned in November2021. TheclosureofMainzlar,Germany,wasdelayed until the end of 2022 in response to high demand fromEuropeancustomers,supplychainrelated delaysaffectingtherestoftheGroup’snetwork, theinvestmentprojectworktakingplaceat Radentheinreducingcapacityandthetemporary closureofRadentheininQ3forunscheduled maintenance. | | Sales strategies TheGroup’ssalesstrategiesseektogrowRHI Magnesita’spresence in new marketsincluding IndiaandChina,increase market share in the flow controlproductrangeandexpandthe solutions business targeting40%by2025,supportedby investmentindigitalisation. TheGroupincreasedpercentage ofGroup revenueto29%fromsolutionscontracts(2020: 27%). It agreed to acquire two assets in new markets.FlowControlasapercentage ofrevenue remainedstable,at16.9%(2020:16.9%). M&A InOctober2021 the Groupagreedtoacquire an 85%ownershipstakeinSöğütRefrakter MalzemeleriAnonimŞirketi(“SÖRMAŞ”),a producerofrefractoriesforthe cement,steel, glass and other industries in Turkey, for a considerationof€39millionincash.Theasset recorded €6.4m EBITDA in 2020 and we expect tobenefitfromatleast30%EBITDAsynergies. The Group completed its disposal of its stake in theMagnifinjointventureinDecember2021,a non-coreassetproducinghighgrademagnesium hydroxide for use in flame retardancy,foracash considerationof€100million.The asset is held as afinancialinvestmentandisnotconsolidatedinto the Group’s reported EBITDA. In the year to 31 December2021,theGroup’sshare ofprofit before tax from the Magnifinjointventure was €9 millionandtheMagnifinjointventure recorded EBITDAof€19million. InDecember2021,the Groupacquireda51% ownershipstake in“ChongquingBoliang RefractoryMaterials”inreturnforinitial considerationof€5millionandaninvestmentof €15 million in new production capacity, to be deployed in 2022 and 2023. InDecember2020the Groupenteredintoan agreementtosellitstwohigh-costrawmaterial plants,Porsgrunn,Norway,andDrogheda, Ireland.The sale ofbothplantscompletedon 1 February2021,realisingalossof€6million. Furtherprovisionsforrestructuringcosts amountingto€4millionhavebeenrecognised during2021 for the exposuretoenvironmental risks, unfavourable contractsanddismantling costs. Readmoreinthestrategicreview Pages 16 to 21 Returns to shareholders | | | | €177millionwasexpansionarycapital expenditure relatedtoprojectinvestments. Giventheresilientperformance ofthebusiness andpositiveoutlookinto2022,the Board has recommendedafinaldividendof€1.00per share for the full financial year, and €47 millionin aggregate.Thisrepresentsadividend cover of 3.0xadjustedearningspershare.Subjectto approvalatthe AGM on 25 May 2022, the final dividendwillbe payable on 14 June 2022 to shareholdersontheregisteratthe closeoftrading on 27 May 2022. The ex-dividend date is 26 May 2022.Thisrepresentsafullyeardividend of €1.50pershare. The Board’sdividendpolicyremainsto targeta dividendcoverofbelow3.0xadjusted earnings overthemediumterm.Dividends will be paid ona semi-annualbasiswithonethirdoftheprior year’s fullyeardividendbeingpaidattheinterim. InDecember2020,theGroupcommenceda sharebuybackprogramme,toreturnvalueto shareholders,ofupto€50million,which completedinApril2021,with€45millionof expenditurefallingin2021 and €3 million in 2020. ThebuybackprogrammewasextendedinMay 2021,andtheCompanypurchasedafurther€50 million.Intotalacross2020and2021,thebuyback programmerepurchasedatotalof2,078,686 sharesforatotalconsiderationof€98million1.As at 31 December2021,theCompanyheldatotalof 2,478,686ordinarysharesinTreasurywhich represent5.01%oftheissuedsharecapitalatthe dateofacquisitionoftheshares. | | | | | | | TheGroupcompleteditsSG&Acostsaving programmein2021,achieving€29millionin annualEBITAsavings,throughthe decentralisationof540managerialpositionsinto lowercostlocationsand drivingincreased regionalisationinordertolocalisedecision making,closertocustomers and plants. The extension of the closure of the Mainzlar site in 2022,combinedwiththecontinuedinvestment intheproductionoptimisationplan,willenable additional run rate savings of €10 million in 2023, achievingatotalcumulativerunratebenefitfrom the cost savings of €110 million in 2023 (€90 millionin2022). | | TheBoard’scapitalallocationpolicyremainsto support the long-termGroupstrategy,providing flexibilityforbothorganicandinorganic investmentopportunitiesanddeliveringattractive shareholderreturnsoverthe midterm. These opportunitieswillbe consideredagainsta frameworkofstrategicfit,riskprofile,ratesof return, synergypotential andbalance sheet strength. 2021 was the peakcapitalexpenditure yearfor spendingonstrategicinitiatives,includingthe substantialcompletionofthe Production OptimisationPlan.In2021 the Groupincurred capitalexpenditure of €252 million, of which €75 millionwasmaintenance capitalexpenditure and | | | | | | | | | | 1 Thepricepaidandvalueofshares purchased bytheCompany on8 April2021 overstatedthevalueofsharesboughtbackby €1.5million.Thetotalvalueofshares purchased duringthefirst buyback,completedon13April2021,was€48,450,082atan averagepriceof3,946pencepershareandnotthepreviously disclosedvalueof€49,998,930atanaveragepriceof4,071 pencepershare.Thenumberofshares repurchased inthefirst buybackandtheshares inissueandheldintreasuryare unchangedas aresultofthis correction. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 3 7 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Effective risk management | | | | The Group has an established risk management approach with the objective of identifying, assessing and controlling uncertainties and risks which could impact the delivery of RHI Magnesita’s strategy. | | | | | | | | | | | | | | Our approach to risk management Ourriskmanagementefficiencyandeffectiveness werefurtherimprovedin2021byenhancingthe Group-wideintegratedriskmanagement approachestablishedin2020.Duringthis secondyear,the Groupfocusedonmaturingthe riskmanagementframeworkbyfurther embeddingtherisktools,culture andawareness into key areas of the Company. A regionalised risk managementapproachwasdevelopedwiththe purposeofprovidingthe RegionalLeadership Teamswithinsightsintocurrentandemerging risks and acomprehensive regional riskprofile, whichisfullyintegratedwithinthe Group-wide risk managementapproach. | | | | AuditCommitteemeetingsandthe annual Board-ledstrategicreview.The bottom-up risk assessmentisbasedoneachoftheoperational siteswhichmaintainongoingriskmanagement activitylinkedtothe ISOriskmanagement practices. Deep-dive riskassessmentsareperformed for areasofemergingorprevailingrisks,which,in 2021,includedinformationsecurity,tax management,plantoperations,fraud managementandsustainability.Inaddition,the Groupundertookaclimate-relatedriskand opportunitiesdeep-dive as part of the preparation ofthe2021TCFDDisclosuresummarised on page 60. | | | | Herbert Cordt Chairman of the Board of Directors During the year, the continuing COVID-19 crisis and the consequential disruptions to global logistics challenged the Group's risk management capabilities. However, management’s proactive approach to risk management enabled RHI Magnesita to gain insights into risks across our end-to- end value chain. Risk based mitigating actions supported RHI Magnesita in continuing to deliver products and services to our customers, returns to our investors and a healthy working environment for our employees. SeePrincipalriskson Pages 44 to 49 | | Therisk managementapproachcombines top-down,bottom-upanddeep-dive risk assessments.The top-downriskassessmentis performedbythe ExecutiveManagementTeam (EMT) and reviewed by the AuditCommittee and theBoardofDirectors.Reportingagainstthese risksisincludedwithinquarterlyEMTmeetings, Risk management cycle 5 Reporting Riskswhich require immediate action are reported immediately to line management for action.Risks which do not require immediate action are reported periodically to theoperational management and on a quarterly basis to theEMT. 5 Reporting | | | --- | | 1 Identification 2 Assessment 3 Mitigation | | | | | 4 Monitoring 4 Monitoring Risksand associated mitigating measures are reassessedquarterly during the year,with increased frequency for thoseareas experiencing significant changes in the risk landscape. The remaining risk levelis evaluatedto ensure that it is alignedwith the Group’s risk appetite and reviewed on a quarterly basis by theEMT. 3 Mitigation Allrisks considered tobeoutsideof theGroup risk appetite, due to their nature or their potential financialor qualitative impacts, are mitigated by appropriate risk management strategies. The implementation and effectiveness of thedefined mitigation measures are reviewed, and additional actions are defined if necessary. For this purpose, risks are assessed based on their likelihood and impact befor mitigation measures. | | | | | The informationfromthe bottom-upandthe deep-diveriskassessmentsisintegratedinto the top-downriskassessmentstoensure thatthe Groupriskprofileiscompleteandaccurate. The Group risk profile is reviewed by the EMT on a quarterlybasis,andbythe AuditCommittee duringthe meetingswhichtakeplaceon aregular basisduringtheyear. 1 Identification Starting from allthepossible categories of risks potentially impacting the Group, specific risks relevant toRHI Magnesita are identified through several analytical tools, including comparative analysis and risk benchmarking. 2 Assessment The risks identified are linked topotential root causes and assessed for their inherent likelihood, inherent impact, and velocity. Risk analysis to develop an understandingof thepossibleinterdependencies between risks is performed. | | | | | 3 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | | | | FINANCIAL STATEMENTS | | | | | OTHER INFORMATION | | Risks and strategy OurriskmanagementapproachhelpstheBoard andEMTtounderstandtherisksassociatedwith theadoptedstrategy,periodicallyassessifthe strategyisalignedwithourriskappetiteand understandhowthechosenstrategycouldaffect theGroup'sriskprofile,specificallythetypesand amount of risk to which the Group is potentially exposed.Aspartofthisprocess,riskscenariosare evaluatedtoassesspotentialoutcomes. | | | Group risk chart Impact low moderate high critical very likely likely | 1 5 10 11 | | | | Velocity Slow – > 12 months | | | | Rapid – within3months Moderate– within12 months | | | | | | | | --- | --- | --- | --- | --- | --- | | Theassessment,monitoringandmitigationofkey risks to the strategy are prominent features of the enhancedapproachto risk management adopted in 2020 and further enhanced in 2021. Risk workshopshavebeenconductedwiththeEMT and Board to review the Group risk profile in the context of the 2025 strategy and the risk appetite of the top risks to the Group. | | | | possible unlikely | | | Risk appetite We defineriskappetiteas"thenatureandextent of risk RHI Magnesita is willing to accept in relation to the pursuit of its objectives". We look at risk appetitefromdifferentangles,suchastheseverity oftheconsequencesshouldtheriskmaterialise, any relevantinternalor externalfactors influencing the risk, and the status of managementactionstomitigateorcontrolthe risk. A scale is used to help determine the risk appetitethresholdforeachrisk,recognisingthat riskappetitewillchangeovertime. Ifaparticularriskexceedsitsriskappetite threshold,itwillthreatenourobjectivesand thereforerequiresignificantriskmitigationand potentiallyachangetothestrategy.Risksthat approach the limit of the Group's risk appetite may requireaccelerationorenhancement of managementactionstoensurethatrisksremain withinappetitelevels. Theriskmanagementapproachisbasedonan assessmentoftheriskappetiteformedbythe Board,coveringthekeyriskcategories("averse", "limited","moderate"and"high").Theriskappetite statements are approved by the Board and are a foundationalelementofourriskframeworkasit providesguidancetomanagementonthe amount and type of risk we seek to take in pursuingourobjectives. Our principal risks TheprincipalrisksarethosetheBoardconsiders may have a significant impact on the results of the Group and on its ability toachieveitsstrategic objectives.Thisdoesnotrepresentanexhaustive list of risks faced by the Group but encompasses thoseconsideredtobemostmaterialtobusiness performance. Theriskscanoccurindependentlyfromeach otherorincombination.Extraordinaryevents, suchastheCOVID-19pandemicorgloballogistic challenges,havethepotentialtocrystallise multipleprincipalriskssimultaneously, significantlymagnifyingtheadverseimpact.In 2021,theCOVID-19crisiscombinedwithfreight, energyandrawmaterialcostinflationincreased theriskmanagementchallengesinkeyareasof the business. As a response to the current circumstances,continuousmonitoringofthe Group'sriskprofile,withspecificreferencetothe potentialcumulativeimpactarisingfromthe crystallisationofrisks,wasundertakenbytheEMT duringtheyearandmitigatingactionsweretaken. | | 1 Macroeconomic environment and condition of customer industries leading to significant sales volume reductions | | | --- | | 1 2 Supplier dependency risk 4 Significant changes in the competitive environment or speed of disruptive innovation 5 Reliability of the end-to-end value chain | | | | | | | Macroeconomic environment 12 Fluctuations in exchange rate and energy prices 2 Lack of competitiveness of internally sourced raw materials 3 Inability to execute key strategic initiatives 3 Inability to execute key strategic initiatives 4 Significant changes in the competitive environment or speed of disruptive innovation 5 Business interruption and supply chain disruption | | | --- | | 6 Sustainability – environmental and climate risks 7 7 Sustainability – health and safety risks Sustainability – health and safety risks 8 8 Regulatory and compliance risks Regulatory and compliance risks 9 9 Cyber and information security risks Cyber and information security risks 10 10 Product quality failure Ability to predict and pass cost increases to customers 11 Inconsistent demonstration of RHIM culture, values and related behaviours Unchanged Replaced by a new risk Scopebroadened Nine out of 12 principal risks included in the 2020 AnnualReporthave beenconfirmedtobe equallyrelevantin2021.The riskshavebeen reviewedthroughoutthe year, and it has been determinedthatthereare twonewprincipalrisks to theGroup: "Supplier dependencyrisk"and "Abilitytopredictandpasscostincreasesto customers". It has also been determined that two risks previouslyreported asprincipal risksshouldno longer be reported as such: "Lack of competitivenessofinternallysourcedraw materials"and"Productqualityfailure".These weredeprioritisedinfavourofrisksrequiringmore attentionandinalignmentwithmanagement focus areas. Furthermore,theprincipalrisk"Fluctuationsin exchange ratesandenergyprices"isnow covered bytheprincipalrisk"Macroeconomic environment"withinabroaderscope.The scope oftheprincipalrisk"Businessinterruptionand supplychaindisruption"wasbroadenedtocover theentireend-to-endvalue chainandtherefore re-named"Reliabilityoftheend-to-endvalue chain".Inaddition,the principalrisk"Inconsistent | | | | | | | | | | | | | | | | | | --- | | 6 Sustainability – environmental and climate risks 11 Organisational capacity to execute strategy, including demonstrating Company cultural values demonstrationofRHIMculture,valuesand relatedbehaviours"wasrefocused on the organisationalcapacitytodelivertheGroup's strategyandconsequentiallyreworded as "Organisationalcapacitytoexecutestrategy, includingdemonstratingCompany cultural values". Thesekeychangesinprincipalrisksare highlightedinthetableabove. Emerging risks Identifying emerging risks is a key part of our risk managementprocess.Emergingrisksidentified duringthe yearareassessed,monitored and evaluated with the EMT and the Board withinthe riskworkshops.The extensive considerationof emergingandchangingriskswas a key driver to the changesinprincipalrisksdescribed above. | | | | | | | | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 3 9 # Our internal control system | | | | | | | --- | --- | --- | --- | --- | | The Board reviews the effectiveness of the system of internal financial, operational and compliance controls and the risk management framework. | | RHIMagnesitafollowsthecorporategovernance requirementsoftheregulationsofboththe Netherlands,giventhelocationofits incorporation,andtheUK,giventhelocationofits listing.Wherepossible thedisclosuresare combinedinthisreport,howeverthere are primary areas where the respective governance requirements necessitate similarbutseparate assessments. Such an area is the required disclosure and descriptionofRHIMagnesita’scontrol environment andsystems.Therefore,the CompanyprovidesbothaManagement “In-ControlStatement”asrequiredbythe Dutch CorporateGovernance CodeandanInternal ControlSystemreportasrequiredunderthe UK CorporateGovernance Code.Bothoutline the measuresthatRHIMagnesitatakestoensure a strongcontrolenvironment. Internal control system TheBoardisultimatelyresponsible for maintainingeffective corporate governance, whichincludestheGroup’sriskmanagement approach,theGroup’ssystemofinternalcontrols andtheGroup’sinternalauditapproach. TheBoardreviewsthe effectivenessofthesystem of internalfinancial,operational andcompliance controlsandtheriskmanagementframework. TheBoardexamineswhetherthe systemof internalcontrolsoperatedeffectivelythroughout theyear and willmake recommendationswhen appropriate. These systems are based on the three linesof defencemodel,supportedbyanend-to-end processmodelanddelegationofauthorities structurereflectingtheresponsibilityforrisk managementandinternalcontrolsatall managementlevels. TheGroup’sinternalcontrolframeworkis designedtoenablethe applicationofthe Group’s riskappetite.Thistypicallyseekstoavoidor mitigaterisksratherthantocompletelyeliminate therisksassociatedwiththeaccomplishmentof theGroup’sstrategicobjectives.Itprovides reasonableassurance butnotabsoluteassurance against material misstatementorloss. The Group has in place aspecificrisk managementapproachandaninternalcontrol frameworkinrelationtoitsfinancialreporting processandthe processofpreparingthe financial statements.These systemsinclude policiesand procedurestoensure thatadequateaccounting | | recordsare maintainedandtransactionsare recordedaccuratelyandfairlytopermitthe preparationoffinancial statementsinaccordance withthe applicable accountingstandards. For the accountingprocess,anaccountinghandbook (andrelatedknowledge portalandtraining) is usedtostructure theinternalcontrolsover the accountingprocess. In 2020 the Group introduced a framework of sevenGlobalProcessestoimprovethe standardisation,efficiencyanddigitalisationof processes.During2021itbecameapparentthat the challengespromptedbytheCOVID-19 pandemic requiredthe immediate enhancement ofspecificinternalcontrolprocesses.The Group implementedadedicatedtaskforce tomitigate the supplychaindisruptionandenhance the relevantinternalcontrolsincludingthe introductionofreal-time logisticsmonitoringto helpplanaroundshipmentdelays.Thereforethe internalprocessdevelopmentactivitywas reprioritisedtoconcentrate initiallyonaddressing theseimmediatespecificuse casesimpactingour service levelstoourcustomersratherthanthe widerapproach.The broaderdevelopmentofthe GlobalProcesseswillberesumedin2022,albeit with a stronger emphasis on the processes directlydeliveringthe value toourcustomers. The GrouphasanInternalAuditfunction,with a reportingline totheChairman,AuditCommittee andasecondaryreportingline,forday-to-day operationalmatters,tothe CFO.The Internal Auditfunctionprovidesassurancetothe Audit Committee and the Board on the designand effectivenessoftheinternalcontrolframework. InternalAuditoperateswithinasingledepartment alsocomprisingRiskManagementand Compliance.The AuditCommittee and managementensuredthatappropriate safeguardsare in place to maintain the independence ofInternal Audit.The Internal Audit,RiskandCompliance functionisstructured intoregionalteamsprovidingalocally-focused governance presence tosupportregional managementinlinewiththeestablished Group-wideobjectives.Thedeliveryofthe2021 InternalAuditplanwasimpactedbythepractical limitationsimposedbyCOVID-19,however the overallcoveragelevelwasmaintainedutilising the approaches,suchasremoteauditing, successfullydevelopedin2020.AnExternal QualityAssessmentoftheeffectivenessand capabilityoftheInternalAuditfunctionwas performedin2021.Thisreportconcluded thatthe InternalAuditfunctionhasthe requiredlevelof | 4 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | independenceandisoperatingwithahighlevel ofperformance.Certain recommendations were madetofurtherimprovethefunctionandthese willbeimplementedin2022. During2021,InternalAuditconducted23 plannedinternalauditsandfivespecial investigations,reportingthemostrelevant observationsandrecommendationstotheAudit Committee. ThereportsbymanagementandInternalAudit, RiskandCompliancealsofacilitated considerationbytheAuditCommitteeof managementactionsinrespectofthefollowing keycontrolframeworkchallenges: • Developingthematurityoftheregionally basedmanagementmodel; • Improvingtheeffectivenessofthedeliveryof majorcapitalexpenditureandITprojects; • ContinuingtheenhancementofITsecurity controlstoaddressincreasedcybersecurity risks;and • UtilisingtheGlobalProcessframeworktoadd valueandimproveoperationalperformance. TheBoardconsidersthe Company’srisk managementandinternalcontrolsystemare appropriateandeffectivetogivereasonable, but notabsoluteassuranceagainst material misstatementorloss.Nonetheless,giventhe continuedevolutionandtheregionalisednature of the Group and the 2021 focus on addressing supplychaindisruption,thereisneedforfurther strengtheningoftheinternalcontrolsystemin 2022,mostnotablythroughtheresumedGlobal Processdevelopmentactivity. Management “In-Control Statement” The Board and EMT are responsibleforensuring theCompanyhasadequateriskmanagement andinternalcontrolssystemsinplace. | | implementedin2021.Itistherefore plannedto reassessandfurtherupdatethe design of the broaderinternalcontrolsystemsin2022. Thekeyinternalcontrolmeasuresinclude reviews offinancialperformance andkeycontrol weaknessesateachBoardmeeting,monthlyand quarterlyEMTreviewandchallenge of operational financial performance,zero-based business planningprocess,improvingthe financialreportingprocesses,continued deploymentofthe corporate culture andvalues especially to the more remote areas of the Company,reinforcementoftheCode ofConduct throughincreasedtrainingsandcommunication, deploymentoftoolstoincrease leadership capabilities,enhancingtheresponsetoissues raised via the whistleblowingprocessand strengtheningthe capability of the Legal and the InternalAudit,RiskandCompliance functions.All keychangesintheinternalcontrolframework were reviewed by the EMT. Each leader is accountable for the effectivenessoftheinternal controlswithintheirareasofresponsibilityandis requiredtocompleteaself-certificationreporting theirassessment.Measuresare appliedineach functionalareatoassessthe effectivenessof internalcontrolsandanyidentifiedissuesare escalated.Controlweaknessesidentifiedby managementandthose identifiedthroughthe qualitymanagementsystemreviews,risk managementactivityandinternal auditreports areescalatedtothe EMTforreviewandresolution, all of which is overseen by the Audit Committee. Thekeycontrolweaknessesidentifiedfromthese processeswere addressedwithin2021.During 2021, driven by the needforfasteranalysisand decisionmakingonkeycommerciallevers, Managementhave identifiedimprovement potentialintheclarityandinsightprovidedbythe coreinternalperformance managementdata.An improvedfinancialmanagementdatasetand enhancedmonthlyManagementreviewstructure willbeimplementedfromJanuary2022. | | | | the reportingofthe relatedstrategic objective significantlyincreasedvisibilityand insightofrisk management. The improvementsinthe riskmanagement approach,themilestonesachieved,theresultsof the internalqualityassessmentand planned next stepswere reviewedbytheAuditCommittee. In addition,the riskappetitewasdiscussed and approvedbythe AuditCommittee and theBoard followingaseriesofdiscussionworkshops. During 2022 the focus will be oncompletingthe integrationofriskmanagementwithinproject managementactivitiesandcontinuing to enhance theleadershipcapabilitiesto deliver risk management,especiallywithintheregionally basedmanagementteams. | | | | | | | The core design of the internal control systems is based on extensive work conducted as part of the merger activity in 2017 and reassessed in 2020 to createamoreregionallyfocusedandagile structure.Thetransactionallevelcontrols operatedinlinewiththeestablishedcoredesign throughout2021.Theplanneddevelopmentof end-to-endglobalprocesses was largely postponed into 2022 to enable resource to be focusedin2021onemergingoperational process-basedchallengessuchassupplychain disruption.Arangeofimprovementstospecific processes(e.g.logisticsmanagement)were | | In2021,riskmanagementactivitycontinuedto focus on increasing the depth of the assessment of the top 20 Group risks and the set-up of consistentreviewstomonitortheevolutionof such risks by the EMT, to review the Group risk profile on a quarterly basis and to take any additionalmitigatingaction.Improvementstothe plantrisk managementandthefraudrisk managementapproacheswere deliveredin2021. Thepotentialtoembedriskmanagement conceptsmore fullyintoleadershipbehaviours was a keytheme of the 2021Leadership Conference.Linkingthe reporting of key risks to | | | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 4 1 # Viability statement | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | 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 2024. | | Context AnunderstandingoftheGroup’sbusinessmodel and strategy is key to the assessment of its prospects.TheCompany’sstrategicpriorities are to: • Improvecompetitivenessthroughcost reductions andnetworkoptimisation • Growrevenuesandmarginsbyexpandingthe business model • Increasemarketshareinnewgeographiesor product segmentswhere the Groupis under-represented Formoreinformationonourstrategyandbusiness model,pleaserefertopage pages 14 to 23 and pages 10-11. | | The principalrisksarethose theBoardconsiders mayhave a significant impact on the results of the Group and on its ability to achieve its strategic objectives.Theseare set out on page 10. Theseriskscanoccurindependentlyfrom each otherorincombination.Extraordinaryevents, such as the COVID-19pandemicorglobal logisticschallenges,havethe potentialto crystallise multiple principal riskssimultaneously, withthe effectthatthe impactcouldbe significantlymagnified.TheGroupcontinuously monitorsitsriskprofile withspecificreferenceto the potentialcumulative impactarisingfromthe crystallisationoftheprincipalrisksanddefines appropriate mitigatingactions. Assessment of viability | | | | | | Whilst uncertaintyandvolatilityremainongoing featuresofglobalmarkets,in2021theGroup continuedtoimplementitsstrategyand demonstratedprogressinallstrategicpriorities. The assessment process and key assumptions TheassessmentoftheGroup’sprospectsisbased upontheGroup’sstrategy,itsfinancialplanand principalrisks. Afinancialforecastcoveringthenextthree years is prepared based on the contextofthestrategic plan and is reviewed on a regular basis to reflect changes in circumstances. The financial forecast is based on a numberofkeyassumptions,the mostimportantofwhichinclude productprices, exchangerates,rawmaterial,energy,freightand labourcosts,estimatesofproductionvolumes, futurecapitalexpenditureanddeliveryofour strategiccostreductionandsalesinitiatives. Allscenariosconsiderthecompletionofthe acquisitionsofthe ChongqingplantinChinaand SÖRMAŞ in Turkey in 2022. No additional M&A is considered.Inaddition,the forecastdoesnot assumetherenewalofexistingdebtfacilitiesor raising of new debt. A key component of the financialforecastandstrategicplanisthe expectedgrowthofsteelproductionandthe outputofnon-steelclientsinallregions, combinedwiththedevelopmentofthe specific refractoryconsumptiontakingaccountof technologicalimprovements. | | | The assessmentofviabilityhasbeenmadewith reference totheGroup’scurrentposition and expectedperformanceoverathree-yearperiod, usingforecastproductprices,salesvolumesand expectedforeignexchangerates.The financial performanceandcashflowshave thenbeen subjectedtostresstestingandsensitivity analysis overthethree-yearperiod.These datawere aggregated to model a range of severe, but plausible,downsidescenariosfortheGroup. The scenariosforstresstestingarebasedupon materialisationofthe Group’sprincipalrisks. The scenariostestedconsider: • Macroeconomic environment • Supplierdependencyrisk • Inabilitytoexecutekeystrategicinitiatives • Reliabilityoftheend-to-endvaluechain • Organisationalcapacitytoexecutestrategy, includingdemonstratingCompanycultural values • Reliabilityoftheend-to-endvaluechain • Abilitytopredictandpasscostincreasesto customers | | 4 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Theprincipalrisksdescribedabovecouldeither betriggeredbyCOVID-19,ongoingglobal logisticschallengesorothercircumstances. Themostseverescenarioconsidersa COVID- typemacroeconomicshocklimitingrevenuesand earningsto2021 levelfortheentireplanning period. TheGroup’sliquidityamountsto€1,181million comprisingofcashandcashequivalentsof€581 millionandundrawncommittedcreditfacilitiesof €600 million as of 31 December 2021. This is sufficienttoabsorbthefinancialimpactoftherisks modelledinthestressandsensitivityanalysis. However,iftheserisksweretomaterialise, the Groupalsohasarangeofadditionalmitigating actionsthatenableittomaintainitsfinancial strength,includingreductioninfixedcostsand capitalexpenditure,raisingdebtorreducingthe dividend. Viability statement The Directors believe that the Group is well- placedtomanageitsprincipalriskssuccessfully. InmakingthisstatementtheDirectorshave consideredtheresilienceoftheGroup, taking accountofitscurrentposition,theriskappetite, theprincipalrisksfacingthebusinessinsevere butreasonablescenarios,andtheeffectivenessof any mitigatingactions. TheDirectorshaveareasonableexpectationthat the Group and Company will be able to continue in operation and meet its liabilities as they fall due overtheperiodtoDecember2024.TheDirectors have determinedthatthethree-yearperiodto December2024 isanappropriateperiod having regardtotheGroup’sbusinessmodel,strategy, principalrisksanduncertainties. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 4 3 | | | | | --- | --- | --- | | Principal risks | | Link to strategy Business model | Competitiveness Markets Appetite High Moderate Limited Averse | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1. Macroeconomic environment | | Risk description Changes in the global economic environment, financial markets conditions and adverse political developments may have an impact on the Group's revenue and profitability. | | | | | | | | | | | Link to strategy | | The macroeconomic environment changes leading to sales volume reductions can arise from industrial factors or from wider global issues, such as a pandemic or global logistic challenges. 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. | | | | | | | | | | | Target risk appetite KPIs | | 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 customers' infrastructure projects (therefore reducing steel and cement demand) leading to lower refractory consumption and depressed sales volumes. • Customers focusing on lower-cost and more commoditised refractories. • Lower sales volumes leading to lower fixed cost absorption. | | | | | | | | | | | Revenue,AdjustedEBITAMargin, AdjustedEPS,ROIC Internally monitored metrics Keymacroeconomicandfinancial marketindicators,steeland cementforecastedproduction. | | Risk mitigation • Initiatives to increase the Group's resilience, through establishing leaner processes and lower fixed cost structures (such as the production network optimisation), whilst increasing the Group's market share and the value for our customers. • Diversification of geographies and industries. • Dedicated taskforce to mitigate the impact of supply chain disruption. • Price increase initiative to pass inflationary costs to customers. • Early leading indicators to ensure identification of emerging macroeconomic trends. • Treasury Policy and usage of financial instruments to mitigate risk exposure to financial markets. | | Risk movement The demand for refractory products and RHIM customers' products increased sharply in 2021 and is expected to remain strong. The improvement of the global macroeconomic environment and condition of financial markets had a positive mitigating effect on this risk. The Group faced global logistic challenges, which impacted the cost and reliability of shipments. This risk was mitigated by management focusing on targeted actions such as price increases to customers, increase in the raw materials inventory levels and additional people and system resources dedicated to managing logistics. The risk appetite for the risk was reassessed by the Board as high due to the Group's limited ability to influence global macroeconomic events. This risk is within the risk appetite, and macroeconomic and industry developments are closely monitored by management and the Board. | | | | | | | | | 2. Supplier dependency risk | | Risk description The Group relies on a small number of external suppliers for certain materials. In certain cases, the Group relies on one supplier for the sourcing of these raw materials. | | | | | | | | | | | Link to strategy | | The Group might depend on a few suppliers operating in the same market or based in the same geography which are subjected to the same industry, country dynamics and logistic challenges. | | | | | | | | | | | Target risk appetite | | The Group works with selected specialist third-party providers to operate some of the mining activities across our production sites. Potential temporary or permanent inability to carry out these activities by the third-party providers might lead to risk exposure for the Group and ultimately result in a temporary production interruption. | | | | | | | | | | | KPIs AdjustedEBITAMargin, AdjustedEPS,ROIC Internally monitored metrics Tonnesofpurchasedmaterials from solesourcesuppliers,tonnes ofpurchasedmaterialsfrom supplierslocatedinthesame geography,stocklevelofcritical materials. | | Examples of specific risks: • Production disruptions due to single source supplier not being able to deliver raw material on time. • Production interruption due to third-party providers’ inability to operate mining production. • All the Group's suppliers of a specific raw material and located in a country might be affected by country-wide disruptions. Risk mitigation Risk movement Prompted by the strains of the COVID-19 crisis and the global logistic challenges on companies that operate globally through their international supply chains, this risk became more significant during 2021. For this reason, it is reported as a new principal risk. • Proactive engagement with additional vendors to qualify additional supply to achieve risk diversification. • Potential risks linked to suppliers' geographical location are assessed and considered in the risk mitigation strategies. • Strategically increasing stock levels to mitigate the risk of production interruption. The risk is within the risk appetite, however the Group is enhancing its efforts to further mitigating the risk. • Increasing internal production of magnesite based raw material, and evaluating value adding options to produce other magnesite based raw materials | | | | | | | | | 4 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | 3. Inability to execute key strategic initiatives | | Risk description The Group's strategic initiatives include sales expansion, new product and service models, production network optimisation, digitalisation and M&A projects. | | | | | | | | | Link to strategy | | Effective prioritisation and execution are key to delivering the Group strategy. The ambition level of these initiatives requires a high level of management capacity to effectively deliver change management and strategic initiatives execution. financial performance, including loss of revenue and margin. | | | | | | | | The failure to effectively execute these initiatives because of external or internal circumstances may lead to lower than planned | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Target risk appetite | | Examples of specific risks: • Failure to develop the strategy into specific actions. • Failure to react in a timely manner to a changing environment. • Failure to effectively deliver projects. • M&A underperformance. | | | | | | | | KPIs VoluntaryEmployee Turnover, Revenue,AdjustedEBITAMargin, AdjustedEPS,Leverage,ROIC Internally monitored metrics AdjustedEBITAfromstrategic initiatives,ROIC fromstrategic initiatives,completionofstrategic initiativeson-timeand on- budget. | | Risk mitigation • Group-wide strategy with a high focus on key priorities. • Postponement or cessation of strategically non-important projects. • Strengthening of project management culture and approach. • Leadership capability enhancement programme. • Deep dive learning-based review on each strategic initiative. | | Risk movement During 2021, the residual risk level remained overall consistent. The COVID-19 crisis increased the pressure on the delivery of these core strategic initiatives. In addition, the complexity of executing major projects in the challenging COVID-19 impacted environment remains high. Management continues to proactively focus on successfully executing strategic initiatives which are complex in nature. The risk appetite for the risk was reassessed by the Board as limited due to the importance of the Group’s ability to successfully execute its strategic initiatives in a challenging commercial environment. Overall, this risk is within the risk appetite of the Group and undergoes close monitoring to ensure that any further mitigating action will be promptly implemented if required. | | | | | | 4. Significant changes in the competitive environment or speed of disruptive innovation | | Risk description The Group has a digital strategy that focuses on using digital products to grow its revenue and margin, digitalisation of operations, and other internal processes. In 2021 this was an area of significant management focus, which enabled the Group to progress in its digital transformation journey. | | | | | | | | Link to strategy | | Depending on the ability of the Group to develop adequate products and services, the changes in customers' preferences towards innovative products may present either an opportunity or a threat by increasing pressure on demand and margins. The speed of evolution of customer demand for environmentally-beneficial features, digitalisation and services may be faster than the pace of implementation of the Group's digital strategy. | | | | | | | | Target risk appetite | | 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. | | | | | | | | KPIs Revenue,AdjustedEBITAMargin, AdjustedEPS,ROIC,R&D & TechnicalMarketing Spend Internally monitored metrics R&D&TechnicalMarketing Spend, ROIC on such spend and time-to-market,Salesofdigital products,Costsavinggenerated byusageofdigitaltechnologies. | | Risk mitigation • Create a climate that 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 in line with the Group's strategy. • Focus development activity on projects aimed at an agile and fast impact on the market. • Monitoring of key R&D and innovation metrics. • Partnering with third-party innovation leaders. | | Risk movement In 2021 the digitalisation focus was directed at internal process enhancement, foundational work on customer relationship management and digital products for customers. The Group made good progress in the implementation of the digital infrastructure in operations, and digital/automation projects to reduce costs are on track. Management continues to focus on monetising digital-based innovation. Investments in R&D is continued, and the Group opened a new R&D centre in India in November 2021. These initiatives contributed to strengthening the risk mitigation initiatives already in place and consequently reducing the residual risk level of this risk. The risk appetite was also reassessed by the Board as moderate, and the risk remains within the risk appetite and is consistently monitored. | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 4 5 | | | | | --- | --- | --- | | Principal risks continued | | Link to strategy Business model | Competitiveness Markets Appetite High Moderate Limited Averse | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 5. Reliability of the end-to-end value chain | | Risk description The journey from raw material to finished goods can span several months and might require shipments across the globe. The ability to react quickly to changes prompted by internal and external factors is therefore key to ensuring value delivery to our customers. | | | | | | Link to strategy | | In addition, the ability to forecast the demand for the Group’s product is key to enabling efficient and effective planning of production-related activities, including procurement and inventory planning. | | | | | | Target risk appetite | | Our global operations can be disrupted by issues in a specific geography or by industry-wide challenges. However, the ability to transfer some of the production between geographies to mitigate the risk of business interruption can be deployed as a risk mitigation strategy. | | | | | | KPIs Revenue,AdjustedEBITAMargin, AdjustedEPS,ROIC Internally monitored metrics Refractoryleadtimes,Plants’ capacityutilisation,SupplyinFull OnTime, Inventorylevels, Customersurveys. | | Examples of specific risks: • Global logistic challenges impacting the stability, speed and cost of our end-to-end value chain. • Production interruption at a single-source manufacturing site. • Inability to accurately predict customer demand leading to missed sales opportunities, inefficient production planning and additional costs. • A natural disaster or major political crisis in one or more countries or regions. | | | | | --- | --- | --- | | Risk mitigation • Dedicated taskforce to mitigate the impact of supply chain disruption through short-term targeted improvement to address specific operational challenges. • Regular reviews of sales, production and financial plans, as well as longer-term portfolio decisions, are based on extensive research. • Additional people and system resources leading to improvements in delivery reliability and reduction of production backlog. • Operational risk management and maintenance policies. • Geographical diversification of the production network. • Implementation of an optimised production footprint to meet planned requirements. • Risk-based investment policy. • Global insurance coverage. • Focus on the minimisation of sole-source materials and strategically increasing stock levels. | | Risk movement In the context of the COVID-19 crisis and the global logistic challenges, the visibility over the future characteristics and dynamics of the logistics industry remains limited. The Group faced difficulties in the supply chain and production management. This, combined with the closure of certain plants, and meaningful investment in others (as part of the Production Optimisation Plan) increased the level of this risk duringthefinancialyearandpusheditoutsideoftheriskappetite. Capacity constraints for finished goods production, combined with the low inventory levels at the beginning of the year and the high-capacity utilisation, led to higher exposure to peaks of demand during 2021 and the reduced ability to fully take advantage of those peaks. Risk mitigation options are constrained by the limited network flexibility in 2021 and the long lead times of the end-to-end supply chain. The current global transportation challenges contribute to increasing delivery times. | The Group recognises the rapidly evolving challenges associated with managing the global supply chain and remains focused on optimising the end-to-end value chain to reduce the level of risk back to within the risk appetite. | | | | 4 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | | | | | 6. Sustainability – environmental and climate risks Link to strategy | | Risk description Controlled emissions and use 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. The evolving regulatory environment, the increased stakeholders’ focus, and the Group’s commitment to sustainability led to increasing investment and effort being dedicated to achieving environmental and climate goals. | | | | | | | | | | | | | | | | Target risk appetite | | There are future environmental and climate targets that 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. Examples of specific risks: • Uncontrolled emissions. • Inability to meet sustainability targets. • Failure in meeting stakeholders’ expectations. | | | | | | | | | | | | | | | | KPIs RelativeCO2 emissions, Use of secondaryrawmaterial,Revenue, AdjustedEBITAMargin,Adjusted EPS,ROIC Internally monitored metrics RelativeCO2 emissions, Use of secondaryrawmaterial,Progress towardstheachievementof environmentalandclimate targets. | | Risk mitigation • Regular environmental audits and risk monitoring at all sites. • Well-established Board-level Corporate Sustainability Committee to oversee and challenge management’s environmental and climate strategy. • We manage, measure and report our environmental risks and opportunities through the TCFD model (as described on page 60) • 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 60 to 63. • Increased focus on the use of secondary raw material as a core element of the Group’s strategy. • €50 million investment in a major four-year R&D programme to pilot new sustainable production technologies. • The geographical diversity of the Group’s operations and the ability to shi events impacting specific geographies. • Increased focus on sustainable procurement . • Executive LTIP and Employee Bonus linked to achievement of the Group’s CO2 reduction targets and increased recycling. | | | | Risk movement The inherent likelihood of this risk has slightly risen due to the increasing regulatory complexity and rising stakeholders’ expectations. Therefore the potential impacts, including reputational and financial, of this risk crystalising have increased. To match the increasing level of risk, a major four-year R&D programme designed to expand the Group’s leading sustainability position within the refractories industry was launched in the first half of 2021. Over the course of four years, RHI Magnesita will invest €50 million towards technology research and pilot plant constructions, including new technology for the capture of CO2. In addition, a range of additional risk-mitigating measures was implemented during the year. These include the achievements of the Group’s CO2 targets in the employees’ bonus criteria, the achievement of the “Gold” ESG EcoVadis rating, and the increased focus on sustainable procurement. The risk is within the Group’s risk appetite and is continuously monitored by management. | | | | | | | | | | | | 7. Sustainability – health and safety risks | | Risk description Employeesandcontractorsmaybeexposedtohealthandsafety(H&S)hazardsinourplantsthatcannotbecompletelyeliminated. Our activities and products may potentially cause accidents at our customers’ sites. | | | | | | | | | | | | | | | | Link to strategy | | Beyond the harm to individuals, H&S incidents 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. | | | | | | | | | | | | | | | | Target risk appetite | | 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. | | | | | | | | | | | | | | | | KPIs LTIF,Revenue,AdjustedEBITA Margin,AdjustedEPS,ROIC Internally monitored metrics TotalRecordableInjury,LTIF, SevereLostTimeInjuries,Near Misses,PreventiveRatio,Unsafe Situations. | | Risk mitigation • H&S objectives are defined as a core Company objective, and the performance is constantly monitored. • H&S approach is 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 taskforces were established to prevent and manage pandemic-related risks at our sites and facilitate access to vaccinations. • Specific action plans in the event of employee or contractor health issues. | | | | Risk movement The risk level slightly increased due to the continuous threat of the pandemic to the health of our employees and contractors. Several measures to protect the health of our staff have been implemented to address local risks posed by COVID-19. Protecting the health of our staff continues to be a priority. Safety remains a top priority for the Group with 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. | | | | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 4 7 | | | | | --- | --- | --- | | Principal risks continued | | Link to strategy Business model | Competitiveness Markets Appetite High Moderate Limited Averse | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 8. Regulatory and compliance risks | | Risk description The Group faces increasing regulatory complexity and operates in some geographies with inherently high corruption risks. We strive to establish a culture of compliance throughout the organisation. | | | | | | | | | | | | Link to strategy | | 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 | | Examples of specific risks: • Failure to act in accordance with our Code of Conduct. • Violation of anti-corruption laws by employees or third-party representatives. • Violation of data privacy regulations. | | | | | | | | | | | | KPIs Revenue,AdjustedEBITAMargin, AdjustedEPS,ROIC Internally monitored metrics Percentagecompletionof internalCodeofConductand Compliancetrainingand certification,Whistleblowing reports,Dataprivacybreaches | | 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. • Anonymous whistleblowing hotline is available to employees and external parties to report compliance concerns. All reports are followed up by qualified professionals. | | | Risk movement In 2021 the focus on key compliance risks has continued, enhanced by ad-hoc training, and targeted compliance communications. Significant milestones to strengthen preventative measures were achieved with the delivery of core compliance policies, guidelines, and training. The overall risk level was reduced due to the achievement of a significant level of risk mitigation. The risk is within risk appetite and continuously monitored by management. | | | | | | | | | 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 risks. | | | | | | | | | | | | 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 the • Personal data breach. • So • Cyber attacks leading to financial losses. | | | | | | | | | | | | KPIs Revenue,AdjustedEBITAMargin, AdjustedEPS,ROIC Internally monitored metrics Securityincidentsclassifiedby severity,Phishingtestfailrates, Triageescalationtime. | | 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. • Audit Committee oversight and specific focus on cyber security related controls. | | | Risk movement The fast-evolving cyber and information security global landscape experienced a continued increase in the level of cyber-threat. This led to an increase in the potential risk impact in 2021. The Group continued the implement additional risk-mitigating measures to respond to this rising threat, including awareness campaigns and data encryption. These risk mitigation initiatives contribute to lower the residual likelihood of this risk. The overall residual risk was evaluated to be within the risk appetite and closely monitored to enable fast reaction. | | | | | | | 4 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | | | | 10. Ability to predict and pass cost increases to customers | | Risk description The Group is exposed to increases in its variable costs such as raw materials, energy, logistics and labour costs. In 2021, some of these costs increased materially due to global factors. | | | | | | | | | | | | | | | Link to strategy | | To achieve the Group’s margin targets, it is crucial that rising costs are identified early through the monitoring of leading indicators and that these are effectively passed on to the Group’s customers. The Group can suffer significant financial loss should these costs not be fully passed on in a timely manner whilst preserving customers’ relationships and our market share. | | | | | | | | | | | | | | | Target risk appetite | | Examples of specific risks: • Inability to identify early signs of increases in the variable costs. • Inability to effectively negotiate price increases with customers. | | | | | | | | | | | | | | | KPIs Revenue,AdjustedEBITAMargin, AdjustedEPS,ROIC Internally monitored metrics Priceincreaserealised,Price fulfilment,Leadingcost indicators. | | Risk mitigation • Consistent monitoring of leading indicators to identify early signs of externally driven cost inflation. • Management focuses on effectively negotiating price increases with customers without compromising relationships and market share. These efforts targeted the delivery of price increases of €130 million in 2021. • Close management monitoring of progress towards price increase implementation. | | | Risk movement Raw material and freight costs showed an upward trend since early 2021, whilst energy, CO2 and labour costs started to rise in the second half of the year. Following these externally driven changes in key variable cost components for the Group, this risk is now deemed to be high and a key area of management focus. A range of risk-mitigating measures were implemented and mainly relied on the successful delivery of 98% of the €130 million planned price increases within 2021 and enhancing the monitoring of leading indicators to increase future visibility and enable effective decision making. Theriskiswithinriskappetiteduetothesignificantprogressinrisk mitigationexecution.Thisiscloselymonitoredbymanagementto enableafastreactiontoadditionalchangesinexternalcosts. Focusremainsonstructuralprocessimprovementstoenhance visibilityoverinternalandexternalcostschanges. | | | | | | | | | | | | 11. Organisational capacity to execute strategy, including demonstrating Company cultural values | | Risk description The Group places a high emphasis on pragmatism, openness, performance, customer centricity 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. Our values of accountability and responsibility are key to promptly communicating and addressing issues to enable a fast and reliable execution. | | | | | | | | | | | | | | | Link to strategy | | The Group’s corporate culture, combined with an optimal internal structure, adequate skills and resources, are key to ensuring the delivery of the Group strategy. To ensure access to adequate skills, the Group is focused on being able to retain talent as well as attract talent from the market. enhance performance. | | | | | | | | | | | | | | A key focus of the Group’s corporate culture is gender, ethnic and generational diversity, which is seen as an important driver to | | | | | | | | --- | --- | --- | --- | --- | --- | | Target risk appetite | | Examples of specific risks: • Inconsistent behaviour across the Group. • Lack of accountability and responsibility. • Inability to attract and retain top talent. | | | | | KPIs Genderdiversityinleadership, VoluntaryEmployee Turnover, AdjustedEBITA,AdjustedEPS, ROIC Internally monitored metrics Genderdiversityinleadership, VoluntaryEmployee Turnover, AdjustedEBITAfromstrategic initiatives,ROIC onstrategic initiatives. | | 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. • Trainee programme to develop graduates into future leaders. | | | Risk movement Theincreasingpaceofchangesdrivenbythefast-evolvingglobal landscape,whichmanifestedprominentlyin2021,requiresthe Grouptocontinuouslyensurethatitsinternalstructureand employees’skillsetenableagilitytosuccessfullydeliverthe Group’sstrategy.Inaddition,aconsistentandwell-established cultureisapivotalenablerofmanagement’seffectivenessin deliveringthestrategy,especiallyinafast-evolvingcontext. Duringtheyear,leadershipandprojectmanagementskillswithin theGrouphavebeensubjectedtomultiplepressurepointsdueto theincreasingcomplexitytomanagetheGroup’soperations, projectsandstrategicinitiativesinacontextofglobalchallenges. The global job market, which has been significantly impacted by COVID-19 and the strong macroeconomic recovery in 2021 in several of the geographies in which the Group operates, started to indicate an increasing retention risk for talents in the second half of 2021. However, this risk has not crystalised, and the retention rate amongst senior leaders remains high. For these reasons, the level of risk has been deemed to have risen in 2021 and requires management focus to enhance risk | mitigation actions to reduce it and bring it within the risk appetite. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 4 9 | | | | | --- | --- | --- | | 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 | | | | | | | | --- | --- | --- | --- | --- | --- | | | Shareholders Whytheyareimportant Asprovidersofcapitalandowners ofthe business,ourshareholdersplayacentral role inthe Company’sgrowth and development. By fosteringand maintainingtheirsupport, we areableto implement ourstrategy andobjectives. | | TheInvestor Relations department maintainsan ongoing,transparentdialogue with shareholdersand analysts and reports regularlyto theBoard. Regular engagementwithour shareholdersis facilitated viaone-on-one meetings,investor presentations and webcasts,theAGM,industry conferences and events,capital marketsdaysandsite visits. In 2021,theInvestor Relationsdepartment initiateda perception studyon behalfoftheBoard, inviting our capital markets stakeholders to providetheir perspectiveon theCompanystrategy andprogress, allowing managementtotakeproactiveandinformed decisions. | | DavidSchlaff andStanislausPrinz zuSayn-Wittgeinstein represent major shareholdersintheCompany through their positionontheBoardandcanprovideanessential investor perspectiveto theBoardandEMT. TheExecutiveDirectors(EDs) meet regularly with investors and analysts(both inpersonandviadigital channels). When Boardmembersinteract with shareholdersanupdate is usually givento thefull Board. Directorsalso receivedregular presentationsfromInvestorRelationswith analyst coverage of market andshareholderreactionsto Company events. TheBoardcontributedtowardstheformationof theperception study anda detailedBoardpresentationontheresultsof the perceptionstudy wasconsideredinaBoardmeeting. | TheInvestor Relationsdepartment regularly engagewith its shareholderson mattersregarding sustainability andinNovember 2021 helditsannual sustainability andgovernanceroadshow with Janet Ashdown, Chairmanof theCorporateSustainability Committee(“CSC”) andRemuneration CommitteeandJohn Ramsay,Senior Independent Director andChairmanof the Audit & ComplianceCommittee(“Audit Committee”). Additionally, the CSCreceivedareport fromtheHeadof InvestorRelationson the particularviewsrelating to ESG. | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Debt holders and lenders Whytheyareimportant Ourlendersanddebt holdersarean importantsource ofthe financial liquiditythe Group requiresto operate andare integralto the long-term sustainable successandgrowth initiativesofthe business. | | TheTreasurydepartmentmaintainsanongoing, transparentdialoguewithits debt holdersandlenders and reports regularlytotheBoard. Regular engagementwiththesestakeholdersis facilitated viaone-on-one andGroupmeetingsand presentations. In 2021,theTreasurydepartment engagedwith its debtholders to,among other initiatives, convert its €600million Syndicated RCF and$200 millionTerm Loan intoESG linked facilities aswell as to issue€400 million ofnewESG linked long-termdebt, including a €250million Schuldschein. | | TheBoardhasaclearly definedapproval anddelegationof authoritiesmatrixforthecontracting of debt instruments, and actively contributesandengagesindiscussionswith theCFO and GroupTreasurer. TheCFOandGroupTreasurerexecutetheBoard-approved strategiesby consistently engaging with debt holdersand lenders to securefavourableterms, mitigaterisksandensuresustainable andsolidrelationships. | | | | Customers and innovation partners Whytheyareimportant Ourcustomersare positionedat the heartofourbusinessmodeland everything we do. They are fundamental tothe sustainable future ofthe Group. Ourcustomershelp us to achieveour Company purpose, through delivering thevital materialssuch assteel, cement andglasswhich are essentialto our end markets. Wecollaborate with externalpartners suchas accelerators, start-ups, open innovationplatforms, companies and institutions to fosterinnovationand drive developmentsinR&D. | | Weworkcloselywithour customersto ensureweare awareoftheir needs –this is facilitatedviaday-to-day contactwithCompanyrepresentativesaswell as fact-finding,technical consulting, installationand operations supervisionand resident expert sitevisits. TheCompany’s NetPromoter Score(NPS) ismeasured regularlyand is used as akeymetric forcustomer- facing teams,toensurefocus onthegoal of providing a positivecustomer experienceinevery interaction. It has been especiallyimportant to maintainclose communication withour customersduring 2021 as we havefaced unprecedented challengesfromthe supplychain volatility.In Q4 2021 weachievedan “outstanding” score,ranking in thetopquartileof companies. In aCustomer Satisfaction Survey conductedinQ4 2021 83%ofrespondents scoredRHIMagnesitaasa “good” or “excellent”.85%ofrespondentsstatedthat RHIMagnesita’s productquality iseither“excellent” or “good” whereas only72%ofrespondentsscored deliveryperformanceas “excellent” or“good”. Our R&D,Technical ExcellenceMarketing andDigital Solutions teams collaborateandengagewith innovationpartners onan ongoing basis. | | TheEDscommunicatewith customersinregularmeetings to discussjoint strategies, at industry congresses, seminarsand webinars, andat high-technology eventsandfairs. NPS isconsideredat Boardmeetingsandisregardedasagood proxy forengagement with customersonthebasisof itsrole in bringing customerprioritiesto theboardroom. Management continuesto developthissurvey to reach andengagewith as many customersas possible. TheCSCreceivedareport fromtheCSOontheparticular customerviewsrelating to ESG. TheBoardreceivedanupdatefromtheTechnical Advisory Committee, which worksclosely with innovationpartners,and consideredtheintellectual property strategy throughout the year. TheCorporateSustainability Committeereceivestechnical updatesonmeasuresto developtheCompany’ssustainability strategy which aredevelopedinconjunctionwith innovation partners. Thisisthenfedinto theBoardviadiscussionsand Committeereports. InpreviousyearstheBoardhavevisitedcustomersitesbutin 2020 and2021 thevariousrestrictionshavemeant thishasnot been possible. | | 5 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | #### Topics raised Outcomes (whatmatterstothestakeholders) (i.e.howhasengagementandstakeholderopinionimpactedontheCompany’sstrategy) | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | • Companystrategyand implementation • Operationalandfinancial performance • Capitalstructure andliquidity • Capitalallocation • The role andimpact of our EmployeeRepresentative Directors | | • ShareholderperspectiveswereconsideredinBoarddiscussionssurrounding capital allocation decisions, notably theextensionby €50 millionof the€100 millionsharebuybackundertaken inMay 2021. • TheBoardcontinuedto incorporateshareholderfeedback aboutremuneration into its decision making aroundsustainability measuresinincentiveschemesandensuring theoutcomes against existing measureswill besufficiently assessed. | | | | | | • Overboarding • Sustainability agenda –meeting thechallenges ofclimate change anddiversity • Linkingremunerationand ESG • The sustainability andgovernanceroadshowcentred upon approach to diversity, environmental activity,supplychain governance, corporategovernancepractices and remuneration • Response to COVID-19:employeeprotectionmeasures, participationingovernmentschemes | | | | • TheDirectorsusedfeedback fromshareholdersto challengemanagement about progress of sustainability measuresandthestrategy with regardto pricing andfirst moveradvantage. • TheBoardconsideredshareholderexpectationswhen considering theoutlook and potential announcementsthroughouttheyear, ensuring theCompany remainedcompliant with MAR. • Ongoing conversationsabout diversity -particularly gender- ensuredthat theNomination Committeerecommendedto theBoarda refresheddiversity policy (foundhereon our website) andproposedthreefemaleDirectorsforappointment at theAGMinJune2021. • Feedback about acquisitionstrategy fromshareholdersinformsthebusinessstrategyand planning forthefutureintermsof liquidity andbusinesscapacity. • TheNomination Committeeconsidered shareholderexpectationsaroundthenumber of appointmentsheldby new DirectorsandtheIRteamengagedwith particularshareholders as requiredto giveassurancethat new Directorshadsufficient timeto dedicateto the Company. | | | | • Companystrategyand implementation • Operationalandfinancial performanceand outlook • Capitalstructure andliquidity | | | | • Additional refinancing with competitiverateswasconductedin2021 to furtherenhance the Company’scapital structure, debt amortisationscheduleandliquidity profileincluding a €150 millionESG-linkedbilateral facility with ING anda€250 millionSchuldscheinissuance with maturitiesranging from5.5yearsto 10 years. | | | • Sustainability initiatives • Risk management | | | | | --- | --- | --- | | • Climate action • Ourcustomers’partner ofchoicein thegreen transition ofSteel andCement • COVID-19 • Customerservice levels,lead times and supplychain issues • Innovationpartners - the artofthepossibleand wherenew developmentsare being madewhichmightapplytotheindustry andprogresssustainablegoals • Price increasesinresponsetoinflationarycosts,higher transport costsandhigherraw material prices | | • Customersremainat theheart of theCompany’svaluesandcultureandassuch form a central part of every Boarddecision. • TheBoardreferredto thecustomer experiencewhen considering anddiscussing the outlook for thebusiness, incorporating thisperspectiveinto theirview of theCompany’sfuture performance. • TheBoardcarefully consideredglobal customerviewpoint inpricing discussions when considering costsandvalueproposition. Retentionof long-termcustomerswith strong working relationshipswasconsideredandprioritised. • Strategic directioninrespect of sustainableproducts(price, secondary raw material level and theirlevel of focusonScope1, 2 and3 emissions). • Strategic directioninrespect of tailoredproductsforcustomersagainst thecomplexityof businessoperation. | • Theopening of acustomercomplaintscentreinIndiawasdrivenby thedesireto provide better customerservice, reducing responsetimes. • Emergency airfreight usedinexceptional circumstancesto meet customerneeds in supply chaindisruption. • Any changesto productionfootprint which involveproduct transfersincludemitigating actions if thiswouldimpact oncustomersto ensuretheirserviceisnot disrupted. • Consideredcustomerrelationshipswhen considering potential M&A. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 5 1 #### Stakeholder engagement continued #### Stakeholder group How the Company engages How the Board engages | | | | | | | | --- | --- | --- | --- | --- | --- | | | Employees Whytheyareimportant Attracting, retaining anddeveloping talentis centralto the successofthe Company. We aim to cultivate an engaged,innovative andcollaborative workforce, with astrongfocuson diversity. | | Weemphasisetheimportanceof frequent, constructiveand open communicationwith our employees and havemanychannelsthrough which this is facilitated. Communication channels includetownhall meetings, social mediachannels,email andanemployeeapp (“MyRHIMagnesita”).Tohelpfacilitateeffective communication throughoutevery level of the Company,employees weregivena mobilephoneif theydidn’talreadyown onesothat they couldaccess MyRHIMagnesita. Wehave“culturechampions”throughout the Companywhoengagewiththeworkforceonan ongoing basis toembed our cultureandvalues, and arecurrentlyfocusing on “accountability”. Wehaveexpanded our localisedstrategy, with increased accountabilityin theregional leadership teams.Our regional presidents andsitemanagershold their own townhalls toaddress regional specific issues e.g.local supplychain issues,local COVID-19updates and restrictions,vaccinations andproductionsiteor officechanges. Weheld our annual Leaders conferenceinOctober 2021,focusing on processes,culture, collaboration and specificKPIs.Ahead ofthe conference, asurvey to collectfeedbackfrom theparticipantswasconducted abouttheir assessmentoftheCompany performance. | | ThreeEmployeeRepresentativeDirectorssit ontheBoard, providing adirect voiceintheboardroomonarangeof issues, in particularthosewhich directly impact theworkforce, such as workforceremuneration,agreementsto accommodateworking conditionsunderCOVID-19,andplant closures. Asaresult of ongoing COVID-19restrictions, otherformsof Board engagement with employeeswerelimitedduring theyear, howevertheDirectorswerepleasedto makesomesitevisits in 2021 to theR&D centreinLeoben, Austria, ourplantsinIndia, and ourRadentheinandBonnybridgeplants. Not all tripswere possible asawholeBoard, but different Directorstook opportunities as they aroseandreportedback to theBoardon theirexperience. EDsandEMT went to India, Brazil andNetherlandsaswell as site visitsinGermany, FranceandAustria. OnthesesitevisitsDirectorstook opportunitiesto discusstopics withemployeestheymetsuchassafety,strategyforbusinessunits, local conditions, innovationandproduction, amongst manymore. TheBoardengagedwith employeesbelow EMT level, with relevant specialist managerspresenting ontheirareasof expertise to theBoardandCommitteesthroughout theyear, particularlyas part of theStrategy session inSeptemberwherethey received detailedbriefingsondigital initiatives, Steel businessinNorth and South Americaandsteel technology. TheBoardreceivedpresentationson cultureandemployee engagement, particularly with focusonexecuting thestrategy, recognising thiscouldonly beachievedthrough effective collaborationamongst employees. Presentationsto theBoard also detailedKPIsrelating to employees, particularly inrespectof tenure, overall attrition, reasonsforexit, anddiversity statistics. | TheCSCconsidersemployeesafety KPIsat each meetingwhich includedroot causeanalysisof any seriousorfatal accidents amongst theemployeeandcontractor population. Outsideof Boardmeetings, individual Directorsmet with employeesfordirect discussionsonareasof interest astheyarose inBoardmeetingssuch asdiversity, hedging approach, EUTrading SchemeforCO2 Certificates,risk management, demandplanning andoutlook amongst many moretopics. TheEDsusedtheresultsof theLeadershipsurvey to structure the conferenceandgeneratediscussion aboutstrategic improvementsto theCompany andto theCompany’sculture, particularly with referenceto accountability. TheBoardwas subsequently updated onthis. 5 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | #### Topics raised Outcomes (whatmatterstothestakeholders) (i.e.howhasengagementandstakeholderopinionimpactedontheCompany’sstrategy) • Operationalandfinancial performance • Social plansforplant closures havebeenimplemented. | | | | | | --- | --- | --- | --- | | • Businessrestructuring • Productionhaltsandplantclosures | | • Encouragedtalent development inkey teamsandconsideredhow thiswouldinform succession planning forlevelsbelow EMT. | | | • Talent development and retention • Workforce remuneration | | • Culturalassessmentcontributedtotheconversationonexecutionofstrategicinitiativesthrough considerationof staff moraleandtheneedto react speedily. Seniormanagement are encouragedto recognisehardwork andencourageaccountability to deliverthe strategy. | | • COVID-19 • Consideredretentionandattractioninthechanging labourmarket/inflation. | | | | | --- | --- | --- | | • Vaccination • Health andsafety | | • Remuneration Committeeconsideredworkforce remuneration when considering a revised RemunerationPolicy, thedecisionto pay abonusinrespect of thefinancial year 2020 and whenagreeing theChairmanandED’sfees. Theworkforceoverall averageremuneration increases, taking into considerationinflation, collectiveandunionagreements, formed the basis fortheincreaseinfeesat Boardlevel. | • EmployeeKPIreportsenabledDirectorsto useexampleswith management about diversity, operational complexity,theproduction network andsupport debateaboutprogress within thesetopics. • Ensuring safety of theworkplaceforemployees, supporting with vaccinationprogrammes and extensivetesting globally. • Through oversight of safety campaigns, theCSChasencouragedandchallenged management onH&S performanceto drivefutureprogressinkeeping ouremployees safe at work. • Focusonupskilling, competenceto deliverandexecuting thestrategy. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 5 3 #### Stakeholder engagement continued #### Stakeholder group How the Company engages How the Board engages | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Communities Whytheyareimportant Wherever we operate, ourbusiness dependsonmaintainingthe acceptance andapprovaloflocalcommunities.In returnforthissociallicence to operate, we mustconduct ourbusinessethically andresponsibly. We must also strive towards sustainability, not only inour ownoperationsbut also to support socio-economicdevelopment and environmentalprotectionwhereverwe operate. | | As amember oftheUNGlobal Compact, wesupport theUNSustainableDevelopment Goalsand implementtheGlobal Compact principles (anti-corruption,human rights, labourrightsand environment).Thesecommitmentsdriveour engagementwithpolicymakers,NGOsandothersat national and international level. Ata local level,eachoperationengageswith local communities and otherstakeholders to identify their concerns and howwecan support them. In 2021 wespecificallyfocused oneducationand youthdevelopment,environmental protection and emergencyrelief.Thelatter two havebecomemore relevantgiven COVID-19 and theclimatecrisis. | | TheBoardreceivesupdatesonourcommunity engagement and investment programmes. TheBoardreceivedregularupdatesonCOVID-19infection rates andconsideredoperationsinthecontext of local community situations,receiving reportsfrommanagement on how Company resourceshadbeendeployedto helpcommunitiesacross our global operationwith theirCOVID-19response. Aswell asfocusing ontheCOVID-19response, theCorporate Sustainability Committeeconsideredkey aspectsof community engagement,including charitablefundraising for local communitiesandreceivedupdatesfrommanagement on projects incommunitiesinBrazil andAustria. Youcanreadmoreabout theseinitiativesonpage65. | | | | | | | | In 2021,wecommissioned a new rail container terminal atHochfilzen,Austria. Around3,000 trucks per year willbereplaced byrail, considerably reducing CO2 emissions in thesurrounding community. | | | | ReadmoreinCommunitieson Page 65 | | ReadmoreinCommunitieson Page 65 | | | | | | | | --- | --- | --- | --- | --- | --- | | | Suppliers Whytheyareimportant Strongrelationshipswith oursuppliers are vital for the effective running ofour operations. We rely onoursuppliers to deliverservicesandmaterials, and the availabilityofthese goodsimpacthow we operate asa company. In2021,weexperiencedunprecedented supplychainvolatility, a unexpectedlysharp reboundindemand forgoods asthe pandemic eased,which ledto ashortage ofcontainersin East Asiacausinga sharp increase infreight prices.Thisalso ledto poorreliabilityof containers andsevere delaysaffecting theshipment ofboth raw materials and finishedgoodsto ourcustomersites. | | In 2021,theGrouphad tochangetheway it managed its supplychains in order toadapt to amuch more volatileenvironment. Weimplemented ataskforceby recruiting someof our toptalenton atemporarybasis. Thismultidisciplinary groupwas tasked tofind solutionsto reduceleadtimes, lower costs,restoresales and helpreplenish ourraw material inventories. | | TheCorporateSustainability Committeereceivedreportsfrom management on supplierauditsand engagement andconsidered new sustainableprocurement initiatives. TheBoardreceivedregularupdatesonthebusiness’swork to future-proof oursupply chainandthework undertakento adapt ourprocessesto anincreasingly volatileenvironment. Janet Ashdownlent her particularexperienceinvaluechain management to thesenior management teamandprovided a sounding boardandcoaching to seniorindividualsinthe Company to challengethem to considerdifferent approaches to supply chainmanagement. | 5 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | #### Topics raised Outcomes (whatmatterstothestakeholders) (i.e.howhasengagementandstakeholderopinionimpactedontheCompany’sstrategy) | | | | | | --- | --- | --- | --- | | • COVID-19 • Climate change | | • Werolledout anextensivevaccinationprogrammeglobally andinIndiaweoffered vaccines to ouremployees, theirfamiliesandthelocal communities. | | | • Skillsandemploymentprogrammes • Protectingexistingprogrammes and partners | | • Wedonatedto theGermanRedCrossto support thelocal community during the extreme flooding that took placeinJuly 2021. • Heavy rainsfell during December2021 neartheBrumado site, Bahia, Brazil. We responded through donating 14 tonnesof foodto thecommunitiessurrounding thesite. | | • Employeesareencouragedto volunteerinourcommunity programmes. | | | | | | --- | --- | --- | --- | | • The impact ofsupply chain volatilityon profitability • Inventorylevels • Shipment delays • COVID-19 • Climate action • Safety • Rawmaterials | | • Asaresult of thereportsreceivedanddiscussiononsupply chaintopicsat Board meetings, the Boardencouragedmanagement to seek outsideinput to aimtowardsaBest InClass value chain andto improveday-to-day supply chainissues. Management commissionedaudits of the supply chainfromconsultantswith preciseandparticularexpertiseinthesubject and created a task forceto manageimmediateissuesinthefaceof global supply chaindisruption and a longer-termsteering committeeto fundamentally set thevaluechainupforthe future. • Thetaskforceimplementedchangessuch asmoreefficient transportationreporting, regular updatesof freight costs, thecreationof aleadtimedashboard, implementedanautomated critical raw material check andregional support forbacklog prioritisation | | | • Sustainable procurement | | • TheCorporateSustainability Committeeconsideredprogressmadeby Procurement in pursuit of sustainablesuppliers. RHIMagnesitaintendsto evaluateitssuppliersthrough: | | – A sustainability risk matrixthat assessessuppliersaccording to country andcategoryrisk (completed) – A goal basedframework to evaluatethemajority of RHIMagnesitapurchase spend by supplierundersustainability criteriauntil 2025 – Implement sustainableprocurement process andorganisation in2022 and2023 in all regions. • TheBoardconsideredandapprovedtheModernSlavery Act statement for publication, following recommendationfromtheCorporateSustainability Committee, andthis can be found onour website. • TheCompany succeededinimproving payment termswith supplierssignificantly over the periodof thelast two years R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 5 5 | | | | | | | | --- | --- | --- | --- | --- | --- | | Sustainability governance | | From COVID-19 to climate change, the urgent challenges facing the world today cannot be solved by governments alone. Business also has a vital role to play and can be a force for good. | | | | | RHIMagnesita’spurposeistomasterheat, enablingglobalindustriestobuildsustainable modern life. Our solutions play a vital role in the manufactureofthesteel,cement,copperand glassthatcreatethehousing,hospitals,schools and roads which are needed by the world’s growingpopulation.Tomakeourbusiness sustainable,wearepreparingourbusinessforthe zero-carbonandresource-constrained economy. As our customers chart their pathway to net zero emissions, we aim to support them as their preferredpartneronthejourney. We are not only the global leader in refractories, but the sustainability leader in our sector, too. To retainthisleadership,wearesettingbold ambitions, drivinginnovation,understandingrisks andcapturingopportunities. Materiality OurriskmanagementapproachhelpstheBoard andEMTtounderstandtherisksassociatedwith theadoptedstrategy,periodicallyassessifthe strategyisinalignmentwithourriskappetiteand understandhowthechosenstrategycouldaffect theGroup’sriskprofile,specificallythetypesand amount of risk to which the Group is potentially exposed. Weprioritisethesustainabilitychallengesthatare materialtoourbusinessandourstakeholders.In 2021,these were: • COVID-19 • Climatechange • NOxandSOxemissions • Recycling • Healthandsafety | | Engaging with stakeholders SustainabilityandESGcontinuedtogrowin importancetoourstakeholdersduring2021. Below is a summaryofdiscussiononthesetopics duringtheyear. Investors InvestorinterestinourESGstrategyand performancerose increasedfurtherin2021.Our sustainabilityexpertsengagewithinvestorson variousfronts,frombilateralmeetingsandwritten exchangesonspecifictopicstoperiodicESG updatesatbroaderinvestormeetings. Ourclimatestrategy,recyclingandinvestmentin emergingtechnologiesremainthetopicsof greatest interest, with a new focus on how we are supportingcustomertransitions,suchasDRI (directreducediron)andEAF(electricarcfurnace) in steelmaking. Investors are also keen to understand how we are developingourgenderdiversityandhavestarted to show more interest in biodiversity. In 2021, CDP awardedRHIMagnesitaaB for climate. We also obtaineda GoldratingfromEcoVadis,AArating fromMSCI,MediumfromSustainalyticsand Prime (C+) by ISS ESG rankings. Customers Asourcustomerscharttheirpathwaytonet-zero, theyincreasinglyfocusonScope3emissionsin their value chain. In 2021, we met with a series of majorcustomerstolearnabouttheirnetzero plans and how we can support them. Inresponse, we already market our first low- carbonbrick,the ANKRAL LC series, and will soon launch our first net-zerobrick. | | Asafull-servicesolutionsbusiness,we also help customerstoreduce their Scope 1 and 2 emissionswithourdigitaltechnologies.Giventhe scale ofcustomeremissions,thiscouldyield greaterreductionsthantacklingourown Scope1 and2emissions.Lastly,takingbackspent refractoriesforrecyclingreducescustomer emissions and waste, as well as cost. We aim to be atrustedpartnertoourcustomers supportingtheirtransitiontoanet-zeroeconomy. Insteelmaking,forexample,weare already the market leader in EAF refractories and we plan to position the company as a leader in DRI refractories. Onsocialsustainability,we continuetoworkwith customersonsafetytodevelopshared commitmentsandprocesses.We respond to our customers’needswithinformationabout our practices.Ournewsustainablesupplychain processwithEcoVadiswillalsoprovidegreater transparency. Employees Ouremployee engagementspanstownhall meetingsforouremployeestomeetwith the leadersofourbusiness(physicalandvirtual meetings),adedicatedmobile app and other local channels.During2021,wecontinuedto communicate onCOVID-19,forexample explainingthe benefitsofvaccination.Our most recentglobalsurveyconductedin2020 showed a 79% score foremployee engagement, exceedingboththeglobalbenchmarkand that forthemanufacturingindustry. | | • Diversity | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Theseissueswerereconfirmedbasedoninformal engagementwithinternaland external stakeholdersandclosemonitoringoftheissues. Wedidnotconductaformalstakeholder consultationin2021. | | Our performance in ESG rankings AA | | | | Gold | | | Wereportourprogressagainst2025targetsfor each oftheseissues.Inaddition,wereport progressonothersocial andenvironmental issues,suchasanti-briberyandcorruption, sustainablesupplychainandwaterusage. | | | | Prime C+ | | B | | DISCLOSURE INSIGHT ACTION 5 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | Suppliers and contractors In 2021, we began a new level of engagement withoursuppliers,workingwiththemand EcoVadisinordertoimprovesustainability throughoutoursupplychain.Buildingonour existingSupplierCodeof Conduct, our new approachintegrates environment, labour rights, humanrightsandanti-corruptionconsiderations intotheprocurementprocess. We alsocontinuedtointegrateoursafety programmesforallrelevantcontractorsonour sites.Inadditiontoclausesinourstandard contracts,werequestallcontractorstoprovide key safety data such as LTIF on a regularbasis. Communities With many of our sites located in relatively remote locations,weengagedirectlywithcommunitiesin theimmediatevicinityofourplants.Althoughwe have clearoverarchingareasthatwesupport aroundtheworld,wealsorespondtoimmediate localneeds.In2021 ourcommunitysupport rangedfromdonatingCOVID-19vaccinesto residents near our Bhiwadi plant in India to providingdisasterreliefto flood-hitcommunities near our Urmitz plant in Germany. | | Working in partnership Inadditiontobilateralengagement,wetake part inbroadermultilateralplatformsonthe most complexsustainabilitychallenges.Forexample, weworktogetherinindustrypartnershipsonthe developmentofcarboncapture andusage.These includetheK1-METconsortiumintheAustrian steelindustryandthe IndustrialAdvisoryBoardof theEU-fundedMOF4AIRproject,adevelopment ofthenewMetalOrganicFrameworkforcapturing CO2. Governance structure At Board level, the Corporate Sustainability Committeeisresponsible foroverseeingall aspectsofsustainabilityandESG.Theyare responsible forreviewingrisksandopportunities, approving strategiesandreviewingprogress. TheSustainabilitySteeringCommitteeisthe senior managementbodyresponsible fordriving progress againstkeyobjectives,integrating sustainabilitythroughoutthe business.TheChair reportsregularlytothe CEO,Executive ManagementTeam(EMT)andtheBoard. Standards, frameworks and reporting Wefollowleadingsustainabilitystandardsand frameworks.AsasupporteroftheTaskforce for Climate-RelatedFinancial Disclosures(TCFD), we have assessed and quantied the risks and opportunitiesposedbyclimatechange.The BoardofDirectorsreceivedtrainingonthistopic. We make annual climate submissions to CDP and in 2021 were awarded a B rating. | | | (occupationalhealthandsafety)and ISO 9001 (quality). We reportourprogressongender diversity annuallytothe Hampton-Alexander Review. In 2021 we completedourfirstsubmissiononethnic diversitytotheParkerReview. We endeavourto reportourprogressopenly and transparently.RHIMagnesitahasreported in accordance withthe GRIStandards(Coreoption) for the period 1 January2021 to 31 December 2021. Together with our GRI Content Index, this reportservesasourGRIReport. As a participant in the UNGlobalCompact,we have committedtosupportthe UNSustainable DevelopmentGoals.Wefocuson thegoalsmost alignedtoourcorecompetencies. Thisreport representsourCommunicationon Progress (self-assessedasActive)andwe detail how we support each UN SDG in our GRI Index. Ourreportingmeetsthe legislativerequirements intheUKandtheNetherlandsinimplementing the EUNon-FinancialReportingDirective. In accordance withthe newEUtaxonomy requirements,we reportbelowthe proportionof ourrevenue,operatingexpenditureand capital expenditure for the 2021 financialyear thatare taxonomy-eligible. | | | | | | Ourintegratedmanagementsystemmeetsthe requirementsofISO14001 (environment),ISO 50001 (energymanagement),ISO 45001 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 5 7 #### Sustainability governance continued We support the UN Sustainable Development Goals (SDGs) and have identified these as the goals our business is best placed to actively support. | | | | | | | --- | --- | --- | --- | --- | | Ethics and compliance In 2021, we continued to review and enhance our approachtothefollowingkeyethicsand complianceareas:businessethics,anti-bribery andcorruption(includinggi conflictsofinterests),anti-trustandfair competition,dataprivacy,tradecomplianceand businesspartnerduediligence.Weenhanced andfurtherembeddedarangeofcompliance policiesandproceduresandconducted compliancetrainingandcommunications.Aswe enhanceourframeworkandinternalcontrols,our complianceculturecontinuestomaturetoo. Anti-corruptionisamongtheUNGlobal Compact’s10principlesthatwehavecommitted tointegratingintoourbusinessstrategyand operations.Othersincludeenvironment, human rightsandlabourrights. Wetakeazero-toleranceapproachtoany incidentsoffraud,briberyorcorruption,inboth ouroperationsandourvaluechain.Thisapproach is made explicit in our Code of Conduct and our Supplier CodeofConduct. Comprehensiveonlinetrainingontopicssuchas businessethics,anti-corruptionortrade complianceandmonthlymonitoringofthe trainingcompletedensurethatalloffice-based employees,includingnewhires,aretrained. Additionalsessionsareprovidedasnecessary, such as for salesstaff.Inaddition,anti-corruption andotherkeytopicsareregularlyincludedin globalinternalcommunications. | | Weconductbriberyandfraudriskassessments acrossourbusiness,withresultspresentedtothe AuditCommitteeeachyear.Alloursalesagents arecertifiedbyTRACEInternational,aleading anti-bribery standard-settingorganisation. Businesspartnersandtransactionssuchas mergersoracquisitionsarescreenedinthedue diligenceprocess.We have implementeddigital workflowstoaddressanddocumentconflictsof interest declarations,gi communityinvestmentapprovals.Guidelineson eachtopicprovide furthersupportforemployees. Wearecommittedtoupholdinghumanrights andlabourrights.Morethanthreequarters(82%) of our employees belong to unions or are covered byworkscouncilsorcollective bargaining. This focus on human rights and labour rights is nowbeingexpandedtoinclude oursuppliers.Our SupplierCodeofConductincludesprovisions thataddressbothhumanrightsandlabourrights. With the help of a digital tool, we askallsuppliers to commit to our Supplier Code of Conduct. Our Boardreviewsandapprovesannualstatements forpublicationinaccordance withthe UKModern SlaveryAct2015andCaliforniaTransparencyin Supply Chains Act. We urge anyone with concerns about our business to reportthemtoourindependently operatedhotline,whichisconfidentialandallows anonymity.Wearefirmlycommittedtoprotecting thewhistleblowerfromanyformofretaliation. Contactdetailsofthe hotline arepublicised onlineandthroughoutthe business.Reported incidents areindependentlyinvestigatedand,if | | necessary,appropriate follow-upactionsare taken;the Audit&Compliance Committee receive regularreports.In2021,thehotlineand additional reportingchannelsgenerated63 reports (vs 62 in 2020); The majority of reports wereHR-relatedcaseswithapproximately 70% ofallreportsoriginatingfromBrazil.The tendency regardingthe high number of cases from Brazil is rooted in the whistleblowinghotlinebeingthe preferredescalationrouteforHR-related queries or concerns in Brazil, which in other regions are typicallyraisedviaothercommunication channels. | 5 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | # Progress against sustainability targets | | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Material issue | | | Targets by 2025 vs 2018 baseline year | | Progress in 2021 2018 2019 2020 2021 | | | | | | | | | | | | | | | | | | | 1. CO2 emissions Reduce by 15% per tonne of product – Scope 1, 2, 3 (rawmaterials) | | | | CO2 intensitydecreasedby 3.7% comparedtothe base year | | Absolute (t CO2) Relative (t CO2/t)1 | | 5,453,000 4,681,000 4,277,000 4,878,000 1.89 1.85 1.96 1.82 | | | | | | | | | | | | | | | 2. Energy Reduce by 5% per tonne of product | | | | Energyefficiencyimproved by 4.7% comparedto2020 and2.7% comparedtothe base year (2018) | | Absolute energy consumption (GWh) | | 5,718 5,227 4,577 5,184 | | | | | | | | | | | | | | | | | | | | | Relative (MWh / t)1 | | 1.98 1.93 2.03 1,93 | | | | | | | | | | | | | | | 3. Recycling Increaseuse ofsecondary rawmaterials to 10% | | | | Use of SRM increasedto 6.8% | | Use of secondary raw materials | | 3.8% 4.6% 5.0% 6.8% | | | | | | | | | | | | | | | 4. Diversity Increase womenon ourBoardandin senior leadership to 33% | | | | Womennow accountfor 38% of our Board.Share of womeninleadership decreasedto22% | | Board 7% 23% 25% 38% | | | | | --- | --- | --- | | EMT and directreports | | 12% 17% 25% 22% | | | | | | | | | | | | | | | | | | 5. Safety MaintainLT IF at <0.5(goal: zero accidents) | | | | Lost time injuryfrequency (LTIF)increased 38%over 2020 | | per 200,000 hours worked | | 0.43 0.28 0.13 0.18 | | | | | | | | | | | | | | | 6. NOx and SOx emissions | | Reduceby30% by 2027 (vs 2018), starting with China by 2021 | | 30% reductioninNOxand SOx, achievedinChina already; worknow focuses on USoperations | | China – target achieved 2021 | | | | Europe– target 2027 | | South America – target 2027 | | North America – target 2025 | | | | | | | 1 Adaptationsinline withthe Greenhouse Gasprotocol andrefinement inreporting resultinupdatedCO2 andenergyefficiencyfiguresfor2018-2021. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 5 9 | | | | | | | | --- | --- | --- | --- | --- | --- | | Climate and environment | | The effects of climate change became ever more visible in 2021, from extreme weather events to record temperatures. At the UN COP26 conference, world leaders committed to keep the goal of 1.5oC alive while business leaders aligned emissions reduction pledges to this critical goal. | | | | | Drivingemissionsdownisakeycorporatepriority for RHI Magnesita. In addition to charting our own transition, we want to be a trusted partner to our customersontheirjourneytonetzero. Our first target is to reduce Scope 1, 2 & 3 (raw materials)emissionsintensityby15%by2025.In parallel, we are working to develop a Paris- aligned target. To do so, we have been working withtheAustrianGovernmentandWWFandaim to submit a Science-BasedTargetin2022. To decarboniseourbusinesswillrequire unprecedentedinnovationandinvestment. Between2021 and 2025, we have committed to invest €50 million in the research and developmentof newandemergingtechnologies. In 2021 we spent €63 million on R&D and TechnicalMarketing. Climate governance TheCorporateSustainabilityCommitteeofthe Boardoverseesourclimatestrategy,reviewing risks,opportunitiesandperformanceateach quarterlymeeting.Atanoperationallevel,the ClimateWorkingGroupofthe Sustainability SteeringCommitteeassesses climaterisksand opportunitiesanddevelopsand implements strategy. | | In 2021 wefurtherintegratedcarbon considerations into keyprocesses: • Anewinternalpricingmechanismwas introducedtoincentivise salesteamsto prioritiseproductswithhigherrecycled content • ReducingCO2 emissionsnow accountsfor 10% of the annual bonus for all eligible employees • EnhancedmonthlymonitoringofCO2 was integratedintoourSAPenterprise resource planningtool Oursupplierevaluationtoolwillalsoincludean increasingfocusonCO2 emissions.Thiswillhelp enhanceouremissionsdataforrawmaterials,our mostsignificant sourceofScope 3emissions. Climate risk Climatechangerepresentsbothstrategicand operationalriskstoourbusiness.Thesecanbe groupedasphysicalrisksandtransitionalrisks. Physicalrisksinclude greaterseverityofflooding, droughtsorotherextremeweathereventswhich could disrupt ouroperationsandsupplychain. | | Transitionalrisksrange fromregulatory frameworksandtherisingpriceofcarbon to the viabilityandcustomeracceptance ofemerging technologies.Anothertransitionalriskisour abilitytosetandmeetParis-alignedtargets. In2021,theGroupcompletedmodellingand analysisbasedon alow-emissionsscenario of RCP2.6andaworst-case scenarioofRCP85. Throughinterviews,modellingandanalysis,we identifiedthelargestexpectedimpactsof physicalandtransitionalrisks. The results of the assessmentindicatedthatthe overallriskprofile for physical risks is low. Two sites have ahighercomparative riskprofile thanothers within the portfolio and these will be prioritised for futureadaptationandresiliencebuilding. These risks are discussed in more detail in our TCFDreport whichisconsistentwiththeTCFD RecommendationsandRecommended Disclosuresandispublishedseparatelyto the AnnualReportdue to its length, on the Group’s website: www.rhimagnesita.com/energy-and- climate/. Climate risks also form part of our third CDP climatesubmission,forwhichwe wereawarded a B rating by CDP. | | Governance • Management role: The Climate Working Group of the Sustainability Steering Committee works with the Executive Management Team to assess climate risks and opportunities and develop and implement climate strategy. • Board oversight: The Corporate Sustainability Committee has been delegated responsibility from the Board for climate-related risk management and reviews climate risks, strategy and performance in every quarterly meeting. | | | | | | --- | --- | --- | --- | | | Risk management | | • This year we expanded our climate-related risk and opportunity assessment to include modelling to quantify the financial impact on our business. We completed a comprehensive review of previously identified climate-related risks and opportunities, adding further risks and opportunities identified through interviews with key stakeholders across the business. We assessed the likelihood and impact of these risks and opportunities in line with the RHI Magnesita Risk Taking/Management Policy. • Where relevant, existing controls for the risks were identified and included in our financial modelling. In 2022, our focus will be on identifying and implementing mitigation actions to manage risks and embrace opportunities. | Strategy We have conducted scenario analysis of all identified climate-related risks and opportunities, using 2°C and 4°C warming scenarios across short (2023), medium (2030) and long term (2050) time horizons. Under these scenarios, our key climate risks and opportunities are: • Physical risks: flooding and resulting disruption to our operations, including damage to property, plant and equipment • Transitional risks: increased liability for our carbon emissions under carbon pricing schemes worldwide; and potential reputational impact and legal liability associated with increased investor scrutiny over emissions-intensive industries. • Opportunities: increased revenue and market share for products that support RHI Magnesita customers’ low-carbon products and/or services; and increased revenue from RHI Magnesita products with a lower carbon footprint. | | | | | | --- | --- | --- | --- | | | Metrics and targets | | • We measure our carbon emissions using the GHG Protocol and have set an interim target to reduce Scope 1, 2 and 3 emissions (raw materials) per tonne of product by 15% by 2025. • We have committed €50 million between 2021 and 2025 towards R&D of new and emerging carbon-related technologies and piloting in our plants. • We have set a target of 10% secondary raw material in our products by 2025, reflecting our commitment to reduce our carbon footprint through reducing the geogenic emissions associated with processing virgin materials. Achieving this target accounts for 10% of the bonus for all bonus-eligible white collar employees. | 6 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | Climate strategy Our first target is a 15% reduction in emissions intensity by 2025 in Scope 1, 2 and 3 emissions (forrawmaterials).Weintendtoachievethistarget byincreasingrecycling, improvingenergy efficiency,switchingfuels and adopting low-carbonelectricity. Total CO2 emissions (Scope 1, 2 and 3 – raw materials)in2021 were4.9milliontonnesand emissionsintensityhasreducedby3.7% compared to the baseline year of 2018. We are continuingtoworkonthenecessaryinitiativesto deliverourtargetofa15%reductionby2025. Around 50% of our CO2 emissions aregeogenic, whichmeanstheyarereleasedbyminerals duringprocessing.Addressingtheseemissions will require not only recycling but also new and emergingtechnologies. In addition to reducing climate risk, we aim to captureopportunities.Weseesignificant opportunityinbeingour customers’ preferred partner as they transition to a net-zeropathway.In additiontoreducingcustomerScope3emissions fromrefractorysuppliers,wearedeveloping solutionsthathelpourcustomersachieve significantreductionsintheirownprocess emissions. Recycling Our target is to reach 10% secondary raw material (SRM)contentinrefractoriesby2025.Working towardsthisnotonlydevelopsthecircularityof our business but is also thesinglemostimportant contributortoachievingour2025emissions reductiontarget. Around half (53%) of our Scope 1 CO2 emissions aregeogenic;theyarereleasedbyminerals duringprocessing.Replacingthesevirgin raw materialswithrecycledorsecondaryrawmaterial (SRM)avoidstheseemissions.Reachingour targetof10%recycledcontentwilltherefore avoid up to 300,000 tonnes of CO2 and150,000 tonnes of landfill waste per year. Progresstowardsourtargetiswellunderwayand weachieved6.8%recycledcontentin2021 (2020:5.0%).Theseimprovementsareduetonew initiativestocollect,processandincludemore secondaryrawmaterial.Aswebuildonthis progress,therearefourkeypillarstoourapproach: • Improvingtheflowofspentrefractoriesback toourplantsfromcustomersandtraders • Developingtherecyclingsitesandnew technologiestoprocessspentrefractories • Increasingconsumptionofrecycledcontentin ourbusiness • Growingsalesofproductswithrecycledcontent To increasetheflowofspentrefractoriesbackto ourplants,wearedevelopingcircularcontracts withcustomersthatincludebothdeliveryand returnofrefractories.Inaddition,wearebuilding strategicrelationshipswithsmallbusinesseswho dealwithspentrefractories. | | Wenowhaverecyclingfacilitiesineveryregion andweareplanninginvestmentsinGermany, MexicoandBrazil.Forexample,Mitterdorfisthe newstate-of-the-artrecyclingfacilitynearour Veitschplant.Thisplantwillhostourfirstsensor sortingmachine,aninnovativetechnologyto processspentrefractoriesintohighquality secondaryrawmaterials.Anothernewtechnology willremovecontaminationfromrefractoriesusedin cementrotarykilnssothattheycanbereused whilstmaintaininghighperformancestandards. Thegreaterpurityofoursecondaryrawmaterials, theclosertheyaretoprimaryrawmaterialsandthis willallowustofurtherincreasetherecycled contentofourproducts. Developingmore recipesthatinclude recycled content is another key focus. Our ANKRAL LC series of bricks includes up to 20% recycled content andhave anindependentlyverified13% lowercarbonfootprint.Nowthatthe seriesiswell establishedandusedby22customersinEurope, we are rolling the series out to other regions while also developing a new brick with up to 50% recycledcontent.Anet-zerobrickforthe steel industrywillbe launchedshortly.Theserecipes aregainingapositive receptionfromcustomers. Amongourtopsellers,approximately50%more brandsnowcontainrecycledcontentcompared to 2020. Thechallengestofurtherincreasingrecycling contentarenotmerelytechnical;wemustalso changemindsets.Toencourage this,we have implementedanew internal pricingmechanism thatincentivisesoursalesforcetosellproducts withhigherrecycledcontent,makingthese the preferredchoice.Thisisalreadyshowing promisingresultsinseveralregions,especially Europe. OurRasaplantinArgentinahassuccessfully addressedboththetechnicalandcultural challengesofincreasingrecyclingcontentandis breakingnewgroundwithacircularapproachto its operations.The average recycledcontent acrosstheplant’smagnesia-carbonproduction exceeds20%,one of the highestforany productionline acrossourbusiness. Ourrawmaterialsplantsare also finding ways to reuseprimarymaterialpreviouslydiscardedas waste.Byusingwastemagnesiteore,forexample, our new rotary kiln in Brumado will almost halve the virgin ore we extractfromthelocalmine, extendingthe mine’s life by over 70 years. At Hochfilzen,we recently developed a way to use 1.6milliontonnesofflotationtailingsthatremain onsitefrompreviousproductionmethods.By usingtailingsinrawmaterialproduction,we reducewastewhile alsoreducingourneedfor minedrawore. In 2021, we generated108,000tonnesof productionwaste,or0.04tonnespertonne of production, compared to 107,000 t or 0.05 t/t in 2020. The bulk of this waste isnon-hazardous ceramicandmineralwaste fromproductionand mines. | | | Carbon capture and utilisation Recycling,fuelswitchesandenergyefficiencycan onlytakeuspartofthewaytonetzeroemissions sincearound50%ofourScope1 emissionsare releasedbymineralsduringprocessing.Carbon dioxide(CO2)isemittedwhenrawmagnesite (MgCO3)isprocessedintomagnesiumoxide(MgO), thebasisformanyofourproducts. Wearethereforeworkingtodevelopnew technologiesthatareintendedtocaptureprocess emissionsthensequesterthemordevelopavalue chaintousethem.RHIMagnesitahascommittedto invest€50millionby2025totrialsuch technologiesatpilotplantlevel.OurR&Dfunction andTechnicalAdvisoryCommittee(TAC)have workedwithleadingresearchinstitutes,universities andindustrypartnerstoidentifythemostpromising technologiesandanumberofprojectsarenow underway. At our Austrian raw materials site at Breitenau, we aretestingOxyfueltechnology.Theprocess modellingandfirstpre-trialsare promisingbut industrial trials in the kiln are now needed to confirmtheoretical calculations.Engineering work to adapt the kiln is underway, with thenext trialsplannedfor2022. AtHochfilzeninAustriaandBrumado inBrazil, two of our other key raw material sites, we conductedtestsinAustraliatoseparatecarbon frommagnesiteore.Initialresultsshowed the processtobe energyefficient.CalixLimited is our technologypartnerforthistrialand we have signedaMemorandumofUnderstanding to work togetheronthisprocess.Dependentonfinal results, we plan to install a pilot plant at one of our mines. At our York site in the US, we are running a feasibilitystudyforcryogeniccarboncapturein ourrotarykilns. Hydrogen is a carbon free energysourcewhich offersapromisingalternative to fossil fuels for high temperature processes.Inaddition to lab trialsfor calcinationandsintering,weare testinguseof hydrogeninproductionprocesses. Thefirstpilot willbeconductedatourMarktredwitz plantand we are alsoexploringwhetherwe canalso generatethe gas on site. Theseprojectsarecost-intensivebutarea vital longterminvestmentindrivingdownemissionsin hard-to-abate,energy-intensive industries. Companiesinvestinginsuchtechnologieswill thereforerequire anenablingpoliticalframework that allows us to compete fairly.Inaddition,these newtechnologieswillrequireinfrastructure providedbythirdpartiesorgovernmentsto provide sufficientquantitiesofrenewableor low-carbonenergyatcompetitiveprices,more responsive smartgridsandnetworksfor transporting andsequesteringCO2. | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 6 1 #### Climate and environment continued | | | | | | | --- | --- | --- | --- | --- | | Supporting customer net-zero journeys Ourcustomersoperateinhigh-emittingand hard-to-abatesectors.Forexample,thesteeland cementindustries,whichrepresentmorethan three-quartersofourcustomers,together account for up to 15% of global CO2 emissions. Bothsectorshavenowsetouttheirrespective pathways to net-zero by 2050. Our aim is to be thepreferredpartnerforourcustomersduringthis transition. Wearealreadytheleadingsupplierofrefractories andsolutionstothegrowingproportionofsteel madeusingelectricarcfurnace(EAF)based production.Weintendtotakealeadership positioninrefractoriesforsteelmakingusing directreducediron(DRI),asthismethodbecomes morewidespread. Inaddition,wearetherefractorypartnerfor breakthroughtechnologiesinsteelmaking,suchas inourpartnershipwithBostonMetals,whichis commercialisingitsgroundbreakinguseof electrolysistotransformmetalsproduction.Weare alsotherefractorypartnertoK1-MET,anAustria- basedconsortiumbreakingnewgroundwithits researchintoenergy-efficient,circularand climate-neutralmetalproduction. Wearecontinuingtodevelopthenextgeneration ofsolutionstosupportlow-carbonsteel production.Forexample,ourITECplatformhas beenupgradedtosupportthetransitiontogreen steelmaking,optimisingforCO2 efficiency as well asreducingrefractoryconsumption. Althoughwearedevelopinginnovativelow- carbonproducts,themarketforthemisnotyetfully developed,particularlyinrelationtopricing premium.Atthisstageofcustomers’net-zero journeys,wethereforeusuallysupportemissions reductionsusingexistingtechnology.Thisincludes removingandrecyclingspentrefractoriesfrom customersites,whichreducesbothwasteand associatedemissions.Inaddition,weare integratingCO2 emissionsreductionintoexisting solutions,suchastundishandpurging,and communicatingtheseavoidedemissionsto customers.Forexample,ourEAFdirectpurging plugs(DPP)systemincreasesproductivitywhile reducingCO2 emissions by up to 12.7kg CO2/tonne ofsteel. | | Cementcustomerscanreduceemissionsintheir productionprocessesusingourAutomated RefractoryOptimisation(ARO)technology.This digitaltoolmonitorsconditionsinsidekilnsto optimiserefractoryconsumptionandminimiseCO2 emissions.AROissimilartoourmarket-leading technologyforsteelcustomers,AutomatedProcess Optimisation(APO).Digitalsupervisionofkilns allowscustomerstoavoidenergy-intensive stoppagesfortraditionalmaintenancechecks. Inadditiontosteel,cementandothertraditional customers,weare movingintonewindustriesin thelow-carbon economy.Forexample,we will supply refractoryengineering,materialsand installation for fournew waste-to-energyplants thatwillsupply1.5millionMoscowresidentswith renewableenergyby2023. Reducing the carbon intensity of energy Weareswitchingtolower-carbonandrenewable sources of energywhere feasible in order to reducethecarbonintensityofthe energyweuse. By the end of 2021, 48% of purchased electricity wasfromlow-carbonorrenewablesources.This is due to new contracts for renewable energy in Germany and China and has led to a 22% drop in ourScope2emissions.Similarinitiativesatother locationsarebeingexplored. Renewablesarenotyetaviableprimaryenergy sourceforusduetothehightemperaturesand quantitiesofenergyrequiredfortheproductionof refractories.Wherepossible,weareswitchingfrom pet coke to natural gas, the fossil fuel with the lowestcarbonfootprint.In2021,gasrepresented 52% of our fuel use. Nevertheless,the requiredgasinfrastructure does not yet exist in all locations. In Hochfilzen, we plan to switch to gas as soon as the naturalgassupply isupgraded.InYork,thepre-engineeringis underway for both rotary kilns to have new multi-fuelburnersthatwouldallownaturalgas. Weanticipateinstallationofthe firstburnerin 2022 and the second in the following year. | | Our energy use 2018 2019 2020 2021 Total consumption (GWh) 5,718 5,227 4,577 5,184 MWh/t 1.98 1.93 2.03 1.93 1 Refinementofreportingresultsinupdatedenergyefficiency KPI2018-2021. Increasing energy efficiency By2025,wehavecommittedthatenergy efficiencywillbe5%highercomparedto2018. Withplantsnowoperatingatfullcapacity,the resultsofrecentenergyefficiencyprojectsarenow visible.Wehaveimprovedenergyefficiency6% sincethepreviousyear. To build on this progress, we have nowadopted energymanagementstandardISO 50001. In 2021,weimplementedthisinourMexico,Austria andTurkeyoperationsandwillcomplete arollout to all global operations in 2022. By reducing the durationandtemperaturerequiredforproduction processes,innovative technologiesare also helpingtoimprove energyefficiency. In 2021, we used 5.2 TWh of energy. Energy efficiencyprojectsareexpectedtosavemorethan 100 GWh a year. Responsible use of air, land and water Climate change is not the onlypressing environmental challenge.Decliningbiodiversity, watershortagesandairpollutionareinterlinked andwillasorequireintervention. RHIMagnesitaaimstoreduce itsimpacts on air, land and water and to be a responsible user of these precioussharedresources. Reducing NOx and SOx emissions Ourprogrammetoreduceouremissionsof nitrogenoxides(NOx)andsulphuroxides(SOx) by 30%isunderway.Followingaphasedapproach, we focused first on China and met our 2021 target a year early. We are now on track to achieve targetsinthe US by 2025 and we arecurrently implementingthe necessaryprocess optimisation.InEurope andSouthAmerica,we expect to reach the 30%reductiontargetby 2027. | Wealsopartnerwiththecementindustryontheir net-zerojourney.OurANKRALlowcarbon(LC) brick for the cement industry has up to 20% recycledcontent. 6 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | Protecting biodiversity Biodiversitylossandecosystemcollapseare described as one of the top five threats to face humanityinthenextdecade.Thelinksbetween nature and the global economy are now better understood,withanestimated$44 trillionof economicvaluegeneration moderately or highly dependentonnature. | | Water stewardship Lessthan1%6,7 of the world’swaterisfreshwater thatisavailablefordomesticuse,agriculture, industryandfreshwaterecosystems.Demands onthisfiniteresource are rising. As the climate changes,the availabilityofthiswaterisbecoming lesspredictable,withfloodsanddroughts becomingmore common. | | | We plan to expand the scheme to our Cuttack andBhiwadiplants. In2021,ourwaterconsumptionwas13.0million m3, 5% higher than 2020. Of our total water consumption,1.3m3 water (or 10%) was consumedinwater-scarce areas. A sustainable supply chain | | | | | | | | RHIMagnesitarecognisesthethreatposedby nature loss. We aim to assess how our operations impactnature,aswellasthepotentialfinancial risks to our business that could arise in the longer term. We have begun the process of developing a biodiversitystrategy.Asafirststep, we are assessingourminingsitesforproximitytoand impact on areas that are protected, or of high biodiversityvalue. Wearecontinuingourprogrammestoplantnative speciesoftreesatkeylocationsacrossour business.OurtreenurseryinBrumadohasgrown over16,000trees.RHIMagnesitaplantedmore than 4,000 of these in Brumado in 2021 and donatedafurther12,000tocommunitygroups. Similarly,ourEski landborderingourmineandplant,bringingthe totalplantedto197,300since2005. | | Althoughtherefractoryindustryisnotwater- intensive,wemuststillminimisewaterwithdrawals andusewaterasefficientlyaspossible.Thisis particularlytrueforthe10siteswehaveidentified asbeingsituatedinregionswherewaterscarcityis ormightsoonbecomearisk.PlantsinMexico, Brazil,India,ChinaandFrancewereallidentified throughwaterscarcityassessmentswehave conductedateveryproductionsite. InIndia,mitigationplansinclude ourfirstrainwater harvestingsystem.NowoperationalatourClasil plant, the system has so far replenished the aquiferwithmore waterthantheplantwithdraws, makingourlocaloperationwaterpositive.The six rainwaterharvestingpitsprotectedthe plantfrom floodingduringthe monsoonwhile helpingto recharge theaquiferwithanestimated 30,000m3 ofrainwater. | | | We are workingtointegrateenvironmental sustainabilityinto ourprocurementprocesses. Followingacomprehensive riskassessment,we arenowrollingoutanassessmentprocess togetherwithEcoVadiswhichwillassesssuppliers forenvironmental issuesrangingfromenergy and CO2 emissions to waste and end of life. Based on risk mapping, we carried out the first phase of assessmentsin2021.Ourtargetis to cover two-thirdsofoursupplierbaseby2025 and all suppliersdeliveringrawmaterialswith a high CO2 intensity. | | | | | | | Our carbon emissions Case study | | | | | | --- | --- | --- | --- | | | Absolute emissions (thousand tonnes of CO2) 2018 2019 2020 2021 | | New circular approach to our business in Rasa | Scope 1 2,396 2,008 1,973 2,493 of which geogenic emissions 1,305 1,066 1,075 1,330 of which fuel-based emissions 1,045 918 873 1,129 of which other emissions 46 24 25 34 Scope 2 206 188 143 112 Scope 3 (raw materials) 2,851 2,486 2,161 2,273 Total 5,453 4,681 4,277 4,878 1 Adaptationsinline withthe Greenhouse Gasprotocol andrefinement inreporting resultinupdatedCO2 figures andKPI2018-2021. Our energy use by source Our water use | | | | | | | | --- | --- | --- | --- | --- | --- | | | Natural gas 52% Electricity 11% Fuel oil 15% Diesel 1% LPG 0% Coal and coke 20% | | Water consumption in non-scarce areas 90% Water consumption in water scarce areas 10% | | OurArgentinianplantatRasahasseta boldnewbenchmarkforourbusinesswithits circularapproach.Theplantimproved stabilisationforrecycledmaterialsand launchedacircularplanthatcoverseverything fromsourcingandrecipestocustomer relationships.Theplantnowonlyproduces productswithrecycledcontentandhasbeen abletoexceed20%recycledcontentinits magnesiacarbonrefractories. Recycledcontentin magnesia carbon refractories 20%+ | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 6 3 | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Our people and communities | | | | | The world of work is changing rapidly both for employers and employees. From the challenges of COVID-19 and its effects on global supply chains to the demands of decarbonisation and digitalisation, companies face new and complex challenges. | | | | | | | | | | | | Wewillonlynavigatethesechallenges successfully if we bring our people along on the journey,too.Thismeansequippingemployees with new knowledge and skills. It also requires a cultureandastructurethatareopen,pragmatic, thatpromotesinnovationandrewards performance. Health and safety Ouremployeesandcontractorsareentitledtoa safeandhealthyworkplace.SincetheCOVID-19 pandemic,thisfundamentalemployerobligation has taken on even greater significance and we haveworkedhardtoprotectemployeehealth, safetyandwellbeing. During2021,wecontinuedwithstrictadherence toourCOVID-19safetyprotocols.Routinetesting helpedtoprotectthesafetyofourworkforce,as wellasthecontinuityofourbusiness.Othersafety measurescontinueddependingonlocal circumstancesandregulations.Wemaintaineda heightenedfocusoninternalcommunications, includingthepromotionofvaccinations.Asa result,wehaveavoidedoutbreaksinour operations.Nevertheless,weweresaddenedby theCOVID-19relateddeathsof11 people, includingemployeesandcontractorsinsomeof thehardesthitcountriesinwhichweoperate. Our safety performance 1.2 1.0 | | | | | | | Inparallel,wecontinuedtoprogressour occupationalsafetyprogrammes.A consistentpositive trendsince2011 forallsafety KPIs,weexperiencedaslightincreaseininjury ratesduring2021.Ourlosttimeinjuryfrequency (LTIF) rose to 0.19 and our total recordable injury frequency(TRIF)was0.61.Mostregrettably,two contractorsdiedasaresultofworkplace accidents,oneinBrazilandone inChina. Immediateinvestigationsandremedialaction were taken in both cases. The deterioration in our safety KPIs in 2021 broke a continuousrecordofimprovementsince2011 and thiswasimmediatelyinvestigated.Interviewsand analysisrevealedthese developmentswere probablyaresultofunexpectedlyhighplantloads combinedwithreducedstaffingduetoCOVID. Deterioratingsafetyperformance is not acceptableand the Grouphasazeroaccidents target. We achieved this goal for a five month periodin2020. We are takingswi action,includingaglobalSafetyRelaunch programme.GiventhetwofatalitiesinChinaand Brazil,weareengagingcloselywiththese client sitesandothers toensure theirsafetystandards are as high as the rest of our operating locations. 0.5 0.4 | | | | | | As part of our safety integration project, we also workwithcustomerstodevelopsharedtraining andreportingpractices.Employeescontracted to workatcustomersitesare alreadyincluded in our data,asarecontractorsonoursites. We are extendingimplementationofISO45001 forourrefractoryinstallationsbusiness.This occupationalhealthandsafetymanagement system,whichwe have implementedacross 20plantsandproductionsites,ensuresthat we focuson: • Riskassessmentstoidentifyhazardsand preventaccidentandinjury • Mitigatingunsafe situationstoprevent accidentsandlearnfromnear-misses • Measuringthe timelinessandeffectivenessof mitigationmeasures • Investigationsandrootcause analyses, sharingresultsacrosstheorganisation Since unsafe behavioursare responsiblefor most accidents at work, we also use thePOSTsafety observationprogrammetofocusonbehaviour- basedsafety. Our culture Wecontinue toembedourorganisationalculture intooureverydaybusiness.Customerfocusisat the heart of this culture which has four key dimensions: innovation,openness,pragmatism andperformance-driven.These qualities have allowed us to navigate the pandemic,while protectingthe healthofouremployees,serving ourcustomersandensuringtheswi ourbusiness. | | | | | 0.8 0.6 0.4 0.2 0.0 | | 2018 2019 2020 2021 | | | | | | 0.3 0.2 0.1 0.0 | | Duringthe pandemic,ouremployee engagement largelycomprisedvirtualtownhallmeetings betweenourleadersandemployees,aswellas onlinecommunicationschannels.Wehavenow beguntoreintroduce face-to-facetownhall meetings.Ourmostrecentglobalsurvey (conductedin2020)showedouremployee engagementat79%.Thisexceededglobal benchmarksforbusinessandformanufacturing industries. | | | | | Total recordable injury frequency Lost time injury frequency 6 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | Asweacceleratethedigitalisationofourbusiness, we are also focusing on the people side of the transformation.Followingthesuccessofour culturechampions,we haveappointedmorethan 100digitalchampionsacrossourglobalbusiness. Theseambassadorsengagewith employees, showcasing the benefits of new tools, as well as identifyingchallengesand solutions. Promoting diversity | | | --- | | We believethatadiverseandinclusiveworkplace isbetterforouremployeesandourbusiness. Whenemployeesfeelmoreaccepted and valued for who they are, they are more likely to feel engaged, sharedifferent perspectives and be able to innovate. Our goal is therefore to build a highlydiverse organisationwhereeveryonefeels welcomeand valued,regardlessofgender,age, nationality, ethnicity,religion,disability,sexualityoranyother difference.Wehaveembeddeddiversityintoour culturalthemes. Diversityofgender,nationality and generation are our first three priorities. To drive progress, we have setupglobalandregionalgovernancestructures thatreporttotheCorporateSustainability CommitteeoftheBoard. Our target is that by 2025 women should represent 33% of our Board, our Executive ManagementTeam(EMT)andtheirdirectreports. OurBoardalreadyexceedsthistarget,with38% ofDirectorsnowwomen.Femalerepresentation among our senior leaders was 22% at the 2021 year end so there is further progress to be made in thisarea. We arebuildingapipelineoffuturefemale leaders. As we work to make our leadership reflect thegeographicdiversityofourbusiness,we intend to appoint female leaders to roles in each keyregion. We aimtoincreaserepresentationfromboth youngerandolderagegroups helps us benefit fromamulti-generationalworkforce.Ournew traineeprogramme,RefractoryFactoryseeksto attractandretainyoungtalent.Ourfirstintakeof traineesincluded10nationalities,with30% femalerepresentation. We madeourfirstsubmissionin2021 to the Parker Review on the topic of ethnicity and race. Developing leaders Peopledevelopmentiscriticalaswetransform our business and rise to the challenges. From digitalisationtodecarbonisation, wearebuilding newskillstosuccessfullyaddressthese challenges. TheRefractoryFactoryisourrecentlylaunched globaltraineeprogrammedesignedtobuildour leadershippipeline. The two-year courseoffers thechancetoparticipateinstrategicgrowth projectsaswellascross-functionaland internationalassignments. | | | | | | | | | New skills are also required of leaders in increasinglycomplexandvolatile global markets. Ournewgloballeadershipdevelopment programmefocusesonleadershipintimesof change. Ourtalentmanagementsystem,the People Cycleprovidesassessmentsofperformance and potential,supportspersonal developmentplans and successionplanning. OurRadentheinplantisthemosttechnologically advancedintheglobalrefractoryindustry.Ithas thereforebeenchosentobe thecentraltraining hubanddigitalflagshipplant,withmore than €1 millioninvestedinexpandingitstraining facility. Supporting our communities Withour operationstypicallyinremote areas,RHI Magnesita’scommunityinvestmentprojectsare mostlyfocusedonneighbourhoodsinthe immediate vicinity. Ourmainfocusareasare:educationandyouth development,environmentalprotectionand emergencyrelief.Byworkinginpartnershipwith localresidentsandexperts,wedevelop programmesthatrespondtolocalneeds,improve livesandstrengthencommunities. Examplesfrom2021 include: • WeprovidedCOVID-19vaccinationsto residentslivingnearourIndianplants. • In Germany,we supportedemergencyflood reliefeffortsforcommunitiesaroundour Urmitzplant.We supportedthe GermanRed Cross and matched funds raised by our GermanWorkers’Council.Inaddition,we organisedvolunteeringopportunitiesfor employees. • InBrazil,Buildingthe Future is a 24-month trainingprogrammethatrecruitsyoung people fromdisadvantagedneighbourhoods near our Contagem plant and leads to a professionalqualificationandpractical experience inouroperations.Similarly,our BrumadositerunsProjectHexa,atechnical trainingprogrammeforresidentswhole schoolwithlimitedopportunitiesorlosttheir livelihoods. • InAustria,we have expandedourpartnership withthe educationalorganisation, Wissensfabrik.OurSTEM (science, technology,engineeringandmaths) project continuestogrow. EnvironmentalprojectssupportedbytheGroup includetree-planting,biodiversityprojects,river clean-ups,communityfruitandvegetable gardensandenvironmental education.We have a longstandingtree-plantingprogramme inBrazil which raisesawarenessamongstouremployees ofenvironmentalissuessuchasdeforestationand biodiversitydecline. | | | Women in leadership in 2021 | | | | | | | | --- | --- | --- | --- | --- | --- | | | F | | Board 5 2020: 3 | 2019: 3 | | EMT 2 2020: 2 | 2019: 2 | | | | | | | --- | --- | --- | --- | | | EMT Direct Reports 9 2020: 12 | 2019: 12 | | EMT + EMT Direct Reports 11 2020: 14 | 2019: 14 | Board 8 2020: 9 | 2019: 10 | | | --- | | EMT 5 2020: 5 | 2019: 7 EMT + EMT Direct Reports 38 2020: 41 | 2019: 67 2025 target | | | | | M EMT Direct Reports 33 2020: 36 | 2019: 60 2019 2020 2021 Board1 23% 25% 38% 33% EMT 22% 29% 29% 33% EMT + direct reports 16% 25% 21% 33% EMT + EMT Direct Reports 17% 26% 22% 33% 1 Percentageofwomen,excludingEmployeeRepresentative Directors Case study Providing local flood relief in Germany Our Urmitz plant is located near the site of catastrophicfloodinginGermany during 2021.Althoughourplantwasundamaged, thelocalareawasseverelyaffected. We immediatelyprovidedacashdonationto the GermanRedCrossandencouraged employeestoparticipate indisaster reliefand rebuilding.The localWorksCouncilraised fundstosupportanemployeewhosehouse had been lost and we matched those generousdonations. | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 6 5 | | | | | | | | --- | --- | --- | --- | --- | --- | | EU Taxonomy Regulation | | | | DirectReductionofIronore(“DRI”)using hydrogenisanewtechnologyunder developmentthatseekstoeliminate CO2 emissionsfromthe reductionofironore inblast furnacesusingcoke.Ifsufficientquantitiesof hydrogenmanufacturedfromrenewablesources can be accessed and if a DRI furnace can be paired with an EAF for the secondstage of the steelmakingprocessthatisalsopoweredby renewable energy,CO2 emissionsfromsteel productioncanbe largelyeliminated. | | | TheEUTaxonomyRegulation(“EUTaxonomy”) appliesinrespectofthefinancialyearto 31 December2021 andrequirestheGroupto reportannuallyontheproportionofitsturnover, operatingexpenditureandcapitalexpenditure attachingtoeconomicactivitiesthatare consideredtobeenvironmentallysustainable. TheEUTaxonomyidentifiesthesixenvironmental objectives:climatechangemitigation;climate changeadaptation;thesustainableuseand protectionofwaterandmarineresources;the transitiontoacirculareconomy;pollutionprevention andcontrol;andtheprotectionandrestorationof biodiversityandecosystems.Inrespectofthe2021 financialyeartheGroupisonlyrequiredtoreportin relationtothefirsttwoobjectives. The EU Taxonomy differentiates between taxonomyeligibilityandtaxonomyalignment. IfaneconomicactivityisdescribedintheAnnex it can be considered eligible. In order to be considered‘aligned’furthertechnicalcriteria must be met. In respect of the 2021 financialyear theGroupisonlyrequiredtoreporteconomic activitiesthatareeligible. No sector-specificguidancefortherefractory industryhasbeenpublishedandthereforethe Group is required to use its own judgement againsttheeligibilitycriteria.In2022theGroup intendsto reportalignedactivities. TheNACEcodesmostcloselydescribingthe activitiesofthecompanyare“23.20Manufacture ofrefractoryproducts”and“08.99Othermining andquarrying”.TheseNACEcodesarenotlisted in Annex I or Annex II of the Taxonomy regulation, butcertainactivitiescarriedoutbytheGroupdo meetthedefinitionsofeconomicactivitieslisted in Annex I oftheRegulation.Aselaboratedfurther by the Commisison on Taxonomy, if the NACE code of an economic activity is not mentioned in theClimateDelegatedAct,buttheeconomic activitycorrespondstothedescriptionofthe activity, it can qualify as Taxonomy eligible. This is furtherelaboratedintheTaxonomyeligible activitiessection. 1 Otherthan manufactureofrenewable energy technologies, manufactureofequipmentforthe productionanduse of hydrogen, manufactureoflowcarbontechnologiesfor transport, manufacture ofbatteries,manufacture of energy efficiency equipmentforbuildings | | Accounting policy RHIMagnesitaN.V.preparesconsolidatedfinancial informationinaccordancewithgenerallyaccepted accountingprinciplesunderIFRS,asadoptedby theEUandthefinancialinformationforturnover, operatingexpenditureandcapitalexpenditure presentedundertheEUTaxonomyhasbeen preparedunderthesameaccountingprinciples. Taxonomy eligible activities of RHI Magnesita referring to the activities of Annex I and II EconomicactivitiesofRHIMagnesitathatare described in Annex I and II of the Delegated Regulation(EU)2021/2139,are considered eligible.Inthecase ofRHIMagnesita,the followingactivitiesareconsideredrelevant: • Manufactureofotherlowcarbontechnologies • Materialrecoveryfromnon-hazardouswaste • Closetomarketresearch,development andinnovation Manufacture of other low carbon technologies Theeconomicactivity“Manufacture of other low carbontechnologiescoversthe“Manufactureof technologiesaimedatsubstantialGHGemission reductionsinothersectorsofthe economy”.1 RHI Magnesita offersproducts andserviceswhich help to make CO2-intensive processesinthe steel industrymoreefficientandthereforeachieve emissionsreductionsinthe globalsteelindustry. Electric Arc Furnacerefractories RHIMagnesitaprovidesrefractoryproducts specificallydesignedforElectricArcFurnaces. Additionally, RHI Magnesita providesheat management solutionsandservicestoits customerstoreducetheirGHGemissions, includingdigitalsolutionsaswellasadvanced refractory products. ElectricArcFurnaces(“EAF”)areavitalenabling technologyforthe reductionofCO2 emissionsin thesteelindustry.EAFscanbepoweredusing electricitysourcedpartiallyorwhollyfrom renewableenergygenerationandreplace the BasicOxygenFurnace (“BOF”)phase of the traditionalintegratedsteelmanufacturing process,whichpairsablastfurnace with a BOF and is highly CO2 intensive.EAF steelmaking requiresa source of scrap steel or sponge iron producedfromthe reductionofironore. | | RHIMagnesitahasaleadingmarketpositionin EAF-specificrefractories,servicesandheat managementsolutions,inpartdue to the unique chemicalcompositionoftheGroup’svertically integratedrawmaterialsupply.EAFrefractories producedbyRHIMagnesitadirectlyenable substantialreductionsinCO2 emissionsatsteel plants,ifthe EAFoutputisdisplacingsteelthat wouldotherwise have beenproducedusinga blast furnace and BOF. Digitalsolutions and other products which increaseenergyefficiency RHI Magnesitaoffersdigital solutionsand associatedphysicalequipmentwhichachieve CO2 emissionsreductionsthroughprocess efficiencies,suchaswearmonitoringandgunning repairstoextendthe safe workinglifeofrefractory linings.Safelyextendingthe workinglifeof refractoryliningscanachievesignificantenergy savingsforsteelproducersbyreducingthe numberofheatingandcoolingcyclesrequired per unit of steel output. The Groupalsooffersadvancedrefractory productswhichenableitscustomersto substantiallyreduce GHGemissionsbyreducing electricityconsumption,improvingyield and reducingoxygenconsumption,savingup to 13kg CO2 pertonneofsteelproduced. Othersolutionsandproductswhichdirectly contribute to CO2 emissionsreductionsat customersitesinclude coldsettingmixes,EAF directpurgingplugsandconverterinertgas purging. Material recovery from non-hazardous waste Materialrecoveryfromnon-hazardouswaste coversthe“constructionandoperationoffacilities forthesortingandprocessingofseparately collectednon-hazardouswaste streamsinto secondaryrawmaterialsinvolvingmechanical reprocessing,exceptforbackfillingpurposes.” RHIMagnesitaaimstoincrease itssecondary raw material(“SRM”)inputto10%ofrawmaterialused inproductionofrefractories.Aspartofthiseffort, RHIMagnesitaoperatesfacilitiesforthe sorting andprocessingofspentrefractoriesfrom customers’industries.Secondaryrawmaterials whichare mechanicallyprocessedbyRHI Magnesitaandtransformedfromwaste to raw materialare eligible forconsiderationunder the EUTaxonomy,whilstsecondaryrawmaterial processedbyathirdpartyandpurchased externallybytheGrouparenon-eligible. Close to market research, development and innovation Close tomarketresearch,developmentand innovationcovers“research,appliedresearch and experimental developmentofsolutions, | | 6 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | | | processes,technologies, business models and otherproductsdedicatedtothereduction, avoidanceorremovalofGHGemissions(RD&I)for whichtheabilitytoreduce, remove or avoid GHG emissionsinthetargeteconomicactivitieshasat leastbeendemonstratedina relevant environment,correspondingto at least TechnologyReadiness Level (TRL) 6”. RHI Magnesitaconducts closeto market research, developmentandinnovationamongothersto directlyavoidGHGemissions(e.g.researchon chemicallybondedbricks which do not need firinginkilns)orwhichsupportothereligible economicactivities(e.g.materialrecoveryfrom non-hazardouswaste).TheseR&Dactivitiesmay beincludedintheOperatingExpenditureofthe othereligibleeconomicactivityandaretherefore excludedtopreventdoublecounting. KPIs ShareofTaxonomyeligiblerevenue, Operating ExpenditureandCapitalExpenditure–Climate changemitigation: Turnover TheturnoverKPI is calculated as the ratio of turnoverassociatedwithtaxonomy-eligible economicactivitiesinthereportingperiodtototal turnover in that period. The total turnover of the financialyear2021 of€2,551 millionformsthe denominator of the turnover key figure and can be takenfromtheconsolidatedincomestatementon page 123 of this Annual Report. Thefollowingeligibleactivitieshavebeen identifiedasrelevantinviewofturnover: • Manufactureofotherlowcarbontechnologies • Materialrecoveryfromnon-hazardouswaste Thetotalturnoverreportedintheconsolidated incomestatementisanalysedacrossallgroup companiestoassesswhetheritisassociatedwith taxonomy-eligibleactivities.Adetailedanalysisof the items included in the total turnover is used to allocatetherespectiveturnovertothetaxonomy- eligibleactivities. | | re-measurements,includingthoseresultingfrom revaluationsandimpairments,aswellasexcluding changesinfairvalue.Itincludesacquisitionsof tangiblefixedassets(IAS16),intangiblefixedassets (IAS38),right-of-useassets(IFRS16)and investmentproperties(IAS40).Additionsresulting frombusinesscombinationsarealsoincluded. Goodwill is not included in Capex, as it is not definedasanintangibleassetinaccordancewith IAS38. Thesumoftheseidentifiedadditionsofassetsin thereportingyearequalsthenumeratorof taxonomy-eligibleCapitalExpenditure.Thetotal capitalexpendituresinlinewithpoint1.1.2.1.Annex 1 oftheDisclosureDelegatedActequalthe denominator. Operating Expenditure ThedenominatoroftheOperatingExpenditureKPI shallcoverdirectnon-capitalisedcoststhatrelate toresearchanddevelopment,buildingrenovation measures,short-termlease,maintenanceand repair,andanyotherdirectexpendituresrelating totheday-to-dayservicingofassetsofproperty, plantandequipmentbytheundertakingorthird partytowhomactivitiesareoutsourcedthatare necessarytoensurethecontinuedandeffective functioningofsuchassets. The numerator equals to the part of the operating expenditure includedinthedenominatorrelated withtaxonomy-eligible economicactivities,part ofa plausible plan to expand or achieve environmentallysustainable economic activity,or relatedtothepurchaseofoutputsandproducts fromtaxonomy-eligible economicactivities. Taxonomy disclosure table | | | | | Thefollowingeligible activitieshavebeen identifiedasrelevantregardingtheOperating ExpenditureKPI: • Manufacture ofotherlowcarbontechnologies • Materialrecoveryfromnon-hazardouswaste • Closetomarketresearch,developmentand innovation For the identificationofrelevantOperating Expenditure,costsincludingdirectnon- capitalisedcoststhatrelatetoresearch and developmentaswellmaintenance and repair have beenconsidered. Avoidance of double counting To avoid double counting,datasourcesfor the variousreporteditemsare individually cross- checkedtoidentifyoverlappingclassifications. Where double countingisidentified,datais removedfromoneoftheoverlappingcategories. Materialareasidentifiedforremovalofdouble countingare asfollows: • Revenue fromElectricArcFurnace (Manufactureofotherlowcarbon technologies)andrevenuefrom Recycling (Materialrecoveryfromnon-hazardouswaste) EU Taxonomy reporting in the year to 31 December 2022 In 2022 the Groupintendstoobtainthird party confirmationofitsclassificationofTaxonomy- eligible activitiesrelevanttoclimatechange mitigation,todemonstrate alignmentofthose activities.The Groupalsointendsto extend its analysisofTaxonomy-alignedorTaxonomy- eligible activitiestocoverwateruse,thecircular economy,pollutionandbiodiversity as set out in theEUTaxonomyRegulation. | | | | | | | | | | Capital Expenditure TheCapitalExpenditureKPIindicatesthe proportionofcapitalexpenditurethatiseither relatedwithtaxonomy-eligibleeconomic activities, part of a plausible plan to expand or achieveenvironmentally sustainableeconomic activity, or related to the purchase of outputs and productsfromtaxonomy-eligibleeconomic activities. Thefollowingeligibleactivitieshavebeen identifiedasrelevantregardingtheCapital ExpenditureKPI: | | | | Operating Capital Year to 31 Dec 2021 Revenue Expenditure Expenditure Manufacture of other low carbon technologies € million 431 14 6 % 16.9% 16.9% 2.3% Thereof enabling or transitional activities2 € million 431 14 6 % 16.9% 16.9% 2.3% Material recovery from non-hazardous waste € million 82 3 5 % 3.2% 3.2% 2.1% Thereof enabling or transitional activities € million – – – % – – – Close to market research, development and innovation € million – 2 1 % – 2.6% 0.4% | | | | | | | | | | | | | • Manufactureofotherlowcarbontechnologies • Materialrecoveryfromnon-hazardouswaste • Closetomarketresearch,developmentand innovation Theprojectdescriptionsoftheadditionsofassetsin thereportingyearservedasabasisforthe necessaryidentification. | | | | Thereof enabling or transitional activities € million – 1 1 % – 0.8% 0.4% Total Taxonomy eligible € million 514 18 12 % 20.1% 22.7% 4.8% Thereof enabling or transitional activities € million 431 14 7 % 16.9% 17.7% 2.7% Denominator € million 2,551 80 2613 | | | | | | | | | | | | | TotalCapexconsistsofadditionstotangibleand intangiblefixedassetsduringthefinancialyear, beforedepreciation,amortisationandany | | 2. Dra TaxonomyRegulationonthereporting ofeligibleeconomicactivities andassets (2February2022) appliedwithoutexaminationof TechnicalScreeningCriteria. 3. See note 12,Propertyplantandequipment” | | | | | | | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 6 7 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Chairman’s introduction to corporate governance | | | | In 2021, the Board has supported the management in navigating the business amidst a challenging market backdrop, with stakeholders always at the forefront of decision making | | | | | Herbert Cordt Chairman Boardgenderdiversity 1 Male 62% Female 38% Boardindependence 1 Independent 58% Not independant 42% 1 As calculated by reference to the UK Corporate Governance Code and excluding the ERDs | | Dear Shareholder, On behalf of the Board, I am pleased to present thecorporategovernancereportfortheyear ended31 December2021,summarisingthe role oftheBoardinprovidingeffectiveleadershipin promotingthelong-termsustainablesuccessof RHIMagnesita. 2021 hasbeenanotherchallengingyear,andwe have been pleased to make goodprogressagainst our strategy as we approach 2025. We have learnta lot about ourselves as a company and as a board as we operate in these volatile times.Our governanceprocessesandpracticeshave undoubtedlyaidedusinfocusingoureffortsand attention,soastocontinue todelivervalue for our shareholders andbenefitsforourstakeholders. Thiscorporategovernance statementwillreport onourgovernance approach in full and in this introduction I outline a few key matters for your particular attention. Board composition As we reported to shareholders in our 2021 report, weundertooka searchfornewNon-Executive Directors.Weweredelightedtowelcome three newIndependentNon-Executive Directors,Jann Brown, Marie-Hélène AmetsreiterandSigalia Heifetz in the course of 2021, with their appointments beingapprovedbyshareholdersat the AGM in June. All were appointed with a significantmajorityandhaveeachbroughta diversity of skillsandexperience which complementedthe existingskillsprofile of the Boardandhavestrengthenedthe performanceof theBoardwiththeircontributions.Their appointmentsensuredthatwe aremoregender diverse, somethingwe have noted as being a key deliverablefromBoardreviewsinrecentyears. Theirtailoredinductionshave beencompletedin 2021 and you can read more about the structure oftheprogramme on pages 77 and 78. InDecember2021,theworkscouncilsofAustria andSpainappointedtwonewEmployee RepresentativeDirectorsforatermoffouryears each,pursuanttoourArticlesofAssociation,who becamemembersofthe Boardwithimmediate effect.MartinKowatschwasappointedbythe AustrianWorksCouncil,replacingFranzReiter, who stepped down from the Boardandwillretire from the Company in due course. Karin Garcia wasappointedbythe SpanishWorksCounciland together,MartinandKarinjoinMichaelSchwarz, whoseappointmenttotheBoardwasrenewedby theGermanWorksCouncilwitheffectfrom 9December2021. | | | | We wish Franz all the best for his forthcoming retirementandthankhimforhisenergetic and constructiveinputoverhisyearsasaBoard member for RHI AG and subsequently RHI Magnesita N.V. We welcome Karin and Martin and lookforwardtoaco-operative andhealthy engagement on a wide range of topics, as well as seekingtheopportunitytohearmoredirectly fromdifferentsectionsofouremployees. They are beingsupportedwithatailoredinduction programmewhichyoucanreadmore abouton pages 77 to 78 . FulldetailsofourBoardandExecutive succession planningandrecruitmentofnewmemberscan be found on pages 89 and 90. Their biographies can be found on pages 83 to 85 . Diversity We are pleasedtohave exceededthe Hampton Alexander target of a 33% female Board with a genderdiversityof38% female Boardmembers. Wehavealwayscalculatedthispercentage excludingthe ERDs as we cannotinfluencetheir appointment.However,we arepleasedthatthe workscouncilinSpainchose to appoint a female Directorandtherefore,includingourERDs,weare also at 38%. In order to ensure thatwecontinue topursue diversityofthoughtandexperienceonour Board the NominationCommitteehasrecommended a refreshedBoarddiversitypolicyin2021,which,in line withDutchlawchanges,containsambitious targetsforgenderdiversityandcommitsusto reporting to the Parker Review. Whilst we are pleasedthatwe satisfythe ethnicdiversity criteria of the Parker Review, with one of our Board identifyingasamemberoftheethnicminority categoriesasdefinedbythe UKOfficeofNational Statistics,wewillcontinue toconsiderour diversity as a Board and as the Companybased on our global footprint and operations in a way which isbestalignedwithourgrowthagenda. Independence The independence of the Boardcontinuesto be attheforefrontofourgovernance agenda. With the growth of the ERD group on our Board, we werepromptedtoreviewhowthese Directors operate and how we shouldcalculatethe Board’s independence,giventheirdifferingprocessof appointmentasenshrinedinEuropeancorporate law. The UKhasembracedworkerrepresentativesin recentyears.However,workforce representatives | | 6 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | | on a supervisory board, has been a cornerstoneof theDACH(beingtheregioncomprisingGermany, AustriaandSwitzerland)corporatelegal environmentformanyyears.Ourcorporate historyandBoardcompositionstemsfromthis DACHcorporatelegalenvironment.Thetwo systems (UK and DACH) aim for the same outcomeofbroaderstakeholderconsideration butmaydifferintheirpracticalapplication. We find, looking at other companies in a similar position,thatadifferentiationwhencalculating independence,andindeed otherBoard statistics, ismadebetweendirectorsappointedby shareholdersattheAGM,andthoseappointedby theworkforce.TheBoard,managementand indeed our shareholders, can play no role in the appointment or removal of the ERDs. As such, we are not including our ERDs as part of the denominatorinourindependencecalculations. We have always set them out as a separate categorywithinthatcalculationandthisis consistentwiththat. You can read more about the role of the ERDs on Page 74 | | Followingfromthe findingsofthe Boardreviewin 2020, weimplementedbettertechnologyand processestosupportthehybridmeetings, althoughtheyare stillnosubstituteforin-person interaction which we hope to return to as quickly as possible. Board review Whenwebecame RHI Magnesita in 2017, we engagedinathree-yearprogrammeofexternal BoardreviewsdeliveredbyLintstock.Asanascent Board with a number of new participants and a rangeofconsiderationstobe aware of, this level of detailedevaluationwasfelttobe useful,andwe haveseensignificantprogressthroughthese evaluationsintermsofBoarddynamics,inputsto theBoardandBoardcomposition. As we have settled into the naturalrhythmsof Boardoperation,followingtheimmediateyears post-merger,itwasfeltthataninternalevaluation for2021, as permitted by the UKCGC, would be suitable.OurCompanySecretaryadministered theBoardevaluationfor2021,workingtogether with the SID and the Chairman to develop the areas for focus and the action plan based on the findings. | | | | At RHI Magnesita, we recognise the role we play inthelivesofouremployees,customers, suppliers,shareholders,andthe communitiesin whichwe operate. You can read more about our stakeholderengagementonpages50 to 55. Throughoutthe yearwehaveappreciated hearingfromourshareholdersonmany different topics,notleastoncorporategovernance. You can read more about these meetings on page 51. Amoredetailedoverviewofthemattersdiscussed and debated by the Boardatitsmeetingsduring the year is presented on pages 79 to 80. The reportofourcomplianceinrespectofeach of the UKCGCandtheDutchCorporate GovernanceCode 2016(the“DCGC”and together“theCodes”)canbe found on page 70. Wehavereportedcompliancetotheextent possible andexplainedwhereverthishasnot beenachievable. As in recent years, we will again be holding our AGMvirtually,totheextentpossibleunder Dutch law, as we have found it to be an efficient and cost- effective way of engaging with as many shareholdersaspossible andunderstanding their viewsthroughthebusinessofthe meeting. | | | | | | | | Furthermore,thisyearWolfgangRuttenstorfer, who served on the supervisory board of RHI AG from2012,reachednineyearsofservice.He meetsnoothercriteriafor non-independence suggestedundertheUKCorporateGovernance Code2018(“UKCGC”).TheCompanyhas changedimmeasurablyoverthatperiod,and Wolfgangcontinuesto demonstratestrong independentjudgement and assessments in Boardmeetings.TheBoardiscomfortablethat Wolfgangcontinuesto act independently, however, under the criteria of the UKCGC, he will bereportedasaNon-Independent Non- ExecutiveDirectorgoingforward. Finally,in2021 we took steps to change our Articles of Association to give the casting vote to theDeputyChairmanand Senior Independent Director1 toensureindependencebepreserved in ourdiscussionsanddecisionsandtogive assurancetostakeholders that an independent non-executivedirectorwouldhavethepowerto steer the Company, should it ever be required. It is importanttousthat,whilstweindividuallyas Directorshaveadutytoexerciseindependent judgement, that the Board as a whole can be assuredtobeindependent to our stakeholders. | | We were pleased to see that our members consider the Boardtobeeffective,showinggood progressfrom2020,despite continuinglogistical difficultiesforthe BoardarisingfromCOVID-19 restrictions.Weidentifiedareasforfocusin2022 and you can read more aboutthefindingson page 89. Sustainability, stakeholders and strategy Throughoutthe2021 Boardprogrammewe again devotedconsiderabletimetothe deliberationof theCompany’sstrategy,particularlytoassessing progress against our 2025 strategy so far and the executioncapabilityrequiredtodeliverit.These discussionswere focused on the risks to the strategyexecutionandhowmanagementcould mitigatethese risks,focusingonourcorporate purpose and culture as a key mechanism for delivery. Sustainabilityhasbeenaconstantseam throughoutmanyofourconversationsasaBoard andalsowithstakeholders.Itwasacornerstone of thestrategydiscussionandwasdiscussedateach Boardmeetinginthe year,withDirectors recognising it as both a risk and opportunity for thebusiness,andourwidercommunities. | | | | Finally,allDirectorswillseekre-electionatour AGM on 25 May 2022 and we lookforward to engagingwithourshareholdersatthatevent. Herbert Cordt Chairmanofthe BoardofDirectors 1 Adualroleheldbyoneindividual,currentlyJohnRamsay. Youcanreadtheroledescriptiononour website. | | | | | | | | You can read more about the independence of theBoard on Page 75 COVID-19 restrictions on the Board Onceagain,asaBoardwithinternational composition,wewereseriouslyhamperedby travelrestrictionsacrossmultiplejurisdictions, makingitverydifficulttofacilitatephysical meetingsandsitevisits.Nonetheless,more interactionandengagement with thebusiness was possible compared to 2020, with one Board site visit undertaken to our R&D centre in Leoben, and other visits taken by smaller groups to Radenthein(Austria),Bonnybridge(Scotland)and Biwadi(India).TheEMTandExecutiveDirectors were able to visit many more locations in 2021 than in 2020, and reported details back to the Boardaccordingly. | | TheCorporateSustainabilityCommittee (CSC) has reported back to the Board on the proceedingsofeachofitsmeetingsandthe CSC alsowelcomedvariousBoardmembersandkey seniormanagementasattendeestothose meetingsthroughoutthe year,ensuringthat conversationhasbeentakingplace at the highest levelsoftheorganisation. | | | | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 6 9 # Corporate governance statement | | | | | | | | --- | --- | --- | --- | --- | --- | | Compliance with the Dutch Corporate Governance Code (“DCGC”) and the UK Corporate Governance Code (“UKCGC”) TheBoardhasappliedtheprinciplesof,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 explanationsbelow. Deviations from the UK Corporate Governance Code in 2021 The Company does not comply with Provision 9 of UKCGC which states that the Chairman of the Boardshouldbeindependenton appointment. The Chairman is not considered to be independentforthepurposesoftheUKCGC, having served on the Board of RHI AG for more than nine years, prior to the merger. This also meanstheCompanyisnotcompliantwith Provision 19. The Board, led by the Senior IndependentDirector,believesthatHerbertCordt continuestodemonstrateintegrity,objective judgementandindependenceof character, and that his experience as Chairman of RHI AG’s supervisoryboardisvaluabletotheCompany, providingcontinuityandcorporatememory. | | TheBoardbelievesthatitscurrentPolicyfor post-employmentshareholdingrequirementsis appropriateand,withotherelementsofthe Policy,achievesthe rightbalance between providingaremunerationstructurethatisboth incentivisingandretentive.The Policyensures alignment to shareholderinterestsandlong-term sustainableperformanceofthebusiness,both whilsttheexecutivesare employedbythe businessandfollowingtheirtermination.In reachingthisconclusion,theBoardhastakeninto accountthedifferentelementsofthe Policythat togetherachievethese aimsincludingpost- employmentholdingperiodsforannualbonus shares and vested LTIPs, for both good and bad leavers,in-flightunvestedLTIPsforgoodleavers, as well as shares beneficially owned by the executives. Provisions 40 and 41 TheCompany benefitsfromemployee representationonthe BoardandtheBoard, annually, approvesexecutive remuneration.This providesa mechanismforourERDstounderstand andengageonbehalfoftheworkforceregarding thealignmentofexecutiveremunerationwith widerCompanypaypolicyandtoprovide feedback. | | Corporate governance declaration Incomplyingwiththe requirementsoftheDCGC, the Companypublishesthiscorporate governance statementincludingitscompliance withthe DCGC.The informationrequiredto be includedinthiscorporate governancestatement can be found in the followingchapters,sections and pages of this Annual Report (the “Annual Report”) and are deemed to be included and repeatedinthisstatement: • the informationconcerningcompliancewith the DCGC can be found on page 70; • theinformationconcerningtheCompany’smain featuresoftheinternalriskmanagementand controlsystemsrelatingtothefinancialreporting processcanbefoundonpages38to41; • the informationregardingthefunctioningof the GeneralMeetinganditsmainauthorities andtherightsoftheCompany’sshareholders andholdersofdepositaryinterestsinrespect of shares in the Company and how they can be exercisedcanbe found on pages 68 to 121; • theinformationregardingthecompositionand functioningoftheBoardanditsCommittees can be found on pages 88 to 121; | | | Asdetailedabove,WolfgangRuttenstorferisno longerdeemedtobeindependentunderthe criteria outlined in the UKCGC, as a result of his role ontheRHIAGsupervisoryboardfrom2012.The BoardgreatlybenefitsfromWolfgang’sfinancial experience,challengetomanagementandhis contributionstotheAudit&Compliance Committee,andassuch,Wolfgangwillcontinueto beamemberoftheCommittee.Wehavetherefore decidedtoexplainourpositioninrespectof Provision24oftheUKCGC SincetheintroductionofthecurrentUKCGCin 2018, the Company took steps in order to be able to reportcompliancewiththeprinciplesand provisionsrelatingtoremuneration.Followingthe publicationofFRCguidanceonCorporate GovernanceReportingin2021,wewillnowreport partialcompliancewithProvisions36,40and41. Provision36 The Company consulted circa 70% of its shareholderbaseaboutthecurrent RemunerationPolicy(thePolicy)priortoits approvalatthe2021 AGM,explicitlyreferringto theproposedpolicyforpost-employment shareholdingrequirementswhich comprises the continuationofholdingperiodsforannualbonus sharesandtheLTIPpost-cessationof employment.OurPolicyreceived95.95% supportatthe2021 AGM.HowevertheCompany notestheclarificationbytheFinancialReporting Council in 2021, specifically that it is not enough to achieve compliance with the UKCGC by includingapolicythatonlyprovidesforholding periodstocontinuepost-employment. | | Our remunerationpoliciesandpractices, includingour approachtosalaryincreasesand annualbonusstructure arealignedthroughout thebusiness.Giventhisalignment,andthe extant mechanismforengagementwiththeERDs,the Boardiscomfortablewiththeexistingapproach anddoesnotconsideritnecessarytoprovide any additionalformsofengagementwiththe workforcetoexplainhowexecutive remuneration alignswithwiderCompanypaypolicy.The RemunerationCommitteewillcontinue to keep thisunderreview. Deviations from the Dutch Corporate Governance Code in 2021 TheCompanydoesnotcomplywithbestpractice provision2.2.2ofthe DCGCwhichrecommends that, in case of a one-tierboard,aNon-Executive Directorshouldbe appointed for a period of four years.TheappointmentoftheNon-Executive Directors(otherthanEmployee Representative Directors)hasbeenmade on the basisof nominationsfor three-yearterms,subjectto performanceandannualre-electionattheAGM. TheBoardconsidersthatthe three-yeartermis moreconsistentwithUKlistedcompanypractice anddoesnotcompromise the spirit of the DCGC provisionanddoesnotpropose to make changes totheexistingNon-Executiveappointments. Asexplainedonpage 69, going forward we do not include our ERDs as part of the denominator in our Board independence calculations. | | • thediversitypolicywithregardtothe compositionoftheBoardandtheirCommittees, canbefoundonpage89and • the informationconcerningthedisclosureof the followingitems,where theyexist,may be found on pages 71 to 81: – participationsinthe Companyforwhich a disclosure obligationexists; – specialcontrolrightsattachedtoshares and the name of the person entitled to suchrights; – anylimitationofvotingrights,deadlinesfor exercisingvotingrightsandtheissueof depositoryinterestsforshareswith the co-operationoftheCompany; – the regulationsinrespectofthe appointmentanddismissalofExecutive DirectorsandNon-Executive Directorsand amendmentstotheArticlesofAssociation; – the powers of the Board,inparticular to issue shares and to acquire own shares by the Company;and – thenumberofshareswithoutvotingrights and the number of shares which do not give any, or only a limited, right to share in the profitsorreservesoftheCompany,withan indicationofthepowerswhichtheyconfer. | | 70 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Corporate governance structure | | | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | RHI Magnesita Board | | | | | | | | | | | | | | | Chief Executive Ocer | | | | | | | Remuneration Committee | | | Nomination Committee | | | | | | Audit Committee | | Corporate Sustainability Committee | | | | Executive Management Team | | | | | | | Listing Rules information Certaininformationisrequiredtobepublishedby 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 n/a 2. Publication of unaudited financial information | | | --- | | n/a Pages 97-121 n/a | | | | | 3. Details of long-term incentive schemes 4. Waiver of emoluments by a Director | | | | | | | | | Major shareholdings At 25 February 2022, the Companyisaware of thefollowingpersonsholdingdirectlyor indirectly at least 3% of the issuedand outstandingsharesinthecapitaloftheCompany: Number of shares % Shareholder5 based on MSP Sti 1 13,333,340 28.37% Fidelity Management & Research Company LLC 4,259,559 9.06% E. Prinzessin zu Sayn- Wittgenstein Berleburg2 2,088,461 4.44% K.A. Winterstein3 2,088,461 4.44% | | | | | | the sharesinsteadoflegaltitle.Nederlands CentraalInstituutvoorGiraalEffectenverkeer B.V. (alsoknownasEuroclearNederland) holdsthe legaltitle totheunderlyingshares. Sharesmaybeissuedpursuantto aresolutionof the General Meeting or of the Board, if and insofar as,the Boardhasbeendesignatedfor that purpose by a resolution of the GeneralMeeting. Suchdesignationshallbe as set out in the Company’sArticlesofAssociation.TheCompany shallnotifyeachissuance of shares in the relevant calendarquartertotheDutchTradeRegister, statingthenumberofsharesissued. Transactions with majority shareholders | | | | | | | | | | 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 | | | | | | n/a n/a n/a n/a | | Erste Group 1,810,282 3.85% Fidelity Worldwide Investment (FIL) 1,783,045 3.79% Man Group PLC 1,701,815 3.62% W. Winterstein4 1,590,000 3.38% 1 HelddirectlybyMSPSti underLiechtensteinlaw,whosefounderis Mag.MartinSchlaff. | | | | | | There have beennotransactionsbetweenthe Company and MSP Sti 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,nodeclarationinaccordancewith best practice provision 2.7.5 of the DCGC has to be published. | | | | | | | | | | 9. Contracts of significance n/a | | | | | --- | --- | --- | | 10. Provision of services by a controlling shareholder | | Refer to Note 61 | 11. Shareholder waiver of dividends n/a | | | | | --- | --- | --- | | 12. Shareholder waiver of future dividends | | n/a | | | | | | --- | --- | --- | | 13. Agreements with controlling shareholders | | Refer to Note 61 | | | | | | | | | 2 The interestis heldthroughChestnutBeteiligungsgesellscha mbH (“Chestnut”).Ms.Sayn-Wittgensteinmadeanagreement with Mr. Wintersteinwhichallows Chestnuttoexercisethe votingrights ofSilverBeteiligungsgesellscha the Issuer.Ms.Sayn-WittgensteinandMr.Wintersteinsharea family relationship. 3 The interestis heldthroughSilver.Ms.Sayn-Wittgenstein made anagreementwithMr.Wintersteinwhichallows Chestnut toexercisethevoting rights ofSilverintheIssuer. Ms. Sayn-WittgensteinandMr.Wintersteinshareafamily relationship. 4 HeldinpartdirectlyandinpartindirectlythroughFEWI Beteiligungsgesellscha 5 The Companyholds 5.01%ofits ownshares intreasuryas a result of thebuybacks undertaken2019-2021. | | | | | | Outline of anti-takeover measures and impacts of Brexit Noanti-takeovermeasureshavebeen implemented.Aspreviouslyreported,the Companyacquiredasecondarylistingin2019on the ViennaStockExchange (Wiener Börse) to extendregulatoryprotectionstoitsshareholders, which could have been lost as a result of the UK’s exit from the EuropeanUnion(EU). Austriahas become the sole host member state and the NetherlandscontinuestobeRHIMagnesita’s home memberstate. | | | | | | | | | | | | | | | | | | Therearenorestrictionsonvotingandprofitrights andnoholdersofanysecuritieswithspecial controlrights.Depositaryinterestsinrespectof theCompany’sshareshave been issued by the CompanywiththeCompany’sco-operation, whichcanbesettledelectronicallythrough,and held in the system of CREST. The depositary nterest holdersholdthe beneficial ownershipin | | | | | | ThemaineffectofthisisthattheCompanynotifies disclosures,suchassharedealing,toeachofthe threeauthoritiesinUK,Netherlands,andAustria. TheCompanycomplieswiththerelevant corporateandlistingregulationsacrossallthree jurisdictions.TheCompany’sgovernancestructure continuestobeprimarilyderivedfromitsprimary listingstatusintheUK,althoughthereareminor areasinwhichregulationsinotherjurisdictionstake precedence. | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 7 1 #### Corporate governance statementcontinued | | | | | | | --- | --- | --- | --- | --- | | The UK’s exit from the European Union (EU) requiredthattheCompanyrestructureits depositary interests to be held by an EU entity in order that they could settle in CREST and be tradedinthenormalcourseofbusiness. Accordingly, on 2 June 2021, a transferofthe depositaryinterestswasundertaken. No disruptionoccurredtothesettlementofshares andcompliancewithpost-Brexitregulationswas assured. Share buyback Undertheauthoritygivenbyshareholdersatthe AnnualGeneralMeeting(AGM)in2020to purchase a maximum of 10% of the issued share capital of the Company at the date of acquisition (the“2020authority”),theCompany commencedasharebuyback programmeon 16 December 2020 to return value to shareholders.Thisprogrammeconcluded on 13 April 2021 andafurtherprogramme commenced on 5 May 2021, ending on 4 August 2021. The 2020 authority expired at the AGM in 2021 whenafurtherauthoritywasobtainedfor purchase of up to 10% of the issued share capital was obtained at the AGM 2021. The remainder of thebuybackprogrammewascompletedunder thisauthority. Thesebuybacks,totalling€98million,were conductedonanon-discretionarybasiswith BarclaysBankIrelandPLC,whichmadetheshare purchasesontheCompany’sbehalf, independentlyof,anduninfluenced by, the Company.Thepurchasesweremadeonmarket terms and the average price per share was disclosedineachdailyreport. Theoverallaverage price of the first tranche, ending on 13 April 2021, was 3946 pence per share whilst the second tranche, ending on 4 August 2021, was at an overallaveragepriceof4254pencepershare. Theremainingamountauthorisedunderthe resolution passed at the AGM 2021, as at 25 February 2022, is 8.61%. This will expire at the end of the 2022 AGM or the date which falls 15 months from the 2022 AGM. You can read more about thesesharebuybackson Page 39 As at 31 December2021,theCompanyhelda totalof2,478,686ordinarysharesinTreasury whichrepresent5.01%oftheissuedsharecapital at the date of acquisition of the shares. The Companycontinuestoassess thetreatmentof these treasury shares and they may be used to satisfy awards made under the terms of the Company’sLong-TermIncentivePlanor cancelledinduecourse. | | Beforeengagingontheprogrammeofshare buybacks,theBoarddiscussedtherisksand benefitsofsuchaprogrammeandclosely consideredthemedium-termliquidity,leverage profile, outlookandgoingconcernofthe Companywithdetailedpresentationsfrom management andconsultationswithour corporatebrokers.Thematterwasconsideredin thecontextofshareholderreturns,withinthe Group’sbroadercapitalallocationstrategy,and deemed to be in the best interests of a sustainable company,itsshareholdersanditsother stakeholders.The Boardwillcontinue toevaluate thepotentialfor additionalsharebuyback programmes to furtherenhance shareholder returns,a conditionsandthe Group’swidercapital allocation priorities. Board powers, responsibilities and representation TheBoardiscollectivelyresponsibleforthe leadershipandmanagementofthe Company anditsbusiness.Itsrole is to establish the strategy, purposeandvaluestoensure theGroup’s long-termandsustainable success.TheBoard assesses the strategic risks it is willing to take in pursuitofthisstrategy,ensuressufficient resources,andmeasurestheperformance of management againstagreedobjectives,aligned withthestrategy.TheBoardensuresthat appropriatecontrolsandsystemsareinplace to manageriskandconsidersthe Companyculture andpractices,reviewingalignmentwiththe purpose, valuesandstrategy. The Board Rules and Matters Reserved to the Board,whichare availableonthewebsite,setout thosematterswhicharereservedforthe Boardto consider, includingamong otheritems,overall responsibilityforstrategyandmanagement, majoracquisitionsandinvestments,structureand capital,financialreportingandcontrols,and corporategovernance.Youcanreadmore about themattersconsideredbythe Board in 2021 on pages 79 and 80. TheBoardhasdelegatedresponsibilityfor day-to-daymanagementofthe Companytothe CEOandhisExecutiveManagementTeam(the EMT).Thereisaclearseparationofresponsibilities betweentheBoardandthe EMT, and the main responsibilitiesoftheEMTaretoassisttheBoard withitsoversightofstrategy,whichinvolves makingstrategicrecommendationstothe Board, beingaccountable forimplementingthe Board’s decisions, and beingresponsible fordirectingand overseeingtheCompany’soperations. | | The Boardhasdelegatedsomeresponsibilitiesto CommitteesoftheBoard,whichareoutlined in the CommitteeTermsofReference,availableon the Companywebsite,andsummarisedintheir individualreportsonpages [•]to[•].TheChairman of each Committee provides a report to each Board on the mattersdiscussedandresolved upon in the respectiveCommittee meetings. EachBoardCommitteehasconsideredthe requiredmattersfromthe respectiveTermsof Referenceand,throughtheBoardreview process, hasassesseditsperformance.Thecompositionof the Committees,the numberofmeetings, attendance atthose meetingsandkeyitems discussedcanbefoundineachCommittee Report on pages 88 to 121. Pursuanttothe ArticlesofAssociation,theBoard may, if it elects to do so, assign duties and powers toindividualDirectorsand/orcommitteesthatare composed of two or more Directors,withthe day-to-daymanagementofthe Company entrustedtothe ExecutiveDirectors.Both Executive DirectorsandNon-Executive Directors mustperformsuchdutiesasare assignedto them pursuanttothe ArticlesofAssociationand the Board Rules or a resolution of the Board. Each DirectorhasadutytowardstheCompany to properlyperformthedutiesassignedtothem. Furthermore, each Director has a duty to act in the corporate interestsoftheCompanyandits business.UnderDutchlaw,corporate interest extendstothe interestsofallstakeholdersofthe Company,suchasshareholders,creditors, employeesand otherstakeholders.Youcanread more aboutstakeholderengagementon pages 50 to 55. The Board as a whole isentitledtorepresentthe Company.Additionally,(i)theCEOandthe Chairman,(ii) the SeniorIndependentDirector andDeputyChairman1 and the Chairmanand (iii) twoExecutiveDirectors,actingjointly,arealso authorisedtorepresenttheCompany.Pursuantto the ArticlesofAssociation,theBoardmayappoint officerswhoareauthorisedtorepresentthe Company within the limits of the specific powers delegated to them. You can find our Articles of Associationandtherole profilesofthe aboveroles onourwebsite. | 1 Adualroleheldbyoneindividual,currentlyJohnRamsay. Youcanreadtheroledescriptiononour website 72 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | Board appointment PursuanttotheArticlesofAssociation,the Directors,otherthantheEmployee RepresentativeDirectors,areappointedbythe GeneralMeetingbyamajorityofvotescast, irrespectiveoftherepresentedcapital.TheBoard makesnominationstotheGeneralMeetingfor suchappointments.Aresolutiontoappointthe Directorotherthaninaccordancewitha nomination by the Board may be adopted by the GeneralMeetingbyanabsolutemajorityofvotes castrepresentingmorethanone-thirdofthe Company’sissuedcapital. Non-ExecutiveDirectors(otherthanEmployee RepresentativeDirectors)willbenominatedfora termofthreeyears,subjecttosatisfactory performanceandannualreappointmentbythe GeneralMeeting.EmployeeRepresentative Directors are appointed for a term of not more than four years. The term of office for each Director(otherthanEmployeeRepresentative Directors) will end on the day of the AGM in the yearfollowingappointment.Pursuanttothe ArticlesofAssociation,Directorsmaybe reappointedforanunlimitednumberofterms,but theBoard’sconsiderationofNon-Executive Directors(otherthanEmployeeRepresentative Directors)forreappointmentforathirdtermwould alwaystakeintoaccountoverallBoard independenceandstakeholderviews, as well as relevantCorporateGovernanceCodes. The General Meeting has the power to suspend or remove a Director at any time, by means of a resolutionforsuspensionorremovalasoutlinedin theArticlesofAssociation.TheGeneralMeeting is authorised to resolve to amend the Articles of Association,ontheproposaloftheBoard. Conflictof interest Dutch law provides that a Director may not participateinthediscussionsanddecision- making by the Board if such Director has a direct orindirectpersonalinterestconflictingwiththe interestsoftheCompanyorthebusiness connectedwithit. PursuanttotheArticlesofAssociationandthe rulesadoptedbytheBoard(the“BoardRules”), theBoardhasadoptedproceduresunderwhich eachDirectorisrequiredtodeclarethenatureand extent of any personal conflict of interest to the otherDirectors. | | Board site visits The agreed Board pattern is that one Board session per annum, typically over a week in April, is held at a location other than the Vienna headquarters.InApril2021 travelwasstillvery difficult, and with the intention to bring in three new Directors, it was agreed that the visit be postponed to later in the year. In September 2021, the majority of the Board met in person for the firsttimesinceJanuary2020, givingDirectorsthe opportunitytomeet colleagues in person, some for the first time, and tobuildimportantpersonalrelationships.This meetingtookplaceinLeoben,(le centre, and the Boardvisitedthetechnology centre, receivingpresentationsfromspecialists withinthebusinessontopicspertinenttoour strategysuchasournet-zerobrickrange,Flow Control,useofsecondaryrawmaterials,quality assessment,toolssuchascomputedtomography watermodelling.Theywere able to meet and engage with a broad section of the Company, hearingemployees’experiences,abouttheir areasoffocus,abouttheirperspectiveonthe strategicinitiativesandviewpointsfromother stakeholderssuchascustomers,innovation partners andsuppliers,withwhomthe employees engagewithregularly.Thisprovidedinvaluable viewpointsforthe Directorsoncultureand stakeholderexperience. Theexperience was felt to be overwhelmingly positive, especiallyforournewDirectors,who received acomprehensive overview of the underlyingaspectsof production,were able to meetspecialistsinvariousfieldsandformdeeper relationshipswiththeircolleaguesontheBoard, as well as with the EMT.TheexistingDirectors similarlysawarefreshmentintheirrelationships withtheircolleaguesandthe value of meeting in person wassubstantiallyreinforced. Othersite visitstookplaceinsmallergroups throughout2021 whenandwhere travel was possible: • TheUK-basedDirectorsvisitedthe Bonnybridgeplant,hearingfromthe managementthereonsafetystandards, operationalprocesses,andtheplant’s contributionto,androlein,FlowControl. • The CSC held a meeting of the Committee in Radenthein,seeingthedigitalinnovationand supplychaininaction,meetingnotonlylocal management,butalsoattendeesofthe CommitteefromtheRotterdamoffice,Brazil, and Germany, as well as colleagues based in Austria. | | | Where not all the Board were able to attend the site visits,updateswere givenatthefollowing meetingtosharethe learningsandperspectives fromtheexperience. | | | | | • TheExecutiveDirectorsandDavidSchlaff visitedthe Biwadi plant in India and were presentatthe openingofthe newR&Dcentre. They saw the plansforimprovements,the automationofproductiontoexpandcapacity andcapabilitytodevelopinIndia,the Middle East and Africa, and met the workforce R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 7 3 #### Corporate governance statementcontinued | | | | | | | | --- | --- | --- | --- | --- | --- | | Culture and purpose | | | --- | | remunerationandattritionlevelsthroughoutthe annualcycle.Directorsengagedirectlywith management, throughoutthe meetingcycle and alsobeyond,whichenablestheirassessmentof managementculture. Culture continues to be a central part of performanceevaluationsforemployeesandthe Company’s internal communicationsare underpinned byourcultural values.The Board consideredtheextenttowhichculturalvalues were promoted and embodied as part of all succession planningdecisions.Giventhe multiplegloballocationsofoperations,local culture is also discussed by the Boardwhen consideringtheimpactandlikelysuccessof initiatives.ThecompliancereportstoDirectors refertoculture, hand in hand with training and CodeofConductcompliance levels.The Internal AuditreportstotheAuditCommittee demonstratethatorganisationalculture is a key factorinachievinggoodauditresultsand,where thereareimprovements,culture is a focus to enablesuccessful implementation.Culture is consideredindiscussionstoidentifytrendsand challengesfacingthebusiness.The Corporate SustainabilityCommittee specificallyconsiders behaviourandcultureaskeysuccessfactorsof healthandsafetycampaigns,youcanfindmore details on page 64. Theconsiderationofculture at Board level has led theunderstandingofperformanceinteamssuch assupplychainmanagement,financeandsales, as well as on the ground in our plants and operations.The Boardhasconsideredtheculture ofdifferentteams,anddiscussedwith managementhowthatculturehascontributedto decisionmakingandperformancelevelsofthe business.TheBoardcontinuestoconsiderhow besttoeffectivelymeasure andassessculture at Boardlevel.The followingkeyculturalthemes determinetheactionsoftheCompanyand specificallyfeedintoperformancereviewsacross theGroup, successionplanningandrisk management: customer performing focus Our high performance is rooted in accountability and responsibility. We are a reliable partner that decides and delivers based on our customers' needs. open pragmatic Our open mindset and We act pragmatically to transparent way of working is enable fast and simple flanked by a diverse, respectful collaboration across functions and friendly business and regions to serve environment, where we care our customers best. about our customers and colleagues. | | | | | Culture continues to play a large role in Board discussionsandtheBoardtookalltheavailable opportunitiestoengagewithcolleaguesinthe businessinordertoobserveandunderstandthe culturewithintheCompany. CulturalvaluessupporttheCompanyPurpose, andthePurposeunderpinsthe Company’s stakeholderengagement,demonstratingthe Company’splacewithinourwiderenvironment and society. You can read more about how the Boardincorporatesstakeholderviewpointsintoits decision making process on pages 50 to 55. Readmoreaboutour cultureon Page 64 AstheBoardconsideredthevariousoperational difficulties in the year, culture was a continuous themewhendiscussingrootcausesandsolutions. Managementdevotedsignificanttimeand attentiontoculture,discussingcultural informationindetailwiththeBoardthroughout theyear. Withlimitedin-personexposuretocolleaguesat levelsacrossthebusinessbecauseoftravel restrictions,theBoardsoughtinputfrom management,receivedBoard presentations in meetings,andrequestedinsightintohowateam operatedoraregionapproached problems. Culturehasremainedanintegralelementof BoarddiscussionsandtheBoardandits Committeesusemanysourcestoassessculture. Giventhatculturecanarguablybestbedescribed as “the way we do things around here”, it is difficult tousequantitativemetricsthataccurately communicatetheculturetotheBoard. Nonetheless,datausedbytheDirectorsto measurecultureincludewhistleblowingreports, CodeofConductcompliancereports, employee engagementsurveyresults,health and safety reports,responsestoInternalAuditreportsand thecorrespondingoutstandingactions,workforce innovative We live innovation to create value for our customers, by being bold and providing the best digital and sustainable solutions. | | Whistleblowing Potentialconcernsaboutbusinessethicsor any matterscanbereportedbyallstakeholdersto an independentlyoperated,confidential and anonymouswhistleblowinghotline,available acrossallourkeyoperatinglocationsand in the mainlanguagesusedwithinthe Company. Contactdetailsare publicisedthroughoutthe businessandare availableexternallyonthe website.Allreportsare assessedbythe Head of InternalAudit,Risk&Compliance andthen addressedonacase bycasebasis,typically engagingseniorleadersfromLegal andHR. The Boardroutinelyreviewsthisprocessandthe reportsarisingfromitsoperation,ensuringthere are arrangementsinplace for the appropriateand independentinvestigationofthese cases and that follow-upactionstoaddresstherootcausesare completed. TheAuditCommitteereport containsmore detailson Page 92 Boardworkforceengagement RHIMagnesita’scorporatestructurehas,from thebeginning,includedEmployee Representative Directors.Thiswasa requirementfromthemergerin2017and reflectsthe approachincontinentalEurope, particularlytheDACHregion.The Employee Representative Directors,currentlyMichael Schwarz,KarinGarciaandMartinKowatsch, havebeenappointedbytheirrespectiveworks councilsinlinewiththeCompany’sArticlesof Association,and,withexperienceofthe frontline ofoperations,seektodirectly representthe views of the workforce at the highestleveloftheCompany. TheBoardwelcomesthe differentviewpoints theyprovide,bringingincreasedopportunity forchallenge of the executivemanagement, and holding them to account from a different perspective,beingthatoftheworkforcewho are on the ground,amongstcolleagues. The ERDs can attest to the impact of the executives’actionswithinthebusinessand contribute to the Board accordingly. Not only do the ERDs have the abilitytochallenge management,buttheycanalsocontributeto theNEDs’viewofmanagementand understandingofthe Companyculture, strengtheningthe independence the NEDs have throughproviding abroaderknowledge of the Company. TheinformationanddiscussionsatBoard meetingshelpsthe ERDs’supportofthe workforce andprovide amutuallybeneficial linkbetweencolleaguesandtheBoard. Specificdetailsare includedintheBoard stakeholderengagementreportonpages52 to 53. | 74 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | Board composition TheBoardiscomposedof16Directorswhich includestwoExecutiveDirectors,threeEmployee RepresentativeDirectorsand11 Non-Executive Directors. The size of the Board at 16Directorscontinuesto be a challenge, as seen in findings of the Board reviews.Howeverthisismitigatedbythecareful behaviourofDirectorsinmeetings,thededicated work of the Committees who then feed their pre-workonmattersintotheBoardmeetingsand the familiarity of the Board with the nuances of beingadual-listedCompanywithobligationsin threejurisdictions. Independence InpreviousyearsWolfgang Ruttenstorferhas beenconsideredindependent undertheUKCGC andnon-independentundertheDCGC.This is because he was interim CEO for RHI AG for six months when there was an urgent requirement, followingthehealth-relatedabsenceoftheCEO. Bestpracticeprovision2.1.8i.oftheDCGC contains a window of five years which Wolfgang is no longerwithin.Therefore, under the DCGC he isnowclassedasindependent. Under the UKCGC, the practice has been to includetheserviceofthoseDirectorswhowere on the RHI AG board when calculating the time served.Onthisbasis,Wolfgangnolongermeets theindependencecriteria of theUKCGC, having joinedRHIAG’ssupervisoryboardin2012and thereforeexceedingnineyearsofservicein2021. He meets no other criteria in Provision 10 of the UKCGC and the Board continues to be comfortablethatheprovides strongindependent challengetomanagement. | | Additionally,perthe Chairman’sintroductionto corporategovernance,asEuropeancorporate law requiresthe Companytoallowforasignificant portionofthe Board to be ERDs, the Board feels it isappropriate tofollowtheprocessofcalculating independence as it is undertaken in the relevant jurisdiction.WhichistosaythatonlyDirectors who can be appointedbyshareholdersare countedinthecalculationandERDsareexcluded fromthedenominator. Accordingly,the BoardhassevenDirectorsoutof 12eligibleDirectors,whoare deemed independent (as set out in the table on page 76), therebyconstitutingaBoardwhichiscomposed ofatleasthalfNon-Executive Directors(excluding the Chairman) considered by the Board to be independent. TheBoardhasconsideredthe independence of theNon-Executive Directors,includingpotential conflicts of interest. Each of these Directorshas also confirmed that there is no reason why they shouldnotcontinuetobeconsidered independent. Skills andexperience TheNominationCommitteeseekstoensurethe right balance ofskills,knowledge andexperience ontheBoard,takingaccountofthebusiness model,long-termstrategyandthesectorsand geographiclocationsinwhichtheGroup operates. The Board is structured so that the following experience andcapabilitiesare present in one or more ofitsDirectors: • knowledge andunderstandingofthe business andproductsofthe Companyandits subsidiariesandthe marketsandgeographies in which the Companyanditssubsidiaries operate,inparticularthe trendsandfuture developmentsofthesemarketsand geographies; | | | • aninternationalbackgroundand geopolitical exposure; • broadboardexperience,including knowledge ofcorporategovernance issuesatmainboard levelasappropriatefortheCompany with referencetoitssizeandinternationalspread of activities; • understandingof corporate social responsibilityandsustainability matters; • practical experience in,andrelating to, financingandaccountingand/or experience inrelationtoInternationalFinancialReporting Standards (IFRS), as well as in the areas of risk managementandinternalcontrols; • understandingof the marketswherethe Companyisactive,inparticular emerging markets; • science,technologyandinnovationexpertise; • experience andunderstanding ofhuman resourcesandremunerationrelated matters; and • personalqualitiessuchasimpartiality, integrity,tolerance of other points of view, abilitytochallenge constructively and act criticallyandindependently. The NominationCommitteeconsidersthatallof theseaspectsare present in a number of the DirectorsandwellrepresentedacrosstheBoard. The Boardiscommittedtoencouragingdiversity todeliverlong-termsustainable successfor the Companyandwillcontinue to pursue its programmeinthisregard. ReadaboutBoarddiversityintheNomination Committee report on page 88 and 89. | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 7 5 #### Corporate governance statementcontinued At the date ofthisAnnualReport,theBoardiscomposedasfollows: | | | | | | | | --- | --- | --- | --- | --- | --- | | | Name Position Year of birth | | Date of appointment | | Expiry/ reappointment date | Herbert Cordt Chairman1 1947 20 June 2017 2022 AGM John Ramsay Deputy Chairman and Senior Independent Director2, 3 1957 6 October 2017 2022 AGM Stefan Borgas Executive Director (CEO)4, 5 1964 20 June 2017 2022 AGM Ian Botha Executive Director (CFO)4, 5 1971 6 June 2019 2022 AGM Janet Ashdown Independent Non-Executive Director2, 3 1959 6 June 2019 2022 AGM David Schlaff Non-Independent Non-Executive Director4, 5 1978 6 October 2017 2022 AGM Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg Non-Independent Non-Executive Director4, 5 1965 6 October 2017 2022 AGM Fiona Paulus Independent Non-Executive Director2, 3 1959 6 June 2019 2022 AGM Jann Brown Independent Non-Executive Director2, 3 1955 10 June 2021 2022 AGM Karl Sevelda Independent Non-Executive Director2, 3 1950 6 October 2017 2022 AGM Marie-Hélène Ametsreiter Independent Non-Executive Director2, 3 1970 10 June 2021 2022 AGM Sigalia Heifetz Independent Non-Executive Director2, 3 1961 10 June 2021 2022 AGM Wolfgang Ruttenstorfer Non-Independent Non-Executive Director6 1950 20 June 2017 2022 AGM Karin Garcia Employee Representative Director4, 5 1970 9 December 2021 9 December 2025 Martin Kowatsch Employee Representative Director4, 5 1972 14 December 2021 14 December 2025 Michael Schwarz Employee Representative Director4, 5 1966 8 December 2017 9 December 2025 1 HerbertCordtwasamemberofthe supervisory boardof RHI AGandthusnot deemedtobeindependentonappointmentwithinthemeaning oftheUKCGC butindependentonappointmentwithinthe meaningofthe DCGC,dueto adifference inindependence requirementsunder the respectivecodes. 2 Independentwithinthe meaningofthe UKCGC. 3 Independentwithinthe meaningofthe DCGC. 4 Non-Independentwithinthe meaning of the UKCGC. 5 Non-Independentwithinthe meaning of the DCGC. 6 WolfgangRuttenstorferisconsidered independent under the DCGC andnon-independentundertheUKCGC | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Individualroles Roles of Chairman, SID & Deputy Chairman and CEO The roles of Chairman, the CEO, SID & Deputy Chairmanhavebeenformally recordedbythe Board. All of these documents can be found on theCompanywebsite.Thecompositionofthe Board has been structured such that no one individualcandominatethedecision-making processesoftheBoard. Non-Executive roles TheEmployeeRepresentative, Non-Independent andIndependentNon-ExecutiveDirectors engage with the business of the Board from differentperspectives,enablingmultifaceted scrutinytobeappliedtotheBoard’sdecision- makingensuringthattheviewpointsofthe Company’skeystakeholdersarerepresented.All Directorsarerequiredtoexercisetheir independentjudgementandact in thebest interestsoftheCompany,takingintoaccountthe interestsofitsstakeholders,intheirdecision- making. | | Non-Independent Non-Executive Director roles HerbertCordt,StanislausPrinzzuSayn- Wittgenstein-Berleburg,DavidSchlaffand WolfgangRuttenstorferare notconsidered independent underthe UKCGC,havingbeen members of the supervisory board of RHI AG for a number of years prior to the merger in 2017 with Magnesita.However,becauseofthatexperience, theycontributestronglytotheBoard’sculture and personality, adding valuable insightgained throughexperience of the marketsinwhichthe Groupoperatesandcorporatememory.Theycan constructivelychallenge theExecutive Directors andscrutinisetheperformance ofmanagement inmeetingtheir objectiveswiththe benefitof historicalexperience of the operationsand industryofthebusiness.StanislausPrinzzu Sayn-Wittgenstein-BerleburgandDavidSchlaff canprovideaninvestorperspective to the management teamandchallenge them accordingly.ThedetailofalltheDirectors’ independenceandthe detail ofcompliance with the criteria of each Code can be found above and onpage70respectively. | | The Chairman’sothersignificantcommitments are set out in the table below: Name of company Function | | | | | | --- | --- | --- | --- | | | 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 Metalcra Metal, Inc. | | Advisory Board member | Cooper & Turner Group Advisory Board member | 7 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | Time commitment Onappointment,andeachsubsequentyear, Non-ExecutiveDirectorsconfirmthattheyhave sufficienttimetodevotetotheCompany’saffairs. In addition, they are required to seek prior approvalfromtheChairmanbeforetakingonany additionalexternalcommitments,andtheBoard is advised of any changes. The Board is satisfied that,havingconsideredthedemandsofthe externalappointments ofeachNon-Executive Directorandthetimerequirementsfromthe Company,allNon-ExecutiveDirectors are contributingeffectivelytotheoperationofthe Board.WhilsttheNon-ExecutiveDirectorsare re-elected each year at the AGM, their letters of appointmentstateatermofthreeyears. Executive Directors InaccordancewithDutchlaw,anExecutive Director may not be allocated the tasks of: (i) servingasChairman;(ii)participatinginthe adoptionofresolutions (includingany deliberationsinrespectofsuchresolutions) relatedtotheremunerationofExecutiveDirectors orinstructinganauditortoaudittheCompany’s annualaccountsiftheGeneralMeetingfailstodo so; or(iii)nominatingDirectorsforappointment. TheroleofanExecutiveDirectoris,amongstother things,tobringcommercialandinternal perspectivestotheboardroom.TheExecutive Directors, being the CEO and CFO, are responsiblefortheleadershipand management oftheCompanyaccordingtothestrategic directionsetbytheBoard. Company Secretary Sally Caswell was appointed by the Board as CompanySecretaryinJanuary2020.All Directorshaveaccesstotheadviceandservices oftheCompanySecretary,whoseresponsibilities includeensuringthatBoardproceduresare followed,assistingtheChairmaninrelationto corporategovernancematters and,in conjunctionwiththeGeneralCounsel, ensuring the compliance of the Company with legal and regulatoryrequirements.In2021,sheassistedthe Chairman and the SID & Deputy Chairman in administeringtheBoardReview. Delegation of Authority TheBoardhasdocumentedthemattersreserved foritsapprovalincludingapprovalsofmajor expenditure,investmentsandkeypolicies.This wasrevisitedandrevisedin2021 to ensure it reflectedthecurrentorganisationalstructure, and provided as much clarity as possible to the Board and the organisation as a wholetoenable effectivedelegationofauthority. Tasksthathavenotbeenspecificallyallocatedto a specific Director fall within the power of the Board as a whole. The Directors share responsibilityforalldecisionsandactsofthe Boardandfortheactsofeachindividualmembers oftheBoard,regardlessoftheallocationoftasks. | | Board and Committee structure TheCompanyhasaone-tierboardstructure,with aBoardconsistingofbothExecutive Directorsand Non-Executive Directors(collectivelythe “Directors” or the “Board”). As at the date of this AnnualReport,theprovisionsofDutchlawthat arecommonlyreferredtoasthe“largecompany regime”(structuurregime)donotapplytothe Company. The Board has four Board Committees to ensure a stronggovernanceframeworkfordecisionmaking and assessmentofperformance againstthe Company’sstrategy:the AuditCommittee,the RemunerationCommittee,theCorporate SustainabilityCommittee andtheNomination Committee.EachCommittee receivessupport fromtheCompanySecretary.The Terms of Referenceofthese Committeescanbe foundon ourwebsite andthereportsofeachCommittee, includingmembershipandattendance at meetings in 2021, can be found on pages 88 to 121. Information and support for Directors InordertobuildandincreasetheNon-Executive Directors’appreciationandunderstandingofthe Group’speople,businesses,andmarkets, particularlygrowthmarkets,seniormanagersare regularlyinvitedtomakepresentationsatBoard meetings.Thestrategymeetinginvolvedmultiple break-outsessionstoprovidedetailoncertain areasofbusinessfocussuchasCO2 emissionsand digitalisation.ThetouroftheR&DcentreinLeoben alsoprovidedopportunityfortheDirectorstohear fromR&Dspecialistsasoutlinedabove. TrainingsessionswereprovidedtoDirectorson topicssuchasSustainability&TCFD,cyber security,developmentsinDutchlaw,andacase study on the role ofAuditCommitteesinrecent corporate failures.The corporate trainingportal, usedbyemployeesacrosstheorganisation,was alsomadeavailable toDirectors,coveringtopics suchasmarketabuseandanti-bribery& corruption. Trainingandadditional informationsessionson areas such as EU CO2 certificationscheme,have been providedbymanagementonaone-to-one basisforDirectorsthroughoutthe year.Directors alsomaintaintheirownindividualnon-executive trainingschedule based on their areas of need andinterestandattendedavarietyofvirtual trainingeventshostedbyexternalproviders. Thereisanestablishedprocedure forDirectorsto seekindependentprofessional advice in the furtheranceoftheirdutiesiftheyconsiderthis necessary. TheCompanymaintainsDirectors’andOfficers’ liability insurance whichprovidesappropriate coverforlegalactionbroughtagainstitsDirectors. InlinewithDutchbestpracticeandcorporatelaw, at each AGM there is a resolution to release the Directorsfromliabilityfortheexerciseoftheir respectivedutiesduringthe financialyear. | | | Induction UponjoiningtheBoard,anynewDirector is offeredacomprehensive andtailored induction programmecoveringallaspectsofthevalue chain, with visits to key sites and meetings with seniormanagersandothercolleaguesor advisers asrequired.AnynewmemberstoCommitteesare providedwiththeopportunityfora fulland detailedinduction,eveniftheyareexisting membersoftheBoard. In2021,fiveDirectorsjoinedtheBoard. Those joininginJune 2021 havebeenprovided with an inductionprogrammetailoredtotheir experience and their role within the Boardandthe Committeestheywere joining.ThenewERDs’ inductionprogramme isongoingand iscovering similaraspects,whilstbeingtailored to their existingknowledgeoftheCompany. Directorsspenttimewithseniormanagement, andcoveredthe followingtopics: • strategy; • value chain; • endmarketsservedbyRHIMagnesita; • drivingmarketforces; • refractoriesindustry; • recentcorporatehistoryandkey corporate subsidiaries; • competitorsandpeers,and • stakeholderssuchasemployees,customers, shareholders,regulators,andlocal government. They also met with the Chairmen of each Board Committee to discuss the role ofeach Committee and,where they were to serve on the Committee, theytookadditionaltimewiththeChairmento delve into the detailoftheCommittee, their role on the Committee,recenttopicsand ongoing discussionswithmanagementand key areasof focus.WherenewDirectorsjoined aCommittee, theyalsometkeymanagementassociated with thatCommitteetodiscussthe operationaldetail, historytotopics,andstructurebeneath the Committee.Forexample,onjoiningtheAudit& ComplianceCommittee,JannBrownmetwith the Finance leadershipteamcoveringtopicssuch astheCompany’staxstructure,foreignexchange hedgingstrategy,pensions,insurance,funding structure,includingtrade finance, and an overviewoftheCompany’scontrolenvironment The newDirectorsreceivedaccessto theBoard portal,containingkeyconstitutionaldocuments, corporate policies,historic meeting papers, minutes,andreports. TheyalsometwiththeCompanySecretary to discusstheirdutiesasDirectors,theCompany’s corporate make-up,listingrequirementsin LondonandVienna,disclosure requirementsand corporate governance matterspertinentto the Company.ShealsocoveredBoard processesand | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 7 7 #### Corporate governance statementcontinued | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | procedures,withreferencetoBoardpolicies,the MattersReservedandBoardRules. Alloftheseinductionsessionstookplacevia video call and the feedback from the new Directorswasverypositive. Inaddition,theRemunerationandNomination Committeeswelcomednewmemberswhowere alreadyontheBoard.Thesenewmemberswere offeredinductionsspecifictotheCommittee; each receivedaccesstoallthehistoric Committeedocumentsandmetwithkey membersofmanagementtounderstand the detailsofongoingmattersattheCommittees. Additionalexternaltrainingonremunerationwas providedtogiveanoverviewofstakeholder expectations,regulationsandmarketpractice. TheCommitteeChairmenmadetimeavailableto discussthe keyrelationships,stakeholderviews andrecentdecisionstaken.Finally,eachnew joinerattendedmeetingsfromJanuary2021 onwardsasobservers,priortotheirmembership commencingfromtheJune2021 AGM.This allowed them to be fully briefed and cognisant of theCommitteemattersanditsmodeofoperation. Board attendance SevenBoardmeetingswereplannedfortheyear (2020: seven),withcertainmattersapprovedby circularresolutionoutsideofBoardmeetings wherethreemeetingsheldatshortnoticeon specificitems.Giventheincreasedtravel restrictions,theBoardmeetingswereheldlargely viavideoconferencing facilities in 2021 and the Boardmadeuseofvariousdigitaltoolstofacilitate themeetings,buildingonfeedbackfromthe 2020Boardreviewtoimprovetheexperiencefor Directors. Thetablebelowshowsthenumberofscheduled meetingsattendedandthemaximumnumberof scheduledmeetingswhichthe Directorswere eligibletoattend. JannBrown, Marie-Hélène AmetsreiterandSigaliaHeifetzwereinvitedto attendmeetingsfromAprilonwardsasobservers until they were appointed by the AGM as Directors.Themeetingswhere they were observersareincludedinthefollowingtable. Onlyinexceptionalcircumstanceswould DirectorsnotattendBoardandCommittee meetings.NoneofourNon-ExecutiveDirectors haveraisedconcernsoverthe timecommitment required of them to fulfil their duties and the NominationCommitteeconsideredthetime requiredofNon-ExecutiveDirectorsaspartofits regularprogramme. | | Total Total meetings | | | --- | | Board attendance 2021 Board operation | | | attended eligible to attend Herbert Cordt 7 7 John Ramsay 7 7 Stefan Borgas 7 7 Ian Botha 7 7 Janet Ashdown 7 7 David Schlaff 7 7 Stanislaus Prinz zu Sayn-Wittgenstein- Berleberg 7 7 Fiona Paulus 7 7 Jann Brown2 5 5 Karl Sevelda 7 7 Marie-Hélène Ametsreiter2 5 5 Sigalia Heifetz2, 3 3 5 Wolfgang Ruttenstorfer 7 7 Karin Garcia2 0 0 Martin Kowatsch2 0 0 Michael Schwarz 7 7 Celia Baxter2 4 4 Andrew Hosty2 4 4 1 Inthe year, three Boardsub-committees wereheldtoapprove mattersspecificallydelegatedbytheBoardinaccordancewith article 17.5of the Company’s Articles ofAssociation.Theseare not includedinthetableabove. 2 These personswereonlyDirectors forpartoftheyear.Forthose appointed, it includesmeetingswheretheywereobservers. 3 SigaliaHeifetz had toundergomedicaltreatmentandis now fully recuperated. TheBoardmeetsregularlythroughoutthe year withsevenBoardandCommitteesessions,which are usually spread over two days, in person in Vienna.Boardmeetingscanalsobeconvenedas deemednecessarybythe Chairmanorthe Senior Independent DirectorandDeputyChairman. There was one meeting in 2021, where the majorityoftheBoardwere togetherinperson.The remainderwereheldthroughacombinationof in-person attendance andvideoconferencing. Technologyandequipmentweredeveloped whereverpossibletoachievethe bestoutcomes forattendeesinthe circumstancesandoptimise theinputfromindividuals.Thestructureofthe meetingswasadjustedtoaddresstheneedsof thoseattendingonvideoconference and wherever in-personmeetingwaspermitted underlocalguidelines,relevanthealthandsafety measureswereabidedby,suchasmasks, temperaturechecks,social distancing,ventilation oftherooms,vaccinationpassesandCOVID-19 testing. | | In the meetings,the Chairmantakescare to ensure thateachDirectorhasopportunity to commentandbe heard,whilstenablingan orderlyflow. At the end of each Board meeting, the Non- ExecutiveDirectorsmeetwithouttheExecutive Directorsandmanagementpresenttoenablean open and frank exchange of views and assessmentofperformance.Additionally,theSID holds a meeting with the otherNon-Executive Directorstodiscussthe Chairman’sperformance in the course of the year, with input also provided from the Board review. The Chairmanand other Non-Executive Directorsholdregularinformal, individual,meetingswiththeExecutive Directors andotherseniormanagersinthebusiness, providingthe opportunitytoraisequestionsand coverpointsofinterest,whichcontributesto the developmentofboththeNon-Executive Director and the managementmembers. Boardpapersarecirculatedinadvance of meetings,usingasecure web-basedportal,to allowDirectorssufficienttime toconsidertheir contentpriortothemeeting.The Chairmanis assistedinthisresponsibilitybytheCompany SecretaryandCEOthroughthecareful preparationofagendasandthe timelyprovisionof paperstotheBoard.Themanagementteam continuestotakefeedbackfromtheBoard via the reviewprocessonhowpapersandpresentations can be improved to assist the flow of the meeting. Aninformationroomwithinthewebportal providesaccesstousefulinformation,including corporate governance reference materials, analystreports,andCompanyfinance,treasury andstrategyinformation. The Boardtakesthe viewsofitskeystakeholder groupsintoaccountwhenchallenging management,andinitsdiscussionsand decisionmaking.Inputstothisprocessincludethe Company’sNetPromoterScore,employee engagementsurveys,the Employee RepresentativeDirectors’views,regularInvestor Relationsreports,analystcoverage and views of the twoNon-IndependentNon-Executive Directorswhorepresentshareholdersonthe Board. | 7 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | STRATEGIC REPORT GOVERNANCE | | | FINANCIAL STATEMENTS | | | | OTHER INFORMATION | | | TheBoardrecognisestheimportanceof balancingstakeholderviews, whilst actingin the best interests of the Company. In the event of a decisionwhichhasapotentiallynegativeimpact onaspecificstakeholdergroup, effortsaremade to mitigatethese.Asanexample, in the event of anorganisationalrestructure, whichdoesnot benefitcertainemployees, atransparent communicationsstrategyisimplementedto explain the decision and employee are treated in a respectfulandgenerous manner.This aligns with the Company values to be open in decision- makingandaccountablefor actions taken.See thestakeholderengagement report on pages 50 to 55 for more examples of this. TheBoardreviewin2021,whichcomprised reviewsoftheBoard,itsCommittees,the ChairmanandindividualDirectors’self- evaluation,confirmedthattheBoardwas functioningeffectivelyandmoredetailonthe Boardreviewprocessandoutcomescanbefound on page 88. Key areas of Board focus and activity in 2021 Amongstothermatters,theBoardfocusedonthe followingareasintheyear: | | | People,successionand leadership • Boardcomposition,appointingthreenew NEDsandreceivingtwoERDs. • ReviewedBoardCommitteemembershipand receivedupdatesfromtheNomination Committee,includingthe recommendation forarefreshedBoarddiversitypolicy. • Consideredthe executive managementand CEOsuccessionplansandrelatedactions. • Consideredthe2021 internalBoardreview and the actionsrelatingtothereview, includingprogressagainstthe actions identifiedinthe year. See pages 88 to 89for furtherdetails. • Reviewedandapprovedthe bonusfor2020 performance and the remunerationofthe Chairman,ExecutiveDirectorsandEMT. • Discussedretention,performance and resourcingandrecommendationsmade to managementinrespectoftraining, incentivisationandexternal support. • Discussedemployee engagement,morale andwellbeing,particularlyinrespectofthe impactofCOVID-19 pandemic. | | | | | | Markets and sales • Receivedupdatesateachmeetingonsales performance,marketshare and progress againstsalesinitiatives,particularly with referencetocustomersandtheimpactsfrom COVID-19. • Consideredproductpricingand costsof production. • Receivedreportsonrecyclingand digital initiativesdesignedtomeetcustomer expectationsanddevelopthe Company’s offering. | | | | | Group strategy • Annualtwo-daystrategymeetingsessionwith membersoftheEMTandseniormanagement teamstoexaminethecurrentstrategyand ensure it was fit for purpose. As part of these discussions,theBoardconsideredtheglobal outlookofeconomicrecoveryand macroeconomictrends,developmentsinkey marketsineachregion,structuraltrends, technicalinnovation,reviewofthebusiness model,andthecompetitiveenvironmentfor eachregionandproductarea. • Aspartofthestrategysession,undertookrisk managementworkshopalignedwiththe strategicopportunitiesandfocusedbreak-out sessionsonfutureopportunitiesandcurrent positionoftopicssuchastheEuropeansteel marketsanddigitalisation. • Receivedreportsthroughouttheyear outliningpotentialbusiness development opportunitiesastheyarose, includingstrategic M&A. • Approveddisposalsand acquisitions • Consideredgeopoliticalandmacro- economictrendsandfactors. • Progressagainstthe2025strategy,through considerationofastrategicinitiatives dashboard,anddiscussedtheexecutionofthe strategyandanyassociatedbarriers. | | Financialperformance • Approvedthe annualbudgetfor2021. • Reviewedandapprovedthe Group’sfull-year 2020andhalf-year2021 resultstogetherwith the2020Annual Report,includingensuring thatitisfair,balancedandunderstandable and confirming that the Group was a going concern. As part of this, the Boardconsidered theexternalauditor’sreportsandthekey mattersraised. • Receivedregularfinancialupdatescovering revenue,costs,performance year-to-date, and outlook on a monthly basis. • ReviewedtheGroup’sdebt,capitalandfunding arrangements,particularlyinrespectof ensuringtheabilitytotakeadvantageofany opportunitiesastheyarise.Approvedentryinto anESGratings-linkedfinancialinstruments. • Reviewedliquidity,cashflowandscenario planning,particularlywithreference to the impactfromCOVID-19andmacrofactors suchasinflation,supplychainissues,and politicalchangesinChinarequiringcareful managementofinventory. • Consideredcapitalallocationandpaymentof dividends,includingthe approval of the interimdividendandthe share buyback. • Considereddisclosurestothe marketand noted the work of the Disclosure Committeeto continuallymonitormattersathand. | | | | | | | | | | | • Appraisedthe principal risks,mitigating actionsandcontrols. • Receivedupdatesonthe Company’stax strategyandmattersathandwithlocal authoritiesinvariouslocations. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 7 9 #### Corporate governance statementcontinued | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Operational performance • Receivedupdatesateachmeetingon operationalperformance,includingany impactstocustomersandcurrenthealthand safetycompliancelevels. • Receivedbriefingsonoperationalprojects, includingprojectmanagement, business casesforpayback,timescales, and any barriers tocompletion. • Consideredindividualplant performanceand, with referencetotheCompany’sstrategyand impactsfromCOVID-19,notedmanagement’s decisionstopauseproductionatplantsas required. • Receivedfrequentreports onsupplychain disruption, the task force set up to address the issuesandconsideredmanagement’s proposalstoimproveperformanceacrossthe valuechain. Technical innovationand sustainability • ConsideredthebudgetdedicatedtoR&Dand particularlythecostsoffeasibilitystudies. • Receivedupdatesonthedevelopmentof low-carbonproductsandmarket developmentsincarboncaptureandstorage. • Consideredfuturestrategy,partnershipswith externalparties,andprocesses to encourage innovation. Legal and compliancematters • Receivedregularupdateson whistleblowing, includinganannualreviewoftheprocess. | | Stakeholderengagementandgovernance • ApprovedtheNotice and business of the AGM. • Receivedinputfromthe Employee Representative Directorsonthe Board. • Consideredthe Companyculture andreports ontheCompanyvalues. • Received reportsoninvestorengagementat eachBoardmeeting,includingverbatim feedback,thediscussionsheldaspartofthe annualroadshow,andthedetailedperception study. • Received presentationsondiversity,and sustainablesupplierprocesses. • Approvedthestatementforthe Modern Slavery Act andCaliforniaTransparencyin Supply ChainsAct. • Receivedreportoncustomersatisfaction levels,includingNetPromoterScore. • Reviewed remunerationofsenior management,the ExecutiveDirectorsandthe Group-widebonusschemeon recommendationfromthe Remuneration Committee. • Receivedregularupdatesoncorporate governanceandothermattersfromthe CompanySecretary,includingreviewsofany potentialconflictsofinterest. | | Board review In2021,theBoardconsideredthe externally facilitated2020Boardreviewandtheprogress againstactions.WhilstCOVID-19continued to hamperBoardactivity,progresswasmadewith newappointmentstothe Board,increasing diversityanddigitalexpertise,andwiththeinputs totheBoard,includingupdatestoDirectorson keytopicsinbetweenmeetingsandmore informationtothe Boardonsustainability and stakeholdergroupsmade available.Time managementinmeetingsandqualityofpapers was also felt to have improved, as well as the effectivenessofremote meetingsthrough introductionofbetterequipmenttofacilitatethe hybridmeetings. As outlined in the Chairman’sintroduction,in 2021 theBoarddecidedtoconductaninternal Boardreview,facilitatedbythe Company Secretary.The Boardmemberscompleted a comprehensive review on the overall Board performance,the Chairmanandtheirown individualperformancein2021.The review coveredcore areasoftheBoardandCommittee performance,withparticularfocuson: • Boardcompositionanddiversity; • stakeholderoversight; • cultureandexecutionofstrategicgoals; • Boarddynamics,communicationand cohesion; • Boardsupport,effectivenessofremote meetings,meetingmanagementandfocus; | | | | • ReceivedtheCodeofConductcompliance report. • ReceivedupdatesontheGroup’scompliance andcybersecurityprogrammes. | | | | • BoardCommitteeeffectiveness; • support and challenge of the EMT, quality of discussion,andrelationshipsbetween Directorsandmanagement; | | | | • Consideredcompliancereports, and also receivedabenchmarkingreportonthe numberofcompliancecasescomparedwith peers. • Receivedupdatesonanylegaldevelopments as they related to the Company. • Consideredandapprovedrevised share dealingandinsideinformationpolicies, MattersReservedtotheBoard,theassociated DelegationofAuthoritymatrix,andBoard Rules. | | | | • strategicoversightanddiscussion; • riskmanagementandinternalcontrols;and • successionplanning,talentmanagementand humanresource management. The reviewalsoincludedquestionsonthe ongoingresponse to COVID-19 pandemic and the impactonriskmanagement. The Boardconsideredthethemesandoutput from2021 review(withoutcomesdiscussed in the NominationCommittee report on page 88) and was pleased to note that, even with the impacts feltfromCOVID-19restrictions,theBoard was assessedashavingmaintainedorimproved its performancefrom2020.Anactionplan, aligned to the outcomes of the 2021 review,todrive furtherprogressthrough2022hasbeen drawn up and progress will be reportedinthe 2022 AnnualReport. | | | 8 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | Statement of Directors’ responsibilities TheDirectorsareresponsibleforpreparingthe Company’sAnnualReport. TheCompany’s AnnualReportcomprises,amongothers,the StrategicReport,theGovernanceReport,the ConsolidatedFinancialStatements.TheDirectors areresponsibleforpreparingtheAnnualReport foreachfinancialyearinaccordancewith applicablelawandregulations, includingin accordancewithIFRSasadoptedbythe EuropeanUnionandthe relevantprovisionsofthe DutchCivilCode.TheDirectorsmustnotapprove theAnnualReportunlesstheyaresatisfiedthatit gives a true and fair view of the state of affairs of theCompanyanditsconsolidatedGroup companies and of the profit or loss of the Group forthatperiod.InpreparingtheAnnualReport, theDirectorsarerequiredto: a) selectsuitableaccountingpoliciesandthen applythem consistently; b) makejudgementsandaccountingestimates thatarereasonableandprudent; c) statewhetherapplicableIFRSasadoptedby theEuropeanUnionandtherelevant provisions of the Dutch Civil Code have been followed,subjecttoanymaterialdepartures disclosedandexplainedintheAnnualReport; and d) preparetheAnnualReportonthegoing concernbasis,unlessitisinappropriateto presumethattheCompanywillcontinuein business. TheDirectorsareresponsibleforkeeping adequateaccountingrecordsthataresufficientto showandexplaintheCompany’stransactions anddisclose,withreasonableaccuracyatany time,thefinancialpositionoftheCompanyand the Group and enable them to ensure that the AnnualReportcomplieswithapplicablelawand, asregardstheConsolidatedFinancial Statements,theIASRegulation.Theyarealso responsibleforsafeguardingtheassetsofthe CompanyandtheGroupand hencefor taking reasonablestepsforthepreventionanddetection offraudandotherirregularities. | | EachoftheDirectors,whose namesandfunctions are listed on pages 82 to 85, confirm that, to the bestoftheirknowledge: • theCompany’sfinancialstatementsandthe ConsolidatedFinancial Statements,which havebeenpreparedinaccordance withIFRS as adopted by the European Union and the relevantprovisionsoftheDutchCivilCode, 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 thesituationonthebalance sheetdate,the developmentandperformanceofthe businessandthepositionoftheCompanyand itsconsolidatedGroupcompaniesand includesadescriptionofthe principalrisksand uncertaintiesthatthe Companyfaces;and • havingtakenallmattersconsideredbythe Board and brought to the attentionofthe Boardduringthe financialyearintoaccount, theDirectorsconsiderthatthe AnnualReport, taken as a whole is fair, balanced and understandable.TheDirectorsbelieve that the disclosures set out in the AnnualReport provide theinformationnecessaryfor shareholderstoassessthe Company’s position,performance,businessmodeland strategy. A analysis,theDirectorshavereasonable expectationthatthe Grouphasadequate resourcestocontinueinoperationalexistence for theforeseeable future.Forthisreason,the Directorsconsideritappropriate to adopt the goingconcernbasisinpreparingthe Annual Report.Directorsarealsorequiredtoprovide a broaderassessmentofviabilityoveralonger periodwhichcanbe found on pages 43 and 44 (the“ViabilityStatement”)oftheintegratedreport and accounts.The consolidatedfinancial statements on pages 126 to 203 were approved and signed by the Boardon27February2022. | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 8 1 # Board of Directors 1 2 3 4 5 6 7 8 9 10 11 12 13 Employee Representative Directors 14 15 16 82 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | | | OTHER INFORMATION | | | | | | Chairman Senior Independent Director and Deputy Chairman | | | | | Chief Executive Officer Chief Financial Officer | | | | | | | | | | | | 1. Herbert Cordt N Chairman | | 2. John Ramsay A N Independent Non-Executive Director | | | 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 | | | | | | | | Herbert wasChairmanoftheSupervisory BoardofRHI AGfrom 2010 until 2017, as well asVice-Chairmanfrom2007to 2010. He isManagingPartner atCordt& PartnerGmbH, hisinternational boutique corporate finance consultancy,which advisesclientsoncorporatefinance matters. Inthe course ofhis career hehas held avariety ofseniorexecutiveand managingdirectorpositions in telecommunicationsandfinancial institutionsinEuropeanfirms,providing a wide range ofbusinessacumen and internationalexperience. Herbert obtaineda Doctoratein Lawfrom the University ofVienna, graduated from the Diplomatic Academy ofViennaand receiveda Master’sofSciencedegreein ForeignService from Georgetown University WashingtonD.C. Current external appointments: WatermillGroup Boston(Advisor), Cooper& TurnerGroup (AdvisoryBoard Member), QualityMetalcra Metal, Inc.(AdvisoryBoard Member), CORDT & PARTNER Managementund Finanzierungsconsulting GesmbH (ManagingPartner), Georgetown University’sSchoolofForeign Servicefor itsMSFS Program (AdvisoryBoard Member). | | John has held senior financial executive roles across theworld,including serving as ChiefFinancial Officerof Syngenta AG,as wellas being their InterimCEOfor aperiod.John started with SyngentaAG as GroupFinancial Controllerin2000 and prior tothatwas FinanceHeadof Asia Pacificfor ZenecaAgrochemicals. Earlier in his career hewas aFinancial Controller ofICI Malaysiaand regional controller for Latin America.Hestartedhiscareer working in auditand taxat KPMG andhis knowledgein accounting andfinance provides valuablepractical experience. John is aChartered Accountant andalso holds an Honours DegreeinAccounting. Current external appointments: KoninklijkeDSMN.V.(Supervisory Board Member),CrodaInternational plc (Non-ExecutiveDirector,Chairof Audit Committee)and Babcock International plc(Non-ExecutiveDirector). | | | Stefan‘scareerhasfocusedonbusiness transformations. He was CEO at RHI AG fromDecember2016 until October 2017. Priorto that, hewaspresident andCEOat Israel ChemicalsLtdand between2004 and2012, hewasCEO at LonzaGroup. Inhisearly career, heworkedat BASF Group, wherehe heldvariousmanagement positions. Stefanhasabusinessadministration degreefromtheUniversity SaarbrückenandanMBA fromthe University of St. Gallen-HSG. Current external appointments: AfyrenSAS (Chairman) and Borgasadvisory GmbH (owner). | | | | Ianenjoyedahighly successful career with FTSElistedAnglo American plcin therelatedmining andmetals industry forover20 years. Whilst there, he held avariety of international executive roles including asGroupFinancial Controller anddivisional Chief Financial Officer, andmost recently asFinance Director of listedAnglo American Platinum. Ian hassignificant experience in finance andaccounting, investor relations, strategy, M&A andgovernance, as well asexcellent business acumen anda track recordinfinancial and performanceimprovements. IanholdsaBachelor’sdegree in CommercefromtheUniversityof Cape TownandisaChartered Accountant. Current external appointments: none. Board Committee member N NominationCommittee A Audit & Compliance Committee | | | | | | | S CorporateSustainability Committee R Remuneration Committee Chairmanof Committee | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Directors by length oftenure | | | Directors by ethnicity | | | | Directors by age | | | | Directors by nationality | | | | | | 0-3 6 3-5 2 5-9 1 9+ 4 | | | | White 69% Prefer not to say 23% Other ethnic groups 8% | | | | 40–49 8% 50–59 31% 60–69 38% 70–80 23% | | | | Austrian 38% British 31% German 15% Israeli 8% South African / British 8% | | AsdescribedintheCorporateGovernanceStatement,thesestatisticsdonotinclude theEmployee Representative Directors. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 8 3 #### Board of Directorscontinued | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Non-Independent Non-Executive Directors | | | | Independent Non-Executive Directors | | | | | 5. Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg Non-IndependentNon-ExecutiveDirector Appointment date: October 2017 Nationality: German Stanislauswasamemberofthe SupervisoryBoardofRHIAGfrom2001.He hasbeenaSupervisoryBoardmemberon several“Stadtwerke”(municipalityowned utilities)aswellasundertakingsenior executiveroles,includingCEOandCFO,in theenergyindustry.Hehasdeployed industrialknowledgecombinedwith financialdetailthroughouthiscareer,and wasanInvestmentBankingDirectorat DeutscheBankAG.Overthepastfiveyears hehasfocusedonprivateequityworkina Germanmid-capenvironmentandalso engagesinabroadrangeofasset managementactivitiesinafamilyoffice environment. StanislausholdsaSloanFellowsMaster’s inBusinessAdministrationfromMITSloan SchoolofManagementandstudied BusinessAdministrationandEconomicsat UniversitédeFribourg.HeisaChartered FinancialAnalyst(CFA). Currentexternalappointments: STUV Steinbach&VollmannHoldingGmbH (CEO). | | 7. Wolfgang Ruttenstorfer A Non-IndependentNon-ExecutiveDirector Appointment date: June 2017 Nationality: Austrian Wolfgang was amemberofthe SupervisoryBoard ofRHI AG from2012 to 2017,whereheacted as theInterimCEO for sixmonths,following thesickness- related absenceoftheCEO.Hestarted his professional career in oil and gasat OMV,wherehebecameCEO andthen Chairman oftheManagementBoard. He has held numerous supervisoryboard roles,including as Chairman,inindustries suchas telecommunications,real estate, healthcareand insurance.Wolfgang also served as SecretaryofStatein the Austrian Federal MinistryofFinance. His varied career brings awiderangeof strategicand business management experience. Wolfgang graduated fromtheVienna UniversityofEconomics and Business. Current external appointments: Flughafen Wien Aktiengesellscha (SupervisoryBoard member)andErne Fittings GmbH (SupervisoryBoard member). | | 8. Janet Ashdown S R Independent Non-Executive Director Appointment date: June 2019 Nationality: British Janet hashada distinguishedcareer working forBPplc forover30 years, holding anumberof international executivepositionsthroughout the valuechain. Until theendof 2012, Janet wasCEOof Harvest Energy Ltdandthroughout hercareerhas providedleadershipthrough change. Janet also hasawiderangeof board andcommitteeexperienceasaNon- ExecutiveDirector, including theUK NuclearDecommissioning Authority, apublic body whereshechairsthe Safety andSustainability Committee. Herexperienceintheenergy sector hasprovidedherwith significant skills ingeneral management,particularly in environmental andsustainability matters. Janet holdsaBSc inEnergy Engineering fromSwanseaUniversity. Current external appointments: NuclearDecommissioning Authority UK (Non-ExecutiveDirectorandChair of Safety & Sustainability), Victrex plc (Non-ExecutiveDirector, Chair of Remuneration) andStolt-Nielsen Limited (Non-ExecutiveDirector). | | 9. Fiona Paulus S R Independent Non-Executive Director Appointment date: June 2019 Nationality: British Fionahasover37 years’ global investment banking experience, having heldsenior management roleswith anumberof leading international investment banks, such asCredit Suisse, Royal Bank of Scotland, Deutsche Bank andCitigroup. During her career, Fionahasledandmanagedavariety of global banking businesses, from start-upsto businesseswith US$4 billionintotal revenues. Additionally, Fionahasadvisedcompaniesin over 70 countriesintheglobal energyand resourcessectorsonvariousstrategic initiatives, including M&A, equityand debt financings,andrisk management. FionahasaBA inEconomicsfrom theUniversity of Durham. Currentexternalappointments:Interpipe Group(Non-ExecutiveDirector), RedcliffeAdvice(Managing Director)and Gleacher Shacklock LLP(Senior Advisor). | | 6. David Schlaff Non-IndependentNon-ExecutiveDirector Appointment date: October 2017 Nationality: Austrian | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | DavidwasamemberoftheSupervisory BoardatRHIAGfrom2010until2017. CurrentlyChiefInvestmentOfficerand jointManagingDirectoratM-Tel,hehaskey managementandsupervisoryexperience ininternationalfinancialandmanufacturing institutions.HehasundertakenrolesatLH FinancialServicesCorporationand Forstmann-LeffAssociatesInc,andhehas heldadvisoryandsupervisoryboard positionsatLatrobeSpecialtySteel CompanyandA/SVentspilsNafta. Davidholds aBachelor’sdegree in Business Administrationfrom the InterdisciplinaryCenterHerzliyainIsrael. Current external appointments: M-Tel HoldingGmbH(ChiefInvestmentOfficer andJointManagingDirector). | | Employee Representative Directors | | | | | --- | --- | --- | | 14. Karin Garcia Employee Representative Director | | 15. Martin Kowatsch Employee Representative Director | | | | | | --- | --- | --- | | Appointment date: December 2021 Nationality: Spanish | | Appointment date: December 2021 Nationality: German | | | | | | --- | --- | --- | | Karin studied attheUniversityofOviedo and finished herdegreein computer sciencein 1994,specialising in systems support.Shestarted withtheGroupat RHI in 1997,firstworking in the commercial executionteamand then she transferred totheITon-sitesupport in Oviedoas aRegional SiteService Coordinatorwhereshecontinuesto work as asenior sitecoordinator. Karin hasbeen appointedasan Employee RepresentativeDirectorbytheSpanish Works Council. Current external appointments: none. | | Martinhasbeenwith theGroupsince 1987 andistheChairmanof theworks council at theFlagshipDigital Plant FlagshipinRadenthein. Heisatrained Company electrician,completedan one-yearChamberof Labour/tradeunion training, thenstudiededucation/group dynamicsandorganisational development. MartingraduatedfromtheAlpenAdria University. Martinhasbeenappointedasan EmployeeRepresentativeDirector by the AustrianWorksCouncil. | | | 16. Michael Schwarz Employee Representative Director Appointment date: December 2017 Nationality: German Michael hasbeenwith theGroup since 1983 andisamemberof theworks council at RHIMagnesitaDeutschland AG. Michael has beenappointed as an EmployeeRepresentativeDirector by the GermanWorksCouncil. Current external appointments: none. | Current external appointments: none. 8 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | STRATEGIC REPORT GOVERNANCE | | | | | | FINANCIAL STATEMENTS | | | | | | | OTHER INFORMATION | | | | | | | | 10. Janice “Jann” Brown A IndependentNon-ExecutiveDirector | | | | 11. Karl Sevelda R N Independent Non-Executive Director | | | 12. Marie-Hélène Ametsreiter S Independent Non-Executive Director | | | | | | | 13. Sigalia Heifetz IndependentNon-ExecutiveDirector | | | | | | | | | | | | Appointment date: June 2021 Nationality: British | | | | Appointment date: October 2017 Nationality: Austrian | | | Appointment date: June 2021 Nationality: Austrian | | | | | | | Appointment date: June 2021 Nationality: Israeli | | | | | | | | | | | | Jann startedhercareerwithKPMG, where she qualifiedasa Chartered Accountant anda Chartered TaxAdviser, movinginto industry in1998and since thenhasworkedina number ofroles, both executive andnon-executive, primarily inthe energy sector butalsoin engineeringservices, manufacturing and investment management.As aresultof theseroles, Jannhasextensive internationalbusinessexperience, particularly inIndia andtheMiddleEast. Herlistedcompanyboardexperience, bothasanexecutive anda non- executive, bringsanawareness ofthe importance ofgovernance,cultureand strongethics.She isanexperienced financialprofessionalandis aPast President ofthe Institute of Chartered AccountantsofScotland. Jann isa CharteredAccountant,and also holdsanHonoursDegree in Historyfrom Edinburgh University. Current external appointments: Pharos Energyplc(ManagingDirector),and ICAS Foundation(Trustee andboard member). | | | | Karl progressed toCEO of Raiffeisen BankInternational AG a CEOand undertaking management roles in theRaiffeisen Bank group wherehe was responsiblefor corporate customers and corporate tradeand exportfinanceworldwide. Priorto this heheld several seniormanagement positions in Creditanstalt-Bankverein wherehe focused oncorporateand exportfinance.Additionally, hehasheld theposition ofSecretaryto theFederal Minister for Tradeand Industry of Austria. Karl holds aMaster’s and Doctorate Degreefrom ViennaUniversity ofEconomics and Business. Current external appointments: SIGNAPrimeSelection AG (Supervisory Board member),Liechtensteinische LandesbankAG(Non-Executive Director),and Custos Privatsti (ManagementBoard member). | | | Marie-HélènehasbeenaGeneral Partnerwith Speedinvest, aleading EuropeanVentureCapital firm, since 2014. Astheleadpartnerof theIndustrial Tech team, shedrivesseedstage investmentsinstartupssupporting the digitisationof Europe’sindustrial sector, including manufacturing,logistics, construction andclimatetechnology. BeforeSpeedinvest, Marie-Hélènewas responsiblefor theCorporate Sustainability Programat OMV, aleading Austrianoil andgasproducer, andpriorto that wasCEOof theCroatianmobile telecomoperator Vipnet. Shehas extensiveskillsandexperiencein sustainability,digitisationand automation. Marie-HélènegraduatedinBusiness AdministrationfromtheViennaUniversity of Economicsandstudiedat the University of California. Current external appointments: Greyparrot.aiLtd(Non-Executive Director),ConundrumIndustrial Ltd (Non-ExecutiveDirector), AMODO, Inc. (Non-ExecutiveDirector) and Speedinvest DeutschlandGmbH (Managing Director). | | | | | | | SigaliaservedintheIsraeli Air Force as OperationRoomController and Training Commanderandlaterjoined BDO. She wasamemberof professional committeesat theIsraeli Institute of CPAs until 1997, whenshebecame a Partner at BDOuntil 2003. Since 2008 Sigalia has providedconsulting services to international investors. She holds non-executivedirectorships at a number of leading public corporations across a rangeof sectorsandindustries. She bringsawealth of international experienceandgeopolitical exposure, alongsidesolidbusiness and financial acumen. SigaliaholdsaBA inAccounting & EconomicsfromtheUniversityof Tel Aviv (Israel) andisaCertified Public Accountant. Shehascompleted two ExecutiveMBAswith INSEAD (France) andTsinghua(China). Current external appointments: Plus500 Ltd(Non-Executive Director), MamanCargo Terminals and Handling Ltd(Non-ExecutiveDirector), Tamar PetroleumLtd(Non-Executive Director), Clal Biotechnology Industries Ltd (Non-ExecutiveDirector, including Clal Industriesandsubsidiaries within the group) andVestaInvestment and Management Ltd(Owner). | | | | | | | | | | | | Directors serving part of the year | | | | | | | | | | | | | | Board Committee member N NominationCommittee | | | | | | | | | | | | Franz Reiter Employee Representative Director Appointment date: December 2017 Nationality: Austrian | | Celia Baxter IndependentNon-ExecutiveDirector Appointment date: October 2017 Nationality: British | | | | | | | Andrew Hosty IndependentNon-ExecutiveDirector Appointment date: October 2017 Nationality: British | | | | | | | A Audit & Compliance Committee S CorporateSustainability Committee R Remuneration Committee Chairmanof Committee | | | | | | | | | | Franz steppeddownfrom theBoard on 14December2021, andwas replaced by MartinKowatsch. | | | | As reported in the2020Annual Report, Celiadid notstand for re-electionat the June2021 AGM | | | Asreportedinthe2020 Annual Report, Andrew didnot standforre-electionat theJune2021 AGM. | | | | | | | | | | | | | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 8 5 # Executive Management Team The EMT combines broad experience and complementary skill sets to deliver the Group’s strategic priorities. 1 2 3 4 5 6 7 Executive serving for part of the year 8 8 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | | | OTHER INFORMATION | | | 1. Stefan Borgas Chief Executive Officer 2. Ian Botha Chief Financial Officer Forfullbiographies,see Page 83 | | 3. Gustavo Franco Chief Sales Officer Gustavowas appointed Chief Sales Officer in January2020,priorto which he was Senior VP ofProcess Industriesand Minerals.Hejoined Magnesitain2001 as aTechnical Marketing Engineer, a finishing his Bachelor’s degreein Mechanical Engineering at theFederal Center for Technological Educationof Minas Gerais and sincethen has developed his career in therefractory industry. Over thecourseofsixyears, he progressed throughvarioussales managerial roles in SouthandNorth Americaand was partoftheExecutive CommitteeofMagnesita Refratáriosfrom 2015 to 2017. In 2018hecompletedthe Senior ExecutiveProgrammewith the LondonBusiness School. 4. Luis Rodolfo Bittencourt Chief Technology Officer Luis started working for Magnesitain1986 and has held several positionsinhis career in therefractoryandmining industryincluding Mining/Geology Manager,Technical Purchasing Manager, PlantManager,and R&D VP. Heis currentlyPresidentof theBrazilian RefractoryProducers Associationandthe Latin AmericaRefractoryProducers Association.Heholds aBachelor’sdegree in mining engineering fromtheFederal UniversityofMinas Gerais, aMaster’s degreein Metallurgical Engineering from theUniversityofUtah,andaPhD degree onCeramicEngineering fromthe UniversityofMissouri. | | | 5. Rajah Jayendran Chief Operations Officer Rajah hasheldvarioussenioroperational andstrategic development rolesat multinational companiessuch as Thyssen-Krupp UhdeGmbH,Bayer MaterialScienceAG,LonzaAG,and ChemChina-BluestarGroupCo,working inChina, SingaporeandSwitzerland. He hasvaluableexperienceintheindustry in Asia.Healsohasexperienceinrenewable solutionsandoperational performance management. In2018, Rajah becamea key teammemberat RHIMagnesita, holding thepositionof SeniorVice President OperationsEurope/CIS/Turkey until, inOctober2021, hejoinedtheEMT asChief OperationsOfficer(COO). Rajah bringsadetailedknowledgeof the Company’sglobal operationsand expertiseinproductionefficiencies. Rajah graduatedinengineering fromTU – Ruhr-Universität Bochum. 6. Simone Oremovic Executive Vice President People, Project & Value Chain SimonejoinedRHIMagnesitainan executivecapacity inNovember2017, andher rolecoversPeople,Culture, CorporateCommunicationsaswell asall global projectsfortheGroup. Simonehas 20 yearsof experienceinHuman Resources. Shestartedher careerat General Electric wherehermainfocuswasonleadership andtalent management, aswell as HumanResourcesprocess. She is a certifiedSixSigmaMasterBlack Belt. She hasheldleading HumanResourcesroles inTelekomAustriaGroup, IBMAustria, andBaxterAG. HerrolesinceOctober 2021 coversPeople, Culture, Global ProjectsfortheGroupaswell asbuilding thenew end-to-endValue Chainand running theoperational supply chain. | | | | 7. Ticiana Kobel Executive Vice President Legal, Corporate Communications & Purchasing Ticianahasextensivelegal experience in awiderangeof global businesses, such asSRTechnicsGroupand Bühler Group, leading legal departments in manufacturing,aviation, technology, the servicesectorandengineeringindustries. Intheseroles. Shewasin charge of crucial projectspertaining to varied matters, such ascomplex strategic procurement,spin-offs, sales and acquisitions,andcorporate governance issues, andassistedwith the design and implementation of compliance functions, mergersandacquisitions, and partnerships. Ticianahasalaw degree with an emphasisincorporatelaw from the Federal University of Minas Gerais and an LLMinInternational EconomicLaw and EuropeanLaw at theUniversityof Geneva. Executive serving for part of the year 8. Gerd Schubert GerdservedasChief Operations Officer until 1 October2021 when he stepped downfromtheExecutive Management Team to leadprojectsin the Company focusing onsustainabilityand innovation inmanufacturing processes, prior to his intendedretirement. | | | | SimonehasadegreefromtheEuropean BusinessSchool (Paris) andfromthe Economic University of Vienna. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 8 7 # Nomination Committee report | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Herbert Cordt Chairman of the Committee Committeemembersand meeting attendance | | | | | | --- | --- | --- | --- | | | Attendance in 2021 | | Member since | | | | | | | --- | --- | --- | --- | | | Herbert Cordt (Chairman) | | 4/4 October 2017 | Celia Baxter 3/3 October 2017, resigned June 2021 John Ramsay 4/4 October 2020 Karl Sevelda1 1/1 June 2021 1 KarlSeveldawasappointedtotheCommittee from10June 2021.Hewaspresentatmeetings fromthebeginningof2021 asanattendee. The Committee has delivered greater Board diversity in 2021 and continues to consider how the considerable skills and experience now available on the Board are best used to guide and help management to achieve their strategic ambitions. | | Committee purpose, roles and responsibilities TheCommittee’spurposeistoensure thatthe Companyhasthecompetenciesanddepthof skillswithintheBoardandseniorexecutivesto meet the demands of a global business and to supportthedevelopmentoftheGroup’sstrategy, whilstpayingparticularattentionto independenceanddiversity. Roles and responsibilities: • reviewthestructure,sizeandcomposition (includingthe skills,knowledge,experience anddiversity)ofthe BoardanditsCommittees and to recommend any changes to the Board; • successionplanningforDirectorsandother senior executives; • leadtheprocessforrecruitmentofany new Directors,includingthe Chairman, andtheir recommendationtoshareholders; • assessannuallythe time commitment requiredfromNon-Executive Directors (NEDs);and • review the results of the Boardperformance reviewrelatingtocompositionoftheBoardor theeffectivenessofanyindividualDirector. More detail on the duties of the Committee can be found in its Terms of Reference on the corporate governancesectionofourwebsite. | | Activities in 2021 The Committeemetfourtimesin2021,covering the rolesandresponsibilitiessetoutaboveand in particular,theCommittee consideredthe followingmatters: Time commitmentfrom NEDs The Committeeconsidered,asitdoesannually, the reviewoftime required from the NEDs to fulfil theirdutiessatisfactorily.Thiscoveredmeetings, the preparationtime,additionaltimeDirectors spentoutsideofmeetingsindiscussionwith management,andrecognisedthe additional complexityofCompanyoperations,giventhe impactsofCOVID-19andoperationaldisruption. No NED has raised any concerns about the time requestedofthem. PriortorecommendingthenewNEDswho joinedthe BoardinJune 2021,the Nomination Committee carefullyconsideredtheirroles heldelsewhere,withreferencetothe recommendationsbyproxyvotingagencies andtheUKCorporate GovernanceCode,and weresatisfiedtheyhadsufficienttimeavailable to dedicate to the Company. The Boardreceivedareportoutliningexternal appointmentsheldbyDirectorsandwere comfortablethatnoneoftheDirectorsare compromisedbytheirothercommitmentsin the time they can dedicate to the Company. Board review The Committeetakesresponsibilityforthe preparationoftheannualBoardreviews. In2021, followingthreeyearsofexternalreviews facilitatedbyLintstock,the Boardreviewwas undertakeninternally,andthe Company Secretaryworkedcloselywiththe SID & Deputy Chairmantoprepare thequestionnaires,covering Boardperformance,individual performance,and the Chairman’sperformance. | 8 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | TheBoardconsideredtheoverallthemesarising from the 2021 reviewandeachcommitteethen reviewedthespecificsoftheevaluationrelating totherespectivecommitteesandtheirscope ofwork.Actionswereagreedasrequired. The findings of the 2021 reviewstillshowed significantimpactsarisingfromCOVID-19 restrictions; as no doubt was the case for otherinternationalBoards.Boardmembers regrettedtheabsenceofmeetingcolleagues withintheorganisationandgettingasensefor theoperationalcultureona regularbasis.In September2021 a Board site visit was achieved and the feedback showed how valuable a visit this had been. The intention is to continue physicalmeetingsasmuchaspossiblein 2022.Nonetheless,despitethelimitationson personalinteraction,theresponsesshowed afeelingofgreatercohesioncomparedto 2020andtheChairman’sroleingenerating this wasappreciated. Duringtheyearasignificantadvancewasmade inBoarddiversity,withtheappointmentofthree new female NEDs in June 2021. Progress was also seenintheintegrationofsustainabilitywithinthe operationsandstrategyoftheCompany,albeit with more to be achieved in future, given the importanceofsustainableproductionforthe Company’sstakeholders. TheBoardagreedactionsfortheyearahead, withaviewtofurtherimprovingitseffectiveness. Keypointsconsideredincluded: Area of assessment Agreed action | | | | | | --- | --- | --- | --- | | | Stakeholder oversight | | Continue to explore ways of understanding stakeholder views more comprehensively and incorporate them into decision making. | | | | | | | --- | --- | --- | --- | | | Delivery of the 2025 strategy | | Sustained focus in Board discussions on execution of strategy, particularly around ensuring lessons learned and engaging with constructive criticism. | Board papers Further focus on style and structure of papers; consideration of improvements in the Board paper portal. Board skills More structured ongoing training sessions for NEDs, to further both professional development and industry knowledge. Culture Maintaining Board oversight of Company culture and continuing to take opportunities to experience the culture. | | The Board was satisfied to see sustained improvementinBoardeffectivenesssince listing in2017,withitsmembersunanimouslyagreeing thatdiscussionsanddebateswereopen,honest andconstructive,whilstcontinuingtohearideas forimprovementandmore variedperspectives fromitsnewmembers. TheCommittee alsoconsidereditsown effectivenessarisingfromtheBoardreview output.Thisconcludedthattheperformance of theCommitteecontinuedtobe effective but neededtoengage the full Board earlier on emerging issues. Boarddiversity TheCommittee and the Board have dedicated time in the annualscheduletodiscussing diversity, both at Board level and within the organisation.Boardgenderdiversityhas increasedto38%,exceedingourtargetof33% by 2021,andthe Boardadoptedaformal Board diversitypolicy,whichwasrecommendedbythe Committee whichwasrecommendedbythe Committee.Furthermore,halfofthe Board Committeesare chaired, or the seats filled, by women. TheCompanyreportedtothe Hampton AlexanderReviewandParkerReviewin respect of2021,meetingeachofthesereviews’ recommendationsforFTSE250boards.As discussedintheCorporateGovernance Report theEmployee Representative Directors,being appointedbythe workforce with no input by theBoardorshareholders,arenotable to be influencedintermsofappointment.Therefore, the Board’s view is that it is inappropriate to includetheminanycalculationofBoarddiversity. Nonetheless,theBoardwerepleasedthatthe nominationfromtheSpanishworkscouncilwasof afemaleDirectorandwelcomedKarinGarciato theBoardinDecember2021. TheCommittee andtheBoardwillcontinue to supporttheCompany’sapproachinfacilitating peopledevelopment,ensuringthattalent, regardlessof age,genderandbackground,enjoys careerprogressionwithinthe Group.Diversityof nationality,culture andethnicityare allimportant factorstoengenderdiversityofthought. TheCommittee believesthatthe diversityof nationalitiesandculture representedamongst the Board and EMT provides a diverse andglobal perspective; 43% of the EMT are of Brazilian heritage,representingourlegacyasaCompany andthespreadofouroperations.More details | | | on the Group’sdiversityandinclusionworkcanbe found on page 23. Succession planning EMTsuccessionplanning The Committeemonitorsthedevelopmentofthe executiveteam(“EMT”)belowtheBoard to ensure that there is a diverse supply of senior executives andpotentialfutureExecutive Directorswith appropriate skillsandexperience. The Committeeconsidersthe skillsand experience of individualsatdifferentlevels in the organisationwithanindicationoftheir expectedtime to develop to the nextlevel,and requirementsinordertoachievethatprogression, suchasexperience ofadifferentbusiness functionoradditionaltraining.Furthermore, it consideredhowsuccessionplanningwould be treatedindifferentscenarios(e.g.inanimmediate scenario or in an orderly fashion). A summary of this was provided to the Board for its consideration.Diversityisconsidered as part of successionplanning,andmanagementare encouragedtoincorporate toolsand measures tofurthergenerate andencourage diversity in the pipeline of the organisation.Thedecreasein genderdiversityofthe direct reports of the EMT andtheassociatedcauseshasbeennoted and inBoarddiscussions,managementhavebeen encouragedtorefocustheireffortsinorder to drive progressin2022.Informationonthegender diversity of the EMT and its direct reports is on page 65. During2021 GerdSchubertstepped downfrom hisroleasCOOandRajahJayendransucceeded him. This was part of an orderly succession plan, with Gerd retiring in due course. | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 8 9 #### Nomination Committee reportcontinued | | | | | | | --- | --- | --- | --- | --- | | As a result of the supply chain focus required in the year, the EMT, supported by the Board, tookstepstoreorganisetheallocationof responsibilitiestoensureduetimeandattention couldbededicatedtothesepriorities.Ticiana Kobeltookonadditionalresponsibilitiesof Corporate CommunicationsandPurchasing, whichalignedwithherskillset and experience andstreamlinedtheOperationsDepartment scope.SimoneOremovicusedherproject managementskillstobuildafocusedtaskforce toaddressimmediateissueswithinthesupply chain.Thisprovidedgreatopportunity for wideningtheirexperiencewithintheCompany andtheorganisationhasbenefitedfromtheir freshperspectiveonmatters. Boardsuccessionplanning and composition SincetheCommitteelastreportedto shareholders,AndrewHostyandCeliaBaxter stood down from the Board at the end of their three-yeartermattheJune2021 AGM,and threenewNon-ExecutiveDirectorswere recommendedbytheCommitteetotheBoard tobeappointedbyshareholders,threeNon- ExecutiveDirectorsJannBrown,Marie-Hélène AmetsreiterandSigaliaHeifetz.Theappointment processstartedwithaclearscopeofdesired attributes,skillsandexperience.Arangeof candidateswereconsidered,andinordertomake aselection,ashortlistproceededthrougha thorough interviewprocess,withanumberof differentDirectors,anddetailed references.The Committeewereaidedinthecomprehensive search by Egon Zehnder, signatory to the VoluntaryCodeofConductfor ExecutiveSearch Firms.EgonZehnderhasnootherconnectionto theCompanyorindividualDirectors. | | In2021,theCommittee alsoconsidered,with referencetoBoardcomposition,the impact of the change in ERDs, nominated to the Board by the workforce, and how the Companycouldsupport theirinductionandcontributionstothe Board. Additionally,theCommitteeconsideredthe independenceofthe Boarddirectors,asoutlined in detail on page 75. On an ongoing basis, the Committeeconsiders thetenureofDirectorswithreference to the retirementandresignationprofile,whichcanbe found on the website (link to website). In thinking aboutfuturerecruitmenttotheBoard,the CommitteecontinuestomonitorDirectors’skills and experiences,aswell asdiversityto engender constructivedebateandavariedmixofideas. TheBoardprofile is published on the website: https://ir.rhimagnesita.com/wp-content/ uploads/2022/01/bod-diversity-policy-for- upload.pdf] As of June 2021 there werethe followingchanges in Board Committee composition: • JanetAshdownbecame Chairmanofthe RemunerationCommittee • Fiona Paulus became a member of the RemunerationCommittee,steppingdown fromtheAudit&ComplianceCommittee • JannBrownjoinedthe Audit&Compliance Committee • Marie-Hélène Ametsreiterbecame amember oftheCorporate SustainabilityCommittee • KarlSeveldajoinedtheNomination Committee | | TheNominationCommittee ensuredthatthe refreshmentofBoardCommitteecomposition madeuse of our Directors’ skill sets and experience. The inductionplansprovided gave opportunityforgreater understandingof these areasandthe Committeesare benefitingfrom freshperspectives. ThemembershipofBoardCommitteescanbe seen on pages 83 to 85. Herbert Cordt ChairmanoftheCommittee | TheCommitteeconsidersthesuccession planning for the CEO and CFO on an ongoing basis, both on the basis of immediate and orderly succession.Thedevelopmentofinternal candidatesfortheserolesisconsideredbythe CommitteeandtheBoard. 9 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | # Corporate Sustainability # Committee report | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Janet Ashdown Chairman Committeemembers and meetingattendance | | | | | | | Committee purpose, roles and responsibilities TheroleoftheCorporateSustainability Committeeistosupportthe Board and act as an advisorybodytoensurethe long-term sustainabilityofthe business. • ThroughtheoversightofrelevantKPIsandthe Group’sperformance againstthem,the CommitteeensuresthattheGroup’sactivities generate sustainablevalue,notonlyfor customersandshareholders,butalsofor employees,suppliersandcommunities wherever the Groupoperates. • On behalf of the Board,the Committee overseestheeffectivemanagementofrisks associatedwithclimatechange,healthand safety,alongwithotherESGrisks. More detail can be found in the Terms of Referenceinthecorporategovernance section of ourwebsite. | | | | Health & Safety • Receivedreportsonthecompany’sCOVID-19 relatedsafetyprotocols • Consideredsafetyperformanceatoperational sitesforbothemployeesandcontractors. A adecade ofconsistentimprovement, oursafetyperformance deteriorated slightly in2021.Rootcausesforthiswereconsidered andmanagementwere challenged to deliverimprovements Diversity • ReceivedreportsontheGroup’sstrategy toimprovediversityinitsleadership and workforce • Monitoredprogressagainstdiversity targets SustainableSupplyChain • Reviewedanew sustainable procurement initiativetoassesssuppliersusing environmental,socialandethicalcriteria | | | | | | | | | | Attendance in 2021 | | Member since | | | | Activities in 2021 | | | | External ESG ratings | | | | | | | Janet | | | --- | | 4/4 June 2019 2/2 June 2021 | | | Ashdown Fiona Paulus 4/4 June 2019 Marie-Hélène Ametsreiter1 Andrew Hosty2 2/2 June 2019 to April 2021 1 Marie-HélèneAmetsreiterwasappointedto the Committeefollowingthe 2021 AGM. 2 AndrewHostyresignedasaDirectorand ceasedtobe aCommitteememberat the 2021 AGM. | | | | | | | TheCorporateSustainabilityCommittee (CSC) met four times in 2021. In addition to performing thedutieslistedabove,theCommittee addressed thefollowingissues: ClimateChange • ReviewedprogressagainstRHI Magnesita’s CO2 emissionsintensityreductiontargetsand theGroup’s€50millioninvestmentincarbon capture technologies; reviewedopportunities toreducecustomerCO2 emissions | | | | The Committeewaspleasedtonotethat RHI Magnesitareceivedanotherindustry- leadingscore from CDP and a Gold ratingfrom EcoVadis,amongstotherpositive ratingsfrom independentanalysts. • CDP–B • Eco Vadis – Gold • MSCI – AA • Sustainalytics–medium | | | | | | RHI Magnesita improved its CO2 emissions intensity in 2021 through the increased use of secondary raw materials and renewable electricity. This year we have published our first comprehensive TCFD disclosure, setting out the climate related risks and opportunities for our business. | | | | | | | | • Notedthattheincreaseduse ofrenewable electricityandprogressofenergyefficiency projects,whichremainontrack • Monitoredthe increaseduseofsecondaryraw materials,includinganew internal pricing mechanismtoincentivesalesofproductswith higherrecycledcontent • Took part in a joint CSC and Audit Committee TCFDworkshopandapprovedtheGroup’s first comprehensive TCFDdisclosure | | | | More informationonourperformanceand approachtosustainabilityissuescanbefound on pages 56 to 59. Janet Ashdown Chairmanofthe Committee | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 9 1 # Audit & Compliance # Committee report | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | John Ramsay Chairman of the Committee Committeemembersand meeting attendance | | | | | | --- | --- | --- | --- | | | Attendance in 2021 | | Member since | | | | | | | --- | --- | --- | --- | | | John Ramsay (Chairman) | | 6/6 October 2017 | Jann Brown 3/3 June 2021 | | | | | | --- | --- | --- | --- | | | Wolfgang Ruttenstorfer | | 6/6 October 2017 | Fiona Paulus 3/3 September 2019 to June 2021 The Committee effectively delivered review, insight and challenge to respond to the demands of 2021 and ensure the continued improvement of corporate governance standards within the Group | | Committee purpose, roles and responsibilities ThepurposeoftheCommittee is to ensure the integrity and transparencyofcorporate reporting, the quality of work and independence of the externalauditor and to evaluate the robustnessof internalcontrolsandriskmanagementprocesses. TheCommittee’smainrolesandresponsibilities are: • advising the Board on the Group’soverallrisk appetite, tolerance,currentriskexposuresand futureriskmitigationstrategy; • supervisingthe recording,managementand submissionoffinancialinformationbythe Groupand advisingthe Boardonwhether, taken as a whole,thereportedfinancial informationisfair,balancedand understandable; • supervisingthe functioningofthe Internal Auditdepartment,andinparticular,review andapprovethe annualInternalAuditwork plan and takingnote of the findingsand considerationsofthe InternalAudit department; • supervisingtherelationshipwiththe external auditor,includinginparticular,assessingits independence,effectiveness,remuneration andnon-auditrelatedworkfortheGroup; • supervisingthe compliance with recommendationsandobservationsofthe internalauditorandtheexternalauditor; • supervisingthe financingofthe Groupand the policy of theGroupontaxplanning; • reviewingtheadequacyandeffectiveness of theGroup’sCompliancefunction;and • recommendingtheappointmentofan externalauditorbythe AnnualGeneral Meeting(AGM). More detail on the duties of the Committee can be found in the Terms of Reference on the corporate governancesectionofourwebsite. | | Activities in 2021 The Committee met six times in 2021. Due to COVID-19 limitationsvideo conferencing was usedforsomemembersandattendeesduring thesemeetings. Discussionsatthemeetingscoveredthe responsibilitiesoutlinedabove,withaparticular focus on the continued impact of COVID-19 on the riskprofile of the Group,the emergingissues relatingtosupplychain,theeffectivenessof end-to-endbusinessprocessesandother issues arisingin2021. The Chairman,theChiefFinancialOfficer,the HeadofFinancialReporting,the Headof Internal Audit,RiskandCompliance,theGeneral Counsel andtheExternalAuditorattendtheCommittee meetingsandthe CompanySecretaryactsas SecretarytotheCommittee.Boardmemberscan attendattheirdiscretion;theChiefExecutive Officertypicallyattendseachmeetingand other Companyexecutivesare invitedtoattend for specificagendaitems.The Chairmanofthe Committee hashadregularprivatediscussions withthe ExternalAuditor,theHeadofInternal Audit,RiskandCompliance and the Chief FinancialOfficerduringtheyear. Specific areas of scrutiny for the Committee in 2021 included: Review of Going Concern Statement andScenarioModelling The ability of the Group to continue as a going concerndependsuponcontinuedaccessto sufficientfinancingfacilities.Judgementis requiredinthe estimationoffuturecashflowsand compliance withthe debtcovenantinfuture years.TheCommittee assessedtheforecast levelsofnetdebt,headroomonexisting borrowingfacilities,compliancewiththedebt covenantandthe debtmaturityprofile.This analysiscoveredtheperiodto31 December 2023 andconsidereda range ofdownside sensitivities, includingtheimpactoflowerproductionvolumes andhighercosts.Inthese discussionsthe Committee soughtthe opinionoftheExternal Auditorandensuredthatthe ExternalAuditor challengedmanagementsufficientlyonthe breadth,depth,andvarietyofscenarios,aswellas soughtconfirmationthatsufficientsubstantiation to the key assumptions in the scenarioswas validated.TheCommittee concludeditwas appropriate to adopt the goingconcernbasis. | 92 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | TheCommitteereceiveda series of risk and financiallybasedupdatesonthesupplychain andrelatedchallengesin2021.TheCommittee posed a series of questions to examine the impact on the results in 2021, the internal control frameworkimprovementspromptedbythese events and the extent to which these events wereincludedinfuturemodellingscenarios. Alternativeperformance measures: Adjusted EBITA and AdjustedEPS RHI Magnesita continues to use a number of alternativeperformancemeasures(“APMs”), whichreflectthewayinwhichmanagement assessestheunderlying performanceof the business. Read more about APMs on Page 215 TheGroup’sAPMpolicydefinescriteriafor calculationofAdjustedEBITAandAdjustedEPS. TheCommitteeconsideredboththeoverall policy and the use of each APM, as well as the impact that they may have on the clarity and understandabilityofthefinancialstatements togetherwithregulatorypositioningonsuch reporting.TheCommitteeenquiredastoany investorfeedbackreceivedbyManagementon the use of APMs. A robust discussion led by the Committeereviewedeachoftheadjustments made in Adjusted EBITA and Adjusted EPS and concludedthattheiruseisappropriate. Benchmarking and Stakeholderfeedback on thefinancially-basedend-to-end Company processes TheCommitteereceived acomprehensive reportencompassingexternalperspectives andfeedbackfrominternalstakeholderson theperformanceoffinanciallybasedprocesses withintheCompany.TheCommitteeengaged inadiscussionwithManagementontheissues raisedandtheoptionsconsideredfordelivering thecross-functionalimprovements identified. TheCommitteeendorsed theManagement plans and will monitor the delivery of the actions through2022andbeyond. | | Impact of the increased level of regional basedgovernance TheCommittee heldadetaileddiscussion withManagementoverthe governance approachbeingdeliveredineachofthe regions within theCompany.The Committeereceived observationsfromInternalAudit,Risk& Compliance comparingthe governance performanceacrosstheregionalfootprint.The Committeesoughttounderstandthe history, capabilitylevelsandplanstodevelopthe regional governance structure.Theresultantdiscussions ledbytheCommittee highlightedthatthe regionalisationactivityhadstartedfromdifferent base points in each region and been subject to different COVID-19 impacts.The Committee challengedManagementonthe rootcauses presentedtoexplainthe variationingovernance performanceacrosstheregions. Tax strategy TheCommittee dedicatedsignificantfocusin 2021 to the review and challenge of the tax strategy.TheCommittee receivedupdates through2021 asthetaxstrategyevolved,actions wereexecutedandManagementoutlinedthe responsestothe continuingengagementwith theAustrianandNetherlandstaxauthorities. TheCommittee consideredthe risks of the tax strategy,theeffectivenessofactionsbeing executedandencouragedinsightfromthe ExternalAuditor.The Committeeendorsedthe tax strategy as presented at each meeting and will continuetomonitortheprogressofthe projects impactingthetaxposition. Informationsecurityrisks TheCommittee continuedtogive high focus to informationsecurityrisks,particularlyasspecified intheDutchCorporate GovernanceCode.Cyber andinformationsecurityriskisincludedamongst the Group’s principal risks on pages 44 to 49. Multiplepresentationswere receivedbythe Committeetobothinformthe Committeeofthe emergingrisksandoutline theinternalcontrols. TheCommittee gave specificattentiontothe resultsof “phishing”testsandthe measurestaken byManagementtoimproveawarenesslevels amongst staffofthisrisk.TheCommittee requestedagreaterinsightintothe Company Crisis Managementplansandtheirapplicationto anyinformationsecurityriskbasedincident. | | | Complianceprogramme The Committeereviewedandchallenged the annualCompliance programmeaspresented by Management.TheCommittee soughtto ensure thattheComplianceprogrammeremainsfresh andthatthevolumeofmaterialiscomprehensive whilstalsobeingsuccincttohaveimpactand make an efficient use ofManagementtime. The Committeeenquiredhowthe Compliance activityisbenchmarkedandthe basisonwhich the successofCompliance activitiesismeasured. Compliance with Market Abuse Regulations(MAR) The Committeereviewedthecompletion ofinternaltrainingsonMARandsought explanationsfromManagementfor the regional variationintrainingcompletionlevels. Managementoutlinedbroaderactionstopromote Compliance (includingtrainingcompletion). Treasury and foreignexchangerisk management The Committeereviewedthetreasury policy and made enquiriesofManagementinrelationto the fundingoptionstosupportthe Company strategy delivery. Insurancestrategy The CommitteereviewedtheInsurancestrategy andcontinuedtomonitorthe plansfor acaptive insurance scheme. Pensionschemeliabilities The Committeereceivedanupdateonthestatus ofthevariouspensionschemesin geographies acrosstheGroupandspecificupdatesonthe fundingandliabilitiesofthe schemes. Following discussion,theCommitteegavepositivefeedback on the qualityofthe informationproduced,the managementofthe pensionschemes and the future actionsproposedbyManagement. | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 93 #### Audit & Compliance #### Committee report continued | | | | | | | --- | --- | --- | --- | --- | | Responseto Consultationon “Restoring trustincorporategovernance andaudit” TheCommitteeandManagement jointly preparedtheCompanyresponsetotheUK DepartmentofBusiness,EnergyandIndustrial Strategy(BEIS)consultationexerciseonthe whitepaper“Restoringtrustincorporate governanceandaudit“.Whilesupportiveof thegeneralprinciplescontained within the paper,thediscussionswiththeCommittee and Managementandthesubsequent responsesubmittedhighlightedsome practical implementationconcerns and somecostburdensforcompanies. Core Committee activity performed in 2021 included: Whistleblowing programme Thewhistleblowingprogramme, which is monitoredbytheCommitteeandoverseenby theBoardofDirectors,isdesignedtoenable employees,customers,suppliers, managers, orotherstakeholderstoraiseconcernsona confidentialbasiswhereconductisdeemedto be in violation of our Code of Conduct or contrary toourvalues. TheCommitteediscussedwithmanagementthe broadlystaticlevelofwhistleblowerreports receivedin2021 comparedto 2020. The wide range of topics raised in these reports and the largegeographicalspreadofthereportswere observedbytheCommittee.Management describedthatthemajorityofthereportsarise from Brazil(asinpreviousyears)whereemployees typicallyprefertouse thewhistleblowing programmetoraiseHumanResourcesrelated concerns. TheCommitteemadeenquiriesofmanagement in relation to the reports received on the whistleblowingprogrammeinorderto conclude itseffectivenessduring2021.TheCommittee acceptedManagement’sexplanationthatthe cases in 2021 eachrelatedtoindividual circumstancesandhadbeenappropriately investigatedandrootcauses addressed. Riskmanagement Riskmanagementistheresponsibilityofthe Board and is integral to the achievement of the Group’sobjectives.TheBoardestablishesthe systemofriskmanagement,settingriskappetite andmaintainingthesystemofinternalcontrol to manage risk within the Group. The Group’s systemofriskmanagementandinternalcontrolis | | monitoredbythe Committeeunderdelegation from the Board. Details of the Group’s risk management approach,riskappetite and principalrisksareoutlinedintheRisk,viability,and internalcontrolsectionoftheAnnualReporton pages 38 to 49. TheCommitteereceivesquarterlyreportson risk managementandmadeenquiriesto managementtoassessandmonitorthe effectivenessoftheapproach.TheCommittee specificallyconsideredFraudRisksbasedona managementassessment.TheCommittee also includesrisk-basedchallenge in all its subject matterdeepdivesperformedin2021. TheCommittee specificallychallenged Managementonthe effectivenesswithwhich “BlackSwan”riskeventswere beingcaptured or consideredwithinthe riskmanagement framework.TheCommittee encouraged Managementtousethe learningsfromthe supply chainchallengesin2021 as a prompt to develop an enhanced approachforidentifyingand evaluatingpotentialfuture“BlackSwan”events. Reviewing theresults of InternalAuditwork and the 2021 plan TheCommitteereviewedtheeffectivenessand resourcesoftheInternalAuditdepartmentand concludedthatthe InternalAuditfunction is effectiveandhasadequateresources. TheCommitteecontinuedtoassessthe independenceofInternalAuditwithinthe combineddepartmentalmodelofInternal Audit, Risk&Compliance.The Committeepaid particularattentiontothe results of the External QualityAssessmentofInternalAuditperformed in2021.TheCommittee ensuresthatthistiming meetstherequirementofsuchanassessment beingperformedatleasteveryfive years.The Committeeconsideredthe positiveresults showingtherequiredlevelofInternalAudit independenceandthehighqualityofthe work performed.TheCommittee willmonitorthe delivery in 2022 of the improvementpointsraised intheassessmentwhichlargelyfocusedon detailed processenhancements. Based on the reports received on the results of InternalAuditwork,theCommittee satisfieditself that the 2021 internal audit plan was on track and discussed areaswhere control improvement opportunitieswere identified.TheCommittee alsoreviewedprogressincompletionofagreed management actions. | | TheCommittee reviewedthe proposed2022 InternalAuditplan.ThecurrentChiefAudit Executive will be released from this role inearly 2022toleadaprocessimprovementprojectwith aspecificemphasisoninternalfinancialcontrols. TheCommittee discussedthe approachto appointasuccessororengageatemporary Chief AuditExecutive.TheCommittee raised a series of challenges to the plan focusing on any impact to Internal Auditqualityandindependenceand followingreceivingappropriate assurancesand supplementaryinformation,the Committee approvedthe proposedapproach.The Committeeapprovedthe 2022InternalAudit plan,havingdiscussedthe scope of work and its relationshiptothe Group’srisks. Externalaudit The Group’sExternal IndependentAuditor, PricewaterhouseCoopersAccountantsN.V. (PwC),wasfirstappointedasthe Groupauditor followingtheCompany’sfirstappointment processatthe AGM held on 4 October 2017, shortlybeforethe listingofthe newlyformed RHI Magnesita.PwChasperformedthisroleineach subsequentyear.PwCwillbeproposedfor reappointmentatthe 2022 AGM. In line with the External Auditorengagementpartner rotation rules,the Committeehasundertakenmeetings to support the nomination by PwC of a new engagementpartnerfor2022. Inassessingtheperformance of PwC, the CommitteediscussedandagreedwithPwC three keyareasofcontinuedfocus: • Improvingthe auditapproach especially aligningthe scopingtoCompanyprocesses; • Adjustingthe externalauditprocessto match the acceleratedreportingtimetable; and • More efficientandconsistentcommunication andcoordinationespeciallywiththe respective componentauditteams. TheCommittee receivedadescriptionof the mannerinwhichtheExternalAuditorplanwas alignedwithbusinesspriorities,theplans to addressthe areas of focus , major change projects and the riskassessments.Havingdiscussed the proposalsfromPwCtoaddressthese issues,the Committeeapprovedthe auditplantogether withtheauditfee.Thisprocessinvolvedactive discussionofthe auditapproach,(the assessment ofworkconductedon)keyauditmatters, materialitylevelandauditrisks. | 94 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | TheCommitteeconsidered and challenged the documentpresenteddescribingtherationale and work performed by PwC in reaching their assessmentofkeyauditmattersandkeyrisks. The Committeediscussedthereportpresented by the External Auditor on the year end audit. TheCommitteerequestedmoreinsightfrom Managementontherootcausesofthematters raised by the External Auditor and sought to form anexpectationofthetypicallevelofsuchissues. The Committeealsodiscussedobservationsfrom the External Auditor on the IT elements of their yearendauditwork. TheCommitteealsoreceived updates during theyearontheexternalauditprocess,including howtheAuditorhadchallengedtheGroup’s assumptionsontheissuesnotedinthisreport. The ExternalAuditorhadunrestrictedaccess to,andattendedall,Committeemeetingsin 2021.Theyalsohadprivatemeetingswiththe Committeeintheabsenceofmanagement. They were asked for their input and opinion on a range of topics throughout the year. External Auditor’sindependence The ExternalAuditorreportstotheCommitteeon theactionstakentocomplywithprofessionaland regulatoryrequirements,aswellasbestpractice designedtoensureitsindependence. Following duereviewandscrutiny,theCommittee recommendedthatPwCandEsthervander VleutenshouldcontinueastheExternal IndependentAuditoranddesignatedauditorfor thefinancialyear2021. In2021,theGroupmaintainedthenon-audit servicespolicyfortheExternalAuditoras reviewedin2020.This policyisconsistent withtheapplicableEUDirective, Dutchand UKlegislationandguidance, including recommendationssetout in theFinancial ReportingCouncil’s(FRC’s)GuidanceonAudit Committees(2016)andtherequirementsofthe FRC’sRevisedEthicalStandard(2019). Thedefinitionofpermitted non-audit services correspondswiththeEuropeanCommission’s recommendationsontheauditor’s independence and with the Ethical Standards issued by the Audit PracticesBoardintheUK.Non-auditwork, non-pervasivetotheGroup, by a local (non- Dutch)PwCfirm,isonlyundertakenwherethere iscommercialsense,wherepre-approvalis obtainedfromtheCommitteeandwhenthe ultimateResponsibleIndependencePartnerat PwCNetherlandshasapprovedtheallowanceof | | suchnon-auditworkabroad.During2021,very limitednon-auditworktolocalRHIMagnesita entities for a total of €0,0 million (2020: €0.1 million)wasperformedbylocalPwCoffices. Non-auditfeesrepresentedare disclosedinNote 59 of the financialstatements. TheGroupconfirmscompliance duringthe year withthe provisionsoftheCompetitionand MarketsAuthorityOrderonmandatorytendering for the appointment of the ExternalAuditorand Audit Committee responsibilities. It is proposed that the nextexternalaudittender is undertakenin2025,Thecommittee hasformed this proposal to match the nextscheduledpartner rotationforPwC.The committeeconsideredan earliertenderprocessandbalancedthe benefits ofa tenderprocessagainsttheworkloadof undertakingatenderandbelievesthatthe approachproposedisinthe bestinterestsof theCompany. Fair,balancedandunderstandablefinancial statements TheGroup’sfinancialstatementsshouldbe fair, balanced,understandable andprovide the informationnecessaryforstakeholderstoassess theGroup’sposition,performance,business modelandstrategy.The Committeeandthe Boardaresatisfiedthatthe2021 AnnualReport meetsthisrequirement,withappropriateweight havingbeenappliedtobothpositiveandnegative developmentsthroughoutthe year. Injustifyingthisstatement,the Committeehas takeninto considerationthe preparationprocess fortheAnnualReportandAccounts,including: • detailedtimetable andinstructionsare providedtoallcontributors; • updatesand/orrevisionstoregulatory reportingrequirementsare continuously monitoredandprovidedtocontributors; • early-warningmeetingsare conducted betweenthefinance functionandthe External Auditorinadvance of the year-endreporting process; • external advisersprovide advice to managementandthe Committeeonbest practice regardingthepreparationofthe AnnualReport; • a Committee meeting was held in Q1 2022 to reviewandapprove the dra | | | Report and Accounts in advance of the final sign-offbythe Board; • reviewofsignificantaccountingmattersas explainedinthe notes to the Consolidated Financial Statements; and • conclusionsdrawnbythe ExternalAuditor concerningkeyauditmatterscontributingto theirauditopinion,specifically impairments taxation,fraudrisk,climatechangeand other Environmental,Social andGovernance componentswereconsidered by theAudit Committee. Committee Governance The Committeeheldtrainingsessionsintheyear, covering topics such as TCFD and a case study on the roleofAuditCommitteesinrecentcorporate failures.These sessionswereontopicssuggested bytheCommittee membersbutweremade availabletoallDirectors.Individualmembers tookactionstocontinue theirown professional development.Youcanreadmoreaboutinduction plans for new members on page 90. The Committeeconsidereditsperformancein 2021,aidedbyfeedbackfromtheBoard Review process.Thisreviewconcludedthatthe Committee hasbeenoperatinghighly effectively. Focus in 2022 will be giventosupportingand guidingmanagementastheyseek to deliver greatertransparencyinfinancial informationand systems.Planstoimplementadditionaltraining forCommitteememberswillbe enacted once the practicalrestrictionsofCOVID-19allow. The Boardconsideredthe independencestatus ofWolfgangRuttenstorfer,amember of the Committee, and under the criteria of the UK CorporateGovernance Code, Wolfgang is no longerdeemedindependent.He ishowever independentunderthe DutchCorporate GovernanceCode.TheCommittee’sTermsof Referenceare clear that a member should be independentundereitherCode and theDirectors remaincomfortable thatWolfgangremains independentinhisapproachandactionsasa DirectorandmemberoftheCommittee. Further explanationofthe positionunderProvision24 of the UKCorporateGovernance Code can be found on page 70. John Ramsay Chairman,AuditCommittee | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 9 5 # Remuneration Committee report | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | Current Committee membership and operation | | • Reviewingandamendingthe Terms of ReferenceoftheCommittee. | | | Janet Ashdown Chairman of the Committee Committeemembersand meeting attendance | | | | | | --- | --- | --- | --- | | | Attendance in 2021 | | Member since | | | | | | | --- | --- | --- | --- | | | Janet Ashdown (Chairman) | | 5/5 October 2020 | Karl Sevelda 5/5 October 2017 Fiona Paulus2 5/5 June 2021 Celia Baxter1 2/2 October 2017, resigned June 2021 1 CeliaBaxterresignedasaDirectorandso ceasedtobe CommitteeChairman at the 2021 AGMwhenshe steppeddown from theBoard 2 FionaPauluswasappointedtothe Committee followingthe 2021 AGM. She was presentatthe JanuaryandFebruary meetings asanattendee | | | JanetAshdownistheChairmanoftheCommittee and at the time of appointment as Chairman, had extensiveexperience onotherlistedcompanies’ remuneration committeesandsocomfortably met the requirement for at least one years’ experiencepriorto chairingaRemuneration Committee.FionaPaulusandKarlSeveldaare currentmembersoftheCommittee.All Committeemembersare IndependentNon- ExecutiveDirectors(NEDs)withinthemeaningof theUKandDutchCorporateGovernance Codes. TheCompanySecretaryisthesecretarytothe Committee.Otherindividuals,suchasthe ChairmanoftheBoard,theChiefExecutive Officer,theExecutiveVicePresidentPeople, Projects & Value Chain (who is responsible for Human Resources),andexternal professional advisers may be invited to attend for all or part of any meetingas andwhenappropriate and necessary.No individual ispresentwhentheir ownremunerationisdiscussed.TheCommittee 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. Committee purpose, roles and responsibilities TheRemunerationCommittee’spurposeisto developarewardpackageforExecutiveDirectors andseniormanagersthatsupportsourvisionand strategyasa Group,andtoensure therewards are performancebased,encourage longterm shareholdervaluecreation,andtake account of theremunerationofthe wholeworkforce. Terms of Reference | | • Discussingthe outputfromthe Committee evaluationandagreeingactionsinresponse • Consideringthe retentionmechanisms availableforExecutiveDirectors(EDs), Executive ManagementTeam(“EMT”),and senior management in light of LTIPs continuingnottovest • Consideringtheoutturnofthe2020and2021 bonus,the performanceofin-flightLTIPs, reviewingthe 2022 bonus and LTIP performance conditionsandtargets. • Reviewingtheremunerationofthe EDs, EMT, andseniormanagementwithinthe contextof widerglobal workforce remuneration and where there were changedresponsibilities. • ReviewingthefeefortheChairmanofthe Board. • In November, Janet Ashdown took part in an investorroadshow,wheretopicsdiscussed includedExecutive Directorremuneration, viewsonevolvingincentivestructuresinthe market,the performanceconditionsused,how incentivescoulddrive progressagainstthe Company’ssustainabilitystrategyandhowthe performance againstnewerESGKPIs would be assured. • Approvalofarefreshedexpensespolicy for the Board • Reviewoftheperformance ofremuneration advisersandtheirscopeofservices. Dear Shareholders | | | | The Remuneration Committee is committed to its role in promoting the delivery of long-term value. Remuneration is closely aligned to RHI Magnesita’s strategy, culture and operations. | | Changes of the Committee Celia Baxter stepped down from the Board at the 2021 AGM andJanetAshdownassumedthe role of Chairman of the Committee.FionaPaulus joinedtheCommitteeasamemberfollowing the2021 AGM. Activities in 2021 Thekeyactivitiesanddecisionstakenthroughout theyearwere: • BringingthenewRemunerationpolicytothe AGMforapproval.Itwasapprovedbyamajority of95.95%ofvotesrepresentedattheAGM. • Consideringmarketandcorporate governancetrendsandhowtheymightapply totheCompany | | ThisismyfirstreportsincetakingoverasChairman of the Committee in June 2021. I would like to take theopportunitytothankCeliaforherdedicated servicetoboththeCommitteeandthewiderBoard. On behalf of the Board, I present our 2021 Directors’RemunerationReport.Thisreport includes my letter to the shareholders,our Directors’RemunerationPolicy,approvedby shareholdersatthe2021 AnnualGeneral MeetingandourAnnual ReportonRemuneration for the yearending31 December2021,which sets outhowourDirectors’RemunerationPolicy was implementedduringthe year and will be operatedin2022. | | 9 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | STRATEGIC REPORT GOVERNANCE | | | | FINANCIAL STATEMENTS | | OTHER INFORMATION | | | RHIMagnesitaisincorporatedandregisteredin theNetherlands,makingitsubjecttoDutch corporate law. It has its primary listing on the LondonStockExchangeanda secondarylisting on the Vienna Stock Exchange. As a result, we are required to comply with both UK and Dutch reportingrequirementsand their respective CorporateGovernanceCodes.Our RemunerationReport is thereforepresented on thisbasisand,recognisingtransparencyof reporting,includescertainvoluntarydisclosures. This letter on pages 96 to 98, the summary on page99andtheAnnualReportonRemuneration on pages 112 to 112 will also be presented for approval by an advisory vote at the AGM on 25 May 2022. Remuneration is aligned with our strategy, culture and operations OurRemunerationPolicycontinuestosupport ourstrategy,cultureandoperations.Ourbonus targetsformanagementthroughoutthe Company are aligned to those of the executive andseniormanagement.Thisprovidesa clear line ofsightofCompanyobjectives,supportsour organisationalculture,fostersteamworking,and incentivises appropriatebehaviours across the workforce.TheDirectorsledtheCompany’s strategyreviewprocessinSeptember2021, whichsupportedthesubsequent agreement ofbonusKPIsbeingaredirectlyalignedwith thethreepillarsofourstrategy. Ourlong-termincentiveplan(LTIP)rewardsthe creationofshareholdervalueandprofitability. Total hareholder return (TSR) and EPS are used as LTIPKPIstoincentivisethecreationoflong-term value.Inordertosupportachievementofour 2025strategytoreducecarbonemissions, putting us on the path towards net zero carbon emissionsandassistinginthereductionofour customer’scarbonfootprint,wehaveincluded CO emissionintensity targets in our incentives 2 since2021.Wehaverecognisedthatthe reductionofCO emissions intensity is atarget 2 betterachievedoveralongertime-frameand have thereforemovedthereductionofCO 2 emissions for 2022 from our bonus to our LTIP and focused on the use of secondary raw material as a bonus target for 2022 where results can be more easilyrecognisedovertheshorterterm.Youcan read more about this on page 121. LTIP awards vest a extenttargetsaremet,withafurthertwo-year holdingperiodfortheExecutiveManagementTeam. | | RHI Magnesita’s performance during 2021 2021 was a difficult year for RHI Magnesita with business volatilitycontinuingasCOVID-19 restrictionscontinuedtoimpactproduction, and globalsupplychainpressuresimpacted operations.Costsincreased,mainlydue to high sea freight, which could not be fullypassedon to our customers,negativelyimpactingmargins. Nevertheless,we arefacingstrongdemandand goodshippingvolumes.Ourworkingcapitalhas alsoincreaseddue toincreasesinrawmaterial inventoriesaheadofanticipatedshortages as detailedonpage 35. As laid out in the Chairman’sStatementandtheChiefExecutive Officer’sReview,despite allthese difficulties, theGrouprecordedin2021 arobustrevenue of €2,551 million,whichmeansanincrease of 12.9% against the prior year; adjusted EBITA of €280 million, an increase of 8% compared to 2020; and a decreaseinoperatingfree cashflowof -€236millioncomparedto€290millionin 2020. It has been within this context that the CommitteehasconsideredtheAnnualBonus scheme, the 2021 outturnandthe2022targets, as well as reviewing 2019 LTIP performance and agreeing2022performance conditions. Incentive outcomes for the year As set out in the Annual Report on Remuneration, ourremunerationoutcomesfortheyearwere as follows: Annual BonusPlan The2021 annual bonus outcome results in a 24% annual bonus for the CEO and CFO. This is as a resultofgoodperformanceagainstthestrategic initiatives.AlthoughneitheroftheAdjustedEBITA orOperatingCashFlowmetricswereachieved, the Committee noted that a robust level of profit had beendeliveredagainstachallengingtarget range, particularlywhentakeninthecontextof themarketchallengesalreadynotedabove.The Committeealsoconsideredthatmanagement hadmanagedthe businesseffectivelyoverthe year,managingstrongvolumedemandwithrising costpressures,whileensuringstronglevelsof liquiditywithgoodprogressagainsttheimportant strategicelementsofthebonus.Inthe circumstances,theCommittee agreedthatthe levelofformulaicbonuswhichalignedtobonuses payabletoeligible membersoftheworkforcewas appropriate andtheexerciseofdiscretionwas not required.Furtherdetailsofourperformance against2021 bonus targets can be seen on page 113.Noadjustmentshave been made to the targetsdue to COVID-19. ] | | | The Companyhascontinueditspracticeofnot takinganystateissuedCOVID-19related support. LTIP An LTIP award was made in 2019, based onthree performance conditions. The performanceperiod of this award was the threefinancialyears2019, 2020 and 2021. More detailsareavailableon page 113.Noneoftheperformance targetshave beenmetandtheawardswillthereforelapse. The CommitteeiscomfortablethatthePolicy operatedasintendedduringthe year. LTIP awards granted in the year LTIP awards were made to the CEO and CFO on 15March2021 at normal grant levels of 200% of salary for the CEO and 150% of salary for the CFO.TheCommittee carefullyconsidered appropriate performance measures,taking into accounttheeconomicandbusinessoutlook. The measuresforthe2021 awards were of 50% adjustedEPS,25%absoluteTSRand 25% Use of secondaryrawmaterialtosupportmanagement’s focusondeliveringmaterialincreasesintheshare price (plusdividends) and sustained aggregate EPSovertheperformance period as well as our environmentalcommitments.Detailsofthe awardsandperformance conditionscanbe found on page 114. Implementation of the Remuneration Policy for 2022 The base salaries of the CEO and CFO were increasedby4.45%and4.44%respectively, with effect from 1 January2022.Both ofthese executivesare employedinAustria,and this compareswithanaverage of 4.45% for the majorityofAustrianbasedemployees. Annual bonusmaximumopportunity for 2022 isunchangedfrom2021 at150% ofsalary. The bonusmetricsandweightingswerereviewed for 2022.The bonuswillcontinue to be based on EBITAandoperatingcashflowrecognisingthat boththesemetricscontinuetoreflectour key financialpriorities.Inaddition,anelementofthe bonuswillonceagainbefocusedonachievement ofourstrategicpriorities,includinganESG measure,asdriversoffuture profitability and growth.Thetargetsandperformanceagainst them will be disclosedretrospectively in the 2022 RemunerationReport,providedthey are not consideredtobecommerciallysensitiveat thattime. | | | | | | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 9 7 #### Remuneration Committee reportcontinued | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | The quantum of the CEO and CFO’s LTIP awards for 2022remain unchanged with a face value of 200%and150%ofsalary,respectively.The awards will be made in March 2022 based on the shareprice atthattime.Executiveswillreceivethe award shares in 2027 (subject to a three-year vestingperiodandtwo-yearholdingperiod)if performancetargetsaremet.Theperformance targetsthatwilldeterminevestingoftheshare awards, will continue to be based on absolute TSR andAdjustedEPStargetsreflectingtheongoing focusofmanagementtodelivermaterial increasesintheshareprice(plusdividends)and sustainedEPSgrowth.For2022theCommittee hasincludedasitsthirdESGrelatedperformance measurethereductionofCO2 emissions intensity tosupportthelonger-termfocusofmanagement onachievingthe2025strategytoreducecarbon emissions.Theperformancetargetsaresetouton page121.TheCommitteeiscomfortable, taking into accounttheongoingeconomicandmarket uncertaintyaswellasthebusinessoutlookthat the targets are as challenging as those set for prior LTIP awards, whilst also acting as a retentiontool. The Committee has the ability to scale back the level of vesting if it considers the outcome to be reasonablyunacceptable,ortoavoidany “windfall gain” or if it is not reflective of the underlyingperformanceofthe Company. How our remuneration practices support our strategy Strategic Pillar | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Element ofreward Metrics | | Market Leadership | | Enhance Business Model | | Execute Cost Reductions | Bonus Profit Free Cash Flow Strategic initiatives | | | | | | --- | --- | --- | --- | | | LTIPs | | Earnings Per Share | Total Shareholder Return Economic Profit Use of Secondary Raw Materials Reduction of CO2 emissions | | ESG metrics The Committee was pleased to be a leader in the refractoryindustryinintroducingESGrelated measures as part of the rewardstructure for the Group in 2021 and in 2022 will continue to include ESG metrics in the structure ofincentives. Representativesofthe Committeeconsultedwith investorsduring2021 andshareholderswere supportiveofthelinkingofmanagement incentives to sustainabilitytargets. Thechosenmetricsarealignedwiththe Company’sstrategyandsustainabilitytargets, which aim to reduce CO2 emissionsintensityby 15% by 2025 and increase the useofsecondary rawmaterialto10%.Toachievefurtheremissions reductioninthe longerterm,the Groupis investing€50millionintothedevelopment of newtechnologiestocapture,store andutilise its CO2 emissions. TheCommitteeiscomfortable that the ESG targets in the LTIP and the annual bonus are bothmaterialandstretchingforthe business. In decidingonthetargets,ithasreceiveddata on the progress in these areas to date and the expecteddevelopmentinthecomingyearsto reachtheoverallstrategy.The Chairmanofthe Committeeisalsothe ChairmanoftheCorporate SustainabilityCommitteeandFionaPaulusis a memberofbothcommittees.The Committee is thereforewellpositionedtoassessprogress againstthesustainabilitystrategyanddevise appropriatelinkstomanagementincentives. Thetargetssetarequantifiable,basedon regularly reportedoperational andmanagement information andCO2 emissionsintensityinthe targetscopeareassuredbyanindependentthird party.Theuseofsecondaryrawmaterialsis includedasanannualbonustargetthisyear (havingbeenincludedinthe2021 LTIP) to focus performance since it is a key lever to deliver progressinreducingScope 1 CO2 emissions in theshortterm. Our conversation with our shareholders At the 2021 AGMtheCommittee proposed thenewRemunerationPolicywhichwas approved by a majority of 95.95% of votes from and as a result we are comfortablethat thePolicymeetsshareholderexpectations. TheCommitteebelievesthatthe remuneration policyhasoperatedasintendedduring2021. Theremunerationoutcomesfor2021 arealigned totheCompany’sstrategy,the complexstructure ofthebusinessandthelong-termshareholder interests. | | TheCommittee continuestoreflecton remunerationapproachforthe workforce and the executiveteam,particularlyasthe world transitionstoapost-COVID-19world.With all the macro-socialeconomicchangesaround us,the Directors feel it is appropriate to take the time, as we go into 2022, to consider the Company’s practicesandRemunerationPolicyafresh to ensure it remains fit for purpose. We willalso closelymonitorthe marketforbestpracticeand emergingtrends.Anychangeswouldofcourse be made withshareholdersandstakeholder experience inmind,andconsultationas appropriate.The Committee valuesshareholder feedback and finds it most useful to hear their opinions,guidance andtheirconcerns.We carefullyconsiderallinputwhenreviewingthe rewarddesignanddeterminingoutcomes. You canreadmore about this in the stakeholder engagementreportonpages107and108. AsoutlinedintheCorporateGovernance Statementonpage 70, we are reportingpartial compliancewithProvisions36,40and41 of the UKCorporateGovernance Codeon Remuneration.We explainourpartial compliance in the Corporate GovernanceStatement and will continue to keep our practices under review in respectoftheseprovisions. At the 2022AGM,shareholderswillbe asked to vote on the Directors’RemunerationReport. I hope that the Committeewillhaveyoursupport. AsCommittee Chairman,Icontinue to be available toengage withshareholderswishing todiscussremunerationmatters. Janet Ashdown ChairmanoftheRemunerationCommittee | 9 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | At a glance: Operation ofRemuneration Policy for the financial year ending 31 December2021 Policy element S Borgas (CEO) I Botha (CFO) Base salary from 1 January 2021 €1,052,000 €615,000 % Increase from prior year 2.5% 2.5% Retirement allowance Allowance of 15% of base salary Allowance of 15% of base salary Annual bonus Up to 150% of base salary Up to 150% of base salary Annual bonus metrics Adjusted EBITA (35%) and Operating Cash Flow (35%) measured on a constant currency basis and Strategic deliverables (30%) . The strategic element was equally weighted on; Increase global value market share, reduce conversion cost and reduce CO2 emission intensity. Amount paid for threshold performance 0% 0% Amount paid for target performance 75% of salary (50% of maximum annual bonus) Actual bonus result for 2021 performance Bonus paid €374,775 (24% of maximum) Bonus paid €219,094 (24% of maximum) Payment of bonus in shares 50% of annual bonus in excess of target a LTIP Award 200% of base salary 150% of base salary LTIP metrics 50% of the award: Adjusted EPS (cumulative for the three-year performance period) 25%of the award: Absolute TSR 25% of the award: Use of Secondary raw material Payment for threshold performance 25% | | | | | | --- | --- | --- | --- | | | Performance and post vesting holding periods | | Three years and two years respectively | Malus and clawback Malus applies to the period prior to vesting for LTIP awards and payment of the annual bonus 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 Dividends on vested awards Participants are eligible for dividend equivalents on performance shares awarded under the LTIP Shareholding requirement 200% of base salary to be met within five years | | | | | | --- | --- | --- | --- | | | Shareholding as % of salary at 2021 year-end | | 80% 53%1 | 1 Calculatedassumingatax rate of 50%. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 9 9 # Directors’ Remuneration Policy | | | | | | | | --- | --- | --- | --- | --- | --- | | ThisDirectors’RemunerationPolicywasapproved by over 95% of voting shareholders at the June 2021 AGM andbecameeffectivefrom1 January 2021.ThefullRemunerationPolicy as approved byshareholdersisavailableinthe2020Annual Reportonourwebsite. Policyoverview The aim of theCompany’sremunerationstrategy is to provide a level of fixed pay that, together with incentives,willattract,retainandmotivate high-calibre,high-performingexecutives, aligningthemtothelong-termperformanceof theCompanyanditslong-termshare performancewhilerewardingthemfor creating anddeliveringshareholdervalue. Thepolicy isalignedtoandsupportsourcultural values which are set out below: • Innovative • Open • Pragmatic • Performing ThemissionoftheCompanyis“Takinginnovation to1200°Candbeyond”.Achievingourmission requireshigh-performingsenior management and the Policy is designed to motivate them to perform to a high standard and reach the stretchinggoalsset.Inaddition,theremuneration arrangementsfortheExecutiveDirectors contributetolong-termvaluecreationby: • providingafairandappropriateleveloffixed remunerationthatdoesnotresultin overrelianceonvariablepayandundue risk-taking,therebyencouragingthe executivestofocusonsustainedlong-term valuecreation. • providingabalanceofshort- and long-term incentives to ensure there is focus on short-termobjectivesthatwillovertimebuild to createlong-termvaluecreationaswellas long-termgoals. | | • requiringperformance measuresinour long-termincentive to be measuredoverthe longer term and for shares to be held post-vestingforafurthertwo-yearperiod;and • incorporatingmetricsfocusedonlong-term shareholder value,suchastotalshareholder return and reduction of both our and our customers’carbonemissionsthroughthe increaseduseofsecondaryrawmaterial. Whenimplementingthe RemunerationPolicy, theRemunerationCommittee consideredthe six factors listed under Provision 40 of the UK CorporateGovernance Code: • Clarity: The Policy and the way it is implementedisclearlydisclosedinthispolicy sectionoftheRemunerationReportandthe AnnualStatementandsupportingreports, withfulltransparencyofallelementsof Directors’ remuneration. • Simplicity:The Policyissimple and straightforward,basedonamixoffixedand variablepay. The annual bonus and LTIP includeperformance conditionswhichare alignedwithkeystrategicobjectivesand driversofthe RHIMagnesitabusiness. • Risk:TheCommittee believesthatthe performancetargetsinplacefortheincentive schemes provide appropriate rewardsfor stretchinglevelsofperformance without drivingbehaviourwhichisinconsistentwith theCompany’sriskprofile.Potentialrewardis alignedwithmarketlevelsofpeercompanies andthereputationalriskfromaperceptionof “excessive”pay-outsislimitedbythe maximum award levels set out in the Policy andtheCommittee’sdiscretiontoadjust formulaicremunerationoutcomes.Toavoid conflictsofinterest,Committee membersare requiredtodisclose anyconflictsorpotential conflictsaheadofCommitteemeetings. No ExecutiveDirectororothermember of managementispresentwhentheirown remunerationisunderdiscussion. | | | • Proportionality:The linkbetweenthedelivery ofstrategy,long-termperformance, shareholderreturnandthe remuneration oftheExecutive Directors is set out in the RemunerationReport. Alignmenttoculture:Asexplainedaboveand in therestofthisreport,theapproachtoDirectors’ remunerationisconsistentwiththeGroup’s culture andvalues. Whendeterminingthe implementationofthe remunerationpolicy,theCommittee alsoreviews andconsidersthosemattersreferredtoaspectsin section3.1.2ofthe DutchCorporateGovernance Codewhichcomprise:long-termvaluecreation, scenarioanalyses,ratiooffixedtovariable remunerationcomponents,marketpriceof shares,termsandconditionsgoverningshareand share optionawards. Whenreviewingthe RemunerationPolicy,the Committeewillfollowthe processsetoutbelow: • The Committeewillconsidermarketand governance developments(including the UK CorporateGovernance CodeandDutch CorporateGovernance Code) as well aswider pay context, such as pay ratios and Group rewardarrangements • The Committeewillconsiderthe guidelinesof shareholderrepresentative bodies,proxy agenciesandinvestorexpectations. • The Committeewillconsultwithshareholders andemployeesaheadofanyfuture AGMswhere theremunerationpolicy is put to a vote. • Allchanges,adoptionorrevisionstothe existingpolicywillbebroughttoshareholders forapproval. | | • requiringexecutivestoacquireand retain sharesintheCompany. • offeringlong-termincentives wherethe rewardisdeliveredinshareswhichaligns executivestoshareholderinterestsandvalue as well as the performance of the Company overthelongerterm. | | • Predictability:ThePolicyincludesfulldetails oftheindividuallimitsinplace for the incentiveschemesaswellas“scenariocharts” whichsetoutpotentialpay-outsinthe event ofdifferentlevelsofperformance,basedona number of reasonable assumptions.Any discretionexercisedbytheCommittee in implementingthe Policy will be fully disclosed. | | | | 1 0 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Policy table for Executive Directors Element and purpose How it operates Maximum opportunity Performance-related framework and recovery | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Base salary To assist in the recruitment and retention of appropriate talent. To provide a fair fixed level of pay commensurate for the role ensuring no overreliance on variable pay. | | Salaries are paid monthly and reviewed annually. 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 • The geographic location of the Executive Director | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Retirement allowance To provide competitive retirement benefits for recruitment and retention purposes. | | 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. | | Pension is capped at the rate applicable to the majority of employees in the country of appointment for the Executive Director (currently Austria where it is 15% of salary). | | None | | 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. | | Benefits currently provided include: private health insurance, life insurance, car/car allowance and fuel allowance. 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. | | There is no maximum level of benefits provided to an Executive Director. | | None | R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 0 1 #### Directors’ Remuneration Policycontinued Policy table for Executive Directors continued Element and purpose How it operates Maximum opportunity Performance-related framework and recovery | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 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. | | 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 (a period of three years. | | Up to 150% of base salary. Target potential opportunity is 50% of maximum opportunity. | | 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 bedisclosedthentheywillbedisclosedinthefollowingyear. 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. 1 0 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Policy table for Executive Directors continued Element and purpose How it operates Maximum opportunity Performance-related framework and recovery | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | 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 a 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 fi 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. | | 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 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. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 0 3 #### Directors’ Remuneration Policycontinued ThetablebelowsetsouttheRemunerationPolicyfortheNon-Executive Directors(includingthe 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. | | There is no prescribed maximum annual fee or fee increase. 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. | | None. | Fees are reviewed periodically. Performance criteria TheCommitteeassessesannually,atthebeginningoftherelevantperformanceperiod,whichperformancemeasures,orcombinationandweightingof performancemeasures,aremostappropriateforbothannualbonusandanyLTIPawardedtoreflectthe Company’sstrategicinitiativesforthe performance period.TheCommitteehasthediscretiontochangetheperformancemeasuresforawardsgrantedinfutureyearsbaseduponthe strategicplansofthe Company, as it will do for 2022’s award. The Committee sets what it considers are demanding targets for variable pay in the context of the Company’s tradingenvironmentandstrategicobjectivesandconsideringtheCompany’sinternalfinancialplanning,andmarketforecasts.Anynon-financialgoals willbewelldefined,andtheperformanceagainstthegoalswillbeindependentlyassured. The short term financial and non-financial criteria of our variable remuneration may, as noted above, vary from year to year to ensure alignmentwith the strategic plans of the Company. Set out below is a summary of the measures for 2022 and other measures that have been used since 2018 and may be incorporatedagain(inadditiontoothermeasures)forfutureincentives: Annual bonus Financialcriteria • AdjustedEBITandEBITAareareflectionoftheCompany’soperatingprofits,operatingperformanceandbusinessefficiencysupportingthe value of RHI Magnesitafortheshareholders.Theyreflectthewayinwhichmanagementassessesthe underlyingperformanceofthebusiness,excludingcertain non-recurringitemsfromtheadjustedfigures. • OperatingcashflowsupportstheCompany’scapacitytoexpanditsoperationsorinvestmentinadditionalassets/acquisitions,aswellasdividendspaid to shareholders.ItiscalculatedbytakingadjustedEBITDApluschangesinworkingcapitalandinotherassets/liabilitiesminuscapexspend. Non-financial criteria • StrategicdeliverablessupportingfinancialtargetssuchasadjustedEBITorEBITAandoperatingcashflowwithinitiativesandstrategicprojects, suchasenhancingthecurrentbusinessmodelorCompany’sfootprintandglobalvaluemarketshareandESGmeasuressuchasCO2 emissionsintensity reduction,useofsecondaryrawmaterialsandreducingconversioncosts. LTIP Financialcriteria • TSR–combinationofmovementsinsharepriceanddividendsearnedonsharesreflectingthetotalreturnearnedbyholdingtheCompany’sshares. • AdjustedEPS– reflectstheincomestatementina clear way and takes the equitystructureintoaccountandtheBoardbelievesAdjustedEPSto be one oftheindicatorswhichdemonstratesthevaluecreatedforitsshareholders. • EconomicProfitGrowth–measuresvaluecreation,consideringalleconomicresourcesemployedwithinthe business,takingintoaccountthecosts of makingandsellingaproduct/service. 1 0 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Bonus & LTIP Non-financial criteria • Useofsecondaryrawmaterials–measurestherateatwhichsecondaryrawmaterialisusedinourproductionnetworkcomparedtovirginrawmaterials. Despitethisnotbeingawhollyfinancialtarget,thiswillnonethelessbe independentlyverifiedbyanexternalprovider. • Reduction of CO2 emissions intensity– to reduce the tonnes of CO2 emittedpertonne of production by 15% by 2025 compared to 2018 baseline, includingScope1 emissions,Scope2emissionsandScope3emissionsfromrawmaterials. ThecriterialistedabovedirectlylinktotheCompany’sstrategy,long-terminterestsandsustainability.Performancetargetsaresetatalevelto maintain goodfinancialhealth.ThisenablestheCompanytoperformwell,delivershareholderreturnsandinvestsustainablytoachievestrategicdeliverables. The assessment of the fulfilment of performance criteria for the annual bonus and for LTIP awards is set out on pages 113 and 114.. Discretions retained by the Committee TheCommitteeoperatestheGroup’svariablepayplansaccordingtotheirrespective rules.Inadministeringthese plans,the Committeemay apply certain operationaldiscretions. Theseincludethefollowing: • determiningtheextentofvestingbasedontheassessmentofperformance;. • determiningthestatusofleaversand,whererelevant,theextentofvesting. • determining the extent of vesting of LTIP awards under share based plans in the event of a change of control. • makingappropriateadjustmentsrequiredincertaincircumstances(e.g.rightsissues,corporaterestructuringevents,variationofcapitaland special dividends);and • adjustingexistingtargetsifeventsoccurthatcausetheCommittee todetermine that the targets set are nolongerappropriateandthatamendment isrequiredsotherelevantawardcanachieveitsoriginalintendedpurpose,providedthatthenewtargetsarenotmateriallylessdifficultto satisfy. TheCommitteealsoretainsdiscretiontomakenon-significantchangestothePolicywithoutrevertingtoshareholders(forexample,forregulatory, tax,legislativeoradministrativepurposes). Malus and clawback The Committee may, at any time within three years from the date of LTIP awards vesting or payments under the annualbonusplan,determinethatmalus orclawbackprovisionsmayapply.MalusenablestheCommittee toreduce bonusorshareawards(includingtonil)beforetheyvest.Clawbackenablesthe Committeetoreclaimsharesacquiredfromshareawardsand/orbonusespaidincludingthe cashvalue ofsharesanddividends.The Committeecanalso operateclawbackthroughthereductionincludingtonilofotherawardsheldbythe individualbefore they vest or bonus before itispaid.Theprovisions applyinthefollowingcircumstances:(i)materialmisstatementoftheCompany’sfinancialresults;(ii)anerrorincalculatingthe levelofgrant or levelof vestingorpayment;(iii)a failureofriskmanagementincludingtheliquidationoftheGroup(iv)ifthe participanthasbeenguiltyoffraudorgrossmisconduct ortheCompanyhasbeenbroughtintodisrepute.Theclawback/malusprovisionsassetoutabovedonotlimitArticle 2:135 of the DutchCivilCode. Executive Directors’ service contracts and payments for loss of office Servicecontractsandlettersofappointmentareavailableforinspectionatthe Company’sregisteredoffice. 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 servicecontractsforthe ExecutiveDirectors areterminablebyeithertheCompanyortheExecutiveDirectoron12months’notice. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 0 5 #### Directors’ Remuneration Policycontinued Service contracts and loss of office Name Position Date of aqppointment Notice period Stefan Borgas CEO 20 June 2017 12 months Ian Botha CFO 1 April 2019 12 months TheCommittee’spolicyinrelationtoterminationofservicecontracts is to deal with each case on its merits having regard to the circumstances of the individual,theterminationofemployment,anylegaladvicereceived and what is in the best interests of the Companyanditsshareholders.AnExecutive Director’sservicecontractmaybeterminatedearly(otherthanforcause)bypaymentinlieuofsalaryinequalmonthlyinstalmentsoverthe noticeperiod. TheCompanymayincludepensioncontributionsandbenefitswithinthe paymentinlieuofnoticeifthisisdeemedappropriateorisspecificallyprovided for in the service contract. Unless a contractspecificallyprovidesotherwise,allpaymentswoulddiscontinueorreducetothe extentthatalternative employmentisobtained.Therearenoenhancedprovisionsona change of control and there are nospecificseverance arrangements.Whilstnotpartof the formal policy, in the event of a change of control, LTIP awards will vest based on performance to the change ofcontrol.Inaddition,awardswillnormally be scaled back pro rata to the proportion of the performance or vesting period served, with the RemunerationCommitteehavingthe discretiontoreduce thescalebackinexceptionalcircumstancesifitdeemsittobeappropriate. AnExecutiveDirector’sservicecontractmaybeterminatedwithoutnotice forcertaineventssuchasgrossmisconductinwhichcasenopayments orcompensationbeyondsumsaccruedtothedateofterminationwillbepaid. TheCompanymayalsopayoutplacementcosts,legalcostsandotherreasonable relevantcostsassociatedwithterminationandmaysettle anyclaim orpotentialclaimrelatingtothetermination. Treatment of variable pay awards on termination AnnualbonusesandLTIPawardsarenon-contractualandaredealtwithinaccordance withthe rules of the relevantplans. AtthediscretionoftheCommittee, incertaincircumstances,forexample,toincentivise short-termretentionandcompletionofkeybusinessdeliverables, and where poor performance is not relevant to the cessation, a pro-ratabonusmaybecome payableatthenormalpaymentdate for the periodof employmentwithfinancialperformancetargetsbasedonfull-yearperformance.Where theCommittee decidestomakeapayment,therationale willbefullydisclosedintheAnnualReportonRemuneration. Thedefaulttreatmentforshare-basedawardsisthatanyunvestedawardwilllapseonterminationofemploymentor,incertaincircumstancesonthe executivegivingnotice.However,undertherulesoftheLTIPunderwhichawardswillbemade,incertainprescribedcircumstances,suchasdeath,injury, ill-health,retirementwiththeCompany’sagreement,redundancy,leavingtheGroupbecause theemployercompanyorbusinessleavesthe Group or wheretheCommitteedeterminesotherwise,awardsareeligibletovestsubjecttothe performanceconditionsbeingmetoverthenormalperformance period(orashorterperiodwheretheparticipanthasdied)andwiththeawardbeingreduced(unlesstheCommittee considers,inexceptional circumstances,adifferenttreatmentisappropriate)byanamounttoreflecttheproportionoftheperformance periodnotactuallyserved. 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 salarymaybe setbelowthenormal marketrate, withphasedincreasesastheDirectordemonstratesperformance withintheCompany.Annualbonusopportunitywillreflecttheperiod of service for the year. The normal annual LTIP award limit is 200% of salary face value in a financialyear(face value beingthe 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 inexceptionalcircumstancesfortheCompanytobe able toattractand secure the right candidate if required. A LTIP award may be made shortly a Withinternalappointments,anyvariablepayelementawardedinrespectofthe candidate’spriorrole willnormallybe allowedtocontinue according to its terms. ThePolicy enablestheCommitteetoincludethosebenefitsitdeemsappropriateforanExecutiveDirector.Onrecruitment,thismayincludebenefits suchasrelocation,housingor schoolingexpenses.Inarrivingata benefitspackage,theCommittee’sprevailingconsiderationwillbe to pay only what is considerednecessaryandappropriate,takingintoaccounttheimportance of securing the right candidate for the job, acting in the best interests of the Company’sstakeholdersandlimitingcertain benefits to aspecified periodwhere possible. Onrecruitment,theCompanymaycompensateforincentivepay(orbenefitarrangements)foregonefromapreviousemployer.Replacementshareawards would be made under the Company’s LTIP and any subsequently adopted share plansusingthe separatespecificlimitforthesepurposesof250% ofsalary (face value) or as necessary and as permitted under the Listing Rules. The new awards would take account of the structure ofawardsbeingforfeited(cash or shares),quantumforegone,theextenttowhichperformanceconditionsapply,thelikelihoodofmeetinganyexistingperformance conditionsandthetime le 1 0 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Policy for Executive Directors on external appointments SubjecttoBoardapproval,ExecutiveDirectorsmayacceptexternalnon-executivepositionsandretainthe feespayableforsuchappointments. Non-Executive Directors Lettersof appointment and policy on recruitment AllNon-ExecutiveDirectorshavelettersofappointmentforafixedperiodofthreeyears,subjecttoreappointmenteachyearattheAGM.Noadditional compensationispayableontermination,withfeesbeingpayable to the date oftermination.Theappointmentsare terminablebyeitherpartyonthree months’writtennotice. OnappointmentofanewNon-ExecutiveDirector,thefeearrangementwillbe setinaccordancewiththeapprovedRemunerationPolicyinforceatthat time. Name Position Date of initial appointment Expiry date of current term Herbert Cordt Non-Independent Non-Executive Director, Chairman 20 June 2017 AGM 2024 David Schlaff Non-Independent Non-Executive Director 6 October 2017 AGM 2024 | | | | | | --- | --- | --- | --- | | | Stanislaus Prinz zu Sayn-Wittgenstein- Berleburg | | Non-Independent Non-Executive Director 6 October 2017 AGM 2024 | John Ramsay Independent Non-Executive Director 6 October 2017 AGM 2024 Janet Ashdown Independent Non-Executive Director 6 June 2019 AGM 2022 Sigalia Heifetz Independent Non-Executive Director 10 June 2021 AGM 2024 Marie-Hélène Ametsreiter Independent Non-Executive Director 10 June 2021 AGM 2024 Jann Brown Independent Non-Executive Director 10 June 2021 AGM 2024 Wolfgang Ruttenstorfer Independent Non-Executive Director 20 June 2017 AGM 2024 Karl Sevelda Independent Non-Executive Director 6 October 2017 AGM 2024 Fiona Paulus Independent Non-Executive Director 6 June 2019 AGM 2022 Michael Schwarz Employee Representative Director 8 December 2017 9 December 20251 Karin Garcia Employee Representative Director 9 December 2021 9 December 20251 Martin Kowatsch Employee Representative Director 14 December 2021 14 December 20251 1 MichaelSchwarz,KarinGarciaandMartinKowatsch are the Employee RepresentativeDirectors andhavebeenselectedinaccordancewiththeapplicablelocallawprovisions bytheemployee representatives.Theyare appointedforaterm of not more thanfouryears. How the views of shareholders and employees are taken into account Owing to the Board members’ widerangeof experienceand backgrounds,andwithEmployee Representativesmembersandshareholdersrepresented in person,thereisampleopportunityforstakeholderfeedbackonthePolicyanditsimplementationonanongoingbasis. TheCommitteeformallyconsultsdirectlywithemployeesonexecutive pay via the Employee Representative Directorsappointedtothe Board. Other engagementactivitiesincludeemployeesurveys,CEOcalls,regulartownhallmeetingsandanactiveCEOChannel,aspartofthe MyRHIMagnesitaapp, whereemployeescanaskquestionsonanyissuesincludingexecutivepay.TheCommittee receivesperiodicupdatesfromtheCEOandtheExecutiveVP People,ProjectsandValueChainwhichincludeemployeefeedbackreceivedonremunerationpracticesacrosstheGroup.Nosubstantive questionshave beenraisedonexecutiveremuneration.TheCommitteetakesdue accountoftheoverallapproachtoremunerationandthe remunerationstructuresfor employeesintheGroupwhensettingpayfortheExecutiveDirectors. TherearerepresentativesoftwooftheCompany’smajorshareholdersontheBoardandthusregularconsultationonallelementsofremunerationisongoing. TheCommitteeChairmanmeetsdirectlywithrepresentativesofvariousinstitutionalshareholdersonremunerationandappreciatestheopportunityto understandtheirquestions,seektounderstandtheirexpectationsandthenprovidethoseviewstotheCommitteeandtothewiderBoardasrequired.In November2021,theCommitteeChairmanparticipatedinaninvestorroadshowwiththeSeniorIndependentDirectorandtheDeputyChairmanwhere remuneration,andparticularlythelinkswiththesustainabilityagenda,werediscussedwithfiveinstitutionalshareholders.TheCommittee,andthewiderBoard, foundthesessionsveryusefultoheardirectfeedbackfrominvestorsandunderstandtheirexpectationsforthefutureintermsofdrivingmanagement performancethroughincentives. TheCommitteeChairmanseeksfeedbackfromshareholdersonanysubstantiveremunerationmattersandanyconsultationexercise wouldtypically cover over70%ofshareholders.Thisfeedback,bestpracticeinthemarket,andanyviewsalsoreceivedfromtime to time, as well as guidance fromshareholder R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 0 7 #### Directors’ Remuneration Policycontinued representativebodiesmoregenerally,willbeconsideredaspartoftheCompany’sannualreviewofRemunerationPolicyandimplementationofthatpolicy. TheCommitteehasengagedwithshareholdersregardingthechangedPolicyandinvestorsapprovedatinthe lastAGM. How the views of shareholders and employees are taken into account continued 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 asection dedicatedtoinvestors,whichincludescertainremunerationinformation,suchasourLTIPrules,ourinvestorcalendar,financialresults,presentations,press releases,withnewsrelatingtoRHIMagnesitafinancialandoperationalperformanceandcontactdetails. Remunerationmarketdataforcompaniesofa comparablesizeandcomplexitytothe Companywasconsideredaspartofthe Committee’sformulation 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 amountandstructure oftheirremunerationandthe provisions of3.1.2oftheDutchCorporateGovernanceCode(mattersthatshouldbe takenintoconsiderationwhenformulatingthe RemunerationPolicy)havebeen brought totheirattention. You can read more on our stakeholder engagement on page 50. How the Executive Directors’ Remuneration Policy relates to the wider Group ThePolicy describedaboveappliesspecificallytotheCompany’sExecutive andNon-ExecutiveDirectors.The Committeeisaware ofandprovides feedbackonthewiderGroupremunerationstructures.TheCompany’spolicyisforthePolicyandstructure to be cascadedasfaraspracticable to the senior management team and for the overriding principles to be taken into account for the Group-wide policy. BasesalariesforthewholeGroupareoperatedunderbroadlythesame policy as for the ExecutiveDirectorsandare reviewedannually. The key difference between the Policy and the wider Group’s policy is that the ExecutiveDirectors’packages(andthe seniormanagementteamtoa lesser extent)are weighted more to variable pay. From 2019 on, the bonus targets are the same forExecutive Directorsandforalleligible white-collaremployees. Allouremployeestakepartinannualdiscretionarybonusschemes,whichisbasedonthe same metricsasthoseapplicabletothe ExecutiveDirectors asshowninAnnualReportonRemuneration.Ourapproachistoincentivise ouremployeestofocusonandcontribute totheCompany’skeygoals. LTIPawardsareawardedtothoseemployeesidentifiedashavingthegreatestpotentialtoinfluencestrategicoutcomes.Giventhe costofoperating such a plan, the Committee considers this is the right approach and in the bestinterestsoftheCompanyanditsshareholders. Acomparisonoftheremunerationstructurebetweenthewiderworkforce and the Board is illustrated in the table below. Competitive pay and cascade of incentives | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Organisational level | | 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 | Executive Directors 2 150% 75%1 25%1 150-200% Executive Management Team 5 80-140% 85%2 15%2 80-150% Senior Leaders c30 40% 100% 0% 20-50% Functional Directors c90 30% 100% 0% 0% Senior Managers c150 25% 100% 0% 0% Managers c450 20% 100% 0% 0% Specialists c1,600 10% 100% 0% 0% Professionals c1,900 5% 100% 0% 0% Other bonused employees c8,100 Various3 100% 0% 0% 1 Halfofannualbonusinexcessoftarget, a 2 EMTmembersarerequiredtoacquire sharesinthe Company with 30% of the amountabovetarget(a 3 Various localbonusprogrammesare inplace forthe operational, administrative andblue-collaremployees oftheCompany. 1 0 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Summary of remuneration structure for employees below the Board Element Policy features for the wider workforce Comparison with Executive Director remuneration | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Salary | | Read more on page 101 | | 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 Read more on page 101 | | | | 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. Our incumbent Executive Directors’ pension allowance (and that for new appointments) is aligned to that of the workforce in their country of appointment. | | | | | Annual bonus and LTIP Read more on pages 102 and 103 | | | | 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. | | Annual bonus for Executive Directors is directly related to the same performance measures and outcomes as the wider workforce. LTIP are provided to our senior executives and senior roles who have influence on the overall performance of the Company. | | | Pay ratios TheDutchCorporateGovernanceCoderecommendedfromthefinancialyear2018,andthe UKDirectors’ReportingRegulationsrequiredfrom2019, thattheCommitteereportpayratiosincludingchangesfromthe prioryearaspartofitsdeterminationofexecutive payandwiderexecutiveremuneration decisions.ThetotalemployeeremunerationfigureusedfortheratiobelowisforallemployeesinallGroupcompaniesandincludescountrieswith 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 thresholdforUKpayratioreportingrequirements.AsUKemployeesrepresentlessthan1%ofRHIMagnesita’semployees,the Committeeconsidersthat theaboveapproachisappropriateinthecircumstances. 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. AsignificantproportionoftheExecutiveDirectors’remunerationisdeliveredthroughincentives,annualbonusandLTIP,whereawardsarelinked to Companyperformanceandsharepricemovementoverthelongerterm.Thismeansthatthe pay ratio will depend on the incentive outcome. No LTIP vested duringthelasttwoyears. Thetablebelowshows the pay ratio in respect of each year from 2018 to 2021: Pay ratio 2021 20201 2019 2018 CEO 21.1 41:1 34:1 49:1 CFO 13.1 25:1 16:12 N/A 1 Payratioislowerdue tonot achievingtarget bonusKPIs. 2 The payratiorosedue tothe increase inbase salary forthe CEOandCFOin2020. 3 CFOpayratioislowerasIanBothajoinedthe Company on1 April 2019; with thefullsalaryandbonus,theratiowouldbe21:1. The proportion of fixed and variable remuneration To supportthePolicy’sobjectivestodeliverlong-termsustainable successoftheCompany,the remunerationpackage ofourExecutive Directorsincludes a mix of fixed and variable remuneration. The proportion for 2022 is approximately 40% for fixed pay and 60% variable remuneration on a target basis (calculatedonthesamebasisasthetargetscenarioshownbelow).Variable pay is split between the annual bonus, with 50% of payment over targetbeing heldinshares,andlong-term incentive. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 0 9 #### Directors’ Remuneration Policycontinued Remuneration scenarios for Executive Directors ThePolicy providesthatasignificantproportionofremunerationisdeterminedbyGroupperformance.The graphbelowillustrateshowthetotalpay opportunitiesvaryunderthreedifferentperformancescenarios:minimum,targetandmaximum.Wehavealsoshownanassumedsharepriceappreciation of50%fortheLTIPawardduringtheperformanceperiodunderthemaximumpaymentscenario. Assumptions Minimum:Fixedpayonly(base salary,pensionandbenefits,excludingrelocationbenefits). Target: Fixed pay plus 50% of 2022 maximum annual bonus opportunity for the CEO and CFO with 50% vesting of the 2022 LTIP award. Maximum:Fixedpayplusmaximumannualbonusopportunityand100%vestingof2022LTIPawardwithanassumedsharepriceappreciationof50% fortheLTIPawardduringtheperformanceperiod. AsrequiredundertheDutchCorporateGovernanceCode, scenario analysis was carried out as part of the formulation of the Policy and to establish thatthe policyresultsinappropriateandfairlevelsofremuneration,includingthatthe level and ratio of fixed to variable paydoesnotencourage inappropriate risk-takingoroverrelianceonvariablepaywhileensuringthereissufficientalignmenttoinvestors,thelong-termperformanceoftheCompanyand development of the market value of the shares of the Company. | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | CEO Values in € | | | | CFO Values in€ | | | | | | | Maximum 20% 27% 35% 18% 6,223,403 | | | Maximum 24% 30% 30% 15% | | | | | | 3,159,763 | | Target 40% 26% 34% 3,201,703 Target 44% 28% 28% 1,714,363 | | | | | | | | | | | Minimum 100% 1,278,803 Minimum 100% 750,763 | | | | | | | | | | Fixed pay Annual bonus LTIP 50% share price growth on LTIP 1 1 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | #### Annual Report on Remuneration Annual ReportonRemuneration ThefollowingsectionprovidesdetailsofhowtheCompany’sDirectorswerepaidduringthefinancialyearto31 December2021. AsaDutchincorporatedandregisteredandUKlistedcompanyRHIMagnesitaisrequiredtocomplywithbothUKandDutchreportingrequirements, includingtheUK andDutchCorporateGovernanceCodes. TheCommitteetogetherwiththeBoardhasdeterminedtoprovide certainvoluntarydisclosuresrecognisingthe importance oftransparency ofreporting andinvestorexpectationasa UKlistedcompanytocomplywiththeUKDirectors’RemunerationReportingRegulations.ThisAnnualReportiscompiled onthisbasis. TheRemunerationCommitteemembers,activitiesandmeetingsduringtheyearare set out on page 96,alongwiththeCommittee’spurpose, rolesandresponsibilitiesandistherebyincludedinthispartofthe reportbyreference. Advisers KornFerry(“KF”)signatoriestotheUKRemunerationConsultantsGroup’sCode ofConduct(“Code of Conduct”) and was appointed by the Committeein 2017havingsubmitteda proposalwhichdemonstratedtheirskillsandexperienceinexecutive remuneration.KFprovidesadvicetothe Committee onmattersrelatingtoUKgovernanceincludingconsultingon theremunerationreportandanalysingmarkettrends. TheCommitteewassatisfiedthattheadviceprovidedbyKornFerrywasobjectiveandindependenthavingnotedtheircommitmenttothe Codeof Conduct. Korn Ferry’s fees for advice to the Committee in 2021 were £52,215.KornFerry’sfeeswerechargedonthe basis of the time spentadvisingthe Committee.KornFerryprovidedotherhumancapitalrelatedservicesduringthe year to a separate part of the business,buttheseserviceswerecarried out by a team wholly separate to the remuneration advisory team. The Committeeiscomfortablethatthe controlsinplace 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 10 June 2021, 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 36,339,606 95.83 1,582,904 4.17 39,070,758 81.53% 1,148,248 | | | | | | --- | --- | --- | --- | | | Adopt the Directors’ Remuneration Policy which takes effect from 1 January 2021 | | 37,487,854 95.95 1,582,904 4.05 39,070,758 81.53% 0 | 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 47,924,771. 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. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 1 1 #### Annual Report on Remunerationcontinued Single total figure table (audited) Thefollowingtableshowsasingletotalfigureofremunerationinrespectofqualifyingservicesforthe2021 financialyearforeachExecutive and Non-ExecutiveDirectoroftheCompany,togetherwithcomparativefiguresfor2020. | | | | | | --- | --- | --- | --- | | | Salary Taxable benefits2 Pension3 Bonus LTIP Total remuneration Total fixed remuneration | | Total variable remuneration | Director1 2021 2020 2021 2020 2021 2020 2021 202032021 2020 2021 2020 2021 2020 2021 2020 Executive Directors Stefan Borgas €1,052,000 €969,000 €183 €8,823 €157,800 €145,539 €374,775 €769,500 0 – €1,584,758 €1,892,862 €1,209,983 €1,123,362 €374,775 €769,500 Ian Botha €615,000 €566,667 €12,003 €21,277 €92,250 €85,110 €219,094 €450,000 0 – €938,347 €1,123,054 €719,253 €673,054 €219,094 €450,000 Non-Executive Directors Herbert Cordt £241,000 £227,167 – – – – – – – £241,000 £227,167 £241,000 £227,167 – – John Ramsay £122,900 £93,163 – – – – – – – £122,900 £93,163 £122,900 £93,163 – – Janet Ashdown £104,522 £87,163 – – – – – – – £104,522 £87,163 £104,522 £87,163 – – David Schlaff £71,100 £67,087 – – – – – – – £71,100 £67,087 £71,100 £67,087 – – Stanislaus Prinz zu Sayn Wittgenstein- Berleburg £71,100 £67,087 – – – – – – £71,100 £67,087 £71,100 £67,087 – – Fiona Paulus £84,728 £79,943 – – – – – – – £84,728 £79,943 £84,728 £79,943 – – Jann Brown £52,566 – – – – – – – – – £52,566 – £52,566 – – – Karl Sevelda £82,314 £74,820 – – – – – – £82,314 £74,820 £82,314 £74,820 – – Marie-Héléne Ametsreiter £48,017 £48,017 £48,017 Sigalia Heifetz £48,017 £48,017 £48,017 Wolfgang Ruttenstorfer £79,300 £74,820 – – – – – – – £79,300 £74,820 £79,300 £74,820 – – Celia Baxter4 £42,234 £90,287 – – – – – – – £42,234 £90,287 £42,234 £90,287 – – Andrew Hosty4 £36,182 £77,333 – – – – – – £36,182 £77,333 £36,182 £77,333 – – Michael Schwarz5 – – – – – – – – – – – – – – – Karin Garcia5 – – – – – – – – – – – – – – – Martin Kowatsch5 – – – – – – – – – – – – – – – 1 Allamountsaredisclosedinthe currenciesinwhich the relevant elementsof pay are set.Actualpaymentmaybemadeinthecurrencywheretherecipientresides using theexchangerateatthetime ofpayment. 2 Benefitsin2021 forStefanBorgasof €183 (garage andinsurance) forthe year; Stefanexchangedhis cartoanelectriccarduring 2021.UnderAustriantaxlaw,electric cars arenottaxableemployee benefitswhichresultsinasignificant reductioninCEOtaxable benefitsfor2021. The benefits forIanBotha includeda carbenefitof€11,694and€309garageandinsurancebenefits. 3 Pensionfiguresrepresentthe15%of salary cash allowance receivedby Executive Directors. 4 Andrew HostyandCeliaBaxtersteppeddownfrom theirBoardroleson10June 2021 thereforetheirfees wereproratedaccordingly. 5 Employee Representative Directorsdo not receive additional remunerationforthisroleas theyareremuneratedas employees oftheGroup. Noloans,advancesorguaranteeshavebeenprovidedtoanyDirector.NoLong-termincentivesvestedduringthe year and so there was no impact of share priceappreciation. 1 1 2 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | 2021 annual bonus performance against targets (audited) Thetargetssetfortheannualbonusandperformanceagainst themare set out below. For 2021, the Committeereintroducedastrategicelementto the bonusonceagaintoprovidedriversforprofitabilityalignedwiththe Company’srefreshedstrategyandCO2 emissionsintensityreductiontargets. The financialtargetsfocusedondrivingearningsandcashflow,therebypreservingthe Group’sbalance sheetstrengthandfinancialliquidity.TheCommittee iscomfortablethatthisbonuspaymentrepresentsa fairlevelofrewardfortheperformance achievedbythe ExecutiveDirectorsandthe business. There is a payment of 24% of maximum annual bonus for the CEO and CFO as a result of good performance against the strategic initiatives, including growingmarketshare.AlthoughneitheroftheAdjustedEBITAorOperatingCashFlowmetricswere achieved,theCommittee noted that a robust level ofprofithadbeendeliveredagainstachallengingtargetrange,particularlywhentakeninthe contextofthemarketchallengesalreadynoted above. The Committeealsoconsideredthatmanagementhadmanagedthe businesseffectivelyoverthe year,managingstrongvolumedemandwithrisingcost pressures,whileensuringstronglevelsofliquiditywithgoodprogressagainsttheimportantstrategicelementsofthebonus.Inthecircumstances,the Committeeagreedthatthelevelofformulaicbonuswhichalignedtobonusespayabletoeligible membersoftheworkforcewasappropriate. Pay-out (€)3 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Measure Weighting | | Threshold (0% of maximum) | | Target (50% of maximum) | | Max (100% of Actual Pay-out Pay-out maximum) performance (% of max) 2 (% of salary) CEO CFO | Adjusted EBITA (€m) 35% 291 322 354 280 0% 0% €0 €0 Operating Cash Flow (€m) ¹ 35% 157 189 212 -236 0% 0% €0 €0 Increase global value market share 10% 14,0% 14,4% 14,7% 14.3% 37% 6% €59,175 €34.594 Reduce conversion cost 10% -6,0% -7,0% -7,5% -11.9% 100% 15% €157,800 €92.250 Reduce CO2 emissions4 10% -0,8% -1,2% -1,4% -3.7% 100% 15% €157,800 €92.250 Total 100% – – – – 24% 36% €374,775 €219.094 1 Operatingcashflowatconstant currency. EBITA w/o restructuringexpenses+CapEx+ changeinworking capital+ cashtax. 2 The maximumCEOandCFOannual bonusin2021 was150% of salary. 3 ExecutiveDirectorsare requiredto acquire sharesinthe Company with 50% oftheamountpaidinexcess oftarget(a asapercentageofsalarywasnot achieved(75%), the bonusispayable whollyincash. 4 Youcanreadmoreonthereductionof CO2 emissionsintensity onpage 91. LTIP awards where vesting is based on performance periods ending during the financial year ending 31 December 2021 (audited) LTIP awards vesting The details for the LTIPs due to vest in 2022 are shown below: The LTIP awards¹ granted on 19 August 2019 and vesting in 2022 were based on performance to the year ended 31 December2021.The performance targetsfortheseawardsandactualperformanceagainstthosetargetswere asfollows: | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Metric Weighting | | Threshold target (25% vests) | | Stretch target (100% vests) Actual % Vesting | | | | | | | | | | | | | Relative TSR2 33.33% 50th percentile (27.90%) | | | | | | | | 75th percentile and above3 (73.81%) | | | | -3.75% 0% | | | | | Adjusted EPS (final year of performance period) 33.33% €7.80 per share | | | | | | | €9.00 per share | | | €4.46 per share | | | | 0% | Cumulative economic profit 33.33% €600 M €670 M €340 M 0% Total 100% 0% 1 Awardsare structuredasnil cost options. 2 Measuredagainstthe FTSE350, excludingsectorswith limiteddirect relevancetoRHIMagnesita. 3 Awardsvestonastraight-line basisbetweenthresholdandmaximum. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 1 3 #### Annual Report on Remunerationcontinued LTIP awards where vesting is based on performance periods ending during the financial year ending 31 December 2021 (audited) continued LTIP awardsvestingcontinued The details of the LTIPs vesting in 2022 as a resultofperformancenotedaboveare shownbelow: | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Executive Grant date Vest date | | Number of shares granted | | Number of shares to vest | | Dividend equivalent | | Estimated value | Stefan Borgas 19 August 2019 19 August 2022 38,397 0 0 0 | | | | | | --- | --- | --- | --- | | | Ian Botha | | 19 August 2019 19 August 2022 16,840 0 0 0 19 August 2019 19 August 2022 16,841 0 0 0 | 1 In2019,IanBothareceivedtwograntsof performance shares. The grant of 16,840shares represents theannualLTIPgrant.Thegrantof16,841 shares represents thebuy-outawardfortheperformance shareawardsforfeitedwhenjoining RHIM. The buyout awardveststhree yearsa LTIP awards awarded during the financial year ending 31 December 2021 (audited) Duringthe 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 awardvestsare set out below. | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Director 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 period | Stefan Borgas LTIP Annual award3 15 March 2021 200% €48.28 2,104 25% 43,579 15 March 2024 Ian Botha LTIP Annual award3 15 March 2021 150% €48.28 922.5 25% 19,107 15 March 2024 1 Thefacevalueoftheawardswascalculatedusingthe average closingprice forthe fivetrading days priortotheawardbeing grantedbeing £41.38 convertedto€(using averageFX rateover thesame five-dayperiodof€0,857to£1 =€48.28). 2 Awards are structuredasnilcostoptions. Performance targets for 2021 LTIP awards | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Performance measure Weighting | | Threshold (25% vesting) ¹ | | Intermediate (75% of vesting) ¹ | | Maximum (100% vesting) ¹ | | | | Performance period2 | | | | Absolute TSR 25% 13% 20% 25% and above | | | | | | | | 15 March 2021 to 15 March 2024 | | | | Adjusted EPS (cumulative for the three-year performance period) 50% €12.00 €14.50 €16.89 1 January 2021 to 31 December 20234 Use of Secondary Raw Material3 25% 6.5% 7.5% 8.0% 1 Awards vestonastraight-linebasis betweenthresholdintermediate andmaximum. 2 FortheTSRelement,measuredfrom date of grant to thirdanniversary on15March 2024witha two-monthaverageTSRbeforeeachdateandfortheEPS elementandSecondaryRawMaterialElement, threefinancialyearsuntil31 December2023. 3 Useofsecondaryrawmaterialasapercentage of total raw materialsused, evaluatedattheendof2023basedonthecurrentproductionnetwork(andexcluding anychanges inrawmaterialusage duetoanyfuture M&Aactivity). 4 Inlinewiththe RemunerationPolicy, atwo-yearholdingperiodpost vestingholdingperiodapplies. 1 1 4 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Performance targets for 2020 LTIP awards | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Performance measure Weighting | | Threshold ¹ (25% vesting) | | | | Intermediate ¹ (75% of vesting) | | | | Maximum ¹ (100% vesting) | | | | | | Performance period2 | | | | Absolute TSR 50% 30% cumulative TSR growth over the 3 years | | | | 30% cumulative TSR growth over the 3 years | | | | 30% cumulative TSR growth over the 3 years | | | | | | 8 April 2020 to 7 April 2023 | | | | | | Cumulative Underlying Earnings Per Share 50% €6.50/share €8.00/share €9.50/ share | | | | | | | | | | | | 1 January 2020 to 31 December 2022 | | | | | | 1 Awardsvestonastraight-line basisbetweenthreshold, intermediate andmaximum. 2 Forthe TSRelement,measuredforaperiodof three yearsfrom the date of grantwitha two-monthaveragebeforeeachdate.TheEPS elementis threefinancialyears until31 December 2022. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 1 5 #### Annual Report on Remunerationcontinued Statement of Directors’ shareholding and share interests (audited) UndertheshareownershiprequirementssetoutintheDirectors’RemunerationPolicy,the ExecutiveDirectorsare normallyrequiredtobuildandmaintain over five years a shareholding equivalent to at least 200% of salary. At the 2021 year-end,the ExecutiveDirectorseachheldsharesinthe Company as detailed below. Shares are valued using the Company’s closing market share price on 31 December2021 of£33.06. ThetablebelowshowshoweachDirectorcomplieswiththeshareholdringguidelineson31 December2021 | | | | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Shares held at 31 December 2021 | | Shares held by connected persons | | Shares held at 31 December 2020 | | Number of shares | | Number of options | | Unvested and subject to a service requirement only | | Unvested and subject to performance conditions | | Vested but unexercised | | Exercise during the year | | Shareholding requirement | | Current shareholding % salary¹ | | Requirement met? | Executive Directors Stefan Borgas 21,300¹ 1,150 18,600 21,300 172,372 – 172,372 – – 200% salary 80%2 No Ian Botha – – – – 109,027 16,592 92,435 – – 200% salary 53%3 No Non-Executive Directors Herbert Cordt 350,000 – 350,000 – – – – – John Ramsay 2,130 – 2,130 – – – – – Janet Ashdown – – – – – – – – David Schlaff4 – – – – – – – – Stanislaus Prinz zu Sayn-Wittgenstein- Berleburg 5 – – – – – – – – Fiona Paulus – – – – – – – – Jann Brown Karl Sevelda 2,000 – 1,000 – – – – – Marie-Hélène Ametsreiter – – – – – – – – – – Sigalia Heifetz Wolfgang Ruttenstorfer – – – – – – – – Celia Baxter6 1,002 1,002 – – – – – – – – Andrew Hosty6 389 389 – – – – – – Karin Garcia – – – – – – – – Martin Kowatsch 1,223 – – – – – – – Michael Schwarz – – – – – – – – 1 ShareholdingdeterminedusinganFXrate of 1.1943 forGBP to EUR on31 December2021. 2 Includes shareholdingsofconnected persons. 3 aIncludesunvestedshareswhichare subject to aservice requirement andassumesataxrateof50%. 4 Accordingtothelatestdisclosuresby the shareholder: 13,333,340helddirectly by MSPSti 5 Accordingtothelatestdisclosuresby the shareholder: 2,088,461 interestsare heldthroughChestnutBeteiligungsgesellscha Mr.WintersteinwhichallowsChestnut to exercise the votingrightsof SilverBeteiligungsgesellscha 2,088,461 heldthroughSilver.Ms.Sayn-Wittgensteinmade anagreement with Mr. Wintersteinwhichallows Chestnuttoexercisethevoting rights ofSilverintheIssuer.Ms.Sayn-Wittgensteinand Mr.Wintersteinsharea familyrelationship. 1,590,000heldinpart directly andinpart indirectlythroughFEWIBeteiligungsgesellscha 6 ShareholdingforCeliaBaxterandAndrew Hosty are only considereduntil 10June 2021,whentheysteppeddownfromtheBoard. TherewerenochangesintheDirectors’shareholdingsandshareinterestsbetweenthe end of the year and 25 February 2022. 1 1 6 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Directors’ interests in RHI Magnesita’s LTIP ThetablebelowdetailsoutstandingshareawardsincludingtheannualLTIPawardsgrantedtothe CEO and CFO during 2021. | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Scheme Award date | | Share price used € | | Share awards held at 1 January 2021 | | Awarded during the year | | Vested during the year | | Share awards lapsed during the year | | Share awards held at 31 December 2021 | | Total share value at award (face value) € | | Vesting date | Stefan Borgas Performance shares 7 June 2018 57.773 28,594 – – 28,5946 – 1,652,0001 7 June 2021 Performance shares 19 August 2019 44.534 38,397 – – – 38,397 1,709,9722 19 August 20225 Performance shares 8 April 2020 22.7 90,396 90,396 2,052,0004 8 April 2023 Performance shares 15 March 2021 48.28 43,579 43,579 2,104,0005 15 March 2024 Ian Botha Performance shares 19 August 2019 44.534 16,840 – – 16,840 750,0002 19 August 2022 Performance shares 19 August 2019 44.534 16,841 – – 16,841 750,0002 19 August 2022 Performance shares 8 April 2020 22.7 39,647 39,647 900,0004 8 April 2023 Performance shares 15 March 2021 48.28 19,107 19,107 922,5005 15 March 2024 Conditional Award 26 November 2019 45.202 16,592 – – 16,592 750,0003 26 November 2022 1 The face valueoftheawardswascalculatedusingthe average closingprice forthefivetrading days priortotheLTIPawardbeing grantedbeing £50.62 convertedto€ (using averageFXrateover the same fivedaysperiodof€1.14 to £1 =€57.773). 2 The face valueoftheawardswascalculatedusingthe average closingprice forthefivetrading days priortotheLTIPawardbeing grantedbeing £41.06convertedto€ (using averageFXrateover the same fivedaysperiodof€1.0846 to £1 =€44.534). 3 The face valueoftheawardswascalculatedusingthe average closingprice forthefivetrading days priortotheLTIPawardbeing grantedbeing £38.73convertedto€(using averageFXrateover the same fivedaysperiodof€1.167 to £1 =€45.202). 4 The face valueoftheawardswascalculatedusingthe average closingprice forthefivetrading days priortotheawardbeing grantedbeing £19.976convertedto€(using averageFXrateover thesame five dayperiodof€0,881 to £1 =€22.7). 5 The face valueoftheawardswascalculatedusingthe average closingprice forthefivetrading days priortotheawardbeing grantedbeing £41.38 convertedto€(using averageFX rateover thesame five-dayperiodof€0.857 to £1 =€48.28). 6 Followingthetestingofthe performance conditions, thisawardhasnow lapsed. Review of past performance and CEO remuneration table (unaudited) Sharepriceperformance SharesarevaluedusingtheCompany’sclosingmarketshareprice on 31 December2021 of £33.06 (2020: £35.06). During 2021, the shares traded in the range of £29.46 – £47.04. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 1 7 #### Annual Report on Remunerationcontinued RHIMagnesitatotal shareholderreturn The graph below compares the Total Shareholder Return of the Company with the FTSE350IndexfromAdmissiondate of 27 October 2017 to 31 December 2021.ThisisconsideredanappropriatecomparatorforRHIMagnesitabecauseitisaconstituentofthe index. 180 160 140 120 100 80 60 40 27/10/18 31/12/18 31/12/19 31/12/20 31/12/21 RHI Magnesita FTSE 350 Source:Datastream(ThomsonReuters) Remuneration of the CEO 2017 2018 2019 2020 2021 Single figure of total remuneration1 Stefan Borgas €476,981 €2,073,350 €1,490,427 €1,892,862 €1,584,758 Annual bonus pay-out as % of maximum2, 3 Stefan Borgas 83.16% 88.04% 38.9% 50% 24% Long-term incentive vesting rates as % of maximum4 Stefan Borgas N/A N/A N/A 0% 0% 1 The2017 single figureoftotalremunerationrelatesto the period27 October2017 to 31 December2017. 2 The2017 annualbonuspay-outas a% of maximum relatesto bonustargetsset priortothemergerofthetwocompanies thatnowformRHIMagnesitaNV. 3 Thepercentageofmaximumshown forthe 2020annual bonusisthe amount paidto theCEO.Theformulaicbonus outcomeis 100%ofmaximum. 4 Along-termincentiveplanwasintroducedwhentheCompanywasformedinOctober2017.Thefirst2018LTIPawardwaseligibletovestinin2021 basedonaperformanceperiodending31 December 2020(andto31 January2021 forthe TSR element). The performance conditionswerenotmet.The2019awards vestin2022 basedona performanceperiodending 31 December2021.Asdetailed elsewhere,no2019LTIPawardispayable asperformance conditionshave not beenmet.Seepage114. Annual percentage change in remuneration of the CEO (unaudited) Thetablebelowillustratesthepercentagechangeinannualsalary,benefitsandbonusbetween2020and2021 for the CEO and the average for all AustrianemployeesoftheCompany.TheCEOisanAustrian-basedemployee;therefore,the CommitteefeelsthatacomparatorbasedonallAustrian employeesisappropriateforthepurposesofthisanalysis. | | | | | | | | --- | --- | --- | --- | --- | --- | | | Salary change (2020 to 2021) | | Benefits change (2020 to 2021) | | Annual bonus change (2020 to 2021) | CEO 2.5% -2.3%1 -51.3% Average of employees 2.9% -5.5%1 -49.0% 1 Eligibleemployeeshaveexchangedtheircarto anelectric carduring2021. Due to Austriantaxlawelectric cars arenotataxableemployeebenefit(comparedtonon-electric cars).ThereforeCEO and employeetaxable benefitsfor2021 fell slightly. 1 1 8 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Directors and employee remuneration over time (unaudited) Thetablebelowshows theDirectors’totalremunerationyearonyearchange (onafull-timeequivalentbasis) | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Year | | Total remuneration in FY 2021 | | Change % 2020 to 2021 | | Change % 2019 to 2020 | | Change % from 2018 to 20191 | Executive Directors2 Stefan Borgas €1,584,758 -16.28%3 27% -28.1% Ian Botha €938.347 -16.45%4 N/A4 N/A4 Non-Executive Directors – Herbert Cordt £241,000 6.09% 3.2% – John Ramsay £122,900 31.92% 12.9% 6.4% Janet Ashdown £104,522 19.92% N/A4 N/A4 David Schlaff £71,100 5.98% 3.2% – Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg £71,100 5.98% 3.2% – Fiona Paulus £84,728 5.99% N/A4 N/A Jann Brown £52,566 N/A4 – – Karl Sevelda £82,314 10.02% 3.2% – Marie-Héléne Ametsreiter £48,017 N/A4 – – Sigalia Heifetz £48,017 N/A4 – – Wolfgang Ruttenstorfer £79,300 5.99% 3.2% – Karin Garcia5 – – – – Martin Kowatsch5 – – – – Michael Schwarz5 – – – – Celia Baxter6 £42.234 N/A4 3.1% 6.1% Andrew Hosty6 £36.182 N/A4 -3.9% 3.8% Company performance Adjusted EPS 4.46 36.0% -41.1% 4.8% Reported EBIT in € million 213,8 77.3% -55.8% -4.4% Operating Cash Flow in € million -236 -181.4% 1.7% -23.0% Average remuneration (on a full-time equivalent basis) Employees of the Company7 €73,962 -3.4% 7.7% 4.1% 1 Fornotesonthechangefrom 2018to 2019, please see the 2019 Annual Reportandforthechangefrom2019to2020the2020AnnualReport. 2 The Executive Directorswaived20% of basic salary andthe Non-Executive Directors tooka voluntaryfeereductionof10%fora four-monthperiodfrom1 April2020.Thepercentagechangefrom 2020to2021 reflectsthis reduction. 3 DuetonotreachingtargetonCompany KPIsthe bonusdecreasedandthereforetheoverallremunerationdroppedalso. 4 Where the incumbentdidnot serve forthe full year, the calculationhasnot beenmadeas itis unrepresentative. 5 Employee Representative Directorsdo not receive remunerationforthat role,theyareremuneratedas employees oftheGroup. 6 AndrewHostyandCeliaBaxterceasedto be Directorson10June 2021. 7 The groupofRHIMemployeescoversthe parent company, namely all employees withintheAustriansubsidiaries. R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 1 9 #### Annual Report on Remunerationcontinued Relative importance of spend on pay (unaudited) The following table sets out the changeindistributionstoshareholdersbywayofdividendandshare buyback and overall spend on pay in the financial year ended31 December2020comparedwiththefinancialyearended31 December2021. | | | | | | | | --- | --- | --- | --- | --- | --- | | | 2021 € million | | 2020 € million | | Percentage change | Total gross employee pays 547.6 575.6 -4.86% Dividends 71.2 73.5 -4.22% Share buyback 95.5 2.6 You can find find more information on the share buyback on page 37. Payments to past Directors (audited) There were no payments to past Directors in the period 1 January to 31 December2021.AndrewHostyandCeliaBaxtersteppeddownfromtheBoard on 10 June 2021 andreceivedfeestothatdate(£36,182and£42,234respectively). Payments for loss of office (audited) No payments were made to any Director in respect of loss of office in the period1 January to 31 December2021. 2022 remuneration (unaudited) SetoutbelowishowtheDirectors’RemunerationPolicywillbeimplementedduring2022.There arenosignificantchangesinthe way that the RemunerationPolicywillbeimplemented in 2022. Salaries and fees for 2022 Directors’salariesand fees (on a full-time equivalent basis) Subjecttoapprovalatthe2022AGM,theDirectors’salariesandfeeswillbeincreasedinalignmentwiththegeneralworkforce increases(4.44%)from 1 January2022.Owingtorounding,theexactpercentagesofincrease differ but are never more than 4.45% which was the averageincreaseoftheAustrian workforce. | | | | | | --- | --- | --- | --- | | | 20222 20212 | | Percentage change | Executives Stefan Borgas €1,098,800 €1,052,000 4.45% Ian Botha €642,300 €615,000 4.44% Non-Executives Chairman (inclusive of all Committee fees) £251,700 £241,000 4. 44% Non-Executive Directors £74,200 £71,100 4.36% Deputy Chairman & Senior Independent Director £28,500 £27,300 4.40% | | | | | | --- | --- | --- | --- | | | Chairmen of Audit & Compliance Committee, Remuneration Committee, Nomination Committee (unless held by the Chairman) and Corporate Sustainability Committee | | £19,900 £19,100 4.19% | Membership of the Audit and Compliance and Remuneration Committees £8,500 £8,200 3.66% Membership of the Nomination and Corporate Sustainability Committee £5,600 £5,400 3.70% 1 Feeandsalaryincreasesareroundedto the nearest 100. TheCompanydoesnotcontributetodefinedbenefitpensionschemesonbehalfofExecutiveDirectorsorNon-Executive Directors.Nodirectorhas a prospectiveentitlementunderadefined benefit scheme. 1 2 0 R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 | | | | | | | | --- | --- | --- | --- | --- | --- | | | STRATEGIC REPORT GOVERNANCE | | FINANCIAL STATEMENTS | | OTHER INFORMATION | Annual bonus for 2022 The maximum potential annual bonus opportunity for FY22 remains at 150% of salary for both the CEO and CFO. The CommitteehassetbonusKPIsfor 2022 which focus on key 2022 financial measures as well as our strategic priorities. Both CEO and the CFO are requiredtouse 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. Weighting Performance criteria 2021 2022 Adjusted EBITA 35% 35% Operating Cash Flow 35% 35% Strategic Initiatives ¹ Increase global value market share 10% 10% Reduce conversion cost 10% 10% Reduce CO2 emissions 10% N/A Use of Secondary Raw Material N/A 10% 1 The specifictargetsrelatingto the 2022 bonushave not beendisclosedat this stageas theyareconsideredbytheCommitteetobecommerciallysensitive,anditis notconsideredintheinterests ofshareholderstodisclosefurtherdetailsonaprospective basis. Detailswill beprovidedona retrospectivebasis innextyear’s AnnualReportonRemuneration 2022 LTIP awards The CEO will be granted a LTIP award over shares with a value at grant of 200% and the CFO will be granted a LTIP award over shares with a value at grant of 150%ofsalary.Takingintoaccounttheongoingmarketandeconomicoutlookanduncertainty,theCommittee decidedtoretainthefocusonabsolute (ratherthanrelative)totalshareholderreturn,andtotalcumulative EPS.Asoutlinedearlierinthisreport,theCommittee recognisestheimportanceof attainingourtargetsforthereductionofcarbonemissions.For 2022 we have moved our CO2 emissiontargetfromthe annual bonus to the LTIP aligning it to ourlong-termreductionstrategy.Themeasuresandthetargetsaresetoutbelow. | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Performance measure Weighting | | Threshold (25% vesting) | | Intermediate (75% of vesting) | | Maximum (100% vesting) | | Performance period | TSR1 25% 15% 22% 27% 2022 to 2024 (+2 year Adjusted EPS (cumulative for the three-year performance period)2 50% 14.25/ps 16.50/ps 19.25/ps holding period post Reduce CO2 emissions per tonne against 2018 2 25% -11.5% -12.5% -13.0% vesting) 1 Measuredfromthe date of grant to thridanniversary with atwo-month averagebeforeeachdate. 2 Measuredoverthe threefinancial yearsto 31 December2024. 3 Awardsvestonastraight-line basisbetweenthresholdintermediate andmaximum. This report was reviewed and approved by the Board on 25 February 2022 and signed on its behalf by order of the Board. Janet Ashdown ChairmanoftheRemunerationCommittee R H I M A G N E S I TA A N N U A L R E P O R T 2 0 2 1 1 2 1 #### Consolidated Financial Statements 2021 #### Consolidated Statement of Financial Position as of 31.12.2021 | | | | | | --- | --- | --- | --- | | in € million | Note | 31.12.2021 | 31.12.2020 | | ASSETS | | | | | Non-current assets | | | | | Goodwill | (10) | 114.4 | 110.8 | | Other intangible assets | (11) | 282.6 | 265.7 | | Property, plant and equipment | (12) | 1,089.7 | 958.6 | | Investments in joint ventures and associates | (13) | 5.7 | 16.3 | | Other non-current financial assets | (14) | 14.6 | 14.5 | | Other non-current assets | (15) | 41.2 | 26.6 | | Deferred tax assets | (16) | 202.4 | 199.2 | | | | 1,750.6 | 1,591.7 | | Current assets | | | | | Inventories | (17) | 976.5 | 477.4 | | Trade and other current receivables | (18) | 568.2 | 351.8 | | Income tax receivables | (19) | 35.1 | 27.7 | | Other current financial assets | (20) | 2.9 | 0.3 | | Cash and cash equivalents | (21) | 580.8 | 587.2 | | Assets disposal groups | (5) | 0.0 | 16.6 | | | | 2,163.5 | 1,461.0 | | | | 3,914.1 | 3,052.7 | | | | | | | | | | | | EQUITY AND LIABILITIES | | | | | Equity | | | | | Share capital | (22) | 49.5 | 49.5 | | Group reserves | (23) | 736.4 | 596.6 | | Equity attributable to shareholders of RHI Magnesita N.V. | | 785.9 | 646.1 | | Non-controlling interests | (24) | 36.3 | 20.0 | | | | 822.2 | 666.1 | | Non-current liabilities | | | | | Borrowings | (25) | 1,321.0 | 983.0 | | Other non-current financial liabilities | (26) | 106.0 | 88.8 | | Deferred tax liabilities | (16) | 48.4 | 45.0 | | Provisions for pensions | (27) | 269.0 | 303.6 | | Other personnel provisions | (28) | 68.7 | 70.5 | | Other non-current provisions | (29) | 63.6 | 62.6 | | Other non-current liabilities | (30) | 5.9 | 4.8 | | | | 1,882.6 | 1,558.3 | | Current liabilities | | | | | Borrowings | (25) | 218.1 | 131.5 | | Other current financial liabilities | (26) | 19.2 | 44.0 | | Trade payables and other current liabilities | (31) | 878.8 | 522.7 | | Income tax liabilities | (32) | 38.2 | 25.8 | | Current provisions | (33) | 55.0 | 86.4 | | Liabilities disposal groups | (5) | 0.0 | 17.9 | | | | 1,209.3 | 828.3 | | | | 3,914.1 | 3,052.7 | #### Consolidated Statement of Profit or Loss from 01.01.2021 to 31.12.2021 | | | | | | --- | --- | --- | --- | | in € million | Note | 2021 | 2020 | | Revenue | (34) | 2,551.4 | 2,259.0 | | Cost of sales | (35) | (1,967.9) | (1,708.9) | | Gross profit | | 583.5 | 550.1 | | Selling and marketing expenses | (36) | (108.1) | (110.9) | | General and administrative expenses | (37) | (217.4) | (198.3) | | Restructuring | (38) | (58.8) | (113.8) | | Other income | (39) | 29.1 | 19.7 | | Other expenses | (40) | (14.5) | (26.2) | | EBIT | | 213.8 | 120.6 | | Interest income | (41) | 14.2 | 5.9 | | Interest expenses on borrowings | | (20.7) | (20.1) | | Net income/(expense) on foreign exchange effects and related derivatives | (42) | 2.8 | (42.8) | | Other net financial expenses | (43) | (21.2) | (29.7) | | Net finance costs | | (24.9) | (86.7) | | Result from joint ventures and associates | (13) | 100.2 | 7.6 | | Profit before income tax | | 289.1 | 41.5 | | Income tax | (44) | (39.4) | (13.9) | | Profit after income tax | | 249.7 | 27.6 | | attributable to shareholders of RHI Magnesita N.V. | | 243.1 | 24.8 | | attributable to non-controlling interests | (24) | 6.6 | 2.8 | | | | | | | | | | | | in € | | | | | Earnings per share - basic | (51) | 5.10 | 0.51 | | Earnings per share - diluted | | 5.05 | 0.50 | #### Consolidated Statement of Comprehensive Income from 01.01.2021 to 31.12.2021 | | | | | | --- | --- | --- | --- | | in € million | Note | 2021 | 2020 | | Profit after income tax | | 249.7 | 27.6 | | | | | | | Currency translation differences | | | | | Unrealised results from currency translation | (6) | 70.5 | (227.8) | | Deferred taxes thereon | (44) | 0.6 | 39.9 | | Current taxes thereon | | 0.1 | 3.7 | | Unrealised results from net investment hedge | (55) | (14.1) | 15.8 | | Deferred taxes thereon | | 3.5 | (2.0) | | Current taxes thereon | | 0.0 | (2.0) | | Reclassification to profit or loss | (40) | 0.0 | 0.3 | | Reclassification to profit or loss - Disposal subsidiaries | (5) | (7.9) | 0.0 | | Cash flow hedges | | | | | Unrealised fair value changes | (54) | 8.7 | (3.6) | | Deferred taxes thereon | (44) | (2.1) | 0.9 | | Items that will be reclassified subsequently to profit or loss, if necessary | | 59.3 | (174.7) | | | | | | | Remeasurement of defined benefit plans | | | | | Remeasurement of defined benefit plans | (27) | 25.3 | (0.7) | | Deferred taxes thereon | (44) | (5.2) | 0.6 | | Share of other comprehensive income of joint ventures and associates | (13) | 0.6 | 0.0 | | Reclassification to other reserves due to disposal of joint ventures and associates | | (0.5) | 0.0 | | Items that will not be reclassified to profit or loss | | 20.2 | (0.1) | | | | | | | Other comprehensive income after income tax | | 79.5 | (174.8) | | | | | | | Total comprehensive income | | 329.2 | (147.2) | | attributable to shareholders of RHI Magnesita N.V. | | 320.5 | (147.5) | | attributable to non-controlling interests | (24) | 8.7 | 0.3 | #### Consolidated Statement of Cash Flows from 01.01.2021 to 31.12.2021 | | | | | | --- | --- | --- | --- | | in € million | Note | 2021 | 2020 | | Cash (used in) / generated from operations | (47) | (53.3) | 366.6 | | Income tax paid less refunds | | (38.5) | (47.6) | | Net cashflow from operating activities | | (91.8) | 319.0 | | Investments in property, plant and equipment and intangible assets | | (252.1) | (156.9) | | Investments in subsidiaries net of cash acquired | | 3.2 | (8.5) | | Cash flows from sale of subsidiaries net of cash disposed of | | (4.8) | 0.0 | | Cash receipts from the sale of equity instruments of interests in joint ventures | | 100.0 | 0.0 | | Cash inflows from the sale of property, plant and equipment | | 12.2 | 10.5 | | Dividends received from joint ventures and associates | | 7.6 | 10.8 | | Investment subsidies received | | 2.4 | 0.0 | | Interest received | (49) | 2.7 | 6.0 | | Cash outflows / inflows from non-current receivables | | (0.1) | 0.2 | | Net cashflow from investing activities | | (128.9) | (137.9) | | Acquisition of treasury shares | | (95.5) | (2.7) | | Dividend payments to shareholders of the Group | | (71.2) | (49.1) | | Dividend payments to non-controlling interests | | (1.4) | (1.1) | | Proceeds from borrowings and loans | | 516.1 | 97.6 | | Repayments of borrowings and loans | | (112.7) | (23.7) | | Changes in current borrowings | | 5.5 | 7.4 | | Interest payments | (49) | (26.6) | (30.5) | | Repayment of lease obligations | | (16.3) | (15.8) | | Interest payments from lease obligations | | (1.1) | (1.3) | | Cash flows from derivatives | | 0.9 | 1.5 | | Net cashflow from financing activities | (48) | 197.7 | (17.7) | | Total cash flow | | (23.0) | 163.4 | | Change in cash and cash equivalents | | (23.0) | 163.4 | | Cash and cash equivalents at beginning of year1) | | 589.2 | 467.2 | | Foreign exchange impact | | 14.6 | (41.4) | | Cash and cash equivalents at year-end | (21) | 580.8 | 589.2 | 1) thereof shown under assets held for sale €2.0 million as of 31.12.2020. #### Consolidated Statement of Changes in Equity from 01.01.2021 to 31.12.2021 | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Group reserves | | | | | | | | | | | | | | | Accumulated other comprehensive income | | | | | | | | in € million | Share capital | Treasury shares | Additional paid-in capital | Mandatory reserve | Retained earnings | Cash flow hedges | Defined benefit plans | Currency translation | Accumulated other comprehensive income/expenses relating to disposal groups | Equity attributable to shareholders of RHI Magnesita N.V. | Non-controlling interests | Total equity | | Note | (22) | (23) | (23) | (23) | (23) | (23) | (23) | (23) | | | (24) | | | 31.12.2020 | 49.5 | (21.5) | 361.3 | 288.7 | 376.8 | (13.7) | (145.7) | (257.1) | 7.8 | 646.1 | 20.0 | 666.1 | | Profit after income tax | - | - | - | - | 243.1 | - | - | - | - | 243.1 | 6.6 | 249.7 | | Currency translation differences | - | - | - | - | - | - | - | 58.5 | (7.9) | 50.6 | 2.1 | 52.7 | | Market valuation of cash flow hedges | - | - | - | - | - | 6.6 | - | - | - | 6.6 | - | 6.6 | | Remeasurement of defined benefit plans | - | - | - | - | - | - | 20.0 | - | 0.1 | 20.1 | - | 20.1 | | Share of other comprehensive income of joint ventures and associates | - | - | - | - | (0.5) | - | 0.6 | - | - | 0.1 | - | 0.1 | | Other comprehensive income after income tax | - | - | - | - | (0.5) | 6.6 | 20.6 | 58.5 | (7.8) | 77.4 | 2.1 | 79.5 | | Total comprehensive income | - | - | - | - | 242.6 | 6.6 | 20.6 | 58.5 | (7.8) | 320.5 | 8.7 | 329.2 | | Dividends | - | - | - | - | (71.2) | - | - | - | - | (71.2) | (1.4) | (72.6) | | Shares repurchased 1) | - | (95.5) | - | - | - | - | - | - | - | (95.5) | - | (95.5) | | Reclassification of puttable non-controlling interests without change of control2) | - | - | - | - | (1.6) | - | - | 1.4 | - | (0.2) | 9.0 | 8.8 | | Change in non-controlling interests due to addition to consolidated companies | - | - | - | - | - | - | - | - | - | - | 3.4 | 3.4 | | Reclassification of puttable non-controlling interests without a change of control | - | - | - | - | (20.0) | - | - | - | - | (20.0) | (3.4) | (23.4) | | Share-based payment expenses | - | - | - | - | 6.2 | - | - | - | - | 6.2 | - | 6.2 | | Transactions with shareholders | - | (95.5) | - | - | (86.6) | - | - | 1.4 | - | (180.7) | 7.6 | (173.1) | | 31.12.2021 | 49.5 | (117.0) | 361.3 | 288.7 | 532.8 | (7.1) | (125.1) | (197.2) | 0.0 | 785.9 | 36.3 | 822.2 | 1)The share buyback programme initiated in December 2020 has been completed in April 2021. The share buyback program was subsequently extended in May 2021 and completed in August 2021. 2)Further information is provided under Note (5) and Note (53). | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Group reserves | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income | | | | | | | | in € million | Share capital | Treasury shares | Additional paid-in capital | Mandatory reserve | Retained earnings | Cash flow hedges | Defined benefit plans | Currency translation | Accumulated other comprehensive income/expenses relating to disposal groups | Equity attributable to shareholders of RHI Magnesita N.V. | Non-controlling interests | Total equity | | Note | (22) | (23) | (23) | (23) | (23) | (23) | (23) | (23) | | | (24) | | | 31.12.2019 | 49.5 | (18.8) | 361.3 | 288.7 | 379.6 | (11.0) | (145.6) | (79.8) | - | 823.9 | 20.8 | 844.7 | | Profit after income tax | - | - | - | - | 24.8 | - | - | - | - | 24.8 | 2.8 | 27.6 | | Currency translation differences | - | - | - | - | - | - | - | (177.3) | 7.9 | (169.4) | (2.5) | (171.9) | | Market valuation of cash flow hedges | - | - | - | - | - | (2.7) | - | - | - | (2.7) | - | (2.7) | | Remeasurement of defined benefit plans | - | - | - | - | - | - | (0.1) | - | (0.1) | (0.2) | - | (0.2) | | Other comprehensive income after income tax | - | - | - | - | - | (2.7) | (0.1) | (177.3) | 7.8 | (172.3) | (2.5) | (174.8) | | Total comprehensive income | - | - | - | - | 24.8 | (2.7) | (0.1) | (177.3) | 7.8 | (147.5) | 0.3 | (147.2) | | Dividends | - | - | - | - | (24.5) | - | - | - | - | (24.5) | (1.1) | (25.6) | | Shares repurchased | - | (2.7) | - | - | - | - | - | - | - | (2.7) | - | (2.7) | | Share-based payment expenses | - | - | - | - | (3.1) | - | - | - | - | (3.1) | - | (3.1) | | Transactions with shareholders | - | (2.7) | - | - | (27.6) | - | - | - | - | (30.3) | (1.1) | (31.4) | | 31.12.2020 | 49.5 | (21.5) | 361.3 | 288.7 | 376.8 | (13.7) | (145.7) | (257.1) | 7.8 | 646.1 | 20.0 | 666.1 | #### Notes to the Consolidated Financial Statements 2021 #### 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 chemicals (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 secondary 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 applied: 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 2021 to 31 December 2021 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 Consolidated Financial Statements are prepared on a historical cost basis unless otherwise stated. Basis for preparation 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 expenses 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. The financial statements are prepared on a going concern basis. 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 27 February 2022 and will be submitted for adoption to the Annual General Meeting of shareholders on 25 May 2022. 2. Initial application of new financial reporting standards The following amendments of standards have become effective during the reporting period. None of these amendments will have an effect on the Group’s accounting and measurement principles. | | | | | | --- | --- | --- | --- | | Standard | Title | Publication (Effective date)1) | Effects on RHI Magnesita Consolidated Financial Statements | | Amendments of standards | | | | | IFRS 16 | Amendment to IFRS 16 Leases Covid 19-Related Rent Concessions beyond 30 June 2021 | 31.03.2021 (01.04.2021) | No effect | | IFRS 4 | Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 9 | 25.06.2020 (01.01.2021) | Not relevant | | IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 | Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform - Phase 2 | 27.08.2020 (01.01.2021) | No effect | 1)According to EU Endorsement Status Report of 01.02.2022. IFRS 7, IFRS 9, IAS 39, IFRS 16, IFRS 4 “Interest Rate Benchmark Reform” In 2019 RHI Magnesita 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 Consolidated Financial Statements of 2020. In accordance with the transition 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 provided 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 was continued and continues to be recorded in the Consolidated Statement of Profit or Loss. 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, which focus on the treatment of accounting impacts arising from the actual transition from the currently used to an alternative benchmark interest. The Phase 2 amendments are effective for annual periods beginning on or after 1 January 2021 and are to be applied retrospectively. 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 mid-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 applicable 3-month USD LIBOR is continued to being published until 30 June 2023 - which is after the last interest fixing date of the USD 200 million debt and interest rate swap. Therefore, the potential risk of any hedge ineffectiveness can be considered immaterial. Even in the unlikely scenario of discontinuation of USD LIBOR before 2023, management considers that the hedged debt would move to the same alternative benchmark rate as the swap, without any material effect on the Group. One of the main uncertainties regarding LIBOR, even if not directly impacting the Group’s structural debt, is the use of its replacement rates after 31 December 2021. As USD LIBOR cannot be applied to new contracts starting 1 January 2022, the Group is being exposed to LIBOR replacement rates for its working capital and short-term financings in USD. Currently, the market predominantly uses a combination of the Secured Overnight Financing Rate (SOFR), plus a fixed credit spread adjustment that is based on a lookback period comparing credit spreads between SOFR and USD LIBOR, ranging from two to five years. As for the SOFR rate, either the simple overnight rate or specific Term-SOFR is used depending on the bank and product. There are still uncertainties in the market whether a true benchmark rate will prevail, that is as easily comparable and widely used as the USD LIBOR, however management is in close contact with banking counterparts to understand how the pricing of each underlying transaction is formed. 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€305.6 million and its corresponding underlying hedged item, a floating-rate debt, both maturing in 2023, would most likely be 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. 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 consequence 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 2022; 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. 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 2021. The following financial reporting standards have not yet been adopted by the EU and were not applied early on a voluntary basis. They are not expected to have a significant impact on RHI Magnesita. | | | | | | | --- | --- | --- | --- | --- | | Standard | Title | Publication1) | Mandatory application for RHI Magnesita | Expected effects on RHI Magnesita Consolidated Financial Statements | | New standards and interpretations | | | | | | IFRS 14 | Regulatory Deferral Accounts | 30.01.2014 | No EU endorsement | Not relevant | | IFRS 17 | Insurance Contracts; including amendments to IFRS 17 | 18.05.2017 (09.12.2021) | 01.01.2023 | Not relevant | | | | | | | | Amendments of standards | | | | | | IAS 1 | Classification of Liabilities as Current or Non-current | 23.01.2020 | 01.01.2023 | No material effects expected | | IAS 1 | Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies | 12.02.2021 | 01.01.2023 | No material effects expected | | IAS 8 | Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates | 12.02.2021 | 01.01.2023 | No material effects expected | | IAS 12 | Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single transaction | 07.05.2021 | 01.01.2023 | No material effects expected | 1)According to EU Endorsement Status Report of 01.02.2022. The following financial reporting standards have been adopted by the EU and were not applied early on a voluntary basis. They are not expected to have a significant impact on RHI Magnesita. | | | | | | | --- | --- | --- | --- | --- | | Standard | Title | Publication (EU endorsement)1) | Mandatory application for RHI Magnesita | Expected effects on RHI Magnesita Consolidated Financial Statements | | New standards | | | | | | Amendments of standards | | | | | | IFRS 17 | IFRS 17 Insurance Contracts (issued on 18 May 2017); including Amendments to IFRS 17 | 25.06.2020 | 01.01.2023 | not relevant | | IFRS 3, IAS 16, IAS 37 | 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 | 14.05.2020 | 01.01.2022 | No material effects expected | 1)According to EU Endorsement Status Report of 01.02.2022. 4. Other changes in comparative information Segment reporting As foundry is a very fragmented small customer industry and Segment Industrial is used to serve many more customers than only Segment Steel, given the multitude of different customer industries RHI Magnesita delivers to, the responsibility of the foundry business has been moved from the Segment Steel to Segment Industrial in 2021. The information for the previous year was adjusted accordingly, impacting segment revenue by €12.9 million, segment gross profit by €3.6 million and segment assets by €11.3 million. 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. The main operating companies of the RHI Magnesita Group and their core business activities are as follows: | | | | | --- | --- | --- | | Name and registered office of the company | Country of core activity | Core business activity | | RHI Magnesita Deutschland AG, Germany | Germany | Production | | Magnesit Anonim Sirketi, Turkey | Turkey | Mining, production, sales | | Magnesita Mineração S.A., Brazil | Brazil | Mining | | Magnesita Refractories Company, USA | USA | Mining, production, sales | | Magnesita Refractories GmbH, Germany | Germany | Production | | Magnesita Refratários S.A., Brazil | International | Production, sales | | RHI Magnesita Trading B.V., Netherlands | International | Procurement, sales, supply chain | | RHI Magnesita India Limited, India | India | Production, sales | | RHI Canada Inc., Canada | Canada | Production, sales, provision of services | | RHI Magnesita GmbH, Austria | International | Sales, R&D, financing | | RHI GLAS GmbH, Germany | International | Sales | | RHI Refractories (Dalian) Co., Ltd., PR China | PR China | Production | | RHI US Ltd., USA | USA | Production, sales, provision of services | | RHI-Refmex, S.A. de C.V., Mexico | Latin America | Sales | | Veitsch-Radex GmbH & Co OG, Austria | Austria | 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. Intangible 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 relations, 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 interests 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 deconsolidated on the day control ceases. Foundation of RHI Magnesita (Chongqing) Co., Ltd., Chongqing, China On 2 November 2021 RHI Magnesita Group has founded RHI Magnesita (Chongqing) Co., Ltd., Chongqing, China (RHIMNGG). The Group holds a stake of 51% in the share capital of the company. RHI Magnesita Group exercises control over RHIMNGG, as through voting rights and management representation, it has the power to steer the relevant activities of the business and can use this power to affect the variable returns from the company that it is exposed to. Therefore, RHIMNGG is a fully consolidated entity. The non-controlling interests have the option to put the remaining equity stake to RHI Magnesita in 2031. RHI Magnesita opts to account for the non-controlling interests in accordance with IFRS 10. Thus, the non-controlling interests are initially recognised in accordance with IFRS 3 within equity while the put option liability is initially recognised against the non-controlling interest, reducing it to zero. The put option liability is recognised as a financial liability in accordance with IFRS 9. Further information on the fair value of the put option is provided under Note (53). Disposal of RHI NORMAG AS and Premier Periclase Limited In line with the Group’s raw material strategy, the Group completed the disposal of RHI Normag AS, Porsgrunn, Norway and Premier Periclase Limited, Drogheda, Ireland on 1 February 2021, being classified as held for sale as at 31 December 2020. 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 €6.0 million 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. The gain on loss of control is presented as follows: | | | | --- | --- | | in € million | 01.02.2021 | | Loss on derecognition of net assets | (1.2) | | Recycling of OCI components to P&L | 8.0 | | Result from deconsolidation | 6.8 | | Cash consideration payable to the purchaser | (0.8) | | Gain from loss of control | 6.0 | As of 31 December 2021, further provisions for restructuring costs amounting to €4.2 million have been recognised for the exposure to an environmental guarantee and unfavourable contracts, see Note (33). The following assets and liabilities were disposed of as at 1 February 2021: | | | | --- | --- | | in € million | 01.02.2021 | | Non-current assets | 5.3 | | Inventories | 7.2 | | Trade receivables and other current assets | 2.0 | | Cash and cash equivalents | 4.0 | | Assets | 18.5 | | | | | Non-current liabilities | 1.4 | | Current liabilities | 15.9 | | Liabilities | 17.3 | Merger of Indian entities In June 2021 the two Indian subsidiaries RHI CLASIL Private Limited and RHI India Private Limited were merged into RHI Orient Refractories Limited (ORL), now renamed to RHI Magnesita India Limited, leaving RHI Magnesita with a share of 70.19% in ORL. As a result of this transaction, put options held by the minority shareholders were waived and consequently the current financial liability of €8.8 million was reclassified to non-controlling interest within equity. Further information is provided under Note (24) and (53). 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 company 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 liabilities 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 ventures 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 unsecured 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. Acquisition of Chongqing Boliang Refractory Materials Co., Ltd, Chongqing, China On 30 December 2021 RHI Magnesita Group has acquired a 51% ownership stake over Chongqing Boliang Refractory Materials Co., Ltd, Chongqing, China (RHIMNU), for a cash consideration of €5.2 million. RHI Magnesita Group has determined that it does not control Chongqing Boliang Refractory Materials Co., Ltd even though the Group owns 51% of the issued capital of this entity. The Group is not represented in the management board of the entity and does not have the power to direct the relevant activities of the entity, but participates in central financial policy-making choices, including decisions about dividends. RHI Magnesita Group has significant influence over RHIMNU. RHI Magnesita Group has the option to purchase the remaining equity stake from the JV partner in 2031 therefore. Disposal of Magnifin As MAGNIFIN Magnesiaprodukte GmbH & Co KG (“MAGNIFIN”), is not core to RHI Magnesita’s growth strategy, the 50% stake in Magnifin was sold as of 30 December 2021 for a cash consideration of €100.0 million to the joint venture partner J.M. Huber Corporation. The book value as of 31 December 2021 of the interest in the joint venture amounts to €0.0 million (31.12.2020: €15.8 million). Most of its profits are distributed and RHI Magnesita is entitled to receive the share of the dividend accordingly until closing. Further information is provided under Note (13). 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 Magnesita 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 expense 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 consequently 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 forward 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 respective 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. The Euro exchange rates of currencies important for the RHI Magnesita Group are shown in the following table: | | | | | | | | --- | --- | --- | --- | --- | --- | | | | Closing rate | | Average rate1) | | | Currencies | 1 € = | 31.12.2021 | 31.12.2020 | 2021 | 2020 | | Argentine Peso | ARS | 116.25 | 103.47 | 111.99 | 79.35 | | Brazilian Real | BRL | 6.30 | 6.38 | 6.38 | 5.83 | | Canadian Dollar | CAD | 1.44 | 1.57 | 1.49 | 1.53 | | Chinese Renminbi Yuan | CNY | 7.20 | 8.03 | 7.68 | 7.89 | | Indian Rupee | INR | 83.89 | 89.83 | 87.76 | 84.13 | | Mexican Peso | MXN | 23.12 | 24.45 | 24.20 | 24.48 | | Norwegian Krone | NOK | 9.98 | 10.50 | 10.21 | 10.76 | | Pound Sterling | GBP | 0.84 | 0.90 | 0.86 | 0.89 | | Swiss Franc | CHF | 1.03 | 1.08 | 1.08 | 1.07 | | South African Rand | ZAR | 17.97 | 17.97 | 17.60 | 18.72 | | Turkish Lira | TRY | 15.01 | 9.07 | 10.29 | 7.96 | | US Dollar | USD | 1.13 | 1.23 | 1.19 | 1.14 | 1) Arithmetic mean of the monthly closing rates. 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. 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. Given that globally there are currently few or no viable alternatives for the construction and automotive segments to use other than Steel and Industrial products such as Cement and Glass and given the production process for Steel and Industrial products is moving towards green production, which will still require very high temperatures, our refractory products, also in the green economy, will remain to be required. The raw materials to our refractory products, that are extracted from our mines, will therefore continue to be used in line with previously assessed economic useful life terms, based on our current assessment. However, there remains a level of uncertainty and our views may change over time. Therefore the number of years of depreciation and cash generation to offset the carrying value of these assets, have remained unchanged in our assessment. 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, economic 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 extension 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. Purchased intangible assets are measured at acquisition cost, which also includes acquisition-related costs, less accumulated amortisation 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 | 6 to 15 years | | Internally generated intangible assets | 4 to 18 years | | Other intangible assets | 4 to 65 years | Property, plant and equipment Property, plant and equipment is measured at acquisition or construction cost, less accumulated depreciation and accumulated impairment 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 of 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 capitalisation 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: | | | | --- | --- | | | | | Real estate, land and buildings | 8 to 50 years | | Technical equipment, machinery | 8 to 50 years | | Other plant, furniture and fixtures | 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 nine years for land and buildings, five years for technical equipment and three 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. 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 3.62%. 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 conditions of the lease. If the modification decreases the scope of the lease, the carrying amount of the Right-of-use asset and the lease liability 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 2021 amount to €2.2 million (31.12.2020: €4.5 million). The total cash outflow for leases in 2021 amounts to €19.6 million (31.12.2020: €21.7 million). The residual values and economic useful lives of property, plant and equipment, intangible assets and Right-of-use assets are reviewed regularly and adjusted if necessary. When components of plant or equipment have to be replaced at regular intervals, the relevant replacement costs are capitalised as incurred 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 live and goodwill are tested for impairment at least annually. 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. 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 recorded 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 presented 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 business unit, each industry line of business (Glass, Cement/Lime, Non-Ferrous Metals and Environment, Energy, Chemicals) forms a separate CGU. All raw material producing facilities are combined in one CGU. 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, energy and raw material prices. The detailed planning period was shortened by one year compared with the previous period and is now based on the Budget and Long-Term Plan for the next four years. This is a change in estimate compared to prior period. The detailed planning of the first four years is congruent with the strategic business and financial planning. Based on the detailed planning period, it is geared to a steady-state business development, which balances out possible economic or other non-sustainable fluctuations 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. RHI Magnesita is subject to environmental and other laws and regulations in various countries in which it operates and has established environmental policies and procedures aimed at compliance with these laws. RHI Magnesita has incorporated considerations for increased energy and raw material prices in its Budget and Long-Term Plan 2023-2025 and estimates the total increase in investments in research and development costs (related to both capitalisable assets and expenditure) until 2025 at approximately €50 million. Current technology used by the industries requiring advanced heat-resistant materials for their production depend on refractory materials and in our view will remain in use in the observable future. The impact of climate related risks on major assumption incorporated in forecasts and disclosures to relevant assets and obligations remains uncertain and therefore our estimations were not adjusted accordingly. This will remain an area of increased focus in the upcoming reporting period. 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 7.7% and 9.8% in the year 2021. In the previous year, the discount rates ranged between 7.4% and 9.5%. 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 2022 Budget and Long-Term Plan 2023 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 regional growth of the steel production and the output of the non-steel clients. In combination with the development of the specific refractory consumption, which considers technological improvements, the growth rates for the individual CGUs are determined. | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 2021 | | | 2020 | | | | | Discount rate before Tax | Perpetual annuity growth rate | Goodwill in € million | Discount rate before Tax | Perpetual annuity growth rate | Goodwill in € million | | Steel Division - Linings | 8.4% | 0.9% | 83.5 | 8.2% | 0.9% | 84.2 | | Steel Division - Flow Control | 8.7% | 0.9% | 29.6 | 8.1% | 0.9% | 25.0 | The remaining immaterial portion of goodwill amounting to €1.3 million (31.12.2020: €1.6 million) is allocated to the remaining CGUs, all of them having sufficient headroom. Given that globally there are currently few or no viable alternatives for the construction and automotive segments to use other than Steel and Industrial products such as Cement and Glass and given the production process for Steel and Industrial products is moving towards green production, which will still require very high temperatures, our refractory products, also in the green economy, will remain to be required. As a result, the goodwill that produces our refractory products will therefore continue to be used in line with previously assessed economic useful life terms, based on our current assessment. However, there remains a level of uncertainty and our views may change over time. Therefore the number of years of depreciation and cash generation to offset the carrying value of these assets, have remained unchanged in our assessment. Result of impairment test Based on the impairment test conducted at 31 December 2021, the recoverability of the assets was demonstrated for all CGUs. As in the previous year, no reversals of impairments were made in the financial year 2021. 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 another 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 in the previous reporting period 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 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 instruments. All other financial assets and financial liabilities are initially recognised on the date when they are originated. Financial instruments, except for trade receivables, are initially recognised at fair value. Financial assets are derecognised if the entity transfers substantially all the risks and rewards or if the entity neither transfers nor retains substantially all the risks and rewards and has not retained control. 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 are not designated in an effective hedging relationship in accordance with IFRS 9, 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 contracting party as well as interest rate swaps. 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. 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 liabilities 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 reporting 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 Statement 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 instrument relating to the effective portion of the hedge are recognised in Other Comprehensive Income and presented in the currency translation 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 Income is reclassified to the Statement of Profit or Loss. The Group uses a loan to hedge its exposure to foreign exchange risk on its investments in foreign subsidiaries. Capital shares of non-controlling interests in subsidiaries with a fixed term are recognised under other financial liabilities in the Consolidated Statement of Financial Position in accordance with IAS 32. The liabilities are measured at amortised cost. The share of profit attributable to non-controlling interests is recognised under other net financial expenses in the Statement of Profit or Loss. Dividend payments to non-controlling interests reduce liabilities. Furthermore, the RHI Magnesita Group entered into purchase obligations with non-controlling shareholders of a subsidiary. Based on these agreements, the shareholders received 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 was measured at amortised cost and changes were recorded in net finance costs. In 2021 the puttable non-controlling interests within equity were reclassified to equity upon completion of the merger of the Indian entities. Further information is provided under Note (24) and (53). Impairment of financial assets Impairment of certain financial assets is based on expected credit losses (ECL). Expected credit losses are defined as the difference between 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 applicable 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. 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 13.0% to 35.0% (31.12.2020: 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 purchased 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. Valuation allowances are calculated in accordance with the simplified approach of the impairment model for financial instruments (see impairment 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. 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. 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 effective 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 expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing 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 dependents, 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 contribution 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, retirement 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 determine 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. 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 employees 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 shareholders approved the Rules Of The RHI Magnesita Long-Term Incentive Plan (the Rules). Share-options are granted to members of senior management of the Group in accordance with these Rules. 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 refractory, 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 demolition 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. Provisions for labour and civil contingencies are recognised for all risks referring to legal proceedings that represent probable loss. Assessment 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 research are recorded as income in general and administrative expenses. Revenue, income and expenses Revenue 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 variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable 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 component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and payment 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 performance 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 arrangements 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 promises 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. Revenue from services is recognised over time, using an input method to measure progress towards complete satisfaction of the service, because 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 performance) 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, revenue 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 estimation 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 warranties. 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 practical 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 comprehensive income. In such a case, income taxes are also recorded in equity or other comprehensive income. Since 2020 RHI Magnesita N.V., tax resident of 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 compensated (negative tax allocation payment) and this group member generates taxable income 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 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 five tax group members are obliged to transfer their profit or loss to RHI Magnesita Deutschland AG based on a profit or loss transfer agreement. Additionally, RHI Magnesita Deutschland AG, Wiesbaden, acts as the head of a tax group for VAT purposes with eight 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. 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 strategic business unit. The allocation 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 Magnesita 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 management for control and measurement, as well as property, plant and equipment, goodwill and other intangible assets, which are allocated 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 property, plant and equipment) are disclosed on the basis of the respective locations of the companies of the RHI Magnesita Group. 9. Critical accounting judgements 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, revenue and expenses are accounted for in the reporting period in which the change is made and in the affected future reporting periods. Critical accounting judgements 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. Own use exemption on physical delivery CO2-certificate forwards Due to the reduction of free CO2 emission certificates and the expectation of increased CO2 market prices, the Group is hedging the price risk by use of physical delivery forward purchases (for “own use”). The “Own use exemption” is important to prevent fair value accounting and thus avoid P&L volatility. The “Own use exemption” requires that all purchases via forward contracts will be utilised. Any surpluses from forwards must be settled and kept for future use. If the own use exemption is not met, the forwards will be recognised on Balance Sheet at fair value, with fair value remeasurement through P&L for the entire CO2 forward portfolio. The Group settles the forwards through physical delivery and does not intend to sell any (unexpected) surplus of CO2 emission certificates for speculative purposes. Therefore, in accordance with IFRS 9, the forward contracts are assessed to be off-balance executory contracts. There are no other critical accounting judgements 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. If intangible assets are identified, estimates are necessary for the determination of fair values by means of discounted cash flows, including 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 €1,370.5  million at 31 December 2021 (31.12.2020: €1,222.5 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 considering 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 2021 or by minus 10% in the contribution margin would not result in an impairment of goodwill recognised (carrying amount 31.12.2021: €114.4 million, 31.12.2020: €110.8 million) nor in an impairment charge to intangible assets with indefinite useful lives (carrying amount at 31.12.2021: €1.8 million and 31.12.2020: €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 parameter 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). | | | | | | | | --- | --- | --- | --- | --- | --- | | | | 31.12.2021 | | 31.12.2020 | | | in € million | Change of assumption in percentage points or years | Pension plans | Termination benefits | Pension plans | Termination benefits | | Present value of the obligations | | 495.0 | 44.1 | 523.3 | 46.4 | | Interest rate | +0.25 | (14.8) | (1.4) | (16.2) | (1.3) | | | (0.25) | 15.6 | 1.5 | 16.9 | 1.4 | | Salary increase | +0.25 | 0.7 | 1.4 | 1.6 | 1.3 | | | (0.25) | (0.7) | (1.4) | (1.5) | (1.3) | | Pension increase | +0.25 | 11.3 | - | 12.5 | - | | | (0.25) | (10.9) | - | (11.0) | - | | Life expectancy | +1 year | 19.8 | - | 21.3 | - | | | (1) year | (20.6) | - | (20.7) | - | 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. Further information on pensions is provided under Note (27). Other provisions The recognition and measurement of other provisions totalling €118.6 million (31.12.2020: €149.0 million) were based on the best possible 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 €154.0 million (31.12.2020: €154.2 million) would have to be increased by €0.1 million (31.12.2020: €0.3 million) or reduced by €0.2 million (31.12.2020: €0.3 million). Additional sources of estimation uncertainty with regard to climate change Net realisable value of inventories As stricter climate-related laws and regulations are expected to increase the demand for higher quality refractory products in customer industries, RHI Magnesita assesses that, overall, these events will not have an adverse effect on the net realisable value of the Group’s inventories. Useful lives and residual values Given that globally there are currently few or no viable alternatives for the construction and automotive segments to use other than Steel and Industrial products such as Cement and Glass and given the production process for Steel and Industrial products is moving towards green production, which will still require very high temperatures, our refractory products, also in the green economy, will remain to be required. As a result, the PPE that produces our refractory products will therefore continue to be used in line with previously assessed economic useful life terms, based on our current assessment. However, there remains a level of uncertainty and our views may change over time. Therefore the number of years of depreciation and cash generation to offset the carrying value of these assets, have remained unchanged in our assessment. Due to the high degree of estimation uncertainty around the impact of climate change and consequential changes in legislature, this conclusion may change in the future. #### NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 10. Goodwill Goodwill developed as follows: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Carrying amount at beginning of the year | 110.8 | 117.5 | | Additions initial consolidation | 0.0 | 3.8 | | Currency translation | 3.6 | (10.5) | | Carrying amount at year-end | 114.4 | 110.8 | 11. Other intangible assets Other intangible assets changed as follows in the financial year 2021: | | | | | | | | --- | --- | --- | --- | --- | --- | | in € million | Mining rights | Customer relationship | Internally generated intangible assets | Other intangible assets | Total | | Cost at 31.12.2020 | 133.1 | 95.1 | 62.0 | 121.3 | 411.5 | | Currency translation | 6.2 | 4.2 | 0.2 | 4.9 | 15.5 | | Additions | 0.0 | 0.0 | 8.8 | 9.9 | 18.7 | | Retirements and disposals | 0.0 | (0.1) | (0.1) | (4.1) | (4.3) | | Reclassifications | 0.0 | 0.0 | 0.0 | 13.4 | 13.4 | | Cost at 31.12.2021 | 139.3 | 99.2 | 70.9 | 145.4 | 454.8 | | Accumulated amortisation 31.12.2020 | 8.5 | 27.9 | 40.7 | 68.7 | 145.8 | | Currency translation | 0.5 | 1.6 | 0.2 | 2.3 | 4.6 | | Amortisation charges | 2.1 | 5.8 | 4.0 | 10.5 | 22.4 | | Impairment charges | 0.0 | 0.0 | 0.0 | 3.7 | 3.7 | | Retirements and disposals | 0.0 | 0.0 | (0.1) | (3.8) | (3.9) | | Reclassifications | 0.0 | 0.0 | 0.0 | (0.4) | (0.4) | | Accumulated amortisation 31.12.2021 | 11.1 | 35.3 | 44.8 | 81.0 | 172.2 | | Carrying amounts at 31.12.2021 | 128.2 | 63.9 | 26.1 | 64.4 | 282.6 | Other intangible assets changed as follows in the previous year: | | | | | | | | --- | --- | --- | --- | --- | --- | | in € million | Mining rights | Customer relationship | Internally generated intangible assets | Other intangible assets | Total | | Cost at 31.12.2019 | 169.1 | 109.3 | 52.4 | 134.1 | 464.9 | | Currency translation | (36.0) | (14.2) | (0.3) | (8.9) | (59.4) | | Additions | 0.0 | 0.0 | 9.9 | 3.1 | 13.0 | | Retirements and disposals | 0.0 | 0.0 | 0.0 | (11.0) | (11.0) | | Disposal group IFRS 5 | 0.0 | 0.0 | 0.0 | (0.2) | (0.2) | | Reclassifications | 0.0 | 0.0 | 0.0 | 4.2 | 4.2 | | Cost at 31.12.2020 | 133.1 | 95.1 | 62.0 | 121.3 | 411.5 | | Accumulated amortisation 31.12.2019 | 8.0 | 25.2 | 37.1 | 75.6 | 145.9 | | Currency translation | (1.7) | (3.4) | (0.1) | (3.6) | (8.8) | | Amortisation charges | 2.2 | 6.1 | 3.7 | 7.4 | 19.4 | | Impairment charges | 0.0 | 0.0 | 0.0 | 0.3 | 0.3 | | Retirements and disposals | 0.0 | 0.0 | 0.0 | (10.8) | (10.8) | | Disposal group IFRS 5 | 0.0 | 0.0 | 0.0 | (0.2) | (0.2) | | Accumulated amortisation 31.12.2020 | 8.5 | 27.9 | 40.7 | 68.7 | 145.8 | | Carrying amounts at 31.12.2020 | 124.6 | 67.2 | 21.3 | 52.6 | 265.7 | Internally generated intangible assets comprise capitalised software and product development costs. The customer relations of Magnesita have a carrying amount of €63.6 million (31.12.2020: €66.9 million) and a remaining useful life of 7 to 11 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 €20.0 million (31.12.2020: €21.1 million) and a remaining useful life of 16 to 56 years. There are no restrictions on the sale of intangible assets. 12. Property, plant and equipment Property, plant and equipment developed as follows in the year 2021 and in the previous year: | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | in € million | Real estate, land and buildings | Raw material deposits | Technical equipment, machinery | Other plant, furniture and fixtures | Prepayments made and plant under construction1) | Right-of-use assets | Total | | Cost at 31.12.2020 | 561.7 | 36.9 | 1,039.4 | 330.9 | 164.9 | 76.8 | 2,210.6 | | Currency translation | 17.8 | 0.7 | 32.7 | 8.3 | 4.0 | 2.5 | 66.0 | | Additions | 24.8 | 0.5 | 47.5 | 17.9 | 156.8 | 13.3 | 260.8 | | Reassessment / Modification of leases (IFRS 16) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | | Retirements and disposals | (4.1) | 0.0 | (18.5) | (5.4) | 0.0 | (5.6) | (33.6) | | Reclassifications | 31.6 | 0.4 | 42.5 | 27.7 | (116.0) | 0.0 | (13.8) | | Cost at 31.12.2021 | 631.8 | 38.5 | 1,143.6 | 379.4 | 209.7 | 87.1 | 2,490.1 | | Accumulated depreciation 31.12.2020 | 253.3 | 23.8 | 720.5 | 230.9 | 1.1 | 22.4 | 1,252.0 | | Currency translation | 4.6 | 0.2 | 19.2 | 5.8 | 0.0 | 0.7 | 30.5 | | Depreciation charges | 11.9 | 0.9 | 56.3 | 23.4 | 0.0 | 16.0 | 108.5 | | Impairment charges | 18.3 | 0.0 | 14.6 | 4.3 | 0.4 | 0.0 | 37.6 | | Retirements and disposals | (1.2) | 0.0 | (16.7) | (4.9) | 0.0 | (5.4) | (28.2) | | Reclassifications | (0.3) | 0.0 | (0.5) | 0.8 | 0.0 | 0.0 | 0.0 | | Accumulated depreciation 31.12.2021 | 286.6 | 24.9 | 793.4 | 260.3 | 1.5 | 33.7 | 1,400.4 | | Carrying amounts at 31.12.2021 | 345.2 | 13.6 | 350.2 | 119.1 | 208.2 | 53.4 | 1,089.7 | 1) Prepayments made and plant under construction include €6.0 million relating to intangible assets. | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | in € million | Real estate, land and buildings | Raw material deposits | Technical equipment, machinery | Other plant, furniture and fixtures | Prepayments made and plant under construction | Right-of-use assets | Total | | Cost at 31.12.2019 | 641.3 | 36.6 | 1,210.4 | 321.6 | 173.5 | 76.1 | 2,459.5 | | Currency translation | (50.8) | (2.1) | (92.3) | (9.2) | (17.1) | (7.6) | (179.1) | | Additions | 6.3 | 2.9 | 13.8 | 6.7 | 105.2 | 24.5 | 159.4 | | Additions initial consolidation | 2.0 | 0.0 | 0.3 | 0.1 | 0.0 | 0.0 | 2.4 | | Reassessment / Modification of leases (IFRS 16) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 2.5 | 2.5 | | Retirements and disposals | (5.4) | (0.3) | (61.2) | (10.1) | 0.0 | (8.6) | (85.6) | | Disposal group IFRS 5 | (47.8) | 0.0 | (57.6) | (25.0) | (1.9) | (10.1) | (142.4) | | Reclassifications | 16.1 | (0.2) | 26.0 | 46.8 | (94.8) | 0.0 | (6.1) | | Cost at 31.12.2020 | 561.7 | 36.9 | 1,039.4 | 330.9 | 164.9 | 76.8 | 2,210.6 | | Accumulated depreciation 31.12.2019 | 283.3 | 23.6 | 777.1 | 237.8 | 6.0 | 24.9 | 1,352.7 | | Currency translation | (6.6) | (0.6) | (37.8) | (4.9) | (0.3) | (2.8) | (53.0) | | Depreciation charges | 12.3 | 1.1 | 70.6 | 20.3 | 0.0 | 16.0 | 120.3 | | Impairment charges | 11.2 | 0.0 | 26.0 | 5.1 | 2.7 | 1.5 | 46.5 | | Retirements and disposals | (2.8) | (0.3) | (57.2) | (7.5) | 0.0 | (7.1) | (74.9) | | Disposal group IFRS 5 | (46.3) | 0.0 | (54.0) | (24.9) | (1.5) | (10.1) | (136.8) | | Reclassifications | 2.2 | 0.0 | (4.2) | 5.0 | (5.8) | 0.0 | (2.8) | | Accumulated depreciation 31.12.2020 | 253.3 | 23.8 | 720.5 | 230.9 | 1.1 | 22.4 | 1,252.0 | | Carrying amounts at 31.12.2020 | 308.4 | 13.1 | 318.9 | 100.0 | 163.8 | 54.4 | 958.6 | The item prepayments made and plant under construction includes plant under construction with a carrying amount of €179.2 million (31.12.2020: €147.6 million), with the expansion of a dolomite plant in Austria, representing the largest investment project under construction in 2020 and the expansion of a magnesite plant in Brazil representing the largest investment project under construction in 2021. 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 2021: | | | | | | | --- | --- | --- | --- | --- | | in € million | Right-of-use assets land and buildings | Right-of-use assets technical equipment and machinery | Right-of-use assets other equipment, furniture and fixtures | Total | | Cost at 31.12.2020 | 40.4 | 30.7 | 5.7 | 76.8 | | Currency translation | 1.0 | 1.3 | 0.2 | 2.5 | | Additions | 8.5 | 1.7 | 3.1 | 13.3 | | Reassessment / Modification of leases (IFRS 16) | 0.2 | (0.1) | 0.0 | 0.1 | | Retirements and disposals | (2.3) | (1.7) | (1.6) | (5.6) | | Cost at 31.12.2021 | 47.8 | 31.9 | 7.4 | 87.1 | | Accumulated depreciation 31.12.2020 | 9.3 | 9.8 | 3.3 | 22.4 | | Currency translation | 0.2 | 0.4 | 0.1 | 0.7 | | Depreciation charges | 8.2 | 5.8 | 2.0 | 16.0 | | Retirements and disposals | (2.3) | (1.6) | (1.5) | (5.4) | | Accumulated depreciation 31.12.2021 | 15.4 | 14.4 | 3.9 | 33.7 | | Carrying amounts at 31.12.2021 | 32.4 | 17.5 | 3.5 | 53.4 | The Right-of-use assets per category developed as follows as of 31 December 2020: | | | | | | | --- | --- | --- | --- | --- | | in € million | Right-of-use assets land and buildings | Right-of-use assets technical equipment and machinery | Right-of-use assets other equipment, furniture and fixtures | Total | | Cost at 31.12.2019 | 39.5 | 30.0 | 6.6 | 76.1 | | Currency translation | (2.0) | (5.2) | (0.4) | (7.6) | | Additions | 13.3 | 10.2 | 1.0 | 24.5 | | Reassessment / Modification of leases (IFRS 16) | 2.8 | 0.0 | (0.3) | 2.5 | | Retirements and disposals | (3.4) | (4.1) | (1.1) | (8.6) | | Disposal group IFRS 5 | (9.8) | (0.2) | (0.1) | (10.1) | | Cost at 31.12.2020 | 40.4 | 30.7 | 5.7 | 76.8 | | Accumulated depreciation 31.12.2019 | 15.5 | 7.0 | 2.4 | 24.9 | | Currency translation | (1.1) | (1.4) | (0.3) | (2.8) | | Depreciation charges | 7.2 | 6.7 | 2.1 | 16.0 | | Impairment charges | 0.0 | 1.3 | 0.2 | 1.5 | | Retirements and disposals | (2.5) | (3.6) | (1.0) | (7.1) | | Disposal group IFRS 5 | (9.8) | (0.2) | (0.1) | (10.1) | | Accumulated depreciation 31.12.2020 | 9.3 | 9.8 | 3.3 | 22.4 | | Carrying amounts at 31.12.2020 | 31.1 | 20.9 | 2.4 | 54.4 | Further detail on IFRS 16 related information is provided under Note (7) and (26). 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 | 31.12.2021 | 31.12.2020 | | Investments in joint ventures and associates | 5.7 | 16.3 | | Carrying amount at year-end | 5.7 | 16.3 | Joint ventures The RHI Magnesita Group held a share of 50% (2020: 50%) in MAGNIFIN Magnesiaprodukte GmbH & Co KG (“MAGNIFIN”), a private company based in St. Jakob, Austria. until 30 December 2021. The company’s core business activity is the production and sale of halogen-free flame retardants for plastics. The investment in MAGNIFIN was treated as a financial investment. MAGNIFIN was set up as an independent vehicle. RHI Magnesita had 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. Further information on the sale of the equity stake in Magnifin is provided under Note (5). The movement in the carrying amount of the share in MAGNIFIN in the RHI Magnesita’s Consolidated Financial Statements is shown below: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Proportional share of net assets at beginning of year | 10.9 | 14.1 | | Share of profit | 9.3 | 7.7 | | Share of other comprehensive income (remeasurement gains/(losses)) | 0.1 | (0.1) | | Dividends | (16.2) | (10.9) | | Other changes in value | 0.0 | 0.1 | | Proportional share of net assets | 4.1 | 10.9 | | Goodwill | 4.9 | 4.9 | | Disposal | (9.0) | 0.0 | | Carrying amount of investment | 0.0 | 15.8 | In addition, the Group holds interests in an immaterial joint venture with a carrying amount of €0.5 million as of 31 December 2021 (31.12.2020: €0.5 million). The Group’s share of the profit after income tax, other comprehensive income and total comprehensive income in 2021 amounts to €0.0 million (2020: less than €0.1 million). Associates On 30 December 2021 RHI Magnesita Group has acquired a 51% ownership stake over Chongqing Boliang Refractory Materials Co., Ltd, Chongqing, China (RHIMNU), for a cash consideration of €5.2 million. Further information on this acquisition is provided under Note (5). In 2019 the Group decided to restructure its Sinterdolime sourcing options in Europe and increase its vertical integration. As a result, operations will be suspended in the first quarter of 2022 and the equity accounted investment in Sinterco will be liquidated in 2023. 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. 14. Other non-current financial assets Other non-current financial assets consist of the following items: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Interests in subsidiaries not consolidated | 0.6 | 0.6 | | Marketable securities and shares | 13.7 | 13.5 | | Other non-current financial receivables | 0.3 | 0.4 | | Other non-current financial assets | 14.6 | 14.5 | Accumulated impairments on investments, securities and shares amount to €3.6 million (31.12.2020: €3.7 million). 15. Other non-current assets Other non-current assets include the following items: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Tax receivables | 27.1 | 14.5 | | Prepaid stripping costs | 9.3 | 8.4 | | Judicial deposits | 3.5 | 2.9 | | Plan assets from overfunded pension plans | 0.9 | 0.2 | | Prepaid expenses | 0.4 | 0.6 | | Other non-current assets | 41.2 | 26.6 | 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 tax loss carryforwards: | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 31.12.2021 | | 2021 | 31.12.2020 | | 2020 | | in € million | Deferred tax assets | Deferred tax liabilities | (Expense)/Income | Deferred tax assets | Deferred tax liabilities | (Expense)/Income | | Property, plant and equipment, intangible assets | 41.3 | 109.6 | 17.0 | 36.5 | 117.4 | 11.2 | | Inventories | 16.3 | 11.0 | (12.5) | 20.7 | 3.9 | (5.5) | | Trade receivables, other assets | 25.0 | 5.2 | (0.8) | 25.1 | 4.1 | 20.8 | | Pensions and other personnel provisions | 61.7 | 0.2 | (3.2) | 70.5 | 0.8 | (5.3) | | Other provisions | 25.5 | 0.3 | (1.4) | 26.3 | 0.4 | 11.8 | | Trade payables, other liabilities | 20.4 | 12.2 | (11.3) | 24.8 | 11.7 | (36.6) | | Tax loss carried forward | 102.3 | 0.0 | 16.0 | 88.6 | 0.0 | 16.8 | | Offsetting | (90.1) | (90.1) | 0.0 | (93.3) | (93.3) | 0.0 | | Deferred taxes | 202.4 | 48.4 | 3.8 | 199.2 | 45.0 | 13.2 | As of 31 December 2021, 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 €160.8 million (31.12.2020: €116.3 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 minimise the effects of economic uncertainty to reach an assessment that reflects the best analysis possible, considering the circumstances and information available. Based on this analysis it was concluded that there is no need for a material impairment of deferred tax assets. Tax loss carryforwards totalled €477.0 million in the RHI Magnesita Group as of 31 December 2021 (31.12.2020: €413.8 million). A significant part of the tax loss carryforwards originated in Brazil and Austria where their deduction can be carried forward indefinitely. Furthermore, there are substantial tax loss carryforwards in China expiring within the next five years. The annual compensation of tax loss carryforwards in Austria is limited to 75% and to 30% in Brazil’s respective taxable profits. Deferred taxes were not recognised on tax losses of €118.7 million (31.12.2020: €115.3 million). Of these losses, €0.4 million will expire in 2022,€9.3 million in 2023, €7.6 million in 2024, €1.9 million in 2025, €2.4 million in 2026, €0.2million in 2027, €0.3 million in 2028 (31.12.2020: €0,4 million in 2022, €5.2 million in 2023, €6.9 million in 2024, €1.2 million in 2025, €0.2 million in 2027 and €0.3 million in 2028), while the remainder will be carried forward indefinitely. Besides, no deferred tax assets were recognised for temporary differences totalling €216.0 million (31.12.2020: €89.7 million), which reverse until 2034. Taxable temporary differences of €814.4 million (31.12.2020: €721.0 million) and temporary deductible differences of €116.8 million (31.12.2020: €456.0 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: | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 31.12.2021 | | | 31.12.2020 | | | | in € million | Current | Non-current | Total | Current | Non-current | Total | | Deferred tax assets | 53.2 | 149.2 | 202.4 | 69.1 | 130.1 | 199.2 | | Deferred tax liabilities | (10.4) | (38.0) | (48.4) | (3.1) | (41.9) | (45.0) | 17. Inventories Inventories as presented in the Consolidated Statement of Financial Position consist of the following items: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Raw materials and supplies | 300.2 | 92.7 | | Work in progress | 151.5 | 102.5 | | Finished products and goods | 512.4 | 272.2 | | Prepayments made | 12.4 | 10.0 | | Inventories | 976.5 | 477.4 | Inventories include €6.9million (31.12.2020: €1.4 million) carried at net realisable value. Net write-down expenses amount to €3.4 million (2020: € 1.4 million). The Group has increased its stock of raw materials and finished goods to mitigate supply chain disruptions and to meet expected demand in 2022. There are no restrictions on the disposal of inventories. 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 | 31.12.2021 | 31.12.2020 | | Trade receivables | 403.7 | 254.3 | | Contract assets | 3.6 | 1.8 | | Other taxes receivable | 113.7 | 58.4 | | Receivables from dividends | 8.7 | 0.0 | | Receivables from employees | 5.4 | 8.9 | | Prepaid expenses | 3.9 | 4.2 | | Prepaid transaction costs related to financial liabilities | 2.6 | 2.3 | | Receivables from joint ventures and associates | 0.8 | 1.1 | | Receivables from property transactions | 1.3 | 1.6 | | Receivables from non-consolidated subsidiaries | 0.3 | 0.2 | | Emission rights | 0.0 | 2.0 | | Other current receivables | 24.2 | 17.0 | | Trade and other current receivables | 568.2 | 351.8 | | thereof financial assets | 414.4 | 255.6 | | thereof non-financial assets | 153.8 | 96.2 | RHI Magnesita entered into factoring agreements and sold trade receivables to financial institutions. The balance sold totalled €178.1 million as of 31 December 2021 (31.12.2020: €177.6 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. The increase compared to the prior year mainly results from the previous financial year’s low balance as well as import transactions and acquisitions of fixed assets at year-end. Further, this position contains a receivable of €12.1m (31.12.2020 €0.0m) that was recognised as a result of a successful judicial proceeding against tax authorities in Brazil relating to revenue based taxes. Other current receivables mainly consist of advances to suppliers not related to inventories. The increase compared to prior financial year mainly results from advances for IT services as well as custom and import related services and costs. 19. Income tax receivables Income tax receivables amounting to €35.1 million (31.12.2020: €27.7 million) are mainly related to income tax receivables relating to prior periods, tax prepayments and deductible withholding taxes. 20. Other current financial assets This item of the Consolidated Statement of Financial Position consists of the following components: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Derivatives in open orders | 2.4 | 0.0 | | Forward exchange contracts | 0.1 | 0.3 | | Current portion of non-current loans | 0.4 | 0.0 | | Other current financial assets | 2.9 | 0.3 | Accumulated impairments on other current financial receivables amount to €0.0 million (31.12.2020: €0.6 million). 21. Cash and cash equivalents This item of the Consolidated Statement of Financial Position consists of the following components: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Cash at banks | 564.0 | 571.2 | | Money market funds | 15.4 | 14.8 | | Cheques | 1.3 | 1.0 | | Cash on hand | 0.1 | 0.2 | | Cash and cash equivalents | 580.8 | 587.2 | Cash and cash equivalents include restricted cash totalling €19.7 million at 31 December 2021 (31.12.2020: €21.6 million). Restricted cash is mainly related to cash and cash equivalents at subsidiaries (mainly in China, India and Colombia) to which the Company only has limited access due to foreign exchange and capital transfer controls. In addition, €2.0 million (31.12.2020: 0.0 million) are held in escrow in Austria and are therefore not available for use by the Group. €17.3 million cash and cash equivalents (31.12.2020: €12.2 million) are accounted for by subsidiaries with non-controlling interests. 22. Share capital As at 31 December 2021 the authorised share capital of RHI Magnesita N.V. amounts to €100,000,000 divided into 100,000,000 ordinary shares, of which 46,999,019 (31.12.2020: 49,008,955) fully paid-in ordinary shares are issued and outstanding, taking into consideration the treasury shares amounting to 2,478,686 (31.12.2020: 468,750). 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 Magnesita shares with special control rights. 23. Group reserves Treasury shares In the course of the share buyback program which was initiated on 16 December 2020, completed on 13 April 2021, extended on 5 May 2021 and completed on 4 August 2021 the Company acquired additional 2,078,686 shares in treasury, Thereof 2,009,936 shares in treasury equalling €95.5 million in 2021 and 68,750 shares in treasury equalling €2.7 million in 2020. Additional paid-in capital At 31 December 2021 as well as at 31 December 2020, 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 distributions, 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 hedge reserves 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. Reserves for 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. 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 designated as the hedging instrument in net investment hedge in a foreign operation. 24. Non-controlling interests Non-controlling interests in Orient Refractories Ltd. In June 2021 the two Indian subsidiaries RHI CLASIL Private Limited and RHI India Private Limited were merged into RHI Orient Refractories Limited (ORL), now renamed to RHI Magnesita India Limited, leaving RHI Magnesita with a share of 70.19% in ORL. As a result, non-controlling interests hold a share of 29,81% (31.12.2020: 33.5%) in the listed company RHI Magnesita India Ltd. (in the following “ORL”), based in New Delhi, India. ORL is allocated to the Steel segment. The current reporting period and the previous reporting period need to be read in conjuction but are non- comparable as a consequence of the merger. Based on the net assets of the company, the carrying amount of the non-controlling interests is determined as follows: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Non-current assets | 51.1 | 29.1 | | Current assets | 153.9 | 56.1 | | Non-current liabilities | (2.8) | (3.5) | | Current liabilities | (80.9) | (23.0) | | Net assets before intragroup eliminations | 121.3 | 58.7 | | Intragroup eliminations | (0.5) | (0.1) | | Net assets | 120.8 | 58.6 | | Percentage of non-controlling interests | 29.8% | 33.5% | | Carrying amount of non-controlling interests | 36.0 | 19.6 | The aggregate Statement of Profit or Loss and Statement of Comprehensive Income are shown below: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Revenue | 167.4 | 77.0 | | Operating expenses, net finance costs and income tax | (146.9) | (68.6) | | Profit after income tax before intragroup eliminations | 20.5 | 8.4 | | Intragroup eliminations | 1.2 | 0.1 | | Profit after income tax | 21.7 | 8.5 | | thereof attributable to non-controlling interests of ORL | 6.6 | 2.8 | | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Profit after income tax | 21.7 | 8.5 | | Other comprehensive income/(loss) | 8.0 | (7.5) | | Total comprehensive income | 29.7 | 1.0 | | thereof attributable to non-controlling interests of ORL | 8.7 | 0.3 | The following table shows the summarised Statement of Cash Flows of ORL: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Net cash flow from operating activities | (1.4) | 8.1 | | Net cash flow from investing activities | (5.2) | (3.5) | | Net cash flow from financing activities | (3.6) | (3.2) | | Total cash flow | (10.2) | 1.4 | Net cash flow from financing activities includes dividend payments to non-controlling interests amounting to €1.4 million (2020: €1.1 million). In addition, non-controlling interests hold a share of 29,81% (31.12.2020: 33,5%) in one immaterial subsidiary with a carrying amount of the non-controlling interests amounts to €0.3 million as of 31 December 2021 (31.12.2020: €0.4 million) and a share of 49.0% in RHIMNGG founded on 2 November 2021 with a carrying amount of the non-controlling interests of €0.0 million as of 31 December 2021. Further information is provided under Note (5). 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 | Currency translation | | Accumulated other comprehensive income 31.12.2020 | (4.3) | | Unrealised results from currency translation | 2.1 | | Accumulated other comprehensive income 31.12.2021 | (2.2) | 25. Borrowings Borrowings include all interest-bearing liabilities due to financial institutions and other lenders. Borrowings have the following contractual remaining terms: | | | | | | | --- | --- | --- | --- | --- | | | Total | Remaining term | | | | in € million | 31.12.2021 | up to 1 year | 2 to 5 years | over 5 years | | Syndicated & Term Loan | 791.5 | 58.3 | 733.2 | 0.0 | | Bonded loans ("Schuldscheindarlehen") | 650.0 | 65.0 | 282.5 | 302.5 | | Other credit lines and other loans | 88.2 | 88.2 | 0.0 | 0.0 | | Accrued interest | 4.4 | 4.4 | 0.0 | 0.0 | | Total liabilities to financial institutions | 1,534.1 | 215.9 | 1,015.7 | 302.5 | | Other financial liabilities | 7.4 | 3.2 | 4.2 | 0.0 | | Capitalised transaction costs | (2.4) | (1.0) | (1.3) | (0.1) | | Borrowings | 1,539.1 | 218.1 | 1,018.6 | 302.4 | | | | | | | | --- | --- | --- | --- | --- | | | Total | Remaining term | | | | in € million | 31.12.2020 | up to 1 year | 2 to 5 years | over 5 years | | Syndicated & Term Loan | 613.0 | 40.6 | 572.4 | 0.0 | | Bonded loans ("Schuldscheindarlehen") | 400.0 | 0.0 | 100.0 | 300.0 | | Other credit lines and other loans | 88.2 | 83.4 | 4.8 | 0.0 | | Accrued interest | 4.4 | 4.4 | 0.0 | 0.0 | | Total liabilities to financial institutions | 1,105.6 | 128.4 | 677.2 | 300.0 | | Other financial liabilities | 11.9 | 4.3 | 7.6 | 0.0 | | Capitalised transaction costs | (3.0) | (1.2) | (1.7) | (0.1) | | Borrowings | 1,114.5 | 131.5 | 683.1 | 299.9 | In March 2021 RHI Magnesita took out a €65.0 million credit facility, maturing in March 2022. In October 2021, this facility was increased by €50.0 million to a total amount of €115.0 million and maturity has been extended until April 2023. A part of the proceeds of the loan were used to repay a €60.0 million 2-year revolving credit facility guaranteed by the Austrian export credit agency (OeKB), which remains committed and can be utilised until its maturity in March 2022. In August 2021 the CNY 100.0 million term loan in China, from which CNY 47.5m have been outstanding as of 31 December 2020 has been fully repaid. In November 2021 the Group exercised its second extension option and thereby extended the maturity of the revolving credit facility (€600.0 million) by one year to 2027. The third and last extension option could be requested in November 2022 and would further extend the maturity of the revolving credit facility to 2028. In December 2021 RHI Magnesita issued a Schuldscheindarlehen (“SSD”) bonded loan in the amount of €250.0 million with tenors ranging from 5.5 years to 10 years as well as a new term loan in the amount of €150.0 million and a maturity of 3.5 years. The proceeds of the new instruments will be used for general corporate purposes, including for example refinancing and potential acquisitions. The introduction of ESG-related pricing mechanics into the Group's financing facilities highlights RHI Magnesita’s commitment to sustainability. The margin under the USD term loan (USD 200.0 million) and revolving credit facility (€600.0 million) as well as the newly issued SSD bonded loan (€250.0 million) and EUR term loan (€150.0 million) will be adjusted based on the Group's EcoVadis rating performance. RHI Magnesita is currently rated 'Gold' by EcoVadis and will seek to further improve its ESG performance and ratings through the execution of its sustainability strategy. 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 3.5x as at 31 December 2021. Breach of covenants leads to an anticipated maturity of loans. During 2021 and 2020, the Group met all covenant requirements. Considering interest swaps, 70% (31.12.2020: 53%) of the liabilities to financial institutions carry fixed interest and 30% (31.12.2020: 47%) 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 | Cur- rency | 31.12.2021 Carrying amount in € million | Interest terms fixed until | Effective annual interest rate | Cur- rency | 31.12.2020 Carrying amount in € million | | 2022 | EURIBOR + margin | EUR | 403.3 | 2021 | EURIBOR + margin | EUR | 380.7 | | | 1.87% | EUR | 65.0 | | LIBOR + margin | USD | 15.3 | | | | | | | Interbank Deposit Certificate (CDI) + Margin | CNY | 19.9 | | | Variable rate + margin | EUR | 34.0 | | Various - Variable rate | Var. | 3.3 | | | Various - Variable rate | Var. | 12.5 | | Variable rate + margin | EUR | 94.0 | | 2023 | 0.79% | EUR | 374.7 | 2022 | 1.87% | EUR | 65.0 | | | 4.09% | USD | 176.8 | 2023 | 0.83% | EUR | 290.3 | | 2024 | 3.10% | EUR | 35.0 | | 3.94% | USD | 162.6 | | 2025 | 1.00% | EUR | 177.0 | 2024 | 3.10% | EUR | 35.0 | | 2027 | 1.00% | EUR | 152.0 | 2026 | 1.10% | EUR | 27.0 | | 2028 | 0.92% | EUR | 86.5 | 2029 | 1.52% | EUR | 8.0 | | 2029 | 1.52% | EUR | 8.0 | | | | | | 2031 | 1.28% | EUR | 5.0 | | | | | | | | | 1,529.8 | | | | 1,101.1 | The table above shows how long the interest rates are fixed, rather than the maturity of the underlying instruments. In some cases, the terms to maturity of the contracts are substantially longer than the period during which interest terms are fixed. 26. Other financial liabilities Other financial liabilities include the negative fair value of derivative financial instruments as well as lease liabilities, fixed-term and puttable non-controlling interests in Group companies. The puttable non-controlling interests have been reclassified to non-controlling interests within equity upon completion of the merger of the Indian entities. Additional explanation on derivative financial instruments is provided under Note (54). This item of the Consolidated Statement of Financial Position consists of the following items: | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 31.12.2021 | | | 31.12.2020 | | | | in € million | Current | Non-current | Total | Current | Non-current | Total | | Derivatives from supply contracts | 0.0 | 0.0 | 0.0 | 1.6 | 0.0 | 1.6 | | Interest rate swaps | 0.0 | 9.6 | 9.6 | 0.0 | 18.3 | 18.3 | | Derivatives in open orders | 0.1 | 0.0 | 0.1 | 1.8 | 0.0 | 1.8 | | Derivative financial liabilities | 0.1 | 9.6 | 9.7 | 3.4 | 18.3 | 21.7 | | Lease liabilities | 16.1 | 39.4 | 55.5 | 12.2 | 44.6 | 56.8 | | Power supply contract Norway | 0.0 | 0.0 | 0.0 | 15.5 | 0.0 | 15.5 | | Fixed-term or puttable non-controlling interests | 3.0 | 57.0 | 60.0 | 12.9 | 25.9 | 38.8 | | Other financial liabilities | 19.2 | 106.0 | 125.2 | 44.0 | 88.8 | 132.8 | Further information on IFRS16 related information is provided under Note (7) and (43). 27. Provisions for pensions The net liability from pension obligations in the Consolidated Statement of Financial Position is as follows: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Present value of pension obligations | 495.0 | 523.3 | | Fair value of plan assets | (255.5) | (240.2) | | Deficit of funded plans | 239.5 | 283.1 | | Asset ceiling | 28.6 | 20.5 | | Net liability from pension obligations | 268.1 | 303.6 | | thereof assets from overfunded pension plans | 0.9 | 0.0 | | thereof pensions | 269.0 | 303.6 | The present value of pension obligations by beneficiary groups is as follows: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Active beneficiaries | 88.4 | 101.0 | | Vested terminated beneficiaries | 68.4 | 72.9 | | Retirees | 338.2 | 349.4 | | Present value of pension obligations | 495.0 | 523.3 | The calculation of pension obligations is based on the following actuarial assumptions: | | | | | --- | --- | --- | | in % | 31.12.2021 | 31.12.2020 | | Interest rate | 2.3% | 1.7% | | Future salary increase | 2.5% | 2.4% | | Future pension increase | 2.1% | 1.7% | 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 €100.5 million (31.12.2020: €111.8 million) of the present value of pension obligations and for €20.6 million (31.12.2020: €23.0 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 remuneration 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 commitments. 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 commitments 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 €146.3 million (31.12.2020: €155.2 million) of the present value of pension obligations and for €0.7 million (31.12.2020: €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 retirement. 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 €86.8 million (31.12.2020: €86.0 million) of the present value of pension obligations and for €79.0 million (31.12.2020: €70.2 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 opportunity 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 predominantly 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 2021 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 €67.1 million (31.12.2020: €63.7 million) of the present value of pension obligations and holds €95.7 million (31.12.2020: €84.2 million) of assets, although only €67.1 million (31.12.2020: €63.7 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 administered by a separate board of trustees which is legally separate from the company. The trustees are composed of representatives of both the employer and employees, plus an independent professional trustee. The trustees are required by law to act in the interest of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day to day administration of the benefits. 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 €44.1 million (31.12.2020: €52.3 million) of the present value of pension obligations and for €24.6 million (31.12.2020: €26.9 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 | 2021 | 2020 | | Net liability from pension obligations at beginning of year | 303.6 | 328.1 | | Currency translation | 2.5 | (13.2) | | Pension cost | 8.5 | 10.3 | | Remeasurement (gains)/losses | (26.0) | 0.6 | | Benefits paid | (17.6) | (18.6) | | Employers' contributions to external funds | (2.9) | (3.6) | | Net liability from pension obligations at year-end | 268.1 | 303.6 | The present value of pension obligations developed as follows: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Present value of pension obligations at beginning of year | 523.3 | 557.9 | | Currency translation | 15.4 | (34.7) | | Current service cost | 4.2 | 4.6 | | Interest cost | 8.9 | 10.9 | | Remeasurement (gains)/losses | | | | from changes in demographic assumptions | (3.7) | (1.0) | | from changes in financial assumptions | (24.1) | 24.3 | | due to experience adjustments | 6.0 | (8.6) | | Benefits paid | (34.4) | (30.6) | | Employee contributions to external funds | 0.5 | 0.5 | | Disposal due to settlement | (1.1) | 0.0 | | Present value of pension obligations at year-end | 495.0 | 523.3 | The movement in plan assets is shown in the table below: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Fair value of plan assets at beginning of year | 240.2 | 248.0 | | Currency translation | 14.5 | (22.9) | | Interest income | 5.1 | 6.0 | | Administrative costs (paid from plan assets) | (0.2) | (0.4) | | Income on plan assets less interest income | 10.4 | 17.4 | | Benefits paid | (16.8) | (12.0) | | Employers' contributions to external funds | 2.9 | 3.6 | | Employee contributions to external funds | 0.5 | 0.5 | | Disposal due to settlement | (1.1) | 0.0 | | Fair value of plan assets at year-end | 255.5 | 240.2 | The changes in the asset ceiling are shown below: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Asset ceiling at beginning of year | 20.4 | 18.0 | | Currency translation | 1.6 | (1.0) | | Interest expense | 0.4 | 0.4 | | Losses/(gains) from changes in asset ceiling less interest expense | 6.2 | 3.0 | | Asset ceiling at year-end | 28.6 | 20.4 | At 31 December 2021 the weighted average duration of pension obligations amounts to 12 years (31.12.2020: 13 years). The following amounts were recorded in the Consolidated Statement of Profit or Loss: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Current service cost | 4.2 | 4.6 | | Interest cost | 8.9 | 10.9 | | Interest income | (5.1) | (6.0) | | Interest expense from asset ceiling | 0.4 | 0.4 | | Administrative costs (paid from plan assets) | 0.2 | 0.4 | | Pension expense recognised in profit or loss | 8.6 | 10.3 | The remeasurement results recognised in other comprehensive income are shown in the table below: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Accumulated remeasurement losses at beginning of year | 170.0 | 169.7 | | Remeasurement losses on present value of pension obligations | (21.8) | 14.7 | | Income on plan assets less interest income | (10.4) | (17.4) | | Losses/(gains) from changes in asset ceiling less interest expense | 6.2 | 3.0 | | Reclassification to other reserves | (0.4) | 0.0 | | Accumulated remeasurement losses at year-end | 143.6 | 170.0 | The present value of plan assets is distributed to the following classes of investments: | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 31.12.2021 | | | 31.12.2020 | | | | in € million | Active market | No active market | Total | Active market | No active market | Total | | Insurances | 0.0 | 43.8 | 43.8 | 0.0 | 41.0 | 41.0 | | Equity instruments | 48.8 | 0.0 | 48.8 | 5.5 | 35.4 | 40.9 | | Debt instruments | 97.0 | 3.3 | 100.3 | 60.5 | 38.0 | 98.5 | | Cash and cash equivalents | 11.2 | 0.1 | 11.3 | 2.1 | 6.5 | 8.6 | | Other assets | 49.9 | 1.4 | 51.3 | 48.7 | 2.5 | 51.2 | | Fair value of plan assets | 206.9 | 48.6 | 255.5 | 116.8 | 123.4 | 240.2 | The present value of the insurances to cover the Austrian pension plans corresponds to the coverage capital. Insurance companies predominantly 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 independent 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 companies. 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 2022, RHI Magnesita expects employer contributions to external plan assets to amount to €3.0 million and direct payments to entitled beneficiaries to €19.2 million. In the previous year, employer contributions of €3.1 million and direct pension payments of €22.5 million had been expected for the financial year 2021. 28. Other personnel provisions Other personnel provisions consist of the following items: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Termination benefits | 44.1 | 46.4 | | Service anniversary bonuses | 21.4 | 19.4 | | Legacy share-based payment program | 0.0 | 0.1 | | Semi-retirements | 3.2 | 4.6 | | Other personnel provisions | 68.7 | 70.5 | Provisions for termination benefits Provisions for termination benefits were based on the following weighted average measurement assumptions: | | | | | --- | --- | --- | | in % | 31.12.2021 | 31.12.2020 | | Interest rate | 1.3% | 0.9% | | Future salary increase | 3.5% | 3.5% | The interest rate for the measurement of termination benefit obligations in the Euro area was determined taking into account the Company specific duration of the portfolio. Provisions for termination benefits developed as follows in the financial year and the previous year: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Provisions for termination benefits at beginning of year | 46.4 | 52.0 | | Currency translation | 0.0 | (0.1) | | Current service cost | 1.2 | 1.3 | | Interest cost | 0.4 | 0.6 | | Remeasurement losses/(gains) | | | | from changes in financial assumptions | (1.8) | 2.1 | | from changes in demographic assumptions | 1.9 | 0.0 | | due to experience adjustments | 0.5 | (1.9) | | Benefits paid | (4.8) | (7.5) | | Loss / (Gain) on settlement | 0.3 | (0.1) | | Provisions for termination benefits at year-end | 44.1 | 46.4 | Payments for termination benefits are expected to amount to €2.3 million in the year 2022. In the previous year, the payments for termination benefits expected for the year 2021 amounted to €2.9 million. The following remeasurement gains and losses were recognised in other comprehensive income: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Accumulated remeasurement losses at beginning of year | 27.6 | 27.5 | | Remeasurement losses/(gains) | 0.6 | 0.1 | | Reclassification to other reserves | (0.5) | 0.0 | | Accumulated remeasurement losses at year-end | 27.7 | 27.6 | At 31 December 2021 the weighted average duration of termination benefit obligations amounts to 14 years (31.12.2020: 12 years). Provisions for service anniversary bonuses The measurement of provisions for service anniversary bonuses is based on an average weighted interest rate of 0.8% (31.12.2020: 0.5%) and considers salary increases of 4.1% (31.12.2020: 3.5%). 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 | 31.12.2021 | 31.12.2020 | | Present value of semi-retirement obligations | 7.6 | 7.8 | | Fair value of plan assets | (4.4) | (3.2) | | Provisions for semi-retirement obligations | 3.2 | 4.6 | External plan assets are ring-fenced from all creditors and exclusively serve to meet semi-retirement obligations. 29. Other non-current provisions The development of non-current provisions is shown in the table below: | | | | | | | --- | --- | --- | --- | --- | | in € million | Onerous/unfavourable contracts | Labour and civil contingencies | Demolition/disposal costs, environmental damages | Total | | 31.12.2020 | 45.2 | 6.7 | 10.7 | 62.6 | | Currency translation | 0.5 | 0.0 | 0.9 | 1.4 | | Reversals | 0.0 | (1.5) | 0.0 | (1.5) | | Additions | 0.0 | 1.9 | 0.4 | 2.3 | | Additions interest | 5.2 | 0.0 | 0.3 | 5.5 | | Reclassifications | (7.8) | 0.0 | 1.1 | (6.7) | | 31.12.2021 | 43.1 | 7.1 | 13.4 | 63.6 | In November 2017, RHI Magnesita sold a plant located in Oberhausen, Germany, in order to satisfy the conditions imposed by the European 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 €43.1 million as of 31.12.2021 (31.12.2020: €45.2 million). The provision for labour and civil contingencies primarily comprises labour litigation provisions against RHI Magnesita totalling 258 cases amounting to €4.9 million (31.12.2020: €5.2 million). The provision for demolition and disposal costs and environmental damages primarily includes provisions for the estimated costs of mining site restoration of several mines in Brazil amounting to €2.9 million (31.12.2020: €2.3 million) and various sites in the United States amounting to €6.0 million (31.12.2020: €5.3 million). 30. Other non-current liabilities Other non-current liabilities consist of the following items: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Deferred income for subsidies received | 4.7 | 3.1 | | Liabilities to employees | 0.5 | 0.8 | | Miscellaneous non-current liabilities | 0.7 | 0.9 | | Other non-current liabilities | 5.9 | 4.8 | | thereof financial liabilities | 0.0 | 0.0 | | thereof non-financial liabilities | 5.9 | 4.8 | 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 | 31.12.2021 | 31.12.2020 | | Trade payables | 649.2 | 318.6 | | Contract liabilities | 57.9 | 46.2 | | Liabilities to employees | 80.9 | 88.8 | | Taxes other than income tax | 29.3 | 27.0 | | Payables from property transactions | 24.3 | 9.9 | | Payables from commissions | 7.3 | 5.6 | | Liabilities to joint ventures and associates | 1.3 | 1.2 | | Liabilities to non-consolidated subsidiaries | 0.7 | 0.7 | | Dividend liabilities | 0.4 | 0.4 | | Other current liabilities | 27.5 | 24.3 | | Trade payables and other current liabilities | 878.8 | 522.7 | | thereof financial liabilities | 688.5 | 337.6 | | thereof non-financial liabilities | 190.3 | 185.1 | Trade payables increased in line with the Group’s replenishment of raw material and finished goods stock, see Note (17). Trade payables include an amount of €142.0 million (31.12.2020: €43.5 million) for raw material purchases subject to supply chain finance arrangements. The increase in forfaiting considers to match the inventory ramp up of the company in order to avoid supply chain disruptions. Contract liabilities mainly consist of prepayments received on orders. In 2021 €46.2 million revenue was recognised related to contract liabilities recognised as at 31 December 2020. The item liabilities to employees primarily consists of obligations for wages and salaries, payroll taxes and employee-related duties, performance bonuses, unused vacation and flextime credits. As a result of the increase in prepayments made and plant under construction for property, plant and equipment payables from property transactions increased accordingly in 2021. Other current liabilities include €1.0 million (31.12.2020: €0.6 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 €38.2 million (31.12.2020: €25.8 million) primarily include income taxes for the current year and previous years, which domestic and foreign tax authorities have not definitively assessed. Considering many factors, including the interpretation and jurisprudence on the respective tax laws and previous experiences, adequate liabilities were recognised. 33. Current provisions The development of current provisions is shown in the table below: | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | in € million | Restructuring costs | | Demolition/ disposal costs, environmental damages | Warranties | Onerous/unfavourable contracts | Other | Total | | 31.12.2020 | 53.4 | | 7.8 | 9.9 | 12.9 | 2.4 | 86.4 | | Currency translation | (0.1) | | 0.0 | 0.1 | 0.2 | 0.0 | 0.2 | | Disposal of subsidiaries | 0.0 | | 0.0 | 0.0 | (3.3) | 0.0 | (3.3) | | Utilised | (23.7) | | (0.7) | (4.3) | (9.2) | (1.1) | (39.0) | | Reversals | (5.5) | | (0.4) | (3.4) | 0.0 | (0.2) | (9.5) | | Additions | 9.4 | | 0.5 | 1.8 | 2.4 | 0.1 | 14.2 | | Reclassifications | 0.0 | | (1.1) | 0.0 | 7.8 | (0.7) | 6.0 | | 31.12.2021 | | 33.5 | 6.1 | 4.1 | 10.8 | 0.5 | 55.0 | Provisions for restructuring costs amounting to €33.5 million as of 31 December 2021 (31.12.2020: €53.4 million) primarily consist of estimated benefit obligations to employees due to termination of employment and dismantling costs. Thereof, €14.9 million (31.12.2020: €22.5 million) relate to the plant closure in Mainzlar, Germany, €4.6 million (31.12.2020: €9.2 million) to the plant closure in Kruft, Germany, € 4.5 million (31.12.2020: €1.2 million) to the plant closure in Trieben, Austria and €1.0 million (31.12.2020: €0.5 million) to the plant closure in Evergem, Belgium. Further, € 3.1 million (31.12.2020: € 15.4 million) relate to other cost saving initiatives. In addition, provisions for restructuring costs amounting to €4.2 million relate to the sale of the plants in Porsgrunn, Norway and Drogheda, Ireland. Thereof, 3.9 million have been recognised for the exposure from an environmental guarantee. In 2021 €5.5 million (2020: €1.1 million) of provisions for restructuring costs were reversed mainly as a consequence of a revision of the estimate of redundancy costs payable. The item demolition and disposal costs, environmental damages includes an amount of €2.3 million (31.12.2020: €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 €8.0 million (31.12.2020: €7.6 million). The amortisation of this provision led to an income of €7.5 million in 2021 (31.12.2020: €13.1 million). In addition, provisions for other unfavourable contracts amount to €2.9 million (31.12.2020: €2.0 million). 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. #### 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 intangible 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 €36.7 million (2020: €37.8 million), of which development costs amounting to €8.7 million (2020: €7.2 million) were capitalised. Income from research grants amounted to €4.0 million (2020: €3.9 million) in 2021. Amortisation and impairment of development costs amounting to €3.5 million (2020: €3.6 million) are recognised under cost of sales. 38. Restructuring Production Optimisation Plan The Group continued the Production Optimisation Plan initiated in 2019 throughout 2021, which led to restructuring expenses amounting to €2.8 million (2020: €46.5 million) and non-current asset write-downs amounting to €41.3 million (2020: €28.1 million). Thereof €17.4 million (2020: €19.1 million) are allocated to Segment Steel and €23.9 million (2020: €9.0 million) are allocated to Segment Industrial. In September 2021, the plant in Dashiqiao, China, was shut down and production suspended. At the same time, the Group entered negotiations with the joint venture partner to exit the Liaoning RHI Jinding Magnesia Co., Ltd. undertaking, to give up the entity’s net assets in exchange for a waiver of the dividend payable amounting to €23.5 million as per 31 December 2021. These negotiations are still ongoing. The recoverable amount of Dashiqiao’s assets is deemed to be equal to the fair value less costs of disposal and was estimated with reference to the difference between net assets to be given up and the amount of the expected waiver of the dividend liability as per 31 December 2021. As a result, write-down expenses of €29.0 million have been recognised, of which €8.7 million are attributable to Segment Steel and €20.3 million are attributable to Segment Industrial. Further €2.4 million of idle costs were incurred until 31 December 2021 and recorded as restructuring expenses. For the final closure of plant Trieben, Austria, restructuring expenses amounting to €16.3 million have been recognised in 2021. These expenses mainly relate to dismantling and site clean-up costs amounting to €3.1 million and write-down expenses recognised on non-current assets amounting to €12.2 million, of which €8.6 million are attributable to Segment Steel and €3.6 million to Segment Industrial. The recoverable amount of these assets was estimated with reference to their expected scrap value, which is deemed negligible. In the course of the plant closure in Hagen, Germany, restructuring expenses totalling to €0.6 million have been recognised and land has been sold resulting in a gain from disposal amounting to €4.1 million in 2021. Organisational restructuring In 2020 management conducted 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, including reduction of management and implementation of a new structure. As this project is still ongoing, further restructuring expenses related to termination of employment costs amounting to €4.7 million (2020: €22.2 million) have been recognised in 2021. Divestment Norway and Ireland Following the sale of plants in Drogheda, Ireland, and Porsgrunn, Norway, in February 2021 expenses amounting to €9.9 million have been recognised. Thereof, expenses amounting to €6.6 million were incurred for the exposure to environmental risks. In 2020, write-down expenses on non-current assets amounted to €18.7 million. Summary of restructuring and write-down expenses recognised: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Production Optimisation Plan | (44.1) | (74.6) | | Organisational restructuring | (4.7) | (22.2) | | Divestment Norway and Ireland | (9.9) | (19.5) | | Other | (0.1) | 2.5 | | Restructuring and write-down expenses | (58.8) | (113.8) | 39. Other income The individual components of other income are: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Amortisation of Oberhausen provision | 7.5 | 13.1 | | Result from deconsolidation incl. recycling of OCI components to P&L | 6.8 | 0.0 | | Income from the disposal of non-current assets | 6.2 | 1.8 | | Result from derivatives from supply contracts | 1.6 | 0.0 | | Reversal of provisions | 0.5 | 0.5 | | Miscellaneous income | 6.5 | 4.3 | | Other income | 29.1 | 19.7 | The result from deconsolidation amounting to €6.8 million relates to the disposal of RHI Normag AS, Porsgrunn, Norway and Premier Periclase Limited, Drogheda, Ireland. 40. Other expenses Other expenses include: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Expenses for strategic projects | (4.7) | (6.9) | | Losses from the disposal of non-current assets | (2.6) | (6.4) | | Result from deconsolidation incl. recycling currency translation differences | (1.6) | (0.3) | | Result from derivatives from supply contracts | 0.0 | (9.6) | | Miscellaneous expenses | (5.6) | (3.0) | | Other expenses | (14.5) | (26.2) | Expenses for strategic projects amounting to €4.7 million (2020: €6.9 million) mainly include legal and consulting fees related to organisational streamlining and M&A. Miscellaneous expenses mainly consist of expenses related to prior years. 41. Interest income This item includes interest income on securities and shares amounting to €0.6 million (2020: €0.7 million) as well as on cash at banks and similar income amounting to €13.6 million (2020: €5.2 million) of which €10.9 million are related to the successful judicial proceeding against tax authorities in Brazil. Additional information is provided under Note (18). 42. Foreign exchange effects and related derivatives The net gain and expense on foreign exchange effects and related derivatives consists of the following items: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Foreign exchange gains | 119.7 | 147.1 | | Gains from related derivative financial instruments | 9.2 | 1.9 | | Foreign exchange losses | (121.7) | (190.4) | | Losses from related derivative financial instruments | (4.4) | (1.4) | | Net gain (expense) on foreign exchange effects and related derivatives | 2.8 | (42.8) | The net gain on foreign exchange effects in the current reporting period resulted mainly from the revaluation of the US Dollar against the Euro. 43. Other net financial expenses Other net financial expenses consist of the following items: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Interest income on plan assets | 4.7 | 5.9 | | Interest expense on provisions for pensions | (8.9) | (11.2) | | Interest expense on provisions for termination benefits | (0.4) | (0.6) | | Interest expense on other personnel provisions | 0.0 | (0.2) | | Net interest expense personnel provisions | (4.6) | (6.1) | | Unwinding of discount of provisions and payables | (6.8) | (9.6) | | Interest expense on non-controlling interests | (5.2) | (3.7) | | Interest expense on lease liabilities | (1.1) | (1.3) | | Reversal of impairment losses on securities | 0.2 | 0.0 | | Impairment losses on securities | 0.0 | (0.2) | | Income/Expenses from the valuation of NCI put options | 1.1 | (1.6) | | Other interest and similar expenses | (4.8) | (7.2) | | Other net financial expenses | (21.2) | (29.7) | 44. Income tax Income tax consists of the following items: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Current tax expense | (43.2) | (27.1) | | Deferred tax (expense)/income relating to | | | | temporary differences | (12.2) | (3.7) | | tax loss carryforwards | 16.0 | 16.9 | | | 3.8 | 13.2 | | Income tax | (39.4) | (13.9) | The current tax expense of the year 2021 includes tax expenses for previous periods of €3.8 million (2020: €2.5 million) and income from income tax relating to prior periods of €12.2 million (2020: €8.3 million). In 2021 the income tax for prior periods mainly includes an income resulting from tax audits of RHI Magnesita Group amounting to €9.2 million. In 2020 the income tax for prior periods mainly included 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. Regarding the recognition of tax expenses, deferred tax assets, and deferred tax liabilities, RHI Magnesita has evaluated the impacts of the economic scenario arising, mainly, out of COVID-19’s potentially delayed global recovery. In this context, the relevant uncertainties and potential negative effects of the downturn for the Group’s financial results were taken into consideration when evaluating the recoverability of the tax assets. Special focus was given to working with the latest forecasts and assumptions to minimise the effects of economic uncertainty to reach an assessment that reflects the best analysis possible, considering the circumstances and information available. Based on this analysis it was concluded that there is no need for an impairment of deferred tax assets. Information on tax contingencies is provided under Note (57). In addition to the income taxes recognised in the Statement of Profit or Loss, a tax expense totalling €3.1 million (2020: income totalling €41.1 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 | 2021 | 2020 | | Profit before income tax | 289.1 | 41.5 | | Income tax expense calculated at 25% (2020: 25%) | 72.3 | 10.4 | | Different foreign tax rates | 5.1 | 0.3 | | Expenses not deductible for tax purposes, non-creditable taxes | 17.6 | 14.6 | | Non-taxable income and tax benefits | (17.2) | (5.0) | | Tax losses and temporary differences of the financial year not recognised | 0.0 | 6.4 | | Utilisation of previously unrecognised loss carryforwards and temporary differences | (4.0) | (3.4) | | Recognition of previously unrecognised loss carryforwards and temporary differences | (37.9) | (14.2) | | Change in write down on deferred tax assets | 1.0 | 0.3 | | Deferred taxes not usable due to plant sale or closure | 8.2 | 16.0 | | Deferred tax expense due to tax rate changes | (0.2) | (6.6) | | Deferred income tax relating to prior periods | 2.6 | 0.4 | | Current income tax relating to prior periods | (8.4) | (5.9) | | Other | 0.3 | 0.6 | | Recognised tax expense | 39.4 | 13.9 | | Effective tax rate (in %) | 13.6% | 33.5% | In 2021 expenses not deductible for tax purposes included non-deductible personnel related expenses in Austria of €1.4 million, non-creditable withholding taxes of €1.8 million, non-deductible expenses for a debt waiver of€ 1.6 million, IT costs recharged from subsidiaries being non-deductible of €1.8 million, €2.6 million in Brazil relating to Transfer Price adjustments and non-deductible expenses due to thin capitalisation of €1.2 million in Argentina. In 2020 expenses not deductible for tax purposes included non-deductible voluntary leave payments in Austria of €1.7 million, nondeductible expenses for a share sale of €0.2 million, €4.9 million in Brazil, mainly due to taxation on foreign income of Brazilian controlled subsidiaries and non-deductible expenses due to thin capitalisation of €1.1 million in Argentina. Non-taxable income and tax benefits include non-taxable income from restructuring of €1.3 million in Austria, income of foreign permanent establishments non-taxable in Austria of €1.8 million, tax incentives from the SUDENE tax regime in Brazil of € 1.6 million and a tax depreciation of €7.5 million. In 2020 non-taxable income and tax benefits included non-taxable portions of a capital gain of €0.8 million or statutory adjustments of €0.7 million. Previously unrecognised temporary differences of €3.4 million could be utilised in Norway due to an asset sale. Furthermore, a deferred tax asset of €37.7 million was recognised resulting from a tax depreciation for future periods. On tax losses and temporary differences €9.1 million of potential deferred tax assets have not been recognised in China, thereof relating €8.2 million to a plant closure creating deferred tax assets not usable anymore due to limited planned taxable income in future years or leading to the write down of existing deferred tax assets. In 2020 the major effects include €9.4 million of deferred tax assets being recognised due to increased planned taxable income due to a restructuring and €16.0 million impairment of deferred tax assets in Norway due to the sale of the company holding those tax assets. Due to tax rate changes in Argentina from 30% to 35% an amount of €0.3 million increased the income from deferred income taxes in 2021. In 2020 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 income from deferred income taxes. 45. Expense categories The presentation of the Consolidated Statement of Profit or Loss is based on the function of expenses. The following table shows a classification by expense category for 2021 and the previous year: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Changes in inventories, own work capitalised | (259.0) | 19.3 | | Cost of materials | 1,414.9 | 1,013.1 | | Personnel costs | 547.6 | 575.6 | | Depreciation and amortisation charges | 131.1 | 139.7 | | Write-down expenses | 41.3 | 52.1 | | Other income | (41.2) | (32.4) | | Other expenses | 502.9 | 371.0 | | Total cost of sales, selling and marketing, administrative and restructuring expenses | 2,337.6 | 2,138.4 | Cost of materials includes expenses for raw materials and supplies and purchased goods of €1,189.4 million (2020: €827.9 million) as well as expenses for services received, especially energy, amounting to €225.5 million (2020: €185.2 million). Amortisation charges of intangible assets are largely recognised in cost of sales. Other expenses mainly include freight costs, commissions, travel costs as well as consulting and other outside services. 46. Personnel costs Personnel costs consist of the following components: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Wages and salaries | 415.2 | 443.3 | | Pensions | | | | Defined benefit plans | 4.4 | 5.1 | | Defined contribution plans | 4.8 | 6.2 | | Termination benefits | | | | Defined benefit plans | 1.2 | 1.7 | | Defined contribution plans | 1.4 | 1.4 | | Other expenses | 7.8 | 19.1 | | Social security costs | 86.6 | 73.7 | | Fringe benefits | 26.2 | 25.1 | | Personnel expenses (without interest expenses) | 547.6 | 575.6 | Personnel costs do not include amounts resulting from the interest accrued on personnel provisions. They amount to €4.6 million (2020: €6.0 million) and are recorded in other net financial expenses. The expenses for wages and salaries include €6.2 million (2020: €-3.0 million) for share based payments. #### 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 operating 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 translated 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 Statement 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 | | 2021 | 2020 | | Profit after income tax | | 249.7 | 27.6 | | Adjustments for | | | | | income tax | | 39.4 | 14.0 | | depreciation | | 108.7 | 120.3 | | amortisation | | 22.4 | 19.4 | | write-down of property, plant and equipment and intangible assets | | 41.3 | 46.8 | | income from the reversal of investment subsidies | | (0.9) | (0.6) | | write-ups / impairment losses on securities | | (0.2) | 0.2 | | gains / losses from the disposal of property, plant and equipment | | (6.3) | 0.1 | | gains / losses from the disposal of subsidiaries | | (5.2) | 0.3 | | net interest expense and derivatives | | 24.4 | 36.0 | | result from joint ventures and associates | | (100.2) | (7.6) | | other non-cash changes | | (12.7) | 23.2 | | Changes in working capital | | | | | inventories | | (474.3) | 64.2 | | trade receivables | | (132.6) | 35.9 | | contract assets | | (1.6) | (0.1) | | trade payables | | 314.8 | (5.8) | | contract liabilities | | 10.7 | 3.1 | | Changes in other assets and liabilities | | | | | other receivables and assets | | (56.9) | 13.1 | | provisions | | (49.0) | (4.1) | | other liabilities | | (24.8) | (19.4) | | Cash (used in) / generated from operations | | (53.3) | 366.6 | In 2021 cash generated from operations was negative due to the supply chain disruptions impacting the business, which resulted in increased working capital, especially in increased level of inventory of raw materials and finished goods. This is a non-recurring effect, as supply chains are expected to stabilise im 2022. Other non-cash expenses and income include mainly the net interest expenses for defined benefit pension plans amounting to €4.6 million (2020: €6.1 million), net remeasurement gains of monetary foreign currency positions and derivative financial instruments of €6.4 million (2020: €-4.3 million), foreign exchange effects and the amortisation of Oberhausen provision (see Note 39). 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: | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Cash changes | Non-cash changes | | | | | | in € million | | 31.12.2020 | | Changes in foreign exchange rates | Reclass | Interest expense and other changes | Additions and modifications of leases (IFRS 16) | 31.12.2021 | | Liabilities to financial institutions | 1,105.6 | | 390.1 | 15.0 | 0.0 | 23.4 | 0.0 | 1,534.1 | | Lease liabilities | 56.8 | | (17.4) | 1.6 | 0.0 | 1.1 | 13.4 | 55.5 | | Liabilities to fixed-term or puttable non-controlling interests | 38.8 | | (1.3) | 3.7 | (8.8) | 27.6 | 0.0 | 60.0 | | Other financial liabilities and capitalised transaction costs | 8.9 | | (5.4) | 0.3 | 0.0 | 1.2 | 0.0 | 5.0 | | Changes of financial liabilities and assets arising from financing activities | 1,210.1 | | 366.0 | 20.6 | (8.8) | 53.3 | 13.4 | 1,654.6 | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Cash changes | Non-cash changes | | | | | | in € million | 31.12.2019 | | Changes in foreign exchange rates | Disposal group IFRS 5 | Interest expense and other changes | Additions and modifications of leases (IFRS 16) | 31.12.2020 | | Liabilities to financial institutions | 1,043.1 | 51.1 | (15.1) | 0.0 | 26.5 | 0.0 | 1,105.6 | | Lease liabilities | 61.9 | (17.1) | (6.7) | (9.6) | 1.3 | 27.0 | 56.8 | | Liabilities to fixed-term or puttable non-controlling interests | 35.8 | (1.6) | (0.8) | 0.0 | 5.4 | 0.0 | 38.8 | | Other financial liabilities and capitalised transaction costs | 11.9 | (2.6) | (1.7) | 0.0 | 1.3 | 0.0 | 8.9 | | Changes of financial liabilities and assets arising from financing activities | 1,152.7 | 29.8 | (24.3) | (9.6) | 34.5 | 27.0 | 1,210.1 | | | | | | | | | | The reconciliation of the cash impact of net financing in 2021 and 2020 is shown in the tables below: | | | | | | | --- | --- | --- | --- | --- | | 2021 | | Reconciliation to cash net finance cost | | | | in € million | Profit or loss | financing cash movements | other cash and non-cash movements | Cash impact of net financing costs | | Interest income | 14.2 | 0.0 | 11.5 | 2.7 | | Interest expenses on borrowings | (20.7) | (4.4) | (4.4) | (20.7) | | Net expense on foreign exchange effects and related derivatives | 2.8 | 0.0 | 1.9 | 0.9 | | Other net financial expenses | (21.2) | (1.3) | (16.6) | (5.9) | | Net finance costs | (24.9) | | | (23.0) | | | | | | | | --- | --- | --- | --- | --- | | 2020 | | Reconciliation to cash net finance cost | | | | in € million | Profit or loss | financing cash movements | other cash and non-cash movements | Cash impact of net financing costs | | Interest income | 5.9 | 0.0 | (0.1) | 6.0 | | Interest expenses on borrowings | (20.1) | (4.2) | (4.4) | (19.9) | | Net expense on foreign exchange effects and related derivatives | (42.8) | 0.0 | (44.3) | 1.5 | | Other net financial expenses | (29.7) | (3.1) | (22.2) | (10.6) | | Net finance costs | (86.7) | | | (23.0) | Non cash-movements in interest income mainly consist of accrued interest on a tax benefit that was recognised as a result of a successful judicial proceeding against tax authorities in Brazil relating to revenue based taxes. Non-cash movements in other net financial expenses are mainly related to net interest expenses on personnel provisions and non-controlling interests as well as to expenses from the discount on provisions. 49. Total interest paid and interest received Total interest paid amounts to €29.8 million in the reporting period (2020: €31.7 million), of which €0.0 million (2020: €1.0 million) is included in cash flow from operating activities, €3.2 million (2020: €0.2 million) in cash flow from investing activities and €26.6 million (2020: €30.5 million) in cash flow from financing activities. Total interest received amounts to €2.7 million for the financial year 2021 (2020: €6.1 million), of which €0.0 million (2020: €0.2 million) are included in cash flow from operating activities and €2.7 million (2020: €5.9 million) in cash flow from investing activities. #### 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 2021 and the previous year: | | | | | | --- | --- | --- | --- | | 2021 in € million | Steel | Industrial | Group 2021 | | Revenue | 1,822.9 | 728.5 | 2,551.4 | | | | | | | Gross profit | 393.7 | 189.8 | 583.5 | | | | | | | EBIT | | | 213.8 | | Net finance costs | | | (24.9) | | Result from joint ventures and associates | | | 100.2 | | Profit before income tax | | | 289.1 | | | | | | | Depreciation and amortisation charges | (93.1) | (38.0) | (131.1) | | | | | | | Segment assets 31.12.2021 | 2,146.3 | 724.2 | 2,870.5 | | Investments in joint ventures and associates 31.12.2021 | | | 5.7 | | Reconciliation to total assets | | | 1,037.9 | | | | | 3,914.1 | | Investments in property, plant and equipment and intangible assets (according to non-current assets statement) | 196.0 | 83.5 | 279.5 | | | | | | | --- | --- | --- | --- | | 2020 in € million | Steel1) | Industrial1) | Group 2020 | | Revenue | 1,569.9 | 689.1 | 2,259.0 | | | | | | | Gross profit | 367.8 | 182.3 | 550.1 | | | | | | | EBIT | | | 120.6 | | Net finance costs | | | (86.7) | | Result from joint ventures and associates | | | 7.6 | | Profit before income tax | | | 41.5 | | | | | | | Depreciation and amortisation charges | (98.5) | (41.2) | (139.7) | | | | | | | Segment assets 31.12.2020 | 1,514.7 | 553.9 | 2,068.6 | | Investments in joint ventures and associates 31.12.2020 | | | 16.3 | | Reconciliation to total assets | | | 967.8 | | | | | 3,052.7 | | Investments in property, plant and equipment and intangible assets (according to non-current assets statement) | 127.1 | 47.7 | 174.8 | 1) Adjusted to reflect the changes in presentation. No single customer contributed 10% or more to consolidated revenue in 2021 and in 2020. Companies which are known to be part of a group are treated as one customer. 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 | Steel | Industrial | Group 2021 | | Shaped products | 842.7 | 518.9 | 1,361.6 | | Unshaped products | 338.2 | 146.0 | 484.2 | | Management refractory services | 575.0 | 0.0 | 575.0 | | Other | 67.0 | 63.6 | 130.6 | | Revenue | 1,822.9 | 728.5 | 2,551.4 | In 2020, revenue was classified by product group as follows: | | | | | | --- | --- | --- | --- | | in € million | Steel1) | Industrial1) | Group 2020 | | Shaped products | 738.5 | 484.3 | 1,222.8 | | Unshaped products | 279.1 | 143.9 | 423.0 | | Management refractory services | 481.2 | 0.0 | 481.2 | | Other | 71.1 | 60.9 | 132.0 | | Revenue | 1,569.9 | 689.1 | 2,259.0 | 1) Adjusted to reflect the changes in presentation. Total revenue includes revenue from Solution Business amounting to €749.2 million (2020: €618.3 million). Thereof, €659.9 million (2020: €537.5 million) are attributable to Segment Steel and €89.3 million (2020: €80.8 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 is typically characterised by sales of end-to-end solutions covering large parts of the customer process 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 €48.0 million (2020: €55.2 million) is transferred over time and an amount of €82.6 million (2020: €76.8 million) is transferred at a point of time. Segment reporting by country Revenue in 2021 is classified by customer sites as follows: | | | | | | --- | --- | --- | --- | | in € million | Steel | Industrial | Group | | Netherlands | 6.0 | 2.2 | 8.2 | | All other countries | | | | | USA | 364.1 | 52.7 | 416.8 | | India | 221.3 | 34.1 | 255.4 | | Brazil | 191.5 | 60.5 | 252.0 | | PR China | 73.8 | 127.4 | 201.2 | | Mexico | 89.1 | 40.7 | 129.8 | | Germany | 78.9 | 45.6 | 124.5 | | Italy | 73.8 | 23.6 | 97.4 | | Canada | 45.8 | 41.5 | 87.3 | | Russia | 52.7 | 21.6 | 74.3 | | Other countries, each below €44.3 million | 625.9 | 278.6 | 904.5 | | Revenue | 1,822.9 | 728.5 | 2,551.4 | Revenue in 2020 is classified by customer sites as follows: | | | | | | --- | --- | --- | --- | | in € million | Steel1) | Industrial1) | Group | | Netherlands | 6.3 | 6.0 | 12.3 | | All other countries | | | | | USA | 323.8 | 60.5 | 384.3 | | Brazil | 173.8 | 56.3 | 230.1 | | India | 161.7 | 25.9 | 187.6 | | PR China | 67.2 | 99.9 | 167.1 | | Mexico | 82.6 | 31.4 | 114.0 | | Germany | 68.4 | 45.2 | 113.6 | | Italy | 61.5 | 24.5 | 86.0 | | Russia | 59.5 | 17.9 | 77.4 | | Canada | 39.5 | 35.5 | 75.0 | | Other countries, each below €55.6 million | 525.6 | 286.0 | 811.6 | | Revenue | 1,569.9 | 689.1 | 2,259.0 | 1) Adjusted to reflect the changes in presentation. 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 | 31.12.2021 | 31.12.2020 | | Brazil | 396.5 | 338.2 | | Austria | 331.4 | 259.4 | | USA | 229.3 | 220.5 | | PR China | 161.8 | 177.4 | | Germany | 149.9 | 139.6 | | India | 71.0 | 61.6 | | Mexico | 35.7 | 34.9 | | France | 32.9 | 27.5 | | Turkey | 27.8 | 28.5 | | Other countries, each below €16.8 million (31.12.2020: €15.9 million) | 50.4 | 47.5 | | Goodwill, intangible assets and property, plant and equipment | 1,486.7 | 1,335.1 | 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 Magnesita N.V. by the weighted average number of shares outstanding during the financial year. | | | | | --- | --- | --- | | | 2021 | 2020 | | Profit after income tax attributable to the owners of the parent (in € million) | 243.1 | 24.8 | | Weighted average number of shares for basic EPS | 47,629,647 | 49,075,426 | | Effects of dilution from share options | 519,546 | 363,519 | | Weighted average number of shares for dilutive EPS | 48,149,193 | 49,438,945 | | Earnings per share basic (in €) | 5.10 | 0.51 | | Earnings per share diluted (in €) | 5.05 | 0.50 | 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 2021, there are 554,238 diluting options (31.12.2020: 363,519). 52. Dividend payments and proposed dividend The proposed dividend is subject to the approval of the Annual General Meeting on 25 May 2022 and was not recognised as a liability in the Consolidated Financial Statements 2021. Together with the already paid interim dividend of €0.50 per share in September, the final proposed dividend for 2021 will amount to €1.00 per share (2020:€1.50 per share). In line with the Group’s dividend policy the Board paid out an interim dividend in September 2021 of €0.50 per share for the first half of 2021 amounting to €24 million. Based on a resolution adopted by the Annual General Meeting of RHI Magnesita N.V. on 10 June 2021 the final dividend amounted to €1.00 per share for the shareholders of RHI Magnesita N.V for 2020. Together with the already paid interim dividend of €0.50 per share in December, the total dividend for 2020 amounted to €1.50 per share. Dividend payments to the shareholders of RHI Magnesita N.V. have no income tax consequences for RHI Magnesita N.V. 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. | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 31.12.2021 | | | | 31.12.2020 | | | in € million | | | Measurement category IFRS 91) | | Level | Carrying amount | Fair value | Carrying amount | Fair value | | Other non-current financial assets | | | | | | | | | | | Interests in subsidiaries not consolidated | | | FVPL | | 3 | 0.6 | 0.6 | 0.6 | 0.6 | | Marketable securities | | | FVPL | | 1 | 13.2 | 13.2 | 13.0 | 13.0 | | Shares | | | FVPL | | 3 | 0.5 | 0.5 | 0.5 | 0.5 | | Other non-current financial receivables | | | AC | | - | 0.3 | - | 0.4 | - | | Trade and other current receivables | | | AC | | - | 414.4 | - | 255.6 | - | | Other current financial assets | | | | | | | | | | | Derivatives | | | FVPL | | 2 | 2.5 | 2.5 | 0.3 | 0.3 | | Other current financial receivables | | | AC | | - | 0.4 | - | 0.0 | 0.0 | | Cash and cash equivalents | | | AC | | - | 580.8 | - | 587.2 | - | | Financial assets | | | | | | 1,012.7 | | 857.6 | | | Non-current and current borrowings | | | | | | | | | | | Liabilities to financial institutions | | | AC | | 2 | 1,534.1 | 1,551.6 | 1,105.6 | 1,118.3 | | Other financial liabilities and capitalised transaction costs | | | AC | | 2 | 5.0 | - | 8.9 | - | | Non-current and current other financial liabilities | | | | | | | | | | | Lease liabilities | | | AC | | 2 | 55.5 | - | 56.8 | - | | Derivatives | | | FVPL | | 2 | 0.1 | 0.1 | 3.4 | 3.4 | | Interest derivatives designated as cash flow hedges | | | - | | 2 | 9.6 | 9.6 | 18.3 | 18.3 | | Liabilities to fixed-term or puttable non-controlling interests2)4) | | | AC | | 2/3 | 60.0 | 60.0 | 38.8 | 38.8 | | Power supply contract Norway3) | | | AC | | 2 | 0.0 | 0.0 | 15.5 | 15.5 | | Trade payables and other current liabilities | | | AC | | - | 688.5 | - | 337.6 | - | | Financial liabilities | | | | | | 2,352.8 | | 1,584.9 | | | Aggregated according to measurement category | | | | | | | | | | | Financial assets measured at FVPL | | | | | | 16.8 | | 14.4 | | | Financial assets measured at amortised cost | | | | | | 995.5 | | 843.2 | | | Financial liabilities measured at amortised cost | | | | | | 2,343.1 | | 1,563.2 | | | Financial liabilities measured at FVPL | | | | | | 0.1 | | 3.4 | | 1)FVPL: Financial assets/financial liabilities measured at fair value through profit or loss. AC: Financial assets/financial liabilities measured at amortised cost. 2) Reclassification of puttable non-controlling interests amounting to €8.8m to non-controlling interest within equity upon completion of the merger of the Indian entities, see Note (5). 3) Relating to the termination of the power supply contract in the course of the sale of NORMAG; termination fee paid in January 2021. 4) Including the put option of the newly founded RHIMNGG amounting to €23.4 million, see Note (5). 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. 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: | Prices quoted in active markets for identical financial instruments. | | Level 2: | Measurement techniques in which all important data used are based on observable market data. | | Level 3: | 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 derivatives 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). 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. Puttable non-controlling interests in the amount of €8.8 million have been reclassified to non-controlling interest within equity upon completion of the merger of the Indian entities. Further information is provided under Note (5). In December 2021, RHI Magnesita recognised a put option liability related to the newly founded group company RHIMNGG in China (see Note 5), amounting to €23.4 million. The fair value is based on the present value of performance-related contractual cashflows with a maturity in 2031. The principal valuation parameters are deemed to be non-observable (Level 3). Other liabilities to fixed-term or puttable non-controlling interests are valued at Level 2 of the fair value hierarchy. The carrying amounts of financial receivables approximately correspond to their fair value as due to the amount of the existing receivables no material deviation between the fair value and the carrying amount is assumed and the credit default risk is accounted for by forming 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 2021 and 31 December 2020. Net results by measurement category in accordance with IFRS 9 The effect of financial instruments on the income and expenses recognised in 2021 and 2020 is shown in the following table, classified according to the measurement categories defined in IFRS 9: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | Net loss from financial assets and liabilities measured at fair value through profit or loss | 7.2 | (4.9) | | Net loss from financial assets and liabilities measured at amortised cost | (20.9) | (73.9) | 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 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 options. The net loss is mainly related to financial liabilities measured at amortised cost. Net finance costs include interest income amounting to €14.2 million (2020: €5.9 million) and interest expenses of €33.0 million (2020: €32.6 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 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 had been accounted for as a derivative financial instrument in accordance with IFRS 9, as the “own-use-exemption” was no longer applicable as the majority of the contracted electricity was sold on the market. From 30 June 2020 onward until final settlement, measurement of this financial instrument was based on the settlement payment and recognised as other financial liability. 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 applied. The term of the contract expired in the fourth quarter of 2021 and the corresponding financial liability has been reduced to €0.0 million (31.12.2020: €1.6 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 underlying 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 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 amortising interest rate swap with a nominal volume of €305.6 million maturing in 2023. As of December 2021, the outstanding amount of the interest rate swap was €259.7 million (31.12.2020: €290.3 million). The interest and compensation payments are due on a quarterly basis. Fixed interest rate amounts to 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 3.1%, the variable interest rate is based on the USD LIBOR. In December 2021, RHI Magnesita hedged two of the floating tranches from the issued €250.0 million bonded loans (“Schuldscheindarlehen”). One interest rate swap amounting to €97.5 million maturing in 2027 was fixed at 0.38%, the other interest rate swap amounting to €12.0 million maturing in 2028 was fixed at 0.48%. The interest and compensation payments for both swaps are due on a half-year basis. The fair values of the interest rate swaps totalled €-9.6 million at the reporting date (31.12.2020: €-18.3 million) and are shown in other non-current financial liabilities in the Consolidated Statement of Financial Position. For the reporting period 2021, €8.7 million (2020: €-3.6 million) have been recognised in other comprehensive income and an income amounting to €0.0 million (2020: €0.0) has been reclassified from other comprehensive to profit or loss and recognised within other net financial expenses. No ineffectiveness has been recognised in profit or loss. The financial effect of the hedged item and the hedging instrument for the period 2021 and 2020 is shown as follows: | | | | | | | --- | --- | --- | --- | --- | | in € million | Carrying amount | Statement of Financial Position | Change in fair value used for measuring ineffectiveness | Nominal amount | | 2021 | (9.6) | Other non-current financial liabilities | 8.7 | USD 200 million EUR 369.2 million | | 2020 | (18.3) | Other non-current financial liabilities | (3.6) | USD 200 million EUR 290.3 million | | | | | | --- | --- | --- | | in € million | Change in fair value used for measuring ineffectiveness | Change in fair value used to measure ineffetiveness net of deferred tax | | 2021 | 8.7 | 6.6 | | 2020 | (3.6) | (2.7) | Forward exchange contracts A forward exchange contract was put into place as of 31 December 2020, selling USD 100.0 million against EUR. As of 31 December 2021 there is no USD/EUR forward exchange contract outstanding. In addition, a forward exchange contract was put into place as of 30 June 2021 selling BRL 100.0 million against USD. The instrument has been rolled on a monthly basis, with a forward exchange contract in place as of 31 December 2021, in the amount of BRL 80.0 million, selling BRL against USD. Forward exchange contracts are renewed and rolled on a monthly basis depending on the current next exposure to the currency pairs. The nominal value and fair value of forward exchange contracts as of 31 December 2021 are shown in the table below: | | | | | | | --- | --- | --- | --- | --- | | | | 31.12.2021 | | | | Purchase | Sale | Nominal value in million | | Fair value in € million | | USD | BRL | BRL | 80.0 | 0.1 | | EUR | USD | USD | 0.0 | 0.0 | | Forward exchange contracts | | | | 0.1 | The nominal value and fair value of forward exchange contracts as of 31 December 2020 are shown in the table below: | | | | | | | --- | --- | --- | --- | --- | | | | 31.12.2020 | | | | Purchase | Sale | Nominal value in million | | Fair value in € million | | EUR | USD | USD | 100.0 | 0.3 | | Forward exchange contracts | | | | 0.3 | 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 €1,012.7 million (31.12.2020: €842.2 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 carried 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 | 31.12.2021 | 31.12.2020 | | Segment Steel | 300.4 | 183.3 | | Segment Industrial | 103.3 | 71.0 | | Trade receivables | 403.7 | 254.3 | | Credit insurance and bank guarantees | (206.2) | (83.2) | | Net credit exposure | 197.5 | 171.1 | 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: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | US Dollar | 59.9 | 39.8 | | Euro | 6.1 | 7.2 | | Pound Sterling | 2.7 | 6.8 | | Other currencies | 2.3 | 3.7 | | Other functional currencies | 332.7 | 196.8 | | Trade receivables | 403.7 | 254.3 | 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 | 2021 | | 2020 | | | | Individually assessed - credit impaired | Collectively assessed - not credit impaired | Individually assessed - credit impaired | Collectively assessed - not credit impaired | | Accumulated valuation allowance at beginning of year | 30.0 | 0.6 | 32.3 | 1.3 | | Currency translation | 0.3 | - | (1.6) | - | | Addition | 3.5 | - | 7.7 | - | | Use | (5.2) | - | (6.3) | - | | Reversal | (5.4) | - | (2.1) | - | | Net remeasurement of loss allowance | 0.0 | - | 0.0 | (0.7) | | Accumulated valuation allowance at year-end | 23.2 | 0.6 | 30.0 | 0.6 | 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. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | in € million | Trade receivables - days past due | | | | | | | | 31.12.2021 | 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 | | Expected credit loss rate in % | 0.03-0.37% | 0.06-0.86% | 0.25-8.09% | 0.52-17.84% | 0.91-27.98% | 3.01-50.55% | | | Gross carrying amount | 351.9 | 26.3 | 4.6 | 2.2 | 1.7 | (1.3) | 385.4 | | Life time expected credit loss | (0.4) | (0.1) | (0.1) | (0.1) | (0.1) | (0.2) | (1.0) | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | in € million | Trade receivables - days past due | | | | | | | | 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 | Total | | 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 | 222.8 | 13.3 | 2.80 | 1.30 | 2.00 | 0.2 | 242.4 | | Life time expected credit loss | 0.30 | 0.04 | 0.02 | 0.03 | 0.05 | 0.20 | 0.6 | Climate-related events or adverse changes in climate-related legislature could potentially affect the creditworthiness of customers, e.g. due to business interruption or lower profitability. RHI Magnesita has incorporated these considerations when incorporating forward-looking information into the expected credit loss estimation, and assessed that such events would have an immaterial impact on the estimated loss rates. 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 2021, RHI Magnesita has a committed Revolving Credit Facility (RCF) of €600.0 million, which was fully unutilised (31.12.2020: committed RCF was €600.0 million and was also unutilised). The €600.0 million committed RCF is a syndicated facility with multiple international banks and matures in 2027. The liquidity of the subsidiaries of the RHI Magnesita Group is managed regionally, continued access to liquidity and optimised cash levels is ensured by Corporate Treasury, which supports business needs and lowers borrowing costs. 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: | | | | | | | | --- | --- | --- | --- | --- | --- | | | | | Remaining term | | | | in € million | Carrying amount 31.12.2021 | Cash outflows | up to 1 year | 2 to 5 years | over 5 years | | Liabilities to financial institutions | | | | | | | fixed interest | 534.0 | 551.4 | 69.9 | 337.3 | 144.2 | | variable interest | 1,000.1 | 1,022.9 | 154.3 | 706.7 | 161.9 | | Other financial liabilities and capitalised transaction costs | 5.0 | 5.4 | 2.3 | 3.0 | 0.1 | | Lease liabilities | 55.5 | 59.9 | 16.9 | 29.7 | 13.3 | | Liabilities to fixed-term or puttable non-controlling interests | 60.0 | 197.9 | 3.0 | 20.0 | 174.9 | | Trade payables and other current liabilities | 688.5 | 688.5 | 688.5 | 0.0 | 0.0 | | Non-derivative financial liabilities | 2,343.1 | 2,526.0 | 934.9 | 1096.7 | 494.4 | | | | | | | | | --- | --- | --- | --- | --- | --- | | | | | Remaining term | | | | in € million | Carrying amount 31.12.2020 | Cash outflows | up to 1 year | 2 to 5 years | over 5 years | | Liabilities to financial institutions | | | | | | | fixed interest | 135.0 | 144.7 | 2.7 | 106.2 | 35.8 | | variable interest | 970.6 | 994.2 | 131.2 | 594.3 | 268.7 | | Other financial liabilities and capitalised transaction costs | 8.9 | 11.3 | 4.4 | 6.9 | 0.0 | | Lease liabilities | 56.8 | 61.8 | 14.2 | 32.3 | 15.3 | | Liabilities to fixed-term or puttable non-controlling interests | 38.8 | 170.2 | 12.9 | 11.9 | 145.4 | | Power supply contract Norway | 15.5 | 15.5 | 15.5 | 0.0 | 0.0 | | Trade payables and other current liabilities | 337.6 | 337.6 | 337.6 | 0.0 | 0.0 | | Non-derivative financial liabilities | 1,563.2 | 1,735.3 | 518.5 | 751.6 | 465.2 | Derivative financial instruments The remaining terms of derivative financial instruments based on expected undiscounted cash flow as of 31 December 2021 and 31 December 2020 are shown in the table below: | | | | | | | | --- | --- | --- | --- | --- | --- | | | | | Remaining term | | | | in € million | Carrying amount 31.12.2021 | Cash flows | up to 1 year | 2 to 5 years | over 5 years | | Receivables from derivatives with net settlement | | | | | | | Forward exchange contracts | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | | Derivatives in open orders | 2.4 | 2.4 | 2.4 | 0.0 | 0.0 | | Liabilities from derivatives with net settlement | | | | | | | Interest rate swaps | 9.6 | 12.5 | 7.5 | 4.9 | 0.1 | | Derivatives in open orders | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | | | | | | | | | --- | --- | --- | --- | --- | --- | | | | | Remaining term | | | | in € million | Carrying amount 31.12.2020 | Cash flows | up to 1 year | 2 to 5 years | over 5 years | | Receivables from derivatives with net settlement | | | | | | | Forward exchange contracts | 0.3 | 0.3 | 0.3 | 0.0 | 0.0 | | Liabilities from derivatives with net settlement | | | | | | | Derivatives from supply contracts | 1.6 | 1.6 | 1.6 | 0.0 | 0.0 | | Interest rate swaps | 18.3 | 9.6 | 4.7 | 4.9 | 0.0 | | Derivatives in open orders | 1.8 | 1.8 | 1.8 | 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 receivables 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 intragroup 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. Significant 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 2021: | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | in € million | USD | EUR | GBP | INR | Other | Total | | Financial assets | 654.7 | 56.0 | 14.5 | 30.3 | 68.4 | 823.9 | | Financial liabilities, provisions | (622.9) | (72.8) | (14.2) | (0.4) | (17.6) | (727.9) | | Net foreign currency position | 31.8 | (16.8) | 0.3 | 29.9 | 50.8 | 96.0 | The foreign currency positions as of 31 December 2020 are structured as follows: | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | in € million | USD | EUR | GBP | INR | Other | Total | | Financial assets | 663.6 | 72.6 | 21.8 | 9.4 | 40.6 | 808.0 | | Financial liabilities, provisions | (358.1) | (98.2) | 3.5 | 0.0 | (32.9) | (485.7) | | Net foreign currency position | 305.5 | (25.6) | 25.3 | 9.4 | 7.7 | 322.3 | 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. A 10% appreciation or devaluation of the relevant functional currency against the following major currencies as of 31 December 2021 would have had the following effect on profit or loss and equity (both excluding income tax): | | | | | | | --- | --- | --- | --- | --- | | | Appreciation of 10% | | Devaluation of 10% | | | in € million | Gain/(loss) | Equity | Gain/(loss) | Equity | | US Dollar | (19.1) | (8.6) | 23.3 | 10.6 | | Euro | 1.8 | 6.3 | (2.1) | (7.7) | | Indian Rupee | (2.7) | (2.7) | 3.3 | 3.3 | | Other currencies | (4.0) | (4.0) | 4.8 | 4.8 | The hypothetical effect on profit or loss at 31 December 2020 can be summarised as follows: | | | | | | | --- | --- | --- | --- | --- | | | Appreciation of 10% | | Devaluation of 10% | | | in € million | Gain/(loss) | Equity | Gain/(loss) | Equity | | US Dollar | (42.9) | (33.3) | 52.4 | 40.7 | | Euro | 2.0 | 12.0 | (2.5) | (14.7) | | British Pound Sterling | (2.0) | (2.0) | 2.4 | 2.4 | | Indian Rupee | (0.9) | (0.9) | 1.0 | 1.0 | | Other currencies | (0.7) | (0.7) | 0.9 | 0.9 | Net investment hedge Non-current borrowings as of 31 December 2021 include USD 200.0 million which have been designated as a hedge of the net investments 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 ineffectiveness to be recorded from net investments hedges. The impact of the hedging instrument for the period 2021 and 2020 is shown as follows: | | | | | | | --- | --- | --- | --- | --- | | in € million | Carrying amount | Statement of Financial Position | Change in fair value used for measuring ineffectiveness | Nominal amount | | 2021 | 176.8 | Non-current borrowings | (14.1) | USD 200 million | | 2020 | 162.6 | Non-current borrowings | 15.8 | 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 recognised in Other Comprehensive Income within the currency translation differences. The impact of the hedged item for the period 2021 and 2020 is shown as follows: | | | | | --- | --- | --- | | in € million | Change in fair value used for measuring ineffectiveness | Change in fair value used to measure ineffetiveness net of deferred tax | | 2021 | 14.1 | (10.6) | | 2020 | (15.8) | (11.9) | 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 2021, interest rate hedges amounting to a nominal value of €369.2 million (31.12.2020: €290.3 million) and a nominal value of USD 200.0 million (31.12.2020: USD 200.0 million) existed. In all cases, a variable interest rate was converted into a fixed interest rate through interest rate swaps. Further information is provided under Note (54). 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 2021 had been 25 basis points higher or lower, equity would have been €1.1 million (31.12.2020: €1.9 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 included in the calculation of the result-related sensitivities. If the market interest rate as of 31 December 2021 had been 25 basis points higher or lower, the interest result would have been €0.3 million (31.12.2020: €0.1 million) lower or higher. Other market price risk RHI Magnesita holds certificates in an investment fund amounting to €13.2 million (31.12.2020: €13.0 million) to provide the legally required 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. 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 capital 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: | | | | | --- | --- | --- | | | 31.12.2021 | 31.12.2020 | | Net debt (in € million) | 1,013.8 | 582.1 | | Net gearing ratio (in %) | 123.3% | 87.4% | | Net debt to adjusted EBITDA | 2.61x | 1.53x | Net debt, which reflects borrowings and lease liabilities net of cash and cash equivalents and marketable securities, is managed by Corporate 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. 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 liabilities. It is calculated as follows: | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | EBIT | 213.8 | 120.6 | | Amortisation | 22.4 | 19.4 | | Restructuring and write-down expenses | 58.8 | 113.8 | | Other operating income and expenses | (14.6) | 6.5 | | Adjusted EBITA | 280.4 | 260.3 | | Depreciation | 108.7 | 120.3 | | Adjusted EBITDA | 389.1 | 380.6 | | | | | | Total debt | 1,539.1 | 1,114.5 | | Lease liabilities | 55.5 | 56.8 | | Cash and cash equivalents 1) | 580.8 | 589.2 | | Net debt | 1,013.8 | 582.1 | | | | | | Net debt excluding IFRS 16 lease liabilities | 958.3 | 525.3 | | | | | | Net debt to adjusted EBITDA | 2.61x | 1.53x | | | | | | Net debt to adjusted EBITDA excluding IFRS 16 lease liabilities | 2.46x | 1.38x | 1) thereof shown under assets held for sale € 2.0 million in 2020. In both 2021 and 2020, 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 2021, warranties, performance guarantees and other guarantees amount to €52.5 million (31.12.2020: €48.0 million). Contingent liabilities have a remaining term between two months and three years, depending on the type of liability. Based on experiences of the past, the probability that contingent liabilities are used is considered to be low. In addition, contingent liabilities from sureties of €0.2 million (31.12.2020: €0.3 million) were recorded, of which €0.2 million (31.12.2020: €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 2021 or can potentially be exercised against RHI Magnesita in the future. The related risks were analysed with a view to their probability of occurrence. 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 obligation 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 judgements are based on a likely outcome approach based on in-house tax experts, professional firms, and previous experiences when assessing the risks. The Group is party to several tax proceedings in Brazil which involve estimated contingent liabilities amounting to €200.8 million (31.12.2020: €169.1 million). These tax proceedings are as follows: There are three proceedings in which Brazilian Federal Tax Authorities issued tax assessments rejecting the amortization of goodwill generated in two corporate operations executed between 2007 and 2008, which can be deducted for purposes of Corporate Income Taxes according to Brazilian laws and regulations. The first group of operations analysed involved the acquisition of shares of Magnesita S.A. by the GP Investment Group. The second group of operations analysed was the acquisition of companies outside of Brazil by the Group, whose control was then held by the Rhône Group. The Tax Authorities considered that the Group did not observe the formal and material requirements for the goodwill tax deductions, while the Group presented defenses in all proceedings claiming all requirements were met. The three proceedings are divided as follows: * Proceeding 1 (31.12.2021: €61.2 million; 31.12.2020: €59.3 million) comprises the deductions executed in 2008 and 2009 and is currently under trial in the Federal Administrative Council of Tax Appeals (“CARF”). The latest decision issued cancelled more than 90% of the tax assessment but is still subject to appeals filed by both the Group and the General Counsel to the National Treasury (“PGFN”). The final ruling for this proceeding is expected within one to two years. After the administrative trial ends, the Group may still challenge any residual charges before Judicial courts according to its convenience. * Proceeding 2 (31.12.2021: €40.6 million; 31.12.2020: €38.8 million) comprises the deductions executed in 2013, 2014, 2015, 2016, 2017 and 2018 and is currently under trial in CARF. The first CARF decision is expected within one to two years. After the administrative trial ends, the Group may still challenge any residual charges before Judicial courts according to its convenience. * Proceeding 3 (31.12.2021: €28.8 million; 31.12.2020: €27.7 million) comprises the deductions executed in 2011 and 2012 and is currently under trial in CARF. The latest decision issued cancelled 100% of the tax assessment but is still subject to appeals filed by both the Group and PGFN. The final ruling for this proceeding is expected within two to three years. After the administrative trial ends, the Group may still challenge any residual charges before Judicial courts according to its convenience. The Group is party to 42 proceedings where the Brazilian Mining Authorities (“ANM”) challenge the criteria used for calculating and paying the Financial Compensation for Exploration of Mineral Resources (“CFEM”), which are mining royalties paid to the Brazilian Federal Government by every mining company. In essence, the Authorities claim that CFEM should be paid based on production costs incurred in a later stage of the mineral processing flow, while the Group defends that CFEM should be paid based on production costs incurred in a prior stage of the mineral processing flow. Based on the opinion of its technical and legal advisors, the Group has presented defenses against all assessments sent by ANM, and most of the procedures are still ongoing within ANM administrative courts. Final decisions of the first cases are expected within four to five years. As of 31 December 2021, the potential risk amounts to €23.6 million, including interest and penalties (31.12.2020: €10.6 million). Furthermore, Brazilian Tax Authorities issued tax assessments against former Brazilian companies that were merged into Magnesita Refratários S.A., named Partimag and Edelweis. The assessments relate to the offsetting of federal tax credits and debts performed by such companies up to and including 2008, which have not been approved by Tax Authorities. Legal opinions demonstrate that the offsets executed are solidly based on supporting documentation and therefore the Group presented administrative and judicial defenses against the assessments in 17 procedures. The first final decisions are expected within three to four years. As of 31 December 2021, the potential risk amounts to €5.1 million, including interests and penalties (31.12.2020: €9.5 million). In 2020, the Group received a tax assessment in which Brazilian Federal Tax Authorities claim that Social Security Taxes (“PIS/COFINS”) were not correctly calculated in years 2017 and 2018. Authorities have stated that some financial revenues were not taxed and that some tax credits which were offset were not allowed. The Group presented its defense and currently the proceeding awaits trial in the first instance court of the Federal Revenue Service (“RFB”). A final decision is expected within four to five years. As of 31 December 2021, the potential risk amounts to €3.9 million, including interest and penalties (31.12.2020: €3.8 million). In 2020, Brazilian Federal Tax Authorities sent a tax assessment to the Group stating that some financial revenues were not taxed in year 2016 when an entity of the Group altered its tax regime for financial revenues from a cash to an accrual-based regime. Based on opinion of its legal advisor, the Group presented defenses claiming the assessment was void and that the calculations of the authorities were wrong and currently the proceeding awaits trial in the first instance court of the Federal Revenue Service (“RFB”). A final decision is expected within four to five years. As of 31 December 2021, the potential risk amounts to €3.8 million, including interest and penalties. In 2013, Brazilian Federal Tax Authorities raised a tax assessment affirming that the Group allegedly failed to pay Social Security Contributions (“INSS”) in the period from January to December 2009. Such contributions are calculated based on certain amounts that are included in the payroll of companies in Brazil and the authorities claimed that some values paid to employees were unduly not taxed. Legal opinions demonstrate that the Group has grounds for reversing the assessment. In 2021 the administrative proceeding ended, and a minor part of the assessment cancelled, therefore the Group has decided to continue challenging the assessment before Judicial courts. The final decision is expected within five to six years. As of 31 December 2021, the potential risk amounts to €3.7 million, including interest and penalties (31.12.2020: €3.1 million). In 2019, Brazilian Federal Tax Authorities rejected the offsetting of some federal tax debts with Corporate Income Tax credits the Group was entitled to in year 2015. Authorities claimed the credits were non-existent or did not comply with the formal requirements set for in Brazilian laws and regulations which allowed their utilisation. Legal opinions demonstrate that the Group and the tax credits are based on solid legal and material grounds. Therefore, the Company presented its defense and currently the proceeding awaits trial in the first instance court of the Federal Revenue Service (“RFB”). As of 31 December 2021, the potential risk amounts to €2.6 million, including interest and penalties (31.12.2020: €2.5 million). Group entities in Brazil are also involved in other minor lawsuits totaling €27.5 million (31.12.2020: €23.3 million) which relate to several 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 considering 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. In 2021, a judgement was rendered by the Federal Regional Court, in favor of Magnesita, maintaining the understanding that the requests of the Federal Public Attorney’s Office are devoid of legal merit. The final decision is expected in 5 years. The potential loss from this proceeding amounts to €11.6 million as of 31 December 2021 (31.12.2020: €10.6 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. 58. Other financial commitments Capital commitments amount to €35.5 million as at 31 December 2021 (31.12.2020: €49.5 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, natural 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 €410.8 million at the reporting date (31.12.2020: €219.2 million). The increase in other financial commitments in the current financial year compared to the previous year mainly results from energy supply contracts concluded or prolonged in 2021 as well as from increases in raw material and energy prices. 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 | 2021 | 2020 | | Audit of the Financial Statements | 2.8 | 2.6 | | thereof invoiced by PwC Accountants N.V. | 1.2 | 1.2 | | thereof invoiced by PwC network firms | 1.6 | 1.4 | | Tax compliance services | 0.0 | 0.0 | | Other non-audit services | 0.0 | 0.1 | | Total fees | 2.8 | 2.7 | In 2021, other audit related services, tax compliance services and other non-audit services amounting to €0.0 million (2020: €0.1 million) were performed and invoiced by PwC network firms outside of the Netherlands. The expensed fees for the audited financial statements in 2021 and 2020 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: | | | | | --- | --- | --- | | | 2021 | 2020 | | Salaried employees | 5,720 | 4,733 | | Waged workers | 6,564 | 7,831 | | Number of employees on annual average | 12,284 | 12,564 | 108 full time equivalents of salaried employees work in the Netherlands. In 2020 98 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 24.9, the personnel welfare foundation of Stopinc AG, Hünenberg, Switzerland, and Chestnut Beteiligungs GmbH, Germany also have to be considered related companies. 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 the Board of Directors of RHI Magnesita N.V. and the Executive Management Team. Related companies In 2021 and 2020, the Group conducted the following transaction with its related companies: | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Joint ventures | | Associates | | Non-consolidated subsidiaries | | | in € million | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | | Revenue from the sale of goods and services | 1.0 | 2.7 | 0.0 | 0.0 | 0.0 | 0.0 | | Purchase of raw materials | 5.0 | 2.7 | 14.4 | 14.6 | 0.0 | 0.1 | | Interest income | 0.1 | 0.1 | 0.2 | 0.8 | 0.0 | 0.0 | | | | | | | | | | Trade and other receivables | 0.0 | 0.2 | 0.0 | 0.0 | 0.3 | 0.2 | | Loans granted | 0.0 | 0.0 | 0.8 | 0.8 | 0.0 | 0.0 | | | | | | | | | | Trade liabilities | 0.0 | 0.3 | 1.3 | 0.9 | 0.7 | 0.7 | | | | | | | | | | Dividends received | 6.8 | 10.9 | 0.0 | 0.0 | 0.0 | 0.0 | In 2021 and 2020, 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 2021 and 2020, 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 (31.12.2020: €0.8 million) from a loan agreement with Sinterco. The balances at the end of 2021 are unsecured and will be paid in cash. In 2021 and 2020, no transactions were carried out between the RHI Magnesita Group and MSP Foundation and Chestnut Beteiligungs GmbH, 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 welfare 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 2021, no current accounts receivable existed (31.12.2020: €0.0 million). In the past reporting period, employer contributions amounting to €0.6 million (2020: €0.6 million) were made to the personnel welfare foundation. At 31 December 2021 a net defined benefit liability of €0.8 million (31.12.2020: €0.9 million) is recognised. Related persons Remuneration of key management personnel of the Group, which is subject to disclosure in accordance with IAS 24, comprises the remuneration of the active Board of Directors and the Executive Management Team (EMT) in 2021, 2020, 2019 and in 2018 as well as the former Management Board and Supervisory Board of RHI AG until October 2017. For the financial year 2021, expenses for the remuneration of the Executive Directors and EMT members, active in 2021, recognised in the Consolidated Statement of Profit or Loss total €10.4 million (2020: €9.8 million). The expenses, not including non-wage labour costs, amount to €9.4 million (2020: €9.1 million), of which €5.5 million (2020: €7.7 million) were related to current benefits (fixed, variable and other earnings) and €3.9 million (2020: €1.4 million) to share-based remuneration. At 31 December 2021, liabilities for performance-linked variable earnings and share-based payments for active members of the former Management Board of €1.1 million (2020: €2.5 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 program was terminated after RHI AG merged with and into RHI Magnesita N.V and the provisioned amount was paid in 2021 (€1.0 million paid in 2020). For Non-Executive Directors, remuneration totalling €1.2 million (2020: €1.1 million) was recognised through profit or loss in the year 2021. 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 compensation for their activity as Non-Executive Directors. For their activity as employees in the Company expenses of €0.4 million (2020: €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. Share Dealing reports of persons discharging managerial responsibilities are published on the websites of RHI Magnesita N.V. and via regulatory news services. 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 96 to 121 of the Annual Report of the RHI Magnesita Group. Earnings of former members of the former Management Board amounted to €0.6 million (2020: €0.7 million), of which €0.3 million (2020: €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 € 2.6 million in 2021 (2020: € 1.9 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 approved by shareholders at the Annual General Meeting held on 7 June 2018. The Group currently operates three different share option awards, one applicable for the financial year 2021, 2020 and 2019 each. The plan for the financial year 2018 expired on 7 June 2021. None of the performance targets have been met and the awards have therefore lapsed. The amounts recognised in equity relating to market-related performance condition were not subsequently reversed. Each share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry rights to dividends but no voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry, except for members of the Executive Management Team who have a holding period of two years. The number of options granted is approved by the Board in accordance with the Remuneration Policy, approved by the shareholders at the Annual General Meeting. 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 vesting date the options expire. Options are generally forfeited if the employee leaves the Group before the options vest. | | | | | --- | --- | --- | | | 2021 | 2020 | | LTIP 2021 | Number of options | Number of options | | As at 1 January | 0 | 0 | | Granted during the year | 172,623 | 0 | | Exercised during the year | 0 | 0 | | Forfeited during the year | (6,300) | 0 | | As at 31 December | 166,323 | 0 | | Vested and exercisable at 31 December | 0 | 0 | | | | | | --- | --- | --- | | | 2021 | 2020 | | LTIP 2020 | Number of options | Number of options | | As at 1 January | 363,519 | 0 | | Granted during the year | 12,158 | 370,014 | | Exercised during the year | 0 | 0 | | Forfeited during the year | (5,139) | (6,495) | | As at 31 December | 370,538 | 363,519 | | Vested and exercisable at 31 December | 0 | 0 | | | | | | --- | --- | --- | | | 2021 | 2020 | | LTIP 2019 | Number of options | Number of options | | As at 1 January | 169,517 | 179,775 | | Granted during the year | 6,445 | 4,797 | | Exercised during the year | 0 | 0 | | Forfeited during the year | (1,688) | (15,055) | | As at 31 December | 174,274 | 169,517 | | Vested and exercisable at 31 December | 0 | 0 | The options outstanding at 31 December 2021 have a weighted-average contractual life of 1.9 years. The outstanding share options for the LTIP 2019, which were granted on 19 August 2019, will expire on 20 August 2022. The fair value 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 fair value at grant date for the 370,014 options was €18.31. The outstanding share options for the LTIP 2021, which were granted on 15 March 2021, will expire on 16 March 2024. The fair value at grant date for the 167,037 options was €42.55. The assessed fair value at grant date of options of the LTIP 2019 granted during the year ended 31 December 2021 was €47.18 per option. The assessed fair value at grant date of options of the LTIP 2020 granted during the year ended 31 December 2021 was €19.70 per option. The assessed fair value at grant date of options of the LTIP 2021 granted during the year ended 31 December 2021 was €44.31 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 account 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 companies. The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans for 2021, for 2020 and 2019 were as follows: | | | | | --- | --- | --- | | LTIP 2021 in € million | | 2021 | | Fair value at grant date | | 7.4 | | Expected volatility (weighted-average) | | 46.73% | | Dividend yield | | 3.68% | | Risk-free interest rate | | 0.41% | | | | | | --- | --- | --- | | LTIP 2020 in € million | 2021 | 2020 | | Fair value at grant date | 7.3 | 6.6 | | Expected volatility (weighted-average) | 41.75% | 41.75% | | Dividend yield | 4.97% | 4.97% | | Risk-free interest rate | 0.51% | 0.51% | | | | | | --- | --- | --- | | LTIP 2019 in € million | 2021 | 2020 | | Fair value at grant date | 8.2 | 8.3 | | Expected volatility (weighted-average) | 30.36% | 30.36% | | Dividend yield | 4.28% | 4.28% | | Risk-free interest rate | 0.47% | 0.47% | For LTIP 2019 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). 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 Janet Ashdown Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg Janice Brown Marie-Hélène Ametsreiter Wolfgang Ruttenstorfer | John Ramsay David Schlaff Fiona Paulus Karl Sevelda Sigalia Heifetz | | | | | --- | --- | | Employee Representative Directors | | | Karin Garcia Michael Schwarz | Martin Kowatsch | 63. Material events after the reporting date RHI Magnesita has 63 staff based but no refractory production sites in Russia or Ukraine. Approximately 3.4% of Group revenues are from the CIS region in 2021. This business will be impacted by sanctions. Sanction escalation will be kept under close review to remain in full compliance. The main financial impact is estimated to come from higher energy costs. After the reporting date on 31 December 2021, there were no events of special significance which may have a material effect on the financial position and performance of the RHI Magnesita Group. #### Company Financial Statements of RHI Magnesita N.V. Company Balance Sheet as at 31 December 2021 (before appropriation of result) | | | | | | --- | --- | --- | --- | | in € million | Note | 31.12.2021 | 31.12.2020 | | ASSETS | | | | | | | | | | Non-current assets | | | | | Property, plant and equipment | | 0.5 | 0.3 | | Non-current financial assets | (A) | 644.8 | 480.6 | | Securities | | 0.5 | 0.5 | | Deferred tax assets | | 32.5 | 10.6 | | Total non-current assets | | 678.3 | 492.0 | | | | | | | Current assets | | | | | Receivables from group companies | | 138.1 | 165.8 | | Other current receivables | | 0.4 | 0.6 | | Cash and cash equivalents | (B) | 0.6 | 3.5 | | Total current assets | | 139.1 | 169.9 | | | | | | | Total assets | | 817.4 | 661.9 | | | | | | | | | | | | EQUITY AND LIABILITIES | | | | | | | | | | Equity | | | | | Share capital | (C) | 49.5 | 49.5 | | Additional paid-in capital | (D) | 361.3 | 361.3 | | Legal and mandatory reserves | (E) | 84.3 | 25.7 | | Other reserves | | 164.7 | 206.3 | | Treasury shares | (F) | (117.0) | (21.5) | | Result for the period | (I) | 243.1 | 24.8 | | Shareholders' Equity | | 785.9 | 646.1 | | | | | | | Non-current liabilities | | | | | Non-current liabilities | (G) | 2.0 | 0.0 | | | | | | | Current liabilities | | | | | Other current liabilities | (H) | 29.5 | 15.8 | | Total liabilities | | 31.5 | 15.8 | | | | | | | Total equity and liabilities | | 817.4 | 661.9 | Company Statement of Profit or Loss for the period 1 January 2021 to 31 December 2021 | | | | | | --- | --- | --- | --- | | in € million | Note | 2021 | 2020 | | General and administrative expenses | (J) | (25.5) | (18.6) | | Result before taxation | | (25.5) | (18.6) | | Net financial result | (K) | 0.1 | 0.4 | | Profit before income tax | | (25.4) | (18.2) | | Income tax | | 29.3 | 2.3 | | Net result from investments | (L) | 239.2 | 40.7 | | Net result for the period | (M) | 243.1 | 24.8 | #### Notes to the Company Financial Statements 2021 Movements in Shareholders’ Equity | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | Legal and mandatory reserves | | | | | | Other reserves | | | | 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 | | | | | | | | | | | | | | | | | | | 31.12.2020 | | | 49.5 | (21.5) | | 361.3 | | (13.7) | (249.3) | 288.7 | | | 206.3 | 24.8 | 646.1 | | Appropriation of prior year result | | | | | | | | | | | | | 24.8 | (24.8) | - | | Net result | | | | | | | | | | | | | | 243.1 | 243.1 | | Shares repurchased | | | | (95.5) | | | | | | | | | | | (95.5) | | Share-based expenses | | | | | | | | | | | | | 6.2 | | 6.2 | | Dividends | | | | | | | | | | | | | (71.2) | | (71.2) | | Net income / (expense) recognised directly in equity | | | | | | | | 6.6 | 52.0 | | | | (1.4) | | 57.2 | | 31.12.2021 | | | 49.5 | (117.0) | | 361.3 | | (7.1) | (197.3) | 288.7 | | | 164.7 | 243.1 | 785.9 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Legal and mandatory reserves | | | | Other reserves | | | | 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 | | | | | | | | | | | | | | 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 | - | - | - | - | - | - | | 139.0 | (139.0) | - | | Net result | - | - | - | - | - | - | | - | 24.8 | 24.8 | | Shares repurchased | - | (2.7) | - | - | - | - | | - | - | (2.7) | | Share-based expenses | - | - | - | - | - | - | | (3.1) | - | (3.1) | | Dividends | - | - | - | - | - | - | | (24.6) | - | (24.6) | | Net income / (expense) recognised directly in equity | - | - | - | (2.7) | (169.5) | - | | - | - | (172.2) | | 31.12.2020 | 49.5 | (21.5) | 361.3 | (13.7) | (249.3) | 288.7 | | 206.3 | 24.8 | 646.1 | 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, 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 included 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; 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 compensated (negative tax allocation payment) and this group member generates taxable income 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 terminated, 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. Fixed assets (A) Financial fixed assets The financial fixed assets comprise investments in: | | | | | | --- | --- | --- | --- | | | | 31.12.2021 | 31.12.2020 | | Name and registered office of the company | Country of core activity | Share in % | Share in % | | RHI Magnesita Deutschland AG, Wiesbaden, Germany | Germany | 12.5 | 12.5 | | RHI Refractories Raw Material GmbH, Vienna, Austria | Austria | 25.0 | 25.0 | | RHI Magnesita GmbH, Vienna, Austria | Austria | 100.0 | 100.0 | | RHI Magnesita Trading B.V., Rotterdam, Netherlands | Netherlands | 0.0 | 100.0 | As a result of the contribution of shares of RHI Magnesita Trading B.V. from RHI Magnesita N.V. to RHI Magnesita GmbH, the share in RHI Magnesita Trading B.V. was reduced to 0.0%. The investments have developed as follows: | | | | | --- | --- | --- | | in € million | 2021 | 2020 | | At beginning of year | 480.6 | 815.3 | | Transactions with non-controlling interests without change of control | (21.7) | 0.0 | | Capital contributions | 70.0 | 0.0 | | Changes from currency translation and cash flow hedges | 58.6 | (172.1) | | Changes from defined benefit plans | 20.2 | (0.2) | | Equity settled transaction | (2.1) | (3.1) | | Dividend distribution | (200.0) | (200.0) | | Net result from investments | 239.2 | 40.7 | | Balance at year-end | 644.8 | 480.6 | The following list, prepared in accordance with the relevant legal requirements (Dutch Civil Code, Book 2, Sections 379), shows all companies in which RHI Magnesita N.V. holds a direct or indirect share of at least 20% (with the exception of the RHISA Employee Trust): | | | | | | | | --- | --- | --- | --- | --- | --- | | | | 31.12.2021 | | 31.12.2020 | | | Ser. no. | Name and registered office of the company | Share- holder | Share in % | Share- holder | Share in % | | 1. | RHI Magnesita N.V., Arnhem, Netherlands | | | | | | | Fully consolidated subsidiaries | | | | | | 2. | Agellis Group AB, Lund, Sweden | 52. | 100.0 | 52. | 100.0 | | 3. | Baker Refractories Holding Company, Delaware, USA | 39. | 100.0 | 39. | 100.0 | | 4. | Baker Refractories I.C., Inc., Delaware, USA | 3. | 100.0 | 3. | 100.0 | | 5. | Baker Refractories, Las Vegas, USA | - | 0.0 | 39. | 100.0 | | 6. | Betriebs- und Baugesellschaft mit beschränkter Haftung - Bebau, Wiesbaden, Germany | - | 0.0 | 10. | 100.0 | | 7. | D.S.I.P.C.-Didier Société Industrielle de Production et de Constructions, Valenciennes,France | 10. | 100.0 | 10. | 100.0 | | 8. | Didier Belgium N.V., Evergem, Belgium | 67.,103. | 100.0 | 67.,101. | 100.0 | | 9. | Didier Vertriebsgesellschaft mbH, Wiesbaden, Germany | - | 0.0 | 10. | 100.0 | | 10. | RHI Magnesita Deutschland AG, Wiesbaden, Germany | 1.,52. | 100.0 | 1.,52. | 100.0 | | 11. | Dutch Brasil Holding B.V., Arnhem, Netherlands | 109. | 100.0 | 107. | 100.0 | | 12. | Dutch MAS B.V., Arnhem, Netherlands | 10. | 100.0 | 10. | 100.0 | | 13. | Dutch US Holding B.V., Arnhem, Netherlands | 109. | 100.0 | 107. | 100.0 | | 14. | FE "VERA", Dnepropetrovsk, Ukraine | 52. | 100.0 | 52. | 100.0 | | 15. | Feuerfestwerk Bad Hönningen GmbH, Wiesbaden, Germany | 114. | 100.0 | 112. | 100.0 | | 16. | GIX International Limited, Dinnington, United Kingdom | 115. | 100.0 | 113. | 100.0 | | 17. | INDRESCO U.K. Ltd., Dinnington, United Kingdom | 16. | 100.0 | 16. | 100.0 | | 18. | Intermetal Engineers Private Limited, Mumbai, India | 49. | 99.9 | 49. | 99.9 | | 19. | INTERSTOP (Shanghai) Co., Ltd., Shanghai, PR China | - | 0.0 | 106. | 100.0 | | 20. | Liaoning RHI Jinding Magnesia Co., Ltd., Dashiqiao City, PR China 1) | 52. | 83.3 | 52. | 83.3 | | 21. | LLC "RHI Wostok Service", Moscow, Russia | 52.,70. | 100.0 | 52.,70. | 100.0 | | 22. | LLC "RHI Wostok", Moscow, Russia | 52.,70. | 100.0 | 52.,70. | 100.0 | | 23. | Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft, Vienna, Austria | 94. | 100.0 | 92. | 100.0 | | 24. | LWB Holding Company, Delaware, USA | 53. | 100.0 | 53. | 100.0 | | 25. | LWB Refractories Belgium S.A., Liège, Belgium | 41.,114. | 100.0 | 41.,112. | 100.0 | | 26. | LWB Refractories Beteiligungs GmbH & Co. KG, Wiesbaden, Germany | 53. | 100.0 | 32.,53. | 100.0 | | 27. | LWB Refractories Hagen GmbH, Wiesbaden, Germany | 114. | 100.0 | 112. | 100.0 | | 28. | LWB Refractories Holding France S.A.S., Valenciennes, France | 114. | 100.0 | 112. | 100.0 | | 29. | Magnesit Anonim Sirketi, Eskisehir, Turkey 2) | 52. | 100.0 | 52. | 100.0 | | 30. | Magnesita Asia Refractory Holding Ltd, Hong Kong, PR China | 28. | 100.0 | 28. | 100.0 | | 31. | Magnesita Finance S.A., Luxembourg, Luxembourg | 11. | 100.0 | 46. | 100.0 | | 32. | Magnesita Grundstücks-Beteiligungs GmbH, Wiesbaden, Germany | - | 0.0 | 46. | 100.0 | | 33. | Magnesita International Limited, London, United Kingdom | 46. | 100.0 | 46. | 100.0 | | 34. | Magnesita Malta Finance Ltd., St. Julians, Malta | 35.,114. | 100.0 | 35.,112. | 100.0 | | 35. | Magnesita Malta Holding Ltd., St. Julians, Malta | 41.,114. | 100.0 | 41.,112. | 100.0 | | 36. | Magnesita Mineração S.A., Brumado, Brazil | 46. | 100.0 | 31.,46. | 100.0 | | 37. | Magnesita Refractories (Canada) Inc., Montreal, Canada | 3. | 100.0 | 3. | 100.0 | | 38. | Magnesita Refractories (Dalian) Co. Ltd., Dalian, PR China | 31. | 100.0 | 31. | 100.0 | | 39. | Magnesita Refractories Company, York, USA | 24. | 100.0 | 24. | 100.0 | | 40. | Magnesita Refractories Mexico S.A. de C.V., Monterrey, Mexico | 3.,4. | 100.0 | 3.,4. | 100.0 | | 41. | Magnesita Refractories GmbH, Wiesbaden, Germany | 114. | 100.0 | 112. | 100.0 | | 42. | Magnesita Refractories Ltd., Dinnington, United Kingdom | 3. | 100.0 | 3. | 100.0 | | 43. | Magnesita Refractories Middle East FZE, Dubai, United Arab Emirates | 31. | 100.0 | 31. | 100.0 | | 44. | Magnesita Refractories S.C.S., Valenciennes, France | 28.,114. | 100.0 | 28.,112. | 100.0 | | | | | | | | | --- | --- | --- | --- | --- | --- | | | | 31.12.2021 | | 31.12.2020 | | | Ser. no. | Name and registered office of the company | Share- holder | Share in % | Share- holder | Share in % | | 45. | Magnesita Refractories S.R.L., Milano, Italy | 114. | 100.0 | 112. | 100.0 | | 46. | Magnesita Refratários S.A., Contagem, Brazil | 11. | 100.0 | 11. | 100.0 | | 47. | Magnesita Resource (Anhui) Company. Ltd., Chizhou, PR China | 71. | 100.0 | 30. | 100.0 | | 48. | Mezubag AG, Freienbach, Switzerland | - | 0.0 | 106. | 100.0 | | 49. | RHI Magnesita India Limited | 11.,13.,115. | 66.5 | 13. | 66.5 | | 50. | Premier Periclase Limited, Drogheda, Ireland | - | 0.0 | 13. | 100.0 | | 51. | Producción RHI México, S. de R.L. de C.V., Ramos Arizpe, Mexico | 87.,115. | 100.0 | 85.,113. | 100.0 | | 52. | Radex Vertriebsgesellschaft m.b.H., Leoben, Austria | 111. | 100.0 | 109. | 100.0 | | 53. | Rearden G Holdings Eins GmbH, Wiesbaden, Germany | 31. | 100.0 | 31. | 100.0 | | 54. | Refractarios Argentinos S.A.I.C.M., San Nicolás, Argentina | 11.,56. | 100.0 | 46.,56. | 100.0 | | 55. | Refractarios Magnesita Chile S/A, Santiago, Chile | 46.,54. | 100.0 | 46.,54. | 100.0 | | 56. | Refractarios Magnesita Colombia S/A, Sogamoso, Colombia | 11. | 100.0 | 46. | 100.0 | | 57. | Refractarios Magnesita del Perú S.A.C., Lima, Peru | 11.,56. | 100.0 | 46.,56. | 100.0 | | 58. | Refractory Intellectual Property GmbH & Co KG, Vienna, Austria | 59.,70. | 100.0 | 59.,70. | 100.0 | | 59. | Refractory Intellectual Property GmbH, Vienna, Austria | 70. | 100.0 | 70. | 100.0 | | 60. | Reframec Manutenção e Montagens de Refratários S.A., Contagem, Brazil | 46. | 100.0 | 46. | 100.0 | | 61. | RHI Argentina S.R.L., Buenos Aires, Argentina | 13.,115. | 100.0 | 13.,113. | 100.0 | | 62. | RHI Canada Inc., Burlington, Canada | 115. | 100.0 | 113. | 100.0 | | 63. | RHI Chile S.A., Santiago, Chile | 16.,115. | 100.0 | 16.,113. | 100.0 | | 64. | RHI Clasil Private Limited, Mumbai India | - | 0.0 | 113. | 53.7 | | 65. | RHI Dinaris GmbH, Wiesbaden, Germany | 103. | 100.0 | 101. | 100.0 | | 66. | RHI Finance A/S, Hellerup, Denmark | 70. | 100.0 | 70. | 100.0 | | 67. | RHI GLAS GmbH, Wiesbaden, Germany | 103. | 100.0 | 101. | 100.0 | | 68. | RHI India Private Limited, Navi Mumbai, India | - | 0.0 | 11.,113. | 100.0 | | 69. | RHI ITALIA S.R.L., Brescia, Italy | 70. | 100.0 | 70. | 100.0 | | 70. | RHI Magnesita GmbH, Vienna, Austria | 1. | 100.0 | 1. | 100.0 | | 71. | RHI Magnesita China Ltd., Shanghai, China | 52. | 100.0 | - | 0.0 | | 72. | RHI Magnesita (Chongqing) Refractory Materials Co., Ltd. | 71. | 51.0 | - | 0.0 | | 73. | RHI Magnesita Distribution B.V., Rotterdam, Netherlands | 74. | 100.0 | 72. | 100.0 | | 74. | RHI Magnesita Trading B.V., Rotterdam, Netherlands | 70. | 100.0 | 1. | 100.0 | | 75. | RHI Magnesita Vietnam Company Limited, Ho Chi Minh City, Vietnam | 85. | 100.0 | 83. | 100.0 | | 76. | RHI Magnesita Services Europe Gerbstedt GmbH, Gerbstedt/Hübitz, Germany | 77. | 100.0 | 75. | 100.0 | | 77. | RHI Magnesita Services Europe GmbH, Kerpen, Germany | 10. | 100.0 | 10. | 100.0 | | 78. | RHI MARVO S.R.L., Ploiesti, Romania | 52.,109. | 100.0 | 52.,107. | 100.0 | | 79. | RHI Magnesita Properties MO, LLC, Missouri, USA | 110. | 100.0 | 108. | 100.0 | | 80. | RHI Normag AS, Porsgrunn, Norway | - | 0.0 | 52. | 100.0 | | 81. | RHI Refractories (Dalian) Co., Ltd., Dalian, PR China | 52. | 100.0 | 52. | 100.0 | | 82. | RHI Refractories (Site Services) Ltd., Dinnington, United Kingdom | 17. | 100.0 | 17. | 100.0 | | 83. | RHI Refractories Africa (Pty) Ltd., Sandton, South Africa | 52.,106. | 100.0 | 52.,104. | 100.0 | | 84. | RHI Refractories Andino C.A., Puerto Ordaz, Venezuela | 115. | 100.0 | 113. | 100.0 | | 85. | RHI Refractories Asia Pacific Pte. Ltd., Singapore | 70. | 100.0 | 70. | 100.0 | | 86. | RHI Refractories Egypt LLC., Cairo, Egypt, i.l. | 52.,109. | 100.0 | 52.,107. | 100.0 | | 87. | RHI Refractories España, S.L., Oviedo, Spain | - | 0.0 | 10.,12. | 100.0 | | 88. | RHI Refractories France SA, Valenciennes, France 3) | 107. | 100.0 | 105. | 100.0 | | | | | | | | | --- | --- | --- | --- | --- | --- | | | | 31.12.2021 | | 31.12.2020 | | | Ser. no. | Name and registered office of the company | Share- holder | Share in % | Share- holder | Share in % | | 89. | RHI Refractories Ibérica, S.L., Oviedo, Spain | 107. | 100.0 | 105. | 100.0 | | 90. | RHI Refractories Italiana s.r.l., Brescia, Italy | - | 0.0 | 105. | 100.0 | | 91. | RHI Refractories Liaoning Co., Ltd., Bayuquan, PR China 1) | 52. | 66.0 | 52. | 66.0 | | 92. | RHI Refractories Mercosul Ltda., Sao Paulo, Brazil | 109.,115. | 100.0 | 107.,113. | 100.0 | | 93. | RHI Refractories Nord AB, Stockholm, Sweden | 107. | 100.0 | 105. | 100.0 | | 94. | RHI Refractories Raw Material GmbH, Vienna, Austria | 1.,52.,70. | 100.0 | 1.,52.,70. | 100.0 | | 95. | RHI Refractories Site Services GmbH, Wiesbaden, Germany | 10. | 100.0 | 10. | 100.0 | | 96. | RHI Refractories UK Limited, Bonnybridge, United Kingdom | 10. | 100.0 | 10. | 100.0 | | 97. | RHI Refratários Brasil Ltda, Contagem, Brazil; i.l. | 13.,46. | 100.0 | 13.,36. | 100.0 | | 98. | RHI Sales Europe West GmbH, Urmitz, Germany | 10.,107. | 100.0 | 10.,105. | 100.0 | | 99. | RHI Trading (Dalian) Co., Ltd., Dalian, PR China | 52. | 100.0 | 52. | 100.0 | | 100. | RHI Ukraina LLC, Dnepropetrovsk, Ukraine | 52.,109. | 100.0 | 52.,107. | 100.0 | | 101. | RHI United Offices America, S.A. de C.V., Monterrey, Mexico | 74.,87. | 100.0 | 85.,100. | 100.0 | | 102. | RHI Refractories España, S.L., Lugones, Spain | 10.,12. | 100.0 | 85. | 100.0 | | 103. | RHI Urmitz AG & Co. KG, Mülheim-Kärlich, Germany | 10.,95. | 100.0 | 9.,10. | 100.0 | | 104. | RHI US Ltd., Delaware, USA | 13. | 100.0 | 13. | 100.0 | | 105. | RHI-Refmex, S.A. de C.V., Ramos Arizpe, Mexico | 87.,115. | 100.0 | 85.,113. | 100.0 | | 106. | RHISA Employee Trust, Sandton, South Africa 4) | - | 0.0 | - | 0.0 | | 107. | SAPREF AG für feuerfestes Material, Basel, Switzerland | 115. | 100.0 | 113. | 100.0 | | 108. | RHI Magnesita Interstop AG, Hünenberg, Switzerland | 10.,52. | 100.0 | 10.,52. | 100.0 | | 109. | Veitscher Vertriebsgesellschaft m.b.H., Vienna, Austria | 70. | 100.0 | 70. | 100.0 | | 110. | Veitsch-Radex America LLC., Delaware, USA | 104. | 100.0 | 102. | 100.0 | | 111. | Veitsch-Radex GmbH & Co OG, Vienna, Austria | 70.,112. | 100.0 | 70.,110. | 100.0 | | 112. | Veitsch-Radex GmbH, Vienna, Austria | 70. | 100.0 | 70. | 100.0 | | 113. | Veitsch-Radex Vertriebsgesellschaft m.b.H., Vienna, Austria | 70. | 100.0 | 70. | 100.0 | | 114. | Vierte LWB Refractories Holding GmbH, Wiesbaden, Germany | 26.,53. | 100.0 | 26.,53. | 100.0 | | 115. | VRD Americas B.V., Arnhem, Netherlands | 52.,70. | 100.0 | 52.,70. | 100.0 | | 116. | Zimmermann & Jansen GmbH, Wiesbaden, Germany | 10. | 100.0 | 10. | 100.0 | | | Subsidiaries not consolidated due to minor significance | . | | . | | | 117. | Dr.-Ing. Petri & Co. Unterstützungsgesellschaft m.b.H., Wiesbaden, Germany | 10. | 100.0 | 10. | 100.0 | | 118. | Guapare S.A, Montevideo, Uruguay | - | 0.0 | 46. | 100.0 | | 119. | Magnesita Refractories A.B., Stocksund, Sweden | 114. | 100.0 | 112. | 100.0 | | 120. | Magnesita Refractories PVT Ltd, Mumbai, India | 53.,114. | 100.0 | 53.,112. | 100.0 | | 121. | Magnesita Refractories S.A. (Pty) Ltd., Sandton, South Africa | 41. | 100.0 | 41. | 100.0 | | 122. | MAG-Tec Participações Ltda. Ltda., Contagem, Brazil; i.l. | 46. | 98.7 | 46. | 98.7 | | 123. | MMD Araçuaí Holding Ltda., São Paulo, Brazil | - | 0.0 | 46. | 100.0 | | 124. | Refractarios Especiales Y Moliendas S.A., Buenos Aires, Argentina; i.l. | 54. | 100.0 | 54. | 100.0 | | 125. | Refractarios Magnesita Uruguay S/A, Montevideo, Uruguay | 46. | 100.0 | 46. | 100.0 | | 126. | RHI Réfractaires Algérie E.U.R.L., Sidi Amar, Algeria | 86. | 100.0 | 86. | 100.0 | | | Equity-accounted joint ventures and associated companies | . | | . | | | 127. | Chongqing Boliang Refractory Materials Co. Ltd, Chongqing, China | 71. | 51.0 | - | 0.0 | | 128. | Magnesita Envoy Asia Ltd., Kaohsiung, Taiwan | 3. | 50.0 | 3. | 50.0 | | 129. | MAGNIFIN Magnesiaprodukte GmbH & Co KG, St. Jakob, Austria | - | 0.0 | 52.,128. | 50.0 | | 130. | Sinterco S.A., Nameche, Belgium | 53. | 70.0 | 53. | 70.0 | | | Other immaterial investments, measured at cost | . | | . | | | 131. | MAGNIFIN Magnesiaprodukte GmbH, St. Jakob, Austria | - | 0.0 | 52. | 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 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 2021, RHI Magnesita N.V.’s issued and fully paid-in share capital consists of 46,999,019 ordinary shares (31.12.2020: 49,008,955 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 the course of the share buyback program which was initiated on 16 December 2020, completed on 13 April 2021, extended on 5 May 2021 and completed on 4 August 2021 the Company acquired additional 2,078,686 shares in treasury, Thereof 2,009,936 shares in treasury equalling €95.5 million in 2021 and 68,750 shares in treasury equalling €2.7 million in 2020. Non-current liabilities (G) Other non-current liabilities | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Personnel provisions | 1.7 | 0.0 | | Other non-current financial liabilities | 0.3 | 0.0 | | Total non-current liabilities | 2.0 | 0.0 | Current liabilities (H) Other current liabilities | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Trade payables | 1.6 | 1.0 | | Payables to group companies | 21.5 | 9.4 | | Accrued liabilities | 6.4 | 5.4 | | Total current liabilities | 29.5 | 15.8 | The 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. Employee benefits | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | Wages and salaries | 19.7 | 9.5 | | Social security charges | 2.0 | 1.0 | | Pension contributions | 0.5 | 0.4 | | Other employee costs | 0.7 | 0.3 | | Total wages and salaries | 22.9 | 11.2 | (J) General and administrative expenses | | | | | --- | --- | --- | | in € million | 31.12.2021 | 31.12.2020 | | External services/consulting expenses | 2.6 | 3.7 | | Cost for principal services Austria | (3.0) | 2.2 | | Personnel expenses | 22.9 | 11.2 | | Other expenses | 3.0 | 1.5 | | Total general and administrative expenses | 25.5 | 18.6 | (K) Net financial result The 2021 net financial result mainly consists of €0.1 million dividends received on shares held (2020: €0.3 million). (L) Net results from investments In year 2021 the full year results of the investments amount to a profit of €239.2 million (2020: €40.7 million) and are recognised in the Company Statement of Profit or Loss. (M) Net result for the period In 2021, 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 | 2021 | | Profit attributable to shareholders | 243.1 | | In accordance with Article 27 clause 1 to be transferred to reserves | 0.0 | | At the disposal of the General Meeting of Shareholders | 243.1 | For 2021, the Board of Directors will propose a dividend of €1.00 per share for the shareholders of RHI Magnesita N.V. The proposed dividend is subject to the approval by the Annual General Meeting on 25 May 2022. Other notes Number of employees The average number of employees of RHI Magnesita N.V. during 2021 amounts to 67 (2020: 48). Off balance sheet commitments RHI Magnesita N.V. as an ultimate parent company provided a corporate guarantee of €1.530,3 million (31.12.2020: €1,086.5 million) for the borrowings of the Group. The Borrowings are as disclosed in Note (25). Additionally €79.2 million (31.12.2020: €36.0 million) of corporate guarantees are issued in favor of customers and suppliers of the Group. The increase results from the inventory ramp-up and the increase in demand following energy price highs. 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 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. Vienna, 27 February 2022 Board of Directors | | | | --- | --- | | Executive Directors | | | Stefan Borgas | Ian Botha | | | | | --- | --- | | Non-Executive Directors | | | Herbert Cordt Janet Ashdown Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg Janice Brown Marie-Hélène Ametsreiter Wolfgang Ruttenstorfer | John Ramsay David Schlaff Fiona Paulus Karl Sevelda Sigalia Heifetz | | | | | --- | --- | | Employee Representative Directors | | | Karin Garcia Michael Schwarz | Martin Kowatsch | #### 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 Meeting. 27.3 Distribution of profits shall be made after adoption of the annual accounts if permitted under the law given the contents of the annual 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 concerns 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. #### Independent auditor’s report To: the general meeting of RHI Magnesita N.V. #### Report on the financial statements 2021 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 2021 and of its result and cash flows for the year then ended in accordance 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 2021 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 2021 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 2021; * the following consolidated statements for the year 2021: profit or loss, comprehensive income, cash flows and changes in equity; and * the notes to the consolidated financial statements, comprising the significant accounting policies and other explanatory information. The company financial statements comprise: * the company balance sheet as at 31 December 2021; * the company statement of profit or loss for the period 1 January to 31 December 2021; * 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 responsibilities 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 statutory 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 respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics). Our audit approach We designed our audit procedures in the context of our audit of the financial statements as a whole and forming our opinion thereon. The information in support of our opinion, e.g. comments and observations regarding individual key audit matters, our audit approach regarding fraud risks and our audit approach regarding going concern was set up in this context and we do not provide a separate opinion or conclusion on these matters. Overview and context RHI Magnesita N.V. is a global producer of refractory products. The Group comprises 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, and factors listed below. The adverse effects of the COVID-19 pandemic on the global economy diminished during 2021 with a steep increase in demand across multiple sectors, including the steel and industrial businesses. This created global supply chain challenges, resulting in higher logistics costs, raw materials scarcity, and the need to pass on those costs to customers through price increases in the latter half of the year. In addition, the second half of the year showed significant unforeseen increases in energy costs. Management considered these developments when preparing its financial statements. 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. We paid attention to, amongst others, the assumptions underlying the physical and transitional climate change related risks. In Note 9 of the financial statements the Company describes the areas of judgement in applying accounting policies and the key sources of estimation uncertainty. Given the significant estimation uncertainty (due to higher complexity and subjectivity of assumptions) and related higher inherent risks of material misstatement in the impairment assessment of goodwill and other intangible assets, and the recognition and recoverability of deferred tax assets, 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 accounting of factoring agreements, accounting for the production optimisation program, application of the own use exemption on physical delivery of CO2 certificates, valuation of a put option liability and valuation of uncertain tax positions. 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. In executing our audit, we ensured that the audit teams at both group and component levels included the appropriate skills and competences which are needed for the audit of an international industrial products company. We therefore included experts in the areas of valuations, and employee benefits, as well as built our team with specialists in IT and corporate income taxes. The outline of our audit approach was as follows: | | | | --- | --- | | 'Please unpack the Result.zip and reopen this file.' | Materiality * • Overall materiality: €12.6 million. | | Audit scope * • We conducted audit work in 14 locations. * • Site visits were conducted to Austria and Brazil. We have also performed remote file reviews for India, Austria, Brazil China and the USA and held periodic video conferences with teams in Turkey, Switzerland, Italy, Germany and Spain. * • Audit coverage: 85% of consolidated revenue, 85% of consolidated total assets and 72% of consolidated profit before tax. | | Key audit matters * • Recognition and recoverability of deferred tax assets * • Valuation of goodwill and other intangible assets | Materiality The scope of our audit was 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 | €12.6 million (2020: €9.7 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 items (i.e. restructuring expenses, certain impact of purchase price allocation from acquisitions, disposal of assets held for sale) as the primary benchmark, based on our analysis of the common information 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 Company. | | Component materiality | Based on our judgement, we allocate materiality to each component in our audit scope that is less than our overall group materiality. The range of materiality allocated across components was between €1.0 million and €12.5 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 €0.7 million (2020: €0.6 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. 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 operations 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 included 12 components which were subject to audits of their complete financial information, selected on the relative size of their operations. Out of twelve, three components are individually financially significant to the Group and on which primarily focused: * RHI Magnesita GmbH, Austria * RHI US Ltd, USA; and, * Magnesita Refratários S.A., Brazil. Additionally, we selected nine components for full scope audit procedures to achieve appropriate coverage on financial line items in the consolidated financial statements. In total, in performing these procedures, we achieved the following coverage on the financial line items: | | | | --- | --- | | Revenue | 85% | | Total assets | 85% | | Profit before tax | 72% | None of the remaining components represented more than 5% of total group revenue or total group assets. For those remaining components 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 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 had 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 from their audit procedures and other matters, which could be of relevance for the consolidated financial statements. The group engagement team visits the component teams and local management on a rotational basis, to the extent permitted by COVID-19 or other travel restrictions. In the current year the group audit team visited RHI Magnesita GmbH (Austria) and Magnesita Refratários S.A. (Brazil) given the judgements involved in valuation of deferred tax assets (refer to key audit matter recognition and recoverability of deferred tax assets) as well as visited Austrian operating locations. During our visits we met with local management as well as component auditors, discussed significant business developments, accounting matters and the areas of significant risks. Furthermore, we reviewed selected working papers of four component auditors in India, Austria, Brazil, China and the USA. We also conducted a series of video conference meetings with local management along with our component teams. During these meetings, we discussed the strategy and financial performance of the local businesses, as well as the audit plan and execution, significant risks and other relevant audit topics. The group engagement team performed the audit work for the parent company RHI Magnesita N.V. as well as the Integrated Business Services (IBS) office activities in Spain on areas such as fixed assets, cash and cash equivalents and aspects of accounts payable and accounts receivable. In addition, the group engagement team performed the audit work over the headquarter related activities in Vienna. This includes group consolidation, inventory valuation, financial statement disclosures, remuneration disclosures and several complex items, such as goodwill impairment testing, share based compensation and compliance of accounting 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 financial statements. The impact of climate change on our audit In 2021 management of RHI Magnesita N.V. further expanded the climate change related risk assessment. We refer to section ‘Principal Risks’ on page 47, ‘Progress against sustainability targets’ on page 59 and ‘Climate and environment’ on pages 60 - 63 of the Group’s Strategic Report where management defined potential physical as well as transitional risks, risk mitigating activities, risk governance, strategy and metrics. Management acknowledged that the inherent likelihood of the climate change related risk has risen since prior year due to the increasing regulatory complexity and stakeholders’ expectations. Therefore, the potential reputational and financial impact of this risk further crystalized and increased in the reporting period. Climate change initiatives and commitments impact the preparation of the Group’s financial statements in a variety of ways, all with inherent uncertainties. In note 9, ‘Critical accounting judgments and key sources of estimation uncertainty’, management highlighted that it expects additional sources of estimation uncertainty regarding climate change to have impact on the net realizable value of inventories through the stricter regulatory sustainability requirements to the quality; and on the useful lives and residual values of assets that could become physically unavailable or commercially obsolete earlier than initially expected. Management considers those effects of climate risks on the financial statements 2021 to be immaterial, however concluded that due to the high degree of estimation uncertainty this may change in the future. As we have not been engaged in expressing assurance over the sustainability reporting, our procedures in this context consisted primarily of making inquiries with officers of the entity and determining the plausibility of the information reported. During our planning procedures, we have made enquiries of management to understand and assess the extent of potential impact of climate related risk on the Group’s financial statements. We challenged the appropriateness of management’s assessment of the potential impact (e.g. estimated useful life of assets, potential diminished access to financing) on major accounting estimates. The impact of climate related risks is not considered to be a separate key audit matter. Audit approach fraud risks We identified and assessed the risks of material misstatements of the financial statements due to fraud. During our audit we obtained an understanding of the entity and its environment and the components of the system of internal control, including the risk assessment process and management’s process for responding to the risks of fraud and monitoring the system of internal control and how the supervisory board exercises oversight, as well as the outcomes. We refer to section “Effective risk management” of the Strategic report for management’s fraud risk assessment and section “Sustainability governance” of the Strategic report in which management reflects on this fraud risk assessment. We further evaluated fraud risk factors with respect to financial reporting fraud, misappropriation of assets and bribery and corruption. We assessed whether those factors indicate that a risk of material misstatement due to fraud is present. In doing this we: * We performed an inquiry of Audit Committee members as to fraud risks and related party transactions to identify the areas of their concerns in relation to fraud. * We inquired with the Head of Internal Audit, Risk and Compliance about fraud cases identified throughout the year and reviewed the reports of Internal Audit function relevant to the reporting period. We also assessed the matters reported through the Group’s whistleblowing and complaints procedure and results of management’s investigation and follow-up on such matters. * We inquired with Group and local executive management, 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 mitigating controls addressing the risk of fraud. * We assessed the IT environment around key systems. We paid specific attention to the access safeguards in the IT system and the possibility that these lead to violations of the segregation of duties. Based on fraud risk factors identified we performed the following specific procedures over the identified fraud risk factors: | | | | | --- | --- | --- | | Identified fraud risks | | Audit procedures | | | | | | Risk of management override of controls It is generally presumed that management is in a unique position to perpetrate fraud because of the available opportunity to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Upfront and updated throughout the year, the board of directors provides guidance to the market on revenue and (adjusted) EBITDA. Lagging actuals provide a risk of override or bypassing of controls as management may be inclined to ensure meeting guidance as communicated to the market. In this context, we paid specific attention to non-routine transactions and areas of significant management estimations where management bias may result in fraudulent reporting, i.e. valuation of goodwill, intangible and tangible assets and liabilities. | * • | To address this specific risk, we executed the following strategy: Where relevant to our audit, we evaluated the design and effectiveness of controls in the processes of generating and processing journal entries. We assessed whether deficiencies in controls, may create additional opportunities for fraud and incorporated respective corroborative procedures in our audit approach. We considered the outcome of our audit procedures over the estimates and significant accounting areas and assessed whether control deficiencies and misstatements identified were indicative of fraud. Where necessary, we planned and performed additional auditing procedures to ensure that fraud risk is sufficiently addressed in our audit. We evaluated key accounting estimates and judgements used in key accounting areas (like goodwill valuation, valuation of assets and liabilities) for biases, including retrospective reviews of prior year’s estimates where available. Further reference is made to key audit matters in this auditor’s report. We performed data analysis and focused on journal entries related to the fraud risk factors identified during fraud risk assessment. Where we identified instances of unexpected journal entries, we performed additional audit procedures to address each identified risk. We evaluated whether the business rationale (or lack thereof) of the significant transactions concluded in 2021 suggests that the Group may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets. We incorporated an element of unpredictability in the nature timing and extent of procedures. We performed substantive testing procedures over the consolidation entries. Our audit procedures did not lead to specific indications of fraud or suspicions of fraud with respect to management override of the internal controls. | | | | | | --- | --- | --- | | Risk of fraud in revenue recognition Upfront and updated throughout the year, the board of directors provides guidance to the market on revenue and (adjusted) EBITDA. In 2021, lagging actuals provide a risk of override or bypassing of well-established controls as management may be inclined to ensure meeting guidance as communicated to the market to meet shareholders expectations. In 2021, the Company faced pressure from decreasing margins and volumes and at the same time started a price increase strategy. Therefore, identified fraud risk factors pertain to risk of management override of controls and possible revenue overstatement through the recording of non-existent revenue or premature revenue recording following that the Company is under the pressure to achieve targets and meet shareholder expectations. | | To address this specific risk, we executed the following strategy: We discussed with the Audit Committee and executive management (e.g. the chief executive, finance and sales officers) the increased risk of overriding or bypassing controls when sales targets were increased. We discussed and inquired with the Group’s sales officer, and local sales managers into the tone at the top, to assess to what extent not meeting targets have an impact on career opportunities or bonuses within the Company, and whether they have any knowledge of (suspected) fraud. In our conversations we addressed their views on overall fraud risks within the Group and their perspectives on the Groups mitigating controls addressing the risk of fraud in revenue. We updated our understanding of the revenue and receivable process through performing an end-to end walkthrough of the process whereby identifying individual revenue streams applicable to the Company and its subsidiaries. We assessed the IT environment around key systems, including IT dependent controls related to the revenue and receivables cycle. We also assessed the design and effectiveness of the internal control measures related to revenue recognition and processing journal entries related to revenue. We examined whether changes were made to internal control measures in the last months of the year. We paid attention to whether deficiencies in controls may create additional opportunities for fraud and incorporated respective corroborative procedures in our audit approach. We performed disaggregated revenue analytical procedures at significant components and planned additional audit procedures where unusual fluctuations were noted. No particular fraud matters were identified as a result. Using data analysis, we identified revenue entries with a credit impact to revenue accounts and non-regular off-sets and substantively tested them to verify that their nature did not represent fraudulent transactions or reporting. We performed substantive audit procedures to assess whether IFRS 15 criteria for recognising revenue in 2021, were met. We also performed substantive audit procedures over the credit notes issued to customers after year end (where material) to verify that no transactions were recorded in 2021 that were subsequently reversed through credit notes in 2022. Where material, our component auditors were required to test rebate accruals. Our audit procedures did not lead to specific indications of fraud or suspicions of fraud with respect to the accuracy of the revenue reporting. | Audit approach going concern As disclosed in section ‘Principles and methods’ on page 129 in the financial statements, Management prepared the financial statements on the assumption that the entity is a going concern and that it will continue its operations for the foreseeable future. Our procedures to evaluate management’s going concern assessment included, amongst others: * Review of management’s going concern assessment. We corroborated management’s analysis with the approved budget 2022, facts and circumstances that came to our attention from our auditing procedures. * Inquiries of corporate and local management as to their knowledge of going concern risks beyond the period of management’s assessment. * Review of management’s analysis of the forecasted levels of net debt, available undrawn borrowing facilities, compliance with debt covenants and the debt maturity profile. * Corroboration of consistency between management’s going concern analysis, the analysis of the forecasted levels of net debt with the future cash flow forecast as incorporated in goodwill impairment test. In evaluating management’s forecasts and cash flows, we performed a look-back analysis to assess the accuracy of the forecasting process. * An analysis of the financial position per balance sheet date in comparison to prior year’s year-end to assess whether events or circumstances exist that may lead to a going concern risk. * Consideration of the potential indications of the component’s going concern uncertainty based on audit procedures performed by the component auditors. We evaluated the impact of such indications on the overall use of the going concern assumption applied by the Group. Our procedures did not result in outcomes contrary to management’s assumptions and judgments used in the application of the going concern assumption. 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. Since the amount of new restructuring efforts decreased significantly in 2021 compared to 2020, the accounting for the production optimisation program was removed from the list of key audit matters. | | | | | --- | --- | --- | | Key audit matter | | Our audit work and observations | | | | | | 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 carryforwards and deductible temporary differences arising on various items for the amount of €102.3 million. 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 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. The Group’s principal functions are based in Austria. Consequently, after applying transfer pricing policies, certain residual profits will be taxed in Austria. Due to the inherent level of uncertainty, the potential limitations in the recoverability of deferred tax assets and the significant judgement involved, we considered the recoverability of deferred tax assets to be a key audit matter for our audit. | * • | We have requested and obtained evidence for the existence and accuracy of the tax loss carryforwards 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 advisors. Where significant management estimates and judgements involved is susceptible to management bias, we have critically reviewed the underlying facts to assess recognition and assessed the recoverability of deferred tax assets. In auditing recoverability, we have critically assessed the underlying assumptions of the forecasted taxable income through agreeing the forecasted 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 remaining carry-forward period together with any applicable restrictions 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 recognition and recoverability assessment of the deferred tax assets to be supported by the available evidence. | | | | | | --- | --- | --- | | Valuation of goodwill and other intangible assets Refer to note 7, 9, 10, 11, and 38 of the consolidated financial statements The Group capitalized goodwill of €114.4 million, mainly related to the acquisition of the Magnesita Group in 2017. In addition, the company capitalised intangible assets of €282.6 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 indefinite 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 regarding any accounting effects. The assessment did not result in an impairment. As disclosed also in note 7 ‘Principles of accounting and measurement’ of the financial statements, the Group has considered raw material pricing and carbon emission pricing scenarios in assessing the impact of climate change on the results of impairment testing of goodwill and intangible assets with indefinite useful life. Management acknowledges the potential impact of climate change related risks on future costs and expects to invest €50 million over the next four years for research and development of new technologies to reduce and capture CO2 emissions. This is not expected to have a material impact on impairment assessment and therefore is not included in the valuation. We understood that during the preparation for compliance with TCFD, the Group has identified and modelled possible risks and opportunities related to climate change. As it is unlikely that these materialise before 2025, management did not include them in the impairment test and the Strategic planning that covers the period until 2025. 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. | * • | 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, calculate 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. Given that the areas where significant management estimates and judgements involved is susceptible to management bias and creates opportunities for fraud, we, with the support of our valuation specialists, have evaluated management’s assumptions such as revenue and margin, the discount 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 techniques, assessed appropriateness of the cost of capital for the company and comparable assets, as well as considered territory specific factors. Finally, we assessed the appropriateness of disclosure of the key assumptions and sensitivities underlying the tests. Based on the audit procedures performed, we found the assumptions to be reasonable and supported by the available evidence. | Report on the other information included in the annual report The annual report contains other information. This includes all information in the annual report in addition to the financial statements and our auditor’s report thereon. 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 all the information regarding the directors’ report and the other information that is required by Part 9 of Book 2 and regarding the remuneration report required by 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 the 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 procedures performed in our audit of the financial statements, except for the audit performed on information in the remuneration report that marks ‘audited’. The board of directors is responsible for the preparation of the other information, including the directors’ report and the other information in accordance with Part 9 of Book 2 of the Dutch Civil Code. The board of directors are responsible for ensuring that the remuneration report is drawn up and published in accordance with sections 2:135b and 2:145 subsection 2 of the Dutch Civil Code. Report on other legal and regulatory requirementsand ESEF 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 and now represents a total period of uninterrupted engagement of 5 years. European Single Electronic Format (ESEF) RHI Magnesita N.V. has prepared the annual report, including the financial statements, in ESEF. The requirements for this format are set out in the Commission Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the specification of a single electronic reporting format (these requirements are hereinafter referred to as: the RTS on ESEF). In our opinion, the annual report prepared in XHTML format, including the partially marked-up consolidated financial statements as included in the reporting package by RHI Magnesita N.V. complies in all material respects with the RTS on ESEF. The board of directors is responsible for preparing the annual report, including the financial statements, in accordance with the RTS on ESEF, whereby the board of directors combines the various components into a single reporting package. Our responsibility is to obtain reasonable assurance for our opinion whether the annual report in this reporting package, complies with the RTS on ESEF. Our procedures, taking into account Alert 43 of the NBA (Royal Netherlands Institute of Chartered Accountants), included amongst others: * Obtaining an understanding of the entity’s financial reporting process, including the preparation of the reporting package. * Obtaining the reporting package and performing validations to determine whether the reporting package, containing the Inline XBRL instance document and the XBRL extension taxonomy files, has been prepared, in all material respects, in accordance with the technical specifications as included in the RTS on ESEF. * Examining the information related to the consolidated financial statements in the reporting package to determine whether all required mark-ups have been applied and whether these are in accordance with the RTS on ESEF. 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 or its controlled entities, for the period to which our statutory audit relates, are disclosed in note 59 to the financial statements. #### Responsibilities for the financial statements and the audit Responsibilities of the board of directors for the financial statements The board of directors is responsible for: * the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code; and for * such internal control as the board of directors 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, the board of directors is responsible for assessing the Company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the board of directors should prepare the financial statements using the going-concern basis of accounting unless the board of directors either intends to liquidate the Company or to cease operations or has no realistic alternative but to do so. The board of directors should disclose in the financial statements any event and circumstances that may cast significant doubt on the Company’s ability to continue as a going concern. 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 evidence 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. Reasonable assurance is a high but not absolute level of assurance, which makes it possible that we may not detect all material misstatements. Misstatements may arise due to fraud or error. They are considered 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. Rotterdam, 27 February 2022 PricewaterhouseCoopers Accountants N.V. Original has been signed by E.M.W.H. van der Vleuten RA MSc #### Appendix to our auditor’s report on the financial statements 2021 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 financial 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 resulting 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 disclosures made by the board of directors. * Concluding on the appropriateness of the board of directors’ 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 significant 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 report 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 accounting 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. #### Alternative performance measures (“APMs”) 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 Half 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. Return on invested capital (ROIC) 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 comprises cash and cash equivalents and undrawn committed credit facilities of €600 million. 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 (“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. 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 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 other receivables and payables. Working capital intensity is measured as a percentage of last three months 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 any debt or debt-like items. # Glossary AC AuditCommittee ERD Employee Representative Director AGM AnnualGeneralMeeting ESG Environmental Social Governance AI artificialintelligence EU EuropeanUnion APM alternativeperformancemeasures GRI Global ReportingInitiative APO AutomatedProcess Optimisation IAS International AccountingStandards | | | | | | --- | --- | --- | --- | | ANKRAL LC RHIMagnesitalow-carbonproductseries,whichis designedtosupportcustomersastheyreduceemissionsin theirsupplychain | | IFRS International Financial ReportingStandards ISO Isostaticallypressed | | | ANKRAL X RHIMagnesitaproductseries,whichcombinesclinkermelt resistancewithflexibility BOF basicoxygenfurnace | | KPI keyperformance indicator LTIFR losttimeinjuryfrequencyrate (per200,000working hours) | | LTIP long-termincentive plan BST BroadbandSpectralThermometer MAR MarketAbuseRegulations CAGR compoundannualgrowthrate M&A mergersandacquisitions Capex capitalexpenditure MES manufacturingexecutionsystems CCU carboncaptureand usage NFM non-ferrousmetals CDC CentersforDiseaseControlandPrevention | | | | | --- | --- | --- | | CDP globaldisclosuresystemforinvestors,companies,cities, statesandregionstomanagetheirenvironmentalimpacts | | NGO non-governmental organisation NMEA nearMiddle EastandAfrica | CEO ChiefExecutiveOfficer NOx nitrogenoxides CFO ChiefFinancialOfficer NPS NetPromoterScore CoGS Cost of Goods Sold OIE Otherincome andexpenses COVID-19 coronavirusdisease2019 QCK QuickCheck CSO ChiefSalesOfficer ROIC returnoninvestedcapital CSC CorporateSustainability Committee RFID radiofrequencyidentification CIS commonwealth of independent states SDGs UnitedNationsSustainableDevelopmentGoals | | | | | --- | --- | --- | | CO2 carbondioxide | | SG&A selling,general andadministrative expenses | CSC CorporateSustainability Committee SKU stock-keepingunit DBM deadburnedmagnesia SOx sulphuroxides DCGC DutchCorporateGovernanceCode2016 SRM secondaryrawmaterials EAF electricarcfurnace STEM science,technology,engineeringandmathematics EBIT earningsbeforeinterestandtaxes TAC Technical AdvisoryCommittee EBITA earningsbeforeinterest,taxesandamortisation TCFD TaskForceonClimate-relatedFinancialDisclosures | | | | | --- | --- | --- | | EBITDA earningsbeforeinterest,taxes,depreciationand amortisation EEC environment, energy and chemicals ED ExecutiveDirector EMT ExecutiveManagement Team EPS earningspershare | | TRIF totalrecordable injuryfrequency TSR total shareholderreturn UKCGC UKCorporateGovernance Code2018 VR virtualreality WHO WorldHealthOrganisation | # Shareholder information | | | | | | | | --- | --- | --- | --- | --- | --- | | RHI Magnesita N .V. is a public company with limited liability under Dutch law and was incorporated on 20 June 2017. IthasitscorporateseatinArnhem,theNetherlands,itsadministrativeseatin Vienna,AustriaanditsregisteredofficeatKranichberggasse6,1120Vienna, Austria. The telephone number of the Issuer is +43 50 2136200. TheCompanyshares,representedbydepositoryinterests,ofRHIMagnesita 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 secondarylistingontheViennaStockExchange(WienerBörse). Tickersymbol:RHIM ISINCode:NL0012650360 Investor information TheCompany’swebsitewww.rhimagnesita.comprovidesinformationfor shareholdersandshouldbethefirstportofcallforgeneralqueries.The Investorssection(https://ir.rhimagnesita.com/)containsdetailsonthe currentandhistoricalshareprice, analystpresentations,shareholder meetingsaswellasa“ShareholdersInformation”section.Annualand InterimReportscanalsobedownloadedfromthissection. | | Investor Relations department Kranichberggasse 6, 1120Vienna, Austria T: +43 699 1870 6493 Email: investor.relations@rhimagnesita.com Corporate brokers Peel Hunt LLP MoorHouse 120LondonWall LondonEC2Y5ET UnitedKingdom T: +44 20 7418 8900 www.peelhunt.com BarclaysBankPLC 5TheNorthColonnade CanaryWharf LondonE144BB UnitedKingdom T: +44 20 7623 2323 www.barclays.com Auditor | | | | | Youcanalsosubscribetoan“Investorsmailalertservice”toautomatically receiveanemailwhensignificant announcements aremade. Shareholding information | | PricewaterhouseCoopersAccountantsN.V, ThomasR.Malthusstraat5 1066JRAmsterdam P.O. Box 90357 | | | | | PleasecontactourRegistrar,Computershareforalladministrative enquiries aboutyourshareholding,suchasdividendpayments,ora change of address: | | T: +31 88 792 00 20 www.pwc.nl | | | | | ComputershareInvestorServicesPLC ThePavilions, BridgwaterRoad BristolBS996ZZ UnitedKingdom | | Follow us | | | | www.computershare.com/uk T: +44 (0) 370 702 0003 Financial calendar Q1 TradingUpdate 5 May 2022 AnnualGeneralMeeting 25 May 2022 HalfYearResults 27 July 2022