VIENNA (Reuters) - Austrian fireproof materials maker RHI RHIV.VI expects rising customer demand and price increases to offset expenses related to its acquisition of Brazilian rival Magnesita (MAGG3.SA) this year and keep its core profit stable.
The Vienna-based company, which agreed to pay 450 million euros (£405.56 million) for Magnesita, said on Thursday it expected to close the deal and start trading shares of the new entity RHI Magnesita in London by late October.
The financing of the takeover, in which the new company will start with a debt pile of around 1 billion euros, was secured by a 477 million euros syndicated loan over five years, RHI Chief Executive Stefan Borgas said on a conference call.
RHI and Magnesita both supply the steel, cement and glass industry with fireproof refractory materials. RHI derives 40 percent of its sales from developed economies such as those in Western Europe. Magnesita is focused on North and South America.
In the six months through June, RHI’s EBIT fell 28 percent to 49.6 million euros with expenses of 13 million euros related to the purchase of Magnesita and negative currency effects of 9 million euros weighing on earnings.
Customer demand is rising and RHI has started to pass on higher prices for raw materials to customers, Borgas said.
“One-time expenses (related to the takeover) in the second half of the year will be at least as high as in the first half,” said Borgas, who became CEO in December and will also lead the joint company.
“Our full-year EBIT including those costs will be at least at the same level as in the previous year.” RHI posted 2016 earnings before interest and tax (EBIT) of 116.1 million euros.
RHI shares in Vienna rose as much as 3.6 percent to 32.45 euros in a flat market, having gained a third since the announcement of the takeover in October last year. Local investors will be able to buy euro-denominated shares of the new company via the Vienna stock exchange.
Borgas has said the merged entity will have revenue of 2.5 billion euros, making it the biggest player in a 20 billion euros market.
He said he aimed to reduce debt over the coming two years, and then wants to use cash for acquisitions, higher dividends and investments. He sees growth potential in Russia, Korea, Japan, China and Africa.
Reporting by Kirsti Knolle; Editing by Edmund Blair and Susan Thomas