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RHI AG / Results of the first quarter 2017 - Seite 2

is primarily attributable to higher inventories due to an increase in
the order level by roughly 15% compared with December 31, 2016. Free
cash flow amounted to EUR 12.0 million in the past quarter compared
with EUR 22.1 million in the same period of 2016. Net debt declined
slightly from EUR 332.8 million at the end of 2016 to EUR 325.2
million at March 31, 2017. The number of employees amounted to 7,460
at the end of the past quarter.

Outlook In its forecast published in April 2017, the International
Monetary Fund predicts global economic growth of 3.5% in the current
year after 3.1% in the year 2016. However, there is considerable
uncertainty regarding the impact of the policies of the newly elected
US government. Although the environment in the advanced economies
improved, the pace of growth in the emerging markets will continue to
influence the global economy to a significant extent. Based on a
current study, the research institute CRU expects a decline in steel
production in China by roughly 1% in the year 2017 and an increase in
steel production outside China by an ambitious 5%. Based on these
estimates, RHI expects a more positive market environment in 2017.
The focus will stay on the generation of free cash flow in the
current financial year in order to reduce net debt further. RHI is
currently working on meeting the conditions precedent to the
successful closing of the planned combination with Magnesita (the
"Combined Group") and is preparing the integration of the two
companies. In the context of these activities, external costs will be
incurred.

In the past quarter, uncertainties arose due to a shortage in the
supply situation of refractory raw materials in China. Striving to
improve environmental and safety standards, Chinese authorities
introduced stricter requirements and carried out production controls.
As a result, many local manufacturers of sintered and fused magnesia
had to completely shut down their production in the past quarter. Due
to this new situation, market prices are now rising. It can currently
not be estimated when this situation will ease. As raw material
supply from China is getting less secure, supply concepts are adapted
continuously within the RHI Group.

Update on the planned combination with Magnesita RHI filed for merger
control clearance with the competition authorities in Brazil at the
end of March and in Europe at the beginning of May and expects to
have a clearer picture of the outcome of the proceedings around the