Vesuvius plc (VSVS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Vesuvius Full Year 2020 Results Presentation. With us today are Patrick André, Chief Executive, who will be providing an update on the strategic developments in 2020; followed by Guy Young, CFO, who will present the group's financial results. Patrick will then give some concluding remarks and talk about the outlook. [Operator Instructions] I will now hand over to Patrick André to open the presentation. Please go ahead, sir.

Good [ morning ], ladies and gentlemen, welcome to the presentation of Vesuvius 2020 full year results. My name is Patrick André, Chief Executive, and with me this morning is Guy Young, our Chief Financial Officer. I will start by giving you some information on our group's business performance in 2020. Then Guy will give you more details about our financial results. I will then conclude with some considerations on the outlook for 2021 before opening the floor for questions. Next slide. Our top line was clearly impacted by the pandemic in 2020 and declined by a bit more than GBP 250 million to GBP 1,458 million. Thanks to the strong cost reduction measures, which we put very rapidly in place and which I will detail later on, we could mitigate the impact of the crisis on our trading profits, which, however, declined by GBP 80 million to GBP 101.4 million. Most importantly, we could maintain a strong cash generation during the crisis, with a cash conversion ratio of 173% in 2020 after an already positive performance of 120% in 2019. We succeeded in remaining free cash flow positive in every quarter of 2020, even before taking into account the positive cash flows from reduced working capital. Thanks to the strong cash flow performance, our net debt reduced from GBP 245 million at the end of 2019 to GBP 175 million at the end of 2020, enabling us to maintain a quite stable net debt-to-EBITDA ratio despite the crisis of 1.2 end of 2020. This very strong cash generation also allowed the Board to feel confident to propose a final dividend of 14.3p per share, bringing the total full year dividend to 17.4p per share. And this is not a one-off to catch up with 2019. This is a level which, based on our forecast of our results for the following years, we see as sustainable going forward. Next slide. How did we achieve those results? First, we continued during the crisis to implement, as planned, our long-term restructuring program, delivering more than GBP 20 million of recurring cash savings with a further GBP 4.3 million expected in 2021. We could do so while at the same time preserving our global production capacity which now places us in an ideal position to benefit from the rebound in demand which we now see in our markets. Thanks to our flexible decentralized and entrepreneurial business model, we could also generate close to GBP 40 million of temporary cash savings coming from reductions in employment costs, discretionary spend and incentives. The good news is that more than GBP 8 million out of those savings will now become permanent as we will retain some of the efficiencies from changes to working practices which we introduced and experimented during the pandemic. At the same time as we were cutting all possible costs, we maintained our global R&D efforts to prepare for the future growth of our top line. We could launch 10 new products in 2020 and we are planning to launch 22 more in 2021. We also optimized the management of our working capital without support from factoring our other financial techniques, and we could reduce our working capital to sales ratio to 23.2% from 24% last year despite the decline in our top line. This focus on cash enabled us to reimburse the U.K. government of all financial support received during the crisis, in particular for furlough, and to resume the payment of dividend as quickly as possible. Next slide. At the same time as we were implementing action plans to mitigate the impact of the pandemic, we decided to launch a new group initiative on sustainability with, in particular, a clear commitment to reach a net 0 carbon footprint, Scope 1 and Scope 2, at the latest by 2050. But our ambition, of course, is not to wait for 2050 to see real improvement in our sustainability performance. We set ourselves very ambitious short-term intermediary targets to monitor our progress. These targets cover not only our [ environmental ] performance as our CO2 emissions or waste generation, but also our social performance in terms of safety or gender diversity and our governance achievements, both for us and for our suppliers. We are now following regularly our progress through a set of 56 KPIs calculated and communicated quarterly to our employees. And we are linking the incentives of the group Executive Committee members and of other key managers in the group to progress on these KPIs. Next slide. You can see on this slide the progress achieved in 2020 regarding our 9 main intermediary short-term targets for sustainability. I'd like to comment on 3 of them. First, I'm very proud, and would like to thank all my Vesuvius colleagues, for their ability to navigate the storm of the pandemic while at the same time achieving our best safety results ever, helping the group progress towards its objective of 0 accident. Second, we could reduce our CO2 emissions per tonne of product manufactured by 3.9% in 2020 despite the drop in production which is normally a negative factor. This brings to a total of 18%, 1-8, the reduction of the reduced CO2 emissions per tonne of products over the past 5 years, and we are planning to reduce by at least a further 10% by 2025. So we are taking action now and are on track towards our goal of net 0 carbon footprint at the latest by 2050. Finally, I'd like to mention our progress in terms of gender diversity. We are now reaching 20% of female representation in the top management, coming from 12.5% at the end of last year. This is the first step, but clearly not enough. And our objective is to reach 30% by 2025. Next slide. We started reducing our own CO2 emissions. We also want to play a role in supporting our customers' efforts to reduce their own CO2 footprint and, more generally, improve their sustainability performance. We are dedicating more and more R&D efforts to that effect, sometimes in collaboration with some of our customers. And you will find on that slide a few examples of the products which we are now proposing which, besides the usual positive impact on the production cost or on the quality of finished products for our customers, also support those customers' efforts to improve their own sustainability performance. As an illustration, the Feedex sleeves, which you see on the second line of the slide, help our foundry customers reduce every year their CO2 emissions by more than 450,000 tonnes, which is more than the global scope 1 and scope 2 emissions of the Vesuvius Group worldwide. Next slide. Let's now review in more detail the performance of our 2 divisions, starting with Steel. As you can see on this slide, where the size of the bubbles is proportional to the sales of our Steel division. The Steel production declined by more than 8% in 2020 in the world, excluding China. The decline was particularly pronounced in the mature areas of NAFTA and the EU, but also in the usually high-growth areas of India and South America. Some other regions, however, performed quite well, like Turkey, Vietnam, [ former CIS ] and, of course, China. After reaching a low point in the second and third quarter, the steel market started to recover in all regions as from the end of the third quarter. And this recovery is now fully confirmed and continuing beginning of 2021. As steel inventories remain quite low everywhere and demand continues to improve, we expect this steel market recovery to accelerate further in the coming months. The sales in volume of our Steel division outperformed the general steel market by a bit more than 1% in the world, excluding China and Iran, in 2020. In particular, we grew faster than the market in the important growth areas of India, South America, Turkey, Vietnam and Russia. We also increased our penetration in the still important mature areas of NAFTA and EU plus U.K. Our sales in China didn't progress as fast as the market last year as the advanced refractory division decided to retreat from some low-margin contracts. However, the Flow Control division registered a positive growth in China last year despite the temporarily difficult situation of the flat steel sector in the country. With the recovery of the automotive and the associated flat steel production in China in the second half of 2020, our sales in the country are accelerating since the end of the year. We could achieve this overall good volume performance in 2020 while at the same time limiting our average sales price decline to 1.7%, which corresponded to the pass-through to our customers of the raw materials price decline experienced during the year. Next slide. Overall, as you can see on the table, the sales of our Steel division declined by 12.5% in 2020 as compared with '19 due to the very unfavorable steel market conditions. The decline of our trading profit was important, 36%, were strongly mitigated by the positive commercial performance and, of course, our cost savings efforts. The return on sales decreased 270 basis points to 7.3%. Next slide. Let's now turn to the Foundry division. As you see on this slide, all end markets of the foundry industry were very strongly affected by the pandemic and this in every region, including China. The markets by far the most affected were the light, medium and heavy vehicle markets, which together represent around 35% of the Foundry division's final end market. Mining and construction, general engineering, railways and marine were also very significantly affected, but on a relative basis, less than the automotive sector. Similar as for the steel market, the low point of the crisis was reached in Q2 and Q3 last year, and all foundry end markets started to recover during the course of Q4. This recovery is now confirmed beginning of 2021 in all regions without exception. Next slide. The sales of our Foundry division performed generally better than the light vehicle market in most regions, with, in particular, a very strong performance in South America and in China, where our overall sales grew by 10% in 2020 despite the fact that the automotive market was also affected in China. The good performance of our sales in China is continuing in -- at the beginning of 2021. The only market where our sales declined more than the light vehicle market was NAFTA due to the very strong decline there of the medium and heavy trucks market. Next slide. As you can see there on the slide, the sales of our Foundry division were even more affected by the pandemic than the sales of the Steel division due to the very strong decline of the light and heavy vehicle markets. Our overall sales decreased 19.8%, close to 20%, as compared with last year. Despite the cost control mitigation and the good commercial performance, the division's trading profit declined 59% to GBP 25 million, with a 6.1% return on sales. Most foundry end markets are, however, recovering significantly in 2021, with a positive impact expected on the profitability of the division. Next slide. Despite the difficult situation created by the pandemic, we decided to maintain our industry-leading level of R&D in our 3 business units to support our future organic growth. We successfully commissioned our new flow control research center for VISO products in Belgium and also completed the expansion of our Mechatronics Center of Excellence also in Belgium to support the expected growth of our robotic sales. We launched 10 new products in 2020 despite the pandemic and are planning to launch 22 new ones in 2021. Next slide. You'll see on the following slide a few illustrations of these new products which we launched in 2020, starting with our new generation of flow control Duraflex ladle shrouds. These shrouds, which control the flow of steel from the ladle to the tundish to the steel plants can be reduced several times without losing their properties. They last longer with improved performances and enable our customers to reduce consumption and, as such, with by a factor up to [ 4 ]. They also help improving the steel quality and the safety of the customers' operators on the shop floor. Next slide. There, you can see one of the new Tundish spray robots developed by our advanced refractories business unit. These robots enable a better control and more consistent applications of the monolithic linings inside our customers' tundish vessels, improving the quality and reducing waste. Next slide. And on this last slide, you will see an example of our new foundry consumables for degassing and, in particular, hydrogen removal in aluminum melts in foundries. With this new patented rotor design, we cannot only increase the degassing efficiency, but also increase the service life up to 200% for our customers. I will now hand over to Guy, who will give you more details on our financial performance in 2020.

Thank you, Patrick. Good morning, everyone. I will take you through our sales and trading profit bridges first before looking at the detailed income statement. Our 2020 reported revenue of GBP 1.46 billion declined by almost 15% compared to our 2019 reported revenue of GBP 1.71 billion, with sales in all businesses and regions impacted by the pandemic. After adjusting for FX and the CCPI acquisition, our underlying revenue fell by nearly 13%, from GBP 1.65 billion to GBP 1.44 billion. In terms of trading profit, our 2020 reported trading profit of GBP 101.4 million, was 44% lower than in 2019. Our underlying trading profit after FX and the CCPI acquisition was GBP 97.5 million, which is a decline of some 43% from last year's underlying trading profit of GBP 171.9 million. The key driver of this decline was lower revenue, which impacted our trading profit by GBP 84.3 million. And in addition, we had a number of one-off costs totaling GBP 8.5 million during the year, GBP 4.3 million of which related to severances made in Q4 as we sought to rightsize our OpEx cost base for 2021 and GBP 4.2 million of which related to smaller restructuring project costs outside of the main restructuring program. Partially offsetting these variances was GBP 20.6 million of restructuring savings delivered as part of our main restructuring program, which is split in this graph between the GBP 18.3 million I'm showing here, with the remaining GBP 2.3 million coming from CCPI and disclosed within the GBP 4 million on the right-hand side of the graph. This translated ultimately into a return of sales in 2020 of 7% as compared to the 10.6% we achieved in 2019. If we turn now to the full income statement and focus on elements below the trading profit of GBP 101.4 million. We reported a marginal increase in our share of JV results to GBP 1.1 million. Our net finance costs, which decreased to GBP 10.9 million as a result of lower average cost of the refinancing of a tranche of USPP notes. And our effective tax rate, which came in at 26.9%, slightly lower than anticipated due primarily to geographic profit mix, and is above last year's rate, largely as a result of higher withholding tax during 2020 as we focused on repatriation of cash to the center. We expect our tax rate to be between 26% and 27% in 2021, subject to any changes that may occur in the United States which has been flagged as being likely. Our headline earnings for the year were GBP 62.7 million, which translates into a headline EPS of 23.2p per share. From a cash flow perspective, we managed to achieve a strong cash conversion of 173% in 2020 in comparison to 2019 and over the last 5 years. Our ability to generate solid cash returns is an important cornerstone of our business model and is shown to be possible through the cycle with our average annual cash conversion of 107% since 2012. If we now look at the drivers of this year's cash conversion in a bit more detail, you can see that after adding back depreciation, the key drivers of the cash performance were a combination of lower-than-planned net CapEx of GBP 39.5 million in the year and significant cash inflows from both trade working capital and other working capital for a combined GBP 61.3 million. Our working capital performance was particularly pleasing in 2020, where we managed to reduce our trade working capital to sales to 23.2%, the lowest level in the last 5 years. This was despite the quantum and speed of the sales decline we experienced and was due to a significant improvement in the inventory management and the ability to align raw material purchasing, production and sales far more effectively than we have in the past. Our debt has also reduced, mainly as a natural result of the decline in sales, but thanks also to improved collections over the period where we've managed a reduction in overdues and an improvement in the overall quality of the book. As a reminder, neither our inventory nor debtors are factored in any way. And as a result of our operating cash generation, our net debt decreased from some GBP 246 million at the end of 2019 to just over GBP 175 million by year-end. In addition to the high operating cash flow, a number of our regular cash outflows were lower this year than in 2019, including income taxes paid; restructuring costs, which continue to fall as the main program draws to a close; and dividend payments, which were lower as a result of withdrawing the 2019 final dividend as we sought to preserve cash in the face of the pandemic. Our net debt-to-EBITDA was 1.2x as at December 2020 and 1x on a pre-IFRS 16 basis, which compares particularly well to our 3.25x debt covenant. Overall, our liquidity is now at better levels than pre COVID despite the repayments we have made during the year, and we've included a slide in the appendix on this for your reference. So despite the cash and balance sheet challenges presented by the pandemic, we believe that the steps we've taken during 2020 to further reduce costs and preserve cash have put us in a strong position to be able to take advantage of opportunities presented in 2021. With that, I'd like to hand you back to Patrick to take you through the outlook. Thank you.

Thank you, Guy. Next slide. Clear signs of recovery are now fully apparent in both our steel and foundry end markets. We believe that this recovery will accelerate further in the second half of 2021, supported by the lifting of most pandemic-related restrictions by then. In the steel market in particular, the level of inventory is quite low today everywhere, in China, in Europe, in North and South America, and the restocking has not started there. So probably the best is still ahead of us. Vesuvius is emerging from this difficult period stronger than before. We have low leverage. We have an optimized manufacturing footprint as a result of our successfully completed restructuring programs. We also benefit from our flexible, low-capital intensity, entrepreneurial and decentralized business model which has proven its value during 2020. We are confident that the group will deliver a meaningful improvement in our financial performance in 2021. Thank you for your attention. I now propose to open the floor for questions.

[Operator Instructions] Our first question comes from Andrew Douglas from Jefferies.

The first question is on stocking levels. You've answered it partly in your final comments. I was just wondering whether there's any risk that we don't ever get a restocking demand? Whether people to kind of just go just in time? Or is that just not feasible? So that would be my first question. Second question is with regards to the temporary cost savings, clearly GBP 39 million, GBP 8 million goes into permanent. Am I right in thinking that all of that GBP 31 million will go back in 2021 even though we're not going to see a full recovery in the top line? So any comments there will be great. And then third question, just can you give us an update on the M&A outlook for you guys. Clearly, your net debt-to-EBITDA is comfortably below your sweet spot. Just wondering, a, what the market's like? And, b, what the appetite is like within Vesuvius?

Thank you, Andrew. On your first question, the level of stock is low today. We even had some shortages of steel in some markets. So demand is clearly recovering and the steel production has difficulties to follow. And as a consequence, the level of stock is -- not only is low, but it's probably below normal for this level of demand. So we expect that at some point in the coming months, the level of stock will have to increase, by which extent remain to be seen. But I think the current level of stocks is probably not completely sustainable in all the steel pipeline. And when the demand will continue to improve, as it will in the second half when all lockdown and COVID-related restrictions are lifted, we believe that this will have quite a positive impact on the steel production worldwide, which could, as we have seen in the past year, each time there was a rebound, very often, the forecast by [ WSA ] or others along the years are being revised upward. I would not be completely surprised if this would be also the case in 2021 along the year. On your second question, regarding the GBP 31 million, yes, the GBP 31 million will, I would say, unfortunately, flow back into our P&L because the GBP 39 million, out of the GBP 39 million temporary savings of last year, the majority will flow back. We expect to maintain at least GBP 8 million. So at least means that we will fight hard with Guy and all the management team to retain more than this GBP 8 million and we have ideas for that. But for the time being, it's a safe assumption to take this GBP 8 million. But clearly, we'll try to do better than that. In terms of M&A, a very important point is that it's not a choice between dividend and M&A. So on one hand, we feel confident with -- because of the balance sheet we have and the strong cash generation that we not only have, but that we continue to expect to have in the coming years, to reestablish a more reasonable, sustainable level of dividend. But at the same time, we are clearly looking and we have an appetite for M&A opportunities, of course, with a strong discipline in the way we look at it. We don't want to do things, which will not be positive for our shareholders. But yes, clearly, together with the Board, we have an appetite, and we are currently exploring with Guy and the management team and with the full support of the Board. Opportunities, we'll see if those materialize or not.

Our next question comes from Sam Bland from JPMorgan.

I've got 3, if I can. The first one is, I guess, over the last few years, cost savings and restructurings have been a big area of focus, maybe a bit less of that going forward. So just be interested in what you think from a sort of management attention point of view is going to replace those -- that focus on cost savings. The second one is this GBP 8.5 million of restructuring costs I think was taken above the line. Just remind us on on why that was taken above the line rather than included in some kind of exceptional item. And the last question is, if I kind of try and roughly back out the implied underlying revenue growth across November and December, I get to sort of positive 7% or 8%, somewhere in that kind of range. Could you just confirm if that number is correct.

On the first -- I will answer the first 2 questions. I will let Guy answer the third one. In terms of cost savings, we've had, over the past 3 years, very important cost savings in the -- linked with the restructuring, the optimization of our manufacturing cost base. Now I'm happy, it's good news, we have now a well optimized manufacturing cost base in all of our regions. It took us nearly 4 years to get there. But now it's an asset for us, especially in this recovery phase. We have, in every region, a very efficient and well optimized manufacturing cost base in all of our [ 3 divisions ]. So going forward, the savings will -- you should not expect the same amount of new recurring savings going forward from as significant restructuring of the manufacturing cost base simply because it's done. It has been done already over the past 4 years. Now I believe that we have new grounds that we are now starting to explore in terms of automatization, digitalization of our management processes, which should enable us to make progress in terms of SG&A and overall management efficiencies. So we are starting to explore this. It's a bit too soon to talk about it. But clearly, I believe that going forward, even in terms of CapEx, the share of IT, automation, robotization, CapEx, global CapEx spend, will become more and more important over the years. I believe this is the new frontier in terms of cost optimization for a group as ours. Your second question, so GBP 8.5 million. I think that over the past few years, we've had significant restructuring costs below the line. And I think that, at some point, we need to go to a next phase, which is what we've decided with the Board and our teams. Now restructuring costs, we have to incur for them completely above the line. So what we did in 2020 is not a one-off, it's a change. Going forward, our restructuring costs will be, I would say, normal -- taken normally above the line. This is what we started to do in 2020 and we'll continue going forward. Guy, maybe you can answer the third question?

Sure thing. So Sam, if we look at the growth, I think your numbers are broadly correct. Rather than go into monthly detail, but if I look at the Q3 and Q4 quarter-on-quarter type growth rates, we were looking at about just under 7% in Q3 versus Q2. And then we saw a further improvement close to 12% in Q4. So the overall pattern of revenue for the group as a whole during 2020 essentially saw Q1 and then Q2 being the trough and highest decline, with a recovery in Q3 and Q4, broadly speaking, back at the same sort of levels as we were enjoying in Q1.

Our next question comes from Harry Philips from Peel Hunt.

Several questions, please. Just I'm intrigued by the growth in Foundry in China. Was that a sort of particular drive? I know [ silica ] has been there since the [ '50s ]. But just pleasantly surprised to see that increase. At the same time, obviously, exiting some refractory -- low-margin refractories. So just around China, what's your strategy for foundry and refractories? How do you sort of view the WSA forecast of just over 9% in terms of global steel production ex China? [indiscernible] was saying something broadly similar. How is your sort of budget based, if you like, in 2021? And then just lastly, working capital, obviously absolutely stellar. But where do we go again in '21?

Thank you. Starting with China. First, Foundry, I think we have 3 different situation, foundry, flow control and advanced refractories. Foundry, clearly, we believe we have a strong potential in China. We've been working for that for a few years now and it's starting to pay off. We have been investing not only in plant, in our manufacturing plant in China, but also in our people. We now have a strong foundry team in China, which probably was not that true 3, 4 years ago. And this is starting to pay off on the ground. Our penetration rate is clearly improving month after month in China. And I'm very glad to see -- you've seen the yearly number, but if you look at the end of the year, even beginning of 2021, China has now become the second sales region for the Foundry division after EMEA. So we see an acceleration of the trend for the growth of our foundry sales in China, which is really the result of in-depth work to penetrate better the market. We have very low penetration still today in China of our value-added foundry solutions. It's starting to pay off. All the work that we have been doing over the past years is now starting to pay off. And I expect this to continue going forward. We have a bit of a similar situation in flow control, where, overall, the sales of flow control in the Steel division progressed quite positively in China last year, in 2020, despite the relatively difficult situation of the flat steel sector. Last year, most of the growth in China was in long steel, which is not the most favorable sector, as you know, for flow control. Despite that, we have quite a positive progression in flow control in China last year. And end of the year and begin -- end of the year '20 and beginning of '21, when the flat sector in China is now clearly recovering with improvement in the automotive sector and the like, we see an acceleration in improvement of our flow control sales. So I would say, in flow control, as in foundry, I see a continuing improvement of our penetration in the China market because we have a technological differentiation, very good teams on the ground. Advanced refractories in a difficult situation, a different situation, because the technological differentiation, as you know, is less in advanced refractory than it is in flow control and in foundry. We have good teams also in China, very good teams in advanced refractory. But we have literally hundreds of local competitors. And then in advanced refractory, our strategy is margin more than volumes. So when we can develop -- and we -- I think we will develop the advanced refractory business in China, but probably more slowly than flow control and foundry going forward because we are very disciplined in terms of margin. And when some contracts are too low in terms of profitability, nothing negative, but too low in terms of profitability, not enough positive, then we retreat because this is not our business model. We concentrate on those parts of the advanced refractory markets and those contracts where customers are open to technological differentiation, and there are some. And we will have a selective growth of advanced refractory in China. Your second question regarding WSA, I will not -- I will forgive anybody for being cautious in the steel market after the 2 years we had in '19 and '20. And so I think that it's a good thing to be cautious. You're never cautious enough when looking at the steel market, at least this is one of my learnings over the past 30 years. Now this being said, I don't know if I read your question well, Harry, but probably those WSA forecasts made, I would say, at the beginning of the recovery a few weeks ago, if you are confident, you could imagine that the reality could be a bit better than that going forward. But it's really something that each of you on the call have to make your own opinion of for the time being, in our own forecast and guidance, we are using the WSA forecast. My own personal gut feeling is that there are probably more upside than downside in this WSA forecast. For the last point on working capital, yes, we are still planning to make further progress. We've made good progress, as Guy showed you over the past few years, 3, 4 years, and this without any financial support factoring or whatever. And it is pure working capital, plain vanilla, if I may call it, like working capital management. We believe we still have some margin for improvement, which we definitely plan to deliver in 2021 and beyond.

[Operator Instructions] Our next question is from Dominic Convey from Numis.

Yes. Just if I might ask a quick follow-up question on the profit bridge and how we should think about drop-through, more importantly into 2022, when you don't have the drag from that temporary cost saving unwind but [ obviously ] this year. In the past, you talked about 12.5% medium-term target for return on sales. But can you just give us the sort of building blocks for that? And what sort of revenue you think you'll need to see before you can get to that sort of margin?

I will let Guy give you some more detail, I would say bridging reasoning. But regarding the 12.5% margin, yes, I believe that this margin target remains fully achievable when markets will have recovered to their more normal 2018 level, which, of course, will not be in 2021. But we are in growing markets. We should not forget that because of what happened over the past 18 months. The -- both the steel and foundry market are structurally growing long term. And they will not only reach their 2018 level at some point in the future, '22, '23, depending on if you are optimistic or not, but they will exceed at some point the 2018 level. And our 12.5% return on sales target, we believe, remains completely achievable, thanks to the optimization effort we've been doing over the past few years, most markets will reach and hopefully exceed those 2018 level. But now, Guy, may I hand over to you to give some more, I would say -- I would not dare to say precise, but some more qualitative guidance on the bridging.

Sure. I think probably, Dominic, happy to take any follow-up questions. But if I aim predominantly at I think the drop-through is probably what we're after. Previously, we've always spoken about 25% to 35% sort of range in terms of drop-through. Arguably, what we've seen in 2020 in terms of decline rates of around 13% to 14% were so significant that the drop-through that you will see in 2020 was about 40%. Our expectation is that if we see the sort of return to normalized consumption and revenue growth that we've spoken to on this call thus far, we should be able to produce a 40% drop-through on the way up as well. So when looking at '21, in addition to the cost savings, and some of the recurring savings we have already spoken through, and add back on the GBP 8.5 million one-off costs, I would then suggest that a reasonable expectation would be to -- for us to achieve a 40% drop-through on the way up, similar to what we saw in 2020 on the way down.

Fantastic. And just a point of clarification, that GBP 8.5 million of restructuring that's taken above the line, do you -- are you anticipating any comparable costs this year from restructuring?

We always have -- and it's the reason why we are putting above the line, a few millions of, I would say, normal, regular ongoing restructuring every year, but nothing to be compared with GBP 8.5 million. No, we don't expect anything to be compared. We expect a much -- a small number, much closer to 0. Not exactly 0, but much closer to 0.

Our next question comes from Robert Davies from Morgan Stanley. .

Just be interested in fleshing out a little bit more in terms of the trends you're seeing in foundry. I know just some of those end markets have already sort of backed up into positive territories. Just from a customer standpoint, regional trends, just anything you could kind of flesh out there to give us a little bit more color on what's going on in the sort of regional end market perspective across the Foundry business is my first question. And then I guess the second one is just very much sort of following up on the growth outlook. I mean a couple of people have mentioned the sort of forecast of the World Steel Association. In terms of the sort of growth profile across steel, advanced refractories and your sensors business, would you expect broadly sort of different growth profiles? Or how does the setup kind of coming out of the trough differ across those 3 parts of the overall steel business?

Thank you for the question. On the first one, all foundry markets are now recovering in all regions. There is no exception to that. Now the pace of the recovery is not the same everywhere. Clearly, the pace of the recovery is very strong across the board in Asia, all across Asia, with China, India, Southeast Asia. In South America, it's less strong. It's clearly positive, but less strong than in Asia and South America in the 2 mature areas of EU plus U.K. and North America. And the result of that is that when you look at the absolute level of activity, we are already above precrisis level in Asia, in South America. But we have not reached back the pre-crisis level. We still are quite below pre-crisis level in North America and in EU plus U.K. And this is improving month after month as we speak. But as we speak, we are not, in EU plus U.K. and in North America, at precrisis level yet. This will come later on during the course of the year. Now if you look on a sectoral basis, of course, the sector which is improving the most is the one which has declined the most, is the automotive sector. So it's -- as you know, the decline in the automotive sector was huge last year. And as a consequence, it's improving. We believe that the improvement of the automotive sector is only starting because you have all read the press, the automotive sector, the demand is quite okay. The problem is that many of them have difficulties to produce because of shortages of semiconductors. So we believe that even if there is a sizable recovery in the automotive sector already today, it's only the beginning because we believe that this will continue later on when, hopefully, as soon as this semiconductor shortage will have disappeared and will have been solved. The other sectors are also recovering, but percentage-wise, less than the automotive because they have declined less. But we see that across the board. And in particular, again, in Asia and South America, the recovery is really, really strong. And this really well beyond the automotive sector. The -- your second question was about, could you remind me?

So just the different prospects for growth across the different parts of the Steel business, whether there was a -- I know, generally, the direction of travel is fairly similar between flow control, advance refractory and the sensors. I just wondered kind of looking into '21, do you have any strong views in terms of the growth outlook across those 3 subsegments, which could be better or worse just from a qualitative...

I think that -- from a qualitative point of view, we are planning -- we have a growth strategy in flow control. We have a growth strategy in flow control because we have a real technological differentiation. And we believe that over a long period, and it was the case in '20 and I see no reason why it would not be the case going forward, I believe that -- at least, clearly, our objective is to outperform the underlying steel market in flow control and continue gaining market share and expanding the penetration of our solutions in flow control. And I would say for sensors and probes is also because it's still relatively small, it's also growing. You can see that in '20 by the way already. We expect sensors and probes to grow a bit faster than the underlying steel market. Advanced refractory, our priority is profitability. So it doesn't mean that we will not grow but the improvement of profitability is the first priority in the Advanced Refractory business unit. If this can be done at the same time as we are growing faster than the market, why not? But we don't have specific objective in the Advanced Refractory division to grow faster or slower than the market. It's above all about improving profitability. And we demonstrated that in China, for example, last year. China, we decided to retreat from some low-margin contracts because this -- the priority for us is to improve the profitability of the Advanced Refractory division.

Just maybe one short follow-up for Guy. I guess kind of sort of taking that point, just be interested over the last sort of 3, 4 years, in total, how much business do you think you have exited that's sort of low-margin? And how much have you still got to go? If you look at your current sales breakdown at the moment, how much of the overall sort of group sales would you say are unsatisfactory margins that you would still think about exiting or you're trying to fix? Or is there nothing that sort of particularly stands out at the moment?

We have exited a few contracts in Europe and China, mostly, which we believe were not satisfactory in terms of minimum level of profitability we are looking for. And now that this is done, I would say that we have already -- as we speak, we have exited most of the contract that we had, I would say, identified as having a non satisfactory margin level in advanced refractories. So we are -- I think we are on a solid and sound ground now.

Our next question comes from Anthony Plom from Berenberg. .

So I just had a couple of questions. The first one was just on service sales. Still very, very small numbers, but they were up about 15% last year by the looks of it. Do you mind just sort of remind us a little bit on what those revenues encapsulate and how do you expect those to grow over time? And then secondly, on ESG and all the sustainability goals, clearly the right thing to do. I'm also just wondering how much that potentially accelerates your -- the market share gain story as well? I just wondered if you had any feel on what some of your competitors may be doing to address sustainability. That would be quite interesting.

Your first question was about which product line?

As for the service sales or the sales that come over time, it's about GBP 10 million last year, GBP 6 million the year before. I was just wondering what that essentially encapsulated and yes, how much you think that might grow the time?

I'm not sure I catch up which sales these are. Where did you see this, excuse me?

In Steel division. It's a very small number. So it's about GBP 1 billion that comes from purely sort of product sales point in time, and there's about GBP 10 million of sales over time. Presumably, those are sort of service revenues?

I'm not sure I'm catching the exact sales you are talking about. Where did you see those numbers?

2.1. Note 2.1 on the income statement. Don't worry.

Sorry, I propose to answer your question off-line because I'm not sure to have seen the numbers you are asking. So I would not like to answer -- not to answer exactly your question. On the second question, the EGS, I think that ESG is a totally strong [ drive ] for us. We believe that we have a role to play not only to decrease our own CO2 footprint and improve our own sustainability performance, but also to support our customers in their own efforts to improve their own CO2 footprint. I gave you during the presentation the example of the sleeves that we are selling to the foundry industry. And those sleeves already today enable the foundry industry to save more than 450,000 tonnes of CO2 emissions every year, which is more than the total emissions of the total Vesuvius group worldwide in 1 year. We have also ambitions in the steel sector to develop further products and product lines which will help our customers improve their own CO2 footprint, which, as you know, is an important topic for our customers in the steel industry. We think we have a role to play there. We have already today some joint R&D programs with some of our important customers, to study with them what could be done to improve existing steelmaking processes, to evolve going forward where -- towards processes which will need less and less CO2. It's -- we are very modest and on board, but we think we have a role to play. And we hope that, yes, to be recognized and welcomed by our customers. But I think whether it is recognized or welcome, we will do it as others because I think that's our duty to do that for customers. And we believe that it can only strengthen, at least from a qualitative point of view, it remains to be seen what will be for a quantitative point of view, but this -- we believe that at least from a qualitative point of view, it will strengthen the relationship between Vesuvius and its customers, both in Steel and Foundry. We feel solidarity with our customers and I think that it's normal. We have a role to play to support their efforts to improve their CO2 footprint.

Anthony, I can pick up with you off-line on the note 2.1. I think that's more a question of recognition criteria. It's demonstrating growth year-on-year, but in and of itself doesn't represent proportions of service versus consumables or anything like that. I think it's more contractual terms. Very happy to pick up off-line with you.

We have a question from Samarth Singh from TPF Capital that's been submitted online. Please could you talk about what you are seeing in the India steel market, especially with the government's focus on infrastructure spend and long-term domestic steel production goal of [ 300 millimeter ] tonnes per annum? Could you also talk about the competitive situation in India?

You're completely right. There is a lot of talk about new infrastructure programs in many places in the world, in the U.S., of course, as you know, but also in Europe, also in India, in China, in many places. The reality of the past few years is that there has been more talk than action, so unfortunately. But I think that at some point, talk will translate into action, it's a question of timing, because there is a need. If we take a step back and that we try to forget about the talk of politicians, the -- let's look at the reality on the ground. The reality on the ground is that there is a need for infrastructure investments either to repair and replace some infrastructure built more than 30 or 40 years ago, 50 years ago sometimes. There is also a need for new greener infrastructure in many places where the population is asking for greener behavior and greener, more sustainable performance. And there is a need for infrastructure in some emerging countries like India simply because the infrastructure do not exist. So yes, I'm quite confident that going forward, I will not tell you in the next 6 months because all these things take time, it needs political consensus, it needs time to mobilize the financial resources, but if we look at the next 5 to 10 years, yes, I really believe that there will be an uptake in global infrastructure investments in the world for different reasons, again, reason be it for renewal, for building when they don't exist or to make them greener. But all these can converge towards a higher level of infrastructure investment in the year structurally going forward and that this could have -- this should have quite a positive impact on both, by the way, the steel market and the foundry market. Now will it happen in the next 6 months? I don't believe that it will change dramatically the landscape in the next 6 months. Over the next few years, 3, 4, 5, 10 years, yes, I believe it can have quite a significant impact. Regarding India, after a very difficult 2020 year where the steel production dropped quite significantly in India, India went back very rapidly. Now the Steel price in India is already significantly above what it was before the pandemic. And there are many new investments projects in the steel sector in India. I don't believe in the 300 million tonnes by 2030. It is more of a slogan than anything else. But it's a -- I don't believe the Indian government [indiscernible] it, by the way, it's a motivating slogan for the industry. So I don't believe that it will reach 300 million by 2030, but it will be well above the [ 100 something ] of today in 2030 because you have investment in the pipe. All big players in India are planning investment, including ArcelorMittal, now that they are in control of the former Essar Steel, they will -- they already announced, they will increase their capacity in India. And we have good relationship penetration with all the important players in the steel industry in India. And in particular, the most, I would say, modern and efficient one, which are the one where the steel production will increase the most. So India remains for us a very important growth area going forward. As far as the competition in India, it's very, I would say, intense as all competition in India, it's not specific to the -- to our business and the steel industry. As -- I think you should not go to India if you are not prepared for intense and dynamic competition. So we have dynamic competitors in India. But we have very strong, very solid operations in India ourselves, extremely low-cost operations, good technology, very good managers. And even if there is strong competition in China, as you may have seen, we regained market share significantly in India in 2020 after the losses that we had in 2019, which is, I think, a good demonstration of our capacity to react, of competitiveness in India despite the intensity of the competition. And I expect that we will continue to do well in India going forward.

[Operator Instructions] There are no further questions on the conference line. I will now hand over the presentation to the management team for the closing statement.

Thank you very much. I would like to thank you all for your participation in our call today. I wish you all a very nice day. And as usual, Guy, myself and our Investor Relations team remains at your disposal should you have any questions. Thank you, and good day to all of you.

Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining, and have a very good day.