Vesuvius plc (VSVS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the presentation of Vesuvius 2021 half 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 the first half. Then Guy will give you more details about our financial results. I will then conclude with some considerations on the outlook for the rest of 2021 before opening the floor for questions. We had a strong commercial performance in the first half, with our top line increasing by 18% as compared with last year on an underlying basis. Our trading profit increased by 54%, also on an underlying basis, to GBP 73.3 million. Our return on sales increased 220 basis points to 9.1%. Our cash conversion ratio was lower than last year but still significantly positive at 52% despite the necessary reinvestment in working capital to follow the growth of our market. Despite this reinvestment in working capital and the payment of close to GBP 40 million of dividends during the first half, we could decrease our net debt-to-EBITDA ratio to 1.1 end of June as compared with 1.2 end of December. This solid set of results led the Board to propose doubling the level of the interim dividend as compared to last year at 6.2p per share. Let's now have a look at the key points of this first half. We continue to successfully implement our growth strategy with a very good performance of our Flow Control and Foundry divisions, where sales in volume outperformed the underlying steel and foundry markets. To support our growth strategy and the acceleration of our sales in Flow Control, we've decided to launch an important program to increase our production capacity in India and in EMEA to serve the fast-growing Asian and EEMEA markets, EEMEA being the non-EU plus U.K. part of EMEA. We reinforced our technology leadership by launching 12 new products in the first half of the year more than in the full year 2020. These launches will support our growth strategy going forward and were made possible by our decision to maintain our R&D efforts in 2020 despite the pandemic. A very strong focus on working capital management enabled us to decrease even further our working capital to sales ratio to 20.7% end of June as compared with 23.1% end of December 2020. As a result of this tight financial management, thank you, guys, our balance sheet end of June strengthened further as compared with end of December, not only with the decrease in the net debt-to-EBITDA ratio, which I mentioned earlier, but also with the refinancing and increase in size of our revolving credit facility. On the negative side, even if we could implement first round of price increase in the first half, this price increase, however, even if it covered our raw material cost increases, was not enough to also cover the excess freight costs, which we incurred due to the worldwide supply chain disruption. This represented a headwind of GBP 10.3 million in H1. We continue to make good progress in the implementation of our ESG agenda during the first half. We are progressively shifting our electricity consumption to renewable electricity. We could convert 4 more important sites in Europe during the first half. Those sites represent together close to 20% of our global Scope 2 CO2 emissions and 5% of our worldwide Scope 1 plus Scope 2 CO2 emissions. We are planning further conversions in the future to continue progressing towards our net carbon 0 objective. We are also now systematically using an internal carbon price to assess all our management decisions, including, of course, investment decisions. For the year 2021, our internal worldwide CO2 price was set at EUR 30 per tonne, and this will be revised every year. We are also reinforcing our R&D efforts to develop products which could help our steel and foundry customers improve their own sustainability performance. We are now identifying those products with a specific leveling, as you can see on the slide. Our progress in implementing our ESG agenda was recognized by MSCI, which upgraded our ESG rating from BBB to A last month. Let's now look into more details into the performance of our Steel division. All steel markets registered a positive growth during the first half, with, in particular, a very strong recovery in India, South America and Southeast Asia. The 2 key end markets for us of NAFTA and India also recovered nicely. Several important end markets, however, remained below their 2019 level, not because of a lack of demand but because of technical capacity constraints. There are now still shortages in many regions with consumers having difficulties to procure steel. We believe for this reason that the volume recovery in the steel sector will continue and extend well into 2022 and probably 2023. China continued to grow but at a slower pace than the rest of the world. We believe this pattern will continue going forward in a reversal of the trend of the past year. This should benefit Vesuvius, as our market penetration in the world outside of China is still today significantly higher than in China even if we continue to register good progress there. On the next slide, you can see the very strong commercial performance of our Flow Control division in all geographies. We registered, in particular, a very good outperformance in the key growth regions of Vietnam, South America, India and EEMEA. We also progressed nicely in China, where our penetration rate is increasing year after year. There is only a limited price impact in these figures, lower than 1%, as price increases implemented will mostly produce an impact in the second half. It is sometimes useful, especially in times of crisis, as the one we are experiencing today, to take a step back to reflect and avoid losing track of the long-term trends of the markets we are operating in. You can see on this slide the evolution of the worldwide steel production over the past 5 years. This is also representative of the evolution of the worldwide steel consumption, as there is no inventory overhang anywhere. It shows the very sound long-term growth pattern of the steel production and consumption worldwide. We believe this will continue going forward, presenting Vesuvius with attractive organic growth opportunities. As already mentioned, we also believe the steel production will grow faster in the world outside of China than in China in the coming years in a reversal of the previous year's trend. This should have a positive impact on Vesuvius activity going forward. To support our organic growth and market share gains in Flow Control, we've decided to launch a strategically important capacity expansion program in the division. In EMEA, we will increase by 35% our global isostatic products capacity and by 100% of global Slide gate capacity through the debottlenecking of our flagship Skawina plant in Poland. In India, we will also increase by 50% of global isostatic products capacity through marginal investment into our Kolkata plant. This will enable us to grow and expand our market share in the fast-growing markets of EEMEA, India and Southeast Asia. The cost of this important expansion remains limited at GBP 28 million, illustrating the low capital intensity of our business model. These expansions will be operational end of 2022. If we now have a look at the financial performances of the Steel Division, you can see the contrast between the strong sales growth of Flow Control at 21% and the much more limited growth of Advanced Refractories at 9%. We benefited in Flow Control from our strong technological differentiation, enabling us to gain market share at the same time that we were adjusting our prices upwards to reflect the evolution of our external cost factors. In Advanced Refractories, we were disciplined and gave priority to profitability over volumes. We consequently lost some market share in certain regions, as some of our competitors were [ late ] in introducing price increases. The global trading profits of the Steel Division increased by 35% on an underlying basis to GBP 49.4 million as compared with GBP 38.9 million last year. The division's return on sales increased by 120 basis points to 8.7%. If we now turn to the foundry market, you can see on this slide that all sectors improved significantly during the first half with, however, some important differences between markets and geographies. The light vehicle market, but also the heavy vehicle market rebounded strongly from the low level of last year. Due to the shortage of semiconductors, however, the light vehicle market still remains 12.3% below its level of 2019. And for this reason, we believe that the recovery of our market should continue in 2022. All other markets also progressed positively during the first half, and their perspectives are positive. Only exception is the heavy vehicle market in China, which is showing signs of weakness, and this is expected to accelerate in H2. The sales of the Foundry Division grew significantly during the first 6 months by 22.4% on an underlying basis. In particular, the division registered strong sales growth in the fast-growing regions of China, India and South America. We could gain market share in most regions, thanks in particular to the launch of new products. The trading profit of the division, which had been very negatively impacted by the pandemic last year, rebounded strongly by 119%, more than double, to reach GBP 23.9 million. The return on sales increased by 450 basis points to 10.1%. We continued during the first half to reinforce our investment in technology with our R&D spend increasing by close to 9% to GBP 14.8 million. We launched 12 new products during the first half, more than during the full year 2020. This was made possible by our decision last year not to decrease our R&D effort despite the pandemic. We remain on track with our objective to launch 22 new products in 2021. These new products are very important for us, as they play a key role to support both our market share gain objectives and our margin improvement ambition. You will see on the following slide a few examples of our new products launched during the first half. Starting with Flow Control, our new Air-Shield technology creates a better seal between the 2 plates of our slide gate mechanism. By minimizing contact of the steel with the external atmosphere, this minimizes the level of impurities in the steel and helps our customers achieve higher performances of their finished products. It also helps our customers decrease their production cost by reducing the clogging and extending the life of the refractory tube. On the next slide, you have an example of a new innovative material recently introduced by our Advanced Refractories division, a tundish lining spray, which can be used by our customers without the usual 2 to 3 hours predrying cycle. This material will help our customers increase the productivity of their continuous casting process by improving the availability of their tundish. Also, by eliminating the predrying step, this product will also help them reduce their energy consumption and their energy costs. Finally, on this slide, an example of a new product introduced by our Foundry Division. This new formaldehyde-free coating will, at the same time, improve the quality of the finished foundry products but also help our customers improve the working environment inside their foundry plants by reducing harmful substances emissions on the shop floor. As a summary, with our capacity expansion in Flow Control and a very strong pipeline of new products in all 3 divisions, we believe we are now in a very good position to benefit from the positive growing trend of our steel and foundry end markets in the coming years. I will now hand over to Guy, who will give you more details on our financial performance during the first half of 2021.

Thanks, Patrick. Good morning, everyone. As usual, I will start with our sales and trading profit bridges before looking at the detailed income statement. We recorded a 12% increase in first half 2021 reported revenue of GBP 808 million compared to 2020 reported revenue of GBP 720 million. After adjusting for FX of GBP 36 million, our underlying revenue grew by 18%, reflecting the ongoing recovery in both our Steel and Foundry divisions across most geographies and all end markets. In terms of trading profit, our June 2021 year-to-date trading profit was GBP 73.3 million, up 43% on a reported basis and up 54% on an underlying basis compared to 2020. The key drivers of the increase in trading profit were GBP 33.6 million from higher revenue across all of our businesses; GBP 2.5 million of delivered restructuring savings in H1 of the annual target of GBP 4.3 million, partially offset by a negative impact of GBP 10.3 million of excess freight costs relating to the disrupted global supply chains. Overall, the GBP 73.3 million trading profit translated into an improved return on sales in 2021 of 9.1% as compared to the 7.1% achieved in 2020. If we turn now to the full income statement and focus on those elements below the trading profit of GBP 73.3 million. We reported a marginal decrease in share of joint venture results of GBP 0.6 million, driven predominantly by foreign exchange. Our net finance costs, which decreased to GBP 3.6 million, mainly as a result of lower average costs after the refinancing of a tranche of USPP notes and an overall lower level of drawdowns. Our effective tax rate of 26.5% was in line with our guidance and lower than last year's rate as a result of geographic mix and lower withholding tax. We maintain our tax rate guidance of between 26% and 27% in 2021, subject to finalization of any changes that are still to occur in the United States. Our headline earnings for the half year were GBP 48.5 million, 55% ahead of the same period last year, which translates into a headline EPS of 17.9p per share. From a cash flow perspective, we achieved a cash conversion of 52% in the first half, below the 137% of last year. The lower cash conversion is a natural consequence of the required investment in the working capital as our business activity picked up. June is historically our highest point of investment in working capital as we prepare for summer shutdowns in both EMEA and NAFTA. Year-to-date, we've invested just over GBP 51 million in trade working capital, along with GBP 17.6 million of net CapEx, partially offset by lower non-trade working capital of GBP 8.7 million. In H2, we expect to see some unwinding of working capital and, in contrast, an increase in CapEx, particularly given the expansion projects flagged earlier. Turning briefly to our working capital performance in a little bit more detail. We managed to reduce our trade working capital to sales further to 20.7%. This reflects a pleasing continuation of the discipline that was established during the pandemic, including revisions to our raw material order and authorization processes, bespoke payment plans and where necessary supply stoppages to manage down overdues, and ongoing progress with extending our supply chain finance with our suppliers. It is worth noting that although we expect to build some inventory from here, particularly in raw materials and some finished goods to mitigate against the risk of supply chain disruption, I expect we will still finish the year at a materially better intensity rate than December 2020. Our adjusted operating cash flow of GBP 37.9 million was applied during the first 6 months to service net interest costs of GBP 3.4 million, income taxes of GBP 13.7 million and dividend payments of GBP 38.7 million. Along with a favorable GBP 7.3 million of foreign exchange and additional leases of GBP 6.4 million, our net debt increased by a little over GBP 21 million to GBP 197 million and resulted in a pre-IFRS 16 net debt-to-EBITDA ratio of 1.1x, an improvement on the 1.2x as of year-end 2020. Included in the appendices is a summary of our liquidity position, which following the cash generation in the first half and the refinancing of our RCF has increased some GBP 50 million since December 2020 to GBP 488 million. As such, we remain in a strong balance sheet position to enable our expected organic growth and any inorganic growth opportunities that may arise. With that, I'll hand back to Patrick to take you through the outlook. Thank you.

Thank you, Guy. Vesuvius delivered a strong commercial performance during the first half of 2021, supported by the continued improvement in our end markets and by market share gains in both Flow Control and Foundry. While we continue to experience inflationary pressure in certain raw materials and freight, this will be offset in H2 through incremental price increases currently being implemented. Consequently, trading profit in the second half is expected to be similar to the first half. Overall, our expectation for the full year is unchanged. Looking beyond the ongoing transition period of the pandemic recovery, we expect continuing structural growth in our end markets of steel and foundry to present attractive growth opportunities, supported by the strategic expansion of our Steel Flow Control production capabilities in both Asia and EMEA. We remain confident that we will deliver further meaningful improvement in our financial performance in the coming years, based on our optimized manufacturing footprint, our ongoing R&D investment and new product pipeline as well as our entrepreneurial and decentralized business model. Thank you for your attention, and I now propose to open the floor for questions.

[Operator Instructions]

Mark Davies Jones from Stifel. If I can start with the obvious one on the outlook statement. It looked to me there was a bit of a [indiscernible] because you said you'd get the cost benefits of the price rises coming -- costs offset in the second half, but yet, you expected the profit performance in the second half to be similar to the first half. So can you just walk us through the bridge of that? What's the expected extra logistics costs should be through the second half, what the offsetting pricing benefit would be? What else might limit the scope for sequential improvement in the second half?

Thank you very much for your question. Guy will give you some more flavor. But to drive you through -- quite actively through what we expect. We have already implemented price increases in the first half, and we are currently implementing further price increases, which will flow in into the second half. The -- we see the cost base continuing to increase. In other terms, the price increases, the cost increases, which already happened during the first half in raw materials, will further increase. There will be new price rise, which is a raw material market, not that much in magnesia, but for other raw materials, we see raw materials continuing to increase, and we plan to have our price increases, a second round of price increases, covering this second round of raw material cost increases. And as far as the freight market is considered, I don't have much of a crystal ball on the freight market. I don't know if somebody has. But our assumption is that freight market rates will remain at a very elevated level during the second half. And as you know, the freight market rate are still increasing week after week as we speak, and we are factoring that into our assumption for the second half. Maybe it's too cautious. Maybe that in October or November, things will come down a little bit in the freight market. This is not our base assumption today. So we believe that our price increases, our second round of price increases will be needed to compensate the continuous increase in raw material and the freight market.

Slightly related question, if I may. Would you expect that shift in the mix of -- or the rates of growth within steel to continue with Flow Control growing much faster than the Refractories business? And doesn't that bring some mix benefit to the margin trend there as well?

I -- we have a different strategy in Advanced Refractories and Flow Control. In Flow Control, we are the market leader. Our strategy is clearly simultaneously, of course, to permanently improve the profitability of our Flow Control, and it is improving regularly, but also to consolidate and expand our market share. And we've been doing it over the past few years, and we are planning to continue to do it going forward. Advanced Refractories, we are clearly giving priority, and we will continue to give priority to profitability over volumes. It does not mean that we are adverse (sic) [ averse ] to the idea of improving our market share. It's just not opportunistic way to do it. But our priority in Advanced Refractories is clearly profitability, not volume of market share, whereas in Flow Control or in Foundry, we clearly have an objective to expand our market share going forward, which has also a positive impact on our profitability.

Mark, if I were to reduce that to some simple numbers, if we take a look at an H1 to H2 bridge, we shouldn't forget we have a small delta on restructuring because the 2.5 to 4 essentially means there's slightly low second half delivery. So the H1 to H2 will give you a small negative of about 0.7 on restructuring. And we expect a small FX headwind of around 1.8. So in essence, we have a small negative delta with those 2. Any sales mix and/or price increase that we managed to get above either raw materials or claw back on freight would essentially go to offset those first. And consequently, we're still expecting something flat H1 to H2.

Dom Convey from Numis. I guess a little bit of a follow-on, can you give us a little bit of color around the quantum of the price increases that you've put during the first half and those that you anticipate putting through in the second, so we can get a feel for the rate of change? And in terms of further question, this GBP 28 million additional CapEx investment in new capacity, can you give us a sense as to what the additional revenue capacity would be for that total spend? Obviously, you've broken that out in terms of the various segments that you're deploying there?

On the first point, we had a positive price increase effect during the first half but relatively limited one because our first round of price increase was introduced during the first half. So the impact on the first half was relatively limited, less positive, but around 1%, a little bit less than 1%. And the impact of this first round will be felt mostly in the second half, but we are also now introducing a second round and, if necessary, based on the way costs will evolve going forward, we may also have to introduce a third round of price increase. We have built flexibility into our contractual relationship with our customers because in a period of such volatility in freight and raw materials, we believe it's essential to have this level of flexibility. So we are currently going for the -- and we've been going already to the second round. And if needed, we will have to go to third round of price increases, our objective being clearly to compensate the cost increase that we are experiencing. As far as your second question is concerned, if you allow me to answer indirectly because we are not disclosing a specific margin element, but this GBP 28 million capacity increase investment will generate at full capacity more than GBP 25 million incremental EBITDA. If there are no more questions from the floor, maybe we could ask questions from people on the call.

[Operator Instructions] We do have an audio question. The audio -- first audio question is coming from Harry Philips from Peel Hunt.

Just a couple of questions from me. You've answered my question or rather Dom's question, which would have been mine on the additional revenue from the expansion. But just looking at a couple of things. One, in terms of the freight price increases and similarly, my freight to crystal ball is extremely murky at the best of times, let alone at the current time. But if we work on the assumption that at some point in '22 going into '23, freight prices return to normal, then logic says that, that should be quite a recovery from that headwind in terms of just drop-through and other factors. And then at what point do we -- do you put the 12.5% margin target back on the sort of agenda in terms of deliverability? I mean I'm just sort of playing around some crude numbers, and they are very crude. But if you put in the same again for the second half, let's call it, GBP 145 million of EBIT, let's say, you do GBP 1.6 billion of revenue, you've run at a 30% drop-through. So sales got to 1.9, which given the backdrop for steel over the next 2, 3 years wouldn't be impossible. Is that -- is sort of 2 to 3 years out on 12.5% sort of a realistic target? Or is that too conservative, do you think?

Thank you, Harry, for your 2 questions. Starting with the first one, I am unfortunately no more crystal ball than you do about when freight prices will get back to a more normalized level. But when they do, we will with our customers, we will, of course, eliminate those freight rate stock charges that we are currently introducing. The objective is not to make money out of freight, it is simply to compensate the cost increase, and we have a trusted relationship with our customers on a long-term basis. So we have to increase our price when freight rate goes up, but it's very normal, like for raw materials, to decrease when freight rates go down. In some respect for us, freight is a raw material like any other. So we treat it exactly in the same way. On your second question, I can only confirm what I -- my vision, which I already gave when we presented our full year 2020 results. We believe that the year of 2023, based on the assumptions that you described, which I hope will materialize, but based on the assumptions that you described, we believe that we should be able to reach this 12.5% in 2023.

The next question is coming from Andrew Douglas from Jefferies.

Harry stole all my thunder with the 12.5% margin target, but I'll go somewhere else. Can we just talk about market share gains that you talked about in Steel Flow Control, in particular? Is that coming from the smaller players, the bigger players, across the board? If you can just give us a feel for what's going on there. Secondly will be on M&A. Your net debt to EBITDA is in a good spot. Just wondering what the outlook is for any potential M&A? I know you've got a desire to do it, but how likely is that? And then I guess, thirdly, India has always been kind of the great opportunity. You've always been a little bit cautious on that, but you were putting more capacity down in Europe, which is a surprise. You're putting more capacity down in India, which is a surprise. Has something changed? Or is this just a kind of just a bullish outlook for Vesuvius given where we are now?

Thank you very much, Andy, for your questions. Regarding further market share gains in Flow Control, it's across the board. It's -- and I think that what makes the difference today between the various players in Flow Control is not that much if you are big or small, if you are focused or not focused, if you have technological differentiation or if you do not have a technological differentiation. If you sell Flow Control products like you sell [indiscernible], it's not really the right way, we believe. So we are gaining market share because we have the focus because we increased a lot in R&D and because we believe and the facts on the ground are proving us right every day that it's technological differentiation, the value and use that we create in the process of our customers, which is a key factor in -- for Flow Control products, not bundling or commoditizing Flow Control products. So we are gaining market share across the board, and we intend to continue gaining market share across the board. On your second question, M&A, we remain interested by M&A. We keep an appetite for M&A. We have, as you know, a target list, which we established together with Guy a little bit over 2 years ago of those companies, which could present an interest for Vesuvius in terms of addition. And we are proactive in approaching the owners of these potential targets to convince them to engage into discussions with us. I think that is -- the pandemic has changed a few things there, that some of the owners of these entities, which could present an interest for us. One year or 2 years ago, they were not sure at all that they would ever be willing to sell. Today, we see a few of these owners having fine-tuned their strategic vision and now starting to consider that such or such assets may not be -- which is of interest for us, may not be core to their own business. And the discussion has shifted for some of them to the -- if they will do it, to when and, of course, under which conditions, which is an important question. So we remain interested. We remain proactive. There is no guarantee that anything will materialize in the coming months, but we keep a strong appetite for M&A, disciplined appetite, but a strong appetite for M&A. On your last question regarding India, it's a very good question because you know that 2 years ago, we lost a little bit of market share in India. But we have a new management now in India. We're doing a very good job at promoting our technological differentiation. And we are back on a very good growth track in India. You've seen in our presentation that over the first half, we've been growing our Flow Control sales in India about 45% over the first half, even if the market has grown a lot by 31%. 45% is much bigger than 31%. So it gives you an idea of the dynamic we are now in India. And we believe that these are solid grounds that we will continue to gain market share in India. But it's not only India, it's also Southeast Asia. So we see Southeast Asia as one of the fastest-growing steel production region going forward for 2 reasons. First, because already today, Southeast Asia is the biggest net steel importing region of the world. So that is very logical that steel production will grow in Southeast Asia and, in particular, in Vietnam, to substitute import but also the main source of imports, which traditionally over the past few years has been China, may decrease going forward because it's clear that the Chinese government is now putting forward a new policy not to promote steel export to the rest of the world. You know that recently, as from May 1, the Chinese government has been eliminating the export VAT rebate of 13% on steel export out of China, which clearly is a disincentive for Chinese steel producers to export outside of China. And in the news this morning in China, there were rumors about the Chinese government may be introducing in the coming months on top of that some steel export tax on top of the elimination of the VAT export rebate. So the vision -- again, we have no crystal ball, unfortunately, but the vision we have about the net steel exports out of China is rather a decreasing trend going forward, which clearly will benefit the India Southeast Asia region. This is one of the reasons we are investing there. We believe that this region will be one of the fastest-growing steel production region in the world going forward.

The next question is coming from Robert Davies from Morgan Stanley.

My first one was just around if you have any sense of sort of stocking or destocking impact. I saw your underlying growth close to 18% and you put in that slide, showing the different regional growth trends in the world that [ spun ] around 18%. So I know there's different moving parts across the bits of your Steel business, but just wanted to get any sense whether you thought there was a kind of above or below average level of restock or destock going on through the first half. That was my first question.

The answer is relatively simple. The stocks are much more than low, incredibly low. And I can bring your attention to a very interesting slide that you will find in the annexes of ArcelorMittal presentation this morning. ArcelorMittal always, and it's one of our esteemed customers, but they have a very good market analysis on steel, as you can imagine. And you will find in the annex of their presentation this morning a very interesting slide on the evolution of steel inventories worldwide, which shows without ambiguity that in all regions, the level of steel inventories is historically low, which is very consistent with the fact that you have steel shortages everywhere. So we are -- it's not even that the restocking cycle has not started. We are destocking steel, as we speak, because the real demand for steel products is much higher than the production that, for the time being, steel producers are able to put on stream despite them doing all necessary efforts for that. And ArcelorMittal announced this morning that they were planning to invest more to increase their CapEx level this year to put back on stream some additional capacity because the end demand is, again, better than the steel production that we've seen and that we are continuing to see currently. So this is the reason why we are very optimistic about the evolution of our end market in '22 and '23.

And then my other question is just around that 12.5% margin target. You're obviously growing very strongly at the moment, 18%, and you've come in at 9% margins. And I think the previous high was something around 11%. So what's the bridge numerically between where you are now at 9% and the 12.5% margin in 2 years? What's the biggest risk that doesn't happen?

By definition, there are always plenty of risks. So there is no such thing as certainty. But I believe that as compared with the last peak in margin and, of course, we are not -- we are integrating as always because we cannot do otherwise, an average growth pattern of the steel and foundry markets going forward. We have never been able to integrate cycles simply because we cannot predict cycles. But all our projections are based on the average growth of the steel and foundry market. And as compared with the last peak, several things have happened. First, we have significantly restructured our manufacturing network. At the time of the last peak, our manufacturing network was not yet completely restructured and optimized. Now it is. And we have been introducing also a significant number of new products. We are continuing to introduce a certain number of very attractive new products for our customers, helping us grow our market share in Flow Control, in particular, but also in Foundry. And the conjunction of these 2 elements, optimization of our manufacturing footprint, introduction of new products and a very strong and rich new product pipeline together with the normal progression growth rate of our underlying steel and foundry market is the main reason why we are confident in our ability to reach this 12.5% return on sales.

[Operator Instructions] We do have a written question next. It's coming from Ronak Chheda from Awriga Capital. What would be the capital outlay for expanding the production capacity in India?

Thank you for your question. Unfortunately, I cannot give you the split of the GBP 28 million between India and Europe because, otherwise, it will give some confidential -- it will give away some confidential information about what type of equipment we are putting here or there. But what I can give you -- tell you qualitatively is that our investment in India, despite being a respectable percentage of this GBP 28 million is, nevertheless, a minority percentage of the GBP 28 million. So the majority of the GBP 28 million will be spent on the Skawina plant in Poland, but a good proportion of this will be in India. And it's not decided yet, but we are currently studying on other product lines further expansion opportunities in India.

We have an audio question now from Jonathan Hurn from Barclays.

Just 2 quick questions for me. Firstly, can you just talk a little bit about new products? Obviously, that's a key part of your strategy going forward. So can you just give us a feel maybe a bit consciously in terms of sort of growth rates? And also just in terms of the margin of these products relative to your existing products, how much differential or margin uplift you get from new product development? That's the first one.

Thank you. There are as many answers as new products. But again, to give you a ballpark answer, which I think qualitatively is the right one, first, we have a growing share of our new products into our mix of sales. We define our new products -- we use an indicator, which is a new product sales ratio, which is, in fact, the share of our turnover, which we realized with products which didn't exist 5 years ago. And we've been -- historically, a few years ago, we were at or slightly below 10%. We are now on or around, give or take, 15%, and we believe that we will smoothly progress in the coming years towards 20%. And it's clear that if you look at Flow Control, we are clearly already past -- above this 15% and growing. So we -- the quality of our pipeline of new products is increasing over time. And it's a very important point. We are not a mature industry where innovation is impossible. We strongly believe and our scientists, our R&D managers believe and prove every day that in steel, in foundry, it's still possible to innovate, to invent and to create value. We have a very, very strong belief in the fact that steel and foundry are young industries. When I started my career in the steel industry 32 years ago, I was explained that you are crazy, why are you going into steel industry, you could go somewhere else. 32 years later, honestly, I'm extremely happy with the choice I made 30 years ago because steel is surprising me every day. And again, I can only invite you to read the ArcelorMittal presentation that they gave this morning. It's very exciting in terms of technological improvement in the steel sector. And they are not the only one. They are one of the very good ones, obviously, but we have many customers everywhere in the world proving every day that steel is a young industry, and we are, I would say, excited by our customers. We are keeping pace and helping our customers in this innovation pattern to prove every day that steel is a young industry. So we believe, yes, that it's possible to innovate in the steel sector. Your second point about margin, the margins are generally better for our new products than they are on average -- they are better for new products than they are on average for the [indiscernible] one. But obviously, you may have differences on a case-by-case basis. But if you reason on average, the margins are a bit better. Yes.

Okay. That's very clear. And the second question was just on Advanced Refractories. Obviously there, you're focusing on price over volume. I mean, if you look at Advanced Refractories right now, it's, what, probably about 40% of steel volumes. Where do you think that ultimately comes down to in terms of sort of percentage of steel overall?

The percentage of Advanced Refractories in our own Steel Division?

Yes, pretty much. I just...

Yes. I think that it's difficult to answer this question because, on one hand, the organic growth of Flow Control will probably be structurally better than the organic growth of Advanced Refractories. At the same time, you probably have more inorganic opportunities in Advanced Refractories than -- in Advanced Refractories. So according to the probability that such inorganic opportunities will materialize or not, the answer could be different. But from an organic point of view, at constant perimeter, yes, the growth of -- the organic growth of Flow Control should be higher than the organic growth of Advanced Refractories.

And just maybe following up, just in terms of that sort of inorganic optionality in terms of Advanced Refractories, is that something you're looking to do? I mean is that a possibility? I would have thought you probably would have focused more on other areas instead of...

In our M&A strategy -- our M&A strategy covers all of our 3 divisions without exclusion. So it doesn't cover only Advanced Refractories, obviously, but it also covers Advanced Refractories.

[Operator Instructions]

If there is no further questions...

I can confirm there are no further questions. So I will now hand over the presentation to CEO, Patrick André, for closing remarks. Thank you.

Thank you. Thank you very much. I would like to thank you all for attending the presentation and especially to those who were with us today. I think it's good to have the opportunity to meet again in person. And -- but thank you also for all of you on the call today. And we remain, together with Guy, at your disposal to answer any questions. Thank you for your attendance, and I wish you all a very nice day. Goodbye.