Vesuvius plc (VSVS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Vesuvius Full Year 2024 Presentation. My name is Patrick Andre. I'm the Chief Executive of Vesuvius. And to my right with me this morning is Mark Collis, our Chief Financial Officer. I will start with some updates on our performance during the year, then Mark will give you some more details on our financials. I will conclude at the end of the meeting with some perspectives on the year 2025 and beyond before opening the floor for questions. Our results for the full year were in line with our expectations despite weaker market conditions than expected. Our revenues declined 1.8% on an underlying basis with market share gains in Flow Control and Foundry only partially compensating a very significant market decline in Foundry. Operating profit remain robust with only a very slight decline of 0.2% as compared with last year on an underlying basis. Despite the difficult market conditions, our return on sales increased by 10 basis points as compared to last year on an underlying basis with a very good performance of the Steel Division more than compensating the decline in profitability of the Foundry Division. We also continued to make progress in the management of our cash with a further reduction of our working capital intensity of 0.5% as compared with last year to 22.9%. Thanks to this focus on cash generation, we could maintain our net debt-to-EBITDA ratio at a low level of 1.3 despite the high level of our strategic CapEx, the increase of our dividend last year and the implementation of our 2 share buyback programs. This good performance made the Board confident to propose a final dividend for the year of 16.4p per share, bringing the total dividend for the year to 23.5p per share, representing an increase of 2.2% as compared with last year. These resilient results were made possible by a very robust operational performance in 2024 with the positive impact of our self-help measures offsetting the negative impact of weaker-than-planned market conditions. The Steel division performed particularly well with market share gains driven by Flow Control and resilient net pricing performance. The return on sales of the division improved by 110 basis points to 11.4%. The year was, however, very challenging for the Foundry Division with all markets outside of India weakening significantly. The strong Foundry market decline negatively impacted the profitability of the division despite the good progress made by the division towards the implementation of its strategic self-help objectives regarding both market share gains and cost cutting. Our group-wide savings program delivered above expectations with GBP 13 million in year savings and an exit run rate at the end of the year of GBP 18 million. We continue to make good progress in R&D with 32 new products launched in 2024, 50% ahead of the number for 2023 and a new product sales ratio progressing again to 19.1%, very close now to our 20% long-term target. We closed end of February the acquisition of Piromet in Turkey. This acquisition will reinforce our Steel division in the fast-growing EMEA market, but it will also reinforce the robotics capabilities of the Steel division, both in Flow Control and in Advanced Refractories. We continue to make good progress in our safety journey, achieving our best ever safety results in 2024 with a lost time incident frequency rate of 0.52, positioning us among the best-in-class companies worldwide. We also remain ahead of our carbon footprint reduction objectives with a 27% reduction of CO2 intensity in 2024 as compared with our 2019 baseline. Let's now have a look in more details at the performance of the Steel division. If we start with the steel market, you can see on this slide where the size of the bubbles is proportional to the sales of our Steel division in each region, also the steel production evolved during the year. The steel production outside of China and also excluding Iran, Russia and Ukraine, where for various reasons, we can't operate today, as you know, grew only by a modest 0.8%. The steel production there was very negatively impacted by the significant growth of Chinese net steel exports during the year. But it is interesting to note that in this region outside of China, the steel production growth there would have been a robust 3.6% if Chinese steel exports had remained stable. This shows the positive evolution of steel demand outside of China. The 2 most dynamic regions in this world outside of China were, as usual, India and EMEA, which is a non-EU plus U.K. part of EMEA. Steel production there grew 6.3% and 4.1%, respectively. EU plus U.K. registered only a modest increase from the very low level achieved in 2023 and North America steel production declined quite significantly, 4.2% last year with a negative impact on Vesuvius because it is the most important sales region for the steel division. This decline is, however, expected to reverse this year, and we expect growth in North America to resume this year. China production declined by 1.7%, less than the decline in domestic consumption, triggering an increase of exports to the rest of the world. In this challenging steel market environment, the Flow Control business unit continued to gain market share overall and in most major regions. In particular, Flow Control volumes continue to outperform steel production growth in the fastest-growing regions of the world, India and EMEA. To be noted also, the positive growth of Flow Control in China despite the decline of the steel production in the country due to the modernization of the Chinese steel industry and the gradual shift there towards higher quality grade of steel. The only 2 regions where Flow Control volumes progressed a little bit less than the underlying market were the EU plus U.K. and South America. In the EU plus U.K., we continue to voluntarily decrease and limit our exposure to some customers in a fragile financial situation to control our credit risk. In South America, the discrepancy between our volumes and the underlying steel market was entirely due to a strong destocking movement of our Argentinian customers, but we didn't lose market share there. We also gained market share in Brazil, the most important South American market. Overall, the Steel division achieved quite a good performance despite the difficult steel market conditions last year. We could grow revenues globally on an underlying basis in Flow Control despite the weakness of the North American market, thanks to quite resilient pricing performance and market share gains. Revenues declined in Advanced Refractories due to market weakness, but also to some market share losses in EU plus U.K. and in North America. These, however, have now stabilized. Advanced Refractories at the same time, continue to gain market share in Asia and in particular, in India and also beside Asia in EMEA, India and EMEA being the fastest-growing steel production regions in the world, Advanced Refractories continued to gain market share there. Thanks to the good commercial performances, but also due to strong cost reduction efforts also in the Steel division, this division could increase its return on sales by 110 basis points last year, reaching a return on sales of 11.4%. Let's now turn to the Foundry Division. As you can see on this slide, foundry markets were extremely difficult in 2024 in all regions in the world, the only exception being India. The difficulties were especially strong in EU plus U.K., North America and North Asia, which together represented last year a little bit below 60% of the global Foundry Division's sales. The situation continued to deteriorate in the second half, but now seems to have stabilized beginning of the year. All end markets were affected last year, including the light vehicle market, and we do not expect any significant improvement before the second half of this year 2025. First stabilization, then potentially improvement. EU plus U.K. overall remains today the most affected region and the weakest region in terms of foundry market. This sharp deterioration of the market conditions last year had an important negative impact on the result of the Foundry Division despite very good progress in the strategic initiatives of the divisions. Foundry markets overall declined around 10% and this was only partially compensated by very strong market share gains in the division of around 5%. Revenue decline was especially pronounced in EU plus U.K., North America and North Asia. The division, however, maintained a very healthy growth rate in India and China with in particular, 12% growth of our sales in India. Confronted with those market difficulties, the division increased further its cost-cutting efforts and in particular, is now accelerating production and resources transfers from EU plus U.K. to lower cost and fastest growing regions in other parts of the world. The last remaining U.K. production site in Tamworth was closed beginning of this year in February '25. Despite the good progress of the divisions in terms of market share gain and cost cutting, trading profit declined 29% last year and return on sales reduced by 230 basis points to 7.4%. We made good progress in our innovation strategy. We continue to focus on innovation to support our top line and profitability going forward. In particular, last year was again a very good year in the efficiency of our R&D organization with 33 new products launched during the year, an increase of more than 50% as compared with the number launched in 2023. These new products are very important for Vesuvius. They help us gain market share over competition and at the same time, improve our profitability because we don't gain market share through pricing. You can see on this slide a few examples of products which we launched during the year in each of the 3 business units. On the left part of the slide, you can see the new coating for tundish shroud launched by the Flow Control business unit. This coating better protects the shroud from oxidation and improves the quality of the steel produced by our customers by minimizing inclusions in the steel. At the center of the slide, you can see the new BASILITE QuickStart tundish lining introduced by our Advanced Refractory division. This new drive lining reduces the tundish preparation time for our customers and decreases their energy consumption. It also helps them reduce waste and maximize the yield of high-quality steel. And finally, on the right side of the slide, you can see the new FRACTON coating introduced by our Foundry Division for aluminum foundries. This coating prevents addition of molten metal to refractory materials and improves the castings release properties. It's also particularly environmentally friendly as it doesn't contain any organic matter. As you can see on this slide, these good results regarding introduction of new products are not a one-off. They are the result of a stable and long-term minded R&D strategy. We've been continuing to increase our investment effort in R&D over the years to maintain it around 2% of our sales. This is fully expensed in our P&L, not capitalized. Thanks to this, we have again increased last year our new product sales ratio, defined as a percentage of our sales realized with products which didn't exist 5 years ago. This new product sales ratio reached 19.1% last year, now very close to our target of a sustained 20%. This is very important as our pipeline of product is full. We will continue to introduce new products in the coming years, and this will sustain, support our market share gains and our pricing strategy going forward. On the robotics side, we also continued to make quite good progress with the penetration and adoption by our customers of our innovative robotics solutions for continuous castings in particular. These robotic solutions, they present very important safety advantages for our customers as they allow them to remove workers from some of the most dangerous areas in the steel plant. At the same time, reducing the number of human errors our robotic solutions reduce the downgrades of steel and improve the yield of operations and the overall quality of steel products. We could sign 9 new contracts in 2024 as compared with 5 contracts in 2023. And these new contracts, they will support an increased level of Flow Control consumable sales in the coming years. Our strategic expansion program in Flow Control worldwide and in Advanced Refractories and Foundry in Asia is now nearly completed. This program is already starting as we speak to support the expansion and market share gains of Flow Control in India, in Southeast Asia, in EMEA as well as the development of advanced refractories in India, very strong, growing faster than the market and of Foundry in both China and India. You can see on the left part of this slide, a picture of our new flagship plant in Vizag. It was 2.5 years ago. And we now produce top class both flow control and advanced refractory products in this new plant, and this is really supporting the above market growth of our steel division in India. With the end of this expansion program, CapEx level will decline back to normalized level as from the second half of this year, improving significantly our free cash flow generation. We also completed end of February our acquisition of 61.65% controlling stake in Piromet, a Turkish company specialized in both Advanced Refractories and in robotics. This acquisition will reinforce both our Advanced Refractories and Flow Control business unit in this fast-growing EMEA market and especially in Turkey, but not only in Turkey. Furthermore, one of the 2 production sites of Piromet which you can see on the slide is ideally located in the heart of the main steel producing region in Turkey and presents extremely attractive brownfield expansion opportunities. On the sustainability side, we continue to make very good progress last year. We reached in 2023, as you know, 2 years ahead of schedule, our first intermediary target of a 20% reduction in CO2 intensity as compared with our 2019 baseline. And we continued on this very positive trajectory last year where we achieved a 27% reduction of CO2 intensity as compared with our 2019 baseline. We are now fully on track to reach our second intermediary target, which is 50% reduction of our carbon footprint by 2035. Last but obviously not least, we achieved in 2024 our best ever safety result with a lost time incident frequency rate by million of hours worked of 0.52. This performance is a result of a long-term action plan engaged into several years ago to systematically identify and mitigate the safety risk, not only in our plants, but also in the plants of our customers where our employees are present. Despite the fact that these results now position us in the group of the best performing companies worldwide, our ultimate objective remains to become a full zero accident company, and we will continue our efforts in this direction. I will now hand over to Mark, who will give you more information about our financial performance last year.

Good morning. So starting with revenue. My key message is that our revenue has been very resilient, demonstrating the benefits of our business model in what has been a very tough market. On a constant currency, our revenue declined only slightly by just under 2% despite a 10% reduction in our foundry end markets. In steel, the market was also weaker for us, and this was due to our overweight presence in North America, where production declined by 4%. Now looking at the bridge, revenue in '23 was GBP 1.9 billion. And after adjusting for the stronger pound, our restated underlying revenue would be at GBP 1.85 billion. For the volume impact, there are 2 factors at play. Firstly, the impact of the weaker market in Foundry; and secondly, our ability to consistently deliver market share gains in Flow Control and Foundry. Taking the foundry weakness first, as Patrick has outlined, end markets during 2024 were tough. This weakness in end markets first materialized in H2 '23. And in Europe, activity levels progressively deteriorated throughout 2024. We estimate that our addressable foundry market declined on or around GBP 50 million, equating to more than a 10% decline compared to 2023. On a more positive note, we saw the volumes in our foundry business broadly stabilized in the second half of '24 and our current levels in 2025 are at a consistent level. It's important to say that outside of the EU and North Asia, we believe the declines experienced in the previous periods were very much cyclical rather than structural. But nonetheless, we have been taking action on costs in all regions in Foundry. The second factor impact on our revenue has been another excellent year of market share gains in Flow Control and Foundry. We estimate this has driven revenue growth of greater than 2%, and this is materially ahead of our midterm target. Looking at the price component, you will see a reduction. But as we've previously explained, it's only relevant to look at net pricing as we constantly adjust our selling prices for changes in raw materials and other costs. I will therefore cover the pricing impact on the trading profit bridge. So to summarize, our group revenue has held up very well, an underlying reduction in revenue of less than 2% when face of end market declines of 10% in Foundry together with a weaker steel market. And it does show that our business model is highly effective and remains strong. So now turning to the trading profit bridge. Again, the key point is the same, the strength of our business model. We've improved return on sales despite significantly lower volumes, and this also demonstrates our ability to manage exceptionally well in difficult times. Equally important, though, this also gives you a sense of the potential upside when market conditions eventually improve. Now looking at the bridge, the full year currency impact was a headwind of GBP 12 million. And adjusting for this gives a return on sales starting point of 10.2%. Consistent with H1 2024, you'll note that the volume drop-through was larger than we typically expect, and we, therefore, have included a table to show the split by division. You can see that while the increase in steel volumes fell through at normal levels, the impact of the lower foundry volumes fell through at a much higher rate. This high rate is due to the volume shortfalls disproportionately impacting our larger, more mature businesses in Europe, Japan and North America. Here, the level of fixed costs as a percentage of revenue are higher than our businesses in India, Southeast Asia and China. Consequently, as part of our cost reduction program, we are actively addressing the cost base in these areas. And by way of example, of the GBP 13 million of cost savings delivered in 2024, over GBP 5 million related to the Foundry business. Moving to price. Here, you can see the net impact on price, and this was a small negative. As a reminder, when it comes to setting minimum selling prices, we aim to recover not just raw materials, but also all other costs, including inflation. And those numbers are included within the bridge. Within this small negative, we saw a positive net price from Flow Control while also gaining market share, a small net negative in Foundry, where we gained significant market share and in Advanced factories, a small net negative, along with a small reduction in market share where the environment is more competitive. Looking at our cost reduction program, which had a 3-year target of GBP 30 million, we outperformed significantly, initially guiding to GBP 3 million, but delivering GBP 13 million in the year and achieved an exit rate of GBP 18 million. More on this later. Given the tough environment, we also took temporary measures to manage our costs. As you would expect, this included tightly controlling and limiting expenditures, discretionary expenditure, and we also had the impact of lower management incentives. Finally, within the one-off bucket and similar to 2023, there were net positive one-offs in '24, including property sales, commercial settlements and insurance recoveries. After deducting start-up costs on our new capacity expansion projects, there was a net reduction of GBP 2.5 million. So to quickly to resummarize, in tough markets, we have maintained an overall trading profit of GBP 188 million and improved our return on sales to 10.3%. So this graph illustrates the relative stability of our revenue, trading profit and return on sales over the last 4 halves. In particular, I said earlier that we saw volumes in our business stabilize in H2, and this graph illustrates the point. We, of course, need to allow for seasonality in the foundry business. But if you compare H1 '23 and H1 2024, you will note an 8% decline or this is reduced to 4% between H2 '23 and H2 '24. So looking at the full income statement, I've already covered the trading elements, so I'll address finance costs and minority interests. Finance costs, there are 2 areas driving this increase. Firstly, there is the impact of higher leverage, which added around GBP 1.6 million to our interest charge. This funded our share buyback program and our expansionary CapEx projects. The second element is a reduction of interest income around GBP 2 million. As we explained at the half year, in 2023, we were earning a very high rate of interest on surplus cash in Argentina. When the opportunity arose to repatriate the surplus cash, we did so. Clearly, it was better to do this rather than suffer an ongoing devaluation on previously trapped cash. As a reminder, our technical guidance noted in these slides includes, amongst other things, an estimate of interest charges for 2025. For minority interest, the charge increased by 8%. This reflects the growth -- the profit growth in our majority-owned Indian businesses. Both businesses continue to benefit from their strong positions in the Indian market and the steel business, in particular, benefits from those capacity investments, which have recently been commissioned. Our full year headline EPS was 43.3p, which was ahead by 2.1% on a constant currency basis, with a lower number of shares offsetting a slight reduction in earnings. And finally, turning to the final dividend. The Board has approved a 2.2% increase to 23.5p per share for the full year, a clear indicator of the confidence we have in our business and our commitment to returning cash to shareholders. As we set out on our recent Capital Markets Day, we have an objective to reduce our working capital intensity to 21% by the end of 2026. We are making good progress, and we have delivered on our target of 24% in '23 and 23% in 2024. In 2025, we are targeting a further step change to 22%. And this isn't just about delivering cash. It's about building on our operational discipline and efficiency mindset. And I believe you will see other indirect benefits as we strive towards these targets. Firstly, it means we're investing in people. This means a stronger supply chain function, but also insisting that our entire organization is more focused on the details that matter. For example, establishing raw material reordering points. Secondly, we did a much greater focus on process. For example, how quickly do we raise invoices, can we improve our contract terms, where can we further simplify our entity structures. And finally, investing in better systems, examples being the careful and gradual rollout of our single ERP and our S&OP system. This will enable our teams to better plan and meet customer demand with lower levels of inventory. As a reminder, Vesuvius generates strong and consistent cash flows and has enabled us to fund our final year of our expansion CapEx program. This was approximately GBP 100 million spread equally over the 3 years from 2022 to 2024 and has contributed to the GBP 96 million of net CapEx spent in 2024. Of this GBP 96 million, GBP 36 million relates to maintenance CapEx and GBP 30 million was on the capacity expansion. The balance of GBP 30 million was split between our IT system improvements, plant automation and customer installations, all of which are justified by solid future returns and quick paybacks coming in the form of either securing market share gains or reducing headcount. As you can see from the bridge, while we maintained an absolute level of trade working capital, there has been a one-time outflow of other working capital. This includes lower accrued incentives of around GBP 6 million and the balance comes from a number of other individual smaller elements. We do not expect this to repeat -- we do not expect this to repeat in 2025. Turning to net debt and leverage, both increased in the period and were due to 2 main factors. Firstly, the combination of our first and second share buyback programs, where we deployed GBP 63 million in the year and have purchased around 5% of our issued shares. When added to our dividend of GBP 63 million, that is a total of GBP 124 million. Secondly, given our relatively low share price in the first half, we took the opportunity to prepurchase the majority of our stock option commitments at a cost of GBP 70 million. Combined with our free cash flow for the period, our net debt now sits at GBP 329 million with a leverage of 1.3x, the latter remaining comfortably at the bottom end of our preferred range of 1x to 2x. Before I hand back to Patrick, I will give you an update on our cost reduction program. Firstly, we're making good progress. As already mentioned, we have delivered GBP 13 million of in-year savings, well ahead of our initial target of GBP 3 million. We also are at an exit run rate of GBP 18 million, which means we are confident to guide between GBP 12 million and GBP 15 million of incremental savings in 2025. Given that we have fully underpinned the initial GBP 30 million target we've identified projects and in part recognizing the near-term challenges in our end markets, we are comfortably increasing our savings target by a further GBP 15 million to GBP 45 million with an incremental cost to achieve of GBP 20 million. The full cumulative savings of GBP 45 million will be delivered within the year 2028, which means in practice, delivering most of those savings by the end of 2027. When talking about cost savings, I think it's helpful to give you some tangible examples. So starting with headcount, we have removed 422 positions since the start of the program, while at the same time, we've increased headcount in areas such as India. On our ERP rollout, we have largely completed the rollout in the European steel division. This has been done at the same time as reducing our central finance team headcount by 30 people around 10%. We are being very careful with our ERP rollout and have decided to implement a tried and tested on-premise solution, which is both fit for purpose and cost effective. So to put that into context, depreciation impact of that ERP implementation was approximately GBP 750,000 in the year, where savings in finance were double at GBP 1.6 million. In terms of plant footprint, we have now closed 3 minor plants. As previously mentioned, this is a trimming exercise, and we are largely comfortable with our overall footprint at the current time. In terms of automation, we are investing in the design and build of an ultramodern fully automated centralized warehouse in Poland. This will result in a removal of headcount the removal of a surplus external warehouse and will be operational in 2026 and will deliver a run rate saving of around GBP 2.5 million per annum. These are just a few tangible examples of our business is executing, and we look forward to demonstrating progress on these in future updates. So with that, thank you, and I will now hand back to Patrick.

Thank you, Mark. We remain confident in our own performance for the years to come for 2025 and for the years beyond that. However, in 2025, we are cautious on market conditions due to the very uncertain economic environment arising from what we believe is -- will be the negative impact of trade tariffs, which continue to evolve every day, as you know, also due to geopolitical uncertainties and what we see in '25 as the continuing weakness of steel and foundry markets in Europe. Some positive decisions regarding infrastructure, regarding defense have been announced very recently in the past few days. We don't see that as having an impact in 2025. It's rather positive for the following years, but not in '25. Consequently, we anticipate that our trading profit in '25 will be at a broadly similar level to 2024 on a constant currency basis and including the contribution from the Piromet acquisition, EUR 3 million to EUR 4 million. We expect that cash flow for 2025 will be, however, significantly ahead 2024, benefiting from our working capital focus on one hand, but also from a more normalized level of CapEx from the second half and this generation of cash flow will amplify after 2025, '26. We are now targeting to achieve our midterm return on sales target of at least 12.5% by 2028 and to deliver our cumulative GBP 400 million free cash flow target by 2027. This, of course, will be partially but partially dependent on a return to normal conditions, normal growth rates of our end markets as from 2026. This will be also strongly supported by an extension of our cost reduction program, which we are increasing significantly from GBP 30 million to GBP 45 million by 2028. Thank you very much for your attention, and I now propose to open the floor for questions.

Stephan from HSBC. Starting with pricing, yes. So I think one of your very famous Austrian competitors called pricing the most risky point in the entire environment right now because your competitors are getting desperate and want to put their utilization and their factories. How do you feel about pricing? And how is that factored into your guidance? I think that's the only thing I want to know right now.

Thank you, Stephan. Our guidance assumes stable net pricing, meaning no positive or no negative impact of pricing in 2025. It's an important point. And it shows also the differentiation of Vesuvius in the industry. Our business model relies on technology and we of course, are strongly supporting our customers in this difficult times for some of our customers but the way we help our customers improve their P&L, which is our duty, is not that much through prices concessions, is through offering our customers technologically advanced product which helps them, improves their P&L by improving the efficiency of the own manufacturing process. So our clear intention for this year supported at the same time by the quality of our products but also by strong managerial discipline is to maintain a resilient and disciplined pricing and we believe that's very important for Vesuvius but also for the industry.

One more, if I may. In Foundry. Of course, we get that probably in the first half, things are probably going to look rather soft and continue to be soft. But how sure are you that we have seen the worst that the margins will stabilize in the H1 and then we have the upside coming? And how big is the operational leverage if things are starting to take over?

We are never sure. So we should be very humble. We've been wrong before. But we can say a few things. First from the discussion we have with our customers from the level of our sales over the past weeks and months, we clearly see a stabilization of the foundry market in those difficult areas, which were mostly EU plus U.K., North America and North Asia. Clearly, we stopped going down. We are stabilized today clearly at the level of the second half. And some parts of the world are continuing to grow. India is continuing to grow. I was telling you where our sales grew 12% last year in India. We are continuing to grow beginning of this year. But in the what I call the difficult areas, it's clearly stabilized. And we do not hear any noise from our customers that it could go down again, again sometimes our customers are longer, so we should remain cautious. And this being said, we do not anticipate any significant improvement during the first half. If there is some improvement, and I say if because we don't have a crystal ball, if there is an improvement, we see that more as from the second half of this year.

And I think on the drop-through point, we are really focused on taking fixed costs out of those more mature businesses. You can see the drop-through on the negative coming through at 50%. So I wouldn't like to necessarily build in a full 50% on the way up, but it should be at that order of magnitude.

It's Andy from Jefferies. 3 questions, please. You've done really well again on market share gains in 2024. It was largely in Foundry and Flow Control. What are your confidence levels that you can keep on winning share in both Foundry and Flow Control? And do we eventually get back some of the share losses in Europe and America in Advanced Refractories going forward? That's the first question.

So thank you, for the question. Yes, we are confident because it is linked to the business model. It's not a one off. It is not we are confident that year after year, we can and we will continue to progressively gain millimeter by millimeter, sometimes meter by meter as the market share in both Flow Control and in Foundry, because it is really built into our business model. And it's linked to the quality of the product. In Advanced Refractories, where the product differentiation is obviously not the same. First important point, we are really gaining strong market share in Asia, which is especially India, the fastest-growing part of the market. So it's quite a good thing to be gaining market share in the fastest-growing area. It's -- and where we've been losing market share in the past couple of years is EU plus U.K. and North America, which interesting we are also the slowest growing part of the world, which is also why the level of excitement of competition and the market is probably the highest. But clearly now since second half last year, our market share has stabilized there. We are not losing market share anymore neither in North America nor in Europe. And I anticipate that over the coming months, we probably gain a little bit. But without if you allow me the question, rocking the boat because we have no intention because that's not the right thing to do in terms of profitability to gain too much market share through prices. We are simply progressively coming back to a more normalized level of market share of the Advanced Refractories division there. So I'm quite positive and optimistic about the fact that market share of Advanced Refractories in EU plus U.K. and in North America are, I would say, at [ worst ] stabilized and probably increase a little bit. And clearly, we will continue to gain market share in Asia.

And my next question, I guess, almost 2 questions in one. Can you talk a little bit more about the comments you made on the Turkish acquisition, Piromet and the brownfield opportunities? And going forward, given the fact you've got a nice pipeline of M&A, can you almost fill in your M&A desires by doing more and more brownfield? If you don't -- if you can't acquire things, can you just build more in Turkey and other parts of Eastern Europe if you can't acquire?

Piromet is very interesting -- it's a smaller, but it's very interesting acquisition opportunity not only because it is quite profitable with the profitability above the average of Vesuvius today, but also because we have important synergies. There are important cost synergies between our existing operations and the existing operations of Piromet. That's the second reason why it's interesting. And the third one is because in a place called Kutahya, is the most important steel production region of Turkey, the land where Piromet is established is only occupied, let's say, 20%. So you have significant expansion opportunities there in the core of what we believe will be a growing region for steel production and it's very well positioned not only for Turkey, but also for EMEA. So we have interesting opportunities there to expand going forward and also to optimize our manufacturing footprint and probably to transfer some of the footprint we still have in some high-cost countries, some high-cost European countries to Turkey going forward.

And it's just Turkey that the brownfield opportunity exists or is it elsewhere?

The brownfield opportunities, this one for Piromet are in Turkey, but we clearly have the other place where we have still huge brownfield opportunities is India because in our new Vizag plant in India, after the investments we are now completing, we are only using less than 1/3 of the available industrial land that we have equipped in India. So we are extremely well positioned not only with what we just completed, but which will fuel our growth for the next 5 years. But for the next 20 years, we are extremely well positioned to outgrow the fast growth of the Indian market.

Lushanthan Mahendrarajah from JPMorgan. I think 2 questions, I think. I guess just firstly, that point you made about Chinese steel exports was quite interesting that if they weren't there, what consumption would have been. I guess what's going on right now there or what you're sort of budgeting in your guidance for this year in terms of Chinese steel exports?

Chinese steel, this is another point where I would love to have a crystal ball. But again, even if we don't have a crystal ball, just say a few things. I said 6 months ago when we had our half year results that I believe that after the recent growth in net Chinese steel exports there will be a decline. But that this decline will be -- the pace of this decline will be slower than what people were expecting. I'm sticking to that position. I believe that there is a strong probability, very strong probability that going forward, net Chinese steel export will gradually decline back to a more reasonable level. You may have seen, by the way, that it was a couple of days ago that the Chinese government has officially announced that they were putting in place policies to reduce steel production capacity and reduce production. This was bound to happen. I think that -- so it's going in the right direction. And it will have a very positive impact on steel production outside of China. Again, last year in '24, steel production growth outside of China would have been a very healthy 3.6% if only the steel export out of China would have been stable. I'm not even saying decreasing, just stable. So imagine what could happen in the years to come. So the foundations are very strong. The foundation of the steel market outside of China, I'm persisting in my strong opinion on that, are very strong. But the pace will be what it will be by experience, if you look at the past 20 years, when the Chinese government says we will do something, it generally always happen but there is always a gap between the moment they say it will happen and the moment it happens. So I'm not expecting big relief from Chinese steel export in '25. I think it's too soon to see on the ground such reduction in Chinese net steel export. But for the following years, yes, I believe it will happen.

I won't surprise you that our guidance assumes flat Chinese exports at the current run rate. Hopefully, they come down quicker.

And the second one is just on tariffs. I guess there's sort of 2 elements really, I guess, the impact on your sort of steel customers. And I guess the first part is, is that zero sum for you guys in the sense that what you benefit in the U.S., you might lose elsewhere? Or is that a negative or a positive? And then in terms of your own exposure, I think you maybe have some sites in Mexico, I guess, what could you -- I know it's moving around a lot, but what can you possibly do there if anything sort of shift production anything like that?

You're perfectly right [ lush of ] guidance, and Mark will detail your interest a little bit kind of a high-level bridge about how we get from last year result to our guidance this year. But our guidance of broadly similar trading profit includes a contingency buffer, whatever you call it, of GBP 10 million to GBP 15 million associated with what we believe will be the direct and indirect negative impact of tariff this year. We could have chosen to give you a guidance and to say it doesn't seem -- of course, it doesn't include any negative impact of tariff. I think that after everything which all the news we had over the past few days, it will not have been the right choice. I think that we try our best. And again, you will forgive us, I'm sure not to have a crystal ball, but we try to do our homework to see what could be the most likely impact of tariff. I insist direct but also mostly indirect. And we assess that this could be a EUR 10 million to EUR 15 million impact on our trading profit as compared to what they could have been excluding this change of economic environment. And this is included in our guidance. Direct and indirect, direct a little bit depending on what will finally happen or not, there are a few millions associated with the export from our Mexican site to the U.S., but the majority of impact is mostly indirect as we see it. We believe that the tariff is not a zero-sum game that at the end of the day, the potentially positive impact -- the potentially positive impact in the U.S. may not be as high as what people believe. And second, we strongly believe that the positive impact in the U.S. will be lower than the negative impact outside of the U.S. So globally, on a worldwide basis, we don't see those tariffs as being a zero-sum game. And this is in terms of demand, steel consumption demand. The uncertainty is probably the worst situation, the fact that people do not know if there will be -- there won't be tariff, what they will be, which country because it's changing every day, literally. So we see people postponing CapEx decisions, postponing consumption decisions. And this transition period in '25 of ever-changing environment will, we believe, take a toll on the global level of activity in our steel and foundry end market. But at some point, uncertainty will dissipate. I don't know what will be the choices made once the fog will dissipate. But human beings adapt. Once we know what the rules are, I think things will gradually get back to normal, people will adapt. But this kind of uncertainty is the worst in some respect because we really see customers, especially on the CapEx side, postponing decisions, waiting for more clarity about the environment into which they will operate.

I mean on the direct side, we had plenty of contingency plans in place, and we enacted -- the ones that we can act immediately, we enacted a couple of days ago. So to give you an idea of how much we're on the case around the impact between U.S. and Mexico. So -- and there are some other contingency plans that take a little bit longer to implement. And that's, again, some of the unpredictability, how quickly can you push in all the mitigation plans. And then does the situation change in another 2 weeks. So it's a difficult one to -- but our approach is just to be super agile and just get after stuff as quickly as possible, which we're doing. Do you want me to -- I mean you touched on the bridge there. Do you want me to give you a high-level view on how we step from 2 numbers, which are very consistent in terms of '24 and '25. Is that -- so in terms of the big movement, so if we start, say, GBP 188 million for this year, there's around GBP 2 million or GBP 3 million of FX headwinds. So as you'll remember, we've got plenty of interesting currencies in our mix, which gives you, unfortunately, a negative headwind of a couple of million. We're assuming at the moment, ignoring tariffs, a very prudent level of volume growth of around 1%, so GBP 20 million of revenue coming through at roughly 30% margin. We're not trying to model the impact of -- of tariffs on our revenue line, we're just taking that as a trading profit contingency. So GBP 20 million at 30% gives you kind of plus or minus -- sorry, plus GBP 6 million. You've got the PMO benefits where we're guiding between GBP 12 million and GBP 15 million. So that gives you obviously a positive movement. We've got the impact of Piromet, which as Patrick said, is around EUR 4 million, so call it, EUR 2 million to EUR 3 million of trading profit. You've got the impact of management incentives, as you saw in our impact in our FY '24 results, management incentives obviously come down as the performance wasn't as what we would have expected, but then we obviously put the profit pool back up to the level -- up to a similar level in '25. As Patrick points out, that's the management pool for -- the bonus pool for around 420 people of our senior leaders. So it's important that we have that put back into the business. So if you adjust for all those items, you get to probably not far off a number that begins with 2. And then what we're saying is with the end market risks around tariffs, of which tariff is really more of a -- an indirect impact with a small element of direct impact, you've got between GBP 10 million and GBP 15 million of downside risk that we're factoring into our guidance.

Harry Philips from Peel Hunt. Just several things, 2 very basic sort of points of detail, Mark, if I may. I guess the clue is in the name, the temporary cost savings are temporary and nonrecurring.

Yes. So there's 2 buckets in that temporary bucket. One is the management incentives, which I do hope are temporary. So we're reinstating the pool for -- not for me or Patrick, but basically for the team that do all the hard work throughout the year. So that gets reinstated. The other elements of temporary savings, we will probably hold on to and continue all the way through into '25. So we've cut down on anything that we can cut down on, we've cut down on. And I think our collective view is we need to maintain the tight level of control. So we won't see all of that come back in -- well, we probably aim to not have any of it come back in '25.

And then just on ESOP, the GBP 17 million, that's nonrecurring.

That's a nonrecurring, yes. So that's an absolute pre-purchase of shares at the low share price.

And then just on a couple of other things. In terms of the market share gains, just sort of understanding the drivers of market share gains because obviously, if you're running sort of flat pricing, you're clearly not discounting to get volume in and, therefore, gain market share that way. Is it technology sort of winning more business? Or are your regional competitors sort of capitulating and that technology gap is getting bigger, which then gets you market share? Because the continued market share gains you've been getting is particularly in Flow Control, I'm assuming is much more of a technology-driven basis. And then the other question, just to check in there for now is we talked a lot about drop-through and recovery and drop-through. When you really lean out the cost base, which you are doing at the moment, I suppose it's not that -- there's that difference between structural and sort of operating flexibility. If you lean something right out, the second volume turns, you've got to put something back in straight away, maybe a bit sooner than if you had leaned it right out. I mean I'm being overly pedantic, but it's just think about sort of opening incremental drop-through. I mean 30% obviously is a nice run rate, but sort of that variable there, please?

I will let Mark answer on the second one. But on the soft one, yes, market share gains are really technology based in Flow Control in particular. That's the reason why we are investing heavily in R&D. That's -- if I may, the return on R&D investment. Our R&D investment is double as a percentage of sales as compared with our nearest competitors. So it's -- our R&D investment is 2%. It means that there is 1% of return on sales above what our competitors are doing, which is incremental investment in R&D. In some respects, the return that we get of this investment, we pay for it. The return that we get on this investment is a better pricing ability. Said differently, the less of a need to use prices to gain market share. So the return we get on R&D is that we don't need to use prices to gain market share.

I think the question on structural cost savings is really interesting for us. So just as a reminder, we talk about net cost savings. So even with our cost reduction in that GBP 13 million, they actually are OpEx investments and COGS investments that we've made where we actually think it's value for money. So we're not just going cut, it's cut to invest, but also cut to drive the margin. So we'll continue to do that, but the idea is obviously to cut a lot more than we need to invest. So we are, as I say, putting costs back in where it makes sense. I think you're right. I mean, to theoretically, 50% on the way up is possible, but I think that would be quite an impressive feat if we achieved it. So I'd probably be thinking more like 40% on the way up for some of our businesses. But the target obviously would be to ensure that if we try and get to 50%, but I think you always get some level of cost slippage in those environments.

It's Jonathan from Barclays. Just 3 questions, please. Firstly, just following up on last question on tariffs. Can you just give us a feel for the relative profitability within steel by region, so essentially where North America sits versus Europe and so forth. So just give us a flavor of that. The second one was just in terms of the cost savings that are still to come through. Can you split those out between foundry and steel? And then thirdly, maybe just a sort of a longer-dated question. Just your views here would be interesting. Just in terms of that, obviously, margin target has been pushed out to 2028. Can you just give us a feel of how you think that bridges from 2025? Is it going to be massively back-end loaded in terms of that delivery towards that 12.5%?

For your first question, it was...

So the first question was -- yes, I was just trying to get the relative profitability by region for steel. So how North America fares. Because like you say, tariffs is going to have various impacts on various regions. We don't know how it's going to play out. But I'm just trying to get a feel for which is essentially your most profitable region in steel? Is it North America? I mean I assume it's probably India, but just having a bit of understanding, please.

We do not have -- we don't disclose a precise number of profitability by region for obvious reasons. But to give you a qualitative answer, there is not a massive difference in profitability between regions. You have some differences, but not huge, there's maybe a couple of exception. China is above average profitable reason for steel and below average profitable reason for foundry. That's one of the most interesting exception. And the regions where profitability is now a bit lower than elsewhere because of the volume impact is Europe. It used to be in the past one of the most profitable region, in particular in foundry. It's now -- it's still a good profitability, but a little bit below average because of the negative volume impact and fixed cost absorption impact in Europe. But otherwise, there is a broad range of similarity, I would say, in terms of profitability between the various regions worldwide. Your second question?

The second one, the split of cost savings. So well, for 2024 of the GBP 13 million, foundry cost savings were GBP 5 million and steel were GBP 8 million, GBP 8.5 million. So foundry rightly so save more money, get on the size of its revenue base, but steel delivered a significant amount of cost savings. It's quite hard to give you a precise split going forward. But as a working assumption, I would assume a similar split because really our program is about taking cost out everywhere. But given foundries, weaker markets in the more mature regions, that's obviously taken a much bigger chunk versus its level of revenue.

And for your last question, again, in broad terms, how to get from our current return on sales to 12.5% over the next years, it's more or less half and half between our cost cutting actions. So half of the journey rest on the success of our cost cutting programs. The other half of the journey rest on the assumption that as from 2026, it's not a recovery of the market, but we assume that as from '26, the market will come back to a growth rate -- to a long-term growth rate from the low base of around 2% per year. So it means that we are not assuming a return of market to the pre-pandemic level. We are simply assuming that as from 2026, market in Steel and Foundry will go back from the base where they are to on or around 2% growth rate.

Another way of thinking about it is it's we are effectively applying the Capital Market Day modeling assumptions to our base level of business in 2025 in order to get back to that 12.5%. So just a normal level of revenue growth, as Patrick said, the same level of cost savings, but obviously increase to 45%. So as a weighting, you'll find that foundry as a percentage would be less because it's starting at a lower base.

Tom from Deutsche Numis. Probably 2 from me. And just first one being, given the trends of the last year, geopolitics and the structural weakness within Europe across all industries, has any of your thinking changed around the portfolio makeup or just trying to balance the capital allocation choices you have given Flow Control continues to do exceptionally well and foundry is a bit more challenged given what it's facing in Europe?

Not really. What has changed is the pace at which we are managing change. The Steel Division is already very well positioned, extremely well positioned. The Steel Division today is on or around -- EU plus U.K. represent on or around 18% only of the sales of the Steel Division and declining not because other regions are growing faster. So the Steel Division is really well positioned today. The work was done over the previous year to really the manufacturing footprint, everything we are in good battle order. And we have increased our production capacity in India exactly in the right place. So we are optimized there. The point is obviously the Foundry Division where the gradual shift is happening. For example, EU plus U.K. in '23 was 35% of the sales of the Foundry Division. This year, only between brackets 32%. So you can see the direction of travel. But we are accelerating this simultaneously by relocating assets and resources from EU plus U.K. in the Foundry Division towards fastest growing and also lowest cost part of the world and at the same time, investing in India to benefit even more from the growth of the foundry market there. So it's not a drastic change. It's an acceleration of the strategy, especially in the Foundry Division.

And then just the second question from me, just around resiliency of that India growth, your latest view on what you're seeing in those markets and the impacts potentially from Chinese steel exports and the latest view.

We remain extremely positive on India. We remain firmly convinced that we are now entering the orchestic part of the Indian story. As any orchestic part, you have a little bit of ups and down. After the last election, there was a small temporary slowdown, but it's already quite back on track. By the way, interesting in what you see a little bit everywhere in Asia, you see also and it will accelerate the decline of Chinese steel export on top of what the Chinese government itself wants to do. Countries are adopting protection measures. India is one of them. India is now clearly putting protection measures in place vis-a-vis Chinese steel. All this is very positive for steel product in India going forward. All investment projects in new capacity in India, all of them without any exceptions are confirmed, are hitting the ground and the domestic consumption is growing quite significantly. And I don't see any clouds on the horizon, which will slow this down going forward. So that's the reason why we are investing heavily not only in equipment, but in people, which is the most important in India. And our investment in people, we have a very good management there. Our investment in people is the first reason, even before our CapEx, why we are growing above market growth.

It's Stephan from HSBC again. I have to stress Mark's model again and not your crystal ball because you said that's really hard at the moment. So on the 12.5%, you talked about the return to low-digit growth, yes, so 2%. But how much of that is volume or pricing? Or I would assume that you probably have no pricing assumption, it is all volume.

We are assuming a volume growth of end market of the Steel and Foundry market of 2% as from '26.

And neutral pricing.

And neutral pricing.

Okay. And then secondly...

And we also factor in market share gains. So you've got half of both.

Yes. And then just a confirmation on your leverage corridor. So I guess you want to stay between 1 and 2 and with the free cash flow coming back, and probably you have appetite for M&A, but that is not sure. And your share buyback program is 2/3 through you said.

Yes.

So do we still assume that you're going to look at share buybacks again very, very clearly in the very short term?

The policy that the group has always been followed is to cross the bridge when we get there. So for the time being, we are implementing our second share buyback program. This will lead us to somewhere in Q2 or end of Q2, which means that sometimes along the rest -- in the remainder or before year-end, I'm sure that the Board will have a reflection about what do we do. Do we launch a third one or do we do nothing? It will probably -- this reflection will depend on where we stand at that time and in particular, what are our choices in terms of allocation of funds between potentially attractive M&A opportunity if there are some, but we can never be sure that there are some or share buyback. What is clear is that we will have cash never in excess, but we will have cash available to decide between various options available. But the wise thing to do is not to do it now is to wait for -- and make the decision when the time is right based on what the circumstances will be at that time is what we have been so far. And I think the Board has demonstrated that it was not shy about doing share buybacks. So it's a possibility. It's a clear possibility.

I think you can add that we're not intending to delever. So we're quite comfortable at the 1.3x. So with the free cash flow that comes in, we'll have to decide to do something with the cash. It's just a question of what's available.

But on that note, M&A, how is the M&A funnel looking at the moment, your M&A activity and looking at targets, how is that shaping up?

We are always looking at targets. So we have an appetite, we have a clear appetite for M&A. We believe that we have clear ideas about M&A topics, which we believe will create value, but you need to be too tangle. So it remains to be seen is our ideas will meet the ideas of the companies which we may be interested in. And I'm sure there is always a level of uncertainty there. But on our side, yes, we have an appetite for further M&A beyond Piromet.

And excuse me, for the last one, I promise. It's a qualitative one. So how do you think about being geared towards all these European programs now, infrastructure-wise as well defense-wise? You have a very strong foothold in Germany with your Foundry business. You should be actually in a good spot if anything comes back.

I agree. Obviously, as you can imagine, it's the news of the past 24, 48 hours. So we have not analyzed 100% of the impact. We still need to understand the fine prints. But the direction of travel, the direction of travel in Europe over the past few weeks is positive. The decisions made by Europe to introduce more flexibility in their environment regulation to the decision to remove the debt brake in Germany, the renewed sense of solidarity between Europeans all is rather positive, could be a turning point for the level of economic activity going forward in Europe. But it's very, very early days. It's positive, but too early to assess exactly both the magnitude and the pace of the positive impact it could have on Vesuvius, but the direction of travel is clear. It only has a positive impact on Vesuvius. If there are no further questions, we can maybe ask if there are questions online.

[Operator Instructions] There are no further questions on the conference line. Ladies and gentlemen, that concludes today's question-and-answer session. I will now hand back to Patrick Andre for closing remarks.

Thank you very much to all of you for your attendance today. As usual, Rachel, Mark and myself will stay at your disposal should you have any further questions, and we wish you a very nice day. Goodbye.