Vesuvius plc (VSVS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Vesuvius Trading Update.[Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Vesuvius, Patrick Andre, to open the presentation. Please go ahead.

Good morning, everyone. My name is Patrick Andre. I'm the Chief Executive Officer of Vesuvius. And today with me this morning is Mark Collis, our Chief Financial Officer. Thank you for joining at such a short notice. The purpose of today's statement on this call is to talk about our 2025 outlook. We will give full details on our H1 trading when we announce -- which is planned for the 6th of August. To set the context, we've seen during the first half a clear continuation of the challenging market conditions that we had noted during our AGM trading update in May with a continuing uncertain macroeconomic environment and subdued global industrial activity, leading to a continuing weakness in both our end markets of Steel and Foundry. Against this difficult backdrop, our trading profit for the first half of 2025 is anticipated to be around GBP 77 million, which is consistent with our expectations despite the negative market condition. This was possible thanks to not only short-term cost reduction measures, but above all, strong progress above our expectation in the implementation of our structural cost reduction program. And regarding this structural recurring cost reduction program, we are now planning to significantly exceed our objective of GBP 45 million of recurring cash cost savings per year that we have set for 2028. We are now planning to do significantly better than that. Regarding the rest of the year, contrary to our previous expectations, we are now anticipating that the challenging market conditions of the first half will mostly persist for the second half. We were in our previous guidance, relatively heavily weighted on H2. What we see today is considering the remaining -- the persisting uncertainty, this recovery of market more being postponed to 2026. At the same time, the pricing environment remains difficult, in particular, in Europe and in China, which has been limiting for the time being our ability to fully recover through price increases, labor cost inflation. However, we anticipate that we will progressively improve our pricing performance over the second half, and we are-- casting price increases as we speak and some of them are already implemented to partially recover this gap between price and cost of the first half. However, this will be done with a delayed effect, which would still impact on a full year in-year basis, the year 2025. However, we anticipate that we will recover all of this by the end of '25. As a result of this downgrading of our market expectations for the second half, we now expect our performance in the second half of the year to be broadly similar to what we've achieved during the first half with further progress being postponed to 2026, where we expect that our results should improve with first market improvement, but also the continuation of our cost reduction measures, which will produce not only the one we are implementing now, which will produce their full year effect in '26, but we will continue to add more cost improvement measure in '26. So now I propose to open the floor for questions, and Mark and I will answer any questions you may have.

[Operator Instructions] And your first question comes from the line of Lush Mahendrarajah from JPMorgan.

I think I've got two. The first was just on the guidance and sort of sequentially flat in H2. Can I just check what are you assuming in terms of volumes and price cost in the second half? And it sounds like you're going to be pushing pricing in the second half. I guess what makes you confident that, that will get accepted by customers? And then the second question is just on market share. Can you talk about some of the market share movements in H1 across the three businesses? And in the context of pushing prices into the second half, do you think your competitors will follow? And how do you think about market share in the second half as well?

Thank you, Lush. So on your first question, we expect the overall market situation to be more or less similar in H2 as compared with H1, which means that because of the traditional seasonality, especially in Europe, volume to be a bit lower in H2 than in H1. However, we expect our pricing to be higher in H2 than in H1. And to answer your specific question about pricing, we are now clearly, as we speak, casting price increases. And most of the time, our customers understand the reason and accept those price increases. But when they do not accept those price increases, we have no other choice that we increase prices nevertheless because our principle that we have to recover all costs with prices has to remain valid. So we are now, in some cases, having to force some price increase to customers. But many of them, the vast majority of them also understand the situation, the industry globally is in and have a long-term relationship with us and understand the reasons why we need to increase prices. Regarding market share, the three business units have been gaining market share during the first half through Control, Foundry, but also Advanced Refractories. The Advanced Refractories, which has been over the past two years, done very well in Asia, but lost a little bit of market share in Europe and in the U.S. We are now past the inflection point. We have started to recover some market share in both the U.S. and in Europe in Advanced Refractories. So we had a relatively good market share performance in each and every of the three business units during the first half, and we expect this to continue in the second half.

Your next question is from the line of Andrew Douglas of Jefferies.

Can you just talk in a bit more detail maybe about the restructuring plans that you've outlined? You've talked about having additional benefits over and above the GBP 45 million. It might be a bit early, so apologies for the question. But does this involve materially more restructuring actions in Europe potentially given your commentary about Europe? And how do we balance the challenges that you have in Europe, maybe from a capacity perspective with the opportunities in India. India's steel production is still clearly growing very nicely, I suspect more capacity needs to be put into India. So is this just a shift from Europe to India and maybe Southeast Asia? Or do you have to take more drastic action in Europe from a capacity perspective? And just broadly, my second question or it's probably a third question. With regards to India and Southeast Asia, it sounds like they're the main positive hotspots for you guys at the moment. Can I just confirm that that's indeed the case?

Thank you, Andy. Regarding your first question, you are spot on. We are, I would say, accelerating and amplifying our restructuring in Europe. You know that we closed Foundry plant in the U.K. beginning of the year. We've announced a few days ago that we will close the manufacturing activity of one of our sensors and probes plant in Italy. So we are clearly heavily restructuring our manufacturing footprints in Europe to make it -- to adapt its size to what we believe will be the size of the European market going forward and also to make sure that those plants that really remain in Europe. We will keep some plants in Europe, and the European market remains important for us even if it is declining. Those plants will be extremely competitive because we are investing in automation, digitalization in those plants, which will be the long-term flagship plants of the group in Europe. But it's clearly heavy restructuring in Europe in terms of manufacturing and capacity. At the same time, we are continuing to expand in India, our new capital investment, which we have invested over the past two years in India is now ramping up. So this gives us, I would say, for the next two or three years all the capacity we need to continue to follow the very strong rules of the Indian market. But at the same time, because we don't believe that India, and I'm answering a little bit of your second question, we see the growth in India extending beyond the two to three years to come, but we are really seeing that India having its [indiscernible] movement. And we are very, very positive about the growth in India for the next not only two years, but for the next 10 or 20 years. So two to three years from now, we are already starting to study the capacity expansion, which will be needed in India to continue to support our goals beyond the next two, three years. The good news is that all this in, we have the room to do it, we have the space, we have the acquisition, that we have made a few years ago of the new Vizag site in India. We have the space -- the industrial space ready and available to accommodate those expansion. Our Kolkata plant also has room for further expansion for the flow control products, for the flow control [ isostatic ] products. And the cost of this expansion, is limited because it's our brownfield investment, not greenfield. And so we have the unique advantage in India to be able to expand very significantly over the next 10 years of production capacity to follow the growth of the market at marginal CapEx cost, simply by brownfield expansion of two existing sites in Kolkata and in Vizag. I think the key advantage is that none other really has in India. This will support our growth in India over and above the natural strong growth of the market in India. We are outpacing both in Foundry and in Steel the growth of the steel markets in India, and we intend to continue to do so in the years to come.

Your next question is from the line of Harry Philips at Peel Hunt.

Just a couple of questions also, please. Just thinking about the sort of price volume dynamic, particularly in the second half. I mean it would be helpful if you could give us an idea of where revenue was alongside the EUR 77 million EBIT you talked about. And then when thinking about that second half compared to where you thought it was going to be, as I say, how much -- what will be the balance between price and volume? I suppose I'm just trying to work out the extent of the price pressure. And then on top of that, the sort of difference between Foundry and Steel because obviously, if it's a European headwind particularly, then Foundry looks like it's probably getting a disproportionately large hit. And then I've got a question on cost savings as well, but maybe just start with that, please.

I will let Mark comment further. But before I pass over to Mark, regarding the price volume for the second half, we expect because of seasonality mostly, not because markets will be that much worse, but because of seasonality, we expect volumes in the second half to be a bit lower than volume in the first half. But we expect prices to be better in the second half than in the first half. But maybe, Mark, you would like to comment further on that.

Yes. Thanks, Patrick. So just to give you some numbers, Harry, which I think will help you. So revenue for the first half is just a tad over EUR 900 million. So you basically see an 8.5% return on sales with the 77% for the first half. And then our current expectations for revenue for the full year around EUR 1.85 billion. So -- and the margin remains the same. So basically, what you're seeing there in our best estimates are effectively, as Patrick rightly said, lower volumes, but slightly better pricing. And that's how we basically end up with a number in the second half similar to the first half.

And that would sort of to have a sense that Steel is sort of -- it just looks much more sort of foundry-centric. Would that be right rather than steel looks a bit soft, but foundry looks sort of a bit more sort of...

It's clear that this -- it is more or less [indiscernible]. So it means that it's disproportionately more in foundry than in steel. However, steel in Europe is soft. It's one of the important I would say, market situation parameter. It's not only the foundry market, which is soft in Europe. The steel market is now clearly showing signs of structural weakness in Europe. And I'd say structurally because we do not think that this is cyclical. The steel producers of Europe are clearly, if you follow, it's kind of disturbing that [indiscernible] that government and EU commission will really enact -- will really take action to protect the steel sector in Europe, even if there is a lot of talk about it. The last one is that they will say something in September after they are back from vacation, but nobody is really trusting that what they will say in September will be anything of substance. And so we start to see now some structural decisions by steel producers to move away from Europe. This is clearly putting the steel market in Europe in a declining -- in a structural declining trend. A miracle is always possible. Maybe the European Commission will wake up at some point. But I don't think anybody is putting that in their base case scenario.

That makes sense.

Harry, the other thing I would just add to Patrick, is the one thing to watch out for is what we would regard as mix. So effectively the level of drop-through on volume is definitely weaker this time around in steel compared to Foundry, and it's really a feature of just the clients buying services at the lower end, particularly in Europe as they're trying to obviously minimize their operating costs. So we're seeing that's something that's a relatively new phenomenon. It's impacting the drop-through significantly [Technical Difficulty] in Europe and in steel.

And then just in terms of the cost savings, I mean, if I remember right, you're sort of looking at about EUR 13 million, EUR 14 million this year. Does that change materially? I mean is it too early? Or will you wait until August to give us maybe an idea of how that flows?

Mark will comment further, Harry. But yes, you should expect more than EUR 13 million this year. So we are really -- in terms of recurring cash savings, we are really accelerating our program and expanding our program, especially in Europe. And so not only we are increasing our EUR 45 million target for the year '28, but already this year, you should expect more recurring cash cost savings this year than what we had in our previous guidance. But maybe Mark can comment a bit further on that.

Yes. So we will obviously -- we're definitely going to be ahead of the EUR 13 million pro rata. So we're probably looking at order of magnitude of around EUR 10 million for the first half. And there's no reason why that shouldn't largely continue throughout the balance of the year because it's obviously permanent savings, and we're pushing harder in the second half, particularly in Foundry. So I think that answers your question, Harry, that it's a lot stronger than -- we're making a lot stronger progress than we anticipated at the start of the year. So we're ahead.

I mean just to be clear, but I don't misinterpret [indiscernible] year or thereabouts just...

I think that's a fair assumption on...

[indiscernible] something, okay.

And then obviously, we've also continued with our short-term cost reduction measures as well that we really indicated last year, and we'll continue with that throughout this year.

Yes. And then just very finally, just on the tax charge and stuff because obviously, there's a bit of a debate back in May around how to treat the sort of...

Yes. So no, I'm happy to give you an update. So yes, just for everyone else's benefit, we repatriated around GBP 50 million of additional cash from China through the introduction of a non-recourse loan. The idea being that Chinese interest rates is clearly a lot lower than anywhere else around the world. So while there's an annualized savings benefit and effectively a payback of about 18 months, the one-off downside is an additional withholding tax charge to repatriate that cash, which is about GBP 3 million. And we were debating whether that was above or below the line impact on the tax charge itself. So in the end, we've decided to record that as below the line. So we'll record the GBP 3 million as a separately reported item on the basis that it is one-off, and that's been agreed with our auditors. The headline tax rate effectively remains the same at 27.5%.

[Operator Instructions] You have a further follow-up question from Harry Philips of Peel Hunt.

Just to make sure I've got this right. It was EUR 900 million of revenue just had over first half and sort of circa EUR 1,850 million for the year is the thought just to make sure I've got that correct?

Yes. No, that's spot on.

And there are no further questions on the conference line. I will now hand over to management for closing remarks.

Thank you. Thank you very much to all of you for taking the time to join the call today. We hope Mark and I to see you all at our half year results on Wednesday, the 6th of August 2025, where you will have opportunity to ask, of course, many more questions. Thank you to all, and I wish you a very nice day. Goodbye.