Vesuvius Plc · LSE:VSVS
Vesuvius — H1 2015 Earnings Presentation
53 slides from Vesuvius's earnings presentation, Jul 31, 2015
Slide 1: Investor Pack
A GLOBAL LEADER IN METAL FLOW ENGINEERING Investor Pack July – August 2015 1
Slide 2: 2015 Half Year Results
A GLOBAL LEADER IN METAL FLOW ENGINEERING 2015 Half Year Results 31 July 2015 François Wanecq Chief Executive 2
Slide 3: Disclaimer
Disclaimer This presentation, which has been prepared by Vesuvius plc (the “Company”), includes statements that are, or may be deemed to be, "forward looking statements". These forward looking statements can be identified by the use of forward looking terminology, including the terms "believes", "es
Slide 4: H1 2015 overview
H1 2015 overview • Lower performance reflects decline in global steel production volumes, with US hardest hit – our largest market • Revenues up in all Asia-Pacific businesses • Outperformance in China & India – both key to the future • Return on sales increased to 10%, driven by proactive approach
Slide 5: H1 Trading performance as reported; lower sales, higher RoS
H1 Trading performance as reported; lower sales, higher RoS Revenue £m Trading Profit % RoS £m 80.0 -1.1% 12.0% +26 bps -3.7% 71.2 70.4 800.0 70.0 9.8% 10.0% 729.8 702.6 10.0% 700.0 60.0 600.0 8.0% 50.0 500.0 40.0 6.0% 400.0 30.0 300.0 4.0% 20.0 200.0 2.0% 100.0 10.0 0.0 0.0 0.0% H1 2014 H1 2015 H1
Slide 6: H1 Underlying trading performance
H1 Underlying(1) trading performance £m Revenue £m Trading Profit % RoS 800.0 -4.3% 80.0 -3.4% 12.0% +9 bps 721.0 690.2 71.0 700.0 68.6 70.0 9.8% 9.9% 10.0% 600.0 60.0 8.0% 500.0 50.0 400.0 40.0 6.0% 300.0 30.0 4.0% 200.0 20.0 2.0% 100.0 10.0 0.0 0.0 0.0% H1 2014 H1 2015 H1 2014 H1 2015 H1 2014 H1 2
Slide 7: The world steel markets show substantial decline
The world steel markets show substantial decline…. Rate of Growth in Steel Production • World steel production down 2% H1 2015 Top 10 steel producers 6% China (50.4% of global production) down 1.3% 4% India +4.2% • 5.4 million tonnes reduction 2% Brazil Rest of world down 2.8% +2.0% Russia +0.8%
Slide 8: Revenue grows in our main markets outside of the USA
…whilst revenue grows in our main markets outside of the USA Rate of Growth in Steel Production & Revenues H1 2015 Top 10 steel producers Scale of Bubbles 12% (on both slides) 10% Future 10 8% Growth 6% Drivers 5 Growth in Steel Production India 4% Revenue: +7% 1 Brazil Russia Steel +4.2% 2% Revenue
Slide 9: NAFTA steel markets
NAFTA steel markets • Final steel consumption remains solid Steel production – NAFTA mt • Strong US Dollar favours imports from lower cost countries: 80 75 Canada 70 Brazil 65 -6.9% Korea 60 • Inventories have started to decline but 55 50 remain high 45 • Prices have declined considerably and
Slide 10: US steel volumes stable ~10% below last year
US steel volumes stable ~10% below last year US Weekly Steel Production 1,950 1,900 1,850 1,800 1,750 Thousands of Tonnes 1,700 1,650 1,600 1,550 1,500 1,450 1,400 Wk1 Wk2 Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 Wk9 Wk10Wk11Wk12Wk13Wk14Wk15Wk16Wk17Wk18Wk19Wk20Wk21Wk22Wk23Wk24Wk25Wk26Wk27Wk28Wk29 2014 2015 10
Slide 11: EMEA steel markets
EMEA steel markets Steel production – EMEA • European Union steel production resists mt 220 due to the regained competitiveness with lower Euro • Ukraine more affected 200 -2.9% 180 • Production in Turkey is lower due to a 160 decline in Black Sea markets • South Africa is equally lower due to 140 e
Slide 12: Emerging steel markets
Emerging steel markets Steel production – India Steel production – Brazil mt mt 50 20 +4.2% 45 Now the 3rd 18 +2.0% largest steel producer in 40 the world 16 35 14 30 12 25 10 • H1 15 up 4.2% versus H1 14 • H1 15 up 2.0% on H1 14 20 8 H1 07 H1 08 H1 09 H1 10 H1 11 H1 12 H1 13 H1 14 H1 15 H1 07 H1 08
Slide 13: Asian steel markets
Asian steel markets Steel production – China Steel production – South Korea mt mt 450 -1.3% 40 -4.9% 400 35 350 30 300 25 250 20 200 15 150 100 10 50 5 • H1 15 down 1.3% versus H1 14 • H1 15 down 4.9% versus H1 14 0 0 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 07 H1 08 H1 09 H1 10 H1 11 H1 12 H1 13 H1 14 H1 15 0
Slide 14: Trading review: Steel division revenue
Trading review: Steel division revenue Steel Flow Control Advanced Refractories Revenue* by region Revenue* by region £m £m H1 2014 H1 2015 125 -7.9% 125 H1 2014 H1 2015 -2.9% 100 -7.4% 100 -16.2% 75 +7.1% 75 50 50 +4.0% 25 25 0 0 Americas EMEA Asia-Pacific Americas EMEA Asia-Pacific Americas: Ameri
Slide 15: Steel markets: Sales and Steel Production Rebased to 100
Steel markets 200 180 Sales and Steel Production Rebased to 100 Sales and Steel Production Rebased to 100 160 NAFTA 180 160 140 H1 15 vs H1 14: -13.7% 140 H1 15 vs H1 14: -4.9% 120 120 100 100 80 H1 15 vs H1 14: -2.9% H1 15 vs H1 14: -6.9% 80 60 Vesuvius 60 40 Sales 40 Value 20 20 0 0 Steel 2002 200
Slide 16: Trading review: Steel division margins
Trading review: Steel division margins Underlying margin Y-o-Y Underlying £m H1 2015 H1 2014 change change 10.0% 9.9% Revenue 9.5% 9.3% Steel Flow Control 260.4 273.9 -4.9% -4.3% 9.0% Advanced 203.5 215.6 -5.6% -7.4% Refractories 8.5% Technical Services 12.4 - - - 8.0% Total Revenue 476.3 489.5 -2.7
Slide 17: Foundry market
Foundry market Light vehicle production Truck production NAFTA Europe NAFTA Europe 14,000,000 450,000 12,000,000 400,000 350,000 10,000,000 300,000 8,000,000 250,000 6,000,000 200,000 4,000,000 150,000 2,000,000 • NAFTA up 2.6% versus H1 2014 100,000 • Europe up 3.2% versus H1 2014 • NAFTA up 12.5%
Slide 18: Trading review: Foundry revenue
Trading review: Foundry revenue £m Revenue* by region H1 2014 H1 2015 Americas: 120 • Growth in NAFTA light vehicle and truck production offset -0.3% by: 100 • Reduced foundry activity in Brazil • Weak demand in mining, construction and agriculture foundries 80 -0.4% EMEA: • Decrease driven by lower
Slide 19: Trading review: Foundry division margins
Trading review: Foundry division margins Underlying ROS improvement H1 H1 Y-o-Y Underlying 14.0% £m 2015 2014 change change 11.5% 12.0% 9.8% Revenue 226.3 240.3 -5.8% -1.9% 10.0% 8.0% Trading Profit 25.9 24.0 +8.2% +14.6% 6.0% 4.0% Trading Margin % 11.5% 10.0% +148bps +165bps 2.0% 0.0% 2014 2015 • D
Slide 20: Restructuring programme initiated
Restructuring programme initiated • This will programme will Address structural changes in geographic trends in markets Deliver efficiencies Improve decision making quality and speed Resize the cost structure with a particular emphasis on overheads • Expected to generate annual cost savings
Slide 21: H1 2015 Trading summary
H1 2015 Trading summary • Challenging markets overall, but with some brighter spots • Further margin improvement Margin recovery in line with our plan: 189 bps delivered since 2012 • Ahead of continuing self-help measures, implementation of a structural cost reduction plan to substantially improve
Slide 22: Financial Review
A GLOBAL LEADER IN METAL FLOW ENGINEERING Financial Review Chris O’Shea Chief Financial Officer 22
Slide 23: Income statement
Income statement H1 2015 H1 2014 Year on Year Change £m £m As reported Underlying(1) Revenue 702.6 729.8 -3.7% -4.3% Trading Profit 70.4 71.2 -1.1% -3.4% Trading margin % 10.0% 9.8% +26bps +9bps Net finance costs (8.0) (9.2) Share of JV (0.5) 0.8 Profit before Tax 61.9 62.8 Effective tax rate % 25.5
Slide 24: The translational FX position has neutralised somewhat in the first half
The translational FX position has neutralised somewhat in the first half 2015 YTD 2014 FY 2015 Average 2015 June 2015 June Average Average Rates v Period End Period End Rates Rates 2014 Average Rates Rates v Rates 2015 YTD Average Rates USD 1.523 1.649 7.63% 1.571 (3.14%) EUR 1.365 1.241 (9.99%) 1.4
Slide 25: Cumulative effect of translational FX has been significant
…but the cumulative effect of translational FX has been significant 2015 H1 Revenue, Trading Profits, and RoS at various historic FX rates 2015 H1 Revenue 2015 H1 Trading Profit & RoS 800 90 10.0% 10.0% 10.0% 781.5 783.3 9.9% 700 80 712.6 702.6 78.1 78.1 70 600 70.4 70.4 60 500 50 400 £m £m 40 300 3
Slide 26: Underlying revenue fell by 4.3%
Underlying revenue fell by 4.3%... • Revenue down £27 million on a reported £m Revenue basis 750 725 8.8 12.4 • Revenue down £31 million on an 729.8 underlying basis 721.0 30.8 700 702.6 • Acquisitions added £12.4 million of revenue 675 Ecil Met Tec, Process Metrix, Sidermes 650 • Underlying reven
Slide 27: Underlying trading profit fell 3.4%
…whilst underlying trading profit fell 3.4% • Trading profit down £0.8 million on a £m Trading Profit reported basis 75 • Trading profit down £2.4 million on an 1.8 underlying basis 2.4 71.2 0.2 71.0 70 70.4 • Return on Sales improved by 26 bps on a reported basis • Return on Sales improved by 9 bps
Slide 28: Underlying Steel division profitability declined by 68 bps
Underlying Steel division profitability declined by 68 bps £m £m 525 Revenue 52 Trading Profit 50 500 1.8 0.8 12.4 489.5 490.3 48 1.2 48.4 26.4 475 476.3 47.2 46 450 5.7 44 44.5 425 42 400 40 2014 FX 2014 Acquisitions Underlying 2015 2014 FX 2014 Acquisitions Underlying 2015 Reported Underlying Repo
Slide 29: Underlying Foundry division profitability increased by 165 bps
Underlying Foundry division profitability increased by 165 bps £m £m 250 Revenue 26 Trading Profit 3.3 25.9 240 240.3 9.6 24 230 24.0 230.7 4.4 1.4 226.3 220 22.6 22 210 200 20 2014 FX 2014 Underlying 2015 2014 FX 2014 Underlying 2015 Reported Underlying Reported Reported Underlying Reported 29
Slide 30: The cash conversion rate is in line with expectations
The cash conversion rate is in line with expectations… • Year to date cash conversion of 84% £m Operating cash flow 100 Some seasonality seen (Q2 stronger than Q4) 90 20.1 • Working capital outflow reflecting normal 80 17.5 seasonality 70 This excludes £9.5m of trade working capital 70.4 13.8 ac
Slide 31: Increase in net debt reflects M&A activity
…whilst the increase in net debt reflects M&A activity £m £m 70 Free cash flow 350 Net Debt 8.9 5.2 60 300 24.5 59.2 30.1 5.9 296.0 50 7.0 268.3 250 40 35.1 200 16.2 0.9 35.1 30 150 c.70% of 20 dividends 100 10 paid in H1 50 0 Operating Interest Tax JVs & FCF - Cash Flow Minorities Continuing 0 1.1.
Slide 32: Defined benefit employee benefit schemes
Defined benefit employee benefit schemes • UK, USA and Germany comprise 30 Jun 31 Dec over 90% of Group’s gross pension £ million 2015 2014 liabilities Net Pension Deficits Germany 35.0 39.9 • Decrease in net deficit due to USA 33.5 35.6 reduction in discount rates Rest of World 17.6 19.0 86.1 94.5
Slide 33: Financial strategy remains consistent
Financial strategy remains consistent… • Financial flexibility essential Committed unutilised facilities of £171m • Conservative balance sheet stewardship Gearing of 1.6 • Focus on cash generation Cash conversion ratio of 84% • Cost control ROS improved by 189 basis points from 2012 • Efficient work
Slide 34: Strategy and Outlook
A GLOBAL LEADER IN METAL FLOW ENGINEERING Strategy and Outlook François Wanecq Chief Executive 34
Slide 35: Delivering on the strategy
Delivering on the strategy Building our R&D centers; • Maintain technology leadership Launching new products Start up of the new SST caster at Hyundai; • Increase penetration of value creating solutions Further success with INITEK Growing ahead of underlying market in China, • Capture growth in deve
Slide 36: We increase our R&D effort to maintain technology leadership
We increase our R&D effort to maintain technology leadership Sustainable growth will come first from technology Quarterly R&D Expenditure Advanced Refractories Steel Flow Control Technical Services Foundry Enabling Technologies 8 7 6 5 4 3 2 1 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Slide 37: Technical Services: Deliveries and potential
Technical Services: Deliveries and potential • Acquisitions bring us greater technological inroads and market intimacy in data capture Temperature and gas content with ECIL Met Tec and Sidermes Laser technology with Process Metrix Integration is underway • The new business model is under devel
Slide 38: Outlook
Outlook • Underlying trading environment to remain broadly similar to the first half Growth in steel production not expected before 2017 • Foreign exchange expected to negatively impact reported results Both translation and transaction effects • Self help programme will continue to drive operati
Slide 39: Q&A
A GLOBAL LEADER IN METAL FLOW ENGINEERING Q&A 39
Slide 40: Appendix
A GLOBAL LEADER IN METAL FLOW ENGINEERING Appendix 40
Slide 41: 5 year history at constant currency
5 year history at constant currency(1) £m 2011 2012 2013 2014 2015 Revenue 748.0 740.6 696.8 721.0 702.6 Steel 481.9 488.7 470.5 490.3 476.3 Foundry 266.1 251.9 226.3 230.7 226.3 Trading Profit 78.6 69.5 62.2 71.0 70.4 Steel 45.9 46.4 39.4 48.7 44.5 Foundry 32.7 23.1 22.8 22.3 25.9 Margins 10.5% 9.4
Slide 42: Currency – Ready Reckoner
Currency – Ready Reckoner Approximate • Rule of thumb for Currencies Change change in impact of a movement profits in currency against sterling US Dollar 1 cent £0.2 million Amounts shown are movements for each Euro 1 cent £0.1 million currency 1 jiao Works both for Chinese Renminbi £0.2 million
Slide 43: The new bank facility removes refinancing risk
The new bank facility removes refinancing risk • £300 million multi currency Existing Debt Facilities facility 300 Replaces £425 million facility 250 expiring 2016 • 5 + 1 + 1 term 200 2 x 1 year options at lender’s discretion 150 • £200 million accordion 100 Can be exercised before end of 201
Slide 44: Confirmed resilient profit and strong cash flow generation
Confirmed resilient profit and strong cash flow generation EBITDA (1, 2, 4) £m Operating cash flow (1, 2, 3, 4) £m 250 160 200 140 120 150 100 80 100 60 40 50 20 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 45: Market leading positions across many of our products
Market leading positions across many of our products Molten metal in steel industry Molten metal in foundries A world leader in flow control systems (slide gates) A world leader in filters A world leader in isostatically pressed refractories A world leader in feeding systems A world leader in flow c
Slide 46: Main products and markets – Steel business segment
Main products and markets – Steel business segment Steel business segment overview Steel business segment revenue by operating location • World leader in the supply of consumable Steel Flow Control Asia products used in the enclosed continuous casting process and a Pacific Americas leading supplier
Slide 47: Steel market growth scenario
Steel market growth scenario mT 2015 2020 2025 CAGR% Global Steel Production 4.9% 350 1300 1200 2015 14.1% 300 1100 2020 1000 1.8% 2025 250 900 800 -0.6% Millions of Tonnes 200 700 -1.5% 15% 2.3% 600 150 500 -0.9% 8.3% 400 100 300 200 50 100 0 0 NAFTA EU 27 S. America India Mid East & RoEurope Ro As
Slide 48: Growth opportunities – Steel
Growth opportunities – Steel Vesuvius serves mainly the flat products market which will grow at a higher pace than global steel as developing markets evolve towards consumption driven economies Typical consumption of Flow Control products in flat steel is £1.5 /T of steel vs £0.5/T of steel in long
Slide 49: Main products and markets – Foundry business segment
Main products and markets – Foundry business segment Foundry casting process Ultimate end markets for castings Pipes & Railroad 4% • World leader in the supply of consumable products and technical Fittings 2% services used in the production of metal castings which themselves Power Light Vehicles Gen
Slide 50: Long term growth in Foundry will come from innovation and marketing
Long term growth in Foundry will come from innovation and marketing Foundry sales £/T of total market casting (2013) Significant upside potential through continuing market x 20 penetration as emerging markets move towards higher quality foundry castings Ductile Iron Northern Europe South America Jap
Slide 51: World truck market evolution
World truck market evolution GLOBAL QUARTERLY TRUCK PRODUCTION TRENDS (GVW > 6 tonnes) (Source; LMC Automotive June 2015 Forecast Update) 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014
Slide 52: Mining capital expenditure has fallen significantly since 2012
Mining capital expenditure has fallen significantly since 2012 160,000 140,000 RoW Australia North America 120,000 100,000 $millions 80,000 60,000 40,000 20,000 0 2011 2012 2013 2014 2015E Source: Bloomberg, JPMC Research 52
Slide 53: A continued shift of operations to align with customers
A continued shift of operations to align with customers NAFTA facilities and headcount EU 15 facilities and headcount Other EMEA facilities and headcount Employees Employees Employees 4,000 4,000 4,000 2222 3333 20 3,000 11 3,000 3,000 11 2,000 2,000 2,000 2,580 1,725 3,086 10 10 2,811 1,000 1,000 1