Vesuvius Plc · LSE:VSVS
Vesuvius — FY2016 Earnings Presentation
63 slides from Vesuvius's earnings presentation, Mar 2, 2017
Slide 1: 2016 Full Year Results
A GLOBAL LEADER IN METAL FLOW ENGINEERING 2016 Full Year Results 2 March 2017 François Wanecq Chief Executive 1
Slide 2: 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“, which can be identified by the use of forward looking terminology, including the terms "believes", "estimates", "plans", "project
Slide 3: Agenda
Agenda • 2016 Strategic progress • Steel and Foundry markets • 2016 Group and Divisional performance • Financial Review • Outlook 3
Slide 4: 2016 Summary
2016 Summary • Resilient performance showing progress despite broadly flat end markets • Restructuring programme ahead of plan and delivered £16.6m cost savings in 2016 Total annual programme benefits further increased to £35m by the end of 2017 at a cost of £45m • Global steel and foundry marke
Slide 5: 2016 Strategic Progress
2016 Strategic Progress VESUVIUS ete
Slide 6: Delivering on the strategy
Delivering on the strategy • Maintained technology leadership Sales of new products increased by 75% over three years Creation of a new R&D centre for Advanced Refractories in India • Increased penetration of value creating solutions Successful start of the SST line at Hyundai Growing sales
Slide 7: Technology leadership: sales of new products increased 75% in 3 years
Technology leadership: sales of new products increased 75% in 3 years New Product Sales % 20.0% 18.0% 16.0% 14.0% 12.0% Flow Control 10.0% Foundry Advanced Refractories 8.0% Total 6.0% 4.0% 2.0% 0.0% 2011 2012 2013 2014 2015 2016 • Success of our R&D management plan launched in 2013 • Sales of new p
Slide 8: New process technologies driving growth
New process technologies driving growth • Robotics penetration success: We commissioned our first ladle handling robot for Hyundai in 2016 • Rapid penetration of foundry filter sales in China • Laser sales coupled with total refractory management of ladles • Shagang investing in cast strip lines wit
Slide 9: Capturing growth in China
Capturing growth in China China Flow Control £m Revenues and Trading Profit % 45.0 30.0% • Decline of sales during 2015 whilst exiting 40.0 25.0% Steel lower credit quality customers to minimise 35.0 20.0% Flow receivable growth 30.0 15.0% 10.0% Control 25.0 • Recovery in H2 2016 due to penetration
Slide 10: Growing in India, Brazil and Mexico
Growing in India, Brazil and Mexico 320 270 220 170 • Growth in India exceeded our expectations 120 Vesuvius sales in 2016 70 Steel volumes Steel volumes: +7.4% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Vesuvius sales: +14.4% 170 150 130 110 • Success of our “Win with the winners” 90 str
Slide 11: Improved cost leadership through restructuring
Improved cost leadership through restructuring • Restructuring program increased further to £35m savings (£27m delivered by end 2016) after being initiated with target of £10m in Q2 2015 • Total cost of £45m (£44.1m spent and provisioned at end 2016) Cost Savings Target Progression Cost Savings Deli
Slide 12: Technical services development
Technical services development • Technical services is a group strategy – developments are taking place in all divisions Technical Services Revenue • Transformation from sales of equipment into sales of a £m service over time has a short term negative impact on 90 £77m sales 80 £70m 70 • A portion o
Slide 13: Steel and Foundry Markets
Steel and Foundry Markets VESUVIUS ete
Slide 14: Steel Production growth (FY 2016 vs 2015)
2016 steel production broadly stable with continued shift to emerging economies • World steel production up Rate of Growth in Steel Production vs Steel Volumes in 2016 0.7% Top Steel Producers China (50.4% of global 10.0% India 7.4% production) up 1.2% 8.0% Italy 6.2% Rest of world up 0.2% 6.0%
Slide 15: Steel Production growth (FY 16 vs 13)
Steel Division sales ahead of underlying market in emerging economies Rate of Growth in Steel Production & Revenues 2016 vs 2013 Top Steel Producers 30.0% India 20.0% Sales 21.7% Steel 17.6% Mexico Russia Sales 3.3% Steel 3.3% Steel Production growth (FY 16 vs 13) Sales -9.2% 10.0% Steel 2.8% Italy
Slide 16: China steel market trends
China steel market trends • China launched a plan called ‘Made in China 2025’ emphasising initiatives such as: Robotics Applying the tools of information technology to production processes Pollution reduction • Steel industry accelerates its transformation Continuation of the shift from Long
Slide 17: China foundry market trends
China foundry market trends • In China, commercial vehicle production grew by 6% in 2016 £m Foundry China Sales Evolution and passenger vehicles 6.0 Filters increased by 16% to 24 million 5.0 Non Ferrous Metal Treatment units 4.0 3.0 • China’s 5 year plan envisages Foundry industry growth at 3 - 2.0
Slide 18: 2016 Group and Divisional Performance
2016 Group and Divisional Performance 18
Slide 19: 2016 trading performance at constant currency
2016 trading performance at constant currency £m Revenue £m Trading Profit % Return on Sales 1,600.0 160.0 12.0% 1,453.0 +10 bps 1,401.4 137.1 133.3 1,400.0 140.0 10.0% 10.1% -3.5% 10.0% -2.8% 8.9% 8.8% 1,200.0 120.0 8.0% 1,000.0 100.0 800.0 80.0 6.0% 600.0 60.0 4.0% 400.0 40.0 2.0% 200.0 20.0 0.0 0
Slide 20: Steel Division: performance
Steel Division: performance Underlying* Steel Underlying Sales £m 2016 2015 Change £m and Trading Margins (%) change 600.0 10.0% Total Revenue 942.0 897.6 +4.9% -4.8% 500.0 8.0% 400.0 6.0% Total Trading 79.2 79.5 -0.5% -6.6% 300.0 Profit 4.0% 200.0 Trading Margin 100.0 2.0% 8.4% 8.9% -50bps -20bps %
Slide 21: Foundry Division: performance overview
Foundry Division: performance overview Underlying* £m 2016 2015 Change Foundry Underlying Sales change £m and Trading Margins (%) 300.0 14.0% Total Revenue 459.4 424.4 +8.3% -2.5% 250.0 12.0% 10.0% Total Trading 200.0 54.1 44.5 +21.6% +7.3% 8.0% Profit 150.0 6.0% 100.0 4.0% Trading Margin 11.8% 10.5
Slide 22: Financial Review
A GLOBAL LEADER IN METAL FLOW ENGINEERING Financial Review Guy Young Chief Financial Officer 22
Slide 23: Income statement
Income statement 2016 2015 Year on Year Change £m £m As reported Underlying(1) Revenue 1,401.4 1,322.0 +6.0% -4.0% Trading Profit 133.3 124.0 +7.5% -1.5% Trading margin % 9.5% 9.4% +10bps +30bps Net finance costs (14.5) (15.4) Share of JV 1.0 – Headline Profit before Tax 119.8 108.6 Effective tax ra
Slide 24: Underlying revenue fell by 4.0% and trading profit by 1.5%
Underlying revenue fell by 4.0% and trading profit by 1.5% £m £m Revenue Trading Profit 1,600.0 150 1,500.0 6.2 140 0.1 2.0 1.7 1,400.0 130.9 1,446.7 58.5 130 13.1 137.0 135.0 1,388.2 13.2 1,401.4 133.3 1,300.0 1,322.0 120 124.0 1,200.0 1,100.0 110 1,000.0 100 • Revenue up £79.4m on a reported basis
Slide 25: Revenue and trading profit performance year on year by Division
Revenue and trading profit performance year on year by Division 1050.0 Revenue – Steel 100.0 Trading Profit – Steel 1000.0 90.0 1.8 7.0 46.9 7.2 950.0 84.3 80.0 942.0 79.5 12.5 0.6 79.2 900.0 70.0 18.8 897.6 850.0 60.0 800.0 50.0 FY 2015 FX M&A Markets & FY 2016 FY 2015 FX M&A Sales drop- Restructur
Slide 26: All major currencies strengthened against sterling
All major currencies strengthened against sterling Currencies (Impact of FX Impact on 2016 Average Impact on Impact on translation on GBP 2016 Dec YTD 2015 FY net debt Rates v 2015 Sales (£m) TP (£m) reporting currency) Average Rates Average Rates (£m) Average Rates USD 1.36 1.53 11.2% 47.6 4.2 -20.
Slide 27: Geographic diversification counters currency risk
Geographic diversification counters currency risk Global Sales 2016 South America South Asia China Balance sheet risk 5% • Europe and NAFTA account for 6% 8% North Asia 7% c.60% of Group profits • Group debt split across GBP, USD, NAFTA Europe and EUR to match 23% 42% India 9% Global Trading Profit
Slide 28: Achieved 94% cash conversion rate
Achieved 94% cash conversion rate £m 200.0 Operating cash flow 180.0 160.0 42.3 29.7 12.9 140.0 8.0 12.1 120.0 133.3 125.0 100.0 34.2 2.0 2.5 80.0 78.2 16.8 60.0 61.4 40.0 20.0 0.0 • Full year cash conversion of 93.8% • Working capital increased in 2016 • Capex in 2016 was below depreciation • Incom
Slide 29: Net debt increased to £320.3m due largely to FX movements
Net debt increased to £320.3m due largely to FX movements • Net debt increased £28.7m in the year £m Net debt 330 320.3 • Acquisition of mould flux business of 310 30.8 Carboox at £7.3m, and £0.4m release of 290 contingent payments for prior year 291.6 7.7 acquisition (Process Metrix) 270 7.7 • FX i
Slide 30: Strong balance sheet with significant liquidity
Strong balance sheet with significant liquidity £m Gross Debt and Available Liquidity Pension Deficit £m 500 450 46 140 400 350 142 142 300 37 Short Term Facilities 120 158 250 RCF 83.8 465 200 158 Cash 340 100 150 USPP 277 277 100 144 50 144 80 0 Gross Debt Liquidity 60 £m Maturities 40 6.7 1.3 450
Slide 31: Efficient management of working capital (constant currency)
Efficient management of working capital (constant currency) • Focus on inventory management during 2016 has Inventory – Change in Days yielded clear benefits for Advanced Refractories +11 and Foundry divisions 4 3 2 • Ongoing renegotiation efforts on payable terms 1 during 2016 0 0 Flow Control Adva
Slide 32: Capital expenditure discipline
Capital expenditure discipline Capital Expenditure • Rigorous process for approving capex £m 45.0 as part of annual budgeting process 94% of 83% of 40.0 depreciation depreciation 35.0 35.0 35.2 • Capex split into three key categories: maintenance; growth; special projects 30.0 25.0 78% 77% • No near
Slide 33: Financial objectives remain consistent
Financial objectives remain consistent • Focus on cost control and delivery of restructuring • Improve working capital efficiency • Maintain high levels of cash conversion • Continue with the conservative approach to gearing • Maintain financial flexibility • Improve shareholder returns 33
Slide 34: Outlook
Outlook VESUVIUS ete
Slide 35: 2016 Summary
2016 Summary • Resilient results showing progress despite broadly flat end markets • Restructuring programme ahead of plan and delivered £16.6m cost savings in 2016 Total annual programme benefits further increased to £35m by the end of 2017 at a cost of £45m • Global steel and foundry markets s
Slide 36: Resilient profitability and strong cash flow generation
Resilient profitability and strong cash flow generation EBITDA (1, 2) £m Operating cash flow (1, 2, 3) £m 250 160 140 200 120 150 100 80 100 60 40 50 20 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201
Slide 37: Focused on delivering shareholder value
Focused on delivering shareholder value Focus areas for 2017 Continue Revenue growth: China, India, Technical Services, innovation Strengthen Cash generation: payment terms, inventories, receivables Deliver Further margin progression: cost reduction, Lean, Excellence 37
Slide 38: Outlook
Outlook • Global market environment broadly stable at relatively low levels but with some encouraging early signs of improvement visible in recent months • Vesuvius remains well placed to benefit from a recovery in end markets • Continued focus on medium-term strategy: Building Technical Services
Slide 39: Q&A
Q&A VESUVIUS ete
Slide 40: Appendix
Appendix VESUVIUS ete
Slide 41: 5 year history at constant currency
5 year history at constant currency(1) FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Revenue 1,529.8 1,502.1 1,547.2 1,452.9 1,401.4 Steel(2) 1,021.2 1,024.4 1,059.8 981.9 942.0 Foundry 508.6 477.6 487.3 471.0 459.4 Trading Profit 125.1 140.8 157.6 137.1 133.3 Steel 82.9 91.9 108.0 86.7 79.2 Foundry 42.1
Slide 42: Currency Ready Reckoner
Currency Ready Reckoner Approximate • Rule of thumb for impact of a change in Currencies Change movement in currency against annual profits sterling (1 unit change) US Dollar 1 cent £0.4 million Amounts shown are movements Euro 1 cent £0.3 million for each currency Indian Rupee 1 rupee £0.5 millio
Slide 43: 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 44: Vesuvius is focused on the Steel and Foundry markets
Vesuvius is focused on the Steel and Foundry markets Steel Foundry Steel Flow Control Technical Advanced Refractories Foundry Technologies Services Revenue (% of group) £506m £37m £399m £459m Overview Provides products, systems Provides products, Provides installation expertise Improves casting qual
Slide 45: 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 2016 • World leader in the supply of consumable Steel Flow Control Asia Americas Pacific products used in the enclosed continuous casting process and a 25% 35% lead
Slide 46: Potential for growth
Potential for growth • Three heavily populated countries Steel Production per capita constitute considerable potential T 1.6 for growth 1.4 1.2 • All have low steel production tonnes per capita vs peers, 1.0 indicating expected growth in 0.8 infrastructure and construction 0.6 development 0.4 Indi
Slide 47: China Steel Production: Has the limit been reached? Parallel with Japan
China Steel Production: Has the limit been reached? Parallel with Japan 000’t Japan – Steel production vs GDP growth 000’t China - Steel production vs GDP growth 140,000 20% 900,000 20% End of high GDP 800,000 End of high GDP 120,000 growth period growth period 15% 15% 700,000 100,000 600,000 10% 10
Slide 48: What is the steel profile of a maturing economy: The case of Japan
What is the steel profile of a maturing economy: The case of Japan 000’t Japan - Steel production vs GDP growth • Steel production per 140,000 20% 120,000 capita in Japan 831kg 15% 100,000 • After the peak in 1973 10% steel production 80,000 declined a little and 5% recovered to about 88% 60,000 of
Slide 49: The Indian steel production high growth sequence should start soon
The Indian steel production high growth sequence should start soon India - Steel production vs GDP growth 000’t 200,000 20% • Steel production per capita in 180,000 India 70kg (vs 585kg in China) 15% 160,000 • The long term steel growth 140,000 10% episode should start in the 120,000 coming three ye
Slide 50: World Steel Production: Where is India in the growth cycle?
World Steel Production: Where is India in the growth cycle? 1,800,000.00 25% 1,600,000.00 20% 15% 1,400,000.00 10% 1,200,000.00 5% 1,000,000.00 0% 800,000.00 -5% 600,000.00 -10% 400,000.00 -15% 200,000.00 -20% 0.00 -25% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Slide 51: Steel market growth scenario
Steel market growth scenario 2015 2020 2025 CAGR% mT Global Steel Production 4.9% 350 1,300 1,200 2015 300 14.1% 1,100 2020 1,000 250 1.8% 2025 900 800 -0.6% Millions of Tonnes 200 700 -1.5% 15% 2.3% 600 150 -0.9% 500 8.3% 400 100 300 200 50 100 0 0 NAFTA EU 27 S. America India Mid East & RoEurope R
Slide 52: Growth opportunities – Steel
Growth opportunities – Steel 80% Proportion of Flat Steel by Region 70% Proportion of Flat Steel Products (%) 60% 50% 40% 30% 20% 10% 0% US EU28 South Korea Brazil China India • Vesuvius serves mainly the flat products market which will grow at a higher pace than global steel as developing markets e
Slide 53: China’s move towards flat steel is confirmed
China’s move towards flat steel is confirmed 2016 2015 2014 2013 Total CISA 1138 1123 1117 1077 Long 481 483 518 502 Flat 519 489 477 455 Long 42.3% 44.0% 45.8% 46.7% Flat 45.6% 43.5% 42.7% 42.2% • Proportion of flat steel produced increased by 150bps YoY for Chinese Steel Association members (repre
Slide 54: Conversion to flat steel is a growth opportunity
Conversion to flat steel is a growth opportunity mT 600 • Progression of flat steel vs long steel 2015 400 could generate growth in our accessible market of 30% in 2020 and 55% in 2025 200 • In the same period global steel 0 production is expected to grow by only NAFTA EU 27 S. America China India M
Slide 55: Steel vs Aluminium: Growth of high-strength steel continues
Steel vs Aluminium: Growth of high-strength steel continues along the previous trend Material share as percent of vehicle kerb weight In vehicle production, conventional 45% steel is replaced by high-resistance steels as well as by Aluminium 40% 35% • High resistance steels require more sophisticate
Slide 56: Steel vs Aluminum: Long term forecast gives the major share to high strength steels
Steel vs Aluminum: Long term forecast gives the major share to high strength steels for light vehicles 2012 1% 2015 6% 18% 23% 71% 81% 2020 2025 17% 26% 33% 52% 31% Mild and HSLA AHSS/UHSS 41% Aluminium Source: Ducker Worldwide 56
Slide 57: 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 58: Steel and Foundry casting production tonnages move in parallel
Steel and Foundry casting production tonnages move in parallel Growth perspectives should be similar: Foundry should benefit from China and India 30 450 20 160 Steel Production (000 tonnes) Casting Production (tonnes) 400 18 140 25 16 350 120 14 20 300 12 100 250 10 80 15 200 8 60 10 150 6 40 4 100
Slide 59: Long term growth in Foundry will come from innovation and marketing
Long term growth in Foundry will come from innovation and marketing Foundry sales of Ductile Iron £/T of total market casting volumes (2015) 14.0 Significant upside 12.0 10.0 potential through continuing market 8.0 penetration as emerging 6.0 markets move towards higher quality foundry 4.0 castings
Slide 60: Shift of headcounts to emerging countries continued
Shift of headcounts to emerging countries continued NAFTA facilities and headcount EU 15 facilities and headcount Other EMEA facilities and headcount Employees Employees Employees 4,000 4,000 4,000 38 29 3,000 27 3,000 3,000 20 17 16 2,000 2,000 2,000 1,760 1,357 2,792 2,546 1,000 1,000 1,000 1,891
Slide 61: Financial Appendix
Financial Appendix VESUVIUS ete
Slide 62: H1 v H2 performance – Constant Currency
H1 v H2 performance – Constant Currency Dec '16 avg. rate / constant 2015/H1 2015/H2 2016/H1 2016/H2 H1’16 v H1’15 H2’16 v H2’15 £m / (%) Direct Sales 757.3 695.7 705.9 695.6 -6.8% 0% Gross Margin 204.7 182.9 193.2 189.7 -5.8% 3.8% Trading Profit 75.4 61.7 63.0 70.3 -16.5% 13.9% Gross Margin % 27.0%
Slide 63: Resilience as a result of the restructuring
Resilience as a result of the restructuring • Analysis of 4-year average of cost base and margins shows levels of Cost of Goods Sold (COG’s); Opex as % sales; and Trading profit within a tight tolerance • Provides basis of calculating the expected drop through once variable and fixed costs are ident