Vesuvius PLC · LSE:VSVS
Vesuvius — H1 2016 Earnings Presentation
59 slides from Vesuvius's earnings presentation, Jul 29, 2016
Slide 1: 2016 Half Year Results
A GLOBAL LEADER IN METAL FLOW ENGINEERING 2016 Half Year Results 29 July 2016 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 Half Year Group results – François Wanecq • Financial Review – Guy Young • Strategy and Outlook – François Wanecq 3
Slide 4: Summary
Summary • Revenue, profit and return on sales in line with expectations • Improvement in revenue and profit compared to H2 2015 • Continued outperformance in India, a key strategic growth area • Restructuring programme delivered £7.1m cost savings in H1 2016 Total annual programme benefits increas
Slide 5: H1 2016 Underlying trading performance
H1 2016 Underlying(1) trading performance £m £m Trading Profit % Return on Sales Revenue 80.0 12.0% 800.0 723.0 71.6 -7.6% 70.0 -17.4% 9.9% 700.0 658.7 668.3 10.0% -110 bps +1.5% 57.7 59.1 8.7% 8.8% 600.0 60.0 +2.5% +10 bps 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
Slide 6: Production growth (H1 2016 vs H1 2015)
The world steel markets declined year-on-year…. • World steel production Rate of Growth in Steel Production down 1.6% Top 10 Steel Producers 15.0% China (50.4% of global Production growth (H1 2016 vs H1 2015) production) down 0.6% Ukraine +10.3% Rest of world down 2.6% 10.0% • Brazil down 13.0%
Slide 7: Production growth (H1 2016 vs H2 2015)
…however progressed vs H2 2015 signalling they may have bottomed • World steel production up Rate of Growth in Steel Production 2.0% Top 10 Steel Producers 15.0% China (50.4% of global Production growth (H1 2016 vs H2 2015) production) up 2.1% Rest of world up 1.9% 10.0% • Brazil still down Ukra
Slide 8: Revenue performance exceeded the market in key emerging markets
Revenue performance exceeded the market in key emerging markets year-on-year… Rate of Growth in Steel Production & Revenues H1 16 vs H1 15 Top 10 Steel Producers 15.0% Ukraine Sales +19.5% Steel +10.3% Production growth (H1 16 vs H1 15) 10.0% USA Turkey Sales -18.5% Sales -8.7% 5.0% Steel +0.2% Stee
Slide 9: Steel division revenue
Steel division revenue Steel Flow Control Advanced Refractories Revenue* by region Revenue* by region £m £m 125 H1 2015 H2 2015 H1 2016 H1 2015 H2 2015 H1 2016 -13.6% 125 100 +2.3% -9.9% -8.8% 100 -15.1% -3.1% -3.0% +4.8% 75 -1.0% 75 -0.1% -2.6% 50 50 -7.5% 25 25 0 0 Americas EMEA Asia-Pacific Ameri
Slide 10: Mature steel markets: Vesuvius sales vs steel production
Mature steel markets: Vesuvius sales vs steel production 110 110 100 180 100 Sales and Steel Production Rebased to 100 Sales and Steel Production Rebased to 100 90 90 140 80 80 160 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 H1 2016 vs H1 2015: -13.3% 15 15 15 15 16 16 15 15 15 15 16 16 H1 2016 vs H1 2015:
Slide 11: Emerging steel markets
Emerging steel markets 180 940 Sales and Steel Production Rebased to 100 Sales and Steel Production Rebased to 100 840 160 740 140 640 120 540 Vesuvius 440 Sales 100 Value 340 80 240 Steel 60 140 Production Volumes 40 40 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H1 H2 H1 H2 H1 H2 H1 H
Slide 12: Steel division margins
Steel division margins Underlying Underlying Underlying margin £m H1 2016 H1 2015 Change H2 2015 Change change change 9.5% 9.2% Total 9.0% 443.1 476.3 -7.0% -9.6% 421.3 5.2% -0.7% Revenue 8.4% 8.5% Total Trading 8.0% 33.2 44.5 -25.3% -24.8% 35.0 -5.2% -10.9% 7.5% Profit 7.5% Trading 7.0% 7.5% 9.3% -
Slide 13: Foundry market
Foundry market Light vehicle production Truck production NAFTA Europe NAFTA Europe 14,000,000 350,000 12,000,000 300,000 10,000,000 250,000 8,000,000 200,000 6,000,000 150,000 4,000,000 H1 2016 vs H1 2015 +3.6% H1 2016 vs H1 2015 +6.3% 100,000 H1 2016 vs H1 2015 +3.7% H1 2016 vs H1 2015 -11.1% 2,000
Slide 14: Foundry revenue recovery vs H2 2015 but still lower than H1 2015
Foundry revenue recovery vs H2 2015 but still lower than H1 2015 £m Revenue* by region H1 2015 H2 2015 H1 2016 Americas: 120 • Weak demand in heavy truck, agriculture, construction and mining foundries, -2.4% partially offset by strong demand in light vehicle production +10.7% • Difficult market in
Slide 15: Foundry division margins
Foundry division margins Underlying Underlying Underlying margin £m H1 2016 H1 2015 Change H2 2015 Change change change 14.0% Total 225.2 226.3 -0.5% -3.1% 198.1 13.7% 5.9% 12.0% 11.4% 11.5% Revenue 9.6% Total Trading 10.0% 25.9 25.9 0.0% -2.6% 18.6 39.5% 27.0% Profit 8.0% Trading 6.0% 11.5% 11.5% 0
Slide 16: Financial Review
A GLOBAL LEADER IN METAL FLOW ENGINEERING Financial Review Guy Young Chief Financial Officer 16
Slide 17: Summarised income statement
Summarised income statement H1 2016 H1 2015 Change (%) H2 2015 Change (%) (£m) (£m) Reported Underlying (£m) Reported Underlying Revenue 668.3 702.6 -4.9% -7.5% 619.4 +7.9% +1.5% Trading Profit 59.1 70.4 -16.0% -16.5% 53.6 +10.3% +2.5% Return on Sales 8.8% 10.0% -120bps -100bps 8.7% +10bps +10bps Ne
Slide 18: H1 to H1 shows revenue impact with partial cost mitigation
H1 to H1 shows revenue impact with partial cost mitigation £m £m Revenue Trading Profit 740.0 80.0 4.8 720.0 14.6 75.0 717.2 1.2 70.0 71.6 0.7 700.0 47.8 70.4 702.6 65.0 680.0 20.6 5.9 60.0 3.9 660.0 668.3 59.1 7.1 55.0 640.0 50.0 2.2 620.0 45.0 600.0 40.0 18
Slide 19: H2 to H1 shows the latest trend in market dynamics
H2 to H1 shows the latest trend in market dynamics £m £m Revenue Trading Profit 680.0 65.0 668.3 60.0 2.2 14.6 1.2 660.0 4.1 59.1 658.7 1.8 5.0 57.7 55.0 640.0 39.3 53.6 50.0 620.0 619.4 45.0 600.0 40.0 19
Slide 20: Steel revenue decline slowing; Foundry benefiting from some growth
Steel revenue decline slowing; Foundry benefiting from some growth 460.0 Revenue – Steel 45.0 Trading Profit - Steel 2.0 40.0 440.0 446.1 2.2 5.0 443.1 24.8 35.0 37.2 35.0 2.2 420.0 0.4 33.2 421.3 2.2 30.0 400.0 25.0 H2 15 FX Constant Market & Gains H1 16 H2 15 FX Constant Revenue Bad debt Other H1
Slide 21: The cash conversion rate at 111% is up on last year
The cash conversion rate at 111% is up on last year • Year to date cash conversion of 111% £m Operating cash flow 100.0 is better than prior year 84% 90.0 80.0 • Working capital requirements lower 20.0 8.4 70.0 3.1 Trade working capital outflow is £8.0m 18.2 65.8 driven primarily by increased trad
Slide 22: Free cash flow before restructuring £43.7m is 66% of OCF
Free cash flow before restructuring £43.7m is 66% of OCF £m Free cash flow • Continued good performance in 80 FCF generation, at 66% of OCF before restructuring 70 65.8 5.8 60 • Upward pressure on tax charges, as previously flagged, with 50 16.3 0.9 changes in geographic sources 40 43.7 0.9 10.2 of
Slide 23: Net debt impacted adversely by the strengthening USD
Net debt impacted adversely by the strengthening USD £m Net debt • Net debt would have been at £289.5m without net FX impact of £20.8m 310 310.3 (including inflow from USD swaps), 20.8 ahead of prior year (£296.0m) 290 291.6 289.5 0.4 30.0 • The FX impact on net debt was primarily 270 due to USD and
Slide 24: Tailwinds on profit with depreciating GBP
Tailwinds on profit with depreciating GBP Currencies (Impact of FX 2016 Average Impact on Impact on translation on GBP 2016 Jun YTD 2015 FY Rates v 2015 Sales ytd TP ytd reporting currency) Average Rates Average Rates Average Rates (£m) (£m) USD 1.44 1.53 6.1% 10.6 0.7 EUR 1.29 1.38 6.6% 12.1 0.6 IN
Slide 25: Geographic diversification counters currency risk
Geographic diversification counters currency risk Balance sheet risk • Europe and NAFTA account for ~60% of Group profits • Group debt split across GBP, USD and Euro to match • Pension fund de-risking strategy to continue P&L risk • Low GBP exposure as UK forecast to approx 4% of Group sales 25
Slide 26: Finance objectives and short term focus
Finance objectives and short term focus • Ongoing cost reduction Operational leverage • Working capital management Risk managed reductions • Cash conversion >100% Capex spend control • Reduce net debt • Shareholder returns 26
Slide 27: Strategy and Outlook
A GLOBAL LEADER IN METAL FLOW ENGINEERING Strategy and Outlook François Wanecq Chief Executive 27
Slide 28: Delivering on the strategy
Delivering on the strategy Creation of a new R&D centre for Advanced Refractories in • Maintain technology leadership India; Launching new products: Framed filters, Ladle tube changer Successful start of the SST line at Hyundai; • Increase penetration of value creating solutions Growing sales of MTS
Slide 29: R&D progression
R&D progression 20.0% New Product Sales as % of Total Sales 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2011 2012 2013 2014 2015 2016 H1 FC FDY AR Total 29
Slide 30: 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 Sidermes integration is underway Increased penetration of Eci
Slide 31: Technical Services: Deliveries and potential
Technical Services: Deliveries and potential • Promoting new solutions in data capture Roll-out Accuoptix Roll-out X Mat now available on all continents Radar T2 launched commercially • Exploring synergies across our businesses Smart stopper Flux feeders Laser guided robotic gunning • Co
Slide 32: Objective: One platform for unlimited solutions
Objective: One platform for unlimited solutions End users: Control room, mgr.office, Corporate office Laser Scanner Vesuvius Platform Slag Detection Local Network (Factory Network) Mold Level Or cloud based (Internet) Internet Remote Management with Bank Grade Security XMAT: Steel speed measure Brea
Slide 33: Restructuring remains our central focus
Restructuring remains our central focus • Steel Flow Control Europe efficiency and manufacturing optimisation Announced closures of Ostrawa plant and Lugano office Discussions started about proposed restructuring of our Ostend plant South American steel optimisation • Foundry Additional NA
Slide 34: H1 2016 Trading summary
H1 2016 Trading summary • Revenue, profit and return on sales in line with expectations • Global steel and foundry markets showing signs of stabilisation; albeit mixed and at weak levels • Improvement in revenue and margins compared to H2 2015 • Restructuring programme delivered £7.1m cost savings i
Slide 35: Outlook
Outlook • Underlying trading environment to remain similar to the first half of 2016 Growth in steel production not expected before 2017 • Steel and foundry end markets showing signs of stabilisation, although expect to remain at relatively weak levels for the remainder of the year • Continued foc
Slide 36: Q&A
A GLOBAL LEADER IN METAL FLOW ENGINEERING Q&A 36
Slide 37: Appendix
A GLOBAL LEADER IN METAL FLOW ENGINEERING Appendix 37
Slide 38: 5 year history at constant currency
5 year history at constant currency(1) FY 2012 FY 2013 FY 2014 FY 2015 2015 H1 2015 H2 2016 H1 Revenue 1,449.5 1,423.6 1,466.3 1,376.0 717.2 658.7 668.3 Steel 969.3 972.5 1006.0 930.9 484.8 446.1 443.2 Foundry 480.3 451.1 460.4 445.1 232.5 212.6 225.2 Trading Profit 117.2 133.0 148.9 129.3 71.6 57.7
Slide 39: 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 £0.2 million Amounts shown are movements Euro 1 cent £0.1 million for each currency Indian Rupee 1 rupee £0.2 millio
Slide 40: 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 41: 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) £492m (37%) 26 (2%) £379m (29%) £424m (32%) Overview Provides products, systems Provides products, Provides installation expertise
Slide 42: 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 Americas 35% products used in the enclosed continuous casting process and a Asia Pacific leading suppl
Slide 43: Potential for growth
Potential for growth • Three heavily populated countries H1 2016 Steel production per capita constitute considerable potential T / Capita for growth 0.70 0.60 • All have low steel production 0.50 tonnes per capita vs peers, 0.40 indicating expected growth in 0.30 infrastructure and construction 0.20
Slide 44: Steel exports from China are now falling as barriers to trade increase
Steel exports from China are now falling as barriers to trade increase 44
Slide 45: China Steel Production: Has the limit been reached? Parallel with Japan
China Steel Production: Has the limit been reached? Parallel with Japan Japan – Steel production vs GDP growth 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% 80,000 500
Slide 46: 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 Japan – Steel production vs GDP growth 140,000 20% • Steel production per 120,000 capita in Japan 831kg 15% 100,000 10% • After the peak in 1973 80,000 steel production 5% declined a little and 60,000 recovered to about 88% 40,000 0%
Slide 47: 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 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 years an
Slide 48: World Steel Production: Where is India in the growth cycle?
World Steel Production: Where is India in the growth cycle? 1800000 25% 1600000 20% 15% 1400000 10% 1200000 5% 1000000 0% 800000 -5% 600000 -10% 400000 -15% 200000 -20% 0 -25% 1981 1998 2007 1980 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003
Slide 49: 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 -0.9% 500 8.3% 400 100 300 200 50 100 0 0 NAFTA EU 27 S. America India Mid East & RoEurope Ro As
Slide 50: 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 51: China’s move towards flat steel is confirmed
China’s move towards flat steel is confirmed 2016 2015 Total CISA 144 147 Long 59 62 Flat 80 79 Long 41% 42% Flat 56% 54% • Proportion of flat steel produced increased by 150bps YoY for Chinese Steel Association members (representing ~60% most advanced of total Chinese steel production) • However CI
Slide 52: 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 53: 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 54: Steel vs Aluminum: Long term forecast give the major share to high strength steels
Steel vs Aluminum: Long term forecast give 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 54
Slide 55: 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 56: 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 150,000 16,000 450000 30000 140,000 15,000 Casting Production (tonnes) Steel Production (tonnes) 14,000 400000 25000 130,000 13,000 120,000 12,000 350000
Slide 57: 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 (2014) 20 Significant upside potential through continuing market 10 x 20 penetration as emerging markets move towards higher quality foundry castings 0 Ductile Iron 57
Slide 58: 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 2015 Source: Bloomberg, JPMC Research 58
Slide 59: 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 41 3,000 27 3,000 3,000 33 17 15 2,000 2,000 2,000 1,760 1440 2,792 2674 1,000 1,000 1,000 1,891 18