Vesuvius Plc · LSE:VSVS
Vesuvius — FY2015 Earnings Presentation
55 slides from Vesuvius's earnings presentation, Mar 3, 2016
Slide 1: 2015 Full Year Results
A GLOBAL LEADER IN METAL FLOW ENGINEERING 2015 Full Year Results 3 March 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". These forward looking statements can be identified by the use of forward looking terminology, including the terms "believes", "es
Slide 3: Agenda
Agenda • 2015 full year Group results – François Wanecq • Financial Review – Guy Young • Strategy and outlook – François Wanecq 3
Slide 4: Summary
Summary • Lower performance in line with previous guidance, reflecting the ongoing deterioration in global steel and foundry markets • Continued outperformance in India, China & Brazil, identified areas for strategic growth • Restructuring plan initiated in Q2, delivering earlier with cost savings o
Slide 5: 2015 Underlying Trading Performance
2015 Underlying(1) Trading Performance £m Revenue £m Trading Profit % Return on Sales 1,600 1,404 -7.7% 160 -14.0% 12.0% -70bps 1,353 141.8 1,400 1,296 140 10.1% 126.8 122.0 10.0% 9.4% 9.4% 1,200 120 8.0% 1,000 100 800 80 6.0% 600 60 4.0% 400 40 2.0% 200 20 0 0 0.0% 2013 2014 2015 2013 2014 2015 201
Slide 6: The world steel markets show substantial decline
The world steel markets show substantial decline… Rate of Growth in Steel Production • World steel production down 2.8% 2015 Top steel producers 6% China (49.5% of global production) down 2.3% 4% India (2) +2.4% • 18.9 million tonnes reduction 2% Rest of world ex China down 3.4% Russia • 28.5 mi
Slide 7: Revenue grows ahead of market in strategic areas
…whilst revenue grows ahead of market in our strategic targeted areas Rate of Growth in Steel Production & Revenues FY 2015 vs FY 2014 Top Steel Producers Germany Production growth (2015 vs 2014) Rev: -1.6% Steel: -0.6% India (2) 3.0% Revenue: +6.9% Steel: +2.4% Russia Revenue: -10.4% Steel: -0.5% C
Slide 8: Vesuvius sales in Europe and USA declined more than market
Vesuvius sales in Europe and USA declined more than market 2015 Sales per Tonne • The biggest steel production decline happened in countries where we have 120 the highest penetration: 100 UK down 10.4% 80 USA down 10.5% 60 Italy down 7.1% 40 20 0 FC AR All figures indexed to the UK Source Worl
Slide 9: Potential for growth
Potential for growth • Three heavily populated countries 2015 Production per Capita constitute considerable potential for T / Capita growth 1.60 • All have low steel production tonnes per 1.40 1.20 capita vs peers, indicating expected 1.00 growth in infrastructure and construction 0.80 development 0
Slide 10: Trading review: Steel division revenue
Trading review: Steel division revenue Steel Flow Control Advanced Refractories Revenue* by region Revenue* by region £m £m 250 -11.4% 200 -9.7% 2014 2015 2014 2015 -22.8% -10.7% 200 150 150 +4.3% 100 +1.0% 100 50 50 0 0 Americas EMEA Asia-Pacific Americas EMEA Asia-Pacific Americas: Americas: • Red
Slide 11: Amplified decline in mature markets
Amplified decline in mature markets 120 150 Sales and Steel Production Rebased to 100 Sales and Steel Production Rebased to 100 2015 vs 2014: -20.2% 2015 vs 2014: -7.3% 140 110 130 100 120 Vesuvius 90 110 Sales Value 80 100 2015 vs 2014: -3.1% Steel 2015 vs 2014: -8.6% 90 70 Production 80 Volumes 60
Slide 12: Continued overperformance in emerging steel markets
Continued overperformance in emerging steel markets Sales and Steel Production Rebased to 100 Sales and Steel Production Rebased to 100 160 2015 vs 2014: +12.3% 900 2015 vs 2014: +5.4% 150 800 140 700 130 600 120 500 110 400 100 300 Vesuvius 90 2015 vs 2014: -1.9% 200 Sales 80 2015 vs 2014: -2.6% Va
Slide 13: Trading review: Steel division margins
Trading review: Steel division margins Underlying margin 12.0% Y-o-Y Underlying £m 2015 2014 10.2% change change 10.0% 9.1% 8.9% Total Revenue 897.6 981.4 -8.5% -9.7% 8.0% Total Trading Profit 79.5 96.4 -17.5% -21.3% 6.0% Trading Margin % 8.9% 9.8% -100bps -130bps 4.0% 2.0% 0.0% 2013 2014 2015 • Und
Slide 14: Foundry market
Foundry market Light vehicle production Truck production NAFTA Europe NAFTA Europe 800000 25,000,000 2015 vs 2014: +4.7% 700000 2015 vs 2014: +8.2% 20,000,000 600000 500000 15,000,000 2015 vs 2014: +3.3% 400000 10,000,000 2015 vs 2014: +7.8% 300000 200000 5,000,000 100000 - 0 2008 2009 2010 2011 201
Slide 15: Foundry underlying markets
Foundry underlying markets 120 140 Sales and Casting Tonnes Rebased to 100 Sales and Casting Tonnes Rebased to 100 2015 vs 2014: -13.3% 110 130 120 2015 vs 2014: -0.2% 100 110 90 100 80 90 Vesuvius 2015 vs 2014: -7.0% 70 Sales 80 Value 60 70 2015 vs 2014: -1.0% 50 60 Casting 2007 2008 2009 2010 2011
Slide 16: Trading review: Foundry revenue
Trading review: Foundry revenue £m Revenue* by region 2014 2015 Americas: 250 • Growth in NAFTA light vehicle and truck production offset by: -0.3% • Reduced foundry activity in Brazil 200 • Weak demand in mining, construction and agriculture foundries -2.7% EMEA: 150 • Decrease driven by lower truc
Slide 17: Trading review: Foundry division margins
Trading review: Foundry division margins Underlying ROS improvement 12.0% Y-o-Y Underlying 10.5% £m 2015 2014 10.0% 9.9% change change 10.0% 8.0% Revenue 424.4 463.0 -8.4% -3.3% 6.0% Trading Profit 44.5 46.4 -4.2% +2.7% 4.0% Trading Margin % 10.5% 10.0% +50bps +60bps 2.0% 0.0% 2013 2014 2015 • Despi
Slide 18: What has been delivered by Restructuring at end Dec 2015
What has been delivered by Restructuring at end Dec 2015 • Variety of programmes delivered across business lines and central functions in 2015, aimed at flexing the cost base Raw materials substitution and sourcing changes Reduction of shifts and consolidation of management positions Consolida
Slide 19: 2015 Trading summary
2015 Trading summary • Weak markets overall, but continued outperformance in strategic growth areas of India, China and Brazil • Margin improvement in Foundry • Initiated group-wide restructuring programme • Launch of new products in Technical Services • Strong balance sheet, with long-term bank fac
Slide 20: Financial Review
A GLOBAL LEADER IN METAL FLOW ENGINEERING Financial Review Guy Young Chief Financial Officer 20
Slide 21: Income statement
Income statement 2015 2014 Year on Year Change £m £m As reported Underlying(1) Revenue 1,322.0 1,444.4 -8.5% -7.7% Trading Profit 124.0 142.8 -13.1% -14.0% Trading margin % 9.4% 9.9% -50bps -70bps Net finance costs (15.4) (16.4) Share of JV – 1.4 Profit before Tax 108.6 127.8 Effective tax rate % 25
Slide 22: 2015: Tale of two halves
2015: Tale of two halves Dec '15 constant rates 2014/H1 2014/H2 2015/H1 2015/H2 H1’15 v H1’14 H2’15 v H2’14 £m / (%) Direct Sales 707.4 700.1 688.8 633.3 -2.6% -9.5% Gross Margin 197.1 189.5 186.4 166.7 -5.4% -12.0% Trading Profit 69.3 73.0 69.0 55.0 -0.4% -24.6% Gross Margin % 27.9% 27.1% 27.1% 26.
Slide 23: Underlying revenue fell by 7.7%
Underlying revenue fell by 7.7%... • Revenue down £122.4 million on a £m Revenue reported basis (-8.5%) 1600 • Revenue down £108.6 million on an 1500 underlying basis (-7.7%) 1,444.4 37.0 3.2 1400 1,404.2 • Acquisitions added £26.5 million of revenue 1300 108.6 1,322.0 Ecil Met Tec, Process Metrix
Slide 24: Underlying trading profit fell 14%
…whilst underlying trading profit fell 14% • Trading profit down £18.8 million on a £m Trading Profit reported basis (13.1%) 150 145 0.5 • Trading profit down £19.8 million on an 140 142.8 0.5 141.8 underlying basis (14.0%) 135 130 • Return on Sales down 50 bps on a 125 19.8 reported basis 124.0 120
Slide 25: The translational FX position has neutralised somewhat
The translational FX position has neutralised somewhat Currencies (Impact of FX 2015 Average translation on GBP 2015 FY Average 2014 FY Average Rates v 2014 reporting currency) Rates Rates Average Rates USD 1.53 1.65 7.3% EUR 1.38 1.24 -11.0% INR 98.00 100.49 2.5% RMB 9.60 10.16 5.5% JPY 185.07 174.
Slide 26: The cash conversion rate held above 100%
The cash conversion rate held above 100% • Full year cash conversion of 100.3% £m Operating cash flow 180.0 160.0 • Working capital is flat in 2015 37.1 140.0 0.3 Trade working capital improved by £19.8m, 37.0 Offset by other working capital -£19.5m 120.0 124.0 124.4 outflow 100.0 80.0 • CAPEX i
Slide 27: China, Italy receivables drag & emerging market longer credit terms
China, Italy receivables drag & emerging market longer credit terms Debtor days as % of Group Average (2015) 250% 200% 209% 150% 137% 100% 105% 97% 81% 82% 50% 64% 0% Europe NAFTA China North Asia India South Asia South America 27
Slide 28: Free cash flow of £71m before restructuring
Free cash flow of £71m before restructuring is 57% of OCF £m Free cash flow 120 124.4 13.6 100 31.8 80 2.2 11.5 6.2 70.6 60 59.1 40 20 0 Operating Interest Paid Income Taxes Dividends to Pre-demerger FCF before Restructuring Free Cash Cash Flow Paid Minorities Legacy restructuring Flow Settlement co
Slide 29: Net debt increase to £291.6m
…Net debt increase to £291.6m due to lower OCF & M&A • Net debt increased £23.3m in the year £m Net debt 290 4.5 291.6 • Acquisition of Sidermes at £23.8m, and 5.2 £1.3m payments for prior year 270 25.1 acquisition 268.3 3.7 250 • FX impact was pronounced at year end, USD denominated USPP loans reva
Slide 30: 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 30
Slide 31: Strategy and Outlook
A GLOBAL LEADER IN METAL FLOW ENGINEERING Strategy and Outlook François Wanecq Chief Executive 31
Slide 32: Delivering on the strategy
Delivering on the strategy Building our R&D centres; • 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, India • Capture growth i
Slide 33: 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 • Identifying new opportunitie
Slide 34: Incremental restructuring plans
Incremental restructuring plans • Steel Flow Control Europe efficiency and manufacturing optimisation South American optimisation opportunities • Foundry Additional NAFTA plant optimisation • Group wide Raw materials efficiencies Standardisation of business processes • Series of new action
Slide 35: Recurring savings to increase to £20m with one off cost of £30m
Recurring savings to increase to £20m with one off cost of £30m Savings Previously Delivered in Incremental Cumulative / Announced 2015 Planned Annualized Total 10.0 8.8 11.2 20.0 One-off Costs One off total Total 20.0 -14.6 -15.4 -30.0 • 2015 savings of £8.8m comprised of £7.7m overhead reduction a
Slide 36: Outlook
Outlook • Underlying trading environment to remain broadly similar to the second half of 2015 Growth in steel production not expected before 2017 • Continued focus on medium-term strategy: Building Technical Services business Continued growth in India, China and Brazil as outlined at Capital M
Slide 37: Q&A
A GLOBAL LEADER IN METAL FLOW ENGINEERING Q&A 37
Slide 38: Appendix
A GLOBAL LEADER IN METAL FLOW ENGINEERING Appendix 38
Slide 39: 5 year history at constant currency
5 year history at constant currency(1) 2011 2012 2013 2014 2015 Revenue 1,449.7 1,390.4 1,366.0 1,407.4 1,322.0 Steel 946.8 932.8 935.4 968.5 897.6 Foundry 502.9 457.6 430.6 438.9 424.4 Trading Profit 150.1 112.2 127.8 142.3 124.0 Steel 91.7 76.0 84.9 99.0 79.5 Foundry 58.4 36.2 42.9 43.3 44.5 Margi
Slide 40: Currency – Ready Reckoner
Currency – Ready Reckoner Currencies Approximate • Rule of thumb for impact of a Change in profits movement in currency against sterling (1 unit change) US Dollar £0.2 million Amounts shown are movements for each currency Euro £0.1 million Works both for strengthening and weakening of currencies
Slide 41: 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 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 products used in the enclosed continuous casting process and a Asia Pacific Americas leading supplier
Slide 43: Steel market growth scenario
Steel market growth scenario Global Steel Production CAGR% mT 2015 2020 2025 mT 2015 2020 2025 1400 350 13% 13% 300 1200 2% 250 1000 -1% 200 -1% 15% 1% 800 150 0% 9% 600 100 400 50 200 - NAFTA EU 28 S. America India Mid East & RoEurope Ro Asia 0 Africa China RoW • NAFTA and Europe should decrease sl
Slide 44: 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 45: 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 46: 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 46
Slide 47: 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 47
Slide 48: World Steel Production – Long term trends by region
World Steel Production – Long term trends by region 000 T £m 1800000 1800 1600000 1600 1400000 1400 1200000 1200 1000000 1000 800000 800 600000 600 400000 400 200000 200 0 0 RoW China India Ceramic division sales - Vesuvius Source: WSA and Vesuvius/Cookson data 48
Slide 49: Steel exports from China are now falling as barriers to trade increase
Steel exports from China are now falling as barriers to trade increase 49
Slide 50: China Steel Production: Has the limit been reached?
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 51: 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 52: Has India started its high growth sequence?
Has India started its high growth sequence? 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 and last longer than in J
Slide 53: 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 54: Steel vs Aluminum: Parallel growth
Steel vs Aluminum: Parallel growth 000 Tonnes 000 Tonnes 1800000 70000 Aluminium production by region – 2015 1600000 ROW Estimated North America 60000 Unreported Africa 8% 2% 3% South America 1400000 2% Steel production 50000 1200000 Asia (ex China) 5% Aluminium production Steel production 1000000 4
Slide 55: 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