Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vesuvius PLC (FRA:V4S, Financial) maintained a robust trading profit with only a 0.9% decline despite challenging market conditions.
- The company achieved a slight increase in return on sales by 10 basis points to 10.4%.
- Net debt to EBITDA ratio remained low at 1.2 times, despite high strategic expansion CapEx and share buyback program.
- The company launched 18 new products in the first half of 2024, with a new product sales ratio progressing to 17.9%.
- Vesuvius PLC (FRA:V4S) proposed an interim dividend of 7.1p per share, a 4.4% increase compared to last year.
Negative Points
- Revenues declined by 2% on an underlying basis due to significant volume decline in the foundry division.
- The foundry division's trading profit reduced by 27.1%, with return on sales decreasing by 220 basis points to 8.2%.
- Steel production in key regions like EU + UK and the Americas remains significantly below normal levels.
- The company does not expect significant improvement in end markets in the second half of 2024, with recovery likely only in 2025.
- Higher leverage and reduced interest income impacted finance costs, contributing to a marginal decline in headline EPS by 2.9% on an underlying basis.
Q & A Highlights
Q: In terms of advanced refractories, can you talk about your progress in China and the potential for regaining market share in Europe and the US?
A: (Patrick Andre, CEO) In China, we have historically had low activity in advanced refractories, but we are now seeing profitable growth opportunities. In Europe and the US, we lost market share last year due to delayed price adjustments. We are now aligning our pricing with the market and expect to regain our historical market share gradually.
Q: On foundry, have you set the cost base at a level for current market conditions, and do you have plans if conditions worsen?
A: (Patrick Andre, CEO) We are reducing fixed costs without decreasing production capacity, allowing us to adapt to current conditions while maintaining the ability to increase production when the market recovers. We expect market recovery more likely in 2025.
Q: Did you see any impact from the presidential election in India, and how is the competitive landscape there?
A: (Patrick Andre, CEO) We did not see any negative impact from the presidential election. The competitive landscape in India is intense, but we have strong local teams, a long-standing presence, and high-quality products, which position us well to compete and grow.
Q: Given the change in outlook, is there a need to underproduce in the second half to manage inventory levels?
A: (Mark Collis, CFO) We expect a natural unwind of inventory levels in the second half due to seasonal factors, not necessarily due to a change in volumes. We are also continuing to reduce working capital intensity.
Q: Can you provide more details on the slight increase in CapEx guidance?
A: (Patrick Andre, CEO) The increase is mainly due to faster progress in our cost reduction program, which includes automation CapEx. We are investing in automation to achieve our cost savings targets.
Q: How should we think about pricing impact in the second half of the year?
A: (Patrick Andre, CEO) We do not anticipate any significant positive or negative net pricing impact in the second half. Our guidance assumes a neutral net pricing performance.
Q: What are your medium-term margin expectations for the foundry division?
A: (Patrick Andre, CEO) We expect the foundry division to achieve a midterm profitability of at least 15% before central costs, aligning with our group objective of 12.5%. This will be driven by market recovery and the impact of our cost-cutting initiatives.
Q: Are you seeing any moderation in Chinese steel exports as tariffs kick in?
A: (Patrick Andre, CEO) We do not see any immediate signs of a reduction in Chinese steel exports. We are not counting on it in our guidance for the second half.
Q: Can you provide more color on the weakness in the auto sector and your assumptions for the second half?
A: (Patrick Andre, CEO) We assume continued weakness in the light vehicle market, which represents around 22% of our foundry division's end market. We expect minor improvements in other markets but overall continued challenges in the auto sector.
Q: Does the prolonged market weakness in foundry present any strategic opportunities for acquisitions?
A: (Patrick Andre, CEO) We are always looking at acquisition opportunities, particularly in the nonferrous foundry sector to support our strategy. However, there are currently no significant opportunities available.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
