2017-11-17
SUMMARY & OUTLOOK
Since the announcement of our 2017 Half Year results in July, global steel production growth has exceeded our expectations and overall our sales growth has continued to outperform the global steel market. At the same time, we continue to experience headwinds related to rising raw material prices and inter-company imports required by Flow Control in Europe. As a result, our Trading Profit expectation for full year 2017 remains unchanged.
Looking ahead, the growth in steel volumes implies positive prospects for Trading Profit growth during 2018, when we expect the headwinds of increased raw material cost and European Flow Control supply to have been substantially mitigated.
BOARD & SENIOR MANAGEMENT
As previously announced, Patrick André was appointed Chief Executive and Executive Director of Vesuvius plc with effect from 1 September 2017. Patrick replaced François Wanecq, who retired from the Board of Directors on 31 August 2017 but will remain with the Group until 31 December 2017 to assist with the transition of responsibilities.
On 1 October 2017, Roel van der Sluis, previously President, Vesuvius North Asia, assumed the position of President, Steel Flow Control for the Group, succeeding Patrick André. Roel continues to serve on the Group Executive Committee in his new role.
TRADING
In Q3 2017, we have benefitted from 6.7% year-on-year growth in global steel production, as reported by the World Steel Association. In the year-to-date, steel volume growth of 5.6% has exceeded market expectations, resulting in the World Steel Association's recent upward revision of their demand growth forecasts for full-year 2017, from 1.3% to 2.8%. In Foundry, the market environment remains broadly positive across the majority of our end markets and the expected seasonality in sales in the second half has been confirmed.
RAW MATERIALS
As noted in our 2017 Half Year results, we started to experience significant price increases towards the end of the first half for several raw materials. The severity and repetitive nature of monthly increases since then have been greater than expected and are affecting several more of our key raw materials. Whilst our Advanced Refractories business has been most affected by these increases, we remain confident in our ability over time to recover all cost inflation through higher selling prices.
FLOW CONTROL EUROPE
As in H1 2017, we continue to rely on inter-company imports to meet growth in European Flow Control demand, which, as a region, has represented a significant proportion of the higher sales in the year to date. These inter-company imports have a higher cost base due to freight, overtime and export duties. The process of ramping-up European capacity so that reliance on these imports can be reduced remains on track, but is unlikely to have a material impact on reducing costs until late in Q4 2017.
RESTRUCTURING
We continue to make progress in the delivery of our restructuring programme. As reported previously, the incremental savings in H2 2017 will be relatively small, with almost all of the additional £20m of annual targeted savings announced in May and July 2017 due to be delivered in 2018-2020.
FOREIGN EXCHANGE
Average exchange rates of Sterling to US Dollar and Euro have fallen by 6.1% and 6.4%, respectively, between FY 2016 and the first nine months of 2017. This has provided a trading profit benefit of approximately £7.6m year to date. Assuming current foreign exchange rates continue, the estimated benefit would increase to £8.4m for the full year.
FINANCIAL POSITION
Our Net Debt / EBITDA ratio was 1.4x at 30 September, down from 1.6x at 30 June 2017.
WORKING CAPITAL
Despite the continued increase in sales, we have successfully reduced working capital in absolute terms, as a result of ongoing optimisation initiatives and a decline in the excess inventories built up in late 2016 related to closure of the Italian plants. Working capital as a percentage of sales improved to 25.8% at 30 September, down from 26.2% at 30 June.
FUTURE EVENTS
Vesuvius' preliminary results for the year ending 31 December 2017 are expected to be announced on Thursday, 1 March 2018.
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