Hello and welcome to today's Bodycote Trading Update. Throughout this, all participants shall be in listen-only mode, and afterwards there will be a question-and-answer session. Just to remind you, this is being recorded, and today I'm pleased to present Stephen Harris and David Landless. Gentlemen, please begin.
Thank you. Good morning, everybody. This is Stephen Harris speaking. I've got David with me, of course.
Good morning.
So you've hopefully seen the trading update that we put out on the wires this morning. I think one thing to note is that we are talking about a pretty tough set of comparables, if we look back at the same period in 2015. An example is oil and gas. So last year in Q1 that was up 18%, and now it's down over 51%, which shouldn't be too surprising to anybody. In the trading that we've got going on at the moment, just to pick out a few themes. Civil Aerospace is starting to look pretty good, actually. It's picking up sequentially, and that's in all of our major territories. It isn't isolated to any one part, so that's nice to see. Car and light truck is still strong.
We aren't seeing any changes in that trend, which is good, and that is a global issue as well. If we look just a little bit geographically, we did see the beginning of the year some slowing in the USA in Q1, but as we got to the end of the quarter and now the USA seems to be turning up. It's strengthening a bit, which is nice to see. In the European sphere, well, Northern Europe, France, and Germany have been pretty weak. They still are, but Eastern Europe is notably quite strong. With that, I think we'll hand it over to questions.
Thank you, ladies and gentlemen. If you wish to ask a question, could you please press 0 and then 1 on your phone keypad now in order to enter the queue, and then after I've answered you, just ask that question. If you find that question has been answered before it's returned to speak, just press 0 and then 2 to cancel, and there'll be a brief pause while questions are being registered. The first question is from the line of Robert Davies at Morgan Stanley. Please go ahead. Your line is open.
Morning, everyone. Just a couple of questions from me. First one is just around, I guess, the trends you called out in aerospace, civil aero picking up in all the sort of major markets. I guess, can you just sort of give us a little more sort of detail on any particular regions that are stronger or weaker than others? And then, just around the sort of car and light truck trends. I guess, what we're hearing sort of various sort of mixed reviews in terms of where Auto CapEx is in the sort of big picture cycle. What's your view on sort of the Auto CapEx cycle and where we go over the rest of the year? Thanks.
Sure. So, the aero regionally, up until this period here, we've been seeing the strongest area probably has been France, but as we come into this period, France hasn't diminished, but what we are seeing is the USA and in particular the U.K. strengthening. I'll remind you that most of our business tends to be on engines and some on landing gear, and that is actually where we're seeing the pickups, notably the U.K. coming up from a very low point, of course. But that's the civil aero trend. I'd also like to just sort of add to that, defense isn't too shabby either, so defense is doing quite nicely. In terms of the second part of your question, which is car and light truck and CapEx cycles, that's a bit above my pay grade, I'm afraid.
What I can tell you is that we're seeing the car and light truck business keep going. If anything, our Mexican business is stronger even than it's been, and that, of course, Mexico is now the number one exporter into the United States, and it's going extremely well. But I can't give you any more insight other than that, I'm afraid.
Okay. Great. Thanks for all that.
Next question is from the line of Andrew Douglas at Jefferies. Please go ahead. Your line is open.
Morning, gents. Just two questions from me. Can you just give us a bit more feel for what's going on in truck? I appreciate that North American truck is very weak at the moment, and probably being offset by Europe. I wouldn't mind just kind of getting a feel for how you're seeing European truck, particularly in Scandinavia. And then just kind of slightly more, bigger picture thing. On with respect to the new capacity you're putting down on the specialist tech side, how's that going? Is that all going to plan? Are you happy with that? And I guess there's ultimately a third question, I suppose. On the oil and gas side, on the subsea, in HIP PF, how are you progressing there in terms of kind of taking that out to new end markets or new customers?
If you can help us on that, that'd be great.
Yeah. Hello, Andy. David here. So on truck, so US truck has been somewhat weak. No question about that. And what we've seen though is a bit of a difference between the very largest trucks, the so-called Class 8s, which have been weak, but the smaller sizes, Classes 4 through 7, have been a wee bit less problematic. And indeed, in recent we're looking at the trend data out of the truck industry. Things do appear to be turning into the positive area. Now, whether that's sustained or not, I don't know, but so US is not great, but it does look like it's improving. Now, Europe, of course, and it is Scandinavia, particularly for Bodycote's, and there, of course, we have quite a bit of work with Volvo.
And Volvo in particular, of course, manufacture engines in Sweden that they ship all over the world for their various truck brands. So looking at our European truck numbers doesn't tell us particularly well about European truck because of that, and it is weak for us, and we ascribe that to the rollover effect out of North America.
Talking about the specialist tech capacity expansion, it pretty much it's going okay. I say pretty much because there's one caveat, which I'll come to in a minute. Low-pressure carburizing, LPC, capacity's going in very nicely, and that's looking very good. Stainless steel the same. The only area where we've got a little bit of a slowdown, and it's a bit of a self-inflicted wound more than anything else, is in HIP Product Fabrication, and that's our U.S. center of excellence. So we're just a bit slower on the march on that. Coincidentally, of course, the subsea demand isn't so strong right now, so I don't think that's gonna hurt us too much in the near term. And that sort of gets me into your question then about oil and gas and HPF. The situation is pretty much unchanged there.
I think we've got a whole bunch of projects which are starting to queue up, but they aren't being released yet. That's about as much as I can say on that, I think.
And sorry, just, just follow up on that question. Is that oil price-driven, or is that kind of profitability from your customers? Excuse me. What's gonna run the projects queued up, what's gonna get them to unwind?
Well, some of it is to do with the fact they're just optimizing margins in terms of negotiations with suppliers. That's for sure. Another part of it is that there are some new technologies coming on stream, and I think the actual shape of the projects is being altered slightly, to take advantage of some of the newer technologies. I mean, that's definitely the case on the surface work in fracking. There's no doubt about that. The technology changes are happening there, but there's also some happening on subsea.
Okay. Thank you very much.
We're now over to the line of Sanjay Jha at Panmure Gordon. Please go ahead. Your line is open.
Good morning, gentlemen. Couple of questions, if I may. On the, you said earlier on that you see it turning up in U.S. in the end of the quarter. Is that sort of because of oil and gas? Is that because of trucks, or is it sort of you're talking generally? Just wanted to sort of get your feel.
Yeah. Yeah. So I would say, generally, so there's a sort of general strengthening, but what we need to be careful here about not trying to overplay that. It was quite surprising in some respects that the US started weakening in Q1, to me at least, and the fact is we've just seen that trend reverse. It's not like it's going through the sky or anything. If there is a strange anomaly, and that is, in the truck side, it appears to be a little bit right late in the four months that we're talking about here, a little bit of truck strengthening. Now, I don't know whether that's just our particular customer set or it's an industry thing, but there is a bit of truck strengthening going on.
My second question is, if I look at your sort of sales decline, would it be fair to say, I mean, is that sort of reflect market volumes, or are you sort of seeing your sales falling more because you're not chasing business? I mean, how would you describe your mix against the market?
So, against the market, I would say you need to understand, I think, that a chunk of our business is what we call General Industrial. General Industrial is the closest proxy we've got to industrial production. So if you see what happens to industrial production, it will immediately be affecting our General Industrial business. And that is a trend that's been going on for a long time, and in fact, the weakening we've been seeing has been a two-year weakening in General Industrial. And that is the overriding piece of negativity there because it is the largest individual segment that we address.
Right.
I don't think you're talking about share issues or anything. It's just a general weakness in industrial production. If you look at the other two big areas that you can pull out, one is aerospace and the other one is automotive. They're actually both quite strong. If anything, I would say we're gaining share there. So, it's more of what I would call the malaise of industrial production that's giving us a little bit of a hard time. As and when that starts to turn, then I think things will start getting quite spectacular, actually.
So the sales decline is that all sort of volume decline? There's no sort of price?
No, there's no price.
Price issue mixed there. Okay. Thank you.
No price.
We are now over to David Larkam at Numis Securities. Please go ahead. Your line is open.
A few questions, please. Firstly, can you sort of talk a bit more sequentially, because as you said before, I mean, Q1 on Q1 last year doesn't really sort of give us much flavor. So can you talk what you're seeing sort of v Q4? And then obviously with the costs taken out, does that mean the margins are pretty flat for where they were in the second half of last year?
Yeah. So margins, of course, what the reason we don't talk about margins at the middle points, David, is that they are rather variable month to month because of the trading patterns. So they're, you know, they're not different to our expectations at the moment, and we, you know, we're gonna be there or thereabouts by the time we get to the half-year. I think Stephen will talk to you about sequential changes. So, if we look on it on a sequential basis, let me say one thing first of all, David, that there is a seasonal pattern, which is why we avoid talking sequentially if we can possibly help it. What you see sequentially right across the group is a pickup, but the problem with that is it's always a pickup.
What we're really looking for is, is there a pickup over and above the strengthening, and that you would normally see in the first quarter versus Q4. And what I could say there is that the notable one that is, is well outstripping the seasonal effect is aerospace. The others are pretty much within the noise, if I can put it that way.
Okay. Two other things. You sort of normally talk about industrial gas turbines. I appreciate it's quite small now, and how that's going. And then France seems to be getting a bit hot at the moment. Any impact for you guys on that?
Well, IGTs, there's not much movement actually, in that business for us. You know, the numbers, as you say, are not that large, and it's not really, it's certainly not growing, but, you know, it might be GBP 200,000 lower year-on-year. So, you know, it's not much at all.
Okay.
As far as France is concerned, we just completed our negotiations in France. We did have a strike. It lasted so it was so short they barely had a chance to call me before the strike was off. But it did. There was a very brief strike in a couple of our plants, not and all of them by any means. We ended up settling, actually, at our expectations. The numbers are small. There is no cost impact, and we think everything's behind us, and we're off to the races.
Okay. Thanks. Okay. We are now over to the line of Andre Kukhnin, Credit Suisse. Please go ahead. Your line is open.
Yes. Good morning. Thanks very much for taking my questions. Just go one at a time. Firstly, on US, that's very intriguing that you're seeing that sort of an element of recovery after an unexpectedly weaker Q1, which is what I think a lot of industrial companies have seen. Firstly, has that carried on into May from what you're seeing in some numbers? And secondly, is there a chance to get an order of magnitude on that? Are we talking about kind of a percentage or two points each way, or is it a bit more pronounced than that?
I can't give you the numbers, Andrew. I mean, if I did, they would be meaningless because the problem is there is a lot of noise on these short cycles. I can just give you trends, I'm afraid. And the answer is yeah. I mean, I'm talking about into May, although, of course, we don't have as hard numbers as we would have at the end of the month, but just the sort of weekly numbers coming through. Yeah. It's not super strong. It's just a reversal of the trend that we saw, which surprised me. I didn't expect it to be weak in North America.
Right. That's very helpful. Thank you. And on France, I think France and Germany, you mentioned in your opening remarks that they've been weak and that's as expected, and there's no change there. Is there no kind of sequential change there? You're not seeing any signs of things getting better? I think that was kind of the previous question, gentlemen, before about France was probably pointed more at that, whether there's actually anything, any signs of improvement demand-wise.
No, I thought the hot was referring to all the strikes. I'm sorry I misinterpreted that. I don't see any change in the trends in Northern Europe, France, or Germany. They are as they were. There's the seasonal changes, but we aren't seeing them move one way or the other.
Got it. Thank you very much.
Just a reminder of participants that if you wish to ask a question, could you please press 0 and then 1 on your keypad now? And there'll be a further pause while questions are being registered. We go over to Wasi Rizvi of RBC Capital Markets. Please go ahead. Your line is open.
Oh, hi, Ian. Good morning. Just a few from me, I guess. I guess you know what I'm talking about, margin, which I don't understand, but in terms of how you're thinking about managing the performance, given it's quite uneven within the business, it, are you still happy that the actions you took last year are kind of enough to help you manage the margin performance, or, are you seeing some things that's maybe perhaps slightly different to what you were anticipating? And then, the second one just on HIP, if I could. So the oil and gas, down 51%. I guess I thought there might be some more support from the HIP PF work that you've got for the start of the year anyway. How's that going? Have you seen any deferrals or cancellations of any of these projects?
Is that part of the contribution to the number in oil and gas?
Okay. Well, if I just summarize your first question in a slightly different way, you tell me if I'm answering it incorrectly. Our restructuring program is going exactly as we've planned. We don't have any plans for any more restructuring, if that's what you were asking.
Yeah.
Yeah. The second part of the question on HIP PF, not seeing cancellations, just, just projects moving to the right. That's all. There are some interesting new projects coming on, but, yes, it they will unblock. It's really a question of time. We, there's been some very public statements on the fields that we're working on where, for example, a project, that was supposed to get, released in, you know, this, this quarter actually just got put off to the last quarter. Another one got put into, first quarter next year. So it's deferrals. It's not cancellations. We'll see.
Okay. I'd be interested in your thoughts on the industry consolidation you're seeing in the customers in that space and whether that might be an opportunity or that might be a pause, or how are you thinking about that?
Which particular space are you thinking of?
I'm sorry. In the Subsea space again?
Oh, yeah. Well, that, yeah, sure, sure. That is making life very interesting. It means the people that we talk to seem to change quite regularly.
Right.
But other than that, no, the one thing that's nice about it, if you can have nice in this kind of environment, is that there's a sense of urgency that really wasn't there before. So, in that respect, you know, when you're talking to the individuals, they really wanna get stuff happening, which is good.
Perfect. And, one more, if I could. I've realized I'm going off a bit. I saw you opened a new facility in Mexico, reasonably recently, and, it seems like quite a big one. Is that something we should be thinking about in terms of our top-line and bottom-line numbers, or is it kind of just within the rounding?
Well, I think, you're talking about San Luis Potosí, which, in fact, we had our exec team there last week. It is very nice. I have to say that. It's a nice, nice facility. Tupelo was good. But the overall, I think, message on Mexico, it's not just the one facility at SLP. Mexico in general is something that will matter, but it's gonna take a couple of three years here. These are primarily spec tech focused on auto, and the auto programs have to ramp up. But when they start moving, they will be fairly big-ticket items, but that's two, three years down the road.
Great. Thank you.
One more time. If anyone has any further questions, please do press 0 and then 1. Now, gentlemen, as there are currently no further questions, may I please pass it back to you for any closing comments?
Okay. Well, thank you very much, everybody. See you soon. Bye.
This now concludes the call. Thank you all very much for attending, and you may now disconnect your lines.