Ladies and gentlemen, welcome to a Vesuvius half year 2025 results presentation. My name is Patrick André, I'm the Chief Executive Officer of Vesuvius and to my right with me this morning is Marc Collis, our Chief Financial Officer. I will start with some updates on our performance during the year, then Marc will give you more details on our financials and I will then conclude at the end of the meeting with some perspective on the full year 2025 and beyond before opening the floor for questions. Our results for the half year were in line with our expectations despite the difficult market conditions. Our revenues declined only 0.4% on the underlying basis as market share gains in both the Steel and Foundry divisions nearly fully compensated the market decline as compared with last year.
Our trading profit, however, declined 16.1% over the year on an underlying basis as our strong cost cutting efforts could not fully compensate the adverse mix and pricing effect during the first half. As a consequence, our return on sales declined by 160 basis points to 8.5% due to the one-off cash impact of the Pyromet acquisition, the financing of our second share buyback program, and the completion of our capacity expansion program in Asia and in Flow Control.
Our net debt to EBITDA ratio reached.
A temporary level of slightly below two at the end of the first half. However, as these programs are now completed, we are very confident that our leverage ratio will start declining as from the second half of this year. We are planning for the ratio to decline to 1.8 by the end of the year and reduce further in 2026. As a consequence, the board felt confident to propose an interim dividend unchanged as compared with last year and at GBP 0.071 per share. Despite the more difficult than planned market environment, we could achieve results in line with expectations during the first half thanks to very significant market share gains and cost reduction efforts in both divisions. The Steel division showed resilience despite the challenging market conditions with steel production declining in all main regions, with one notable exception which was India where growth was quite strong at 9.2%.
Both Flow Control and Advanced Refractories gained market share overall, nearly fully compensating the general market decline. The recovery of cost inflation through price increases was, however, particularly challenging during the first half and could not be fully compensated by strong cost reduction actions. On the Foundry division side, markets also declined significantly as compared with H1 last year, but were globally stable as compared with H2. This market decline as compared with last year was almost completely compensated by market share gains. Thanks to an efficient cost cutting program, the Foundry division could slightly improve its profitability as compared with the second half of 2024. In parallel, we continued to make good progress in the management and productivity of our R&D with a further increase of our new product sales ratio during the period to 19.5%.
Last but not least, we maintained during the first half a strong safety performance with a continuation of the good result achieved in 2024, which now positions us among the best in class market manufacturing companies worldwide. Let's now have a look in more detail at the performance of the Steel division starting with the steel market. You can see on this slide where the size of the bubbles is proportional to the sales of our Steel division how the steel production has evolved during the first half. Global steel production outside of China and excluding Iran, Russia, and Ukraine, where we can't operate today, declined 0.3% during the period. The steel production outside of China was again negatively impacted by an increase of 5.3 million tons in Chinese net steel export over the period.
Growth would have been a positive 1% if Chinese net steel export would have remained stable. Indian steel production registered a very strong growth of 9.2% during the period, but it was mostly driven by induction furnaces. If you exclude those induction furnaces, however, growth was still very impressive at 5.1%. North America's situation was contrasted with positive steel production growth in the United States, nearly fully compensating decline in Mexico and Canada. EMEA steel production declined 3% during the first half, but there also with a very contrasted situation between EU plus U.K. on one hand where steel production declined quite significantly 4.9% and the rest of the region, mostly Turkey, Middle East, Africa where production was essentially stable despite an increase in net steel export. China's steel production also declined around 3% due to the weakness of domestic consumption.
In this challenging market environment, both Flow Control and Advanced Refractories gained again market share overall during the first half. Flow Control progressed faster than the market in EMEA and in particular in EU plus U.K., in China, in Southeast Asia and in Brazil. It progressed slightly less than the market in North America due to the closures and production reductions in Mexico of some specific customers where we had very high market shares. Advanced Refractories continued to progress faster than the market in Asia, both in India and in China and started regaining market share in EU plus U.K. and in the United States. The Steel division overall progressed faster than the market in India, excluding the induction furnace market which we do not serve. The division showed resilience in difficult market conditions.
Revenue was flat on an underlying basis reflecting both stable volumes as market share gains could compensate for the general market decline but also stable prices as the division exercised good pricing discipline. Despite the challenging environment, the division also exceeded expectations in its cost cutting efforts. However, recovery of cost increases through price increases and in particular labor cost inflation was challenging during the first half. The division was also negatively impacted by what we believe is a temporary mix negative effect as some customers under short-term financial pressures have decided to switch to lower cost, lower performance but also lower margin products. This was particularly the case in EU plus U.K.. As a consequence, profitability eroded as the stability of headline prices and the cost savings program could not fully offset the increase of some cost factors, in particular labor and the adverse product mix effect.
Let's now turn to the Foundry division. As you can see on this slide, Foundry markets in the first half declined very significantly as compared with last year. This was particularly the case in EU plus U.K., in South America, and in North America. All end markets were affected, both light vehicle and general industrial markets. However, the market is now stabilized at similar levels to the second half of 2024 and it has stopped declining. The non-ferrous Foundry sector is also resisting better than the ferrous Foundry sector and has better growth prospects going forward. It is the division strategic objective to progressively increase its exposure to this non-ferrous Foundry sector, which today represents 21% of the division sales as compared with 18% two years ago. Looking at the financials, the Foundry division registered quite well in this difficult environment.
It could in particular partially compensate the close to 8% very significant market decline as compared with first half last year with very significant market share gains in all geographies. Revenue evolution was very contrasted, however, between regions with a significant decline of 7% in EMEA and at the same time a very strong growth of 20% in India. Headline prices decline was limited to around 1%, even slightly below 1% despite the difficult environment thanks to good pricing discipline. As in the Steel division, the division could also achieve significant cost reductions through manufacturing and SG&A restructuring. Despite those efforts, the division's result declined 15% on a constant currency basis as compared with first half last year due to the negative volume and net pricing effects. However, the division results increased 16% as compared with the second half 2024 on a constant currency basis.
A word about India which is important.
Growing in importance for Vesuvius.
The growth of both the Steel and Foundry markets are strongly accelerated in India after the pandemic. We believe it is a structural phenomenon and that this growth will continue and even probably accelerate further in the many years to come. In fact, India is now having its orchestral moment as China 25 years ago and Vesuvius is ideally positioned to benefit from this tailwind both in Steel and in Foundry. We've been heavily investing in the country for many years, not only in state-of-the-art manufacturing capacities, but also in people, building extremely competent, entrepreneurial, dedicated, and loyal management teams. As you can see on this slide, this long-term strategy is now paying off with very strong top-line growth both in Steel and Foundry, exceeding the already quite high underlying general market growth.
The Vesuvius story in India is not only about the top line, it's also about financial returns as the profitability of our operations in the country is now firmly above group average. The share of group revenues we derive from India has increased steadily over the past years from barely 8% in 2017 to close to 13% in the first half of this year. We expect this percentage to continue to grow significantly in the future as we continue to invest and grow in the country. Despite the challenging market conditions, we maintain our R&D efforts to support our top line and profitability going forward. You can see on this slide a few examples of new products which we launched recently in each of our three business units.
On the left part of the slide, you can see the new Cold Start Flow Control isostatic products which are now being proposed to our customers worldwide. These products can be used directly by our Steel customers without any need for preheating. They enable longer casting sequences and they help our customers reduce their cost and improve their safety and sustainability performance. At the center of the slide, you can see the new fully automated Dry Vibe Lining Robotics solution which our Advanced Refractories business unit is now proposing to our Steel customers, and the first of these will be installed in the United States in a few months.
It improves the consistency and quality performance of the tundish lining and, through elimination of human interaction in one of the most difficult parts of the steel plant, it helps our customers improve the safety of their personnel and of course reduce their cost. Finally, on the right you can see the new flux powder introduced by our Foundry division for aluminium foundries. It helps optimize the microstructure of cast aluminium to improve its mechanical properties. This is particularly important for safety components in the automotive market. In line with our long term commitment to R&D and differentiation through technology, we maintain our research effort to around 2% of our turnover, fully expensed in our P&L, and this irrespective of market's ups and downs.
As you can see on this slide, this long term policy coupled with an efficient management of R&D has enabled us to regularly progress in our new product sales ratio, defined as the percentage of our sales realized with product which didn't exist five years ago. This ratio has been steadily progressing over the past years and is now reaching 19.5%, close to our long term target of 20%. These new products are very important for Vesuvius as they help us gain market share of our competition and increase our profitability over time. Following our acquisition of a 61.65% controlling stake in the Turkish company Pyromet at the beginning of this year, we have been making very good progress regarding the integration of the Pyromet team and activities within the global Steel division.
The Pyromet acquisition not only complements very well our refractory offering to the fast growing Turkey and Middle Eastern markets, but as you can see on this slide, also complements and extends our Robotics offering worldwide both for Advanced Refractories and for Flow Control. The collaboration between Pyromet and original teams worldwide is progressing at pace and we are starting to identify a promising pipeline of prospects for future projects. Last but not least, we were able to maintain during the first half of the year a very strong safety performance with a lost time incident frequency rate of 0.55, very close to our record level of 2024. This resilient performance is the result of a long term action plan engaged several years ago to systematically identify and mitigate the safety risk in our plants, but also in the plants of our customers where our employees are present.
This absolute priority to safety, strongly supported by the Board, is a defining element of our company's culture and it positions us today among the best manufacturing companies worldwide in terms of safety performance. Our ultimate objective, however, remains to become a zero accident company, and we will continue our efforts in this direction. I will now hand over to Marc, who will give you more information about our financial performance during the first half.
Thank you, Patrick. Good morning everybody. Starting with revenue, my key message is that our revenue has been very resilient in what has been a very tough market, clearly demonstrating the benefits of our business model, our geographical diversity, and our ability to adapt in constant currency. Excluding the acquisition of Pyromet, our revenue was broadly stable despite an 8% decline in Foundry end markets and challenging conditions in the global Steel markets. Of particular note should be the very moderate change in our selling price, which has been negligible. Now, looking at the bridge, revenue in H1 2024 was GBP 937 million. After adjusting for the stronger pound, the restated underlying revenue would be just over GBP 900 million. For the volume impact, there are two major factors at play.
Firstly, the impact of the weaker market in Foundry, and secondly, almost offsetting this, we continue to deliver market share gains across all business units, including Advanced Refractories. Taking the Foundry market first, end markets have remained tough and at a cyclical low point. Although our view has been that these are stabilizing, and this has been proven out in the first half. The second factor impacting our revenue has been another strong period of market share gains, which has been achieved in both Flow Control and Foundry, but also in Advanced Refractories. We estimate this has driven revenue growth of greater than 2%, and this is materially ahead of our mid-term target. Most importantly, I believe this puts us in a strong position when the market conditions return to normality.
To summarize, our group revenue has held up very well when faced with end market declines of 8% in Foundry combined with weaker Steel markets. I think that definitely shows that our business model continues to be highly effective. Now turning to trading profit, the numbers here clearly show the impact on profit from the challenging and more competitive environment. However, what's important is how management reacts. In our case, we have turned up the dial on our structural cost reduction program to be both harder and faster. I continue to believe we will see a full and outsized benefit from these actions when normal market conditions return. Looking at the bridge, the half year currency impact was a headwind of GBP 6 million, and adjusting for this gives a return on sales of 10.1%.
You'll note that in H1 we have experienced both a volume and mix impact as well as negative net pricing performance. The mix impact is due to both differences in regional operating leverage and product mix. For example, Foundry in particular is impacted in Europe by volume declines where the higher fixed cost manufacturing element proportionate to revenue creates a negative drop through compared to, say, India where lower fixed costs result in lower positive drop through on the product mix. There's been an impact in Steel with certain customers prioritizing cost over value in response to their own competitive environment. This is predominantly a European issue which accounts for over half of the mix impact. Turning to price, as we communicated in May, the challenging trading environment has also made a recovery of input costs, particularly labor, more challenging than usual.
Again, this is an issue in Europe, but also in China where customers in those regions are experiencing competitive pressures due to their own contracting markets. As I mentioned earlier, we are making strong progress on the cost reduction front. In the first half we closed our only production site in the U.K., we successfully transferred numerous product lines from Germany to Turkey, we went live on a number of automation projects, and we reorganized our North American Steel business. In addition, we of course maintain a very tight control on all discretionary expenses including management incentives as we did in 2024 notwithstanding the difficult conditions, and it is important to note that we fully ringfenced our R&D efforts, spending around GBP 20 million or 2% of revenue, fully expensed in our P&L. Finally, to mention Pyromet, our acquisition in Turkey.
We have taken a very prudent position on profit recognition so far after we took control in March. As one might expect, this was a family-run business and we are upgrading the finance function and this will be complete by year end. To quickly summarize, markets have been tough, particularly in Europe, but we have reacted well on the cost front and will continue to do so, seeing the full benefit of these actions once normal conditions return. Looking at the income statement, I've already covered the trading elements so I'll address the finance costs and the minority interests. Our finance costs are higher as a direct consequence of the higher leverage which has added around GBP 3.2 million to the interest charge. We have also benefited from lower rates including the benefit of our new non-recourse loan in China for minority interest.
The slightly lower charge partially reflects higher depreciation following our CAPEX investment in India where we will see the full benefit as we progressively utilize the new capacity over the next couple of years. It is worth noting that our two Indian businesses continue to perform exceptionally well and we have achieved both market share gains and increases in selling prices. Both businesses generate a return on sales well above the group average and have a strong position in their respective markets. Our half year headline EPS was GBP 0.171, which was down 16.4% on a constant currency basis but less than a 22% decline in profit due to the reduction in share count from the share buyback. Finally, turning to the interim dividend, the Board has approved an interim dividend at GBP 0.071 per share.
The level of dividend is a recognition by us that even though we have seen an EPS reduction of 16% we feel sufficiently confident in the future to maintain the dividend at the same level as the prior period. In our working capital we have seen a slight increase of GBP 17.5 million when compared to H1 2024. This reflects the impact of Pyromet as well as the build up of safety stocks ahead of two plant closures in Europe, together accounting for GBP 10 million of the increase. In the second half, we will see the unwind of that safety stock, but also more importantly the seasonal unwind that you can see on the graphs regarding the remaining increase of GBP 8 million. We are clearly disappointed with this, although remain convinced that we can progressively deliver our long term target of 21%.
Working capital management continues to be a primary focus for us all at Vesuvius and we are investing in a stronger supply chain function, reassessing order points across all of our plants, tracking how quickly we raise invoices, examining where we can improve our contract terms, and investing in better systems. We are confident such steps always pay off and we will redouble our efforts over the second half. Given the seasonality of working capital just described, half year cash conversion is clearly not representative of our annual cash flow capability. What the chart does demonstrate, however, is the ramp down of our CAPEX spending. For those that regularly follow Vesuvius, you'll know that we have had an elevated level of CAPEX spend amounting to GBP 100 million per annum over the last three years.
This expansionary CAPEX program is now complete, and we can see a clear reduction with our CAPEX reducing to GBP 36 million compared to the first, this time last year, of GBP 50 million. Within that GBP 36 million we of course maintain our plant, but also it captures profit-enhancing investments such as the implementation of our ERP system, plant automation, and customer installations, all of which are justified by future returns and quick paybacks coming in the form of either securing market share or reducing headcount. Turning to net debt and leverage, both have increased in the period and were due to several factors. As described on the previous page, cash flow conversion was low, which resulted in free cash flow being slightly negative in the period. For the reasons explained, this will turn around in the second half.
Looking ahead on an annualized basis, we should expect sufficient free cash flow to fully cover the dividend and provide sufficient cash either for M&A, share buybacks, or a combination of the two. In this first half, we completed our second share buyback, which had started in November last year and finished in early April, returning GBP 35 million this year and bringing a total over the two programs to GBP 100 million since November 2023. We also completed the acquisition of Pyromet earlier in the period, which has had a skewed impact on gearing where we have the whole of the consideration in debt, but only a small portion of the full year EBITDA contribution. This, combined with adverse FX impacts, has added 0.2 to the headline gearing.
We are clearly at the top end of our preferred range of one to two times, and we will now focus on reducing leverage given our expectation is for stable profit in the second half. The fact that we have reduced CAPEX and reflect in the seasonal mind of working capital, we anticipate our leverage will reduce to 1.8 times by the year end. Before I hand back to Patrick, I'd give you an update on our cost reduction program. Firstly, we are making strong progress. As already mentioned, we have delivered GBP 10 million of in-year savings this year so far and have increased the target for this year to GBP 20 million. This is on top of the savings delivered in 2024 of GBP 13 million.
That is, we expect to be at GBP 33 million of in-year savings by the end of 2025, which is one year earlier than our original Capital Markets Day commitment, which we gave in November 2023. In our full year 2024 update, we increased our target to over GBP 45 million, and I can now confirm that the new target is for GBP 55 million in-year savings by 2028. Given the persistent challenging conditions in Europe, we will focus on this region. While we have already done a lot, particularly around the significant restructuring that took place in 2018, we believe there is more that can be done in the second half. We expect to rationalize a further plant in Europe. We'll continue to trim OpEx costs, address some of our warehouse capacity, and also make further progress in automation while transferring additional production capacity to lower-cost countries.
Notwithstanding these reductions, we maintain enough capacity in Europe to benefit from any potential rebound in this region should it occur. We continue to invest in automation in Poland and Turkey, which are well positioned irrespective of where activity returns. With that, I will hand back to Patrick for the outlook and the closing remarks.
Thank you, Mark. With the exception of India, we've seen.
A continuation of general weakness in our.
End markets during the first half. We now anticipate that these challenging market conditions will persist for the balance of the year, particularly in Europe. The pricing environment was also challenging at the beginning of this year, in particular in Europe and in China, limiting our ability to fully recover labor cost inflation. We, however, anticipate progressively improving our pricing performance over the second half of this year to partially recover cost inflation, albeit.
With a delayed effect.
The implementation of these price increases has.
Already started.
As a result, we now expect our performance in the second half.
Of the year to be broadly similar.
To the one in the first half. Beyond 2025 we remain fully confident in our strategy and in the growth potential of our Steel and Foundry markets. In particular in Steel, the stated intention now of the Chinese government to progressively reduce overcapacity could have a very positive impact on the steel production outside of China. We also remain very confident in our ability to improve our profitability thanks to the success above expectations of our cost reduction efforts. Our restructured, modernized, and strategically located manufacturing footprint also ensures we are well positioned to benefit from the recovery in end markets, irrespective of which region will benefit. This means that whether Europe recovers or not, we are prepared with our capacity investment program now completed. We are equally confident in our ability to increase our free cash flow generation and reduce leverage significantly going forward.
This will position us favorably to return cash to shareholders, but also to seize on attractive M&A opportunities when they arise. I now propose to open the floor for questions. Thank you.
Hi, I'm Mark Fielding from RBC. Can I just touch on a couple of things? First, one, in terms of that mix shift you talked about and you obviously referred to it as temporary, just I suppose how confident you can be that that is temporary and that those customers haven't made a permanent shift, and just whether there's wider thoughts on that. Secondly, in terms of the growth you're getting in India, obviously you've added capacity. Just can you update us in terms of how much of your production in India, is it all for India or are you exporting reasonably from that region as well? Just how do we think about the future mix of capacity and production there?
On your first question.
Yes, we are fairly confident that phenomenon is temporary because.
It doesn't make much sense for customers.
Saving GBP 1 today and renouncing GBP 2 of P&L improvement tomorrow is not a completely rational decision. It's a decision that some of our customers have to make or decide to make short term because they are under short term cash pressure, but it's not a rational long term decision for customers. We believe that when the situation on the market will return to normal, we will see a return of a more financially rational behavior from our customers.
To select those products which give them the best value in use, and not.
Only the best short-term cost.
By the way, what we see today.
This mix effect, we don't see that everywhere. In the regions where our customers have a normal level of profitability, are operating under more or less normal circumstances, we don't see this negative mix impact. We see it mostly concentrated in those areas. EU plus U.K. is one of those today where customers have a negative cash flow performance and are worried about their own future and their short term cash situation.
We believe it's temporary. On your second question about India, if.
Could you repeat.
Just India in terms of is the capacity you put in India all supplying India at present? Are you looking to export from India more as well? Just how do we think about the future?
Our strategy in India has been for.
Many years now a strategy of India for India. We are exporting a little bit from India, but a very, very minor part of our activity. We are mostly focused on the domestic market. We export a little bit to Southeast Asia mostly. This being said, we have flexibility built into our system, meaning that as anyway we will have to increase capacity in India over the next 10 years because Indian market double triple in size and we have a firm intention to follow this. We are keeping the optionality, the flexibility to export more of India if at any point in time it would be useful.
For example, the Middle East Africa market, which we today serve from our European operations in Eastern Europe, in case Europe would recover and we will have to use more of our European capacity for EU plus U.K. production, if there is a recovery of demand.
We could shift part of.
The Turkey Middle East Africa markets to India. We build flexibility and optionality in our manufacturing system, which can enable us now to face any type of market situation, whether we have or not a recovery in European demand. Our main, our base case is that our Indian capacity is mostly used to support the growth of the domestic Indian market.
Just a really quick follow-up on that. In terms of obviously CAPEX is now normalized, a lot of that was for India. How many years of headroom have we got there before you actually have to think about more investment?
We have now, I would say, two, three years.
Best case, three years of headroom in India.
The good news is that we are growing so fast in India that we may have the opportunity to add a little bit more capacity in India two years rather than three years from now. If things continue to develop as they develop as we speak, we will have.
Again, in 2025 a strong growth of.
Our activity in India. We see no end in sight in the growth rates of our top line and profitability in India. It would be rather good news if it would be rather two than three. We are closely watching the development there.
Probably we have adding this single digit million. It's not going to be anything like the scale that we've seen previously.
Morning. It's Andrew Douglas from Jefferies. Three questions please. Can you just give us an update on the Indian induction furnace market? Clearly it's been a strong market this year, but it's not one that you serve. This is again a temporary phenomenon is my understanding. How confident are you that that unwinds over the next two or three years and why you talked, Mark, about India operational gearing being lower than Europe. Where do we sit from an American perspective? I'm assuming that's more Europe than India in that respect. I'm not sure when this is going to happen or indeed if it will ever happen. If we have a normal year, what does free cash flow look like in your humble opinion? Just so we can think about modeling free cash flow out over the next few years.
Thank you.
I will let Marc answer the two last questions.
Really the first one. Yes, we've seen an interesting phenomenon during the first half where the growth of the induction furnace market has been.
Higher than the growth of the blast.
Furnace electric arc furnace market in India. It's a bit kind of.
Not usual.
Unusual phenomena, and it's probably our own interpretation, is that it's explained mostly by the fact that consumption in India is going so fast that the pace at which the large players are adding blast furnace or electric arc furnace capacity is not following. Know that India has become, is now a net importer of steel.
The steel processors in India cannot add.
Capacity as quickly as necessary to face the demand. The gap is being plugged by induction furnaces, which have one characteristic, which is that they are lower CAPEX.
The CAPEX per ton of capacity installed.
Is significantly lower than for the traditional route of production. The downside, obviously, this is why induction furnaces are more or less disappearing in other places of the world, is that.
The quality of the steel that you.
Produce through induction furnaces is by far not the same as the one that you can produce with a blast furnace or with an electric arc furnace. When India as any other country will start enforcing the respect of its construction code and when India will become.
A bit tougher, which happens in all countries, and it will happen in India.
As anywhere else, it will become tougher in enforcing the fact that steel sold in.
The country is compliant with regulation, which.
Is not 100% the case with induction furnaces-based steel. We believe that induction furnaces growth will be industrial for will remain and for some years to come, their growth will be lower than the growth of blast furnace and electric arc furnaces.
Yeah. Two questions, Andy. The first one, operating leverage of the U.S., if I say North America, which is probably more relevant for us. I would say you're right, it's in between India and Europe and there's two reasons for that. One is Flow Control largely supported at Monterrey. We obviously benefit from the lower fixed costs of the Mexico organization, but then on the other side we've got a very strong position in Advanced Refractories in the U.S., and while that has a low level of fixed costs, obviously it's a much higher portion of raw materials in that revenue. You probably get an average in effect in terms of the level of drop through, but not anywhere near as brutal as Europe has been and can be.
In terms of the cash flow beyond 2025, my view is we are still on target for the GBP 400 million by 2027. Two things are driving that. I think we should expect to see some improvement in our trading profit next year for obvious reasons. We've got the cash, we've got the CapEx that's now flat, we've got the costs coming out. We should see a step up in our trading profit and we should see, assuming that revenue is moderately growing, a broadly flat working capital once you go over the full period. I think you're kind of talking of we'll do something like GBP 65 million, GBP 70 million of free cash for this year hopefully in the second half, and I think we're probably talking GBP 95 million-ish by 2026, 2027, and then that kind of gets you closer to that GBP 400 million target.
Just a quick follow up on Marc's question and your comment, Marc, in terms of potentially having to put more CAPEX down in India, that doesn't then involve a return to slightly elevated CAPEX. You can do that within your new CAPEX guidance, either taking it from Europe or the additional cost isn't as necessary.
Yeah, because as Marc Collis mentioned, when we will need to add some capacity in India, we are talking about very low figures because we have two very big plants in India, one in Vizag, the new one, and one historical one in Kolkata.
Both these plants have capabilities for brownfield.
Expansion and brownfield expansion, marginal addition of capacities are low CAPEX, and this is one of our big advantages, big competitive advantage in India is that we have.
Two flagship plants, each of them having.
Marginal expansion capabilities, meaning that we are.
Able to add significant new capacity at.
Low CAPEX cost, so high single digits, so it's nothing.
So.
Last time we invested in your Calcutta plant example where we increased by 50%—it's not 10%—we increased by 50% of isostatic capacities in Kolkata a couple of years ago. It cost us GBP 6 million or GBP 7 million off the top of my head. We are talking small numbers. If we want to go to the next level, the order of magnitude is very similar. We are talking relatively small numbers. No significant disturbance in.
Our CAPEX plan, and we've got you.
We've got the factory and the plant. If you remember the picture from last year, we've got 25% of that land utilized with 75% expansionary capacity, so the expensive assets have been purchased and it's really just there to wait to expand into. Thank you.
Morning guys. Thanks for the presentation.
It's.
It's Lush Mahendrarajah from J.P. Morgan. I've got three as well please. The first is on Europe and a follow up on sort of the pricing and the trade down point. I guess just focusing on Europe in particular, obviously I think that's probably one of the areas where you're still sort of cautious into the second half and also where you've seen the bigger trade down. I guess it's one month into H2. How have those pricing conversations gone in Europe, and do you think there's a risk that could accelerate the trade down? I guess what are your competitors doing as well. The second question's on China. You sort of touched on it in the presentation and saw China more generally is reducing capacity in a lot of industries at the moment. I guess how do you see that playing out?
I know it's difficult to call, but do you see that as sort of a big haircut to production or do you think it'll be more gradual, and when do you think you could start to see the benefits? The third one's just on India. You sort of talked about how it's now firmly higher profitability than the rest of the group. Can you just remind us, is that sort of pricing power? Is that mix, is that more efficient production, or is that a bit of everything? I guess does that margin keep going up from here for India, and I guess how much higher can that get?
Thank you, Lush.
On the first point regarding your first question regarding Europe, we are and we remain very cautious regarding the evolution of volumes in EU plus U.K., not that much.
Turkey, Middle East, Africa, which we believe.
Will rebound and will grow. EU plus U.K., strictly speaking, we are very cautious on volume evolution. As you know, there has been a.
Lot of talks, but for years now that at some point the European Commission.
Will take some measures to protect the European market from steel imports.
We have again talks over the summer. The Commission has again said that wait.
September, something will happen. We've become very cautious on this as we've seen significant discrepancy between words and action. Our best case is that volume in Europe, and this is what we are seeing today, will remain subdued and will probably continue to decline in the second half as compared with the first half.
This being said, if we would have.
A good surprise. We are fully equipped to take advantage of a good surprise.
If this would happen.
In terms of pricing, we are increasing prices as we speak, with the utmost level of dialogue with our customers, with whom we have been discussing for many months now. We fully understand and respect the fact that increasing prices is something difficult for our customers in the current circumstances in Europe.
It has to be done.
It has to be done, and we have now reached a point where we are increasing prices, whatever, because it's absolutely necessary, and we cannot delay further increase in prices. These price increases are happening as we speak.
On your second question, you're right to say that it is a difficult one.
The building blocks are relatively simple. You have on one hand a Chinese.
Government, which is now, I believe, firmly.
Committed not only in words but also in actions, are generally more efficient than the European Union Commission, firmly committed in action to reduce steel overcapacity.
At the same time, the domestic.
Consumption of steel is also declining.
The question is, how do the two paces of decline compare?
We believe that the most likely scenario, I am being cautious, I say the most likely scenario, not 100% certainty. The most likely scenario is that sometime in 2026 you should start to see.
Some softening of Chinese net steel exports.
To the rest of the world as compared with the extremely high level where they are today. When this happens, and I cannot tell you if it will happen end of 2025, beginning of 2026, or mid 2026, when it happens, this should have a very positive impact on the steel production overall in the world outside of China, which clearly will benefit Vesuvius because we realize 90% of our sales. China is a very important country for us. We are growing in China, but 90%.
Of our sales are made outside of China.
When those steel exports outside of China will start to decline, we expect a tailwind for Vesuvius. Regarding India, the reason why we have a good profitability of India is a mix of everything. It is first because we are benefiting for.
You have a virtuous circle because.
Because we are benefiting from increasing volume.
Very strong growth.
We are leveraging our capacity very well. In China, our fixed cost absorption is very good. In India, our fixed cost absorption is very good because each time we build.
A new capacity, it takes two, three years and it's filled.
The ramp up is very quick. I was mentioning earlier the isostatic capacity, which we increased 50% in Kolkata.
Two years ago, and we are filling this very fast.
This is the reason why we are now starting the engineering studies for the further capacity increase step. We benefit from a very good loading of our plants in India. Our OpEx SG&A costs are also structurally lower than elsewhere, not only because of labor cost level but also because many of our operations are very modern, the level of digitalization is high. We have structurally very competitive, very competitive cost structure in India. Last factor but important one is that our Indian customers are very sophisticated. They produce steel process in India.
Are producing very good quality steel.
They are producing, I would say, more and more better and better quality steel over time. They want to position themselves as state-of-the-art steel producers on average more than in China. The quality of steel being produced in India is extremely good. Because this quality of steel being produced is very good, they are very eager about the help, the support that we can bring them with some of our most sophisticated products to help them improve the quality of their steel and by doing so improve their P&L.
We have a very virtuous.
Circle on all aspects: cost, capacity, loading, product mix.
In India, which explains why.
Not only now but in the foreseeable future we project a good level of profitability in India. Could it go even higher?
This is what I tell my India.
The team could do even better than what they are already doing. I believe it's true, by the way. The sky is the limit. We believe, I personally believe that.
We have the possibility to go even.
Higher in terms of profitability in India.
Yes, thank you.
Good morning, it's Jonathan Hurn from Barclays. I also have three questions, please. Firstly, as you say, it's a pretty tough operating environment out there. I'm just thinking in terms of your customers and their payments to you. Are you having any issues in terms of them paying you on time and paying the amount? Are you seeing an increase in the level of bad debt from your customers? That was the first one. The second one was just obviously you're talking about pricing, covering inflation through the second half this year. How much of that inflation actually is going to be covered in H2? As we look into FY 2026, obviously we're probably going to see another wage increase coming through. You're going to have to increase prices again and push further price rises through to a customer to cover those increasing in employee costs.
The third one was just on that outstanding GBP 22 million of savings coming through in 2026 to 2028. Can you just give us a feel of the phasing of that, please? Thank you.
Are four questions. I will let Marc answer the first one. I will answer the first three ones. We are watching extremely closely the payment patterns of our customers everywhere in the world, especially in areas where customers are fragile and may be undergoing some difficulties. This includes, but is not limited to, Europe plus U.K..
We have had no bad debts.
We have no intention of having bad debts. At least we will do our best for not having them. We have a clear no tolerance policy, no tolerance policy vis-à-vis all customers without any discrimination or exception which are not paying on time as they should.
Yes, we've seen some customers.
Either because they were in a difficult situation, or because for inter policy decision reason, trying to delay payments.
We have and we will continue to.
strongly resist any such attempts. We have very, very clear policy.
No payment, no delivery.
This will continue going forward. We don't believe that this is a normal relationship. A customer not paying its dues is not a normal and acceptable customer behavior. We have no intention to accept that, neither yesterday nor tomorrow. Regarding pricing, we are starting, and we will start in the second half to recover part of the price differential that we had, negative price differential that we had during the first half. We will not recover in the second.
Half, 100% of what we had.
Lost in the first half. I expect a significant part of it will be recovered in the second half, but not 100%, maybe 1/3, but we will continue in 2026 because our policy, and this answers your third question, I think, remains the same. For a company like Vesuvius, and we believe all refractory companies in the world, we have no other choice if we want to remain a going concern long term. We have no other choice but to.
Cover our cost increase with price increases. We owe it to our customers too.
Be very tough in terms of bringing.
Our costs down as much as possible.
This is a moral commitment that we take vis-à-vis our customers. You can see that in the case of Vesuvius, we are making very strong efforts in that respect.
But.
We cannot make miracles. At some point we need to buy raw materials.
We need to.
When our costs increase, yes, we have, and the industry has to pass through these cost increases to our customers. By the way, we do it the other.
We are fair with heavier customers.
When raw material prices decline, for example.
We also pass it through on the.
Downward trend to our customers. We promote a fair and objective.
Long-term partnership with our customers.
When costs go up, it means prices go up. We have the firm intention to continue to increase prices to fully recover over time what we lost during the first half.
Maybe you can take the last question.
Just a couple of things to add actually that I think Patrick will appreciate. When it comes to some of our customers in Europe, we will get personally involved with management of those steel customers and tell them they can't. We will refuse to supply them because it's important that we back our commercial teams. We don't ask them just to have the difficult conversations. We actually engage in those conversations ourselves because you are risking clients, steel plants being shut down. That's the nature of what we need to do to manage things. On the cost inflation, one thing that I would point out is last year we did make some tough decisions around inflation. For example, in China we decided not to have any pay increases at all until the second half. I think again, that's something that the Vesuvius management will do.
We'll look at what, not just the environment, but what can we actually afford. It's not a given that we'll have cost inflation everywhere at the rates that you might think we might, because we'll make some difficult decisions. On the cost side, in terms of the cost savings, the GBP 22 million, I think it's a fair assumption that we can assume GBP 10 million in 2026 and GBP 10 million in 2027 and then just a bit in 2028, because practically speaking, we've got to get the costs out as quickly as possible. We say in year 2028, which basically means we've got to get most of it done in 2026 and 2027.
Thank you. It's Mark Davis Jones from Stifel. Two from me, please. Could you tell us a little bit more about what you're seeing in North America? You called out weakness in Mexico. Is that just a temporary issue around all the tariff uncertainty, or is it something bigger to worry about there? Are you seeing any uptick yet in U.S. activity? Last time it was a bit of price but no action in terms of volume. That was the first question. Secondly, we haven't talked much about Foundry. You see volume stabilizing but not ticking up from here. Do you think you have your cost base and your cost footprint in the right places in Foundry, or does that need something more structural to revive profitability there?
Thank you. On your first question.
There are several points.
First.
We believe that the U.S. will probably significantly increase steel production going forward. We see the first signs of an uptick. If you look at the evolution of U.S. steel production over the first half.
Last year it's 0.8% but in June it's 4.9%.
You have the first sign, and it's logical with a 50% barrier. At some point, something happens. We see the first signs of import.
Substitution to satisfy U.S. consumption.
The U.S. consumer is using more or less more and more steel being melted and poured in the U.S., which was the intended effect of the policies having been introduced. We are quite optimistic about the evolution of the U.S. market, and as you know, we are quite well positioned there because the U.S. is the country worldwide where we have the highest sales per ton of steel.
Our penetration rate in the U.S.
Is the highest in the world. Mexico and Canada are more complicated questions.
Because we still don't know, as you.
Know.
If they will be in or out.
It is one of the still moving parts of the global discussions ongoing.
The honest truth is that I don't.
Know yet what will happen in Mexico. This being said, you have a few important things. The first one, Mexico seems to be.
For the probability that Mexico will be.
In is probably high.
I'll be very cautious. You will forgive me if I'm wrong.
Because I think that there is a growing probability that Mexico will be high. The negotiations with both Mexico and Canada are not concluded, as you know.
You've seen the way Mexico and.
Canada have been treated on an interim dividend.
Basis, not the same.
Mexico retains a 0% tariff during the continuation of the negotiation, which is not the case of Canada. There seems to be a relatively, I hope, good probability. If this is the case, we could see a growth of production in Mexico going forward despite the short term. The short term first half was not very good both in Mexico, but it could prove to be only temporary. You have, as you may know.
New capacity being planned.
New steel production capacity being planned in Mexico. Real production capacity with steel melted and poured, which is important in the negotiation. Real steel being melted and poured, not.
Chinese steel being imported a little bit.
Reprocessed and re-exported. Real steel being melted and poured in Mexico.
The probability that this type of steel be included inside the global North American.
Fortress is probably quite high in my opinion. We are quite positive about the evolution of Mexico, and at the same time, Mexico may close itself to import of steel from other origins, in some respect getting closer in.
Terms of tariff policy towards the U.S.
Is to going and Mexico is a big question. Canada is a big question mark. Canada is a big question mark because again you know better than I do, but Canada is torn between the two options, joining the U.S. or remaining a little bit out. Canada will be more neutral.
Mexico, I'm rather positive about what.
Could happen in Mexico going forward.
Even if we may have surprises.
Regarding Foundry. We've done a lot, we are continuing to do a lot, but we are on a very good path in terms of adapting our cost structure. As you know, we've closed beginning of the year our U.K. plant in Tamworth, transferring the production mostly to Turkey. We are heavily restructuring our operations in Germany, with a very good social dialogue with our German unions, which are extremely responsible and I would say supportive because they see the long term interest of our manufacturing operations in Germany. We are automatizing, reducing headcount in Germany quite significantly for our Foundry operations, transferring out of Germany those structurally labor intensive activities, keeping in Germany those activities which we can automatize, robotize, and make efficient irrespective of the situation in Europe.
The job is not as advanced.
in the Foundry division than it is in Steel. I would say 12 months from now, max it's probably two thirds done. Twelve months from now we'll be mostly over in our restructuring of the European operations in Foundry. We are progressing fast and we are doing everything we can to accelerate even further to put that behind us. I'm quite confident that we will.
Have a very competitive and well sized.
Manufacturing capability in Europe for Foundry also.
With the same flexibility as the one.
I mentioned for Steel earlier.
Meaning that with the optionality to benefit from a potential recovery in Europe if it happens, but at the same time, if it doesn't happen, a very solid base, whatever.
Thank you very much.
There are a couple of good things I'd mention that you would have seen on Patrick's slides. One is India, which is going really, really well. The other one is the growth in non-ferrous, which is typically higher margin than ferrous. Even in a fairly subdued market, you've still got some positive growth drivers there in the underlying business.
Any further questions? If there are any questions online.
If you wish to ask a question on the phone, please press star followed by one on your telephone and wait for your name to be announced. That is star one. If you wish to ask questions, there are no questions on the conference line. Ladies and gentlemen, that concludes today's question-and-answer session. I'll now hand back to Patrick André for the concluding remarks.
Thank you very much to all of you for your attendance today. We remain with Marc at your disposal should you have any questions, as usual, and I wish you a very good day.
Goodbye.