Good day, ladies and gentlemen, and welcome to the Vesuvius trading update. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session through the phone lines, and instructions will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Vesuvius, Patrick André, to open the presentation. Please go ahead.
Good morning, everyone. My name is Patrick André. I'm the Chief Executive of Vesuvius. Today with me this morning is Mark Collis, our Chief Financial Officer. Thank you for joining us at such short notice. The purpose of today's statement on this call is to talk about our 2025 outlook. We will give full details on our H1 trading when we announce, which is planned for the 6th of August. To set the context, we've seen during the first half a clear continuation of the challenging market conditions that we had noted during our AGM trading updates in May, with a continuing uncertain macroeconomic environment and subdued global industrial activity, leading to a continuing weakness in both our end markets, hostile and stronger. Against this difficult backdrop, our trading profit for the first half of 2025 is anticipated to be around GBP 77 million, which is consistent with our expectations.
Despite the negative market conditions, this was possible thanks to not only short-term cost reduction measures, but above all, strong progress above our expectation in the implementation of our structural cost reduction program. Regarding this structural recurring cost reduction program, we are now planning to significantly exceed our objective of GBP 45 million of recurring cash cost savings per year that we had set for 2028. We are now planning to do significantly better than that. Regarding the rest of the year, contrary to our previous expectations, we are now anticipating that the challenging market conditions of the first half will mostly persist for the second half. We were, in our trade guidance, relatively heavily weighted on H2. What we see today is, considering the remaining, the persisting uncertainty, this recovery of markets more being postponed to 2026.
At the same time, the pricing environment remains difficult, in particular in Europe and in China, which has been limiting for the time being our ability to fully recover from price increases and labor cost inflation. However, we anticipate that we will progressively improve our pricing performance over the second half. We are passing price increases as we speak, and some of them are already implemented to partially recover this gap between price and cost of the first half. However, this would be done with a delayed effect, which would still impact, on a full-year, in-year basis, the year 2025. However, we anticipate that we will recover all of this by the end of 2025.
As a result of this downgrading of our market expectations for the second half, we now expect our performance in the second half of the year to be broadly similar to what we've achieved during the first half, with further progress being postponed to 2026, where we expect that our results should improve, with first a market improvement, but also the continuation of our cost reduction measures, which will produce not only the one we are implementing now, which will produce their full-year effect in 2026, but we will continue to have more cost improvements measured in 2026. I propose to open the floor for questions, and Mark and I will answer any questions you may have.
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Lash Mahendraratta from JPMorgan. Please go ahead.
Morning, guys. Thanks for taking my questions. I think I've got two, if that works. The first was just on getting the dividends, and sort of differentiate them in H2. I'll just check. What are you assuming in terms of volumes and price cost in the second half? It sounds like you're going to be pushing prices in the second half of it. I guess what makes you confident that will get accepted by customers? The second question is just on market share. Can you talk about some of the market share movements in H1 across the three businesses? In the context of pushing prices into the second half, do you think your competitors will follow? How do you think about market share in the second half as well? Thank you.
Thank you. Thank you, Louis. On your first question, we expect the overall market situation to be more or less similar in H2 as compared with H1, which means that because of the traditional seasonality, especially in Europe, volume could be a bit lower in H2 than in H1. However, we expect our pricing to be higher in H2 than in H1. To answer your specific question about pricing, we are now, clearly, as we speak, passing price increases, and most of the time, our customers understand the reason and accept the price increases. When they do not accept the price increases, we have no other choice but to increase prices nevertheless, because our principle that we have to recover all costs with prices has to remain valid. We are now, in some cases, having to force some price increases to customers.
Many of them, the vast majority of them, also understand the situation, the industry globally is in and have a long-term relationship with us and understand the reasons why we need to increase prices. Regarding market share, the three business units have been gaining market share during the first half: Flow Control, Foundry, but also Advanced Refractories. Advanced Refractories, which had been over the past two years, done very well in Asia, but lost a little bit of market share in Europe and in the U.S. We are now past the inflection point. We have started to recover some market share in both the U.S. and in Europe in Advanced Refractories. We had a relatively good market share performance in each and every of the three business units during the first half. We expect this to continue in the second half.
Okay. Brilliant. Thank you.
Your next question is from the line of Andrew Douglas of Jefferies. Your line is open.
Good morning, guys. Can you just talk in a bit more detail maybe about the restructuring plans that you've outlined? You've talked about having additional benefits over and above the GBP 45 million. It might be a bit early, so apologies for the question. Does this involve materially more restructuring actions in Europe potentially, given your commentary about Europe? How do we balance the challenges that you have in Europe, maybe from a capacity perspective, with the opportunities in India? India's steel production is still fairly growing, growing nicely. I suspect more capacity needs to be put into India. Is this just a shift from Europe to India and maybe Southeast Asia? Do you have to take more drastic action in Europe from a capacity perspective?
Broadly, my second question, or it's probably the third question, with regard to India and Southeast Asia, it sounds like they're the main positive hotspots for you guys at the moment. Can I just confirm that, yeah, that's indeed the case?
Thank you, Andy. Regarding your first question, we are accelerating and amplifying our restructuring in Europe. You know that we closed Sandris plants in the U.K. at the beginning of the year. We've announced a few days ago that we will close the manufacturing activity of one of our stencils and probes plants in Italy. We are clearly heavily restructuring our manufacturing footprint in Europe to adapt its size to what we believe will be the size of the European market going forward. Also, to make sure that those plants that really remain in Europe, because we will keep some plants in Europe and the European market remains important for us even if it is declining, those plants will be extremely competitive because we are investing in automation and digitalization in those plants, which would be the long-term flagship plant of the group in Europe.
It's clearly heavy restructuring in Europe in terms of manufacturing and capacity. At the same time, we are continuing to expand in India. Our new capital investment, which we have invested over the past two years in India, is now ramping up. This gives us, for the next two or three years, all the capacity we need to continue to follow the very strong growth of the Indian market. At the same time, because we don't believe that India, and I'm answering actually to your second question, we see the growth in India extending much beyond the two, three years to come. What we are really seeing is India having its hockey stick movements. We are very, very positive about the growth in India for the next, not only two years, but for the next 10 or 20 years.
Two, three years from now, we are already starting to study the capacity expansion which will be needed in India to continue to support our growth beyond the next two, three years. The good news is that all this in general, first, we have the room to do it. We have the space with the acquisition that we've made a few years ago of the new Vivite site in India. We have the industrial space ready and available to accommodate those expansions. Our Kolkata plant also has room for further expansion for the Flow Control products, for the Flow Control isostatic products.
The cost of this expansion is limited because these are brownfield investments, not greenfield, and so we have the unique advantage in India to be able to expand very significantly over the next 10 years of production capacity to follow the growth of the market at marginal CapEx costs, simply by brownfield expansion of our two existing sites in Kolkata and in Vivite. I think that's a key advantage that none other really has in India. This will support our growth in India over and above the natural, strong growth of the market in India. We are outpacing both in Foundry and in steel the growth of the steel market in India, and we intend to continue to do so in the years to come.
Okay, thank you.
Your next question is from the line of Helen Pillar of Peel Hunt. Please go ahead.
Yeah. Good morning, everyone. Just a couple of questions also, please. Just thinking about the sort of price volume dynamic, particularly in the second half. I mean, it'd be helpful if you could give us an idea of where revenue was alongside the GBP 77 million EBIT you talk about. When thinking about that second half compared to where you thought it was going to be, as I say, how much, you know, what would be the balance between price and volume? I suppose I'm just trying to work out the extent of the price pressure. On top of that, the sort of difference between Foundry and steel because, obviously, if it's a European headwind, particularly, then Foundry looks like it's probably getting a disproportionately large hit. I've got a question on cost savings as well, but maybe just start with that, please.
Thank you very much, Eric. I will let Mark comment further. Before I pass over to Mark, regarding the price volume for the second half, we expect, because of seasonality mostly, not because markets would be that much worse, but because of seasonality, we expect volumes in the second half to be a bit lower than volume in the first half.
Yeah.
We expect prices to be better in the second half than in the first half. Maybe Mark, you would like to comment further on that.
Yeah. Thanks, Patrick. Just to give you some numbers, Harry, which I think will help you. Revenue for the first half is just a tad over GBP 900 million. You're basically seeing 8.5% return on sales with the GBP 77 million for the first half. Our current expectations for revenue for the full year are around GBP 1.85 billion, and the margin remains the same. What you're seeing there in our best estimates are effectively, as Patrick rightly said, lower volumes but slightly better pricing. That's how we basically end up with a number in the second half similar to the first half.
That would sort of have a sense that steel is sort of, it just looks much more sort of foundry-centric. Would that be right? Rather than steel, steel looks a bit soft, but foundry looks a sort of a bit more sort of loose.
It's clear that this product is more or less as an ass. So it means that it's disproportionately more in Foundry than in steel. However, steel in Europe is soft. Steel in Europe is soft. What is one of the important, I would say, market situation parameters is that it's not only the Foundry market which is soft in Europe. The steel market is now clearly showing signs of structural weakness in Europe. I say structural because we do not think that this is cyclical. The steel producers in Europe are clearly, if you follow this explained, kind of disturbing, they have lost hope that government and the European Commission will really enact, will really take action to protect the steel sector in Europe, even if there is a lot of talk about it.
The last one is that they will say something in September after they are back from vacation, but nobody is really trusting that what they will say in September will be anything of substance. We start to see now some structural decisions by steel producers to move away from Europe. This is clearly putting the steel market in Europe in a structural declining trend. A miracle is always possible. Maybe the European Commission will wake up at some point. I don't think anybody is putting that in their best-case scenario.
That makes sense. Just to add, Harry, the other thing that I would just add to Patrick is the one thing to watch out for is what we would regard as mix, or effectively, the level of drop-through on volume is definitely weaker this time around in steel compared to Foundry. It's really a feature of clients buying services at a lower end, particularly in Europe, as they're trying to obviously minimize their operating costs. We're seeing that that's something that's a relatively new phenomenon. It's impacting the drop-through significantly in Europe and in steel.
In terms of the cost savings, if I remember rightly, you're sort of looking at about GBP 13 million, GBP 14 million this year. Does that change materially? Is it too early, or will you wait till the 7th of August to give us maybe an idea of how that flow?
Mark will comment further, Harry, but yes, we should expect more than 13, more than 13 this year. We are really, in terms of recurring cash savings, accelerating our program and expanding our program, especially in Europe. Also, not only are we increasing our GBP 45 million target for the year 2028, but already this year, you should expect more recurring cash cost savings than what we had in our previous guidance. Maybe Mark can comment a bit further on that.
Thank you, Patrick. We will obviously, we're definitely going to be ahead of the 13, pro rata. We're probably looking at an order of magnitude of around 10 for the first half. There's no reason why that shouldn't largely continue throughout the balance of the year, because it's obviously permanent savings. We're pushing harder in the second half, particularly in Foundry. I think that answers your question, Harry, that it's a lot stronger than we're making a lot stronger progress than we anticipated at the start of the year. We're ahead.
Just to be clear, so I don't misinterpret, [crosstalk] .
We've also continued with our short-term cost reduction measures as well, that we really instigated last year, and we'll continue with that throughout this year.
Very finally, just on the tax charge and stuff, because there was a bit of debate back in May around how to treat the sort of, let's call it the number.
I'm happy to give you an update. Just to further throw it around, it's benefit. We repatriated around GBP 15 million of additional cash from China through the introduction of a non-recourse loan. The idea being that Chinese interest rates are clearly a lot lower than anywhere else around the world. While there's an annualized savings benefit and effectively a payback of about 18 months, the one-off downside is an additional withholding tax charge to repatriate that cash, which is about GBP 3 million.
We were debating whether that was above or below the line impact on the tax charge itself. In the end, we've decided to record that as below the line. We'll record the GBP £3 million as a separately reported item on the basis it is one-off. That's been agreed with our auditors.
Fabulous. Thanks very much.
The headline tax rate effectively remains the same at 27.5%.
Yeah, perfect. Thanks very much indeed.
A reminder, if you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. Again, that is star one to raise your hand and join the queue. We'll pause for a moment for any final questions. You have a further follow-up question from Harry Phillips at Peel Hunt. Please go ahead.
Sorry, just again, a bit of housekeeping, just to make sure I've got this right. It was GBP 900 million of revenue just had over the first half and sort of circa GBP 1,850 million for the year is the thought, just to make sure I've got that correct.
Yeah, that's spot on.
Lovely. Thanks very much indeed.
There are no further questions on the conference line. I will now hand over to management for closing remarks.
Thank you. Thank you very much to all of you for taking the time to join the call today.