Good morning, ladies and gentlemen. Welcome to Vesuvius full year 2025 results presentation. My name is Patrick André. I'm the Chief Executive of Vesuvius. To my left with me this morning is Mark Collis, our Chief Financial Officer. I will start with some updates on our performance during the year. Then Mark will give you some more details on our financials. I will conclude at the end of the meeting with some perspectives on the year 2026 and beyond before opening the floor for questions. Our performance for the full year was in line with expectations. Our revenues slightly increased by 0.7% on a like-for-like basis with a limited headline price increase and market share gains compensating market declines in both steel and foundry.
Our trading profit, however, declined 17% on a like-for-like basis as compared with last year, as the return to a positive net pricing performance in the second half of the year and the successful implementation of our cost-cutting program could not fully compensate the negative net pricing and mixed impact experienced during the first half of the year. Our return on sales decreased by 170 basis points as compared with last year on a like-for-like basis. As expected, the completion of our capital investment program, the acquisitions of PiroMET and MMS, and the completion of our second share buyback program increased slightly our net debt to a EBITDA ratio to two on a pro forma basis as compared with last year.
Our leverage, however, remains within our target range and is expected to decrease significantly this year with the end of those one-off cash outflows and the improvement of our trading profits. This made the board confident to propose a final dividend for the year of GBP 0.165 per share, bringing the total dividend for the year to GBP 0.236 per share, representing an increase of 0.4% as compared with last year. Both the steel and the foundry markets were challenging in 2025, particularly in E.U. plus U.K. EMEA accounted for 80% of the consolidated decline in the group's trading profit last year, meaning the rest of the world declined by only 20%. In steel, global production volumes declined 1.9%, mostly driven by China.
However, our Steel Division was able to compensate this decline with overall market share gains, supported in particular by the strong performance in Asia, not only in India, but also in China. Also very important, the Steel Division was able to reestablish a clearly positive net pricing performance in the second half of the year. This positive pricing performance is expected to be maintained in 2026. The Foundry market also declined in 2025, but we were able to partially compensate this with significant market share gains in all regions. Net pricing in Foundry also improved significantly during the second half of the year, even if it remained very slightly negative.
Our group-wide cost savings program delivered above expectations with GBP 17.8 million in-year savings and an exit run rate at the end of the year of GBP 37.4 million, keeping us firmly in line to deliver on our target of GBP 55 million recurring savings by 2028. We maintain our research and development investment and focus despite the market difficulties. We were able to further increase our new product sales ratio in 2025 with the introduction of 24 new products during the year. The completion in 2025 of our capacity expansion program will not only benefit our free cash flow generation going forward, but also positions us very well for the future recovery expected in our end markets.
Last important point, the integration of our newly acquired businesses, MMS and PiroMET, is proceeding very well with already a significantly positive impact on our results expected in 2026. Let's now have a look in more details at the performance of our steel division. If we start with the steel market, you can see on this slide how the steel production evolved during the year. The size of the bubbles, as usual, is proportional to the sales of our own steel division in each of those regions. The steel production worldwide declined by 1.9%, driven by the very significant 4.4% decline in China. However, and despite a further increase of steel export from China, steel production outside of China actually increased by 1.3% as steel demand outside of China is progressively gaining momentum.
This steel production growth outside of China is, for the time being, mostly concentrated in India and Southeast Asia. Steel production growth in North America last year remained limited as growth in the U.S. was mostly compensated by declines in Mexico and Canada. Steel production in the U.K. and E.U. actually declined by 3.5% during the year. However, we now expect the dynamism of steel production outside of China to progressively expand beyond India and Southeast Asia as positive structural changes are underway in the steel market. First, new European Union regulations are being introduced, which should have a very positive impact on steel production in the E.U. The Carbon Border Adjustment Mechanism introduced beginning of this year will progressively increase CO2 cost for steel importers in the E.U., eliminating the current cost disadvantage of domestic producers.
Even more important, the E.U. has introduced a draft legislation to implement, as from this year, a quota system for all steel imports into the E.U., not only from China, with quotas fixed at a significantly lower level than current imports. Considering the strong support enjoyed by this draft legislation, both with the member states and with the parliament, this new quota system is expected to be effective by the end of summer this year. Second, we expect Chinese steel exports to progressively reduce or at worst stabilize. Around 90 new protection measures against unfair steel imports have been introduced in 2025, and new ones are being planned in 2026. These measures are being introduced not only by advanced economies such as the E.U. or the U.S., but also by many and more and more emerging economies.
In effect, doors are progressively closing to Chinese steel export. In parallel, the Chinese government is taking action to curtail excess production and capacities. A new export license regime for steel has recently been introduced by the Chinese authorities this year as from January 1st. Controls of export taxes payments have been reinforced, and rules to approve new capacities and promote the retirement of obsolete capacities have been tightened. Due to these structural changes, we expect positive development in the steel markets outside of China with 2026 expected to be a transition year to accelerated recovery as from 2027. In 2025, each of the Flow Control and Advanced Refractories business units gained market share overall, thanks to a very good performance in Asia.
This strong performance in Asia was achieved not only in India, where we benefited from the global market growth, but also in China, where we increased our volumes by 3.7% in a declining market, thanks to our technology leadership. The division also gained market share in EMEA, thanks to good performance in the E.U. plus U.K. However, the division experienced a limited and temporary erosion of market share in the Americas, mostly due to one-off events with a closure or strong reduction of activity of some plants where we had a very high market share in Canada and the U.S., and continued customer destocking in Argentina. To be noted, as you can see there, that as a result of our diversification efforts over the past years, the Steel Division now sells more in each of Asia and the Americas than in EMEA.
It was completely different a few years ago. The steel division's revenue grew slightly last year, with stable volumes and a modest positive headline pricing. This positive headline pricing and a good delivery of our cost savings program were not sufficient, however, to compensate for the negative net pricing and mixed experience during the first half, especially in EMEA. As well as some one-off operational issues in North America. As a result, the division's trading profit declined 18.3% on a like-for-like basis, with EMEA accounting for close to three-quarters of this decline. Again, EMEA being the main issue, the rest of the world doing relatively well. The division's performance improved in the second half as positive net pricing was clearly re-established, and this positive net pricing again is fully expected to be maintained in 2026.
Operational issues in North America are being resolved and are now mostly over, paving the way for the expected ramp-up of our production in this Americas region later this year. The negative mix effect in EMEA is also now stabilized and is expected to reverse progressively when production and steel capacity utilization will improve in the EMEA region. Our global cost savings program will also continue to deliver in 2026 and will impact positively the result of the division. For all these reasons, we expect the division's results to improve as from this year. Let's now turn to the Foundry division. As you can see on this slide, Foundry markets remain challenging in 2025 in all regions, with a very important exception, Asia, with India and China doing quite well.
The decline was particularly important in E.U. plus U.K. and South America, which together represented 40% of the division sales last year. Europe continued to experience a deindustrialization trend, and South America was impacted by an increase in Chinese castings imports. India and China's market, now representing together around 22% of our sales, performed very well. This was not sufficient, however, to compensate the weakness in Europe and South America due to our geographic mix. We made good progress during the year in our strategy to increase our exposure to the faster-growing non-ferrous Foundry market and to decrease our exposure to the E.U. plus U.K. market. Regarding non-ferrous, to which we now dedicate more than 50% of our research and development efforts in the Foundry division. We could complete in November the acquisition of the Molten Metal Systems division of Morgan, exclusively focused on the non-ferrous markets.
Thanks to this acquisition, which now positions Vesuvius as the world leader in the crucibles markets, the percentage of our Foundry sales in non-ferrous is expected to reach 27% in 2026, as compared with 21% in 2025. This acquisition will also positively impact the Foundry division's results as from this year, thanks to significant cost and revenue synergies. In parallel, we are accelerating even further our development in India and in China with our sales in those countries growing by 20% and 7% respectively in 2025, and we expect this strong growth to continue going forward. As a result, the Foundry division's exposure to E.U. plus U.K. is decreasing progressively and reached 32% in 2025, as compared with 37% five years ago.
It is expected to decline further in 2026 and in the future. Despite market share gains in all regions and a strong performance in India and China, revenues of the Foundry division declined 1.5% last year on a like-for-like basis. Trading profit declined 11.2% also on a like-for-like basis. EMEA and South America accounted for more than 100% of this trading profit decline, meaning our trading profit in the rest of the world actually increased in 2025. The division also registered very good progress in its cost savings program during the year, and this is expected to continue in 2026. The full year integration of MMS and associated synergies will also positively impact the division in 2026.
As a result, we are expecting a significant improvement in the Foundry division's result this year in 2026. We maintained in 2025 our industry-leading investment in research and development at around 2% of our sales despite the difficult market conditions. This R&D spend, as you know, is fully expensed in our P&L. This allowed us to increase again our new product sales ratio during the year, defined as the percentage of our sales realized with products which didn't exist five years ago. We could launch 24 such new products in 2025, reinforcing our technology leadership in the market. Thanks to the productivity of our R&D organization, we maintain a full pipeline of new products to be progressively introduced this year and in the following years.
We also continue to experience success in the rollout of our robotics and mechatronics solutions. Those robotics and mechatronics solutions improve the safety, the productivity, and the quality of our customers' operations. They also drive recurring sales of consumables refractories through long-term contracts. We are now combining those robotics and mechatronics solutions with our laser scanning technology and AI to help our customers optimize their refractory usage and their steel yield. We are also strengthening our partnerships with the main steel manufacturing OEMs to embed our proprietary technology into upcoming new greenfield plants, driving market share growth. Our safety performance remained strong and industry-leading in 2025, despite the negative impact of our Turkish acquisition, which we are now fully aligning to the Vesuvius group safety standards.
The safety of our employees and of our customers' employees remains the number one priority of Vesuvius, and our ultimate objective is to become a zero-accident company. We also achieve good progress in our sustainability agenda, with a 31% reduction of our CO2 intensity as compared with our base year, 2019. This far exceeds the targets that we have set ourself in 2019 of a 20% reduction by 2025. This was achieved through a combination of improved energy efficiency in all our plants and the gradual shifting away from CO2-emitting energy sources in favor of non-emitting ones. We have now set ourself a new intermediary target in our journey to net zero, with an objective of 50% reduction by 2035.
I will now hand over to Mark, who will give you more information on our financials in 2025.
Thank you, Patrick, and good morning, everyone. Starting with the revenue bridge, my key message that we have once again grown our market share in what have been challenging end markets. Increasing and maintaining market share ensures we are well-positioned when growth returns to our end markets. Now looking at the bridge, revenue in 2024 was GBP 1.82 billion, and after adjusting for the stronger pound, our restated underlying revenue would be GBP 1.775 billion. You will note the volume impact is relatively small at GBP 4.2 million, but this masks a revenue increase from market share gains of 1.6%, offset by a market decline on a weighted average basis of around 0.8%. This weakness was driven mainly in the European Union, where steel markets declined by 4% and foundry markets declined by 5%.
This contrasts with India, where steel and foundry markets grew between 5% and 10%, and with other regions which were broadly stable. Looking at the price component, you will see an increase, but as always, we explain it is only relevant to look at net pricing as we aim to adjust our selling prices for changes in raw materials and other costs. I will therefore cover the pricing impact when taking you through the trade and profit bridge. You will see the benefit of our two acquisitions, which have had an in-year revenue impact of GBP 22.5 million. PiroMET, which serves our steel customers in the faster-growing MENA region, was acquired on the first of March. MMS, which serves our faster-growing non-ferrous foundry customers, was acquired in mid-November.
The annualized revenues of these acquisitions would be GBP 57.9 million if they had been in place for the full year. To summarize then, on a like-for-like basis, which excludes the benefit of acquisitions and the impact of Forex, our revenue increased by 0.6% despite a 0.8% reduction in our foundry and steel end markets. Now turning to trade and profit. You can see this has been a very challenging year, but one should look beyond 2025 and consider what this might mean for the years ahead. Firstly, it is predominantly a challenge for the EMEA markets, accounting for 80% of the trade and profit reduction. Secondly, we are well ahead of our cost restructuring target. As Patrick has outlined, the environment in Europe is going to change and an optimized cost base will serve us well when growth returns.
Now focusing on the bridge. Starting on the left, the full year currency impact was a headwind of GBP 9.7 million. An adjustment to this gives a trading profit of GBP 178.3 million and a ROS of 10%. The volume and mix delta is due to two factors. Firstly, the decline in European market for both steel and foundry, as mentioned earlier. Secondly, and linked to this, in the steel division, we have experienced the trading down to lower margin products, which is a feature of customers operating plants at lower capacity. At a lower capacity, the products they use do not need to be as durable, and therefore they utilize less expensive products given the shorter steel sequences.
It's important to note that we did not see a worsening of mix in the second half, and perhaps more importantly, we could expect to see both volume and mix improve once plant utilization in Europe increases. This should occur with the introduction of E.U. trade protection measures later this year. Pricing was an important topic in H1, and you may remember we experienced net negative pricing performance for the first time in a few years. In H1, we did not decrease price, but we were unable to fully offset the cost inflation that we experienced in EMEA and in China. The good news is that we delivered on our promise to rectify this, and we were able to reestablish our position of covering all costs and achieve a small surplus in the second half.
We expect to achieve net positive pricing performance in 2026, and we'll be carefully managing costs and price to enable this. The other positive is the performance achieved in our cost reduction program. Here we have delivered GBP 17.8 million of permanently lower costs, taking the total to over GBP 30 million since 2024, meaning that we have delivered on our original target one year ahead of plan. As well as the benefit of PiroMET and MMS on the bridge, you'll know we have had the impact of some production inefficiencies and the benefit of reduced management incentives. The latter is due to the lower level of trading profit. The production inefficiencies relate to two main areas. Firstly, some unforeseen challenges we experienced on our site rationalization program. An example would be where we shifted foundry activities from Germany and experienced both a productivity and some quality issues.
Secondly, we decided to increase our production capacity in the U.S. and in Mexico to benefit from increased steel production, as well as mitigate the impact of tariffs. These impacts are one-off in nature and will not repeat in 2026. Finally, within the other bucket, there were net positive one-offs in 2024, including commercial settlements and insurance recoveries, which did not repeat to the same extent in 2025. To quickly summarize, it's been a difficult year, but we've adapted well, but more importantly, positioned ourselves for a recovery in the not too distant future. Looking at the income statement, I've already covered the trading elements, so I'll address finance costs and minority interests. The finance cost, there was a slight increase reflecting the higher leverage following our capacity investments, acquisitions, and share buyback program.
Within the net interest charge, we also benefit from the reversal of accrued interest following a successful resolution of a tax matter. This had a one-off benefit to net interest cost of GBP 2.5 million. As a reminder, our technical guidance notes within these slides include some, amongst other things, an estimate of the interest charge for 2026. For minority interest, the charge is somewhat complicated. It reflects stable trading profit from our Indian businesses, with the profit being held back by the new capacity brought on stream. Of course, the impact of the MMS acquisition, where we acquired 75% of MMS and used the equity of Foseco India, which reduced our ownership. Given the complexity this year, we have provided guidance for the minority interest in the technical section.
Our full year headline EPS was GBP 0.342, which was down 17.7% on a like-for-like basis, reflecting the lower trading profit but also benefiting from the lower number of shares. Finally, turning to the dividend. The board has approved a small increase of 0.4% to GBP 0.236 per share for the full year, reflecting both a degree of cautiousness given the current political climate, but also the faith we have in our business model and the medium-term outlook for steel and foundry markets. While we are making slower progress on working capital than we would like, we maintain our objective to reduce our working capital intensity to 21%.
At the end of the year, we saw the unwind of the seasonal impact of H1, but also overcame challenges in the first half to maintain a respectable position of 23.4%. It should be noted that this measure is on a 12-month rolling average basis, and as such, we encourage our business to manage working capital all year round and not just at the half year and the full year. Our working capital position is reasonable, especially given that we have a strong position in Flow Control, where our business model means we hold a level of inventory at customer locations. That said, we will continue to focus on this area, not just because of the benefit to our cash flow, but because it's about building our operational discipline, and I believe we will see other benefits as we strive towards this target.
As a reminder, Vesuvius generates strong and consistent cash flows, and in the last three years, that has enabled us to fund GBP 100 million worth of additional capacity investments, complete two acquisitions, and fund GBP 100 million of share buybacks, all with a moderate increase in leverage. Our cash flow conversion has improved slightly from 69% to 75%, but we should see a marked improvement in 2026 and further improvements in the years ahead. Our CapEx is now coming down as guided, a reduction of GBP 15 million from 2024 to 2025, and it will come down to between GBP 70 million and GBP 75 million in 2026, as previously stated. We are targeting further reductions in working capital. As you can see from the bridge, we maintained our absolute level of trade working capital.
There have been some outflows of other working capital, but this is mainly due to two factors. Firstly, the year-over-year reduction in incentive accruals of around GBP 4 million due to declining trading profit. Secondly, delays in the recovery of VAT in Mexico and Brazil, also around GBP 4 million. We would expect both of these areas to be positive in 2026. Turning to net debt and leverage. Both have seen an increase in the period, and were mainly due to the completion of our second share buyback program, where we deployed GBP 35 million in the year and the acquisition of PiroMET and MMS.
Combining the above with our free cash flow of the year and the maintenance of our progressive dividend, our net debt now sits at GBP 452 million, with pro forma leverage at 2x. This is at the top end of our preferred range of 1x-2x. As previously mentioned, CapEx will come down, and notwithstanding the current uncertainties, we expect our trading profit to increase in 2026, and therefore we'll start to see leverage reduce towards the second half of the year. Before I hand back to Patrick, I would like to give you an update on our cost reduction program. Firstly, we are making good progress. As already mentioned, we have delivered almost GBP 18 million of in-year savings well ahead of what we guided to at the start of the year.
Savings under this program in the last two years were over GBP 30 million, which means we are one year ahead of our original plan. Unfortunately, these savings have been offset by market declines, but the important point is they are structural and permanent and will not reverse when market activity picks up. Why are we confident the savings are permanent, and what do they represent? Under plant footprint optimization, we have trimmed our footprint, either reducing or closing some of our smaller, less efficient plants. This exercise saw us taking action in Belgium, Italy, Turkey, South Africa, Malaysia, and in the US. Under automation in 2025, we completed projects costing GBP 3 million in the year, which resulted in a headcount reduction of around 90 people.
There are more projects in progress, and we expect to complete one of our biggest in 2026, which is the major automated central warehouse, our flagship plant in Skawina, Poland. Under OpEx, we are particularly focused on Europe, reducing both our sales overhead and our foundry organization and our finance organization, the latter being the direct benefit from the implementation of our ERP rollout program. You'll note that we are now targeting at least GBP 55 million of cash cost savings by 2028, which means we have a further GBP 25 million to achieve over the next three years. For now, we are guiding to GBP 10 million, but based on previous performance, we may do better as we progress through the year. The GBP 10 million will include the full year benefit of the savings made through 2025 and of course, new initiatives we will launch in 2026.
Our plan for the next three years consists of fully identified projects, and therefore we approach 2026 with a solid pipeline and feel confident in our ability to deliver. With that, thank you. Now back to Patrick for the outlook and the closing remarks.
Thank you, Mark. The impact of the recent events in the Middle East remains obviously difficult to assess. At this stage, we still anticipate that 2026 will mark a transition to recovery in the steel and foundry markets, with, in particular, the impact of trade protection measures in steel starting to have a meaningful impact on our steel markets as from the later part of the year. In 2026, our performance will benefit from the continued execution of our cost reduction program, from the full year contribution of our recent acquisitions, and from some modest volume growth. On this basis, we expect our cash flow to grow in 2026, both from improved trading profit and from investment CapEx returning to a normalized level, both of which will also reduce leverage.
While we are mindful of the current geopolitical uncertainty, absent an extended disruption, we continue to expect to deliver profit growth in 2026 in line with expectations on a constant currency basis. In the medium term, we continue to target a return on sale of 12.5%. Also, delivery along with our free cash flow target has been held back by the extended weakness in our end markets. However, with the prospect of more favorable market conditions as from 2027 and the support of our ongoing self-help measures, we still believe that our business model has the potential to reach our return on sale targets and to generate significant free cash flow. Thank you very much for your attention. I now propose to open the floor for questions.
All right. Good. Yeah. Just several, please. Just in terms of the situation in India, just trying to get the
Comment around obviously FIL percentage declining, but just in terms of the underlying performance in India, how are you doing notwithstanding that minority line? Are you making progress or not? Then how much sort of capacity utilization are you currently utilizing, and how much more scope have you got there? Secondly, just on the MMS synergies, just thinking about how they might sort of come through this year and next. Then lastly, just a couple of the sort of operational issues you alluded to. We should expect those to be corrected in the current year and then alongside that more sort of in terms of sort of compensation accrual or whatever the correct phrase is these days, just how should we think about those as a headwind in the current year, given a level of profitability, please?
Thank you. Regarding India, to cut a long story short, our businesses are performing very well in India, both foundry and steel. By the way, you know we operate through two listed subsidiaries in India, so it's very transparent. You can have direct access on the internet to the results of our Indian subsidiaries separated between steel and foundry because these are two different entities. You will see that our entities are doing very well. Good level of profitability. It's not only top line. We are doing very well in profitability in India, and we intend to continue to do well in India because we are not in the commoditized part of the Indian market. We are in the value-added part of the Indian market.
We are growing through technology, so we are growing with good margins and with good profitability, and we see no specific earnings insight for this successful business model. Where are we in terms of capacity? You know that we have recently invested in new capacity in India. At the pace at which we are progressing, which is good news, I think that we should be able to fill the new capacity that we have recently invested in India in Flow Control by 2028, 2029. And in Advanced Refractories, I would say 2029, 2030 or something like that.
We are already studying, which is again a very good news, because it's an illustration of our success in India. The possibility to increase production in Flow Control in particular further beyond what we already invested a couple of years ago. The good news is that we can do that at very limited CapEx. With on or around GBP 5 million CapEx, we can increase very significantly in the brownfield expansion of Flow Control capacity in India, to give us headroom beyond 2028, 2029. We don't see any obstacle, including no CapEx hurdle or the CapEx wall or whatever hurdle to our expansion in India. Regarding MMS. MMS to remind a few figures.
When we acquired, it's GBP 8 million EBITDA business on a yearly basis. We were planning to generate 50% of that for GBP 4 million synergies. Our latest estimate are higher than that. We believe that we will deliver more than GBP 4 million synergies through the integration of MMS. The timing of delivery is 24 months. It's between now and the end of 2027, with already this year some synergies being delivered, mostly in SG&A and which is the quickest to implement.
The manufacturing synergies will be delivered progressively between now and the end of 2027 to reach a final number, which we are confident today will be above GBP 4 million that we took into account at the time of the acquisition. The operational issues are now mostly behind us. Our team have been doing a good job, is continuing to do a good job. Those operational issues are mostly behind us. I know you want to add something, Mark.
I mean, yeah, we touched on it. The Foundry issue is probably around GBP 2.5 million, which is really just from the transferring of production from higher cost countries like Germany. In line with our strategy, but clearly when you do a lot of rationalization in one year, you have the occasional hiccup, and that's really what we experienced. As Patrick said, well behind us now. The ramp-up in the U.S. and Mexico is very much a tactical because you've seen obviously steel production go up in the U.S. Equally, it just gives us further protection against tariffs.
We've basically means that we import less from Europe, which where obviously there's still some tariff challenges between Europe and the U.S. Just on the. Did you want me to just touch on the other points that you raised? First, in the minority interest, recognize that those are in rupee. When the rupee weakens, that has an impact in terms of the overall minority interest charge. To your point on incentives, obviously this is the second tough year, so you'd expect management incentives to come down. The reduction this year from 2024 into 2025 is GBP 4 million. The headwind, assuming that we achieve our target, which effectively is close to consensus, would be about GBP 9 million.
All of that's reflected in our.
Keeping guidance in line with consensus.
Good morning, gentlemen. It's Andrew Douglas from Jefferies. Three questions, please. Can you talk about the speed in which you can ramp up if we get through the nonsense in the Middle East over the next few weeks, months? We've got a potentially very attractive improvement in the second half of 2026 into 2027. Can you talk about your customer ramp-up and your ramp-up and how long that may take? My understanding is it's roughly three months, but saying that I just sit in an office in London, so I don't really know. The second thing is, you're kind of broadly assuming 1% volume growth in your guidance for this year.
Can you just let us know, was that higher two weeks ago, three weeks ago, before we had the Middle East challenges? I'm just trying to figure out the 1%, whether that's a prudent number or whether there's a bit more behind that. Last, but by no means least, Harry's just stole my thunder. Can you remind us, the market share losses in America, you said that they were one-off. Have they unwound or is it just that they don't repeat? Thank you.
Thank you. Still ramping up in Europe in particular, we are very flexible. We have invested significantly in our operations over the years. Now we have a strong flexibility to ramp up our operations simply by adding more shifts in our operations. We are preparing to do that, by the way, already as we speak. We have organized our operations in a way that in around one month we can significantly ramp up our activities and our level of production in E.U. when E.U. steel production will start to recover.
Our operations are much more flexible than they used to be because we have organized the management of our employees in a way to keep the competence needed by developing the polyvalence of our employees. What would have taken us four or six months a few years ago can now be done in one month in terms of ramp up possibilities. It's a good advantage that we have in Europe. The 1% volume growth, no, was not changed a few days ago following the Gulf.
It was a discussion that we had some months ago between ourselves, what was a reasonable assumption. One of the important point is when exactly during the year the new trade measures in Europe become operational? Then you have different versions when some of our colleagues at EUROFER expect them to be effective as from the first of July. If they are right, then our 1% could be a little bit conservative, I can only agree.
We always take a little bit of caution on safety margin, and we see more likely that this will be implemented as from what we say is the later part of the year, whatever that means, mostly Q4 than but then maybe more Q4 than Q3. We decided to base our guidance on what you may consider as a conservative assumption, but I think that it's we see that as a normally cautious 1% volume growth assumption. The market share loss in the Americas, it's these are mostly one-off.
You have on one hand, some plants which are closed, or those ones are one-off which will not recur, because they are closed, they will not reopen most probably. It's done. You have destocking in Argentina. This will reverse, because the destocking in Argentina is good news, because it means that our customers in Argentina has had an habit of building huge stocks of refractories, because they were never sure when they could get hard currency out of the country because we sell in hard currency in Argentina.
Now that the economic situation is normalizing, I would say in a positive way in Argentina, our customers there feel less of a need to have precautionary stocks. They have destocked, but now they are reaching a normal level, so we should have a positive impact there in the course of 2026. Canada, where we have some very high market share customer curtailing production. It's more of a geopolitical issue. The ability of our Canadian customer to ramp back up production will be heavily dependent on the outcome of the renegotiation of USMCA, which will take place, as you know, this year. All in all, we don't expect that it will be a recurring event.
This very slight loss of market share in the Americas should not happen again in 2026 and beyond. We don't see that as likely.
Thank you.
I think it might be me next. I'm Thomas Elgar from Deutsche Numis.
Couple from me. Can we just on the bridge, like cut it a different way? I think we've obviously had the 2025 color around the reduction in EMEA. If we think about the 2026 year-on-year in EMEA, what are the assumptions there in terms of trading profit? Secondly, I mean, are there any pre-buying effects or influences that you are seeing or considering around the amount of legislation that is coming in, you know, from CBAM and in Europe as well? Just potential for the market to move perhaps quicker or slower, any risks or opportunities around that from a customer perspective. Then thirdly, just on picking up on the robotics piece as well. You talk about the greenfield opportunities there. Are all the opportunities greenfield or the retrofit market in terms of getting into existing brownfield?
I mean, obviously with the opportunity to have longer term contracts and drive market share gains from the consumer's perspective, clearly that should be a positive focus. Could you just remind us around how you're approaching that from a strategy perspective?
I will let Mark answer the first question. I will answer the last two. These trade protection measures have been talked about for years, as you know, right? It has been a very long maturation process. Our vision today is that the risk that those will not be implemented is very low. All the recent events of the world rather increase the probability that they will be implemented even further, or maybe even that there will be new measures being introduced in the same direction over the coming years. You know, for example, that the European Union will introduce quotas for steel.
One of the things which is now under discussion is if the European Union should not do like the U.S. is doing, also looking at steel containing goods imports. A washing machine or when we import a washing machine in the U.S. today, you are being taxed based on the steel content of this washing machine. It's not the case yet with this new legislation in the E.U., but you already have talk about expanding the scope of these trading measures, not only to import of steel, but to the import of steel containing goods, in some respect, aligning on the playbook of the U.S.
The trend of legislation is clear, and I don't see anything in the current geopolitical event which would decrease the probability that it would be implemented. It's rather the other way around. We see more and more trade barrier, and especially in the steel sector. You know that the steel is not affected by the recent decision of the Supreme Court. The tariff struck down by the Supreme Court are not the steel tariff, which are the different legal foundation than the one having been struck down by the Supreme Court. Tariffs are still clearly here to stay on a long-term basis, and we see them more and more in more and more countries worldwide.
Well, like in my opinion, relatively few uncertainty about this. Your point about the mechatronics, robotics, clearly we are very interested and we have a strong focus on new projects. I think it's the majority of new greenfield projects coming on stream are using our technology, not 100%. We are aiming for 100%, but the majority of them are using our technology. We have a new plant which will start in Mexico soon with our technology. A new plant will start in Sweden with our technology.
We are in negotiation with new important greenfield projects also both in Europe and in the U.S. with our technology. Clearly greenfield, we are doing well. Brownfield is obviously an area of focus. We have already a significant pipeline of brownfield products. The fact one of the difference for brownfield is that we need our customer to have a little bit of money to invest in their existing operation. The fact that steel prices even if steel prices do not have a direct impact on us, unfortunately, we would love sometimes, I'd say. We are influenced by steel volumes more than by steel prices.
The fact that steel prices are going up is improving the financial situation of our customers. It gives them also more leeway to invest in the modernization of their operations. We have seen our customer over the past 18 months up until the end of last year being, for some of them, relatively cash trapped and having to reduce their overall CapEx, not only for robotics, but generally speaking, to reduce their CapEx.
The fact that now the financial situation of the non-Chinese steel producers is improving for this brownfield project is a good news because we expect that it will give them more financial resources to implement what they have been thinking about for some time, and which they could not do up until now because of a lack of financial resources. The first question?
Yeah. I think first of all, if you step back and just look at our kind of g lobal assumptions, we're saying 1% volume plus maybe a little bit of price mix benefit, but we're talking very small numbers in terms of our working assumptions. We're assuming broadly price to cover cost inflation. That's for the group as a whole, which obviously includes the likes of India and U.S., where you can get a sense that we're taking quite a cautious view on Europe. If I look specifically at Europe, although we expect some benefit from the trade protection measures, we're not really factoring that in in any great amount into our full year. Pricing, obviously this year, we suffered the hit in H1. We're assuming that we're gonna just cover cost across the year.
We're not really taking any benefit from mix. I think if and when we start to see that progress through the year, then that would be the time for us to think a bit differently about Europe. For now, we just wanna keep it at a sensible level. I think, you know, behind that, as Patrick is implied, we are cautious. I think for the last two, three years, obviously everybody in the industrial world has tried to predict a second half recovery, and we just don't wanna be in that place where we try and predict it, and it doesn't happen. We just wanna keep things at a sensible level.
Good morning. Hi, it's Jonathan Hurn from Barclays. I have three questions as well, please. Firstly, can I just come back to this capacity expansion you have in the business? Obviously, that's completed. You're saying that that's not gonna get filled probably for the next couple of years. Can you just give us a feel for the level of overhead under absorption that's currently running in the business there, please? That was the first one. The second one was just on Foundry. Obviously, the mix is changing geographically and you've highlighted that. Can you just give us a rough feel for the profitability by regions within Foundry? And then the third one, I suppose quite short-term, is just on freight rates and just where you are on that. Are you hedged?
Is there gonna be any impact coming through, in 2026 from the, obviously the issues that we're having in the Middle East and the follow-through from that? Thanks.
I will let Mark answer the first question. We have invested in new capacity, mostly in India, mostly in India. We had historical capacities in Europe which were not completely filled. We expect this to improve going forward. We have available capacity in Europe which will, we expect, will be gradually better and better utilized over the next couple of years. We have adapted in Europe the staffing of this capacity to limit the negative fixed cost absorption impacts that you were mentioning.
At the same time, built in flexibility to add one shift, two shifts to our operations in a quick way when the market demands. We expect the negative fixed cost absorption even in Europe and in steel to be limited even this year and even more in the following years. In Foundry, we are doing the same thing. We are also limiting the negative fixed cost absorption by adapting our staffing of the plants to the level of demand. In India, in Flow Control, we honestly are already going very, very fast in terms of growth.
We already have no negative fixed cost absorption problem in Flow Control. Our problem is more to add new capacity as rapidly as possible. In Advanced Refractories, we just completed the investment last year. The commissioning was last year, so at the beginning. We add some fixed cost absorption as anyway, you cannot fill that. Fortunately, we don't fill all the capacity in six months. Otherwise, we need to have the CapEx every six months. I think that as from this year, as from 2026, we will reach a good level of utilization of our new capacities also in Advanced Refractories.
I don't expect significant fixed cost absorption issue this year, neither in India nor in Europe. The profitability per region, we are not giving specific number, but what is important is that we have no region where we are losing money. Otherwise, we would not be in this region. We are not there for top line, we are there for profit. There is no region where we are losing money in Foundry. This being said, there are regions which used to have a very high level of profit, which have now a significantly lower level of profit, mostly Europe, EMEA, and South America.
We have had a declining trend, still positive, but declining trend of profit in EMEA and South America over the past couple of years. Conversely, in the other region, in the rest of the world, and in particular in Asia, we have a stable or growing trend of profit. As I mentioned during the presentation, in the world outside of EMEA and South America, our profit increased in Foundry last year. Despite the difficult environment, we are in the world which represents 60% of our sales, we increased profit on 60% of our sales, but we had a significant decline of profit on 40% of our sales, which are EMEA and South America.
We are working simultaneously, first to stem the decline and go back on an increasing trend in EMEA and South America, but also to accelerate even more the growth of our profit in the other 60%, which are, by the way, representing 60% last year, but it will be more than 60% in 2026 and more and more over time. We are trying to accelerate even more. You've seen that last year we grew 20% in India, 7% in China. We are making a lot of efforts to grow in this other part of the world.
Yeah. To your question on under absorption. The issue for us is clearly Europe. You can see if you think about the volume, the volume on the bridge of GBP 30 million, 65% of that is Europe. We describe it as volume and mix. There's parts of that is trading down, and part of that is pure volume under absorption. It's hard to get very precise on the split between the two, but broadly speaking, I would think it's roughly 50-50, would be how I'd portray it.
You could say the under absorption impact this year is around GBP 10 million, which obviously is the both the GBP 10 million of volume and the GBP 10 million of product mix are the things that you would like to see recover if Europe picks up.
The freight this quarter. Sorry, just the freight rates.
Sorry, freight rates. Freight.
Freight rates. Just in terms of any impact from that near-term, just to
Freight rates, we are monitoring on a daily basis as you can imagine, because it's there is news every day, if not twice a day. For our freight rates will be a pass-through. We have no. First, we don't have any disruption. The only place where you have the highest risk of disruption is in India with gas, as you know. You've read the news. The Indian government is putting everybody more or less under allocation for gas, including our customers. We'll see what will happen in the coming days and weeks. Freight, there is no sign of disruption. We have no problem of getting all of the product we need.
The freight rates are increasing, but for us it will be a pass-through. We are already passing this through the price of our finished product. Lush.
Hiya. Lush Mahendrarajah from JP Morgan. I've got two, I think. The first is just on the E.U. restrictions and quotas. Obviously, that's gonna be a net positive for the group. Is there anywhere we should think about a bit of a headwind offsetting a little bit of that? You know, I know China's a small part, but I'm thinking Southeast Asia, India, Turkey, where you might be benefiting from exporters currently. Just any views there on maybe the other side of that equation. The second is just on the Middle East. I think the direct impacts are clear, but just the indirect side. I mean, do many of the European steel manufacturers rely on sort of energy from there? Sort of do you think there's some disruption risk there?
Then also just thinking about working capital as well and sort of that focus on intensity, you know, how do you balance that with maybe having to build some buffer stocks, I guess, if there is a bit of supply chain disruption? Thank you.
Thank you, Lush. It's a very good question, your question about the E.U. quotas. Even if China is not today a very important direct importer of steel into the E.U., we believe that at the end of the day, it's mostly China who will suffer, if I may observe, this reduction in quotas, this installation of new import quotas in the E.U. Because those countries which are for the time being importing steel into the E.U. are themselves putting in place restrictions on import of other type of steel.
At the end of the day, our most likely scenario is a scenario where the increase of steel production in the E.U. or even in North America, the main compensation will be in a decrease of steel export from China. You may have seen, by the way, that already beginning of the year you have a declining trend of steel export from China. To be confirmed, you cannot extrapolate with two months, but it's you already have beginning of this year a change of trend in Chinese net steel export. We don't expect significant headwinds elsewhere.
The impact of the Middle East on the European steel difficult to predict, but one point, blast furnaces, not only in Europe but anywhere, are not particularly influenced by what is happening in the Middle East because they are not using gas, they are not using electricity, they are even producing electricity for many of them. All the blast furnace-based producers in the E.U. are still a lot of blast furnace-based producers. Those ones have no reason to be particularly impacted. On the contrary, it may give them some advantage vis-à-vis some electric furnace producers.
The one to watch are the electric arc furnace-based producers, depending on how electricity prices will be impacted or not. You know that in Europe it's a very complex topic because the link between electricity prices and gas prices. There is a link even if from a physical point of view. Gas-based electricity generation is only a relatively small part of electricity production in the E.U. The way regulation will be applied and implemented will play a role.
There is no objective reasons why there is no physical reasons, if I may, why electricity prices should be dramatically impacted by the rise in gas prices only on a marginal basis, not on the average price basis. Seen from today, especially because the E.U. system is a quota system, it's not a tariff system. It's a quota system saying you cannot import more than X into the E.U. We do not see, as from today, again, to be revised in the coming months, but we do not see with the information in our possession today why there will be a significant disruption in steel production in the E.U. unless the conflict in the Middle East will go to an completely different level. B ased on what is happening today, we don't really see that.
On working capital, I think both of us feel that even today we still hold too much finished goods and too much raw materials. It's a constant bugbear to when you go around the plants, you always feel that they've got too much of the same thing. We're not seeing any drive to have that increase today. I think the only caveat would be if customers get nervous, particularly in Europe and they wanna have more flow control products on site. For us, that would be a good investment in working capital if that's, you know, if that's where the demand is because that just gives us continuity of supply and makes us harder to swap out with other customers. I still think that we have a high level of confidence we'll get the intensity down this year.
Thank you.
Mark Fielding from RBC. Can I firstly follow up on working capital actually, just in terms of, as you said, you know, not making quite the progress you hope towards the 21% target at present. When do you think you will get there? I suppose just, you know, what is the timeline and maybe just a bit more detail on what are the barriers so far. Secondly, quite a simple modeling question, which is in the GBP 6 million profit benefit from acquisitions you've talked about for this year, does that include some of those synergies that we talked about? And if so, how much within that? Thirdly, a slightly bigger picture question also tying to those sort of reaffirmed longer term targets. I mean, you know, 12.5% margin, we're some way off that at present.
What level of volume and potentially price mix recovery does the business need to see given that you have done better on the cost saving side than you thought?
I'll do working capital and synergies. On the working capital, the challenges we are by design a decentralized organization with plant management and region RVPs being fully empowered to make all their decisions in terms of how to run the business. Our systems are not where they need to be, and we're getting there, but they're not quite where they need to be today. To get the number down requires you to be everywhere around the business to insist on better practices. We can't just flick a switch and suddenly have everyone start doing things in the way they should do. That's the challenge.
The challenge is really, you know, having an SAP system that is consistent for every single plant and region around the world, which gives people stronger visibility on whether the right things are being produced and the right reorder points are being used for raw materials. It's a hard task, and the systems need to come on board for us really to see the improvement. I think we're still targeting 21% over the next couple of years, but it's hard yards to get to that point. I think just on your point on the synergies, we are basically focused on OpEx savings this year for MMS.
The real savings which will be around the manufacturing footprint would take place in 2027. There's a small amount of synergy in that GBP 6 million number, and the bulk of the synergies will come through in 2027. Obviously, we'll be working hard to try and get it ahead and do it in 2026, but we're not factoring that into our guidance at this stage.
Regarding our long-term target, obviously, this supposes that there will be recovery in our market. Again, what we see today really makes us believe that this recovery in our end markets, in our markets, in steel market in particular, outside of China, are on their way. The structural elements are gradually falling into place for this recovery. In the medium term, in the coming few years, when this new regulation will progressively produce its full effect, you know that CBAM, for example, is gradually ramping up, and so introduced as from January this year, but the screw is being tightened year after year.
The quota system, the fact that the protection of the U.S. may well extend at some point to North America. You have important new greenfield plant projects being planned in North America. You have one started in Mexico. You have Hyundai planning a new greenfield steel plant in Louisiana for 2029. All this goes in the direction of a reinforcement of steel production in two of these regions which are very important for us, North America and E.U. plus U.K. This makes us, again, we don't have a crystal ball.
Many things can happen, but based on the market analysis and market data that we have today, this makes us reasonably confident that the conditions will be there in terms of volume, in terms of price, because the reestablishment of a positive net pricing is not a one-off. It's more the negative net pricing of first half, which was a one-off. We are back in normal territory of positive net pricing. Mix will come back, we believe. First, mix never went away in those regions where steel producers needed to operate at normal capacity. We had this mix negative phenomena mostly in Europe, where because of the very difficult situation, our customers had to operate well below capacity.
Either some margin for errors or margin of inefficiencies in their plant now that they will be willing to operate closer to the nameplate capacity of their operations. The value we use of our products, of our most sophisticated product, becomes very significant. We are quite confident that the negative mix impact will gradually reverse, especially in Europe. All this, when you put that together, in the medium term, this is why we continue to believe in the fact that we have the potential to achieve those targets.
Thank you.
Any further question? Thank you very much. If there is no further question, I would like to thank you for your attention today and wish you a very good day. Thank you very much to all of you. Goodbye.