27 July 2023

Half Year Results for the six months ended 30 June 2023

Resilient results ahead of our expectations, despite difficult market conditions

Modest increase to full year expectations

Vesuvius plc, a global leader in molten metal flow engineering and technology, announces its unaudited results for the six months ended 30 June 2023.

 

Financial summary		H1 2023 (£m)	H1 2022 (£m)	Year-on-year change	Underlying change(1)
Headline (non-statutory)
Revenue		995	1,016	(2%)	(3%)
Trading Profit (2) (adjusted EBITA)		105	127	(18%)	(18%)
Return on Sales (2)		10.5%	12.5%	(200 bps)	(190 bps)
Headline basic EPS (2) (pence)		24.5p	31.4p	(22%)
Adjusted operating cash-flow(2)		71	33	114%
Net Debt (2)		268	328	(18%)
Statutory
Operating Profit		100	122	(18%)
Profit Before Tax		95	117	(19%)
Statutory basic EPS (pence)		23.2p	30.0p	(23%)
Cash generated from operations		107	69	55%
Dividend (pence per share)		6.8p	6.5p	5%

⁽¹⁾ Underlying basis is at constant currency and excludes separately reported items and the impact of acquisitions and disposals.

⁽²⁾ For definitions of non-GAAP measures, refer to Note 15 in the Condensed Group Financial Statements.

NB. The above table and other tables in this results statement contains amounts and percentages derived from source data which was then rounded. The margins and percentage change figures are based on source data, not the rounded figures. 

 

Half Year 2023 Highlights

·     Group trading profit down 18% v. H1 2022 but improved against H2 2022

o   Subdued market conditions in Steel have led to volume declines vs. H1 2022. This was partly mitigated by good pricing performance

·     Steel business performed well, ahead of our expectations, due to pricing resilience in our technologically differentiated products and solutions

o   Pricing has partially offset the impact of lower volumes

o   Return on Sales down 310 bps vs. H1 2022 (underlying) due to volume declines, but improved by 160bps against H2 2022

·     Good recovery of the Foundry business

o   Divisional trading profit up 18% and return on sales up 130bps (underlying) vs. H1 2022

o   Trading Profit and RoS have grown sequentially between H1 2022, H2 2022 and H1 2023

·     All Strategic initiatives progressing and on track

o   Growth capex in India to support expansion of Steel businesses in this fast-growing region

o   14 new product launches supported by sustained effort in R&D

·     Strong progression in adjusted operating cash-flow despite significant growth capex

o   Cash conversion improving to 67%

·     Strong balance sheet with net debt / EBITDA at 1.0x

·     Dividend per share +5% reflecting confidence in the long-term prospects for the business

·     Further progress in sustainability, reducing our CO₂ footprint and supporting our customers' sustainability efforts

·     Lost-time injury rate down to 0.7 in the period, our best performance on record

 

Comment from Patrick André, CEO:

 

"Despite difficult market conditions, especially in the steel sector, we have performed well in the first half of the year, exceeding expectations, thanks, in particular, to a very resilient pricing performance.

 

The Foundry division has confirmed its recovery, which should continue in 2024 when the destocking movement in the Foundry sector will have come to an end.

 

We expect to maintain pricing discipline in the second half of the year, and we are progressing our efforts to gain market share through technological differentiation. As a consequence, noting typical seasonality and despite remaining macro-economic uncertainties, we feel confident to modestly increase our full year expectations."

 

Presentation of Half Year 2023 Results

Vesuvius management will make a presentation to analysts and investors on 27 July 2023 at 08:30 UK time at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS. For those unable to attend, the event will be livestreamed and can be accessed by clicking here. Participants can also join via an audio conference call. Please click here to register.  Once registered, you will be provided with the information needed to join the conference, including dial-in numbers and passcodes. Be sure to save this information in your calendar. 

For further information, please contact:
Shareholder/analyst enquiries:
Vesuvius plc	Patrick André, Chief Executive	+44 (0) 207 822 0000
	Mark Collis, Chief Financial Officer Rachel Stevens, Head of Investor Relations	+44 (0) 207 822 0000 +44 (0) 7387 545 271
Media enquiries:
MHP Communications	Rachel Farrington/Ollie Hoare	+44 (0) 203 128 8570

 

Save the date: Capital markets event - afternoon of Thursday 16 November 2023

 

About Vesuvius plc

Vesuvius is a global leader in molten metal flow engineering and technology principally serving process industries operating in challenging high‑temperature conditions.

 

We develop innovative and customised solutions, often used in extremely demanding industrial environments, which enable our customers to make their manufacturing processes safer, more efficient and more sustainable. These include flow control solutions, advanced refractories and other consumable products and increasingly, related technical services including data capture.

 

We have a worldwide presence. We serve our customers through a network of cost-efficient manufacturing plants located close to their own facilities, and embed our industry experts within their operations, who are all supported by our global technology centres.

 

Our core competitive strengths are our market and technology leadership, strong customer relationships, well established presence in developing markets and our global reach, all of which facilitate the expansion of our addressable markets.

 

Our ultimate goal is to create value for our customers, and to deliver sustainable, profitable growth for our shareholders giving a superior return on their investment whilst providing each of our employees with a safe workplace where they are recognised, developed and properly rewarded.

 

We think beyond today to create solutions that will shape the future for everyone. 

 

Forward looking statements

 

This announcement contains certain forward looking statements which may include reference to one or more of the following: the Group's financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters.

 

Statements in this announcement that are not historical facts are hereby identified as "forward looking statements". Such forward looking statements, including, without limitation, those relating to the future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, in each case relating to Vesuvius, wherever they occur in this announcement, are necessarily based on assumptions reflecting the views of Vesuvius and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward looking statements. Such forward looking statements should, therefore, be considered in light of various important factors that could cause actual results to differ materially from estimates or projections contained in the forward looking statements. These include without limitation: economic and business cycles; the terms and conditions of Vesuvius' financing arrangements; foreign currency rate fluctuations; competition in Vesuvius' principal markets; acquisitions or disposals of businesses or assets; and trends in Vesuvius' principal industries.

 

The foregoing list of important factors is not exhaustive. When considering forward looking statements, careful consideration should be given to the foregoing factors and other uncertainties and events, as well as factors described in documents the Company files with the UK regulator from time to time including its annual reports and accounts.

 

You should not place undue reliance on such forward looking statements which speak only as of the date on which they are made. Except as required by the Rules of the UK Listing Authority and the London Stock Exchange and applicable law, Vesuvius undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward looking events discussed in this announcement might not occur.

 

Vesuvius plc, 165 Fleet Street, London EC4A 2AE

Registered in England and Wales No. 8217766

LEI: 213800ORZ521W585SY02

www.vesuvius.com

Vesuvius plc

Half Year Results for the six months ended 30 June 2023

Resilient results despite difficult market conditions, ahead of our expectations

 

£m	H1 2023 Reported	Acquisitions / Disposals	H1 2023 Underlying		H1 2022 Reported	Currency	Acquisitions / Disposals	H1 2022 Underlying		Reported % Change	Underlying % Change
Revenue	995	-	995		1,016	14	-	1030		(2%)	(3%)
Trading Profit	105	-	105		127	1	-	128		(18%)	(18%)
Return on Sales	10.5%		10.5%		12.5%			12.5%		(200 bps)	(190 bps)

 

Group trading performance ahead of our initial expectations

In H1 2023, the Group generated revenues of £995m, a slight decrease of 2% compared to H1 2022, on a reported basis and a 3% decrease on an underlying basis, reflecting the effects of currency translation. The negative impact of declining volumes (-8%, principally due to the declining steel production markets and to some destocking of refractories and foundry products) has been partially mitigated by sales price increases.

 

Trading profit (adjusted EBITA) was ahead of our expectations at £105m. It represents a drop of 18% on both a reported and underlying basis as compared with H1 2022, reflecting the drop-through impact of declining volumes, partially offset by a small positive balance between the increase in sales price and rising costs. Consequently, the Group achieved a return on sales of 10.5% in H1 2023, a decrease of 200 bps compared to H1 2022 on a reported basis but an increase of 130 bps versus H2 2022.

 

Adjusted operating cashflow has been good in the period and significantly ahead of that in H1 2022, up 114%, with cash conversion of 67% despite significant capex (£45m) including growth capex to support our expansion and development plans. 

 

The pace of recovery of our end markets remains uncertain

Steel production in the world excluding China and Iran, which accounts for approximately 90% of Vesuvius' Steel division sales, has started to recover in Q2 2023 from the low levels of the previous 6 months but the pace of this recovery is uncertain, in particular in the long steel sector, affected by the general weakness of the construction sector. As compared with H1 2022, steel production in H1 2023 decreased by 4.5% year-on-year to the end of June (Source: the World Steel Association), with most major geographies recording volume declines in the period except for India and China.

Foundry end markets have started to recover, with year-on-year end market growth especially strong in India and China, low single digit end market growth in NAFTA and EMEA more than offsetting  declines in South America. The Foundry division hasn't however fully benefited yet from this end market recovery due to a destocking movement of casting products in some important regions. We expect this destocking movement to come to an end towards the end of the year.  

 

Selling price increases have fully offset inflationary pressures

Our active management of selling prices has successfully offset continued cost inflation, continuing the pattern of 2022. The success of our sales price management reflects the importance that customers attribute to the technological differentiation that we offer alongside on-site support which ensures the consistent performance of our products in practice.

 

Technological differentiation at the heart of our strategy

Technological differentiation is at the heart of our strategy to grow market share and margin. We have launched 14 new products in the period and delivered a new product sales ratio (defined as the percentage of sales derived from products launched in the previous 5 years) of 16%.  Examples of new products having been launched include, in the Steel division, "LTC34", a flow-control product that integrates with our robotics solutions to minimise contact between molten steel and atmospheric gases, to maximise the quality and purity of steel produced and the Tundish Dry Vibratable Robot, an Advanced Refractory product which is a new automated system to layer refractories in the tundish. In the Foundry Division, we have also launched several new products in the period, including Wasco, for high pressure die casting (HPDC) processes, used by aluminium foundries. It enables HPDC foundries to manufacture castings with complex internal structures - facilitating weight saving, assembly cost reduction and the formation of larger and more complex shapes.

 

Capital investment projects continue at pace, to support growth

Capex, excluding leases, in FY23 is expected to be c. £100 - 110m of which approximately half is allocated to growth projects and customer installations, which drive the use of our refractories. This is part of a larger growth capex programme which was initiated in H2 2021 and will be largely completed by June 2024. It will support our long-term growth in the fastest growing regions of the world in the coming years, especially in India South-East Asia and Middle East Africa.

 

Our strategic expansion in Flow Control is progressing well. The new VISO capacity in Kolkata, India was completed in Q1 as planned, adding 50% to original capacity, and is now operational, helping Vesuvius fulfil the strong demand in the region. The investment in VISO in Skawina, Poland, increasing capacity by 35%, has been completed and is now operational, and the Slide Gate investment at the same site, to double EMEA capacity, is on track to be completed by the end of this year as planned.

 

In Foundry, we are making good progress on our two major capex projects. The first is in China in non-ferrous flux production to support market share gains in Chinese aluminium foundries, and the second is in the US where we are upgrading our coatings production line to support market share gains in this important product where our technological differentiation is significant. Additionally, there are a number of smaller sustainability-related projects which will also generate attractive cost savings, such as adding solar panels at our Ramos Arizpe plant in Mexico, which will become Foundry's first fully carbon neutral plant.

 

In totality, the EBITDA benefit of this programme of expansion capex is expected to be c. £40m per annum, achieved in 2026 / 2027.

 

Working capital

Trade working capital at 30 June 2023 increased by £31m versus 31 December 2022 on a constant currency basis as the challenges of the cyber attack in the first quarter have slowed down our efforts to reduce inventories. However, working capital as a percentage of sales is now on a falling trajectory, having peaked in February on a three-month rolling average basis.

 

Further improvement in our health and safety performance

Health and safety is of paramount importance and we have an overall aim of zero accidents. In the half-year, we achieved a Lost Time Injury Frequency Rate (LTIFR) of 0.72, a substantial reduction compared to 1.07 in H1 2022 and the best result ever achieved by the Vesuvius Group.

 

Progress in our sustainability objectives

Vesuvius is focused on both improving our own sustainability performance and helping our customers reduce their environmental footprint. We are continuing to make strong progress in the reduction of our CO₂ footprint and are proud that our latest Sustainalytics score was upgraded for the third year in a row. We are now in the top 14^th percentile of our peers.

 

We have also recently received the ecoMetals 2023 award for our SEMCO coatings products which offer our customers the benefits of at least 50% faster drying times, at least 20% reductions in formaldehyde emissions and at least a 90% saving in energy. This is one of the many products where improved environmental performance plays a key role in the value that we provide to our customers.

 

Interim Dividend

The Board has declared an interim dividend of 6.8 pence per share, which is a 5% increase on the interim dividend for 2022 of 6.5 pence per share.

 

The interim dividend will be paid on 15 September 2023 to shareholders on the register at the close of business on 4 August 2023. The ex-dividend date will be 3 August 2023.  Any shareholder wishing to participate in the Vesuvius Dividend Reinvestment Plan needs to have submitted their election to do so by 24 August 2023.

 

Outlook

 

Despite difficult market conditions, especially in the steel sector, we have performed well in the first half of the year, exceeding expectations, thanks, in particular, to a very resilient pricing performance.

We expect to continue to maintain pricing discipline in the second half of the year and we are progressing our efforts to gain market share through technological differentiation. As a consequence, noting typical seasonality and despite remaining macro-economic uncertainties, we feel confident to modestly increase our full year expectations.

 

 

Operating and Financial Review

Basis of Preparation

All references in this operating and financial review are to headline performance unless stated otherwise. See Note 15.1 to the Group Financial Statements for the definition of headline performance. We also look at underlying performance, adjusting for effects of currency translation, (restating the previous period's results at the same foreign exchange (FX) rates used in the current period), acquisitions and disposals (removing the results of acquired or disposed-of businesses in both the current and prior years). See Note 15.2 to the Group Financial Statements for the definition of underlying performance.

Operating review

Vesuvius comprises two Divisions, Steel and Foundry. The Steel Division operates as three business lines, Flow Control, Advanced Refractories and Sensors & Probes.

 

£m	H1 2023 Revenue			H1 2022 Revenue				% change
	As reported	Acquisition/Disposals	Underlying	As reported	Currency	Acquisition/Disposals	Underlying	Reported	Underlying
Steel	711	-	711	744	11	-	755	(4%)	(6%)
Foundry	284	-	284	272	3	-	275	4%	3%
Total Group	995	-	995	1,016	14	-	1030	(2%)	(3%)

 

Group revenue has dropped 2% on a reported basis, reflecting growth of 4% within Foundry and a fall of 4% in the Steel business unit, both on a reported basis. Changes in FX, principally the USD relative strength to GBP, provided a £14m tailwind, resulting in a 3% underlying revenue decline year-on-year. This change comprises a £81m (c.-8%) impact from declining volumes, principally in Steel, in part due to the reduction in steel production volumes in the world excluding China and Iran of 4.5% in the half-year and some market share losses in Advanced Refractories. This has been partially offset by price rises to offset costs of £46m (c. +4%).

 

£m	H1 2023 Trading profit			H1 2022 Trading profit				% change
	As reported	Acquisition/Disposals	Underlying	As reported	Currency	Acquisition/Disposals	Underlying	Reported	Underlying
Steel	75	-	75	102	1	-	103	(26%)	(27%)
Foundry	30	-	30	26	-	-	25	17%	18%
Total Group	105		105	127	1		128	(18%)	(18%)

 

Group trading profit has dropped 18% on both a reported and underlying basis, reflecting growth of 17% within Foundry and a fall of 26% in Steel, on a reported basis. The underlying year-on-year change comprises a £32m impact from declining volumes, as volume reductions had a drop-through impact of c.40% relative to revenue, reflecting the under-absorption of overhead. This was partially offset by a net gain of c. £11m as the increase in sales price and the benefit of positive mix modestly outweighed rising costs in the period. Cyber remediation costs of £3.5m were also included in trading profit in the period.  

Return on sales, defined as trading profit divided by revenue, was 10.5% for the Group, a reduction of 200bps from 12.5% in H1 2022 and of 60 bps versus 11.1% reported for FY22, reflecting the impact of a 18% drop in trading profit relative to a 2% reduction in revenue.

Half-year comparison

Underlying on a constant currency basis		H1 2023 (£m)	H2 2022 (£m)	H1 2022 (£m)
Steel revenue		711	722	755
Foundry revenue		284	272	275
Total Group revenue		995	995	1030
Steel trading profit		75	64	103
Foundry trading profit		30	28	25
Total Group trading profit		105	92	128
Steel RoS		10.5%	8.9%	13.6%
Foundry RoS		10.6%	10.1%	9.3%
Group RoS		10.5%	9.20%	12.5%

The table above shows the current and past two half-year periods all at constant currency.

As shown above, on a sequential basis, Foundry has shown two successive half-year periods of improvement and Steel is also on an improving trend versus H2 2022.

 

Steel Division

 

Steel Division		H1 2023 (£m)	H1 2022 (£m)	Change (%)	Underlying change (%)
Flow Control Revenue		401	402	-	(2%)
Advanced Refractories Revenue		290	321	(10%)	(11%)
Steel Sensors & Probes Revenue		20	21	(2%)	(4%)
Total Steel Revenue		711	744	(4%)	(6%)
Total Steel Trading Profit		75	102	(26%)	(27%)
Total Steel Return on Sales		10.5%	13.7%	(320 bps)	(310 bps)

 

The Steel Division reported revenues of £711m in H1 2023, a decrease of 4% compared to
H1 2022 on a reported basis and 6% on an underlying basis, reflecting the declining steel production market which was down 4.5% in H1 (Source: WSA), partially offset by the year-on-year increase in sales price.

 

Steel Division trading profit fell 26% to £75m driven by the declining volumes across both the Flow Control and Advanced Refractories business units. Return on sales compressed 320bps to 10.5% compared to H1 2022 and 100bps compared to the FY22 return on sales of 11.5%, with the margin impacted by the operational de-gearing of declining volumes. Compared to H2 2022, trading profit increased by £11m and return on sales increased 160bps.

 

Flow Control

 

Flow Control Revenue		H1 2023 (£m)	H1 2022 (£m)	Change (%)	Underlying change (%)
Americas		163	155	5%	2%
Europe, Middle East & Africa (EMEA)		127	142	(11%)	(12%)
Asia-Pacific		112	105	7%	8%
Total Flow Control Revenue		402	402	-	(2%)

 

Flow Control revenue was broadly flat with a small underlying decline in sales of 2%, reflecting volumes declines which were lower than the market declines in the Americas and Asia-Pacific, and modest under-performance in EMEA , due mostly to refractory destocking and payment difficulties of some  customers.

 

In the Americas, underlying revenues grew modestly, reflecting some residual price rises, offset by reductions in volumes as steel production in both NAFTA and South America fell, albeit slightly outperforming the market.

 

In EMEA, revenue fell 12% year-on-year on an underlying basis. This resulted from a volume decline, principally driven by a contraction in steel production of c. 8% (EMEA excluding Iran) in the year to June compounded by some destocking and payment difficulties described above, and the impact of sharply reduced revenues from Russia and Ukraine, partially offset by residual year-on-year price increases.

 

In Asia Pacific, revenues grew 8% on an underlying basis. Revenue growth in China was ahead of the market reflecting customer wins, and India also continued to out-perform the market growth of c. 7%.  Our underlying market share in both North Asia and South-East Asia was broadly stable. In North Asia, Q1 was impacted by customer end-product de-stocking, which normalised into Q2.

 

Advanced Refractories

 

Advanced Refractories Revenue		H1 2023 (£m)	H1 2022 (£m)	Change (%)	Underlying change (%)
Americas		113	120	(5%)	(9%)
Europe, Middle East & Africa (EMEA)		95	120	(21%)	(23%)
Asia-Pacific		82	81	1%	2%
Total Advanced Refractories Revenue		290	321	(10%)	(11%)

 

Advanced Refractories reported revenues of £290m in H1 2023, a decrease of 11% on an underlying basis, driven by reducing steel production volumes in all regions except India and some market share reduction, partially mitigated by a dynamic pricing performance.

 

Revenue fell 9% in the Americas on an underlying basis, driven by significant volume declines reflecting both a contracting market and some market share reduction, in both NAFTA and South America.

 

In EMEA, underlying revenues reduced by 23% during the period, driven by market volume declines of 8% and market share declines in the Middle East and in Africa.

 

In Asia Pacific, revenues were broadly flat on an underlying basis, with strong volume growth and market share gains in India.

 

Steel Sensors & Probes

 

Steel Sensors & Probes Revenue		H1 2023 (£m)	H1 2022 (£m)	Change (%)	Underlying change (%)
Americas		14	14	1%	(1%)
Europe, Middle East & Africa (EMEA)		6	7	(10%)	(13%)
Asia-Pacific		0.3	0.2	31%	30%
Total Steel Sensors & Probes Revenue		20	21	(2%)	(4%)

 

In H1 2023 Revenues in Steel Sensors & Probes were £20m, down c. 4% period-on-period on an underlying basis, due to a slow-down of steel production in our reference customers.

The revenues in EMEA fell 13% in a declining market while in the Americas the revenue was flat over the period despite particular challenges in the Mexican market, with an overall market decline of 4%.

Foundry Division

 

Foundry Division		H1 2023 (£m)	H1 2022 (£m)	Change (%)	Underlying change (%)
Foundry Revenue		284	272	4%	3%
Foundry Trading Profit		30	26	17%	18%
Foundry Return on Sales		10.6%	9.5%	110bps	130bps

 

The end markets for Foundry were positive in most regions, with year-on-year end market growth especially strong in the key Asian Pacific markets of India and China, low single-digit end market growth in NAFTA and EMEA and declines in South America. The impact of destocking in the end markets has adversely effected the demand from our customers, and hence our sales progression in the period is more muted.

 

Vesuvius' Foundry Division reported revenues of £284m in H1 2023, an increase of 4% compared to H1 2022 on a reported basis. On an underlying basis, Foundry Division revenue was up 3%. This increase in revenues was driven by price increases which primarily took place in 2022 to offset cost inflation, plus market share growth in key regions including India, China and NAFTA partially offset by volume decline in EMEA, South America and parts of Asia versus H1 2022.  

 

The Foundry Division also achieved some margin recovery, with trading profit growing 17% to £30m, as Return on Sales increased 110bps to 10.6%, compared to H1 2022. The Foundry Division also grew trading profit and return on sales compared to H2 2022.  

 

Foundry Revenue		H1 2023 (£m)	H1 2022 (£m)	Change (%)	Underlying change (%)
Americas		73	67	9%	4%
Europe, Middle East & Africa (EMEA)		120	117	3%	2%
Asia-Pacific		90	88	3%	5%
Total Foundry Revenue		284	272	4%	3%

 

Foundry revenues in the Americas grew 4% year-on-year on an underlying basis, which reflects the positive impact of price increases, which primarily took place in 2022 to offset cost inflation, plus market share gains in NAFTA, partially offset by volume declines in South America versus H1 2022. The challenges in South America are due to general economic weakness in Brazil, in addition to a decline of over 20% in truck volumes which were impacted by a change in emissions standards which came into effect in early 2023, resulting in a spike in purchases ahead of the change, followed by a steep decline.

 

In EMEA, underlying revenues were slightly up compared to 2022 (+2% underlying), reflecting successful commercial initiatives initiated towards the end of 2022 to regain volume lost in the region earlier that year, resulting in monthly volumes towards the end of H1 2023 returning to the level of the same period of 2022.

 

Foundry revenues in Asia Pacific grew 5% year-on-year on an underlying basis, which reflects strong end market growth and market share gains in India, as well as a partial recovery in key Chinese end markets after a challenging 2022. Our strong performance in these regions was partially offset by weakness in North Asia, especially in Taiwan.

 

 

Financial Review

H1 2023 performance overview

Income statement

Group revenue of £995m is down by 2% on a reported basis to (H1 22: £1016m) and trading profit fell 18% on a reported basis to £105m (H1 22: £127m), as set out in the operating review above.

Operating profit decreased 18% to £100m (H1 22: £122m), reflecting the changes in trading profit described above, net of amortisation of intangible assets of £5.2m (H1 22: £5.1m). In H1 2023, we spent £18m on R&D activities (H1 22: £18m), which represents 1.8% of our revenue (H1 22: 1.7%).

Headline PBT was £100m (H1 22: £122m), a reduction of 18%, reflecting the reduction in operating profit and a slight reduction in net finance cost. The lower net finance cost of £5.5m versus £6.6m in H1 22 is principally due to an increase in the finance income from deposits held in India and Argentina, offsetting the rise in finance costs from rising interest rates.

PBT including amortisation of acquired intangibles of £5m was £95m (H1 22: £117m), 19% lower than the comparable period.

Headline EPS from continuing operations fell 22% to 24.5p (H1 22: 31.4p), reflecting the lower profit described above and the increase in the minority interest, which principally relates to our growing business in India.

Taxation

 

The Group's effective tax rate is the income tax associated with headline performance of (H1 23: £27m, H1 22: £33m), divided by the headline profit before tax and before the Group's share of post-tax profit of joint ventures. The Group's headline effective tax rate was 27.5% in H1 2023 as guided (H1 22: 27.5%; full year 26.5%) . The increase in rate versus FY22 is due to a change in geographic mix of profit. We expect the Group's effective tax rate to be 27.5% for the full year 2023.

Cash flow

The Group generated adjusted operating cash flows of £71m, representing a 114% increase versus H1 2022 (£33m). This implies a cash conversion rate in H1 2023 of 67% (H1 22: 26%). H1 2023 cash conversion reflected continued higher levels of investment in capex of £45m (H1 22: £39m). Free cash flow from continuing operations was £42m in H1 2022 (H1 22: £2m).

Working capital

Trade working capital as a percentage of sales in H1 2023 was 24.1% (2022: half year 22.8%; full year 23.8%), measured on a 12-month moving average basis. On a 3-month moving average basis, this ratio has fallen from 24.7% at 31 December 2022 to 23.3% at 30 June 2023 reflecting the progress made in the half-year, where debtors which reduced from 80 days to 78 days, inventory days reduced by one day to 87 days, and creditor days increased by just under three days.

In absolute terms, on a constant currency basis, trade working capital increased by £31m in H1 2022 to £480m compared to the balance as at 31 December 2022.  The increase was due to a rise in inventory (+£18m) and debtors (+£31m), partially offset by an increase in creditors (+£18m).

Capital expenditure

Capital expenditure in H1 2022 was £45m (H1 22: £39m) of which c. £34m was spent in the Steel division and the remainder in Foundry.  

 

Balance sheet

Financial position

At 30 June 2023, Net Debt was £268m, (31 December 2022: £255m), as free cash flow of £42m was offset by payment of the 2022 full-year dividend (£42m), additional right-of-use assets (£11m) and other factors including FX (£2m).

The net debt to EBITDA ratio increased slightly to 1.0x versus 31 December 2022 (0.9x), principally reflecting the drop in last-12-month EBITDA. EBITDA to interest was 34.0x (2022: 30 June 29.2x; 31 December 29.8x). The Group had committed borrowing facilities of £710m as at 30th June 2023 (2022: 30 June £721m; 31 December £722m), of which £310m was undrawn (2022: 30 June £257m; 31 December £323m). Liquidity stood at £471m on 30 June 2023 (30 June 2022: £416m; 31 December 2022: £494m). We define liquidity as undrawn committed debt facilities plus our cash on balance sheet, less the cash in China which is used as collateral against an equivalent bi-lateral loan in the UK.

The Group's debt facilities have two financial covenants: the ratios of net debt to EBITDA (maximum 3.25x limit) and EBITDA to interest (minimum 4x limit).  Certain adjustments are made to the net debt calculations for bank covenant purposes, the most significant of which is to exclude the impact of IFRS 16.

Return on Invested Capital

ROIC is calculated as trading profit less amortisation of acquired intangibles plus share of post-tax profit of joint ventures and associates for the previous 12 months after tax, divided by the average (being the average of the opening and closing balance sheet) invested capital (defined as: total assets excluding cash plus non-interest-bearing liabilities), at the average foreign exchange rate for the year. In the period, ROIC was 8.6%, down from 10.7% at 31 December 2022, reflecting the reduction in rolling 12-month trading profit.

Pensions

The Group has a limited number of historical defined benefit plans located mainly in the UK, USA, Germany and Belgium. The main plans in the UK and USA are largely closed to further benefits accrual. In the funded UK plan, an insurance asset from PIC matches the remaining pension liabilities of the UK Plan, with the result that the Company no longer bears any investment, longevity, interest rate or inflation risks in respect of this UK Plan. The Group's net pension liability on 30 June 2023 was £50.8m (2022 full year: £56.1m deficit).  The improvement is principally due to a £3.8m gain from changes to actuarial assumptions which was mainly due to an increase in bond yields. 

 

Principal Risks and Uncertainties

Risk Management

The Board exercises oversight of the Group's principal risks, undertaking a specific review of the way in which the Group manages those risks. The Group undertakes a continuous process to identify and review risk. This assessment undergoes a formal review at half-year and at year end. The principal risks identified are actively managed in order to mitigate exposure. The risks are analysed in the context of our business structure which gives protection against a number of principal risks we face with diversified currencies, a widespread customer base, local production matching the diversity of our markets and intensive training of our employees. Additionally, we seek to mitigate risk through contractual measures. Where cost-effective, the risk is transferred to insurers. Our processes are not designed to eliminate risk, but to identify our principal risks and seek to reduce them to a reasonable level in the context of the delivery of the Group's strategy.

Principal risks

The Board believes that there has been no material change to the Group's principal risks and uncertainties during the year to date. The principal risks and uncertainties faced by the Group therefore remain those as set out on pages 27 to 33 of our 2022 Annual Report. The risks identified are those the Board considers to be the most relevant to the Group in relation to their potential impact on the achievement of its Strategic Objectives. All of the risks set out could materially affect the Group, its businesses, future operations and financial condition, and could cause actual results to differ materially from expected or historical results. The Group continues to focus on risk mitigation. These risks are not the only ones that the Group faces or will face. Some risks are not yet known and some currently not deemed to be material could become so.

Risk
End market risks Vesuvius suffers an unplanned drop in demand, revenue and/or margin because of market volatility beyond its control	Protectionism and globalisation The Vesuvius business model cannot adapt or respond quickly enough to threats from protectionism and globalisation	Product quality failure Vesuvius staff/contractors are injured at work or customers, staff or third parties suffer physical injury or financial loss because of failures in Vesuvius products
Complex and changing regulatory environment Vesuvius experiences a contracting customer base or increased transaction and administrative costs due to compliance with changing regulatory requirements	Failure to secure innovation Vesuvius fails to achieve continuous improvement in its products, systems and services	Business interruption Vesuvius loses production capacity or experiences supply chain disruption due to physical site damage (accident, fire, natural disaster, terrorism) or other events such as industrial action, cyber attack or global health crises
People, culture and performance Vesuvius is unable to attract and retain the right calibre of staff, fails to instil an appropriate culture or fails to embed the right systems to drive personal performance in pursuit of the Group's long-term growth	Health and safety Vesuvius staff or contractors are injured at work because of failures in Vesuvius' operations, equipment or processes	Environmental, Social and Governance (ESG) criteria Vesuvius fails to capitalise on the opportunity to help its customers significantly reduce their carbon emissions as environmental pressure grows on the steel industry or Vesuvius fails to meet the expectations of its various stakeholders including employees and investors

 

With regard to the remainder of the year, the Board is particularly cognisant of the following areas of risk:

End market risk: The Board continues to monitor the implications of the changing global economic environment, with short term forecasts for steel volumes and automotive output still subdued (despite the longer term growth trend continuing). Ongoing inflationary pressures and interest rate levels also continue to be closely monitored. Whilst the geographic diversity of our business and our presence in both mature and developing markets provides robust mitigation to any regional disruptions or economic decline, the potential effects of this global economic uncertainty continue to be watched.

Protectionism and globalisation: The potential impacts of global political uncertainty are kept under close review, such as the effects of the Russia-Ukraine war and the international dialogue ongoing between China and the USA, which challenge the more recent historical trends towards greater globalisation. The Board continues to consider security of supply of raw materials and access to other resources, including energy, which could impact both our operations and those of our customers in this context.

Cyber Security

In February 2023, the Group was the subject of a cyber incident involving unauthorised access to our IT systems. This required the instigation of the Group's Cyber Incident Plan. Our systems were shut down to contain the incident on a precautionary basis, and our sites implemented their business continuity plans to maintain their operations. The results of the initial investigation have been considered by the Board and further mitigating actions are being executed to improve the Group's cyber resilience for the future. Going forward, consideration will be given to additional strategic and operational improvements for the Group's systems and processes, to reduce the potential for future attacks and further improve the Group's resilience for dealing with such incidents.

Climate Change

The Group's overall risk management processes also incorporate consideration of the potential impact of climate-related risks on the Group. The Group does not regard climate change itself to represent a material stand-alone risk for the Group's operations. Whilst a significant proportion of the Group's revenue is generated from Steel manufacture and automotive castings, industries that are under transition as a result of their focus on improving environmental performance, we believe these changes will be positive for the Group. The opportunities in the Group's business strategy, which is founded on helping our customers to improve their manufacturing efficiency and the quality of their products - and therefore reducing their climate impact - will play a critical part in the development of the Group going forward. We also see potential benefits for the Group from the acceleration of the energy transition, as this will create continued demand for the high quality steel that is produced using Vesuvius' products and solutions.

The Group continues to recognise that climate change could present further uncertainty for the Group in terms of increased regulation, evolution of the geographical distribution of our customer base and the costs of meeting more onerous disclosure requirements. The risks we associate with our sustainability performance and our end customers' sustainability transition - badged as ESG - are identified as a separate element of the Group risk register, recognising the work Vesuvius can do to mitigate the environmental impact of our customers' processes. Other elements of this risk are incorporated into the appropriate Principal Risk and Uncertainties that the Group has identified. In 2023, the Group has continued its focus on the identified environmental sustainability KPIs. Under the Group's Sustainability initiative we seek to drive a lower CO₂e emission intensity, reduce normalised energy usage, and take the steps necessary to meet the target set of being CO₂e emissions net zero by 2050 at the latest.

 

 

Half Year Results for the six months ended 30 June 2023

Directors' responsibility statement

 

The Directors confirm that these condensed interim financial statements have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

1)            an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

2)             material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The names and functions of the Directors of Vesuvius plc are as follows:

 

Carl-Peter Forster	Chairman
Patrick André	Chief Executive
Mark Collis	Chief Financial Officer
Douglas Hurt	Non-executive Director, Senior Independent Director and Chair of the Audit Committee
Kath Durrant	Non-executive Director and Chair of the Remuneration Committee
Carla Bailo	Non-executive Director
Dinggui Gao	Non-executive Director
Friederike Helfer	Non-executive Director

 

On behalf of the Board

 

 

Mark Collis

Chief Financial Officer

26 July 2023

 

 

Independent review report to Vesuvius plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Vesuvius plc's condensed consolidated interim financial statements (the "interim financial statements") in the Half Year Results of Vesuvius plc for the 6-month period ended 30 June 2023 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The interim financial statements comprise:

·   the Condensed Group Balance Sheet as at 30 June 2023;

·   the Condensed Group Income Statement and Condensed Group Statement of Comprehensive Income for the period then ended;

·   the Condensed Group Statement of Cash Flows for the period then ended;

·   the Condensed Group Statement of Changes in Equity for the period then ended; and

·   the explanatory notes to the interim financial statements.

The interim financial statements included in the Half Year Results of Vesuvius plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half Year Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half Year Results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half Year Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the Half Year Results, including the interim financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Our responsibility is to express a conclusion on the interim financial statements in the Half Year Results based on our review. Our conclusion, including our Conclusion relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

26 July 2023