Vesuvius PLC

LSE:VSVS

Earnings Call Transcript 2021-Q4

[Abrupt Start]

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

...results presentation. My name is

Patrick

André,

Chief Executive

of

Vesuvius. To my right with

me

this

morning

is

Guy

Young,

our

Chief

Financial

Officer.

I

will

start with

some

updates on

the

global

performance

in

2021,

then

Guy

will

give you

more

details

on

our

financials.

And

we

then

conclude with

some perspectives

on

the

year

2022

before

opening

the

floor

of

questions.

Delivered

a

solid

set

of

results

in

2021 with

a

significant

recovery

from

the

low

point

of

2020. Our

revenue

increased

18%

on

an

underlying

basis.

Our trading

profit

increased

50%

on

an

underlying

basis,

but

only

40%

on

a reported

business

due

to

the

significant impact

of

the

bond

depreciation

during

the

year.

Our

return

on

sales

increased

by

190

basis

points.

Our

continued focus

on

cash

management

enabled

us

to further

lower

our

working capital

to

sales

ratio

to

20.9%.

This

focus

on

cash

also

enable

us

to

maintain

our

net

debt

to

EBITDA ratio

at

a

low

level

of

1.4%,

despite

the

acquisition

of

Universal

during

the

year.

Based

on

these

positive

results,

the

board

felt

confident to

propose a

full

year

dividend

of

£0.212,

an

increase

of

22%

versus

2020.

We

have

strong

commercial

performance

in 2021

with sales

growth

of

21%

and

20%

in

the

Flow

Control

and

Foundry

divisions,

respectively.

This

was

supported

by material

market

share

gains

in

both

business

divisions. But

even

more

important,

we

demonstrated

again

in

2021

our

ability

to

pass-through

cost

inflation

through

price

increases

in

all

three

of

our

business units.

This

was

completed

by

year end.

The

timing

differences

between

cost and

price

increases

during

the

year,

however,

had

a

negative £14

million

on

a

year-over-year

results.

We could

also

in

2021

successfully

complete the

acquisition

of

Universal

Refractories

in

the

US,

which

is

reinforcing

our

presence

in

the

fast-growing Electric Arc Furnace sector

in

this

area. The

Flow

Control

capacity

expansions

in

EMEA

and

India,

which

we

announced

in

July

last

year,

are

fully

on

track

and

will be

operational

as

of

year end.

Finally,

thanks to

our

decision

to

maintain

R&D

spend

during

[indiscernible]



(00:03:38),

we

could

launch

27

new

products

in

2021,

double

the

number

of

last

year.

We

also

made

significant

progress

in

our sustainability

roadmap

in

2021. As

you

can

see on

this

slide, we

are

well

on

track to

achieve the

nine intermediate

ESG targets

for 2025,

which

we

announced

at

our 2020

annual results.

In particular,

we

are

now

clearly

exceeding

and

will

revise

upward

our

target

of

CO2

reduction

with

already a

16.5%

reduction

in

2021, as

compared

with

2019.

As

you

can

see

on

the

slide,

we've

made

continuous

and

structural progress

in

the

reduction

of

our

carbon footprint

since

we

engaged

in our

improvement journey

in 2017.

Thanks

to

these

efforts, we

have

already

been

able

to

eliminate

close

to

a

quarter

of

our

emissions

worldwide.

We

will

continue our effort

going

forward

and

are

committed

to

reach

net

zero

by

2050 at

the

latest.

How

did we

achieve

those

results? First,

of

course, by

optimizing

our

energy

consumption. We

reduced

by

9%

our energy

consumption

per tonne

since 2019,

but two

other

actions

also

played

an

important

role.

We

engaged

into

a

focused

action

plan

to

switch

to

non-CO2

emitting

electricity

sources

everywhere

in

the

world where

it

was

possible.

For

the

first

time

in

2021,

more

than

50%

of

our

global

electricity

consumption

is

coming

from

non-CO2

emitting

sources.

Our

objective

is

to

reach

100%

by

2030.

We

also

introduced

an

internal

carbon

pricing

to

assess

all

of

our

management

decisions,

including

investment

decisions.

This

price

is

reviewed

annually

and

has

been

set

at

€90

per

tonne

in

2022.

Beside

reducing

our

own

CO2

footprint,

we

are

also

now

engaging

in

a

focused

R&D

effort

to

develop

new

products

having

the

potential

to

help

our

customers

improve

their

own environmental

footprint.

More

than

80%

of

our

product

R&D

portfolio

is

now

dedicated

to

products

presenting

an

environmental

benefit

for

our

customers.

All

those

progress

on

our

sustainability

agenda

were

recognized

by

external

rating

agencies

and,

in

particular,

our

MSCI

rating

improved

from

BBB

to

A;

and

our Ecovadis

rating

progressed

from

silver

to

gold.

Let's

now

have

a

deeper

look

at

the

performance

of

the

Steel

Division.

As

you

can

see

on

this

slide,

where

the

size

of

the bubbles

is

proportional

to

Vesuvius'

Steel

Division

sales,

the

steel

market

recovered

significantly

in

the

world,

excluding

China,

in

2021.

In

China,

however,

after

a

relatively

good

performance

in

the

first

half

of

the

year,

the

steel

market

declined

significantly

in

the

second

half,

translating

into

the

first

year-on-year

decline

of

Chinese

steel

production

for

more

than

30

years.

We

believe

this

is

not

only

a

short-term

phenomena

but,

rather,

a

structural

trend

and

that

Chinese

steel

production

going

forward

should

be

flat

or

even

slightly

declining.

In

this

market

environment,

our

Flow

Control

business

performed

very

positively,

gaining

market

share

in

all

geographies

without

any

exception.

You

can

see

on

this

slide

the

relative

performance

of

our Flow

Control

sales

versus the

steel

market

in

the

most

important

regions.

These

Flow

Control

numbers

only

include

a

relatively

moderate

3.5%

average

price

increase

[ph]



runway (00:08:27)

basis,

as

price

increases

mostly

took

effect

in

the

third and

fourth

quarter

of

the

year.

Another

important

highlight

of

the

year

for

the

Steel

Division

was

the

acquisition

in

December

of

Universal

Refractories

in

the

US.

Universal

is

a niche

refractory

supplier,

active

in

both

the

steel

continuous

casting

area

for

around

90%

of

its

activity

and

the

foundry

sector

for

around

10%.

It

will

reinforce

both

our

Advanced

Refractories

and

Foundry

business

units

in

NAFTA.

The

transaction

was

concluded

at

6.6

times

Universal

trailing

EBITDA

of

$8.6

million

and

we

expect

to

generate,

on

top

of

this,

additional

synergies

of

$4.5

million

by

the

end

of

2023.

If

we

look

at

the

financial

results

of

the

Steel

Division,

we

already

discussed

the

very

good

sales

progression

of

Flow

Control.

As

you

can

see

there,

the

sales

growth

of

Advanced

Refractories

was

more

limited

as

priority

was

given

to

the

implementation

of

price

increases

to

compensate

cost

increases.

This

resulted

in

market

share

losses

in

some

regions

and,

in

particular,

in

EMEA

and

North

America

for

Advanced

Refractories.

We

believe

that

those

market

share

losses

are

temporary

and

will

revert

over

time.

We

are

starting

to

see

that

beginning

of

2022.

Our

price

increases

could

fully

compensate

cost

increases

in

both

Flow

Control

and

Advanced

Refractories

by

year end.

Our

flow

capacity

– our

Flow

Control

capacity

expansions

announced

in

July

last

year

are

proceeding

on

track

and

will

be

operational

as

from

the

end

of

this

year.

They

will

support

the

continuous

growth of

our

Flow

Control

business

going

forward.

The

trading

profit

of

the

division

improved

by

42%

on

an

underlying

basis

to

£102.1

million.

Our

return

on

sales

improved

by

150

basis

points

to

8.7%.

Let's

now

have

a

look

at

the

performance

of

the

Foundry

Division.

As

you

can

see

there,

the

important

automotive

end

market

performed

poorly

in

2021,

as

it

continued

to

be

negatively

impacted

by

the

worldwide

shortage

of

semiconductors.

The light vehicle

market

grew

only

2%

overall

from

the

very

low

level

of

2020.

The

medium

and

heavy

vehicle

market

also

performed

poorly

due

to

a

strong

decline

in

China,

which

you

can

see

on

this

slide

also,

with

an

overall

growth

limited

to

0.5%.

Together,

the

light,

medium

and

heavy

vehicle

market

represents

around

36%

of

Foundry

Division

sales.

The

other

Foundry

end

markets,

however,

performed

much

better

and

recovered

significantly

from

the

low

point

of

2020,

partially

compensating

the

weakness

in

automotive.

To understand

the

Foundry

Division

results,

it

is

also

important

to

look

at

the

evolution

of

end

markets

between

H1

and

H2,

which

you

can

see

on

this

slide.

Automotive

end

markets,

in

particular,

weakened

significantly

between

H1

and

H2

with

a

negative

impact

on

the

sales

volumes

and

performance,

of

course,

of

the

Foundry

Division.

Despite

these

weak

automotive

end

markets, the

Foundry

Division

grew

itself

by

20%

year-on-year

on

an

underlying

basis.

In

particular,

the

division

could

achieve

significant

market

share

gains

in

China,

in

India

and

in

South

America.

Trading

profit

increased

79%

to

£40.4

million,

and

return

on

sales

improved

by

280

basis

points

to

8.6%.

This

is

a

significant

improvement

from

2020,

but

we

believe

the

potential

for

further

improvement

is

very

significant

as

full

trading

profit

and

margin

recovery

was

delayed

in

2021

by

the

situation

of

the

automotive

market,

by

some time

lag

[indiscernible]



(13:26)

between

price

and

cost

increases,

and

by

operational

issues

in

two

of

our

important

plants

in

Germany

and

in

the

US.

On

the

technology

front,

globally

Vesuvius,

we

continue

to

increase

our

R&D

spend

with

the

objective

to

reinforce

of

technological

lead

over

competition.

We

launched

27

new

products

in

2021,

more

than

double

the

number of

launch

in

2020,

and

we

are

planning

to

maintain

that

pace

going

forward.

As

mentioned

earlier,

we

also

increased

our R&D

focus

on

products,

having

a

positive

impact

on

our

customers'

environmental

performance.

You

have

on

this

slide

three

examples

for

each

of

our

three

business

units

of

new

products

launch

in

2021

and

which

next

to

financial

benefits,

of

course,

also

bring

environmental

performance

improvements

to

our

customers

in

terms

of

CO2

emissions,

harmful

substances

emissions

or

raw

material

consumption.

I

will

now

hand

over

to

Guy,

who

will

give

you

more

details

on

our

financial

performance.

Guy?

[Guy S. Young, Chief Financial Officer & Director, Vesuvius Plc]

Thanks,

Patrick.

Good

morning,

everyone.

I'd

like

to

start

by

looking

at

our

sales

and

trading

profit

bridges.

2021

reported

revenue

of

£1.64

billion

is

some

13%

higher

than

last

year's

£1.46

billion.

Stripping

out

the

£69

million

impact

of

foreign

exchange

from

2020

gives

our

prior-year

underlying

revenue

of

£1.39

billion,

on

which

we've

reported

an

increase

of

£251

million

or

18%

to

reach

this

year's

£1.64

billion

of

revenue,

excluding

the

effect

of

the

universal

acquisition.

It's

worth

noting

that

approximately

25%

of

the

revenue

increase

in

the

year

was

due

to

price

increases

in

reaction

to

raw

material

cost

increases

and

supply

chain

friction

costs.

In

terms

of

trading

profit,

our

underlying

trading

profit

after

eliminating

the

effects

of

FX

and

the

universal

acquisition

increased

by

50%

from

£94.8

million

to

£142.6

million.

The

key

constituents

of

this

increase

were

£57.7

million

from

increased

sales

and

£4.1

million

of

restructuring

savings,

partially

offset

by

£14

million

of

net

inflationary

costs

as

our

selling

price

increases

lagged

cost

inflation.

If

we

take

a

look

now

at

the

full

income

statement.

Our

trading

profit

of

£142.4

million

provided

a

return

on

sales

of

8.7%,

an

increase

of

170

basis

points

over

last

year

on

a

reported

basis

and

190

basis

points

on

an

underlying

basis.

Our

share

of

post-tax

JV

results

was

similarly

higher,

and

our

net

finance

costs

were

lower,

having

benefited

from

a

lower

cost

of

debt

following

the

successful

refinancing

of

some

of

the

USPP

notes.

The

effective

tax

rate

for

the

year

was

lower

than

the

prior

year

at

26.4%,

and

non-controlling

interest

was

higher

given

the

higher

earnings

at

our

Indian

subsidiaries.

Headline

earnings,

therefore,

increased

slightly

more

than

headline

profit

before

tax

and

trading

profit

by

some

53%,

and

headline

EPS

came

in

at

£0.353,

52%

higher

than

2020.

If

we

turn

now

to

cash.

Cash

conversion

in

2021

was

32%,

largely

as

a

result

of the

higher

investments

during

the

year

in

both

working

capital

of

£96

million

and

cash

CapEx

of

some

£45.5

million

which,

after

adding

back

depreciation

and

taking

into

account

other

small

deductions,

resulted

in

adjusted

operating

cash

flow

of

£45.6

million.

The

increase

in

working

capital

was

predominantly

in

inventory,

some

£113

million

as

we

intentionally

increased

inventory

to

mitigate

against

the

risk

of

supply

chain-related

customer

disruptions.

But

despite

the

higher

investment

in

working

capital,

our

trade

working

capital

to

sales

ratio

showed

another

improvement

year-on-year

finishing

at

20.9%.

Looking

finally

at

our

net

debt.

The

balance

as

at

December

2021

of

£277

million,

and

net

debt-to-EBITDA

at

1.4

times

on

a

post-IFRS

16

basis

is

some

£102

million

higher

than

2020,

largely

due

to

the

investment

in

working

capital

and

the

acquisition

of

Universal.

We

remain

well

within

our

comfort

zone

of

1.25

to

1.75

times,

and

satisfied

in

particular

in

relation

to

our

capital

allocation

strategy

for

the

year

where

we've

managed

both

significant

investments

in

organic

and

inorganic

growth

during

2021,

while

still

providing

for

an

increase

in

returns

to

our

shareholders.

With

that,

I

hand

you

back

to

Patrick

to

take

you

through

the

outlook.

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

Thank you, Guy. Both

of

end

markets

of

Steel

and

Foundry

remain

positively

oriented

in

2022.

In

2021,

Vesuvius

demonstrated

its

ability

to

successfully

pass-through

cost

inflation

through

price

increases.

We

will

continue

to

do

so

in

2022

as

necessary.

Our

strategic

R&D

and

capacity

investments

are

proceeding

as

planned.

And

we'll

support

our

market

share

gains

going

forward.

While

we

remain

concerned

about

the

potential

direct

and

indirect

impacts

of

recent

geopolitical

events,

which

have

led

us

to

suspend

our

deliveries

to

Russian

customers

for

the

duration

of

hostilities,

we

are

nevertheless

confident

that

the

group

will

deliver

a

significant

improvement

in

financial

performance

in

2022.

Thank

you

for

your

attention.

We

will now

take

questions

from

the

floor.

[Scott Cagehin, Analyst, Investec Bank Plc]

Thank

you. Scott

here

from

Investec.

Could

you

just

give

us

a

feel

for

the

price

increases

that

you've

put

in

through

the

second

half

and

how

that

sort

of

annualizes

through

full-year

2022, like,

what

is

the

tailwind

for

prices

that

we

didn't get

the

full

year

benefit

in

2021?

And

also,

just

a

bit

of help

on

acquisition

contribution,

just trying

to

get

a

feel for

where

we

are

before

sort

of

deciding

what

we

think

volume

should

be.

Thank

you.

[Guy S. Young, Chief Financial Officer & Director, Vesuvius Plc]

Thanks,

Scott.

Nice

to

see

someone

face-to-face

for

a

while –

for

a

change.

And

Scott,

in

terms

of

the

price

increases,

very

heavily

weighted

towards the

second

half,

I

think

as

Patrick

mentioned,

if

you

split,

you

take

that

£251 million

and

25%

of

that.

That

gives

you

our

price

increases

of

roughly

£62

million.

That

£62

million,

£55

million of

it

was

in

the

second

half.

So,

arguably

that

doubled

up

from

a

sales

bridge

perspective

in

2022.

I

think

kind

of

aligned

to

the

question,

the

£14

million

of

headwind

we

would

expect

to

see

at

the

back

as

well

subject

to

any

price

lags

that

we

will

experience

during

2022,

which

I

think

is

inevitable,

given

that we

know

costs

are

increasing

at

the

moment

over

Q4.

In

terms

of

the

second

question, Universal. The

Universal

contribution

for

2022

should

be

about

between

£4 million

and

£5

million,

the

£4 million

to

£5

million

includes

the

synergies

that

we

expect

delivered

in

year.

It,

however,

also

has

a

deduct

because

as

you

will probably

know

from

an

accounting

perspective,

we

have

to

write

up

the

value

of

stock

to

realizable

value

at

acquisition,

so

we

won't

see

all

of

the

margin

that

we

would

expect

in

terms

of

long-term

run

rates

in

the

first

year,

but

£4 million

to

£5 million in 2022.

[Scott Cagehin, Analyst, Investec Bank Plc]

Thank you.

[Dominic Convey, Analyst, Numis Securities Ltd.]

Hi. Good

morning. Dom Convey from Numis.

Three

questions,

if

I

may,

just

you

mentioned in

terms of

the

outlook

positively

oriented,

but

it

just

feels

actually

that

there

has

been

a

marked

softening

in

the

broader

outlook

for

2022

versus

what

we

might

have

thought

three

or

four

months

ago,

looking

at

some

of

the

slides

that

you

presented

on

Foundry.

It

shows

that

China

very

much

weak

across

the

board.

So, I

just

wonder

whether

you

could

give

a

little

bit

more

color

on

the

volume

type

growth

by

geographies

that

you

anticipate

this

year.

And

secondly,

just

in

terms

of

a

bigger

picture

question.

That

increase

in

R&D

and

obviously

the

strong

product

pipeline

coming

through,

whether

you

could

just

give

a

bit

more

color

around

how

you

see

the

sustainability

value

proposition

and

how

you

could

best

capture

that.

And

I

guess

just

a

quick

technical

one really

for

perhaps

Guy, that

£14

million

drag,

what

was

the

divisional

split

last

year

between

Steel

and

Foundry?

Thank

you.

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

Thank

you.

You're

perfectly

right,

as

compared

with

the

vision

we

could

have

had

six

months

ago,

the

market

evolution

perspective

are

a

bit

weaker,

but

they

remain,

in

our

opinion,

positive

and

even

significantly

positive

outside

of

China

going

forward.

China,

following

Chinese

New

Year,

has a

traditional

rebound of

the

Chinese

economy

following

Chinese

New

Year,

is

pretty

soft

for

the

time

being.

But

in

the

world

outside

of

China,

the

situation

is

relatively

positive

and

remains

positive

as

we

speak.

In

the

Steel

markets,

you

may

have

seen

the

numbers

of –

January

as

published

by

WSA,

there

is

a

significant

drop

year-on-year

in

China,

but

there

is

a

progression

year-on-year

in

the

world

outside

of

China.

Now,

if

you

look

at

the

world

outside

of

China,

overall

progression,

and

to

give

you

an

overall

global

figure,

we

are

expecting ourselves

a

positive

growth

all

regions

together

of

on

or

around

5%

in

2022,

but

of

course,

you

have

differences

between

regions.

And

in

the

world

outside

of

China,

the

regions

where

the

growth

will

probably

be

the

slowest

is

Europe,

where

we

see

some

–

not

decline

but

softening,

some

softening.

There

was

beginning

of

the

year,

a

decline

year-on-year

of

steel

production

in

EU

plus

UK.

And

so,

this

will

probably

be

the

softest

region

outside

of

China.

But

globally,

the

world

outside

of

China,

we

see

that

growing

in

2022

because

all

the

regions,

India,

Southeast

Asia,

South

America,

Middle

East,

Africa

and

probably

North

America,

we

believe, will

have

a

positive

growth

in

2022.

Regarding

R&D,

we

are

focusing

more

and

more

on

this –

on

the

year

and

month

old

value

proposition.

But

of

course,

next

to

a

traditional,

if

I

may

call

it

like

that,

the

financial

value

proposition

to

our

customers

and

the

– we

see

a

growing

interest

from

our

customers,

especially

in

the

steel

industry,

for

these

leading

sustainable

products.

And

this

interest

is,

of

course,

different

between

regions.

So,

where

there

are

some

regions,

particularly

in

Europe,

as

you

could

suspect,

where

the

interest

is

higher

than

average,

while

some

other

regions

where

there

is

still

a

maturation

of

the

psychology

of

our

customers

but

everywhere

it's growing.

So,

it's

not

growing –

the

interest

and

awareness

of

our

customers

is

not

going

everywhere

at

the

same

pace,

but

it's

going

everywhere

and

clearly

in

some

regions

like

Europe

and

also

in

North

America, we

see

a

growing

interest

of

some

customers

for

these

leading

sustainable

products,

and

we

believe

that

it

will

only increase

going

forward.

We

are

not

even

– we

were

even engaging

some

customers

have proposal,

we

have

accepted

of

course,

to

engage

with them

in

some

joint

R&D

project

with a

specified

objective

to

work

together

on

ways

to

help

them

reduce

their

CO2

footprint.

[Guy S. Young, Chief Financial Officer & Director, Vesuvius Plc]

And

Dom,

in

terms

of

the

split

of

the

14%,

it's

3%

is

Foundry

and

the

rest

is

Steel.

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

Any

other

questions

from

the

room?

If

there

are

no more

questions

from

the

room,

I

will

propose

to

take

questions

from

the

line.

[Operator Instructions]

[Operator]

We

will

pause

for

a

moment

to

assemble

the

queue.

As

a

reminder,

participants

can

also

submit

questions

through

the

webcast

page

using

the

Ask

a

Question

button.

And

our

first

question

is

coming

from

George

Featherstone

from

Bank

of

America.

Please

go

ahead.

Your

line

is

open

now.

[George Featherstone, Analyst, Merrill Lynch International]

Hi.

Morning,

everyone.

Thanks for

taking my

questions.

I'll

go

one

at

a

time.

Wondered

if

firstly,

Guy,

you

could

break

out

the

cost

inflation

by

frictional

costs

in

the

supply

chain

and

also

that

you

face

in

raw

materials

in

2021,

and

also,

if

you

can

split

H1

versus

H2

and

also

how

you

see

that

evolving

in

2022?

[Guy S. Young, Chief Financial Officer & Director, Vesuvius Plc]

Sure,

George.

Thank

you

for

the

first

question

with

three

parts.

George,

if

we

take

a

look,

I'll

probably

just

concentrate

on

the

two

key

categories. There

is

broader cost

inflation. But

in terms

of

raw material,

which

was

the

biggest

constituent

part

of

the

cost

increase

last

year,

that

was

some £40

million

across

the

group.

And

that

splits

roughly

speaking

into

£7

million and

£33 million

first

half

versus

second

half.

The

other

significant

category

is

excess

freight

costs,

and

that

was

about

£20 million

for

the

full

year

and

that

again

splits

roughly

£9

million

and

then

£11 million.

On

top

of

those

and

we

call

it

excess

freight

costs

because

there

are

still

higher

freight

costs

in

terms

of

inbound

logistics

that

we

haven't

included

in

that,

and

then

we'll

have

still

salary

and

other

energy

costs

which

have

also

increased.

But

the

broad

split

then

of

the

£60

million

cost

increases, £40

million

raw

material,

£20 million

excess

freight,

and

the

net

that

splits

H1

to

H2

as

I

outlined.

In

terms

of

the

costs

going

forward,

I

can

only

tell

you

what

we

can

see

now

rather

than

trying

to

predict

what's

going

to

happen

going

forward.

But

we've

still

seen

some

very

significant

energy

costs

increase

between

the

end

of

Q4

and

where

we

sit

today.

Arguably,

that's

only

going

to

get

worse.

In

addition

to

that,

we

think

that

there

are

increasing

pressures

from

a

logistics

cost

perspective

that

we'll

be

seeing,

at

least,

during

Q1.

And

then

last

but

not

least,

we've

got

a

number

of

raw

materials

that

have

started

to

increase

in

Q4

and

continue

to

increase

in

Q1

predominantly

aluminas

and

zirconias,

and

anything

that

requires

energy.

So,

a

lot

of

our

fused

materials,

all

of

those

we're

expecting

to

see

impact

our

cost

base

in

the

first

quarter.

[George Featherstone, Analyst, Merrill Lynch International]

Thank

you

very

much

for that.

Second

question

would

be

more

of

a

kind

of higher

longer-term

thought.

And

given

the

cost

pressures

that your

customers

are

facing,

I

wondered

if

you

could

talk

about

whether

the

conversation is

around

total

cost

of

ownership

of

some

of the

new,

more

efficient

products

for

those

involve

automation

have

become

easier

and

if

customers

are

looking

to

start

new

investment

cycles.

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

It's

a

very

good

question.

Our

customers

are

as

we

are,

but

our

customers

are

also

confronted

with

increasing

cost

base.

They

have

been

quite

successful,

as

you

know,

in

increasing

their

own

prices

and

considering

the

recent

geopolitical

events

that

steel

prices

have

been

going

slightly

down

over

the

past

few

months.

You

should

expect

that

this

downward

trend

should

probably

stop

and

that

we

would

not

be

surprised

to

see

those

steel

prices

going

up

again.

So,

the

financial

situation

of

our

customers

is

good

and

will

remain

good

going

forward.

And

this,

of

course,

gives

us

the

means

to

implement

long-term

strategies

to

consolidate

their

competitiveness

on

the

long

term.

So,

we

see

our

customers

are

open

to

investing

in

their

operations

to

make

those

operations

more

competitive

structurally

on

a

long-term

basis,

and

this

is

a

favorable

environment

for

our

own

offering

and,

in

particular,

our

own

robotics

offering

to

support

the

automation

effort

of

our

customers.

And

we

see

there

was

already

a

significant

interest

from

our

customer

base

for

our

robotics

solutions.

We

see

an

even

bigger

interest

of

those

customers

going

forward.

We

have

a

significant

increase

of

the

number

of

inquiries

coming

from

our

customers for

robotics

projects.

[George Featherstone, Analyst, Merrill Lynch International]

Thank

you very

much for

that.

[Operator]

And

we

do

not have

any

further

questions

at

the

moment

on

the

audio

line.

[Operator Instructions]



And

there

are

no

further

questions

on

the

conference

line.

We

will

now

address

the

questions

submitted

via

the

webcast

page.

And

the

first

question

here

is

coming

from

Andrew

Douglas

from

Jefferies.

Please,

can

you

explain

how

you

managed

to

win

such

significant

market

share

when

you

already

have

such

high

levels

of

market

share?

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

We

are

not

magicians, Andy.

So

it's,

first,

as

long

as

you

do

not

have

100%

market

share,

it's already –

it's

always

possible

to

gain further

market

share.

So,

the

only

limit

is

100%.

And

we

are

never

satisfied

with

our

market

share,

even

when

the

market

share

is

already high

because

we

believe

that

our

customers

can

bring

benefit

to

those

customers

which

are

not

already

using

our

products.

It

is

in Flow Control

and

Foundry

that

we

are

gaining

and

that

we

have

a

real continuous

market

share

gain

strategy.

And

in

both

those

divisions,

as

you

have

seen

last

year

and

you

will

continue

to

see

this

year

and

going

forward,

we

simultaneously

increased

prices

to

compensate

for

cost

increases

and

increased

market

share.

And

the

reason

why

we

are

able

to

do

that

is

because

our

products,

thanks

to

our

R&D

investments –

and

again,

I

can

only

stress the

fact

that

R&D

is

a

cornerstone

of

our

growth

and

market

share

gain

strategy.

It's

thanks

to

R&D

that

we

can

propose

to

our

customer

products

which

create

superior

value

in

the

process

of

those

customers,

as

compared

with

what

our

competitors

are

able

to

do.

And

thanks

to

that,

despite

the

fact

that

we

have,

I

would

say,

fair

pricing

strategy

compensating

for

cost

increases,

it

creates

incentives

and growing

incentive

for

customers

worldwide

to

switch

to

our

products.

So,

this

is

exactly

the

reason

why

we

continue

to

invest

and

even

to

accelerate,

to

increase

our

investment

in

R&D

because

R&D

is

the

fuel

of

our

market

share

gain

strategy

in

both

Flow

Control

and

Foundry.

And

more and

more,

we

will

see

that

in

the

coming

years

in

Advanced

Refractories

because

there,

also,

we

are

– our ambition

is

not

to

remain

in

the

commoditized

part

of

the

advanced

refractory

market;

we

also

want

inside

this

advanced

refractory

world

to

focus

on

the

limited

number

of

product

lines

where

we

believe

that,

thanks

to

R&D,

we

could

create

a

similar model

as

the

one

which

works

very

well

for

Foundry

and

Flow

Control

and

progressively

become

a

specialized

advanced

refractory

producer

concentrating

on

high-technology

product.

[Operator]

Thank

you

very

much.

And

the

next

question

from

Andrew.

Please,

can

you

give

us

an

update

on

stocking

levels

in

the

market

across

your

customers?

I

understand

that

there

has

been

some

restocking

in

the

year.

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

Yes.

You're

right.

Over

the

past

three,

four

months ago,

in

the

steel

market

in

particular,

if

you

remember,

three,

four

months

ago,

we

were

at

a

very

low –

abnormally

low

level

of

inventories

in

the

steel

market.

And

over

the

past

three, four

months,

we've

seen

a

small

but

regular

restocking

effect

in

the

steel

market

worldwide.

And

steel

inventories

have

moved

from

abnormally

low

to

normal.

They

are

not

abnormally

higher,

despite

the

fact

that

they

are

increasing,

absolutely

not

abnormally

high.

Now,

we

are

most

probably

reaching

another

inflection

point

because

Russia

and

Ukraine

are

very

significant

net

exporter

of

steel

toward

the

rest

of

the

world.

Ukraine

alone

exports on or

around

15 million

tonnes

of

steel

to

the

rest

of

the

world,

and

this

export

have

stopped.

So,

we

will

probably have,

I

don't

have

a

crystal

ball,

but

the

most

likely

scenario

is

that,

in

the

coming

weeks

and

months,

we

will

see

a

further

decline

of

steel

inventories

and

steel

prices

will

probably

stop

to

decline

and

maybe

even

going

up

again.

So,

the

Russia-Ukraine

situation

will

have

an

impact

on

the

steel

market

outside

of

Russia

and

Ukraine

because

there

will

be

a

need

to

fill

the

gap

created

by

the

interruption

or

disruption

of

exports

from

Russia

and

Ukraine

to

the

rest

of

the

world.

[Operator]

Thank

you

very

much.

And

the

next

question

from

Andrew

is,

can

you

please

talk

about

your

M&A

pipeline

and,

particularly,

the

size

of

potential

deals

and

are

price

expectations

at

the

right

level?

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

Excuse

me, could

you repeat

the

question.

I

could not

catch

the beginning

of

the

question.

[Operator]

Can

you

please

talk

about

your

M&A

pipeline

and,

particularly,

size

of

potential

deals?

And

are

price

expectations

at

the

right

level?

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

M&A

pipeline.

Thank

you

very

much

for

the

question.

Our

M&A

strategy

has

not

changed

as

compared

with

our

previous

discussion

last

year,

we

have

a

strong

appetite

for

M&A.

Together

with

Guy,

we conducted

a

few

years

ago

a

global

strategic

review

of

all

potential –

potentially

interesting,

attractive

M&A

targets

worldwide

for

all,

each

of

our

three

divisions. We

ended

up

identifying

all of

around

20

potentially

attractive

targets.

This

list

is

mostly

unchanged,

as

compared

with

what

we

elaborated

together

with

Guy

four

years

ago.

And

we

have

been

and

we

continue

to

engage

proactively

with

the

owners of

these

potential

target.

As

far

as

we

are

aware,

none

of

them

are

officially

for

sale

as

we

speak.

And

what

we

see

is

a

progressive

evolution

of

some

of

the

owners

being

ready

to

consider

some

sales,

this

is

what

enable

us

to

realize

the

CCPI

first

and

the

Universal

acquisitions

over

the

past

few

years.

So,

we

continue

to

be

interested

and

if

one

of

the

owners

that

we

have

approached would

become

open

to

a

transaction

at

a

fair

price,

what

we

consider

a

fair

and

reasonable

price,

we

will

of

course

be

interested.

In

terms

of

size,

Andy,

there

again,

it

has

not

changed.

Out

of

these

20

–

or on and around

20

potential

target,

the

vast

majority

of

them

are

small-

to

mid-sized

bolt-ons

like

CCPI

or

Universal.

These

mid-sized

bolt-ons

are

very

attractive

for

us.

Their

integration

is

easier,

synergies

are

high,

so

we

are

quite

attracted

by

this.

And

a

small

minority

of

these

acquisitions

are

larger

size

but,

of

course,

the

probability

that

such

larger

size

acquisition

will

materialize

is

lower than

bolt-on.

So,

we

continue

to

be

proactively

interested

in

M&A

and

we'll

see

what

will

happen

or

not

in

the

coming

months.

But

we

remain

extremely

disciplined

in

our

approach.

We're

proactive

interested

but

disciplined

in

our

approach

to

M&A.

[Operator]

Thank

you

very

much.

And

the

next

question

from

Andrew

is

that,

do

you

believe

that

any

more

restructuring

is

needed?

Are

you

happy

that

your

footprint

is

in

the

right

place –

[ph]



shape (00:42:36)

given

your

expectations

for

your

end

markets

over

the

next

few

years?

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

Thank

you.

And

several

questions

in

the

same

question.

The

heavy lifting

of

restructuring

is

behind

us.

Clearly,

we've

done

the

job

over

the

past

five

years,

so

the

heavy

lifting

of

restructuring

is

behind

us.

We

still

have

many

opportunities

of

optimization

of

each

of

our

individual

plans

to

get

more

out

of

those

plants,

and

we

are

strongly

engaging

to

that.

In

particular,

in

our

flagship

plant – in

our

four

flagship

plants

of Skawina

in

Poland,

Suzhou

in

China,

Borken

in

Germany,

and

Monterrey

in

Mexico, we are –

we

have

strong

improvement

programs.

We

have

room

to

make

the

positive

progress

there.

But

the heavy

lifting

of

restructuring

is

behind

us.

Could

you

remind

me

the

second

part

of

your

question, Andy?

[Operator]

There

are

no

further questions.

Ladies

and

gentlemen,

that

concludes

today's

question-and-answer

session. I

will

now

hand

back

to

Patrick

André

for his

concluding

remarks.

[Patrick Georges André, Chief Executive Officer & Director, Vesuvius Plc]

Thank

you.

Thank

you

very

much

to

all

of

you

today,

all

of you

have

made

the

effort

of

being present

physically

with

us

and

in

the

room,

but

also

all

of

you

online.

Thank

you

for

your

attention

during

the

presentation,

and

I

wish

all

of

you

a

very

nice

day.

Good bye.