Vesuvius (LON:VSVS) said its full-year expectations remain unchanged after the company reported improving momentum in steel markets, stable foundry markets and a temporary hit from operational issues in North America during the first four months of the year.
Chief Executive Officer Patrick André said during the company’s spring trading update that steel markets are “confirming their improvement” outside China, Russia, Iran and Ukraine. He said those markets grew 2.5% year over year in the first quarter, accelerating to 2.9% by the end of April.
Pricing Offsets Cost Base Increases
André said Vesuvius maintained its focus on pricing discipline during the period, with positive pricing developments in both its steel and foundry divisions. Those increases more than offset changes in the company’s cost base, he said.
Volumes in the foundry division were positive, while steel volumes were slightly lower than last year at the start of the period. André attributed the decline mainly to two factors: the closure around mid-2024 of important North American customers where Vesuvius had 100% market share, and internal operational issues in certain operations, primarily in North America and to a lesser extent in India.
“These internal operational issues have been corrected, understood, corrected, and will not impact the rest of the year,” André said.
Revenue to date was only slightly ahead of last year on a constant-currency basis, which André linked to the operational issues. However, he said the company’s full-year expectations remain unchanged from its previous guidance, even while it remains mindful of potential impacts from the Middle East conflict.
North American Operational Issues Create One-Off Impact
In response to a question from BNP Paribas analyst Stephan Klepp, André said the North American issues were mostly related to faulty raw materials that were not detected early enough and affected production. He said Vesuvius’ quality controls prevented any customer impact, but the company lost a significant percentage of capacity for an important product line in North America for several months.
Some customer deliveries were postponed and will be recovered in coming weeks and months, while others were not recoverable because customers had to find alternatives while running at full speed. André described the impact as one-off and said the temporary market share loss would be recovered, though some sales would not be.
Chief Financial Officer Mark Collis said the supply chain issues are expected to have cost the company about GBP 4 million of trading profit in the first half. He said Vesuvius expects to recover that amount for the full year through price or volume, supporting management’s unchanged outlook.
Collis also said the company’s foreign exchange headwind had moved from GBP 4 million to GBP 5 million, which he said took an implied figure “down from GBP 170 to GBP 169.” He added that the first-half to second-half weighting would be affected by the supply chain issues and the reinstatement of variable compensation, which he said was GBP 9 million for the full year, with GBP 4.5 million accrued in the first half.
Cost Savings and Morgan Integration on Track
André said Vesuvius’ cost reduction program is proceeding as planned. The company still expects to deliver at least GBP 10 million of recurring net cash savings in 2026, while its target of cumulative GBP 55 million in net cash savings by 2028 remains “completely on track” and will probably be slightly exceeded.
He also said integration of the Morgan Advanced Materials division acquired late last year is progressing smoothly and successfully. Vesuvius has begun generating significant synergies as planned, and André said the company now expects not only to achieve the synergies anticipated at the time of the acquisition, but probably to slightly exceed them.
On cash management, André said leverage remains under control and stable compared with the end of last year. He said management remains confident leverage will progressively decline in the second half, resulting in an overall reduction this year compared with last year.
Regional Trends in Steel and Foundry
Discussing the North American steel market, André said consolidated steel production across Mexico, the U.S. and Canada increased 3.5% year over year in the first four months. He said Vesuvius expects the positive trend to continue and suggested that ongoing renegotiation of the USMCA could result in a more protected North American market.
However, he said the company’s reported performance does not move perfectly in line with regional steel output because of customer mix. Three U.S. plants that were important to Vesuvius closed around the end of the first half last year, and the production has shifted to plants where Vesuvius has lower market share.
In Europe, André said the company is seeing customers prepare for higher production ahead of a new European quota system expected to take effect July 1. He cited examples including ArcelorMittal restarting operations in Poland, Spain and France. Vesuvius has also increased staffing at some European operations to run more shifts and meet anticipated demand.
For foundry, André said India and China are performing well partly because they retain healthy domestic markets and are exporting more castings to the rest of the world. In North America, he said emerging protection measures around components used in manufacturing could support future improvement in foundry markets. Europe and South America remain softer, and André said he does not expect significant short-term improvement in those regions.
About Vesuvius (LON:VSVS)
We are a global leader in metal flow engineering, providing a full range of engineering services and solutions to its customers worldwide, principally serving the steel and foundry industries.
