Vesuvius Plc Stock

Good morning, ladies and gentlemen. Welcome to the Vesuvius Half Year 2026 Results Presentation. My name is Patrick Andre, Chief Executive of Vesuvius. And with me this morning is Mark Collis, our Chief Financial Officer.

I will start with some updates on our performance during the half year. Then Mark will give you more details on our financials. I will conclude at the end of the meeting with some perspectives for the full year 2026 and beyond before opening the floor for questions.

Our performance for the half year was resilient and in line with last year's, driven by self-help actions offsetting temporary operational disruptions. Our revenues slightly increased by 1.5% on a constant currency basis. Our trading profit at GBP 74 million was similar to last year's also on a constant currency basis. Our return on sales decreased marginally by 10 basis points as compared to last year on a constant currency basis. As expected, our free cash flow generation increased significantly by GBP 41.4 million year-on-year to a total of GBP 27.5 million, driven by improved working capital discipline and stronger operating cash generation.

Working capital intensity declined from 23.6% to 23.1% and is expected to improve further in the second half. Our net debt-to-EBITDA ratio improved to 1.9 on a pro forma basis and is expected to improve further in the second half. These positive trends in cash generation made the board confidence to propose an interim dividend of 7.1p per share, similar to last year's.

Both divisions achieved a strong performance in terms of pricing and cost management during the first half. The structural recovery of our steel market is now becoming increasingly evident and is expected to gather [ steel ] in the coming months. The Steel Division performed very well from the pricing and structural cost reduction point of view. However, the division performance was temporarily affected during the first half by operational issues, in particular, in North America and in India, I'll come back to that.

Despite these challenges, the Flow Control business unit could improve both trading profit and return on sales as compared with last year. The performance of the Advanced Refractories business unit, however, was more affected by the ongoing operational challenges and declined significantly as compared with last year. The Foundry Division performed very well and achieved significant revenue and profitability growth, supported by self-help measures and by the successful integration of the MMS acquisition. Cash management remains a strong area of focus during the first half, enabling a 50 basis point reduction of our working capital intensity and the first step in the targeted reduction of our leverage ratio. Cash management and deleveraging will remain a key area of management focus in the coming months.

We continue to make good progress, even very good progress in our global cost reduction program with GBP 7.4 million of recurring cash cost savings delivered during the first half. We remain fully on track with our target of a minimum GBP 55 million savings to be delivered by 2028.

The operational challenges, which affected the performance of the Steel Division during the first half are now clearly identified and are being addressed. First, as you can see on this slide, we were confronted with a quality defect from one of our suppliers of graphite raw material. This affected the quality of the production of our Charleston plant in the United States.

But this Charleston side is supplying intermediary products to several isostatic plants worldwide. The consequence of this quality incidents affected several plants in North America, but also in Europe and in Asia. Fortunately, our [ quality walls ] detected the problem before final products could be shipped to our steel customers, which were those not affected. The deficient raw material was replaced and internal quality controls have been reinforced worldwide to avoid a repeat of a similar incident in the future. However, the capacity of several of our isostatic plants was temporarily reduced during several weeks, preventing us from satisfying the growing demand addressed to us and triggering significant excess logistics cost to deliver customers and avoid the disruption of their steel production. This quality incident is now, as we speak, fully solved.

Second, we identified deficient maintenance practices in 2 of our important manufacturing plants in the U.S. These deficient practices were not detected and corrected in a timely way by our local regional management. As a consequence, the availability rate of some of our key manufacturing equipment has been constrained during the first half, reducing our production capacity and preventing us from following the increase in demand.

Maintenance management in those plants has been upgraded and reinforced control mechanisms have been put in place to avoid a repeat in the future. Maintenance catch-up is ongoing in those plants and is expected to be completed by the end of the year, reestablishing the plant's full production capacity.

We have also identified a general loss of some specific manufacturing process expertise in several of our U.S. plants, following the natural departure of some long-standing and experienced personnel as it has proved excessively difficult to identify and hire locally qualified successors. We are now transferring qualified and experienced manufacturing resources from other parts of the Vesuvius Group to the U.S. Several transfers are already effective, and we expect most planned transfers to be implemented by year-end. Taken together, we assess those 3 operational challenges in the U.S. to have impacted our global results by around GBP 6 million during the first half.

At the same time, we experienced some ramp-up difficulties in our new Vizag plant in India due to the higher level of technology and digitalization of the equipment recently installed in this plant. These difficulties are gradually being solved and production bottlenecks being removed in a systematic way. Already, 2 out of the 3 newly installed production lines are able to operate at full capacity. And the third one should be able to reach nameplate capacity before the end of the year, removing any constraints for our commercial teams to follow the increasing demand for our products in the Indian market. The ramp-up difficulties in our Vizag plant in India impacted our trading profit during the first half by an estimated GBP 2 million.

As you can see, all the operational challenges, which limited our growth and profitability during the first half are now fully identified and are being addressed. We are confident they will be resolved by the end of the year, enabling Vesuvius to fully benefit as from 2027 from the positive dynamic now evident in our steel markets.

Turning to the steel market. You can see on this slide, our steel production evolved during the first half of the year. The size of the bubbles is proportional to the sales of our steel division in each region. The structural dynamism of steel production outside of China, Russia, Iran and Ukraine is now clearly confirmed with a 3.8% growth during the first half. Growth expanded beyond the traditionally strong regions of India and Southeast Asia to North America, which grew 5.7% with U.S. and Mexico growth more than compensating for the Canada decline. EEMEA, excluding Iran, Russia and Ukraine, where we don't sell also grew a healthy 3.4% despite the situation in the Gulf area.

China steel production continued its structural decline with a decrease of 3% of its steel production during the first half. EU plus U.K. and South America still production slightly declined in the first half of the year. But production there is expected to improve from the second half, thanks to the steel protection measures recently introduced in these markets. So the structural improvement in steel production outside of China is now clearly confirmed. We'll gather steel in the months ahead and should support the performance of Vesuvius in the coming years.

And an important point, we believe these ongoing positive changes to the steel market are structural. It's not a cyclical recovery. It is a structural change. They are not only short term. First, the new European Union regulations, which have been discussed for a long time are now fully effective as from July 1 this year. This should have a significantly positive and long-lasting impact on steel production into the EU as from the fourth quarter this year, once accumulated inventories of imported steel into the EU have been exhausted. Already the second quarter production in the EU, as you can see on this slide, is showing some improvement as compared with last year.

So going, we expect Chinese steel exports to progressively reduce or [ at-worse ] stabilize as the Chinese government is taking action to control exports and curtail excess steel production and capacities. In parallel, more and more importing countries are introducing or tightening measures against unfair trade of steel, thereby reducing the size of potential markets accessible to Chinese steel exports. And in effect, Chinese net steel export during the first half of this year declined by 5.3% as compared with last year.

The volume performance of the Steel Division in the first half was obviously temporarily held back by the operational issues we discussed earlier, especially in North America, for both Flow Control and Advanced Refractories, but also in India for Advanced Refractories. As a consequence, Flow Control and Advanced Refractories experienced temporary market share pressure during the period. Market share evolution was also impacted by tight credit control measures in EMEA vis-a-vis customers not paying on time. And by the one-off effect, of the closure midyear last year of 3 customer sites in North America, where we add exclusive supply contracts.

We are confident and we expect market share to be progressively regained in the coming months as operational issues are being resolved and new production sites where we gain exclusive supply contracts are starting production, both in North America and in Europe.

The Steel Division achieved a strong positive net pricing performance in the first half. The division also made very good progress in its structural cost improvement program during the period. Thanks to this and despite temporary operational difficulties, Flow Control improved both trading profit and return on sales during the period. Advanced Refractories performance was significantly lower than anticipated on last year due to those operational challenges in North America and India, but also due to a challenging pricing environment in EMEA, where some Chinese advanced refractory producers are trying to get a foothold through predatory pricing.

The global impact of the temporary operational challenges on the Steel division globally was around GBP 8 million in the first half and is expected to reduce in the second half before disappearing as from 2027.

Let's now turn to the Foundry Division. India and China, foundry markets continued to exhibit positive growth. North America and Japan are also for the first time over the past 3 years, starting to show clear signs of improvement. On the other hand, however, EU plus U.K. and South America markets for the time being, is still representing a little bit less than 40% of our sales remain negatively oriented. Nonferrous markets to which we have increased our exposure with the MMS acquisition are also confirming their higher growth potential as compared with our traditional ferrous foundry markets.

The Foundry Division showed strong performance in both its base business and in the newly acquired MMS business during the first half. The division achieved a significantly positive net pricing performance and at the same time, gain market share in all regions. The division also fully delivered on its structural cost improvement initiatives. The newly acquired MMS crossable activity, is being very successfully integrated and synergies are on track to exceed expectations.

As a consequence, the Foundry Division could increase its revenue by 8.7%. It's trading profit by 32.7% and its return on sales over the period, both on a constant currency basis. We expect the performance of the Foundry Division to continue to improve in the coming months.

We maintained during the first half, our industry-leading investment in research and development at around 2% of our sales. This R&D spend is fully expensed in our P&L. This allow 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 5 years ago. At 21% our new product sales ratio is now exceeding our internal objective of 20%, demonstrating again our continued success in commercialization of our innovations. We could launch 9 new products during the first half, reinforcing our technology leadership in the market.

Thanks to the productivity of our R&D organization, we maintain a full pipeline of products to be progressively introduced in the second half and beyond. We are also strengthening our robotics innovation and offering partnering with OEMs and steel producers, both for the modernization of existing steel mills and for new state-of-the-art steel plants coming on-stream. During the first half, we could secure orders for 4 Flow Control and 3 Advanced Refractories robotics equipment versus 1 and 2, respectively, for the same period last year.

And you can see on this slide, 2 illustrative examples of innovative robotic solutions delivered to our steel customers this year. On the upper part of the slide, you can see the integrated robotics solution recently commissioned at our steel partner, Trinec Steel in the Czech Republic. This includes -- and this is what you can see on the picture, the first fully-robotized oxygen-lancing equipment for the label make-up area, developing close cooperation with our customers. This is a world-first innovation, which will improve the safety of our customers' operations and at the same time, improve the consistency of its steel production.

On the lower side of the slide, you can see the new Tundish [indiscernible] robot assembled in our Belgium robotics center prior to shipping and installation as a new core West Virginia plant in the United States. This will enable our customers to improve its cost and at the same time, the quality and reliability of its operations.

I will now hand over to Mark will give you more information on our financial performance during the first half.

Thank you, Patrick, and good morning, everyone. Starting with revenue. The key message is that revenue is resilient despite the operational challenges that we've had with positive pricing of around GBP 21 million, more than offsetting a volume decline of GBP 16 million. You can see the volume reduction is mainly in the Steel Division despite the strong growth in steel production. The box at the top shows a gap when we benchmark our regional revenue against regional steel production. We estimate that our revenue could have grown by around GBP 20 million. Mathematically then, our revenue is GBP 34 million lower compared to the market. The important point is this is not a market share loss, and I've broken it out on the table to the right.

Firstly, GBP 12.6 million is customer demand, which we could not have met due to the operational challenges. A further GBP 9.6 million is from lower equipment sales which clearly fluctuate period-to-period. In addition, as we mentioned in the 2025 results, our revenues have been impacted due to the closure of free steel plants in North America, where we had very high market share which had an impact of GBP 8.5 million. And finally, we decided to avoid sales of GBP 4.5 million due to credit risk in Europe. In Foundry, excluding MMS, volumes were stable, we delivered net market share gains of GBP 6 million and offsetting these was a net market decline of around GBP 8 million. This being split 50-50 between Europe and South America. Finally, we've called out our revenue from loss-making operations, which we have closed to a move in revenue of GBP 9.2 million.

So to summarize, revenue growth should have been better in this first half. Putting aside the operation issues though, there are some positives, namely, a steel market, which is showing strong growth and a strong pricing performance in both our Steel and Foundry divisions.

And now turning to trading profit. In summary, it's a flat year, or flat half year. But there are a number of movements on the bridge, which require further explanation. Firstly, MMS integration is delivering as planned. When we acquired this business, it was generating a trading profit of GBP 6 million per annum, and we are already at GBP 4 million for the first half. The lower volume seen on the previous page is coming through at 60%, which is on the high side, and this is mainly caused by Advanced Refractories in Europe and is due to the lower margin contracts referenced earlier.

On the positive, we have seen net positive pricing come through at GBP 7 million. This is mainly in Flow Control, but also in Foundry. Structural cost savings are ahead of expectations where we guided to GBP 10 million for the year and are already over GBP 7 million. Incentives delta as previously guided and the impact of GBP 8 million from the operational efficiencies has been discussed at length. For these operational efficiencies, we have carefully considered the [indiscernible] impact, making estimates of the future cost impact, but most importantly, the pace at which we expect to regain market share. The discontinued operations are the losses that were made on the businesses which we are closing. And finally, within the other bar there is the one-off benefits of GBP 4 million from a lower tariff which were offsetting a smaller number of items.

So to summarize, the profit of GBP 74 million has been held back by operational issues, but you can also see the benefit of the ongoing improvements from the self-help measures. Once we have these operational issues behind us, our self-help measures will position us well for 2027.

Now looking at the income statement. I've already covered the main trading elements here, so I'll address the finance cost, the tax charge and the minority interest line. Our finance costs are broadly consistent. Our tax rate has now come down by 50 basis points, this reduction from the prior year is mainly driven by profit mix, but also some structuring. The good news is that barring any unusual one-off items, we are now confident that our underlying tax rate for '26 and beyond is now 27%. From my minority interest, the higher charge reflects the increase in the minority share of our Indian Foundry business where we used our Indian listed shares to pay for the majority of MMS. Finally, our half year headline EPS was 16.3p, down slightly by 0.7% on a constant currency basis, leading the Board to maintain the interim dividend, which has been approved at 7.1p per share.

And now moving to working capital. Working capital has remained a key priority for Vesuvius management. And in the first half, we delivered a solid result. We have maintained the absolute balance at a low level especially at the point in the year when it is typically the highest. Our 12-month average has also come down, demonstrating that the improved performance has not just been achieved at the reporting date, but it's from a lower level over the last 12 months. We have achieved this by targeting raw materials in our plants, and it's mainly through increasing the frequency of our ordering. Beyond this, we still see a significant opportunity to reduce working capital further, particularly in trade debtors where we know there is plenty of opportunity to gradually implement improved credit terms. And as we have said before, we remain confident that our long-term target of 21% is entirely valid for Vesuvius.

So moving on to operating cash flow. As you can see, we have delivered a much improved cash flow conversion reporting 81% compared to 33%. This was mainly achieved by the improved working capital as well as an ongoing focus on managing our VAT balances which previously led to an outflow of other working capital.

CapEx is running a little bit higher for the first half, reflecting the phasing of investment in our automated central warehouse [indiscernible] and some ongoing investment in North America. We believe it prudent to increase our full year CapEx guidance to between GBP 75 million and GBP 80 million for FY '26, which is circa GBP 5 million higher than we initially communicated. At the same time, we aim to mitigate this by further improvements in working capital as well as reducing our VAT balances further over the second half.

Now looking at the free cash flow and net debt. Our free cash flow has inflected to an inflow of GBP 27.5 million compared to an outflow this time last year of GBP 13.4 million. On a full year basis, we are targeting to further improve working capital. And after paying the final dividend from 2025 and an interim dividend in the second half, we are targeting to maintain net debt at a similar level. This means that in practice, our year-end leverage will remain at around 2x. Beyond 2026, though, Vesuvius can still generate significant free cash flow. Clearly, a higher level of operating profit is required. But once the operating issues are behind us and based on a combination of market share gains and improving end markets, we expect to deliver significant free cash flow on a recurring basis.

And now moving to our cost reduction program. Firstly, I do need to reconfirm that we carefully track projects to ensure only structural cost reductions qualify. We do not include, for example, vacant positions or lower maintenance costs. Reported savings have come from the closure of surplus plants, the transition of production to lower cost operations, head count reduced through automation and reductions in OpEx through better systems and reorganizations. We continue to make good progress, delivering GBP 7.4 million of in-year savings so far with a target for the year remaining that GBP 10 million.

The cash cost to achieve, which are the P&L charge, excluding noncash impairments, worth GBP 6 million in H1. For the year, this will be as previously guided at between GBP 10 million and GBP 12 million. In addition, there's been an H1 noncash charge of GBP 10.4 million that relates to the impairment of which GBP 7.8 million relates to our AR production facilities in South Africa.

So with that, thank you. And now back to Patrick for the outlook and closing remarks.

Thank you, Mark. The Vesuvius Group has continued to make very significant strategic progress over the first half. Our pricing leadership has been confirmed. Our cost improvement program is proceeding ahead of schedule. Our technology strategy continues to deliver the expected benefits and the turnaround of the Foundry division is now firmly engaged. The impact of those positive developments has been temporarily offset by short-term operational issues. But those are now clearly identified and are expected to be resolved by the end of the year, which will then enable the group to benefit from the ongoing positive developments in our main steel markets.

Whilst we remain mindful of the geopolitical uncertainty stemming from the Middle East situation, we believe this structural recovery in our steel market is resilient. And will continue in the second half and beyond. We expect full year trading profit to be slightly ahead of trading profit for 2025 on a constant currency basis.

Thank you for your attention. And now I propose to open the floor for questions.

It's Andrew Douglas from Jefferies. The standard 3 questions, please. Can you talk about European recovery and what's going to come through, hopefully, in the second half from the quota system. I appreciate [indiscernible] today giving their view. What's your view on when you think your business might start to see that benefit from Europe? And also kind of what has to happen for that to then actually take place? I'm assuming it's related to inventories, but maybe you can tell me.

Secondly, on the lost revenue, how easy do you think it will be to get back that market share or get back those volumes in both Steel and Flow Control and Advanced Refractories, I'm assuming it's a bit easier Flow Control. But again, interested in what you're going to say. And clearly, MMS is going really well. So just a little bit of an update on the integration and what is going on there. And are there opportunities to bolt things on to MMS because it's been such a good acquisition for you.

Thank you, Andy. As we discussed, the global steel market has clearly engaged its recovery still market outside of China with a 3.8% growth over the first half. What is interesting is that Europe didn't contribute at all for the time being. This 3.8% was achieved without any participation from Europe. In fact, Europe was even a slight negative 0.6% as compared with last year over the first half. So Europe has not joined the party yet in terms of steel market recovery. We believe this will start happening from the second half. Our vision is quite similar to the one exposed by ArcelorMittal this morning. We believe that we should see the first step of recovery in the second half. I think it's important to be prudent in terms of pace because we believe there has been some excess import of steel into the EU just ahead of the first of July deadline for implementation of the new EU regulation.

So there is probably some time needed for this excess inventories to be absorbed by the market. But our own vision is that as from Q4 we should start seeing an acceleration of steel production into the EU and definitely '27 should mark a significant acceleration of steel production in the European Union.

Your second question, I think there, again, it's important to be cautious, but there are good reasons to believe that this market share temporary lost sales because of the operational incident should be, in particular, in Flow Control, relatively rapidly regain. Once these operational issues will be solved, we will have clear available capacity in North America, in particular. We have in the months to come several new projects starting in North America, where we have secured exclusive supply contract in particular for our Flow Control products, which will trigger a kind of a reversal of what we've seen now these 3 plants where we had a high market share, which closed last year, which will see the opposite in 27 in particular, with new plants starting now in the U.S., both the U.S. and Mexico. Where we have secured exclusive supply contract or we should play in the positive.

So globally, I feel that the recovery of market share, temporary loss sales in Flow Control should be a relatively smooth and rapid in the coming 6, 12 months.

Advanced Refractories will probably take a bit longer, because we don't have the same technological differentiation in Advanced Refractory than in Flow Control. This being said, in a growing market which is the case now of both North America and India, where the problems -- the operational problems happened. The ramp-up of our volume of sales in Advanced Refractory in both those areas should be significant also in the months to come. And we believe that loss sales should all in all, a rapidly come back also in Advanced Refractories.

Your third question regarding MMS. Yes, the MMS acquisition, it's really a success. It's going very well, I would say, it's going very well first from a people point of view, which is a key of everything, as always, the management team of MMS coming from Morgan is integrating very well in Vesuvius. We are extremely happy to have them part of the Vesuvius family. They are doing a very good job integrating into the global Vesuvius management family. And this plays a key role in the success of this integration, which is clearly now on track to exceed expectations in terms of synergies, in particular. We are only now starting to deliver the synergies. So SG&A synergies are starting to flow and the manufacturing synergies will flow over the next 12 to 18 months, in particular. And this has been announced already to the unions, one of our plants, crossable plants in Germany. We closed by the end of 2027, triggering significant manufacturing synergies for the consolidated Vesuvius Group.

In terms of [indiscernible].

It's clear that we don't have anything to announce today, obviously. But considering the success of the MMS acquisition, we have an appetite to study other potential opportunities going in the same direction, which could complement even further the good success story of the MMS acquisition. So if there are -- in case there will be opportunities on the market, there are small bolt-ons that we are talking about. But in case there will be opportunity in the market, we will clearly be interested to move forward with us.

Tom Elgar from Deutsche Numis. Probably a couple of areas just to ask questions on. So I think the first part on the Advanced Refractory side in Europe, can you talk about more around what you've assumed in terms of the pricing environment? Obviously, you've made those comments around the challenges there. And what gives you confidence around your assumption? Have you tested that with customers already? So perhaps that's the first question.

Regarding the -- I mentioned during the presentation that there is some pressure on pricing in Advanced Refractory due to Chinese imports of advanced refractories product into Europe. We have not assumed any improvement in that respect going forward. I think the pricing pressure on Advanced Refractory product in Europe is there. It's, I would say, an external parameter that we have to integrate. So we have not integrated any improvement. Volume are good because the steel project is getting better, so volumes are good in Europe, but specifically for Advanced Refractories, pricing is under pressure.

And then just as a second area, you touched on the sort of outlook for Europe. So I guess, what do you expect your customers sort of inventory cycle to look like for your products, given this is a sustained improvement like we haven't seen for quite a number of years. Is there anything different that you might expect in terms of given the structural nature to the growth they might hold on, given the greater confidence hold on to more of your products. Can you sort of talk around that.

The level of inventories of our products hold by our customers is relatively low as we speak. And customers which were under themselves strong financial pressure up until relatively recently, have had a tendency to reduce their level of inventories we have not integrated in our forecast any increase of this level of inventories back to what we think would be a more normal level. But it may happen. If it will happen, it will be a further tailwind for our business. But we have not integrated this for the time being [indiscernible].

It's Harry Philips, Peel Hunt. Also a couple of questions, please. I just wanting to get clear in my mind that I'm not going to get too carried away and double count into recovery. Some of the revenue numbers you gave us, Mark, I'm just thinking that the 12.6% lost opportunity, and let's just take a sort of case at sort of that doesn't pick up second half. So I'm just thinking of the base year for steel is to then look at '27. So in theory, if you say so, we've resolved all the issues, let's say, steel does one, then you could add this in '26. You could add the lost opportunity to your base assumption for '27, would that be...

Yes. Subject to the pace of recovery, say, and -- or are we gaining the market share as well. So I think the interesting thing is we know we have backlog of flow control. So as Patrick said, we're relatively confident that we will be able to recover flow control revenues in the U.S. just by virtue of drawing down our backlog alone winning back some of the work that we perhaps have lost. But yes, theoretically, the GBP 12.6 million is there to be fully regained. And the assumption at the moment is the GBP 12.6 million obviously flows into the second half by virtue of the [indiscernible] being flat. So it's effectively it's effectively GBP 25 million of lost revenue on an annualized basis.

Yes. And then the -- just thinking about the sort of steel, the free mill closures last year, we hit on revenue this year, which you've talked about consistently. So that's not sort of new news. But obviously, with all the new capacity coming on stream, sort of you will get a bounce.

We should get a bounce. Yes, I think, I mean, we were looking at the new plants that have opened this morning in [indiscernible]. Open door plan to be opened. There's about 5 plants in the U.S. and Mexico, of which we've got supply contracts for all of them. And mainly for Flow Control but also a bit for AR. So again, that should give us a positive bounce. In fact, some of them opened in the second half of '26 and some of them are actually scheduled to open in '27.

That makes sense. And then just the equipment sales, I mean, is that 9.6%, a particularly high -- is that a greater level of volatility than you'd normally see?

Yes. I would say, yes, it's normally -- it normally does not feature in our analysis, but this time, it was a significant amount. I think there's always a kind of always volatility between the periods, but it was a bit higher than normal. What I can say, though, is that we do see quite a nice pipeline of equipment opportunities. Some of those become customer installations and drive consumable sales and some of them are just outright purchases. But we can see a high level of interest in all of our customers, particularly from the acquisition of [ Piromet ] and more generally, robotics, as Patrick touched on his slides.

And then just finally on Foundry. Just if you crudely strip out MMS, both the revenue and profit per the bar chart, sort of underlying foundry is sort of flat profit revenue, which given sort of what's happening in sort of that sort of seems pretty robust. But in terms of momentum, can you split out what the sort of underlying organic sort of progression was in the first...

[indiscernible] magnitude, Harry, is that in the improvement of the Foundry division year-on-year during the first half, 2/3 is MMS, 1/3 is the underlying base business, order of magnitude. And we expect both parts, both, I would say, historical base of Foundry and the MMS related business, knowing that it's not MMS anymore because it's completely merged with our existing business, but the MMS [indiscernible] part, both to continue to grow in the coming months and years.

And then 30 basis point improvement in the core business that we've calculated. So that's the benefit of the price rises coming through and a little bit of decline in volume because of Europe and South America. So there is, as Patrick said, clear progress in profit improvement in the core business ex-MMS.

And then just finally, thinking about the sort of cost program, obviously, that reached its conclusion. But I would imagine, given the difference in sort of geographic performance within the various businesses, are you sort of thinking there could be an extension or sort of reappraisal of what you might do...

I mean we -- the GBP 15 million, which is still to go is fully broken down in terms of things that we want to do. And some of those things obviously continue to focus on the more troublesome parts of the business. So there are definitely some opportunities in terms of production for European AR, for example, that we're studying and are somewhat factored into that number. But I think we always believe that there's more to go after 2028, we do not believe will be done. There's ongoing efficiencies that you can make on a daily basis, and we're always trying to get after those.

I think it's a never-ending story, as you know. Our first task is to exceed the GBP 55 million by 2028. But yes, as Mark, we are both very confident that once this is done, we will find something else.

And the key message that I wanted to outline was these are structural cost savings because, obviously, people will be concerned that we were cut in areas that we shouldn't have cut, but that is not in the mindset of the group. We do focus on very discrete things when we look to remove cost, not just holding back spend we look to close, reorganize transfer, et cetera. And that all has to meet our definitions of structural cost savings.

And then just lastly, just around the sort of 12.5% margin target. So [indiscernible] fair question, but I'm going to ask it anyway. I mean, your confidence in that 12.5% margin target sat here today, say, compared to a while ago that acceleration in steel almost at a level we haven't seen in 25 years, if not longer, sort of -- I guess, me excited. I just hope that get you excited...

It's a very tricky question, if you allow me, in the current short-term circumstances. But short term is short term and long term is long term. The operational issues that we have, honestly, they are not rocket science, which doesn't make it very glorious. But what happened to during the first half is not very complicated to solve. That is one of the reasons why it should not have happened, by the way, but it's not very competitive. So it will be solved.

And the fundamental of the business, what we should take into account to answer your question about the 12.5% remain -- not only remain exactly the same as what they were 6 months ago, but they are probably a bit better. So I don't really see why we would change our opinion about our ability to reach that target because we had short-term difficulties during the first half.

I would add that the presumption of the 12.5% has always been underpinned by 2% market growth and 2% revenue from market share gains. The 2% market growth has been 3.8% in this first half. So it's double what we thought it was going to be. The market share gains, clearly, you know how we calculate them. We benchmark ourselves to the steel production. Yes, it's negative. But as we've explained, the negatives. Some of them are self-inflicted, but a lot of negatives are just timing. So I think the position still stands. But as Patrick said, it's hard to get confident on that when you sat here after a difficult week.

I'm Mark Fielding from RBC. I'm not wanting to rain on Harry's parade of optimism. But I want to go back to the one bit that feels a little bit more negative, which is we've already touched on the EU price pressure you're seeing in refractories. And I suppose just a bit more thoughts about I know you've not assumed an improvement, but what can you actually do to counter that? What is the risk that it becomes a more global phenomenon? I mean could you start to see the same price pressure in other markets around the world? And against that backdrop, it feels like given you're doing really well in the flow control side and it's still improving profitability, you're probably not making much money right now in Advanced Refractories. So just how do you think about the margin potential of that business in the context of that sort of 12.5% aspiration?

Thank you, [indiscernible]. It's a very good question. The rest of the world, there is not much change as compared with the situation before. So this situation is specific to Europe. And our own response to that is that today, Europe is not our priority in terms of advanced refractory. Flow Control, absolutely. We are clearly having a very good business of Flow Control in Europe, by the way, which is doing already significantly better in the first half as last year, even before the steel market starts to get better in Europe, so very resilient, very strong.

But the geographical priorities of advanced factories are Asia and North America. We will maintain an activity in Europe because we have some good assets there. But our priority is not to grow in Europe, in Advanced Refractory. Our priority is to cultivate the regions where we are -- we have strong assets and strong presence and good profitability, which are Asia, generally speaking, all the Asian area and North America. This is where our focus will be.

Again, we will absolutely not [indiscernible] completely from Europe, but we are reexamining our manufacturing footprint in some parts of Europe. We are closing our manufacturing footprint in South Africa. We are optimizing our manufacturing footprint in other parts of Europe for Advanced Refractories, I mean. So we are preparing ourselves to probably be a reduced footprint in Europe for advanced refractory, but more resilient, more solid and able to compete in this, I would say, new competition parameters with a Chinese competition. We are fighting with Chinese everywhere in Asia with our Asian footprint and it goes very well. We have no specific issue there.

So we have to adapt our manufacturing footprint in Europe to the new reality of the competition with Chinese imports. And it's on the way, and it will be fully over by Q1 '27. So in Q1 '27, thanks to the manufacturing footprint optimization, specifically in Advanced Refractory that are ongoing as we speak in Europe. We will have adapted our advanced refractory footprint and competitive situation to the new reality of what we've -- to what we believe is the new reality of the Advanced Refractories market in the Europe region. I think that the market is what it is. It's our job to adapt.

Probably [indiscernible] that where it makes sense, we do move production to China and then export it back into the markets that we are finding more challenging. So as a good example of how we adapt.

If you need to be Chinese in Europe to succeed, will be Chinese in Europe.

So in that context, in the when we get to 12.5% margins in a year or so for Harry, what are the margins going to be like [indiscernible]? So are they getting up towards double digit?

I think margins in Advanced Refractories have always been lower and will always be lower than the rest of the Steel Division and Flow Control, in particular, they will improve significantly as compared with what they are today. And our objective is that they will improve not in 10 years, but we believe that the margin in Advanced Refractory will improve significantly as compared with abnormally low level where they are in the first half already towards the end of this year.

So we are progressing at accelerated speed for the reorganization and adaptation in particular in Europe, of our manufacturing footprint. And this will support together with the resolution of the operational issues in North America and India, which are a bit of a pity for advanced refractory because normally, it is where they should -- they are making still and despite this good [indiscernible]. But we believe that both in the strong regions of Asia and North America, but also in Europe, the profitability will significantly improve between now and the end of the year.

I mean to answer your question, we don't project to get to double digit in Advanced Refractories. That's not a core working assumption, but a decent improvement and actually an improved product mix is possible in Advanced Refractories.

This being said, double-digit in Asia and North America. Yes. Yes, of course.

Are there any further questions? Answer some questions online?

Yes.

[Operator Instructions]

As there doesn't seem to be questions online, I would like to thank you all for your attendance today. As always, with Rachel and Mark will remain at your disposal to answer any questions you may have. Thank you very much, and I wish you a very nice day.

Good day, ladies and gentlemen, and welcome to the Vesuvius plc Spring Trading Update. [Operator Instructions]

I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Vesuvius plc, Patrick André, to open the presentation. Please go ahead.

Good morning, everyone. My name is Patrick André. I'm the CEO of Vesuvius. And I'm joined this morning in the call by Mark Collis, our Chief Financial Officer. So today, I will update you about our trading performance over the first 4 months of this year.

Most important message is that steel markets are confirming their improvement and their positive momentum in the world outside of China, Russia, Iran and Ukraine with a growth of 2.5% over last year during the first quarter, accelerating to 2.9% at the end of April. The foundry market, as far as they are concerned, remain more or less stable as compared with last year with a positive situation in India and China, both markets remaining relatively soft in the rest of the world with no signs for the time being of a significant improvement.

In this commercial background, we maintain successfully our priority on pricing discipline with positive pricing developments over the first 2 months of the year, both for the Steel and for the Foundry division, more than offsetting the evolution of our cost base. Our volumes were positively oriented in the Foundry division. In the Steel division, however, beginning of the year, our volumes were slightly lower than last year, mostly due to 2 reasons. One is the fact that some important customers where we had 100% market share in North America closed around mid last year. So the comparison H1 over H1 is, of course, slightly negative. And the second reason is that we had operational issues, internal operational issues in some of our operations, mostly in North America, to a lesser extent in India, but mostly in North America beginning of this year. These internal operational issues have been corrected, understood, corrected and will not impact the rest of the year.

Our cost reduction program is successfully proceeding as planned. We still expect to deliver at least GBP 10 million of recurring net cash savings in 2026 and our objective of a cumulative GBP 55 million of net cash savings by 2028 remain completely on track and will probably be slightly exceeded.

The integration of the Morgan Crucible division, which we acquired end of last year, is proceeding very smoothly and successfully. We have started to generate significant synergies as planned. and we expect from today not only to achieve fully the synergies which we expected to deliver at the time of acquisition, but probably to slightly exceed those synergies. We had a good work on cash management and a good focus on cash management. Our leverage remains under control, as we speak, stable as compared with the end of last year, but considering the good work ongoing, we are confident, we remain confident that the leverage will progressively decline during the second half of the year to an overall reduction this year as compared with last year.

Our revenue to date is only slightly ahead of last year on a constant currency basis due to the operational issues that I mentioned earlier. However, and even if we remain mindful of the Middle East conflict impact, and despite the operational issues, which I mentioned, considering the positive trends, the confirmed positive trend in our market and in particular in steel, our full year expectation remains unchanged as compared with our previous guidance.

I now propose to open the floor for questions. So please, if you could proceed.

[Operator Instructions] Your first question comes from the line of Stephan Klepp from BNP Paribas.

Can we talk about your guidance again and about the issues that you had? I mean we talked about it this morning already, but can you talk about what really went wrong in terms of your internal value chain and the production. And will that not eat into the guidance? Or can you make up for the loss of production? Or is it basically eating into your buffer that you had with the guidance anyhow?

So our internal operational issues in North America were mostly related to quality issues, faulty raw materials, which was not detected early enough and impacted the production. Fortunately, our quality wall operated very well. So no customer was impacted, but the time to correct this faulty raw material issue, to source other raw material and to restart production correctly, we lost a significant percentage of the capacity for this particular product line. This is an important one for us in North America for several months beginning of this year. So this resulted in a temporary but not recoverable loss of production capacity for some months, which prevented us from delivering all of the demand which was addressed to us. Some of our customers could postpone the delivery and this will be recovered in the coming weeks and months.

Some other customers, because they are running full speed, have to find alternatives. The temporary loss of market share will be recovered, but some sales will not be recovered, but it's a one-off impact. I hope it answers your question. This, of course, had a negative one-off trading profit impact on our results. Despite this, we maintain our full year guidance. Which simply means that we would have been, I would say, even more comfortable maintaining our guidance if this operational issues would not have happened.

Okay. Understood. So in other words, there's a little bit -- you had an H2 bias before, now the H2 bias for execution is a little bit stronger because of these issues, right?

Yes. And also because of the confirmed positive trends in our market. You remember when we discussed a few weeks ago, a few months ago, that we were not counting on the European improvement to happen, we were counting to happen rather towards the end of this year. We are already seeing some positive trends in the European market, and it is now confirmed that the new European quota system will be in place as from the first of July, which is, I would say, on the positive side of our previous assessment in terms of timing range. So we believe the situation in Europe is improving probably faster than what we had in mind some time ago.

Your next question comes from the line of Harry Philips from Peel Hunt.

Just a question on Foundry, and it's being flat through the period and slightly down in Europe and North America. If you could just go through the geographies in a little more detail because general industrial sort of seems to be a little bit better, reflecting PMIs in general, contrary to peers, broad peers, through this reporting season. So I'm just slightly surprised to see Europe down unless that's -- I'm guessing that has to be down to auto primarily. So is it possible to sort of give an outline as to where Foundry is maybe ex auto, and does it just mean sort of auto headwinds?

Thank you. It's a very good question to understand what happened. So when we look on a regional basis, you have 2 regions, which are going quite well, which are India and China. And in fact, the reason why they are doing quite well is because these 2 regions not only have retained a good domestic market, but in the case of consumables are -- foundry products, not foundry consumer, foundry products, castings are exporting more and more to the rest of the world. And what we see in the rest of the world so far is that even if some -- in some regions, some manufacturing activity is getting better.

We see this manufacturing activity being more and more assembly with the components, including castings coming more and more -- being more and more imported. When you look at some of the automotive Chinese automotive transplant, for example, there are more assembly plants than full automotive plants, importing a significant part of their components, including castings from overseas. So you have, at the same time, a kind of an apparent manufacturing improvement in some regions. But when you look at our level of what is important for us, which is not for example the final automotive production, but the casting products used in the automotive, we see imports from India and China, gathering momentum. What is happening in this background is that we now see and it's typically the case in North America, some protection measures being implemented, not only vis-a-vis automotive, for example, but vis-a-vis components used to produce and to manufacture in automotive with companies -- with countries requiring a higher and higher level of value-added being realized in the country for the automotive or any other goods being considered as being really manufactured in the country.

Mexico as in the framework of their discussion with the U.S., Mexico is now also introducing tariffs vis-a-vis some parts used in automotive and so this is the reason why in North America, in particular, we have a reasonable hope that there should be some improvement in the North American market for foundry going forward because these type of measures going one level further are being progressively implemented. Europe, for the time being, is not doing anything. So we have some first level production measures, but we don't have yet protection measures for the components being used in manufacturing activity. What is interesting is that the debate is starting to shift in Europe with the new Industrial Act having been the draft, the proposal of a new Industrial Act starting to tackle these issues a little bit following the North American playbook. And there is a probability that over the coming years, but it will be slow in Europe as usual.

Europe will start to protect also the Tier 2, Tier 3 suppliers to manufacturing activity. And that this could lead to an improvement in the foundry market in Europe. But for the time being, Europe remains completely open to the import of castings. The same is okay, is the same for South America. So I don't expect short term, meaning the next year, significant improvement in Europe and South America. North America could be on an improving trend for foundry going forward, thanks to the measures currently being introduced. Sorry for the long answer, but I think it was a very good and important question, which we follow closely to assess the foundry market in the different regions going forward.

And then just one, possibly for Mark. Just thinking about the profit bridge for the current year, particularly with those operational issues in North America. I mean, if I remember correctly, sort of the FX headwind you anticipated was sort of 4 or 5 in cost savings, 10, but obviously sort of performance-related pay sort of taken quite a lot of that away you've gotten Morgan contribution. So is there any sort of major change in any of those sort of particular parts, Mark?

No, nothing particularly. You're right, FX was 4 and it's now 5. So that takes consensus down from GBP 170 million to GBP 169 million. We think the supply chain issues will have cost us about GBP 4 million of TP in the first half. But what we're seeing, obviously, is a better market backdrop generally. So we think we'd recover that 4 in the full year, either through price or volume. So hence, we're comfortable to maintain guidance at that level. So I guess the challenge for us there will be this is obviously driving the first half weighting because you've obviously got the supply chain issues, but you've also got the need to reinstate the variable compensation, which was, if you remember, GBP 9 million for the full year, of which will end up in GBP 4.5 million in the first half. So it's going to -- it's adding to the H1, H2 weighting.

So maybe referring back to Stephan's point, just it would be fascinating to know which obviously won't give us what level of contingency you have in there. But I doubt you'll provide us with that, unfortunately.

Correct.

And your next question comes from the line of Tom Elgar from Deutsche Numis.

Firstly, can we just dig a little bit more into the North American steel market. Domestic production data, we're seeing looks good, weekly production kind of in that mid-single digit, high single-digit range from AISI with the customer closures you talked about, can you just help us think about how should we be bridging this underlying kind of domestic production picture to your performance, I guess, to dig into that market share dynamics question. Is there anything we need to be thinking about before kind of extracting that performance, kind of, out further out once you've annualized the customer closures? And that's the first question.

So the North American steel production is clearly now increasing. You remember last year, it was more or less a wash with an improvement in the U.S. being more or less compensated by a decline in Mexico and Canada. So it was kind of a left pocket, right pocket game. Now it's changing. Overall, the North American steel production Mexico plus U.S. plus Canada consolidated, is increasing 3.5% over last year as compared with over the first 4 months of the year. So we have a positive trend, and we expect this positive trend, clearly positive trend to be maintained.

So globally, the market is growing now in North America, and we expect the outcome of the ongoing discussion for renegotiation of the USMCA to result in even more globally protected North American market with probably even Mexico being included in Fortress North America, if I can call it like that. So we see a positive trend starting and we are quite confident that it will be confirmed going forward for steel production.

Now, how to relate that to ourselves? It's a complex relationship because we don't have the same market share at all customers. I mentioned earlier that around end of H1 last year, 3 important plants, important for us, plants in the U.S. closed where we had 100% market share, the steel which was being produced in those plants is now being produced by other plants in North America, where our market share was lower than 100%.

So of course, if the steel is being produced in the plant where we are now 60% market share, whereas it used to be produced in a plant where we had 100% market share this mechanically results in a consolidated loss of market share for Vesuvius, it's not that we lost market share at a given customer against somebody else, simply a customer mix issue, which on a global basis, results in apparent loss of market share. This is by definition a one-off phenomenon because this -- for example, the H2 comparison will be much less unfavorable because those plants were closed in H2 last year. So on a comparison basis, the negative impact is a one-off and will disappear over time. I don't know if I'm clear if it answers your question.

No, no, that's clear. Just a second question from me just on mix. Just how does that start the year particularly in steel? Have you seen this move in places like North America if that production picture is picking up slightly?

In terms of product mix, you mean?

Yes. I mean like flow control, like margin mix yourselves as well, those dynamics.

No. We have some -- remember, some trading down of product last year when the markets were difficult. We don't see that anymore now. I would even say that in Europe, where the trading down impact was the most important last year, we are doing quite well in flow control in Europe. And so what we were expecting is happening. So now that customers are ramping up in Europe in preparation for the new quota system, which will be introduced on the first of July, of course, maintaining good operating efficiency running as close as possible to their maximum capacity becomes more and more important. And as a consequence, the quality of the flow control products that they are using remains more and more important for them in terms of value in use.

So we have the performance of our flow control operations in Europe beginning of the year is better than expected. I would say, we had good expectations, but it's even better than expected. And this is completely in line with improvements of the overall European steel market, which we had planned and which is now happening and which will accelerate in H2.

Your next question comes from the line of Jamie Murray from Bank of America.

If I could just ask follow-on question about the European steel tariffs, which we expect to be effective in July. Have you guys started seeing any change in customer behavior ahead of the implementation? And how do you see volumes evolving after implementation in terms of speed and scale?

We have seen several customers preparing for a ramp-up of production in Europe in the months to come. You may have seen the news that ArcelorMittal is restarting some operations in Poland, in Spain, in France, in Fos. So and you have other examples of customers clearly anticipating the improvements of demand addressed to European-based steel producers in H2 by ramping up already now starting to ramp or prepare for the reopening of some of the capacity in Europe. So this is clearly apparent. And we have ourselves increasing our own capacity in Europe by staffing, increasing the staffing of some of our operations so that we can run more shifts in some of our plants and to make us able to meet what we believe will be an improvement in demand in the coming months.

[Operator Instructions] There are no further questions on the conference line. I will hand over to management for closing remarks.

Thank you very much. I would like to thank you all for attending our call this morning. We remain, as usual, with Mark and Rachel at your disposal, should you have any questions and we wish you all a very good day. Goodbye.

Good day, ladies and gentlemen, and welcome to the Vesuvius plc Spring Trading Update. I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Vesuvius plc, Patrick Andre, to open the presentation. Please go ahead.

Good morning, everyone. My name is Patrick Andre. I'm the CEO of Vesuvius. And I'm joined this morning in the call by Mark Collis, our Chief Financial Officer. So today, I will update you about our trading performance over the first 4 months of this year. Most important message is that steel markets are confirming their improvement and their positive momentum in the world outside of China, Russia, Iran and Ukraine with a growth of 2.5% over last year during the first quarter, accelerating to 2.9% at the end of April. The foundry markets, as far as they are concerned, remain more or less stable as compared with last year with a positive situation in India and China, but markets remaining relatively soft in the rest of the world with no sign for the time being of significant improvement.

In this commercial background, we maintain successfully our priority on pricing discipline with positive pricing development over the first few months of the year, both for the Steel and for the Foundry division, more than offsetting the evolution of our cost base. Our volumes were positively oriented in the Foundry division. In the Steel division, however, beginning of the year, our volumes were slightly lower than last year, mostly due to two reasons. One is the fact that some important customers where we had 100% market share in North America closed around mid last year. So the comparison H1 over H1 is, of course, slightly negative. And the second reason is that we had operational issues -- internal operational issues in some of our operations, mostly in North America, to a lesser extent in India, but mostly in North America beginning of this year. The internal operational issues have been corrected, understood, corrected and will not impact the rest of the year.

Our cost reduction program is successfully proceeding as planned. We still expect to deliver at least GBP 10 million of recurring net cash savings in 2026 and our objective of a cumulative GBP 55 million of net cash savings by 2028 remain completely on track and will probably be slightly exceeded. The integration of the Morgan Crucible division, which we acquired end of last year is proceeding very smoothly and successfully. We have started to generate significant synergies as planned. And we expect, seen from today, not only to achieve fully the synergies which we expected to deliver at the time of acquisition, but probably to slightly exceed those synergies. We had a good work on cash management and a good focus on cash management. Our leverage remained under control. As we speak, stable as compared with the end of last year. But considering the good work ongoing, we are confident -- we remain confident that the leverage will progressively decline during the second half of the year to an overall reduction this year as compared with last year. Our revenue up to date is only slightly ahead of last year on a constant currency basis due to the operational issues that I mentioned earlier.

However, and even if we remain mindful of the Middle East conflict impact and despite the operational issues, which I mentioned, considering the positive trends, the confirmed positive trends in our market and in particular, in Steel, our full year expectation remain unchanged as compared with our previous guidance. I now propose to open the floor for questions. So please, if you could proceed.

[Operator Instructions] Your first question comes from the line of Stephen Klepp from BNP Paribas.

Can we talk about your guidance again and about the issues that you had? I mean we talked about this morning already, but can you talk about what really went wrong in terms of your internal value chain and the production? And will that not eat into the guidance? Or can you make up for the loss of production? Or is it basically eating into your buffer that you had with the guidance anyhow?

So our internal operational issues in North America were mostly related to quality issues, the faulty raw materials, which was not detected early enough and impacted the production. Fortunately, our quality wall operated very well. So no customer was impacted, but the time to correct this faulty raw material issue to source other raw material and to restart production correctly, we lost a significant percentage of the capacity for this particular product line, which is an important one for us in North America for several months beginning of this year. So this resulted in a temporary but not recoverable loss of production capacity for some months, which prevented us from delivering all of the demand, which was addressed to us. Some of our customers could postpone the delivery and this will be recovered in the coming weeks and months. Some other customers because they are running full speed, had to find alternatives.

The temporary loss of market share will be recovered, but some sales will not be recovered, but it's a one-off impact. I hope it answers your question. This, of course, had a negative one-off trading profit impact on our results. Despite this, we maintain our full year guidance, which simply means that we would have been, I would say, even more comfortable maintaining our guidance if the operational issues would not have happened.

Okay. Understood. So in other words, there's a little bit -- you had an H2 bias before. Now the H2 bias for execution is a little bit stronger because of these issues, right?

Yes. And also because of the confirmed positive trends in our market. You remember when we discussed a few weeks ago, a few months ago that we were not counting on the European improvement to happen -- we were counting on it to happen rather towards the end of this year. We are already seeing some positive trends in the European market. And it is now confirmed that the new European quota system will be in place as from the 1st of July, which is, I would say, on the positive side of our previous assessment in terms of timing range. So we believe the situation in Europe is improving probably faster than what we had in mind some time ago.

Your next question comes from the line of Harry Philips from Peel Hunt.

Just a question on Foundry and it being flat through the period and slightly down in Europe and North America. If we could -- if you could just go through the geographies in a little more detail because general industrial sort of seems to be a little bit better, reflecting PMIs and general commentary from peers, broad peers through this reporting season. So I'm just slightly surprised to see Europe down unless that's -- I'm guessing that has to be down to auto primarily. So is it possible to sort of give an outline as to where foundry is maybe ex auto? And is that just mainly a sort of auto headwinds?

Thank you. It's a very good question to understand what happened. So when we look on a regional basis, you have 2 regions which are growing quite well, which are India and China. And in fact, the reason why they are doing quite well is because these 2 regions not only have remained -- retained a good domestic market, but in the case of foundry consumables are -- our foundry products, not foundry consumer, foundry products, castings are exporting more and more to the rest of the world. And what we see in the rest of the world so far is that even if in some regions, some manufacturing activity is getting better. We see this manufacturing activity being more and more assembly with the components, including castings coming more and more -- being more and more imported. When you look at some of the automotive -- Chinese automotive transplants, for example, there are more assembly plants than full automotive plants importing a significant part of their components, including castings from overseas.

So you have, at the same time, kind of an apparent manufacturing improvement in some regions. But when you look at our level of what is important for us, which is not, for example, the final automotive production, but the castings products used in the automotive, we see imports from India and China gathering momentum. What is happening in this background is that we now see and it is typically the case in North America, some protection measures being implemented, not only vis-a-vis automotive, for example, but vis-a-vis components used to produce and to manufacture in automotive with companies -- countries requiring a higher and higher level of value-added being realized in the country for the automotive or any other goods being considered as being really manufactured in the country.

Mexico has -- in the framework of their discussion with the U.S., Mexico is now also introducing tariff vis-a-vis some parts used in automotive. And so this is the reason why in North America, in particular, we have, I would say, a reasonable hope that there should be some improvement in the North American market for foundry going forward because these type of measures going one level further are being progressively implemented. Europe, for the time being, is not doing anything. So we have some first level production measures, but we don't have yet production measures for the components being used in manufacturing activity.

What is interesting is that the debate is starting to shift in Europe. With the new Industrial Act having been the draft, the proposal of a new Industrial Act, starting to tackle these issues, a little bit following the North American playbook. And there is a probability that over the coming years, but it will be slow in Europe, as usual. Europe could start to protect also the Tier 2, Tier 3 supplier to manufacturing activity and that this could lead to an improvement in the foundry market in Europe. But for the time being, Europe remains completely open to the import of casting. The same is -- is the same for South America.

So I don't expect short term -- meaning in the next year, significant improvement in Europe and South America. North America could be on an improving trend for foundry going forward, thanks to the measures currently being introduced. Sorry for the long answer, but I think it was a very good and important question, which we follow closely to assess the foundry markets in the different regions going forward.

And then just one possibly for Mark. Just thinking about the profit bridge for the current year, particularly with those operational issues in North America. I mean, if I remember correctly, sort of the FX headwind you anticipated was sort of GBP 4 million or GBP 5 million cost savings, GBP 10 million, but obviously sort of performance-related pay sort of taking quite a lot of that away you've got Morgan contribution. So is there any sort of major change in any of those sort of particular parts, Mark?

No, nothing particularly. So you're right, FX was GBP 4 million, and it's now GBP 5 million. So that takes consensus down from GBP 170 million to GBP 169 million. The -- we think the supply chain issues will have cost us about GBP 4 million of TP in the first half. But what we're seeing obviously is a better market backdrop generally. So we think we'd recover that GBP 4 million in the full year, either through price or volume. So hence, we're comfortable to maintain guidance at that level. So I guess the challenge for us there will be this is all obviously driving the first half weighting because you've got the -- you've obviously got the supply chain issues, but you've also got the need to reinstate the variable compensation, which was, if you remember, GBP 9 million for the full year, of which will end up accruing GBP 4.5 million in the first half. So it's going to -- it's adding to the H1, H2 weighting.

So maybe referring back to Stephan's point, just it would be fascinating to know which obviously won't give us what level of contingency you have in there. But as I say, I doubt you'll provide us with that, unfortunately.

Correct.

[Operator Instructions] And your next question comes from the line of Tom Elgar from Deutsche Numis.

Firstly, can we just dig a little bit more into the North American steel market. Domestic production data we're seeing looks good, weekly production kind of in that mid-single digit, high single-digit range from AISI. With the customer closures you talked about, can you sort of help us think about how should we be bridging this underlying kind of domestic production picture to your performance, I guess, to dig into that market share dynamics question. Is there anything we need to be thinking about before kind of extrapolating that performance kind of out further out once we've annualized the customer closures? That's the first question.

So the North American steel production is clearly now increasing. You remember last year, it was more or less a wash with an improvement in the U.S. being more or less compensated by a decline in Mexico and Canada. So it was kind of a left pocket, right pocket game. Now it's changing. Overall, the North American steel production, Mexico plus U.S. plus Canada consolidated is increasing 3.5% over last year as compared with over the first 4 months of the year. So we have a positive trend, and we expect this positive trend -- clearly positive trend to be maintained. So globally, the market is growing now in North America. And we expect the outcome of the ongoing discussion for renegotiation of the USMCA to result in an even more globally protected North American market with probably even Mexico being included in Fortress North America, if I may call it like that. So we see a positive trend starting, and we are quite confident that it will be confirmed going forward for steel production.

Now how to relate that to ourselves. It's a complex relationship because we don't have the same market share at all customers. I mentioned earlier that around end of H1 last year, 3 important plants -- important for us plants in the U.S. closed where we had 100% market share. The steel which was being produced in those plants is now being produced by other plants in North America, where our market share was lower than 100%. So of course, if the steel is being produced in a plant where we had 60% market share, whereas it was -- it used to be produced in a plant where we had 100% market share, this mechanically results in a consolidated loss of market share for Vesuvius.

It's not that we lost market share at a given customer against somebody else, simply a customer mix issue, which on a global basis results in an apparent loss of market share. This is, by definition of one-off phenomena because this -- for example, the H2 comparison will be much less unfavorable because those plants were closed in H2 last year. So on a comparison basis, the negative impact is a one-off and will disappear over time. I don't know if I'm clear, if it answers your question.

No, no, no, that's clear. Just a second question for me, just on mix. Just how has that started the year, particularly in steel? Have you seen this move in places like North America if that production picture is picking up slightly?

In terms of product mix, you mean?

Yes. I mean, like flow control, like margin mix itself as well, those dynamics.

No. We have some -- remember, some trading down of product last year when the market was difficult. We don't see that anymore now. I would even say that in Europe, where the trading down impact was the most important last year, we are doing quite well in Flow Control in Europe. And so what we were expecting is happening. So now that customers are ramping up in Europe in preparation for the new quota system, which will be introduced on the 1st of July.

Of course, maintaining good operating efficiency, running as close as possible to their maximum capacity becomes more and more important. And as a consequence, the quality of the Flow Control products that they are using remains more and more important for them in terms of value in use. So we have the performance of our Flow Control operations in Europe beginning of the year is better than expected, I would say. We had good expectation, but it's even better than expected. And this is completely in line with the improvement of the overall European steel market, which we had planned and which is now happening and which will accelerate in H2.

Your next question comes from the line of Jamie Murray from Bank of America.

If I could just ask a follow-on question about the European steel tariffs, which are expected to be effective in July. Have you guys started seeing any change in customer behavior ahead of the implementation? And how do you see volumes evolving after implementation in terms of speed and scale?

We have seen some -- several customers preparing for a ramp-up of production in Europe in the months to come. You may have seen in the news that ArcelorMittal is restarting some operations in Poland, in Spain. in France. So -- and you have other examples of customers clearly anticipating the improvement of demand addressed to European-based steel producers in H2 by ramping up already now starting to ramp or prepare for the reopening of some of their capacity in Europe. So this is clearly apparent. And we have ourselves increasing our own capacity in Europe by staffing, increasing the staffing of some of our operations so that we can run more shifts in some of our plants and to make us able to meet what we believe will be an improvement in demand in the coming months.

[Operator Instructions] There are no further questions on the conference line. I will hand over to management for closing remarks.

Thank you very much. I would like to thank you all for attending our call this morning. We remain, as usual, with Mark and Rachel at your disposal should you have any questions. And we wish you all a very good day. Goodbye.

Good morning, ladies and gentlemen. Welcome to Vesuvius Full Year 2025 Results Presentation. My name is Patrick Andre. I'm the Chief Executive of Vesuvius. And 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 the 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 the 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 mix 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-EBITDA ratio to 2x 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 outflow and the improvement of our trading profit.

This made the Board confident to propose a final dividend for the year of 16.5p per share bringing the total dividend for the year to 23.6p 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 EU 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. And 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 and steel production in the U.K. and EU 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 EU. The Carbon Border Adjustment Mechanism introduced beginning of this year will progressively increase CO2 cost for steel importers in the EU eliminating the current cost disadvantage of domestic producers. But even more important, the EU has introduced a draft legislation to implement as from this year a quota system for all steel imports into the EU 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 protections 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 as the EU or the U.S., but also by many and more and more emerging economies.

In effect, doors are progressively closing to Chinese steel exports. 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 1. 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 the year 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 EU 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 the 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 here, 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 the negative net pricing and mix experienced 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 3/4 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 reestablished 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 results 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 remained 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 EU 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 nonferrous foundry market and to decrease our exposure to the EU plus U.K. market. Regarding nonferrous 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 nonferrous market. Thanks to this acquisition, which now positions Vesuvius as the world leader in the crucibles market, the percentage of our foundry sales in nonferrous is expected to reach 27% in 2026 as compared with 21% in 2025. And 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 EU plus U.K. is decreasing progressively and reached 32% in 2025 as compared with 37% 5 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 results 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 5 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 mechatronic 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 #1 priority of Vesuvius and our ultimate objective is to become a 0 accident company.

We also achieved 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 ourselves 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 nonemitting ones. We have now set ourself a new intermediary target in our journey to net zero with an objective of 50% reduction by 2035.

And 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'll 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 talking you through the trading profit bridge. You will see the benefit of our 2 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 1st of March; and MMS, which serves our faster-growing nonferrous foundry customers, which was acquired in mid-November.

The annualized revenues of these acquisitions would be GBP 57.9 million if they have 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.

And now turning to trading 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 trading profit reduction; and 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 and adjusting for this gives us trading profit of GBP 178.3 million and a RoS of 10%. The volume and mix delta is due to 2 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 EU trade production 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 are 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 '26 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 1 year ahead of plan.

As well as the benefit of PiroMET and MMS on the bridge, you'll note 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 2 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 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. So to quickly summarize. It's been a difficult year, but we have 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 element so I'll address finance costs and minority interests. For 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 benefit or one-off to interest net cost of GBP 2.5 million. As a reminder, our technical guidance notes within these slides include, amongst other things, an estimate of the interest charge for '26.

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 and 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 34.2p, 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.

And finally, turning to the dividend. The Board has approved a small increase of 0.4% to 23.6p 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 3 years, that has enabled us to fund GBP 100 million worth of additional capacity investments, complete 2 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 '26 and further improvements in the years ahead. Our CapEx is now coming down as guided, a reduction of GBP 15 million from '24 to '25 and it will come down to between GBP 70 million and GBP 75 million in '26 as previously stated and 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 2 factors. Firstly, the year-over-year reduction in incentive accruals of around GBP 4 million due to the decline in trading profit; and 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.

So 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 that we deployed GBP 35 million in the year and the acquisition of PiroMET and MMS. Combining the above with our free cash flow for 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 to 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 2 years were over GBP 30 million, which means we are 1 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. So 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 U.S. Under automation, in 2025 we completed projects costing GBP 3 million in the year, which have 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 '26, which is the major automated central warehouse at our flagship plant in Skawina, Poland.

Under OpEx, we are particularly focused on Europe reducing both our sales overhead in 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 '28, which means we have a further GBP 25 million to achieve over the next 3 years.

For now, we are guiding to GBP 10 million; but based on previous performance, we may be 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 3 years consist of fully identified projects and therefore, we approach '26 with a solid pipeline and feel confident in our ability to deliver.

So with that, thank you. And 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. But 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.

Whilst 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 sales target and to generate significant free cash flow.

Thank you very much for your attention. I now propose to open the floor for questions.

Harry Philips from Peel Hunt. Several, please. Just in terms of the situation in India, just trying to -- I 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? And 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? And then lastly, just 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 so 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?

Regarding India, to cut a long story short, our businesses are performing very well in India, both foundry and steel. By the way, we operate through 2 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 2 different entities and 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 the Indian market.

We are growing through technology. So we are growing with good margins and with good profitability and we see no specific end in sight for this successful business model. Where are we in terms of capacity? You know that we have recently invested in new capacity in India. And the pace at which we are progressing, which is a 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, '29. And in advanced refractory, I would say 2029, '30 or something like that.

So 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 '28, '29. So 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 a GBP 8 million EBITDA business on a yearly basis. We were planning to generate 50% of that for GBP 4 million synergies. Our latest estimates are higher than that. So we believe that we will deliver more than GBP 4 million synergies through the integration of MMS and the timing of delivery is 24 months. It's between now and the end of '27 with already this year some synergies being delivered mostly in SG&A, which is the quickest to implement.

And 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 the GBP 4 million that we took into account at the time of the acquisition. The operational issues are now mostly behind us. So our team have been doing a good job, is continuing to do a good job and those operational issues are mostly behind us. But I don't know if you want to add something, Mark?

Yes, we touched on it. So the foundry issue is probably around GBP 2.5 million, which is really just from the transferring of production from high cost countries like Germany, so in line with our strategy. But clearly when you do a lot of rationalization in 1 year, you have the occasional hiccup and that's really what we experienced. But as Patrick said, well behind us now. The ramp-up in the U.S. and Mexico is very much tactical because you've seen obviously steel production go up in the U.S. and equally it just gives us further protection against tariffs. So we basically meant that we import less from Europe, which where obviously there's still some tariff challenges between Europe and the U.S.

And just want me to just touch on the other points that you raised. So firstly, in the minority interest, recognize that those are in rupee. So when the rupee weakens, that has an impact in terms of the overall minority interest charge. And to your point on incentives, so obviously this is the second tough year so you'd expect management incentives to come down. So the reduction this year from '24 into '25 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.

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 or months, we've got a potentially very attractive improvement in the second half of '26 into '27. Can you talk about your customer ramp-up and your ramp-up and how long that may take? And my understanding is it's roughly 3 months. Let's say 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 2 weeks ago, 3 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. And then last, but by no means least and Harry just sold 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?

Steel ramp-up in Europe in particular, we are very flexible. So we have invested significantly in our operations over the years and now we have a strong flexibility to ramp up our operations simply by adding more shifts in our operation. We are preparing to do that, by the way, already as we speak. And we have organized our operations in a way that in around 1 month, we can significantly ramp up our activities and our level of production in EU when EU steel production will start to recover. So 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.

And what would have taken us 4 or 6 months a few years ago, can now be done in 1 month in terms of ramp-up possibility. So it's a good advantage that we have in Europe. The 1% volume growth 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 points is when exactly during the year will the new trade measures in Europe become operational. And then you have different visions when some of our colleagues at the Euro Fair expected them to be effective as from the 1st of July.

If they are right, then our 1% could be a little bit conservative I can only agree. But 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 the later part of the year, whatever that means, mostly Q4 -- that maybe more Q4 than Q3. So we decided to base our guidance on what you may consider as a conservative assumption, but I think that we see that as a normally cautious 1% volume growth assumption.

The market share loss in the Americas, these are mostly one-off. So you have, on one hand, some plants which have closed or those ones are one-off which will not recur because they are closed and will not reopen most probably, but 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 had a 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.

So 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 so 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 is 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. But 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.

Tom Elgar from Deutsche Numis. A couple from me. Can we just on the bridge like cut it a different way? I think we obviously have the '25 color around the reduction in EMEA. If we think about the '26 year-on-year in EMEA, what are the assumptions there in terms of trading profit? And then secondly, I mean are there any prebuying effects or influences that you are seeing or considering around the amount of legislation that is coming in 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?

And 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 a consumables perspective clearly, that should be a positive focus. So 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 2 last one. This legislation to these trade protection measures have been talked about for years as you know. It has been a very long process, very long maturation process. Our vision today is that the risk that those would not be implemented is very low. And all the recent events of the world rather increase the probability that they will be implemented even further or maybe 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.

But one of the thing which is now under discussion is the European Union should not do like the U.S. is doing also looking at steel containing goods imports. So a washing machine or when you 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 EU, but you already have talk about extending 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.

So the trend of legislation is clear and I don't see anything in the current geopolitical event which would decrease the probability that it will be implemented. It's rather the other way around. We see more and more trade barriers 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 has a different legal foundation than the one that has been struck down by the Supreme Court. So tariff of steel are clearly here to stay on a long-term basis and we see that more and more in more and more countries worldwide.

So 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 and I think the majority of new greenfield projects coming on stream are using our technology, not 100%. We are heading 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.

So clearly greenfield we are doing well, but brownfield is obviously an area of focus. We have already a significant pipeline of brownfield projects. And 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. And the fact that steel prices -- even if steel prices do not have a direct impact on us, unfortunately, sometimes I said that we are influenced by steel volumes not by steel prices. But the fact that steel prices are going up is improving the financial situation of our customers. So it gives them also more leeway to invest in the modernization of their operations.

We have seen our customers 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 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?

Yes. So I think first of all if you step back and just look at our kind of global 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 and we're assuming broadly price to cover cost inflation and that's for the group as a whole, which obviously includes the likes of India and U.S. So you can get a sense that we're taking quite a cautious view on Europe. So 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.

And pricing, obviously this year we suffered the hit in H1. We're assuming that we're going to just cover costs across the year. So we're not really taking any benefit from mix. I think if and when we start to see that progress for the year, then that would be the time for us to think a bit differently about Europe. But for now, we just want to keep it at a sensible level. And I think behind that, as Patrick has implied, we are cautious. And I think for the last 2 or 3 years obviously everybody in the industrial world is trying to predict a second half recovery and we just don't want to be in that place where we try and predict it and it doesn't happen. So we just want to keep things at a sensible level.

It's Jonathan Hurn from Barclays. I have 3 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 going to 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 going to be any impact coming through in '26 from obviously the issues that we're having in the Middle East and the follow-through from that?

I will let Mark answer the first question. We have invested in new capacity mostly in India. We had historical capacities in Europe which were not completely filled. We expect this to improve going forward. So we have available capacity in Europe which we expect will be gradually better and better utilized over the next couple of years. We have adapted in Europe the starting of this capacity to limit the negative fixed cost absorption impact that you were mentioning and at the same time, build in flexibility to add 1 shift, 2 shifts to our operations in a quick way when market deserves.

So we expect the negative fixed cost absorption even in Europe and in steel to be limited in even this year and even more in the following years. In foundry, we are doing the same thing and we are also limiting the negative fixed cost absorption by adapting our staffing of the plant to the level of demand. In India in flow control, already we are going very, very fast in terms of growth. We already have no negative fixed cost absorption problem in flow control. Our plan is more to add new capacity as rapidly as possible.

And in advanced refractory, we just completed the investment last year, the commissioning was last year. So at the beginning, we had some fixed cost absorption as anyway you cannot fill it. Fortunately, we don't fill all the capacity in 6 months already or otherwise we need to have the CapEx every 6 months. But I think that as from this year, as from '26, we will reach a good level of utilization of new capacities also in advanced refactories. So I don't expect significant fixed cost absorption issue this year neither in India nor in Europe.

The profitability per region so we are not giving specific number, but what is important is that we have no region where we are losing money or otherwise we would not be in this region. So we are not there for top line, we are there for profit. So there is no region where we are losing money. 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. So we have had a declining trend, still positive but declining trend of profit in EMEA and South America over the past couple of years.

And 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. And as I mentioned during the presentation, in the world outside of EMEA and North 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.

So we are working simultaneously first to stem the decline and go back on the 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 '26 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. So we are making a lot of efforts to grow in this other part of the world.

Yes. So your question on under-absorption. So I mean the issue for us is clearly Europe and you can see if you think about the volume on the bridge of GBP 30 million, 65% of that is Europe. We describe it as volume and mix. So 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 2. But broadly speaking, I would think it's roughly 50-50 would be how I portray it. So you could say the under-absorption impact this year is around GBP 10 million, which obviously is there. Both the turn of volume and the turn of product mix are the things that you would like to see recover if Europe picks up.

In terms of any impact from that in terms of freight rates?

Freight rates we are monitoring on a daily basis, as you can imagine, because there is news every day if not twice a day. For us, freight rates will be a pass through. 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. So the Indian government is putting everybody more or less under allocation for gas, including our customers. So we'll see what will happen in the coming days and weeks. But freight, there is no sign of disruption. We have no problem of getting all of the product we need. Simply freight rate are increasing, but for us it will be pass through. We will pass this. We are already passing this through the price of our finished product.

Lush Mahendrarajah from JPMorgan. I've got 2 I think. The first is just on the EU restrictions and quotas, obviously that's going to be a net positive for the group. But is there anywhere we should think about a bit of a headwind offsetting a little bit of that? I know China is a small part, but I think it's Southeast Asia, India, Turkey where you might be benefiting from exporters currently. So just any views there on maybe the other side of that equation.

And then 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 and do you think there's some disruption risk there? And then also just thinking about working capital as well and sort of that focus on intensity, how do you balance that and maybe having to build some buffer stocks I guess if there is a bit of supply chain disruption?

Lush, it's a very good question your question about the EU quotas. Even if China is not today a very important direct importer of steel into the EU, we believe that at the end of the day, it's mostly China will suffer if they absorb this reduction in quotas, this installation of new quotas import in the EU. Because those countries which are for the time being importing steel into the EU are themselves putting in place restrictions to import of other type of steel. So at the end of the day, our most likely scenario is a scenario where the increase of steel production in the EU or 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 within 2 months, but you already have beginning of this year a change of trend in Chinese net steel exports. So we don't expect significant headwinds elsewhere. The impact of 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. So all the blast furnace-based producers and EU has still a lot of blast furnace-based producers so those ones have no reason to be particularly impacted.

On the contrary, it may give them some advantage vis-a-vis some electric furnace producers. So the one to watch are the electric arc furnace-based producers depending on how electricity prices will be impacted or not. This in Europe is a very complex topic because the link between electricity prices and gas prices, there is a link even from a physical point of view gas-based electricity generation is only a relatively small part of electricity production in the EU. The way regulation will be applied and implemented will play a role, but there is no objective reasons. Why?

There are 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 an average price basis. So seen from today, especially because the EU 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 EU. We do not see as from today again to be revised in the coming months, but we do not see information in our position today why there will be a significant disruption in steel production in the EU unless the conflict in the Middle East will go to a completely different level. But based on what is happening today, we don't really see that.

So 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 bug there when you go around the plant so you always feel that they've got too much of the same thing. So 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 want to have more flow control products on site, for us that would be a good investment in working capital 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. So I still think that we have a high level of confidence we'll get the intensity down this year.

Mark Fielding from RBC. Can I firstly follow up on working capital actually just in terms of, as you said, not making quite the progress you hope towards the 21% target at present. So when do you think you will get there? I suppose just what is the timeline? And maybe just a bit more detail on what are the barriers so far? And then 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? And then thirdly, a slightly bigger picture question also tying to those sort of reaffirmed longer-term targets. I mean the 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 savings side than you thought?

Working capital synergies. So on the working capital, the challenge is 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. So what we -- and 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. So 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 and that's the challenge.

So the challenge is really having an S&OP 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 order point of raw materials. So it's a hard task and the systems need to come on board for us really to see the improvement. So 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.

And the real savings, which will be around the manufacturing footprint would take place in '27. So there's a small amount of synergy in that GBP 6 million number and the bulk of the synergies will come through in '27. Obviously we'll be working hard to try and get it ahead and do it in '26, but we're not factoring that into our guidance at this stage.

Regarding our long-term target, obviously this supports that there will be a recovery in our market. But again what we see today really makes us believe that this recovery in our end markets, in steel markets in particular outside of China are on their way. So the structural elements are gradually falling into place for this recovery and in the midterm, 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. It's introduced from January this year, but the screw is being tightened year after year, the quota system.

The fact that North America, 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 1 started in Mexico. You have Hyundai planning a new greenfield steel plant in Louisiana for 2029. So all this goes in the direction of a reinforcement of steel production in 2 of these regions, which are very important for us, North America and EU plus U.K. So 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, but we are back in normal territory of positive net pricing. Mix will come back we believe. But 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.

So either the 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 and use of our most sophisticated product becomes very significant. So we are quite confident that the negative mix impact will gradually reverse especially in Europe. So 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.

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.

Good day, ladies and gentlemen, and welcome to the Vesuvius plc Trading Update.

[Operator Instructions]

I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Vesuvius plc, Patrick Andre, to open the presentation. Please go ahead.

Good morning, everyone. My name is Patrick Andre. I'm the Chief Executive Officer of Vesuvius. I'm joined this morning by Mark Collis, our Chief Financial Officer. Today, we will talk about our trading performance from the 1st of July to the 31st of October this year and our outlook going forward. The main message is that our key end markets of Steel and Foundry remain stable at a low level for the past few months. But that for the first time in quite a long time, we start having some clear sign of better midterm prospects for this market.

If I start with the Steel market, where the steel production outside of China increased only 0.5% over -- since the beginning of the year. So the level remained quite subdued outside of India, of course, which keeps growing at a good pace. Thus, this 0.5% would have been 3x higher at 1.7%. So if the Chinese net steel exports have remained stable. In fact, they increased close to 10%. That's the reason why the steel production outside of China grew only 0.5%. But it shows that the underlying steel consumption in the world outside of China is quite healthy as we speak. It's been hidden for the time being by the -- it has been hidden by the increase in Chinese net steel export.

But when the Chinese net steel export start stabilizing or declining, the positive impact on steel production outside of China could be quite significant. And it's quite important for Vesuvius considering that we are doing more than 90% of our sales outside of China. And we have now clear signs that on a midterm perspective, not short-term and not in the next 6 months or 12 months, but midterm, the prospects of this net steel export from China stabilizing or even declining are getting much better. First, because you have a very large number of countries having taken measures to prevent these imports of Chinese steel. You have more than 60 countries now in the world having taken some kind of restriction measures against steel export. And also the Chinese government itself is taking more and more measures to restrict and limit steel production in China.

One of the more positive measures having been announced very recently is the one by the European Union, which should have a very positive impact midterm on steel production in the EU, probably an increase of more than 10 million tons, which could bring the utilization rate in Europe from the current low of 65% to close to 85%. So short term, stable at a low level for the steel market. But clearly, some light now at the end of the tunnel, the horizon is probably around 12 months from now.

The Foundry end markets have also stabilized at a low level. But we also believe that going forward, at some point, the decline of interest rates should have a positive impact sometime in 2026 on the end consumption of the industry consuming the castings of [indiscernible]. So in this short-term, still difficult environment, during the H1 so far, the Vesuvius Group was mostly in line in terms of revenue with our expectation. And this, thanks to continuing market share gains in both the Steel division and the Foundry division. At the same time, and this is quite important, considering what we discussed during the first half, we were quite successful in passing price increases in line with our objectives, which enables us in the second half of the year to compensate -- fully compensate, even a little bit more than compensate our cost increasing, including salary inflation.

Our net price effect for the full year will still be negative, but less than it was in the first half, meaning that we are starting to catch up, and we will continue to catch up in 2026. On the cost side, we continue to deliver fully on our cost savings plan. We will deliver this year GBP 18 million of recurring cash cost savings, so broadly in line with what we did during the first half. It was GBP 10 million in the first half, GBP 18 million for the full year. And we confirm that our objective to exceed GBP 55 million of recurring cash cost savings, cumulative for our program by 2028. We are clearly on track now to not only reach but probably exceed this objective.

Only one negative we had, during the second half, temporary manufacturing issues in our Foundry division, which will cost us [ GBP 230 million ] in [indiscernible] profit in H2. These are temporary in nature linked to the restructuring and some ramp-up difficulties in some of the plants which have been receiving the production of proposed plants which we have closed. We are in good way to solve these issues. We believe that these issues will be solved by the end of the year. So there should be no impact on 2026. So despite the short-term difficult environment, thanks to our efforts in terms of both cost and pricing, we anticipate trading profit for the full year to be broadly in line with our previous guidance.

I will now open the floor for questions.

[Operator Instructions]

Your first question comes from the line of Lush Mahendrarajah of JPMorgan.

I think just first on price costs improved in the second half. And also just wanted to [ workout ] mix as well [indiscernible] some customer maybe. [indiscernible] But just want to know about mix reducing down the sort of also improving second half as well.

And then the second question is on India. It sounds like good growth still there. One of your competitors is talking about taking market share. I was just wondering what you're seeing there in terms of market share. Is that a mix? Is that sort of [indiscernible] or what do you think sort of happened there?

Thank you, Lush. In terms of price, your first question, I think that we have been successfully passing price increases, normal price increases to start catching up with the negative effect of the first half. And this has been true everywhere in the world, including in India. The only place in the world where it's more difficult is remain China. But China, if I may, we stopped the bidding. We have not started catching up yet, but we intend to do that in '26. But everywhere else in the world, including in India, we have been passing price increases in various degrees, but it has been working quite positively with sometimes difficult discussions, but I think our customers understand that at some point, costs have to be covered.

Regarding the mix impact, we have not seen any further deterioration in -- since the beginning of the second half. Even some customers are now starting to ask some questions about did they make the right decision or not. We remain of the firm opinion that especially when production will start to ramp up in the world outside of China and when customers will need and will be willing to operate closer to capacity with a higher utilization rate that this negative mix impact of the first half will gradually reverse.

It will not happen overnight in 2 weeks. But over the next 6 to 12 months in the course of '26, I'm convinced that this mix effect will gradually reverse and we have the -- in the tough times -- regarding India, it's clear that I would say, not all players have been as disciplined as we have in terms of pricing. I think that each company has its own strategy. But as far as we are concerned, we believe that moderate and reasonable to cover our cost price increases are necessary. It's not our strategy to gain market share on price. And so we leave that to others. And we will continue to manage our pricing proactively everywhere, including in India because we believe it is the right thing to do.

[Operator Instructions]

Your next question comes from the line of Andrew Douglas of Jefferies.

I was just wondering if you guys have modeled what an 85% capacity utilization in European steel would actually mean for your business and the ability that you -- your ability to ramp up to what will potentially be some pretty good growth in Europe. We've spent a lot of time reducing our capacity in Europe. Are you guys ready for a ramp-up.

Second question is on year-end leverage. I think that year-end leverage is below 2, but if you can confirm that. And if you could just give us some -- help in understanding what next year's leverage looks like given MMS comes in that it's GBP 20 million and some additional equity, but if you could just help us model that.

And then last question is on market share in Advanced Refractories and [indiscernible]. It feels like most regions are seeing market share gain. If you can just give us a bit more detail on what you're seeing there, that would be great.

So in terms of impact, of course, it's difficult to model, but order of magnitude, an increase of 10 million to 15 million tons of production in Europe would simply in terms of direct impact, increase by a bit over GBP 5 million. At the same time, this is the direct impact because when producers produce closer to their full capacity at high utilization rate, the quality, performance of steel products in particular -- even more resistance than usual.

So people -- customers want to minimize the incident to -- so they give priority even more than usual to the quality and performance of the product. So this indirect impact would probably amplify the positive direct impact of this. GBP 5 million-ish is probably a number estimation of the positive impact of a higher level of production in the EU would have on our selling profit.

On the second question, I will let Mark answer. I will get back to the third one on market share.

Net leverage this year. So ex MMS, it's in the low 1.9s. And then with MMS on a pro forma basis, it's just slightly above 1.92, 1.93 with a pro forma benefit of MMS. And if you did it on a raw basis, you're broadly at 3 with MMS, if you don't take into account the trading earnings that you get because the acquisition obviously will take place if we have fingers crossed tomorrow. And so what that basically assumes is a further reduction in working capital where we are from today, we're quite confident on and the level of profit, obviously, that we've effectively guided to.

So I think we're fairly comfortable with a raw leverage of 2 and a pro forma leverage of just a tad over 1.9. For next year, we're obviously not giving guidance. But I think what we can say is that we would expect to make further progress on working capital. The CapEx is now solidly down at the kind of GBP 70 million mark, so somewhere between GBP 65 million and GBP 75 million of CapEx. We're comfortable with that now. We're definitely seeing the end of the CapEx project. And the profit, I think, broadly in line with consensus. If you take all of those things next year, I'd be thinking about 1.5, 1.6 would be my gut feel today.

And on your last question, Andy, regarding the market share. Generally speaking, the Steel division as a whole have been gaining market share in both regions. Advanced Refractories has been regaining some market share. You remember over the past 2, 3 years, we have lost some market share in both North America and Europe. We are now regaining some of this market share. But our objective in Advanced Refractories is not that much to gain a lot of market share. We are regaining a bit as factual, but it's mostly what we had lost over the past 2, 3 years.

And our objective in Advanced Refractories is profitability improvement, not that much gaining market share. We have no intention of growing excessively at the expense of profitability in Advanced Refractories. In Flow Control, we are continuing to grow slowly but surely on average everywhere to be also the case this year with some differences between regions. We will probably lose a little bit market share in North America this year, mostly because of the closure of 3 plants of Cleveland-Cliffs where we had close to 100% market share, but there is a mechanical product mix impact there.

But on average worldwide, we will continue to gain market share. That's the case in Asia. That's the case in Europe, and in South America. So we have some years which are more strong than others. But on average, we continue to gain market share in Flow Control because there it's clearly one of our objectives.

Next question comes from the line of Stefan [indiscernible] of BNP Paribas.

It's Stefan from BNP Paribas. I would like to talk about your improvement in Europe, what you have been flagging to. So how quick -- if European steel production is improving, how quick would we see that in your numbers? And related to that, with the production having been so muted in Europe, where are the inventory levels of your clients with regard to refractories? Are they low? Are they high? Is there a restocking need?

And second question then would be the net working capital. I mean, Mark, you said it's going to further progress in 2026. But if markets are starting in Europe to pick up again, is it really reasonable to assume that net working capital can be further reduced?

I mean, already so much in Europe, first, inventories are low. We don't -- today, inventories of more or less everything are low in Europe, be it inventories of refractories or refineries of steel. There is clearly no [ excess industry ] anywhere neither in steel nor in recycling. What it means is that the day markets improve, you will probably have a double impact, not only the positive impact of improved end demand, but also some type of [indiscernible] which will, as always, in this cycle, amplify the move.

But for the time being, level of inventories are quite low. We have no indication whatsoever that is to the contrary. How quick could that be? I think it's important to find the right balance. I think there are clear positive signs. But based on experience, considering the time needed for the European Union to transform a project into a decision on the ground, I think -- and there will be in line with most external observer, it's probably around mid '26. That we will start to see the real impact on the ground. So 9 to 12 months from now, but it's not far away.

And all signs are that there is a strong support for these measures from the member state of the parliament. So we reasonably expect that we should see a positive impact as from the second half of '26. But of course, the biggest impact will be in '27. The full year impact should be in 2027. On the trade working capital, I will hand over to Mark.

Yes. Stefan, I think what progress in working capital means for us is a reduction in intensity. So we have -- we're still sticking by our Capital Markets Day target, which says that we'll gradually move from where we started in '23 of about 24.5%, down to a long-term permanent percentage of 21%. Now this year, we're not going to get down to -- we're actually going to go up slightly, partly due to PiroMet and partly due to the way the timing of the way the year has played out. So we'll probably be around 23.5%, although we will reverse the absolute level of working capital that we had at the half year quite significantly by the end of the year, which is obviously going to help leverage.

So the process that I referred to really is ongoing improvements in the intensity. Obviously, then the absolute level of working capital, as you know, the feature of the level of revenue so against when I say it will help our leverage, it will make it better than it could otherwise be if we didn't have that intensity target.

Your next question comes from the line of Harry Philips of Peel Hunt.

A couple of questions, please. Just on the Foundry sort of temporary issues, if you could just elaborate on that a little more as to what they are and just the certainty with which you have around them being temporary?

And then secondly, just thinking about recovery, and I know you've talked through drop-through rates before, but just clearly, the [indiscernible] cost basis and sort of prolonged action on the cost base, there will be a tipping point at which you get very good initial drop-through and then there's a point in time where you have to put some sort of infrastructure back in to facilitate that continued growth. So just some thoughts around that would be very helpful, please.

Thank you, Harry. On your first point, it's relatively simple. Some products which were previously produced in one of the plants that we closed beginning of the year are now produced and manufactured in different plants. And those plants have quality issues to manufacture these products.

So this translates into -- this has translated over the past few months in abnormally high reject rate because we have quality walls. So we don't sell the -- we sell only good products to our customers. So due to this necessary quality wall to protect our customers, we had a reject rate in those plants significantly higher than normal and what we used to have before. We are now correcting and fine-tuning the manufacturing process in those receiving plants to bring this product. We are on good track to do that. We believe that we will be back to a normal production process and normal quality performance on reject rate by the end of the year.

This is what we feel that this should not be a repeat for the year 2026. On the drop-through, we are quite positive about the drop-through and the limit that you mentioned in your question, in fact, is very far away because we have been automating a lot of our plants, reducing fixed costs. And we have full capacity available in all places which are susceptible to growth. We just finished a new capacity investment in both Flow Control and Advanced Refractories in India.

So we are fully equipped to face the growth of India going forward. We have capacity available despite the restructuring in Europe. So we are fully equipped to ramp up our production in Europe when it will be necessary. We have been bottlenecking over the past 18 months our production capacities in North America in the U.S. and in Mexico. So we are also fully without needing any kind of incremental fixed cost or whatever to face positively the coming increase in steel production or in castings production in North America.

So everywhere, we are in very good [indiscernible] order to benefit from the growth of our market when this will materialize. And the schedule goal which we we need to add significant fixed cost is quite far away, in fact. The first one -- and it's not significantly -- the first place where we will need to invest small within India despite the fact that we just recently invested there because we are growing rapidly. And we are already starting the engineering studies for a further expansion of our Kolkata plant in India. But we are taking a very small number, less than GBP 5 million for further debottlenecking of our Kolkata plant. So in fact, we are very, very well positioned in terms of feed cost to face the growth of our market not only for the next 2 years, but for the next 5 to 10 years.

[Operator Instructions]

There are no further questions on the conference line. I will now hand over to the management for closing remarks.

Thank you very much to all of you for taking the call today and for your questions. We remain, as usual, at your disposal. And we hope to see you all at our full year results on the 12th of March 2026. Thank you very much, and have a nice day.