Vesuvius shares rocket as full year profits rise despite troublesome steel market

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Vesuvius has lifted its dividend as it expects further cost savings and improved trading margins following a restructuring


Shares in () surged more than 17% today after the molten metal flow engineer reported an increase in revenue and profit in the face of challenging conditions in the steel market.


The ceramics company whose products are used by steelmarkers and foundries said a weaker pound following June’s Brexit vote had given its full year results a boost.


Pre-tax profit rose 2.6% to £79.4mln in 2016, compared to £77.4mln the previous year, while trading profit inceased to £133.3mln from £124.0mln.


Revenue rose 6.0% on a reported basis to £1.4bn from £1.3bn, but fell 4.0% on an underlying basis, excluding the effect of foreign exchange tailwinds, acquisitions and disposals.


Vesuvius, formally known as Cookson, said the steel market continued to be negatively affected by Chinese exports and a substantial reduction in industrial activity in the US and the UK.


The group’s steel division, which includes steel flow control, advanced refractories and technical services, still achieve a 4.9% increase in revenue but the growth was attributed to foreign exchange benefits. Trading profit dropped 0.5% in the division.


However, the company has seen “encouraging early signs of improvement” in recent months.


The foundry arm, which supplies products and equipment to factories that produce metal castings, saw revenue increase 8.3% and trading profit gain 21.6%.


The group raised its dividend 1.7% to 16.55p from 16.275p, saying it is confident it will improve trading margins and working capital as well as reduce net debt.


Net debt stood at £320mln at the end of the year, rising from £291.6mln in 2015, on restructuring costs and a weaker sterling.


Restructuring key …


As part of its restructuring, last year the group closed its European flow control site plants in Ostrawa in Czech Republic, and Avezzano and Cagliari in Italy. 


Such restructuring measures meant the company was able to raise its annualised cost savings by £5mln to £35mln by the end of 2017.


“We delivered an encouraging set of results in 2016 in challenging market conditions and made important progress towards our strategic and operating objectives, in particular, growth in return on sales as a result of the restructuring programme,” said chief executive Francois Wanecq.


“Following our cost improvement efforts, we are well positioned to benefit from any recovery in demand and we will continue to focus on creating value for our customers and shareholders alike. We remain confident of making further progress, both in the near and longer term.”


remains buyers …


Peel Hunt analyst Harry Philips said Vesuvius has produced a “very good set of results” with trading profit ahead of its £123.5mln forecast.


Philips noted significant margin improvement in the second half of 10.1% compared to 8.8% in the first half. Revenues also improved in the last six months, he said. 


“There are many aspects to like with all of the businesses showing significant margin improvement in the second half as the benefits of the restructuring have come through…”


Peel Hunt reiterated a ‘buy’ rating and target price of 480p.


Shares jumped 17.81% to 549p in afternoon trade.


 


— Adds broker comments, updates share price —



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