Engineering firm enjoyed forex boost and recovery in global steel market
Companies: Vesuvius Plc
Vesuvius, the aptly named global molten metal flow engineering firm, provided investors with a trading update this morning ahead of its upcoming AGM, saying that it was cautiously optimistic about trading for 2017.
In its full-year results in March, the London-based firm said there were "early signs" of improvement in the global market, and today's update confirms that this trend has continued across major regions, resulting in a strong Q1 compared to a comparitvely weak Q116.
"...whilst it is still early in the year and whilst recognising the inherent uncertainty in predicting end market resilience, our expectations for 2017 trading performance are cautiously optimistic."
Global steel production grew 5.7% in the first quarter, according to the World Steel Association, which has benefitted VSVS, but the increase is off the relatively low base last year, and FY growth expectations for the year are "materially" lower than this number.
Forex tailwinds have also helped Vesuvius considerably, as the Brexit-induced collapse in Sterling boosted its overseas earnings. This is despite Sterling's recent gains against most major currencies:
"In Q1 2017, we have benefited from a foreign exchange tailwind of approximately £2.8m compared with average 2016 rates. All things being equal, based on the average exchange rates in Q1 2017, and were current spot foreign exchange rates to persist for the remainder of 2017, this would have increased our 2016 Trading Profit by approximately 7%."
Finally, the company achieved a modest reduction in working capital as a % of sales during Q1, but it has increased in absolute terms due to growth in sales. Net Debt / EBITDA has also improved from 1.8x in 2016 to a more favourable 1.75x.
VSVS shares jumped 8% on the news.
