Vesuvius : Third Quarter 2016 Trading Update

Vesuvius plc, a global leader in molten metal flow engineering, releases the following Trading Update covering trading in the period from 1 July to 30 September 2016.

SUMMARY

Since the announcement of our half year results in July and as anticipated, end markets have remained subdued overall. We expect this to continue for the balance of the year. However, the delivery of selfhelp and restructuring measures will continue to benefit profit margins, and we have further increased our 2017 annualised savings target. As set out below, recent and current foreign exchange trends are having a beneficial impact on trading profit.

TRADING

Since the announcement of our 2016 Half Year results in July, steel markets have remained relatively flat with the latest World Steel Association global production statistics (ex China) showing a decline of 1.5% versus last year. This is being partly mitigated by growth in India on the back of good domestic demand and growth in exports. Foundry markets remain mixed with auto and heavy truck sales varying by region while other foundry sectors such as agriculture, mining and rail remain challenging. In total, excluding the impact of foreign exchange movements, Group sales year to date remain in line with our expectations.

RESTRUCTURING

Ongoing progress is being made in the delivery of the previously stated restructuring programme with the recent announcement of two plant closures at Avezzano and Cagliari in Italy. These and the other restructuring measures previously announced lead us to increase our annualised savings target by £5m to £30m by the end of 2017 at a cost of £40m (previously £35m).

FOREIGN EXCHANGE

The Group's results have benefited from a foreign exchange tailwind during 2016 with most global currencies strengthening against Sterling between December 2015 and September 2016. In particular, there has been a significant movement since June as a result of the UK's decision to leave the EU. Average exchange rates of Sterling to US Dollar and Euro have fallen by 8.8% and 9.3%, respectively, between FY 2015 and 2016 YTD. This has provided a trading profit benefit of approximately £7m year to date. Assuming current foreign exchange rates continue, the estimated benefit would increase to £11m for the full year.

EFFECTIVE TAX RATE

During the year, the regional mix of where we earn profits has shifted away from lower rate to higher rate tax regimes. This is expected to result in our full year effective tax rate increasing to around 28% (previously 25.5%).

FINANCIAL POSITION

We have continued to generate strong cash flows during the quarter although the positive impact this should have had on net debt has been offset by the ongoing translation impact of a weaker Sterling to both the US Dollar and Euro. We are continuing to focus on tight working capital management in order to release cash.