AGM Trading Update
Steel production in Q1 2021 increased by 3.7% compared to Q1 2020 in the world excluding China and by 15.6% in China, as reported by the World Steel Association. This is a broad-based improvement with all regions, except for the US and Mexico, reporting production increases compared to Q1 2020.
Trends were also positive across key foundry end-markets in Q1 2021. Global light vehicle and heavy commercial vehicle production have increased by 10.5% and 6.5%, respectively, compared to Q1 2020, as reported by IHS.
This positive market environment and some market share gains are reflected by a constant currency growth in Q1 Group revenue of 7% in comparison with the same period last year, although Group revenues remain lower than the same period in 2019.
Whilst in the first four months of the year we experienced some supply chain disruptions in the sea freight market and at some raw material suppliers, these have had only a limited impact on our ability to meet customer orders. They have, however, resulted in some temporary friction costs, which are expected to reduce throughout the remainder of the year.
Selling price increases are being implemented to compensate for raw material cost increases, thereby offsetting the impact on profit margins.
Working capital growth due to end market recovery has been successfully managed and we have made further progress in terms of working capital efficiency with our Trade Working Capital / Sales ratio improving to 22.3% (12m average) compared to 23.1% at year-end 2020.
Our balance sheet remains strong and as a result of the recovery in trading performance we expect leverage at the half-year to be largely unchanged versus year-end 2020, despite the impact on net debt from working capital growth and the 2020 final dividend payable in May.
The implied impact on our expected 2021 results of average Q1 2021 exchange rates, when compared to average 2020 FX rates, is a headwind of 5% on our 2021 Trading Profit.
Although it is still early in the year and with the uncertainty remaining in how the pandemic might still impact some key regions like India and Brazil, based on the good commercial performance in Q1 and clear evidence of end markets continuing to improve, we expect to deliver Group trading profit (EBITA1) moderately ahead of the current consensus of £138m2 for the full year 2021.
1. Excludes separately reported items
2. Company-compiled consensus