(Enhanced Ladle Bottom Yield)
Global iron and steel production represents more than 75% of the end-markets for Advanced Refractory's products and services, with the remainder arising from a variety of non-steel markets including the cement, lime, aluminium, power generation, petrochemical and waste incineration industries.
Revenue of £476 million represented a 10% decrease compared with 2011 at constant exchange rates. The decrease in revenue was wholly due to a reduction in revenue in Andreco-Hurll, the refractory lining installation operation based in Australia, and a conscious effort to exit low-margin business in other regions. As part of the division's strategy of exiting low-margin businesses, on 24 July 2012, Andreco-Hurll was sold to Veolia Environmental Services for a cash consideration of approximately Aus$8 million (£5 million). In the first half of 2012, Andreco-Hurll had revenue of £12 million and a trading profit of £0.6 million. Andreco-Hurll revenue in 2011 was £57 million. Excluding the Andreco-Hurll business, revenue in 2012 decreased 1% over 2011. While the installation market has been exited, a refractories manufacturing and sales business has been retained in Australia, with investment being made in a new production facility.
Raw material prices, notably for dead-burned magnesite — the single most important raw material for Advanced Refractories — were largely stable during 2012, following large increases in 2011. The stability of the pricing was due to a large strategic purchase of magnesite, with some of the increase in inventory offset by negotiated extended payment terms.
In addition to the new investment in Australia, a new monolithic Advanced Refractory facility was completed towards the end of 2012 in Ras Al Khaimah, United Arab Emirates at a total cost of £4 million and will serve the fast-growing Middle East market. Local production will facilitate greater penetration of the Advanced Refractories product line allowing short lead times and production flexibility.
An investment was made in the USA to increase capacity by 50% in ELBY production, the revolutionary patented concept of producing cleaner steel and improving customer output yield by up to 2%, as well as reducing the endemic problem steel mills face downgrading steel when producing short-run specialised steels.
In addition, restructuring of the sales and marketing teams in South America, North America and Europe was introduced towards the end of the year, which will bear fruit in 2013. As well as restructuring and management changes, technical and marketing training was also reinvigorated.
Selling price increases were achieved in line with inflation and no margin loss was experienced due to cost increases. Overall, margin percentage for the business increased, although some of this increase was offset as a result of sales reducing by £53 million. The first half of 2012 had shown very positive results, but the sudden downturn in the second half of the year affected overhead recovery and thus reduced second half margins. Operating costs include a bad debt charge of £6 million.