2023 foundry market trend: declining revenues
2023 was a year of two faces for Italian foundries: while for the entire first quarter and part of the second the sector was still able to benefit from the boost that characterized the post-Covid restart, the second part of the year saw a progressive contraction in demand, which ultimately led to closing the year with an overall decline in both production and turnover compared to 2022.
The data emerging from the analysis of foundry balance sheets reflect the complexity of this economic picture. Sector revenues fell by 1.7% compared to the previous year, in line with a context where the decline in demand on foundries is evident. As a result, companies have adopted prudent financial and capital strategies: an approach that, on the other hand, has led to an improvement in the capitalization rate of foundries and has had a positive impact on the overall financial position of companies, with a reduction in the Debt/Equity ratio.
Despite the decline in revenues, the sector has shown good operational management capacity: operating turnover grew by 2.2%, reaching a ratio of 1.26 and helping to support an increasing return on invested capital (ROI). In 2023, in fact, the ROI of the sector is equal to 6.4%, with an improvement of 0.8 percentage points compared to 2022. However, the decline in economic margins was manifested through a declining ROS (Return on Sales), which lost 1.4% compared to revenues, stabilizing at 5%. This reduction highlights the pressure on the operating margin of sales, despite the reduction in raw material costs, which decreased by 5%, and external costs (-4.9%). These dynamics have improved the added value of the sector (+5.3%), an increase that has particularly affected SMEs (+6.7%). In terms of profitability, there is considerable fragmentation within the sector: superalloy and steel foundries, the sectors with the greatest growth in demand, recorded significant increases in operating turnover, respectively +21.3% and +7.2%, maintaining high levels of added value, albeit with a slight reduction in EBITDA. On the other hand, traditional sectors such as aluminium (-7.5%) and cast iron (-11.2%) foundries suffered a contraction in turnover, which had a negative impact on their economic performance and on their contribution to the average figure for the sector. Despite these differences, the real EBITDA of the sector reached a new high in the last six years, standing at 10.9% of revenues, also supported by a cost containment policy despite the increase in the impact of labour costs (+7.4%).
From a capital perspective, 2023 marks an improvement in the capitalization rate of foundries, now at 46.2% (+4.1%), an indicator of strengthening financial solidity. This result was achieved thanks to prudent management that saw many foundries allocate a significant portion of retained earnings to reserves. This trend is evident both among large companies, whose capitalization rate rose to 46.8% (+2.3%), and among SMEs, which recorded a more marked increase, reaching 45.5% (+5.9%).
The sector also saw a significant reversal of the net financial position (NFP), which for the first time in six years showed a positive balance, a sign of a reduction in net debt. This improvement is particularly evident for steel foundries, whose creditor position reached 1.20 times EBITDA, up +27.8%.
However, critical issues related to the macroeconomic context persist, in particular the increase in the cost of money. In 2023, the ROD (Return on Debt) rose to 1.8%, with an increase of 90.6% compared to the previous year, making the financial burden the highest in recent years. This increase affected both large companies, with a ROD of 1.8% (+87.7%), and SMEs, which saw their ROD grow to 1.7%, almost double compared to 2022 (+93.1%).
In summary, the performance of the foundry market for 2023 shows a sector that is facing a decline in market demand and revenues, but that is able to offset part of the critical issues through careful financial and asset management. The increase in capitalization and the reduction in net debt are a clear sign of solidity, even if the increase in rates and the compression of economic margins pose future challenges that should not be underestimated.
Revenues and profitability of the die-casting market
The 2023 financial statements show a decline in market demand for foundries. The data shows a decrease in revenues of 1.7% compared to 2022, and in overall profitability, with a ROE down -17.5% which, however, still stands at a good level (8.0%). Net income is also down (-13.8% on 2022).
Specifically, in the individual sectors, there is an increase in revenues for superalloys (+31.8%) and steel (+10.5%), while they are decreasing for zinc (-6.2%) and cast iron (-8.9%); finally, aluminum remains almost stable (-0.5%).
ROE has fallen for both large companies (-12.0%) and SMEs (-21.9%), but remains at levels well above those of the two-year period 2020-2021. Based on the analysis of the performance of the foundry market, zinc shows the highest profitability (12.0%), but with a contraction of -23.9%, followed by cast iron (8.8%) and aluminum (8.2%), also in sharp decline compared to 2022. Steel and superalloys see a ROE of 5.9% and 3.9% respectively.
Profitability trend in the foundry market 2023
In 2023, foundry profitability showed a slight increase. Invested capital generated a ROI of 6.4%, with an increase of +0.8% over 2022. This represents a good level considering the last six years, but results vary between sectors: it is mainly superalloy and steel foundries that drove the overall result.
Despite the declining market demand (-1.7%), operating turnover supported overall profitability, growing by +2.2% compared to 2022 and settling at 1.26. Foundries maintained liquidity without reducing investments, with operating turnover increasing across all sectors, in particular in this case also for superalloy foundries (+21.3%) and steel foundries (+7.2%).
However, economic difficulties affected sales margins: ROS fell by 1.4% to 5.0%. Economic marginality is fragmented, with a situation similar to that of characteristic profitability.
Finally, a significant difference is observed between:
- Large companies that increased their ROI by +4.6%;
- SMEs that saw a decrease of 1.7%, reflecting a more favorable market demand for the former.
Intermediate margins of foundries
The 1.7% drop in revenues has a negative impact on the economic margins of the sector. However, the decrease in raw material costs (-5.0%) and external costs (-4.9%) has improved the overall added value of the sector, which rises after two years of contraction and reaches 28.6%, up +5.3%. The figure is once again higher than the average for Italian manufacturing, and is improving for all sectors. Considering the traditional division between large companies and SMEs, the latter are the ones that have recorded the best results, with an increase of +6.7%.
This recovery in margins has offset the increase in labor costs (+7.4%), leading to an increase in EBITDA per unit of revenue (+1.9% on 2022), which has reached a historic high of the last six years at 10.9%.
Financial situation of the foundry market
In 2023, the financial situation of foundries improved in terms of debt, but remains strongly influenced by the cost of credit. The Debt/Equity (D/E) ratio fell by -7.0% compared to 2022, reaching 1.17 points. This brings the sector closer to equity/debt parity; the decline is more evident in SMEs (-9.8%) which, however, maintain a higher D/E value (1.20) than large companies (1.14). The net financial position (NFP) turned positive for the first time in six years, indicating overall financial stability. With the exception of superalloys, all sectors recorded an improvement. However, the increase in interbank rates has increased the weight of interest on EBITDA and revenues: the cost of money (ROD) has grown to 1.8%, with an increase of +90.6% over 2022. The ROD is at 1.8% for large companies (+87.7%) and 1.7% for SMEs (+93.1%).
Financial strength of foundries
2023 saw foundries adopt a more prudent financial and capital strategy, strengthening reserves and improving payment management. Although this policy compressed overall profitability, it increased the sector's capitalization rate to 46.2% (+4.1%), reducing financial risk. Large companies achieved a capitalization rate of 46.8% (+2.3%) and SMEs 45.5% (+5.9%).
It is significant that all sectors have a capitalization above 40%, which is considered ideal for the manufacturing sector.
Source: In Fonderia – ll magazine dell’industria fusoria italiana