Serving customers
Annual Report and Accounts 2016
Introduction
to Vesuvius
Vesuvius is a global leader in molten metal
fl ow engineering, principally serving the steel
and foundry industries.
We develop innovative and customised
solutions, to be used in extremely demanding
industrial environments, which enable our
customers to improve their manufacturing
processes, enhance product quality and
reduce energy consumption.
Our ultimate goal is to create value for our
customers in order to deliver sustainable,
profi table growth and provide our shareholders
with a superior return on their investment,
whilst providing each of our employees with
a safe workplace where he or she is recognised,
developed and properly rewarded.
See Chief Executive’s Strategic Review on p12-18
See Business Model on p10 and 11
See Key Performance Indicators on p34 and 35
See Risk on p19-21
Find out more about Vesuvius at www.vesuvius.com
Forward-looking statements This Annual Report contains certain forward-
looking statements with respect to the operations, strategy, performance,
fi nancial condition, and growth opportunities of the Vesuvius Group. By their
nature, these statements involve uncertainty and are based on assumptions
and involve risks, uncertainties and other factors that could cause actual
results and developments to differ materially from those anticipated. The
forward-looking statements refl ect knowledge and information available at
the date of preparation of this Annual Report and, other than in accordance
with its legal and regulatory obligations, the Company undertakes no
obligation to update these forward-looking statements. Nothing in this
Annual Report should be construed as a profi t forecast.
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Financial Performance
2016
Revenue of £1,401.4m, a 6.0% increase on a reported basis, down 4.0%
on an underlying basis1 (2015: £1,322.0m)
Trading profi t2 of £133.3m, a 7.5% increase on a reported basis, and down
1.5% on an underlying basis1 (2015: £124.0m)
Return on sales2 increased by 10 basis points to 9.5%; 30 basis points
increase on an underlying basis1 (2015: 9.4%)
Profi t before tax of £79.4m, an increase of 2.6% (2015: £77.4m)
Headline earnings per share3 of 30.4 pence, an increase of 8.4%
(2015: 28.1 pence)
Recommended fi nal dividend of 11.40 pence per share, Group full year
dividend of 16.55 pence (2015: 16.275 pence)
Year-end net debt2 of £320.3m, with net debt to EBITDA ratio of 1.8x
Revenue £m
Trading profit £m
EBITDA £m
2016
2015
2014
1,401
1,322
1,444
2016
2015
2014
133.3
124.0
142.8
2016
2015
2014
Headline earnings £m
Headline EPS pence
Free cash flow £m
2016
2015
2014
82.1
75.7
90.3
2016
2015
2014
30.4
28.1
33.4
2016
2015
2014
1. Underlying basis is at constant currency and excludes separately reported items and the impact of acquisitions and disposals.
2. For defi nitions of alternative performance measures, refer to Note 4 of the Consolidated Financial Statements.
3. Headline results refer to continuing operations and exclude separately reported items.
175.6
161.1
181.3
61.4
65.3
59.2
Contents
Strategic Report
2 Chairman’s Statement
Section 1: Our Business
6 Vesuvius at a Glance
10 Business Model
12 Chief Executive’s Strategic Review
19 Risk
22 Board of Directors
24 Group Executive Committee
Section 2: Our Performance
28 Financial Review
34 Key Performance Indicators
36 Operating Review: Steel Division
44 Operating Review: Foundry Division
48 Operating Review: Innovation
Section 3: Our Responsibility
52 Principles
54 Health and Safety
56 Sustainability
58 People and Community
Section 4: Governance
62 Chairman’s Governance Letter
63 Governance Report
70 Audit Committee
77 Nomination Committee
79 Directors’ Remuneration Report
79 Remuneration Overview
81 Remuneration Policy
90 Annual Report on
Directors’ Remuneration
99 Directors’ Report
103 Statement of Directors’ Responsibilities
Section 5: Financial Statements
106 Independent Auditor’s Report
109 Group Income Statement
110 Group Statement of
Comprehensive Income
111 Group Statement of Cash Flows
112 Group Balance Sheet
113 Group Statement of Changes
in Equity
114 Notes to the Consolidated
Financial Statements
152 Company Balance Sheet
153 Notes to the Company
Financial Statements
161 Five-Year Summary:
Divisional Results
162 Shareholder Information
164 Glossary
2
Vesuvius plc
Annual Report and Accounts 2016
Chairman’s Statement
“ Our proactive approach
to self-help is a signifi cant
factor in our resilience
in the current climate.”
John McDonough CBE Chairman
See Our Strategy
on p12-18
Overview
A year ago, we said there would be no material
change to the challenging market conditions we
faced during 2015. This was borne out in 2016,
with our key end-markets remaining relatively
stable but subdued. Global steel production has
been broadly fl at with a decline in developed
markets being offset by growth in China and
India, whilst foundry markets have remained
mixed, both regionally and by sector.
Despite these challenging market conditions,
we have remained focused on our strategic
priorities and have continued to make encouraging
progress. Our management team has taken
a proactive approach to adapting our business
and cost base to prevailing conditions, and
excellent further progress has been made in
delivering our restructuring programme, with an
increased annualised savings target of £35m,
at a cost of £45m by the end of 2017. These
carefully balanced actions have improved our
profi t margins, and contributed signifi cantly
to our continued competitiveness.
Equally important to our competitive positioning
is the quality of service that we provide to our
customers, a theme that recurs throughout this
Annual Report. Our customers have always been
at the centre of the Vesuvius business model.
However, in challenging times, really
understanding our customers’ needs and
responding to them becomes even more crucial.
Consequently, in our recently launched Excellence
programme, we selected customer satisfaction as
a key metric for improvement.
We also continued our plan to embed ourselves
further up the customer value chain through the
development of our Technical Services business.
As we integrate the acquisitions made in 2015
in measurement systems, we are developing
our understanding of online data monitoring
and quality assessment systems. We will continue
to pursue acquisitions to build out this offering.
The creation of a signifi cant Technical Services
business remains an important medium-term
objective.
Events in 2016 have clearly heralded a period
of signifi cant political change in both Europe and
the US. As a Board, we continue to monitor the
potential consequences both on our business and
our end-markets. However, we are confi dent that
the overall strategy that we adopted at demerger,
and which we continue rigorously to pursue, is the
right one for the business, for our customers,
for our people and for the creation of sustainable
shareholder value.
Performance and Dividend
In 2016, reported sales were £1,401m, an increase
from 2015 of 6.0%. Our margins improved to
9.5%, helping to deliver the reported trading
profi t of £133.3m. Foreign exchange trends have
had a benefi cial impact on our trading profi t,
but have also increased our reported net debt.
Our business model enables us to generate strong
cash fl ows, and we continue to focus on tight
fi nancial discipline in order to underpin our
investment plans and dividend.
Our dividend policy aims to deliver long-term
dividend growth, provided that this is supported
by cash fl ow and underlying earnings, and is
justifi ed in the context of our capital expenditure
requirements and the prevailing market outlook.
With this in mind, the Board has recommended
a fi nal dividend of 11.40 pence per share for the
year ended 31 December 2016 (2015: 11.125
3
See Governance
on p62-103
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pence), which would result in a total dividend for
the year of 16.55 pence per share (2015: 16.275
pence), an increase of 1.7%. If approved at the
Annual General Meeting, this fi nal dividend will
be paid on 19 May 2017 to shareholders on the
register at 7 April 2017.
Board and Governance
The Board is responsible for setting the right
tone from the top and ensuring that a robust
governance structure is in place to enable the
business to deliver long-term sustainable growth.
As part of this responsibility, the Board continues
to place great importance on furthering our
understanding of the Vesuvius business by visiting
key operations and meeting as many people as
possible. To that end, during the year we visited
our Flow Control, Advanced Refractories and
Foundry production sites in Monterrey, Mexico,
as well as visiting our customer, Ternium,
in Monterrey. I personally visited our plants
at Skawina in Poland, and at Tˇrinec in the Czech
Republic. These visits increase our knowledge
and are invaluable in helping the Board to stay
connected with our operations, our senior
people and their teams around the world.
Encouraging progress is being made in the
recruitment process to replace Nelda Connors.
Nelda stepped down from the Board in September
2016 due to the increasing demands of her other
responsibilities, having served as a Non-executive
Director since March 2013. We are very grateful to
Nelda for the active and valuable role she played
during a critical period in Vesuvius’ development.
In 2016 the Board also widened its focus on
succession planning issues, additionally reviewing
the management level immediately below the
Board – both in terms of securing a pipeline
of talent for future leaders of the business and
encouraging and enabling our diversity agenda.
This focus on succession planning at executive
and senior management levels is ongoing.
The 2016 Board evaluation confi rmed your Board
continues to function effectively. It is well balanced,
with a strong mix of relevant experience, and is
very clear and focused on its priorities – setting
Vesuvius’ strategic direction, ensuring that the
appropriate culture is embedded throughout
the Group, and acting as custodians of
long-term shareholder value.
Our people
One of the Board’s core responsibilities is
establishing the culture and values of the Group
which determine the behaviour expected from
our people. Our Code of Conduct was relaunched
across the Group during the year, alongside the
update of our independent Employee Concern
Helpline. At the same time, our long-term success
depends on us ensuring the health and safety of
all our people and providing them with the fullest
opportunities to develop and use their talents.
How we are putting these commitments into
action is set out in the sections on Principles,
Health and Safety, Sustainability and, People
and Community within the Strategic Report.
My Board colleagues and I continue to be
impressed by the way in which our leadership
teams and our people go the ‘extra mile’ to
exceed our customers’ expectations. Our resilient
performance in 2016, the strength of our market
positions and, above all, the quality of service
that we offer our customers would simply not
be achievable without their tenacity and
professionalism. On behalf of the Board,
I thank them all.
Annual General Meeting
The Annual General Meeting will be held on
10 May 2017. The Notice of Meeting and
explanatory notes containing details of the
resolutions to be put to the meeting accompany
this Annual Report and are available on our
website (www.vesuvius.com). I and all my Board
colleagues plan to attend the AGM and we
look forward to the opportunity to meet with
as many shareholders as possible on the day.
John McDonough CBE Chairman
2 March 2017
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Annual Report and Accounts 2016
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Section One
Our
Business
In this section
6 Vesuvius at a Glance
10 Business Model
12 Chief Executive’s Strategic Review
19 Risk
22 Board of Directors
24 Group Executive Committee
The Strategic Report set out on pages 2 to 59 contains a fair review
of our businesses, strategy, and business model and the associated
principal risks and uncertainties. We also deliver a review of our 2016
performance and set out an overview of our markets. Details of our
principles, our people and community engagement, together with
our focus on safety, are also contained in the Strategic Report.
Approved by the Board and signed on its behalf by
François Wanecq
Chief Executive
Guy Young
Chief Financial Offi cer
6
Vesuvius plc
Annual Report and Accounts 2016
Vesuvius
at a Glance
We are a global Group with a business
model based on off ering customised
products, solutions and services from
production facilities in close proximity
to our customers.
See our Business Model on p10-11
See more about our Steel and Foundry divisions on p36-47
Our global presence
38
Countries
6
10,840
Employees
91
Continents
Sales offi ces
66
17
Production sites
R&D centres
Americas
18
5
Production sites
R&D centres
3,186
Employees
23
Sales offi ces
Foundry
22%
Revenue
£415.3m
2015:
£408.4m
Steel
78%
North
America
South
America
Key to map
Production and
sales sites
R&D centres
Proximity to
customers
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EMEA
29
10
Asia-Pacifi c
19
2
Production sites
R&D centres
Production sites
R&D centres
4,422
Employees
33
Sales offi ces
Foundry
35%
Revenue
£585.6m
2015:
£555.7m
Steel
65%
EMEA
3,232
Employees
35
Sales offi ces
Foundry
39%
Revenue
£400.5m
2015:
£357.9m
Steel
61%
India and
SE Asia
China and
North Asia
Australasia
8
Vesuvius plc
Annual Report and Accounts 2016
Vesuvius
at a Glance
continued
3
Ladle
Tundish
Mould
detail
1
Blast Furnace
Iron Trough
Tilter
Torpedo ladle
3
2
Converter and
refi ning ladles
4
Steel slab or bloom
ready for sale
Steel Division
Revenue
£942.0m
The continuous casting of
steel is a highly demanding
process that is critically
dependent upon consistent
product quality and optimised
production. Vesuvius provides
systems, products and services
that allow steel mills to
contain the molten metal
they produce, protect it from
oxidation and chemical
contamination, and regulate
its fl ow. Vesuvius enables its
customers to increase effi ciency
and productivity, enhance
quality, and improve the safety
and reduce the environmental
footprint of the casting process.
Steel Flow Control
Advanced Refractories
Technical Services
focuses on the capture
and interpretation of key
manufacturing data,
complementing Vesuvius’
strong presence and expertise
in molten metal engineering to
create new technologies and
integrate them into expert
process management systems.
Applications include: data
acquisition using sensors
and laser scanners; slag
prevention technology;
and caster data acquisition
in the tundish and mould,
which uses sensors to obtain
temperature measurement,
metallurgical data and other
mould information.
supplies the stoppers and tubes
used to channel and control the
fl ow of molten steel from ladle
to tundish and from tundish
to mould; slide gate refractories
for ladles and tundishes;
slide gate systems; tundish
and mould fl uxes; and control
devices to monitor and regulate
steel fl ow into the mould.
These products have been
designed to resist extreme
thermomechanical stress
and corrosive environments.
The majority of these products
are consumed during the
process of making steel
and, consequently, demand
is primarily linked to steel
production volumes. Continuing
innovation allows us to off er
enriched solutions that create
additional value in our
customers’ processes.
produces specialised
refractory materials for lining
steelmaking vessels such as blast
furnaces, ladles and tundishes,
which are subject to extreme
temperatures, corrosion and
abrasion. These materials are
in the form of powder mixes,
which are spray-applied or cast
onto the vessel to be lined
(‘monolithics’) and refractory
shapes (e.g. bricks, pads and
dams). Vesuvius is one of the
world’s largest manufacturers
of monolithic refractory linings.
Advanced Refractories delivers
installation technologies,
products adapted to fi t
customers’ specifi c processes
and plants, and eff ective and
effi cient logistics services.
These factors are combined
with signifi cant R&D, a deep
knowledge of customers’
processes and project
management capability
to deliver market-leading
solutions for our customers.
See Steel division operating review on p36-43
3 Mould detail
Riser
Direct Pour Unit,
sleeve including fi ltration
sleeve
including fi ltration
1
Furnace &
melt shop
refractories
Sand core made with binder
Sand core made with binder
and refractory coating
and refractory coating
Mould and
Mo
cor
core assembled
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Pouring ladle
Melt shop refractories
Metal treatment
3
Mould
Fettling (removal of
gating and riser systems)
Finished casting
The conditioning of molten
metal, the nature of the mould
used and, especially, the design
of the way metal fl ows into the
mould are key parameters in
a foundry, determining both
the quality of the fi nished
castings and the labour,
energy and metal usage
effi ciency of the foundry.
Vesuvius’ products and
associated services to foundries
improve these parameters.
Foundry Division
Revenue
£459.4m
Vesuvius’ Foundry division,
trading as Foseco, is a world
leader in the supply of
consumable products, solutions
and associated services
related to the foundry industry.
The foundry process is highly
sequential and is critically
dependent on consistency
of product quality and
productivity optimisation.
The Foundry division’s
products, solutions and use
of advanced computer
simulation techniques allow
foundries to reduce defects
and hence reduce labour-
intensive fettling and
machining, minimise metal
usage requirements, infl uence
the metal solidifi cation process
and automate moulding and
casting, thus reducing cost,
energy usage and mould size.
See Foundry division operating review on p44-47
10
Vesuvius plc
Annual Report and Accounts 2016
Business Model
A profi table, fl exible, cash generative
model focused on growth
We develop and manufacture high-technology
products and solutions for supply to the steel
and casting industries, operating a profi table,
fl exible, cash generative and growth-building
business model. Over many years we have built
the brand equity of our Vesuvius and Foseco
products through reliability, technology and service.
The foundation of our business model is the supply
of consumable products from a global presence.
Our industry experts are embedded at many
customer locations and are therefore ideally placed
to collaborate with customers to identify their needs,
and potential service and process improvements.
This also enables us to grow our solutions and
service portfolio.
Our model is resilient to end-market volatility due
to the fl exibility of our diversifi ed manufacturing
footprint and adjustable variable cost base.
Our model is profi table by allowing value pricing
for bespoke products and services. It generates
growth as we can enlarge our market with
additional innovative products and solutions.
Key resources
Financial capital We use the cash generated
by our business to invest in innovation,
people, operating assets, technology and sales
to generate further growth
Manufacturing capital We have a global footprint,
with 66 production sites based on six continents,
giving us close proximity to our customers
Intellectual capital We have 17 R&D centres and
over 300 R&D staff worldwide, generating innovative
products and solutions for our customers
Human capital We invest in our skilled and
motivated workforce of approx. 11,000 people
and train them to keep safe and maximise
their potential
Social capital We champion our Values and our
ethical conduct. We maintain strong relationships
with customers and our wider stakeholder group
Natural capital We utilise high-quality
raw materials, secured through reliable
and well-developed supply chains
Global Presence
Advanced Technology Knowledge
Using our global spread of expertise to identify
and create market opportunities
Our technology centres develop value-adding solutions
involving engineered systems and high value consumables
Vesuvius is present on six continents, supporting the
development of global steel and foundry manufacturing
processes with new technologies. We have manufacturing
capability in all the main steel and foundry markets and hire
and train local engineers. These are progressively integrated
within the Vesuvius network of experts, and offered
international careers. Our local manufacturing, local expertise
and global knowledge of our customers’ processes give us
a special relationship with our customers, helping them to
optimise their process and product performance. All over
the world, new plants use Vesuvius and Foseco products
to create the best possible conditions for success.
Our continuing investment in the Company’s R&D centres
is refl ected in all areas of our offering. We have knowledge
of the most advanced ceramic and metallurgical techniques
using state-of-the-art equipment and the most advanced
technologies of fl ow simulation and fi nite element analysis.
We are therefore able to provide our customers with
sophisticated, innovative, custom-designed solutions, with
the highest level of confi dence in their suitability, creating
value and helping them differentiate from their competition.
We enhance this expertise with our growing capabilities in
data capture and interpretation to deliver expert process
management improvements to our customers.
See more about our global presence on p6-7
Read more about Innovation on p48-49
11
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Key outputs
Value to shareholders Our effi cient use of
capital generates annual profi ts, giving
returns to our shareholders and underpinning
sustainable growth
High-quality products We deliver bespoke,
high-quality refractory and consumable
products and systems to industry-leading
customers around the world
Customer value Our investment in innovation
creates cutting-edge products and solutions,
delivering enhanced value for our customers
and diff erentiating us from our competitors
Expert delivery We embed technical experts
with our customers, giving us a fundamental
understanding of their needs and delivering
them access to our global network of highly
skilled individuals
Sustainable business Our commitment to
ethical business delivers strong, long-term,
sustainable commercial relationships
Environmental benefi ts We develop products
that deliver effi ciency and energy savings to
our customers. We focus on sustainability in
our own business through the effi cient use
of energy and natural resources
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generating model
with our
Customer
at the centre
Optimise d
Manufactur i n g
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Optimised Manufacturing
Service and Consistency
Low-cost Lean manufacturing, close to customers,
provides reliable, ‘just-in-time’ products
Our successfully tested products can be manufactured at
a short distance from our customers’ plants, guaranteeing
cost competitive and time effi cient delivery. We optimise
our cost competitiveness by investing in the lowest cost
production site in the area and have established
manufacturing facilities in emerging markets from the
beginning of their industrialisation. This, together with
the high volume of pieces we are able to produce, provides
our customers with the best balance between value,
cost and service for our high-technology solutions.
Serving our customers reliably, competitively and
consistently with consumables critical for their
manufacturing processes
Alongside developing our global presence, we ensure a local
service to our customers, from inventory management to
high-quality technical support at their sites and the ability
to swiftly modify production and supply to refl ect changes
in customer requirements. Our knowledge of end-market
processes, specifi cations and techniques around the world
gives our experts an unparalleled ability to support our
customers. This unique level of service relies on our
technicians’ permanent presence at our customers’ sites,
and their ability to leverage the worldwide expertise
accumulated across the Vesuvius network.
See more about customer proximity on p6-7
Read more about Quality and Reliability on p17
12
Vesuvius plc
Annual Report and Accounts 2016
Chief Executive’s Strategic Review
Revenue
£1,401m
Trading profi t
£133m
“ During another year of
mixed market conditions,
we delivered an encouraging
result in 2016 and made
further important strategic
and operational progress.”
François Wanecq Chief Executive
Introduction
In 2016, Vesuvius continued to progress in line
with its objectives and strategy despite subdued
conditions persisting in our key end-markets of
steel and foundry. The second half of the year
showed some signs of market stabilisation, albeit
at reduced levels. Our resilient performance refl ects
the strength of the customer relationships that
we have created over the years, our progress in
implementing self-help initiatives and ongoing
restructuring programmes, the quality of our
product and service offerings and, critically, our
ability to directly enable our customers to improve
their own effi ciency, thereby adding measurable
value to their businesses.
The year began at the bottom of an economic
downturn which had started at the beginning of
2015 with the steel and foundry markets
continuing to be affected by Chinese exports and
by a substantial reduction in activity in the US and
UK. The situation improved slightly during the year
with tariff measures imposed in the US and, more
recently, in Europe with worldwide markets
signalling a progressively more protectionist
approach. Brazilian economic contraction and
political instability dominated the already diffi cult
market in South America. We saw reduced
foundry investment worldwide and reduced
demand for foundry castings for the agriculture,
construction and mining industries.
Despite this backdrop, we have continued to
consolidate our positions in China, India and South
America, our three strategic areas of development.
The transformation of the Chinese economy from
an investment-driven growth economy to one
that is consumer-driven is under way. This
transformation induces a shift in steel demand,
from the less sophisticated long products used for
construction towards the high-quality fl at products
used in consumer goods and the car industry.
This fl at steel segment is the largest customer
for our high-technology products and solutions.
India, where we enjoy high sales and penetration
rates, was the fastest growing steel market in
2016, confi rming the transition into urbanisation
and industrialisation, which is expected to have
a substantial effect on steel production.
Foreign exchange movements had a signifi cant
impact on our customers’ competitive positions
in some regions, mostly related to their
manufacturing costs and their exposure to cheap
imports. Whilst Brexit did not affect our business
materially, broader based market concerns drove
a weaker sterling, which had a signifi cant
translation impact on our results. These
movements, accentuated by the US presidential
election, have created a new element of
uncertainty in the evolution of our markets.
As a consequence, global economic activity was
slightly below last year but our efforts to reduce
our cost base have led to a signifi cant increase in
our margins versus the second half of 2015.
In 2015 we initiated restructuring plans throughout
the Group to adapt our business and our cost base
to the changing trading environment. Since then
we have reduced our overall manufacturing
footprint and overhead structure in the mature
markets where we believe the production decline
to be structural and permanent. We closed three
Flow Control plants in Europe in 2016. Over the
course of 2016 we incurred restructuring costs
of £28.5m and recorded £16.6m of savings.
The earlier than anticipated progress has allowed
us to increase the full benefi ts of the programme
to £35m by the end of 2017.
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Strategic pillars
Since 2013, your Board
has pursued a consistent
strategy for profi table
growth, focused on
fi ve strategic priorities
Reinforce our
technology
leadership
Increase
penetration of
value-creating
solutions
Capture growth
in developing
markets
Improve cost
leadership
and margins
Build a Technical
Services business
In line with our strategy, we continue to focus
on R&D and to invest in solutions that will enable
further automation of our customers’ production
processes. Over recent times our Technical Services
solutions have been signifi cantly enhanced by
the acquisitions of AVEMIS, ECIL Met Tec, Process
Metrix and Sidermes. In addition, in 2016 we
strengthened our core activities with the bolt-on
acquisition of the mould and tundish fl ux business
of Carboox.
Our overall management focus is on continuing
to build and implement an Excellence plan in the
management of our operations to reach the status
of a best-in-class company. This has involved the
entire population of our employees focusing on
six key areas: customers, innovation, strategy,
business support, supply chain agility and
talent management.
With the ongoing development of innovative
solutions that create value for our customers,
supported by the effective execution of our
self-help initiatives and restructuring programmes,
we are confi dent that we can continue to deliver
increasing value to our shareholders.
Performance Overview
Foreign exchange rates had a considerable
translational impact on our results, with Vesuvius
achieving global sales in 2016 of £1,401m, an
increase of 6% (2015: £1,322m) on a reported
basis despite the ongoing decline in mature
global steel and foundry markets and currency
fl uctuations. At constant currency and adjusted
for the effects of acquisitions and disposals,
underlying revenue was down 4% compared
with 2015. Reported trading profi t in 2016 was
£133.3m, an increase of 7.5% (2015: £124.0m),
but a decrease of 1.5% over the previous year on
an underlying basis. However, thanks to the fi rst
effects of our restructuring measures, our margin
increased from 9.4% to 9.5%.
Our full year performance was hampered by the
conditions in the core Vesuvius markets of Europe
and NAFTA in the fi rst half of the year, where the
effects of the 2015 decline continued to be felt in
the supply chain for steel customers. This situation
began to alleviate in the second half, supported by
our continued focus on our customer base in
developing markets.
Our Markets
According to the World Steel Association,
global steel production in 2016 increased by
approximately 0.7% compared with the previous
year. Whilst steel markets remained broadly fl at,
the market improvement was driven mainly by
an increase in steel production of 1.2% in China,
and 7.4% in India, which was the fastest growing
market in 2016 as it has been for several years.
India is now the third largest producer in the world
and is catching up with Japan (whose volumes
saw a 0.3% decline in 2016). NAFTA steel volumes
improved marginally (+0.7%) after a disappointing
year in 2015.
The foundry market continued to be affected by
lower demand within the agriculture, construction,
power and mining industries, which resulted from
the general decline in commodity and precious
metal prices, with reduced investment and activity
worldwide. However, both global light vehicle
(i.e. passenger cars and light trucks) industry
production and heavy truck worldwide output
were up 3.9% and 2.5% respectively year-on-year,
primarily from increases in China and India.
More generally, the engineering sector was
sluggish with industrial investment remaining at a
low level as a result of the general under-utilisation
of production capacity and the slowdown of
Chinese industrial growth. Additionally, some
markets where we traditionally experienced good
volumes and margins have faced challenges from
political and economic instability.
Our Strategy
The strategy we developed when we launched
Vesuvius on the market is articulated around
fi ve pillars designed to ensure long-term revenue
growth, improved profi tability and sustained
cash generation.
14
Vesuvius plc
Annual Report and Accounts 2016
Chief Executive’s Strategic Review
continued
Reinforce our technology leadership
Vesuvius was built and grew on technology
breakthroughs that enabled the steel continuous
casting and foundry industries to improve
their effi ciency substantially. This technology
leadership drives our unique value proposition
and underpins our ability to deliver value
enhancement to our customers. We invest
nearly twice as much in R&D, as a percentage
of revenue, as our main competitors.
Increase penetration of value-creating solutions
Our technology has been widely adopted by
the most sophisticated producers in the most
developed markets. However, there are still marked
differences in the penetration of our solutions
within the industry and consequently there is
a wider audience of customers whom we believe
can benefi t from them.
Foundry and Steel businesses are experiencing an
increased level of competition throughout the
world from both producers and alternative
materials. As steel and foundry businesses grow
in new areas, they will require higher levels of
quality and performance as well as lower costs.
We will dedicate our technical marketing efforts
to help these customers develop.
Capture growth in developing markets
Building on our long-lasting presence in all
markets, we can leverage the high growth
enjoyed by our customers’ industries in emerging
markets which are large consumers of steel
goods and foundry castings as well as benefi ting
from their competitiveness on the global
stage, driving export demand.
Improve cost leadership and margins
Our supply chain effi ciency drives our ability to
deliver products and services to our customers
at the right price whilst maintaining our margins.
We apply the principles of Lean manufacturing
across all our sites to improve our quality and
productivity continuously. In addition, our global
presence and leadership allow us to benefi t from
economies of scale and deliver excellent service
from local sites.
Build a Technical Services business
Our customers’ processes require increasing levels
of engineering services to reach the demanding
levels of safety, accuracy and consistency required
by their end-customers’ quality specifi cations.
We created Technical Services as a new business
line for the Group to address this growing market
demand. It will complement existing product lines
with new services to our customers providing
Serving customers: Flow Control
Full conversion of 2 slab casters
with new Mould Level Control, Tube
Changer and associated Refractories.
“By focusing on the customer’s needs,
Vesuvius delivered an integrated solution
to improve quality and productivity.”
Emanuele Boccalatte Commercial Director,
Flow Control, South Europe
Right: Electric Stopper Rigging, Mould Sensor,
Advanced Controller, Tube Changer and refractories
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New Product Sales as % of Total Sales
25
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2011
2012
2013
2014
2015
2016
FC
FDY
AR
Total
continuous data capture and interpretation of
key process parameters. We will then leverage
Vesuvius’ strong presence and expertise in metal
casting to create new technologies and integrate
them into expert process management systems.
Our Businesses
Steel Flow Control
Reported revenue in Steel Flow Control was up
3.9% compared to 2015, although revenues were
down 5.3% on an underlying basis. Revenue
decline in NAFTA and EMEA was due primarily to
the closure of steel plants in the region. It is our
expectation that steel production will not recover
to the previous levels in these mature economies
where the nature of economic growth requires less
steel than in the past. However, for Vesuvius this
was partially offset by increased revenue and sales
penetration in India.
Advanced Refractories
Reported revenue in Advanced Refractories was
up 5.3% but decreased by 3.3% on an underlying
basis compared with 2015, due to the poorer global
market conditions experienced in the second half of
2015 continuing into 2016. Underlying trading profi t
benefi ted from self-help actions in our mature
markets and increased sales in the expanding
markets of India, North Asia and South Asia.
Technical Services
As a new business line for the Group, the key
challenge for Technical Services is seeking to
establish a presence independent from our other
businesses, and to integrate new acquisitions.
Operationally its focus is to develop
complementary solutions for our customers,
refl ecting their demand for further automation and
monitoring of their production processes. In 2016,
Technical Services generated revenues of £36.9m.
Through the Technical Services business the Group
continues to invest in solutions that will enable
customers to have further control of their
production processes in line with this strategy.
Foundry division
Reported revenue in Foundry increased by 8.3%
but decreased by 2.5% on an underlying basis
as a result of the more diffi cult end market
conditions, particularly in agriculture, construction
and mining. However, underlying trading profi t
improved by 7.3% and underlying return on sales
increased by 110 basis points as a result of the
effects of an earlier commencement of
restructuring measures implemented in 2015.
The Challenge
Our Solution
The Benefi ts
Our customer, part of a leading
worldwide steel production group
making fl at products, has been using
tundish slide-gates since the start-up
of its two continuous casting machines.
In 2014, in order to increase the
production of slabs that were ‘right fi rst
time’, it made the decision to convert
these casters to a modern automatic
mould level control solution, including
conversion from tundish slide-gates
to a stopper fl ow control mechanism,
converting the tundishes to support
automatic mould tube changing.
Vesuvius supplied and commissioned
a fully integrated mould level control
solution, which included eddy-current
mould level sensors, our advanced
auto-adaptive controller, and an
electric stopper valve with tube
changing mechanism. This equipment
was supplied with associated
refractories, based on a multi-year
refractory contract.
This project brought improved
performance to the user, resulting
in an increase in the percentage
of slabs classifi ed within the required
specifi cations, together with
higher productivity.
For Vesuvius, it created a new
refractory sales opportunity through
a ‘global customer needs’ approach.
16
Vesuvius plc
Annual Report and Accounts 2016
Chief Executive’s Strategic Review
continued
Innovation as Our Foundation
Vesuvius has a proud heritage of bringing
innovation to the markets it serves.
Our developments in VISO* isostatic pressing
technology and in slide-gate systems were
key enablers of the continuous casting process
now deployed throughout the whole of the steel
industry. Our innovations in molten metal fi ltration
and casting feeding systems have been used
extensively to improve the quality of cast products
in the foundry market. Maintaining that
technology leadership is a central objective of
our strategy, and the spirit of innovation is at
the core of all our activities.
Turning innovation into results
Innovation is all about translating an idea into
a commercial reality. In 2016, we maintained our
level of R&D expenditure at £28.6m, representing
approx. 2% of sales. We currently have 159 patent
families, and 1,695 patents granted worldwide,
with 579 patent applications pending. In 2016,
we estimate that 14% of our revenues came from
products launched within the past fi ve years,
a progression of 6% over three years. Our goal is
to reach 20% over the next three years. With the
new stage-gating process launched last year,
we have seen an acceleration in our new product
launches and in the market development of our
new solutions.
Delivering solutions
Vesuvius solutions and products can greatly
infl uence the quality of our customers’ products
and the effi ciency of their processes. All our
new products and solutions are developed with
value creation for our customers in mind and
the innovation process begins with a clear
understanding of their needs. We have more
than 200 technical experts supported by local
development teams on all continents to ensure
we meet our customers’ needs. These local
development laboratories play a lead role in
customising products for customers, and
qualifying new sources of key raw materials.
Six of our local development laboratories are
equipped with facilities for physical and
computational fl uid dynamics studies. They allow
us to develop solutions that regulate the fl ow of
metal and guarantee the most adapted laminar
pattern to avoid metal pollution and turbulence
affecting the solidifi cation process. We also place
experienced scientists and engineers at our local
development laboratories to enable us to analyse
the complex interactions between refractory
materials and molten metal arising in our
Serving customers: Advanced Refractories
Endless strip production: a refractory
design breakthrough and partnership
with customers.
“Local manufacturing of our global high
technology solutions enables Vesuvius
to respond to customer needs.”
Roy Phillips Marketing & Technology Director, Steel,
China/North Asia
Right: Arvedi/Vesuvius ESP Shroud
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customers’ operations. These modelling facilities
and local development laboratories work hand-in-
hand with our fi ve global research centres to stay
constantly updated with information on the latest
technological developments. We regularly conduct
customer seminars and training sessions to ensure
that the full range of Vesuvius products and
solutions are known, properly used and informed
by our customers’ experience.
Next generation product development
Our fi ve global research centres focus on the
development of the next generation of products
and technologies in partnership with strategic
customers and leading universities. These
laboratories are staffed with scientists and engineers
possessing advanced degrees in various disciplines
and are equipped with highly specialised equipment.
We have made signifi cant progress on the
construction of our new global centre of excellence
for Advanced Refractories in Visakhapatnam
(Vizag), India, which will be commissioned in 2017,
and continue to make progress with our plans to
develop our centre of excellence for steelmaking
and foundry refractories in Pittsburgh (US).
Quality and reliability
Reliability in quality and delivery is vital to our
customers as they use Vesuvius’ products in
critical areas of their own processes. The level
of risk to people and equipment attached to a
catastrophic failure is such that no compromise
can be accepted. Reliability therefore is a
primary commitment of Vesuvius.
We strive to deliver this reliability and consistency
through best-in-class quality management at
all of our 66 production sites and 91 major
customer locations.
Lean and Industrial Excellence
Cost leadership and margin improvement are two
of our strategic priorities, and in a business where
we need to manage the challenges presented
by the volatility in our end-markets, a focus on
process effi ciency and quality is fundamental.
Our Lean programme started in 2008 with
the belief that:
> Standardisation of tasks and processes is the
cornerstone of safety, quality, productivity
and continuous improvement
> Employee motivation and customer satisfaction
are critical foundations for the long-term success
of the Group
The Challenge
Our Solution
The Benefi ts
Endless Strip Production (ESP)
technology is a major innovation in
the production of fl at steel, developed
by Arvedi. It enables the production
of super thin hot strips in a continuous
and uninterrupted process using
signifi cantly less energy than
conventional methods. During ESP,
the liquid steel mould fl ow is critical
and a very specifi c refractory shroud
has to be used.
Rizhao was the fi rst steel plant in
China to install this technology, and
a subsequent challenge was to source
a local supplier for this refractory part.
In partnership with Arvedi, Vesuvius
initially used its extensive fl ow
modelling capability and its refractory
production skills to develop a specifi c
shroud for the fi rst ESP facility built in
Italy, able to meet the necessary quality
and sequence duration requirements.
For Rizhao, local refractory production
improved the delivery time and
local support capability. Local
manufacturing presence enables
Vesuvius to fi ne tune the refractory
specifi cations and performance to
meet changing customer needs.
When subsequently Rizhao started
using ESP technology in China,
Vesuvius imported the refractory that
it had successfully been using in the
original Italian facility. Then, once
the new technology was operating as
desired, Vesuvius established local
manufacturing capability.
With three ESP facilities successfully
commissioned in China and two
more planned, Vesuvius has
become a key refractory supplier
for this breakthrough steel
production technology.
* Trademark(s) of the Vesuvius group of companies, some of which are registered in certain countries
18
Vesuvius plc
Annual Report and Accounts 2016
Chief Executive’s Strategic Review
continued
> Improving information fl ow is instrumental
in guaranteeing fast and effective cross-
functional processes
In 2016, we continued to apply the Lean principles
as we deployed our Excellence Roadmap to deliver
a highly competitive manufacturing footprint. The
action plans driven by our Excellence programme
have provided considerable results in terms of
cost reductions, Lean savings, safety, quality,
productivity and lead time reduction. These action
plans and further initiatives are ongoing in 2017.
Portfolio Management and Capital Allocation
Our investment in 2016 amounted to £43.2m,
£8.0m of which was for the acquisition of the
mould and tundish fl uxes business of Carboox in
Brazil – broadening the Steel Flow Control offering
in an important line for the Group. The remaining
£35.2m was invested in plant and equipment,
an 18% reduction on 2015.
Trade working capital increased on a constant
currency basis by £12.9m largely as a result of
safety stock being built in preparation for the
changes to the manufacturing footprint as well
as pressure on payment terms in China and India.
However, cash conversion remained high at 94%.
Overall, our net debt increased by £28.7m,
with cash acquisition costs of £7.7m, the cost of
restructuring activities £16.8m, and a £30.3m
foreign exchange translational impact masking
a robust £125.0m of underlying operating cash
fl ow generation.
Health and Safety
In 2016 our lost time injury frequency rate
(LTIFR) remained broadly stable at 1.6.
Senior management continues to lead by the
performance of executive safety tours and an
increased focus has been brought to our work
at customer locations.
In 2016, 76% of all our working population
was involved in safety audits to increase safety
awareness and behaviours. More specifi cally, we
have developed new initiatives to improve road
safety and machinery safety, two areas in which
we have suffered too many severe incidents.
Sustainability
During 2016, we continued our efforts to reduce
plant energy consumption and environmental
impact. Some impressive improvements have been
achieved in China where environmental protection
has become a key topic. We also continue to
develop and promote solutions that allow
our customers to reduce their waste, energy
consumption and CO2 emissions. Total energy
costs are less than 3% of revenue.
Management Focus
We further strengthened our senior management
team in the year, with a new appointment and an
internal promotion. Patrick André assumed the role
of President, Flow Control, following Chris Abbot’s
departure. Patrick was previously CEO of both the
Nickel and Manganese divisions of Eramet Group.
Alexander Laugier-Werth, previously Vice President,
Operations Foundry, was appointed President,
Technical Services, following Luis Reyes’s move
within the Company. In their new roles, Patrick and
Alexander joined our Group Executive Committee.
Outlook
Whilst the global market environment is broadly
stable at relatively low levels, in recent months we
have seen some encouraging early signs of
improvement. Vesuvius remains well placed to
benefi t from a recovery in end markets, and we
will continue our initiatives to create shareholder
value.
We remain confi dent in our ability to improve
trading margins and working capital performance,
reduce net debt, and capitalise where there is
further growth in our addressable markets in the
near and medium-term. We will continue to assess
acquisition opportunities where we believe
material shareholder value can be created.
François Wanecq, Chief Executive
2 March 2017
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Risk
The Board continually monitors the risks, both internal and external,
which could signifi cantly impact the long-term performance of the Group.
Risk Management in 2016
Board Monitoring
The Board is responsible for setting the Group’s
risk appetite and ensuring that appropriate risk
management systems are in place. The Group
undertakes a continuous process of risk
identifi cation and review, which includes both
top down and bottom up processes, allowing
operational, functional, senior executive and Board
members’ views on risk to be independently
gathered. This year the Board undertook a clean
sheet review of the Group’s principal risks, to
ensure that the Group was clearly communicating
those specifi c key risks that could have the greatest
impact on our business. As a result of this process
the Group’s table of principal risks has been
redrawn, with risks recategorised and restructured.
Changes to Risk in 2016
The Board does not believe that there has been
any material change to the Group’s risk profi le
during the year, but believes that the restructured
overview of the Group’s principal risks overleaf will
give greater insight and clarity about the risks that
are considered most signifi cant for the Group.
Risk mitigation
Once risks are identifi ed by the Group, they are
actively managed in order to mitigate exposure
and, where cost effective, the risk is transferred to
insurers. The senior management ‘owners’ for each
principal risk update the mitigations of that specifi c
risk and contribute to the analysis of likelihood and
materiality. This is reported to the Board. We have
also built a business structure that gives protection
against the principal risks we face with diversifi ed
currencies, a widespread customer base, local
production matching the diversity of our markets
and intensive training of our employees.
The Board defi nes the Group’s risk appetite,
considering the nature and extent of the principal
risks that the Group should take. During 2016, the
Board discussed the classifi cation of the Group’s
risks, considering the range and limits of the risks
the Group should adopt. The Board’s oversight of
principal risks also involved a Board review of the
processes by which the Group manages those
risks, establishing a clear understanding at Board
level of the individuals and groups in the business
formally responsible for the management of
specifi c risks.
See more in Governance on p62-103
Principal Risks
The risks identifi ed on pages 20 and 21 are those
the Board considers to be the most relevant to
the Group in relation to their potential impact
on the achievement of its strategic objectives.
All of the risks set out on pages 20 and 21 could
materially affect the Group, its businesses, future
operations and fi nancial condition and could cause
actual results to differ materially from expected or
historical results. These risks are not the only ones
that the Group will face. Some risks are not yet
known and some currently not deemed to
be material could become so.
Viability Statement
In accordance with the UK Corporate Governance
Code, the Directors have assessed the viability
of the Group over a three-year period to
31 December 2019, taking into account the
Group’s current position and the potential
impact of the principal risks and uncertainties.
The Directors have determined that a three year
period is an appropriate period over which to
provide the viability statement because this is the
Viability process
Identify
Viability time
horizon and risk
analysis framework
Assess
Principal risks
and stress scenarios
Model
Viability against
risk scenarios,
examining probabilities
and impacts
Report
See Viability above
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Annual Report and Accounts 2016
Risk
continued
period that the strategic business plan focuses on and is
suffi ciently funded by fi nancing facilities with average
maturity terms of 3.8 years.
In making this statement, the Directors have carried out a
robust assessment of the principal risks that may threaten
the business model, future performance, solvency and
liquidity of the Group. This is embodied in the annual review
of a three year bottom-up business plan process which
includes a review of sensitivity to ‘business as usual’ risks,
such as profi t growth and working capital variances, severe
but plausible events and the impact on the central debt and
headroom profi le analysis. The results take account of the
availability and likely effectiveness of the mitigating actions
that could be taken to avoid or reduce the impact or
occurrence of the underlying risks.
Whilst the review has considered all the principal risks
identifi ed by the Group, the following were selected for
enhanced stress testing: an unplanned drop in customer
demand, debt recovery risk due to customer default,
reduction in earnings from increased interest charges and
impact of volatility in foreign currency earnings. The Group’s
prudent balance sheet management, fl exible cost base to
react quickly to end market conditions, access to long-term
capital at acceptable fi nancing costs and well diversifi ed
international businesses in different currency earning profi les
are the mitigating factors to manage these principal risks.
In performing the stress testing certain assumptions were
made including that: customer failures result in write offs
of the full value of the receivables with no lost revenue
replacement; and, partial cash fl ow mitigation is possible from
working capital releases, restricted capital expenditure and
operating cost reductions. Under the enhanced stress testing
described above, a potential breach of a covenant would only
occur in the event of an unforeseen reduction in revenue
greater than 35%. Accordingly, the Directors confi rm that
they have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they
fall due over the three-year period to 31 December 2019.
Principal Risks and Uncertainties
Risk and context
Potential Impact
Mitigation
Demand volatility
Vesuvius’ expectations of
future trading are based upon
an assessment of end-market
conditions, which are subject
to some uncertainty. Vesuvius’
end-markets are historically
somewhat cyclical in nature.
Unplanned drop in demand and/or revenue
due to reduced production
Margin reduction
Customer failure leading to increased bad debts
Loss of market share to competition
Cost pressures at customers leading to use
of cheaper solutions
Geographic diversifi cation of revenues
Product innovation & service offerings securing long-term revenue
streams and maintaining performance differential
Increase in service and product lines by the development of the
Technical Services business
R&D includes assessment of emerging technologies
Manufacturing capacity rationalisation and fl exible cost base
Diversifi ed customer base: no customer is greater than 10% of revenue
Robust credit and working capital control to mitigate the risk of default
by counterparties
Protectionism &
Globalisation
Pressure from local, national or
regional requirements confl ict with
the quality and effi ciency delivered
by scale and standardisation.
Restricted access to market due to enforced
preference of local suppliers
Highly diversifi ed manufacturing footprint with manufacturing sites
located in 26 countries
Increased barriers to entry for new businesses
or expansion
Strong local management with delegated authority to run their business
and manage customer relationships
Increased costs from import duties or taxation
Cost fl exibility
Loss of market share
Tax risk management and control framework together with a strong
control of inter-company trading
Financial uncertainty
Fluctuations in the value of
currencies, interest rates, or rates
of infl ation may adversely impact
the Group’s fi nancial position or
results of operations. Availability of
suffi cient capital is critical to allow
Vesuvius to deliver its business plan.
Customer and other counterparty default
Capital allocation discipline
Restricted access to capital hampering ability
to fund growth
Capital structuring, including fi xed rate borrowing and matching of
debt to cash fl ow earnings currency
Reduction in earnings from increased
interest charges
Reduced market liquidity and increased cost
of capital
Alignment of cost structure with revenue where possible
Effective planning of the debt refi nancing profi le to avoid exposure
to short-term market disruptions
21
Principal Risks and Uncertainties continued
Risk and context
Potential Impact
Mitigation
Complex and changing
regulatory environment
Vesuvius is subject to worldwide
legal and regulatory regimes, some
of which impose extra-jurisdictional
obligations on companies and are
continually updated.
Business interruption
The Group is subject to operational
risks including natural catastrophe,
terrorist action, fi re/explosion,
environmental regulation, industrial
actions, supply chain issues,
and cyber risk.
Revenue reduction from reduced
end-market access
Globally disseminated Code of Conduct highlighting ethical approach
to business
Disruption of supply chain and route to market
Worldwide confi dential Speak up procedure
Increased internal control processes
Compliance programmes and training across the Group
Increased frequency of regulatory investigations
Independent Internal audit function
Reputational damage
Experienced Internal legal function
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Loss of a major plant temporarily or permanently
impairing our ability to serve our customers
Damage to or restriction in ability to use assets
Diversifi ed manufacturing footprint
Dual sourcing strategy and development of substitutes
Disaster recovery planning
Denial of access to critical systems of
control processes
Disruption of manufacturing processes
Inability to source critical raw materials
Business continuity planning with strategic maintenance of
excess capacity
Physical and IT control systems security, access and training
Cyber risks integrated into wider risk-management structure
Well established global Insurance programme
Group-wide safety management programmes
Failure to secure
Innovation
Not maintaining and/or developing
the necessary sustainable
differentiation in products,
systems and services by driving
innovative solutions. Competitive
advantage derived from proprietary
intellectual property is lost through
inadequate protection.
Attracting & retaining staff
Failure to attract suffi cient
new talent to the Group based
on industry perception and
competition. Failure to retain
and maintain a talent pipeline
and internal succession options,
for middle and senior
management positions.
Product substitution by customers
Enduring & signifi cant investment in R&D, with market leading research
Increased competitive pressure through lack
of differentiation of Vesuvius offering
A shared strategy for innovation across the Group, deployed via our
R&D centres
Commoditisation of product portfolio through
lack of development
Stage gate process from innovation to commercialisation to foster
innovation and increase alignment with strategy
Lack of response to changing customer needs
Programmes of Manufacturing and Process Excellence
Loss of intellectual property protection
Quality programme, focused on quality and consistency
Stringent intellectual property registration and defence
Staff turnover in growing countries and regions
Contacts with universities to identify and develop talent
Stagnation of ideas and
development opportunities
Internal focus on talent development and training, with tailored
career-stage programmes
Loss of expertise and critical business knowledge
Career path planning and global opportunities for high potential staff
Organisational culture is not maintained
Reduced management pipeline for succession
to senior positions
Internal programmes for the structured transfer of technical and
other knowledge
Clearly elucidated values to underpin business culture
Quality, Health & Safety
Vesuvius works in highly
challenging manufacturing
environments, providing products,
systems and services that are
mission critical and for which
reliability is paramount.
Product or application failures lead to adverse
fi nancial impact or loss of reputation as
technology leader
Health & safety breach, manufacturing downtime
or damage to infrastructure from incident at
customer plant
Customer claims from product quality issues
Injury to staff and contractors
Active safety programmes, with ongoing wide-ranging monitoring and
safety training
Quality management programmes including stringent quality control
standards, monitoring and reporting
Experienced technical staff knowledgeable in the application of our
products and technology
Targeted global Insurance programme
Experienced internal legal department controlling third party contracting
22
Vesuvius plc
Annual Report and Accounts 2016
Board of Directors
1
3
N
2
Key to Committee membership
A Audit Committee
N Nomination Committee
R Remuneration Committee
Committee Chairman
1. John McDonough CBE Chairman
2. François Wanecq Chief Executive
Appointed: 31 October 2012
Appointed: 31 October 2012
Career experience: John was appointed as
a Director and Chairman of the Company on
31 October 2012. John was group Chief Executive
Offi cer of Carillion plc, the support services and
construction fi rm, for 11 years until he retired in
2011. Prior to joining Carillion he spent nine years
at Johnson Controls Inc. working for the automotive
systems division, initially in the UK, before moving
to become Vice President of the division’s European
operations and ultimately moving to Singapore to
develop the business in Asia-Pacifi c. He then returned
to the UK as Vice President of the integrated facilities
management division for EMEA. John served as
Chairman of the Remuneration Committee of
Tomkins plc from 2007 to 2010 and as a
Non-executive Director of Exel plc from 2004
to 2005. John was awarded a CBE in 2011 for
services to industry and is a British citizen.
Other appointments: John joined The Vitec Group
plc in March 2012, and has served as its Chairman
since June 2012. He is also a Chairman of Cornerstone
Property Assets Ltd and Sunbird Business Services Ltd,
and a Trustee of Team Rubicon UK.
Career experience: François was appointed as
a Director of the Company on 31 October 2012.
He previously joined the Cookson Group plc board
in February 2010. François has been the Chief
Executive of Cookson’s Engineered Ceramics division,
now Vesuvius, since October 2005. Prior to joining
Cookson he held a series of senior management
roles at Arjo Wiggins Group and served as an Executive
Director of Arjo Wiggins Appleton plc from 1999
until it was delisted. From 1985 to 1995 he was
Managing Director of the technical ceramics division
of the Saint-Gobain Group. François graduated from
the École Polytechnique and École des Mines de Paris
and is a French citizen.
3. Guy Young Chief Financial Offi cer
Appointed: 1 November 2015
Career experience: Guy was appointed as Chief
Financial Offi cer of Vesuvius plc on 1 November 2015.
Prior to joining Vesuvius plc, from January 2011 to
November 2015, he served as Chief Financial Offi cer
of Tarmac and latterly Lafarge Tarmac, the British
building materials company. Prior to his role at
Tarmac, from 2007 Guy held a number of senior
fi nancial and business development positions at
Anglo American plc, having joined that company from
Scaw Metals Group, the South African steel products
manufacturer, where he held the position of Chief
Financial Offi cer from 2004 to 2007. Guy is a British
and South African citizen, and he qualifi ed with the
South African Institute of Chartered Accountants.
4. Christer Gardell Non-executive Director
Appointed: 31 October 2012
Career experience: Christer was appointed as
a Director of the Company on 31 October 2012,
having previously joined the board of Cookson
Group plc in June 2012. Christer co-founded Cevian
Capital in 2002, and continues to serve as Managing
Partner. On 2 March 2017, Cevian Capital held
21.11% of Vesuvius’ issued share capital. From
1996 to 2001, he was the Chief Executive Offi cer
of AB Custos, the Swedish investment company.
Prior to joining AB Custos he had been a partner of
Nordic Capital and McKinsey & Company. He served
as a Non-executive Director of AB Lindex until
December 2007 and of Tieto Corporation until
March 2012. Christer is a Swedish citizen.
Other appointments: Christer is Managing
Partner of Cevian Capital, and Vice Chairman
of the global Finnish technology and services
company Metso Corporation.
4
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5. Hock Goh Independent Non-executive Director
6. Jane Hinkley Independent Non-executive Director
7. Douglas Hurt Senior Independent Director
Appointed: 2 April 2015
Appointed: 3 December 2012
Appointed: 2 April 2015
Career experience: Hock was appointed a Director
on 2 April 2015. Hock has more than 30 years’
experience in the oil and gas industry, having spent
25 years with Schlumberger, the leading global
oilfi eld services provider. His roles included President
of Network and Infrastructure Solutions in London,
President of Asia Pacifi c, and Vice President and
General Manager of China. From 2005 to 2012,
Hock was a Partner of Baird Capital Partners Asia,
the private equity arm of the US investment bank
Robert W Baird & Co. Based in China, he focused
on the industrial, business services and healthcare
sectors. He is a graduate of Monash University,
Australia, and is a Singaporean citizen.
Other appointments: Hock is Chairman of
MEC Resources Ltd and Advent Energy Ltd, and is
a Non-executive Director of AB SKF, Santos Ltd,
Harbour Energy Ltd and Stora Enso Oyj.
Career experience: Jane was appointed as a Director
of the Company on 3 December 2012. She became
Chairman of the Remuneration Committee in June
2013. Jane spent a large part of her career working
at Gotaas-Larsen Shipping Corporation, the LNG
shipping specialist which was listed on both the
London Stock Exchange and NASDAQ. She served
as Chief Financial Offi cer from 1988 to 1992, and
as Managing Director until 1997. In 1998 Jane was
appointed Managing Director of Navion Shipping
AS, a company majority owned by Statoil, the oil
and gas company, a position she held until 2001.
She previously held the position of Non-executive
Director of Revus Energy ASA, a Norwegian
exploration and production company. Jane is
a Chartered Accountant and a British citizen.
Other appointments: Jane is Chairman of Teekay
GP L.L.C and Non-executive Director and Chairman
of the Remuneration Committee of Premier Oil plc.
Career experience: Douglas was appointed as
a Director of Vesuvius plc on 2 April 2015, and
assumed the roles of Senior Independent Director
and Chairman of the Audit Committee at the close
of the 2015 Annual General Meeting. Douglas has
signifi cant fi nancial experience, having served as
Finance Director of IMI plc, the global engineering
group, from 2006 to 2015. Prior to this he held a
number of senior fi nance and general management
positions at GlaxoSmithKline plc, which he joined in
1983, previously having worked at Price Waterhouse.
His career has included several years working in the
US and signifi cant experience in European businesses
including periods as a Chief Financial Offi cer and as
an Operational Managing Director. Douglas is a
Chartered Accountant and a British citizen.
Other appointments: Douglas is a Senior
Independent Director and Chairman of the Audit
Committee of Tate & Lyle plc, and a Non-executive
Director of the British Standards Institution.
24
24
Vesuvius plc
Vesuvius plc
Annual Report and Accounts 2016
Annual Report and Accounts 2016
Group Executive
Committee
1
4
3
5
6
2
1. Glenn Cowie President, Foundry
Appointed: November 2014
Years with Group: 35
Based: in Cleveland, US and is a South African and British citizen
4. Guy Young Chief Financial Offi cer
Appointed: November 2015
Years with Group: 1
Based: in London, UK and is a South African and British citizen
2. Tanmay Ganguly President, Advanced Refractories
Appointed: November 2014
Years with Group: 9
Based: in Barlborough, UK and is an Indian citizen
3. Henry Knowles General Counsel & Company Secretary
Appointed: September 2013
Years with Group: 3
Based: in London, UK and is a British citizen
5. Patrick Bikard President, Operations
Appointed: January 2014
Years with Group: 8
Based: in Ghlin, Belgium and is a French citizen
6. François Wanecq Chief Executive
Appointed: October 2012
Years with Group: 11
Based: in London, UK and is a French citizen
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7. Patrick André President, Flow Control
Appointed: February 2016
Years with Group: 1
Based: in Ghlin, Belgium and is a French citizen
10. Roel van der Sluis President, Vesuvius North Asia
Appointed: April 2012
Years with Group: 26
Based: in Suzhou, China and is a Dutch citizen
8. Alexander Laugier-Werth President, Technical Services
Appointed: July 2016
Years with Group: 8
Based: in Ghlin, Belgium and is a French and US citizen
11. Ryan van der Aa Vice President, Human Resources
Appointed: May 2013
Years with Group: 17
Based: in London, UK and is a Dutch citizen
9. Alan Charnock Vice President and Chief Technology Offi cer
Appointed: April 2015
Years with Group: 32
Based: in Ghlin, Belgium and is a British citizen
26
26
Vesuvius plc
Vesuvius plc
Annual Report and Accounts 2016
Annual Report and Accounts 2016
Section Two
Our
Performance
In this section
28 Financial Review
34 Key Performance Indicators
36 Operating Review: Steel Division
44 Operating Review: Foundry Division
48 Operating Review: Innovation
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28
Vesuvius plc
Annual Report and Accounts 2016
Financial Review
“ Progress with the
restructuring programme
has been excellent; the
result being improved
profi t margins, despite
lower underlying revenue.”
Guy Young Chief Financial Offi cer
Basis of Preparation
All references in this fi nancial review are to
Headline performance unless stated otherwise.
See Note 4 to the Consolidated Financial
Statements on page 118.
Introduction
Our aim in Finance is to enable the business to
improve shareholder returns and sustain growth,
whilst optimising operating costs and maintaining
an appropriate level of control and compliance.
To achieve this, Finance must assist the Group by
preserving our access to capital, must operate as
a challenging business partner helping it to drive
performance, create aligned back offi ce strategies
and implement a fi t for purpose fi nance structure.
The focus of the Finance Function this year has
been, and will continue to be, on our people,
processes and systems which will be progressively
addressed through people development,
effi ciency programmes and targeted investment.
2016 Performance Overview
As anticipated, end markets remained weak in
2016, with the fi rst half of the year characterised
by a very slow start which progressively improved
through to June. On a constant currency basis,
sales and margins were well below the fi rst half of
2015 when markets were still relatively buoyant.
However, margins held up well in comparison to
the second half of 2015, due in large part to the
early benefi ts of our restructuring programme.
By the time of the half year results we had started
to see signs that end markets were stabilising and
this was indeed what we experienced in the
second half. In comparison to the prior year, the
second half was fl at in terms of sales but trading
profi t and return on sales were well ahead.
This underlines the benefi ts of our focus on cost
reduction with margins restored to levels of early
2015, despite lower sales levels. Our cost fl exibility
has served us well over the last year and provides
us with a strong base from which to capitalise on
the benefi ts of a turn in the markets in due course.
Dividend
The Board has recommended a fi nal dividend of
11.40 pence per share to be paid on 19 May 2017
to shareholders on the register at 7 April 2017.
When added to the 2016 interim dividend of
5.15 pence per share paid on 23 September 2016,
this represents a full year dividend of 16.55 pence
per share.
It remains the Board’s intention to deliver
long-term dividend growth, provided this is
supported by underlying earnings, cash fl ows,
capital expenditure requirements and the prevailing
market outlook.
£m
Sales*
Trading profi t*
Return on Sales %*
* at constant currency
2016 H1
706
63.0
8.9%
% v H1 2015
-6.8%
-16.5%
-100bps
2016 H2
695
70.3
10.1%
% v H2 2015
+0.0%
+13.9%
+120bps
2016
1,401
133.3
9.5%
Revenue
£1,401m
Reported Underlying
+6.0% -4.0%
Trading profi t
£133.3m
Reported Underlying
-1.5%
+7.5%
Headline EPS
30.4p
Reported
+8.4%
Return on sales
9.5%
Reported Underlying
+10bps +30bps
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Key Performance Indicators
Objective: Deliver growth over the long term
In 2013, the following key performance indicators
were set and have been reported against
consistently since. Details of the indicators are
provided on pages 34 and 35. As with prior years,
we measure our results on an underlying basis,
where we adjust to ensure appropriate
comparability between periods, irrespective of
currency fl uctuations and any corporate activity.
This is done by:
> Restating the previous period’s results at the
same foreign exchange (FX) rates used in
the current period
> Removing the results of disposed businesses
in both the current and prior years
> Removing the results of businesses acquired
in both the current year and prior years
Therefore, for 2016 we have:
> Retranslated 2015 results at the FX rates used
in calculating the 2016 results
> Removed the results of Sidermes, which was
acquired in 2015
> Removed the results of the mould and tundish
fl ux business of Carboox in Brazil which was
acquired in 2016
KPI: Research & Development spend
We believe that our market-leading product
technology and services deliver fundamental
value to our customers and that the primary
mechanism to deliver that value is to invest
signifi cantly in research and development.
In 2016 we spent £28.6m (2015: £25.8m)
on R&D activities, which represents 2.0% of
our revenue (2015: 2.0%).
KPI: Underlying revenue growth
Reported revenue for 2015 was £1,322m, which
after FX translation effects and removing the
impact of acquired businesses, equates to £1,447m
on an underlying basis. The reported revenue in
2016 of £1,401m, when adjusted for acquisitions
made, is £1,388m on an underlying basis, which is
a reduction of 4.0% year-on-year. The reduction
refl ects a 4.8% decline in underlying revenue in
the Steel division and a more moderate 2.5%
decline in the Foundry division.
Underlying growth varied by region with India,
again, reporting double digit growth of 14% in
2016. NAFTA was the region with the largest
decline (9.8%) with weaker sales in both Steel and
Foundry as local markets continued to suffer from
low demand and the impact of plant closures in
comparison to 2015. Europe declined by 4%
for similar macroeconomic reasons as NAFTA.
Although China sales were fl at on an underlying
basis, this was due to sales growth being curtailed
by an ongoing cautious approach to customer
payment terms.
As
reported
942.0
Steel
459.4
Foundry
Total Group 1,401.4
2016 Revenue
Acquisitions/
Disposals Underlying As reported
897.6
424.4
1,322.0
928.8
459.4
(13.2) 1,388.2
(13.2)
–
2015 Revenue
Acquisitions/
% change
Currency
84.3
46.6
130.9
Disposals Underlying
975.7
471.0
(6.2) 1,446.7
(6.2)
–
Reported Underlying
4.9% (4.8)%
8.3% (2.5)%
6.0% (4.0)%
30
Vesuvius plc
Annual Report and Accounts 2016
Financial Review
continued
Regular dividend growth pence
16.55p +1.7%
2016
2015
2014
R&D spend* £m
£28.6m +0.0%
2016
2015
2014
* At constant 2016 currency
16.55
16.275
16.125
Underlying revenue growth %
-4.0%
2016
2015
2014
28.6
28.6
28.9
-4.0
-7.7
3.5
Objective: Deliver attractive profi tability
KPI: Trading profi t and return on sales
We continue to measure underlying trading profi t
of the Group as well as trading profi t as a
percentage of sales, which we refer to as our
Return on Sales or RoS.
Trading profi t of £133.3m decreased by 1.5%
on an underlying basis versus last year whilst RoS
on a constant currency basis was 9.5% a 10 bps
improvement over 2015, which is a testament
to the restructuring and the Group-wide set of
effi ciency and Excellence programmes.
The Steel Division recorded a RoS of 8.4% this
year, a decline from 8.9% in 2015, as the drop
through from lower sales was not entirely
mitigated by cost reductions. Foundry reported
an 11.8% RoS, another improvement over the
prior year (2015: 10.5%). Key to the margin
performance in both businesses was the reduction
in operating expenses, largely as a result of the
restructuring activities.
KPI: Headline PBT and Headline EPS
Headline profi t before tax (PBT) and headline
earnings per share (EPS) are used to measure the
underlying fi nancial performance of the Group.
The main difference between trading profi t
and PBT is net fi nance costs.
Net fi nance costs in 2016 of £14.5m were £0.9m
below 2015. The key changes in 2016 were lower
commitment and utilisation fees and lower costs
associated with unwinding of discounted
provisions. These were partially offset by higher
interest on net retirement obligations.
Our Headline PBT was £119.8m, 10.3% higher
than last year on a reported basis. Including
amortisation (£17.1m), the exceptional restructuring
charges (£28.5m) and an offsetting pension
settlement gain (£5.2m), our PBT of £79.4m
was 2.6% higher than 2015. Headline EPS at
30.4p is 8.4% higher than 2015.
Objective: Ensure capital is deployed effi ciently
KPI: Free cash fl ow and working capital
Fundamental to ensuring we have adequate capital
to execute our corporate strategy is converting our
profi ts into cash, partly through strict management
of our working capital. Free cash fl ow from
continuing operations was £61.4m for the year,
due in part to ongoing management of capital
expenditure which was £6.8m lower than last year.
Free cash fl ow from continuing operations in 2016
was £3.9m lower than last year on a reported basis
as a result of higher investment in working capital
and cash restructuring costs in 2016. Our cash
conversion in 2016 was 94%.
We measure working capital both in terms of
actual cash fl ow movements, and as a percentage
of sales revenue. Trade working capital as
a percentage of sales in 2016 was 26.6%
(2015: 26.3%), measured on a 12-month moving
average basis. In absolute terms on a constant
2016 Trading profi t
As
reported
79.2
54.1
133.3
Acquisitions/
Disposals Underlying
80.9
54.1
135.0
1.7
–
1.7
As
reported
79.5
44.5
124.0
2015 Trading profi t
Acquisitions/
% change
Currency
7.2
5.9
13.1
Disposals Underlying
86.6
50.4
137.0
(0.1)
–
(0.1)
Reported Underlying
(0.5)% (6.6)%
7.3%
21.6%
7.5% (1.5)%
Steel
Foundry
Total Group
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Return on sales* %
9.5% +10bps
2016
2015
2014
* At constant 2016 currency
Headline earnings per share pence
30.4p +8.4%
2016
2015
2014
RONA moving average %
21.1%
2016
2015
2014
30.4
28.1
33.4
21.1
21.1
25.5
9.5
9.4
10.2
currency basis trade working capital increased by
£12.9m, the majority of this increase is attributable
to £10.2m of higher inventory that was built up
in the last quarter to mitigate against the risk of
customer interruptions as negotiations relating
to plant closures were taking place. This inventory
will be unwound in 2017.
Operating cash fl ow and cash conversion
Cash generated from operations
Add: Outfl ows relating to
restructuring charges
Add: Additional pension funding
contributions
Less: Capital expenditure
Add: Proceeds from the sale of
property, plant and equipment
Operating cash fl ow
Trading profi t
Cash conversion
2016
£m
130.2
2015
£m
146.2
16.8
11.5
7.7
(31.3)
3.7
(38.1)
1.6
1.1
125.0
124.4
133.3
124.0
94% 100%
KPI: Return on net assets (RONA)
RONA is our principal measure of capital effi ciency.
We do not exclude the results of businesses
acquired and disposed from this calculation as
capital effi ciency is an important consideration in
our portfolio decisions. It is calculated by dividing
trading profi t plus our share of profi ts from joint
ventures by our average operating assets (property,
plant and equipment, and trade working capital).
As with most of our KPIs, we measure this on
a 12-month moving average basis at constant
currency to ensure we focus on sustainable
underlying improvements. Our RONA for 2016
was 21.1% (2015: 21.1%).
Objective: Maintain a strong fi nancial position
KPI: Interest cover and net debt
As at 31 December 2016, the Group had
committed borrowing facilities of £576.9m
(2015: £532.4m), of which £158.3m were undrawn
(2015: £181.1m). The accordion option to increase
the amount of committed funds by up to £200m
either from the existing bank group or by
introducing additional banks on the same lending
terms was not exercised during 2016 as we have
suffi cient debt capacity for the short term.
Net debt at 31 December 2016 was £320.3m,
a £28.7m increase over 2015, despite our good cash
generation. The main drivers of the increase were
the impact of net foreign exchange movements of
£30.3m, restructuring costs of £16.8m, and cash
acquisition costs of £7.7m primarily related to the
acquisition of the mould and tundish fl ux business
of Carboox in Brazil at the end of the year.
The Group’s debt facilities have two fi nancial
covenants: the ratios of net debt to EBITDA
(maximum three times limit) and EBITDA to interest
(minimum four times limit). These ratios are
monitored regularly to ensure the Group has
suffi cient fi nancing available to run the business
and fund future growth. At the end of 2016, the
net debt to EBITDA ratio was 1.8x, the same as last
year and EBITDA to interest was 13.4x (2015: 11.7x).
Further information on our fi nance costs can be
found in note 9 to the Consolidated Financial
Statements on page 121.
Financial Risk Factors
The Group undertakes regular risk reviews and at
a minimum a full risk assessment process twice a
year. As in previous years this included input from
the Board in both the assessment of risk and the
32
Vesuvius plc
Annual Report and Accounts 2016
Financial Review
continued
Net debt £m
£320.3m
2016
2015
2014
Unutilised committed debt facilities £m
£158.3m
2016
158.3
2015
2014
181.1
343.5
320.3
291.6
268.3
proposed mitigation. As referred to in the Viability
Statement on pages 19 and 20, we consider the
main fi nancial risks faced by the Group as being
end-market declines, leading to reduced revenue
and profi t as well as potential customer default,
and a lack of liquidity, brought on by volatility or
customer default. Important but lesser risk exists
in interest rate movements and cost infl ation but
neither is expected to have a material impact on
the business after considering the controls we
have in place.
Our key mitigation of end-market declines is to
manage the Group’s exposure through balancing
our portfolio of business geographically and by
end-market and to invest in product innovation.
We do so through targeted capital investment in
new and growing businesses and a combination
of capital and human resource in emerging
markets. The second main fi nancial risk of a lack
of liquidity is mitigated through managing foreign
exchange volatility by aligning the cost structure
with revenue as best we can and matching the
currency of our debt to underlying EBITDA.
Counter party risk and customer default is
mitigated by our relatively wide spread customer
base, with no customer being greater than
10% of revenue, and credit control procedures.
Other Relevant Financial Information
Restructuring
We have reported extensively on the restructuring
programmes that were launched in 2015 and are
expected to be fully implemented during 2017.
In 2016 we reported £28.5m of restructuring costs
(2015: £14.6m) that were predominantly made
up of redundancy and plant closure costs, along
with related consulting fees. The cash costs in
2016 were £16.8m (2015: £11.5m) the difference
refl ecting amounts accrued for redundancy costs
in Italy that will be paid out in 2017. We are
carrying a restructuring provision forward into
2017 of £18.5m.
Taxation
A key measure of tax performance is the effective
tax rate, which the Group calculates on the income
tax associated with headline performance, divided
by the headline profi t before tax and before the
Group’s share of post-tax profi t of joint ventures
(2016: £118.8m). The Group’s effective tax rate,
based on the income tax costs associated with
headline performance of £31.4m (2015: £27.7m),
was 26.4% in 2016 (2015: 25.5%).
The Group’s effective tax rate is sensitive to
changes in the geographic mix of profi ts and level of
profi ts, and refl ects a combination of higher rates in
certain jurisdictions such as India, Mexico, Germany
and Belgium, nil effective rates in the UK and US
due to the availability of unutilised tax losses, and
rates that lie somewhere in between.
The Group experienced such a change in mix in
2016, principally as a result of good business
performance in India, giving rise to the increase
in its effective rate compared to 2015.
Other key factors impacting the sustainability
of the Group’s effective tax rate are set out in
Note 10.6 to the Financial Statements.
The income tax credit on separately reported
items of £5.0m (2015: £2.9m) comprises £3.7m
non-cash deferred tax movements relating to the
amortisation of a deferred tax liability arising from
33
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Net defined benefit pension deficit £m
£29.4m -16.7%
2016
29.4
2015
2014
35.3
51.1
the 2008 acquisition of Foseco plc (2015: £4.7m),
£3.8m tax credits relating to restructuring charges
(2015: £1.5m), tax charge of £0.4m (2015: nil) on
pension curtailment gains, and a net reduction in
the deferred tax asset previously recognised in
respect of US tax losses and certain other
temporary differences of £2.1m (2015: £3.3m).
The net income tax charge recognised directly in
the Group statement of comprehensive income
of £0.7m (2015: £1.6m credit) comprises a £0.7m
charge (2015: £0.9m credit) in respect of deferred
tax on pension obligations and £nil (2015: £0.7m
credit) in respect of exchange differences.
The Group has released a £9.0m (2015: nil)
provision for possible China taxes arising during
the demerger of the Alent business in 2012. This
followed the publication of additional guidance by
the China tax authorities on the taxes applicable to
the underlying transaction concerned. This release
is included in discontinued operations in the Group
income statement.
Capital expenditure
Capital expenditure in 2016 of £35.2m (2015:
£35.0m) comprised £23.7m in the Steel division
(2015: £24.4m) and £11.5m in the Foundry division
(2015: £10.6m). The reduction in 2016 was in
order to preserve cash and in recognising that
a signifi cant cash investment was being made on
restructuring during the year. Capital expenditure
on revenue generating customer installation assets
has been maintained at £6.5m (2015: £6.2m).
Pensions
The Group has a limited number of historical
defi ned benefi t plans mainly in the UK, US,
Germany and Belgium. The main plans in the
UK and US are largely closed to further benefi t
accruals and 55% of the liabilities in the UK
have already been insured. The total net defi cit
attributed to these defi ned benefi t obligations
at the end of December 2016 was £29.4m
(2015: £35.3m), representing an improvement
of £5.9m. The key movements giving rise to this
were increases of £87.4m to the defi cit arising
out of changes to actuarial assumptions (mainly
reducing discount rates) and £15.2m from
exchange rate movements; offset by reductions
to the defi cit of £93.3m from asset returns,
contributions of £8.8m and a combined settlement
gain of £5.2m resulting from settlements and
curtailments primarily in the US.
The majority of the ongoing pension plans are
defi ned contribution plans, where our only
obligation is to make contributions, with no further
commitments on the level of post-retirement
benefi ts. During 2016 £10.8m (2015: £10.7m)
of contributions were made into the plans and
charged to trading profi t.
Corporate activity
Late in 2016 we acquired the mould and tundish
fl ux business of Carboox in Brazil for £8.0m as an
enhancement to our global mould and tundish fl ux
product offering. The business is a strong regional
player in South America. We continue to consider
acquisitions as a key part of our strategy for growth.
Guy Young Chief Financial Offi cer
2 March 2017
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Vesuvius plc
Annual Report and Accounts 2016
Key Performance
Indicators
The Board and management
regularly monitor both fi nancial
and non-fi nancial performance
indicators to measure
performance against objectives.
The Board reviews these KPIs
as part of its governance and
risk management processes.
Objective
KPI
Purpose
Deliver
growth
Underlying
revenue growth
Provides an important indicator of organic
(like-for-like) growth of Group businesses between
reporting periods. This measure eliminates the
impact of exchange rates, acquisitions, disposals
and signifi cant business closures
Deliver
sustainable
returns
Trading profi t
and return
on sales
Used to assess the trading performance
of Group businesses
Headline profi t
before tax
Used to assess the fi nancial performance
of the Group as a whole
Headline
earnings
per share
Used to assess the underlying earnings
performance of the Group as a whole
Return on
net assets
Used to assess the fi nancial performance and
asset management of the Group
Maintain strong
cash position
Free cash fl ow
and average
working capital
to sales ratio
Used to assess the underlying cash generation of
the Group. One of the factors driving the generation
of free cash fl ow is the average working capital
to sales ratio, which indicates the level of working
capital used in the business
Interest cover
ratio and ratio
of net debt
to EBITDA
Both ratios are used to assess the fi nancial
position of the Group and its ability to fund
future growth
Non-fi nancial KPIs
Objective
KPI
Performance
Zero work-
related injury
and illness
Lost time
injury
frequency
rate
Lost time injury frequency rate*
2016
2015
2014
Maintain
strong
innovation
pipeline
R&D spend
Total R&D spend** £m
2016
2015
2014
1.6
1.5
1.8
28.6
25.8
26.1
Reduce energy
use and carbon
emissions
Total energy
consumption
Gas use
Electricity
+0.3%
-1.29%
35
Link to remuneration
Return on sales %
2016
2015
2014
9.5
9.4
9.9
Delivery of value to shareholders is linked to
remuneration through the Vesuvius Share
Plan, which links the vesting of awards to total
shareholder return
Read more about Remuneration on p79-98
EPS is linked to remuneration as a measure
used in annual incentive awards and the
Vesuvius Share Plan
Read more about Remuneration on p79-98
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Average working capital to sales %
2016
2015
2014
In 2016, working capital performance was linked
to remuneration through the working capital
‘kicker’ applied to annual incentive awards
Read more about Remuneration on p79-98
26.6
26.3
24.8
Performance
Underlying revenue growth %
2016
2015
2014
Trading profit £m
2016
2015
2014
Headline profit before tax £m
2016
2015
2014
Headline EPS pence
2016
2015
2014
Return on net assets %
2016
2015
2014
Free cash flow £m
2016
2015
2014
-4.0
-7.7
3.5
133.3
124.0
142.8
119.8
108.6
127.8
30.4
28.1
33.4
21.1
21.1
25.5
61.4
65.3
59.2
Interest cover
Net debt to EBITDA
13.4x
1.8x
* Work-related illness or injuries which resulted in
an employee being absent for at least one day –
measured per million hours worked.
Read more about Safety on p54-55
** Constant 2016 currency.
Read more about Sustainability on p56-57
36
Vesuvius plc
Annual Report and Accounts 2016
Operating Review
Steel Division
Providing Flow Control, Advanced
Refractories and Technical Services
solutions for the global steel industry.
Steel revenue £m
£942.0m +4.9%
2016
2015
2014
Steel trading profit £m
£79.2m -0.5%
2016
2015
2014
Steel return on sales %
8.4% -50bps
2016
2015
2014
942.0
897.6
981.4
79.2
79.5
96.4
8.4
8.9
9.8
The Steel Division
Vesuvius is a global leader in molten metal fl ow
engineering. We achieve this by working closely
with our customers to develop customised
refractories, systems, services and technologies
that enable them to improve their performance.
The three businesses that comprise the Steel
division are Steel Flow Control, Advanced
Refractories and Technical Services.
Our Steel Flow Control products and systems are
used extensively in the continuous casting process,
enabling steel to be cast without interruption,
whilst protecting it from the atmosphere when
passing through the production process. Avoiding
atmospheric contact signifi cantly reduces
contamination levels in the steel. Thus the quality,
reliability and consistency of our products are
critical in the quality of the fi nished metal being
produced and the productivity, profi tability and
safety of our customers’ processes.
Vesuvius’ Advanced Refractories business supplies
the steel industry and other process industries
with high-performance refractory materials used
for lining vessels such as blast furnaces, ladles
and tundishes to enable them to withstand high
temperatures and/or corrosive attack. These
refractory lining materials are supplied in the
form of powder mixes, which are spray-applied
or cast onto the vessels to be lined (‘monolithics’),
or in pre-cast shapes and bricks.
Our Technical Services business complements
existing product lines by bringing new services
to our existing customers. Technical Services
focuses on the capture of key manufacturing data,
combining this with Vesuvius’ strong presence
and refractory expertise in metal casting to create
new technologies and develop integrated expert
process management systems.
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“Through a renewed focus on cost base optimisation,
acceleration of innovation and growth in emerging
markets, Flow Control laid out in 2016 the
foundation for a solid and sustained growth
strategy in the years ahead.”
Patrick André President, Flow Control
The Steel Production Process and Vesuvius
The Global Steel Market in 2016
Our products can have a short service life (often
a matter of a few hours) due to the signifi cant
wear caused by the high temperature, high
thermal cycling and the erosive and corrosive
attacks they suffer. Due to the specialised nature of
our products and the high volume in which these
products are consumed, Vesuvius has developed
close, collaborative relationships with customers
together with an extended global manufacturing
network aligned with customer locations. Vesuvius
focuses on gaining a fundamental understanding
of customers’ processes and delivering systems
and products that are mission-critical for the
demanding applications in which they are used.
Market Dynamics
Customers of the Steel division are principally steel
producers and manufacturers of steel production
equipment. In addition, the Advanced Refractories
business supplies other high-temperature industries
such as petrochemicals and cement, and therefore
around 7% of revenues in the Steel division arise
from non-steel-related process industries.
For our consumable products, steel production
volumes are the critical driver of demand,
particularly in the production of higher-quality
steels where our highly technical products deliver
the most value. Steel producers are continually
striving to enhance their processes – reducing
downtime and labour, increasing steel quality,
reducing energy usage and enhancing
metallurgical accuracy – parameters in which
our existing consumables and solutions can
be combined with our developing Technical
Services offering to deliver value through better
productivity, quality and safety.
According to the World Steel Association, global
steel production in 2016 was globally stable
showing a small increase of 0.7% compared
with 2015.
However, despite this overall stability, there
were signifi cant differences within regions,
with declining production in EU28 (2.3%), South
America (10.6%) and Africa (4.7%) and increasing
production in India (7.4%), China (1.2%) and the
Middle East (7.6%).
Steel Flow Control
Financial performance in 2016
Against this backdrop, Steel Flow Control reported
revenues of £506.4m for 2016 an increase of
3.9% compared with 2015. On an underlying basis
revenues were down 5.3% as compared with
2015. EMEA and NAFTA were impacted by the
closure of steel plants where Flow Control had
a high penetration rate, and this was the main
contributor to the decline in underlying revenues.
At the same time, sales and penetration rates
continued to increase in India, the fastest growing
steel market in 2016.
In this challenging market environment, the fi rst
results of the restructuring programme delivered
a positive impact on the fi nancial performance of
the business line.
Cost base optimisation
Following a review of the Flow Control
manufacturing network in Europe, the decision
was made during the year to close three plants –
Avezzano and Cagliari in Italy, and Ostrava in
the Czech Republic.
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Vesuvius plc
Annual Report and Accounts 2016
Operating Review
Steel Division continued
Serving customers: Flow Control
Working with CSA Thyssenkrupp to continuously
deliver higher productivity and safety in the
production of high-quality steel grades.
Above: SEM 3085* tube changer
and refractory
The Challenge
With the increasing competitiveness
of the world steel market, CSA
Thyssenkrupp required a solution to
increase tundish life. This solution
had to address not only the demand to
consistently increase caster productivity
but also the necessity to assure the
highest standards of safety and quality.
Our Solution
Vesuvius introduced the latest
generation SEM 3085* tube changer
system, which improves ergonomics
and reliability during the manufacture
of high-quality steel grades. The SEM
3085* system also brings an increase in
robustness and simpler handling,
assuring consistent and continuous
operation in demanding applications.
Furthermore, it is compatible with
Robotic Casting Technology.
The installation of this new system
has been combined with a contract
to supply the VISO* refractory parts,
further contributing to the optimum
control of steel fl ow from ladle to mould.
The Benefi ts
The number of heats per tundish was
nearly doubled from 6 to 10 heats.
This resulted in a substantial gain
in productivity and an increase in
metallic yield, whilst maintaining
high standards of safety through the
implementation of an emergency metal
fl ow shutoff protocol, possible only with
stopper/tube changer technology, even
during the tube change operation.
The closure of these three plants was completed
by year-end with production transferred to the
remaining Flow Control plants in Europe, the
productivity of which was signifi cantly improved.
The closures were not the only focus of the cost
optimisation programme, with signifi cant efforts
also focused on Lean initiatives and effi ciency
across the European network of sites in line with
our wider Group focus on Excellence.
The series of steps we took in Europe to optimise
manufacturing effi ciency benefi ted the Steel
Flow Control fi nancial performance in 2016 with
our focus on cost saving offsetting a substantial
proportion of the profi ts lost from declining sales.
We expect these actions to have a further
positive impact on Flow Control results from
2017 onwards.
Renewed focus on growth through technology
and innovation
The Vesuvius commitment to outpace steel market
growth through constant innovation and value-
creating technological solutions for our customers
was re-confi rmed in 2016 as the core strategy
of the Flow Control business line.
To achieve this objective and increase the
effi ciency of our R&D efforts, the decision was
taken to streamline the portfolio of projects
and concentrate on a reduced number of
potentially high-impact projects, with improved
project management organisation and
increased resources.
We continue to focus our activities in centres
of excellence for R&D, with Flow Control building
on the strong work undertaken at our centre
in Pittsburgh.
Growth in emerging markets
The penetration rates of Flow Control solutions in
India and South America increased again in
2016. This trend is expected to continue in 2017
with a growing interest from customers in our
technological offerings.
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“ In spite of an adverse market environment,
Advanced Refractories delivered on its promise
of customer focus, superior products, investment
in innovation, business evolution in new market
segments and growth in developing markets.”
Tanmay Ganguly President, Advanced Refractories
However, due to overcapacity in the steel sector,
some customers in these regions have been
confronted with cash-fl ow issues, which has
negatively impacted our payment terms.
Thus, strict credit control procedures and
customer selection criteria are being implemented
to mitigate the fi nancial risks associated
with targeting growth in these and other
developing markets.
Despite the challenges of refocusing business
from established markets, growing the penetration
rates of Flow Control business solutions –
consumables, systems and services – in India,
China, CIS, Middle East and South America
will remain a strategic focus in the coming years.
See more about our Solutions Group in Operating Review –
Innovation on pages 48-49
Development of fl ux products offering:
acquisition of Brazilian mould fl ux business
Mould and tundish fl uxes play an important role
in the continuous casting process. Tundish fl uxes
insulate and prevent steel reoxidation. Mould
fl uxes provide lubrication and help to control heat
transfer at mould level where the temperature
and the fl uid dynamics of molten steel as it
solidifi es, are fundamental parameters in ensuring
consistency and quality in the steel slab. These
fl uxes are also in contact with our VISO* products
and infl uence their service life, particularly in the
highly corrosive and erosive slag layer. All of
these elements combined, mean that fl uxes are
a critical element of continuous casting process
control, directly affecting the quality of the fi nal
steel products.
The Flow Control division, already active in the
fl ux business principally in EMEA and NAFTA,
reinforced its presence in this market through the
acquisition in December 2016 of the mould and
tundish fl uxes business of Carboox, the leading
local South American fl ux manufacturer, increasing
Vesuvius’ presence in the South American market.
We now expect fl ux sales to represent around
10% of Flow Control revenues worldwide.
Looking ahead
Through this renewed focus on cost base
optimisation, acceleration of innovation and
growth in emerging markets, Flow Control laid
the foundation in 2016 for a solid sustained
growth strategy in the years ahead.
Advanced Refractories
Financial performance in 2016
Advanced Refractories reported revenues for
2016 were £398.8m, representing an increase
of 5.3% versus 2015. On an underlying basis,
the year-on-year revenue decrease was 3.3%
on 2015 levels, with performance tracking the
challenging environment across global markets,
driven in particular by the excess steel-making
capacity in China increasing exports into some
of our main markets.
The year started with a glut of steel inventory and
as worsening macro-economic conditions proved
hugely demanding for the steel industry, a reduced
demand for steel in oil and gas applications added
to the challenging business environment. Against
this backdrop, more positively, steel prices have
recovered since the beginning of 2016.
The political uncertainty in the Middle East made
it a fertile ground for lower-priced Chinese steel
imports, affecting production in the region.
However, this situation stabilised in the second
half, with local production levels starting to recover.
Similarly, the political instability in Brazil had a
major impact on the economy – a major producer
of iron ore and steel – leading to a signifi cant drop
in steel demand and a challenging foreign
exchange situation. This forced some local
producers to revise their footprint and signifi cantly
curtail steel production in the region.
Other than in Brazil and in the Middle East, our
strategy to capture growth in emerging markets
had positive outcomes. India, South East Asia,
South Korea and Mexico continued to establish
green fi eld projects to bolster steel production
*
Trademark(s) of the Vesuvius group of companies, some of which are registered in certain countries
40
Vesuvius plc
Annual Report and Accounts 2016
Operating Review
Steel Division continued
capacity. Our longstanding presence and local
manufacturing capabilities position us well to take
advantage of these future growth opportunities.
Customer focus
An integral part of our success strategy depends
on the level of collaboration with our customers.
The frequent presence of our experts at our
customers’ facilities allows us a fundamental
understanding of their needs and market
requirements. As well as delivering improved
current solutions, this information is fed back to
our research centres, enabling development of
the next generation of products. This is coupled
with investment in new technologies at our R&D
centres to provide our scientists with a better
understanding of our products, processes and
applications, pushing the boundaries of the
solutions we can deliver to customers.
Our key challenge in 2016 was to keep our
organisation focused and aligned with meeting
our customers’ expectations in very diffi cult market
conditions for them. It is implicit that our key
customer-facing people are technically excellent,
and equipped with the best support from our R&D
and technical teams, with clear lines of access to
them. We continue to work hard to ensure that
customers understand how to access the breadth
and depth of Vesuvius’ world-leading experience
for the benefi t of their business.
New product developments
Our continued investment in R&D is bearing fruit
with new products for iron, continuous casting and
steel fi nishing applications. In addition, we saw
particular success in the aluminium industry which
continued to show satisfying growth in 2016.
Innovation remains a key element of the business
line strategy as new technologies come out of the
trial development stage and into industrialisation.
Our focus on product and process innovation is
central to our strategy in Advanced Refractories.
Our experience in material design and application,
coupled with a thorough understanding of our
customers’ requirements, enables us to develop
innovative solutions. New material and application
technologies, deep understanding of the steel-
making process and powerful simulation tools
have allowed our technical experts to come up
with breakthrough developments to help our
customers reduce non-metallic inclusions in their
steel, leading to higher yields on some of the most
demanding applications like continuous casting of
high-strength light-weight automotive, oil and
gas, and stainless steel grades.
We are optimistic about our roadmap for the
development of innovative products and solutions
for downstream applications in the steel-making
process. A new family of products for reheat
furnace applications – named Thermogard* –
is showing double digit improvements in its
insulating properties, leading to signifi cant
reductions in energy consumption.
More than 50% of the world’s steel is produced
using an integrated route relying on blast furnaces
to melt iron ore. In this area we have initiated the
development of a new family of products which
41
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Serving customers:
Advanced Refractories
Developing more
environmentally
responsible blast
furnace operations
Left: Mud gun inserting clay
into the Blast Furnace taphole.
The Challenge
Our Solution
The Benefi ts
More than 50% of the steel
produced in the world is produced
by blast furnaces. After iron is
melted in a blast furnace, it is
extracted through a tap hole at the
base of the furnace. When tapping
has been completed, the hole has
to be plugged using a ceramic clay
material designed to withstand
very severe operating conditions.
When the furnace is ready for
tapping again, a drill is used to
open the hole and begin the
tapping procedure once more.
Historically, the binder systems
available to manufacture this
ceramic plug utilised coal tar
and petroleum pitch.
Thanks to our relentless
commitment to innovation
and our consideration for
environmental issues, Vesuvius
developed a new platform of
‘green’ binder systems for tap hole
clay in blast furnace applications.
As well as complying with the
strictest environmental
regulations around the globe,
this new binder technology has
controlled the ‘aging’ profi le of our
tap hole clay, enhancing shelf life
and reducing operational costs.
Thus Vesuvius’ ‘green’ tap hole clay
binder does not aff ect traditional
performance requirements
(specifi cally drill ability and long
duration casting), produces very
low or no PAH (polycyclic
aromatic hydrocarbons), and is
suitable for low, medium and
high capacity blast furnaces.
present more forgiving conditions for the customer
and are friendlier to the environment.
In addition, the vast experience gained over years
of utilising cutting-edge computational fl ow
modelling in continuous casting with products like
our Turbostop* family of impact pads is now being
applied to gather a deeper understanding of the
fl uid dynamics of other molten metal applications.
This research is expected to extend the campaign
life and productivity of blast furnaces which directly
feed the steel shop. Increasing the campaign life
of blast furnaces has a direct impact on the
productivity of other processes downstream, like
the steel melt shop, continuous casting and rolling
mills. This computational modelling, along with
new refractory technologies, is showing
encouraging results by increasing the life of the
refractories before the next repair is required.
Operational improvements
Quality and Lean remain the two cornerstones
of our operational excellence initiative.
We have reinforced our commitment towards
input and output control, targeting the
implementation of Control Plans for our
processes in manufacturing. Customer complaint
management and use of tools like 8D and Failure
Mode Effects Analysis (FMEA) in resolving and
responding to quality issues will further strengthen
the reliability of our manufacturing, and is a key
area for ongoing focus. This granular
understanding of our processes delivers
a competitive advantage and is central to our
customer offering.
Lean initiatives also form the core of our supply
chain effi ciency and cost competitiveness.
Improved Sales and Operations Planning practices
have helped to cut inventories and improve
response time. We continue to use every
opportunity to improve our process fl ow at
manufacturing locations, with targeted capital
investment delivering signifi cant benefi ts in
manufacturing fl ow, inventory management and
labour and energy effi ciency.
Organisational improvements
As our business in mature markets like NAFTA
and Europe continues to evolve and growth in
emerging markets like China and India moves
forward, we are constantly realigning our resource
base to align with activity levels. That involves
reviewing our manufacturing base and talent
pool on a continuous basis, both to anticipate and
respond to changes. In 2016 we have completed
several such projects that were initiated in 2015,
and which have begun to deliver results. Sustaining
talent and knowledge development is key to
meeting this requirement. Regular review of the
talent pool, succession planning and knowledge
transfer across the organisation has been and
continues to be a key priority.
Technical Services
Vesuvius’ Technical Services business focuses on
providing solutions that enhance the control and
monitoring of our customers’ production
processes. The provision to our Steel and Foundry
customers of sensors, probes, lasers and other
measurement systems allows them to focus on
*
Trademark(s) of the Vesuvius group of companies, some of which are registered in certain countries
42
Vesuvius plc
Annual Report and Accounts 2016
Operating Review
Steel Division continued
critical parameters within their processes, thus
enabling them to refi ne their production methods
to improve quality, lower production costs and
maximise effi ciency. Current solutions include
Process Metrix laser technology which allows
accurate assessment of refractory wear in the steel
furnaces and ladles and the Accuoptix* Continuous
Temperature System which provides customers
with a continuous, reliable and cost-effective
temperature data stream. Each of these products
can also enable customers to understand their
refractory needs more clearly. Another core
capability is the mould audit, using the unique
XMAT* device, in combination with computerised
fl ow modelling, to provide our Steel customers
with an ‘expert eye’ in the mould, allowing them
to gain a fi ne understanding of liquid behaviour in
the mould. The close management of these
parameters can unlock more refi ned process
management and drive steel quality improvement.
The information derived from these measurements
can be sold as a consulting service and used as
support for improvements in refractory solutions.
The Technical Services business was formed in
2015 following the acquisitions of ECIL Met Tec
and Process Metrix. A key objective of the business
is to harness the entrepreneurial spirit and agility
of newly acquired technology companies and to
develop and market new solutions. The focus
of R&D within Technical Services remains a key
differentiator of this business, and is primarily
aimed at the development of data collection
systems, combined with interpretation
technologies in a widening number of areas.
We will continue to enrich our Technical Services
offering in the medium term, by providing our
most advanced customers in the metal casting
fi eld with decision-critical, process-enhancing
information and analysis to enable them to
improve their operations, both through immediate
response to process parameters and from the
learning available from the analysis and
interpretation of longer-term, consistent data sets.
Financial performance in 2016
In its second year of operation, the Technical
Services business generated sales of £36.9m an
increase of 16.4% year on year on a reported
basis. On an underlying basis, revenues fell by
17.1% when adjusted for acquisitions. The
headwinds experienced in the steel industry in
2015 continued in 2016, leading to reduced
customer activity and signifi cantly lower customer
capital expenditure. This situation was exacerbated
by the poor economic environment in Brazil.
Serving customers: Technical Services
Process Metrix Laser Contour
Scanner for Ladles: Transforming
refractory thickness data into
valuable information for process
control and improvement
Left: 3-D ladle scan made
with Anteris*, false-coloured
to illustrate areas of acceptable
(blue/green) and unacceptable
(red/orange) refractory thickness.
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“Whilst customer capital expenditure dropped in 2016,
the Technical Services’ Division extended its reach in
the Vesuvius and Foseco portfolios and focused on
increasing the scope of its technological solutions.”
Alexander Laugier-Werth President, Technical Services
However, we saw the fi rst benefi ts of the
consolidation of Technical Services companies –
Sidermes and ECIL Met Tec – accessing customer
solutions across the wider footprint of the Vesuvius
customer base. We now have an extended
portfolio from which our solutions can improve
customer performance, both in terms
of quality and cost reduction.
During 2016, our focus remained on the
development of new solutions, and continued
efforts to increase penetration for existing
solutions. From the second half of 2016 onwards,
progress was made on accessing the Vesuvius and
Foseco networks through enhanced sales support
and on-site customer support not previously
accessible to ECIL Met Tec and Sidermes as
independent companies. This is expected to
deliver increased activity for Technical Services,
although the revenue from this developing
business may not all be recorded in the results of
the technical services business line. In the Steel
business, Technical Services benefi ted from the
continued growth of sensor technologies products,
especially mould level sensors and slag detection,
and combined offers of technology (lasers,
robotics) and refractories, yielding signifi cant
savings for customers.
Strategies to promote future growth
Going forward, we will continue to review
opportunities to acquire additional technological
solutions to build an integrated business that can
deliver a long-term, stable revenue stream from
data gathering, information analysis and the
related process improvement for our customers.
A key focus will be on product quality – deploying
the Vesuvius quality breakthrough initiative in our
sensors and probes companies and focusing on
value creation through the optimisation of quality
and cost per ton for customers. We will continue
to grow sales of Technical Services through our
other business units, reinforcing technical and sales
support capabilities to ensure we take maximum
advantage of Vesuvius’ global customer base. We
will also focus on building a technology platform
which will bring together the data collected by the
instruments designed by all companies in the
Technical Services business and develop algorithms
that will help customers improve control and
performance across their processes.
The Challenge
Our Solution
The Benefi ts
Is the refractory brick lining in the
ladle too thin to run again? This was
the risk, safety and cost dilemma
for one of our major European steel
customers. Historically, they had
adopted a conservative approach to
avoid potential catastrophic breakouts.
Without adequate monitoring in place
to correlate the feedback relationships
between key processes and brick
wear rate, limited progress was made
towards optimising refractory lifetime.
Process Metrix installed its Anteris*
based Laser Contouring System (LCS)
to measure, quickly and accurately,
the ladle brick thickness. With this
quantitative measurement tool, the
customer could correlate changes in
process operating parameters with
positive (or negative) impacts on brick
wear rate. The LCS scan is so quick and
convenient that measurements were
taken on almost every ladle cycle, to
build history and performance data for
each ladle.
The primary benefi t was a nearly
50% increase in average ladle lifetime,
with some ladles achieving a nearly
100% increase. Quantitative analysis
of the ladle barrel, bottom profi le and
wear rates resulted in improvements in
stirring practice, tap hole geometry
evaluation to improve yield, tap hole
sand optimisation, and fi ne tuning of
electromagnetic stirring parameters
to reduce slag line wear.
*
Trademark(s) of the Vesuvius group of companies, some of which are registered in certain countries
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Annual Report and Accounts 2016
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Foundry Division
Providing high-technology
consumable products and services
to the foundry industry.
Foundry revenue £m
£459.4m +8.3%
2016
2015
2014
Foundry trading profit £m
£54.1m +21.6%
2016
2015
2014
Foundry return on sales %
11.8% 130bps
2016
2015
2014
459.4
424.4
463.0
54.1
44.5
46.4
11.8
10.5
10.0
The Foundry Division
Our Foundry division trades under the Foseco
brand, and generates about 30% of total Group
revenue. Foseco is a world-renowned name that
has become a by-word for reliability, technology
and service in the supply of consumable products
and associated solutions to the foundry industry.
Vesuvius in the Foundry Industry
The vehicle sector, comprising light vehicles
(passenger cars and light trucks) and heavy trucks,
consumes approximately 40% of worldwide
castings, and a similar percentage of the revenue
for the Foundry division. Other end-markets for
foundry castings include machinery for the
agricultural, construction and mining industries,
power generation equipment, railroad and general
engineering sectors. Our customers include the
world’s major automotive OEMs, truck producers
and equipment manufacturers. Whilst Foseco
products typically represent less than 5% of
a foundry’s production cost, they contribute
signifi cantly to improving product quality and
manufacturing effi ciency, whilst reducing the
environmental impact of the casting process.
Combined with our computer modelling, fl ow
simulation and methoding capabilities, signifi cant
process effi ciencies can be generated by Foseco.
The Global Foundry Industry in 2016
The worldwide foundry market continued to
be affected by diffi culties within the agricultural,
construction and mining industries, resulting from
the general decline in commodity prices. We saw
reduced investment worldwide with the largest
impacts in the US, China, Brazil, Indonesia and
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“In a year of slowing in capital projects and poor steel foundry
production but, with good performance in Automotive, we
reduced central costs and consolidated manufacturing in the USA.
We continue our strategic focus investing in R&D and training
with the introduction of the Foseco online University. Year-on-year
ratios improved despite a decline in revenue.”
Glenn Cowie President, Foundry
Australia, and delays to new projects resulting in
reduced demand for foundry castings for the
extractive industries, as well as those used for
related equipment and vehicles.
However, against this backdrop, light vehicle
production globally was up 3.9% year-on-year
and global heavy truck output increased 2.5%.
Light vehicle production increases in India (+9.3%),
China (+12.2%) and NAFTA (+2.5%) were partially
offset by declines in South America (-12.7%)
and North Asia (-4.8%), with signifi cant heavy
truck output decreases in South America (-20.5%)
and NAFTA (-15.9%).
Financial Performance in 2016
Exchange rates had a considerable effect on
the business in 2016 with the Foundry division
reporting revenues of £459.4m in 2016,
representing an increase of 8.3% versus 2015.
On an underlying basis, revenue was down by
2.5%. Despite the decrease in sales, trading
profi t improved by 7.3%, and underlying return
on sales increased by 110 bps as a result of
the effects of an earlier commencement of
restructuring measures in 2015.
Emerging market conditions continued to be
diffi cult, especially in China, Russia and Brazil.
Reduced revenues in Australia and South Africa
refl ected production declines in the auto sectors
and extractive industries. However, sales in India
increased 12.5%, benefi ting from higher light
vehicle and truck production, up 9.3% and
11.1% respectively, despite a very poor
performance from the petrochemical industry.
Underlying Revenue in Europe decreased 4.0%
year-on-year, despite increases in light vehicle
(3.6%) and heavy truck (2.9%) production,
refl ecting drastic declines in output from steel
foundries supplying mining, construction and
petrochemical castings.
Underlying revenue in NAFTA decreased by
10.1% due to weakness in the agricultural,
construction and mining industries, with US
production continuing to move overseas.
This was compounded by expected Mexican
growth not occurring due to a reduction of activity
in the precious metal industry. In South America,
underlying revenue increased 2.2%, despite Brazil
experiencing reductions in foundry castings in
all sectors, with growth delivered mainly from
market share gain and further penetration of
the mining sector.
We continued with our global cost reduction
and restructuring programme to respond to
the challenging end-market conditions.
Customer Focus
Foundry business strategy promotes high value
generation for our customers, helping them
deliver better quality castings and enhancing their
processes and effi ciency. Foseco has a deep
understanding of customers’ priorities for growth
and process improvement. To deliver this, we
embed technical experts at customer premises,
which enables them to identify potential process
improvements in cooperation with their customers.
This is coupled with a worldwide presence
and excellence in product innovation, from our
established network of technology centres,
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Annual Report and Accounts 2016
Operating Review
Foundry Division continued
in which we have amassed extensive expertise
in developing solutions that incorporate
engineered systems and high-value consumables.
These solutions are industrialised in our
geographically dispersed manufacturing base,
which leverages our global expertise whilst
being deliberately located as close as possible
to our customers.
This combination of product expertise and service
delivery ensures that all our customers receive
solutions that are tailor-made to their specifi c
needs and opportunities, supplied on a reliable,
just-in-time and competitively priced basis.
This close customer interaction also allows us
to understand the growing demand to supply
technological solutions such as those being
championed by our Technical Services business.
The Foundry Business Model
Our global presence is at the heart of the foundry
business model. This allows the Foundry division to be:
> Resilient to end-market cycles, due to the
fl exibility of our diversifi ed manufacturing
footprint and adjustable cost base
> Profi table, as it allows value pricing for
bespoke products
> Growth generating, as markets can be expanded
by creating additional innovative products and
solutions for customers
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Foundry R&D
Focus on Developing Markets
The investment in our world-class R&D facility
in the Netherlands continues to deliver increasing
benefi ts. In 2016, new product sales as a
percentage of overall sales was the highest in
the last decade. Whilst in 2016 this was not
apparent in overall revenue, with a large
percentage of new product sales occurring
at the expense of old technology, it is the
cornerstone of longer-term business development.
Shaping the Business for the Future
The restructuring of our Global Management
and our Marketing & Technology teams
undertaken in 2016 has been a success, supporting
a clear focus on market segmentation and our
investment in research, and giving a renewed
focus on the rapidly growing non-ferrous sector.
The investment in China in a completely new
manufacturing plant experienced initial diffi culties
but is now running smoothly as we rapidly regain
lost sales. In 2016, a major restructuring operation
was carried out in NAFTA, consolidating our ladle
lining business into the Cleveland site and
mothballing the fi lter line to make more effi cient
use of excess capacity in other regions. Changes in
the dynamics of the global foundry market are not
over, and we continue to take action to ensure that
our manufacturing footprint, technical expertise
and customer-facing people are correctly located
to support end-market growth around the world.
Serving customers: Foundry
Reducing Energy consumption
in zinc oxide production
Potential savings
Productivity increase
up to 30%
15%
Left: Crucibles for Non Ferrous
Foundry Applications
Increases in casting volumes in emerging markets
has been a characteristic of the foundry industry
for the past several years. However, Foseco’s
solutions are best suited where this volume growth
is coupled with technical sophistication at the
customer, and the most demanding end-markets
for the casting. To support the signifi cant growth
potential we anticipate in markets where industrial
development continues to gather momentum,
we have launched the ‘Foseco University’. This is
an online training facility covering all aspects of the
foundry production process. Following successful
beta trials this will now be commercialised as a
training programme for our customers, and is in
the process of being translated into German and
Chinese. Whilst of particular use in developing
markets, the Foseco University aims to
communicate expertise and give technical support
to our customers across the globe. Coupled with
our expanding network of technical sales staff and
application engineers within developing markets,
this will ensure that customers in emerging markets
have local access to our high levels of expertise
and technical support.
The Challenge
Our Solution
The majority of the zinc oxide
manufactured in the world is made
by the ‘indirect’ or ‘French’ process
whereby metallic zinc is melted in
a graphite crucible and vaporised at
temperatures around 1000 °C, at which
point the zinc vapour reacts with oxygen
in the air to form zinc oxide.
In this process, the high level of energy
consumed and the slow production
rate both have a major impact on process
profi tability, whilst the high energy
consumption and related production
of greenhouse gases are extremely
important concerns for industries
today and in the future.
By increasing the thermal conductivity
of the crucible, it is possible both to
reduce energy consumption and to
increase productivity. ENERTEK*KK ZnO
crucibles have been developed to meet
these customer requirements. Savings
of more than 30% have already been
measured in the fi eld.
The Benefi ts
In one specifi c study where ENERTEK*KK
ZnO crucibles were used, the company
showed an annual reduction in natural
gas usage of 132,000 m3 which resulted
in an annual cost saving of over €52,000
and a CO2 emission reduction of 260
tons. The faster melting rate achieved
using ENERTEK*KK ZnOcrucibles also
resulted in an increase in productivity
of 15%.
*
Trademark(s) of the Vesuvius group of companies, some of which are registered in certain countries
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Annual Report and Accounts 2016
Operating Review
Innovation
“Customers’ requirements for improved process
control, safety, ergonomics and sustainability have
all been key drivers of our R&D. Through targeted
ideation and a robust new pipeline we continue to
improve and expand our products and capabilities.”
Alan Charnock Vice President and Chief Technology Offi cer
R&D spend 2016
£28.6m
New priority patent
applications
15
Patents granted
in 2016
130
Customer Focus
Refl ecting during 2016 on 100 years of innovation
in Vesuvius, it is clear that the demand for
innovation in our end-markets has changed. The
process changes adopted by our customers over
the last 100 years were the main drivers for the
development of our refractories and consumable
products and equipment. Over the last decade,
however, our customers have demanded better
control of their existing processes, coupled with
operator safety, ergonomics and environmental
concerns. This new focus has been a key driver
of our recent R&D efforts and has led Vesuvius
to establish its Technical Services division and to
promote our ‘Solutions’ strategy.
Our customers require us to be innovative and
depend on us as a leading provider of technology.
We continue to improve our existing products and
capabilities and to deliver new products through
a strong R&D organisation. We have expanded
our capabilities and product range into new areas
of automation, mechatronics and instrumentation,
creating the full symphony of tools and products
to monitor and manage the external factors
that infl uence the quality and yield of our
customers’ products.
R&D Mission and Process
R&D’s mission is to be a driver for profi table growth
by developing innovative new products, solutions
and technologies needed by the business, the
market and our customers. To achieve this, we
have to be proactive, spending suffi cient time
and resources to develop the next generation of
breakthrough technologies, and also reactive
dealing with the issues faced by our customers and
changing market environments. We have put in
place a robust R&D process to drive innovation and
to ensure that we maintain this leadership position
as the market continues to develop and pose new
challenges. This process includes:
> Project Portfolio Management: aligning
R&D with Group and divisional strategies
> Targeted Ideation: initiating the ‘Idea to Launch’
NPI stage gate process which manages all new
product development – with the project pipeline
reviewed on a regular basis to ensure alignment
with the strategy and to identify gaps and
redirect resources accordingly
> KPIs: setting measurable goals, for example,
to double our New Product Sales (measured
as the percentage of total sales derived from
products launched within the last fi ve years);
to increase R&D productivity (R&D spend versus
new product sales revenue); and at the same
time to increase our efforts on breakthrough
technologies to be sure we do not move only
by incremental developments
All of our projects are therefore measured
against the criteria of:
> Novelty – ‘newness’ and uniqueness?
> Inventiveness – creative and non-obvious?
> Differentiation – how different is it from what
currently exists?
> Impact – how big is the impact of this difference?
> Sustainability – how long can we maintain
the advantage?
In 2016 we spent £28.6m on R&D, representing
approx. 2% of sales. Our New Product Sales
have grown from 8% of total revenue in 2014 to
12% in 2015 and 14% in 2016, ahead of our target
to double in fi ve years. As a result, R&D productivity
has improved from £3.5 to £7 of New Product
Sales per £ of R&D spend.
We currently have 159 patent families, and 1,695
patents granted worldwide, with 579 patent
applications pending.
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Serving customers:
Innovation
The root cause
of a quality
defect – not
always what
you expect.
Left: Monitoring and
reacting to Tundish
conditions can avoid
quality defects created
in the mould
The Challenge
Random Slivers – surface
defects on the fi nished coil
as a result of mould fl ux
inclusions - can be created
at the interface between
the liquid steel and liquid
mould slag.
Our Solution
Using our XMAT* mould
audit unit at site to verify
performance of our
engineering solution,
developed using
computational fl uid
dynamics, the Solutions
Group detected random
fl ow pattern shifts in the
mould. These fl uctuations
were confi rmed to be the
result of changes in the steel
temperature entering
the mould.
The Benefi ts
Monitoring tundish
temperature with our
Accuoptix* system,
customers can react and
homogenize tundish
temperature using a tundish
gas diff user to reduce the
occurrence of the mould fl ow
pattern shifts that lead to
sliver surface defects.
R&D Organisation
We continue to operate R&D in a two-tier
structure. We operate a central research
component, with a critical mass of expertise to
pursue breakthrough technologies, and combine
this with local development laboratories that also
support breakthrough research, but which are
primarily tasked with localisation of technologies,
customisation of products, incremental
developments and dealing with local technical
support issues. We have over 300 R&D staff
distributed in these centres throughout the world.
Enabling Technologies is our blue sky, long-range
fundamental research function. It monitors
technology trends, building the new technology
platforms that will ultimately lead to new
products and processes in our existing, adjacent
and completely new markets. This is a core part
of helping to ensure our continuing position as
a technology leader. The Enabling Technologies
team also manages our external partnerships with
universities and other research organisations and
represents about 10% of our total R&D spend.
The Solutions Group comprises the Simulation and
Metallurgy Groups as well as a team of application
specialists. The Solutions Group focuses on the
provision of solutions to customers using existing
technologies, to solve the problems they face or
to improve the performance of their processes in
terms of productivity, yield and quality. Our ability
to understand the increased complexity and
interdependence of different products and
technologies, and their impact on end results,
differentiates us from our competitors, who
are often unable to construct or supply all the
elements that constitute the ‘Solution’. Finally,
the Solutions Group also identifi es opportunities
for new product development from its holistic
examination of customer processes.
Enhancing Quality for Our Customers
By capturing and analysing process data and using
simulation and diagnostic tools we are able to
monitor conditions and analyse samples from
various locations in the customer’s process.
We can then identify the root causes of quality
defects based on our understanding of the impact
that changes in the customer’s process have on
the fi nal product quality. The key for the future is
to capture process and product property data,
interpret it, and then react in real time to
counteract the effects that deviations from normal
practice may have on the fi nished product.
Looking Ahead
Through targeted ideation and a robust new
product pipeline, we continue to improve and
expand our products and capabilities. We have
already made, and will continue to make, strategic
acquisitions to accelerate the introduction of
new technologies that complement our portfolio.
By mastering all of these technologies we will
continue to provide better solutions to the
problems faced by our customers, both through
our traditional business model and via the new
Technical Services model.
Vesuvius is no longer supplying just the linings
and plumbing – we now supply ‘Solutions’ that
include every element involved in the process of
engineering the fl ow of molten metal, to allow
the effi cient and cost-effective production of
lighter, stronger, more resistant end products used
to make, amongst other things: faster modes of
transport, stronger and bigger buildings and
structures, and thinner more reliable packaging.
*
Trademark(s) of the Vesuvius group of companies, some of which are registered in certain countries
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Section Three
Our
Responsibility
In this section
52 Principles
54 Health and Safety
56 Sustainability
58 People and Community
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Principles
We continue to focus our attention on the fulfilment
of our ethical responsibilities, supporting the creation
of long-term value for all our stakeholders.
Vesuvius is a geographically and culturally diverse
group employing nearly 11,000 people, with 66
production sites in 26 countries, serving customers
all over the globe. Maintaining a strong culture,
and its consistent application in our worldwide
approach to business, is therefore of fundamental
importance. Our employees’ engagement with
our values and culture is not simply a matter of
compliance, it is vital to our success and the
sustainable delivery of the Group’s strategy.
A Framework for Business Integrity
Vesuvius has established a simple framework for explaining and delivering
the principles we consider to be fundamental to our sustained success:
1.
Vesuvius
Values
2.
Code of
Conduct
3.
Policies &
Procedures
4.
Training
5.
Monitoring
&
Evaluation
Values
Our Values
The behaviours we champion in our employees
are encapsulated in five Vesuvius values. We again
celebrated these in 2016 with the Group’s Living
the Values Awards. Employees from 8 countries,
nominated by their peers, came together to
celebrate their outstanding individual contributions
to the implementation of Vesuvius’ values.
See more about the Living the Values Awards in our People
and community section on pages 58 and 59
Code of Conduct
Our Code of Conduct places the pursuit of the
highest possible ethical standards at the heart
of Vesuvius’ culture.
During 2016 we relaunched our Code of Conduct
throughout the Group, having reviewed and
updated it, to ensure that it remained relevant
across all our jurisdictions and cultures and
encapsulated the fundamental principles and
behaviours we expect from those working
for, and on behalf of, Vesuvius. It was published
in all 29 of our major functional languages.
In conjunction with this we relaunched our
confidential, independent Employee Concern
Helpline across the Group, with new dedicated
local language capabilities.
Creativity: Our commitment
to technology and quality is the basis
for our competitive advantage. Creativity
allows us to develop innovative products
and solutions and the continuous
improvements that generate value
through performance enhancement.
Cooperation: Encouraging internal and
external cooperation enables us to create
unique solutions with our partners.
Through cooperation, each Vesuvius
employee is committed to the success
of their community of colleagues and
customers and that of the wider Group.
Reliability: Our solutions involve us
in critical aspects of our customers’
Code of Conduct
manufacturing processes. Our
Code of Conduct
commitment to deliver consistent
products and services gives them
the level of confidence they require.
Code of Conduct
Code of Conduct
Integrity: At the heart of our promise
lies the trustworthiness of all Vesuvius
employees in their acts and words.
Integrity, honesty and transparency
are essential in all our exchanges.
Code of Conduct
Code of Conduct
Code of Conduct
Embracing Diversity: Vesuvius is
a global company built upon a true
Code of Conduct
respect for local customs and experience.
We recognise and embrace the potential
for creativity that comes from the
coexistence of so many different cultures.
Code of Conduct principles
Health,
Safety and the
Environment
Trading, Customers,
Products and
Services
Anti-Bribery
and Corruption
Employees and
Human Rights
Disclosure
and Investors
Conflicts of Interest
Competitors
Government,
Society and Local
Communities
The Code of Conduct
is available at
www.vesuvius.com
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Supply Chain: We continue the development of
our supplier assessment programme – engaging
with suppliers on their business practices to ensure
security of supply to Vesuvius. This process is
evolving, and will be integrated with the work
we are doing to address the requirements of the
Modern Slavery Act.
Prevention of Slavery and Human Traffi cking
During 2016 we published our fi rst transparency
statement outlining the Group’s approach to the
prevention of slavery and human traffi cking in our
business and supply chain. We are conducting risk
assessments as well as developing our policies and
training to raise the awareness of our employees
to this issue.
Training
During the year we continued to operate our
training programme on the Code of Conduct
and associated anti-bribery, corruption and other
policies. We continue to develop our training
processes to help our staff and counterparties
understand that corruption will not be tolerated
in the performance of our business.
Policies & Procedures
We continue to enhance the policies that underpin
the principles set out in the Code of Conduct.
These assist employees to comply with our ethical
standards and the legal requirements of the
jurisdictions in which we conduct our business.
They also give practical guidance as to how this
can be achieved. Amongst these policies are:
Speak Up: The importance of being able to speak
up without fear of retaliation is the foundation
of our compliance programme. The availability of
the confi dential Employee Concern Helpline for
employees was re-communicated across the
Group in 2016, and allows individuals to raise
concerns, anonymously if they wish, knowing
that these will be investigated and acted upon.
No individual will ever be penalised or
disadvantaged for reporting a legitimate concern.
Human Rights: The Group human rights policy
refl ects the principles contained within the United
Nations Universal Declaration of Human Rights, the
International Labour Organisation’s Fundamental
Conventions on Labour Standards and the United
Nations Global Compact. The policy applies to all
Group employees, sets out the principles for our
actions and behaviour in conducting our business
and provides guidance to those working for us
on how we approach human rights issues. The
Group commits not to discriminate in any of
our employment practices and to offer equal
opportunities to all. The Group respects the
principles of freedom of association and the
effective recognition of the right to collective
bargaining and opposes the use of, and will
not use, forced, compulsory or child labour.
54
Health and Safety
Vesuvius remains fundamentally
committed to protecting employees,
contractors and visitors in all areas
of its activities.
Our goal is:
No lost time injuries
No repeat injuries
No harm to our people
or contractors
Health and Safety
We have extended and intensified our Safety
Breakthrough initiative to raise health and safety
performance to best-in-class levels throughout
the Vesuvius business, with a specific focus on
employees based at customer locations.
Our Safety Breakthrough initiative set a goal of:
Training employees to work safely
47 Turbo.S training sessions were performed
in 2016, involving 293 employees, from senior
executive management to shop floor team
management. Turbo.S training integrates all
Vesuvius’ good safety management practices
in the workplace, and enables all Vesuvius
members to work in a safe environment.
Permit to Work training, launched in the second
half of 2015 in Europe, was extended worldwide
to be implemented in all Group facilities, including
customer locations, during the first half of 2016.
We completed 97 training sessions for 600
managers from maintenance and operations,
as well as shop floor group leaders. This training
shared and extended recognised best practices
throughout the Group.
Working safely
Ongoing deployment of standardised work
continues to contribute to improved workstation
safety. Daily safety audits have become a pillar of
our Safety Breakthrough initiative. In 2016, more
than 76% of our working population performed
safety audits, generating a minimum of nine
improvement opportunities per person, resulting
in an improvement in worker safety. The audit
programme involves employees at all levels –
from the Group Executive Committee and safety
specialists through to local site management,
employees and contractors. In addition, the Take 2
initiative ensures that employees think again before
performing any unusual or non-standard activity.
For new contracts in customer locations, Vesuvius
now uses a formal risk assessment which aims
to identify significant risks to our employees and
contractors. This enables appropriate control
measures to be agreed and implemented with
the support of our customers in advance of
work commencing.
Working in tidy plants
The continuing use of 5S, the workplace
organisation method, throughout the Group drives
workplace improvement. The added support of
Vesuvius Lean specialists has been key to improving
plant safety by removing hazards for employees
and offering a clear, bright and safe working
environment. Daily 5S audits led by team leaders
ensure continuous improvement of working
conditions and promote a safer workplace.
Involving accountable management for
safety performance
Site safety improvement plans are now in place
for all production sites with deployment being
the direct responsibility of local managers. Poorly
performing sites are expected to share their
incident investigation and action plans and to
formally present their improvement plans to the
Group Executive Committee. Such an approach
has proved highly successful in 2016, with the
worst performing sites seeing their safety records
improving through the year.
Vesuvius plcAnnual Report and Accounts 2016 55
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All injuries and dangerous occurrences continue to
be analysed locally, with a formal presentation of
fi ndings, root causes and improvement actions
cascaded through management. In addition,
executive safety tours at customer locations
have continued in 2016.
upper mould on a friction press. Following a period
of rehabilitation the individual is now working
again at the plant. A major global review of our
presses has been carried out with support from,
and training by, external specialists to ensure that
such a terrible occurrence never happens again.
Accident and incident reporting and analysis
A signifi cant investment in time and resources has
been made over recent years to develop robust,
comprehensive and timely reporting of incidents
(including all fi res, explosions and any major spill
or other chemical releases). In its internal standards,
Vesuvius continues to use more stringent
defi nitions for lost time injuries (LTIs) and ‘severe
accidents’ than the defi nitions used by the US
regulator, the Occupational Health and Safety
Administration. For all LTIs and Recordable
Incidents, Vesuvius has implemented a full
investigation based on the 8D problem-solving
tool to identify the true root causes in order to
prevent repeat incidents. As part of management
reporting, the Board receives a monthly update
on all LTIs and Recordable Incidents.
Safety Performance in 2016
Despite all of these efforts, in March 2016,
one of our Chinese operators had his right forearm
amputated by the unexpected dropping of the
We continue to work hard to reduce incident
severity and develop robust standards and
practices aimed at improving the safety and
health of our people in all that they do. In this
regard, road safety and machinery safety remain
particular areas of focus for us.
Our efforts to improve health and safety
continued to receive external recognition in 2016.
Seven US sites received President’s Awards from
The Refractories Institute (‘TRI’), for operating for
a calendar year without a Lost Time Injury, whilst
Vesuvius USA received the TRI Chairman’s Award
– for having the best overall company safety
record. In addition, our UK sites received fi ve
pledge awards from the UK awards sponsored
by the Health and Safety Executive and the
British Ceramic Confederation. Our Spanish plant,
Miranda de Ebro received honourable mention for
its contribution to the reduction of occupational
accidents and received a bonus from the Spanish
Ministry of Employment and Social Security for not
having had any accidents.
Safety performance in 2016
Lost time injuries per million hours worked
LTIFR 12 month rolling
10
8
6
4
2
0
Dec
2007
Dec
2008
Dec
2009
Dec
2010
Dec
2011
Dec
2012
Dec
2013
Dec
2014
Dec
2015
Dec
2016
56
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Annual Report and Accounts 2016
Sustainability
We are committed to contributing to the protection of the environment
and to the positive integration of our site activities into local communities.
We continue to develop and promote solutions that allow our customers
to reduce their waste, energy consumption and CO2 emissions.
Vesuvius and its Processes
Environmental Monitoring
The Board recognises that good environmental
management is aligned with our focus on
cost optimisation and operational excellence.
The majority of our manufacturing processes
are not energy intensive and do not produce large
quantities of waste and emissions. Total energy
costs are less than 3% of revenue, with only 2%
of the total energy requirements across the Group
consumed in the UK.
Total Energy Consumption
Overall Gas use increased by 0.3% in 2016 and
Electricity use decreased by 1.29%. The underlying
data showed that improvements in some areas
were offset by deterioration in others. Vesuvius’
senior engineers use the detailed analysis of
normalised data to drive improvements across
the business.
All our factory emissions are proactively managed
in accordance with local regulations. Regular
analysis enables us to take appropriate action to
reduce our emissions and operate more effi ciently.
The Group monitors its energy consumption,
worldwide CO2e emissions and usage of water.
Greenhouse Gas Reporting
In reporting GHG emissions, we have used the
GHG Protocol Corporate Accounting and
Reporting Standard (revised edition) methodology
to identify our GHG inventory of Scope 1 (direct)
and Scope 2 (indirect) CO2e. Both total emissions
and normalised emissions have reduced in 2016.
We report in kg of CO2 equivalent (‘CO2e’).
Global GHG emissions (Kg of CO2e)
Emissions source
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased for own use
Total GHG emissions
Vesuvius’ chosen intensity measurement:
Emissions reported above, normalised to per tonne of product output
2016
2015
340m
98m
438m
-4.8%
511.0
-3.5%
362m
99m
461m
529.8
Methodology We have reported to the extent reasonably practicable on all the emission sources required under Part 7 of the Accounting Regulations which
fall within our Consolidated Financial Statements.
Scope 1 covers emissions from fuels used in our factories and offi ces.
Scope 2 relates to the indirect emissions resulting from the generation of electricity, heat, steam and hot water we purchase to supply our offi ces and factories.
We have used data gathered to fulfi l our requirements under the CRC Energy Effi ciency scheme and emission factors from UK Government’s and the IEA GHG
Conversion Factors for Company Reporting 2016 in the calculation of our GHG.
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Solar panels were installed at our
Advanced Refractories facility
in Port Kembla, Australia to
supplement their energy usage.
In the fi rst 4 months of operation,
during Spring in Australia, the
facility saved >20 tonnes of CO2
emissions, generating between 500
and 750kWh of electricity per day.
The Group also meets all of its obligations in
relation to the Carbon Reduction Commitment
Energy Effi ciency Scheme, the Producer
Responsibility Packaging Waste regulations and
the Energy Saving Opportunity Scheme by
which the UK has implemented the EU Energy
Effi ciency Directive.
Energy Conservation Plan
The Vesuvius Energy Conservation Plan was
launched in 2011 with the objective of reducing
our normalised energy consumption by 10%
over the following three years. In June 2015
we reset our focus and set the objective of
a 10% improvement (using 2014 as our base year)
by 2018. Against that 2014 base, a 3%
improvement has been realised towards this
target. Managing our energy intensity is part
of enhancing our cost competitiveness. It also
contributes to improving the total environmental
impact of our customers.
Our Customers and Their Processes
Under the Vesuvius and Foseco brands, we deliver
a large range of solutions that help our customers
improve the productivity of their operations.
These solutions also improve the quality of our
customers’ products and reduce the environmental
footprint of their processes.
Thermal optimisation and reject reduction are
key factors in the processes for which we supply
solutions. Vesuvius contributes to the reduction
of its customers’ energy usage and subsequent
CO2 emissions through insulating materials, fl ow
management, facilitating extended manufacturing
sequences and reduced downtime.
The iron and steel industry accounts for
approximately 6.7% of total world CO2 emissions
and 18% of industrial CO2 emissions, with,
on average, 1.8 tonnes of CO2 being emitted for
every tonne of steel produced. With around 10 kg
of refractory material required per tonne of steel
produced, careful selection of energy-saving
refractories can benefi cially impact on the net
emission of CO2.
In the foundry process, the amount of metal
melted versus sold is critical to a foundry’s
profi tability. Foseco continuously works with its
customers to increase the ratio of metal sold to
metal melted. Sometimes this is as low as 40%
and we work with them to increase it to 70%.
How Does Vesuvius Contribute?
Since 2011 we have used a CO2 impact stamp
to highlight the most energy effi cient solutions
in our portfolio of products and services and to
support the deployment of energy effi cient
and sustainable solutions engineered by our
technology departments.
Benefi ts are realised by:
> Enabling lighter, thinner and stronger
components, leading to lighter vehicles and
less energy consumption
> Improving customer processes through the
supply of innovative consumables to reduce
energy intensity and the CO2e intensity ratio
> Reducing customers’ refractory usage per tonne
of steel produced through higher quality,
longer service life products
> Increasing the level of sound castings produced
per tonne of metal melted through improved
mould design and the application of molten
metal fi ltration and feeding systems
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Annual Report and Accounts 2016
People and Community
The dedication and professionalism
of our people is the most signifi cant
contributor to Vesuvius’ success.
Talent Management
Vesuvius Global Mobility
Ensuring leadership bench-strength and managing
succession remain key areas of focus for Vesuvius.
In order to meet the demands of the business,
we operate the following programmes on
a continuous basis:
> WINGS: Aimed at developing mid-level
managers, being those who manage other
managers or senior level staff. Wings, now in its
seventh year, is held in spring each year at Vlerick
University in Belgium. In 2016, 28 employees
successfully completed the programme
> HeaTt: The Vesuvius technical university aimed at
continuous development of Vesuvius personnel
with courses ranging from entry to expert level
> HR4HR: Aimed at giving the Vesuvius HR
community the professional skills to respond
better to the talent management and
development needs of the organisation
A core part of Vesuvius’ Global Mobility is the
Columbus Program. This initiative recruits six
young graduates on an annual basis, from two
different countries where we have a presence.
With the help of the local HR teams, we contact
universities and interview prospective candidates.
Three young engineers, specialising in Chemical
Engineering, Material Science or Metallurgy,
are selected in each country.
We are currently managing the fi fth generation
of the Columbus Program, as well as preparing
for the sixth cycle. We now have a new cohort
of three South African and three South Korean
graduates, ready to start their careers at Vesuvius.
In addition to technical skills, we are also looking
to fi nd the Vesuvius management of the future.
Out of 30 Columbus graduates, 24 remain within
the Group.
Talent Management evolved signifi cantly in 2016
as our central talent management solutions
were rolled out to local HR managers globally,
driving performance management and talent
identifi cation deeper within the organisation.
During 2016, under the Vesuvius HR4HR project,
four HR professionals underwent training in
psychometric assessment and evaluation,
each achieving ‘Expert’ status.
Living the Values
The Living the Values Awards programme, now
in its fourth year, celebrates and recognises the
commitment of our people to our fi ve values of
creativity, integrity, cooperation, embracing
diversity and reliability.
On 26 May 2016, the Group Executive Committee
and nominees came together for an event
to recognise the winners of the Living the
Values Awards.
François Wanecq commented, “I am very proud
of all our winners who have demonstrated
outstanding commitment to our values. The Living
the Values Awards programme is a key pillar of
our corporate culture and we will continue to
invest and believe in our community.”
Each winner was awarded a trophy specially
designed for our 100th anniversary. Vesuvius also
made a donation to each winner’s chosen charity.
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Francisco Javier Gallegos Valero,
winner of a Living the Values
Award 2016 for Reliability,
supported Hogar de la
Misericordia, an institution
which has been serving children
and the homeless for 30 years.
Vesuvius in the Local Community
Vesuvius not only supports employees’ dedication
to our values but is committed to the fulfi lment
of our social responsibilities.
Two examples of the charitable work done
by Vesuvius employees are:
> In Mexico, Vesuvius is actively involved in many
different campaigns to help the local community.
One of these initiatives is collecting plastic bottle
tops which are donated to Recolecta Sonrisas,
an association which exchanges these bottle
tops for chemotherapy sessions for
underprivileged children.
> In Cleveland, US the Company supports Harvest
for Hunger in association with the Cleveland
Greater Food Bank.
Employee Diversity
Vesuvius believes that the diversity of its employees is one of the core strengths of the Group. Having
a balance of cultures, ethnicities and genders helps to promote the innovation and creativity that is key to
our success. We recognise that, in line with other companies of our size and nature, we have unbalanced
gender representation, and are seeking to address this as part of our wider commitment to diversity.
GEC member
Senior management1
Middle management
Directors of subsidiaries included in consolidation2
All other employees
Grand total
Female
0
9
38
40
1,359
1,406
Male
11
95
307
419
9,021
9,434
Total
11
104
345
459
10,380
10,840
Female
0%
9%
11%
9%
13%
13%
Male
100%
91%
89%
91%
87%
87%
1. Of these 104 Senior Managers, 48 directly report to members of the GEC, and of these four are women.
2. 459 individuals in the Group are Directors of Group subsidiaries. Of these 9% are women. This disclosure is made to comply with regulatory requirements.
It includes Directors of dormant companies and those with multiple directorships.
Our Employees
Employees by employment type
Employees by region
Employees by business unit
C
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F
A
E
D
B
C
B
A. Salaried 3,991
B. Hourly 5,927
C. Temps 922
E. North Asia 333
A. China 1,790
B. Europe 4,422 F. South America 1,047
C. India 818
D. NAFTA 2,139
G. South Asia 291
D
F
E
C
B
A
A. Flow Control 4,256 D. Shared Services 815
B. Foundry 2,815
C. Advanced Ref 2,352 F. Tech Services 557
E. Head Offi ce 45
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Annual Report and Accounts 2016
Section Four
Governance
In this section
62 Chairman’s Governance Letter
63 Governance Report
70 Audit Committee
77 Nomination Committee
79 Directors’ Remuneration Report
79 Remuneration Overview
81 Remuneration Policy
90 Remuneration Report
99 Directors’ Report
103 Statement of Directors’ Responsibilities
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Chairman’s Governance
Letter
“ Vesuvius’ values encourage creativity, cooperation
and integrity. By living these values we have
established a culture that responds to business
challenges in an innovative, sustainable and eff ective
manner, for the benefi t of all our stakeholders.”
John McDonough CBE Chairman
Dear shareholder,
In another challenging year for our business, the Board has remained
committed to the highest standards of governance, continuing to
believe that robust governance and culture underpin business success.
In 2016 the Audit Committee conducted a competitive tender for
the external audit and the Remuneration Committee reviewed the
Directors’ Remuneration Policy for presentation to shareholders at the
2017 AGM. Further details are contained in the Committee Reports.
In addition, during the year, alongside its usual formal consideration
of the Group’s control framework, the Board undertook a ‘clean-
sheet’ review of its key risks and uncertainties, reconsidering which
risks are specifi cally signifi cant for our business. This analysis supported
the Board’s deliberations on business strategy and performance,
and formed the background to the Board’s discussions on Viability.
The results of this review can be found on pages 20 and 21.
Our Viability Statement can be found on pages 19 and 20.
Non-executive Director to join the Board and I am pleased to report
that encouraging progress is being made.
The Board’s formal evaluation process, which was again externally
facilitated this year, highlighted the Board’s composition and its
dynamics as particular strengths. It also highlighted that executing
the Group strategy, focusing on succession planning, developing
the next generation of exceptional senior managers, and identifying
and managing risk, remain critical areas of Board focus for the
coming year.
In 2016 the Board widened its focus on succession planning issues,
additionally reviewing the management levels immediately below
the Board – both in terms of securing a pipeline of talent for future
leaders of the business and encouraging and enabling the diversity
agenda. This focus on succession planning at executive and senior
management levels is ongoing.
Corporate Culture
The publication, in July 2016, of the Financial Reporting Council’s
(FRC) ‘Corporate Culture and the Role of Boards’ refreshed Board
debate on how to set the right tone from the top for the Group’s
corporate culture. The Board takes seriously its responsibility for
shaping the culture of the Group, seeking to ensure that our values
and ethical stance are refl ected consistently in our behaviours and
that this is embedded in the business by the Chief Executive and
management team. As a Board we support the FRC’s view that the
correct corporate culture provides a competitive advantage and is vital
to the creation and protection of long-term shareholder value. In 2016
we reinforced this culture with a relaunch of our Code of Conduct and
Speak Up processes, underpinning our ongoing work to ensure that
Vesuvius’ values, culture, strategy and business model are aligned
and that they position the Company for success.
UK Corporate Governance Code
The Company remains fully compliant with the current UK Corporate
Governance Code (the ‘Code’), being the version of the Code
applicable to these fi nancial statements. In April 2016, the FRC
published a revised version of the Code which included minor
changes following the implementation of the European Union’s Audit
Regulation and Directive. We have refl ected on these and I am pleased
to report that we are also compliant with these new requirements.
Board Composition, Evaluation and Training
Maintaining the correct balance of skills, knowledge and experience
on the Board, and on the Committees which support it, is crucial
to the Group’s success. The Board remains strong and effective and
your Directors draw on a diverse range of experience to enable
constructive debate in the boardroom. This is candid, informed and
inclusive, and presents appropriate support and constructive challenge
to management. In September, Nelda Connors stepped down from
her role as a Non-executive Director, due to the increasing demands
of her other responsibilities. A process is underway to identify a new
As part of its commitment to training and development, during the
year the Board visited the Company’s and a customer’s facilities in
Monterrey, Mexico. The Board also heard from external advisers
on legal, fi nancial and governance issues during the year. The Audit
Committee conducted two ‘deep dives’ led by management on cyber
risk and pension issues. The Board conducted a two-day strategy
meeting in June, which enabled the Non-executives to examine
and challenge executive management’s plans for future growth.
The Board also engaged directly with senior managers through
business presentations at Board meetings, informal discussions at
Board dinners and through individual Director visits to operations.
The Board will continue to operate an open-access policy to Vesuvius
staff members to promote transparency within the Group.
Looking Ahead
Your Board promotes a culture of openness, transparency and honest
debate, setting the tone for the wider businesses. Each Board member
fully contributes their expertise, knowledge and experience to Board
discussions, with the central objective of securing the continued
success of Vesuvius. As stewards of your Company, and with your
support, the Board looks forward to continuing to discharge its
duties on your behalf through 2017 and beyond.
Yours sincerely
John McDonough CBE Chairman
2 March 2017
In this section:
Also see:
Board effectiveness on p65
Risk on p19
Board accountability on p68
Principles on p52
Audit Committee report on p70
Nomination Committee report
on p77
Directors’ Remuneration Report
on p79
63
Governance Report
The Board of Vesuvius plc (the ‘Company’) is responsible for the
Group’s system of corporate governance and is committed to
maintaining high standards of governance and to developing them
to comply with best practice. This report describes the Company’s
corporate governance structure and explains how, during the year
ended 31 December 2016, Vesuvius applied the Main Principles of
the applicable September 2014 edition of the UK Corporate
Governance Code issued by the Financial Reporting Council (the
‘Code’). Where applicable, Vesuvius has also applied the revisions
introduced in the April 2016 version of the Code, which will apply
for Vesuvius plc’s fi nancial year ending 31 December 2017.
Throughout the year and up until the date of this report, Vesuvius
was in full compliance with the requirements of the Code.
A copy of the Code can be found on the FRC website at:
www.frc.org.uk/Our-Work/Publications/Corporate-Governance/
UK-Corporate-Governance-Code-2014.pdf
Roles and Responsibilities of the Board
Ultimate responsibility for the management of the Group rests
with the Board of Directors.
The Board focuses primarily upon strategic and policy issues and is
responsible for the Group’s long-term success. It sets the Group’s
strategy, oversees the allocation of resources and monitors the
performance of the Group. It is responsible for effective risk
assessment and management.
The Board
The Board has a formal schedule of matters reserved to it and
delegates certain matters to its Committees. It is anticipated that
the Board will convene on seven occasions during 2017, holding
ad hoc meetings to consider non-scheduled business if required.
The Chairman and Chief Executive
The division of responsibilities between the Chairman and the
Chief Executive is set out in writing and was reviewed during the
year as part of the Company’s annual corporate governance review.
No amendments were required. The interactions in the governance
process are shown in the schematic below.
Board Committees
The principal governance Committees of the Board are the Audit,
Remuneration and Nomination Committees. Each Committee
has written terms of reference, which were reviewed and updated,
where appropriate, during the year. These are available to view
on the Company’s website www.vesuvius.com.
For biographical details see Board of Directors on pages 22 and 23.
Board
Governance Committees
Administrative Committees
Audit Committee
To monitor the integrity of fi nancial
reporting and to assist the Board
in its review of the effectiveness of
the Group’s internal controls and risk
management systems
Chairman:
Douglas Hurt
Membership:
All independent
Non-executive Directors
In addition, the Board delegates certain responsibilities
on an ad hoc basis to a Finance Committee and Share
Scheme Committee, which operate in accordance with
the delegated authority agreed by the Board.
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Remuneration Committee
To determine the appropriate
remuneration packages for the
Group’s Chairman, Executive Directors
and Company Secretary, and to
recommend and monitor the level
and structure of remuneration for
other senior management
Nomination Committee
To advise the Board on appointments,
retirements and resignations from
the Board and its Committees and
to review succession planning and
talent development for the Board and
senior management.
Chairman:
Jane Hinkley
Membership:
All independent
Non-executive Directors
Finance Committee
To approve specifi c funding
and Treasury-related matters
in accordance with the Group’s
delegated authorities or as
delegated by the Board
Share Scheme Committee
To facilitate the administration of
the Company’s share schemes
Chairman:
John McDonough, Chairman
(except when considering his
own succession, in which case
the Committee is chaired by an
appropriate Non-executive Director)
Membership:
Chairman and any three
Non-executive Directors
Chairman:
John McDonough,
Chairman
Membership:
Chairman, Chief Executive,
Chief Financial Offi cer and Group
Head of Corporate Finance
Chairman:
Any Board member
Membership:
Any two Directors or
a Director and the
Company Secretary
Group Executive Committee
The Group also operates a Group Executive Committee (‘GEC’), which is convened and chaired by the Chief Executive and assists him in discharging his
responsibilities. The GEC comprises the Chief Executive, Chief Financial Offi cer, the four business unit Presidents, the President Vesuvius North Asia, the Vice
President Human Resources, the Chief Technology Offi cer, the President Operations and the General Counsel & Company Secretary. The GEC met fi ve times
during 2016 and is scheduled to meet six times during 2017. Its meetings are held at the London head offi ce and major operational sites.
64
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Annual Report and Accounts 2016
Governance Report
continued
Governance Structure
The Board
Responsible for Group strategy, risk management, succession
and policy issues. Sets the tone, values and culture for the
Group. Monitors the Group’s progress against the targets set
Chairman
Provides leadership and guidance for the
Board, promoting a high standard of corporate
governance. Sets the Board agenda and
manages meetings. Independent on
appointment, he is the link between the
Executive and Non-executive Directors
Chief Executive
Develops strategy for review and approval
of the Board. Directs, monitors and maintains
the operational performance of the Company.
Responsible for the application of Group policies,
implementation of Group strategy and the
resources for their delivery. Accountable to
the Board for Group performance
Senior Independent Director
Acts as a sounding board for the Chairman,
an alternative contact for shareholders and an
intermediary for other Non-executive Directors.
Leads the annual evaluation of the Chairman
and recruitment process for his/her replacement,
when required
Non-executive Directors
Exercise a strong, independent voice, challenging
and supporting Executive Directors. Scrutinise
performance against objectives and monitor
fi nancial reporting. Monitor and oversee risks
and controls, determine Executive Director
remuneration and manage Board succession
through their Committee responsibilities
Company Secretary
Advises the Chairman on governance, together
with updates on regulatory and compliance
matters. Supports the Board agenda with
clear information fl ow. Acts as a link between
the Board and its Committees and between
Non-executive Directors and senior management
Board and Committee Attendance
The attendance of Directors at the Board meetings and at meetings of the principal Committees of which they are members held during
2016 is shown in the table below. The maximum number of meetings in the period during which the individual was a Board or Committee
member is shown in brackets.
Chairman
John McDonough CBE
Executive Directors
François Wanecq
Guy Young
Non-executive Directors
Nelda Connors
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
8 (8)
8 (8)
8 (8)
6 (6)
7 (8)
8 (8)
7 (8)
8 (8)
–
–
3 (3)
5 (5)
5 (5)
5 (5)
–
–
2 (2)
4 (4)
4 (4)
4 (4)
4 (4)
–
–
2 (2)
4 (4)
4 (4)
4 (4)
4 (4)
Nelda Connors stepped down from the Board with effect from 30 September 2016. Christer Gardell and Jane Hinkley were unable to make
an additional Board meeting, scheduled at short notice, due to prior engagements.
To the extent that Directors are unable to attend scheduled meetings, or additional meetings called on short notice, they receive the papers
in advance and relay their comments to the Chairman for communication at the meeting. The Chairman follows up after the meeting in
relation to the decisions taken. In 2016, the Chairman sought Christer Gardell and Jane Hinkley’s views on the matters to be discussed at
the Board meeting they were due to miss, prior to the meeting, and provided feedback to them on the outcome of discussions.
65
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Board Eff ectiveness
Board Composition
The Board comprises seven Directors: the Non-executive Chairman,
John McDonough CBE; the Chief Executive, François Wanecq;
the Chief Financial Offi cer, Guy Young; and four Non-executive
Directors. Nelda Connors also served on the Board as a
Non-executive Director until her retirement from the Board on
30 September 2016. Douglas Hurt is the Senior Independent
Director. Henry Knowles is the Company Secretary.
The Board focuses on ensuring that both it, and its Committees,
have the appropriate range of diversity, skills, experience,
independence and knowledge of the Company to enable them
to discharge their duties and responsibilities effectively. The Board
continues to look at diversity in its broadest sense – refl ected in the
range of backgrounds and experience of our Board members who
are drawn from different nationalities and have managed a variety
of complex global businesses. We believe that it is important to get
the right balance of independence, skills and knowledge, both on
the Board and across our businesses.
The Board’s overall skills and experience, as well as Non-executive
Director independence, were reviewed during the year as part of
the annual corporate governance review. The Board’s composition
also formed part of the Board evaluation process. During the year,
the Board considered its diversity, size and composition to be
appropriate for the requirements of the business. Until Nelda
Connors’ resignation from the Board on 30 September 2016,
two of the eight Directors (25%) were women and four (50%)
were non-UK citizens. A fundamental part of the process of fi nding
Nelda’s replacement is to ensure that the balance of skills,
experience and diversity is maintained going forward.
Committee composition is set out in the relevant Committee reports.
No one, other than the Committee Chairman and members of
the Committees, is entitled to participate in meetings of the Audit,
Nomination and Remuneration Committees. However, as detailed in
the Committee reports, each of the Committees operates in an open
and consensual manner, and therefore, where the agenda permits,
other Directors and senior management attend by invitation.
The Board considers that, for the purposes of the UK Corporate
Governance Code, three Non-executive Directors (excluding the
Non-executive Chairman), namely Hock Goh, Jane Hinkley and
Douglas Hurt, are independent of management and free from
any business or other relationship which could affect the exercise of
their independent judgement. Christer Gardell is Managing Partner
of Cevian Capital which holds 21.11% of Vesuvius’ issued ordinary
share capital and is not considered to be independent. He brings
a wealth of commercial acumen to the Board. The Chairman
satisfi ed the independence criteria on his appointment to the Board.
Biographical details of the Directors are set out on pages 22 and 23.
Appointments to the Board
Recommendations for appointments to the Board are made by
the Nomination Committee. Further information is set out in the
Nomination Committee report on pages 77 and 78.
Time Commitment of the Chairman and the
Non-executive Directors
The Chairman and Non-executive Directors each have a letter
of appointment which sets out the terms and conditions of their
directorship. An indication of the anticipated time commitment
is provided in any recruitment role specifi cation, and each Non-
executive Director’s letter of appointment provides details of the
meetings that they are expected to attend, along with the need to
accommodate travelling time. Non-executive Directors are required
to set aside suffi cient time to prepare for meetings, and regularly
to refresh and update their skills and knowledge. All Non-executive
Directors have agreed to commit suffi cient time for the proper
performance of their responsibilities, acknowledging that this will
vary from year to year depending on the Group’s activities. The
Chairman in particular, dedicates a signifi cant amount of time to
Vesuvius in discharging his duties. The Board notes that the
Chairman holds Chairmanships other than Vesuvius, but that only
one of these is for a listed company. The other two Chairmanships
are for much smaller private companies where the time commitment
is limited.
All the Directors are expected to attend all scheduled Board and
Committee meetings and any additional meetings as required.
Each Director’s other signifi cant commitments are disclosed to
the Board during the process for their appointment and they are
required to notify the Board of any subsequent changes. The
Company has reviewed the availability of the Chairman and the
Non-executive Directors and considers that each of them is able
to, and in practice does, devote the necessary amount of time to
the Company’s business. The Board notes that Hock Goh holds a
number of other directorships, but that these other commitments
typically only require a total of 25 days’ work per year, with his
Chairmanship of MEC Resources Ltd only requiring preparation for
one meeting per year. In light of this the Board believes that Hock’s
additional commitments do not prevent him from properly fulfi lling
his duties as a Non-executive Director.
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Governance Report
continued
Information and Support
The Board ensures that it receives, in a timely manner, information
of an appropriate quality to enable it adequately to discharge its
responsibilities. Papers are provided to the Directors in advance of
the relevant Board or Committee meeting to enable them to make
further enquiries about any matters prior to the meeting should
they so wish. This also allows Directors who are unable to attend
to submit views in advance of the meeting.
In addition to the formal Board processes, the Chief Executive
provides written updates on important Company business issues
between meetings and the Board is provided with a monthly report
of key fi nancial and management information. Regular updates
on shareholder issues are provided to the Directors, who also receive
copies of analysts’ notes issued on the Company. For the distribution
of all information, Directors have access to a secure online portal,
which contains a reference section containing background
information on the Company.
All Directors have access to the advice and services of the
Company Secretary. There is also an agreed procedure in place
for Non-executive Directors, in the furtherance of their duties,
to take independent legal advice at the Company’s expense.
Induction and Training
A comprehensive induction programme is available to new Directors.
The core of the induction programme is designed in compliance
with the UK Corporate Governance Code, and is tailored to meet
the requirements of the individual appointee and the dynamics of
the Group.
The Chairman, through the Company Secretary, continues to ensure
that there is an ongoing process to review training and development
needs. Directors are provided with details of seminars and training
courses relevant to their role, and are encouraged and supported
by the Company in attending them. In 2016, regulatory updates
were provided as a standing item at each Board meeting in
a Secretary’s Report. External input on legal and regulatory
developments impacting the Board or the Company was also given
with specialist advisers invited to the Board and its Committees to
provide briefi ngs on overall market and economic developments
including Brexit, regulatory enforcement, data protection and
other general governance issues.
Governance in Action – Board Evaluation
1. Lintstock was retained to assist with the Board’s 2016 Board evaluation
process. Following its involvement in the 2015 review, the Board
considered that Lintstock was well placed to assist the Board on both
in-year performance and drawing consistent themes from year on
year performance.
2. Following the annual Board Strategy meeting in June, Lintstock circulated
a questionnaire to Board members inviting views on the Board’s
performance, focusing particularly on the conduct and content of its
strategy sessions, and its activities around succession planning.
3. Lintstock analysed the responses and presented a report to the Board.
The Board used the data collected and insights from Lintstock to formulate
action points on the Board’s approach to strategy and succession planning
for immediate implementation.
4. In October Lintstock issued further questionnaires to members of the
Board and the Company Secretary having consulted with the Chairman
and the Committee Chairmen on themes to explore. Questions covered
a wide range of measures, with particular emphasis on the Board’s
approach to risk management. Separate questionnaires addressed in
more detail the performance of each Committee, and the effectiveness
of the Chairman. Each Director also completed an individual performance
evaluation, covering their own contribution to the Board and their
personal development needs.
5. Lintstock produced a report on the Board and Committee evaluations
that was circulated to all Board and Committee members.
6. The output from individual Directors’ evaluations was used by the Chairman
as the basis for one-on-one discussions. These were conducted with
each Director in advance of the December Board meeting covering Board
performance and the development of objectives for 2017.
7. The Senior Independent Director met with the Non-executive Directors
to review the Chairman and then discussed the results of this review with
the Chairman.
8. Action points and objectives were generated by the Chairman from the
Board evaluation. These were reviewed at the December Board meeting,
together with a review of the status of the 2015 action points. The results
of this discussion were used to set the agenda for continuous Board
performance improvement and monitoring for 2017.
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Performance Evaluation
Appointment and Replacement of Directors
The Board carries out an evaluation of its performance and that of its
Committees every year. In 2016, this evaluation was again externally
facilitated by the corporate advisory fi rm, Lintstock. The Board
evaluation was undertaken in two stages, with the fi rst part taking
place after the Board strategy meeting in June and the second
part conducted after the October Board meeting. The focus of the
former was principally on strategy and succession, with the latter
covering Board oversight in general, risk management and internal
control, the prioritisation of strategic objectives and Board effi ciency.
This ‘in-year’ approach to the Board’s performance evaluation,
tackling different topics at different stages of the year, has assisted
the process of feedback and continuous improvement. As with
previous years, the October evaluation also covered the overall
performance of the Board’s Committees, individual reviews of
each Director and analysis of the performance of the Chairman.
The 2016 evaluation showed signifi cant progress on most items
from the 2015 review. However, in reviewing the 2015 action
points greater progress had been made in some areas than others.
The Board is considered to operate effectively with an appropriate
composition and a boardroom environment that continues to
encourage participation and candid discussion. Strategy in particular
continued to be robust, well elucidated and received appropriate
Board and management focus with the revised format for the Board
Strategy meeting considered to have been benefi cial. Amongst areas
for ongoing improvement, although noting improvements had been
made, it was felt that greater efforts to support development of staff
members below senior management level could be taken. It was
resolved that this would receive increased Board oversight going
forwards. It was noted that the identifi cation and management of
risks, including risk appetite had received additional attention from
the Board in 2016, following points raised by the 2015 evaluation.
The evaluation concluded that the Board continues to promote open
debate and is well supported in terms of information fl ow and that
the key objectives of strategy delivery and succession planning
continued to be well served by the Board.
The Board membership should not be fewer than fi ve nor more than
15, save that the Company may, by ordinary resolution, from time
to time vary this minimum and/or maximum number of Directors.
Directors may be appointed by ordinary resolution or by the Board.
A Director appointed by the Board must retire from offi ce at the
fi rst Annual General Meeting (‘AGM’) after his/her appointment.
A Director who retires in this way is then eligible for reappointment.
The Board may appoint one or more Directors to any executive
offi ce, on such terms and for such period as it thinks fi t and it can
also terminate or vary such an appointment at any time. The Articles
specify that at every AGM, any Director who has been appointed by
the Vesuvius Board since the last AGM and any Director who held
offi ce at the time of the two preceding AGMs and who did not retire
at either of them, shall retire from offi ce. However, in accordance
with the requirements of the Code, all the Directors will offer
themselves for re-election at this year’s AGM. The biographical
details of the Directors offering themselves for re-election, including
details of their other directorships and relevant skills and experience,
will be set out in the 2017 Notice of AGM. The biographical details
of the Directors are also set out on pages 22 and 23. The Board
believes that each of the current Directors is effective and
demonstrates commitment to his or her respective role. Accordingly,
the Board recommends that shareholders approve the resolutions to
be proposed at the 2017 AGM relating to the re-election of all the
Directors then standing.
Directors’ Confl icts of Interest
The Board has established a formal system to authorise situations
where a Director has an interest that confl icts, or may possibly
confl ict, with the interests of the Company (Situational Confl icts).
Directors declare Situational Confl icts so that they can be considered
for authorisation by the non-confl icted Directors. In considering
a Situational Confl ict these Directors act in the way they consider
would be most likely to promote the success of the Company,
and may impose limits or conditions when giving authorisation
or subsequently if they think this is appropriate. The Company
Secretary records the consideration of any confl ict and records
any authorisations granted. The Board believes that the system it
has in place for reporting Situational Confl icts continues to operate
effectively. No Situational Confl icts were brought to the Board for
authorisation during the year under review.
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Governance Report
continued
Board Accountability
Risk Management and Internal Control
material misstatement or loss. The Group’s system is designed to
provide the Directors with reasonable assurance that problems
are identifi ed on a timely basis and are dealt with appropriately.
The Board has overall responsibility for establishing and maintaining
a system of risk management and internal control, and for reviewing
its effectiveness. This system is designed to manage, rather than
eliminate, the risks facing the Group and safeguard its assets. No
system of internal control can provide absolute assurance against
The Audit Committee assists the Board in reviewing the effectiveness
of the Group’s system of internal control, including fi nancial,
operational and compliance controls, and risk management systems.
The key features of the Group’s system of internal control are set
out in the table below.
Risk Management and Internal Control – Key Features
Strategy and
fi nancial reporting
> Comprehensive strategic planning and forecasting process
> Annual budget approved by the Board
> Monthly operating fi nancial information reported against budget
> Key trends and variances analysed and action taken as appropriate
Vesuvius GAAP
> Accounting policies and procedures formulated and disseminated to all Group operations
> Covers the application of accounting standards, the maintenance of accounting records and key fi nancial control procedures
Operational controls
> Operating companies and corporate offi ces maintain internal controls and procedures appropriate to their structure
and business environment
> Compliance with Group policies on items such as authorisation of capital expenditure, treasury transactions,
the management of intellectual property and regulatory issues
> Use of common accounting policies and procedures and fi nancial reporting software used in fi nancial reporting
and consolidation
> Signifi cant fi nancing and investment decisions reserved to the Board
> Monitoring of policy and control mechanisms for managing treasury risk by the Board
Risk assessment
and management
> Continuous process for identifying, evaluating and managing any signifi cant risks
> Risk management process designed to identify the key risks facing each business
> Reports made to the Board on how those risks are managed
> Each major Group business unit produces a risk map to identify key risks, assess the likelihood of risks occurring,
their impact and mitigating actions
> Top-down risk identifi cation undertaken at Group Executive Committee and Board meetings
> Board review of insurance and other measures used in managing risks across the Group
> The Board is notifi ed of major issues and makes an annual assessment of how risks have changed
> Ongoing assurance processes by the legal function and internal audit
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Reviewing the eff ectiveness of Risk Management
and Internal Control
The internal control system covers the Group as a whole, and is
monitored and supported by the Group’s Internal Audit function,
which conducts reviews of Vesuvius’ businesses and reports
objectively both on the adequacy and effectiveness of the system
of internal control and on those businesses’ compliance with Group
policies and procedures. The Audit Committee receives reports from
the Group Head of Internal Audit and reports to the Board on the
results of its review.
As part of the Board’s process for reviewing the effectiveness of
the system of internal control, it delegates certain matters to the
Audit Committee.
Following the Audit Committee’s review of internal fi nancial controls
and of the processes covering other controls, the Board annually
evaluates the results of the internal control and risk management
procedures conducted by senior management. This includes
a self-certifi cation exercise by which senior fi nancial, operational
and functional management throughout the Group certify
the compliance throughout the year of the areas under their
responsibility with the Group’s policies and procedures. Since
the date of this review, there have been no signifi cant changes
in internal controls or other matters identifi ed which could
signifi cantly affect them.
In accordance with the provisions of the Code, the Directors confi rm
that they have carried out a robust assessment of the principal risks
facing the Company, including those that threaten its business
model, future performance, solvency or liquidity. They have also
reviewed the effectiveness of the Group’s system of internal control
and confi rm that the necessary actions have been taken to remedy
any control weaknesses identifi ed during the year.
The Group’s principal risks and how they are being managed
or mitigated are detailed on pages 20 and 21, and the Viability
Statement which considers the Group’s future prospects is detailed
on pages 19 and 20. Risk management and internal control is
discussed in greater detail in the Audit Committee report on pages
73 to 74.
The Audit Committee
The members of the Audit Committee are set out on page 70.
The Audit Committee report which describes the Audit Committee’s
work in discharging its responsibilities, is set out on pages 70 to 76.
Executive Compensation and Risk
All of the independent Non-executive Directors serve on both the
Audit and Remuneration Committees. They therefore bring their
experience and knowledge of the activities of each Committee to
bear when considering critical areas of judgement. This means that,
for example, the Directors are in a position to consider carefully the
impact of incentive arrangements on the Group’s risk profi le and
to ensure the Group’s Remuneration Policy and programme are
structured to align with the long-term objectives and risk appetite
of the Company.
Share Capital and Voting
Disclosure of the information regarding share capital, the
authorisation received by Directors at the AGM regarding the issue
of shares and the authority to purchase own shares, is contained on
page 100 within the Directors’ Report. There are no restrictions on
voting contained in the Company’s Articles of Association. Further
details are set out in the Directors’ Report on page 101.
Relations with Shareholders
The Board is committed to communicating with shareholders
and stakeholders in a clear and open manner, and seeks to
ensure effective engagement through the Company’s regular
communications, the AGM and other investor relations activities.
The Company undertakes an ongoing programme of meetings
with investors, which is managed by the Chief Executive and Chief
Financial Offi cer. The majority of meetings with investors are led
by them. In advance of the 2016 AGM, we wrote to our largest
shareholders inviting discussion on any questions they might like
to raise, making the Chairmen of the Board, the Audit Committee
and the Remuneration Committee available to meet shareholders
should they so wish. The Chairman, Senior Independent Director
and Committee Chairmen also remain open for discussion with
shareholders throughout the year on matters under their areas of
responsibility, either through contacting the Company Secretary or
directly at the AGM.
The Company reports its fi nancial results to shareholders twice
a year, with the publication of its annual and half-year fi nancial
reports. In addition, in order to maintain transparency in
performance, it also issued two scheduled trading updates during
2016. One was published immediately prior to the 2016 AGM
on 12 May 2016, and the second was published on 27 October
2016. In conjunction with these announcements, presentations
or teleconference calls were held with institutional investors
and analysts.
All Directors are expected to attend the Company’s AGM,
providing shareholders with the opportunity to question them
about issues relating to the Group, either during the meeting or
informally afterwards.
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Audit Committee
Committee Members
Douglas Hurt (Committee Chairman)
Hock Goh
Jane Hinkley
Nelda Connors (resigned 30 September 2016)
The Audit Committee
The Audit Committee (the ‘Committee’) comprises all the
independent Non-executive Directors of the Company, who
bring a wide range of fi nancial and commercial expertise to the
Committee’s decision-making and evaluation processes. Douglas
Hurt is the Senior Independent Director and Chairman of the Audit
Committee, having been appointed to these roles following the
2015 AGM. He was the Finance Director of IMI plc for nine years
prior to that and has worked in various fi nancial roles throughout
his career. Douglas is also Chairman of the Audit Committee of
Tate & Lyle plc, and a Chartered Accountant. This background
provides him with the ‘recent and relevant fi nancial experience’
required under both the 2014 and 2016 versions of the Code.
The Company Secretary is Secretary to the Committee.
The April 2016 version of the Code introduces an additional
requirement for the Audit Committee as a whole to have
competence relevant to the sector in which the company operates.
Vesuvius’ Non-executive Directors have signifi cant breadth of
experience and depth of knowledge on matters related to Vesuvius’
operations, both from their previous roles and their induction and
other activities since joining the Board of Vesuvius. The Directors’
biographies on pages 22 and 23 outline a range of multi-national
business-to-business experience and expertise in fi elds including
engineering, manufacturing, services and logistics as well as fi nancial
and commercial acumen. The Board therefore considers that the
Audit Committee as a whole has competence relevant to Vesuvius’
business sector.
Meetings
The Committee met fi ve times during 2016. The Committee has
also met twice since the end of the fi nancial year and prior to
the signing of this Annual Report. The Board Chairman, the
non-independent Non-executive Director, the Chief Executive,
the Chief Financial Offi cer, the Group Financial Controller, the
Head of Internal Audit and the external auditor were all invited
to each meeting. Other management staff were also invited to
attend as appropriate. During the year, the Committee also met
privately with KPMG and the Head of Internal Audit, without any
executives present. Following the announcement in July of the
selection of PricewaterhouseCoopers LLP (‘PwC’) to succeed KPMG
as the Group’s auditor for the year ending 31 December 2017,
PwC has also been in attendance at the meetings.
Audit Committee meetings are conducted to promote an
open debate, to challenge constructively signifi cant accounting
judgements, to provide guidance and oversight to management
to ensure the business maintains an appropriately robust control
environment and to provide informed advice to the Board on
fi nancial matters. The Chairman of the Audit Committee encourages
open dialogue between the external auditors, the management
team and the Head of Internal Audit between Audit Committee
meetings to ensure that emerging issues are addressed in a
timely manner.
During the year, the Committee members also participated outside
formal meetings in the tender process for a new statutory auditor.
In addition, as is the Audit Committee’s established practice, the
Committee members met and discussed business and control
matters with senior management during site visits, informal
meetings and Board presentations.
The outcomes of Audit Committee meetings were reported to
the Board and all members of the Board received the agenda,
papers and minutes of the Committee.
Role and Responsibilities
The main role and responsibilities of the Committee continue
to be to:
> Monitor the integrity of the fi nancial statements of the Company
and the Group, and any formal announcements relating to the
Group’s fi nancial performance
> Review the Group’s internal fi nancial controls and review
the Group’s internal control and risk management systems
> Establish and review procedures for detecting fraud, systems
and controls for the prevention of bribery and oversee the
Company’s arrangements for employees to raise concerns about
possible wrongdoing in fi nancial reporting or other matters
> Monitor and review the effectiveness of the Company’s
Internal Audit function
> Make recommendations to the Board on the appointment,
reappointment and removal of the external auditor and to
approve the remuneration and terms of engagement of the
external auditor
> Monitor and review the external auditor’s independence,
objectivity and effectiveness, taking into consideration relevant
UK professional and regulatory requirements.
The Committee operates under formal terms of reference approved
by the Board, which were revised during the year. The updated Audit
Committee terms of reference, refl ect the changes introduced by the
April 2016 revisions to the Code, and take into account the Guidance
on Audit Committees and Revised Ethical Standard 2016 published
by the Financial Reporting Council (‘FRC’).
The Audit Committee’s terms of reference are available in the
Investors/Corporate Governance section of the Company’s website,
www.vesuvius.com. Within these Terms, the Committee and its
individual members are empowered to obtain outside legal or
other independent professional advice at the cost of the Company.
These powers were not utilised during the year. The Committee
may also secure the attendance at its meetings of any employee or
other parties with relevant experience and expertise should it be
considered necessary.
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Activities in 2016
Financial Reporting
The Committee’s agenda covered the usual standing items – the
review of fi nancial results, the effectiveness of the Group’s internal
fi nancial controls, and the review of the internal control and risk
management systems – as well as non-standard items, such as
the tender for the 2017 external audit and targeted ‘deep dive’
topics. The Committee considered the impact assessment of IFRS
15 Revenue from Contracts with Customers – and reviewed the
implementation plan for this in the 2018 fi nancial year. As the Group
responded to the changes in the short to medium-term outlook
for the business, the Audit Committee continued to devote time to
ensure that initiatives to mitigate potential risks and fi nancial
exposure remained robust and appropriate. The Committee
challenged the adequacy of inventory and receivables provisions, the
assumed growth rates and discount rates used for asset impairment
assessments, as well as the accounting for and presentation of the
Group-wide restructuring programme undertaken in response to
the challenging conditions within our end-markets.
The Committee considered the Company’s going concern statement
and challenged the nature, quantum and combination of the unlikely
but signifi cant risks to the business model, future performance,
solvency and liquidity of the Group that were modelled as part of
the scenarios and stress testing undertaken to support the Viability
Statement made by the Company in the 2015 Accounts. The 2016
Viability Statement, which was also critically reviewed, is contained
within the Strategic Report and can be found on pages 19 and 20.
The Committee monitored the resourcing and delivery of the
2016 Internal Audit plan and approved the 2017 Internal Audit plan.
The Committee monitored both the responses from, and follow
up by management to, Internal Audit recommendations arising
during the year and, where necessary, the Committee tasked
management to verify their successful closure within defi ned
timescales. The Committee also examined specifi c audit issues
through ‘deep dive’ internal reviews, which included reviews of
tax matters, cyber security, foreign exchange management and
the Group’s defi ned benefi t pension arrangements.
The Committee devoted a signifi cant amount of time, both in
and outside formal Audit Committee meetings, to its oversight
of the tender process to appoint a new statutory auditor for the
fi nancial year ending 31 December 2017. The tender culminated in
the appointment of PricewaterhouseCoopers LLP as external auditor
and the appointment of Mazars LLP to audit the non-material
entities within the Group.
The Committee members believe that they received suffi cient,
relevant and reliable information throughout the year from
management and the external auditor to enable the Committee
to fully discharge its responsibilities.
The work of the Audit Committee is further elaborated in the
paragraphs below.
The Committee fulfi lled its primary responsibility to review the
integrity of the 2016 half-year and 2016 annual fi nancial statements
and recommended their approval to the Board. The Committee
also reviewed the two trading updates released during the year.
In forming its views, the Committee assessed:
> The quality, acceptability and consistency of the accounting
policies and practices
> The clarity and consistency of the disclosures, including
compliance with relevant fi nancial reporting standards and
other reporting requirements
> Signifi cant issues where management judgements and/or
estimates have been made that are material to the reporting
or where discussions have taken place with the external auditor
in arriving at the judgement or estimate
> In relation to the overall Annual Report, whether the Annual
Report and Accounts taken as a whole is fair, balanced and
understandable, taking into consideration all the information
available to the Committee
> The application of the FRC’s guidance on clear and
concise reporting
The Committee actively deliberated and challenged reports from
the Chief Financial Offi cer and Group Financial Controller. These
were well prepared and, for areas of judgement and/or estimation,
set out the rationale for the accounting treatment and disclosures,
the pertinent assumptions and the sensitivities of the estimates to
changes in the assumptions. KPMG also delivered memoranda for
the half-year and year-end, stating their views on the treatment
of these signifi cant issues. KPMG provided a summary for each
issue, including its assessment of the prudence of management’s
judgements or estimates. The Committee considered the overall
degree of prudence applied this year, compared this with the
prior year and concluded that the level of overall prudence
remained unchanged.
To facilitate the Audit Committee’s oversight of the fi nalisation of the
fi nancial statements, an extra Committee meeting was scheduled in
February 2016 for the Committee to review early drafts of the 2015
Annual Report and Accounts, and provide constructive challenge,
advice and guidance where necessary. This process has been
formalised as part of the ongoing Audit Committee agenda and
a similar meeting was held in 2017.
Signifi cant Issues and Material Judgements
Exceptional Restructuring Charges
The Group restructuring programme continued in 2016 in response
to the structural changes in the end-markets that we serve. The
Committee has critically reviewed the treatment of the restructuring
costs disclosed as separately reported items in 2016 and concluded
that these have been treated consistently with the accounting policy.
This ensures that only restructuring charges that are exceptional are
reported separately, which enables the reader more clearly to
understand the underlying results of the Group. The Committee’s
expectation is that the current exceptional restructuring programme
will be completed in 2017.
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Audit Committee
continued
Working capital provisions
Given the very diffi cult trading environment that certain of the
Group’s customers faced in 2016, the Committee challenged the
adequacy of provisions held against both receivables and inventories
(Notes 18 and 19) and after reviewing the ageing analyses,
concluded that the provisions were appropriate.
The Committee challenged the assumptions used to arrive at the
£41.9m provided for income tax payable which includes £31.5m
for uncertain tax provisions as set out in Note 10. After discussions
with internal tax experts and considering the results of recent tax
audits and the views of the external auditors, the Committee
concurred with management’s judgement.
Provisions
The Committee has been made aware of a number of potential
exposures and claims arising from ongoing litigation, product quality
issues, employee disputes, restructuring, environmental matters,
onerous leases, indirect tax disputes and indemnities or warranties
outstanding for disposed businesses. Due to the long gestation
period before settlement can be reached, provisioning for these
items requires careful judgement in order to establish a reasonable
estimate of future liabilities. The Committee also assessed the
strength of any insurance coverage for certain of these liabilities
and challenged the accounting treatment for any amounts deemed
to be recoverable from insurers. After due consideration and
challenge, with expert advice sought in certain areas, the Committee
is satisfi ed that there are appropriate levels of provisions set aside to
settle third-party claims and disputes (Note 32) and that adequate
disclosure has been made under International Accounting Standards
(IAS) 1 (paragraph 129) in respect of estimation uncertainties that
might impact the accounts in the following fi nancial year. Where
the outcome of an existing issue is uncertain, or where no reliable
estimate of the potential liability can be made, no provision has been
made and appropriate disclosure is included under contingent
liabilities (Note 34).
Impairment of intangible assets
The year-end carrying value of goodwill of £662.2m was tested
against the current and planned performance of the Steel and
Foundry cash-generating units (CGUs). The Committee challenged
both the determination of the relevant CGUs, the planned and
terminal growth assumptions as well as the discount rates used in
the assessments and the relevant sensitivities that were evaluated.
The detailed assumptions, provided in Note 17, refl ect both a
reduction in global risk-free rates and the impact of the increasing
contribution from the Group’s operations in emerging markets.
The Committee considered the Board-approved medium-term
business plans, the range of industry longer-term projections and
expert views on discount rates and, given that the models indicated
that there remains signifi cant headroom between the value in use
and the carrying value, the Committee concurred that no goodwill
impairment charges were required.
Income tax
Income tax remains a complex area where signifi cant judgements
are required to estimate both uncertain tax liabilities and the value
of deferred tax assets.
At the end of 2015, the Group recognised a US deferred tax asset
of £57.1m. The Group has signifi cant additional tax losses and other
temporary differences in the US and elsewhere which have not
been recognised, which are kept under review. The recognition of
deferred tax assets for tax losses and other temporary differences
is a highly technical area and the Committee has drawn on internal
experts to understand the treatment. The future prospects for US
profi tability were carefully modelled by management and challenged
by the Committee. Whilst recognising that diffi cult trading
conditions look set to continue, the Committee concurred with
management that the US forecast profi ts are considered suffi cient to
sustain a deferred tax asset in the US at the end of 2016 of £65.9m.
Pensions
Pension accounting is a complex area. The appropriateness of
assumptions used (described in Note 28) were questioned by
the Committee, as small changes in the assumptions could have
material effects and bond yields in particular have been volatile.
The assumptions made by management for each of the major
schemes were compared by KPMG with other similar schemes.
The Committee agreed the reasonableness of the assumptions.
It was noted that a number of actions took place during 2016 as part
of the de-risking strategies in place for the defi ned benefi t pension
funds and that these actions gave rise to pension fund settlements
and curtailments that had an income statement impact. As a result
of their materiality, the Committee concurred with management
that these be reported separately.
In summary, the Committee resolved that judgements and estimates
made on each of the signifi cant issues the Committee considered
were appropriate and acceptable.
Fair, Balanced and Understandable Reporting
The Committee considered all the information available to it in
reviewing the overall content of the Annual Report and Accounts
and the process by which it was compiled and reviewed, to enable
it to provide advice to the Board that the Annual Report is fair,
balanced and understandable. In doing so, the Committee ensured
that time was again dedicated to the drafting process so that internal
linkages were identifi ed and consistency was tested. Drafts of the
Annual Report and Accounts were also reviewed by a senior
executive not directly involved in the year-end process who reported
to the Committee on his impressions of clarity, comprehensiveness,
balance and disclosure in the document. On completion of the
process, the Committee was satisfi ed that it could recommend to
the Board that the Annual Report and Accounts is fair, balanced
and understandable.
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Internal Controls
Internal Audit
The Committee considered the process by which management
evaluates internal controls across the Group. The Head of Internal
Audit provided the Committee with a summary overview of the
assurance provided by internal controls and the testing of these
controls. KPMG also reviewed controls in the businesses within
the scope of its audit, which review indicated a positive control
environment, showing a further improvement on the prior year.
The Group’s Internal Audit function operates on a global basis
through professionally qualifi ed and experienced individual members
located around the world. They report to the Head of Internal Audit,
based in London, who in turn reports directly to the Chairman of
the Audit Committee. During 2016, the skill set of the Internal Audit
team was further strengthened by the recruitment of an auditor
with specialist IT knowledge.
The Group is made up of several large operating units, but also
many small units in geographically diverse locations. Consequently,
segregation of duties, overlapping access controls on systems and
remote management oversight can give rise to control vulnerabilities
and fraud opportunities. The Group has not adopted a common ERP
system as a Group-wide standard. Over time, management intends
to move to more sharing of services, enabled by process and systems
standardisation between businesses. This is likely to improve the
overall internal controls in the smaller operating units.
In 2016 the Group undertook a number of compliance projects
which included an analysis of the Group’s use of third-party
representatives and intermediaries, with an initial focus on
perceived higher risk jurisdictions. The Committee continued with
its assessment of the Group’s potential exposure to bribery and
corruption risks, conducting face-to-face visits to operations and
reviewing fi nancial records with the assistance of external advisers.
The output of this and previous risk assessments will continue to be
used to keep current the Group’s policies and procedures for the
management of anti-bribery and corruption risk, and forms part of
the Group’s ongoing assessment of compliance risks.
The Committee also continued to monitor and oversee the
procedures for the receipt and treatment of allegations of improper
behaviour and complaints by employees. The Group’s Speak Up
policy was relaunched in 2016, reinforcing the worldwide availability
of an independent and confi dential reporting service where
employees may register their concerns about potentially irregular
or unethical practices they experience in the workplace. Each year
the senior fi nancial, operational and functional management of the
businesses self-certify compliance with Group policies and
procedures for the areas of the business under their responsibility,
which provides another safeguard. In 2016, the process of self-
certifi cation was further refi ned to include confi rmation of the
existence of adequate internal control systems throughout the
year and the Committee reviews any exceptions noted in this
bottom-up exercise.
After considering these various inputs, the Committee was able
to provide assurance to the Board on the effectiveness of internal
fi nancial control within the Group, and on the adequacy of the
Group’s broader internal control systems.
The Committee received, considered and approved the 2016 Internal
Audit plan which was constructed using a risk-based approach to
cover the Group’s control environment. The plan was based on the
premise that all operating units are internally audited at least once
in every three-year period, whilst maintaining a focus on smaller
operating units. A third of operating units are now subject to internal
audit twice in every three-year period, and Internal Audit annually
audits each of the large operating entities located in Germany, the
US, China, Mexico and Brazil. During the year the Committee also
considered and approved changes to the Internal Audit plan as
required. The internal audit coverage is greater than in previous years
and audits are carried out with more in-depth analysis across legal
entities and operating units. In addition, in 2016 many project-based
reviews were undertaken.
In 2016, a total of 61 audit assignments, including seven unplanned
audits, were undertaken by Internal Audit, covering 89% of the
Group’s revenue and 80% of the Group’s profi t before tax. The
Committee received a ‘dashboard’ from the Head of Internal Audit
at each of its meetings, detailing progress against the agreed plan
and identifying key trends and fi ndings from internal audit reports,
along with progress on the resolution of actions agreed. Common
themes emerging from internal audit reports were discussed and
these discussions have informed the compilation of the 2017 Internal
Audit plan. In 2016 the full audit plan was completed, with PwC
and Grant Thornton retained as external outsourced auditors to
supplement the Internal Audit team. The outsourcing process
provides valuable learning opportunities and we expect to continue
to use outsourcing in specialist areas or geographies in the future.
Where control issues or other problems are fl agged by the fi eldwork,
they are recorded in a live web-based database into which
management and operational entities are required to report progress
against audit exceptions. In this way, Internal Audit can monitor
the progress and adequacy of the remediation steps taken.
Consequently, the Committee can be assured that appropriate
and timely actions were taken by the responsible management.
The Audit Committee also involved senior management as necessary
to provide an update against high-priority actions and Internal Audit
provided follow-up reviews as required to ensure there was clarity
on the responsibility for delivery of solutions to the audit fi ndings.
In situations where audit fi ndings required longer-term solutions,
the Committee oversaw the process for ensuring that interim
measures were established to mitigate risks while permanent
solutions are pursued.
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Annual Report and Accounts 2016
Audit Committee
continued
During the year, the Committee arranged for a questionnaire-based
assessment of the effectiveness of the internal audit function.
The review, which canvassed the views of Non-executive Directors,
the external auditor, senior management and members of the
Internal Audit team, confi rmed that the Internal Audit function
had a good understanding of the business and operated within
the correct scope. The review identifi ed the opportunity for some
improvements in reporting and in interaction with management on
audit fi ndings, as well as a more regular dialogue with the external
auditor on the Group control and risk management framework.
Overall internal audit was considered to have a strong reputation
within the Group which is being further enhanced by its ongoing
development programme.
Risk Management
As highlighted in the reviews of strategy and principal risks in the
Strategic Report, risk management is inherent in management’s
thinking and is embedded in the business planning processes of
the Group. The Board is responsible for identifying and monitoring
the principal risks facing the business and with the Group Executive
Committee ensures implementation of appropriate mitigating
actions. The Audit Committee has continued its monitoring role.
This framework for identifying and dealing with the principal risks
is consistent with the Code.
Governance in Action – Deep Dive into Cyber Risk
1. As part of its ongoing monitoring of risk, the Audit Committee
commissioned a review of peer company risks, and identifi ed cyber risk as
a topic for a ‘deep dive’ into the potential cyber threats posed to the Group.
2. Vesuvius’ Chief Information Offi cer sponsored a review of the Group’s
cyber risks and presented his fi ndings to the Committee, using the 2016
Government Cyber Health Check as the launching point from which to
undertake this review.
3. Areas of risk sensitivity were identifi ed. These were discussed in conjunction
with the detailed steps taken to mitigate such risks and maintain a robust
security environment. Specifi c hardware and software risks were noted,
as well as an assessment made of the steps taken by the Group to limit
third-party access to proprietary systems.
4. The Committee used the deep dive to assess the wider risks associated with
cyber crime, such as deception and extortion through social engineering
and the threats of ransomware. The Committee also considered the
Company’s existing internal education programmes to counter such threats.
5. The Chief Information Offi cer presented initiatives for further development
and the Committee commended these to management.
6. An internal multi-disciplinary Committee has been constituted to advance
the further assessment and management of cyber risk to ensure that this
remains on the agenda of management and the Board.
As part of its review of the Group’s principal risks and uncertainties,
the Committee supported the Board in a coordinated, clean-sheet
approach to the review of risks in 2016. Alongside the usual
bottom-up risk mapping of the risk registers constructed and
reviewed in each major business, the Head of Internal Audit
coordinated the collation of the key operational risks identifi ed by
all members of the Committee and the Board, a process which was
also undertaken by the Group Executive Committee. The input of
Directors added individual views of top-down strategic risks into
the process, drawing on the broader economic, environmental and
organisational issues facing the Group. In monitoring the overall
process, Committee members also fully participated in the Board
review of risks and mitigating actions. The Committee determined
that this approach once again enhanced the Group’s process for
identifying principal risks and uncertainties, which is set out on pages
20 and 21, and that this was robust and appropriate.
External Audit
The Committee and the Board are committed to maintaining the
high quality of the external audit process. A questionnaire-based
approach was used to assess the effectiveness of the 2015 external
audit process. It also considered the quality of issues and challenges
raised by KPMG to the Committee and to management across the
Group, and the responsiveness of management to these challenges
in generating fi nancial reporting that is of the high standard
expected by our shareholders. The improvement opportunities
that were identifi ed included more effective communication in
certain overseas territories and an effi ciency gain from the audit
of an overseas shared service unit. These initiatives were actioned
for the 2016 audit and a review of the effectiveness of the 2016
external audit was undertaken and concluded that the audit process
was effective. The Committee also considered the Financial
Reporting Council’s Audit Quality Inspection of KPMG published
in May 2016 and discussed their fi ndings with KPMG.
Within the external audit process, communications between the
Committee and KPMG were extensive. KPMG provided updates
to the Committee at the half-year and running up to the year-end,
including regular commentaries on signifi cant issues and their
assessment of prudence in the judgements and estimates made
by management. In February 2017 the Audit Committee also held a
preliminary meeting on year-end issues in advance of the fi nalisation
of the fi nancial statements in early March. Private sessions were held
with KPMG without management being present, covering reporting
and control issues in the context of the resourcing of the Group
Finance team. The Chairman of the Audit Committee met on a
number of occasions with KPMG to monitor the progress of the
audit and discuss questions as they arose. The strength of the
fi nance teams across the Group was also considered. In these
sessions KPMG confi rmed that its work had not been constrained
in any way and that it was able to exercise appropriate professional
scepticism and challenge throughout the audit process.
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The independent auditor’s report provided by KPMG on pages
106 to 108 includes KPMG’s assessment of the risks of material
misstatement in the accounts. These risk areas are discussed in the
signifi cant issues and material judgements comments above. The
report also summarises the scope, coverage and materiality levels
applied by KPMG in its audit. As part of the audit planning process
and based on a detailed risk assessment, the Committee agreed a
materiality fi gure of £4.0m for Group fi nancial reporting purposes
which is lower than last year (£4.6m) and, in line with similar groups,
is set at about 4% of profi t before tax, £102.7m (after adjusting for
restructuring costs and gains on employee benefi t plans).
Importantly, much lower levels of materiality are used in the audit
fi eldwork on the individual businesses across the Group and these
lower fi gures drive the scope and depth of audit work. Small
operations were subject to statutory audit as required under local
regulations, and, subject to risk assessment, were also reviewed by
Internal Audit. Any misstatements at or above £0.2m were reported
to the Committee.
There were no signifi cant changes this year to the coverage of
the audit which stood at 69% of the Group’s revenue, 78%
of profi ts and losses that made up profi t before tax and 82%
of assets. This coverage was considered to be suffi cient by the
Committee. The audit coverage is refl ective of the long tail of smaller
businesses within the Group that individually are not ‘material’ to
the Group result.
The KPMG audit fee was constructed bottom-up on a local currency
basis and was assessed in light of the audit work required by the
agreed materiality level and scope. The Audit Committee approved
a fee of £2.0m, which is the same as 2015.
External Auditor Independence
The safeguards to protect the independence and objectivity of the
auditor that continued during the year include:
> Regular confi rmation that the external auditor is independent
of the Company in its own professional judgement
> Evaluating all the relationships between the external auditor and
the Group, including those relating to the provision of non-audit
services to determine whether these impair, or appear to impair,
the auditor’s independence
> The external auditor is prohibited from performing services
where it:
– May be required to audit its own work
– Would participate in activities that would normally
be undertaken by management
– Is remunerated through a ‘success fee’ structure
– Acts in an advocacy role for the Group
Vesuvius operates a policy for the approval of non-audit services.
This policy details the pre-approval process for, and monitoring of,
approved non-audit services provided by the external auditor. It also
details the list of services which the external auditor is specifi cally
excluded from providing. In keeping with ensuring the independence
of the external auditor, the policy also addresses the employment of
former members of the external audit team, imposing strict controls.
Under the policy in force for the 2016 fi nancial year (see details of
the update conducted below), an annual budget for non-audit
services where management proposed to engage the external
auditor was presented for approval by the Committee as part of
the overall budgeting process. Where a specifi c non-audit fee was
likely to be in excess of £50,000, it had to be pre-approved by the
Committee and, where appropriate, services were tendered
competitively prior to the awarding of work. In practice, the Group
did not seek to engage KPMG for non-audit services unless there
were compelling advantages to doing so.
The EU framework for a more restrictive regime for non-audit
services came into force in June 2016. The restrictions broadly
prohibit external auditors’ involvement in tax services, any services
that involve playing a part in management decision making,
preparing accounting records, designing or implementing internal
control/risk management services or fi nancial systems, certain HR
services and other legal, investment and share-dealing services.
There are also rolling three-year caps of 70% on the fees that each
auditing entity and auditing network can receive for all non-audit
services relative to the audit fee. In line with these changes, Vesuvius
revised its non-audit services policy during 2016, which was
approved at the Audit Committee meeting held in December 2016.
This new policy states that Group companies are not permitted to
use the external auditor for any “prohibited non-audit services”
as specifi ed by the UK Financial Reporting Council’s Revised Ethical
Standard 2016, unless subject to a permitted derogation. In addition,
all audit related and permissible non-audit services proposed to be
carried out for any Group Company worldwide by the external
auditor must be pre-approved by the Chief Financial Offi cer, who
thereafter will refer matters to be further approved by the Chairman
of the Audit Committee or the full Audit Committee before an
engagement is agreed. Any assignment proposed to be carried out
by the external auditor must also have cleared the external auditor’s
own internal pre-approval process to confi rm the fi rm’s ethical
ability to do the work. The revised non-audit services policy applies
from 1 January 2017 to the audit of the fi nancial year ending
31 December 2017, and for fi nancial years thereafter. The policy is
available on the ‘Investors/Corporate Governance’ section of the
Company’s website, www.vesuvius.com.
During 2016, the fees for non-audit services amounted to £0.1m,
similar to last year. The fees comprised assurance services related
to the review of the Company’s half-year fi nancial statements and
limited taxation advice, as detailed in Note 6 on page 120, for which
it was concluded that KPMG was best placed to support the Group.
In light of the external audit tender, the Committee also monitored
fees paid to other large accounting fi rms as part of the non-audit
services fees review so as to determine where there might be any
current or future confl icts of interest. In this context PwC withdrew
from its role as outsourced internal audit support and from certain
tax-related work.
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Annual Report and Accounts 2016
Audit Committee
continued
Appointment of New External Auditor
In accordance with the confi rmation given in last year’s Annual
Report and Accounts, the Audit Committee oversaw a tender
process during 2016 to appoint a new statutory auditor for the
fi nancial year ending 31 December 2017.
A Selection Committee comprising members of the Audit
Committee and fi nance management, was appointed to conduct
the tender process, further details of which can be found in the
Governance in Action box below.
Governance in Action – External Auditor Tender Process
1. In response to changes in legislation, and having considered the length
of tenure of the incumbent auditor, the Board had advised shareholders
of its intention to undertake an audit tender in the 2015 Annual Report
and Accounts. The Audit Committee subsequently recommended to the
Board the rotation of the external audit fi rm for the fi nancial year ending
31 December 2017.
2. In conjunction with management, the Audit Committee agreed a suitable
audit tender process. This process commenced with a detailed examination
of the criteria upon which potential audit fi rms would be selected. These
criteria included reputation, quality, independence, probity, global reach,
capability to serve the needs of the business and cost effectiveness. It was
agreed that consideration would also be given to adopting a bifurcated
approach to the audit, whereby separate audit fi rms would be engaged to
audit different parts of the business. It was thought that this could deliver
advantages in respect of leverage of specialist knowledge
and cost effectiveness.
3. A Selection Committee, comprising members of the Audit Committee
and selected senior management, was nominated to oversee the process.
4. The Selection Committee reviewed a detailed Request For Proposal,
and approved its issuance to potential bidders. It also approved the
contents of a data room aimed to provide an overview of the Company’s
fi nancial affairs to interested parties. Both ‘Big 4’ and other accounting
fi rms were asked to participate in the tender.
5. By the end of May 2016, the Selection Committee had shortlisted and
received proposals from fi ve audit fi rms. These were invited to tender
and, in June 2016, make presentations to the Selection Committee.
6. The Selection Committee evaluated the suitability of each bidder,
considering the candidates’ strengths and weaknesses, their match
against the Company’s criteria, as well as their ‘fi t’ with the Company,
management and the Board.
7. On completion of further interviews, a recommendation was made to
the Audit Committee by the Selection Committee to appoint one fi rm
to audit the Group accounts and a second fi rm to audit the non-material
subsidiaries for 2017 onwards. This recommendation provided supporting
evidence, ranking all fi ve competing audit fi rms against consistent criteria,
as well as identifying the lead candidates.
8. In July 2016, the Audit Committee recommended to the Board the
appointment of two external auditors, with PricewaterhouseCoopers LLP
to be selected and appointed as the lead audit fi rm for the audit of the
Group, and Mazars LLP to be appointed to support this with the audit of
non-material Group companies. It was noted that this bifurcated approach
to the audit is intended to deliver coverage and cost effi ciencies for the
audit of the fi nancial statements for the year ending 31 December 2017,
and greater risk management focus on the non-material Group companies.
9. At the 2017 AGM the Board will request that the shareholders of the
Company approve a resolution to appoint PricewaterhouseCoopers LLP
as the Company’s external auditor.
The Audit Committee considered the Selection Committee’s
recommendation to appoint a lead audit fi rm to audit the Group
accounts and a second audit fi rm to audit the non-material Group
companies. The Audit Committee agreed that this bifurcated audit
approach offered an opportunity to improve the overall quality of
the external audit, enabling increased focus on the non-material
Group company risks by a second fi rm, whilst delivering signifi cant
savings in the overall audit process.
It noted that this approach would require well coordinated
communication between the audit fi rms and management as well
as careful planning of the audit strategy, to be led by the lead audit
fi rm. The Audit Committee considered that the effectiveness of the
arrangement should be reviewed after three audit cycles. On this
basis, the Audit Committee submitted its recommendation to the
Board for consideration.
In July 2016 the Board approved the appointment of
PricewaterhouseCoopers LLP as external auditor for Vesuvius plc
for the year ending 31 December 2017. Shareholder approval to
confi rm the appointment of PricewaterhouseCoopers LLP will be
sought at the Vesuvius plc Annual General Meeting in 2017. Mazars
LLP was approved as the second audit fi rm, with a focus on the
smaller Vesuvius subsidiaries. The Audit Committee and Board
believe this selection of audit fi rms is appropriate and that the
bifurcated audit approach will deliver equivalent assurance to a
single fi rm audit. The Committee is receiving regular reports on
the status and progress of the auditor transition plans.
Audit Committee Evaluation
The Audit Committee’s performance was evaluated as part of the
overall externally facilitated Board and Committee performance
evaluation, which is described in depth on pages 66 and 67. At the
beginning of the fi nancial year half of the Audit Committee and
the Chief Financial Offi cer had only been in post for a matter of
months and the focus of the Committee was to rapidly gain in-depth
knowledge of the audit and risk environment. Through the
combined efforts of the Audit Committee, external auditor and
management staff this was swiftly achieved and has led to an
effective Audit Committee that is commercially astute, ready to
challenge the business, add rigour to signifi cant accounting
judgements and promote a strong control environment. This was
refl ected in the performance review of the Audit Committee,
which overall rated its work highly against all measurement criteria.
The 2015 evaluation identifi ed opportunities to strengthen the
framework of the risk management programme and through,
greater use by the Committee of ‘deep dives’, to explore some areas
in more detail. During 2016 the Committee delivered against these
initiatives, as detailed in the paragraphs above. Areas of focus
identifi ed by the 2016 evaluation of the Audit Committee for 2017
include managing the smooth transition of the external auditor,
continuing to improve communications with management outside
meetings and continuing the ‘deep dive’ initiative that proved so
useful in 2016. The Committee will continue to seek improvements
in its performance and report against its delivery of the actions
identifi ed by the review in the 2017 Annual Report and Accounts.
On behalf of the Audit Committee
Douglas Hurt Chairman, Audit Committee
2 March 2017
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Nomination Committee
The primary focus of the Nomination Committee’s activities during
2016 was on Board succession planning. The Committee also
reviewed the succession and development plans for members of
the Executive Committee and, following the resignation of Nelda
Connors on 30 September, commenced the recruitment of a new
Non-executive Director. The Committee continues to meet its
responsibility to ensure that the Board is made up of individuals
with the appropriate drive, abilities and experience to lead the
Company in the delivery of its strategy.
Committee Members
John McDonough CBE (Committee Chairman)
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Nelda Connors (resigned 30 September 2016)
The Nomination Committee
The Nomination Committee is made up of myself as Chairman
of the Company and any three of the Non-executive Directors.
During the year I continued as Chairman of the Committee, though
I would not act as Chairman if the Committee was considering the
appointment of my successor. In that case, the Chairman would
be an appropriate Non-executive Director. The Company Secretary
is Secretary to the Committee. Members’ biographies are set out
on pages 22 and 23.
Role and Responsibilities
The Nomination Committee’s foremost priorities are to ensure that
the Company has the best possible leadership, maintains a clear
plan for orderly Executive and Non-executive Director succession
and cultivates the appropriate skills, experience and diversity in the
Board’s overall composition. Its primary focus is therefore on the
strength of the Board, for which appointments are made on merit,
against objective criteria, selecting the best candidate for the post.
The Nomination Committee advises the Board on appointments,
retirements and resignations from the Board and its Committees.
The Committee operates under formal terms of reference which
were reviewed and confi rmed during the year. The terms of
reference are available on the Group’s website www.vesuvius.com.
The Committee and its members are empowered to obtain outside
legal or other independent professional advice at the cost of the
Company in relation to its deliberations. These rights were not
exercised during the year. The Committee may also secure the
attendance at its meetings of any employee or other parties it
considers necessary.
Process for Board Appointments
The Committee follows formal, rigorous and transparent procedures
for the appointment of new Directors. When considering a Board
appointment, the Nomination Committee draws up a specifi cation
for the role, taking into consideration the balance of skills,
knowledge and experience of its existing members, the diversity
of the Board, the independence of continuing Board members,
and the ongoing requirements and anticipated strategic
developments of the Group. The search process is then able to
focus on appointing a candidate with the necessary attributes to
enhance the Board’s performance.
The Committee uses the services of search fi rms to identify
appropriate candidates, ensuring that any selected fi rm is not in any
way confl icted in the delivery of its role. In addition, the Committee
will only use those fi rms that have adopted the Voluntary Code of
Conduct addressing gender diversity and best practice in search
assignments. A ‘long list’ of potential appointees is reviewed,
followed by the shortlisting of candidates for interview based
upon the objective criteria identifi ed at inception. Non-executive
appointees must be able to demonstrate that they have suffi cient
time available to devote to the role and all prospective Directors
must identify whether they have any potential confl icts of interest
as part of the process. The Committee recommends a preferred
candidate, who will then meet other Board members. Finally,
detailed external references are taken and following this the
Committee makes a formal recommendation to the Board on
the appointment. Preferred candidates are supported in undertaking
their own due diligence on the Company and meeting with
its advisers.
Activity in 2016
The Nomination Committee met four times during 2016.
The Committee focused its time on the succession process for
executive members of the Board as well as reviewing the members
of senior management at the levels immediately below the Board.
This included a detailed external assessment of Group Executive
Committee members and a review of their personal development
plans. Following the departure of Nelda Connors as a Non-executive
Director in September, the Committee undertook a review of the
current and future needs of the Board and its Committees – in
particular refl ecting on the balance of skills and experience of current
Directors, and comparing this against a list of key skills generated
in 2015. The Committee concluded that the Board would benefi t
from the appointment of a new Non-executive Director with
expert knowledge of the industrial sector, together with a high
degree of commercial acumen and global markets knowledge,
and commenced a search on that basis. Spencer Stuart, a specialist
recruitment agency which was appointed to conduct this search
for suitable candidates does not have any other connection with
the Company. I am pleased to report that encouraging progress is
being made.
Committee Evaluation
The Committee’s activities were part of the externally facilitated
evaluation of Board effectiveness during the year. The results
showed that the Committee continued to perform effectively
against all the evaluation criteria, with an appropriate composition,
a comprehensive agenda and the correct focus. Going forward,
the Committee will also concentrate on the identifi cation and
development of a diverse talent pool of individuals below the
Group Executive Committee. This is of key importance to ensure
that the Group maintains a stream of talented individuals to lead
the business to future success.
On behalf of the Nomination Committee
John McDonough CBE Chairman, Nomination Committee
2 March 2017
78
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Annual Report and Accounts 2016
We have continued to monitor the development and integration
onto the Board of the three new Directors who joined during 2015,
Douglas Hurt, Hock Goh and particularly Guy Young who was
appointed Chief Financial Offi cer in November 2015. They all
undertook a full induction programme and have continued to gain
insight into the business and meet executives throughout the
organisation. François Wanecq and Guy Young have worked closely
together to establish a highly effective working relationship, and
together they drive the executive management of the business.
Board Composition
As part of the annual corporate governance review conducted
during the year, the Committee examined the independence of
the Board and the lengths of tenure of each of the independent
Non-executive Directors. All Directors have served at a very senior
level in global organisations, have international experience across
a variety of industries, and most have spent a considerable amount
of time resident outside the UK. The Nomination Committee
believes that diversity underpins the successful operation of the
Board. It recognises that this is a key ingredient in creating a
balanced culture for discussions and minimising ‘group-think’, and
continues with its policy to review the requirements for different
skills, experience, background and gender in respect of the Board’s
composition. The Board supports the recommendations of Lord
Davies on gender diversity and notes the recommendations of the
Hampton-Alexander Review. The Board has also refl ected on the
Parker Review on ethnic diversity. The Committee will continue to
consider the mix of skills, experience and knowledge required on
the Board, and promote diversity not only on the Board but also
throughout the wider business.
Senior Management Succession
During the year, the Committee’s succession planning activity did
not exclusively relate to the Board, but also encompassed the senior
management levels immediately below the Board, aiming to support
and encourage the growth of a consistent pool of talent able to step
up to the top roles in future years. The Committee continued to
monitor the execution of development plans for the Group Executive
Committee, and supported the Board in its remit to understand the
process for the development of high potentials throughout the
business. The Board met key executives throughout the Group in
order to gain a greater understanding of the breadth and depth of
management talent. This process included a series of presentations
to the Board by business unit, functional and geographical heads to
ensure that the Board was exposed to the appropriate breadth of
senior management. This process provides the basis for the Board’s
ability to adopt a more informed approach to executive succession
planning and talent development across the Group. The focus on
succession planning at executive and senior management levels
remains ongoing.
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Directors’ Remuneration Report
Remuneration Overview
Dear shareholder,
On behalf of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for 2016. The Remuneration Report
is split into two sections, a new Directors’ Remuneration Policy and the Annual Report on Directors’ Remuneration. Further details of the
new Remuneration Policy which will be subject to a binding shareholder vote at the 2017 AGM, are given below. The Annual Report on
Directors’ Remuneration sets out details of the pay received by the Directors in 2016 and explains how we intend to apply our Remuneration
Policy in 2017. It will be subject to an advisory shareholder vote at the 2017 AGM.
Review of Remuneration Policy and Implementation in 2017
This year we are required to table our Remuneration Policy for shareholder approval at the AGM. This will be the second triennial vote on
the Remuneration Policy since that requirement was introduced. As a consequence, during 2016, the Remuneration Committee conducted
a review of the Directors’ Remuneration Policy, to ensure that it continues to support delivery of our strategy.
Our overarching philosophy for remuneration continues to be to attract, retain and motivate individuals of the calibre necessary to implement
our business strategy successfully. In setting the policy, we aim to provide incentives that encourage sustainable growth, but do not reward
underperformance or incentivise poor behaviours. The Remuneration Committee also understands that the incentive structures we employ
need to support the delivery of long-term value to our shareholders. Consequently, our Remuneration Policy is designed to reward the
achievements of Executive Directors when deserved, by providing a meaningful portion of remuneration linked to performance but subject
to clawback.
During the year, the Committee considered each of the elements of our existing remuneration structure for Directors. We spent time
discussing the views of our shareholders and refl ecting on the numerous recent developments in governance guidance. We received advice
from the Remuneration Committee adviser, Deloitte, and considered the pay and employment conditions of other Vesuvius employees.
We concluded that the existing combination of variable incentives – an Annual Incentive and a Long Term Incentive Plan awarding
Performance Shares remained the most suitable mechanism for compensating Executive Directors. Consequently, our new policy does
not differ materially from the existing policy.
Our Annual Incentive Plan is clear and simple to operate, and incentivises Directors to achieve key near-term fi nancial and strategic objectives
for the Group. We propose to retain a policy that allows the Committee fl exibility to set these objectives in accordance with the Group’s
specifi c priorities each year. In 2016, 80% of this incentive was focused on Group headline earnings per share, adjusted for working capital
performance, with the remaining 20% based on the achievement of personal objectives. For 2017 the Committee has decided to increase
the emphasis on cash generation, so that this year the Executive Directors’ annual incentives will be based 60% on Group headline earnings
per share, 20% on the Group’s cash conversion (defi ned as operating cash fl ow divided by trading profi t) and 20% on specifi ed personal
objectives. We believe this set of metrics will focus the Executive Directors on delivering key objectives for the Group.
In order to further align the interests of our Directors with those of our shareholders, we are introducing in our Remuneration Policy a
requirement for deferral of a proportion (normally 33%) of the Annual Incentive into awards over shares for three years. We trust our
shareholders will welcome this enhancement.
The Vesuvius Share Plan (VSP) aligns the Executive Directors’ interests with those of shareholders through the delivery of shares, and
rewarding them for growth in shareholder value and earnings. The VSP allows the Company to make a variety of share-based awards,
although since its inception we have only made annual awards of Performance Shares under the plan. Having considered the alternatives
of restricted share and deferred share awards, the Committee concluded Performance Share awards should be retained, where outcomes
rely on earnings growth and share price performance, aligning Executive Directors’ remuneration with the Company’s long-term objectives.
Other performance conditions were considered, including those raised by shareholders during our investor relations meetings. However,
having examined the alternatives, we continue to believe that earnings per share (EPS) and relative total shareholder return (TSR) as
performance conditions are widely supported, and represent the most appropriate measures for assessing the overall long-term
performance of the Group.
The principal elements of the Remuneration Policy for Executive Directors are also applied to other members of the Group Executive
Committee ensuring a cohesive remuneration structure across the senior management team. All members of the Group Executive
Committee are subject to the same two to three-year salary review cycle as the Executive Directors, and all participate in the Annual Incentive
and Vesuvius Share Plans. Whilst the level of awards payable under these plans varies, the whole team is incentivised to pursue common
strategic objectives for the Group.
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Vesuvius plc
Annual Report and Accounts 2016
Remuneration Overview
continued
As part of the review of the Remuneration Policy, we also considered the market competitiveness of our reward package. The broad
international scale and nature of the Company’s operations require experienced leadership. Whilst recognising the infl ationary effect of
using market data, the Committee also needs to ensure the Group can acquire and motivate appropriate talent to successfully implement our
business strategy. Given that there is not a clear comparator group of companies for Vesuvius, this was judged in the context of other FTSE
250 companies and relevant international sector-specifi c companies to reach a rounded judgement. Following this review, the Committee
concluded that the new Policy should specify the same bonus opportunity for all Executive Directors (62.5% of base salary for on-target
performance and 125% at maximum). The previous policy differentiated between the Chief Executive and other Executive Directors.
Other than the deferral detailed above, no other material changes to the current policy are proposed.
In line with the Group’s longer-term approach of reviewing the salaries of Executive Directors and senior executives every two to three years,
there are no changes to either of the Executive Directors’ salaries in 2017. The Chief Executive’s incentive opportunity in 2017 will also remain
unchanged at 125% and 200% of salary for Annual Incentive and Performance Shares respectively. However, in the light of the Chief
Financial Offi cer’s contribution since his appointment in November 2015, the Committee has concluded that in 2017 he should be awarded
Performance Shares equivalent in value to 150% of his base salary (2016: 125% of base salary). This remains within the 200% maximum
specifi ed by the pre-existing policy. In addition his Annual Incentive opportunity for 2017 should be aligned with that of the Chief Executive’s
at 125% of his base salary (2016: 100% of base salary). The Committee believes that the Chief Financial Offi cer has made a strong start
within the organisation and to recognise this development considered it appropriate to increase his variable remuneration.
Performance in 2016
As described in the Strategic Report, the Company’s end-markets remained subdued in 2016. However, the delivery of self-help and
restructuring measures benefi ted margins across the Group, further details of which can be found in the Chief Executive’s Strategic Review
and in the Operational Reviews on pages 12 to 18 and 36 to 49, respectively.
In 2016, Annual Incentive awards for the Executive Directors were based 80% on Group headline EPS, with an adjustment for working
capital, and 20% on personal objectives. Our headline EPS of 28.3p matched target, but the Company did not meet the threshold
working capital target so the fi nancial payout element was reduced by 10%. This results in awards of 44.6% and 35.6% of base salary
for François Wanecq and Guy Young, respectively, in respect of the fi nancial performance metrics. In addition, we assessed each Executive
Director’s completion of the personal objectives they were set for 2016, awarding Mr Wanecq and Mr Young, 18.25% and 15.50% of
their maximum entitlements of 25% and 20%, respectively. As a result, the overall Annual Incentive payable to Mr Wanecq for 2016 is 63%
of base salary and Mr Young, 51% of base salary, against target payouts of 62.5% and 50%, respectively, and maximum bonus
opportunities of 125% and 100%, respectively.
The performance period for the awards made under the Vesuvius Share Plan in 2014 matured at the end of December 2016. Performance
was measured equally by reference to TSR relative to the FTSE 250 (excluding Investment Trusts) and headline EPS growth above compound
annual GDP growth over the three-year period. Relative TSR performance was below median and therefore the TSR target was not met.
The EPS growth target over the three-year period was also not met. Therefore, these awards lapse in their entirety.
Shareholders’ Views
The Committee noted that 40,836,586 votes (17.14%) were cast against the advisory resolution on the 2015 Remuneration Report at
the 2016 AGM, which predominantly refl ected the votes of one signifi cant shareholder. During the year, Directors had discussed
remuneration and other matters with this shareholder and noted their views, which principally relate to concerns with the use of TSR and
EPS as performance metrics under the Vesuvius Share Plan. After deliberation, the Committee remains satisfi ed that preserving the existing
criteria for the VSP in the Remuneration Policy being proposed for approval at the 2017 AGM continues to promote the long-term success
of the Company, and that the performance-related elements of remuneration are transparent, stretching and rigorously applied.
I remain keen to hear shareholders’ views on remuneration matters – including comments on any elements of our 2017 Remuneration
Policy – and look forward to an ongoing dialogue with shareholders and their continued support for our Directors’ Remuneration Report
resolution at the AGM.
Yours sincerely
Jane Hinkley Chairman, Remuneration Committee
2 March 2017
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Directors’ Remuneration Report
Remuneration Policy
It is proposed that this policy will take effect from the close of the 2017 AGM. The previous policy will apply in its entirety up until this date
and after this date those elements of the previous policy that relate to remuneration that remain extant on this date (such as outstanding
share awards) will continue to apply until these commitments cease.
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of offi ce (including exercising
any discretions available to it in connection with such payments), notwithstanding that they are not in line with the policy set out here,
where the terms of the payment were agreed; (i) before the date the Company’s first Remuneration Policy approved by shareholders in
accordance with section 439A of the Companies Act came into effect; (ii) before the policy set out here came into effect, provided that the
terms of the payment were consistent with the shareholder-approved Remuneration Policy in force at the time they were agreed; or (iii) at
a time when the relevant individual was not a Director of the Company and, in the opinion of the Remuneration Committee, the payment
was not in consideration for the individual becoming a Director of the Company. For these purposes, ‘payments’ includes the Remuneration
Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the
time the award is granted.
Remuneration Policy Table for Executive Directors
Base salary
Alignment/purpose
Helps to recruit and retain key employees.
Refl ects the individual’s experience, role
and contribution within the Company.
Operation
The individual’s performance is reviewed
annually, with changes to base salary
normally appraised over a two to
three-year period.
Any change will normally be effective
from 1 January in the year of the increase.
Base salary is positioned to be market
competitive when considered against other
global industrial companies, and relevant
international and FTSE 250 companies
(excluding Investment Trusts).
Other benefi ts
Alignment/purpose
Provides normal market practice benefi ts.
Operation
A range of standard benefi ts including,
but not limited to: car allowance, private
medical care (including spouse and
Pension
Alignment/purpose
Helps to recruit and retain key employees.
Ensures income in retirement.
Paid in cash, subject to local tax and social
security regulations.
Opportunity
Salary increases will normally be in line with
the average increase awarded to other
employees in the Group over a similar
period. In considering any increase in base
salary, the Committee will also consider:
(i) the role and value of the individual;
(ii) changes in job scope or responsibility;
(iii) progression in the role (e.g. for a new
appointee); (iv) a signifi cant increase in
the scale of role and/or size, value or
complexity of the Group; and (v) the need
to maintain market competitiveness.
In line with the two to three-year period
for base salary appraisal, individual
increases when paid are likely to be in
excess of those for the wider population
of employees for that year.
No absolute maximum has been set for
Executive Director base salaries. Current
Executive Directors’ salaries are set out
in the Annual Report on Directors’
Remuneration section of this
Remuneration Report.
Performance
Any increase will take into account the
individual’s performance, contribution
and increasing experience.
dependent children), life insurance,
disability and health insurance, together
with relocation allowance and expatriate
benefi ts, in some instances grossed up for
tax, in accordance with the Group’s
policies, and participation in any employee
share scheme operated by the Group.
Opportunity
There is no formal maximum as benefi t
costs can fl uctuate depending on
changes in provider, cost and
individual circumstances.
Performance
None
Operation
An allowance is given as a percentage of
base salary. This may be used to participate
in Vesuvius’ pension arrangements,
invested in own pension arrangements
or taken as a cash supplement (or any
combination of the above options).
Opportunity
Maximum of 30% of base salary.
Performance
None
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Vesuvius plc
Annual Report and Accounts 2016
Remuneration Policy
continued
Annual Incentive
Alignment/purpose
Incentivises Executive Directors to achieve
key short-term fi nancial and strategic
targets of the Group.
Additional alignment with shareholders’
interests through the operation of
bonus deferral.
Operation
Normally 33% of any Annual Incentive
earned by Executive Directors will be
deferred into awards over shares under
the Vesuvius Deferred Share Bonus Plan
which normally vest after at least three
years, other than in specifi ed circumstances
outlined elsewhere in this Policy. These
may be cash or share settled.
The Committee has the discretion to
determine that actual incentive payments
should be lower than levels calculated by
reference to achievement against targets
if it considers this to be appropriate.
The Committee has the discretion to
award participants the equivalent value
of dividends accrued during the vesting
period on any shares that vest.
Subject to malus and clawback.
Opportunity
Below threshold: 0%.
On-target: 62.5% of base salary.
Maximum: 125% of base salary.
Payments made between threshold
and on-target and between on-target
and maximum are pro-rated.
Performance
Annual Incentive is measured
on targets set at the beginning
of each year. The Committee establishes
threshold and maximum performance
targets for each fi nancial year. The majority
of the Annual Incentive will be determined
by measure(s) of Group fi nancial
performance. The remainder of the
Annual Incentive will be based on fi nancial,
strategic or operational measures
appropriate to the individual Director.
Performance is measured over a one-year
period. Actual performance targets will
be disclosed after the performance period
has ended. They are not disclosed in
advance due to their commercial sensitivity.
Vesuvius Share Plan
Alignment/purpose
Flexible ‘umbrella’ plan.
Aligns Executive Directors’ interests
with those of shareholders through the
delivery of shares. Rewards Executive
Directors for achieving the strategic
objectives of growth in shareholder
value and earnings.
Assists retention of Executive Directors
over a three-year performance period.
Operation
Awards may be granted as:
> Performance share awards
> Deferred share bonus awards
> Restricted share awards
> Market-price options
These may be cash or share settled.
Individuals are entitled to an aggregate
annual maximum amount of awards.
If more than one type of award is granted,
the individual limit for all awards is reduced
to remain within the maximum.
Awards vest three years after their award
date, other than in specifi ed circumstances
outlined elsewhere in this policy, subject to
the achievement of specifi ed conditions.
The Committee may decide that the
shares in respect of which an award vests
are delivered to participants at that point
or that awards will then be subject to
an additional holding period before
participants are entitled to receive
their shares.
The Committee has the discretion to
award participants the equivalent value
of dividends accrued during the vesting
period on any shares that vest.
Subject to malus and clawback.
Opportunity
Executive Directors are eligible to receive
an annual award with a face value of up
to 200% of base salary in Performance
share awards.
Vesting at threshold performance is
25% rising to vesting of the full award
at maximum.
Performance
Vesting of Performance Share awards is
usually dependent on measures of Group
EPS and relative TSR with the precise
measures and weighting of the measures
determined by the Committee ahead of
each award. These details are disclosed
in the Annual Report on Directors’
Remuneration section of this
Remuneration Report.
The Company reserves the right only to
disclose EPS performance targets after
the performance period has ended, due
to their commercial sensitivity.
Prior to any vesting, the Remuneration
Committee also reviews the underlying
fi nancial performance of the Company
over the performance period to ensure
the vesting is justifi ed.
83
Malus/Clawback Arrangements
The Executive Directors’ variable remuneration is subject to malus and clawback provisions. These provide the Committee with the fl exibility,
if required, to withhold or recover payments made to Executive Directors under the Annual Incentive Plan (including deferred awards) and/or
to withhold or recover share awards granted to Executive Directors under the Vesuvius Share Plan, including any dividends granted on such
awards. The circumstances in which the Committee could potentially elect to apply malus and clawback provisions include: a material
misstatement in the Company’s fi nancial statements; an error in the calculation of the extent of payment or vesting of an incentive; gross
misconduct by an individual; or signifi cant fi nancial loss or serious reputational damage to Vesuvius plc resulting from an individual’s
conduct, a material failure of risk management or a serious breach of health and safety. These malus and clawback provisions apply for
a period of up to three years after the end of a performance period (or end of the deferral period in respect of deferred awards).
Performance Measures
In selecting performance measures for the Annual Incentive, the Committee seeks to refl ect key strategic aims and the need for a rigorous
focus on fi nancial performance. Each year the Committee agrees challenging targets to ensure that underperformance is not rewarded.
The Company will not be disclosing the specifi c fi nancial or personal objectives set until after the relevant performance period has ended
because of commercial sensitivities. The personal objectives are all non-fi nancial or job-specifi c in nature and track performance against
key strategic, organisational and operational goals.
In selecting performance measures for the Vesuvius Share Plan, the Committee seeks to focus Executive Directors on the execution of
long-term strategy and also align their rewards with value created for shareholders. On this basis, the performance conditions for the
Vesuvius Performance Share awards will usually be dependent on measures based on TSR and EPS performance.
Within the policy period, the Committee will continually review the performance measures used, including TSR and the applicable
comparator group, and EPS and other fi nancial measures, to ensure that awards are made on the basis of challenging targets that
clearly support the achievement of the Group’s strategic aims.
The Committee may vary or waive any performance condition(s) if circumstances occur which cause it to determine that the original
condition(s) have ceased to be appropriate, provided that any such variation or waiver is fair, reasonable and not materially less diffi cult
to satisfy than the original condition (in its opinion). In the event that the Committee were to make an adjustment of this sort, a full
explanation would be provided in the next Remuneration Report.
The Committee may: (a) in the event of a variation of the Company’s share capital, demerger, special dividend or any other corporate event
which it reasonably determines justifi es such an adjustment, adjust; and (b) amend the terms of awards granted under the share schemes
referred to above in accordance with the rules of the relevant plans.
Share awards may be settled by the issue of new shares or by the transfer of existing shares. In line with prevailing best practice at the
time this Policy Report is approved, any issuance of new shares is limited to 5% of share capital over a rolling ten-year period in relation
to discretionary employee share schemes and 10% of share capital over a rolling ten-year period in relation to all employee share schemes.
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Annual Report and Accounts 2016
Remuneration Policy
continued
Illustration of the Application of the Remuneration Policy for 2017
The charts below show the total remuneration for Executive Directors for 2017 for minimum, on-target and maximum performance.
The fi xed elements of remuneration comprise base salary, pension and other benefi ts, using 2017 salary data. The assumptions on which
they are calculated are as follows:
Minimum: Fixed remuneration only.
On-target: Fixed remuneration plus on-target Annual Incentive (made at 62.5% of base salary for François Wanecq and Guy Young) and
threshold vesting (i.e. median performance for TSR and threshold for EPS) for Performance Share awards (made at 200% of base salary for
François Wanecq and 150% of base salary for Guy Young) under the Vesuvius Share Plan.
Maximum: Fixed remuneration plus maximum Annual Incentive (being full achievement of fi nancial and personal targets, made at 125%
of base salary for François Wanecq and Guy Young) and 100% vesting for Performance Share awards (made at 200% of base salary for
François Wanecq and 150% of base salary for Guy Young) under the Vesuvius Share Plan.
Note: In addition the Committee retains the discretion to award dividends (either shares or their cash equivalent) on any shares that vest.
Remuneration Illustrations £000
François Wanecq, Chief Executive
Minimum
100% £802
55%
25% 20% £1,466
On-target
Maximum
Guy Young, CFO
Minimum
100% £425
On-target
16%
57%
27%
£750
Maximum
30%
27%
43% £2,720
32%
31%
37% £1,319
0
500
1,000
1,500
2,000
2,500
3,000
0
500
1,000
1,500
2,000
2,500
3,000
Fixed elements
Annual variable elements
Long-term variable elements
Service Contracts of Executive Directors
The Committee will periodically review the contractual terms for new Executive Directors to ensure these refl ect best practice. Service contracts
currently operate on a rolling basis and are limited to a 12-month notice period.
François Wanecq is employed as Chief Executive of Vesuvius plc pursuant to the terms of a service agreement made with Cookson Group plc
dated 17 October 2012, which was assigned to Vesuvius plc upon completion of the demerger on 19 December 2012. Guy Young is
employed as Chief Financial Offi cer pursuant to the terms of a service agreement with Vesuvius plc dated 16 September 2015. Each Executive
Director’s appointment is terminable by Vesuvius on not less than 12 months’ written notice, and by each Executive Director on not less than
six months’ written notice.
External Appointments of Executive Directors
The Executive Directors do not currently serve as Non-executive Directors of any other quoted company. Subject always to consent being
granted by the Company for them to take up such an appointment, were they to so serve, the Company would allow them to retain any
fees they received for the performance of their duties.
85
Remuneration Policy for Non-executive Directors
The Company seeks to appoint Non-executive Directors who have relevant professional knowledge, and have gained experience in
a relevant industry and geographical sector, to support diversity of expertise at the Board and match the wide geographical spread of
the Company’s activities.
Non-executive Directors attend Board, Committee and other meetings, held mainly in the UK, together with an annual strategy review to
debate the Company’s strategic direction. All Non-executive Directors are expected to familiarise themselves with the scale and scope of
the Company’s business and to maintain their specifi c technical skills and knowledge.
The Board sets the level of fees paid to the Non-executive Directors after considering the role and responsibilities of each Director and the
practice of other companies of a similar size and international complexity. The Non-executive Directors do not participate in Board discussions
on their own remuneration. No variable remuneration is available to Non-executive Directors. Non-executive Directors receive reimbursement
of reasonable expenses incurred in attending the Board, Committee and other ad hoc meetings, including gross up payments to cover any
personal tax owed on such expenses.
Fees
Alignment/purpose
To attract and retain Non-executive
Directors of the necessary skill
and experience by offering
market-competitive fees.
Operation
Fees are usually reviewed every other
year by the Board.
Non-executive Directors are paid a base fee
for the performance of their role, payable
in cash, plus additional fees for Committee
chairmanship or acting as the Senior
Independent Director.
Benefi ts and expenses
Alignment/purpose
To facilitate execution of responsibilities
and duties required by the role.
Base fees paid to Non-executive Directors
will in aggregate remain within the
aggregate limit stated in our Articles,
currently being £500,000.
Performance
None
The Chairman is paid a single fee and
receives administrative support from
the Company.
Opportunity
Non-executive Directors and the Chairman
will be paid market-appropriate fees,
with any increase refl ecting changes in
the market or adjustments to a specifi c
Non-executive Director’s role.
No eligibility for bonuses, retirement
benefi ts or to participate in the Group’s
employee share plans.
Operation
All Non-executive Directors are reimbursed
for reasonable expenses incurred in
carrying out their duties (including
any personal tax owing on such expenses).
Opportunity
Non-executive Directors’ expenses are
paid in accordance with Vesuvius’
expense procedures.
Performance
None
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Terms of Service of the Chairman and other Non-executive Directors
The terms of service of the Chairman and the Non-executive Directors are contained in letters of appointment. Each Non-executive Director
is appointed subject to their election at the Company’s fi rst Annual General Meeting following their appointment and re-election at
subsequent Annual General Meetings. During the fi rst year of his/her appointment, the Chairman is entitled to 12 months’ notice from
the Company; thereafter, he/she is entitled to six months’ notice from the Company. None of the other Non-executive Directors is entitled
to receive compensation for loss of offi ce at any time. All Non-executive Directors are subject to retirement, and election or re-election,
in accordance with the Company’s Articles of Association. The current policy is for Non-executive Directors to serve on the Board for
a maximum of nine years, with review at the end of three and six years, subject always to mutual agreement and annual performance
evaluation. The Board retains discretion to extend the tenure of Non-executive Directors beyond this time, subject to the requirements
of Board balance and independence being satisfi ed.
86
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Annual Report and Accounts 2016
Remuneration Policy
continued
The table below shows the date of appointment for each of the Non-executive Directors:
Non-executive Director
John McDonough CBE
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Recruitment Policy
Date of appointment
31 October 2012
31 October 2012
2 April 2015
3 December 2012
2 April 2015
On appointment or promotion of a new Executive Director, the Committee will typically use the Remuneration Policy in force at the time
of the Committee’s decision to determine ongoing remuneration.
Base salary levels will generally be set in accordance with the Remuneration Policy current at the time of the Committee’s decision, taking
into account the experience and calibre of the appointee. If it is appropriate to appoint an individual on a base salary initially below what is
adjudged to be market positioning, contingent on individual performance, the Committee retains the discretion to realign base salary over
the one to three years following appointment, which may result in a higher rate of annualised increase than might otherwise be awarded
under the policy. If the Committee intends to rely on this discretion, it will be noted in the fi rst Remuneration Report following an individual’s
appointment. Other than in exceptional circumstances, other elements of annual remuneration will, typically, be set in line with the
Remuneration Policy including a limit on awards under the Annual Incentive and Vesuvius Share Plan of 325% of salary in aggregate.
The Committee retains the discretion to make the following further exceptions:
> In the event that an internal appointment is made, or where a Director is appointed as a result of transfer into the Group on an
acquisition of another Company, the Committee may continue with existing remuneration provisions for this individual, including
pension entitlements, where appropriate
> If necessary and appropriate to secure the appointment of a candidate who has to move locations as a result of the appointment,
whether internal or external, the Committee may make additional payments linked to relocation, above those outlined in the policy table,
and would authorise the payment of a relocation allowance and repatriation, as well as other associated international mobility terms.
Such benefi ts would be set at a level which the Committee considers appropriate for the role and the individual’s circumstances
> If appropriate the Committee may apply different performance measures and/or targets to a Director’s fi rst incentive awards in his/her
year of appointment
Service contracts will be entered into on terms similar to those for the existing Executive Directors, summarised in the ‘Service contracts
of Executive Directors’ section above.
In addition to the annual remuneration elements noted above, the Committee may consider buying out terms, incentives and any other
compensation arrangements forfeited on leaving a previous employer that an individual forfeits in accepting an appointment with Vesuvius.
The Committee will have the authority to rely on Listing Rule 9.4.2R(2) or to apply the existing limits within the Vesuvius Share Plan to make
Restricted Share awards on recruitment. In making any such awards, the Committee will review the terms of any forfeited awards, including,
but not limited to, vesting periods, the expected value of such awards on vesting and the likelihood of the performance targets applicable
to such awards being met, while retaining the discretion to make any buy-out award the Committee determines is necessary and
appropriate. The Committee may also require the appointee to purchase shares in Vesuvius to a pre-agreed level prior to vesting of any
such awards. The value of any buy-out award will be capped, to ensure its maximum value is no higher than the value of the awards that
the individual forfeited on joining Vesuvius. Any such awards will be subject to malus and clawback.
With respect to the appointment of a new Chairman or Non-executive Director, appointment terms will be consistent with those applicable
at the time the appointment is agreed. Variable pay will not be considered. With respect to Non-executive Directors, fees will be consistent
with the policy at the time the appointment is agreed. If, in exceptional circumstances, a Non-executive Director was asked to assume
an interim executive role, the Company retains the discretion to pay them appropriate executive compensation, in line with the policy.
87
Exit Payment Policy
Vesuvius has the option to make a payment in lieu of part or all of the required notice period for Executive Directors. Any such payment
in lieu will consist of the base salary, pension contributions and value of benefi ts to which the Director would have been entitled for the
duration of the remaining notice period, net of statutory deductions in each case. Half of any payments in lieu of notice would be made
in a lump sum, the remainder in equal monthly instalments commencing in the month in which the midpoint of their foregone notice
period falls (and are reduced or extinguished by salary from any role undertaken by the departing Executive in this time). Executive Directors
are subject to certain non-compete covenants for a period of nine months, and non-solicitation covenants for a period of 12 months,
following the termination of their employment. Their service agreements are governed by English law.
Executive Directors’ contracts do not contain any change of control provisions; they do contain a duty to mitigate should the Director
fi nd an alternative paid occupation in any period during which the Company must otherwise pay compensation on early termination.
The table below summarises how the awards under the annual bonus and Vesuvius Share Plan are typically treated in different leaver
scenarios and on a change of control. Whilst the Committee retains overall discretion on determining ‘good leaver’ status, it typically
defi nes a ‘good leaver’ in circumstances such as retirement with agreement of the Company, ill health, disability, death, redundancy,
or part of the business in which the individual is employed or engaged ceasing to be part of the Group. Final treatment is subject to the
Committee’s discretion.
Timing
Calculation of vesting/payment
Event
Annual Incentive Plan
Good leaver
Bad leaver
Change of control
Vesuvius Share Plan
Good leaver
Paid at the same time as
to continuing employees.
Not applicable
Paid on the effective date
of change of control.
On normal vesting date (or earlier
at the Committee’s discretion).
Bad leaver
Unvested awards lapse.
Change of control1
On the date of the event.
Annual bonus is paid only to the extent
that any performance conditions have been
satisfi ed and is pro rated for the proportion
of the fi nancial year worked before cessation
of employment.
Individuals lose the right to their annual bonus.
Annual bonus is paid only to the extent that
any performance conditions have been
satisfi ed and is pro rated for the proportion
of the fi nancial year worked.
Unvested awards vest to the extent that any
performance conditions have been satisfi ed
and a pro rata reduction applies to the value
of the awards to take into account the
proportion of vesting period not served, unless
the Committee decides that the reduction in
the number of vested shares is inappropriate
Unvested awards lapse on cessation
of employment.
Unvested awards vest to the extent that any
performance conditions have been satisfi ed
and a pro rata reduction applies for the
proportion of the vesting period not served.
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Note:
1.
In certain circumstances, the Committee may determine that unvested awards under the Vesuvius Share Plan will not vest on a change of control but will instead be replaced by an equivalent grant
of a new award, as determined by the Committee, in the new company.
In the case of the Vesuvius Deferred Share Bonus Plan if the individual leaves for any reason (other than dismissal for cause) or in the event of
a change in control, the deferred award will vest in full, unless the Committee determines otherwise.
88
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Annual Report and Accounts 2016
Remuneration Policy
continued
Benefi ts normally cease to be provided on the date employment ends. However, the Committee has the discretion to allow some minor
benefi ts (such as health insurance, tax advice and repatriation expenses) to continue to be provided for a period following cessation where
this is considered fair and reasonable or appropriate on the basis of local market practice. In addition, the Committee retains discretion
to fund other expenses for the Executive Director, for example, payments to meet legal fees incurred in connection with termination of
employment, or to meet the costs of providing outplacement support, and de minimis termination costs up to £5,000 to cover transfer
of mobile phone or other administrative expenses.
The Committee reserves the right to make any other payments in connection with a Director’s cessation of offi ce or employment where
the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation)
or by way of a compromise or settlement of any claim arising in connection with the cessation of a Director’s offi ce or employment.
In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including
(but not limited to) settlement, confi dentiality, restrictive covenants and/or consultancy arrangements. These would be used only where
the Committee believed it was in the best interests of the Company to do so.
Comparison of Remuneration Policy for Executive Directors with that for other Employees
The Remuneration Policy for Executive Directors is designed in line with the remuneration philosophy set out in this report – which also
underpins remuneration for the wider Group. Remuneration arrangements for Executive Directors draw on the same elements as those
for other employees – base salary, fi xed benefi ts and retirement benefi ts – with performance-related pay extending down into the
management cadres and beyond. However, given that remuneration structures for other employees need to refl ect both seniority and
local market practice, they differ from the policy for Executive Directors. In particular, Executive Directors receive a higher proportion of
their remuneration in performance-related pay and share-based payments. Individual percentages of fi xed versus variable remuneration
and participation in share-based structures decline as seniority decreases.
The process for delivering salary increases on a two to three-year cycle for Executive Directors is also applied to other members of the Group
Executive Committee and their direct managerial reports. Whilst all employees receive an annual performance appraisal, other employees
continue to receive salary reviews on an annual basis.
As with Executive Directors, middle and senior managers participate in the Annual Incentive Plan. For members of the Group Executive
Committee and functional employees, the award is predominantly based on Group performance, with the remainder awarded against
achievement of personal objectives. For operational employees, any potential award is based upon achieving three measures relating to
Group performance, business unit performance, and individual achievement of personal objectives.
All members of the Group Executive Committee participate in the Vesuvius Share Plan and receive awards of Performance Shares, which
vest in accordance with measures and targets set against EPS and TSR. The level of awards payable to members of the Group Executive
Committee who don’t serve on the Board are lower than those payable to the Executive Directors.
For certain senior and middle managers, awards are made under the Vesuvius Medium Term Plan (‘MTP’). These managers participate in the
MTP at varying percentage levels, and awards are based on the same measures and targets as the Annual Incentive Plan. Senior managers
have their MTP awards made over Vesuvius shares, whilst middle managers receive their awards in cash. In each case, awards are granted
following the end of the relevant fi nancial year. The MTP share awards vest on the second anniversary of the date of grant, subject to
continuing employment.
Considerations of Conditions Elsewhere in the Group in Developing Policy
The Company does not consult directly with employees on Executive Directors’ remuneration arrangements. However, the Remuneration
Committee will take into account the pay and employment conditions of other Group employees when determining Executive Directors’
remuneration, particularly when determining base salary increases, when the Committee will consider the salary increases for other Group
employees in the same jurisdiction.
89
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Consideration of Shareholder Views
Vesuvius is committed to open and transparent dialogue with its shareholders on remuneration as well as other governance matters.
As Chairman of the Committee, Jane Hinkley welcomes shareholder engagement and is available for any discussions investors wish to have
on remuneration matters. During 2016, remuneration matters were discussed at a number of meetings with investors. The feedback from
such meetings is always shared with the Committee and taken into consideration when decisions are made about future remuneration
strategy and arrangements.
Shareholding Guidelines
The Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company. The required holding of
the Chief Executive is to be equivalent in value to at least 2x salary and that required of other Executive Directors is to be equivalent in value
to at least 1x salary.
Compliance with the shareholding policy is tested at the end of each year for application in the following year using the average of the
closing prices of a Vesuvius ordinary share for the trading days in that December.
General
The Committee may make minor amendments to the policy set out in this Policy Report (for regulatory, exchange control, tax or
administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.
Explanation of Changes Made to the Remuneration Policy
Changes in the interpretation and operation of the Remuneration Policy after it was approved by shareholders at the 2014 AGM were
described in the 2014 and 2015 Annual Reports; however, to comply with the regulatory requirement to include in notes accompanying
the future policy table, details of which components of the Remuneration Policy have been changed or added since the last approved
Remuneration Policy, these explanations are also repeated in this section of the 2016 Annual Report:
1. In 2015, in order to provide enhanced long-term alignment with shareholders, the Committee increased the required shareholding to
be built up and held by the Chief Executive from 100% to 200% of base salary.
2. In addition, the Committee reviewed the clawback arrangements set out in the Remuneration Policy approved at the AGM in 2014
and, in light of revisions to the UK Corporate Governance Code, further strengthened Vesuvius’ application of this Policy as follows:
> Malus provisions were added to the existing clawback provisions. This provides the Committee with the fl exibility, if required, also
to withhold payments made to Executive Directors under the Annual Incentive Plan and/or to withhold share awards granted
to Executive Directors under the Vesuvius Share Plan.
> The circumstances in which the Committee could potentially elect to apply malus and clawback provisions were extended. Potential
events which could trigger the application of these provisions now encompass a misstatement in the Company’s fi nancial statements
which requires restatement of a prior year’s accounts; an error in the calculation of the extent of payment or vesting of an incentive;
gross misconduct by an individual; or signifi cant fi nancial loss or serious reputational damage to Vesuvius plc resulting from an
individual’s conduct, a material failure of risk management or a serious breach of health and safety.
This year the Company is required to table a new Remuneration Policy for shareholder approval at the forthcoming AGM. This will be
the second triennial vote on the Remuneration Policy since that requirement was introduced. Having undertaken a comprehensive review
of the prevailing arrangements, the Committee concluded that the existing combination of base salary, an Annual Incentive and a
Long-Term Incentive awarding Performance Shares, remained the most suitable mechanism for compensating Executive Directors.
Consequently, the new Policy does not differ materially from the existing policy. In order to increase alignment between our shareholders
and Executive Directors, the Committee has introduced a requirement for a proportion of the Annual Incentive (normally 33%) to be
deferred into shares for a pre-defi ned period (normally three years). A number of editorial changes have been made to the text of the
old policy, to refi ne and improve the explanation of various items, but the only other change of signifi cant note is an amendment
to align the bonus opportunity for all Executive Directors to 62.5% of base salary for on-target performance and 125% at maximum.
The previous policy differentiated between the Chief Executive and the other Executive Directors.
90
Vesuvius plc
Annual Report and Accounts 2016
Directors’ Remuneration Report
Annual Report on Directors’ Remuneration
Remuneration Committee Structure
The current members of the Remuneration Committee are all the independent Non-executive Directors of the Company. Jane Hinkley
(who also serves as the Committee Chairman), Hock Goh and Douglas Hurt served on the Committee throughout 2016 and in 2017 to date.
Nelda Connors served on the Committee until her retirement from the Board on 30 September 2016. The Committee complies with the
obligations of the UK Corporate Governance Code for the composition of remuneration committees. Each of the members brings a broad
experience of international businesses and an understanding of their challenges to the work of the Committee. The Company Secretary
is Secretary to the Committee. Members’ biographies are on pages 22 and 23.
Meetings
The Committee met four times during the year with full attendance at each meeting. The Group Chairman, Chief Executive, and Vice
President Human Resources were invited to each meeting, together with Christer Gardell, our non-independent Non-executive Director,
though none of them participated in discussions regarding their own remuneration. In addition, a representative from Deloitte, the
Remuneration Committee adviser, attended each meeting and the Chief Financial Offi cer attended where the agenda of the Committee
required it. This attendance supported the work of the Committee, giving critical insight into the operational demands of the business
and their application to the overall strategy of remuneration within the Group. In receiving views on remuneration matters from the
Executive Directors and senior management, the Committee recognised the potential for confl icts of interest to arise and considered the
advice accordingly. The Chairman of the Committee reported the outcomes of all meetings to the Board.
The Committee operates under formal terms of reference which were reviewed during the year. The terms of reference are available on the
Group website www.vesuvius.com. The Committee members are also empowered to obtain outside legal advice at the cost of the Company
in relation to their deliberations. These powers were not exercised during the year. The Committee may also secure the attendance at its
meetings of any employee or other parties it considers necessary.
Role and Responsibilities
The Committee is responsible for:
> Setting the appropriate remuneration for the Chairman, the Executive Directors and the Company Secretary
> Recommending and monitoring the level and structure of remuneration for senior management, being the fi rst layer of management
below Board level and their direct reports
> Overseeing the operation of the executive share incentive plans
Advice Provided to the Remuneration Committee
Deloitte is appointed directly by the Remuneration Committee to provide advice on executive remuneration matters, including remuneration
structure and policy, updates on market practice and trends, and guidance on the implementation and operation of long-term incentive
plans. The Committee appointed Deloitte following the conduct of a formal tender process in 2014. Deloitte is a signatory to the
Remuneration Consultants Group Code of Conduct in relation to Executive Remuneration Consulting in the UK. Deloitte also provides the
Remuneration Committee with ongoing calculations of total shareholder return to enable the Committee to be updated on the performance
of long-term share incentive plans. In addition in 2016, within the wider Group, Deloitte was procured locally to provide limited accounting
and tax advisory work. During 2016, Deloitte’s fees for advice to the Remuneration Committee, charged on a time spent basis, amounted to
£55,585. The Committee conducted a review of the performance of Deloitte as Remuneration Adviser during the year and concluded that
it is satisfi ed that the advice provided to it on executive remuneration matters is effective, objective and independent, noting that Deloitte
brings signifi cant technical depth to the deliberations of the Committee. No confl ict of interest arises as a result of other services provided
by Deloitte to the Group.
Activities of the Remuneration Committee
The key matters the Remuneration Committee considered during its four meetings in 2016 included:
> The salary review proposals for the Executive Directors and Company Secretary, and an overview of the proposals for senior management
> Reviewing achievement against performance targets for the 2015 annual cash bonus incentive arrangements
> Setting performance targets and approving the structure of the 2016 annual cash bonus incentive arrangements
> Considering the Company’s attainment of performance conditions applicable to the Vesuvius Performance Share awards made in 2013
> Setting the performance conditions and authorising the grant of new awards in 2016 under the Vesuvius Share Plan and Medium Term
Incentive Plan
> In the light of advice received from the external advisers regarding trends in remuneration practice and governance, and feedback from
institutional shareholders, discussing the Company’s overall approach to executive remuneration and reviewing whether any changes
should be made
91
> Considering, formulating and approving the 2017 Remuneration Policy
> Reviewing the specifi c performance conditions of the 2017 annual incentive arrangement which will now include a target
for cash fl ow performance
> Reviewing the Remuneration Committee’s terms of reference
> Approving the 2015 Directors’ Remuneration Report and reviewing the 2016 Directors’ Remuneration Report
As in previous years, the Committee was the subject of an externally moderated performance evaluation. The management of the
Committee, and its processes and support, were again rated highly, as was the level of engagement and effectiveness of the relationship
with Deloitte as external adviser. It was felt that the Committee would benefi t from gaining greater insight into the remuneration
arrangements for employees below the management tier and it was agreed that this would be an area of focus in 2017.
Regulatory Compliance
The Remuneration Policy set out on pages 81 to 89 was prepared in accordance with the Companies Act 2006 and The Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. It also meets the requirements of the
UK Listing Authority’s Listing Rules and the Disclosure and Transparency Rules. This Remuneration Report sets out how the provisions of
the September 2014 UK Corporate Governance Code are applied by the Company in relation to matters of remuneration. We have
complied for the year under review with these provisions.
Share Usage
Under the rules of the Vesuvius Share Plan, the Company has the discretion to satisfy awards either by the transfer of Treasury shares or other
existing shares, or by the allotment of newly issued shares. Awards made under the Deferred Share Bonus Plan, to satisfy shares awarded to
Directors under the annual incentive, and awards made to senior managers by the Company over shares pursuant to the Medium Term
Incentive Plan, must be satisfi ed out of shares held for this purpose by the Company’s employee share ownership plan trust (‘ESOP’). The
decision on how to satisfy awards is taken by the Remuneration Committee which considers the most prudent and appropriate sourcing
arrangement for the Company.
At 31 December 2016 the Company held 7,271,174 ordinary shares in Treasury and 1,081,752 Vesuvius shares were held in the ESOP.
The Trustee of the ESOP can be gifted Treasury shares by the Company, can purchase shares in the open market or can subscribe for newly
issued shares, as required, to meet obligations for the provision of shares to satisfy options and awards that vest.
The Vesuvius Share Plan complies with the current Investment Association guidelines on headroom which provide that overall dilution under
all plans should not exceed 10% over a ten-year period in relation to the Company’s issued share capital, with a further limitation of 5%
in any ten-year period on discretionary schemes. More than 9.9% of the 10% limit and more than 4.9% of the 5% limit is available as
headroom for the Company. No Treasury shares have been transferred or newly issued shares allotted under the Vesuvius Share Plan during
the year under review.
Policy Implementation
The following section provides details of how the Company’s Remuneration Policy was implemented during the fi nancial year 2016 and
how it will be implemented in the fi nancial year 2017.
Directors’ Remuneration – audited
The table below sets out the total remuneration received by Executive Directors in the fi nancial year under review:
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Total salary2
Taxable benefi ts3
Pension4
Total fi xed pay5
Annual bonus6
Long-term incentives7
Total variable pay8
Total9
François Wanecq
Guy Young1
2016
(£000)
590
35
177
802
371
–
371
1,173
2015
(£000)
550
37
165
752
–
–
–
752
2016
(£000)
325
19
81
425
166
–
166
591
2015
(£000)
54
3
14
71
–
58
58
129
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Annual Report and Accounts 2016
Annual Report on Directors’ Remuneration
continued
The table below sets out the fees and taxable benefi ts received by Non-executive Directors in the fi nancial year under review and the total
remuneration received by both Executive and Non-executive Directors during the year under review:
John McDonough CBE
Nelda Connors10
Christer Gardell
Hock Goh11
Jane Hinkley
Douglas Hurt12
Total 2016 Non-executive Director remuneration
Total 2016 Executive Director remuneration
Total 2016 Director remuneration
Total fees2
(£000)
185
34
45
45
60
65
Taxable
benefi ts3
(£000)
21
8
14
8
4
2
2016
Total
(£000)
206
42
59
53
64
67
491
1,764
2,255
Total fees2
(£000)
185
45
45
34
60
46
Taxable
benefi ts3
(£000)
12
5
10
1
2
1
2015
Total
(£000)
197
50
55
35
62
47
Notes:
1. Guy Young joined the Board on 1 November 2015.
2. Base salary (or fees, as appropriate) earned during the fi nancial year.
3. Benefi ts for Executive Directors comprise car allowance, private medical care and tax advice and a de minimis amount for Directors’ spouses’ travel. The UK regulations require the inclusion of
benefi ts for Directors where these would be taxable in the UK on the assumption that the Director is tax resident in the UK. The fi gures in the table therefore include expense reimbursement and
associated tax relating to travel, accommodation and subsistence in connection with attendance at Board meetings and other Board business during the year, which are considered by HMRC to
be taxable in the UK.
4. François Wanecq receives a pension allowance of 30% of base salary and Guy Young receives a pension allowance of 25% of base salary. The fi gures in the table represent the value of all cash
allowances and contributions received in respect of pension benefi ts.
5. The sum of base salary, benefi ts and pension.
6. This fi gure includes any annual cash bonus incentive payments made to the Executive Directors for their performance in the year under review. See page 93 for more details.
7. This fi gure would include the value of any share award made to the Executive Directors under the Vesuvius Share Plan that is due to vest following the completion of the performance period in
the year under review. Neither the 2013 or 2014 Performance Share awards made to Mr Wanecq achieved the requisite performance conditions necessary to vest. The fi gure shown for Mr Young
has been updated to show the actual value on the date of grant of the Restricted Share award he received on joining Vesuvius, and includes a cash payment of £952 made to him to refl ect the
dividends that would have accrued on the shares between his date of joining and the grant date. See pages 96 for more details.
8. The sum of annual bonus, any applicable Restricted Share award and the value of long-term incentives where the performance period ended during the fi nancial year.
9. The sum of base salary, benefi ts, pension, annual bonus, any applicable Restricted Share award and long-term incentives where the performance period ended during the fi nancial year.
10. Nelda Connors retired from the Board on 30 September 2016.
11 Hock Goh joined the Board on 2 April 2015.
12. Douglas Hurt joined the Board on 2 April 2015.
Additional note:
13. Total 2015 Director remuneration for the Directors who served during 2015 was £1.701m.
Payments to Past Directors – audited
There were no payments made to a past Director of the Company during the year ended 31 December 2016.
Loss of Offi ce Payments – audited
There were no payments made to any Director for loss of offi ce during the year ended 31 December 2016.
Base Salary and Fees
In the year under review, the Chief Executive received a base salary of £590,000 per annum and the Chief Financial Offi cer received a base
salary of £325,000 per annum. Non-executive Directors’ fees were set at £45,000 per annum. Supplementary fees of £15,000 per annum
were paid to the Chairmen of the Audit and Remuneration Committees, respectively. A supplementary annual fee of £5,000 was also paid
to the Senior Independent Director. The Chairman was paid an annual fee of £185,000. Neither the Chairman nor the other Non-executive
Directors are members of the Group’s pension plans, nor do they participate in the Group’s incentive schemes.
As reported in our 2015 Remuneration Report, François Wanecq’s base salary was reviewed in late 2015 in line with the Group’s longer-term
approach of reviewing the salaries of Executive Directors and senior executives every two to three years. This was the fi rst time his base salary
had been reviewed since demerger and, following this review, it was resolved that his salary in 2016 should be increased by 7.2%, up to
£590,000 per annum, in recognition of his leadership of the Group over the three years since demerger and the tough trading environment
being experienced. In considering this increase, the Committee also took into account the fact that over the past three years the salary
increase for the UK salaried employee workforce had been 7.6%. There was no change to Guy Young’s base salary in 2016. There are
no changes to either of the Executive Directors’ salaries in 2017.
93
Pension Arrangements – audited
In accordance with his service agreement, François Wanecq is entitled to a pension allowance of 30% of base salary. Guy Young is entitled
to a pension allowance of 25% of base salary. This amount can be used to participate in Vesuvius’ pension arrangements, be invested in their
own pension arrangements or be taken as a cash supplement (or any combination of these alternatives).
Annual Bonus
The Executive Directors are eligible to receive an annual incentive calculated as a percentage of base salary, based on achievement against
specifi ed targets. Each year the Remuneration Committee establishes the fi nancial performance criteria for the forthcoming year. These
criteria are set by reference to the Company’s fi nancial budget. The target range is set to ensure that maximum bonuses are paid only for
signifi cantly exceeding performance expectations. The Remuneration Committee considers that the setting and attainment of these targets
is important in the context of achievement of the Company’s longer-term strategic goals.
The annual incentive has a threshold level of performance below which no award is paid, a target level and a maximum performance level
at which a maximum award is earned. For 2016 François Wanecq’s maximum annual incentive potential was 125% of base salary and his
target annual incentive potential was 62.5% of base salary. Guy Young’s maximum annual incentive potential was 100% of base salary and
his target annual incentive potential was 50% of base salary.
For the fi nancial year 2016, 80% of the Executive Directors’ annual incentives were based on a fi nancial target: Vesuvius’ Group headline
earnings per share, with an adjustment based on Vesuvius’ working capital performance to focus greater attention on cash fl ow; and 20%
on the achievement of personal objectives.
Financial targets
The effect of the working capital kicker was to reduce the level of pay-out that could be achieved by up to 10% if specifi ed working capital
targets were not attained. This ‘kicker’ could also increase the level of pay-out by up to 10%, but not above the stated plan maximum.
The 2016 Vesuvius Group headline earnings per share performance targets set out below were set at the December 2015 full year average
foreign exchange rates, being the rates used for the 2016 budget process:
Threshold: 23.1 pence
On target: 28.3 pence
Maximum: 30.0 pence
In order to achieve the working capital target, the Group’s working capital as a percentage of sales had to be between 24.5% to
25.5% of sales.
In assessing the Group’s performance against these targets, the Committee uses a constant currency approach. Thus, the 2016 full year
EPS performance was retranslated at December 2015 full year average foreign exchange rates to establish performance. This is consistent
with practice in previous years.
In 2016 Vesuvius’ retranslated EPS performance was 28.3 pence, and working capital was 26.6%. Consequently EPS performance was on
target, but the working capital target was not met. Payments of 44.6% and 35.6% of base salary were therefore due under the Annual
Incentive Plan to François Wanecq and Guy Young, respectively, in respect of the fi nancial performance metrics.
Personal objectives
In 2016, for the fi rst time, a proportion (20%) of the Annual Incentive for Executive Directors was based on the achievement of personal
objectives. A summary of the objectives set and performance achieved is set out below
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Chief Executive
Summary of objective
Implementation of
Board approved strategy
Summary outcome
> Implementation of programmes to focus growth in China, including sales progression and
production improvements
> Maintaining growth momentum in India with strong sales and improved trading margin.
R&D centre created.
Timely implementation
of agreed restructuring plans
Succession planning for executive and
senior management roles
Corporate activity
> Achievement of cash savings ahead of budget
> Many actions delivered ahead of schedule
> Good progress made in operational management
> Adoption by Board of personal development programme for high potential individuals
> Completed acquisition of mould fl ux business of Carboox
> Good progress on other projects
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Annual Report and Accounts 2016
Annual Report on Directors’ Remuneration
continued
In summary, after considering performance as outlined above, the Committee approved an Annual Incentive award of 18.25% of base salary
in respect of the personal objectives for François Wanecq.
Finance Director
Summary of objective
People and Team
Update IT strategy and progress implementation
Improve Group cash management
Provide outline for a more effi cient back offi ce
Summary outcome
> New capability assessment process embedded and cascaded
> Effective transition as Finance Director from the perspective of his direct team
> Updated IT strategy was approved in 2016
> IT Governance structure updated
> Strong cash conversion (in the context of ongoing challenges in certain
key markets)
> Feasibility study for project approved
> Proposals for design presented
Conduct effective/effi cient external audit tender
> Fully achieved in line with objectives
In summary, after considering performance as outlined above, the Committee, approved an Annual Incentive award of 15.50% of base salary
in respect of the personal objectives for Guy Young.
2017 Annual Incentive
The Remuneration Committee has determined that for 2017 the structure of the annual incentive should be amended to strengthen the
alignment of this incentive with the Group’s strategic objectives. For 2017, 60% of François Wanecq and Guy Young’s annual incentives
will therefore be based on Group headline earnings per share, 20% on the Group’s cash conversion ratio (defi ned as operating cash fl ow
divided by trading profi t) and 20% on the achievement of personal objectives. The working capital kicker utilised in previous years has been
removed. The Committee believes that the substitution of cash conversion for the “cash kicker” will ensure a clearer focus on cash generation
and management on a standalone basis. The Company will not be disclosing the targets set until after the relevant performance period has
ended because of commercial sensitivities. The personal objectives for 2017 are all non-fi nancial or job-specifi c in nature and track
performance against key strategic, organisational and operational goals. François Wanecq and Guy Young’s maximum annual incentive
bonus potential for 2017 will be 125% of base salary. In addition, as required in our new Remuneration Policy, 33% of any Annual Incentive
earned will be deferred into awards over shares for three years. This further aligns our remuneration arrangements with investors.
Malus/Clawback Arrangements in 2017
Vesuvius has malus and clawback arrangements in respect of Executive Directors’ variable remuneration. The structure of those
arrangements is outlined in our Remuneration Policy.
Longer-term Pay – Audited
Performance Share awards are allocated to the Executive Directors under the Vesuvius Share Plan. In accordance with the Remuneration
Policy and the rules of the VSP, they are eligible to receive, on an annual basis, a Performance Share award with a face value of up to 200%
of salary. Vesting of 50% of shares awarded is based upon the Company’s three-year TSR performance relative to that of the constituent
companies of the FTSE 250 (excluding Investment Trusts), and 50% on headline EPS growth. The level of compound headline EPS growth
specifi ed in the targets is set by the Remuneration Committee each year, taking into account the Group’s prospects and the broader global
economic environment. The two measures operate independently. The use of these performance measures is intended to align executive
remuneration with shareholders’ interests.
Targets for the 2014 and 2015 Performance Share Awards – Audited
Vesuvius Share Plan – performance targets
TSR ranking relative to FTSE 250
excluding Investment Trusts
Below median
Median
Between median
and upper quintile
Upper quintile
Vesting percentage
0%
12.50%
Pro rata between
12.50% and 50%
50%
Annual compound headline
EPS growth above global GDP
Below 3%
3%
Between 3% and 15%
At or above 15%
Vesting percentage
0%
12.50%
Pro rata between
12.50% and 50%
50%
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Targets for the 2016 and 2017 Performance Share Awards – Audited
The Remuneration Committee has determined that François Wanecq will receive a Performance Share award in 2017 equivalent in value to
200% of his base salary and Guy Young an award equivalent in value to 150% of his base salary. In February 2016, the Committee reviewed
the performance conditions proposed for the award of Performance Shares in 2016 and resolved to simplify and amend the EPS performance
measure by removing the reference to global GDP. Removing the reference to global GDP ensures that the arrangements are simplifi ed and
are more understandable for all participants. The same approach is to be used in 2017. The Committee has set a schedule of EPS targets that
is designed at the maximum to be highly challenging, whilst remaining an effective incentive for the management team.
Vesuvius Share Plan – performance targets
TSR ranking relative to FTSE 250
excluding Investment Trusts
Below median
Median
Between median
and upper quintile
Upper quintile
Vesting percentage
0%
12.50%
Pro rata between
12.50% and 50%
50%
Annual compound headline
EPS growth
Below 3%
3%
Between 3% and 6%
6%
Between 6% and 15%
At or above 15%
Vesting percentage
0%
12.50%
Pro rata between
12.50% and 25%
25%
Pro rata between
25% and 50%
50%
Vesuvius Performance Share Award Allocations – Audited
The performance period applicable to the awards made in 2014 ended on 31 December 2016. The TSR performance during this three-year
performance period was assessed against the comparator group and it was determined that the Company’s performance was below
median. As a result, no Performance Share awards will vest under the TSR performance element. There will also be no Performance Share
awards that vest under the EPS performance element of the performance condition as the annual compound headline EPS growth
above GDP for the period was -1.9%. The applicable Performance Share award will therefore lapse on the third anniversary of the grant.
The following table sets out those Performance Share awards that were allocated in 2013, 2014, 2015 and 2016 under the Vesuvius
Share Plan:
Grant and type of award
François Wanecq
22 April 20131
Performance Shares
17 March 20142
Performance Shares
1 April 20153
Performance Shares
8 April 20164
Performance Shares
Total
Guy Young
8 April 20164
Performance Shares
Total
Total share
allocations
as at
31 Dec 2015
Additional
shares
allocated
during the year
Allocation
lapsed during
the year
Shares vested
during the year
Total share
allocation
31 Dec 2016
Market price of
the shares on
the day before
award (p)
Performance
period
Earliest
vesting date
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341,509
253,748
221,533
–
–
341,509
–
–
–
816,790
373,938
373,938
–
341,509
1 Jan 13 –
31 Dec 15
–
322.1
22 Apr 2016
1 Jan 14 –
31 Dec 16
253,748
429.3
17 Mar 2017
221,533
491.1
1 Jan 15 –
31 Dec 17
1 Jan 16 –
31 Dec 18
1 Apr 2018
373,938
849,219
291.7
8 Apr 2019
–
–
–
–
–
1 Jan 16 –
31 Dec 18
–
–
128,739
128,739
–
–
–
–
128,739
128,739
291.7
8 Apr 2019
96
Annual Report on Directors’ Remuneration
continued
Notes:
1. The Performance Shares that were allocated in 2013 had performance conditions to be tested over the financial years 2013, 2014 and 2015. As the requisite performance was not achieved,
2.
3.
4.
François Wanecq’s award lapsed on the third anniversary of grant in April 2016.
In 2014 François Wanecq received a maximum allocation of Performance Shares worth two times his base salary, being 253,748 shares. These Performance Shares had performance conditions
to be tested over the financial years 2014, 2015 and 2016. They will lapse on the third anniversary of grant in March 2017.
In 2015 François Wanecq received a maximum allocation of Performance Shares worth two times his base salary, being 221,533 shares.
In 2016 François Wanecq and Guy Young received allocations of Performance Shares worth 2 times and 1.25 times their base salaries, respectively, being 373,938 shares and 128,739 shares
respectively. These allocations were calculated based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the award was made, being £3.1556.
The total value of these awards based on this share price on the date of grant was therefore £1,179,999 and £406,249 respectively.
Additional notes:
5. All these awards have been made in the form of nil cost options with no exercise price.
6.
If the performance conditions for these awards are not met then these awards will lapse. If the threshold level of either of the two performance conditions applicable to these awards is met,
then 12.50% of the award will vest.
7. The Remuneration Committee also has the discretion to award cash or shares equivalent in value to the dividend that would have accrued during the vesting period on any awards that vest.
8. The mid-market closing price of Vesuvius’ shares ranged between 270.6p and 402.2p during 2016 and on 30 December 2016, the last dealing day of the year, was 395.3p.
Restricted Share Award
On Guy Young’s appointment as Chief Financial Officer, the Committee resolved, in compliance with the Group’s Remuneration Policy on
recruitment, that it would partially compensate him for the long-term incentives awarded by his previous employer that he forfeited as a
result of joining Vesuvius. The Committee resolved that Guy Young would receive a one-off Restricted Share award under the Vesuvius Share
Plan over Vesuvius plc shares to a maximum value of £150,000 with the number of shares under the Restricted Share award being calculated
with reference to the closing market price on 2 November 2015 (the first trading day after Guy Young began employment at Vesuvius)
which was £3.659. Shortly after his appointment, Guy Young received a proportion of his long-term incentives from his former employer
and thus, in line with the agreement made at the time of his appointment, his Restricted Share award was automatically reduced pro rata
for this receipt to an amount of £62,625. Based on the above share price this amounted to a Restricted Share award over 17,115 shares.
Half of this award vested on 13 May 2016, the remainder will vest on the second anniversary of the date of his commencement of
employment. In order to be consistent with the terms of the forfeited long-term awards, vesting of this remaining Restricted Share award will
be subject to him remaining employed by the Company and not being under notice of termination on the vesting date above. It is not subject
to any further performance condition. Details of the portion of the Restricted Share award that remained outstanding as at 31 December
2016 are given in the table below:
Date of award
13 May 2016
Shares allocated
during the year
17,115
Shares vested
during the year1
8,558
Total share
allocation
31 Dec 2016
8,557
Market price of the
shares on the day
before award (p)
336.6
Earliest
vesting date of
outstanding award
1 Nov 2017
Notes:
1. 8,558 shares vested to Guy Young on 13 May 2016. The mid-market closing price of the Company’s shares on the date of vesting was £3.337. The total value of shares that he received on
the date of vesting was therefore £28,558. In addition Guy Young received a cash payment of £952 to reflect the dividends that would have accrued on the shares between his date of joining
and the vesting date.
Statement of Directors’ Shareholdings – Audited
The interests of Directors and their closely associated persons in ordinary shares as at 31 December 2016, including any interests in share
options and shares provisionally awarded under the Vesuvius Share Plan are set out below:
Executive Directors
François Wanecq
Guy Young
Non-executive Directors
John McDonough CBE (Chairman)
Christer Gardell2
Hock Goh
Jane Hinkley
Douglas Hurt
Beneficial
holding
Outstanding
incentive
awards1
1,338,909
4,527
849,219
137,296
100,000
–
5,000
12,000
18,000
–
–
–
–
–
Note:
1. François Wanecq holds 849,219 and Guy Young holds 128,739 nil cost options granted as Performance Shares under the Vesuvius Share Plan. These are all subject to performance conditions.
In addition, Guy Young holds an allocation of 8,557 shares under his Restricted Share award which will vest subject to him remaining employed by the Company and not being under notice
of termination on the vesting date. They are not subject to any further performance conditions.
2. Christer Gardell is Managing Partner of, and has a financial interest in, Cevian Capital which held 21.11% of Vesuvius’ issued share capital as at 31 December 2016 and at the date of this report.
Vesuvius plcAnnual Report and Accounts 2016 97
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Additional notes:
3. None of the other Directors, nor their spouses, nor their minor children, held non-benefi cial interests in the ordinary shares of the Company during the year.
4. There were no changes in the interests of the Directors in the ordinary shares of the Company in the period from 1 January 2017 to 2 March 2017.
5. All awards under the Vesuvius Share Plan are subject to performance conditions and continued employment until the relevant vesting date as set out on pages 94 and 95.
6. Full details of Directors’ shareholdings and incentive awards are given in the Company’s Register of Directors’ Interests, which is open to inspection at the Company’s registered offi ce during
business hours.
Shareholding Guidelines
The Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company. The required holding of
the Chief Executive is to be equivalent in value to at least 2x salary and that required of other Executive Directors is to be equivalent in value
to at least 1x salary. To this end, Executive Directors are required, not just encouraged, to retain at least 50% (measured as the value after tax)
of any shares received through the operation of share schemes; in addition, permission to sell shares held – whether acquired through the
operation of share schemes or otherwise – will not be given, other than in exceptional circumstances, if, following the disposal, the
shareholding policy is not still met.
Compliance with the shareholding policy is tested at the end of each year for application in the following year using the average of the
closing prices of a Vesuvius ordinary share for the trading days in that December.
Executive Directors’ Shareholdings – Audited
As at 31 December 2016, the Executive Directors’ shareholdings against the current shareholding guidelines (using the Company’s share
price averaged over the trading days of the period 1 December to 31 December 2016, of 397.77p) were as follows:
Director
François Wanecq
Guy Young
Actual share ownership
as a percentage of salary
at 31 Dec 2016
903%
6%
Policy share ownership
Policy met?
as a percentage of salary
200%
Yes
100% Yes (in the build-up period)
Annual Changes in Chief Executive Pay vs. Employee Pay
The table below shows the percentage change in the remuneration of the Chief Executive – comprising salary, taxable benefi ts and annual
bonus – and comparable data of UK salaried employees. The UK salaried employee workforce was chosen as a fair representation of a
suitable comparator group as François Wanecq, the Chief Executive, is based in the UK (albeit with a global role and responsibilities) and
levels of pay vary widely across the Group depending on geography and local market conditions. François Wanecq’s salary was increased by
7.2% in 2016. This was the fi rst time it had been increased since the demerger in 2012. In considering this increase the Committee also took
into account the fact that over the past three years the salary increase for the UK salaried employee workforce had been 7.6%.
Salary
Taxable benefi ts
Annual bonus
2016
(£000)
590
35
371
Chief Executive
% change
7
(6)
100
2015
(£000)
550
37
0
UK salaried
employee
workforce
(average
per capita)
% change
3.27
4.49
3691
Note:
1. There was no payout to the Executive Directors and Corporate staff under the fi nancial element of the annual bonus plans in 2015. The percentage increase shown therefore refl ects the anticipated
payouts for 2016.
98
Vesuvius plc
Annual Report and Accounts 2016
Annual Report on Directors’ Remuneration
continued
Annual Spend on Employee Pay vs. Shareholders Distributions
The charts below show the annual spend on all employees (including Executive Directors) compared with distributions made and proposed
to be made to shareholders for 2015 and 2016:
Relative importance of spend on pay (2016) £m
Relative importance of spend on pay (2015) £m
£44.7m
10%
£43.8m
11%
Remuneration
Dividends
Remuneration
Dividends
90%
£384.8m
89%
£345.7m
Group remuneration of continuing operations (see Note 8)
Dividends (based on fi nal proposed dividend)
TSR Performance and Chief Executive Pay
TSR performance graph
(£m)
2016
384.8
44.7
(£m)
2015
345.7
43.8
Change
11.31%
2.1%
The TSR performance graph compares Vesuvius TSR performance
with that of the same investment in the FTSE 250 Index (excluding
Investment Trusts). This index has been chosen as the comparator
index to refl ect the size, international scope and diversity of the
Company. TSR is the measure of the returns that a company has
provided for its shareholders, refl ecting share price movements
and assuming reinvestment of dividends. A spot rate has been
used for this graph. The demerger of Vesuvius plc was effective
on 19 December 2012 and therefore the graph shows the period
from 19 December 2012 to 31 December 2016.
200
150
100
50
Chief Executive pay – fi nancial year ending
Total remuneration (single fi gure (£000))
Annual variable pay (% of maximum)
Long-term variable pay (% of maximum)
Statement on Shareholder Voting
Vesuvius plc
FTSE 250 Index (excluding Investment Trusts)
19/12/12
31/12/12
£1,227
0%
67%
31/12/13
£2,447
100%
28%
31/12/14
£1,519
64%
27%
31/12/15
£752
0%
0%
31/12/16
£1,173
63%
0%
At the last AGM (which was held on 12 May 2016) the resolution concerning the advisory vote on the Remuneration Report for 2015
received 197,395,591 votes (82.86%) in favour and 40,836,586 votes against (17.14%); 1,133,645 votes were withheld. At the AGM to
be held on 10 May 2017, shareholders will again be invited to participate in an advisory vote on the Remuneration Report.
The Remuneration Policy will next be put to a vote at this year’s AGM, as that is three years on from 2014, when the policy was approved
with 215,577,683 votes (98%) in favour and 4,684,029 votes (2%) against; 213,747 votes were withheld.
The Directors’ Remuneration Report has been approved by the Board and is signed on its behalf by
Jane Hinkley Chairman, Remuneration Committee
2 March 2017
99
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Directors’ Report
Directors’ Report
Research and Development
The Directors submit their Annual Report together with the
audited accounts of the Group and of the Company, Vesuvius plc,
registered in England and Wales No. 8217766, for the year ended
31 December 2016.
The Companies Act 2006 requires the Company to provide a
Directors’ Report for Vesuvius plc for the year ended 31 December
2016. The information that fulfi ls this requirement and which is
incorporated by reference into, and forms part of, this report is
included in the following sections of the Annual Report:
> the ‘Our Responsibility’ section
> the ‘Governance’ section
> Financial Instruments: the information on fi nancial risk
management objectives and policies contained in Notes 20
and 27 to the Consolidated Financial Statements
This Directors’ Report and the Strategic Report contained in pages
2 to 59 together represent the management report for the purpose
of compliance with DTR 4.1.8R of the UK Listing Authority’s
Disclosure and Transparency Rules. The Company does not have any
overseas branches within the meaning of the Companies Act 2006.
Going Concern
Information on the business environment in which the Group
operates, including the factors that are likely to impact the future
prospects of the Group, is included in the Strategic Report. The
principal risks and uncertainties that the Group faces throughout its
global operations are shown on pages 20 and 21. The fi nancial
position of the Group, its cash fl ows, liquidity position and debt
facilities are also described in the Strategic Report. In addition, the
Group’s Viability Statement is set out within the Strategic Report
on pages 19 and 20. Notes 20 and 27 to the Consolidated Financial
Statements set out the Group’s objectives, policies and processes
for managing its capital; fi nancial risks; fi nancial instruments and
hedging activities; and its exposures to credit, market (both currency
and interest rate related) and liquidity risk. Further details of the
Group’s cash balances and borrowings are included in Notes 13,
14 and 27 to the Consolidated Financial Statements.
The Directors have prepared cash fl ow forecasts for the Group for
a period in excess of 12 months from the date of approval of the
2016 fi nancial statements. These forecasts refl ect an assessment of
current and future end-market conditions and their impact on the
Group’s future trading performance. The forecasts show that the
Group will be able to operate within the current committed debt
facilities and show continued compliance with the Company’s
fi nancial covenants. On the basis of the exercise described above
and the Group’s available committed debt facilities, the Directors
consider that the Group and Company have adequate resources
to continue in operational existence for a period of 12 months from
the date of signing of these accounts. Accordingly, they continue to
adopt a going concern basis in preparing the fi nancial statements of
the Group and the Company.
The Group’s investment in research and development (‘R&D’) during
the year under review amounted to £28.6m (representing approx.
2.0% of Group revenue (2015: 2.0%). Further details of the Group’s
R&D activities can be found in the Innovation section of the
Strategic Report.
Dividends
An interim dividend of 5.15 pence (2015: 5.15 pence) per Vesuvius
ordinary share was paid on 23 September 2016 to Vesuvius
shareholders. The Board is recommending a fi nal dividend in respect
of 2016 of 11.40 pence (2015: 11.125 pence) per ordinary share
which, if approved, will be paid on 19 May 2017 to shareholders
on the register at 7 April 2017.
Accountability and Audit
A responsibility statement of the Directors and a statement by
the auditor about its reporting responsibilities can be found on
pages 103 and 106 to 108 respectively. The Directors fulfi l the
responsibilities set out in their statement within the context of
an overall control environment of central strategic direction and
delegated operating responsibility. As at the date of this report,
so far as each Director of the Company is aware, there is no relevant
audit information of which the Company’s auditor is unaware and
each Director hereby confi rms that they have taken all the steps that
they ought to have taken as a Director in order to make themselves
aware of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
Auditor Appointment
A competitive tender process for the appointment of a statutory
auditor was conducted during 2016. Following the completion of
this the Company is recommending that PricewaterhouseCoopers
LLP be appointed as external auditor for Vesuvius plc for the year
ending 31 December 2017, replacing KPMG LLP. KPMG LLP has
audited the Group’s accounts for the year ending 31 December
2016. Shareholder approval to confi rm the appointment of
PricewaterhouseCoopers LLP and to authorise the Directors
to determine its remuneration will be sought at the AGM.
Directors
The Directors of the Company are Christer Gardell, Hock Goh,
Jane Hinkley, Douglas Hurt, John McDonough CBE, François Wanecq
and Guy Young. Nelda Connors retired as a Director of the Company
during the year. All the Directors will retire at the AGM and offer
themselves for re-election at the AGM. Biographical information
for the current Directors is given on pages 22 and 23. Further
information on the remuneration of, and contractual arrangements
for, the current Executive and Non-executive Directors is given
on pages 90 to 98 in the Directors’ Remuneration Report.
The Non-executive Directors do not have service agreements.
100
Vesuvius plc
Annual Report and Accounts 2016
Directors’ Report
continued
Directors’ Indemnities
The Directors have been granted Qualifying Third Party Indemnity
Provisions by the Company and the Directors of the Group’s UK
Pension Plan Trustee Board (none of whom is a Director of Vesuvius
plc) have been granted Qualifying Pension Scheme Indemnity
Provisions by Vesuvius Pension Plans Trustees Ltd. The indemnities
for Directors of Vesuvius plc have been in force since the date of
their appointment. The Pension Trustee indemnities were in force
throughout the last fi nancial year and remain in force.
Annual General Meeting
The Annual General Meeting of the Company will be held at
The Lincoln Centre, 18 Lincoln’s Inn Fields, London WC2A 3ED
on Wednesday 10 May 2017 at 11.00 am.
Amendment of Articles of Association
The Company may make amendments to the Articles by way
of special resolution in accordance with the Companies Act.
Greenhouse Gas Emissions
Information on our reporting of greenhouse gas emissions, and
the methodology used to record these, is set out on page 56 of
the Strategic Report.
Donations
In accordance with Company policy, no political donations were
made in 2016 (2015: nil).
Change of Control Provisions
The terms of the Group’s committed bank facility and US Private
Placement Loan Notes contain provisions entitling the counterparties
to exercise termination or other rights in the event of a change of
control on takeover of the Company. A number of the arrangements
to which the Company and its subsidiaries are party, such as other
debt arrangements and share incentive plans, may also alter or
terminate on a change of control in the event of a takeover. In the
context of the Group as a whole, these other arrangements are
not considered to be signifi cant.
Share Capital
As at the date of this report, the Company had an issued share
capital of 278,485,071 ordinary shares of 10 pence each; 7,271,174
of these ordinary shares are held in Treasury. Therefore, the total
number of Vesuvius plc shares with voting rights is 271,213,897.
Further information relating to the Company’s issued share capital
can be found in Note 7 to the Company fi nancial statements.
The Company’s Articles specify that, subject to the authorisation
of an appropriate resolution passed at a General Meeting of the
Company, Directors can allot relevant securities under Section
551 of the Companies Act up to the aggregate nominal amount
specifi ed by the relevant resolution. In addition, the Articles state
that the Directors can seek the authority of shareholders in a General
Meeting to allot equity securities for cash, without fi rst being
required to offer such shares to existing ordinary shareholders in
proportion to their existing holdings under Section 561 of the
Companies Act, in connection with a rights issue and in other
circumstances up to the aggregate nominal amount specifi ed by
the relevant resolution.
At the Annual General Meeting on 12 May 2016, the Directors were
authorised to issue relevant securities up to an aggregate nominal
amount of £18,080,926 and empowered to allot equity securities
for cash on a non pre-emptive basis up to an aggregate nominal
amount of £2,712,138 in accordance with the terms of the
Pre-Emption Group’s Statement of Principles, at any time up to
the earlier of the date of the 2017 Annual General Meeting or
30 June 2017. The Directors propose to renew these authorities at
the 2017 Annual General Meeting for a further year. In the year
ahead, other than in respect of Vesuvius’ ability to satisfy rights
granted to employees under its various share-based incentive
arrangements, the Directors have no present intention of issuing any
share capital of Vesuvius plc.
Authority for Purchase of Own Shares
Subject to the provisions of company law and any other applicable
regulations, the Company may purchase its own shares. At the
Annual General Meeting of the Company held on 12 May 2016
Vesuvius shareholders gave authority to the Company to make
market purchases of up to 27,121,389 Vesuvius ordinary shares,
representing 10% of the Company’s issued ordinary share capital
as at the latest practicable day prior to the publication of the Notice
of AGM. This authority expires on 30 June 2017 or the date of the
AGM to be held in 2017, whichever is the earlier. The Directors will
seek renewal of this authority at the forthcoming AGM.
In 2013 the Company acquired 7,271,174 ordinary shares,
representing a nominal value of £727,117 and 2.6% of the entire
called-up share capital of the Company prior to the purchase.
These shares were purchased pursuant to the Board’s commitment
to return the majority of the net proceeds of the disposal of the
Precious Metals Processing division to shareholders. These shares are
currently held as Treasury shares. The Company has not subsequently
disposed of any of the repurchased shares. During the year, the
Company did not make any further acquisitions of shares, any
acquisitions by nominee, nor did it dispose of any shares previously
acquired. The Company does not have a lien over any of its shares.
Share Plans
Vesuvius operates a number of share-based incentive plans.
For the majority of these plans the Group can satisfy entitlements
by the acquisition of existing shares, the transfer of Treasury
shares or by the issue of new shares. Existing shares are held in
an employee share ownership trust (‘ESOP’). The Trustee of the
ESOP purchases shares in the open market as required to enable the
Group to meet liabilities for the issue of shares to satisfy awards that
vest. The Trustee does not register votes in respect of these shares
and has waived the right to receive any dividends.
101
Restrictions on Transfer of Shares and Voting
Employee Communications
The Company’s Articles of Association (‘Articles’) do not contain
any specific restrictions on the size of a holding or on the transfer
of shares. The Directors are not aware of any agreements between
holders of the Company’s shares that may result in restrictions on
the transfer of securities or voting rights.
No person has any special rights with regard to the control of the
Company’s share capital and all issued shares are fully paid. This is
a summary only and the relevant provisions of the Articles should
be consulted if further information is required.
Interests in the Company’s Shares
The Company has been notified in accordance with DTR 5 of the
Disclosure and Transparency Rules of the following interests of 3%,
or more, of its issued ordinary shares:
Cevian Capital
Franklin Templeton
Artisan Partners
Deutsche Bank
Aberforth Partners
Pelham Capital Management CfD
Phoenix Asset Management
As at
31 Dec 2016
21.11
9.92
11.74
8.11
5.11
5.91
3.10
As at
2 Mar 2017
21.11
9.92
9.57
8.92
5.11
4.58
3.10
The interests of Directors and their connected persons in the
ordinary shares of the Company as disclosed in accordance with the
Listing Rules of the UK Listing Authority are as set out on page 96 of
the Directors’ Remuneration Report and details of the Directors’
long-term incentive awards are set out on pages 95 and 96.
Equal Opportunities Employment
Vesuvius plc is an equal opportunities employer and decisions
on recruitment, development, training and promotion and other
employment-related issues are made solely on the grounds of
individual ability, achievement, expertise and conduct. These
principles are operated on a non-discriminatory basis, without regard
to race, colour, nationality, culture, ethnic origin, religion, belief,
gender, sexual orientation, age, disability or any other reason not
related to job performance or prohibited by applicable law. In cases
where employees are injured or disabled during employment with
the Group, support, including appropriate training, is provided
to those employees and workplace adjustments are made as
appropriate in respect of their duties and working environment,
supporting recovery and continued employment.
Vesuvius adopts an open and honest approach to employee
communications, supported by regular updates from senior
management across all businesses and operations within the Group.
Regular communications include email updates on the financial
performance of the Company and the industry environment in
which Vesuvius operates, an employee intranet which distributes
Company news and events, as well as local initiatives for employee
engagement on a site-by-site basis. The HR department is the
primary point of contact for employees on employment and
workplace matters, operating with an open door policy and advising
employees of any local legal, tax, pension or other employment
changes. There are numerous employee sponsored and led
representative bodies within Vesuvius which differ with respect to
jurisdiction and geography. Senior management, supported and
facilitated by the HR department, encourages open dialogue and
seeks opportunities to consult with employee representative bodies
as appropriate.
Pensions
In each country in which the Group operates, the pension
arrangements in place are considered to be consistent with good
employment practice in that particular area. Independent advisers
are used to ensure that the plans are operated in accordance with
local legislation and the rules of each plan. Group policy prohibits
direct investment of pension fund assets in the Company’s shares.
Outside the UK, the US, Germany and Belgium, the majority of
pension plans in the Group are of a defined contribution nature.
In 2016 the main German defined benefit plan was closed for new
entrants and existing members were offered a buy-out of their
benefits under this plan. Those who accepted this buy-out then
joined the new defined contribution plan.
The Group’s UK defined benefits plan (the ‘UK Plan’) and the
main US defined benefits plans are closed to new entrants and
have ceased providing future benefits accrual, with all eligible
employees instead being provided with benefits through defined
contribution arrangements.
For the Group’s closed UK Plan, a Trustee Board exists comprising
employees, former employees and an independent trustee.
The Board currently comprises six trustee Directors, of whom
two are member-nominated. The administration of the UK Plan
is outsourced. The Company is mindful of its obligations under the
Pensions Act 2004 and of the need to comply with the guidance
issued by the Pensions Regulator. Regular dialogue is maintained
between the Company and the Trustee Board of the UK Plan to
ensure that both Company and Trustee Board are apprised of the
same financial and other information about the Group and the
UK Plan. This is pertinent to each being able to contribute to the
effective functioning of the UK Plan.
Governance 102
Vesuvius plc
Annual Report and Accounts 2016
Directors’ Report
continued
Although the latest full valuation of the UK Plan showed a funding
surplus, the Company has agreed to continue to make voluntary
contributions of £2.0m per annum to further improve the funding
position of the UK Plan and to assist with future de-risking actions.
The Group’s worldwide net pension defi cit at 31 December 2016
was £29.4m (31 December 2015: £35.3m). The principal reasons for
the £5.9m reduction in the net defi cit were the change in fi nancial
assumptions, signifi cantly, the decrease in discount rates across the
UK, US and Germany, which increased pension liabilities by £87.4m,
more than offset by actuarial gains on plan assets of £93.2m,
principally in the UK. Further details of pension arrangements
are given in Note 28 to the Consolidated Financial Statements.
The following disclosures are made in compliance with the Financial Conduct Authority’s Listing Rule 9.8.4C R:
Disclosure requirement under LR 9.8.4 R
(1) Interest capitalised by the Group during the year
(2) Publication of unaudited fi nancial information
(4) Details of any long-term incentive schemes
(5) Director waiver of emoluments
(6) Director waiver of future emoluments
(7) Allotment for cash of equity securities made during the year
(8) Allotment for cash of equity securities made by a major unlisted
subsidiary during the year
(9) Details of participation of parent undertaking in any placing
made during the year
(10) Details of relevant contracts in which a Director or controlling
shareholder was interested during the year
(11) Contracts for the provision of services by a controlling
shareholder during the year
(12) Details of any arrangement under which a shareholder
has waived or agreed to waive any dividends
(13) Details of where a shareholder has agreed to waive
future dividends
(14) Statements relating to controlling shareholders and
ensuring company independence
Reference/Location
See Note 9.1 on page 121
Not applicable
Pages 82 and 83
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Vesuvius plc holds 7,271,174 of its £0.10 ordinary shares as Treasury
shares. No dividends are payable on these shares. Cookson
Investments (Jersey) Limited, the Trustee of the Company’s ESOP,
has agreed to waive, on an ongoing basis, any dividends payable
on shares it holds on trust for use under the Company’s Employee
Share Plans, details of which can be found on pages 91 and 100
See above
Not applicable
The Directors’ Report has been approved by the Board and is signed on its behalf by
Henry Knowles Company Secretary
2 March 2017
103
Statement of Directors’ Responsibilities in respect of the
Annual Report and Financial Statements
Responsibility Statement of the Directors in respect of
the Annual Financial Report
Each of the Directors confi rms that to the best of their knowledge:
> The fi nancial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, fi nancial position and profi t or loss of the
Company and the undertakings included in the consolidation
taken as a whole
> The Directors’ Report and Strategic Report include a fair review
of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face
In addition, the Directors consider that the Annual Report, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
The names and functions of the Directors of Vesuvius plc are
as follows:
John McDonough CBE
François Wanecq
Guy Young
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Chairman
Chief Executive
Chief Financial Offi cer
Non-executive Director
Non-executive Director
Non-executive Director
and Chairman of the
Remuneration Committee
Non-executive Director, Senior
Independent Director and Chairman
of the Audit Committee
On behalf of the Board
Guy Young Chief Financial Offi cer
2 March 2017
G
o
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The Directors of Vesuvius plc are responsible for preparing
the Annual Report and the Group and parent company
(the ‘Company’) fi nancial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Company
fi nancial statements for each fi nancial year. Under that law they are
required to prepare the Group fi nancial statements in accordance
with IFRSs as adopted by the European Union and applicable law
and have elected to prepare the Company fi nancial statements
in accordance with UK Accounting Standards, including FRS 101
Reduced Disclosure Framework.
Under company law the Directors must not approve the fi nancial
statements unless they are satisfi ed that they give a true and fair
view of the state of affairs of the Group and Company and of their
profi t or loss for that period. In preparing each of the Group and
Company fi nancial statements, the Directors are required to:
> Select suitable accounting policies and then apply
them consistently
> Make judgements and estimates that are reasonable and prudent
> For the Group fi nancial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the
European Union
> For the Company fi nancial statements, state whether applicable
UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the Company
fi nancial statements
> Prepare the fi nancial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business
The Directors are responsible for keeping adequate accounting
records that are suffi cient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the fi nancial position of the Company and enable them to ensure
that its fi nancial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Report that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and fi nancial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of fi nancial statements may differ from legislation
in other jurisdictions.
104
Vesuvius plc
Annual Report and Accounts 2016
Section Five
Financial
Statements
In this section
106 Independent Auditor’s Report
109 Group Income Statement
110 Group Statement of Comprehensive Income
111 Group Statement of Cash Flows
112 Group Balance Sheet
113 Group Statement of Changes in Equity
114 Notes to the Consolidated Financial Statements
152 Company Balance Sheet
153 Notes to the Company Financial Statements
161 Five-Year Summary: Divisional Results
162 Shareholder Information
164 Glossary
105
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Vesuvius plc
Annual Report and Accounts 2016
Independent Auditor’s Report
To the Members of Vesuvius plc Only
Opinions and conclusions arising from our audit
1 Our opinion on the fi nancial statements is unmodifi ed
We have audited the fi nancial statements of Vesuvius plc for the year
ended 31 December 2016 which comprise the group income
statement, the group statement of comprehensive income, the group
statement of cash fl ows, the group and company balance sheets,
the group statement of changes in equity, and the related notes.
In our opinion:
> the fi nancial statements give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31 December
2016 and of the group’s profi t for the year then ended;
> the group fi nancial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
> the parent company fi nancial statements have been properly
prepared in accordance with UK Accounting Standards, including
FRS 101 Reduced Disclosure Framework; and
> the fi nancial statements have been prepared in accordance with
the requirements of the Companies Act 2006; and, as regards the
group fi nancial statements, Article 4 of the IAS Regulation.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the fi nancial statements the
risks of material misstatement that had the greatest effect on our
audit, in decreasing order of audit signifi cance, were as follows
(unchanged from 2015):
Provisions (£58.6 million (2015: £47.2 million)):
Refer to page 72 (Audit Committee Report), page 115
(accounting policy) and page 150 (fi nancial disclosures).
The risk: In providing for known or probable costs, in particular to
those resulting from indirect tax, regulatory, legal, environmental
requirements or restructuring commitments, the Directors use their
judgement, experience, and where appropriate receive external
advice, in order to make provisions in the fi nancial statements for such
matters and provide appropriate disclosure in respect of contingent
liabilities. The Directors have also recognised an insurance asset for
certain matters for which a provision is held. The inherent uncertainty
and risk could have a material impact on the group’s fi nancial position
and result for the year.
Our response: Our audit procedures included obtaining an
understanding from the Directors of the basis for their best estimates
for provisions and insurance assets, and then challenging the basis
used with reference to the latest available corroborative information,
in light of our understanding of the business, and by obtaining
third party confi rmations where appropriate. We assessed the
completeness of provisions by considering whether additional
provisions were required at the balance sheet date, assessed the
timing of obligations with particular respect to the restructuring
commitments, as well as considering the reasonableness of
provisions in light of historical claims. We met with the group’s
in-house legal counsel to discuss the nature of ongoing claims and
in addition assessed whether the group’s disclosures about
provisions, contingent liabilities, and the movements in the year
were appropriate.
Recognition of deferred tax assets
(£65.9 million (2015: £57.1 million)):
Refer to page 72 (Audit Committee Report), page 122
(accounting policy) and pages 122 to 126 (fi nancial disclosures).
The risk: The Group has recognised a signifi cant deferred tax asset in
respect of unutilised losses and other temporary differences arising in
the US. The Group also has other temporary differences in the US of
£100.4 million (2015: £87.8 million) for which no deferred tax asset
has been recognised in these fi nancial statements. The recognition
or otherwise of a deferred tax asset in respect of these losses and
temporary differences is based on judgement in respect of the
quantum of expected future profi ts and the ability of the Group to
offset any of its accumulated losses against these expected profi ts.
Our response: We compared the assumptions used in respect of
future taxable profi t forecasts to the Group’s long-term forecasts.
We considered, amongst other things, historical levels of US taxable
profi ts, the historical accuracy of forecasts, the growth forecasts used
by the Group, and the period over which those forecasts were
applied. This included critically assessing the assumptions and
judgements made by the Directors in those growth forecasts, by
using our knowledge of the Group and the industry in which it
operates, and by comparing growth assumptions to externally
derived data. We involved tax specialists in assessing the ability of the
Group to offset accumulated losses against these expected profi ts.
We also assessed the adequacy of the Group’s disclosures setting out
the basis of the deferred tax asset recognised and not recognised and
the level of estimation involved.
Income tax payable and provisions
(£37.0 million (2015: £44.2 million)):
Refer to page 72 (Audit Committee Report), page 122
(accounting policy) and page 126 (fi nancial disclosures).
The risk: Accounting for income tax positions requires the Directors
to make signifi cant judgements and estimates in relation to income
tax issues and exposures. Due to the Group operating in a number of
tax jurisdictions our audit concentrated on the complexities of transfer
pricing and other international tax legislation, and the time taken for
tax matters to be agreed with the tax authorities.
Our response: Our audit procedures included the use of our own
tax specialists to assess the Group’s tax positions, to consider its
correspondence with the relevant tax authorities, to analyse and
challenge the assumptions, such as the likelihood of a favourable
resolution, used to determine tax provisions using our knowledge and
experience of the application of international and local legislation by
the relevant authorities and courts. We also considered the adequacy
of the Group’s disclosures in respect of net income tax payable
and provisions.
107
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3 Our application of materiality and an overview of the
scope of our audit
Materiality for the Group fi nancial statements as a whole was set
at £4.0 million (2015: £4.6 million), determined with reference to a
benchmark of Group profi t before taxation, normalised to exclude
separately reported items for restructuring costs and gains on
employee benefi t plans, of £102.7 million (2015: £92.0 million,
which has been normalised to exclude separately reported items
for restructuring costs), of which it represents 4% (2015: 5%).
We reported to the Audit Committee any corrected or uncorrected
identifi ed misstatements exceeding £200,000 (2015: £230,000),
in addition to other identifi ed misstatements that warranted
reporting on qualitative grounds.
The Group operates through over 50 reporting components. Of the
20 (2015: 20) components in scope, we subjected 19 (2015: 19)
to audits for Group reporting purposes and one (2015: one) to
specifi ed risk-focused audit procedures. The latter was not individually
fi nancially signifi cant enough to require an audit for Group reporting
purposes, but did present specifi c individual risks that needed to be
addressed. The work on 18 (2015: 18) components was performed
by component auditors and the rest by the Group audit team.
For coverage achieved by Group reporting please refer to the
charts below:
The remaining 31% (2015: 29%) of total Group revenue, 22%
(2015: 22%) of profi ts and losses that made up total Group profi t
before tax and 18% (2015: 16%) of total Group assets is represented
by a signifi cant number of reporting components, none of which
individually represented more than 2% (2015: 2%) of any of total
Group revenue, profi ts and losses that made up total Group profi t
before tax or total Group assets. For these remaining components,
we performed analysis at an aggregated Group level to re-examine
our assessment that there were no signifi cant risks of material
misstatement within these.
The Group audit team instructed component auditors as to the
signifi cant areas to be covered, including the relevant risks detailed
above and the information to be reported back. The Group audit
team approved the component materialities, which ranged from
£0.1 million to £3.2 million (2015: £0.1 million to £3.8 million),
having regard to the mix of size and risk profi le of the Group across
the components.
The Group audit team visited one component location (2015: four)
in the US (2015: Brazil, the US, Germany and China). Telephone
conference meetings were held with all component auditors.
During these visits and meetings, the fi ndings reported to the Group
audit team were discussed in more detail, and any further work
required by the Group audit team was then performed by the
component auditor.
Materiality to the Group financial statements
102.7
Materiality
Normalised profit
before tax
£m
Coverage
31
Group’s
revenue
%
69
£4.0m
Group financial
statements materiality
£200,000
Misstatements reported
to the Audit Committee
75
22
Group’s profits
and losses that
made up profit
before tax
%
78
18
Group’s
total assets
%
82
Covered by components in scope for Group reporting
Not in-scope for Group reporting purposes
108
Vesuvius plc
Annual Report and Accounts 2016
Independent Auditor’s Report
To the Members of Vesuvius plc Only
continued
4 Our opinion on other matters prescribed by the Companies
Act 2006 is unmodifi ed
In our opinion:
> the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
> the information given in the Strategic Report and the
Directors’ Report for the fi nancial year is consistent with the
fi nancial statements.
Based solely on the work required to be undertaken in the course
of the audit of the fi nancial statements and from reading the
Strategic report and the Directors’ report:
> we have not identifi ed material misstatements in those
reports; and
> in our opinion, those reports have been prepared in
accordance with the Companies Act 2006.
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
> adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
> the parent company fi nancial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
> certain disclosures of directors’ remuneration specifi ed by law are
not made; or
> we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
> the directors’ statements, set out on pages 19, 20 and 99,
in relation to going concern and longer-term viability; and
5 We have nothing to report on the disclosures of
principal risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
> the part of the Corporate Governance Statement on page 63
relating to the company’s compliance with the eleven provisions of
the 2014 UK Corporate Governance Code specifi ed for our review.
We have nothing to report in respect of the above responsibilities.
> the directors’ statement on pages 19 to 21, concerning the
principal risks, their management, and, based on that, the
directors’ assessment and expectations of the group’s continuing in
operation over the three years to 31 December 2019; or
> the disclosures in note 2 of the fi nancial statements concerning
the use of the going concern basis of accounting.
6 We have nothing to report in respect of the matters on
which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identifi ed
other information in the annual report that contains a material
inconsistency with either that knowledge or the fi nancial statements,
a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
> we have identifi ed material inconsistencies between the
knowledge we acquired during our audit and the directors’
statement that they consider that the annual report and fi nancial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the group’s position and performance, business model and
strategy; or
> the Audit Committee Report does not appropriately address
matters communicated by us to the audit committee.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set
out on page 103, the directors are responsible for the preparation of
the fi nancial statements and for being satisfi ed that they give a true
and fair view. A description of the scope of an audit of fi nancial
statements is provided on the Financial Reporting Council’s website
at www.frc.org.uk/auditscopeukprivate. This report is made solely to
the company’s members as a body and is subject to important
explanations and disclaimers regarding our responsibilities, published
on our website at www.kpmg.com/uk/auditscopeukco2014a, which
are incorporated into this report as if set out in full and should be read
to provide an understanding of the purpose of this report, the work
we have undertaken and the basis of our opinions.
Paul Korolkiewicz (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London, E14 5GL
2 March 2017
Group Income Statement
For the year ended 31 December 2016
Continuing operations
Revenue
Manufacturing costs
Administration, selling and distribution costs
Trading profi t
Amortisation of acquired intangible assets
Restructuring charges
Gain on employee benefi t plan
Operating profi t/(loss)
Net fi nance costs
Share of post-tax profi t of joint ventures
Profi t/(loss) before tax
Income tax (charge)/credits
Profi t/(loss) from:
Continuing operations
Discontinued operations
Profi t/(loss)
Profi t/(loss) attributable to:
Owners of the parent
Non-controlling interests
Profi t/(loss)
Earnings per share — pence
Continuing operations — basic
Total operations
— diluted
— basic
— diluted
Headline
performance
£m
Notes
2016
Separately
reported
items
£m
Total
£m
Headline
performance
£m
2015
Separately
reported
items
£m
Total
£m
1,401.4
(1,018.6)
(249.5)
133.3
—
—
—
133.3
(14.5)
1.0
119.8
(31.4)
88.4
—
88.4
82.1
6.3
88.4
5
5
16
7
28
9
10
22
11
1,322.0
(968.9)
(229.1)
124.0
—
—
—
124.0
(15.4)
—
108.6
(27.7)
80.9
—
80.9
75.7
5.2
80.9
— 1,401.4
— (1,018.6)
(249.5)
—
133.3
—
(17.1)
(17.1)
(28.5)
(28.5)
5.2
5.2
92.9
(40.4)
(14.5)
—
—
1.0
79.4
(40.4)
(26.4)
5.0
(35.4)
10.2
(25.2)
(25.2)
—
(25.2)
53.0
10.2
63.2
56.9
6.3
63.2
17.3
17.3
21.1
21.0
— 1,322.0
(968.9)
—
(229.1)
—
124.0
—
(16.6)
(16.6)
(14.6)
(14.6)
—
—
92.8
(31.2)
(15.4)
—
—
—
77.4
(31.2)
(24.8)
2.9
(28.3)
1.4
(26.9)
(26.9)
—
(26.9)
52.6
1.4
54.0
48.8
5.2
54.0
17.6
17.5
18.1
18.1
109
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Vesuvius plc
Annual Report and Accounts 2016
Group Statement of Comprehensive Income
For the year ended 31 December 2016
Profi t
Items that will not be reclassifi ed subsequently to income statement
Remeasurement of defi ned benefi t liabilities/assets
Income tax relating to items not reclassifi ed
Items that may be reclassifi ed subsequently to income statement
Exchange differences on translation of the net assets of foreign operations
Exchange translation differences arising on net investment hedges
Other comprehensive income/(loss), net of income tax
Total comprehensive income
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income
Notes
28.6
10.4
25
2016
£m
63.2
9.5
(0.7)
207.7
(41.6)
174.9
238.1
226.2
11.9
238.1
2015
£m
54.0
13.0
1.6
(29.3)
(6.1)
(20.8)
33.2
28.2
5.0
33.2
Group Statement of Cash Flows
For the year ended 31 December 2016
Cash fl ows from operating activities
Cash generated from operations
Net interest paid
Income taxes paid
Net cash infl ow from operating activities
Cash fl ows from investing activities
Capital expenditure
Proceeds from the sale of property, plant and equipment
Proceeds from the sale of investments
Acquisition of subsidiaries and joint ventures, net of cash acquired
Dividends received from joint ventures
Other investing outfl ows
Net cash outfl ow from investing activities
Net cash infl ow before fi nancing activities
Cash fl ows from fi nancing activities
Proceeds from borrowings
Settlement of forward foreign exchange contracts
Purchase of own shares
Borrowing facility arrangement costs
Dividends paid to equity shareholders
Dividends paid to non-controlling shareholders
Net cash outfl ow from fi nancing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fl uctuations on cash and cash equivalents
Cash and cash equivalents at 31 December
Notes
12
21
14
26
14
14
13
2016
£m
130.2
(12.1)
(34.2)
83.9
(31.3)
1.6
—
(7.7)
2.0
—
(35.4)
48.5
0.8
20.6
—
—
(43.9)
(2.5)
(25.0)
23.5
67.0
10.5
101.0
Free cash fl ow
Net cash infl ow/(outfl ow) from operating activities
Additional funding contributions into Group pension plans
Capital expenditure
Proceeds from the sale of property, plant and equipment
Dividends received from joint ventures
Dividends paid to non-controlling shareholders
Free cash fl ow
Continuing
operations
£m
Discontinued
operations
£m
2016
total
£m
Continuing
operations
£m
Discontinued
operations
£m
83.9
7.7
(31.3)
1.6
2.0
(2.5)
61.4
—
—
—
—
—
—
—
83.9
7.7
(31.3)
1.6
2.0
(2.5)
61.4
100.8
3.7
(38.1)
1.1
—
(2.2)
65.3
(6.2)
—
—
—
—
—
(6.2)
111
2015
£m
140.0
(13.6)
(31.8)
94.6
(38.1)
1.1
0.3
(25.1)
—
(1.6)
(63.4)
31.2
44.7
3.9
(5.2)
(1.4)
(43.9)
(2.2)
(4.1)
27.1
38.5
1.4
67.0
2015
total
£m
94.6
3.7
(38.1)
1.1
—
(2.2)
59.1
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Vesuvius plc
Annual Report and Accounts 2016
Group Balance Sheet
As at 31 December 2016
Assets
Property, plant and equipment
Intangible assets
Employee benefi ts – net surpluses
Interests in joint ventures
Investments
Income tax recoverable
Deferred tax assets
Other receivables
Total non-current assets
Cash and short-term deposits
Inventories
Trade and other receivables
Income tax recoverable
Derivative fi nancial instruments
Total current assets
Total assets
Equity
Issued share capital
Retained earnings
Other reserves
Equity attributable to the owners of the parent
Non-controlling interests
Total equity
Liabilities
Interest-bearing borrowings
Employee benefi ts – net liabilities
Other payables
Provisions
Deferred tax liabilities
Total non-current liabilities
Interest-bearing borrowings
Trade and other payables
Income tax payable
Provisions
Derivative fi nancial instruments
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2016
£m
2015*
£m
15
16
28
10
10
13
19
18
10
20
23
24
25
27.2
28
30
32
10
27.2
30
10
32
20
323.6
781.9
78.8
18.0
2.6
1.0
92.1
23.4
1,321.4
144.4
207.7
393.2
3.9
—
749.2
2,070.6
285.3
684.6
59.9
16.1
3.0
1.3
70.7
19.0
1,139.9
101.5
167.7
316.3
2.8
0.5
588.8
1,728.7
27.8
2,370.0
(1,341.4)
1,056.4
42.1
1,098.5
27.8
2,346.5
(1,501.9)
872.4
32.7
905.1
330.8
108.2
16.5
32.9
48.6
537.0
133.9
232.7
41.9
25.7
0.9
435.1
972.1
2,070.6
351.7
95.2
17.0
29.5
44.6
538.0
41.4
178.2
48.3
17.7
—
285.6
823.6
1,728.7
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (note 21).
The fi nancial statements were approved and authorised for issue by the Directors on 2 March 2017 and signed on their behalf by:
François Wanecq
Chief Executive
Guy Young
Chief Financial Offi cer
Group Statement of Changes in Equity
For the year ended 31 December 2016
As at 1 January 2015
Profi t
Remeasurement of defi ned benefi t liabilities/assets
Income tax relating to items not reclassifi ed
Exchange differences on translation of the net assets
of foreign operations
Exchange differences on translation of net investment hedges
Other comprehensive (loss)/income, net of income tax
Total comprehensive (loss)/income
Purchase of own shares
Recognition of share-based payments
Dividends paid (Note 26)
Total transactions with owners
As at 1 January 2016*
Profi t
Remeasurement of defi ned benefi t liabilities/assets
Income tax relating to items not reclassifi ed
Exchange differences on translation of the net assets
of foreign operations
Exchange differences on translation of net investment hedges
Other comprehensive income, net of income tax
Total comprehensive income
Recognition of share-based payments
Dividends paid (Note 26)
Total transactions with owners
As at 31 December 2016
Issued share
capital
£m
27.8
—
—
—
—
—
—
—
—
—
—
—
27.8
—
—
—
—
—
—
—
—
—
—
27.8
Other
reserves
£m
(1,466.7)
—
—
—
(29.1)
(6.1)
(35.2)
(35.2)
—
—
—
—
(1,501.9)
—
—
—
202.1
(41.6)
160.5
160.5
—
—
—
(1,341.4)
Retained
earnings
£m
Owners of
the parent
£m
Non-
controlling
interests
£m
2,332.1
48.8
13.0
1.6
—
—
14.6
63.4
(5.2)
0.1
(43.9)
(49.0)
2,346.5
56.9
9.5
(0.7)
—
—
8.8
65.7
1.7
(43.9)
(42.2)
2,370.0
893.2
48.8
13.0
1.6
(29.1)
(6.1)
(20.6)
28.2
(5.2)
0.1
(43.9)
(49.0)
872.4
56.9
9.5
(0.7)
202.1
(41.6)
169.3
226.2
1.7
(43.9)
(42.2)
1,056.4
29.9
5.2
—
—
(0.2)
—
(0.2)
5.0
—
—
(2.2)
(2.2)
32.7
6.3
—
—
5.6
—
5.6
11.9
—
(2.5)
(2.5)
42.1
Total
equity
£m
923.1
54.0
13.0
1.6
(29.3)
(6.1)
(20.8)
33.2
(5.2)
0.1
(46.1)
(51.2)
905.1
63.2
9.5
(0.7)
207.7
(41.6)
174.9
238.1
1.7
(46.4)
(44.7)
1,098.5
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (note 21).
113
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
1.
General Information
Vesuvius plc (‘Vesuvius’ or ‘the Company’) is a public limited company registered in England and Wales and listed on the London
Stock Exchange. The nature of the operations and principal activities of the Company and its subsidiary and joint venture companies
(‘the Group’) is set out in the Strategic Report on pages 2 to 59 and its registered address is shown on page 162.
2. Basis of Preparation
2.1 Basis of accounting
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’)
as adopted by the European Union and, with the exception of defi ned benefi t pension plans, certain provisions, available-for-sale
investments and derivative fi nancial instruments, under the historical cost convention.
2.2 Basis of consolidation
The Consolidated Financial Statements of the Group incorporate the fi nancial statements of the Company and entities controlled by the
Company (its ‘subsidiaries’). Control exists when the Company has the power to direct the relevant activities of an entity that signifi cantly
affect the entity’s return so as to have rights to the variable return from its activities. In assessing whether control exists, potential voting
rights that are currently exercisable are taken into account. The results of subsidiaries acquired or disposed of during the year are included
in the Group income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring their accounting policies into line with those
detailed herein to ensure that the Group fi nancial statements are prepared on a consistent basis. All intra-Group transactions, balances,
income and expenses are eliminated on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are identifi ed separately from the Group’s interest therein.
Non-controlling interests consist of the amount of those interests at the date of the original business combination together with the
non-controlling interests’ share of profi t or loss, each component of other comprehensive income, and dividends paid since the date
of the combination. Total comprehensive income is attributed to the non-controlling interests even if this results in the non-controlling
interests having a defi cit balance.
2.3 Going concern
The Directors have prepared cash fl ow forecasts for the Group for a period in excess of 12 months from the date of approval of the 2016
fi nancial statements. These forecasts refl ect an assessment of current and future end-market conditions and their impact on the Group’s
future trading performance. The forecasts show that the Group will be able to operate within the current committed debt facilities and
show continued compliance with the Company’s fi nancial covenants. On the basis of the exercise described above and the Group’s
available committed debt facilities, the Directors consider that the Group and Company have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the fi nancial
statements of the Group and the Company.
2.4 Functional and presentation currency
The fi nancial statements are presented in millions of pound sterling, which is the functional currency of the Company, and rounded
to one decimal place. Foreign operations are included in accordance with the policies set out in Note 27.1.
2.5 Disclosure of ‘separately reported items’
IAS 1 Presentation of Financial Statements provides no defi nitive guidance as to the format of the income statement, but states key lines
which should be disclosed. It also encourages the disclosure of additional line items and the reordering of items presented on the face
of the income statement when appropriate for a proper understanding of the entity’s fi nancial performance. In accordance with IAS 1,
the Company has adopted a columnar presentation for its Group income statement, to separately identify headline performance results,
as the Directors consider that this gives a better view of the underlying results of the ongoing business. As part of this presentation
format, the Company has adopted a policy of disclosing separately on the face of its Group income statement, within the column entitled
‘Separately reported items’, the effect of any components of fi nancial performance for which the Directors consider separate disclosure
would assist both in a better understanding of the fi nancial performance achieved and in making projections of future results. In its
adoption of this policy, the Company applies an even-handed approach to both gains and losses and aims to be both consistent and
clear in its accounting and disclosure of such items.
Both materiality and the nature and function of the components of income and expense are considered in deciding upon such
presentation. Such items may include, inter alia, the fi nancial effect of exceptional items which occur infrequently, such as major
restructuring activity, initial recognition and subsequent increase, decrease and amortisation of US deferred tax assets, together
with items always reported separately, such as amortisation charges relating to acquired intangible assets, profi ts or losses arising on
the disposal of continuing or discontinued operations and the taxation impact of the aforementioned exceptional items and items
reported separately.
115
2. Basis of Preparation (continued)
2.6 New and revised IFRS
IFRS 9 Financial Instruments (effective after 1 January 2018, for the year ending 2018), replaces the existing guidance in IAS 39 Financial
Instruments Recognition and Measurement. IFRS 9 includes revised guidance on the classifi cation and measurement of fi nancial
instruments, including a new expected credit loss model for calculating impairment on fi nancial assets, and new general hedge
accounting requirements. It also carries forward the guidance on recognition and derecognition of fi nancial instruments from IAS 39.
Based on an assessment of the adoption of IFRS 9, the Group does not believe there will be a signifi cant impact on its Consolidated
Financial Statements.
IFRS 15 Revenue from Contracts with Customers (effective after 1 January 2018, for the year ending 2018) establishes a comprehensive
framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance,
including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. Based on an assessment of the
adoption of IFRS 15, the Group does not believe there will be a signifi cant impact on its Consolidated Financial Statements.
IFRS 16 Leases (effective after 1 January 2019, for the year ending 2019), replaces the existing guidance in IAS 17 Leases. IFRS 16 provides
a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or
less or the underlying asset has a low value. The Group is currently assessing the potential impact on its Consolidated Financial Statements
resulting from the application of IFRS 16.
Other new or amended standards are not expected to have a signifi cant impact on the Group’s fi nancial statements.
3. Accounting Policies and Critical Judgements
Determining the carrying amount of some assets and liabilities requires estimation of the effect of uncertain future events. The major
sources of estimation uncertainty that have a signifi cant risk of resulting in a material adjustment to the carrying amounts of assets or
liabilities are noted below.
3.1 Goodwill and other intangible assets
The Directors use their judgement to determine the extent to which goodwill and other capitalised intangible assets have a value
that will benefi t the performance of the Group over future periods. To assist in making this judgement, the Directors undertake an
assessment, at least annually, of the carrying value of the Group’s capitalised goodwill and other intangible assets. In the assessment
undertaken as at 31 December 2016, further details of which are given in Note 17, value in use was derived from discounted three-year
cash fl ow projections and terminal value based on a growth rate of 2.5% in the years beyond the projection period. The projection
period is, in the opinion of the Directors, an appropriate period over which to view the future results of the Group’s businesses for this
purpose. Changes to the assumptions used in making these forecasts could signifi cantly alter the Directors’ assessment of the carrying
value of goodwill and other intangible assets.
3.2 Employee benefi ts
The Group’s fi nancial statements include the costs and obligations associated with the provision of pension and other post-retirement
benefi ts to current and former employees. It is the Directors’ responsibility to set the assumptions used in determining the key elements
of the costs of meeting such future obligations. These assumptions are set after consultation with the Group’s actuaries and include those
used to determine regular service costs and the fi nancing elements related to the plans’ assets and liabilities. Whilst the Directors believe
that the assumptions used are appropriate, a change in the assumptions used could affect the Group’s profi t and fi nancial position.
3.3 Provisions
Vesuvius has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation
and environmental matters. Several of the Group’s subsidiaries are parties to legal proceedings, certain of which are insured claims arising
in the ordinary course of the operations of the company involved, and are aware of a number of issues which are, or may be, the subject
of dispute with tax authorities. Provisions are made for the expected amounts payable in respect of known or probable costs resulting
both from legal or other regulatory requirements, or from third-party claims. As the settlement of many of the obligations for which
provision is made is subject to legal or other regulatory process, the timing and amount of the associated outfl ows is subject to some
uncertainty. The Directors use their judgement and experience to make provisions in the fi nancial statements for an appropriate amount
relating to such matters.
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
3. Accounting Policies and Critical Judgements (continued)
3.4 Taxation
(a)
Current tax
Tax benefi ts are not recognised unless it is probable that they will result in future economic benefi ts to the Group. In assessing the
amount of the benefi t to be recognised in the fi nancial statements, the Directors exercise their judgement in considering the effect of
negotiations, litigation and any other matters that they consider may impact upon the potential settlement. Any interest and penalties
on tax liabilities are provided for in the tax charge. The Group operates internationally and is subject to tax in many different jurisdictions.
As a consequence, the Group is routinely subject to tax audits and local enquiries which, by their very nature, can take a considerable
period of time to conclude. Provisions are made for known issues based on all substantively enacted legislation, the Directors’
interpretation of country-specifi c tax law and their assessment of the likely outcome. All income tax liabilities, provisions and assets are
treated as income tax payable and recoverable in accordance with IAS 12.
(b) Deferred tax
The Group has recognised deferred tax assets in respect of unutilised losses and other timing differences arising in a number of the
Group’s businesses, further details of which are given in Note 10.4. Account has been taken of future forecasts of taxable profi t in arriving
at the values at which these assets are recognised. If these forecast profi ts do not materialise or change, or there are changes in tax rates
or to the period over which the losses or timing differences might be recognised, then the value of deferred tax assets will need to be
revised in a future period.
The Group also has losses and other timing differences, analysed in Note 10.4, for which no deferred tax assets have been recognised in
these fi nancial statements, relating either to loss-making subsidiaries where the future economic benefi t of the timing difference is not
probable or to where the timing difference is of such a nature that its value is dependent on certain types of profi t being earned, such as
capital profi ts. If trading or other appropriate profi ts are earned in future in these companies, these losses and other timing differences
may yield benefi t to the Group in the form of a reduced tax charge.
4. Alternative Performance Measures
The Company uses a number of Alternative Performance Measures (APMs) in addition to those reported in accordance with IFRS.
The Directors believe that these APMs, listed below, are important when assessing the underlying fi nancial and operating performance
of the Group and its divisions. The following APMs do not have standardised meaning prescribed by IFRS and therefore may not be
directly comparable to similar measures presented by other companies.
4.1 Headline
Headline performance, reported separately on the face of the Group Income Statement, is from continuing operations and before items
reported separately on the face of the income statement.
4.2 Underlying revenue, underlying trading profi t and underlying return on sales
Underlying revenue, underlying trading profi t and underlying return on sales are the headline equivalents of these measures after
adjustments to exclude the effects of changes in exchange rates, business acquisitions and disposals. Reconciliations of underlying
revenue and underlying trading profi t can be found in the Financial Review. Underlying revenue growth is one of the Group’s key
performance indicators and provides an important measure of organic growth of Group businesses between reporting periods,
by eliminating the impact of exchange rates, acquisitions, disposals and signifi cant business closures.
4.3 Return on sales (ROS)
ROS is calculated as trading profi t divided by revenue. It is one of the Group’s key performance indicators and is used to assess the
trading performance of Group businesses.
4.4 Trading profi t
Trading profi t is defi ned as operating profi t before separately reported items. It is one of the Group’s key performance indicators and
is used to assess the trading performance of Group businesses. It is also used as one of the targets against which the annual bonuses
of certain employees are measured.
4.5 Headline profi t before tax
Headline profi t before tax is calculated as the net total of trading profi t, plus the Group’s share of post-tax profi t of joint ventures and
total net fi nance costs associated with headline performance. It is one of the Group’s key performance indicators and is used to assess
the fi nancial performance of the Group as a whole.
4.6 Effective tax rate (ETR)
The Group’s ETR is calculated on the income tax costs associated with headline performance, divided by headline profi t before tax
and before the Group’s share of post-tax profi t of joint ventures.
117
4. Alternative Performance Measures (continued)
4.7 Headline earnings per share
Headline earnings per share is calculated by dividing headline profi t before tax less associated income tax costs, attributable to owners
of the parent by the weighted average number of ordinary shares in issue during the year. It is one of the Group’s key performance
indicators and is used to assess the underlying earnings performance of the Group as a whole. It is also used as one of the targets
against which the annual bonuses of certain employees are measured.
4.8 Operating cash fl ow
Operating cash fl ow is cash generated from continuing operations before restructuring and additional pension funding contributions
but after deducting capital expenditure net of asset disposals. It is used in calculating the Group’s cash conversion. A reconciliation of
cash generated from operations to operating cash fl ow can be found in the Financial Review.
4.9 Cash conversion
Cash conversion is calculated as operating cash fl ow divided by trading profi t. It is useful for measuring the rate at which cash is generated
from trading profi t. The calculation of cash conversion is detailed in the Financial Review.
4.10 Free cash fl ow
Free cash fl ow is defi ned as net cash fl ow from operating activities after net outlays for the purchase and sale of property, plant
and equipment, dividends from joint ventures and dividends paid to non-controlling shareholders, but before additional funding
contributions to Group pension plans. It is one of the Group’s key performance indicators and is used to assess the underlying cash
generation of the Group and is one of the measures used in monitoring the Group’s capital.
4.11 Average trade working capital to sales ratio
The average trade working capital to sales ratio is calculated as the percentage of average trade working capital balances to the total
revenue for the year, at constant currency. Average trade working capital (comprising inventories, trade receivables and trade payables)
is calculated as the average of the 12 previous month-end balances. It is one of the Group’s key performance indicators and is useful for
measuring the level of working capital used in the business and is one of the measures used in monitoring the Group’s capital.
4.12 Earnings before interest, tax, depreciation and amortisation (‘EBITDA’)
EBITDA is calculated as the total of trading profi t before depreciation and amortisation of non-acquired intangibles charges. It is used
in the calculation of the Group’s interest cover and net debt to EBITDA ratios.
4.13 Net interest
Net interest is calculated as interest payable on borrowings less interest receivable, excluding any item separately reported. It is used in
the calculation of the Group’s interest cover ratio.
4.14
Interest cover
Interest cover is the ratio of EBITDA to net interest. It is one of the Group’s key performance indicators and is used to assess the fi nancial
position of the Group and its ability to fund future growth.
4.15 Net debt
Net debt comprises the net total of current and non-current interest-bearing borrowings and cash and short-term deposits. Net debt is
a measure of the Group’s net indebtedness to banks and other external fi nancial institutions.
4.16 Net debt to EBITDA
Net debt to EBITDA is the ratio of net debt at the year-end to EBITDA for that year. It is one of the Group’s key performance indicators and
is used to assess the fi nancial position of the Group and its ability to fund future growth and is one of the measures used in monitoring
the Group’s capital.
4.17 Return on net assets (‘RONA’)
RONA is calculated as trading profi t plus share of post-tax profi t of joint ventures, divided by average net operating assets, at constant
currency (being the average over the previous 12 months of property, plant and equipment, trade working capital and other operating
receivables and payables). It is one of the Group’s key performance indicators and is used to assess the fi nancial performance and asset
management of the Group and is one of the measures used in monitoring the Group’s capital.
4.18 Constant currency
Figures presented at constant currency represent December 2015 numbers retranslated to average 2016 exchange rates.
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
5.
Segment Information
The segment information contained in this Note makes reference to several alternative performance measures, defi nitions of which can
be found in Note 4.
5.1 Business segments
Operating segments for continuing operations
Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Directors of the Board,
who make the key operating decisions and are responsible for allocating resources and assessing performance of the operating
segments. Refl ecting the Group’s management and internal reporting structure, segmental information is presented in respect of the
two main business segments: Steel and Foundry. The principal activities of each of these segments are described in the Strategic Report
on pages 36 to 47.
Segment revenue represents revenue from external customers (inter-segment revenue is not material). Trading profi t includes items
directly attributable to a segment as well as those items that can be allocated on a reasonable basis.
5.2 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for goods supplied and services rendered to customers after
deducting rebates, discounts and value-added taxes, and after eliminating sales within the Group. Revenue from the sale of goods is
recognised when persuasive evidence exists that the signifi cant risks and rewards of ownership have been transferred to the customer,
recovery of the consideration is probable, there is no continuing management involvement with the goods, and the amount of revenue
can be measured reliably. A provision for anticipated returns is made based primarily on historical return rates. Where a contractual
arrangement consists of two or more separate elements that can be provided to customers either on a stand-alone basis or as an extra,
such as the provision of supplementary materials with equipment, revenue is recognised for each element as if it were an individual
contractual arrangement.
5.3
Income statement
The operating segment results from continuing operations for 2016 and 2015 are presented below.
Segment revenue
Segment EBITDA
Segment depreciation
Segment trading profi t
Return on sales margin
Amortisation of acquired intangible assets
Restructuring charges
Gain on employee benefi t plan
Operating profi t
Net fi nance costs
Share of post-tax profi t of joint ventures
Profi t before tax
Capital expenditure additions
2016
Steel
£m
942.0
Foundry
£m
459.4
Continuing
operations
£m
1,401.4
107.0
(27.8)
79.2
8.4%
68.6
(14.5)
54.1
11.8%
23.7
11.5
175.6
(42.3)
133.3
9.5%
(17.1)
(28.5)
5.2
92.9
(14.5)
1.0
79.4
35.2
5.
Segment Information (continued)
5.3
Income statement (continued)
Segment revenue
Segment EBITDA
Segment depreciation
Segment trading profi t
Return on sales margin (%)
Amortisation of acquired intangible assets
Restructuring charges
Operating profi t
Net fi nance costs
Profi t before tax
Capital expenditure additions
5.4 Geographical analysis
US
Germany
China
UK
Brazil
India
France
Spain
Rest of the World
Continuing operations
2015
Foundry
£m
424.4
57.3
(12.8)
44.5
10.5%
Steel
£m
897.6
103.8
(24.3)
79.5
8.9%
24.4
10.6
Continuing
operations
£m
1,322.0
161.1
(37.1)
124.0
9.4%
(16.6)
(14.6)
92.8
(15.4)
77.4
35.0
External revenue
Non-current assets
2016
£m
240.9
192.4
113.1
59.4
70.7
119.2
48.0
42.5
515.2
1,401.4
2015
£m
247.2
174.8
107.2
71.9
69.2
96.9
44.9
41.7
468.2
1,322.0
2016
£m
310.6
121.5
93.2
119.5
69.2
39.7
20.1
27.7
349.0
1,150.5
2015*
£m
260.8
103.6
85.4
131.9
44.5
37.8
17.5
33.9
293.9
1,009.3
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (note 21).
External revenue disclosed in the table above is based upon the geographical location of the operation. Non-current assets exclude
employee benefi ts net surpluses and deferred tax assets. Information relating to the Group’s products and services is given in the
Strategic Report on pages 2 to 59. The Group is not dependent upon any single customer for its revenue and no single customer,
for either of the years presented in the tables above, accounts for more than 10% of the Group’s total external revenue.
119
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
6. Amounts payable to KPMG LLP and its Associates
Fees payable to the Company’s auditor and its associates for the audit of the parent Company
and Consolidated Financial Statements
Fees payable to the Company’s auditor and its associates for other services:
Audit of the Company’s subsidiaries
Audit-related assurance services
Tax compliance and advisory
Total auditor’s remuneration
2016
£m
0.4
1.5
0.1
—
2.0
2015
£m
0.4
1.4
0.1
0.1
2.0
Total auditor’s remuneration of £2.0m in 2016 all related to continuing operations, of which £1.9m related to audit fees and £0.1m
of non-audit fees, in respect of the interim review fee (2015: £2.0m, including £1.8m of audit fees and £0.2m of non-audit fees, the latter
comprising £0.1m in respect of the interim review fee and £0.1m for taxation advice). It is the Group’s policy not to use the Group’s
auditor for non-audit services other than in very limited circumstances and where they are best placed to do so.
7. Restructuring Charges
The 2016 restructuring charges were £28.5m (2015: £14.6m). The Group-wide restructuring programme initiated in 2015 was continued,
resulting in charges of £28.5m (2015: £15.5m) refl ecting redundancy costs of £21.4m (2015: £13.6m), plant closure costs of £4.2m
(2015: £1.3m), consultancy fees of £2.0m (2015: £0.6m) and an inventory write-off of £0.9m (2015: £nil). In 2015 there was also
a release of onerous lease provisions of £0.5m and a £0.4m release of provisions for potential claims that had since expired relating to
the termination of agents.
The net tax credit attributable to the total restructuring charges was £3.8m (2015: £1.5m).
Cash costs of £16.8m (2015: £11.5m) (Note 12) were incurred in the year in respect of the restructuring programme leaving provisions
made but unspent of £18.5m (Note 32) as at 31 December 2016 (2015: £9.8m), of which £2.7m relates to future costs in respect of leases
expiring between one and six years.
8. Employees
8.1 Employee benefi ts expense
Wages and salaries
Social security costs
Redundancy costs
Other restructuring costs
Share-based payments (Note 29)
Pension costs — defi ned contribution pension plans (Note 28)
— defi ned benefi t pension plans (Note 28)
Other post-retirement benefi ts (Note 28)
Total employee benefi ts expense
2016
£m
301.6
46.7
21.4
0.2
1.7
10.7
2.1
0.4
384.8
2015
£m
271.5
42.5
13.6
—
0.1
10.7
6.9
0.4
345.7
Of the total employee benefi ts expense of £384.8m (2015: £345.7m), £367.1m (2015: £331.2m) was charged in arriving at trading profi t,
£5.2m (2015: £nil) was credited from settlement gains relating to employee benefi t plans, £1.3m (2015: £0.9m) was charged within
ordinary net fi nance costs, and £21.6m (2015: £13.6m) was charged to restructuring costs. Within redundancy costs reported in the table
above, are £0.3m (2015: £0.8m) of defi ned benefi t pension plan costs and £0.1m (2015: £nil) of defi ned contribution plan costs.
At constant rates, the total employee benefi ts expense for 2015 was £377.5m.
121
2016
no.
7,725
3,101
10,826
—
10,826
2015
no.
8,133
3,293
11,426
—
11,426
8. Employees (continued)
8.2 Average number of employees
Steel
Foundry
Continuing operations
Discontinued operations
Total average number of employees
As at 31 December 2016, the Group had 10,840 employees (2015: 10,912).
In December 2016 the Group acquired the mould and tundish fl ux business of Carboox with 50 employees. If the business had been
acquired on 1 January, the average headcount would have been 10,867.
8.3 Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the
categories specifi ed in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided
in the audited part of the Directors’ Remuneration Report on pages 79 to 98.
Short-term employee benefi ts
Post-employment benefi ts
Share-based payments
Total remuneration of key management personnel
9. Net Finance Costs
9.1 Accounting policy
2016
£m
1.5
0.3
0.5
2.3
2015
£m
0.9
0.3
(0.6)
0.6
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Capitalised borrowing costs for
2016 were nil (2015: nil). All other borrowing costs are recognised as an expense in the income statement using the effective interest
rate method.
9.2 Total net fi nance costs
Interest payable on borrowings
Loans, overdrafts and factoring arrangements
Obligations under fi nance leases
Amortisation of capitalised arrangement fees
Total interest payable on borrowings
Interest on net retirement benefi ts obligations
Adjustment to discounts on provisions and other liabilities
Adjustment to discounts on receivables
Finance income
Total net fi nance costs
2016
£m
15.1
0.2
0.5
15.8
1.3
(0.2)
0.3
(2.7)
14.5
2015
£m
14.9
0.1
0.4
15.4
0.9
1.0
(0.2)
(1.7)
15.4
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122
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
10. Income Tax
10.1 Accounting policy
Tax expense represents the sum of current tax and deferred tax. Current and deferred tax are recognised in profi t or loss except to the
extent that they relate to items charged or credited in other comprehensive income or directly to equity, in which case the associated
tax is also dealt with in other comprehensive income or directly in equity.
Current tax
Current tax is based on taxable profi t for the year. Taxable profi t differs from profi t before tax as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates and laws that have been enacted, or substantively
enacted, by the balance sheet date.
A provision is recognised when the Group considers it has a present tax obligation as the result of a past event and it is probable that the
Group will be required to settle that obligation. Provisions established for such uncertain tax positions are made using a best estimate of
the tax expected to be paid, based on a qualitative and quantitative assessment of all relevant information. Such a provision is typically
required where the underlying tax issue is subject to interpretation and remains to be agreed, and therefore is uncertain as to outcome.
Principally the uncertain tax positions for which a provision is made relate to the interpretation of tax legislation and guidance regarding
transfer pricing arrangements that have been entered into in the normal course of business. In accordance with IAS 12, tax provisions are
included as income tax payable on the face of the balance sheet, and movements in tax provisions are included within income tax charges
or credits in the Group income statement.
In assessing any appropriate provision requirements for uncertain tax items, the Group considers progress made in discussions with the
tax authorities, expert advice on the likely outcome and any recent developments in case law. Due to the uncertainty associated with such
tax items, it is possible that at a future date, on conclusion of the open matters, the fi nal outcome may vary signifi cantly. Any such
variations will affect the fi nancial results in the year in which such a determination is made.
In arriving at its current tax charge, the Group also makes careful assessment of the likely impact of tax law changes. In particular, it has
considered the impact of any imminent tax reform and the actual or likely domestic enactments of the actions decided by G20 leaders in
the OECD Base Erosion and Profi t Shifting Project announced in late 2015. Vesuvius considers that these developments do not currently
have a material effect on its tax position. However, it continues to monitor developments, in particular in relation to potential tax reform
as is currently under consideration in the US and elsewhere.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the fi nancial statements and the
corresponding tax bases used in the computation of taxable profi t and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profi ts will be available against which deductible temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities in a transaction that affects neither the taxable profi t nor the accounting profi t.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised,
based on tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that suffi cient taxable profi ts will be available to allow all or part of the asset to be
recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
123
2016
£m
38.3
(2.9)
35.4
(9.0)
—
(9.0)
26.4
31.4
(5.0)
26.4
2015
£m
28.3
(0.6)
27.7
(3.7)
0.8
(2.9)
24.8
27.7
(2.9)
24.8
10. Income Tax (continued)
10.2 Income tax charge
Current tax
Overseas taxation
Adjustments in respect of prior years
Total current tax, continuing operations
Deferred tax
Origination and reversal of temporary taxable differences
Adjustments in respect of prior years
Total deferred tax, continuing operations
Total income tax charge
Total income tax charge attributable to:
Continuing operations — headline performance
— separately reported items
Total income tax charge
Included in the Group’s total income tax charge are charges and credits meeting the criteria set out in Note 2.5, to be treated as separately
reported items, as analysed in the following table:
Separately reported items
Utilisation of previously recognised US deferred tax asset
Additional recognition of US deferred tax asset
Net movement in US deferred tax asset
Restructuring charges
Gain on employee benefi t plan
Amortisation of acquired intangibles
Total tax credit on separately reported items
2016
£m
6.2
(4.1)
2.1
(3.8)
0.4
(3.7)
(5.0)
2015
£m
9.7
(6.4)
3.3
(1.5)
—
(4.7)
(2.9)
The net tax charge in the Group statement of comprehensive income in the year amounted to £0.7m (2015: £1.6m credit), of which
£0.7m (2015: £0.9m credit) related to tax on net actuarial gains and losses on employee benefi ts plans and £nil (2015: £0.7m) was tax
on exchange differences.
Included in profi t from discontinued operations (Note 22) is a tax credit of £9.0m (2015: £nil) relating to the release of a provision for possible
China taxes arising during the demerger of the Alent business in 2012. After further consultation with advisors, and in light of the publication
in 2015 by the Chinese tax authorities of additional guidance on the applicable taxes, it was decided this provision was no longer required.
The Group operates in a number of countries that have differing tax rates, laws and practices. Changes in any of these areas could,
adversely or positively, impact the Group’s tax charge in the future. Continuing losses, or insuffi ciency of taxable profi t to absorb all
expenses, in any subsidiary could have the effect of increasing tax charges in the future as effective tax relief may not be available for
those losses or expenses. Other signifi cant factors affecting the tax charge are described in Notes 3.4, 10.1 and 10.6.
F
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124
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
10. Income Tax (continued)
10.3 Reconciliation of income tax charge to profi t before tax
Profi t before tax
Tax at the UK corporation tax rate of 20% (2015: 20.25%)
Overseas tax rate differences
Withholding taxes
Amortisation of intangibles
Expenses not deductible for tax purposes
Income taxed in advance
Non-taxable income
US deferred tax asset not previously recognised
Deferred tax assets not recognised
Utilisation of previously unrecognised tax losses
Adjustments in respect of prior years
Total income tax charge
10.4 Deferred tax
As at 1 January 2015
Exchange adjustments/other
Acquisition
Credit to group statement of comprehensive income
Credit to group income statement
Net (charge)/credit to group income statement US
As at 1 January 2016
Exchange adjustments/other
Charge to group statement of comprehensive income
Credit to group income statement
Net (charge)/credit to group income statement US
As at 31 December 2016
Other
operating
losses
£m
23.1
0.4
—
0.7
0.5
(0.9)
23.8
2.5
—
3.8
(0.2)
29.9
Interest
£m
30.4
1.4
—
—
—
(7.7)
24.1
4.5
—
0.2
(2.1)
26.7
2016
£m
79.4
15.9
2.7
3.6
(0.3)
1.6
4.6
(1.2)
(4.1)
7.5
(1.0)
(2.9)
26.4
Pension
costs
£m
1.3
(1.1)
—
0.9
0.2
—
1.3
1.9
(0.7)
—
—
Intangible
assets
£m
(36.4)
1.3
—
—
4.7
—
(30.4)
(4.2)
—
5.3
—
Other
temporary
differences
£m
2.7
(0.3)
(1.2)
—
0.8
5.3
7.3
4.4
—
1.8
0.2
2015
£m
77.4
15.7
5.7
3.9
(1.2)
1.4
0.7
—
(6.4)
5.0
(0.2)
0.2
24.8
Total
£m
21.1
1.7
(1.2)
1.6
6.2
(3.3)
26.1
9.1
(0.7)
11.1
(2.1)
2.5
(29.3)
13.7
43.5
The £5.3m tax credit to the income statement in respect of intangible assets comprises a credit of £3.7m (2015: £4.7m credit) for
amortisation of acquired intangibles and a £1.8m credit (2015: £nil) arising from restructuring activity which is included in separately
reported items, net of £0.2m (2015: £nil) amortisation of this asset included within the income tax charge on headline performance.
Recognised in the Group balance sheet as:
Non-current deferred tax assets
Non-current deferred tax liabilities
Net total deferred tax assets
2016
£m
92.1
(48.6)
43.5
2015
£m
70.7
(44.6)
26.1
Included in non-current deferred tax assets is £65.9m (2015: £57.1m) in respect of the partial recognition of temporary differences arising
in the US computed in accordance with the policy set out in Note 10.1 above. The Group remains confi dent of the recovery of this asset.
£100.4m (2015: £87.8m) remains unrecognised.
125
10. Income Tax (continued)
10.4 Deferred tax (continued)
In view of its material size and nature, any tax credit refl ected in the Group income statement arising from the recognition of this asset
is presented separately from the tax charge on headline performance, in accordance with the principles outlined in Note 2.5. Subsequent
increase, decrease and utilisation of the resultant deferred tax asset would similarly be expected to be presented in this manner, as the
Directors consider that the separate identifi cation of deferred tax for material temporary differences would assist both in a better
understanding of the fi nancial performance achieved, and in making projections of future results of the Group.
Part of the US deferred tax asset is expected to be realised in respect of US pension costs which have been refl ected directly in the
statement of other comprehensive income, resulting in a £3.3m tax credit in the statement of other comprehensive income in 2015.
There was a consequent £3.3m utilisation of that asset recognised in the Group income statement in that year. No further such
credit arose in 2016.
Tax loss carry-forwards and other temporary differences with a tax value of £1.4m (2015: £1.3m) were recognised by subsidiaries
reporting a loss. On the basis of approved business plans of these subsidiaries, the Directors consider it probable that the tax loss
carry-forwards and temporary differences can be offset against future taxable profi ts.
The total deferred tax assets not recognised as at 31 December 2016 were £263.1m (2015: £256.7m), as analysed below. In accordance
with the accounting policy in Note 10.1, these items have not been recognised as deferred tax assets on the basis that their future
economic benefi t is not probable. In total, there was an increase of £6.4m (2015: £2.6m decrease) in net unrecognised deferred tax
assets during the year.
Operating losses (further described below)
Unrelieved US interest (may be carried forward indefi nitely)
Capital losses available to offset future UK capital gains (may be carried forward indefi nitely)
UK ACT credits (may be carried forward indefi nitely)
US tax credits
Other temporary differences
Total deferred tax assets not recognised
2016
£m
118.6
66.6
28.0
13.1
3.6
33.2
263.1
2015
£m
118.2
61.3
33.0
13.1
2.4
28.7
256.7
The Group has signifi cant net operating losses to the value of £148.5m (2015: £142.0m), only £29.9m (2015: £23.8m) of which meet the
criteria set out in Note 10.1 to be recognised on the balance sheet
UK (may be carried forward indefi nitely)
USA (due to expire 2024 - 2031)
ROW (may be carried forward indefi nitely)
ROW (due to expire within 5 years)
Operating
losses
recognised
2016
£m
—
26.5
3.4
—
29.9
Operating
losses not
Recognised
2016
£m
78.6
4.9
23.0
12.1
118.6
Total
2016
£m
78.6
31.4
26.4
12.1
148.5
Operating
losses
recognised
2015
£m
–
22.4
1.4
–
23.8
Operating
losses not
Recognised
2015
£m
84.6
3.4
16.3
13.9
118.2
Total
2015
£m
84.6
25.8
17.7
13.9
142.0
The £38.5m (2015: £31.6m) operating losses available to set against future income in the rest of the world arise in a number of countries,
refl ecting the spread of the Group’s operations.
As at 31 December 2016, the Group had unrecognised US tax credits with a value of £3.6m (2015: £2.4m) as follows:
US research and experimentation credits (due to expire 2018 to 2033)
US foreign tax credits (due to expire 2022 to 2024)
US tax credits
2016
£m
1.6
2.0
3.6
2015
£m
1.3
1.1
2.4
There are no temporary differences associated with investments in subsidiaries and interests in joint ventures for which deferred tax
liabilities have not been recognised.
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
10. Income Tax (continued)
10.4 Deferred tax (continued)
Further UK corporation tax rate reductions to 19% from 1 April 2017 and 17% from 1 April 2020, were substantively enacted on
6 September 2016. Accordingly, the Group’s closing UK deferred tax liability has been provided using a tax rate of 17% except where
the reversals are expected to arise prior to 1 April 2020.
10.5 Income tax payable and recoverable
Liabilities for income tax payable
Provisions for uncertain tax provisions
Income tax recoverable within one year
Income tax recoverable after more than one year
Total income tax recoverable
2016
£m
10.4
31.5
41.9
3.9
1.0
4.9
2015
£m
8.7
39.6
48.3
2.8
1.3
4.1
Net liability
37.0
44.2
Provisions for uncertain tax provisions are calculated in accordance with the policy outlined in Note 10.1, and are treated as income tax
payable and recoverable in accordance with IAS 12.
10.6 Key factors impacting the sustainability of the effective tax rate are as follows:
Material changes in the geographic mix of profi ts
The Group’s effective tax rate is sensitive to changes in the geographic mix of profi ts and level of profi ts, and refl ects a combination of
higher rates in certain jurisdictions such as India, Mexico, Germany and Belgium, nil effective tax rates in the UK and the US due to the
availability of unutilised tax losses and rates that lie somewhere in between. The Group experienced such a change in mix in 2016
principally as a result of good business performance in India, giving rise to the increase in its effective tax rate on headline performance
to 26.4% compared to the equivalent rate in 2015 of 25.5%.
Changes in tax rates
Changes in tax rates in the jurisdictions in which the Group operates could have a material effect on the Group’s effective tax rate.
As stated in Note 10.1, the Group is tracking closely the impact on its business of domestic enactments of the actions decided by
G20 leaders in the OECD Base Erosion and Profi t Shifting Project announced in late 2015, and other possible tax reform worldwide
particularly in the US.
Availability of tax advantaged rates
Vesuvius in China qualifi es for a tax advantaged rate of 15% (rather than the headline rate of 25%), on part of its profi ts due to the
high technology nature of its business. Eligibility for this rate is reviewed on a regular basis by the Chinese tax authority, and was worth
approximately £1.0m in 2016 (2015: £0.7m). Without that benefi t, the Group’s effective tax rate on headline performance, would have
been 0.8% higher in 2016 (2015: 0.7%).
Resolution of tax judgements
At any one time, the Group can be subject to a number of challenges by tax authorities in the jurisdictions in which it operates. The
outcome of these challenges is inherently uncertain, potentially resulting in a different tax charge from the amounts initially provided.
Timing of recognising tax benefi ts from brought forward losses in the US
In accordance with the criteria set out in Note 10.1, movements on the US deferred tax asset are recognised in separately reported items.
Consequently, such movements have no impact on the Group’s effective tax rate on headline performance.
Should, however, the 2016 profi ts earned in the US have been fully subject to US Federal and State taxes, then the Group’s effective tax
rate on headline performance (excluding the Group’s share of post-tax profi t of joint ventures) would have been approximately
3.4% higher (2015: 5% higher).
127
11. Earnings per Share (‘EPS’)
11.1 Earnings for EPS
Basic and diluted EPS from continuing operations are based upon the profi t attributable to owners of the parent, as reported in the
Group income statement, of £46.7m (2015: £47.4m), being the profi t for the year of £53.0m (2015: £52.6m) less non-controlling interests
of £6.3m (2015: £5.2m); basic and diluted EPS from total operations are based on the profi t attributable to owners of the parent of
£56.9m (2015: £48.8m); headline and diluted headline EPS are based upon headline profi t from continuing operations attributable
to owners of the parent of £82.1m (2015: £75.7m). The table below reconciles these different profi t measures.
Profi t attributable to owners of the parent
Adjustments for separately reported items:
Amortisation of acquired intangible assets
Restructuring charges
Gain on employee benefi t plan
Income tax credit
Headline profi t attributable to owners
of the parent
11.2 Weighted average number of shares
For calculating basic and headline EPS
Adjustment for potentially dilutive ordinary shares
For calculating diluted and diluted headline EPS
Continuing
operations
£m
Discontinued
operations
£m
46.7
10.2
2016
total
£m
56.9
Continuing
operations
£m
Discontinued
operations
£m
47.4
1.4
2015
total
£m
48.8
17.1
28.5
(5.2)
(5.0)
82.1
16.6
14.6
—
(2.9)
75.7
2016
£m
269.9
0.8
270.7
2015
£m
269.7
0.6
270.3
For the purposes of calculating diluted and diluted headline EPS, the weighted average number of ordinary shares is adjusted to include
the weighted average number of ordinary shares that would be issued on the conversion of all potentially dilutive ordinary shares
expected to vest, relating to the Company’s share-based payment plans. Potential ordinary shares are only treated as dilutive when
their conversion to ordinary shares would decrease EPS, or increase loss per share.
11.3 Per share amounts
Earnings per share
— basic
— headline
Continuing
operations
pence
17.3
30.4
Discontinued
operations
pence
3.8
2016
total
pence
21.1
Continuing
operations
pence
17.6
28.1
Discontinued
operations
pence
0.5
2015
total
pence
18.1
— diluted
— diluted headline
17.3
30.3
3.7
21.0
17.5
28.0
0.6
18.1
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
12. Cash Generated from Operations
Operating profi t
Adjustments for:
Amortisation of acquired intangible assets
Restructuring charges
Gains relating to employee benefi t plans
Depreciation
EBITDA
Net (increase)/decrease in trade and other working capital
Outfl ow related to restructuring charges
Additional pension funding contributions
Cash generated from operations
13. Cash and Cash Equivalents
Continuing
operations
£m
Discontinued
operations
£m
92.9
1.2
17.1
28.5
(5.2)
42.3
175.6
(20.9)
(16.8)
(7.7)
130.2
—
—
—
—
1.2
(1.2)
—
—
—
2016
total
£m
94.1
17.1
28.5
(5.2)
42.3
176.8
(22.1)
(16.8)
(7.7)
130.2
Cash at bank and in hand
Cash and short-term deposits
Bank overdrafts
Cash and cash equivalents in the Group statement of cash fl ows
Continuing
operations
£m
Discontinued
operations
£m
92.8
16.6
14.6
—
37.1
161.1
0.3
(11.5)
(3.7)
146.2
1.4
—
—
—
—
1.4
(7.6)
—
—
(6.2)
2016
£m
144.4
144.4
(43.4)
101.0
2015
total
£m
94.2
16.6
14.6
—
37.1
162.5
(7.3)
(11.5)
(3.7)
140.0
2015
£m
101.5
101.5
(34.5)
67.0
Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component
of cash and cash equivalents for the purpose of the Group statement of cash fl ows.
14. Reconciliation of Movement in Net Debt
Cash and cash equivalents
Cash at bank and in hand
Bank overdrafts
Borrowings, excluding bank overdrafts
Current
Non-current
Capitalised arrangement fees
Net debt
Balance as at
1 Jan 2016
£m
Foreign
exchange
adjustments
£m
Non-cash
movements
£m
Cash fl ow
£m
Balance as at
31 Dec 2016
£m
101.5
(34.5)
67.0
(7.5)
(353.3)
(360.8)
2.2
(291.6)
17.4
(6.9)
10.5
(8.9)
(52.5)
(61.4)
—
(50.9)
—
—
—
(81.1)
81.1
—
(0.5)
(0.5)
25.5
(2.0)
23.5
6.4
(7.2)
(0.8)
—
22.7
144.4
(43.4)
101.0
(91.1)
(331.9)
(423.0)
1.7
(320.3)
Net debt is a measure of the Group’s net indebtedness to banks and other external fi nancial institutions and comprises the total of cash
and short-term deposits and current and non-current interest-bearing borrowings.
15. Property, Plant and Equipment
15.1 Accounting policy
Freehold land is carried at cost less accumulated impairment losses. Other items of property, plant and equipment are carried at cost less
accumulated depreciation and accumulated impairment losses. Costs are capitalised only when it is probable that they will result in future
economic benefi ts fl owing to the Group and when they can be measured reliably. All other repairs and maintenance expenditure
are charged to the Group income statement in the period in which they are incurred.
Freehold land is not depreciated as it has an infi nite life. Depreciation on other items of property, plant and equipment begins when the
asset is available for use and is charged to the Group income statement on a straight-line basis so as to write off the cost less residual
value of the asset over its estimated useful life as follows:
129
15. Property, Plant and Equipment (continued)
15.1 Accounting policy (continued)
Asset category
Freehold property
Leasehold property
Plant and equipment — motor vehicles and information technology equipment
— other
Estimated useful life
between ten and 50 years
the term of the lease
between one and fi ve years
between three and 15 years
The depreciation method used, residual values and estimated useful lives are reviewed annually and changed, if appropriate. As described
in Note 17.1, an asset’s carrying amount is immediately written down to its recoverable amount if its carrying amount is greater than its
estimated recoverable amount. Gains and losses arising on disposals are determined by comparing sales proceeds with carrying amount
and are recognised in the Group income statement.
15.2 Movement in net book value
Cost
As at 1 January 2015
Exchange adjustments
Capital expenditure additions
Acquisitions through business combinations
Disposals
Reclassifi cations
As at 1 January 2016
Exchange adjustments
Capital expenditure additions
Acquisitions through business combinations
Disposals
Reclassifi cations
As at 31 December 2016
Accumulated depreciation and impairment losses
As at 1 January 2015
Exchange adjustments
Depreciation charge
Impairment charge
Disposals
Reclassifi cations
As at 1 January 2016
Exchange adjustments
Depreciation charge
Impairment charge
Disposals
Reclassifi cations
As at 31 December 2016
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
Construction
in progress
£m
157.0
(2.3)
5.5
3.8
—
5.7
169.7
29.9
1.3
—
(1.6)
4.0
203.3
57.9
(0.4)
5.1
—
—
2.1
64.7
11.9
5.9
0.4
(1.2)
1.2
82.9
3.7
—
—
—
—
(1.4)
2.3
0.1
—
—
—
—
2.4
2.0
—
0.2
—
—
(0.8)
1.4
—
0.2
—
—
—
1.6
479.5
(12.8)
21.1
1.9
(26.0)
13.5
477.2
84.8
18.3
1.1
(41.9)
10.5
550.0
328.4
(7.2)
31.8
0.6
(25.7)
(1.3)
326.6
59.5
36.2
—
(37.8)
(1.2)
383.3
39.9
(1.6)
8.4
—
(0.1)
(17.8)
28.8
6.0
15.6
—
(0.2)
(14.5)
35.7
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
£m
680.1
(16.7)
35.0
5.7
(26.1)
—
678.0
120.8
35.2
1.1
(43.7)
—
791.4
388.3
(7.6)
37.1
0.6
(25.7)
—
392.7
71.4
42.3
0.4
(39.0)
—
467.8
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Net book value as at 31 December 2016
120.4
0.8
166.7
35.7
323.6
Net book value as at 31 December 2015
Net book value as at 1 January 2015
105.0
99.1
0.9
1.7
150.6
28.8
285.3
151.1
39.9
291.8
The net book value of assets held under fi nance leases as at 31 December 2016, 31 December 2015 and 1 January 2015 was not material.
130
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
16. Intangible Assets
Intangible assets comprise goodwill and other intangible assets that have been acquired through business combinations.
16.1 Accounting policy
(a) Goodwill
Goodwill arising in a business combination is initially recognised as an asset at cost, measured as the excess of the aggregate of the
acquisition-date fair value of the consideration transferred and the amount of any non-controlling interest acquired over the net of the
acquisition-date fair value amounts of the identifi able assets acquired and liabilities assumed. When the excess is negative, a bargain
purchase gain is recognised immediately in profi t or loss. Goodwill is subsequently measured at cost less accumulated impairment losses,
with impairment testing carried out annually, or more frequently when there is an indication that the cash-generating unit to which the
goodwill has been allocated may be impaired. On disposal of a business, the attributable amount of goodwill is included in the calculation
of the profi t or loss on disposal.
(b) Other intangible assets
Intangible assets other than goodwill are recognised on business combinations if they are separable, or if they arise from contractual
or other legal rights, and their value can be measured reliably. They are initially measured at cost, which is equal to the acquisition-date fair
value, and subsequently measured at cost less accumulated amortisation charges and accumulated impairment losses. Other intangible
assets are subject to impairment testing when there is an indication that an impairment loss may have been incurred and are amortised
over their estimated useful lives.
(c) Research and development costs
The Group’s research activity involves long-range, “blue sky” investigation, the fi ndings from which may be used in the future to develop
new or substantially improved products. Expenditure on research activities is recognised in the income statement as an expense in the
year in which it is incurred.
Development is the application of research fi ndings for the production of new or substantially improved products, processes and services
before the start of commercial production. Development expenditure is capitalised only if the expenditure can be measured reliably,
the product or process is technically and commercially feasible, future economic benefi ts are probable and the Group intends to and has
suffi cient resources to complete development and to use or sell the asset. Otherwise, it is recognised in the income statement as an
expense in the year in which it is incurred. Capitalised development expenditure, where there is any, is stated at cost less accumulated
amortisation and impairment losses.
In determining whether development expenditure is capitalised as an intangible asset, management considers whether the strict
intangible asset recognition criteria set out in IAS 38, Intangible Assets, have been met at the time the expenditure is incurred. In making
this determination, management recognise that a signifi cant amount of the development expenditure undertaken by the Group is
focused on dealing with local customer technical support issues and incremental developments to existing products as opposed to
new or substantially improved products, and that at the time the feasibility of the project is determined a signifi cant proportion of the
development expenditure for that project has already been incurred.
16.2 Movement in net book value
Cost
As at 1 January
Exchange adjustments
Business combinations (Note 21)
As at 31 December
Accumulated amortisation and impairment losses
As at 1 January
Exchange adjustments
Amortisation charge for the year
As at 31 December
Other
intangible
assets
£m
Goodwill
£m
562.1
97.0
3.1
662.2
—
—
—
—
250.7
17.4
3.8
271.9
128.2
6.9
17.1
152.2
2016
total
£m
812.8
114.4
6.9
934.1
128.2
6.9
17.1
152.2
Other
intangible
assets
£m
255.9
(5.2)
—
250.7
113.4
(1.8)
16.6
128.2
Goodwill
£m
561.4
(12.1)
12.8
562.1
—
—
—
—
2015*
total
£m
817.3
(17.3)
12.8
812.8
113.4
(1.8)
16.6
128.2
Net book value as at 31 December
666.2
119.7
781.9
562.1
122.5
684.6
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (Note 21).
131
16. Intangible Assets (continued)
16.3 Analysis of goodwill by cash-generating unit (‘CGU’)
Goodwill acquired in a business combination is allocated to each of the Group’s CGUs expected to benefi t from the synergies of the
combination. For the purposes of impairment testing, the Directors consider that the Group has two CGUs: the Steel division and the
Foundry division. These CGUs represent the lowest level within the Group at which goodwill is monitored.
Steel
Foundry
Total goodwill
2016
£m
438.7
223.5
662.2
2015*
£m
371.7
190.4
562.1
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (Note 21).
16.4 Analysis of other intangible assets
Other intangible assets are amortised on a straight-line basis over their estimated useful lives. The assets acquired and their remaining
useful lives are shown below.
Foseco
— customer relationships (useful life: 20 years)
— trade name (useful life: 20 years)
— intellectual property rights (useful life: ten years)
Mould and tundish business of Carboox
— customer relationships (useful life: 20 years)
— trade name (useful life: two years)
Total
17.
Impairment of Tangible and Intangible Assets
17.1 Accounting policy
Remaining
useful life
years
Net book
value as at
31 Dec 2016
£m
11.3
11.3
1.3
19.9
1.9
64.8
40.8
10.0
3.7
0.4
119.7
The Directors regularly review the performance of the business and the external business environment to determine whether there is
any indication that the Group’s tangible and intangible assets have suffered an impairment loss. If such indication exists, the higher of the
value in use and the recoverable amount of the asset is estimated and compared to the carrying value in order to determine the extent,
if any, of the impairment loss. Where it is not feasible to estimate the recoverable amount of an individual asset, the Directors estimate the
recoverable amount of the CGU to which the asset belongs. In addition, goodwill is tested for impairment on an annual basis. Goodwill
acquired in a business combination is allocated to each of the Group’s CGUs expected to benefi t from the synergies of the combination
and the Directors carry out annual impairment testing of the carrying value of each CGU, to assess the need for any impairment of the
carrying value of the associated goodwill and other intangible and tangible assets.
For the purpose of impairment testing, the recoverable amount of an asset or CGU is the higher of (i) its fair value less costs to sell
and (ii) its value in use. If the recoverable amount of a CGU is less than its carrying amount, the resulting impairment loss is allocated
fi rst to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis
of the carrying amount of each asset in the CGU. An impairment loss recognised for goodwill is not reversed in a subsequent period.
An impairment loss recognised in a prior year for an asset other than goodwill may be reversed where there has been a change in the
estimates used to measure the asset’s recoverable amount since the impairment loss was recognised.
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132
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
17.
Impairment of Tangible and Intangible Assets (continued)
17.2 Key assumptions
The key assumptions used in determining value in use are return on sales, growth rates and discount rates. Return on sales assumptions
are based on historical fi nancial information, adjusted to factor in the anticipated impact of restructuring and rationalisation plans already
announced at the balance sheet date.
The value in use calculations of the Group’s CGUs are based on three-year business plans and a terminal growth rate of 2.5% (2015:
2.5%). The cash fl ows are discounted to their current value using pre-tax discount rates, which represent each CGU’s weighted average
cost of capital (‘WACC’). Growth rates are determined with reference to: current market conditions; external forecasts and historical
trends for the Group’s key end-markets of Steel and Foundry; and expected growth in output within the industries in which each major
Group business unit operates. A perpetuity growth rate of 2.5% (2015: 2.5%) has been applied. The pre-tax discount rate is the WACC
calculated for each CGU as at 31 December 2016 based on industry-specifi c beta coeffi cients for the industries in which the CGUs
operate, risk-free rates, and equity risk premia related to the major countries in which the CGUs are located, selecting countries which
contribute at least 80% of total CGU revenue. The pre-tax discount rate used for the Steel CGU was 10.9% (2015: 11.1%) and for the
Foundry CGU was 13.2% (2015: 13.0%). The decrease in Steel’s pre-tax discount rate is driven by a reduction in global risk free rates as
reserve banks lower these to stimulate growth. In Foundry, the impact of this decrease has been more than offset by increasing
contributions from emerging markets, providing upward pressure on beta and equity risk premiums. A sensitivity analysis undertaken
in respect of the 2016 impairment testing assuming a 1.0% increase in each of the CGU discount rates and a 1.0% perpetuity growth
rate still resulted in headroom remaining in which the recoverable amount of each CGU exceeded its carrying value. A pre-tax discount
rate of 13.9% would result in an impairment of Steel intangible assets and 16.2% for Foundry.
17.3 Goodwill impairment
In assessing goodwill for potential impairment as at 31 December 2016, the Directors made use of detailed calculations of the recoverable
amount of the Group’s CGUs as at 31 December 2016. Those calculations resulted in recoverable amounts signifi cantly higher than the
carrying values of each of the Group’s CGUs and consequently no impairment charges were recognised.
18. Trade and Other Receivables
18.1 Accounting policy
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest
method, less impairment losses.
18.2 Analysis of trade and other receivables
Trade receivables — current
— 1 to 30 days past due
— 31 to 60 days past due
— 61 to 90 days past due
— over 90 days past due
Trade receivables
Other receivables
Prepayments and accrued income
Total trade and other receivables*
2016
Gross
£m
Impairment
£m
236.7
51.3
19.3
9.5
52.8
369.6
(1.1)
(0.5)
(0.2)
(0.2)
(31.1)
(33.1)
Net
£m
235.6
50.8
19.1
9.3
21.7
336.5
41.9
14.8
393.2
2015*
Gross
£m
Impairment
£m
189.3
42.1
15.9
9.0
42.9
299.2
(0.7)
(0.8)
(0.1)
(0.7)
(24.8)
(27.1)
Net
£m
188.6
41.3
15.8
8.3
18.1
272.1
30.4
13.8
316.3
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (Note 21).
All the Group’s operating companies have policies and procedures in place to assess the creditworthiness of the customers with whom
they do business. Where objective evidence exists that a trade receivable balance may be impaired, provision is made for the difference
between its carrying amount and the present value of the estimated cash that will be recovered. Evidence of impairment may include
such factors as the customer being in breach of contract, or entering bankruptcy or fi nancial reorganisation proceedings. Impairment
provisions are assessed on an individual customer basis for all signifi cant outstanding balances and collectively for all remaining balances,
based upon historical loss experience. Historical experience has shown that the Group’s trade receivable provisions are maintained at
levels that are suffi cient to absorb actual bad debt write-offs, without being excessive.
133
18. Trade and Other Receivables (continued)
18.2 Analysis of trade and other receivables (continued)
In prior years under its non-recourse factoring arrangements, the Group sold trade receivables balances to a third-party factoring
company in exchange for a cash payment from the factoring company, net of fees. All the risks and rewards of the trade receivables
subject to these arrangements were transferred to the factoring company and, accordingly, the trade receivables were derecognised in
the Group balance sheet. Such arrangements were used from time to time by the Group to manage the recovery of cash from its trade
receivables. As at 31 December 2016, the Group balance sheet included £nil (2015: £4.7m) of cash that would otherwise have been
reported as trade receivables if these arrangements were not in place. The movement since the prior year of £4.7m is due to the
retirement of the debt factoring programme. Factoring fees incurred during the year ended 31 December 2016, which are charged to
the Group income statement within ordinary fi nance costs, amounted to £nil (2015: £0.2m).
18.3 Movements on impairment provisions
As at 1 January
Charge for the year
Receivables written off during the year as uncollectable
Exchange adjustments
As at 31 December
2016
£m
27.1
6.6
(4.4)
3.8
33.1
2015
£m
25.4
5.0
(2.2)
(1.1)
27.1
The charge for the year shown in the table above is recorded within administration, selling and distribution costs in the Group
income statement.
19. Inventories
19.1 Accounting policy
Inventories are stated at the lower of cost (using the fi rst in, fi rst out method) and net realisable value. Cost comprises expenditure
incurred in purchasing or manufacturing inventories together with all other costs directly incurred in bringing the inventory to its
present location and condition and, where appropriate, attributable production overheads based on normal activity levels. Net realisable
value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and
distribution. The amount of any write-down of inventories to net realisable value is recognised as an expense in the year in which the
write-down occurs.
19.2 Analysis of inventories
Raw materials
Work-in-progress
Finished goods
Total inventories
2016
£m
75.1
18.7
113.9
207.7
2015*
£m
63.2
13.4
91.1
167.7
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (Note 21).
The cost of inventories recognised as an expense and included in manufacturing costs of continuing operations in the income statement
during the year was £636.0m (2015: £596.4m).
The net inventories of £207.7m includes a provision for obsolete stock of £14.4m (2015: £11.0m).
F
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134
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
20. Derivative Financial Instruments
20.1 Accounting policy
The Group uses derivative fi nancial instruments (‘derivatives’), in the form of forward foreign currency contracts, and interest rate swaps
to manage the effects of its exposure to foreign exchange risk, and interest rate risk. The way in which derivatives are used to manage
the Group’s fi nancial risk is detailed in Note 27.
Derivatives are measured at fair value. The fair value of forward foreign currency contracts is calculated using market prices at the balance
sheet date. The fair value of an interest rate swap is the estimated amount that the Group would receive or pay to terminate the swap at
the balance sheet date, taking into account current interest rates and the creditworthiness of the swap counterparty.
The method of recognising the gain or loss on remeasurement to fair value depends on whether the derivative is designated as a hedging
instrument for hedge accounting purposes and, if so, the nature of the item being hedged. Strict conditions have to be satisfi ed in order
to qualify for hedge accounting, including a determination both at inception of the hedge and on an ongoing basis that the hedge is
expected to be highly effective in achieving offsetting changes in fair values or cash fl ows attributable to the hedged risk. The change
in fair value of a derivative that is not designated as a hedging instrument for hedge accounting purposes is recognised immediately in
the Group income statement. No derivatives are held for speculative purposes.
Cash fl ow hedges
The effective part of any gain or loss on a derivative that is designated as a cash fl ow hedge is recognised in other comprehensive income
and presented in the hedging reserve in equity. The ineffective part of any gain or loss is recognised immediately within trading profi t,
or within fi nance costs in the case of interest rate swaps designated as cash fl ow hedges. When the transaction that was being hedged
is realised and affects profi t or loss, the cumulative gain or loss on the derivative is removed from the hedging reserve and recognised
in the income statement in the same period.
Fair value hedges
The change in fair value of a derivative that is designated as a fair value hedge is recognised within trading profi t in the Group income
statement. The carrying amount of the hedged item is adjusted by the change in its fair value that is attributable to the hedged risk and
this adjustment is recognised within trading profi t in the Group income statement.
Net investment hedges
The effective part of any gain or loss on a derivative that is designated as a hedge of a net investment in a foreign operation is recognised
in other comprehensive income and presented in the translation reserve in equity, and is subsequently recognised in the Group income
statement as part of the profi t or loss on disposal of the net investment. The ineffective portion of the gain or loss is recognised
immediately within trading profi t in the Group income statement.
20.2 Analysis of derivative fi nancial instruments
Derivatives not designated for hedge accounting purposes
Total derivative fi nancial instruments
2016
2015
Assets
£m
—
—
Liabilities
£m
(0.9)
(0.9)
Assets
£m
0.5
0.5
Liabilities
£m
—
—
All of the fair values shown in the table above are classifi ed under IFRS 13 as Level 2 measurements which have been calculated using
quoted prices from active markets, where similar contracts are traded and the quotes refl ect actual transactions in similar instruments.
All of the derivative assets and liabilities reported in the table above will mature within a year of the balance sheet date.
21. Acquisition of Subsidiaries and Joint Ventures, Net of Cash Acquired
21.1 Current year acquisition
On 1 December 2016, the Group acquired a 100% ownership interest in Mastercodi Industrial Ltda, the mould and tundish fl ux business
of Carboox, for total consideration of £8.0m, of which £0.7m was deferred. The fair value of the net assets acquired was £4.9m and
included identifi ed intangible assets relating to customer relationships and trade names of £3.8m. The transaction resulted in the
recognition of £3.1m of goodwill attributable to the synergies which are expected from combining the business with the operations of
the Group.
The £7.7m disclosed in the Group statement of cash fl ows in respect of the acquisitions of subsidiaries, net of cash acquired, comprised
£7.3m paid for current year acquisitions and a £0.4m payment of contingent consideration payment for Process Metrix.
135
21. Acquisition of Subsidiaries and Joint Ventures, Net of Cash Acquired (continued)
21.2 Prior year acquisition
On 15 May 2015, the Group acquired a 100% ownership interest in the Sidermes Group (‘Sidermes’), a leading supplier of temperature
and chemical measurement solutions. The fair values of the acquired assets and liabilities disclosed as provisional in the 2015 Annual
Report in respect of this acquisition have been fi nalised during the period. The following adjustments have been made, as at the date
of acquisition:
Consideration transferred
Cash
Total consideration transferred
Identifi able assets acquired and liabilities assumed at fair value
Inventories
Trade and other receivables
Property, plant and equipment
Cash
Trade and other payables
Deferred tax liability
Employee benefi ts net liabilities
Interest bearing borrowings
Provisions
Total identifi able net assets at fair value
Goodwill
22. Discontinued Operations
Fair values
previously
disclosed
£m
Adjustments
made
£m
Fair value of
net assets
acquired
£m
24.4
24.4
6.7
6.4
5.7
0.6
(3.7)
(1.2)
(0.9)
(0.8)
(0.3)
12.5
11.9
—
—
24.4
24.4
(0.3)
(0.3)
—
—
(0.2)
—
—
—
(0.1)
(0.9)
0.9
6.4
6.1
5.7
0.6
(3.9)
(1.2)
(0.9)
(0.8)
(0.4)
11.6
12.8
Discontinued operations income during 2016 of £10.2m, comprised a £9.0m tax credit relating to the release of a provision for possible
China taxes (Note 10.2) and a £1.2m release of provisions no longer required. In 2015, discontinued operations income of £1.4m related
to a partial reimbursement of costs charged in 2014 for the MacDermid claim.
The net cash outfl ow from discontinued operations of £6.2m during 2015 represented the net payment of £5.5m to MacDermid
following the settlement agreement in 2014, £0.4m VAT payment, and £0.3m other payments.
22.1 Results of discontinued operations
Other income
Profi t before tax — attributable to owners of the parent
Earnings per share — pence
Basic
Diluted
22.2 Cash fl ows from discontinued operations
Net cash outfl ow from:
— operating activities
Net cash outfl ow for the year
23. Issued Share Capital
23.1 Accounting policy
2016
£m
10.2
10.2
3.8
3.7
2016
£m
—
—
2015
£m
1.4
1.4
0.5
0.6
2015
£m
(6.2)
(6.2)
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Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
23.2 Analysis of issued share capital
The issued ordinary share capital of the Company as at 31 December 2016 was 278.5 million shares of £0.10 each. Further information
relating to the Company’s share capital is given in Note 7 attached to the Company’s fi nancial statements.
136
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
24. Retained Earnings
As at 1 January 2015
Profi t for the year
Remeasurement of defi ned benefi t liabilities/assets
Purchase of own shares
Disposal of own shares
Recognition of share-based payments
Release of share option reserve on exercised and lapsed options
Income tax on items recognised in other comprehensive income
Dividends paid (Note 26)
As at 1 January 2016
Profi t for the year
Remeasurement of defi ned benefi t liabilities/assets
Disposal of own shares
Recognition of share-based payments
Release of share option reserve on exercised and lapsed options
Income tax on items recognised in other comprehensive income
Dividends paid (Note 26)
As at 31 December 2016
25. Other Reserves
As at 1 January 2015
Exchange differences on translation of the net assets of foreign operations
Exchange translation differences arising on net investment hedges
As at 1 January 2016
Exchange differences on translation of the net assets of foreign operations
Exchange translation differences arising on net investment hedges
As at 31 December 2016
Reserve
for own
shares
£m
(33.6)
—
—
(5.2)
0.8
—
—
—
—
(38.0)
—
—
2.9
—
—
—
—
(35.1)
Share
option
reserve
£m
4.0
—
—
—
—
0.1
(0.5)
—
—
3.6
—
—
—
1.7
(2.4)
—
—
2.9
Other
retained
earnings
£m
2,361.7
48.8
13.0
—
(0.8)
—
0.5
1.6
(43.9)
2,380.9
56.9
9.5
(2.9)
—
2.4
(0.7)
(43.9)
2,402.2
Total
retained
earnings
£m
2,332.1
48.8
13.0
(5.2)
—
0.1
—
1.6
(43.9)
2,346.5
56.9
9.5
—
1.7
—
(0.7)
(43.9)
2,370.0
Other
reserves
£m
(1,499.3)
—
—
(1,499.3)
—
—
(1,499.3)
Translation
reserve
£m
32.6
(29.1)
(6.1)
(2.6)
202.1
(41.6)
157.9
Total other
reserves
£m
(1,466.7)
(29.1)
(6.1)
(1,501.9)
202.1
(41.6)
(1,341.4)
Within other reserves as at 31 December 2016 is £1,499.0m (2015: £1,499.0m) arising from the demerger of Cookson Group plc,
being the excess of the Vesuvius plc share capital of £1,777.9m over the total share capital and share premium of Cookson Group plc as
at 14 December 2012 of £278.9m.
The translation reserve in the table above comprises all foreign exchange differences attributable to the owners of the parent. These
exchange differences arise from the translation of the fi nancial statements of foreign operations and from the translation of fi nancial
instruments that hedge the Group’s net investment in foreign operations. In addition to foreign exchange differences attributable to
the owners of the parent, the Group statement of comprehensive income includes foreign exchange differences attributable
to non-controlling interests.
26. Dividends
A fi nal dividend for the year ended 31 December 2015 of £30.0m (2014: £30.1m), equivalent to 11.125 pence (2014: 11.125 pence)
per ordinary share, was paid in May 2016 (May 2015) and an interim dividend for the year ended 31 December 2016 of £13.9m
(2015: £13.8m), equivalent to 5.15 pence (2015: 5.15 pence) per ordinary share, was paid in September 2016 (September 2015).
A proposed fi nal dividend for the year ended 31 December 2016 of £30.8m, equivalent to 11.40 pence per ordinary share, is subject to
approval by shareholders at the Company’s Annual General Meeting and has not been included as a liability in these fi nancial statements.
If approved by shareholders, the dividend will be paid on 19 May 2017 to ordinary shareholders on the register at 7 April 2017.
137
27. Financial Risk Management
27.1 Accounting policy
(a) Non-derivative fi nancial instruments
Loans and borrowings are initially recognised at fair value plus directly attributable transaction costs. After initial recognition they are
measured at amortised cost, using the effective interest method.
(b) Foreign currencies
The individual fi nancial statements of each Group entity are prepared in their functional currency, which is the currency of the primary
economic environment in which that entity operates. For the purpose of the Consolidated Financial Statements, the results and fi nancial
position of each entity are translated into pound sterling, which is the presentational currency of the Group.
Reporting foreign currency transactions in functional currency
Transactions in currencies other than the entity’s functional currency (foreign currencies) are initially recorded at the rates of exchange
prevailing on the dates of the transactions. At each subsequent balance sheet date:
(i)
Foreign currency monetary items are retranslated at the rates prevailing at the balance sheet date. Exchange differences arising
on the settlement or retranslation of monetary items are recognised in the Group income statement
(ii)
Non-monetary items measured at historical cost in a foreign currency are not retranslated.
Translation from functional currency to presentational currency
When the functional currency of a Group entity is different from the Group’s presentational currency (pound sterling), its results and
fi nancial position are translated into the presentational currency as follows:
(i)
Assets and liabilities are translated using exchange rates prevailing at the balance sheet date
(ii)
Income and expense items are translated at average exchange rates for the year, except where the use of such average rates
does not approximate the exchange rate at the date of a specifi c transaction, in which case the transaction rate is used
(iii) All resulting exchange differences are recognised in other comprehensive income and presented in the translation reserve in equity
and are reclassifi ed to profi t or loss in the period in which the foreign operation is disposed of.
Net investment in foreign operations
Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation are initially
recognised in other comprehensive income and presented in the translation reserve in equity and reclassifi ed to profi t or loss on disposal
of the net investment.
27.2 Financial risk factors
The Group’s Treasury department, acting in accordance with policies approved by the Board, is principally responsible for managing the
fi nancial risks faced by the Group. The Group’s activities expose it to a variety of fi nancial risks, the most signifi cant of which are market
risk and liquidity risk.
(a) Market risk
Market risk is the risk that either the fair values or the cash fl ows of the Group’s fi nancial instruments may fl uctuate because of changes
in market prices. The Group is principally exposed to market risk through fl uctuations in exchange rates (‘currency risk’) and interest rates
(‘interest rate risk’).
Currency risk
The Group is exposed to currency risk on its borrowings and fi nancial assets (being cash and short-term deposits) that are denominated
in currencies other than pound sterling. The Group’s general policy is proportionally to match the currency profi le of its core borrowings
with the currency profi le of its earnings and net assets. This is achieved, where necessary, by the use of forward foreign exchange
contracts (‘FX swaps’). The currency profi le of the Group’s borrowings and fi nancial assets, refl ecting the effect of the FX swaps,
is shown in the table overleaf.
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
27. Financial Risk Management (continued)
27.2 Financial risk factors (continued)
(a) Market risk (continued)
Borrowings
before
FX swaps
£m
32.5
301.6
127.1
—
5.2
FX
swaps
£m
116.8
(116.8)
—
—
—
2016
Borrowings
after
FX swaps
£m
149.3
184.8
127.1
Financial
assets
£m
(9.2)
(40.7)
(22.6)
— (22.1)
(49.9)
5.2
Net
debt
£m
140.1
144.2
104.5
(22.1)
(44.7)
Borrowings
before
FX swaps
£m
21.3
232.1
134.2
—
7.7
FX
swaps
£m
97.0
(97.0)
—
—
—
2015
Borrowings
after
FX swaps
£m
118.3
135.1
134.2
—
7.7
Financial
assets
£m
(9.9)
(15.4)
(32.6)
(5.6)
(38.0)
Net
debt
£m
108.4
119.7
101.6
(5.6)
(30.3)
(1.7)
464.7
—
—
(1.7)
464.7
—
(144.4)
(1.7)
320.3
(2.2)
393.1
—
—
(2.2)
393.1
—
(101.5)
(2.2)
291.6
Sterling
United States dollar
Euro
Chinese renminbi
Other
Capitalised
arrangement fees
As at 31 December
Based upon the currency profi le shown in the table above, while not impacting reported profi t, the change in net debt arising from
a 10% strengthening of sterling would increase reported equity by £27.1m (2015: £25.7m) and a corresponding 10% weakening of
sterling would reduce equity by £33.2m (2015: £31.4m).
The tables below show the net unhedged monetary assets and liabilities of Group companies that are not denominated in their
functional currency and which could give rise to exchange gains and losses in the Group income statement.
Functional currency
Sterling
United States dollar
Euro
Chinese renminbi
Other
As at 31 December 2016
Functional currency
Sterling
United States dollar
Euro
Chinese renminbi
Other
As at 31 December 2015
Net unhedged monetary assets/(liabilities)
Sterling
£m
US dollar
£m
Euro
£m
Renminbi
£m
Other
£m
—
—
(0.2)
(0.7)
(0.5)
(1.4)
(0.9)
—
(3.2)
5.4
13.4
14.7
1.0
13.5
—
(0.5)
2.2
16.2
0.1
—
—
—
1.3
1.4
1.0
(3.6)
—
(0.1)
18.0
15.3
Net unhedged monetary assets/(liabilities)
Sterling
£m
US dollar
£m
Euro
£m
Renminbi
£m
Other
£m
—
0.1
(0.3)
(0.1)
(0.4)
(0.7)
1.2
—
(1.3)
1.8
8.4
10.1
2.8
1.8
—
(0.8)
7.2
11.0
0.7
—
—
—
(0.6)
0.1
2.8
2.1
0.2
(0.7)
5.8
10.2
Total
£m
1.2
9.9
(3.4)
4.1
34.4
46.2
Total
£m
7.5
4.0
(1.4)
0.2
20.4
30.7
Interest rate risk
The Group’s interest rate risk principally arises in relation to its borrowings. Where borrowings are held at fl oating rates of interest,
fl uctuations in interest rates expose the Group to variability in the cash fl ows associated with its interest payments, and where borrowings
are held at fi xed rates of interest, fl uctuations in interest rates expose the Group to changes in the fair value of its borrowings. The Group’s
policy is to maintain a mix of fi xed and fl oating rate borrowings, within certain parameters agreed from time to time by the Board,
in order to optimise interest cost and reduce volatility in reported earnings.
139
27. Financial Risk Management (continued)
27.2 Financial risk factors (continued)
(a) Market risk (continued)
As at 31 December 2016, the Group had $310m and €30m (£276.9m in total) of US Private Placement Loan Notes (‘USPP’) outstanding,
which carry a fi xed rate of interest, representing two-thirds of the Group’s total borrowings outstanding at that date. The interest rate
profi le of the Group’s borrowings and net debt is detailed in the tables below.
Sterling
United States dollar
Euro
Chinese renminbi
Other
Capitalised arrangement fees
As at 31 December 2016
Sterling
United States dollar
Euro
Chinese renminbi
Other
Capitalised arrangement fees
As at 31 December 2015
Financial liabilities
(gross borrowings)
Fixed
rate
£m
—
251.3
25.6
—
—
(1.7)
275.2
Floating
rate
£m
32.5
50.3
101.5
—
5.2
—
189.5
Financial liabilities
(gross borrowings)
Fixed
rate
£m
—
210.3
22.1
—
—
(2.2)
230.2
Floating
rate
£m
21.3
21.8
112.1
—
7.7
—
162.9
Total
£m
32.5
301.6
127.1
—
5.2
(1.7)
464.7
Total
£m
21.3
232.1
134.2
—
7.7
(2.2)
393.1
Financial
assets
£m
(9.2)
(40.7)
(22.6)
(22.1)
(49.9)
—
(144.4)
Financial
assets
£m
(9.9)
(15.4)
(32.6)
(5.6)
(38.0)
—
(101.5)
Net
debt
£m
23.4
260.9
104.5
(22.1)
(44.7)
(1.7)
320.3
Net
debt
£m
11.4
216.7
101.6
(5.6)
(30.3)
(2.2)
291.6
The fl oating rate fi nancial liabilities shown in the tables above bear interest at the inter-bank offered rate of the appropriate currency,
plus a margin. The fi xed rate fi nancial liabilities of £275.2m (2015: £230.2m) have a weighted average interest rate of 4.6% (2015: 4.6%)
and a weighted average period for which the rate is fi xed of 4.2 years (2015: 5.2 years). The fi nancial assets attract fl oating rate interest
at the inter-bank offered rate of the appropriate currency, less a margin.
Based upon the interest rate profi le of the Group’s fi nancial assets and liabilities shown in the tables above, a 1% increase in market
interest rates would increase both the net fi nance costs charged in the Group income statement and the net interest paid in the Group
statement of cash fl ows by £0.5m (2015: £0.6m), and a 1% reduction in market interest rates would decrease both the net fi nance costs
charged in the Group income statement and the net interest paid in the Group statement of cash fl ows by £0.5m (2015: £0.6m). Similarly,
a 1% increase in market interest rates would result in a decrease of £10.7m (2015: £11.0m) in the fair value of the Group’s net debt and
a 1% decrease in market interest rates would result in an increase of £11.4m (2015: £11.8m) in the fair value of the Group’s net debt.
(b) Liquidity risk
Liquidity risk is the risk that the Group might have diffi culties in meeting its fi nancial obligations. The Group manages this risk by ensuring
that it maintains suffi cient levels of committed borrowing facilities and cash and cash equivalents to ensure that it can meet its operational
cash fl ow requirements and any maturing fi nancial liabilities, whilst at all times operating within its fi nancial covenants. The level of
operational headroom provided by the Group’s committed borrowing facilities is reviewed at least annually as part of the Group’s
three-year planning process. Where this process indicates a need for additional fi nance, this is normally addressed 12 to 18 months
in advance by means of either additional committed bank facilities or raising fi nance in the capital markets.
As at 31 December 2016, the Group had committed borrowing facilities of £576.9m (2015: £532.4m), of which £158.3m (2015: £181.1m)
were undrawn. These undrawn facilities are due to expire in June 2020. The Group’s borrowing requirements are met by USPP and a
multi-currency committed syndicated bank facility of £300m (2015: £300m). The USPP facility was fully drawn as at 31 December 2016
and amounted to £276.9m ($310m and €30m), of which $110m is repayable in 2017, $140m in 2020, €15m in 2021, $30m in 2023,
€15m in 2025 and $30m in 2028. The syndicated bank facility is repayable in June 2020.
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
27. Financial Risk Management (continued)
27.2 Financial risk factors (continued)
(b) Liquidity risk (continued)
The maturity analysis of the Group’s gross borrowings is shown in the tables below.
Non-current
Current
Total
Loans and overdrafts
Obligations under fi nance leases
Capitalised arrangement fees
Total interest-bearing borrowings
Interest-bearing borrowings repayable
On demand or within one year
In the second year
In the third year
In the fourth year
In the fi fth year
After fi ve years
Capitalised arrangement fees
Total interest-bearing borrowings
2016
£m
329.4
2.6
(1.2)
330.8
2015
£m
351.3
2.1
(1.7)
351.7
2016
£m
132.7
1.7
(0.5)
133.9
2015
£m
40.6
1.3
(0.5)
41.4
2016
£m
462.1
4.3
(1.7)
464.7
2016
£m
134.4
1.2
0.9
255.7
12.8
61.4
(1.7)
464.7
2015
£m
391.9
3.4
(2.2)
393.1
2015
£m
41.9
75.7
0.7
0.2
213.9
62.9
(2.2)
393.1
Capitalised arrangement fees shown in the tables above, which have been recognised as a reduction in borrowings in the fi nancial
statements, amounted to £1.7m as at 31 December 2016 (31 December 2015: £2.2m), of which £0.7m (2015: £1.0m) related to the
USPP and £1.0m (2015: £1.2m) related to the syndicated bank facility.
27.3 Capital management
The Company considers its capital to be equal to the sum of its total equity and net debt. It monitors its capital using a number of KPIs,
including free cash fl ow, average working capital to sales ratios, net debt to EBITDA ratios and RONA (Note 4). The Group’s objectives
when managing its capital are:
> To ensure that the Group and all of its businesses are able to operate as going concerns and ensure that the Group operates within
the fi nancial covenants contained within its debt facilities
> To have available the necessary fi nancial resources to allow the Group to invest in areas that may deliver acceptable future returns
to investors
> To maintain suffi cient fi nancial resources to mitigate against risks and unforeseen events
> To maximise shareholder value through maintaining an appropriate balance between the Group’s equity and net debt.
The Group operated within the requirements of its debt covenants throughout the year and has suffi cient liquidity headroom within its
committed debt facilities. Details of the Group’s covenant compliance and committed debt facilities can be found in the Strategic Report
on page 31.
141
27. Financial Risk Management (continued)
27.4 Cash pooling arrangements
The Group enters into notional cash pooling arrangements as part of its ongoing Treasury management activities. Certain cash pooling
arrangements meet the criteria for offsetting as clarifi ed in amendments to IAS 32 Financial Instruments, as regards a legally enforceable
right of set off both in the ordinary course of business and in the event of default. The following tables set out the amounts of recognised
fi nancial assets and liabilities shown as cash and cash borrowings and those amounts which are subject to these agreements.
Gross
amounts of
recognised
fi nancial
assets/
liabilities
offset in the
statement
of fi nancial
position
£m
Net
amounts of
fi nancial
assets/
liabilities
presented
in the
statement
of fi nancial
position
£m
Related
amounts of
fi nancial
assets/
liabilities
not offset
in the
statements
of fi nancial
position
£m
Gross
amounts of
recognised
fi nancial
assets/
liabilities
£m
160.8
(59.8)
101.0
(16.4)
16.4
—
144.4
(43.4)
101.0
120.5
(53.5)
67.0
(19.0)
19.0
—
101.5
(34.5)
67.0
(30.9)
30.9
—
(18.9)
18.9
—
Net
amount
£m
113.5
(12.5)
101.0
82.6
(15.6)
67.0
Financial assets/liabilities
Cash deposits
Cash borrowings
As at 31 December 2016
Financial assets/liabilities
Cash deposits
Cash borrowings
As at 31 December 2015
28. Employee Benefi ts
28.1 Accounting policy
The net surplus or net liability recognised in the Group balance sheet for the Group’s defi ned benefi t plans is the present value of the
defi ned benefi t obligation at the balance sheet date, less the fair value of the plan assets. The defi ned benefi t obligation is calculated by
independent actuaries using the projected unit credit method and by discounting the estimated future cash fl ows using interest rates on
high-quality corporate bonds that have terms to maturity approximating the terms of the related pension liability. Any asset recognised
in respect of a surplus arising from this calculation is limited to the asset ceiling, where this is the present value of any economic benefi ts
available in the form of refunds or reductions in future contributions in respect of the plans.
The expense for the Group’s defi ned benefi t plans is recognised in the Group income statement as shown in Note 28.8. Actuarial gains
and losses arising on the assets and liabilities of the plans are reported within the Group statement of comprehensive income; and gains
and losses arising on settlements and curtailments are recognised in the Group income statement in the same line as the item that gave
rise to the settlement or curtailment or, if material, separately reported as a component of operating profi t.
28.2 Group post-retirement plans
The Group operates a number of pension plans around the world, both of the defi ned benefi t and defi ned contribution type,
and accounts for them in accordance with IAS 19.
The Group’s principal defi ned benefi t pension plans are in the UK and the US, the benefi ts of which are based upon the fi nal pensionable
salaries of plan members. The assets of these plans are held separately from the Group in trustee-administered funds. The trustees are
required to act in the best interests of the plans’ benefi ciaries. The principal risks faced by these plans comprise: (i) the risk that the value
of the plan assets is not suffi cient to meet all plan liabilities as they fall due; (ii) the risk that plan benefi ciaries live longer than envisaged,
causing liabilities to exceed the available plan assets; and (iii) the risk that the market-based factors used to value plan liabilities and assets
change materially adversely to increase plan liabilities over the value of available plan assets. The Group also has defi ned benefi t pension
plans in other territories but, with the exception of those in Germany, these are not individually material in relation to the Group as
a whole.
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
28. Employee Benefi ts (continued)
28.2 Group post-retirement plans (continued)
(a) Defi ned benefi t pension plans – UK
The Group’s main defi ned benefi t pension plan in the UK (‘the UK Plan’) is closed to new members and to future benefi t accrual. The
existing plan was established under a trust deed and is subject to the Pension Act 2004 and guidance issued by the UK Pension Regulator.
A full actuarial valuation of the UK Plan is carried out every three years by an independent actuary for the UK Plan Trustee in line with the
requirements of the Pension Act 2004, and the last full valuation was carried out as at 31 December 2015. At that date, the market value
of plan assets was £536.7m and this represented a funding level of 102% of the accrued plan benefi ts at the time of £526.4m. Calculated
on a ‘buy-out’ basis (using an estimation of the cost of buying out the UK Plan benefi ts with an insurance company), the liabilities at that
date were £687.5m, representing a funding level of 78%.
Although there is no minimum funding requirement in the Pension Act 2004, under the rules of the UK Plan, the Trustee has the power
to set the funding contributions taking into account the results of the triennial valuation, and after having consulted with the Company.
Notwithstanding the latest funding valuation surplus, the Company has agreed to continue to make voluntary contributions at the rate
of £2.0m per annum.
The value of the UK Plan liabilities as at 31 December 2016 increased to £527.4m (2015: £464.3m). The increase in the liabilities was
driven mainly by the decrease in discount rates to 2.70% in 2016 (2015: 3.75%). Correspondingly, the UK Plan assets increased to
£604.1m (2015: £522.0m) mainly driven by the increases in the values of the annuity insurance contract of £24.3m and the fi xed income
holdings of £54.3m. The insurance contract valuation has risen due to the reduction in interest rates noted above and offsets the UK plan
losses. The increase in the fi xed income holdings is attributable to the investment in fi xed income UK Gilts, whose market value has risen
due to lower interest rates and general market demand for low risk investments.
Proposed amendments to IFRIC 14, The Limit on a Defi ned Benefi t Asset, Minimum Finding Requirements and their interaction, address
how the powers of other parties, such as the trustees of the plan, affect an entity’s right of refund of a surplus from the plan. The Group
has assessed the likely impact of the application of the interaction and concluded that it would not impact its ability to continue to
recognise a pension surplus.
(b) Defi ned benefi t pension plans – US
The Group has a number of defi ned benefi t pension plans in the US, providing retirement benefi ts based on fi nal salary or a fi xed benefi t.
The Group’s principal US defi ned benefi t pension plans are closed to new members and also to future benefi t accrual for existing
members. Actuarial valuations of the US defi ned benefi t pension plans are carried out every year and the last full valuation was carried
out as at 31 December 2016. At that date the market value of the plan assets was £49.2m, representing a funding level of 66% of funded
accrued plan benefi ts at that date (using the projected unit method of valuation) of £74.3m. Funding levels for the Group’s US defi ned
benefi t pension plans are normally based upon annual valuations carried out by independent qualifi ed actuaries and are governed by
US Government regulations. The value of US plan liabilities decreased to £86.8m (2015: £112.1m), which was mainly attributable to
a buy-out of the majority of current pensioners that took place during the year which resulted in a £45.1m decrease in the liability.
This signifi cant decrease was partially offset by exchange losses of £17.5m and a loss of £4.4m due to the lower discount rate. The loss
arising from changes in fi nancial assumptions is solely attributable to the decrease in the discount rates to 3.8% (2015: 3.9%).
The Group’s US defi ned benefi t pension plans are subject to the minimum contribution requirements of Internal Revenue Code Sections
412 and 430. Contributions are determined by trustees, in consultation with the company, based on the annual valuations which are
submitted to the Internal Revenue Service. For the plan year beginning 1 January 2016, the minimum required contribution was nil.
(c) Defi ned benefi t pension plans – Germany
The Group has a number of defi ned benefi t pension arrangements in Germany which are unfunded, as is common practice in that
country. The main plan was closed to new entrants on 31 December 2016 and replaced by a defi ned contribution plan for new joiners.
The net liability of the German plans at 31 December 2016 was £45.3m (2015: £36.3m). The increase was driven by the decrease in
discount rate which resulted in an increase in the liability and exchange losses of £5.8m due to the strengthening of the euro against
the pound. These increases were offset by a settlement of £3.5m, funded by a cash payment of £2.3m, after members were offered the
opportunity of moving their existing plans into a new defi ned contribution plan.
(d) Defi ned benefi t pension plans – ROW
The Group has a number of defi ned benefi t pension arrangements across the rest of the world, the majority of which are located in
Belgium. The net liability of the ROW plans at 31 December 2016 was £16.1m (2015: £13.3m). The increase was mainly attributable to
exchange losses of £2.1m due to the weakening of the pound post-Brexit and signifi cant services costs of £2.3m recognised in respect
of the Belgian plans.
143
28. Employee Benefi ts (continued)
28.2 Group post-retirement plans (continued)
(e) Defi ned contribution pension plans
The total expense for the Group’s defi ned contribution plans in the Group income statement amounted to £10.8m (2015: £10.7m
continuing operations) and represents the contributions payable for the year by the Group to the plans.
(f) Multi-employer plans
Due to collective agreements, Vesuvius in the US participates together with other enterprises in union run multi-employer pension plans
for temporary workers hired on sites. Some of these plans are underfunded and all participating employers are ultimately liable for any
defi cit. If a participating employer stops contributing to a plan it is required to make a withdrawal payment to the plan to cover its share
of the total defi cit in the plan. No reliable basis exists for allocation of the plans’ obligations and plan assets to individual employer
participants. Defi cits in the plans may necessitate increased contributions in the future. These are currently accounted for as defi ned
contribution plans. In 2016 Vesuvius contributed £1.2m (2015: £1.1m) to these plans.
28.3 Post-retirement liability valuation
The main assumptions used in calculating the costs and obligations of the Group’s defi ned benefi t pension plans, as detailed below,
are set by the Directors after consultation with independent professionally qualifi ed actuaries.
(a) Mortality assumptions
The mortality assumptions used in the actuarial valuations of the Group’s UK, US and German defi ned benefi t pension liabilities are
summarised in the table below and have been selected to refl ect the characteristics and experience of the membership of those plans.
For the UK Plan, the assumptions used have been derived from the Self-Administered Pension Schemes (‘SAPS’) All table, with future
longevity improvements in line with the ‘core’ mortality improvement tables published in 2016 by the Continuous Mortality Investigation
(‘CMI’), with a long-term rate of improvement of 1.25% per annum. For the Group’s US plans, the assumptions used have been based on
the standard RP-2016 fully generational tables with projection scale BB, and the MP-2016 mortality improvement scale. The Group’s
major plans in Germany have been valued using the Heubeck Richttafeln 2005G mortality tables. In respect of the life expectancy tables
below, current pensioners are assumed to be 65 years old; while future pensioners are assumed to be 45 years old.
Life expectancy of pension plan members
Age to which current pensioners are expected to live — Men
Age to which future pensioners are expected to live — Men
— Women
— Women
(b) Other main actuarial valuation assumptions
Discount rate
Price infl ation — using RPI for UK
— using CPI for UK
Rate of increase in pensionable salaries
Rate of increase to pensions in payment
2016
US
years
85.8
87.8
87.4
89.4
Germany
years
84.1
88.2
86.8
90.7
2016
US
% p.a.
3.80
2.25
n/a
n/a
n/a
Germany
% p.a.
1.75
1.70
n/a
2.45
1.55
UK
years
86.5
89.2
87.8
90.7
UK
% p.a.
2.70
3.30
2.20
n/a
3.15
2015
US
years
86.2
88.2
87.9
89.9
2015
US
% p.a.
3.90
2.25
n/a
n/a
n/a
Germany
years
84.0
88.1
86.6
90.6
Germany
% p.a.
2.60
1.75
n/a
2.50
1.60
UK
years
87.7
90.0
89.0
92.3
UK
% p.a.
3.75
3.35
2.25
n/a
3.20
The discount rate used to determine the liabilities of the UK Plan for IAS 19 accounting purposes is required to be determined by reference
to market yields on high-quality corporate bonds. The UK discount rate in the above table is based on the Aon Hewitt AA-rated corporate
bond yield in conjunction with the most recent projected cash fl ow data relating to the UK Plan liabilities; the US discount rate is based on
the Citigroup pension discount curve; and the Germany discount rate is based on the yield on the iBoxx over ten-year euro corporates
AA index.
The assumptions for UK price infl ation are set by reference to the difference between yields on longer-term conventional government
bonds and index-linked bonds, except for CPI, for which no appropriate bonds exist, which is assumed to be 1.1 points lower
(2015: 1.1 points lower) than RPI-based infl ation.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
144
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
28. Employee Benefi ts (continued)
28.3 Post-retirement liability valuation (continued)
(c) Sensitivity analysis of the impact of changes in signifi cant IAS 19 actuarial assumptions
The following table analyses, for the Group’s main UK, US and Germany pension plans, the theoretical estimated impact on plan liabilities
and assets resulting from changes to the most signifi cant actuarial assumptions used for IAS 19 valuation purposes, whilst holding all
other assumptions constant.
Following the arrangement of buy-in agreements for the UK plan pensioner liabilities in 2012, as noted above, and the fact that
US pensions are not infl ation linked, the rate of increase in pensionable salaries and of pensions in payment is not signifi cant to
the valuation of the Group’s overall pension liabilities.
As stated above, during 2012 the UK Plan entered into pension insurance buy-in agreements which eliminate the infl ation, interest rate,
investment and longevity risk in respect of the pensioner liabilities covered by the agreements. Therefore, for the liabilities so covered,
which represent some 47.9% of the total liabilities of the UK Plan, any changes in the valuation assumptions which impact on the value
of those liabilities, also impact on the associated annuity assets in an equal and opposite way, thereby fully mitigating the valuation risk.
This is also refl ected in the following table.
Assumption
Discount rate
UK
Change in assumption
Increase/decrease by 0.1%
— impact on plan liabilities Decrease/increase by £8.5m Decrease/increase by £1.1m Decrease/increase by £0.9m
— impact on plan assets
Decrease/increase by £3.2m n/a
Germany
n/a
US
Price infl ation Increase/decrease by 0.1%
— impact on plan liabilities
— impact on plan assets
Increase by one year
— impact on plan liabilities
— impact on plan assets
Mortality
28.4 Defi ned benefi t obligation
Increase/decrease by £5.7m n/a
Increase/decrease by £2.2m n/a
Increase/decrease by £0.3m
n/a
Increase by £25.7m
Increase by £17.4m
Increase by £2.9m
n/a
Increase by £1.5m
n/a
The average duration of the obligations to which the liabilities of the Group’s principal pension plans relate is 18 years for the UK,
17 years for Germany and 11 years for the US.
Present value as at 1 January 2016
Exchange differences
Current service cost
Past service cost
Interest cost
Settlements
Remeasurement of liabilities:
— demographic changes
— fi nancial assumptions
— experience losses/(gains)
Benefi ts paid
Present value as at 31 December 2016
UK
£m
464.3
—
—
—
17.6
—
(12.3)
76.2
9.7
(28.1)
527.4
US
£m
112.1
17.6
0.5
—
4.6
(45.1)
(1.2)
4.4
(0.4)
(5.7)
86.8
Defi ned benefi t pension plans Other post-
retirement
benefi t
plans
£m
5.7
0.6
0.1
0.1
0.2
—
Total
£m
648.8
29.4
4.8
0.2
23.9
(50.1)
ROW
£m
36.1
6.0
3.1
0.2
0.8
(1.5)
Germany
£m
36.3
5.8
1.2
—
0.9
(3.5)
—
5.8
0.1
(1.3)
45.3
—
0.6
—
(4.3)
41.0
(13.5)
87.0
9.4
(39.4)
700.5
—
0.4
0.5
(0.7)
6.9
Total
£m
654.5
30.0
4.9
0.3
24.1
(50.1)
(13.5)
87.4
9.9
(40.1)
707.4
145
Total
£m
704.1
2.6
5.1
0.8
23.2
(0.2)
1.4
(2.0)
(25.0)
(11.2)
—
(44.3)
654.5
Total
£m
653.0
3.6
22.3
(0.2)
0.5
(25.2)
6.9
—
(1.3)
(40.4)
619.2
2015
total
£m
2.0
25.0
11.2
(25.2)
13.0
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
28. Employee Benefi ts (continued)
28.4 Defi ned benefi t obligation (continued)
Present value as at 1 January 2015
Exchange differences
Current service cost
Past service cost
Interest cost
Settlements
Acquisitions
Remeasurement of liabilities:
— demographic changes
— fi nancial assumptions
— experience (gains)/losses
Contributions from members
Benefi ts paid
Present value as at 31 December 2015
28.5 Fair value of plan assets
As at 1 January
Exchange differences
Interest income
Settlements
Acquisitions
Remeasurement of assets
Contributions from employer
Contributions from members
Administration expenses paid
Benefi ts paid
As at 31 December
UK
£m
522.0
—
19.3
—
—
89.7
2.0
—
(0.9)
(28.0)
604.1
UK
£m
506.3
—
—
0.8
17.4
—
—
0.1
(19.1)
(9.0)
—
(32.2)
464.3
2016
US
£m
74.4
10.8
3.1
(41.6)
—
3.4
4.4
—
(0.6)
(4.8)
49.1
US
£m
111.8
6.1
0.5
—
4.1
—
—
(2.2)
(2.6)
0.4
—
(6.0)
112.1
ROW
£m
22.8
4.0
0.4
(1.0)
—
0.2
2.4
—
—
(4.0)
24.8
Defi ned benefi t pension plans Other post-
retirement
benefi t
plans
£m
5.4
(0.1)
0.2
—
0.2
(0.2)
0.9
Total
£m
698.7
2.7
4.9
0.8
23.0
—
0.5
ROW
£m
40.7
(1.3)
3.1
—
0.7
—
0.5
Germany
£m
39.9
(2.1)
1.3
—
0.8
—
—
—
(2.6)
—
—
(1.0)
36.3
Total
£m
619.2
14.8
22.8
(42.6)
—
93.3
8.8
—
(1.5)
(36.8)
678.0
0.1
(0.6)
(2.8)
—
(4.3)
36.1
UK
£m
555.1
—
19.1
—
—
(21.7)
2.4
—
(0.7)
(32.2)
522.0
(2.0)
(24.9)
(11.4)
—
(43.5)
648.8
2015
US
£m
76.2
4.1
2.8
—
—
(4.2)
1.3
—
(0.6)
(5.2)
74.4
—
(0.1)
0.2
—
(0.8)
5.7
ROW
£m
21.7
(0.5)
0.4
(0.2)
0.5
0.7
3.2
—
—
(3.0)
22.8
The Group’s pension plans in Germany are unfunded, as is common practice in that country, and accordingly there are no assets
associated with these plans.
28.6 Remeasurement of defi ned benefi t liabilities/assets
Remeasurement of liabilities:
— demographic changes
— fi nancial assumptions
— experience (losses)/gains
Remeasurement of assets
Total movement
2016
total
£m
13.5
(87.4)
(9.9)
93.3
9.5
The remeasurement of defi ned benefi t liabilities and assets of £9.5m (2015: £13.5m) is recognised in the Group statement of
comprehensive income.
146
Notes to the Consolidated Financial Statements
continued
28. Employee Benefits (continued)
28.7 Balance sheet recognition
The amount recognised in the Group balance sheet in respect of the Group’s defined benefit pension plans and other post-retirement
benefit plans is analysed in the following tables, which all relate to continuing operations. All equity securities and bonds have quoted
prices in active markets.
Equities
Bonds
Annuity insurance contracts
Other assets
Fair value of plan assets
Present value of funded obligations
Present value of unfunded obligations
Total net surpluses/(liabilities)
Recognised in the Group balance sheet as:
Net surpluses
Net liabilities
Total net surpluses/(liabilities)
UK
£m
73.8
216.3
289.6
24.4
604.1
(525.5)
78.6
(1.9)
76.7
78.6
(1.9)
76.7
US
£m
10.0
35.9
—
3.2
49.1
(74.3)
(25.2)
(12.5)
(37.7)
—
(37.7)
(37.7)
Defined benefit pension plans Other post-
retirement
benefit
plans
£m
—
—
—
—
—
—
—
(6.9)
(6.9)
Total
£m
86.4
254.2
305.9
31.5
678.0
(637.1)
40.9
(63.4)
(22.5)
ROW
£m
2.6
2.0
16.3
3.9
24.8
(37.3)
(12.5)
(3.7)
(16.2)
Germany
£m
—
—
—
—
—
—
—
(45.3)
(45.3)
2016
total
£m
86.4
254.2
305.9
31.5
678.0
(637.1)
40.9
(70.3)
(29.4)
—
(45.3)
(45.3)
0.2
(16.4)
(16.2)
78.8
(101.3)
(22.5)
—
(6.9)
(6.9)
78.8
(108.2)
(29.4)
Based on a detailed assessment performed, none of the IFRIC 14 restrictions are applicable and; therefore, the surplus is recognised.
Equities
Bonds
Annuity insurance contracts
Other assets
Fair value of plan assets
Present value of funded obligations
Present value of unfunded obligations
Total net surpluses/(liabilities)
Recognised in the Group balance sheet as:
Net surpluses
Net liabilities
Total net surpluses/(liabilities)
UK
£m
67.0
162.0
265.3
27.7
522.0
(462.5)
59.5
(1.8)
57.7
59.5
(1.8)
57.7
US
£m
14.5
52.7
—
7.2
74.4
(101.6)
(27.2)
(10.5)
(37.7)
—
(37.7)
(37.7)
Defined benefit pension plans Other post-
retirement
benefit
plans
£m
—
—
—
—
—
—
—
(5.7)
(5.7)
Total
£m
83.7
216.1
281.1
38.3
619.2
(597.3)
21.9
(51.5)
(29.6)
ROW
£m
2.2
1.4
15.8
3.4
22.8
(33.2)
(10.4)
(2.9)
(13.3)
Germany
£m
—
—
—
—
—
—
—
(36.3)
(36.3)
—
(36.3)
(36.3)
0.4
(13.7)
(13.3)
59.9
(89.5)
(29.6)
—
(5.7)
(5.7)
2015
total
£m
83.7
216.1
281.1
38.3
619.2
(597.3)
21.9
(57.2)
(35.3)
59.9
(95.2)
(35.3)
(a) UK Plan asset allocation
As at 31 December 2016, of the UK Plan’s total assets, 47.9% were represented by the annuity insurance contracts covering the
UK Plan’s pension liabilities; 12.2% were allocated to equities; 35.8% to fixed income securities; 1.8% to cash; and 2.3% to other assets.
In addition, the UK Plan holds a liability driven investment portfolio of financial derivative contracts which reduces the risk that the
UK Plan’s assets would fall materially, relative to the value of its economic liabilities.
The UK Plan Trustee has entered into a pension insurance buy-in agreement with the Pension Insurance Corporation (‘PIC’), whereby
the UK Plan Trustee has paid insurance premiums to PIC to insure a significant portion of the UK Plan’s liabilities. Under this arrangement,
the value of the PIC insurance contract matches the value of the liabilities because the inflation, interest rate, investment and longevity risk
for Vesuvius in respect of these liabilities are eliminated. As at 31 December 2016, the IAS 19 valuation of the PIC insurance contract value
associated with the bought-in liabilities was £289.6m (2015: £265.3m). The buy-in agreement ensures that the UK pension plan
obligations in respect of all its retired members and their approved dependants are insured. The policy and the associated valuation are
updated annually to reflect retirements and mortality. In the current year, the agreement based on specific membership data covers
55% of UK pension plan obligations, removing all financial risks associated with this tranche of the liability.
Vesuvius plcAnnual Report and Accounts 2016
147
28. Employee Benefi ts (continued)
28.7 Balance sheet recognition (continued)
(b) Defi ned benefi t contributions in 2017
In 2017, the Group is expected to make contributions into its defi ned benefi t pension and other post-retirement benefi ts plans of around
£9.4m with specifi c contributions of £4.9m and £2.0m anticipated for the US and UK Plans respectively.
28.8 Income statement recognition
The expense recognised in the Group income statement in respect of the Group’s defi ned benefi t retirement plans and other
post-retirement benefi t plans is shown below.
Current service cost
Past service cost
Settlements
Administration expenses
Net interest cost
Total net charge
2016
Other
post-
retirement
benefi t
plans
£m
0.1
0.1
—
—
0.2
0.4
Defi ned
benefi t
pension
plans
£m
4.8
0.2
(5.2)
1.5
1.1
2.4
2015
Other
post-
retirement
benefi t
plans
£m
0.2
—
—
—
0.2
0.4
Defi ned
benefi t
pension
plans
£m
4.9
0.8
—
1.3
0.7
7.7
Total
£m
4.9
0.3
(5.2)
1.5
1.3
2.8
Total
£m
5.1
0.8
—
1.3
0.9
8.1
The settlement gain of £5.2m (2015: £nil) which arose during the year principally related to the buy-out of members of the US plan and
German members moving their existing plans into a new defi ned contribution plan. These settlements reduced the Group’s defi ned
benefi t obligations by £50.1m, effected by utilising £42.6m of pension assets and additionally, in respect of the unfunded German plan,
£2.3m of the Group’s cash.
The total net charge of £2.8m (2015: £8.1m) recognised in the Group income statement in respect of the Group’s defi ned benefi t
pension plans and other post-retirement benefi ts plans is recognised in the following lines:
In arriving at trading profi t — within other manufacturing costs
— within administration, selling and distribution costs
In arriving at profi t before tax — within restructuring charges
— gain on employee benefi t plan
— within net fi nance costs
Total net charge
29. Share-based Payments
29.1
Income statement recognition
The total expense recognised in the Group income statement is shown below.
Long Term Incentive Plan
Other plans
Total expense
2016
£m
2.0
4.4
0.3
(5.2)
1.3
2.8
2016
£m
1.0
0.7
1.7
2015
£m
2.1
4.3
0.8
—
0.9
8.1
2015
£m
(0.6)
0.7
0.1
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The Group operates a number of different share-based payment plans, the most signifi cant of which is the Long Term Incentive Plan
(‘LTIP’), details of which can be found between pages 94 to 96 of the Directors’ Remuneration Report. The Group’s other share-based
payment plans are not considered signifi cant in the context of the Group’s results or fi nancial position.
148
Vesuvius plc
Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
29. Share-based Payments (continued)
29.2 Details of outstanding options
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
Outstanding awards
As at
1 Jan 2016
no.
Granted
no.
1,585,838 1,211,928
nil
86,867
nil
nil
743,666
nil
Forfeited/
As at
Exercised
lapsed
31 Dec 2016
no.
no.
no.
— (399,581) 2,398,185
nil
nil
nil
219,479
(3,915)
(607,139)
nil
nil
nil
For the options exercised during 2016, the share price at the date of exercise ranged from 287 pence to 347 pence.
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
Outstanding awards
As at
1 Jan 2015
no.
1,882,498
nil
604,847
nil
Granted
no.
773,096
nil
188,654
nil
Exercised
no.
(137,340)
nil
(18,221)
nil
Forfeited/
lapsed
no.
As at
31 Dec 2015
no.
(932,416) 1,585,838
nil
743,666
nil
nil
(31,614)
nil
For the options exercised during 2015, the share price at the date of exercise was 517 pence for LTIP schemes and 333 or 354 pence
for other plans.
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
29.3 Options granted under the LTIP during the year
Fair value of options granted (per share)
Share price on date of grant (per share)
Expected volatility
Risk-free interest rate
Exercise price (per share)
Expected term (years)
Expected dividend yield
2016
Weighted
average
outstanding
contractual
life of
awards
years
5.2
0.4
Awards
exercisable
as at
31 Dec 2016
no.
—
—
—
—
2015
Weighted
average
outstanding
contractual
life of
awards
years
5.9
0.5
Range of
exercise
prices
pence
n/a
n/a
Awards
exercisable
as at
31 Dec 2015
no.
—
—
33,220
—
2016
2015
EPS
element
292p
292p
n/a
n/a
nil
4
nil
TSR
element
112p
292p
26%
0.4%
nil
4
nil
EPS
element
491p
491p
n/a
n/a
nil
4
n/a
Range of
exercise
prices
pence
n/a
n/a
TSR
element
275p
491p
24%
0.62%
nil
4
n/a
The fair value of share options with non-market performance conditions has been calculated using the Black-Scholes option pricing
model. The fair value of options with market-related performance conditions are measured using the Monte Carlo model. Expected
volatility was determined by calculating the historical volatility of the group’s share price over the 2.75 years (2015: 2.25 years) prior to the
grant date. The risk free rate of return was assumed to be the yield to maturity on a UK fi xed gilt with the term to maturity equal to the
expected life of the option. At the discretion of the Remuneration Committee, award holders receive the value of dividends that would
have been paid on their vested shares in the period between grant and vesting. Accordingly, there is no discount to the valuation for
dividends foregone during the vesting period.
149
30. Trade and Other Payables
30.1 Accounting policy
Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost, using the effective
interest method.
30.2 Analysis of trade and other payables
Non-current
Accruals and other payables
Deferred purchase and contingent consideration
Total non-current other payables
Current
Trade payables
Other taxes and social security
Deferred purchase and contingent consideration
Accruals and other payables
Total current trade and other payables
2016
£m
12.6
3.9
16.5
139.1
32.3
0.8
60.5
232.7
2015*
£m
14.4
2.6
17.0
104.1
27.4
0.5
46.2
178.2
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (Note 21).
There is no signifi cant difference between the fair value of the Group’s trade and other payables balances and the amount at which they
are reported in the Group balance sheet.
31. Leases
31.1 Accounting policy
Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classifi ed as operating leases. Rentals payable under operating leases are charged to the income statement on
a straight-line basis over the term of the lease. Benefi ts received and receivable as an incentive to enter into an operating lease are also
spread on a straight-line basis over the lease term.
31.2 Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows:
Not later than one year
Later than one year and not later than fi ve years
Later than fi ve years
Total operating lease commitments
2016
£m
9.0
15.8
7.0
31.8
2015*
£m
9.0
17.2
7.7
33.9
* Restated to refl ect the inclusion of previously omitted operating lease commitments totalling £9.7m at 31 December 2015. There is no effect on net assets or
reported results for any period presented.
The Group’s property, plant and equipment assets are either purchased outright or held under lease contracts. Where the terms of the
lease transfer substantially all the risks and rewards of ownership of the asset to the Group, the asset is capitalised in the Group balance
sheet and the corresponding liability to the lessor is recognised as a fi nance lease obligation. Where all the risks and rewards of ownership
are not transferred to the Group, the lease is classifi ed as an operating lease and neither the asset nor the corresponding liability to the
lessor is recognised in the Group balance sheet. The net book value of the Group’s property, plant and equipment assets held under
fi nance lease contracts at 31 December 2016 was £4.7m (2015: £3.8m).
The cost incurred by the Group in the year in respect of assets held under operating leases, all of which was charged within trading profi t,
amounted to £12.4m (2015: £11.8m).
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Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements
continued
32. Provisions
32.1 Accounting policy
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the
obligation at the balance sheet date. Where the effect of the time value of money is material, provisions are discounted using a pre-tax
discount rate that refl ects both the current market assessment of the time value of money and the specifi c risks associated with the
obligation. Where discounting is used, the increase in the provision due to the passage of time is recognised as a fi nance cost.
32.2 Analysis of provisions
As at 1 January 2016*
Exchange adjustments
Charge to Group income statement
Unused amounts released to Group income statement
Adjustment to discount
Cash spend
Transferred from other balance sheet accounts
As at 31 December 2016
Disposal
and
closure
costs
£m
30.7
4.9
0.2
(2.6)
(0.3)
(1.4)
1.7
33.2
Restructuring
charges
£m
9.8
1.3
24.1
—
0.1
(16.8)
—
18.5
Other
£m
6.7
0.7
10.7
(0.5)
—
(10.7)
—
6.9
Total
£m
47.2
6.9
35.0
(3.1)
(0.2)
(28.9)
1.7
58.6
* Restated to refl ect the amendments to the acquisition balance sheet of Sidermes SpA (Note 21).
Of the total provision balance as at 31 December 2016 of £58.6m (2015: £47.2m), £32.9m (2015: £29.5m) is recognised in the Group
balance sheet within non-current liabilities and £25.7m (2015: £17.7m) within current liabilities.
The provision for disposal and closure costs includes the Directors’ current best estimate of the costs to be incurred both in the fulfi lment
of obligations incurred in connection with former Group businesses, resulting from either disposal or closure, together with those
related to the demolition and clean-up of closed sites. The provision comprises amounts payable in respect of known or probable
costs resulting both from legal or other regulatory requirements, or from third-party claims, including claims relating to product liability.
As the settlement of many of the obligations for which provision is made is subject to legal or other regulatory process, the timing of
the associated cash outfl ows is subject to some uncertainty, but the majority of the amounts provided are expected to be utilised
over the next ten years and the underlying estimates of costs are regularly updated to refl ect changed circumstances with regard to
individual matters.
Where insurance cover exists for any of these known or probable costs, a related asset is recognised in the Group balance sheet only
when its value can be reliably measured by management. As at 31 December 2016, £14.9m (2015: £12.3m) was recorded in receivables
in respect of associated insurance reimbursements, of which £12.1m (2015: £9.7m) is non-current.
In assessing the probable costs and realisation certainty of provisions, or related assets, reasonable assumptions are made. Changes to
the assumptions used could signifi cantly alter the Director’s assessment of the value, timing or certainty of the costs or related amounts.
The provision for restructuring charges includes the costs of all of the Group’s recognised initiatives to rationalise its operating activities.
The balance of £18.5m as at 31 December 2016 comprises £2.7m in relation to onerous lease provisions in respect of leases terminating
between one and seven years, and £15.8m in relation to expenditure on restructuring initiatives that have been announced which is
expected to be paid out over the next year.
Other provisions comprise amounts payable in respect of known or probable costs resulting both from legal or other regulatory
requirements, workers’ compensation and medical claims, and from third-party claims. As the settlement of many of the obligations for
which provision is made is subject to reasonable assumptions, legal or other regulatory process, the timing of the associated outfl ows is
subject to some uncertainty, but the majority of amounts provided are expected to be utilised over the next fi ve years and the underlying
estimates of costs are regularly updated to refl ect changed circumstances with regard to individual matters. During 2016 the Group
recognised net charges of £10.2m (2015: £9.2m) in the income statement to provide for various litigation settlements and other claims.
33. Off -Balance Sheet Arrangements
In compliance with current reporting requirements, certain arrangements entered into by the Group in its normal course of business are
not reported in the Group balance sheet. Of such arrangements, those considered material by the Directors are future lease payments
in relation to assets used by the Group under non-cancellable operating leases (Note 31).
34. Contingent Liabilities
Guarantees given by the Group under property leases of operations disposed of amounted to £1.6m (2015: £1.7m). Details of guarantees
given by the Company, on behalf of the Group, are given in Note 10 to the Company fi nancial statements.
Vesuvius has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation
and environmental matters. Several of Vesuvius’ subsidiaries are parties to legal proceedings, certain of which are insured claims arising
in the ordinary course of the operations of the company involved, and the Directors are aware of a number of issues which are, or may be,
the subject of dispute with tax authorities. Reserves are made for the expected amounts payable in respect of known or probable costs
resulting both from legal or other regulatory requirements, and from third-party claims. As the settlement of many of the obligations for
which reserve is made is subject to legal or other regulatory process, the timing and amount of the associated outfl ows is subject to some
uncertainty (see Note 32 for further information).
Certain of Vesuvius’ subsidiaries are subject to lawsuits, predominantly in the US, relating to a small number of products containing
asbestos manufactured prior to the acquisition of those subsidiaries by Vesuvius. These suits usually also name many other product
manufacturers. To date, Vesuvius is not aware of there being any liability verdicts against any of these subsidiaries. A number of lawsuits
have been withdrawn, dismissed or settled and the amount paid, including costs, in relation to this litigation has not had a material
adverse effect on Vesuvius’ fi nancial position or results of operations.
35. Principal Subsidiaries and Joint Ventures
Details of the principal subsidiaries and joint ventures of Vesuvius plc and the countries in which they are incorporated are given in Note 5
to the Company fi nancial statements, together with details of subsidiaries exempt from audit of their individual fi nancial statements by
virtue of Section 479A of the Companies Act 2006.
36. Related Parties
All transactions with related parties are conducted on an arm’s length basis and in accordance with normal business terms. Transactions
between related parties that are Group subsidiaries are eliminated on consolidation.
151
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Vesuvius plc
Annual Report and Accounts 2016
Company Balance Sheet
As at 31 December 2016
Fixed assets
Investment in subsidiaries
Total fi xed assets
Current assets
Debtors — amounts falling due within one year
Cash at bank and in hand
Total current assets
Creditors — amounts falling due within one year
Bank overdraft
Other creditors
Net current liabilities
Total assets less current liabilities
Net assets
Equity capital and reserves
Issued share capital
Retained earnings
Shareholders’ funds — equity
Company number 8217766
Notes
5
2016
£m
2015
£m
1,778.0
1,778.0
1,778.0
1,778.0
1.8
—
1.8
2.5
0.6
3.1
—
(1,074.5)
(1,072.7)
705.3
(0.2)
(1,030.4)
(1,027.5)
750.5
705.3
750.5
27.8
677.5
705.3
27.8
722.7
750.5
6
7
8
The fi nancial statements were approved and authorised for issue by the Directors on 2 March 2017 and signed on their behalf by:
François Wanecq
Chief Executive
Guy Young
Chief Financial Offi cer
153
Notes to the Company Financial Statements
1. Basis of Preparation
1.1 Basis of accounting
These fi nancial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework
(‘FRS 101’). The amendments to FRS 101 (2014/15 Cycle) issued in July 2015 and effective immediately have been applied.
In preparing these fi nancial statements, the Company applies the recognition, measurement and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’), but makes amendments where necessary in order to comply with
the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profi t and loss account.
In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring that its assets and liabilities are measured in compliance
with FRS 101. The transition to FRS 101 had no effect on the reported fi nancial position, fi nancial performance and cash fl ows of
the Company.
In these fi nancial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
> A cash fl ow statement and related notes
> Disclosures in respect of transactions with wholly owned subsidiaries
> Disclosures in respect of capital management
> The effects of new but not yet effective IFRSs
> Disclosures in respect of the compensation of key management personnel
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these
fi nancial statements.
1.2 Going concern
The Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the fi nancial statements
of the Group and the Company.
2. Employee Benefi ts Expense
Details of the Directors’ remuneration are disclosed in the Directors’ Remuneration Report on pages 79 to 98.
3. Audit and Non-Audit Fees
Amounts payable to KPMG LLP in relation to audit and non-audit fees are disclosed within Note 6 to the Consolidated
Financial Statements.
4. Dividends
A proposed fi nal dividend for the year ended 31 December 2016 of £30.8m (2015: £30.0m), equivalent to 11.40 pence per ordinary share
(2015: 11.125 pence), is subject to approval by shareholders at the Company’s Annual General Meeting and has not been included as a
liability in these fi nancial statements. If approved by shareholders, the dividend will be paid on 19 May 2017 to ordinary shareholders
on the register at 7 April 2017.
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Company Financial Statements
continued
5.
Investment in Subsidiaries, Associates and Joint Ventures
5.1 Accounting policy
Shares in subsidiaries, associates and joint ventures are stated at cost less any impairment in value.
5.2 Analysis of investment in subsidiaries, associates and joint ventures
As at 1 January 2015
Reduction due to inter-company recharge of capital contributions
As at 1 January 2016 and 31 December 2016
Shares in
subsidiaries
£m
1,780.3
(2.3)
1,778.0
The subsidiaries and joint ventures of Vesuvius plc and the countries in which they are incorporated are as follows. With the exception
of Vesuvius Holding Limited, whose ordinary share capital was directly held by Vesuvius plc, the ordinary capital of the companies listed
below was owned by a Vesuvius plc subsidiary as at 31 December 2016.
Company
legal name
Registered offi ce address
Jurisdiction
Company
legal name
Registered offi ce address
Jurisdiction
Advent Process
Engineering Inc.
333 Prince Charles Drive, Welland,
Ontario, L3B 5P4, Canada
Canada (Ontario)
Foseco Canada
Limited
181 Bay Street, Suite 1800,
Toronto, Ontario, M5J 2T9, Canada
Canada (Ontario)
Andreco-Hurll
Refractory
Services Pty Limited
Avemis SAS
BMI Refractory
Services Inc.
Brazil 1 Limited
Cookson
Dominicana, SRL
Cookson
Investments
(Jersey) Limited
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505, Australia
Australia
Saint Symphorien Sur Coise (69590)
au 2, Hotel d’Entreprises, ZI Grange
Eglise, France
116 Pine Street, 3rd fl oor, suite 320,
Harrisburg, 17101, United States
165 Fleet Street, London,
EC4A 2AE, England
France
US (Pennsylvania)
England
Km 7 1/2, Autopista San Isidro, Edifi cio
Modelo A, Zona Franca San Isidro, Santo
Domingo Oeste, Dominican Republic
Dominican Republic
Queensway House, Hilgrove Street,
St Helier, JE1 1ES, Jersey
Jersey
Cookson Jersey
Limited
13 Castle Street, St Helier, Jersey,
JE4 5UT, Jersey
Jersey
East Moon
Investment
(HK Holding)
Company Limited
ECIL MET
TEC LTDA.
Flo-Con
Holding, Inc.
Flo-Con
Systems, LLC
Foseco (FS)
Limited
Foseco (GB)
Limited
Foseco (Jersey)
Limited
Foseco (MRL)
Limited
Foseco (RUL)
Limited
Foseco (UK)
Limited
6/F Tower Two Times Square,
1 Matheson Street, Causeway Bay,
Hong Kong
Hong Kong
Blocks 1 and 2, No. 2001, Rua Benjamin
da Silveira Baldy, City of Piedade,
São Paulo, 18.170-000, Brazil
Brazil
CT Corporation, 1209 Orange Street,
The Corporation Trust Company,
Wilmington, Delaware, 19801,
United States
CT Corporation, 208 South LaSalle
Street, Chicago, Cook County,
Illinois, IL 60604, United States
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, United Kingdom
165 Fleet Street, London,
EC4A 2AE, England
US (Delaware)
US (Illinois)
England
England
44 Esplanade, St Helier, Jersey
Jersey
165 Fleet Street, London,
EC4A 2AE, England
165 Fleet Street, London,
EC4A 2AE, England
165 Fleet Street, London,
EC4A 2AE, England
England
England
England
Foseco
Espanola SA
5, Barrio Elizalde, Izurza, Bizkaia,
48213, Spain
Spain
Foseco Foundry
(China) Limited
Room 819, Shekou Zhaoshang building,
Nanshan District, Shenzhen, China
China
Foseco
Fundición Holding
(Espanola), S.L.
5, Barrio Elizalde, Izurza,
Bizkaia, 48213, Spain
Foseco Holding
(Europe) Limited
Foseco Holding
(South Africa)
(Pty) Limited
Foseco
Holding BV
Foseco Holding
International
Limited
Foseco Holding
Limited
Foseco Industrial
e Comercial Ltda
165 Fleet Street, London,
EC4A 2AE, England
12, Bosworth Street, Alrode,
Aberton, 1449, South Africa
165 Fleet Street, London,
EC4A 2AE, England
165 Fleet Street, London,
EC4A 2AE, England
165 Fleet Street, London,
EC4A 2AE, England
Km 15, Rodovia Raposo Tavares,
Butanta Cep, São Paulo,
05577-100, Brazil
Foseco International
Holding (Thailand)
Limited
170/69, 22nd Floor Ocean Tower 1,
Ratchadapisek Road, Klongtoey,
Bangkok, 10110, Thailand
Spain
England
South Africa
Netherlands
England
England
Brazil
Thailand
England
Foseco
International
Limited
Foseco Japan Ltd
Foseco Korea
Limited
Foseco Limited
Foseco
Metallurgical Inc
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, United Kingdom
9th Floor, Orix Kobe Sannomiya
Building, 6-1-10, Goko dori, Chuo-ku,
Kobe Hyogo, 651-0087, Japan
Japan
74 Jeongju-ro, Wonmi-gu, Bucheon-si,
Gyeonggi-do, 14523, South Korea
South Korea
165 Fleet Street, London,
EC4A 2AE, England
CT Corporation, 1209 Orange Street,
The Corporation Trust Company,
Wilmington, Delaware, 19801,
United States
England
US (Delaware)
Foseco
Nederland BV
Binnenhavenstraat 20,
7553 GJ Hengelo (OV), Netherlands
Netherlands
Foseco Overseas
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
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Company
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Foseco Pension
Fund Trustee
Limited
Foseco
Philippines Inc
Registered offi ce address
165 Fleet Street, London,
EC4A 2AE, England
Unit 401, 4th Floor 8 Antonio
Centre, Prime St. Madrigal Business
Park 2, Ayala Alabang Muntinlupa City,
Philippines
Foseco Portugal
Productos para
Fundiçâo Lda
Rua 25 de Abril, Lote 3,
Aveleda – 4485-010 CD,
Vila do Conde, Portugal
Foseco Pty
Limited
Foseco SAS
Foseco Steel
(Holdings)
China Limited
Foseco Steel
(UK) Limited
7, Stuart Street, Padstow,
NSW 2211, Australia
Le Newton C, 7 Mail Barthélémy
Thimonnier, 77185 Lognes, France
165 Fleet Street, London,
EC4A 2AE, England
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, United Kingdom
Foseco Technology
Limited
165 Fleet Street, London,
EC4A 2AE, England
Foseco
Transnational
Limited
Foseco
Vietnam Limited
165 Fleet Street, London,
EC4A 2AE, England
R 717.1, Me linh point Tower,
no 2 ngo Duc ke, Ben Nghe Ward,
Dist 1, Ho Chi Minh, Viet Nam
Jurisdiction
England
Philippines
Portugal
Australia
France
England
England
England
England
Vietnam
HGAC Participações
Limitada
Street Duque de Caxias, 563 Room 2,
Centro, Barueri, SP, 06401-010, Brazil
Brazil
ISID Limited
J.H. France
Refractories
Company
Greyfriars Court, Paradise Square,
Oxford, OX1 1BE, England
England
CT Corporation, 1209 Orange Street,
The Corporation Trust Company,
Wilmington, Delaware, 19801,
United States
US (Delaware)
John G. Stein
& Company
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, United Kingdom
Mainsail Insurance
Company Limited
Canon’s Court, 22 Victoria Street,
Hamilton, HM 12, Bermuda
Mascinco
Empreendimentos
e Participações
Ltda
Avenida Brasil, 49550 - parte,
Distrito Industrial de Palmares – Campo,
Grande – Cep: 23065-480,
Rio de Janeiro, RJ, Brazil
England
SOLED SAS
Bermuda
Brazil
Son.Te.Co.
GmbH
Tamworth
UK Limited
MASTERCODI
INDUSTRIAL LTDA.
Avenida Giovanni Gronchi, 5174, suíte
11, Vila Andrade, 05724-002, São Paulo,
State of São Paulo, Brazil
Brazil
Mercajoya, S.A.
Capitán Haya, 56 - 1ºH,
28020 Madrid, Spain
Metal Way
Equipamentos
Metalurgicos Ltda
Estrada Santa Isabel, 7655 KM37,
Bairro Do Una, Itaquaquecetuba,
São Paulo – SP, CEP: 08580 000, Brazil
Micro Jewels
Limited
10 Frere Felix De Valois Street,
Port Louis, Mauritius
Minerals
Separation Limited
165 Fleet Street, London,
EC4A 2AE, England
New Foseco
(UK) Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, United Kingdom
Premier Refractories
(Belgium) S.A.
17 Rue de Douvrain, Ghlin,
7011, Belgium
Spain
Brazil
Mauritius
England
England
Belgium
Process Metrix,
LLC
6622 Owens Drive, Pleasanton,
California, 94588, United States
US (California)
Company
legal name
Registered offi ce address
PROLAN S.r.l. a
Socio Unico
Via Oslavia 94,
20832 Desio (MB), Italy
PT Foseco
Indonesia
PT Foseco
Trading Indonesia
Realisations
789, LLC
S G Blair &
Company Limited
S.G.E.A. S.r.l. a
Socio Unico
SERT-Metal SAS
SIDERMES Inc.
2/5, Jalan Rawagelam,
Kawasan Industry, Pulogadung,
Jakarta Timur, 13930, Indonesia
Jalan Rawagelam 2 No 5,
Kawasan Industri Pulo Gadung,
Jakarta Timur, 13930
CT Corporation, 1209 Orange Street,
The Corporation Trust Company,
Wilmington, Delaware, 19801,
United States
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
Via Mantova 10,
20835 Muggiò (MB), Italy
3, Avenue de l’Europe, Parc,
‘Les Pivolles’, Decines-Charpieu,
69150, France
175, Calixa-Lavallée Verchêres,
Québec J0L2R0, Canada
SIDERMES
Latinoamericana
CA
Zona Industrial, San Vicente Av.,
Anton Phillips Grupo Industrial,
San Vicente Local 4, Maracay, Venezuela
Jurisdiction
Italy
Indonesia
Indonesia
US (Delaware)
England
Italy
France
Canada
Venezuela
Urquiza 919 Piso 2 Rosario Santa Fe,
Argentina, CP 2000
Argentina
SIDERMES
S.A.
SIDERMES
S.p.A.
SIDERMES
SENSORES
TERMICOS DO
BRASIL LTDA
SIR
Feuerfestprodukte
GmbH
Via Mantova 10,
20835 Muggiò (MB), Italy
Estrada Municipal PDD 436, S/N,
Prédio ‘C’, Bairro da Boa Vista,
Municipio de Piedade,
Estado de São Paulo, Brazil
Siegener Strasse 152, Kreuztal,
D-57223, Germany
Parc d’Activités, Belle Fontaine,
57780, Rosselange, France
Rheinstrasse 7, D-41836,
Hückelhoven, Germany
165 Fleet Street, London,
EC4A 2AE, England
Thomas Marshall
(Loxley) Limited
Greyfriars Court, Paradise Square,
Oxford, OX1 1BE, England
Unicorn
Industries Limited
165 Fleet Street, London,
EC4A 2AE, England
Veservice Ltda
Vesuvius
(Thailand) Co., Ltd
Av Brasil, 49550, Distrito Industrial
de Palmares, Campo Grande,
Rio de Janeiro, 23065-480, Brazil
170/69, 22nd Floor Ocean Tower 1,
Ratchadapisek Road, Klongtoey,
Bangkok, 10110, Thailand
Vesuvius
(V.E.A.R.) S.A.
Street Urquiza, 919,Fllor 2, Rosario,
Provincia de Santa Fé, Argentina
Argentina
Vesuvius Advanced
Ceramics (China)
Co., Ltd
221 Xing Ming Street, China-Singapore
Suzhou Ind Park, Suzhou, Jiangsu
Province, 215021, China
China
Vesuvius
America, Inc.
1209 Orange Street, Wilmington,
Delaware, 19801, United States
Vesuvius Americas
Holdings, Inc
Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle
County, DE, 19801, United States
US (Delaware)
US (Delaware)
Italy
Brazil
Germany
France
Germany
England
England
England
Brazil
Thailand
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Annual Report and Accounts 2016
Notes to the Company Financial Statements
continued
Company
legal name
Vesuvius Australia
(Holding) Pty
Limited
Registered offi ce address
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505, Australia
Jurisdiction
Australia
Company
legal name
Vesuvius Istanbul
Sanayi ve Ticaret AS
Registered offi ce address
Gebze OSB2 Mh. 1700.,
Sok No:1704/1, Cayirova,
Kocaeli, 41420, Turkey
Australia
Vesuvius Italia SPA Piazza Borgo Pila 40, Genoa, Italy
Vesuvius
Australia Pty Ltd
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505, Australia
Vesuvius
Belgium N.V.
Vesuvius
Canada Inc
Zandvoordestraat 366, Oostende,
B-8400, Belgium
181 Bay Street, Suite 1800,
Toronto, Ontario, M5J 2T9, Canada
Vesuvius
Ceramics Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius China
Holdings Co.
Limited
Vesuvius
China Limited
Vesuvius
Colombia SAS
Offi ce 813, 8/F, Paul Y centre,
51 Hung To Road, Kwun Tong,
Kowloon, Hong Kong
165 Fleet Street, London,
EC4A 2AE, England
Street 90, number 13 A - 31,
fl oor 6, Bogota, Colombia
Vesuvius
Corporation S.A.
Salita delle Ginestre 10, Lugano
Cassarate, CH 6900, Switzerland
Vesuvius
Crucible
Company
Vesuvius
Emirates FZE
CT Corporation, 1209 Orange Street,
The Corporation Trust Company,
Wilmington, Delaware, 19801,
United States
Warehouse No: 1J-09/3,
P O Box 49261, Hamriyah Free Zone,
Sharjah, United Arab Emirates
Belgium
Canada
England
Hong Kong
England
Colombia
Switzerland
US (Delaware)
United Arab Emirates
Vesuvius Financial
1 Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius Finland OY Pajamäentie 10, 00360 Helsinki, Finland Finland
Vesuvius Foundry
Products (Suzhou)
Co., Ltd.
12 Wei Wen Road, China-Singapore
Suzhou Ind Park, Suzhou, Jiangsu
Province, 215122, China
China
China
Chang Chung Road,
Economic development zone
Vesuvius Foundry
Technologies
(Jiangsu) Co. Ltd
Vesuvius France
S.A.
Vesuvius GmbH
Rue Paul Deudon 68, Boite Postale 19,
Feignies, F-59750, France
France
Gelsenkirchener Strasse 10,
Borken, D-46325, Germany
Germany
England
Vesuvius Group
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Group S.A. 17 Rue de Douvrain, Ghlin,
Belgium
7011, Belgium
Vesuvius Holding
Deutschland GmbH
Gelsenkirchener Strasse 10,
Borken, D-46325, Germany
Vesuvius Holding
France S.A.S
68 Rue Paul Deudon, BP 19,
Feignies 59750, France
Vesuvius Holding
Italia - Società a
Responsabilità
Limitata
Piazza Borgo Pila 40,
Genoa, Italy
Vesuvius
Holdings Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Ibérica
Refractarios S.A.
Capitán Haya, 56 - 1ºH,
28020 Madrid, Spain
Germany
France
Italy
England
Spain
Vesuvius
International
Corporation
Vesuvius
Investments
Limited
CT Corporation, 1209 Orange Street,
The Corporation Trust Company,
Wilmington, Delaware, 19801,
United States
US (Delaware)
165 Fleet Street, London,
EC4A 2AE, England
England
Jurisdiction
Turkey
Italy
Japan
England
England
England
Mexico
Egypt
England
Czech Republic
New Zealand
Vesuvius
Japan Inc.
Vesuvius
K.S.R. Limited
Daini-Naruse Akihabara Bldg.
3F, 27-10, 1-chome, Taito,
Taito-ku, Tokyo, 110-0016, Japan
1 Midland Way, Central Park,
Barlborough Links, Derbyshire
S43 4XA, United Kingdom
Vesuvius Life Plan
Trustee Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius LLC
Vesuvius
Malaysia Sdn
Bhd
Vesuvius
Management
Limited
10, Ul. Kooperativnaya, Zhukovsky,
Moscow, 140180, Russian Federation
Russia
Level 18, The Gardens North Tower,
Mid Valley City, Lingkaran Syed Putra,
Kuala Lumpur, 59200, Malaysia
Malaysia
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Mexico
S.A. de C.V.
Av. Ruiz Cortinez, Num. 140, Colonia
Jardines de San Rafael, Guadalupe,
Nuevo León, CP 67119, Mexico
Vesuvius
Mid-East Limited
56, rd 15, Apt 103, Maadi,
Cairo, Egypt
Vesuvius
Minerals Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Moravia,
s.r.l
Konska c.p. 740, Trinec, 739 61,
Czech Republic
Vesuvius New
Zealand Limited
18 Cryers Road, East Tamaki,
Auckland, New Zealand
Vesuvius
OOO
Afanasyevsky, Pereulok 41 A, Moscow,
Russia, 119019, Russian Federation
Russia
Vesuvius Overseas
Investments Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius
Overseas Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Pension
Plans Trustees
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Pigments
(Holdings) Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Poland
Spólka z.o.o
Ul Tyniecka 12, Skawina,
32-050, Poland
England
England
England
England
Poland
Vesuvius
Ras Al Khaimah
FZ-LLC
Vesuvius
Refractarios
de Chile SA
Vesuvius
Refractarios de
Venezuela C.A.
Vesuvius
Refractories
(Tianjin) Co., Ltd
Street No. F14, RAK Investment
Authority Free Zone, Al Hamra,
Ras Al Khaimah, PO Box 86408,
United Arab Emirates
Street San Martin 870,
Room 308, Tower B, Concepcion,
Chile
United Arab Emirates
Chile
Av. Principal UD-321, Centro Industrial,
Caroni, Galpon #2. Matanzas, Ciudad
Guayana, Edo Bolivar, Venezuela
Venezuela
56, 13th Avenue, TEDA, Tianjin, 300457,
China
China
Vesuvius
Refractories S.r.l.
Galati, Marea Unire avenue 107,
Galati county, Romania
Vesuvius
Refratários Ltda
Av Brasil, 49550, Distrito Industrial
de Palmares, Campo Grande,
Rio de Janeiro, 23065-480, Brazil
Romania
Brazil
Vesuvius Refractory
India Private Limited
Room No. 9, 3rd Floor, 7 Ganesh
Chandra Avenue, Kolkata, WB 700013
IN, India
India
157
Company
legal name
Vesuvius
Scandinavia AB
Vesuvius
Scotland Limited
Registered offi ce address
4, Forradsgatan, Amal,
S-662 34, Sweden
Irvinebank Factory, Brown
St, Newmilns, Ayrshire, KA16 9AG,
Scotland
Jurisdiction
Sweden
Scotland
Company
legal name
Registered offi ce address
Vesuvius Ukraine
LLC
27, Udarnykiv Street, City of
Dnipropetrovsk, Ukraine
Vesuvius USA
Corporation
CT Corporation, 208 South LaSalle
Street, Chicago, Cook County, Illinois,
IL 60604, United States
Jurisdiction
Ukraine
US (Illinois)
Vesuvius
Slavia a.s.
Prumyslová 726, Konská,
Trinec, 739 61, Czech Republic
Czech Republic
Vesuvius Zyalons
Holdings Limited
Brown Street, Newmilns,
Ayrshire, KA16 9AG, Scotland
Scotland
Vesuvius Solar
Crucible (Suzhou)
Co., Ltd.
58, KuaChun Road, Kua Tang,
China-Singapore Suzou Ind Park,
Suzhou, Jiangsu Province, 215122, China
China
Vesuvius
South Africa
(Pty) Limited
Vesuvius UK
(2002) Limited
Vesuvius UK
Limited
Pebble Lane, Private Bag X2,
Olifantsfontein, Gauteng Province,
1665, South Africa
South Africa
Vesuvius Scotland Ltd, 78 Brown Street,
Newmilns, Ayrshire, KA16 9AA,
Scotland
Scotland
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, United Kingdom
England
Vesuvius Zyarock
Ceramics
(Suzhou) Co., Ltd
58, KuaChun Road, Kua Tang,
China-Singapore Suzou Ind Park,
Suzhou, Jiangsu Province, 215122, China
China
Vesuvius-Premier
Refractories
(Holdings) Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
VSV Advanced
Ceramics (Anshan)
Co., Ltd
Xiaotaizi Village, Ningyuan Town,
Qianshan District, Anshan,
Liaoning Province, China
Wilkes-Lucas
Limited
165 Fleet Street, London,
EC4A 2AE, England
Yingkou Bayuquan
Refractories Co., Ltd
Qing Long Shan Street, Bayuquan
District, Liaoning Province, YingKou
England
China
England
China
Those companies and joint ventures which are not wholly owned by Vesuvius plc or one of its subsidiary companies are listed below.
Jurisdiction
% Group
ownership
China
Brazil
Taiwan
India
50
50
51
74.98
74
25
45
Company legal name
Registered offi ce address
Angang Vesuvius Refractory Company Ltd Taxi District, Anshan City, Liaoning province, China
Beauvac Participações S/A
Street Libero Badaro, 293, cj. 20D, São Paulo, Centro, 01009-000, Brazil
Foseco Golden Gate Company Limited
6 Kung Yeh 2nd Road, Ping Tung Dist, Ping Tung, 90049, Taiwan
Foseco India Limited
922/923, Gat, Sanaswadi, Taluka, Shirur, Pune, 412208, India
Foseco (Thailand) Limited
170/69, 22nd Floor Ocean Tower 1, Ratchadapisek Road, Klongtoey, Bangkok, 10110, Thailand
Thailand
INTAHSA SA
Street Duque de Caxias 563, house 04, Room 01, Barueri, São Paulo, Centro, 06401-010, Brazil
Brazil
Newshelf 480 (Proprietary) Limited
44 Main Street, Johannesburg, 2001, South Africa
South Africa
VESUVIUS CESKÁ REPUBLIKA, a.s.
Prumyslová 726, Konská, Trinec, 739 61, Czech Republic
Czech Republic 60
Vesuvius India Limited
P-104 Taratala Road, Kolkata, 700 088, India
Wuhan Wugang-Vesuvius Advanced
CCR Co., Ltd.
Wuhan Wugang-Vesuvius Advanced
Ceramics Co., Ltd
Gongnong Village Qingshan District, Wuhan, Hubei Province, 430082, China
Gongnong Village Qingshan District, Wuhan, Hubei Province, 430082, China
India
China
China
55.57
50
50
As with Vesuvius plc, all of the above companies have a 31 December year-end. All subsidiaries, investments and joint ventures are
included in the Consolidated Financial Statements of the Company.
5.3 Audit exempt subsidiaries
The following UK subsidiaries are exempt from audit of their individual fi nancial statements by virtue of Section 479A of the Companies
Act 2006.
Brazil 1 Limited
Foseco Limited
Foseco Technology Limited
Foseco Transnational Limited
Foseco (FS) Limited
Foseco (GB) Limited
Foseco Steel (Holdings) China Limited
Foseco (UK) Limited
John G. Stein & Company Limited
S G Blair & Company Limited
Vesuvius China Limited
Vesuvius Group Limited
Vesuvius Minerals Limited
Vesuvius Pigments (Holdings) Limited
Vesuvius-Premier Refractories (Holdings) Limited
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Company Financial Statements
continued
6. Other Creditors
Amounts owed to subsidiary undertakings
Accruals and other creditors
Total amounts falling due within one year
7.
Issued Share Capital
7.1 Accounting policy
2016
£m
1,073.2
1.3
1,074.5
2015
£m
1,029.2
1.2
1,030.4
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
7.2 Analysis of issued share capital
The issued ordinary share capital of the Company as at 31 December 2016 was 278.5 million shares of £0.10 each (31 December 2015:
278.5 million shares of £0.10 each). Of this, 7.3 million shares were held in Treasury and 1.1 million were held by the Vesuvius Group
employee share ownership plan trust (‘ESOP’). The Company only has one class of shares in issue, Ordinary Shares. All shareholders enjoy
the same rights in relation to these shares, including rights in relation to voting at general meetings of the Company, distribution of
dividends and repayment of capital.
8. Shareholders’ Funds
8.1 Accounting policy
Taxation
Both current and deferred tax are calculated using tax rates and laws that have been enacted, or substantively enacted, by the
balance sheet date.
Current tax payable is based on the taxable result for the year. Deferred taxation is recognised, without discounting, in respect of all
timing differences that have originated, but not reversed, at the balance sheet date, with the exception that deferred taxation assets are
only recognised if it is considered more likely than not that there will be suitable future profi ts from which the reversal of the underlying
timing differences can be deducted. Provision is made for the tax that would arise on remittance of the retained earnings of overseas
subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable.
8.2 Reconciliation of movements in shareholders’ funds
As at 1 January 2015
Profi t recognised for the year
Purchase of own shares
Recognition of share-based payments
Dividend paid
As at 1 January 2016
Loss recognised for the year
Purchase of own shares
Recognition of share-based payments
Dividend paid
As at 31 December 2016
The Company had distributable reserves of £677.5m as at 31 December 2016 (2015: £722.7m).
Share
capital
£m
Retained
earnings
£m
27.8
—
—
—
—
27.8
—
—
—
—
27.8
771.3
0.4
(5.2)
0.1
(43.9)
722.7
(3.0)
—
1.7
(43.9)
677.5
Total
£m
799.1
0.4
(5.2)
0.1
(43.9)
750.5
(3.0)
—
1.7
(43.9)
705.3
9. Share-based Payments
9.1 Accounting policy
The Company operates equity-settled share-based payment arrangements for its employees. Equity-settled share-based payments are
measured at fair value at the date of grant. The fair value determined at the grant date takes account of the effect of market-based
conditions, such as the total shareholder return target upon which vesting for some of the awards is conditional, and is expensed on
a straight-line basis over the vesting period with a corresponding increase in equity. The cumulative expense recognised is adjusted for
the best estimate of the shares that will eventually vest and for the effect of other non-market-based vesting conditions, such as growth
in headline earnings per share, which are not included in the fair value determined at the date of grant. For grants with market-based
conditions attaching to them, fair value is measured using a form of stochastic option pricing model. For all other grants, fair value is
measured using the Black-Scholes option pricing model.
9.2 Profi t and loss account recognition
The Company operates a number of different share-based payment schemes, the main features of which are detailed between pages
94 to 96 of the Directors’ Remuneration Report. A total of £0.5m was charged to the profi t and loss account in the year with regard to
share-based payments (2015: £0.5m credit).
9.3 Details of outstanding options
Outstanding awards
As at
1 Jan
2016
no.
916,163
nil
82,261
nil
As at
Forfeited/
31 Dec
Granted
Exercised
lapsed
2016
no.
no.
no.
no.
— (341,504) 1,156,560
581,901
nil
nil
nil
nil
8,557
(21,845)
— (51,859)
nil
nil
nil
nil
Weighted
average
outstanding
contractual
life of
awards
years
8.5
0.8
Awards
exercisable
as at
31 Dec
2016
no.
—
—
—
—
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
For options exercised during 2016 included in “other plans”, the share price at the date of exercise was 333 pence.
As at
1 Jan
2015
no.
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
1,227,577
nil
43,301
nil
Outstanding awards
Granted
no.
411,652
nil
38,960
nil
Exercised
no.
(56,309)
nil
—
Forfeited/
lapsed
no.
(666,757)
nil
—
nil
nil
Weighted
average
outstanding
contractual
life of
awards
years
8.2
0.5
Awards
exercisable
as at
31 Dec
2015
no.
—
—
33,220
—
As at
31 Dec
2015
no.
916,163
nil
82,261
nil
For options exercised during 2015, the share price at the date of exercise was 517 pence for LTIP schemes.
Range of
exercise
prices
pence
n/a
n/a
n/a
n/a
Range of
exercise
prices
pence
n/a
n/a
n/a
n/a
159
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Vesuvius plc
Annual Report and Accounts 2016
Notes to the Company Financial Statements
continued
9. Share-based Payments (continued)
As at 31 December 2016, the total options exercisable by all Group employees over the £0.10 ordinary shares and capable of being
satisfi ed through new allotments of shares or through shares held by the Company’s ESOP were as follows:
Long Term Incentive Plan
Deferred Share Bonus Plan
Medium Term Incentive Plan
Restricted rights
Fair value of options granted under the LTIP during the year:
Fair value of options granted (per share)
Share price on date of grant (per share)
Expected volatility
Risk-free interest rate
Exercise price (per share)
Expected term (years)
Expected dividend yield
Years of
award/grant
2014-2016
2013-2014
2014-2016
2015-2016
Option
prices (£)
nil
nil
nil
nil
Latest year
of exercise/
vesting
Number
of options/
allocations
outstanding
2016/2026 2,398,185
2016/2017
7,786
189,094
2019
19,692
2017/2019
2016
2015
EPS
element
292p
292p
n/a
n/a
nil
4
n/a
TSR
element
112p
292p
26.0%
0.4%
nil
4
n/a
EPS
element
491p
491p
n/a
n/a
nil
4
n/a
TSR
element
275p
491p
24.0%
0.62%
nil
4
n/a
The fair value of share options with non-market performance conditions has been calculated using the Black-Scholes option pricing
model. The fair value of options with market-related performance conditions are measured using the Monte Carlo model. Expected
volatility was determined by calculating the historical volatility of the group’s share price over the 2.75 years (2015: 2.25 years) prior to the
grant date. The risk-free rate of return was assumed to be the yield to maturity on a UK fi xed gilt with the term to maturity equal to the
expected life of the option. At the discretion of the Remuneration Committee, award holders receive the value of dividends that would
have been paid on their vested shares in the period between grant and vesting. Accordingly, there is no discount to the valuation for
dividends foregone during the vesting period.
10. Contingent Liabilities
Where the Company enters into fi nancial guarantee contracts to guarantee the indebtedness of other companies within its Group,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the
guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment
under the guarantee. Guarantees provided by the Company as at 31 December 2016 in respect of the liabilities of its subsidiary
companies amounted to £569.4m (2015: £486.0m), which includes guarantees of $310m and €30m (2015: $310m and €30m) in respect
of US Private Placement Loan Notes and £141.7m (2015: £118.9m) in respect of drawings under the syndicated bank facility; together
with £150.8m (2015: £108.2m) in relation to a guarantee provided to the Company’s UK subsidiary which acts as Trustee for the Group’s
UK pension plan. The guarantee is over all present and future pension liabilities of the plan and the contingent liability amount represents
the net defi cit on a buy-out basis as shown in the most recent triennial valuation.
Vesuvius has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation
and environmental matters. Several of the Company’s subsidiaries are parties to legal proceedings, certain of which are insured claims
arising in the ordinary course of the operations of the company involved, and are aware of a number of issues which are, or may be,
the subject of dispute with tax authorities. Whilst the outcome of litigation and other disputes can never be predicted with certainty,
having regard to legal advice received and the insurance arrangements of the Company and its subsidiaries, the Directors believe that
none of these matters will, either individually or in the aggregate, have a materially adverse effect on the Company’s fi nancial condition
or results of operations.
11. Related Parties
All transactions with related parties are conducted on an arm’s length basis and in accordance with normal business terms.
Transactions between related parties that are wholly owned Group subsidiaries are not disclosed in this Note.
Five-Year Summary: Divisional Results from
Continuing Operations
Steel division
Revenue
Trading profi t1
Return on sales1
Employees: year-end
Foundry division
Revenue
Trading profi t1
Return on sales1
Employees: year-end
2016
2015
2014
2013
2012
£m
£m
%
no.
£m
£m
%
no.
942
79.2
8.4
7,782
459
54.1
11.8
3,058
898
79.5
8.9
7,783
424
44.5
10.5
3,129
981
96.4
9.8
8,349
463
46.4
10.0
3,443
1,018
88.7
8.7
7,524
493
51.3
10.4
3,330
1,018
83.1
8.2
7,601
530
48.2
9.1
3,585
Note:
1. The unaudited trading profi t number reported above for 2012 is restated for the impact of IAS 19(R), which was adopted by the Company during 2013.
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Vesuvius plc
Annual Report and Accounts 2016
Shareholder Information
Enquiries
The Company’s share register is managed by Equiniti, who can be
contacted regarding shareholding queries at the following address:
Equiniti Limited
Aspect House, Spencer Road
Lancing, West Sussex, BN99 6DA
Tel (UK only) 0371 384 2335
Tel (non-UK) +44 (0)121 415 7047
For the hard of hearing, Equiniti offers a special Textel service which
can be accessed by dialling 0371 384 2255 (or +44 (0)121 415 7028
from outside the UK).
All other shareholder enquiries not related to the share register
should be addressed to the Company Secretary at the registered
offi ce or emailed to shareholder.information@vesuvius.com.
Registered Offi ce and Group Head Offi ce
Vesuvius plc
165 Fleet Street
London EC4A 2AE
Tel +44 (0)20 7822 0000
Fax +44 (0)20 7822 0100
(Registered in England & Wales No. 8217766)
Corporate Website
Shareholder and other information about the Company can
be accessed on the Company’s website www.vesuvius.com.
Shareview
A website, www.shareview.co.uk, is operated by Equiniti, the
Company’s Registrars, enabling shareholders to access details of
their shareholdings online. The website provides information useful
for the management of investments together with an extensive
schedule of frequently asked questions. In order to gain access to
information on your shareholding, you will require your shareholder
reference number, which can be found at the top of the Company’s
share certifi cates.
Shareholders can register to receive shareholder communications
electronically, including the Company’s Annual Report and Accounts,
rather than in paper form, using Shareview. The registration
process requires input of the shareholder reference number.
To ensure that shareholder communications are received in
electronic form, ‘email’ should be selected as the mailing preference.
Once registered, shareholders will be sent an email notifying them
each time that a shareholder communication has been published
on the Company’s website.
Dealing Services
UK resident shareholders can now sell shares on the internet or
by phone using Equiniti’s Shareview Dealing facility by either
logging on to www.shareview.co.uk/dealing or by calling
0345 603 7037 between 8.00 am and 4.30 pm on any business
day (excluding Bank Holidays).
In order to gain access to this service the shareholder reference
number is required, which can be found at the top of the
Company’s share certifi cates.
Dividend Reinvestment Plan
The Company offers holders of ordinary shares the opportunity
to participate in a dividend reinvestment plan, through which
shareholders can use any cash dividend declared to buy additional
shares in Vesuvius. Further details, including the terms and conditions
of the plan, are available on the Vesuvius website www.vesuvius.com
or from Equiniti by calling the Share Dividend Helpline on
0371 384 2268 (or +44 (0)121 415 7173 from outside the UK).
Overseas Payment Service
Equiniti provides a dividend payment service in over 90 countries
that automatically converts payments into the local currency by
an arrangement with Citibank Europe PLC. Further details, including
an application form and terms and conditions of the service,
are available on www.shareview.co.uk or from Equiniti by calling
+44 (0)121 415 7047 or writing to Equiniti, Aspect House,
Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom
(please quote Overseas Payment Service with details of the
Company and your shareholder reference number).
Financial Calendar
2017 Annual General Meeting
Announcement of 2017 half-year results
10 May 2017
27 July 2017
Analysis of ordinary shareholders
As at 31 December 2016
Number of holders
Percentage of holders
Percentage of shares held
Investor type
Institutional
and other
558
17.28%
99.04%
Private
2,672
82.72%
0.96%
Total
3,230
100%
100%
1–1,000 1,001– 50,000
2,555
79.10%
0.14%
507
15.70%
1.43%
Shareholdings
50,001–
500,000
111
3.44%
6.60%
500,001+
57
1.76%
91.84%
Share Fraud – Spot the Warning Signs
Investment scams are designed to look like genuine investments.
Have you been…
> Contacted out of the blue
> Promised tempting returns and told the investment is safe
> Called repeatedly, or
> Told the offer is only available for a limited time?
If so, you might have been contacted by fraudsters.
How to avoid Share Fraud
1. Reject cold calls
If you’ve been cold called with an offer to buy or sell shares,
chances are it’s a high-risk investment or a scam. You should treat
the call with extreme caution. The safest thing to do is to hang up.
2. Check the fi rm on the FS Register at www.fca.org.uk/register
The Financial Services Register is a public record of all the fi rms and
individuals in the fi nancial services industry that are regulated by
the Financial Conduct Authority (FCA).
3. Get impartial advice
Think about getting impartial fi nancial advice before you hand over
any money. Seek advice from someone unconnected to the fi rm
that has approached you.
Reporting a Scam
If you suspect that you have been approached by fraudsters please
tell the FCA using the share fraud reporting form at www.fca.org.uk/
scams, where you can fi nd out more about investment scams.
You can also call the FCA Consumer Helpline on 0800 111 6768
(or +44 (0)20 7066 1000 from outside the UK).
If you have lost money to investment fraud, you should
report it to Action Fraud on 0300 123 2040 or online at
www.actionfraud.police.uk.
Find out more at www.fca.org.uk/scamsmart
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Vesuvius plc
Annual Report and Accounts 2016
Glossary
5S
8D
AGM
CIS
CO2
CO2e
Company
DSBP
DTR
EBITDA
EMEA
EPS
EU
FRC
FRS
FTSE 250
FX
GHG
Five steps to improve housekeeping and
therefore workplace safety and effi ciency:
separate, sort, shine, standardise and sustain
An eight-step methodology to resolve customer,
supplier and internal quality issues
Annual General Meeting
Commonwealth of Independent States
(Russian Commonwealth)
Carbon dioxide
Carbon dioxide equivalent
Vesuvius plc
Deferred Share Bonus Plan
The Disclosure and Transparency Rules of the
UK Financial Conduct Authority
Trading profi t before depreciation and amortisation
of non-acquired intangible charges
Europe, Middle East and Africa
Earnings per share
European Union
Financial Reporting Council
Financial Reporting Standards
Equity index whose constituents are the 101st to
350th largest companies listed on the London Stock
Exchange in terms of their market capitalisation
Foreign exchange
Greenhouse gas
Group
Vesuvius plc and its subsidiary companies
IAS
IFRS
KPI
LTI
LTIFR
Median
NAFTA
OEM
Ordinary
share
R&D
International Accounting Standard
International Financial Reporting Standards
Key performance indicator
Lost time injury
Lost time injury frequency rate, a KPI which calculates
the number of LTIs per million hours worked
The middle number in a sorted list of numbers
The area to which the North American Free Trade
Agreement applies
Original Equipment Manufacturer
An ordinary share of 10p in the capital of
the Company
Research and development
TSR
Total shareholder return
Turbo.S
The Vesuvius safety training programme
UK GAAP
UK Generally Accepted Accounting Principles
VSP
Vesuvius Share Plan
Designed and produced by Friend. www.friendstudio.com
Print: Pureprint Group
This report has been printed on Claro Bulk which is
FSC® certifi ed and made from 100% Elemental Chlorine
Free (ECF) pulp. The mill and the printer are both certifi ed
to ISO 14001 environmental management system and
registered to EMAS the eco management Audit Scheme.
The report was printed using vegetable based inks by a
CarbonNeutral® printer.
The imagery included in this Annual Report aims to capture
the many different aspects of Vesuvius around the world.
The photographer Samuel Dhote shot most of these
images, except on page 57 where Tim Shield’s photography
has been featured.
Vesuvius plc
165 Fleet Street
London
EC4A 2AE
T +44 (0)20 7822 0000
www.vesuvius.com