V
e
s
u
v
i
u
s
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2
0
1
8
W E A R E
V E S U V I U S
Annual Report and Financial Statements
Contents
Financial performance
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Section One: Our business
4
Vesuvius at a glance
6
Divisional overview
10
Our external environment
12
Our markets
14
Business model
16
Our strategy
18
Key performance indicators
20
Chairman’s statement
22 Chief Executive’s strategic review
24
28
Innovation
Risk, viability and going concern
Section Two: Our performance
36
42
Financial review
Operating reviews
42 Steel
42 Steel Flow Control
45 Steel Advanced Refractories
47 Steel Digital Services
48 Foundry
Revenue
£1,798.0m
2017: £1,683.9m
+6.8% on a reported basis
+10.7% on an underlying
basis1
Return on sales2
11.0%
2017: 9.8%
+120 basis points
+120 basis points on an
underlying basis1
Recommended final dividend
13.8p
per share
2017: 12.5p per share
Trading profit2
£197.2m
2017: £165.5m
+19.1% on a reported basis
+24.1% on an underlying
basis1
Profit before tax
Group full-year dividend
£156.2m
2017: £97.1m
60.9% increase
19.8p
per share
2017: 18.0p per share
Headline earnings
per share3
49.6p
2017: 40.7p
21.9% increase
Year-end net debt2
£248.0m
1.0x net debt to EBITDA ratio
2017: £274.3m – 1.3x
Section Three: Non-financial
information
52
Non-financial information statement
53
56
62
66
Our principles
Health and safety
Sustainability
People and community
Section Four: Governance
74 Board of Directors
76
Group Executive Committee
78 Corporate Governance Statement
78 Chairman’s Governance Letter
79 Board Report
86
93
95
Audit Committee
Nomination Committee
Directors’ Remuneration Report
95 Remuneration Overview
97 Remuneration Policy
105 Annual Report on
Directors’ Remuneration
116 Directors’ Report
120 Statement of Directors’
Responsibilities
121 Independent Auditors’ Report
Section Five: Financial Statements
128 Group Income Statement
129 Group Statement of
Comprehensive Income
130 Group Statement of Cash Flows
131 Group Balance Sheet
132 Group Statement of
Changes in Equity
133 Notes to the Group
Financial Statements
176 Company Balance Sheet
178 Notes to the Company
Financial Statements
183 Five-year Summary:
Divisional Results
184 Shareholder Information
186 Glossary
Revenue £m
2018 1,798.0
2017 1,683.9
2016 1,401.4
Trading profit2 £m
2018 197.2
2017 165.5
2016 133.3
Operating profit £m
Headline earnings2,3 £m
2018 164.5
2017 109.7
2016 92.9
2018 133.7
2017 110.1
2016 82.1
Statutory EPS p
Free cash flow2 £m
2018 51.3
2017 14.1
2016 21.1
2018 106.0
2017 92.3
2016 61.4
1. Underlying basis is at constant currency and
excludes separately reported items and the
impact of acquisitions and disposals.
2. For definitions of alternative performance
measures, refer to Note 4 of the Group
Financial Statements.
3. Headline results refer to continuing operations
and exclude separately reported items.
Forward-looking statements
This Annual Report contains certain
forward-looking statements with respect
to the operations, strategy, performance,
financial 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 reflect
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 profit forecast.
Cover image
Claire Ratajski
Operational Marketing Assistant,
Glass & Industrial Technology, Feignies, France
2
W E A R E
V E S U V I U S
Vesuvius is a global leader in molten metal flow
engineering and technology, serving process
industries operating in challenging
high-temperature conditions.
We develop innovative solutions that enable our customers
to improve their manufacturing costs, quality and safety
performance, and help them to become more efficient
in their processes.
We aim to deliver sustainable, profitable growth to 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.
Find out more about Vesuvius.
Visit report2018.vesuvius.com
Shantaram Dhamale
Cell Assistant,
Pune, India
Vesuvius at a glance
Where we operate
See p4
Business model
What we do
See p14
Our strategy
Our aims and execution priorities
See p16
Innovation
Our R&D focus
See p24
Our business
2 Vesuvius plc
Annual Report and Financial Statements 2018
S E C T I O N O N E
In this section:
Vesuvius at a glance
Divisional overview
Our external environment
Our markets
Business model
Our strategy
Key performance indicators
Chairman’s statement
Chief Executive’s strategic review
Innovation
Risk, viability and going concern
4
6
10
12
14
16
18
20
22
24
28
3
O
u
r
b
u
s
i
n
e
s
s
I H AV E A LWAYS
B EEN EN CO U R AG ED TO
D E V ELO P M Y C A R EER .
Séverine Romero-Baivier
Global Fundamental
Research Manager Flow Control, Ghlin
I started my career with Vesuvius in 2007
as an engineer. My first role consisted of
performing Finite Element simulations.
While developing my engineering skills,
I was promoted to Material Modelling
and Characterisation Manager in the
Enabling Technology group. In this
position, I had the opportunity to develop
my leadership skills and build a team to
develop a new methodology to analyse
and predict the thermomechanical
behaviour of molten metal.
In 2018, I was promoted to the position of
Global Fundamental Research Manager
in the Flow Control business unit, leading
an international team of scientists, most
of whom are based in Belgium and
the USA. This new role is focused on
reproducing, simulating and modelling
phenomena which occur during the
continuous casting of steel. These scientific
assessments enable us to better determine
material selection, and to design
processes to optimise the performance
of our refractory pieces.
Thanks to the inclusive and focused
working environment at Vesuvius, I have
always been encouraged to progress in
my career. I have been supported in my
work and inspired to pursue my interest
in material characterisation. I am
especially grateful for the continuous
management support I have received
throughout my journey.
Find out more about Séverine’s
career journey at Vesuvius.
Visit report2018.vesuvius.com
4
Vesuvius at a glance
5
Overview
Our global presence
Americas
EMEA
Asia-Pacific
We are a global group with a
business model based on offering
customised products, solutions
and services from production
facilities in close proximity to our
customers. Our two divisions –
Steel and Foundry, mainly serve
the global steel and foundry
industries.
41
Countries
6
Continents
59
10,809
Employees
89
Sales offices
7
Production sites
R&D centres of excellence
See our Business model on p14
See more about our Steel and Foundry Divisions on p42-49
£527.0m
Revenue
(2017: £492.4m)
77% Steel
23% Foundry
1
R&D centre of
excellence
22
Sales offices
24
Production sites
4,360
Employees
£786.4m
Revenue
(2017: £729.8m)
68% Steel
32% Foundry
4
R&D centres of
excellence
33
Sales offices
19
Production sites
3,363
Employees
£484.6m
Revenue
(2017: £461.7m)
61% Steel
39% Foundry
2
R&D centres of
excellence
34
Sales offices
16
Production sites
3,086
Employees
The map shows our
production, R&D
and commercial
sites worldwide
Vesuvius gives me great opportunities
to learn and progress. The company
invests in its people and I take pride in
our professionalism and dedication.
Tomohiro Hirano
Sales Representative
Kobe, Japan
Steel Digital Services
Operating review
See p47
Steel Flow Control
Operating review
See p42
Foundry
Operating review
See p48
Steel Advanced Refractories
Operating review
See p45
Vesuvius plcAnnual Report and Financial Statements 2018Our business 6
Divisional overview
Steel Division
Overview
Revenue
£1,236.7m
2017: £1,148.7m
Return on sales
10.4%
2017: 8.7%
Trading profit
£128.3m
2017: £100.4m
Business units
Steel Flow Control
What we do
Vesuvius’ Steel Flow Control business unit supplies
the global steel industry with consumable ceramic
products, systems, robotics, digital services and
technical services. These products are used to
contain, control and monitor the flow of molten
steel in the continuous casting process.
How the process works
The continuous casting process enables steel
manufactured from a blast furnace or electric arc
furnace to be cast without interruption, whilst
protecting it from the atmosphere. Avoiding
atmospheric contact is crucial as it significantly
reduces contamination and oxidation of the steel.
Our products
The consumable products that Vesuvius supplies
have a short service life (often a matter of a few
hours) due to the significant wear caused by the
extremely demanding environment in which they are
used. These products must withstand extreme
temperature changes, whilst resisting liquid steel
and slag corrosion. In addition, the ceramic parts in
contact with the liquid steel must not contaminate it.
The quality, reliability and consistency of these
products and the associated solutions and services
we provide are therefore critical to the quality of the
finished metal being produced and the productivity,
profitability and safety of our customers’ processes.
Steel Digital Services
We offer digitalised solutions to our customers to
enable them to make their underlying processes
more efficient and reliable. Digital Services focuses
on providing products that enhance the control and
monitoring of our customers’ production processes.
The products provided by Digital Services include
temperature sensors, oxygen, hydrogen and
sublance probes, iron oxide and metal sampling
for the steel, aluminium and foundry industries.
See Steel Digital Services Operating review
on p47
Our customers are steel producers and other
high-temperature industries. Vesuvius is a world
leader in the supply of refractory products, systems
and solutions. These help our customers increase
their efficiency and productivity, enhance quality,
improve safety and reduce their costs and their
environmental impact.
See Steel Flow Control Operating review on p42-44
Blast
furnace
1
Convertor and
refining ladles
Continuous
caster
2
3
Steel slab,
billet or
bloom
4
A C E
N
R
T F U
S
A
L
B
Tap hole
clay
Iron
trough
Torpedo
ladle
1
Stack linings
repair
7
Steel Advanced Refractories
What we do
Vesuvius’ Advanced Refractories business unit
supplies specialist refractory materials for lining
steel-making vessels such as blast furnaces, ladles
and tundishes, which are subject to extreme
temperatures, corrosion and abrasion. Along with
these materials, we provide advanced installation
technologies (including robots), computational fluid
dynamics capabilities and laser systems for
measuring refractory wear.
Our main customers are steel producers and
manufacturers of steel production equipment,
where our products accompany the steel-making
process from its early steps all the way to the end
of production in the rolling mill. Our array of
heat-intensive production solutions accompany
the physical transformation of iron ore and scrap
into semi-finished products, and account for
c.80% of the revenue of the business unit.
Our customers and the process
The service life of the products that Advanced
Refractories supplies into the steel-making process
can vary (some a matter of hours and others for a
period of years) based upon the type of refractory
and the level of wear caused by the demanding
environment in which they are used.
Broader offer
In addition, Vesuvius’ Advanced Refractories
business unit supplies other high-temperature industries
such as primary and secondary aluminium, copper,
cement, petrochemicals and energy from waste.
See Steel Advanced Refractories Operating
review on p45-46
Key:
Steel Flow Control products
Steel Advanced
Refractories products
Robotic
arm
Flux
Ladle
shroud
Linings
Tundish
slide gate
R A N D R EFININ
G
L
A
D
L
E
S
Convertor
linings and
repair
Linings
& bricks
Refining
ladles
2
S C
U
O
U
3
S T E R
A
Linings,
bottoms
Ladle, slide
gate, tube
changer
Ladle
Purging
plug
Tundish
T O
R
E
V
N
O
C
IN
T
N
O
C
Stopper
& rigging
Temperature
measurement
Flux
Robotic
arm
Mould
Tundish tube
changer
Impact
pad
Mould level
control
4
Steel sla
b
, b
i
l
l
e
t
o
r
b
l
o
o
m
Our businessVesuvius plcAnnual Report and Financial Statements 2018
8
Divisional overview continued
Foundry Division
Overview
Revenue
£561.3m
2017: £535.2m
Return on sales
12.3%
2017: 12.2%
Trading profit
£68.9m
2017: £65.1m
Foundry
What we do
The foundry process is highly sequential and is
critically dependent on consistency of product
quality and productivity optimisation. Working
alongside customers at their sites, our engineers
provide on-site technical expertise in addition to
advanced computational fluid dynamics capabilities
to develop the best customised production solutions.
Our products
The conditioning of molten metal, the nature of
the mould used and, especially, the design of the
way metal flows into the mould are key parameters
in a foundry, determining both the quality of the
finished castings and the labour, energy and metal
usage efficiency of the foundry. Vesuvius’ products
and associated services to foundries improve all of
these parameters. Each of our products typically
represents a small element of the overall cost of
the foundry process but contributes significantly
to product quality and yield.
In Foundry, customers are evolving towards more
sophisticated and increasingly complex castings
with increased requirements for cleaner and lighter
metal, resulting in a greater need for Vesuvius’
products.
Our customers
We are also focused on expanding the cross-selling
opportunities between the Foundry and Advanced
Refractories business units. Foundries utilise some of
the refractory products manufactured by Advanced
Refractories, which allows us to offer a complete
product offering to our customers.
See Foundry Operating review on p48-49
We are a world leader in the supply of
consumable products, technical advice and
application support to the global foundry
industry, improving casting quality and foundry
efficiency. Our primary customers are ferrous
and non-ferrous foundries serving various
end-markets, from large bespoke castings to
high-volume automotive pieces. We operate in
the foundry sector under the FOSECO brand.
Induction
furnace
Mould
production
and pouring
1
Final
casting
3
2
Treatment/
pouring ladle
r e f e t tling)
o
f
e
M ( b
3
E
IT
T
S
A
C
9
R O D U C T I O N
D P
L
U
O
M
Cope
Core &
coatings
Mould
coatings
Pouring cup
Downsprue
Feeder
Filter
Sand
binder
Runner
Drag
1
2
Linings
P O URING IN
T
O
M
O
U
L
D
Stopper
rod
Nozzle
Our businessVesuvius plcAnnual Report and Financial Statements 2018
10
11
Our external environment
The world is changing,
and we are responding
Sustainability
improvements
Environmental pollution and
emissions (e.g. CO2) continue to
be a major challenge across
industries and in particular along
the steel and foundry value chain
Technical upgrade
of steel and foundry
Steel and foundry producers
globally, are upgrading their
production capabilities to deliver
better quality, higher technology
steel and castings
Automation –
delivering safety
and efficiency
Safety across their operations
is of utmost concern to our
customers
What’s happening
How we are responding
Case studies
7-9%
of global direct CO2
emissions are
created by
the steel industry
(as estimated by
the World Steel
Association)
Steel and foundry production are highly
energy intensive processes, with steel
manufacture alone accounting for a
significant amount of global direct CO2
emissions. These industries are facing
increased scrutiny about their
sustainability footprint.
Steel plays an integral part in the modern
world, and will remain crucial for many
end products. Whilst it is infinitely
recyclable, solutions that improve the
environmental footprint of its manufacture
are needed to ensure that the impact of
its production is reduced, and makes
the best use of available resources.
Steel producers are increasingly focusing
on higher quality steel grades where
the consistency of the finished steel is
fundamental. As a result there is
above-market growth forecast for
high technology steel in all regions.
+9%
Our internal annual
growth forecast for
high technology
steel in India
Foundries are experiencing a similar
development where metal quality is
paramount and higher strength is
demanded from thinner castings.
42%
of total task hours
are expected to
be performed by
machines by 2022
(as estimated by the
World Economic
Forum)
Companies face ever-increasing scrutiny
to ensure that their operations and
products are safe and that they are
not causing harm to the environment.
New technologies, such as advancements
in automation, help transform production,
bringing greater flexibility and lower
costs, whilst also delivering the potential to
significantly improve safety performance
in a plant.
Robotics help support or even substitute
operators in hazardous production areas,
thus lowering the safety risk and ensuring
consistency of the process.
Making ongoing
robotic repairs
saves energy
Laser technology and
robotics are used to
assess refractory wear
and repair requirements
throughout production,
reducing energy and
refractory consumption
in the steel mill
Improving quality
with our new products
Our new technology
solution– ladle shrouding
for steel foundries –
lowers oxidation and
inclusions in the end
products, significantly
improving the quality
of the final castings and
thus their performance
Leaving the most
dangerous work
to robots
> Vesuvius’ products and services
improve the sustainability
footprint of our customers’
production processes. Vesuvius’
consumables enable our
customers to increase their
throughput while lowering
energy consumption, increasing
yields and improving the quality
of their end products
> At the same time, Vesuvius
continues to optimise its own
operations, focusing on
maximising the utilisation of
raw materials and recycling
> Vesuvius is strongly positioned
to facilitate this upgrade and
benefit from its development.
We have a wide product and
service offering designed to
support the production of high
technology steel across our
broad, global customer base
> In Foundry, Vesuvius’ innovative
portfolio of products and
services and global footprint,
enable us to provide high
technology solutions to our
worldwide customers
> Vesuvius has the global
capability to combine
know-how in steel mills
and foundries with robotic
capabilities: a winning
combination for superior
safety performance
> Vesuvius’ in-depth understanding
of production processes
enables us to provide robotics
and laser technology that
work reliably and consistently
in hazardous areas of
production, reducing operator
exposure to risk
Vesuvius installed fully
automated robots for
a large steel customer
in South America to
execute safety-critical
activities, removing
operators from a
hazardous production
area
See Strategy section on p16-17
Vesuvius plcAnnual Report and Financial Statements 2018Our business 12
Our markets
Steel
Flow Control
Crude steel production
and the above average
market growth of ‘high
technology steel’ are
drivers of Flow Control
business unit product
demand
Advanced
Refractories
Crude steel production
and level of activity in
other high-temperature
industries, such as
aluminium, copper,
cement, petrochemical
and energy from waste,
are the drivers for the
Advanced Refractories
business unit product
demand
Foundry
Higher sophistication
and increasingly complex
castings are the drivers
for Foundry Division
product demand
Vesuvius’ internal segmentation
of global crude steel production
14%
30%
Vesuvius’ internal segmentation
of global crude steel production
56%
Market steel production
World crude steel production 2018:
World crude steel production
1,808.6mt (World Steel Association)
2017: 1,808.6mt
34%
33%
33%
Flow Control business unit
Vesuvius’ internal segmentation
end-markets
of global crude steel production
14%
30%
56%
Market steel production
World crude steel production
Key
2017: 1,808.6mt
‘High
technology steel’
Selected examples:
> Near Net Shape
34%
production process
> Stainless steel
> Engineering steel
(bearing, shafts,
tools etc.)
> Automotive
33%
‘Medium
technology steel’
Selected examples:
> Construction sheets
(roofing, cladding
etc.)
33%
> Heavy plates for ship
building, pipe
‘Commodity steel’
Selected example:
> Basic rebar
for concrete
reinforcement
and manufacturing efficiency, whilst
reducing the environmental impact of the
casting process and improving the ratio
of finished castings to the amount of
metal poured which is a key parameter
for foundry efficiency.
Foundry market end-markets
The most important end-markets
for the foundry industry are general
engineering, followed by light vehicles
(including passenger cars and light
commercial vehicles), medium and
heavy commercial vehicles, construction
agriculture and mining equipment,
power generation equipment
and railroad.
Above average market growth
for ‘high technology steel’
‘High technology steel’ is our internal
marketing segmentation that describes
steel which is either high performing
(e.g. high strength steel for wind turbines)
and/or where the production process
to produce the steel is complex (e.g. the
near net shape production process,
which is a continuous casting process
that produces steel in very thin slabs
i.e. near to its final thickness).
Complex production processes and the
need for higher quality steel grades
where the consistency of the finished
steel is paramount, are gaining
momentum worldwide because
they provide steel producers with
differentiated products and significant
benefits in terms of cost savings and
a reduced environmental footprint.
Advanced steel cans
are produced from
“high technology steel”
because of the need to achieve
a challenging combination of
thin gauge and high rigidity/
strength
Above average market growth
for highly sophisticated and
complex castings
The Foundry Division benefits from
its capabilities to improve highly
sophisticated and complex castings,
which are the segments of the foundry
market growing the fastest. Foundry
customers are evolving towards these
more sophisticated and increasingly
complex castings because of increased
requirements for cleaner metal to deliver
complex shapes with thinner sections,
resulting in a greater need for Vesuvius’
foundry expertise.
Whilst Foundry Division products
typically represent less than 5%
of a foundry’s production costs,
they contribute significantly to the
improvement of product quality
13
Crude steel production is a
structurally growing market
According to the World Steel
Association, global crude steel
production in 2018 increased by 4.6%
compared with 2017. Production in
the majority of major steel-producing
countries was up year-on-year.
In the past 20 years the growth in crude
steel production came mostly from
China. We do not forecast China to
continue to grow at the same rate as
it has done historically. In our internal
projections we forecast China to grow
at a rate of 0.5% per annum.
We believe that the majority of the
growth in crude steel production going
forward will come from India and
other emerging markets, mostly Middle
East, Africa, South East Asia and
Latin America.
Globally we expect crude steel
production to grow at a rate of 1.3%
per annum and the world excluding
China at a rate of 2.0%.
World crude steel production (mt)
(bnt)
Chart for style
– to be plotted
2.5
2.0
1.5
0.5
0
‘50
’54
‘58
’62
‘66
’70
‘74
’78
‘82
’86
‘90
’94
‘98
’02
‘06
’10
’14
’18
‘22
’26
‘30
CAGR ‘18 – ’30
+ 2.9%
Other emerging
markets1
Year
+5.6%
India
+0.5%
China
+0.2%
Developed
markets2
Sources: Historical data from World Steel Association. Forecasts are management estimates.
Notes:
1. Eastern Europe, Middle East (incl. Turkey), Africa, Latin America and South East Asia.
2. EU28, USA, Canada and North Asia.
Growth in crude steel production (2018 vs. 2017)
vs. 2018 steel production volume (Vesuvius key regions)
8
1
0
2
h
t
w
o
r
g
n
o
i
t
c
u
d
o
r
p
l
e
e
t
s
e
d
u
r
C
13%
11%
9%
7%
5%
3%
1%
-1%
-3%
South East Asia
+11.3%
India
+4.9%
EEMEA1
+2.9%
USA & Canada
+4.8%
EU28
-0.3%
Latin America
+1.2%
China
+6.6%
Crude steel production growth 2018
+4.6%
World
+6.6%
China
+2.5%
Rest of the world
Size of bubble represents relative revenue
of Vesuvius’ Steel Division in 2018
1. Eastern Europe, Middle East (incl. Turkey) and Africa.
Crude steel production volume 2018
Technology changes and
environmental drivers
New technologies, such as 3D printing,
are expected to continue to influence
the metal casting industry, allowing for
faster prototyping and production of
smaller volume parts. Environmental
regulations, driven by the desire to
reduce volatile organic compound
emissions and the use of silica within the
industry, are also expected to continue
to tighten. This will drive the trend to find
processes and consumable products
which support production efficiency
and reduce a foundry’s impact on
the environment.
Iron casting
Steel casting
Iron casting is split between grey and
ductile iron with grey iron representing
the majority of metal being cast. This is
a cost-efficient and robust process
producing components that do not
need to tolerate extreme mechanical
stress. All iron castings require filters
and coatings but grey iron is not as
reliant on feeding system utilisation due
to its lower shrinkage on solidification.
Conversely, ductile iron production
requires more sophisticated
consumable products to cope with
the high shrinkages of metal
whilst solidifying.
Steel is used in casting for manufacturing
components with very high mechanical
performance. Steel casting is the most
demanding casting process due to
higher melting temperatures and
greater tendency for shrinkage.
This drives greater demand for products
and technical expertise in this segment.
Aluminium/Non-ferrous casting
Aluminium casting is the segment of the
foundry market growing the fastest.
It has captured a significant share of
the light vehicle market. Being molten
below 700°C, aluminium can be cast in
iron moulds which can then be reused.
Vesuvius concentrates on supplying
fluxes, filters and machines that refine the
composition and cleanliness of the metal.
Vesuvius plcAnnual Report and Financial Statements 2018Our business
14
Business model
A profitable, flexible, cash-generative
model focused on sustainable growth
15
Our key resources
How we deliver
The value we create
Financial capital
Human capital
> Our industry experts are embedded at
Our Investors
Our Suppliers
What we do
We develop and manufacture
high-technology products and
solutions predominantly for
supply to the steel and foundry
casting industries, operating
a profitable, flexible, cash-
generative and growth-building
business model. Over many years
we have built the brand equity
of our Vesuvius and FOSECO
products through technology
leadership, reliability and service.
We use the cash generated by our
business to invest in innovation,
people, operating assets, technology
and sales to generate further growth.
We invest in developing our skilled and
motivated workforce of approximately
11,000 people and provide them with
a safe environment in which to work.
Manufacturing capital
Social capital
We have a global footprint,
with 59 production sites on six
continents, giving us proximity
to our customers.
We champion our values and our
ethical conduct. We maintain strong
relationships with customers and
our wider stakeholder groups.
Intellectual capital
Natural capital
We have seven R&D centres of
excellence and over 300 R&D staff
worldwide, generating innovative
products and solutions for
our customers.
We utilise high-quality raw materials,
secured through reliable and
well-developed supply chains.
7
10,809
59
R&D centres of excellence
employees
production sites
300
R&D staff
Our sustainable competitive advantages
Global presence
Using our global expertise to identify
and create market opportunities
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.
Our local manufacturing, local
expertise and global knowledge of
customers’ processes give us a special
relationship with our customers.
Optimised manufacturing
Low-cost lean manufacturing provides
reliable ‘just-in-time’ products
Our successfully tested products can
be produced at high volumes across
all of our manufacturing footprint,
guaranteeing cost-competitive and
time-efficient delivery. We optimise
our cost-competitiveness by investing
in low-cost production sites and
increasing production automation –
and have established manufacturing
facilities to support our expansion in
emerging markets.
See more
about Our
global
presence
on p4-5
See more
about Our
operations
on p42-49
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.
> We develop high technology products
that deliver quality enhancement,
efficiency gains and energy savings
to our customers. We focus on
sustainability in our own business
through the efficient use of energy
and natural resources.
> Our model is profitable by allowing
value pricing for bespoke products
and services. It generates growth as
we enlarge our market with additional
innovative products and solutions.
> Our model is resilient to end-market
volatility due to the flexibility of our
diversified manufacturing footprint
and adjustable cost base.
> Our commitment to ethical business
delivers strong, long-term, sustainable
commercial relationships.
Our efficient use of capital generates
annual profits, giving returns to our
shareholders and underpinning
sustainable growth.
Maintaining cost-effective access to
high-quality raw materials is vital to
our success. Our suppliers are critical
to our business.
Our Customers
Our Communities
Our investment in innovation creates
cutting-edge products and solutions,
delivering enhanced value for our
customers and differentiating us
from our competitors. We embed
technical experts within our customers,
giving us a fundamental understanding
of their needs and delivering them
access to our global network of highly
skilled individuals.
Our People
We focus on the health and safety
of all our staff. We engage with our
people, encouraging and rewarding
high performance to create an
environment where all can realise
their individual potential.
We are committed to maintaining
positive relationships with the
communities in which we operate.
Our social responsibility activities
complement our values and we
encourage our employees to engage
with communities and groups local
to our operations.
Students and Graduates
Attracting new talent to Vesuvius is
vital for the Group’s continuing success.
Recruiting new students and graduates
feeds the talent pipeline and allows us
to tap in to new sources of up-to-date
business ideas and R&D capability.
Advanced technology
Our technology centres develop
value-adding solutions involving
engineered systems and high-value
consumables
Our continuing investment in Vesuvius’
R&D centres of excellence is reflected
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 flow
simulation and finite element analysis.
We are therefore able to provide
our customers with sophisticated,
innovative, custom-designed solutions.
Read more
about
Innovation
on p24-27
Service and consistency
Serving our customers reliably,
competitively and consistently with
consumables critical for their
manufacturing processes
Alongside 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 reflect changes in
customer requirements. Our knowledge
of end-market processes, specifications
and techniques around the world gives
our experts an unparalleled ability to
support our customers.
Read more
about quality
and reliability
on p42-49
Vesuvius plcAnnual Report and Financial Statements 2018Our business
16
Our strategy
Strategic Objectives
Execution
priorities
17
Vesuvius has articulated five key execution priorities. These enable
us to achieve our core strategic objectives of delivering long-term
sustainable profitability and creating shareholder value.
Description
Progress in 2018
We are dedicated to accelerating the delivery of our Strategic
Objectives. In particular, speeding up growth by focusing our efforts on
the high-quality, high-end segments of the Steel and Foundry markets;
increasing our efforts to optimise our manufacturing base; and driving
this change with a team of skilful, motivated and talented people.
Reinforce our
technology leadership
See Innovation
p24-27
Vesuvius was built and grew on technology breakthroughs.
These enabled the steel continuous casting and foundry industries
to improve their efficiency and quality substantially. Focusing on
technology leadership continues to drive our unique value proposition
and underpins our ability to deliver ongoing value enhancement
to our customers.
In line with our focus on a non-matrix, decentralised organisation, we
integrated R&D into the business units to ensure the closest possible link
between R&D and our operations. In 2018, the percentage of revenue
accounted for by ‘New Products’, being products launched within the
last five years, grew to 15.4% (from 14.5% in 2017). Our objective is for
this to reach 20%. We continued the process of focusing our global
efforts in R&D on centres of excellence in the US, Europe, India and
China. We also increased our focus on combining developments in
robotics, automation and data analytics capabilities with our well-
established material science research. Our spend on R&D increased
year-on-year to £33.6m in 2018, being c.2% of our total revenue.
We continued to increase our R&D efficiency by focusing our efforts
on a reduced number of potentially high-impact R&D projects.
Deliver growth
Generate sustainable profitability and
create shareholder value
Maintain strong cash generation and an
efficient capital structure
Provide a safe working environment for
our people
Be at the forefront of innovation
Run top-quality, cost-efficient and
sustainable operations
Increase penetration of
value-creating solutions
See our
Operating reviews
p42-49
Capture growth in
developing markets
See our
Operating reviews
p42-49
Improve cost leadership
and margins
See our
Operating reviews
p42-49
Foster talent, skill and motivation in our people
Vesuvius measures and monitors its performance against these
Strategic Objectives through its Key Performance Indicators (KPIs)
Develop our Technical
Service offering
See our Key performance indicators on p18-19
See Innovation
p24-27
Our technology has been widely adopted by the most sophisticated
producers in the most developed markets. However, marked
differences remain in the penetration of our solutions within the
industry. Consequently, there is a wider audience of customers whom
we believe can benefit from them. As steel and foundry markets in
developing markets become more quality focused, we have the
opportunity to significantly increase our penetration of these
markets through offering our value-creating solutions.
In 2018, we outperformed underlying growth in the majority of
end-markets. We achieved market share gains in Flow Control and
Foundry through customer proximity and the combination of our
products with robotics and automation at our customers’ plants.
For Flow Control, this outperformance is reflected in our underlying
2018 revenue growth of 11.5% versus 4.6% growth in global steel
production volumes. For our Foundry Division, underlying 2018
revenue growth of 8.2% is further evidence of this outperformance.
Building on our long-standing 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.
In 2018, we continued to deliver attractive top line growth in both our
Steel and Foundry Divisions, outperforming crude steel production
increases and underlying foundry end-markets in our key developing
markets of China, India, Latin America, EEMEA (Eastern Europe,
Middle East (including Turkey) and Africa) and South East Asia. Steel
Division revenue in these markets grew by 17.6% in 2018 versus steel
production growth of 5.7% and Foundry Division revenue grew by
10.8% in these key developing markets.
We continue to pursue our restructuring programmes throughout the
Group to adapt our business and our cost base to the changing
trading environment. This is central to our efforts to improve profitability.
Furthermore, we have embedded the principles of lean manufacturing
across all our sites, continuously focusing on quality and productivity to
enable us to maintain our margins. Our global presence allows us to
benefit from economies of scale and deliver excellent service from
local sites.
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 specifications.
The key elements of Vesuvius’ Technical Services strategy are, firstly,
the Digital Services business unit, which is focused on incubating our
data capture technologies, and secondly, the business units which
play a critical role in integrating these products into our broader
consumables offering as well as ensuring customer access. In this
way, our Technical Services strategy is progressively penetrating all
activities of both our Steel and Foundry Divisions.
We remain on track with the implementation of our restructuring
programmes and delivered an incremental £14.0m recurring cash
saving during the year, in part related to the three European plant
closures announced in July 2018. This was ahead of our expectations.
Our original restructuring programme launched in 2015 is almost
complete, with £8.4m savings still to be delivered by 2020. Our new
restructuring programme launched in March 2018 is well underway,
and we expect to deliver cash savings of £22.0m for a one-off cash
charge of £19.3m and £15.0m of capital expenditure to support the
implementation of the programme. £17.3m of cash charge and £2.1m
of capital expenditure had been accounted for at the end of 2018.
We have £16.4m of savings left which will be delivered by 2021. In 2019
we are targeting the delivery of a further £14.0m of recurring cash
savings, leaving £8.5m to be delivered in 2020 and £2.3m in 2021.
We continued to see good progress in our global Technical Services offering
during 2018. The partial integration of our technical service capabilities into
the business units in 2018 is yielding strong results and the global revenue
from our Technical Services offering reached £96.5m in 2018, up 16.1%
from 2017 on a constant currency basis. The performance of our Digital
Services business unit was also strong, with underlying revenue growth
of 10.8%, reflecting accelerated product penetration and a focus on
optimising the structure of this business.
Vesuvius plcAnnual Report and Financial Statements 2018Our business
18
Key performance indicators
We have
performed
well against
our strategic
metrics
The Board and
management regularly
monitor both financial and
non-financial performance
indicators to measure
performance against
objectives. The Board
reviews these KPIs as part
of its governance and risk
management processes.
Strategic Alignment
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 significant
business closures
Trading profit and
return on sales
Used to assess the trading performance of
Group businesses
Generate
sustainable
profitability
and create
shareholder
value
Headline profit
before tax
Used to assess the financial 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 financial performance
and asset management of the Group
Maintain strong
cash generation
and an efficient
capital structure
Free cash flow
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 flow is the
average working capital to sales ratio, which
indicates the level of working capital used in
the business
Interest cover
ratio
Ratio of net debt
to EBITDA
Both ratios are used to assess the financial
position of the Group and its ability to fund
future growth
Non-financial KPIs
Strategic Alignment
KPI
Performance
Provide a safe
working
environment
for our people
Lost time injury
frequency rate
Lost time injury frequency rate*
2018 1.3
2017 1.6
2016 1.7
Be at the
forefront of
innovation
R&D spend
Total R&D spend** £m
2018 33.6
2017 32.6
2016 29.6
Read more about
Innovation on p24-27
19
Link to remuneration
Performance
Underlying revenue growth %
2018 10.7
2017 12.5
2016 -4.0
Trading profit £m
Return on sales %
2018 197.2
2017 165.5
2016 133.3
Headline profit before tax £m
2018 11.0
2017 9.8
2016 9.5
Delivery of value to shareholders is linked to
remuneration through the Vesuvius Share
Plan (‘VSP’), which measures the vesting of
awards against total shareholder return
VSP – Read more about this on p111-113
O
u
r
b
u
s
i
n
e
s
s
2018 188.9
2017 152.9
2016 119.8
Headline EPS p
2018 49.6
2017 40.7
2016 30.4
Return on net assets %
2018 29.9
2017 24.2
2016 21.1
Free cash flow £m
Average working capital to sales %
2018 106.0
2017 92.3
2016 61.4
Interest cover
2018 22.8x
2017 15.8x
2016 13.4x
2018 23.9
2017 24.9
2016 26.6
Net debt to EBITDA
2018 1.0x
2017 1.3x
2016 1.8x
EPS is linked to remuneration as a measure
used in the Annual Incentive Plan (‘AIP’)
and the VSP
AIP and VSP – Read more about them
in the Directors’ Remuneration Report
on p105-115
In 2018, working capital performance was
linked to remuneration through the use of
the Group’s working capital to sales ratio
as one of the measures used in the AIP
AIP – Read more about this on p109-110
Strategic Alignment
KPI
Performance
Run top-quality,
cost-efficient
and sustainable
operations
Total energy
consumption
Energy Used kWh per metric tonne product
packed for shipment
Read more about
Sustainability on
p62-65
2018
1,292
2017
1,378
2016
1,395
* Work-related illness or injuries which resulted
in an employee being absent for at least one
day – measured per million hours worked.
** At constant 2018 currency.
*** Sales of products launched within the last
five years as a % of total revenue.
Read more about Safety on p56-61
New product sales*** %
2018 15.4
2017 14.5
2016 14.2
Vesuvius plcAnnual Report and Financial Statements 2018
21
O
u
r
b
u
s
i
n
e
s
s
N O J O B IS SO
U RG EN T, N O TA SK
SO I M P O RTA N T,
T H AT W E D O N ’ T
TA K E T H E T I M E
TO D O O U R
J O BS S A FELY.
Clara Williams,
Maintenance Supervisor,
Chicago Heights, USA
20
Chairman’s statement
In 2018 we delivered record
results for the Group
We continue to focus
on succession planning,
recognising the importance
of nurturing talent and
bringing highly capable
people through the
business.
Revenue
£1,798.0m
2017: £1,683.9m
2018 1,798.0
2017 1,683.9
2016 1,401.4
John McDonough
CBE
Chairman
See our Financial review on p36-40
See more about our Governance in the
Governance section on p72-126
See more about our Values in Our principles
section on p53-55
Performance
In 2018, our reported revenue increased
6.8% to £1,798.0m and margins improved
to 11.0%, delivering reported trading
profit of £197.2m. These are record
results for the Group as we continued our
outperformance of underlying markets.
Our restructuring programmes continue
to be successful, delivering £14.0m of
incremental recurring cost savings during
the year.
Strategy
Following a full strategic review in 2018,
we remain confident that our strategy
continues to deliver sustainable
shareholder value. Now that Patrick André
is fully embedded as Chief Executive we
were thrilled to welcome investors and
analysts to our Capital Markets Day in
November to discuss our strategy and
showcase progress towards our target
of a 12.5% Return on Sales by 2020.
The Board remains very vigilant of the
potential risks to the Group–including
Brexit, and wider geopolitical and
economic conditions – and we continue to
monitor, assess and mitigate these risks
closely to protect shareholder value.
Vesuvius remains an intrinsically cash-
generative business and we continue to
focus on investment in our R&D capability
and organic investment in innovation to
drive customer demand.
Our dividend policy aims to deliver
long-term dividend growth, provided this
is supported by cash flow and underlying
earnings, and is justified in the context of
our capital expenditure requirements and
the prevailing market outlook. The Board
has recommended a final dividend of
13.8 pence per share (2017: 12.5 pence
per share). If approved at the Annual
General Meeting, this final dividend will be
paid on 24 May 2019 to shareholders on
the register as at 23 April 2019.
Board and governance
operations and meeting as many of our
people as possible. In 2018, the Board
visited sites in India and Poland, reviewing
our operations there and meeting our
people. We will continue to visit other sites
in 2019, increasing our knowledge and
remaining well connected with our teams
around the world.
The 2018 independent Board evaluation
confirmed that the Board continues to
function effectively. It remains well
balanced and diverse, with a strong
mix of relevant skills and experience.
Following the Financial Reporting
Council’s launch of the new Corporate
Governance Code in July 2018, the Board
is reviewing the Group’s governance
activities to ensure that we will continue
to remain fully Code compliant in 2019.
People and culture
We continue to focus on succession
planning, recognising the importance
of nurturing talent and bringing highly
capable people through the business.
The Board also fully supported the
management team’s roll-out of our new
company values – Courage, Ownership,
Respect and Energy – which will underpin
organisational culture and the continued
success of our strategy.
I remain impressed by how our leadership
teams and people go the ‘extra mile’ to
exceed our own and our customers’
expectations, and on behalf of the Board,
I thank them all.
Annual General Meeting
The Annual General Meeting will be held
on 15 May 2019. 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.
The Board places great importance on the
constant development of its understanding
of the Vesuvius business by visiting key
John McDonough CBE
Chairman
27 February 2019
Vesuvius plcAnnual Report and Financial Statements 2018
22
Chief Executive’s strategic review
We continue to implement our strategy to
grow our top line and optimise our costs
We continue to study further opportunities
for restructuring. These restructuring
programmes, due to their financial
attractiveness, will remain our first priority
in terms of capital allocation.
Thanks to this strong commercial and
operational performance, our global sales
in 2018 reached £1,798.0m, an increase
of 6.8% over 2017 on a reported basis.
On an underlying basis, our revenue was
up 10.7% as compared with 2017.
Our trading profit in 2018 reached
£197.2m, an increase of 19.1% as
compared with 2017 on a reported basis
and 24.1% on an underlying basis.
Our return on sales improved to 11.0%
in 2018 as compared with 9.8% in 2017.
Good cash generation and
solid financial position
Despite the important growth in our
turnover and increased capital investment
of £41.2m in 2018 versus £39.0m in 2017,
we maintained a cash conversion ratio
of 91% in 2018. This was made possible
thanks to our continued focus on working
capital management, with our working
capital to sales ratio decreasing to 23.9%
in 2018 versus 24.9% in 2017 and 26.6% in
2016. We are however still not satisfied
with this level of performance and intend
to focus on continued progression in 2019.
Our cash flow generation enabled
us to reduce net debt to £248.0m at
31 December 2018 versus £274.3m at
31 December 2017. Our net debt to
EBITDA ratio decreased to 1.0x at the
end of 2018.
In 2018, we achieved our
best results since becoming
an independent company
in 2012.
Strong operational and
financial performance in 2018
In 2018, we achieved our best
performance since becoming an
independent company in 2012.
In a globally favourable market
environment for both our steel and
foundry markets, our Flow Control,
Digital Services and Foundry business
units registered strong commercial
performances and continued to
outperform the general market growth
in terms of volume. In parallel, the pricing
of our products was successfully adjusted
to compensate for the sharp increase in
raw material prices which had negatively
impacted our performance in 2017.
On the operational side, the production
bottlenecks in our Flow Control European
manufacturing network, which had
also negatively impacted our 2017
performance, were completely eliminated,
resulting in a strong improvement in our
global manufacturing efficiency.
In 2018 we launched a new restructuring
programme, aiming to deliver £22.0m
recurring cash savings per year by 2021,
in addition to the £16.8m recurring cash
savings per year which remained to be
delivered under our previous programme
at the start of 2018. We remain fully
on track in the implementation of
these programmes and delivered an
incremental £14.0m recurring cash
saving during the year, which exceeded
our expectations.
Trading profit
£197.2m
2017: £165.5m
2018 197.2
2017 165.5
2016 133.3
Patrick André
Chief Executive
See our Financial review on p36-40
See Our strategy on p16 and 17
See more our Health and safety section
on p56-61
Total R&D spend*
£33.6m
2017: £32.6m
2018 33.6
2017 32.6
2016 29.6
* At constant 2018 currency.
Return on sales
11.0%
2017: 9.8%
2018 11.0
2017 9.8
2016 9.5
Lost time injury frequency rate*
1.3
2017: 1.6
2018 1.3
2017 1.6
2016 1.7
* Work-related illness or injuries which resulted in
an employee being absent for at least one day –
measured per million hours worked.
23
O
u
r
b
u
s
i
n
e
s
s
Acceleration of the delivery of
our profitable growth strategy
Improved safety performance
in 2018
We conducted a global strategic review
of our activities in 2018.
This strategic review led to the confirmation
of our 5 key execution priorities:
> Reinforce our technology leadership
> Increase the penetration of our
value-creating solutions
> Capture the growth in developing markets
> Improve our cost leadership and margins
> Develop our Technical Service offering
The review however also highlighted the
possibility of accelerating the delivery of
our strategic objective by:
> Reinforcing our presence in the
high-end, high-quality segments of the
steel and foundry markets, which are
growing faster than the average
markets and where our Flow Control
and Foundry solutions can play a
decisive role in supporting our
customers’ efforts to improve the quality
and performance of their finished
products. Our R&D and commercial
organisations are being reinforced
and focused to support this.
> Accelerating and intensifying our
efforts to optimise our manufacturing
cost base. Beyond the already
announced restructuring programmes,
several other potential optimisation
opportunities are currently being
studied, with the results of these studies
expected in the course of 2019.
> Adopting an entrepreneurial,
decentralised, non-matrix organisation,
to increase the speed of execution and
the level of energy across the Group.
This new organisation is now fully
operational and supported by the
introduction of our new Group CORE
values of Courage, Ownership, Respect
and Energy, and by the promotion of a
new generation of talented managers
to several key positions.
Thanks to these measures taken to
accelerate the delivery of our strategy,
we have set ourselves the target to reach
a sustainable Return on Sales level of
12.5% by 2020.
Our safety performance improved
markedly in 2018 with a lost time injury
frequency rate of 1.3 versus 1.6 in 2017
and 1.7 in 2016. This is the best result we
have ever achieved and highlights the
Group’s efforts to evolve rapidly towards a
global best-in-class organisation in terms
of safety. However, we also suffered the
fatality of one of our contractors at a site
in South America. For this reason, and
because the only acceptable objective is
zero accidents, we remain unsatisfied
with our safety performance and will
strive to continue making progress in
2019 and beyond.
Sustainability
As a Group we already have a low
environmental footprint, due to the low
energy intensity of our manufacturing
and our strategy of not being integrated
upstream in mining. We do however
continuously strive to operate even more
sustainably, and in 2018 we continued our
efforts to reduce waste generation and
energy consumption in our manufacturing
processes. In parallel , we maintained our
focus on developing new solutions to
enable our steel and foundry customers
to reduce their own energy consumption
and carbon footprint.
Outlook
Despite a moderate slowdown in growth
since the fourth quarter of 2018, we still
expect our main Steel and Foundry
markets to register a positive growth rate
in 2019, albeit at a lower level as compared
with the growth rates recorded in 2017
and 2018. In this environment, we plan
to continue growing our revenue and
accelerate and intensify efforts to optimise
our costs, to support our drive towards
further profitable growth. For these
reasons, the Board is confident that,
in comparison to 2018, further progress
will be made in 2019.
Patrick André
Chief Executive
27 February 2019
Vesuvius plcAnnual Report and Financial Statements 2018
24
Innovation
We build an environment across
the organisation in which creativity
is encouraged and can flourish
Artificial intelligence,
mechatronics, automation
and digitalisation all now
play an important role in
our research activities,
production processes
and the products and
services we provide to
our customers.
£33.6m
Total R&D spend*
2017: £32.6m
* At constant 2018 currency.
1.9%
% of Revenue
2017: 2.0%
15.4%
% of new product sales1
2017: 14.5%
1. Sales of products launched within the last
5 years as a % of total revenue.
Innovation culture and change
Without refractory materials most
of the technological inventions and
developments we know today would not
have been possible. Virtually everything
we use in everyday life, is in some way
dependent on the existence of refractories,
which are an essential part of the
successful operation of any industrial
process in which high temperatures are
used. The extensive application of
refractory today, across so many different
industrial processes, has and continues
to be a story of continuous innovation.
To meet the challenges of today and the
opportunities of tomorrow, Vesuvius has
integrated many new technologies into our
Innovation portfolio: Artificial Intelligence,
Mechatronics, Automation and
Digitalisation. These all now play an
important role in our research activities,
production processes and the products
and services we provide to our customers.
Our leading robotics technologies help
improve safety, reliability and consistency
in the application of our refractory and
sensors technologies at our customer
sites, generating refractory and process
data which, combined with predictive
algorithms, allows for the optimisation
of our refractory performance and real
time enhanced control of our customers’
processes to maximise the yield and
quality of their end products. Artificial
Intelligence is also now used to accelerate
our research and material development
process.
To maintain creativity and more
importantly to turn creativity into
innovation through the successful
commercialisation of new ideas, we strive
to build an environment across the
organisation in which creativity is
encouraged and can flourish. This implies
that individuals as well as the organisation
itself needs to be continuously challenged,
re-energised, recognised, rewarded and
provided with the best tools to achieve
its maximum potential.
The Group’s focus on adopting a new
entrepreneurial, decentralised, non-matrix
organisation, detailed elsewhere in the
report, also had implications for the
R&D organisation in 2018. Likewise,
the formulation of a new strategic plan for
each business unit, required a complete
review of our Innovation roadmaps.
This process dovetailed with the end of
the 5-year R&D plan, with most of the
existing initiatives completed or in
advanced stages of implementation.
Whilst much of what we have developed
and implemented in the last few years
has been maintained and reinforced in
the new innovation roadmaps, we have
also made the adjustments necessary
to reflect new aspects of each business
unit’s strategic plan.
Training remains a critical element,
ensuring that the innovation pillar of the
Vesuvius group strategy – reinforcing our
technology leadership – remains solid and
that the career development of our staff is
supported to ensure that we can deliver
the necessary progress. As we continue
with our Excellence programme in
innovation we also identify new areas
where training is required, both for newly
hired and existing staff to allow progress
on this excellence journey.
Alan Charnock
Chief Technology
Officer
25
25
O
u
r
b
u
s
i
n
e
s
s
V E SU V I US IS
B R I N G I N G T H E
N E X T G EN ER AT I O N
O F PRO D U C T S TO
O U R CUS TO M ER S .
We’re doing this by focusing R&D
activities on Centres of Excellence.
Devdutt Shukla
Global R&D Director, Advanced Refractories
Barlborough, UK
Vesuvius’ Advanced Refractories business unit assists our
customers with advancements in vessel performance
management
> Ergonomics and safety
Customised installations of Vesuvius
Portable Smart Robotic Systems
help our customers to provide a safe,
ergonomic working environment
for their maintenance operators
> Vesuvius’ commitment to service
Our team of automation experts
conduct training, modifications
and preventive maintenance
for customers using remote
access features
> Consistent application &
> Laser guided maintenance
predictable material consumption
Custom pre-programmed
installation parameters virtually
eliminate operator induced
variability in the tundish
refurbishment process
Complementing the consistent,
automated installation method
with Vesuvius Process Metrix
Lasers allows for targeted surface
refurbishment to extend the service
life of vessels
Vesuvius plcAnnual Report and Financial Statements 2018
26
Innovation continued
Structure, collaboration and
resources
At the beginning of 2018, we elected to
redistribute and embed the Group R&D
organisation directly within each business
unit, maintaining cross-fertilisation and
technical exchange between the business
unit R&D groups using ‘TechConnect’, our
communication and collaboration tool
developed over the last few years. We also
expanded our Technology Bridge concept,
where teams of experts across all business
units collaborate on our core technologies.
This approach now also covers Front-End
Innovation – where technologies, materials
and applications that are completely
new to the refractory world, are shared
between technologists from across the
entire organisation. This collaboration
stimulates ideas for the application of
these technologies in as many areas of our
business as possible. Being new to the
refractory world, Front-End Innovations
are naturally breakthrough technologies
and usually market disruptive in nature.
Thus, they involve significantly more risk
and longer-term research effort. The more
ideas for their application that we can
generate in advance, the easier it is to
justify the investment risk involved in this
type of research.
Pouring a steel casting using the
Hollotex Shroud
We also launched ‘Ideation Challenges’ in
2018, designed to increase networking
and creativity using our TechConnect
collaborative platform. This promotes
a collaborative brainstorming process
where technical challenges are posted
on the platform and members of the
technology community are invited to
contribute their ideas to accelerate the
resolution of the challenge.
2018 also saw our first Technology and
Innovation Meeting (TIME) where we
brought together a large portion of the
global Vesuvius R&D community for
extensive technology exchange, targeted
brainstorming exercises on specific topics
and networking. TIME was a great success
and will become a regular feature on the
R&D calendar as we foster a professional,
collaborative and interactive global
R&D community.
In addition to embedding Group R&D into
the business units, we have also made
some significant changes to the business
units’ R&D structures aimed at further
globalisation of our R&D.
In Advanced Refractories we closed the
Bettsville Facility in Ohio and moved the
staff and analytical facilities to Pittsburgh
which now houses teams from all three of
the business units. Advanced Refractories
R&D is now focused on three sites:
Pittsburgh, USA, Barlborough, UK and
Visakhapatnam, India. The research
groups in each of these facilities are the
Global Centres of Excellence (CoE)
for a specific area of our technology:
Pittsburgh focusing on basic monolithic;
Barlborough on bricks and tap hole clay;
and Visakhapatnam on alumina silicate
monolithic. Each facility also continues to
house a development group responsible
for regional support across all Advanced
Refractories technologies.
Flow Control is expanding the capabilities
of our research centre in Suzhou, China
to increase support for the Viso product
development, the largest product line in
the Group. Also in Ghlin, Belgium where
we have traditionally housed our systems
research facility, we are investing in a new
mechatronics and automation centre
for both Flow Control and Advanced
Refractories, consolidating the market-
leading robotic technologies of both
business units.
Vesuvius’ Foundry business unit facilitates advances in the pouring
of steel castings with a shrouded metal stream
The Czech foundry UNEX now applies
this shrouding principal to a range of
high-integrity and quality-demanding
castings. Dramatic quality and productivity
improvements have been achieved due to the
elimination of oxide and bifilm formation
within the casting process. In addition to the
improved surface quality of the castings,
there has also been a significant reduction
of X-ray and ultrasonic detected defects
experienced. Improved physical and
mechanical properties are achieved,
with notch toughness – that is the casting’s
ability to withstand an impact with a flaw
present – increased by up to twofold.
During the casting process, oxide films form
readily on the surfaces of the metal streams
coming from a bottom-pour ladle. Through
metal turbulence these films can become
entrained in the metal, initiating defects
in the casting and degrading its physical
properties. For many years continuous
casters of metals have been using a
shrouding process to protect the metal
streams during casting. Using technology
developed by Vesuvius, foundries are now
able to enhance their casting quality by using
a similar shrouding concept. The Foseco
Hollotex Shroud is a new product that creates
a seal between the nozzle and the shroud,
allowing the metal to flow from the ladle into
the shroud. The liquid metal passes through
the shroud and an integrated filter block, and
then into the casting cavity. The liquid metal
remains protected from exposure to air;
eliminating the potential for air aspiration
and the associated formation of oxide films.
27
O
u
r
b
u
s
i
n
e
s
s
Vesuvius Steel Flow Control ‘Ladle to Mould’ Solution
A European steel plant producing
high quality steel grades for use in
automobiles and packaging, was striving
to improve the quality, productivity
and yield of its production. Working in
partnership, with the customer, the
Vesuvius Solutions Group conducted
a full ‘Ladle to Mould’ evaluation and
simulation of the various products
and processes in use.
Measuring and recording the existing
mould flow characteristics using our
XMAT technology and thermal cameras
to monitor the filling of the tundish, the
Global Solutions Group then utilised their
computational fluid dynamic modelling
capabilities to propose changes to the
combination of products and the casting
process to improve the flow of molten
metal from ladle to mould.
Validation tests were conducted in situ
utilising the proposed new components to
assess their performance, and Vesuvius’
technology. The combination of new
products was shown to considerably
improve the steel quality level (both in
terms of cleanliness and defect rate),
achieving the standard for ‘food
packaging’ steel required by the customer.
The Vesuvius ‘Ladle to Mould’ solution
has now been permanently implemented
by the site.
Technology roadmap and KPIs
Our technology roadmap details both the
requirements for the successful delivery
of the existing project portfolio and the
areas where fundamental research is
required to make long-term new product
developments possible and practical,
therefore boosting NPS performance.
NPS%, our key R&D KPI, has continued to
steadily grow, with the NPS% reaching
15.4% in 2018 up from 14.5% in 2017.
There was a reduction from the original
targeted number of product launches in
2018 due to a deliberate shift of focus
and resources onto a smaller number
of important long-term new product
developments, which are now entering
industrialisation and are planned to launch
in H1 2019. The launch of these major
projects in 2019 will in turn release R&D
resources to move onto new projects
entering the pipeline.
Foundry R&D continues to operate from
three sites: the main site in Enschede,
Netherlands, which acts as the Centre of
Excellence for filters, feeding systems,
binders, coatings, metal treatment and
non-ferrous applications; Pittsburgh, USA,
the Centre of Excellence for non-ferrous
and foundry and crucible research; and
Feignies, France, the Centre of Excellence
for fused silica research.
All of these changes and the emphasis on
fundamental research and front-end
innovation require the ongoing
recruitment of additional research staff.
These increased internal resources
combined with expanded funding for the
external cooperation projects with our
partners, mean that we will continue
to increase our research spending to
maintain total R&D spend at c.2% of
turnover as our revenue grows. The
increased investment is expected to
maintain the growth of our NPS % KPI,
towards our target of a sustainable 20%
level. At the same time, we expect to
increase R&D productivity by a further
£2m of NPS revenue/year for each £1m of
R&D spend, ensuring that this increased
R&D investment delivers a higher level of
return to the business.
We expect to continue with a stable
level of IP filings. In 2018 we
maintained our portfolio at
155 families, 1,530 granted patents
and 590 applications pending.
‘Ladle to Mould’ configuration
Old process
New process
Mould level plots
Whilst we seek to avoid too many changes
in project prioritisation, new ideas continue
to arrive, with our New Product/Process
Ideation portal delivering over 100 new
ideas per year and we would absolutely
expect some of these to take priority over
those currently in the roadmap. It is this
process that will ensure the continuation of
refractories as an essential element in so
many industrial processes.
Whilst NPS% remains our key innovation
KPI, we track additional targets to ensure
the Innovation strategic plan delivers as
expected. In particular, we monitor the
level of effort/resources specifically
targeted for Breakthrough, key strategic
and front-end innovation projects, and the
results of these projects, which are those
expected to deliver increased sales
revenue at higher margins. Oversight of
the R&D activity has been increased
with bi-annual reviews by the full Group
Executive Committee in addition to
post-launch reviews of the new product
introduction projects. This ensures
adherence to the best project practices
and allows the organisation to learn from
past experiences.
Alan Charnock
Chief Technology Officer
27 February 2019
Vesuvius plcAnnual Report and Financial Statements 2018
28
Risk, viability and going concern
The Board continually monitors the internal
and external risks that could significantly
impact the Group’s long-term performance
There is a clear
understanding at Board
level of the individuals and
groups in the business
formally responsible for the
management of specific
risks and the mitigation in
place to address them.
Risk management in 2018
The Board’s oversight of principal risks
involves a specific review of the processes
by which the Group manages those risks.
This establishes a clear understanding at
Board level of the individuals and groups
in the business formally responsible for
the management of specific risks and
the mitigation in place to address them.
The Board also establishes the Group’s
risk appetite, considering the nature and
extent of the principal risks that the Group
should take.
The Board has overall responsibility for
establishing and maintaining a system of
risk management and internal control, and
for reviewing its effectiveness. The Group
undertakes a continuous process of risk
identification and review, which includes
a formal process, conducted annually
for mapping risks from the bottom-up,
with each major business unit, and key
operational, senior functional and senior
management staff identifying their
principal risks. This assessment undergoes
a formal review at half year. The results
are compiled centrally to deliver a
coordinated picture of the key operational
risks identified by the business. In
conjunction with this, each Director
contributes their individual views of
top-down strategic risks facing the Group
–drawing on the broad commercial and
financial experience gained both inside
and outside the Group. This review process
extends to cover both financial and
non-financial risks, and considers the
risks associated with the impact of
the Group’s activities on employees,
customers, suppliers, the environment,
local communities and society more
generally. As in previous years, in 2018
the Group’s assessment of principal risks
was also reviewed and considered
against this group of emerging risks
and uncertainties identified through
our Board review process.
Changes to risk in 2018
The Board believes that there has been no
material change to the Group’s principal
risks and uncertainties during the year.
However, the risk identified in our 2017
Annual Report as Quality, Health and
Safety, was further analysed during the
year and is now presented as two separate
risks in the table of Principal risks and
uncertainties – Product quality failure
and Health, safety and environment –
which each focus on separate issues with
different mitigation. The assessment of
both risks is that they were stable year-on-
year. In addition, the Financial Uncertainty
risk has been removed from the table of
Principal risks and uncertainties. This does
not indicate that the challenges of the
global economic situation have receded –
we still identify end-market risks,
Yaaresi Flores
Accounts Payable Analyst,
Monterrey, Mexico
29
O
u
r
b
u
s
i
n
e
s
s
protectionism and globalisation, and the
changing regulatory environment as
key areas for attention and mitigation.
However, the Board does not consider
that Vesuvius is exposed to the issues of
currency, interest rates, inflation or capital
availability in a way that is substantially
differentiated from other multinational
companies operating in our markets.
The Board continues to monitor the
implications of certain emerging
‘macro’ trends such as automation in
manufacturing, the increased focus on
sustainability and increasing digitalisation,
each of which could act as disruptors to
industry. Some commentary on these
areas is contained in the Our external
environment section on pages 10 and 11
of this Report. This Report also sets out,
on page 53, the work done in 2018 to
reinvigorate the Values of the Group.
These underpin our performance culture,
reflecting the Board’s understanding of
the challenges that could arise from a
failure by the Group to foster the correct
culture for success.
In addition to these wider trends, the
Board continued to focus on specific,
identifiable risks where those arose during
the year – the supply of quality raw
materials and the potentially disruptive
effects on global trade from increasing
geopolitical tensions, which we note in the
table of Principal risks and uncertainties.
Whilst 2018 was a strong year for our
underlying markets, the Board remains
alive to the challenges that could come
from a slowdown in trade.
Finally, the Board continued to monitor the
developing issues posed by cyber threats,
and received reports from the Group’s
multi-disciplinary committee appointed
to assess the Group’s controls in this area
and respond to emerging cyber trends.
As discussed above, the Directors’
views on each of the above issues,
and on emerging risks in general were
independently gathered and integrated
into the management discussions and
actions taken on risk.
Risk remains an integrated part of all
business unit presentations to the Board,
informing the Board of the approach
taken to risk management on a day to
day basis.
Brexit
Whilst at the time of writing the terms and
timing of the exit of the UK from the EU
remain uncertain, Vesuvius has analysed
the potential challenges posed by Brexit,
including a ‘no-deal’ or ‘hard’ Brexit, and
identified mitigation strategies to address
those challenges.
For our customers located in the EU28
countries, most of our products are
manufactured by Vesuvius outside the
UK, so we would not envisage a material
impact from Brexit. For those customers
located in the UK or located in the EU28
and supplied from our UK plants, we have
contingency plans and we are working
with these customers to meet their needs
in a cost-efficient way.
Risk mitigation
The risks identified are actively managed
in order to mitigate exposure. Senior
management ‘owners’ are identified
for each principal risk to manage the
mitigations of that specific risk and
contribute to the analysis of its likelihood
and materiality. This is reported to the
Board. The risks are analysed in the
context of our business structure which
gives protection against a number of
principal risks we face with diversified
currencies, a widespread customer base,
local production matching the diversity
of our markets and intensive training of
our employees. Additionally, we seek
to mitigate risk through contractual
measures. Where cost-effective, the risk
is transferred to insurers.
Resilience
In partnership with our risk management
advisers and our insurers, we seek to
identify the most effective means of
reducing or eliminating insurable
risks, through a combination of risk
management and the placing of
insurance cover.
Our Insurer Property Loss Control
Programme is based upon insurer loss
modelling and focuses on insured losses.
The insurer’s loss control engineers
Viability Process
Identify
Assess
Model
Report
Viability time horizon and
risk analysis framework
Principal risks
and stress scenarios
Viability against risk
scenarios, examining
probabilities and impacts
See Viability statement
Vesuvius plcAnnual Report and Financial Statements 2018
30
Risk, viability and going concern continued
undertake a series of on-site inspections
focused on machinery breakdown, fire,
natural catastrophe and other property
damage and business interruption risks.
These surveys yield a series of loss
reduction recommendations. The
execution of these recommendations is
agreed with site management and then
followed through to completion.
In parallel Vesuvius’ own loss management
programme focuses on strategic sites and
sites not covered by insurers. Assisted by
an independent consultant, we undertake
property loss control and business
continuity surveys using Vesuvius’ bespoke
risk and exposure-based protocol.
These reports yield further risk reduction
recommendations, and improvement
actions and timescales are agreed and
followed through by site management.
To support the Group’s loss control
activities, risk management workshops
are conducted covering loss prevention,
emergency planning, crisis management
and business recovery.
With regard to fire safety, for example,
the Group monitors all fire-related near
misses or minor dangerous occurrences.
Any fires including overheating, are
reported and analysed locally and by
senior HSE Management in order that
safety improvement initiatives can be
prioritised. Underlying causes are
established with detailed analysis
undertaken as a means of proposing
improvement priorities in order that
safety and process safety initiatives
can be targeted on a risk-assessed basis.
Internal control
The Group’s internal control system
is designed to manage, rather than
eliminate, the financial risks facing
the Group and safeguard its assets.
No system of internal control can provide
absolute assurance against material
misstatement or loss. The Group’s system
is designed to provide the Directors with
reasonable assurance that problems are
identified on a timely basis and are dealt
with appropriately.
The Audit Committee assists the Board in
reviewing the effectiveness of the Group’s
system of internal control, including
financial, 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.
Key features of risk management and internal control
Strategy and financial
reporting
> Comprehensive strategic planning and forecasting process
> Annual budget approved by the Board
> Monthly operating financial 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 financial control procedures
Operational controls
>
>
>
Operating companies and corporate offices 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 legal/regulatory issues
Use of common accounting policies and procedures and financial reporting software used in financial reporting and
consolidation
> Significant financing 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 significant 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 identification 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 notified of major issues and makes an annual assessment of how risks have changed
> Ongoing assurance processes by the legal function and Internal Audit including the annual certification process
> Externally supported ‘Speak Up’ whistleblowing line
Reviewing the effectiveness 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 financial 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-
certification exercise by which senior
financial, operational and functional
management certify the compliance
throughout the year of the areas under
31
O
u
r
b
u
s
i
n
e
s
s
their responsibility with the Group’s policies
and procedures and highlight any material
issues that have occurred during the year.
Since the date of this review, there have
been no significant changes in internal
controls or other matters identified which
could significantly affect them.
In accordance with the provisions of the
UK Corporate Governance Code, the
Directors confirm 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 confirm that the necessary actions
have been taken to remedy any control
weaknesses identified during the year.
Further detail regarding the Audit
Committee’s review of the effectiveness of
the Group’s risk management and internal
control systems is contained in the Audit
Committee report on pages 89 and 90.
Principal risks
The risks identified on pages 32 and 33 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 these pages could materially affect the
Group, its businesses, future operations
and financial 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 2021,
taking into account the Group’s current
position and the potential impact of the
principal risks and uncertainties.
The Directors have determined that
three-years is an appropriate period over
which to provide the Viability statement
because this is the Company’s planning
cycle and it is sufficiently funded by
financing facilities with average maturity
terms of approximately 5 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 business plan which includes a
review of sensitivity to ‘business as usual’
risks, such as profit growth and working
capital variances, severe but plausible
events and the impact these could have on
the Group’s debt covenants and available
liquidity. 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 identified by the Group,
the following were selected for enhanced
stress testing: an unplanned drop in
customer demand; debt recovery risk due
to customer default; business interruption
due to the unplanned closure of a key
plant; raw material price inflation;
reduction in earnings from increased
interest charges; and the impact of
volatility in foreign currency earnings.
The Group’s prudent balance sheet
management, flexible cost base to react
quickly to end market conditions, access to
long-term capital at acceptable financing
costs and well diversified international
businesses in different currency earning
profiles leaves it well placed 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, cash flow is
supported by 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 confirm 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 2021.
Furthermore, the Board believes the
Group continues to be well positioned
for success in the longer term because
of our exposure to end markets that are
growing faster than underlying global
GDP; our market-leading position that
is supported by ongoing investment in
innovation and R&D; our strong degree
of customer intimacy by virtue of around
a third of our employees working at
customer facilities; and the focus we
have on building quality teams with
clear organisational responsibility.
Going concern
The Directors have prepared profit
and loss, balance sheet and cash flow
forecasts for the Group for a period in
excess of 12 months from the date of
approval of the 2018 financial statements.
These forecasts reflect 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 financial 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 at least 12 months
from the date of signing these financial
statements. Accordingly, they continue to
adopt a going concern basis in preparing
the financial statements of the Group and
the Company.
Vesuvius plcAnnual Report and Financial Statements 2018
33
O
u
r
b
u
s
i
n
e
s
s
32
Risk continued
Principal risks and uncertainties
Strategic
Alignment
Deliver growth
Generate sustainable
profitability and
create shareholder
value
Maintain strong
cash generation
and an efficient
capital structure
Provide a safe
working environment
for our people
Be at the forefront
of innovation
Run top-quality,
cost-efficient
and sustainable
operations
Foster talent,
skill and motivation
in our people
See more about Our Strategy on p16-17
Risk
Potential Impact
Mitigation
Risk
Potential Impact
Mitigation
End market risks
Vesuvius suffers an unplanned
drop in demand, revenue and/
or margin because of market
volatility beyond its control
Strategic
alignment
Unplanned drop in demand and/or
revenue due to reduced production
by our customers
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 diversification of revenues
Product innovation and service offerings securing long-term
revenue streams and maintaining performance differential
Increase in service and product lines by the development of the
Technical Services offering
R&D includes assessment of emerging technologies
Manufacturing capacity rationalisation and flexible cost base
Diversified 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
and globalisation
The Vesuvius business model
cannot adapt or respond
quickly enough to threats from
protectionism and globalisation
Strategic
alignment
Restricted access to market due to
enforced preference of local suppliers
Highly diversified 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
businesses and manage customer relationships
Increased costs from import duties,
taxation or tariffs
Loss of market share
Trade restrictions
Cost flexibility
Tax risk management and control framework together with a
strong control of inter-company trading
Product quality failure
Vesuvius staff/contractors are
injured at work or customers, staff
or third parties suffer physical
injury or financial loss because of
failures in Vesuvius products
Strategic
alignment
Injury to staff and contractors
Product or application failures lead
to adverse financial impact or loss of
reputation as technology leader
Incident at customer plant causes
manufacturing downtime or damage
to infrastructure
Customer claims from product
quality issues
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 function controlling third-party
contracting
Complex and changing
regulatory environment
Vesuvius experiences a
contracting customer base
or increased transaction and
administrative costs due to
compliance with changing
regulatory requirements
Strategic
alignment
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
Increased internal control processes
Increased frequency of regulatory
investigations
Reputational damage
Compliance programmes and training across the Group
Internal Audit function
Experienced internal legal function
Global procurement category management of strategic
raw materials
Failure to secure
innovation
Vesuvius fails to achieve
continuous improvement in its
products, systems and services
Product substitution by customers
Increased competitive pressure
through lack of differentiation of
Vesuvius offering
Enduring and significant investment in R&D, with market-leading
research
A shared strategy for innovation throughout 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
Strategic
alignment
Lack of response to changing
customer needs
Loss of intellectual property
protection
Programme of manufacturing and process excellence
Quality programme, focused on quality and consistency
Stringent intellectual property registration and defence
Business interruption
Vesuvius loses production
capacity or experiences supply
chain disruption due to physical
site damage (accident, fire,
natural disaster, terrorism),
industrial action or cyber attack
Strategic
alignment
Loss of a major plant temporarily or
permanently impairing our ability to
serve our customers
Damage to or restriction in ability to
use assets
Denial of access to critical systems
or control processes
Disruption of manufacturing
processes
Inability to source critical raw
materials
Diversified manufacturing footprint
Disaster recovery planning
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
Dual sourcing strategy and development of substitutes
People, culture and
performance
Vesuvius is unable to attract and
retain the right calibre of staff, fails
to instil an appropriate culture or
fails to embed the right systems
to drive personal performance in
pursuit of the Group’s long-term
growth
Strategic
alignment
Organisational culture of high
performance is not achieved
Staff turnover in growing economies
and regions
Internal focus on talent development and training, with tailored
career-stage programmes and clear performance management
strategies
Contacts with universities to identify and develop talent
Stagnation of ideas and development
opportunities
Career path planning and global opportunities for high-potential
staff
Loss of expertise and critical business
knowledge
Internal programmes for the structured transfer of technical and
other knowledge
Reduced management pipeline for
succession to senior positions
Clearly elucidated Values underpin business culture
Health, safety and
environment
Injury to staff and contractors
Health and safety breaches
Active safety programmes, with ongoing wide-ranging monitoring
and safety training
Vesuvius staff or contractors are
injured at work because of failures
in Vesuvius’ operations, equipment
or processes
Manufacturing downtime or damage
to infrastructure from incident at plant
Inability to attract the necessary
workforce
Reputational damage
Strategic
alignment
Independent safety audit team
Quality management programmes including stringent
manufacturing process control standards, monitoring
and reporting
The arrows indicate the change in risk year-on-year
t
u Increased
t
u Decreased
tu Stable
Vesuvius plcAnnual Report and Financial Statements 2018
34 Vesuvius plc
Annual Report and Financial Statements 2018
S E C T I O N T W O
O U R
P E R F O R M A N C E
In this section:
Financial review
Operating reviews
Steel
36
42
42
42 Steel Flow Control
45 Steel Advanced Refractories
47 Steel Digital Services
48
Foundry
35
O
u
r
p
e
r
f
o
r
m
a
n
c
e
I A M PRO U D
TO S AY I WO R K
AT V E SU V I US .
Tsuyoshi Miki
BU Manager Steel, Japan
In my early career, I spent more than
25 years in high-end steel and metal
industries mainly within sales and
market development functions;
gaining experience of both the
domestic and global marketplace.
I joined Vesuvius in June 2018 as BU
Manager Steel in Japan. My role is to
bring change and deliver growth in
our business in the Japanese market.
I decided to join Vesuvius because I was
attracted by the sense of respect and
diversity it has, on top of my personal
connection with the steel and metal
industries. As a new employee I was invited
to attend the Spark Leadership Forum in
Rome, Italy, where I had the chance to
meet colleagues from all over the world.
I was able to exchange ideas and
opinions in very open and respectful
discussions with colleagues and also
senior management, about future
expectations and the importance of
the Japanese market.
Since then, I have been implementing a
series of actions to grow our business in
Japan with support from colleagues
all over the world and from the senior
managers I met in Rome. Vesuvius is a
dynamic, transparent and cooperative
organisation, where career progression
is considered the norm for those who are
focused and ambitious enough to take the
opportunities on offer. I am proud to say
I work at Vesuvius and would recommend
the Company to others.
Find out more about Tsuyoshi’s
career journey at Vesuvius.
Visit report2018.vesuvius.com
36
Financial review
Balance sheet strength provides the
required flexibility
The strength of our balance
sheet and cash generation
is key to our financial
flexibility and enables us
to take opportunities and
manage risk.
£1,798.0m
Revenue
Reported
+6.8%
Underlying1
+10.7%
£197.2m
Trading profit2
Reported
+19.1%
Underlying1
+24.1%
51.3p
Statutory EPS
Reported
+263.8%
11.0%
Return on sales2
Reported
+120bps
Underlying1
+120bps
Guy Young
Chief Financial
Officer
Basis of Preparation
Dividend
All references in this financial review are
to headline performance unless stated
otherwise. See Note 4 to the Group
Financial Statements on pages 136
and 137.
Introduction
We continued to build on our financial
strategy during 2018 and progressed
in particular with the stabilisation of
our European Shared Service Centre,
consolidation of our global finance
team, and reporting and control
improvements. Our focus to continuously
improve both service delivery and results
will remain, along with our commitment
to further improve working capital and
business efficiency.
2018 Performance overview
Strong end-market performance in 2018
has driven demand for our products in
both Steel and Foundry and we have
successfully outperformed the market
in terms of growth. Reported revenue
increased by £114.1m over the prior year
and by £172.2m on an underlying basis.
The restructuring programmes continued
to deliver during 2018 with a total of
£14.0m of incremental benefits reported.
The increased revenue and restructuring
benefits drove the higher reported trading
profit of £197.2m, which was 19.1% higher
than prior year. Return on sales for 2018 on
a reported basis at 11.0% was higher than
the prior year by 120bps. In a year of strong
sales growth, our cash management
performance was strong, achieving a 91%
cash conversion, due largely to a continued
focus on working capital management.
As a result, we have decreased our net debt
position and improved our leverage ratio
of net debt to EBITDA to 1.0x from 1.3x at
December 2017.
1. Underlying basis is at constant currency and
excludes separately reported items and the
impact of acquisitions and disposals.
2. For definitions of alternative performance
measures, refer to Note 4 of the Group
Financial Statements.
The Board has recommended a final
dividend of 13.8 pence per share to be
paid, subject to shareholder approval,
on 24 May 2019 to shareholders on the
register at 23 April 2019. When added to
the 2018 interim dividend of 6.0 pence
per share paid on 21 September 2018,
this represents a full-year dividend of
19.8 pence per share.
It remains the Board’s intention to deliver
long-term dividend growth, provided this
is supported by underlying earnings, cash
flows, capital expenditure requirements
and the prevailing market outlook.
Capital allocation
We believe that the ideal leverage ratio for
Vesuvius is somewhere between 1.25x –
1.75x net debt to EBITDA. This gives us a
reasonable comfort zone to be able to
cater for any potential economic down-
cycles. However, given we are currently
below this range at approximately 1.0x net
debt to EBITDA, it is increasingly relevant
to consider our capital allocation priorities.
In order of priority these are:
1. Organic growth. We have capital
expenditure and restructuring
programmes that we believe deliver
the best possible returns to our
shareholders.
2. Inorganic growth. We review
acquisition opportunities against a strict
set of assessment criteria, including:
strategic fit; margin relative to group
target return on sales of 12.5%; return
on capital.
3. Return cash to shareholders. In the
event that our organic and inorganic
growth opportunities leave us with
residual cash, we will seek to return
that to our shareholders.
Key Performance Indicators
We have identified a number of KPIs
against which we have consistently
reported. Details of the KPIs are provided
on pages 18 and 19. As with prior years,
we measure our results on an underlying
basis, which we adjust to ensure
37
O
u
r
p
e
r
f
o
r
m
a
n
c
e
Underlying revenue growth %
10.7%
2018 10.7
2017 12.5
2016 -4.0
Return on sales* %
11.0% +120bps
2018 11.0
2017 9.8
2016 9.5
* At constant 2018 currency.
RONA moving average* %
29.9%
2018 29.9
2017 24.2
2016 21.1
* For definitions of alternative performance measures,
refer to Note 4 of the Group Financial Statements.
appropriate comparability between
periods, irrespective of currency
fluctuations and any business acquisitions
and disposals.
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 2018, we have:
> Retranslated 2017 results at the FX rates
used in calculating the 2018 results
> Removed the results of the BMI
refractory installation business,
which was disposed of during 2018
Objective: Deliver growth
KPI: Underlying revenue growth
Reported revenue for 2017 was
£1,683.9m, which after FX translation
effects and removing the impact
of disposed businesses, equates to
£1,608.3m on an underlying basis.
The reported revenue in 2018 of
£1,798.0m, when adjusted for disposals
made, is £1,780.5m on an underlying
basis, which is an increase of 10.7%
year-on-year. The growth has been as a
result of stronger end-market demand,
selling price increases to offset raw
material and other cost inflation, and
business gains during the period.
Objective: Generate sustainable
profitability and create
shareholder value
KPI: Trading profit and return on sales
We continue to measure underlying
trading profit of the Group as well as trading
profit as a percentage of sales, which we
refer to as our return on sales or ‘RoS’.
Trading profit of £197.2m increased by
24.1% on an underlying basis versus last
year whilst RoS on an underlying basis was
11.0%, a 120bps improvement over 2017.
The improved trading profit is due in part
to the higher revenue, along with the
ongoing delivery of benefits from the
restructuring programmes.
In a globally favourable market environment
our Steel and Foundry Divisions registered
strong commercial performances and
continued to outperform the general market
growth in terms of volume. The pricing of
our products was successfully adjusted
to compensate for the sharp increase in
raw material prices which had negatively
impacted our performance in 2017.
Additionally, the production bottlenecks in
our Flow Control European manufacturing
network, which had also negatively
impacted our 2017 performance, were
completely eliminated. As a result, the Steel
Division recorded RoS of 10.4% in 2018, an
increase from 8.7% in 2017 whilst Foundry
reported a 12.3% RoS, another improvement
over the prior year (2017: 12.2%).
KPI: Headline PBT and headline EPS
Headline profit before tax (‘PBT’) and
headline earnings per share (‘EPS’) are
used to measure the underlying financial
performance of the Group. The main
difference between trading profit and
PBT is net finance costs.
Revenue
£m
Steel
Foundry
Total Group
Trading profit
£m
Steel
Foundry
Total Group
2018 Revenue
Acquisitions/
2017 Revenue
% change
As reported
(Disposals) Underlying
As reported
Currency
Acquisitions/
(Disposals)
Underlying
Reported
Underlying
1,236.7
561.3
1,798.0
(17.5)
1,219.2
—
561.3
(17.5)
1,780.5
1,148.7
535.2
1,683.9
(35.0)
(16.6)
(51.6)
(24.0)
1,089.7
—
518.6
(24.0)
1,608.3
7.7%
4.9%
6.8%
11.9%
8.2%
10.7%
2018 Trading profit
Acquisitions/
2017 Trading profit
% change
As reported
(Disposals) Underlying
As reported
Currency
Acquisitions/
(Disposals)
Underlying
Reported
Underlying
128.3
68.9
197.2
(0.7)
—
(0.7)
127.6
68.9
196.5
100.4
65.1
165.5
(3.7)
(3.1)
(6.8)
(0.4)
—
96.3
62.0
(0.4)
158.3
27.9%
5.7%
19.1%
32.6%
10.9%
24.1%
Vesuvius plcAnnual Report and Financial Statements 2018
38
Financial review continued
Operating profit £m
£164.5m +50.0%
2018 164.5
2017 109.7
2016 92.9
Headline earnings per share pence
49.6p +21.9%
2018 49.6
2017 40.7
2016 30.4
Statutory earnings per share pence
51.3p +263.8%
2018 51.3
2017 14.1
2016 21.1
Total R&D spend* £m
£33.6m +3.0%
2018 33.6
2017 32.6
2016 29.6
* At constant 2018 currency.
Net debt* £m
£248.0m
2018 248.0
2017 274.3
2016 320.3
* For definitions of alternative performance measures,
refer to Note 4 of the Group Financial Statements.
Net finance costs in 2018 of £11.1m were
£2.8m below 2017. The reduction in
finance costs was largely due to more
favourable terms secured on renewal of
our revolving credit facility at the end
of 2017.
Our headline PBT was £188.9m, 23.5%
higher than last year on a reported
basis. Including amortisation (£12.9m),
restructuring charges (£15.3m) and a
GMP equalisation charge (£4.5m), our
PBT of £156.2m was 60.9% higher than
2017. Headline EPS at 49.6p was 21.9%
higher than 2017.
KPI: Return on net assets (‘RONA’)
RONA is our principal measure of capital
efficiency. We do not exclude the results
of businesses acquired and disposed from
this calculation, as capital efficiency is an
important consideration in our portfolio
decisions. It is calculated by dividing
trading profit plus our share of post-tax
profits from joint ventures by our average
operating assets (property, plant and
equipment, trade working capital, interests
in joint ventures and associates,
investments, and other operating
receivables, payables and provisions).
As with most of our KPIs, we measure this
on a 12-month moving average basis
at constant currency to ensure that
we focus on sustainable underlying
improvements. Our RONA for 2018
was 29.9% (2017: 24.2%).
Objective: Maintain strong cash
generation and an efficient
capital structure
KPI: Free cash flow and working capital
Fundamental to ensuring that we have
adequate capital to execute our corporate
strategy is converting our profits into cash,
partly through strict management of our
working capital. Free cash flow from
continuing operations was £106.1m for
the year, £13.0m higher than last year
on a reported basis due to the improved
trading performance, partially offset by
the additional investment in working
capital to support our growing revenues.
Our cash conversion in 2018 was 91%
(2017: 104%).
We measure working capital both in terms
of actual cash flow movements, and as
a percentage of sales revenue. Trade
working capital as a percentage of sales in
2018 was 23.9% (2017: 24.9%), measured
on a 12-month moving average basis.
In absolute terms on a constant currency
basis, trade working capital increased by
£15.2m, well below the increase in sales,
whilst the continued focus on working
capital management has contributed to
an improvement as a percentage of sales.
KPI: Interest cover and net debt
As at 31 December 2018, the Group had
committed borrowing facilities of £573.7m
(2017: £563.4m), of which £119.2m was
undrawn (2017: £153.7m).
Net debt at 31 December 2018 was
£248.0m, a £26.3m decrease from 2017,
as a result of our good cash generation.
The main drivers of the decrease were the
impact of strong cash conversion partially
offset by restructuring costs, tax payments,
purchase of Company shares for the
Vesuvius Group Employee Share Ownership
Plan (‘ESOP’), and shareholder dividends.
The Group’s debt facilities have two
financial 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 that the Group has
sufficient financing available to run the
business and fund future growth. At the
end of 2018, the net debt to EBITDA ratio
was 1.0x, an improvement over last year
(2017: 1.3x) and EBITDA to interest was
22.8x (2017: 15.8x).
Further information on our finance costs
can be found in Note 9 to the Group
Financial Statements on page 142.
Unutilised committed debt facilities £m
Operating cash flow and cash conversion
£119.2m
2018 119.2
2017 153.7
2016 158.3
Cash generated from continuing operations (Note 12)
Add: Outflows relating to restructuring charges
Add: Net retirement benefit obligations
Less: Capital expenditure
Add: Proceeds from the sale of property, plant and equipment
Operating cash flow
Trading profit
Cash conversion
2018
£m
2017
£m
195.3
176.6
19.3
3.4
27.3
4.8
(41.2)
(39.0)
2.6
179.4
197.2
91%
1.8
171.5
165.5
104%
39
O
u
r
p
e
r
f
o
r
m
a
n
c
e
Objective: Be at the forefront
of innovation
KPI: R&D 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 significantly in research
and development. In 2018, we spent
£33.6m on R&D activities, an increase of
3.0% from 2017 on a constant currency
basis, which represented 1.9% of our
revenue (2017: 2.0%).
Financial risk factors
The Group undertakes regular risk reviews
and, as 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 proposed
mitigation. As referred to in the Viability
statement and Principal risks and
uncertainties sections on pages 31 to 33,
we consider the main financial risks faced
by the Group as being those posed by a
decline in our end markets, leading to
reduced revenue and profit as well as
potential customer default. We also
monitor carefully the challenges that come
from broader financial uncertainty, which
could bring lack of liquidity and market
volatility. Important but lesser risk exists in
interest rate movements and cost inflation,
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 risk is to
manage the Group’s exposure through
balancing our portfolio of business
geographically 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.
When considering other financial risks we
mitigate liquidity concerns by financing
using both the bank and private
placement markets. The Group also seeks
to avoid a concentration of debt maturities
in any one period to spread its refinancing
risk. The Group’s undrawn committed
bank facilities at 31 December 2018 were
£119.2m. Counterparty risk and customer
default are mitigated by our relatively
widespread customer base – with no
customer being greater than 10% of
revenue – and credit control procedures.
Other relevant financial
information
Restructuring
We continued to make good progress in
implementing our previously announced
restructuring programmes, with £14.0m of
incremental savings delivered in 2018. In
2018, we reported £15.3m of restructuring
costs (2017: £36.3m) within separately
reported items that were predominantly
made up of redundancy and plant closure
costs for the new programmes launched in
2018. The cash costs in 2018 were £19.3m
(2017: £27.3m). We are carrying forward
into 2019 a restructuring provision
of £17.4m.
Taxation
A key measure of tax performance is the
effective tax rate, which is calculated on
the income tax associated with headline
performance, divided by the headline
profit before tax and before the Group’s
share of post-tax profit of joint ventures
(2018: £186.1m, 2017: £151.6m).
The Group’s effective tax rate, based
on the income tax costs associated with
headline performance of £48.4m
(2017: £36.4m), was 26.0% in 2018
(2017: 24.0%).
The Board has decided to substantially
increase the amount reflected on our
balance sheet in respect of the previously
unrecognised value of our US tax losses
and other temporary differences.
In addition, the Board has decided to
reflect the utilisation of those assets in
offsetting our US taxable headline profits
as part of our headline tax charge,
rather than as part of the tax charge on
separately reported items in the Group
Income Statement. This has increased
the headline tax charge in 2018 by £7.8m,
increasing the effective rate of tax on
headline profit before tax and share of
post-tax profits from joint ventures by
4.2%. The Group’s prior year headline tax
charge has not been restated as the impact
is not material.
The Group’s effective tax rate is sensitive
to changes in the geographic mix of
profits and level of profits and reflects a
combination of higher rates in certain
jurisdictions such as India, Mexico,
Vesuvius plcAnnual Report and Financial Statements 2018Researcher inserts samples into scanning electron microscope (SEM) for imaging and elemental mapping
41
O
u
r
p
e
r
f
o
r
m
a
n
c
e
W E A R E
T R A NSFO R M I N G
O U R S T RU C T U R E S
TO S T R EN G T H EN
CO L L A B O R AT I O N .
This will enhance the level of understanding,
support and challenge provided to the
Group in driving performance.
Ian Lawson
Group Financial Controller,
London, UK
40
Financial review continued
Net defined benefit pension deficit £m
£15.3m -7.3%
2018 15.3
2017 16.5
2016 29.4
Germany and Belgium, a nil effective
rate in the UK due to the availability of
unutilised tax losses, and rates that lie
somewhere in between.
Other key factors impacting the
sustainability of the Group’s effective
tax rate are set out in Note 10.6 to the
Group Financial Statements.
The income tax credit on separately
reported items of £36.8m (2017: £18.0m
charge) comprises £2.8m non-cash
deferred tax movements relating to the
amortisation of a deferred tax liability
arising from the 2008 acquisition of
Foseco plc (2017: £6.0m), £1.8m tax
credits relating to restructuring charges
(2017: £4.3m), and a net increase in the
deferred tax asset recognised in respect of
US tax losses and certain other temporary
differences of £32.2m (2017: £28.3m
reduction). The reduction in deferred tax
asset in 2017 was largely caused by US tax
reform enacted in late December 2017 in
the form of the US Tax Cuts and Jobs Act
(‘TCJA’). However, this write-down did not
impact our headline earnings after tax,
as the change in the asset was reflected
through separately reported items.
We previously reported that we expected
the Group’s effective tax rate from 2018
onwards to be adversely impacted by US
tax reform, particularly the provisions of
the Base Erosion and Anti-Abuse Tax
(‘BEAT’). Our further analysis of these
provisions and the recently issued
guidance clarify that the impact of the
BEAT was not material to Vesuvius’
tax position. However, the new Global
Intangible Low-Taxed Income (‘GILTI’)
rules introduced as part of the tax reform
has had an impact on the tax position of
the Group and gave rise to an increase in
the headline tax charge of £2.4m in 2018,
increasing the effective rate of tax on
headline profit before tax and before
the share of post-tax profits from joint
ventures by 1.3%.
We expect the Group’s effective rate of tax
on headline profit before tax and before
the share of post-tax profits from joint
ventures to be around 28% in 2019.
The net tax credit reflected in the Group
Statement of Comprehensive Income in
the year amounted to £6.0m (2017: £3.1m
charge), comprising a credit of £7.3m
(2017: £nil) for additional recognition
of US pension deferred tax asset and
a £1.3m charge (2017: £2.4m charge)
related to tax on net actuarial gains and
losses on the employee benefits plan. In
addition, £nil (2017: £0.7m charge) related
to UK tax in respect of foreign exchange
differences arising on hedged positions.
Capital expenditure
Capital expenditure in 2018 of £48.4m
(2017: £44.3m) comprised £34.4m in the
Steel Division (2017: £34.0m) and £14.0m
in the Foundry Division (2017: £10.3m).
Capital expenditure on revenue-generating
customer installation assets, primarily in
Steel, was £7.7m (2017: £10.7m).
Pensions
The Group has a limited number of
historical defined benefit plans mainly
in the UK, US, Germany and Belgium.
The main plans in the UK and US are
largely closed to further benefit accruals
and 58.1% of the liabilities in the UK have
already been insured. The total net deficit
attributed to these defined benefit
obligations at the end of December 2018
was £15.3m (2017: £16.5m), representing
an improvement of £1.2m.
The improvement is driven by £5.1m
from changes to actuarial assumptions
(attributable to increasing discount rates;
updated mortality assumptions and
pension membership data) and £8.5m
from cash contributions and payments of
unfunded benefits; offset by additional
accrual and administrative expenditure
paid for the year of £9.8m (of which £4.5m
relates to a GMP equalisation charge),
and foreign exchange movements
of £2.6m.
The majority of the ongoing pension plans
are defined contribution plans, where our
only obligation is to make contributions,
with no further commitments on the level
of post-retirement benefits. During 2018,
cash contributions of £11.4m (2017: £12.6m)
were made into the defined contribution
plans and charged to trading profit.
Corporate activity
In October 2018 Advanced Refractories
divested its BMI refractory installation
business.
On 27 February 2019 the Group signed
an agreement to acquire the entire issued
share capital of CCPI Inc (“CCPI”),
a specialty refractory producer focused
on tundish (steel continuous casting)
applications (65% of sales) and aluminium
(35% of sales). CCPI is based in Ohio,
USA, and will become part of the Group’s
Advanced Refractories business unit.
The transaction values CCPI at US$43.4m
(£33.1m) on a cash and debt free basis.
The acquisition is expected to close within
the coming week.
Guy Young
Chief Financial Officer
27 February 2019
Vesuvius plcAnnual Report and Financial Statements 2018
43
O
O
u
u
r
r
p
p
e
e
r
r
f
f
o
o
r
r
m
m
a
a
n
n
c
c
e
e
B R E A K T H RO U G H
IS A WO R D W E A R E
LO O K I N G FO R O N
A DA I LY B A SIS .
As a research engineer, I design the new
technologies and products which will be
used by our customers tomorrow.
Benjamin Delattre
Research Engineer – VISO,
Feignies, France
42
Operating reviews
Steel
Division *
Steel Flow
Control
2018 Performance
Strategic highlights from the year
Our Steel Flow Control business unit
reported revenues of £662.6m in 2018,
an increase of 7.9% compared to 2017
on a reported basis, whilst underlying
revenue increased 11.5%. All regions
outperformed underlying steel production
volume growth in terms of both revenue
and volume growth. The Americas was our
fastest growing region, with underlying
revenues increasing 13.3% to £216.2m,
against a 3.3% increase in steel production
volumes. We outperformed in both
North and South America relative to
steel production, driven by market share
gains and selling price increases. Steel
production in EMEA increased by 1.4% in
2018, and Vesuvius outperformed the
market with underlying revenue up 10.0%
to £266.2m, reflecting both market share
gains and the effects of increased selling
prices to offset raw material and other
cost inflation. Underlying revenue
increased by 11.5% in Asia-Pacific in
2018 to £180.2m, compared to a 5.6%
increase in steel production volume in the
region. Revenue also increased faster than
underlying steel volumes in each of our
key regional markets of China and India.
£662.6m
Steel Flow Control revenue £m
2017: £614.2m
2018 662.6
2017 614.2
2016 513.1
Roel van der Sluis
President, Steel
Flow Control
Restructuring programmes and process
improvement initiatives
During 2018, we continued our focus on
cost leadership with our manufacturing
rationalisation programme in the NAFTA
region delivering improvements in our cost
base through a combination of increasing
plant efficiency and optimising production
volumes between plants.
We also started restructuring programmes
in new territories, like Brazil and India
where the projects identified are focused
on industrial efficiency.
In addition to these initiatives, we targeted
process improvements aimed at increasing
the quality and consistency of products,
for example in China, where we have
increased the level of automation of our
production process. Our optimisation
work performed here has allowed us
to increase cost-efficiency and create
capacity to absorb volume growth.
Global mechatronic business
Over the last few years, Vesuvius has
invested in developing a unique
competency in robotic solutions which
improve the safety and consistency of our
customers’ operations while supporting
our sales. Our unique value proposition
is the result of integrating Vesuvius
consumables and systems, and our
world-class knowledge of the continuous
casting process. Several steel makers have
been pioneers in adopting this technology,
delivering process efficiency and removing
personnel from the harsh environment
around the caster. In 2018, we saw an
increase in demand for robotics solutions
and received orders to convert steel
plants in Europe, Brazil and Turkey to this
technology. This positions Vesuvius well
in supporting our customers to face the
future challenge of automation and
underpins a greater focus on quality.
Vesuvius’ Steel Division
reported revenues of
£1,236.7m in 2018, an
increase of 7.7% compared
to 2017. On an underlying
basis, Steel Division
revenue was up 11.9%.
This higher growth rate relative to global
steel production is a result of three factors:
1. High exposure of Flow Control to
the fastest growing segment of the
steel market
2. Market share gains in Flow Control
3. Selling price increases in both Flow
Control and Advanced Refractories
mitigated by a decrease in market
share for Advanced Refractories in
some regions where priority was given
to selling price increases to offset
raw material and other cost inflation
On a reported basis, Steel Division trading
profit improved 27.9% year-on-year.
On an underlying basis, trading profit
increased 32.6%, with return on sales
increasing by 160 basis points.
*
Since 1 January 2018, some of the products
previously included under the Digital Services
business unit have been allocated to Flow
Control and Advanced Refractories. For this
reason, we have restated 2017 and 2016
financials to ensure comparability with 2018
performance. The overall Steel Division figures
are unchanged.
Vesuvius plcAnnual Report and Financial Statements 2018
44
Operating review – Steel Flow Control continued
Global digital services offering
Technical support
We continue to develop our technical
support offering, providing our customers
with a complete solution to help them
understand better the flow patterns of
steel into the tundish and the mould.
For example, for one European customer
we used our technical capabilities in
computerised flow modelling to redesign
their tundish and optimised the usage
of Vesuvius’ refractories to allow our
customer to produce higher quality steel –
enabling them to supply higher technology
products in a cost-effective way.
Our people
We continue our efforts to attract, develop
and retain the best talent worldwide.
We believe in diversity of talent, underlined
by our focus on ensuring our R&D network
is global and our team of P&L managers
is as international as possible. We have
also focused on our culture, introducing
our new corporate values and organising
our company around empowered,
accountable and results-oriented P&L
managers operating close to our
end-markets and customers.
Roel van der Sluis
President, Steel Flow Control
27 February 2019
In 2018, we further developed our
capabilities in digital services, with a
focus on providing our customers with a
complete solution for the collection and
analysis of data to improve the efficiency
of their continuous casting processes.
Our solution includes, for example,
continuous temperature measurement
sensors for the tundish and the mould,
as well as surface quality sensors.
Our equipment allows the customer to
monitor and control their continuous
casting process, optimising productivity
and yield whilst also improving the quality
and consistency of the steel produced.
Global mould flux business
During 2018 we have continued to develop
our flux feeding equipment, increasing the
level of automation, improving safety
around the caster and optimising the
consumption of mould flux. In addition,
further progress was made in the
development of a new type of mould
flux aimed at reducing corrosion of the
caster whilst improving steel quality.
Technological leadership
During the year, we accelerated our R&D
effort to support long-term profitable
growth. We launched a new family of
stirring devices which help our customers
to create a homogeneous temperature
and composition in the ladle and improve
the quality of steel. Significant progress
has also been made in developing our
next generation of ladle slide gates.
During the year we also commenced the
reorganisation and expansion of our
global R&D network, which will be focused
around three main R&D centres in the
US (Pittsburgh), Europe (Ghlin) and
China (Suzhou) operating under a
common leadership.
Steel Flow Control’s value-added solutions include:
> Refractories: Consumable ceramic
products to contain the flow of molten
steel e.g. ladle shroud and slide
gate refractory
> Systems: Mechanisms using ceramic
products that control the flow of
molten steel e.g. slide gate and
stopper mechanisms
> Robotics: Installing and replacing
Vesuvius’ consumables in very harsh
environments increasing the safety and
consistency of our customers’ operations
> Digital Services: Process control of the
continuous casting process including
mould level control, laser measurements
of the ladle and continuous temperature
measurement devices
> Technical support: Teams of experts
available to our customers helping them
with the design and modelling of the
molten steel through the continuous
casting process
Flow Control’s global R&D
network is focused around
three main R&D centres
in the US (Pittsburgh),
Europe (Ghlin) and China
(Suzhou) operating under
common leadership.
T H E SE A R E
E XCI T I N G T I M E S
FO R V E SU V I US .
I joined Chicago Heights at a time when
there was huge potential to make a
difference, at a facility that was changing
– I’m thrilled to be part of the team.
Marcus Cilfone
Operations Manager,
Chicago Heights, USA
45
45
O
u
r
p
e
r
f
o
r
m
a
n
c
e
Steel Advanced Refractories
During 2018 we continued to improve our value-added solution offering for our customers,
which includes refractories, installation technologies (including robots), computational
fluid dynamics capabilities and lasers.
£541.1m
Steel Advanced Refractories revenue £m
2017: £502.3m
2018 541.1
2017 502.3
2016 400.9
Tanmay Ganguly
President, Steel
Advanced
Refractories
2018 Performance
Strategic highlights from the year
Our Steel Advanced Refractories business
unit reported revenues of £541.1m in 2018,
an increase of 7.7% compared to 2017 on
a reported basis, whilst underlying revenue
increased 12.5%. The strong sales growth
was supported by selling price increases to
offset raw material and other cost inflation.
We achieved underlying revenue growth in
each of our key regions with the Americas
up 22.9%, EMEA up 8.6% and Asia-Pacific
up 8.7%. However, we experienced some
market share loss especially in North Asia
and in certain European countries as
priority was given to the selling price
increases to recoup raw material and
other cost inflation.
Restructuring programmes and process
improvement initiatives
We continued the review and improvement
of our manufacturing network,
reinforcing our operational excellence
and manufacturing operations. Following
the success of the manufacturing
rationalisation programme in South
America, similar initiatives were launched
in Europe and NAFTA delivering
improvements in the cost base through
a combination of increased efficiency and
adapting production volumes between
plants. As part of our restructuring
initiatives in North America, we divested
the BMI installation business in October
2018 to Reftech International. This
continued focus on operational excellence
allows us to reinforce our cost leadership
and the competitiveness of our
manufacturing network.
Vesuvius plcAnnual Report and Financial Statements 2018Our performance
46
47
Operating review – Steel Advanced Refractories continued
customers’ productivity, efficiency and
safety in the blast and reheat furnaces
and tundish operations, through new
and optimised monolithic formulations,
precast shapes and installation practices.
Our people
We continued our focus on attracting
the best talent everywhere in the world,
reinforcing our management team
and ensuring our organisation is run
by entrepreneurial, empowered and
accountable managers on the ground,
who are close to our end-markets and
customers. One of Vesuvius’ key strengths
is the strong relationship between
Vesuvius’ employees and our customers,
with the majority of our customer-facing
employees working every day at a steel
mill or aluminium plant. The knowledge of
the flow of molten metal of our employees
and their ability to understand our
customers allows us differentiation which
is intrinsic to us maintaining our position in
the market.
Tanmay Ganguly
President, Advanced Refractories
27 February 2019
Technological leadership
During 2018 we continued to improve our
value-added solution offerings for our
customers, which includes refractories,
installation technologies (including
robots), computational fluid dynamics
capabilities and lasers. We are
experiencing increased demand for our
refractory application robots, which
enable our customers to eliminate the risk
of human presence in dangerous working
areas and also the risk of human errors,
while at the same time improving the
quality of installation. At the same time
we have registered an increased interest
globally in laser measurements, which
allow customers to track the wear profile
of the refractories in use to enable
targeted repair, delaying the need for
costly full replacements.
In 2018, we continued to invest in our
global R&D network with the expansion
of our research facility in Visakhapatnam,
India to reinforce our presence in this key
market for our future growth, and to
enable us to better tap into the growing
talent pool of engineers and scientists in
the country.
New value-added solutions
In 2018, we accelerated our R&D effort
as we launched several additional new
value-added solutions. Our product
launches are focused on enhancing our
Advanced Refractories’
value-added solutions
include:
> Monolithics and shaped refractory
materials: (In both magnesia
(basic) and alumina silicate (acid)
formulations) supplied by Vesuvius in
the form of powder mixes, which are
spray-applied or cast onto the vessel
to be lined (i.e. monolithics) and in
the form of shapes (e.g. bricks,
pads, dams and other larger
precast shapes)
> Tap hole clay: A refractory mass
used to plug the tapping hole
at the base of a blast furnace.
When molten iron is ready to be
extracted from the blast furnace,
a drilling machine perforates a hole
through the solidified clay to start
the tapping process
> Installation technologies: Are key to
ensure the quality of the end product
and are critical for the installation
of refractory products in extreme
temperature environments
> Lasers: Help track the performance
of the installed refractories and
instruct the customer in advance,
when for example, a vessel becomes
unsuitable for use
> Computational fluid dynamic
capabilities: Are used by our
engineers to simulate the flow of
molten metal during the process of
steel-making, aluminium making,
etc. Our engineers help our
customers optimise their molten
metal flow by designing customised
refractory shapes to ensure the most
efficient flow dynamics
Steel Digital
Services
During 2018 we introduced
a number of new features
in our sensors, probes
and related instruments
which allow our customers
to meet increasing end-
product consistency and
quality demands.
The Digital Services business unit offers
digital products to our customers to make
their underlying processes more efficient
and reliable. Digital Services focuses on
providing products that enhance the
control and monitoring of our customers’
production processes, complementing
Vesuvius’ strong presence and expertise in
molten metal engineering to create new
technologies and integrate them into
expert process management systems.
The products provided by Digital Services
include temperature sensors, oxygen,
hydrogen and sublance probes, iron
oxide and metal sampling for the steel,
aluminium and foundry industries.
By using these technologies customers
can focus on critical parameters within
their processes, enabling them to refine
their production methods to improve
quality, lower production costs and
maximise efficiency.
2018 Performance
Digital Services generated revenue of
£33.0m, an increase of 2.4% year-on-year
on a reported basis. On an underlying
basis, revenue increased 10.8%. The
strong sales growth in the Americas was
due to market share gains and increased
penetration of our products. In EMEA,
our sales growth was impacted by Russia
where priority was given to improving
profitability. In Asia-Pacific, we continued
to increase the penetration of our products
in India, gaining market share with new
and existing customers.
Strategic highlights from the year
During 2018 we introduced a number of
new features in our sensors, probes and
related instruments which allow our
customers to meet increasing end product
consistency and quality requirements.
In 2018 we integrated the Digital Services
companies, ECIL Met Tec and Sidermes,
into the Group sales networks. This enabled
these businesses to access the wider
footprint of the Vesuvius customer base.
We also continued the restructuring
actions started in 2017 to optimise
our cost base and manufacturing
footprint for sensors and probes,
and to reduce operating costs.
We have also continued our investment
programme to increase automation
in our manufacturing processes.
Davide Guarnieri
Director, Group Digital Services
27 February 2019
£33.0m
Digital Services revenue £m
2017: £32.2m
2018 33.0
2017 32.2
2016 28.0
Tundish water modelling is used to
optimise the design of Vesuvius’ tundish
solution offerings
Platinum thermocouple loop for disposable
Sensors and Probes
Vesuvius plcAnnual Report and Financial Statements 2018Our performance 48
Operating review – Foundry
Foundry
Division
We continue to invest in our
team of technical experts
to provide to our customers
the best solutions and
advice on how to maximise
the efficiency of their
production processes.
2018 Performance
Foundry reported revenues of £561.3m in
2018, an increase of 4.9% compared to
2017 on a reported basis, whilst underlying
revenue increased 8.2%. On a reported
basis, our trading profit improved 5.7%
year-on-year. On an underlying basis,
trading profit increased by 10.9%, with
return on sales increasing by 30 basis
points. Our sales growth in 2018 benefited
from market share gains in the key product
lines of feeding systems, filters and
coatings as well as selling price increases.
Trading profit also benefited from the
ongoing organisational restructuring in
Europe and North America, which is now
focused on a rationalised, leaner structure.
However, overall profitability was
impacted by a time lag in selling price
increases to compensate for raw material
and other cost inflation, particularly in
North Asia. Fused Silica, a specialised
product line, also suffered from significant
market weakness in the fourth quarter,
particularly in China and EMEA, where
customers choose to delay purchases and
extend year-end maintenance shutdowns.
Underlying revenue in EMEA increased by
7.2% year-on-year as a result of growth
across the majority of foundry end-
markets with particular strength in general
engineering as well as some improvements
in our business at European steel
foundries, albeit from a low base.
In the Americas, despite weakness in US
light vehicle production, underlying
revenue increased by 15.3%, supported, in
particular, by growth in the heavy truck
and mining markets as well as increases in
iron casting output related to construction
and agricultural equipment. Furthermore,
we were successful in gaining market share
across all our key product lines aided by
several important new product launches.
In Asia-Pacific, underlying revenue
increased by 5.5%, with sales increasing
in all major markets. Our revenues in
China were up 7%, driven by growth in
engineering machinery and construction
and agricultural equipment, and
supported by successful new product
launches. In India, where our revenues
were only up 2%, we prioritised passing
through raw material and other cost
inflation, as well as managing customer
risk and optimising working capital.
£561.3m
Foundry revenue £m
2017: £535.2m
2018 561.3
2017 535.2
2016 459.4
Foundry’s value-added foundry solutions include:
> Feeding Systems: Our customised
insulating and exothermic feeding
systems allow for the efficient supply of
molten metal to key areas of complex
and/or large castings, and prevent liquid
shrinkage defects in the finished casting,
improving yields and productivity by
reducing the amount of molten metal
required per casting. In addition, our
exothermic feeding systems provide a
secondary heat source which can also
control metal cooling, minimising the
adverse effects of shrinkage during
solidification
> Filters: Remove impurities from the
liquid metal and reduce turbulence
during pouring
> Coatings: Protect both sand and
permanent moulds from the effects
of being filled with liquid metal
> Crucibles: Used in a wide range of
melting and holding applications
for non-ferrous alloys, particularly
aluminium, copper and zinc. Each of
these applications requires a crucible
with specific properties to maximise
productivity and minimise energy use
> Other products: These include binders
which are used to prepare the sand
moulds and cores, inoculants used for
ferrous and non-ferrous castings,
flux degassing equipment for removing
unwanted gas in liquid aluminium
and refractory materials used for the
transportation of liquid metal
Glenn Cowie
President, Foundry
W E USE O U R
D I FFER EN T
PER SPEC T I V E S
TO SO LV E ISSU E S .
Working together, we help move
the Company forward.
Branden Reber
Maintenance Journeyman,
Cleveland, USA
49
O
u
r
p
e
r
f
o
r
m
a
n
c
e
Strategic highlights from the year
Restructuring programmes and process
improvement initiatives
The organisational restructuring in North
America and Europe, which commenced
in 2016 and 2017 respectively, continued
through the year. With a focus on
rationalising our manufacturing footprint
and maximising capacity utilisation.
We also continued to focus on operational
excellence by implementing lean
improvement programmes at all our
plants, investing in robotic packaging
lines, other forms of automation in our
operations, and increasing global raw
material and product sourcing.
New value-added solutions
In 2018, our R&D efforts resulted in several
new product launches. During the year,
we launched two new feeding systems
– a high precision feeding system for
turbochargers and an innovative modular
design feeding system to be used in iron
and steel foundries.
We continued to develop our technical
services offering, and during 2018
we launched a new temperature
measurement system which increases
uniformity in iron quality, thus reducing
variation in the properties of finished
castings and ultimately enabling a
reduction in the number of waste castings.
We continued to invest in our team of
technical experts, especially in the
emerging markets of China, India and
Eastern Europe to provide to our
customers the best solutions and advice
on how to maximise the efficiency of
their production processes.
Increased penetration in selected
emerging markets
In China we emphasised the introduction
of new products, specifically designed for
the Chinese market and developed by
our local technical team. The launches of
our break-through feeding system and
customised coatings were particularly
successful and very well received by the
market, driving revenue growth with both
existing and new customers. In Mexico
we have successfully increased attention
on non-ferrous customers requiring
sophisticated and complex castings for
the aerospace industry.
Our people
We have continued to focus on succession
planning with several key new employees
joining during the year. We have also
invested time in selecting entrepreneurial
managers to strengthen our team and
drive future growth in the business. Each of
these initiatives delivered an improved
organisational culture and accountability,
while moving decision-making closer to
the customer and increasing our speed of
doing business.
Glenn Cowie
President, Foundry
27 February 2019
Vesuvius plcAnnual Report and Financial Statements 2018
50 Vesuvius plc
Annual Report and Financial Statements 2018
51
I EN J OY T H E FA S T
M OV I N G A N D
CH A L L EN G I N G
EN V I RO N M EN T AT
V E SU V I US .
I get to move from project to project,
working in locations all around the world.
Lynda Yaker
Audit Manager,
London, UK
S E C T I O N T H R E E
N O N - F I N A N C I A L
I N F O R M AT I O N
In this section:
Non-financial information statement
Our principles
Health and safety
Sustainability
People and community
52
53
56
62
66
N
o
n
-
fi
n
a
n
c
i
a
l
i
n
f
o
r
m
a
t
i
o
n
52
53
Non-financial information statement
Our principles
In accordance with the
requirements of the
Companies Act 2006,
Vesuvius presents
its Non-financial
information statement,
which forms part of the
Strategic Report.
The non-financial information
statement provides information on
the Group’s activities and policies in
respect of:
Further information, disclosed in other
sections of the Strategic Report, is
incorporated into this statement by
reference, including:
Environmental matters
See Sustainability p62-65
Information on the Group’s
principal risks
Company’s employees
See People and community p66-69
Social matters
See People and community p70-71
Respect for human rights
See Our principles p54
Anti-corruption and
anti-bribery matters
See Our principles p54
The statement also details, where
relevant, the due diligence processes
implemented by the Company in
pursuance of these policies.
Details of the Group’s principal risks
relating to these non-financial matters
are detailed in the Group’s schedule of
Principal risks and uncertainties on
pages 32-33
See Risk, viability and going concern
p28-33
Details of the Group’s
business model
See p14-15
Details of the Group’s
non-financial KPI’s
See p18-19
Working together with shared values
makes Vesuvius stronger
Vesuvius is a
geographically and
culturally diverse group,
employing nearly 11,000
people in 41 countries.
This geographical diversity places us close
to our customers across the globe, but also
highlights the importance of maintaining
and applying strong and consistent ethical
values in our worldwide approach to
business. Our employees’ engagement
with our values and culture is vital to our
success and the sustainable delivery of
the Group’s strategy.
Vesuvius has established a framework for
explaining and delivering the culture and
principles we consider to be fundamental
to our sustained success:
Values
Code of Conduct
Policies and procedures
Training
Monitoring and Evaluation
Performance improvements
Vesuvius’ Values
In 2018 we launched a new set of Values
for the Group: Courage, Ownership,
Respect and Energy. These CORE Values
are actively supporting the Group’s
priorities, encouraging consistent
behaviours across the Group in order to
sustain our business success in the future.
These values, and the described
behaviours underpinning them, convey
the mindset and attitudes we expect each
employee to actively demonstrate every
day. They are an expression of the culture
of the Group, promoting our image to
external stakeholders, and underpinning
the commercial promise we provide to
our customers.
These values were rolled out across all our
sites. They are prominently displayed as
visual reminders and they are reinforced in
our performance management systems,
ensuring they are firmly embedded in our
day-to-day conversations.
Our strength comes from our CORE
We are creating a culture of
energetic, empowered and accountable
entrepreneurs, courageously challenging the status
quo and driving sustainable growth.
With our CORE values we are telling the world who we are and what we stand for
Courage
> I systematically say, decide and do what
is right for Vesuvius including when it is
difficult, unpopular or not consensual.
Respect
> I demonstrate respect for other people’s
ideas and opinions even if I disagree
with them.
> I express my opinions openly during
discussions but I also defend group
decisions once they’ve been taken,
even if they do not correspond to my
initial position.
> I welcome open debate.
> I listen to others, foster esteem and
fairness with customers, suppliers,
coworkers, shareholders and the
communities where we operate.
> I proactively take leadership responsibility
on difficult projects and topics that are
important to the Group’s performance,
motivated by the perspective of success
rather than paralysed by the risk of
personal failure.
> I communicate my objectives clearly and
take time to explain all decisions. I behave
with the highest level of integrity.
> I promote diversity at all levels of the
company.
Ownership
> I am personally accountable for the
Energy
> I work hard and professionally in pursuit
consequences of my actions and for the
performance of the Group in my area
of responsibility or oversight, without
blaming external circumstances or the
actions of others.
> I demonstrate an entrepreneurial
spirit, looking for and seizing business
opportunities and I immediately address
problems that come up as soon as
I become aware of them.
> I manage the Group’s money and
resources as though they were my own.
of excellence.
> I constantly raise the bar and challenge
the status quo. For me, the sky is the limit.
> I lead by example, inspiring and
motivating my team to go the extra mile.
I promote a positive and energising work
environment. I continuously deliver
outstanding customer experience and
innovative solutions.
> I never underestimate competitors and
permanently strive to reinforce the
Group’s leadership position.
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial informationSample in preparation for differential scanning calorimetry at our R&D laboratory in Enschede, Netherlands
54
Our principles continued
Code of Conduct
Policies and procedures
Our Code of Conduct sets out the
standards of conduct expected, without
exception, of everyone who works
for Vesuvius in any of its worldwide
operations. The Code emphasises our
commitment to ethics and compliance
with the law, and covers every aspect
of our approach to business, from the
way that we engage with customers,
employees, the markets, and each of
our other stakeholders, to the safety
of our employees and workplaces.
Everyone within Vesuvius is individually
accountable for upholding its
requirements. We recognise that lasting
business success is measured not only in
our financial performance, but in the
way in which we deal with our customers,
business associates, employees, investors
and local communities. The Code of
Conduct is published in our 29 major
functional languages.
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
Government, society and local
communities
Conflicts of interest
Competitors
The Code of Conduct is available in
29 languages at www.vesuvius.com
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 on how this can
be achieved. Amongst these policies are:
Speak Up
Vesuvius employees can speak up
without fear of retaliation, either to
Vesuvius management or via independent
channels. A third-party-operated
confidential Employee Concern Helpline
(Speak Up) is available for employees
wishing to raise concerns anonymously or
in situations where they feel unable to
report internally. This independent facility
supports online reporting through a
web portal, or reporting by phone or by
voicemail. Ensuring global accessibility,
employees can speak with operators in
any of our 29 functional languages.
The helpline is publicised through local
language posters at each of our sites,
our internal website and during internal
compliance training. No Vesuvius
employee will ever be penalised or
disadvantaged for reporting a legitimate
concern in good faith.
Reports received via Speak Up channels
are managed by the General Counsel
and Compliance Director. When received,
reports are assessed for risk and category
of concern. All reports are investigated
following a protocol for review,
investigation, action, closure and
feedback independent of management
where necessary, but involving senior
business unit or HR management as
appropriate. For complex issues, formal
investigation plans are drawn up, and
support from external experts is engaged
where necessary. Feedback is recognised
as an important element of the Speak Up
process and we aim to provide an update
on all reports within 28 days of receipt.
Human Rights
The Group human rights policy reflects
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. It 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. These
principles have been integrated into the
work of our procurement teams as we
assess our suppliers and their business
practices. In compliance with the UK
Modern Slavery Act, the Group published
its third annual statement in May 2018.
Anti-bribery and corruption and working
with third parties
We engage with various third-party
representatives and intermediaries in our
business. We recognise that they can
present an increased anti-bribery and
corruption risk. Our procedure on working
with third parties clearly outlines our
zero-tolerance approach to bribery
and provides practical guidance for our
employees in identifying concerns and
how to report them. Vesuvius engages with
third-party sales agents, many of whom
operate in countries where we do not have
a physical presence. Our employees’ use
of, and interaction with, sales agents is
supported by an ongoing training
programme for those who have specific
responsibility for these relationships.
Data protection
Our data protection policy requires a
uniform approach in the handling of
personal data to manage the privacy
obligations of the Group. Everyone has
rights in respect of how their personal data
is handled. Our policy recognises that the
lawful and correct treatment of personal
data is vital to our continued success
in an increasingly regulated global
marketplace. During the course of our
activities we may collect, store and process
personal data about our staff, customers,
suppliers and other third parties. We are
committed to treating this data in an
appropriate and compliant manner.
Training
During the year we continued to develop
our training programme on the principles
contained in the Vesuvius Code of Conduct
and associated anti-bribery, corruption
and other compliance policies and
procedures. Training gives our employees
a clearer understanding of the scope of
risks that exist as we conduct our business
and gives context to how the Group
expects each one of us to respond to those
risks. In 2017, we launched an integrated
55
learning management system which
allows us to deliver Vesuvius-specific
e-learning modules to employees on topics
relevant to their role through an online
interactive platform. We have continued
to utilise this system during 2018.
Training provided during 2018 included:
> E-learning modules for gifts, hospitality
and entertainment, trade sanctions,
due diligence and role-specific data
protection modules
> Webex and video conference workshops
> Face-to-face training by the Legal and
Compliance team to staff at several
sites covering gifts, hospitality and
entertainment and trade sanctions
Our e-learning platform supplements the
face-to-face training provided to employees
by the Legal and Compliance team,
enabling us to reach more employees, more
quickly and in a more targeted way. In 2019,
we will continue to develop the training
processes and modules available.
Monitoring and evaluation
Alongside our training programme, we
assist employees with the implementation
and interpretation of the Group’s policies,
and their application through a process
of monitoring and evaluation. Part of this
process involves performing ongoing and
targeted due diligence and risk assessments
to inform our policy design and its application.
This forms part of our compliance
framework to ensure that our ethical and
legal approach remains fit for purpose
and is understood throughout the business.
Speak Up
We continue to monitor the volume,
geographic distribution and range of
reports made to the Speak Up facility
to ascertain not only whether there are
significant regional compliance concerns,
but also whether there are countries where
access to this facility is less well understood
or publicised. During 2018, the Audit
Committee continued to monitor and
oversee the Group’s procedures for
reporting allegations of improper
behaviour, and throughout the year
received updates on the nature and volume
of reports received from the confidential
Speak Up Helpline, key themes emerging
from these reports and the results of any
investigations undertaken. In 2018, we
received 21 reports (2017: 76) through the
Speak Up facility. Each one of these was
investigated. Similar to 2017, a substantial
majority of reports received in 2018 were
human resource issues which indicated no
compliance concerns, nor serious
breaches of the Code of Conduct. Of the
small number of reports received that
contained allegations in breach of our
Code of Conduct, thorough investigations
were performed and, where appropriate,
disciplinary action taken, including
individuals leaving the Group as a result.
Prevention of slavery and human
trafficking
During 2018 we published our third
transparency statement outlining the
Group’s approach to the prevention of
slavery and human trafficking in our
business and supply chain. A copy of our
latest statement is available to view on
our website www.vesuvius.com. Since the
publication of our first statement we
have conducted a risk assessment of our
purchasing activities, seeking to identify,
by location and industry, where the
potential risks of modern slavery are
highest. Our assessment identified the
following four industries that pose a higher
risk of modern slavery for Vesuvius:
1. Mining and Extractive industries
(raw materials)
2. Textiles (personal protective equipment
(PPE) and work clothing)
3. Transport and packaging
4. Maintenance, cleaning, agricultural
work and food preparation
(contracted workers)
To ensure effective communication of our
Human Rights Policy and output of our
Modern Slavery risk assessment we
provided face-to-face training to our key
purchasing staff and continue to use an
online e-learning module to upgrade the
training given to all supplier-facing staff.
This provides key guidance on the red
flags associated with modern slavery to
assist them in identifying these during
supplier visits and accreditation.
Working with third parties
During 2018 the Group continued the
review of our third-party representatives
and intermediaries. Following the 2017
enhanced review of sales agents we
extended our review to the work of our
custom clearance agents. This included
a detailed review of our due diligence
activities on active custom clearance
agents across the Group. This process
covers reputation, public information
searches, regulatory searches and activity
review. The review of our due diligence
processes will continue to be extended
using a risk-based approach during 2019
and beyond.
During the year we also completed our
global training programme with those
employees who have responsibility for our
sales agents and provided such employees
with face-to-face enhanced Anti-Bribery
training. This included applicable policy
and procedure training, the identification
of red flags and interactive case study
sessions. Such training will remain a
continuing part of our compliance
programme.
Data protection
In 2018 we continued to review our
approach to data protection, following the
implementation of the EU General Data
Protection Regulation (GDPR) in May
2018. Further due diligence was undertaken
with the appointed Data Protection
Officer (‘DPO’) and European legal
entities, clarifying the data we control
and process both globally and locally
in Europe, the methods by which we do
this, the security of the systems that
hold our data and the assignment of
responsibilities for responding to this.
Annual self-assessment GDPR audits
have been prepared and will be rolled
out on each anniversary of GDPR
implementation and thereafter to assess
and ensure continued compliance with
data protection legislation. We have
identified further upcoming changes in
data protection legislation in California,
Brazil and India and are working with local
teams to ensure our approach to data
protection is compliant with these
changes. The DPO is also responsible
for raising awareness of data protection
issues across the Group, supervising
privacy impact assessments and training
staff who undertake roles that involve
the processing of data. Specific data
protection training for IT and other
targeted professionals was provided
through e-learning in 2018.
Other due diligence
The Group continues to undertake
focused, country – and function-specific
risk assessments, reviewing financial
records and the quality of implementation
of our policies and procedures, often
engaging the assistance of external
advisers. The outputs of these
assessments are used to identify activities
that require further improvement, ensure
that our Group policies and procedures
for the management of anti-bribery and
corruption risk continue to be appropriate
for the business, and ensure that within our
business there is the necessary awareness
and understanding to be able to manage
risks appropriately.
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information
56
Health and safety
The Group is striving to become a best-in-class
organisation for safety performance
We remain fundamentally
committed to protecting
the health and safety of
employees, contractors,
visitors, customers and any
other persons affected by
our activities.
Health and safety is identified as one of
Vesuvius’ key strategic objectives, and our
commitment to health and safety is
embedded throughout the organisation.
Our ethos is to identify, eliminate, reduce or
control all workplace risks, and an ongoing
system of training, assessment and
improvement is in place to focus on achieving
this. In 2018, despite achieving our best
overall safety performance since demerger,
with a lost time injury frequency rate of
1.3 per million hours worked, a third-party
contractor working at one of our premises
was fatally electrocuted – a grave reminder
that there is still much work to do on safety.
As a result of this incident we conducted a
complete review of the working practices
and procedures related to contractors,
issuing a ‘red stripe’ alert to all employees.
All related internal standards were updated
and reissued.
Safety Breakthrough
Safety Breakthrough is our global
initiative to reduce the number of
accidents, fires and lost time injuries,
and to increase safety awareness
through greater employee
engagement. Our aim is to raise health
and safety performance to best-in-
class levels throughout our business,
attaining the lowest level of accidents
within our industry sector with the target
of reaching zero accidents throughout
Vesuvius. This applies to all Vesuvius
employees, whether working at one of
our facilities or located on a customer
site. The specific focus on customer
location safety continues to yield results
not only for our employees but also
our customers’ employees, helping to
support the strong relationships built
between customers and Vesuvius.
Changes were also made to the relevant
local management team to strengthen
management supervision and control.
Safety leadership
Safety performance remains the priority
item on the agenda at all our Group
Executive Committee and management
meetings, and safety performance is
reported to the Board by the Chief
Executive as a matter of priority at each
Board meeting. The Group Executive
Committee reviews all of the more serious
incidents, including all lost time injuries,
and the responses to these from local
management. The Group remains
fully committed to continuing safety
improvement with a Group health and
safety policy stating a clear goal of:
> No lost time injuries
> No repeat injuries
> No harm to our people or contractors
Health and safety responsibility
and accountability
The business units are directly accountable
for their health and safety performance,
with each business unit determining its own
priorities and resource allocations. Health
and safety performance is included in the
objectives and linked to the remuneration
of all senior managers. It is regarded as a
core management responsibility, with
executives and line managers directly
accountable for health and safety matters
in the operations under their control. This
tone from the top is demonstrated by the
requirement for all senior managers to
perform executive safety tours, report on
their findings to local operations
Our approach to health and safety is based on the following beliefs
1.
2.
3.
4.
Good health and safety is
good business
Safety is everybody’s
responsibility
Working safely is a condition
of employment
All work-related injuries
and work-related ill-health
are preventable
57
Vesuvius employees and contractors
must carry out a Risk Assessment
and obtain a Permit to Work for
non-standard activities, to ensure
risks have been properly identified
and evaluated, and a safe work
procedure defined.
methodology, they must then incorporate
findings into their site safety improvement
plans and share their incident investigation
and action plans across the Group.
Health and Safety Policy
and standards
All employees are required to adhere to
the Group’s Health and Safety Policy and
Alcohol and Drug Policy. Copies of the
policies signed by all members of the
Group Executive Committee are
translated into local languages and
displayed prominently in all locations.
The Health and Safety Policy is supported
with standards, procedures and ISO
certifications, which are reviewed and
updated on an ongoing basis. In 2018, a
new standard was created relating to the
safe storage of bulk bags and pallets of
bags, and the standards relating to the
Control of Contractors and the Inspection,
Maintenance and Testing of Fixed
Electrical Installations were reviewed
and updated. The findings and lessons
learned from incident investigations are
incorporated into updates to prevent
any reoccurrence and new or improved
standards are issued for implementation
across the Group.
Vesuvius health and
safety standards
> Accident & Incident Reporting
> Business Continuity
> Control of Contractors
> Crisis Management & Crisis
Communication
> Ergonomics Standard
> Fork Lift Truck Safety
> Gas Standards
> Inspection Maintenance and Testing
of Fixed Electrical Installations
> Legionella
> Lock,Tag and Try
> Machine Safety
> Permit to Work
> Planning
> PPE Minimum
> Risk Assessment
> Road Vehicle
> Safe Storage of Bulk Bags and
Pallets of 25kg Bags
> Working Safely with Fibres
management and follow up on
improvement requirements. In this
structure all employees understand that
they have a responsibility to take care of
themselves and others whilst at work.
We expect everyone to participate
positively in the task of preserving
workplace health and safety.
The Group Vice President HSE and
Quality is responsible for setting the
Group’s policies for health and safety and
controlling their application, with the
business units taking full responsibility for
their implementation and accountability
for performance against them.
Every business facility has an appointed
health and safety manager, who works
with management and all employees
to review site health and safety, assess
training needs and develop and
implement site safety improvement plans.
These local health and safety managers
are assisted by central experts who not
only identify adverse trends and respond
to them, but also enable the sharing of
best practice across Vesuvius.
Accountable management for
safety performance
Site safety improvement plans are
now in place for all production sites
with implementation being the direct
responsibility of local managers.
Any site experiencing a serious dangerous
occurrence or medically treated injury
is required to investigate using 8D
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information
58
Health and safety continued
Health and Safety highlights
Awards
In our Customer’s plant in Huachipato (Chile)
we received an award from the customer for
our results in HSE and for the outstanding HSE
systems we have in place.
Foseco India Ltd in Pune was recognised by the
Deccan Chamber of Commerce Industries and
Agriculture-Pune( DCCIA -Pune) for ‘Excellence in
Best Safety Practices –2018’. DCCIA recognised
our unique safety practices, overall safety culture,
the commitment of management to safety, and
the efforts of employees in this regard, along
with our continuous journey towards safety
improvement.
ArcelorMittal South Africa ,Newcastle Works
recognised Vesuvius for an exceptionally good
safety performance.
Vesuvius India received awards from TATA
including the award for best safety practices in
runner management, best safety model, best
safety Kaizen and best safety performance.
Essar awarded Vesuvius their trophy for
consistent performance in health and safety.
JSW recognised Vesuvius for best safety practices
in runner management, best performing safety
contractor and best contractor employee
performance in safety for 2018.
Vesuvius Health and Safety Policy
We will operate all work and business
activities in a manner which ensures
the health and safety of employees,
contractors, visitors, customers and
any other persons affected by these
activities.
We will comply with the legal health
and safety obligations.
We will be pro-active in preventing
injuries and ill-health, and continuously
improve our H&S systems and
performance.
Organisation and Responsibilities
We regard health and safety matters
as a mainstream management
responsibility. Executives and line
managers are directly responsible for
health and safety matters in operations
under their control. Management is
accountable for H&S performance
against objectives.
All employees have a responsibility to
take care of themselves and others
whilst at work. We expect everyone
to participate positively in the task of
preserving workplace health and safety.
We will encourage our Suppliers to
adhere to the same Health & Safety
standards as we do.
Our Beliefs
> Good Health and Safety is Good
Business
> Safety is everybody’s responsibility
> Working safely is a condition
of employment
> All work-related injuries and work-
related ill-health are preventable
Our Aims
> No Accidents
> No Repeat Injuries
> No Harm to People
Our Commitments
> Every business facility will follow the
agreed H&S plans
> We will thoroughly investigate any
incident to learn, share and avoid
repeats
> Risk assessments will be undertaken
to identify hazards, prioritise any
deficiencies and correct them in an
appropriate way as well as to develop
appropriate safe work procedures
> We will abide with simple and
non-negotiable standards
> We will provide Training for all
employees and contractors to
ensure that they understand their
responsibilities and are able to act
accordingly
> Every business facility will have an
appointed H&S Manager
This policy has been approved by
the Group Executive Committee
and is displayed and
implemented at all facilities.
The Group Executive Committee
Version 2.0.6, 10/2018
59
Health and safety certifications
We have 11 sites certified to OHSAS
18001:2015, eight (14%) manufacturing
sites and three Vesuvius operations in
customers. Vesuvius sites choose to
certify based on local regulatory and
customer requirements.
Training employees to
work safely
Turbo S training pulls together all of our
safety management practices. Using a
train-the-trainer approach, Turbo S
training sessions are tailored to the
audience and their activities. For example,
there is a special training course
developed for employees at customer
locations that focuses on the specific risks
faced by these individuals. We conduct
Permit to Work training in all Group
facilities, including customer locations,
which ensures that all non-standard work
conducted in our facilities, whether by our
employees or contractors, is the subject of
a pre-commencement risk assessment
and a formal permission to commence
activity, setting out the safety
requirements. We have developed
machinery safety training with an outside
industry leader, Pilz GmbH & Co,
a company specialising in safe automation
technology. We are now extending
recognised best practices throughout
the Group through a series of machinery
assessments and training programmes
with each site identifying and addressing
the top five issues by severity as a matter
of priority.
Working in tidy plants
The continuing use of 5S, the workplace
organisation method, throughout
the Group has driven significant
improvements in our workplace
environment. Employees are encouraged
to develop ownership of their working
areas and take pride in their cleanliness
and organisation. The added support
of our lean specialists has been key to
improving plant safety by removing
hazards for employees and offering
a clear, bright and safe working
environment. Regular 5S audits led
by team leaders ensure continuous
improvement of working conditions
and promote a safer workplace.
Training activities undertaken in 2018 for our employees and
contractors included:
> 5S
> ISO 45001:2018
> Arc flash hazard training
> Legionella
> Control of Contractors
> Lock, Tag and Try
> Environmental Waste Reporting
> Incident and Performance reporting
> Ergonomics
> Machine Safety
> Executive Safety Tour Leader
> Permit to Work
> Fire Fighting
> First Aid
> Practical Safety in Steel Customers
> Radiation
> General Health and Safety and refresher
> Safe Stacking
training
> Hazard Perception
> Hazardous Goods
> Health and Safety Representatives
And in relation to vehicles
> Bike Safety
> Defensive Driving
> Fork Lift Truck
Turbo S
Turbo S, as part of our Safety
Breakthrough initiative, builds on the
foundation of Safety Breakthrough
and includes a strong focus on the
standardisation of all our repetitive
activities. Turbo S also integrates good
management practices in the workplace,
with a strong emphasis on developing an
organisation that enables everybody
to work to the same high standards in
safety performance.
> Steel mill orientation
> Safety and Environmental Auditing
> Turbo S Safety and Safety Leadership
> Working at Heights
As part of the continuing Turbo S initiative:
> Senior executives regularly lead safety
tours at all locations
> Severe accidents are formally reviewed
by the Group Executive Committee
> Employees are routinely engaged in
safety audits
> We invest significantly in safety training
for all employees, irrespective of their
role and function within our business
> All employees are expected to routinely
raise and implement safety
improvement opportunities; we focus
on the number of implemented ideas
> Safety standards are continually
updated, translated and deployed
throughout the Group
> All injuries and dangerous occurrences
are analysed locally, with a formal
presentation of findings, root causes and
improvement actions cascaded through
management
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information
60
61
Health and safety continued
Health and safety auditing
In 2018 a new central safety auditing team
was established, reporting to the Vice
President HSE and Quality. Its main
purpose is to verify the deployment and
ongoing application of the Group’s
standards and policies in our locations
(including manufacturing sites,
warehouses and R&D facilities) and the
customer locations in which a significant
number of our employees operate daily.
This team will systematically audit Group
locations worldwide against these policies
and standards, and will include an
assessment of each site’s HSE leadership.
In doing this they will contribute to the
ongoing improvement of Vesuvius’ health
and safety standards by combining their
experience from other industries, the
observations made during audits, and the
application of risk-based improvements in
response to external developments on a
consistent Group-wide basis.
The Group HSE audit team will report the
results of audits as well as the progress of
action plans addressing the most critical
issues to the Board.
Executive safety tours
The executive safety tours carried out by
senior managers provide visible safety
leadership on the shop floor in our sites
and at our customer locations. These,
along with our daily safety audits, are a
pillar of our Safety Breakthrough initiative.
In 2018, 115 Executive Safety Tours, of
which seven were in customer locations,
were carried out by members of the Group
Executive Committee and their direct
reports.
Accident and incident reporting
and analysis
A significant investment in time and
resources has been made over recent
years to develop robust, comprehensive
and timely reporting of incidents (including
all fires, explosions and any material spill or
other chemical releases). In our internal
standards, we continue to use more
stringent definitions for lost time injuries
(LTIs) and ‘severe accidents’ than the
definitions used by many regulatory
bodies. As the number of lost time injuries
sustained in the organisation fell, we
introduced reporting on Medically Treated
Injuries to maintain the focus on safety,
with investigation extended to all serious
dangerous occurrences and all Medically
Treated Injuries.
In 2018, there was tragically one fatality of
a contractor working at a Vesuvius site. In
addition, 37 LTI’s were reported which
resulted in 2,132 lost days, and gave an LTI
frequency rate for the year of 1.3, a marked
reduction versus the 1.6 recorded in 2017
The LTI frequency rate for the 782
contractors who worked for us during the
year was 0.65.
200 medically treated injuries (‘MTI’s) were
reported in 2018 out of a total of 491 injuries
reported, resulting in an MTI frequency rate
of 7.26. One additional MTI recordable was
reported in respect of contractors giving a
contractor recordable MTI frequency rate
of 1.30. There was also one other medically
treated injury reported in relation to a
contractor, a total for three contractor
accidents.
We have actively been encouraging the
reporting of all dangerous occurrences and
injuries as only through reporting, sound
root cause analysis and preventative action
plans, can future occurrences be prevented.
As a consequence, there was an increase in
the number of dangerous occurrences
reported in 2018 to 649 (2017: 409).
Vesuvius’ investigation procedures are
based on the 8D Practical Problem Solving
(‘8D’) tool, which aims to identify the true
root causes of incidents to prevent a
repeat. Results are formally presented to
management, with details of the 8D-based
root causes and improvement actions
cascaded throughout the organisation.
Based on the analysis of the kind of
accident, type of injury and parts of the
body affected, the businesses develop
risk-based action plans that consider both
the frequency and severity of incidents and
track progress. Every site management
team receives a monthly dashboard of
health and safety related performance
indicators covering both lagging and
leading metrics.
As part of management reporting, the
Board receives a detailed monthly update
on all lost time injuries.
Executive Safety Tours carried out
in 2018
Vesuvius 8D Practical Problem Solving Methodology
115 Executive
Safety Tours
115 Executive
Safety Tours
China
China
Europe
Europe
India
India
NAFTA
NAFTA
North Asia
North Asia
South America
South America
South Asia
South Asia
D1
D2
D3
D4
D5
D6
D7
D8
clarify the problem
grasp the current situation
contain and set target
analyse causes
define countermeasures
execute and track progress
check results
standardise and establish control
In 2018, we achieved
our best overall safety
performance since
demerger, with a lost time
injury frequency rate
of 1.3 per million
hours worked.
Lead and lag indicators
In our plants in 2018, more than 80% of our
working population performed routine
safety audits every month, generating an
average of more than ten implemented
improvement opportunities per person,
more than 9,900 in total, 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.
Our Take 2 initiative ensures that
employees think again before performing
any unusual or non-standard activity.
Simply stated, the employees take 2
minutes to discuss the task, any hazards
and how to prevent accidents before any
work is started. This process allows the
team to consider and reflect on hazards
and the controls required before work
commences.
For new contracts in customer locations, we
use 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. We continue to work hard
to reduce incident severity and generate
actionable insights from the performance
indicators we capture. The lost time injuries
frequency chart shows how injuries have
been reduced and how that reduction has
been maintained through a combination
of a behaviour-based approaches to
safety and the implementation of physical
safeguards. We focus on the safety
of all our personnel, whether they are
employees or contractors.
Safety Performance in 2018
Lost time injuries per million hours worked
Lost time injuries Severity Rate in lost days per
million hours worked
LTIFR 12 month rolling
LTIFR Severity Rate
12 month rolling
10
8
6
4
2
0
300
240
180
120
60
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Safety performance in 2018 is detailed below:
Performance Indicators
Work Related Death
Severe Injuries
Lost Time Injuries (LTI)
Lost Time Injuries frequency (LTIFR)
Recordable Injuries
Recordable Injuries frequency (RFR)
Medically Treated Injuries (MTI)
Medically Treated Injuries frequency (MTIFR)
Total Number of Injuries
Injury frequency
Lost Time Incident Lost Days
Lost Time Incident Severity Frequency Rate (Lost Days)
Dangerous Occurrences (DO)
Dangerous Occurrences Frequency Rate
Safety Audits Number
Safety Audits per 20 Employees per month
Employees Participating in monthly Safety Audits
Employees Participating in monthly Safety Audits %
SIOPA
Other IOPA
IOPA Total
SIOPA per Employee
Other IOPA per Employee
IOPA Total per Employee
Hours Worked
All Employees
Contractors
and Visitors
1
2
37
1.34
122
4.43
200
7.26
491
17.83
2,132
77
649
23.56
121,202
16
9,971
80%
92,793
36,502
129,295
7
3
10
27,544,837
All Frequency Rates are per million hours worked
IOPA: Improvement opportunity implemented with a permanent corrective action
SIOPA: Safety Improvement opportunity implemented with a permanent corrective action
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information 62
Sustainability
We continue our efforts to reduce energy
consumption and waste generation in
our manufacturing processes
63
Our solutions improve the
quality of our customers’
products and reduce the
environmental footprint of
their processes.
Vesuvius and climate change
Vesuvius recognises society’s expectations
for greater transparency around climate
change, expressed by initiatives such as
the recommendations of the Financial
Stability Board’s Task Force on Climate-
related Financial Disclosures. Vesuvius’
businesses focus on delivering solutions
to help our customers improve the
productivity of their operations and
reduce their environmental footprint.
According to estimates from the World
Steel Association, on average for 2017,
1.83 tonnes of CO2 were emitted for every
tonne of steel produced, with the steel
industry generating between 7% and 9%
of direct emissions from the global use of
fossil fuel. With around 10 kg of refractory
material required per tonne of steel
produced, the careful selection and
use of energy-saving refractories can
beneficially impact on the net emission of
CO2 in the steel manufacturing process.
In the foundry process, the amount of
metal melted versus the amount sold as
finished castings is the critical factor
impacting a foundry’s environmental
efficiency. Vesuvius continuously works
with its customers to increase the ratio of
metal in finished castings to metal melted.
With respect to our own operations,
the Board recognises that good
environmental management is aligned
with our focus on cost optimisation and
operational excellence. Whilst Vesuvius’
products vary significantly in the energy
intensity of their manufacture, the majority
of our manufacturing processes are not
energy intensive nor do they produce large
quantities of waste and emissions. Two of
our 35 main manufacturing processes
(VISO and Slagdol production) account
for 39% of our energy consumption and
58% of our CO2e emissions. (We report in
kg of CO2 equivalent (‘CO2e’).) A further
four processes consume more than 24% of
the Group’s total energy consumption.
The Group has clear targets for energy
saving, with ongoing effort focused on
increasing the efficiency of our production
processes. As a result of this work and
also as a result of increased efficiency in
Slagdol production, we achieved a 19.8%
decrease in the amount of coal consumed
in the past year. Vesuvius’ total energy
costs are less than 3% of revenue, with only
1.6% of the total energy requirements
across the Group consumed in the UK.
Vesuvius operates sites in a number of
developing markets where environmental
concerns have become politically
significant, as air quality deteriorates
and residential expansion takes people
closer to areas historically reserved to
manufacturing. As a result, environmental
compliance at our sites, reduction in waste,
increased recycling and treatment of
emissions, are now fundamental to
Vesuvius’ operations, and can be a key
differentiator for our business. Correctly
managed, these issues can deliver social,
environmental and economic benefits to
the Group and to our wider stakeholders.
Our customers and their
processes
Under the Vesuvius and Foseco brands, we
deliver a wide 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 efficiency of the
processes for which we supply solutions.
We contribute to the reduction of our
customers’ energy usage and subsequent
CO2 emissions through insulating
materials, metal flow management,
facilitating extended manufacturing
sequences (meaning less reheating) and
reduced downtime.
How does Vesuvius Contribute?
Since 2011 we have used a CO2 impact
stamp to highlight the most energy-
efficient solutions in our portfolio of
products and services and to support
the deployment of energy-efficient and
sustainable solutions engineered by our
technology departments.
Vesuvius products and services facilitate
environmental benefits 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 filtration
and feeding systems
Vesuvius’ energy consumption
and emissions
In 2018, we achieved a 3.8% decrease in
the amount of energy consumed. Natural
gas use increased by 2.8%, primarily as a
result of an increase in production volumes
and changes in product mix, whereas
electricity use decreased by 0.6%. Coal
consumption decreased by 19.8%, from
45.6 thousand metric tonnes in 2017 to
36.4 thousand metric tonnes in 2018. In
2018, the Group also consumed 387 cubic
metres of diesel in the operation of fork-lift
trucks on its sites and 236 cubic metres of
fuel oil. Thanks to this improved energy
mix and global energy consumption
decrease, we decreased our CO2
emissions by 6.6%.
Environmental monitoring
All our factory emissions are proactively
managed in accordance with local
regulations. Regular analysis enables us to
act to reduce our emissions where possible
and to operate more efficiently. The Group
monitors its energy consumption,
worldwide CO2e emissions and usage of
water. Vesuvius proactively seeks to
reduce waste in production and to reuse
and to recycle materials where practical.
In 2018, Vesuvius recorded 22 minor
environmental incidents. All but one of
these related to minor spills on-site that
were immediately cleaned up, with the
other pertaining to an on-site odour
generated from a research experiment.
Total spills are estimated to be less than
one tonne. Where incidents occur they are
contained via Vesuvius’ site environmental
response plans and reported through the
Vesuvius incident reporting system. We
comply with local reporting requirements
in respect of such incidents. No action was
taken by any authority in relation to any
incident in 2018.
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 10.2% improvement has been realised
surpassing this target.
Managing our energy intensity not only
has an environmental benefit but is also
part of our long-term strategy to enhance
our cost-competitiveness.
Water Conservation
Vesuvius works to reduce the consumption
of water in its manufacturing processes
by recycling and improving processes to
reduce consumption. No saltwater or
cooling water is abstracted. As with energy
use, normalised consumption of water
varies with product mix. In 2018 there was
a slight increase in both absolute water
consumption, and normalised water
consumption – that is water use per tonne
of product manufactured – reflecting
changes in product mix and product
packed for shipment where we
manufacture more of our products
that demand water consumption.
The table below details the fuel consumption for the main fuels consumed across the
Group in 2018.
Energy conservation
Water conservation
Energy used kWh per metric tonne product packed for shipment
Energy Used
MWh 2018
Energy Used
MWh 2017
%
change
CO2e m kg,
2018
CO2e m kg,
2017
274,684
342,399
-19.8%
Category
Coal
Electricity
External Heat
LPG
214,195
215,577
4,615
70,389
5,045
71,879
-0.6%
-8.5%
-2.1%
2.8%
0.0%
Natural Gas
731,273
711,460
Non Fuel Emissions
Total 1
0
0
1,295,156 1,346,360
-3.8%
89
111
1
15
135
130
481
111
119
1
15
131
137
514
%
change
-19.7%
-6.5%
-8.8%
-2.1%
2.7%
-5.5%
-6.6%
All fuel consumption is converted to MWh for reporting.
1. Total reflects total of those fuels identified, not total consumption of all fuels in the Group as data for
some minor forms of fuel use are not currently collated.
1550
1500
1450
1400
1350
1300
1250
1200
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
■ Water used in metric tonnes
Water used in metric tonnes per metric
tonne of product packed for shipment
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information 64
Sustainability continued
Greenhouse gas reporting
Global GHG emissions (kg of CO2e)
Certifications
65
We have 25 manufacturing sites certified to ISO 14001:2015, representing 42% of our manufacturing sites. Local management makes
the decision on whether to certify their site based on local regulatory and customer requirements.
Country
Australia
Belgium
Brazil
China
China
Czech Republic
Czech Republic
Germany
Germany
Germany
Germany
India
India
Indonesia
Japan
Netherlands
Poland
South Africa
South Korea
Spain
Sweden
Taiwan
United Kingdom
United Kingdom
USA
Company Name
Foseco Pty Ltd
Vesuvius Belgium N.V.
Foseco Industrial e Comercial Ltda
VSV Advanced Ceramics (Anshan) Co.,Ltd.
Vesuvius Advanced Ceramics (Suzhou) Co., Ltd
Vesuvius Česká Republika, a.s.
Vesuvius Solar Crucible, s.r.o.
SIR Feuerfestprodukte GmbH
SIR Feuerfestprodukte GmbH
Vesuvius GmbH
Vesuvius GmbH
Foseco India Limited
Foseco India Limited
P.T.Foseco Indonesia
Foseco Japan Limited
Foseco Nederland BV
Vesuvius Poland Sp. z o.o.
Vesuvius South Africa (Pty) Limited
Foseco Korea Limited
Vesuvius Iberica Refractarios S.A.
Vesuvius Scandinavia AB
Foseco Golden Gate Co. Limited
Vesuvius UK Limited
Vesuvius UK Limited
Vesuvius USA Corporation
Site
Sydney
Ostend
Sao Paulo
Anshan
Suzhou
Trinec
Moravia
Siegen
Kreuztal
Grossalmerode
Borken
Puducherry
Pune
Jakarta
Toyokawa
Hengelo
Skawina
Olifantsfontein
Gyeonggi-do
Langreo
Amal
Ping Tung
Chesterfield
Tamworth
Cleveland
In line with our total energy consumption,
both total emissions and normalised
emissions decreased in 2018. Our
Greenhouse gas (‘GHG’) emissions are
limited to CO2, with emissions of other
GHGs at a de minimis level.
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. We report in kg of CO2
equivalent (‘CO2e’).
The Group also meets all its obligations
in relation to the Carbon Reduction
Commitment (‘CRC’) Energy Efficiency
Scheme, the Producer Responsibility
Packaging Waste regulations and the
Energy Saving Opportunity Scheme by
which the UK has implemented the EU
Energy Efficiency Directive.
Environmental Policy
All employees are expected to adhere to
the Group’s Environmental policy, which
is translated into local languages and
displayed prominently in all locations.
This policy is supported with standards
and procedures which are reviewed
and updated on an ongoing basis.
Emissions source
Combustion of fuel and operation of facilities (Scope 1)
Electricity, heat, steam and cooling purchased for own use (Scope 2)
Total GHG emissions
Change
Vesuvius’ chosen intensity measurement (kg of CO2 e per metric
tonne of product packed for shipment)
Emissions reported above, normalised to per tonne of product output
Change
2018
2017
370m
113m
483m
-6.6%
478.9
-9.2%
397m
121m
518m
527.5
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 Group Financial Statements.
Scope 1 covers emissions from fuels used in our factories and offices.
Scope 2 relates to the indirect emissions resulting from the generation of electricity, heat, steam and hot
water we purchase to supply our offices and factories.
We have used data gathered to fulfil our requirements under the CRC Energy Efficiency scheme and
emission factors from UK Government’s and the IEA GHG Conversion Factors for Company Reporting
2018 in the calculation of our GHG.
Vesuvius Environmental Policy
We will operate all work and business
activities in a manner which ensures
appropriate care and protection of
the environment.
We will comply with all applicable
legal and other local environmental
obligations. We will be pro-active in
preventing negative effects to the
environment, and will continuously
improve our environmental
management systems and
performance.
Organisation and Responsibilities
We regard environmental matters
as a mainstream management
responsibility. Executives and line
managers are directly responsible for
environmental matters in operations
under their control. Management is
accountable for environmental
performance against objectives.
Each and every employee is responsible
and accountable for environmental
matters in activities under their control.
We will encourage our Suppliers to
adhere to the same Environmental
standards as we do.
We expect everyone to participate
positively in achieving our
environmental aims.
Our Beliefs
> Preserving the Environment is
Good Business
> All employees must contribute to
protect the environment
> All environmental incidents are
preventable
Our Aims
> Reduce waste at source and during
production
> Minimise consumption of energy,
water and other resources
> Minimise releases of substances
which could adversely affect humans
or the environment
Our Commitments
> We will raise environmental issues at
all levels and openly address them
> We will build environmental protection
into our products and processes
> Environmental risk assessments will
be undertaken to identify hazards,
prioritise any deficiencies and correct
them in an appropriate way as well
as to develop appropriate procedures
> We will provide training to all employees
and contractors to ensure that they
understand their responsibilities and
are able to act accordingly
> Every business facility will have an
appointed Environmental Manager
This policy has been approved
by the Group Executive
Committee and is displayed and
implemented at all facilities.
The Group Executive Committee
Version 2.0.6, 10/2018
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information
66
People and community
People are the centre
of our business
We believe that the
personal growth and
job satisfaction of our
employees is key to the
success and growth of
the business.
Our objective is to support and drive a
high-performance culture leading to
better business outcomes delivered by a
cadre of truly engaged employees. We do
this by building broad organisational
understanding of our strategy, goals and
accountability, supported by our CORE
values, continuous improvement and
positive management behaviours. We also
foster a working environment that is
inclusive and diverse, where people can be
themselves without fear of harassment,
bullying or discrimination.
Our leaders take full responsibility for
managing and developing their teams.
They are provided with access to a central
resource, offering expertise in Global
Rewards & Mobility, Talent & Performance
Management, Culture and Learning, and
supported by Group-wide processes
and information systems. We have
implemented best-in-class talent
development programmes for high
potentials and we collaborate with
market-leading learning institutions to
deliver this.
The Group Executive Committee holds
direct responsibility for the top managers,
jointly reviewing capability needs and
deciding on development, succession and
cross organisational moves for this
leadership group. This illustrates the
strong commitment at the highest level of
our organisation towards growing the
Group using its Company-wide resources.
We employ individuals who embody
an entrepreneurial mindset and an
international outlook. Whether they
are recent graduates or seasoned
professionals, everybody who wants to
leave their mark in a dynamic rapidly
developing business environment has a
chance to succeed. Special attention is
paid to building strong, diverse teams
that bring different backgrounds and
experiences to our daily work. The team
of top leaders currently consists of
25 nationalities located in 24 countries.
The Company invests in a constant
dialogue with employees at various levels,
using a mix of traditional communication
channels, such as posters and websites,
as well as modern digital solutions,
such as mobile applications. Feedback
mechanisms are built into our processes,
so that we can capture the spirit of our
workforce and the best ideas of
employees.
Our training programmes
ADVANCE
This is a first-generation management
development programme aimed at
developing individual contributors who are
likely to occupy a line management role and
managers who need to be familiar with a
broad range of people management skills
to use in projects.
Last year we ran the programme for our first
cohort and we have since launched it across
all regions. The programme is designed
to last 12 months and blends learning
approaches, using online, face-to-face and
project-based techniques. Participants
are supported by line management and
HR business partners for the duration of
the programme.
WINGS
This is the Vesuvius middle management
development programme aimed at those
who manage other managers. Wings is an
established programme in partnership with
Vlerick University, Belgium. The programme
provides an introduction to general
management theory and practice, and
encourages managers to explore their
leadership styles.
ASCENT
This is the Vesuvius high-potential and senior
leadership development programme which
we developed in partnership with INSEAD.
It is aimed at accelerating the development
of top talent within the organisation and
developing skills such as strategic business
leadership, general business administration,
value innovation and performance culture
development.
The programme takes place over a
nine-month period, and involves initial online
modules, face-to-face workshops and
individual and group projects, in which
participants are assessed individually for
further development. Participants are
individually sponsored by members of our
Group Executive Committee, and actively
supported by their line managers and by
senior HR management for the duration of
the programme.
HeaTt
These courses form part of the Vesuvius
Technical University aimed at the continuous
technical development of Vesuvius
employees. Courses range from entry to
expert levels and are continuously updated
to keep pace with developing technology,
thereby guaranteeing that Vesuvius experts
are at the forefront of technical innovation.
They are a great way for our hugely
experienced technical experts to pass on
their knowledge to the next generation and
ensure the sustainability of our know-how.
67
67
V E SU V I US H A S
O FFER ED M E
N U M ERO US
O PP O RT U N I T I E S TO
G ROW A N D D E V ELO P
M Y C A R EER .
I love that my job exposes me to new
and exciting situations.
Alex Brown
Product Development Engineer
Cleveland, USA
Employee diversity
At Vesuvius, we believe that the dedication
and professionalism of our people is the
most significant contributor to our success.
Having a balance of cultures, ethnicities
and genders helps to promote innovation
and creativity, and the diversity of our
employees is one of the core strengths
of the Group.
We are committed to providing equality
of opportunity in all areas of human
resources, whether in recruitment and
selection, promotion, or training and
development. Wherever a gap, we seek
to address it as part of our wider
commitment to promoting diversity
and inclusion.
Group Executive Committee member
Senior management1
Middle management
All other employees
Grand total
Directors of subsidiaries included in consolidation2
Female
1
9
51
1,369
1,430
44
Male
8
113
318
8,940
9,379
408
Total
9
122
369
10,309
10,809
452
Female
11%
7%
14%
13%
13%
10%
Male
89%
93%
86%
87%
87%
90%
1. Of these 122 senior managers, 43 directly report to members of the Group Executive Committee, and of these, three are women.
2. There are 452 directors of Group subsidiaries, 10% of which are women. This disclosure is made to comply with regulatory requirements. It includes Directors of
dormant companies. Some individuals hold multiple directorships.
Employee consultation and
industrial relations
In most of the countries in which we
operate we inform and consult local works
councils and trade unions in matters
concerning the Vesuvius business.
These processes and procedures are
regulated by local law and we find that
the constructive dialogue that takes place
between employee representatives and
management provides benefit to our
business. In addition to local employee
representation we operate a European
Works Council (‘EWC’) that contains
representatives from each of the EU
countries where Vesuvius has employees.
European management and the EWC
meet formally once a year. At this meeting
management provides an update on
the performance of the business, with a
focus on developments likely to impact
European employees. Additional ‘Special
Event Meetings’ are held when the Group
is required to consult with the EWC about
particular matters, including proposed
restructurings in the European organisation.
The EWC Select Committee also meets
twice a year to receive additional updates,
and the Chief HR Officer of Vesuvius joins
part of these meetings. All EWC
representatives receive four dedicated
training days per year, to ensure they are
appropriately equipped to fulfil their
duties. In 2018 management notified one
special event to the EWC, relating to the
restructuring of the European Advanced
Refractories and Foundry operations,
which had transnational application.
In addition to formal discussion and
consultation mechanisms, in many
countries our operations hold ‘town hall’
meetings on a regular basis. These provide
an opportunity for local management to
meet with staff and provide an update on
corporate developments and matters
material to the business.
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information 68
68
69
People and community continued
Spark Leadership Forum 2018
The Spark Leadership Forum was hosted by
Patrick André and the Group Executive
Committee, in June 2018, in Rome, Italy.
The Group’s top managers from around the
globe, attended a two-day programme
focused on Vesuvius’ strategic growth and
profitability targets.
Patrick André and Guy Young gave
presentations on Vesuvius’ vision and
strategy, emphasising the need for everyone
to strive to ‘be the best’, to focus on delivering
to our customers and becoming world class
performers. Each of the business unit
Presidents expanded on this vision and
strategy, providing operational detail on the
plans proposed to achieve this performance.
The Forum was also used as an opportunity
to launch the new set of corporate values:
CORE – Courage, Ownership, Respect,
Energy, and managers discussed action
plans for promoting their use, embedding
the associated behaviours, and for
disseminating them throughout the
organisation.
Our Chairman, John McDonough, CBE
gave a keynote address emphasising the
fundamental role of people in achieving
Vesuvius’ growth objectives. He remarked,
“It is incumbent on everyone in this room to
focus your efforts, on attracting, developing
and retaining the very best people
worldwide bearing in mind the proven fact
that there is strength through diversity.”
Talent management
Strengthening the leadership pipeline
and facilitating people development
throughout the organisation remain key
areas of focus for Vesuvius. In 2018 we
worked hard to ensure that we have the
right capability in every part of the
organisation to drive our strategy and
realise market opportunities. As a result,
we have built high-calibre leadership
teams, many of whom are relatively new to
their roles and to Vesuvius. As a next step
we will focus on integrating this new talent
into our organisation, building strong
teams across all our geographies.
We empower our people to drive the
business with an entrepreneurial spirit.
To develop a focused, performance-
oriented culture as well as support the
entrepreneurial drive, we align our senior
management in their strategic business
outlook and performance goals across all
operational and functional business areas.
We encourage and reward high
performance, foster talent and aim to
create an environment where all can
realise their individual potential. To meet
the demands of the business and add
rigour to our employee value proposition,
we have launched several training
programmes to assist our employees to
develop their skills and progress their
careers, details of which are set out
on page 66.
Global reward
Reward and recognition are integral
components of our employee value
proposition, enabling us to attract, engage
and retain key talent and highly-qualified
employees. Our reward systems are
designed to create a market-competitive
and fair pay environment for all our
employees and to reinforce the vision,
strategy and expectations set by
the Board.
We seek to create a culture that
champions performance, building
a strong link between individual
performance and pay. Supported by our
online people management platform,
‘MyVesuvius’, performance reviews
and subsequent reward decisions are
based not only on how employees have
performed against their individual
objectives but also on assessments of
behaviour and commitment to our CORE
values. Our global job grading framework,
based on a structured assessment
methodology, enables us to compare
roles and ensure internal consistency
throughout the organisation. We are
committed to creating reward and
performance management systems which
are transparent and objective, where
employees receive equal pay for work
of equal value, regardless of their age,
race, disability, sexual orientation,
gender, marital, civil partnership or
parental status, religion or beliefs. Our
management Annual Incentive Plans are
measured against both Vesuvius’ financial
targets and personal performance, an
incentive structure consistent with that of
our Executive Directors. The Vesuvius
Share Plan for Executive Directors and
Group Executive Committee members
encourages decisions based on long-term
goals rather than short-term gains and
works to align the interests of participants
and shareholders.
Global mobility
Vesuvius is active worldwide. We believe
that our companies should be managed
and staffed by local personnel. However,
we also provide selected groups of
employees with a range of international
assignments. These assignments are
usually for a limited period, most often
three years.
Vesuvius expatriates do not come from
one or two countries alone. We have a truly
international mix of nationalities in our
expatriate population. Individuals move
not only within a region, but also between
regions, with existing assignments
including Malaysia to China, China to
Germany, Poland to the USA and Brazil to
China. Our mobility programme shows
that our expatriate population is as diverse
as our Group.
Vesuvius operates a number of
international assignment policies to
provide for the different circumstances
of these assignments – whether they
be short term, longer-term, or require
extended commuting. These policies are
supplemented with clearly identified
benefits, delivering support appropriate
to the nature of the assignment. By
accessing this broad range of policies,
we can manage our international
assignments with greater flexibility,
thus catering for changing expectations
and demands from employees, whilst at
the same time meeting the needs of
the business.
Vesuvius International
Scholarship Programme
The Vesuvius International Scholarship
Programme is set up to assist qualified
dependent children of Vesuvius
employees in helping to finance
undergraduate and graduate
education at accredited institutions.
Awards are granted globally without
regard to race, colour, creed, religion,
sexual orientation, age, gender,
disability or national origin.
Vesuvius has been involved in this
programme for 23 years, during which
period it has paid out $1,157,000 to
assist 992 students in achieving their
higher education goals. Individual
scholarships have been awarded to
employees’ children living in: Australia,
Belgium, Brazil, China, the Czech
Republic, France, India, Indonesia, Italy,
Malaysia, Netherlands, Philippines,
Poland, Romania, South Africa, South
Korea, Spain, UAE and the UK.
Key rationale behind international assignments
Vesuvius considers individuals for international assignment for three primary reasons:
> Providing Vesuvius companies with
skills that are not locally available
and that are required at short notice.
This typically occurs in countries where
we are establishing a new presence.
The number of expatriates working on
this basis diminishes over time as the
organisation matures and we recruit
and train local talent to take over
> Career development. We believe that
the personal development plan of any
employee being developed for a senior
management, or senior expert position
should include a posting outside their
home country. This encourages them to
develop the skills necessary to function
successfully in an international
environment. These postings are tailored
to the needs of the organisation and the
needs of the individual
> Enhancing diversity. Management
teams benefit from having a mix of
gender and cultures. In specific cases
we use international assignments to
achieve this goal
Vesuvius plcAnnual Report and Financial Statements 2018Non-financial information 70
71
People and community continued
Vesuvius in the local
community
Our social responsibility
activities complement
our values and drive our
culture. Our operating
sites engage with their
local communities through
various social action
projects.
Mexico – Annual Homes Visit
Aosta Half Marathon
In December 2018, employees and
CORE committee members from
Vesuvius Mexico volunteered at a
children’s home for girls and home for
the elderly. The home for girls aged
2-18, who are victims of domestic
violence, and nursing home for
53 elderly people, are both run by
nuns. The team spent the day with the
residents and donated clothing and
groceries. These annual visits have been
taking place for the past five years.
In September 2018 Vesuvius Italia
sponsored the fourth annual half
marathon of Aosta, Italy. The half
marathon, organized by COGNE
steelworks, passes monuments and
other sites of historical importance and
beauty in the town of Aosta in north
western Italy. A group of Flow Control
and Advanced Refractories sales,
technical and administrative staff plus
their family members, teamed up to
form a group of runners. In addition to
the half marathon, other shorter races
are held including an 11 km race, a 6 km
family run, a 1 km baby run, and a 4 km
tour, offering tasting options with typical
Aosta Valley food! The runs raise a
significant amount of money for
local charities.
Pink October
In October, Vesuvius France and Mexico
employees took part in ‘Pink October’
– Breast Cancer Awareness Month.
This worldwide annual campaign involving
thousands of organisations, highlights the
importance of breast awareness, education
and research. Sites hosted full day events
which included speakers from local Sport
& Health Associations, physical activities
and also a raffle draw for free checkups.
A donation of €400 was made for breast
cancer research.
Alongside its work with
those members of the
community who are not
directly connected with
our facilities, Vesuvius
also organises activities
to involve the families and
local communities with
our operations.
Family Day and Open House
2018 Vesuvius Mexico
Foseco India celebrates
Family Day at Pune
In August 2018, Vesuvius Mexico held an
Open House event, to give the families
of its employees the opportunity to get
to know the facilities where their father,
mother, husband or wife works. Around
90 children attended the event, at which
Vesuvius Mexico launched a new award
‘Successful father – successful son’ to
recognise children with a grade 90 or
higher and parents with excellent work
performance. There were emotional
scenes when children received their
awards with their parents. There were
56 winners of this award.
Everyone received a tour of the facility
and offices, and as a gift the children
received their own personal protective
equipment.
In 2018 Foseco India celebrated a
‘Foseco Family Day’ at Pune. The day
was aimed at bringing employees and
their families together in a fun-filled
environment to build stronger ties with
each other. 400 people attended,
with various events laid on throughout
the afternoon and evening in an
environment of energy, fun, creativity
and entertainment. The party
commenced with a ‘Bollywood/Oscar
theme’ warm welcome, with people
walking the red carpet to make an entry.
Mrs and Mr Sanjay Mathur lit the lamp
before a gala stage performance of
a talent show was held. This was put
together by Foseco family members
and was followed by a team dinner.
The event drew together the wider
Foseco India community, celebrating
the pride of our employees in the
Company they work for.
Vesuvius Foundry China sponsors first Young Entrepreneur forum
In May 2018 Vesuvius sponsored the first
Young Entrepreneur forum of the China
foundry industry, organised by the China
Foundry Association (CFA), and held in
Beijing. The General Manager of our
Foundry Division in China, Benny Yang,
gave a speech in which he encouraged
young entrepreneurs to embrace the
challenges and opportunities that the
foundry industry is facing and offering.
The foundry industry needs to inspire a new
generation of entrepreneurs to promote
innovation and secure the future growth of
the industry. Vesuvius is proud to support
such events.
The Strategic Report set out on pages 1 to 71 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 2018 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 on 27 February
2019 and signed on its behalf by
Patrick André
Chief Executive Chief Financial Officer
Guy Young
N
o
n
-
fi
n
a
n
c
i
a
l
i
n
f
o
r
m
a
t
i
o
n
Vesuvius plcAnnual Report and Financial Statements 2018
72 Vesuvius plc
Annual Report and Financial Statements 2018
S E C T I O N F O U R
G O V E R N A N C E
74
76
78
In this section:
Board of Directors
Group Executive Committee
Corporate Governance Statement
78 Chairman’s Governance Letter
79 Board Report
86 Audit Committee
93 Nomination Committee
95 Directors’ Remuneration Report:
95 Remuneration Overview
97 Remuneration Policy
105 Annual Report on Directors’ Remuneration
116 Directors’ Report
120
Statement of Directors’ Responsibilities
121
Independent Auditors’ Report
W E ’ R E A DVA N CI N G
T H E EFFEC T I V EN E SS
O F O U R T R E A SU RY
SO LU T I O NS ACROSS
T H E G RO U P.
I work with my finance colleagues
around the globe to provide proactive
treasury support.
Andrew Matthews
Group Treasurer, London, UK
73
G
o
v
e
r
n
a
n
c
e
74
Board of Directors
Board of Directors
75
John McDonough CBE
Chairman
Committees
N
Patrick André
Chief Executive
Committees
–
Guy Young
Chief Financial Officer
Christer Gardell
Non-executive Director
Committees
–
Committees
N
Hock Goh
Non-executive Director
Jane Hinkley
Non-executive Director
Douglas Hurt
Senior Independent Director
Holly Koeppel
Non-executive Director
Committees
A N R
Committees
A N R
Committees
A N R
Committees
A N R
Date appointed to the Board
Date appointed to the Board
Date appointed to the Board
Date appointed to the Board
Date appointed to the Board
Date appointed to the Board
Date appointed to the Board
Date appointed to the Board
31 October 2012
Independent
N/A
Key strengths
1 September 2017
1 November 2015
31 October 2012
Independent
N/A
Key strengths
Independent
N/A
Key strengths
Independent
No
Key strengths
> Proven strategic and leadership
> Global career serving the
> Extensive international
steel industry
> Strong background in
strategic development and
implementation
> Consumer focus and proven
record of delivery, with strong
commercial acumen
experience gained in the mining
and industrial sectors
> Qualified Chartered
Accountant, with significant
financial and business
development experience
> Drive and energy in managing
> Drive and energy in promoting
people and teams
> Focus on strategic execution
and business optimisation
> A wealth of commercial acumen
gained through his extensive
business investment and
management experience
> A strong track record of
supporting the growth of
international businesses,
advocating focus and
driving change
> Experienced non-executive
director across a range of
business sectors
his strategic vision
Career experience
Patrick was President of the
Vesuvius Flow Control business
unit prior to his appointment as
Chief Executive of the Group.
Before joining the Group in 2016,
he served as Executive Vice
President Strategic Growth, CEO
Europe and CEO for Asia, CIS and
Africa for Lhoist company, the
world leader in lime production.
Prior to this he was CEO of the
Nickel division, then CEO of the
Manganese division of ERAMET
group, a global manufacturer of
nickel and special alloys.
Current external appointments
None
Career experience
Career experience
Guy was Chief Financial Officer
of Tarmac and latterly Lafarge
Tarmac, the British building
materials company, between
2011and 2015. Prior to this
he spent 13 years working at
Anglo American plc in various
senior financial and business
development positions, including
as Chief Financial Officer of Scaw
Metals Group, the South African
steel products manufacturer.
Guy is qualified with the South
African Institute of Chartered
Accountants.
Current external appointments
None
Christer is co-founder of Cevian
Capital* and Managing Partner.
Christer served as Chief Executive
Officer of AB Custos, the Swedish
investment company until 2001,
prior to which he was a Partner
of Nordic Capital and McKinsey
& Company. He has previously
served as a non-executive
Director of AB Lindex and of
Tieto Corporation.
Current external appointments
Managing Partner of Cevian
Capital, and Vice Chairman of
Metso Corporation. A member of
the Nomination Committees of
Ericsson and Nordea Bank Abp,
although not a member of the
Ericsson or Nordea boards.
*
Cevian Capital is a shareholder of
Vesuvius plc and, at 27 February
2019, held 21.11% of Vesuvius’
issued share capital.
skills gained in a complex
multinational business
> Strong engineering background
and global commercial
experience
> Clear leadership understanding
of safety issues
> Operational and strategic
understanding of a range of
business environments gained
from working in Asia-Pacific,
EMEA and the UK
> Experience as CEO with an
international listed company
Career experience
John spent 11 years as Group
Chief Executive Officer of
Carillion plc until he retired in
2011. Prior to this he spent nine
years working for Johnson
Controls. He has previously
served as a Non-executive
Director and Chairman of the
Remuneration Committee of
Tomkins plc, and as a Trustee
of Team Rubicon UK.
John was awarded a CBE in 2011
for services to industry.
Current external appointments
Chairman of The Vitec Group plc
and Sunbird Business Services
Limited, and a Non-executive
Director of Cornerstone Property
Assets Limited. John will retire
from the Board of The Vitec
Group plc in May 2019.
Key to Board Committee
membership
Board
Committees
A Audit Committee
A Audit: See p86
N Nomination Committee
N Nomination: See p93
R Remuneration Committee
R Remuneration: See p95
R Committee Chairman
2 April 2015
Independent
Yes
Key strengths
3 December 2012
Independent
Yes
Key strengths
2 April 2015
Independent
Yes
Key strengths
3 April 2017
Independent
Yes
Key strengths
> Strong focus on R&D and
> Proven track record of
> Qualified Chartered
> A strong track record of growing
technology
> Wealth of experience dealing
with safety and sustainability
matters gained from more than
35 years working in the oil and
gas industry
> In-depth knowledge of Asian
markets
> Strong international commercial
experience, gained through
a global career in the oil and
gas industry
Career experience
Hock spent 25 years with
Schlumberger, where his roles
included serving as President
of Network and Infrastructure
Solutions in London, President of
Asia-Pacific, and Vice President
and General Manager of China.
Following this Hock spent seven
years as a Partner of Baird Capital
Partners Asia, based in China.
He has previously served as
Chairman of MEC Resources Ltd
and a Non-executive Director of
Harbour Energy Ltd.
Current external appointments
Chairman of Advent Energy Ltd,
and a Non-executive Director
of AB SKF, Santos Ltd and Stora
Enso Oyj.
3
managing complex global
trading business
> Qualified Chartered
Accountant, with significant
financial and operational
experience in large
multinational companies
> Well-developed leadership and
global team management skills
Career experience
Jane was Managing Director
of Navion Shipping AS for
three years until 2001. Prior to
this she spent a large part of
her Executive career working
at Gotaas-Larsen Shipping
Corporation, the liquefied natural
gas shipping specialist, where
she served as Chief Financial
Officer and Managing Director.
She has previously served as a
Non-executive Director of Revus
Energy ASA.
Jane is a Chartered Accountant.
Directors’ Tenure
Current external appointments
Chairman of Teekay GP L.L.C and
a Non-executive Director and
Chairman of the Remuneration
Committee of Premier Oil plc.
2
Accountant, with significant
recent and relevant financial
experience having served as
Finance Director of a listed
UK company for nine years
> Highly knowledgeable of both
corporate and operational
financial matters, with
significant US and European
experience
> Proven general management
and leadership skills
businesses, with more than
35 years of domestic and
international utility, power and
infrastructure experience
> International financial and
operational experience managing
assets on five continents
> Strong board experience
both as an independent
non-executive director and
as an investor, in the US and
internationally
Career experience
Career experience
Douglas was Finance Director of
IMI plc, the global engineering
group for nine years until 2015.
Prior to this he spent 23 years at
GlaxoSmithKline plc where he
held a number of senior finance
and general management
positions. He began his career
at Price Waterhouse.
Douglas is a Chartered
Accountant.
Current external appointments
Senior Independent Director
and Chairman of the Audit
Committees of Tate & Lyle PLC,
and Countryside Properties PLC,
and Non-executive Director and
Chairman of the Audit Committee
of the British Standards
Institution.
6
From 2000 to 2009, Holly worked
at American Electric Power
Company, Inc., latterly serving
as Chief Financial Officer. Prior
to this she spent 15 years at
the Consolidated Natural Gas
Corporation in a variety of
management roles which included
four years based in Australia.
From 2010 to 2017 Holly was
Co-Head of Citi Infrastructure
Investors (which was renamed
Gateway). She has also served as a
Director of Integrys Energy Group,
Inc., and Reynolds American Inc.
Current external appointments
Non-executive Director and
Chairman of the Audit Committee
8
of British American Tobacco p.l.c.,
and a Non-executive Director of
The AES Corporation.
Up to 3 years
3-6 years
More than 6 years
Directors’ Tenure
Directors’ Tenure
2
3
3
Up to 3 years
3-6 years
More than 6 years
3
Board Composition
2
4
With international business experience
Independent Directors (excluding the Chairman)
Female Directors
With prior experience of serving as director of
a listed company
8
6
2
4
With international business experience
Independent Directors (excluding the Chairman)
Female Directors
With prior experience of serving as director of
a listed company
Vesuvius plcAnnual Report and Financial Statements 2018Governance
76
77
Group Executive Committee
1 Henry Knowles
General Counsel &
Company Secretary
5 years with the Group
Appointed as General Counsel
& Company Secretary in
September 2013. Prior to
joining Vesuvius, Henry
spent seven years at Hikma
Pharmaceuticals PLC, a generic
pharmaceutical manufacturer
with significant operations in
the Middle East, North Africa
and the United States where
he held the roles of General
Counsel, Company Secretary
and also led the compliance
function.
Henry is based in London.
2 Glenn Cowie
President, Foundry
37 years with the Group
Appointed President Foundry
in November 2014, having
delivered significant change
in business structure and
performance as President
Advanced Refractories during
the prior three years. He started
his career in Foseco South
Africa, where he held several
technical and sales positions
in both the Foundry and
Steel Divisions, before taking
the following roles of Chief
Executive Sub Saharan Africa,
an international Strategic
Growth Initiative role in the UK,
Area Director Northern Europe,
based in Borken, Germany and
then Vice President Foundry
NAFTA and the Americas.
Glenn is based in Tamworth,
UK.
3 Tanmay Ganguly
4 Guy Young
5 Roel van der Sluis
6 Agnieszka Tomczak
7 Patrick Bikard
9 Alan Charnock
Chief Financial Officer
3 years with the Group
For biographical details please
see the Board of Directors on
page 74.
President,
Advanced Refractories
11 years with the Group
Appointed President Advanced
Refractories in November
2014. Previously Tanmay led
the refractory business in
India as Managing Director
of Vesuvius India Ltd, and
latterly as Vice President Steel
Flow Control and Advanced
Refractories, South Asia,
where he successfully increased
both businesses’ revenue
and profitability.
Tanmay is based in
Barlborough, UK.
President, Flow Control
Chief HR Officer
President, Operations
28 years with the Group
5 months with the Group
10 years with the Group
Appointed President Flow
Control in October 2017. Roel
joined Vesuvius in the European
Foundry Division and held
marketing and technology roles
in Northern Europe, Central
Europe and the Middle East.
He was appointed President
Vesuvius China North Asia
Steel and his remit subsequently
increased to include Foundry
operations in China, Japan
and Korea. Roel has wide
experience in both the foundry
and the steel industries.
Roel is based in Ghlin, Belgium.
Appointed as Chief HR Officer
in October 2018. Agnieszka has
over 25 years of senior leadership
experience in multinational
companies spanning various
business sectors and industries.
Prior to joining Vesuvius,
she spent 12 years at ICI,
subsequently acquired by
Akzo Nobel, in regional and
global HR roles.
Agnieszka is based in London.
Appointed President
Operations in January
2014 with an emphasis on
improving safety, quality and
reducing inventories, creating
value through customer
focus, lean techniques and
continuous improvement. He
was previously Vice President
for Manufacturing, QHSE,
Engineering and Purchasing
and, prior to joining Vesuvius, he
held senior operational roles at
Renault, Alstom and Faurecia.
Patrick is based in Ghlin,
Belgium.
8 Patrick André
Chief Executive
3 years with the Group
For biographical details please
see the Board of Directors on
page 74.
Vice President and Chief
Technology Officer
34 years with the Group
Appointed Chief Technology
Officer in April 2015. Alan
began his career in the Foundry
Division in South Africa and held
various senior appointments
within the Foundry, Flow Control
and Advanced Refractories
businesses in Spain, the US,
Venezuela, Japan and China.
Prior to his appointment as Vice
President and Chief Technology
Officer, he was Vice President
of Marketing & Technology
for Flow Control, based in
Ghlin, Belgium. Alan has wide
global experience of all aspects
of Vesuvius’ manufacturing
business.
Alan is based in Ghlin, Belgium.
1
3
2
4
5
6
7
8
G
o
v
e
r
n
a
n
c
e
9
Vesuvius plcAnnual Report and Financial Statements 2018Governance
78
79
Corporate Governance Statement
Chairman’s Governance Letter
Dear Shareholder,
On behalf of the Board I am delighted to
present the 2018 Corporate Governance
Statement. I am pleased to confirm that
your Company is fully compliant with the
principles and provisions of the 2016 UK
Corporate Governance Code (the ‘Code’)
upon which we report this year. Within the
Corporate Governance Statement we
provide investors and other stakeholders
with an annual insight into the governance
activities of the Board and its committees.
In July 2018, the Financial Reporting Council published a new
2018 UK Corporate Governance Code (the ‘New Code’) which
includes revised remuneration practices, and places greater
emphasis on the Board’s responsibility to embody and promote
an appropriate corporate culture. The Company will report on
its compliance with the New Code in its 2019 Annual Report, and
work is already well-progressed on identifying the procedures
and practices within Vesuvius that already respond to the
requirements of the New Code, updating them where necessary.
This will ensure that we can report full compliance with the
New Code next year. As a Board, we remain committed to
applying the highest standards of corporate governance,
recognising that robust governance and culture underpin
business success.
For the Board, 2018 was a year of consolidation. We focused on
supporting Patrick Andre’s significant drive and energy in leading
the Group in the next stages of its development. A key area of
emphasis for the business was on the strengthening of the Group’s
talent pool. The Nomination Committee focused on succession
planning for the senior management levels immediately below
the Board, with a review of Divisional and functional resourcing
and also considered the development of high-potential
individuals throughout the organisation. We have made a
significant number of new appointments throughout the Group’s
senior management tiers which have added appreciably to
the diversity in skills, background and experience at senior
management level.
The Board continues to take seriously its responsibility for
shaping the corporate culture of the Group. In 2018 the Group
Executive Committee launched the new CORE values – Courage,
Ownership, Respect and Energy. You will find these mentioned
throughout the Annual Report, highlighting their importance
to the organisation. These new values define our priorities
for corporate behaviour and are a practical representation of
the culture we seek to foster. They support our governance and
control processes and their implementation has already had
an observable impact on the Group.
Another area of attention for the Board in 2018 was stakeholder
engagement. Recognising the recent governance focus in this
area, the Board took the opportunity to map the Group’s key
stakeholders and explore the strength of the Group’s engagement
with them. Our global and diverse community of stakeholders
includes our shareholders, current, past and future employees,
customers, suppliers, investors, banks, the communities in which
we operate and the various agencies and organisations that
regulate our operations. We respect the views of all our
stakeholders, seek to engage with them and take their feedback
into account and, as ever, consider the impact of our actions
on them as part of our decision-making processes.
During 2018, the Non-executive Directors continued to broaden
their understanding of the Group through individual site visits and
scheduled Board visits. The full Board visited our new Shared
Service Centre in Krakow and our operations in Skawina, Poland,
and there was also a Board visit to our operations in India,
visiting our major Steel and Foundry manufacturing sites and
also undertaking a visit to key Steel customers. I was delighted
to visit China in September and Brazil in October 2018.
My Non-executive colleagues also visited our operations in
China. The Directors remain committed to ongoing training
and development, and alongside more formal training activities
– these opportunities to meet with management and people at
our facilities are invaluable.
The Board’s formal evaluation process was again externally
facilitated in 2018, by the corporate advisory firm, Lintstock.
The results of the review concluded that the Board remained
strong and effective with an appropriate composition and an
environment that fosters effective support and constructive
challenge. The evaluation highlighted a number of Board
priorities which we look forward to progressing in 2019.
Yours sincerely
John McDonough CBE
Chairman
27 February 2019
In this section:
Also see:
Risk, viability and going
concern on p28
Our principles on p53
Board effectiveness on p82
Board accountability on p85
Audit Committee Report
on p86
Nomination Committee Report
on p93
Directors’ Remuneration
Report on p95
Board 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 reflect progression in best practice. This report describes
the Company’s corporate governance structure and explains
how, during the year ended 31 December 2018, Vesuvius applied
the Main Principles of the UK Corporate Governance Code
2016 issued by the Financial Reporting Council (the ‘Code’).
Throughout the year and up until the date of this report,
Vesuvius was in full compliance with the requirements of the Code.
During the year the Board undertook a thorough review of the
requirements of the new 2018 UK Corporate Governance Code
(the ‘New Code’). A significant amount of the requirements of the
New Code are supported by processes that already form part of
the governance activities of Vesuvius. In the areas where they do
not, the Board has begun to implement the necessary changes to
the Company’s practices and procedures to ensure that Vesuvius
will comply fully with the New Code in 2019.
A copy of the current Code can be found on the FRC website at:
https://www.frc.org.uk/directors/corporate-governance-and-
stewardship/uk-corporate-governance-code.
2018 Board programme
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. In performance of these duties the
Board has regard to the interests of the Group’s key stakeholders
and is cognisant of the potential impact of the decisions it makes.
The Board discharges its responsibilities through an annual
programme of meetings.
At each scheduled meeting the following standard items are
considered:
> Directors’ duties and conflicts of interest
> Minutes of the previous meeting and matters arising
> Reports from the Chief Executive, the Chief Financial Officer
and Company Secretary on key aspects of the business
> Key performance indicators
In addition, in 2018 the Board focused on key areas of strategy, performance and governance, including the issues outlined below:
Strategy
> Receiving and reviewing reports on strategy from the Flow Control, Advanced Refractories, Digital Services and
Foundry business units
> Receiving and reviewing regular reports from the Chief Executive on implementation of the Group’s strategic
objectives including M&A opportunities
> Reviewing and approving the launch of the Group’s new CORE values
> Receiving and considering a report on the Group’s Quality, Health, Safety and Environmental strategy and
objectives
> Participation in a two-day off-site review of strategy attended by the Company’s key advisors and each business
unit President
> Receiving and considering reports on the Group’s Shared Service Centre, IT, tax and treasury strategies, legal and
compliance activities and the management of the Group’s key pension liabilities
> Receiving and considering a report on the Group’s research and development strategy and objectives
> Reviewing the Group’s financing structure
Performance
> Receiving monthly reports on the Group’s financial performance against key indicators, including each of the
Group’s KPIs
> Receiving monthly safety reports setting out our performance against key indicators
> Receiving regular updates from the Chief Executive on the performance of the Group’s businesses with a critical
focus on safety
> Scrutinising the Group’s financial performance and forecasts
> Reviewing the Group’s internal control and risk management practices
> Reviewing and agreeing the annual budget and forward-looking three-year plan
> Approving trading updates, preliminary and half-year results
Governance
> Receiving regular reports from the Board Committees
> Approving the Annual Report and Notice of AGM
> Reviewing the Group’s risk appetite and monitoring the Group’s key risks
> Completing an evaluation of the Board and Committees’ performance and regularly reviewing progress against
the improvement actions identified in 2017
> Reviewing and approving the Group’s Modern Slavery Statement
> Receiving regular updates on corporate governance and regulatory developments, and developing an action
plan for modifying the Group’s governance arrangements to ensure full compliance with the New Code in 2019
> Completing a formal annual review of the Group’s governance arrangements
> Renewing the Group’s delegated authorities
> Receiving reports from the Company’s brokers on market issues
Vesuvius plcAnnual Report and Financial Statements 2018Governance 80
Board Report continued
The Group’s governance structure
Board committees
Governance structure
81
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 2019, 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. These were reviewed during
the year as part of the Company’s annual corporate governance
review, and amendments made to ensure they conform with the
New Code. They are available to view on the Company’s website
www.vesuvius.com.
The principal governance Committees of the Board are the Audit,
Remuneration and Nomination Committees. Each Committee
has written terms of reference, which were reviewed during the
year and amendments made to reflect the changing governance
requirements outlined in the New Code. These are available to
view on the Company’s website www.vesuvius.com.
For biographical details see Board of Directors on pages 74
and 75.
The interactions in the governance process are shown in the
schematic below.
Governance Committees
Audit Committee
To monitor the integrity of financial
reporting and to assist the Board in
its review of the effectiveness of the
Group’s internal controls and risk
management systems
Remuneration Committee
To determine the overall remuneration
for the Executive Directors and set the
appropriate remuneration for the
Chairman, Executive Directors and
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
Board
Administrative Committees
In addition, the Board delegates certain responsibilities to a Finance
Committee and Share Scheme Committee, which operate in accordance
with the delegated authority agreed by the Board
Finance Committee
To approve specific 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
Membership
Chairman, Chief Executive,
Chief Financial Officer and
Group Head of Corporate
Finance
Chairman
Any Board member
Membership
Any two Directors or
any two Directors and the
Company Secretary
Chairman
Douglas Hurt
Membership
All independent
Non-executive Directors
Chairman
Jane Hinkley
Membership
All independent
Non-executive Directors
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
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 Officer, the three business unit Presidents, the
Chief HR Officer, the Chief Technology Officer, the President Operations, and the General Counsel /Company Secretary. The GEC met
eight times during 2018 and is scheduled to meet eight times during 2019. Its meetings are held at different venues round the world.
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
Chief Executive
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
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
Non-executive Directors
Company Secretary
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
Exercise a strong, independent voice, challenging
and supporting Executive Directors. Scrutinise
performance against objectives and monitor
financial reporting. Monitor and oversee risks
and controls, determine Executive Director
remuneration and manage Board succession
through their Committee responsibilities
The Non-executive Directors meet regularly
throughout the year without the Executive
Directors being present
Advises the Chairman on governance,
together with updates on regulatory and
compliance matters. Supports the Board
agenda with clear information flow. 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 2018 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
Patrick André
Guy Young
Non-executive Directors
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Holly Koeppel
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
7 (7)
7 (7)
7 (7)
7 (7)
7 (7)
7 (7)
7 (7)
7 (7)
—
—
—
—
4 (5)
5 (5)
5 (5)
3 (5)
—
—
—
–
4 (5)
5 (5)
5 (5)
3 (5)
5 (5)
—
—
4 (5)
4 (5)
5 (5)
5 (5)
3 (5)
Hock Goh was unable to attend a set of Committee meetings during the year due to a family bereavement, and Holly Koeppel was
unable to attend some Committee meetings due to clashes with other professional responsibilities that had been previously notified to
the Chairman.
To the extent that Directors are unable to attend scheduled meetings 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 2018,
the Committee Chairmen contacted those Directors who were unable to attend Committee meetings in advance of those meetings, to
canvass their views and understand any issues they wished to raise in respect of the subject matters being discussed. These issues were
then raised at the meeting through the relevant Chairman and followed up after the meeting.
Vesuvius plcAnnual Report and Financial Statements 2018Governance
82
Board report continued
Board effectiveness
Board composition
The Board comprises eight Directors – the Non-executive
Chairman, John McDonough CBE; the Chief Executive,
Patrick André; the Chief Financial Officer, Guy Young; and five
Non-executive Directors. 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, and the markets
in which it operates, to discharge its duties and responsibilities
effectively. The Board continues to look at diversity in its broadest
sense – reflected in the range of backgrounds and experience
of Board members who are drawn from different nationalities
and have managed a variety of complex global businesses.
The Board has adopted a Board Diversity Policy as set out on this
page. The Policy identifies the Board’s objectives on diversity to
ensure that the Company maintains the optimum Board and
Committee composition, underpinning our desire to maintain
the right balance of independence, skills and knowledge in the
boardroom. Details of the Nomination Committee’s activities
during the year, with details of compliance with this policy, are
included in the Nomination Committee report on pages 93 and 94.
The Board’s overall skills and experience, as well as Non-executive
Director independence, were reviewed during the year. The Board’s
composition also formed part of the Board evaluation process.
Two of the eight Directors (25%) are women and four (50%) are
non-UK citizens. The Board also contains individuals from a range
of ethnic backgrounds. There were no new Directors appointed in
2018, so there were no changes in the Board’s diversity during the
year. The Board considers its diversity, size and composition to be
appropriate for the requirements of the business, and in line with its
adopted policy. The Board recognises that the Hampton-Alexander
Review has set a target of 33% female representation on FTSE 350
Boards by 2020. Whilst the Board does not believe that it is
appropriate to accelerate its planned rotation of Directors purely
to meet this target, it will continue to consider the benefits of
greater diversity in all future Director recruitment decisions.
Committee composition is set out in the relevant Committee
reports. No one, other than the Committee Chairman and
members of the Committee, is entitled to participate in meetings
of the Audit, Nomination and Remuneration Committees.
However, as detailed in the Committee reports, where the agenda
permits, other Directors and senior management regularly
attend by invitation, supporting the operation of each of the
Committees in an open and consensual manner.
The Board considers that, for the purposes of the UK Corporate
Governance Code, four Non-executive Directors (excluding the
Non-executive Chairman), namely Hock Goh, Jane Hinkley,
Douglas Hurt and Holly Koeppel, 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’s deliberations. The Chairman satisfied the independence
criteria on his appointment to the Board. Biographical details of the
Directors are set out on pages 74 and 75.
Board Diversity Policy
Purpose
This policy sets out the approach to
diversity in respect of the Board of
Directors of Vesuvius plc. The policy
is intended to assist the Board,
through the work of the Nomination
Committee, in creating and
maintaining optimum Board and
Committee composition.
The broad principles of diversity
contained in the policy apply to all
employees of the Vesuvius Group.
The Vesuvius Code of Conduct
reflects Vesuvius’ commitment
to diversity and respect for its
employees.
Policy Statement
Vesuvius plc recognises the value
of a diverse and skilled workforce
and is committed to creating and
maintaining an inclusive and
collaborative workplace culture
that will provide sustainability for
the organisation into the future.
Policy Objectives
The Nomination Committee will
focus on ensuring that it, the Board
and the Board’s other 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 Nomination Committee will
ensure that all appointments to
the Board are based on merit with
each candidate assessed against
objective criteria focused on the
skills, experience and knowledge
required of the position, and with
due regard to the benefits of
diversity on the Board.
Board Composition
The Nomination Committee will
engage with executive search firms
in a manner which ensures that
opportunities are taken for a
diverse range of candidates to
be considered for appointment.
This will include ensuring that the
Committee only uses search firms
that are signed up to the Voluntary
Code of Conduct for Executive
Search Firms.
The Nomination Committee
supports senior management
efforts to increase diversity in the
senior management pipeline to
facilitate succession planning
towards executive Board positions.
With respect to the representation
of women on the Board, highlighted
by the Davies and Hampton-
Alexander Reviews, the Board
is supportive of the initiative to
increase the proportion of women
on the boards of FTSE 350
companies. Vesuvius, which at
the date of this policy has a
Board comprising 25% female
membership, will continue to ensure
that the Board of Vesuvius plc
reflects this level, or greater levels of
gender diversity, as are appropriate
for its size and dynamics, to enable it
to continue to deliver on the
requirements of the Vesuvius
business.
Monitoring and Reporting
This policy and progress against its
objectives will be reviewed annually.
The Nomination Committee is
responsible for the implementation
of this policy and for monitoring
progress towards the achievement
of its objectives.
December 2017
7
8
7
6
4
4
4
Number of Directors with key skills and experience
Chairman, Chief Executive or CFO experience
Safety and Risk
Financial
Global engineering and manufacturing
Related industrial experience
Operational leadership
Strategic planning
83
Appointment to the Board
Recommendations for appointments to the Board are made by
the Nomination Committee. Further information on the activities
of the Nomination Committee is set out in the Nomination
Committee report on pages 93 and 94.
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 recruitment role specifications, 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 sufficient time to prepare for meetings,
and regularly to refresh and update their skills and knowledge.
All Non-executive Directors have agreed to commit sufficient
time for the proper performance of their responsibilities,
acknowledging that this will vary from year-to-year depending
on the Group’s activities, and will involve visiting manufacturing
and customer sites around the Group. The Chairman in
particular dedicates a significant 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 chairmanship is for a much
smaller private company where the time commitment is limited.
The Chairman stepped down as a Trustee of Team Rubicon UK
during the year, and will be stepping down as Chairman of the
Board, and as a Director of The Vitec Group plc on 21 May 2019.
Directors are expected to attend all scheduled Board and
Committee meetings and any additional meetings as required.
Each Director’s other significant 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 can, and in practice does, devote the necessary amount
of time to the Company’s business.
At the 2018 AGM, the resolution for the re-election of Hock Goh
was passed with the requisite majority of votes from shareholders,
but with a significant percentage of votes against. The Company
engaged with its shareholders to understand their concerns,
which related to the number of listed company directorships that
Hock Goh held. During 2018 Mr Goh stepped down as chairman
and director of MEC Resources Ltd and resigned as a director of
Harbour Energy Ltd. In addition to his directorship of Vesuvius, his
portfolio of responsibilities has reduced to serving as Chairman of
Advent Energy Ltd, and as a Non-executive Director of AB SKF,
Santos Ltd and Stora Enso Oyj.
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
comprehensive monthly report of key financial and management
information, including updates on safety and quality
performance. 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.
The procedure was not utilised during the year under review.
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 2018, 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 business was
also given, with specialist advisers invited to the Board and its
Committees meetings to provide briefings on matters such as
forthcoming accounting changes and the changing landscape
of UK Corporate Governance.
All Non-executive Directors are encouraged to visit Vesuvius
facilities on independent visits, to engage with management
when they do and relay their findings from these trips to the full
Board. In 2018 the full Board visited our Shared Service Centre in
Krakow, Poland, with some Directors also taking the opportunity
to visit our large operation in Skawina, Poland. There was also
a Board visit to our operations in India. This covered the key
manufacturing sites of both Steel and Foundry divisions as well
as encompassing a visit to a major Steel customer, where the
Board visited the operations and met with senior management
exchanging views on the Group’s activities and discussing
opportunities for future cooperation. In addition, the Chairman
visited our operations in China in September and Brazil in
October, and other Non-executive Directors also visited
operations in China during the year. During each of these visits
the director received business presentations on current activity
and future strategies, and met with local staff and management
to understand better the dynamics of the jurisdiction.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 84
Board Report continued
Performance evaluation
The Board carries out an evaluation of its performance and that
of its Committees every year. In 2018, this evaluation was split,
with a review of the Board strategy meeting held in June
conducted immediately thereafter and a further, more general,
review of performance conducted at the end of the year.
The evaluation was again externally facilitated by the corporate
advisory firm, Lintstock. The Group subscribes to the use of
Lintstock’s Insider List database tool, but has no other connection
with the organisation.
Each evaluation was conducted via a series of targeted
questionnaires. As with previous years, the end-of-year evaluation
not only covered the performance of the Board but also that of its
Committees, along with individual reviews of each Director and
analysis of the performance of the Chairman. Narrative reports
were then presented to the Board and the Audit, Nomination and
Remuneration Committees by Lintstock. A list of action points was
drawn up by the Chairman based on the results of the evaluation.
These will be implemented by the Board in 2019.
The 2017 evaluation highlighted a number of priorities for the Group. The Board focused on addressing these during 2018 as follows:
Area
Strategy
People &
Organisation
Issue
Action taken in 2018
> Strategy development and execution
> Chief Executive undertook a formal review of the Group’s strategy
culminating in the Capital Markets Day presentation
in November
> Board continued to monitor progress on strategic initiatives
> New Chief Executive
> Board focused on supporting the new Chief Executive to deliver the
business plan
> Senior management succession
> More time dedicated to senior management succession and talent
and talent development
management at the Nomination Committee with actions implemented
to refresh Group talent, including external hires to supplement bench
strength and skills
> Improvements to organisational structure
> Group organisational structure was clarified with devolution of
‘P&L’ responsibility to aid talent development
> Continued focus on developing
Board skills and experience
> Individual Non-executive Directors continued to undertake overseas
site visits in 2018, and Board visits continued to incorporate
opportunities to meet with employees and customers where possible
> Board composition
> Board tenure and succession was considered
Risk & Culture
> Risk should maintain a clear position
> Further focus on measures to improve safety performance
in Board priorities
> Business unit presentations refocused to devote sufficient
time to major risks and mitigation. The Board enhanced
its understanding of risk appetite within the Group
Board Discussions
& Agenda
> Board information flow, agenda and
> Business Unit and Functional presentations prioritised at meetings
performance
> Consistency of Board papers was enhanced – balancing conformity
with flexibility to deliver the message and greater use of summaries to
aid efficiency. Prompt feedback was provided to presenters
The Chairman noted that the 2018 review had provided
particularly positive results, with the Board observed to be
functioning well and with renewed vigour, and the new Chief
Executive seen to be providing clarity of input and transparency
at Board level. The individual assessment of Directors concluded
that all continued to contribute effectively, devoting adequate
time to their duties and being engaged and proactive in debate
at all meetings. Each of the Committees was also considered to
have operated effectively during the year.
Regarding priorities for 2019, the evaluation highlighted the need
for the Board to continue its focus on key strategic issues including
new product development, the Group’s manufacturing footprint
and talent development. Risk management, particularly the
Group’s risk appetite, remains a continued area for emphasis.
Finally, the Board continues to focus on ensuring that it operates
at optimum efficiency and efficacy with regard to prioritising and
actioning items. As in previous years, a set of action points was
compiled from the output of the evaluation to ensure that its
findings are included in the Board’s activities. Progress is reviewed
by the Chairman at each Board meeting.
Appointment and replacement of Directors
The Company’s Articles specify that Board membership should
not be fewer than five nor more than 15 Directors, 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. The Board
may appoint one or more Directors to any executive office,
on such terms and for such period as it thinks fit, and it can also
terminate or vary such an appointment at any time. The Articles
specify that, at every Annual General Meeting (‘AGM’), any
Director who has been appointed by the Vesuvius Board since the
last AGM and any Director who held office at the time of the two
preceding AGMs and who did not retire at either of them, shall
retire from office. However, in accordance with the requirements
of the Code, all the Directors will offer themselves for election or
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 2019 Notice of AGM. The biographical details of the
Directors are also set out on pages 74 and 75.
85
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 2019 AGM relating to the
re-election of all the Directors.
Directors’ conflicts of interest
The Board has established a formal system to authorise situations
where a Director has an interest that conflicts, or may possibly
conflict, with the interests of the Company (situational conflicts).
Directors declare situational conflicts so that they can be
considered for authorisation by the non-conflicted Directors.
In considering a situational conflict, 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 conflict
and records any authorisations granted. The Board believes
that the approach it has in place for reporting situational
conflicts continues to operate effectively. No situational conflicts
were brought to the Board for authorisation during the year
under review.
Board accountability
Risk management and internal control
The Board is responsible for setting the Group’s risk appetite and
ensuring that appropriate risk management systems are in
place. The Audit Committee assists the Board in reviewing
the effectiveness of the Group’s system of internal control,
including financial, operational and compliance controls, and risk
management systems. Further information about the work of the
Audit Committee can be found in the Audit Committee report
on pages 86 to 92.
The Group’s approach to risk management and internal control
is discussed in greater detail on pages 28-31 and the Group’s
principal risks and how they are being managed or mitigated
are detailed on pages 32 and 33. The Viability statement which
considers the Group’s future prospects is detailed on page 31.
Risk management and internal control is discussed in greater
detail in the Audit Committee report.
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 able to consider carefully the
impact of incentive arrangements on the Group’s risk profile and
to ensure that the Group’s Remuneration Policy and programme
are structured to align with the long-term objectives and risk
appetite of the Company. Further information about the work
of the Remuneration Committee can be found in the Directors’
Remuneration report on pages 95 to 115.
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 117 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 118.
Relations with shareholders
The Board is committed to communicating with shareholders
and other 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 Investor Relations team.
The majority of meetings with investors are led by the Chief
Executive and Chief Financial Officer. In advance of the 2018
AGM, we wrote to our largest shareholders inviting discussion on
any questions they might like to raise and making the Chairmen
of the Board, the Audit Committee and the Remuneration
Committee available to meet shareholders should they so wish.
No formal requests for discussions were received from
shareholders following this communication. Following the AGM
when a significant number of votes were registered against
the reappointment of Hock Goh, the Company again contacted
its largest shareholders, to understand any concerns.
A number of Shareholders responded to this contact and the
‘over-boarding’ concerns they expressed were communicated to
the Board. As indicated on page 83 in this Report Hock Goh acted
during the year to respond to these concerns. The Chairman,
Senior Independent Director and Committee Chairmen remain
available for discussion with shareholders throughout the year
on matters under their areas of responsibility, either through
contacting the Company Secretary, Investor Relations or directly
at the AGM.
On 6 November 2018, the Company held a Capital Markets
Day to provide more detail on the Company’s strategy, new
technologies, markets and the initiatives that support the delivery
of the Group’s growth targets. 80 people attended, including
many investors, the majority of analysts covering the Company,
and the presentations were broadcast live on the Company’s
website.
The Company reports its financial results to shareholders twice
a year, with the publication of its annual and half-year financial
reports. In addition, to maintain transparency in performance we
also issued two scheduled trading updates during 2018. One was
published in conjunction with the 2018 AGM on 10 May 2018, and
the second was published in conjunction with the Capital Markets
Day held on 6 November 2018. Additionally, presentations or
teleconference calls were held by the Chief Executive and Chief
Financial Officer with institutional investors and analysts on both
of these dates.
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.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 86
Audit Committee
Dear Shareholder,
On behalf of the Audit Committee, I am
pleased to present the Audit Committee
Report for 2018. The Committee largely
works to a recurring and structured
programme of activities which are defined
in an annual rolling Audit Committee
timetable. Additional items are then
added and the Committee agenda
is modified as the year progresses, to
accommodate new topics and priorities.
The Audit Committee Report describes the work of the
Committee during the year including its role in monitoring
the integrity of the Company’s financial statements and the
effectiveness of the internal and external audit processes.
It provides an overview of the significant issues the Committee
has considered during the year and its material judgements.
It also describes how the Committee fulfilled its responsibilities
to assist the Board in reviewing the effectiveness of the Group’s
system of internal control and risk management systems.
Yours sincerely
Douglas Hurt
Chairman, Audit Committee
27 February 2019
Committee Members
Douglas Hurt (Committee Chairman)
Hock Goh
Jane Hinkley
Holly Koeppel
The Audit Committee
The Audit Committee comprises all the independent Non-
executive Directors of the Company, who bring a wide range of
financial 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 by the Board following the
2015 AGM. He was the Finance Director of IMI plc for nine years
prior to that and has worked in various financial roles throughout
his career. Douglas is also Chairman of the Audit Committees of
Countryside Properties PLC and Tate & Lyle plc, and a Chartered
Accountant. This background provides him with the ‘recent
and relevant financial experience’ required under the Code.
The Company Secretary is Secretary to the Committee.
The Code and Financial Conduct Authority Disclosure Guidance
and Transparency Rules also contain requirements for the Audit
Committee as a whole to have competence relevant to the sector
in which the Company operates. Vesuvius’ Non-executive
Directors have significant breadth of experience and depth of
knowledge on matters related to Vesuvius’ operations, both from
their previous roles and from their induction and other activities
since joining the Board of Vesuvius. A chart detailing this
experience is set out on page 82. The Directors’ biographies on
pages 74 and 75 outline their range of multinational business-to-
business experience and expertise in fields including engineering,
manufacturing, services and logistics as well as financial 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 five times during 2018. The Committee
has also met twice since the end of the financial 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 Officer, the Group Financial
Controller, the Group Head of Internal Audit and the external
Auditors were all invited to each meeting. Other management
staff were also invited to attend as appropriate.
Audit Committee meetings are conducted to promote an open
debate, to constructively challenge significant accounting
judgements, to provide guidance and oversight to management
to ensure that the business maintains an appropriately robust
control environment and to provide informed advice to the Board
on financial matters. The Chairman of the Audit Committee
encourages open dialogue between the external Auditors,
the management team and the Group Head of Internal Audit
between Audit Committee meetings to ensure that emerging
issues are addressed in a timely manner.
87
During the year, 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 Committee also met
privately with the Group Head of Internal Audit, and the external
Auditors without any executives present.
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
During 2018 the main role and responsibilities of the Committee
continued to be to:
> Monitor the integrity of the financial statements of the
Company and the Group, and any formal announcements
relating to the Group’s financial performance, informing the
Board of the outcome of the audit
> Monitor and review the effectiveness of the Group’s internal
financial controls and 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 financial 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 Auditors and
approve the remuneration and terms of engagement of the
external Auditors
> Monitor and review the external Auditors’ independence,
objectivity and effectiveness, taking into consideration any
non-audit services provided, and the relevant UK professional
and regulatory requirements
> Take account of the findings and conclusions of any FRC audit
inspection undertaken, when monitoring the performance of
the audit
The Committee operates under formal terms of reference
approved by the Board, which were reviewed during the year.
They 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.
Activities in 2018
1. The Committee’s agenda covered the usual standing items –
the review of financial results, the effectiveness of the Group’s
internal financial controls, and the review of the internal control
and risk management systems – as well as additional topics,
including an update on cyber security and in-depth reviews of
the Group’s US tax position and the Group’s Total Refractory
Management Service contracts, where revenue is based on
tonnes of steel produced.
2. The Audit Committee continued to devote time to ensure that
initiatives to mitigate potential risks and financial exposure
remained robust and appropriate. The Committee challenged
the adequacy of inventory and receivables provisions and the
assumed growth rates and discount rates used for asset
impairment assessments.
3. The Committee considered the Company’s going concern
statement and challenged the nature, quantum and
assessment of the significant 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
2017 Accounts. The 2018 Viability statement, which was also
critically reviewed, is contained within the Strategic Report and
can be found on page 31.
4. The Committee monitored the resourcing and delivery of the
2018 Internal Audit plan and approved the 2019 Internal Audit
plan, including changes made to Internal Audit processes
by the new Group Head of Internal Audit. 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 defined
timescales.
5. The Committee examined specific audit issues such as tax
matters, including the judgements inherent in the partial
recognition of deferred tax assets for US tax losses and the
extent to which any movements should or should not be
included in separately reported items.
6. The Committee regularly conducts a detailed review of
provisions, challenging the reasonableness of underlying
assumptions and estimates of costs and the quantum of
any related insurance assets.
7. The Committee considered the impact of new accounting
standards. IFRS 9 – Financial Instruments and IFRS 15 –
Revenue from Contracts with Customers were adopted in the
year. The impact of adopting these standards on the Group
Financial Statements was not material and there was no
adjustment to retained earnings on application at 1 January
2018. The Group has not restated the comparative results on
adoption and the required additional disclosures from these
standards are included in the notes to the financial statements.
IFRS 16 – Leases is effective from 1 January 2019 and the
Committee has reviewed the implementation plan for this
standard. It is expected that the application of this standard will
have a material impact on the Group’s Financial Statements.
8. The Committee reviewed its terms of reference and
recommended amendments to the Board to align them with
the new UK Corporate Governance Code.
The Committee members believe that they received sufficient,
relevant and reliable information throughout the year from
management and the external Auditors to enable the Committee
to fully discharge its responsibilities. The work of the Audit
Committee is further elaborated in the paragraphs below.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 88
Audit Committee continued
Statement of compliance with the Competition and
Markets Authority (‘CMA’) Order
The Committee considers that the Company has complied with
The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Processes and
Audit Committee Responsibilities) Order 2014 (Article 7.1),
published by the CMA on 26 September 2014, including with
respect to the Audit Committee’s responsibilities for agreeing
the audit scope and fees and authorising non-audit services.
Financial reporting
The Committee fulfilled its primary responsibility to review the
integrity of the 2018 half-year and 2018 annual financial
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 financial reporting standards
and other reporting requirements
> Significant issues where management judgements and/or
estimates had been made that were material to the reporting
or where discussions had taken place with the external Auditors
in arriving at the judgement or estimate
> In relation to the overall Annual Report, whether the Annual
Report and Financial Statements taken as a whole was 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 disclosure and presentation of alternative performance
measures, in view of the guidelines issued by the European
Securities and Markets Association
The Committee actively deliberated and challenged reports
from the Chief Financial Officer 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, and the pertinent assumptions and the sensitivities of
the estimates to changes in the assumptions. PwC also delivered
memoranda for the half-year and year-end, stating their views
on the treatment of significant issues. PwC provided a summary
for each issue, including its assessment of the appropriateness of
management’s judgements or estimates. The Committee
considered the overall level of prudence applied this year,
compared this with the prior year and concluded that it
remained unchanged.
Significant issues and material judgements
The Committee considered the following significant issues in
the context of the 2018 financial statements. It considered these
areas to be significant taking into account the level of materiality
and the degree of judgement exercised by management.
The Committee resolved that the judgements and estimates
made on each of the significant issues detailed below were
appropriate and acceptable.
Income tax
Income tax remains a complex area where significant judgements
are required to estimate both uncertain tax liabilities and the
value of deferred tax assets.
The Committee challenged the assumptions used to arrive at the
£29.3m (2017: £34.3m) provided for income tax payable which
includes £20.2m (2017: £23.2m) for uncertain tax provisions as set
out in Note 10.5. 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.
At the end of 2018, the Group recognised a US deferred tax asset
of £67.3m (2017: £32.6m). 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 prospects for US profitability
were carefully modelled by management and challenged by the
Committee. The Committee reviewed the Group’s projections
for trading in the US, which had further improved in 2018, and
concurred with management that the US forecast profits are
considered sufficient to sustain the deferred tax asset in the US
at the end of 2018.
The Committee also reviewed with management the continuing
impact of the significant tax reform announced in late December
2017 in the US Tax Cuts and Jobs Act (‘TCJA’), which had a
material impact on the Group’s deferred tax position in 2017.
The Committee concurred with management that the subsequent
regulatory guidance on the operation of TCJA issued by the
US Treasury during 2018, mostly in proposed form, did have a
material impact on Vesuvius’ reported tax position as it related
to the new Global Intangible Low-Taxed Income (‘GILTI’) rules.
In light of the substantial recognition on the Group’s balance sheet
of the US tax losses and other temporary differences, the
Committee decided that it is now more appropriate to reflect the
utilisation of these deferred tax assets, which offset the Group’s
US taxable Headline profits, as part of the Group’s Headline tax
charge.
Other 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 satisfied that there are appropriate
levels of provisions set aside to settle third-party claims and
disputes (Note 31) and that adequate disclosure has been made.
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 33).
89
Restructuring charges
The original restructuring programme which was launched in
2015 is almost complete, and our new restructuring programme
launched in March 2018 is well underway. The Committee
critically reviewed the treatment of the restructuring costs
disclosed as separately reported items in 2018 and concluded
that these have been treated consistently with the accounting
policy. This ensures that only significant restructuring
programmes that have a defined scope and are material in
nature are reported separately, which enables a clearer
understanding of the underlying results of the Group.
Impairment of intangible assets
The year-end carrying value of goodwill of £654.5m 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,
reflect both a reduction in global risk-free rates offset by 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. Given that the models indicated
that there remains significant headroom between the value in use
and the carrying value, the Committee concurred that no goodwill
impairment charges were required.
Working capital provisions
The Committee challenged the level of provisions held against
both receivables and inventories (Notes 18 and 19) and, after
reviewing ageing analyses, regional analyses and specific
customer accounts, concluded that the provisions held were
appropriate. The receivables provisions were considered in
conjunction with the adoption of IFRS 9 (Financial Instruments),
which has required a new impairment model for financial assets
which is based on expected credit losses rather than only incurred
credit losses under IAS 39.
Pensions
Determining the current value of the Group’s future pension
obligations requires a number of assumptions. The appropriateness
of assumptions used (described in Note 27) was 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 PwC with other similar schemes.
The Committee agreed the reasonableness of the assumptions.
The Committee also considered the basis for the estimation of the
cost of Guaranteed Minimum Pension equalisation, following
a High Court judgement in October that impacts UK defined
benefit pension schemes. Given the material and one-off nature
of this cost, the Committee concurred with reporting this
separately, which enables the reader more clearly to understand
the underlying results of the Group.
Fair, balanced and understandable reporting
The Committee considered all the information available to it in
reviewing the overall content of the Annual Report and Financial
Statements 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 and review process so that internal linkages were
identified and consistency was tested. Drafts of the Annual
Report and Financial Statements 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 satisfied that
it could recommend to the Board that the Annual Report and
Financial Statements is fair, balanced and understandable.
Risk management and internal controls
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 has overall responsibility for establishing
and maintaining a system of risk management and internal
control, and for reviewing its effectiveness. The Audit Committee
assists the Board in reviewing the effectiveness of the Group’s
system of internal control, including financial, operational
and compliance controls, and risk management systems.
This framework is consistent with the Code.
In 2018 Committee members fully participated in the Board
review of existing risks and ongoing mitigating actions, further
details of which are given on pages 32 and 33. The Committee
believes that the Group’s process for identifying and
understanding the Group’s principal risks and uncertainties
remains robust and appropriate.
The Committee considered the Company’s going concern
statement and challenged the nature, quantum and effects of the
combination of the unlikely but significant risks to the business
model, future performance, solvency and liquidity of the Group.
These were all modelled as part of the scenarios and stress testing
undertaken to support the Viability statement. As part of this
review, the Committee considered the Group’s forecast funding
requirements over the next three years and analysed the impact
of key risks faced by the Group with reference to the Group’s debt
covenants. The scenarios considered the impact of multiple risks
occurring simultaneously and the additional mitigating actions
that the Group could take. The Committee noted that the Group’s
debt headroom was sufficient to accommodate the modelled
stress scenarios. As a result of their review, the Committee was
satisfied that the going concern and Viability statements had
been prepared on an appropriate basis. The 2018 going concern
statement and the 2018 Viability statement are contained within
the Risk, viability and going concern section on page 31.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 90
Audit Committee continued
The key features of the Group’s internal control system, which
provides assurance on the accuracy and reliability of the Group’s
financial reporting, are detailed in the Risk, viability and going
concern section on pages 28 to 33. During 2018, the Committee
considered the process by which management evaluates internal
controls across the Group. The Group Head of Internal Audit
provided the Committee with a summary overview of the
assurance provided by the Group’s control framework and the
testing of these controls. PwC also reviewed controls in the
businesses within the scope of its audit. This review indicated an
appropriate control environment, with identified improvement
actions under careful management by the Group.
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 Enterprise Resource Planning 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.
The Group undertakes a range of activities to mitigate the risk of
fraud. This framework is regularly reviewed to determine areas
for improvement. Eliminating the risk of fraud remains one of the
key areas of focus for Internal Audit, forming a fundamental part
of ‘full scope’ and financial audits. These assess the quality of the
balance sheet reconciliations, review key judgement matters,
consider ERP access rights, review tenders and quotations, review
the entity’s controls over master data changes, and controls over
payments and associated applications.
During 2018 the Group continued its review of third-party
representatives and intermediaries. This included detailed due
diligence for active sales agents and custom clearance agents.
The Committee also continued its assessment of the Group’s
potential exposure to bribery and corruption risks, noting the
ongoing work conducted by the Group in this context, such as
face-to-face visits to operations, providing focused, country-
specific training and reviewing financial records. The output
of these processes and previous risk assessments continue
to be used to develop Group policies and procedures for the
management of anti-bribery and corruption risk, reflecting an
appropriate level of control for the business.
The Committee continues to monitor and oversee procedures
regarding allegations of improper behaviour and employee
concerns. Further details of the operation of the Group’s Speak-
Up policy and helpline can be found in the ‘Our principles’ section.
Throughout the year the Audit Committee received updates on
the volume of reports, key themes emerging from these reports
and the results of investigations undertaken.
Each year the senior financial, operational and functional
management of the businesses self-certify compliance with
Group policies and procedures for the areas of the business under
their responsibility and confirm the existence of adequate internal
control systems throughout the year. 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
financial control within the Group, and on the adequacy of the
Group’s broader internal control systems.
Internal Audit
The Group’s Internal Audit function operates on a global basis
through professionally qualified and experienced individual
members located around the world. They report to the Group
Head of Internal Audit, based in London, who in turn reports
directly to the Chairman of the Audit Committee.
Throughout 2018 Internal Audit continued to focus on two
different categories of audit: Compliance & Control (‘C&C’), and
Effectiveness & Efficiency (‘E&E’). C&C audits focus entirely on
internal financial controls and key Board compliance issues,
whereas E&E audits examine a broader range of business
performance issues. This approach allows the Audit Committee
to concentrate more specifically on key control issues for
resolution, with reporting focused on C&C audit results and
receiving a more general commentary on the outcome of the
E&E audits given. The detailed outcomes of the E&E audits were
used to engage management on broader performance issues
identified by the Internal Audit team.
The Committee received, considered and approved the 2018
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 audited at least
once every three years, including the smaller operating units.
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.
In 2018, a total of 53 audit assignments, including one unplanned
audit, were undertaken, covering 59% of the Group’s revenue and
93% of the Group’s profit before tax. The Committee received
a report from the Group Head of Internal Audit at each of its
meetings detailing progress against the agreed plan; key trends
and findings and an update on the progress made towards
resolving open issues. Common themes emerging from Internal
Audit reports coupled with Internal Audit and Management’s
assessment of risk have informed the development of the 2019
Internal Audit plan.
When necessary Internal Audit uses external outsourced auditors
to supplement internal resources on an ad hoc basis. The outsourcing
process provides valuable learning opportunities and we expect
to continue to use outsourcing in specialist areas and geographies
in the future. Control issues continue to be recorded in a live
web-based database into which management are required to
report progress towards addressing any open issues. Internal
Audit monitors the progress made and frequent meetings
continue to be held with each business unit President to ensure
that engagement on the resolution of issues is clearly understood
at all levels of the business and responsibility for remediation has
been appropriately assigned. The results are communicated to
the Audit Committee which also involves senior management as
necessary to provide an update against any high-priority actions
and Internal Audit undertakes follow-up reviews as required.
In situations where audit findings required longer-term solutions,
the Committee oversaw the process for ensuring that adequate
mitigating controls were in place.
During the year, a review was undertaken of the effectiveness of
the Internal Audit function. The review, which canvassed the views
of Non-executive Directors and senior management, confirmed
that the Internal Audit function continued to operate to a high
standard. It also noted that the Audit Committee had welcomed
the successful induction and impact of the new Group Head of
91
Internal Audit during the year, and noted that considerable
benefit had been derived from the Committee Chairman and the
Committee meeting with the Head of Internal Audit on a regular
basis without other management being present during the year.
Having considered the work of the Internal Audit function during
2018, including progress against the 2018 Internal Audit plan, the
quality of reports provided to the Committee, and the results of
the review of the function’s effectiveness, the Committee
concluded that the Internal Audit function operated effectively
during 2018.
External audit
Auditors’ appointment
In 2017 the Company appointed PricewaterhouseCoopers LLP
(‘PwC’) as external Auditors to the Company and the Group and
Mazars LLP to audit the non-material entities within the Group.
PwC nominated Julian Jenkins as the audit partner responsible
for the Group audit. In line with the regulations on auditor rotation,
the external audit contract will be put out to tender at least every
ten years. In addition, PwC will be required to rotate the audit
partner every five years.
2018 Audit plan
PwC’s 2018 year-end audit plan built on the foundation
established in 2017, reflecting the transfer of activity to the
European Shared Service Centre and focusing on areas identified
as representing significant risk and requiring significant judgement.
PwC undertook a range of activities during the year to further
their understanding of the business and their assessment of the
relevant risks. The results of these activities drove PwC’s scoping
of the 2018 audit and the composition of their audit testing.
PwC maintained an ongoing dialogue with the Audit Committee
throughout the year providing regular updates including
commentaries on significant issues and its assessment of
consistency and appropriateness in the judgements and
estimates made by management. Private sessions were held with
PwC without management being present. In these sessions PwC
confirmed 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. The Chairman of the
Audit Committee met on a number of occasions with PwC to
monitor the progress of the audit and discuss questions as
they arose.
The Independent Auditors’ Report provided by PwC on pages 121
to 126 includes PwC’s assessment of the key audit matters.
These key audit matters are discussed in the significant issues
and material judgements comments above. The report also
summarises the scope, coverage and materiality levels applied
by PwC in their audit. As part of the audit planning process and
based on a detailed risk assessment, the Committee agreed a
materiality figure of £9.4m for Group financial reporting
purposes which is higher than last year (£7.6m) and, in line with
similar groups, is set at 5% of headline profit before tax of
£188.9m. Importantly, much lower levels of materiality are used
in the audit fieldwork on the individual businesses across the
Group and these lower figures drive the scope and depth of audit
work. Any misstatement at or above £0.5m was reported to
the Committee.
There were no significant changes this year to the coverage of the
audit which stood at 68% of the Group’s revenue and 78% of
headline profit before tax. This coverage was considered to be
sufficient by the Committee. The audit coverage is reflective
of the long tail of smaller businesses within the Group that
individually are not ‘material’ to the Group result.
The Committee also received a report from Mazars during the
year summarising the findings and recommendations from their
audits of the non-material Group subsidiaries and management
agreed to implement certain of these recommendations.
The PwC audit fee approved by the Audit Committee was £1.4m.
This 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 fee agreed by Mazars for the
audit of the non-material entities was £0.5m, resulting in a
combined audit fee with PwC of £1.9m, compared to £1.6m
in 2017.
Independence and objectivity
The Committee is responsible for safeguarding the independence
and objectivity of the external Auditors in order to ensure the
integrity of the external audit process. In discharging this
responsibility during 2018, the Committee:
> Sought regular confirmation from the incumbent external
Auditors that they considered themselves to be independent of
the Company in their own professional judgement, and within
the context of applicable professional standards
> Evaluated all the relationships between the external Auditors
and the Group, including compliance with the Group’s policy on
the employment of former employees of the external Auditors,
to determine whether these impaired, or appear to impair,
the Auditors’ independence
> Reviewed compliance against the policy on the provision of
non-audit services by the external Auditors
> Reviewed details of the non-audit services provided by the
external Auditors and associated fees
As a result of its review the Committee concluded that PwC
remained appropriately independent.
Non-audit services
Vesuvius operates a policy for the approval of non-audit services.
A copy is available to view on the ‘Investors/Corporate
Governance’ section of the Company’s website, www.vesuvius.com.
Group companies are not permitted to use the external
Auditors for any ‘prohibited non-audit services’ as specified by
the UK Financial Reporting Council’s (FRC’s) Revised Ethical
Standard 2016, unless subject to a permitted derogation.
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 financial systems, certain HR services and other legal,
investment and share-dealing services. The external Auditors can
be invited to provide non-audit services which, in their position as
external Auditors, they must or are best placed to undertake and
which do not impact auditor objectivity or independence. All
audit-related and permissible non-audit services proposed to be
carried out for any Group company worldwide by the external
Auditors must be pre-approved by the Chief Financial Officer,
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 Auditors must also have cleared the
Vesuvius plcAnnual Report and Financial Statements 2018Governance 92
93
Audit Committee continued
Nomination Committee
external Auditors’ own internal pre-approval process to confirm
the firm’s ethical ability to do the work.
> its ability to coordinate a global audit, working to tight
deadlines;
In practice, the Group did not seek to engage PwC for non-audit
services during 2018 unless there were compelling advantages to
doing so. In 2018, the fees for non-audit services payable to PwC
amounted to £0.1m, 2017: £0.1m. The 2018 fees represent
payment for assurance services related to the review of the
Company’s half-year financial statements, quarterly reviews and
tax accounts in India, and a tax form audit in Mexico (as required
by regulation).
Effectiveness of PwC
The Committee and the Board are committed to maintaining the
high quality of the external audit process. Each year the
Committee carries out a formal assessment of the performance
of the external Auditors, taking account of the guidance for audit
committees prepared by the FRC. Input into the evaluation was
obtained from management and other key Company personnel,
members of the Audit Committee and the external audit team.
The review focused on the external Auditors’ mindset and culture,
skills, character and knowledge, and the quality of its controls.
In 2018, the evaluation of the external Auditors included the
following steps:
> a survey of key finance and non-finance stakeholders in
London and in-scope countries;
> a commentary-based survey of Audit Committee members
focused on their experience of working with PwC;
> a review of other external evidence on PwC audit quality;
> an assessment of PwC’s performance against the objectives
outlined in PwC’s Audit Objectives report; and
> discussions with PwC and key finance and non-finance
personnel.
The evaluation concluded that PwC provided an effective audit
for 2017, providing strong technical expertise and appropriate
challenge. Particular strengths were the use of specialists in
London and technical expertise and support on complex
accounting matters. PwC was seen as independent by the Audit
Committee and management, and provided an objective and
challenging audit process.
A number of opportunities were identified for both PwC and
Vesuvius to work together to improve on the timeliness of the
external audit process for 2018, principally relating to the work
that went into pre-audit planning, and improvements in
communication between PwC and the local finance teams.
Reappointment of PwC for 2019
The Committee is responsible for making recommendations to
the Board in relation to the appointment, re-appointment and
removal of the Auditor. In undertaking this duty, the Committee
takes into consideration a number of factors concerning the
Auditor and the Group’s current activity, including:
> the results of its most recent review of the effectiveness of the
Auditors;
> the results of its review of the independence and objectivity of
the Auditors, particularly in light of the provision of non-audit
services;
> the cost-competitiveness of the Auditors in relation to the audit
costs of comparable UK companies;
> the tenure of the incumbent Auditors; and
> the periodic rotation of the senior audit management assigned
to the audit of the Company.
In addition, the Committee considers external reviews of the
performance and quality of the Auditors, including:
> the annual report issued by the Audit Inspection Unit of the
Financial Reporting Council on the work of the Auditors; and
> the Auditors’ own annual Transparency Report.
Having considered the aforementioned factors, the Committee
decided to recommend to the Board that PwC be reappointed for
2019. It confirms that its recommendation is free from the
influence of any third party and that there are no contractual
restrictions on the choice of auditor. A resolution proposing the
reappointment of PwC is included in the notice of AGM for 2019.
The Committee noted the ruling by the Securities Exchange
Board of India regarding the prohibition placed on PwC network
companies performing audits of listed entities for two years from
1 January 2018. This allows a transitional period and the audit of
Vesuvius entities in India remains permissible for the year ended
31 December 2018. The Committee is carefully watching
developments on this matter in the context of the Group’s two
listed Indian subsidiaries, Foseco India Limited and Vesuvius India
Limited. At the date of writing, the ruling remains under appeal by
PwC, but unheard by the competent legal tribunal. The Group has
considered contingency plans should the appeal be rejected and
does not anticipate any material disruption.
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 page 84. The overall
performance of the Audit Committee was rated highly, with the
Committee operating effectively to review the work of the internal
and external Auditors, providing appropriate challenge to
management’s assessment of significant audit issues and
material accounting judgements, and appropriate oversight of
the Group’s risk management and internal control systems.
It was noted that there was scope to enhance the approach and
effectiveness of Internal Audit under the new Head, and to gain
efficiencies in both Internal and External Audit going forward. A
number of priorities were identified for the Audit Committee over
the coming year, including implementing new accounting rules,
encouraging management to continue to improve the control
environment and having regard to the development of shared
services.
On behalf of the Audit Committee
Douglas Hurt
Chairman, Audit Committee
27 February 2019
Dear Shareholder,
Committee Members
On behalf of the Nomination Committee,
I am pleased to present the Nomination
Committee Report for 2018. The
primary responsibility of the Nomination
Committee is to focus on Board succession
planning to ensure that the Board is made
up of individuals with the appropriate
drive, abilities, diversity and experience
to lead the Company in the delivery of
its strategy.
The Committee reviews the current and future needs of the Board
and its Committees on an ongoing basis, and as part of the
annual corporate governance review conducted each year,
examines the independence and diversity of the Board and the
balance of skills and development needs of Board members.
During 2018, the Committee reviewed the tenure of all of the
Directors and discussed future Board composition.
In addition, the Nomination Committee monitors succession
planning for the senior management levels immediately below
the Board. This was a particular area of focus during 2018, with
the Committee reviewing the resourcing of key business unit roles,
focusing on the quality of those with key ‘P&L’ responsibility and
reviewing functional roles. It also reviewed talent development
and assessed the development of ‘high potential’ individuals
throughout the organisation.
The Committee is committed to supporting and encouraging the
growth of a consistent pool of diverse talent to ensure there is a
pipeline for future progression to the Board.
Yours sincerely
John McDonough CBE
Chairman, Nomination Committee
27 February 2019
John McDonough CBE (Committee Chairman)
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Holly Koeppel
The Nomination Committee
The Nomination Committee is made up of me, 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 my succession or 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 74 and 75.
Meetings
The Committee met five times during the year.
Key activities during the year
> Board composition: The Committee reviewed the skills,
knowledge and experience required for the Board to
continue to function effectively, and evaluated the current
Board composition against an assessment of these future
business needs
> Board succession: The Committee reviewed the ongoing
requirements for Board composition to maintain the correct
skills, experience and diversity at Board level, in light of the
tenure of existing Directors
> Senior Management succession: The Committee reviewed
the Group’s succession processes for the Group Executive
Committee and the management cadre below this level and
examined how the development of individuals flagged as
‘high potential’ was proceeding
> Directors’ elections: The Committee considered the Directors’
annual re-elections at the 2018 AGM
> Committee evaluation: The Committee reviewed its
performance and effectiveness during 2018
> Committee terms of reference: The Committee reviewed
its terms of reference and recommended amendments
to the Board to align them with the new UK Corporate
Governance Code
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.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 94
Nomination Committee continued
The Committee operates under formal terms of reference which
were reviewed during the year to update them for the new UK
Corporate Governance Code. These revised 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 specification 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 firms to identify
appropriate candidates, ensuring that any selected firm is not
in any way conflicted in the delivery of its role. In addition, the
Committee will only use those firms that have adopted the
Voluntary Code of Conduct addressing gender diversity and
best practice in search assignments.
The Committee begins any recruitment process by reviewing the
skills and attributes required for the role and agreeing a job
specification. The Committee selects a suitable search firm for the
assignment based on their skills, expertise and price. Searches are
conducted globally and a long-list of diverse potential appointees
is produced. For Executive Director positions internal candidates
are also considered. The Committee reviews the long-list and a
shortlist of candidates for interview is drawn up based upon the
objective criteria identified at inception. The initial short-list of
candidates is interviewed by members of the Nomination
Committee. The preferred candidate then meets with the
other Board members. Finally, detailed external references
are taken up and following this the Committee makes a formal
recommendation to the Board for the appointment of the
preferred candidate. The candidate is then supported in
undertaking their own due diligence on the Company and
meeting with its advisers. They are also required to demonstrate
that they have sufficient time available to devote to the role and
to identify any potential conflicts of interest.
Following a new appointment, the Committee continues to
monitor the development and integration onto the Board of the
new Director. They undertake a full induction programme,
continuing to gain insight into the business and meeting executives
throughout the organisation.
Board composition
On an ongoing basis, the Committee reviews the current and
future needs of the Board and its Committees – reflecting
on the balance of skills and experience of current Directors and
comparing this against the Board’s list of key skills. The Committee
also considers existing lengths of tenure and the prospective
rotation and retirement of Board members, so that it can plan
accordingly. As part of the annual corporate governance review
conducted during the year, the Committee examined the
independence of the Board and the balance of skills, and
development needs of Board members.
Diversity
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, ethnicity
and gender in respect of the Board’s composition. The Board’s
approach to diversity is formalised in the Board Diversity Policy,
details of which are set out on page 82. 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 Committee continues 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
The Committee’s succession planning activities do not exclusively
relate to the Board, but encompass the senior management levels
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. One of the key areas of focus for the Committee during the
year was on this succession pipeline, with an emphasis on the
development of the senior management cadre. The Committee
considered detailed succession plans for the senior business unit
positions and was appraised of the work being undertaken to
develop smaller ‘P&L’ positions within the organisation to allow
for the development of talented individuals who could then step
up to regional roles. The Committee noted the significant, senior
functional positions that were under recruitment, and examined
how the development of high potentials was proceeding,
particularly those who were undergoing management training.
The Board met key executives throughout the Group 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 inform the
Committee’s views on executive succession planning and talent
development across the Group.
Committee evaluation
The Committee’s activities were part of the externally facilitated
evaluation of Board effectiveness during the year. The Committee
was considered to have performed effectively over the past year,
with the content of meetings and the information received by
the Committee both rated highly, and as having continued to
improve. The significant focus on senior management resourcing
during the year, was favourably regarded. It was noted that
the Board would benefit from greater interaction with ‘high
potentials’ and it was agreed that the exposure of management
to the Committee and the Board in general would be further
developed. Other priorities for the Committee in 2019 include
ongoing oversight of senior management talent development
and succession planning, and monitoring the progress of the new
talent introduced in 2018.
On behalf of the Nomination Committee
John McDonough CBE
Chairman, Nomination Committee
27 February 2019
95
Directors’ Remuneration Report
Remuneration Overview
Dear Shareholder,
On behalf of the Remuneration
Committee, I am pleased to present the
Directors’ Remuneration Report for 2018,
which sets out details of the pay received
by Directors in 2018 and how we intend
to apply our Remuneration Policy in 2019.
This report will be subject to an advisory
shareholder vote at the 2019 AGM.
The existing Remuneration Policy was approved by Shareholders
at the 2017 AGM, in line with legislative requirements a new
Remuneration Policy will be tabled for shareholder approval at
the 2020 AGM. All payments received by Directors in 2018 were
in line with our Remuneration Policy. I have set out details below
of the key decisions made by the Committee during 2018.
More details about these are included in the Annual Report on
Directors’ Remuneration on pages 105 to 115.
Performance in 2018
As described in the Strategic Report, 2018 was a year of excellent
progress for the Group with revenue growth of 6.8%, on a
reported basis and a 19.1% increase in reported trading profit.
In addition, our cash generation remained robust, despite the
growth in our turnover and increased capital investment during
the year, but we recognise there is more to do on this front.
A global strategy review was conducted by the Board in 2018,
which led to the confirmation of our five key execution priorities.
It also highlighted opportunities to accelerate the delivery of
results from this strategy by: reinforcing our presence in the
high-end, high-quality segments of the steel and foundry
markets; increasing our efforts to optimise our manufacturing
cost base; and driving changes with a team of skillful, motivated
and talented people. The Remuneration Committee continues
to work to support these strategic initiatives.
In 2018, Annual Incentive awards for the Executive Directors
were based 60% on Group headline earnings per share (EPS),
20% on the Group’s working capital to sales ratio (based on the
12-month moving average) and 20% on specified personal
objectives. 33% of the Annual Incentive earned will be deferred
into awards over shares for three years.
In 2018, the Board resolved to adjust the accounting treatment
for the Group’s US Deferred Tax Asset. This change was entirely
unrelated to Group financial performance (and had no bearing
on incentive outcomes), but required the EPS targets for the
Annual Incentive Plan and the Group’s EPS for the base year of the
performance period for awards under the Vesuvius Share plan to
be retranslated, to ensure that the effects of this decision were
neutralised as performance was evaluated. The targets set out
below for the Annual Incentive are the adjusted targets.
In 2018, our retranslated headline EPS of 52.6 pence was above
the maximum adjusted Annual Incentive target of 43.0 pence.
The Group’s 2018 working capital to sales ratio was between the
threshold of 24.5% and the target of 23.5%. This results in awards
of 75% and 7.5% of base salary respectively, being 82.5% in total
for the Executive Directors in respect of the financial performance
metrics. In addition, we assessed each Executive Director’s
achievement of the personal objectives they were set for 2018,
awarding Mr André and Mr Young 21.53% and 17.65%
respectively of their maximum entitlements of 25%. As a result,
the overall Annual Incentives payable to Messrs André and Young
for 2018 are 104.03% and 100.15% of base salary respectively
against maximum bonus opportunities of 125%.
The performance period for the awards made under the Vesuvius
Share Plan (‘VSP’) in 2016 matured at the end of December 2018.
Performance was measured equally by reference to Total
Shareholder Return (‘TSR’) relative to the FTSE 250 (excluding
investment trusts) and headline EPS growth over the three-year
period (adjusted as above). Relative TSR performance was above
upper quintile; as a result 50% of Performance Share awards will
vest under the TSR element (out of a maximum 50%). The annual
compound headline EPS growth for the period was 26.5%,
exceeding the maximum annual compound headline EPS growth
target of 15%. As a result, 50% of Performance Share awards will
vest under the EPS performance element (out of a maximum
of 50%).
The Committee considered whether to exercise its discretion when
confirming the vesting of the Performance Shares, and reviewed
the underlying performance of the Company to satisfy itself that
the outcome was justified. Awards will vest in April 2019.
Other key decisions made by the Committee in 2018
> The Committee reviewed the salary for Patrick André, noting
that he was appointed Chief Executive in September 2017 on
a salary of £525,000 per annum. This salary was 11% lower
than his predecessor’s salary of £590,000. At appointment we
committed to review his salary annually for the first three years
of his appointment (January 2019, 2020 and 2021), to allow
the Committee the flexibility to adjust Mr André’s salary
to an appropriate level for an established Chief Executive,
subject to the Board being satisfied with his performance in
Remuneration
Strategic
Alignment
Deliver growth
Annual Incentive Plan
Vesuvius Share Plan
Generate sustainable
profitability and
create shareholder
value
Maintain strong cash
generation and an
efficient capital
structure
Provide a safe
working environment
for our people
Be at the forefront of
innovation
Run top-quality,
cost-efficient
and sustainable
operations
Foster talent,
skill and motivation
in our people
Vesuvius plcAnnual Report and Financial Statements 2018Governance
96
97
> resolved that share awards granted under the Vesuvius
Share Plan from 2019 onwards would also be subject to
post-employment termination holding requirements for
the duration of the above holding period – noting that a
formal policy on this would be developed as part of the
Remuneration Policy to be submitted for shareholder
approval in 2020
> reviewed the terms of the existing discretion applicable to
determination of the vesting of awards under the Vesuvius
Share Plan and updated this to align with the principles set
out in the New Code
> reviewed the existing malus and clawback circumstances
currently specified by the Company (as set out on page 99
of the Remuneration Policy) and concluded that they
remained appropriate.
The Remuneration Committee will undertake further work on
remuneration structure and disclosure and compliance in 2019,
with the intention of ensuring that the Company is fully compliant
with all its obligations in this regard by the end of the year.
Non-executive Directors’ fees
The Committee noted that the Board resolved to increase the fees
of Non-executive Directors during the year. With effect from
1 January 2019 the basic fee paid to Non-executive Directors has
increased by £5,000 to £50,000 p.a. No changes were made to
the supplementary fees paid to the Committee Chairmen and the
Senior Independent Director.
Shareholders’ views
The Committee encourages dialogue with its major shareholders.
It is satisfied that the current Remuneration Policy is designed to
promote the long-term success of the Company, and that the
performance-related elements of remuneration, which are kept
under review, are transparent, stretching and rigorously applied.
I remain keen to hear shareholders’ views on remuneration
matters 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
27 February 2019
Remuneration Overview continued
> the role. At the end of 2018, the Board discussed Mr André’s
performance to date as Chief Executive. The overwhelming
consensus was that he has developed quickly into a highly
effective and high-performing Chief Executive. In light of this,
the Committee concluded that it was an appropriate time
to adjust his salary on a commensurate basis. Accordingly,
Mr André’s salary was increased by 14% to £600,000 per
annum with effect from 1 January 2019.
> The Committee also reviewed the Chairman’s fee. These fees
were set on demerger in 2012 and were last reviewed in
2015 when no changes were made. Having considered the
Chairman’s performance, dedication to his role and the time
commitment, the Remuneration Committee approved an 11%
increase in the Chairman’s fee to £205,000 with effect from
1 January 2019.
> The Committee considered the structure of performance
measures for incentives in 2019. Having reviewed the existing
arrangements, the Committee intends to use the same
framework for performance measures in 2019 that was used
in 2018 for Executive Directors’ incentive awards. Thus, these
measures reward:
> Growth: through the EPS measure used in the Annual
Incentive and the Vesuvius Share Plan
> Effective working capital management: through a target
of the Group’s working capital to sales ratio (based on the
12-month moving average) to be used in the Annual Incentive
> Delivery of shareholder value: through the TSR measure
used in the Vesuvius Share Plan
> In addition, the Committee took decisions about the grant and
vesting of Share Plan awards in 2018 and the Annual Incentive
Plan payments made in 2018 in respect of 2017.
> Following the publication of the new 2018 UK Corporate
Governance Code the ‘New Code’ and The Companies
(Miscellaneous Reporting) Regulations 2018, the Committee
considered the changes that would need to be made to the
Committee’s role and responsibilities, and to the structure of the
Group’s remuneration going forward to ensure full compliance
with the New Code and these new Regulations. As a result of
this the Committee:
> recommended to the Board appropriate changes to the
Committee’s terms of reference, to incorporate the New
Code requirements regarding such items as: the prior
experience of the Remuneration Committee Chairman;
the Committee’s review of workforce remuneration and
related policies; and the alignment of incentives and rewards
with culture; share incentive plans promoting long-term
shareholdings by Executive Directors; remuneration schemes
and policies enabling the use of discretion to override
formulaic outcomes; and post-employment shareholding
requirements for Executive Directors
> reviewed its activities on understanding workforce related
remuneration policies
> resolved to implement an additional two-year holding period
for Performance Share awards that are granted under the
Vesuvius Share Plan from 2019 onwards, such that these
awards will be subject to a three-year vesting period,
followed by a two-year holding period
Directors’ Remuneration Report
Remuneration Policy
The Company’s existing Remuneration Policy was approved at the AGM held on 10 May 2017. The previous policy applied in its entirety
up until this date and after this date those elements of the previous policy that related to remuneration that remained extant on this date
(such as outstanding share awards) continued to apply until these commitments cease.
The full policy report, as approved by shareholders, can be found in the 2016 Annual Report (a copy of which is available under the
Reports tab in the ‘Investors’ section of the Group website www.vesuvius.com). For the benefit of shareholders, we have reprinted the
Policy below. To ensure that the Policy is relevant to the 2018 financial year, we have made minor textual changes to refer to the
applicable financial year in the following sections: Illustration of the Application of the Remuneration Policy for 2019 (which also
contains, as described, 2019 data); and Consideration of Shareholder Views. The ‘Service contracts’ section refers to the terms of the
current Executive Directors and the ‘Terms of service’ section refers to the dates of appointment of the current Non-executive Directors.
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office (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.
Reflects 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).
Paid in cash, subject to local tax and social
security regulations.
Other benefits
Alignment/purpose
Provides normal market practice benefits.
Operation
A range of standard benefits including,
but not limited to: car allowance, private
medical care (including spouse and
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 significant 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 benefits,
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 benefit costs
can fluctuate depending on changes in
provider, cost and individual circumstances.
Performance
None
Vesuvius plcAnnual Report and Financial Statements 2018Governance 98
Remuneration Policy continued
Pension
Alignment/purpose
Helps to recruit and retain key employees.
Ensures income in retirement.
Annual Incentive
Alignment/purpose
Incentivises Executive Directors to achieve
key short-term financial 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 specified circumstances
outlined elsewhere in this Policy. These may
be cash or share settled.
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.
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
Performance
Annual Incentive is measured on targets set at
the beginning of each year. The Committee
establishes threshold and maximum
performance targets for each financial year.
The majority of the Annual Incentive will be
determined by measure(s) of Group financial
performance. The remainder of the Annual
Incentive will be based on financial, 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.
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
financial performance of the Company over
the performance period to ensure the vesting
is justified.
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.
Awards vest three years after their award
date, other than in specified circumstances
outlined elsewhere in this policy, subject to
the achievement of specified 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.
99
Within the policy period, the Committee will continually review
the performance measures used, including TSR and the
applicable comparator group, and EPS and other financial
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 difficult 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 justifies 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 was 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.
Malus/Clawback arrangements
The Executive Directors’ variable remuneration is subject to malus
and clawback provisions. These provide the Committee with the
flexibility, 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 financial statements; an error in
the calculation of the extent of payment or vesting of an incentive;
gross misconduct by an individual; or significant financial 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 reflect key strategic aims and the need
for a rigorous focus on financial performance. Each year
the Committee agrees challenging targets to ensure that
underperformance is not rewarded. The Company will not be
disclosing the specific financial or personal objectives set until
after the relevant performance period has ended because
of commercial sensitivities. The personal objectives are all
non-financial or job-specific 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.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 100
101
Service contracts of Executive Directors
Remuneration policy for Non-executive Directors
Remuneration Policy continued
Illustration of the application of the Remuneration
Policy for 2019
The charts below show the total remuneration for Executive
Directors for 2019 for minimum, on-target and maximum
performance. The fixed elements of remuneration comprise
base salary, pension and other estimated benefits, using 2019
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 Patrick André 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 Patrick André and 150% of base salary for
Guy Young) under the Vesuvius Share Plan.
Maximum: Fixed remuneration plus maximum Annual Incentive
(being full achievement of financial and personal targets, made
at 125% of base salary for Patrick André and Guy Young) and
100% vesting for Performance Share awards (made at 200%
of base salary for Patrick André 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.
The Committee will periodically review the contractual terms
for new Executive Directors to ensure these reflect best practice.
Service contracts currently operate on a rolling basis and are
limited to a 12-month notice period.
Patrick André is employed as Chief Executive of Vesuvius plc
pursuant to the terms of a service agreement made with Vesuvius
plc dated 17 July 2017. Guy Young is employed as Chief Financial
Officer 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.
Remuneration Illustrations £000
Patrick André, Chief Executive
Guy Young, Chief Financial Officer
Minimum
100% £870k
56%
24% 20% £1,545k
On-Target
Maximum
Minimum
100% £472k
On-Target
16%
57%
27%
£822k
Maximum
31%
27%
42% £2,820k
33%
30%
37% £1,434k
0
500
1000
1500
2000
2500
3000
0
500
1000
1500
2000
2500
3000
Fixed Elements
Annual Variable Elements
Long-Term Variable Elements
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 specific 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.
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 reflecting changes in the market
or adjustments to a specific Non-executive
Director’s role.
No eligibility for bonuses, retirement benefits
or to participate in the Group’s employee
share plans.
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
Benefits and expenses
Alignment/purpose
To facilitate execution of responsibilities
and duties required by the role.
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
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 first Annual General Meeting following their appointment and
re-election at subsequent Annual General Meetings. During the first 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 office 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 satisfied.
Vesuvius plcAnnual Report and Financial Statements 2018Governance
102
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
Holly Koeppel
Recruitment policy
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 first 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 benefits 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
first 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.
Date of Appointment
31 October 2012
31 October 2012
2 April 2015
3 December 2012
2 April 2015
3 April 2017
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.
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 benefits 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.
103
Executive Directors’ contracts do not contain any change of
control provisions; they do contain a duty to mitigate should
the Director find 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 defines 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.
Event
Timing
Calculation of vesting/payment
Annual Incentive Plan
Good leaver
Paid at the same time as to continuing
employees.
Annual bonus is paid only to the extent
that any performance conditions have been satisfied
and is pro-rated for the proportion
of the financial year worked before cessation
of employment.
Bad leaver
Not applicable.
Individuals lose the right to their annual bonus.
Change of control
Paid on the effective date of change of control. Annual bonus is paid only to the extent that
Vesuvius Share Plan
Good leaver
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.
any performance conditions have been satisfied
and is pro-rated for the proportion of the financial
year worked.
Unvested awards vest to the extent that any
performance conditions have been satisfied 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 satisfied and
a pro-rata reduction applies for the proportion of the
vesting period not served.
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.
Benefits normally cease to be provided on the date employment
ends. However, the Committee has the discretion to allow some
minor benefits (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 office 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 office
or employment.
In certain circumstances, the Committee may approve new
contractual arrangements with departing Executive Directors
including (but not limited to) settlement, confidentiality, 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.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 104
Remuneration Policy continued
Comparison of Remuneration Policy for Executive
Directors with that for other employees
Consideration 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.
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 2018,
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.
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, fixed
benefits and retirement benefits – with performance-related
pay extending down into the management cadres and beyond.
However, given that remuneration structures for other employees
need to reflect 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 fixed 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 granted 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 financial year. The MTP share awards vest
on the second anniversary of the date of grant, subject to
continuing employment.
105
Directors’ Remuneration Report
Annual Report on Directors’ Remuneration
Directors’ Remuneration at a glance
Our remuneration for Executive Directors
The table below sets out the phasing of receipt of the various elements of Executive Director remuneration for 2019.
2019 2020 2021 2022
2023
2024 Description and link to strategy
Base salary
Benefits
Pension
Annual Incentive
Deferred Incentive
Vesuvius Share Plan
Salaries are set at an appropriate level to enable the
Company to recruit and retain key employees, and reflect
the individual’s experience, role and contribution within
the Company.
Provides normal market practice benefits.
The pension benefit helps to recruit and retain key
employees and ensures income in retirement.
The Annual Incentive incentivises the Executive Directors
to achieve key short-term financial and strategic targets
of the Group.
The deferral of a portion of the Annual Incentive increases
alignment with shareholders.
Awards under the Vesuvius Share Plan align Executive
Directors’ interests with those of shareholders through the
delivery of shares and assist in the retention of the Executive
Directors. The VSP rewards the Executive Directors for
achieving the strategic objectives of growth in shareholder
value and earnings.
Holding
Period
2019 Directors’ Remuneration
The table below sets out how the Remuneration Policy will be applied to the Executive Directors’ remuneration for 2019.
Further details about each of the elements of remuneration are set out in the Remuneration Policy and the Annual Report on
Directors’ Remuneration.
Remuneration element
Remuneration structure
Base salary
Benefits
Pension
Annual Incentive
Vesuvius Share Plan
Current salaries as follows:
> Patrick André – £600,000 (2018: £525,000)
> Guy Young – £350,000 (2018: £350,000)
The 2019 salaries shown above include a salary increase effective from 1 January 2019
of 14% for Patrick André. In line with the Group’s Remuneration Policy, Guy Young has not received
an increase in 2019.
Benefits for Executive Directors include car allowance, private medical care, relocation expenses,
tax advice and tax reimbursement, commuting costs, school fees and Directors’ spouse’s travel
and administrative expenses.
Pension allowances of 25% of base salary. This allowance 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).
For 2019 the maximum Annual Incentive potential for the Executive Directors will be 125% of base
salary with target Annual Incentive potential being 62.5% of base salary. Their incentives are
based 60% on Group headline earnings per share, 20% on the Group’s working capital to sales
ratio (based on the 12-month moving average) and 20% on specified personal objectives. 33% of
any Annual Incentive earned will be deferred into awards over shares, to be held for a period of
three years.
Performance Share awards with a maximum value of 200% of salary will be awarded to Patrick
André and 150% for Guy Young. Vesting of 50% of shares awarded will be based upon the
Company’s TSR performance relative to that of the constituent companies of the FTSE 250
(excluding investment trusts), and 50% on headline EPS growth. Performance will be measured
over three years with awards vesting after three years.There will then be a further two-year holding
period applicable to the awards.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 106
107
Annual Report on Directors’ Remuneration continued
Remuneration Committee structure
Advice provided to the Remuneration Committee
The current members of the Remuneration Committee are
all the independent Non-executive Directors of the Company.
The Committee Chairman is Jane Hinkley. Jane Hinkley, Hock
Goh, Douglas Hurt and Holly Koeppel have all served on the
Committee throughout 2018. All continue in office as at the date
of this report. The Committee complies with the requirements
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 74 and 75.
Meetings
The Committee met five times during the year. The Group’s
Chairman, Chief Executive and Chief HR Officer (initially Ryan
van der Aa, and subsequently Agnieszka Tomczak), 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 the majority of meetings.
The attendees supported the work of the Committee, giving
critical insight into the operational demands of the business and
their application to the overall remuneration strategy within the
Group. In receiving views on remuneration matters from the
Executive Directors and senior management, the Committee
recognised the potential for conflicts 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 and a recommendation was made
to the Board about appropriate amendments to align them with
the new 2018 UK Corporate Governance Code. The terms of
reference are available on the Group website www.vesuvius.com.
The Committee members are permitted to obtain outside legal
advice at the Company’s expense 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:
> Determining the overall remuneration policy for the Executive
Directors including the terms of their service agreements,
pension rights and compensation payments
> Setting the appropriate remuneration for the Chairman, the
Executive Directors and Senior Management (being the Group
Executive Committee)
> Reviewing workforce remuneration and related policies, and
the alignment of incentives and rewards with culture, taking
these into account when setting the policy for Executive
Director remuneration
> Overseeing the operation of the executive share incentive plans
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 share incentive plans. The Committee appointed Deloitte,
a signatory to the Remuneration Consultants Group Code of
Conduct in relation to Executive Remuneration Consulting in the
UK, following a formal tender process in 2014. Deloitte also
provides the Remuneration Committee with ongoing calculations
of total shareholder return (TSR) to enable the Committee to
monitor the performance of long-term share incentive plans.
In addition in 2018, within the wider Group, Deloitte was procured
in various jurisdictions to provide tax and treasury advisory work.
During 2018, Deloitte’s fees for advice to the Remuneration
Committee, charged on a time spent basis, amounted to £54,147.
The Committee conducted a review of the performance of
Deloitte as remuneration adviser during the year and concluded
that Deloitte continued to provide effective, objective and
independent advice to the Committee. No conflict 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 five meetings in 2018 included:
> Considering and approving the 2019 salary review proposals
for the Chairman, Chief Executive and Senior Management
> Reviewing and approving achievement against performance
targets for the 2017 Annual Incentive arrangements
> Setting performance targets and approving the structure of
the 2018 Annual Incentive arrangements
> Reviewing and assessing the Company’s attainment of
performance conditions applicable to the Vesuvius
Performance Share awards made in 2015
> Setting the performance measures and targets, and
authorising the grant of new awards in 2018 under the Vesuvius
Share Plan, the Deferred Share Bonus Plan and Medium Term
Incentive Plan
> Considering the Company’s ongoing share sourcing
requirements to meet obligations under the Company’s share
plans, and funding of the ESOP
> Approving the 2017 Directors’ Remuneration Report and
reviewing the 2018 Directors’ Remuneration Report
> In light of the publication of the new 2018 UK Corporate
Governance Code, the ‘New Code’, along with advice received
from the external advisers and other trends in remuneration
practice, discussing the Committee’s role and responsibilities
going forward. As a result of this the Committee:
> recommended to the Board appropriate changes to the
Committee’s terms of reference to incorporate the New Code
requirements regarding such items as: the prior experience
of the Remuneration Committee Chairman; the Committee’s
review of workforce remuneration and related policies; and
the alignment of incentives and rewards with culture; share
incentive plans promoting long-term shareholdings by
executive directors; remuneration schemes and policies
enabling the use of discretion to override formulaic
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 in respect of their Annual
Incentive, and awards made to management of the Company
over shares pursuant to the Medium Term Incentive Plan, must
be satisfied out of Vesuvius 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 2018, the Company held 7,271,174 ordinary
shares in Treasury and the ESOP held 2,874,060 ordinary shares.
During the year, the trustee of the ESOP purchased an additional
2,313,456 Vesuvius plc shares to hold to satisfy the potential
future vesting of awards under the Company’s share incentive
plans. Subsequent to the year-end the ESOP purchased an
additional 71,544 shares to complete a purchase commenced
prior to the year-end. 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
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 over a rolling ten-year period should not
exceed 10% of the Company’s issued share capital, with a further
limitation over a rolling ten-year period of 5% for discretionary
share schemes. More than 9.9% of the 10% limit and more than
4.9% of the 5% limit remains available as headroom for the issue
of new shares or the transfer of Treasury shares 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 financial year
2018 and how it will be implemented in the financial year 2019.
outcomes; and post-employment shareholding requirements
for executive Directors
> reviewed its activities on understanding workforce related
remuneration policies
> resolved to implement an additional two-year holding period
for Performance Share awards that are granted under the
Vesuvius Share Plan from 2019 onwards, such that these
awards will be subject to a three-year vesting period,
followed by a two-year holding period
> resolved that share awards granted under the Vesuvius
Share Plan from 2019 onwards would also be subject to
post-employment termination holding requirements for
the duration of the above holding period – noting that a
formal policy on this would be developed as part of the
Remuneration Policy to be submitted for shareholder
approval in 2020
> reviewed the terms of the existing discretion applicable to
determination of the vesting of awards under the Vesuvius
Share Plan and updated this to align with the principles set
out in the New Code and
> reviewed the existing malus and clawback circumstances
currently specified by the Company (as set out on page 99
of the Remuneration Policy) and concluded that they
remained appropriate.
> As in previous years, the Committee was the subject of an
externally moderated performance evaluation in 2018.
The performance of the Remuneration Committee was rated
highly and it was noted that there had been an improvement
in the quality of communication between the Company, the
Committee and its advisers, and that this was now rated as
good. It was anticipated that with the arrival of the new
Chief HR Officer this area would be further developed. It was
noted that in 2019, the Committee would be focusing on the
formulation of the Company’s 2020 Remuneration Policy,
which would be tabled for approval at the 2020 AGM.
Regulatory Compliance
The Remuneration Policy, which is set out on pages 97 to 104 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 Financial Conduct Authority’s Listing
Rules and the Disclosure Guidance and Transparency Rules.
This Remuneration Report sets out how the principles of the
2016 UK Corporate Governance Code are applied by the
Company in relation to matters of remuneration. We have
complied for the year under review with the provisions of
the Code.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 108
109
Annual Report on Directors’ Remuneration continued
Directors’ Remuneration – Audited
Base Salary and Fees
Pension Arrangements – Audited
The table below sets out the total remuneration received by Executive Directors in the financial year under review:
Total salary2
Taxable benefits3
Pension4
Total fixed pay5
Annual Incentive6
Long-term incentives7
Total variable pay8
Total9
Patrick André1
Guy Young
2018
(£000)
2017
(£000)
2018
(£000)
2017
(£000)
525
203
131
859
546
546
1,092
1,951
175
60
44
279
186
—
186
465
350
29
88
467
351
758
1,109
1,576
325
23
81
429
332
—
332
761
The table below sets out the fees and taxable benefits received by Non-executive Directors in the financial year under review and the
total remuneration received by both Executive and Non-executive Directors during the year under review:
John McDonough CBE
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Holly Koeppel10
Total 2018 Non-executive Director remuneration
Total 2018 Executive Director remuneration
Total 2018 Director remuneration
Total fees2
(£000)
185
45
45
60
65
45
Taxable
benefits3
(£000)
7
8
5
3
1
6
2018
Total
(£000)
192
53
50
63
66
51
475
3,527
4,002
Total fees2
(£000)
Taxable
benefits3
(£000)
185
21
45
45
60
65
34
7
8
3
2
7
2017
Total
(£000)
206
52
53
63
67
41
Note:
1. Patrick André joined the Board on 1 September 2017. Figures for 2017 in the table relate to salary, benefits and Annual Incentive earned in respect of the period
1 September – 31 December 2017.
2. Base salary (or fees, as appropriate) earned in relation to services as a Director during the financial year.
3. The UK regulations require the inclusion of benefits for Directors where these would be taxable in the UK on the assumption that the Director is tax resident in the
UK. The figures in the table therefore include expense reimbursement and associated tax relating to travel, accommodation and subsistence for the Director (and,
where appropriate, their spouse) in connection with attendance at Board meetings and other Corporate business during the year, which are considered by HMRC
to be taxable in the UK. Standard benefits for the Executive Directors include car allowance and private medical care. As an expatriate, Patrick André also receives
relocation benefits under Vesuvius’ applicable expatriate localisation policy. As detailed in the 18 July 2017 RNS announcement of Mr André’s appointment, those
relocation benefits (totalling £140,925 in 2018) comprised commuting and housing costs, a one-off resettlement allowance of one month’s salary, tax advice and
school fees. Patrick André’s benefits figure also includes the reimbursement by the Company of £25,306 in relation to double taxation suffered by Mr André in
respect of his remuneration arrangements as the Belgian-based President of the Flow Control business unit prior to his appointment as Chief Executive.
The taxable benefit numbers for 2017 have been restated for Messrs André and Young to reflect additional taxable benefits incurred in respect of the year.
4. Patrick André and Guy Young receive a pension allowance of 25% of base salary. The figures in the table represent the value of all cash allowances and
contributions received in respect of pension benefits.
5. The sum of total salary, taxable benefits and pension.
6. This figure includes the Annual Incentive payments to be made to the Executive Directors in relation to the year under review. 33% of these Annual Incentive
payments will be deferred into awards over shares, to be held for a period of three years. See pages 109 to 111 for more details.
7. This represents the Performance Share awards granted to Patrick André and Guy Young in 2016 under the Vesuvius Share Plan, that are due to vest in 2019.
See Note 1 of the Vesuvius Performance Share Awards Allocations table on page 112. At an average Vesuvius mid-market closing share price (from 1 October
2018-31 December 2018) of 537 pence, the total value of the awards that are due to vest, along with the cash payment for the dividend that has accrued on
these vested shares is £1,303,827.
8. The sum of the value of the Annual Incentive and the long-term incentives where the performance period ended during the financial year.
9. The sum of base salary, benefits, pension, Annual Incentive and long-term incentives where the performance period ended during the financial year.
10. Holly Koeppel joined the Board on 3 April 2017.
Additional note:
11. Total 2017 Director remuneration for the Directors who served during 2017 was £3.383m. This included total fixed pay of £667k and variable pay of £1,008k
paid to François Wanecq in 2017. François Wanecq retired from the Board on 31 August 2017.
In the year under review, the Chief Financial Officer received a
base salary of £350,000 per annum and the Chief Executive
received a base salary of £525,000 per annum. The 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. 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.
The Group currently operates a longer-term policy whereby
salaries of Executive Directors and senior Executives are reviewed
every two to three years rather than annually. In line with this
policy, Guy Young’s salary, which was reviewed and increased by
7.7% in 2018, has not been reviewed or adjusted further in 2019.
The Remuneration Committee has scope to step outside this
policy where it is commercially appropriate – this is the case for
Patrick André. As outlined at the time of appointment and in last
year’s Remuneration Report, Mr André was appointed Chief
Executive in September 2017 on a salary of £525,000 per annum
(11% lower than his predecessor’s salary of £590,000) with a
commitment to review his salary annually for the first three years
of his appointment (January 2019, 2020 and 2021). This approach
was intended to provide the Remuneration Committee with
flexibility to adjust Mr André’s salary to the appropriate level
for an established Chief Executive as and when the Board was
satisfied with his development in the role.
At the end of 2018, the Board discussed Mr André’s performance to
date as Chief Executive. The overwhelming consensus was that he
had developed quickly into a highly effective and high-performing
Chief Executive. In light of this, the Remuneration Committee felt it
was the appropriate time to adjust his salary on a commensurate
basis. Accordingly, Mr André’s salary was increased by 14% to
£600,000 per annum with effect from 1 January 2019.
In 2018 the Remuneration Committee also reviewed the
Chairman’s fee and the Board reviewed the fees paid to
Non-executive Directors. These fees were set on demerger
and were last reviewed in 2015 when no changes were made.
Having considered the Directors’ performance and recognising
the increasing time commitment of these roles, the Remuneration
Committee approved an 11% increase in the Chairman’s fee to
£205,000 with effect from 1 January 2019, and the Board
approved a 10% increase in the Non-executive Directors’ fees
to £50,000. No changes were made to the supplementary fees,
which remain at £15,000 per annum for the Chairmen of the
Audit and Remuneration Committees, and £5,000 for the Senior
Independent Director.
In accordance with their service agreements, Patrick André and
Guy Young are entitled to pension allowances of 25% of base
salary. This allowance 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 Incentive
The Executive Directors are eligible to receive an Annual Incentive
calculated as a percentage of base salary, based on achievement
against specified financial targets and personal objectives. Each
year the Remuneration Committee establishes the performance
criteria for the forthcoming year. The financial targets are set by
reference to the Company’s financial budget. The target range
is set to ensure that Annual Incentives are only paid out at
maximum for significantly 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.
2018 Annual Incentive
For 2018 the maximum Annual Incentive potential for the
Executive Directors was 125% of base salary and their target
Annual Incentive potential was 62.5% of base salary.
For the financial year 2018 the Executive Directors’ Annual
Incentives were based 60% on Group headline earnings per
share, 20% on the Group’s working capital to sales ratio (based on
the 12-month moving average) and 20% on specified personal
objectives.
Financial Targets
The 2018 Vesuvius Group headline earnings per share
performance targets set out below were set at the December
2017 full-year average foreign exchange rates, being the rates
used for the 2018 budget process and then adjusted following the
Board’s decision to recognise the utilisation of the US Deferred
Tax Asset through headline trading profit:
Threshold:
38.7 pence
On-target:
40.9 pence
Maximum:
43.0 pence
The 2018 Group’s working capital to sales ratio targets were set as
follows:
Threshold:
24.5%
On-target:
23.5%
Maximum:
22.5%
In assessing the Group’s performance against these targets, the
Committee uses a constant currency approach. Thus, the 2018
full-year EPS performance was retranslated at December
2017 full-year average foreign exchange rates to establish
performance. This is consistent with practice in previous years.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 110
111
Annual Report on Directors’ Remuneration continued
In 2018, Vesuvius’ retranslated EPS performance was 52.6 pence,
and working capital to sales ratio was 23.9%. Consequently EPS
performance was above maximum and the Group’s working
capital to sales was between threshold and target. Payments of
75% and 7.5% of base salary respectively, 82.5% in total were
therefore due to the Executive Directors under the Annual
Incentive in respect of the financial performance metrics.
Patrick André
Summary of objective
Summary outcome
Personal Objectives
In 2018, a proportion (20%) of the Annual Incentive for Executive
Directors (representing 25% out of the maximum 125% bonus
entitlement) was based on the achievement of personal
objectives. A summary of the objectives set and performance
achieved is set out below.
Drive Group performance
> Improved Group safety performance and developed internal control structures
> Elaborated and implemented further formal restructuring plans to drive Group
cost efficiency
> Delivered against most key financial KPIs
Progress senior executive talent
management and succession
> Introduced new high potential managers in key ‘P&L’ positions and business unit
president direct reports
Focus on Group strategy evolution
> Conducted strategy review, and implemented plan for accelerated delivery of
> Strengthened ‘bench’ below the direct reports of the business unit presidents
> Increased the strength of the Group’s corporate human resources organisation
longer-term growth
> Developed organic and inorganic growth opportunities
In summary, after considering performance as outlined above, the Committee approved an Annual Incentive pay-out of 21.53% of
base salary, out of the 25%, in respect of the personal objectives of Patrick André.
Guy Young
Summary of objective
Improve the Group financial
control process
Summary outcome
> Shortened monthly reporting timeframe to support business analysis
> Improved quality of MD&A on monthly results
> Strengthened financial control team
Improve the performance of
Shared Services
> Continued the implementation of delivery of the European Shared Service Centre
> Enhanced management and reporting lines for global shared services structure
Improve working capital management
> Improved quality of internal working capital reporting
Improve efficiency and performance
of IT output
> Delivered restructured IT team
> Increased efficiency in response to IT issues
> Delivered increased consistency of internal KPIs to drive performance
Performance of tax department
> Streamlined existing internal tax processes to deliver improved performance
In summary, after considering performance as outlined above, the Committee approved an Annual Incentive pay-out of 17.65% of
base salary out of the 25%, in respect of the personal objectives of Guy Young.
The total Annual Incentive awards payable to Patrick André and Guy Young in respect of their services as a Director during 2018 are
therefore 104.03% and 100.15% of salary respectively. 33% of these Annual Incentive payments will be deferred into awards over
shares, to be held for a period of three years.
2019 Annual Incentive
The Remuneration Committee has determined that for 2019 the structure of the Annual Incentive will remain the same as for 2018: 60%
of the Executive Directors’ Annual Incentives will therefore be based on Group headline earnings per share, 20% on the Group’s working
capital to sales ratio (based on the 12-month moving average) and 20% on the achievement of personal objectives. 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 2019 are all non-financial or job-specific in nature and track performance against key strategic, organisational and
operational goals. The maximum Annual Incentive potential for 2019 will be 125% of base salary, with potential payouts of 62.5% of
base salary for the achievement of target performance in all three elements. Payouts will commence and increase incrementally from
0% once the threshold performance for any of the three elements has been met. 33% of any Annual Incentive earned will be deferred
into awards over shares, to be held for a period of three years.
Deferred Share Bonus Plan allocations – audited
In 2018, 33% of the cash Annual Incentives earned by Patrick André and Guy Young in respect of their periods of service as Directors
of Vesuvius plc during 2017, were deferred into shares under the Company’s Deferred Share Bonus Plan. The following table sets out
details of these awards:
Grant and type of award
Patrick André
15 March 20181
Deferred Bonus Shares
Total
Guy Young
15 March 20181
Deferred Bonus Shares
Total
Total share
allocations
as at
31 Dec 2017
Additional
shares
allocated
during the year
Allocations
lapsed
during the year
Shares vested
during the year
Total share
allocations
as at
31 Dec 2018
Market price of
the shares on
the day before
award (p)
Earliest
vesting date
—
—
—
—
10,128
10,128
18,118
18,118
—
—
—
—
—
—
—
—
10,128
10,128
18,118
18,118
605.5
15 Mar 2021
605.5
15 Mar 2021
Note:
1. In 2018, Patrick André and Guy Young were awarded Annual Incentive bonuses in respect of their service as Directors of Vesuvius plc of £185,544 and £331,906
respectively. 33% of these bonuses were paid in deferred shares under the Deferred Share Bonus Plan. The allocations of shares were made on 15 March 2018
and were calculated based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the award was made, being £6.045.
The total value of these awards based on this share price on the date of grant was £61,229 and £109,529 respectively. These shares will vest on the third
anniversary of their award date.
Additional note:
2. The mid-market closing price of Vesuvius’ shares during 2018 ranged between 473.2 pence and 662 pence per share and on 31 December 2018, the last dealing
day of the year, was 506.5 pence per share.
Longer-term Pay (‘LTIPs’) – audited
Performance Share awards are allocated to the Executive
Directors under the Vesuvius Share Plan (VSP). 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 specified 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 schedule of EPS targets is designed
at the maximum level to be highly challenging, whilst remaining
an effective incentive for the management team. The EPS
and TSR measures operate independently. The use of these
performance measures is intended to align executive
remuneration with shareholders’ interests. UK Executives receive
awards in the form of nil-cost options with a flexible exercise date
and non-UK Executives receive conditional awards which are
exercised on the date of vesting.
Performance Share awards vest after three years and
commencing with awards made in 2019, they will then be subject
to a further two-year holding period.
On 15 March 2018, Patrick André and Guy Young received
allocations of Performance Shares worth 200% and 150% of their
base salaries, respectively. The Remuneration Committee has
determined that Patrick André will again receive a Performance
Share award in 2019 equivalent in value to 200% of his base
salary and Guy Young an award equivalent in value to 150% of
his base salary.
The performance period applicable to the awards made in 2016
ended on 31 December 2018. 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 above upper quintile. As a result, 50% of
Performance Share awards will vest under the TSR performance
element. The Group’s annual compound headline EPS growth
over the performance period was 26.5% exceeding the maximum
annual compound headline EPS growth target of 15%. Following
the Board’s decision to recognise the utilisation of the US
Deferred Tax Asset through headline trading profit, the Group’s
EPS for the base year of the performance period was adjusted
accordingly. As a result, 50% of Performance Share awards will
also vest under the EPS element, giving a total vesting of 100%.
These awards will vest in April 2019.
As described in the Remuneration Policy prior to the vesting of
Performance Shares the Remuneration Committee reviews the
underlying financial performance of the Company over the
performance period to ensure the vesting is justified, and to
consider whether to exercise its discretion to make any
amendments. For future grants of Performance Shares under the
VSP, this discretion has been extended to include consideration of
certain non-financial matters the occurrence of which may make
full or partial vesting inappropriate.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 112
113
Annual Report on Directors’ Remuneration continued
Targets for the Performance Share Awards granted in 2016, 2017, 2018 and to be granted in 2019– Audited
TSR ranking relative to FTSE 250
excluding investment trusts
Vesting percentage
Below median
Median
0%
12.50%
Between median and
upper quintile
Pro rata between 12.50% and
50%
Annual compound headline
EPS growth
Less than 3%
3%
Between 3% and 6%
Vesting percentage
0%
12.50%
Pro rata between 12.50% and
25%
Upper quintile and above
50%
6%
25%
Additional notes:
6. All of Guy Young’s awards have been made in the form of nil-cost options with no exercise price. Patrick André’s 2016 and 2017 awards were made in the form of
conditional awards and his 2018 award in the form of a nil-cost option.
7. If the respective performance conditions for Patrick André and Guy Young’s awards are not met then the awards will lapse. If the threshold level of either of the
two performance conditions applicable to the awards is met, then 12.50% of the awards will vest.
8. The Remuneration Committee also has the discretion to award cash or shares equivalent in value to the dividend that would have been paid during the vesting
period on the number of shares that vest.
9. The mid-market closing prices of Vesuvius’ shares during 2018 ranged between 473.2 pence and 662 pence per share and on 31 December 2018, the last dealing
day of the year, was 506.5 pence per share.
Malus/Clawback arrangements in 2019
Between 6% and 15%
Pro rata between 25% and 50%
15% or more
50%
Vesuvius has malus and clawback arrangements in respect of Executive Directors’ variable remuneration. The structure of those
arrangements is outlined in our Remuneration Policy.
Vesuvius Performance Share Award Allocations – Audited
Statement of Directors’ Shareholding – Audited
The following table sets out the Performance Share awards that were allocated in 2016, 2017 and 2018 under the Vesuvius Share Plan:
The interests of Directors and their closely associated persons in ordinary shares as at 31 December 2018, including any interests in
share options and shares provisionally awarded under the Vesuvius Share Plan are set out below:
Total share
allocations
as at
31 Dec 2017
Additional
shares
allocated
during the year
Allocations
lapsed
during the year
Shares vested
during the year
Total share
allocations
as at
31 Dec 2018
Market price of
the shares on
the day before
award (p)
Performance
period
Earliest
vesting date
Grant and type of award
Patrick André
8 April 20161
Performance Shares
16 March 20172,3
Performance Shares
1 September 20174
Performance Shares
15 March 20185
Performance Shares
Total
Guy Young
8 April 20161
92,746
60,413
42,257
—
—
—
—
195,416
173,697
173,697
Performance Shares
128,739
16 March 20172
Performance Shares
93,355
15 March 20185
—
—
Performance Shares
Total
—
222,094
86,848
86,848
—
92,746
291.7
8 Apr 2019
1 Jan 16 –
31 Dec 18
—
60,413
524.5
16 Mar 2020
1 Jan 17 –
31 Dec 19
—
42,257
578
1 Sep 2020
1 Jan 17 –
31 Dec 19
1 Jan 18 –
31 Dec 20
–
—
173,697
369,113
605.5
15 Mar 2021
—
128,739
291.7
8 Apr 2019
1 Jan 16 –
31 Dec 18
—
93,355
524.5
16 Mar 2020
1 Jan 17 –
31 Dec 19
1 Jan 18 –
31 Dec 20
—
—
86,848
308,942
605.5
15 Mar 2021
—
—
—
—
—
—
—
—
—
Note:
1. In 2016, Guy Young received an allocation of Performance Shares worth 125% of his base salary, being 128,739 shares. In addition, prior to his appointment as
Chief Executive, Patrick André received an award of 92,746 shares in respect of his role as President, Flow Control. Performance Shares that were allocated in
2016 had performance conditions to be tested over the financial years 2016, 2017 and 2018. In accordance with the Company’s achievement of the specified
performance conditions, 100% of Patrick André and Guy Young’s Performance Shares, being 92,746 shares and 128,739 shares respectively, are due to vest
on 8 April 2019. In addition, the Remuneration Committee has determined that Messrs André and Young will be given cash payments of £47,926 and £66,526
respectively, equivalent to the value of the dividends that would have been paid on the number of shares that are due to vest in respect of dividend record dates
occurring during the period between the award date and the date of vesting.
2. On 16 March 2017, Guy Young received an allocation of Performance Shares worth 150% of his base salary, being 93,355 shares. In addition, prior to his
appointment as Chief Executive, Patrick André received an award of 60,413 shares in respect of his role as President, Flow Control.
3. Patrick André’s March 2017 Performance Share award is subject to Flow Control performance conditions. Under these, 7,552 of the 60,413 shares awarded were
deemed to have met the performance condition applicable in the first year, and 7,552 shares are deemed to have met the performance condition applicable in
the second year. The achievement of the performance condition will be reassessed at the end of 2019.
4. Following his promotion to Chief Executive on 1 September 2017, Patrick André received an additional award of 42,257 Performance Shares in the form of a
conditional award. This award brought his total award of Performance Shares in 2017 to 200% of his salary on a pro-rated basis, which is the maximum annual
award for the Chief Executive as determined by the Vesuvius Remuneration Policy.
5. On 15 March 2018, Patrick André and Guy Young received allocations of Performance Shares worth 200% and 150% of their base salaries, being 173,697 shares
and 88,848 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 £6.045. The total value of these awards based on this share price on the date of grant was £1,049,998 and £524,996 respectively.
Executive Directors
Patrick André
Guy Young
Non-executive Directors
John Mc Donough CBE (Chairman)
Christer Gardell3
Hock Goh
Jane Hinkley
Douglas Hurt
Holly Koeppel
Outstanding incentive awards
With
performance
conditions1
Without
performance
conditions2
Beneficial
holding
—
14,811
369,113
308,942
10,128
18,118
100,000
—
5,000
12,000
18,000
27,500
—
—
—
—
—
—
Note:
1. Patrick André holds conditional awards over 195,416 shares, and 173,697 nil-cost options, Guy Young holds 308,942 nil-cost options respectively, these have all
been granted as Performance Shares under the Vesuvius Share Plan. The awards were all granted subject to performance conditions although 15,104 shares
granted to Patrick André in March 2017 have satisfied their performance condition and their vesting is now only subject to his continued employment until the
vesting date.
2. Patrick André and Guy Young hold conditional awards over 10,128 shares and 18,118 shares respectively, granted under the Deferred Share Bonus Plan.
These awards are not subject to any additional performance conditions.
3. 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
2018 and at the date of this report.
Additional notes:
4. None of the other Directors, nor their spouses, nor their minor children, held non-beneficial interests in the ordinary shares of the Company during the year.
5. There were no changes in the interests of the Directors in the ordinary shares of the Company in the period from 1 January 2019 to the date of this Report.
6. 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 111 and 112.
7. 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 office during normal business hours.
Payments to past Directors and loss of office payments– audited
Other than the payments disclosed in the 2017 Annual Report in respect of François Wanecq’s retirement from the Company, there
were no other payments made to any Director for loss of office during the year ended 31 December 2018, and no payments were
made to any other past Directors of the Company during the year ended 31 December 2018.
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 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 requirements have not been achieved or are not maintained.
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.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 114
115
Annual Report on Directors’ Remuneration continued
Executive Directors’ Shareholdings – Audited
TSR Performance and Chief Executive Pay
As at 31 December 2018, 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 2018, of 497 pence per share) were as follows:
Director
Patrick André
Guy Young
Actual share ownership
as a percentage of salary
at 31 Dec 2018
Policy share ownership
as a percentage of salary
Policy met?
0%
21%
200%
100%
In the build-up period
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 benefits and
Annual Incentive – and comparable data for UK salaried employees. The UK salaried employee workforce was chosen as a fair
representation of a suitable comparator group as both the former Chief Executive François Wanecq and the incumbent Chief Executive
Patrick André are 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.
Salary
Taxable benefits
Annual bonus
Chief Executive
UK salaried employee workforce
(average per capita)
2018
(£000)
525
203
546
20171
(£000)
568
216
585
% change
(7.57)
(6.02)
(6.67)
% change
3.28
(5.87)
25.48
Note:
1. Salary, taxable benefits and Annual bonus amounts in respect of the Chief Executive for 2017 reflect the sum of amounts payable to François Wanecq in respect
of service from 1 January 2017 to 31 August 2017, and amounts payable to Patrick André in respect of service from 1 September 2017 to 31 December 2017.
CEO pay ratios
CEO pay ratio
25th
Percentile
58:1
50th
Percentile
(Median)
43:1
75th
Percentile
28:1
The table above shows the Chief Executive Pay ratios, versus our UK employees for 2018. The pay ratios compare amounts disclosed
in the single total figure table for the Group Chief Executive to the annual full time equivalent remuneration of our UK employees for
2018. The data has been calculated in accordance with ‘Option’ A in The Companies (Miscellaneous Reporting) Regulations 2018.
Annual spend on employee pay1 vs Shareholders’ distributions2
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 2017 and 2018:
Relative importance of spend on pay (2018) £m
Relative importance of spend on pay (2017) £m
£53.2m
11.4%
£48.6m
10.4%
Remuneration
Dividends
B
Remuneration
Dividends
B
88.6%
£414.3m
89.6%
£418.0m
Employee Pay1
Dividends2
(based on final proposed dividend)
(£m)
2018
414.3
53.2
(£m)
2017
418.0
48.6
Change
(0.89)%
9.47%
Note:
1. Employee pay includes wages and salaries, social security, share-based payments and pension costs, and other post-retirement benefits. See Note 8 of the
Notes to the Group Financial Statements.
2. Shareholder Distributions/Dividends includes interim and final dividends paid in respect of each financial year. See Note 25 of the Notes to the
Group Financial Statements.
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 reflect the size, international scope and diversity of the
Company. TSR is the measure of the returns that a company has provided for its shareholders, reflecting share price movements and
assuming reinvestment of dividends. 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 2018.
Vesuvius’ total shareholder
return compared against total
shareholder return of the
FTSE 250 index (excluding
investment trusts)
since demerger
Vesuvius plc
FTSE 250 Index (excluding Investment Trusts)
250
200
150
100
50
19/12/12
Chief Executive pay – financial year ending
31/12/12
31/12/13
31/12/14
31/12/15
31/12/16
31/12/17
31/12/18
François Wanecq1
Patrick André2
Total remuneration (single figure (£000))
£1,227
£2,447
£1,519
£752
£1,173
Annual variable pay (% of maximum)
0%
100%
64%
Long-term variable pay (% of maximum)
67%
28%
27%
0%
0%
63%
0%
£1,6751
£4652
101%1
106%2
43.7%1
n/a2
£1,951
104%
100%
Note:
1. Amounts shown in respect of François Wanecq for 2017 reflect payments in respect of his service as Chief Executive from 1 January 2017 to 31 August 2017 and
the full value of his Vesuvius Share Plan award in relation to the performance period 2015–2017.
2. Amounts shown in respect of Patrick André for 2017 reflect payments in respect of his service as Chief Executive from 1 September 2017 to 31 December 2017.
Statement on Shareholder Voting
At the last AGM (which was held on 10 May 2018) the resolution concerning the advisory vote on the Directors’ Remuneration Report
for 2018 received 234,780,528 votes (98.65%) in favour and 3,204,210 votes against (1.35%); 778,850 votes were withheld. At the 2017
AGM, when the Company’s Remuneration Policy was last put to the vote, the resolution received 238,743,173 (98.86%) in favour and
2,762,888 votes (1.14%) against; 1,454,874 votes were withheld. At the AGM to be held on 15 May 2019, shareholders will again be
invited to participate in an advisory vote on the Directors’ Remuneration Report.
The Directors’ Remuneration Report has been approved by the Board and is signed on its behalf by
Jane Hinkley
Chairman, Remuneration Committee
27 February 2019
Vesuvius plcAnnual Report and Financial Statements 2018Governance
116
Directors’ Report
Directors’ Report
Future developments
Directors’ indemnities
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 2018.
The Companies Act 2006 requires the Company to provide
a Directors’ Report for Vesuvius plc for the year ended
31 December 2018. The information that fulfils 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 Non-financial information section
> The Governance section, including the Corporate Governance
Statement
> Financial Instruments: the information on financial risk
management objectives and policies contained in Note 26 to
the Group Financial Statements
This Directors’ Report and the Strategic Report contained on
pages 1 to 71 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 32 and 33. The financial
position of the Group, its cash flows, 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 page 31. Note 26 to the Group Financial Statements
sets out the Group’s objectives, policies and processes for
managing its capital; financial risks; financial 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 26 to the Group Financial Statements.
The Directors have prepared profit and loss, balance sheet
and cash flow forecasts for the Group for a period in excess
of 12 months from the date of approval of the 2018 financial
statements. On the basis of the exercise described above, the
Directors have prepared a going concern statement which can
be found on page 31.
Research and development
The Group’s investment in research and development (R&D)
during the year under review amounted to £33.6m (representing
approximately 2% (2017: 2%) of Group revenue. Further details of
the Group’s R&D activities can be found in the Innovation section
of the Strategic Report.
A full description of the activities of the Group, including
performance, significant events affecting the Group in the
year, and indicative information in respect of the likely future
developments in the Group’s business, can be found in the
Strategic Report.
Dividends
An interim dividend of 6.00 pence (2017: 5.50 pence) per Vesuvius
ordinary share was paid on 21 September 2018 to Vesuvius
shareholders. The Board is recommending a final dividend in
respect of 2018 of 13.8 pence (2017: 12.50 pence) per ordinary
share which, if approved, will be paid on 24 May 2019 to
shareholders on the register at 23 April 2019.
Post Balance Sheet event
On 27 February 2019 the Group signed an agreement to acquire
the entire issued share capital of CCPI Inc (“CCPI”), a specialty
refractory producer focused on tundish (steel continuous casting)
applications (65% of sales) and aluminium (35% of sales).
CCPI is based in Ohio, USA, and will become part of the Group’s
Advanced Refractories business unit. The transaction values CCPI
at US$43.4 million (£33.1 million) on a cash and debt free basis.
The acquisition is expected to close within the coming week.
Accountability and audit
A responsibility statement of the Directors and a statement by
the auditor about its reporting responsibilities can be found on
pages 120 and 121 to 126 respectively. The Directors fulfil 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 confirms 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.
Auditors reappointment
PricewaterhouseCoopers LLP (PwC) were reappointed as
external Auditors for Vesuvius plc for the year ended 31 December
2018, at the 2018 AGM. PwC have been Vesuvius’ external
Auditors since 2017 and have expressed their willingness to
continue in office as Auditors of the Company for the year
ending 31 December 2019. Consequently, resolutions for the
reappointment of PwC as auditor of the Company and to
authorise the Directors to determine their remuneration are to
be proposed at the 2019 AGM.
Directors
The Directors of the Company are Patrick André, Christer Gardell,
Hock Goh, Jane Hinkley, Douglas Hurt, Holly Koeppel, John
McDonough CBE and Guy Young. All the Directors will retire at
the 2019 AGM and offer themselves for re-election at the AGM.
Biographical information for the Directors is given on pages 74
and 75. Further information on the remuneration of, and
contractual arrangements for, the Executive and Non-executive
Directors is given on pages 95 to 115 in the Directors’
Remuneration Report. The Non-executive Directors do not
have service agreements.
The Directors have been granted qualifying third-party
indemnity provisions by the Company and the Directors of the
Group’s UK Pension Plans 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 financial 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 15 May 2019 at 11.00 am.
Amendments 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 64 of
the Strategic Report.
Donations
In accordance with Company policy, no political donations
were made in 2018 (2017: nil), and no charitable donations of
more than £2,000 were made in 2018 (2017: 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 significant.
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 8 to the Company Financial
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
117
551 of the Companies Act up to the aggregate nominal amount
specified 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
first 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
specified by the relevant resolution.
At the AGM on 10 May 2018, the Directors were authorised to
issue relevant securities up to an aggregate nominal amount of
£9,040,463, and, in connection with a rights issue, to issue relevant
securities up to a further nominal value of £9,040,463. In addition,
the Directors were empowered to allot equity securities, or sell
Treasury Shares, for cash on a non pre-emptive basis up to an
aggregate nominal amount of £1,356,069, and for the purposes
of financing (or refinancing, if the authority is to be used within six
months after the original transaction) a transaction which the
Board of the Company determines to be an acquisition or other
capital investment, to allot equity securities, or sell Treasury
Shares, for cash on a non pre-emptive basis up to an additional
nominal amount of £1,356,069. Each of the authorities given in
these resolutions expires on 30 June 2019 or the date of the AGM
to be held in 2019, whichever is the earlier. The resolutions were all
tabled in accordance with the terms of the Pre-Emption Group’s
Statement of Principles. The Directors propose to renew these
authorities at the 2019 AGM 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 AGM on 10 May 2018, 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 2019 or the date of the AGM to
be held in 2019, whichever is the earlier. The Directors will seek
renewal of this authority at the 2019 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 nor did it dispose of any shares
previously acquired. The Company does not have a lien over any
of its shares.
Vesuvius plcAnnual Report and Financial Statements 2018Governance 118
Directors’ Report continued
Share Plans
Vesuvius operates a number of share-based incentive plans.
Under 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 plan 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.
At 31 December 2018, the ESOP held 2,874,060 ordinary shares.
During the year, the trustee of the ESOP purchased 2,313,456
ordinary shares of 10p each in Vesuvius with a nominal value of
£0.2m at a total cost, including transaction costs of £13.0m, to
hold to satisfy the future vesting of awards under the Company’s
share incentive plans. Subsequent to the year end the ESOP
purchased an additional 71,544 ordinary shares, at a total cost,
including transaction costs, of £0.4m, to complete a purchase
order commenced prior to the year end. The total purchases
during the year represented 1% of the Company’s called up share
capital.
Restrictions on transfer of shares and voting
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
Standard Life Aberdeen
Aberforth Partners
Phoenix Asset Management
As at
31 Dec 2018
As at
27 Feb 2019
21.11
13.59
4.93
3.10
21.11
14.06
4.93
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 Financial Conduct Authority are as set out
on page 113 of the Directors’ Remuneration Report and details of
the Directors’ Deferred Share Bonus Plan and long-term incentive
awards are set out on pages 111 and 112.
Equal opportunities employment
Vesuvius 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.
Employee involvement
Vesuvius adopts an open and honest approach to employee
communications, supported by regular updates from senior
management across businesses and operations within the
Group. The Board and senior management visit operations
throughout the year, touring the sites and meeting with
employees. Other regular communications include direct email
updates on the financial performance of the Company, the
industrial environment in which Vesuvius operates, and other
significant operational developments. The Company operates an
employee intranet which distributes Company news and events,
an employee “App” for information dissemination, 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 these employee representative bodies as appropriate.
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. For certain senior managers, awards are made
under the Vesuvius Medium Term Plan (‘MTP’). These managers
participate in the MTP at varying percentage levels, and awards
are made in shares and based on the same measures and targets
as the Annual Incentive Plan.
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
119
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 the 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.
Vesuvius continues to seek ways to de-risk its existing pension
plans through a combination of asset matching, buy-in
opportunities and, where prudent, voluntary cash contributions.
The Group’s worldwide net pension deficit at 31 December 2018
was £15.3m (31 December 2017: £16.5m). The principal reasons
for the improvement of £1.2m were driven by £5.1m from changes
to actuarial assumptions (attributable to increasing discount
rates; updated mortality assumptions and pension membership
data) and £8.5m from cash contributions and payments of
unfunded benefits; offset by additional accrual and administrative
expenditure paid for the year of £9.8m and foreign exchange
movements of £2.6m.
The following disclosures are made in compliance with the
Financial Conduct Authority’s Listing Rule 9.8.4C R:
Disclosure requirement under LR 9.8.4R
Reference/Location
(1)
Interest capitalised by the Group during the year
None
(2) Publication of unaudited financial information
(3) Details of any long-term incentive schemes
(4) Director waiver of emoluments
(5) Director waiver of future emoluments
(6)
(7)
(8)
(9)
Allotment for cash of equity securities made during
the year
Allotment for cash of equity securities made by a major
unlisted subsidiary during the year
Details of participation of parent undertaking in any
placing made during the year
Details of relevant material contracts in which a Director or
controlling shareholder was interested during the year
Not applicable
Pages 98 and 99
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
(10) Contracts for the provision of services by a controlling
Not applicable
shareholder during the year
(11) Details of any arrangement under which a shareholder
has waived or agreed to waive any dividends
Vesuvius plc holds 7,271,174 of its 10 pence 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 107, 111 and 112
(12) Details of where a shareholder has agreed to waive future
See above
dividends
(13) Statements relating to controlling shareholders and ensuring
Not applicable
company independence
The Directors’ Report has been approved by the Board and is signed, by order of the Board, by the Secretary of the Company.
Henry Knowles
Company Secretary
27 February 2019
Vesuvius plcAnnual Report and Financial Statements 2018Governance 120
121
Statement of Directors’ Responsibilities in respect of the
Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law
and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and Company financial statements
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law). Under company law the Directors must not
approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and Company and of the profit or loss of the Group and
Company for that period. In preparing the financial statements,
the Directors are required to:
> select suitable accounting policies and then apply them
consistently;
> state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS
101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in
the financial statements;
> make judgements and accounting estimates that are
reasonable and prudent; and
> prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.
The Directors are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company and
enable them to ensure that the financial statements and the
Directors’ Remuneration Report comply with the Companies Act
2006 and, as regards the Group financial statements, Article 4 of
the IAS Regulation.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ confirmations
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to
assess the Group and Company’s position and performance,
business model and strategy.
Each of the Directors, whose names and functions are listed in the
Statement of Directors’ Responsibilities confirm that, to the best
of their knowledge:
> the Company financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law), give a true and fair view of the assets, liabilities,
financial position and profit of the Company;
> the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give
a true and fair view of the assets, liabilities, financial position
and profit of the Group; and
> the Strategic Report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that it faces.
The Directors of Vesuvius plc who were in office during the year
and up to the date of signing the financial statements were:
Chairman
Chief Executive
Chief Financial Officer
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
Non-executive Director
John McDonough CBE
Patrick André
Guy Young
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Holly Koeppel
On behalf of the Board
Guy Young
Chief Financial Officer
27 February 2019
Independent Auditors’ Report
To the Members of Vesuvius plc
Report on the audit of the
financial statements
Opinion
In our opinion:
> Vesuvius plc’s group financial statements and company
financial statements (the “financial statements”) give a true
and fair view of the state of the group’s and of the company’s
affairs as at 31 December 2018 and of the group’s profit and
cash flows for the year then ended;
> the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
> the company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law); and
> the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS
Regulation.
We have audited the financial statements, included within the
Annual Report and Financial Statements (the “Annual Report”),
which comprise: the Group and Company Balance Sheets as at
31 December 2018; the Group Income Statement and Group
Statement of Comprehensive Income, the Group Statement
of Cash Flows, and the Group and Company Statements of
Changes in Equity for the year then ended; and the notes to the
financial statements, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as
applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit
services prohibited by the FRC’s Ethical Standard were not
provided to the group or the company.
Other than those disclosed in Note 6 to the financial statements,
we have provided no non-audit services to the group or the
company in the period from 1 January 2018 to 31 December 2018.
Our Audit Approach – Overview
Materiality
Materiality
Audit scope
Key audit matters
Audit scope
> Overall group materiality:
£9.4 million (2017: £7.6 million),
based on 5% of profit before
tax and separately reported
items (‘Headline profit
before tax’).
> Our audit included full scope
audits of 20 components and
specified procedures on
certain balances and
transactions for 8 additional
components.
> Overall company materiality:
> Taken together, the
Key audit
matters
£9.4 million (2017: £7.6 million),
based on 1% of total assets,
capped to the level of group
materiality.
components at which either
full scope audit work or
specified audit procedures
were performed enabled us
to get coverage on 68% of
revenue and 78% of Headline
profit before tax.
> Provisions for exposures
(Group).
> Provisions for income tax
uncertainties (Group).
> Recognition of deferred tax
assets for tax losses (Group).
> Impairment of investment in
subsidiaries (Company).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements.
Capability of the audit in detecting irregularities,
including fraud
Based on our understanding of the group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to tax, health and safety and anti-bribery, and
we considered the extent to which non-compliance might have a
material effect on the financial statements. We also considered
those laws and regulations that have a direct impact on the
preparation of the financial statements such as the Companies
Act 2006. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and
determined that the principal risks were related to posting
inappropriate journal entries to revenue and management bias in
accounting estimates. The group engagement team shared this
risk assessment with the component auditors so that they could
include appropriate audit procedures in response to such risks
in their work. Audit procedures performed by the group
Vesuvius plcAnnual Report and Financial Statements 2018Governance
122
123
Independent Auditors’ Report
To the Members of Vesuvius plc continued
engagement team and/or component auditors included:
> enquiries of group and local management, internal audit
and the group’s legal counsel (internal and, where relevant,
external), including consideration of known or suspected
instances of fraud and non-compliance with laws and
regulations;
> understanding and evaluating the design and implementation
of management’s controls designed to prevent and detect
irregularities, including whistleblowing arrangements;
> inspecting management reports and Board minutes in relation
to health and safety matters; challenging assumptions and
judgements made by management in their critical accounting
estimates, in particular in relation to provisions for exposures
and uncertain tax positions (see related key audit matters
below); and
> identifying and testing journal entries, in particular any journal
entries posted with unusual account combinations, postings by
unusual users or with unusual descriptions.
There are inherent limitations in the audit procedures described
above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the
financial statements, the less likely we would become aware of it.
Also, the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit
of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those
which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make
on the results of our procedures thereon, were addressed in the
context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate
opinion on these matters. This is not a complete list of all risks
identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Provisions for exposures
The group holds a number of provisions for
exposures including those resulting from
restructuring commitments, and disposal
and closure costs, including litigation
matters. Refer to Restructuring Charges
(Note 7 on page 141) Provisions (Note 31
on page 168) Critical Accounting
Judgements and Estimates (Note 3 on
page 135) and Significant issues and
material judgements in the Audit
Committee Report (page 88).
Determining the quantum of provisions
requires the directors to use judgement
and estimation, and for certain provisions,
obtain specialist knowledge.
We focused on this area due to the
judgement and estimates involved and
the disclosures required.
(Group)
We obtained an understanding for the basis of each significant estimate and the key
assumptions used for provisions and, in certain cases, the related insurance assets.
Restructuring costs related to the group’s rationalisation of its operational and
support functions. The costs predominantly included redundancies and severance
payments, plant closure costs, professional advisor fees and other impairment
charges for obsolete inventories and property, plant and equipment.
> We have tested a sample of restructuring costs to determine that these are
directly attributable to the group’s restructuring activities.
> For costs which are provided for at the year end we have verified for a sample of
transactions that a legal or constructive obligation exists.
> From our procedures we concluded that restructuring costs were appropriately
recognised and classified within the financial statements.
For provisions for disposal and closure costs, including litigation matters:
> We obtained supporting computations for the estimated costs and tested the
mathematical accuracy of these.
> We discussed obligations arising with in-house and external legal counsel and
inspected supporting evidence of the history of claims arising where these were
used as inputs into client models used to estimate the provisions, with the support
of an internal expert.
> We also inspected evidence of available insurance cover and that this was
appropriately presented gross of the associated provisions (within ‘Other
receivables’) and considered the financial condition of insurance providers.
> We considered whether there is a material range of different possible outcomes
and/or costs involved in respect of each provision. Where appropriate,
we verified that disclosure is included within the Annual Report of this.
From our procedures, we concluded the quantum of each provision held was
appropriate.
We also considered the impact of the provisions for exposures on the reporting and
disclosure of separately reported items and Alternate Performance Measures in the
financial statements and verified that appropriate disclosures are made in the
Annual Report.
Key audit matter
How our audit addressed the key audit matter
Provisions for income tax uncertainties
The group holds a number of provisions
for income tax exposures arising from tax
structuring, transfer pricing and local
authority reviews.
Refer to Income Tax (Note 10 on page 143)
Critical Accounting Judgements and
Estimates (Note 3 on page 135 and
Significant issues and material judgements
in the Audit Committee Report (page 88).
Determining the quantum of these
provisions requires the directors to make
judgements and estimates, and for certain
provisions, obtain specialist knowledge.
(Group)
We utilised our tax specialists to provide a view of material judgements made.
Our audit procedures included:
> Obtaining relevant computations and correspondence in respect of each material
element of the provision for Income tax uncertainty, including knowledge gained
from our component teams.
> Understanding the key assumptions made by management in recognising
the provision and forming an independent view on the reasonableness of
the assumptions.
> Assessing the consistency of approach used to determine provisions compared to
prior periods, and considering whether such consistency remains appropriate.
> Considering the range of possible outcomes in respect of the estimate and that the
Annual Report discloses the nature of the estimation uncertainty.
From our procedures we concluded that the estimates are reasonable and that
appropriate disclosures have been included within the Annual Report.
Recognition of deferred tax assets for tax
losses
In certain territories such as the US, the
group has a material quantum of historical
tax losses (and other temporary differences).
We utilised our tax specialists to support with the audit testing of the quantum of
tax losses and other temporary differences in the US and that this is accurately
determined, including taking into account any ongoing interpretations in respect of
major changes from US tax reform in December 2017. We concluded the tax losses
and other temporary differences are accurately determined.
In addition to testing the quantum of temporary differences:
> We tested management’s forecasts of future taxable profits, which supported the
amounts recognised as a deferred tax asset, and considered the likelihood of these
forecasts being achieved.
> We considered temporary differences not recognised and that the rationale for these
was supported by expiry dates, tax legislation and the forecasts. We concluded that
the deferred tax asset appropriately reflects expected levels of future utilisation.
> We assessed the disclosure of deferred tax asset recognised in 2018 within
Separately reported items and agreed that with regard to the quantum of the
amount recognised this year that this was appropriate. We also considered the
disclosure of the utilisation of the deferred tax asset which is included in Headline
performance and that the accounting policies adequately explain this treatment.
In addition to our testing of the US deferred tax asset recognised we also tested
the recognition (or non-recognition) in respect of temporary differences in other
locations. Based on the supporting evidence and rationales obtained we concurred
with the specific treatments for each location tested.
From our procedures we concluded that the estimate of the deferred tax asset recognised
is appropriate and that relevant disclosures have been included within the Annual Report.
We focused on this area due to the material quantum of the carrying value of
investments. We considered management’s assessment of indicators of impairment
and whether there were any new developments in 2018 which may indicate an
impairment to the carrying value of the investment in subsidiaries. Factors considered
were:
> The results of the Value in use model used for the impairment test over goodwill.
> Performance of the group in 2018 against the budget and the Board’s outlook for
the group.
> Market capitalisation of the group, adjusted for net debt.
> We concluded that no indicators of impairment of the company’s carrying value of
investments in its subsidiaries had arisen.
The determination of whether deferred tax
assets should be recognised involves an
estimation of future taxable profits and
an assessment of the probability that
these would result in future utilisation
of temporary differences. In addition,
other factors such as the expiry dates of
temporary differences and any complexities
in legislation are also considered in
estimating the quantum to recognise
as a deferred tax asset.
Refer to Income Tax (Note 10 on page 143)
Critical Accounting Judgements and
Estimates (Note 3 on page 135) and
Significant issues and material judgements
in the Audit Committee Report (page 88).
(Group)
Impairment of investment in subsidiaries
IAS 36 Impairment of assets requires
management to consider whether there are
any indicators of impairment at the year end.
The company holds investments in subsidiaries
with a total carrying amount of £1,778m at
31 December 2018.
We did not consider the valuation of these
investments to be a significant risk of
misstatement, however, due to the quantum of the
carrying amount this was an area of significance
in the audit of the company. Judgement is
required to determine whether impairment
indicators exist which, if identified, would require
an impairment test to be performed.
Refer to Investment in Subsidiaries, Associates
and Joint Ventures (Note 6 on page 179).
(Company)
Vesuvius plcAnnual Report and Financial Statements 2018Governance 124
125
Independent Auditors’ Report
To the Members of Vesuvius plc continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
group and the company, the accounting processes and controls,
and the industry in which they operate.
Vesuvius has operations in 41 countries and has 59 production
sites. The group consolidates financial information through
reporting from its components which include divisions and
functions at these sites.
Our audit scope was determined by considering the significance
of the component’s contribution to revenue and contribution
to individual financial statement line items, with specific
consideration to obtaining sufficient coverage over areas of high
risk and locations and entities where we identified significant or
inherent risks.
We identified one significant component being the group’s
German operations which comprise 12% of the group’s revenue.
As the group’s remaining revenue is spread across 53 financial
reporting components there were no other individually financially
significant components. The audit scope, including Germany,
comprised 20 components for which we determined that full
scope audits would need to be performed and 8 components
for which specific audit procedures on certain balances and
transactions were performed. This collectively gave us coverage
of 68% of the group’s revenue and 78% of the group’s Headline
profit before tax. This, together with the additional procedures
performed at the group level, including testing the consolidation
process, gave us the evidence we needed for our opinion on the
financial statements as a whole.
In establishing the overall approach to the group audit, we
determined the type of work that needed to be performed at
the components by us, as the group engagement team, or by
component auditors of other PwC network firms. Where the work
was performed by component auditors, we determined the level
of involvement and oversight we needed to have in the audit work
at those reporting units to be able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis for our
opinion on the financial statements as a whole. This was achieved
through regular communications with the component auditors,
including visits to 10 of the 20 full scope components by senior
members of the group audit team.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect
of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall materiality
£9.4 million (2017: £7.6 million)
£9.4 million (2017: £7.6 million)
Group financial statements
Company financial statements
How we determined it
5% of profit before tax and separately
reported items (‘Headline profit before tax’)
1% of total assets, capped to the level of
group materiality
Rationale for benchmark
applied
We believe that profit before tax and
separately reported items (‘Headline profit
before tax’) provides us with an appropriate
basis for determining our overall group
materiality given it is a key measure used
by users of the financial statements both
internally and externally. Headline profit
before tax is an Alternative Performance
Measure presented and defined in the
Annual Report and Financial Statements.
We believe that total assets is an
appropriate basis for determining
materiality for the parent company, given
this entity is an investment holding
company and this is an accepted auditing
benchmark. The materiality was capped
to the level of group overall materiality.
The company is not an in-scope component
in our group audit.
For each component in the scope of our group audit, we allocated
a materiality that is less than our overall group materiality.
The range of materiality allocated across components was
between £0.5 million and £6.0 million. Certain components were
audited to a local statutory audit materiality that was also less
than our overall group materiality.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £0.5 million
(Group audit) (2017: £0.4 million) and £0.5 million (Company
audit) (2017: £0.4 million) as well as misstatements below
those amounts that, in our view, warranted reporting for
qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention
to in respect of the directors’ statement in the financial statements about
whether the directors considered it appropriate to adopt the going concern
basis of accounting in preparing the financial statements and the directors’
identification of any material uncertainties to the group’s and the company’s
ability to continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
We are required to report if the directors’ statement relating to Going Concern
in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
We have nothing material to add or to
draw attention to.
However, because not all future events
or conditions can be predicted, this
statement is not a guarantee as to
the group’s and company’s ability
to continue as a going concern.
For example, the terms on which the
United Kingdom may withdraw from
the European Union, which is currently
due to occur on 29 March 2019, are not
clear, and it is difficult to evaluate all of
the potential implications on the group
and company’s trade, customers,
suppliers and the wider economy.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the
other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that
there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act 2006
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct
Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless
otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 December 2018 is consistent with
the financial statements and has been prepared in accordance
with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and
company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the group and of
the principal risks that would threaten the solvency or liquidity of
the group
We have nothing material to add or draw attention to regarding:
> The directors’ confirmation on page 31 of the Annual Report
that they have carried out a robust assessment of the principal
risks facing the group, including those that would threaten its
business model, future performance, solvency or liquidity.
> The disclosures in the Annual Report that describe those risks
and explain how they are being managed or mitigated.
> The directors’ explanation on page 31 of the Annual Report
as to how they have assessed the prospects of the group, over
what period they have done so and why they consider that
period to be appropriate, and their statement as to whether
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 period of their assessment, including any related
disclosures drawing attention to any necessary qualifications
or assumptions.
We have nothing to report having performed a review of the
directors’ statement that they have carried out a robust
assessment of the principal risks facing the group and statement
in relation to the longer-term viability of the group. Our review
was substantially less in scope than an audit and only consisted
of making inquiries and considering the directors’ process
supporting their statements; checking that the statements are
in alignment with the relevant provisions of the UK Corporate
Governance Code (the “Code”); and considering whether the
statements are consistent with the knowledge and understanding
of the group and company and their environment obtained in the
course of the audit. (Listing Rules)
Vesuvius plcAnnual Report and Financial Statements 2018Governance
127
128
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and
only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no
other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in
writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
> we have not received all the information and explanations we
require for our audit; or
> adequate accounting records have not been kept by the
company, or returns adequate for our audit have not been
received from branches not visited by us; or
> certain disclosures of directors’ remuneration specified by law
are not made; or
> the company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we
were appointed by the members on 10 May 2017 to audit the
financial statements for the year ended 31 December 2017 and
subsequent financial periods. The period of total uninterrupted
engagement is 2 years, covering the years ended 31 December
2017 to 31 December 2018.
Julian Jenkins (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2019
Independent Auditors’ Report
To the Members of Vesuvius plc continued
Other Code Provisions
We have nothing to report in respect of our responsibility to
report when:
> The statement given by the directors, on page 120 that they
consider the Annual Report taken as a whole to be fair,
balanced and understandable, and provides the information
necessary for the members to assess the group’s and
company’s position and performance, business model and
strategy is materially inconsistent with our knowledge of the
group and company obtained in the course of performing
our audit.
> The section of the Annual Report on page 88 describing the
work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
> The directors’ statement relating to the company’s compliance
with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing
Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
Responsibilities for the Financial Statements
and the Audit
Responsibilities of the Directors for the Financial Statements
As explained more fully in the Statement of Directors’
Responsibilities set out on page 120, the directors are
responsible for the preparation of the financial statements in
accordance with the applicable framework and for being
satisfied that they give
a true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the company’s ability
to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to
liquidate the
group or the company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
S E C T I O N F I V E
F I N A N C I A L
S TAT E M E N T S
In this section:
Group Income Statement
Group Statement of Comprehensive Income
128
129
Group Statement of Cash Flows
130
Group Balance Sheet
Group Statement of Changes in Equity
Notes to the Group Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
131
132
133
176
177
178
Five-Year Summary: Divisional Results
183
Shareholder Information
184
Glossary
186
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Vesuvius plcAnnual Report and Financial Statements 2018
128
Group Income Statement
For the year ended 31 December 2018
Continuing operations
Revenue
Manufacturing costs
Administration, selling and distribution costs
Trading profit
Amortisation of acquired intangible assets
Restructuring charges
GMP equalisation charge
Operating profit/(loss)
Finance expense
Finance income
Net finance costs
Share of post-tax profit of joint ventures
Profit/(loss) before tax
Income tax (charge)/credits
Profit/(loss) from:
Continuing operations
Discontinued operations
Profit/(loss)
Profit/(loss) attributable to:
Owners of the parent
Non-controlling interests
Profit/(loss)
Earnings per share — pence
Continuing operations — basic
Total operations
— diluted
— basic
— diluted
(1) Headline
performance
£m
Notes
2018
(1) Separately
reported
items
£m
Total
£m
(1) Headline
performance
£m
2017
(1) Separately
reported
items
£m
Total
£m
4, 5
1,798.0
— 1,798.0
1,683.9
(1,291.2)
— (1,291.2)
(1,219.8)
—
1,683.9
— (1,219.8)
(309.6)
197.2
—
—
—
197.2
(16.7)
5.6
(11.1)
2.8
188.9
(48.4)
140.5
—
140.5
133.7
6.8
140.5
—
—
(12.9)
(15.3)
(4.5)
(32.7)
—
—
—
—
(32.7)
36.8
4.1
0.5
4.6
4.6
—
4.6
5
16
7
27
9
34
10
21
11
(309.6)
197.2
(12.9)
(15.3)
(4.5)
164.5
(16.7)
5.6
(11.1)
2.8
156.2
(11.6)
144.6
0.5
145.1
138.3
6.8
145.1
51.1
50.8
51.3
51.0
(298.6)
165.5
—
—
—
165.5
(17.5)
3.6
(13.9)
1.3
152.9
(36.4)
116.5
—
116.5
110.1
6.4
116.5
—
—
(19.5)
(36.3)
—
(55.8)
—
—
—
—
(55.8)
(18.0)
(73.8)
1.7
(72.1)
(72.1)
—
(72.1)
(298.6)
165.5
(19.5)
(36.3)
—
109.7
(17.5)
3.6
(13.9)
1.3
97.1
(54.4)
42.7
1.7
44.4
38.0
6.4
44.4
13.4
13.4
14.1
14.0
(1) Headline performance is defined in Note 4.1 and separately reported items are defined in Note 2.5.
Group Statement of Comprehensive Income
For the year ended 31 December 2018
Profit
Items that will not subsequently be reclassified to income statement
Remeasurement of defined benefit liabilities/assets
Income tax relating to items not reclassified
Items that may subsequently be reclassified to income statement
Exchange differences on translation of the net assets of foreign operations
Exchange differences on translation of net investment hedges
Income tax relating to items that may be reclassified
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
Total comprehensive income attributable to owners of the parent arises from:
Continuing operations
Discontinued operations
Total comprehensive income attributable to owners of the parent
129
Notes
27.6
10.4
24
2018
£m
145.1
5.1
6.0
11.1
(11.5)
—
10.7
155.8
149.3
6.5
155.8
148.8
0.5
149.3
2017
£m
44.4
8.4
(2.4)
(38.3)
9.8
(0.7)
(23.2)
21.2
15.3
5.9
21.2
13.6
1.7
15.3
Vesuvius plcAnnual Report and Financial Statements 2018Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018
130
131
Group Statement of Cash Flows
For the year ended 31 December 2018
Cash flows from operating activities
Cash generated from operations
Interest paid
Interest received
Net interest paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Capital expenditure
Proceeds from the sale of property, plant and equipment
Acquisition of subsidiaries and joint ventures, net of cash acquired
Dividends received from joint ventures
Net cash outflow from investing activities
Net cash inflow before financing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Borrowing facility arrangement costs
Settlement of forward foreign exchange contracts
Purchase of ESOP shares
Dividends paid to equity shareholders
Dividends paid to non-controlling shareholders
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash and cash equivalents
Cash and cash equivalents at 31 December
Alternative performance measure (non-statutory):
Notes
12
14
14
14
23
25
14
14
13
Continuing
operations
£m
Discontinued
operations
£m
2018
total
£m
Continuing
operations
£m
Discontinued
operations
£m
Free cash flow (Note 4.10)
Net cash inflow/(outflow) from operating activities
Net retirement benefit obligations
Capital expenditure
Proceeds from the sale of property, plant and equipment
Dividends received from joint ventures
Dividends paid to non-controlling shareholders
142.0
3.4
(41.2)
2.6
1.2
(1.9)
(0.1)
—
—
—
—
—
141.9
3.4
(41.2)
2.6
1.2
(1.9)
Free cash flow (Note 4.10)
106.1
(0.1)
106.0
126.3
4.8
(39.0)
1.8
1.7
(2.5)
93.1
(0.8)
—
—
—
—
—
(0.8)
2018
£m
2017
£m
195.2
(16.3)
4.8
(11.5)
(41.8)
141.9
175.8
(15.6)
3.5
(12.1)
(38.2)
125.5
(41.2)
(39.0)
2.6
(1.0)
1.2
(38.4)
103.5
34.9
(1.6)
—
1.8
(13.4)
(50.0)
(1.9)
(30.2)
73.3
140.0
0.1
213.4
1.8
—
1.7
(35.5)
90.0
103.5
(92.2)
(1.0)
(10.4)
—
(45.6)
(2.5)
(48.2)
41.8
101.0
(2.8)
140.0
2017
total
£m
125.5
4.8
(39.0)
1.8
1.7
(2.5)
92.3
Group Balance Sheet
As at 31 December 2018
Assets
Property, plant and equipment
Intangible assets
Employee benefits – surpluses
Interests in joint ventures and associates
Investments
Income tax receivable
Deferred tax assets
Other receivables
Derivative financial instruments
Total non-current assets
Cash and short-term deposits
Inventories
Trade and other receivables
Income tax receivable
Derivative financial instruments
Assets classified as held for sale
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 benefits – liabilities
Other payables
Provisions
Deferred tax liabilities
Total non-current liabilities
Interest-bearing borrowings
Trade and other payables
Income tax payable
Provisions
Derivative financial instruments
Total current liabilities
Total liabilities
Total equity and liabilities
Company number 8217766
Notes
2018
£m
2017
£m
15
16
27
34
10
10
26
13
19
18
10
26
22
23
24
26
27
29
31
10
26
29
10
31
26
313.9
741.4
90.8
19.1
1.0
—
94.5
30.1
0.7
311.3
743.0
92.4
17.5
1.4
0.4
61.0
30.9
0.2
1,291.5
1,258.1
236.9
244.3
440.4
2.8
0.1
1.7
161.9
222.8
422.2
5.2
0.1
—
926.2
2,217.7
812.2
2,070.3
27.8
27.8
2,460.0
2,370.3
(1,369.5)
(1,369.4)
1,118.3
1,028.7
50.0
45.4
1,168.3
1,074.1
455.5
106.1
16.1
38.8
38.7
655.2
29.4
311.8
29.3
23.1
0.6
394.2
1,049.4
2,217.7
410.5
108.9
17.3
34.4
42.7
613.8
25.7
292.6
34.3
29.8
—
382.4
996.2
2,070.3
The financial statements on pages 128 to 175 were approved and authorised for issue by the Directors on 27 February 2019 and signed
on their behalf by:
Patrick André
Chief Executive
Guy Young
Chief Financial Officer
Vesuvius plcAnnual Report and Financial Statements 2018Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018
132
133
Group Statement of Changes in Equity
For the year ended 31 December 2018
Notes to the Group Financial Statements
As at 1 January 2017
Profit
Remeasurement of defined benefit liabilities/assets
Income tax relating to items not reclassified
Exchange differences on translation of the net assets
of foreign operations
Exchange differences on translation of net investment hedges
Income tax relating to items that may be reclassified
Other comprehensive income/(loss), net of income tax
Total comprehensive income/(loss)
Recognition of share-based payments
Dividends paid (Note 25)
Total transactions with owners
As at 1 January 2018
Profit
Remeasurement of defined benefit liabilities/assets
Income tax relating to items not reclassified
Exchange differences on translation of the net assets
of foreign operations
Exchange differences on translation of net investment hedges
Income tax relating to items that may be reclassified
Other comprehensive income/(loss) net of income tax
Total comprehensive income/(loss)
Recognition of share-based payments
Purchase of ESOP shares
Dividends paid (Note 25)
Total transactions with owners
As at 31 December 2018
Issued share
capital
£m
Other
reserves
£m
Retained
earnings
£m
Owners of
the parent
£m
27.8
(1,341.4)
2,370.0
1,056.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(37.8)
9.8
—
(28.0)
(28.0)
—
—
—
38.0
8.4
(2.4)
—
—
(0.7)
5.3
43.3
2.6
(45.6)
(43.0)
38.0
8.4
(2.4)
(37.8)
9.8
(0.7)
(22.7)
15.3
2.6
(45.6)
(43.0)
27.8
(1,369.4)
2,370.3
1,028.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11.4
(11.5)
—
(0.1)
(0.1)
—
—
—
—
138.3
138.3
5.1
6.0
—
—
—
11.1
149.4
3.7
(13.4)
(50.0)
(59.7)
5.1
6.0
11.4
(11.5)
—
11.0
149.3
3.7
(13.4)
(50.0)
(59.7)
Non-
controlling
interests
£m
42.1
6.4
—
—
Total
equity
£m
1,098.5
44.4
8.4
(2.4)
(0.5)
(38.3)
—
—
9.8
(0.7)
(0.5)
(23.2)
5.9
—
(2.6)
(2.6)
45.4
6.8
—
—
(0.3)
—
—
(0.3)
6.5
—
—
(1.9)
(1.9)
21.2
2.6
(48.2)
(45.6)
1,074.1
145.1
5.1
6.0
11.1
(11.5)
—
10.7
155.8
3.7
(13.4)
(51.9)
(61.6)
1. General Information
Vesuvius plc (‘Vesuvius’ or ‘the Company’) is a public company limited by shares. It is incorporated and domiciled 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 1 to 71 and its registered address
is shown on page 184.
2. Basis of Preparation
2.1 Basis of accounting
The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted by the European Union and with the
Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the
historical cost convention, with the exception of fair value measurement applied to defined benefit pension plans, certain
provisions, investments and derivative financial instruments.
2.2 Basis of consolidation
The Group Financial Statements incorporate the financial statements of the Company and entities controlled directly and
indirectly by the Company (its ‘subsidiaries’). Control exists when the Company has the power to direct the relevant activities of an
entity that significantly 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.
The principal accounting policies applied in the preparation of these Group Financial Statements are set out in the Notes.
These policies have been consistently applied to all of the years presented, unless otherwise stated. Where necessary, adjustments
are made to the financial statements of subsidiaries to bring their accounting policies into line with those detailed herein to ensure
that the Group Financial 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 identified 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 profit 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 deficit balance.
27.8
(1,369.5)
2,460.0
1,118.3
50.0
1,168.3
2.3 Going concern
The Directors have prepared cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of
the financial statements. These forecasts reflect 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 financial 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 at least 12 months from the date of signing of these Financial
Statements. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group and
the Company.
2.4 Functional and presentation currency
The financial statements are presented in millions of pounds 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 26.1.
2.5 Disclosure of ‘separately reported items’
IAS 1 Presentation of Financial Statements provides no definitive 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 financial 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 financial
performance for which the Directors consider separate disclosure would assist both in a better understanding of the financial
performance achieved for a given year and in making projections of future results.
Both materiality and the nature of the components of income and expense are considered in deciding upon such presentation.
Such items may include, inter alia, the financial effect of exceptional items which occur infrequently, such as major restructuring
activity, (which may require more than one year to complete), and significant movement in the Group’s deferred tax balances such
as was, for example, caused by the impact of US tax reform in 2017, together with items reported separately for consistency,
such as amortisation charges relating to acquired intangible assets, profits or losses arising on the disposal of continuing or
discontinued operations and the taxation impact of the aforementioned exceptional items and other items reported separately.
Vesuvius plcAnnual Report and Financial Statements 2018Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018 134
Vesuvius plc
Annual Report and Financial Statements 2018
135
2. Basis of Preparation continued
2.5 Disclosure of ‘separately reported items’ continued
Following a period of sustained profitability of the Group’s US business, the Board has decided to substantially increase the
amount reflected on the Group’s balance sheet in respect of the previously unrecognised value of US tax losses and other
temporary differences. Further details of the 2018 movements are shown in Note 10.
In light of the fact that the tax value of the US tax losses and other temporary differences is now substantially recognised on the
Group’s balance sheet, the Board has decided that it is now more appropriate to reflect the normal utilisation of the deferred tax
assets which offset the Group’s US taxable headline profits, as part of the Group’s headline tax charge. In previous years this
utilisation was shown as part of the tax charge on separately reported items in the Group Income Statement. The Group’s prior
year headline tax charge has not been restated on the grounds that the impact is not material. See Note 10.1 for more details on
the impact in 2018.
Utilisation of the deferred tax assets recognised in the Group Statement of Other Comprehensive Income will continue to be
reflected in that Statement, as was previously the case.
The amortisation charge in respect of intangible assets recognised on business combinations is excluded from the trading results
of the Group since they are non-cash charges and are not considered reflective of the core trading performance of the Group.
Restructuring charges are excluded from the trading results of the Group due to the material nature of these non-recurring
transformational initiatives. 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.
A UK High Court judgement was made on 26 October 2018 in respect of the gender equalisation of guaranteed minimum
pensions (‘GMPs’) for occupational pension schemes. The increase in pension liabilities resulting from this judgement has been
treated for IAS 19 purposes as a plan amendment and has resulted in an increase in the pension deficit in the balance sheet and a
corresponding past service cost in the income statement. This has been treated as a separately reported item so that there has
been no impact upon Headline performance. We are working with the trustees of our UK pension plan and our actuarial and
legal advisers to understand the extent to which the judgement crystallises additional liabilities for the UK pension plan. We have
estimated the impact of GMP equalisation as at 31 December 2018 to be £4.5m.
2.6 Changes in accounting policies
Initial adoption of IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 Revenue from Contracts with Customers with the date of initial application to the Group of 1 January
2018 using the modified retrospective method.
IFRS 15 replaces all existing revenue requirements in IFRS and applies to all revenue arising from contracts with customers
unless the contracts are within the scope of other standards such as IAS 17 Leases. The standard establishes a comprehensive
framework for determining whether, how much and when revenue is recognised. The impact of adopting IFRS 15 on the Group
Financial Statements was not material and there was no adjustment to retained earnings on application at 1 January 2018.
The Group has not restated the comparative results on adoption and the required additional disclosures are included in Note 5.
Details of the change in the Group’s accounting policy in respect of revenue recognition are set out in Note 5.
Initial adoption of IFRS 9 Financial Instruments
Effective 1 January 2018, the Group adopted IFRS 9 Financial Instruments. IFRS 9 addresses the classification, measurement and
derecognition of financial instruments, and introduces new rules for hedge accounting and a new impairment model for financial
assets. It replaces IAS 39 Financial Instruments: Recognition and Measurement, and comprehensive updates have been made
to IFRS 7 Financial Instruments: Disclosures and IAS 32 Financial Instruments: Presentation. The adoption of IFRS 9 has had no
material impact on the Group Financial Statements. The Group has not restated the comparative results on adoption and the
required additional disclosures are included in Note 26.
2.7 New and revised IFRS
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018
reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards
and interpretations is set out below. Other new or amended standards or interpretations are not expected to have a significant
impact on the Group’s financial statements.
IFRS 16 Leases (effective for financial years beginning on or after 1 January 2019)
IFRS 16 Leases, replaces the existing standard on accounting for leases, IAS 17, and the related interpretations. The Group will
apply the standard from 1 January 2019. The Group will transition to IFRS 16 in accordance with the simplified approach; the
prior year figures will not be adjusted. The Group has non-cancellable operating lease commitments of £39.3m, see Note 30.2.
It is expected that the application of this standard will have a material impact on the Group’s Financial Statements to bring these
obligations and an associated asset on Balance Sheet.
Balance sheet: IFRS 16 requires lessees to adopt a uniform approach to the presentation of leases. In future, assets must be
recognised for the right of use received and liabilities must be recognised for the discounted payment obligations entered into for
all leases. The Group will make use of the relief options provided for leases of low-value assets and short-term leases (shorter than
12 months). For leases that have been classified to date as operating leases in accordance with IAS 17, the lease liability will be
recognised at the present value of the remaining lease payments, discounted using the interest rate implicit in the lease, if that
rate can be readily determined. If that rate cannot be readily determined, the lessee’s incremental borrowing rate will be used.
The right of use asset will generally be measured at the amount of the lease liability plus initial direct costs. Advance payments
and liabilities from the previous financial year will also be accounted for. If IFRS 16 had been applied for the 2018 Annual Report
and Financial Statements, fixed assets and liabilities would both have been approximately £33m higher.
Income statement: In contrast to the presentation to date of operating lease expenses within operating profit, in future,
depreciation charges on right of use assets and the interest expense from unwinding of the discount on the lease liabilities will be
recognised. If IFRS 16 had been applied for the 2018 Annual Report and Financial Statements, operating profit and interest
expense would both have been approximately £1m higher.
Cash flow statement: If IFRS 16 had been applied for the 2018 Annual Report and Financial Statements, operating cash flow
would be approximately £9m higher (impacts of depreciation and interest) and financing cash flow would be approximately
£9m lower, with no net impact on total cash flow.
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 Uncertainty over Income Tax Treatments (effective from 1 January 2019, for the year ending 2019, not yet endorsed),
clarifies how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over
tax treatment under IAS 12. The Group has assessed the potential impact on its Group Financial Statements resulting from the
application of IFRIC 23 and has concluded that it will not have a material impact on the amount of provisions held for uncertain
tax positions as at 31 December 2018.
3. Critical Accounting Judgements and Estimates
Determining the carrying amount of some assets and liabilities requires judgement and/or estimation of the effect of uncertain
future events. The major sources of judgement and estimation uncertainty that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets or liabilities are noted below. All other accounting policies are included within the
respective Notes to the financial statements.
3.1 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 legacy matter 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 claims or other regulatory requirements or from third-party claims,
as described in Note 31. As the settlement of many of the potential obligations for which provision is made is subject to legal or
other regulatory process it requires estimation of the timing, quantum and amount of associated outflows, which are subject to
some uncertainty. The Directors use their judgement and experience to make appropriate estimates of provisions in the financial
statements for amounts relating to such matters. Associated assets for insurance recoverable are subject to the same estimation
uncertainty as their quantum varies in line with the expected provision.
3.2 Taxation
(a) Current tax
Tax credits and assets are not recognised unless it is probable that they will result in future economic benefits to the Group.
In assessing the amount of the benefit to be recognised in the financial 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. 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-
specific tax law and their assessment of the likely outcome, taking into consideration the Group’s experience in agreeing tax
liabilities with tax authorities and appropriate external advice. As indicated in Note 10.5, provisions for uncertain tax positions
amount to £20.2m at the end of 2018 (2017: £23.2m). Further discussion of these provisions is contained in that Note. 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 temporary 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
profit in arriving at the values at which these assets are recognised. If these forecast profits do not materialise or change, or there
are changes in tax rates or to the period over which the losses or temporary differences might be recognised, then the value of the
deferred tax assets will need to be revised in a future period.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial Statements
136
137
3. Critical Accounting Judgements and Estimates continued
3.2 Taxation continued
The Group also has losses and other temporary differences, also analysed in Note 10.4, for which no deferred tax assets have
been recognised in these financial statements, relating either to loss-making subsidiaries where the future economic benefit of the
temporary difference is not probable or to where the timing difference is of such a nature that its value is dependent on certain
types of profit being earned, such as capital profits. If trading or other appropriate profits are earned in the future in these
companies, these losses and other temporary differences may yield benefit to the Group in the form of a reduced tax charge.
As explained in Note 10.2, the US Tax Cuts and Jobs Act (‘TCJA’) enacted in late December 2017 had a material impact on the
Group’s deferred tax position. Further clarifications as to the operation of the TCJA have been issued throughout 2018. Vesuvius
has adjusted its US provisions and deferred tax calculations to reflect those clarifications and will continue to review and monitor
these rules and any future clarifications.
As explained in Note 2.5, following a period of sustained profitability of the Group’s US business, the Board has decided to
substantially increase the amount reflected on the Group’s balance sheet in respect of the previously unrecognised value of US
tax losses and other temporary differences. Further details of the 2018 movements are shown in Note 10.1.
In light of the fact that the tax value of the US tax losses and other temporary differences is now substantially recognised on the
Group’s balance sheet, the Board has further decided that it is now more appropriate to reflect the normal utilisation of the
deferred tax assets which offset the Group’s US taxable headline profits, as part of the Group’s headline tax charge. In previous
years this utilisation was shown as part of the tax charge on separately reported items in the Group Income Statement.
The Group’s prior year headline tax charge has not been restated on the grounds that the impact is not material.
Utilisation of the deferred tax assets recognised in the Group Statement of Other Comprehensive Income will continue to be
reflected in that Statement, as was previously the case.
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 financial and operating
performance of the Group and its divisions, providing management with key insights and metrics in support of the ongoing
management of the Group’s performance and cash flow. A number of these align with KPIs and other key metrics used in the
business and therefore are considered useful to also disclose to the users of the financial statements. The following APMs do not
have standardised meaning prescribed by IFRS and therefore may not be directly comparable with 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 Group Income Statement.
4.2 Underlying revenue, underlying trading profit and underlying return on sales
Underlying revenue, underlying trading profit 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 profit 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 significant business closures.
4.3 Return on sales (ROS)
ROS is calculated as trading profit divided by revenue. It is one of the Group’s key performance indicators and is used to assess
the trading performance of Group businesses. A reconciliation of ROS is included in Note 5.3.
4.4 Trading profit
Trading profit, reported separately on the face of the Group Income Statement, is defined as operating profit 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 profit before tax
Headline profit before tax, reported separately on the face of the Group Income Statement, is calculated as the net total of
trading profit, plus the Group’s share of post-tax profit of joint ventures and total net finance costs associated with headline
performance. It is one of the Group’s key performance indicators and is used to assess the financial 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 profit before
tax and before the Group’s share of post-tax profit of joint ventures.
4.7 Headline earnings per share
Headline earnings per share is calculated by dividing headline profit 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. Headline earnings per share is disclosed in
Note 11.
4.8 Operating cash flow
Operating cash flow is cash generated from continuing operations before restructuring and net retirement benefit obligations 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 flow can be found in the Financial Review.
4.9 Cash conversion
Cash conversion is calculated as operating cash flow from continuing operations divided by trading profit. It is useful for
measuring the rate at which cash is generated from trading profit. It is also used as one of the targets against which the annual
bonuses of certain employees are measured. The calculation of cash conversion is detailed in the Financial Review.
4.10 Free cash flow
Free cash flow is defined as net cash flow 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. A reconciliation of free cash flow is
included underneath the Group Statement of Cash Flows.
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 profit before depreciation and amortisation of non-acquired intangible assets.
It is used in the calculation of the Group’s interest cover and net debt to EBITDA ratios. A reconciliation of EBITDA is included in
Note 12.
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 financial position of the Group and its ability to fund future growth. This measure is also a component of the Group’s
covenant calculations.
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 financial institutions. A reconciliation of the
movement in net debt is included in Note 14.
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 financial 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 profit plus share of post-tax profit 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,
interests in joint ventures and associates, investments and other operating receivables, payables and provisions). It is one of the
Group’s key performance indicators and is used to assess the financial 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 2017 amounts retranslated to average 2018 exchange rates.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018 138
139
5 Segment Information
The segment information contained in this Note refers to several alternative performance measures, definitions 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. Reflecting the Group’s management and internal reporting structure, segmental information is presented
in respect of the two main business segments: Steel and Foundry. The Steel segment aggregates the Flow Control, Advanced
Refractories and Digital Services business units which are subject to a similar risk profile and return. The adoption of the revenue
standard (‘IFRS 15’) does not have any impact on the assessment of operating segments of the Group and the disaggregation of
revenue between Steel and Foundry remains appropriate. The principal activities of each of these segments are described in the
Strategic Report.
Segment revenue represents revenue from external customers (inter-segment revenue is not material). Trading profit includes
items directly attributable to a segment as well as those items that can be allocated on a reasonable basis.
5.2 Accounting policy – 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
contracts with customers is recognised when control of the goods or services are transferred to the customer, upon the completion
of specified performance obligations, at an amount that reflects the considerations to which the Group expects to be entitled to in
exchange for these consumable products and associated services.
The identification of performance obligations includes a determination of whether the goods or services (or bundle of goods or
services) are distinct. Where contracts contain the provision of multiple elements such as refractory consumables, technical
assistance and equipment, management applies judgement in determining whether the bundle of goods and/or services are
distinct. Where the provision of goods and/or services is distinct, revenue is recognised separately for each performance
obligation. If the elements in the contract are not distinct, a distinct bundle of goods/services is identified, and revenue is
recognised for this bundle of items.
The transaction price is allocated to each performance obligation based on the relative standalone selling prices of the goods or
services provided. If a standalone selling price is not available, the Group will estimate the selling price with reference to the price
that would be charged for the goods or services if they were sold separately.
An assessment of the timing of revenue recognition is made for each performance obligation. Revenue is recognised at a point
in time for all standard revenue transactions when control of the goods provided is transferred to the customer. Revenue is also
recognised at a point in time for contracts that contain multiple elements (‘service contracts’) when the agreed output is produced
by the customer unless there are specific performance obligations to deliver other services over time. The Group recognises
revenue over time for contracts that are longer term in nature by measuring the progress of completion of each performance
obligation using an output method of completion. For fixed-price contracts, the customer will pay the amounts as agreed in the
payment schedule and contract asset or liability balances are recognised in accordance with the timing of completion of the
identified performance obligations.
Variable consideration
If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be
entitled in exchange for transferring the goods or services to the customer.
> Rights of return
Certain contracts provide a customer a right to return goods within a specific period. The Group recognises a separate liability
representing the estimated amount of consideration that an entity does not expect to receive as it will be refunded to the customer.
> Warranty obligations
The Group usually provides warranties for goods where they can be returned if they are faulty. These assurance type warranties
are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
Contract balances
> Contract assets
A contract asset is a right to payment in exchange for goods or services that have been transferred to a customer when that right
is conditional on something other than the passage of time.
> Receivable
A receivable is a company’s right to payment that is unconditional. A right to consideration is unconditional if only the passage
of time is required before payment of that consideration is due. Once the consideration due to the Group is “unconditional”,
the contract asset should be reclassified as a receivable.
> Contract liability
A contract liability is an obligation to transfer goods or services to a customer for which the consideration has been received
(or an amount of consideration is due) from the customer.
The revenue recognition policy applicable to the comparative period (i.e 2017) was disclosed in the 2017 Annual Report and Financial
Statements.
5.3 Segmental analysis
The operating segment results from continuing operations for 2018 and 2017 are presented below.
Segment revenue
Segment EBITDA
Segment depreciation
Segment trading profit
Return on sales margin
Amortisation of acquired intangible assets
Restructuring charges
GMP equalisation charge
Operating profit
Net finance costs
Share of post-tax profit of joint ventures
Profit before tax
Capital expenditure additions
Segment revenue
Segment EBITDA
Segment depreciation
Segment trading profit
Return on sales margin
Amortisation of acquired intangible assets
Restructuring charges
Operating profit
Net finance costs
Share of post-tax profit of joint ventures
Profit before tax
Capital expenditure additions
2018
Steel
£m
Foundry
£m
Continuing
operations
£m
1,236.7
561.3
1,798.0
155.3
(27.0)
128.3
10.4%
82.9
(14.0)
68.9
12.3%
34.4
14.0
238.2
(41.0)
197.2
11.0%
(12.9)
(15.3)
(4.5)
164.5
(11.1)
2.8
156.2
48.4
2017
Steel
£m
Foundry
£m
Continuing
operations
£m
1,148.7
535.2
1,683.9
128.9
(28.5)
100.4
8.7%
80.3
(15.2)
65.1
12.2%
34.0
10.3
209.2
(43.7)
165.5
9.8%
(19.5)
(36.3)
109.7
(13.9)
1.3
97.1
44.3
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
140
Vesuvius plc
Annual Report and Financial Statements 2018
141
6. Operating profit
6.1 Operating profit is stated after charging
Cost of inventories recognised as an expense (Note 19)
Research and development
Employee expenses (Note 8)
Depreciation (Note 15)
Amortisation (Note 16)
Operating lease charges (Note 30)
6.2 Amounts payable to PricewaterhouseCoopers LLP and their Associates
Fees payable to the Company’s auditors and their associates for the audit of the parent Company
and Consolidated Financial Statements
Fees payable to the Company’s auditors and their associates for other services:
Audit of the Company’s subsidiaries
Audit-related assurance services
Total auditors’ remuneration
2018
£m
677.4
33.6
414.3
41.0
12.9
20.9
2017
£m
609.6
33.2
418.1
43.7
19.5
18.6
2018
£m
2017
£m
0.5
0.9
0.1
1.5
0.4
0.8
0.1
1.3
PricewaterhouseCoopers LLP was first appointed as the Group’s external auditor for the year ended 31 December 2017.
Total auditors’ remuneration of £1.5m in 2018 all related to continuing operations, of which £1.4m related to audit fees and £0.1m
of non-audit fees, in respect of the interim review fee (2017: £1.3m, including £1.2m of audit fees and £0.1m of non-audit fees, the
latter in respect of the interim review fee). After the reporting period end date, the Group incurred £0.3m in additional audit fees
due for the 2017 year end audit.
Mazars LLP was appointed external auditor of the non-material entities within the Group for the year ended 31 December 2017.
Total remuneration for the audit of the non-material entities was £0.5m (2017: £0.4m). This amount is not included in the table above.
It is the Group’s policy not to use the Group’s auditors for non-audit services other than in very limited circumstances and when they
are best placed to do so.
7. Restructuring Charges
The 2018 restructuring charges were £15.3m and relate to the new programme first announced in March 2018. Restructuring
charges in 2017 of £36.3m predominantly related to the Group-wide restructuring programme initiated in 2015. The charges
reflect redundancy costs of £8.3m (2017: £22.8m), plant closure costs of £4.7m (2017: £0.5m), consultancy fees of £0.5m
(2017: £6.8m), asset write-offs of £1.7m (2017: £5.5m) and travel of £0.1m (2017: £0.7m).
The net tax credit attributable to the total restructuring charges was £1.8m (2017: £4.3m).
Cash costs of £19.3m (2017: £27.3m) (Note 12) were incurred in the year in respect of the restructuring programme, leaving
provisions made but unspent of £17.4m (Note 31) as at 31 December 2018 (2017: £22.9m), of which £4.3m (2017: £2.7m) relates
to future costs in respect of leases expiring between one and six years.
5. Segment Information continued
5.4 Geographical analysis
US
Germany
China
India
Brazil
UK
France
Spain
Rest of the world
Continuing operations
External revenue
Non-current assets
2018
£m
291.6
227.0
146.3
129.9
99.0
72.3
59.9
52.6
2017
£m
279.4
232.1
127.6
136.5
90.5
64.0
55.4
49.4
2018
£m
297.0
109.6
90.7
41.6
59.6
99.9
30.3
32.4
719.4
649.0
345.1
2017
£m
288.2
101.0
86.9
42.7
65.1
107.2
26.1
31.9
355.6
1,798.0
1,683.9
1,106.2
1,104.7
External revenue disclosed in the table above is based upon the geographical location of the operation. Non-current assets
exclude employee benefits net surpluses and deferred tax assets. Information relating to the Group’s products and services is
given in the Strategic Report. The Group is not dependent on any single customer for its revenue and no single customer, for either
of the years presented in the table above, accounts for more than 10% of the Group’s total external revenue.
The Chief Operating Decision Maker does not review non-current assets at a segmental level so these disclosures are not included.
5.5 Revenue from contracts with customers
Performance obligations
The Group enters into contracts to provide one or multiple items to customers in the Global Steel and Foundry industries.
Management applies judgement in determining the number of performance obligations that apply to each contract. Information
about the Group’s performance obligations is summarised below.
Where the Group provides consumable items only to the Global Steel and Foundry industries, one performance obligation is
present. The performance obligation to deliver consumables to the customer is satisfied upon delivery of these items. Following
the satisfaction of the performance obligation, an invoice is raised and payment is due within the timeframe as noted on the
invoice. Revenue is recognised at a point in time.
The Group also enters into contracts with customers in the Global Steel industry to primarily provide consumable items to facilitate
the steel production process. These contracts often include the supply of equipment and/or technical assistance. The Group
applies judgement in determining the number of performance obligations in each contract and invoices are raised in accordance
with contractual terms with payment due within the timeframe as noted on the invoice. Revenue is recognised at a point in time
unless there are specific performance obligations to deliver other services. Revenue related to these other services may be
recognised over time.
Revenue is also earned from the installation of product or equipment at customer sites. The Group applies judgement in
determining the number of performance obligations in each contract and invoices are raised in accordance with contractual
terms with payment due within the timeframe as noted on the invoice or as agreed on a payment schedule. Revenue is recognised
over time by measuring the progress of completion of each performance obligation.
Of the £1,798.0m revenue reported in 2018, £11.0m (2017: £10.2m) relates to revenue recognised over time for contracts in the
Steel industry.
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
Receivables, which are included in ‘Trade and other receivables’
Contract assets, which are included in ‘Trade and other receivables’
Contract liabilities, which are included in ‘Trade and other payables’
2018
£m
2017
£m
372.7
366.1
0.8
2.6
0.5
1.9
Contract liabilities of £2.6m (2017: £1.9m) include advances received from a customer that precedes the satisfaction of
performance obligations by the Group. The increase in contract liabilities in the year is attributed to an increase in the number of
customers making advance payments and an overall increase in contract activity.
Where the period between the transfer of the promised goods or services to the customer and payment by the customer is less
than one year, the Group does not adjust any of these transaction prices for the time value of money. Balances where the
collection date is more than one year from the balance sheet date are adjusted for the time value of money.
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial Statements
142
143
8. Employees
8.1 Employee expenses
Wages and salaries
Social security costs
Share-based payments (Note 28)
Pension costs — defined contribution pension plans (Note 27)
— defined benefit pension plans (Note 27)
Other post-retirement benefits (Note 27)
Total employee expenses
8.2 Monthly average number of employees
Steel
Foundry
Continuing operations
Discontinued operations
Total monthly average number of employees
2018
£m
340.0
54.0
3.7
11.4
4.6
0.6
2017
£m
344.0
52.2
2.6
12.4
6.6
0.2
414.3
418.0
2018
no.
7,894
3,126
11,020
—
2017
no.
7,868
3,106
10,974
—
11,020
10,974
As at 31 December 2018, the Group had 10,809 employees (2017: 11,010).
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 specified 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 108 to 115.
Short-term employee benefits
Post-employment benefits
Share-based payments
Total remuneration of key management personnel
9. Net Finance Costs
Interest payable on borrowings
Loans and overdrafts
Obligations under finance leases
Amortisation of capitalised arrangement fees
Total interest payable on borrowings
Interest on net retirement benefit obligations
Adjustment to discounts on provisions and other liabilities
Adjustment to discounts on receivables
Finance income
Total net finance costs
2018
£m
2.0
0.2
0.8
3.0
2018
£m
14.5
0.2
0.6
15.3
0.1
1.3
(0.8)
(4.8)
11.1
2017
£m
1.9
0.2
0.7
2.8
2017
£m
15.9
0.2
0.6
16.7
0.6
0.2
(0.1)
(3.5)
13.9
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 profit or loss except to
the extent that they relate to items charged or credited in the Group Statement of Comprehensive Income or Group Statement of
Changes in Equity, in which case the associated tax is also recognised in those statements.
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 US tax reform enacted in December 2017 in the US Tax Cuts and Jobs Act (‘TCJA’) and other
recently announced tax reform, for example in Belgium.
Current tax
Current tax is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Group 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 Group
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 final outcome may vary
significantly. Any such variations will affect the financial results in the year in which such a determination is made.
IFRIC 23 Uncertainty over Income Tax Treatments (effective from 1 January 2019, for the year ending 2019), clarifies how to
recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over tax treatment under
IAS 12. The Group has assessed the potential impact on its Consolidated Financial Statements resulting from the application of
IFRIC 23 and has concluded that it will not have a material impact on the amount of provisions held for uncertain tax positions as
at 31 December 2018.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable profit 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 profits 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 profit nor the accounting profit. 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 sufficient taxable profits 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.
As explained in Note 2.5, following a period of sustained profitability of the Group’s US business, the Board has decided to
substantially increase the amount reflected on the Group’s Balance Sheet in respect of the previously unrecognised value of US
tax losses and other temporary differences. Of the total additional recognition of £39.5m, £32.2m has been reflected in the
separately reported items in the Group Income Statement in accordance with the disclosure approach outlined in Note 2.5 above.
£7.3m has been reflected in the Group Statement of Comprehensive Income as it relates to deferred tax on pensions costs taken
through that statement.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
144
145
10. Income Tax continued
10.1 Accounting policy continued
Deferred tax continued
In light of the fact that the tax value of the US tax losses and other temporary differences is now substantially recognised on the
Group’s balance sheet, the Board has decided that it is now more appropriate to reflect the utilisation of the deferred tax assets
recognised in the Group Income Statement, and which offset the Group’s US taxable headline profits, as part of the Group’s
headline tax charge, rather than as part of the tax charge on separately reported items in the Group Income Statement, as was
the case in previous years. This has increased the headline tax charge in 2018 by £7.8m, increasing the effective rate of tax on
headline profit before tax and before the Group’s share of post-tax profits from joint ventures by 4.2%.
Utilisation of the deferred tax assets recognised in the Group Statement of Comprehensive Income will continue to be reflected in
that statement, as was previously the case.
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
Total income tax charge
2018
£m
41.9
(3.0)
38.9
(28.6)
1.3
(27.3)
11.6
48.4
(36.8)
11.6
2017
£m
37.1
(1.7)
35.4
19.0
—
19.0
54.4
36.4
18.0
54.4
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
Impact of US tax reform
Other 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 benefit plan
Amortisation and utilisation of acquired intangibles
Total tax charge/(credit) separately reported
2018
£m
—
—
(32.2)
(32.2)
(1.8)
—
(2.8)
(36.8)
2017
£m
24.5
4.2
(0.4)
28.3
(4.3)
—
(6.0)
18.0
As explained in Note 10.1 above, the Group has substantially increased the deferred tax recognised on its balance sheet in respect
of its US tax losses and other temporary differences. The substantial part of that additional recognition is reflected in separately
reported items in the Group Income Statement, the rest being reflected in the Group Statement of Comprehensive Income
(relating to pension costs reflected in that statement). In addition, the Group now presents the normal utilisation of that asset in
offsetting the Group’s US taxable headline profits as part of its headline tax charge, to the extent it does not relate to deferred tax
which was initially recognised in the Group Statement of Comprehensive Income.
The US Tax Cuts and Jobs Act (‘TCJA’) enacted in the US in December 2017 had a material impact on the value of the deferred
tax asset the Group recognised in the US as at December 2017. It reduced the asset by £25.7m, of which £24.5m was charged to
the Group Income Statement and £1.2m was charged to the Group Statement of Comprehensive Income, as it related to the
effect of the change in the US Federal rate of tax on the value of the deferred tax asset on pension deficits recognised in that
statement. The reduction was principally due to the change in Federal tax rate from 35% to 21%, the deemed repatriation tolling
charge and the impact of other changes when measuring the value of the asset which was recognised in the Group Balance Sheet.
TCJA also introduced additional provisions which extended US taxing rights over the profits of non-US entities owned by US
companies (so-called Global Intangible Low-Taxed Income (‘GILTI’)). Vesuvius’ US companies own interests in non-US Vesuvius
subsidiaries, and therefore have been impacted by these new rules. The impact of the GILTI provisions on Vesuvius in 2018 has
been to increase the headline tax charge by £2.4m in 2018, increasing the effective rate of tax on headline profit before tax and
before the Group’s share of post-tax profits from joint ventures by 1.3%.
Further clarifications governing the operation of the TCJA have been issued throughout 2018, Vesuvius has adjusted its US
provisions and deferred tax calculations to reflect those clarifications as it is best able, assisted by advisers. Management will
continue to review and monitor these rules and any future clarifications.
In 2017, Belgium reduced its prospective tax rate to 29% in 2018 and 25% in 2020. This had the impact of reducing the deferred
tax asset in Belgium by £1.4m in 2017. This impact was included in the total deferred tax charge on continuing operations.
The net tax credit reflected in the Group Statement of Comprehensive Income in the year amounted to £6.0m (2017: £3.1m
charge), comprising a credit of £7.3m (2017: £nil) for additional recognition of US pension deferred tax asset and a £1.3m charge
(2017: £2.4m charge) related to tax on net actuarial gains and losses on the employee benefits plan. In addition, £nil (2017: £0.7m
charge) related to UK tax in respect of foreign exchange differences arising on hedged positions.
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 insufficiency of taxable profit 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 significant factors affecting the tax charge are described in Notes 2.5, 3.2,
10.1 and 10.6.
10.3 Reconciliation of income tax charge to profit before tax
Profit before tax
Tax at the UK corporation tax rate of 19.0% (2017: 19.25%)
Impact of tax rate change on deferred tax asset
Overseas tax rate differences
Withholding taxes
Amortisation of intangibles
Expenses not deductible for tax purposes
Income taxed in advance
Deferred tax asset not previously recognised – US
Deferred tax asset not previously recognised – Other
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
2018
£m
156.2
29.7
—
11.1
5.0
(0.3)
1.3
2.4
(32.2)
(1.2)
—
(2.5)
(1.7)
11.6
As at 1 January 2017
Exchange adjustments/other
Impact of tax rate change:
— in Group Income Statement
— in Group Statement of Comprehensive Income
Other net (charge)/credit charge to Group Statement of
Comprehensive Income
Other net (charge)/credit to Group Income Statement
Other net (charge)/credit to Group Income Statement US
As at 1 January 2018
Exchange adjustments/other
Other net (charge)/credit charge to Group Statement of
Comprehensive Income
Other net (charge)/credit to Group Income Statement
Other net (charge)/credit to Group Income Statement US
As at 31 December 2018
Other
operating
losses
£m
Pension
costs
£m
Intangible
assets
£m
Other
temporary
differences
£m
29.9
(1.8)
(8.6)
—
—
0.6
(3.0)
17.1
1.0
—
1.0
0.4
19.5
2.5
—
(0.8)
(1.2)
(1.2)
0.1
0.6
—
0.5
6.0
0.3
(3.4)
3.4
(29.3)
0.2
—
—
—
6.2
(0.2)
(23.1)
(0.1)
—
2.8
(1.5)
(21.9)
13.7
(0.4)
(3.3)
—
—
3.8
0.6
14.4
1.2
—
(1.1)
5.6
20.1
Interest
£m
26.7
(1.8)
(6.8)
—
—
—
(8.2)
9.9
1.6
—
—
23.2
34.7
2017
£m
97.1
18.7
19.5
9.8
4.4
(0.2)
0.2
3.6
—
(1.4)
3.5
(2.0)
(1.7)
54.4
Total
£m
43.5
(3.8)
(19.5)
(1.2)
(1.2)
10.7
(10.2)
18.3
4.2
6.0
3.0
24.3
55.8
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
146
10. Income Tax continued
10.4 Deferred tax continued
Recognised in the Group Balance Sheet as:
Non-current deferred tax assets
Non-current deferred tax liabilities
Net total deferred tax assets
2018
£m
94.5
(38.7)
55.8
Included in these deferred tax assets and liabilities are amounts to be expected to be utilised in 2019 as follows:
Deferred tax assets
Deferred tax liabilities
2018
£m
14.7
(2.8)
2017
£m
61.0
(42.7)
18.3
2017
£m
11.3
(7.6)
Included in non-current deferred tax assets is £67.3m (2017: £32.6m) 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 confident of the recovery
of this asset. £18.7m (2017: £69.2m) remains unrecognised.
As explained in Note 2.5, significant movement in the Group’s US deferred tax assets as a result of US tax reform in 2017 and as a
result of the substantial recognition in 2018 due to the Group’s US future profit profile is reflected in the separately reported items
column in the Group Income Statement. Where such movement relates to items such as certain pension costs which have been
reflected in the Group Statement of Comprehensive Income, the movement will be reflected in that statement. Normal utilisation
of these deferred tax balances recognised in the Group Income Statement is now reflected in the Group’s headline tax charge.
The Directors consider that the separate identification of deferred tax for material temporary differences in this manner assists
both in a better understanding of the financial performance achieved, and in making projections of future results of the Group.
Tax loss carry-forwards and other temporary differences with a tax value of £nil (2017: £1.0m) were recognised by subsidiaries
reporting a loss. Based on 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 profits.
The total deferred tax assets not recognised as at 31 December 2018 were £166.9m (2017: £219.9m), 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 benefit is not probable. In total, there was a decrease of £53.0m (2017: £43.2m) in net unrecognised
deferred tax assets during the year, principally due to the impact of the substantial increase in the amount of the Group’s US
deferred tax asset recognised on the Group’s balance sheet.
Operating losses (further described below)
Unrelieved US interest (may be carried forward indefinitely)
Capital losses available to offset future UK capital gains (may be carried forward indefinitely)
UK ACT credits (may be carried forward indefinitely)
US tax credits
Other temporary differences
Total deferred tax assets not recognised
2018
£m
97.1
11.9
28.1
13.1
6.8
9.9
2017
£m
102.3
43.2
28.1
13.1
16.7
16.5
166.9
219.9
The Group has significant net operating losses with a tax value of £116.6m (2017: £119.4m), only £19.5m (2017: £17.1m) of which
meet the criteria set out in Note 10.1 to be recognised on the Group Balance Sheet.
UK (may be carried forward indefinitely)
US (due to expire 2024-2031)
ROW (may be carried forward indefinitely)
ROW (due to expire within 5 years)
Operating
losses
recognised
2018
£m
Operating
losses not
recognised
2018
£m
—
14.5
4.9
0.1
19.5
74.6
—
20.8
1.7
97.1
Total
2018
£m
74.6
14.5
25.7
1.8
116.6
Operating
losses
recognised
2017
£m
Operating
losses not
recognised
2017
£m
73.5
3.7
21.5
3.6
—
13.3
3.5
0.3
17.1
Total
2017
£m
73.5
17.0
25.0
3.9
102.3
119.4
The £27.5m (2017: £28.9m) operating losses available to set against future income in the rest of the world arise in a number of
countries, reflecting the spread of the Group’s operations.
As at 31 December 2018, the Group had unrecognised US tax credits with a value of £6.8m (2017: £16.7m) as follows:
US research and experimentation credits (due to expire 2018–2033)
US foreign tax credits (due to expire 2022–2024)
US tax credits
147
2018
£m
—
6.8
6.8
2017
£m
12.8
3.9
16.7
There are no temporary differences associated with investments in subsidiaries and interests in joint ventures for which deferred
tax liabilities have not been recognised. The aggregate temporary differences where the exemption not to provide for the
deferred taxation liability has been taken is £235.1m (2017: £197.1m).
UK corporation tax rate reductions to 17% from 1 April 2020 were enacted in 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 positions
Income tax recoverable within one year
Income tax recoverable after more than one year
Total income tax recoverable
2018
£m
9.1
20.2
29.3
2.8
—
2.8
2017
£m
11.1
23.2
34.3
5.2
0.4
5.6
Net liability
26.5
28.7
Provisions for uncertain tax positions are calculated in accordance with the policy outlined in Note 10.1, and are treated as income
tax payable in accordance with IAS 12.
These provisions cover litigated tax matters as well as provisions for other risks where the Group believes it is more likely than not
that there would be a successful challenge by a tax authority to positions it has taken in its tax filings. By its nature, litigation can
result in sharp fluctuations in cash flow, both in and out, relating to taxes. Currently, management do not expect any material
adjustments to these provisions in 2019.
10.6 Key factors impacting the sustainability of the effective tax rate are as follows:
Material changes in the geographic mix of profits
The Group’s effective tax rate is sensitive to changes in the geographic mix of profits and level of profits, and reflects a
combination of relatively higher rates in certain jurisdictions such as India, Mexico, Germany and Belgium, nil effective tax rate in
the UK due to the availability of unutilised tax losses, and rates that lie somewhere in between.
Changes in tax rates, tax reform and its interpretation
Changes in tax rates and laws in the jurisdictions in which the Group operates could have a material effect on the Group’s effective
tax rate.
It was previously reported that the Base Erosion and Anti-Abuse Tax (‘BEAT’) introduced by the US Tax Cuts and Jobs Act (‘TCJA’)
in December 2017 was estimated to result in a US cash tax cost from 2018 onwards and thus increase the Group’s effective rate
of tax on Headline performance (before its share of joint venture income) going forward by 0.7% in 2018, and 1.2% in 2019.
Following clarification by the US Treasury in late 2018, management do not expect BEAT to have a material impact on Vesuvius’
tax position. However, TCJA also introduced additional provisions which extended US taxing rights over the profits of non-US
entities owned by US companies (so-called Global Intangible Low-Taxed Income (‘GILTI’)). Vesuvius’ US companies own interests
in non-US Vesuvius subsidiaries, and therefore will continue to be impacted by these new rules. Further clarifications governing
the operation of the TCJA have been issued throughout 2018. Vesuvius has adjusted its US provisions and deferred tax
calculations to reflect those clarifications as it is best able, assisted by advisers. Management will continue to review and monitor
these rules and any future clarifications.
Availability of tax advantaged rates
Vesuvius in China qualifies for a tax advantaged rate of 15% (rather than the headline rate of 25%), on part of its profits 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 £1.6m in 2018 (2017: £0.9m). Without that benefit, the Group’s effective tax rate on headline performance
would have been 1.0% higher in 2018 (2017: 0.6%).
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
148
149
10. Income Tax continued
12. Cash Generated from Operations
10.6 Key factors impacting the sustainability of the effective tax rate are as follows: continued
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.
Impact of Brexit on Vesuvius’ tax position
How Brexit impacts on the corporate income taxes position of Vesuvius will depend on the final terms of Brexit. It is not possible at
this stage to provide precise guidance on how it will impact the Group as these exit terms remain unclear. Nevertheless, if the EU
Parent Subsidiary and Interest and Royalty directives were no longer to apply to dividend, interest and other payments to Vesuvius
in the UK, additional withholding taxes would become payable subject to reliefs available under applicable tax treaties.
11. Earnings per Share (EPS)
11.1 Earnings for EPS
Basic and diluted EPS from continuing operations are based upon the profit attributable to owners of the parent, as reported in
the Group Income Statement, of £137.8m (2017: £36.3m), being the profit for the year of £144.6m (2017: £42.7m) less non-
controlling interests of £6.8m (2017: £6.4m); basic and diluted EPS from total operations are based on the profit attributable to
owners of the parent of £138.3m (2017: £38.0m); headline and diluted headline EPS are based upon headline profit from
continuing operations attributable to owners of the parent of £133.7m (2017: £110.1m). The table below reconciles these different
profit measures.
Profit attributable to owners of the parent
137.8
0.5
138.3
36.3
1.7
Continuing
operations
£m
Discontinued
operations
£m
2018
total
£m
Continuing
operations
£m
Discontinued
operations
£m
2017
total
£m
38.0
Adjustments for separately reported items:
Amortisation of acquired intangible assets
Restructuring charges
GMP equalisation charge
Income tax (credit)/charge
Headline profit attributable to owners of the parent
12.9
15.3
4.5
(36.8)
133.7
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
19.5
36.3
—
18.0
110.1
2018
millions
269.8
1.4
271.2
2017
millions
270.3
1.3
271.6
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
Continuing
operations
pence
Discontinued
operations
pence
0.2
2018
total
pence
51.3
Continuing
operations
pence
Discontinued
operations
pence
0.7
2017
total
pence
14.1
Earnings per share — basic
— headline
— diluted
— diluted headline
51.1
49.6
50.8
49.3
0.2
51.0
13.4
40.7
13.4
40.5
—
—
—
—
1.7
—
—
—
(2.5)
—
—
(0.8)
2018
£m
236.9
236.9
(23.5)
213.4
19.5
36.3
—
43.7
210.9
(19.4)
(36.9)
44.1
9.2
(27.3)
(4.8)
175.8
2017
£m
161.9
161.9
(21.9)
140.0
Continuing
operations
£m
Discontinued
operations
£m
2018
total
£m
Continuing
operations
£m
Discontinued
operations
£m
2017
total
£m
164.5
0.5
165.0
109.7
1.7
111.4
Operating profit
Adjustments for:
Amortisation of acquired intangible assets (Note 16)
Restructuring charges
GMP equalisation charge
Depreciation
EBITDA (Note 4.12)
Net increase in inventories
Net increase in trade receivables
Net increase in trade payables
Net decrease/(increase) in other working capital
Outflow related to restructuring charges
Net retirement benefit obligations
Cash generated from operations
13. Cash and Cash Equivalents
12.9
15.3
4.5
41.0
238.2
(20.7)
(4.9)
3.6
1.8
(19.3)
(3.4)
195.3
—
—
—
—
0.5
—
—
—
(0.6)
—
—
12.9
15.3
4.5
41.0
238.7
(20.7)
(4.9)
3.6
1.2
(19.3)
(3.4)
(0.1)
195.2
19.5
36.3
—
43.7
209.2
(19.4)
(36.9)
44.1
11.7
(27.3)
(4.8)
176.6
Cash at bank and in hand
Cash and short-term deposits
Bank overdrafts
Cash and cash equivalents in the Group Statement of Cash Flows
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 Flows.
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 2018
£m
Foreign
exchange
adjustments
£m
Non-cash
movements
£m
Cash flow
£m
Balance as at
31 Dec 2018
£m
161.9
(21.9)
140.0
(4.3)
(412.1)
(416.4)
2.1
0.5
(0.4)
0.1
—
(14.4)
(14.4)
—
(274.3)
(14.3)
—
—
—
—
—
—
0.6
0.6
74.5
(1.2)
73.3
(2.2)
(30.2)
(32.4)
(0.9)
40.0
236.9
(23.5)
213.4
(6.5)
(456.7)
(463.2)
1.8
(248.0)
Net debt is a measure of the Group’s net indebtedness to banks and other external financial institutions and comprises the total of
cash and short-term deposits and current and non-current interest-bearing borrowings.
0.6
14.0
15. Property, Plant and Equipment
15.1 Accounting policy
Freehold land and construction in progress are 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 benefits flowing to the Group and when they can be measured reliably.
Costs are capitalised to construction in progress where an asset is being developed. This is then transferred and depreciated when
the asset is ready for use. All other repairs and maintenance expenditures are charged to the Group Income Statement in the
period in which they are incurred.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
150
151
15. Property, Plant and Equipment continued
15.1 Accounting policy continued
16. Intangible Assets
Intangible assets comprise goodwill and other intangible assets that have been acquired through business combinations.
Freehold land is not depreciated, as it has an infinite 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:
16.1 Accounting policy
(a) Goodwill
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 five 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 2017
Exchange adjustments
Capital expenditure additions
Disposals
Reclassifications
As at 1 January 2018
Exchange adjustments
Capital expenditure additions
Disposals
Assets classified as held for sale
Reclassifications
As at 31 December 2018
Accumulated depreciation and impairment losses
As at 1 January 2017
Exchange adjustments
Depreciation charge
Disposals
Reclassifications
As at 1 January 2018
Exchange adjustments
Depreciation charge
Impairment
Disposals
Reclassifications
As at 31 December 2018
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
Construction
in progress
£m
203.3
(3.4)
1.4
(5.1)
5.5
201.7
3.4
2.0
(1.2)
(1.7)
4.4
208.6
82.9
(2.0)
6.1
(1.8)
0.3
85.5
1.9
5.9
0.3
(0.6)
(0.1)
92.9
2.4
(0.1)
—
—
—
2.3
(0.1)
0.1
—
—
—
2.3
1.6
(0.1)
0.3
—
—
1.8
—
0.1
—
—
(0.2)
1.7
550.0
(10.3)
19.4
(13.5)
9.8
555.4
4.9
20.2
(24.8)
—
16.4
572.1
383.3
(7.7)
37.3
(10.0)
(0.3)
402.6
4.2
35.0
0.3
(21.9)
0.3
420.5
35.7
(2.1)
23.5
—
(15.3)
41.8
(1.1)
26.1
—
—
(20.8)
46.0
—
—
—
—
—
—
—
—
—
—
—
—
Total
£m
791.4
(15.9)
44.3
(18.6)
—
801.2
7.1
48.4
(26.0)
(1.7)
—
829.0
467.8
(9.8)
43.7
(11.8)
—
489.9
6.1
41.0
0.6
(22.5)
—
515.1
Net book value as at 31 December 2018
115.7
0.6
151.6
46.0
313.9
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 identifiable assets acquired and liabilities assumed. When the excess is
negative, a bargain purchase gain is recognised immediately in profit 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 profit 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 findings from which may be used in the future to
develop new or substantially improved products. Expenditure on research activities is recognised in the Group Income Statement
as an expense in the year in which it is incurred.
Development is the application of research findings 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 benefits are probable and the
Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in
the Group 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 significant 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 significant
proportion of the development expenditure for that project has already been incurred. In 2018 and 2017 no projects met the
criteria for IAS 38 capitalisation.
16.2 Movement in net book value
Cost
As at 1 January
Exchange adjustments
Business combinations (Note 20)
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
2018
total
£m
Goodwill
£m
Other
intangible
assets
£m
643.2
271.2
914.4
11.3
—
0.3
—
11.6
—
654.5
271.5
926.0
662.2
(19.3)
0.3
643.2
271.9
(0.7)
—
271.2
2017
total
£m
934.1
(20.0)
0.3
914.4
—
—
—
—
171.4
0.3
12.9
171.4
0.3
12.9
184.6
184.6
—
—
—
—
152.2
152.2
(0.3)
19.5
(0.3)
19.5
171.4
171.4
Net book value as at 31 December 2017
116.2
0.5
152.8
41.8
311.3
Net book value as at 31 December
654.5
86.9
741.4
643.2
99.8
743.0
Net book value as at 1 January 2017
120.4
0.8
166.7
35.7
323.6
The net book value of the Group’s property, plant and equipment assets held under finance lease contracts was £4.4m
(2017: £4.6m). Capital expenditure on customer-installation assets was £7.7m (2017: £10.7m).
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
152
153
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 benefit 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
16.4 Analysis of other intangible assets
2018
£m
433.5
221.0
654.5
2017
£m
426.3
216.9
643.2
The Group carried out its annual goodwill impairment test as at 31 October 2018. The recoverable amount of each CGU
significantly exceeded its carrying value, therefore no impairment charges have been recognised. The recoverable amount
of each CGU was also checked against its carrying value as at 31 December 2018, no impairment triggers were identified.
There is significant headroom in both the Steel CGU and the Foundry CGU. No reasonably possible changes in the key
assumptions would cause the carrying amount of the CGUs to exceed the recoverable amount. A sensitivity analysis was carried
out in which the pre-tax discount rate used for each CGU was increased by 3.0% and the perpetuity growth rate was reduced to
0.5%. The recoverable amount of each CGU still significantly exceeded its carrying value. A significant increase in the pre-tax
discount rate and decrease in the perpetuity growth rate beyond the scope considered above would need to occur simultaneously
to result in impairment. In conclusion, the probability of future impairment remains low.
18. Trade and Other Receivables
18.1 Accounting policy
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.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective
interest method, less impairment losses.
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: two 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 2018
£m
Net book
value as at
31 Dec 2017
£m
9.3
9.3
—
—
—
53.4
33.5
—
—
—
86.9
58.9
37.1
2.0
1.7
0.1
99.8
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 fair value less costs to sell off the asset is estimated and compared with 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 benefit 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 first 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.
17.2 Key assumptions and methodology
The key assumptions in determining value in use are projected cash flows, growth rates and discount rates.
Projected cash flows for the next three years have been based on the latest Board approved budget and Group Strategy plan.
They reflect management’s expectations of revenue, EBITDA growth, capital expenditure, working capital and operating cash
flows, based on past experience and future expectations of business performance. Cash flows beyond the Group Strategy plan
have been extrapolated using a perpetuity growth rate of 2.5% (2017: 2.5%). The growth rate has been calculated using GDP
growth forecasts published by the International Monetary Fund for the Group’s end-markets. These GDP growth forecasts have
been weighted to reflect the Group’s weighted average sales in each end-market during 2018.
The cash flows have been discounted to their current value using pre-tax discount rates, which represent each CGU’s weighted
average cost of capital (WACC). The assumptions used in the calculation of the WACC for each CGU have been benchmarked
to externally available data. These are industry-specific beta coefficients, risk-free rates and equity risk premiums. The pre-tax
discount rate used for the Steel CGU was 13.3% (2017: 11.0%) and for the Foundry CGU was 12.5% (2017: 11.6%). The increases in
both the Steel and Foundry pre-tax discount rates have primarily been driven by increased beta coefficients, which represent the
theoretical volatility of the global Steel and Foundry markets – these changes are not specific to Vesuvius.
18.2 Analysis of trade and other receivables
2018
2017
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
Total trade and other receivables
Gross
£m
275.2
60.5
19.4
8.9
36.9
400.9
ECL
Provision
£m
(0.7)
(0.7)
(0.1)
(0.6)
(26.1)
(28.2)
Net
£m
274.5
59.8
19.3
8.3
10.8
372.7
48.1
19.6
440.4
ECL
Provision
Coverage
(1)
0.3%
1.2%
0.5%
6.7%
70.6%
Gross
£m
269.0
59.0
18.4
8.2
43.2
397.8
ECL
Provision
£m
(0.7)
(0.8)
(0.3)
(0.5)
(29.4)
(31.7)
ECL
Provision
Coverage
(1)
0.3%
1.3%
1.6%
6.1%
68.1%
Net
£m
268.3
58.2
18.1
7.7
13.8
366.1
40.8
15.3
422.2
(1) ECL provision coverage is ECL provision divided by gross trade receivables.
The maximum exposure to credit risk at the end of the reporting period is the net carrying amount of these trade and other
receivables.
18.3 Impairment of trade and other receivables
Details relating to the impairment of trade receivables are disclosed in Note 26, ‘Financial Risk Management’.
19. Inventories
19.1 Accounting policy
Inventories are stated at the lower of cost (using the first in, first 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
2018
£m
84.2
19.8
140.3
244.3
2017
£m
80.2
20.2
122.4
222.8
The cost of inventories recognised as an expense and included in manufacturing costs of continuing operations in the Group
Income Statement during the year was £677.4m (2017: £609.6m).
The net inventories of £244.3m include a provision for obsolete stock of £14.2m (2017: £13.9m) and inventory write-downs from
cost to net realisable value of £2.6m (2017: £1.7m).
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
154
155
20. Acquisition and Disposals of Subsidiaries and Joint Ventures, Net of Cash Acquired
24. Other Reserves
As at 1 January 2017
Exchange differences on translation of the net assets of foreign operations
Exchange translation differences arising on net investment hedges
As at 1 January 2018
Exchange differences on translation of the net assets of foreign operations
Exchange translation differences arising on net investment hedges
As at 31 December 2018
Other
reserves
£m
Translation
reserve
£m
Total other
reserves
£m
(1,499.3)
157.9
(1,341.4)
—
—
(37.8)
9.8
(37.8)
9.8
(1,499.3)
129.9
(1,369.4)
—
—
11.4
(11.5)
11.4
(11.5)
(1,499.3)
129.8
(1,369.5)
Within other reserves as at 31 December 2018 is £1,499.0m (2017: £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 financial statements of foreign operations and from the translation
of financial 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.
25. Dividends
A final dividend for the year ended 31 December 2017 of £33.8m (2016: £30.8m), equivalent to 12.5 pence (2016: 11.4 pence)
per ordinary share, was paid in May 2018 (May 2017) and an interim dividend for the year ended 31 December 2018 of £16.2m
(2017: £14.8m), equivalent to 6.0 pence (2017: 5.5 pence) per ordinary share, was paid in September 2018 (September 2017).
A proposed final dividend for the year ended 31 December 2018 of £37.0m, equivalent to 13.8 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
financial statements. If approved by shareholders, the dividend will be paid on 24 May 2019 to ordinary shareholders on the
register at 23 April 2019.
The Group did not acquire any material interests in any companies during the year ended 31 December 2018. Contingent
consideration of £1.1m was paid during the year in respect of the previous acquisition of Process Metrix.
As part of the Group’s restructuring initiatives in North America, the Group divested the assets of its BMI refractory installation
business in October 2018.
21. Discontinued Operations
Discontinued operations income during 2018 of £0.5m (2017: £1.7m) related to a release of provisions no longer required.
21.1 Results of discontinued operations
Other income
Profit before tax — attributable to owners of the parent
Earnings per share — pence
Basic
Diluted
21.2 Cash flows from discontinued operations
Net cash outflow from:
— operating activities
Net cash outflow for the year
22. Issued Share Capital
22.1 Accounting policy
2018
£m
0.5
0.5
0.2
0.2
2018
£m
(0.1)
(0.1)
2017
£m
1.7
1.7
0.7
0.6
2017
£m
(0.8)
(0.8)
Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.
22.2 Analysis of issued share capital
The issued and fully paid ordinary share capital of the Company as at 31 December 2018 was 278,485,071 shares of 10 pence
each (2017: 278,485,071 shares of 10 pence each). Further information relating to the Company’s share capital is given in Note 8
attached to the Company’s financial statements.
23. Retained Earnings
As at 1 January 2017
Profit for the year
Remeasurement of defined benefit liabilities/assets
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 25)
As at 1 January 2018
Profit for the year
Remeasurement of defined benefit liabilities/assets
Recognition of share-based payments
Release of share option reserve on exercised and lapsed options
Purchase of ESOP shares
Income tax on items recognised in other comprehensive income
Dividends paid (Note 25)
As at 31 December 2018
Reserve
for own
shares
£m
(35.1)
—
—
—
0.9
—
—
Share
option
reserve
£m
Other
retained
earnings
£m
Total
retained
earnings
£m
2.9
—
—
2.6
(0.9)
—
—
2,402.2
2,370.0
38.0
8.4
—
—
(3.1)
(45.6)
38.0
8.4
2.6
—
(3.1)
(45.6)
(34.2)
4.6
2,399.9
2,370.3
—
—
—
1.5
(13.4)
—
—
—
—
3.7
(1.5)
—
—
—
138.3
138.3
5.1
—
—
—
6.0
5.1
3.7
—
(13.4)
6.0
(50.0)
(50.0)
(46.1)
6.8
2,499.3
2,460.0
During the year, Cookson Investments (Jersey) Limited as Trustee of the Vesuvius Group Employee Share Ownership Plan
(‘ESOP’), instructed the purchase of 2,385,000 Vesuvius plc ordinary shares for the ESOP for a total consideration of £13.4m.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018 156
157
26. Financial Risk Management
26.1 Accounting policy
(a) Non-derivative financial instruments
Analysis of derivative financial instruments
Loans and borrowings are initially recognised at fair value net of directly attributable transaction costs. After initial recognition
they are measured at amortised cost, using the effective interest method.
Derivatives
Total derivative financial instruments
2018
2017
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
0.8
0.8
(0.6)
(0.6)
0.3
0.3
—
—
(b) Foreign currencies
The individual financial 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 financial 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 or at an average rate which is a reasonable approximation of actual.
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 financial 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 specific 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 reclassified to profit 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 reclassified to profit or
loss on disposal of the net investment.
Financial reporting in hyperinflationary economies
Entities with a functional currency of the Argentine peso are required to apply IAS 29 ‘Financial reporting in hyper-inflationary
economies’ in accounting periods ending on or after 1 July 2018.
The results for the year ended 31 December 2018 from Group subsidiaries with a functional currency of the Argentine peso
have therefore been restated to current cost using indices prescribed by the Government Board of the Argentine Federation of
Professional Councils of Economic Sciences (FACPCE). Comparative figures have not been restated.
Transactions in Argentine pesos have been translated using exchange rates prevailing at the balance sheet date.
(c) Derivative financial instruments
Derivatives are measured at fair value. The fair value of forward foreign currency contracts is calculated using market prices at
the balance sheet date.
26.2 Financial risk factors
The Group’s Treasury department, acting in accordance with policies approved by the Board, is principally responsible for
managing the financial risks faced by the Group. The Group’s activities expose it to a variety of financial risks, the most significant
of which are market risk and liquidity risk.
(a) Derivative financial instruments
The Group uses derivative financial instruments (‘derivatives’), in the form of forward foreign currency contracts to manage the
effects of its exposure to foreign exchange risk. Derivatives are only used for economic hedging purposes and not as speculative
investments. However, where derivatives do not meet the hedge accounting criteria, they are classified as ‘held for trading’ for
accounting purposes and are accounted for at fair value through profit or loss. They are presented as current assets or liabilities
to the extent they are expected to be settled within 12 months after the end of the reporting period.
The fair value of Derivatives outstanding at the year-end has been booked through the Income Statement in 2018. All of the fair
values shown in the table above are classified 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 reflect 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.
(b) Market risk
Market risk is the risk that either the fair values or the cash flows of the Group’s financial instruments may fluctuate because of
changes in market prices. The Group is principally exposed to market risk through fluctuations in exchange rates and interest
rates.
Currency risk
The Group Income Statement is exposed to currency risk on monetary items that are denominated in currencies other than the
functional currency of the companies in which they are held. The currency profile of borrowings and financial assets is shown in
the table below.
Trade receivables
Cash at bank
Trade payables
Private Placement Notes
Bank loans & overdrafts
Foreign currency forward
contracts
— Buy foreign currency (Private
Placement)
— Buy foreign currency (Other)
— Sell foreign currency
Sterling
£m
(8.4)
1.2
Euro
£m
95.1
33.4
Chinese
Renminbi
£m
US Dollar
£m
67.2
25.7
37.2
24.2
2018
Other
£m
32.0
14.2
(5.9)
(37.0)
(31.1)
(14.7)
(27.8)
Euro
£m
47.6
22.9
Chinese
Renminbi
£m
US Dollar
£m
61.4
26.8
60.2
17.8
2017
Other
£m
13.9
9.6
(25.4)
(28.4)
(17.3)
(13.2)
Sterling
£m
0.2
(8.8)
(0.9)
— (116.9)
— (156.8)
— (122.6)
—
(6.6)
—
(0.1)
— (115.4)
10.8
(127.7)
— (148.0)
—
(7.0)
—
—
—
89.9
—
(8.3)
—
—
—
—
3.1
(4.3)
—
—
—
—
—
—
88.9
—
(11.8)
—
—
—
(13.1)
(66.4)
61.8
(117.9)
18.3
1.3
(120.9)
59.8
—
0.9
(4.3)
(97.7)
—
—
—
—
—
10.3
The Group arranges a rolling short dated Euro/Sterling foreign exchange swap in respect of €100m of its Private Placement fixed
rate financial liabilities (2017: €100m). This has the effect of reducing the currency exposure of the Group’s Net Debt by €100m.
At the time of the report there is no intention to change these arrangements.
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
US dollar
Euro
Chinese Renminbi
Other
As at 31 December 2018
Net unhedged monetary assets/(liabilities)
Sterling
£m
US dollar
£m
Euro
£m
Chinese
Renminbi
£m
Other
£m
Total
£m
—
—
(0.5)
(1.5)
(0.1)
(2.1)
0.6
—
4.2
3.4
14.3
22.5
0.5
2.6
—
0.1
3.3
6.5
—
—
—
—
(0.4)
(0.4)
3.6
(3.5)
—
(0.1)
19.0
19.0
4.7
(0.9)
3.7
1.9
36.1
45.5
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
158
159
26. Financial Risk Management continued
(b) Market risk continued
Functional currency
Sterling
US dollar
Euro
Chinese Renminbi
Other
As at 31 December 2017
Net unhedged monetary assets/(liabilities)
Sterling
£m
US dollar
£m
Euro
£m
Chinese
Renminbi
£m
—
—
(0.5)
(0.7)
(0.7)
(1.9)
(2.5)
(5.3)
—
7.3
15.0
14.6
34.4
0.5
—
0.4
(0.7)
(5.1)
0.1
—
—
—
(0.2)
(0.1)
Other
£m
6.1
(2.6)
—
(0.1)
11.7
15.1
Total
£m
(1.6)
(2.1)
6.8
14.6
24.7
42.4
The Group finances its operations partly by obtaining funding through external borrowings. Where these borrowings are not in
sterling they may be designated as net investment hedges. This enables gains and losses arising on retranslation to be charged to
other comprehensive income, providing a partial offset in equity against the gains and losses arising on translation of overseas
net assets.
During 2018 €161m and $200m of borrowings were designated as hedges of net investments in €161m and $200m worth of
overseas foreign operations.
As the value of the borrowings exactly matches the designated hedged portion of the net investments the relevant Hedge Ratio is
1:1. The net investment hedges are therefore 100% effective with no ineffectiveness.
The total retranslation impact of borrowings designated as net investment hedges was £10.6m (2017: £9.8m).
Interest rate risk
The Group’s interest rate risk principally arises in relation to its borrowings. Where borrowings are held at floating rates of interest,
fluctuations in interest rates expose the Group to variability in the cash flows associated with its interest payments, and where
borrowings are held at fixed rates of interest, fluctuations 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 fixed and floating 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.
As at 31 December 2018, the Group had $200.0m and €130.0m (£273.7m in total) of US Private Placement Loan Notes (USPP)
outstanding, which carry a fixed rate of interest, representing 56% of the Group’s total borrowings outstanding at that date.
The interest rate profile of the Group’s borrowings and net debt is detailed in the tables below.
Sterling
US dollar
Euro
Other
Capitalised arrangement fees
As at 31 December 2018
Sterling
US dollar
Euro
Other
Capitalised arrangement fees
As at 31 December 2017
Financial liabilities (gross borrowings)
Fixed
rate
£m
—
156.8
116.9
—
(1.8)
Floating
rate
£m
73.0
10.4
121.2
8.4
—
Total
£m
73.0
167.2
238.1
8.4
(1.8)
271.9
213.0
484.9
Financial liabilities (gross borrowings)
Fixed
rate
£m
—
148.0
115.4
—
(2.1)
Floating
rate
£m
39.7
11.9
120.2
3.1
—
Total
£m
39.7
159.9
235.6
3.1
(2.1)
261.3
174.9
436.2
Information in respect of the currency risk management of £89.9m of Euro denominated fixed rate financial liabilities is provided
in Note 26 (b).
The floating rate financial liabilities shown in the tables above typically bear interest at the inter-bank offered rate of the
appropriate currency, plus a margin. The fixed rate financial liabilities of £273.7m (2017: £261.3m) have a weighted average
interest rate of 3.8% (2017: 3.8%) and a weighted average period for which the rate is fixed of 5.8 years (2017: 6.9 years).
The financial assets attract floating rate interest.
(b) Market risk continued
Based upon the interest rate profile of the Group’s financial liabilities shown in the tables above, a 1% increase in market interest
rates would increase both the finance costs charged in the Group Income Statement and the interest paid in the Group Statement
of Cash Flows by £2.1m (2017: £0.1m), and a 1% reduction in market interest rates would decrease both the finance costs charged
in the Group Income Statement and the interest paid in the Group Statement of Cash Flows by £2.1m (2017: £0.1m).
(c) Credit risk
Credit risk arises from cash and cash equivalents, favourable derivative financial instruments and deposits with banks and
financial institutions, as well as credit exposures to customers, including outstanding receivables.
(i) Risk management
Credit risk is managed on a Group basis. For banks and financial institutions, Group policy is such that only independently rated
parties with a minimum rating of ‘A’ are accepted. If wholesale customers are independently rated, these ratings are used.
Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial
position, past experience and other factors. All the Group’s operating companies have policies and procedures in place to assess
the creditworthiness of the customers with whom they do business.
(ii) Impairment of financial assets
The Group subjects trade receivables for sales of inventory and from the provision of services to the expected credit loss model.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was
immaterial.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets. The expected loss rates are based on the payment profiles of sales over
a period of 60 months before 31 December 2018 and the corresponding historical credit losses experienced within this period.
The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting
the ability of the customers to settle the receivables. The Group has identified the current state of the economy (such as market
interest rates or growth rates) and particular industry issues in the countries in which it sells its goods and services to be the most
relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors.
Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past due in
making a contractual payment. 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 a change in credit risk profile of the customer, the customer being in default
on a contract, or the customer entering bankruptcy or financial reorganisation proceedings. All significant balances are reviewed
individually for evidence of impairment.
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there is
no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the
Group, and a failure to make contractual payments for a period of greater than 120 days past due. Where loans or receivables
have been written off, the company continues to engage in enforcement activity to attempt to recover the receivable due.
Where recoveries are made, these are recognised within the Income Statement.
The closing loss allowance for trade receivables as at 31 December 2018 reconciles to the opening loss allowances as follows:
As at 1 January
(Decrease)/increase in loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectable
Exchange adjustments
As at 31 December
2018
£m
31.7
(1.1)
(2.1)
(0.3)
28.2
2017
£m
33.1
3.7
(4.8)
(0.3)
31.7
The charge for the year shown in the table above is recorded within administration, selling and distribution costs in the Group
Income Statement.
The restatement on transition to IFRS 9 as a result of applying the expected credit risk model was immaterial. Historical
experience has shown that the Group’s trade receivable provisions are maintained at levels that are sufficient to absorb actual
bad debt write-offs, without being excessive. The Group considers the credit quality of financial assets that are neither past due
nor impaired as good.
(d) Liquidity risk
Liquidity risk is the risk that the Group might have difficulties in meeting its financial obligations. The Group manages this risk by
ensuring that it maintains sufficient levels of committed borrowing facilities and cash and cash equivalents to ensure that it can
meet its operational cash flow requirements and any maturing financial liabilities, whilst at all times operating within its financial
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 finance, this is
addressed on a timely basis by means of either additional committed bank facilities or raising finance in the capital markets.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
160
161
26. Financial Risk Management continued
(d) Liquidity risk continued
27. Employee Benefits
27.1 Accounting policy
As at 31 December 2018, the Group had committed borrowing facilities of £573.7m (2017: £563.4m), of which £119.2m (2017:
£153.7m) were undrawn. These undrawn facilities are due to expire in June 2022. The Group’s borrowing requirements are met by
USPP and a multi-currency committed syndicated bank facility of £300.0m (2017: £300.0m). The USPP facility was fully drawn as
at 31 December 2018 and amounted to £273.7m ($200.0m and €130.0m), of which $140.0m is repayable in 2020, €15.0m in 2021,
$30.0m in 2023, €15.0m in 2025, €50.0m in 2027, $30.0m in 2028 and €50.0m in 2029.
The maturity analysis of the Group’s gross borrowings is shown in the tables below.
Interest-bearing borrowings repayable
On demand or within one year
Between 1 and 2 years
Between 2 and 5 years
After five years
Capitalised arrangement fees
Total interest-bearing borrowings
Loans & overdrafts
Finance leases
2018
£m
2017
£m
2018
£m
2017
£m
Total
2018
£m
28.2
109.7
217.9
127.0
(1.8)
481.0
20.8
0.0
267.0
146.5
(2.1)
432.2
1.7
1.2
1.0
—
—
3.9
1.6
1.4
1.0
—
—
4.0
29.8
111.0
218.9
127.0
(1.8)
484.9
2017
£m
22.4
1.4
268.0
146.5
(2.1)
436.2
Capitalised arrangement fees shown in the tables above, which have been recognised as a reduction in borrowings in the financial
statements, amounted to £1.8m as at 31 December 2018 (31 December 2017: £2.1m), of which £1.0m (2017: £1.0m) related to the
USPP and £0.8m (2017: £1.1m) related to the syndicated bank facility.
26.3 Capital management
The Company considers its capital to be equal to the sum of its total equity, disclosed on the Group Balance Sheet, and net debt
(Note 14). It monitors its capital using a number of KPIs, including free cash flow, 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 financial covenants contained within its debt facilities
> To have available the necessary financial resources to allow the Group to invest in areas that may deliver acceptable future
returns to investors
> To maintain sufficient financial 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 sufficient 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 38.
26.4 Cash pooling arrangements
The Group enters into zero balancing and notional cash pooling arrangements as part of its ongoing Treasury management
activities. Certain notional cash pooling arrangements meet the criteria for offsetting as clarified in amendments to IAS 32
Financial Instruments, about 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 financial assets and liabilities shown as cash and cash borrowings
and those amounts which are subject to these agreements.
Financial assets/liabilities
Cash deposits
Cash borrowings
As at 31 December 2018
Financial assets/liabilities
Cash deposits
Cash borrowings
As at 31 December 2017
Gross amounts
of recognised
financial assets/
liabilities
£m
Gross amounts
of recognised
financial assets/
liabilities offset in
the statement of
financial position
£m
Net amounts
of financial
assets/liabilities
presented in the
statement of
financial position
£m
237.7
(24.3)
213.4
172.9
(32.9)
140.0
(0.8)
0.8
—
(11.0)
11.0
—
236.9
(23.5)
213.4
161.9
(21.9)
140.0
The net surplus or net liability recognised in the Group Balance Sheet for the Group’s defined benefit plans is the present value of
the defined benefit obligation at the balance sheet date, less the fair value of the plan assets. The defined benefit obligation is
calculated by independent actuaries using the projected unit credit method and by discounting the estimated future cash flows
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 benefits available in the form of refunds or reductions in future contributions in respect of the plans.
The expense for the Group’s defined benefit plans is recognised in the Group Income Statement as shown in Note 27.8. 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
profit.
27.2 Group post-retirement plans
The Group operates a number of pension plans around the world, both defined benefit and defined contribution, and accounts
for them in accordance with IAS 19.
The Group’s principal defined benefit pension plans are in the UK and the US, the benefits of which are based upon the final
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’ beneficiaries. The principal risks faced by these plans
comprise: (i) the risk that the value of the plan assets is not sufficient to meet all plan liabilities as they fall due; (ii) the risk that
plan beneficiaries 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 defined benefit pension plans in other territories but, except for those in
Germany, these are not individually material in relation to the Group.
(a) Defined benefit pension plans – UK
The Group’s main defined benefit pension plan in the UK (‘the UK Plan’) is closed to new members and to future benefit accrual.
The existing plan was established under a trust deed and is subject to the Pensions Act 2004 and guidance issued by the UK
Pensions 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 Pensions 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 benefits at the time
of £526.4m. Calculated on a ‘buy-out’ basis (using an estimation of the cost of buying out the UK Plan benefits with an insurance
company), the liabilities at that date were £687.5m, representing a funding level of 78%.
There is a ‘long-term scheme-specific funding standard’ in Part 3 of the Pensions Act 2004. In terms of Part 3, the UK plan is
subject to a requirement (‘the statutory funding objective’) that it must have sufficient and appropriate assets to cover its technical
provisions. Such technical provisions are determined as part of the triennial valuation. Under the rules of the UK Plan, the Trustees,
after consultation with the company, have the power to set the funding contributions taking into account the results of the triennial
valuation, and the Pension Act 2004 legislation. Notwithstanding the latest funding valuation surplus, the Company agreed to
fund the administration cost relating to the management of the UK Plan.
(b) Defined benefit pension plans – US
The Group has several defined benefit pension plans in the US, providing retirement benefits based on final salary or a fixed
benefit. The Group’s principal US defined benefit pension plans are closed to new members and to future benefit accrual for
existing members. Actuarial valuations of the US defined benefit pension plans are carried out every year and the last full
valuation was carried out as at 31 December 2017. At that date the market value of the plan assets was £49.8m, representing a
funding level of 70.7% of funded accrued plan benefits at that date (using the projected unit method of valuation) of £70.4m.
Funding levels for the Group’s US defined benefit pension plans are based upon annual valuations carried out by independent
qualified actuaries and are governed by US Government regulations.
The Group’s US defined benefit pension plans are subject to the minimum contribution requirements of the 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 2018, the minimum
required contribution was £nil as significant company contributions of $4m were made in 2017. However, under these funding
laws and based on the plan deficit, minimum annual contributions in the period 2018-2020 are likely to be required and are
expected to be in the $3m to $4m range. Contributions of $1.9m were made during 2018.
(c) Defined benefit pension plans – Germany
The Group has several defined benefit 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 defined contribution plan for
new joiners.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
162
163
27. Employee Benefits continued
(d) Defined benefit pension plans – ROW and other post-retirement benefits
The Group has several defined benefit pension arrangements across the rest of the world, the largest of which are in Belgium.
The net liability of the ROW plans at 31 December 2018 was £15.6m (2017: £17.9m). The Group also has liabilities relating to
medical insurance arrangements and termination plans which provide for benefit to be paid to employees on retirement.
The net liability of these other post-retirement benefits at 31 December 2018 was £7.3m (2017: £6.5m).
(e) Defined contribution pension plans
The total expense for the Group’s defined contribution plans in the Group Income Statement amounted to £11.4m (2017: £12.6m
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 deficit. 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 deficit in the plan. No reliable basis exists for allocation of the plans’ obligations and plan assets
to individual employer participants. Deficits in the plans may necessitate increased contributions in the future but the expectation
is that this will remain relatively consistent based upon historical trends. These are currently accounted for as defined contribution
plans. In 2018 Vesuvius contributed £0.9m (2017: £1.4m) to these plans.
27.3 Post-retirement liability valuation
The main assumptions used in calculating the costs and obligations of the Group’s defined benefit pension plans, as detailed
below, are set by the Directors after consultation with independent professionally qualified actuaries and include those used
to determine regular service costs and the financing elements related to the plans’ assets and liabilities. It is the Directors’
responsibility to set the assumptions used in determining the key elements of the costs of meeting such future obligations.
Whilst the Directors believe that the assumptions used are appropriate, a change in the assumptions used could affect the
Group’s profit and financial position.
(a) Mortality assumptions
The mortality assumptions used in the actuarial valuations of the Group’s UK, US and German defined benefit pension liabilities
are summarised in the table below and have been selected to reflect 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 2017 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 RP-2014 mortality tables and MP-2018 projection scale. The Group’s major plans in
Germany have been valued using the modified Heubeck Richttafeln 2018G 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 inflation — using RPI for UK
— using CPI for UK
Rate of increase in pensionable salaries
Rate of increase to pensions in payment
2018
2017
UK
years
86.2
88.8
87.6
90.4
US
years
Germany
years
85.6
87.6
87.3
89.2
85.0
88.6
87.8
90.8
UK
years
86.3
88.9
87.7
90.4
US
years
Germany
years
85.7
87.7
87.3
89.2
84.3
88.3
86.9
90.8
2018
2017
UK
% p.a.
US
% p.a.
Germany
% p.a.
UK
% p.a.
US
% p.a.
Germany
% p.a.
2.85
3.25
2.15
n/a
3.15
4.00
2.25
n/a
n/a
n/a
2.00
1.70
n/a
2.45
1.55
2.50
3.25
2.15
n/a
3.10
3.40
2.25
n/a
n/a
n/a
1.60
1.80
n/a
2.55
1.65
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 analysis using the
expected future cashflows of the Vesuvius Pension Plan and the AON Hewitt AA yield curve; the US discount rate is based on the
FTSE (formerly Citigroup) pension discount curve; and the Germany discount rate is based on AA corporate bond yields included
in the iBoxx Euro AA corporate bond indices.
The assumptions for UK price inflation 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 (2017: 1.1 points lower) than RPI-based inflation.
(c) Sensitivity analysis of the impact of changes in significant IAS 19 actuarial assumptions
The UK Plan Trustee has entered into a pension insurance buy-in agreement with the Pension Insurance Corporation (‘PIC’).
The US pensions are not inflation linked. The rate of increase in pensionable salaries and of pensions in payment is therefore not
significant to the valuation of the Group’s overall pension liabilities.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
Assumption
Change in assumption
UK
US
Germany
Discount rate Increase/decrease by 0.1%
— impact on plan liabilities Decrease/increase by £7.1m Decrease/increase
by £0.9m
Decrease/increase
by £0.9m
— impact on plan assets
Decrease/increase by £3.0m n/a
n/a
Price inflation Increase/decrease by 0.1%
— impact on plan liabilities
Increase/decrease by £4.8m n/a
Increase/decrease
by £0.3m
— impact on plan assets
Increase/decrease by £2.0m n/a
n/a
Mortality
Increase by one year
— impact on plan liabilities
Increase by £19.6m
Increase by £2.7m
Increase by £1.7m
— impact on plan assets
Increase by £13.9m
n/a
n/a
27.4 Defined benefit obligation
The average duration of the obligations to which the liabilities of the Group’s principal pension plans relate is 17 years for the UK,
18 years for Germany and 10 years for the US.
Present value as at 1 January 2018
Exchange differences
Current service cost
Past service cost
Interest cost
Settlements
Remeasurement of liabilities:
— demographic changes
— financial assumptions
— experience losses/(gains)
Benefits paid
Present value as at 31 December 2018
Present value as at 1 January 2017
Exchange differences
Current service cost
Past service cost
Interest cost
Settlements
Remeasurement of liabilities:
— demographic changes
— financial assumptions
— experience losses/(gains)
Benefits paid
Present value as at 31 December 2017
Defined benefit pension plans
US
£m
Germany
£m
82.0
4.5
0.6
(0.9)
2.7
—
(0.3)
(5.3)
0.1
(3.9)
79.5
49.4
0.6
1.5
—
0.8
—
0.8
(4.6)
0.9
(1.6)
47.8
Defined benefit pension plans
US
£m
Germany
£m
86.8
(7.6)
0.5
—
3.1
—
(0.7)
3.8
0.1
(4.0)
82.0
45.3
1.9
1.5
—
0.8
—
—
1.6
(0.1)
(1.6)
49.4
ROW
£m
44.6
0.6
3.2
(1.0)
0.7
—
2.0
(1.7)
(1.6)
(2.2)
44.6
ROW
£m
41.0
1.3
3.2
0.1
0.7
—
0.1
0.5
0.1
(2.4)
44.6
Other post-
retirement
benefit
plans
£m
6.5
0.2
0.6
—
0.3
—
—
0.2
0.1
(0.6)
7.3
Other post-
retirement
benefit
plans
£m
6.9
0.1
0.2
—
0.2
—
—
0.3
(0.1)
(1.1)
6.5
Total
£m
666.8
5.7
5.3
2.6
16.1
—
(0.7)
(33.7)
1.4
(35.7)
627.8
Total
£m
700.5
(4.4)
5.2
0.1
18.6
—
(6.0)
17.2
(9.6)
(54.8)
666.8
UK
£m
490.8
—
—
4.5
11.9
—
(3.2)
(22.1)
2.0
(28.0)
455.9
UK
£m
527.4
—
—
—
14.0
—
(5.4)
11.3
(9.7)
(46.8)
490.8
Total
£m
673.3
5.9
5.9
2.6
16.4
—
(0.7)
(33.5)
1.5
(36.3)
635.1
Total
£m
707.4
(4.3)
5.4
0.1
18.8
—
(6.0)
17.5
(9.7)
(55.9)
673.3
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
164
165
27. Employee Benefits continued
27.5 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
Benefits paid
As at 31 December
UK
£m
580.3
—
14.2
—
—
(23.0)
0.8
—
(0.6)
(27.9)
543.8
2018
US
£m
49.8
2.7
1.6
—
—
(5.0)
1.4
—
(0.6)
(2.9)
47.0
ROW
£m
26.7
0.6
0.5
—
—
0.4
2.3
—
—
(1.5)
29.0
Total
£m
656.8
3.3
16.3
—
—
(27.6)
4.5
—
(1.2)
(32.3)
619.8
UK
£m
604.1
—
16.1
—
—
5.7
2.0
—
(0.8)
(46.8)
580.3
2017
US
£m
49.1
(4.5)
1.7
—
—
3.8
3.1
—
(0.5)
(2.9)
49.8
ROW
£m
24.8
0.5
0.4
—
—
0.7
2.3
—
—
(2.0)
26.7
Total
£m
678.0
(4.0)
18.2
—
—
10.2
7.4
—
(1.3)
(51.7)
656.8
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.
27.6 Remeasurement of defined benefit liabilities/assets
Remeasurement of liabilities:
— demographic changes
— financial assumptions
— experience (losses)/gains
Remeasurement of assets
Total movement
2018
total
£m
0.7
33.5
(1.5)
(27.6)
5.1
2017
total
£m
6.0
(17.5)
9.7
10.2
8.4
The remeasurement of defined benefit liabilities and assets of £5.1m (2017: £8.4m) is recognised in the Group Statement of
Comprehensive Income.
27.7 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)
Defined benefit pension plans
UK
£m
49.7
213.0
264.1
17.0
543.8
(454.1)
89.7
(1.8)
87.9
89.7
(1.8)
87.9
US
£m
5.1
40.6
—
1.3
47.0
(68.2)
(21.2)
(11.3)
(32.5)
—
(32.5)
(32.5)
Germany
£m
—
—
—
—
—
—
—
(47.8)
(47.8)
—
(47.8)
(47.8)
ROW
£m
2.3
2.9
19.8
4.0
29.0
(40.3)
(11.3)
(4.3)
(15.6)
1.1
(16.7)
(15.6)
Total
£m
57.1
256.5
283.9
22.3
619.8
(562.6)
57.2
(65.2)
(8.0)
90.8
(98.8)
(8.0)
Other post-
retirement
benefit
plans
£m
—
—
—
—
—
—
—
(7.3)
(7.3)
—
(7.3)
(7.3)
2018
total
£m
57.1
256.5
283.9
22.3
619.8
(562.6)
57.2
(72.5)
(15.3)
90.8
(106.1)
(15.3)
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)
(a) UK Plan asset allocation
Defined benefit pension plans
UK
£m
68.9
191.8
276.1
43.5
580.3
(488.9)
91.4
(1.9)
89.5
91.4
(1.9)
89.5
US
£m
9.7
38.5
—
1.6
49.8
(70.4)
(20.6)
(11.6)
(32.2)
—
(32.2)
(32.2)
Germany
£m
—
—
—
—
—
—
—
(49.4)
(49.4)
—
(49.4)
(49.4)
ROW
£m
2.9
2.0
17.8
4.0
26.7
(40.0)
(13.3)
(4.6)
(17.9)
1.0
(18.9)
(17.9)
Total
£m
81.5
232.3
293.9
49.1
656.8
(599.3)
57.5
(67.5)
(10.0)
92.4
(102.4)
(10.0)
Other post-
retirement
benefit
plans
£m
—
—
—
—
—
—
—
(6.5)
(6.5)
—
(6.5)
(6.5)
2017
total
£m
81.5
232.3
293.9
49.1
656.8
(599.3)
57.5
(74.0)
(16.5)
92.4
(108.9)
(16.5)
As at 31 December 2018, of the UK Plan’s total assets, 48.6% (2017: 47.6%) were represented by the annuity insurance contracts
covering the UK Plan’s pension liabilities; 9.1% (2017: 11.9%) were allocated to equities; 39.2% (2017:33.0%) to fixed income
securities; 0.4% (2017: 5.1%) to cash; and 2.7% (2017: 2.4%) to other assets. The fixed income asset class of the UK Plan includes 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 2018, the IAS 19
valuation of the PIC insurance contract value associated with the bought-in liabilities was £264.1m (2017: £276.1m). 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 58.1% (2017: 56.5%) of UK pension plan obligations, removing
substantially all financial risks associated with this tranche of the liability.
(b) Defined benefit contributions in 2019
In 2019, the Group is expected to make contributions into its defined benefit pension and other post-retirement benefits plans of
around £5.4m with specific contributions of approximately £2.0m and £0.7m anticipated for the US Plan and UK Plan respectively.
27.8 Income statement recognition
The expense recognised in the Group Income Statement in respect of the Group’s defined benefit retirement plans and other
post-retirement benefit plans is shown below.
Current service cost
Past service cost
Settlements
Administration expenses
Net interest cost/(gain)
Total net charge
2018
Defined
benefit
pension
plans
£m
Other post-
retirement
benefit
plans
£m
5.3
2.6
—
1.2
(0.2)
8.9
0.6
—
—
—
0.3
0.9
2017
Defined
benefit
pension
plans
£m
Other post-
retirement
benefit
plans
£m
5.2
0.1
—
1.3
0.4
7.0
0.2
—
—
—
0.2
0.4
Total
£m
5.9
2.6
—
1.2
0.1
9.8
Total
£m
5.4
0.1
—
1.3
0.6
7.4
A UK High Court judgement was made on 26 October 2018 in respect of the gender equalisation of guaranteed minimum
pensions (‘GMPs’) for occupational pension schemes. The increase in pension liabilities resulting from this judgement has been
treated for IAS 19 purposes as a plan amendment and has resulted in an increase in the pension deficit in the balance sheet and
a corresponding past service cost in the income statement. This has been treated as a separately reported item so that there has
been no impact upon headline performance. We are working with the trustees of our UK pension plan and our actuarial and legal
advisers to understand the extent to which the judgement crystallises additional liabilities for the UK pension plan. We have
estimated the impact of GMP equalisation as at 31 December 2018 to be £4.5m.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
166
167
27. Employee Benefits continued
27.8 Income statement recognition continued
The total net charge of £9.8m (2017: £7.4m) recognised in the Group Income Statement in respect of the Group’s defined benefit
pension plans and other post-retirement benefits plans is recognised in the following table:
In arriving at trading profit — within other manufacturing costs
In arriving at profit before tax — Guaranteed minimum pension equalisation charge
— within administration, selling and distribution costs
— within net finance costs
Total net charge
28. Share-based Payments
28.1 Accounting policy
The Group operates equity-settled share-based payment arrangement 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 total shareholder return target upon which vesting for some 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
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 attached 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.
28.2 Income statement recognition
The total expense recognised in the Group Income Statement is shown below.
Long Term Incentive Plan
Other plans
Total expense
2018
£m
2.7
1.0
3.7
2017
£m
1.8
0.8
2.6
The Group operates a number of different share-based payment plans, the most significant of which is the Long Term Incentive
Plan (LTIP), details of which can be found in the Directors’ Remuneration Report. The Group’s other share-based payment plans
are not considered significant in the context of the Group’s results or financial position.
28.3 Details of outstanding options
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
Outstanding awards
As at
1 Jan 2018
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
As at
31 Dec 2018
no.
2,280,093
647,188
(247,688)
(319,115) 2,360,478
nil
nil
nil
nil
nil
152,437
228,855
(77,577)
(4,825) 298,890
nil
nil
nil
nil
nil
For the options exercised during 2018, the share price at the date of exercise ranged from 569 pence to 619 pence.
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
Outstanding awards
As at
1 Jan 2017
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
As at
31 Dec 2017
no.
2,398,185
825,653
— (943,745) 2,280,093
nil
nil
nil
nil
nil
219,479
118,722
(180,104)
(5,660)
152,437
nil
nil
nil
nil
nil
For the options exercised during 2017, the share price at the date of exercise ranged from 402 pence to 592 pence.
Details of market performance conditions are included in the Directors’ Remuneration Report.
2018
£m
1.5
3.7
4.5
0.1
9.8
2017
£m
2.4
4.4
—
0.6
7.4
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
28.4 Options granted under the LTIP during the year
Fair value of options granted
Share price on date of grant
Expected volatility
Risk-free interest rate
Exercise price (per share)
Expected term (years)
Expected dividend yield
2018
Weighted
average
outstanding
contractual
life of
awards
years
5.5
1.0
Awards
exercisable
as at
31 Dec 2018
no.
—
—
—
—
Range of
exercise
prices
pence
Awards
exercisable
as at
31 Dec 2017
no.
n/a
n/a
—
—
—
—
2017
Weighted
average
outstanding
contractual
life of
awards
years
4.8
1.0
Range of
exercise
prices
pence
n/a
n/a
2018 (October Grant)
2018 (March Grant)
EPS element TSR element
EPS element TSR element
645.5p
645.5p
n/a
n/a
nil
3
nil
426.0p
645.5p
27.9%
0.9%
nil
3
nil
605.5p
605.5p
n/a
n/a
nil
3
nil
368.9p
605.5p
32.1%
0.8%
nil
3
nil
Vesting of 50% of shares awarded is based on headline EPS growth and 50% upon the Group’s three-year TSR performance
relative to that of the constituent companies of the FTSE 250 (excluding investment trusts).
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 has been measured using the Monte Carlo
model. Expected volatility was determined by calculating the historical volatility of the Group’s share price over the 2.8 years
(2017: 2.8 years) prior to the grant date for the March 2018 Grant and 2.25 years for the October 2018 Grant. The risk-free rate of
return was assumed to be the yield to maturity on a UK fixed 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.
29. Trade and Other Payables
29.1 Accounting policy
Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost, using the effective
interest method.
29.2 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
2018
£m
15.5
0.6
16.1
197.3
35.3
1.9
77.3
311.8
2017
£m
14.4
2.9
17.3
185.9
32.6
0.8
73.3
292.6
There is no significant 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.
Included within trade payables in the table above is £4.1m (2017: £1.8m) subject to a supplier financing agreement. Under the
terms of this agreement, which the Group entered into as one of a series of measures aimed at improving control over its working
capital, invoices received by the Group from approved suppliers are assigned to a third-party finance company, which assumes
legal responsibility for settling the amount owing directly with the supplier. The Group subsequently settles the amount owing to
the finance company. There is no cost to the Group from this arrangement.
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
168
30. Leases
30.1 Accounting policy
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the Group, the asset is capitalised in the Group Balance Sheet and the corresponding liability to the lessor is recognised as a
finance lease obligation. All other leases are classified as operating leases and neither the asset nor the corresponding liability to
the lessor is recognised in the Group Balance Sheet. Rentals payable under operating leases are charged to the Group Income
Statement on a straight-line basis over the term of the lease. Benefits received and receivable as an incentive to enter an
operating lease are also spread on a straight-line basis over the lease term.
30.2 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 five years
Later than five years
Total operating lease commitments
2018
£m
11.6
19.2
8.5
39.3
2017
£m
8.3
13.4
7.9
29.6
The net book value of the Group’s property, plant and equipment assets held under finance lease contracts at 31 December 2018
was £4.4m (2017: £4.6m).
The cost incurred by the Group in the year in respect of assets held under operating leases, all of which was charged within trading
profit, amounted to £20.9m (2017: £18.6m).
31. Provisions
31.1 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 reflects both the current market assessment of the time value of money and the specific risks associated
with the obligation. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance
cost.
169
The provision for disposal and closure costs includes the Directors’ current best estimate of the costs to be incurred both in the
fulfilment 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 outflows 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 reflect 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 2018, £21.5m (2017: £21.6m) was recorded in
other receivables in respect of associated insurance reimbursements, of which £17.7m (2017: £20.7m) 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 significantly alter the Director’s assessment of the value, volume of claims, 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 £17.4m as at 31 December 2018, (2017: £22.9m) comprises £4.3m (2017: £2.7m) in relation to onerous
lease provisions in respect of leases terminating between one and six years, and £13.1m (2017: £20.2m) in relation to expenditure
on restructuring initiatives that have been announced the majority of 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 outflows is subject to some uncertainty, but the majority of amounts provided are expected to be utilised over the next
five years and the underlying estimates of costs are regularly updated to reflect changed circumstances with regard to individual
matters. During 2018 the Group recognised net charges of £9.3m (2017: £11.7m) in the Group Income Statement to provide for
various litigation settlements and other claims.
32. 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 30).
31.2 Analysis of provisions
33. Contingent Liabilities
As at 1 January 2018
Exchange adjustments
Charge to Group Income Statement
Unused amounts released to Group Income Statement
Adjustment to discount
Cash spend
Transferred to other balance sheet accounts
As at 31 December 2018
Disposal and
closure costs
£m
Restructuring
charges
£m
36.1
2.2
3.6
(0.5)
1.2
(2.8)
—
39.8
22.9
0.1
15.3
—
0.1
(19.3)
(1.7)
17.4
Other
£m
5.2
0.1
9.3
—
—
(10.1)
0.2
4.7
Total
£m
64.2
2.4
28.2
(0.5)
1.3
(32.2)
(1.5)
61.9
Of the total provision balance as at 31 December 2018 of £61.9m (2017: £64.2m), £38.8m (2017: £34.4m) is recognised in the
Group Balance Sheet within non-current liabilities and £23.1m (2017: £29.8m) within current liabilities.
Guarantees given by the Group under property leases of operations disposed of amounted to £0.8m (2017: £1.1m). Details of
guarantees given by the Company, on behalf of the Group, are given in Note 10 to the Company Financial 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. Provisions 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.
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’ financial position or results of operations.
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 outflows is subject to some uncertainty (see Note 31 for further information).
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018 170
171
Avemis SAS
BMI Refractory
Services Inc.
Brazil 1 Limited
Cookson
Dominicana, SRL
Cookson
Investments
(Jersey) Limited
Cookson Jersey
Limited
East Moon
Investment (HK
Holding) Company
Limited
Flo-Con Holding,
Inc.
Flo-Con Systems,
LLC
34. Investments in Subsidiaries, Joint Ventures and Associates
34.1 Investment in subsidiaries
A subsidiary is an entity over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights
to, variable returns from its involvement with the entity and can affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the Group.
The subsidiaries, joint ventures and associates of Vesuvius plc and the countries in which they are incorporated are set out below.
With the exception of Vesuvius Holdings Limited, whose ordinary share capital was directly held by Vesuvius plc, the ordinary
capital of the companies listed below was wholly owned by a Vesuvius plc subsidiary as at 31 December 2018.
Company
legal name
Registered office address
Jurisdiction
Company
legal name
Registered office address
Jurisdiction
Advent Process
Engineering Inc.
333 Prince Charles Drive, Welland,
Ontario, L3B 5P4, Canada
Canada
(Ontario)
Foseco Holding BV 165 Fleet Street, London, EC4A 2AE,
Netherlands
Saint Symphorien Sur Coise
(69590) au 2, Hotel d’Entreprises,
ZI Grange Eglise, France
France
Foseco Holding
International
Limited
England (Branch registration)
165 Fleet Street, London,
EC4A 2AE, England
US
(Pennsylvania)
Foseco Holding
Limited
165 Fleet Street, London,
EC4A 2AE, England
600 N 2nd Street, Suite 401,
Harrisburg, PA 17101-1071,
United States
165 Fleet Street, London,
EC4A 2AE, England
Km 7 1/2, Autopista San Isidro,
Edificio Modelo A, Zona Franca
San Isidro, Santo Domingo Oeste,
Dominican Republic
England
Dominican
Republic
IFC5, St Helier, JE1 1ST, Jersey
Jersey
Foseco Industrial e
Comercial Ltda
Foseco
International
Holding (Thailand)
Limited
Km 15, Rodovia Raposo Tavares,
Butanta Cep, São Paulo,
05577-100, Brazil
170/69, 22nd Floor Ocean Tower 1,
Ratchadapisek Road, Klongtoey,
Bangkok, 10110, Thailand
Foseco
International
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
England
Brazil
Thailand
England
IFC5, St Helier, JE1 1ST, Jersey
Jersey
Foseco Japan Ltd 9th Floor, Orix Kobe Sannomiya
Japan
36/F Tower Two Times Square,
1 Matheson Street, Causeway Bay,
Hong Kong
Hong Kong
Foseco Korea
Limited
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington, DE 19801,
United States
CT Corporation, 208 South LaSalle
Street, Chicago, Cook County, IL
60604, United States
US (Delaware)
Foseco Limited
Foseco
Metallurgical Inc
US (Illinois)
Building, 6-1-10, Goko dori, Chuo-ku,
Kobe Hyogo, 651-0087, Japan
74 Jeongju-ro, Wonmi-gu,
Bucheon-si, Gyeonggi-do,
14523, South Korea
165 Fleet Street, London,
EC4A 2AE, England
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
South Korea
England
US (Delaware)
Foseco (FS) Limited 1 Midland Way, Central Park,
England
Barlborough Links, Derbyshire,
S43 4XA, England
Foseco (GB)
Limited
165 Fleet Street, London,
EC4A 2AE, England
Foseco (Jersey)
Limited
44 Esplanade, St Helier,
JE4 9WG, Jersey
Foseco (MRL)
Limited
Foseco (RUL)
Limited
Foseco (UK)
Limited
165 Fleet Street, London,
EC4A 2AE, England
165 Fleet Street, London,
EC4A 2AE, England
165 Fleet Street, London,
EC4A 2AE, England
England
Jersey
England
England
England
Foseco Canada
Limited
181 Bay Street, Suite 1800, Toronto,
Ontario, M5J 2T9, Canada
Canada
(Ontario)
Foseco Espanola
SA
5, Barrio Elizalde, Izurza,
Bizkaia, 48213, Spain
Foseco Foundry
(China) Limited
Foseco Fundición
Holding
(Espanola), S.L.
Room 819, Shekou Zhaoshang
Building, Nanshan, Shenzhen,
Guangdong, 20030, China
5, Barrio Elizalde, Izurza,
Bizkaia, 48213, Spain
Foseco Holding
(Europe) Limited
165 Fleet Street, London,
EC4A 2AE, England
Foseco Holding
(South Africa) (Pty)
Limited
12, Bosworth Street, Alrode,
Alberton, 1449, South Africa
Spain
China
Spain
England
South Africa
Foseco Nederland
BV
Binnenhavenstraat 20, 7553 GJ
Hengelo (OV), Netherlands
Netherlands
Foseco Overseas
Limited
165 Fleet Street, London,
EC4A 2AE, England
Foseco Pension
Fund Trustee
Limited
Foseco Philippines
Inc
165 Fleet Street, London,
EC4A 2AE, England
Unit 401, 4th Floor 8 Antonio Centre,
Prime St. Madrigal Business Park 2,
Ayala Alabang Muntinlupa City,
1770 Philippines
Foseco Portugal
Produtos para
Fundiçâo Lda
Rua 25 de Abril, Lote 3,
Aveleda – 4485-010 VCD,
Vila do Conde, Portugal
England
England
Philippines
Portugal
Foseco Pty Limited 40-46 Gloucester Boulevarde, Port
Australia
Kembla, NSW, 2505, Australia
Foseco SAS
Le Newton C, 7 Mail Barthélémy
Thimonnier, 77185 Lognes, France
France
Foseco Steel
(Holdings) China
Limited
Foseco Steel (UK)
Limited
165 Fleet Street, London,
EC4A 2AE, England
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
Foseco Technology
Limited
165 Fleet Street, London,
EC4A 2AE, England
Foseco
Transnational
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
England
England
England
Registered office address
Jurisdiction
Company
legal name
Registered office address
Jurisdiction
Company
legal name
Foseco Vietnam
Limited
HGAC
Participações
Limitada
J.H. France
Refractories
Company
717-1 Campus 02, 7th Floor,
Me Linh Tower, No 2 Ngo Duc Ke
Street, Ben Nghe Ward, District 01,
Ho Chi Minh, Vietnam
Street Duque de Caxias,
563 Room 2, Centro, Barueri,
SP, 06401-010, Brazil
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
John G. Stein &
Company Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
Mainsail Insurance
Company Limited
Canon’s Court, 22 Victoria Street,
Hamilton, HM 12, Bermuda
Bermuda
Mascinco
Empreendimentos
e Participações
Ltda
Avenida Brasil, 49550 - parte,
Distrito Industrial de Palmares –
Campo, Grande – Cep: 23065-480,
Rio de Janeiro, RJ, Brazil
Mastercodi
Industrial Ltda
Avenida Giovanni Gronchi, 5174,
suíte 11, Vila Andrade, 05724-002,
São Paulo, State of São Paulo, 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, England
Brazil
Brazil
Spain
Brazil
Mauritius
England
England
Vietnam
SOLED SAS
Centre d’Activités Economiques
Zone Industrielle Franchepré
54240 Joeuf, France
Brazil
Tamworth UK
Limited
165 Fleet Street, London,
EC4A 2AE, England
France
England
Thomas Marshall
(Loxley) Limited
Beaver House, 23-38 Hythe Bridge
Street, Oxford, OX1 2EP, England
England
US (Delaware)
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,Floor 2,
Rosario, Provincia de Santa Fé,
Argentina
England
Brazil
Thailand
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,
DE 19801, United States
US (Delaware)
Vesuvius Americas
Holding, Inc
Corporation Trust Center,
1209 Orange Street, Wilmington,
New Castle County, DE 19801,
United States
Vesuvius Australia
(Holding) Pty
Limited
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505,
Australia
Vesuvius Australia
Pty Ltd
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505,
Australia
Vesuvius Belgium
N.V.
Zandvoordestraat 366,
Oostende, B-8400, Belgium
US (Delaware)
Australia
Australia
Belgium
Process Metrix,
LLC
6622 Owens Drive, Pleasanton,
CA 94588, United States
US (California)
Vesuvius Canada
Inc
181 Bay Street, Suite 1800, Toronto,
Ontario, M5J 2T9, Canada
Canada
PT Foseco
Indonesia
PT Foseco Trading
Indonesia
Realisations 789,
LLC
S G Blair &
Company Limited
SERT-Metal SAS
SIDERMES Inc.
SIDERMES Do
Brasil Sensores
Termicos Ltda
SIDERMES
Latinoamericana
CA
Jl Rawa 2/5, Kawasan Industri,
Pulogadung, Jakarta,
13930, Indonesia
Jl Rawa 2/5, Kawasan Industri,
Pulogadung, Jakarta,
13930, Indonesia
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
3, Avenue de l’Europe, Parc,
Les Pivolles’, Decines-Charpieu
69150, France
175, Calixa-Lavallée Verchêres,
Québec J0L2R0, Canada
Estrada Municipal PDD 436, S/N,
Prédio ‘C’, Bairro da Boa Vista,
Municipio de Piedade,
Estado de São Paulo, Brazil
Zona Industrial, San Vicente Av.,
Anton Phillips Grupo Industrial,
San Vicente Local 4, Maracay,
Venezuela
Indonesia
Indonesia
US (Delaware)
England
France
Canada
Brazil
Vesuvius Ceramics
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius China
Holdings Co.
Limited
Vesuvius China
Limited
Office 813, 8/F, Paul Y centre,
51 Hung To Road, Kwun Tong,
Kowloon, Hong Kong
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Colombia
SAS
Street 90, number 13 A - 31,
floor 6, Bogota, Colombia
Vesuvius
Corporation S.A.
Via Nassa 17, Lugano,
CH 6900, Switzerland
Vesuvius CSD Sp
z.o.o.
ul. Jasnogórska 11, Kraków,
31-358, Poland
England
Hong Kong
England
Colombia
Switzerland
Poland
Vesuvius Emirates
FZE
Warehouse No: 1J-09/3,
P O Box 49261, Hamriyah Free Zone,
Sharjah, United Arab Emirates
United Arab
Emirates
Vesuvius Europe
S.A.
17 Rue de Douvrain, Ghlin,
7011, Belgium
Vesuvius Financial
1 Limited
165 Fleet Street, London,
EC4A 2AE, England
Venezuela
Vesuvius Finland
OY
Pajamäentie 8D7, 00360 Helsinki,
Finland
Vesuvius Foundry
Products (Suzhou)
Co., Ltd.
12 Wei Wen Road, China-Singapore
Suzhou Ind Park, Suzhou,
Jiangsu Province, 215122, China
Belgium
England
Finland
China
China
SIDERMES S.A.
Urquiza 919 Piso 2 Rosario Santa Fe,
Argentina, CP 2000
Argentina
SIDERMES S.p.A. Via Oslavia 94, Desio (MB),
Italy
Vesuvius Foundry
Technologies
(Jiangsu) Co. Ltd
2 Changchun Road, Economic
Development Area, Changshu,
Jiangsu, China
SIR
Feuerfestprodukte
GmbH
20832(1), Italy
Siegener Strasse 152, Kreuztal,
D-57223, Germany
Germany
Vesuvius France
S.A.
Rue Paul Deudon 68, Boite Postale
19, Feignies 59750, France
France
Vesuvius GmbH
Gelsenkirchener Strasse 10,
Borken, D-46325, Germany
Germany
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018 172
173
34. Investments in Subsidiaries, Joint Ventures and Associates continued
34.2 Investment in joint ventures and associates
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint venture. Joint control is the contractually agreed sharing of control of the arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing control. An associate is an entity over
which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy
decisions of an entity, but is not control or joint control over those policies.
The Group’s investments in its associates and joint ventures are accounted for using the equity method from the date significant
influence/joint control is deemed to arise until the date on which significant influence/joint control ceases to exist or when the
interest becomes classified as an asset held for sale. The Consolidated Income Statement reflects the Group’s share of profit after
tax of the related associates and joint ventures. Investments in associates and joint ventures are carried in the Consolidated
Balance Sheet at cost adjusted in respect of post-acquisition changes in the Group’s share of net assets, less any impairment in
value. None of the joint ventures or associates are deemed individually to be material to the Group’s results.
At 1 January
Additions
Share of post-tax profit of joint ventures
Dividends received from joint ventures
Foreign exchange
At 31 December
Joint ventures
2018
£m
17.5
—
2.8
(1.2)
—
19.1
Set out below is the summarised financial information in respect of joint ventures. Amounts relate to the Group’s share.
Revenue
Trading profit
Net finance costs
Profit before tax
Income tax expense
Profit after tax
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
2018
£m
75.3
3.4
0.3
3.7
(0.9)
2.8
4.2
53.9
—
(39.8)
18.3
2017
£m
18.0
0.4
1.3
(1.7)
(0.5)
17.5
2017
£m
53.9
2.1
0.1
2.2
(0.9)
1.3
5.9
41.7
—
(30.8)
16.8
The purpose of the Chinese joint venture companies is to research, develop, manufacture and sell refractory products. The role of
Vesuvius is to provide technical personnel, training and access to the Group’s international sales network.
34.1 Investment in subsidiaries continued
Company
legal name
Registered office address
Jurisdiction
Company
legal name
Registered office address
Jurisdiction
Vesuvius Group
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Group
S.A.
17 Rue de Douvrain, Ghlin,
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,
16129, Italy
Vesuvius Holdings
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Ibérica
Refractarios S.A.
Capitán Haya, 56 - 1ºH,
28020 Madrid, Spain
Vesuvius
International
Corporation
Vesuvius
Investments
Limited
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Istanbul
Refrakter Sanayi
ve Ticaret AS
Gebze OSB2 Mh. 1700.,
Sok No:1704/1, Cayirova,
Kocaeli, 41420, Turkey
England
Turkey
England
England
Russia
Malaysia
Vesuvius Italia SPA Piazza Borgo Pila 40, Genoa,
16129, Italy
Italy
Vesuvius Japan Inc. Daini-Naruse Akihabara Bldg. 3F,
Japan
Vesuvius K.S.R.
Limited
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
10, Ul. Kooperativnaya,
Zhukovsky, Moscow, 140180,
Russian Federation
Unit 30-01, Level 30 Tower A,
Vertical Business Suite Avenue 3,
Bangsar South, No 8 Jalan Kirinchi,
Kuala Lumpur Wilayah Persekutuan,
59200, Malaysia
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius LLC
Vesuvius Malaysia
Sdn Bhd
Vesuvius
Management
Limited
Vesuvius Mexico
S.A. de C.V.
Av. Ruiz Cortinez, Num. 140, Colonia
Jardines de San Rafael, Guadalupe,
Nuevo León, CP 67119, Mexico
Mexico
Vesuvius Mid-East
Limited
56, rd 15, Apt 103, Maadi,
Cairo, Egypt
Vesuvius Minerals
Limited
165 Fleet Street, London,
EC4A 2AE, England
Egypt
England
England
Vesuvius Peru SAC Avenida el Ejercito 282, Distrito de
Peru
Belgium
Germany
France
Italy
England
Spain
Magdalena del Mar, provincia y
departamento de Lima, Peru
Vesuvius Pigments
(Holdings) Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Poland
Spólka z.o.o
Ul Tyniecka 12, Skawina,
32-050, Poland
Vesuvius Ras Al
Khaimah FZ-LLC
Street No. F14, RAK Investment
Authority Free Zone, Al Hamra,
Ras Al Khaimah, PO Box 86408,
United Arab Emirates
England
Poland
United Arab
Emirates
Vesuvius
Refractarios de
Chile SA
Vesuvius
Refractories
(Tianjin) Co., Ltd
Street San Martin 870, Room 308,
Tower B, Concepcion, Chile
Chile
56, 13th Avenue, TEDA, Tianjin,
300457, China
China
US (Delaware)
Vesuvius
Refractories S.r.l.
Galati, Marea Unire avenue 107,
Galati county, 800329, Romania
Romania
Vesuvius
Refratários Ltda
Av Brasil, 49550, Distrito Industrial
de Palmares, Campo Grande,
Rio de Janeiro, 23065-480, Brazil
Vesuvius
Refractory India
Private Limited
Room No. 9, 3rd Floor, 7 Ganesh
Chandra Avenue, Kolkata,
WB 700013, India
Vesuvius
Scandinavia AB
4, Forradsgatan, Amal, S-662 34,
Sweden
Vesuvius Solar
Crucible (Suzhou)
Co., Ltd.
Vesuvius South
Africa (Pty) Ltd.
58, KuaChun Road, Kua Tang,
China-Singapore Suzou Ind Park,
Suzhou, Jiangsu Province,
215122, China
Pebble Lane, Private Bag X2,
Olifantsfontein, Gauteng Province,
1665, South Africa
Vesuvius SSC Sp
z.o.o.
ul. Jasnogórska 11, Kraków,
31-358, Poland
Vesuvius UK
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, United Kingdom
Brazil
India
Sweden
China
South Africa
Poland
England
Vesuvius Ukraine
LLC
27, Udarnykiv Street, City of
Dnipropetrovsk, 49000, Ukraine
Ukraine
Vesuvius USA
Corporation
CT Corporation, 208 South LaSalle
Street, Chicago, Cook County, IL
60604, United States
US (Illinois)
England
Scotland
China
England
Vesuvius Zyalons
Holdings Limited
Brown Street, Newmilns, Ayrshire,
KA16 9AG, Scotland
Vesuvius Zyarock
Ceramics (Suzhou)
Co., Ltd
58, KuaChun Road, Kua Tang,
China-Singapore Suzou Ind Park,
Suzhou, Jiangsu Province,
215122, China
Vesuvius-Premier
Refractories
(Holdings) Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
Peninsular Business Park, 17th Floor,
Tower B, Ganpat Rao Kadam Marg,
Lower Parel-West, Mumbai,
400013, India
India
VSV Advanced
Ceramics (Anshan)
Co., Ltd
Xiaotaizi Village, Ningyuan Town,
Qianshan District, Anshan, Liaoning
Province, 114011, China
China
Wilkes-Lucas
Limited
165 Fleet Street, London,
EC4A 2AE, England
Yingkou Bayuquan
Refractories Co.,
Ltd
Cui Tun Village, Hai Dong Office,
Bayuquan District, Liaoning
Province, YingKou, 115007, China
England
China
England
Vesuvius VA
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Moravia,
s.r.l
Konska c.p. 740, Trinec,
739 61, Czech Republic
Czech Republic
Vesv Distribution
(Private) Limited
Vesuvius New
Zealand Limited
18 Cryers Road, East Tamaki,
Auckland, New Zealand
New Zealand
Vesuvius OOO
Afanasyevsky, Pereulok 41 A,
Moscow, 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
England
England
England
Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2018
174
175
34. Investments in Subsidiaries, Joint Ventures and Associates continued
35. Related Parties
INTAHSA SA
Newshelf 480
(Proprietary) Limited
Associates
Name of entity
Sapotech Oy
34.3 Non-controlling interests
34.2 Investment in joint ventures and associates continued
Name of entity
Registered address
Jurisdiction
% ownership
Angang Vesuvius Refractory
Company Ltd
Taxi District, Anshan City, Liaoning Province, 114021, China
Wuhan Wugang-Vesuvius
Advanced CCR Co., Ltd
Gongnong Village Qingshan District, Wuhan, Hubei Province,
430082, China
Wuhan Wugang-Vesuvius
Advanced Ceramics Co., Ltd
Gongnong Village Qingshan District, Wuhan, Hubei Province,
430082, China
Beauvac Participações S/A
Street Libero Badaro, 293, cj. 20D, São Paulo, Centro, 01009-000,
Brazil
Street Duque de Caxias 563, house 04, Room 01, Barueri,
São Paulo, Centro, 06401-010, Brazil
44 Main Street, Johannesburg, 2001, South Africa
South Africa
China
China
China
Brazil
Brazil
50
50
50
50
25
45
Registered address
Paavo Havaksen tie 5 D, 90570 Oulu, Finland
Jurisdiction
% ownership
Finland
14.90
Non-controlling interests represent the portion of the equity of a subsidiary not attributable either directly or indirectly to the
parent company and are presented separately in the Consolidated Income Statement and within equity in the Consolidated
Balance Sheet, distinguished from parent company shareholders’ equity.
The total profit attributable to non-controlling interest at 31 December 2018 is £6.8m (2017: £6.4m) of which £4.4m relates to
Vesuvius India Ltd (2017: £4.6m). The profit attributable to non-controlling interests in respect of the Group’s other subsidiaries are
not considered to be material.
Name of entity
Registered address
Jurisdiction
% ownership
Vesuvius India Limited
P-104 Taratala Road, Kolkata, 700 088, India
Foseco India Limited
922/923, Gat, Sanaswadi, Taluka, Shirur, Pune, 412208, India
Foseco Golden Gate
Company Limited
Foseco (Thailand) Limited
VESUVIUS CESKÁ
REPUBLIKA, a.s.
6 Kung Yeh 2nd Road, Ping Tung Dist, Ping Tung, 90049, Taiwan
170/69, 22nd Floor Ocean Tower 1, Ratchadapisek Road,
Klongtoey, Bangkok, 10110, Thailand
Prumyslová 726, Konská, Trinec, 739 61, Czech Republic
India
India
Taiwan
Thailand
Czech
Republic
55.57
74.98
51
74
60
Details of subsidiaries exempt from audit of their individual financial statements by virtue of Section 479A of the Companies Act
2006 are disclosed in Note 6 to the Company Financial Statements.
As with Vesuvius plc, all of the above companies have a 31 December year-end.
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.
The related parties identified by the Directors include joint ventures, associates, and key management personnel.
To enable users of our financial statements to form a view on the effects of related party relationships on the Group,
we disclose the related party relationship when control exists, irrespective of whether there have been transactions
between the related parties.
35.1 Transactions with joint ventures and associates
All transactions with joint ventures and associates are in the normal course of business. Further details of joint ventures and
associates are included in Note 34.
35.2 Transactions with key management personnel
There have been no transactions with key management personnel of the Group other than the Directors’ remuneration.
Directors’ remuneration is disclosed in Note 8 of the Group Financial Statements and in the Directors’ Remuneration Report.
35.3 Transactions with other related parties
There are no controlling shareholders of the Group as defined by IFRS. There have been no material transactions with the
shareholders of the Group.
Pension contributions to Group schemes are disclosed in Note 27 of the Group Financial Statements.
Other than the parties disclosed above, the Group has no other material related parties.
36. Post Balance Sheet event
On 27 February 2019 the Group signed an agreement to acquire the entire issued share capital of CCPI Inc (“CCPI”), a specialty
refractory producer focused on tundish (steel continuous casting) applications (65% of sales) and aluminium (35% of sales).
CCPI is based in Ohio, USA, and will become part of the Group’s Advanced Refractories business unit. The transaction values
CCPI at US$43.4m (£33.1m) on a cash and debt free basis. The acquisition is expected to close within the coming week.
Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018Vesuvius plcAnnual Report and Financial Statements 2018Notes to the Group Financial Statements continued
176
177
Company Statement of Changes in Equity
As at 31 December 2018
As at 1 January 2017
Loss recognised for the year
Recognition of share-based payments
Dividend paid
As at 1 January 2018
Profit recognised for the year
Purchase of ESOP shares
Recognition of share-based payments
Dividend paid
As at 31 December 2018
The Company had distributable reserves of £831.0m as at 31 December 2018 (2017: £630.2m).
Share
capital
£m
27.8
—
—
—
27.8
—
—
—
—
27.8
Retained
earnings
£m
677.5
(4.3)
2.6
(45.6)
630.2
260.5
(13.4)
3.7
(50.0)
831.0
Total
£m
705.3
(4.3)
2.6
(45.6)
658.0
260.5
(13.4)
3.7
(50.0)
858.8
Company Balance Sheet
As at 31 December 2018
Fixed assets
Investment
Total fixed assets
Current assets
Cash at bank and in hand
Debtors – amounts falling due within one year
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
Total shareholders’ funds
Company number 8217766
Notes
6
2018
total
£m
2017
total
£m
1,778.0
1,778.0
1,778.0
1,778.0
1.7
3.3
5.0
—
5.1
5.1
(0.3)
(923.9)
(919.2)
858.8
(0.4)
(1,124.7)
(1,120.0)
658.0
858.8
658.0
27.8
831.0
858.8
27.8
630.2
658.0
7
8
Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own income statement.
During 2018 the Company recognised a profit of £260.5m (2017: £4.3m loss).
The financial statements on pages 176 to 182 were approved and authorised for issue by the Directors on 27 February 2019 and signed
on their behalf by:
Patrick André
Chief Executive
Guy Young
Chief Financial Officer
Vesuvius plcAnnual Report and Financial Statements 2018Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018
178
179
Notes to the Company Financial Statements
1. General Information
4. Audit and Non-Audit Fees
Vesuvius plc (‘Vesuvius’ or ‘the Company’) is a public company limited by shares. It is incorporated and domiciled in England and
Wales and listed on the London Stock Exchange. The nature of the company is a holding company. The address of its registered
office is 165 Fleet Street, London EC4A 2AE.
2. Basis of Preparation
2.1 Basis of accounting
The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101, Reduced
Disclosure Framework (FRS 101) and the Companies Act 2006 as applicable to companies using FRS 101. The financial
statements have been prepared under the historical cost convention.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
> A cash flow statement and related notes
> Disclosures in respect of transactions with wholly owned subsidiaries
> Disclosures in respect of capital management and financial instruments
> Disclosures in respect of fair value measurements
> The effects of new but not yet effective IFRSs
> Disclosures in respect of the compensation of key management personnel
Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own profit and loss
account.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these
financial statements. There were no identified critical accounting estimates or judgements.
2.2 Going concern
The Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in
operational existence for period of at least 12 months from the date of approval of these financial statements. The net current
liabilities are due to amounts owed to subsidiary undertakings, therefore the Directors do not believe that they will affect the
Company’s ability to continue in operational existence. Accordingly, they continue to adopt a going concern basis in preparing
the financial statements of the Group and the Company.
2.3 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 temporary 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 profits from which the
reversal of the underlying temporary 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. All other accounting policies are set out within the respective notes.
3. Employee Benefits Expense
Wages & Salaries
Social security costs
Share-based payments
Pension costs – defined contribution pension plans
Total employee benefits expense
2018
£m
3.4
0.7
1.2
—
5.3
2017
£m
3.7
0.6
0.7
—
5.0
The total average number of employees for 2018 was 3 (2017: 3). As at 31 December 2018, the Company had 3 employees.
Details of the Directors’ remuneration are disclosed in the Directors’ Remuneration Report.
Amounts payable to PricewaterhouseCoopers LLP in relation to audit and non-audit fees are disclosed within Note 6 to the Group
Financial Statements.
5. Dividends
A final dividend for the year ended 31 December 2017 of £33.8m (2016: £30.8m), equivalent to 12.5 pence (2016: 11.4 pence)
per ordinary share, was paid in May 2018 (May 2017) and an interim dividend for the year ended 31 December 2018 of £16.2m
(2017: £14.8m), equivalent to 6.0 pence (2017: 5.5 pence) per ordinary share, was paid in September 2018 (September 2017).
A proposed final dividend for the year ended 31 December 2018 of £37.0m, equivalent to 13.8 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 financial
statements. If approved by shareholders, the dividend will be paid on 24 May 2019 to ordinary shareholders on the register at
23 April 2019.
6.
Investment in Subsidiaries, Associates and Joint Ventures
6.1 Accounting policy
Shares in subsidiaries, associates and joint ventures are stated at cost less any impairment in value. Impairment is assessed in
accordance with Note 17.1 on page 152.
6.2 Analysis of investment in subsidiaries, associates and joint ventures
As at 1 January 2017 and 31 December 2017
Shares in
subsidiaries
£m
1,778.0
The subsidiaries, joint ventures and associates of Vesuvius plc, their country of incorporation and % ownership is set out in Note 34
of the Notes to the Group Financial Statements. With the exception of Vesuvius Holdings Ltd, whose ordinary share capital was
directly held by Vesuvius plc, the ordinary share capital of the other companies was owned by a Vesuvius plc subsidiary as at 31
December 2018.
6.3 Audit-exempt subsidiaries
The following UK subsidiaries are exempt from audit of their individual financial 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
7. Other Creditors
Amounts owned to subsidiary undertakings
Accruals and other creditors
Total amounts falling due within one year
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
Vesuvius VA Limited
2018
£m
921.7
2.2
923.9
2017
£m
1,122.4
2.3
1,124.7
Amounts owed to subsidiary undertakings are interest free, have no fixed date of repayment and are repayable on demand.
Vesuvius plcAnnual Report and Financial Statements 2018Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018
180
181
Notes to the Company Financial Statements continued
8.
Issued Share Capital
8.1 Accounting policy
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
8.2 Analysis of issued share capital
The issued and fully paid ordinary share capital of the Company as at 31 December 2018 was 278,485,071 shares of £0.10 each
(2017: 278,485,071 shares of £0.10 each). 7,271,174 (2017: 7,271,174) shares were held in Treasury and 2,874,060 (2017: 877,744)
shares were held by the Vesuvius Group employee share ownership plan trust (ESOP). The Company 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.
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 Profit and loss account recognition
The Company operates a number of different share-based payment schemes, the main features of which are detailed in the
Directors’ Remuneration Report. A total of £1.2m was charged to the profit and loss account in the year with regard to share-
based payments (2017: £0.7m).
9.3 Details of outstanding options
Outstanding awards
As at
1 Jan 2018
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
As at
31 Dec 2018
no.
Weighted
average
outstanding
contractual
life of
awards
years
Awards
exercisable
as at
31 Dec 2018
no.
LTIP
934,918
301,901
(117,051)
(150,803)
968,965
Weighted average exercise price
Other plans
Weighted average exercise price
nil
—
nil
nil
28,246
nil
nil
—
nil
nil
—
nil
nil
28,246
nil
—
—
—
—
5.7
2.2
For options exercised during 2018, the share price at the date of exercise ranged from 568 pence to 581 pence.
Outstanding awards
As at
1 Jan 2017
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
As at
31 Dec 2017
no.
Awards
exercisable
as at
31 Dec 2017
no.
Weighted
average
outstanding
contractual
life of
awards
years
LTIP
1,156,560
409,453
— (631,095)
934,918
Weighted average exercise price
Other plans
Weighted average exercise price
nil
8,557
nil
nil
—
nil
nil
(8,557)
nil
nil
—
nil
nil
—
nil
—
—
—
—
4.8
—
For options exercised during 2017 included in ‘Other plans’, the share price at the date of exercise was 592 pence.
Details of market performance conditions are included in the Directors’ Remuneration Report.
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
As at 31 December 2018, the total options exercisable by all Group employees over the £0.10 ordinary shares and capable of
being satisfied through new allotments of shares or through shares held by the Company’s ESOP were as follows:
Long Term Incentive Plan
Medium Term Incentive Plan
Deferred Share Bonus Plan
Fair value of options granted under the LTIP during the year:
Fair value of options granted
Share price on date of grant
Expected volatility
Risk-free interest rate
Exercise price (per share)
Expected term (years)
Expected dividend yield
Years of
award/grant
2016–2018
2017–2018
2018
Option
prices
Latest year
of exercise/
vesting
Number
of options/
allocations
outstanding
nil 2018/2028
2,360,478
nil
nil
2020
2020
270,644
28,246
2018 (October Grant)
2018 (March Grant)
EPS element TSR element
EPS element TSR element
645.5p
645.5p
n/a
n/a
nil
3
nil
426.0p
645.5p
27.9%
0.9%
nil
3
nil
605.5p
605.5p
n/a
n/a
nil
3
nil
368.9p
605.5p
32.1%
0.8%
nil
3
nil
Vesting of 50% of shares awarded is based on headline EPS growth and 50% upon the Group’s three-year TSR performance
relative to that of the constituent companies of the FTSE 250 (excluding investment trusts). 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 has been measured using the Monte Carlo model. Expected volatility was
determined by calculating the historical volatility of the Group’s share price over the 2.8 years (2017: 2.8 years) prior to the grant
date for the March 2018 Grant and 2.25 years for the October 2018 Grant. The risk-free rate of return was assumed to be
the yield to maturity on a UK fixed 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 financial 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 2018 in respect of the
liabilities of its subsidiary companies amounted to £605.2m (2017: £563.4m), which includes guarantees of $200.0m and
€130.0m (2017: $200.0m and €130.0m) in respect of US Private Placement Loan Notes and £180.8m (2017: £146.3m) in respect
of drawings under the syndicated bank facility; together with £150.8m (2017: £150.8m) 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 deficit 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 financial condition or results of operations.
Vesuvius plcAnnual Report and Financial Statements 2018Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018 182
183
Notes to the Company Financial Statements continued
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 Company subsidiaries are not disclosed in this Note.
The related parties identified by the Directors include joint ventures, associates and key management personnel. To enable users
of our financial statements to form a view on the effects of related party relationships on the Company, we disclose the related
party relationship when control exists, irrespective of whether there have been transactions between the related parties.
Transactions with joint ventures and associates
All transactions with joint ventures and associates are in the normal course of business. Further details of joint ventures and
associates are included in Note 34 of the Notes to the Group Financial Statements.
Transactions with key management personnel
There have been no transactions with key management personnel of the Company other than the Directors’ remuneration.
Directors’ remuneration is disclosed in the Annual Report on Directors’ Remuneration.
Transactions with other related parties
There are no controlling shareholders of the Company as defined by IFRS. There have been no material transactions with the
shareholders of the Company.
Pension contributions are disclosed in Note 27 of the Group Financial Statements.
Other than the parties disclosed above, the Company has no other material related parties.
Five-Year Summary: Divisional Results
from Continuing Operations
Steel Division
Revenue
Trading profit
Return on sales
Employees: year-end
Foundry Division
Revenue
Trading profit
Return on sales
Employees: year-end
2018
2017
2016
2015
2014
£m
£m
%
no.
£m
£m
%
no.
1,236.7
1,148.7
128.3
10.4
7,766
561.3
68.9
12.3
3,043
100.4
8.7
7,930
535.2
65.1
12.2
3,080
942.0
79.2
8.4
7,782
459.4
54.1
11.8
3,058
897.6
79.5
8.9
7,783
424.4
44.5
10.5
3,129
981.4
96.4
9.8
8,349
463.0
46.4
10.0
3,443
Vesuvius plcAnnual Report and Financial Statements 2018Financial StatementsVesuvius plcAnnual Report and Financial Statements 2018
184
Shareholder Information
Enquiries
Share Dealing Service
Analysis of ordinary shareholders
185
Investor type
Shareholdings
As at 31 December 2018
Number of holders
Percentage of holders
Percentage of shares held
Private
2,500
81.33%
0.48%
Institutional
and other
574
18.67%
99.52%
Total
3,074
100%
100%
1–1,000
1,001– 50,000
50,001– 500,000
500,001+
2,405
78.24%
0.13%
457
14.87%
1.40%
137
4.45%
8.85%
75
2.44%
89.62%
Share Fraud – Spot the Warning Signs
Reporting a Scam
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
> Told the offer is only available for a limited time?
If you suspect that you have been approached by fraudsters
please tell the FCA by contacting them on 0800 111 6768
(or +44 20 7066 1000 from outside the UK) or by using the share
fraud reporting form at www.fca.org.uk/scams, where you can
find out more about investment scams.
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.
If so, you might have been contacted by fraudsters.
Find out more at www.fca.org.uk/scamsmart.
How to Avoid Share Fraud
1. Reject cold calls
If you have been contacted by telephone, email or post, or via a
third party or at a seminar or exhibition, with an offer to buy or sell
shares, the chances are that it’s a high-risk investment or a scam.
You should treat any offer with extreme caution. The safest thing
to do is to ignore the approach and if you were contacted by
phone to hang up on the call.
2. Check if the firm is authorised by the Financial Conduct
Authority (FCA) and recorded on the Financial Services register
at https://register.fca.org.uk/
The Financial Services Register is a public record of all the firms
and individuals in the financial services industry that are, or have
been, regulated by the Prudential Regulation Authority and/or
the FCA.
3. Get impartial advice
Think about getting impartial financial advice before you hand
over any money. Seek advice from someone unconnected to the
firm that has approached you.
The Company’s shares can be traded through most banks,
building societies or stockbrokers. UK resident shareholders can
also buy and sell shares online or by telephone using Equiniti’s
Shareview dealing service 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 public holidays
in England and Wales). The shareholder reference number
(found at the top of your share certificate or on your dividend
confirmation) is required to use the dealing service.
ShareGift
ShareGift, the charity share donation scheme, is a free service
for shareholders wishing to give shares to charitable causes.
It is particularly useful for those shareholders who may wish
to dispose of a small quantity of shares where the market
value makes it uneconomic to sell on a commission basis.
Further information can be obtained from ShareGift’s website
at www.sharegift.org; telephone +44 (0)20 7930 3737;
or by emailing help@sharegift.org.
Dividend Reinvestment Plan
Equiniti offers a dividend reinvestment plan, through which
shareholders can use any cash dividends declared to buy
additional shares in Vesuvius. Further details, including how to
sign up, and the terms and conditions of the plan, are available
on Equiniti’s website, www.shareview.co.uk or by calling the Share
Dividend Helpline on 0371 384 2268 (or +44 121 415 7173 if
calling from outside the UK).
Overseas Payment Service
Equiniti provides a dividend payment service in over 90 countries
that automatically converts payments into local currency and
pays the funds into a shareholder’s bank account. Further details,
including an application form and the 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, the
Company’s name and your shareholder reference number).
Financial Calendar
2019 Annual General Meeting
15 May 2019
Announcement of 2019 half-year results
25 July 2019
The share register is managed by Equiniti, who can be contacted
if you have any Vesuvius shareholding queries.
Equiniti Limited
Aspect House, Spencer Road
Lancing, West Sussex, BN99 6DA
United Kingdom
Telephone*
0371 384 2335
+44 121 415 7047
(UK only)
(Outside the UK)
Website www.shareview.co.uk
For the hard of hearing, Equiniti offers a Textel service which
can be accessed by dialling 0371 384 2255 (or +44 121 415 7028
if calling from outside the UK).
Any shareholder enquiries not related to the share register should
be sent by email to shareholder.information@vesuvius.com or by
letter to the Company Secretary at the registered office.
Registered Office and Group Head Office
Vesuvius plc
165 Fleet Street
London EC4A 2AE
United Kingdom
Tel +44 (0)20 7822 0000
Registered in England & Wales No. 8217766
LEI: 213800ORZ521W585SY02
Vesuvius Website
Shareholder and other information about the Company, including
details of the current and historic share price, can be accessed on
the Vesuvius website, www.vesuvius.com.
Shareview and Electronic Communication
Equiniti’s website, www.shareview.co.uk, enables shareholders to
access details of their shareholdings online. The website provides
answers to frequently asked questions and information useful for
the management of investments. To access online information on
your shareholding, you will require your shareholder reference
number, which can be found at the top of your share certificate
or dividend confirmation.
Shareholders can register to receive shareholder communications
electronically, including the Company’s Annual Report and
Financial Statements, rather than in paper form, using Shareview.
The registration process requires shareholders to input their
shareholder reference number. To receive shareholder
communications in electronic form, shareholders should select
‘email’ as their mailing preference. Once registered, shareholders
will receive an email notifying them each time a shareholder
communication has been published on the Vesuvius website.
*
Lines are open Monday to Friday 8.30 am to 5.30 pm (excluding public
holidays in England and Wales).
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Vesuvius plcAnnual Report and Financial Statements 2018Vesuvius plcAnnual Report and Financial Statements 2018
186
Glossary
5S
8D
Five Steps to improve housekeeping and therefore
workplace safety and efficiency: separate, sort,
shine, standardise and sustain
Eight Disciplines: an eight-step methodology
to resolve customer, supplier and internal
quality issues
AGM
Annual General Meeting
CO2
CO2e
Company
DSBP
DTR
EBITDA
Carbon dioxide
Carbon dioxide equivalent
Vesuvius plc
Deferred Share Bonus Plan
The Disclosure and Transparency Rules of the
UK Financial Conduct Authority
Trading profit before depreciation and
amortisation of non-acquired intangible charges
EMEA
Europe, Middle East and Africa
EPS
EU
FRC
FRS
FTSE 250
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
FX
Foreign exchange
GHG
Group
IAS
IFRS
KPI
LTI
LTIFR
Greenhouse gas
Vesuvius plc and its subsidiary companies
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
Median
The middle number in a sorted list of numbers
NAFTA
The area to which the North American Free
Trade Agreement applies
Ordinary
share
An ordinary share of 10 pence in the capital of
the Company
R&D
TSR
Research and development
Total shareholder return
TurboS
The Vesuvius safety training programme
UK GAAP
UK Generally Accepted Accounting Principles
VSP
Vesuvius Share Plan
Photographed by Samuel Dhote, the portraits featured in
this Annual Report celebrate the Vesuvius team from our
locations around the world.
Designed and produced by Friend www.friendstudio.com
Print: Pureprint Group
This report has been printed on GalerieArt Satin which is
FSC® certified and made from 100% Elemental Chlorine
Free (ECF) pulp. The mill and the printer are both certified
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.
Vesuvius plcAnnual Report and Financial Statements 2018 V
e
s
u
v
i
u
s
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2
0
1
8
Vesuvius plc
165 Fleet Street
London
EC4A 2AE
T +44 (0)20 7822 0000
www.vesuvius.com
Visit our online annual report at
report2018.vesuvius.com
Business overview video
CEO’s strategy and performance video
Vesuvius employee career journey videos