Please note that on 6 April 2020, the Board
of Vesuvius plc announced that it had withdrawn
its recommendation to pay the final dividend for
2019 of 14.3 pence per share which is detailed
in this Annual Report.
2019 Annual Report
and Financial Statements
We are
Vesuvius
EngineersChemistsResearchersPhysicistsTechniciansAnalystsStrategistsInnovatorsEntrepreneursEnablersGlobal leaders 1
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Contents
Financial performance
Section One: Our business
Revenue
S
t
r
a
t
e
g
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R
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p
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1 Our purpose
4
Vesuvius at a glance
6 Divisional overviews
10 Chairman’s statement
12 Chief Executive’s strategic review
14 Our strategy
16 Our external environment
18 Our markets
20 Business model
22 Section 172(1) Statement
– Our stakeholders
28 Risk, viability and going concern
Section Two: Our performance
36 Key Performance Indicators
38 Financial review
44 Operating reviews
44 Steel Division
44 Steel Flow Control
47 Steel Advanced Refractories
49 Steel Digital Services
50 Foundry Division
Section Three: Non-financial
information
54 Non-financial information statement
54 Our principles
58 Health and safety
64 Sustainability
68 People and community
Section Four: Governance
76 Board of Directors
78 Group Executive Committee
80 Corporate Governance Statement
80 Chairman’s governance letter
81 Board Report
89 Audit Committee
97 Nomination Committee
102 Directors’ Remuneration Report
102 Remuneration overview
106 2020 Remuneration Policy
114
Annual Report on Directors’
Remuneration
126 Directors’ Report
131 Statement of Directors’ Responsibilities
132 Independent Auditors’ Report
Section Five: Financial Statements
140 Group Income Statement
141 Group Statement of Comprehensive Income
142 Group Statement of Cash Flows
143 Group Balance Sheet
144 Group Statement of Changes in Equity
145 Notes to the Group Financial Statements
193 Company Balance Sheet
194 Company Statement of Changes in Equity
195 Notes to the Company Financial Statements
201 Five-Year Summary: Divisional Results
202 Shareholder Information
204 Glossary
£1,710.4m
2018: £1,798.0m
–4.9% on a reported basis
–5.7% on an underlying basis1
Return on sales2
10.6%
2018: 11.0%
-40 basis points
-40 basis points on an
underlying basis1
Recommended final dividend
14.3p
per share
2018: 13.8p per share
We are Vesuvius
Trading profit2
£181.4m
2018: £197.2m
–8.0% on a reported basis
–9.0% on an underlying basis1
Profit before tax
Group full-year dividend
£118.6m
2018: £156.2m
24.1% decrease
20.5p
per share
2018: 19.8p per share
Headline earnings
per share3
45.1p
2018: 49.6p
9.1% decrease
Year-end net debt2
£245.8m
1.1x net debt to EBITDA ratio4
2018: £247.8m – 1.0x
Revenue £m
2019
2018
2017
Operating profit £m
2019
2018
2017
Statutory EPS p
2019
2018
2017
14.1
1,710.4
1,798.0
1,683.9
Trading profit2 £m
2019
2018
2017
127.5
164.5
109.7
29.8
Headline earnings2,3 £m
2019
2018
2017
Free cash flow2 £m
2019
51.3
2018
2017
181.4
197.2
165.5
121.4
133.7
110.1
126.6
106.0
92.3
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.
4. Excluding the impact of IFRS 16, the ratio in
2019 would be 1.0x.
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
Paolo Perrucci
European Product Manager,
Ferrous Metal Treatment
Vermezzo, Italy
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 report2019.vesuvius.com
Juan Contreras
Precast Group Leader,
Chicago Heights, US
Vesuvius at a glance
Business model
Where we operate
What we do
See p4
See p20
Our strategy
Our aims
and execution
priorities
Our external
environment
How we are helping to
tackle climate change
See p14
See p16
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2 Vesuvius plc
Annual Report and Financial Statements 2019
We are
Technologists
I lead the marketing and technology
team in China and North Asia,
developing and executing long-term
strategies and short-term plans to
increase sales and profitability across
our product lines. It is a diverse role
that combines many engineering and
business disciplines, including product
development, technical customer
service, market and feedback analysis,
product launches and training.
Vesuvius’ global network connects me
to a community of experts. Even after
18 years with the organisation, I am still
continually impressed by the ambition
there is to build and share knowledge
across the Company. There is great
cross-cultural understanding, and
good friendships, too.
Vesuvius fosters diversity, placing high
value on training and recognition, for
instance supporting me financially
through my PhD and ensuring I have
the appropriate business training
at schools like Vlerick and INSEAD.
Vesuvius also encourages mobility.
I was based in Pittsburgh, US,
for three years working in R&D as
a regional development manager
for Slide Gate Refractory.
Innovation is at the core of Vesuvius.
In a world of rapid change, multiple
opportunities and new challenges,
it has never been more critical to be
able to respond effectively. Innovation
allows me to contribute to my team,
and Vesuvius as a whole, with proactive
business leadership to implement
corporate policy and objectives.
Joe Yi
Marketing and Technology Director,
Steel Division, China and North Asia
Find out more at
report2019.vesuvius.com
Product Managers Developers MarketersOur business 4 Vesuvius at a glance 6 Divisional overviews 10 Chairman’s statement 12 Chief Executive’s strategic review 14 Our strategy 16 Our external environment 18 Our markets 20 Business model 22 Section 172(1) Statement – Our stakeholders 28 Risk, viability and going concern
4
Vesuvius at a glance
Overview
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.
Our global presence
41
10,496
Countries
Employees
6
Continents
54
79
Sales offices
6
Production sites
R&D centres of excellence
Americas
EMEA
Asia-Pacific
£530.2m
Revenue
(2018: £527.0m)
78% Steel
22% Foundry
1
R&D centre of
excellence
20
Sales offices
18
Production sites
4,196
Employees
£699.8m
Revenue
(2018: £786.4m)
68% Steel
32% Foundry
3
R&D centres of
excellence
30
Sales offices
19
Production sites
3,288
Employees
£480.4m
Revenue
(2018: £484.6m)
63% Steel
37% Foundry
2
R&D centres of
excellence
29
Sales offices
17
Production sites
3,012
Employees
5
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See our Business model on p20
See more about our Steel and Foundry Divisions on p44-51
The map shows our
production, R&D
and commercial
sites worldwide
Steel Digital Services
(Sensors & Probes)
Operating review
See p49
Steel Flow Control
Operating review
See p44
Foundry
Operating review
See p50
Steel Advanced Refractories
Operating review
See p47
Vesuvius plcAnnual Report and Financial Statements 2019Our Business
6 Vesuvius plc
Annual Report and Financial Statements 2019
Divisional overviews
Steel Division
Overview
Revenue
£1,195.3m
2018: £1,236.7m
Return on sales
10.0%
2018: 10.4%
Trading profit
£120.1m
2018: £128.3m
Business units
Steel Flow Control
What we do
Vesuvius’ 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.
See Steel Flow Control Operating review on p44
Steel Digital Services (Sensors & Probes)
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 p49
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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 Division Operating review on p44-49
Steel Flow Control and Steel Digital Services products
Steel Advanced Refractories products
Blast
furnace
1
Convertor and
refining ladles
Continuous
caster
2
3
Steel slab,
billet or
bloom
4
R A N D R EFININ
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Convertor
linings and
repair
Linings
& bricks
Refining
ladles
2
A C E
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T F U
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A
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B
Tap hole
clay
Iron
trough
Torpedo
ladle
1
Stack linings
repair
S T E R
A
Ladle
S C
U
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U
Purging
plug
Tundish
IN
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N
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Stopper
and rigging
Temperature
measurement
Flux
Robotic
arm
Mould
3
Linings,
bottoms
Slide-gate,
tube changer
Robotic
arm
Flux
Ladle
shroud
Linings
Tundish
slide-gate
Tundish tube
changer
Impact
pad
Mould level
control
4
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Steel Advanced Refractories
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 p47-48
8 Vesuvius plc
Annual Report and Financial Statements 2019
Divisional overviews continued
Foundry Division
Overview
Return on sales
11.9%
2018: 12.3%
Revenue
£515.1m
2018: £561.3m
Trading profit
£61.3m
2018: £68.9m
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 in
which 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, thus driving efficiency
and reducing environmental impact.
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 Advanced Refractories
and Foundry 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 p50-51
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.
Foundry products
Induction
furnace
Mould
production
and pouring
1
Final
casting
3
2
Treatment/
pouring ladle
f o r e fettling)
e
3
E M ( b
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R O D U C T I O N
D P
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Pouring cup
Cope
Cores, coating
Downsprue
Feeder
Filter
Mould
coating
Sand
binder
Runner
Drag
P O URING IN
T
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O
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Stopper
rod
Nozzle
1
2
Linings
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Chairman’s statement
Focusing on long-term,
sustainable value
John McDonough
CBE
Chairman
See our Financial review on p38-43
See more about our Governance in the
Governance section on p75-138
See more about our Values in Our principles
section on p54-57
Revenue £m
£1,710.4m
Revenue £m
2019
2018
2017
1,710.4
1,798.0
1,683.9
2019 was a year of challenge for the
Group, as we faced declining steel
production in several of our major markets
and weakness in many traditional foundry
end-markets. Despite this, the Board sees
no structural change to the positive,
longer-term fundamentals of our business
and we remain confident that our strategy
will continue to deliver long-term,
sustainable shareholder value. Vesuvius
remains an intrinsically cash-generative
business, and we continue to invest in R&D
and innovation to drive customer demand.
The Board remains mindful of the risks
faced by the Group, in particular those
posed by the short-term decline in steel
production and volatility in the Group’s
end-markets. It is a continuing focus of
the Board to ensure that the Company
takes measured steps to mitigate these
and other risks, including maintaining
a business footprint structured for
long-term growth.
Sustainability
Vesuvius remains committed to playing
its full part in tackling climate change.
Vesuvius is not itself an energy-intensive
business and, whilst we focus on what we
can to operate sustainably, our biggest
contribution to reducing global emissions
comes from the work we do with our
customers to develop products and
solutions to improve their productivity,
driving efficiency and reducing the
environmental impact of their operations.
We also assist our customers in developing
solutions that support their ability to use
recycled materials and to manufacture
components and finished goods that
utilise thinner, lighter materials, thus
reducing the environmental footprint of
their products. At the same time as
supporting these initiatives with our
customers, we focus the Group’s efforts
on increasing the sustainability of our own
production processes. To this end, the
Board implemented new targets in 2019
for energy conservation concentrated
on further reducing CO2 emissions
and tackling water usage, and began
tracking new metrics for minimising
waste materials.
Stakeholders
We continue to promote the success of
Vesuvius for the benefit of all stakeholders.
Our Section 172(1) Statement on pages
22-27 details the variety of ways in which
we have interacted with these various
groups during the year and describes the
Board’s processes for considering their
interests. The Board once again, both
collectively and individually, visited
Vesuvius’ operations around the world in
2019, meeting Vesuvius colleagues at our
operations in Belgium, Brazil, the Czech
Republic, Germany, India, Japan, Mexico,
Poland, South Korea and the USA.
A number of these visits also provided
opportunities for the Directors to meet
with customers. Vesuvius’ staff are actively
encouraged to interact with their locaI
communities and during the year our
colleagues around the world have taken
part in many initiatives to support local
charities. During my visit to Vesuvius India
in June, I had an opportunity to witness this
first hand when I spent time with children
and their families at the Indian Institute of
Cerebral Palsy in Kolkata, meeting with
the extraordinary staff who work there
and the Vesuvius volunteers who help out.
Vesuvius India has been supporting this
outstanding organisation for the past
five years.
People
I continue to be impressed by our
management and employees across
Vesuvius and their commitment to our
business and our customers. My thanks,
and those of the Board, are extended to
them all.
We are
Entrepreneurs
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Miyuki Fukushima
Customer Service
Kobe, Japan
In 2019, we conducted an employee
engagement survey throughout Vesuvius
following the international roll-out of our
Company values of Courage, Ownership,
Respect and Energy in 2018. More than
90% of the Group’s 10,000-strong
workforce responded to the survey, and
we are confident that the resulting actions
and initiatives will support Vesuvius
’ future success and drive significant
further improvement in positive two-way
engagement across the business.
Corporate governance
During 2019, the Board completed its
activities to successfully adopt the new UK
Corporate Governance Code. The Board
recognises that a sound governance
structure is vital to support the Group’s
long-term sustainable growth and I am
pleased to confirm that your Company is
fully compliant with the Principles and
Provisions of the Code for the year ended
31 December 2019.
We were pleased to welcome Friederike
Helfer, Partner at Cevian Capital, to the
Board in December. Friederike will provide
continuity of representation of Cevian
following the decision taken by Christer
Gardell to step down as a Non-executive
Director. On behalf of the Directors,
I would like to thank Christer for his
support and service to the Board of
Vesuvius over the past seven years.
Dividend
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
14.3 pence per share (2018: 13.8 pence per
share). If approved at the Annual General
Meeting, this final dividend will be paid on
22 May 2020.
Annual General Meeting
The Annual General Meeting will be held
on 13 May 2020. The Notice of Meeting
and explanatory notes containing details
of the resolutions to be put to the meeting
accompany this Annual Report and are
available on our website (www.vesuvius.
com). I and all my Board colleagues plan
to attend the AGM and we look forward
to the opportunity to meet with as many
shareholders as possible on the day.
John McDonough CBE
Chairman
27 February 2020
Vesuvius plcAnnual Report and Financial Statements 2019The Board remains confident in the long-term strategy of the Group, despite a challenging year in 2019.AnalystsStrategists Innovators
12
Chief Executive’s strategic review
Progress in implementing our strategy
delivered strong free cash flow despite
challenging end-markets
Patrick André
Chief Executive
See our Financial review on p38-43
See Our strategy on p14 and 15
See more in our Health and safety section
on p58-63
Trading profit £m
£181.4m
Revenue £m
2019
2018
2017
181.4
197.2
165.5
Strong operational performance
in challenging market conditions
After a strong 2018, market conditions in
both our main end-markets of steel and
foundry deteriorated significantly and
continuously during the course of 2019.
This deterioration of our markets was
amplified by a general destocking
throughout the supply chain, affecting
both our products and our customers’
products, and by the external regulatory
environment which disrupted trade flows.
In this challenging market environment, we
succeeded in limiting our sales decline to
5.7% on an underlying basis as compared
with 2018 (4.9% on a reported basis). We
adjusted prices in line with raw material
price evolution and maintained our overall
market share with the exception of the Steel
Division in India, where, at the end of 2018,
we lost an important customer, which was
subsequently regained at the end of 2019.
Confronted with this sharp deterioration
in our main markets, we decided early in
the year to accelerate our restructuring
activities. In particular, we accelerated the
optimisation of our manufacturing network
in the European Union, UK and North
America, closing eight plants during the
year, whilst at the same time investing in
the capacity and modernisation of other
plants, preserving by doing so our overall
manufacturing capacity and our ability
to serve our customers, both now and
as market growth resumes.
We also redoubled our efforts to control our
operating expenses, driving efficiency by
focusing on both the size and the location of
our support functions. These restructuring
efforts enabled us to deliver £16.4m of
recurring savings in 2019, in addition to
the £14.0m delivered in 2018. We expect to
capture a further £19.4m of savings in 2020.
At the same time as working on our cost
base, we reinforced our technology
leadership position, in line with our
long-term growth strategy. The key actions
taken included the expansion of our
Advanced Refractory research centre in
Vizag (India), the launch of our new Flow
Control research centre in Suzhou (China)
and the expansion of our mechatronics
research centre in Ghlin (Belgium). The first
positive impacts of this intensification of our
R&D strategy were already visible in 2019
with more than ten new products launched
in the Steel and Foundry Divisions during
the year and more than 15 new launches
expected in 2020. The percentage of our
sales comprising products which didn’t exist
five years ago rose again in 2019 to 16.3%
as compared with 15.4% in 2018. In 2019,
we gained our first important mechatronics
customer in China, in the Baowu group, and
now have more than nine active projects
ongoing worldwide.
In parallel to our focus on organic growth,
we successfully implemented the
acquisition of CCPI, a niche refractory
producer in the US specialising in the
continuous casting area, adding to our
expertise and reach in this market. This
acquisition was successfully integrated
into our existing operations in less than six
months, generating significant synergies.
We intend to continue pursuing potentially
attractive external growth opportunities in
the coming years.
We continue to believe that the Execution
Priorities we have set are appropriate
to drive our strategic growth – see
Our Strategy on pages 14 and 15.
Resilient financial results
and persistently strong
cash flow generation
Thanks to our rapid reaction to the
negative evolution of external conditions
and to the progress in implementation of
our long-term strategy, we were able to
generate a trading profit of £181.4m in
2019, a decline of 8.0% compared with
2018 on a reported basis and 9.0% on an
underlying basis but still the second best
result in the history of Vesuvius after the
record year of 2018. Our return on sales
was resilient at 10.6% in 2019 slightly
declining from 11.0% in 2018, despite
Adjusted operating cash flow £
£217.7m
2019 217.7
2018 179.4
2017 171.5
Return on sales %
10.6%
2019 10.6
2018 11.0
2017 9.8
New product sales* %
16.3%
2019 16.3
2018 15.4
2017 14.5
*
Sales of products launched within the last
five years as a % of total revenue.
13
the lower sales. Even more importantly,
we achieved a cash conversion ratio of
120% in 2019, after an already strong
result of 91% in 2018.
This performance validates our strategy
to develop as a flexible, technology-led,
but low capital-intensity business, capable
of generating consistently strong free
cash flows across the cycle. Our cash
generation enabled us to reduce our net
debt to £216.3m at the end of 2019 from
£247.8m at the end of 2018, on a like-
for-like basis excluding IFRS 16 lease
adjustments. This debt reduction was
achieved despite significant capital
investments in the modernisation of our
plants of £65.4m, the acquisition of CCPI
for £32.4m, restructuring cash costs of
£30.0m and a dividend distribution to
our shareholders of £53.9m.
Reinforced and more diverse
leadership team
After the reinforcement of our regional
P&L leadership teams in 2018 and early
2019, we decided to appoint new
entrepreneurial-minded business unit
Presidents, for our three main business
units, with a combination of external hires
and internal promotions. Karena Cancilleri
joined Vesuvius as President of the
Foundry Division in October 2019. Thiago
Avelar, previously Vesuvius Regional
Vice-President for Steel South America,
was appointed President of the Advanced
Refractories business unit in January 2020.
Tanmay Ganguly, previously President of
the Advanced Refractories business unit,
has been appointed President of the Flow
Control business unit with effect from
1 April 2020.
With these changes, we now have seven
nationalities represented in our Group
Executive Committee and have 25% female
representation, up from 0% two years ago.
Increased focus on safety
We are committed to evolve rapidly
towards a global best-in-class
organisation in terms of safety. Several
new initiatives were launched in 2019
to enable us to reach this objective. In
particular, our new independent Group
safety audit team is now fully operational,
auditing each of our locations in the world
at least once a year. Despite our focus in
this area, we are not satisfied with our
safety results in 2019. Our Lost Time
Injury Frequency Rate, at 1.5 Lost Time
Injuries per million hours worked, despite
being lower than in 2016 and 2017, has
deteriorated as compared with the rate
of 1.3 reached in 2018. To refocus efforts
on achieving this best-in-class safety
performance, we launched our 8 Core
Safety Rules in 2019. These mandate
the key safety practices that we expect
everyone in Vesuvius to follow.
We will strive to make significant progress
in 2020 and resume our journey towards
our goal of zero accidents.
Developed our efforts on
sustainability
Our environmental footprint is already
limited due to the low energy intensity of
our manufacturing processes, the low
percentage of bricks in our product mix
and our strategy of not being integrated
upstream in mining. However, we feel it is
our duty to contribute, to the extent of
our ability, to the fight against climate
change. We have decided with the
Board to focus efforts on reducing our
energy consumption per metric tonne of
product packed for shipment by a further
10% by 2024, following the reduction of
10% already achieved since 2014.
Investments contributing to this objective
will be initiated in 2020.
In parallel, we are intensifying our efforts
to develop new technological solutions
enabling our Steel and Foundry customers
to reduce their own energy consumption
and carbon footprint.
Outlook
Our two main end-markets of steel and
foundry were especially weak during the
fourth quarter of 2019 and we expect
this abnormally low level of activity to
continue at least in Q1 2020 and to weigh
on performance in H1 2020.
The potential impact of the Covid-19
health crisis is difficult to assess at this
time but is likely to have a temporary
negative impact on our end-markets.
However, there are some signals indicating
that the destocking phase experienced in
H2 2019 is maturing and may shortly be
coming to an end.
Thanks to our restructuring efforts, our
reinforced emphasis on innovation in
the service of our customers and our
dedicated workforce, Vesuvius is
ideally positioned to benefit from the
normalisation in our end-markets as
this occurs.
Patrick André
Chief Executive
27 February 2020
Vesuvius plcAnnual Report and Financial Statements 2019Our businessVesuvius’ higher cash flow in 2019 demonstrates our strength as a flexible, low capital intensity business, capable of generating free cash flow across the cycle.
14
Our strategy
Strategic Objectives
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.
Execution
priorities
Reinforce our
technology leadership
Deliver growth
Increase penetration of
value-creating solutions
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
Capture growth in
developing markets
Improve cost leadership
and margins
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 p36 and 37
15
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 2019
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 2019, the percentage of our sales comprising products which didn’t exist five years ago rose again
to 16.3% as compared with 15.4% in 2018. Our objective is for this to reach 20%. During the year,
we continued the expansion of our global R&D network, with the opening of our R&D centre in
Suzhou, China, the continued development of our mechatronic technology centre in Ghlin, Belgium,
and the expansion of our research facility in Visakhapatnam, India. We also increased our focus
on combining developments in robotics, automation and data analytics capabilities with our
well-established material science research.
We continued to increase our R&D efficiency by focusing our efforts on a reduced number of
potentially high-impact projects.
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 2019, we accelerated our R&D efforts and launched more than ten new products in the Steel and
Foundry Divisions, including the following highlights by business unit:
> Flow Control – new generation of ladle slide-gate plates and systems and new high-performance
tundish slide-gates
> Advanced Refractories – optimised monolithic refractory formulations
> Foundry – new coating helping automotive foundries meet the quality level of the next generation
of engines and a new unique feeding system technology for casting aluminium
More than 15 new product launches are planned for 2020.
In addition to these new product launches, we continued to work hard to introduce our existing
technologies to a wider group of customers, supporting greater quality and efficiency in production.
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.
Despite the challenging end-market environment in 2019, we continued to focus on capturing the
growth in key developing markets. Underlying revenue of our Steel Division increased by 7.9%
in China, continuing our track record of growth in this important country. Underlying revenue
in our Foundry Division (excluding Fused Silica) increased by 4.7% in EEMEA (Eastern Europe,
Middle East (including Turkey) and Africa).
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 to achieve their quality
objectives. Our Steel Digital Services (Sensors
& Probes) business unit is focused on incubating
our data capture technologies, with the other
business units delivering customer access and
integration with our existing product offering.
In this way, our Technical Services strategy can
progressively penetrate all activities of both our
Steel and Foundry Divisions.
During 2019, we delivered an incremental £16.4m of recurring cash savings. These savings were
delivered according to plan with the exception of £1.2m due to some delays experienced in the
Foundry EMEA and Advanced Refractories NAFTA restructuring projects. This is expected to be
recovered in 2020.
The restructuring programmes are predominantly focused on rationalising our manufacturing
footprint, consolidating production and streamlining back office functions. During 2019, we
successfully closed six plants in EMEA and two in the US, without reducing our overall production
capacity, and maintaining our proximity to customers in our regional markets. We acquired two
plants in the US through the CCPI acquisition, of which Blanchester has already been closed, and we
opened a new Foundry facility in Mexico. The net reduction of five plants in 2019 reduces our total
manufacturing footprint from 59 to 54.
The restructuring programmes are now expected to deliver incremental recurring annual savings of
£19.4m in 2020, £6.2m in 2021 and £1.9m in 2022, an increase of £3.0m in comparison with previously
announced targets. This increase in recurring cash savings will be delivered at an additional one-off
cash cost of £7.2m, of which £5.1m has already been charged and £2.1m will be incurred by 2021.
We continued to see good progress in our global Technical Services offering during 2019.
Our mechatronic activity is developing rapidly and during 2019 we gained our first customer in
China. We now have nine active projects and our mechatronics technology centre in Belgium is
being expanded to respond to the growing demand. 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 2019, we sold more than 20 lasers, half of which were bought by customers located in Asia.
Vesuvius plcAnnual Report and Financial Statements 2019Our business
16
Our external environment
Solutions for the changing demands
of business
Climate change and the
Vesuvius proposition
Steel
Two thirds of
Vesuvius’
revenue comes
from providing
goods and
services to the
steel industry.
Steel production is a highly energy-intensive
process. The World Steel Association estimates
that the steel industry generates between 7%
and 9% of direct emissions from the global use of
fossil fuel. However, steel plays an integral part
in the modern world and will remain crucial for
many end products. It is infinitely recyclable and
the by-products created during steelmaking,
along with the waste energies, are valuable
resources. Vesuvius’ consumables enable
our customers to increase manufacturing
throughput whilst lowering energy consumption.
For several decades, Vesuvius’ products have
been assisting the steel industry in reducing
greenhouse gas emissions by increasing yields
and end-product consistency, therefore
improving the energy efficiency of production.
Foundry
The remaining
one third of
Vesuvius’
revenue is
generated from
the provision
of products
and solutions
to the foundry
industry.
Foundries consume large amounts of energy
heating metals, this being the primary driver
of their impact on CO2 emissions, generating
significant amounts of CO2. Vesuvius’ feeding
systems, filters, coatings, crucibles and other
products have all been developed to save
energy and help foundries increase the ratio
of metal contained in their finished castings
to the amount of metal melted. For the past
80 years, Vesuvius’ products have been
helping our Foundry customers to maximise
their energy efficiency and minimise
wastage, increasing the ratio of metal
melted to finished end castings.
The future
How Vesuvius will respond
Technical upgrade
of steel and foundry
> The pressure on the steel and
foundry industries to reduce
GHG emissions, particularly
CO2, is expected to increase
significantly, with energy
price increases used to
compel change.
> There will be a shift to
recycling over virgin metals
production to reduce GHG
emissions. For the steel
industry, this will result in a
shift to electric arc furnaces
away from blast furnaces.
> The foundry industry will be
faced with a shift away from
the manufacture of internal
combustion engines as the
move to electric vehicles
and low-carbon forms of
transport accelerates.
> In construction, lighter-
weight steel and glass
will replace concrete.
> Our customers will continue
to focus on reducing absolute
energy consumption and
CO2 emissions (through
the elimination of higher
emission processes) and
reducing normalised
energy consumption
and CO2 emissions (via
increased efficiency).
> There will be an increased
demand to provide thinner
lighter net shape castings
and higher-quality steels
that can be used in thinner,
lighter-weight products.
Vesuvius’ application engineers and marketing teams are
already working closely with our customers to develop
new products and technologies to meet the challenges
that lie ahead.
Automation – safety
and efficiency
Our Foundry Division teams
are developing new filtration,
feeding, mould coating and
molten metal treatment
products to support the
manufacture of lighter
weight, higher-performance
metals and components.
Our Steel Division engineers
are working on the
development of specialist
fluxes and metal treatment
additives to improve melting
yield and deliver enhanced
as-cast properties.
17
Improving quality with our
new products
Our Foundry technology
solution for ladle shrouding
for steel foundries continues to
have strong momentum in the
market. This technology lowers
oxidation and inclusions in the
end products, significantly
improving the quality of the
final castings and thus their
performance.
In Flow Control, we launched
DuraFlex 5, a long-life ladle
shroud for demanding and
flexible operations. The superior
design results in enhanced
refractory performance results,
with a longer shroud life.
Leaving the most hazardous
work to robots
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.
In 2019, we installed our first
Tundish robot outside NAFTA.
Our superior capabilities in
Tundish automation have
helped to convince our
customers to invest in order
to improve their productivity
and safety performance.
See Strategy section on p14-15
Vesuvius plcAnnual Report and Financial Statements 2019Our businessWhat’s happeningSteel 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 although, by exception, the ‘high technology’ segment of the market suffered in 2019 proportionately more than the more commoditised construction steel market, due in particular to weakness in light vehicle volumes.Foundries are experiencing a similar development where metal quality is paramount and higher strength is demanded from thinner and lighter castings.What’s happeningCompanies 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.How we are responding> 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.> We continue to invest heavily in R&D to maintain our technology leadership across our products and across all regions in which we operate.> Vesuvius’ innovative portfolio of products and services, and global footprint enable us to provide high-technology solutions to our worldwide customers.How we are responding > Vesuvius has the global, in-depth capability to combine know-how in steel mills and foundries with robotic capabilities: a winning combination for superior safety performance in hazardous areas of production. > We provide laser technology that works reliably and consistently to assess refractory wear, allowing targeted repair for efficient and safe operation. > Vesuvius is investing significant resources into the scale-up of our mechatronics capabilities to maintain our leadership in Tundish and Continuous Casting robotics and to expand our automation capabilities in other emerging areas of steel mills. +9% Our internal annual growth forecast for high-technology steel in India 42% of labour by share of hours spent is expected to be performed by machines by 2022 (as estimated by the World Economic Forum) 18 Vesuvius plc
Annual Report and Financial Statements 2019
19
19
Our markets
Steel
Division
Flow Control
Crude steel production and the
above average market growth
of ‘high-technology steel’ are
drivers of Flow Control’s 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
Digital Services
Crude steel production and the
need to increase the quality
and consistency of cast steel
drives demand
Foundry
Division
Higher sophistication and
increasingly complex castings
are the long-term drivers
for product demand of the
Foundry Division
‘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, the continuous casting process
that produces steel in very thin slabs
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.
Vesuvius’ internal segmentation
of global crude steel production
3 4%
%
3
3
3
3
%
Flow Control business unit
end-markets
3 0 %
1
4
%
56%
High-
technology steel
Medium-
technology steel
> Near net shape
production process
> Construction sheets:
roofing, cladding, etc.
> Stainless steel
> Heavy plates for ship
> Engineering steel:
bearing, shafts, tools, etc.
> Automotive steel
building, pipe
Commodity steel
> Basic rebar for
concrete
reinforcement
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 (LV’s), medium and heavy
commercial vehicles (MHCV), construction,
agriculture and mining equipment, power
generation equipment and railroad.
In 2019, Foundry end-markets faced
significant challenges globally. In 2020,
global medium and heavy commercial
vehicle production is expected to drop by
more than 8% whilst light vehicle
production is likely to stabilise at low 2019
levels – only returning to positive growth in
2021. The production of agricultural
equipment is expected to decline in the US
and remain flat in other regions. The broad
segment of general engineering is expected
to see flat markets outside China.
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.
Whilst Foundry Division products typically
represent less than 5% of a foundry’s
production costs, they contribute
Crude steel production is a
structurally growing market
World crude steel production (mt)
(bnt)
According to the World Steel
Association, global crude steel
production in 2019 increased by 3.4%
compared with 2018. However, global
steel production excluding China
declined by 1.7%. On a regional basis,
crude steel production contracted in
all regions except in Asia and the
Middle East.
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 the 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%.
Notes to charts, right:
1. CIS, Middle East (incl. Turkey), Africa,
Latin America and South East Asia.
2. EU27, UK, USA, Canada and North Asia.
3. Eastern Europe, Middle East (incl. Turkey)
and Africa.
4. Including estimates of other countries that
only report annually.
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.
Challenging environment in the steel markets outside China
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
9
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
-10%
Size of bubble represents relative revenue of Vesuvius’ Steel Division in 2019
China
+8.3%
USA & Canada
+0.7%
India
+1.8%
EEMEA3
+1.1%
Crude steel production volume 2019
EU27 + UK
-4.9%
Crude steel production growth year-on-year
World
China
Rest of the world
YE 20194 H1 2019 H2 2019
+3.4%
+5.5%
+8.3%
+10.2%
-1.7%
+0.6%
+0.9%
+5.2%
-3.8%
Latin
America
-8.2%
significantly to the improvement of product
quality 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.
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
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 casting
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.
Our business
20
Business model
A profitable, flexible, cash-generative
model focused on sustainable growth
21
What we do
Our key resources
How we deliver
The value we create
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.
Financial capital
Human capital
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 10,000
people and provide them with a safe
environment in which to work.
Manufacturing capital
Social capital
We have a global footprint, with
54 production sites on six continents,
giving us proximity to our customers.
Intellectual capital
We have six R&D centres of excellence
with dedicated R&D staff worldwide,
generating innovative products and
solutions for our customers.
We champion our values and our
ethical conduct. We maintain strong
relationships with customers and our
wider stakeholder groups.
Natural capital
We utilise high-quality raw materials,
secured through reliable and
well-developed and sustainable
supply chains.
6
10,496
54
R&D centres of excellence
Employees
Production sites
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 p44-51
> Our industry experts are embedded
at many customer locations and are
therefore ideally placed to collaborate
with customers to identify their needs,
and potential service and process
improvements. This also enables us to
grow our solutions and service portfolio.
> 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 investors
Our suppliers
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 into 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.
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 Our
Operations
on p44-51
Read more
about our
Value-added
solutions on
p14 and 15
Vesuvius plcAnnual Report and Financial Statements 2019Our business
22
Section 172(1) Statement
Effective engagement with stakeholders
promotes the long-term sustainability of
the Group
Under Section 172 of the Companies
Act 2006, the Directors have a duty to
promote the success of the Company
over the long term for the benefit of
shareholders as a whole, having regard
to a range of other key stakeholders and
interests. The Directors must have regard
(amongst other matters) to the:
Likely consequences of any decision in
the long term
Interests of the Company’s employees
Need to foster the Company’s business
relationships with suppliers, customers
and others
Impact of the Company’s operations on
the community and the environment
Desirability of the Company maintaining
a reputation for high standards of
business conduct
Need to act fairly as between members
of the Company
The Board is responsible for the overall
direction of the Group. It 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, to ensure that the Group is
structured appropriately for the
challenges and opportunities of the
future. In performance of these duties, the
Board is focused on the sustainability of
the Group in the long term. The Board
recognises the need for the Group to
have effective engagement with, and
encourage participation from, all key
stakeholders to promote these long-term
interests. The Group’s key stakeholder
groups, reflecting those who have the
biggest impact on the business and modes
of engagement, are outlined in the table
on pages 26 and 27. The Board has
regard to the activities undertaken
throughout the Group in considering
its own Section 172 responsibilities.
Likely consequences of any
decision in the long term
Interests of the Company’s
employees
Throughout the year, the Board
considered the long-term consequences
of the decisions it made, focusing on the
interests of relevant stakeholders as
appropriate. Examples of the activities
the Board undertook during 2019 to
meet its obligations under Section 172
include the following:
> The Board oversaw the Group’s
restructuring plans to maximise
operating efficiency. In doing so, it was
cognisant of the impact these decisions
would have on affected employees
and communities. The Board also
considered the likely impact of these
plans on the Group’s customers, with
alternative sourcing identified where
necessary, and actions taken to mitigate
any disruption in supply.
> The Board supported the setting of new
environmental targets for the Group –
expanding its range of activity to seek
to lessen the impact of the Group’s
operations on the environment.
More information can be found in the
Sustainability section on pages 64-67.
> The Board considered its Section 172
responsibilities in respect of the
continued progression of the Group’s
strategy and its 2020 Budget proposals,
including the likely long-term
consequences of the decisions being
taken in respect of the future footprint of
the Group. The impact that any further
restructuring would have on the Group’s
workforce, suppliers and customers was
reflected in the outcome of discussions.
> During 2019, the Company undertook
its inaugural global employee
engagement exercise. The Board
oversaw this process, which commenced
with an engagement survey, aimed
at canvassing the opinions of all of
our >10,000 employees worldwide.
The Board received feedback on the
results and considered what this
indicated about the culture of the
Group. It reviewed management’s
response to the outcome of the survey
and the follow-up actions being
undertaken throughout the Group.
Further information about the survey
can be found on page 69.
> The Board also reviewed the new
initiatives that are being implemented
to enhance the career and personal
development of employees. As part of
the regular schedule of business unit
presentations, the Board reviewed
the specific HR objectives for each
business unit.
> The Board approved a new Drugs
and Alcohol Policy, considered at
each Board meeting the Group’s
performance against the Health and
Safety KPIs and reviewed, in detail,
the circumstances of any Lost Time
Incidents that had been recorded
since its last meeting.
> The Board also approved new Core
Safety rules underpinning its
commitment to ensure the safety of the
Group’s employees. Further information
on Safety can be found on pages 58-63.
> The Board reviewed an updated
HR strategy identifying continuing
developments in talent management
to support the longer-term succession
planning that underpins delivery of the
Group’s strategy.
> Further information about the work of
the Board’s Committees in considering
and supporting the interests of the
Company’s employees can be found
in the Nomination and Remuneration
Committee Reports on pages 97-125.
23
Employee involvement
Employee engagement
Vesuvius plcAnnual Report and Financial Statements 2019Our businessVesuvius adopts an open and honest approach to employee communications, with regular updates from senior management across businesses and operations within the Group. The Board and Group Executive Committee visit operations throughout the year, touring the sites, meeting with employees and conducting ‘town hall’ meetings when they do. 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 consults 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. In this way, a broad cadre of management has incentives that are aligned with shareholders. The new UK Corporate Governance Code requires that companies use one or a combination of the following methods, for engagement with their workforce: >a director appointed from the workforce >a formal workforce advisory panel >a designated non-executive director Alternatively, companies should explain what arrangements are in place and why it considers that they are effective. Vesuvius has chosen not to specifically adopt one of the three defined methods of engagement, which it believes do not fit well with the complexity of Vesuvius’ operations, with four business units, employing more than 10,000 people located in 41 different countries. The Group has adopted an approach that builds on existing engagement initiatives and targets specific issues for attention. These processes engage the entire Board and are overseen by Holly Koeppel, one of our independent Non-executive Directors. The Board has increased its visibility and extended the range of direct feedback it receives from employees. The primary mode of engagement for Directors during 2019 was through direct interaction with the workforce during the Directors’ comprehensive range of site visits. The Board discussed and implemented new processes for these site visits, including seeking consistent and comparable information provision across sites, and the delivery of formal and structured feedback. The Non-executive Directors undertook 23 individual site visits during the year, touring our facilities and engaging with the workforce throughout the plants, conducting round-table discussions, and attending staff social events. As part of this approach to employee engagement, in 2019, alongside reviewing the results of the Employee Engagement survey, the Board also considered a number of key workforce related issues gathered from these visits and the other employee feedback mechanisms operated by the Company. The feedback from these processes has informed management actions at site and Group level. 25
O
u
r
b
u
s
i
n
e
s
s
24
Section 172(1) Statement continued
Need to foster the Company’s
business relationships with
suppliers, customers and others
> During 2019, the Board received
Impact of the Company’s
operations on the community
and the environment
Desirability of the Company
maintaining a reputation for high
standards of business conduct
> In 2019, the Board received
> The Group’s Code of Conduct states
presentations from the VP HSE and
Quality detailing the Group’s activities
with regard to sustainability. The Board
considered the action being taken in the
Group to reduce water and material
wastage, to conserve energy and to
utilise recycled materials. Further
details of the Board’s oversight of the
Group’s sustainability activities can be
found in the Sustainability section on
pages 64-67.
> The Board recognises that the success
of the Group’s operations are
dependent on maintaining positive
relations with the communities in which
they operate. The Board encourages
Vesuvius’ sites to support their local
communities through charitable
activities and community events.
During the year, the Chairman visited
the Indian Institute of Cerebral Palsy
(IICP), a registered charity which has,
for the past four decades, provided
training and rehabilitation to children of
all ages and adults with cerebral palsy.
Vesuvius India Limited sponsors two
classes at the IICP and has supported
this organisation since 2015. Further
examples of the Group’s community
activities can be found in the
Community section on pages 68-73.
presentations from the business unit
Presidents and President Operations
& Technology on relationships with
customers and key matters of concern
to them. The Board reviewed
information on the Group’s
performance against key quality
targets each month and was updated at
Board meetings on actions undertaken
to rectify any significant quality issues
or customer complaints. The Board
considered market trends at each
meeting, and undertook a more
thorough review of macro-trends and
their likely long-term implications at
the annual Strategy meeting.
> Alongside the regular customer visits
undertaken by the Executive Directors,
individual Non-executive Directors
visited customers in South Korea and
the Czech Republic, with the full Board
visiting a steel customer in the USA in
September. Each visit provided the
Directors with the opportunity to speak
directly to our customers about their
businesses and to hear from them first
hand about their immediate challenges,
and longer-term expectations.
> The Board also received a series of
presentations from Vesuvius’ new
Group Head of Procurement on the
Group’s relationships with its suppliers
and its purchasing practices.
Relations with shareholders
that Vesuvius must maintain an
unquestioned reputation for integrity.
The Board takes seriously the Group’s
obligation to maintain high standards
of business conduct and assessed
compliance with this requirement
through a variety of mechanisms
during 2019, including reports from
Internal and External Audit, along with
feedback from the Group’s Employee
Engagement survey. During site visits,
the Directors also had the chance to
assess the conduct of our workforce
on the ground, and the observation
of the Group’s CORE Values.
> Vesuvius agrees terms with its suppliers
and seeks to pay in accordance with
those terms.
> When reviewing the Group’s tax
strategy, the Board considered the
Group’s approach to tax management
in light of the need for the Company
to maintain a reputation for high
standards of business conduct.
> In addition, the Board received formal
reports during 2019 on the Group’s
compliance activities, including the
Group’s risk assessment programme
and training practices, and specific
feedback on the Group’s Speak Up
helpline. Further details of the Group’s
compliance activities can be found in the
Our principles section on pages 54-57.
Need to act fairly as between
members of the Company
> The primary focus of the Board’s
business decisions is on ensuring the
long-term sustainability of the Group.
The Board recognises that in seeking
to maintain long-term profitability
the Group is reliant on the support of
all of its stakeholders, including the
Group’s workforce, its customers,
suppliers and the communities in
which its businesses operate.
> In taking capital allocation decisions
during 2019, the Board was cognisant
of the need to balance the interests of
different stakeholders. Decisions on the
Group’s approach to working capital,
investment opportunities, capex, R&D,
investment in people, dividend policy
and pension contributions, taken during
the year, were all considered against
this backdrop.
We are
Engineers
Jianming Xue
Canning Operator for BY line
Suzhou, China
Vesuvius plcAnnual Report and Financial Statements 2019Our businessThe 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 each AGM, we write 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. In 2019 and 2020, we engaged with shareholders on the Group’s remuneration proposals, further details of which can be found in the Directors’ Remuneration Report on page 125.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 trading updates during 2019. Presentations or teleconference calls were held by the Chief Executive and Chief Financial Officer with institutional investors and analysts on each of these dates.All Directors 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.ChemistsResearchers Physicists
26
27
Section 172(1) Statement continued
Our stakeholders
Why we engage
Types of engagement
undertaken
Our people
The dedication and
professionalism of our people,
their capacity for owning their
roles and their drive for results are
the most significant contributors
to Vesuvius’ success. We focus on
the health and safety of all our
staff, and engage with our people,
encouraging and rewarding
high performance to create an
environment where all can realise
their individual potential.
Fundamental focus on health and safety and the care and preservation of
all employees
Continuing dialogue between employees and their managers, including the
conduct of regular performance reviews
Competitive remuneration and benefits strategy, emphasising talent
development with tailored career-stage programmes. Living the Values
and other award schemes celebrate individuals’ achievements
Global communication mechanisms include an internal intranet, global email
communications and a Vesuvius app, alongside less formal forums such as
local ‘Town Hall’ meetings. The Group operates a European Works Council,
local works councils and recognises trade unions
Wide-ranging internal training is offered on key job-related issues, with
programmes such as the Vesuvius University – HeatT, and the Foseco University
Environmental
performance
Many businesses operate family days, when the facility is open to friends
and family
Issues relevant to the
stakeholder group
Personal development
Remuneration evolution
International mobility
Employee engagement
Development and
retention
Career opportunities
Health and safety
Diversity and inclusion
Students and graduates
Attracting new talent to Vesuvius is
vital. Recruiting new students and
graduates feeds the talent pipeline
and allows us to tap into new
sources of up-to-date business
ideas and R&D capability.
The Group maintains contact with universities and R&D collaborations to
identify and develop talent and complement our in-house R&D capability
Our businesses attend careers fairs and provide student work placements
and internships
Vesuvius’ website provides prospective applicants with detailed information
about the Group
Customers
Engaging with our customers
helps us to understand their
needs and identify opportunities
and challenges. Collaborating
with our customers enables us
to use our expertise to improve
the safety and efficiency of
their manufacturing processes,
enhance their end-product quality
and reduce their costs.
Senior-level dialogue is maintained with all key customers, including Directors’
visits to customers’ sites
Our business model focuses on collaboration with customers, to provide
customised solutions, and more than 2,500 Vesuvius representatives are
embedded at customer locations
The Group manages customer relationships on a global basis as required,
complemented by diverse local servicing capability
We engage with customers on safety leadership and support their training
requirements
We provide customer training, including the Foseco University, and participate
in industry forums and events
Career opportunities,
personal development,
engagement and
retention
Research and
innovation
Training and mobility
Customer satisfaction
Product performance
and efficiency
Innovation and
provision of solutions
Health and safety
Sustainability
performance
Suppliers and contractors
Vesuvius conducts regular visits to key suppliers
Maintaining a flexible workforce
through the use of contractors
and cost-effective access to
high-quality raw materials is vital
to our success. Our contractors
and suppliers are critical to
our business.
Senior-level relationships are built with large suppliers
All suppliers/brokers have regular interaction with the Global Purchasing Team
Dedicated category directors build long-term relationships and product
expertise
There is a rigorous and consistent supplier accreditation procedure
Effective working protocols, including work risk assessments, are established
with contractors
Operational
performance
Responsible
procurement
Trust and ethics
Payment practices
Investors
Continued access to funding is
vital to the performance of our
business. We work to ensure
that our investors have a clear
understanding of our strategy,
performance and objectives.
Supportive investors are more
likely to provide the Company
with funds for expansion.
Vesuvius’ Investor Relations Strategy managed by the Group Finance
Director and Chief Executive includes regular meetings with key and
prospective investors
The Group’s Annual Report provides an overview of the Group and regular
announcements and press releases are published to provide updates on the
Group’s performance and progress
The AGM provides all shareholders with an opportunity to directly engage
with the Board
There is ongoing dialogue with the Company’s analysts to address enquiries
and promote the business
Financial performance
Strong governance
and transparency
Environmental
performance
Diversity and inclusion
Director remuneration
Board performance
Why we engage
Types of engagement
undertaken
Group Treasury maintains an ongoing dialogue with key lenders through
the relationship banks and other local banks in the countries in which
Vesuvius operates
The Group Treasurer, Group Head of Corporate Finance and CFO hold
regular meetings with key personnel from the banks who provide the Group’s
debt funding
Representatives from the banks are invited to the Group’s results presentations
Issues relevant to the
stakeholder group
Financial performance
Group internal control
and audit processes
Strategic planning and
ability to repay debt
Gearing and
monitoring of financial
covenant ratios
Business continuity
planning
Transparency/
ethical behaviour
Provision of work experience and internships to local university and
school children
Sponsoring of charitable activities
Participation in local volunteering initiatives
Operational
performance
Transparency/
ethical behaviour
Visits and inspection of sites by government agencies
Annual Report and Financial Statements
Response to environmental research as part of customer and supplier
due diligence
Participation in environmental and social responsibility research and
questionnaires
Governance and
transparency
Operational
performance
Governments and
regulatory agencies
Transparent communication with government officials as required
Participation in appropriate government and industry working groups
Trust and ethics
Governance and
transparency
Membership of industry associations and contribution to best practice guidance
Lobbying and direct contact with appropriate bodies on key business issues
Ongoing contact with members of the Group’s pension plans, including annual
member updates and contact on specific regulatory developments
Financial performance
Regular contact with the trustees and custodians of the Group’s benefit plans,
as appropriate
Lenders
(Banks and debt investors)
The Group needs to access
funding to ensure it has sufficient
financing to run the business and
fund future growth. We ensure
that our relationship banks
have a clear understanding of
our strategy, performance and
objectives. We engage with
lenders to fulfil our compliance
obligations and to ensure that
we have clear knowledge and
awareness of market sensitivities
and trends.
Communities
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.
Environmental agencies
and organisations
Good environmental management
is aligned with our focus on cost
optimisation and operational
excellence. We engage with
appropriate organisations to
ensure that we are complying with
regulatory requirements, and to
publicise our performance.
National governments set the
regulatory framework within
which we operate. We engage
where appropriate to ensure
that we can help in shaping
new policies, regulations and
standards, and ensure compliance
with existing requirements.
Pensioners and
deferred pensioners
Providing for and managing future
pension liabilities in our defined
benefit schemes is an important
part of our financial planning.
Vesuvius plcAnnual Report and Financial Statements 2019Our business 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
The Group undertakes
a continuous process
to review and
understand existing
and emerging risks.
Risk management in 2019
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
within 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 and the associated adequacy
of the steps being taken to mitigate them.
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. These are
further reviewed by the Group Executive
Committee. In conjunction with this
process, 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.
The results of this assessment are then
overlaid on the internal assessment of
risks to build a comprehensive analysis of
existing and emerging risk. 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 2019
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 2019
During 2019, the Board continued to focus
on specific, identifiable risks where those
arose during the year – the challenges of
the global economic situation, particularly
the slowdown in our underlying markets,
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. End-market risks,
protectionism and globalisation, and the
changing regulatory environment were
identified as key areas for attention
and mitigation.
29
Finally, the Board continued to monitor the
developing issues posed by cyber threats.
Further focused work was undertaken
during the year on analysing and
increasing the integrity of our system
security. The Board received reports from
the Group’s multi-disciplinary committee
appointed to assess the Group’s controls in
this area as well as from external experts
to enhance the Board’s understanding of
and respond to emerging cyber trends.
For our customers located in the EU27
countries, most of our products are
manufactured by Vesuvius outside the
UK, so we would not envisage a material
impact from Brexit after the Transition
Period. For those customers located in the
UK or located in the EU27 and supplied
from our UK plant, we have contingency
plans and we are working with these
customers to meet their needs in a
cost-efficient way.
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 operational
approach taken to risk management on
a day-to-day basis.
Brexit
Following the exit of the UK from the EU
on 31 January 2020 under the Withdrawal
Agreement, the UK is currently subject to
a Transition Period which will run until the
end of 2020 (unless extended). During the
Transition Period, the UK remains in the
Single Market and the Customs Union of
the EU whilst the terms of a new trade
agreement are negotiated. If those
negotiations are not completed and
ratified before the end of the Transition
Period, World Trade Organization rules
may apply.
Vesuvius has analysed the potential
challenges posed by Brexit, including
the possibility of a ‘no trade deal’
situation occurring at the end of 2020,
and identified mitigation strategies to
address those challenges.
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.
Business continuity
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.
As issues of climate change climb up
the global agenda, the Board has
examined how this may affect our internal
processes and our external environment
– understanding both the drivers of
sustainability at our customers and
focusing on increased analysis of our
operating performance.
As a result, the Board resolved to identify
ESG risks as a separate element of the
Group risk register – recognising the work
Vesuvius can do to mitigate the pressure
our end-customers experience to drive
energy efficiency and reduce their carbon
footprint, together with the need to focus
internally on the action the Group can take
to drive business sustainability. This risk
also encompasses social and governance
issues that were already incorporated into
the Group’s risk analysis.
In addition, the Board continues to
monitor the implications of certain
other emerging ‘macro’ trends such as
automation in manufacturing and
increasing digitalisation, both of which
could act as disruptors to industry.
Some commentary on these areas is
contained in the Our external environment
section on pages 16 and 17 of this Report.
This Report also sets out, on page 23,
the work done in 2019 to engage with the
workforce, and to ensure that Vesuvius
fosters an appropriate culture and
that Vesuvius’ values are embedded
throughout the Group, reflecting the
Board’s recognition of the challenges
that could arise from a failure by the
Group to support the retention of
appropriate talent and to foster the
correct culture for success.
The Board has discussed the potential
impact of Covid-19 on the business, and
in particular the actions being taken to
respond given the Group’s operations in
China. This remains a matter of close
attention for the Board.
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 2019Our business 30
Risk, viability and going concern continued
Our Insurer Property Loss Control
Programme is based upon insurer loss
modelling and focuses on insured losses.
The insurer’s loss control engineers
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, 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, as well as 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
Internal Audit
>
>
Reviews Vesuvius’ businesses and reports on the adequacy and effectiveness of their systems of internal control and compliance
with Group policies and procedures
Agrees action plans for the resolution of any improvement actions identified by their audits and monitors with local management
and the business unit Presidents progression with their completion
>
Reports to the Audit Committee on the results of each audit and provides regular updates on high-priority action items
>
The Audit Committee discusses the key risks identified by Internal Audit
31
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.
The Group also conducts a self-
certification exercise by which senior
financial, operational and functional
management certify the compliance
throughout the year of the areas under
their responsibility with the Group’s policies
and procedures and highlight any material
issues that have occurred during the year.
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.
Since the date of this evaluation, 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 92 and 93.
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 2022,
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 four 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; and raw material price inflation.
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 leave 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 of greater than 30%.
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 2022.
Furthermore, the Board believes that 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 2019 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 2019Our business 32
Principal risks and uncertainties
33
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
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 including dedicated
compliance specialists
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
The arrows indicate the change in risk year-on-year
t
u Increased
t
u Decreased
tu Stable
Business interruption
Vesuvius loses production
capacity or experiences supply
chain disruption due to physical
site damage (accident, fire,
natural disaster, terrorism),
industrial action, cyber attack
or global health crisis
Strategic
alignment
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
Loss/closure of a major plant
temporarily or permanently impairing
our ability to serve our customers
Diversified manufacturing footprint
Disaster recovery planning
Damage to or restriction in ability to
use assets
Denial of access to critical systems
or control processes
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
Disruption of manufacturing
processes
Inability to source critical raw
materials
Well-established global insurance programme
Group-wide safety management programmes
Dual sourcing strategy and development of substitutes
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 and safety
Vesuvius staff or contractors are
injured at work because of failures
in Vesuvius’ operations, equipment
or processes
Strategic
alignment
Injury to staff and contractors
Health and safety breaches
Manufacturing downtime or damage
to infrastructure from incident at plant
Inability to attract the necessary
workforce
Reputational damage
Active safety programmes, with ongoing wide-ranging
monitoring and safety training
Independent safety audit team
Quality management programmes including stringent
manufacturing process control standards, monitoring
and reporting
Environmental,
Social and Governance
(ESG) criteria
New
Vesuvius fails to capitalise on the
opportunity to help its customers
significantly reduce their carbon
emissions as environmental
pressure grows on the steel
industry or Vesuvius fails to
meet the expectations of its
various stakeholders including
employees and investors
Loss of opportunity to grow sales
Development of appropriate ESG measures for the business
Loss of opportunity to increase margin
Loss of stakeholder confidence
including investors
Reputational damage
Investment in R&D to develop products to assist our customers
in reducing their carbon emissions and improve their own
ESG measures
Skilled technical sales force to develop efficient solutions for
our customers
The Group-wide Code of Conduct, ABC Policy with a zero
tolerance regarding bribery and corruption
Internal Speak Up mechanisms to allow reporting of concerns
Extensive use of due diligence involving existing and potential
investments, business partners and customers
Strategic
alignment
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 p14-15
Vesuvius plcAnnual Report and Financial Statements 2019Our business
35
35
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3434 Vesuvius plc
Annual Report and Financial Statements 2019
We are
Innovators
I joined Vesuvius as a technical
salesman in 2014, learning in-depth
about its products and markets – a
good preparation for moving to
positions of greater responsibility.
The key tasks of my current role are to
ensure that projects are run efficiently
and are aligned to the strategic goals
of the Company, and that the working
environment enhances creativity,
motivation and professional growth.
At the Piedade site, we specialise in the
manufacture of sensors and probes
for the steel and foundry industries.
My team develops products from
beginning to end: from the sensors
and hardware to the accessories,
electronics and software. It’s a bespoke
manufacturing process that builds in
innovation. We work with our large
global R&D team to formulate solutions
that would be difficult to resolve
individually. It is through innovation
that we deliver improved safety,
higher quality, better performance
and higher-standard solutions for our
customers. Knowing my team plays an
important part in making this happen
makes me proud.
Since joining the Company, I have
grown professionally thanks to the
opportunities and challenges presented
to me, and the training I have received
in business strategy, product
innovation, management and finance.
I enjoy the diversity of the Group – I have
travelled to many places and have met
and worked with people from all sorts
of backgrounds and cultures. I would
say if you want to be in and make a
difference to this market, then Vesuvius
is the right place to be.
Rafael Jacob
Global Marketing & Technology Manager,
Digital Services (Sensors & Probes),
Piedade, Brazil
Find out more at
report2019.vesuvius.com
Our performanceVesuvius plcAnnual Report and Financial Statements 2019TechniciansDevelopersPioneersOur performance36 Key Performance Indicators38 Financial review44 Operating reviews 44 Steel Division 44 Steel Flow Control 47 Steel Advanced Refractories 49 Steel Digital Services 50 Foundry Division
36
Key Performance Indicators (KPIs)
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.
Financial KPIs
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*
2019 1.5
2018 1.3
2017 1.6
Be at the
forefront of
innovation
R&D spend
Total R&D spend** £m
2019 29.1
2018 34.1
2017 33.2
37
Performance
Underlying revenue growth %
2019 -5.7
2018 10.7
2017 12.5
Link to remuneration
Trading profit £m
Return on sales %
2019 181.4
2018 197.2
2017 165.5
Headline profit before tax £m
2019 10.6
2018 11.0
2017 9.8
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 p120-122
2019 171.4
2018 188.9
2017 152.9
Headline EPS p
2019 45.1
2018 49.6
2017 40.7
Return on net assets %
2019 26.4
2018 30.4
2017 24.2
Free cash flow £m
Average working capital to sales %
2019 126.6
2018 106.0
2017 92.3
Interest cover
2019 21.8x
2018 22.8x
2017 15.8x
2019 24.0
2018 23.9
2017 24.9
Net debt to EBITDA
2019 1.1x***
2018 1.0x
2017 1.3x
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 p114-125
In 2019, 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 p118-119
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
p64-67
2019
1,323
2018
1,292
2017
1,378
Non-Financial KPIs - link to remuneration
The Executive Directors’ personal
objectives for the AIP contain targets in
relation to non-financial matters, including
improving Group safety performance
and reducing the Group’s normalised
CO2 emissions.
* Work-related illness or injuries which resulted
in an employee being absent for at least one
day – measured per million hours worked.
** At constant 2019 currency.
*** Excluding the impact of IFRS 16, the ratio in 2019
would be 1.0x.
**** Sales of products launched within the last five
years as a % of total revenue.
Read more about Safety on p58-63
New product sales**** %
2019 16.3
2018 15.4
2017 14.5
Vesuvius plcAnnual Report and Financial Statements 2019Our performance
38
Financial review
Our cash generation and focus on cash
management, supports allocation of
capital across a broad range of priorities
We maintained our strong
balance sheet despite a
backdrop of challenging
end-markets
Basis of preparation
All references in this financial review are
to headline performance unless stated
otherwise. See Note 4 to the Group
Financial Statements.
Guy Young
Chief Financial
Officer
£1,710.4m
Revenue
Reported
-4.9%
Underlying1
-5.7%
£181.4m
Trading profit2
Reported
-8.0%
Underlying1
-9.0%
29.8p
Statutory EPS
Reported
-41.9%
10.6%
Return on sales2
Reported
-40bps
Underlying1
-40bps
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.
Introduction
Our resilient operating performance
and cash conversion enabled capital
allocation across all of our priority areas.
We invested in organic and inorganic
growth, while also paying an attractive
dividend to our shareholders. This was
possible despite a backdrop of challenging
end-markets and while at the same time
further reducing our net debt.
2019 performance overview
A challenging market environment in
2019 reduced demand in our key end-
markets for both Steel and Foundry
Divisions and led to a 5.7% fall in
underlying revenue. Reported revenue
decreased by £87.6m over the prior year
and by £102.9m on an underlying basis.
The restructuring programmes continued
to deliver during 2019 with a total of
£16.4m of incremental benefits reported.
The impact of the reduction in revenue was
partially mitigated by the restructuring
benefits, with an overall reduction in
trading profit to £181.4m, 8.0% lower than
the prior year. Return on sales for 2019 on
a reported basis at 10.6% was lower than
the prior year by 40bps. In a year of
reduced sales growth, and a focus on
working capital management, our cash
management performance was strong,
achieving a 120% cash conversion.
Dividend
The Board has recommended a final
dividend of 14.3 pence per share to be
paid, subject to shareholder approval,
on 22 May 2020 to shareholders on the
register at 17 April 2020. When added to
the 2019 interim dividend of 6.2 pence
per share paid on 20 September 2019,
this represents a full-year dividend of
20.5 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 in the range of 1.25x – 1.75x net
debt to EBITDA. This gives us a reasonable
comfort zone to be able to cater for any
potential economic downcycles. However,
given we are currently below this range at
approximately 1.1x 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%; and
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. As with prior years, we measure
our results on an underlying basis,
which we adjust to ensure 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
Underlying revenue growth %
Therefore, for 2019, we have:
-5.7%
2019 -5.7
2018 10.7
2017 12.5
Return on sales %
10.6% -40bps
2019 10.6
2018 11.0
2017 9.8
> Retranslated 2018 results at the FX rates
used in calculating the 2019 results
> Removed the results of the BMI
refractory installation business, which
was disposed of during 2018
> Removed the results of CCPI which was
acquired during 2019
Objective: Deliver growth
KPI: Underlying revenue growth
Reported revenue for 2018 was
£1,798.0m, which after FX translation
effects and removing the impact of
disposed businesses equates to £1,789.5m
on an underlying basis. The reported
revenue in 2019 of £1,710.4m, when
adjusted for disposals and acquisitions,
is £1,686.6m on an underlying basis,
which is a decrease of 5.7% year-on-year.
The decline has been as a result of weaker
end-markets across all divisions.
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 £181.4m decreased by
8.0% on an underlying basis versus last
year whilst RoS on an underlying basis
was 40 basis points lower. The reduction
in trading profit follows the decline in
revenues, partially mitigated by the
ongoing delivery of benefits from the
restructuring programmes.
In a weakening market environment, our
Steel and Foundry Divisions reported
reduced volumes which were only partially
offset by cost savings measures and the
39
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ongoing delivery of benefits from the
restructuring programme. As a result, the
Steel Division recorded RoS of 10.0% this
year, a decrease from 10.4% in 2018, whilst
Foundry reported a 11.9% RoS, a decrease
from 12.3% in 2018.
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
headline PBT is net finance costs.
Net finance costs in 2019 of £11.0m were
£0.1m below 2018. Movement in finance
costs includes a £1.4m increase in interest
on lease liabilities following transition to
IFRS 16, offset by a £1.4m gain resulting
from interest on an indirect tax rebate
in Brazil.
Our headline PBT was £171.4m, 9.3%
lower than last year on a reported basis.
Including amortisation of acquired
intangibles of £10.0m (2018: £12.9m),
restructuring charges of £39.8m (2018:
£15.3m) and vacant site remediation costs
of £4.1m (2018: nil), our PBT of £118.6m
was 24.1% lower than 2018. Headline
EPS at 45.1p was 9.1% lower than 2018.
Statutory EPS at 29.8p was 41.9% lower
than 2018.
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).
Revenue
£m
Steel
Foundry
Group
Trading profit
£m
Steel
Foundry
Group
2019 revenue
Acquisitions/
2018 revenue
% change
As reported
(disposals) Underlying
As reported
Currency
Acquisitions/
(disposals)
Underlying
Reported
Underlying
1,195.3
515.1
1,710.4
(23.8)
1,171.5
–
515.1
(23.8)
1,686.6
1,236.7
561.3
1,798.0
6.9
2.9
9.8
(18.3)
1,225.3
–
564.2
(18.3)
1,789.5
(3.3%)
(8.2%)
(4.9%)
(4.4%)
(8.7%)
(5.7%)
2019 trading profit
Acquisitions/
2018 trading profit
% change
As reported
(disposals) Underlying
As reported
Currency
Acquisitions/
(disposals)
Underlying
Reported
Underlying
120.1
61.3
181.4
(2.5)
–
(2.5)
117.6
61.3
178.9
128.3
68.9
197.2
(0.2)
0.3
0.1
(0.7)
–
(0.7)
127.4
69.2
196.6
(6.5%)
(7.7%)
(11.0%)
(11.3%)
(8.0%)
(9.0%)
Vesuvius plcAnnual Report and Financial Statements 2019
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Financial review continued
Operating profit £m
£127.5m -22.5%
2019 127.5
2018 164.5
2017 109.7
As with most of our KPIs, we measure this
on a 12-month moving average basis at
average exchange rates for the year to
ensure that we focus on sustainable
underlying improvements. Our RONA
for 2019 was 26.4% (2018: 30.4%) and
reflects the reduction in profits, partially
offset by the underlying reduction in
working capital.
Headline earnings per share pence
45.1p -9.1%
Objective: Maintain strong
cash generation and an
efficient capital structure
2019 45.1
2018 49.6
2017 40.7
Statutory earnings per share pence
29.8p -41.9%
2019 29.8
2018 51.3
2017 14.1
RONA moving average* %
26.4%
2019 26.4
2018 30.4
2017 24.2
* For definitions of alternative performance measures,
refer to Note 4 of the Group Financial Statements.
Net debt* £m
£245.8m
2019 245.8
2018 247.8
2017 274.3
* For definitions of alternative performance measures,
refer to Note 4 of the Group Financial Statements.
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 £126.6m for
the year, £20.5m higher than last year
on a reported basis due to a reduction
in working capital, partially offset by
additional capital expenditure during
the year. Our cash conversion in 2019 was
120% (2018: 91%). Excluding the impact
of the IFRS 16 adjustment to adjusted
operating cash flows, cash conversion
in 2019 would have been 113%.
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
2019 was 24.0% (2018: 23.9%), measured
on a 12-month moving average basis. In
absolute terms on a constant currency
basis, trade working capital decreased by
£54.4m, reflecting continued management
focus, and assisted by the reduction in sales.
KPI: Interest cover and net debt
As at 31 December 2019, the Group had
committed borrowing facilities of £609.7m
(2018: £573.7m), of which £174.2m was
undrawn (2018: £119.2m).
Net debt at 31 December 2019 was
£245.8m, a £2.0m decrease from 2018.
The decrease was a result of strong
cash conversion partially offset by
restructuring costs, acquisition costs
for CCPI, shareholder dividends and
the impact of adoption of IFRS 16.
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 2019, the net debt to EBITDA ratio
was 1.1x (2018: 1.0x) and EBITDA to
interest was 21.8x (2018: 22.8x). Excluding
the impact of the IFRS 16 adjustment to
net debt in 2019, the net debt to EBITDA
ratio was 1.0x, in line with 2018.
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 2019, we spent
£29.1m (2018: £34.1m on a constant
currency basis) on R&D activities, slightly
lower than 2018 due to a timing lag
between the restructuring of certain
activities and the subsequent relocation
and expansion of our R&D centres.
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. 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, foreign
exchange rate movements and cost
inflation, but these are not expected to
have a material impact on the business
after considering the controls we have
in place.
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Unutilised committed debt facilities £m
£174.2m
2019 174.2
2018 119.2
2017 153.7
Total R&D spend* £m
£29.1m -14.7%
2019 29.1
2018 34.1
2017 33.2
* At constant 2019 currency.
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 2019 were
£174.2m. 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
Confronted with the significant
deterioration of our main markets, we
decided early in the year to expand and
accelerate our restructuring programmes.
During 2019, we delivered an incremental
£16.4m of recurring cash savings. These
savings were delivered according to plan
with the exception of £1.2m due to some
delays experienced in the Foundry EMEA
and Advanced Refractories NAFTA
restructuring projects. This is expected
to be recovered in 2020.
The restructuring programmes are
predominantly focused on rationalising
our manufacturing footprint,
consolidating production and streamlining
various back office functions. During 2019,
we successfully closed six plants in EMEA
and two in the United States, without
reducing our overall production capacity,
and maintaining our proximity to
customers in our regional markets.
We acquired two plants in the United
States through the CCPI acquisition, of
which Blanchester has already been
closed, and we opened a new Foundry
manufacturing facility in Mexico. The net
reduction of five plants in 2019 reduces
our total manufacturing footprint from
59 in 2018 to 54 in 2019, with one further
closure in 2020 in the United States
already announced.
The restructuring programmes are now
expected to deliver incremental recurring
annual savings of £19.4m in 2020, £6.2m
in 2021 and £1.9m in 2022, which is an
increase of £3.0m in comparison with
previously announced targets. This
increase in recurring cash savings will be
delivered at an additional one-off cash
cost of £7.2m, of which £5.1m has already
been charged and £2.1m will be incurred
by 2021.
In 2019, we reported £39.8m of
restructuring costs (2018: £15.3m) within
separately reported items that were
predominantly made up of redundancy,
plant closure costs and asset write-downs.
The cash costs in 2019 were £32.8m
(2018: £19.3m). We are carrying forward
into 2020 a restructuring provision of
£19.1m (2018: £17.4m).
Vesuvius plcAnnual Report and Financial Statements 2019
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Financial review continued
Net defined benefit pension deficit £m
Vacant site remediation costs
Taxation
We are
£8.5m
2019 8.5
2018 15.3
2017 16.5
The Group owns a disused property in
the US, which does not form part of our
trading operations. Costs are being
incurred at this site to address the
significant increase in the volume of water
run-off which occurred in 2019. We have
engaged waste management specialists,
are taking actions to reduce the level of
water (including hydrological studies) and
are in contact with the relevant regulatory
authorities. We estimate that it will take
18 months to finalise remediation. The
costs for this remediation are estimated
to be £4.1m. These have been treated
as a separately reported item due to the
materiality and one-off nature of the
costs. There has been no impact upon
headline performance.
Financial Reporting Council review of
the 2018 Group Financial Statements
The 2018 Group Financial Statements are
subject to an ongoing review by the FRC’s
Corporate Reporting Review team as
part of the usual cycle of reviews of listed
companies’ accounts. Further details of
the scope of the FRC review are provided
in Note 2.8 of the Group Financial
Statements. This has resulted in us making
a number of enhancements to our
disclosures in the 2019 Group Financial
Statements. As part of that enquiry, we
have also reconsidered our application of
IAS 36, Impairment of Assets. Previously,
the Group identified cash generating units
as the Steel and Foundry Divisions. We
have now performed goodwill impairment
testing at an operating segment level
which are Steel Advanced Refractories,
Steel Flow Control, Steel Digital Services
and the Foundry Division. This has shown
that the carrying value of the goodwill and
certain tangible assets held in the Steel
Digital Services operating segment
could not be supported by value in use
calculations as at 31 December 2017.
Therefore the goodwill has been fully
impaired at that date, resulting in an
impairment of £17.4m. We have also
identified impairment of tangible fixed
assets of £10.2m. The effect of these
impairments is a decrease in net assets
of £27.6m as at 31 December 2017,
31 December 2018 and 31 December
2019. The impact on reported profit
and cash flow for the years ended
31 December 2018 and 31 December
2019 is not material. Further details
are provided in Note 17.2.
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
(2019: £170.4m, 2018: £186.1m). The
Group’s effective tax rate, based on the
income tax costs associated with headline
performance of £43.8m (2018: 48.4m),
was 25.7% (2018: 26.0%).
The utilisation of our US tax losses and
other temporary differences has increased
the headline tax charge in 2019 by £7.4m
(2018: £7.8m), increasing the effective
rate of tax on headline profit before tax
and share of post-tax profits from joint
ventures by 4.3% (2018: 4.2%). The
utilisation of US tax losses and other
temporary differences includes the
impact of the Global Intangible Low-
Taxed Income (GILTI) rules which were
introduced as part of US tax reform. The
GILTI rules have increased the headline
tax charge by £1.2m (2018: £2.4m).
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 Brazil, China,
Germany, India, Mexico and the US,
a nil effective rate in the UK due to the
availability of unutilised tax losses, and
rates that lie somewhere in between.
We expect the Group’s effective tax rate
on headline profit before tax and before
the share of post-tax profits from joint
ventures to be between 26% and 27%
in 2020.
The income tax credit on separately
reported items of £11.7m (2018: £36.8m
credit) comprises £2.5m non-cash
deferred tax movements relating to the
amortisation of a deferred tax liability
mainly arising from the 2008 acquisition
of Foseco plc (2018: £2.8m), £9.2m tax
credits relating to restructuring charges
(2018: £1.8m) and a net increase in the
deferred tax asset recognised in respect of
US tax losses and certain other temporary
differences of £nil (2018: £32.2m increase).
The net tax credit reflected in the Group
Statement of Comprehensive Income in
the year amounted to £1.9m (2018: £6.0m
credit), comprising a £1.9m credit (2018:
£1.3m charge) related to tax on net
actuarial gains and losses on the employee
benefits plan and in 2018 there was a
£7.3m credit for additional recognition
of US pension deferred tax assets.
Enablers
Ash Shah
Deputy Group Financial Controller
London, UK
Capital expenditure
Capital expenditure in 2019 of £74.7m
(2018: £48.4m) comprised £53.6m in the
Steel Division (2018: £34.4m) and £21.1m
in the Foundry Division (2018: £14.0m).
The increased spend in 2019 reflects
investment in infrastructure to support our
restructuring activities and includes the
addition of £9.2m of right of use assets,
now classified as capital expenditure
under IFRS 16. Capital expenditure on
revenue-generating customer installation
assets, primarily in Steel, was £7.8m
(2018: £7.7m).
Pensions
The Group has a limited number of
historical defined benefit plans located
mainly in the UK, USA, Germany and
Belgium. The main plans in the UK and
USA are largely closed to further benefits
accrual and 58.4% of the liabilities in the
UK have already been insured. The total
net deficit attributed to these defined
benefit obligations at 31 December 2019
was £8.5m (2018: £15.3m), representing
an improvement of £6.8m.
The improvement is driven by £9.8m from
cash contributions and payments of
unfunded benefits and £5.7m from foreign
exchange movements. These were offset
by £3.6m from changes to actuarial
assumptions (attributable to reducing
discount rates, updated mortality
assumptions and pension membership
data) and additional accrual and
administrative expenditure paid for
the year of £5.1m.
The transaction valued the company
at £33.3m on a cash and debt free basis.
The integration of CCPI is proceeding
as planned; during the year, we closed
CCPI’s main facility at Blanchester and
absorbed its production volume into our
existing North American manufacturing
footprint. The transaction is highly
synergistic, and these synergies are
included in the restructuring savings
targets.
In June 2019, the Group disposed of
its 50% interest in Angang Vesuvius
Refractory Company Ltd for a cash
consideration of £6.8m, resulting in a
profit after foreign currency adjustments
of £1.1m.
Guy Young
Chief Financial Officer
27 February 2020
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 2019, cash
contributions of £11.3m (2018: £11.4m)
were made into the defined contribution
plans and charged to trading profit.
Corporate activity
In March 2019, the Group completed
the acquisition of CCPI Inc, a specialist
refractory producer based in Ohio, USA,
focused on tundish (steel continuous
casting) applications and aluminium.
Vesuvius plcAnnual Report and Financial Statements 2019AnalystsStrategistsEntrepreneurs
We are
Problem-
solvers
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Operating reviews
Steel
Division
Steel Flow
Control
Vesuvius’ Steel Division
reported revenues
of £1,195.3m in 2019,
a decrease of 3.3%
compared with 2018.
On an underlying basis, Steel Division
revenue was down 4.4%. Markets
deteriorated in the majority of regions
during the course of 2019 after a strong
2018. The ‘high technology’ segment
of the steel market, key for the Flow
Control business unit, suffered in 2019
proportionately more than the more
commoditised construction steel market,
due in particular to weakness in light
vehicle volumes. This deterioration of
our markets was amplified by a general
destocking throughout the supply chain,
particularly in EMEA. Our sales were
also affected by the external regulatory
environment, which disrupted trade flows.
According to the World Steel Association,
global steel production in 2019 increased
by 3.4% compared with 2018, reflecting,
amongst other things, a significant
increase in Chinese production of 8.3%.
However, global steel production
excluding China declined by 1.7%. On a
regional basis, crude steel production
contracted in all regions except in Asia
and the Middle East (including Turkey).
Production decreased in Europe (EU27 +
UK), NAFTA and South America by 4.9%,
0.8% and 8.3% respectively. Production
in India, the Middle East and South
East Asia increased by 1.8%, 5.1% and
9.7% respectively.
On a reported basis, Steel Division trading
profit decreased 6.5% year-on-year.
On an underlying basis, trading profit
decreased by 7.7%, with the decrease
in return on sales limited to 40 basis
points thanks to the restructuring savings.
Those savings were delivered according
to plan with the exception of Advanced
Refractories in NAFTA where some delays
were experienced. This is expected to be
recovered in 2020.
We delivered
improvements in our
cost base through
plant efficiency and
optimising production
between plants
Revenue £m
£626.3m
2019
2018
2017
626.3
662.6
614.2
During the year, we closed four
manufacturing sites in EMEA and
NAFTA without reducing our total
production capacity.
In addition to these initiatives, we targeted
process improvements aimed at
increasing the quality and consistency
of products. For example, in China we
have increased the level of automation of
our production process and in Skawina,
Poland we implemented changes to our
shift pattern, enabling us to increase
productivity at this key site. The
optimisation work performed here has
allowed us to increase cost-efficiency
and create capacity to absorb volume
growth as this returns to our core markets.
Global mechatronic business
Our mechatronic activity is developing
rapidly and during 2019 we gained our
first customer in China. We now have
nine active projects and our mechatronic
technology centre in Belgium is being
expanded to respond to the growing
demand. This positions Vesuvius well in
supporting our customers to face the
future challenge of automation and
underpins a greater focus on quality
and consistency in product application.
2019 performance
Steel Flow Control reported revenue of
£626.3m in 2019, a decrease of 5.5%
compared with 2018 on a reported basis,
whilst underlying revenue decreased
5.8%. Underlying regional performance
was mixed, with Americas and EMEA
revenue decreasing by 2.1% and 13.0%
respectively, and Asia-Pacific revenue
increasing by 0.4%.
In NAFTA, Steel Flow Control’s underlying
revenue decreased by 4.3%1 due to
unfavourable customer mix. In South
America, Steel Flow Control’s underlying
revenue was stable, as the decrease in
revenue due to steel market weakness was
offset by market share gains. Steel Flow
Control’s underlying revenue in EMEA
decreased by 13.0% contributed to by
steel market weakness and destocking at
steel plants. Underlying revenue in Asia-
Pacific was up 0.4% with revenue in China
increasing by 4.6%1, continuing our track
record of growth in this important region.
Strategic highlights from the year
Restructuring programmes and process
improvement initiatives
During 2019, we continued our focus on
cost leadership with our manufacturing
rationalisation programmes in NAFTA,
South America, India and EMEA
delivering improvements in our cost base
through a combination of increasing plant
efficiency and optimising production
volumes between plants.
1. Regional/country revenue has been calculated
on a customer location basis.
Renee Bell
Quality Coordinator
Chicago Heights, US
Vesuvius plcAnnual Report and Financial Statements 2019Technicians Analysts Managers
Our new
high-performance
tundish system
> CNC Protect provides our customers
with the opportunity to shift from
open-stream casting to a fully
protected stream in a very flexible
way
> Casting billets in a submerged mould
environment protects the steel against
re-oxidation and delivers better
internal cleanness, less cracks and a
better surface quality
> The CNC Protect system also
enhances safety during installation
and operation
46
Operating reviews – Steel Flow Control continued
Global digital services offering
Technological leadership
In 2019, we further developed our
capabilities in Flow Control’s digital
services offering, 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 continuous
temperature measurement sensors for
the tundish and the mould, as well as
surface quality sensors monitoring the
quality of the cast steel slab.
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 2019, we continued to develop our
flux feeding equipment, increasing the
level of automation, improving safety
around the caster and optimising our
customers’ continuous casting process
consistency and quality. We have also
continued our research activities to
develop higher-performance products
for both the tundish and the mould.
Our experienced technicians are able
to work closely with our customers to
deliver bespoke products optimised
for their steel grades and production
processes.
Management of the flux business is
now integrated into the Flow Control
line, allowing us to more effectively
coordinate the opportunities that
exist in the interactions of our flux
and refractory products.
During the year, we accelerated our R&D
effort to support long-term profitable
growth. We launched three new refractory
products: the new generation of ladle
slide-gate plates and systems and the new
high-performance tundish slide-gates,
all providing value to our ‘high-technology
steel’ segment customers. These new
refractory products help our customers
improve the quality of steel and increase
safety in the workplace. The new
generation of ladle slide-gates has
enhanced performance and provides
significant improvements in safety,
ergonomics and economics for our
customers. The new high-performance
tundish slide-gates help our customers to
increase the safety level in the workplace
during both installation and operation
whilst bringing flexibility and enhanced
performance.
During the year, we have also continued
the expansion of our global R&D network,
with the opening of our new R&D centre
in Suzhou, China and the continued
development of our mechatronics
technology centre in Ghlin, Belgium.
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 organising our business around
empowered, accountable and results-
oriented P&L managers operating close
to our end-markets and customers.
Steel Flow Control’s value-added solutions include:
> Refractories: Consumable ceramic
> Digital services: Control of the
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
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
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Steel Advanced Refractories
During 2019, we
continued to improve
our value-added
solution offering
for our customers
Revenue £m
£539.8m
2019
2018
2017
539.8
541.1
502.3
2019 performance
Our Steel Advanced Refractories business
unit reported revenue of £539.8m in 2019,
a decrease of 0.3% compared with 2018
on a reported basis, whilst underlying
revenue decreased 2.3%. This resilient
performance, despite a challenging
market environment, was supported by
market share gains in China and the
CCPI acquisition.
Underlying regional performance
was mixed, with Asia-Pacific revenue
increasing by 4.7% and Americas and
EMEA revenue decreasing by 0.5% and
6.7%, respectively. The strong revenue
growth in Asia-Pacific was due to
increased penetration of our value-
creating solutions in China, Vietnam,
Malaysia and Indonesia. In NAFTA, the
positive impact of the CCPI acquisition
partially offset weaker end-markets and
an unfavourable customer mix, whilst the
revenue decrease in South America was
due to weak market conditions. In EMEA,
revenue decreased on the back of
unfavourable market conditions, as well
as on priority being given to return on
sales over revenue growth.
Strategic highlights from the year
Restructuring programmes and process
improvement initiatives
We continued to review and improve
our manufacturing network, reinforcing
our operational excellence and
streamlining manufacturing operations.
Following the successful reorganisation
of production 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.
This continued focus on operational
excellence allows us to reinforce our cost
leadership and the competitiveness of
our manufacturing base.
In March 2019, the Group completed
the acquisition of CCPI Inc, a specialist
refractory producer based in Ohio, USA,
focused on tundish (steel continuous
casting) applications and aluminium.
The integration of CCPI is proceeding as
planned; during the year, we closed CCPI’s
main facility at Blanchester and absorbed
Vesuvius plcAnnual Report and Financial Statements 2019
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49
Operating reviews – Steel Advanced Refractories continued
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,
where specific wear can be repaired
or where a vessel becomes unsuitable
for further 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
its production volume into our existing
North American manufacturing footprint.
The transaction is highly synergistic and
these synergies are included in the
restructuring savings targets.
to ensure that we continue to be at the
forefront of the developing technology in
this area. During the year, we reinforced
our global R&D team with c.15 new team
members from all over the world.
Technological leadership
New value-added solutions
During 2019, 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. 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,
whilst 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 2019, we sold
more than 20 lasers, half of which were
bought by customers located in Asia.
In 2019, 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. We have also increased our
expertise in robotics and mechatronics
In 2019, we accelerated our R&D effort
as we launched several additional new
value-added solutions. Our product
launches are focused on enhancing our
customers’ productivity, efficiency and
safety in the blast and reheat furnaces
and tundish operations, through new and
optimised monolithic formulations, bricks,
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. Our employees’
knowledge of the flow of molten metal
and their ability to understand our
customers allows us differentiation,
which is intrinsic to us maintaining our
position in the market.
ELBY™ ladle bottom under construction.
Steel Digital Services
(Sensors & Probes)
We continued our
restructuring activities,
rationalising our footprint
to focus on our core
products
Revenue £m
£29.2m
2019
2018
2017
29.2
33.0
32.2
At the beginning of 2018, the activities
which used to belong to the Technical
Services business unit, and which have
strong synergies with our consumable
sales, were integrated into our Flow Control
and Advanced Refractories business units.
The products supplied by Steel 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.
The part of Technical Services related
to discrete sensors and probes was
maintained in the Steel Digital Services
(Sensors & Probes) business unit, which
now offers products to our customers
to enable them to measure certain key
characteristics of the molten metal during
the steel-making process and make their
underlying processes more efficient
and reliable.
2019 performance
Steel Digital Services (Sensors & Probes)
generated revenue of £29.2m, a decrease
of 11.2% year-on-year on a reported
basis. On an underlying basis, revenue
decreased 9.6%. This decline in revenue
reflects the challenging market
environment, in particular in EMEA.
Strategic highlights from the year
During 2019, the Steel Digital Services
business unit underwent a reorganisation
of its structures and systems, which will
increase the flexibility and competitiveness
of the business.
We also continued the restructuring
initiatives started in 2017 to optimise our
cost base and manufacturing footprint
for sensors and probes, and to reduce
operating costs. As a consequence of
these actions, during the year we closed
two manufacturing sites and concentrated
our production in the remaining facilities.
A global management structure was
put in place to unify the focus of our two
manufacturing sites in Italy and Brazil.
We also continued our investment
programme to increase automation in
our manufacturing processes redesign.
Steel Digital Services’ 3D printing technology
Vesuvius plcAnnual Report and Financial Statements 2019Our performance 50
Operating reviews – Foundry Division
Foundry
Division
We continue to invest in our
team of technical experts
to provide our customers
with the best solutions and
advice on how to maximise
the efficiency of their
production processes.
Launch of a unique
feeding system
technology for
aluminium castings
> Provides a more economical
solution for our customers
because it eliminates the need
for additional powders
> Cleaner and more consistent
metal casting
> Produces lower emissions during
the casting process
We maintained our
focus on operational
excellence, implementing
lean improvements
across our plants
Revenue £m
£515.1m
2019
2018
2017
515.1
561.3
535.2
2019 performance
There was a challenging environment in
Foundry end-markets during 2019, with
weakness in light vehicle production in all
regions. There were also declines in the
construction and agricultural equipment
markets in NAFTA, India, South America
and North Asia, a reduction in activity in
general engineering and mining in EMEA,
India and North Asia and a decline in
medium/heavy commercial vehicle
production in most regions.
Consequently, revenue in the Foundry
Division decreased 8.2% to £515.1m in
2019 on a reported basis, whilst underlying
revenue decreased by 8.7%. Underlying
trading profit and return on sales
decreased by 11.3% and 40 basis points,
respectively. Our performance in 2019 was
also impacted by delays in the realisation
of restructuring savings in EMEA. These
are expected to be achieved in 2020.
However, against this backdrop we were
successful in increasing prices where
necessary to compensate for the historical
raw material and other cost inflation,
which we highlighted in our 2018 results.
In the Americas, underlying revenue
decreased by 5.3% due to weak end-
markets in both NAFTA and South
America. Underlying revenue in EMEA
decreased by 10.2% year-on-year as
a result of the challenging market
environment, with weakness in the light,
commercial vehicle production and
general engineering end-markets.
In Asia-Pacific, underlying revenue
decreased by 8.9%. In North Asia and
India, Foundry Division revenue was down
11.1%1 and 11.5%1, respectively due to
weakness in all foundry end-markets.
1. Regional/country revenue has been calculated
on a customer location basis.
Foundry’s value-added 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 castings, flux degassing
equipment for removing hydrogen
in liquid aluminium and refractory
materials used in the melting and
transportation of liquid metal
We are
Purchasers
Paul Benson
NAFTA Purchasing Director
Pittsburgh, USA
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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. During
the year, we closed two manufacturing sites
located in North America and Europe.
We also continued to focus on operational
excellence by implementing lean
improvement programmes at all our plants.
In 2019, we inaugurated our new state-of-
the-art and environmentally friendly plant
in Ramos Arizpe, Mexico. We invested in
a world-leading plant design which will
accelerate the profitable growth of the
Foundry Division in North America.
New value-added solutions and
technological leadership
In 2019, we continued our efforts in R&D
which resulted in several new product
launches. For example, during the year
we launched our new filter technology for
large, high-value castings. This minimises
air entrainment in the metal stream,
preventing the formation of oxides,
leading to cleaner metal and improved
fluidity, which in turn enables the use of
finer filters, further improving final casting
quality. We have also introduced our
unique feeding system technology for
aluminium casting, which eliminates the
need for additional metal treatment
(through powdered additives). It delivers
cleaner and more consistent metal casting
and produces lower emissions during the
casting process. Thus our solutions drive
efficiency and provide economically
attractive solutions for customers.
We have 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.
Our people
We have also continued to focus on
succession planning and people
development with several key new
employees joining during the year. We have
invested time in selecting entrepreneurial
managers to strengthen our team and drive
future growth in the business, and promoted
employees that have shown entrepreneurial
potential. Each of these initiatives delivered
an improved organisational culture and
accountability, whilst moving decision-
making closer to the customer and
increasing our speed of doing business.
Our businesses in EMEA and North
Asia are under new regional leadership.
We have implemented a dedicated
commercial organisation focusing on the
non-ferrous sector in EMEA, whilst we
realigned our commercial organisation in
the USA and Canada. Further investment
was made in plant management, in
particular focusing on top-quality
operational leadership for our flagship
plants.
Vesuvius plcAnnual Report and Financial Statements 2019Our performanceResearchersDevelopersStrategists
52 Vesuvius plc
Annual Report and Financial Statements 2019
53
We are
Global leaders
I am relatively new to the Company,
having moved to the Vizag facility in
India, in July 2019, from a role in the
chemical industry in the United States.
One of the aspects that attracted me to
Vesuvius was its ethos of bringing talent
in from a spectrum of industries.
My role in Vizag is to establish our
R&D laboratory as a regional and
global ‘centre of excellence’ for Al-Si
monolithics, tap-hole clay competency
and raw material qualification.
Vesuvius encourages us to expand our
know-how and perspectives through
collaboration with universities and other
external institutions, such as the Indian
Institute of Technology. By tapping into
additional knowledge bases, R&D is the
bridge to developing new products and
business opportunities for Vesuvius.
context for their contribution so they
can see how it fits into the bigger picture
of what Vesuvius wants to achieve.
Not only does that encourage
innovation, it also supports them in their
own career paths. Equally, Vesuvius is
advancing my experience by giving me
global exposure and state-of-the-art
capability within the R&D field. Working
closely with other areas of the business,
including quality control, production,
sales and marketing, and technology,
adds insight into how we can deliver for
the customer.
The vision I have for Vizag is to develop
a handful of disruptive, breakthrough
technologies that put our R&D profile
on the global map.
The team I manage comprises 12
talented and highly motivated scientists
and technical specialists. I present the
Saji Meledathu
R&D Director for Advanced Refractory,
India and South East Asia
Find out more at
report2019.vesuvius.com
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InnovatorsEntrepreneursEnablersNon-financial information 54 Non-financial information statement 54 Our principles 58 Health and safety 64 Sustainability 68 People and community
54
Non-financial
information
statement
This non-financial information statement
provides information on the Group’s
activities and policies in respect of:
Environmental matters
Sustainability p64-67
The Company’s employees
People and community p68-71
Social matters
People and community p72-73
Respect for human rights
Our principles p56
Anti-corruption and anti-bribery matters
Our principles p56
The statement also details, where
relevant, the due diligence processes
implemented by the Company in
pursuance of these policies.
Further information, disclosed in other
sections of the Strategic Report, is
incorporated into this statement by
reference, including:
Information on the Group’s
principal risks
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 p32-33
Risk, viability and going concern p28-31
Details of the Group’s business model
p20-21
Details of the Group’s non-financial KPIs
p36-37
Our principles
Working together with
shared Values makes
Vesuvius stronger
Vesuvius is a
geographically and
culturally diverse
group, employing
more than 10,000
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 values
and ethical principles 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, engaging staff
across the Group in general and targeted
training to ensure a consistent
understanding of our policies
and procedures.
Vesuvius’ Values
The Group’s CORE Values: Courage,
Ownership, Respect and Energy 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. The Values are prominently
displayed at all sites as visual reminders
and they are reinforced through our
performance management systems,
ensuring that they are firmly embedded
in our day-to-day conversations.
55
Our strength
comes from our
CORE
Melissa Roden
Compliance Director
London, UK
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
> 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 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
Ownership
> I am personally accountable
for the 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
Respect
> I demonstrate respect for other
people’s ideas and opinions
even if I disagree with them
> I welcome open debate
> I listen to others, foster esteem
and fairness with customers,
suppliers, coworkers,
shareholders and the
communities where we operate
> 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
Energy
> I work hard and professionally
in pursuit 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
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Vesuvius plcAnnual Report and Financial Statements 2019Non-financial informationCourageOwnership Respect Energy
56
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 Speak Up 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 and new joiner
induction. 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
Organization’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 fourth annual statement in May 2019.
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
57
those risks. We operate an integrated
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.
Training provided during 2019 included:
> An updated e-learning module for
Anti-Bribery and Corruption, available
in 22 of our functional languages
> Webex and video conference workshops
> Face-to-face training by the Legal and
Compliance team to staff at several sites
covering Anti-Bribery and Corruption,
Speak Up 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 2020, we will continue to
develop the training processes, modules
and languages 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
approach remains fit for purpose and is
understood throughout the business.
Speak Up
In line with good practice, details of the
Group’s Speak Up channels, and the
Group’s approach to addressing such
issues, was recommunicated in 2019.
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 2019, the Board
monitored and oversaw 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 2019, we received 26
reports (2018: 21) through the Speak
Up facility. Each one of these was
investigated. Similar to 2018, a substantial
majority of reports received in 2019 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 was taken, including
individuals leaving the Group as a result.
Prevention of slavery and human
trafficking
During 2019, we published our fourth
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)
During 2019, we conducted 203 supplier
audits. 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 2019, 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 and logistics
providers. This included a detailed review of
our due diligence activities on active custom
clearance agents and logistics providers
across the Group. This process covers
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 2020 and beyond.
During the year, we also continued our
ongoing monitoring of the sales agents
used across the Group. This included a
review of the agent reporting, invoice
data and commission calculation.
Such reviews will remain a continuing
part of our compliance programme.
Data protection
In 2019, we continued to review our
approach to data protection, following the
implementation of the EU General Data
Protection Regulation (GDPR) in 2018
and other jurisdictional data protection
legislation. Further due diligence was
undertaken clarifying the data we control
and process both globally and within
Europe, the methods by which we do this,
the security of the systems that hold our
data and the assignment of responsibilities
for managing data processes. The annual
self-assessment GDPR audit was issued in
May 2019, on the anniversary of GDPR
implementation, and will continue to be
issued in two-yearly intervals to assess and
ensure continued compliance with data
protection legislation. Another area of
focus in 2019 was the upcoming changes
in data protection legislation in California,
Brazil and India. We are working with
local teams to ensure that our approach
to data protection is compliant with
these changes.
The Data Protection Officer is responsible
for raising awareness of data protection
issues across the Group, supervising
privacy impact assessments (PVAs) and
training staff who undertake roles that
involve the processing of data. During
2019, we conducted 11 PVAs covering
operational procedures, HR data
and compliance-related processes.
Specific data protection training for
global employees in Europe was also
provided through e-learning.
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
attention, 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 2019Non-financial information
58
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.
Our approach to health
and safety is based
on the following beliefs
1. Good health and safety is
good business
2. Safety is everybody’s responsibility
3. Working safely is a condition of
employment
4. All work-related injuries and work-
related ill health are preventable
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.
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
Safety Breakthrough
59
2019 – A fresh approach
Building on the improvements in the
Group’s safety performance over the
past decade, the Board remains strongly
committed to the belief that even one
accident is too many and that further
improvement is necessary. With the aim
of becoming “best in class”, the Group is
committed to fundamentally rewriting
the Group’s safety agenda to refocus
efforts on the achievement of the
Vesuvius safety goals. To kick-start this
process, the Chief Executive launched
the Vesuvius 8 Core Safety Rules in
2019. These outline the basic safety
responsibilities of each of our colleagues
and will be rolled out across the
organisation as the mandated practices
for employee and manager conduct. In
conjunction with this communication, the
Group will be implementing procedures
to enforce discipline. The Rules will be
embedded into the contractual terms
of all employees and all employees will
be expected to report breaches and
violations of the rules, with appropriate
sanctions imposed whenever required.
8 Core Safety Rules
1. I always wear
mandated
personal
protective
equipment
2. I only operate
equipment or
vehicles if
trained and
authorised
3. I do not remove,
4. I lock, tag
bypass or
tamper with
machine
guarding and
safety devices
and try before
any intervention
on a machine
5. I make sure
all high-risk
activities are
covered by a
Daily Permit
to Work
6. I always
7. Before entering
ensure my fall
protection is
secure before
working at
height
a confined
space, I check
I will be able
to breathe
and escape
8. I only perform
electrical work
if certified and
authorised
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 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.
All site management teams must develop
and implement Site Safety Improvement
Plans, incorporating the identification
and reduction of the site’s main risks,
compliance with the group safety
standards, deployment of shop floor
safety leadership practices and resolution
of issues highlighted during Group
Safety Audits. 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
methodology (see box); they must then
incorporate findings into their site safety
improvement plans and share their
incident investigation and action plans
across the Group.
Vesuvius 8D practical
problem-solving
methodology
The 8D methodology is
implemented as the primary
problem-solving tool across the
Group. It is a consistent approach
designed to identify root causes
and ensure corrective action.
D1
D2
D3
D4
D5
D6
D7
clarify the problem
grasp the current situation
contain and set target
analyse causes
define countermeasures
execute and track progress
check results
D8
standardise and establish control
Vesuvius plcAnnual Report and Financial Statements 2019Non-financial informationSafety Breakthrough is our global initiative to reduce the number of accidents, Lost Time Injuries and Dangerous Occurrences, 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. 60
Health and safety continued
Safety performance in 2019
Safety Performance in 2019
Lost Time Injuries per million hours worked
Lost Time Injuries Severity Rate in lost days
per million hours worked
LTIFR
10
8
6
4
2
0
LTIFR 12 month rolling
LTIFR Severity Rate
12 month rolling
Severity
250
200
150
100
50
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Safety performance in 2019 is detailed below:
Performance Indicators
Work Related Death
Severe Injuries
Lost Time Injuries (LTIs)
Lost Time Injuries Frequency Rate (LTIFR)
Recordable Injuries
Recordable Injuries Frequency Rate (RFR)
Medically Treated Injuries (MTI)
Medically Treated Injuries Frequency Rate (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
Employees
and directly
supervised
contractors
Third-party
contractors
All
employees
and
contractors
0
0
36
1.45
137
5.51
188
7.57
509
20.49
2,020
78
735
28.24
113,303
16
8,744
74%
91,988
30,602
122,590
8
3
10
0
0
4
3.39
7
5.93
10
8.47
14
11.85
0
0
1
0
0
40
1.54
144
5.53
198
7.61
523
20.10
2,020
78
736
0.85
28.28
0
0
0
0%
0
0
0
0
0
0
113,303
16
8,744
74%
91,988
30,602
122,590
8
3
10
24,845,061 1,181,091 26,026,152
All frequency rates are per million hours worked.
IOPA: Improvement opportunities implemented with a permanent corrective action.
SIOPA: Safety improvement opportunities implemented with a permanent corrective action.
There were no safety incidents involving visitors to Vesuvius’ operations in 2019.
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 (MTIs) to maintain the
focus on safety, with investigation
extended to all serious Dangerous
Occurrences and all MTIs.
In 2019, 40 LTIs were reported which
resulted in 2,020 lost days and gave an
LTI frequency rate for the year of 1.54, an
increase versus the 1.3 recorded in 2018.
198 MTIs were reported in 2019 out of a
total of 523 injuries reported, resulting in
an MTI frequency rate of 7.61.
We have been actively 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 2019 to 736 (2018: 649).
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.
61
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 Alcohol and Drug Policy was updated
during the year and reissued throughout
the Group.
The Health and Safety Policy is supported
with standards, procedures and ISO
certifications, which are reviewed and
updated on an ongoing basis. In 2019,
new standards were created relating to
high-risk activities, isolated and lone
working, warehousing and racking, and
the Group’s standard on ergonomics
activities was enhanced with the issue
of a new standard specifically focusing
on lifting and handling. In addition, the
standards relating to Permit to Work,
Lock, Tag and Try, and Machine Safety
were reviewed and updated.
In addition, 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.
Lead and lag indicators
In our plants in 2019, more than 70% of our
working population performed routine
safety audits every month, generating an
average of more than ten implemented
safety improvement opportunities per
person from more than 8,700 employees,
resulting in an improvement in worker
safety. This audit programme involves
employees at all levels – from the Group
Executive Committee and safety
specialists through to local site
management, employees and directly
supervised 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 charts prepared monthly for
each business unit and site show where
injuries have been reduced and where
further effort is required through a
combination of behaviour-based
approach to safety and the
implementation of physical safeguards.
We focus on the safety of all personnel,
whether they are employees, third-party
contractors or visitors.
Health and safety auditing
The Group operates a central safety
auditing team of three auditors, each
with more than 20 years’ experience,
who report to the Vice President HSE
and Quality. The team’s main purpose is
to verify the deployment and ongoing
application of the Group’s standards and
policies in our locations, including our
manufacturing sites, R&D facilities and the
customer locations in which a significant
number of our employees operate daily.
During 2019, the team conducted 85
audits visiting all manufacturing locations,
all R&D sites and all customer locations
with 40 employees or more, as part of a
programme of systematic audits of all
Group locations worldwide. Each audit
also included an assessment of the site’s
HSE leadership. Following each visit,
action plans were created by the site
management teams to address any issues
identified and work on completing these
assessed on a regular basis. The first year
of audits has resulted in a much greater
understanding of the depth and range of
the Group’s health and safety expectations
in our global facilities. The observations
made during audits have been used to
inform improvements to the Group’s
training programmes and the
enhancement of the Group’s health and
safety standards. The Group HSE audit
team reports the results of audits, as well
as the progress of action plans addressing
the most critical issues, to the Board.
Vesuvius health and safety standards
Vesuvius plcAnnual Report and Financial Statements 2019Non-financial information >Accident & Incident Reporting >Business Continuity >Control of Contractors >Crisis Management & Crisis Communication >Ergonomics >Fork Lift Truck Safety >Gas >High-Risk Activities >Inspection Maintenance and Testing of Fixed Electrical Installations >Isolated and Lone Working >Legionella >Lifting and Handling >Lock, Tag and Try >Machine Safety >Permit to Work >Personal Protective Equipment >Risk Assessment >Road Vehicle >Safe Storage of Bulk Bags and Pallets of 25kg Bags >Warehousing Racking >Working Safely with Fibres 62
Health and safety continued
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.
Our Beliefs
> Good Health and Safety is
Good Business
> Safety is everybody’s responsibility
We will comply with the legal health and
safety obligations.
> Working safely is a condition of
employment
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.
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
> 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
Training activities routinely undertaken for our employees and
contractors include:
> Arc Flash Hazard
> Bike Safety
> Control of Contractors
> Crane Operation
> Defensive Driving
> Electrical Testing
> Environmental Waste
Reporting
> Ergonomics
> Executive Safety Tour
Leader
> Exoskeleton
> Fire Fighting
> First Aid
> Forklift Truck
> Gas Safety
> General Health and
Safety and refresher
training
> Hand Hazard and
Protection
> Hazard Perception
> Hazardous Goods
> Health and Safety
Representatives
> ISO 45001:2018
> Legionella
> Lock, Tag and Try
> Practical Safety in
Steel Customers
> Radiation
> Road Safety
> Safe Stacking
> Safety and Environmental
Auditing
> Steel mill orientation
> Turbo S Safety and Safety
Leadership
> Warehouse Material
Stacking and Handling
> Incident and Performance
> Welding Certification
reporting
> Machine Safety
> Permit to Work
> PPE Safety
> Working at Heights
Health and safety highlights
Awards
In 2019, we distributed Safety Awards to
13 regions out of 46, as a recognition of
their outstanding performance in the
previous year. These regions completed
2018 without recording a single Lost Time
Injury, recorded a participation of over
80% of employees in monthly Safety
Audits and implemented more than
ten improvement opportunities per
person per year.
The composition of Vesuvius’ safety
regions was reviewed in 2019, increasing
their average size and reducing their
number to 40. Despite the greater
difficulty due to larger headcounts,
12 districts ended 2019 with a clean
record of zero Lost Time Injuries, 80%
participation in Safety Audits and ten
improvement ideas implemented per
person per year.
In addition to our efforts to keep our
employees and contractors safe, we take
pride in sharing our safety management
practices with our customers. In 2019, we
received a wide range of customer awards
globally, including the following:
Chile: CAP Huachipato, Safety award.
China: Shougang Group, Qian’an Steel
company, recognition for Excellence in
HSE team management leadership,
showing how Vesuvius is driving safety
leadership across all suppliers in this steel
group. Baowu Group: Shaogang steel
special safety management award.
India: Five major customers (JSW
Vijayanagar, Tata Steel – KLR, ESSAR,
Tata Steel–JSR, JSPL Angul) recognised
the major contribution made by Vesuvius
for workplace safety, safety initiatives
and kaizen continuous improvement in
their steelmills.
Thailand: Tata Steel, Vesuvius were
awarded a 5 star subcontractor rating for
safety management quality at customer
sites. Safety campaigns were launched
at Tata Steel sites demonstrating
communication, implementation and
safety visibility based on the high level
of Vesuvius standards.
UK: Pledge Awards 2019, Individual
Category Award for work on
subcontractor vetting and Open
Category award for Respirable
Crystalline Dust Reduction on behalf
of Installation Services UK.
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. Recognised best practices are
extended 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.
Health and safety certifications
We have seven manufacturing sites
(representing 13% of our manufacturing
sites), one warehouse and three Vesuvius
operations in customers certified to
OHSAS 18001:2007/ISO 45001:2018.
Vesuvius sites choose to certify based
on local regulatory and customer
requirements.
63
Turbo S
2019 Executive safety tours
Our executive safety tours engage senior
management across all disciplines and
functions in the observation of the Group’s
operations, encouraging dialogue with
the staff and setting action points for
discussion and implementation. These
tours provide visible safety leadership
on the shop floor in our sites and at our
customer locations. They, along with
our daily safety audits, are a pillar of
our Safety Breakthrough initiative.
In 2019, 135 Executive Safety Tours, of
which five were in customer locations,
were carried out by members of the
Group Executive Committee and their
direct reports.
12
3
2
135
Executive
Safety Tours
3
4
11
28
North Asia
North Asia
South America
South Asia
South America
South Asia
2
1
5
1
China
China
Europe
India
Europe
NAFTA
India
NAFTA
Vesuvius plcAnnual Report and Financial Statements 2019Non-financial informationTurbo 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. 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 64
Sustainability
Our solutions improve the quality of our
customers’ products and reduce the
environmental footprint of their processes
We continue our efforts
to reduce energy
consumption and
waste generation in our
manufacturing processes.
Vesuvius and climate change
Vesuvius embraces 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
2018, 1.85 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 10kg 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 33 main manufacturing processes
(VISO and Dolime production) account for
39% of our energy consumption and 57%
of our CO2e emissions. (We report in kg
of CO2 equivalent (CO2e).) A further four
processes consume 25% of the Group’s total
energy consumption and represent 17% of
our CO2e emissions, giving a clear focus for
energy and emissions savings.
The Group has clear targets for energy
saving, with ongoing efforts focused on
increasing the efficiency of our production
processes. Dolime production, which uses
coal to calcine dolomite, is a major emitter
of CO2 and, building on the successes of
previous years, continues to be a clear focus
for our investment to reduce CO2 emissions.
Vesuvius’ total energy costs of £34.8m are
less than 3% of revenue, with only 1.5% of
the total energy requirements across the
Group consumed in the UK.
The following completed initiatives
demonstrate just some of the ways in
which Vesuvius has already secured
energy savings and reduced its
environmental footprint:
> Air compressor upgrades in Bayuquan,
Muggio and Tamworth
> Air conditioning controls in Ras Al
Khaimah upgraded to reduce energy
consumption
> Electrical supply stabilisation in
Rio de Janeiro
> Forklift truck modernisation in Ping Tung
> Heat recuperation in Ostend
> Kiln and oven controls in Bayuquan,
Changshu, Kua Tang and Sadat City
upgraded to reduce energy consumption
> LED lighting coupled with PIR in
Cleveland, Enschede, Ghlin,
Grossalmerode, Hengelo, Kreutzal
and Piedade
> Motor transducers in Bayuquan
> Process equipment design in Muelheim
and Vizag
> Roof mounted solar panels in Bulli
and Ghlin
Vesuvius operates sites in several
developing markets where environmental
concerns have become politically
significant, as air quality deteriorates,
and residential expansion takes people
closer to areas historically reserved
for manufacturing. Environmental
compliance at our sites, reduction in waste,
increased recycling and treatment of
emissions are now key to Vesuvius’
operations, and can be a significant
differentiator for our business. Correctly
managed, these issues will 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?
We offer energy-efficient solutions in our
portfolio of products and services and
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
65
The table below details the fuel consumption for the main fuels consumed across the
Group in 2019
Energy used
MWh 2019
Energy used
MWh 2018
%
change
CO2e m kg
2019
CO2e m kg
2018
%
change
Category
Coal
Electricity
External Heat
LPG
230,090
274,684
-16.2%
209,985
214,195
-2.0%
3,383
66,373
3,992
-15.3%
70,389
-5.7%
Natural Gas
645,131
731,273
-11.8%
Non Fuel Emissions
Total1
0
0
0.0%
1,154,962 1,294,533
-10.8%
76.4
106.2
1.1
14.2
118.6
106.6
423.1
89.2
-14.4%
111.3
1.2
15.1
134.5
129.5
-4.6%
-11.9%
-5.7%
-11.8%
-17.7%
480.8
-12.0%
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.
2. In 2019, the Group consumed 58,648 thousand m3 of natural gas.
Vesuvius’ energy consumption
and emissions
Whilst the 2019 normalised energy
consumption in kWh per metric tonne
increased relative to the previous year, it
remains lower than the 2017 value. This
change and the 10.8% decrease in the
amount of energy consumed resulted
primarily from changes in production
volumes (-13%) and in production mix.
Natural gas use decreased by 11.8%
and electricity use decreased by 2.0%.
Coal consumption by weight decreased
by 14.9%, from 36.4 thousand metric
tonnes in 2018 to 31 thousand metric
tonnes in 2019. In 2019, the Group also
consumed 362 cubic metres of diesel in
the operation of forklift trucks on its sites
and 167 cubic metres of fuel oil.
Although normalised CO2 emissions rose
by 0.9%, thanks to this improved energy
mix and global energy consumption
decrease, the absolute CO2 emissions
were reduced by 12%.
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 2019, Vesuvius recorded 21 minor
environmental incidents. Of these,
three related to emissions to air, three to
emissions to water and three to ground
contamination. Total spills across the
Group in 2019 are estimated to have
totalled only 650kg. 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 2019.
Energy Conservation Plan
The Vesuvius Energy Conservation Plan
was launched in 2011 with the objective
of reducing our normalised energy
consumption. In 2015, the Group set a
target to reach a 10% improvement by
2018; this was surpassed with a 2015-18
10.2% improvement. The Board has now
agreed a further objective targeting an
additional 10% improvement by 2024.
Managing our energy intensity not only
has an environmental benefit but is also
part of our long-term strategy to enhance
our cost-competitiveness.
In 2019, the Group used 1.323 MWh
per metric tonne of product packed
for shipment.
Government of Chile, Gold
Award in Energy Efficiency
Vesuvius Chile received recognition
as an important partner in the
innovative CAP Acero Huachipato
Team for molten steel flow control
energy efficiency.
Energy conservation
Energy used kWh per metric tonne of product packed for shipment
1,500
1,400
1,300
1,200
2014
2015
2016
2017
2018
2019
600
400
200
0
■ kWh per metric tonne
Kg CO2e per metric
tonne of product
packed for shipment
Vesuvius plcAnnual Report and Financial Statements 2019Non-financial information
66
Sustainability continued
Water conservation
Vesuvius works to reduce the consumption
of water in its manufacturing processes
by recycling and improving water
management processes. No saltwater
or cooling water is abstracted. As with
energy use, normalised consumption of
water varies with product mix. In 2019,
there was a slight decrease in absolute
water consumption, and a decrease in
Water conservation
Environmental Policy
normalised water consumption – that
is water use per tonne of product
manufactured – reflecting changes in
product mix and product packed for
shipment (some shipped products contain
water). The Board has set a goal for the
Group to reduce the amount of waste
water by 25% by 2024.
All employees are expected to adhere to
the Group’s Environmental Policy, which
is translated into local languages and
displayed prominently in all locations.
The Policy is supported with standards
and procedures which are reviewed and
updated on an ongoing basis. See facing
page for more information.
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
2014
2015
2016
2017
2018
2019
■ Water used in
metric tonnes
Water used in
metric tonnes per
metric tonne of
product packed
for shipment
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Water consumption
Year
Water in m3
2014
2015
2016
2017
2018
2019
818,613
818,077
886,702
798,375
873,340
738,871
Water in m3 used per
metric tonne of product
packed for shipment
.862
.941
1.033
.814
.867
.842
Material waste
In 2019, Vesuvius implemented a
comprehensive quarterly reporting system
for material waste by all manufacturing
sites. It includes the reporting of waste
to landfill, hazardous waste, waste for
recycling and waste to sewers.
Greenhouse gas reporting
In line with changes in plant geography,
product mix and product packed for
shipment, total emissions decreased but
normalised emissions increased in 2019.
Our greenhouse gas (‘GHG’) emissions
are limited to CO2, with emissions of other
GHGs (Methane Emissions, Direct N2O
Emissions, Direct Sulphur Hexafluoride
Emissions, Direct Methane Emissions in
CO2 equivalent, Direct N2O Emissions in
CO2 equivalent, Direct HFC Emissions in
Global GHG emissions (kg of CO2e)
Emissions source
Following analysis of the results, action
plans are being implemented at a series of
pilot sites during 2020, with the ultimate
objective to extend the programme
throughout Vesuvius based on lessons
learnt at these plants. Alongside the
waste reporting, the Group has started
monitoring the amount of recycled
materials that are consumed in our
processes, with a view to better
understanding the actions being taken
to utilise recycled materials and the
extent to which such usage can be
increased throughout the Group.
CO2 equivalent, Direct PFC Emissions in
CO2 Equivalent, Direct SF6 Emissions in
CO2 equivalent) all not significant.
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.
2019
2018
Combustion of fuel and operation of facilities (Scope 1)
318m
Electricity, heat, steam and cooling purchased for own use (Scope 2)
107m
370m
113m
Total GHG emissions
Change
425m
483m
-12.0%
Vesuvius’ chosen intensity measurement (kg of CO2
tonne of product packed for shipment)
e per metric
Emissions reported above, normalised to per tonne of product output
483.8
479.2
Change
0.9%
Methodology We have reported to the extent
reasonably practicable on all the emission
sourcesrequired 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 and non-fuel emissions.
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 the UK
Government’s and the IEA GHG Conversion
Factors for Company Reporting 2019 in the
calculation of our GHG.
67
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
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
> Reduce waste at source and during
> Every business facility will have an
production
appointed Environmental Manager
> Minimise consumption of energy,
water and other resources
> Minimise releases of substances
which could adversely affect humans
or the environment
This policy has been approved by
the Group Executive Committee
and is displayed and
implemented at all facilities.
The Group Executive Committee
Version 2.0.7, 10/2019
Certifications
We have 21 manufacturing sites certified to ISO 14001:2015, representing 39% 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
Germany
Germany
Germany
Germany
India
India
Indonesia
Japan
Netherlands
Poland
South Africa
South Korea
Sweden
Taiwan
United Kingdom
Company name
Foseco Pty Ltd
Vesuvius Belgium N.V.
Foseco Industrial e Comercial Ltda
Vesuvius Advanced Ceramics (Anshan) Co., Ltd
Vesuvius Advanced Ceramics (Suzhou) Co., Ltd
Vesuvius Česká Republika, a.s.
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 Scandinavia AB
Foseco Golden Gate Co. Limited
Vesuvius UK Limited
Site
Sydney
Ostend
Sao Paulo
Anshan
Suzhou
Trinec
Siegen
Kreuztal
Grossalmerode
Borken
Puducherry
Pune
Jakarta
Toyokawa
Hengelo
Skawina
Olifantsfontein
Gyeonggi-do
Amal
Ping Tung
Tamworth
Vesuvius plcAnnual Report and Financial Statements 2019Non-financial information 68
People and community
We continue to invest in career
development and talent management
We believe that the
personal growth and
job satisfaction of our
employees is key to the
success and growth of
our 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 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.
Details of the Group’s gender diversity are
contained in the Nomination Committee
Report on page 99 and are incorporated
into this Strategic Report by reference.
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 our 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.
In 2019, we ran the second cohort across
all regions. The programme is designed
to last six 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 and meet twice face to face at
a central location. During the final meeting,
participants present their project findings
to senior management, including a proposal
for implementation of their findings in
the business.
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
introduces 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
was 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.
69
We are
Manufacturers
Engagement with the workforce
In 2019, Vesuvius launched its
first global Employee Culture &
Engagement programme, i-engage,
which included a survey open to all our
employees. Over 90% of our people
took part in the survey. Confidential
and anonymised reports were then
provided to team managers and site
leaders who, with the involvement of
their teams, have been developing and
implementing action plans to address
some of the issues identified from
the survey.
We have focused our action plans not
on the pure statistics, but on bringing
about meaningful change in line
with our CORE Values of Courage,
Ownership, Respect and Energy. For
example, much of the action taken has
resulted in improved communications
between managers and their teams
and on greater cross-functional
understanding and collaboration,
all of which are key to the principles
of our CORE Values.
GEC action commitments
Luis Flores
Operator in Plastics
Chicago Heights, USA
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 the 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 two dedicated training days per
year, to ensure that they are appropriately
equipped to fulfil their duties. 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.
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70
71
People and community continued
Living the Values Awards 2019
Our CORE Values – Courage, Ownership,
Respect and Energy – are central to the
culture we are building at Vesuvius.
By living these Values, we will create a truly
entrepreneurial culture that puts our
customers at the centre of everything we
do. One of the ways we encourage and
recognise colleagues who display our
values is our Living the Values Awards.
In 2019, we received over 750 nominations
for our Regional Living the Values Awards,
which were announced in August 2019 and
were followed by the Global Living the
Values Awards, which were announced at
a special ceremony in Lisbon in December
2019. Chief Executive Patrick André paid
tribute to finalists, saying that they provided
a remarkable example of what can be
achieved by being true to the CORE Values.
Talent management
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.
Strengthening the leadership pipeline
and facilitating people development
throughout the organisation remain key
areas of focus for Vesuvius. In 2019, we
continued to work 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. 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.
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
In line with our sustainability ambition to
support education, we have decided to
change the scope of the programme going
forward in such a way that it will focus on
emerging countries around the world.
There will be fewer but larger awards given
to children of the more junior staff in the
organisation. We believe that by making
significant awards to children who, without
these grants, would not have been able to
follow higher education, we can contribute
significantly to enabling those children to
improve their future.
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 without
regard to race, colour, creed, religion,
sexual orientation, age, gender, disability
or national origin.
Vesuvius has been involved in this
programme for 25 years, during which
period it has paid out $2,085,000 to assist
3,670 students in achieving their higher
education goals. Individual scholarships
have been awarded to employees’
children living in: Australia, Belgium,
Brazil, Canada, China, the Czech Republic,
France, India, Indonesia, Italy, Malaysia,
Mexico, the Netherlands, the Philippines,
Poland, Romania, South Africa, South
Korea, Spain, Turkey, UAE, USA and
the UK.
Key rationale behind international assignments
Vesuvius considers individuals for international assignment for three primary reasons:
> Enhancing diversity. Management
teams benefit from having a mix of
gender and cultures. In specific cases,
we use international assignments to
achieve this goal
> 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
Vesuvius plcAnnual Report and Financial Statements 2019Non-financial information 72
People and community continued
Vesuvius in the
community
Vesuvius is committed to making a positive contribution
to the communities in which we work by supporting
a wide variety of fundraising and community-based
programmes around the world. Below are some details
about a selection of the community programmes our
colleagues were involved in throughout 2019.
Going forward, we plan to increase the focus of our
community activities on two areas which we are
especially passionate about:
> Educational opportunities for children and young
people in less developed countries and from
disadvantaged backgrounds
> Encouraging more girls and women into scientific
and technical fields of education
In 2020, wherever possible and practical, we are
encouraging our people to dedicate their efforts to
those areas.
Cleveland Foundry team support food bank
The Cleveland Foundry team are very
active in supporting their local community
and wrapped up their 2019 charitable
commitments by raising funds and
volunteering at Harvest for Hunger,
Cleveland Food Bank. The volunteer hours
consisted of assembling and cooking hot
meals, packing lunches, and picking and
palletising emergency centre shelters.
Harvest for Hunger is one of the largest
annual, community-wide food and
funds drives in the USA, providing
critical resources to local hunger relief
organisations in Northeast and
Central Ohio.
The team were also involved in a number of
other activities during the year, including
raising funds to assist a local charity to build
homes for underprivileged families, and to
support an animal adoption programme.
India Foundry team run
for hope
Vesuvius Foundry India, Pune took part
in the 10th edition of Runathon of Hope,
organised by the Rotary Club of Nigdi,
Pune. Runathon of Hope is a half-
marathon which, in the past ten years,
has generated funds used to bring hope
to thousands. This has included funding
surgical procedures, building sanitary
facilities and providing Education
Learning Kits to schools.
Feignies colleagues
stage Pink Walk
Vesuvius employees around the world
have supported Pink October Breast
Cancer Awareness month for many
years, and 2019 was no exception with
fundraising activities taking place in
a number of our sites.
For the fourth year in a row, employees
at our Feignies site in France got involved,
staging a Pink Walk with dozens of
colleagues taking part to raise funds for
research and support programmes.
73
Vesuvius Turkey helps
children visiting women’s
prison
In September 2019, Vesuvius Turkey
employees visited the Gebze Women’s
Prison to support a programme that
helps mothers in prison stay in touch with
their children. There is a kindergarten
next to the prison for children up to
six years old.
Our employees spent the day in the
kindergarten and donated stationery
products, clothing, baby shampoo,
nappies and toys. Institutions such as
this rely heavily on charitable support,
particularly for the products our
colleagues donated.
Living the Values Awards selected charities
One of the key elements of Vesuvius’ Living
the Values Awards is offering winners the
chance to donate £1,000 to a charity close
to their hearts. Here are some of the worthy
recipients selected by LTV Award winners:
> Society for the Protection of Children
in India: The charity looks after around
250 underprivileged female children. In a
residential setting, they teach them how to
be self-sufficient, by providing education
and training on extra-curricular activities
like dancing, singing and drawing. The
donation will benefit their common fund.
> The Hydrocephalus Association (USA):
The donation will be used to support
innovative research and the provision
of support, education and advocacy
for individuals and families dealing
with hydrocephalus.
> The Yingkou Bayuquan Wang Hai
School in China: A village school, in
the local countryside, which provides
education for many children from less
advantaged families. The donation
will be used for nutritious lunches for
these children.
> AT (Ataxia Telangiectasia) Children’s
Project (USA): ATCP supports patients
and their families, and raises funds for
research of Ataxia Telangiectasia,
a rare and fatal genetic disease that
attacks children. The donation will
be allocated for both research and
supporting patients/families of
Ataxia Telangiectasia.
The Strategic Report set out on pages 1-73 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 2019 performance and set out an overview of our
markets and our stakeholders. Details of our principles, and 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 2020 and signed on its behalf by
Patrick André
Chief Executive Chief Financial Officer
Guy Young
Vesuvius plcAnnual Report and Financial Statements 2019Non-financial information 74 Vesuvius plc
74
Annual Report and Financial Statements 2019
We are
Free-thinkers
If I were to sum up the culture of
Vesuvius, it would be ‘think beyond
your limits’.
I joined the Company towards the end
of 2016 after completing my PhD in
nanotechnology. I wanted to continue
in research and Vesuvius’ strategy of
a strong focus on R&D made it very
appealing to me as a company to
work for.
I arrived as a scientist and during my
three years at the Foundry R&D Centre
in Enschede, Vesuvius has provided
me with a number of challenging
opportunities and the support I needed
to fulfil them. Valuable managerial
training has enabled me to progress
my professional development, honing
the skills necessary to be an effective
and positive team leader.
Innovation is one of the key pillars of
the success of Vesuvius. Within the
R&D team of the Foundry Division,
we go deep into the fundamental
understanding of the feeding systems,
identifying problems, key areas of
research and new ways to improve
performance in our own processes
and, by extension, for our customers.
I am actively involved in internal and
external networking with our other
sites, universities and research centres.
This is a rich resource for pinpointing
the best projects to maintain our
status as a global leader in feeding
systems technology.
Laura Graña Suarez
R&D Manager, Feeding Systems Group,
Foundry R&D Centre Enschede, the Netherlands
Find out more at
report2019.vesuvius.com
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Vesuvius plcAnnual Report and Financial Statements 2019GovernanceCreatorsGround breakersDiscoverersGovernance 76 Board of Directors 78 Group Executive Committee 80 Corporate Governance Statement 80 Chairman’s governance letter 81 Board Report 89 Audit Committee 97 Nomination Committee 102 Directors’ Remuneration Report 102 Remuneration overview 106 2020 Remuneration Policy 114 Annual Report on Directors’ Remuneration126 Directors’ Report131 Statement of Directors’ Responsibilities132 Independent Auditors’ Report 76
Board of Directors
John McDonough CBE
Chairman
Appointed to the Board
31 October 2012
Key to Board Committee membership
Changes to the Board during the year
A Audit Committee
R Remuneration Committee
N Nomination Committee
R Committee Chairman
The Directors named below were in office during the year and up to the date of
this Annual Report with the exception of Friederike Helfer who was appointed
to the Board on 4 December 2019. Christer Gardell retired from the Board on
4 December 2019.
77
Douglas Hurt
Senior Independent Director
Appointed to the Board
2 April 2015
Patrick André
Chief Executive
Appointed to the Board
1 September 2017
Guy Young
Chief Financial Officer
Appointed to the Board
1 November 2015
N
A
N
R
Key strengths
Career experience
Key strengths
Career experience
Key strengths
Career experience
Key strengths
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. Douglas served as
Senior Independent Director
and Chairman of the Audit
Committee of Tate & Lyle plc
until July 2019. He began his
career at Price Waterhouse.
Douglas is a Chartered
Accountant.
> Proven strategic and leadership
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
Current external appointments
He is Chairman of Sunbird
Business Services Limited and
a Non-executive Director
of Cornerstone Property
Assets Limited.
Hock Goh
Non-executive Independent
Director
Appointed to the Board
2 April 2015
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 served as Chairman
of The Vitec Group plc until
retiring from the board at its
AGM in May 2019. He has also
previously served as a Non-
executive Director and Chairman
of the Remuneration Committee
of Tomkins plc, as a non-executive
Director of Exel plc and as a
Trustee of Team Rubicon UK.
John was awarded a CBE in 2011
for services to industry.
> Qualified Chartered
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
Current external appointments
Senior Independent Director
and Chairman of the Audit
Committee of Countryside
Properties PLC, and a Non-
executive Director and Chairman
of the Audit Committee of the
British Standards Institution.
Friederike Helfer
Non-executive Director
Appointed to the Board
4 December 2019
> Global career serving the
steel industry
> Strong background in
strategic development
and implementation
> Consumer focus and proven
record of delivery, with strong
commercial acumen
> Drive and energy in promoting
his strategic vision
Current external appointments
None
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.
> Extensive international
experience gained in the mining
and industrial sectors
> Qualified Chartered
Accountant, with significant
financial and business
development experience
> Drive and energy in managing
people and teams
> Focus on strategic execution
and business optimisation
Current external appointments
None
Guy was Chief Financial Officer
of Tarmac and latterly Lafarge
Tarmac, the British building
materials company, between
2011 and 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.
Jane Hinkley
Non-executive Independent
Director
Appointed to the Board
3 December 2012
Holly Koeppel
Non-executive Independent
Director
Appointed to the Board
3 April 2017
A
N
R
N
A
N
R
A
N
R
Key strengths
Career experience
Key strengths
Career experience
Key strengths
Career experience
Key strengths
Career experience
> Strong focus on R&D and
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
Current external appointments
Non-executive Director of
AB SKF, Santos Ltd and Stora
Enso Oyj.
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 Advent Energy
Ltd and MEC Resources Ltd, and
as a Non-executive Director of
Harbour Energy Ltd.
> An experienced strategist,
with strong analytic capability
Friederike is a Partner of
Cevian Capital.
Friederike joined Cevian in 2008
and from 2013 to 2017, served on
the Board of Directors and the
Audit Committee of Valmet, a
Finnish engineering company, in
which Cevian was also invested.
Prior to joining Cevian, Friederike
Helfer worked at McKinsey &
Company. She is a CFA charter
holder.
> Commercial acumen and a
strong track record of working
with a portfolio of companies to
identify scope for operational
and strategic improvement
Current external appointments
Partner of Cevian Capital*, and
was appointed a Non-executive
director of the Supervisory
Board of thyssenkrupp AG on
31 January 2020.
*
Cevian Capital is a shareholder of
Vesuvius plc and, at 27 February
2020, held 21.11% of Vesuvius’
issued share capital.
> Proven track record of
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
Current external appointments
None
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 served as
Chairman of Teekay GP LLC until
May 2019, as a Non-executive
Director and Chairman of the
Remuneration Committee of
Premier Oil plc until December
2019, and was also previously a
Non-executive Director of Revus
Energy ASA.
Jane is a Chartered Accountant.
> A strong track record of growing
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
Current external appointments
Non-executive Director and
Chairman of the Audit Committee
of British American Tobacco
p.l.c., Non-executive Director
and Chairman of the Governance
Committee of The AES
Corporation and a Non-executive
Director of Arch Coal, Inc.
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.
Vesuvius plcAnnual Report and Financial Statements 2019Governance
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Group Executive Committee
Guy Young
Chief Financial Officer
4 years with the Group
Henry Knowles
General Counsel &
Company Secretary
6 years with the Group
Agnieszka Tomczak
Chief HR Officer
1 year with the Group
Patrick André
Chief Executive
4 years with the Group
Karena Cancilleri
President, Foundry
5 months with the Group
Thiago Avelar
President,
Advanced Refractories
Tanmay Ganguly
President,
Business Development
Patrick Bikard
President, Operations &
Technology
1 year with the Group
14 years with the Group
11 years with the Group
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2
3
4
5
6
7
8
For biographical details please
see the Board of Directors on
page 77.
For biographical details, please
see the Board of Directors on
page 77.
Appointed as General Counsel &
Company Secretary in September
2013. Prior to joining Vesuvius,
Henry spent eight 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 and
Company Secretary. Henry took
responsibility for the Intellectual
Property function in 2019.
Henry is based in London, UK.
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, which was
subsequently acquired by Akzo
Nobel, in regional and global
HR roles.
Agnieszka is based in London, UK.
Appointed President, Foundry
in October 2019. Karena joined
the Group from Beaulieu
International Group, where
she served for six years as VP
Engineered Products and latterly
President Engineered Products.
She has a broad breadth of
managerial experience spanning
various international leadership
roles in companies such as
FiberVisions, Kraton Corporation
and Shell.
Karena is based in London, UK.
Appointed President, Advanced
Refractories on 1 January
2020. Thiago joined Vesuvius in
February 2019 as Regional VP
Steel, South America, where he
was responsible for Vesuvius’ Steel
Operations in South America.
Prior to joining the Group, he
worked for RHI Magnesita and
Arcelor Mittal in various technical
and marketing roles based in
Europe and Brazil.
Thiago is based in London, UK.
Currently President, Business
Development and has been
appointed President, Flow Control
with effect from 1 April 2020.
Prior to this, Tanmay served as
President, Advanced Refractories
for five years. He joined the Group
in India as Managing Director
of Vesuvius India Ltd, before
serving as Vice President Steel
Flow Control and Advanced
Refractories, South Asia.
Tanmay is based in Barlborough,
UK.
Appointed President, Operations
in January 2014 with an emphasis
on improving safety and quality,
and reducing inventories, creating
value through customer focus,
lean techniques and continuous
improvement. He was also given
responsibility for Technology
in 2019. 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.
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4
5
6
7
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Annual Report and Financial Statements 2019
Corporate Governance Statement
Chairman’s governance letter
Dear Shareholder,
On behalf of the Board, I am delighted to
present the 2019 Corporate Governance
Statement. This year, for the first time, we
are reporting compliance against the new
2018 UK Corporate Governance Code
issued by the Financial Reporting Council
(the ‘Code’).
A copy of the Code can be found on the FRC website at:
https://www.frc.org.uk/directors/corporate-governance-and-
stewardship/uk-corporate-governance-code. The new Code
is a shorter and more focused document than its predecessor,
with a greater emphasis on purpose, culture and stakeholder
engagement.
The Board of Vesuvius plc (the ‘Company’) is committed to
maintaining high standards of governance and to developing
them to reflect progression in best practice. The Corporate
Governance Statement (the ‘CG Statement’) provides investors
and other stakeholders with an annual insight into the governance
activities of the Board and its Committees. The CG Statement
also describes how the Group has complied with the Code
Principles during 2019, except where we considered it more
natural for us to describe the application of a Principle
elsewhere in this Annual Report. The table opposite signposts
where detailed information on each section of the Code (and
associated Principles) can be found.
I am pleased to confirm that your Company is fully compliant
with the Principles and Provisions of the Code for the year ended
31 December 2019.
As a Board, we remain committed to applying the highest
standards of corporate governance, recognising that robust
governance and culture underpin business success. With the
advent of the new Code, we took the opportunity to refine some
of our governance procedures, with a particular focus on how we
assess the Group’s culture and how we embed the practices which
best promote the long-term success of the Group. Further details
of our activities in this regard are given in the remainder of the
CG Statement on pages 81-125.
We have spent more time this year formally considering the
Group’s engagement with its wide range of stakeholders, and for
the first time conducted an extensive employee engagement
survey. We were delighted that over 90% of our employees took
the time to contribute their opinions on life at Vesuvius. The results
have been analysed and shared in two-way meetings at all levels
throughout the Group. Action plans have been created to address
the issues raised and to ensure that we optimise this engagement
with our workforce throughout the world. This is the beginning of
a new dialogue with our employees and we intend to build on this
foundation by issuing another survey, followed by another round
of reviews, later this year.
The Nomination Committee has once again been focusing on
succession planning, with more detailed activity on strengthening
the Group’s talent pool for senior management and discussing
the future plans and priorities for Board rotation. It also oversaw
the appointment of Friederike Helfer from Cevian Capital, who
joined us when Christer Gardell stepped down from the Board in
December 2019.
The Remuneration Committee’s work this year has centred on
the development of the new triennial Remuneration Policy, on
which we have sought our major shareholders’ views. The Audit
Committee has been considering the Group’s response to cyber
security alongside its more standard responsibilities. Further
details on the work of each of the Committees can be found in
the respective Committees’ Reports on pages 89-125.
The Board’s formal evaluation process for 2019 was externally
facilitated by the corporate advisory firm, Lintstock. The results
of the review highlighted the Board’s composition and dynamics
as particular strengths, and concluded that the Board remained
strong and effective with a good level of constructive challenge
and debate. The evaluation highlighted a small number of Board
priorities, which we look forward to progressing in 2020.
Yours sincerely
John McDonough CBE
Chairman
27 February 2020
In this section:
Also see:
Board leadership and
company purpose on p82
Group’s statement of purpose
on p1
Strategic Report on p1-73
Division of responsibilities
on p84
Audit Committee report on p89
Nomination Committee
report on p97
Directors’ Remuneration
Report on p102
Board Report
2018 UK Corporate Governance Code – Information Availability
Board Leadership and
Company Purpose
The Corporate Governance statement (‘CG Statement’) on pages 80-125 gives information on the
Group’s compliance with Principles relating to the Board’s Leadership and Company Purpose, but more
detailed information on:
> the Group’s statement of purpose can be found on page 1
> the Group’s strategy, resources and the indicators it uses to measure performance can be found on
pages 4-51 in the Strategic Report (the ‘SR’)
> the Group’s engagement with stakeholders and the Group’s S172(1) Statement is contained in the
Section 172(1) Statement and Stakeholder Engagement section of the SR on pages 22-27
> the Group’s approach to workforce matters can be found in the People and community section of the
SR on pages 68-71, with further details of the Group’s approach to employee involvement and
engagement contained in the Section 172(1) Statement on pages 22-27
Details of the Group’s framework of controls is contained in the Audit Committee report on pages 89-96
of the CG Statement and in the Risk, viability and going concern section of the SR on pages 28-33.
The CG Statement describes the structure and operation of the Board. The Nomination Committee
report, on pages 97-101, describes the process the Company conducts to evaluate the Board, to ensure
that it continues to operate effectively, that individual Directors’ contributions are appropriate and that
the oversight of the Chairman promotes a culture of openness and constructive yet challenging debate.
Details of the skills, experience and knowledge of the existing Board members can be found in the
Board biographies contained on pages 76 and 77. Information on the Board’s appointment process
and approach to succession planning and Board evaluation is contained in the Nomination Committee
report on pages 97-101 of the CG Statement.
Information on the policies and procedures the Group has in place to monitor the effectiveness of the
Group’s Internal and External Audit functions, and the integrity of the Group’s financial statements is
contained in the Audit Committee report on pages 89-96 of the CG Statement, along with an overview of
the procedures in place to manage risk and oversee the internal control framework. Further information
on the Group’s approach to risk management is contained in the Risk, viability and going concern section
of the SR on pages 28-33. The Board believes the 2019 Annual Report to be a fair, balanced and
understandable assessment of the Company’s position and prospects. A description of the Audit
Committee’s work in enabling the Board to reach this conclusion is contained in the Audit Committee
report on pages 89-96.
The Directors’ Remuneration Report section of the CG Statement describes the Group’s approach
to Directors’ remuneration, including the procedure for developing policy and the Remuneration
Committee’s discretion for authorising remuneration outcomes. Details of linkage of the Directors’
Remuneration Policy with long-term strategy is contained on page 102 and also highlighted on page 37
in the section of Key Performance Indicators in the SR.
Division of Responsibilities
Composition, Succession
and Evaluation
Audit, Risk and
Internal Control
Remuneration
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Board Report continued
Board leadership and company purpose
The Board is responsible for leading the Group in an efficient and
entrepreneurial manner, for establishing the Group’s purpose,
values and strategy and satisfying itself that these and the
Group’s culture are aligned. It focuses primarily upon strategic
and policy issues and is responsible for ensuring the long-term
sustainable success of the Group. 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 on wider society.
Purpose
Vesuvius’ stated purpose is to be a global leader in molten metal
flow engineering and technology. In order to achieve this, the
Group develops innovative solutions that enable our customers
to improve their sustainability footprint, manufacturing quality
and safety performance, whilst reducing cost by driving efficiency
in their processes. The Group aims to deliver sustainable,
profitable growth to provide its shareholders with a superior
return on their investment, whilst providing each of its employees
with a safe workplace where they are recognised, developed and
properly rewarded.
The Board has identified seven key strategic objectives which
form the basis for achieving this long-term sustainable success.
It is currently pursuing five shorter-term key execution priorities,
which define the Group’s immediate strategic aims. Further
information on these can be found on pages 14 and 15. Each
month the Board reviews the Group’s performance against a
number of Key Performance Indicators (KPIs) which provide
information on key aspects of the Group’s financial and non-
financial performance. This information assists the Board to
assess progress with the execution of the Group’s strategy and to
determine any remedial action that needs to be taken. Detailed
information on the Group’s KPIs can be found on pages 36 and 37.
The Group has established a framework of prudent and effective
controls to enable risk to be assessed and managed, further
information on which can be found in the Audit, risk and internal
control section on page 88 of this Board Report.
Culture
The Board takes seriously its responsibility for shaping and
monitoring the corporate culture of the Group. In 2018, a new
set of CORE Values was launched across the Group – Courage,
Ownership, Respect and Energy. These Values define our
priorities for behaviour across the business and are the practical
representation of the culture we seek to foster, aligning with the
Company’s purpose, values and strategy, and supporting our
governance and control processes. These values were rolled out
across the Group and are prominently displayed at all sites. Our
CORE Values are reinforced in our performance management
systems, which ensure that they are firmly embedded in our
day-to-day conversations and behaviours. Further detail can
be found on page 55.
The CORE Values are supported by the Group’s Code of Conduct
which sets out the standards of conduct expected, without
exception, of everyone who works for Vesuvius in any of its
worldwide operations. The Code of Conduct emphasises the
Group’s commitment to ethics and compliance with the law, and
covers every aspect of Vesuvius’ approach to business, from the
way that the Group engages with customers, employees, its
markets and each of its other stakeholders, to the safety of its
employees and places of work. Everyone within Vesuvius is
individually accountable for upholding these requirements.
Vesuvius recognises that lasting business success is measured
not only in financial performance but in the way in which the
Group deals with its customers, business associates, employees,
investors and local communities. The Board seeks to ensure that
the Group’s workforce policies and practices are consistent with
the Group’s long-term sustainable success. Further information
about the Group’s remuneration practices for senior managers
can be found in the Directors’ Remuneration Report on pages
102-125, the Group’s approach to diversity in the Nomination
Committee report on page 99, the Group’s approach to HR
matters in the People and community section on pages 68-73 and
the Group’s policies and procedures, including information on the
Speak Up confidential employee concern helpline in the Our
principles section on pages 54-57.
The Board recognises the need to ‘walk the talk’ on our CORE
Values and all the Directors act with integrity and are fully
committed to leading by example to promote the desired culture.
During the year, the Board’s assessment of the Group’s culture
focused on the Group’s:
(1) Adherence to the CORE Values – Throughout the year, the
Board focused on ensuring that there is a consistent culture across
the Group, underpinned by the CORE Values. It was delighted
that 1,254 employees (12%) of the organisation were nominated
for Living the Values Awards, which showcase examples of
individuals and teams going the ‘extra mile’ to live the CORE
Values. During site visits, the Directors focused on the extent
to which the values are published, understood and motivate
employee behaviour, and reported on their individual findings
to the Board.
(2) Commitment to safety – The Board received monthly
updates on the Group’s performance against safety targets,
and a thorough analysis of all Lost Time Incidents. All incidents
are reported in detail at the next Board meeting. In addition,
the Board receives biannual reports on the progress of the
Group’s safety programmes. In 2019, the Board supported the
introduction of a new, dedicated process for safety auditing and
the launch of a new set of Core Safety Rules. The Directors also
used individual site visits to assess each site’s commitment to
safety, and the Remuneration Committee set the Executive
Directors specific safety targets as part of their personal
objectives for the Annual Incentive Plan.
83
(3) Entrepreneurship – As part of the Board’s rolling agenda, the
Board received reports from each of the business unit Presidents
on their business’s strategy, new commercial initiatives and future
technology trends. These were complemented by a presentation
from the President Operations & Technology on R&D activities
throughout the Group. The Board also received quarterly reports
on the Group’s progress on innovation as well as other strategic
initiatives. Following the strategy presentations held in June 2019,
the Board followed up on the structure and experience of the
commercial teams across the Group at subsequent meetings.
(4) Transparency – The Board used individual and collective site
visits to assess the level of engagement and openness exhibited
by the employees. These first-hand reviews were supported by its
review of the output of the Group’s Speak Up processes, which
were updated and recommunicated during the year. The Audit
Committee sought qualitative feedback from External and
Internal Audit on how transparent/engaged managers had been
during audit interactions.
(5) Customer focus – The Board received monthly updates on
quality performance, which were supported by a full annual
presentation on the Group’s ongoing initiatives on quality and a
review at each Board meeting of specific quality issues. At each
Board meeting, the Board also considered the state of the Group’s
markets and the associated customer developments. As with
previous years, the Chief Executive undertook regular visits to
customers in 2019 and the Board incorporated customer visits
into their Vesuvius site visit programme.
(6) Diversity and respect for local cultures – The Board reviewed
the results of the employee engagement survey and subsequent
management actions. The Board approved a new Group
Diversity Policy.
Formal Board activities were supplemented by informal
opportunities for the Non-executive Directors to interact directly
with Vesuvius colleagues through Board dinners and site visits,
and enabled Directors to undertake a rounded assessment of the
Group’s culture and direction. In 2019, visits were conducted by all
the Non-executive Directors, covering sites in Belgium, Brazil, the
Czech Republic, Germany, India, Japan, Mexico, Poland, South
Korea and the USA. These visits provided the Board with greater
clarity on local organisation and management, and the views
of employees, as well as providing updates on business
performance. The Directors engaged in first-hand discussions
on culture and purpose, providing direct feedback on safety
culture, understanding of Vesuvius’ CORE Values, the work being
conducted on diversity and programmes to develop and enhance
employees’ engagement – all of which remain key themes for the
Board’s attention in 2020 and beyond.
The Board identified areas for particular focus going forward,
including rolling out the new Diversity Policy and assessing
progress with its objectives, in addition to building on the
enhanced employee engagement activities commenced
in 2019, to strengthen the link between the Board and the
Group’s workforce.
Section 172 duties
The Directors are cognisant of the duty they have under Section
172 of the Companies Act 2006, to promote the success of the
Company over the long term for the benefit of shareholders as
a whole, having regard to a range of other key stakeholders.
In performance of its duties throughout the year, the Board has
had regard to the interests of the Group’s key stakeholders and
remained cognisant of the potential impact on these stakeholders
of the decisions it has made. Details of the Board and the
Company’s engagement with stakeholders during the year can
be found in the Section 172(1) Statement and Our Stakeholders
section on pages 22-27.
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 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 the Chief Financial Officer. In advance of the 2019
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 them should they so wish.
Engagement on remuneration matters took place with a number
of the Group’s larger shareholders. Despite this engagement,
at the 2019 AGM, 23% of votes were cast against the resolution
relating to the approval of the Directors’ Remuneration Report.
Whilst a clear majority of shareholders were supportive of
the resolution, three of the Company’s larger shareholders,
representing 22.67% of the Company’s issued share capital,
voted against the resolution. The Remuneration Committee
invited a dialogue with these shareholders and spoke with two
of them. The Remuneration Committee ascertained that these
two investors’ concerns principally related to the level of salary
increase awarded to the Chief Executive for 2019 and discussed
these concerns. The Company’s rationale for its approach to this
matter was set out in detail in the Directors’ Remuneration Report
in the 2018 Annual Report and Financial Statements and was
discussed further in the aforementioned shareholder meetings.
The Remuneration Committee considered the earlier feedback
in formulating proposals for the 2020 Remuneration Policy
and wrote to shareholders at the beginning of this year inviting
engagement on the proposed new Policy. We have subsequently
entered into dialogue with a number of the Group’s larger
shareholders to discuss the new Policy.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 84
Board Report continued
Division of responsibilities
The Board currently 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, Hock Goh, Friederike Helfer, Jane
Hinkley, Douglas Hurt and Holly Koeppel. Christer Gardell
served on the Board until he was replaced by Friederike Helfer
on 4 December 2019. Douglas Hurt is the Senior Independent
Director. Henry Knowles is the Company Secretary.
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.
The Chairman and Chief Executive
Christer Gardell is Managing Partner, and Friederike Helfer is a
Partner, of Cevian Capital, which continues to hold 21.11% of
Vesuvius’ issued ordinary share capital. As a result, Christer Gardell
was not considered to be independent during his term on the
Vesuvius Board and Friederike Helfer is also not considered to be
independent. The Chairman satisfied the independence criteria on
his appointment to the Board. The Board and its Committees have
a wide range of skills, experience and knowledge, and further
details of each Director’s individual contribution in this regard can
be found in their biographical details on pages 76 and 77.
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. They are available to view on the Company’s website www.vesuvius.com.
The Board
Responsible for Group strategy, risk management,
succession and policy issues. Sets the purpose, 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 chairs and manages meetings.
Independent on appointment, he is the link
between the Executive and Non-executive
Directors
Develops strategy for review and approval by
the Board. Directs, monitors and manages 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
the Chairman’s replacement, when required
Exercise a strong, independent voice,
constructively challenging and supporting the
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 at least twice a
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
85
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 2020, holding
ad hoc meetings to consider non-scheduled business if required.
Board Committees
The principal governance Committees of the Board are the Audit,
Remuneration and Nomination Committees. Each Committee
has written terms of reference which were reviewed during the
year. No changes were made given the amendments made in
2018 to reflect the changing governance requirements of the
new Code. These are available to view on the Company’s website
www.vesuvius.com.
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 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 remuneration policy
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
2019 Board programme
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 business unit
Presidents, the President Business Development, the Chief
HR Officer, the President Operations & Technology and the
General Counsel/Company Secretary. The GEC met eight times
during 2019 and is scheduled to meet eight times during 2020.
Its meetings are held at different Company venues round the
world, focusing on the Group’s key operations.
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 the Company Secretary on key aspects of the business
> Key Performance Indicators
Vesuvius plcAnnual Report and Financial Statements 2019Governance
86
Board Report continued
In addition, in 2019 the Board focused on key areas of strategy, performance and governance, including the issues outlined below:
Directors’ conflicts of interest
Strategy
> Receiving and reviewing reports on strategy from the Flow Control, Advanced Refractories, Digital Services
(Sensors & Probes) 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 acquisition of CCPI
> Receiving and considering reports on the Group’s quality, health, safety, environmental and sustainability
strategy and objectives
> Participation in a two-day off-site review of strategy attended by each business unit President and the
Company’s key financial advisers
> Receiving and considering reports on the Group’s HR, purchasing, 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
> Reviewing the Group’s internal control and risk management practices
> Formulating an enhancement to the Group’s employee engagement strategy, implementing and then
reviewing progress
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 performance against key indicators
> Receiving regular monthly updates from the Chief Executive on the performance of the Group’s businesses
with a critical focus on safety and quality
> Scrutinising the Group’s financial performance and forecasts
> Reviewing and agreeing the annual budget and forward-looking financial planning
> Approving trading updates, and preliminary and half-year results
Governance
> Receiving regular reports from the Board Committees
> Approving the Annual Report and Notice of AGM
> Approving the payment of the interim dividend, and approving the recommendation of the payment of the
final dividend subject to shareholder approval
> 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 2018
> Reviewing and approving the Group’s Modern Slavery Statement
> Receiving regular updates on corporate governance and regulatory developments
> Monitoring the amendments being made to 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
> Reviewing information received through the Group’s Speak Up reporting processes
> Renewing the Group’s delegated authorities
> Receiving reports from the Company’s brokers on market issues
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 information 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.
87
The Company Secretary records the consideration of any conflict
and 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
presented to the Board for authorisation during the year under
review.
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 2019 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.
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
8 (8)
8 (8)
8 (8)
n/a
7 (8)
8 (8)
7 (8)
8 (8)
7 (8)
—
—
—
—
—
5 (5)
5 (5)
5 (5)
5 (5)
—
—
—
—
—
4 (5)
5 (5)
5 (5)
5 (5)
6 (6)
—
—
n/a
3 (6)
5 (6)
6 (6)
6 (6)
5 (6)
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.
Chairman
John McDonough CBE
Executive Directors
Patrick André
Guy Young
Non-executive Directors
Friederike Helfer1
Christer Gardell
Hock Goh
Jane Hinkley
Douglas Hurt
Holly Koeppel
1. Friederike Helfer was appointed to the Board at the close of the Board meeting held on 4 December 2019. No Board or Committee meetings were held in 2019
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 operational and
customer sites around the Group. The Chairman in particular
dedicates a significant amount of time to Vesuvius in discharging
his duties.
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 of 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.
after her appointment.
Jane Hinkley and Holly Koeppel were unable to attend a Board
meeting called at short notice during 2019. Hock Goh was unable
to attend two scheduled Committee meetings and Holly Koeppel
one scheduled Committee meeting during the year, and Christer
Gardell was unable to attend one scheduled Board meeting and
three Nomination 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.
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.
Copies of all contracts of service or, where applicable, letters of
appointment of the Directors are available for inspection during
business hours at the registered office of the Company and are
available for inspection at the location of the Annual General
Meeting (AGM) for 15 minutes prior to and during each AGM.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 88 Vesuvius plc
Annual Report and Financial Statements 2019
Board Report continued
Composition, evaluation and succession
Performance evaluation
The Board carries out an evaluation of its performance and
that of its Committees and individual Directors, including the
Chairman, every year. Details of the evaluation conducted in
2019 can be found in the Nomination Committee report.
Audit, risk and internal control
The Board is responsible for ensuring that policies and procedures
are in place to ensure the independence and effectiveness of the
Internal and External Audit functions. The Audit Committee
assists the Board in reviewing the effectiveness of the Group’s
Internal and External Audit functions, in addition to monitoring
the integrity of the Group’s financial and narrative statements.
Further information about the work of the Audit Committee can
be found in the Audit Committee report on pages 89-96.
The Board is also 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 system of internal control, including financial,
operational and compliance controls, and risk management
systems. 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
included on page 31. Risk management and internal control are
also discussed in greater detail in the Audit Committee report.
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.
Remuneration
The Directors’ Remuneration Report on pages 102-125 describes
the work of the Remuneration Committee in developing the
Group’s policy on executive remuneration, determining Director
and senior management remuneration, reviewing workforce
remuneration and related policies – including ensuring that
these align with the Group’s strategic objectives and culture, and
overseeing the operation of the executive share incentive plans.
Appointment and replacement of Directors
The Company’s Articles of Association 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 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 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
2020 AGM relating to the re-election of all the Directors.
The biographical details of the Directors offering themselves
for election and re-election, including details of their other
directorships and relevant skills and experience, will be set out
in the 2020 Notice of AGM. The biographical details of the
Directors are also set out on pages 76 and 77.
Recommendations for appointments to the Board and rotation of
the Board are made by the Nomination Committee in accordance
with a rigorous procedure. The Nomination Committee is also
responsible for overseeing the maintenance of an effective
succession plan for the Board and senior management. Further
information on the activities of the Nomination Committee is set
out in the Nomination Committee report on pages 97-101.
A comprehensive induction programme is available to new
Directors. The induction programme is tailored to meet the
requirements of the individual appointee and the dynamics of
the Group, and includes as a minimum a series of meetings with
key Group executives and advisers, along with site visits to the
Group’s largest sites.
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 2020, 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 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 in
order to engage with employees and they relay a report of these
visits to the full Board. Details of the site visits undertaken in
2019 can be found in the Chairman’s statement on page 10.
89
G
o
v
e
r
n
a
n
c
e
Audit Committee
Dear Shareholder,
On behalf of the Audit Committee, I am
pleased to present the Audit Committee
Report for 2019. 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.
In 2019, the Committee spent some time focusing on the Group’s
cyber security measures following the increased profile of cyber
activity and an increase in malicious ‘phishing’ attacks. It also
continued to focus on those operational sites where our internal
audit function had highlighted the need for improvements in the
local control environments.
In November, the Company received a letter from the Financial
Reporting Council (FRC) as part of the usual cycle of the FRC’s
reviews of listed companies accounts. The FRC requested
additional information on the presentation and treatment of a
number of items in the Company’s 2018 Annual Report and
Financial Statements. The Committee approved management’s
response after review, discussion and input from the Group’s
External Auditor. The FRC have closed their enquiries on several
points and the Group has adopted several recommendations in
preparing the 2019 Annual Report and Financial Statements.
The Group has recognised a prior year restatement relating to
the year ended 31 December 2017 as a result of the FRC enquiry
into the application of IAS 36 Impairment of Assets. Further
detail is provided in Note 17.2 to the Group Financial Statements.
We remain in correspondence with the FRC in respect of their
outstanding enquiries. When reviewing the Company’s 2018
Annual Report and Financial Statements, the FRC has made clear
to us the limitations of its review is as follows: its review is based on
the 2018 Annual Report and Financial Statements only and does
not benefit from a detailed knowledge of the Group’s business or
an understanding of the underlying transactions entered into;
communications from the FRC provide no assurance that the
Company’s 2018 Annual Report and Financial Statements are
correct in all material respects and are made on the basis that the
FRC (and its officers, employees and agents) accepts no liability
for reliance on them by the Company or any third party, including
but not limited to investors and shareholders; and the FRC’s role is
not to verify information provided but to consider compliance with
reporting requirements.
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 financial controls and its internal control and
risk management systems.
Yours sincerely
Douglas Hurt
Chairman, Audit Committee
27 February 2020
Committee Members
Douglas Hurt (Committee Chairman)
Hock Goh
Jane Hinkley
Holly Koeppel
The Company Secretary is Secretary to the Committee.
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 processes. Douglas Hurt is the Senior Independent
Director and Chairman of the Audit Committee. He was the
Finance Director of IMI plc for nine years prior to his appointment
and has worked in various financial roles throughout his career.
Douglas currently serves as the Chairman of the Audit Committee
of Countryside Properties PLC and served as the Chairman of
the Audit Committee of Tate & Lyle plc until July 2019. He is a
Chartered Accountant. This background provides him with
the ‘recent and relevant financial experience’ required under
the Code.
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 Vesuvius Board. The Directors’ biographies on
pages 76 and 77 outline their range of multinational business-to-
business experience and expertise in fields such as 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 2019. 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/Head
of Finance, the Group Head of Internal Audit and the External
Auditor 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.
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
Auditor without any executives present.
90
Audit Committee continued
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 2019, 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, and reviewing
significant financial reporting judgements contained in them
> Provide advice, as requested by the Board, on whether the
Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for the shareholders to assess
the Group’s position and performance, business model
and strategy
> Review and monitor the effectiveness of the Group’s internal
financial controls and the Group’s internal control and risk
management systems
> Establish, as appropriate, and review procedures for detecting
fraud, and systems and controls for the prevention of bribery
and ensure that procedures are put in place to refer all concerns
raised by employees about possible wrongdoing in financial
reporting or other matters to the Committee
> Monitor and review the effectiveness of the Company’s Internal
Audit function, ensuring that the function is adequately
resourced and operates with appropriate independence
> 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 with the External Auditors the findings of
their work, including key accounting and audit judgements,
how any risks to audit quality were addressed and the External
Auditor’s view of its interactions with senior management
> Review and monitor the External Auditors’ independence,
objectivity and effectiveness, taking into consideration
relevant UK professional and regulatory requirements
and any FRC audit inspection findings
> Oversee the operation of the policy on the engagement of
the External Auditors to supply non-audit services
> Report to the Board on how the Committee has discharged
its responsibilities
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 2019
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 updates on cyber security
and in-depth reviews of the Group’s robotics sales and the
Financial Operating Model.
2.
In reviewing the Financial Operating Model, the
Committee considered the appropriateness of the
segregation of roles and duties within the Group’s global
finance operations, the further integration of the shared
service structure and the reorganisation of formal
reporting lines to improve efficiency in the analysis
and communication of financial information.
3. The FRC wrote to the Company as part of its review of the
Group’s 2018 Annual Report and Financial Statements.
The Committee has supervised the Company’s response to
the matters raised in their review letter. We have enhanced
certain disclosures in these 2019 Annual Report and
Financial Statements and have revisited our approach
to impairments that has resulted in an adjustment to the
opening value of goodwill and tangible fixed assets.
4. 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 assumed growth rates and
discount rates used for asset impairment assessments.
5. 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 2018 Annual Report and
Financial Statements. The 2019 Viability Statement, which
was also critically reviewed, is contained within the
Strategic Report and can be found on page 31.
6. The Committee monitored the resourcing and delivery
of the 2019 Internal Audit plan and approved the 2020
Internal Audit plan. The Committee monitored both the
responses from and follow-up by management to Internal
Audit recommendations arising during the year.
7. The Committee approved enhancements to the Internal
Audit approach through 2019 with the introduction of Trial
Balance Deep Dive audits and for smaller entities Financial
Controls Healthcheck audits which establish whether more
extensive Internal Audit attention is warranted.
8. The Committee discussed at length significant issues
raised, the root causes for those issues and the actions
being taken to resolve the issues.
9. The Committee conducted regular, detailed reviews of
provisions, challenging the reasonableness of underlying
assumptions and estimates of costs and the quantum of
any related insurance assets.
10. The Committee considered the impact of new accounting
standards. IFRS 16 Leases and IFRIC 23 Income Taxes
were effective from 1 January 2019 and the Committee
reviewed their impact on the Group Financial Statements.
11. The Committee reviewed its terms of reference.
12. The Committee reviewed the effectiveness of the External
Audit process.
91
The Committee members believe that they received sufficient,
relevant and reliable information throughout the year from
management and the Internal and External Auditors to
enable the Committee to fully discharge its responsibilities.
The work of the Audit Committee is further elaborated in the
paragraphs below.
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 2019 half-year and 2019 annual Financial
Statements and recommended their approval to the Board.
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 were 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 the Group Financial Controller/
Head of Finance. 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 its 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.
Significant issues and material judgements
The Committee considered the following significant issues in the
context of the 2019 financial statements. It identified 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. It is considered that judgements and
estimates in relation to income tax and provisions are considered
critical in the context of the 2019 Financial Statements as listed
in Note 3 to the Group Financial Statements.
Impairment of intangible assets
The FRC wrote to the Company as part of its review of the 2018
Annual Report and Financial Statements. In response to one of
the matters they raised, the Company has revisited its approach
to impairments to comply with IAS 36 Impairment of Assets.
The Committee has reviewed and challenged management’s
proposals to effect this change and in so doing, the forecasts for
the Steel Digital Services operating segment have been revisited
as at 31 December 2017 and 31 December 2018. The Committee
concurs with this change requiring an impairment to write off the
value of this cash-generating unit (CGU’s) goodwill of £17.4m at
31 December 2017.
The 2019 year-end carrying value of goodwill of £620.2m was
tested against the current and planned performance of the Steel
Advanced Refractories, Steel Flow Control and Foundry CGUs.
The Committee considered the Board-approved medium-term
business plans, the 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 to the Group Financial Statements, reflect
an increase in the equity risk premium, partially offset by a
reduction in global risk-free rates. These changes are not
specific to Vesuvius.
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.
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 £14.3m (2018: £29.3m) provided for income tax payable
which includes £11.8m (2018: £20.2m) for uncertain tax provisions
as set out in Note 10.5 to the Group Financial Statements.
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.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 92
Audit Committee continued
At the end of 2019, the Group recognised a US deferred tax
asset of £61.3m (2018: £67.3m). 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. Following the significant increase
in US deferred tax asset recognition in 2018, the Committee
reviewed the Group’s projections for trading in the US 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 2019.
In light of the substantial recognition on the Group’s balance
sheet of the US tax losses and other temporary differences, the
Committee considered that the utilisation of these deferred tax
assets, which offset the Group’s US taxable headline profits,
should continue to be reflected 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 30 to the Group Financial Statements) 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 32 to the Group Financial Statements).
Restructuring charges
During 2019, the Group’s restructuring programmes were
expanded and intensified. The Committee critically reviewed
the treatment of the restructuring costs disclosed as separately
reported items in 2019 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 investment in subsidiaries
The Committee has also reviewed management’s impairment
analysis of the parent company’s investment in subsidiaries.
Whilst it concurred that no impairment is required, it agreed that
additional disclosure was required around the sensitivity of the
forecasts to reasonably possible changes in certain assumptions
which might require an impairment in 2020.
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 and Financial Statements are 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 are 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 2019, 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 its 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 its review, the Committee was
satisfied that the going concern statement and Viability
Statement had been prepared on an appropriate basis. The 2019
going concern statement and the 2019 Viability Statement are
contained within the Risk, viability and going concern section on
page 31.
93
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 28-33. During 2019, 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.
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, the Group is
moving towards a shared services model, enabled by control,
process and systems standardisation between businesses.
This is expected to enhance the overall internal control
environment 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 review
controls over payments, journals and associated applications.
Any control issues identified by management locally or as a
result of the work performed by Internal Audit are escalated
as appropriate. Internal Audit rate all control issues they identify
in terms of their significance and agree remediation plans with
the Auditee and an Action Owner, establishing a target date for
remediation. For significant issues, management at all levels
within the business are engaged to agree the actions and
remediation dates. The status of the remediation is monitored
and overdue issues are reported at Audit Committee meetings.
The Audit Committee continues to challenge management
on the root cause for issues arising and on the progress of
remediation activities.
In the first quarter of 2019, Vesuvius experienced a heightened
number of ‘phishing’ emails presenting fake credentials. A small
number of breaches were identified stemming from the receipt of
these emails which were addressed immediately with the support
of external cyber security specialists. No financial loss arose as
a result of these breaches. Consequently, the internal training
programme on cyber/IT security was further enhanced and a
programme of work was commenced to strengthen Vesuvius’
overall IT security.
During 2019, 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.
In line with the requirements of the new Code, responsibility for
the oversight of and monitoring of the Group’s Speak Up helpline,
which collates allegations of improper behaviour and employee
concerns, passed from the Audit Committee to the full Board.
Procedures remain in place for any complaints received by the
Company regarding fraud, accounting, internal accounting
controls and auditing matters, to be passed to the Audit
Committee for review and appropriate follow-up action.
Further details of the operation of the Group’s Speak Up policy
and helpline can be found in the Our principles section of the
Annual Report on pages 54-57.
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.
The work undertaken during the year indicated the existence of
an appropriate control environment, albeit with some areas for
improvement, for which clearly defined improvement actions
have been identified, particularly in respect of the Group’s cyber
risks. No significant control issues were raised by our External
Auditors, PwC and Mazars, and no material issues were identified
in 2019. 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 2019, Internal Audit primarily performed Compliance
& Control (C&C) audits which focus on internal financial controls
and key Board compliance issues. Effectiveness & Efficiency
(E&E) audits, which focus on a broader range of business
performance issues, are only performed in response to a direct
request from management. This approach allows the Audit
Committee to concentrate on key control issues for resolution.
Over the course of 2019, Internal Audit modified its audit
approach to include detailed review of the Trial Balance and its
underlying transactions. These Trial Balance Deep Dive Audits
resulted in the identification of several control issues. The actions
being taken to address these issues have been discussed at
length at Audit Committee meetings with regular updates on the
progress made. In addition, Financial Controls Health Check
Audits have been introduced. These allow the audit coverage to
be extended by including the smaller entities which are audited
less often. Each entity is requested to provide key financial data
and evidence of key reconciliations. This is subject to a remote
desktop review. In instances where the initial documentation
provided is judged not to be ‘fit for purpose’, a site visit is arranged
and more detailed audit work performed.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 94
Audit Committee continued
The Committee received, considered and approved the 2019
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 2019, a total of 29 audit assignments, including three ‘Deep-
Dive’ audits, were undertaken, covering 48% of the Group’s
revenue and 69% 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 2020 Internal Audit plan.
When necessary, Internal Audit uses External Auditors to
supplement internal resources on an ad hoc basis. Individuals are
usually sourced for their technical expertise in a particular area.
The process provides valuable learning opportunities and we
expect to continue to use external auditors to supplement internal
audits in specialist areas and geographies in the future.
Control issues continue to be recorded in a live web-based
database into which management is 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, an internal review was undertaken of the
effectiveness of the Internal Audit function, canvassing the
views of the Divisional Finance Vice Presidents and business
unit Presidents. This highlighted increasing satisfaction with the
relevance and value of issues raised, and the quality of reporting.
It did, however, highlight the need to continue to upgrade the skills
and capabilities of the Internal Audit function, particularly in light
of the loss of the IT specialist, and action is being taken to further
strengthen the team.
Having considered the work of the Internal Audit function during
2019, including progress against the 2019 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 2019.
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.
2019 Audit plan
PwC’s 2019 year-end audit plan was based on objectives agreed
with management as part of the FY2018 audit debrief. The audit
focused on areas identified as representing significant risk and
requiring significant judgement. 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.
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
132-138 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 its audit. As part of the audit planning process and
based on a detailed risk assessment, the Committee agreed
a materiality figure of £8.6m for Group financial reporting
purposes which is lower than last year (£9.4m) and, in line with
similar groups, is set at 5% of headline profit before tax of
£171.4m. 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 £0.43m was reported
to the Committee.
There were no significant changes this year to the coverage of the
audit which stood at 69% of the Group’s revenue, 76% of profit
before tax and 64% 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 its
statutory audits for the year ended 31 December 2018 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 £1.8m.
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 with Mazars for
the audit of the non-material entities was £0.5m, resulting in a
combined audit fee with PwC of £2.3m, compared with £2.2m
in 2018.
95
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 2019, 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
> Assessed the External Auditors’ work and considered
whether they were exercising an appropriate level of
professional scepticism
> 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 of the current policy is available to view on the ‘Investors/
Corporate Governance’ section of the Company’s website,
www.vesuvius.com. In 2019, Group companies were 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 prohibited 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
could be invited to provide non-audit services which, in their
position as External Auditors, they must or were best placed to
undertake and which did not impact on 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 had to be pre-approved by
the Chief Financial Officer, who thereafter was required to refer
matters to be further approved by the Chairman of the Audit
Committee or the full Audit Committee before an engagement
was agreed. Any assignment proposed to be carried out by the
External Auditors also had to be cleared by the External Auditors’
own internal pre-approval process to confirm the firms’ ethical
ability to do the work.
In practice, the Group did not seek to engage PwC for non-audit
services during 2019 except for audit related services that are
required to be performed by an auditor. In 2019, the fees for
non-audit services payable to PwC amounted to £0.1m (2018:
£0.1m). The 2019 fees represent payment for assurance services
related to the review of the Group’s half-year financial statements,
quarterly reviews and tax form audits in India (as required
by regulation).
In light of the FRC’s publication of a revised 2019 Ethical Standard,
the Committee has approved a revised Non-audit Services Policy
to comply with the new Standard. This new Policy takes effect
from 15 March 2020. The Group is not currently sourcing any
services from the External Auditors that would not meet the new
criteria in the revised Standard.
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. 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 Auditor’s mindset and culture, skills,
character and knowledge, and the quality of its controls, as set
out in the guidance for audit committees prepared by the FRC.
In 2019, the evaluation of the External Auditors included the
following steps:
> a survey of key finance and non-finance stakeholders in
Head Office and in-scope countries
> a commentary-based survey of Audit Committee members
focused on their experience of working with PwC
> consideration of PwC’s approach to assessing the risks to its
audit quality and an evaluation of the actions it had taken
to mitigate these
> a review of other external evidence on PwC audit quality
(e.g. report on PwC by the FRC)
> an assessment against the objectives outlined in PwC’s Audit
Objectives report
> discussions with PwC and key finance and non-finance
personnel
The evaluation concluded that PwC provided an effective audit
for the 2018 financial year, building on its experience from the
prior year to improve the efficiency and effectiveness of the
audit, with improved communication between the Group and
PwC’s local teams and earlier planning of year-end processes.
The PwC team was noted to exhibit strong technical expertise
and appropriate challenge and was seen as independent by the
Audit Committee and management. PwC was deemed to have
provided an objective and challenging audit process for 2018.
Debrief meetings were held at a local level to facilitate further
improvements to the audit planning for the 2019 audit.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 96 Vesuvius plc
Annual Report and Financial Statements 2019
Audit Committee continued
Nomination Committee
Reappointment of PwC for 2020
Audit Committee evaluation
Dear Shareholder,
Committee members
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 100. The overall
performance of the Audit Committee was rated highly, with the
quality of the information provided to the Audit Committee stated
to be of good quality and continuing to improve. The relationship
and communication between the Audit Committee and the Chief
Financial Officer and his team, the Head of Internal Audit and
the External Audit Partner received high ratings and, again, an
improvement over the past year was observed. The detailed
reviews and reporting from Internal Audit were commented on
favourably and the newly implemented deep-dive internal audits
were felt to have greatly improved the performance of Internal
Audit. The Audit Committee’s review and monitoring of the work
of the External Auditors was also rated highly, with the Committee
being engaged in an open, rigorous review and discussion. It was
concluded that the Committee operated effectively to review the
work of the Internal and External Auditors, to provide appropriate
challenge to management’s assessment of significant audit
issues and material accounting judgements, and to have
appropriate oversight of the Group’s risk management and
internal control systems.
A number of priorities were identified for the Audit Committee
over the coming year, including reviewing the existing finance
organisational structure to ensure that it is appropriate to meet
the future needs of the Group, driving further improvements in
the standardisation, accuracy and reliability of accounting and
financial control practices.
On behalf of the Audit Committee
Douglas Hurt
Chairman, Audit Committee
27 February 2020
The Committee is responsible for making recommendations to
the Board in relation to the appointment, reappointment and
removal of the External Auditors. 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
> its ability to coordinate a global audit, working to tight
deadlines
> the cost-competitiveness of the Auditors in relation to the
audit costs of comparable UK companies
> the tenure of the incumbent Auditors
> 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
> the Auditors’ own annual Transparency Report
Having considered the aforementioned factors, the Committee
decided to recommend to the Board that PwC be reappointed
for 2020. 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 2020.
The Committee noted the ruling by the Securities Exchange
Board of India (SEBI) regarding the prohibition placed on PwC
network companies performing audits of listed entities for two
years from 1 January 2018. This allowed a transitional period and
the audit of Vesuvius entities in India remained permissible for
the year ended 31 December 2018. PwC subsequently won the
appeal at the Securities Appellate Tribunal (SAT) allowing PwC to
continue with existing audits of listed companies. SEBI appealed
against the SAT order in November 2019 and this was stayed by
the Supreme Court pending final disposal of the appeal. For the
rest of the order, dealing with the ban, there has not been any
hearing and no date has been fixed. The Committee continues to
monitor developments on this matter in the context of the Group’s
two listed Indian subsidiaries, Foseco India Limited and Vesuvius
India Limited. The Group has contingency plans in place should
PwC not be able to continue to audit the Group’s entities in India.
On behalf of the Nomination
Committee, I am pleased to present
the Nomination Committee Report
for 2019. The primary responsibility of
the Nomination Committee is to focus
on Board composition and 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.
As part of this work, the Committee is also responsible for
overseeing the succession plans that are in place for senior
management to ensure that there is a consistent pool of diverse
talent as a pipeline for future progression to the Board.
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 2019, the Committee reviewed the tenure of all of the
Directors and discussed future Board composition, noting that
myself and Jane Hinkley would reach our ninth anniversaries,
and Hock Goh and Douglas Hurt their sixth anniversaries, of
appointment to the Board in 2021. The Committee has discussed
the optimum timing and the appropriate steps required to
address a rotation of Board membership whilst minimising risk.
During the year, the Nomination Committee also oversaw the
process for the appointment of Friederike Helfer, a Partner in
Cevian Capital, the Group’s largest shareholder, who became a
new non-independent Non-executive Director, when Christer
Gardell, who is Managing Partner at Cevian Capital, stepped
down from the Board in December.
Yours sincerely
John McDonough CBE
Chairman, Nomination Committee
27 February 2020
John McDonough CBE (Committee Chairman)
Christer Gardell – served on the Committee until his retirement
from the Board on 4 December 2019
Hock Goh
Friederike Helfer – joined the Committee on her appointment to
the Board on 4 December 2019
Jane Hinkley
Douglas Hurt
Holly Koeppel
Meetings
The Committee met six times during the year.
Key activities during the year
> Board composition: The Committee reviewed the structure,
size and composition of the Board, including the skills,
knowledge and experience required for the Board to continue
to function effectively, taking into consideration the need to
ensure an appropriate balance of independence and diversity
amongst Board members. The Committee then 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, independence and diversity at Board level,
in light of the tenure of existing Directors. The Committee
oversaw the recruitment process to appoint Friederike Helfer,
a Partner in Cevian Capital, as a Non-executive Director
following Christer Gardell’s indication that he wished to step
down from the Board.
> Senior management succession: The Committee reviewed
the Group’s succession processes for the Group Executive
Committee and the management cadre below this level. It also
examined how the Group’s talent management processes
operate, how the new cohort of senior managers who joined
the Group over the past 18 months were being integrated and
how the development of individuals flagged as ‘high potential’
was proceeding.
> Diversity: The Committee reviewed and approved the Group’s
proposal for a formal Group Diversity Policy, which emphasised
the Group’s commitment to a diverse and inclusive workforce,
and approved the integration into this policy of an updated
Board diversity objective. See page 99.
> Directors’ elections: The Committee considered the Directors’
annual re-elections at the AGM.
> Committee evaluation: The Committee reviewed its
performance and effectiveness during 2019, including
evaluating whether each Non-executive Director was spending
sufficient time fulfilling their duties.
> Committee terms of reference: The Committee reviewed its
terms of reference.
97
G
o
v
e
r
n
a
n
c
e
98
99
Nomination Committee continued
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 did not act as Chairman when the Committee was
discussing issues surrounding my succession, when Douglas
Hurt our Senior Independent Director served as Chairman in my
place. The Company Secretary is Secretary to the Committee.
Members’ biographies are set out on pages 76 and 77.
Role and responsibilities
The Nomination Committee’s foremost priorities are to ensure
that the Company has the best possible leadership, to oversee the
process for Board appointments, ensure plans are in place for
orderly succession to both the Board and Senior Management
(being the Group Executive Committee) positions, and oversee
the development of a diverse pipeline for succession. The
Committee ensures that the procedure for the selection of
potential candidates for Board appointments – either as an
Executive Director or independent Non-executive Director – is
formal, rigorous and transparent and undertaken in a manner
consistent with best practice. It also ensures that appointments
to the Board are made on merit, against objective criteria and
with due regard for the benefits of diversity of gender, social
and ethnic backgrounds, and cognitive and personal strengths
on the Board. The Nomination Committee advises the Board on
appointments, retirements and resignations from the Board and
its Committees.
The Committee operates under formal terms of reference which
were reviewed during the year. A copy of these terms of reference
is 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.
With regard to the appointment of Friederike Helfer during the
year, the Committee undertook a shortened process following her
nomination by Cevian Capital, which holds 21.11% of Vesuvius’
issued share capital, as a suitable representative for Cevian on the
Board, following Christer Gardell’s indication that he wished to
step down. The Board considered and confirmed that it remained
beneficial to have a representative from Cevian at the Board
table and, consequently, Ms Helfer’s credentials were reviewed
and external references taken up. She also confirmed that she
had sufficient time available to devote to the role. Members of
the Board met with Ms Helfer in a series of formal and informal
meetings and provided feedback to the Nomination Committee.
Based upon the outcome of this process, the Nomination
Committee recommended that she be appointed to serve as a
non-independent Non-executive Director in place of Christer
Gardell, who stepped down from the Board immediately prior
to her appointment.
In the ordinary course, 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.
The Committee only uses those firms that have adopted the
Voluntary Code of Conduct addressing gender diversity and
best practice in search assignments.
The Committee begins the recruitment process by reviewing
the skills and attributes required for the role and agreeing a
job specification. The Committee then selects a suitable search
firm for the assignment based on its skills, expertise and price.
Searches are conducted globally and a longlist of diverse
potential appointees is produced. For Executive Director
positions, internal candidates are also considered. The
Committee reviews the longlist, and a shortlist of candidates for
interview is drawn up based upon the objective criteria identified
at inception. The initial shortlist 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. For non-executive
appointments, candidates 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. Following her
appointment, Ms Helfer has embarked on an induction
programme encompassing meetings with key Group
executives, outside advisers and visits to key operational sites.
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, knowledge and experience of current
Directors and comparing this against the Board’s list of key skills.
The independence and diversity of the Board and the balance
of skills, experience and development needs of Board members
are examined as part of the annual corporate governance review.
The Committee also takes into consideration the results of the
Board evaluation process each year. In 2019, the evaluation highly
rated the size of the Board, the skills and experience represented
and the level of diversity amongst Directors, and considered the
future skills requirements of the Board. The importance of the
Board possessing knowledge of the Company’s geographic
markets and continuing to focus on diversity was re-emphasised.
The Committee’s key skills matrix was reviewed in light of the
outcome of these deliberations. On an ongoing basis, the
Committee considers existing lengths of tenure and the
prospective rotation and retirement of Board members,
so that it can plan succession accordingly.
Diversity
Vesuvius 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. 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.
During the year, the Committee approved the adoption of a
formal Group Diversity Policy. This outlines Vesuvius’ commitment
to encouraging a supportive and inclusive culture amongst its
global workforce, promoting diversity and eliminating any
potential discrimination in our work environment.
As an organisation, Vesuvius has a global, multicultural
operational and customer base, and we wish to reflect that inside
our organisation with a multiculturally diverse community of
excellent professionals of all backgrounds at Vesuvius. This starts
by focusing on broad diversity of gender and nationality, with
an aim to ensure that all employees and job applicants are given
equal opportunity and that our organisation is representative
of all sections of society where we operate. Each employee is
respected and valued and able to give their best as a result.
All employees are given help and encouragement to develop
their full potential and utilise their unique talents.
In turn, a more diverse leadership group will result. We expect
that Vesuvius’ leadership population should increase in diversity
significantly over the next two to five years, in terms of age,
gender, ethnicity, length of service and education background.
In line with the Group’s global commitment to diversity, the
Nomination Committee focuses on ensuring that both the Board
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. We continue 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 Nomination Committee recognises that diversity
is a key ingredient in creating a balanced culture for open
discussions at Board level and in minimising ‘groupthink’.
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. During the year, Christer Gardell stepped
down from the Board and Friederike Helfer was appointed in his
place, increasing the number of women serving on the Board
from two to three (25% to 37.5%) and resulting in the Board
reaching its target of achieving at least 33% female membership.
Four Directors are non-UK citizens. The Board also contains
individuals from a range of ethnic backgrounds. The Board
considers its diversity, size and composition to be appropriate
for the requirements of the business.
Directors’ Tenure
1
1
The new Group Diversity Policy confirms the Group’s commitment
to maintaining a Board comprising at least 33% female
1
membership, while continuing to appoint candidates based on
merit and recognising that over time the proportion of female
Directors will fluctuate naturally as Board members retire and
1
new Directors are appointed.
1
Further information on the Group’s approach to promoting
diversity can be found on pages 68-73.
4
Board nationalities
Directors’ Tenure
1
1
1
Austrian
American
British
French
South African
Singaporean
1
1
Austrian
American
British
French
South African
Singaporean
4
Note: Guy Young has dual UK and
South African citizenship
Board composition
International business
experience
Experience managing
a finance function
Prior experience of serving
as a director of a listed plc
Independent Directors
Female Directors
3
4
4
6
As at 31 December 2019, the gender balance of the Group’s employees was as follows:
Group Executive Committee member
Senior management1
Middle management
All other employees
Grand total
Directors of subsidiaries included in consolidation2
Female
2
13
57
1,419
1,491
39
Male
6
121
329
8,549
9,005
402
Total
8
134
386
9,968
10,496
441
Female
25%
10%
15%
14%
14%
9%
Notes:
1. Of these 134 senior managers, 48 directly report to members of the Group Executive Committee and, of these, five are women (10%).
2. There are 441 directors of Group subsidiaries, 9% of whom are women. This disclosure is made to comply with regulatory requirements.
It includes directors of dormant companies. Some individuals hold multiple directorships.
8
Male
75%
90%
85%
86%
86%
91%
Vesuvius plcAnnual Report and Financial Statements 2019Governance 100
Nomination Committee continued
101
Board evaluation
The Board carries out an evaluation of its performance and
that of its Committees every year. This year’s 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 and Lintstock does not have any connection
with any of the Directors.
Each evaluation was conducted via a series of targeted
questionnaires. As with previous years, the 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 prepared for the Board and the Audit,
Nomination and Remuneration Committees and a Partner
from Lintstock attended the December Board meeting to
present their findings.
The Board assessment focused on six different areas: Board
composition, oversight of stakeholders and markets, Board
dynamics, Board support and focus of meetings, Board
oversight and risk management, and priorities for change,
covering an array of topics in line with new governance
requirements.
Overall, the Board was seen to operate effectively, with
positive improvement since the last evaluation. Meetings were
considered to be well run by the Chairman, with appropriate
support from the Company Secretary, and timely receipt of
clear and accurate Board papers. The Board’s understanding
of investors was rated highly, as was its understanding of the
views of customers and employees, although it was recognised
that there was scope to further improve the Board’s information
on customers’ views. The Board’s monitoring of culture and
behaviours was positively rated, as were the Group’s people
and talent development processes. The Group’s strategy was
noted to be clearly defined, but there continued to be a need
to ensure that there was sufficient focus on reviewing its
implementation of the Board agenda. It was felt that going
forward the Board could strive to spend more time on broader
stakeholder and strategic issues. The greater level of
engagement by the Non-executive Directors with the business
outside the boardroom was positively noted. Succession
planning continued to be an area of focus, reflecting a
significant number of senior management changes during
2018 and 2019. It was agreed that following these changes
succession plans for the Chief Executive, Chief Financial Officer
and other members of the Group Executive Committee would
need to be reassessed in 2020. The responses on Board
composition were noted by the Nomination Committee.
The individual assessment of Directors concluded that all of the
Directors continued to contribute effectively, providing expert
and strategic advice as appropriate and holding management
to account in an open and constructive manner. They were
considered to devote adequate time to their duties and to be
engaged and proactive in debate at all meetings. The
Chairman was viewed to operate with objective judgement,
and his approach to chairing meetings was deemed to be
inclusive and to facilitate debate. Each of the Committees was
also considered to have operated effectively during the year.
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. These will be implemented
by the Board in 2020, with progress reviewed by the Board
throughout the year.
The 2018 evaluation identified the following Board priorities
for future Board attention; these were addressed during 2019
as follows:
Area
Strategy
Issue
Action taken in 2019
New product development
Strategy presentations contained more focused content on
technology and R&D, noting key launches planned and the pipeline
of products for the future. Progress on R&D forms a key element of
the Chief Executive’s regular strategy update.
Manufacturing footprint
optimisation
Restructuring and lean plans expanded. Board and Audit
Committee oversight retained throughout the year.
People and
organisation
Senior management succession
and talent development
Continued focus on enhancing
Board’s understanding of senior
management capabilities
Detailed focus on senior management succession and talent
management at the Nomination Committee, with oversight of
actions taken to refresh Group talent throughout the organisation.
Opportunities continued to be created for key senior management
to present at Board meetings. Individual Non-executive Directors
continued to undertake site visits in 2019, with specific measures
implemented to ensure that these included meetings with high-
potential executives, alongside other Group colleagues.
Risk and culture
Risk appetite
The Board implemented a comprehensive review of risk appetite.
Board performance Continued focus on prioritising
time for discussion of key strategic
and operational issues at the
Board meeting
Board information flow
Assisted by the clearer formatting and content of papers, the
Board spent less time noting standard items for approval and
more time debating key strategic and operational issues.
The format of papers was amended to include clearer
identification of action items and a concerted effort was made
to ensure that they were more concise.
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 pool of talent able to step up to the top roles in future years.
A key area of focus for the Committee during 2019 was again
on the Group’s talent development and succession planning
processes, with an emphasis on the development of the senior
management cadre. The Committee considered detailed
succession plans for the senior functional and business unit
positions and was apprised of the work being undertaken to
develop and recruit new executives for this talent pool. As part
of the usual Board timetable, Directors also met key executives
throughout the Group, at Board presentations and site visits,
to gain a greater understanding of the breadth and depth of
management talent. In addition, in order for the Committee
to gain greater insight into the development of high-potential
individuals in less senior positions, the standard protocol for
Directors’ site visits was amended during the year, to include a
standing item for Non-executive Directors to meet with these
high-potential individuals at each site.
Committee evaluation
The Committee’s activities were part of the externally
facilitated evaluation of Board effectiveness during the year,
with Committee members completing individual questionnaires.
The results of these written submissions were then collated and
a written report tabled to the Committee. The management of
Nomination Committee meetings was highly rated overall, and
the greater involvement of the Committee in succession planning
for senior management was seen as a positive development.
Following a review of Committee requirements conducted at the
beginning of the year, Committee members noted a marked
improvement in the information provided to the Nomination
Committee, particularly with regard to succession planning, talent
development, management capabilities and business structure.
The site visits conducted by the Chairman and Non-executives,
with greater emphasis on meeting high-potential executives, were
identified as having contributed effectively to the Committee’s
improved understanding of succession planning and talent
development. Overall, the Committee was considered to have
performed effectively over the past year. Going forward, it was
noted that the Committee would continue to focus on reviewing
the development of the pipeline of internal successors, and that
other priorities for the Committee in 2020 included future Board
rotation, noting that myself and Jane Hinkley would reach our
ninth anniversaries, and Hock Goh and Douglas Hurt their sixth
anniversaries, in 2021.
On behalf of the Nomination Committee
John McDonough CBE
Chairman, Nomination Committee
27 February 2020
Vesuvius plcAnnual Report and Financial Statements 2019Governance 102
103
Directors’ Remuneration Report
Remuneration overview
Dear Shareholder,
On behalf of the Remuneration
Committee, I am pleased to present the
Directors’ Remuneration Report for 2019.
The Remuneration Report is split into two
sections, a new Directors’ Remuneration
Policy and the Annual Report on Directors’
Remuneration.
Further details of the new Remuneration Policy, which will be
subject to a binding shareholder vote at the 2020 AGM, are
given below. The Annual Report on Directors’ Remuneration
sets out details of the pay received by the Directors in 2019. It
will be subject to an advisory shareholder vote at the 2020 AGM.
All payments received by Directors in 2019 were in line with our
Remuneration Policy.
Performance in 2019
2019 was a challenging year for the Group, during which we
experienced declines in end-markets for both our Steel and
Foundry Divisions. Despite these challenges, the Group focused
swift action on restructuring and cost control as well as continuing
to invest in technology. Our reported results declined from the
high of 2018, registering £1,710.4m of sales and £181.4m of
trading profit on a reported basis. Group return on sales was
10.6% compared with 11.0% in 2018.
2019 Directors’ Remuneration
In 2019, Patrick André received a salary increase of 14%, the
details of which are contained on page 118 of the Directors’
Remuneration Report. This was disclosed in last year’s Directors’
Remuneration Report. There was no change to Guy Young’s
salary for 2019. With respect to variable incentives, in accordance
with prior years, Patrick André and Guy Young received
allocations of Performance Shares worth 200% and 150% of their
base salaries respectively in 2019, and Annual Incentive awards
with potential maximums of 125% of base salary. Other than as
outlined above, the Remuneration Committee did not exercise
any further discretion in respect of the award of Executive
Directors’ remuneration in 2019.
Remuneration outcomes for 2019
In 2019, the Annual Incentive awards 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 any Annual Incentive
earned will be deferred into awards over shares for three years.
In 2019, our adjusted headline EPS of 45.2 pence was below the
threshold Annual Incentive target of 52.2 pence and the Group’s
2019 working capital to sales ratio of 24.0% was above the
threshold target of 23.5%. As a result, no payments are due to
the Executive Directors in respect of the financial performance
metrics of the 2019 Annual Incentive. Payouts are due, however, in
respect of the personal objectives element of the Annual Incentive,
with the Committee awarding Patrick André and Guy Young
13.96% and 18.16% respectively of their maximum entitlements of
25% of base salary (being 20% of their overall Annual Incentive),
in respect of the personal objectives they were set for 2019. The
Committee considered the appropriateness of paying Directors’
incentives under the personal objectives element of the Annual
Incentive for 2019 when neither of the financial targets had been
met. Given that the personal objectives are linked to key strategic,
organisational and operational projects with measurable targets,
the Committee concluded that such payouts were in order.
The performance period for the awards made under the Vesuvius
Share Plan (VSP) in 2017 matured at the end of December 2019.
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
between median and upper quintile; as a result, 12.64% 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 15%, meeting the maximum 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 financial performance of the Company
to satisfy itself that the outcome was justified. Awards will vest in
March 2020.
The Committee considered that the Group’s Executive
Remuneration Policy had operated appropriately in respect of
2019. The non-attainment of the financial performance elements
of the Annual Incentive Plan reflected the decline in the Group’s
profitability for the year and the achievement of the performance
targets for the VSP reflected the significant improvement in the
Group’s profitability over the past three years.
Workforce remuneration
The Remuneration Committee has always had clear oversight of
the level and structure of remuneration for members of the Group
Executive Committee, along with approving the structure and
payment of awards to all executives under the Group’s executive
share plans. In addition, it has been provided with broad
remuneration information on the top cadre of management.
Following the recent revisions to the Code, the remit of the
Remuneration Committee has been broadened to include the
review of workforce remuneration and related policies and the
more general alignment of incentives and rewards with culture.
Given the diverse nature of the Group’s operations both
geographically and functionally, the Group has a wide variety of
different remuneration and incentive arrangements in operation.
The Committee has therefore agreed a programme for the review
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
of workforce remuneration which commenced this year with a
summary of the pension arrangements in the Group’s largest
territories and a review of the annual bonus arrangements
applicable to the Top 150 executives. The Committee took the
insights gained from this exercise into account when setting the
policy for Executive Director remuneration.
Environmental, social and governance issues
> A post-employment shareholding guideline will be introduced
under which Executive Directors will remain subject to their
shareholding requirement in the first year after their cessation
as an Executive Director and to 50% of the shares retained
in the first year during the second year after such cessation,
recognising that there is no requirement to purchase additional
shares if the shares held when they cease to be an Executive
Director are less than the applicable shareholding guideline.
The Committee recognises the need to consider environmental,
social and governance matters in relation to Executive Directors’
remuneration. The Executive Directors’ personal objectives for
the 2020 Annual Incentive contain specific targets in relation to
such matters.
In addition, the malus and clawback provisions applicable to the
Vesuvius Share Plan specifically contemplate the reduction of
awards should an individual’s conduct, a material failure of risk
management or a serious breach of health and safety, result
in serious reputational damage.
Review of Remuneration Policy and implementation
in 2020
During the year, the Committee undertook a thorough review
of the Directors’ Remuneration Policy to ensure that it continues
to support delivery of our business strategy. The Committee
considered recent developments in governance and the views
of our shareholders gained through our investor engagement
programme. It also received independent advice from the
Committee adviser, Deloitte, and reviewed the pay and
benefits received by other Vesuvius employees. The Committee
considered the market competitiveness of Vesuvius’ reward
package to ensure that the Group can continue to attract,
motivate and retain appropriate talent to implement our business
strategy successfully. As part of the process, the Committee
sought, and received, the views of the Executive Directors and
senior HR management on updates to the existing Policy.
However, whilst the Chief Executive (CEO) was rightly part of
the development process and attended some meetings at which
amendments to the existing Policy were discussed, he was not
involved in the decision-making process. The Committee also
consulted our major shareholders and the investment industry
bodies (ISS, the Investment Association and Glass Lewis) on the
proposed new policy.
Following these deliberations, the Remuneration Committee
concluded that the remuneration framework in our current Policy
remains consistent with our core strategic objective of delivering
long-term sustainable and profitable growth and supports our
performance-orientated culture. In particular, the Committee
concluded that the existing combination of fixed pay, Annual
Incentive and Long-Term Incentive awarded in Performance
Shares remains the most suitable mechanism for rewarding
and incentivising Executive Directors, focusing the Executive
Directors on both proximate performance and longer-term goals.
The existing 2017 Policy framework was therefore considered
‘fit for purpose’ and, as a result, no fundamental changes are
proposed in the new Policy. We are, however, proposing some
changes to respond to market and governance developments.
Enhancement of shareholding guidelines
Aligning pension provision
> As required by the new UK Corporate Governance Code, the
level of pension allowance for Executive Directors appointed
following the adoption of the 2020 Remuneration Policy will
be aligned with the post-retirement benefits applicable to the
majority of the workforce or, where appropriate, to the majority
of the workforce of the relevant geography.
> Our incumbent Directors currently receive a 25% pension
contribution. This will be frozen at the 1 January 2020 amount
and reduced over time such that by the end of 2022 it will be
reduced to that of the majority of the workforce. The precise
timing and quantum of the reductions will be finalised and
disclosed in the Remuneration Report following the completion
of a Group-wide review of pension arrangements.
Other changes
> Under the existing Policy, whilst individuals’ performance is
reviewed annually, changes to base salaries and Non-executive
Director fees were normally appraised over a two to three-year
period with a consequence that individual increases, when
paid, are usually in excess of those for the wider population
of employees for that year. To align with standard market
practice and provide greater uniformity between Director and
employee annual salary reviews, it is proposed that we revert
to a process of annual salary/fee reviews in the new Policy.
> In order to give the Committee flexibility during the three-year
Policy period, it is also proposed to increase the maximum
Annual Incentive opportunity that can be offered under the
Policy to Executive Directors from 125% to 150% of salary.
As a Committee, we are mindful of the importance of using
this flexibility in a responsible manner and can confirm that
the Annual Incentive opportunity for the Executive Directors
in 2020 will be unchanged at 125% of salary.
> The Policy clarifies the flexibility to use different financial
performance measures for different Vesuvius Share Plan
award cycles in order to ensure that awards are aligned
with strategic objectives, along with clarifying the flexibility
available to the Committee when determining the Annual
Incentive award of a Good Leaver.
> In 2019, a two-year holding period post the three-year
performance period was introduced for Vesuvius Share Plan
awards to Executive Directors, taking the total release period
for awards to five years. The two-year holding period will be
formally adopted within the new Policy.
> If appropriate, non-executive Directors may be paid an
additional fee for membership of a Board Committee or other
roles that involve significant additional time commitment
and/or responsibility.
> The shareholding guideline that applies whilst in employment
will be 200% of salary for all Executive Directors. To date,
a lower guideline of 100% of salary has applied to Executive
Directors other than the CEO.
The Policy has been updated to reflect the additional reporting
requirements of The Companies (Miscellaneous Reporting)
Regulations 2018 and The Companies (Directors’ Remuneration
Policy and Directors’ Remuneration Report) Regulations 2019.
Vesuvius plcAnnual Report and Financial Statements 2019Governance
104
105
Summary of new 2020 Remuneration Policy
The table below summarises our proposed new Policy and its proposed implementation in 2020.
Terms of existing Policy
Changes in proposed new Policy
Proposed implementation of new Policy in 2020
Base salary will normally be reviewed
annually, with changes effective from
1 January
Salaries will be reviewed under the new
policy effective 1 January 2021
2019 salaries are CEO £600,000;
Base salary
The individual’s performance is
reviewed annually with changes to
base salary normally appraised
over a two to three-year period.
Individual increases when paid are
likely to be in excess of those for the
wider population of employees for
that year
Pension
Maximum provision of 30% of salary Maximum provision for incumbent
Directors of 25% of base salary.
Incumbent Directors’ provision will
be frozen at the 1 January 2020 level
and reduced over time to be aligned
with that applicable to the majority
of the workforce by the end of 2022
Maximum provision for future
Director appointments to be aligned
with the post-retirement benefits
applicable to the majority of the
workforce or, where appropriate,
to the majority of the workforce of
the relevant geography
Increased maximum potential of
150% of salary
Annual
Incentive
Maximum potential: 125% of salary
33% delivered in shares deferred for
three years
Majority based on Group
financial measures; remainder
based on financial, strategic or
operational measures appropriate
to the individual
CFO £350,000
2020 salaries are CEO £618,000;
CF0 £385,000
Incumbent CEO and CFO – 25% of
salary frozen at 1 January 2020
amount
Any future Director appointment will
receive pension provision in line with
the new Policy
Maximum potential: 125% of salary
60% based on EPS; 20% based on
working capital to sales ratio; 20%
based on personal objectives
33% delivered in shares deferred for
three years
Vesuvius
Share Plan
Annual awards of performance
shares worth up to 200% of salary
Vested awards to be subject to
two-year holding period
200% of salary award to CEO; 150%
of salary to CFO
Awards vest three years after grant
with Remuneration Committee
discretion to impose an additional
holding period
Flexibility to include additional or
alternative performance conditions
for each award which are aligned to
corporate strategy
Awards released five years post grant
(three-year performance period plus
two-year holding period)
Awards 50% based on TSR relative
to FTSE 250 excluding Investment
Trusts and 50% based on EPS growth
Awards usually vest subject to EPS
and relative TSR measures
Guideline of 200% of salary for
CEO and 100% of salary for
other Directors
n/a
Shareholding
guideline
(whilst in
employment)
Shareholding
guideline
(post-
employment)
Guideline of 200% of salary for all
Executive Directors
Guideline of 200% of salary for all
Executive Directors
Executive Directors to remain subject
to the in-employment Shareholding
guideline in first year post their
cessation as an Executive Director,
reducing to 50% of the shares retained
in the first year during the second year
after such cessation
Executive Directors will remain
subject to the in-employment
Shareholding guideline in the first
year after their cessation as an
Executive Director and to 50% of
the shares retained in the first year
during the second year after such
cessation, recognising that there is no
requirement to purchase additional
shares if the shares held when they
cease to be an Executive Director
are less than the applicable
shareholding guideline
No other material changes to the existing Policy are being proposed.
The Committee is satisfied that the Remuneration Policy is
designed to promote the long-term success of the Company,
and accords with the requirements of the Code with regard to:
Clarity: There is complete transparency on the executive
remuneration arrangements with full disclosure in the Annual
Report. The Annual Incentive bonus structure for the Executive
Directors is based on the same structure utilised for annual bonus
arrangements for senior executives throughout the Group. The
focus of incentive arrangements on long-term sustainable growth
clearly aligns the interests of executives with those of the Group’s
shareholders. The Vesuvius Share Plan, with its emphasis on the
retention of shares for a period of at least five years, clearly aligns
the long-term objectives of the Directors with that of its investors.
Simplicity: The new Policy with its focus on three core elements:
fixed pay, Annual Incentive and Long-Term Incentive is clear,
simple and easy to understand.
Risk: The Committee has carefully analysed the range of
possible outcomes of awards and believes the Policy to be fair
and proportionate, with the clear linkage to Group profitability
mitigating the potential for excessive rewards and the reliance
on audited profit numbers and externally verified TSR targets
serving to mitigate behavioural risk. The Committee has
discretion under the Vesuvius Share Plan to determine the
vesting of awards in accordance with the Code requirement
and malus and clawback provisions also apply.
Predictability: The charts on page 109 provide estimates of
the total remuneration for the Executive Directors for 2020 for
minimum, on-target and maximum performance, showing the
split between fixed and variable remuneration. The charts also
indicate the maximum potential remuneration assuming 50%
share price appreciation. Prior to any vesting under the Vesuvius
Share Plan the Committee reviews the underlying financial
performance of the Company over the performance period, and
the non-financial performance of the Group and participants,
to ensure that the vesting is justified. Following this review, the
Committee has the discretion to amend the final vesting level if
it does not consider that it is justified.
Proportionality: The Committee believes that the performance-
related elements of remuneration have financial targets which
are transparent, stretching and clearly align the Executive
Directors’ remuneration with the delivery of the Group’s strategy.
The Vesuvius Share Plan rewards long-term performance directly
linked with the Group’s strategy and results, ensuring that only
strong performance is rewarded.
Alignment to culture: The Executive Directors’ incentive
arrangements are consistent with the Group’s core strategic
objective of delivering long-term sustainable and profitable
growth and support our performance-orientated culture.
The inclusion of personal objectives in the Annual Incentive
Plan affords the opportunity for attention to be focused on
key non-financial strategic objectives each year.
2020 salary review
In December 2019, the Committee reviewed Patrick André’s
and Guy Young’s salaries. Under the terms of his appointment,
Patrick André is entitled to an annual review. Guy Young’s salary
was reviewed under the terms of the current policy, having not
received an adjustment since 1 January 2018. After reviewing
the performance of both Directors, the Committee concluded
that it was appropriate to increase Patrick André’s salary by 3% to
£618,000 in line with the UK workforce and Guy Young’s salary by
10% to £385,000. Whilst Guy Young’s increase (equivalent to 4.9%
p.a. for the two-year period since his last salary review) is higher
than the average annual salary increase given to our UK staff
over the equivalent period of 3.5% p.a., the Committee
considered this was appropriate given his performance and
continued development in his role.
2020 Vesuvius Share Plan awards
When the Committee met earlier this month, it was concerned
that the current share price volatility could result in the 2020
Vesuvius Share Plan awards being made at an artificially low
price. As a consequence, the Committee resolved that, whilst
awards under the Vesuvius Share Plan will be made on the usual
basis (using the middle market price for a Vesuvius share for
the five days prior to the date of grant), the number of shares
to be awarded will be capped at a level that reflects the middle
market share price of the Company for the five days up to the
Committee meeting, being 437.1 pence.
Employee and shareholder engagement
The Group’s operations are geographically diverse in nature.
The Group does not operate a central workforce engagement
mechanism, and as such the Committee has not engaged
systematically with the workforce during the year to explain
how executive remuneration aligns with wider Company pay
policy, although direct visits to operations by the Non-executive
Directors have provided an open forum for discussion with
employees. Copies of the Company’s Annual Report detailing
the Executive Directors’ remuneration are, however, widely
disseminated throughout the Group and available for employees
to view on the Company’s website.
At the 2019 AGM, all the resolutions were passed with the
requisite majority, but 23% of votes were cast against the
resolution relating to the approval of the Directors’ Remuneration
Report. Whilst a clear majority of shareholders were supportive
of the resolution, three of the Company’s larger shareholders,
representing 22.67% of the Company’s issued share capital,
voted against the resolution. The Committee invited a dialogue
with these shareholders and spoke with two of them.
The Committee ascertained that these two investors’ concerns
principally related to the level of salary increase awarded to the
Chief Executive for 2019. The Committee and the Board discussed
these concerns. The Company’s rationale for its approach to this
matter was set out in detail in the Directors’ Remuneration Report
in the 2018 Annual Report and was discussed further in the
aforementioned shareholder meetings. The Committee and
the Board continue to believe that the salary increase for the
Chief Executive, which was supported by the majority of the
shareholders, was appropriate. I separately wrote to each of the
Company’s largest shareholders and key governance agencies
outlining the Committee’s proposals for the 2020 Remuneration
Policy and inviting comments. Vesuvius received responses
from each governance agency contacted and from half of
these shareholders. We entered into dialogue with a number of
shareholders and the overall response has been supportive, both
of the developments in the 2020 Remuneration Policy and to the
changes proposed to Executive Directors’ remuneration. I remain
keen to hear shareholders’ views on remuneration matters –
including any further comments on our 2020 Remuneration Policy.
Yours sincerely
Jane Hinkley
Chairman, Remuneration Committee
27 February 2020
Vesuvius plcAnnual Report and Financial Statements 2019Governance 106
Directors’ Remuneration Report
2020 Remuneration Policy
The Company is required to submit its Remuneration Policy to a binding shareholder vote at least every three years, and as the Policy
was last approved at the AGM in 2017, a new Policy will be tabled for approval at the 2020 AGM, to take effect from the close of the
2020 AGM. The previous policy will apply in its entirety up until this date and after this date those elements of the previous policy
that relate to remuneration that remain extant on this date (such as outstanding share awards) will continue to apply until these
commitments cease.
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of 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
Base salary is normally reviewed annually,
with changes effective from 1 January.
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 benefits including, but not limited
to: car allowance, private medical care
(including spouse and dependent children),
life insurance, disability and health insurance,
Pension
Alignment/purpose
Helps to recruit and retain key employees.
Ensures income in retirement.
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
Salary increases will normally be in line
with the average increase awarded to
other employees in the Group although
increases may be made above this level at
the Committee’s discretion in appropriate
circumstances. In considering any increase
in base salary, the Committee will also take
into account:
(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
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.
expense reimbursement (including costs
if a spouse accompanies an Executive
Director on Vesuvius business), together
with relocation allowances 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.
Opportunity
Maximum of 25% of base salary for
incumbent Executive Directors at the date
that this policy is adopted. This will be frozen
at the 1 January 2020 amount and reduced
over time such that by the end of 2022 it will be
reduced to the level applicable to the majority
of the workforce.
The level of allowance for Executive
Directors appointed following the adoption
of this policy will be aligned with the post-
retirement benefits applicable to the
majority of the workforce or, where
appropriate, to the majority of the
workforce of the relevant geography.
Performance
None.
107
Annual Incentive
Alignment/purpose
Incentivises Executive Directors to achieve key
short-term financial and strategic targets of
the Group.
The Committee has the discretion to award
participants the equivalent value of dividends
accrued during the vesting period on any
shares that vest.
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.
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.
Subject to malus and clawback.
Opportunity
Below threshold: 0%.
On-target: 50% of the applicable maximum
opportunity in any year.
Maximum: Up to 150% of base salary.
The Remuneration Committee will set the
level of maximum bonus opportunity for each
Executive Director at the start of each year,
with 50% of the applicable maximum payable
for on-target performance.
Payments start to accrue on meeting the
threshold level of performance, with
payments between threshold and on-target
and between on-target and maximum made
on a pro rata basis.
Vesuvius Share Plan (VSP)
Alignment/purpose
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
VSP awards to Executive Directors are
granted as Performance Share awards.
These may be cash or share settled.
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.
All vested shares, net of any tax liabilities,
are then subject to a further two-year
holding period after the vesting date,
which will continue to apply notwithstanding
the termination of employment of the
participants during this holding period,
except at the Committee’s discretion in
exceptional circumstances, including a
change of control or where the participant
dies or has left employment due to ill health,
injury or disability.
The Committee has the discretion to
award participants the equivalent value of
dividends accrued during the vesting period
and further two year holding 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 at 25% of
the award, rising to vesting of the full award
at maximum.
Performance
Vesting will be subject to performance
conditions as determined by the
Remuneration Committee ahead of each
award. Those conditions will be disclosed
in the Annual Report on Directors’
Remuneration section of the Remuneration
Report. The performance conditions will
initially be Group EPS and relative TSR,
although the Remuneration Committee
will retain discretion for future awards
to include additional or alternative
performance conditions which are
aligned with the corporate strategy.
Performance
The 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.
At its discretion, the Committee may
elect to add additional underpinning
performance conditions.
The Company reserves the right only to
disclose certain of the performance targets
after the performance period has ended,
due to their commercial sensitivity.
Prior to any vesting, the Remuneration
Committee reviews the underlying financial
performance of the Group over the
performance period, and the non-financial
performance of the Group and participants,
to ensure that the vesting is justified. Following
this review, the Committee has the discretion
to amend the final vesting level if it does not
consider that it is justified.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 108
109
Within the Policy period, the Committee will continually review
the performance measures used 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 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.
2020 Remuneration Policy continued
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 Group’s financial results; 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
awards made under the Vesuvius Deferred Share Bonus Plan).
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 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 initially
include measures based on TSR and EPS performance.
Service contracts of Executive Directors
The Committee will periodically review the contractual terms for
new Executive Directors to ensure that 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.
Illustration of the application of the Remuneration
Policy for 2020
The charts below show the total remuneration for Executive
Directors for 2020 for minimum, on-target and maximum
performance. The fixed elements of remuneration comprise
base salary, pension and other benefits, using 2020 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. No share price
appreciation is assumed.
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. No share price
appreciation is assumed.
Maximum including assumed 50% share price appreciation:
This shows the value of the maximum scenario if 50% share price
appreciation is assumed over the three-year performance period
of the Performance Share awards.
Note: In addition, the Committee retains the discretion to award dividends
(either shares or their cash equivalent) on any shares that vest.
Remuneration Illustrations £000
Patrick André, Chief Executive
Guy Young, Chief Financial Officer
Minimum
100% £890k
Minimum
100% £502k
On-Target
56%
24% 20% £1,585k
On-Target
16%
57%
27%
£887k
Maximum
Maximum
31%
27%
42%
£2,899k
32%
31%
37% £1,560k
Maximum including share price appreciation
Maximum including share price appreciation
25%
22%
53%
£3,517k
27%
26%
47%
£1,849k
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0
500
1,000
1,500
2,000
2,500
3,000
Fixed Elements
Annual Variable Elements
Long-Term Variable Elements
Vesuvius plcAnnual Report and Financial Statements 2019Governance 110
2020 Remuneration Policy continued
111
Remuneration Policy for Non-executive Directors
The table below shows the date of appointment for each of the Non-executive Directors:
The Company seeks to appoint Non-executive Directors who have relevant professional knowledge and have gained experience in a
relevant industry and geographical sector, to support diversity of expertise at the Board and match the wide geographical spread of
the Company’s activities.
Non-executive Directors attend Board, Committee and other meetings, held mainly in the UK, together with an annual strategy review
to debate the Company’s strategic direction. All Non-executive Directors are expected to familiarise themselves with the scale and
scope of the Company’s business and to maintain their 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.
Fees
Alignment/purpose
To attract and retain Non-executive Directors
of the necessary skill and experience by
offering market-competitive fees.
are not limited to, Committee chairmanship
(and, where appropriate, membership) or
acting as the Senior Independent Director.
Fees are paid in cash.
Operation
Fees are usually reviewed every year by the
Board.
Non-executive Directors are paid a base
fee for the performance of their role plus
additional fees for roles that involve
significant additional time commitment and/
or responsibility. Such roles could include, but
The Chairman is paid a single cash 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.
Non-executive Director
John McDonough CBE
Friederike Helfer
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 350% 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, 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
4 December 2019
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.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 112
2020 Remuneration Policy continued
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 – during period
prior to payment
Good leaver
Paid at the same time as to continuing employees. Annual bonus is paid only to the extent that any
Bad leaver
Change of control
Not applicable.
Paid on the effective date of change of control.
performance conditions have been satisfied and
is prorated for the proportion of the financial
year worked before cessation of employment.
In determining the level of bonus to be paid, the
Committee may, at its discretion, take into account
performance up to the date of cessation or over the
financial year as a whole based on appropriate
performance measures as determined by the
Committee. The bonus may, at the Committee’s
discretion, be paid entirely in cash.
Individuals lose the right to their annual bonus.
Annual bonus is paid only to the extent that any
performance conditions have been satisfied and
is prorated for the proportion of the financial
year worked.
Annual Incentive Plan – in respect of
any amount deferred into awards over
shares under the Vesuvius Deferred
Share Bonus Plan
Good leaver
Bad leaver
Change of control2
Vesuvius Share Plan
Good leaver1
On the date of the event.
On the date of the event.
Deferred awards vest in full.
Other than dismissal for cause, deferred awards
will vest in full.
Within seven days of the event.
Deferred awards vest in full.
On normal release date (or earlier at the
Committee’s discretion).
Bad leaver
Change of control2
Unvested awards lapse.
On the date of the event.
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, unless the Committee
decides that the reduction in the number of vested
shares is inappropriate.
Notes:
1. Under the rules of the Vesuvius Share Plan, any vested shares, net of any tax liabilities, are subject to a further two-year holding period after the vesting date.
The holding period may be terminated early at the Committee’s discretion in exceptional circumstances, including a change of control or where the award holder
dies or leaves employment due to ill health, injury or disability.
2. In certain circumstances, the Committee may determine that unvested awards under the Vesuvius Deferred Bonus Plan and 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.
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
113
covenants and/or consultancy arrangements. These would
be used only where the Committee believed it was in the best
interests of the Company to do so.
Comparison of Remuneration Policy for Executive
Directors with that for other employees
The Remuneration Policy for Executive Directors is designed in
line with the remuneration philosophy set out in this report – which
also underpins remuneration for the wider Group. Remuneration
arrangements for Executive Directors draw on the same elements
as those for other employees – base salary, fixed benefits and
retirement benefits – with performance-related pay extending
to 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
variable versus fixed remuneration and participation in share-
based structures increase as seniority increases.
As for Executive Directors, all employees receive an annual
performance appraisal, and receive salary reviews on an annual
basis. Middle and senior managers participate in the Annual
Incentive Plan. For functional members of the Group Executive
Committee, the award is predominantly based on Group
performance, with the remainder focused upon the achievement
of personal objectives. For business unit Presidents and other
operational business unit employees, any potential award
is based upon four separate measures relating to Group
performance, business unit performance, regional performance,
where relevant, and 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 on the basis of the same targets set for the Executive
Directors. 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. The senior management cadre receives MTP
awards made over Vesuvius shares, whilst other managers who
participate in the MTP 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.
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 2019, as
with previous years, Jane Hinkley directly contacted significant
shareholders to offer discussions on remuneration matters and
a number of meetings were conducted by her, and the Board
Chairman, accordingly. 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. Two investors expressed concerns related to
the level of salary increase awarded to the Chief Executive for
2019. The Remuneration Committee and the Board discussed
these concerns. The Company’s rationale for its approach to this
matter was set out in detail in the Directors’ Remuneration Report
in the 2018 Annual Report and Financial Statements and was
discussed further in the aforementioned shareholder meetings.
The Committee and the Board continue to believe that the salary
increase for the Chief Executive, which was supported by the
majority of the shareholders, was appropriate. In early 2020,
the Committee separately wrote to its largest shareholders and
key governance agencies outlining its proposals for the 2020
Remuneration Policy and inviting comments. Vesuvius received
responses from each governance agency contacted and from
53% of the shareholders, and entered into dialogue with a number
of shareholders as a result. The overall shareholder response
has been supportive both of the developments in the 2020
Remuneration Policy and of the changes proposed to executive
remuneration. The development of practices in line with the new
Policy will be carefully managed by the Committee.
Shareholding guidelines
The Remuneration Committee encourages Executive Directors to
build and hold a shareholding in the Company equivalent in value
to at least 200% of base salary.
Compliance with the shareholding policy is tested at the end of
each year for application in the following year, with the valuation
of any holding being taken at the higher of: (1) the share price
on the date of vesting of any shares derived from a share award,
in respect of those shares only; and (2) the average of the closing
prices of a Vesuvius ordinary share for the trading days in
that December.
Unless exceptionally the Committee determines otherwise,
under the post-employment shareholding guideline the Executive
Directors will remain subject to their shareholding requirement
in the first year after their cessation as an Executive Director and
to 50% of the shares retained in the first year during the second
year after such cessation, recognising that there is no requirement
to purchase additional shares if the shares held when they
cease to be an Executive Director are less than the applicable
shareholding guideline.
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.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 114
115
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 2020.
2020 2021 2022 2023
2024
2025 Description and link to strategy
Base salary
Benefits
Pension
Annual Incentive
Deferred Annual 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
2020 Directors’ Remuneration
The table below sets out how the Remuneration Policy will be applied to the Executive Directors’ remuneration for 2020.
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
Current salaries as follows:
Benefits
Pension
Annual Incentive
Vesuvius Share Plan
> Patrick André – £618,000 (2019: £600,000)
> Guy Young – £385,000 (2019: £350,000)
The 2020 salaries shown above include a salary increase effective from 1 January 2020 of 3% for
Patrick André and 10% for Guy Young.
Benefits for Executive Directors include car allowance, private medical care, relocation expenses,
tax advice and tax reimbursement, commuting costs, school fees, 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). The pension allowance is frozen at the 1
January 2020 amount and will be reduced over time such that by the end of 2022 it will be reduced
to the level applicable to the majority of the workforce.
For 2020 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.
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 2019. 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 76 and 77.
Meetings
The Committee met five times during the year. The Group’s
Chairman, Chief Executive and Chief HR Officer were invited
to each meeting, together with Christer Gardell, Vesuvius’
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 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.
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. Deloitte does not have any other connection
with any individual Director.
In addition in 2019, Deloitte provided the Group with IFRS 2
calculations for the purposes of valuing the share plan
grants and, within the wider Group, was engaged in various
jurisdictions to provide tax and treasury advisory work, and some
consultancy services. During 2019, Deloitte’s fees for advice to
the Remuneration Committee, charged on a time spent basis,
amounted to £79,710. 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 2019 included:
The Committee operates under formal terms of reference
which were reviewed during the year. The terms of reference
are available on the Group website www.vesuvius.com. The
Committee members are 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.
> Considering and approving the 2020 salaries for the
Chairman, Chief Executive, Chief Financial Officer and
senior management
> Reviewing and approving achievement against performance
targets for the 2018 Annual Incentive arrangements
> Setting performance targets and approving the structure of
the 2019 Annual Incentive arrangements
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
> Reviewing and assessing the Company’s attainment of
performance conditions applicable to the Vesuvius
Performance Share awards made in 2016
> Setting the performance measures and targets, and
authorising the grant of new awards in 2019 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 employee share ownership
plan (ESOP)
> Considering, formulating and approving the 2020 Directors’
Remuneration Policy, taking into account the requirements
of the 2018 UK Corporate Governance Code, along with
advice received from the external advisers and other trends
in remuneration practice
Vesuvius plcAnnual Report and Financial Statements 2019Governance
116
117
> Reviewing the Annual Incentive Plan structure applicable to the
Group and approving changes to this structure for executives
below the Board to incorporate a more granular level of trading
performance at business unit level into the bonus plan structure
> Approving the 2018 Directors’ Remuneration Report and
reviewing the 2019 Directors’ Remuneration Report
> Reviewing the Committee’s terms of reference
As in previous years, the Committee was the subject of an
externally moderated performance evaluation in 2019. The
management of Remuneration Committee meetings was highly
rated, with the meetings being seen to be well run, and the work
being well prepared and organised. The quality of information
provided to the Remuneration Committee from management
and internal sources was positively rated, as was the quality of
information and advice provided to the Remuneration Committee
by the external remuneration adviser, Deloitte. The Committee
noted that it had a good understanding of senior executive
remuneration, but that there was more work to do for it to gain
a deeper understanding of the remuneration of the workforce
in general, a complex task given the number of countries
and variables involved. The Committee also reflected on
the process that had been undertaken for the revision of
the Group’s Remuneration Policy and concluded that it had
worked effectively.
Regulatory compliance
The Remuneration Policy, which is set out on pages 106-113, was
prepared in accordance with the Companies Act 2006 and the
Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 (as amended). 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
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.
Share usage
Directors’ Remuneration – audited
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 ESOP trust.
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 2019, the Company held 7,271,174 ordinary
shares in Treasury and the ESOP held 1,718,615 ordinary shares.
During the year, the trustee of the ESOP purchased an additional
71,544 Vesuvius plc shares to hold to satisfy the potential future
vesting of awards under the Company’s share incentive plans.
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
current Remuneration Policy was implemented during the
financial year 2019 and how it will be implemented in the
financial year 2020.
The table below sets out the total remuneration received by Executive Directors in the financial year under review:
Total salary1
Taxable benefits2
Pension3
Total fixed pay4
Annual Incentive5
Long-Term Incentives6,7
Total variable pay8
Total9
Patrick André
Guy Young
2019
(£000)
2018
(£000)
2019
(£000)
2018
(£000)
600
118
150
868
84
311
395
1,263
525
203
131
859
546
617
1,163
2,022
350
20
88
458
64
286
350
808
350
29
88
467
351
856
1,207
1,674
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 Gardell10
Hock Goh
Friederike Helfer11
Jane Hinkley
Douglas Hurt
Holly Koeppel
Total 2019 Non-executive Director remuneration
Total 2019 Executive Director remuneration
Total 2019 Director remuneration
2019
Taxable
benefits2
(£000)
11
3
5
—
3
1
8
Total fees1
(£000)
205
47
50
4
65
70
50
2018
Taxable
benefits2
(£000)
7
8
5
—
3
1
6
Total
(£000)
192
53
50
—
63
66
51
Total
(£000)
216
Total fees1
(£000)
185
45
45
—
60
65
45
50
55
4
68
71
58
522
2,071
2,593
Notes:
1. Base salary (or fees, as appropriate) earned in relation to services as a Director during the financial year.
2. 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 £89,796 in 2019) comprise commuting and housing costs, a one-off resettlement allowance of one
month’s salary (paid in 2018), tax advice and school fees.
3. Patrick André and Guy Young currently 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.
4. The sum of total salary, taxable benefits and pension.
5. 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 118 and 119 for more details.
6. The 2018 figures represent the Performance Share awards granted to Patrick André and Guy Young in 2016 under the Vesuvius Share Plan, that vested in 2019,
along with the cash payment for the dividend that had accrued on these vested shares. See Note 2 of the Vesuvius Performance Share award allocations
table on page 121 for further detail. Of these amounts, £383,391 was attributable to share price growth in respect of the vesting of Guy Young’s shares and
£276,202 in respect of Patrick André’s shares.
7. The 2019 figures represent the Performance Share awards granted to Patrick André and Guy Young in 2017 under the Vesuvius Share Plan, that are due to
vest in 2020. See Note 3 of the Vesuvius Performance Share awards allocations table on page 122. At an average Vesuvius mid-market closing share price
(from 1 October 2019-31 December 2019) of 434.37 pence, the total value of the awards that are due to vest, along with the value of the dividends that have
already accrued on these shares, is £596,915. None of this amount is attributable to share price growth as the shares were granted based on a share price
higher than the assumed vesting price. The awards due to vest to Patrick André in September 2020 may also accrue further dividends prior to vesting.
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. Christer Gardell retired from the Board on 4 December 2019.
11. Friederike Helfer joined the Board on 4 December 2019.
Additional note:
12. Total 2018 Director remuneration for the Directors who served during 2018 was £4.171m.
Vesuvius plcAnnual Report and Financial Statements 2019GovernanceAnnual Report on Directors’ Remuneration continued 118
119
Base salary and fees
The Chief Executive’s salary was increased by 14% to £600,000
p.a. with effect from 1 January 2019. The Chief Financial Officer’s
base salary remained at £350,000 p.a. during 2019.
In December 2019, the Committee reviewed the salaries of the
CEO and CFO. Under the terms of his appointment, the CEO is
entitled to an annual review. The CFO’s salary was reviewed under
the terms of the current policy, having not received an adjustment
since 1 January 2018. After reviewing the performance of both
Directors, the Committee concluded that it was appropriate to
increase the CEO’s salary by 3% to £618,000 in line with the UK
workforce and that of the CFO by 10% to £385,000. Whilst the
CFO’s increase (equivalent to 4.9% p.a. for the two-year period
since his last salary review) is higher than the average annual
salary increase to our UK staff over the equivalent period of
3.5% p.a., the Committee considered this was appropriate given
the CFO’s performance and continued development in his role.
With effect from 1 January 2019, the Chairman’s fee was
increased to £205,000, and the Non-executive Directors’ fees
were increased to £50,000 p.a. No changes were made to the
supplementary fees, which remained at £15,000 p.a. for the
Chairmen of the Audit and Remuneration Committees, and
£5,000 for the Senior Independent Director. 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. There are no changes to the
Chairman’s or the other Non-executive Directors’ fees in 2020.
Pension arrangements – audited
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). The Remuneration
Committee has determined that this level of pension allowance
will be frozen at the 1 January 2020 amount and reduced over
time such that by the end of 2022 it will be reduced to that of the
majority of the workforce.
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.
2019 Annual Incentive
For 2019, 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 2019, 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 2019 Vesuvius Group headline earnings per share
performance targets set out below were set at the December
2018 full-year average foreign exchange rates, being the rates
used for the 2019 budget process:
Threshold:
52.2 pence
On-target:
54.9 pence
Maximum:
57.5 pence
The 2019 Group’s working capital to sales ratio targets were set as
follows:
Threshold:
23.5%
On-target:
23.0%
Maximum:
22.5%
In assessing the Group’s performance against these targets, the
Committee uses a constant currency approach. Thus, the 2019
full-year EPS performance was retranslated at December
2018 full-year average foreign exchange rates to establish
performance. This is consistent with practice in previous years.
In 2019, Vesuvius’ retranslated EPS performance at the December
2018 full-year average foreign exchange rates was 45.2 pence,
and working capital to sales ratio was 24.0%. Consequently EPS
performance was below threshold and the Group’s working
capital to sales ratio was also below threshold. As a result, no
payouts are due in respect of the financial performance metrics
of the 2019 Annual Incentive.
Annual Incentive
Personal objectives
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.
In 2019, a proportion (20%) of the Annual Incentive for
Executive Directors (representing 25% of base salary out of
the maximum 125% bonus entitlement) was based on the
achievement of personal objectives. The Committee considered
the appropriateness of paying Directors’ incentives under the
personal objectives element of the Annual Incentive for 2019
when neither of the financial targets had been met. Given
that the personal objectives are linked to key strategic,
organisational and operational projects with measurable
targets, the Committee concluded that such payouts are in
order. A summary of the objectives set and performance
achieved is set out on the opposite page.
Patrick André
Summary of objective
Summary outcome
Drive Group performance
> Continued focus on existing restructuring, and launched new proposals to respond
to market activity. Eight plants closed in 2019. Savings of £16.4m in 2019
> Delivered improved cash management. Cash conversion of 120%
> Maintained focus on the importance of quality initiatives and reporting, and swift
response to reported complaints
Reinforce talent management
> Ensured the successful integration of recently joined managers into Group operations
> Supported the reorganisation of HR, finance and IT functions. New CIO and Head of
Finance appointed
> Led the Group-wide engagement survey with 91% participation rate and drove action
plans based on results
Implementation of Group Strategy
> Laid groundwork for improved longer-term return on sales
> Championed the delivery of targeted strategic capex projects to improve
manufacturing efficiency. Increased capacity and accelerated automation in
Mexico and focused on US challenges
> Closed the acquisition of CCPI in pursuit of growth strategy and integrated the
business into the Group
In summary, after considering performance as outlined above, the Committee approved an Annual Incentive pay-out of 13.96% of
base salary, out of the 25%, in respect of the personal objectives of Patrick André.
Guy Young
Summary of objective
Improve Group financial control
and metrics
Summary outcome
> Streamlined internal financial processes to support better financial analysis, with
monthly results finalisation accelerated
> Supported targeted asset sales. Sale of two US properties and planning for further
rationalisation
> Delivered improved cash management
Leadership of finance function
> Strengthened personal oversight of key finance functions
Enhance performance of shared services
> Successfully integrated previously outsourced European Shared Service Centre
> Enhanced team structure and personnel to drive efficiency and performance
in Krakow
> Conducted further work on operating cost of global shared services
Performance of tax department
> Appointed and integrated new Head of Tax
Efficiency and performance of IT function
> Appointed and integrated new Chief Information Officer
> Championed strategic internal tax projects, including delivering target plan of cash
tax savings at flagship sites in Germany and Poland
> Drove structuring and commencement of key IT infrastructure projects
> Enhanced operating technology performance in key NAFTA manufacturing sites
In summary, after considering performance as outlined above, the Committee approved an Annual Incentive pay-out of 18.16% 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 2019 are
therefore 13.96% and 18.16% 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.
2020 Annual Incentive
In order to give the Committee flexibility during the three-year Policy period, the new 2020 Remuneration Policy proposes increasing
the maximum Annual Incentive opportunity that can be offered under the Policy to Executive Directors from 125% to 150% of salary.
The Committee has, however, confirmed that it does not plan to use this flexibility in 2020, and therefore the Annual Incentive
opportunity for the Executive Directors in 2020 will be unchanged at 125% of salary, with potential pay-outs of 62.5% of base salary
for the achievement of target performance in all three elements. Pay-outs will commence and increase incrementally from 0% once the
threshold performance for any of the three elements has been met. The structure of the Annual Incentive will also remain the same as
for 2019: 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 2020 are all non-financial or job-specific in nature and track performance against key
strategic, organisational and operational goals. 33% of any Annual Incentive earned will be deferred into awards over shares,
to be held for a period of three years.
Vesuvius plcAnnual Report and Financial Statements 2019GovernanceAnnual Report on Directors’ Remuneration continued 120
121
Deferred Share Bonus Plan allocations – audited
In 2018 and 2019, 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 and 2018 respectively 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
14 March 20192
Deferred Bonus Shares
Total
Guy Young
15 March 20181
Deferred Bonus Shares
14 March 20192
Deferred Bonus Shares
Total
Total share
allocations
as at
1 Jan 2019
Additional
shares allocated
during the year
Allocations
lapsed during
the year
Shares
vested during
the year
Total share
allocations
as at
31 Dec 2019
Market price
of the shares on
the day before
award (p)
Earliest
vesting date
10,128
—
—
10,128
29,646
29,646
18,118
—
—
18,118
19,028
19,028
—
—
—
—
—
—
—
—
—
—
—
—
10,128
605.5
15 Mar 2021
29,646
39,774
608
14 Mar 2022
18,118
605.5
15 Mar 2021
19,028
37,146
608
14 Mar 2022
Notes:
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 Vesuvius Deferred Share Bonus Plan. These shares will vest on the third anniversary
of their award date.
2. In 2019, Patrick André and Guy Young were awarded Annual Incentive bonuses in respect of their service as Directors of Vesuvius plc of £546,131 and £350,525
respectively. 33% of these bonuses were paid in deferred shares under the Vesuvius Deferred Share Bonus Plan. The allocations of shares were made on
14 March 2019 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 £6.079. The total value of these awards based on this share price was £180,218 and £115,671 respectively. There are no additional performance
conditions applicable to these awards, therefore these shares will vest in full on the third anniversary of their award date.
Additional note:
3. The mid-market closing price of Vesuvius’ shares during 2019 ranged between 341 pence and 642 pence per share and on 31 December 2019, the last dealing
day of the year, was 500 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,
are then subject to a further two-year holding period.
On 14 March 2019, 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 2020 equivalent in value to 200% of his base
salary and Guy Young an award equivalent in value to 150% of
his base salary, subject to the application of the Committee’s
discretion to address concerns about share price volatility as set
out in the Remuneration overview on page 105 of this Report.
The performance period applicable to the awards made in 2017
ended on 31 December 2019. 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 just above median; as a result, 12.64% of
Performance Share awards will vest under the TSR performance
element.
In 2018, the Board resolved to adjust the accounting treatment
for the Group’s US Deferred Tax Asset, recognising its utilisation
through headline trading profit. This change was entirely
unrelated to Group financial performance (and had no bearing
on incentive outcomes), but required the Group’s EPS for the
base year of the performance period of the 2017 awards to be
adjusted accordingly, to ensure that the effects of this decision
were neutralised as performance was evaluated. This resulted in
a restated 2016 EPS of 29.6p. On this basis, the Group’s annual
compound headline EPS growth over the performance period
was 15%. As a result, 50% of Performance Share awards will
vest under the EPS element, giving a total vesting of 62.64%.
These awards will vest in March 2020 and in respect of Patrick
André’s 2017 ‘top-up’ award in September 2020.
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 that the vesting is justified,
and to consider whether to exercise its discretion to make any
amendments. Having undertaken this analysis in 2020, the
Committee concluded that vesting of the 2019 VSP awards was appropriate. For grants of Performance Shares under the VSP from
2019 onwards, the Committee determined that this discretion be extended to include consideration of certain non-financial matters,
the occurrence of which may make full or partial vesting inappropriate.
Targets for the Performance Share awards – 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%
Between 6% and 15%
Pro rata between 25% and 50%
15% or more
50%
Vesuvius Performance Share award allocations – audited
The following table sets out the Performance Share awards that were allocated in 2016, 2017, 2018 and 2019 under the Vesuvius
Share Plan:
Total share
allocations
as at
1 Jan 2019
Additional
shares
allocated
during
the year
Allocations
lapsed
during
the year
Shares
vested
during
the year
Total share
allocations
as at
31 Dec 2019
Market price
of the shares
on the day
before
award (p)
Earliest
vesting
date
End of
holding
period1
Performance
period
1 Jan 16 –
31 Dec 18
—
—
—
—
Grant and type of award
Patrick André
8 April 20162
Performance Shares
16 March 20173,5
Performance Shares
1 September 20174,5
Performance Shares
15 March 20186
92,746
60,413
42,257
Performance Shares
14 March 20197
173,697
Performance Shares
— 197,400
Total
Guy Young
8 April 20162
369,113
197,400
Performance Shares
16 March 20173,5
128,739
Performance Shares
15 March 20186
93,355
Performance Shares
14 March 20197
86,848
—
—
—
Performance Shares
—
Total
308,942
86,362
86,362
—
92,746
—
291.7
8 Apr 2019
n/a
—
60,413
524.5
16 Mar 2020
n/a
1 Jan 17 –
31 Dec 19
1 Jan 17 –
31 Dec 19
—
42,257
578
1 Sep 2020
n/a
— 173,697
605.5
15 Mar 2021
n/a
1 Jan 18 –
31 Dec 20
1 Jan 19 –
31 Dec 21
— 197,400
608
14 Mar 2022 14 Mar 2024
92,746
473,767
—
—
—
—
—
— 128,739
—
291.7
8 Apr 2019
n/a
1 Jan 16 –
31 Dec 18
1 Jan 17 –
31 Dec 19
—
—
—
—
93,355
524.5
16 Mar 2020
n/a
—
86,848
605.5
15 Mar 2021
n/a
1 Jan 18 –
31 Dec 20
—
86,362
608
14 Mar 2022 14 Mar 2024
1 Jan 19 –
31 Dec 21
— 128,739
266,565
Notes:
1. Performance shares granted from 2019 onwards are subject to a further two year holding period.
2. 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’s and Guy Young’s Performance Shares, being 92,746 shares and 128,739 shares respectively, vested on 8 April
2019. In addition, Messrs André and Young were given cash payments of £47,927 and £66,526 respectively, equivalent to the value of the dividends that would
have been paid on the number of shares that vested in respect of dividend record dates occurring during the period between the award date and the date of
vesting. The aggregate amount of gains made by the Directors on awards that vested during the year was £1,358,511.
Vesuvius plcAnnual Report and Financial Statements 2019GovernanceAnnual Report on Directors’ Remuneration continued 122
123
3. 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. 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 were deemed to have met the performance condition applicable in the second year. Having
remeasured the performance at the end of 2019 for the full performance period, 62.64% of the shares are deemed to have met the performance condition.
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 prorated basis, which is the maximum annual
award for the Chief Executive as determined by the Vesuvius Remuneration Policy.
5. In accordance with the Company’s achievement of the specified performance conditions, 62.64% of Guy Young’s March 2017 award of Performance Shares
and 62.64% of Patrick André’s March and September 2017 awards of Performance Shares, being 58,478 shares and 64,313 shares respectively, are due to vest
on 16 March and 1 September 2020. In addition, the Remuneration Committee has determined that Messrs André and Young will be given additional shares
equivalent in value to 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 of their 2017 Performance Share. The value of the dividends that have already accrued on these
shares is £31,156 and £32,397 respectively. The awards due to vest to Patrick André in September 2020 may also accrue further dividends prior to vesting.
6. 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 86,848 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.
7. On 14 March 2019, Patrick André and Guy Young received allocations of Performance Shares worth 200% and 150% of their base salaries, being 197,400 shares
and 86,362 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 £6.079. The total value of these awards based on this share price was £1,199,994 and £524,994 respectively. The Committee
did not exercise any discretion to adjust the level of awards made.
Additional notes:
8. If the respective performance conditions for Patrick André’s 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.
9. 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.
10. The mid-market closing prices of Vesuvius’ shares during 2019 ranged between 341 pence and 642 pence per share and on 31 December 2019, the last dealing
day of the year, was 500 pence per share.
Malus/clawback arrangements in 2020
Vesuvius has malus and clawback arrangements in respect of Executive Directors’ variable remuneration. The structure of those
arrangements is outlined in our Remuneration Policy.
Statement of Directors’ shareholding – audited
The interests of Directors and their closely associated persons in ordinary shares as at 31 December 2019, including any interests in
share options and shares provisionally awarded under the Vesuvius Share Plan, are set out below:
Executive Directors
Patrick André
Guy Young
Non-executive Directors
John McDonough CBE (Chairman)
Friederike Helfer3
Hock Goh
Jane Hinkley
Douglas Hurt
Holly Koeppel
Outstanding share
incentive awards
Beneficial
holding in
shares
With
performance
conditions1
Without
performance
conditions2
55,015
473,767
84,163
266,565
39,774
37,146
100,000
—
5,000
12,000
18,000
27,500
—
—
—
—
—
—
—
—
—
—
—
—
Notes:
1. Patrick André and Guy Young hold awards over 473,767 shares and 266,565 shares respectively; these have all been granted as Performance Shares under the
Vesuvius Share Plan. The awards were all granted subject to performance conditions.
2. Patrick André and Guy Young hold awards over 39,774 shares and 37,146 shares respectively, granted under the Deferred Share Bonus Plan. These awards are
not subject to any additional performance conditions.
3. Friederike Helfer is a Partner of, and has a financial interest in, Cevian Capital which held 21.11% of Vesuvius’ issued share capital as at 31 December 2019 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 2020 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 120 and 121.
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
There were no payments made to any Director for loss of office during the year ended 31 December 2019, and no payments were
made to any other past Directors of the Company during the year ended 31 December 2019.
Shareholding guidelines
The Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company. Under the 2017
Remuneration Policy, the required holding of the Chief Executive was equivalent in value to at least 200% of salary, and that required of
other Executive Directors was equivalent in value to at least 100% of salary. Under the proposed new Remuneration Policy, the required
holding is 200% of salary for all Executive Directors. 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. Under the 2020
Remuneration Policy, the valuation of any holding will be taken at the higher of: (1) the share price on the date of vesting of any shares
derived from a share award, in respect of those shares only; and (2) the average of the closing prices of a Vesuvius ordinary share for
the trading days in that December.
Executive Directors’ shareholdings – audited
As at 31 December 2019, the Executive Directors’ shareholdings against the shareholding guidelines contained in the 2017 Directors’
Remuneration Policy in force on that date (using the Company’s share price averaged over the trading days of the period 1 December
to 31 December 2019, of 480.96 pence per share) were as follows:
Director
Patrick André
Guy Young
Actual share ownership
as a percentage of salary
at 31 Dec 2019
Policy share ownership as a
percentage of salary
Policy met?
76%
167%
200% In the build-up period
100%
Yes
Annual changes in Chief Executive pay versus 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 the Chief Executive Patrick André is based in the UK (albeit with a global role and
responsibilities) and levels of pay vary widely across the Group depending on geography and local market conditions.
Salary
Taxable benefits
Annual bonus
2019
(£000)
600
118
84
Chief Executive
2018
(£000)
525
203
546
% change
14.29
(41.87)
(84.66)
UK salaried employee
workforce (average
per capita)
% change
2.80
(7.09)
(81.21)
Vesuvius plcAnnual Report and Financial Statements 2019GovernanceAnnual Report on Directors’ Remuneration continued 124
CEO pay ratios
Total remuneration (£)
Total remuneration (£)
Salary (£)
Year
2018
Method
n/a
2019 Option A
2019 Option A
25th
percentile
pay ratio
58:1
35:1
(37,119)
22:1
(27,338)
50th
percentile
(median)
pay ratio
75th
percentile
pay ratio
43:1
28:1
28:1
(45,000)
15:1
(39,890)
17:1
(75,293)
9:1
(66,784)
The table above shows the Chief Executive pay ratios versus our UK employees for 2019. 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 2019.
The data has been calculated in accordance with ‘Option’ A in The Companies (Miscellaneous Reporting) Regulations 2018, because
it allows the Company to show the total annualised full-time equivalent remuneration (salary, incentives, allowances, fees, taxable
benefits) and percentiles across the financial year as at 31 December 2019.
Amounts have been annualised for those who joined part way through the year or who are on part-time arrangements and exclude
those who left the organisation during the reporting period.
The approach to calculating the pay ratios is consistent with the prior year and there have not been any changes to the compensation
models in the reporting period.
The reduction in pay ratios compared with last year can be attributed to a number of factors, including the median UK employee total
remuneration (excluding CEO) remaining similar to the prior year despite the lower annual incentive pay-outs (less than half of the UK
employees participate in an annual incentive); the Long-Term Incentive Plan paying out at a lower rate than the prior year for the CEO
(and his leadership team) which constitutes a larger proportion of total remuneration than for employees who do not participate in the
plan; a reduction in the number of lower paid roles in the UK; and an increase in the UK employee median salary compared with last
year (excluding the CEO).
On balance, the Committee feels that the formulaic outcome against the financial performance targets set is a fair reflection of
performance and is satisfied that the resulting compensation for the Group’s leadership team is an appropriate reflection of the
performance delivered. The Committee is also comfortable that the principles applied and the quantum of compensation are
appropriate across the Group’s employee base. These are regularly benchmarked to ensure market competitiveness. There is a
consistent approach of measuring against both business and personal performance for all those who participate in incentive
programmes. The Group continues to monitor the effectiveness of all compensation practices to identify future opportunities to
ensure they remain fair, consistent and in line with best practice.
Annual spend on employee pay1 versus 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 2018 and 2019:
Relative importance of spend on pay (2019) £m
Relative importance of spend on pay (2018) £m
£55.3m
12 . 3 %
87.7%
£53.4m
11. 4%
88.6%
£395.0m
£414.3m
Remuneration
Dividends
Remuneration
Dividends
125
TSR performance and Chief Executive pay
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 2019.
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 ended
Total remuneration
(single figure (£000))
Annual variable pay
(% of maximum)
Long-term variable pay
(% of maximum)
31/12/12
31/12/13
31/12/14
31/12/15
31/12/16
31/12/17
31/12/18
31/12/19
François Wanecq1
Patrick André2
£1,227
£2,447
£1,519
£752
£1,173
0%
100%
64%
67%
28%
27%
0%
0%
50%
0%
£1,6751
£4652
81%1
85%2
43.7%1
n/a2
£2,022
£1,263
83%
11%
100%
62.6%
Notes:
1. Amounts shown in respect of François 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 15 May 2019) the resolution concerning the advisory vote on the Directors’ Remuneration Report for
2019 received 180,165,253 votes (76.91%) in favour and 54,091,750 votes against (23.09%); 671,069 votes were withheld. Whilst a clear
majority of shareholders were supportive of the resolution, three of the Company’s larger shareholders,representing 22.67% of the
Company’s issued share capital, voted against the resolution. The Remuneration Committee invited a dialogue with these shareholders
and spoke with two of them. These two investors’ concerns principally related to the level of salary increase awarded to the Chief
Executive for 2019. The Remuneration Committee and the Board discussed these concerns. The Company’s rationale for its approach
to this matter was set out in detail in the Directors’ Remuneration Report in the 2018 Annual Report and Financial Statements and was
discussed further in these shareholder meetings. The Committee and the Board continues to believe that the salary increase for the
Chief Executive, which was supported by the majority of the shareholders, was appropriate.
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. The new 2020 Remuneration Policy will be tabled for a
shareholder vote at the 2020 AGM to be held on 13 May 2020, alongside the advisory vote on the Directors’ Remuneration Report.
The Chairman of the Remuneration Committee contacted each of the Company’s largest shareholders and key governance agencies
at the beginning of the year, outlining the Committee’s proposals for the 2020 Remuneration Policy and inviting comments. Vesuvius
received responses from each governance agency contacted and from half of the shareholders. The Company entered into dialogue
with a number of shareholders. The overall response has been supportive, both of the developments in the 2020 Remuneration Policy
and to the changes proposed to executive remuneration.
The Directors’ Remuneration Report has been approved by the Board and is signed on its behalf by
Employee pay1
Dividends2 (based on final proposed dividend)
2019
(£m)
395.0
55.3
2018
(£m)
414.3
53.4
Change
(4.7%)%
3.6%
Jane Hinkley
Chairman, Remuneration Committee
27 February 2020
Notes:
1. Employee pay includes wages and salaries, social security, share-based payments and pension costs, and other post-retirement benefits. See Note 8 to the
Group Financial Statements.
2. Shareholder distributions/dividends includes interim and final dividends paid in respect of each financial year. See Note 24 of the Group Financial Statements.
Vesuvius plcAnnual Report and Financial Statements 2019GovernanceAnnual Report on Directors’ Remuneration continued
126
Directors’ Report
Directors’ Report
Accountability and audit
The Directors submit their Annual Report together with the audited financial statements of the Group and of the Company, Vesuvius
plc, registered in England and Wales No. 8217766, for the year ended 31 December 2019.
The Companies Act 2006 requires the Company to provide a Directors’ Report for Vesuvius plc for the year ended 31 December 2019.
Information incorporated by reference
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:
Auditor’s reappointment
> The Section 172(1) statement
> The Non-financial information section
> The Governance section, including the Corporate Governance Statement
Directors
> Financial instruments: the information on financial risk management objectives and policies contained in Note 25 to the Group
Financial Statements
This Directors’ Report and the Strategic Report contained on pages 1 to 73 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.
Going concern
Events since the
balance sheet
Future developments
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 25 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 25 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 2019 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.
Since 31 December 2019, there have been no material items to 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.
Financial instruments
Information on Vesuvius’ financial risk management objectives and policies can be found in Note 25 to
the Group Financial Statements.
Research and development
Political and charitable
donations
The Group’s investment in research and development (R&D) during the year under review amounted to
£29.1m (representing approximately 2% (2018: 2%) of Group revenue). Further details of the Group’s
R&D activities can be found in the Operating Review section of the Strategic Report.
In accordance with Vesuvius policy, the Group did not make any political donations or incur any political
expenditure in the UK or the EU during 2019 (2018: nil). The Company made no charitable donations of
more than £2,000 in 2019 (2018: nil).
Energy consumption and
efficiency/greenhouse
gas emissions
Information on our reporting of greenhouse gas emissions, and the methodology used to record these,
is set out on page 66 of the Strategic Report. Details of the Group’s energy usage for 2019, and the
efficiency initiatives currently being undertaken, can be found in the Sustainability section of p64-67.
Branches
Dividends
A number of the Group’s subsidiary undertakings maintain branches; further details of these can be
found in Note 33.1 to the Group Financial Statements.
An interim dividend of 6.20 pence (2018: 6.00 pence) per Vesuvius ordinary share was paid on 20
September 2019 to Vesuvius shareholders. The Board is recommending a final dividend in respect
of 2019 of 14.30 pence (2018: 13.80 pence) per ordinary share which, if approved, will be paid on
22 May 2020 to shareholders on the register at 17 April 2020.
127
A responsibility statement of the Directors and a statement by the auditor about its reporting
responsibilities can be found on pages 131 and 132-138 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.
PricewaterhouseCoopers LLP (PwC) was reappointed as External Auditor for Vesuvius plc for the year
ended 31 December 2019, at the 2019 AGM. PwC has been Vesuvius’ external Auditor since 2017
and has expressed its willingness to continue in office as Auditor of the Company for the year ending
31 December 2020. 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 2020 AGM.
The current Directors of the Company are Patrick André, Hock Goh, Friederike Helfer, Jane Hinkley,
Douglas Hurt, Holly Koeppel, John McDonough CBE and Guy Young. Christer Gardell served on the
Board until 4 December 2019, when he stepped down from the Board and was replaced by Friederike
Helfer. All the Directors will retire at the 2020 AGM and offer themselves for re-election at the AGM.
Biographical information for the Directors is given on pages 76 and 77. Further information on the
remuneration of, and contractual arrangements for, the Executive and Non-executive Directors is given
on pages 114-125 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.
Directors’ indemnities
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 13 May 2020 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.
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 9 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 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 15 May 2019, 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 2020 or the date of the AGM to be held
in 2020, 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
2020 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.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 128
Directors’ Report continued
Authority for purchase
of own shares
Share plans
Subject to the provisions of company law and any other applicable regulations, the Company may
purchase its own shares. At the AGM on 15 May 2019, 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 2020 or the date of the AGM to be held in 2020,
whichever is the earlier. The Directors will seek renewal of this authority at the 2020 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 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 in the Company. During the year, the
ESOP sold/transferred 1,226,989 shares to satisfy the vesting of awards under the Company’s share-
based incentive plans. As at 31 December 2019, the ESOP held 1,718,615 ordinary shares. During the
year, the trustee of the ESOP purchased 71,544 ordinary shares of 10p each in Vesuvius with a nominal
value of £7,154 at a total cost, including transaction costs of approximately £0.4m, to hold to satisfy the
future vesting of awards under the Company’s share incentive plans. The total purchases during the year
represented 0.03% 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.
Change of control provisions
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.
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.
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 2019
As at
27 Feb 2020
21.11
13.42
4.93
4.05
21.11
14.04
4.93
4.05
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 122 of the Directors’ Remuneration Report and details of the Directors’ Deferred Share Bonus
Plan and Long-Term Incentive awards are set out on pages 120 and 121.
129
Suppliers, customers
and others
Equal opportunities
employment
Information summarising how the Directors have regard to the need to foster the Company’s business
relationships with suppliers, customers and others is included in the Group’s Section 172(1) Statement on
pages 22-27. This also details how that regard impacted the principal decisions taken by the Directors
during the year.
Our approach to business places a significant number of Vesuvius Steel employees at customer sites on
a permanent basis. In the Foundry Division, our success is built on our deep understanding of customer
processes and technical requirements, and our ability to assist them in delivering the greatest efficiency
from their operations. During the year, our supplier audit programme covered the operations of 203
suppliers. This approach allows Vesuvius to gain a deep understanding of our suppliers’ operations to
ensure sustainability and quality of supply.
Vesuvius agrees payment terms with its suppliers and seeks to pay in accordance with those terms.
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 engagement
Information on the mechanisms through which Vesuvius engages with its workforce is included in the
Section 172(1) Statement on pages 22-27.
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 shares of Vesuvius plc. Outside
the UK, the US, Germany and Belgium, the majority of pension plans in the Group are of a defined
contribution nature.
In 2016, the main German defined benefit plan was closed for new entrants and existing members
were offered a buy-out of their benefits under this plan. Those who accepted this buy-out then joined
the new defined contribution plan. The Group’s UK defined benefits plan (the ‘UK Plan’) and the main
US defined benefits plans are closed to new entrants and have ceased providing future benefits
accrual, with all eligible employees instead being provided with benefits through defined contribution
arrangements.
For the Group’s closed UK Plan, a Trustee Board exists comprising employees, former employees and
an independent trustee. The Board currently comprises six trustee Directors, of whom two are member-
nominated. The administration of the UK Plan is outsourced. The Company is mindful of its obligations
under the Pensions Act 2004 and of the need to comply with the guidance issued by the Pensions
Regulator. Regular dialogue is maintained between the Company and the Trustee Board of the UK
Plan to ensure that both 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 net pension deficit at 31 December 2019 was £8.5m (31 December 2018: £15.3m).
The improvement of £6.8m is driven by cash contributions and payments of unfunded benefits of
£9.8m and from foreign exchange movements of £5.7m; offset by changes to actuarial assumptions
(attributable to reducing discount rates, updated mortality assumptions and pension membership
data) of £3.6m and additional accrual and administrative expenditure paid for the year of £5.1m.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 130 Vesuvius plc
Annual Report and Financial Statements 2019
Directors’ Report continued
Listing Rule 9.8.4C R
Disclosures
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 Not applicable
(3) Details of any Long-Term Incentive schemes
Pages 107 and 108
(4) Director waiver of emoluments
(5) Director waiver of future emoluments
(6)
(7)
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
Not applicable
Not applicable
Not applicable
Not applicable
(8) Details of participation of parent undertaking
Not applicable
in any placing made during the year
(9) Details of relevant material contracts in which
a Director or controlling shareholder was
interested during the year
Not applicable
(10) Contracts for the provision of services by a
Not applicable
controlling 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. The
Trustee of the Company’s ESOP, has agreed
to waive, on an ongoing basis, any dividends
payable on shares it holds in trust for use under
the Company’s Employee Share Plans, details
of which can be found on pages 116, 120, 121
and 122
(12) Details of where a shareholder has agreed
See above
to waive future dividends
(13) Statements relating to controlling
shareholders and ensuring
company independence
Not applicable
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 2020
131
Statement of Directors’ Responsibilities in respect of the
Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report
and 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
> 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
below, 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
> 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 names and functions of the Directors of Vesuvius plc are
as follows:
John McDonough CBE
Chairman
Patrick André
Chief Executive
Guy Young
Hock Goh
Chief Financial Officer
Non-executive Director
Friederike Helfer
Non-executive Director
Jane Hinkley
Douglas Hurt
Non-executive Director and
Chairman of the Remuneration
Committee
Non-executive Director,
Senior Independent Director and
Chairman of the Audit Committee
G
o
v
e
r
n
a
n
c
e
Holly Koeppel
Non-executive Director
On behalf of the Board
Guy Young
Chief Financial Officer
27 February 2020
132
133
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 2019 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 2019; 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
Our Audit Approach – Overview
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 2019 to 31 December 2019.
Materiality
Audit scope
Key audit matters
Materiality
> Overall Group materiality:
£8.6 million (2018: £9.4
million), based on 5% of profit
before tax and separately
reported items (‘Headline
profit before tax’).
> Our audit included full scope
audits of 17 components
and specified procedures
on certain balances and
transactions for 11 additional
components.
Audit scope
> Overall Company materiality:
> Taken together, the
£8.6 million (2018: £9.4
million), based on 1% of total
assets, capped at the level of
Group materiality.
Key audit
matters
components at which either
full scope audit work or
specified audit procedures
were performed enabled us
to get coverage on 69% of
revenue, 76% of profit before
tax and 64% of Headline
profit before tax.
> Impairment of goodwill
(Group);
> Impairment of investment in
subsidiaries (Company);
> Provisions for exposures
(Group); and
> Provisions for uncertainty
over income tax treatments
(Group).
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, international trade regulations,
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
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 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 non-compliance with laws and regulations
and fraud;
> understanding and evaluation of the design and
implementation of management’s controls designed to
prevent and detect irregularities, including compliance,
whistleblowing arrangements and the results of
management’s investigation of such matters;
> inspecting management reports and Board minutes in
relation to health and safety matters;
> reading key correspondence with regulatory authorities,
including the Financial Reporting Council;
> challenging assumptions and judgements made by
management in their critical accounting estimates, in
particular relating to impairment of goodwill and investment in
subsidiaries (Company), 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
Impairment of goodwill
Our audit procedures included:
Goodwill arising from acquisitions has an indefinite
expected useful life. At 31 December 2019, the
carrying value of goodwill is £620.2 million (2018:
£637.1 million - restated). Goodwill is tested for
impairment at least annually at the cash-generating
unit (“CGU”) level. As set out in Note 17, following
correspondence with the Financial Reporting
Council (‘FRC’) the approach to impairment testing
has been revised with CGUs now defined as
Advanced Refractories, Flow Control, Digital
Services and Foundry.
Management prepares a Value in Use model
(discounted cash flow) to test for impairment of
the above CGUs. We focused on this area due to
challenging market conditions and because the
impairment test involves a number of subjective
judgements and estimates by management, many
of which are forward-looking. These estimates
include key assumptions surrounding the budget
and strategic plan that form the basis of the
projected cash flows, discount rates and long term
growth rates.
Due to the change in CGUs for impairment testing
this year, we also focused on the allocation of
goodwill to CGUs and the determination and
disclosure of a prior year restatement required.
Refer to Changes in Accounting Policies (Note 2),
Impairment of Tangible and Intangible Assets (Note
17), Critical Accounting Judgements and Estimates
(Note 3) and Significant issues and material
judgements in the Audit Committee report (page 91).
(Group)
> We understood management’s basis for allocating Steel goodwill to the
revised CGUs and obtained corroborative audit evidence.
> For each CGU we obtained management’s annual impairment
assessment (and revised assessment for prior periods) and ensured the
calculations were mathematically accurate and the methodology used
was in line with the requirements of IAS 36 ‘Impairment of Assets’.
> We evaluated and obtained corroborative evidence supporting the
future cash flow forecasts of each CGU. We compared the forecasts
used in the impairment model to the latest Board approved plans,
and compared prior year budget versus actual data in order to assess
historical estimation uncertainty and factor this into our challenge
of current year projections. We also used external market data to
challenge the profile of future projections.
> We utilised a valuations expert to support our audit procedures over
the discount rate and long term growth rate assumptions used in the
impairment model and sensitised the impacts of changes in the discount
rate within our view of a reasonable range.
> We remained sceptical of the impacts of forecasting uncertainty and
determined alternative sensitivity scenarios to ascertain the extent of
changes in projections that would be required for the goodwill to be
impaired. Our findings were discussed with the Audit Committee
and appropriate sensitivity disclosures have been included in the
financial statements.
> In respect of impairment recognised as a prior year restatement we also
checked that required disclosures were provided.
From our procedures we concluded that the impairment testing estimates
are reasonable and that appropriate disclosures have been included
within the Annual Report.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 134
Independent Auditors’ Report
to the Members of Vesuvius plc continued
135
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Impairment of investment in subsidiaries
Our audit procedures included:
Provisions for uncertainty over income tax treatments
Our audit procedures included:
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 2019.
Due to the quantum of the carrying amount this
was an area of focus 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 7) and Critical Accounting
Judgements and Estimates (Note 3) in the Company
Financial Statements.
(Company)
Provisions for exposures
The Group holds a number of provisions for
exposures including those resulting from restructuring
commitments, and disposal and closure costs,
including legal matters. Refer to Restructuring
Charges (Note 7), Provisions (Note 30), Critical
Accounting Judgements and Estimates (Note 3)
and Significant issues and material judgements in
the Audit Committee report (page 91).
> We assessed the carrying value of the investments in the context that the
investment carrying value exceeds the Group’s market capitalisation which
was considered a trigger for impairment testing.
> We assessed the results of the Value in Use model used for the impairment
test over goodwill which indicated headroom and that the Investment
balance was not impaired.
> We applied the same audit procedures set out in ‘Impairment of goodwill
above’ to obtain evidence to support management’s base case model,
and challenge management on sensitivity scenarios where impairment
might arise.
> We checked that appropriate sensitivity disclosures have been included in
the Annual Report.
Our findings were discussed with the Audit Committee. We concluded that
no impairment is required and enhanced sensitivity disclosures have been
included in the Annual Report.
We obtained an understanding for the basis of each significant estimate and
the key assumptions used for provisions.
Restructuring provisions (and associated costs) related to the Group’s
rationalisation of its operational and support functions. The provisions
predominantly included redundancies and severance payments and plant
closure costs. Our testing of restructuring provisions included:
> We understood restructuring programmes and that these are distinct,
timebound and with clear criteria established;
Determining the quantum of provisions requires the
directors to use judgement and estimation, and for
certain provisions, obtain specialist knowledge.
> We have tested a sample of restructuring costs, ensuring this included
a sceptical focus that costs are directly attributable to the Group’s
restructuring activities.
We focused on this area due to the material
quantum of provisions and the judgement and
estimates involved.
(Group)
> 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 Annual Report.
For other provisions:
> We obtained supporting computations for the estimated costs and tested
the mathematical accuracy and logic of these.
> We discussed obligations arising with in-house and external legal counsel
and inspected correspondence, where relevant.
> We tested source data used as inputs into client calculations that estimate
certain provisions and obtained the support of an internal expert to assess
key assumptions.
> We also inspected evidence of available insurance cover and that this was
appropriately presented as gross of the associated provisions (within ‘Other
receivables’) and considered the financial condition of insurance providers.
> We assessed and challenged estimation uncertainties and whether there
is a range of different possible outcomes and/or costs involved in respect
of each provision, inspecting evidence to support that each provision held
represented the best estimate.
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 Alternative
Performance Measures in the financial statements and verified that
appropriate disclosures are made in the Annual Report.
The Group implemented IFRIC 23 ‘Uncertainty
over Income Tax Treatments’ from 1 January 2019
and an adjustment was made to the opening
retained earnings balance on transition. A number
of provisions are held for income tax exposures
arising from tax structuring, transfer pricing and
local authority reviews.
Determining the quantum of these provisions and the
first time adoption of IFRIC 23 requires the directors
to make judgements and estimates, and for certain
areas, obtain specialist knowledge.
Refer to Changes in Accounting Policies (Note 2),
Income Tax (Note 10), Critical Accounting Judgements
and Estimates (Note 3) and Significant issues and
material judgements in the Audit Committee report
(page 91).
(Group)
> Where provisions were recognised for uncertainty over income tax
treatments we understood the nature of the uncertainty and judgements
being applied by management. We involved our tax specialists to
corroborate these key judgements regarding uncertain treatments. We
then further assessed assumptions used in estimating the provisions and
that these were consistent with the nature of the uncertainty identified.
> We further considered our understanding of the Group and the results of
our component audit teams’ audit procedures to assess the completeness
of the income tax uncertainties identified and provided for.
> The transfer pricing provision was estimated using a model. We
performed testing of the accuracy of calculations and source data
used in the model. Where relevant, we also obtained supporting
correspondence to evidence income tax provisions.
> We assessed the appropriateness of the approach used to determine
provisions and that this conforms with IFRIC 23 ‘Uncertainty over Income
Tax Treatments’, including the adjustment recognised on adoption and
related disclosures.
> We considered 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.
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 54 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, Headline profit
before tax and contribution to individual financial statement line
items, with specific consideration to obtaining sufficient coverage
over areas of heightened risk and locations and entities where we
identified other areas of higher risk.
We identified one financially significant component in Germany
which comprises 11% of the Group’s revenue and 7% of Headline
profit before tax. The Group’s remaining revenue is spread
across 53 other components and there were no other individually
financially significant components. The audit scope, including
the German component, comprised 17 components for which
we determined that full scope audits would need to be performed
and 11 components for which specific audit procedures on certain
balances and transactions were performed. This collectively gave
us coverage of 69% of the Group’s revenue, 76% of the Group’s
profit before tax and 64% 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 11 of the 17 full scope components by senior
members of the Group audit team.
Vesuvius plcAnnual Report and Financial Statements 2019Governance 136
Independent Auditors’ Report
to the Members of Vesuvius plc continued
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
£8.6 million (2018: £9.4 million).
£8.6 million (2018: £9.4 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 at 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 for 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
£0.6 million and £5.7 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 £0.4 million
(Group audit) (2018: £0.5 million) and £0.4 million (Company
audit) (2018: £0.5 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 of the United Kingdom’s withdrawal
from the European Union are not clear,
and it is difficult to evaluate all of the
potential implications on the Group’s
trade, customers, suppliers and the
wider economy.
We have nothing to report.
137
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 2019 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)
Other Code Provisions
We have nothing to report in respect of our responsibility to
report when:
> The statement given by the directors, on page 131, 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 91 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)
Vesuvius plcAnnual Report and Financial Statements 2019Governance 138 Vesuvius plc
Annual Report and Financial Statements 2019
Independent Auditors’ Report
to the Members of Vesuvius plc continued
Responsibilities for the financial statements and
the audit
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 3 years, covering the years ended 31 December
2017 to 31 December 2019.
Julian Jenkins (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2020
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’
Responsibilities in respect of the Annual Report and Financial
Statements set out on page 131, 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.
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.
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
Group Statement of Cash Flows
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
Five-Year Summary: Divisional Results
Shareholder Information
140
141
142
143
144
145
193
194
195
201
202
Glossary
204
139
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
140
Group Income Statement
For the year ended 31 December 2019
Continuing operations
Revenue
Manufacturing costs
Administration, selling and distribution costs
Trading profit (2)
Amortisation of acquired intangible assets
Restructuring charges
Vacant site remediation costs
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
2019
(1) Separately
reported
items
£m
Total
£m
(1) Headline
performance
£m
2018
(1) Separately
reported
items
£m
Total
£m
4, 5
1,710.4
—
1,710.4
1,798.0
(1,233.5)
— (1,233.5)
(1,291.2)
—
1,798.0
— (1,291.2)
(295.5)
181.4
—
—
—
—
181.4
(19.5)
8.5
(11.0)
1.0
171.4
(43.8)
127.6
—
127.6
121.4
6.2
127.6
—
—
(10.0)
(39.8)
(4.1)
—
(53.9)
—
—
—
1.1
(52.8)
11.7
(41.1)
—
(41.1)
(41.1)
—
(41.1)
5
16
7
26
9
33
10
11
(295.5)
181.4
(10.0)
(39.8)
(4.1)
—
127.5
(19.5)
8.5
(11.0)
2.1
118.6
(32.1)
86.5
—
86.5
80.3
6.2
86.5
29.8
29.6
29.8
29.6
(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
(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
(1) Headline performance is defined in Note 4.1 and separately reported items are defined in Note 2.5.
(2) Trading Profit is defined in Note 4.4.
141
Group Statement of Comprehensive Income
For the year ended 31 December 2019
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
Reclassification of foreign currency translation reserve on disposal of share in joint venture
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
Notes
26.6
10.4
23
2019
£m
86.5
(3.6)
1.9
(73.4)
(1.1)
14.1
—
(62.1)
24.4
20.6
3.8
24.4
20.6
—
20.6
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
Vesuvius plcAnnual Report and Financial Statements 2019Financial StatementsVesuvius plcAnnual Report and Financial Statements 2019
142
143
Group Statement of Cash Flows
For the year ended 31 December 2019
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
Proceeds from the sale of assets classified as held for sale
Notes
12
2019
£m
2018
£m
240.7
(17.3)
5.2
(12.1)
(44.5)
184.1
195.2
(16.3)
4.8
(11.5)
(41.8)
141.9
(65.4)
(41.2)
3.7
1.8
Acquisition of subsidiaries and joint ventures, net of cash acquired
20
(32.7)
Disposal of joint ventures, net of cash disposed
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
Settlement of derivatives
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):
6.8
0.1
(85.7)
98.4
154.6
(169.8)
(5.1)
—
(53.9)
(2.8)
(77.0)
21.4
213.4
(12.7)
222.1
14
14
25
22
24
14
14
13
Continuing
operations
£m
Discontinued
operations
£m
2019
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
Proceeds from the sale of assets classified as held for sale
Dividends received from joint ventures
Dividends paid to non-controlling shareholders
Free cash flow (Note 4.10)
2018 Free cash flow does not reflect the transition to IFRS 16 Leases.
184.1
5.1
(65.4)
3.7
1.8
0.1
(2.8)
126.6
—
—
—
—
—
—
—
—
184.1
5.1
(65.4)
3.7
1.8
0.1
(2.8)
126.6
142.0
3.4
(41.2)
2.6
—
1.2
(1.9)
106.1
(0.1)
—
—
—
—
—
—
(0.1)
106.0
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
2018
total
£m
141.9
3.4
(41.2)
2.6
—
1.2
(1.9)
Group Balance Sheet
As at 31 December 2019
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
Notes
2019
£m
31 Dec 2018
Restated*
£m
1 Jan 2018
Restated*
£m
15
16
26
33
10
25
13
19
18
10
25
21
22
23
25
26
28
30
10
25
28
10
30
25
337.7
708.5
102.6
12.7
0.8
—
94.9
22.1
0.5
303.7
724.0
90.8
19.1
1.0
—
94.5
30.1
0.7
301.1
725.6
92.4
17.5
1.4
0.4
61.0
30.9
0.2
1,279.8
1,263.9
1,230.5
229.2
212.9
379.6
2.9
0.1
—
236.9
244.3
440.4
2.8
0.1
1.7
161.9
222.8
422.2
5.2
0.1
—
824.7
2,104.5
926.2
2,190.1
812.2
2,042.7
27.8
27.8
27.8
2,463.1
2,432.4
2,342.7
(1,427.5)
(1,369.5)
(1,369.4)
1,063.4
1,090.7
1,001.1
51.0
50.0
45.4
1,114.4
1,140.7
1,046.5
303.2
111.1
15.1
31.1
43.6
504.1
171.7
273.6
14.3
25.7
0.7
455.5
106.1
16.1
38.8
38.7
655.2
29.4
311.8
29.3
23.1
0.6
486.0
990.1
2,104.5
394.2
1,049.4
2,190.1
410.5
108.9
17.3
34.4
42.7
613.8
25.7
292.6
34.3
29.8
—
382.4
996.2
2,042.7
*
Restated – see Note 17.2 of the Group financial statements for an explanation and analysis of the prior year adjustments made in respect of the Balance Sheets as at
31 December 2018 and 1 January 2018.
Company number 8217766
The financial statements on pages 140 to 192 were approved and authorised for issue by the Directors on 27 February 2020 and signed
on their behalf by:
Patrick André
Chief Executive
Guy Young
Chief Financial Officer
Vesuvius plcAnnual Report and Financial Statements 2019Financial StatementsVesuvius plcAnnual Report and Financial Statements 2019
144 Vesuvius plc
Annual Report and Financial Statements 2019
Group Statement of Changes in Equity
For the year ended 31 December 2019
Issued
share
capital
£m
Other
reserves
£m
Retained
earnings
£m
Owners of
the parent
£m
Non-
controlling
interests
£m
Total
equity
£m
As at 1 January 2018 – as reported
27.8
(1,369.4)
2,370.3
1,028.7
45.4
1,074.1
Restatement upon impairment of tangible and intangible assets
(Note 17.2)
As at 1 January 2018 – restated
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 24)
Total transactions with owners
As at 1 January 2019 – as reported
—
—
(27.6)
(27.6)
27.8
(1,369.4)
2,342.7
1,001.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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)
—
45.4
6.8
—
—
(0.3)
—
—
(0.3)
6.5
—
—
(1.9)
(1.9)
(27.6)
1,046.5
145.1
5.1
6.0
11.1
(11.5)
—
10.7
155.8
3.7
(13.4)
(51.9)
(61.6)
27.8
(1,369.5)
2,432.4
1,090.7
50.0
1,140.7
Restatement upon adoption of IFRIC 23 (Note 2.6)
—
—
1.5
1.5
As at 1 January 2019 – restated
27.8
(1,369.5)
2,433.9
1,092.2
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
Reclassification of foreign currency translation reserve on
disposal of share in joint venture
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 24)
Total transactions with owners
As at 31 December 2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(71.0)
(1.1)
14.1
—
(58.0)
(58.0)
—
—
—
80.3
(3.6)
1.9
80.3
(3.6)
1.9
—
—
—
—
(1.7)
78.6
4.5
(53.9)
(49.4)
(1.1)
14.1
—
(59.7)
20.6
4.5
(53.9)
(49.4)
27.8
(1,427.5)
2,463.1
1,063.4
(71.0)
(2.4)
(73.4)
—
50.0
6.2
—
—
1.5
1,142.2
86.5
(3.6)
1.9
—
—
—
(1.1)
14.1
—
(2.4)
(62.1)
3.8
—
(2.8)
(2.8)
51.0
24.4
4.5
(56.7)
(52.2)
1,114.4
Vesuvius plc
Annual Report and Financial Statements 2019
145
Notes to the Group Financial Statements
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 73 and its registered address
is shown on page 202.
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, less 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.
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 25.1.
2.5 Disclosure of ‘separately reported items’
Columnar presentation
In accordance with IAS 1, the Group has adopted a columnar presentation for its Group Income Statement, to separately identify
headline performance results, as the Directors consider that this gives a useful view of the underlying results of the ongoing
business. As part of this presentation format, the Group 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 useful understanding of the financial performance
achieved for a given year and in making projections of future results.
Separately reported items
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.
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
146
Vesuvius plc
Annual Report and Financial Statements 2019
147
2. Basis of Preparation continued
2.5 Disclosure of ‘separately reported items’ continued
The recognised right of use assets relate to the following assets.
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.
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.
Leasehold property
Plant and equipment
31 December
2019
£m
1 January
2019
£m
As reported
31 December
2018
£m
20.7
13.7
34.4
22.3
15.7
38.0
—
4.4
4.4
2019
The change in accounting policy affected the following items in the balance sheet on 1 January 2019.
The Group owns a disused property in the US, which does not form part of our trading operations. Costs are being incurred at this
site to address the significant increase in the volume of water run-off occurring in 2019. We have engaged waste management
specialists, are taking actions to reduce the level of water (including hydrological studies) and are in contact with the relevant
regulatory authorities. We estimate that it will take 18 months to finalise remediation. The costs for this remediation are
estimated to be £4.1m. These non-recurring costs have been treated as a separately reported item. There has been no impact
upon headline performance.
2018
Following a period of sustained profitability of the Group’s US business, for 2018 the Board 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.
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 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 16 Leases
The Group has adopted IFRS 16 Leases from 1 January 2019 and, in accordance with the simplified approach, has not restated
comparatives on transition. The reclassifications and adjustments arising from the new lease accounting rules are therefore
recognised in the opening balance sheet on 1 January 2019.
The Group has recognised lease liabilities in relation to leases which had previously been classified as operating leases and
taken the practical expedient provided for leases of low-value assets and short-term leases (shorter than 12 months). For leases
that had been classified as operating leases in accordance with IAS 17, the lease liability was recognised at the present value of
the remaining lease payments, discounted using the interest rate implicit in the lease if that rate could be readily determined.
If that rate could not be readily determined, the lessee’s incremental borrowing rate was used, calculated as the local government
bond rate plus an interest rate spread. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities
on 1 January 2019 was 4.4%.
Net debt rose accordingly due to the increase in lease liabilities, as shown in Note 25. In cases where there was an option to
terminate or extend a lease, the duration of the lease assumed for this purpose reflected the Group’s existing intentions regarding
such options.
Lease liabilities include the net present value of the following lease payments:
> fixed payments (including in-substance fixed payments), less any lease incentives receivable
> variable lease payments that are based on an index or a rate
> amounts expected to be payable by the lessee under residual value guarantees
> the exercise price of a purchase option if the lessee is reasonably certain to exercise that option and
> payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option
For leases previously classified as finance leases, the entity recognised the carrying amount of the lease asset and lease liability
immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial
application. In determining the right of use assets, the Group has taken the practical expedient in respect of placing reliance on
previous assessments on whether leases are onerous. This has resulted in adjustment of the onerous lease provision of £2.5m
against the right of use assets upon transition and recognition of a lease liability. The measurement principles of IFRS 16 are
only applied after that date.
The right of use asset was measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or
accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. The right-of-use
asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Property, plant and equipment – increase
Trade and other receivables – decrease
Provisions – decrease
Lease liabilities – increase
As reported
31 December
2018
£m
313.9
470.5
(61.9)
(3.9)
£m
33.6
(3.3)
2.5
(32.8)
1 January
2019
£m
347.5
467.2
(59.4)
(36.7)
The operating lease commitment disclosed in the Group’s 2018 consolidated accounts can be reconciled to the lease liability as at
1 January 2019 as follows:
Operating lease commitment disclosed as at 31 December 2018
Add finance lease liabilities recognised already as at 31 December 2018
Less short-term and low-value leases still treated as operating leases
Less the effect of discounting upon the lease liability as at 1 January 2019
Lease liability recognised as at 1 January 2019
£m
39.3
3.9
(6.0)
(4.4)
32.8
In contrast with the previous presentation of operating lease expenses within operating profit, the Group now recognises
depreciation charges on right of use assets and interest expense from unwinding of the discount on the lease liabilities. 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, with an insignificant impact on net profit, and cash generated from operations would have been
approximately £9m higher with a compensating £9m additional financing cash outflow so there would have been no impact on
the net cash flow.
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 has been applied from 1 January 2019 and clarified how the recognition and measurement requirements of IAS 12
‘Income taxes’ are to be applied where there is uncertainty over income tax treatments. At transition, an adjustment has been
made to reduce tax liabilities and to increase opening reserves in respect of tax provisions by £1.5m.
2.7 New and revised IFRS
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019
reporting periods and have not been early adopted by the Group. These include the new insurance standard IFRS 17 Insurance
Contracts which was issued in 2017 with the effective date of 1 January 2021. These new or amended standards or interpretations
are not expected to have a significant impact on the Group’s financial statements.
2.8 Financial Reporting Council (FRC) review of 2018 Group Financial Statements
The 2018 Group Financial Statements are subject to an ongoing review by the FRC’s Corporate Reporting Review team as part
of the usual cycle of reviews of listed companies’ accounts. This has resulted in our making a number of enhancements to our
disclosures in the 2019 Group Financial Statements. As part of that enquiry, we have also reconsidered our application of IAS 36,
Impairment of Assets. Previously, the Group identified cash generating units as Steel and Foundry divisions. We have now
performed goodwill impairment testing at an operating segment level which are Steel Advanced Refractories, Steel Flow Control,
Steel Digital Services (Sensors & Probes) and the Foundry Division. This has shown that the carrying value of the goodwill held
in the Steel Digital Services (Sensors & Probes) operating segment could not be supported by value in use calculations as at
31 December 2017 and should therefore have been fully impaired at that date, resulting in an impairment of £17.4m. We have
also identified an impairment of tangible fixed assets at that date of £10.2m. The effect of these impairments is a decrease in net
assets of £27.6m as at 31 December 2017, 31 December 2018 and 31 December 2019. The impact on reported profit and cash
flow for the years ended 31 December 2018 and 31 December 2019 is not material. Further details are provided in Note 17.2.
When reviewing the Company’s 2018 Annual Report and Financial Statements, the FRC has made clear to us the limitations of
its review is as follows:
> its review is based on the 2018 Annual Report and Financial Statements only and does not benefit from a detailed knowledge
of the Group’s business or an understanding of the underlying transactions entered into;
> communications from the FRC provide no assurance that the Company’s 2018 Annual Report and Financial Statements are
correct in all material respects and are made on the basis that the FRC (and its officers, employees and agents) accepts no
liability for reliance on them by the Company or any third party, including but not limited to investors and shareholders; and
> the FRC’s role is not to verify information provided but to consider compliance with reporting requirements.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial Statements
148
149
3. Critical Accounting Judgements and Estimates
4. Alternative Performance Measures
Determining the carrying amount of some assets and liabilities and amounts recognised as reported profit 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 and liabilities and amounts recognised as
reported profit are noted below. All other accounting policies are included within the respective Notes to the financial statements.
3.1 Separately reported items (Judgement)
In accordance with IAS 1, the Group 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 useful 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, and 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.
3.2 Provisions (Judgement and Estimate)
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. 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 30. 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, including
judgement as to whether to recognise a provision, 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. A critical judgement involves assessing likelihood of insurance being
paid which considers available cover and historical evidence to determine this is virtually certain.
3.3 Current tax (Judgement and Estimate)
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. These require estimation of quantum. As indicated in Note 10.5,
provisions for uncertain tax positions amount to £11.8m at the end of 2019 (2018: £20.2m). The provisions represent the maximum
estimated amount of tax that would be payable by the Group should the tax authorities disagree with the positions taken in the
submitted tax returns. 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 and IFRIC 23.
3.4 Employee benefits (Estimate)
The Group’s financial statements include the costs and obligations associated with the provision of pension and other post-
retirement benefits to current and former employees. It is the Directors’ responsibility to set the assumptions used in determining
the key elements of the costs of meeting such future obligations. These assumptions are set after consultation with the Group’s
actuaries and include those used to determine regular service costs and the financing elements related to the plans’ assets and
liabilities. Whilst the Directors believe that the assumptions used are appropriate, a change in the assumptions could affect the
Group’s profit and financial position. The pension obligations are most sensitive to a change in the discount rate and therefore
could materially change in the next financial year if the discount rate changes significantly. Sensitivity disclosures are included
in Note 26.3.
3.5
Impairment testing of intangible assets (Estimate)
Determining whether intangible assets are impaired requires an estimation of the value-in-use of the cash-generating units to
which these assets have been allocated. The value-in-use calculation requires estimation of future cash flows expected to arise
for the cash-generating unit, the selection of suitable discount rates and the estimation of long-term growth rates. As determining
such assumptions is inherently uncertain and subject to future factors, there is the potential these may differ in subsequent periods
and therefore materially change the conclusions reached. In light of this, consideration is made each year as to whether sensitivity
disclosures are required for reasonably possible changes to assumptions.
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 key performance measures (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 as adopted by the EU 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 KPIs 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 KPIs 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/EBITA
Trading profit/EBITA, 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 KPIs 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 KPIs 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 Adjusted operating cash flow
Adjusted 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.
Adjusted operating cash flow and cash conversion
Cash generated from continuing operations (Note 12)
Add: Outflows relating to restructuring charges
Add: Net retirement benefit obligations
Less: Capital expenditure
Add: Vacant site remediation costs
Add: Proceeds from the sale of property, plant and equipment
Add: Proceeds from the sale of assets classified as held for sale
Adjusted operating cash flow
Trading profit
Cash conversion
Excluding IFRS 16, cash conversion for 2019 is 113%.
2019
£m
240.7
30.0
5.1
(65.4)
1.8
3.7
1.8
217.7
181.4
120%
2018
£m
195.3
19.3
3.4
(41.2)
—
2.6
—
179.4
197.2
91%
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4. Alternative Performance Measures continued
4.9 Cash conversion
Cash conversion is calculated as adjusted 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 KPIs 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. 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.
Average trade working capital
Total revenue
Average trade working capital to sales ratio
2019
410.2
1,710.4
24.0%
2018
429.3
1,798.0
23.9%
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 5.
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 KPIs 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 cash and short-term deposits, current and non-current interest-bearing borrowings and
derivative financial instruments. 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 KPIs 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 (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, translated at average exchange rates for the
year). It is one of the Group’s KPIs 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.
Average net operating assets
Trading profit
Share of post-tax profit from joint ventures
RONA
4.18 Constant currency
Constant currency is the average 2019 exchange rates.
2019
690.2
181.4
1.0
182.4
26.4%
2018
658.9
197.2
2.8
200.0
30.4%
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
The Group’s operating segments are determined taking into consideration how the Group’s components are reported to the
Executive Directors of the Board, who make the key operating decisions and are responsible for allocating resources and
assessing performance of the component. Taking into account the Group’s management and internal reporting structure,
the operating segments are Steel Flow Control, Steel Advanced Refractories, Steel Digital Services (Sensors & Probes) and
the Foundry Division. The principal activities of each of these segments are described in the Strategic Report.
Steel Flow Control, Steel Advanced Refractories and Steel Digital Services (Sensors & Probes) operating segments are
aggregated into the Steel reportable segment. In determining that aggregation is appropriate, judgement is applied which takes
into account the economic characteristics of these operating segments which include a similar nature of products, customers,
production processes and margins.
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 is 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 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 customer benefits from the combined
output of promises in the contract, in which case the individual elements are not distinct and should be bundled.
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. Approximately 87% (2018:89%) of
our revenue relates to the sale of consumables and systems for which revenue is recognised at a point in time when the customer
takes ownership. Revenue is recognised at a point in time for all standard revenue transactions when control of the goods
provided is transferred to the customer. In addition, approximately 13% (2018: 11%) of revenue is also recognised at a point in
time for contracts which contain multiple elements (‘service contracts’), when the performance obligation has been satisfied.
For service contracts, the customer benefits from the combination of goods and services into a single product and performance
obligations are satisfied when the customer has produced an agreed amount of steel over a certain period. The Group recognises
revenue over time for contracts which contain performance obligations that are longer term in nature. Where the contract
deliverable is based on the progress of the goods and services being transferred to the customer, the output method of
completion is used, whereas the input method, which looks at the resources used to date to deliver the performance obligation,
is used where there is a direct link between resources used and the transfer of control of goods and services. 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.
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Vesuvius plc
Annual Report and Financial Statements 2019
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5 Segment Information continued
Revenue from contracts with customers
Performance obligations
5.3 Segmental analysis
The reportable segment results from continuing operations for 2019 and 2018 are presented below.
2019
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 primarily to 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 primarily 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.
Variable consideration
> Rights of return
Certain contracts provide a customer with a right to return goods within a specific period. The Group estimates the amount of
consideration to which it will be entitled in exchange for transferring the goods or services to the customer, using Management’s
expertise within the business, and 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.
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 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’
2019
£m
2018
£m
306.7
372.7
1.1
3.3
0.8
2.6
Contract liabilities of £3.3m (2018: £2.6m) include advances received from a customer that precede 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. £2.6m of the contract liabilities recognised in
the prior year was recognised as revenue in 2019.
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.
Segment revenue
at a point in time
over time
Segment EBITDA
Segment depreciation
Segment trading profit
Return on sales margin
Amortisation of acquired intangible assets
Restructuring charges
Vacant site remediation costs
Operating profit
Net finance costs
Share of post-tax profit of joint ventures
Profit before tax
Capital expenditure additions
Segment revenue
at a point in time
over time
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
Flow
Control
£m
Advanced
Refractories
£m
Digital
Services
(Sensors
& Probes)
£m
626.3
539.8
29.2
Total Steel
£m
1,195.3
1,188.9
6.4
Foundry
£m
515.1
515.1
Total
£m
1,710.4
1,704.0
6.4
Flow
Control
£m
Advanced
Refractories
£m
2018
Digital
Services
(Sensors
& Probes)
£m
662.6
541.1
33.0
153.4
(33.3)
120.1
77.7
(16.4)
61.3
10.0%
11.9%
53.6
21.1
Total Steel
£m
1,236.7
1,225.7
11.0
155.3
(27.0)
128.3
10.4%
Foundry
£m
561.3
561.3
—
82.9
(14.0)
68.9
12.3%
34.4
14.0
231.1
(49.7)
181.4
10.6%
(10.0)
(39.8)
(4.1)
127.5
(11.0)
2.1
118.6
74.7
Total
£m
1,798.0
1,787.0
11.0
238.2
(41.0)
197.2
11.0%
(12.9)
(15.3)
(4.5)
164.5
(11.1)
2.8
156.2
48.4
The Chief Operating Decision Maker does not review non-current assets at a segmental level so these disclosures are not included.
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155
5. Segment Information continued
5.4 Geographical analysis
EMEA
Asia
North America(1)
South America
Continuing operations
External revenue
Non-current assets
2019
£m
699.8
480.4
419.0
111.2
2018
£m
786.4
484.6
407.6
119.4
2019
£m
478.0
227.3
345.7
58.3
2018
£m
468.5
250.1
325.0
62.0
1710.4
1,798.0
1,109.3
1,105.6
1. CCPI has contributed £23.8m of revenue to North America since acquisition on 1 March 2019. See Note 20.
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.
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 29)
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 (1)
Audit-related assurance services
Total auditors’ remuneration
2019
£m
642.6
29.1
395.0
49.7
10.0
6.0
2018
£m
677.4
33.6
414.3
41.0
12.9
20.9
2019
£m
2018
£m
0.5
1.2
0.1
1.8
0.5
1.1
0.1
1.7
1. After the reporting period end date, the Group incurred £0.2m in additional audit fees due for the 2018 year-end audit.
Total auditors’ remuneration of £1.8m in 2019 all related to continuing operations, of which £1.7m related to audit fees and
£0.1m of non-audit fees, in respect of the Group’s half-year financial statements, quarterly reviews and tax form audits in India
(as required by regulation) (2018: £1.7m, including £1.6m of audit fees and £0.1m of non-audit fees, the latter in respect of the
half year review fee and quarterly reviews, and tax form audits in India). It is the Group’s policy not to use the Group’s auditors for
non-audit services other than for audit related services that are required to be performed by an auditor.
Mazars LLP acts as external auditor of the non-material entities within the Group. Total remuneration for the audit of the
non-material entities was £0.5m (2018: £0.5m). This amount is not included in the table above.
7. Restructuring Charges
As explained in the Financial review on page 41, the 2019 restructuring charges were £39.8m and relate to the programme
first announced in March 2018, which is predominantly focused on rationalising our manufacturing footprint, consolidating
production and streamlining various back office functions. The charges reflect redundancy costs of £24.8m (2018: £8.3m),
plant closure costs of £4.4m (2018: £4.7m), consultancy fees of £1.6m (2018: £0.5m), asset write-offs of £8.9m (2018: £1.7m)
and travel of £0.1m (2018: £0.1m).
The net tax credit attributable to the total restructuring charges was £9.2m (2018: £1.8m).
Cash costs of £30.0m (2018: £19.3m) (Note 12) were incurred in the year in respect of the restructuring programme, leaving
provisions made but unspent of £19.1m (Note 30) as at 31 December 2019 (2018: £17.4m), of which £nil (2018: £4.3m) relates
to future costs in respect of leases expiring between one and six years.
8. Employees
8.1 Employee expenses
Wages and salaries
Social security costs
Share-based payments (Note 27)
Pension costs — defined contribution pension plans (Note 26)
— defined benefit pension plans (Note 26)
Other post-retirement benefits (Note 26)
Total employee expenses
8.2 Monthly average number of employees
Steel
Foundry
Continuing operations
Discontinued operations
Total monthly average number of employees
2019
£m
323.4
50.6
4.9
11.3
4.3
0.5
2018
£m
340.0
54.0
3.7
11.4
4.6
0.6
395.0
414.3
2019
no.
7,731
2,845
10,576
—
2018
no.
7,894
3,126
11,020
—
10,576
11,020
As at 31 December 2019, the Group had 10,496 employees (2018: 10,809).
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 114 to 125.
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
Interest on lease liabilities
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
2019
£m
1.2
0.2
1.2
2.6
2019
£m
15.7
1.6
0.6
17.9
0.3
1.3
(0.7)
(7.8)
11.0
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
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156
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, such as the
recently announced corporate tax rate reduction in India.
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
materially. 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 is effective from 1 January 2019. It clarifies how to recognise and measure
deferred and current income tax assets and liabilities where there is uncertainty over tax treatment under IAS 12.
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.
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
157
2019
£m
32.2
(1.1)
31.1
1.7
(0.7)
1.0
32.1
43.8
(11.7)
32.1
2018
£m
41.9
(3.0)
38.9
(28.6)
1.3
(27.3)
11.6
48.4
(36.8)
11.6
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
Restructuring charges
Amortisation and utilisation of acquired intangibles
Additional recognition of US deferred tax asset
Total tax charge/(credit) separately reported
2019
£m
(9.2)
(2.5)
—
(11.7)
2018
£m
(1.8)
(2.8)
(32.2)
(36.8)
In 2018, the Group 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 presents (in 2018 and 2019) 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 impact of the Global Intangible Low-Taxed Income (‘GILTI’) provisions in the US on Vesuvius in 2019 has been to increase the
headline tax charge by £1.2m (2018: £2.4m).
During 2019, India confirmed a reduction in its corporate income tax rate from 1 April 2019 to approximately 25%. This has
reduced the effective rate of tax on headline profit before tax and before the Group’s share of post-tax profits from joint ventures
by 1.4%.
The net tax credit reflected in the Group Statement of Comprehensive Income in the year amounted to £1.9m (2018: £6.0m),
comprising a £1.9m credit (2018: £1.3m charge) related to tax on net actuarial gains and losses on the employee benefits plan
and a credit of £nil (2018: £7.3m) for additional recognition of a US pension deferred tax asset.
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, 3.3,
10.1 and 10.6.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
158
159
10. Income Tax continued
10.3 Reconciliation of income tax charge to profit before tax
Profit before tax
Tax at the UK corporation tax rate of 19.0% (2018: 19.0%)
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
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 1 January 2019
Exchange adjustments/other
Acquisition
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 2019
Recognised in the Group Balance Sheet as:
Non-current deferred tax assets
Non-current deferred tax liabilities
Net total deferred tax assets
2019
£m
118.6
22.5
5.1
5.4
(0.8)
2.1
1.2
–
(0.9)
3.0
(3.7)
(1.8)
32.1
Interest
£m
9.9
1.6
—
—
23.2
34.7
(0.3)
—
—
—
(10.5)
23.9
Other
operating
losses
£m
Pension
costs
£m
Intangible
assets
£m
Other
temporary
differences
£m
17.1
1.0
—
1.0
0.4
19.5
(0.2)
—
—
4.0
(4.5)
18.8
—
0.5
6.0
0.3
(3.4)
3.4
(1.2)
—
1.9
(0.7)
0.1
3.5
(23.1)
(0.1)
—
2.8
(1.5)
(21.9)
0.8
(3.4)
—
2.5
(0.4)
(22.4)
14.4
1.2
—
(1.1)
5.6
20.1
(1.8)
0.6
—
(3.0)
11.6
27.5
2019
£m
94.9
(43.6)
51.3
Included in these deferred tax assets and liabilities are amounts to be expected to be utilised in 2020 as follows:
Deferred tax assets
Deferred tax liabilities
2019
£m
10.8
(2.5)
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
Total
£m
18.3
4.2
6.0
3.0
24.3
55.8
(2.7)
(2.8)
1.9
2.8
(3.7)
51.3
2018
£m
94.5
(38.7)
55.8
2018
£m
14.7
(2.8)
The total deferred tax assets not recognised as at 31 December 2019 were £167.8m (2018: £166.9m), 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 an increase of £0.9m (2018: £53.0m decrease) in
net unrecognised deferred tax assets during the year.
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
2019
£m
95.6
19.5
32.1
13.1
—
7.5
2018
£m
97.1
11.9
28.1
13.1
6.8
9.9
167.8
166.9
The Group has significant net operating losses with a tax value of £114.4m (2018: £116.6m), only £18.8m (2018: £19.5m) 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
2019
£m
Operating
losses not
recognised
2019
£m
—
9.7
9.1
—
18.8
74.6
—
21.0
—
95.6
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
2019
£m
74.6
9.7
30.1
—
114.4
Total
2018
£m
74.6
14.5
25.7
1.8
116.6
The £30.1m (2018: £27.5m) 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. The Group expects to utilise these
credits in full prior to their expiration in 2024 so has now recognised the total amount of £12.4m on its balance sheet.
An amount of £3.1m has been recognised in respect of withholding taxes that will be due on a repatriation of funds from the
group’s Chinese subsidiaries.
Deferred tax is not recognised in respect of the value of the Group’s investments in subsidiaries and interests in joint ventures
where we are able to control the timing of the reversal of the temporary differences and it is probable that such differences will
not reverse in the foreseeable future. The amount of these temporary differences for which deferred tax liabilities have not been
recognised was £22.6m (2018: £25.2m).
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
2019
£m
2.5
11.8
14.3
2.9
—
2.9
2018
£m
9.1
20.2
29.3
2.8
—
2.8
Included in non-current deferred tax assets is £61.3m (2018: £67.3m) 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. £19.5m (2018: £18.7m) remains unrecognised.
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 (2018: £nil) 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 cannot be offset against future taxable profits of these subsidiaries.
Net liability
11.4
26.5
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 2020.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019 160
10. Income Tax continued
11.2 Weighted average number of shares
During the year the provisions for uncertain tax positions have reduced to £11.8m (2018: £20.2m). On adoption of IFRIC 23 the
Group increased its retained earnings by £1.5m and reduced the brought forward balance for these provisions by an equivalent
amount. The remaining decrease of £6.9m can be explained by the settlement of a tax audit in Switzerland (£4.1m) with a
corresponding provision release (£1.4m) as well as the reassessment of potential uncertain tax positions following a lack of
previously expected challenge by the tax authorities (£0.4m), the expiration of the statute of limitations on certain other
exposures (£0.4m) and foreign exchange movements on the remaining balances (£0.6m).
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 higher rates in certain jurisdictions such as Brazil, China, Germany, India, Mexico and the US, a 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.
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 £1.5m in 2019 (2018: £1.6m). Without that benefit, the Group’s effective tax rate on headline performance
would have been 0.9% higher in 2019 (2018: 1.0%).
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 £80.3m (2018: £137.8m), being the profit for the year of £86.5m (2018: £144.6m) less non-
controlling interests of £6.2m (2018: £6.8m); basic and diluted EPS from total operations are based on the profit attributable
to owners of the parent of £80.3m (2018: £138.3m); headline and diluted headline EPS are based upon headline profit from
continuing operations attributable to owners of the parent of £121.4m (2018: £133.7m). The table below reconciles these different
profit measures.
Profit attributable to owners of the parent
Adjustments for separately reported items:
Amortisation of acquired intangible assets
Restructuring charges
Gain on disposal of share in joint venture
Vacant site remediation costs
GMP equalisation charge
Income tax (credit)/charge
Headline profit attributable to owners of the parent
Continuing
operations
£m
Discontinued
operations
£m
80.3
—
2019
total
£m
80.3
Continuing
operations
£m
Discontinued
operations
£m
2018
total
£m
137.8
0.5
138.3
10.0
39.8
(1.1)
4.1
—
(11.7)
121.4
12.9
15.3
—
—
4.5
(36.8)
133.7
161
2019
millions
269.1
1.9
271.0
2018
millions
269.8
1.4
271.2
For calculating basic and headline EPS
Adjustment for potentially dilutive ordinary shares
For calculating diluted and diluted headline EPS
For the purposes of calculating diluted and diluted headline EPS, the weighted average number of ordinary shares is adjusted to
include the weighted average number of ordinary shares that would be issued on the conversion of all potentially dilutive ordinary
shares expected to vest, relating to the Company’s share-based payment plans. Potential ordinary shares are only treated as
dilutive when their conversion to ordinary shares would decrease EPS or increase loss per share.
11.3 Per share amounts
Earnings per share — basic
— headline
— diluted
— diluted headline
12. Cash Generated from Operations
Operating profit
Adjustments for:
Amortisation of acquired intangible assets (Note 16)
Restructuring charges
Vacant site remediation costs
GMP equalisation charge
(Profit)/Loss on disposal of non-current assets
Depreciation
Net decrease/(increase) in inventories
Net decrease/(increase) in trade receivables
Net (decrease)/increase in trade payables
Net (increase)/decrease in other working capital
Outflow related to restructuring charges
Net retirement benefit obligations
Cash generated from operations
13. Cash and Cash Equivalents
13.1 Accounting policy
Continuing
operations
pence
Discontinued
operations
pence
—
2019
total
pence
29.8
Continuing
operations
pence
Discontinued
operations
pence
0.2
2018
total
pence
51.3
29.8
45.1
29.6
44.8
51.1
49.6
50.8
49.3
—
29.6
0.2
51.0
Continuing
operations
£m
Discontinued
operations
£m
2019
total
£m
Continuing
operations
£m
Discontinued
operations
£m
2018
total
£m
127.5
10.0
39.8
4.1
—
(0.3)
49.7
230.8
24.9
54.4
(15.2)
(19.1)
(30.0)
(5.1)
240.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
127.5
164.5
0.5
165.0
10.0
39.8
4.1
—
(0.3)
49.7
230.8
24.9
54.4
(15.2)
(19.1)
(30.0)
(5.1)
240.7
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
Cash and short-term deposits in the Group balance sheet consist of cash at bank, in hand and short term deposits with original
maturity of three months or less. 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.
Cash at bank and in hand
Cash and short-term deposits
Bank overdrafts
Cash and cash equivalents in the Group Statement of Cash Flows
2019
£m
229.2
229.2
(7.1)
222.1
2018
£m
236.9
236.9
(23.5)
213.4
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
162
163
14. Reconciliation of Movement in Net Debt
Balance as at
1 Jan 2019
£m
Transition to
IFRS 16 on
1 Jan 2019*
£m
Foreign
exchange
adjustments
£m
Non-cash
movements
£m
Cash flow
£m
Balance as at
31 Dec 2019
£m
Cash and cash equivalents
Cash at bank and in hand
Bank overdrafts
Borrowings, excluding bank overdrafts
Current
Non-current
Capitalised arrangement fees
Derivative financial instruments
Net debt
Cash and cash equivalents
Cash at bank and in hand
Bank overdrafts
Borrowings, excluding bank overdrafts
Current
Non-current
Capitalised borrowing costs
Derivative financial instruments
Net debt
236.9
(23.5)
213.4
(6.5)
(456.7)
(463.2)
1.8
0.2
—
—
—
—
(32.8)
(32.8)
—
—
(247.8)
(32.8)
(12.9)
0.2
(12.7)
—
—
—
5.2
16.2
21.4
(8.1)
(105.5)
(44.5)
29.1
21.0
—
(5.4)
2.9
96.3
(9.2)
(0.6)
—
(9.8)
59.7
15.2
—
5.1
229.2
(7.1)
222.1
(164.6)
(304.4)
(469.0)
1.2
(0.1)
41.7
(245.8)
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
0.3
0.5
(0.4)
0.1
—
(14.4)
(14.4)
—
1.7
(274.0)
(12.6)
—
—
—
—
—
—
0.6
—
0.6
74.5
(1.2)
73.3
(2.2)
(30.2)
(32.4)
(0.9)
(1.8)
38.2
236.9
(23.5)
213.4
(6.5)
(456.7)
(463.2)
1.8
0.2
(247.8)
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, current and non-current interest-bearing borrowings and derivative financial instruments.
* The Group has adopted IFRS 16 leases from 1 January 2019 and, in accordance with the simplified approach, has not restated comparatives on transition.
The reclassifications and adjustments arising from the new lease accounting rules are therefore recognised in the opening balance sheet on 1 January 2019
(please refer to Note 2.6).
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.
On adoption of IFRS 16 Leases, right of use assets were recognised and assets accounted for previously under finance leases were
reclassified into the right of use categories. Newly recognised right of use assets were measured at the amount equal to the lease
liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet
as at 31 December 2018.
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:
Asset category
Freehold property
Leasehold property
Right of use assets
Estimated useful life
between 10 and 50 years
the term of the lease
shorter of the asset’s useful life and lease term
Plant and equipment — motor vehicles and information technology equipment between 1 and 5 years
— other
between 3 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
Freehold
property (1)
£m
Leasehold
property
£m
Right of use
assets – land
& buildings
£m
Right of use
assets –
plant &
equipment
£m
Plant and
equipment
£m
Construction
in progress
£m
Cost
As at 1 January 2018
Exchange adjustments
Capital expenditure additions
Disposals
Assets classified as held for sale
Reclassifications
As at 1 January 2019
Impact of IFRS 16 adoption
Exchange adjustments
Capital expenditure additions (2)
Acquisitions through business combinations
Disposals
Assets classified as held for sale
Reclassifications
As at 31 December 2019
Accumulated depreciation and impairment
losses
As at 1 January 2018 restated (Note 17.2)
Exchange adjustments
Depreciation charge
Impairment
Disposals
Reclassifications
As at 1 January 2019
Exchange adjustments
Depreciation charge
Impairment
Disposals
Reclassifications
As at 31 December 2019
Net book value as at 31 December 2019
Net book value as at 31 December 2018
Net book value as at 1 January 2018
203.5
3.4
2.0
(1.2)
(1.7)
4.4
210.4
—
(10.7)
3.9
1.8
(1.1)
—
16.8
221.1
91.4
1.9
5.9
0.3
(0.6)
(0.1)
98.8
(4.8)
6.6
1.7
(0.2)
7.4
109.5
111.6
111.6
112.1
2.3
(0.1)
0.1
—
—
—
2.3
—
—
—
0.1
—
—
—
2.4
1.8
—
0.1
—
—
(0.2)
1.7
(0.1)
0.1
—
—
—
1.7
0.7
0.6
0.5
—
—
—
—
—
—
—
22.3
(0.7)
1.5
1.5
—
—
—
24.6
—
—
—
—
—
—
—
(0.1)
4.0
—
—
—
3.9
—
—
—
—
—
—
—
11.3
(0.8)
6.2
—
(2.8)
—
8.7
22.6
—
—
—
—
—
—
—
(0.3)
6.6
—
(1.7)
4.3
8.9
555.4
4.9
20.2
(24.8)
—
16.4
572.1
—
(28.4)
33.7
1.7
(13.3)
—
(11.2)
554.6
408.7
4.2
35.0
0.3
(21.9)
0.3
426.6
(20.8)
32.4
5.8
(11.0)
(11.7)
421.3
41.8
(1.1)
26.1
—
—
(20.8)
46.0
—
(2.9)
29.4
0.1
(0.6)
—
(14.3)
57.7
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
£m
803.0
7.1
48.4
(26.0)
(1.7)
—
830.8
33.6
(43.5)
74.7
5.2
(17.8)
—
—
883.0
501.9
6.1
41.0
0.6
(22.5)
—
527.1
(26.1)
49.7
7.5
(12.9)
—
545.3
20.7
13.7
133.3
57.7
337.7
—
—
—
—
145.5
46.0
303.7
146.7
41.8
301.1
(1) 2018 opening balances for cost and depreciation have been grossed up by £1.8m for identified fixed assets previously written off (£Nil net book value).
(2) The £29.4m for construction in progress additions at 31 December 2019 includes projects to increase production facilities in Mexico, Germany and Poland.
Capital expenditure on customer-installation assets was £7.8m (2018: £7.7m). The impairment charge of £7.5m (2018: £0.6m) is
included within restructuring charges for asset write-offs in Note 7.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
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16. Intangible Assets
Intangible assets comprise goodwill and other intangible assets that have been acquired through business combinations.
16.1 Accounting policy
(a) Goodwill
Goodwill arising in a business combination is initially recognised as an asset at cost, measured as the excess of the aggregate
of the acquisition-date fair value of the consideration transferred and the amount of any non-controlling interest acquired over
the net of the acquisition-date fair value amounts of the 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 (CGU) 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.
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 four CGUs: Steel Advanced
Refractories, Steel Flow Control, Steel Digital Services (Sensors & Probes) and the Foundry Division. These CGUs represent the
lowest level within the Group at which goodwill is monitored (note 17.3).
Steel Flow Control
Steel Advanced Refractories
Foundry
Total goodwill
2019
£m
277.5
131.1
211.6
620.2
2018
Restated*
£m
291.1
125.0
221.0
637.1
(b) Other intangible assets
* Restated – see Note 17.2 of the Group Financial Statements for an explanation and analysis of the prior year adjustments made in respect of Goodwill as at
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 2019 and 2018 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
2019
total
£m
Goodwill
Restated*
£m
Other
intangible
assets
£m
2018
Restated*
total
£m
637.1
(28.4)
11.5
620.2
271.5
(6.1)
13.8
279.2
908.6
(34.5)
25.3
899.4
—
—
—
—
184.6
184.6
(3.7)
10.0
(3.7)
10.0
190.9
190.9
625.8
11.3
—
637.1
—
—
—
—
271.2
0.3
—
897.0
11.6
—
271.5
908.6
171.4
0.3
12.9
171.4
0.3
12.9
184.6
184.6
Net book value as at 31 December
620.2
88.3
708.5
637.1
86.9
724.0
* Restated – see Note 17.2 of the Group Financial Statements for an explanation and analysis of the prior year adjustments made in respect of Goodwill as at 31
December 2018.
31 December 2018.
16.4 Analysis of other intangible assets
Other intangible assets are amortised on a straight-line basis over their estimated useful lives. The assets acquired and their
remaining useful lives are shown below.
Foseco
— customer relationships (useful life: 20 years)
— trade name (useful life: 20 years)
CCPI
— customer relationships (useful life: 20 years)
Total
17. Impairment of Tangible and Intangible Assets
17.1 Accounting policy
Remaining
useful life
years
Net book
value as at
31 Dec 2019
£m
Net book
value as at
31 Dec 2018
£m
8.3
8.3
19.2
45.2
30.0
13.1
88.3
53.4
33.5
—
86.9
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. The CCPI business acquired during the year has been integrated into the Steel reportable segment and is not
monitored by the chief operating decision maker as a CGU. Its goodwill is tested as part of the Steel Advanced Refractories CGU.
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.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
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167
17. Impairment of Tangible and Intangible Assets continued
17.2 Prior year restatement
18. Trade and Other Receivables
18.1 Accounting policy
A prior year restatement was recognised relating to the year ended 31 December 2017 following a review of the Group’s
accounting policy for the impairment of tangible and intangible assets. Further to correspondence with the Financial Reporting
Council (FRC), it was identified that, in previous years, the Group’s goodwill impairment test had not been performed in
accordance with the requirements of IAS 36, Impairment of Assets.
Previously the Group identified two reportable segments: Steel and Foundry, to represent the lowest level at which goodwill was
monitored. In contrast, paragraph 80(b) of IAS 36 does not permit goodwill to be tested at a level higher than the level of an
operating segment. The Group’s operating segments are Steel Advanced Refractories, Steel Flow Control, Steel Digital Services
(Sensors & Probes) and the Foundry Division.
To ensure compliance with this aspect of IAS 36, the Group has determined the impact of performing goodwill impairment testing
at the appropriate operating segment level on the 2017 and 2018 accounts. This has shown that the carrying value of goodwill
and certain tangible assets allocated to the Steel Digital Services (Sensors & Probes) operating segment could not be supported
by this segment’s recoverable amount as at 31 December 2017 and should, therefore, have been impaired at that date.
Goodwill arising in relation to the acquisitions of ECIL Met Tec in 2014 and the Sidermes Group in 2015 was allocated to the Steel
Digital Services (Sensors & Probes) segment. Goodwill of £4.6m and £12.8m respectively was recognised on these acquisitions.
The growth of this operating segment has been slower than initially expected due to end market weakness resulting in a
recoverable amount of the segment that was £27.6m lower than its carrying value as at 31 December 2017. This difference has
been recognised as an impairment loss against goodwill allocated to the segment (£17.4m) and property, plant and equipment
(£10.2m).
The overall effect of this impairment is a decrease in net assets of £27.6m as at 31 December 2017, 31 December 2018 and
31 December 2019. There is no material impact on reported profit and cash flow for the years ended 31 December 2018 and
31 December 2019.
17.3 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 budgets and strategic plans.
They reflect management’s expectations of revenue, EBITDA growth, capital expenditure, working capital and adjusted
operating cash flows, based on past experience and future expectations of business performance and take into account the
cyclicality of the business in which the CGU operates. Cash flows beyond the period of the strategic plans have been extrapolated
using a perpetuity growth rate of 2.5% (2018: 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 2019.
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 Flow Control, Steel Advanced Refractories and Steel Digital Services (Sensors & Probes) CGUs
was 13.3% (2018: 13.3%) and for the Foundry CGU was 13.1% (2018: 12.5%). The increase in the Foundry pre-tax discount rate
has been driven by an increase in the equity risk premium partially offset by a reduction in risk free rate – these changes are not
specific to Vesuvius.
The Group carried out its annual goodwill impairment test as at 31 October 2019 (2018: 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 2019 and no impairment
triggers were identified.
There is significant headroom in the Steel Flow Control and Steel Advanced Refractories CGUs . 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 2.0%, the recoverable amount of each CGU still
significantly exceeded its carrying value. A further sensitivity analysis was carried out in which the perpetuity growth rate used for
each CGU was reduced to 1.0%; 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.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective
interest method, less impairment losses. Details on impairment of financial assets are disclosed in Note 25.
18.2 Analysis of trade and other receivables
Trade receivables — current
— 1 to 30 days past due
— 31 to 60 days past due
— 61 to 90 days past due
— over 90 days past due
Trade receivables
Other receivables
Prepayments
Total trade and other receivables
2019
Expected
Credit Loss
Provision
£m
(0.6)
(0.4)
(0.1)
(0.7)
(24.8)
(26.6)
Gross
£m
235.9
44.5
17.1
5.0
30.8
333.3
Net
£m
235.3
44.1
17.0
4.3
6.0
306.7
55.4
17.5
379.6
ECL
Provision
Coverage
(1)
0.3%
0.9%
0.6%
14.0%
79.2%
2018
Expected
Credit Loss
Provision
£m
(0.7)
(0.7)
(0.1)
(0.6)
(26.1)
(28.2)
Gross
£m
275.2
60.5
19.4
8.9
36.9
400.9
ECL
Provision
Coverage
(1)
0.3%
1.2%
0.5%
6.7%
70.6%
Net
£m
274.5
59.8
19.3
8.3
10.8
372.7
48.1
19.6
440.4
(1) ECL provision coverage is Expected Credit Loss provision divided by gross trade receivables.
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.
Included within Other receivables are promissory notes of £26.6m (2018: £24.7m). The majority of these notes relate to customers
in China and have typical maturities of 6 months from issuing date. The full amount of revenue is recognised from the customer
when performance obligations are satisfied in accordance with IFRS 15. Other receivables also include VAT receivables of £14.3m
(2018:£10.6m) and insurance reimbursements (see Note 30.2). The Group applies the expected credit loss model under IFRS 9 to
these other receivables. The expected credit loss for other receivables are immaterial.
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 25, ‘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
2019
£m
67.3
18.5
127.1
212.9
2018
£m
84.2
19.8
140.3
244.3
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 £642.6m (2018: £677.4m).
The net inventories of £212.9m include a provision for obsolete stock of £11.9m (2018: £14.2m). There were reversals of inventory
write-downs of £0.3m (2018: write downs of £2.6m).
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
168
169
20 Acquisitions and Divestments
20.1 CCPI
On 1 March 2019, Vesuvius plc acquired 100% of the 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
has become part of the Group’s Steel Advanced Refractories business unit. The transaction valued CCPI at US$43.4 million
(£33.3 million) on a cash and debt free basis and was funded from Vesuvius’ internal resources. The acquisition increased
Vesuvius’ share of the tundish market and gives the Group an entry to the aluminium market.
Final valuations have been completed and the fair values of the assets and liabilities recognised as a result of the acquisition are
as follows:
Cash and cash equivalents
Property, plant and equipment
Intangible asset (customer relationships)
Inventories
Receivables
Payables
Lease liabilities
Deferred tax
Net identifiable assets acquired
Goodwill
Consideration
£m
0.9
5.2
13.8
4.2
5.1
(3.1)
(1.5)
(2.8)
21.8
11.5
33.3
The goodwill is attributable to CCPI’s competitive reputation in the marketplace and the synergies that Vesuvius expects to gain
from the integration of its tundish business into the Steel Advanced Refractories business unit and is expected to be tax deductible.
Included within the property, plant and equipment acquired were right of use leased assets of £1.5m.
The decision to acquire CCPI was driven by its long-standing customer relationships and these are the identifiable intangible
assets acquired, they have a useful economic life of 20 years. A deferred tax liability of £3.4m has been provided in relation to
these fair value adjustments.
In the period since acquisition, CCPI has contributed £23.8m to revenue, £2.5m to trading profit and £1.8m to operating profit.
If the acquisition had occurred on the first day of the financial year, it is estimated that the revenue, trading profit and operating
profit from the acquisition would have been £28.9m, £3.0m and £2.3m respectively. On acquisition, CCPI was subsumed into Steel
Advanced Refractories activities and goodwill is monitored at the level of the Steel Advanced Refractories operating segment.
The net cash outflow on acquisition was £32.4m, being cash consideration of £33.3m less cash and cash equivalents acquired of
£0.9m. Acquisition-related costs of £0.7m are included in administrative expenses in the income statement.
The Group did not acquire any material interests in any companies other than CCPI during the year ended 31 December 2019,
however contingent consideration of £0.3m was paid during the year (2018: £1.1m) in respect of the previous acquisition of
Process Metrix.
20.2 Joint venture disposal
In June 2019 Vesuvius completed the sale of its 50% interest in Angang Vesuvius Refractory Company, Ltd. The carrying value of
the investment was £6.9m at the date of divestment. The consideration received (in early July 2019) was cash of £6.8m resulting in
a profit after foreign currency adjustments of £1.1m.
21. Issued Share Capital
21.1 Accounting policy
22. Retained Earnings
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 24)
As at 1 January 2019 – as reported
Restatement upon adoption of IFRIC 23 (Note 2.6)
As at 1 January 2019
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 24)
As at 31 December 2019
Reserve
for own
shares
£m
(34.2)
—
—
—
1.5
(13.4)
—
—
(46.1)
—
(46.1)
—
—
—
6.8
—
—
Share
option
reserve
£m
Other
retained
earnings
£m
Total
retained
earnings
£m
4.6
—
—
3.7
(1.5)
—
—
—
6.8
—
6.8
—
—
4.5
(6.8)
—
—
2,399.9
2,370.3
138.3
138.3
5.1
—
—
—
6.0
(50.0)
5.1
3.7
—
(13.4)
6.0
(50.0)
2,499.3
2,460.0
1.5
1.5
2,500.8
2,461.5
80.3
(3.6)
—
—
1.9
80.3
(3.6)
4.5
—
1.9
(53.9)
(53.9)
(39.3)
4.5
2,525.5
2,490.7
During the prior 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.
23. Other Reserves
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 1 January 2019
Exchange differences on translation of the net assets of foreign operations
Reclassification of foreign currency translation reserve on disposal of share in joint venture
Exchange translation differences arising on net investment hedges
As at 31 December 2019
Other
reserves
£m
Translation
reserve
£m
Total other
reserves
£m
(1,499.3)
129.9
(1,369.4)
—
—
11.4
(11.5)
11.4
(11.5)
(1,499.3)
129.8
(1,369.5)
—
—
—
(1,499.3)
(71.0)
(1.1)
14.1
71.8
(71.0)
(1.1)
14.1
(1,427.5)
Within other reserves as at 31 December 2019 is £1,499.0m (2018: £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.
Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.
24. Dividends
21.2 Analysis of issued share capital
The issued and fully paid ordinary share capital of the Company as at 31 December 2019 was 278,485,071 shares of 10 pence
each (2018: 278,485,071 shares of 10 pence each). Further information relating to the Company’s share capital is given in Note 9
to the Company’s Financial Statements.
A final dividend for the year ended 31 December 2018 of £37.2m (2017: £33.8m), equivalent to 13.8 pence (2017: 12.5 pence)
per ordinary share, was paid in May 2019 (May 2018) and an interim dividend for the year ended 31 December 2019 of £16.7m
(2018: £16.2m), equivalent to 6.2 pence (2018: 6.0 pence) per ordinary share, was paid in September 2019 (September 2018).
A proposed final dividend for the year ended 31 December 2019 of £38.6m, equivalent to 14.3 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 22 May 2020 to ordinary shareholders
on the register at 17 April 2020.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019 170
171
25. Financial Risk Management
25.1 Accounting policy
(a) Valuation of financial assets and liabilities
The Group’s financial assets are measured at amortised cost with the exception of certain investments in debt and equity, which
are measured at fair value through other comprehensive income. Financial liabilities are measured at amortised cost with the
exception of certain derivative instruments, which are measured at fair value through profit and loss.
IFRS 13 Fair Value Measurement requires classification of financial instruments within a hierarchy that prioritises the inputs to
fair value measurement. The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly;
Level 3 – Inputs that are not based on observable market data.
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.
(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 Group 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 2019 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.
25.2 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.
Analysis of financial instruments
The following table summarises Vesuvius’ financial instruments measured at fair value and shows the level within the fair value
hierarchy in which the financial instruments have been classified.
Investments (Level 2)
Derivatives not designated for hedge accounting purposes (Level 2)
(a) Derivative financial instruments
2019
2018
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
0.8
0.6
—
(0.7)
1.0
0.8
—
(0.6)
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 2019. 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.
Sterling
£m
2.8
0.1
Euro
£m
29.2
5.2
2019
Chinese
Renminbi
£m
US Dollar
£m
—
—
35.0
9.1
Other
£m
16.8
12.5
Sterling
£m
(8.4)
1.2
Euro
£m
95.1
33.4
2018
Chinese
Renminbi
£m
US Dollar
£m
67.2
25.7
37.2
24.2
Other
£m
32.0
14.2
(3.1)
(15.3)
(0.1)
(23.2)
(15.3)
(5.9)
(37.0)
(31.1)
(14.7)
(27.8)
— (109.7)
— (150.8)
— (113.5)
(0.1)
(0.8)
—
(0.4)
(0.6)
— (116.9)
— (122.6)
—
—
(0.6)
—
Trade receivables
Cash at bank
Trade payables
Private Placement Notes
Bank loans & overdrafts
Finance leases
Foreign currency forward
contracts
— Buy foreign currency (Private
Placement)
— Buy foreign currency (Other)
— Sell foreign currency
—
—
84.5
1.0
— (18.0)
—
1.5
(15.9)
—
1.2
—
—
—
—
89.9
—
(8.3)
(0.3)
(137.4)
(0.1)
(144.9)
14.2
(13.1)
(66.4)
61.8
(117.9)
18.3
The Group arranges a rolling short dated Euro/Sterling foreign exchange swap in respect of €100m of its Private Placement fixed
rate financial liabilities (2018: €100m). This has the effect of reducing the currency exposure of the Group’s Net Debt by €100m.
The Group has £(1.4)m (2018: £(0.8)m ) of exchange differences recognised in the income statement.
— (156.8)
—
—
—
—
—
(6.6)
—
—
3.1
(4.3)
—
(0.1)
—
—
—
—
—
—
—
—
—
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172
173
25. Financial Risk Management continued
(b) Market risk continued
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 2019
Functional currency
Sterling
US dollar
Euro
Chinese Renminbi
Other
As at 31 December 2018
Net unhedged monetary assets/(liabilities)
Sterling
£m
Euro
£m
Chinese
Renminbi
£m
US Dollar
£m
Other
£m
Total
£m
—
—
0.5
(0.4)
(0.4)
(0.3)
(139.7)
0.7
—
(1.1)
2.7
(137.4)
—
—
—
—
(0.1)
(0.1)
(150.6)
—
1.6
(3.9)
8.0
(144.9)
Net unhedged monetary assets/(liabilities)
Sterling
£m
US dollar
£m
Euro
£m
Chinese
Renminbi
£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)
0.8
1.4
0.1
(0.1)
12.0
14.2
Other
£m
3.6
(3.5)
—
(0.1)
19.0
19.0
(289.5)
2.1
2.2
(5.5)
22.2
(268.5)
Total
£m
4.7
(0.9)
3.7
1.9
36.1
45.5
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 2019 €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 £14.1m (2018: £11.5m).
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 2019, the Group had $200m and €130m (£260.7m in total) of US Private Placement Loan Notes (USPP)
outstanding, which carry a fixed rate of interest, representing 59% of the Group’s total borrowings outstanding at that date.
The interest rate profile of the Group’s borrowings is detailed in the tables below.
Sterling
US dollar
Euro
Other
Capitalised arrangement fees
As at 31 December 2019
Financial liabilities (gross borrowings)
Fixed
rate
£m
—
150.8
109.9
—
(1.2)
Floating
rate
£m
66.2
0.9
113.4
1.5
—
Total
£m
66.2
151.7
223.3
1.5
(1.2)
259.5
182.0
441.5
Sterling
US dollar
Euro
Other
Capitalised arrangement fees
As at 31 December 2018
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
Information in respect of the currency risk management of £100m of Euro denominated fixed rate financial liabilities is provided
in Note 25 (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 £260.7m (2018: £273.7m) have a weighted average
interest rate of 3.9% (2018: 3.8%) and a weighted average period for which the rate is fixed of 4.8 years (2018: 5.8 years).
The financial assets attract floating rate interest.
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 £1.8m (2018: £2.1m), 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 £1.8m (2018: £2.1m).
(c) Credit risk
Credit risk arises from cash and cash equivalents, derivative financial assets and deposits with banks and financial institutions,
as well as credit exposures to customers, including outstanding receivables.
(i) Risk management
For banks and financial institutions, Group policy is that only independently rated entities with a minimum rating of ‘A-’ are
accepted as counterparties. In addition, 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 2019 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.
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174
175
25. Financial Risk Management continued
(c) Credit risk continued
The closing expected credit loss allowance for trade receivables as at 31 December 2019 reconciles to the opening loss
allowances as follows:
As at 1 January
(Decrease)/increase in expected credit loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectable
Exchange adjustments
As at 31 December
2019
£m
28.2
2.3
(3.0)
(0.9)
26.6
2018
£m
31.7
(1.1)
(2.1)
(0.3)
28.2
The charge for the year shown in the table above is recorded within administration, selling and distribution costs in the Group
Income Statement.
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.
The Group also applies the expected credit loss model under IFRS 9 to other receivables. If, at the reporting date, the credit risk
of the receivables has not increased significantly since initial recognition, the Group measures the loss allowance at an amount
equal to 12 month expected credit losses. If the credit risk on that receivable has increased significantly since initial recognition,
the Group measures the loss allowance at an amount equal to the lifetime expected credit losses. The expected credit loss on
other receivables are not material.
(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.
As at 31 December 2019, the Group had committed borrowing facilities of £609.7m (2018: £573.7m), of which £174.2m (2018:
£119.2m) were undrawn. These undrawn facilities are due to expire in June 2022. The Group’s borrowing requirements are met by
USPP, a multi-currency committed syndicated bank facility of £300.0m (2018: £300.0m) and a bilateral bank facility of £49.0m
(2018: Nil) which is fully collateralised against £54.0m of the Group’s cash balance in China. The USPP facility was fully drawn as
at 31 December 2019 and amounted to £260.7m ($200.0m and €130.0m), of which $140.0m is repayable in December 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 £49.0m collateralised
bank facility matures in May 2020 but at the date of this report there is an intention to extend the facility for a further 12 months
either in full or in part. The maturity analysis of the Group’s gross borrowings (including interest) is shown in the tables below.
As at 31 December 2019
Trade payables
Loans and overdrafts
Lease liabilities
Capitalised arrangement fees
Total interest-bearing borrowings
Total non-derivative financial liabilities
Within
one year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
Total
contractual
cash flows
£m
Carrying
amount
£m
173.8
—
—
—
173.8
173.8
171.8
12.0
—
183.8
357.6
17.4
9.9
—
27.3
27.3
157.0
134.9
9.2
—
166.2
166.2
9.3
—
144.2
144.2
481.1
40.4
—
521.5
695.3
442.8
33.3
(1.2)
474.9
648.7
As at 31 December 2018
Trade payables
Loans and overdrafts
Finance lease liabilities
Capitalised arrangement fees
Total interest-bearing borrowings
Total non-derivative financial liabilities
Within
one year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
Total
contractual
cash flows
£m
Carrying
amount
£m
197.3
—
—
—
197.3
197.3
28.2
1.7
—
29.9
227.2
109.7
217.9
127.0
482.8
482.8
1.2
—
110.9
110.9
1.0
—
218.9
218.9
—
—
127.0
127.0
3.9
—
486.7
684.0
3.9
(1.8)
484.9
682.2
Capitalised arrangement fees shown in the tables above, which have been recognised as a reduction in borrowings in the financial
statements, amounted to £1.2m as at 31 December 2019 (31 December 2018: £1.8m), of which £0.8m (2018: £1.0m) related to
the USPP and £0.4m (2018: £0.8m) related to the syndicated bank facility.
25.3 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 40.
25.4 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 2019
Financial assets/liabilities
Cash deposits
Cash borrowings
As at 31 December 2018
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
229.7
(7.6)
222.1
237.7
(24.3)
213.4
(0.5)
0.5
—
(0.8)
0.8
—
229.2
(7.1)
222.1
236.9
(23.5)
213.4
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26. Employee Benefits
26.1 Accounting policy
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 durations 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 26.8. 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.
26.2 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 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 2018. At that date,
the market value of plan assets was £605.1m and this represented a funding level of 110% of the accrued plan benefits at the time
of £552.0m. 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 £626.7m, representing a funding level of 95%.
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 Trustee,
after consultation with the Company, has the power to set the funding contributions taking into account the results of the triennial
valuation, and the Pension Act 2004 legislation.
(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 2019. At that date the market value of the plan assets was $66.6m, representing
a funding level of 74.3% of funded accrued plan benefits at that date (using the projected unit method of valuation) of $89.6m.
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. During the fiscal year beginning 1 January 2019, total minimum
required contributions were approximately $2.6m. Under these funding laws and based on the plan deficit, minimum annual
contributions in the period 2020-2022 are likely to be required and are expected to be in the $3m to $5m range. Contributions
of $2.6m were made during 2019.
There is a $1.8m settlement gain reported in the main US defined benefit pension plan in 2019 which relates to lump sum
payments of $4.7m being made in mid-December 2019 to employees who have accepted the offer to receive a lump sum in
full settlement of their pension (the defined benefit obligation settled was $6.5m).
(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.
(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 2019 was £18.0m (2018: £15.6m). 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 2019 was £6.9m (2018: £7.3m).
(e) Defined contribution pension plans
The total expense for the Group’s defined contribution plans in the Group Income Statement amounted to £11.3m (2018: £11.4m
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. These are accounted for as defined contribution plans. The bulk of the
multi-employer pension plans related to BMI, which was disposed in 2018. The BMI sale transaction was structured to ensure
as best as possible that any pension liability would go to the acquiring company. There is a 5-year window where Vesuvius US
could still have some liability for any shortfall in the BMI Plans should the buyer cease to exist.
26.3 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 2018 by the Continuous
Mortality Investigation (‘CMI’), with a long-term rate of improvement of 1.25% p. a. For the Group’s US plans, the assumptions
used have been based on the Pri-2012 mortality tables and MP-2019 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
2019
2018
UK
years
87.0
89.2
87.3
90.1
US
years
Germany
years
85.6
87.6
87.2
89.1
85.2
88.7
88.0
90.9
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
2019
2018
UK
% p.a.
US
% p.a.
Germany
% p.a.
UK
% p.a.
US
% p.a.
Germany
% p.a.
1.95
3.00
1.90
n/a
2.90
2.85
2.25
n/a
n/a
n/a
1.00
1.50
n/a
2.25
1.50
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
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
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 (2018: 1.1 points lower) than RPI-based inflation.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
178
179
26. Employee Benefits continued
26.3 Post-retirement liability valuation continued
(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 £7.8m Decrease/increase
by £0.9m
Decrease/increase
by £1.0m
— impact on plan assets
Decrease/increase by £3.4m n/a
n/a
Price inflation Increase/decrease by 0.1%
— impact on plan liabilities
Increase/decrease by £5.8m n/a
Increase/decrease
by £0.3m
— impact on plan assets
Increase/decrease by £2.6m n/a
n/a
Mortality
Increase by one year
— impact on plan liabilities
Increase by £24.5m
Increase by £3.1m
Increase by £2.0m
— impact on plan assets
Increase by £17.7m
n/a
n/a
26.4 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 2019
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 2019
Defined benefit pension plans
US
£m
Germany
£m
79.5
(3.2)
0.1
—
3.1
(5.1)
(0.5)
9.2
0.4
(4.6)
78.9
47.8
(3.1)
1.2
—
0.9
—
—
9.6
(0.3)
(1.6)
54.5
ROW
£m
44.6
(2.7)
2.8
0.2
1.0
—
—
4.3
(0.3)
(2.4)
47.5
Other post-
retirement
benefit
plans
£m
7.3
(0.2)
0.4
0.1
0.2
—
—
0.7
(0.5)
(1.1)
6.9
Total
£m
627.8
(9.0)
4.1
0.2
17.6
(5.1)
(6.1)
72.5
2.4
(41.5)
662.9
Total
£m
635.1
(9.2)
4.5
0.3
17.8
(5.1)
(6.1)
73.2
1.9
(42.6)
669.8
UK
£m
455.9
—
—
—
12.6
—
(5.6)
49.4
2.6
(32.9)
482.0
Following a review of employee benefits £0.6m (2018: £0.6m) of accrued liabilities have been reclassified from the defined benefit
obligation into accruals and other payables.
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
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
ROW
£m
44.6
0.6
3.2
(1.0)
0.7
—
2.0
(1.7)
(1.6)
(2.2)
44.6
Other post-
retirement
benefit
plans
£m
6.5
0.2
0.6
—
0.3
—
—
0.2
0.1
(0.6)
7.3
Total
£m
666.8
5.7
5.3
2.6
16.1
—
(0.7)
(33.7)
1.4
(35.7)
627.8
Total
£m
673.3
5.9
5.9
2.6
16.4
—
(0.7)
(33.5)
1.5
(36.3)
635.1
UK
£m
490.8
—
—
4.5
11.9
—
(3.2)
(22.1)
2.0
(28.0)
455.9
26.5 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
2019
2018
UK
£m
543.8
—
15.1
—
—
55.4
0.8
—
(0.7)
(32.8)
581.6
US
£m
47.0
(1.8)
1.8
(3.7)
—
9.3
2.0
—
(0.7)
(3.6)
50.3
ROW
£m
29.0
(1.7)
0.6
—
—
0.7
2.4
—
—
(1.6)
29.4
Total
£m
619.8
(3.5)
17.5
(3.7)
—
65.4
5.2
—
(1.4)
(38.0)
661.3
UK
£m
580.3
—
14.2
—
—
(23.0)
0.8
—
(0.6)
(27.9)
543.8
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
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.
26.6 Remeasurement of defined benefit liabilities/assets
Remeasurement of liabilities:
— demographic changes
— financial assumptions
— experience (losses)/gains
Remeasurement of assets
Total movement
2019
total
£m
6.1
(73.2)
(1.9)
65.4
(3.6)
2018
total
£m
0.7
33.5
(1.5)
(27.6)
5.1
The remeasurement of defined benefit liabilities and assets of £3.6m loss (2018: £5.1m gain) is recognised in the Group Statement
of Comprehensive Income.
26.7 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
44.2
229.3
280.3
27.8
581.6
(480.1)
101.5
(1.9)
99.6
101.5
(1.9)
99.6
US
£m
Germany
£m
3.2
46.3
—
0.8
50.3
(67.6)
(17.3)
(11.3)
(28.6)
—
(28.6)
(28.6)
—
—
—
—
—
—
—
(54.5)
(54.5)
—
(54.5)
(54.5)
ROW
£m
2.1
3.3
20.4
3.6
29.4
(42.8)
(13.4)
(4.7)
(18.1)
1.1
(19.2)
(18.1)
Total
£m
49.5
278.9
300.7
32.2
661.3
(590.5)
70.8
(72.4)
(1.6)
102.6
(104.2)
(1.6)
Other post-
retirement
benefit
plans
£m
—
—
—
—
—
—
—
(6.9)
(6.9)
—
(6.9)
(6.9)
2019
total
£m
49.5
278.9
300.7
32.2
661.3
(590.5)
70.8
(79.3)
(8.5)
102.6
(111.1)
(8.5)
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
180
181
26. Employee Benefits continued
26.7 Balance sheet recognition continued
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) (i) UK Plan asset allocation
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)
As at 31 December 2019, of the UK Plan’s total assets, 48.2% (2018: 48.6%) were represented by the annuity insurance contracts
covering the UK Plan’s pension liabilities; 7.6% (2018: 9.1%) were allocated to equities; 39.4% (2018: 39.2%) to fixed income
securities; 0.4% (2018: 0.4%) to cash; and 4.4% (2018: 2.7%) 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. Of the UK Plan’s fixed income securities, £150.3m have a quoted market
price in an active market.
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 2019, the IAS 19
valuation of the PIC insurance contract value associated with the bought-in liabilities was £280.3m (2018: £264.1m). The buy-in
agreement ensures that the UK pension plan obligations in respect of all its retired members and their approved dependents 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 58.4% (2018: 58.1%) of UK pension plan obligations, removing
substantially all financial risks associated with this tranche of the liability.
(ii) US Plan asset allocation
All of the assets in the main US Plan have a quoted market price in an active market. The Plan mitigates exposure to interest rates
by employing a liability matching investment strategy. All non-derivative assets are invested in liability matching bonds with a
similar average duration to the liabilities of the Plan. Since 2018, the investment allocation has been de-risked from an allocation
of 72% liability matching and 28% return seeking assets, to an allocation of 100% liability matching. The Plan retains equity risk
through use of equity derivative contracts, which provides equity market exposure with some level of equity downside protection.
(b) Defined benefit contributions in 2020
In 2020, the Group is expected to make contributions into its defined benefit pension and other post-retirement benefits
plans of around £4.6m with specific contributions of approximately £2.2m and £1.6m anticipated for the US Plan and Belgian
Plans respectively.
26.8 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
2019
Defined
benefit
pension
plans
£m
Other post-
retirement
benefit
plans
£m
4.1
0.2
(1.4)
1.4
0.1
4.4
0.4
0.1
—
—
0.2
0.7
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
Total
£m
4.5
0.3
(1.4)
1.4
0.3
5.1
Total
£m
5.9
2.6
—
1.2
0.1
9.8
The total net charge of £5.1m (2018: £9.8m) 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
Total net charge
— within net finance costs
2019
£m
1.7
3.1
—
0.3
5.1
2018
£m
1.5
3.7
4.5
0.1
9.8
26.9 Risks to which the defined benefit pension plans expose the Group
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. Further details are given below:
Asset volatility
> the liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform against this
yield, this will create a deficit. To reduce this risk, the pension plans are largely invested in government and corporate bonds.
Counterparty risk
> There are a number of other risks of running the UK Pension Fund including counterparty risks from using derivatives. These are
mitigated by using a diversified range of counterparties of high standing and ensuring positions are collateralised as required.
Changes in bond yields
> a decrease in corporate bond yields will increase the scheme liabilities, although this will be partially offset by an increase in the
value of the schemes’ bond holdings.
Inflation risk
> much of the UK scheme’s benefit obligations are linked to inflation and higher inflation will lead to higher liabilities (although,
in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The UK scheme also
holds index-linked government bonds to provide protection against this risk.
Life expectancy
> the majority of the plans’ obligations are to provide benefits for the life of the member and in some cases their spouse on death
of the member, so increases in life expectancy will result in an increase in the liabilities.
> in July 2012 Vesuvius entered into an agreement with the Pension Insurance Corporation (PIC) to insure pensions in payment for
the pensioners in the UK main Plan. These annuities are owned by the UK Pension Plan. Further annuity purchases have taken
place at regular intervals since then and the plan now holds annuity contracts to cover the majority of pensions in payment
thereby removing substantially all risks in respect of these pensions.
> in August 2016 the pensions for the majority of current pensioners in the US main plan were bought out with an insurance
company, removing all responsibility and risk related to these pensions from the Group.
> in late 2016 and in late 2019 deferred members in the US main Plan were offered lump sums in lieu of their deferred pension
benefits, settling the liabilities for those members accepting this offer in full.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019
182
183
27. Share-based Payments
27.1 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. For grants with market-based conditions attached to them, such as total
shareholder return, fair value is measured using a form of stochastic option pricing model. For grants with non-market-based
conditions, such as growth in headline earnings per share, fair value is measured using the Black-Scholes option pricing model.
The fair value 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.
27.2 Income statement recognition
The total expense recognised in the Group Income Statement is shown below:
Long Term Incentive Plan
Other plans
Total expense
2019
£m
2.5
2.4
4.9
2018
£m
2.7
1.0
3.7
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.
27.3 Details of outstanding options
LTIP
Outstanding awards
As at
1 Jan 2019
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
Expired
no.
As at
31 Dec 2019
no.
2,360,478
654,534 (1,048,487)
(133,305)
nil 1,833,220
Weighted average exercise price
nil
nil
nil
nil
Other plans
298,890
563,715
(176,183)
(1,323)
Weighted average exercise price
nil
nil
nil
nil
nil
nil
nil
nil
685,099
nil
For the options exercised during 2019, the market value at the date of exercise ranged from 418 pence to 625 pence.
Outstanding awards
As at
1 Jan 2018
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
Expired
no.
As at
31 Dec 2018
no.
LTIP
2,280,093
647,188
(247,688)
(319,115)
nil 2,360,478
Weighted average exercise price
nil
nil
nil
nil
Other plans
152,437
228,855
(77,577)
(4,825)
Weighted average exercise price
nil
nil
nil
nil
nil
nil
nil
nil
298,890
nil
For the options exercised during 2018, the market value at the date of exercise ranged from 569 pence to 619 pence.
Details of market performance conditions are included in the Directors’ Remuneration Report.
LTIP
Weighted average exercise price
Other plans
Weighted average exercise price
2019
Weighted
average
outstanding
contractual
life of
awards
years
7.0
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
—
—
—
—
2018
Weighted
average
outstanding
contractual
life of
awards
years
5.5
1.0
Range of
exercise
prices
pence
n/a
n/a
27.4 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
2019
EPS element TSR element
608p
608p
n/a
n/a
nil
3
nil
379p
608p
30.6%
0.9%
nil
3
nil
Vesting of 50% of shares awarded is based on the Group’s three-year TSR performance relative to that of the constituent
companies of the FTSE 250 (excluding investment trusts) and vesting of the remaining 50% of shares awarded is based on
headline EPS growth.
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the 2.8 years (2018:
2.8 years) prior to the grant date for the March 2019 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.
28. Trade and Other Payables
28.1 Accounting policy
Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost, using the effective
interest method.
28.2 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
2019
£m
14.7
0.4
15.1
173.8
29.9
1.5
68.4
273.6
2018
£m
15.5
0.6
16.1
197.3
35.3
1.9
77.3
311.8
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 £8.0m (2018: £4.1m) subject to a supplier financing agreement entered into
with one of the Group’s core relationship banks. Under the terms of the agreement, the Group’s suppliers in certain countries
can elect to be paid earlier than the terms of their agreement with Vesuvius by requesting discounted early settlement from the
arranging bank. This early settlement is effected between the bank and the supplier; from the perspective of the Group the
terms of each payable remain unchanged. The Group is not charged any interest cost or fee in respect of the agreement.
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019 184
29. Leases
29.1 Accounting policy
The Group has adopted IFRS 16 Leases from 1 January 2019 and, in accordance with the simplified approach, has not restated
comparatives on transition. The reclassifications and adjustments arising from the new lease accounting rules are therefore
recognised in the opening balance sheet on 1 January 2019. The impact of the adoption is disclosed in Note 2.6.
Lease liabilities are recognised at the present value of the remaining lease payments, discounted using the interest rate implicit
in the lease if that rate could be readily determined. If that rate cannot be readily determined the lessee’s incremental borrowing
rate was used, calculated as the local government bond rate plus an interest rate spread. In cases where there was an option to
terminate or extend a lease, the duration of the lease assumed for this purpose reflected the Group’s existing intentions regarding
such options. Lease liabilities include the net present value of the following lease payments:
> fixed payments (including in-substance fixed payments), less any lease incentives receivable
> variable lease payments that are based on an index or a rate
> amounts expected to be payable by the lessee under residual value guarantees
> the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
> payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
Leases of low-value assets and short-term leases (shorter than 12 months) 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.
29.2 Lease liabilities
The maturity analysis of the lease liabilities is disclosed in Note 25 (d).
The net book value of the Group’s property, plant and equipment assets held as right of use assets under lease contracts at
31 December 2019 was £34.4m (2018: £4.4m). The right-of-use asset is depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis. The cash repayments of leases during the year were £13.3m (2018: £2.4m).
29.3 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
2019
£m
1.3
0.6
0.1
2.0
2018
£m
11.6
19.2
8.5
39.3
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 £6.0m (2018: £20.9m).
30. Provisions
30.1 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.
185
30.2 Analysis of provisions
As at 1 January 2019
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 2019
Disposal and
closure costs
£m
Restructuring
charges
£m
39.8
(1.2)
4.1
(0.2)
1.3
(9.0)
—
34.8
17.4
(1.0)
39.8
—
—
(30.0)
(7.1)
19.1
Other
£m
4.7
(0.1)
8.4
—
—
(10.1)
—
2.9
Total
£m
61.9
(2.3)
52.3
(0.2)
1.3
(49.1)
(7.1)
56.8
Of the total provision balance as at 31 December 2019 of £56.8m (2018: £61.9m), £31.1m (2018: £38.8m) is recognised in the
Group Balance Sheet within non-current liabilities and £25.7m (2018: £23.1m) within current liabilities.
The provision for disposal and closure costs includes the Directors’ current best estimate of the costs to be incurred both in the
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 and reimbursement is considered to be virtually certain by management. As at
31 December 2019, £16.4m (2018: £21.5m) was recorded in other receivables in respect of associated insurance reimbursements,
of which £14.3m (2018: £17.7m) is non-current.
In assessing the probable costs and realisation certainty of provisions, or related assets, reasonable assumptions are made
including projections of the number of claims and the approximate average cost of those claims. By nature, these assumptions
are uncertain and therefore changes to the assumptions used could significantly alter the Directors’ 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 £19.1m as at 31 December 2019, (2018: £17.4m) comprises £nil (2018: £4.3m) in relation to onerous
lease provisions in respect of leases terminating between one and six years, and £19.1m (2018: £13.1m) 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 2019 the Group recognised net charges of £8.4m (2018: £9.3m) in the Group Income Statement to provide for
various litigation settlements and other claims.
31. 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 29).
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019 186
187
32. Contingent Liabilities
Guarantees given by the Group under property leases of operations disposed of amounted to £0.3m (2018: £0.8m). Details of
guarantees given by the Company, on behalf of the Group, are given in Note 11 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.
Company
legal name
Foseco
International
Limited
Foseco Japan
Limited
Foseco Korea
Limited
Foseco Limited
Foseco
Metallurgical Inc.
Registered office address
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
Jurisdiction
England
9th Floor, Orix Kobe Sannomiya
Building, 6-1-10, Goko dori, Chuo-ku,
Kobe Hyogo, 651-0087, Japan
Japan
Company
legal name
Metal Way
Equipamentos
Metalurgicos Ltda
Registered office address
Jurisdiction
Estrada Santa Isabel, 7655 KM37,
Bairro Do Una, Itaquaquecetuba,
São Paulo – SP, CEP: 08580 000,
Brazil
Brazil
Micro Jewels
Limited
10 Frere Felix, De Valois Street,
Port Louis, Mauritius
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
Minerals
Separation Limited
165 Fleet Street, London,
EC4A 2AE, England
England
New Foseco (UK)
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
US (Delaware)
Process Metrix,
LLC
6622 Owens Drive, Pleasanton,
CA 94588, United States
US (California)
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 30 for further information).
Foseco Nederland
BV
Binnenhavenstraat 20, 7553 GJ
Hengelo (OV), Netherlands
Netherlands
33. Investments in Subsidiaries, Joint Ventures and Associates
33.1 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 2019.
Company
legal name
Registered office address
Jurisdiction
Advent Process
Engineering Inc.
333 Prince Charles Drive, Welland,
Ontario, L3B 5P4, Canada
Canada
(Ontario)
BMI Refractory
Services Inc.
Brazil 1 Limited
CCPI Inc.
Cookson
Dominicana, SRL
Cookson
Investments
(Jersey) Limited
East Moon
Investment (HK
Holding) Company
Limited
Flo-Con Holding,
Inc.
600 N 2nd Street, Suite 401,
Harrisburg, PA 17101-1071,
United States
165 Fleet Street, London,
EC4A 2AE, England
US
(Pennsylvania)
England
Suite 201, 910 Foulk Road,
Wilmington, New Castle, Delaware,
19803, United States
US
(Delaware)
Km 7 1/2, Autopista San Isidro,
Edificio Modelo A, Zona Franca
San Isidro, Santo Domingo Oeste,
Dominican Republic
Dominican
Republic
IFC5, St Helier, JE1 1ST, Jersey
Jersey
Unit 01, 82/F, International
Commerce Centre, 1 Austin Road
West, Kowloon, Hong Kong
Hong Kong
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington, DE 19801,
United States
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
165 Fleet Street, London,
EC4A 2AE, England
England
Jersey
England
Company
legal name
Foseco (RUL)
Limited
Foseco (UK)
Limited
Registered office address
165 Fleet Street, London,
EC4A 2AE, England
165 Fleet Street, London,
EC4A 2AE, England
Jurisdiction
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) Co Limited
Foseco Fundición
Holding
(Espanola), S.L.
Room 819, Shekou Zhaoshang
Building, Nanshan District,
Shenzhen, Guangdong, 518067,
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 Holding BV 165 Fleet Street, London, EC4A 2AE,
Netherlands
Foseco Holding
International
Limited
England (Branch registration)
165 Fleet Street, London,
EC4A 2AE, England
Foseco Holding
Limited
165 Fleet Street, London,
EC4A 2AE, England
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
England
England
Brazil
Thailand
Mauritius
England
England
Indonesia
Indonesia
US (Delaware)
England
France
Canada
Brazil
Venezuela
France
England
England
Brazil
Foseco Overseas
Limited
165 Fleet Street, London,
EC4A 2AE, England
Foseco Pension
Fund Trustee
Limited
Foseco Philippines
Inc.
Foseco Portugal
Produtos Para
Fundiçâo Lda
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
Rua Manuel Pinto de Azevedo,
No 626 4100-320 Porto, Portugal
England
England
Philippines
Portugal
SERT-Metal SAS
Foseco Pty Limited 40-46 Gloucester Boulevarde, Port
Australia
SIDERMES Inc.
Kembla, NSW, 2505, Australia
Foseco SAS
Le Newton C, 7 Mail Barthélémy
Thimonnier, 77185 Lognes, France
France
PT Foseco
Indonesia
PT Foseco Trading
Indonesia
Realisations 789,
LLC
S G Blair &
Company Limited
Jl Rawa Gelam 2/5, Kawasan
Industri, Pulogadung, Jakarta,
13930, Indonesia
Jl Rawa Gelam 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
England
England
England
England
Brazil
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
HGAC
Participações
Limitada
J.H. France
Refractories
Company
165 Fleet Street, London,
EC4A 2AE, England
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
SIDERMES Do
Brasil Sensores
Termicos Ltda
SIDERMES
Latinoamericana
CA
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
SIDERMES S.A.
Urquiza 919 Piso 2 Rosario, Santa Fe,
CP 2000, Argentina
Argentina
Siegener Strasse 152, Kreuztal,
D-57223, Germany
Germany
SIR
Feuerfestprodukte
GmbH
SOLED SAS
Centre d’Activités Economiques
Zone Industrielle de Franchepré
54240 Joeuf, France
US (Delaware)
Tamworth UK
Limited
165 Fleet Street, London,
EC4A 2AE, England
Unicorn Industries
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Veservice Ltda
Av Brasil, 49550, Distrito Industrial
de Palmares, Campo Grande,
Rio de Janeiro, 23065-480, Brazil
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
Rodovia Raposo Tavares, KM15,
Butantã, 05577-100, Butantã,
São Paulo, Brazil
Mercajoya, S.A.
Capitán Haya, 56 – 1ºH,
28020 Madrid, Spain
Brazil
Brazil
Spain
Vesuvius
(Thailand) Co.,
Limited
170/69, 22nd Floor Ocean Tower 1,
Ratchadapisek Road, Klongtoey,
Bangkok, 10110, Thailand
Thailand
Vesuvius (V.E.A.R.)
S.A.
Street Urquiza, 919,Floor 2,
Rosario, Provincia de Santa Fé,
Argentina
Argentina
Vesuvius Advanced
Ceramics (China)
Co., Limited
221 Xing Ming Street,
China-Singapore Suzhou Ind Park,
Suzhou, Jiangsu Province,
215021, China
China
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019 188
189
33. Investments in Subsidiaries, Joint Ventures and Associates continued
33.1 Investment in subsidiaries continued
Company
legal name
Registered office address
Jurisdiction
Vesuvius America,
Inc.
1209 Orange Street, Wilmington,
DE 19801, United States
US (Delaware)
Company
legal name
Vesuvius
Investments
Limited
Registered office address
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
Jurisdiction
England
Turkey
Vesuvius Italia SPA Piazza Borgo Pila 40, Genoa,
16129, Italy
Italy
Belgium
Vesuvius Japan Inc. Daini-Naruse Akihabara Bldg. 3F,
Japan
Vesuvius Australia
(Holding) Pty
Limited
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505,
Australia
Vesuvius Australia
Pty Limited
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505,
Australia
Vesuvius Belgium
N.V.
Zandvoordestraat 366,
Oostende, B-8400, Belgium
Australia
Australia
Vesuvius Canada
Inc
181 Bay Street, Suite 1800, Toronto,
Ontario, M5J 2T9, Canada
Canada
Vesuvius Ceramics
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius China
Holdings Co.
Limited
Vesuvius China
Limited
Unit 01, 82/F International
Commerce Centre, 1 Austin Road
West, 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
Vesuvius Finland
OY
Pajamäentie 8D7, 00360 Helsinki,
Finland
Vesuvius Foundry
Products (Suzhou)
Co., Limited.
12 Wei Wen Road, China-Singapore
Suzhou Ind Park, Suzhou,
Jiangsu Province, 215122, China
Vesuvius Foundry
Technologies
(Jiangsu) Co.
Limited
2 Changchun Road, Economic
Development Area, Changshu,
Jiangsu, 215537, China
Belgium
England
Finland
China
China
Vesuvius GmbH
Gelsenkirchener Strasse 10,
Borken, D-46325, Germany
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
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
Germany
England
Belgium
Germany
France
Italy
England
Spain
US (Delaware)
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, England
Vesuvius Life Plan
Trustee Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius LLC
Vesuvius Malaysia
Sdn Bhd
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
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius
Management
Limited
Vesuvius
Management
Services Limited
Vesuvius Mexico
S.A. de C.V.
Vesuvius Mid-East
Limited
56, rd 15, Apt 103, Maadi,
Cairo, Egypt
Vesuvius Minerals
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Moravia,
s.r.o.
Konska c.p. 740, Trinec,
739 61, Czech Republic
Vesuvius NC, LLC. Suite 201, 910 Foulk Road,
Av. Ruiz Cortinez, Num. 140, Colonia
Jardines de San Rafael, Guadalupe,
Nuevo León, CP 67119, Mexico
Mexico
Wilmington, New Castle, Delaware,
19803, United States
Bell Gully, Level 22, Vero Centre,
48 Shortland Street, Auckland, 1010
New Zealand
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
del Mar, Lima, Peru
Vesuvius Pigments
(Holdings) Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Poland Sp
z.o.o.
Ul Tyniecka 12, Skawina,
32-050, Poland
Vesuvius Peru SAC Jiron Saenz Pena 185, Magdalena
Peru
Vesuvius Ras Al
Khaimah FZ-LLC
Vesuvius
Refractarios de
Chile SA
Street No. F14, RAK Investment
Authority Free Zone, Al Hamra,
Ras Al Khaimah, PO Box 86408,
United Arab Emirates
Street San Martin 870, Room 308,
Tower B, Concepcion, Chile
Chile
England
England
Russia
Malaysia
England
England
Egypt
England
Czech Republic
US
(Delaware)
New Zealand
England
England
England
England
Poland
United Arab
Emirates
Vesuvius France
S.A.
Rue Paul Deudon 68, Boite Postale
19, Feignies 59750, France
France
Vesuvius New
Zealand Limited
Company
legal name
Registered office address
Vesuvius
Refractories S.r.l.
Galati, Marea Unire avenue 107,
Galati county, 800329, 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
Jurisdiction
Romania
Brazil
India
Vesuvius
Scandinavia AB
4, Forradsgatan, Amal, S-662 34,
Sweden
Sweden
Vesuvius Sensors &
Probes Europe
S.p.A.
Vesuvius Solar
Crucible (Suzhou)
Co., Ltd.
10 Via Mantova, Muggio, Monza e
Brianza, 20835, Italy
Italy
58, KuaChun Road, Kua Tang,
China-Singapore Suzou Ind Park,
Suzhou, Jiangsu Province,
215122, China
China
Vesuvius South
Africa (Pty) Limited
Pebble Lane, Private Bag X2,
Olifantsfontein, Gauteng Province,
1665, South Africa
South Africa
Vesuvius Sp z.o.o.
ul. Jasnogórska 11, Kraków,
31-358, Poland
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, England
Poland
Poland
England
Vesuvius Ukraine
LLC
27, Udarnykiv Street, City of
Dnipropetrovsk, 49000, Ukraine
Ukraine
Company
legal name
Vesuvius USA
Corporation
Registered office address
CT Corporation, 208 South LaSalle
Street, Chicago, Cook County, IL
60604, United States
Jurisdiction
US (Illinois)
Vesuvius VA
Limited
165 Fleet Street, London,
EC4A 2AE, England
Vesuvius Vietnam
Limited
VP 26, 26th Floor, Song Da-Ha Dong
Building, No. 110 Tran Phu, Mo Lao
Ward, Ha Dong District, Ha Noi City,
Vietnam
England
Vietnam
Vesuvius Zyalons
Holdings Limited
Brown Street, Newmilns, Ayrshire,
KA16 9AG, Scotland
Scotland
Vesuvius Zyarock
Ceramics (Suzhou)
Co., Limited
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
China
England
Vesv Distribution
(Private) Limited
R Tech Park, 13th Floor Western
Express Highway, Goregaon (East)
Mumbai, Mumbai City, MH 400063,
India
India
VSV Advanced
Ceramics (Anshan)
Co., Limited
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.,
Limited
Cui Tun Village, Hai Dong Office,
Bayuquan District, Liaoning
Province, YingKou, 115007, China
England
China
The following subsidiary companies have branches registered in the named countries: Foseco (Jersey) Limited in England,
Foseco Holding BV in England, Vesuvius LLC in Kazakhstan, and Vesuvius UK Limited in Taiwan and South Korea.
33.2 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 Group 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 Group 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.
In June 2019 Vesuvius completed the sale of its 50% interest in Angang Vesuvius Refractory Company, Limited. Further details are
provided in Note 20.
At 1 January
Additions
Disposals
Share of post-tax profit of joint ventures
Dividends received from joint ventures
Foreign exchange
At 31 December
2019
£m
19.1
—
(6.9)
1.0
(0.1)
(0.4)
12.7
2018
£m
17.5
—
—
2.8
(1.2)
—
19.1
Vesuvius plcAnnual Report and Financial Statements 2019Notes to the Group Financial Statements continuedFinancial StatementsVesuvius plcAnnual Report and Financial Statements 2019 190 Vesuvius plc
Annual Report and Financial Statements 2019
Notes to the Group Financial Statements continued
Vesuvius plc
Annual Report and Financial Statements 2019
191
33. Investments in Subsidiaries, Joint Ventures and Associates continued
33.3 Non-controlling interests
33.2 Investment in joint ventures and associates continued
Joint ventures
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
2019
£m
25.4
1.3
0.1
1.4
(0.4)
1.0
3.8
9.7
—
(1.8)
11.7
2018
£m
75.3
3.4
0.3
3.7
(0.9)
2.8
4.2
53.9
—
(39.8)
18.3
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.
Name of entity
Registered address
Wuhan Wugang-Vesuvius
Advanced CCR Co., Limited
Gongnong Village Qingshan District, Wuhan, Hubei
Province, 430082, China
Wuhan Wugang-Vesuvius
Advanced Ceramics Co.,
Limited
Gongnong Village Qingshan District, Wuhan, Hubei
Province, 430082, China
Jurisdiction
China
China
2019
% ownership
2018
% ownership
50
50
50
50
Associates
Name of entity
Sapotech Oy
Newshelf 480
Proprietary Limited
Registered address
Paavo Havaksen tie 5 D, 90570 Oulu, Finland
Jurisdiction
% ownership
Finland
14.90
44 Main Street, Johannesburg, 2001, South Africa
South Africa
45
The Group is considered to hold significant influence over Sapotech Oy despite holding less than 20% of its shares because the
agreement under which the Group invested in Sapotech Oy provides that the Group holds one of the four seats on the company’s
board. This allows the Group to participate in policy-making processes and have additional controls over Sapotech Oy’s major
decision-making that do not amount to control but give significant influence.
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 Group Income Statement and within equity in the Group Balance Sheet,
distinguished from parent company shareholders’ equity.
The total profit attributable to non-controlling interest at 31 December 2019 is £6.2m (2018: £6.8m) of which £4.1m relates
to Vesuvius India Limited (2018: £4.4m). 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
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
6 Kung Yeh 2nd Road, Ping Tung Dist, Ping Tung,
90049, Taiwan
Foseco (Thailand) Limited
170/69, 22nd Floor Ocean Tower 1,
Ratchadapisek Road, Klongtoey, Bangkok,
10110, Thailand
Vesuvius Ceska Republika, a.s. Prumyslová 726, Konská, Trinec, 739 61,
Czech Republic
Jurisdiction
India
India
Taiwan
Thailand
Czech
Republic
As with Vesuvius plc, all of the above companies have a 31 December year-end. The summarised financial information for
Vesuvius India Limited is presented below:
Summarised balance sheet
Current assets
Current liabilities
Current net assets
Non -current assets
Non-current liabilities
Non-current net assets
Net assets
Accumulated NCI
Summarised statement of comprehensive income
Revenue
Profit after tax
Profit allocated to NCI
Dividends paid to NCI
Summarised cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase/decrease in cash and cash equivalents
2019
% ownership
2018
% ownership
55.57
74.98
55.57
74.98
51
74
60
2019
£m
85.4
(15.6)
69.8
16.7
(1.9)
14.8
84.6
51
74
60
2018
£m
85.3
(18.4)
66.9
17.1
(1.5)
15.6
82.5
37.9
(36.9)
98.3
9.4
4.2
(0.7)
10.4
(3.5)
(1.4)
5.5
100.7
10.0
4.4
(0.7)
12.6
(2.6)
(1.9)
8.1
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Annual Report and Financial Statements 2019
Notes to the Group Financial Statements continued
34. Related Parties
All transactions with related parties are conducted on an arm’s-length basis and in accordance with normal business terms.
Transactions between related parties that are Group subsidiaries are eliminated on consolidation.
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 irrespective of whether there have been transactions between the related parties.
34.1 Transactions with joint ventures and associates
All transactions with joint ventures and associates are in the normal course of business. Transactions between the Group and its
associates for 2019 are £0.3m (2018: £0.3m). Transactions between the Group and its joint ventures are disclosed below:
Sales to joint ventures
Purchases from joint ventures
Dividends received
Injection of equity funding
Trade payables owed to joint ventures
Trade receivables owed by joint ventures
2019
£m
3.2
25.4
0.1
—
5.3
0.2
2018
£m
3.2
28.0
1.2
—
7.2
0.2
Trade payables owed to joint ventures are settled net of trade receivables owed by joint ventures 60 days after the delivery of
goods or services. There are no loans to and from joint ventures.
34.2 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.
34.3 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 26 of the Group Financial Statements.
Other than the parties disclosed above, the Group has no other material related parties.
Company Balance Sheet
As at 31 December 2019
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
Vesuvius plc
Annual Report and Financial Statements 2019
193
Notes
7
2019
total
£m
2018
total
£m
1,778.0
1,778.0
1,778.0
1,778.0
—
3.6
3.6
1.7
3.3
5.0
(0.6)
(934.3)
(931.3)
846.7
(0.3)
(923.9)
(919.2)
858.8
846.7
858.8
27.8
818.9
846.7
27.8
831.0
858.8
8
9
Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own income statement.
During 2019 the Company recognised a profit of £37.3m (2018: £260.5m profit).
The financial statements on pages 193 to 200 were approved and authorised for issue by the Directors on 27 February 2020 and
signed on their behalf by:
Patrick André
Chief Executive
Guy Young
Chief Financial Officer
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195
Company Statement of Changes in Equity
As at 31 December 2019
Notes to the Company Financial Statements
As at 1 January 2018
Comprehensive income/loss recognised for the year
Purchase of ESOP shares
Recognition of share-based payments
Dividend paid
As at 1 January 2019
Comprehensive income/loss recognised for the year
Recognition of share-based payments
Dividend paid
As at 31 December 2019
The Company had distributable reserves of £818.9m as at 31 December 2019 (2018: £831.0m).
Share
capital
£m
27.8
—
—
—
—
27.8
—
—
—
27.8
Retained
earnings
£m
630.2
260.5
(13.4)
3.7
(50.0)
831.0
37.3
4.5
(53.9)
818.9
Total
£m
658.0
260.5
(13.4)
3.7
(50.0)
858.8
37.3
4.5
(53.9)
846.7
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 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.
The results of the Company are included in the preceding Group Financial Statements.
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 (IAS 1 para 10(d) and IAS 7)
> Disclosures in respect of capital management and financial instruments (IAS 1 para 134-136 and IFRS 7)
> Disclosures in respect of related party transactions with wholly owned members of the Vesuvius plc Group (IAS 24)
> Disclosures in respect of the compensation of key management personnel (IAS 24 para 17)
> Disclosures in respect of fair value measurements (IFRS 13 para 91-99)
> The effects of new but not yet effective IFRSs (IAS 8 para 30-31)
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.
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 a 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.
Vesuvius plcAnnual Report and Financial Statements 2019Financial StatementsVesuvius plcAnnual Report and Financial Statements 2019
196
197
Notes to the Company Financial Statements continued
3. Critical Accounting Judgements and Estimates
7.
Investment in Subsidiaries, Associates and Joint Ventures
Impairment of Investment in subsidiaries and other companies (Estimate and Judgement)
7.1 Accounting policy
The Company assesses its investments in subsidiaries and other companies for impairment shortly before the Company’s
year-end or whenever events or changes in circumstances indicate that the recoverable amount of the investment could be less
than the carrying amount of the investment. If this is the case, the investment is considered to be impaired and is written down to its
recoverable amount. Judgement is required in the determination of the recoverable amount as the Company evaluates various
factors related to the operational and financial position of the relevant investee business, appropriate discounting and long-term
growth rates. The annual investment impairment test is described in Note 7.3 below.
4. Employee Benefits Expense
Wages and Salaries
Social security costs
Share-based payments
Compensation for loss of office
Pension costs – defined contribution pension plans
Total employee benefits expense
2019
£m
2.4
0.5
1.3
—
—
4.2
2018
£m
3.4
0.7
1.2
—
—
5.3
The total average number of employees for 2019 was 3 (2018: 3). As at 31 December 2019, the Company had 3 (2018: 3)
employees.
Details of the Directors’ remuneration are disclosed in the Directors’ Remuneration Report on page 117.
5. Audit and Non-Audit Fees
Amounts payable to PricewaterhouseCoopers LLP in relation to audit and non-audit fees are disclosed within Note 6 to the Group
Financial Statements.
6. Dividends
A final dividend for the year ended 31 December 2018 of £37.2m (2017: £33.8m), equivalent to 13.8 pence (2017: 12.5 pence)
per ordinary share, was paid in May 2019 (May 2018) and an interim dividend for the year ended 31 December 2019 of £16.7m
(2018: £16.2m), equivalent to 6.2 pence (2018: 6.0 pence) per ordinary share, was paid in September 2019 (September 2018).
A proposed final dividend for the year ended 31 December 2019 of £38.6m, equivalent to 14.3 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 22 May 2020 to ordinary shareholders on the
register at 17 April 2020.
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 to the Group Financial Statements.
7.2 Analysis of investment in subsidiaries, associates and joint ventures
As at 1 January 2019 and 31 December 2019
Shares in
subsidiaries
£m
1,778.0
The subsidiaries, joint ventures and associates of Vesuvius plc, their country of incorporation and percentage ownership is set
out in Note 33 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 2019.
7.3
Impairment of Investment in Subsidiaries, Associates and Joint Ventures
The Group carried out its annual investment impairment test as at 31 October 2019. The recoverable amount of the investment
significantly exceeded its carrying value, therefore no impairment charges have been recognised. The recoverable amount of
the investment was also checked against its carrying value as at 31 December 2019 and no impairment triggers were identified.
The cash flow predictions are based on financial budgets and strategic plans approved by the Board. These assume a level
of revenue and profits which are based on both past performance and expectations for future market development and take
into account the cyclicality of the business in which the Group operates. Cash flows beyond the period of the strategic plans
are extrapolated in perpetuity using a long term growth rate of 2.5% (2018: 2.5%). The key assumptions and methodology in
determining the value in use of the Group are disclosed in Note 17.3 to the Group Financial Statements. The sensitivity of the
forecasts to a reasonably possible change in certain assumptions which might require an impairment in 2020 was considered.
A reduction in the Group’s trading profit of 20% over the next 3 years would result in an impairment of £81m.
8. Other Creditors
Amounts owed to subsidiary undertakings
Accruals and other creditors
Total amounts falling due within one year
2019
£m
933.0
1.3
934.3
2018
£m
921.7
2.2
923.9
Amounts owed to subsidiary undertakings are interest free, have no fixed date of repayment and are repayable on demand.
9.
Issued Share Capital
9.1 Accounting policy
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
9.2 Analysis of issued share capital
The issued and fully paid ordinary share capital of the Company as at 31 December 2019 was 278,485,071 shares of £0.10 each
(2018: 278,485,071 shares of £0.10 each). 7,271,174 (2018: 7,271,174) shares of £0.10 each were held in Treasury and 1,718,615
(2018: 2,874,060) shares of £0.10 each 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.
Vesuvius plcAnnual Report and Financial Statements 2019Financial StatementsVesuvius plcAnnual Report and Financial Statements 2019
198
199
Notes to the Company Financial Statements continued
10. Share-based Payments
10.1 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. For grants with market-based conditions attached to them, such as
total shareholder return, fair value is measured using a form of stochastic option pricing model. For grants with non-market-
based conditions, such as growth in headline earnings per share, fair value is measured using the Black-Scholes option pricing
model. The fair value 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.
10.2 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 £1.3m was charged to the profit and loss account in the year with regard to share-
based payments (2018: £1.2m).
10.3 Details of outstanding options
Outstanding awards
As at
1 Jan 2019
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
Expired
no.
Awards
exercisable
as at
31 Dec
2019
no.
Weighted
average
outstanding
contractual
life of
awards
years
As at
31 Dec
2019
no.
LTIP
968,965 327,560 (423,788)
Weighted average exercise price
nil
nil
Other plans
28,246
48,674
Weighted average exercise price
nil
nil
nil
—
nil
—
nil
—
nil
— 872,737
nil
nil
— 76,920
nil
nil
—
—
—
—
7.4
1.2
For options exercised during 2019, the market value at the date of exercise was 613 pence.
Outstanding awards
As at
1 Jan 2018
no.
Granted
no.
Exercised
no.
Forfeited/
lapsed
no.
Expired
no.
As at
31 Dec
2018
no.
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
— 28,246
nil
nil
nil
—
nil
nil
—
nil
nil
nil
— 28,246
nil
nil
—
—
—
—
Weighted
average
outstanding
contractual
life of
awards
years
5.7
2.2
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
For options exercised during 2018, the market value at the date of exercise ranged from 568 pence to 581 pence.
Details of market performance conditions are included in the Directors’ Remuneration Report.
As at 31 December 2019, 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
Years of
award/grant
2017-2019
2018-2019
2018-2019
Option
prices
Latest year
of exercise/
vesting
nil
nil
nil
2029
2021
2021
Number
of options/
allocations
outstanding
1,833,220
608,179
76,920
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
2019
EPS element
TSR element
£1,932,431
£1,204,591
608p
n/a
n/a
nil
3
nil
608p
30.6%
0.9%
nil
3
nil
Vesting of 50% of shares awarded is based on the Group’s three-year TSR performance relative to that of the constituent
companies of the FTSE 250 (excluding investment trusts) and vesting of the remaining 50% of shares awarded is based on
headline EPS growth.
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the 2.8 years (2018:
2.8 years) prior to the grant date for the March 2019 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.
11. 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 2019 in respect of the
liabilities of its subsidiary companies amounted to £419.4m (2018: £605.2m), which includes guarantees of $200.0m and
€130.0m (2018: $200.0m and €130.0m) in respect of US Private Placement Loan Notes and £125.8m (2018: £180.8m) in respect
of drawings under the syndicated bank facility; together with £32.9m (2018: £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 2019Financial StatementsVesuvius plcAnnual Report and Financial Statements 2019 200
201
Notes to the Company Financial Statements continued
12. 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 33 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 26 to 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
2019
2018
2017
2016
2015
£m
£m
%
no.
£m
£m
%
no.
1,195.3
1,236.7
1,148.7
120.1
10.0
7,677
515.1
61.3
11.9
2,819
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
Vesuvius plcAnnual Report and Financial Statements 2019Financial StatementsVesuvius plcAnnual Report and Financial Statements 2019
202
203
Shareholder Information (unaudited)
Enquiries
Share Dealing Service
Analysis of ordinary shareholders
Investor type
Shareholdings
As at 31 December 2019
Number of holders
Percentage of holders
Percentage of shares held
Private
2,439
81.35%
0.45%
Institutional
and other
559
18.65%
99.55%
Total
2,998
100%
100%
1–1,000
1,001– 50,000
50,001– 500,000
500,001+
2,333
77.83%
0.12%
445
14.84%
1.21%
147
4.90%
8.90%
73
2.43%
89.77%
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
2020 Annual General Meeting
13 May 2020
Announcement of 2020 half-year results
30 July 2020
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).
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Annual Report and Financial Statements 2019
Glossary
5S
8D
AGM
CO2
CO2e
Code
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
Annual General Meeting
Carbon dioxide
Carbon dioxide equivalent
The UK Corporate Governance Code
Company
Vesuvius plc
DSBP
DTR
EBITDA
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
GHG
Foreign exchange
Greenhouse gas
Group
Vesuvius plc and its subsidiary companies
IAS
IFRS
KPI
LTI
LTIFR
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
Turbo S
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.
Photographs
P4:
Photographer – Yousef Mohassab
Collaborators – Ray Samarin & Craig Dalessandris
P61:
Photographer – Kyle DeBruyn
Collaborator – Mark McClain
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.
The report was printed using vegetable based inks by a
CarbonNeutral® printer.
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Vesuvius plc
165 Fleet Street
London
EC4A 2AE
T +44 (0)20 7822 0000
www.vesuvius.com
Visit our online annual report at
report2019.vesuvius.com
Business overview video
CEO’s strategy and performance video
Vesuvius employee career journey videos