Think beyond.
Shape the future.
Annual Report
2022
1. For definitions of alternative performance measures, refer to Note 4 of the Group Financial Statements.
2. Headline results refer to continuing operations and exclude separately reported items.
*
At constant 2022 currency.
Our business
1
Our purpose
4
Vesuvius at a glance
6
What we do
8
Our Investment proposition
10
Chairman’s statement
12
Chief Executive’s strategic review
14
Our external environment
16
Our markets
18
Our strategy
20
Business model
22
Section 172(1) Statement
– Our stakeholders
27
Risk, viability and going concern
Our performance
36
Key Performance Indicators
38
Financial review
42
Operating reviews
42
Steel Division
43
Steel Flow Control
44
Steel Advanced Refractories
45
Steel Sensors & Probes
46
Foundry Division
Sustainability
50
Non-financial and sustainability
information statement
50
Introduction
52
Our Sustainability strategy
and objectives
53
Our sustainability targets
54
TCFD
57
Our planet
71
Our customers
74
Our people
81
Our communities
Governance
88
Board of Directors
90
Group Executive Committee
91
Corporate Governance Statement
91
Chairman’s governance letter
92
Board Report
101
Audit Committee
110
Nomination Committee
116
Directors’ Remuneration Report
116
Remuneration overview
124
2023 Remuneration Policy
132
Annual Report on
Directors’ Remuneration
144
Directors’ Report
150
Statement of Directors’ Responsibilities
151
Independent Auditors’ Report
Financial Statements
161
Group Income Statement
162
Group Statement of Comprehensive Income
163
Group Statement of Cash Flows
164
Group Balance Sheet
165
Group Statement of Changes in Equity
166
Notes to the Group Financial Statements
219
Company Balance Sheet
220
Company Statement of Changes in Equity
221
Notes to the Company Financial Statements
227
Five-Year Summary: Divisional Results
228
Shareholder Information
230
Glossary
Contents
Financial highlights
Non-financial highlights
20
21
22
Revenue
£m
£2,047m
2,047
1,643
1,458
20
21
22
Operating profit
£m
£217m
217
133
74
20
21
22
Statutory EPS
p
67.2p
37.7
15.3
67.2
20
21
22
Trading profit
1
£m
£227m
227
142
101
20
21
22
Headline earnings
1,2
£m
£152m
152
96
63
20
21
22
Free cash flow
1
£m
£123m
123
114
-0.3
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.
Strategic report
20
21
22
Lost Time Injury Frequency Rate
1.08
1.06
1.08
1.16
20
21
22
Total R&D spend
*
£m
£36m
31
28
36
1
Our performance
Sustainability
Governance
Financial Statements
Our business
We think beyond
today’s solutions
andshapethefuture
throughinnovation.
engineering and technology, serving process industries
We think beyond today to create the innovative solutions
that will shape the future, delivering products and
services that help our customers make their industrial
processes safer, more efficient and more sustainable.
In turn, we provide our employees with a safe workplace
where they are recognised, developed and properly
rewarded, and aim to deliver sustainable, profitable
growth to provide our shareholders with a superior
return on their investment.
Our purpose
Name:
Efren Evangelista
Role:
Ferrous Metallurgist & Foundry Development Expert
Location:
Suzhou
Vesuvius plc
Annual Report and Financial Statements 2022
2
Our business
4
Vesuvius at a glance
6
What we do
8
Our investment proposition
10
Chairman’s statement
12
Chief Executive’s strategic review
14
Our external environment
16
Our markets
18
Our strategy
20
Business model
22
Section 172(1) Statement
– Our stakeholders
27
Risk, viability and going concern
Name:
Kritika Raman
Role:
Trainee Engineer
Location:
Kolkata
Name:
Ertan Eser
Role:
Group Leader Sedex
Location:
Borken
3
Our business
Our
performance
Sustainability
Governance
Financial
Statements
We’re harnessing technology to create
solutions that drive our customers’ success
In 2022 we spent £36m on R&D, developing innovative
products and solutions in our six R&D centres that will
enable our customers to optimise their efficiency.
3
Our business
Our performance
Sustainability
Governance
Financial Statements
Name:
Tiago Dos Santos
Role:
Research Engineer – VISO
Location:
Ghlin
Vesuvius plc
Annual Report and Financial Statements 2022
We are a global group providing products and solutions to industrial
customers who manage the flow of molten metal. Our technology-led
solutions allow our customers to tackle complex problems in their
production. Our customers are predominantly in the steel and
foundry industries and we serve them from two Divisions.
At a glance
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. Product demand in
our Foundry Division is driven by higher sophistication, demanding higher quality metal
and increasingly more complex castings.
Business Units
Flow Control
Steel production volume is the
primary driver of demand for
Flow Control’s products, whilst
the trend for ‘high-technology
steel’ allows us to leverage our
advanced solutions and achieve
above-market growth rates.
Sensors & Probes
Steel production volume and
the need to increase the quality
and consistency of cast steel
drives demand for our
Sensors & Probes business.
Advanced Refractories
Steel production volume and
certain other high-temperature
industries, such as aluminium,
copper, cement, petrochemical
and energy from waste, are
the drivers for the Advanced
Refractories Business Unit’s
product demand.
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.
Revenue
£1,496m
Steel
Revenue
£551m
Foundry
4
Flow Control
£811m
Advanced Refractories
£645m
Sensors & Probes
£40m
Revenue breakdown by Business Unit
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Our global presence
6
Continents
40
Countries
68
Sales offices
6
R&D centres
of excellence
55
Production sites
Breakdown by region
Americas
3,343 employees
EMEA
4,242 employees
Asia-Pacific
3,549 employees
Enschede, Netherlands
Ghlin, Belgium
Visakhapatnam, India
20%
Foundry
80
%
Steel
£
741m
R
evenue
30%
Foundry
7
0%
Steel
£
742m
R
evenue
32%
Foundry
68
%
Steel
£
565m
R
evenue
Skawina, Poland
35% expansion in VISO
*
capacity
100% expansion in slide-gate capacity
Kolkata, India
50% expansion in VISO
*
capacity
Pittsburgh, USA
R&D sites
Investment in Flow Control
manufacturing capacity
Our production, R&D and commercial sites worldwide
Suzhou, China
5
Expansion of Flow Control capacity
The Group is investing £28m in capacity expansion in some
of our most profitable product lines of VISO
*
and slide-gates.
This will support future organic growth and market share gains
in the fast-growing markets in EEMEA, India and South East Asia.
*
Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.
Vesuvius plc
Annual Report and Financial Statements 2022
Our solutions
address the key
challenges of our
customers in the
steel industry, such
as maintaining
steel quality and
reducing energy
usage during the
casting process
Our products and
their applications
preserve the purity
of the steel as it
moves through
the production
process, from
initial refining to
the cast steel slab,
bar or ingot
Our solutions help to improve safety, quality and consistency.
They reduce energy usage, and lessen the environmental
impact of the steel-making process
We combine these
with robotics and
mechatronic
installations to
lower cost, and
improve safety
and consistency
We supply
refractory
products, flow
control systems
and process
measurement
solutions to our
Steel Division
customers
We draw on years of technical expertise and investment in innovation,
to provide solutions, products and services that are critical to the
success of our customers in the steel , foundry and other
high-temperature industries.
What we do for our Steel customers
What we do
6
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Our solutions
address the key
challenges of our
foundry customers
of casting quality
and production
efficiency
Our products and
solutions clean the
molten metal,
improve the
solidification of
that metal, and
reduce wastage in
the final casting
Our castings contribute to the improvement of product quality
and manufacturing efficiency, whilst reducing the environmental
impact of the casting process
We combine this
with technical
advice, application
engineering
and computer
modelling to
improve process
outcomes
We provide
customisable
products and
process
technology to
foundries that
improve the
quality of
their castings
What we do for our Foundry customers
7
What is a refractory?
Refractories are ceramic materials designed to withstand
the very high temperatures encountered in modern manufacturing.
More heat-resistant than metals, they are used to line the hot
surfaces found inside many industrial processes.
Vesuvius plc
Annual Report and Financial Statements 2022
Our investment proposition
We believe that Vesuvius offers a compelling opportunity
for investors. As a global business with industry-leading
R&D and a strong focus on growing economies
we offer a unique proposition with exciting potential
for profit generation.
Each of these elements enables
us to drive profitable growth
with a cash-generative model.
20
21
22
Statutory EPS
67.2p
15.3p
67.2p
37.7p
20
21
22
Sales generated by market-leading
sustainable products
1
17.9%
16.0%
17.9%
17.5%
1. Using Vesuvius’ internal scorecard.
8
Name:
Maike Frericks
Role:
Team Leader Delivery Management/SCM
Location:
Borken
Our business
Our
performance
Sustainability
Governance
Financial
Statements
–
We are a global leader where our products are primarily focused – in flow control
and foundry solutions
–
We provide technology-based solutions which help our customers improve their
sustainability, safety, quality and cost performance
–
We have a worldwide presence, and are especially strong in the fastest growing
regions of India, South-East Asia, Middle East, Africa and Latin America whilst
maintaining leadership in Europe and North America
–
We spend twice as much on R&D as a percentage of sales than our
closest competitors
–
This investment enables us to maintain and even increase ‘clear blue water’ between
us and competitors
–
16% of our sales are in products launched in the last five years. Our objective is for
this to reach 20%
–
We have reduced our carbon footprint by more than 18% since 2019
–
We plan to reduce it by 50% by 2035, so that we will be net zero by 2050
–
Our products enable our customers to improve their own carbon footprint
–
75% of our R&D pipeline is dedicated to products with superior
sustainability characteristics
–
We can compensate for cost increases
–
We gain market share in Flow Control and Foundry through superior technology
–
Our solutions are a very small part of the cost structure of our customers.
This cost is outweighed by the benefits of our technological differentiation
–
We have made the strategic choice not to be integrated upstream in mining.
This reduces our need for maintenance capex and enables us to be free cash
flow generative at every point of the market cycle
–
We maintain strong and prudent balance sheet management
–
Solid free cash flow and a strong balance sheet allow us to seize organic and
non-organic growth opportunities
–
Demographic growth, urbanisation and sustainability needs are driving the
growth of steel and foundry markets globally
–
Growing green energy infrastructure is increasing demand for steel
–
Demand for high-tech steel and high complexity castings are growing ahead
of the market
1
2
3
4
5
6
We operate
in long-term
growth markets
We are an
industry leader
We are leading the
technology race
Technology
leadership gives
us pricing flexibility
and market
opportunities
We have a strong
sustainability
strategy
Sustained
free cash flow
generation and
a strong balance
sheet pave the
way for growth
Principal reasons to invest
9
Dear Shareholder,
I am delighted to be reporting to you for the
first time as Chairman of Vesuvius, having
joined the Board at the end of 2022. Vesuvius
has delivered a stand-out performance in 2022,
with financial results significantly ahead of
the Group’s expectations at the beginning
of the year. This has been achieved through
a keen focus on commercial excellence and
demonstrates the agility of our business,
and the ability of our people, to respond to
economic challenges. I would like to thank
all of my Vesuvius colleagues for the
professionalism and dedication they showed
during 2022 and for their steadfast contribution
to these excellent results.
Safety
The number one priority at Vesuvius is to provide
our employees with a safe workplace, so that
they return home safely to their families at the
end of each working day. Therefore, only the
highest levels of safety performance can be
accepted. Vesuvius believes that all work-related
injuries or ill health are preventable, making
safety the responsibility of every Vesuvius
employee. There is an understanding that
working safely is a clear condition of
employment. Against this background, it is
deeply regrettable that we suffered a fatality
at our joint venture site in Wuhan, China during
2022. We are determined to ensure that lessons
learnt from this accident are shared across the
Group to prevent further incidents. Our thoughts
remain with the family and friends of the
colleague we lost.
Initial impressions
I have received a warm welcome to Vesuvius
over the past few months. I have visited our
sites in Borken, Germany; Skawina, Poland
and Ghlin, Belgium; and been impressed by
the depth of knowledge and expertise that
exists in our operations. My first interactions
with the business tell me that Vesuvius’ CORE
values of Courage, Ownership, Respect and
Energy are clearly alive and well, and embedded
in the organisation.
It is already clear to me that R&D is a core
component to our success and the delivery of our
strategy. There is deep technical expertise in the
organisation and the spark of innovation is truly
Chairman’s statement
The people, products and expertise in
place for long-term sustainable growth
alight across all Business Units. I am looking
forward to increasing the breadth and depth
of my technical understanding of our products
and solutions as I continue to visit our sites in the
year ahead.
Strategy
I believe that Vesuvius’ key strength is its ability to
add value to our customers, by driving efficiency
and productivity improvements in their
processes, as well as providing support to make
their operations safer and more environmentally
friendly. We are passionate about our products
and solutions, which help our customers deliver
consistently higher quality finished products,
with an improved metallurgical structure and
using fewer resources. In this way, Vesuvius plays
an important role in improving our customers’
commercial, quality and environmental
outcomes. Our extensive R&D capability, deep
product knowledge, and long-standing steel
and foundry process expertise enable us to
partner with them to innovate and adapt to
their changing needs.
During the year the Board conducted its annual
review of the strategy for each Business Unit.
Each has a tailored plan for profitable growth
and higher profit margins, focused on
innovation, quality and long-term sustainability.
Against this background, the Board reaffirmed
its support for a significant investment
programme in the Group – particularly focusing
on our growth markets across the world.
People
People are clearly at the heart of Vesuvius, and
understanding the work undertaken to ensure
we have the right people in the right places in the
business remained a key focus for the Board in
2022. During further COVID-19 disruption in
China in 2022, our people once again excelled in
their dedication, maintaining operations at our
sites despite further lockdowns. I give my thanks
to those teams. Likewise, when the conflict broke
out in Ukraine, our colleagues continued to
support the organisation, despite immense
personal challenges. We are thankful that our
people there remain safe, and on behalf of the
Board I thank them for the work they continue
to do in extremely difficult circumstances.
The recent cyber security incident has
demonstrated the depth of our organisational
resilience and culture. We are responding to the
considerable challenges this has posed and at
every site our people have worked incredibly
10
Vesuvius plc
Annual Report and Financial Statements 2022
hard to restore production, reinstate systems
and serve our customers, demonstrating our
core values to the full.
Members of the Board made visits to sites in
Belgium, Brazil, Germany, India, Japan, Mexico
and the Netherlands during the year. It is during
these visits that the Directors can speak
first-hand with our people, holding ‘town hall’
meetings, listening to their questions and
feedback, and taking the temperature of the
organisation. An employee engagement survey
was again conducted in 2022. In its fourth year,
participation remained high at 92%, and team
feedback reports were provided to more than
700 managers. It is in the action planning that
will come from the reports that the real value to
the business will be delivered. The information
we receive from the engagement survey and the
face-to-face interactions at sites support the
Board in understanding and assessing the
health and consistency of the Group’s culture.
Sustainability
The Group has set clear internal operational
targets around sustainability performance,
particularly in relation to our CO
2
emissions
and energy consumption. Our focus on
sustainability is increasingly entwined with our
R&D capabilities, where our research enables us
to continue to bring innovative, more efficient
solutions to our customers. We also see ongoing
commercial opportunities for the business as the
energy transition accelerates, with renewable
energy production plants (such as wind or solar)
requiring significantly more high-quality steel
than those powered by fossil fuels, and as such,
driving growth in the steel industry. We have
set the target of reaching a net zero carbon
footprint at the latest by 2050. This will require
capital investment in our operations, and the
development and adoption of new production
technologies. We have clear priorities, targets
and milestones identified as we progress on
this journey.
The Board and governance
I would like to thank John McDonough for the
depth and dedication of his service in his ten
years as Chairman of Vesuvius, steering the
Group from its establishment as an independent
public company. Whilst John leaves Vesuvius
a thriving Company, in his words, and in my view,
there is more to come.
In line with our plans for Board succession,
we welcomed Carla Bailo to the Board
as a Non-executive Director last month.
Jane Hinkley, who has served the Group
diligently for ten years will step down at the
2023 AGM. Jane leaves us with very many
thanks for her service.
In 2023, we will also welcome Mark Collis to
the Board as the successor to Guy Young,
our departing CFO. Mark brings a wealth
of operational finance experience to us,
having worked in a number of international
businesses, both inside and outside the UK.
We keenly anticipate his integration into our
Board and management team. We must, of
course, thank Guy for his leadership of the
finance function, and the considerable expertise
he has brought over the past seven years in its
development and operation.
The Board conducted an evaluation of its
performance in 2022. This indicates that I have
joined a Board that is open in its deliberations
and is clear about the key strategic and
operational drivers of the business. The output
of this 2022 process will be used to help set
priorities for the Board’s activities in 2023.
Dividend
The Vesuvius 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 15.75 pence per share
(2021: 15.0 pence per share) for the year ended
31 December 2022. If approved at the Annual
General Meeting, this final dividend will be paid
on 31 May 2023 to shareholders on the register
at 21 April 2023.
Annual General Meeting
The Annual General Meeting will be held on
18 May 2023. 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.
Looking ahead
As an incoming Chairman I am provided with a
good opportunity to assess the Board’s priorities.
I believe that Vesuvius has a clear strategy for
growth, and for delivering superior returns to
our shareholders. In the months and years ahead
we will deliver on our strategy. We will maintain
our primary focus on safety, drive innovation
through our dedicated R&D capabilities, deliver
market-leading quality products and solutions,
and maintain robust financial management to
support investment in the business, and where
appropriate, acquisitions. The year ahead
will present economic, commercial and
operational challenges. I am confident that we
have the people, products and expertise to face
them and continue on our path of long-term
sustainable growth.
Carl-Peter Forster
Chairman
2 March 2023
R&D is a core component to our success
and the delivery of our strategy
Carl-Peter Forster
Chairman
11
Our business
Our
performance
Sustainability
Governance
Financial
Statements
In 2022, we delivered record results and
profitability, despite a difficult environment
in both our Steel and Foundry markets and
challenging inflationary cost pressure.
A difficult market environment
Steel markets, after a promising start to the year,
weakened significantly during the second half.
This decline was exacerbated in EMEA by the
consequences of the Ukrainian conflict. India
was the only major region in the world to exhibit
a positive growth in 2022. Overall, steel
production in the world excluding China declined
by 6.5% in 2022. In China, steel production also
declined, for the second year in a row, by 2.1%.
In 2022, foundry markets remained well below
their pre-pandemic level, both in China and in
the world excluding China. In particular, various
supply chain bottlenecks continued to limit the
recovery of the automotive sector. In EMEA,
other foundry sectors were also affected by
the conflict in Ukraine.
Challenging inflationary cost pressure
The cost of most raw materials used for the
manufacture of refractories remained at a high
level in 2022, above their long-term average.
At the same time, energy costs increased
very significantly, especially in Europe, as a
consequence of the Ukrainian conflict. Most
other cost inputs also registered abnormally
high increases, due to the general inflationary
environment. The only significant exception
to this inflationary trend was sea freight, which
declined progressively during the second half
of the year, after the peak in 2021.
Strong market share gains and pricing
performance leading to record results
and profitability
Both the Steel and Foundry Divisions achieved
a strong commercial performance in 2022,
gaining market share in most regions and
in doing so partially mitigated the volume
decline in end-markets. The main exception
was Russia, due to the cessation of sales to
sanctioned customers.
We were particularly pleased with the
performance of our Flow Control Business
Unit, which continued to expand its market
share in volume in all regions.
At the same time as we grew market share, we
successfully increased our prices in all Business
Units, fully compensating for the increase in our
cost base. This ability to simultaneously improve
market share and prices is made possible by
the technological differentiation in our products
and solutions driven by our continual investment
in research and development.
Thanks to this market share and pricing
performance in 2022 we delivered our best
results and profitability ever. Our revenue
reached £2,047m (an increase of 25% compared
to 2021), our trading profit reached £227m
(an increase of 60%) and our return on sales
was 11.1%. These results far exceeded those of
our previous record year pre-pandemic in 2018,
despite significantly lower sales volumes due
to the persisting market weakness in 2022.
Assuming similar volumes as 2018, our return on
sales would have been very close to our objective
of 12.5%, demonstrating the impact of the cost
competitiveness and technology strategy we
have engaged in over the past five years and
the profitability potential of the Group once its
Steel and Foundry end-markets fully recover.
Strong free cash flow generation
despite record growth in investments
and safety stock rebuild
Our growth-generating investment programme
continued apace in 2022 and will support the
progression of our results and profitability in
years to come. The expansion of our VISO
*
and
slide-gate production capacity in Flow Control,
launched in 2021, is proceeding as planned and
will enable us to benefit from the upcoming
market growth in India, South East Asia and
EEMEA from 2024.
In 2022, we also initiated the construction of a
new Flow Control flux plant in India, which will
become operational in 2024, and Advanced
Refractories began the construction of a new
state-of-the-art basic monolithics plant in
India. This will enable us to introduce our latest
technological innovations and increase our
presence in this fast-growing market in the
coming years.
In the Foundry Division, construction of a new
flux production line in China has commenced.
This will enable us to increase our presence
in the growing aluminium foundry market in
the country.
At the same time as investing in capacity
expansion, we also took the decision to increase
our safety stock of products and raw materials,
to protect our customers. This followed on from
the two force majeure incidents we experienced
at the end of 2021, which resulted from the lack
of reliability in the freight and logistics market.
We successfully accomplished this in 2022 and
re-established full security of supply for our
customers in spite of ongoing reliability issues
in the logistics market during the year.
Despite these significant cash investments in
growth-generating capital expenditure and
working capital for our customers, our strong
financial results, coupled with stringent cash
management discipline, enabled us to generate
a significantly positive free cash flow and further
reduce our level of debt in 2022. Our leverage
ratio also declined during the year from 1.4x at
31 December 2021 to 0.9x at 31 December 2022.
Increased R&D investment, laying
the foundation for future growth
We significantly increased our investment in
research and development in 2022, spending
£36m, an increase of 18% over 2021. This was
fully expensed in our profit and loss statement.
Our main focus areas remain innovation in
materials science, with the objective to
continuously improve the performance of
our consumables, and the development of
mechatronics solutions enabling our customers
to substitute operators to manipulate our
consumables and, by doing so, improve their
safety, reliability, cost and quality performance.
We successfully launched 15 new products in
2022 in our three Business Units. Our New
Product Sales ratio, defined as the percentage
of our sales realised with products which didn’t
exist five years ago, reached 16.2% in 2022,
up from 15.3% in 2021.
In June 2022, we formally opened our Ghlin
centre of excellence for R&D and Mechatronics,
which focuses on developing new products and
showcasing them to customers. I’m delighted
with the impact the site is having. We have
welcomed 25 customer delegations to the
Ghlin centre in the first six months of opening.
We intend to continue to reinforce our research
and development effort in the coming years
and accelerate the launch of new innovative
products to support our growth and market
share gain ambitions.
Chief Executive’s strategic review
Record profitability despite a
challenging trading environment
Patrick André
Chief Executive
12
Vesuvius plc
Annual Report and Financial Statements 2022
*
Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.
20
21
22
Trading profit
£m
£227m
101
142
227
20
21
22
Return on sales
%
11.1%
7.0
11.1
8.7
Stable safety performance
After the significant improvement registered in
2021, we stabilised our safety results in 2022 with
a Lost Time Incident Frequency Rate of 1.08 vs
1.06 in 2021. We remain, however, unsatisfied
with this level and are intensifying our efforts to
progress rapidly towards our objective of zero
incidents. Despite much good work at many
sites, I am profoundly sorry to report that in
2022 there was a fatality at our joint-venture
manufacturing site in Wuhan, China. The
incident was investigated fully, in conjunction
with the local Chinese authorities, and we will
ensure that we learn the necessary lessons to
prevent this tragedy ever being repeated.
A new Sustainability ambition.
Significant progress in our journey
to net zero
In 2022, we continued to implement our action
plan to decarbonise our activities. In particular,
we reinforced our energy savings initiatives
and accelerated our programme to shift
our electricity consumption worldwide to
non-carbon emitting sources. Thanks to these
efforts, we reduced our carbon footprint by
18.8% as compared with our 2019 reference
year (versus 15.5% in 2021).
To progress faster towards our goal of having
a net zero carbon footprint by 2050 at the latest,
we also set ourselves a new intermediary target
to reduce our CO
2
footprint by 50% before
2035, as compared with our 2019 reference year.
To achieve this objective, we have defined a
detailed capital expenditure programme of
c.£60m which will be gradually implemented
over the next 12 years.
Successful integration of acquisitions
In 2022 we continued with the integration of
Universal Refractories (‘Universal’), the specialty
refractory business in the United States, which
we acquired in December 2021. The integration
has involved the regional consolidation of the
manufacturing of advanced refractory and
foundry products both of Vesuvius and those
acquired from Universal, to create centres of
excellence and more efficient operations.
We also acquired Bayuquan Magnesium Co
(BMC) in October 2022, a world-class basic
monolithic refractory plant in China and a
long-standing manufacturing partner of ours.
The acquisition secures strategically valuable
basic monolithic volumes at a plant which
benefits from very competitive local raw
material access. This acquisition will support
our further development in the fast-growing
Asia-Pacific region.
Board Chairman
As communicated last year, John McDonough
stood down from the Board, as planned, in
December 2022, and leaves with our sincere
thanks. I’m delighted to welcome Carl-Peter
Forster to the Board as Chairman and look
forward to working with him in the coming
months and years to build on the success
achieved to date.
Chief Financial Officer
Guy Young chose to leave Vesuvius, having
worked as CFO for seven years, concluding
his work with us in mid-February 2023. I would
like to thank him once again for his support
and service to the business. We announced in
January that Mark Collis will be joining Vesuvius
as CFO, by July this year. Mark has a wealth
of experience in international finance roles in
John Wood Group plc and other quoted
businesses, and I’m looking forward to him
joining the team. In the intervening time, I am
grateful to my colleague Richard Sykes, who has
worked at Vesuvius in numerous operational
and finance roles, for taking on the position
of interim CFO.
Cyber update
On 6 February 2023, we announced that we had
suffered a cyber security incident. In order to
contain the threat, we voluntarily shutdown our
systems on a precautionary basis. During this
period our sites instigated manual procedures
and work arounds to maintain production,
shipping and invoicing. We have since worked
tirelessly on the reinstatement of our systems,
and I am pleased to report that the initial period
of major disruption has been short, and all sites
and significant systems are now operational.
As such we expect the impact on trading to be
modest, limited to one-off costs of between £3m
and £5m.
Outlook
Looking forward, we expect to continue to
successfully achieve market share gains through
technological differentiation and new product
launches. We are also confident in our ability to
cover cost increases with pricing. Accordingly,
we are confident that our 2023 results will
be in-line with our expectations, despite
several headwinds:
–
As anticipated, the Steel and Foundry markets
remain weak, and we anticipate the rate of
recovery to be slow and only improve later in
the year
–
The planned reduction in our own inventory to
normalised levels, which is a drag on fixed cost
absorption, will continue throughout the first
half of 2023
–
The negative impact of the cyber security
incident incurred at the beginning of the year
Looking beyond 2023, we expect the positive
impact of our investment in R&D, long-term
growth initiatives, and development of our
capacity in fast growing regions, will result in
accelerated growth and profitability.
Patrick André
Chief Executive
2 March 2023
Our growth-generating investment
programme continued apace in 2022
13
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Helping our customers tackle climate change
Solutions for the changing
demands of business
What’s happening
The pressure on the Steel and Foundry
industries to reduce greenhouse gas
(GHG) emissions, particularly CO
2
,
is increasing significantly as governments
are enforcing stricter regulations,
especially in the EU, the US and China.
Our customers are focusing on reducing
absolute energy consumption and GHG
emissions through technological changes
away from higher emission processes,
as well as reducing energy consumption
and GHG emissions via increased
efficiency. In the steel industry the rise of
scrap availability and of its recycling, is
supporting a shift to electric arc furnaces
away from blast furnaces to produce steel.
Alongside this, the use of direct-reduced
iron in combination with green hydrogen in
steel production to manufacture ‘Green
Steel’ (where hydrogen itself is made using
sustainable energy) is gaining traction.
Our Foundry customers are experiencing
a drastic change in their end-markets as
parts of the world shift towards hybrid
and electric vehicles, which alongside,
the significant movement towards green
electricity generation, is accelerating a
transition away from traditional ferrous
casting into non-ferrous casting.
How we are responding
We work closely with our customers
to develop new products and technologies
to meet these challenges with
sustainability being a critical focus
in new product development.
Our Steel Division is partnering with
customers to develop refractory solutions
for next-generation steel-making
processes. Additionally, we continue to
develop new products with superior
sustainability characteristics.
Our Foundry Division teams are
developing new filtration, feeding,
mould coating and molten metal
treatment products to support the
availability of higher-performance metal
and the manufacture of lighter-weight
components for the automotive industry.
They are also developing new products
for aluminium foundries to support the
fast-growing market in electric vehicles.
BASILITE QuickStart
*
is
a tundish working lining
spray mass to be used
on a single, combined,
drying and preheating
cycle using less energy,
less water and delivering
higher quality.
Our external environment
Changes in our markets present both challenges and opportunities.
We have responded to long-term trends by positioning ourselves for growth.
14
Vesuvius plc
Annual Report and Financial Statements 2022
*
Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.
Responding to the demand for higher quality steel and foundry products
Harnessing automation
What’s happening
The importance of technology to
differentiate steel and foundry producers
continues to grow, supported by the
development of more demanding
product applications.
Steel producers are increasingly focused
on supplying higher-quality steel
grades for automotive and power
generation, where the consistency of the
finished steel is fundamental. This is driving
an above-market growth forecast for
high-technology steel in all regions.
What’s happening
Our customers face ever-increasing
regulation and scrutiny to ensure the
safety of their workforce in all parts of
their operations, as well as continuously
improving their process efficiency.
Advancements in automation can
transform production, bringing greater
consistency whilst lowering cost. At the
same time, robots can support or even
substitute operators in hazardous
production areas, significantly
improving safety performance.
With labour shortages a growing
challenge in some markets, automation
can create more flexible operations and
reduce reliance on manual operators.
How we are responding
Vesuvius has the global and in-depth
capability to combine know-how in
steel mills and foundries with robotic
capabilities to deliver superior safety
performance in hazardous areas
of production.
We provide laser technology to assess
refractory wear, allowing targeted
repair with our broad range of refractory
consumables and application solutions –
for efficient and safe operation. We
have invested significant resources in
the development of our mechatronics
capabilities to shape the future operations
of steel and foundry plants with our
current robotics offering (e.g. tundish,
continuous casting) as well as with new
automation capabilities in other areas.
We are also exploring new ways to
integrate continuous data capture into
our solutions to give our customers further
insights into the use of consumables in
their production processes.
Robotics R&D centre of excellence
in Ghlin
In foundries, there continues to be a trend
towards higher metal and process quality,
as they focus on a greater number of
applications that require castings to
combine high strength with thinner,
lighter profiles and greater complexity.
How we are responding
Vesuvius is strongly positioned to facilitate
these upgrades and to benefit from these
trends. We have a wide product and
service offering designed to support the
production of high-technology steel and
complex cast components across our
broad, global manufacturing base.
We continue to invest heavily in R&D
with dedicated centres of excellence
to think beyond what exists today.
Vesuvius’ innovative portfolio of
products and services, together
with its global footprint, enable us to
provide high-technology solutions to
our worldwide customers.
15
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Vesuvius’ Smart Tundish Spray Robot
(TSR), is known for its safe, consistent
and reliable performance. In 2022,
Vesuvius launched the next generation
TSR in our Mechatronics centre of
excellence in Ghlin, Belgium; building
on this success to deliver further
innovations to improve the user
interface and enhance the ease
of its operation.
16
Vesuvius plc
Annual Report and Financial Statements 2022
Vesuvius sales by customer activity
Our markets
We have core end-markets in steel-making
and ferrous foundry with an increasing
focus on aluminium, cement and
non-ferrous foundries.
Vesuvius’ key customers continue to be steel producers and ferrous foundries, with the strategic ambition to further
grow in non-ferrous foundries and other high temperature industrial processes such as aluminium and cement.
Breakdown by customer activity
Iron
Other
Steel
Non-ferrous foundries
Aluminium
Ferrous foundries
Cement
Flow Control
Advanced Refractories
Foundry
Sensors & Probes
Business Unit breakdown
17
Our business
Our
performance
Sustainability
Governance
Financial
Statements
We develop long-term working
relationships with our customers to
understand their needs and develop
tailored solutions that meet them.
Name:
Marco Andre De Oliveira Dutra
Role:
Quality Inspector
Location:
Rio de Janeiro
Name:
Isadora Della Libera Godoy
Role:
Quality Inspector
Location:
Rio de Janeiro
Name:
Lukas Anibal Simoes Faustino
Role:
Quality Inspector
Location:
Rio de Janeiro
Our purpose is to be a global leader in molten metal flow
engineering and technology. We think beyond today to create
the innovative solutions that will shape the future, delivering
this through our Strategic Objectives.
Objectives
Measurements
Always put safety first
Lost Time Injury Frequency Rate
Generate value for our shareholders
Trading profit
Return on sales
Headline profit before tax
Headline EPS
Return on invested capital
Think beyond in innovation
Energy intensity
CO
2
e emission intensity
Wastewater
Solid waste
Recycled material
Compliance training
Supply chain
Deliver profitable growth
Underlying revenue growth
Maintain an efficient
capital structure
Free cash flow
Average working capital
to sales
Interest cover
Net debt to EBITDA
Deliver industry-leading sustainable
operations and solutions
Total R&D spend
New product sales
Foster talent, skill and motivation
in our people
Gender diversity
We achieve profitable growth by focusing our efforts on the
high-quality, high-technology segments of the steel and
foundry markets, and concentrate on increasing the
automation and efficiency of our manufacturing base.
18
Vesuvius plc
Annual Report and Financial Statements 2022
We measure and monitor our performance against these
Strategic Objectives through our Key Performance Indicators (KPIs).
See our
Key Performance Indicators
on
p36 and 37
Our strategy
What we want to achieve
Our Strategic Objectives
19
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Reinforcing our technology leadership
Vesuvius was built and grew through technology
breakthroughs. We focus on delivering market-leading
technology which continues to drive our unique value
proposition and underpins our ability to deliver
ongoing value enhancement to our customers.
During 2022, we invested £36m in R&D, 1.8%
of revenue. We remain committed to spend
c.2% of sales on innovation every year. We invest
throughout the product cycle from front-end
innovation to existing product development,
focusing on the projects that deliver the highest
impact to our customers.
Developing our technical service
offering and increasing penetration
of value-creating solutions
As steel and foundry markets in developing economies
become more quality focused, we have the opportunity
to significantly increase our penetration of these markets
through the value delivered by our solutions.
In 2022, we continued our drive to bring new
products to the market, with a number of
significant launches. Triad Z Bond
*
is a new
Advanced Refractories mix which is five times
stronger than bricks, with better carbon retention.
ACTICOTE TS
*
is a new Foundry insulating
coating for sand cores that slows down the
heat extraction from the liquid metal, improving
its metallurgical structure.
Capturing growth in developing markets
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.
Major acceleration of expansion capex in 2022
with £53m of total capex (c.60%) spent on growth
projects, particularly in Flow Control, to serve fast
growing developing markets in Asia.
In 2022 we outperformed the market in developing
market regions: Flow Control outperformed in India,
South-East Asia and Latin America, and Foundry also
performed well in Asia-Pacific and South America.
Improving cost leadership and margins
We continuously pursue initiatives to adapt our business
and our cost base to the changing trading environment.
We were successful in recovering input cost
increases through pricing in 2022. At the same
time, our volumes grew ahead of market growth,
demonstrating the value of our products to
our customers.
Driving sustainability within
Vesuvius and for customers
We develop products that seek to help our customers
drive efficiency and reduce their environmental footprint,
and we are focusing on reducing the environmental impact
of our own operations. See our Sustainability section on
p50-85.
In 2022, we made excellent progress on our
carbon reduction target, such that, in June,
we decided to increase our ambition from a
10% reduction by 2025 to a 20% reduction.
We continue to develop our plans to reach a
net zero carbon footprint by 2050 at the latest.
How we are doing it
Our execution priorities
How we are progressing
Performance in 2022
*
Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.
Global presence
Our local manufacturing, local expertise
and global knowledge of customers’
processes give us a special relationship
with our customers.
Read more about Our global presence
on p4 and 5
Optimised manufacturing
Low-cost lean manufacturing provides
reliable ‘just-in-time’ products.
Read more about Our operations
on p42-47
Advanced technology
Our continuing investment in Vesuvius’ R&D
centres of excellence is reflected in all areas
of our offering. We are therefore able to
provide our customers with sophisticated,
innovative, custom designed solutions.
Read more about our Value-added
solutions on p14 and 15
Service and consistency
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 p42-47
We develop and manufacture high-technology products and solutions to assist
our customers in the management of molten metal. We operate 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
We use the cash generated by our business
to invest in innovation, people, operating
assets, technology and sales to generate
further growth.
Manufacturing capital
We have a global footprint, with
55 production sites on six continents,
giving us proximity to our customers.
Intellectual capital
We have six R&D centres of excellence,
together with dedicated R&D staff
worldwide, generating innovative
products and services that help our
customers make their industrial processes
safer, more efficient and more sustainable.
Human capital
We invest in developing our skilled
and motivated workforce of more than
11,000 people and provide them with
a safe environment in which to work.
Social capital
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 sustainable
supply chains.
R&D centres of excellence
6
Employees
11, 134
Production sites
55
Our sustainable competitive advantages
A profitable, flexible, cash-generative model
focused on sustainable growth
Business model
P
r
o
d
u
c
t
d
e
s
i
g
n
R
&
D
M
a
n
u
f
a
c
t
u
r
i
n
g
Collaboration
with our Steel and
Foundry customers
What we do
Our key resources
A
p
p
l
i
c
a
t
i
o
n
20
Vesuvius plc
Annual Report and Financial Statements 2022
–
Our industry experts are embedded
at many customer locations and are
therefore ideally placed to collaborate
with customers to identify 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
environmental 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, increasingly
supported by automation.
–
Our commitment to ethical business
delivers strong, long-term, sustainable
commercial relationships.
Our investors
Strategic
alignment
Our cash-generative and low capital
intensity business provides returns
to our shareholders and underpins
sustainable growth.
Our customers
Strategic
alignment
Our investment in innovation creates
cutting-edge products and solutions
delivering enhanced value for our
customers. Our technology solutions
improve customer safety and remove
operators from the most dangerous
parts of our customers’ processes.
Our people
Strategic
alignment
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.
Our communities
Strategic
alignment
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.
How we deliver
The value we create
Name:
Paulina Kołodziejczyk
Role:
Production Manager
Location:
Skawina
21
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Vesuvius is required to provide information
on how the Directors have performed their
duties under Section 172 of the Companies
Act 2006 during the year. This requires the
Board to promote the success of the
Company over the long term for the
benefit of shareholders as a whole,
whilst having regard to a range of
other key stakeholders and interests.
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 our
modes of engagement are outlined in
the tables on pages 25 and 26.
The Board confirms that it has acted
in accordance with the Section 172
requirements throughout the year,
considering the impact of its decisions
on shareholders and other stakeholders,
and taking into account their differing
views and requirements.
The likely consequences of any decision
in the long term
The Board is responsible for the overall
direction of the Group. 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 performing these duties, the Board is
focused on the sustainable success of the
Group in the long term, and the existence
of a culture that supports this success.
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 how the Board
considered Stakeholders’ interests in some
of the key decisions it took during the year
are given opposite. Further information
on the Group’s strategy can be found in
Our strategy on pages 18 and 19.
Section 172(1) Statement – Stakeholders
Effective engagement with
stakeholders promotes the long-term
sustainability of the Group
22
Vesuvius plc
Annual Report and Financial Statements 2022
Always put
safety first
Deliver
profitable
growth
Generate
value for our
shareholders
Maintain
an efficient
capital structure
Deliver industry-
leading sustainable
operations and
solutions
Think beyond
in innovation
Foster talent,
skill and motivation
in our people
Acquisition of Bayuquan
Magnesium Co
The Board approved the acquisition
of Bayuquan Magnesium Co (BMC)
in October 2022. BMC has been a long-
standing toll manufacturing partner of
the Advanced Refractories Business Unit.
The acquisition secures strategically
valuable basic monolithic volumes at a
plant which benefits from competitive
local raw material access.
The transaction helps our overall goal
of improving the profitability of
Vesuvius, by capturing the full end-to-
end margin of BMC’s production.
This allows us to enhance our customer
offering. It also strengthens our supply
chain in this critical product for our
Advanced Refractories strategy.
We are delighted to welcome BMC’s
285 employees to the Group.
Stakeholder alignment
–
Shareholders
–
Employees
–
Customers
Strategic alignment
Ongoing operational response to
cost of living pressures
The Board was cognisant of the
impact of the global macroeconomic
environment on employees during
the year, with increases in prices and
interest rates causing cost of living
pressures in many countries. The very
significant inflationary pressures in a
small number of our jurisdictions were
also considered.
The Board reflected on these pressures
when setting salary merit increase
budgets for the year. As a result, the
2023 weighted average salary increase
budget for the wider global workforce
was c.9%, and in Europe the budget was
c.12%. In some jurisdictions part of the
2023 budget was applied early to
address the particularly significant
issues faced by the workforce.
Stakeholder alignment
–
Employees
Strategic alignment
Reaction to conflict in Ukraine
and Russian sanctions
Following the commencement of
hostilities in Ukraine, the Board was
kept briefed on the safety and
whereabouts of our colleagues in
Ukraine, and of the efforts being
made throughout the Group to
support Ukraine.
At the start of the conflict in Ukraine,
the Board took the decision to suspend
deliveries to all Russian customers.
Having considered the potential impact
of this decision on our employees,
customers, suppliers and wider
stakeholders, as well as reflecting on
the approach taken by the majority of
our peers and the effectiveness of
stopping all trade with Russia, the
Board subsequently resolved to
continue to supply non-sanctioned
customers in Russia.
Stakeholder alignment
–
Shareholders
–
Employees
–
Customers
–
Suppliers
Strategic alignment
Capex Approval of India Flux Plant
The Board reviewed a proposal for
the construction of a manufacturing
site for fluxes on the freehold land in
Visakhapatnam, India, acquired by the
Group during the year. This investment
will provide locally manufactured flux,
which is a complementary offering to
our other Flow Control product lines.
The construction of the flux facility
on the new freehold land provides a
further base for the expansion of our
manufacturing to support the fast-
growing market in India and South-East
Asia, shortening supply chains and
driving efficiency for our customers.
It builds on the existing manufacturing
and R&D presence of Vesuvius in
Visakhapatnam,India.
Stakeholder alignment
–
Customers
–
Employees
–
Shareholders
Strategic alignment
See more about
Our strategy
on
p18 and 19
Strategic alignment
23
Our business
Our
performance
Sustainability
Governance
Financial
Statements
The interests of the
company’s employees
The Board takes the health and safety
of the Group’s employees as its primary
responsibility. Following the fatal incident
at a joint venture site in Wuhan, China
in 2022, the Board received regular
briefings on the investigations into the
root cause of the event, and the actions
being taken throughout the business to
apply lessons learned.
At each Board meeting the Board received
a report on the Group’s performance
against health and safety KPIs and
reviewed, in detail, the circumstances of any
Lost Time Injuries that had been reported.
During the year, the Board also reviewed
progress against the specific HR objectives
for each Business Unit and monitored the
initiatives being implemented to develop,
retain and motivate employees, and
improve succession planning.
Jane Hinkley serves as the designated
Non-executive Director responsible for
workforce engagement and she oversaw
the Board’s engagement activities
during the year. This included a review
of the results of the global employee
engagement survey and a series of site
visits by Board members.
Further information about the Group’s
approach to health and safety and
employment matters can be found on
pages 74-80, including details of the
engagement survey results. 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
Committees’ Reports on pages 110–143.
The need to foster the company’s
business relationships with suppliers,
customers and others
During 2022, the Board received
presentations on end-markets, the
dynamics of the Group’s relationships with
customers and suppliers, and key matters
of concern to them. It discussed the steps
being taken by the Group to respond to
customers’ ongoing requirements, and the
research and development, marketing
and new product launch strategies being
actioned to respond to these. The Board
reviewed information on the Group’s
performance against key manufacturing
quality targets and was updated at Board
meetings on actions undertaken to rectify
any significant quality issues or customer
complaints, particularly if these indicated
repeat issues that required investigation.
Further information on the Board’s focus
on suppliers, customers and others can
be found in the Corporate Governance
Statement on page 95.
The impact of the company’s
operations on the community and
the environment
Supporting our customers’ efforts to
reduce their own environmental footprint
and improve safety on the shop floor
is a key element of the Group’s strategy.
Throughout 2022, the Board discussed
each Business Unit’s progress with this
strategy. It also received biannual
presentations from the VP Sustainability
on the work of the Sustainability Council
and the Group’s progress against its
sustainability targets. In addition, the
Board and Audit Committee monitored
the Group’s progress with TCFD
compliance. Further details of the
Board’s oversight of sustainability can
be found in the Sustainability section on
pages 50–85. The Board recognises
that the success of the Group’s operations
is dependent on maintaining positive
relations with the communities in which
we operate. During 2022, the Board
continued to encourage Vesuvius’ sites to
support their local communities through
charitable activities and community
events. Examples of which can be found in
the Our Communities section on page 83.
The desirability of the company
maintaining a reputation for high
standards of business conduct
The Board takes seriously the Group’s
obligation to maintain a high standard
of business conduct and assessed
compliance with this requirement through
a variety of mechanisms during 2022,
including reports from Internal and
External Audit, along with feedback from
the Group’s employee engagement survey.
The Board received formal reports during
2022 on the Group’s compliance activities,
including the Group’s risk assessment
programme and training practices,
and specific issues raised through the
Group’s Speak Up helpline and internal
reporting processes. Further details of
the Group’s compliance activities can be
found in the Our communities section on
pages 81-85.
The 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 2022,
the Board was cognisant of the need to
balance the interests of different
stakeholders. Decisions on the Group’s
approach to investment opportunities,
working capital, capex, R&D, investment
in people, dividend policy and pension
contributions were all considered against
this backdrop.
Section 172(1) Statement
continued
24
Vesuvius plc
Annual Report and Financial Statements 2022
Our stakeholders
Why this stakeholder is important to us
Issues that matter to them
Our response and engagement
Our people
With our decentralised management model,
the dedication and professionalism of our
people, their capacity to own 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 operate with a clear set of CORE Values
that are embedded across the business.
We engage with our people, encouraging
and rewarding high performance to create
an environment where all can realise their
individual potential.
Health and safety
Diversity and inclusion
Remuneration evolution
International mobility
Employee engagement
Development and retention
Career opportunities
Sustainability performance
We have a fundamental focus on health and safety and
the care of all employees
There is continuing dialogue between employees
and their managers, including the conduct of regular
performance reviews
We operate a competitive remuneration and benefits
strategy, emphasising talent development with tailored
career-stage programmes
Living the Values and other award schemes celebrate
individual achievements in the demonstration of our values
Our global communication mechanisms include an intranet,
global email communications and a Vesuvius news app,
alongside forums such as local ‘town hall’ meetings
The Group operates local works councils, recognises
trade unions and is negotiating the re-establishment of
its European Works Council
Wide-ranging internal training is offered on key job-related
issues, with programmes such as the Vesuvius University –
HeaTt – and the Foseco University
Customers
Engaging with, and listening to, our customers
helps us to understand their needs and
identify opportunities and challenges.
Collaborating with our customers enables us
to drive value for them, using our expertise to
improve the safety and efficiency of their
manufacturing processes, enhancing their
end-product quality and reducing their costs.
Health and safety
Production efficiency
Product quality and performance
Innovation and provision
of solutions
Environmental performance
We employ highly skilled technical experts to help
us understand our customers’ needs, and to identify
opportunities and solutions for them
We engage with customers on safety leadership and
support their training requirements
Our extensive R&D capability, deep product knowledge
and long-standing steel and foundry process expertise
enable us to partner with them to innovate and adapt to
their changing needs
We maintain senior-level dialogue with all key customers,
including Directors’ visits to customers’ sites, as appropriate
We establish customer relationships on a global
basis as required, complemented by diverse local
servicing capability
Our business model focuses on collaboration with
customers, to provide customised solutions.
Our technical solutions enable customers to drive
production efficiency, improving value creation and
environmental outcomes
We provide technical customer training, including
operating the Foseco University, and participate in
industry forums and events
Suppliers and contractors
Maintaining a flexible workforce through the
use of contractors and cost-effective access
to high-quality raw materials is vital to our
success. Our suppliers and contractors are
critical to our business.
Operational performance
Responsible procurement
Trust and ethics
Payment practices
Vesuvius conducts regular visits to key suppliers
Senior-level relationships are built with large suppliers
All suppliers/brokers for major raw materials have
regular interaction with the Global Purchasing Team
Dedicated category directors build long-term relationships
and product expertise for key raw materials
Vesuvius conducts a rigorous and consistent supplier
accreditation procedure
Effective working protocols, including work risk
assessments, are established with contractors
25
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Why this stakeholder is important to us
Issues that matter to them
Our response and engagement
Investors
The support of our equity and debt investors,
and continued access to funding, is vital to the
performance of our business. We work to
ensure that our investors and lenders have
a clear understanding of our strategy,
performance and objectives, recognising
that supportive investors are more likely to
provide the Company with funds for expansion.
We engage with lenders to fulfil our compliance
obligations and to ensure that we have clear
knowledge and awareness of market
sensitivities and trends.
Shareholder value
Financial and operational
performance
Strategy and business
development
Dividend and gearing policy
Sustainability strategy
and performance
Governance
Transparency and
ethical behaviour
Vesuvius’ Investor Relations strategy is managed by
our Head of Investor Relations. She, along with the
Chief Financial Officer and Chief Executive, hold
regular meetings with key and prospective investors
The Group Treasurer and CFO hold regular meetings with
key personnel from banks and other lenders who provide
the Group’s debt funding. The Group Treasury function
also maintains an ongoing dialogue with key relationship
banks and other local banks in the countries in which
Vesuvius operates
The Group’s Annual Report provides an overview of the
Group’s activities. 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
The Chair of the Remuneration Committee consults with our
largest shareholders on significant remuneration matters
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.
Career opportunities
Operational performance
Transparency and
ethical behaviour
Environmental performance
We provide work experience and internships to local
university students and school children
We maintain contact with universities to identify local
talent and our businesses attend careers fairs and provide
student work placements and internships
Many of our sites sponsor local charitable activities
and participate in local volunteering initiatives
We maintain clear oversight and control of the
environmental impact of our production sites
We have a clear strategy for carbon reduction in our
manufacturing process
Environmental agencies
and organisations
Good environmental management is aligned
with our focus on cost optimisation,
operational excellence and long-term
business sustainability. We engage with
appropriate organisations to ensure that we
are complying with regulatory requirements,
and to publicise our performance.
Governance and transparency
Operational performance
Reporting on
performance metrics
Environmental performance
Vesuvius is a signatory to the UN Global Compact
We publish a full Sustainability Report online which can
be accessed via the Vesuvius website
We regularly engage with government agencies who visit
our sites and carry out inspections
We respond to environmental research as part of customer
and supplier due diligence
We participate in environmental and social responsibility
research and questionnaires
Section 172(1) Statement
continued
Our stakeholders
continued
26
Vesuvius plc
Annual Report and Financial Statements 2022
The Group undertakes a continuous
process to review and understand
existing and emerging risks.
Risk management in 2022
Each year, the Board exercises oversight of
the Group’s principal risks, undertaking
a specific review of the way in which the
Group manages those risks. This process
provides the Board with a clear
understanding of the individuals within the
business responsible for the management
of each of its principal risks and the
mitigation in place to address it. The Board
also reviews and, where appropriate,
updates the Group’s risk appetite for those
issues identified as principal risks 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 to
identify and review risk. This assessment
undergoes a formal review at half-year
and at year end. The risks identified
by the business are compiled centrally
to deliver a coordinated picture of the
Group’s key operational risks. These
risks are then reviewed by the Group
Executive Committee.
As part of this review, each Non-executive
Director contributes their individual view
of the top-down strategic risks facing the
Group – drawing on the broad commercial
and financial experience they have gained
both inside and outside the Group – as well
as their views on the Group’s risk appetite.
The results of this assessment are then
overlaid on the internal assessment of
risks to build a comprehensive analysis of
existing and emerging risk. In this way, the
Directors’ views on each of the principal
risks and on emerging risks in general, are
independently gathered and integrated
into the management discussions and
actions taken on risk.
The process covers 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 2022, the Group’s
assessment of principal risks was reviewed
and considered against any emerging risks
and uncertainties that were identified
through this internal review process.
Alongside this, the Board continued to
monitor the implications of emerging
macro trends on the business. These trends
included automation in manufacturing,
business digitalisation, automotive
electrification, geopolitical tension and in
particular the significant steps being taken
in our end-markets to combat climate
change as businesses commit to future
net zero emissions targets. All of these
could act as disruptors to our business.
Commentary on some of these areas is
contained in the Our external environment
section on pages 14 and 15 of this Report.
No additional critical macro trends were
identified in 2022.
The Board also conducted further physical
site visits in 2022. The Directors believe
that this direct engagement with staff
is the most effective way to assess the
‘temperature’ of the organisation – hearing
first-hand about issues, concerns and
potential risks that might impact the
Group. More details on the site visits
conducted can be found on page 95.
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.
Changes to risk in 2022
In 2022, the Board continued to focus
on the Group’s existing risks, and the
processes to mitigate and manage them,
whilst remaining alert to the potential for
there to be other emerging risks. The risks
posed by the COVID-19 pandemic broadly
receded during 2022, other than in China,
where we continued to be alert to the
potential for disruptions to our operations
and limitations on movement around
the country. Ahead of the recent cyber
incident, the Board had noted the
developing trends in cyber threats to
business in general, and had reflected
this in the principal risks of the business
in terms of business continuity.
Other emerging risks were assessed, with
the Board considering the pressures on the
business from inflation and interest rates,
and the effects of the increasingly difficult
environment for energy pricing and supply,
which deteriorated further during the year
as a result of the conflict in Ukraine.
The Board also considered the continuing
work required to ensure that the
Group’s decentralised management
and talent pipeline delivers the Group’s
profitable growth ambitions, whilst also
consistently displaying behaviours in line
with the Group’s values in the conduct of
all business.
Against the more uncertain economic
backdrop, broader business continuity
risks were highlighted by the Board.
With job markets in some jurisdictions
becoming increasingly difficult post-
pandemic, these focused on people
and the need to ensure that the business
has the right management with the rights
skills in the right places. This has to be
coupled with the ability to retain and
develop these people and a bench of
talent lower down the business to
support succession planning.
The Board also considered security
of supply of raw materials and the
geopolitical trends potentially moving
away from the drive for globalisation.
It was noted that a number of these and
other issues were already addressed
in the Group’s principal risks and by
related mitigation activities.
Risk, viability and going concern
The Board continually monitors the internal and
external risks that could significantly impact the
Group’s long-term performance
27
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Risk, viability and going concern
continued
Issues identified in certain of the Group’s
principal risks materialised during
2022. The Group’s existing measures in
mitigation were initiated and reviewed to
ensure their continuing effectiveness.
These were most notably:
Business interruption:
In the first half of
the year, considerable work was done on
security of energy resources in the light of
the disruption of the Russian gas supply to
Europe. This focused on plans to ensure
that our European facilities could continue
to operate, and the ability to transfer
production in the event of an interruption
in gas supply. Our business in Ukraine
suffered very significant challenges but
continued to operate to the extent
possible, with the exceptional support of
our people based there. In addition, our
business in China continued to experience
lockdowns related to the COVID-19
pandemic, and addressing these risks was
a clear focus for our regional management
in China.
In January this year, we also suffered an
explosion at our site in South Africa, which
damaged some equipment and required
the instigation of our business continuity
plan to mitigate the impact on our
customers.
End-market risk:
The global economic
outlook deteriorated significantly in the
second half of 2022, with particular
concern indicated for the mature
European economies. The effects of this
did not have a significant impact in 2022
given the sharp focus on the commercial
performance of our Steel and Foundry
Divisions. Whilst the geographic diversity
of our business and our presence in
developing markets stand as robust
mitigation to any regional disruptions
or economic decline, the effects of this
projected global decline continue to
be carefully monitored.
Complex and changing regulatory
environment:
The conflict in Ukraine led
to a significant increase in sanctions and
restrictions relating predominantly to
Russia, imposed by the United Kingdom,
the European Union and the United States.
The Group monitored these developments
closely and using our established internal
team and processes, took steps to assess
and respond to each iteration of these
restrictions as they were imposed.
People, culture and performance:
The
shift in working patterns to more remote
working that come about as a result of the
COVID-19 pandemic continues to be in
place in the majority of our geographies.
Whilst Vesuvius does not have a global
policy in this regard, enabling our
businesses to tailor their approach as
necessary, a concerted effort has been
made to bring our people back to the
physical workplace where possible. This is
considered to be particularly important in
the context of instilling new joiners with
a sense of the culture and values of
Vesuvius, which we believe cannot be
adequately transmitted in fully remote
working structures.
Despite the aforementioned challenges,
the Board did not identify any new
principal risks during 2022 or any overall
material change to the Group’s identified
principal risks and uncertainties, albeit
that within those risks a number of issues
manifested themselves during the year.
As such, the Group’s statement of principal
risks and uncertainties was unchanged in
2022 from 2021.
Cyber security
The Audit Committee and Board receive
regular updates on the Group’s activities in
regard to cyber security, including general
developments and specific actions and
activities within the Vesuvius business.
A comprehensive plan was established
in 2020 to further strengthen Vesuvius’
overall IT security. This was progressed
in 2021 and continued to be the focus
in 2022, with a number of activities
undertaken to strengthen and refine
our systems and controls during the year.
A holistic approach is taken to addressing
cyber challenges, focusing on the
improvement of the Group’s overall IT
infrastructure, procedures and framework.
The Group continues to run regular
training programmes on cyber/IT security.
See page 105 in the Audit Committee
report for further information on the
Group’s approach to cyber security.
2023 cyber incident
In February, the Group was the subject
of a cyber incident involving unauthorised
access to our IT systems. This required the
instigation of the Group’s Cyber Incident
Plan. Our systems were shut down to
contain the incident on a precautionary
basis, and our sites implemented their
business continuity plans to maintain their
operations. The investigation is still
ongoing and the Board continues to
monitor the impact of the incident and
receives regular updates on progress to
address it, including the actions being
taken to mitigate the immediate risk
of further incidents. Going forward,
consideration will be given to any
additional strategic or operational
improvements required to the Group’s
systems and processes, to further reduce
the potential for future attacks and further
improve the Group’s resilience for dealing
with such incidents.
Climate change
The Group’s overall risk management
processes also incorporate consideration
of the potential impact of climate-related
risks on the Group. The Group does
not regard climate change itself to
represent a material stand-alone risk
for the Group’s operations.
Whilst a significant proportion of the
Group’s revenue is generated from steel
manufacture and automotive castings,
industries that are under transition
as a result of their focus on improving
environmental performance, we believe
these changes will be positive for the
Group. The opportunities in the Group’s
business strategy, which is founded on
helping our customers to improve their
manufacturing efficiency and the quality
of their products – and therefore reduce
their climate impact – will play a critical
part in the development of the Group
going forward. We also see potential
benefits for the Group from the
acceleration of the energy transition,
as this will create continued demand for
the high-quality steel produced using
Vesuvius’ products and solutions.
The Group continues to recognise that
climate change could present further
uncertainty for the Group in terms of
increased regulation, the evolution of the
geographical distribution of our customer
base and the costs of meeting more
onerous disclosure requirements.
Further information about the Group’s
consideration of climate-related risks
and opportunities can be found in the
Our planet section on pages 57-65.
The risks we associate with our
sustainability performance and our
end-customers’ sustainability transition –
badged as ESG – are identified as a
separate element of the Group risk
register, recognising the work Vesuvius
can do to mitigate the environmental
impact of our customers’ processes.
Other elements of this risk are
incorporated into the appropriate
principal risk and uncertainty that the
Group has identified. The Group continues
28
Vesuvius plc
Annual Report and Financial Statements 2022
to focus internally on the action we can
take to drive our business’ sustainability.
In 2022, the Group continued its focus on
the identified environmental sustainability
KPIs, with a particular focus on reducing
energy consumption and CO
2
e emissions,
recycling and waste disposal. Under the
Group’s Sustainability initiative we seek
to drive a lower CO
2
e emission intensity,
reduce normalised energy usage, and take
the steps necessary to meet the target set
of being absolute CO
2
e emissions net zero
by 2050 at the latest. Further information
can be found in the Our planet section on
pages 57–70.
Risk mitigation
The principal risks identified are actively
managed in order to mitigate exposure.
Senior management ‘owners’ have been
identified for each principal risk, and they
manage the mitigations of that specific
risk and contribute to the analysis of its
likelihood and materiality. This analysis 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.
Our processes are not designed to
eliminate risk, but to identify our principal
risks and seek to reduce them to a
reasonable level in the context of the
delivery of the Group’s strategy.
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.
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 that are
not routinely covered by the insurer
programme. 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. As the footprint of
the Group develops and, in certain cases,
production concentrates in a smaller
number of flagship sites, business
continuity planning is conducted to ensure
that sufficient resilience remains in the
manufacturing network to address
projected supply interruptions.
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 both locally and by senior
HSE management in order that safety
improvement initiatives can be prioritised
and communicated throughout the Group.
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 overleaf.
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
and emerging 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 and to the
date of this report.
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 104-106.
29
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Risk, viability and going concern
continued
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
Clearly delegated authority for capital expenditure, purchasing, customer contracts
and hiring
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, and 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 whether risks
have changed
Ongoing assurance processes by the legal function and Internal Audit including the
annual self-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
30
Vesuvius plc
Annual Report and Financial Statements 2022
Viability process
Identify
Viability time horizon and
risk analysis framework
Assess
Principal risks
and stress scenarios
Model
Viability against risk
scenarios, examining
probabilities and impacts
Report
See Viability Statement
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. The Group
continues to focus on risk mitigation,
and whilst, as identified above, certain
elements of the Group’s risks have
manifested in 2022 and 2023, the principal
risks of the Group remain the same. These
risks are not the only ones that the Group
faces or 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 2025,
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 six years. The projected
cash flows for the next three years have
been based on the latest Board-approved
budgets and strategic plans.
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 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 several key plants; and raw material
price inflation. The Group’s prudent
balance sheet management, flexible cost
base able to react quickly to end-market
conditions, access to long-term capital at
acceptable financing costs and well
geographically 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 2025.
Furthermore, the Board believes that the
Group continues to be well positioned
for success in the longer term because
of: our exposure to long-term growing
end-markets; our market-leading position
that is supported by ongoing investment in
innovation and R&D; our strong degree of
customer intimacy with 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 statement
The Group’s available committed liquidity
stood at £494m at year-end 2022, up from
£456m at year-end 2021, as a result of
lower borrowings under the Group’s
committed facilities and an increase in
recorded cash balances. The Directors
have prepared cash flow forecasts for the
Group for the period to 30 June 2024.
These forecasts reflect an assessment of
current and future end-market conditions,
which are expected to be challenging in
2023 and to recover thereafter (as set out
in the ‘outlook’ statement in the Chief
Executive’s Strategic Review in this
document), and their impact on the
Group’s future trading performance.
The Directors have also considered a
severe but plausible downside scenario,
based on an assumed protracted
COVID-19-related demand impact,
despite emerging confidence that the
worst of the pandemic may be behind us.
This downside scenario assumes: a decline
in business activity and profitability in 2023
and 2024 to the level achieved in H2 2020,
the period most severely impacted by
COVID-19; working capital as a
percentage of sales in the downside case
consistent with that in the base case; and
dividends not paid in 2023 then reinstated.
On a full-year basis relative to 2022, this
implies a 30% decline in sales and a c.57%
decline in Trading Profit.
The Group has two covenants; net debt/
EBITDA (under 3.25x) and an interest
cover requirement of at least 4.0x. In this
downside scenario, the forecasts show
that the Group’s maximum net debt/
EBITDA (pre-IFRS 16 in-line with the
covenant calculation) does not exceed
1.0x, compared to a leverage covenant
of 3.25x, and the minimum interest cover
reached is 9x compared to a covenant
minimum of 4x.
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 the
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
and that there is no material uncertainty
in respect of going concern. Accordingly,
they continue to adopt a going concern
basis in preparing the financial statements
of the Group and the Company.
31
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Principal risks and uncertainties
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
Increased barriers to entry for new
businesses or expansion
Increased costs from import duties,
taxation or tariffs
Loss of market share
Highly diversified manufacturing footprint with manufacturing
sites located in 26 countries
Strong local management with delegated authority to run their
businesses and manage customer relationships
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 overseeing
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
Trade restrictions
Compliance programmes and training across the Group
Independent 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.
Strategic
alignment
Product substitution by customers
Increased competitive pressure
through lack of differentiation of
Vesuvius offering
Commoditisation of product portfolio
through lack of development
Lack of response to changing
customer needs
Loss of intellectual property protection
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
Stage gate process from innovation to commercialisation to
foster innovation and increase alignment with strategy
Programme of manufacturing and process excellence
Quality programme, focused on quality and consistency
Stringent intellectual property registration and defence
32
Vesuvius plc
Annual Report and Financial Statements 2022
Risk
Potential impact
Mitigation
Business interruption
Vesuvius loses production
capacity or experiences supply
chain disruption due to physical
site damage (accident, fire,
natural disaster, terrorism), or
other events such as industrial
action, cyber attack or global
health crises.
Strategic
alignment
Loss/closure of a major plant
temporarily or permanently impairing
our ability to serve our customers
Damage to or restriction in our ability
to use assets
Denial of access to critical systems or
control processes
Disruption of manufacturing processes
Inability to source critical raw materials
Diversified manufacturing footprint
Disaster recovery planning
Business continuity planning with strategic maintenance of
excess capacity
Physical and IT access controls, security systems and training
Cyber risks integrated into wider risk-management structure
Well-established global insurance programme
Group-wide safety management programmes
Dual sourcing strategy and development of substitutes
People, culture and
performance
Vesuvius is unable to attract and
retain the right calibre of staff,
fails to instil an appropriate
culture or fails to embed the
right systems to drive personal
performance in pursuit of the
Group’s long-term growth.
Strategic
alignment
Organisational culture of high
performance is not achieved
Staff turnover in growing economies
and regions
Stagnation of ideas and
development opportunities
Loss of expertise and critical
business knowledge
Reduced management pipeline for
succession to senior positions
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
Career path planning and global opportunities for
high-potential staff
Internal programmes for the structured transfer of technical
and other knowledge
Clearly defined Values underpin business culture
Group focus on enhancing gender diversity
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 criteria
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.
Strategic
alignment
Loss of opportunity to grow sales
Loss of opportunity to increase margin
Loss of stakeholder confidence
including investors
Reputational damage
Development and implementation of a new Sustainability initiative,
which includes stretching targets focused on reducing the Group’s
energy usage, CO
2
emissions, waste and recycled materials
R&D focus on products that assist customers to reduce carbon
emissions and improve their own sustainability measures
Skilled technical sales force to develop efficient solutions for
our customers
Globally disseminated Code of Conduct sets out standards of
conduct expected and ABC Policy adopted with zero tolerance
regarding bribery and corruption
Internal Speak Up mechanisms to allow reporting of concerns
Extensive use of due diligence to assess existing and potential
business partners and customers
Strategic
alignment
Always put
safety first
Deliver
profitable
growth
Generate
value for our
shareholders
Maintain
an efficient
capital structure
Deliver
industry-leading
sustainable
operations and
solutions
Think beyond
in innovation
Foster talent,
skill and motivation
in our people
See more about
Our strategy
on
p18 and 19
33
Our business
Our
performance
Sustainability
Governance
Financial
Statements
34
Vesuvius plc
Annual Report and Financial Statements 2022
Our performance
36
Key Performance Indicators
38
Financial review
42
Operating reviews
42
Steel Division
43
Steel Flow Control
44
Steel Advanced Refractories
45
Steel Sensors & Probes
46
Foundry Division
Name:
Jefferson Correa Dos Santos
Role:
Production Process Leader
Location:
Rio de Janeiro
Name:
Phelipe Oliveira Dias De Abreu
Role:
Quality Inspector
Location:
Rio de Janeiro
Our business
Our
performance
35
Sustainability
Governance
Financial
Statements
We’re optimising efficiency through
our innovative products
We develop high-technology products that deliver
quality enhancement, efficiency gains and energy savings to
our customers. Our solutions help our customers to lower their
production costs and improve efficiency, by improving product yield.
35
Our business
Our performance
Sustainability
Governance
Financial Statements
Name:
Joe Yi
Role:
M&T Director – Steel China & North Asia
Location:
Suzhou
Name:
Teresa Tondera
Role:
Laboratory Manager
Location:
Skawina
Key Performance Indicators
Financial KPIs
1
Strategic alignment
KPI
Purpose
Link to remuneration
Deliver
profitable
growth
20
21
22
Underlying revenue growth
%
18
18
-13
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
Generate value
for our
shareholders
20
21
22
Trading profit
£m
227
101
142
Used to assess the trading performance
of Group businesses
20
21
22
Return on sales
%
11.1
8.7
7.0
20
21
22
Headline profit before tax
£m
217
92
137
Used to assess the financial performance
of the Group as a whole
20
21
22
Headline EPS
p
56.5
35.3
23.2
Used to assess the underlying earnings
performance of the Group as a whole
Annual
Incentive Plan
and Vesuvius
Share Plan
– Read
more about these
on p133-137
20
21
22
Return on invested capital
%
10.7
7.5
4.9
Used to assess the financial performance
of the Group
Annual
Incentive Plan
and Vesuvius
Share Plan
– Read
more about these
on p133-137
Maintain an
efficient capital
structure
20
21
22
Free cash flow
£m
-0.3
114
123
Used to assess the underlying cash
generation of the Group
20
21
22
Average working capital to sales
%
23.8
20.9
23.2
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
Annual
Incentive Plan
–
Read more about
this on p133, 135
and 136
20
21
22
Interest cover
29.8x
30.5x
14.5x
Interest cover and net debt to EBITDA are
used to assess the financial position of the
Group and its ability to fund future growth
20
21
22
Net debt to EBITDA
0.9
1.4
1.2
1.
For definitions of alternative performance measures, refer to Note 4 of the Group Financial Statements.
36
Vesuvius plc
Annual Report and Financial Statements 2022
Non-financial KPIs
Strategic alignment
KPI
Target/description
Link to remuneration
Always put
safety first
20
21
22
Lost Time Injury Frequency Rate
1.08
1.06
1.16
LTIFR of below 1
Work-related illness or injuries which resulted
in an employee being absent for at least one
day – measured per million hours worked
Vesuvius
Share Plan
–
Read more about
this on p133 -137
Think beyond in
innovation
20
21
22
Total R&D spend
£m
36
31
28
At constant 2022 currency
20
21
22
New product sales
%
16
15
12
Sales of products launched within the last
five years as a % of total revenue
Deliver industry-
leading
sustainable
operations and
solutions
Energy intensity
kWh per metric tonne of product packed
for shipment
-6.0%
2
10% reduction in energy intensity by
2025 (vs 2019)
CO
2
e emission intensity
-18.8%
2,3
20% reduction of Scope 1 and Scope 2
CO
2
e emission intensity per metric tonne
of product packed for shipment by
2025 (vs 2019)
Annual Incentive
Plan and Vesuvius
Share Plan
– Read
more about these
on p133-137
Wastewater
-9.0%
25% reduction of wastewater per metric
tonne of product packed for shipment
by 2025 (vs 2019)
Solid waste
-13.8%
25% reduction of solid waste (hazardous and
sent to landfill) per metric tonne of product
packed for shipment by 2025 (vs 2019)
Recycled material
6.0%
7% of raw materials used in production to
be recycled materials from external sources
by 2025
Compliance training
99%
At least 90% of targeted staff to
complete Anti-Bribery and Corruption
training annually
Supply chain
48%
By the end of 2023, conduct sustainability
assessments of raw material suppliers
covering at least 50% of Group spend
Foster talent, skill
and motivation in
our people
Gender diversity
20%
25% female representation in the Senior
Leadership Group (approximately
160 top management) by 2025
Annual Incentive
Plan and Vesuvius
Share Plan
– Read
more about these
on p133-137
2.
Re-baselined using pre-acquisition data for the business acquired from Universal Refractories, Inc.
3.
Does not include fugitive emissions (de minimis).
37
Our business
Our
performance
Sustainability
Governance
Financial
Statements
The following review considers a number
of our financial KPIs and sets out other
relevant financial information.
Revenue
£2,047m
Reported change
25%
Underlying
1
change 18%
Trading profit
2
£227m
Reported change
60%
Underlying
1
change 50%
Statutory EPS
67.2p
Reported change 78%
Return on sales
2
11.1%
Reported change
240bps
Underlying
1
change 240bps
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.
Basis of preparation
All references in this financial review are
to headline performance unless stated
otherwise. See Note 4.1 to the Group
Financial Statements for the definition
of headline performance.
Introduction
The year 2022 was a record year for the
Group in terms of trading profit and return
on sales, despite the depressed underlying
markets, driven mainly by price increases
to recover cost inflation. This has allowed
us to pay an attractive dividend to our
shareholders, while increasing investments
in strategic areas.
2022 performance overview
We are pleased with the performance of
the Group in 2022; the Business Units had
good success in recovering cost increases
on a timely basis whilst gaining market
share in most regions, demonstrating the
strength of the Group positioning in the
market driven by the technological
differentiation of our products and
solutions. Reported revenue increased by
£404m over the prior year (+25%) and by
£300m on an underlying basis (+18%).
On a reported basis, the Steel and Foundry
Division revenue increased by 28% and
17% respectively in the year.
Our volume performance in the Steel
Division was broadly flat, compared to
a c.7.0% decline in steel production in
the world excluding China and Iran.
Our resilient performance was driven
by market share gains in Flow Control
everywhere in the World and market share
gains in Advanced Refractories in most
regions. Our Foundry Division experienced
a low single digit volume decline due
primarily to still very depressed underlying
markets and some limited market share
losses due to priority given to pricing.
Thanks to our efficient price increases,
a resilient commercial performance and
a product mix benefit, we have achieved
a record trading profit of £227m, 50%
higher than prior year on an underlying
basis; and a record return on sales of
11.1%, higher than the prior year by
240 bps on an underlying basis.
Our cash management performance
was robust, achieving an 82% cash
conversion, thanks to a strong operational
performance partially offset by an
investment in trade working capital
and a continuous investment in strategic
capacity expansion. As a result, we have
decreased our net debt position
and improved our leverage ratio
of net debt to EBITDA to 0.9x from
1.4x in December 2021.
Revenue
£m
2022 Revenue
2021 Revenue
% change
As
reported
Acquisitions/
(disposals)
Underlying
As
reported
Currency
Acquisitions/
(disposals)
Underlying
Reported
Underlying
Steel
1,496
(34)
1,462
1,172
58
(2)
1,227
28%
19%
Foundry
551
(3)
548
471
12
–
483
17%
13%
Total Group
2,047
(37)
2,010
1,643
70
(2)
1,710
25%
18%
Trading profit
£m
2022 Trading profit
2021 Trading profit
% change
As
reported
Acquisitions/
(disposals)
Underlying
As
reported
Currency
Acquisitions/
(disposals)
Underlying
Reported
Underlying
Steel
173
(5)
167
102
5
0.2
107
69%
56%
Foundry
54
(1)
54
40
0
–
41
35%
32%
Total Group
227
(6)
221
142
5
0.2
148
60%
50%
Strong commercial performance to
counteract challenging markets
Financial review
38
Vesuvius plc
Annual Report and Financial Statements 2022
Dividend
The Board has recommended a final
dividend of 15.75 pence per share to be
paid, subject to shareholder approval,
on 31 May 2023 to shareholders on the
register at 21 April 2023. When added to
the 2022 interim dividend of 6.5 pence
per share paid on 16 September 2022,
this represents a full-year dividend of
22.25 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.
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,
where 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 acquired
businesses in both the current and
prior years
Therefore, for 2022, we have:
–
Retranslated 2021 results at the FX rates
used in calculating the 2022 results
–
Removed the results of the refractories
business acquired from Universal
during 2021
Objective: Deliver growth
KPI: Underlying revenue growth
Reported revenue for 2022 was £2,047m,
which equated to £2,010m on an
underlying basis. Reported revenue for
2021 was £1,643m, which equated to
£1,710m on an underlying basis. 2022
underlying revenue increased by 18%
year-on-year. The increase in revenue
in Steel and Foundry has mainly been
driven by price increases to compensate
for cost inflation.
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 for 2022 was £227m
and Return on Sales was 11.1%. On an
underlying basis, trading profit increased
by 50% and Return on Sales by 240 bps.
The increase in trading profit and
Return on Sales is primarily due to
product mix, price increases and recovery
of the 2021 input cost headwind.
The Steel Division recorded Return on
Sales of 11.5%, a 270 bps underlying
improvement from 2021. Trading profit
increased by 56% on an underlying basis,
to £173m during the period. Return on
Sales in the Foundry Division increased by
140 bps year-on-year on an underlying
basis, to 9.9% in 2022. Trading profit was
£54m, representing a 32% increase on
an underlying basis versus prior year.
20
21
22
Average working capital to sales
*
%
23.8%
23.8
20.9
23.2
21
22
20
Underlying revenue growth
*
%
18%
18
18
-13
20
21
22
Operating profit
£m
£217m
217
133
74
20
21
22
Headline earnings per share
*
pence
56.5p
56.5
35.3
23.2
20
21
22
Statutory earnings per share
pence
67.2p
67.2
37.7
15.3
*
For definitions of alternative performance
measures, refer to Note 4 of the Group
Financial Statements.
39
Our business
Our
performance
Sustainability
Governance
Financial
Statements
KPI: Headline PBT and headline EPS
Headline profit before tax (PBT) and
headline earnings per share (EPS) are used
to measure the underlying financial
performance of the Group. The main
difference between trading profit and
PBT is net finance costs which were £11m
in 2022, £5m higher than 2021.
Our Headline PBT was £217m, 58%
higher than last year on a reported basis.
Including amortisation (£10m) our PBT
of £207m was 62% higher than last year.
Headline EPS from continuing operations
at 56.5p was 60% higher than 2021.
KPI: Return on invested capital (ROIC)
The Group has adopted ROIC as its
key measure of return from the Group’s
invested capital. The RONA performance
measure has been replaced with ROIC,
which provides a more complete measure
of Vesuvius’ returns. ROIC is calculated
as trading profit less amortisation of
acquired intangibles plus share of post-tax
profit of joint ventures and associates for
the previous 12 months after tax, divided
by the average (being the average of the
opening and closing balance sheet)
invested capital (defined as: total assets
excluding cash plus non-interest-bearing
liabilities), at the average foreign
exchange rate for the year.
Our ROIC for 2022 was 10.7% (2021: 7.5%).
Objective: Maintain strong
cash generation and an efficient
capital structure
KPI: Free cash flow and working capital
Fundamental to ensuring that we have
adequate capital to execute our corporate
strategy is converting our profits into cash,
partly through strict management of our
working capital. The Group generated
adjusted operating cash flows of £186m,
representing a 307% increase versus 2021.
This implies a cash conversion rate in 2022
of 82% (2021: 32%). 2022 cash conversion
was driven by strong operational
performance partially offset by an
investment in trade working capital and an
investment in capital expenditure of which
c.60% is in growth capex. The majority of
the growth capex has been invested in
expanding Flow Control capacity in our
Poland and India plants. Free cash flow
from continuing operations was £123m
in 2022 (2021: £(0.3)m).
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
2022 was 23.8% (2021: 20.9%), measured
on a 12-month moving average basis.
In absolute terms on a constant currency
basis, trade working capital increased by
£35m in 2022.
The decrease in inventory on a constant
currency basis versus December 2021
(£2m) was offset by increased debtors
(£9m) and reduced creditors (£28m).
KPI: Net debt and interest cover
The Group had committed borrowing
facilities of £722m as of 31 December
2022 (2021: £706m), of which £323m
was undrawn (2021: £308m).
Net debt on 31 December 2022
was £255m, a £22m decrease from
31 December 2021, as significantly higher
free cash flow of £123m was offset
by a foreign exchange adjustment of
£21m, a £58m dividend payment to
shareholders, an increase in leases of
£11m, ESOP share purchases of £7m
and the acquisition of Bayuquan
Magnesium Co for £4m.
At the end of 2022, the net debt to EBITDA
ratio was 0.9x (2021: 1.4x) and EBITDA to
interest was 29.8x (2021: 30.5x). These
ratios are monitored regularly to ensure
that the Group has sufficient financing
available to run the business and fund
future growth.
The Group’s debt facilities have two
financial covenants: the ratios of net debt
to EBITDA (maximum 3.25x limit) and
EBITDA to interest (minimum 4x limit).
Certain adjustments are made to the net
debt calculations for bank covenant
purposes, the most significant of which
is to exclude the impact of IFRS 16.
20
21
22
Net debt
*
£m
£255m
255
277
175
20
21
22
Unutilised committed debt facilities
£m
£323m
323
308
247
Total R&D spend
**
£m
20
21
22
£36m
36
31
28
20
21
22
Net defined benefit pension deficit
£m
£56m
56
77
2
20
21
22
Return on invested capital
*
%
10.7%
10.7
7.5
4.9
Financial review
continued
*
For definitions of alternative performance
measures, refer to Note 4 of the Group
Financial Statements.
** At constant 2022 currency.
40
Vesuvius plc
Annual Report and Financial Statements 2022
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 2022 we spent £36m
on R&D activities (2021: £31m at constant
2022 currency), which represents 1.8% of
our revenue (2021: 1.8%).
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. See Note 25
to the Group Financial Statements.
Our key mitigation of end-market risk is
to manage the Group’s exposure through
balancing our portfolio of businesses
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 liquidity
stood at £494m at 31 December 2022.
We define liquidity as undrawn committed
debt facilities plus our cash on balance
sheet, less the cash in China which is used
as collateral against an equivalent loan
from Standard Chartered.
Taxation
A key measure of tax performance is the
headline effective tax rate (ETR), 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. The Group’s headline ETR,
based on the income tax costs associated
with headline performance of £57m
(2021: £36m), was 26.5% (2021: 26.4%).
The Group’s total income tax costs for the
period include a credit within separately
reported items of £39m (2021: £16m)
which primarily relates to a credit of
£38m (2021: £16m) following the
recognition of certain deferred tax assets.
A tax charge reflected in the Group
Statement of Comprehensive Income in
the year amounted to £8m (2021: £13m
credit) which primarily comprises a £7m
charge (2021: £13m credit) in respect of
tax on net actuarial gains and losses on
employee benefits, inclusive of the buy-in
of the UK pension scheme.
We expect the Group’s headline effective
tax rate on headline profit before tax and
before the share of post-tax profits from
joint ventures to be between 27% and
28% in 2023.
Capital expenditure
Capital expenditure in 2022 was £104m
(2021: £67m) of which £85m was in the
Steel Division (2021: £47m) and £19m in the
Foundry Division (2021: £20m). Capital
expenditure on revenue-generating
customer installation assets, primarily
in Steel, was £8m (2021: £6m).
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 are
closed, and those in the USA largely closed
to further benefits accrual. All of the
liabilities in the UK were insured following a
buy-in agreement with Pension Insurance
Corporation plc (PIC) in 2021. This buy-in
agreement secured an insurance asset
from PIC that matches the remaining
pension liabilities of the UK Plan, with the
result that the Company no longer bears
any investment, longevity, interest rate or
inflation risks in respect of the UK Plan.
The Group’s net pension liability at
31 December 2022 was £56m (2021 full
year: £77m liability). There has been
a decrease in the liabilities of German
and Belgian plans due to an increase in
bond yields.
Corporate activity
On 8 October 2022, the Group acquired
Bayuquan Magnesium Co (BMC),
a world-class basic monolithic refractory
plant in China with revenues of RMB 120
million (c.£14 million) in 2021. BMC has
been a long-standing manufacturing
partner of Vesuvius Advanced Refractories
and in recent years has supplied us with
100% of its production volumes. The
acquisition secures strategically valuable
basic monolithic volumes at a plant which
benefits from very competitive local raw
material access. It will support our further
development in China, South-East Asia
and North Asia.
41
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Vesuvius’ Steel Division reported revenues
of £1,496m in 2022, an increase of 28%
compared to 2021 and 19% on an
underlying basis, reflecting the benefits of
the business acquired from Universal
Refractories for the first full year and a
particularly strong performance in the key
markets of NAFTA, India and South
America, where revenue grew by 33%,
31% and 30%, respectively.
These revenue increases were achieved
in the context of a declining market.
Steel production in the world excluding
China and Iran, which accounts for
approximately 90% of Vesuvius’ sales,
declined by 7.0% year-on-year with India
the only country among the top-15 global
producers to grow year-on-year. Vesuvius
also ceased sales to sanctioned customers
in Russia in compliance with the sanctions
regimes imposed in response to the
Ukrainian conflict.
Flow Control significantly outperformed
the steel market in all major regions, with
overall flat volumes despite the market
contraction. In Advanced Refractories,
underlying volumes modestly declined,
still outperforming the market despite
price increases.
Steel Division trading profit improved 69%
to £173m (+56% on an underlying basis),
with return on sales expanding 280bps to
11.5%, reflecting excellent recovery of
input cost rises, product mix benefits and
the margin accretion of the acquisition.
Operating review
Steel Division
2022 (£m)
2021 (£m)
Change (%)
Underlying
change (%)
Flow Control revenue
811
649
25%
20%
Advanced Refractories revenue
645
489
32%
19%
Sensors & Probes revenue
40
34
19%
11%
Total Steel Revenue
1,496
1,172
28%
19%
Total Steel Trading Profit
173
102
69%
56%
Total Steel Return on Sales
11.5%
8.7%
+280bps
+270bps
Crude steel production year-on-year change
2021/2022
China
-2.1%
India
5.5%
NAFTA
-5.5%
South America
-5.2%
EMEA
-11.4%
EMEA ex. Iran
-13.1%
EU 27+UK
-10.8%
World
-4.2%
World ex. China and Iran
-7.0%
Source: World Steel Association.
42
Vesuvius plc
Annual Report and Financial Statements 2022
Steel Division
Revenue
£m
£1,496m
Trading profit
£m
£173m
Vesuvius comprises
two Divisions, Steel and
Foundry. The Steel Division
operates as three Business
Units, Flow Control,
Advanced Refractories
and Sensors & Probes.
Changes described are versus 2021 on an
underlying basis, excluding the impact of
foreign exchange and acquisitions and
disposals, unless otherwise noted.
Flow Control Revenue
2022 (£m)
2021 (£m)
Change (%)
Underlying
change (%)
Americas
321
217
48%
34%
Europe, Middle East & Africa (EMEA)
275
248
11%
12%
Asia-Pacific
214
184
16%
11%
Total Flow Control Revenue
811
649
25%
20%
*
Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries,
used under licence.
The 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.
The consumable ceramic 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. Our colleagues work
alongside customers in steel plants to
ensure that our products are correctly
utilised. The quality, reliability and
consistency of these products and
services and the associated robotic
solutions and digital 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.
In 2022, revenues in the Group’s Flow
Control business increased by 20%
year-on-year to £811m, driven by price
increases to recover input costs and
market share gains in a declining market.
In EMEA, revenues grew 12% compared to
2021, versus declines in steel production of
11.4%, reflecting significant price increases
while volume reduced, still outperforming
the market by several percent. Turkey
was a stand-out performer in the period,
continuing to show very substantial volume
growth. In the Americas, underlying
revenues grew 34%; this outperformance
was driven by growth in volumes in both
regions, outperforming steel production
declines of 5.5% and 5.2% in NAFTA
and South America respectively, as well
as pricing. In Asia-Pacific, revenues
grew 11%, versus steel production growth
of 5.5% in India, and declines of 2.1%
and 8.1% in China and South-East Asia,
respectively. Our volumes in India grew
double-digit and South-East Asia
grew c.3%.
Strategic highlights from the year
The focus during 2022 was on commercial
excellence, including improving lead times,
and on major investments in capacity in
our fastest growing regions, for our key
product ranges.
At our plant in Skawina, Poland, we are
part way through a major expansion
programme to increase EMEA capacity
in VISO
*
products by 35% and slide-gates
by 100%. The programme spans two
years, with key milestones achieved in
2022, and the VISO
*
presses now
operational. At our plant in Kolkata, India,
we are increasing capacity in VISO
*
products by 50%. This will enable us to
better serve the fast-growing markets of
both India and South-East Asia.
Looking forward
The completion of the expansion project
at Skawina will be the key focus this year,
and we anticipate that the new slide-gate
capacity will be operational by the end of
the year. This expansion will support our
strategic market objectives. In addition,
we are progressing work on additional
flux capacity in India, which is expected
to become operational in 2024.
We are also continuing our efforts to
develop new products with superior
sustainability characteristics, to help
our customers drive efficiency and
reduce their environmental footprint.
Flow Control
43
Our business
Our
performance
Sustainability
Governance
Financial
Statements
20
21
22
Revenue
£m
£811m
811
649
561
Pascal Genest
President, Flow Control
Advanced Refractories Revenue
2022 (£m)
2021 (£m)
Change (%)
Underlying
change (%)
Americas
245
165
48%
17%
Europe, Middle East & Africa (EMEA)
231
188
23%
21%
Asia-Pacific
170
136
25%
19%
Total Advanced
Refractories Revenue
645
489
32%
19%
The Advanced Refractories Business Unit
supplies specialist refractory materials
designed to protect the steel-making
plant and equipment such as the ladle or
tundish from the molten metal. In order
to maximise their effectiveness, we offer
advanced installation technologies
which harness mechatronic solutions,
computational fluid dynamics
capabilities and lasers. The specialist
refractory materials are subject to
extreme temperatures, corrosion and
abrasion; they are in the form of powder
mixes (which are spray-applied or cast
onto the vessel to be lined) and refractory
shapes (e.g. bricks and other larger
precast shapes). The service life of the
products that Advanced Refractories
supplies 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. An integral part of our success
depends upon our best-in-class
installation technologies which improve
the consistency and performance of
installed Vesuvius refractories as
well as the high level of collaboration
with our customers.
Advanced Refractories reported revenues
of £645m in 2022, an increase of 19%.
Overall, we outperformed the market, with
a significant price rise to cover costs, and
volumes that were only modestly negative
excluding the benefit of the business
acquired from Universal Refractories.
The business outperformed a market
that declined 7.0% overall, regaining
some market share lost in 2021 when
we prioritised pricing over volume.
Revenues grew 17% in the Americas, with
good performance in South America
which grew volumes 19%, versus steel
production declines of 5.2%. Including the
benefit of the business acquired from
Universal Refractories (for which this was
the first full year of ownership) and other
underlying adjustments, revenues in that
region grew 48%. In EMEA, revenues grew
by 21% during the period reflecting
significantly positive pricing, offset by
mid-single-digit volume declines,
compared to market production declines
of 13.1% (EMEA excluding Iran, Source:
WSA). In Asia-Pacific, revenues grew 19%
driven by double-digit pricing increases
and a strong outperformance in India
(+13% volume growth).
Strategic highlights from the year
In 2022, we completed a number of
key milestones in the integration of the
specialty refractory business based in
Pennsylvania, USA, which we acquired
from Universal Refractories, Inc. in
December 2021. This business is focused
on tundish (steel continuous casting)
applications as well as consumable
products for the foundry industry. The
acquisition was strategically important, for
our core tundish business and expanding
our North American presence among
electric arc furnace (EAF) steel producers.
In the year, we have successfully
consolidated certain manufacturing
activities into our NAFTA manufacturing
footprint, facilitated by an IT system
integration, which lays the groundwork
for further efficiencies.
In June 2022, we opened our mechatronic
centre of excellence in Ghlin, Belgium,
alongside R&D on the same site. The
upgrade to our R&D facilities generates
economies of scale benefits, increasing
collaboration and offers improved
proximity to production. The site now
regularly welcomes customer groups to
see and learn about the benefits our
solutions offer, as well as being our centre
for the development of these products.
Finally, in October 2022, we acquired
Bayuquan Magnesium Co (BMC),
a world-class monolithic factory in
China. BMC has been a long-standing
manufacturing partner for Vesuvius
and its acquisition strengthens our supply
chain for this strategic product.
Looking forward to 2023
In 2023, we will build on the foundations
laid in 2022, to develop our mechatronic
technology. This new capability creates
the opportunity for a material step-up in
customer installations of robotic solutions.
In addition, we will continue the
process of integrating the business
acquired from Universal Refractories
into our NAFTA operations. In R&D, we
will increase the focus on delivering new
products that improve our customers’
environmental footprint.
Advanced Refractories
44
Vesuvius plc
Annual Report and Financial Statements 2022
Steel Division
continued
20
21
22
Revenue
£m
£645m
489
645
459
Revenues in Steel Sensors & Probes were
£40m in 2022, representing an underlying
increase of 11% year-on-year, reflecting
a strong performance in the Americas,
in particular South America.
Looking forward to 2023
In 2023, we will continue to execute our
revenue growth and market share gain
strategy, in all regions. Thanks to our
manufacturing and commercial footprint,
we believe that we are well placed to serve
our customers and to seek to expand our
sales in Asia, further consolidating our
strength in the global marketplace.
Finally, we will continue to invest in the
development of innovative products to
support our customers on their journey
towards greener, safer and more
profitable steel production.
Steel Sensors & Probes Revenue
2022
(£m)
2021
(£m)
Change
(%)
Underlying
change (%)
Americas
29
23
25%
13%
Europe, Middle East & Africa (EMEA)
11
10
6%
8%
Asia-Pacific
0.4
0.4
(0.2%)
(3%)
Total Steel Sensors & Probes Revenue
40
34
19%
11%
Steel Sensors & Probes
The Steel Sensors & Probes Business
Unit offers products to our customers
to enable them to make their underlying
processes more efficient and reliable.
The Business Unit focuses on providing
a range of products that enhance the
control and monitoring of our customers’
production processes, complementing
Vesuvius’ strong presence and expertise
in molten metal engineering. This aims
to create new technologies that can
be integrated into expert process
management systems. 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.
45
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Davide Guarnieri
Director, Sensors & Probes
20
21
22
Revenue
£m
£40m
40
34
26
Foundry Division
Revenue
£m
£551m
Trading profit
£m
£54m
20
21
22
Revenue
£m
£551m
471
413
551
The Foundry Division is a world leader in
the supply of consumable products,
technical advice and application support
to the global foundry industry to improve
the performance and quality of ferrous
and non-ferrous castings. Vesuvius
operates under the brand Foseco in the
foundry market. 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 solutions. The conditioning
of molten metal, the nature of the mould
used and, especially, the design of the
way metal flows into the mould are key
parameters in a foundry, determining
both the quality of the finished castings
and the labour, energy and metal
usage efficiency of the foundry.
Vesuvius’ products and associated
services to foundries improve all of
these parameters.
The end-markets for Foundry remained
weak, with growth in the Americas, a
broadly flat market in Europe and a mixed
picture in Asia, with China impacted by
declines in the heavy vehicle market.
Vesuvius’ Foundry Division reported
revenues of £551m in 2022, an increase of
13%. On a reported basis, including some
benefit from the business acquired from
Universal Refractories, the Foundry
Division revenue was up 17%. The increase
in sales reflects pricing increases which
successfully offset cost inflation. We also
achieved market share gains in most core
regions and products, the only significant
exception being Western Europe where
we lost some market share due to priority
being given to price increases.
The Foundry Division also achieved
meaningful margin recovery, with trading
profit growing 32% to £54m, as Return on
Sales increased 140bps to 9.9%.
The Foundry Division grew revenues in all
major regions. Foundry revenues in the
Americas grew 27% year-on-year, driven
by a strong commercial performance and
market share gains. In EMEA, underlying
revenues increased by 16%, with
particularly strong revenue growth in
Germany, Spain, France and Turkey, driven
primarily by price increases to offset
inflation, as well as market share gains in
Turkey. In Asia-Pacific, our businesses grew
in revenue in all major countries except
China, reflecting our excellent commercial
delivery. Trading profit and return on sales
increased substantially, demonstrating our
overall strong performance.
Foundry Division
2022 (£m)
2021 (£m)
Change (%)
Underlying
change (%)
Foundry revenue
551
471
17%
13%
Foundry trading profit
54
40
35%
32%
Foundry Return on Sales
9.9%
8.6%
+130bps
+140bps
Foundry revenue
2022 (£m)
2021 (£m)
Change (%)
Underlying
change (%)
Americas
145
100
45%
27%
Europe, Middle East & Africa (EMEA)
225
199
13%
16%
Asia-Pacific
181
172
5%
3%
Total Foundry Revenue
551
471
17%
13%
Total Foundry Trading Profit
54
40
35%
32%
Total Foundry Return on Sales
9.9%
8.6%
+130bps
+140bps
46
Vesuvius plc
Annual Report and Financial Statements 2022
Karena Cancilleri
President, Foundry
Strategic highlights from the year
In 2022, the two most significant new
product launches were Rotoclene
*
and
Acticote TS
*
.
Rotoclene
*
is a revolutionary molten metal
treatment technology for steel foundries,
which delivers a significant improvement
in melt and casting quality, reducing the
amount of rework of the casting post its
solidification and the associated labour
costs. A reduction of the amount of waste
also leads to a reduction in the energy
consumption and CO
2
footprint of a
foundry as it achieves a better ratio
of weight of finished castings to
metal melted.
Acticote TS
*
is a coating which enables
foundries to produce iron castings
with thinner sections than previously
achievable. This enables the weight of
key automotive components to be
reduced, reducing costs for foundries
and delivering fuel efficiency benefits
for the ultimate end-customers.
We also continue to make significant
progress in our strategy of growing in
non-ferrous end-markets with the
commercial team now largely in place and
sales increasing by >30% during the year.
Looking forward to 2023
2023 has the potential to be a record year
for new product launches in Foundry
with a significant number of products
in the final stages of development.
These innovative products will support
the manufacture of lighter-weight,
high-performance components. We are
also focusing on developing products for
high growth end-markets such as wind
turbines and electric vehicles.
Amongst these is Duratek Supermelt
*
,
a next generation clay-graphite crucible
which outperforms the competition
with superior fracture toughness,
high-temperature strength and oxidation
resistance to ensure longer life in its use in
demanding aluminium melting operations.
We are also developing WASCO
*
,
a water-soluble binder which will enable
the use of sand cores for high pressure
die casting applications. This is because of
its ability to achieve the required strengths
in this demanding process whilst being
easy to remove from the finished casting.
This gives greater design flexibility to
foundries, weight saving benefits for the
finished casting and reduces downstream
processing costs.
We continue to develop value-added
ancillary services for our customers such
as our crucible management application,
which will help our customers more
effectively monitor the performance of this
critical product in their production process.
*
Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries,
used under licence.
47
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Sustainability
50
Progress on our
Sustainability roadmap
51
Our Sustainability journey
52
Our Sustainability strategy
and objectives
53
Our Sustainability targets
54
TCFD
57
Our planet
71
Our customers
74
Our people
81
Our communities
48
Vesuvius plc
Annual Report and Financial Statements 2022
Name:
Leandro Cesar
Role:
Senior Development Associate
Location:
Pittsburgh
Name:
Agnes Hessling
Role:
Executive Assistant Foundry Europe
Location:
Borken
We’re helping our customers reduce
their environmental impact
The pressure on industry to reduce greenhouse gas emissions
is increasing. We work closely with our customers to develop
new products and technologies to meet these challenges, with
sustainability being a critical focus in new product development.
49
Our business
Our performance
Sustainability
Governance
Financial Statements
Name:
Song Li
Role:
Senior R&D Engineer
Location:
Suzhou
Progress on our Sustainability roadmap
Alexander Laugier-Werth
VP Sustainability, HSE & Quality
The fight against climate change
continues to require higher-technology
steel and larger, more complex castings.
Wind and solar energy production
capacity are both considerably more
steel-intensive than fossil fuel power
stations, and these are both set to
grow considerably. Allied to this,
the steel-making process is itself
decarbonising thanks to efforts to
improve the performance of existing
assets, and the shift from blast furnaces
to electric arc furnaces.
Vesuvius supplies consumable refractory
products and engineering solutions that
are critical to the performance of metal
casting processes. Every day, we help our
customers improve the safety, energy
efficiency, yield and reliability of their
processes, and every day, we work in close
partnership with the most advanced
steelmakers to develop the refractory
products for the green steel-making and
casting processes of the future.
Vesuvius’ Sustainability strategy, formally
launched at the end of 2020, brings
together all our environmental, social
and governance initiatives into one
coordinated programme. The strategy
is built on four pillars: our planet,
our customers, our people and
our communities.
We have set out four key sustainability
strategic priorities. Targets for three
of these are embedded into our
management incentive arrangements.
–
Becoming a zero accident company
–
Reducing our Scope 1 and Scope 2 CO
2
emissions to reach net zero by 2050 at
the latest
–
Helping our customers reduce their own
CO
2
emissions
–
Increasing gender diversity in the Senior
Leadership Group and at every level of
the Company
We are signatories to the UN Global
Compact and report annually on our
sustainability activities, commitments and
progress. We also prepare a separate
Sustainability Report each year, which
gives a more in-depth overview of our
sustainability activities. This can be
accessed via our website:
www.vesuvius.com.
We are very proud of our progress to date,
as exemplified by the external recognition
of the rating agencies. Since 2020, our
MSCI ESG rating has progressed from
BBB to AA, and our EcoVadis rating from
Silver to Gold. In 2022 we submitted our
first CDP questionnaire, which received
a B grade.
We are committed to transparent and
thorough reporting on our sustainability
performance. We would welcome
any input or feedback to:
sustainability@vesuvius.com.
Alexander Laugier-Werth
VP Sustainability, HSE & Quality
Note: Waste and recycling data contained in this
report does not include the two sites acquired from
Universal Refractories at the end of 2021, nor the site
acquired in October 2022 with the acquisition of BMC.
The energy and emissions data also doesn’t include
BMC, whilst the safety data for BMC has been
included from the date of acquisition.
Non-financial and Sustainability
Information Statement
This Non-Financial and Sustainability
Information Statement provides
information on the Group’s activities
and policies in respect of:
Environmental matters
Our planet
p57-70
Climate-related reporting
TCFD
p54
The Company’s employees
Our people
p74-80
Social matters
Our communities
p81-85
Respect for human rights
Our communities
p81
Anti-corruption and
anti-bribery matters
Our communities
p82
This 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 and sustainability
matters are detailed in the Group’s schedule
of principal risks and uncertainties.
p32-33
Risk, viability and
going concern
p27-31
Details of the Group’s
business model
p20-21
Details of the Group’s
non-financial KPIs
p37
50
Vesuvius plc
Annual Report and Financial Statements 2022
–
Reducing Scope 1 and 2 emissions,
evaluating Scope 3 emissions with
our suppliers
–
Determining CO
2
emissions avoided by
customers, and creating further action
plans to maximise this
–
Switching to carbon-free electricity on
our sites wherever possible
–
Assessing new product developments
and technologies based on their safety
and environmental benefits
–
Supporting education for women in
scientific fields
–
Increasing gender diversity in the
Senior Leadership Group and at
every level of the Company
–
Increasing employee engagement
–
Undertaking environmental impact
analysis of capital expenditure; with the
internal price of CO
2
emissions reviewed
every year
–
Seeking ISO 14001 certification
of manufacturing sites not
already certified
–
Undertaking sustainability
assessments and audits of suppliers
Areas of Sustainability focus
Our Sustainability journey
We commit to:
–
Minimise direct and indirect CO
2
and other greenhouse gas emissions,
by reducing the energy intensity of our business and using cleaner
energy sources
–
Minimise the consumption of water and other resources
–
Reduce waste at source and during production
–
Increase the usage of recycled materials and promote the development
of the circular economy
–
Minimise any pollution or releases of substances which could adversely
affect humans or the environment
–
Avoid negative impacts on biodiversity
See the full policy on www.vesuvius.com for further details.
–
Scope 1 and Scope 2 emissions
externally verified
–
Scope 3 emissions evaluated
–
Sustainable procurement policy
–
Sustainability scorecard
–
First Sustainability Report
–
TCFD disclosures
2021
A
–
Sustainability Charter
–
Sustainability Council
–
Vesuvius adheres to the
UN Global Compact
–
Internal Price of Carbon
–
Supplier assessment programme
2020
BBB
–
Roadmap to net zero
–
CDP questionnaire
–
Sustainability Report GRI aligned
2022
B
AA
Vesuvius’ Environmental Policy
Our Sustainability journey
51
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Our planet
Our customers
Our people
Our communities
Our communities
–
To support the communities
in which we operate, with a
focus on promoting and
supporting women’s education
in scientific fields
–
To ensure ethical business conduct
both internally and with our
trading partners
–
To extend our sustainability
commitment to our suppliers and
encourage them to progress
Our planet
–
To tackle climate change by
reducing our CO
2
emissions and
helping our customers reduce
theirs with our products and
services. We are committed to
reaching a net zero carbon
footprint at the latest by 2050
–
To engage in the circular economy
by reducing our waste, recovering
more of our products after they
have been used and increasing the
usage of recycled materials
Our people
–
To ensure the safety of our people
and everyone else who accesses
our sites. This is our first priority.
We take safety very seriously and
are constantly striving to improve
–
To offer growth opportunities
to all our employees through
training and career progression
to develop diverse, engaged and
high-performing teams
Creating a better tomorrow
for our planet, our customers,
our people and our communities
Our customers
–
To support our customers’ efforts
to improve safety on the shop
floor, especially exposure to
hot metal
–
To help customers improve
their operational performance
and thereby reduce their
environmental footprint, and
especially their CO
2
emissions
Our Sustainability strategy and objectives
52
Vesuvius plc
Annual Report and Financial Statements 2022
We create innovative solutions that enable
our customers to improve their safety
and quality performance, reduce their
environmental footprint, become
more efficient in their processes,
and reduce costs.
We aim to deliver sustainable, profitable
growth to provide our shareholders with a
superior return on their investment, whilst
providing our employees with a safe
workplace where they are recognised,
developed and properly rewarded.
Our Sustainability initiative embodies this
purpose. It sets out the Group’s formal
objectives and targets for supporting our
customers, our employees and our
communities, and for protecting our
planet for future generations. It is
embedded in the Group’s overall strategy
and informs how we deliver on the
Group’s execution priorities.
The key objectives and priorities of our
Sustainability initiative are outlined
here. They were defined following the
identification and analysis of the Group’s
most important and material sustainability
risks and opportunities.
p57
p74
p81
p71
The Board has identified 11 significant non-financial KPIs for the business and its strategy. Two KPIs relate to innovation
(Total R&D spend and percentage of new product sales), while the remaining nine cover the Group’s main Sustainability objectives.
We have set stretching targets for the Group’s sustainability KPIs to reach within set time frames, these are set out in the table below.
In view of the progress made, the reduction of Scope 1 and Scope 2 CO
2
e emissions target was increased in 2022 from 10% to 20%
and its coverage increased from Energy CO
2
e to all CO
2
e emissions.
KPI
Measure
Target
2022 progress
vs plan
1
2022 progress
Main domain
UN Sustainable
Development
Goals
Safety
Lost Time Injury Frequency Rate
below 1
<1
1.08
3, 8
Energy
intensity
By 2025, reduce energy intensity
per metric tonne of product
packed for shipment (vs 2019)
-10%
-6.0%
1
9, 13
CO
2
e emission
intensity
By 2025, reduce Scope 1 and
Scope 2 CO
2
e emission intensity
per metric tonne of product
packed for shipment (vs 2019)
-20%
-18.8%
1,2
9, 12, 13
Wastewater
By 2025, reduce wastewater per
metric tonne of product packed
for shipment (vs 2019)
-25%
-9.0%
6, 9, 12
Solid waste
By 2025, reduce solid waste
(hazardous and sent to landfill)
per metric tonne of product
packed for shipment (vs 2019)
-25%
-13.8%
9, 12
Recycled
material
By 2025, increase the proportion
of recycled materials from
external sources used in
production
7%
6.0%
9, 12
Gender
diversity
By 2025, increase female
representation in the Senior
Leadership Group (approx.
160 top managers)
25%
20%
5
Compliance
training
Increase the percentage of
targeted staff who complete
anti-bribery and corruption
training annually
90%
99%
16
Supply chain
By the end of 2023, conduct
sustainability assessments of
our raw materials suppliers
covering at least 50% of Group
raw material spend
50%
48%
8, 10, 17
Progress on our Sustainability targets
Behind plan
On plan
Ahead of schedule
Target achieved
Vesuvius’ contribution to the UN Sustainable Development Goals
Progress key
1. Re-baselined using pre-acquisition data for the business acquired from Universal Refractories, Inc.
2. Does not include fugitive emissions (de minimis).
53
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Task Force on Climate-related Financial Disclosures
The Task Force on Climate-related
Financial Disclosures (TCFD) has
developed a disclosure framework to
help companies improve and increase
the understanding of their reporting
of climate-related financial information.
The climate-related financial
disclosures included in this Annual
Report are consistent with the TCFD
Recommendations and Recommended
Disclosures, and have been prepared
taking into account the Guidance for
all Sectors.
In preparing this TCFD disclosure we
considered recent developments in global
affairs and macro trends, such as:
–
The acceleration of the electric vehicle
market growth (and consequently the
faster peak and decline of the hybrid
vehicles market)
–
The energy crisis and price gaps that
appeared between regions, and at the
same time, the rapid reduction of the
cost per installed kWh of renewable
energy and associated massive
investments plans
We concluded that the underlying
assumptions and drivers of our scenario
analysis, and the risks and opportunities
that we have identified, do not require any
significant modification this year.
We are aware of a growing acceptance
that the 1.5°C global warming ambition
will not be met, which supports the
assumption in our scenario plans that the
most optimistic scenario is a 2°C increase
in global warming.
The table sets out where you can find
information on how we have applied each
of the recommendations of the TCFD.
Topic
Disclosure summary
Vesuvius disclosure
Governance
Disclose the
organisation’s
governance
around climate-
related risks and
opportunities.
a
Describe the Board’s oversight of
climate-related risks and opportunities.
Sustainability: TCFD
Risk, viability and going concern
Directors’ Remuneration Report
p55
p27-31
p116-143
b
Describe management’s role in assessing
and managing climate-related risks
and opportunities.
Sustainability: TCFD
Risk, viability and going concern
p55-56
p27-31
Strategy
Disclose the
actual and
potential impacts
of climate-related
risks and
opportunities on
the organisation’s
businesses,
strategy, and
financial planning
where such
information is
material.
a
Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium and long term.
Sustainability: Our planet
p57-60
b
Describe the impact of climate-related
risks and opportunities on the
organisation’s businesses, strategy
and financial planning.
Sustainability: Our planet
Our external environment
Sustainability: Our customers
p57-65
p14-15
p71-73
c
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a
2°C or lower scenario.
Sustainability: Our planet
p61-63
Risk
management
Disclose how
the organisation
identifies,
assesses and
manages
climate-related
risks.
a
Describe the organisation’s processes
for identifying and assessing
climate-related risks.
Sustainability: Our planet
Risk, viability and going concern
p57-60
p27-31
b
Describe the organisation’s processes
for managing climate-related risks.
Sustainability: Our planet
Risk, viability and going concern
p57-60
p28-29
c
Describe how processes for identifying, assessing
and managing climate-related risks are integrated
into the organisation’s overall risk management.
Sustainability: Our planet
Risk, viability and going concern
p57-60
p27-31
Metrics and
targets
Disclose the
metrics and
targets used
to assess and
manage relevant
climate-related
risks and
opportunities
where such
information
is material.
a
Disclose the metrics used by the organisation to
assess climate-related risks and opportunities in
line with its strategy and risk management process.
Sustainability
p53
b
Disclose Scope 1, Scope 2 and, if appropriate,
Scope 3 GHG emissions, and the related risks.
Sustainability: Our planet
p66-68
c
Describe the targets used by the organisation to
manage climate-related risks and opportunities
and performance against targets.
Sustainability: Our planet
p53 and
p66-70
54
Vesuvius plc
Annual Report and Financial Statements 2022
Chief Executive
Is ultimately responsible
for the delivery of the
Sustainability initiative
Sustainability governance structure
Board oversight
The Board holds overall accountability
and oversight for all matters related to
sustainability and the management of all
risks and opportunities, including the
impact of climate change on the Group.
In setting the Group’s strategy it ensures
that sustainability is embedded at the
heart of the Group and is reflected in the
operational plans of each Business Unit.
The Board formally reviews all significant
sustainability programmes.
The Board’s oversight of the Group’s
response to climate change is integrated
both into its monitoring of the Group’s
broader sustainability strategy and
initiatives, and its approach to significant
capital and other investments. The
Board formally discusses the Group’s
Sustainability initiative at least twice
per year. It sets the Group’s priorities
and targets, and reviews the Group’s
performance and progress against them.
It also monitors the Group’s external ESG
ratings, and in 2022 has focused on the
Group’s roadmap to net zero.
The Board has undertaken a detailed
assessment of the Group’s climate-related
risks and opportunities, including the
Group’s physical and transition risks. It has
also considered the formulation of the
three different climate-related scenarios
constructed to assess the potential
financial implications of climate change
and assessed the impact of climate-
related risks and opportunities on the
Group’s strategy. It is our policy for every
capital expenditure above £5m requiring
Board approval to include a sustainability
assessment, which incorporates climate-
related parameters.
The Group’s Audit Committee supports
the Board in ensuring climate-related
issues are integrated into the Group’s risk
management process and reviewing the
Group’s TCFD reporting. As the Executive
Director with key responsibility for the
delivery of the Group’s strategy, our Chief
Executive, Patrick André, is ultimately
responsible for the Sustainability initiative.
The Remuneration Committee supports
the Group’s Sustainability Initiative and
climate change-related objectives,
through the alignment of the Group’s
remuneration strategy. All Business
Unit Presidents and each of the
regional Business Unit Vice Presidents
have a part of their annual incentive
compensation tied to performance targets
on CO
2
emissions reduction. In addition,
the Executive Directors and other
members of the Group Executive
Committee participate in the Group’s
Long-Term Incentive Plan, with the
vesting of 20% of each award based on
three ESG measures, focused on a
reduction in the Group’s Scope 1 & 2
CO
2
emissions, a reduction in the Lost
Time Incident Frequency Rate and an
improvement in the gender representation
in senior management.
Our Sustainability governance
Board
–
Holds accountability and oversight for all matters
related to sustainability
–
Oversees the definition of the Sustainability strategy
and initiatives
–
Sets the main targets, reviews performance
and progress
Audit Committee
–
Supports the Board in ensuring climate-related
issues are integrated into the Group’s risk
management process
–
Reviews the Group’s TCFD Reporting and
confirmation of target assessment
Remuneration Committee
–
Supports the Sustainability objectives through the
alignment of the Group’s remuneration strategy
Group Executive Committee
Chief Executive, Chief Financial Officer, General Counsel and Company Secretary, Chief HR Officer,
Business Unit Presidents
–
Approves Group sustainability-related policies
–
Receives reports from the VP Sustainability on the
Sustainability initiative
–
Is responsible for the progress of the Group against its
sustainability objectives
BU Presidents
–
Incorporate Group sustainability strategy into their
BU strategy
–
Communicate targets inside their organisations
–
Allocate resources, define and implement plans
Sustainability Council
Group Executive Committee, Vice President Sustainability, Head of Communication and Employee Engagement,
Head of Investor Relations, Head of Strategy, Vice Presidents Operations, three Regional Business Unit VPs
–
Oversees the Group’s sustainability activity
–
Monitors progress on metrics and targets
–
Assists the Group in assessing the implications of
long-term climate-related risks and opportunities,
elaborating strategy and setting priorities
VP Sustainability
–
Leads the Group’s sustainability activities,
coordinating the work of the Sustainability Council
–
Ensures the Group has a clear set of KPIs and
collates data
–
Organises Group-wide communication
–
Leads external reporting and disclosures
55
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Management oversight
In 2020, with the launch of the Group’s new
Sustainability initiative, a governance
structure was established, comprising a
Sustainability Council, supported by the
new role of VP Sustainability, and a clear
set of KPIs and targets were delineated.
The Vesuvius Sustainability Council is
chaired by the Chief Executive, and
comprises the Group Executive
Committee, VP Sustainability, regional
Vice Presidents from each Business
Unit, Head of Strategy, Head of
Communication and Employee
Engagement, Head of Investor Relations
and Vice Presidents of the Operations.
It meets on a quarterly basis and oversees
the Group’s sustainability activity, monitors
progress against our targets, and assists
the Board with identifying and assessing
the implications of long-term climate-
related risks and opportunities,
elaborating sustainability strategy,
and setting priorities. The Council reports
to the Board twice per year.
The VP Sustainability leads the Group’s
sustainability activities, coordinating the
work of the Sustainability Council including
the Group’s assessment of climate change
risks and opportunities and formulation
of climate-related scenarios. He is also
responsible for the collation of data to
assess the Group’s performance against its
sustainability targets and KPIs, producing
quarterly performance reports, managing
Group-wide communications, and leading
external reporting and disclosures.
Responsibility for the progress of the
Group against its sustainability objectives
lies with the Group Executive Committee
and, operationally, each Business Unit
President. These BU Presidents, along with
the Regional BU VPs, ensure the Group
sustainability strategy is reflected in
each BU’s strategy, communicating
the sustainability targets inside their
organisations and implementing plans
– including overseeing resources and
capital allocation, and selecting R&D
priorities –
to achieve these targets and address the
climate-related risks and opportunities.
The VP Sustainability is responsible for
overseeing reporting on the Group’s
sustainability matters and metrics. Formal
channels for reporting a range of data
points are embedded in the organisation.
Escalation mechanisms, routine reviews,
and internal controls such as auditing
and due diligence are in place to ensure
transparency, consistency and
completeness of information. For
certain topics these are supported by
independent third-party verification.
Our Sustainability Council and VP
Sustainability ensure that we have
a clear set of KPIs and targets to track
the Group’s progress.
Scope 1, 2 and 3 CO
2
and
CO
2
e emissions
Scope 1 covers emissions from fuels
used in our factories and offices,
fugitive emissions and non-fuel
process 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.
Scope 3 includes all other indirect
emissions that occur in the Company’s
value chain.
Task Force on Climate-related Financial Disclosures
continued
Our Sustainability initiative focuses on
our most significant sustainability issues
and opportunities. These are defined
by our ongoing materiality assessment,
which identifies and prioritises issues
based on two criteria: the impact or
likely impact on the achievement of
Vesuvius’ Strategic Objectives; and the
impact or potential impact on Vesuvius’
stakeholders and their interests.
56
Vesuvius plc
Annual Report and Financial Statements 2022
Vesuvius materiality
assessment
Name:
Sukanta Rit
Role:
Senior Engineer FC M&T
Location:
Kolkata
Tackling climate change
Supporting policy development
Vesuvius supports the Paris Agreement’s
central aim, to strengthen the global
response to the threat of climate change
by keeping a global temperature
rise this century well below 2°C above
pre-industrial levels, and pursuing efforts
to limit the temperature increase even
further to 1.5°C, via the implementation
of its roadmap to net zero.
As the world transitions to a low-carbon
global economy, Vesuvius supports the call
for policymakers to:
–
Build a level global playing field,
including carbon border adjustments
and robust and predictable carbon
pricing for companies. This will
strengthen incentives to invest in
sustainable technologies and to
change behaviours
–
Develop the necessary energy
production and distribution
infrastructure to provide access to
abundant and affordable clean energy
Reducing our impact
Vesuvius actively participates in measures
to tackle climate change by reducing our
CO
2
e emissions and use of raw materials,
alongside helping our customers reduce
their own CO
2
footprint thanks to the use
of our products and services. Vesuvius
embraces society’s expectations for
greater transparency around climate
change, expressed by initiatives such as
the recommendations of the TCFD.
Supporting our customers
According to estimates from the World
Steel Association (WSA), on average for
2021, 1.91 metric tonnes of CO
2
were
emitted for every tonne of steel produced.
The WSA also estimated that the steel
industry generates between 7% and 9%
of global direct emissions from the use of
fossil fuels. The iron and steel industries
are taking action to address the
decarbonisation challenge. We want
to support them and will work in
partnership with them to develop
more sustainable solutions.
With around 10kg of refractory material
required per tonne of steel produced, the
careful selection and use of energy-saving
refractories can beneficially impact the net
emission of CO
2
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 this metal yield.
Climate-change-related risks
and opportunities
The actions being taken by governments
and societies around the world to
mitigate climate-change, and the
changes in temperature and weather
patterns resulting from it, present both
opportunities and risks to Vesuvius. In its
broadest context, we believe that the
need for climate-change initiatives will
create ever greater opportunities for
the Group to support our customers –
to improve their efficiency and reduce
their environmental impact.
Methodology
Each year the Group undertakes a robust
assessment of the principal and emerging
risks which could have a material impact
on the Group. A number of sustainability
risks are recorded in this analysis (see the
Risk, viability and going concern section on
p27-33 of our Annual Report). In line with
the recommendations of the TCFD,
Vesuvius also undertakes a review of the
key climate-related opportunities and risks
that we foresee impacting the Group over
the short, medium and long term.
The Audit Committee has reviewed and
approved our climate-related risk and
opportunity register, and considered the
significance of climate-related risks in
relation to risks identified in the standard
risk management process. Climate-
related risks are reviewed every six months
as part of the Group’s standard risk
management process, to ensure the
register reflects any material changes in
the operating environment and business
strategy, and to ensure that the
management of climate-related risks is
integrated into our overall principal risk
management framework.
The Business Units use the analysis of
risks and opportunities to inform their
business development priorities and
focus their R&D project portfolios.
They factor climate-change risks and
opportunities into their business planning
processes, assessing the long-term
impacts on profitability of both the
risks and opportunities.
Physical risks and business continuity
Thanks to significant restructuring
efforts carried out since 2017, Vesuvius
now operates in a resilient and optimised
global footprint. Proximity with customers
limits transportation and associated
CO
2
emissions, ensures higher flexibility
and reactivity, and reduces working
capital. Yet, a significant amount of
redundancy for most product lines
remains, providing backup in case of
local disruption and ensuring continuity
of supply for our customers.
We are committed to reducing our environmental footprint by reaching net zero greenhouse
gas emissions by 2050 at the latest and helping our customers reduce their emissions through
improvements in the efficiency of their operations.
57
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Our planet
Vesuvius recognises the urgency of tackling climate
change, the finite nature of most natural resources, and
the obligation we have to preserve the environment for
future generations. By their very nature, refractory
products help our customers to reduce heat loss and the
energy consumption of their processes. We are
committed to making a strong contribution to the
reduction of their greenhouse gas emissions. We also
want to grow our engagement in the circular economy
by extending the lifetime of our products, recovering
and recycling more of our products after they have been
used, and increasing the proportion of recycled
materials in our recipes. Environmental compliance at
our sites, reduction in waste and increased recycling are
key to Vesuvius’ operations and can be a significant
differentiator for our business.
Vesuvius operates in 55 manufacturing
sites and six R&D centres of excellence
located in 26 countries. From time to time
our operations can be subject to physical
damage driven by weather events, such
as severe storms and flooding, water
shortages or wildfires, whose frequency
and intensity may be exacerbated by
climate change. Such events may also
impact the manufacturing capabilities of
our customers, our tier 1 and lower tier
suppliers and our supply chain logistics.
Sites are routinely audited by our insurers
and our external risk manager. Their
reports are combined with water stress
analyses (based on the Aqueduct water
risk atlas) covering all our manufacturing
sites and R&D centres of excellence, along
with our history of events, to create our
physical and weather event risks map.
This provides a comprehensive analysis
of our sites’ susceptibility to physical risks
arising from climate change.
In 2022, we continued updating our risk
map. 24 sites were identified as being high
risk for at least one type of weather event
(flooding, hailstorm, lightning, storms and
tornadoes), and four are located in areas
of very high water stress. None of our sites
were materially affected by any major
weather events in 2022.
We anticipate that the occurrence of
adverse weather events will continue to
increase, and we therefore manage our
business to prepare for them and mitigate
their impact when they do occur.
As the Group has restructured and
concentrated its manufacturing footprint
on a reduced number of locations, our
strategy to address short-term risks has
transitioned from a focus on redundant
capacity to improved prevention and
risk management.
Local and product line business
continuity plans are maintained by our
manufacturing sites and are regularly
reviewed. Vesuvius sites maintain and
exercise emergency plans to deal with
such events as part of their normal risk
management and business continuity
processes. Exercises and drills are
organised covering IT disaster recovery,
fire, explosion, weather and geophysical
events, and our processes are improved
based on the lessons learned.
Climate-related risks and
opportunities analysis
Transition risks
We believe that the main climate change
transition risks facing the Group relate to:
1
The potential for carbon taxing or
emissions rights trading schemes to
be introduced or increased, without
effective border adjustment
mechanisms to accompany them,
in Europe and the US, but not
uniformly in other regions; and
2
The rapid transition from iron to
aluminium for light vehicle castings
An increase in the cost of carbon emissions
would affect our manufacturing costs.
We are addressing this through our energy
efficiency improvement initiatives and
conversion to non-fossil fuels wherever
possible. Long-lasting energy price
increases and significant differences
Sites with the highest exposure to weather events
Country
Site
Water stress
Flood –
water bodies
Flood –
precipitation
Hailstorm
Lightning
Wind –
tropical
storms
Wind –
extra
tropical
storms
Tornado
China
Anshan
Changshu
Belgium
Ostend
Czech Republic
Trinec
Italy
Muggio
Netherlands
Hengelo
Poland
Skawina
South Africa
Johannesburg
United Kingdom
Tamworth
India
Kolkata
Mehsana
Puducherry
Pune
Vizag
Mexico
Monterrey
Ramos Arizpe
USA
Champaign
Charleston
Chicago Heights
Conneaut
Coraopolis
Wampum
Wurtland
Japan
Toyokawa
Taiwan
Ping Tung
Brazil
Piedade
Resende
São Paulo
Tackling climate change
continued
58
Vesuvius plc
Annual Report and Financial Statements 2022
Climate-related risks and
opportunities analysis
Vesuvius considers the key climate-
related opportunities and risks that
we foresee impacting the Group
over the following short, medium and
long-term time horizons.
Short term (2025)
Our current strategic plans operate within
this time frame. Most of the intermediate
sustainability targets approved by the
Board were set with 2025 as a deadline.
This horizon encompasses our capital
expenditure cycle, allowing time to
decide, implement and measure the
progress of actions.
Medium term (2035)
This is the most likely horizon for the
regulatory frameworks (such as the
EU Emissions Trading System and Carbon
Border Adjustment Mechanism) currently
being defined in many regions to reach
their full effect. We anticipate that the
major adjustments to customers’ footprints
and technology investments will be in full
swing by then.
Very high (>£25m)
Major (£15–25m)
High (£10–15m)
Long term (2050)
This deadline has been retained by the
United Nations and many policy-making
bodies to set decarbonisation goals.
Vesuvius is committed to reaching net zero
by 2050 at the latest.
The opportunities we have identified
are integrated into the Group’s business
strategy and are being pursued by the
relevant BUs. See Our business on p1-33.
Moderate (£5–10m)
Minor (£1–5m)
Insignificant (£0–1m)
Opportunities
Opportunity
Description
Impact
Potential annual impact on trading profit in the short,
medium and long term
Short term
2025
Medium term
2035
Long term
2050
Products and services
Ability to
diversify
business
activities
Commercialise refractory solutions for
low-CO
2
emitting processes in the
production of aluminium to replace
carbon-based products
Increased revenue
and trading profit
Minor
Minor to
moderate
Minor to
major
Commercialise refractory solutions
for hydrogen-based Direct Reduction
Iron production and steel to replace
traditional refractory products
Insignificant
Insignificant
to minor
Insignificant
to high
Markets
Access to
new markets
Accelerated growth of the wind
turbine market
Increased revenue
and trading profit
Minor
Minor
Minor to
high
Accelerated growth of the aluminium
castings market for electric vehicles
and light-weighting
Minor
Minor
Moderate
to high
Accelerated growth of ferrous castings
for hybrid vehicles (turbo-chargers)
and thin-section castings for internal
combustion engines
Insignificant
to minor
Insignificant
to minor
Insignificant
Accelerated growth of the high-technology
steel segment
Minor
Minor to high
High to
very high
between Europe and other regions would
further exacerbate this risk, affecting our
customers’ manufacturing footprint and
our own.
A very rapid transition from iron to
aluminium for light vehicle castings would
affect our revenue in the iron castings
market. We expect this to be compensated
for by increased sales for aluminium
castings, and growing sales of products for
thin-section automotive component iron
castings and turbo-charger castings for
hybrid vehicles.
59
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Impact categories (trading profit)
We have assessed our risks and
opportunities, and sorted them according
to the following classification:
Catastrophic (>£25m)
Major (£15–25m)
High (£10–15m)
Moderate (£5–10m)
Minor (£1–5m)
Insignificant (£0–1m)
Risks
Description
Impact
Mitigating actions being
undertaken
Potential annual impact on trading profit in the
short, medium and long term
Short term
2025
Medium term
2035
Long term
2050
Physical risks
Increased frequency
and severity of extreme
weather events
(heatwaves, rain
and river flooding,
cyclones, snow)
Physical damage
to Vesuvius
locations and
people
Business
disruption due to
natural disaster
Increased cost
due to physical
damage
Reduced revenue
from business
interruption
Mitigating actions for
severe weather events
and the associated risks
are included in the
business continuity
plans of plants, and
insurance is purchased
Minor
Minor
Minor
Transition risks – Policy and legal
Carbon taxing/
emissions rights
trading/border
adjustment
mechanisms
introduced
or extended
Increase in
manufacturing
costs
Increased
operating costs
(main risk in
Europe)
Capex to improve
energy efficiency and
conversion to non-fossil
fuels to eliminate CO
2
emissions. Relocation
of manufacturing to
reflect movements in
customer base
Minor
Insignificant
to moderate
Insignificant
to high
Transition risks – Market
Rapid growth of
aluminium casting
processes for light
vehicle castings
at the expense of
traditional ferrous
and other
non-ferrous
processes (due to
conversion to
electric vehicles)
Shift from
castings using a
high level of
consumables to
low consumable
processes
creates risk of
revenue loss for
the Foundry
Division
Reduced revenue
from shrinking
market as some
traditional
castings will
disappear or be
converted to
alternative
processes
In ferrous, push to
develop sales of feedex
and coatings for thin-
section automotive
components, and
products for turbo-
charger casting. Invest
in R&D, marketing
and sales force. In
non-ferrous, develop
products for HPDC and
LPDC processes and
increase penetration in
markets with lower
usage of refractories
Minor
Moderate
to high
Moderate
to major
Transition from internal
combustion engines
to electric vehicles will
lead to the decline of
sand and gravity
castings
Reduced volume
of aluminium
power train
components
Reduced revenue
from shrinking
market of
consumables for
sand and gravity
castings
Adapt product portfolio,
focusing on HPDC
and LPDC
Minor
Minor to
moderate
Moderate
Transition from Blast
Furnaces – Blast Oxygen
Furnaces converted
to Direct Reduction
Iron or Electric Arc
Furnaces (EAF) for iron
and steel making
Share of EAF
in total steel
production
increases
Reduced size
of market where
Vesuvius is
strongest,
leading to weaker
positions in the
steel market
Adjust R&D and product
development priorities.
Redeploy sales force,
focusing on EAF market
Insignificant
Minor to
moderate
Minor to
moderate
Tackling climate change
continued
Risks
60
Vesuvius plc
Annual Report and Financial Statements 2022
Climate change scenario analysis
Vesuvius has undertaken scenario analysis
to seek to quantify the likely impact of
climate change on the business and to test
the resilience of the Group’s strategy to the
changes that lie ahead.
We considered three scenarios,
modelling the potential financial impact
of 2°C, 3°C and 4°C temperature
increases on our business.
Best case scenario
In formulating our scenarios, we took as
our ‘best case’ a 2°C scenario. This was
based on the premise that despite the
tremendous acceleration of public
awareness, regulation, technology
development and capital allocation in
recent years, we doubt that there is
sufficient time for the 1.5°C target to be
achieved. We therefore identified our
most optimistic scenario as 2°C.
Our assumption is that any further
acceleration which would allow the
planet to get back onto a 1.5°C course
would reinforce the main characteristics
and accelerate the timeline of our 2°C
scenario, without fundamentally
changing its features.
From assumptions to strategy
The scenarios take as their starting point
the regulatory and macroeconomic
assumptions underpinned by the
International Energy Agency’s WEO 2020
Stated Policies Scenario and Sustainable
Development Scenario.
Supplementing this we have identified, for
each scenario, the areas of our business in
which changes may occur, such as the
evolution of end-markets, customer
footprint, pace and breadth of technology
transition in iron and steel making, pace of
conversion from fossil fuels to clean
electricity and hydrogen, and evolution
of the aluminium market. We then
evaluated the potential magnitude of the
risks and opportunities in each scenario.
We analysed the implications for Vesuvius
and considered our strategic response in
terms of our manufacturing and our
commercial footprint, our portfolio of
products and services, the conversion of
our manufacturing processes to clean
energy and the prospects for our
aluminium casting business. With this
approach, the impacts on all key areas
of the business were covered (sales, R&D,
manufacturing and procurement). The
outcomes of the scenario analyses have
been taken into account in formulating
plans for achieving the Group’s strategy.
4°C warming scenario
‘Good intentions hampered by fear of
economic war’
3°C warming scenario
‘Closed doors’
2°C warming scenario
‘Global accord’
Incomplete policy and fiscal packages
distort competition, slowing
down technology development and
leading to geographic shifts in steel supply
Regional/national self-interest drives
economic policy, competition wins over
cooperation, regulatory framework and
technologies evolve differently
High cooperation and commitment
to limit emissions facilitates technology
development and the transition to
a low carbon world
Three long-term scenarios
61
Our business
Our
performance
Sustainability
Governance
Financial
Statements
4°C warming scenario – ‘Good intentions
hampered by fear of economic war’
3°C warming scenario – ‘Closed doors’
2°C warming scenario – ‘Global accord’
1
Regulatory and
macroeconomic
environment
The European Union and United
States implement carbon pricing
mechanisms (taxation or cap on trade),
but no Carbon Border Adjustment
Mechanism or Tariffs (or insufficient to
prevent the transfer of manufacturing
away from these regions)
The European Union and United
States implement carbon pricing
mechanisms (taxation or cap on
trade), and Carbon Border
Adjustment Mechanisms or
Tariffs to protect their industries
from delocalisation
All major economies implement
carbon pricing mechanisms.
The cost of CO
2
increases in all
regions at a comparable pace
2
Conversion of
power generation
from fossil fuels to
clean electricity
and hydrogen
–
Fast growth of non-CO
2
emitting
electricity sources (nuclear and
renewable) in Europe
–
The cost of fossil fuels increases
significantly in Europe
–
Energy prices differ greatly between
Europe and the rest of the world over
a long period of time
–
Coal reduces progressively, but does
not disappear. Natural gas continues
to grow outside Europe
–
Hydrogen does not become
available on a wide scale and
economically competitive until
well after 2040
–
Fast growth of non-CO
2
emitting
energy sources (nuclear and
renewable) in Europe
–
The cost of fossil fuels increases
significantly in Europe. Coal
reduces progressively, but does
not disappear, natural gas
continues to grow outside Europe
–
Energy prices in Europe
and the rest of the world
realign progressively
–
Hydrogen becomes available on a
wide scale in the USA and Europe
and economically competitive
between 2030 and 2040
–
Fast growth of non-CO
2
emitting
energy sources (nuclear and
renewable) in all regions
–
The cost of fossil fuels increases
significantly (taxation), coal as
a source of energy disappears,
natural gas starts to reduce
–
Energy prices in Europe
and the rest of the world
realign progressively
–
Hydrogen becomes available
on a wide scale and economically
competitive between 2030
and 2040
–
Fast electrification of the
automotive industry
–
Fast growth of hydrogen-fuelled
heavy vehicles
3
Technology
transition –
iron and
steel making
–
The transition in blast
furnaces to clean processes
(e.g. Direct Reduction Iron (DRI),
hydrogen, Carbon Capture Storage
(CCS), Carbon Capture Utilisation
Storage (CCUS)) does not happen
on a large scale
–
US steel producers convert blast
furnaces to DRI and Electric Arc
Furnaces (EAF) to benefit from the
low cost and high availability of
natural gas
–
European iron making transitions
to clean processes (e.g. hydrogen,
DRI, CCS, CCUS). The speed of
the transition is dictated by the
availability of green hydrogen in
large quantities
–
Some US blast furnaces are
converted to hydrogen, others
to DRI & EAF
–
Chinese steel plants convert to
clean iron and steel-making
processes, albeit at a slower pace
–
Little or no transition outside
China, the EU and USA
–
Fast transition of iron making to
clean processes in all regions;
blast furnaces are revamped
ahead of their normal schedule
–
European and Chinese integrated
steel making grows primarily in
hydrogen-based iron production,
implementing CCS and CCUS
technologies as well
–
DRI and EAF grows in the US
(benefiting from the availability
of low cost shale gas) and Europe
–
Customers also invest to increase
the performance of furnaces,
including downstream of casting
4
High-technology
steel market
High-technology steel market grows at
0.9% per year
High-technology steel market grows
at 1.2% per year (light-weighting
and material efficiency efforts by
downstream industries accelerate
shift from lower to higher
performance grades)
High-technology steel market
grows at 1.6% per year (light-
weighting and material efficiency
efforts by downstream industries
accelerate shift from lower to
higher performance grades)
5
Aluminium
market
Aluminium market grows at 3% per
year, especially High Pressure Die
Casting (HPDC) and Low Pressure
Die Casting (LPDC) processes
Aluminium market grows at 5% per
year (driven by the demand for
transportation, construction
and packaging) until 2030.
Growth of HPDC/LPDC at a higher
pace in the US and EU markets.
Moderate development of
secondary aluminium casting
Aluminium market grows at 7% per
year (driven by the demand for
transportation, construction
and packaging) until 2025.
Growth of HPDC/LPDC at a higher
pace in the US and EU markets.
Rapid development of secondary
aluminium casting
Potential financial
impact by 2035
(profit before tax)
-£5m to £0m
£5m to £10m
£15m to £20m
Tackling climate change
continued
62
Vesuvius plc
Annual Report and Financial Statements 2022
Key factors impacting Vesuvius’ three
climate change scenarios
1
Regulatory and macroeconomic drivers
differentiate our scenarios
Firstly, effective border adjustment
mechanisms to accompany carbon
taxation, or cap and trade systems in
regions with ambitious emissions reduction
objectives, will greatly support the
implementation of technologies required
to decarbonise steel making (including the
development of hydrogen as the reducing
agent). Conversely, the absence or
ineffective implementation of border
adjustments would lead to significant
delocalisation of the steel industry and a
displacement of CO
2
emissions to other
countries rather than a significant
reduction on a worldwide scale. The
energy crisis which started in late 2021
and is particularly acute in Europe, has
resulted in additional costs and loss of
competitiveness for the European steel
industry. In the short term, this was
addressed by the temporary stoppage
of steel plants. If the energy cost gap
with other regions remains over a number
of years, this could result in the permanent
closure of steel plants and delocalisation
of production to other regions. This
shift in our customer footprint would
lead to the need to adapt our own
manufacturing footprint.
Secondly, public policy will significantly
affect the relative cost and availability of
non-CO
2
emitting energy sources vs fossil
fuels and their associated infrastructures.
These will greatly influence the pace of
deployment of various technologies and
industries (electric vehicles, carbon-free
hydrogen, decarbonised steel making).
Infrastructure, construction and other
downstream markets will also be
incentivised to reduce steel consumption,
accelerating the shift towards high-
technology steel. Rising energy costs as
experienced since the end of 2021 will
positively affect the growth rate of
investment in renewable energies and
penetration of electric vehicles in the
automotive markets.
Finally, the level of international
cooperation to encourage and support
less developed economies to engage in the
technology transition will also affect our
customer manufacturing footprint.
2
The future of steel
All three scenarios assume that the strong
connection between world GDP and world
steel output will continue, supported by
urbanisation and rising living standards,
as there is no significant substitute for steel.
The fight against climate change is
expected to have a far-reaching impact on
many different industries translating into
the accelerated growth of the high-
technology steel segment in which
Vesuvius has a key presence. For example,
solar and wind power plants, where
investment is growing fast, are far more
steel intensive per kWh of installed
capacity than their fossil fuel equivalents.
Likewise, hydrogen transportation,
another area of rapid growth, also
requires considerable amounts of special
grades of steel for new pipelines and ships.
3
Technology transition
Our scenarios consider the pace and
extent of the technology transition in iron
and steel making. The Blast Furnace –
Basic Oxygen Furnace (BF-BOF) route
for steel making is significantly more CO
2
intensive than the Electric Arc Furnace
(EAF) route. However, EAFs cannot
currently be used to produce all higher
quality steel grades and they rely on the
availability of scrap steel (itself a function
of the level of economic development).
Going forward, quality levels produced
by EAFs will continue to improve.
Various technologies to decarbonise
the BF-BOF route are being developed,
including solutions which seek to capture
the carbon as it is emitted and either store
it or use the carbon in other processes.
Alternatively the BF-BOF route may
be replaced by a combination of DRI
and EAF.
Hydrogen-based DRI associated with
EAFs has the potential to be nearly
carbon-free if carbon-free electricity and
hydrogen are available. We anticipate
that there will be a gradual reduction in
steel production via the BF-BOF route
and growth in the EAF route. The extent
and pace of this change will depend
on technologies coming to maturity,
the availability of infrastructure
(carbon-free electricity and hydrogen),
and regulatory frameworks.
Conclusion on strategic resilience
Sustainability has always been at
the heart of Vesuvius’ business and the
Group’s analysis concludes that the
opportunities for the Group manifested
by the global pressure to mitigate climate
change outweigh the risks. Our technology
helps our customers improve their process
efficiency and their environmental footprint.
We estimate the financial impact of the
opportunities and risks on the Group will
be most adverse under a 4°C scenario
and most positive under a 2°C scenario.
Under all three scenarios, we expect to
benefit from the continuing growth in the
production of steel in line with GDP, along
with the accelerating shift towards higher
performance iron and steel castings,
as we support customers to maximise the
efficiency and quality of their production.
With our technological expertise, strong
customer relationships and broad
manufacturing footprint, we expect
to play a key role in supporting our
customers’ efforts to decarbonise
their operations.
We also believe there is a low downside
for Vesuvius in all three scenarios as
approximately 75% of our business in steel
is in the steel casting part of the operation
which, as a stand-alone process, is low
CO
2
emitting (1% to 3% of a steel plant’s
CO
2
emissions), and which we do not
expect to be affected by technology shifts
that the decarbonisation of iron and steel
making will require.
Whilst the electrification of light vehicles
and ongoing light-weighting efforts are
expected to translate into a shrinking of
the market for certain iron castings, it is
anticipated that this will be more than
compensated for by the growth in other
markets such as wind turbines and
aluminium castings.
We do not anticipate that climate change
will lead to any significant changes in our
access to capital or require the impairment
of assets on a material scale.
63
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Roadmap
to net zero
We have set intermediate targets in our
journey to reach net zero CO
2
e emissions
by 2050 (Scope 1 and Scope 2), in line with
the Paris Agreement and the UK’s
commitment in the Climate Change
Act 2008 (2050 Target Amendment)
Order 2019. These emissions encompass
the seven GHGs listed by the
Intergovernmental Panel on Climate
Change in the Kyoto Protocol (CO
2
,
CH
4
, N
2
O, HFCs, PFCs, SF
6
and NF
3
).
Our preferred metrics to monitor progress
with our journey to net zero are energy
and CO
2
e emission intensity (energy
consumption and CO
2
e emissions per
tonne of product packed for shipment).
These reflect the progress made in our
operations better than absolute metrics.
Managing this energy intensity not only
has environmental benefits but it is also
part of our long-term strategy to enhance
our cost competitiveness.
Our Targets
–
10% improvement in the Group’s energy
intensity between 2019 and 2025
–
20% reduction in CO
2
e emission intensity
normalised per metric tonne of product
packed for shipment (Scope 1 and Scope
2) by 2025 (vs 2019 baseline)
–
100% carbon-free electricity by 2030
–
A reduction in total Scope 1 and Scope 2
CO
2
e emission intensity of 50% by 2035
(vs 2019 baseline)
–
Zero Scope 1 and Scope 2 emissions
by 2050
Our targets cover 100% of Vesuvius’
operations and are to be achieved without
the use of any offsets (or only to address
residual emissions). They are aligned with
the Science Based Targets initiative (SBTi)
requirements for a well below 2°C global
warming scenario.
The Group Energy CO
2
e emissions
reduction targets have been cascaded to
all Business Units, which have built action
plans accordingly. Portions of the Group
Executive Committee’s Long-Term
Incentive Plan and senior management
annual variable compensation are linked
to the achievement of CO
2
emissions
reduction targets.
Tackling climate change
continued
Our Plan
Our roadmap to net zero is based on five
key areas of focus:
–
Modernising and upgrading installed
equipment to reduce our energy
consumption
–
Investing to renew equipment to the best
available technologies and converting to
less CO
2
intensive energy sources
–
When possible, replacing high CO
2
e
emission electricity (generated from
coal) with greener electricity or other
sources of energy
–
Reducing our energy wastage,
recovering heat to feed processes and
hot water
–
Generating clean energy
It is estimated that we will need to invest
c.£60m of incremental capital expenditure
between 2023 and 2035 to support
our roadmap.
Some significant assumptions underpin
our net zero plan, including:
–
The availability of the necessary
technologies, at an affordable level and
at a scale appropriate for our industry,
especially for the firing of refractory
ceramics and carbon capture
–
The development of additional
production capacity and distribution
infrastructure for renewable energy and
hydrogen, and their cost competitiveness
–
Adequate policy support to foster
innovation and ensure the cost of CO
2
emissions will increase the attractiveness
of carbon-free processes
–
No significant change to our business
model and product portfolio
The achievement of our CO
2
e emissions
targets will also be sensitive to:
–
The growth of revenue, organically, and
from acquisitions and divestitures
–
Product mix evolution (especially driven
by dolime volume, which is the most CO
2
intensive product line)
–
Macroeconomic conditions and the
capex cycle impacting plant loading
(and thereby the energy efficiency of
continuous processes)
1.
Re-baselined using pre-acquisition data for the
business acquired from Universal Refractories.
64
Vesuvius plc
Annual Report and Financial Statements 2022
Scope 2 electricity
Our journey to net zero
Reach net zero
Scope 1 + Scope 2
CO
2
e emissions
1
Reduce the
intensity by 20%
from the 2019
baseline
Reduce the
intensity by 50%
from the 2019
baseline
Short term
Medium term
Long term
2025
2035
2050
Convert to 100% carbon-free sources
2019
2030
Our Progress
– Key Group
initiatives for energy
conservation and for increasing
energy efficiency
Since 2019, we have undertaken a number
of major projects to significantly reduce
the Scope 1 CO
2
emissions of the Group by
addressing some of its most CO
2
e intensive
installations. We closed the Skawina brick
plant, eliminated dirty coke oven gas as
a fuel in Wuhan, replacing it with a new
natural gas-fired tunnel kiln, transferred
the Tyler plant activity to Monterrey, and
replaced the burner system of the
Olifantsfontein rotary kiln. We also took
advantage of the closure of our Chinese
plant at Kuatang and the relocation of its
activity to replace all drying ovens and
kilns with new ones, with an energy
efficiency improvement target of 20%.
In 2021, new capital expenditure worth
circa £1.7m dedicated to 25 incremental
improvement projects, which had energy
efficiency and CO
2
emissions reduction
as one of their prime objectives, was
approved. Nine sites converted to
carbon-free electricity contracts, taking
the total number to 12, representing 20%
of our manufacturing sites and R&D
centres of excellence. We also inaugurated
solar panel installation in our plant in
Igorre, so by the end of 2021, four sites
were equipped with renewable energy
installations, and one had invested in a
combined heat and power installation.
Progress in 2022
1
Carbon-free energy sources
The Group supports the transition towards
renewable energy sources and cleaner
carbon-free technology when possible.
Our energy strategy includes an ongoing
effort to convert to carbon-free electricity
contracts whenever practical and
economically manageable, invest in solar
panels, and the conversion of processes to
electricity as soon as the technology is
cost-effective.
In 2022, 20 sites converted to carbon-free
electricity contracts, taking the total
number to 32, representing 52% of
our manufacturing sites and R&D centres
of excellence.
In 2022, 58% of the grid electricity
consumed in our sites was generated from
renewable sources, and 68% using
processes that did not emit CO
2
.
During 2022, we also inaugurated solar
panel installations in eight new plants,
taking the total number of manufacturing
sites and R&D centres of excellence
equipped with renewable energy
installations to 11. We have a further 26
sites investigating solar panel projects.
2
Capital commitments and internal CO
2
pricing
We include an environmental impact
analysis in the evaluation of each of our
capital expenditure projects as these
are the key decisions that drive long-term
future sustainability performance, and
CO
2
emissions in particular.
Our Environmental policy, which is the
responsibility of the Chief Executive and
the Group Executive Committee, covers
all our operations and states that all our
investment decisions will include an
analysis of their environmental impact. An
internal price for CO
2
emissions (Scope 1
and Scope 2) is included in the calculation
of payback for all investments reaching
the threshold for approval by the BU
Presidents or Chief Executive.
Vesuvius views this shadow pricing
mechanism as a key tool to ensure that
the environmental impact of long-term
investment decisions is understood. It
seeks to ensure that the best available
technology is adopted, even in locations
where no external cost for carbon is in
place or foreseen.
The internal price of CO
2
was initially set at
€30 per tonne of CO
2
in 2020. This price is
reviewed annually and is applicable across
all Business Units and all regions. It has
been set at €90 per tonne of CO
2
for 2023.
3
Improving our energy efficiency
We endeavour to use the best available
technologies to reduce CO
2
emissions in all
our major capital expenditure projects.
We have undertaken a Group-wide
programme of energy efficiency and
established formal efficiency programmes
in all Business Units and regions. These
include projects to upgrade or retrofit
equipment to improve energy efficiency
and reduce CO
2
emissions, such as the
introduction of new refractory furniture
and installation of heat recovery systems in
ovens and kilns, upgrades of compressors,
replacement of light sources with LED
lights, solar panel installation and the
purchase of electric forklift trucks.
In 2022, the Board approved major
capacity expansion capital expenditure
projects totalling more than £20m.
Available technologies and their impacts
in terms of energy efficiency and CO
2
e
emissions were systematically considered
for these projects, and the most efficient
technologies for the purpose selected. In
addition, new capital expenditure worth
c.£5.6m dedicated to 166 projects with
energy efficiency and CO
2
emissions
reduction as one of their prime objectives,
was approved in 2022.
Next steps to achieve our
Net Zero Plan
Various projects are being studied that
will help us deliver our short-term (2025)
targets on the road to net zero, including:
the installation of further solar panels,
retrofitting of ovens and kilns, replacement
of older and less efficient units, burner
setting optimisation and loading and
cycle optimisation.
In the medium term (2035), we anticipate
that further emissions reduction will be
possible through upgrades to our ovens
and kilns, and possibly the use of a
combination of natural gas and renewable
energy such as carbon-free hydrogen to
fire refractory materials. We estimate the
incremental capital commitment required
by our decarbonisation roadmap until
2035 will be approximately £60m (approx.
£5m per year). We do not expect the useful
economic lives of our existing assets to be
materially affected by our plans until 2035.
Precise capital expenditure project lists
have been defined for the 2025 horizon.
We will continue using the internal price of
carbon to assess the relative benefit and
prioritise projects.
We also anticipate evolutions in our
product portfolio towards less energy-
intensive products (such as resin-bonded
and unshaped refractories) to continue.
In the longer term (2050), various
technologies are promising candidates for
the near zero emissions curing and firing of
refractory products (electricity, carbon-
free hydrogen, synthetic gas, biomass).
We currently foresee that carbon capture
solutions will be available for our industrial
application during the 2035-2050 period.
We are progressively adapting our
product and process R&D programmes
to explore such opportunities.
65
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Tackling climate change
continued
Our energy consumption and Scope 1 and Scope 2 CO
2
e emissions
While Vesuvius’ products differ
significantly in the energy intensity of their
manufacture, most of our manufacturing
processes are not energy intensive nor do
they produce significant quantities of
waste and emissions. Dolime production,
which uses coal to calcine dolomite, is our
major emitter of CO
2
. Dolime and the
next six of our 32 main manufacturing
processes account for 73% of our energy
consumption and 79% of our location-
based CO
2
e emissions. These continue to
be a clear focus for our investment to
reduce CO
2
e emissions.
Between 2019 and 2022 the Group
achieved an overall reduction in energy
intensity (normalised to per metric tonne of
product packed for shipment) of 6% vs a
target of 10% by 2025. Progress in 2022
was adversely affected by lower volumes,
resulting in lower fill rates for continuous
processes and lower energy efficiency.
During the same period, our CO
2
e
emission intensity metric (CO
2
e emissions
per metric tonne of product packed for
shipment, Scope 1 and Scope 2, market-
based) progressed by 18.8%, vs a target
of 20% by 2025. This includes a 21%
reduction in Energy CO
2
e intensity and an
11% reduction in Process CO
2
e intensity
per metric tonne of product packed
for shipment.
*
*
Re-baselined using pre-acquisition data for the
business acquired from Universal Refractories.
Scope 1
covers emissions from fuels used in
our factories and offices, fugitive emissions
and non-fuel process 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.
The conversion by many of our sites to
carbon-free electricity contracts has
helped our CO
2
e emissions reduce at a
faster pace than our energy efficiency
improvements.
Vesuvius’ 2022 total energy costs of
£56.4m are c.2.8% of revenue. South
Africa is the only country where we exceed
the threshold to be submitted to a Carbon
Tax or an Emissions Trading Scheme.
The Carbon Tax cost in 2022 was c.£0.2m.
Scope 1, Scope 2 and Scope 3 emissions (market-based)
In 2022, Vesuvius’ total Scope 1, Scope 2 and Scope 3 CO
2
e emissions were 1,831,451 metric tonnes. This represented 895 metric tonnes
per million £ revenue.
Metric tonnes CO
2
e
2022
2021
2020
2019
Metric
tonnes
%
Metric tonnes
%
Metric tonnes
%
Metric tonnes
%
Scope 1 Process CO
2
e emissions
91,276
5.0%
101,121
5.4%
88,516
5.9%
106,737
6.0%
Scope 1 Energy CO
2
e emissions
1
193,603
10.6%
209,592
11.2%
183,741
12.2%
215,836
12.0%
Scope 1 CO
2
e emissions
284,879
15.6%
310,713
16.6%
272,257
18.0%
322,573
18.0%
Scope 2 CO
2
e emissions (market-based)
56,517
3.1%
82,519
4.4%
92,145
6.1%
106,681
5.9%
Scope 3 CO
2
e emissions
1,490,055
81.4%
1,483,438
79.0%
1,147,557
75.9%
1,363,709
76.1%
Total
1,831,451
100%
1,876,670
100%
1,511,959
100%
1,792,963
100%
Notes:
1. Includes fugitive emissions.
Note: The numbers are collated from entities within the Group’s Operational Control Boundary.
Vesuvius plc long-term energy consumption and energy intensity (aggregate of Scope 1 and Scope 2)
2022
1
2021
2020
2019
2018
Total energy consumption (million kWh)
1,084
1,159
1,026
1,176
1,339
Energy consumption per metric tonne of product
packed for shipment (kWh/MT)
1,207
1,177
1,243
1,293
1,294
Notes:
1. 2022 includes the business of Universal Refractories, Inc but excludes BMC.
Note: The numbers are collated from entities within the Group’s Operational Control Boundary.
Fuel consumption, emissions and normalised emissions for the main fuels consumed across the Group
(location-based (Operational Control Boundary) statutory reporting)
In 2022, the Group’s normalised energy
consumption increased by 2.6% to
1,207kWh per metric tonne (2021: 1,177).
Location-based emissions increased by
2.1% to 0.428 metric tonnes CO
2
e per
metric tonne product packed for shipment
(2021: 0.419) and market-based emissions
increased by 4.8% to 0.38 metric tonnes
CO
2
e per metric tonne product packed for
shipment (2021: 0.40).
A significant reduction in CO
2
e resulted
from reductions in the production of
dolime. The remaining decreases were
primarily driven by changes in production
volumes and product mix. Natural gas use
decreased by 6%, electricity consumption
by 3% and coal (a CO
2
intensive fuel)
consumption by 10%, to 27.2 thousand
metric tonnes (2021: 30.3).
During 2022, the Group also consumed
292 cubic metres of diesel (-17% on 2021:
352) primarily in the operation of forklift
trucks on its sites and 165 cubic metres of
fuel oil, an increase of 5% (2021: 157).
In total 457 cubic metres of oil was used as
fuel in 2022 (-10% on 2021: 508).
66
Vesuvius plc
Annual Report and Financial Statements 2022
Greenhouse Gas (GHG) reporting
We have reported to the extent reasonably
practicable on all the emission sources
required under Part 7 of the Accounting
Regulations which fall within our Group
Financial Statements.
Statutory reporting is location-based
according to the GHG Protocol.
In reporting GHG emissions, we have used
the GHG Protocol Corporate Accounting
and Reporting Standard (revised edition)
methodology to identify our location-
based GHG inventory of Scope 1 (direct)
and Scope 2 (indirect) CO
2
e. We report in
metric tonnes of CO
2
equivalent (CO
2
e).
We have used emission factors from the
UK Government’s (DBEIS) and the IEA
GHG Conversion Factors for Company
Reporting 2022 in the calculation of our
GHG emissions.
Our energy-related greenhouse gas
(GHG) emissions, reported as carbon
dioxide equivalents (CO
2
e), include direct
emissions of the three main GHGs (carbon
dioxide (CO
2
), methane (CH
4
) and nitrous
oxide N
2
O).
Process related emissions of the following
in CO
2
equivalent and in metric tonnes are
not significant:
–
Direct methane CH
4
emissions
–
Direct nitrous oxide N
2
O emissions
Emissions of the following in CO
2
equivalent and in metric tonnes are
not significant:
–
Direct sulphur hexafluoride (SF
6
)
emissions
–
Direct HFC emissions
–
Direct PFC emissions
The Group also meets all its obligations in
relation to the Producer Responsibility
Packaging Waste regulations and the
Energy Saving Opportunity Scheme by
which the UK implemented the EU Energy
Efficiency Directive.
All sites report their energy consumption
and GHG emissions on a quarterly basis.
Performance and variation are analysed,
and improvement plans built accordingly.
Our energy and Scope 1 and Scope 2
GHG data covers 100% of Vesuvius’
operations including the business acquired
from Universal Refractories, Inc and joint
ventures, but excluding, for 2022, BMC
(acquired late in 2022) and, for 2019
and earlier, the management joint
venture with Anshan Angang Refractories
which was outside of the operational
control boundary.
2019 was selected as the baseline for all
energy and GHG emissions data and
targets, absolute and relative, as this
was the last year of normal trading prior
to the COVID-19 pandemic. Progress is
measured against the 2019 performance.
In 2022, two new sites acquired with the
business acquired from Universal
Refractories in December 2021, were
included. 2019 to 2021 figures were
restated to include estimated energy
consumption and GHG emissions of
these two facilities.
Global GHG emissions and energy consumption
Location-based statutory reporting (Operational Control Boundary)
Emissions
and energy
sources
UK and
Offshore
CO
2
e ‘000
metric
tonnes
2022
Global
CO
2
e ‘000
metric
tonnes
2022
Proportion
relating to
the UK and
Offshore
Area
UK and
Offshore
CO
2
e ‘000
metric
tonnes
2021
Global
CO
2
e ‘000
metric
tonnes
2021
Proportion
relating to
the UK and
Offshore
Area
UK and
Offshore
energy
used
‘000 kWh
2022
Global
energy
used
‘000 kWh
2022
Proportion
relating to
the UK and
Offshore
Area
UK and
Offshore
energy
used
‘000 kWh
2021
Global
energy
used
‘000 kWh
2021
Proportion
relating to
the UK and
Offshore
Area
Combustion of fuel and operation of facilities including fugitive emissions (Scope 1)
2.268
285
0.8%
2.433
311
0.8%
11,839
877,757
1.3%
12,688
949,036
1.3%
Electricity, heat, steam and cooling purchased for own use (Scope 2)
0.608
99
0.6%
0.556
102
0.5%
2,740
205,859
1.3%
2,503
210,415
1.2%
Total GHG emissions and energy
2.876
384
0.7%
2.989
413
0.7%
14,578 1,083,616
1.3%
15,191
1,159,451
1.3%
Change
-3.8%
-7.0%
-4.0%
-6.5%
Vesuvius’ chosen intensity measurement
(location-based statutory reporting)
Metric tonnes CO
2
e per metric tonne of
product packed for shipment
kWh of energy per metric tonne of
product packed for shipment
UK and
Offshore
2022
Global
2022
UK and
Offshore
2021
Global
2021
UK and
Offshore
2022
Global
2022
UK and
Offshore
2021
Global
2021
Emissions and energy reported above
normalised to metric tonnes CO
2
e
per metric tonne of product packed
for shipment
4.173
0.428
3.389
0.419
21,150
1,207
17,223
1,177
Change
23.1%
2.1%
22.8%
2.6%
Metric tonnes of CO
2
e per £m revenue
Total GHG emissions as metric tonnes
CO
2
e per £m revenue (location-based)
23
188
27
251
Change
-15.9%
-25.4%
67
Our business
Our
performance
Sustainability
Governance
Financial
Statements
67
Metric tonnes CO
2
e
2022
2021
2020
2019
Metric
tonnes
%
Metric tonnes
%
Metric tonnes
%
Metric tonnes
%
Purchased goods and services
1,137,416
76.3%
1,159,810
78.2%
871,993
76.0%
1,039,766
76.2%
Capital goods
87,043
5.8%
62,004
4.2%
53,736
4.7%
68,461
5.0%
Fuel- and energy-related activities
(not included in Scope 1 or 2)
82,523
5.5%
94,274
6.4%
86,544
7.5%
102,374
7.5%
Upstream transportation and distribution
51,231
3.4%
48,791
3.3%
30,762
2.7%
31,937
2.3%
Waste generated in operations
7,926
0.5%
5,833
0.4%
5,660
0.5%
6,312
0.5%
Business travel
26,810
1.8%
15,488
1.0%
13,574
1.2%
31,373
2.3%
Employee commuting
20,400
1.4%
20,400
1.4%
20,400
1.8%
20,400
1.5%
Upstream leased assets
6,375
0.4%
6,375
0.4%
6,375
0.6%
6,375
0.5%
Downstream transportation and
distribution
37,537
2.5%
37,761
2.5%
25,770
2.2%
27,231
2.0%
Processing of sold products
32,794
2.2%
32,794
2.2%
32,794
2.9%
29,875
2.2%
Total Scope 3 CO
2
e emissions
1,490,055
100.0%
1,483,530
100.0%
1,147,608
100.0%
1,364,104
100.0%
Scope 3 emissions
Vesuvius’ Scope 3 CO
2
e emissions, mainly
upstream, contribute to a greater part of
our total CO
2
e emissions than our Scope 1
and Scope 2 emissions.
Scope 3 CO
2
e emissions for 2019 to 2022
were calculated using the Quantis Scope 3
Evaluator software, in line with the GHG
protocol. The evaluation covered 100%
of operations.
The categories in the table above
represent more than 95% of Vesuvius’ total
estimated Scope 3 emissions.
We assessed the most relevant and
influenceable elements of our Scope 3
emissions, and purchased goods and
services represent the largest category.
Since 2021, we undertook a more focused
evaluation of emissions associated with
raw materials using publicly available
average CO
2
emissions factors. In
addition, we started collecting information
on energy source, CO
2
emissions data and
reduction plans from our raw materials
suppliers as part of our Request for
Quotation process. Suppliers representing
26% of the raw material spend have
responded to our requests.
In 2022, we focused on the four categories
of raw materials that make up
approximately half of our Scope 3
emissions from purchased goods and
services. We started engaging with our
suppliers, supporting them with training
and evaluation tools to evaluate their
Scope 1 and Scope 2 emissions.
We also started collecting CO
2
emissions
data related to transportation from our
forwarders in all regions.
In parallel to this, various initiatives have
been launched to reduce our Scope 3 CO
2
emissions. A few examples include:
–
Returnable packaging solutions being
implemented both with suppliers and
customers
–
Policies aimed at limiting the CO
2
emissions of Company fleet vehicles
being deployed in various countries
–
The encouragement of commuting to
work by bus or other forms of collective
transportation services. Vesuvius
organises such services for more than
1,000 Vesuvius employees
Tackling climate change
continued
Scope 1, Scope 2 and Scope 3 carbon footprint reporting and supporting evidence contained
herein for the period 1 January 2019 to 31 December 2022 were verified by Carbon Footprint
Ltd in accordance with the ISO 14064 Part 3 (2019): Greenhouse Gases: Specification with
guidance for the verification and validation of greenhouse gas statements.
A copy of the limited assurance statement can be found on our website: www.vesuvius.com.
Vesuvius plc statement of verification
68
Vesuvius plc
Annual Report and Financial Statements 2022
The drive to improve the sustainability
performance of Vesuvius and the
refractory industry’s products was
initiated many decades ago. Continuous
improvements have led to considerable
reductions in both the raw materials used
and the quantity of product shipped to
landfill. As the amount of refractory
material consumed per tonne of steel
cast levels off, the purpose and value of
the use of refractory materials will move
from delivering insulation to an even
greater emphasis on helping to improve
steel quality and process efficiency.
Product durability
Our first, and preferred, strategy to reduce
the depletion of resources is the extension
of product durability.
We are continuously working to extend the
lifetime of our consumable products.
Strategies include the development of
advanced materials, the design of shapes
that allow dual usage of products, and
product repair and remanufacture.
For mechanisms and equipment, we also
offer wear monitoring and maintenance
services to our customers to ensure their
optimum performance and extend
their lifetime.
Product recyclability
At the same time as reducing the quantity
of raw materials required for each casting,
technical solutions and economic cycles
have grown to enable the recycling of
refractory materials after usage in the
production of iron and steel. Whereas
in the early 1970s nearly all refractory
materials were disposed of after use, it is
estimated that more than half are now
recycled. In Europe, as little as 5% of
refractory materials now go to landfill.
As part of our product end of life
management programme, we are
developing various initiatives with
customers, such as:
–
Recovery and remanufacture of
products after usage
–
Recovery and recycling of refractory
materials after usage
–
Various options with regard to
mechanisms and equipment,
including rental
Recovered and recycled materials
Vesuvius is determined to increase the
usage of recovered and recycled materials
in its product formulations.
Increasing the share of recovered
and recycled materials in product
formulations poses multiple challenges,
in terms of availability, consistency of
quality, competitiveness versus virgin
material whose prices fluctuate,
regulatory frameworks for the
transportation of end-of-life waste
materials, and validations to ensure
that product performance and reliability
remain unaffected.
Recycled material usage
2022
2021
2020
2019
Amount of recycled materials used in
Vesuvius products (metric tonnes)
66,137
76,482
57,035
68,373
Amount of recovered materials that are
not recycled used in Vesuvius products
(metric tonnes)
0
0
0
0
Percentage of recycled materials in Vesuvius
products from total materials
6.0%
6.2%
5.6%
5.9%
Percentage of revenue from products
including recycled materials
23.1%
24.0%
23.3%
21.1%
All recovered materials undergo some processing before their usage in our products. Therefore, they are all
included in the recycled materials category, and the recovered materials category is empty.
Product responsibility – Growing our engagement in the circular economy
69
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Name:
Kyle Repine
Role:
Senior Lab Technician
Location:
Pittsburgh
Reducing consumption
Material waste
The Board has set a target of a 25%
reduction of our solid waste (hazardous
and sent to landfill) per metric tonne of
product packed for shipment by 2025
(vs the 2019 baseline).
Manufacturing sites have started building
action plans covering both hazardous and
non-hazardous waste to eliminate, reduce
and recycle waste. A wide range of actions
have been initiated to reduce the amount
of waste, such as closed conveyor and dust
extraction systems, process improvements
to reduce scrap and process waste
generation, re-engineering of product
recipes to include internally recycled
material, and identification of recycling
opportunities in other industries for
by-products.
In 2022 the ratio of solid waste (hazardous
and sent to landfill) per metric tonne of
product packed for shipment reduced by
13.8% vs 2019, (2021: reduced by 22.7%).
The 2022 performance was notably
affected by the disposal of materials that
had been damaged during the severe
weather event and subsequent flooding
that affected our plant in Malaysia in
December 2021. A few sites also disposed
of waste material that had been
accumulated over a long period of time.
Water consumption
We aim to reduce both the amount of fresh
water consumed in our manufacturing
process and social water consumption.
The main area of focus is the reduction of
wastewater. Vesuvius works to reduce the
consumption of water in its manufacturing
operations by recycling and improving
water management processes. No salt
water or cooling water is abstracted, with
no related outflow.
Various technological solutions have been
implemented to reduce our water
consumption and wastewater. Most
noteworthy, investment in wastewater
treatment installations have been made
in 26 plants. Dry filter installations for
particulates removal also allow far lower
water consumption than wet scrubbers.
In 2022, our overall freshwater
consumption per tonne of product packed
for shipment decreased by 19.4% vs our
baseline of 2019. As with energy use,
normalised consumption of water varies
with product mix. This decrease was driven
by an evolution in our product mix towards
products that require less water in their
processing, and actions taken to reduce
wastewater (-10.2%).
Five-year evolution of fresh water consumption
% change
2022/2019
2022
2021
2020
2019
2018
Water in m
3
-20.4%
678,973
745,732
747,439
853,381
896,785
Water in m
3
used per metric tonne of product
packed for shipment
-19.4%
0.756
0.757
0.905
0.939
0.866
Water in m
3
used per £ million revenue
-33.8%
330
454
513
499
499
Wastewater
The Board has set a target for the Group to
reduce the amount of wastewater per metric
tonne of product packed for shipment
by 25% by 2025 (vs the 2019 baseline).
Our sites with the highest level of water
consumption are equipped with
wastewater treatment plants. These
represent 43% of all manufacturing
sites and R&D centres of excellence.
Additionally, many types of activity are
routinely undertaken by our sites to control
and reduce their water consumption, and
we have action plans in place to reduce our
wastewater generation globally. Some of
the most significant examples include:
–
Replacing wet scrubbing systems for
particulate removal with dry filter systems
–
Optimising container cleaning processes
–
Installing high pressure stations to
improve the efficiency and speed of
tool cleaning
–
Optimising production schedules
to reduce the need for cleaning
between recipes
–
The provision of environmental
awareness training to employees
Environmental exceedances
Vesuvius is committed to addressing
environmental exceedances and
complying with local regulations.
All exceedances are reported in a central
database. Any significant exceedance or
environmental incident is reported to the
Group Executive Committee.
In 2022, Vesuvius recorded 60 minor
environmental incidents. Of these,
two related to emissions to air, five to
emissions to water and 53 to ground.
Total environmental releases
across the Group in 2022 are estimated
to have totalled 11 metric tonnes
(including 3.2 metric tonnes of water-
based materials) and 1.3 m
3
of
hydrocarbons, with the balance
being solids and powders.
All releases to water and to the ground
were fully contained.
Where incidents occur, they are managed
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. In Germany, a slightly
increased legionella contamination was
detected in showers and remedial action
taken. An existing earlier action in relation
to a disused US property for wastewater
exceedances remains open. Two
regulatory actions issued in 2021 against
Vesuvius in Belgium also remain open;
action plans to address them are being
implemented. No action was taken by any
authority in relation to an environmental
incident in 2022 which resulted in financial
penalties against Vesuvius. The Group
does not operate any mines and
consequently the Group generates
zero tailings waste.
(Metric tonnes)
% change
2022/2019
2022
2021
2020
2019
Ratio of wastewater
per tonne of product
packed for shipment
-9.0%
0.263
0.268
0.290
0.289
70
Vesuvius plc
Annual Report and Financial Statements 2022
Our products have the potential to help
customers reduce and avoid greenhouse
gas emissions when compared with their
current practices by amounts that far
exceed the emissions required to
manufacture and distribute them.
We actively cooperate with customers
to help them evaluate the CO
2
emissions
reduction our products bring to their
complete value chain.
Our customers in the iron, steel and
aluminium industries are embracing the
challenge of dramatically reducing their
CO
2
emissions. Many have pledged
to reach net zero by 2050. They are
investing significantly to transform their
manufacturing technologies for the long
Sustainable solutions
Reduced heat losses
Minimise casting temperature
Extend production sequence length,
reduce downtime
Increase metal yield in castings
Reduce downgrading, re-melting of scrap
and repair of defects
Improve metal performance
Maximise casting speed and throughput
Reduce and avoid greenhouse
gas emissions
Improves users’
comfort, health
and safety
Safety in manufacturing and transportation
Safety during usage
Exposure to health hazards
Limits our
impact on
natural
resources
Product weight
Product lifetime
Recycled materials
Minimises
energy
consumption
and emissions
Cradle to grave greenhouse gas emissions
Reduced and avoided CO
2
emissions for the customer
Volatile compounds emissions
Reduces waste,
avoids landfill
and increases
recycling
Waste generation during manufacturing and usage
Recyclability after usage
Product sustainability benefits scorecard
term, working on a range of initiatives
including the direct reduction of iron
with carbon-free hydrogen and the
replacement of carbon anodes in
aluminium smelting. We contribute to their
efforts through technology partnerships
and developing new products for the next
generation zero emissions aluminium,
iron and steel making processes.
Product lifecycle assessments/
assessing our portfolio
We have created a comprehensive
scorecard to evaluate our products over
their full product life cycle (raw materials,
manufacturing, transportation, use phase,
and end of life). We rate our products in
comparison with the standard offering in
the market considering their performance
in terms of health and safety,
environmental impact, greenhouse gas
emissions, and end-of-life processing. All
criteria are assigned a weighting. In line
with our objectives to reduce both our own
CO
2
emissions and help our customers
reduce their CO
2
emissions, we give these
criteria a significantly higher weighting.
Performing this analysis supports our
objective to develop and supply products
that provide our customers with a superior
overall sustainability performance against
the market standard.
In 2022, we continued the roll-out of this
internal scorecard across our product
portfolio and assessed 97% of our
consumable products. Of our 2022 sales
17.9% were generated from products with
superior sustainability characteristics. Our
objective is to continue growing their share
of our product portfolio year after year.
71
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Supporting our customers’ journey to net zero
Vesuvius is committed to growing its contribution to a sustainable world,
through products and services that improve safety, maximise environmental
performance, reduce greenhouse gas emissions, and contribute to the
circular economy.
Sustainable R&D
Vesuvius invests significantly in new
product development, working closely with
our customers to offer optimised solutions
for their specific needs. We have a unique
combination of expertise covering a wide
range of fields including metallurgy,
refractory ceramics, robotics and
mechatronics, and IT. This is combined
with close contact with customers through
our network of account managers and
service teams, and through regular
technical and R&D meetings with our
key customers to drive innovation.
When designing new products, the
Marketing and Technology teams in our
six R&D centres of excellence listen to
our customers, closely observing their
processes to understand their current and
future challenges, needs and expectations.
We combine this learning with the
information we have collected from our
analysis of past issues, and seek to achieve
both incremental improvements and
breakthrough innovations in safety,
robustness, reliability and performance, to
steer the development of next-generation
products and services.
We have formally integrated sustainability
considerations into product R&D. Using
the same health and safety, environmental
impact, greenhouse gas emissions, and
end-of-life processing criteria and
scorecard as we use in the assessment of
the existing product portfolio, we have
begun a complete assessment of the
pipeline of R&D and new product
development projects, to check that
their contribution is aligned with our
sustainability ambitions, adjust priorities
and allocation of resources, and fine-tune
the selection of new projects entering the
pipeline. All new product development
projects are assessed using these criteria.
Vesuvius’ investment in innovation and sustainability
16.0%
17.5%
17.9%
2020
2021
2022
2019
14.5%
% of sales generated by market-leading sustainable products
*
28
28
31
36
2020
2021
2022
2019
R&D spend (£m)
* *
*
Using Vesuvius’ internal scorecard.
** At constant currency.
75%
of new product development projects
were dedicated to market-leading
sustainable products
R&D covers a wide range of activities
ranging from fundamental research and
front-end innovation to the evaluation of
alternative material sources and support
to operations.
Using our internal product sustainability
benefits scorecard we assess whether new
products from our R&D have better
sustainability characteristics than those
already on the market - either from
Vesuvius or from our competitors. Where
we assess that they do, we consider these
to be products with superior sustainability
characteristics, which we term ‘market-
leading sustainable products’.
The challenge of decarbonising iron
making and aluminium smelting requires
the development and industrialisation of
radically new technologies. We
complement our internal efforts with
partnerships with over a dozen research
institutions, universities and strategic
customers, working to develop the
refractory solutions that will support these
novel processes. In 2022, the Group spent
£8.2m, representing 23% of the Group’s
central functions and processes R&D
spend, on the development of market
leading sustainable products (vs £9.7m,
31% in 2022).
Supporting our customers’ journey to net zero
continued
72
Vesuvius plc
Annual Report and Financial Statements 2022
The reliability and performance of our
products are critical to our customers
in terms of safety on the shop floor,
overall equipment effectiveness, labour
productivity and metal yield, and their
environmental impact (reducing energy
consumption, CO
2
emissions and
refractory material waste).
Many of our products allow our customers
to achieve improved metallurgical
properties in their products, for example,
allowing the production of better wind
turbine components or the light-weighting
of vehicles.
Product safety and quality
New product development
Product safety is paramount to us.
We have implemented a wide range
of practices to optimise the safety
and quality performance of our products
in use, reduce failures and increase
their lifetime.
We follow a strict stage gate process
for the development of new products,
ensuring that safety performance
objectives are defined from the initial
stages and progressively completed up
to the product launch. Key deliverables
include risk assessments, preparation of
user and maintenance documentation,
manufacturing control plans, and Vesuvius
and customer operator training. We
undertake extensive testing through
rigorous alpha and beta trials, with
systematic trial reports to confirm that
targeted performance and robustness
objectives are met and to allow for
fine-tuning before product launch.
Safety data sheets are available for all
consumable products.
The development of human-centred
robotic solutions for steel shops reduces
the ergonomic strain on our customers’
operators together with their exposure to
high temperatures.
Safety and quality in use – product feedback
Our constant performance monitoring
develops deep and lasting relationships
with our customers.
After product launch, whenever a
safety-related incident (an injury or a
dangerous occurrence) occurs at one of
our customers that may have involved
a Vesuvius product or service, it is
systematically reported and investigated.
Likewise, all quality and performance
issues raised by the Vesuvius field teams or
by customers are systematically reported,
documented and classified, based on their
nature and severity.
Issues and incidents are dealt with through
a rigorous problem-solving methodology
and in-depth investigation using the 8D
practical problem-solving methodology.
This ensures we identify root causes,
implement corrective actions, and prevent
them recurring. The outcome of the
investigation, including root causes and
corrective actions, is shared with the
customer and lessons learned are
incorporated into the design of following
generations of products.
Product safety and quality
At the core of our business is the desire
to help our customers improve their
operational performance and efficiency.
Customers rely on the quality of our
products, and their structural integrity,
to ensure the safety of their employees
by controlling the flow of molten metal
in their operations.
Name:
Janusz Raś
Role:
Group Leader
Location:
Skawina
73
Our business
Our
performance
Sustainability
Governance
Financial
Statements
We provide our employees with a safe workplace, where they are recognised,
developed and properly rewarded.
Safety is our top priority and our
overriding commitment to health
and safety is embedded throughout
the organisation.
Our approach 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. We remain fundamentally
committed to protecting the health and
safety of employees, contractors, visitors,
customers and any other persons affected
by our activities.
We want to become a zero-accident
company and are striving to become a
best-in-class organisation for safety
performance and leadership.
Our 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 governance
The Board has overall responsibility
for health and safety-related matters
and delegates authority for the
management of the health and safety
performance of the business to the Chief
Executive. The Health and Safety Policy
is signed by all members of the Group
Executive Committee and the Business
Unit Presidents are responsible for
its deployment.
The Board receives monthly information
on every Lost Time Injury and key safety
performance indicator. In addition, the
Board carries out a biannual review of
health and safety performance and
overall Company safety strategy. Annual
presentations of Business Unit strategy
also include health and safety strategy.
The results of our Group Safety Audits are
presented to the Board twice per year.
Group safety audits
The Group operates a central safety
auditing team of three auditors, each with
more than ten years’ experience, who
report to the VP Sustainability, HSE &
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.
Each audit also includes an assessment
of the site’s HSE leadership. During 2022,
the team conducted 65 audits.
Following each audit, action plans are
created by the site management teams to
address any issues identified and work on
completing these is assessed on a regular
basis. The observations made during
audits have been used to improve the
Group’s training programmes and to
enhance the Group’s health and safety
standards. The results of the Group HSE
audits, as well as the progress of action
plans addressing the most critical issues,
are reported to the Board twice a year.
Sites are also encouraged to carry out
self-assessments, based on the Group
safety audit compliance checklist, to
monitor their progress.
Safety audits and improvement opportunities
In 2022, 80% (2021: 78%) of our working
population performed routine safety
audits every month. This generated an
average of nine (2021: seven) implemented
safety improvement opportunities per
person from more than 10,200 (2021:
10,000) employees, resulting in an
improvement in worker safety.
The audit programme involves employees
at all levels – from the Group Executive
Committee and safety specialists, through
to local site management, employees and
directly supervised contractors.
Health, safety and well-being at work
Our people
74
Vesuvius plc
Annual Report and Financial Statements 2022
2022 safety performance
Our Lost Time Injury Frequency Rate
(LTIFR) of 1.08 per million hours worked in
2022 was stable vs 2021 (1.06). Excluding
third-party contractors and visitors, the
LTIFR was 1.08. (Third-party contractors
and visitors LTIFR 2022: 1.02.)
Fatalities and severe injuries
Sadly, in 2022, one of our colleagues
suffered a fatal injury during a
maintenance operation at the site of our
joint venture partner in Wuhan, China.
We are actively taking steps to learn from
this tragedy and improve our systems
and procedures to prevent any similar
occurrence. Another of our colleagues
was killed in a road traffic accident
while commuting to work. Vesuvius is
providing financial and social support
to their families.
There were also several severe injuries in
2022. One of our colleagues in Brazil lost
the tip of a finger in a moving conveyor
belt. Another in China suffered some
severe burns, from which he has fully
recovered, from the explosion of raw
materials during the charging of a mixer.
The victims of two more injuries required
short hospitalisations. Following full root
cause analyses of each incident, robust
preventative measures were implemented
across Vesuvius with changes made
to our HSE standards to reduce the risk
of recurrences.
Lost time and medically treated injuries
Vesuvius operates a robust and
comprehensive process for the timely
reporting of incidents. In our internal
standards, third-party contractors are
included, and we use more stringent
definitions for Lost Time Injuries (LTIs)
and ‘severe accidents’ than the definitions
used by many regulatory bodies. All sites
are required to report on all Medically
Treated Injuries (MTIs), to maintain the
focus on safety. As an illustration of the
precautionary preventative approach
taken by Vesuvius in accident investigation,
all LTIs and MTIs required a full 8D report.
Whilst 2020-2022 were unusual years
because of the COVID-19 pandemic
and associated changes in working,
we believe that the long-term significant
improvements in Lost Time Injury rates
reflect a broader trend of underlying
improvement for the Group and result
from a strong management commitment
to change.
2022 Safety performance
Performance indicators
Employees
and directly
supervised
contractors
2022
Third-party
contractors
and visitors
2022
All employees,
contractors
and visitors
2022
Work Related Death
1
0
1
Severe Injuries
6
0
6
Lost Time Injuries (LTI)
29
1
30
LTI Frequency Rate (LTIFR) per million hours
1.08
1.02
1.08
Medically Treated Injuries (MTI)
178
6
184
MTI Frequency Rate (MTIFR) per million hours
6.6
6.1
6.6
Safety Audits (number)
120,307
0
120,307
Safety Audits per 20 employees per month
16
0
16
Lost-Time injuries
LTIFR 12 months rolling
Lost-Time Injuries
per million hours worked
2021
2020
2019
2018
2017
2022
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
75
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Vesuvius’ Values
People and Culture
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
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, co-workers, 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
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
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
Vesuvius has established a framework for
explaining and embedding the culture and
principles we consider to be fundamental
to our success. To do this we communicate
openly and transparently within the
organisation, through ‘town hall’ meetings,
senior management visits, management
feedback, performance evaluation,
measuring staff engagement and
responding to the feedback we receive.
Critically, there is ongoing and consistent
communication of our CORE Values and
the principles of our Code of Conduct.
This is underpinned by engaging staff
across the Group in both general and
targeted training, to ensure a consistent
understanding of our policies and
procedures.
This transparency of communication
also extends to our stakeholders.
We want to increase the knowledge
and understanding of our stakeholders,
through internal and external reporting,
and transparent and meaningful
disclosure. Our Sustainability Report
is a key part of this.
Our CORE Values
The Group’s CORE Values – Courage,
Ownership, Respect and Energy – are
actively supporting the Group’s priorities,
encouraging consistent behaviours across
the Group to sustain our business success
in the future.
These Values, and the behaviours
underpinning them, convey the mindset
and attitudes we expect each employee to
show every day. They are at the heart 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 reinforced through
our performance management systems
and are celebrated each year through
our Living the Values Awards which
select regional and global winners for
each Value.
At each of our sites we display CORE
Values posters in local languages and
use tools such as screen savers as a
constant reminder of the behaviours our
people display.
Our focus on People and Culture strategy
aims to build an outstanding business by
ensuring we have the individuals, skills
and capabilities critical to the delivery of
our strategy.
We seek to develop outstanding people.
We ensure our people managers have
what they need to lead their diverse,
engaged and high-performing teams for
business and personal growth. These
goals are strongly underpinned by a
values-driven, winning culture that
embraces diversity of thinking and
continuous innovation to achieve high
levels of performance and growth.
We create this culture by building broad
organisational understanding of our
strategy, goals and accountability,
supported by our CORE Values and
positive management behaviours. We
seek to foster a working environment that
is inclusive and diverse, where people can
be themselves without fear of harassment,
bullying or discrimination. True to our
decentralised business model, each of
our Business Units has their own strategic
HR agenda supporting delivery of their
business strategies.
Our principles and approach
Vesuvius is a geographically and culturally
diverse group, employing more than
11,000 people in 40 countries.
Our geographical diversity places us close
to our customers around the globe. It 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.
76
Vesuvius plc
Annual Report and Financial Statements 2022
Senior Leadership Group
%
31
125
20%
Women
80%
Men
Code of Conduct
Our Code of Conduct sets out the
standards of conduct expected,
without exception, of everyone who
works for Vesuvius in any of our
worldwide operations.
The Code of Conduct 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 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
we deal with our customers, business
associates, employees, investors and
local communities.
The Code of Conduct is displayed
prominently at all our sites and is published
in our 29 major functional languages. It is
available to view 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.
The Code of Conduct covers eight
key areas:
Diversity - 31 December 2022
Female
Male
Total
Female
Male
Board
3
5
8
37.5%
62.5%
Group Executive
Committee members
2
5
7
29%
71%
Leadership roles reporting to
members of the GEC
12
40
52
23%
77%
Directors of Subsidiaries
included in consolidation
1
20
85
105
19%
81%
Senior Managers
2
34
130
164
21%
79%
All other employees
1,642
9,328
10,970
15%
85%
Grand total
1,676
9,458
11,134
15%
85%
1. Of the 105 employees who are directors of Group subsidiaries but not members of the GEC or direct
reports of the GEC, 19% are women. This disclosure is made to comply with regulatory requirements.
It includes directors of dormant companies. Some individuals hold multiple directorships.
2. Senior Managers as defined for the purposes of Section 414C(8)(c) includes directors of the
Company’s subsidiaries.
Diversity and inclusion
As an organisation, Vesuvius has a global,
multicultural operational and customer
base, which we wish to reflect inside our
organisation with a multicultural, diverse
community of excellent professionals from
all backgrounds. 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. Vesuvius operates in
40 countries around the world, employing
people with 71 nationalities, making us
a truly diverse business. We regard this
diversity as a critical aspect of our success
and future growth, as it allows us to access
the widest range of skills and experience.
Each employee is respected and valued
and as a result they are all able to give their
best. All employees are given help, training
and encouragement to develop their full
potential and utilise their unique talents.
Overall responsibility for implementing the
Group’s Diversity and Equality Policy rests
with the Executive Directors. The
Nomination Committee monitors progress
with meeting its objectives. At the end of
2022, the Senior Leadership Group
(comprising c.160 senior managers)
consisted of 22 nationalities located in
22 countries. 15% of our overall workforce
were women, which remained stable
versus 2021.
Over the past three years we have made
visible progress in gender diversity.
Females now represent 20% of our
Senior Leadership Group, a level that we
consider is still too low, but which
represents a significant improvement as
compared with the level of 15% in 2019.
Our ambition remains to reach 25%
women in this tier by the end of 2025.
Copies of the Board Diversity Policy and
Group Policy on Diversity and Equality are
available to view on the Vesuvius website:
www.vesuvius.com. Further information
on the Group’s approach to promoting
diversity can be found on p112 and 113.
1.
Health, safety and
the environment
2.
Trading, customers products
and services
3.
Anti-bribery and corruption
4.
Employees and human rights
5.
Disclosure and investors
6.
Government, society and
local communities
7.
Conflict of interests
8.
Competitors
Eight key areas
77
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Employee engagement
Companies with highly engaged staff
deliver better business outcomes. They
have lower absenteeism, lower staff
turnover, fewer safety incidents, better
product quality, and higher productivity,
sales and profitability.
At Vesuvius, we regard engagement
as critical to our ongoing success and
we work hard to listen to our people and
act when issues impacting engagement
are identified.
Engagement is a collective responsibility,
particularly among our management
community. We conduct an annual
employee engagement survey to measure
our employees’ attitudes to Vesuvius and
their work. The survey generates reports of
team responses to the survey. Managers
then share the results openly with their
teams and, working together, develop
action plans to address issues.
The survey has been conducted since 2019
in partnership with Mercer. The results are
clustered in eight strategic categories and
benchmarked externally against global
and manufacturing industry results.
Employee engagement action plans
We focus action plans not on the pure
statistics, but on seeking to bring about
meaningful change in line with our
CORE Values of Courage, Ownership,
Respect and Energy. For example,
much of the action taken to date has
resulted in improved Employee Experience
and Safety.
In 2022, thanks to a tremendous effort
by local management, supported by an
effective communication campaign, we
again achieved a very high participation
level in our engagement survey with 92%
of all employees completing it, the same
level of participation as we achieved
in 2021.
Following improvements across six of the
eight categories of questions in 2021, the
overall engagement score increased by
2% in 2022, again showing an upward
trend in six out of the eight question
categories. For the fourth consecutive year,
safety remained our top strength with
employees confident in the Company’s
approach to safety. Other highlights
included increases in Employee
Experience, Senior Leaders Effectiveness
and Survey Follow-Up.
While there was an increase in the belief
that action plans from the 2021 survey
had a positive impact, it remains an area
for improvement.
Internal communications
We continue to develop our internal
communications programme, to ensure we
have a strong mix of channels to reach our
diverse population. The Chief Executive
regularly addresses the whole Group
via Company-wide email and video,
delivering strategic messages, and in 2022
he held 13 interactive virtual sessions with
the Senior Leadership Group to share
business updates. Company news and
announcements are regularly shared on
the Group intranet and staff news app,
whilst screen savers are used to support
major communication campaigns. We
also utilise posters and site ‘town hall’
meetings for on-site communications.
Whenever possible, face-to-face
communication is conducted at different
levels of the organisation providing the
necessary opportunities for interactive
Q&A sessions with business leaders.
Employee consultation and industrial relations
Vesuvius supports freedom of association
and the right to collective bargaining. In all
of the countries in which we operate, the
Group informs and consults local works
councils and trade unions on matters
concerning the Vesuvius business as
required. These processes and procedures
are regulated by local law and generate
constructive dialogue between employee
representatives and management, which
2022 Distribution of Vesuvius employees – full-time versus part-time
Full-time
employees
Full-time
employees
(%)
Part-time
employees
Part-time
employees
(%)
Permanent salaried
4,391
99%
48
1%
Permanent hourly
5,939
100%
12
0%
Total Permanent
10,330
99%
60
1%
Temporary salaried
86
97%
3
3%
Temporary hourly
649
99%
6
1%
Total Temporary
735
99%
9
1%
provides benefit to our business. In 2022,
73% of permanent employees were
represented by Collective Agreements
that include working conditions such as
local works councils, trade unions or
other bodies.
In addition to local employee
representation, the Group has, in the past,
operated a European Works Council
(EWC) containing representatives from
each of the EU countries in which Vesuvius
has employees. The existing EWC
Agreement terminated in 2020, following
notice given by management and the
departure of the UK from the European
Union. The Group continues to be
engaged in the process of negotiating the
agreement for the formation of a new
EWC with a Special Negotiating Body.
Career management
Talent management
The Group Executive Committee holds
direct responsibility for the roles and
development of our senior leaders, jointly
reviewing capability needs and deciding
on succession and cross-organisational
moves for the leadership group. This
illustrates the strong commitment at
the highest level of our organisation to
growing the Group using its Company-
wide resources.
We employ individuals with 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.
Leadership pipeline
Strengthening the leadership pipeline
and facilitating people development
throughout the organisation remain key
areas of focus for Vesuvius. We continue 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, and to develop a performance-
oriented culture.
People and Culture
continued
78
Vesuvius plc
Annual Report and Financial Statements 2022
We aim to adopt an ideal balance
between external hires and internal
promotion, fuelled by a strong process
of backup and succession planning,
especially for management positions.
In 2022, only 28% of middle and top
management vacancies were filled by
internal candidates, reflecting a period
of transformation and capability
building from external hires. In 2022,
the percentage of key leadership roles
reporting directly to members of the
Group Executive Committee with more
than three years of service was 42%.
Training and development
Our leaders take responsibility for
managing and developing their teams.
They are provided with access to a central
resource, offering expertise in Global
Rewards and Mobility, Talent and
Performance Management, Culture and
Learning, and supported by Group-wide
processes and information systems.
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 training programmes
to assist our employees to develop their
skills and progress their careers.
Our Learning Management System (LMS)
provides a global hub for Vesuvius online
training courses. Mandatory training
courses are automatically assigned to new
joiners and completion statistics are easily
reportable. Targeted training courses can
also be allocated to employees in specific
roles, e.g. Modern Slavery training for
specific people in purchasing.
Mentoring programme
In 2022, Vesuvius continued its mentoring
programme focused on leadership and
talent development. There are currently
49 mentees taking part in the 12-month
programme, of which 11 are women.
Mentees learn from the experience and
perspectives of a more senior person in
Vesuvius, creating an individual personal
development plan to enhance their
careers and leadership capabilities. The
programme ensures internal knowledge
transfer and builds a broader, deeper
and more ready talent pool.
Technical training
HeaTt training is 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 and delivery methods, 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. The first introductory module is
mandatory for all new employees and is
available on the LMS, allowing
participants to access learning at
anytime, anywhere.
Expert levels of HeaTt training are still
held face-to-face, as the course content is
not suitable for web-based training. In
2022, 650 employees completed the first
module online, four employees completed
the second module online and 87
employees completed face-to-face
HeaTt training sessions.
Compliance training
During the year, we continued to develop
our training programme. This is based 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
employee to respond to those risks.
The Board has set a target of at least 90%
of targeted staff completing the Anti-
Bribery and Corruption training annually.
4,917 employees, representing 99% of the
targeted staff and 44% of the total full-
and part-time employees, completed the
2022 Anti-Bribery and Corruption training.
Mandatory online training courses - 2022 Participation
Number of
employees trained
% of targeted
audience
completing course
Total training
hours
Anti-Bribery and Corruption
4,917
99%
2,163
Gifts, Hospitality and Entertainment
4,174
99%
2,074
Modern Slavery
127
100%
35
Anti-Tax Evasion
138
100%
40
Data Protection
1,297
100%
586
Cyber Security Awareness – 5 Basic Modules
1
1,155
73%
1,348
Cyber Security – USB Safety Training
415
92%
62
Cyber Security – Anti-phishing
464
88%
220
1. The Cyber Security Awareness training consists of five modules. 73% of employees allocated the training in 2022 have already completed all five modules.
79
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Our
performance
Sustainability
Governance
Financial
Statements
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 systems and processes
are designed to create a market-
competitive and rewarding 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. Our global job grading framework,
based on a structured, market-leading
evaluation 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 robust decision-making based
on long-term goals rather than short-term
gains and works to align the interests of
participants with those of shareholders.
In 2022, 98% of our salaried permanent
employees undertook an annual
performance review with their line
management. This compared with 93%
in 2021, 95% in 2020 and 92% in 2019.
Global mobility
Vesuvius operates 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.
International assignees do not come from
one or two countries alone. We have a truly
international mix of nationalities in our
mobile population. Individuals move not
only within a region, but also between
regions. Our mobility programme shows
that our assignee population is as diverse
as our Group.
Vesuvius operates international
assignment policies which support the
varying nature and circumstances of these
assignments – whether they be short-term,
longer-term or require extended
commuting. In addition, we do actively
support, where appropriate, localisation
of employees upon international
assignment and provide comprehensive
support to aid integration, settlement and
localisation in the new environment. These
policies are supplemented with clearly
identified benefits, delivering support
appropriate to the nature of the
assignment. We manage international
assignments with flexibility, catering for
changing expectations and demands
from employees, whilst at the same time
meeting the needs of the business.
Key rationale behind international assignments
Vesuvius considers individuals for
international assignment for three
primary reasons:
–
Providing Vesuvius companies with skills
that are not locally available and that are
required at short notice. This typically
occurs in countries where we are
establishing or developing our presence.
The number of assignees working on this
basis diminishes over time as the
organisation matures and we recruit
and train local talent to take over
–
Career development. We believe that the
personal development plan of any
employee being developed for a senior
management or senior expert position
should include a posting outside their
home country. This encourages them to
develop the skills necessary to function
successfully in an international
environment. These postings are tailored
to the needs of the organisation and the
needs of the individual
–
Enhancing diversity. Management
teams benefit from having a mix of
gender and cultures. In specific cases,
we use international assignments to
support this goal
People and Culture
continued
80
Vesuvius plc
Annual Report and Financial Statements 2022
Vesuvius is committed to making a
positive contribution to society. As part of
this, we focus on operating an ethical
business with appropriate policies in
place to ensure compliance with the
regulations and laws in all our markets.
Governance and policies
Vesuvius’ operating policies underpin the
principles set out in our Code of Conduct.
They are the practical representation of
our status as a good corporate citizen, and
they assist employees to understand and
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.
Human rights
The Group Human Rights and Labour
Policy reflects the principles contained
within the UN Universal Declaration of
Human Rights, the International Labour
Organisation’s Fundamental Conventions
on Labour Standards and the UN Global
Compact, to which the Group is a
signatory. 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. The
policy was reviewed and updated in 2023.
Prevention of slavery and human
awareness training on child labour,
slavery and/or human trafficking
During 2022, we published our seventh
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)
Following our modern slavery risk
assessment, we provided webinar training
to our key purchasing staff and we
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. Since the launch of the
Modern Slavery red flag training we have
trained 100% of the targeted staff.
See the Group’s Statement on the Prevention
of Slavery and Human Trafficking
www.vesuvius.com/en/sustainability/
our-policies/statement-on-modern
-slavery.html
A responsible company
81
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Our
performance
Sustainability
Governance
Financial
Statements
Our communities
We seek to establish strong relationships with key stakeholders
and support the communities in which we operate
Business ethics/anti-bribery
and corruption and working with
third parties
Vesuvius’ Code of Conduct affirms our
commitment to competing vigorously,
but honestly, and not seeking competitive
advantage through unlawful means.
We conduct ourselves ethically in all
public affairs activities, in alignment with
local laws and regulations. We do not
engage in unfair competition, exchange
commercially sensitive information with
competitors, or acquire information
regarding a competitor by inappropriate
means. When received for business
purposes, we safeguard third-party
confidential information and use it only
for the purpose for which it was provided.
We engage with various third-party
representatives and intermediaries in
our business. We recognise that they
can present an increased 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.
As part of our communication around
anti-bribery and ethics, employees are
actively encouraged to consult on ethical
issues. They have open access to the
Compliance Director and Legal function
who provide support on a regular basis.
During 2022, the Group continued the due
diligence review of our third-party
representatives and intermediaries.
Following the prior years’ enhanced review
of sales agents, custom clearance agents,
distributors and logistics providers, we
conducted repeat due diligence. We also
conducted due diligence on any new third
parties introduced into the organisation.
Our due diligence processes will continue
to be extended using a risk-based
approach during 2023 and beyond.
Our principles – a responsible company
continued
Name:
Gabriel Rodrigues Soares
Role:
Quality Inspector
Location:
Rio de Janeiro
82
Vesuvius plc
Annual Report and Financial Statements 2022
Vesuvius wants to make a positive
contribution to the communities in which
we work by supporting a wide variety of
fundraising and community-based
programmes around the world.
We prefer participation in events,
donations in kind to registered
not-for-profit organisations, and
participation in community programmes,
to cash donations. Our Anti-Bribery
and Corruption policy defines rules for
the proper handling of donations
and sponsorship.
Below are some examples of the many
community programmes and activities
our colleagues were involved in
throughout 2022.
In April 2022, Vesuvius Borken
presented a cheque for
€36,000 to Aktion Lichtblicke
e.V. (Action Rays of Hope
Association) to support their
work with people affected by
the war in Ukraine. When the
conflict in Ukraine started
and the first donations were
received from the workforce,
the works council developed
the ’Plus 5-Initiative’ where
improvement suggestions
made by colleagues
generated a company
donation of €5 per suggestion.
This raised €18,000, which
management then doubled.
In 2022, colleagues in Poland
continued their support for
Ukrainian refugees with a number
of initiatives, including purchasing
a range of educational materials
and toys for Ukrainian children
attending a primary school
in Skawina.
Vesuvius India is keen to encourage
girls and women to participate in
STEM (Science, Technology,
Engineering and Mathematics)
careers. It organised for a
group of local residents to
visit its Kolkata site to help them
envisage a technical career.
This was part of an ongoing
#EducatetheGirlChild project.
As part of a partnership with the
volunteer association in Suzhou
Industrial Park, Vesuvius China
organised a community project
named ‘Caring for the Heart’.
The project promotes CPR training
and family first aid activities.
It popularises the concept of ‘caring
for your heart’ and ‘caring for your
family’ and improves people’s
awareness of heart disease and
their ability to deal with emergencies.
Every year, Vesuvius Ghlin
sponsors an award for the
best postgraduate work in
mechatronics at the Polytechnic
Faculty of Mons. The 2022 award
was given to a student for his
work on the ‘Instrumentation
of a manipulator robot for
control by the vision system’.
Colleagues from our Foundry
Tamworth site took part in a
triathlon to raise funds for
the Child Growth Foundation,
a charity which supports children,
adults and families affected by
growth conditions.
India
Poland
United Kingdom
Germany
China
Belgium
Community engagement
83
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Vesuvius recognises the crucial role that
its suppliers play in creating value in the
products and services that Vesuvius
ultimately provides to its customers.
In addition to the consistent and timely
supply of materials, products, and
services which are of the highest quality,
we expect our suppliers to operate in a
manner that is appropriate, in terms of
their ethical, legal, environmental and
social responsibilities.
Principles
Overall, our objective is to encourage
suppliers to implement a meaningful
sustainability programme, embrace the
UN Global Compact principles, evaluate
and reduce our upstream CO
2
emissions
and identify potential risks (and if
necessary, address them) in our supply
chain. The satisfaction of our customers’
requirements, the safety and reliability of
Vesuvius’ products, and the efficiency of
Vesuvius’ internal processes are dependent
on the reliability of its network of suppliers.
Vesuvius is committed to ensuring that we
utilise high-quality raw materials, secured
through reliable and well-developed raw
material suppliers. The principles of
sustainable procurement are prescribed
within the Vesuvius Sustainable
Procurement Policy and supported by
supplementary processes.
Sustainable Procurement Policy
We operate a Sustainability Procurement
Policy which outlines key criteria for
suppliers. The policy uses the Group
Procurement’s ‘Request for Quotation’
(RFQ) process to engage a significant
number of Vesuvius suppliers and is
provided in conjunction with the Vesuvius
Terms and Conditions of Purchase.
For suppliers to participate in the RFQ,
they are obliged to accept and agree to
the terms of the Sustainability
Procurement Policy, as it forms an
addendum to Vesuvius’ standard contract
clauses. This policy is available on the
Vesuvius website.
The policy applies to all suppliers of
goods and/or services either used in our
manufacturing processes and/or sold
directly by us to customers, including
Tolling and Resale suppliers. It applies
to suppliers, their agents and their
sub-contractors. Once accepted, it is the
responsibility of the supplier to verify and
monitor compliance against this policy –
both for their operations and those of any
sub-contractors. Compliance with the
requirements in the policy is a key
consideration in the selection of suppliers.
The major elements of the Sustainability
Procurement Policy are:
–
Employees and human rights
–
Ethical and compliant business practices
–
Environment
–
Quality
–
Business continuity
–
Documentation and Verification
encompassing Supplier due diligence
and Supplier assessments
Since its launch in 2021, 181 suppliers
(51% of the targeted group participating in
the RFQ process) representing a spend of
£213m, have already formally agreed to
comply with the policy.
Responsible sourcing
Supplier sustainability assessment criteria
Environment
Energy Consumption & GHGs
Water
Biodiversity
Local & Accidental Pollution
Materials, Chemicals & Waste
Product Use
Product End-of-Life
Customer Health & Safety
Environmental Services &
Advocacy
Labour and Human Rights
Employee Health & Safety
Working Conditions
Social Dialogue
Career Management &
Training
Child Labour, Forced Labour &
Human Trafficking
Diversity, Discrimination &
Harassment
External Stakeholder
Human Rights
Ethics
Corruption
Anti-competitive Practices
Responsible Information
Management
Sustainable Procurement
Supplier Environmental
Practices
Supplier Social Practices
21 criteria based on international standards
84
Vesuvius plc
Annual Report and Financial Statements 2022
Supplier sustainability assessments
As part of our sustainability agenda,
Vesuvius has implemented a Supplier
Sustainability Assessment programme,
setting targets for the proportion of the
total raw material spend value covered by
the assessment. The topic boundary
extends to all suppliers of goods either
used in our manufacturing processes
and/or sold directly by us to customers,
including Resale suppliers.
Vesuvius has partnered with an
independent third-party service provider
– EcoVadis – to rate our raw materials
suppliers using a detailed set of criteria.
These cover four themes and 21 criteria
based on international standards: Labour
and Human Rights; Ethics; Environment;
and Sustainable Procurement.
Group procurement and regional
procurement teams are heavily involved
in the programme. In 2022, 23 (2021: 94)
(Total to date: 118) employees from these
teams have received specific training on
supplier sustainability assessments
(100% of the target group).
In 2019, the Board approved a target to
assess at least 50% of our raw material
spend by the end of 2023. Various criteria
were chosen to select participating
suppliers such as supplier size and risk
metrics, including:
–
Category of raw material
–
Availability of alternative sources
–
Share of supplier revenue with Vesuvius
–
Grades in previous assessments
–
New suppliers
–
Supply chain incidents
Since its launch, 230 suppliers have joined
the programme, representing a spend
value of £280m, being approx. 14%
of the Group’s raw material suppliers,
representing 48% of the Group’s raw
material spend, and 33% of the Group’s
spend on goods used in our manufacturing
processes and/or sold directly by us
to customers.
Of the rated suppliers, 13% did not
meet the minimum score defined by
Vesuvius and were asked to implement
improvement actions within a three-year
timeline. Routine reviews and an annual
reassessment will enable progress to
be measured.
Supplier CSR and Quality audits
Vesuvius conducts an annual Supplier
Audit programme targeting their
Corporate Social Responsibility (CSR)
practices, product quality and security
of supply. The programme is led by the
Group’s Purchasing and Quality teams,
located across all regions. The goal of the
audits is to verify that our suppliers abide
by fundamental principles regarding the
environment and social practices, and
reduce the number of quality issues that
may affect our raw materials, and
consequently our operations and those
of our customers.
As part of this, we carry out on-site
inspections, share expectations with our
suppliers, identify risks, and adapt our
internal controls accordingly. We
encourage our suppliers to improve their
own processes and help them prioritise
actions to achieve this. Commencing in
2022, a number of ‘red flag’ items have
been included in our on-site verification
questionnaire, especially addressing
human rights issues, such as child or forced
labour, for which immediate escalation
and investigation is required in case any
breach is detected.
In 2022, 139 (2021: 138) audits were
conducted (100% on-site) at 136
(plus 3 follow up) supplier facilities
(2021: 138, 13 follow up), representing
79.4% of targeted suppliers. No cases of
human rights breaches were detected as
part of the supplier audit programme.
One supplier received grades below
threshold. Where suppliers fail to meet
the required standards, action is taken
either to support them to improve or our
relationship with them is terminated.
Areas of focus include:
Quality management rules:
Final inspection, controls at important
process steps, management of incoming
materials, data tracking, customer
feedback and communication.
Management of non-conformities:
Reaction to non-conformities, protection
of customer, problem resolution and
application of lessons learned.
Sustainability criteria:
This aligns the supplier audits as a second
platform to drive and visibly verify supplier
sustainability efforts and programmes,
complementing the assessments carried
out by our third-party partner.
The Strategic Report set out on pages 1-85 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 2022 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 2 March 2023 and signed on its behalf by
Patrick André
Chief Executive
85
Our business
Our
performance
Sustainability
Governance
Financial
Statements
86
Vesuvius plc
Annual Report and Financial Statements 2022
Governance
88
Board of Directors
90
Group Executive Committee
91
Corporate Governance
Statement
91
Chairman’s governance letter
92
Board Report
101
Audit Committee
110
Nomination Committee
116
Directors’ Remuneration Report
116
Remuneration overview
124
2023 Remuneration Policy
132
Annual Report on
Directors’ Remuneration
144
Directors’ Report
150
Statement of Directors’ Responsibilities
151
Independent Auditors’ Report
Name:
Melany Serrato
Role:
Quality Engineer
Location:
Monterrey
Name:
Jennifer Metoyer Wiese
Role:
Human Resources
Location:
Cleveland
Our business
Our
performance
Sustainability
Governance
Financial
Statements
87
We’re making production processes
safer with our robotic solutions
Our products deliver superior safety performance in hazardous
areas of production. Our robotic solutions can replace operators
in the most dangerous parts of our customers’ processes.
87
Our business
Our performance
Sustainability
Governance
Financial Statements
Name:
Phil Prelosky
Role:
Research Technician
Location:
Pittsburgh
Carl-Peter Forster
Chairman
Appointed to the Board 1 November 2022,
assumed the role of Chairman on
1 December 2022
Four months on the Board
–
Extensive Board experience as Chairman
and Chief Executive within international
listed companies
–
Proven strategic and operational skills
gained in complex multinational industrial
goods and engineering businesses
–
Global commercial and engineering
experience, including expertise in operational
excellence and lean manufacturing
Current external appointments
Carl-Peter is Chairman of Chemring Group plc
and Senior Independent Director at Babcock
International Group plc. He is also Chairman of
StoreDot, Director of The Mobility House AG,
LeddarTech, Inc, Gordon Murray Group Ltd,
Envisics Ltd, Lead Equities Fund Management
Gmbh and associated companies and serves
as a Director on the advisory board of
Kinexon GmbH.
Career experience
Carl-Peter has spent the majority of his career
holding senior leadership positions in some of
the world’s largest automotive manufacturers,
including BMW, General Motors and Tata
Motors (including Jaguar Land Rover). Since
he stepped down from Tata Motors in 2011,
he has served as a director on a wide variety
of public and private company boards, including
IMI plc from 2012-2021, Rexam plc from
2014-2016 and Geely Automotive Holdings,
Hong Kong, as well as Volvo Cars Group from
2013-2019. Until recently he also served as Chair
of the Shareholder Committee of Hella KGaA,
the German automotive supplier.
Patrick André
Chief Executive
Appointed to the Board 1 September 2017
Five years on the Board
–
Global career serving the steel industry
–
Strong background in strategic development
and implementation
–
Customer focus and proven record of
delivery, with strong commercial acumen
–
Drive and energy in promoting his
strategic vision
Current external appointments
None.
Career experience
Patrick joined the Group as President of the
Vesuvius Flow Control Business Unit in 2016,
until his appointment as Chief Executive in
September 2017.
Before joining the Group, Patrick 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.
N
A
N
R
Douglas Hurt
Senior Independent Director (SID)
Appointed to the Board 2 April 2015
Seven years on the Board
–
Qualified Chartered Accountant, with recent
and relevant financial experience
–
Highly knowledgeable in operational and
corporate financial matters, with significant
US and European experience
–
Proven management and leadership skills
Current external appointments
Non-executive Director and Chair of the
Audit Committees of Hikma Pharmaceuticals
PLC and the British Standards Institution.
Career experience
Douglas was Finance Director of IMI plc,
a UK listed company, until 2015. He spent
23 years at GlaxoSmithKline plc where he
held senior finance and general management
positions. Douglas served as SID and Chair of
the Audit Committees of Tate & Lyle plc and
Countryside Partnerships PLC until 2019 and
July 2022 respectively, and he also served as
Chairman of Countryside Partnerships PLC
from July to November 2022 when it merged
with Vistry Group.
Changes to the Board during the year
The Directors named were in office during
the year and up to the date of this Annual
Report, with the exception of:
–
Carl-Peter Forster who was appointed to the
Board on 1 November 2022, and assumed
the role of Chairman on 1 December 2022
–
Carla Bailo who joined the Board on
1 February 2023
–
Guy Young who served as Chief Financial
Officer from 1 November 2015 until he left
the Group on 17 February 2023
In addition, John McDonough stepped
down as Chairman and as a Director of
the Company on 1 December 2022.
Richard Sykes (formerly Group Vice
President, Business Development) currently
serves as Interim Chief Financial Officer,
but is not a Director of Vesuvius plc.
Mr Mark Collis, currently Chief Financial
Officer of the Operations business of John
Wood Group PLC, will join the Board as
an Executive Director and Chief Financial
Officer at the latest on 4 July 2023.
Mark has over 20 years of senior financial
experience in a number of international
businesses including Amec Foster Wheeler
plc and Expro International Group.
Mr Collis is a Chartered Accountant
qualified with the ICAEW.
Guy Young
Chief Financial Officer
Served on the Board from 1 November 2015 to
17 February 2023
Career experience
Guy qualified with the South African Institute of
Chartered Accountants. He 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.
88
Vesuvius plc
Annual Report and Financial Statements 2022
Board of Directors
Friederike Helfer
Non-executive Director
Appointed to the Board 4 December 2019
Three years on the Board
–
An experienced strategist, with strong
analytic capability
–
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.
*
Career experience
Friederike is a Partner of Cevian Capital.
She joined Cevian in 2008 and served as a
Non-executive Director on the boards of
thyssenkrupp AG from 2020 to 2023 and
Valmet Oyj from 2013 to 2017. These are
both companies in which Cevian was also
invested. Prior to joining Cevian, Friederike
worked at McKinsey & Company. She is a
CFA Charterholder.
N
Kath Durrant
Non-executive Independent Director
Appointed to the Board 1 December 2020
Two years on the Board
–
30 years’ experience of people management
–
Strong operational and strategic track record,
gained working at a number of large global
manufacturing companies
–
Experienced UK governance professional
Current external appointments
Non-executive Director and Chair of the
Remuneration Committee of SIG plc, and a
Non-executive Director of Essentra plc.
Career experience
Kath held various operational and specialist HR
roles at GlaxoSmithKline plc and AstraZeneca
plc, and was Group HR Director of Rolls-Royce
plc. She was most recently Group HR Director of
Ferguson plc and Chief HR Officer of CRH plc.
Kath served as a Non-executive Director and
Chair of the Remuneration Committee of
Renishaw plc from 2015 to 2018 and as a
Non-executive Director and Chair of the
Remuneration Committee of Calisen plc
from 2020 to 2021.
A
N
R
Dinggui Gao
Non-executive Independent Director
Appointed to the Board 1 April 2021
One year on the Board
–
Strong operational experience
driving performance at a range of
multinational companies
–
Proven track record of leadership and
international commercial experience
–
Strong focus on technology and in-depth
knowledge of Asian markets
Current external appointments
Non-executive Director Intramco Europe
B.V and Operating Partner CITIC Capital
Holdings Ltd.
Career experience
Dinggui has nearly 40 years of operational
experience having worked in a range of
multinational companies including Bosch,
Honeywell, Eagle Ottawa and Sandvik AB.
He latterly served as Managing Director, China
of Formel D Group, the German global service
provider to the automotive and components
supply industry, joining the company in 2017
and stepping down at the end of October 2021.
A
N
R
Key to Board Committee membership
A
Audit Committee
N
Nomination Committee
R
Remuneration Committee
Committee Chair
Engagement with the workforce
E
Jane Hinkley serves as the designated
Non-executive Director responsible
for overseeing engagement with
the workforce.
*
Cevian Capital is a shareholder of Vesuvius plc
and, at 2 March 2023, held 21.11% of Vesuvius’
issued share capital.
Jane Hinkley
Non-executive Independent Director
Appointed to the Board 3 December 2012
Ten years on the Board
–
Proven track record of managing complex
global trading businesses
–
Qualified Chartered Accountant, with
significant financial and operational
experience in large multinational companies
–
Leadership and global management skills
Current external appointments
None.
Career experience
Jane is a Chartered Accountant and was
Managing Director of Navion Shipping AS for
three years until 2001. Prior to this, she spent her
executive career as Chief Financial Officer and
Managing Director of Gotaas-Larsen Shipping
Corporation. She was previously Chairman of
Teekay GP LLC, a Non-executive Director and
Chairman of the Remuneration Committee of
Premier Oil plc, and a Non-executive Director
of Revus Energy ASA.
A
N
R
E
Carla Bailo
Non-executive Independent Director
Appointed to the Board 1 February 2023
One month on the Board
–
Strong engineering and product
management experience
–
Research and development background
gained during >40 years working in the
automotive industry
–
International experience and extensive
knowledge of US markets
Current external appointments
Non-executive Director of EVe Mobility
Acquisition Corp., Advance Auto Parts, Inc.
and SM Energy Company.
Career experience
Carla spent the past five years serving as
President and CEO of the Center for Automotive
Research (CAR) in the USA, a position she
stepped down from at the end of September
2022. Prior to joining CAR, Carla was Assistant
Vice President for Mobility Research and
Business Development at The Ohio State
University. She spent 25 years working at the
Nissan Motor Company where she served in a
variety of senior management and engineering
roles, culminating as Senior Vice President,
Research and Development, Americas and Total
Customer Satisfaction. Carla also spent ten
years earlier in her career with General Motors.
A
N
R
89
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Group Executive Committee
Patrick André
Chief Executive
Seven years with the Group
For biographical details, please see
the Board of Directors on page 88.
Agnieszka Tomczak
Chief HR Officer
Four years with the Group
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
AkzoNobel, in regional and
global HR roles.
Agnieszka is based in London, UK.
Henry Knowles
General Counsel and
Company Secretary
Nine years with the Group
Appointed as General Counsel and
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
US where he held the roles of
General Counsel and Company
Secretary. Henry is also responsible
for the Group’s Intellectual
Property function.
Henry is based in London, UK.
Pascal Genest
President, Flow Control
Two years with the Group
Appointed President, Flow Control
in January 2021. Pascal joined the
Group from GFG Alliance where he
held the position of CEO Liberty
Ostrava in the Czech Republic.
Prior to this he was CEO of SULB
in Bahrain. Pascal has more than
15 years’ experience working in
the steel industry, mainly with
ArcelorMittal. He has also worked
in consulting, in private equity and
in the aluminium industry.
Pascal is based in London, UK.
Karena Cancilleri
President, Foundry
Three years with the Group
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 breadth of
managerial experience spanning
various international leadership
roles in companies such as
FiberVisions, Kraton Corporation
and Shell.
Karena is based in London, UK.
Changes to the Group Executive
Committee (GEC)
Thiago Avelar, President, Advanced
Refractories served on the GEC until he
left the Group on 8 December 2022.
Patrick Bikard, President Operations and
Technology served on the GEC until he retired
from the Group on 31 December 2022.
Guy Young, Chief Financial Officer also
served on the GEC until he left the Group
on 17 February 2023.
Mark Collis will join the Group Executive
Committee on his appointment as CFO.
90
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Annual Report and Financial Statements 2022
Dear Shareholder,
On behalf of the Board, I am delighted to present my first
Corporate Governance Statement. This Statement provides
investors and other stakeholders with an insight into the
governance activities of the Board and its Committees during
the year. It describes how the Group has complied with the
Principles of the UK Corporate Governance Code during 2022,
except where we considered it clearer for us to describe the
application of a Principle elsewhere in this Annual Report.
The table on page 92 signposts where detailed information on
each section of the Code (and associated Principles) can be
found. The Board of Vesuvius plc is committed to maintaining
high standards of governance and to continuous improvement
to reflect ongoing best practice.
During 2022, the Board oversaw the continued progression of
the Group’s strategy, approving the acquisition of the Group’s
long-term tolling partner, Bayuquan Magnesium Co, as well as
significant new investments in plant capacity. Following the launch
of hostilities in Ukraine, the Board monitored the safety of the
Group’s employees in the region and determined the Group’s
approach to the continuance of trade with non-sanctioned
Russian customers. In addition, as the global macroeconomic
environment deteriorated, the Board monitored the impact on
the business of rising energy and raw material prices, as well as
other inflationary items.
During the year the Nomination Committee oversaw the
recruitment of three new Directors, with the Board not only
appointing me as Chairman but also Carla Bailo as a new
Non-executive Director with effect from 1 February 2023 and
securing the services of Mark Collis as our new CFO, who will join
by 4 July 2023 at the latest. In addition the Nomination Committee
was updated on the progress of filling vacancies at the Executive
Committee and senior management level, and was also kept
apprised of the recruitment and development of additional
talent in our Business Units to strengthen the pipeline of talented
individuals to fill leadership positions going forward.
The Remuneration Committee, alongside its regular duties, spent
a considerable amount of time discussing proposals for the 2023
Remuneration Policy, to be tabled at the forthcoming AGM.
Following the changes made to the incentive structure in 2022,
the Remuneration Committee concluded that no further material
changes were required this year, but some changes to the
quantum of remuneration were necessary in respect of the
Chief Executive. These were the subject of consultation with our
top shareholders. More details about the proposed changes and
the other work undertaken by the Committee in 2022 can be
found in the Directors’ Remuneration Report.
The Audit Committee continued to carefully monitor the Group’s
financial situation during the year, in light of the challenging
macroeconomic environment. In conjunction with its usual
responsibilities, it paid particular heed to the impact of the conflict
in Ukraine on the Group’s activities and controls, assessing the
impact of events on Russia and Ukraine themselves, and the wider
repercussions of increases in energy and raw material pricing. In
addition, the Committee continued to focus on the development
of the Group’s cyber security measures, as well as receiving
regular updates on the implementation of changes to the
Group’s Finance Operating Model.
The Board’s formal evaluation process for 2022 was externally
facilitated by the corporate advisory firm, Lintstock. Overall, the
Board was considered to operate effectively with appropriate
engagement and challenge from all Directors. The balance of the
topics submitted to the Board for discussion was the subject of
some debate and this is an area I intend to review further in 2023,
to ensure that the Board’s time is devoted to matters that add
maximum value to the business. The evaluation highlighted a
number of ongoing Board priorities, including its continued focus
on strategic execution, the scope to improve the process for the
Board’s engagement with the workforce, and ensuring that we
continue work to ensure there are robust succession plans for
Executive Director and GEC roles, with wider talent development
fully aligned to the strategic requirements of the business.
The Board is progressing these in 2023.
Yours sincerely
Carl-Peter Forster
Chairman
2 March 2023
In this section
Board leadership and Company purpose on
p93
Division of responsibilities on
p96
Audit Committee report on
p101
Nomination Committee report on
p110
Directors’ Remuneration Report on
p116
Also see:
Group’s statement of purpose on
p1
Strategic Report on
p1–85
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Financial
Statements
Corporate Governance Statement
Corporate Governance Statement
continued
Board Report
2018 UK Corporate Governance Code – information availability
Board
leadership
and Company
purpose
The Corporate Governance statement (CG Statement) on pages 91–143 gives information on the
Group’s compliance with the Principles relating to the Board’s leadership and Company purpose.
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 18 and 19, 20 and 21, and 36 and 37, respectively
–
The Group’s engagement with stakeholders and the Group’s Section 172(1) Statement is contained in
the Section 172(1) Statement and stakeholder engagement section on pages 22–26
–
The Group’s approach to workforce matters can be found in the Our people section on pages 74–80,
with further details of the Group’s approach to employee involvement and engagement contained in the
Section 172(1) Statement on page 24
Details of the Group’s framework of controls is contained in the Audit Committee report on pages 104–106
of the CG Statement and in the Risk, viability and going concern section on pages 29 and 30.
Division of
responsibilities
The CG Statement describes the structure and operation of the Board. The Nomination Committee report,
on pages 114 and 115, 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.
Composition,
succession
and evaluation
Details of the skills, experience and knowledge of the existing Board members can be found in the Board
biographies contained on pages 88 and 89. Information on the Board’s appointment process and approach
to succession planning and Board evaluation is contained in the Nomination Committee report on pages
110-115 of the CG Statement.
Audit, risk
and internal
control
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 101–109 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 Strategic Review on pages 27–33. The Board believes the 2022 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 page 104.
Remuneration
The Company’s approach to investing in and rewarding its workforce is described in the Our people section
on pages 74-80. 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. It also includes information about the
Remuneration Consultants appointed by the Remuneration Committee. Details of the linkage of the
Directors’ Remuneration Policy with long-term strategy is contained on page 119 and also highlighted
on pages 36 and 37 in the section on Key Performance Indicators.
The aforementioned sections are incorporated into the Corporate Governance Report by reference.
92
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Annual Report and Financial Statements 2022
Board leadership and Company purpose
The Board is responsible for leading the Group in an efficient
and entrepreneurial manner, establishing the Group’s purpose,
values and strategy, and satisfying itself that these and the
Group’s culture are aligned. It focuses primarily on 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’ purpose is to be a global leader in molten metal
flow engineering and technology, servicing process industries
operating in challenging high-temperature conditions. We think
beyond the status quo to create the innovative solutions that will
shape the future for our customers, wider stakeholders and
business. We help our customers make their industrial processes
safer, more efficient and sustainable. The Group aims to deliver
sustainable, profitable growth, providing 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 Strategic Objectives for achieving
long-term sustainable success. It is currently pursuing five
shorter-term key execution priorities, which encapsulate the
Group’s immediate aims, including its strategic focus on
sustainability. Further information on these can be found on
pages 18 and 19. The Board regularly 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 controls to enable
risk to be assessed and managed, and further information on
this can be found in the Audit, risk and internal control section on
page 100 of this Board Report.
Sustainability
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. Our Sustainability strategy
supports the Group’s key Strategic Objectives which are focused
on creating a better tomorrow in a profitable and sustainable
way. To drive change throughout the Group, the Board has set
specific targets focused on ways in which the Group can improve
its impact on our planet, our communities, our people and our
customers. The Board monitors these and oversees the work of
the Sustainability Council in spearheading new activities to
enhance our performance. Further information can be found
in the Sustainability section on pages 50–85.
Culture
The Board takes seriously its responsibility for shaping and
monitoring the corporate culture of the Group. The Group’s
CORE Values – Courage, Ownership, Respect and Energy –
define our behaviours across the business and are the practical
representation of the culture we seek to foster, aligning with
the Company’s purpose and strategy, and supporting our
governance and control processes. These Values are prominently
displayed at all sites. Our CORE Values are reinforced in our
performance management systems, which ensures that they
are firmly embedded in our day-to-day conversations and
behaviours. Further detail can be found on page 76.
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 ethical behaviour and compliance
with the law. It also 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.
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 116-143, the Group’s approach to
diversity in the Nomination Committee report on pages 112-113,
and the Group’s approach to HR matters in the Our people
section on pages 74–80. Information on the Group’s Speak Up
confidential employee concern helpline is set out overleaf.
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Statements
Corporate Governance Statement
continued
Whistleblowing policy
Speak Up
All Vesuvius employees can speak up without
fear of retaliation, either to Vesuvius
management or via independent channels.
We have implemented a Speak Up policy,
under the responsibility of our Board, which is
included in our Code of Conduct. Details of it
are provided on the internal Vesuvius website,
and communicated by local language posters
in all our locations. A third-party operated
confidential Speak Up helpline is available
365 days per year, 24 hours per day, to anyone
wishing to raise concerns anonymously or in
situations where they feel unable to report
directly. Details of the helpline can also
be found on the Vesuvius website. This
independent facility supports online reporting
through a web portal and reporting by phone
or by voicemail. Ensuring global accessibility,
employees can speak with operators in any
of our 29 functional languages.
All reports received are reviewed and, where
appropriate, investigated and feedback is
provided to the reporter via the helpline portal.
Vesuvius’ Speak Up helpline is highlighted
during internal compliance training and new
joiner inductions. 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 considered in line with a protocol
for review, investigation, action, closure and
feedback, independent of management lines
where necessary, and 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.
The Group monitors 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 2022, the Board 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. Further
details on specific issues were provided where
requested. In 2022, the Group received 141
reports (2021: 93) through the Speak Up facility
and 38 walk-in reports (2021: 94). Each one of
these was reviewed and, where appropriate,
investigated. Similar to 2021, a substantial
majority of these reports related to HR issues
which indicated no compliance concerns, nor
serious breaches of the Code of Conduct.
Of the small number of reports received that
contained allegations of a breach of our Code
of Conduct, thorough investigations were
performed and, where appropriate,
disciplinary action was taken.
During the year, the Board’s assessment of the Group’s culture
focused on the Group’s:
(1) Adherence to the CORE Values –
The Board focused on
ensuring that there was a consistent culture across the Group,
underpinned by the CORE Values. During their 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 as part of their feedback. During the
year, nominations were once again sought for the Group’s
peer-nominated Living The Values Awards. The Board was
delighted that there were almost 1,600 nominations, showcasing
examples of individuals and teams going the ‘extra mile’ to live
the CORE Values. Members of the Group Executive Committee
presented both regional and global awards as part of the process
of recognising those individuals who exemplify our values.
This year, the global award presentation was held online to
allow all employees to join. The strength of the Group’s
commitment to its Values was evidenced by the activities
undertaken in the Group during the year to support our
Ukrainian colleagues and their families, and by the energy
that was applied throughout the business to the pursuit of
new and innovative business approaches.
(2) Commitment to safety
– At each meeting during the year,
the Board received an update on issues affecting the global
health and well-being of the Group’s employees. Following the
tragic fatality in China, the Board was kept fully apprised of the
investigations into its cause and the mitigating actions being
taken. As a matter of course the Board receives regular updates
on the Group’s performance against safety targets, and discusses
all Lost Time Incidents and the follow-up action taken. In addition,
the Board receives biannual reports on the progress of the Group’s
safety programmes. The Directors used individual site visits to
assess each site’s commitment to safety, and the Executive
Directors and Group Executive Committee members’ long-term
incentives include a safety target alongside other sustainability
measures. A core tenet of the Group’s Sustainability Initiative is a
focus on ensuring the Group affords a safe working environment
for all its employees. The Board has set a challenging Group
safety target of fewer than one lost time injury per million hours
worked. This equates to an average of less than two lost time
work-related injuries or illnesses per month.
(3) Entrepreneurship
– As part of the Board’s rolling agenda,
the Board received reports from each of the Business Unit
Presidents on their business’ strategy, new commercial initiatives
and future technology trends. These were complemented by a
presentation from the President, Operations and Technology on
R&D activities throughout the Group, including the processing of
new product launches. The Nomination Committee focused on
the development and retention of key talent across the Group to
execute the Group strategy, and the Board also received reports
on the key commercial achievements across the Business Units as
part of regular reporting from the Chief Executive.
(4) Transparency
– With the lifting of COVID-19 travel restrictions,
the Board was once again able to undertake individual and
collective site visits to meet employees face-to-face in 2022.
The engagement and openness of the employees the Board
met, both in person and virtually over the course of the year,
was assessed in terms of the Group’s culture. These first-hand
reviews were supported by the Directors’ review of the output
of the Group’s Speak Up processes. In addition, 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 Chief Executive undertook a range
of customer visits in 2022, meeting face-to-face with key
customers to discuss business challenges and future prospects.
The Board received detailed briefings on the Group’s key
customers, their concentration, diversity and core challenges,
alongside information on the state of the Group’s markets.
The Board also received regular updates on quality performance.
94
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Annual Report and Financial Statements 2022
These were supported by a full annual presentation on the
Group’s ongoing initiatives on quality and information provided
at each Board meeting on specific quality issues. At each Board
meeting, the Board also considered the state of the Group’s
markets and the associated customer developments.
(6) Diversity and respect for local cultures
– During 2022,
the Board, through the work of the Nomination Committee,
considered the Board’s diversity as part of the Director
recruitment exercises and monitored progress with the
achievement of the Group’s gender diversity target which
seeks to have 25% female representation in the Senior Leadership
Group, which comprises c.160 individuals, by 2025. The Board
also reviewed the results of the employee engagement survey
and subsequent management actions to support its
diversity initiatives.
Following the easing of COVID-19 travel restrictions during
2022, the Directors were once again able to undertake a
programme of individual site visits. An off-site Board meeting was
held in India, with visits conducted to Foseco India Ltd’s site in Pune
and Vesuvius India Ltd’s operation in Visakhapatnam. In addition,
the Non-executive Directors visited sites in Toyokawa in Japan,
Rio de Janeiro in Brazil, Monterrey in Mexico, Enschede in the
Netherlands, Skawina in Poland, Borken in Germany and Ghlin in
Belgium. The visits provided the Board with greater clarity on local
organisation and management, along with providing updates on
business performance. During the visits the Directors were able to
interact with a cross-section of employees, from various functions
and organisational levels. As part of some of these site visits a
‘town hall’ meeting was held, providing the Non-executive
Directors with the opportunity to engage with the workforce to
explain the function of the Board and also to explain how
executive remuneration aligns with wider Company pay policies.
A number of other informal interactions with staff were also
conducted. These meetings gave the Non-executive Directors
the opportunity to hear the views of employees and answer their
questions about the Company. The Directors engaged in
first-hand discussions on culture and purpose, providing direct
feedback to the Board on their perceptions of each site and
potential areas for improvement, alongside highlighting
examples of best practice that could be shared more widely.
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, whilst also having regard to a range of other key
stakeholders. In performance of its duties throughout the year,
the Board has had regard to these duties and remained cognisant
of the potential impact on these stakeholders of the Group’s
activities. The effects of the war in Ukraine and the wider
economic impact, had repercussions for all the Group’s
stakeholders, and the Board remained cognisant of this
throughout 2022. Details of the Board and the Company’s
engagement with stakeholders during the year can be found
in the Section 172(1) Statement on pages 22–26.
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, but the
Chairman also meets with shareholders, and all the Directors are
available to meet shareholders on request. The Group appointed
a new Investor Relations Manager during the year who is also
available to support investors and acts as an extra point of
contact in the Company. In advance of the AGM in May, the
Chairman contacted the Group’s largest shareholders informing
them of the publication of the 2021 Annual Report and the 2022
AGM Notice, and offering to meet with them to discuss any
matters of concern. Several shareholders acknowledged receipt
of the email, but none requested any further follow-up.
With regard to remuneration matters, early in 2022 the Chair of
the Remuneration Committee wrote to our largest shareholders
and key governance agencies, to provide additional detail on
the Group’s executive remuneration proposals for 2022 and invite
further engagement. Responses were received from the majority
of shareholders and governance agencies, and further
information provided as requested. As a result of this dialogue,
the Remuneration Committee concluded that the proposals
were well supported and proceeded to implement them. Towards
the end of the year the Chair of the Remuneration Committee
contacted these shareholders and governance agencies once
again, to invite their feedback on proposals to table minor
amendments to the Company’s Remuneration Policy at the
2023 AGM, and to make changes to the Chief Executive’s
remuneration. Again, responses were received from the majority
of shareholders and governance agencies, with extensive further
dialogue and a number of meetings held to discuss the proposals.
The Remuneration Committee will proceed to table the new
Policy at the forthcoming AGM. Further detail is contained in the
Directors’ Remuneration Report on pages 116-121.
Statement on compliance with the UK Corporate
Governance Code
Save as set out for Provisions 19 and 38 below, the Company
applied the Principles of the 2018 UK Corporate Governance
Code (the ‘Code’), and was fully compliant with its Provisions,
throughout the year ended 31 December 2022. 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.
Provision 19:
John McDonough CBE completed nine years’
service as Chairman of the Board on 31 October 2021. The
Company commenced a search for a new Chairman in 2021
and the process, which took longer than anticipated, was
completed in April 2022. In order to allow Carl-Peter Forster to
step down from certain external commitments in advance of his
appointment at Vesuvius, he joined the Board on 1 November
2022. He subsequently took over from John McDonough as
Chairman on 1 December 2022, at which point Mr McDonough
left the Board.
Provision 38:
The Company has now implemented plans to
align the level of pension allowance for Executive Directors with
that applicable to the majority of the workforce. Since 2020,
our incumbent Executive Directors’ pension contributions were
frozen at the 1 January 2020 amount and reduced to 17% at the
end of 2022, being the level of the majority of the workforce.
Further details can be found on page 125.
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Statements
Division of responsibilities
The Board currently comprises eight Directors – the Non-
executive Chairman, Carl-Peter Forster; the Chief Executive,
Patrick André; and six Non-executive Directors, Carla Bailo,
Kath Durrant, Dinggui Gao, Friederike Helfer, Jane Hinkley and
Douglas Hurt. Douglas Hurt is the Senior Independent Director.
Henry Knowles is the Company Secretary. Carlo Bailo joined the
Board on 1 February 2023. Guy Young, Chief Financial Officer
served on the Board throughout 2022 and stepped down from
the Board on 17 February 2023, when he left the Company.
The Board considers that, for the purposes of the UK Corporate
Governance Code, 71% of the Board – five of the current
Non-executive Directors (excluding the Non-executive Chairman),
namely Carla Bailo, Kath Durrant, Dinggui Gao, Jane Hinkley and
Douglas Hurt, are independent of management and free from
any business or other relationship which could affect the exercise
of their independent judgement. During 2022 the Board
considered Jane Hinkley’s tenure and concluded that she
should continue to be regarded as independent despite having
completed ten years of service on the Board on 3 December
2022, as she continues to operate with an independent spirit
and exhibits robust challenge at Board and Committee meetings.
Jane will step down from the Board at the close of the forthcoming
AGM. Friederike Helfer is a Partner of Cevian Capital, which
continues to hold 21.11% of Vesuvius’ issued ordinary share
capital. As a result Friederike Helfer is 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 88 and 89.
Division of responsibilities
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
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
Chief Executive
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
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
Company Secretary
Advises the Chairman on governance, together with providing 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 the Non-executive Directors
and senior management
Non-executive Directors
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
Corporate Governance Statement
continued
Chief Financial Officer
Supports the Chief Executive in
developing strategic direction and
works with the Board to develop
and implement the Group’s strategy.
Directs, monitors and manages the
finance and IT functions to ensure the
Company’s financial objectives are met,
ensuring sound financial management
and control of the Company’s business
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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
Chair
Douglas Hurt
Membership
All independent
Non-executive Directors
Remuneration Committee
To determine the
remuneration policy
for the Executive Directors
and set the appropriate
remuneration for the
Chairman, Executive
Directors and senior
management
Chair
Kath Durrant
Membership
All independent
Non-executive Directors
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
Chair
Carl-Peter Forster, Chairman
(except when considering
his own succession, in which
case the Committee would
be chaired by the Senior
Independent Director)
Membership
Chairman and the
Non-executive Directors
Governance Committees
Finance Committee
To approve specific funding
and treasury-related
matters in accordance
with the Group’s delegated
authorities or as delegated
by the Board
Chair
Carl-Peter Forster, Chairman
Membership
Chairman, Chief Executive,
Chief Financial Officer and
Group Treasurer
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
Share Scheme Committee
To facilitate the
administration of the
Company’s share schemes
Chair
Any Board member
Membership
Any two Directors or any
two Directors and the
Company Secretary
Board
The Chairman and Chief Executive
The division of responsibilities between the Chairman and the
Chief Executive is set out in writing. These were reviewed during
the year as part of the Company’s annual corporate governance
review. They are available to view on the Company’s website:
www.vesuvius.com.
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 2023, holding
ad hoc meetings to consider non-scheduled business if required.
Board Committees
The principal governance Committees of the Board are the
Audit, Nomination and Remuneration Committees. Each
Committee has written terms of reference which were reviewed
during the year. These terms of reference 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.
Group Executive Committee
The Group also operates a Group Executive Committee (GEC),
which is convened and chaired by the Chief Executive and assists
him in discharging his responsibilities. During 2022, the GEC
comprised the Chief Executive, Chief Financial Officer, the main
Business Unit Presidents, the Chief HR Officer, the President
Operations and Technology and the General Counsel/Company
Secretary. The GEC met for six formal multi-day meetings and
two R&D reviews during 2022, and also held bi-weekly meetings
to discuss the Group’s business activities.
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2022 Board programme
The Board discharges its responsibilities through an annual
programme of meetings.
At each of the regularly scheduled meetings, a number of
standard items were considered.
These included:
–
Directors’ duties, including those in respect of s172, and conflicts
of interest
–
Minutes of the previous meeting and matters arising
–
Reports from the Chief Executive (CEO) and the Chief Financial
Officer (CFO) on key aspects of the business, and the General
Counsel and Company Secretary on governance matters
In 2022, the Board focused on key areas of strategy, performance and governance, including the matters outlined below:
Strategy
–
Reviewing M&A opportunities and approving the acquisition of Bayuquan Magnesium Co
–
Receiving and reviewing reports on strategy from the Flow Control, Advanced Refractories, Foundry and
Sensors & Probes Business Units
–
Reviewing and approving significant items of capital expenditure
–
Receiving and reviewing regular reports from the CEO on business highlights and the implementation
of the Group’s Strategic Objectives
–
Reviewing the progress of the Group’s Sustainability agenda, including receiving regular updates
on the Group’s health, safety and environmental objectives, the Group’s TCFD compliance and the
Group’s roadmap to net zero
–
Participation in a two-day off-site review of strategy presented by the CEO, CFO, the three main
Business Unit Presidents and the Company’s key financial advisers
–
Considering the impact of the conflict in Ukraine, and determining the Group’s approach to trading with Russia
–
Receiving and considering reports on the Group’s key customers, its HR, purchasing, IT, tax and treasury
strategies, legal and compliance activities and the management of the Group’s key pension liabilities
–
Receiving and considering a progress report on the Group’s R&D strategy and objectives
–
Reviewing the Group’s financing structure
–
Reviewing the Group’s investor relations strategy and receiving reports from the Company’s brokers
on market issues and from the CEO, CFO and the Head of Investor Relations on investor relations meetings
and feedback
Performance
–
Receiving regular business reports from the CEO
–
Reviewing the measures being taken to mitigate the impact of energy and raw material cost increases,
and ongoing supply chain disruption
–
Receiving regular reports on the Group’s financial performance against key indicators, including each
of the Group’s KPIs
–
Receiving regular reports on progress against the Group’s sustainability targets and regular updates
from the CEO on the performance of the Group’s businesses
–
Receiving regular safety reports and summaries of the investigations conducted after any serious safety incident
–
Receiving regular reports on performance against product quality targets
–
Scrutinising the Group’s financial performance and forecasts
–
Reviewing and agreeing the annual budget and financial plans
–
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
–
Approving the appointment of Carl-Peter Forster as a new Chairman and overseeing the processes to
identify a new CFO and new Non-executive Director
–
Reviewing fees for the Non-executive Directors
–
Completing an evaluation of the Board and Committees’ performance and regularly reviewing progress
against the improvement actions identified in the 2021 evaluation
–
Reviewing the Group’s internal controls, risk management practices and risk appetite, monitoring the
Group’s key risks and approving the Group’s risk register
–
Reviewing and approving the Group’s Modern Slavery Statement
–
Receiving regular updates on corporate governance and regulatory developments, and conducting the
formal annual review of the Group’s governance arrangements
–
Reviewing information received through the Group’s Speak Up reporting processes
–
Reviewing the Board’s engagement with employees, including the results of the Group engagement survey
–
Renewing the Group’s delegated authorities
Corporate Governance Statement
continued
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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 to the relevant Chairperson in advance of the meeting.
In addition to the formal Board processes, the Chief Executive
provides updates on important Company business issues
between meetings, and the Board is provided with regular reports
on key financial and management information. The Directors
also receive regular updates on shareholder matters, along
with 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
relevant background information.
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.
Directors’ conflicts of interest
The Board has established a formal system to authorise situations
where a Director has an interest that conflicts, or may possibly
conflict, with the interests of the Company (situational conflicts).
Directors declare situational conflicts so that they can be
considered for authorisation by the non-conflicted Directors.
In considering a situational conflict, these Directors act in the way
they consider would be most likely to promote the success of the
Company and may impose limits or conditions when giving
authorisation, or subsequently, if they think this is appropriate.
The Company Secretary records the consideration of any conflict
and any authorisations granted. The Board believes that the
approach it has in place for reporting situational conflicts
continues to operate effectively. The Board has authorised any
potential or actual conflicts of interest that might arise as a result
of Ms Helfer’s role as a Partner of Cevian Capital AG. Prior to her
resignation as a director of thyssenkrupp AG, the Board had also
authorised any potential or actual conflicts of interest that might
have arisen from this role.
Board and Committee attendance
The attendance of Directors at the Board meetings held in 2022, and at meetings of the principal Committees of which they are
members, 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
%
attendance
Chairman
John McDonough CBE
9 (9)
–
–
5 (5)
100%
Carl-Peter Forster
1
2 (2)
–
–
1 (1)
100%
Executive Directors
Patrick André
10 (10)
–
–
–
100%
Guy Young
10 (10)
–
–
–
100%
Non-executive Directors
Kath Durrant
9 (10)
5 (5)
7 (7)
6 (6)
96%
Dinggui Gao
10 (10)
5 (5)
7 (7)
6 (6)
100%
Friederike Helfer
10 (10)
–
–
6 (6)
100%
Jane Hinkley
10 (10)
5 (5)
7 (7)
6 (6)
100%
Douglas Hurt
9 (10)
5 (5)
7 (7)
6 (6)
96%
1. Carl-Peter Forster was appointed to the Board on 1 November 2022, and assumed the role of Chairman on 1 December 2022. The table reflects the number of
Board and Committee meetings that he could attend following his appointment to the Board.
Kath Durrant and Douglas Hurt were unable to attend one Board
meeting arranged at short notice due to pre-existing commitments.
They both received the papers for the meeting in advance and
relayed their comments to the Chairman for communication at the
meeting. Dinggui Gao attended all meetings virtually until October,
as until that time he was precluded from participating in person due
to travel restrictions between China and the UK.
The Chairman and Non-executive Directors have letters of
appointment which set 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.
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.
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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 prior to their appointment and they
are required to notify the Board of any subsequent changes.
Between July and September 2022, Douglas Hurt, having served
as Senior Independent Director of Countryside Partnerships plc
for a number of years, briefly assumed its Chairmanship prior to
its merger with Vistry Group. He discussed the change with the
Chairman in advance and it was assessed that despite the
increased commitment, he would continue to have adequate
time to devote to his Vesuvius Board duties.
The Company has reviewed the availability of the Chairman and
the Non-executive Directors to perform their duties and considers
that each of them can, and in practice does, devote the necessary
amount of time to the Company’s business.
Composition, evaluation and succession
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 Directors will offer themselves for election or re-election at the
2023 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 2023 AGM relating
to the election and re-election of the Directors. The biographical
details of the Directors offering themselves for election or
re-election, including details of their other directorships and
relevant skills and experience, will be set out in the 2023 Notice
of AGM. The biographical details of the Directors are also set out
on pages 88 and 89.
Recommendations for appointments to the Board and rotation
of the Board are made by the Nomination Committee. 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 110-115.
A comprehensive induction programme is available to new
Directors. The induction programme is tailored to meet the
requirements of the individual appointee and explains the
dynamics and operations of the Group, and its markets and
technology. The induction includes, as a minimum, a series of
meetings with key Group executives and advisers, along with
site visits to the Group’s key strategic sites. Further details of the
induction provided for the new Chairman are set out in the
Nomination Committee report on page 112.
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 to attend them.
In 2022, regulatory updates were provided as a standing item at
each Board meeting in a Secretary’s Report. External input on
legal and regulatory developments impacting the business was
also given, with specialist advisers invited to the Board and
Committee meetings to provide briefings on topics such as the
changing landscape of Corporate Governance, particularly the
latest FRC guidance, Market Abuse Regulations and TCFD.
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
2022 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 101–109.
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 27–31 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
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 116–143 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.
Corporate Governance Statement
continued
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Annual Report and Financial Statements 2022
Dear Shareholder,
On behalf of the Audit Committee, I am pleased to present the
Audit Committee report for 2022. The foundation of the
Committee’s work each year is a recurring and structured
programme of activities which are defined in an annual rolling
Audit Committee timetable. The Audit Committee then considers
additional items as matters arise or priorities change.
During 2022, the Committee spent time assessing the impact
of the war in Ukraine on the Group’s activities, both in terms
of the immediate effect on the Group’s Russian and Ukrainian
businesses, but also in terms of the wider impact on energy and
raw material pricing, and the macroeconomic effects of inflation
and consumer confidence on the business. With the further
development of the Group’s sustainability reporting the
Committee also considered the assurance required for the
validation of sustainability metrics, alongside reviewing the
Group’s TCFD reporting. Finally, in light of the inflationary
environment, the Committee undertook a deep dive into the
Group’s inventory accounting methodology, and again focused on
the development of the Group’s cyber security measures, as well
as continuing to receive regular updates on the implementation
of changes to the Group’s Finance Operating Model.
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
2 March 2023
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 Committees of Hikma Pharmaceuticals PLC and the
British Standards Institution. 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 relevant 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 88 and 89 outline their range of multinational business-to-
business experience and expertise in fields such as engineering,
manufacturing, services, logistics and human resources, as well
as their financial and commercial acumen. The Board considers
that the Audit Committee as a whole has competence relevant to
Vesuvius’ business sector.
Meetings
The Committee met five times during 2022. 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 Head of Finance, the Group
Head of Internal Audit and the External Auditors were all invited
to each meeting. Other management staff were also invited to
attend as appropriate.
Audit Committee meetings are conducted to promote an open
debate, they enable the Committee to provide constructive
challenge of significant accounting judgements, and guidance
and oversight to management, to ensure that the business
maintains an appropriately robust control environment. Between
Audit Committee meetings, the Chairman of the Audit Committee
encourages open dialogue between the External Auditors, the
management team and the Group Head of Internal Audit to
ensure that emerging issues are addressed in a timely manner.
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Audit Committee
Douglas Hurt
– Committee Chairman
Carla Bailo
(from 1 February 2023)
Kath Durrant
Dinggui Gao
Jane Hinkley
The Company Secretary
is Secretary to
the Committee
During the year, as is the Audit Committee’s established practice,
the Committee members met and discussed business and
control matters with senior management both during Board
presentations and site visits.
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.
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 Tender 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.
Activities in 2022
102
Vesuvius plc
Annual Report and Financial Statements 2022
Audit Committee
continued
1.
During 2022, the Committee paid particular attention to the effects
of the macroeconomic environment on the Group. This included
assessing the impact of the war in Ukraine on the Group’s businesses
in Russia and Ukraine, and the wider impact to the Group of the
concomitant increases in global energy and raw material pricing,
inflation and interest rates. It also continued to monitor the impact
of COVID-19 on the Group, particularly in China.
2.
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 an in-depth review of
the Group’s inventory accounting methodology.
3.
The Committee continued to receive feedback throughout the year
on the implementation of the updated Finance Operating Model.
This structure continues the transition of the Business Unit finance
functions from purely accounting to forward-looking business
support, with clearer accountabilities for controlling functions and
a focus on further standardising core processes. The Committee
monitored changes to the structure of finance roles and the roll-out
of the new model.
4.
The Audit Committee continued to devote time to ensure that
initiatives to mitigate potential risks and financial exposure remained
robust and appropriate.
5.
The Committee challenged the assumed growth rates and discount
rates used for asset impairment assessments.
6.
The Committee considered the Company’s going concern statement,
challenging the nature, quantum and assessment of the significant
risks to the business model, future performance, solvency and
liquidity of the Group which were modelled as part of the scenarios
and stress testing undertaken to support the Viability Statement
made by the Company in the Annual Report and Financial
Statements. In particular the Committee examined the criteria
selected for enhanced stress testing, which included an unplanned
drop in customer demand, debt recovery risk due to customer
default, business interruption due to unplanned closure of several
key plants and raw material price inflation. The Committee also
considered the potential effect of a combination of risk factors
occurring at the same time. At the half year the Committee
undertook another detailed look at the Company’s going concern
statement. The going concern statement and Viability Statement
are contained within the Strategic Report on page 31.
7.
The Committee reviewed the resourcing and delivery of the 2022
Internal Audit plan, considering the effect of the residual COVID-19
travel restrictions in China, and approved the 2023 Internal Audit
plan. The Committee monitored both the responses from and
follow-up by management to Internal Audit recommendations
arising during the year, in particular making sure that where
longer-term actions were needed to resolve an issue, effective
short-term mitigations were put in place. The Committee discussed
at length any significant issues raised, the root causes for those
issues and the actions being taken to resolve them.
8.
The Committee conducted detailed reviews of provisions, including
provisions for disposal, closure and environmental costs, challenging
the reasonableness of underlying assumptions and estimates of
costs, and the quantum of any related insurance assets.
9.
The Committee challenged management’s revised forecasts for
UK taxable profits that have resulted in the recognition of previously
unrecognised deferred tax assets and concurred with the judgement
and estimates made to derive the amount recognised and its
disclosure as a separately reported item.
10.
The Committee reviewed the Group’s TCFD reporting and the
assurance received regarding the sustainability KPI data.
11.
In light of the inflationary environment, the Committee undertook a
deep-dive review of the Group’s inventory accounting methodology.
12.
The Committee reviewed the effectiveness of the Internal and
External Audit processes.
13.
The Committee Chairman and other members of the Committee
were involved in the process to identify and appoint a new Chief
Financial Officer. The Committee Chairman was also involved
in the selection of a new Group Head of Internal Audit following the
resignation of the incumbent.
14.
The Committee met with the Internal and External Auditors without
management present and received valuable feedback on a range
of topics.
15.
The Committee received updates on the preparations for the filing of
the Group’s annual financial report in the required European Single
Electronic Format (ESEF).
16.
The Committee received regular updates from PwC on material
accounting and governance developments impacting the Group,
with a more detailed review of alignment with best practice reporting
provided in October.
17.
The Committee conducted an evaluation of its performance
and effectiveness, concluding that the Committee continued
to work effectively across all key areas, with a clear and
effective agenda and meetings remaining well managed
and appropriately resourced.
18.
The Committee reviewed its terms of reference.
Activities in 2022
The Committee operates under formal terms of reference
approved by the Board. These were reviewed during the
year. They are available to view in the Investors/Corporate
Governance/Board Committees 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.
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 remainder
of this report.
Financial reporting
The Committee fulfilled its primary responsibility to review the
integrity of the half year and 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 Group’s compliance with the requirements in respect of
TCFD reporting, including the assurance received regarding
the sustainability KPI data. The Committee reviewed and
approved the climate-related risk and opportunities register,
the scenario analyses and the roadmap to net zero
–
The application of the FRC’s guidance on clear and concise
reporting and the key takeaways from the Thematic Reviews
issued by the FRC throughout the year on themes such as
Judgements and Estimates, TCFD disclosures, Earnings
per Share and Deferred Tax Assets
–
The disclosure and presentation of alternative performance
measures, in view of the guidelines issued by the FRC
The Committee actively deliberated on and challenged reports
from the Chief Financial Officer and the 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.
The External Auditors also delivered memoranda for the
half-year and year-end, stating their views on the treatment of
significant issues. The External Auditors provided a summary for
each issue, including their 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 2022 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 overleaf were
appropriate and acceptable.
The main role and responsibilities of the Committee are 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, 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 Company’s internal
financial controls, and internal control and risk management systems
–
Review procedures for detecting fraud, and systems and controls
for the prevention of bribery and ensure that a thorough review is
carried out of all alleged instances of fraud notified to the Committee
–
Monitor and review the role and effectiveness of the Company’s
Internal Audit function and audit programme, ensuring that the
function is adequately resourced and operates free from
management or other restrictions
–
Make recommendations to the Board on the appointment,
reappointment and removal of the External Auditors and
negotiate and agree the fees 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 Auditors’ views of
their interactions with senior management
–
Review and monitor the External Auditors’ independence, objectivity
and effectiveness, taking into consideration relevant law, regulation,
the Ethical Standard, other professional 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
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Role and responsibilities
Impairment of goodwill
The 2022 year-end carrying value of goodwill of £658m was
tested against the current and planned performance of the Steel
Flow Control, Steel Advanced Refractories and Foundry CGUs.
The Committee considered the Board-approved medium-term
business plans and terminal growth assumptions, and the
discount rates used in the assessments. Relevant sensitivities using
reasonably possible changes to key assumptions were evaluated.
The detailed assumptions are provided in Note 17 to the Group
Financial Statements.
Given that the models indicated, even with the application of
reasonable sensitivities to the assumptions, that there remains
significant headroom between the Value in Use and the carrying
value, the Committee concurred that no goodwill impairment
charges were required.
Other provisions
The Committee continues to monitor the implications of a number
of potential exposures and claims arising from ongoing litigation,
product quality issues, employee disputes, restructuring, vacant
sites, environmental matters, legacy matter lawsuits, indirect tax
disputes and indemnities or warranties outstanding for disposed
businesses. Due to the long gestation period before settlement
for a number of these issues 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, and having considered legal advice
obtained by the Company, 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 no reliable
estimate of the potential liability can be made for the outcome of
an existing issue, no provision has been made and appropriate
disclosure is included under contingent liabilities (Note 32 to the
Group Financial Statements).
Operating segments for continuing operations
The Committee considered the aggregation of the Steel Flow
Control, Steel Advanced Refractories, and Steel Sensors & Probes
operating segments into the Steel reportable segment, noting
the economic characteristics of these operating segments which
include a similar nature of products, customers, production
processes and margins. The Committee concluded that this
segmentation remained appropriate.
Impairment of investment in subsidiaries
The Committee has reviewed management’s impairment analysis
of the parent company’s investment in subsidiaries. Following this
review it concurred that no impairment was required.
Provisions for trading balances related to the
Russia/Ukraine war
The Committee challenged management’s expected credit loss
model to ensure that appropriate allowance was made for
both receivables balances linked to customers impacted by
the Russia Ukraine war, or by the changing sanctions regime,
and for obsolete inventory impacted by these factors.
Deferred tax
The Committee challenged management’s revised forecasts of
UK taxable profits and the amount of the previously unrecognised
tax losses that should be recognised. The Committee concurred
with management’s judgements and forecast estimates to derive
the amount of the deferred tax losses to be recognised and with
their recognition being treated as a separately reported item in
the Consolidated Income Statement.
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 their clarity, comprehensiveness and the balance
of 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 2022, 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,
including its emerging risks, 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; these included stress testing for an unplanned drop in
customer demand, debt recovery risk due to customer default
and business interruption due to unplanned closure of several key
plants. 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
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Audit Committee
continued
Cyber security
The processes and controls to manage
cyber risks continued to be a significant
area of focus for the Group in 2022.
Vesuvius like most other companies,
receives a large number of ‘phishing’
emails presenting fake credentials
and malicious links, and has also been
subject to repeated attempts at social
engineering fraud. In February this year,
the Group was the subject of a cyber
incident involving unauthorised access
to our IT systems. The Group responded
swiftly to the incident, instigating the
Cyber Incident Plan and shutting down
our IT systems to contain the incident.
The Group’s sites implemented their
business continuity plans to maintain their
operations. The Audit Committee has
considered the potential impact of the
incident on the Group’s year-end audit
and is satisfied that the data required for
the audit was not compromised. The
Committee will continue to monitor the
impact of this incident and will review the
actions being taken to mitigate the risk of
further incidents in the future.
Whilst the Audit Committee maintains
oversight of the Group’s control systems
for reducing cyber risk, the Group’s IT
Committee is responsible for managing
this risk. The IT Committee meets on a
regular basis to review and progress
the Group’s plans for mitigating cyber
risks and tackling any cyber issues that
arise, and the Audit Committee receives
regular updates.
Cyber risks are integrated into the
Group’s wider risk management,
including forming part of the Business
Continuity Plan (BCP) undertaken to
counteract business interruption – either
in loss of production capacity or supply
chain disruption due to physical site
damage (accidents, fires, natural
disasters, terrorism), industrial action,
cyber attack or global health crises.
Our BCP and cyber security risk
management are closely integrated.
The Group has conducted repeated
cyber security risk assessments, analysing
the business impact of certain scenarios
to mitigate potential downtime, with an
Incident Handling and Response Policy,
which has been kept under continual
review, and which sets out how we
improve visibility and monitoring of all
network infrastructure. In addition the
Group maintains a Disaster Recovery
Plan for inclusion in wider business
continuity plans to address network,
data centre and infrastructure issues.
Vesuvius operates a multi-year strategy
for maintaining and developing cyber
security based on best practices and
standards, and monitoring trends and
cyber threats against appropriate
indicators. This encompasses in-house
vulnerability testing and analysis, using
external reports and benchmarks to
develop our processes. Our cyber security
work therefore supports and protects
our production capacity and delivers
investment in appropriate resources
in this fast-changing environment.
The Group’s IT Security Strategy and
Roadmap, whilst not formally accredited,
is based on the ISO 27001 standard and
NIST frameworks, implementing best
practices in the area.
During 2022, the Group completed a
number of infrastructure and network
enhancements to improve its IT security.
The Committee places significant
emphasis on operational security, of
which information and communication
technology and cyber security are a vital
part. Cyber resilience continues to be a
significant area of focus for the Group.
2022 saw further progress in the
development of the Group’s security
monitoring operations, with specialised
cyber security tools constantly being
introduced and tuned. Significant
emphasis is placed on user awareness
and in 2022 the Group continued to
conduct a series of mandatory cyber
security training courses.
The Committee concluded that the
work undertaken in 2022 indicated the
existence of an appropriate control
environment. It did however, note that
there were some areas for further
upgrade, for which clearly defined
improvement actions had been
identified, particularly in respect of the
Group’s cyber risks. The subsequent
cyber attack serves to reinforce this as an
area of continued focus. The Committee
recognises that with an organisation of
the size and complexity of Vesuvius it is
virtually impossible to eradicate the risk
of cyber attack but is pleased to note
that whilst the Group’s systems were
penetrated, the risk management plans
and practices in place, particularly the
business continuity plans, did serve to
mitigate the incident.
satisfied that the going concern statement and Viability
Statement had been prepared on an appropriate basis.
The 2022 going concern statement and the 2022 Viability
Statement are contained within the Risk, viability and going
concern section on page 31.
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 27–33. During 2022, 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 reports if there are any significant
control deficiencies identified during the course of their 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, though where it becomes necessary to
update the ERP for a particular business, the same supplier is
used for these implementations, where appropriate. Over time,
the Group is moving towards a shared services model for
financial transactions, enabled by process, systems and
controls standardisation between businesses. This is expected
to enhance the overall internal control environment in the smaller
operating units.
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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,
along with travel and expense reimbursements.
Any control issues identified by management locally or as a
result of the work performed by Internal Audit are escalated as
appropriate. Internal Audit rates all control issues they identify in
terms of their significance and agrees remediation plans with the
management of the auditee and an action owner, in each case
establishing a target date for remediation. For significant issues,
management at all levels within the Business Unit are engaged
to agree the actions and remediation dates. The status of the
remediation is monitored and overdue issues are escalated
appropriately with management, and reported at Audit
Committee meetings. Where a specific audit identifies multiple
issues, or where issues arise on the progress of remediation
activities, the Audit Committee continues to challenge
management to identify root causes and ensure that the right
organisational structure and people are in place to address
issues effectively.
During 2022, the Group continued to focus on its framework,
policies and procedures for the management of anti-bribery and
corruption risk and other compliance/regulatory risks, and the
Committee noted the Group’s ongoing work conducted in this
area. Given the conflict in Ukraine, the Committee discussed in
detail the due diligence/compliance processes underpinning
the business the Group continues to conduct in Russia and the
surrounding region, as well as, more broadly, the process for
the monitoring of new and ongoing third-party sales agents.
The Committee continued its assessment of the Group’s potential
exposure to bribery and corruption risks as part of its wider
responsibilities for risk management. It was noted that the
Group’s regular risk assessment work continues, underpinning
the Group’s activities to ensure that the processes in this area
reflect an appropriate level of control for the business.
In line with the requirements of the Code, responsibility for the
oversight and monitoring of the Group’s Speak Up helpline,
which collates allegations of improper behaviour and employee
concerns, has passed from the Audit Committee to the full Board.
The Committee is kept apprised of any complaints received by
the Company regarding fraud, accounting, internal accounting
controls and auditing matters. Further details of the operation
of the Group’s Speak Up policy and helpline can be found on
page 94.
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 Committee has also requested that an updated review of
fraud opportunities and risk across the Group be conducted,
which is currently under preparation. This will drive a further
analysis of the controls in place to prevent this specific instance
occurring and the testing of these controls. In addition, the
Committee has requested a review of the revenue generated
by the sales agents utilised by the Group.
No significant control issues were raised by our External Auditors,
PwC and Mazars, and no material issues were identified in 2022.
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 in the UK and Poland. They report to the
Group Head of Internal Audit, based in London, who in turn
reports directly to the Chairman of the Audit Committee.
During the year there was a change in the Group Head of Internal
Audit. The Chairman of the Audit Committee met with the
departing Head of Internal Audit to ensure that this departure
was not precipitated by any internal control concerns and was
involved in the decision to appoint an internal successor.
Throughout 2022, Internal Audit continued to perform a
programme of audits focusing on internal financial controls
and key Board compliance issues.
The Committee received, considered and approved the 2022
Internal Audit plan which was constructed using a risk-based
approach to cover the Group’s control environment. The plan is
based on the premise that all operating units are audited at least
once every three to four years, and each of the large operating
entities located in Germany, the US, China, Mexico and Brazil are
audited on an annual basis. With further relaxations in COVID-19
travel restrictions during the year, audits were conducted on-site
in the majority of instances, with European audits scheduled in
the first half of the year and long-haul audits in the second half.
The China audit was conducted remotely due to continuing
travel restrictions.
Four categories of audit were conducted: Financial Controls
Audits, Deep Dive Trial Balance Audits, Compliance Audits and IT
Audits, with the majority of the 32 audit assignments undertaken
in 2022 (2021: 34) focused on financial controls. The Committee
received a report from the Group Head of Internal Audit at each
of its meetings detailing progress against the agreed plan and
key trends and findings. An update on the progress made towards
resolving open issues was also given. Common themes emerging
from Internal Audit reports coupled with Internal Audit and
management’s assessment of risk have informed the
development of the 2023 Internal Audit plan.
When necessary, Internal Audit contracts auditors from other
audit firms to supplement internal resources on an ad hoc basis.
This process provides valuable learning opportunities and we
expect to continue to use external resources in specialist areas
and geographies in the future.
Audit Committee
continued
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Annual Report and Financial Statements 2022
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.
Internal Audit undertakes follow-up reviews as required. In
situations where audit findings require longer-term solutions,
the Committee oversees the process for ensuring that adequate
mitigating controls are in place.
An internal review was undertaken of the effectiveness of the
Internal Audit function in 2022. The CFO reviewed the Internal
Audit process and function, in conjunction with the new Group
Head of Internal Audit, with a view to further enhancing the
quality of the department’s contribution and maximising
efficiency. As a result small changes to the department’s protocols
were agreed to ensure resource was appropriately applied to ad
hoc requests, and that the process for managing and resolving
audit findings was always targeted by significance. Having
considered the work of the Internal Audit function during 2022,
including progress against the 2022 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 2022, exhibiting an appropriate level of independence
and challenge.
The Audit Committee has also commissioned Ernst & Young to
undertake a formal review of the quality of the Group’s Internal
Audit function.
External Audit
Auditors’ appointment
In 2017, the Company appointed PricewaterhouseCoopers LLP
(PwC) as External Auditors to the Company and the Group, and
Mazars LLP (Mazars) to audit the non-material entities within the
Group. Darryl Phillips serves as the PwC audit partner responsible
for the Group audit, a role he assumed following the completion of
the 2020 half-year review.
Under the Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order, the Audit
Committee is required to report in which year the Company
proposes to complete a competitive tender process in respect of
the statutory External Auditor, and the reasons why the proposed
year for the competitive tender process is in the best interests of
the shareholders. In compliance with the Order, the Audit
Committee confirms that a competitive tender process for the
appointment of a statutory auditor will, subject to satisfactory
annual reviews of the effectiveness of the External Auditors and
its costs in the intervening period, be conducted during 2026 with
a view to recommending the appointment of a new statutory
auditor or the reappointment of the incumbent auditor, for the
financial year ending December 2027. The Audit Committee
believes that conducting a competitive tender process during
2026 for the appointment of a new statutory auditor for the
financial year ending December 2027 is appropriate, and in
the best interests of the shareholders.
2022 Audit plan
During the year the Committee evaluated the PwC Group audit
scope for 2022. The year-end audit plan was based on agreed
objectives, with the audit focused on areas identified as
representing significant risk and requiring judgement. In order
to manage costs, and ensure that the Group maintains audit
relationships outside the ‘Big 4’, Mazars undertakes some of the
Group audit work under the direction of PwC. It is principally
responsible for the statutory audits of the non-material Group
subsidiaries, but also undertook specific audit procedures for
certain component entities that were within PwC’s Group audit
scope in 2022. Mazars reported independently to PwC on this
work and the work was directed, supervised and reviewed by
PwC. Mazars also reported independently to the Committee on
the work it undertook auditing non-material subsidiaries.
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 Committee also received a report from Mazars
during the year which noted that there were no findings or
recommendations in respect of its statutory audits of the
non-material Group subsidiaries for the year ended 31 December
2021 that Mazars deemed sufficiently material or significant to
bring to the attention of the Audit Committee.
The Independent Auditors’ Report provided by PwC on pages
151–159 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 £10.3m for Group financial reporting
purposes which is 63% higher than last year (£6.3m) and is set at
4.7% of headline profit before tax of £217m. 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 £0.52m was reported to the Committee.
There were no significant changes this year to the coverage of the
audit which stood at 71% of the Group’s revenue, 80% of profit
before tax and 82% 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 PwC audit fee approved by the Audit Committee was
£2.3m. 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 and three material entities
was £0.9m, resulting in a combined audit fee for 2022 of £3.2m,
compared with £2.6m in 2021.
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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 2022, 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 work of the External Auditors 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 appeared 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 the
External Auditors 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 in the Audit
Committee section of the ‘Investors/Corporate Governance’
pages of the Company’s website: www.vesuvius.com.
The use of the External Auditors for the provision of non-audit
services is strictly prohibited except for specific permitted
audit related services. These comprise: Category 1 services
which the External Auditors are obliged to perform due to law
or regulation, such as regulatory and solvency reports; and
Category 2 services which could be provided by others (albeit
there are typically significant efficiencies to be had when done in
combination with the audit such as interim reporting). An annual
budget for the additional Category 2 service fees proposed to
be paid to the External Auditors in the following year is presented
for pre-approval to the Audit Committee each year. Audit
Committee approval is required for expenditure in excess of
this approved budget.
All audit-related and permissible non-audit services proposed to
be carried out for any Group company worldwide by the External
Auditors must be pre-approved before an engagement is agreed.
Pre-approval must be obtained from the Head of Finance or the
Chief Financial Officer, who will confirm that the Audit Committee
has approved the engagement. Any assignment proposed to be
carried out by the External Auditors must also have been cleared
by the External Auditors’ own internal pre-approval process,
to assess the firm’s ethical ability to do the work.
In 2022, the fees for non-audit services payable to PwC amounted
to £0.2m (2021: £0.1m). The 2022 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), tax form audits in Mexico,
assistance with an R&D certificate in Italy and a Brazilian equity
validation. These are all services where it was considered most
efficient to use PwC because of their existing knowledge of the
business or because the information required was a by-product
of the audit process. In each of the past four years the non-audit
related fees have represented <9% of the statutory audit fees.
Effectiveness of the External Audit process
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 in carrying out their work and of the audit
process in general. Input into the evaluation in 2022 was obtained
from management and other key Company personnel, members
of the Audit Committee and the External Audit team. The review
focused on the External Auditors’ mindset and culture, skills,
character and knowledge, and the quality of its controls, as set
out in the guidance for audit committees prepared by the FRC.
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
–
A review of other external evidence on PwC audit quality
(e.g. report on PwC by the FRC)
–
Discussions with PwC and key finance and
non-finance personnel
The evaluation concluded that PwC had provided an effective
audit for 2022, with the Auditors exhibiting an appropriate
mindset and culture, along with possessing the right skills,
character and knowledge to effectively manage the audit,
whilst adopting appropriate quality controls. Building on last
year’s feedback, PwC had improved their audit approach and
worked on ensuring effective and early communication of audit
requirements. PwC was judged to challenge the business in the
right areas and provide strong technical expertise. The PwC
team was also seen as independent by the Audit Committee and
management. Debrief meetings were held at a local level to
discuss the 2021 audit, and to constructively share feedback that
would facilitate further improvements to the audit planning for
the 2022 audit and an improved understanding of the audit
approach and requirements. Areas highlighted for further
improvement in 2022 included greater stability in the US audit
team and enhanced coordination with Mazars and the Shared
Service Centres.
Audit Committee
continued
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Reappointment of PwC for 2022
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 External Auditors 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
–
External reviews of the performance and quality of the
Auditors, including:
–
The annual report issued by the Audit Quality Review
team of the Financial Reporting Council on the work of
the Auditors
–
The Auditors’ own annual Transparency Report
Having considered the aforementioned factors, the Committee
recommended to the Board that PwC be reappointed for 2023.
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 will be included in the notice of AGM for 2023.
The Committee requested confirmation, and PwC confirmed that
there are no longer any restrictions on PwC network companies
performing audits of the Group’s listed entities in India.
Audit Committee evaluation
The Audit Committee’s performance was evaluated as part of the
overall externally facilitated Board and Committee performance
evaluation, which is described in-depth on pages 114 and 115.
The review concluded that the Committee continued to function
well, with the quality and quantity of information provided to the
Committee judged to be good, and the level of engagement
between the Audit Committee and the Chief Financial Officer
and his team, the Group Head of Internal Audit and the External
Audit Partner rated highly. It was noted that rigorous processes
were in place to review and monitor the work of the Internal
and External Auditors, and that the Committee dedicated
appropriate resource to monitoring and challenging significant
audit issues and material accounting judgements. A number of
priorities were identified for the Audit Committee over the coming
year, including further focus on cyber security, cognisance of the
need to ensure that the Group’s internal controls are developed
to comply with the new BEIS and Corporate Governance Code
requirements when they are announced, and supporting the
transition to the new Group Head of Internal Audit and new CFO.
On behalf of the Audit Committee
Douglas Hurt
Chairman, Audit Committee
2 March 2023
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Statements
Dear Shareholder,
On behalf of the Nomination Committee, I am pleased to
present the Nomination Committee report for 2022. The primary
responsibility of the Nomination Committee is to focus on Board
composition and succession planning, and to ensure that the
Board is composed 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 succession plans for the Board
and senior management, and ensuring that the Group has a
consistent pipeline of diverse talent for future potential
progression to the Board.
The primary focus of the Committee during 2022 was on
succession. Early in the year, the Committee, led by the Senior
Independent Director, Douglas Hurt, concluded the process
for my appointment as the new Chairman of the Company.
Subsequently, following the resignation of our CFO Guy Young in
September, the Committee undertook a search for his successor.
We are delighted to have appointed Mark Collis as CFO; he will
join the Board at the latest on 4 July 2023. At the same time, work
also progressed with the appointment of new non-executive
expertise on the Board, with Carla Bailo joining us on 1 February
2023. Jane Hinkley, who has provided stalwart service to the
Board and its Committees over ten years, confirmed that she
would step down from the Board at the close of the 2023 AGM.
Alongside this focus on Board recruitment, the Committee also
spent a considerable amount of time during the year discussing
senior management succession planning, and in this context,
responding to the resignation and retirement of two members of
the Group Executive Committee. Allied to this, the Committee
discussed more general aspects of resourcing further down the
organisation, discussing the turnover, sourcing and diversity of
staff in the Senior Leadership Group of c.160 managers. It noted
that further work was needed to strengthen the pipeline for future
vacancies, to ensure that the Group has the right pool of talent
available to fill senior manager vacancies.
Yours sincerely
Carl-Peter Forster
Chairman, Nomination Committee
2 March 2023
Board composition
During the year, the Committee reviewed the structure, size and
composition of the Board. This review also included consideration
of the skills, knowledge and experience required for the Board to
continue to function effectively and support the delivery of our
strategy. This analysis took into account the need to ensure an
appropriate balance of independence and diversity among
Board members, in particular identifying the need to diversify
the geographical make-up of the Board, to reflect the wide
geographical spread of the Company’s business. The Committee
then evaluated the current Board composition against an
assessment of future business needs, considering the Directors
standing for election and re-election at the AGM.
Board succession
Alongside the focus on the recruitment of the new Chair, CFO
and Non-executive Director during the year, the Committee
also reviewed the future rotation of Directors from the Board.
It considered the requirements for Board composition, and
seeking to ensure that the Board continues to be resourced
by a group of Directors with the skills, diversity and experience
necessary to support the future delivery of the Group’s strategic
objectives. As part of this review the Committee considered the
Company’s ongoing compliance with the Board Diversity Policy,
also noting the update to the UK Listing Rules effective for
financial years starting on or after 1 April 2022, pursuant to
which one of the Chair, Chief Executive, Chief Financial Officer
and Senior Independent Director should be female. The Board
is not currently compliant with this requirement.
Senior management development and succession
The Committee maintained oversight of the changes to
membership of the Group Executive Committee during the year,
reviewing the Group’s succession processes, talent development
and proposals for the resourcing of vacant roles going forward.
It also considered the management cadre below this level,
focusing on the recruitment and retention of talent in the Business
Unit Executive Committees, and considering the level of turnover
and diversity in the broader Senior Leadership Group, along with
the balance of internal promotions and external appointments
into these roles. It examined how the Group’s talent management
processes were developing, how the senior management cadre
was performing and how the mentoring programme established
for the development of individuals flagged as ‘high potential’ was
Key activities during the year
110
Vesuvius plc
Annual Report and Financial Statements 2022
Nomination Committee
Carla Bailo
(from 1 February 2023)
Kath Durrant
Dinggui Gao
Friederike Helfer
Jane Hinkley
Douglas Hurt
The Company Secretary is
Secretary to the Committee
John McDonough CBE
– Committee Chairman (until 1 December 2022)
Carl-Peter Forster
– Committee Chairman (from 1 December 2022)
Served on the Committee following his appointment to the Board on 1 November 2022 and chaired
the Committee following his appointment as Chairman of the Company on 1 December 2022
The Nomination Committee
The Nomination Committee is made up of me, as Chairman
of the Company, and the Non-executive Directors. I joined the
Committee on my appointment to the Board on 1 November
2022 and began chairing the Committee when I assumed the
Chairmanship of the Company on 1 December 2022. Prior to this
John McDonough CBE chaired the Committee. The Company
Secretary is Secretary to the Committee. Members’ biographies
are set out on pages 88 and 89.
Role and responsibilities
The Nomination Committee’s foremost priorities are to ensure
that the Company has the best possible leadership and to ensure
that plans are in place for orderly succession to both the Board
and Group Executive Committee positions. 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 gender, social, ethnic and cognitive diversity,
and personal strengths.
The Committee met six times during the year. It operates under
formal terms of reference, a copy of which 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.
During 2022, the Committee finalised the selection process to
recruit a new Chairman, undertook a search for a new CFO and,
as part of the Group’s planned Director rotation, commenced the
process to identify a new Non-executive Director for the Board.
With regard to the Non-executive Director role, the Committee
resolved that it was particularly keen to identify candidates who
had significant commercial experience and a US background,
to complement the skills of the other Directors. The Committee
approached appropriate search consultants to assist with the
search. After careful consideration, the global specialist search
consultant, Spencer Stuart, was retained to assist with the
Chairman and Non-executive Director recruitment, and Odgers
Berndtson with the CFO recruitment. Both firms have adopted
the Voluntary Code of Conduct addressing gender diversity and
best practice in search assignments. They do not have any other
connection with the Group, other than in respect of management
recruitment work undertaken as part of normal trading activities.
They were selected for these assignments following a review of
potentially qualified agencies, based on their skills and expertise.
In line with Vesuvius’ considerable geographical diversity, the
searches for these new Directors targeted candidates from
around the world for the long-lists of potential appointees
produced by the agencies. For each appointment, the Committee
reviewed the long-list of candidates, from which a short-list of
candidates for interview was drawn up, based upon the objective
criteria identified at the inception of each process.
proceeding – all aimed at developing the pipeline of
experienced and talented managers to succeed to roles at the
highest level of the business. In this process, the Committee
focused both on the bench strength in key skills and expertise
as well as the talent pipeline in critical geographies.
Diversity
The Committee reviewed the Group’s progress in achieving its
diversity targets, with a particular focus on the recruitment of
women to the senior management tiers.
Committee evaluation
The Committee reviewed its performance and effectiveness
during 2022, 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.
111
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3
1
Female
2
Male
Diversity of candidates for the CFO role
67
12
Female
55
Male
Long-list candidates
Short-list candidates
Nomination Committee
continued
Board composition
The Committee keeps the current and future membership needs
of the Board and its Committees under continual review. It reflects
on the balance of skills, knowledge and experience of the current
Directors and compares this to the list of key skills the Board
assesses are needed to support the delivery of the Company’s
strategy. The independence and diversity of the Board, and the
balance of skills, experience and development needs of Board
members are also examined as part of the Group’s annual
corporate governance review, which considers the existing tenure
and the prospective rotation and retirement of Board members,
so that succession can be planned accordingly. The Board
considers its diversity, size and composition to be appropriate
for the requirements of the business.
In 2021 the Committee noted that Jane Hinkley had served
nine years on the Board. However, given the transition of the
Board Chairman, Jane agreed to remain on the Board and
continue to support the Group until a successor was recruited
following the appointment of the new Chairman. The Board,
having carefully considered her circumstances, concluded that
she continued to be independent of management and a strong
and valuable contributor to the Board’s work. Following Carla
Bailo’s appointment as a new Non-executive Director in February
2023, Jane Hinkley will retire from the Board immediately
following the Company’s AGM on 18 May 2023.
Diversity
The Group’s policy on diversity and inclusion outlines Vesuvius’
commitment to encouraging a supportive and inclusive culture
among its global workforce, promoting diversity and eliminating
any potential discrimination in our work environment. Vesuvius’
Board Diversity Policy explains how this commitment manifests in
relation to the Board.
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, creativity
and engagement. The diversity of our senior management
cadre and employees is one of the core strengths of the Group.
Copies of the Group’s diversity policies can be found on the
Group’s website: www.vesuvius.com.
The Nomination Committee considers the Group’s progress
in implementing the Group’s diversity policy each year and the
achievement of the Group’s diversity targets.
Across the Group in 2022, 15% (2021: 14%) of our workforce
were women, a slight increase versus 2021. The Group has set a
target of ensuring that 25% of the Senior Leadership Group of the
Company (which comprises c.160 individuals) are female by 2025.
This KPI has been incorporated into the long-term incentives of
our senior management. The number of women in the Senior
Leadership Group decreased by 1 percentage point in 2022
versus 2021 to 20%. Each of the Group’s four Business Units
has put in place strategies to address gender diversity.
Board diversity
A large part of the work of the Nomination Committee focuses on
ensuring that 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 enable them to discharge their duties and responsibilities
effectively. The Board Diversity Policy confirms the Group’s
commitment to maintaining a diverse Board, while continuing
to appoint candidates based on merit. 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’.
All independent Non-executive Directors serve on the Audit
and Remuneration Committees, and the Chairman and all the
Non-executive Directors serve on the Nomination Committee,
Members of the Committee conducted initial interviews
with the short-listed candidates. The candidates then went
on to meet with other Board members. Detailed external
references were taken up and, following this, the Committee
made formal recommendations to the Board for the
appointments. The successful candidates for the non-executive
roles were required to demonstrate that they had sufficient time
available to devote to their roles and to identify any potential
conflicts of interest. No conflicts were identified.
A comprehensive induction programme is put in place for all new
Directors. They are given access to past Board and Committee
papers and a programme of meetings and site visits is drawn
up to ensure that they can quickly assimilate fundamental
information about the business and the Group’s operations.
For the incoming Chairman this process commenced following
the announcement of his appointment in May, so that he was
well prepared as he joined the Board and took over the role of
Chairman in December 2022.
Carl–Peter Forster induction programme
Areas covered:
Provided by:
Vesuvius’ purpose, strategic priorities and business operations
Chief Executive, BU Presidents, CFO, CHRO
Business operations, people and culture
HeaTt Training, site visits to Skawina (Poland),
Borken (Germany) and Ghlin (Belgium)
Health and Safety and Sustainability Strategy
Provision of policies/procedures, access to past
Board sustainability presentations
Financial position, performance and treasury matters
CFO, External Auditors
Corporate governance, Board operations,
legal and regulatory matters
Outgoing Chairman, General Counsel/
Company Secretary, existing NEDs
Shareholder and investment community perspective
Corporate brokers, Cevian
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Annual Report and Financial Statements 2022
Female
Male
Total
Female
Male
Group Executive Committee member
2
5
7
29%
71%
Leadership roles reporting to members of the GEC
12
40
52
23%
77%
Senior Managers
1
14
45
59
24%
76%
All other employees
1,662
9,413
11,075
15%
85%
Grand total
1,676
9,458
11,134
15%
85%
Senior Leadership Group
2
31
125
156
20%
80%
1. Senior Managers comprise Group Executive Committee members plus key leadership roles reporting directly to members of the Group
Executive Committee.
2. The Senior Leadership Group comprises the 156 most senior managers in the organisation.
As at 31 December 2022, the gender balance of the Directors and members of the Group Executive Committee was as follows:
Number of
Board members
Percentage of
the Board
Number of
senior positions
on the Board
(CEO, CFO,
SID and Chair)
Number in
Group Executive
Committee
Percentage of
Group Executive
Committee
Men
5
62.5%
4
5
71%
Women
3
37.5%
–
2
29%
Not specified/prefer not to say
–
–
–
–
–
As at 31 December 2022, the ethnic background of the Directors and members of the Group Executive Committee was as follows:
Number of
Board members
Percentage of
the Board
Number of
senior positions
on the Board
(CEO, CFO,
SID and Chair)
Number in
Group Executive
Committee
Percentage of
Group Executive
Committee
White British or other White
(including minority-white groups)
6
75%
75%
6
86%
Mixed/Multiple Ethnic Groups
1
12.5%
25%
1
14%
Asian/Asian British
1
12.5%
–
–
–
Black/African/Caribbean/Black British
–
–
–
–
–
Other ethnic group, including Arab
–
–
–
–
–
Not specified/prefer not to say
–
–
–
–
–
The data for these tables was collected by asking individuals to self report against the categories displayed.
so the diversity of the Board’s principal Committees reflects
the diversity of our Non-executive Directors. The Nomination
Committee therefore considers the diversity of the Non-executive
Directors as a stand-alone cadre, as well as the diversity of the
Board as a whole, when considering recruitment to the Board.
The Board notes the recent change to the UK Listing Rules
effective for financial years starting on or after 1 April 2022,
requiring companies to confirm whether or not 40% of the board
are women; at least one of the senior board positions (Chair, CEO,
SID or CFO) is held by a woman; whether at least one member of
the board is from a minority ethnic background; and to provide
numerical disclosure on the ethnic background and sex or gender
identity of the Board, senior board positions (Chair, CEO, SID
and CFO) and executive management team.
In 2017, the Board set a target for at least 33% female Board
membership. This was achieved in 2019. As at 31 December 2022,
women made up 38% of the Directors, no women occupied senior
Board positions, one of the Directors (12.5%) identified as having
an Asian heritage, and another Director (12.5%) identified as
having a mixed race heritage. This represented no change in the
Board’s gender and ethnic diversity versus 31 December 2021.
Following the appointment of Carla Bailo on 1 February and
Guy Young’s departure from the Company on 17 February,
the proportion of women on the Board has increased to 50%.
Currently, five Directors hold citizenship outside the UK.
The Board recognises that over time the proportion of female
Directors may fluctuate naturally as Board members retire
and new Directors are appointed. The Board always seeks to
review a diverse long-list of candidates for all Board positions.
All independent Non-executive Directors serve on the Audit
and Remuneration Committees, so with the appointment of
Carlo Bailo women currently make up 60% of the membership
(50% in 2022), and all the Non-executive Directors (including
the Chairman) serve on the Nomination Committee so
women represent 57% of the membership of this Committee
(50% in 2022).
Further information on the Group’s approach to promoting
diversity can be found on page 77.
As at 31 December 2022, the gender balance of the Group’s employees was as follows:
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Board evaluation
The Board carries out an evaluation of its performance in Q4 each
year. This year’s evaluation was again externally facilitated by the
corporate advisory firm, Lintstock. The Group uses Lintstock’s
Insider List database tool but has no other connection with the
organisation and Lintstock does not have a connection with any
of the Directors.
Each evaluation was conducted via a series of targeted
questionnaires. As with previous years, the evaluation covered
both the performance of the Board and that of its Committees,
along with individual reviews of each Director and an analysis
of the performance of the Chairman. Narrative reports were
prepared for the Board, the Audit, Nomination and Remuneration
Committees, and in respect of the Chairman.
Nomination Committee
continued
1
Austrian
1
German
3
British
1
French
1
American
1
Chinese
Further information on the Group’s approach to promoting diversity
77
Current Board nationalities
Board composition
Female Directors
Prior experience
of serving as a director
of a listed company
Experience managing
a finance function
International business
experience
8
2
6
4
Lintstock also compared the Board’s ratings against those of
other organisations, to identify areas of particular strength and
to provide additional context. In particular, given the change of
Board leadership, the evaluation was structured to provide
the incoming Chairman with a ‘baseline’ of overall Board
performance, rather than focusing on specific events or elements
of the Board‘s work as has been the case in previous years.
Overall, the Board was seen to operate effectively with an
appropriate composition and range of diversity, with the
Non-executive Directors deemed to provide appropriate and
constructive challenge to management. The Board’s relationships
and dynamics were rated positively overall, although it was noted
that Remuneration Committee deliberations had created areas of
tension. The management of meetings, quality and adequacy of
performance reporting, quality of presentations made to the
Board and level of support provided received high ratings.
The balance of the Board’s focus was also generally viewed
favourably although, as in previous years, there were areas
highlighted for greater or reduced emphasis going forward.
The Board’s understanding of the views and requirements of
stakeholders was rated highly with regard to investors, employees
and customers. It was noted that there was continued scope to
improve the Board’s understanding of the interests of suppliers,
and the dynamics of the Group’s sourcing of raw materials and
services. The Board’s effectiveness in setting and monitoring
culture throughout the organisation was rated positively and
it was noted that the process for Non-executive Director
workforce engagement would be further refined in 2023.
In terms of strategy, Vesuvius’ significant focus on Sustainability
was highly rated, with the integration of sustainability initiatives
and targets throughout the business well understood. The Board
indicated the importance it placed on continuing to develop
its understanding of the Group’s technology offerings for
customers. Vesuvius’ capacity to deliver on its strategic objectives
continued to be rated highly overall, with emphasis placed
on the importance of having the right people in place to execute
the strategy. It was noted that talent retention, development
and succession planning continue to be key areas of focus for
the Board.
In addition to the primary focus on safety, and the issues
highlighted above, the top priorities for Vesuvius as a business
over the coming year were identified by the Board as being
continuing to focus on succession planning for executive and GEC
roles, expanding the geographical diversity of the Board and
improving the effectiveness of the workforce engagement
programme through site visits. The Board is also keen to gain
further insight into the Group’s supplier base and profile.
The new Chairman conducted one-on-one meetings with each
of the other Directors, to discuss the evaluation process and
outcomes and ensure that the Group was drawing effectively
on each of their skills and experience. He concluded that each
Director continued to contribute effectively to the work of the
Board. An assessment of the outgoing Chairman was conducted
by the Senior Independent Director. 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 integrated
into the Board’s activities. These will be implemented by the Board
in 2023, with progress reviewed by the Board throughout the year.
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Annual Report and Financial Statements 2022
In 2022,
the Board
assessment
focused on
eleven core
areas:
Board composition
Board dynamics
Strategy
Sustainability
Talent
Risk oversight
Oversight of stakeholders
Board support and focus of meetings
External developments
Business priorities
Priorities for change
The 2021 evaluation identified the following Board priorities for future Board attention; these were addressed during 2022 as follows:
Area
Issue
Action taken in 2022
Strategy
Oversee the further development
of the Group’s sustainability
strategy and its integration
into business planning
Throughout the year the Board received briefings from the Chief Executive and
VP Sustainability on the activities of the Group’s Sustainability Council, which is
tasked with immediate oversight of the Group’s sustainability activity. The Board
monitored progress against the Group’s targets and received updates from the
Business Unit Presidents on the work being undertaken in the businesses to further
embed the Group’s sustainability objectives. The Board also reviewed the more
detailed work that had been undertaken to set intermediate targets to drive the
Group’s progress to net zero at the latest by 2050.
Enhance the Board’s awareness
of competitors’ activities and
the dynamics of the Group’s
customers and suppliers
A ‘deep-dive’ into the breadth of Vesuvius’ competitive landscape was presented
at the Board’s Strategy meeting alongside more detailed information on each
Business Unit’s particular customer and competitor dynamics. A presentation
covering Vesuvius’ global customer landscape was made in September during the
Board’s Indian site visit, and a further paper covering the Group’s purchasing and
key supplier strategy was presented to the Board in October. Further updates on
the activities of the Group’s competitors, customers and suppliers were given by
the Chief Executive throughout the year, as significant matters arose.
People and
organisation
Board and GEC
succession planning
The Nomination Committee undertook searches for a new Chairman,
new CFO and new Non-executive Director. It also oversaw the actions undertaken
to address vacancies in the GEC and monitored the recruitment, development
and retention of individuals in the senior management cadres, along with the
impact of these actions on the Group’s talent pipeline.
Workforce engagement
After two years of limited opportunity for travel, the Non-executive Directors were
able to undertake a more comprehensive schedule of site visits in 2022. Each of
the nine sites they visited provided them with the opportunity to engage directly
with the workforce, including conducting ‘town hall’ meetings to discuss the work
of the Remuneration Committee and respond to questions from employees across
all topics.
Board dynamics
A detailed series of induction meetings and site visits were conducted, and key
past Board papers were shared to facilitate the integration of the new Chairman
into the work of the Board.
Senior management succession
The Committee’s succession planning activities also encompass
the senior management levels immediately below the Board,
aiming to support and encourage the growth of a pool of talent
able to step up to the Group’s top roles. The Committee spent a
significant amount of time during the year discussing senior
management succession, in the context of the resignation of the
President of Advanced Refractories and the retirement of the
President Operations and Technology from the Executive
Committee. As a matter of routine, the Committee considers
succession plans for all the senior functional and Business Unit
positions, assessing the availability of candidates who could
cover the roles on a short-term contingency basis should the
need arise, along with the pool of medium-term and long-term
talent available for future development into specific roles.
The Committee was kept apprised of plans in relation to the
resourcing of the two Executive Committee vacancies. No internal
candidates were judged ready to assume the role of President of
Advanced Refractories and so an external recruitment exercise
was launched which remains ongoing. It was resolved that the role
of President Operations and Technology would not be directly
replaced, with the responsibilities allocated to existing senior
managers in the Business Units or supported by recruitment
to new non-Executive Committee roles. The Committee also
considered the level of turnover in the Senior Leadership Group
and the activities being undertaken to retain existing talent,
along with the action being taken to develop and recruit new
executives to fill gaps in this talent pool.
Committee evaluation
The Committee’s activities were a separate part of the externally
facilitated evaluation of Board effectiveness during the year.
The results of the questionnaires were collated, and a written
report tabled and discussed by the Committee. The management
of Nomination Committee meetings continued to be rated highly,
with a further improvement seen in the quality of information
provided, including a greater breadth of information presented
on executive talent development and succession planning. The
Committee’s effectiveness in promoting the development of a
diverse pipeline of talent throughout the organisation was rated
positively, although it was noted that further work needed to be
undertaken to promote greater gender diversity. The succession
planning process for the Non-executive Directors was deemed to
be functioning well but it was noted that the succession plans for
the Executive Directors and other members of the GEC were not
fully developed, which had been brought into sharp focus by the
departures from this group during the year. The pipeline of talent
for these roles and those in the immediate levels below will be an
area of significant emphasis for the Committee during 2023.
On behalf of the Nomination Committee
Carl-Peter Forster
Chairman, Nomination Committee
2 March 2023
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Directors’ Remuneration Report
Dear Shareholder,
I am pleased to present our Directors’ Remuneration Report
(Remuneration Report) for 2022 which, in addition to this
Chair’s letter, is divided into two sections:
–
Our proposed new Directors’ Remuneration Policy for
approval by shareholders at the AGM in May 2023; and
–
The Annual Report on Directors’ Remuneration. This outlines
how we implemented the current Directors’ Remuneration
Policy in 2022 and how we intend to apply the new Policy in 2023
2022 was a year of considerable challenge for the Committee
as it sought to ensure that the Company’s remuneration strategy
remained fit-for-purpose and appropriately rewarding in
the face of retention challenges and a recent history of low
incentive pay-outs.
Remuneration overview
–
Reviewing and approving achievement against the
performance targets for the 2021 Annual Incentive
arrangements
–
Setting performance targets and approving the structure
of the 2022 Annual Incentive arrangements, including
targets for the new KPIs supported by shareholders in the
January 2022 consultation
–
Reviewing and assessing the Company’s attainment of
performance conditions applicable to the Vesuvius Share
Plan (VSP) awards made in 2019
–
Setting the performance measures and targets, and
authorising the grant of new awards in 2022 under the
VSP, the Deferred Share Bonus Plan and the 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 Benefit Trust (EBT)
–
Reviewing employee remuneration arrangements around
the Group, with particular reference to the cost of living issues
facing many of our workforce in the current climate
–
Reviewing the impact, on the Group’s remuneration
targets, of the war in Ukraine and of the sanctions regime
on Russian entities
–
Considering retention issues and reviewing a range
of options
–
Approving the 2021 Directors’ Remuneration Report
and reviewing the 2022 Directors’ Remuneration Report
–
Reviewing the Committee’s terms of reference
–
Approving the 2023 remuneration for the Chairman,
Chief Executive and senior management
Key activities in 2022
Review of executive remuneration
2023 Remuneration Policy
Our current Policy was approved by shareholders in 2020 and expires in
2023 so we will seek shareholder approval at the forthcoming AGM for a
new Policy. The Remuneration Committee has concluded that modest
changes are required to the Policy at this time, including a change to the
annual incentive opportunity level.
In my statement last year I reported on the extensive executive
remuneration review that the Committee undertook in 2021 to
understand our competitive positioning, our alignment of pay
and performance over time, feedback from shareholders and the
views of Board and Executive Committee members. That review
identified a number of issues including the challenge of setting
long-term targets in a cyclical business, the scope for alignment
with strategy to be improved through the selection of alternative
KPIs, a desire to incorporate ESG KPIs more explicitly into incentive
arrangements and a desire to ensure both the incentivisation and
retention of the executive team.
During this review we considered a range of alternative share
incentive structures – including a hybrid arrangement of part
Restricted Stock Units (RSUs) and part performance shares, and
whilst potentially attractive the Committee concluded that it was
unlikely that this would achieve shareholder support in the present
environment. The Committee also considered a full RSU plan,
but was (and remains) of the opinion that long-term share awards
should be linked, in the main, to long-term performance.
Following the review, some modest changes were made to
the performance measures in our incentive structure for 2022,
principally the introduction of a returns measure (post-tax ROIC)
to align with our strategy of delivering value to shareholders
and the introduction of ESG measures aligned with our
Sustainability Strategy. The Committee has noted positively
the resultant increased focus on ROIC in internal discussions
regarding potential acquisitions and in the deployment of capital
across the Group. The inclusion of ESG metrics has similarly
had a reinforcing effect on behaviours with continued focus
on the environmental scorecard in management teams across
the business, particularly with regard to CO
2
emissions, diversity
and safety, which are prime tenets of the culture of Vesuvius.
We now need to take time to assess whether these changes have
addressed the underlying issues identified in the review or whether
more fundamental changes may be required in the future to
ensure the long-term plan achieves its objectives and to ensure
continued alignment with our Group strategy. Accordingly, the
Committee has concluded that no substantive changes should
be made to the Policy concerning long-term incentives at this time,
in order to allow an appropriate assessment of the impact of the
changes to the performance measures. We intend to keep the
issue under close review during 2023.
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Annual Report and Financial Statements 2022
Dinggui Gao
Jane Hinkley
Douglas Hurt
Carla Bailo
(from 1 February 2023)
The Company Secretary
is Secretary to the
Committee
Kath Durrant
– Committee Chair
The Committee has spent further time in 2022 considering issues
of retention in light of the findings from our review in 2021 and
we appreciated the support of shareholders for a substantial
increase in salary for our CFO, Guy Young, in early 2022.
Unfortunately, we were not able to retain Guy who left Vesuvius
in February 2023. The market for talented executives is very
strong and we have also experienced other regrettable losses
in the senior team, of which there are more details below.
A consequent focus on our competitiveness has led us to review
the upper limit of annual incentive opportunity in the Policy
which, after extensive debate by the Committee, we propose to
increase from 150% to 175% of salary for the Executive Directors.
A number of shareholders queried this aspect of our policy
proposal and we discussed the Committee’s track record of
setting highly challenging performance targets, as evidenced
by the below-market level of incentive pay-outs over the ten
years since demerger despite consistently strong performance
by management (average AIP c.56% of max; average VSP
vesting c.31% of max). Whilst setting targets in a cyclical business
can be challenging, I would like to reassure shareholders that
we have every intention of continuing to set challenging targets
going forward.
The Committee additionally took the opportunity to review the
current Policy against the UK Corporate Governance Code,
shareholder guidance and general market practice. Following
that review, a handful of other minor changes are proposed
to the new Policy, details of which are summarised on page 124.
CEO remuneration in 2023
In turbulent times steady leadership is particularly important.
Unfortunately, we have suffered a number of regrettable recent
losses amongst our senior team. In addition to Guy Young’s recent
departure, Thiago Avelar, the Business Unit President responsible
for Advanced Refractories left the business in December 2022
and Patrick Bikard, President Operations and Technology retired
at the end of 2022. The loss of experience at the helm of the
organisation has concerned the Board and the Remuneration
Committee. Whilst there are usually multiple factors in people’s
decisions to move, it is the Committee’s judgement that
dissatisfaction with overall remuneration has played a part.
In particular the lack of pay-outs from the long-term incentive is
a particular cause for concern amongst the management team.
The Board, absent the CEO and CFO, determined that it
was a commercial imperative, and in the best interests of all
stakeholders – including our employees – to retain the CEO,
Patrick André, and the remainder of the Executive team given
the vital stability that they provide at the head of Vesuvius in this
important period whilst a number of leadership transitions
take place, including that of the Chairman. As such, the Board
requested that the Remuneration Committee consider all options
at its disposal to ensure retention. In this context, the Committee
concluded that there needed to be a substantial repositioning
of Patrick’s remuneration and therefore agreed an increase of
12% in his salary to £720,000 and, subject to approval of the
new Remuneration Policy, an increase in his annual incentive
opportunity from 150% to 175% of salary. The market for talent
is strong in both public and private organisations and this
arrangement places Patrick’s remuneration firmly in the upper
quartile of a competitive market which the Committee believes is
appropriate given his critical importance to the Group, his position
as a seasoned FTSE CEO and his sustained strong performance.
Patrick’s extensive industry experience is particularly important as
the business seeks to successfully navigate a complex macro
environment across multiple countries in this period of transition.
This is not a decision we have taken lightly, particularly in the
current circumstances, and the Committee looked at a range of
options for changing Patrick’s remuneration. However, we believe
that the solution we have arrived at is the best option to ensure
that we have continuity and stability in the leadership of the
Group. This proposal was discussed with a range of stakeholders
including both the former and new Chairmen and our top twenty
shareholders, which included Cevian Capital, our largest
shareholder with a 21.11% holding in the Company. As part of
these consultations, I discussed in detail the rationale for such
a significant increase in the overall package, the skills and
experience of the Executive team remaining, the gaps left by
those departing, succession planning in a broader sense and
remuneration comparisons to other industrial businesses along
with the broader FTSE 250 and other comparable non-UK and
private businesses. I also discussed how Vesuvius is a global
business and its Executive team is diverse, with four nationalities
present, reflecting the way in which Vesuvius recruits from the
global marketplace, and how this practice creates greater risk for
the Group, as our Executives have a worldwide market to access
for alternative roles in both public and private businesses.
In coming to this decision, the Committee was also cognisant
of the experience of our general workforce during challenging
times. We are all acutely conscious of the difficult economic
environment faced by our workforce in the 40 different countries
in which we operate and this is reflected in our broader pay
decisions this year. For context, our 2023 salary budget increase
for the wider workforce (on a weighted average basis) is c.9%
globally, higher than any in recent years. The majority of the
non-managerial workforce are represented by trade unions
or via other collective arrangements, so the Committee is satisfied
that employees’ interests are being represented, both in our
own review and through salary negotiations throughout the
organisation. Additionally, we have taken action in certain
key markets particularly affected by the cost of living crisis.
For example, in Poland, the 2023 salary increase was partially
accelerated into Q4 2022 to help address the issues faced by
our workforce.
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In Brazil, we have been offering employees access to health and
nutrition advisers, and psychologist support, to counter the
physical and mental challenges faced as a result of increased
financial pressures; and in the United States we provided
one-off lump sum payments to selected employees mid-year,
and formally introduced hybrid working in many locations to
reduce the burden of rising travel costs.
Employee engagement continues to be measured, participation
rates are high and overall results positive relative to benchmarks.
Appointment of new Chief Financial Officer
Our new Chief Financial Officer, Mark Collis, will join the Company
on or before 4 July 2023. Mark has been appointed on an annual
salary of £420,000 (unchanged from the salary received by his
predecessor in 2022) and pension provision of 17% of salary
(in line with the average received by the majority of the global
workforce). He will also be entitled to an annual incentive
opportunity of 150% of salary and a long-term incentive award
of 150% of salary (both unchanged from the opportunities
available to his predecessor). In 2023, both will be prorated
to reflect the period employed during the calendar year.
The Committee believes this package to be competitive and
broadly at median, but more importantly, appropriately
positioned vis-à-vis the remuneration received by members
of the Group Executive Committee.
As a consequence of joining Vesuvius plc, Mark Collis is expected
to forfeit certain annual and long-term incentives from his current
employer. In order to compensate him for this, he will receive a
one-off payment equivalent in value to the 2022 annual incentive
payment he has foregone. He will also receive a combination of
restricted share awards and performance share awards under
the Vesuvius Share Plan, over Vesuvius plc shares, to compensate
him for the equity incentives that he has foregone. These shares
will vest on a like-for-like basis with regard to quantum/value and
timeline versus the awards he has lost. The share awards will be
made in accordance with the rules of the Vesuvius Share Plan,
and the Group’s Remuneration Policy for Executive Directors, and
will count towards Mark’s shareholding requirement. Full details
of the compensatory awards, with share awards expected
to total around 80,000 shares, will be included in next year’s
Remuneration Report once they have been finalised and
granted following Mark’s commencement of employment.
Our outgoing Chief Financial Officer, Guy Young, will not receive
any annual bonus for the performance year 2022, and all his
outstanding performance share awards lapsed upon his
departure date, in line with the Remuneration Policy.
Alignment of our KPIs with Company strategy,
purpose and values
The delivery of financial KPIs and the development of an effective
organisation sustainable over the long term relies on a clear
set of values. Vesuvius believes that high levels of performance
and growth require a diversity of thinking and continuous
innovation, underpinned by the behaviours of courage,
ownership, respect and energy. The alignment of our incentives
with our Strategic Objectives is summarised in the table below.
As outlined above, no changes are proposed in the KPIs used to
assess performance in 2023.
KPI
2022 and 2023
weighting
Strategic
rationale
Annual Incentive Plan: one-year performance
EPS
40%
Consistent with our strategic aim of sustainable, profitable growth
Maintains the primary focus on a profit measure in short-term incentivisation
Working capital/sales
20%
Consistent with our strategic aim of maintaining strong cash generation and an
efficient capital structure
Post-tax ROIC
20%
Consistent with our strategic aim of generating sustainable profitability and creating
shareholder value
Personal measures
20%
Enables a focus on specific personal deliverables, managed through the performance
management system
Vesuvius Share Plan: three-year performance
Relative TSR
40%
Consistent with our strategic aim of delivering shareholders a superior return on
their investment
Post-tax ROIC
40%
Consistent with our strategic aim of generating sustainable profitability and creating
shareholder value
ESG
20%
Provides a specific focus on the three priority long-term ESG measures for the Group:
CO
2
intensity (10%), Safety (5%) and Diversity (5%)
Remuneration overview
continued
118
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Annual Report and Financial Statements 2022
Performance and incentive outcomes in 2022
Health and safety
As the Chairman and Chief Executive outlined in their statements,
Safety continues to be our number one priority at Vesuvius.
After the significant improvement registered in 2021, we stabilised
our safety results in 2022 with a Lost Time Incident Frequency
Rate of 1.08 vs 1.06 in 2021. However, we remain dissatisfied
with this level and are intensifying our efforts to progress rapidly
towards our objective of zero incidents. Despite continued focus
and strong performance across our sites, it is deeply regrettable
to report that we suffered a fatality at our joint venture site in
Wuhan, China. The Committee considered whether any
adjustments to incentives should be applied as a result of this
fatality, however, given the relevant elements of operational
management of this site sit outside of Vesuvius’ control, this was
not felt to be appropriate. We have worked quickly with our
partners to ensure we learn the necessary lessons to prevent
this tragedy being repeated.
Operational
Revenue for the year increased to £2,047m (+18% on an
underlying basis vs 2021), continuing the post-pandemic bounce
back in key markets. Trading profit at £227m was 50% greater
than 2021 (on an underlying basis) and return on sales increased
by 240bps, on an underlying basis, to 11.1%. These results
exceeded expectations in what has been a challenging year
for Vesuvius and many industrial businesses. The conflict in
Ukraine, coupled with continuing pandemic-related supply
chain disruptions have continued to bring significant challenge
and complexity to each area of our operations. The ongoing
management of pricing and the ability to pass on frequent
price increases has been a critical area of focus both centrally
and in our decentralised operations requiring extensive
customer interaction.
The conflict in Ukraine posed challenges for us in Russia,
where the cessation of sales to sanctioned customers affected
revenue and profits. Nevertheless, both the Steel and Foundry
Divisions achieved a strong commercial performance in 2022,
gaining market share in most regions, and with the Flow Control
Business Unit specifically gaining market share in all regions.
Our trade working capital to sales ratio was 23.8%, an increase
of 290bps vs 2021. We are working to reduce the ratio, focusing
on driving down overdues, and managing production to
control inventory levels. Product quality metrics have continued
to improve.
Strategic
We significantly increased our investment in research and
development in 2022, reaching £36m, an increase of 18% over
2021, fully expensed in our profit and loss statement. Our main
focus areas remain the innovation in materials science, with
the objective to continuously improve the performance of our
consumables, and the development of mechatronics solutions
enabling our customers to substitute operators to manipulate
our consumables and, by doing so, improve their safety, reliability,
cost and quality performance.
We successfully launched 15 new products in 2022 in our three
Business Units. Our New Product Sales ratio, defined as the
percentage of our sales realised with products which didn’t exist
five years ago, reached 16.2% in 2022, up from 15.3% in 2021.
The Sustainability initiative launched in 2020 has continued
to deliver strong results across the associated KPIs, with Scope 1
& 2 CO
2
e emission intensity continuing to reduce (with 2022
emissions 18.8% lower than the 2019 base year); sustained
levels of diversity with women representing 20% of the Senior
Leadership Group, and succession candidates identified for
the majority of critical roles.
The Chief Executive led the Board through extensive strategy
discussions exploring options for both organic and inorganic
growth. The 2021 acquisition of the refractory business from
Universal Refractories, Inc was leveraged with the consolidation
of manufacturing of advanced refractory and foundry products
(both of Vesuvius and those acquired from Universal) to enhance
operational efficiency. In addition, in October 2022 we acquired
Bayuquan Magnesium Co (BMC), a world-class basic monolithic
refractory plant in China and a long-standing manufacturing
partner of ours. As outlined in the Chief Executive’s statement,
we hope this will support our continued development in the
fast-growing Asia-Pacific region. The balance sheet remains
strong after these acquisitions with the Company’s net debt
position at 0.9x EBITDA.
Strategic
alignment
Always put
safety first
Deliver
profitable
growth
Generate
value for our
shareholders
Maintain
an efficient
capital structure
Deliver
industry-leading
sustainable
operations and
solutions
Think beyond
in innovation
Foster talent,
skill and motivation
in our people
See more about
Our strategy
on
p18 and 19
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Remuneration overview
continued
In 2022, the Annual Incentive Plan (AIP) was based 40% on
Group headline earnings per share (EPS), 20% on Group post-tax
ROIC (Return on Invested Capital), 20% on the Group’s working
capital to sales ratio (based on the 12-month moving average)
and 20% on specified personal objectives. Performance against
these measures is illustrated above and full details of the targets
are given on page 136.
Our adjusted headline earnings per share of 56.5 pence,
53.6 pence when restated at December 2021 exchange rates,
was above the maximum Annual Incentive Plan target of
46.6 pence and above the 2021 outturn of 38.8 pence.
The Group’s post-tax ROIC of 10.7% also exceeds the maximum
Annual Incentive Plan target of 10.0%.
The Group’s working capital to sales ratio of 23.8% fell below
the threshold Annual Incentive Plan target of 23.6%.
The Committee agreed personal objectives for the Chief
Executive and CFO at the start of 2022 and assessed
their performance to merit 79% and 78% of maximum
targets respectively.
The overall formulaic outcome of the bonus scorecard was
75.8% of maximum for the Chief Executive and 75.6% of
maximum for the CFO. However, it should be noted that,
due to the resignation of Guy Young in 2022, he forfeited his
entitlement to any pay-out under this plan.
The Committee gave careful consideration to these outcomes and
was satisfied that they were consistent with the strong financial
and operational performance and strategic progress outlined
above. The Committee noted that similar and complementary
KPIs exist in the incentive programmes for managers and
employees and was mindful of the outturns for the wider
workforce in confirming its decisions for Executive Directors
and the Executive Committee. Consequently, the Committee
concluded that no discretionary adjustment was required.
The performance period for the awards made under the Vesuvius
Share Plan (VSP) in 2020 was completed at the end of 2022.
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. Although this has been a particularly challenging period
for the global economy and, by extension, a cyclical business like
Vesuvius, relative TSR performance was above median and
headline EPS growth was above the target performance level.
These results mean that 48.1% of the shares potentially available
to the Chief Executive under this award will vest. Due to his
resignation, Guy Young’s awards lapsed upon his departure.
The Committee has not applied any discretion with respect to this
vesting of the 2020 VSP awards which it believes is a fair result in
the context of overall business performance over this three-year
period. In particular, the Committee was satisfied that, as a result
of its decision in 2020 to use a share price which was 11.4% higher
than the formulaic grant price to determine the level of VSP
awards, there are no concerns in relation to windfall gains
pertaining to these awards.
Weighting
50%
Total shareholder return
50%
EPS growth
Vesuvius Share Plan 2020 outturn
Performance
60%
36%
Patrick André,
Chief Executive
Guy Young,
C
hief Financial
Officer
Threshold
On-target
60%
36%
Weighting
Performance
40%
EPS
20%
ROIC
20%
Working capital/sales ratio
20%
Personal objectives
Annual Incentive Plan outturn
100%
79%
Patrick André,
Chief Executive
Guy Young,
C
hief Financial
Officer
Threshold
On-target
0%
78%
0%
100%
100%
100%
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Vesuvius plc
Annual Report and Financial Statements 2022
Chairman and Non-Executive Directors’ fees
During the year, the Committee reviewed the Chairman’s annual
fee, and determined that an increase from £240,000 p.a. to
£250,000 p.a. was appropriate. Separately, the Board considered
Non-executive Director fees and made a number of consequent
adjustments to the fee structure that are detailed on page 138.
Those adjustments include the proposed introduction of a travel
allowance payable in respect of additional time spent travelling
internationally on Company business.
Employee engagement
During the year the Non-executive Directors visited plants in
Belgium, Brazil, India, Japan, the Netherlands and Mexico.
Each of these site visits enabled direct discussions with local
management teams and the workforce on a range of topics.
At larger sites, ‘town hall’ meetings enabled two way dialogue
on a range of issues. In these meetings it was usual for
Non-executive Directors to present on how the Board and
its Committees operate, and on corporate governance,
including executive remuneration.
In 2022, the Remuneration Committee received a report from
the Chief HR Officer regarding workforce terms and conditions
across the globe. The subsequent discussion enabled the
Committee to better understand the standards applied across a
highly decentralised group to ensure appropriate and competitive
remuneration arrangements exist in each operating company.
The key issues raised reflect the pressures of the present
inflationary environment – particularly in higher inflation
countries; the impact of low unemployment levels in many of
our main markets, retirement levels and decreasing workforce
availability – all of which are driving very competitive recruitment
market conditions at all levels of the organisation. The Committee
noted the range of solutions being developed as part of the
People Strategy – including improved employer branding and
alternative recruitment market targeting.
Shareholder engagement
At the 2022 AGM, the Directors’ Remuneration Report was
supported by 97.7% of voting shareholders and I am very
grateful for this demonstration of broad-based support for
our executive remuneration arrangements.
During 2022, the Company’s top 22 shareholders were consulted
on the proposed changes to the Remuneration Policy in advance
of the 2022 AGM and discussions regarding changes in the
CEO’s remuneration took place at length either in face-to-face
meetings or through detailed correspondence where this was
the shareholder’s preference. We are grateful for the responses
received and discussions had, and appreciate the support
expressed by many of our shareholders.
The business has reported strong results for 2022, despite facing
significant operational challenges, and we hope to gain your
support for the actions we have taken to enable the future success
of Vesuvius.
I welcome feedback at any point in time from our entire
shareholder base regarding our remuneration arrangements
and I hope that we will earn your understanding and support at
the forthcoming AGM.
Kath Durrant
Chair of the Remuneration Committee
2 March 2023
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Remuneration Committee structure
The current members of the Remuneration Committee are all
the independent Non-executive Directors of the Company.
The Committee Chair is Kath Durrant. She, Dinggui Gao,
Jane Hinkley and Douglas Hurt have served on the Committee
throughout 2022. Carla Bailo joined the Committee on her
appointment to the Board on 1 February 2023. 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 88 and 89.
Meetings
The Committee met seven times during the year. The Group’s
Chairman, Chief Executive, Chief Financial Officer and Chief HR
Officer were invited to each meeting, together with Friederike
Helfer, 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 Chair of the Committee
reported the outcomes of all meetings to the Board.
The Committee operates under formal terms of reference
which were reviewed during the year. The terms of reference
are available on the Group website: www.vesuvius.com. The
Committee members are permitted to obtain outside legal advice
at the Company’s expense in relation to their deliberations.
The Committee may also secure the attendance at its meetings
of any employee or other parties it considers necessary.
Role and responsibilities
The Committee is responsible for:
–
Determining the overall remuneration policy for the
Executive Directors, including the terms of their service
agreements, pension rights and compensation payments
–
Setting the appropriate remuneration for the Chairman,
the Executive Directors and Senior Management (being the
Group Executive Committee)
–
Reviewing workforce remuneration and related policies,
and the alignment of incentives and rewards with culture,
taking these into account when setting the policy for Executive
Director remuneration
–
Overseeing the operation of the executive share incentive plans
Advice provided to the Remuneration Committee
Deloitte is appointed directly by the Remuneration Committee to
provide advice on executive remuneration matters, including
remuneration structure and policy, updates on market practice
and trends, and guidance on the implementation and operation
of 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 2022, 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 advisory work, and some consultancy services.
During 2022, Deloitte’s fees for advice to the Remuneration
Committee, charged on a time spent basis, amounted to
£103,375. 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
In addition to the activities outlined within the Chair’s letter,
the Committee was the subject of an externally moderated
performance evaluation in 2022. As part of this review it was
noted by the Committee Chair that there were a number of areas
for continued focus, which will be taken into consideration by
the Committee during 2023. These included continuing to
review the alignment of metrics with strategy, monitoring the
effectiveness of policy in a cyclical environment, and senior
management retention.
Operation of the Remuneration Committee
Directors’ Remuneration Report
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Directors’ Remuneration Report
Remuneration Policy Design
The Committee is satisfied that the Remuneration Policy is designed to promote the long-term success of the Company in accordance
with the requirements of the Code with regard to:
Remuneration Policy Design Principles
The Remuneration Policy 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. The policy was developed within the framework of
the meetings as set out on pages 116 and 117 and, as part of that process, the Committee paid particular attention to the need to
avoid any conflicts of interest in its decision-making.
Clarity
Predictability
Simplicity
Proportionality
Risk
Alignment to culture
Executive remuneration arrangements
are transparent with full disclosure in the
Annual Report. The Annual Incentive
structure for the Executive Directors is
based on the same structure utilised for
senior executives throughout the Group.
Long-term sustainable growth is core to
the long-term incentive, and alongside
five-year holding periods clearly aligns
the interests of executives with those of
the Group’s shareholders.
The remuneration illustrations indicate
the minimum and maximum potential
remuneration. 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 pay-out
levels are justified. The Committee has
the discretion to amend the final vesting
level if required.
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.
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 (see page 133).
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.
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,
values and purpose (see page 118).
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Changes to Policy
Changes in the 2023 Policy are summarised below. The only
substantive change is an increase in the maximum annual
incentive opportunity. A handful of other minor changes
are proposed.
–
Pension (page 125)
The pensions section of the Remuneration Policy table contains
our updated Executive Director pension arrangements which
are compliant with the UK Corporate Governance Code.
–
Annual Incentive (page 126)
Maximum annual incentive opportunity for Executive Directors
will increase from 150% to 175% of salary as explained in the
Remuneration Committee Chair’s overview. In 2023, maximum
annual incentive opportunity will be 175% of salary for the
CEO and 150% of salary for the CFO. The 2023 Policy also
includes a specific cap on pay-out (0-25% of maximum) for
achieving a threshold level of performance.
Consistent with emerging market practice, the 2023 Policy
contains scope for the Committee to set and measure bonus
targets other than on an annual basis. Use of this option
will be reserved for particularly unusual circumstances
where there is limited visibility to set robust annual targets.
Additionally, in line with Investment Association guidance,
the 2023 Policy ensures that the Committee has appropriate
discretion to adjust the formulaic annual incentive outturn so
that it properly reflects the performance of the executives and
the business, the experience of shareholders in terms of value
creation, the experience of wider stakeholders and the general
market environment.
–
Shareholding guidelines (page 128)
Consistent with market practice, the 2023 Policy clarifies
the Committee’s discretion to exempt shares purchased
by an Executive Director in a personal capacity from the
post-employment shareholding guidelines. Shares received
from incentive plans remain fully subject to the guidelines.
–
Recruitment Policy (page 129)
Consistent with market practice, the 2023 Policy contains
flexibility for the reimbursement of legal or other costs
approved by the Committee when incurred by an individual
in relation to their appointment.
–
Exit payment policy (page 130)
The default approach is to apply time pro-rating to the VSP
awards of a ‘good leaver’. For future awards, subject to AGM
approval of the proposed minor technical amendments to the
VSP, the default basis for time pro-rating will be by reference to
the proportion of the performance (rather than vesting) period
that has elapsed.
–
Remuneration Policy for Non-executive Directors (page 131)
Under the 2023 Policy, Non-executive Directors may be
provided with travel allowance payments to reflect the
additional time commitment involved with travelling
internationally on Company business. The 2023 Policy also
clarifies the flexibility to approve relevant benefits (e.g. liability
insurance) in connection with the performance of their duties.
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. 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.
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 performance 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 granted to the Executive Directors.
Middle and senior managers also participate in the Annual
Incentive Plan and, in certain cases, longer-term share or
cash-based plans, with awards predominantly based on
a blend of Group and regional or Business Unit performance
measures appropriate for the scope of participants’
responsibilities. Individual percentages of variable versus
fixed remuneration and participation in share-based structures
increase as seniority increases.
Consideration of conditions elsewhere in the Group in
developing policy
The Non-executive Directors participated in a number of ‘town
hall’ meetings during the year which provided the opportunity to
engage with the workforce to explain how executive remuneration
aligns with wider Company pay policies. The Remuneration
Committee undertook a global review of workforce remuneration
and conditions in 2022, and thus takes 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 Chair of the Committee, Kath Durrant welcomes
shareholder engagement and is available for any discussions
investors wish to have on remuneration matters. In November
2022, the Committee wrote to the top 22 shareholders and
key governance agencies outlining its proposals for the 2023
Remuneration Policy, as referenced in the Chair’s letter.
We received responses from around 80% of recipients and
we responded to all questions that were raised.
2023 Remuneration Policy
Directors’ Remuneration Report
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Remuneration Policy Table for Executive Directors
1
Alignment/purpose
Operation
Opportunity
Performance
S
Base salary
Helps to recruit and
retain key employees.
Reflects the individual’s
experience, role and
contribution within
the Company
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.
Salary increases will normally not exceed
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
(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.
Any increase will take into account the
individual’s performance, contribution
and increasing experience.
B
Other benefits
Provides normal,
market-aligned
benefits
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, 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.
There is no formal maximum as
benefit costs can fluctuate depending
on changes in provider, cost and
individual circumstances.
1
None.
P
Pension
Helps to recruit and
retain key employees
Ensures income
in retirement
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).
Maximum of 17% of base salary
for incumbent Executive from the
end of 2022, in line with the average
of that received by the majority of the
global workforce.
2
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.
None.
1.
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 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 (ii) 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’
include 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.
2.
As analysed in the business’s Workforce Retirement Practices review conducted in 2020, as detailed on page 122 of the 2020 Annual Report.
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2023 Remuneration Policy
continued
Alignment/purpose
Operation
Opportunity
Performance
AI
Annual Incentive
Incentivises Executive
Directors to achieve
key short-term financial
and strategic targets of
the Group
Additional alignment
with shareholders’
interests through
the operation of
bonus deferral
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, i.e. in cases
of dismissal for cause, as outlined on
page 130 in this Policy. These may be
cash or share settled.
The Committee has the discretion to
award participants the equivalent value
of dividends accrued during the vesting
period on any shares that vest.
Subject to malus and clawback.
Below threshold: 0%.
At threshold: Between 0–25%
of maximum.
On-target: 50% of the applicable
maximum opportunity in any year.
Maximum: Up to 175% of base salary.
The Remuneration Committee will
normally set the level of maximum bonus
opportunity for each Executive Director
at the start of each year.
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.
The Annual Incentive is normally
measured on targets set at the
beginning of each year. In unusual
or exceptional circumstances, for
example where there is exceptional
economic volatility which limits visibility
to set robust 12-month targets, the
Committee may elect to set and measure
targets other than on an annual basis.
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. Actual performance
targets will be disclosed after the
performance period has ended.
They are not disclosed in advance
due to their commercial sensitivity.
The Committee may use its discretion
to amend the formulaic outturn upwards
or downwards if it does not consider the
formulaic outcome appropriate.
VSP
Vesuvius Share Plan
(VSP)
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
and the further two-year
holding period
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.
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
between 0–25% of the award, rising to
vesting of the full award at maximum.
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 for 2023 are relative TSR,
post-tax ROIC and ESG measures,
weighted at 40%, 40% and 20%
respectively. The Remuneration
Committee will retain discretion for
future awards to include additional or
alternative performance conditions which
are aligned with the corporate strategy.
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.
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Annual Report and Financial Statements 2022
Patrick André, Chief Executive
Minimum
On-target
Maximum
Maximum, including
share-price appreciation
Fixed elements
Annual variable elements
Long-term variable elements
100%
43%
30%
27%
25%
35%
40%
31%
21%
29%
50%
£925k
£2,131k
£3,625k
£4,345k
Mark Collis, Chief Financial Officer
*
Minimum
On-target
Maximum
Maximum, including
share-price appreciation
100%
47%
29%
24%
28%
36%
36%
25%
30%
45%
£509k
£1,076k
£1,769k
£2,084k
Remuneration illustrations
£000
*
Annualised equivalent shown for illustrative purposes.
Illustration of the application of the Remuneration Policy for 2023
The charts below show the total remuneration for Executive
Directors for 2023 for minimum, on-target and maximum
performance. The fixed elements of remuneration comprise
base salary, pension and other benefits, using 2023 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
87.5% of base salary for Patrick André and 75% for Mark Collis);
and for the Performance Share awards under the Vesuvius Share
Plan, median performance for the TSR element and the mid-point
between threshold and maximum performance for the post-tax
ROIC and ESG performance conditions (with overall vesting at
40% of maximum, based on the vesting schedule detailed on
page 134). No share price appreciation is assumed.
Maximum
Fixed remuneration plus maximum Annual Incentive (being full
achievement of financial and personal targets, made at 175%
of base salary for Patrick André and 150% for Mark Collis) and
100% vesting for Performance Share awards (made at 200%
of base salary for Patrick André and 150% of base salary for
Mark Collis) 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.
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General operation of the Policy for Executive Directors
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. However, in relation to shares acquired
by an Executive Director in their personal capacity, the Committee
may, where appropriate, exempt such shares from the
post-employment guideline.
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.
In 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.
Service contracts for 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 the
Company dated 17 July 2017. Mark Collis will be employed as
Chief Financial Officer, with a start date on or before 4 July 2023,
pursuant to the terms of a service agreement with Vesuvius plc
dated 4 January 2023. Patrick André’s appointment is terminable
by Vesuvius on not less than 12 months’ written notice, and by
him on not less than six months’ written notice. Mark Collis’s
appointment is terminable by him and Vesuvius 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.
Other
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.
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.
2023 Remuneration Policy
continued
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Annual Report and Financial Statements 2022
Policy for joining and leaving:
Recruitment policy
Typical event
Policy
Executive Director
appointed or promoted
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. 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 375% of salary in aggregate.
First year of appointment
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 contract agreed
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.
Appointment
of Chairman or
Non-executive Director
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.
Individual appointed
on a base salary below
market, contingent
on performance
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.
Internal appointment
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.
Relocation required
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.
Buying out compensation
forfeited on leaving
previous employer
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 9.4.2 R(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.
Reimbursement
of other costs
In addition to the elements noted above, the Committee may consider reimbursement of
other demonstrable, specific costs incurred by an individual in relation to their appointment
(e.g. legal costs).
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Policy for joining and leaving:
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 to 12 months, and
non-solicitation covenants for a period of 12 months, following the
termination of their employment. Their service agreements are
governed by English law.
Executive Directors’ contracts do not contain any change of
control provisions; they do contain a duty to mitigate should
the Director 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 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.
Bad leaver
Not applicable.
Individuals lose the right to their annual bonus.
Change of control
Paid on the effective date of
change of control.
Annual bonus is paid only to the extent that 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
On the date of the event.
Deferred awards vest in full.
Bad leaver
On the date of the event.
Other than dismissal for cause, deferred awards will vest in full.
Change of control
1
Within seven days of the event.
Deferred awards vest in full.
Vesuvius Share Plan
Good leaver
2
On normal release
date (or earlier at the
Committee’s discretion).
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
performance period not served, unless the Committee decides that
the reduction in the number of vested shares is inappropriate.
Bad leaver
Unvested awards lapse.
Unvested awards lapse on cessation of employment.
Change of control
1
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
for the proportion of the vesting period not served, unless the
Committee decides that the reduction in the number of vested
shares is inappropriate.
1.
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.
2.
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.
Remuneration Policy
continued
130
Vesuvius plc
Annual Report and Financial Statements 2022
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 the transfer of mobile
phone or other administrative expenses.
The Committee reserves the right to make any other payments in
connection with a Director’s cessation of office or employment
where the payments are made in good faith in discharge of an
existing legal obligation (or by way of damages for breach of
such an obligation) or by way of a compromise or settlement of
any claim arising in connection with the cessation of a Director’s
office or employment.
In certain circumstances, the Committee may approve new
contractual arrangements with departing Executive Directors,
including (but not limited to) settlement, confidentiality, restrictive
covenants and/or consultancy arrangements. These would be
used only where the Committee believed it was in the best
interests of the Company to do so.
Remuneration Policy for Non-executive Directors
The Company seeks to appoint Non-executive Directors who
have relevant professional knowledge and have gained
experience in a relevant industry and geographical sector,
to support diversity of expertise at the Board and match
the wide geographical spread of the Company’s activities.
Non-executive Directors attend Board, Committee and other
meetings, held mainly in the UK, together with an annual
strategy review to debate the Company’s strategic direction.
All Non-executive Directors are expected to familiarise
themselves with the scale and scope of the Company’s business
and to maintain their 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.
Alignment/purpose
Operation
Opportunity
Performance
Fees
To attract and retain
Non-executive
Directors of the
necessary skill
and experience
by offering market-
competitive fees
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 are not limited
to, Committee chairmanship (and, where
appropriate, membership) or acting as the Senior
Independent Director. Fees are paid in cash.
When travelling internationally on Company
business, all Non-executive Directors may also
be provided with additional travel allowance
payments, reflecting the associated time
commitment, paid in cash.
The Chairman is paid a single cash fee
and receives administrative support from
the Company.
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.
Any travel allowances payable will be reflective
of travel time incurred as necessary to fulfil
Company business.
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.
None.
Benefits and expenses
To facilitate execution
of responsibilities
and duties required
by the role
All Non-executive Directors are reimbursed for
reasonable expenses incurred in carrying out
their duties (including any personal tax owing
on such expenses).
Should the Board deem it appropriate, additional
benefits can be provided to Non-executive
Directors as required (e.g. liability insurance).
Non-executive Directors’ expenses are paid in
accordance with Vesuvius’ expense procedures.
Provision of additional benefits will be at the
discretion of the Board and will reflect the
reasonable needs of a Non-executive Director
in undertaking Company business.
None.
131
Our business
Our
performance
Sustainability
Governance
Financial
Statements
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. The Chairman 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.
The table below shows the date of appointment for each of the
Non-executive Directors:
Non-executive Director
Date of appointment
Carl-Peter Forster
1 November 2022
Carla Bailo
1 February 2023
Kath Durrant
1 December 2020
Dinggui Gao
1 April 2021
Friederike Helfer
4 December 2019
Jane Hinkley
3 December 2012
Douglas Hurt
2 April 2015
Annual Report on Directors’ Remuneration
Directors’ Remuneration Report
Executive Directors’ remuneration in year ahead
The table below sets out the phasing of receipt of the various elements of Executive Director remuneration for 2023.
2023
2024
2025
2026
2027
2028
Description and link to strategy
S
Base salary
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.
B
Benefits
Provides normal market practice benefits.
P
Pension
The pension benefit helps to recruit and retain key employees
and ensures income in retirement.
AI
Annual Incentive
The Annual Incentive incentivises the Executive Directors to achieve
key short-term financial and strategic targets of the Group.
AI
Deferred Annual
Incentive
The deferral of a portion of the Annual Incentive increases
alignment with shareholders.
VSP
Vesuvius
Share Plan
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.
Remuneration Policy
continued
Holding
period
132
Vesuvius plc
Annual Report and Financial Statements 2022
S
Base salary
B
Benefits
P
Pension
AI
Annual Incentive
*
VSP
Vesuvius Share Plan
*
(VSP)
£720,000
175%
200%
of base salary
of base salary
150%
150%
of base salary
of base salary
£420,000
Patrick André
Annual Incentive potential for
Patrick André, maximum value
Patrick André, maximum value
Annual Incentive potential for
Mark Collis, maximum value
Mark Collis, maximum value
Mark Collis
2022:
£643,000
2022:
n/a
Benefits for Executive
Directors include:
–
Car allowance
–
Private medical care
–
Relocation expenses
–
Tax advice and tax
reimbursement
–
Commuting costs
–
School fees
–
Directors’ spouses’ travel
–
Administrative expenses
17% of base salary, in line with the average received by the majority of the global workforce.
For 2023, the maximum Annual Incentive potential for Patrick André will increase to 175% of base salary with target Annual Incentive
potential being 87.5% of base salary for the achievement of target performance in all elements. For Mark Collis, potential will remain
at the level available previously to the Chief Financial Officer, i.e. 75% at target, and 150% at maximum. Pay-outs will commence
and increase incrementally from 0% once the threshold performance for any of the elements has been met. In the case of Mark Collis,
the incentive payable will be calculated pro rata to reflect his period of employment in the 2023 calendar year.
33% of any Annual Incentive earned will be deferred into awards over shares, which will vest after a holding period of three years.
These incentives are based 40% on Group headline earnings per share, 20% on the Group’s working capital to sales ratio (based
on the 12-month moving average), 20% on post-tax Return on Invested Capital (ROIC) and 20% on specified 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 2023 are focused on long-term strategic objectives, or are job-specific in nature and track
performance against the Group’s key strategic, organisational and operational goals with a specific focus on ESG outcomes.
Share awards with a maximum value of 200% of salary will be
granted to Patrick André and, for Mark Collis a maximum value
of 150% of salary will be granted, prorated to reflect his period
of employment during the 2023–2025 performance period.
The strike price for the awards will be determined by reference to
the average share price over the 30 calendar days prior to grant.
Vesting of 40% 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),
40% on post-tax Return on Invested Capital (ROIC) and
20% on ESG. Targets are set out overleaf.
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.
*
The Committee is mindful of the present geopolitical environment and the existing energy crisis. In this context it reserves its discretion to amend targets for
both the AIP and VSP should major industrial market disruption prevail.
To be prorated based
on tenure from date of
hire in 2023.
As explained in the Committee
Chair’s letter, the CEO was
awarded a 12% increase,
effective 1 January 2023.
The table below sets out how the Remuneration Policy will be applied to the Executive Directors’ remuneration for 2023. Further details
about each of the elements of remuneration are set out in the Remuneration Policy.
133
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Targets for the VSP Awards for the year 2023
TSR ranking relative to FTSE 250 excluding
investment trusts
Weighting
40%
Vesting percentage
(of total LTIP)
Below median
0%
Median
10%
Between median and
upper quintile
Pro rata between
10% and 40%
Upper quintile and above
40%
Post-tax ROIC
1
Weighting
40%
Vesting percentage
(of total LTIP)
2
Average ROIC over three-
year performance period
Threshold and below
0%
8.5%
Maximum
40%
11.0%
1.
ROIC is defined as Net Operating Profit After Tax (NOPAT), divided by
invested capital (IC). NOPAT is defined as Group trading profit, plus
post-tax share of JV results, less amortisation of intangible assets
calculated as an average over the target period. (The inclusion of
amortisation charges serves to reduce the calculation of ROIC returns
though we believe this to be the most appropriate definition.) Invested
capital is defined as total assets excluding cash and non-interest-bearing
liabilities, calculated as the average of IC at the start and the end of
the target period at constant currency. See Note 4.18 of the Group
Financial Statements.
2. Vesting between these points will be on a straight-line basis.
Environment, Social, Governance
Weighting
20%
Safety:
Average Lost Time Injury Frequency Rate (LTIFR)
1
2023–2025
Vesting percentage
(of total LTIP)
2
Range
Threshold and below
0%
1.05
Maximum
5%
0.85
Energy:
CO
2
e: Reduction Scope 1 and 2 CO
2
e emission intensity
(vs 2019 baseline) in 2025
3
Vesting percentage
(of total LTIP)
2
Range
Threshold and below
0%
-17%
Maximum
10%
-23%
Diversity:
Gender diversity in senior leadership group
4
on 31 Dec 2025
Vesting percentage
(of total LTIP)
2
Range
Threshold and below
0%
20%
Maximum
5%
26%
1.
LTIFR is the Lost Time Injury Frequency Rate, based on the number of lost time
injuries that occur during the performance period per million hours worked.
2.
Straight-line vesting between threshold and maximum.
3.
Reduction of CO
2
e emissions per metric tonne of product packed for shipment.
4.
Senior Leadership Group is defined as the Group Executive Committee plus
the most senior Vesuvius managers worldwide, in terms of their contribution
to the Group’s overall results and to the execution of the Group’s strategy.
This group comprises between 150 and 170 members (number may slightly
fluctuate from one year to the next based on organisational changes).
Explaining the ROIC target range
The Committee has considered the Group strategy over the
period, market conditions, and historic and current estimates of
WACC provided by JP Morgan in determining the target range.
Whilst we expect ROIC to be at the lower end of the range in
Year 1, we believe a range of 8.5–11.0% to be appropriate for
the VSP award 2023–2025. The threshold pay-out level remains
at 0% this year, but may change for future awards.
Adjustments to the ROIC target range may be required should
the Board approve certain mergers, acquisitions or disposals.
For any such event that requires Board approval then
management will assess the potential impact on ROIC as part
of their broader submission, and the Committee will determine
whether any adjustment to targets should be made. In general,
the Committee will have regard to the materiality of the event
and the timing in the life of the award cycle. The intention will
be to maintain fair, stretching but achievable targets, whilst
not providing a disincentive to management to bring forward
proposals for mergers, acquisitions or disposals that are in the
Company’s interest.
Explaining the ESG metrics
The Environment, Social and Governance targets for the 2023
awards represent key strategic priorities for the management
team as well as the Board.
Safety continues to be of paramount cultural importance to
Vesuvius and progressive improvement has been made in
recent years. The targets are considered stretching in the
context of an operationally challenging environment with many
employees working remotely at customer sites. Lost Time Injury
Frequency Rate is a recognised metric, and is measured per
million hours worked.
Energy, the reduction in Scope 1 and 2 emissions is a key feature
of the Company’s sustainability strategy (see pages 50-70)
and as such a measure of CO
2
e emission intensity is used
(CO
2
e emissions per tonne of product packed for shipment).
Baseline and current emissions have been verified by Carbon
Footprint Ltd. Vesuvius has committed to achieve a net zero status
by 2050 at the latest and a roadmap, with clear intermediary
targets in 2025 and 2035, has been established, as detailed
in our Sustainability report (see pages 64 and 65 for further
information). Restated performance of -15.3% vs the 2019
baseline has been considered reasonable by the Committee in
setting the forward target range. This restatement takes into
account the continuing expansion projects in Skawina, Poland
and Kolkata, India which will have a deleterious effect on the
-18.8% calculated to 2022 vs 2019 baseline.
Diversity, a focus on gender diversity has seen improvements in
the Senior Leadership Group of c.150–170 individuals in recent
years. Targets are set so as to drive continued progress towards
the targets outlined in our Sustainability Initiative.
Annual Report on Directors’ Remuneration
continued
134
Vesuvius plc
Annual Report and Financial Statements 2022
Executive Directors’ remuneration in year under review
Single total figure table – audited
The table below sets out the total remuneration received by Executive Directors in the financial year under review:
Patrick André
Guy Young
2022
(£000)
2021
(£000)
2022
(£000)
2021
(£000)
Total salary
643
618
420
385
Taxable benefits
1
83
60
18
18
Pension
2
155
154
96
96
Total fixed pay
3
880
832
535
499
Annual Incentive
4
731
874
0
537
Long-Term Incentives
5,6,7
594
0
0
0
Total variable pay
8
1,325
874
0
537
Total
9
2,206
1,706
535
1,036
1.
Standard benefits for the Executive Directors include car allowance
and private medical care. In 2022, Patrick André also received external
professional services support, funded by the Company, in relation to
EU Settled Status applications for him and his wife, in line with the
approval for such support granted by the Remuneration Committee in
May 2019. The total cost of this support including gross-up of associated
taxes was £44,811.
2.
In 2021 and 2022, Patrick André and Guy Young received a pension
allowance of 25% of base salary capped at the January 2020 level.
The figures for 2022 in the table represent the value of all cash allowances
and contributions received in respect of pension benefits, at voluntarily
reduced rates.
3.
The sum of total salary, taxable benefits and pension.
4.
This figure includes the Annual Incentive payments to be made to
the Executive Directors in relation to the year under review. Note that
Guy Young will receive no such payment, having forfeited his entitlement
to such payments on account of his resignation from the Company in
September 2022. 33% of any Annual Incentive payments will be deferred
into awards over shares, to be held for a period of three years. See page
126 for more details.
5.
The 2022 figures represent the Performance Share awards granted to
Patrick André and Guy Young in 2020 under the VSP. Patrick André’s award
will vest in 2023 while Guy Young’s lapsed, in line with Company leaver
policies, on his resignation from the Company in February 2023.
6.
The value of the 2022 long-term incentives, relating to the Performance
Share awards granted to Patrick André under the VSP in 2020, is reflective
of a share price depreciation of 0.17% between the share price used at
grant (392.5p), versus the Q4 2022 average share price (391.8p), used here
as a proxy for the vesting price. The values also includes dividend vesting
at 45.1p per vested share.
7.
The 2021 figures represent the Performance Share awards granted to
Patrick André and Guy Young in 2019 under the VSP which lapsed in 2022.
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.
Additional note:
10. Total 2022 Directors’ Remuneration (Executive Directors and Non-executive
Directors) is £3.377m. 2021 Directors’ Remuneration for the Directors who
served during 2021 was £3.257m.
Annual Incentive for 2022 performance – audited
The Executive Directors are eligible to receive an Annual Incentive
calculated as a percentage of base salary, based on achievement
against specified financial targets and personal objectives. Each
year, the Remuneration Committee establishes the performance
criteria for the forthcoming year. The financial targets are set by
reference to the Company’s financial budget. The target range is
set to ensure that Annual Incentives are only paid out at maximum
for significantly exceeding performance expectations. The
Remuneration Committee considers that the setting and
attainment of these targets is important in the context of
achievement of the Company’s longer-term strategic goals.
The Annual Incentive has a threshold level of performance
below which no award is paid, a target level at which 50% of the
maximum opportunity is payable, and a maximum performance
level at which 100% of the maximum opportunity is earned,
on a pro rata basis.
For 2022, the maximum Annual Incentive potential for the
Executive Directors was 150% of base salary and their target
Annual Incentive potential was 75% of base salary.
For the financial year 2022, the Executive Directors’ Annual
Incentives were based 40% on Group headline EPS, 20% on the
Group’s return on invested capital (post-tax ROIC), 20% on the
Group’s working capital to sales ratio (based on the 12-month
moving average) and 20% on specified personal objectives.
No Annual Incentive 2022 award is payable to Guy Young in light
of his resignation from the Company in September 2022 and
associated forfeiting of his rights to any such payment in line
with the Company’s leaver policies.
135
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Financial targets in 2022
The 2022 Vesuvius Group headline EPS performance targets
set out below were set at the December 2021 full-year average
foreign exchange rates, being the rates used for the 2022
budget process:
Threshold:
36.7p
On-target:
41.6p
Maximum:
46.6p
The 2022 Group’s return on invested capital (post-tax ROIC)
targets were set as follows:
Threshold:
7.5%
On-target:
8.5%
Maximum:
10.0%
The 2022 Group’s working capital to sales ratio targets were set
as follows:
Threshold:
23.6%
On-target:
22.6%
Maximum:
21.6%
In assessing the Group’s performance against these targets,
the Committee uses a constant currency approach. Thus,
the 2022 full-year EPS performance was retranslated at
December 2021 full-year average foreign exchange rates to
establish performance. This is consistent with practice in
previous years.
In 2022, Vesuvius’ EPS performance at the December 2021
full-year average foreign exchange rates was 53.6 pence,
return on invested capital (post-tax ROIC) outcome was 10.7%
and the working capital to sales ratio was 23.8%. Consequently,
EPS performance was above the maximum target, return on
invested capital (post-tax ROIC) performance was above the
maximum target, and the Group working capital to sales ratio
was below threshold.
As a result, in respect of the financial performance metrics
of the 2022 Annual Incentive, 60% is due on the EPS targets,
30% on the ROIC targets, and 0% on the working capital targets
(related to a maximum bonus opportunity of 60%, 30% and
30% of salary respectively).
Personal objectives
In 2022, a proportion (20%) of the Annual Incentive for Executive
Directors (representing 30% of salary) was based on the
achievement of personal objectives.
Patrick André
Summary of objective
Summary outcome
Drive performance and deliver results
–
Strong performance on quality, Investor Relations strategy, market share gains,
cash conversion and improvement of gross margin
Reinforce talent management and
prepare succession plans
–
During 2022 there was strong progress in the identification and ongoing development
of successors to key management positions
Review and implement the
Group strategy
–
Significant progress in developing the strategic roadmap to enhance return to
shareholders, closed the acquisition of BMC and ensured smooth integration of the
refractories business acquired from Universal Refractories, Inc
Improve Vesuvius’ sustainability
performance
–
Delivered a strong Sustainability strategy in 2022 and delivered further improvements
in CO
2
reduction and Top Management diversity
In summary, after considering performance as outlined above, the Committee approved an Annual Incentive pay-out of 23.7% of
contractual base salary, out of the maximum potential 30%, in respect of the personal objectives of Patrick André.
Guy Young
Summary of objective
Summary outcome
Optimise cash management and
profitability
–
Delivered a clear review of Investor Relations strategy and robust performance on
cash management and gross margin
Support growth strategy
–
Supported the successful closure of the BMC acquisition and facilitated strong progression
on the integration of the refractories business acquired from Universal Refractories, Inc
Drive IT performance
–
Continued the implementation of the cyber resilience plan and maintained progress
on SAP A1 implementation
Drive Opex reductions
–
Successfully implemented the optimisation plan of finance shared services and
progressed implementation of the new Finance Operating Model in EMEA
Improve Vesuvius’
sustainability performance
–
Supported development of a strong sustainability strategy and delivered further
improvements in CO
2
reduction and Top Management diversity
In summary, after considering performance as outlined above, the Committee approved a hypothetical Annual Incentive pay-out
of 23.4% of contractual base salary, out of the maximum potential 30%, in respect of the personal objectives of Guy Young.
The total Annual Incentive awards payable to Patrick André in respect of his service as an Executive Director during 2022 is therefore
113.7% of salary, of which 33% will be deferred into awards over shares, to be held for a period of three years, with vesting in accordance
with the Remuneration Policy.
The Committee considered the appropriateness of this overall AIP payment in the context of the experience of our various stakeholders
during 2022 and was satisfied that no discretionary adjustments were required.
Annual Report on Directors’ Remuneration
continued
136
Vesuvius plc
Annual Report and Financial Statements 2022
2020 VSP Awards (vesting in 2023) – audited
The performance period applicable to these awards ended on 31 December 2022.
Weighting
0% vesting
25% vesting
50% vesting
100% vesting
Performance achieved
Pay-out level
(% of
maximum)
TSR relative to FTSE 250 excluding
investment trusts
1
50%
Below
median
Median
–
Upper
quintile
Between median
and upper quintile
(Ranked 71st)
36.1%
Annual compound headline EPS growth
1
50%
Less
than 3%
3%
6%
15%
7.8%
60.0%
1.
Straight-line vesting applies between the vesting points.
Share awards granted during the financial year – audited
VSP award
An award was granted under the VSP to selected senior executives, including the Executive Directors, in March 2022. 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. This award is subject to the performance conditions described below and will vest in March 2025
(with a subsequent two-year holding period for any vested shares to March 2027).
Type of award
Date of grant
Maximum
number of
shares
1
Face value
(£)
Face value
(% of salary)
Threshold
vesting
End of
performance period
Patrick André
Nil-cost option
17 March 2022
319,900
£1,238,653
193%
25% of
award
31 December
2024
Guy Young
2
17 March 2022
156,716
£606,804
144%
1.
In 2022, Patrick André and Guy Young were entitled to receive allocations of Performance Shares worth 200% and 150% of their base salaries respectively.
In light of the volatile share price, the Committee applied its discretion so that the maximum number of shares in these allocations were capped at a level
based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the February 2022 Remuneration Committee meeting
of £4.020, while the average closing mid-market price of Vesuvius’ shares on the five dealing days prior to grant was £3.872. The maximum number of shares
quoted excludes any additional shares that may be awarded in relation to dividends accruing during the vesting and holding periods.
2.
As with his other, in-flight VSP awards, Guy Young’s 2022 award lapsed upon his departure from the business on 17 February 2023.
Vesting of the VSP awards is subject to satisfaction of the following performance conditions. Any LTIP vesting is at the discretion of the
Remuneration Committee.
Weighting
Threshold
100% vesting
TSR relative to FTSE 250 excluding investment trusts
1
40%
Median
Upper quintile
Group post-tax ROIC
1
40%
7.5%
10%
ESG: Safety: Average Lost Time Injury Frequency Rate (LTIFR) 2022–2024
1,2
5%
1.1
0.9
ESG: Energy: CO
2
e: Reduction in Scope 1 and 2 energy CO
2
e emissions/tonne
(vs 2019 baseline) in 2024
1,3
10%
-14%
-20%
ESG: Diversity: Gender diversity in Senior Leadership Group on 31 December 2024
1,4
5%
20%
26%
1.
Straight-line vesting applies between the vesting points. Threshold vesting for the TSR element is 25% of maximum, and 0% of maximum for all other elements.
2. LTIFR is the Lost Time Injury Frequency Rate, based on the number of lost time injuries that occur during the performance period. The calculation rate is LTIFR
per million hours worked.
3. Reduction of energy CO
2
e emissions per metric tonne of product packed for shipment.
4. Senior Leadership Group is defined as the Group Executive Committee plus the most senior Vesuvius managers worldwide, in terms of their contribution to the
Group’s overall results and to the execution of the Group’s strategy. This group comprises between 150 and 170 members (number may slightly fluctuate from
one year to the next based on organisational changes).
Each of the VSP performance measures operates independently. The use of these measures is intended to align Executive Director
remuneration with shareholders’ interests. Prior to vesting, the Remuneration Committee reviews the underlying financial performance
of the Company and non-financial performance of the Company and individuals over the performance period to ensure that the
vesting is justified, and to consider whether to exercise its discretion including consideration of any potential windfall gains.
Deferred Share Bonus Plan award
33% of the Annual Incentive earned by Patrick André and Guy Young in respect of performance in 2021 was deferred into a share award
granted in March 2022 under the Company’s Deferred Share Bonus Plan. There are no additional performance conditions applicable
to these awards.
Type of award
Date of grant
Number of
shares
1
Face value
(£)
Vesting date
Patrick André
Nil-cost option
17 March 2022
75,207
£291,202
18 March 2025
Guy Young
17 March 2022
46,235
£179,022
1.
The number of shares has been calculated using the share price of £3.872 (average closing share price for the five dealing days prior to grant) and excludes any
additional shares that may be awarded in relation to dividends accruing during the vesting period.
137
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Statement of Executive Directors’ shareholding – audited
The interests of Executive Directors and their closely associated
persons in ordinary shares as at 31 December 2022, including any
interests in share options and shares provisionally awarded under
the VSP, are set out below:
Outstanding share
incentive awards
Beneficial
holding in
shares
3
Beneficial
holding %
With
performance
conditions
1
Without
performance
conditions
2
Patrick André
184,020
0.07
832,882
91,681
Guy Young
153,259
0.06
396,398
57,673
1.
These are Performance Shares granted under the VSP. The awards were
all granted subject to performance conditions.
2.
These are awards granted under the Deferred Share Bonus Plan.
These awards are not subject to any additional performance conditions.
3.
Patrick André’s beneficial shareholding includes 30,000 shares he
purchased on 7 March 2022.
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 Patrick André in the ordinary shares
of the Company in the period from 1 January 2023 to the date of this Report.
6. For Guy Young, there were no changes in these interests in the period
from 1 January 2023 to his date of leaving, 17 February 2023, other than in
respect of his outstanding performance-related awards which lapsed on
his date of leaving.
7.
All awards under the VSP are subject to performance conditions and
continued employment until the relevant vesting date as set out on
page 143.
8.
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.
Shareholding guidelines – audited
The Remuneration Committee encourages Executive Directors to
build and hold a shareholding in the Company. Under the 2023
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
requirement is not achieved or is not maintained.
Compliance with the shareholding policy is tested at the end of
each year for application in the following year. Under the 2023
Remuneration Policy, the valuation of any holding is 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.
As at 31 December 2022, the Executive Directors’ shareholdings
against the shareholding guidelines contained in the 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 2022, of 387.48 pence per share)
were as follows:
Director
Actual share
ownership
as a percentage
of salary at
31 Dec 2022
Policy share
ownership as a
percentage of
salary
Policy met?
Patrick André
135%
200%
In the build-
up period
Guy Young
187%
200%
In the build-
up period
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 2022. External, professional
services support was provided in 2022 to former Chief Executive,
François Wanecq, in the form of international tax advice relating
to his retirement, in line with the commitment to cover such
reasonable costs, as specified in the Section 430(B) statement
referenced in the Company’s 2017 Annual Report. Total costs
amounted to £3,629 (exclusive of VAT). No other payments were
made to any other past Directors of the Company during the year
ended 31 December 2022.
Non-executive Directors
Single total figure table – audited
The table below sets out the total remuneration received by
Non-executive Directors in the financial year under review:
2022
2021
(£000)
Total
fees
Taxable
benefits
1
Total
Total
fees
Taxable
benefits
1
Total
Carl-Peter
Forster
2
40
2
42
–
–
–
John
McDonough
CBE
3
221
9
230
205
9
214
Kath Durrant
75
7
82
60
3
63
Dinggui Gao
60
0
60
38
0
38
Friederike
Helfer
60
2
62
50
3
53
Jane Hinkley
70
3
73
56
2
58
Douglas Hurt
85
3
88
70
1
71
Total Non-
executive
Director
remuneration
610
26
636
479
18
497
1.
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.
2.
Carl-Peter Forster joined the Board on 1 November 2022 and took over as
Chairman on 1 December 2022.
3.
John McDonough retired from the Board on 1 December 2022.
Fee structure in 2023
The fee for the Chairman was also reviewed by the Committee
during the year and the fees for the Non-executive Directors
by the Board. Following an assessment of time commitment,
roles and responsibilities it was decided that the fees would
increase with effect from 1 January 2023. The Chairman’s fee
was increased to £250,000; the Non-executive Directors’ fees
were increased to £63,000. Supplementary fees remain
unchanged (supplementary Senior Independent Director fee
at £10,000; supplementary fee for the Chairs of the Audit and
Remuneration Committees at £15,000; and supplementary
fee for the Non-executive Director responsible for workforce
engagement at £10,000). In addition, it was decided that
Non-executive Directors should receive a stipend of £4,000 in
respect of each overseas, intercontinental trip they undertake
on Vesuvius business, with the stipend payable for a maximum
of five such trips in any calendar year.
Annual Report on Directors’ Remuneration
continued
138
Vesuvius plc
Annual Report and Financial Statements 2022
Statement of Non-executive Directors’ shareholding – audited
The interests of Non-executive Directors and their closely associated persons in ordinary shares as at 31 December 2022 are set out below:
Beneficial
holding in
shares
Beneficial
holding
%
Carl-Peter Forster
–
0.00
Carla Bailo
1
–
0.00
Kath Durrant
–
0.00
Friederike Helfer
2
–
0.00
Dinggui Gao
–
0.00
Jane Hinkley
12,000
<0.01
Douglas Hurt
18,000
0.01
1. Carla Bailo was appointed as a Non-executive Director effective
1 February 2023.
2. Friederike Helfer is a Partner of, and has a financial interest in, Cevian
Capital which held 57,249,896 ordinary shares (21.11% of Vesuvius’ issued
share capital) as at 31 December 2022 and at the date of this Report.
Additional notes:
3. Former Chairman, John McDonough, held 145,000 ordinary shares as
at his retirement date of 1 December 2022.
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 Non-executive Directors in the
ordinary shares of the Company in the period from 1 January 2023 to the
date of this Report.
6.
Full details of Directors’ shareholdings 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.
Other regulatory disclosure requirements
Annual changes in Executive Directors’ pay versus employee pay
Executive Directors’ pay comparison
The London headquartered salaried employee workforce is presented as a voluntary disclosure of the representative comparator
group for the Vesuvius Group parent company as there is only one non-Director employee in the parent company.
Year-on-year change in pay for Directors compared to the London headquartered employee average
2022
2021
2020
Salary
3
Bonus
3
Benefits
5
Salary
3,4
Bonus
3
Benefits
5,6
Salary
3,4
Bonus
3
Benefits
5
London headquartered
employee average
1,2
(8)%
(12)%
3%
19%
236%
120%
0%
165%
18%
Executive Directors
Patrick André
4%
(16)%
11%
11%
469%
(6)%
(7%)
183%
(25%)
Guy Young
9%
(100)%
1%
11%
442%
9%
(1%)
155%
(14%)
Non-executive
Directors
12
Carl-Peter Forster
7
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
John McDonough CBE
8
17%
–
(1)%
11%
–
48%
(10%)
–
(46%)
Kath Durrant
9
25%
–
117%
19%
–
100%
n/a
–
n/a
Friederike Helfer
20%
–
(31)%
11%
–
969%
(10%)
–
(60%)
Dinggui Gao
10
20%
–
100%
n/a
–
n/a
n/a
–
n/a
Jane Hinkley
11
26%
–
40%
(5%)
–
63%
(10%)
–
(60%)
Douglas Hurt
21%
–
275%
11%
–
24%
(10%)
–
–
1.
This is the average percentage change, excluding the Executive Directors.
Salaries, bonus and benefits relate to the relevant financial reporting year.
2.
Average London headquartered salary reduced year-on-year, due
largely to the departure from the business, during 2022, of several high
paid employees.
3.
Calculated using data from the single figure table in the Annual Report.
4.
During 2020 all Executive and Non-executive Directors took a voluntary
20% pay reduction for six months. Other senior employees in London
headquarters also took a pay reduction between 10% and 20%, depending
on their level of seniority. Therefore, the total percentage increase for the
Executive Directors between 2021 and 2022 was higher than their agreed
salary increases, as these increases are compared with actual, partly-
reduced salary paid during 2020 rather than full, contractual base salary.
5.
Calculated using data from the audited Directors’ Emoluments. Benefits
relate to taxable travel benefits, and Company pensions in the case of
Executive Directors. It is calculated as the percentage increase or decrease
on the actual figures year-on-year and not annualised or prorated for any
new starters.
6.
Calculations of 2021 benefits changes have been restated as compared
with the 2021 Annual Report, to ensure correct alignment with Single Figure
Remuneration tables.
7.
Carl-Peter Forster joined the Board on 1 November 2022 and took over as
Chairman on 1 December 2022.
8.
John McDonough retired from the Board on 1 December 2022.
9.
Kath Durrant joined on 1 December 2020 and then became the
Remuneration Committee Chair following the 2021 AGM, and it is this
change that accounts for the proportionally higher increase on her salary
in 2021.
10. Dinggui Gao joined on 1 April 2021.
11. Jane Hinkley stood down as the Remuneration Committee Chair following
the 2021 AGM, which accounts for her net reduction in year-on-year change
in 2021.
12. The Non-executive Directors’ fees were reviewed and increased in 2015,
2019 and 2022.
139
Our business
Our
performance
Sustainability
Governance
Financial
Statements
CEO pay ratio
The UK employee workforce is the representative comparator
group to the Chief Executive, Patrick André, who is based in the
UK (albeit with a global role and responsibilities). Levels of pay
vary widely across the Group depending on geography and
local market conditions.
Year
Method
25th
percentile
pay ratio
50th percentile
(median)
pay ratio
75th
percentile
pay ratio
2019
Option A
35:1
28:1
17:1
2020
Option A
32:1
24:1
13:1
2021
Option A
53:1
41:1
21:1
2022
Option A
45:1
34:1
19:1
2022
Total pay and
benefits (£)
36,030
47,013
84,926
2022
Salary (£)
30,612
43,102
77,139
The table above shows the Chief Executive pay ratios versus
our UK employees for 2019, 2020, 2021 and 2022. 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, 2020,
2021 and 2022.
Notably the ratios have lowered in 2022 vs 2021, which is in line
with the trend of annual incentives pay-outs, with overall annual
incentive plan pay-outs set to be lower for 2022 compared with
2021. Given that variable pay makes up a more substantial
proportion of Chief Executive pay than for other employees,
an increase or decrease in incentives outturn has a
disproportionate impact on the resulting ratio.
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, 2020, 2021 and 2022.
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 Committee is 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 Report on Directors’ Remuneration
continued
Annual spend on employee pay
1
versus shareholder distributions
2
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 2021 and 2022:
Remuneration
£441.3m
Total
£501.2m
Relative importance of spend on pay (2022)
£m
88.0%
Dividend
£59.9m
12.0%
Remuneration
£396.8m
Total
£454.1m
Relative importance of spend on pay (2021)
£m
87.4%
Dividend
£57.3m
12.6%
2022
(£m)
2021
(£m)
Change
Employee pay
1
441.3
396.8
11.2%
Dividends
2
(based on final proposed dividend)
59.9
57.3
4.5%
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.
140
Vesuvius plc
Annual Report and Financial Statements 2022
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.
Vesuvius’ total
shareholder return
compared against
total shareholder
return of the
FTSE 250 index
(excluding
investment trusts)
since demerger
FTSE 250 Index (excluding investment trusts)
Vesuvius plc
19/12/12
50
100
150
200
250
Chief Executive pay –
financial year ended
François Wanecq
1
Patrick André
2
31/12/13
31/12/14
31/12/15
31/12/16
31/12/17
31/12/18
31/12/19
31/12/20
31/12/21
31/12/22
Total remuneration
(single figure (£000))
£2,447
£1,519
£752
£1,173
£1,675
1
£465
2
£2,022
£1,220
£936
£1,706
£2,206
Annual variable pay
(% of maximum)
100%
64%
0%
50%
81%
1
85%
2
83%
11%
20%
94%
76%
Long-term variable pay
(% of maximum)
28%
27%
0%
0%
43.7%
1
n/a
2
100%
63%
0%
0%
48%
1.
Amounts shown in respect of François Wanecq for 2017 reflect payments in respect of his service as Chief Executive from 1 January 2017 to 31 August 2017 and
the full value of his VSP 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.
Shareholder voting on remuneration resolutions
Votes for
Votes against
Votes withheld
Approval of the Directors’ Remuneration Policy 2020 AGM
244,618,671 (97.2%)
7,105,663 (2.8%)
3,640
Approval of the Annual Report on Remuneration 2022 AGM
243,341,031 (97.7%)
5,754,991 (2.3%)
5,500
The Directors’ Remuneration Report has been approved by the Board and is signed on its behalf by
Kath Durrant
Chair of the Remuneration Committee
2 March 2022
141
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Share usage
Under the rules of the VSP, the Company has the discretion to
satisfy awards either by the transfer of Treasury shares or other
existing shares, or by the allotment of newly issued shares. Awards
made under the Deferred Share Bonus Plan to satisfy shares
awarded to Directors in respect of their Annual Incentive, and
awards made to management of the Company over shares
pursuant to the Medium-Term Incentive Plan, must be satisfied
out of Vesuvius shares held for this purpose by the Company’s
Employee Benefit Trust (EBT).
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 2022, the Company held 7,271,174 ordinary
shares in Treasury and the EBT held 2,454,110 ordinary shares.
No additional shares were purchased between 31 December
2022 and the date of this report.
The EBT 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 VSP 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 were transferred, or newly issued shares allotted under the
VSP during the year under review.
Deferred Share Bonus Plan allocations – audited
33% of the Annual Incentives earned by Patrick André and Guy Young in respect of their periods of service as Directors of Vesuvius plc
were deferred into shares under the Company’s Deferred Share Bonus Plan. The following table sets out details of outstanding awards:
Grant and type of award
Total share
allocations as
at 1 Jan 2022
Additional
shares
allocated
during the
year
Allocations
lapsed during
the year
Shares vested
during the
year
Total share
allocations
as at
31 Dec 2022
Market price
of the
shares on
the day
before
award (p)
Earliest
vesting/
release date
Patrick André
14 March 2019
1
Deferred Bonus Shares
29,646
–
–
(29,646)
0
608
14 Mar 2022
12 March 2020
2
Deferred Bonus Shares
7,044
–
–
–
7,044
391.8
12 Mar 2023
18 March 2021
3
Deferred Bonus Shares
9,430
–
–
–
9,430
538
18 Mar 2024
17 March 2022
4
Deferred Bonus Shares
–
75,207
–
–
75,207
385
17 Mar 2025
Total
46,120
75,207
–
(29,646)
91,681
Guy Young
5
14 March 2019
1
Deferred Bonus Shares
19,028
–
–
(19,028)
0
608
14 Mar 2022
12 March 2020
2
Deferred Bonus Shares
5,345
–
–
–
5,345
391.8
12 Mar 2023
18 March 2021
3
Deferred Bonus Shares
6,093
–
–
–
6,093
538
18 Mar 2024
17 March 2022
4
Deferred Bonus Shares
–
46,235
–
–
46,235
385
17 Mar 2025
Total
30,466
46,235
–
(19,028)
57,673
1.
In 2019, Patrick André and Guy Young received Annual Incentive bonuses
in respect of their service as Directors of Vesuvius plc in 2018 of £546,131
and £350,525 respectively. 33% of each bonus was awarded in deferred
shares (conditional awards) 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 vested in full on the third anniversary
of their award date.
2.
In 2020, Patrick André and Guy Young were awarded Annual Incentive
bonuses in respect of their service as Directors of Vesuvius plc in 2019 of
£83,775 and £63,569 respectively. 33% of each bonus was awarded in
deferred shares (conditional awards). The allocations of shares were made
on 12 March 2020 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 £3.9248. The total value of these awards based
on this share price was £27,646 and £20,978 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.
3.
In 2021, Patrick André and Guy Young were awarded Annual Incentive
bonuses in respect of their service as Directors of Vesuvius plc in 2020 of
£153,419 and £99,138 respectively. 33% of each bonus was awarded in
deferred shares (conditional awards). The allocations of shares were made
on 18 March 2021 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 £5.3690. The total value of these awards based
on this share price was £50,628 and £32,715 respectively. There are no
additional performance conditions applicable to these awards, which will
therefore will vest in full for Patrick André on the third anniversary of their
award date.
4.
In 2022, Patrick André and Guy Young were awarded Annual Incentive
bonuses in respect of their service as Directors of Vesuvius plc in 2021 of
£873,604 and £537,075 respectively. 33% of each bonus was awarded in
deferred shares (conditional awards). The allocations of shares were made
on 17 March 2022 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 £3.872. The total value of these awards based
on this share price was £291,202 and £179,022 respectively. There are no
additional performance conditions applicable to these awards, which
will therefore vest in full for Patrick André on the third anniversary of their
award date.
5.
Following his departure from the Company on 13 February 2023,
Guy Young’s outstanding awards vested in full.
Additional note:
6.
The mid-market closing price of Vesuvius’ shares during 2022 ranged
between 284.6 pence and 491.0 pence per share, and on 30 December
2022, the last dealing day of the year, was 404.2 pence per share.
Appendix: Supplementary share-related information
Directors’ Remuneration Report
142
Vesuvius plc
Annual Report and Financial Statements 2022
Vesuvius Share Plan award allocations – audited
The following table sets out outstanding awards that were allocated to Patrick André and Guy Young under the VSP:
Grant and type of award
Total share
allocations as
at 1 Jan 2022
Additional
shares
allocated
during
the year
Allocations
lapsed
during
the year
Shares vested
during
the year
Total
share
allocations
as at
31 Dec 2022
Market price
of the shares
on the day
before award
(p)
Performance
period
Earliest
vesting date
End of
holding
period
1
Patrick André
14 March 2019
2
Performance Shares
197,400
–
(197,400)
–
0
608
1 Jan 19–
31 Dec 21
14 Mar
2022
14 Mar
2024
12 March 2020
3
Performance Shares
282,772
–
–
–
282,772
391.8
1 Jan 20–
31 Dec 22
12 Mar
2023
12 Mar
2025
18 March 2021
4
Performance Shares
230,210
–
–
–
230,210
538
1 Jan 21–
31 Dec 23
18 Mar
2024
18 Mar
2026
17 March 2022
5
Performance Shares
–
319,900
–
–
319,900
385
1 Jan 22–
31 Dec 24
17 Mar
2025
17 Mar
2027
Total
710,382
319,900
(197,400)
0
832,882
Guy Young
6
14 March 2019
2
Performance Shares
86,362
–
(86,362)
–
0
608
1 Jan 19–
31 Dec 21
14 Mar
2022
14 Mar
2024
12 March 2020
3
Performance Shares
132,120
–
–
–
132,120
391.8
1 Jan 20
31 Dec 22
12 Mar
2023
12 Mar
2025
18 March 2021
4
Performance Shares
107,562
–
–
–
107,562
538
1 Jan 21–
31 Dec 23
18 Mar
2024
18 Mar
2026
17 March 2022
5
Performance Shares
–
156,716
–
–
156,716
385
1 Jan 22–
31 Dec 24
17 Mar
2025
17 Mar
2027
Total
326,044
156,716
(86,362)
0
396,398
1.
Performance shares granted from 2019 onwards are subject to a further
two-year holding period.
2.
In 2019, Patrick André and Guy Young received allocations of Performance
Shares worth 200% and 150% of their base salaries. 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. Following an assessment of the performance
conditions, these awards lapsed in full in 2022.
3.
In 2020, Patrick André and Guy Young were entitled to receive allocations
of Performance Shares worth 200% and 150% of their base salaries
respectively. In light of the volatile share price, the Committee applied its
discretion so that the number of shares in these allocations were capped
at a level based upon the average closing mid-market price of Vesuvius’
shares on the five dealing days before the February 2020 Remuneration
Committee meeting of £4.371. As a result, Patrick André received an award
of 282,772 shares which, at grant, was equivalent in value to 180% of his
base salary (£1,109,823
*
) and Guy Young received an award of 132,120
shares which, at grant, was equivalent in value to 135% of his base salary
(£518,544
*
).
* Grant values are based on the average closing mid-market price of
Vesuvius’ shares on the five dealing days prior to grant (£3.9248).
4.
In 2021, Patrick André and Guy Young were entitled to receive allocations
of Performance Shares worth 200% and 150% of their base salaries
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 £5.3690. The total value of these awards based
on this share price was £1,235,997 and £577,500 respectively.
5.
In 2022, Patrick André and Guy Young were entitled to receive allocations
of Performance Shares worth 200% and 150% of their base salaries
respectively. In light of the volatile share price, the Committee applied its
discretion so that the number of shares in these allocations were capped
at a level based upon the average closing mid-market price of Vesuvius’
shares on the five dealing days before the February 2022 Remuneration
Committee meeting of £4.02. As a result, Patrick André received an award
of 319,900 shares which, at grant, was equivalent in value to 193% of his
base salary (£1,239,653
**
) and Guy Young received an award of 156,716
shares which, at grant, was equivalent in value to 144% of his base salary
(£606,804
**
).
** Grant values are based on the average closing mid-market price of
Vesuvius’ shares on the five dealing days prior to grant (£3.872).
6.
Guy Young’s outstanding awards lapsed in full on his departure from the
Company on 13 February 2023.
Additional notes:
7.
If the respective performance conditions for Patrick André’s awards are not
met, then the awards will lapse. If the threshold level of either of the two
performance conditions applicable to the awards is met, then 12.50% of
the awards will vest.
8.
The Remuneration Committee also has the discretion to award cash or
shares equivalent in value to the dividend that would have been paid during
the vesting period on the number of shares that vest.
9.
The mid-market closing price of Vesuvius’ shares during 2022 ranged
between 284.6 pence and 491.0 pence per share, and on 30 December
2022, the last dealing day of the year, was 404.2 pence per share.
143
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Directors’ Report
Going concern
Information on the business environment in which the Group operates, including the factors
that are likely to impact the future prospects of the Group, is included in the Strategic Report.
The principal risks and uncertainties that the Group faces throughout its global operations are
shown on pages 32 and 33. The financial position of the Group, its cash flows, liquidity position
and debt facilities are also described in the Strategic Report. In addition, the Group’s Viability
Statement is set out within the Strategic Report on page 31. Note 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 2022 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.
Events since the
balance sheet date
On 6 February 2023, we announced that we had suffered a cyber security incident. In order
to contain the threat, we voluntarily shutdown our systems on a precautionary basis. During
this period our sites instigated manual procedures and work arounds to maintain production,
shipping and invoicing. We have since worked tirelessly on the reinstatement of our systems,
and I am pleased to report that the initial period of major disruption has been short, and all sites
and significant systems are now operational. As such we expect the impact on trading to be
modest, limited to one-off costs of between £3m and £5m.
Future developments
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
The Group’s investment in research and development (R&D) during the year under review
amounted to £36m (representing approximately 1.8% (2021: 1.8%) of Group revenue).
Further details of the Group’s R&D activities can be found in the Operating reviews and
Sustainability section of the Strategic Report.
Political and
charitable donations
In accordance with Vesuvius policy, the Group did not make any political donations or incur any
political expenditure in relation to any UK or non-UK political parties during 2022 (2021: nil).
The Company made charitable donations of £0.5m in the UK in 2022. In 2021 no charitable
donations of more than £2,000 were made in the UK.
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 2022.
The Companies Act 2006 requires the Company to provide a Directors’ Report for Vesuvius plc for the year ended 31 December 2022.
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:
–
The Section 172(1) Statement
–
The Non-financial and sustainability information statement (the Sustainability section)
–
The Governance section, including the Corporate Governance Statement
–
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 85 together represent the management report for the
purpose of compliance with DTR 4.1.8 R of the Financial Conduct Authority’s Disclosure and Transparency Rules.
144
Vesuvius plc
Annual Report and Financial Statements 2022
Task Force on
Climate-related Financial
Disclosures (TCFD)
The Group has reported its climate-related information in accordance with the TCFD disclosure
framework. The majority of this information is included in the Sustainability section of the
Strategic Report. A schedule of disclosure is included on page 54.
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 67 of the Strategic Report. Details of the Group’s energy usage for 2022,
and the efficiency initiatives currently being undertaken, can be found in the Sustainability section
on pages 57–70.
Branches
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.
Dividends
An interim dividend of 6.5 pence (2021: 6.2 pence) per Vesuvius ordinary share was paid on
16 September 2022 to shareholders on the register at the close of business on 5 August 2022.
The Board is recommending a final dividend in respect of 2022 of 15.75 pence (2021: 15.0 pence)
per ordinary share which, if approved, will be paid on 31 May 2023 to shareholders on the register
at 21 April 2023.
Accountability and audit
A responsibility statement of the Directors and a statement by the Auditor about its reporting
responsibilities can be found on pages 150, and 151–159, 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,
as far as each Director of the Company is aware, there is no relevant audit information of
which the Company’s Auditors are unaware and each Director hereby confirms that they have
taken all the steps that they ought to have taken as a Director in order to make themselves
aware of any relevant audit information and to establish that the Company’s Auditor is aware
of that information.
Auditors’ reappointment
PricewaterhouseCoopers LLP (PwC) were reappointed as External Auditors for Vesuvius plc for
the year ended 31 December 2022, at the 2022 AGM. PwC have been Vesuvius’ External Auditors
since 2017 and have expressed their willingness to continue in office as Auditors of the Company
for the year ending 31 December 2023. Consequently, resolutions for the reappointment of
PwC as External Auditors of the Company and to authorise the Directors to determine their
remuneration are to be proposed at the 2023 AGM.
Directors
The current Directors of the Company are Patrick André, Carla Bailo, Kath Durrant, Carl-Peter
Forster, Dinggui Gao, Friederike Helfer, Jane Hinkley and Douglas Hurt. Carl-Peter Forster
joined the Board on 1 November 2022 and succeeded John McDonough CBE as Chairman of
the Company on 1 December 2022. Carla Bailo joined the Board as a Non-executive Director
on 1 February 2023.
John McDonough CBE served on the Board as Chairman of the Company until he stepped down
on 1 December 2022. Guy Young resigned from the Board and as Chief Financial Officer on
17 February 2023. All the current Directors, with the exception of Jane Hinkley who will step down
from the Board at the close of the 2023 AGM, will retire at the 2023 AGM on 18 May 2023 and
offer themselves for election or re-election. Biographical information for the Directors is given
on pages 88 and 89. Further information on the remuneration of, and contractual arrangements
for, the Executive and Non-executive Directors is given on pages 116-143 in the Directors’
Remuneration Report. The Non-executive Directors do not have service agreements.
Directors’ indemnities
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 Limited. The indemnities for Directors of Vesuvius plc have been in force
since the date of their appointments. The Pension Trustee indemnities were in force throughout
the last financial year and remain in force.
145
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Directors’ Report
continued
Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of Linklaters LLP,
One Silk Street, London EC2Y 8HQ on Thursday 18 May 2023 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. The Articles were last amended at the 2021 AGM, to reflect changes in
the law and developments in market practice and technology.
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 18 May 2022, 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 2023 or the date of the AGM to be held in 2023, 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 table updated resolutions at the 2023 AGM, to reflect the revised
Pre-Emption Group guidance. In the year ahead, other than potentially in respect of Vesuvius’
ability to satisfy rights granted to employees under its various share-based incentive
arrangements, the Directors have no present intention of issuing any share capital of Vesuvius plc.
Authority for purchase
of own shares
Subject to the provisions of company law and any other applicable regulations, the Company
may purchase its own shares. At the AGM on 18 May 2022, 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 2023 or the
date of the AGM to be held in 2023, whichever is the earlier. The Directors will seek renewal of
this authority at the 2023 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.
146
Vesuvius plc
Annual Report and Financial Statements 2022
Share plans
Vesuvius operates a number of share-based incentive plans. Under these plans, the Group can satisfy
entitlements by the acquisition of existing shares, the transfer of Treasury shares or by the issue of
new shares. Existing shares are held in an employee benefit trust (EBT). The Trustee of the EBT
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
at the Company’s Annual General Meetings and has waived the right to receive any dividends.
At 31 December 2021, the EBT held 884,856 ordinary shares of 10p each in the Company. During the
year, the EBT sold/transferred 239,233 ordinary shares to satisfy the vesting of awards under the
Company’s share-based incentive plans. It also purchased 1,808,487 ordinary shares in Vesuvius
with a nominal value of £180,849 at a total cost, including transaction costs, of approximately £6.9m,
to hold to satisfy the future vesting of awards under the Company’s share incentive plans. As at
31 December 2022, the EBT held 2,454,110 ordinary shares. The total purchases during the year
represented <1% of the Company’s called up share capital. As at the date of this report the EBT
held 2,438,772 ordinary shares.
Restrictions on transfer
of shares and voting
The Company’s Articles do not contain any specific restrictions on the size of a holding or on
the transfer of shares. The Directors are not aware of any agreements between holders of the
Company’s shares that may result in restrictions on the transfer of securities or voting rights.
No person has any special rights with regard to the control of the Company’s share capital and
all issued shares are fully paid. This is a summary only and the relevant provisions of the Articles
should be consulted if further information is required.
Change of
control provisions
The terms of the Group’s committed bank facility and US Private Placement Loan Notes contain
provisions entitling the counterparties to exercise termination or other rights in the event of a
change of control on takeover of the Company. A number of the arrangements to which the
Company and its subsidiaries are party, such as other debt arrangements and share incentive
plans, may also alter or terminate on a change of control in the event of a takeover. In the context
of the Group as a whole, these other arrangements are not considered to be significant.
Interests in the
Company’s shares
The Company has been advised in accordance with DTR 5 of the Disclosure and Transparency
Rules of the following notifiable interests of 3%, or more, of its issued ordinary shares:
As at
31 Dec 2022
As at
2 Mar 2023
Cevian Capital
21.11%
21.11%
GLG Partners LP
6.26%
6.26%
Martin Currie
4.83%
4.83%
BlackRock Inc
5%
5%
Aberforth Partners
4.93%
4.93%
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 pages 138 and 139 of the Directors’ Remuneration Report and details of the Directors’
Deferred Share Bonus Plan and Vesuvius Share Plan are set out on pages 142 and 143.
Suppliers, customers
and others
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 22–26. 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 139 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.
147
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Equal opportunities
employment
Vesuvius is an equal opportunities employer, and decisions on recruitment, development, training
and promotion, and other employment-related issues are made solely on the grounds of
individual ability, achievement, expertise and conduct. These principles are operated on a
non-discriminatory basis, without regard to race, colour, nationality, culture, ethnic origin,
religion, belief, gender, sexual orientation, age, disability or any other reason not related to job
performance or prohibited by applicable law. In cases where employees are injured or disabled
during employment with the Group, support, including appropriate training, is provided to those
employees and workplace adjustments are made as appropriate in respect of their duties and
working environment, supporting recovery and continued employment.
Employee engagement
Information on the mechanisms through which Vesuvius engages with its workforce is included in
the Section 172(1) Statement on pages 22–26 and in the Sustainability section on pages 76-80.
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.
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 2022, cash contributions of £10.8m (2021: £10.2m) were made into the defined
contribution plans and charged to trading profit.
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.
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 total
gross defined benefit obligations at 31 December 2022 were £416.0m funded (2021: £565.9m
funded) and £60.2m unfunded (2021: £77.2m unfunded). After asset funding there was a net
deficit of £56.1m (2021: £77.0m) representing a decrease of £20.9m. 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. In November 2021, the
Trustee of the Vesuvius Pension Plan signed a pension insurance buy-in agreement with Pension
Insurance Corporation plc (PIC). This buy-in secured an insurance asset from PIC that matches the
remaining pension liabilities of the UK Plan, with the result that the Company no longer bears any
investment, longevity, interest rate or inflation risks in respect of the UK Plan. All benefits in the
UK Plan (with the exception of a small amount of benefits expected to arise in future as a result
of guaranteed minimum pensions (GMP) equalisation) are now insured with PIC.
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. The Group has
several defined benefit pension arrangements in Germany which are unfunded, as is common
practice in that country. 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.
Directors’ Report
continued
148
Vesuvius plc
Annual Report and Financial Statements 2022
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 9.8.4 R
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 133 and 134
(4)
Director waiver of emoluments
Not applicable
(5)
Director waiver of future emoluments
Not applicable
(6)
Allotment for cash of equity securities made
during the year
Not applicable
(7)
Allotment for cash of equity securities made by
a major unlisted subsidiary during the year
Not applicable
(8)
Details of participation of parent undertaking in
any placing made during the year
Not applicable
(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 controlling
shareholder during the year
Not applicable
(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 EBT 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 142, 143 and 147
(12)
Details of where a shareholder has agreed to
waive future dividends
See above
(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
2 March 2023
149
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Statement of Directors’ Responsibilities in respect of the
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 UK-adopted international accounting standards and the
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 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 UK-adopted international
accounting standards 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’s 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.
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
and financial position of the Company
–
The Group financial statements, which have been prepared
in accordance with UK-adopted international accounting
standards, 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 the Group faces
The names and functions of the Directors of Vesuvius plc as at the
date of signing these financial statements are as follows:
Carl-Peter Forster
Chairman
Patrick André
Chief Executive
Douglas Hurt
Non-executive Director,
Senior Independent Director and
Chair of the Audit Committee
Carla Bailo
Non-executive Director
Kath Durrant
Non-executive Director and Chair
of the Remuneration Committee
Dinggui Gao
Non-executive Director
Friederike Helfer
Non-executive Director
Jane Hinkley
Non-executive Director
On behalf of the Board
Patrick André
Chief Executive
2 March 2023
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Independent auditors’ report
to the members of Vesuvius plc
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 2022 and of the Group’s profit and
the Group’s cash flows for the year then ended;
–
the Group financial statements have been properly prepared
in accordance with UK-adopted international accounting
standards as applied in accordance with the provisions of the
Companies Act 2006;
–
the Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, including 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.
We have audited the financial statements, included within the
Annual Report, which comprise: the Group and Company Balance
Sheets as at 31 December 2022; the Group Income Statement,
the Group Statement of Comprehensive Income, the Group
Statement of Cash Flows and the Group and Company
Statements of Changes in Equity for the year then ended;
and the notes to the financial statements, which include a
description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described
in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with
the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical
Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC’s Ethical Standard
were not provided.
Other than those disclosed in Note 6.2 of the Group financial
statements, we have provided no non-audit services to the
Company or its controlled undertakings in the period under audit.
Report on the audit of the financial statements
Independent auditors’ report to the members of Vesuvius plc
continued
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Our audit approach
Context
The Vesuvius Group (Vesuvius plc
together with its subsidiaries) has
operations in 40 countries, including 68
sales offices and has 55 production sites.
In 2022, as set out in the Chief Executive’s
strategic review, Vesuvius delivered
record results, despite a difficult market
environment in both Steel and Foundry
reporting segments and challenging
inflationary cost pressure. The results
were driven by market share and pricing
performance in both Steel and Foundry.
The sustainability strategy is important
for the Group and includes plans to
achieve a net zero carbon footprint by
2050 at the latest. The ‘Sustainability’
section of the Strategic report sets out
the Group’s climate change risk
assessment, the climate related targets
set and an evaluation of the potential
financial impacts. We specifically
considered the impacts of climate
change on the audit and these are set
out within the ‘The impact of climate risk
on our audit’ section in this report.
Overview
Audit scope
–
Our audit included full scope
audits of 18 components and
specific audit procedures on certain
balances and transactions for
14 additional components.
–
Taken together, the components at
which either full scope audit work or
specified audit procedures were
performed enabled us to get
coverage on 71% of revenue, 80% of
profit before tax and 82% of profit
before tax and separately reported
items (Headline profit before tax).
Key audit matters
–
Impairment of goodwill (Group)
–
Provisions for exposures (Legacy
matter lawsuits) (Group)
–
Impairment of investment in
subsidiaries (Company)
Materiality
–
Overall Group materiality:
£10.3 million (2021: £6.3 million)
based on approximately 4.7% (2021:
approximately 4.6%) of profit before
tax and separately reported items
(‘Headline profit before tax’).
–
Overall Company materiality:
£10.3 million (2021: £6.3 million) based
on 1.0% of total assets, capped at the
level of overall Group materiality.
–
Performance materiality:
£7.73 million (2021: £4.73 million)
(Group) and £7.73 million
(2021: £4.73 million) (Company).
The scope of our audit
As part of designing our audit, we
determined materiality and assessed
the risks of material misstatement
in the financial statements.
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.
The key audit matters below are
consistent with last year.
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Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill (Group)
At 31 December 2022, the carrying value of goodwill is £657.9 million
(2021: £614.2 million). Goodwill arising from acquisitions has an indefinite
expected useful life and so is not amortised but rather is tested for
impairment at least annually at the cash-generating unit (“CGU”) level.
Management has determined its CGUs to align with the operating segments,
which are Steel Advanced Refractories, Steel Flow Control and Foundry.
Steel Sensors and Probes goodwill was previously impaired and is fully
written down.
Management prepares a Value in Use (VIU) model (discounted cash flow)
to test for impairment of the carrying value of the above CGUs.
This is based on a Board approved budget and 3 year forecast, on
which a terminal value is calculated based on long term growth rates.
The VIU model requires estimation of projected future cash flows and
involves making key assumptions of revenue and trading profit growth
rates, an appropriate discount rate and long term growth rates for each of
the CGUs. In making such future assumptions there is an inherent level of
estimation uncertainty to consider, including impacts to the forecast cash
flows that may arise from climate change, inflationary conditions
and COVID-19.
We focused on the valuation of the goodwill due to its material carrying
value, and with regard to the estimation uncertainties arising from the
factors set out above.
Refer to Intangible Assets (Note 16), 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.
Our audit procedures included:
–
For each CGU we obtained management’s Value in Use model.
We ensured the calculations were mathematically accurate and
that the valuation methodology conformed with the requirements
of IAS 36 ‘Impairment of Assets’.
–
For key assumptions made by management in respect of forecast
revenue and trading profit growth:
–
We obtained management’s supporting evidence such as the Board
approved budget and 3 year forecast. We agreed the forecast cash
flows and underlying assumptions to these and assessed historical
evidence of CGU growth rates. We also challenged the extent to
which climate change considerations had been reflected in
management’s forecast cash flows.
–
We obtained evidence through our own independent research.
This included evidence of forecast production and demand levels for
the CGU’s end customer markets, inflation forecasts, climate change
driven trends and recovery and growth in cyclical end markets.
–
We considered market valuation evidence such as current and target
share price and understood material differences.
–
Our audit evidence corroborated trends in the cash flows modelled,
although in year 2 and 3 and into perpetuity estimation uncertainty
increases (see our sensitivities below).
–
We utilised internal valuations experts 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 professionally sceptical of the impacts of forecasting
uncertainty, particularly where evidence in later years is more
judgemental as set out above. We determined alternative sensitivity
scenarios to ascertain the extent of changes in projections that would
be required for the goodwill to be impaired. These included scaling
back year 3 forecasts and factoring in historical levels of forecasting
inaccuracy. We also evaluated the sensitivity of impairment model cash
flows to the impacts of climate change set out in the ‘Sustainability’
section of the Strategic report, including identified costs of working
to ‘net zero’ and the potential financial impacts of the scenarios for
temperature change. We did not identify reasonable sensitivities that
would result in impairment of any of the CGUs being tested.
In addition to the above procedures (which comprised our area of focus),
we instructed our component audit teams to evaluate the appropriateness
of management impairment indicator assessments performed within the
components and to also assess any material impacts of climate change.
These assessments focused on individual or groups of assets below the
levels of the CGUs. Our component teams, under our supervision, did not
identify any additional impairments required or inconsistent findings to
our Group level assessment in respect of climate change.
From our procedures we concluded that estimates and key assumptions
made by management in performing impairment testing, including
reasonably possible downside sensitivities which showed no scenarios
of impairment, were supported. Appropriate disclosures have been
included within the Annual Report. The Critical Accounting Judgements
and Estimates note (Note 3) accordingly highlights this area as a critical
accounting estimate although it is not expected to materially impact the
financial statements in the next 12 months. Our findings were discussed
with the Audit Committee.
Independent auditors’ report to the members of Vesuvius plc
continued
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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.
The Vesuvius Group (Vesuvius plc (Company) together with its
subsidiaries) has operations in 40 countries, including 68 sales
offices and has 55 production sites. The Group consolidates
financial information through reporting from its components
which include divisions and functions at these sites.
Key audit matter
How our audit addressed the key audit matter
Provisions for exposures (Legacy matter lawsuits)
(Group)
The Group holds a provision for ‘Disposal, closure and environmental costs’
(which includes provisions relating to legacy matter lawsuits for closed
businesses) amounting to £57.7 million (2021: £41.7 million).
Determining the quantum of this provision involves modelling and estimation
of expected future legal claim periods, volumes, settlement amounts and
associated legal costs. It also requires the directors to use judgement to
determine whether associated insurance recoverable amounts should be
recognised within assets.
We specifically focused on the provision in respect of legacy matter lawsuits
due to the material quantum of the provision and the judgement and
estimates involved in determining its valuation.
Refer to Critical Accounting Judgements and Estimates (Note 3), Provisions
(Note 30), Contingent Liabilities (Note 32) and Significant issues and
material judgements in the Audit Committee report.
Our audit procedures included:
–
Obtaining management’s model of the estimated legal costs,
associated insurance recoverable and testing the mathematical
accuracy and integrity of this model.
–
We challenged claims arising, settlements made and expected trends
with management’s in-house and external legal experts.
–
We tested the accuracy of historical source data which is used to
determine estimates of future trends of claim volumes, types of future
claims and settlement amounts and legal costs associated with claims,
to supporting claim documentation.
–
We utilised our own auditor’s expert to support our audit of the key
assumptions and to independently determine a reasonable range for
the provision estimate based on reasonably possible changes in
significant assumptions due to the estimation uncertainty involved.
–
We inspected evidence of the available insurance cover, the routine
and consistent collection of this and considered the financial condition
of insurance providers to gain evidence over the recognition and
recoverability of the insurance asset. We also verified that this was
appropriately presented as gross of the associated provisions (within
‘Other receivables’).
From our procedures, we concluded the amount of the provision held was
within our acceptable range, albeit more towards the optimistic end of the
range. We evaluated the level of disclosures and that these adequately
explain estimation uncertainty of key assumptions including over the
longer term. Critical Accounting Judgements and Estimates (Note 3)
highlights this area as a critical accounting estimate. Our findings were
discussed with the Audit Committee.
Impairment of investment in subsidiaries (Company)
The Company holds investments in subsidiaries with a total carrying
amount of £1,778.0 million at 31 December 2022 (2021: £1,778.0 million)
in addition to amounts owed to subsidiary undertakings of £1009.8 million
(2021: £977.4 million). IAS 36 ‘Impairment of assets’ requires management
to consider whether there are any indicators of impairment in respect of
non-financial assets. Due to the quantum of the carrying amount, levels
of estimation uncertainty that exist similar to assumptions used in testing
for impairment of goodwill (Group) and the market capitalisation of the
Company this was an area of focus for the audit of the Company. Consistent
with the prior year management performed an impairment test utilising
cash flow forecasts used for testing for impairment of the Group’s goodwill
together with additional considerations of cash flows relevant to the
subsidiaries that the Company owns.
The judgements and estimates required to determine the cash flow forecasts
are aligned with those set out in ‘Impairment of goodwill (Group)’ above.
Refer to Investments (Note 7), Other Creditors including Taxation and Social
Security (Note 8), Critical Accounting Judgements and Estimates (Note 3)
in the Company financial statements and Significant issues and material
judgements in the Audit Committee report.
Our audit procedures included:
–
We assessed the results of the Value in Use model used for the
impairment test for goodwill, together with adjustments made to
reflect cash inflows to subsidiaries due from the Company.
–
Our testing of the Group Value in Use model, including procedures
performed over management’s model and evidence obtained in respect
of key assumptions made is set out in Key audit matter ‘Impairment of
goodwill’. We also compared the carrying value of the investment in
subsidiaries and the Group Value in Use to the market capitalisation and
market valuation expectations.
–
We performed sensitivity analyses which showed there was no
reasonably possible scenarios of impairment when taking account of
estimation uncertainty in key assumptions. Scenarios modelled included
consideration of historical forecasting inaccuracies, scaling back year 3
forecasts and impacts of climate change.
–
This indicated headroom in the determined Value in Use and that the
investment in subsidiaries balance was not impaired.
We reviewed financial statement disclosures and these are consistent
with the results of management’s testing and our audit evidence Critical
Accounting Judgements and Estimates (Note 3) in the Company financial
statements highlights this area as a critical accounting estimate although
it is not expected to materially impact the financial statements in the next
12 months. Our findings were discussed with the Audit Committee.
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Our audit scope was determined by considering the significance
of the component’s contribution to profit before tax and
separately reported items (Headline profit before tax). We also
evaluated contribution to revenue and to other individual financial
statement line items, with specific consideration to obtaining
sufficient coverage over areas of heightened risk and locations.
We identified one component (2021: none) as financially
significant in 2022. The audit scope comprised of a further 17
components for which we determined that full scope audits would
need to be performed and 14 components for which specific audit
procedures on certain balances and transactions were performed
by either component teams or the Group team. This collectively
provided audit coverage of 71% of the Group’s revenue, 80% of
the Group’s profit before tax and 82% 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 by
us, as the Group audit team, or by component auditors in both
PwC network firms and other audit 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 components 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:
–
Issuance of formal instructions and regular communications
with the component auditors throughout the audit, including
visits to 2 components by Group audit senior team members;
–
Attendance at audit clearance meetings by Group audit senior
team members;
–
Interactions with local component management;
–
Our direction and supervision of the audit approach and review
of audit findings;
–
Review of selected audit workpapers of certain in-scope
component, including for the financially significant component
and material components; and
–
For the financially significant component and material
components, meetings with the Group audit quality
review partner.
The Group audit team also performed the audit of the Company
and other procedures over those components of the Group not
subject to full scope audits.
The impact of climate risk on our audit
The ‘Sustainability’ section of the Strategic report sets out the
Group’s climate change risk assessment, the climate related
targets set and an evaluation of the potential financial impacts.
In planning and executing our audit we considered management’s
risk assessment and analysis of impacts to the financial
statements. We made enquiries of management to understand
the process adopted by management to assess the extent of the
potential impact of climate related risk and targets established by
management on the Group’s financial statements and support the
disclosures made within the ‘Sustainability’ section of the Strategic
Report and Note 2.6 of the financial statements. Management
has made commitments to achieve net zero for the Group’s Scope
1 and Scope 2 carbon emissions by 2050 as disclosed in the
‘Sustainability’ section of the Strategic report of the Annual
Report. Management considers the impact of climate risk gives
rise to a potential material financial statement impact in the long
term (between 2025 and 2050).
We challenged the completeness of management’s climate risk
assessment by:
–
Reading additional sustainability related reporting made
by management on the Group’s website and in its Carbon
Disclosure Project public submission and making management
aware of any internal inconsistencies in its climate reporting;
–
Challenging the consistency of management’s climate impact
assessment disclosed within the ‘Sustainability’ section of the
Strategic Report and Note 2.6 of the financial statements
with internal climate plans and board minutes, including
consideration of whether the time horizons management has
used take account of transition risks;
–
Using our knowledge of the business to evaluate management’s
risk assessment, its judgements and estimates as set out in
note 2.6 and note 3 of the financial statements and resulting
disclosures where significant; and
–
Considering findings from our own independent research in
respect of climate change driven trends to the Group’s end
customer markets.
Based on the procedures set out above, we understood the key
impacts to the Group could include potential increases in
costs from carbon pricing mechanisms, costs and benefits of
technology transition in Iron and Steelmaking and the conversion
of manufacturing processes to clean energy. This would most
likely impact the financial statement line items and estimates
associated with future cash flows because the impact of climate
change for the Vesuvius Group is expected to become more
notable in the medium to long term. We considered the following
areas to potentially be materially impacted by climate risk and
consequently we focused our audit work in these areas: valuation
of goodwill and other non-financial assets (Group), useful lives
applied to tangible and intangible assets (Group) and impairment
of investment in subsidiaries (Company), with impairment of
goodwill (Group) and impairment of investment in subsidiaries
(Company) determined to be key audit matters for the year
ended 31 December 2022. In our audit of the forecasts used by
management in its Value in Use models prepared to test for
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impairment of goodwill (Group) and investment in subsidiaries
(Company), we challenged management on how the impact of
climate commitments made by the Group would impact the
discounted forecast cash flows prepared by management.
We also evaluated the sensitivity of impairment model cash flows
to the impacts of climate change set out in the ‘Sustainability’
section of the Strategic report, including identified costs of
working to ‘net zero’ and the potential financial impacts of the
scenarios for temperature change. We did not identify reasonable
sensitivities that would result in impairment of Group’s goodwill
or the Company’s investment in subsidiaries carrying value.
We also assessed the appropriateness of the associated
disclosures. For further details see our Key Audit Matter on
impairment of goodwill (Group) and impairment of investment
in subsidiaries (Company).
Additionally, we considered the consistency of the disclosures in
relation to climate change (including the disclosures in the Task
Force on Climate-related Financial Disclosures (TCFD) related
reporting within the ‘Sustainability’ section of the Strategic report,
with the financial statements and our knowledge obtained
from our audit. This included considering whether the
assumptions made by management in the TCFD scenario
analysis are consistent with the assumptions used elsewhere
in the financial statements.
We have not noted any issues as part of this work which contradict
the disclosures in the Annual Report or materially impact the
financial statements, or our key audit matters for the year ended
31 December 2022.
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:
Financial statements – Group
Financial statements – Company
Overall
materiality
£10.3 million (2021: £6.3 million).
£10.3 million (2021: £6.3 million).
How we
determined it
Approximately 4.7% (2021: approximately 4.6%)
of profit before tax and separately reported items
(‘Headline profit before tax’)
1.0% of total assets, capped at the level of overall
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 audit
materiality given it is a key measure for 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. (2021: Headline profit
before tax)
We believe that total assets is an appropriate basis for
determining materiality for the 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. (2021: 1% of total assets, capped at the level
of overall Group materiality)
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
£0.7 million and £6.5 million. Certain components were audited
to a local statutory audit materiality that was also less than our
overall Group materiality.
We use performance materiality to reduce to an appropriately
low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality.
Specifically, we use performance materiality in determining the
scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures,
for example in determining sample sizes. Our performance
materiality was 75% (2021: 75%) of overall materiality, amounting
to £7.73 million (2021: £4.73 million) for the Group financial
statements and £7.73 million (2021: £4.73 million) for the company
financial statements.
In determining the performance materiality, we considered a
number of factors – the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls – and
concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £515,000
(Group audit) (2021: £350,000) and £515,000 (Company audit)
(2021: £350,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
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Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the
Company’s ability to continue to adopt the going concern basis of
accounting included:
–
Evaluating management’s base case and severe but plausible
downside case for liquidity and available financial resources
and obtaining supporting evidence for key assumptions.
This included agreeing the underlying cash flow projections
to the Board approved forecast, assessing how these forecasts
were compiled and assessing the historical accuracy of the
forecasts. We also evaluated current performance and
available financing facilities and related liquidity headroom.
–
Testing the accuracy of cash flow models used to assess
available liquidity during the going concern period disclosed.
–
Determining alternative sensitivity scenarios to ascertain the
impact of changes in assumptions. These included scaling back
forecasts and increasing working capital as a percentage of
forecast revenue.
–
Reading management’s disclosures in the financial statements
and relevant ‘other information’ in the Annual Report, and
assessing consistency with the financial statements and our
knowledge based on our audit.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and the Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Group’s
and the Company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in
the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections
of this report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the
other information, which includes reporting based on the
Task Force on Climate-related Financial Disclosures (TCFD)
recommendations. 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 our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions
and matters as described below.
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 2022 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
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.
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.
Independent auditors’ report to the members of Vesuvius plc
continued
158
Vesuvius plc
Annual Report and Financial Statements 2022
Corporate governance statement
The Listing Rules require us to review the directors’ statements in
relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities
with respect to the corporate governance statement as other
information are described in the Reporting on other information
section of this report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit, and we
have nothing material to add or draw attention to in relation to:
–
The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
–
The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being
managed or mitigated;
–
The directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the Group’s
and Company’s ability to continue to do so over a period
of at least twelve months from the date of approval of the
financial statements;
–
The directors’ explanation as to their assessment of the Group’s
and Company’s prospects, the period this assessment covers
and why the period is appropriate; and
–
The directors’ statement as to whether they have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term
viability of the Group and Company was substantially less in
scope than an audit and only consisted of making inquiries and
considering the directors’ process supporting their statement;
checking that the statement is in alignment with the relevant
provisions of the UK Corporate Governance Code; and
considering whether the statement is consistent with the
financial statements and our knowledge and understanding
of the Group and Company and their environment obtained
in the course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with
the financial statements and our knowledge obtained during
the audit:
–
The directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess
the Group’s and Company’s position, performance, business
model and strategy;
–
The section of the Annual Report that describes the review
of effectiveness of risk management and internal control
systems; and
–
The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to
report when 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.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’
Responsibilities in respect of the Financial Statements, 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.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including
fraud, is detailed below.
Based on our understanding of the Group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to income and other tax, international trade
restrictions, health and safety, environmental 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 financial statements such as the Companies Act 2006
and Listing Rules of the Financial Conduct Authority (FCA).
We evaluated management’s incentives and opportunities for
fraudulent manipulation of the financial statements (including the
159
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performance
Sustainability
Governance
Financial
Statements
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, those charged
with governance, 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,
whistle-blowing arrangements and the results of
management’s investigation of such matters;
–
Inspecting management reports and Board minutes in relation
to health and safety and other compliance matters;
–
Reading and assessing key correspondence with regulatory
authorities, including in respect of uncertain tax positions;
–
Testing assumptions and judgements made by management
in their critical accounting estimates, in particular relating
to impairment of goodwill (Group), provisions for exposures
(Legacy matter lawsuits) (Group) and impairment of
investment in subsidiaries (Company) (see related key audit
matters section of this report);
–
Identifying and testing journal entries, in particular any journal
entries posted with unusual account combinations including
in respect of journals posted to revenue; and
–
Obtained an understanding of the nature of any trade
restrictions and our component auditors tested relevant
supporting evidence that exists locally.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. 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.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
A further description of our responsibilities for the audit
of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
–
we have not obtained 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 6 years, covering the years ended 31 December
2017 to 31 December 2022.
Other matter
In due course, as required by the Financial Conduct Authority
Disclosure Guidance and Transparency Rule 4.1.14R, these
financial statements will form part of the ESEF-prepared annual
financial report filed on the National Storage Mechanism of
the Financial Conduct Authority in accordance with the ESEF
Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report
provides no assurance over whether the annual financial report
will be prepared using the single electronic format specified in the
ESEF RTS.
Darryl Phillips (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 March 2023
160
Vesuvius plc
Annual Report and Financial Statements 2022
Financial Statements
161
Group Income Statement
162
Group Statement of
Comprehensive Income
163
Group Statement of Cash Flows
164
Group Balance Sheet
165
Group Statement of
Changes in Equity
166
Notes to the Group
Financial Statements
219
Company Balance Sheet
220
Company Statement of Changes in Equity
221
Notes to the Company Financial Statements
227
Five-Year Summary: Divisional Results from
Continuing Operations
228
Shareholder Information (Unaudited)
230
Glossary
We’re responding to the increasing
need for higher-quality steel
Our customers are focused on producing the higher-quality
steel needed for automotive and power generation where the
consistency of the finished steel is critical. We have a wide product and
service offering designed to support the production of high-technology
steel throughout our broad, global manufacturing base.
Name:
Andrew Bukala
Role:
Quality Engineering Supervisor
Location:
Cleveland
Name:
Trisha Nandi
Role:
S&OP Manager
Location:
Kolkata
Group Income Statement
For the year ended 31 December 2022
Notes
2022
2021
Headline
performance
1
£m
Separately
reported
items
1
£m
Total
£m
Headline
performance
1
£m
Separately
reported
items
1
£m
Total
£m
Revenue
4, 5
Manufacturing costs
(1,475.9 )
(1,475.9 )
(1,222.8 )
(1,222.8 )
Administration, selling and distribution costs
(344.3 )
(344.3 )
(277.7 )
(277.7 )
Trading profit
2
5
Amortisation of acquired intangible assets
16
(10.4 )
(10.4 )
(9.7 )
(9.7 )
Operating profit
6
(10.4 )
(9.7 )
Finance expense
(20.8 )
(20.8 )
(13.7 )
(13.7 )
Finance income
Net finance costs
9
(11.4 )
(11.4 )
(6.4 )
(6.4 )
Share of post-tax profit of joint ventures
and associates
33
Profit before tax
(10.4 )
(9.7 )
Income tax charge
10
(57.2 )
(18.1 )
(35.9 )
(19.7 )
Profit after tax
Profit attributable to:
Owners of the Parent
11
Non-controlling interests
Profit after tax
Earnings per share – pence
11
Total operations – basic
– diluted
1. Headline performance and Separately reported items are non-GAAP measures. Headline performance is defined in Note 4.1 and Separately reported items is
defined in Note 2.5.
2. Trading profit is a non-GAAP measure and is defined in Note 4.4.
The above results were derived from continuing operations. The pre-tax separately reported items would form part of
Administration, selling and distribution costs if classified within headline performance, which including these amounts would
total £354.7 m (2021: £287.4 m).
161
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Sustainability
Governance
Financial
Statements
Group Statement of Comprehensive Income
For the year ended 31 December 2022
Notes
2022
£m
2021
£m
Profit
Items that will not subsequently be reclassified to Income Statement
Remeasurement of defined benefit liabilities/assets
26.6
(80.6 )
Income tax relating to items not reclassified
10.4
(8.2 )
Items that may subsequently be reclassified to Income Statement
Exchange differences on translation of the net assets of foreign operations
(31.4 )
Exchange differences on translation of net investment hedges
23
(20.7 )
Net change in costs of hedging
(1.2 )
Change in the fair value of the hedging instrument
Amounts reclassified from the Income Statement
(7.5 )
(0.7 )
Other comprehensive income/(loss), net of income tax
(84.8 )
Total comprehensive income
Total comprehensive income attributable to:
Owners of the Parent
Non-controlling interests
Total comprehensive income
The above results were derived from continuing operations.
162
Vesuvius plc
Annual Report and Financial Statements 2022
Group Statement of Cash Flows
For the year ended 31 December 2022
Notes
2022
£m
2021
£m
Cash flows from operating activities
Cash generated from operations
12
Interest paid
(15.6 )
(11.9 )
Interest received
Income taxes paid
(47.9 )
(30.1 )
Net cash inflow from operating activities
Cash flows from investing activities
Capital expenditure
(89.2 )
(45.5 )
Proceeds from the sale of property, plant and equipment
Acquisition of subsidiaries and joint ventures, net of cash acquired
20
(3.5 )
(43.7 )
Dividends received from joint ventures
Net cash outflow from investing activities
(88.3 )
(87.0 )
Net cash inflow/(outflow) before financing activities
(41.8 )
Cash flows from financing activities
Proceeds from borrowings
14
Repayment of borrowings
14
(55.7 )
(31.4 )
Purchase of ESOP shares
22
(6.9 )
(1.1 )
Dividends paid to equity shareholders
24
(58.1 )
(55.5 )
Dividends paid to non-controlling shareholders
(3.2 )
(2.2 )
Net cash outflow from financing activities
(105.2 )
(0.8 )
Net increase/(decrease) in cash and cash equivalents
14
(42.6 )
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash and cash equivalents
14
(0.2 )
(1.8 )
Cash and cash equivalents at 31 December
13
Alternative performance measure (non-statutory):
Notes
2022
£m
2021
£m
Free cash flow
4.11
Net cash inflow from operating activities
Capital expenditure
(89.2 )
(45.5 )
Proceeds from the sale of property, plant and equipment
Dividends received from joint ventures
Dividends paid to non-controlling shareholders
(3.2 )
(2.2 )
Free cash flow
4.11
(0.3 )
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Sustainability
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Statements
Group Balance Sheet
As at 31 December 2022
Notes
2022
£m
2021
£m
Assets
Property, plant and equipment
15
Intangible assets
16
Employee benefits – surpluses
26
Interests in joint ventures and associates
33
Investments
Deferred tax assets
10
Other receivables
18
Derivative financial instruments
25
Total non-current assets
Cash and short-term deposits
13
Inventories
19
Trade and other receivables
18
Income tax receivable
10
Derivative financial instruments
25
Total current assets
Total assets
Equity
Issued share capital
21
Retained earnings
22
Other reserves
23
(1,391.4 )
(1,467.6 )
Equity attributable to the owners of the Parent
Non-controlling interests
Total equity
Liabilities
Interest-bearing borrowings
25
Employee benefits – liabilities
26
Other payables
28
Provisions
30
Deferred tax liabilities
10
Derivative financial instruments
25
Total non-current liabilities
Interest-bearing borrowings
25
Trade and other payables
28
Income tax payable
10
Provisions
30
Derivative financial instruments
25
Total current liabilities
Total liabilities
Total equity and liabilities
Company number 8217766
The financial statements on pages 161 to 218 were approved and authorised for issue by the Directors on 2 March 2023 and signed on
their behalf by:
Patrick André
Chief Executive
164
Vesuvius plc
Annual Report and Financial Statements 2022
Group Statement of Changes in Equity
For the year ended 31 December 2022
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 2021
(1,451.3 )
Profit
Remeasurement of defined benefit liabilities/assets
(80.6 )
(80.6 )
(80.6 )
Income tax relating to items not reclassified
Exchange differences on translation of the net assets
of foreign operations
(31.0 )
(31.0 )
(0.4 )
(31.4 )
Exchange differences on translation of net investment hedges
Net change in costs of hedging
(1.2 )
(1.2 )
(1.2 )
Change in the fair value of the hedging instrument
Amounts reclassified from the Income Statement
(0.7 )
(0.7 )
(0.7 )
Income tax relating to items that may be reclassified
Other comprehensive (loss) net of income tax
(16.3 )
(68.1 )
(84.4 )
(0.4 )
(84.8 )
Total comprehensive income/(loss)
(16.3 )
Recognition of share-based payments
Purchase of ESOP shares
(1.1 )
(1.1 )
(1.1 )
Dividends paid (Note 24)
(55.5 )
(55.5 )
(2.2 )
(57.7 )
Total transactions with owners
(53.5 )
(53.5 )
(2.2 )
(55.7 )
As at 31 December 2021
(1,467.6 )
As at 1 January 2022
(1,467.6 )
Profit
Remeasurement of defined benefit liabilities/assets
Income tax relating to items not reclassified
(8.2 )
(8.2 )
(8.2 )
Exchange differences on translation of the net assets
of foreign operations
Exchange differences on translation of net investment hedges
(20.7 )
(20.7 )
(20.7 )
Net change in costs of hedging
Change in the fair value of the hedging instrument
Amounts reclassified from the Income Statement
(7.5 )
(7.5 )
(7.5 )
Income tax relating to items that may be reclassified
Other comprehensive income net of income tax
Total comprehensive income/(loss)
Recognition of share-based payments
Purchase of ESOP shares
(6.9 )
(6.9 )
(6.9 )
Dividends paid (Note 24)
(58.1 )
(58.1 )
(3.2 )
(61.3 )
Total transactions with owners
(59.9 )
(59.9 )
(3.2 )
(63.1 )
As at 31 December 2022
(1,391.4 )
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Financial
Statements
Notes to the Group Financial Statements
continued
1.
General Information
of the Company and its subsidiary and joint venture companies (‘the Group’) is set out in the Strategic Report on pages 1 to 85.
The address of its registered office is 165 Fleet Street, London EC4A 2AE.
Basis of Preparation
Basis of accounting
The Group financial statements have been prepared in accordance with UK-adopted international accounting standards (IFRS)
and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The financial
statements have been prepared under the historical cost convention, with the exception of fair value measurement applied to
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
Going concern
The Group’s available committed liquidity stood at £494m at year-end 2022, up from £456m at year-end 2021, as a result of
lower borrowings under the Group’s committed facilities and an increase in recorded cash balances. The Directors have prepared
cash flow forecasts for the Group for the period to 30 June 2024. These forecasts reflect an assessment of current and future
end-market conditions, which are expected to be challenging in 2023 and to recover thereafter (as set out in the ‘outlook’
statement in the Chief Executive’s Strategic Review in this document), and their impact on the Group’s future trading performance.
The Directors have also considered a severe but plausible downside scenario, based on an assumed protracted COVID-19-related
demand impact, despite emerging confidence that the worst of the pandemic may be behind us. This downside scenario assumes:
–
a decline in business activity and profitability in 2023 and 2024 to the level achieved in H2 2020, the period most severely
impacted by COVID-19,
–
working capital as a percentage of sales in the downside case consistent with that in the base case, and
–
dividends not paid in 2023 then reinstated.
On a full-year basis relative to 2022, this implies a 30% decline in sales and a c.57% decline in Trading Profit.
The Group has two covenants; net debt/EBITDA (under 3.25x) and an interest cover requirement of at least 4.0x. In this downside
scenario, the forecasts show that the Group’s maximum net debt/EBITDA (pre-IFRS 16 in-line with the covenant calculation)
does not exceed 1.0x, compared to a leverage covenant of 3.25x, and the minimum interest cover reached is 9x compared to a
covenant minimum of 4x.
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 the 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 and that there is
no material uncertainty in respect of going concern. Accordingly, they continue to adopt a going concern basis in preparing the
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.
Notes to the Group Financial Statements
166
Vesuvius plc
Annual Report and Financial Statements 2022
2.
Basis of Preparation
continued
2.5
Disclosure of ‘separately reported items’
Columnar presentation
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 core 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 users 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), significant movement in the Group’s deferred tax balances, such as
that caused by the material recognition of previously unrecognised deferred tax assets, 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 items reported separately.
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.
2.6
Consideration of climate change
In preparing the financial statements, we have considered the impact of climate change, particularly in the context of the
disclosures included in the Strategic Report this year. There has not been a material impact on the financial reporting judgements
and estimates arising from our considerations, consistent with our assessment that climate change is not expected to have a
meaningful impact on the viability of the Group in the medium term. Specifically, we note that we have considered the impact
of climate change on the carrying value and the estimation of useful lives of property, plant and equipment (see Note 15) and
goodwill and intangibles (see Note 16). The impact of climate change on impairment of goodwill is disclosed in Note 17.2.
Changes in accounting policies
2.8
New and revised IFRS
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2022
reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards
and interpretations is that they are not expected to have a significant impact on the Group’s financial position, performance,
cash flows and disclosures.
Benchmark reform
The replacement of Libor with alternative interest rate benchmarks is now well progressed and the Group has reviewed the impact
of this on its financial statements.
The £385m central bank facility signed on 5 July 2021 provides for the use of SONIA and EURIBOR for GBP and EUR drawdowns
respectively. USD Libor remains quoted until June 2023; a replacement reference rate for USD drawdowns will be agreed by that
date as provided for within the terms of the facility.
The Group’s US Private Placement Notes, bilateral loan agreement and cross-currency interest rate swaps are not exposed to
Libor rates and as a result are unaffected by the benchmark reform.
The Group concludes that benchmark reform has no material impact on its financial statements. The Group also confirms it has
made no changes to its risk management strategy as a result of benchmark reform.
Hyperinflationaryaccounting inTurkey
Turkey became a hyperinflationary economy from 1 April 2022 and IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ is
effective for periods ending on or after 30 June 2022. The Group operates in Turkey through its subsidiary, Vesuvius Istanbul
Sanayi ve Ticaret AS. We have assessed the impact of applying hyperinflationary accounting in Turkey and it was not material
167
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Statements
Notes to the Group Financial Statements
continued
Critical Accounting Judgements and Estimates
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. As part of the evaluation of critical accounting judgements and key sources of estimation
uncertainty, the Group has considered the implications of climate change on its operations and activities. 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
Deferred tax asset recognition (judgement and estimate)
The Directors apply judgement in determining whether temporary differences, including historical tax losses, should be
recognised as deferred tax assets. The judgement considers the future profitability of the relevant businesses from approved
budgets and business plans and an extrapolation from them assuming that profits continue to grow at a rate consistent with those
plans. These business plans include appropriate sensitivity analysis with further details of the outcomes included in Note 10.2 and
Note 10.4. The availability of the deferred tax assets for carry-forward and the nature of the taxable income against which those
assets can be offset are also reviewed in detail.
Operating segments for continuing operations (judgement)
The Group’s operating segments are determined taking into consideration how the Group’s components are reported to the
Group’s Chief Executive, who makes the key operating decisions and is 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 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 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
Employeebenefits(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.
For the estimates below, the Group does not have any key assumptions concerning the future or other key sources of estimation
uncertainty in the reporting period that are reasonably expected to have a significant risk of causing a material adjustment to the
carrying amounts of assets/liabilities within the next financial year. Nonetheless, these estimates have the potential to materially
vary over time and are therefore highlighted.
3.5
Impairment testing of goodwill (estimate)
Determining whether goodwill is impaired requires an estimation of the recoverable amount, which is the higher of Value in Use
and fair value less cost to sell, 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. Sensitivity disclosures are included in Note 17.2.
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Annual Report and Financial Statements 2022
3.
Critical Accounting Judgements and Estimates
continued
3.6
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. Some of the Group’s subsidiaries are parties to legacy matter and other lawsuits, certain
of which are insured claims, which have arisen in the ordinary course of the operations of the company involved. Some of these
provisions relate to businesses that are closed or have been disposed of. Provisions are made for the expected amounts payable in
respect of known or probable costs resulting both from these third-party lawsuits or other regulatory requirements. To the extent
insurance is in place, an asset is recognised in other receivables in respect of associated insurance reimbursements.
As the resolution 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, using historical evidence, current information and expert experience, to determine whether to
recognise a provision, and make appropriate estimates of provisions in the financial statements for amounts relating to such
matters. Associated assets for insurance recoverable are recognised, which involves assessing the likelihood of insurance being
paid, which is a critical judgement. The Directors have considered the available cover and the historical evidence to determine
whether this is virtually certain. Estimating the amount of provisions and insurance receivable is subject to estimation uncertainty.
Alternative Performance Measures
The Company uses a number of alternative performance measures (APMs) in addition to those reported in accordance with
IFRS. The Directors believe that these APMs, listed below, are important when assessing the underlying financial and operating
performance of the Group and its divisions, providing management with key insights and metrics in support of the ongoing
management of the Group’s performance and cash flow. A number of these align with Key Performance Indicators (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 a standard definition prescribed by IFRS and therefore may not be directly comparable with
similar measures presented by other companies.
4.1
Headline performance
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 and disposals.
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. ROS is disclosed in Note 5.3.
4.4
Tradingprofit/adjustedEBITA
Trading profit/adjusted EBITA 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
Headline effective tax rate (ETR)
The Group’s headline 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 and associates.
4.7
Headline earnings
Headline earnings is profit after tax before separately reported items attributable to owners of the Parent.
169
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Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
4.
Alternative Performance Measures
continued
4.8
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 KPIs
and is used to assess the 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.
4.9
Adjusted operating cash flow
Adjusted operating cash flow is cash generated from operations before restructuring and vacant site remediation costs but after
deducting capital expenditure net of asset disposals. It is used in calculating the Group’s cash conversion. In the prior year, net
retirement benefit obligations were added back in this calculation; this has been discontinued as the management believes that
these represent core cash flows of the Group.
Notes
2022
£m
2021
£m
Cash generated from operations
12
268.3
82.9
Add: Outflows relating to restructuring charges
1.5
4.0
Less: Capital expenditure
(89.2)
(45.5)
Add: Vacant site remediation costs
1.8
3.0
Add: Proceeds from the sale of property, plant and equipment
3.1
1.2
Adjusted operating cash flow
185.5
45.6
Trading profit
227.2
142.4
Cash conversion
82%
32%
4.10
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 Note 4.9 above.
4.11
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. 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.
4.12
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 previous 12 months, at constant currency. Average trade working capital (comprising inventories, trade
receivables and trade payables) is calculated as the average of the 13 previous month-end balances. It is one of the Group’s KPIs
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.
2022
£m
2021
£m
Average trade working capital
487.3
344.2
Total revenue
2,047.4
1,642.9
Average trade working capital to sales ratio
23.8%
20.9%
4.13
Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA)
Adjusted 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 adjusted EBITDA ratios. A reconciliation of adjusted
EBITDA is included in Note 5.
170
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Annual Report and Financial Statements 2022
4.
Alternative Performance Measures
continued
Net interest payable on borrowings
Net interest payable on borrowings is calculated as total interest payable on borrowings less finance income, excluding interest on
net retirement benefit obligations, adjustments to discounts and any item separately reported. It is used in the calculation of the
Group’s interest cover ratio.
Notes
2022
£m
2021
£m
Total interest payable on borrowings
9
18.3
13.0
Finance income
9
(8.8)
(6.7)
Net interest payable on borrowings
9.5
4.15
Interest cover
Interest cover is the ratio of adjusted EBITDA for the last 12 months to net interest payable on borrowings for the last 12 months.
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.
Notes
2022
£m
2021
£m
Adjusted EBITDA
5
282.7
192.2
Net interest payable on borrowings
9.5
6.3
Interest cover
29.8x
30.5x
4.16
Net debt
Net debt comprises the net total of current and non-current interest-bearing borrowings (including IFRS 16 lease liabilities),
cash and short-term deposits 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.
4.17
Net debt to adjusted EBITDA
Net debt to adjusted EBITDA is the ratio of net debt at the year-end to adjusted 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.
Notes
2022
£m
2021
£m
Net debt
14
255.0
277.1
Adjusted EBITDA
5
282.7
192.2
Net debt to adjusted EBITDA
0.9x
1.4x
4.18
Return on invested capital (ROIC)
The Group has adopted ROIC as its key measure of return from the Group’s invested capital. The RONA performance measure
has been replaced with ROIC, which provides a more complete measure of Vesuvius’ returns. ROIC is calculated as trading profit
less amortisation of acquired intangibles plus share of post-tax profit of joint ventures and associates for the previous 12 months
after tax, divided by the average (being the average of the opening and closing balance sheet) invested capital (defined as: total
assets excluding cash plus non-interest-bearing liabilities), at the average foreign exchange rate for the year.
2022
£m
2021
£m
Average invested capital
1,503.6
1,329.1
Trading profit (Note 4.4)
227.2
142.4
Amortisation of acquired intangible assets
(10.4)
(9.7)
Share of post-tax profit from joint ventures and associates
1.2
1.3
Tax on trading profit and amortisation of acquired intangible assets
(57.5)
(35.1)
160.5
98.9
ROIC
10.7%
7.5%
171
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Our
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Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
4.
Alternative Performance Measures
continued
4.19
Constant currency
Figures presented at constant currency represent 2021 amounts retranslated at average 2022 exchange rates.
4.20 Liquidity
Liquidity is the Group’s cash and short-term deposits plus undrawn committed debt facilities less cash used as collateral on loans
and any gross up of cash in notional cash pools.
2022
£m
2021
£m
Cash
184.2
169.1
Undrawn committed debt facilities
322.5
308.1
Cash used as collateral on loans
(13.0)
(21.0)
Gross up of cash in notional pools
(0.1)
(0.5)
Liquidity
493.6
455.7
4.21
Last twelve months (LTM)
Segment Information
The segment information contained in this Note refers to several alternative performance measures, definitions of which can
be found in Note 4. The Group has considered climate change in making segmental and revenue disclosures. Opportunities and
risks for the reported segments are further explained in the Sustainability section.
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
Group’s Chief Executive, who makes the key operating decisions and is 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 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 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.
Accounting policy – revenue recognition
The Group derives all of its revenue from contracts with customers. The Group enters into contracts to provide one or multiple
products to customers in the steel and foundry industries globally.
Revenue recognition at a point in time
Where the Group provides consumable products only, one performance obligation is present. The performance obligation is
to deliver consumables to the customer and is satisfied upon delivery of these items. Similarly, where a contract is for the supply
of standard equipment, there is one performance obligation and revenue is primarily recognised at a point in time, being upon
delivery of these items. The form of a contract is typically a purchase order from a customer.
The Group also enters into some contracts with customers in the steel industry under which it primarily provides consumable items,
but also equipment and/or technical assistance (‘service contracts’) to facilitate these customers’ steel production processes.
The Group applies judgement in assessing whether the performance obligations (i.e. provision of consumables, equipment and
technical assistance) are distinct performance obligations or if these may be bundled when assessing the point at which the
customer obtains control of or consumes the benefit of promised goods or services. The judgement takes into account whether:
–
The equipment provided in these contracts remains the property of Vesuvius and is used by Vesuvius technicians at
customer sites
–
The customer benefits from the combined output of the contract, being the use of Vesuvius consumables, equipment and
technicians to support the customer’s production of steel
–
The value of the equipment and technician support is minimal relative to the total value of the contract to the customer being
the benefit from use of Vesuvius consumables
172
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Annual Report and Financial Statements 2022
5.
Segment Information
continued
5.2
Accounting policy – revenue recognition
continued
Revenue recognition at a point in time
continued
Based on the above, the individual elements of the contract are not considered distinct and therefore the performance obligations
are deemed to be bundled into a single performance obligation. Revenue is therefore recognised at a point in time, every time
the customers purchase and consume materials as they produce steel. In the event this judgement was not applied and the
performance obligations were not bundled, this would likely result in minor amounts of revenue being recognised earlier primarily
in respect of the technician support.
Approximately 87% (2021: 89%) of the aforementioned revenue relates to the sale of consumables and equipment only.
Approximately 13% (2021: 11%) of revenue relates to contracts that contain multiple performance obligations, which in the
majority of cases are deemed to be bundled into a single performance obligation and revenue recognised over the course of the
contract as the customer consumes and benefits from Vesuvius products.
Revenue recognition over time
The Group enters into bespoke equipment design and build (and installation in some cases) contracts with customers.
Performance obligations are usually defined by milestones agreed with the customers in the contract. The customer usually does
not have a right to a refund as work progresses towards achieving the milestones in the contract. Revenue is recognised over
time by measuring the progress of completion or achievement of a milestone for each performance obligation identified within
the contract, usually with reference to cost inputs incurred against overall estimated costs for the contract. This does not typically
entail estimation or judgements as the contracts are usually not material in isolation and do not span more than 12 months.
This approach to revenue recognition is considered to reflect faithfully the value and timing of goods or services transferred
and the rights of Vesuvius to revenue.
Determining and allocating the transaction price to performance obligations
For revenue recognised at a point in time, the transaction price is determined and allocated with reference to the individual prices
of consumables or equipment specified in the contract or customer purchase order. If a stand-alone 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. This estimate is not considered complex.
For service contracts the bundled performance obligation is deemed to be the provision of consumables and, in some cases,
labour to facilitate production of customer steel. The transaction price is determined and allocated with reference to either an
agreed price list for each of the consumables input or, for some contracts, the transaction price is determined and allocated as
an amount per unit of customer steel output.
For revenue recognised over time, the transaction price is determined with reference to the prices set out in the contract.
For bespoke equipment builds, the transaction price is allocated to performance obligations (milestones) within the contract
and the payment schedules agreed with the customer that align to these milestones. For installations, the transaction price is
allocated with reference to the progress of completion. Where payment schedules include customer advance payments
(i.e. not aligned with a milestone/performance obligation), the amounts received are included within contract liabilities until
the performance obligation to which they relate is satisfied.
Contracts are to be settled in cash. They do not typically contain any variable consideration, discounts, refunds, rebates,
warranties or significant financing components.
Duration and costs of obtaining contracts
The duration of the Group’s contracts with customers is typically less than one year and accordingly the Group has taken the
practical expedient within IFRS 15 to not disclose the transaction price allocated to unsatisfied (whole or partially) performance
obligations as of the end of the reporting period. Service contracts may span over more than one year as they remain in effect
up to a specified level of customer production of steel. However, the choice to purchase from Vesuvius under the contract remains
with the customer and therefore there is no commitment for the customer/Vesuvius to purchase/produce up to the specified level.
Costs of obtaining contracts are not considered significant and these are expensed as incurred.
Customer credit risk and payment terms
The Group assesses customer credit risk and recognises revenue when such risk is considered low and the consideration cash flows
due are reasonably expected to flow to the Group. Typically, the Group will not transact with customers where credit risk concerns
are identified and therefore there is no material unrecognised revenue as a result of credit risk. For trade receivables and contract
assets in respect of revenue recognised, an expected credit loss allowance is determined.
Customer payment terms are set out in revenue contracts and do not exceed one year. Customer payments typically follow the
satisfaction of performance obligations at which point revenue is recognised and invoiced. Accordingly, trade receivables and
contract assets are expected to derive cash inflows for the Group within less than 12 months.
173
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Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
5.
Segment Information
continued
5.2
Accounting policy – revenue recognition
continued
A contract asset is recorded when revenue is recognised but an invoice has not been raised to the customer. Contract assets are
short-term and typically are invoiced in the following month.
Customer advance payments are included in contract liabilities. These are typically not material and relate to over time revenue
Uncertainties
There are no uncertainties involving economic factors, estimation or judgements (other than as disclosed above) in respect
of revenue recognition. Credit risk relating to the collection of cash inflows from revenue recognised is addressed through an
allowance for expected credit losses, as set out in the trade and other receivables accounting policy.
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
2022
£m
2021
£m
Receivables, which are included in ‘Trade and other receivables’
380.8
352.2
Contract assets, which are included in ‘Trade and other receivables’
1.5
1.9
Contract liabilities, which are included in ‘Trade and other payables’
2.5
3.3
Contract liabilities of £2.5m (2021: £3.3m) include advances received from a customer that precede the satisfaction of
performance obligations by the Group. £3.3m of the contract liabilities recognised in the prior year was recognised as revenue
5.3
Segmental analysis
The reportable segment results from continuing operations for 2022 and 2021 are presented below.
Notes
2022
Flow
Control
£m
Advanced
Refractories
£m
Sensors
& Probes
£m
Total Steel
£m
Foundry
£m
Total
£m
Segment revenue
810.9
645.3
40.2
1,496.4
551.0
2,047.4
– at a point in time
1,493.7
551.0
2,044.7
– over time
2.7
–
2.7
Segment adjusted EBITDA
210.6
72.1
282.7
Segment depreciation and amortisation
(37.9)
(17.6)
(55.5)
Segment trading profit
172.7
54.5
227.2
Return on sales margin
11.5%
9.9%
11.1%
Amortisation of acquired
intangible assets
(10.4)
Operating profit
216.8
Net finance costs
(11.4)
Share of post-tax profit of joint ventures
1.2
Profit before tax
206.6
Capital expenditure additions
85.2
18.7
103.9
Inventory
19
259.6
56.4
316.0
Trade debtors
18
288.0
92.8
380.8
Trade payables
28
(177.2)
(62.3)
(239.5)
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Vesuvius plc
Annual Report and Financial Statements 2022
5.
Segment Information
continued
5.3
Segmental analysis
continued
Notes
2021
Flow
Control
£m
Advanced
Refractories
£m
Sensors
& Probes
£m
Total Steel
£m
Foundry
£m
Total
£m
Segment revenue
648.7
489.1
33.7
1,171.5
471.4
1,642.9
– at a point in time
1,169.9
471.4
1,641.3
– over time
1.6
–
1.6
Segment adjusted EBITDA
135.9
56.3
192.2
Segment depreciation
(33.9)
(15.9)
(49.8)
Segment trading profit
102.0
40.4
142.4
Return on sales margin
8.7%
8.6%
8.7%
Amortisation of acquired intangible
assets
(9.7)
Operating profit
132.7
Net finance costs
(6.4)
Share of post-tax profit of joint ventures
1.3
Profit before tax
127.6
Capital expenditure additions
47.2
20.2
67.4
Inventory
19
248.1
51.3
299.4
Trade debtors
18
267.5
84.7
352.2
Trade payables
28
(191.3)
(62.5)
(253.8)
The Chief Operating Decision Maker does not review non-current assets at a segmental level so these disclosures are not included.
5.4
Geographical analysis
External revenue
Non-current assets
2022
£m
2021
£m
2022
£m
2021
£m
EMEA
741.6
644.8
500.0
452.1
Asia
565.2
492.2
237.2
223.8
North America
549.1
377.7
384.3
367.0
South America
191.5
128.2
44.3
35.9
Continuing operations
2,047.4
1,642.9
1,165.8
1,078.8
External revenue disclosed in the table above is based upon the geographical location from which the products and services are
invoiced. 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. £70.9m (2021: £57.6m) of revenue was generated from the UK, and total non-current assets in the UK amounted to
175
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Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
6.
Operating Profit
Operating profit is stated after charging
Notes
2022
£m
2021
£m
Cost of inventories recognised as an expense
19
1,417.0
1,168.5
Research and development
35.9
30.3
Employee expenses
8
441.3
396.8
Depreciation
15
55.2
49.8
Amortisation
16
10.7
10.1
Operating lease charges
29
2.3
2.9
Expected credit loss allowances charge/(credit)
18, 25.2
9.9
(0.5)
*
2021 comparatives for cost of inventories recognised as an expense have been restated following further review during 2022. This restatement did not impact the
Income Statement or the balance sheet.
The expected credit loss allowance charge of £9.9m in 2022 (2021: credit of £0.5m) is largely due to increased allowance for
Amounts payable to PricewaterhouseCoopers LLP and their associates
2022
£m
2021
£m
Fees payable to the Company’s auditors and their associates for the audit
of the Parent Company and Consolidated Financial Statements
1.1
0.7
Fees payable to the Company’s auditors and their associates for other services:
Audit of the Company’s subsidiaries
1.0
1.0
Audit-related assurance services
0.2
0.1
Total auditors’ remuneration
2.3
1.8
Total auditors’ remuneration of £2.3m in 2022 all related to continuing operations, of which £2.1m related to audit fees and
£0.2m to 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) (2021: £1.8m, including £1.7m of audit fees and £0.1m of non-audit fees, the latter in respect of the
Group’s half-year review fee and quarterly reviews and tax form audits in India along with review of an R&D claim in Italy). 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 auditors.
6.3
Amounts payable to Mazars LLP
Mazars LLP acts as external auditors of the non-material entities and three material entities within the Group. Total remuneration
Restructuring Charges
There were no restructuring charges in 2022 (2021: £nil).
Cash costs of £1.5m (2021: £4.0m) (Note 12) were incurred in the year in respect of previously announced restructuring
176
Vesuvius plc
Annual Report and Financial Statements 2022
Employees
8.1
Employee expenses
Notes
2022
£m
2021
£m
Wages and salaries
365.8
329.1
Social security costs
54.0
48.0
Share-based payments
27
5.1
3.1
Pension costs – defined contribution pension plans
26
10.8
10.2
– defined benefit pension plans
26
5.2
6.0
Other post-retirement benefits
26
0.4
0.4
Total employee expenses
441.3
396.8
Included within wages and salaries is income from governments of £nil (2021: £0.4m) in respect of staff who had been furloughed
due to the COVID-19 pandemic. This income falls within IAS 20 government grants as the Group receives income in return for
meeting the conditions included within each of the relevant government schemes. The income approach has been applied and
therefore the income is recognised when the wages and salaries expense which the schemes are intended to compensate is
incurred. There are no unfulfilled conditions or other contingencies that have been recognised in respect of these schemes.
8.2
Monthly average number of employees
2022
no.
2021
*
no.
Steel
8,720
8,380
Foundry
2,470
2,482
Total monthly average number of employees
11,190
10,862
*
2021 comparatives have been reclassified between Steel and Foundry following further review during 2022.
As at 31 December 2022, the Group had 11,134 employees (2021: 11,203).
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 116 to 143.
2022
£m
2021
£m
Short-term employee benefits
1.9
2.5
Post-employment benefits
0.3
0.3
Share-based payments
0.6
–
Total remuneration of key management personnel
2.8
Net Finance Costs
2022
£m
2021
£m
Interest payable on borrowings
Loans and overdrafts
15.4
10.7
Interest on lease liabilities
1.9
1.5
Amortisation of capitalised arrangement fees
1.0
0.8
Total interest payable on borrowings
18.3
13.0
Interest on net retirement benefit obligations
1.4
(0.3)
Adjustment to discounts on provisions and other liabilities
1.1
0.7
Adjustment to discounts on receivables
(0.6)
(0.3)
Finance income
(8.8)
(6.7)
Total net finance costs
11.4
6.4
177
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
Income Tax Charge
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.
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.
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
178
Vesuvius plc
Annual Report and Financial Statements 2022
10.
Income Tax Charge
continued
10.2
Income tax charge
2022
£m
2021
£m
Current tax
Overseas taxation
43.6
34.0
Adjustments in respect of prior years
(1.1)
(1.5)
Total current tax, continuing operations
42.5
32.5
Deferred tax
Origination and reversal of temporary taxable differences
(23.6)
(11.6)
Adjustments in respect of prior years
(0.8)
(1.2)
Total deferred tax, continuing operations
(24.4)
(12.8)
Total income tax charge
18.1
19.7
Total income tax charge attributable to:
Continuing operations
– headline performance
57.2
35.9
– separately reported
(39.1)
(16.2)
Total income tax charge
18.1
19.7
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
2022
£m
2021
£m
Additional recognition of UK deferred tax asset
(37.8)
–
Amortisation and utilisation of acquired intangibles
(2.7)
(0.2)
Additional derecognition/(recognition) of US deferred tax asset
1.4
(16.0)
Total tax charge/(credit) separately reported
(39.1)
(16.2)
As a result of the expected future profitability of the UK business, the Group has decided to recognise certain UK deferred tax
assets totalling £37.8m (2021: £nil) that have no expiry date. In recognising these assets, the Group has considered the future
profitability of the UK business from approved budgets and business plans and an extrapolation from them if profits continue to
grow at a rate consistent with those plans. The Group has also carried out an exercise to reflect scenarios where the business plan
does not materialise as expected. The Group has modelled proportionate increases and decreases in relation to the expected
taxable income based on the approved budget and the results do not have a material impact on the deferred tax asset balance.
These assets are available for carry-forward indefinitely and can be offset against taxable income generated in the UK.
The net tax debit reflected in the Group Statement of Comprehensive Income in the year amounted to an £8.2m charge
(2021: £13.0m credit), comprising a £6.7m charge (2021: £12.5m credit) related to tax on net actuarial gains and losses on the
employee benefits plan, £nil (2021: £0.5m credit) related to exchange adjustments and a £1.5m charge (2021: £nil) relating to
deferred tax rate changes.
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 headline effective tax
relief may not be available for those losses or expenses. Other significant factors affecting the tax charge are described in
Notes 10.1 and 10.6.
10.3
Reconciliation of income tax charge to profit before tax
2022
£m
2021
£m
Profit before tax
206.6
127.6
Tax at the UK corporation tax rate of 19.0% (2021: 19.0%)
39.2
24.2
Overseas tax rate differences
16.5
8.7
Withholding taxes
2.8
3.9
Expenses not deductible for tax purposes
0.8
0.3
Deferred tax assets not recognised
–
0.3
Utilisation of previously unrecognised tax losses
(0.8)
(0.3)
US deferred tax asset not previously recognised
(5.7)
(16.0)
UK deferred tax asset not previously recognised
(37.8)
–
Deferred tax rate changes
1.1
1.3
Adjustments in respect of prior years
2.0
(2.7)
Total income tax charge
18.1
19.7
179
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
10.
Income Tax Charge
continued
10.4
Deferred tax
Interest
£m
Other
operating
losses
£m
Pension
costs
£m
Intangible
assets
£m
Other
temporary
differences
£m
Total
£m
As at 1 January 2021
22.0
18.9
0.8
(20.3)
30.8
52.2
Exchange adjustments/other
0.4
(0.1)
(0.8)
(0.3)
0.3
(0.5)
Acquisition
–
–
–
(2.9)
–
(2.9)
Other net credit to Group Statement of Comprehensive Income
–
–
12.5
0.5
–
13.0
Other net credit/(charge) to Group Income Statement
0.8
0.7
1.0
(0.6)
1.5
3.4
Other net credit/(charge) to Group Income Statement US
11.2
(4.0)
(0.1)
(0.2)
2.5
9.4
As at 31 December 2021
34.4
15.5
13.4
(23.8)
35.1
74.6
Exchange adjustments/other
4.1
1.3
1.2
(0.9)
2.2
7.9
Other net charge to Group Statement of Comprehensive Income
–
–
(6.7)
–
(1.5)
(8.2)
Other net credit/(charge) to Group Income Statement
0.1
37.2
0.2
2.9
(1.1)
39.3
Other net credit/(charge) to Group Income Statement US
2.7
(7.6)
(1.4)
(0.8)
(7.8)
(14.9)
As at 31 December 2022
41.3
46.4
6.7
(22.6)
26.9
98.7
2022
£m
2021
£m
Recognised in the Group Balance Sheet as:
Non-current deferred tax assets
110.6
104.2
Non-current deferred tax liabilities
(11.9)
(29.6)
Net total deferred tax assets
98.7
74.6
Included in these deferred tax assets and liabilities are amounts expected to be utilised in 2023 as follows:
2022
£m
2021
£m
Deferred tax assets
18.2
9.6
Deferred tax liabilities
(2.7)
(2.3)
As a result of the expected future profitability of the UK business, the Group has decided to recognise certain UK deferred tax
assets that have no expiry date. Included in non-current deferred tax assets is £37.8m (2021: £nil) in respect of the partial
recognition of temporary differences arising in the UK computed in accordance with the policy set out in Note 10.1 above.
In addition, for 2021 the Group decided to recognise certain US deferred tax assets as a result of the consistent profitability of
the US business. The Group has also carried out an exercise to reflect scenarios where the business plan does not materialise as
expected. The Group has modelled proportionate increases and decreases in relation to the expected taxable income based on
the approved budget and the results do not have a material impact on the deferred tax asset balance. The Group remains
confident of the recovery of these assets. £79.1m for UK and £nil for US (2021: £116.9m for UK and £3.0m for US) remains
unrecognised as detailed in the tables below.
Tax loss carry-forwards and other temporary differences with a tax value of £44.5m (2021: £15.5m) were recognised by
subsidiaries reporting a loss. Based on approved business plans of these subsidiaries, the Directors consider it probable that
the tax loss carry-forwards and temporary differences can be offset against future taxable profits of these subsidiaries.
The total deferred tax assets not recognised as at 31 December 2022 were £175.1m (2021: £209.6m), as analysed below.
In accordance with the accounting policy in Note 10.1, these items have not been recognised as deferred tax assets on the
basis that their future economic benefit is not probable. In total, there was a decrease of £34.5m (2021: £27.1m increase)
in net unrecognised deferred tax assets during the year, primarily driven by the recognition of UK deferred tax assets. All UK
unrecognised deferred tax assets are now reported at the 25% rate.
2022
£m
2021
£m
Operating losses (further described below)
100.6
135.2
Unrelieved US interest (may be carried forward indefinitely)
–
0.7
Capital losses available to offset future UK capital gains (may be carried forward indefinitely)
46.2
46.2
UK ACT credits (may be carried forward indefinitely)
19.3
19.3
US tax credits
–
2.2
Other temporary differences
9.0
6.0
Total deferred tax assets not recognised
175.1
209.6
180
Vesuvius plc
Annual Report and Financial Statements 2022
10.
Income Tax Charge
continued
10.4
Deferred tax
continued
The Group has significant net operating losses with a tax value of £147.0m (2021: £150.7m), only £46.4m (2021: £15.5m) of which
meet the criteria set out in Note 10.1 to be recognised on the Group Balance Sheet.
Operating
losses
recognised
2022
£m
Operating
losses not
recognised
2022
£m
Total
2022
£m
Operating
losses
recognised
2021
£m
Operating
losses not
recognised
2021
£m
Total
2021
£m
UK (may be carried forward indefinitely)
37.8
79.1
116.9
–
116.9
116.9
US (due to expire 2024–2031)
2.6
–
2.6
9.1
0.1
9.2
ROW (may be carried forward indefinitely)
6.0
21.5
27.5
6.4
18.2
24.6
ROW (due to expire within 5 years)
–
–
–
–
–
–
46.4
100.6
147.0
15.5
135.2
150.7
The £27.5m (2021: £24.6m) 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.
A liability of £0.8m (2021: £1.0m) 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 £11.8m (2021: £14.6m).
Income tax payable and recoverable
2022
£m
2021
£m
Liabilities for income tax payable
12.8
11.2
Provisions for uncertain tax positions
6.8
6.9
19.6
18.1
Less: Income tax recoverable within one year
15.3
7.6
Net liability
4.3
10.5
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 does not expect any material
adjustments to these provisions in 2023.
During the year the provisions for uncertain tax positions have reduced to £6.8m (2021: £6.9m). The decrease of £0.1m
(2021: £1.6m) can be explained by the expiration of the statute of limitations on certain other exposures, £1.3m (2021: £1.2m),
a £0.5m charge (2021: £nil) in relation to an Indonesian tax audit, a £0.4m charge (2021: £nil) on a Spanish tax audit and foreign
181
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
10.
Income Tax Charge
continued
10.6
Key factors impacting the sustainability of the headline effective tax rate are as follows:
Material changes in the geographic mix of profits
The Group’s headline 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 and a lower headline
effective tax rate in jurisdictions like Poland and the UK.
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 headline
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 £0.4m in 2022 (2021: £0.7m). Without that benefit, the Group’s headline effective tax rate on headline
performance would have been 0.2% higher in 2022 (2021: 0.5%).
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
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. The table below reconciles these different profit measures.
2022
£m
2021
£m
Profit attributable to owners of the Parent
181.1
102.1
Adjustments for separately reported items:
Amortisation of acquired intangible assets
10.4
9.7
Restructuring charges
–
–
Vacant site remediation costs
–
–
Guaranteed minimum pensions (GMP) equalisation charge
–
–
Income tax (credit)/charge
(39.1)
(16.2)
Headline profit attributable to owners of the Parent
152.4
95.6
11.2
Weighted average number of shares
2022
millions
2021
millions
For calculating basic and headline EPS
269.6
270.5
Adjustment for potentially dilutive ordinary shares
1.9
1.8
For calculating diluted and diluted headline EPS
271.5
272.3
For the purposes of calculating diluted and diluted headline EPS, the weighted average number of ordinary shares is adjusted to
include the weighted average number of ordinary shares that would be issued on the conversion of all potentially dilutive ordinary
shares expected to vest, relating to the Company’s share-based payment plans. Potential ordinary shares are only treated as
dilutive when their conversion to ordinary shares would decrease EPS or increase loss per share.
182
Vesuvius plc
Annual Report and Financial Statements 2022
11.
Earnings per Share (EPS)
continued
11.3
Per share amounts
2022
pence
2021
pence
Earnings per share
– basic
67.2
37.7
– diluted
66.7
37.5
– headline
56.5
35.3
– diluted headline
56.1
Cash Generated from Operations
Notes
2022
£m
2021
£m
Operating profit
216.8
132.7
Adjustments for:
Amortisation of acquired intangible assets
16
10.4
9.7
Restructuring charges
–
–
Vacant site remediation costs
–
–
Guaranteed minimum pensions (GMP) equalisation charge
–
–
Trading profit
227.2
142.4
Loss on disposal of non-current assets
(0.1)
0.4
Depreciation and amortisation
15
55.5
49.8
Defined benefit retirement plans net charge
5.6
6.4
Net decrease/(increase) in inventories
19
2.2
(113.5)
Net increase in trade receivables
18
(9.2)
(53.5)
Net (decrease)/increase in trade payables
28
(28.0)
70.6
Net decrease/(increase) in other working capital
24.7
(5.5)
Outflow related to restructuring charges
7
(1.5)
(4.0)
Defined benefit retirement plans cash outflows
26
(6.3)
(7.2)
Vacant site remediation costs paid
(1.8)
(3.0)
Cash generated from operations
268.3
Cash and Cash Equivalents
Accounting policy
Cash and short-term deposits in the Group balance sheet consist of cash at bank and 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.
2022
£m
2021
£m
Cash at bank and in hand
184.2
169.1
Short-term deposits
–
–
Cash and short-term deposits
184.2
169.1
Bank overdrafts
(4.4)
(6.7)
Cash and cash equivalents in the Group Statement of Cash Flows
179.8
162.4
Cash is held both centrally and in operating territories. There is no restricted cash. For certain territories including Argentina,
183
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
Reconciliation of Movement in Net Debt
Balance
as at
1 January
2022
£m
Foreign
exchange
adjustments
£m
Fair value
gains
£m
Non-cash
movements
*
£m
Cash flow
£m
Balance
as at
31 December
2022
£m
Cash and cash equivalents
Cash at bank and in hand
169.1
0.1
–
–
15.0
184.2
Short-term deposits
–
–
–
–
–
–
Bank overdrafts
(6.7)
(0.3)
–
–
2.6
(4.4)
162.4
(0.2)
–
–
17.6
179.8
Borrowings, excluding bank overdrafts
(440.3)
(25.4)
–
(11.5)
37.0
(440.2)
Capitalised arrangement fees
3.3
–
–
(0.6)
–
2.7
Derivative financial instruments
(2.5)
–
5.2
–
–
2.7
Net debt
(277.1)
(25.6)
5.2
(12.1)
54.6
(255.0)
Balance
as at
1 January
2021
£m
Foreign
exchange
adjustments
£m
Fair value
gains
£m
Non-cash
movements
*
£m
Cash flow
£m
Balance
as at
31 December
2021
£m
Cash and cash equivalents
Cash at bank and in hand
169.7
(1.9)
–
–
1.3
169.1
Short-term deposits
40.0
–
–
–
(40.0)
–
Bank overdrafts
(2.9)
0.1
–
–
(3.9)
(6.7)
206.8
(1.8)
–
–
(42.6)
162.4
Borrowings, excluding bank overdrafts
(376.5)
11.3
–
(17.1)
(58.0)
(440.3)
Capitalised arrangement fees
1.4
–
–
1.9
–
3.3
Derivative financial instruments
(6.8)
–
4.3
–
–
(2.5)
Net debt
(175.1)
9.5
4.3
(15.2)
(100.6)
(277.1)
*
£11.5m (2021: £17.1m) of new leases were entered into during the year.
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.
£37.0m of borrowings cash flow, excluding bank overdrafts, represents the net of proceeds and repayments of borrowings
(including lease liabilities).
£18.7m proceeds from borrowings, shown in the Group Statement of Cash Flows, includes £18.7m of euro drawings under the
UK syndicated bank facility.
£55.7m repayment of borrowings, shown in the Group Statement of Cash Flows, includes £35.0m of sterling drawings
repaid under the UK syndicated bank facility, £8.0m of sterling drawings repaid under the collateralised bilateral loan facility
Property, Plant and Equipment
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 to the relevant asset
class 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.
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 the estimated residual value of the asset over its estimated useful life as follows:
184
Vesuvius plc
Annual Report and Financial Statements 2022
15.
Property, Plant and Equipment
continued
15.1
Accounting policy
continued
Asset category
Estimated useful life
Freehold property
between 10 and 50 years
Leasehold property
the term of the lease
Right-of-use assets
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
15.2
Movement in net book value
Freehold
property
£m
Leasehold
property
£m
Right-of-use
assets – land
& buildings
(Note 29.2)
£m
Right-of-use
assets – plant
& equipment
(Note 29.2)
£m
Plant and
equipment
£m
Construction
in progress
£m
Total
1
£m
Cost
As at 31 December 2020 and 1 January 2021
241.1
0.9
30.8
26.7
586.3
32.6
918.4
Exchange adjustments
(5.4)
–
(0.9)
(1.0)
(14.0)
(1.1)
(22.4)
Capital expenditure additions
2.3
–
9.9
7.2
17.0
29.1
65.5
Acquisitions through business combinations
6.6
–
–
–
4.3
0.5
11.4
Disposals
(4.5)
(0.1)
(0.7)
(3.3)
(31.9)
(0.7)
(41.2)
Assets reclassified from held for sale
0.9
–
–
–
–
–
0.9
Reclassifications
4.0
(0.1)
–
(0.6)
11.0
(19.2)
(4.9)
As at 31 December 2021 and 1 January 2022
245.0
0.7
39.1
29.0
572.7
41.2
927.7
Exchange adjustments
16.0
(0.0)
1.7
1.9
37.1
3.8
60.5
Capital expenditure additions
7.3
–
3.3
8.1
20.8
59.9
99.4
Acquisitions through business combinations
1.1
–
2.2
–
0.2
–
3.5
Disposals
(1.6)
–
(1.1)
(3.4)
(14.9)
(0.5)
(21.5)
Assets reclassified from held for sale
–
–
–
–
–
–
–
Reclassifications
1.3
–
–
(0.2)
27.4
(28.6)
(0.1)
As at 31 December 2022
269.1
0.7
45.2
35.4
643.3
75.8
1,069.5
Accumulated depreciation and impairment losses
As at 31 December 2020 and 1 January 2021
118.5
0.8
6.6
13.2
441.8
–
580.9
Exchange adjustments
(2.8)
–
(0.4)
(0.7)
(9.3)
–
(13.2)
Depreciation charge
6.4
–
4.6
6.2
32.6
–
49.8
Impairment
(2.9)
–
–
–
–
–
(2.9)
Disposals
(1.6)
–
(0.7)
(2.6)
(31.8)
–
(36.7)
Assets reclassified from held for sale
0.1
–
–
–
–
–
0.1
Reclassifications
0.1
(0.1)
–
–
(2.8)
–
(2.8)
As at 31 December 2021 and 1 January 2022
117.8
0.7
10.1
16.1
430.5
–
575.2
Exchange adjustments
8.0
–
0.4
1.0
29.0
–
38.4
Depreciation charge
7.3
–
5.7
6.8
35.4
–
55.2
Impairment
0.9
–
0.5
–
0.1
–
1.5
Disposals
(0.4)
–
(1.1)
(2.9)
(13.9)
–
(18.3)
Assets reclassified from held for sale
–
–
–
–
–
–
–
Reclassifications
3.9
–
–
(0.1)
(3.9)
–
(0.1)
As at 31 December 2022
137.5
0.7
15.6
20.9
477.2
–
651.9
Net book value as at 31 December 2022
131.6
–
29.6
14.5
166.1
75.8
417.6
Net book value as at 31 December 2021
127.2
–
29.0
12.9
142.2
41.2
352.5
Net book value as at 31 January 2020
122.6
0.1
24.2
13.5
144.5
32.6
337.5
1. 2020 opening balances for cost and depreciation have been grossed up/brought down by £0.3m for identified fixed assets previously written off
(£nil net book value).
185
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
15.
Property, Plant and Equipment
continued
15.2
Movement in net book value
continued
Capital expenditure on customer-installation assets was £7.5m (2021: £5.7m).
Capital commitments as at 31 December 2022 were £nil (31 December 2021: £nil).
The impact of climate change has been considered in the review of carrying values to consider whether there are indications of
material impairment arising from the potential physical risks arising from climate change. We have not impaired any assets this
year as a result of this exercise. We have also considered the impact of climate change on the estimation of useful lives and no
Intangible Assets
Intangible assets comprise goodwill, other intangible assets that have been acquired through business combinations, and
software costs.
Accounting policy
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,
(b) Other intangible assets
Intangible assets other than goodwill are recognised on business combinations if they are separable, or if they arise from
contractual or other legal rights, and their value can be measured reliably. They are initially measured at cost, which is equal
to the acquisition-date fair value, and subsequently measured at cost less accumulated amortisation charges and accumulated
impairment losses. Other intangible assets are subject to impairment testing when there is an indication that an impairment loss
may have been incurred and are amortised over their estimated useful lives.
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 recognises 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 2022 and 2021 no projects
(d) Software
The costs of ERP system implementations, including the purchase cost of the software and the time costs of employees directly
186
Vesuvius plc
Annual Report and Financial Statements 2022
16.
Intangible Assets
continued
Movement in net book value
Notes
Goodwill
£m
Other
acquired
intangible
assets
£m
Software
£m
2022
total
£m
Goodwill
£m
Other
acquired
intangible
assets
£m
Software
£m
2021
total
£m
Cost
As at 1 January
614.2
285.7
6.7
906.6
617.6
279.4
–
897.0
Reclassification of non-
compete agreements
to goodwill
*
0.9
(0.9)
–
–
–
–
–
–
Exchange adjustments
42.4
8.1
0.5
51.0
(16.7)
(5.9)
(0.1)
(22.7)
Capital expenditure
additions
–
–
4.5
4.5
–
–
1.9
1.9
Disposals
–
–
(0.9)
(0.9)
–
–
–
–
Business combinations
20
0.4
–
–
0.4
13.3
12.2
–
25.5
Reclassifications
–
–
–
–
–
–
4.9
4.9
As at 31 December
657.9
292.9
10.8
961.6
614.2
285.7
6.7
906.6
Accumulated amortisation
and impairment losses
As at 1 January
–
206.7
3.1
209.8
–
200.9
–
200.9
Exchange adjustments
–
4.0
0.2
4.2
–
(3.9)
(0.1)
(4.0)
Amortisation charge for
the year
–
10.4
0.3
10.7
–
9.7
0.4
10.1
Impairment
–
–
0.3
0.3
Disposals
–
–
(0.9)
(0.9)
–
–
–
–
Reclassifications
–
–
–
–
–
–
2.8
2.8
As at 31 December
–
221.1
3.0
224.1
–
206.7
3.1
209.8
Net book value as at
31 December
657.9
71.8
7.8
737.5
614.2
79.0
3.6
696.8
*
The values and useful lives of URI intangibles in the 2021 Annual Report and Financial Statements were provisional. Further valuation work determined
that there were no non-compete agreements that could be separately identified from goodwill (Note 20.2).
Of the £10.8m (2021: £6.7m) software cost as at 31 December 2022, £6.8m (2021: £3.0m) was in the course of construction.
Amortisation charge of £10.4m (2021: £9.7m) in respect of other acquired intangible assets includes £5.4m (2021: £5.4m)
recognised in respect of Foseco customer relationships, £3.6m (2021: £3.6m) in respect of the Foseco trade name and £1.4m
(2021: £0.7m) in respect of North American Advanced Refractories intangible assets.
The impact of climate change has been considered in the review of carrying values to consider whether there are indications of
material impairment arising from risks arising from climate change. We have not impaired any intangible assets this year as a
result of this exercise. We have also considered the impact of climate change on the estimation of useful lives and no material
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 Sensors & Probes, and the Foundry Division. These CGUs represent the lowest level within
the Group at which goodwill is monitored (Note 17.2).
2022
£m
2021
£m
Steel Flow Control
286.8
269.0
Steel Advanced Refractories
152.5
140.2
Foundry
218.6
205.0
Total goodwill
657.9
187
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
16.
Intangible Assets
continued
16.4
Analysis of other acquired intangible assets
Other acquired 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.
Remaining
useful life
years
Net book
value as at
31 Dec 2022
£m
Net book
value as at
31 Dec 2021
£m
Foseco
– customer relationships (useful life: 20 years)
5.3
28.9
32.9
– trade name (useful life: 20 years)
5.3
19.0
22.6
Universal Refractories, Inc. (URI)
– customer relationships (useful life: 20 years)
19.0
6.6
6.2
– know-how (useful life: 20 years)
19.0
5.2
5.0
– non-compete agreements (useful life: 5 years)
n/a
–
0.8
CCPI
– customer relationships (useful life: 20 years)
16.2
12.1
11.5
Total
71.8
79.0
16.5
Analysis of software
Software comprises Enterprise Resource Planning tools in use and being developed. The software is installed on Vesuvius’ servers
Impairment of Tangible and Intangible Assets
Accounting policy
The Directors regularly review the performance of the business and the external business environment to determine whether
there is any indication that the Group’s tangible and intangible assets have suffered an impairment loss. If such indication exists,
the higher of the Value in Use and the fair value less costs to sell off the asset is estimated and compared with the carrying value
in order to determine the extent, if any, of the impairment loss. Where it is not feasible to estimate the recoverable amount of an
individual asset, the Directors estimate the recoverable amount of the CGU to which the asset belongs. In addition, goodwill is
tested for impairment on an annual basis. Goodwill acquired in a business combination is allocated to each of the Group’s CGUs
expected to benefit from the synergies of the combination and the Directors carry out annual impairment testing of the carrying
value of each CGU, to assess the need for any impairment of the carrying value of the associated goodwill and other intangible
and tangible assets.
For the purpose of impairment testing, the recoverable amount of an asset or CGU is the higher of (i) its fair value less costs to
sell and (ii) its Value in Use. If the recoverable amount of a CGU is less than its carrying amount, the resulting impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU pro
rata on the basis of the carrying amount of each asset in the CGU. An impairment loss recognised for goodwill is not reversed in
a subsequent period. An impairment loss recognised in a prior year for an asset other than goodwill may be reversed where there
has been a sustained change in the estimates used to measure the asset’s recoverable amount since the impairment loss was
17.2
Key assumptions and methodology
The key assumptions in determining Value in Use are projected cash flows, growth rates and discount rates. These are disclosed
as critical accounting estimates in Note 3.5.
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% (2021: 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 2022.
188
Vesuvius plc
Annual Report and Financial Statements 2022
17.
Impairment of Tangible and Intangible Assets
continued
17.2
Key assumptions and methodology
continued
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 Sensors & Probes CGUs was 15.0%
(2021: 12.4%) and for the Foundry CGU was 14.9% (2021: 11.6%). The increase in the pre-tax discount rates has been driven
by an increase in equity risk premiums and risk-free rates – these changes are not specific to Vesuvius.
The Group carried out its annual goodwill impairment test as at 31 October 2022 (2021: 31 October 2021). 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 2022 and no impairment
triggers were identified.
The Directors have considered the impact of climate change on expected future cash flows (including the modelling of impact
of climate change scenarios set out in the Sustainability section in the Strategic Report and expected capital expenditure required
to achieve the Group’s Net Zero targets) and other assumptions used for goodwill impairment testing. This did not result in an
impairment scenario for goodwill.
Sensitivity of impairment reviews
Steel Flow Control (FC), Steel Advanced Refractories (AR) and the Foundry Division are the key CGUs. There were no intangible
assets in the Steel Sensors & Probes CGU. The recoverable amount of all CGUs exceeded their carrying value on the basis of the
assumptions set out above and any reasonably possible changes thereof. A sensitivity analysis was carried out using reasonably
possible changes to the key assumptions as set out in the table below. The following decreases to the recoverable amount of the
Group’s goodwill and intangible assets were observed:
Key assumption
Relevant CGUs
Assumption
Sensitivity
Decrease in
recoverable
value, £m
Impairment
arising
Free cash flow average annual
growth rate (3 year)
FC, AR, Foundry
6.8%–29.4%
Decrease the free cash flows of
each individual GCU by 20%
(441.1)
None
Pre-tax discount rate
FC, AR
15.0%
Increase by 1%
(106.6)
None
Pre-tax discount rate
Foundry
14.9%
Increase by 1%
(55.9)
None
Long-term growth rate
FC, AR, Foundry
2.5%
Decrease by 1.5%
(199.3)
Trade and Other Receivables
Accounting policy
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective
Analysis of trade and other receivables (current)
2022
2021
Gross
£m
ECL
provision
£m
Net
£m
ECL
provision
coverage
1
Gross
£m
ECL
provision
£m
Net
£m
ECL
provision
coverage
1
Trade receivables
– current
305.4
(2.3)
303.1
0.8%
292.1
(0.4)
291.7
0.1%
– 1 to 30 days past due
51.4
(1.6)
49.8
3.1%
38.5
(0.1)
38.4
0.3%
– 31 to 60 days past due
14.1
(0.6)
13.5
4.3%
10.5
(0.1)
10.4
1.0%
– 61 to 90 days past due
7.3
(0.2)
7.1
2.7%
4.6
–
4.6
0.0%
– over 90 days past due
35.4
(28.1)
7.3
79.4%
29.2
(22.1)
7.1
75.7%
Trade receivables
413.6
(32.8)
380.8
374.9
(22.7)
352.2
Other receivables
65.3
65.4
Prepayments
30.8
27.6
Total trade and other receivables
476.9
445.2
1.
ECL provision coverage is expected credit loss provision divided by gross trade receivables.
189
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
18.
Trade and Other Receivables
continued
18.2
Analysis of trade and other receivables (current)
continued
There is no significant difference between the fair value of the Group’s trade and other receivables balances and the amount at
which they are reported in the Group Balance Sheet.
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 £32.5m (2021: £22.0m). The majority of these notes relate to customers
in China and have typical maturities of six months from the 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 £23.3m (2021: £32.5m) and insurance reimbursements (see Note 30.2) of £1.7m (2021: £2.0m).
18.3
Other receivables (non-current)
Non-current other receivables of £33.7m (2021: £16.2m) include insurance reimbursements (see Note 30.2) of £25.1m
(2021: £12.4m) and prepaid taxes of £1.8m (2021: £1.6m).
The Group applies the expected credit loss model under IFRS 9 to these other receivables. The expected credit loss for other
receivables is immaterial.
The maximum exposure to credit risk at the end of the reporting period is the net carrying amount of these trade and other
18.4
Impairment of trade and other receivables
Inventories
Accounting policy
Inventories are stated at the lower of cost 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.
The standard cost method is used for measurement of the cost of inventories in some locations. Standard costs are regularly
reviewed and, if necessary, revised in light of current conditions. Other locations measure the cost of inventories using actual
costs. 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.
The Group differentiates between work in progress (inventory that will be used in manufacturing processes and is not normally
sold to third parties) and semi-finished goods (inventory that is considered as partially complete in end to end manufacturing
19.2
Analysis of inventories
2022
£m
2021
£m
Raw materials
104.6
105.6
Work in progress
22.0
19.2
Semi-finished goods
21.4
14.6
Finished goods
168.0
160.0
Total inventories
316.0
299.4
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 £1,417.0m (2021: £1,168.5m).
The net inventories of £316.0m include a provision for obsolete stock of £20.5m (2021: £12.5m). There were inventory write-downs
20.
Acquisitions and Divestments
Yingkou YingWei Magnesium
On 8 October 2022 Vesuvius plc acquired the trade and assets of Yingkou YingWei Magnesium Co. Ltd, a basic monolithic
refractory plant in China, for cash consideration of RMB 33.0m (£4.0m). It has become part of the Group’s Steel Advanced
Refractories Business Unit. Vesuvius acquired net assets with fair value of RMB 29.0m (£3.5m). There were no material identifiable
intangible assets acquired. There were no contingency related arrangements arising from the acquisition. The goodwill upon
acquisition was RMB 4.0m (£0.5m).
190
Vesuvius plc
Annual Report and Financial Statements 2022
20.
Acquisitions and Divestments
continued
20.2
Universal Refractories
On 6 December 2021 Vesuvius plc acquired the trade and assets of Universal Refractories, Inc. (URI), a specialty refractory
producer based in Pennsylvania, USA, which is focused on tundish (steel continuous casting) applications as well as consumable
products for the foundry industry. It has become part of the Group’s Steel Advanced Refractories Business Unit, with the exception
of the ladle liners business, which has been absorbed by our Foundry Division (<10% of sales). The transaction valued URI at an
enterprise value of $57.1m (£42.6m) on a cash and debt-free basis and was funded from Vesuvius’ internal resources.
The fair values of the assets and liabilities recognised as a result of the acquisition have been updated during the year ended
31 December 2022. There was a decrease of £1.1m to net identifiable assets acquired, largely due to a reduction in non-compete
intangible assets of £0.9m (Note 16.2). There was also a decrease of £0.5m to consideration.
Book
value
£m
Fair value
adjustments
£m
Adjusted
value
£m
Property, plant and equipment
4.5
6.9
11.4
Intangible assets (customer relationships and know-how)
–
11.3
11.3
Inventories
5.0
1.3
6.3
Receivables
5.5
–
5.5
Payables
(1.9)
(0.6)
(2.5)
Borrowings
(5.4)
–
(5.4)
Deferred tax
–
(2.8)
(2.8)
Net identifiable assets acquired
7.7
16.1
23.8
Goodwill
13.9
Consideration
37.7
The goodwill is attributable to URI’s reputation in the marketplace and the synergies that Vesuvius expects to gain from its
integration. It is expected to be tax deductible.
Included within the property, plant and equipment acquired were right-of-use leased assets of £0.2m.
The decision to acquire URI was driven by its long-standing customer relationships and know-how. The identifiable intangible
assets acquired are customer relationships and know-how. A deferred tax liability of £2.8m has been provided in relation to
these fair value adjustments.
On acquisition, URI was subsumed into the Steel Advanced Refractories Business Unit and the Foundry Division and goodwill is
monitored at the level of the Steel Advanced Refractories operating segment.
The net cash outflow on acquisition was £43.1m, including related excess working capital payment; the business was acquired
on a cash and debt-free basis. In accordance with IFRS 3, we disclose the above consideration of £37.7m and borrowings repaid
immediately prior to acquisition of £5.4m.
20.3
Other acquisitions
The Group did not acquire any material interests in any other companies during the year ended 31 December 2022.
There was no contingent consideration paid during the year ended 31 December 2022. Contingent consideration of £0.1m
21.
Issued Share Capital
Accounting policy
21.2
Analysis of issued share capital
The allotted, issued and fully paid ordinary share capital of the Company as at 1 January 2022 and 31 December 2022 was
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.
191
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
Retained Earnings
Notes
Reserve
for own
shares
£m
Share
option
reserve
£m
Other
retained
earnings
£m
Total
retained
earnings
£m
As at 31 December 2020 and 1 January 2021
(35.9)
3.5
2,535.3
2,502.9
Profit for the year
–
–
102.1
102.1
Remeasurement of defined benefit liabilities/assets
–
–
(80.6)
(80.6)
Recognition of share-based payments
–
3.1
–
3.1
Release of share option reserve on exercised and lapsed options
2.5
(2.5)
–
–
Income tax on items recognised in other comprehensive income
–
–
12.5
12.5
Purchase of ESOP shares
(1.1)
–
–
(1.1)
Dividends paid
24
–
–
(55.5)
(55.5)
As at 31 December 2021 and 1 January 2022
(34.5)
4.1
2,513.8
2,483.4
Profit for the year
–
–
181.1
181.1
Remeasurement of defined benefit liabilities/assets
–
–
27.4
27.4
Recognition of share-based payments
–
5.1
–
5.1
Release of share option reserve on exercised and lapsed options
1.2
(1.2)
–
–
Income tax on items recognised in other comprehensive income
–
–
(8.2)
(8.2)
Purchase of ESOP shares
(6.9)
–
–
(6.9)
Dividends paid
24
–
–
(58.1)
(58.1)
As at 31 December 2022
(40.2)
8.0
2,656.0
Other Reserves
Other
reserves
£m
Cash flow
hedge
reserve
£m
Translation
reserve
£m
Total other
reserves
£m
As at 31 December 2020 and 1 January 2021
(1,499.3)
(1.4)
49.4
(1,451.3)
Exchange differences on translation of the net assets of foreign operations
–
–
(31.0)
(31.0)
Exchange differences on translation of net investment hedges
–
–
14.4
14.4
Net change in costs of hedging
–
(1.2)
–
(1.2)
Change in the fair value of the hedging instrument
–
2.2
–
2.2
Amounts reclassified from the Income Statement
–
(0.7)
–
(0.7)
As at 31 December 2021 and 1 January 2022
(1,499.3)
(1.1)
32.8
(1,467.6)
Exchange differences on translation of the net assets of foreign operations
–
–
96.1
96.1
Exchange differences on translation of net investment hedges
–
–
(20.7)
(20.7)
Net change in costs of hedging
–
–
–
–
Change in the fair value of the hedging instrument
–
8.3
–
8.3
Amounts reclassified from the Income Statement
–
(7.5)
–
(7.5)
As at 31 December 2022
(1,499.3)
(0.3)
108.2
(1,391.4)
Within other reserves as at 31 December 2022 is £1,499.0m (2021: £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 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.
Of the closing balance in the translation reserve, a £7.7m debit (2021: £3.0m debit) relates to net investment hedging
arrangements put in place on or after 1 January 2018 but discontinued as at the date of the Balance Sheet. The full closing
balance in the cash flow hedge reserve relates to continuing hedges.
192
Vesuvius plc
Annual Report and Financial Statements 2022
Dividends paid to Equity Shareholders
2022
£m
2021
£m
Amounts recognised as dividends and paid to equity shareholders during the year
Final dividend for the year ended 31 December 2020 of 14.3p per ordinary share
–
38.7
Interim dividend for the year ended 31 December 2021 of 6.2p per ordinary share
–
16.8
Final dividend for the year ended 31 December 2021 of 15.0p per ordinary share
40.5
–
Interim dividend for the year ended 31 December 2022 of 6.5p per ordinary share
17.6
–
58.1
55.5
A proposed final dividend for the year ended 31 December 2022 of £42.3m (2021: £40.5m), equivalent to 15.75 pence
(2021: 15.0 pence) per ordinary share, is subject to approval by shareholders at the Company’s Annual General Meeting
on 18 May 2023 and has not been included as a liability in these financial statements. If approved by shareholders, the dividend
Financial Risk Management
Accounting policy
The Group’s financial assets and liabilities are measured as appropriate either at amortised cost or at fair value through other
comprehensive income or 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.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business.
Trade receivables are recognised initially at their fair value, which is the amount of consideration that is unconditional. The Group
holds the trade receivables with the objective of collecting the contractual cash flows (held to collect) and therefore measures
them subsequently at amortised cost using the effective interest method.
Derivatives which do not meet the hedge accounting criteria are classified as fair value through profit and loss (held for trading).
The cross-currency interest rate swaps (see Note 25.2) which meet the hedging criteria are measured at fair value through other
comprehensive income.
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
Transactions in currencies other than the entity’s functional currency are initially recorded at the rates of exchange prevailing
at the end of the preceding month or on the date of the transaction itself. 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 either in the Group Income Statement or the
Group Statement of Comprehensive Income
(ii)
Translation from functional currency to presentational currency
When the functional currency of a Group entity is different from the Group’s presentational currency (pounds 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
193
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
25.
Financial Risk Management
continued
25.1
Accounting policy
continued
(b) Foreign currencies
continued
Translation from functional currency to presentational currency
continued
(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
In hyperinflationary economies, when translating the results of operations into GBP, assets, liabilities, Income Statement and
equity accounts are translated at the rate prevailing on the balance sheet date. Any gain or loss on net monetary assets/liabilities
is recognised in the Consolidated Income Statement. The effect of inflation on non-monetary assets/liabilities is recognised in
other comprehensive income within equity.
The Group uses derivative financial instruments (‘derivatives’) to manage the financial risks associated with its underlying activities
and the financing of those activities. Derivatives are measured at fair value using market prices at the balance sheet date. Any
derivatives which form part of a hedge accounting relationship are designated as such on the date on which they are executed.
Any derivatives which do not form part of a designated hedge accounting relationship 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
(d) Cash flow hedges
Changes in the fair value of derivatives designated as cash flow hedges are recognised in other comprehensive income to the
extent that the hedges are effective. Any ineffective portion would immediately be recognised in net finance costs in the profit or
loss. If a forecast transaction is no longer expected to occur, the amounts previously recognised in other comprehensive income
would be transferred to net finance costs in the profit or loss.
The Group designates certain of its borrowings and derivatives as net investment hedges of its foreign operations. As with cash
flow hedges, the effective portion of the gain or loss on hedging instruments is recognised in other comprehensive income whilst
any ineffective portion would immediately be recognised in net finance costs in the profit or loss. In the event a foreign operation
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.
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.
2022
2021
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Investments (Level 2)
0.5
–
0.5
–
Derivatives not designated for hedge accounting purposes (Level 2)
0.1
(0.1)
0.1
(0.3)
Derivatives designated for hedge accounting purposes (Level 2)
2.7
–
–
(2.3)
(a) Derivative financial instruments
The Group uses derivatives in the form of forward foreign currency contracts to manage the effects of its exposure to foreign exchange risk on
trade receivables, trade payables and cash. Derivatives are only used for economic hedging purposes and not as speculative investments.
In June 2020, the Group executed a US$86m cross-currency interest rate swap (CCIRS). The effect of this is to convert the
$86m Private Placement Notes issued in June 2020 into €76.6m. The timing and amount of the US dollar cash flows under the
CCIRS exactly mirror those of the Private Placement Notes and the maturity date of the CCIRS also matches the repayment date
of the Notes. The CCIRS would by default be revalued through the Income Statement; however, as it is in a designated hedging
relationship, it is instead revalued through other comprehensive income. More specifically, the US dollar exposure is designated
as a cash flow hedge of the underlying Private Placement Notes and the euro exposure is designated as a net investment hedge of
part of the Group’s foreign operations. The CCIRS is presented as a non-current asset or liability as it is expected to be settled more
than 12 months after the end of the reporting period.
194
Vesuvius plc
Annual Report and Financial Statements 2022
25.
Financial Risk Management
continued
25.2
Financial risk factors
continued
(a) Derivative financial instruments
continued
With the exception of the CCIRS, the fair value of derivatives outstanding at the year-end has been booked through the Income
Statement in 2022. 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 not designated for hedge accounting purposes
reported in the table above will mature within a year of the balance sheet date.
Derivative financial instruments are subject to International Swaps and Derivatives Association (ISDA) agreements. Derivatives
designated for hedge accounting purposes are presented net £2.7m (2021: £2.3m), of which all individual instruments are assets
(2021: gross assets £3.7m and gross liabilities £6.0m).
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 these financial assets and financial liabilities
is shown in the table below.
2022
2021
Euro
£m
US dollar
£m
Other
£m
Euro
£m
US dollar
£m
Other
£m
Trade receivables
82.0
58.7
9.3
70.7
38.7
28.3
Cash at bank
10.1
9.8
0.7
5.2
8.3
15.7
Trade payables
(52.6)
(47.4)
(16.2)
(40.4)
(36.8)
(19.9)
Private Placement Notes
(175.2)
(120.7)
–
(166.4)
(107.9)
–
Bank loans and overdrafts
(44.8)
(0.1)
(0.1)
(23.1)
–
–
Lease liabilities
(1.5)
(0.3)
(0.8)
(0.6)
–
(0.9)
Cross-currency interest rate swaps
(67.8)
71.1
–
(64.4)
63.6
–
Foreign currency forward contracts
– Buy foreign currency
0.9
4.8
–
0.9
5.5
–
– Sell foreign currency
(16.9)
(22.3)
–
(20.1)
(21.2)
(0.6)
(265.8)
(46.4)
(7.1)
(238.2)
(49.8)
22.6
The Group has £(1.4)m (2021: £(1.8)m) of exchange differences recognised in the Income Statement of which £(1.8)m arose on the
revaluation of derivatives (2021: £(0.9)m).
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.
Net unhedged monetary (liabilities)/assets
Euro
£m
US dollar
£m
Other
£m
Total
£m
Functional currency
Sterling
(286.9)
(49.3)
1.1
(335.1)
Other
21.0
2.9
(8.0)
15.9
As at 31 December 2022
(265.9)
(46.4)
(6.9)
(319.2)
Net unhedged monetary (liabilities)/assets
Euro
£m
US dollar
£m
Other
£m
Total
£m
Functional currency
Sterling
(252.3)
(42.3)
5.2
(289.4)
Other
14.1
(7.5)
17.4
24.0
As at 31 December 2021
(238.2)
(49.8)
22.6
(265.4)
The Group finances its operations partly by obtaining funding through external borrowings. Where these borrowings are not in sterling,
they may be designated as net investment hedges. This enables gains and losses arising on retranslation to be charged to other
comprehensive income, providing a partial offset in equity against the gains and losses arising on translation of overseas net assets.
As at 31 December 2022, €246.0m and $60.0m of borrowings were designated as hedges of net investments in €246.0m and
$60.0m worth of overseas foreign operations. In addition, the €76.6m CCIRS liability has been designated as a net investment
hedge of a further €76.6m worth of overseas foreign operations.
195
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
25.
Financial Risk Management
continued
25.2
Financial risk factors
continued
(b) Market risk
continued
As the value of the borrowings and the CCIRS liability exactly matches the designated hedged portion of the net investments,
the relevant hedge ratio is 1:1. The net investment hedges are therefore highly effective. It is noted that hedge ineffectiveness
would arise in the event there were insufficient euro-denominated overseas foreign operations to be matched against the
€76.6m CCIRS liability.
The total retranslation impact of the borrowings and CCIRS designated as net investment hedges was a loss of £20.7m
(2021: a gain of £14.4m).
The $86.0m CCIRS asset has been designated as a cash flow hedge of the $86.0m USPP Notes issued in 2020. As all principal
and interest cash flows under the CCIRS exactly mirror those under the USPP Notes, the cash flow hedge is highly effective. It is
noted that hedge ineffectiveness would arise in the event there was a change in the contractual terms of either the USPP Notes
or the CCIRS.
Hedge effectiveness is determined at inception of the hedge relationship and through periodic effectiveness assessments,
to ensure that an economic relationship exists between the hedged item and hedging instrument.
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 an appropriate mix of fixed and floating rate borrowings based on the Vesuvius
trading environment, market conditions and other economic factors.
As at 31 December 2022, the Group had $146.0m, €198.0m and £28.0m (£323.9m in total) of US Private Placement (USPP) Notes
outstanding, which carry a fixed rate of interest, representing 81% 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.
Financial liabilities (gross borrowings)
Fixed
rate
£m
Floating
rate
£m
Total
£m
Sterling
28.0
33.3
61.3
US dollar
120.7
1.9
122.6
Euro
175.2
44.8
220.0
Capitalised arrangement fees
(0.9)
(1.8)
(2.7)
As at 31 December 2022
323.0
78.2
401.2
Financial liabilities (gross borrowings)
Fixed
rate
£m
Floating
rate
£m
Total
£m
Sterling
28.0
76.4
104.4
US dollar
107.9
1.2
109.1
Euro
166.4
27.2
193.6
Capitalised arrangement fees
(1.2)
(2.1)
(3.3)
As at 31 December 2021
301.1
102.7
403.8
Information in respect of the currency risk management of $86.0m of US dollar-denominated fixed rate financial liabilities is
provided above.
The floating rate financial liabilities shown in the tables above bear interest at a market convention reference rate appropriate
to each currency plus a margin. The fixed rate financial liabilities of £323.9m (2021: £302.3m) have a weighted average interest
rate of 3.2% (2021: 3.2%) and a weighted average period for which the rate is fixed of 5.2 years (2021: 6.2 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 £0.8m (2021: £1.0m), and a 1% reduction in market interest rates would decrease both the finance costs charged
196
Vesuvius plc
Annual Report and Financial Statements 2022
25.
Financial Risk Management
continued
25.2
Financial risk factors
continued
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, apart from certain limited circumstances, 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.
The Group subjects trade receivables from sales of inventory and from the provision of services to the expected credit loss model.
Whilst 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 2021 and the corresponding historical credit losses experienced within this period.
The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting
the ability of the customers to settle the receivables. The Group has identified the current state of the economy (such as market
interest rates or growth rates) and particular industry issues in the countries in which it sells its goods and services to be the most
relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors.
Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past due in
making a contractual payment. Where objective evidence exists that a trade receivable balance may be impaired, provision
is made for the difference between its carrying amount and the present value of the estimated cash that will be recovered.
Evidence of impairment may include such factors as a change in credit risk profile of the customer, the customer being in default
on a contract, or the customer entering bankruptcy or financial reorganisation proceedings. All significant balances are reviewed
individually for evidence of impairment.
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there
is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the
Group, and a failure to make contractual payments for a period of greater than 120 days past due. Where loans or receivables
have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due.
Where recoveries are made, these are recognised within the Income Statement.
The closing expected credit loss allowance for trade receivables as at 31 December 2022 reconciles to the opening loss allowances
as follows:
2022
£m
2021
£m
As at 1 January
22.7
24.0
(Decrease)/increase in expected credit loss allowance recognised in profit or loss during the year
9.9
(0.5)
Receivables written off during the year as uncollectable
(0.7)
(0.3)
Exchange adjustments
0.9
(0.5)
As at 31 December
32.8
22.7
The debit 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
197
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
25.
Financial Risk Management
continued
25.2
Financial risk factors
continued
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.
In July 2022 the Group exercised its option to request a one-year extension to the maturity of its £385m committed bank facility.
Following this request £346.5m of the facility matures in August 2026 with £38.5m maturing in July 2025.
As at 31 December 2022, the Group had committed borrowing facilities of £721.9m (2021: £706.3m), of which £322.5m
(2021: £308.1m) were undrawn. 90% of these undrawn facilities are due to expire in August 2026. The Group’s borrowing
requirements are met by USPP, a multi-currency committed syndicated bank facility of £385.0m (2021: £385.0m) and a bilateral
bank facility of £13.0m (2021: £21.0m) which is fully collateralised against a portion of the Group’s cash balance in China.
USPP Notes issued as at 31 December 2022 amounted to £323.9m ($146.0m, €198.0m and £28.0m) and had a weighted average
period to maturity of 5.2 years. $30.0m is repayable in December 2023, €15.0m and $60.0m in 2025, €100.0m and $26.0m in
2027, $30.0m in 2028, €50.0m in 2029 and €33.0m and £28.0m in 2031. The maturity analysis of the Group’s gross borrowings
(including interest) is shown in the tables below. The cash flows shown are undiscounted.
As at 31 December 2022
Within
1 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
Trade payables
239.5
–
–
–
239.5
239.5
Loans and overdrafts
52.6
9.2
255.3
133.4
450.5
403.8
Lease liabilities
12.3
9.2
13.2
13.5
48.2
40.8
Capitalised arrangement fees
–
–
–
–
–
(2.7)
Derivative liability
0.1
–
–
–
0.1
0.1
Total financial liabilities
304.5
18.4
268.5
146.9
738.3
681.5
As at 31 December 2021
Within
1 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
Trade payables
253.8
–
–
–
253.8
253.8
Loans and overdrafts
37.4
9.6
178.2
235.0
460.2
407.1
Lease liabilities
11.6
9.2
13.4
13.2
47.4
39.9
Capitalised arrangement fees
–
–
–
–
–
(3.3)
Derivative liability
(0.6)
(0.6)
(0.6)
0.2
(1.6)
2.6
Total financial liabilities
302.2
18.2
191.0
248.4
759.8
700.1
Capitalised arrangement fees shown in the tables above, which have been recognised as a reduction in borrowings in the Financial
Statements, amounted to £2.7m as at 31 December 2022 (31 December 2021: £3.3m), of which £0.9m (2021: £1.2m) related to the
USPP and £1.8m (2021: £2.1m) related to the Group’s syndicated bank facility.
The carrying amount of lease liabilities falling due within one year was £12.3m (2021: 11.6m). The carrying amount of lease
198
Vesuvius plc
Annual Report and Financial Statements 2022
25.
Financial Risk Management
continued
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 ROIC (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
Employee Benefits
Accounting policy
The net liability or net surplus 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 Group
has an unconditional right to a refund of the UK surplus, as defined under IFRIC 14, and considers that the possibility that a surplus
could be reduced or extinguished by discretionary actions by the Trustee does not affect the existence of the asset at the end of the
reporting period. The Group therefore recognises a pension asset with respect to the scheme valued on an IAS 19 basis. No liability
is recognised with respect to further funding contributions.
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
199
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
26.
Employee Benefits
continued
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. There are also some jubilee arrangements (other long-term benefits plans) which, while they
do not need to be included in the detailed disclosures under IAS 19, have been included in the analysis below.
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.
In November 2021, the Trustee of the Vesuvius Pension Plan signed a pension insurance buy-in agreement with Pension Insurance
Corporation plc (PIC). This buy-in secured an insurance asset from PIC that matches the remaining pension liabilities of the UK
Plan, with the result that the Company no longer bears any investment, longevity, interest rate or inflation risks in respect of the
UK Plan. All benefits in the UK Plan (with the exception of a small amount of benefits expected to arise in future as a result of
guaranteed minimum pensions (GMP) equalisation) are now insured with PIC.
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. Following the buy-in referred to above, no further contributions are expected to
be paid to the UK Plan by the Company, and the cost of GMP equalisation will be met out of the surplus UK Plan assets.
(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 2022. At that date, the market value of the plan assets was $45.2m, representing
a funding level of 71.7% of funded accrued plan benefits at that date (using the projected unit method of valuation) of $63.0m.
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 qualified defined benefit pension plan is 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 2022,
total minimum required contributions were $nil. Under these funding laws and based on the plan deficit, the required minimum
annual contribution for the 2023 fiscal year is expected to be $nil and the required annual contributions for the period 2024–2025
are expected to be in the $2.5m to $3.5m range. Contributions of $nil were made during 2022.
(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. The German defined benefit plan contains mainly direct pension promises based on works council agreements as well
as on some individual pension promises. The legal framework is the German Company Pensions Act (‘Betriebsrentengesetz’).
The plan is unfunded (book reserved) and the company pays all benefit payments when they fall due.
(d) Defined benefit pension plans – rest of the world and other post-retirement benefits
The Group has several defined benefit pension arrangements across the rest of the world (ROW), the largest of which are in
Belgium. The net liability of the ROW plans at 31 December 2022 was £9.2m (2021: £16.9m). The Group also has liabilities relating
to medical insurance arrangements and termination plans which provide for benefit to be paid to employees on retirement.
The net liability of these other post-retirement benefits as at 31 December 2022 was £9.4m (2021: £7.0m).
(e) Defined contribution pension plans
The total expense for the Group’s defined contribution plans in the Group Income Statement amounted to £10.8m (2021: £10.2m)
and represents the contributions payable for the year by the Group to the plans.
200
Vesuvius plc
Annual Report and Financial Statements 2022
26.
Employee Benefits
continued
26.2
Group post-retirement plans
continued
(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 five-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 S3’) All table, with
future longevity improvements in line with the ‘core’ mortality improvement tables published in 2021 by the Continuous Mortality
Investigation (CMI), with a long-term rate of improvement of 1.25% per year. For the Group’s US plans, the assumptions used have
been based on the Pri-2012 mortality tables and MP-2021 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
2022
2021
UK
years
US
years
Germany
years
UK
years
US
years
Germany
years
Age to which current pensioners are expected to live:
– Men
87.2
85.0
85.6
87.2
85.0
85.5
– Women
89.0
87.0
89.0
88.9
87.0
88.9
Age to which future pensioners are expected to live:
– Men
87.5
86.5
88.4
87.5
86.5
88.2
– Women
90.5
88.4
91.3
90.4
88.4
91.1
(b) Other main actuarial valuation assumptions
2022
2021
UK
% p.a.
US
% p.a.
Germany
% p.a.
UK
% p.a.
US
% p.a.
Germany
% p.a.
Discount rate
4.80
4.90
3.70
2.00
2.45
1.20
Price inflation – using RPI for UK
3.25
2.50
2.35
3.25
2.25
2.00
– using CPI for UK
2.35
n/a
n/a
2.45
n/a
n/a
Rate of increase in pensionable salaries
n/a
n/a
3.10
n/a
n/a
2.75
Rate of increase to pensions in payment
3.00
n/a
2.35
3.15
n/a
2.00
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 cash flows of the Vesuvius Pension Plan and the AON AA yield curve; the US discount rate is based
on the FTSE (formerly Citigroup) pension discount curve; and the Germany discount rate is based on AA corporate bond yields
included in the iBoxx Euro AA corporate bond indices.
The assumptions for UK price inflation are set by reference to the difference between yields on longer-term conventional
government bonds and index-linked bonds, except for CPI, for which no appropriate bonds exist, which is assumed to be
0.9 points lower (2021: 0.8 points lower) than RPI-based inflation.
201
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
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 £3.7m
Decrease/increase
by £0.5m
Decrease/increase
by £0.6m
– impact on plan assets
Decrease/increase by £3.7m
n/a
n/a
Price inflation
Increase/decrease by 0.1%
– impact on plan liabilities
Increase/
decrease by £2.4m
n/a
Increase/decrease
by £0.2m
– impact on plan assets
Increase/decrease by £2.4m
n/a
n/a
Mortality
Increase by one year
– impact on plan liabilities
Increase by £15.5m
Increase by £2.1m
Increase by £1.2m
– impact on plan assets
Increase by £15.5m
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 12 years for the UK,
16 years for Germany and 9 years for the US.
Defined benefit pension plans
Other post-
retirement &
long-term
benefit
plans
£m
Total
£m
UK
£m
US
£m
Germany
£m
ROW
£m
Total
£m
Present value as at 1 January 2022
464.3
70.2
53.3
48.3
636.1
7.0
643.1
Reclassification to other post-retirement &
long-term benefit plans
*
–
–
–
(2.0)
(2.0)
2.0
–
Exchange differences
–
7.9
2.2
1.7
11.8
0.7
12.5
Current service cost
–
–
1.0
3.0
4.0
0.8
4.8
Interest cost
9.0
1.8
0.7
0.7
12.2
0.3
12.5
Gains arising over the year that are
recognised in P&L
–
–
–
–
–
(0.4)
(0.4)
Remeasurement of liabilities:
– demographic changes
(6.1)
–
–
(0.1)
(6.2)
–
(6.2)
– financial assumptions
(148.5)
(15.0)
(18.3)
(6.8)
(188.6)
(0.5)
(189.1)
– experience losses/(gains)
28.9
(0.5)
1.1
0.8
30.3
0.3
30.6
Benefits paid
(22.4)
(4.5)
(1.6)
(2.3)
(30.8)
(0.8)
(31.6)
Present value as at 31 December 2022
325.2
59.9
38.4
43.3
466.8
9.4
476.2
*
A jubilee arrangement (other long-term benefits plan) previously recorded in the ROW disclosure has been reclassified into other post-retirement &
long-term benefits for consistency of placement with all other jubilee arrangements.
202
Vesuvius plc
Annual Report and Financial Statements 2022
26.
Employee Benefits
continued
26.4
Defined benefit obligation
continued
Defined benefit pension plans
Other post-
retirement &
long-term
benefit
plans
£m
Total
£m
UK
£m
US
£m
Germany
£m
ROW
£m
Total
£m
Present value as at 1 January 2021
501.8
74.3
63.1
52.1
691.3
7.0
698.3
Exchange differences
–
0.7
(3.7)
(3.0)
(6.0)
(0.2)
(6.2)
Current service cost
–
–
1.7
3.1
4.8
0.4
5.2
Interest cost
6.8
1.5
0.3
0.5
9.1
0.2
9.3
Remeasurement of liabilities:
– demographic changes
(0.4)
0.2
–
0.1
(0.1)
–
(0.1)
– financial assumptions
(24.8)
(2.9)
(5.7)
(0.6)
(34.0)
–
(34.0)
– experience gains
5.0
0.5
(0.9)
(0.8)
3.8
0.1
3.9
Benefits paid
(24.1)
(4.1)
(1.5)
(3.1)
(32.8)
(0.5)
(33.3)
Present value as at 31 December 2021
464.3
70.2
53.3
48.3
636.1
7.0
643.1
26.5
Fair value of plan assets
2022
2021
UK
£m
US
£m
ROW
£m
Total
£m
UK
£m
US
£m
ROW
£m
Total
£m
As at 1 January
486.4
48.3
31.4
566.1
616.4
48.4
31.4
696.2
Exchange differences
–
5.5
1.2
6.7
–
0.4
(2.0)
(1.6)
Interest income
9.5
1.2
0.4
11.1
8.4
1.0
0.2
9.6
Return on plan assets
(124.4)
(13.4)
0.5
(137.3)
(113.7)
1.3
1.6
(110.8)
Contributions from employer
–
–
2.7
2.7
0.1
0.9
2.7
3.7
Administration expenses paid
(0.6)
(0.6)
–
(1.2)
(0.7)
(0.5)
–
(1.2)
Benefits paid
(22.3)
(3.6)
(2.1)
(28.0)
(24.1)
(3.2)
(2.5)
(29.8)
As at 31 December
348.6
37.4
34.1
420.1
486.4
48.3
31.4
566.1
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
2022
total
£m
2021
total
£m
Remeasurement of liabilities/assets:
– demographic changes
6.2
0.1
– financial assumptions
189.1
34.0
– experience losses
(30.6)
(3.9)
Return on plan assets
(137.3)
(110.8)
Total movement
27.4
(80.6)
The remeasurement of defined benefit liabilities and assets is recognised in the Group Statement of Comprehensive Income.
203
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
26.
Employee Benefits
continued
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 & long-term 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.
Defined benefit pension plans
Other post-
retirement &
long-term
benefit
plans
£m
2022
total
£m
UK
£m
US
£m
Germany
£m
ROW
£m
Total
£m
Equities
12.1
0.5
–
2.3
14.9
–
14.9
Bonds
–
35.6
–
3.0
38.6
–
38.6
Annuity insurance contracts
318.1
–
–
24.7
342.8
–
342.8
Other assets
18.4
1.3
–
4.1
23.8
–
23.8
Fair value of plan assets
348.6
37.4
–
34.1
420.1
–
420.1
Present value of funded obligations
(324.1)
(51.7)
–
(40.2)
(416.0)
–
(416.0)
24.5
(14.3)
–
(6.1)
4.1
–
4.1
Present value of unfunded obligations
(1.1)
(8.2)
(38.4)
(3.1)
(50.8)
(9.4)
(60.2)
Total net surpluses/(liabilities)
23.4
(22.5)
(38.4)
(9.2)
(46.7)
(9.4)
(56.1)
Recognised in the Group Balance Sheet as:
Net surpluses
24.5
–
–
1.7
26.2
–
26.2
Net liabilities
(1.1)
(22.5)
(38.4)
(10.9)
(72.9)
(9.4)
(82.3)
Total net surpluses/(liabilities)
23.4
(22.5)
(38.4)
(9.2)
(46.7)
(9.4)
(56.1)
Defined benefit pension plans
Other post-
retirement &
long-term
benefit
plans
£m
2021
total
£m
UK
£m
US
£m
Germany
£m
ROW
£m
Total
£m
Equities
9.8
3.3
–
2.4
15.5
–
15.5
Bonds
–
44.0
–
3.0
47.0
–
47.0
Annuity insurance contracts
456.7
–
–
22.5
479.2
–
479.2
Other assets
19.9
1.0
–
3.5
24.4
–
24.4
Fair value of plan assets
486.4
48.3
–
31.4
566.1
–
566.1
Present value of funded obligations
(462.7)
(59.9)
–
(43.3)
(565.9)
–
(565.9)
23.7
(11.6)
–
(11.9)
0.2
–
0.2
Present value of unfunded obligations
(1.6)
(10.3)
(53.3)
(5.0)
(70.2)
(7.0)
(77.2)
Total net surpluses/(liabilities)
22.1
(21.9)
(53.3)
(16.9)
(70.0)
(7.0)
(77.0)
Recognised in the Group Balance Sheet as:
Net surpluses
23.7
–
–
1.4
25.1
–
25.1
Net liabilities
(1.6)
(21.9)
(53.3)
(18.3)
(95.1)
(7.0)
(102.1)
Total net surpluses/(liabilities)
22.1
(21.9)
(53.3)
(16.9)
(70.0)
(7.0)
(77.0)
(a) UK Plan asset allocation
As at 31 December 2022, of the UK Plan’s total assets, 91.4% (2021: 93.9%) were represented by the annuity insurance contracts
covering the UK Plan’s pension liabilities; 3.4% (2021: 2.0%) were allocated to equities and 5.2% (2021: 4.1%) to cash.
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 all of the UK Plan’s liabilities. Under this arrangement,
the value of the PIC insurance contract matches the value of the liabilities for current benefits because the inflation, interest rate,
investment and longevity risks for Vesuvius in respect of these liabilities are eliminated. The buy-in agreement ensures that the
UK pension plan obligations in respect of all its members and their approved dependants are insured.
As at 31 December 2022, the IAS 19 valuation of the PIC insurance contract value associated with the bought-in liabilities was
£318.1m (2021: £456.7m). The policy and the associated valuation are updated annually to reflect retirements and mortality.
204
Vesuvius plc
Annual Report and Financial Statements 2022
26.
Employee Benefits
continued
26.7
Balance sheet recognition
continued
(b) 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 provide equity market exposure with some level of equity downside protection.
(c) Defined benefit contributions in 2022
In 2023, the Group is expected to make contributions into its defined benefit pension and other post-retirement & long-term
benefits plans of around £6.6m with specific contributions of approximately £1.1m, £1.8m and £1.9m anticipated for the
US Plans, German Plans 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 & long-term benefit plans is shown below:
2022
2021
Defined
benefit
pension
plans
£m
Other post-
retirement &
long-term
benefit
plans
£m
Total
£m
Defined
benefit
pension
plans
£m
Other post-
retirement &
long-term
benefit
plans
£m
Total
£m
Current service cost
4.0
0.8
4.8
4.8
0.4
5.2
Gains arising over the year that are recognised in P&L
–
(0.4)
(0.4)
–
–
–
Administration expenses
1.2
–
1.2
1.2
–
1.2
Net interest cost/(gain)
1.1
0.3
1.4
(0.5)
0.2
(0.3)
Total net charge
6.3
0.7
7.0
5.5
0.6
6.1
The total net charge of £7.0m (2021: £6.1m), recognised in the Group Income Statement in respect of the Group’s defined benefit
pension plans and other post-retirement & long-term benefits plans, is analysed in the following table:
2022
£m
2021
£m
In arriving at trading profit
– within other manufacturing costs
1.7
1.8
– within administration, selling and distribution costs
3.9
4.6
In arriving at profit before tax – within net finance costs
1.4
(0.3)
Total net charge
7.0
6.1
GMP equalisation
A UK High Court ruling was made on 26 October 2018 in respect of the gender equalisation of guaranteed minimum pensions
(GMPs) for occupational pension schemes. The impact of GMP equalisation as at 31 December 2018 was estimated to be £4.5m.
A second UK High Court GMP equalisation ruling was issued on 20 November 2020. This second ruling considered the treatment
of historical transfers out, i.e. those members who had transferred out before 26 October 2018. The 2020 ruling covers both
individual and bulk transfers out. It does not revisit any of the issues addressed in the 2018 ruling. The impact of GMP equalisation
for the second ruling was estimated to be £0.8m as at 31 December 2020.
The increase in pension liabilities resulting from these judgements have been treated for IAS 19 purposes as plan amendments
and resulted in an increase in the pension deficit in the balance sheet and a corresponding past service cost in the Income
Statement. These amendments have previously been treated as separately reported items so that there has been no impact
on 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 these judgements crystallise additional liabilities for the UK pension plan.
205
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
26.
Employee Benefits
continued
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.
Following the UK Plan pension insurance buy-in agreement, the inflation, interest rate, investment and longevity risks for
Vesuvius in respect of the UK Plan are eliminated. The following risks relate to the other plans operated by the Group:
Counterparty risk
This is mitigated by using a diversified range of counterparties of high standing and ensuring positions are collateralised
as required.
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.
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 plans’ benefit obligations outside the US are linked to inflation, and higher inflation will lead to higher liabilities.
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 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 recent years, a number of further
Share-based Payments
Accounting policy
The Group operates an 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 return on invested capital (ROIC), environmental, social and governance criteria
(ESG) and headline earnings per share (EPS), 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
206
Vesuvius plc
Annual Report and Financial Statements 2022
27.
Share-based Payments
continued
27.2
Income statement recognition
The total expense recognised in the Group Income Statement is shown below:
2022
£m
2021
£m
Long-Term Incentive Plan
0.9
0.2
Other plans
4.2
2.9
Total expense
5.1
3.1
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
Number of outstanding awards
As at
1 Jan 2022
Granted
Exercised
Forfeited/
lapsed
Expired
As at
31 Dec 2022
LTIP
1,939,964
981,558
nil
(776,187)
nil
2,145,335
Weighted average exercise price
nil
nil
nil
nil
nil
nil
Other plans
549,033
1,513,457
(228,175)
(111,626)
nil
1,722,689
Weighted average exercise price
nil
nil
nil
nil
nil
nil
For the awards exercised during 2022, the market value at the date of exercise ranged from 293.0 pence to 395.5 pence per share.
Number of outstanding awards
As at
1 Jan 2021
Granted
Exercised
Forfeited/
lapsed
Expired
As at
31 Dec 2021
LTIP
1,717,225
702,982
(31,637)
(448,606)
nil
1,939,964
Weighted average exercise price
nil
nil
nil
nil
nil
nil
Other plans
635,031
391,769
(437,328)
(40,439)
nil
549,033
Weighted average exercise price
nil
nil
nil
nil
nil
nil
For the options exercised during 2021, the market value at the date of exercise ranged from 473 pence to 574 pence.
Details of market performance conditions are included in the Directors’ Remuneration Report.
2022
2021
Awards
exercisable
as at
31 Dec 2022
no.
Weighted
average
outstanding
contractual
life of
awards
years
Range of
exercise
prices
pence
Awards
exercisable
as at
31 Dec 2021
no.
Weighted
average
outstanding
contractual
life of
awards
years
Range of
exercise
prices
pence
LTIP
–
8.3
–
8.3
Weighted average exercise price
–
n/a
–
n/a
Other plans
–
0.9
–
0.9
Weighted average exercise price
–
n/a
–
n/a
207
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
27.
Share-based Payments
continued
27.4
Options granted during the year
2022
LTIP ROIC/
ESG element
LTIP TSR
element
Other plans
Fair value of options granted
385p
217p
385p
Share price on date of grant
385p
385p
385p
Expected volatility
n/a
39.3%
n/a
Risk-free interest rate
n/a
1.28%
n/a
Exercise price (per share)
nil
nil
nil
Expected term (years)
3
3
2
Expected dividend yield
nil
nil
nil
2021
LTIP EPS
element
LTIP TSR
element
Other plans
Fair value of options granted
538p
340p
538p
Share price on date of grant
538p
538p
538p
Expected volatility
n/a
39.2%
n/a
Risk-free interest rate
n/a
0.2%
n/a
Exercise price (per share)
nil
nil
nil
Expected term (years)
3
3
2
Expected dividend yield
nil
nil
nil
For the LTIP awards issued in 2020 and 2021, vesting of 50% of shares awarded is based on the Group’s three-year total
shareholder return (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.
For the LTIP awards issued in 2022, vesting of 40% of shares awarded is based on the Group’s three-year total shareholder return
(TSR) performance relative to that of the constituent companies of the FTSE 250 (excluding investment trusts) and vesting of the
remaining 60% of shares awarded is based on ROIC and ESG targets.
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the 2.8 years
(2021: 2.8 years) prior to the grant date for the March 2022 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
208
Vesuvius plc
Annual Report and Financial Statements 2022
Trade and Other Payables
Accounting policy
Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost, using the effective
Analysis of trade and other payables
2022
£m
2021
£m
Non-current
Accruals and other payables
13.8
11.6
Total non-current other payables
13.8
11.6
Current
Trade payables
239.5
253.8
Other taxes and social security
38.1
33.5
Accruals and other payables
100.8
85.6
Total current trade and other payables
378.4
372.9
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 £29.7m (2021: £27.8m) subject to supplier financing agreements entered into
with certain of the Group’s banks. Under the terms of the agreements, 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
Leases
Accounting policy
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 can be readily determined. If that rate cannot be readily determined, the lessee’s incremental borrowing rate
is 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
–
Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option
Cash flows from leases are presented within ‘Repayments of borrowings’ in the Group Statement of Cash Flows.
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
29.2
Lease liabilities
The lease liabilities at 31 December 2022 were £40.8m (2021: £39.9m). The cash payments for leases during the year were £14.6m
(2021: £14.1m). The maturity analysis of the lease liabilities is disclosed in Note 25.2 (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 2022 was £44.1m (2021: £41.9m) (Note 15). 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.
29.3
Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows:
2022
£m
2021
£m
Not later than one year
0.5
0.5
Later than one year and not later than five years
0.2
0.2
Later than five years
–
–
Total operating lease commitments
0.7
0.7
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 £2.3m (2021: £2.9m), of which £1.7m (2021: £2.2m) related to short-length leases and £0.6m (2021: £0.7m)
209
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
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
30.2
Analysis of provisions
Disposal,
closure and
environmental
costs
£m
Restructuring
charges
£m
Other
£m
Total
£m
As at 31 December 2020 and 1 January 2021
42.2
9.2
5.4
56.8
Exchange adjustments
0.3
(0.2)
–
0.1
Charge to Group Income Statement – trading profit
7.4
–
9.2
16.6
Adjustment to discount
0.7
–
–
0.7
Cash spend
(8.9)
(4.0)
(10.6)
(23.5)
As at 31 December 2021 and 1 January 2022
41.7
5.0
4.0
50.7
Exchange adjustments
5.0
0.6
0.3
5.9
Charge to Group Income Statement – trading profit
16.7
–
11.4
28.1
Adjustment to discount
1.1
–
–
1.1
Cash spend
(6.8)
(1.5)
(10.3)
(18.6)
Transferred (to)/from other balance sheet accounts
–
(0.5)
–
(0.5)
As at 31 December 2022
57.7
3.6
5.4
66.7
Of the total provision balance as at 31 December 2022 of £66.7m (2021: £50.7m), £49.3m (2021: £32.6m) is recognised in the Group
Balance Sheet within non-current liabilities and £17.4m (2021: £18.1m) within current liabilities.
Disposal, closure and environmental charges
The provision for disposal, closure and environmental costs includes the Directors’ current best estimate of the amounts to be
payable in respect of known or probable costs resulting from third-party claims, including legacy matter lawsuits.
There remains inherent uncertainty associated with estimating the future costs of legacy matter lawsuits. In assessing the
probable costs and realisation certainty of these provisions, or related assets, management has made reasonable assumptions,
including projections of the number of future claims, the approximate average cost of those claims (including legal costs and
infrequent larger value claims) and the length of time taken to resolve such claims. The provision reflects the Directors’ best
estimate of the future liability and the value of the corresponding asset. 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. Sensitivity analyses have been conducted using variations to the key assumptions listed
above and indicatively show:
–
A 10% change in the average cost of claims, combined with an increase in the proportion of higher value claims, would impact
the gross provision by approximately £6.9m and the corresponding asset for insurance cover by approximately £6.5m
–
A 60% change in the expected duration of claims would impact the gross provision by approximately £4.8m and the
corresponding asset for insurance cover by approximately £4.2m
Changes in discount rates , such as those observed in 2022, may have a significant impact on gross provisions and related assets
for insurance cover.
Assumptions are determined with reference to historical information and trends experienced to date, combined with specialist
views on future outlook. As assumptions can vary individually or in combination, over the longer term there can be no guarantee
that the assumptions used to estimate the provision will result in an accurate prediction of the actual costs that may be incurred.
210
Vesuvius plc
Annual Report and Financial Statements 2022
30. Provisions
continued
30.2
Analysis of provisions
continued
Disposal, closure and environmental charges
continued
As the resolution 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 also subject to some uncertainty. However, the majority of the amounts provided are expected to
be utilised over the next ten years. The provision, underlying estimates of costs and associated insurance estimates are regularly
assessed, to reflect any changed circumstances with regard to individual matters. Any movements impacting the Income
Statement are included within headline performance.
As set out above, 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 2022, £26.8m (2021: £14.4m) was recorded in other receivables in respect of associated
insurance reimbursements, of which £25.1m (2021: £12.4m) is non-current. A credit of £12.6m was recorded during 2022
(2021: £6.2m) to reflect the increase in assets for insurance cover which is included in the ‘Administration, selling and distribution
costs’ line in the Income Statement. This is offset by a debit of £12.6m in 2022 (2021: £6.2m) to reflect an increase in provisions
for related claims in the same line of the Income Statement.
In addition, this provision covers the estimate of costs to be payable 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.
Restructuring charges provisions
The provision for restructuring charges includes the costs to complete the Group’s major restructuring programmes. The majority
of this balance of £3.6m as at 31 December 2022 (2021: £5.0m) is expected to be paid out over the next year.
Other
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
two years and the underlying estimates of costs are regularly updated to reflect changed circumstances with regard to individual
matters. During 2022, the Group recognised net charges of £11.4m (2021: £9.2m) in the Group Income Statement to provide for
various medical benefits and other claims.
The Group has considered the impact of climate change on provisions including decommissioning or environmental rehabilitation
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, the largest amounts are future lease payments
in relation to assets used by the Group under non-cancellable operating leases (Note 29).
Contingent Liabilities
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.
Certain of Vesuvius’ subsidiaries are subject to legacy matter 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. Each year, a number of these lawsuits are withdrawn, dismissed or settled.
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). The amount paid,
including costs in relation to this litigation, has not had a material effect on Vesuvius’ financial position or results of operations in
211
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
Investments in Subsidiaries, Joint Ventures and Associates
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 2022.
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.
600 N 2nd Street, Suite 401,
Harrisburg, PA 17101-1071,
United States
US
(Pennsylvania)
Brazil 1 Limited
165 Fleet Street, London,
EC4A 2AE, England
England
CCPI Inc.
Suite 201, 910 Foulk Road,
Wilmington, New Castle,
DE 19803, United States
US
(Delaware)
Cookson
Dominicana,
SRL
Km 7 1/2, Autopista San Isidro,
Edificio Modelo A, Zona Franca
San Isidro, Santo Domingo
Oeste, Dominican Republic
Dominican
Republic
East Moon
Investment
(HK Holding)
Company Limited
Unit 01, 82/F, International
Commerce Centre,
1 Austin Road West,
Kowloon, Hong Kong
Hong Kong
Flo-Con
Holding, Inc.
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
US (Delaware)
Foseco (FS)
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
Foseco (Jersey)
Limited
44 Esplanade, St Helier,
JE4 9WG, Jersey
Jersey
Foseco (UK)
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Foseco Canada
Limited
181 Bay Street, Suite 1800,
Toronto, Ontario, M5J 2T9,
Canada
Canada
(Ontario)
Foseco Espanola
S.A.
5, Barrio Elizalde, Izurza,
Bizkaia, 48213, Spain
Spain
Foseco Foundry
(China) Co
Limited
Room 819, Shekou Zhaoshang
Building, Nanshan District,
Shenzhen, Guangdong,
518067, China
China
Foseco
Fundición Holding
(Espanola), S.L.
5, Barrio Elizalde,
Izurza, Bizkaia,
48213, Spain
Spain
Foseco Holding
(Europe) Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Foseco Holding
(South Africa)
(Pty) Limited
12 Bosworth Street,
Alrode, Alberton, 1449,
South Africa
South Africa
Foseco
Holding BV
Rivium Boulevard 301,
Capelle aan den Ijssel, Rotterdam
2909LK, Netherlands
Netherlands
Foseco Holding
International
Limited
165 Fleet Street,
London, EC4A 2AE,
England
England
Foseco Holding
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Company
legal name
Registered office address
Jurisdiction
Foseco Industrial e
Comercial Ltda
Km 15, Rodovia Raposo
Tavares, Butanta Cep,
São Paulo, 05577-100, Brazil
Brazil
Foseco
International
Holding
(Thailand) Limited
170/69, 22nd Floor Ocean
Tower 1, Ratchadapisek Road,
Klongtoey, Bangkok,
10110, Thailand
Thailand
Foseco
International
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
Foseco Japan
Limited
9th Floor, Orix Kobe Sannomiya
Building, 6-1-10, Goko dori, Chuo-
ku, Kobe Hyogo, 651-0087, Japan
Japan
Foseco Korea
Limited
74 Jeongju-ro, Bucheon-si,
Gyeonggi-do, 14523, South Korea
South Korea
Foseco
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Foseco
Metallurgical Inc.
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
US (Delaware)
Foseco
Nederland BV
Binnenhavenstraat 20, 7553 GJ
Hengelo (OV), Netherlands
Netherlands
Foseco Overseas
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Foseco
Philippines Inc.
c/o Accra Law Office, 22/F Accra
Law Tower, Second Ave cor 30th St,
Crescent Park West, Bonifacio
Global City Taguig City,
1635 Philippines
Philippines
Foseco Portugal
Produtos Para
Fundiçâo Lda
Rua Manuel Pinto de Azevedo,
No 626 4100-320 Porto,
Portugal
Portugal
Foseco S.A.S.
Le Newton C, 7 Mail Barthélémy
Thimonnier, 77185 Lognes, France
France
Foseco Steel
(UK) Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
Foseco
Technology
Limited
165 Fleet Street,
London, EC4A 2AE,
England
England
J.H. France
Refractories
Company
CT Corporation, 1209 Orange
Street, The Corporation Trust
Company, Wilmington,
DE 19801, United States
US (Delaware)
John G. Stein &
Company Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
Mainsail
Insurance
Company Limited
Victoria Place, 5th floor,
31 Victoria Street, Pembroke,
Hamilton, HM 10, 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
Brazil
212
Vesuvius plc
Annual Report and Financial Statements 2022
Company
legal name
Registered office address
Jurisdiction
Mastercodi
Industrial Ltda
Rodovia Raposo Tavares, KM15,
Butantã, 05577-100, Butantã,
São Paulo, Brazil
Brazil
Mercajoya, S.A.
Capitán Haya, 56 – 1ºH,
28020 Madrid, Spain
Spain
Metal Way
Equipamentos
Metalurgicos Ltda
Estrada Santa Isabel, 7655 KM37,
Bairro Do Una, Itaquaquecetuba,
São Paulo – SP,
CEP: 08580 000, Brazil
Brazil
New Foseco
(UK) Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
Process Metrix,
LLC
6622 Owens Drive, Pleasanton,
CA 94588, United States
US
(California)
PT Foseco
Indonesia
Jl Rawa Gelam 2/5, Kawasan
Industri, Pulogadung, Jakarta,
13930, Indonesia
Indonesia
PT Foseco Trading
Indonesia
Jl Rawa Gelam 2/5, Kawasan
Industri, Pulogadung, Jakarta,
13930, Indonesia
Indonesia
Realisations 789,
LLC
CT Corporation,
1209 Orange Street,
The Corporation Trust Company,
Wilmington, DE 19801, United States
US
(Delaware)
S G Blair &
Company Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
SIDERMES Inc.
Vesuvius Sensors
and Probes
175 montée, Calixa-Lavallée
Verchêres, Québec J0L2R0,
Canada
Canada
SIDERMES S.A.
Urquiza 919 Piso 2 Rosario,
Santa Fe, CP 2000, Argentina
Argentina
SIR
Feuerfestprodukte
GmbH
Siegener Strasse 152,
Kreuztal, D-57223,
Germany
Germany
SOLED S.A.S.
Vesuvius Sensors
and Probes France
Centre d’Activités Economiques
Zone Industrielle de Franchepré
54240 Joeuf, France
France
Veservice
Ltda
Av Brasil, 49550, Distrito Industrial
de Palmares, Campo Grande,
Rio de Janeiro, 23065-480, Brazil
Brazil
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 (Anshan)
Co., Limited
Xiaotaizi Village, Ningyuan Town,
Qianshan District, Anshan,
Liaoning Province, 114011, China
China
Vesuvius
Advanced
Ceramics (China)
Co., Limited
221 Xing Ming Street,
China-Singapore Suzhou Ind Park,
Suzhou, Jiangsu Province,
215021, China
China
Vesuvius America,
Inc.
1209 Orange Street, Wilmington,
DE 19801, United States
US
(Delaware)
Vesuvius Australia
(Holding) Pty
Limited
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505,
Australia
Australia
Vesuvius Australia
Pty Limited
40-46 Gloucester Boulevarde,
Port Kembla, NSW, 2505, Australia
Australia
Vesuvius Belgium
N.V.
Zandvoordestraat 366, Oostende,
B-8400, Belgium
Belgium
Company
legal name
Registered office address
Jurisdiction
Vesuvius Canada
Inc
181 Bay Street, Suite 1800, Toronto,
Ontario, M5J 2T9, Canada
Canada
Vesuvius Ceramics
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius China
Holdings Co.
Limited
Unit 01, 82/F International
Commerce Centre,
1 Austin Road West, Kowloon,
Hong Kong
Hong Kong
Vesuvius China
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius Colombia
S.A.S.
Calle 26 No. 102-20 Floor 3,
Bogota, Colombia
Colombia
Vesuvius
Corporation S.A.
Via Nassa 17, Lugano,
CH 6900, Switzerland
Switzerland
Vesuvius CSD Sp
z.o.o.
ul. Jasnogórska 11, Kraków,
31-358, Poland
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
Beteiligungs
GmbH
Geschaftsanschrift, Schieferbank
2-16, 45472 Mülheim an der Ruhr,
Germany
Germany
Vesuvius Europe
GmbH & Co KG
Geschaftsanschrift, Schieferbank
2-16, 45472 Mülheim an der Ruhr,
Germany
Germany
Vesuvius Europe
S.A.
17 Rue de Douvrain, Ghlin,
7011, Belgium
Belgium
Vesuvius Europe
S.A.S.
3, Avenue De L’europe,
Parc Les Pivolles,
69150 Décines-Charpieu, France
France
Vesuvius Financial
1 Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius Finland
OY
Pajamäentie 8D7,
00360 Helsinki, Finland
Finland
Vesuvius Foundry
Products (Suzhou)
Co. Limited
12 Wei Wen Road,
China-Singapore Suzhou Ind Park,
Suzhou, Jiangsu Province,
215122, China
China
Vesuvius Foundry
Technologies
(Jiangsu) Co.
Limited
2 Changchun Road,
Economic Development Area,
Changshu, Jiangsu,
215537, China
China
Vesuvius France
S.A.
Rue Paul Deudon 68, Boite Postale 19,
Feignies 59750, France
France
Vesuvius GmbH
Gelsenkirchener Strasse 10,
Borken, D-46325, Germany
Germany
Vesuvius Group
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius Group
S.A.
17 Rue de Douvrain, Ghlin,
7011, Belgium
Belgium
Vesuvius Holding
Deutschland
GmbH
Gelsenkirchener Strasse 10,
Borken, D-46325,
Germany
Germany
Vesuvius Holding
France S.A.S.
68 Rue Paul Deudon, Boite Postale 19,
Feignies 59750, France
France
Vesuvius Holding
Italia – Società a
Responsabilità
Limitata
Via Mantova 10,
20835 Muggio
MB, Italy
Italy
33.
Investments in Subsidiaries, Joint Ventures and Associates
continued
33.1
Investment in subsidiaries
continued
213
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
33.
Investments in Subsidiaries, Joint Ventures and Associates
continued
33.1
Investment in subsidiaries
continued
Company
legal name
Registered office address
Jurisdiction
Vesuvius Holdings
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius Ibérica
Refractarios S.A.
Capitán Haya, 56 – 1ºH,
28020 Madrid, Spain
Spain
Vesuvius
International
Corporation
CT Corporation, 1209 Orange Street,
The Corporation Trust Company,
Wilmington, DE 19801, United States
US
(Delaware)
Vesuvius
Investments
Limited
165 Fleet Street,
London, EC4A 2AE,
England
England
Vesuvius Istanbul
Refrakter Sanayi
ve Ticaret AS
Gebze OSB2 Mh. 1700.,
Sok No:1704/1, Cayirova,
Kocaeli, 41420, Turkey
Turkey
Vesuvius Italia
S.p.A.
Via Mantova 10,
20835 Muggio MB, Italy
Italy
Vesuvius
Japan Inc.
9th Floor, Orix Kobe Sannomiya
Building 6-1-10, Goko dori, Chou-
ku,Kobe Hyogo, 651-0087, Japan
Japan
Vesuvius K.S.R.
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire
S43 4XA, England
England
Vesuvius Life Plan
Trustee Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius LLC
502, 5th floor, 1 Myasicsheva str.,
Zhukovsky, Moscow region,
140180, Russian Federation
Russia
Vesuvius
Malaysia
Sdn Bhd
Unit 30-01, Level 30 Tower A,
Vertical Business Suite Avenue 3,
Bangsar South, No 8 Jalan Kirinchi,
Kuala Lumpur Wilayah Persekutuan,
59200, Malaysia
Malaysia
Vesuvius
Management
Limited
165 Fleet Street,
London, EC4A 2AE,
England
England
Vesuvius
Management
Services Limited
165 Fleet Street,
London, EC4A 2AE,
England
England
Vesuvius Mexico
S.A. de C.V.
Av. Ruiz Cortinez, Num. 140, Colonia
Jardines de San Rafael, Guadalupe,
Nuevo León, CP 67119, Mexico
Mexico
Vesuvius
Mid-East Limited
56, rd 15, Apt 103, Maadi,
Cairo, Egypt
Egypt
Vesuvius Moravia,
s.r.o.
Konska c.p. 740, Trinec,
739 61, Czech Republic
Czech
Republic
Vesuvius Mulheim
Beteiligungs
GmbH
Geschaftsanschrift, Schieferbank 2-16,
45472 Mülheim an der Ruhr, Germany
Germany
Vesuvius Mulheim
GmbH & Co KG
Geschaftsanschrift, Schieferbank 2-16,
45472 Mülheim an der Ruhr, Germany
Germany
Vesuvius NC, LLC
Corporation Trust Center,
1209 Orange Street, Wilmington,
New Castle County, DE 19801,
United States
US
(Delaware)
Vesuvius New
Zealand Limited
Bell Gully, Level 22, Vero Centre,
48 Shortland Street, Auckland,
1010 New Zealand
New
Zealand
Vesuvius Overseas
Investments
Limited
165 Fleet Street,
London, EC4A 2AE,
England
England
Vesuvius Overseas
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Company
legal name
Registered office address
Jurisdiction
Vesuvius Penn
Corporation
CT Corporation,
1209 Orange Street, Wilmington,
DE 19801, United States
US
(Delaware)
Vesuvius Pension
Plans Trustees
Limited
165 Fleet Street,
London, EC4A 2AE,
England
England
Vesuvius Peru SAC
Jiron Saenz Pena 185,
Magdalena del Mar, Lima, Peru
Peru
Vesuvius Poland
Sp z.o.o.
Ul Tyniecka 12, Skawina,
32-050, Poland
Poland
Vesuvius Ras Al
Khaimah FZ-LLC
Street No. F14, RAK Investment
Authority Free Zone, Al Hamra,
Ras Al Khaimah, PO Box 86408,
United Arab Emirates
United
Arab
Emirates
Vesuvius
Refractarios de
Chile S.A.
Street San Martin 870,
Room 308, Tower B,
Concepcion, Chile
Chile
Vesuvius
Refractories S.r.l.
Galati, Marea Unire avenue 107,
Galati county, 800329, Romania
Romania
Vesuvius
Refractory India
Private Limited
Room No. 9, 3rd Floor, 7 Ganesh
Chandra Avenue, Kolkata,
WB 700013, India
India
Vesuvius
Refratários
Ltda
AV Brasil 49550, Distrito Industrial de
Palmares, Campo Grande, Rio de
Janeiro, 23065-480, Brazil
Brazil
Vesuvius
Scandinavia AB
4, Forradsgatan, Amal, S-662 34,
Sweden
Sweden
Vesuvius Sensors
& Probes Europe
S.p.A.
10 Via Mantova, Muggio,
Monza e Brianza,
20835, Italy
Italy
Vesuvius-SERT
S.A.S.
3, Avenue de l’Europe, Parc,
Les Pivolles, Decines-Charpieu
69150, France
France
Vesuvius Solar
Crucible (Suzhou)
Co., Ltd
1/F, building 3, No. 12, Weiwen Road
China-Singapore Suzhou 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
Poland
Vesuvius SSC
Sp z.o.o.
ul. Jasnogórska 11, Kraków,
31-358, Poland
Poland
Vesuvius UK
Limited
1 Midland Way, Central Park,
Barlborough Links, Derbyshire,
S43 4XA, England
England
Vesuvius Ukraine
LLC
27, Udarnykiv Street, City of
Dnipropetrovsk, 49000, Ukraine
Ukraine
Vesuvius USA
Corporation
CT Corporation, 208 South LaSalle
Street, Chicago, Cook County,
IL 60604, United States
US (Illinois)
Vesuvius VA
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Vesuvius Vietnam
Limited
7th Floor, Peakview Tower Building,
No.36 Hoang Cau Street, O Cho Dua
Ward, Don Da District, Hanoi City,
Vietnam
Vietnam
Vesuvius Zyarock
Ceramics (Suzhou)
Co., Limited
1/F, building 3, No. 12, Weiwen Road
China-Singapore Suzhou Ind Park,
Suzhou, Jiangsu Province, 215122,
China
China
214
Vesuvius plc
Annual Report and Financial Statements 2022
33.
Investments in Subsidiaries, Joint Ventures and Associates
continued
33.1
Investment in subsidiaries
continued
Company
legal name
Registered office address
Jurisdiction
Vesuvius-Premier
Refractories
(Holdings)
Limited
1 Midland Way, Central Park,
Barlborough Links,
Derbyshire, S43 4XA,
England
England
Vesv Distribution
(Private) Limited
R Tech Park, 13th Floor Western
Express Highway,
Goregaon (East) Mumbai,
Mumbai City, MH 400063, India
India
Company
legal name
Registered office address
Jurisdiction
Wilkes-Lucas
Limited
165 Fleet Street, London,
EC4A 2AE, England
England
Yingkou Bayuquan
Refractories Co.,
Limited
Cui Tun Village, Hai Dong Office,
Bayuquan District, Liaoning Province,
YingKou, 115007, China
China
Yingkou YingWei
Magnesium Co.,
Ltd
50 Wanghai New District, Bayuquan
District, Yinkou City, Liaoning Province,
115007, China
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, Vesuvius UK Limited in Taiwan and Republic of Korea, and Vesuvius
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.
2022
£m
2021
£m
As at 1 January
12.8
12.1
Share of post-tax profit of joint ventures and associates
1.2
1.3
Dividends received from joint ventures and associates
(1.3)
(1.0)
Foreign exchange
0.3
0.4
As at 31 December
13.0
12.8
The investment in joint ventures and associates includes £12.5m (2021: £12.3m) in respect of joint ventures and £0.5m (2021: £0.5m)
in respect of associates. Dividends received from joint ventures consists of £0.2m (2021: £0.2m) from Wuhan Wugang-Vesuvius
Advanced CCR Co., Limited and £1.1m (2021: £0.8m) from Wuhan Wugang-Vesuvius Advanced Ceramics Co., Limited.
Joint ventures
Set out below is the summarised financial information in respect of joint ventures.
2022
£m
2021
£m
Revenue
50.9
48.8
Trading profit
3.2
3.6
Net finance costs
–
–
Profit before tax
3.2
3.6
Income tax expense
(0.8)
(0.9)
Profit after tax
2.4
2.7
Non-current assets
7.3
7.6
Current assets
22.6
25.0
Non-current liabilities
–
–
Current liabilities
(6.1)
(9.2)
Net assets
23.8
23.4
215
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Group Financial Statements
continued
33.
Investments in Subsidiaries, Joint Ventures and Associates
continued
33.2
Investment in joint ventures and associates
continued
Set out below is the summarised financial information for Wuhan Wugang-Vesuvius Advanced Ceramics Co., Limited, a joint
venture that has transactions and balances which are material to the Group.
2022
£m
2021
£m
Revenue
44.5
42.7
Depreciation
1.0
(0.9)
Trading profit
2.8
3.0
Net finance costs
–
–
Profit before tax
2.8
3.0
Income tax expense
(0.7)
(0.8)
Profit after tax
2.1
2.2
Non-current assets
7.0
7.3
Current assets
1
14.5
16.6
Non-current liabilities
–
–
Current liabilities
(5.0)
(7.8)
Net assets
16.5
16.1
1. Included in current assets are cash and cash equivalents of £3.6m (2021: £3.2m).
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
Jurisdiction
2022
% ownership
2021
% ownership
Wuhan Wugang-Vesuvius
Advanced CCR Co., Limited
Gongnong Village Qingshan District, Wuhan,
Hubei Province, 430082, China
China
50
50
Wuhan Wugang-Vesuvius
Advanced Ceramics Co.,
Limited
Gongnong Village Qingshan District, Wuhan,
Hubei Province, 430082, China
China
50
50
Associates
Name of entity
Registered address
Jurisdiction
2022
% ownership
2021
% ownership
Sapotech Oy
Paavo Havaksen tie 5 D, 90570 Oulu, Finland
Finland
14.9
14.9
Newshelf 480
Proprietary Limited
144 Oxford Road, Rosebank, Melrose,
Johannesburg, 2196, South Africa
South Africa
45
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
Non-controlling interests
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 interests for the year ended 31 December 2022 is £7.4m (2021: £5.8m) of which
£5.4m relates to Vesuvius India Limited (2021: £3.1m). The profit attributable to non-controlling interests in respect of the Group’s
other subsidiaries is not considered to be material.
Name of entity
Registered address
Jurisdiction
2022
% ownership
2021
% ownership
Vesuvius India Limited
P-104 Taratala Road, Kolkata, 700 088, India
India
55.57
55.57
Foseco India Limited
922/923, Gat, Sanaswadi, Taluka, Shirur,
Pune, 412208, India
India
74.98
74.98
Foseco Golden Gate
Company Limited
6 Kung Yeh 2nd Road, Ping Tung Dist,
Ping Tung, 90049, Taiwan
Taiwan
51
51
Foseco (Thailand) Limited
170/69, 22nd Floor Ocean Tower 1, Ratchadapisek
Road, Klongtoey, Bangkok, 10110, Thailand
Thailand
74
74
Vesuvius Ceska
Republika, a.s.
Prumyslová 726, Konská, Trinec, 739 61,
Czech Republic
Czech
Republic
60
60
216
Vesuvius plc
Annual Report and Financial Statements 2022
217
Our business
Our
performance
Sustainability
Governance
Financial
Statements
33.
Investments in Subsidiaries, Joint Ventures and Associates
continued
33.3
Non-controlling interests
continued
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:
2022
£m
2021
£m
Summarised balance sheet
Current assets
105.2
99.4
Current liabilities
(28.8)
(24.9)
Current net assets
76.4
74.5
Non-current assets
26.1
17.0
Non-current liabilities
(2.6)
(2.4)
Non-current net assets
23.5
14.6
Net assets
99.9
89.1
Accumulated NCI
(44.7)
(39.9)
Summarised statement of comprehensive income
Revenue
137.7
102.5
Profit after tax
12.1
6.9
Profit allocated to NCI
5.4
3.1
Dividends paid to NCI
(0.7)
(0.6)
Summarised cash flows
Cash flows from operating activities
13.8
4.0
Cash flows from investing activities
(11.6)
(3.1)
Cash flows from financing activities
(0.7)
(1.4)
Net increase/decrease in cash and cash equivalents
1.5
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 joint ventures and associates are disclosed below:
2022
£m
2021
£m
Sales to joint ventures
5.3
4.8
Purchases from joint ventures
32.3
31.5
Purchases from associates
–
–
Dividends received
1.3
1.0
Trade payables owed to joint ventures
6.7
10.3
Trade receivables due from joint ventures
0.7
1.3
Trade payables owed to joint ventures are settled net of trade receivables due from joint ventures 60 days after the delivery
of goods or services. There are no loans to and from joint ventures.
Notes to the Group Financial Statements
continued
218
Vesuvius plc
Annual Report and Financial Statements 2022
34.
Related Parties
continued
Transactions with key management personnel
There have been no transactions with key management personnel of the Group other than the Directors’ remuneration.
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 to the Group Financial Statements.
35.
Events after the Balance Sheet date
Cyber incident
We informed the market on 6 February 2023 that we had suffered a cyber security incident. In order to contain the threat, we
voluntarily shutdown our systems on a precautionary basis. During this period our sites instigated manual procedures and work
arounds to maintain production, shipping and invoicing which minimised the disruption. The initial period of disruption has been
short, and all significant systems are now fully operational. There has been no impact on the financial results reported for the year
ended 31 December 2022 and we expect that the impact on the 2023 financial results will not be material.
219
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Company Balance Sheet
As at 31 December 2022
Notes
2022
total
£m
2021
total
£m
Fixed assets
Investments
7
1,778.0
1,778.0
Total fixed assets
1,778.0
1,778.0
Current assets
Debtors – amounts falling due within one year
4.6
4.7
Cash at bank and in hand
–
–
Total current assets
4.6
4.7
Creditors – amounts falling due within one year
Bank loans and overdraft
(0.2)
–
Other creditors including taxation and social security
8
(1,012.5)
(979.8)
Net current liabilities
(1,008.1)
(975.1)
Total assets less current liabilities
769.9
802.9
Net assets
769.9
802.9
Equity capital and reserves
Called up share capital
9
27.8
27.8
Retained earnings
9
742.1
775.1
Total shareholders’ funds
769.9
802.9
Company number 8217766
Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own Income Statement.
During 2022, the Company recognised a profit of £26.9m (2021: £32.7m profit).
The Financial Statements on pages 219 to 226 were approved and authorised for issue by the Directors on 2 March 2023 and
signed on their behalf by:
Patrick André
Chief Executive
220
Vesuvius plc
Annual Report and Financial Statements 2022
Company Statement of Changes in Equity
For the year ended 31 December 2022
Notes
Called up
share
capital
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
As at 1 January 2021
27.8
795.9
823.7
Comprehensive income recognised for the year
–
32.7
32.7
Recognition of share-based payments
10
–
3.1
3.1
Purchase of ESOP shares
–
(1.1)
(1.1)
Dividend paid
6
–
(55.5)
(55.5)
As at 31 December 2021
27.8
775.1
802.9
As at 1 January 2022
27.8
775.1
802.9
Comprehensive income recognised for the year
–
26.9
26.9
Recognition of share-based payments
10
–
5.1
5.1
Purchase of ESOP shares
–
(6.9)
(6.9)
Dividend paid
6
–
(58.1)
(58.1)
As at 31 December 2022
27.8
742.1
769.9
221
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Notes to the Company 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, United Kingdom, 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 paras 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 paras 91–99)
–
The effects of new but not yet effective IFRSs (IAS 8 paras 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 (disclosed in
Note 2.3 to the Group Financial Statements) and that there is no material uncertainty in respect of going concern. 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.
Notes to the Company Financial Statements
continued
222
Vesuvius plc
Annual Report and Financial Statements 2022
3.
Critical Accounting Judgements and Estimates
Impairment of investment in subsidiaries and other companies (estimate and judgement)
For the below estimate, the Group does not have any key assumptions concerning the future, or other key sources of estimation
uncertainty in the reporting period, that are reasonably expected to have a significant risk of causing a material adjustment to the
carrying amounts of assets/liabilities within the next financial year. Nonetheless, this estimate has the potential to materially vary
over time and is therefore highlighted.
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
2022
£m
2021
£m
Wages and salaries
3.3
2.8
Social security costs
0.5
0.4
Share-based payments
0.7
0.1
Total employee benefits expense
4.5
3.3
The total average number of employees for 2022 was 3 (2021: 3). As at 31 December 2022, the Company had 3 (2021: 3) employees.
Details of the Directors’ remuneration are disclosed in the Directors’ Remuneration Report on pages 116 to 143.
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.
Dividend Paid
2022
£m
2021
£m
Amounts recognised as dividends and paid to equity shareholders during the year
Final dividend for the year ended 31 December 2020 of 14.3p per ordinary share
–
38.7
Interim dividend for the year ended 31 December 2021 of 6.2p per ordinary share
–
16.8
Final dividend for the year ended 31 December 2021 of 15.0p per ordinary share
40.5
–
Interim dividend for the year ended 31 December 2022 of 6.5p per ordinary share
17.6
–
58.1
55.5
A proposed final dividend for the year ended 31 December 2022 of £42.3m (2021: £40.5m), equivalent to 15.75 pence
(2021: 15.0 pence) per ordinary share, is subject to approval by shareholders at the Company’s Annual General Meeting on
18 May 2023 and has not been included as a liability in these financial statements. If approved by shareholders, the dividend
will be paid on 31 May 2023 to holders of ordinary shares on the register on 21 April 2023.
223
Our business
Our
performance
Sustainability
Governance
Financial
Statements
7.
Investments
7.1
Accounting policy
Shares in subsidiaries, associates and joint ventures are stated at cost less any impairment in value. Impairment is assessed in
accordance with Note 17.1 to the Group Financial Statements.
7.2
Analysis of investments
Shares in
subsidiaries
£m
As at 1 January 2022 and 31 December 2022
1,778.0
The subsidiaries, joint ventures and associates of Vesuvius plc, their country of incorporation and percentage ownership are set
out in Note 33 to the Group Financial Statements. With the exception of Vesuvius Holdings Limited, 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 2022.
7.3
Impairment of investment in subsidiaries, associates and joint ventures
The Group carried out its investment impairment test as at 31 October 2022. The recoverable amount of the investment exceeded
its carrying value, therefore no impairment charges have been recognised. No further impairment indicators were identified up to
31 December 2022.
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. In assessing the cash flows of the Parent’s investment in its
subsidiaries, the amounts payable by the Parent to subsidiaries are also taken into account. A sensitivity analysis was carried out
using reasonably possible changes to the key assumptions set out in Note 17.2 to the Group Financial Statements. No scenarios of
impairment were identified.
8.
Other Creditors including Taxation and Social Security
2022
£m
2021
£m
Amounts owed to subsidiary undertakings
1,009.8
977.4
Accruals and other creditors
2.7
2.4
Total amounts falling due within one year
1,012.5
979.8
Interest on the loan from another UK company within the Vesuvius Group is charged at Bank of England base rate +2% and the
balance is repayable on demand.
9.
Called Up Share Capital and Retained Earnings
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 called up share capital
The allotted, issued and fully paid ordinary share capital of the Company as at 1 January 2022 and 31 December 2022 was
278,485,071 shares of £0.10 each. 7,271,174 (2021: 7,271,174) shares of £0.10 each were held in Treasury and therefore carry
no right to receive dividends or other distributions and have no voting rights. The total number of shares with rights including in
relation to voting at General Meetings of the Company, distribution of dividends and repayment of capital voting and dividend
rights is 271,213,897 and all shareholders enjoy the same rights in relation to these shares. Included in this number are 2,454,110
(2021: 884,856) shares held by the Vesuvius Group employee share ownership plan trust (ESOP) and the ESOP elects to waive
the right to receive dividends on these shares.
9.3
Distributable reserves
The Company had distributable reserves in excess of £732m as at 31 December 2022 (2021: in excess of £765m), subject to filing
these financial statements with Companies House. When making a distribution to shareholders, the Directors determine profits
available for distribution by reference to guidance on realised and distributable profits under the Companies Act 2006 issued by
the Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland in April 2017.
The profits of the Company have been received in the form of dividends from subsidiaries and through court-approved capital
reduction. The availability of distributable reserves in the Company is dependent on those dividends meeting the definition of
qualifying consideration within the guidance and on available cash resources of the Group and other accessible sources of funds.
The distributable reserves are subject to any future restrictions or limitations at the time such distribution is made.
Notes to the Company Financial Statements
continued
224
Vesuvius plc
Annual Report and Financial Statements 2022
10.
Recognition of Share-based Payments
10.1
Accounting policy
The Company operates an 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 return on invested capital (ROIC), environmental, social and governance criteria (ESG) and headline
earnings per share (EPS), 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.
The Company recharges its subsidiaries for the IFRS 2 expense relating to their employees on an annual basis.
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 and Note 27 to the Group Financial Statements. A total of £0.7m was charged to the profit and
loss account in the year with regard to share-based payments (2021: £0.1m).
10.3
Details of outstanding options
Number of outstanding awards
Awards
exercisable
as at
31 Dec
2022
Weighted
average
outstanding
contractual
life of
awards
years
Range of
exercise
prices
pence
As at
1 Jan 2022
Granted
Exercised
Forfeited/
lapsed
Expired
As at
31 Dec 2022
LTIP
1,200,584 551,242
nil
(327,560)
nil 1,424,266
–
8.3
n/a
Weighted average exercise price
nil
nil
nil
nil
nil
nil
–
n/a
Other plans
76,586 121,442
(48,674)
nil
nil
149,354
–
1.9
n/a
Weighted average exercise price
nil
nil
nil
nil
nil
nil
–
n/a
For the awards exercised during 2022, the market value at the date of exercise was 395.5 pence per share.
Number of outstanding awards
Awards
exercisable
as at
31 Dec
2021
Weighted
average
outstanding
contractual
life of
awards
years
Range of
exercise
prices
pence
As at
1 Jan 2021
Granted
Exercised
Forfeited/
lapsed
Expired
As at
31 Dec 2021
LTIP
1,110,699 391,786
(5,955)
(295,946)
nil
1,200,584
–
8.3
n/a
Weighted average exercise price
nil
nil
nil
nil
nil
nil
–
n/a
Other plans
89,309
15,523
(28,246)
nil
nil
76,586
–
0.8
n/a
Weighted average exercise price
nil
nil
nil
nil
nil
nil
–
n/a
For options exercised during 2021, the market value at the date of exercise was 531 pence per share.
Details of market performance conditions are included in the Directors’ Remuneration Report.
As at 31 December 2022, 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:
2022
Years of
award/grant
Option
prices
Latest year
of exercise/
vesting
Number
of options/
allocations
outstanding
Long-Term Incentive Plan
2020–2022
nil
2032
1,424,266
Deferred Share Bonus Plan
2020–2022
nil
2025
149,354
225
Our business
Our
performance
Sustainability
Governance
Financial
Statements
10.
Recognition of Share-based Payments
continued
10.3
Details of outstanding options
continued
Fair value of options granted under the LTIP during the year:
2022
2021
ROIC/ESG
element
TSR element
EPS element
TSR element
Fair value of options granted
385p
217p
538p
340p
Share price on date of grant
385p
385p
538p
538p
Expected volatility
n/a
39.3%
n/a
39.2%
Risk-free interest rate
n/a
1.3%
n/a
0.2%
Exercise price (per share)
nil
nil
nil
nil
Expected term (years)
3
3
3
3
Expected dividend yield
nil
nil
nil
nil
For the LTIP awards issued in 2020 and 2021, vesting of 50% of shares awarded is based on the Group’s three-year total
shareholder return (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.
For the LTIP awards issued in 2022, vesting of 40% of shares awarded is based on the Group’s three-year total shareholder return
(TSR) performance relative to that of the constituent companies of the FTSE 250 (excluding investment trusts) and vesting of the
remaining 60% of shares awarded is based on ROIC and ESG targets.
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the 2.8 years
(2021: 2.8 years) prior to the grant date for the March 2022 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 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
2022 in respect of the liabilities of its subsidiary companies amounted to £386.5m (2021: £418.8m), which includes guarantees
of $146.0m, €198.0m and £28.0m (2021: $146.0m, €198.0m and £28.0m) in respect of US Private Placement Loan Notes; £62.5m
(2021: £76.9m) in respect of drawings under the syndicated bank facility; £nil (2021: £32.9m) in respect of a guarantee provided to
the Company’s UK subsidiary which acts as Trustee for the Group’s UK pension plan; £0.1m (2021: £2.6m) in respect of guarantees
issued to certain banks covering their exposure on derivative contracts governed by ISDA agreements; and £nil (2021: 4.1m) in
respect of overdraft facilities utilised by certain of the Company’s subsidiary companies.
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.
Notes to the Company Financial Statements
continued
226
Vesuvius plc
Annual Report and Financial Statements 2022
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, 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.
227
Our business
Our
performance
Sustainability
Governance
Financial
Statements
2022
2021
2020
2019
2018
Steel Division
Revenue
£m
1,496.4
1,171.5
1,045.4
1,195.3
1,236.7
Trading profit
£m
172.7
102.0
76.4
120.1
128.3
Return on sales
%
11.5
8.7
7.3
10.0
10.4
Employees: year-end
no.
8,719
8,323
7,619
7,677
7,766
Foundry Division
Revenue
£m
551.0
471.4
412.9
515.1
561.3
Trading profit
£m
54.5
40.4
25.0
61.3
68.9
Return on sales
%
9.9
8.6
6.1
11.9
12.3
Employees: year-end
no.
2,415
2,881
2,735
2,819
3,043
Five-Year Summary: Divisional Results from Continuing Operations
228
Vesuvius plc
Annual Report and Financial Statements 2022
Shareholder Information (Unaudited)
Enquiries
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
(UK only)
+44 371 384 2335
(Outside the UK)
Website: www.shareview.co.uk
Email: customer@equiniti.com
For the hard of hearing, Equiniti can also be contacted using the
Relay UK website at www.relayuk.bt.com
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
Telephone: +44 (0)20 7822 0000
Registered in England and Wales No. 8217766
LEI: 213800ORZ521W585SY02
Vesuvius Website
Shareholder and other information about the Company,
including details of the current and historical share price,
can be accessed on the Vesuvius website: www.vesuvius.com.
You can view the online Annual Report 2022 on the website.
Shareview and Electronic Communication
Equiniti’s website, www.shareview.co.uk, enables shareholders
to register online to view details of their shareholdings. 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 on your dividend confirmation.
The Shareview website provides answers to frequently asked
questions and information useful for the management of
investments, including indicative share valuations and
dividend payment details.
Shareholders can register on Shareview to receive shareholder
communications electronically, including the Company’s Annual
Report and Financial Statements, rather than receiving them in
paper form. 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.
Share Dealing Service
The Company’s shares can be traded through most banks,
building societies or stockbrokers. UK resident shareholders
can also buy and sell shares by telephone or online using
Equiniti’s Shareview dealing service.
Telephone 0345 603 7037 between 8.00 am and 4.30 pm on any
business day (excluding public holidays in England and Wales).
Website: www.shareview.co.uk/dealing
The shareholder reference number (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 a wide range of UK
charitable causes. It is particularly useful for those shareholders
who may wish to dispose of a small quantity of shares in a
charitable way where the market value makes it uneconomic to
sell on a commission basis. Further information can be obtained
from ShareGift.
Telephone: +44 (0)20 7930 3737
Website: www.sharegift.org
Email: help@sharegift.org
Dividend Reinvestment Plan
Equiniti offers a dividend reinvestment plan through which
shareholders can use their Vesuvius cash dividends to buy
additional shares in Vesuvius. Further details, including how
to sign up and the terms and conditions of the plan, are available
from the Share Dividend Helpline.
Telephone
*
: 0371 384 2335
(or +44 371 384 2335 if calling from outside the UK)
Website: www.shareview.co.uk
Overseas Payment Service
Equiniti provides a dividend payment service in over 90 countries
that automatically converts dividend 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 from Equiniti.
Telephone
*
: +44 371 384 2335
Website: www.shareview.co.uk
By post: 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
2023 Annual General Meeting
Thursday 18 May 2023
*
Lines are open Monday to Friday 8.30 am to 5.30 pm (excluding public holidays in England and Wales).
229
Our business
Our
performance
Sustainability
Governance
Financial
Statements
Analysis of Ordinary Shareholders
As at 31 December 2022
Investor type
Shareholdings
Private
Institutional
and other
Total
1–1,000
1,001–
50,000
50,001–
500,000
500,001+
Number of holders
2,340
466
2,806
2,171
444
122
69
Percentage of holders
83.39%
16.61%
100%
77.37%
15.82%
4.35%
2.46%
Percentage of shares held
0.50%
99.50%
100%
0.11%
1.42%
7.01%
91.46%
Share Fraud – Spot the Warning Signs
Investment scams are designed to look like genuine investments.
Have you been…
–
Contacted out of the blue
–
Promised tempting returns and told the investment is safe
–
Called repeatedly
–
Told the offer is only available for a limited time?
If so, you might have been contacted by fraudsters.
How to Avoid Share Fraud
1. Reject cold calls
If you 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. If there are no contact details on the Register or if the firm
claims the Register is out of date, call the FCA Consumer Helpline
on 0800 111 6768.
If you’re dealing with an overseas firm, you should check with the
regulator in that country and also check the scam warnings from
foreign regulators.
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.
Reporting a Scam
If you suspect that you have been approached by fraudsters,
please tell the FCA Consumer Helpline 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. For calls
using next generation text relay, please call the FCA Consumer
Helpline on (18001) 0207 066 1000.
If you have lost money to investment fraud, you should report it
to Action Fraud on 0300 123 2040 (or +44 300 123 2040 from
outside the UK) or online at www.actionfraud.police.uk.
Find out more at www.fca.org.uk/scamsmart.
230
Vesuvius plc
Annual Report and Financial Statements 2022
Glossary
5S
Five Steps to improve housekeeping
and therefore workplace safety and
efficiency: separate, sort, shine,
standardise and sustain
8D
Eight Disciplines: an eight-step
methodology to resolve customer,
supplier and internal quality issues
AGM
Annual General Meeting
BMC
Bayuquan Magnesium Co acquired
in October 2022 and now trading
through the legal entity Yingkou
YingWei Magnesium Co., Ltd
CEO
Chief Executive
CFO
Chief Financial Officer
CG Statement
The Corporate Governance Statement
CO
2
Carbon dioxide
CO
2
e
Carbon dioxide equivalent
Code
The UK Corporate Governance Code
Company
Vesuvius plc
CORE Values
or Values
The Group’s key values of Courage,
Ownership, Respect and Energy
COVID-19 or
COVID-19
pandemic
Coronavirus disease (COVID-19), the
infectious disease caused by the newly
discovered coronavirus, and the
pandemic that has arisen from this
DO
Dangerous occurrence
DOFR
Dangerous occurrence frequency rate
DRI
Direct reduced iron (DRI) is produced
from the direct reduction of iron ore (in the
form of lumps, pellets, or fines) into iron
by a reducing gas or elemental carbon
produced from natural gas or coal
DSBP
Deferred Share Bonus Plan
DTR
The Disclosure and Transparency Rules
of the UK Financial Conduct Authority
EAF
Electric Arc Furnace
EBITDA
Trading profit before depreciation
and amortisation of non-acquired
intangible charges
ECL
Expected Credit Loss
EEMEA
Eastern Europe, Middle East and Africa
EMEA
Europe, Middle East and Africa
EPS
Earnings per share
ESOP
Employee Share Ownership Plan
EU
European Union
EU27
The 27 European Union countries
FRC
Financial Reporting Council
FRS
Financial Reporting Standards
FTSE 250
Equity index whose constituents are the
101st to 350th largest companies listed
on the London Stock Exchange in terms
of their market capitalisation
FX
Foreign exchange
GEC
Group Executive Committee
GHG
Greenhouse gas
Group
Vesuvius plc and its subsidiary companies
HeaTt
Vesuvius e-learning programme
HPDC
High Pressure Die Casting
IAS
International Accounting Standards
IFRS
International Financial Reporting
Standards
KPI
Key Performance Indicator
LMS
Learning Management System
LPDC
Low Pressure Die Casting
LTI
Lost time injury
LTIFR
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
MTI
Medically treated injury
MTIFR
Medically treated injury frequency rate
PwC
PricewaterhouseCoopers LLP
NAFTA
Canada, Mexico and USA
Ordinary share
An ordinary share of 10 pence in the
capital of the Company
R&D
Research and development
Scope 1
emissions
Direct CO
2
and CO
2
e emissions from
owned or controlled sources
Scope 2
emissions
Direct CO
2
and CO
2
e from indirect
emissions from the generation of
purchased electricity, steam, heating
and cooling consumed by the Company
Scope 3
emissions
All other direct CO
2
and CO
2
e emissions
that occur in the Company’s value chain
Senior
Leadership
Group
The Group Executive Committee plus
the most senior Vesuvius managers
worldwide, in terms of their contribution
to the Group’s overall results and to the
execution of the Group’s strategy.
This group comprises between 150 to
170 members
Top
Management
Key leadership roles reporting directly to
members of the GEC
TSR
Total shareholder return
Turbo S
The Vesuvius safety training programme
UK GAAP
UK Generally Accepted
Accounting Principles
UN
United Nations
UN SDGs
United Nations Sustainable
Development Goals
Universal
Refractories
The trade and assets of Universal
Refractories, Inc. acquired in December
2021 and now trading through the legal
entity Vesuvius Penn Corporation
VISO
Vesuvius Isostatic
VSP
Vesuvius Share Plan
Designed and produced by
Friend
www.friendstudio.com
Print: Pureprint Group
This report has been printed on Image Indigo Offset which is FSC®
certified and made from 100% Elemental Chlorine Free (ECF) pulp.
The mill and the printer are both certified to ISO 14001
environmental management system.
The report was printed by a CarbonNeutral® printer.
The imagery included in this Annual Report
aims to capture the many different aspects
of Vesuvius and our team around the world.
The photographer Samuel Dhote shot most
of these images. www.samueldhote.com
Our front cover features:
Top
Name:
Kuan Wu, Ph.D.
Role:
Senior Research Associate
Location:
Pittsburgh
Middle
Name:
Tobias Weinert
Role:
Quality Engineer
Location:
Borken
Bottom
Name:
Rajasree Das
Role:
Manager CSR
Location:
Kolkata
