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