30 July 2020

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Half Year Results for the six months ended 30 June 2020

Strong cash generation in an unprecedented market downturn

 

Vesuvius plc, a global leader in molten metal flow engineering and technology, announces its unaudited results for the six months ended 30 June 2020.

 

Financial summary		H1 2020 (£m)	H1 2019 (£m)		Year-on-year change	Underlying change(1)
Revenue		720.0	889.4		(19.0%)	(18.4%)
Trading Profit(2)		51.1	98.9		(48.3%)	(48.7%)
Return on Sales(2)		7.1%	11.1%		-402bps	-412bps
Operating Profit		39.8	83.2		(52.2%)
Headline Profit Before Tax(2)		45.9	93.2		(50.8%)
Profit Before Tax		34.6	78.6		(56.0%)
Profit		24.9	55.8		(55.4%)
Headline Earnings(2)		31.3	63.8		(50.9%)
Headline EPS(2) (pence)		11.6	23.7		(51.1%)
Statutory EPS (pence)		8.4	19.5		(56.9%)
Adjusted operating cash flow(2)		70.8	81.8		(13.4%)
Cash generated from operations		79.2	100.0		(20.8%)
Net Debt(2)		229.7	307.0		(25.2%)
Dividend (pence)		-	6.2		-

 

 ⁽¹⁾ Underlying basis is at constant currency and excludes separately reported items and the impact of acquisitions and disposals

⁽²⁾ For definitions of non-GAAP measures, refer to Note 17 in the Group Condensed Financial Statements

 

Half Year 2020 Highlights

·    H1 2020 revenues of £720.0m, an 18.4% decline on an underlying basis, driven by significantly lower global steel production and industrial output across the world

·    H1 2020 trading profit of £51.1m and Return-on-Sales of 7.1%, supported by restructuring as well as Covid-19 crisis-related savings

·    Strong cash conversion rate of 139% (H1 2019: 83%) demonstrates our ability to generate cash through the cycle, with £22.4m of cash released from working capital in Q2 as a result of efficient management of inventories and receivables

·    Covid-19 crisis-related savings of £18.6m delivered in Q2, including a reduction in planned employee incentives of £5.9m 

·    On track to deliver £10m per quarter of such savings in H2, assuming that weak market conditions persist at the current level

·    Further crisis related actions to preserve cash include £20m cut to 2020 capex and withdrawal of the final 2019 dividend.  The Board has not declared an interim dividend at this time and will review the position as the year progresses

·    Restructuring programmes remain on-track despite the crisis and we delivered £12.3m of recurring cost savings in H1 2020

·    Improved liquidity and significant covenant headroom with net debt/EBITDA at 1.2x, versus current covenant threshold of 3.0x, which will increase to 3.25x after redemption of USPP notes maturing in December 2020, which will be repaid in August

Comment from Patrick André, CEO:

"Vesuvius demonstrated the strength and resilience of its flexible business model in H1 with a strong positive free cash flow generation⁽¹⁾. Our quick and decisive implementation of Covid-related cost savings measures, in addition to the planned delivery of the recurring savings from our restructuring programme, allowed us to limit the negative impact of the pandemic on our results.  Looking forward, the first signs of improvement are now apparent in both Steel and Foundry, but we expect the pace of a recovery to be slow over the coming months. Consequently, the Board has not declared an interim dividend at this time and will review the position as the year progresses. Likewise, until we have greater certainty on the shape of the recovery, we cannot provide meaningful guidance as to our full year results. However, thanks to the optimisation of our manufacturing footprint over the past three years, Vesuvius is now very well positioned to benefit from the recovery of end markets when it occurs."

⁽¹⁾ For definitions of non-GAAP measures, refer to Note 17 in the Group Condensed Financial Statements

 

Presentation of H1 2020 Results

The management of Vesuvius will be presenting the Group's results for the first half of 2020 at 09:00 UK time  today. The presentation will be broadcast live and an archive version of the presentation will be made available on the Group's website.

https://www.lsegissuerservices.com/spark/Vesuvius/events/bd7860b8-349c-4b50-a7dd-62b70cfa0a7b

 

For further information, please contact:
Shareholder/analyst enquiries:
Vesuvius plc	Patrick André, Chief Executive	+44 (0) 207 822 0000
	Guy Young, Chief Financial Officer Euan Drysdale, Group Head of Corporate Finance Pamela Antay, Head of Investor Relations	+44 (0) 207 822 0000 +44 (0) 7584 641 315 +44 (0) 7827 802 277
Media enquiries:
MHP Communications	Andrew Jaques/ Peter Lambie/Giles Robinson	+44 (0) 203 128 8100

 

About Vesuvius plc

Vesuvius is a global leader in molten metal flow engineering and technology principally serving the steel and foundry industries.

 

We develop innovative and customised solutions, often used in extremely demanding industrial environments, which enable our customers to improve their manufacturing processes, enhance product quality and reduce costs. These include flow control solutions, advanced refractories and other consumable products and increasingly, related technical services including data capture.

 

We have a worldwide presence. We serve our customers through a network of low-cost manufacturing plants located close to their own facilities, and embed our industry experts within their operations, who are all supported by our global technology centres.

 

Our core competitive strengths are our market and technology leadership, strong customer relationships, well established presence in developing markets and our global reach, all of which facilitate the expansion of our addressable markets.

 

Our ultimate goal is to create value for our customers, and to deliver sustainable, profitable growth for our shareholders giving a superior return on their investment whilst providing each of our employees with a safe workplace where he or she is recognised, developed and properly rewarded.

Forward looking statements

This announcement contains certain forward looking statements which may include reference to one or more of the following: the Group's financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters.

 

Statements in this announcement that are not historical facts are hereby identified as "forward looking statements". Such forward looking statements, including, without limitation, those relating to the future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, in each case relating to Vesuvius, wherever they occur in this announcement, are necessarily based on assumptions reflecting the views of Vesuvius and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward looking statements. Such forward looking statements should, therefore, be considered in light of various important factors that could cause actual results to differ materially from estimates or projections contained in the forward looking statements. These include without limitation: economic and business cycles; the terms and conditions of Vesuvius' financing arrangements; foreign currency rate fluctuations; competition in Vesuvius' principal markets; acquisitions or disposals of businesses or assets; and trends in Vesuvius' principal industries.

 

The foregoing list of important factors is not exhaustive. When considering forward looking statements, careful consideration should be given to the foregoing factors and other uncertainties and events, as well as factors described in documents the Company files with the UK regulator from time to time including its annual reports and accounts.

 

You should not place undue reliance on such forward looking statements which speak only as of the date on which they are made. Except as required by the Rules of the UK Listing Authority and the London Stock Exchange and applicable law, Vesuvius undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward looking events discussed in this announcement might not occur.

Vesuvius plc, 165 Fleet Street, London EC4A 2AE

Registered in England and Wales No. 8217766

LEI: 213800ORZ521W585SY02

www.vesuvius.com
 

Vesuvius plc

Half Year Results for the six months ended 30 June 2020

 

Vesuvius has been successful in mitigating the impact of the ongoing crisis, as reflected in the £70.8m of adjusted operating cash flow generated despite steep volume declines across all of our end markets.

 

The World Steel Association reports that in H1 2020, steel production in the world excluding China declined 14.3% year-on-year (-3.6% in Q1 and -24.8% in Q2 year-on-year). Foundry end-markets across all regions have also been significantly impacted by the crisis, with global production of both light vehicles and medium and heavy commercial vehicles down 34.5% and 37.7%, respectively.

 

£m		H1 2020 Reported	Acquisitions/Disposals	H1 2020 Underlying		H1 2019 Reported		Currency		Acquisitions/Disposals		H1 2019 Underlying			Reported % change		Underlying% change
Revenue		720.0	(11.9)	708.1		889.4		(11.6)		(10.0)		867.8			(19.0%)		(18.4%)
Trading Profit		51.1	(1.8)	49.3		98.9		(1.9)		(0.8)		96.2			(48.3%)		(48.7%)
Return on Sales %		7.1%		7.0%			11.1%						11.1%			-402bps		-412bps

 

Safety and impact on operations of Covid-19

Vesuvius' priority remains the health and safety of our employees and other stakeholders. We continue to comply with the instructions of governments and health authorities in countries where we operate to help prevent the further spread of infection. Across our network we continue to take all necessary actions to maintain a safe working environment for our employees.

As of 1 May 2020, all of our plants were operational with re-configured layouts and processes to prioritise the safety of our employees. The Group has successfully supported c.2,000 of its employees working remotely during the pandemic and continues to do so in line with applicable government and state guidance.  

Group trading performance  

In the first half of 2020, the Group generated revenues of £720m, a decline of 19.0% versus H1 2019 on a reported basis (-11.8% in Q1 and -26.2% in Q2 versus the comparable periods in 2019).  Our year-on-year sales comparison versus 2019 indicates some recovery towards the end of Q2 relative to the 28% year-on-year sales decline we previously disclosed for April 2020. Underlying Group revenue, adjusted for the effects of currency translation, acquisitions and disposals, declined by 18.4%. Trading profit (EBITA) for the half year was £51.1m (H1 2019: £98.9m), down 48.3% on a reported basis and 48.7% on an underlying basis. Return on Sales contracted to 7.1% in H1 2020 (H1 2019: 11.1%).

Underlying performance is adjusted for the acquisition of CCPI, completed on 1 March 2019.

Year-on-year development in revenues:

Trading performance y-o-y %		Underlying		Reported
		H1 20/19	H1 20/19		Q1 20/19	Q2 20/19
Steel Division		-15.5%	-16.0%		-9.4%	-22.5%
Foundry Division		-24.8%	-25.8%		-17.2%	-34.5%
Group		-18.4%	-19.0%		-11.8%	-26.2%

 

Strategic progress

Vesuvius' core strategic objective is to deliver long-term sustainable and profitable growth. We have a clear strategy to achieve this objective centred around five key execution priorities. Despite the challenges from the ongoing crisis, we have made further progress on these priorities in H1 2020 whilst balancing them with the near-term objective of preserving capital through cost-savings whilst the crisis continues.

 ·      Reinforce our technology leadership

o We have maintained our R&D spend focused on growth projects, despite Group-wide cost-saving measures in response to the ongoing crisis

·      Increase the penetration of our value-creating solutions

o Successful launch in H1 2020 of 5 new products including energy-efficient crucibles and robot-ready ladle gates

o At least 10 new product launches planned for the remainder of 2020 despite challenging markets

·      Capture the growth in developing markets

o Outperformance of end markets in the world (excluding China and Iran) in both Steel and Foundry, along with a strong performance of Foundry in China

·      Improve our cost leadership and margins

o In H1 2020 we delivered £12.3m of recurring restructuring savings relative to H1 2019

o Additionally, we delivered Covid-19 crisis-related savings of £18.6m in Q2, including a reduction in planned employee incentives of £5.9m

o On track to deliver £10m per quarter of such savings in H2, assuming that weak market conditions persist at the current level

·      Develop our Technical Service offering

o Increased penetration of our robotic and laser measurement solutions

Foreign exchange

The net impact of average H1 2020 exchange rates compared to H1 2019 averages has been a H1 2020 headwind of approximately £1.9m at trading profit level. If exchange rates remained at the end of June 2020 level throughout H2 2020, we would expect the full year foreign exchange headwind to be approximately £3m.

 

Restructuring

In H1 2020, we delivered total recurring cost savings of £12.3m relative to H1 2019. We remain on track to deliver the full year £19.4m in recurring cost savings from the expanded restructuring programme announced in July 2019. In 2021 and 2022 there are an additional c.£8m of savings to be delivered. No additional projects are currently expected to be added to the existing restructuring programme. Savings are estimated to be delivered by 2022 and the majority of costs for this programme were booked in 2019 and a residual £2.5m has been reported in H1 2020.

Mitigating actions in response to Covid-19

In response to the pandemic, we have implemented several temporary cost reduction plans that delivered savings of £18.6m in Q2 (£7.8m in reduced employment costs, £4.9m in reduced discretionary spend and a reduction in planned employee incentives of £5.9m). The savings have exceeded expectations during the second quarter and we are on track to deliver £10m per quarter of such savings in H2 assuming weak market conditions persist at the current level.

We have also reduced our planned capital expenditures by 30% in 2020, a reduction of £20m.

Working Capital (all changes quoted in constant currency)

Our average Trade Working Capital / Sales for the prior 12 months was 24.6% at the end of H1 2020, slightly higher than the 24.0% at year-end 2019. Trade working capital decreased by £7.8m between December 2019 and June 2020 whilst £22.4m of cash was released from working capital as sales declined sharply in the second quarter. The reduction in working capital since H1 2019 amounts to £82.6m. This is due not only to the decline in sales but also to a particular focus on inventory and trade debtors. Inventory was only marginally higher, by £3.7m in June 2020 versus December 2019 and we have reported pleasing reductions in raw material levels and Foundry finished goods. Trade debtors were lower by £26.6m over the same period, in part due to a reduction in overdue balances. 

Tax

Our Effective Tax Rate ("ETR") in H1 2020 was 27.2% (28.0% in H1 2019). This resulted in an H1 2020 headline tax charge of £12.3m, (2019: half year £26.0m; full year £43.8m).

Financial position and liquidity

Net Debt at 30 June 2020 was reduced to £229.7m from £245.8m at the end of 2019 on Free Cash Flow of £44.5m. The positive impact of Free Cash Flow in reducing Net Debt was partially offset by GBP weakness which meant that our debt denominated in dollars and euros translated into a higher GBP amount relative to year-end 2019.  Our Net Debt / LTM EBITDA ratio was 1.2x at 30 June 2020 versus 1.1x at the end of 2019. This provides us with significant headroom against our debt covenant limit of 3.0x net debt/LTM EBITDA, which will expand to 3.25x once we redeem the USPP notes maturing in December, which will be repaid in August.

In April 2020, Vesuvius also took steps to boost its liquidity, through borrowing £200m from the Bank of England's Covid Corporate Financing Facility ("CCFF") programme and raising c.£115m (US$140m) from the US private placement ("USPP") market. As at 30 June 2020, our liquidity stood at £706m. 

Quality, health and safety

The Board and the entire leadership team of Vesuvius place great emphasis on the importance of quality, health and safety in the workplace and in the communities in which we operate. We have provided support to local communities during the crisis with various initiatives, including assistance in procuring PPE. Reliability in quality and delivery is vital to our customers as they use Vesuvius' products in critical areas of their own processes. The level of risk attached to a catastrophic failure is often such that, for people and equipment, no compromise can be accepted. Our Lost Time Injury Frequency Rate has improved from 1.42 LTIs in H1 2019 to 1.07 LTIs per million hours worked in H1 2020.

Dividends

The Board is continuously reviewing the situation in each of our markets and will revisit the decision on dividends when there is greater clarity on the duration and extent of the impact of the Covid-19 crisis. The Board has not declared an interim dividend at this time and will review the position as the year progresses. 

Outlook

We have demonstrated the strength and resilience of our flexible business model in H1 with a strong positive free cash flow generation. Our quick and decisive implementation of Covid-19 related cost savings measures, in addition to the planned delivery of the recurring savings from our restructuring programme, allowed us to limit the negative impact of the pandemic on our results. Looking forward, the first signs of improvement are now apparent in both Steel and Foundry but we expect the pace of the recovery to be slow over the coming months. Consequently, the Board has not declared an interim dividend at this time and will review the position as the year progresses. Likewise, until we have greater certainty on the shape of the recovery, we cannot provide meaningful guidance as to our full year results. However, thanks to the optimisation of our manufacturing footprint over the past three years, Vesuvius is now very well positioned to benefit from the recovery of end markets when it occurs.

 

 

 

 

 

 

 

 

 

 

 

 

Operational Review

 

Vesuvius comprises two Divisions, Steel and Foundry. The Steel Division operates as three business lines, Steel Flow Control, Advanced Refractories and Sensors & Probes (formerly Digital Services).

 

Steel Division

The Covid-19 crisis led to sharp declines in steel production volumes across the world during Q2 2020. Global steel production excluding China fell 14.3% year-on-year in H1 2020 according to the World Steel Association. Including China, global production was down 6.0% during the period. Steel production fell 18.7% in the EU27 + UK, 19.9% in South America, and 17.6% in NAFTA. The Asia-Pacific region held up relatively well, supported by China, where volumes were marginally higher compared to the same period in 2019.

 

The table below presents the year-on-year change in steel production volumes for H1 2020 and also for Q1 and Q2. The year-on-year declines which occurred in the majority of regions during Q2 2020, illustrate the impact the Covid-19 crisis has had on production volumes when compared to the year-on-year trend in Q1, which was largely unaffected by the Covid-19 crisis.

 

Crude Steel Production year-on-year Change
			H1 '20/'19		Q1 '20/'19	Q2 '20/'19
China			1.4%		1.4%	3.0%
India			-24.2%		-7.6%	-41.6%
NAFTA			-17.6%		-3.6%	-31.9%
South America			-19.9%		-5.9%	-33.6%
EMEA ex Iran			-13.0%		-4.3%	-21.6%
EU 27 + UK			-18.7%		-9.7%	-27.8%
World			-6.0%		-1.0%	-9.7%
World ex-China			-14.3%		-3.6%	-24.8%
World ex China & Iran			-15.0%		-4.1%	-25.8%

Source: World Steel Association (Month-to-date totals may include revised data not available on a monthly basis)

(Year-on-Year refers to comparison between H1 2020 and H1 2019)

 

 

Vesuvius' Steel Division generated revenues of £516.3m in H1 2020, a 15.5% decline compared to H1 2019 on an underlying basis, reflecting the weakness in steel markets around the world. Despite the challenging markets resulting from the pandemic, we are encouraged by the Group's outperformance of the wider steel market (-13.3% sales, -15% steel market in the world excluding China and Iran). Regions in which we outperformed underlying markets volume wise include EMEA (excluding Iran), NAFTA, South America, India and North Asia.

 

Trading profit in the Steel Division declined 40.4% year-on-year (-41.3% on an underlying basis), reflecting the speed and extent of volume declines as governments imposed lockdowns leading to significant disruption in businesses across the world. Underlying return-on-sales in the Steel Division contracted 323bps, with Covid-related cost-savings measures and benefits from recent restructuring programmes mitigating some of the impact of the ongoing crisis.

 

Steel Division		H1 2020	H1 2019	Change	Underlying
		(£m)	(£m)	(%)	change (%)
Steel Flow Control Revenue		274.4	322.9	(15.0%)	(13.7%)
Steel Advanced Refractories Revenue		228.8	276.6	(17.3%)	(18.0%)
Sensors & Probes		13.1	15.4	(14.8%)	(8.0%)
Total Steel Revenue		516.3	614.9	(16.0%)	(15.5%)
Total Steel Trading Profit		38.9	65.3	(40.4%)	(41.3%)
Total Steel Return on Sales		7.5%	10.6%	-308bps	-323bps

 

 

Steel Flow Control

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. These products must withstand extreme temperature changes, whilst resisting liquid steel and slag corrosion. In addition, the ceramic parts in contact with the liquid steel must not in any way contaminate it. The quality, reliability and consistency of these products and the associated 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.

 

Steel Flow Control Revenue		H1 2020	H1 2019	Change	Underlying
		(£m)	(£m)	(%)	change (%)
Americas		92.2	108.2	(14.8%)	(12.1%)
Europe, Middle East & Africa (EMEA)		101.5	125.2	(18.9%)	(18.5%)
Asia-Pacific		80.7	89.5	(9.8%)	(9.0%)
Total Steel Flow Control Revenue		274.4	322.9	(15.0%)	(13.7%)

 

 

In the first half of 2020, underlying revenues in the Group's Steel Flow Control business declined 13.7% year-on-year to £274.4m, with all regions posting significant declines during the period.

 

In EMEA, Steel Flow Control revenues declined 18.5% compared to H1 2019 on an underlying basis. Flow Control sales volumes outperformed the steel market in EEMEA excluding Iran (-5.5% sales vs. -7.3% steel market) and were in-line in the EU27+UK (-18.7% for sales and the steel market). In the Americas, underlying Steel Flow Control revenues fell 12.1% year-on-year, with sales volumes also outperforming the steel market in the region. The outperformance was driven in particular by strong results in South America and the US. Our Steel Flow Control revenues declined 9.0% in Asia Pacific, with China declining 5.2% year-on-year, as the flat steel market in China has been more affected by the virus than the steel market as a whole.

 

 

Steel Advanced Refractories

The Steel Advanced Refractories business unit supplies complete value-added solutions to its customers including specialist refractory materials, advanced installation technologies (including robots), 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 ('monolithics') and refractory shapes (e.g. bricks, pads, dams and other larger precast shapes). The service life of the products that Advanced Refractories supplies into the steel making process can vary (some a matter of hours and others for a period of years) based upon the type of refractory and the level of wear caused by the demanding environment in which they are used. An integral part of our success depends upon our best-in-class installation technologies (including robots) and lasers to track the performance of installed Vesuvius' refractories as well as the strong level of collaboration with our customers.

 

Steel Advanced Refractories Revenue		H1 2020	H1 2019	Change	Underlying
		(£m)	(£m)	(%)	change (%)
Americas		77.3	89.6	(13.7%)	(18.7%)
Europe, Middle East & Africa (EMEA)		97.2	125.8	(22.8%)	(21.6%)
Asia-Pacific		54.3	61.2	(11.3%)	(9.8%)
Total Steel Advanced Refractories Revenue		228.8	276.6	(17.3%)	(18.0%)

 

Steel Advanced Refractories reported revenues of £228.8m in H1 2020, a decrease of 17.3% compared to H1 2019 on a reported basis (-18.0% on an underlying basis), with performance relative to the steel markets varying across regions.

 

Revenues declined 13.7% to £77.3m in the Americas (-18.7% underlying), versus the 18.2% steel market decline in the region, supported by strong performances in South America (-0.5% sales vs. -19.9% steel market) and the USA (-15.3% sales vs. -18.3% steel market). In EMEA (excluding Iran), our Advanced Refractories revenues declined by 14.1%, versus the 13.0% steel market decline but outperformed the market volume-wise. In Europe (EU 27 + UK), we outperformed the steel market in the region significantly, with a revenue decline of 9.6% versus the steel market volume decline of 18.7%. Our revenues were £54.3m in Asia Pacific, representing a year-on-year decline of 11.3%, as our sales volumes outperformed the steel markets in India, South Korea and Taiwan but underperformed in China.

 

Sensors and Probes (formerly Digital Services)

The Sensors and 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 sensors and probes that enhance the control and monitoring of our customers' production processes, complementing Vesuvius' strong presence and expertise in molten metal engineering to create new technologies and integrate them into expert process management systems. These products include temperature sensors, oxygen, hydrogen and sublance probes, iron oxide and metal sampling for the steel, aluminium and foundry industries. By using these technologies, customers can focus on critical parameters within their processes, enabling them to refine their production methods to improve quality, lower production costs and maximise efficiency.

 

Sensors and Probes Revenue		H1 2020	H1 2019	Change	Underlying
		(£m)	(£m)	(%)	change (%)
Americas		8.1	10.1	(19.9%)	(9.7%)
Europe, Middle East & Africa (EMEA)		4.9	5.2	(5.3%)	(5.4%)
Asia-Pacific		0.1	0.1	31.4%	34.9%
Total Sensors and Probes Revenue		13.1	15.4	(14.8%)	(8.0%)

 

Revenues in Sensors and Probes were £13.1m in H1 2020, representing an underlying decline of 8.0.% year-on-year, significantly better than the decline of the steel market in the world outside China (Sensors and Probes sales in China are negligible at this stage).

 

Foundry Division

The Foundry Division is a world leader in the supply of consumable products, technical advice and application support 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 these parameters.

 

Foundry Division		H1 2020	H1 2019	Change	Underlying
		(£m)	(£m)	(%)	change (%)
Foundry Revenue		203.7	274.5	(25.8%)	(24.8%)
Foundry Trading Profit		12.2	33.6	(63.6%)	(62.9%)
Foundry Return on Sales		6.0%	12.2%	-624bps	-617bps

 

Foundry end-markets across all regions have also been significantly impacted by the crisis. The automotive industry (light vehicle and medium and heavy commercial vehicles), which makes up approximately one-third of Vesuvius' Foundry end-markets, has experienced disruptions on both the supply and demand sides, exacerbating the weak trends in the sector going into the crisis. In H1 2020, global light vehicle production fell 34.5% compared to H1 2019, which was already down 7.0% compared to H1 2018. Production of medium and heavy commercial vehicles were also down 37.7% during the first half of the year. The majority of end markets, except for essential construction and general manufacturing, were significantly disrupted across all regions.

 

 

Foundry Revenue		H1 2020	H1 2019	Change	Underlying
		(£m)	(£m)	(%)	change (%)
Americas		44.1	61.2	(27.9%)	(25.3%)
Europe, Middle East & Africa (EMEA)		90.0	124.2	(27.5%)	(26.7%)
Asia-Pacific		69.6	89.1	(21.9%)	(21.8%)
Total Foundry Revenue		203.7	274.5	(25.8%)	(24.8%)

 

 

On the back of the weak market trends described above, underlying revenues in the Foundry Division fell 24.8% year-on-year to £203.7m in H1 2020, with the rate of decline broadly consistent across regions.

 

However, we are pleased to report that despite end market headwinds, our Foundry team in China managed to increase revenues by 2.8% year-on-year in H1 2020, as a tentative recovery towards the end of the first half offset the decline earlier in the year. We experienced significant declines in the rest of Asia Pacific, notably in India, where revenues declined 43.0% in the first half of the year, in part due to the abrupt national shutdown in April, combined with weak trends in Q1 2020 prior to the Covid-19 crisis. In the Americas, our underlying Foundry revenues fell 25.3%, while revenues in EMEA declined 26.7%, due in both cases to the impact of the Covid-19 crisis.

 

Underlying trading profit fell 62.9% in H1 2020, implying a 617 bp contraction in Return on Sales. The contraction reflects the extent, as well as the speed of volume declines in Foundry end-markets, resulting in reduced capacity utilisation. 

 

 

Financial Review

The following review considers a number of our financial KPIs and sets out other relevant financial information.

Basis of Preparation

We have continued to adopt a columnar presentation format for our accounts separately identifying headline performance results, as we consider that this gives a better view of the underlying results of the ongoing business.

Dividend

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. The Board is continuously reviewing the situation in each of our markets and will decide on dividends when there is greater clarity on the duration and extent of the impact of the Covid-19 crisis. The Board has not declared an interim dividend at this time and will continue to review the position as the year progresses.

 

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 2020, we have:

·      Retranslated 2019 results at the FX rates used in calculating the 2020 results

·      Removed the results of CCPI, which was acquired during 2019

 

Objective: Deliver growth

KPI: Underlying revenue growth

Reported revenue for H1 2019 was £889.4m, which after FX translation effects and removing the impact of disposed businesses, equated to £867.8m on an underlying basis. The reported revenue for H1 2020 of £720.0m, which after removing the impact of acquired businesses equated to £708.1m, is a decrease on an underlying basis of 18.4% year-on-year.  The reduction has been almost entirely driven by steep volume declines due to the ongoing Covid-19 crisis.

£m	H1 2020 Revenue			H1 2019 Revenue				% change
	As reported	Acquisition/Disposals	Underlying	As reported	Currency	Acquisition/Disposals	Underlying	Reported	Underlying
Steel	516.3	(11.9)	504.4	614.9	(8.0)	(10.0)	596.9	(16.0%)	(15.5%)
Foundry	203.7	-	203.7	274.5	(3.6)	-	270.9	(25.8%)	(24.8%)
Total Group	720.0	(11.9)	708.1	889.4	(11.6)	(10.0)	867.8	(19.0%)	(18.4%)

 

Objective: Generate sustainable profitability and create shareholder value

KPI: Trading profit and Return on Sales

We continue to measure underlying trading profit of the Group as well as trading profit as a percentage of sales, which we refer to as our Return on Sales or RoS.

Trading profit of £51.1m decreased by 48.7% on an underlying basis versus H1 2019 whilst RoS was 7.1%, a decrease from 11.1% in H1 2019. The significant decline in trading profit was driven by the steep decline in revenues due to the ongoing crisis, mitigated by crisis-related cost savings measures and the ongoing delivery of benefits from the restructuring programmes.

The Steel Division recorded Return on Sales of 7.5%, a 323 bp contraction from H1 2019, as underlying trading profit fell 41.3% to £38.9m during the period. Return on Sales in the Foundry division declined 617 bps year-on-year to 6.0% in H1 2020 on the back of a 62.9% reduction in underlying trading profit.

 

£m	H1 2020 Trading profit			H1 2019 Trading profit				% change
	As reported	Acquisition/Disposals	Underlying	As reported	Currency	Acquisition/Disposals	Underlying	Reported	Underlying
Steel	38.9	(1.8)	37.1	65.3	(1.3)	(0.8)	63.2	(40.4%)	(41.3%)
Foundry	12.2	-	12.2	33.6	(0.6)	-	33.0	(63.6%)	(62.9%)
Total Group	51.1	(1.8)	49.3	98.9	(1.9)	(0.8)	96.2	(48.3%)	(48.7%)

 

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 £5.9m in H1 2020, £0.3m lower than H1 2019.

Our Headline PBT was £45.9m, 50.8% below last year on a reported basis. Including amortisation (£5.0m), restructuring charges (£2.5m), and vacant site remediation costs (£3.8m), our PBT of £34.6m was 56.0% lower than H1 2019. Headline EPS from continuing operations at 11.6p is 51.1% lower than H1 2019.

KPI: Return on net assets (RONA)

RONA is our principal measure of capital efficiency. We do not exclude the results of businesses acquired and disposed from this calculation, as capital efficiency is an important consideration in our portfolio decisions. It is calculated by dividing trading profit plus our share of profits from joint ventures by our average operating assets (property, plant and equipment, trade working capital and interests in joint ventures and associates, investments, and other operating receivables, payables and provisions).

As with most of our KPIs, we measure this on a 12-month moving average basis at average exchange rates for the period to ensure that we focus on sustainable underlying improvements. Our RONA for H1 2020 was 19.6% (2019: half year 28.5%; full year 26.4%).

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 £70.8m, representing a 13.4% decrease versus H1 2019. This implies a cash conversion rate in H1 2020 of 139% (2019: half year 83%; full year 120%), illustrating once again the strength and resilience of its flexible business model. Free cash flow from continuing operations was £44.5m in H1 2020 (2019: half year £47.5m). 

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 H1 2020 was 24.6% (2019: half year 23.9%; full year 24.0%), measured on a 12-month moving average basis. In absolute terms on a constant currency basis trade working capital decreased by £7.8m in H1 2020 following the decline in sales. 

KPI: Net debt and interest cover

During the first half of 2020, the Group accessed the Bank of England's Covid Corporate Financing Facility (CCFF) as a precautionary measure whilst the full impact of the crisis remained uncertain. We also successfully launched a new USPP note to cover an older tranche that will mature in December of this year. As at 30 June 2020, the Group had committed borrowing facilities of £942.8m (2019: half year £623.0m; full year £609.7m), of which £254.7m was undrawn (2019: half year £132.7m; full year £174.2m).

Net debt at 30 June 2020 was £229.7m, a £16.1m decrease from 31 December 2019, as free cash flow from continuing operations of £44.5m was offset by items including a £20.0m foreign exchange adjustment, and an increase in leases of £7.5m.

At the end of H1 2020, the net debt to EBITDA ratio was 1.2x (2019: half year 1.3x; full year 1.1x) and EBITDA to interest was 18.0x (2019: half year 21.4x; full year 21.8x). 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 three times limit) and EBITDA to interest (minimum four times limit).  The net debt to EBITDA covenant will change to a maximum of three and one-quarter times, once we redeem the USPP Notes maturing in December 2020. Net debt calculations for bank covenant purposes exclude the impact of changes from IFRS 16 and will, consequently, be lower.

Objective: Be at the forefront of innovation

KPI: R&D Spend

We believe that our market-leading product technology and services deliver fundamental value to our customers and that the primary mechanism to deliver that value is to invest significantly in research and development. In H1 2020, we spent £14.1m on R&D activities (2019: half year £14.9m; full year £29.1m), which represents 2.0% of our revenue (2019: half year 1.7%; full year 1.7%).

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.

Our key mitigation of end-market risk is to manage the Group's exposure through balancing our portfolio of business geographically and to invest in product innovation. We do so through targeted capital investment in new and growing businesses and a combination of capital and human resource in emerging markets. When considering other financial risks, we mitigate liquidity concerns by financing, using both the bank and private placement markets. The Group also seeks to avoid a concentration of debt maturities in any one period to spread its refinancing risk. In April 2020, Vesuvius took steps to boost its liquidity, through borrowing £200m from the Bank of England's Covid Corporate Financing Facility ("CCFF") programme and raising c.£115m (US$140m) from the US private placement ("USPP") market. As at 30 June 2020, our liquidity stood at £706m. We define liquidity as undrawn committed debt facilities plus our cash on balance sheet, less the £49m of cash in China which is used as collateral against an equivalent loan from Standard Chartered.

Restructuring

We continued to finalise the implementation of our previously announced restructuring programmes, with £12.3m of incremental savings delivered in H1 2020 relative to H1 2019. During the period, we reported £2.5m of restructuring costs (2019: half year £10.7m; full year £39.8m) within separately reported items that all related to finalisation of programmes announced in previous years and were predominantly made up of redundancy and plant closure costs. We are carrying forward into H2 2020 a restructuring provision of £13.4m.

Vacant site remediation

The Group owns a number of disused properties in the US, which do not form part of our trading operations. Costs are being incurred at one of these sites to address the significant increase in the volume of water run-off occurring in 2019 and 2020. We have engaged waste management specialists, are taking actions to reduce the level of water (including hydrological studies), improve treatment processes, and are in contact with the relevant regulatory authorities. We estimate that it will take 18 months to finalise remediation. The costs in H1 2020 for this remediation were £3.8m (2019 half year: nil, 2019 full year: £4.1m.). These non-recurring costs have been treated as a separately reported item. There has been no impact upon headline performance.

Taxation

A key measure of the Group's tax burden is the effective tax rate, which the Group calculates 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 effective tax rate was 27.2% in H1 2020 (2019: half year 28.0%; full year 25.7%) based on the income tax costs associated with headline performance of £12.3m (2019: half year £26.0m; full year £43.8m).

Capital expenditure

Capital expenditure in H1 2020 was £26.2m (2019: half year £23.6m; full year £74.7m) of which £22.5m was in the Steel Division (2019: half year £17.1m; full year £53.6m) and £3.7m in the Foundry Division (2019: half year £6.5m; full year £21.1m). Capital expenditure on revenue-generating customer installation assets, primarily in Steel, was £4.1m (2019: half year £3.5m; full year £7.8m).

Pensions

The Group has a limited number of historical defined benefit plans located mainly in the UK, USA, Germany and Belgium. The main plans in the UK and USA are largely closed to further benefits accrual and 57% of the liabilities in the UK have already been insured. The total net surplus attributed to these defined benefit obligations at 30 June 2020 was £0.2m (2019: half year £14.8m deficit; full year £8.5m deficit), representing an improvement of £8.7m since 31 December 2019 which is largely attributable to £14.9m of gains arising from changes in actuarial assumptions offset by foreign exchange losses of £6.9m.

The majority of the ongoing pension plans are defined contribution plans, where our only obligation is to make contributions, with no further commitments on the level of post-retirement benefits. During H1 2020, cash contributions of £4.8m (2019: half year £6.0m; full year £11.3m) were made into the defined contribution plans and charged to trading profit.

 

 

Principal Risks and Uncertainties

 

Risk Management

The Board's oversight of principal risks involves a specific review of the processes by which the Group manages those risks. This establishes a clear understanding at Board level of the individuals and groups within the business formally responsible for the management of specific risks and the mitigation in place to address them. The Board also establishes the Group's risk appetite, considering the nature and extent of the principal risks that the Group should take and the associated adequacy of the steps being taken to mitigate them.

The Board has overall responsibility for establishing and maintaining a system of risk management and internal control, and for reviewing its effectiveness. The Group undertakes a continuous process of risk identification and review, which includes a formal process, conducted annually for mapping risks from the bottom-up, with each major business unit, and key operational, senior functional and senior management staff identifying their principal risks. This assessment undergoes a formal review at half year. The results are compiled centrally to deliver a coordinated picture of the key operational risks identified by the business. These are further reviewed by the Group Executive Committee. In conjunction with this process, each Director contributes their individual views of top-down strategic risks facing the Group - drawing on the broad commercial and financial experience gained both inside and outside the Group. The results of this assessment are then overlaid on the internal assessment of risks to build a comprehensive analysis of existing and emerging risk. This review process extends to cover both financial and non-financial risks, and considers the risks associated with the impact of the Group's activities on employees, customers, suppliers, the environment, local communities and society more generally.

Risk Mitigation

The risks identified are actively managed in order to mitigate exposure. Senior management 'owners' are identified for each principal risk to manage the mitigations of that specific risk and contribute to the analysis of its likelihood and materiality. This is reported to the Board. The risks are analysed in the context of our business structure which gives protection against a number of principal risks we face with diversified currencies, a widespread customer base, local production matching the diversity of our markets and intensive training of our employees. Additionally, we seek to mitigate risk through contractual measures. Where cost-effective, the risk is transferred to insurers.

Principal Risks

The risks identified 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 could materially affect the Group, its businesses, future operations and financial condition and could cause actual results to differ materially from expected or historical results. These risks are not the only ones that the Group will face. Some risks are not yet known and some currently not deemed to be material could become so.

Changes to Risk in 2020

 

During 2020, the Board has continued to review the Group's existing and emerging risks, and to focus on the processes for mitigating and managing these risks. The Board believes that there has been no material change to the Group's principal risks and uncertainties during the year and that the ongoing Covid-19 Pandemic has not given rise to any change in the Principal Risks previously identified by the Group, which are set out in the table below.  The Board fully recognises that with the changing economic and social pressures brought about by Covid-19, there has however been a heightened focus on risk and its mitigation.  As with the vast majority of companies, the Covid-19 Pandemic is impacting the Group's staff, customers, shareholders and suppliers as well as the Group's financial performance.  Certain of the Group's Principal Risks have materialised during this period, namely End Market Risks; People, Culture and Performance and Business Interruption.  The Group's existing measures in mitigation of its Principal Risks were initiated and additional actions have been taken specific to the challenges posed by the Covid-19 pandemic.

 

End Market Risk: Vesuvius has experienced a drop in demand for its products, with an associated impact on revenue, driven by the impact of Covid-19 on the Group's end markets. The Group's existing mitigating factors have come into play in responding to this challenge, with an increased focus on Working Capital management, and close monitoring of Plant Performance.  However, in addition, the Group has leveraged government initiatives around the world to ease the financial impact, taking advantage of Tax Deferral schemes, securing additional Government Financing, and receiving furlough financial support.

People, Culture and Performance:  The Values of Vesuvius have never been more at the fore.  Across the globe our staff have worked tirelessly to give the support required regarding travel/repatriation, office working conditions where necessary, the provision of increased PPE, IT connectivity, whilst staying connected with remote workers. The Group has strengthened its internal communication with weekly interactive calls from the CEO and GEC, a Bi-weekly Newsletter, regular CEO messages and the sharing of best practices, successes and news from around the Group. The focus on values has been maintained, involving employee family initiatives, and continuing our Living the Values Awards competition and support for local communities around the world.  Ways of working have been enhanced, with a move to virtual meetings accommodating international time differences and use of webinar product training and customer interaction.

Business interruption: Whilst the Group has suffered some disruption in its manufacturing processes, driven predominantly by government shutdowns and the need to adapt production processes, management responded swiftly and effectively to reduce this impact, minimising plant closures and downtime, and maintaining our ability to supply customers with all orders fulfilled regardless of Government-enforced plant closures.  In addition, operating processes have been adjusted to reflect the social distancing required to keep employees safe.  Our management's responsiveness has also resulted in other risks not being manifest, with product quality remaining at its high level, our safety culture driving key responses to protect employees and our continued investment in R&D and market-leading research. Finally, the Group's IT function has supported the transition of around 2,000 employees to work from home, increasing server capacity and expanding, as appropriate, the Group's programme of cyber security.

Additional Medium to Long Term Considerations:

In the event of a protracted Pandemic, Management's response to the following risks will continue to be closely evaluated:

•              Protectionism and Globalisation giving rise to disruption of global supply chains and movement of people.

•              Further End Market Risks arising from a prolonged recession of the global economy.

•              People, Culture and Performance with the need to ensure the ongoing mental health of staff subject to protracted periods of remote working against a background of uncertain/ anxious times.

•              ESG, with an increased focus on employee and social issues as the longer-term effects of the pandemic become clear.

 

The Board also remains cognisant of the fundamental impact of ESG risks on the business and during recent months the Group has continued to focus on ways for the organisation to address these risks and contribute to the climate change agenda. In addition, the Board has continued to monitor the implications of certain other emerging 'macro' trends such as automation in manufacturing and increasing digitalisation, both of which could act as disruptors to industry, and has retained focus on the increasing issues posed by cyber threats, with further work undertaken by the Group's Cyber Committee on developing and implementing strategies to deal with these ongoing risks.

Brexit

Following the exit of the UK from the EU on 31 January 2020 under the Withdrawal Agreement the UK is currently subject to a Transition Period which will run until the end of 2020. During the Transition Period the UK remains in the Single Market and the Customs Union of the EU while the terms of a new trade agreement are negotiated. If those negotiations are not completed and ratified before the end of the Transition Period, World Trade Organisation rules may apply.

Vesuvius has analysed the potential challenges posed by Brexit, including the possibility of a 'no trade deal' situation occurring at the end of 2020, and identified mitigation strategies to address those challenges.

For our customers located in the EU27 countries, most of our products are manufactured by Vesuvius outside the UK, so we would not envisage a material impact from Brexit after the Transition Period. For those customers located in the UK or located in the EU27 and supplied from our UK plant, we have contingency plans and we are working with these customers to meet their needs in a cost-efficient way.

 

 

 

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	·      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	·      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 ·      Trade restrictions	·      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	·      Injury to staff and contractors ·      Product or application failures lead to adverse financial impact or loss of reputation as technology leader ·      Incident at customer plant causes manufacturing downtime or damage to infrastructure ·      Customer claims from product quality issues	·      Quality management programmes including stringent quality control standards, monitoring and reporting ·      Experienced technical staff knowledgeable in the application of our products and technology ·      Targeted global insurance programme ·      Experienced internal legal function controlling third-party contracting
Complex and changing regulatory environment Vesuvius experiences a contracting customer base or increased transaction and administrative costs due to compliance with changing regulatory requirements	·      Revenue reduction from reduced end-market access ·      Disruption of supply chain and route to market ·      Increased internal control processes ·      Increased frequency of regulatory investigations ·      Reputational damage	·      Compliance programmes and training across the Group ·      Internal Audit function ·      Experienced internal legal function including dedicated compliance specialists ·      Global procurement category management of strategic raw materials
Failure to secure innovation Vesuvius fails to achieve continuous improvement in its products, systems and services	·      Product substitution by customers ·      Increased competitive pressure through lack of differentiation of Vesuvius offering ·      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
Business interruption Vesuvius loses production capacity or experiences supply chain disruption due to physical site damage (accident, fire, natural disaster, terrorism), industrial action, cyber attack or global health crisis	·      Loss / closure of a major plant temporarily or permanently impairing our ability to serve our customers ·      Damage to or restriction in ability to use assets ·      Denial of access to critical systems or control processes ·      Disruption of manufacturing processes ·      Inability to source critical raw materials	·      Diversified manufacturing footprint ·      Disaster recovery planning ·      Business continuity planning with strategic maintenance of excess capacity ·      Physical and IT control systems security, access and training ·      Cyber risks integrated into wider risk-management structure ·      Well-established global insurance programme ·      Group-wide safety management programmes ·      Dual sourcing strategy and development of substitutes
People, culture and performance Vesuvius is unable to attract and retain the right calibre of staff, fails to instil an appropriate culture or fails to embed the right systems to drive personal performance in pursuit of the Group's long-term growth	·      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 elucidated Values underpin business culture
Health and safety Vesuvius staff or contractors are injured at work because of failures in Vesuvius' operations, equipment or processes	·      Injury to staff and contractors ·      Health and safety breaches ·      Manufacturing downtime or damage to infrastructure from incident at plant ·      Inability to attract the necessary workforce ·      Reputational damage	·      Active safety programmes, with ongoing wide-ranging monitoring and safety training ·      Independent safety audit team ·      Quality management programmes including stringent manufacturing process control standards, monitoring and reporting
Environmental, social and governance (ESG) criteria Vesuvius fails to capitalise on the opportunity to help its customers significantly reduce their carbon emissions as environmental pressure grows on the Steel Industry or Vesuvius fails to meet the expectations of its various stakeholders including employees and investors	·      Loss of opportunity to grow sales ·      Loss of opportunity to increase margin ·      Loss of stakeholder confidence including Investors ·      Reputational damage	·      Development of appropriate ESG measures for the business ·      Investment in R&D to develop products to assist our customers in reducing their carbon emissions and improve their own ESG measures ·      Skilled technical sales force to develop efficient solutions for our customers ·      The group wide Code of Conduct, ABC Policy with a zero tolerance regarding bribery and corruption ·      Internal Speak up mechanisms to allow reporting of concerns ·      Extensive use of Due Diligence involving existing and potential investments, business partners and customers