REG - Vesuvius plc - Final Results for the year ended 31 December 2022
02/03/2023 07:00
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RNS Number : 5950R Vesuvius plc 02 March 2023
2 March 2023
Full Year Results for the twelve months ended 31 December 2022
Record results and market share gains despite tough markets and inflationary
cost pressures
Investment in future growth
Vesuvius plc, a global leader in molten metal flow engineering and technology,
announces its audited results for the twelve months ended 31 December 2022.
Financial summary 2022 2021 Year-on-year change Underlying change((1))
(£m) (£m)
Revenue 2,047 1,643 25% 18%
Trading Profit ((2)) (EBITA) 227 142 60% 50%
Return on Sales ((2)) 11.1% 8.7% 240bps 240bps
Operating Profit 217 133 63%
Headline Profit Before Tax ((2)) 217 137 58%
Profit Before Tax 207 128 62%
Profit 189 108 75%
Headline Earnings ((2) ) 152 96 59%
Headline EPS ((2)) (pence) 56.5 35.3 60%
Statutory EPS (pence) 67.2 37.7 78%
Adjusted operating cash flow ((2) ) 186 46 307%
Cash generated from operations 268 83 224%
Net Debt ((2)) 255 277 -8.0%
Dividend (pence per share) 22.25p 21.2p +5.0%
( )
( (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 16 in the Condensed
Group Financial Statements.
Full Year 2022 Highlights
· Revenue of £2,047m, +18% (underlying) reflecting improved mix and
successful execution of pricing strategy to fully recover input cost rises
· Record trading profit and return on sales of £227m (+50%
underlying) and 11.1% (+240bps), respectively
· Market share gains alongside price rises in all regions for Flow
Control and in most regions for Foundry and Advanced Refractories
· R&D programme and strategic capex to drive volume and margin
growth in coming years fully on track:
· capacity expansion in Flow Control
o Additional VISO capacity in India and Poland now operational
o Additional Slide Gate capacity in Poland on track to begin production
later in 2023
o New Flux plant in India to serve India and South-East Asia, operational in
2024
· Development of new flagship greenfield plant in Vizag, India, to pave
the way for the Steel Division long term expansion in Asia
· + 18% R&D spend in 2022 (fully expensed) to drive technological
differentiation and value-add of our products
· Good progress in H2 on reducing inventory levels, in particular raw
materials
· Free cash flow of £123m despite £89m spent on capex
· Net debt/EBITDA of 0.9x (31 December 2022), provides flexibility to
invest in organic and inorganic opportunities
· Proposed final dividend of 15.75p, bringing the full year dividend
to 22.25p, +5%
· Target to achieve net zero carbon by 2050; on track for a20%
reduction by 2025 and new detailed plan for a 50% reduction by 2035
Comment from Patrick André, CEO:
"2022 was a record year for Vesuvius despite difficult market conditions in
the second half. This performance was made possible by the technological
differentiation of our products and solutions, which enabled us to
simultaneously compensate for all cost inflation with price increases and gain
market share. These record results are higher than those ever achieved
pre-pandemic, despite materially lower volumes, in both the Steel and Foundry
divisions, as our end markets have not fully recovered since that period. This
shows that our objective of a 12.5% return on sales is achievable in the
medium-term on normalised volumes.
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. Steel and
Foundry markets have remained weak at the beginning of 2023, and we anticipate
the rate of recovery to be slow and only to improve later in the year. We will
also be impacted in the first half by a negative fixed cost absorption related
to the reduction of our inventory level and by the impact of the cyber
incident. Despite this, we are confident that our 2023 results will be in-line
with our expectations. 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."
Presentation of Full Year 2022 Results
Vesuvius management will make a presentation to analysts and investors on 2
March 2023 at 08.30 UK time at the London Stock Exchange, 10 Paternoster
Square, London EC4M 7LS. For those unable to attend, the event will be
livestreamed and can be accessed by clicking here
(https://www.lsegissuerservices.com/spark/Vesuvius/events/e7e4450e-da1f-4f33-acb8-1af949fa25d1)
. Participants can also join via an audio conference call. Please click here
(https://cossprereg.btci.com/prereg/key.process?key=PMAVBMHGJ) to register.
Once registered, you will be provided with the information needed to join the
conference, including dial-in numbers and passcodes. Be sure to save this
information in your calendar.
For further information, please contact:
Shareholder/analyst enquiries:
Vesuvius plc Patrick André, Chief Executive +44 (0) 207 822 0000
Richard Sykes, Chief Financial Officer (interim) +44 (0) 207 822 0000
+44 (0) 7387 545 271
Rachel Stevens, Group Head of Investor Relations
Media enquiries:
MHP Communications Rachel Farrington/Peter Lambie +44 (0) 203 128 8570
About Vesuvius plc
Vesuvius is a global leader in molten metal flow engineering and technology
principally serving process industries operating in challenging
high‑temperature conditions.
We develop innovative and customised solutions, often used in extremely
demanding industrial environments, which enable our customers to make their
manufacturing processes safer, more efficient and more sustainable. 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
cost-efficient 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 they are recognised, developed and properly rewarded.
We think beyond today to create solutions that will shape the future.
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
UK Listing Rules, the Rules of 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 (http://www.vesuvius.com)
Vesuvius plc
Full Year Results for the twelve months ended 31 December 2022
Vesuvius delivered a record performance in 2022, reflecting full recovery of
costs through pricing, alongside market share gains. This was achieved despite
the challenges of a declining market, inflationary costs and a second half
de-stocking cycle.
£m 2022 Reported Acquisitions / Disposals 2022 Underlying 2021 Reported currency Acquisitions and disposals 2021 Underlying Reported % Change Underlying % Change
Revenue 2,047 (37) 2,010 1,643 70 (2) 1,710 25% 18%
Trading Profit 227 (6) 221 142 5 0.2 148 60% 50%
Return on Sales 11.1% 11.0% 8.7% 8.6% +240bps +240bps
Group trading performance
In 2022, revenue was £2,047m, an increase of 25% compared to 2021, reflecting
underlying revenue growth of 18% (driven by price), FX translation and a
contribution from the business acquired from Universal Refractories Inc.
Underlying volume in the year was modestly negative versus 2021, which is a
material out-performance versus the market. Trading profit (adjusted EBITA)
was £227m, an increase of 60% on a reported basis and 50% on an underlying
basis. The Group achieved a return on sales of 11.1% in 2022, an increase of
240bps on both an underlying and a reported basis. We have gained market share
in most regions, driven by our market-leading flow control products. This
strong performance, with pricing achieved to fully compensate for input cost
rises while gaining share, demonstrates the strength of our offer to
customers, the benefit of improved product mix and the value-added nature of
our products and services. Our commercial agility shows the benefit of our
decentralised, non-matrix, entrepreneurial organisation, which reacted rapidly
to the changing cost environment.
Within the year, H2 was markedly weaker than H1 at the trading profit level,
reflecting the volume impact from the sharp decline in underlying markets in
H2, combined with the impact of fixed cost absorption as inventory levels
started to be reduced.
Market background
The steel market has declined progressively through the year, due to the
impact of energy prices, declining end demand, and the de-stocking cycle.
Crude steel production in the world excluding China and Iran fell by 7.0% in
2022 vs. 2021, with India the only market that grew across the year as a whole
(+5.5%), with the declining trend accelerating in H2. Europe was hardest hit,
with double-digit declines, while NAFTA fell 5.5%. (Source: World Steel
Association)
The end markets for Foundry were mixed, with growth in NAFTA and a weaker
market in Europe and Asia, particularly China which was impacted by
contraction in the heavy vehicle market and lower demand with extended Covid
shutdowns. Generally, Foundry markets remained, in 2022, well below their
pre-pandemic level.
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 four key execution priorities. We continued to make progress on these
priorities in 2022 and have continued to invest for the long term.
· Reinforce our technology leadership
o Increased our industry-leading level of R&D investment to £36m in the
year, up 18% versus 2021
· Develop our technical offering and increase the penetration of our
value-creating solutions
o Launched 15 new products in 2022
o Opened our Ghlin centre of excellence for R&D and for Mechatronics,
both developing new products and showcasing these with customers
o Welcomed 25 customer delegations to the Ghlin centre in the first 6 months
of opening
· Capture growth in developing markets
o Major acceleration of expansion capex with £53m of total capex (c. 60%)
spent on growth projects, particularly in Flow Control, to serve fast growing
developing markets
o Notable market share growth in emerging markets; we are disproportionately
outperforming the market in these regions (for example, Flow Control volume
growth in India, South-East Asia, Latin America and Turkey / Middle East)
· Improve our cost leadership and margins
o Record return on sales ("RoS") of 11.1%, up 240bps (underlying) versus
2021
o Higher RoS compared to 2018 while volumes in both Steel and Foundry remain
materially lower
Price increases to recover input cost inflation while growing market share
The Group faced substantial cost inflation in the year, due to a combination
of material costs, freight, energy and other costs including labour. We have
fully recovered these by managing our pricing on an agile basis. We have
succeeded in recovering costs while gaining market share, demonstrating the
value our products and services bring to our customers.
Integration of the Universal Refractories business
In 2022 we have proceeded with the integration of Vesuvius Penn, the business
acquired from Universal Refractories, a specialty refractory producer in the
United States, in December 2021. The integration has involved the
consolidation of manufacturing of advanced refractory and foundry products at
sites regionally (both Penn and legacy Vesuvius) to create centres of
excellence and more efficient operations.
Expansion of capacity supports organic growth and margin expansion
In 2021 we announced a number of capex projects to expand our capacity in our
higher margin products to support future organic growth and market share
gains. Those projects are proceeding well and we are now planning further
projects, as set out below.
In 2022, we spent £53m of our total capex on growth capex in particular:
· Significant investment at our Skawina Poland plant
o +35% expansion in EMEA Viso capacity to serve EMEA and, in particular,
fast-growing markets in EEMEA
o +100% expansion in EMEA Slide gate capacity, to serve EMEA and other
regions
· +50% expansion in VISO capacity in Kolkata, India to serve the
fast-growing markets of both India and South-East Asia
These projects are on track with Viso production now started in Skawina and
India and progressive ramp-up of new slide gate capacity through 2023.
We have also resolved to expand our Flow Control Flux capacity in India and to
commence the process of expanding our Advanced Refractories business in India.
In total, we anticipate capex of c. £100m in 2023, of which growth projects
will again be a similar proportion to that in 2022, at c. 60%. The remainder,
"stay-in-business" capex, of c. £40m or c. 2% revenue, reflects the
relatively capital-light nature of our business.
Working capital
Our average trade working capital/sales ratio for the trailing 12 months was
23.8% compared to 20.9% at December 2021 and 22.8% at 30 June 2022. This
reflects a progressive rise in inventory days (from 76 to 89 (12m average, 31
December 2021 to 2022)), while debtor days remained broadly flat (78 at 31
December 2022(12m average)) and creditor days declined a little (from 67 to 64
(12m average)). The rolling average movement largely masks the reduction in
inventory levels by value that has been achieved in H2, with inventory
reducing by £43m since 30 June 2022. This reflects a significant management
focus on reducing this balance, to end the year marginally below that of the
prior year. We intend to continue to reduce our working capital balance in
2023, in particular, finished products inventories.
Balance sheet strength gives flexibility for investment
Net debt fell £22m in the year to £255m at 31 December 2022 and net debt /
EBITDA reduced to 0.9x (1.4x at 31 December 2021), despite a step-up in capex
expenditure on growth projects in the year. This strong balance sheet position
gives us the opportunity for ongoing organic investment in the business and
inorganic expansion, should the right opportunities arise.
ESG - Significant progress in our sustainability roadmap
We have already made considerable progress towards achieving our nine
intermediate ESG targets.
KPI Measure Target 2022 progress vs. 2019
Safety Lost Time Injury Frequency Rate below 1 <1 1.08 vs 1.54 in 2019
Energy Consumption By 2025, reduce energy consumption per metric tonne of product packed for -10% -6%
shipment (vs 2019)
CO(2)e Emissions By 2025, reduce (Scope 1 and Scope 2) energy CO2e emissions per metric tonne -20% -19%
of product packed for shipment (vs 2019)
Waste Water By 2025, reduce wastewater per metric tonne of product packed for shipment (vs -25% -9%
2019)
Solid Waste By 2025, reduce solid waste (hazardous and sent to landfill) per metric tonne -25% -14%
of product packed for shipment (vs 2019)
Recycled Material By 2025, increase the proportion of recycled materials from external sources 7% 6%
used in production
Gender diversity By 2025, increase female representation in the senior leadership team 25% 20%
Compliance training Increase the percentage of targeted staff who complete Anti-Bribery and Greater than 90% 99%
Corruption training annually
Supply chain By the end of 2023, conduct sustainability assessments of raw material 50% 48%
suppliers covering at least 50% of Group spend on raw materials
Of the above metrics, there are three we consider to be particularly urgent:
operating a safe working environment; reducing our CO(2)e emissions; and
improving gender diversity among our top management. We have empowered our
divisions to deliver in a manner that makes sense for their business and
region, and all divisions have a detailed plan for how they will contribute to
these changes.
We are also making systematic use of internal carbon pricing to assess capex
decisions, integrating carbon pricing into our capex analysis to support the
selection of more environmentally friendly production processes. The internal
cost of carbon is reviewed annually and has been set at €90/t CO(2) for
2023, unchanged from 2022, based on the traded value of CO(2)e.
As a consequence of the progress we have made, we have improved our ESG
ratings in 2022, and have recently been upgraded to an ESG rating of 'AA' by
MSCI. We also submitted data to the Carbon Disclosure Project for the first
time in 2022.
The global effort to reduce carbon emissions is a potential growth driver for
Vesuvius. The roll-out of green energy infrastructure globally (in particular
wind turbines and solar farms) is highly steel intensive, and in particular
requires high tech steel for which our Flow Control products are particularly
relevant. In addition, our products improve the efficiency of our customers'
processes and the quality of their output, and generally reduce both their
carbon footprint and their health and safety risks. In 2022, we once again saw
a rise in the proportion of our sales derived from market-leading sustainable
products, which reached 18% in 2022, up from 17% in 2021 and 15% in 2019.
Health, safety and product quality
The Board and the entire leadership team of Vesuvius place great emphasis on
the importance of health and safety in the workplace. During 2022 we achieved
a Lost Time Injury Frequency Rate (LTIFR) of 1.08 per million hours worked,
similar to that achieved in 2021 (1.06). Despite much good work at many of our
sites, we are profoundly sorry to report that there was a fatality in 2022, in
our joint-venture 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 repeating. Reliability
in product 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.
Dividend
The Board has recommended a final dividend of 15.75 pence, bringing the total
dividend for the year to 22.25 pence per share, which is a 5% year on year
increase on the total dividend for 2021 of 21.2 pence per share.
The Board has determined that this dividend is appropriate, in order to
rebuild dividend cover. 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.
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 normalized 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.
Operational Review
Vesuvius comprises two Divisions, Steel and Foundry. The Steel Division
operates as three business lines, Flow Control, Advanced Refractories and
Sensors & Probes. Changes described are versus 2021 on an underlying
basis, excluding the impact of FX and acquisitions and disposals, unless
otherwise noted.
Steel Division
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.
Steel Division 2022 (£m) 2021 (£m) Change Underlying change (%)
(%)
Flow Control Revenue 811 649 25% 20%
Advanced Refractories Revenue 645 489 32% 19%
Steel Sensors & Probes Revenue 40 34 19% 12%
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
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. 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.
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%
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%.
Advanced Refractories
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 Revenue 2022 2021 Change Underlying change (%)
(£m) (£m) (%)
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%
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).
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.
Steel Sensors & Probes Revenue 2022 2021 Change Underlying change (%)
(£m) (£m) (%)
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%
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.
Foundry Division
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.
Foundry Division 2022 2021 Change Underlying change (%)
(£m) (£m) (%)
Foundry Revenue 551 471 17% 13%
Foundry Trading Profit 54 40 35% 32%
Foundry Return on Sales 9.9% 8.6% +130bps +140bps
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%.
Foundry Revenue 2022 2021 Change Underlying change (%)
(£m) (£m) (%)
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
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 commercial delivery. Trading
profit and return on sales increased substantially demonstrating our overall
strong performance.
Financial Review
The following review considers a number of our financial KPIs and sets out
other relevant financial information.
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 by 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.
Foreign exchange
The net impact of average 2022 exchange rates compared to 2021 averages has
been a 2022 tailwind of approximately £11m at a trading profit level, in
particular, due to the US Dollar, Brazilian Real and UAE Dirham.
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. The last date for receipt of elections from
shareholders for the Vesuvius Dividend Reinvestment Plan will be 9 May 2023.
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 Universal, which was acquired during 2021
1. 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.
£m 2022 Revenue 2021 Revenue % change
As reported Acquisitions / (disposals) Underlying As reported Currency Acquisition/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%
2. 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
our 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.
£m 2022 Trading profit 2021 Trading profit % change
As reported Acquisitions / (disposals) Underlying As reported Currency Acquisition/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%
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)
From 2022 onwards, the Group is using 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's 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%).
3. 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 31st 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 Bayuquan
Magnesium Co acquisition of £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.
4. 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 business geographically and to invest in
product innovation. We do so through targeted capital investment in new and
growing businesses and a combination of capital and human resource in emerging
markets. When considering other financial risks, we mitigate liquidity
concerns by financing, using both the bank and private placement markets. The
Group also seeks to avoid a concentration of debt maturities in any one period
to spread its refinancing risk. The Group's liquidity stood at £494m at 31st
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 and USA
are 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.
Principal Risks and Uncertainties
Risk Management
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 of
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.
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.
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 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.
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.
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 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 Risk 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.
2023 cyber incident
In February 2023, 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 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 further 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.
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 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.
Principal risks and uncertainties
Risk Potential impact Mitigation
End market risks
Vesuvius suffers an unplanned drop in demand, revenue and/ or margin because • Unplanned drop in demand and/or revenue due to reduced production by our • Geographic diversification of revenues
of market volatility beyond its control customers
• Product innovation and service offerings securing long-term revenue
• Margin reduction streams and maintaining performance differential
• Customer failure leading to increased bad debts • Increase in service and product lines by the development of the Technical
Services offering
• Loss of market share to competition
• R&D includes assessment of emerging technologies
• Cost pressures at customers leading to use of cheaper solutions
• 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 • Restricted access to market due to enforced preference of local suppliers • Highly diversified manufacturing footprint with manufacturing sites
from protectionism and globalisation
located in 26 countries
• Increased barriers to entry for new businesses or expansion
• Strong local management with delegated authority to run their businesses
• Increased costs from import duties, taxation or tariffs and manage customer relationships
• Loss of market share • 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 • Injury to staff and contractors • Quality management programmes including stringent quality control
parties suffer physical injury or financial loss because of failures in
standards, monitoring and reporting
Vesuvius products • Product or application failures lead to adverse financial impact or loss
of reputation as technology leader • Experienced technical staff knowledgeable in the application of our
products and technology
• Incident at customer plant caused manufacturing downtime or damage to
infrastructure • Targeted global insurance programme
• Customer claims from product quality issues • Experienced internal legal function controlling third-party contracting
Complex and changing regulatory environment
Vesuvius experiences a contracting customer base or increased transaction and • Revenue reduction from reduced end-market access • Compliance programmes and training across the Group
administrative costs due to compliance with changing regulatory requirements
• Disruption of supply chain and route to market • Internal Audit function
• Increased internal control processes • Experienced internal legal function including dedicated compliance
specialists
• Increased frequency of regulatory investigations
• Global procurement category management of strategic raw materials
• Trading restrictions
• Reputational damage
Failure to secure innovation
Vesuvius fails to achieve continuous improvement in its products, systems and • Product substitution by customers • Enduring and significant investment in R&D, with market-leading
services
research
• Increased competitive pressure through lack of differentiation of Vesuvius
offering • A shared strategy for innovation throughout the Group, deployed via our
R&D centres
• Commoditisation of product portfolio through lack of development
• Stage gate process from innovation to commercialisation to foster
• Lack of response to changing customer needs innovation and increase alignment with strategy
• Loss of intellectual property protection • Programme of manufacturing and process excellence
• Quality programme, focused on quality and consistency
• Stringent intellectual property registration and defence
Business interruption
Vesuvius loses production capacity or experiences supply chain disruption due • Loss/closure of a major plant temporarily or permanently impairing our • Diversified manufacturing footprint
to physical site damage (accident, fire, natural disaster, terrorism) or other ability to serve our customers
events such as industrial action, cyber attack or global health crises
• Disaster recovery planning
• Damage to or restriction in our ability to use assets
• Business continuity planning with strategic maintenance of excess capacity
• Denial of access to critical systems or control processes
• Physical and IT access controls, security systems and training
• Disruption of manufacturing processes
• Cyber risks integrated into wider risk-management structure
• Inability to source critical raw materials
• 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 • Organisational culture of high performance is not achieved • Internal focus on talent development and training, with tailored
instil an appropriate culture or fails to embed the right systems to drive
career-stage programmes and clear performance management strategies
personal performance in pursuit of the Group's long-term growth • Staff turnover in growing economies and regions
• Contacts with universities to identify and develop talent
• Stagnation of ideas and development opportunities
• Career path planning and global opportunities for high-potential staff
• Loss of expertise and critical business knowledge
• Internal programmes for the structured transfer of technical and other
• Reduced management pipeline for succession to senior positions knowledge
• Clearly defined Values underpin business culture
• Growing focus on enhancing gender diversity
Health and safety
Vesuvius staff or contractors are injured at work because of failures in • Injury to staff and contractors • Active safety programmes, with ongoing wide-ranging monitoring and safety
Vesuvius' operations, equipment or processes
training
• Health and safety breaches
• Independent safety audit team
• Manufacturing downtime or damage to infrastructure from incident at plant
• Quality management programmes including stringent manufacturing process
• Inability to attract the necessary workforce control standards, monitoring and reporting
• Reputational damage
Environmental, social and governance (ESG) criteria
Vesuvius fails to capitalise on the opportunity to help its customers • Loss of opportunity to grow sales • Development and implementation of a new Sustainability initiative, which
significantly reduce their carbon emissions as environmental pressure grows on
includes stretching targets focused on reducing the Group's energy usage,
the Steel Industry or Vesuvius fails to meet the expectations of its various • Loss of opportunity to increase margin CO(2) emissions, waste and recycled materials
stakeholders including employees and investors
• Loss of stakeholder confidence including Investors • R&D focus on products that assist customers to reduce carbon emissions
and improve their own sustainability measures
• Reputational damage
• 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 a 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
Group Income Statement 2022 2021
For the year ended 31 December 2022
((1)) Headline performance ((1)) Separately reported items Total ((1)) Headline performance ((1)) Separately reported items Total
Notes £m £m £m £m £m £m
Revenue 2 2,047.4 - 2,047.4 1,642.9 - 1,642.9
Manufacturing costs (1,475.9) - (1,475.9) (1,222.8) - (1,222.8)
Administration, selling and distribution costs (344.3) - (344.3) (277.7) - (277.7)
Trading profit 2 227.2 - 227.2 142.4 - 142.4
Amortisation of acquired intangible assets - (10.4) (10.4) - (9.7) (9.7)
Restructuring charges 3 - - - - - -
Vacant site remediation costs - - - - - -
GMP equalisation charge 10 - - - - - -
Operating profit/(loss) 227.2 (10.4) 216.8 142.4 (9.7) 132.7
Finance expense (20.8) - (20.8) (13.7) - (13.7)
Finance income 9.4 - 9.4 7.3 - 7.3
Net finance costs 4 (11.4) - (11.4) (6.4) - (6.4)
Share of post-tax income of joint ventures and associates 1.2 - 1.2 1.3 - 1.3
Profit/(loss) before tax 217.0 (10.4) 206.6 137.3 (9.7) 127.6
Income tax (charge)/credits 5 (57.2) 39.1 (18.1) (35.9) 16.2 (19.7)
Profit/(loss) 159.8 28.7 188.5 101.4 6.5 107.9
Profit/(loss) attributable to:
Owners of the parent 152.4 28.7 181.1 95.6 6.5 102.1
Non-controlling interests 7.4 - 7.4 5.8 - 5.8
Profit/(loss) 159.8 28.7 188.5 101.4 6.5 107.9
Earnings per share - pence 6
Total operations - basic 67.2 37.7
- 66.7 37.5
diluted
(1) Headline performance is defined in Note 16.1 and separately reported
items are defined in Note 1.5.
The above results were derived from continuing operations. The pre-tax
separately reported items would form part of Administration, selling &
distribution costs if classified within headline performance, which including
these amounts would total £354.7m (2021: £287.4m).
Group Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
£m £m
Profit 188.5 107.9
Items that will not subsequently be reclassified to income statement:
Remeasurement of defined benefit assets/liabilities 27.4 (80.6)
Income tax relating to items not reclassified (8.2) 12.5
Items that may subsequently be reclassified to income statement:
Exchange differences on translation of the net assets of foreign operations 96.7 (31.4)
Exchange differences on translation of net investment hedges (20.7) 14.4
Net change in costs of hedging - (1.2)
Change in the fair value of the hedging instrument 8.3 2.2
Amounts reclassified from the Income Statement (7.5) (0.7)
Other comprehensive income/(loss), net of income tax 96.0 (84.8)
Total comprehensive income 284.5 23.1
Total comprehensive income attributable to:
Owners of the parent 276.5 17.7
Non-controlling interests 8.0 5.4
Total comprehensive income 284.5 23.1
The above results were derived from continuing operations.
Group Statement of Cash Flows
For the year ended 31 December 2022
2022 2021
Notes £m £m
Cash flows from operating activities
Cash generated from operations 9 268.3 82.9
Interest paid (15.6) (11.9)
Interest received 6.3 4.3
Income taxes paid (47.9) (30.1)
Net cash inflow from operating activities 211.1 45.2
Cash flows from investing activities
Capital expenditure (89.2) (45.5)
Proceeds from the sale of property, plant and equipment 3.1 1.2
Acquisition of subsidiaries and joint ventures, net of cash acquired (3.5) (43.7)
Dividends received from joint ventures 1.3 1.0
Net cash outflow from investing activities (88.3) (87.0)
Net cash (outflow)/inflow before financing activities 122.8 (41.8)
Cash flows from financing activities
Proceeds from borrowings 18.7 89.4
Repayment of borrowings (55.7) (31.4)
Purchase of ESOP shares (6.9) (1.1)
Dividends paid to equity shareholders 7 (58.1) (55.5)
Dividends paid to non-controlling shareholders (3.2) (2.2)
Net cash outflow from financing activities (105.2) (0.8)
Net increase in cash and cash equivalents 8 17.6 (42.6)
Cash and cash equivalents at 1 January 162.4 206.8
Effect of exchange rate fluctuations on cash and cash equivalents 8 (0.2) (1.8)
Cash and cash equivalents at 31 December 179.8 162.4
Free cash flow from continuing operations (Note 16.11)
Net cash inflow from operating activities 211.1 45.2
Capital expenditure (89.2) (45.5)
Proceeds from the sale of property, plant and equipment 3.1 1.2
Dividends received from joint ventures 1.3 1.0
Dividends paid to non-controlling shareholders (3.2) (2.2)
Free cash flow(1) 16 123.1 (0.3)
(1) For definitions of non-GAAP measures, refer to Note 16
Group Balance Sheet
As at 31 December 2022
2022 2021
Notes £m £m
Assets
Property, plant and equipment 417.6 352.5
Intangible assets 737.5 696.8
Employee benefits - net surpluses 10 26.2 25.1
Interests in joint ventures and associates 13.0 12.8
Investments 15 0.5 0.5
Deferred tax assets 110.6 104.2
Other receivables 33.7 16.2
Derivative financial instruments 2.7 -
Total non-current assets 1,341.8 1,208.1
Cash and short-term deposits 8 184.2 169.1
Inventories 316.0 299.4
Trade and other receivables 476.9 445.2
Income tax receivable 15.3 7.6
Derivative financial instruments 15 0.1 0.1
Assets classified as held for sale - -
Total current assets 992.5 921.4
Total assets 2,334.3 2,129.5
Equity
Issued share capital 27.8 27.8
Retained earnings 2,623.8 2,483.4
Other reserves (1,391.4) (1,467.6)
Equity attributable to the owners of the parent 1,260.2 1,043.6
Non-controlling interests 59.4 54.6
Total equity 1,319.6 1,098.2
Liabilities
Interest-bearing borrowings 8 327.2 329.9
Employee benefits - net liabilities 10 82.3 102.1
Other payables 13.8 11.6
Provisions 14 49.3 32.6
Deferred tax liabilities 11.9 29.6
Derivative financial instruments 15 - 2.5
Total non-current liabilities 484.5 508.3
Interest-bearing borrowings 8 114.7 113.8
Trade and other payables 378.4 372.9
Income tax payable 19.6 18.1
Provisions 14 17.4 18.1
Derivative financial instruments 15 0.1 0.1
Total current liabilities 530.2 523.0
Total liabilities 1,014.7 1,031.3
Total equity and liabilities 2,334.3 2,129.5
Group Statement of Changes in Equity
For the year ended 31 December 2022
Issued share capital Other reserves Retained earnings Owners of the parent Non-controlling interests Total equity
£m £m £m £m £m £m
As at 1 January 2021 27.8 (1,451.3) 2,502.9 1,079.4 51.4 1,130.8
Profit - - 102.1 102.1 5.8 107.9
Remeasurement of defined benefit liabilities/assets - - (80.6) (80.6) - (80.6)
Income tax relating to items not reclassified - - 12.5 12.5 - 12.5
Exchange differences on translation of the net assets of foreign operations - (31.0) - (31.0) (0.4) (31.4)
Exchange differences on translation of net investment hedges - 14.4 - 14.4 - 14.4
Net change in costs of hedging - (1.2) - (1.2) - (1.2)
Change in the fair value of the hedging instrument - 2.2 - 2.2 - 2.2
Amounts reclassified from the Income Statement - (0.7) - (0.7) - (0.7)
Other comprehensive (loss), -net of income tax - (16.3) (68.1) (84.4) (0.4) (84.8)
Total comprehensive income (loss) - (16.3) 34.0 17.7 5.4 23.1
Recognition of share-based payments - - 3.1 3.1 - 3.1
Purchase of ESOP shares - - (1.1) (1.1) - (1.1)
Dividends paid (Note 7) - - (55.5) (55.5) (2.2) (57.7)
Total transactions with owners - - (53.5) (53.5) (2.2) (55.7)
As at 1 January 2022 27.8 (1,467.6) 2,483.4 1,043.6 54.6 1,098.2
Profit - - 181.1 181.1 7.4 188.5
Remeasurement of defined benefit liabilities/assets - - 27.4 27.4 - 27.4
Income tax relating to items not reclassified - - (8.2) (8.2) - (8.2)
Exchange differences on translation of the net assets of foreign operations - 96.1 - 96.1 0.6 96.7
Exchange differences on translation of net investment hedges - (20.7) - (20.7) - (20.7)
Net change in costs of hedging - - - - - -
Change in the fair value of the hedging instrument - 8.3 - 8.3 - 8.3
Amounts reclassified from the Income Statement - (7.5) - (7.5) - (7.5)
Other comprehensive income/(loss), net of income tax - 76.2 19.2 95.4 0.6 96.0
Total comprehensive income (loss) - 76.2 200.3 276.5 8.0 284.5
Recognition of share-based payments - - 5.1 5.1 - 5.1
Purchase of ESOP shares - - (6.9) (6.9) - (6.9)
Dividends paid (Note 7) - - (58.1) (58.1) (3.2) (61.3)
Total transactions with owners - - (59.9) (59.9) (3.2) (63.1)
As at 31 December 2022 27.8 (1,391.4) 2,623.8 1,260.2 59.4 1,319.6
Notes to the Group Financial Statements
1 Basis of preparation
1.1 Basis of preparation
The financial information in this preliminary announcement has been extracted
from the audited Group Financial Statements for the year ended 31 December
2022 and does not constitute statutory accounts within the meaning of section
434 of the Companies Act 2006. The Group Financial Statements and this
preliminary announcement were approved by the Board of Directors on 2 March
2023.
The auditors have reported on the Group Financial Statements for the years
ended 31 December 2022 and 31 December 2021 under section 495 of the Companies
Act 2006. The auditors' reports are unqualified and do not contain a statement
under section 498(2) or (3) of the Companies Act 2006. The Group's statutory
financial statements for the year ended 31 December 2021 have been filed with
the Registrar of Companies and those for the year ended 31 December 2022 will
be filed following the Company's Annual General Meeting.
The Group financial statements have been prepared in accordance with
UK-adopted international accounting standards (IFRS) and with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards. The financial statements have been prepared under the historical
cost convention, with the exception of fair value measurement applied to
defined benefit pension plans, investments and derivative financial
instruments.
The same accounting policies, presentation and computation methods are
followed in this preliminary announcement as in the preparation of the Group
Financial Statements. The accounting policies have been applied consistently
by the Group.
1.2 Basis of consolidation
The Group Financial Statements incorporate the financial statements of the
Company and entities controlled by the Company (its 'subsidiaries'). Control
exists when the Company has the power to direct the relevant activities of an
entity that significantly affect the entity's return so as to have rights to
the variable return from its activities. In assessing whether control exists,
potential voting rights that are currently exercisable are taken into account.
The results of subsidiaries acquired or disposed of during the year are
included in the Group Income Statement from the effective date of acquisition
or up to the effective date of disposal, as appropriate.
The principal accounting policies applied in the preparation of these Group
Financial Statements are set out in the Notes. These policies have been
consistently applied to all of the years presented, unless otherwise stated.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with those detailed
herein to ensure that the Group Financial Statements are prepared on a
consistent basis. All intra-Group transactions, balances, income and expenses
are eliminated on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified separately from the Group's interest therein. Non-controlling
interests consist of the amount of those interests at the date of the original
business combination together with the non-controlling interests' share of
profit or loss and each component of other comprehensive income, and dividends
since the date of the combination. Total comprehensive income is attributed to
the non-controlling interests even if this results in the non-controlling
interests having a deficit balance.
1.3 Going concern
The Group's available committed liquidity stood at £494m at year-end 2022, up
from £456m at year-end 2021, as a result of lower borrowings under the
Group's committed facilities and an increase in recorded cash balances. The
Directors have prepared cash flow forecasts for the Group for the period to 30
June 2024. These forecasts reflect an assessment of current and future
end-market conditions, which are expected to be challenging in 2023 and to
recover thereafter (as set out in the "outlook" statement in 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.
1.4 Functional and presentational currency
The financial statements are presented in millions of pounds sterling, which
is the functional currency of the Company, and rounded to one decimal place.
1.5 Disclosure of "separately reported items"
Columnar presentation
The Group has adopted a columnar presentation for its Group Income Statement,
to separately identify headline performance results, as the Directors consider
that this gives a useful view of the core results of the ongoing business. As
part of this presentation format, the Group has adopted a policy of disclosing
separately on the face of its Group Income Statement, within the column
entitled 'Separately reported items', the effect of any components of
financial performance for which the Directors consider separate disclosure
would assist users both in a useful understanding of the financial performance
achieved for a given year and in making projections of future results.
Separately reported items
Both materiality and the nature of the components of income and expense are
considered in deciding upon such presentation. Such items may include, inter
alia, the financial effect of exceptional items which occur infrequently, such
as major restructuring activity (which may require more than one year to
complete), significant movement in the Group's deferred tax balances such as
was, for example, caused by the impact of US tax reform in 2017, items
reported separately for consistency, such as amortisation charges relating to
acquired intangible assets, profits or losses arising on the disposal of
continuing or discontinued operations and the taxation impact of the
aforementioned items reported separately.
The amortisation charge in respect of intangible assets recognised on business
combinations is excluded from the trading results of the Group since they are
non-cash charges and are not considered reflective of the core trading
performance of the Group.
In its adoption of this policy, the Company applies an even-handed approach to
both gains and losses and aims to be both consistent and clear in its
accounting and disclosure of such items.
2 Segment information
Operating segments for continuing operations
The Group's operating segments are determined taking into consideration how
the Group's components are reported to the Group's Chief Executive Officer,
who make the key operating decisions and are responsible for allocating
resources and assessing performance of the component. Taking into account the
Group's management and internal reporting structure, the operating segments
are Steel Flow Control, Steel Advanced Refractories, Steel Sensors &
Probes and Foundry division. The principal activities of each of these
segments are described in the Operational Review.
Steel Flow Control, Steel Advanced Refractories and Steel Sensors & Probes
operating segments are aggregated into the Steel reportable segment. In
determining that aggregation is appropriate, judgement is applied which takes
into account the economic characteristics of these operating segments which
include a similar nature of products, customers, production processes and
margins.
Revenue from contracts with customers
Revenue comprises the fair value of the consideration received or receivable
for goods supplied and services rendered to customers after deducting rebates,
discounts and value-added taxes, and after eliminating sales within the Group.
Revenue from contracts with customers is recognised when control of the goods
or services are transferred to the customer, upon the completion of specified
performance obligations, at an amount that reflects the considerations to
which the Group expects to be entitled to in exchange for these consumable
products and associated services.
2.1 Income statement
2022
Flow Control Advanced Refractories Sensors Steel Foundry Total
& Probes
£m £m £m
Segment revenue 810.9 645.3 40.2 1,496.4 551.0 2,047.4
at a point in time 1,493.7 551.0 2,044.7
Over time 2.7 - 2.7
Segment adjusted EBITDA * 210.6 72.1 282.7
Segment depreciation and amortisation (37.9) (17.6) (55.5)
Segment trading profit 172.7 54.5 227.2
Return on sales margin 11.5% 9.9% 11.1%
Amortisation of acquired intangible assets (10.4)
Operating profit 216.8
Net finance costs (11.4)
Share of post-tax profit of joint ventures 1.2
Profit before tax 206.6
Capital expenditure additions 85.2 18.7 103.9
Inventory 259.6 56.4 316.0
Trade debtors 288.0 92.8 380.8
Trade creditors (177.2) (62.3) (239.5)
2021
Flow Control Advanced Refractories Sensors Steel Foundry Total
& Probes
£m £m £m
Segment revenue 648.7 489.1 33.7 1,171.5 471.4 1,642.9
at a point in time 1,169.9 471.4 1,641.3
Over time 1.6 - 1.6
Segment adjusted EBITDA * 135.9 56.3 192.2
Segment depreciation (33.9) (15.9) (49.8)
Segment trading profit 102.0 40.4 142.4
Return on sales margin 8.7% 8.6% 8.7%
Amortisation of acquired intangible assets (9.7)
Operating profit 132.7
Net finance costs (6.4)
Share of post-tax profit of joint ventures 1.3
Profit before tax 127.6
Capital expenditure additions 47.2 20.2 67.4
Inventory 248.1 51.3 299.4
Trade debtors 267.5 84.7 352.2
Trade creditors (191.3) (62.5) (253.8)
* Adjusted EBITDA is defined in note 16.13
3 Restructuring charges
There were no restructuring charges in 2022 (2021: £nil).
Cash costs of £1.5m (2021: £4.0m) (Note 14) were incurred in the year in
respect of previously announced restructuring
programmes, leaving provisions made but unspent of £3.6m (Note 14) as at 31
December 2022 (2021: £5.0m).
4 Net finance costs
2022 2021
£m £m
Interest payable on borrowings
Loans, overdrafts and factoring arrangements 15.4 10.7
Interest on lease liabilities 1.9 1.5
Amortisation of capitalised borrowing costs 1.0 0.8
Total interest payable on borrowings 18.3 13.0
Interest on net retirement benefits obligations 1.4 (0.3)
Adjustments to discounts on provisions and other liabilities 1.1 0.7
Adjustments to discounts on receivables (0.6) (0.3)
Finance income (8.8) (6.7)
Total net finance costs 11.4 6.4
Within the table above, total finance costs are £20.8m (2021: £13.7m) and
total finance income is £9.4m (2021: £7.3m). Net finance costs are £11.4m
(2021: £6.4m).
5 Income tax
The Group's headline effective tax rate, based on the income tax costs
associated with headline performance of £57.2m (2021: £35.9m), was 26.5%
(2021: 26.4%).
The Group's total income tax costs include a credit on separately reported
items of £39.1m (2021: £16.2m), comprising a credit of £36.4m (2021:
£16.0m) relating to the recognition of previously unrecognised deferred tax
assets and a credit of £2.7m (2021: £0.2m credit) relating to the
amortisation of intangible assets.
The net tax charge reflected in the Group Statement of Comprehensive Income in
the year amounted to £8.2m (2021: £13.0m credit), comprising: A £6.7m
charge (2021: £12.5m credit) in respect of tax on net actuarial gains and
losses on the employee benefits and a £1.5m charge (2021: £nil) in respect
of deferred tax rate changes and £nil (2021 £0.5m credit) in respect of
exchange adjustments.
6 Earnings per share ("EPS")
6.1 Earnings for EPS
Basic and diluted EPS from continuing operations are based upon the profit
attributable to owners of the parent, as reported in the Group Income
Statement. The table below reconciles these different profit measures.
2022 2021
£m £m
Profit attributable to owners of the parent 181.1 102.1
Adjustments for separately reported items:
Amortisation of intangible assets 10.4 9.7
Restructuring charges - -
Vacant site remediation costs - -
GMP equalisation charge - -
Income tax (credit)/charge (39.1) (16.2)
Headline profit attributable to owners of the parent 152.4 95.6
6.2 Weighted average number of shares
2022 2021
millions millions
For calculating basic and headline EPS 269.6 270.5
Adjustment for dilutive potential ordinary shares 1.9 1.8
For calculating diluted and diluted headline EPS 271.5 272.3
For the purposes of calculating diluted and diluted headline EPS, the weighted
average number of ordinary shares is adjusted to include the weighted average
number of ordinary shares that would be issued on the conversion of all
potentially dilutive ordinary shares expected to vest, relating to the
Company's share-based payment plans. Potential ordinary shares are only
treated as dilutive when their conversion to ordinary shares would decrease
EPS or increase loss per share.
6.3 Per share amounts
2022 2021
pence pence
Earnings per share - basic 67.2 37.7
- diluted 66.7 37.5
- 56.5 35.3
headline
- diluted 56.1 35.1
headline
7 Dividends
2022 2021
£m £m
Amounts recognised as dividends and paid to equity holders during the period
Final dividend for the year ended 31 December 2020 of 14.3p per ordinary share - 38.7
Interim dividend for the year ended 31 December 2021 of 6.2p per ordinary - 16.8
share
Final dividend for the year ended 31 December 2021 of 15.0p per ordinary share 40.5 -
Interim dividend for the year ended 31 December 2022 of 6.5p per ordinary 17.6 -
share
58.1 55.5
A proposed final dividend for the year ended 31 December 2022 of £42.3m
(2021: £40.5m), equivalent to 15.75 pence (2021: 15.0 pence) per ordinary
share, is subject to approval by shareholders at the Company's Annual General
Meeting on 18 May 2023 and has not been included as a liability in these
financial statements. If approved by shareholders, the dividend will be paid
on 31 May 2022 to holders of ordinary shares on the register on 21 April 2023.
8 Reconciliation of movement in net debt
Balance as at Foreign exchange adjustments Fair value Non-cash movements(()(1)) Cash flow Balance as at 31 Dec 2022
1 Jan 2022 gains/
(losses)
£m £m £m £m £m
Cash and cash equivalents
Cash at bank and in hand 169.1 0.1 - - 15.0 184.2
Short term deposits - - - - - -
Bank overdrafts (6.7) (0.3) - - 2.6 (4.4)
162.4 (0.2) - - 17.6 179.8
Borrowings, excluding bank overdrafts (440.3) (25.4) - (11.5) 37.0 (440.2)
Capitalised borrowing costs 3.3 - - (0.6) - 2.7
Derivative financial instruments (2.5) - 5.2 - - 2.7
Net debt (277.1) (25.6) 5.2 (12.1) 54.6 (255.0)
(1) £11.5m (2021: £17.1m) of new leases were entered into during the
year.
9 Cash generated from operations
2022 2021
£m £m
Operating profit 216.8 132.7
Adjustments for:
Amortisation of intangible assets 10.4 9.7
Restructuring charges - -
Vacant site remediation costs - -
GMP equalisation charge - -
Trading Profit 227.2 142.4
(Profit)/Loss on disposal of non-current assets (0.1) 0.4
Depreciation and amortisation 55.5 49.8
Defined benefit retirement plans net charge 5.6 6.4
Net decrease/(increase) in inventories 2.2 (113.5)
Net increase in trade receivables (9.2) (53.5)
Net (decrease)/increase in trade payables (28.0) 70.6
Net decrease/(increase) in other working capital 24.7 (5.5)
Outflow related to restructuring charges (1.5) (4.0)
Defined benefit retirement plans cash outflows (6.3) (7.2)
Vacant site remediation costs paid (1.8) (3.0)
Cash generated from operations 268.3 82.9
10 Employee benefits
The net employee benefits liability as at 31 December 2022 was £56.1m (2021:
£77.0m) derived from an actuarial valuation of the Group's defined benefit
pension and other post-retirement obligations as at that date. There has been
a decrease in the liabilities of German and Belgian plans due to an increase
in bond yields.
All 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.
As disclosed in note 26 of the 2021 Annual Report and Financial Statements,
the above amounts may materially change in the next 12 months if there is a
change in assumptions.
2022 2021
£m £m
Employee benefits - net surpluses
UK defined benefit pension plans 24.5 23.7
ROW defined benefit pension plans 1.7 1.4
Net surpluses 26.2 25.1
Employee benefits - net liabilities
UK defined benefit pension plans (1.1) (1.6)
US defined benefit pension plans (22.5) (21.9)
Germany defined benefit pension plans (38.4) (53.3)
ROW defined benefit pension plans (10.9) (18.3)
Other post-retirement benefit plans (9.4) (7.0)
Net liabilities (82.3) (102.1)
Total liabilities (56.1) (77.0)
The expense recognised in the Group Income Statement in respect of the Group's
defined benefit retirement plans and other post-retirement benefit plans is
shown below.
2022 2021
£m £m
In arriving at trading profit - within other manufacturing costs 1.7 1.8
(as defined in Note 16)
- within administration, selling and distribution costs 3.9 4.6
In arriving at profit before tax - within net finance costs 1.4 (0.3)
Total net charge 7.0 6.1
11 Contingent liabilities
Vesuvius has extensive international operations and
is subject to various legal and regulatory regimes, including those covering
taxation and environmental matters.
Certain of Vesuvius' subsidiaries are subject to
legacy matter lawsuits, predominantly in the US, relating to a small number of
products containing asbestos manufactured prior to the acquisition of those
subsidiaries by Vesuvius. These suits usually also name many other product
manufacturers. To date, Vesuvius is not aware of there being any liability
verdicts against any of these subsidiaries. Each year a number of these
lawsuits are withdrawn, dismissed or settled. The amount paid, including
costs, in relation to this litigation has not had a material adverse effect on
Vesuvius' financial position or results of operations.
As the settlement of many of the obligations for which reserve is made is
subject to legal or other regulatory process, the timing and amount of the
associated outflows is subject to some uncertainty (see Note 30 of the 2021
Annual Report and Financial Statements for further information). The amount
paid, including costs in relation to this litigation, has not had a material
effect on Vesuvius' financial position or results of operations in the current
period.
12 Related parties
The nature of related party transactions in 2022 are in line with those
transactions disclosed in Note 34 of the 2022 Annual Report and Financial
Statements. All transactions with related parties are conducted on an arm's
length basis and in accordance with normal business terms. Transactions with
joint ventures and associates are consistent with those disclosed in Note 34
of the 2022 Annual Report and Financial Statements. Transactions between
related parties that are Group subsidiaries are eliminated on consolidation.
2022 2021
Transactions with joint ventures and associates £m £m
Sales to joint ventures 5.3 4.8
Purchases from joint ventures 32.3 31.5
Purchases from associates - -
Dividends received from joint ventures 1.3 1.0
Trade payables owed to joint ventures 6.7 10.3
Trade receivables from joint ventures 0.7 1.3
13 Acquisitions and divestments
Universal Refractories
On 6 December 2021, Vesuvius plc acquired the trade and assets of Universal
Refractories Inc. (URI), a specialty refractory producer based in
Pennsylvania, USA, which is focused on tundish (steel continuous casting)
applications as well as consumable products for the foundry industry. It has
become part of the Group's Steel Advanced Refractories business unit, with the
exception of the ladle liners business which has been absorbed by our Foundry
Division (<10% of sales). The transaction valued URI at an enterprise value
of $57.1m (£42.6m) on a cash and debt-free basis and was funded from
Vesuvius' internal resources.
The fair values of the assets and liabilities recognised as a result of the
acquisition have been updated during the year ended 31 December 2022.There was
a decrease of £1.1m to net identifiable assets acquired, largely due to a
reduction in non-compete intangible assets of £0.9m. There was also a
decrease of £0.5m to consideration.
Book value Fair value adjustments Adjusted value
£m £m £m
Property, plant and equipment 4.5 6.9 11.4
Intangible asset (customer relationships and know-how) - 11.3 11.3
Inventories 5.0 1.3 6.3
Receivables 5.5 - 5.5
Payables (1.9) (0.6) (2.5)
Borrowings (5.4) - (5.4)
Deferred tax - (2.8) (2.8)
Net identifiable assets acquired 7.7 16.1 23.8
Goodwill 13.9
Consideration 37.7
The goodwill is attributable to URI's reputation in the marketplace and the
synergies that Vesuvius expects to gain from its integration It is expected to
be tax deductible.
Included within the property, plant and equipment acquired were right of use
leased assets of £0.2m.
The decision to acquire URI was driven by its long-standing customer
relationships and know-how. The identifiable intangible assets acquired are
customer relationships and know-how. A deferred tax liability of £2.8m has
been provided in relation to these fair value adjustments.
On acquisition, URI was subsumed into the Steel Advanced Refractories
activities business unit and the Foundry Division and goodwill is monitored at
the level of the Steel Advanced Refractories operating segment.
The net cash outflow on acquisition was £43.1m, including related excess
working capital payment, the business was acquired on a cash and debt-free
basis. In accordance with IFRS3, we disclose above consideration of £37.7m
and borrowings repaid immediately prior to acquisition of £5.4m.
The Group did not acquire any material interests in any companies during the
year ended 31 December 2022.
There was no contingent consideration paid during the year ended 31 December
2022. Contingent consideration of £0.1m was paid during 2021 in respect of
the previous acquisition of Ecil Met Tec.
14 Provisions
Disposal and closure costs Restructuring charges Other Total
£m £m £m £m
As at 1 January 2021 42.2 9.2 5.4 56.8
Exchange adjustments 0.3 (0.2) - 0.1
Charge to Group Income Statement - trading profit 7.4 - 9.2 16.6
Adjustment to discount 0.7 - - 0.7
Cash spend (8.9) (4.0) (10.6) (23.5)
As at 31 December 2021 41.7 5.0 4.0 50.7
Disposal and closure costs Restructuring charges Other Total
£m £m £m £m
As at 1 January 2022 41.7 5.0 4.0 50.7
Exchange adjustments 5.0 0.6 0.3 5.9
Charge to Group Income Statement - trading profit 16.7 - 11.4 28.1
Adjustment to discount 1.1 - - 1.1
Cash spend (6.8) (1.5) (10.3) (18.6)
Transferred (to)/from other balance sheet accounts - (0.5) - (0.5)
As at 31 December 2022 57.7 3.6 5.4 66.7
In assessing the probable costs and realisation certainty of provisions, or
related assets, reasonable assumptions are made. Changes to the assumptions
used could significantly alter the Directors' assessment of the value, timing
or certainty of the costs or related amounts.
15 Financial instruments
The Group's financial assets and liabilities are measured as appropriate
either at amortised cost or at fair value through other comprehensive income
or at fair value through profit and loss.
IFRS 13 Fair Value Measurement requires classification of financial
instruments within a hierarchy that prioritises the inputs to fair value
measurement. The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or
liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly;
Level 3 - Inputs that are not based on observable market data.
The following table summarises Vesuvius' financial instruments measured at
fair value, and shows the level within the fair value hierarchy in which the
financial instruments have been classified:
2022 2021
Assets Liabilities Assets Liabilities
£m £m £m £m
Investments (Level 2) 0.5 - 0.5 -
Derivatives not designated for hedge accounting purposes (level 2) 0.1 (0.1) 0.1 (0.3)
Derivatives designated for hedge accounting purposes (level 2) 2.7 - - (2.3)
All of the derivative financial instruments not designated for hedge
accounting purposes reported in the table above will mature within a year of
the balance sheet date. There were no transfers between fair value hierarchies
during the period. The method for determining the hierarchy and for valuing
the financial instruments is consistent with that used at year-end, as
disclosed in Note 25 of the 2022 Annual Report and Financial Statements.
Fair value disclosures have not been made in respect of other financial assets
and liabilities on the basis that the carrying amount is deemed to be a
reasonable approximation of fair value.
The Group's Treasury department, acting in accordance with policies approved
by the Board, is principally responsible for managing the financial risks
faced by the Group. The Group's activities expose it to a variety of financial
risks, the most significant of which are market risk and liquidity risk. The
condensed financial statements do not include all financial risk management
information and disclosures required in the annual financial statements; they
should be read in conjunction with the Group's 2022 Annual Report and
Financial Statements, in which further details of these financial risks were
disclosed in Note 25. There have been no changes in the risk management
policies since year-end.
In June 2020 the Group executed a $86.0m Cross currency interest rate swap
('CCIRS'). The effect of this is to convert the $86.0m Private Placement Notes
issued in June 2020 into €76.6m. The timing and amount of the US Dollar
cashflows under the CCIRS exactly mirror those of the Private Placement Notes
and the maturity date of the CCIRS also matches the repayment date of the
Notes. The CCIRS would by default be revalued through the Income Statement;
however as it is in a designated hedging relationship it is instead revalued
through Other Comprehensive Income. More specifically, the US Dollar exposure
is designated as a cashflow hedge of the underlying Private Placement Notes
and the Euro exposure is designated as a net investment hedge of part of the
Group's foreign operations. The CCIRS is presented as a non-current asset or
liability as it is expected to be settled more than 12 months after the end of
the reporting period.
With the exception of the CCIRS the fair value of Derivatives outstanding at
31 December 2022 has been booked through the Income Statement. All of the
fair values shown in the table above are classified under IFRS 13 as Level 2
measurements which have been calculated using quoted prices from active
markets, where similar contracts are traded and the quotes reflect actual
transactions in similar instruments. All of the derivative assets and
liabilities not designated for hedge accounting purposes reported in the table
above will mature within a year of the balance sheet date.
As at 31 December 2022, €246.0m and $60.0m of borrowings were designated as
hedges of net investments in €246.0m and $60.0m worth of overseas foreign
operations. In addition, the €76.6m CCIRS liability has been designated as a
net investment hedge of a further €76.6m worth of overseas foreign
operations.
As the value of the borrowings and the CCIRS liability exactly matches the
designated hedged portion of the net investments, the relevant hedge ratio is
1:1. The net investment hedges are therefore highly effective. It is noted
that hedge ineffectiveness would arise in the event there were insufficient
euro-denominated overseas foreign operations to be matched against the
€76.6m CCIRS liability.
As at 31 December 2022, the Group had $146.0m, €198.0m and £28.0m (£323.9m
in total) of US Private Placement Loan Notes (USPP) outstanding, which carry a
fixed rate of interest, representing 81% of the Group's total borrowings
outstanding at that date. The interest rate profile of the Group's
borrowings is detailed in the tables below.
Fixed rate Floating rate Total
£m £m £m
Sterling 28.0 33.3 61.3
US dollar 120.7 1.9 122.6
Euro 175.2 44.8 220.0
Capitalised arrangement fees (0.9) (1.8) (2.7)
As at 31 December 2022 323.0 78.2 401.2
Sterling 28.0 76.4 104.4
US dollar 107.9 1.2 109.1
Euro 166.4 27.2 193.6
Capitalised arrangement fees (1.2) (2.1) (3.3)
As at 31 December 2021 301.1 102.7 403.8
In July 2022 the Group exercised its option to request a one year extension to
the maturity of its £385m committed bank facility. Following this request
£346.5m of the facility matures in August 2026 with £38.5m maturing in July
2025.
As at 31 December 2022, the Group had committed borrowing facilities of
£721.9m (2021: £706.3m), of which £322.5m (2021: £308.1m) were undrawn.
90% of these undrawn facilities are due to expire in August 2026. The
Group's borrowing requirements are met by USPP, a multi-currency committed
syndicated bank facility of £385.0m (2021: £385.0m) and a bilateral bank
facility of £13.0m (2021: £21.0m) which is fully collateralised against a
portion of the Group's cash balance in China.
The maturity analysis of the Group's non-derivative financial liabilities is
shown in the tables below.
As at 31 December 2022 Within one year Between 1-2 years Between 2-5 years Over 5 years Total contractual cash flows Carrying amount
£m
£m £m £m £m
Trade payables 239.5 - - - 239.5 239.5
Loans & overdrafts 52.6 9.2 255.3 133.4 450.5 403.9
Lease liabilities 12.3 9.2 13.2 13.5 48.2 40.8
Capitalised arrangement fees - - - - - (2.7)
Derivative liability 0.1 - - - 0.1 0.1
Total financial liabilities 304.5 18.4 268.5 146.9 738.3 681.6
As at 31 December 2021 Within one year Between Between Over 5 years Total contractual cash flows Carrying amount
1-2 years 2-5 years £m
£m £m
£m £m
Trade payables 253.8 - - - 253.8 253.8
Loans & overdrafts 37.4 9.6 178.2 235.0 460.2 407.1
Lease liabilities 11.6 9.2 13.4 13.2 47.4 39.9
Capitalised arrangement fees - - - - - (3.3)
Derivative liability (0.6) (0.6) (0.6) 0.2 (1.6) 2.6
Total financial liabilities 302.2 18.2 191.0 248.4 759.8 700.1
16 Alternative Performance Measures
The Company uses a number of alternative performance measures (APMs) in
addition to those reported in accordance with IFRS. The Directors believe that
these APMs, listed below, are important when assessing the underlying
financial and operating performance of the Group and its divisions, providing
management with key insights and metrics in support of the ongoing management
of the Group's performance and cash flow. A number of these align with KPIs
and other key metrics used in the business and therefore are considered useful
to also disclose to the users of the financial statements. The following APMs
do not have standardised meaning prescribed by IFRS as adopted by the EU and
therefore may not be directly comparable with similar measures presented by
other companies.
16.1 Headline performance
Headline performance, reported separately on the face of the Group Income
Statement, is from continuing operations and before items reported separately
on the face of the Group Income Statement.
16.2 Underlying revenue, underlying trading profit and underlying return on sales
Underlying revenue, underlying trading profit and underlying return on sales
are the headline equivalents of these measures after adjustments to exclude
the effects of changes in exchange rates, business acquisitions and disposals.
Reconciliations of underlying revenue and underlying trading profit can be
found in the Financial Summary. Underlying revenue growth is one of the
Group's key performance indicators and provides an important measure of
organic growth of Group businesses between reporting periods, by eliminating
the impact of exchange rates, acquisitions, disposals and significant business
closures.
16.3 Return on sales ('ROS')
ROS is calculated as trading profit divided by revenue. It is one of the
Group's key performance indicators and is used to assess the trading
performance of Group businesses. A reconciliation of ROS is included in Note
2.
16.4 Trading profit/adjusted EBITA
Trading profit/adjusted EBITA is defined as operating profit before separately
reported items. It is one of the Group's key performance indicators and is
used to assess the trading performance of Group businesses. It is also used as
one of the targets against which the annual bonuses of certain employees are
measured.
16.5 Headline profit before tax
Headline profit before tax is calculated as the net total of trading profit,
plus the Group's share of post-tax profit of joint ventures and total net
finance costs associated with headline performance. It is one of the Group's
key performance indicators and is used to assess the financial performance of
the Group as a whole.
16.6 Headline effective tax rate ('ETR')
The Group's headline ETR is calculated on the income tax costs associated with
headline performance, divided by headline profit before tax and before the
Group's share of post-tax profit of joint ventures.
16.7 Headline earnings
Headline earnings is profit after tax before separately reported items
attributable to owners of the parent.
16.8 Headline earnings per share
Headline earnings per share is calculated by dividing headline profit before
tax less associated income tax costs, attributable to owners of the parent by
the weighted average number of ordinary shares in issue during the year. It is
one of the Group's key performance indicators and is used to assess the
underlying earnings performance of the Group as a whole. It is also used as
one of the targets against which the annual bonuses of certain employees are
measured. Headline earnings per share is disclosed in Note 6.
16.9 Adjusted operating cash flow
Adjusted operating cash flow is cash generated from operations before
restructuring and vacant site remediation costs but after deducting capital
expenditure net of asset disposals. It is used in calculating the Group's cash
conversion.
2022 2021
£m £m
Cash generated from operations 268.3 82.9
Add: Outflows relating to restructuring charges 1.5 4.0
Less: Capital expenditure (89.2) (45.5)
Add: Vacant site remediation costs 1.8 3.0
Add: Proceeds from the sale of property, plant and equipment 3.1 1.2
Adjusted operating cash flow 185.5 45.6
Trading Profit 227.2 142.4
Cash Conversion 82% 32%
16.10 Cash conversion
Cash conversion is calculated as adjusted operating cash flow divided by
trading profit. It is useful for measuring the rate at which cash is generated
from trading profit. It is also used as one of the targets against which the
annual bonuses of certain employees are measured. The calculation of cash
conversion is detailed in Note 16.9 above
16.11 Free cash flow
Free cash flow is defined as net cash flow from operating activities after net
outlays for the purchase and sale of property, plant and equipment, dividends
from joint ventures and dividends paid to non-controlling shareholders. It is
one of the Group's KPIs and is used to assess the underlying cash generation
of the Group and is one of the measures used in monitoring the Group's
capital. A reconciliation of free cash flow is included underneath the Group
Statement of Cash Flows.
16.12 Average trade working capital to sales ratio
The average trade working capital to sales ratio is calculated as the
percentage of average trade working capital balances to the total revenue for
the previous 12 months, at constant currency. Average trade working capital
(comprising inventories, trade receivables and trade payables) is calculated
as the average of the 13 previous month-end balances. It is one of the Group's
key performance indicators and is useful for measuring the level of working
capital used in the business and is one of the measures used in monitoring the
Group's capital.
2022 2021
£m £m
Average trade working capital 487.3 344.2
Total revenue 2,047.4 1,642.9
Average trade working capital to sales ratio 23.8% 20.9%
16.13 Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA)
Adjusted EBITDA is calculated as the total of trading profit before
depreciation and amortisation of non-acquired intangibles charges. It is used
in the calculation of the Group's interest cover and net debt to adjusted
EBITDA ratios. A reconciliation of adjusted EBITDA is included in Note 2.
16.14 Net interest payable on borrowings
Net interest payable on borrowings is calculated as total interest payable on
borrowings less finance income, excluding interest on net retirement benefit
obligations, adjustments to discounts and any item separately reported. It is
used in the calculation of the Group's interest cover ratio.
2022 2021
£m £m
Total interest payable on borrowings (note 4) 18.3 13.0
Finance income (note 4) (8.8) (6.7)
Net interest payable on borrowings 9.5 6.3
16.15 Interest cover
Interest cover is the ratio of adjusted EBITDA to net interest payable on
borrowings for the last 12 months. It is one of the Group's key performance
indicators and is used to assess the financial position of the Group and its
ability to fund future growth. This measure is also a component of the Group's
covenant calculations.
2022 2021
£m £m
Adjusted EBITDA (note 2) 282.7 192.2
Net interest payable on borrowings 9.5 6.3
Interest cover 29.8x 30.5x
16.16 Net debt
Net debt comprises the net total of current and non-current interest-bearing
borrowings (including IFRS16 lease liabilities), cash and short-term deposits
and derivative financial instruments. Net debt is a measure of the Group's net
indebtedness to banks and other external financial institutions. A
reconciliation of the movement in net debt is included in Note 8.
16.17 Net debt to adjusted EBITDA
Net debt to adjusted EBITDA is the ratio of net debt at the year-end to
adjusted EBITDA for the last 12 months. It is one of the Group's key
performance indicators and is used to assess the financial position of the
Group and its ability to fund future growth and is one of the measures used in
monitoring the Group's capital.
2022 2021
£m £m
Net debt (note 8) 255.0 277.1
Adjusted EBITDA (note 2) 282.7 192.2
Net debt to adjusted EBITDA 0.9x 1.4x
16.18 Return on invested capital (ROIC)
The Group has adopted ROIC as its key measure of return from the Group's
invested capital. The RONA performance measure has been replaced with ROIC
which provides a more complete measure of Vesuvius's returns. ROIC is
calculated as trading profit less amortisation of acquired intangibles plus
share of post-tax profit of joint ventures and associates for the previous 12
months after tax, divided by the average (being the average of the opening and
closing balance sheet) invested capital (defined as: total assets excluding
cash plus non-interest-bearing liabilities), at the average foreign exchange
rate for the year.
2022 2021
£m £m
Average invested capital 1,503.6 1,329.1
Trading profit (note 16.4) 227.2 142.4
Amortisation of acquired intangible assets (10.4) (9.7)
Share of post-tax profit from joint ventures and associates 1.2 1.3
Tax on trading profit and amortisation of acquired intangible assets (57.5) (35.1)
160.5 98.9
ROIC 10.7% 7.5%
16.19 Constant currency
Figures presented at constant currency represent 2021 amounts retranslated at
average 2022 exchange rates.
16.20 Liquidity
Liquidity is the Group's cash and short term deposits plus undrawn committed
debt facilities less cash used as collateral on loans.
2022 2021
£m £m
Cash 184.2 169.1
Undrawn committed debt facilities 322.5 308.1
Cash used as collateral on loans (13.0) (21.0)
Gross up of cash in notional pools (0.1) (0.5)
Liquidity 493.6 455.7
16.21 Last twelve months ('LTM')
Some results are presented or calculated using data from the last twelve
months from the reference date.
17 Exchange rates
The Group reports its results in pounds sterling. A substantial portion of the
Group's revenue and profits are denominated in currencies other than pounds
sterling. It is the Group's policy to translate the income statements and cash
flow statements of its overseas operations into pounds sterling using average
exchange rates for the year reported (except when the use of average rates
does not approximate the exchange rate at the date of the transaction, in
which case the transaction rate is used) and to translate balance sheets using
year-end rates. The principal exchange rates used were as follows:
Income and expense Assets and liabilities
Average rates Year-end rates
2022 2021 Change 2022 2021 Change
US Dollar 1.24 1.38 (10.1%) 1.21 1.35 (10.4%)
Euro 1.17 1.16 0.9% 1.13 1.19 (5.0%)
Chinese Renminbi 8.31 8.87 (6.3%) 8.37 8.61 (2.8%)
Japanese Yen 161.86 151.06 7.1% 158.60 155.69 1.9%
Brazilian Real 6.38 7.42 (14.0%) 6.39 7.54 (15.3%)
Indian Rupee 96.99 101.67 (4.6%) 100.06 100.75 (0.7%)
South African Rand 20.16 20.32 (0.8%) 20.57 21.64 (4.9%)
18 Events after the Balance Sheet date
Cyber incident
We informed the market on 6 February 2023 that we had suffered a cyber
security incident. In order to contain the threat, we voluntarily shutdown our
systems on a precautionary basis. During this period our sites instigated
manual procedures and work arounds to maintain production, shipping and
invoicing which minimised the disruption. The initial period of disruption has
been short, and all significant systems are now fully operational. There has
been no impact on the financial results reported for the year ended 31
December 2022 and we expect that the impact on the 2023 financial results will
not be material.
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