REG - Vesuvius plc - Full Year Results 31 December 2021
03/03/2022 07:00
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RNS Number : 4603D Vesuvius plc 03 March 2022
3 March 2022
Full Year Results for the twelve months ended 31 December 2021
Successful implementation of our growth strategy and 2021 cost inflation fully
passed through by year-end
Vesuvius plc, a global leader in molten metal flow engineering and technology,
announces its audited results for the twelve months ended 31 December 2021.
Financial summary 2021 2020 Year-on-year change Underlying change((1))
(£m) (£m)
Revenue 1,642.9 1,458.3 +13% +18%
Trading Profit ((2)) (EBITA) 142.4 101.4 +40% +50%
Return on Sales ((2)) 8.7% 7.0% +170 bps +190 bps
Operating Profit 132.7 74.3 +79%
Headline Profit Before Tax ((2)) 137.3 91.6 +50%
Profit Before Tax 127.6 64.5 +98%
Profit 107.9 45.8 +136%
Headline Earnings ((2) ) 95.6 62.7 +53%
Headline EPS ((2)) (pence) 35.3 23.2 +52%
Statutory EPS (pence) 37.7 15.3 +146%
Adjusted operating cash flow ((2) ) 45.6 172.9 -74%
Cash generated from operations 82.9 193.7 -57%
Net Debt ((2)) 277.1 175.1 +58%
Dividend (pence per share) 21.2p 17.4p +22%
( )
( (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 2021 Highlights
· Revenue of £1,642.9m, an increase of 18% on an underlying
basis, reflecting general market recovery and market share gains in the Flow
Control and Foundry divisions, where sales increased on an underlying basis by
21% and 20%, respectively
· More moderate growth in Advanced Refractories (+11%) with
priority given to price increases over volumes
· Cost inflation in 2021 fully passed through to customers by
year-end but negative trading profit impact of £14m during the year due to
timing differences between cost and price increases
· Despite the £14m above, trading profit increased 50% on an
underlying basis to £142.4m, with return on sales up 190bps to 8.7%
· Proposed final dividend of 15.0p, bringing the full year
dividend to 21.2p, 22% higher than in 2020
· Successful acquisition of the business of Universal
Refractories reinforces our presence in the fast-growing Electric Arc Furnace
sector in the USA
· Strategic capacity expansion in Flow Control in Asia and EMEA is
on track to be operational from end 2022 and will support growth going forward
· Trade working capital/sales improved to 20.9% (12m average),
versus 23.2% in 2020
· Net debt/EBITDA of 1.4x at 31 December 2021, despite
acquisition of Universal Refractories
· Successful refinancing of our revolving credit facility which
was increased in size from £300m to £385m
· 24% reduction in CO(2) equivalent ("CO(2)e") per metric tonne
of product packed for shipment since 2017
Comment from Patrick André, CEO:
"Both our end markets of Steel and Foundry remain positively oriented at the
start of 2022. In 2021, Vesuvius demonstrated its ability to successfully
pass-through cost inflation through price increases and will continue to do so
in 2022, as necessary. Strategic R&D and capacity investments are
proceeding as planned and will support market share gains going forward. While
we remain concerned about the potential direct and indirect impacts of recent
geopolitical events, which have led us to suspend our deliveries to Russian
customers for the duration of hostilities, we are nevertheless confident that
the Group will deliver a significant improvement in financial performance in
2022."
Presentation of Full Year 2021 Results
Vesuvius management will make a presentation to analysts and investors on 3
March, 2022 at 09.30 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/fc50ccdf-5441-449e-ad64-5082be00d6cf)
. Participants can also join via an audio conference call. Please click here
(https://cossprereg.btci.com/prereg/key.process?key=PA6LDY4TD) 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
Guy Young, Chief Financial Officer +44 (0) 207 822 0000
Euan Drysdale, Group Head of Corporate Finance +44 (0) 7584 641 315
Media enquiries:
MHP Communications Andrew Jaques/ 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 for
everyone.
Forward looking statements
This announcement contains certain forward looking statements which may
include reference to one or more of the following: the Group's financial
condition, results of operations, cash flows, dividends, financing plans,
business strategies, operating efficiencies or synergies, budgets, capital and
other expenditures, competitive positions, growth opportunities for existing
products, plans and objectives of management and other matters.
Statements in this announcement that are not historical facts are hereby
identified as "forward looking statements". Such forward looking statements,
including, without limitation, those relating to the future business
prospects, revenue, working capital, liquidity, capital needs, interest costs
and income, in each case relating to Vesuvius, wherever they occur in this
announcement, are necessarily based on assumptions reflecting the views of
Vesuvius and involve a number of known and unknown risks, uncertainties and
other factors that could cause actual results, performance or achievements to
differ materially from those expressed or implied by the forward looking
statements. Such forward looking statements should, therefore, be considered
in light of various important factors that could cause actual results to
differ materially from estimates or projections contained in the forward
looking statements. These include without limitation: economic and business
cycles; the terms and conditions of Vesuvius' financing arrangements; foreign
currency rate fluctuations; competition in Vesuvius' principal markets;
acquisitions or disposals of businesses or assets; and trends in Vesuvius'
principal industries.
The foregoing list of important factors is not exhaustive. When considering
forward looking statements, careful consideration should be given to the
foregoing factors and other uncertainties and events, as well as factors
described in documents the Company files with the UK regulator from time to
time including its annual reports and accounts.
You should not place undue reliance on such forward looking statements which
speak only as of the date on which they are made. Except as required by the
Rules of the UK Listing Authority and the London Stock Exchange and applicable
law, Vesuvius undertakes no obligation to update publicly or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward looking events discussed in this announcement might not occur.
Vesuvius plc, 165 Fleet Street, London EC4A 2AE
Registered in England and Wales No. 8217766
LEI: 213800ORZ521W585SY02
www.vesuvius.com (http://www.vesuvius.com)
Vesuvius plc
Full Year Results for the twelve months ended 31 December 2021
Vesuvius delivered a strong commercial performance in 2021, supported by the
continued improvement in end markets and market share gains in Flow Control
and Foundry.
According to the World Steel Association (WSA), crude steel production in the
world excluding China and Iran increased by 13% in 2021. The regions which
posted the highest growth were South America (+18%), India (+18%) and NAFTA
(+17%).
Non-automotive Foundry end-markets across all regions also registered
significant growth, with production in the mining & construction and
general engineering end markets up 19% and 13%, respectively, according to
Oxford Economics data. This was in contrast to global production of light
vehicles and medium & heavy commercial vehicles which remained weak with
growth of only 2% and 0.5%, respectively, according to IHS data. The
disappointing automotive markets (representing c.36% of Foundry division
sales) reflect the persistent global shortage of semi-conductors, which
constrained the ability of OEMs to ramp-up production.
£m 2021 Reported Acquisitions / Disposals 2021 Underlying 2020 Reported Currency Acquisitions / Disposals 2020 Underlying Reported % Change Underlying % Change
Revenue 1,642.9 -2.1 1,640.8 1,458.3 -68.7 1,389.6 +13% +18%
Trading Profit 142.4 0.2 142.6 101.4 -6.6 94.8 +40% +50%
Return on Sales 8.7% 8.7% 7.0% 6.8% +170 bps +190 bps
Group trading performance
In 2021, the Group generated revenues of £1,642.9m, an increase of 13%
compared to 2020, on a reported basis. Underlying Group revenue, adjusted for
the effects of currency translation and acquisitions/disposals, increased by
18%, made-up three quarters by volume, one quarter by price. Trading profit
(adjusted EBITA) was £142.4m, an increase of 40% on a reported basis and 50%
on an underlying basis. The Group achieved a return on sales of 8.7% in 2021,
an increase of 170bps (190bps on an underlying basis). This strong performance
was achieved despite the high cost inflation in items such as raw materials
and freight, and the unwinding of the majority of temporary Covid-related cost
savings which benefited our results in 2020.
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 2021, and believe we are well-positioned to benefit from the
continuing recovery in our end markets.
· Reinforce our technology leadership
o Maintained our industry-leading level of R&D investment, with 2021
R&D spend of £30.3m, up from £26.7m in 2020 on a constant currency basis
· Develop our technical offering and increase the penetration of
our value-creating solutions
o Launched 27 new products in 2021, more than double the number launched in
2020
o Flow Control: Air-Shield Technology, a technology that creates a better
seal between the two plates of our ladle slide gate mechanism to increase both
the yield and quality of steel produced
o Advanced Refractories: Energy efficient Basilite spray, increasing tundish
availability and reducing our customers CO2 emissions
o Foundry: New FEEDEX FEF fluoride free sleeve range supporting foundries in
reducing harmful emissions and hazardous waste
· Capture growth in developing markets
o Launched £28m capacity expansion in Flow Control to serve fast growing
developing markets
o Strong developing market growth in all divisions, especially in
fast-growing regions such as South America, South East Asia and India
o Strong performance in China, with Flow Control and Advanced Refractories
revenues growing 7% and 13%, respectively, versus a steel production decline
of -3% and Foundry division revenues growing 12%
· Improve our cost leadership and margins
o Return on sales increased to 8.7%, up 190bps (underlying) versus 2020
o Full period impact of restructuring actions taken during 2020 delivered a
£4.1m recurring benefit
Acquisition of Universal Refractories
In December 2021, we acquired the assets and substantially all of the
liabilities of Universal Refractories, Inc. ("Universal"), a specialty
refractory producer in the United States. Universal is a strategically
important acquisition for Advanced Refractories, which reinforces Advanced
Refractories' core tundish business and expands our presence amongst electric
arc furnace ("EAF") steel producers in North America, while also further
strengthening our Foundry business. Universal's unaudited revenue and EBITDA
in the trailing 12 months to the end of October 2021 were $40.5m and $8.6m,
respectively. The acquisition will generate attractive synergies and will be
accretive to Group return-on-sales even before synergies are considered. We
are targeting net synergies of c.$4.5m, which will be fully delivered by
year-end 2023. The transaction valued Universal at US$57.1 million (£42.6
million) on a cash and debt free basis and was funded from Vesuvius' internal
resources.
ESG - Significant progress in our sustainability roadmap
We have already made considerable progress towards achieving the nine
intermediate ESG targets which we announced at our 2020 annual results.
KPI Measure Target 2021 progress vs 2019
Safety Lost Time Injury Frequency Rate below 1 <1 1.06
Energy Consumption By 2025, reduce energy consumption per metric tonne of product packed for -10% -9.0%
shipment (vs 2019)
CO(2)e Emissions By 2025, reduce (Scope 1 and Scope 2) energy CO2e emissions per metric tonne -10% -16.5%
of product packed for shipment (vs 2019)
Waste Water By 2025, reduce wastewater per metric tonne of product packed for shipment (vs -25% -2.8%
2019)
Solid Waste By 2025, reduce solid waste (hazardous and sent to landfill) per metric tonne -25% -21.8%
of product packed for shipment (vs 2019)
Recycled Material By 2025, increase the proportion of recycled materials from external sources 7% 6.2%
used in production
Gender diversity By 2025, increase female representation in the Top Management (GEC plus their 30% 21%
key direct reports)
Compliance training Increase the percentage of targeted staff who complete Anti-Bribery and 90% 100%
Corruption training annually
Supply chain By the end of 2023, conduct sustainability assessments of suppliers covering 50% 52%
at least 50% of Group spend
Since 2017 we have achieved a 24% reduction in CO(2) equivalent ("CO(2)e") per
metric tonne of product packed for shipment. We have achieved this result by
reducing our energy consumption and switching our electricity sources to
non-CO(2) emitting ones. For the first time in 2021, more than 50% of our
electricity consumption now comes from non-carbon emitting sources.
We are also making systematic use of internal carbon pricing to assess capex
decisions: We have integrated carbon pricing into our capex analysis to
support the selection of more environmentally friendly production processes
when investing in capacity increases. The internal cost of carbon is reviewed
annually and has been set at €90/t CO(2) for 2022.
In addition to the progress in relation to our own CO(2) emissions reduction
targets, we reinforced our R&D effort to develop products which improve
the sustainability performance of our customers: 80% of our new product
development projects in 2021 focused on products designed to outperform
existing marketed products in terms of sustainability outcomes. Examples of
new product launches during 2021 which deliver environmental benefits are as
follows
o Flow Control: we launched a new Composite Design Technology ("CDT")
solution, the Surface Layer CDT, that allows us to design a broader range of
shapes and sizes for our ladle slide gate plates and to use a greater
proportion of recycled materials
o Advanced Refractories: we launched Basilite QuickStart, an
energy-efficient tundish lining that increases productivity while also
reducing energy costs and CO2 emissions
o Foundry: We launched the SEMCO formaldehyde-free coating, which helps our
customers reduce emissions of harmful substances
As a consequence of this progress, we Improved our ESG ratings in 2021:
o MSCI ESG rating upgraded to 'A' from 'BBB'
o Ecovadis rating progressed from silver to gold, placing Vesuvius in the
top 5% of companies that they assess
Foreign exchange
The net impact of average 2021 exchange rates compared to 2020 averages has
been a 2021 headwind of £6.6m at the trading profit level, in particular due
to a weakening of the domestic currencies in Turkey, Brazil, Argentina and
India, relative to Sterling.
Cost inflation offset by price increases
The Group's trading profit in 2021 was negatively impacted by £14m of timing
differences between the cost inflation in items such as raw materials and
freight, and the price increases that we passed to our customers. By year-end,
however, the inflation headwind had been fully eliminated. Costs continue to
increase in 2022, but we remain confident in our ability to offset these with
further price increases during the year.
Benefit from restructuring programmes completed in 2020
In 2021, we benefitted from £4.1m of restructuring savings, reflecting the
full period impact of actions taken during 2020, broadly in-line with previous
guidance.
Expansion of Flow Control capacity supports organic growth
The Group has commenced a £28m capacity expansion, to be operational from
late 2022, in some of our most profitable product lines, to support future
organic growth and market share gains:
· Significant investment at our Skawina Poland plant to serve EMEA,
and in particular fast-growing markets in EEMEA
o +35% expansion in EMEA Viso capacity
o +100% expansion in EMEA Slide gate capacity
· +50% expansion in Viso capacity in Kolkata, India to serve the
fast-growing markets of both India and South East Asia
Working capital
Our continued strong focus on working capital resulted in our average trade
working capital/sales ratio for the trailing 12 months improving to 20.9% at
December 2021, compared to 23.2% at December 2020.
This improvement was driven by a decrease in our debtor days from 77.1 to 73.8
(12m average) and an increase in our creditor days from 60.6 to 66.7 (12m
average).
Inventory days declined slightly from 76.1 to 75.5 during the year, touching a
low of 70.7 days in June, before increasing again in H2. This increase was due
to the decision highlighted at our H1 results, to build-up raw material and
finished goods inventories, to mitigate the risk of customer disruptions from
the ongoing global supply chain and logistics challenges.
Tax
Our headline Effective Tax Rate ("ETR") for 2021 was 26.4% (2020: 26.9%). This
resulted in a 2021 headline tax charge of £35.9m (2020: £24.4m).
Revolving credit facility ("RCF")
We successfully refinanced our RCF on 5 July 2021. We increased the size of
the facility from £300m to £385m with a maturity date of 5 July 2025, with
an option to extend this by a further year. An accordion feature also provides
for an additional £100m of future borrowing, subject to our lending banks
obtaining credit approvals at that time.
Financial position and liquidity
As at 31 December 2021, Net Debt was £277.1m, up from £175.1m at the end of
2020. Our adjusted operating cash flow was £45.6m, offset by £43.6m for the
acquisition of Universal, including related excess working capital payment,
£55.5m of dividends, £7.6m of net finance costs, and £30.1m of income taxes
paid.
Our Net Debt/LTM EBITDA ratio was 1.4x at 31 December 2021, versus 1.1x at 30
June 2021 and 1.2x at the end of 2020. This provides us with significant
headroom against our debt covenant limit of 3.25x net debt/LTM EBITDA. The
increase in leverage during H2 reflects the Universal acquisition, which was
funded with debt and the decision to build-up raw material and finished goods
inventories during H2.
Our available committed liquidity was £456m at 31 December 2021, compared to
£437m at 31 December 2020.
Quality, health and safety
The Board and the entire leadership team of Vesuvius place great emphasis on
the importance of quality, health and safety in the workplace and in the
communities in which we operate. Reliability in quality and delivery is vital
to our customers as they use Vesuvius' products in critical areas of their own
processes. The level of risk attached to a catastrophic failure is often such
that, for people and equipment, no compromise can be accepted. We achieved a
Lost Time Injury Frequency Rate (LTIFR) of 1.06 per million hours worked in
2021, our lowest frequency rate ever.
Exposure to hostilities between Russia and Ukraine
Our direct exposure to Russia and Ukraine is limited. We have 47 employees in
these countries, which account for less than 3% of our Group revenues. We have
no manufacturing assets in either country. However, we are concerned about
the potential direct and indirect impacts of recent geopolitical events, which
have led us to suspend our deliveries to Russian customers for the duration of
hostilities.
Final Dividend
The Board has recommended a final dividend of 15.0 pence, bringing the total
dividend for the year to 21.2 pence per share, which is a 22% increase on the
total dividend for 2020 of 17.4 pence per share.
The Board has determined that this dividend is appropriate given the level of
business activity in 2021. The Board considers that the Company has sufficient
liquidity and overall balance sheet strength to justify payment, whilst
maintaining flexibility to fund both organic and inorganic growth, as
opportunities arise.
If approved at the Annual General Meeting on 18 May 2022, the final dividend
will be paid on 27 May 2022 to shareholders on the register at the close of
business on 19 April 2022. The last date for receipt of elections from
shareholders for the Vesuvius Dividend Reinvestment Plan will be 6 May 2022.
Outlook
Both our end markets of Steel and Foundry remain positively oriented at the
start of 2022.
In 2021, Vesuvius demonstrated its ability to successfully pass-through cost
inflation through price increases and will continue to do so in 2022, as
necessary.
Strategic R&D and capacity investments are proceeding as planned and will
support market share gains going forward.
While we remain concerned about the potential direct and indirect impacts of
recent geopolitical events, which have led us to suspend our deliveries to
Russian customers for the duration of hostilities, we are nevertheless
confident that the Group will deliver a significant improvement in financial
performance in 2022.
Operational Review
Vesuvius comprises two Divisions, Steel and Foundry. The Steel Division
operates as three business lines, Flow Control, Advanced Refractories and
Sensors & Probes.
Steel Division
Steel production in the world excluding China and Iran, which accounts for
approximately 90% of Vesuvius' sales, increased by 13% year-on-year with all
geographies recording positive volume growth. Production growth was especially
strong in India (+18%), South America (+18%) and NAFTA (+17%).
Vesuvius' Steel Division reported revenues of £1,171.5m in 2021, an increase
of 12% compared to 2020. On an underlying basis, Steel Division revenue was up
17%, with particularly strong performance in the growing markets of South
America, India, Vietnam and EEMEA (EMEA excluding EU 27 + UK), where we grew
55%, 34%, 32% and 18%, respectively.
Flow Control strongly outperformed the steel market in all regions, with
underlying sales growth of 21% (3.5% price impact), versus global steel
production growth of 13% (excluding China and Iran). In Advanced Refractories,
we prioritised prices over volumes. As a whole, Steel Division revenues
incorporate a moderate average positive price impact in 2021, as price
increases were progressively implemented during the year to compensate for
inflation in raw materials and freight costs.
Steel Division trading profit improved 34% to £102.0m, with return on sales
expanding 140bps to 8.7%. Raw material and freight inflation were fully
compensated for by year-end in both Flow Control and Advanced Refractories.
Steel Division 2021 (£m) 2020 (£m) Change Underlying change (%)
(%)
Flow Control Revenue 648.7 561.3 +15.6% +21.5%
Advanced Refractories Revenue 489.1 458.6 +6.7% +11.0%
Steel Sensors and Probes Revenue 33.7 25.5 +32.0% +42.7%
Total Steel Revenue 1,171.5 1,045.4 +12.1% +17.4%
Total Steel Trading Profit 102.0 76.4 +33.6% +41.6%
Total Steel Return on Sales 8.7% 7.3% +140 bps +150 bps
Flow Control
The Flow Control business unit supplies the global steel industry with
consumable ceramic products, systems, robotics, digital services and technical
services. These products are used to contain, control and monitor the flow of
molten steel in the continuous casting process. The consumable ceramic
products that Vesuvius supplies have a short service life (often a matter of a
few hours) due to the significant wear caused by the extremely demanding
environment in which they are used. These products must withstand extreme
temperature changes, whilst resisting liquid steel and slag corrosion. In
addition, the ceramic parts in contact with the liquid steel must not in any
way contaminate it. The quality, reliability and consistency of these products
and the associated 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 2021 (£m) 2020 (£m) Change Underlying change (%)
(%)
Americas 217.0 182.9 +18.7% +28.8%
Europe, Middle East & Africa (EMEA) 247.7 204.7 +21.0% +26.2%
Asia-Pacific 184.0 173.7 +6.0% +8.7%
Total Flow Control Revenue 648.7 561.3 +15.6% +21.5%
In 2021, underlying revenues in the Group's Flow Control business increased by
21% year-on-year to £648.7m, driven by strong market recovery and market
share gains in all regions.
In EMEA excluding Iran, revenues grew 26% compared to 2020 on an underlying
basis, versus steel production growth of 12%. This outperformance was
broad-based, with revenue growth exceeding 20% in both the EU 27+UK and EEMEA
(EMEA excluding EU 27+UK).
In the Americas, underlying revenues grew 29%, outperforming steel production
growth of 17%. This outperformance was mostly driven by revenue growth of 47%
in South America, while revenue growth of 23% in NAFTA also outperformed steel
production.
In Asia Pacific, revenues grew 9% on an underlying basis, versus steel
production growth of 1%. Revenues in Vietnam, India and China grew 38%, 31%
and 7%, respectively, versus steel production growth of 18%, 18% and -3%
Advanced Refractories
The Advanced Refractories business unit supplies complete value-added
solutions to its customers including specialist refractory materials and
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 ('monolithics') and refractory shapes (e.g.
bricks, pads, dams and other larger precast shapes). The service life of the
products that Advanced Refractories supplies into the steel making process can
vary (some a matter of hours and others for a period of years) based upon the
type of refractory and the level of wear caused by the demanding environment
in which they are used. An integral part of our success depends upon our
best-in-class installation technologies which improve the consistency and
performance of installed Vesuvius refractories as well as the high level of
collaboration with our customers.
Advanced Refractories Revenue 2021 2020 Change Underlying change (%)
(£m) (£m) (%)
Americas 165.3 153.0 +8.0% +13.4%
Europe, Middle East & Africa (EMEA) 187.7 187.8 -0.1% +3.1%
Asia-Pacific 136.2 117.9 +15.5% +20.6%
Total Advanced Refractories Revenue 489.1 458.6 +6.7% +11.0%
Advanced Refractories reported revenues of £489.1m in 2021, an increase of
11% on an underlying basis. In a number of markets our growth lagged steel
production increases, as priority was given to price increases over volumes,
resulting in a temporary loss of market share.
On an underlying basis, revenues grew 13% in the Americas, with strong
outperformance in South America, which grew 68% versus steel production growth
of 18%.
In EMEA excluding Iran, revenues grew only by 3% during the period as we
continued to exit unprofitable contracts and also led price increases during
the first half of the year in product lines that were impacted by higher raw
material costs.
In Asia Pacific, revenues grew 21% on an underlying basis driven by strong
outperformance in India (+36%), Vietnam (+30%) and China (+13%).
Volumes in H2 were negatively impacted in NAFTA as we had to declare force
majeure as a result of disruptions to raw material supply brought on by
Hurricane Ida in the US. Alternative raw material supply and logistics support
was obtained and no customer suffered interruption as a result.
Steel Sensors & Probes (formerly Digital Services)
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. These products include temperature sensors, oxygen,
hydrogen and sublance probes, iron oxide and metal sampling for the steel,
aluminium and foundry industries. By using these technologies, customers can
focus on critical parameters within their processes, enabling them to refine
their production methods to improve quality, lower production costs and
maximise efficiency.
Steel Sensors & Probes Revenue 2021 2020 Change Underlying change (%)
(£m) (£m) (%)
Americas 23.2 16.4 +41.1% +56.3%
Europe, Middle East & Africa (EMEA) 10.1 8.9 +13.6% +17.8%
Asia-Pacific 0.4 0.2 +109.1% +116.5%
Total Steel Sensors & Probes Revenue 33.7 25.5 +32.0% +42.7%
Revenues in Steel Sensors & Probes were £33.7m in 2021, representing an
underlying increase of 43% year-on-year. The strong performance in the
Americas was driven by new customer wins, especially in South America. In
EMEA, we also performed well and continued to gain traction.
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 2021 2020 Change Underlying change (%)
(£m) (£m) (%)
Foundry Revenue 471.4 412.9 +14.2% +19.9%
Foundry Trading Profit 40.4 25.0 +61.2% +78.7%
Foundry Return on Sales 8.6% 6.1% +250 bps +280 bps
Non-automotive Foundry end-markets across all regions saw significant growth
in 2021, with production in the mining & construction and general
engineering end markets up 19% and 13%, respectively, according to Oxford
Economics data. This was in contrast to global production of light vehicles
and medium & heavy commercial vehicles which remained weak with growth of
only 2% and 0.5%, respectively, according to IHS data. The disappointing
automotive markets (representing c.36% of Foundry division sales) reflect the
persistent global shortage of semi-conductors, which constrained the ability
of OEMs to ramp-up production.
Compared to 2019, mining & construction and general engineering are both
up 12%, while global light vehicle production is down 14% and medium &
heavy commercial vehicles is down 4%.
Vesuvius' Foundry Division reported revenues of £471.4m in 2021, an increase
of 14% compared to 2020. On an underlying basis, Foundry Division revenue was
up 20%.
The Foundry Division also achieved meaningful margin recovery, with trading
profit growing 79% on an underlying basis to £40.4m, as Return on Sales
increased 250bps to 8.6% in 2021. Profitability was impacted by the time lag
we experienced between cost increases and selling price rises, although this
was successfully eliminated by year-end.
In H2 our volumes were negatively impacted as automotive production slowed
further. In addition, we experienced operational issues at two important
plants in Germany and the USA. Both these factors are temporary in nature and
are expected to be eliminated during 2022.
Foundry Revenue 2021 2020 Change Underlying change (%)
(£m) (£m) (%)
Americas 100.5 85.6 +17.4% +27.1%
Europe, Middle East & Africa (EMEA) 199.3 177.0 +12.6% +17.3%
Asia-Pacific 171.7 150.3 +14.2% +19.1%
Total Foundry Revenue 471.4 412.9 +14.2% +19.9%
Foundry revenues in the Americas grew 27% year-on-year on an underlying basis,
driven by 15% growth in NAFTA, and very strong performance in South America,
which was up 68%.
In EMEA, underlying revenues increased by 17%, with EEMEA (EMEA excluding EU
27+UK) growing at 18%.
In Asia Pacific, we benefitted from continued strong performance in China,
where revenues grew 12% and India where revenues grew 36%.
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 2021 was still impacted by the continued global pandemic and while we
are not yet free from the effects, we are pleased with the performance of the
Group during the year.
The combination of a recovery in our operating performance and focus on
working capital management provided the capital for allocation across all of
our priority areas. We invested in organic and inorganic growth, while also
paying an attractive dividend to our shareholders. This was possible despite a
backdrop of challenging raw material price increases and global supply chain
disruption.
2021 performance overview
Positive trends in our key end markets of steel and foundry led to an increase
in reported revenue of £184.6m over the prior year and by £251.2m on an
underlying basis (+18.1%).
Key challenges this year were the implementation of price increases to offset
the significant raw material cost increases and management of temporary supply
chain related friction costs. Alongside this we continued to deliver on our
planned restructuring programme in support of reducing operating expenses.
Trading profit for the year 2021 was £142.4m, 50.4% higher than the prior
year on an underlying basis. Return on sales was 8.7%, higher than the prior
year by 190 bps on an underlying basis.
The aforementioned supply chain disruptions led to a conscious build-up of
inventory to ensure security of supply but despite this our average trade
working capital to sales ratio for the prior 12 months improved further to
20.9% at December 2021.
The Group's cash conversion in 2021 of 32% was lower largely due to the impact
of the increase in absolute working capital to sustain revenue growth as well
as higher investments in capex.
Dividend
The Board has recommended a final dividend of 15.0 pence per share to be paid,
subject to shareholder approval, on 27 May 2022 to shareholders on the
register at 19 April 2022. When added to the 2021 interim dividend of 6.2
pence per share paid on 17 September 2021, this represents a full-year
dividend of 21.2 pence per share.
It remains the Board's intention to deliver long-term dividend growth,
provided this is supported by underlying earnings, cash flows, capital
expenditure requirements and the prevailing market outlook.
Key Performance Indicators
We have identified a number of KPIs against which we have consistently
reported. As with prior years, we measure our results on an underlying basis,
where we adjust to ensure appropriate comparability between periods,
irrespective of currency fluctuations and any business acquisitions and
disposals.
This is done by:
· Restating the previous period's results at the same foreign
exchange (FX) rates used in the current period
· Removing the results of disposed businesses in both the current
and prior years
· Removing the results of acquired businesses in both the current
and prior years
Therefore, for 2021, we have:
· Retranslated 2020 results at the FX rates used in calculating the
2021 results
· Removed the results of Universal, which was acquired during 2021
Objective: Deliver profitable growth
KPI: Underlying revenue growth
Reported revenue for 2021 was £1,642.9m, which equated to £1,640.8m on an
underlying basis. Reported revenue for 2020 was £1,458.3m, which equated to
£1,389.6m on an underlying basis. 2021 underlying revenue increased by 18.1%
year-on-year. The increase in revenue has been driven by a recovery across
most geographies in both steel and foundry end-markets versus 2020 and price
increases.
£m 2021 Revenue 2020 Revenue % change
As reported Acquisitions / (disposals) Underlying As reported Currency Acquisition/Disposals Underlying Reported Underlying
Steel 1,171.5 (2.1)(1) 1.169.4 1,045.4 (48.9) - 996.5 12.1% 17.4%
Foundry 471.4 - 471.4 412.9 (19.8) - 393.1 14.2% 19.9%
Total Group 1,642.9 (2.1) 1,640.8 1,458.3 (68.7) - 1,389.6 12.7% 18.1%
Note 1. Impact of Universal acquisition
Objective: Generate value for our shareholders
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 2021 was £142.4m and Return on Sales was 8.7%. On an
underlying basis, trading profit increased by 50.4% and Return on Sales by 190
bps. The increase in trading profit and Return on Sales is due to higher
revenue, ongoing delivery of benefits from the restructuring programme and
income from recurring recovery of overpaid taxes to and from the Brazilian
entities partially offset by temporary friction costs linked to supply chain
disruptions.
Profit increased by 41.6% on an underlying basis, to £102.0m during the
period. Return on Sales in the Foundry division increased by 280 bps
year-on-year on an underlying basis, to 8.6% in 2021. Trading profit was
£40.4m representing a 78.7% increase on an underlying basis versus prior
year.
£m 2021 Trading profit 2020 Trading profit % change
As reported Acquisitions / (disposals) Underlying As reported Currency Acquisition/Disposals Underlying Reported Underlying
Steel 102.0 0.2(1) 102.3 76.4 (4.2) - 72.2 33.6% 41.6%
Foundry 40.4 - 40.4 25.0 (2.4) - 22.6 61.3% 78.7%
Total Group 142.4 0.2 142.6 101.4 (6.6) - 94.8 40.4% 50.4%
Note 1. Impact of Universal acquisition
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
£6.4m in 2021, £4.5m lower than 2020.
Our Headline PBT was £137.3m, 49.9% higher than last year on a reported
basis. On a reported basis, after the inclusion of separately reported
expenses of £9.7m (2020: £27.1m), our PBT of £127.6m was 97.8% higher than
last year. Headline EPS from continuing operations at 35.3p was 52.2% higher
than 2020.
KPI: Return on invested capital (ROIC)
From 2022 onwards, the Group intends to use ROIC as its key measure of return
from the Group's invested capital. RONA performance measure will be 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 invested capital (total assets
excluding cash plus non interest bearing liabilities), at constant currency
(being the average over December and the previous year end invested capital).
Our ROIC for 2021 was 7.5% (2020: 4.9%).
Objective: Maintain 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 flow of
£45.6m (2020: £172.9m), and a cash conversion rate of 32% (2020: 171%) in
the period. 2021 cash conversion was impacted by growing working capital to
sustain revenue growth and higher investments in capex. Free cash flow from
continuing operations was £(0.3)m in 2021 (2020: £113.5m).
We measure working capital both in terms of actual cash flow movements, and as
a percentage of sales revenue. Trade working capital as a percentage of sales
in 2021 was 20.9% (2020: 23.2%), measured on a 12-month moving average basis.
In absolute terms on a constant currency basis trade working capital increased
by £106.0m in 2021.
KPI: Net debt and interest cover
Following the refinancing of the Group's syndicated bank facility on 5th July
2021, the Group had committed borrowing facilities of £706.3m as at 31st
December 2021 (2020: £586.6m), of which £308.1m was undrawn (2020:
£246.6m).
Net debt at 31 December 2021 was £277.1m, a £102.0m increase from, 31
December 2020. The increase is mainly comprised of £45.6m from operations and
a favourable foreign exchange impact of £13.8m, offset by payments of income
taxes of £30.1m, net finance costs of £7.6m, the acquisition of the business
of Universal Refractories, Inc for £43.6m, including related excess working
capital payment, dividends of £55.5m, and £17.1m of additional leases.
At the end of 2021, the net debt to EBITDA ratio was 1.4x (2020: 1.2x) and
EBITDA to interest was 30.5x (2020: 14.5x). 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.
During 2021 Vesuvius has recognised a further £3.5m (2020: £1.7m) of income
and interest of £1.9m (2020: £1.2m) in relation to further recoveries of
overpaid indirect taxes, and interest, by the Brazilian entities within the
Group. The amounts recognised do not represent the full amount of income and
interest claimed as we do not yet have clarity on the ability of the Group to
fully utilise these credits. The amounts recognised have been presented as
headline trading profit and finance income given their recurring nature as the
original indirect tax expenses were incurred over a prolonged period and
partial recovery has taken place in the past two years.
Objective: Think beyond in innovation
KPI: Total 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 2021 we
spent £30.3m on R&D activities (2020: £26.7m at constant 2021 currency),
which represents 1.8% of our revenue (2020: 1.9%).
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. Following the refinancing of the Group's
syndicated bank facility on 5th July 2021, our liquidity stood at £455.7m at
31st December 2021. 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.
Restructuring
In 2021, we benefitted from £4.1m of restructuring savings related to a full
period impact of actions taken during 2020. During the year, we reported nil
restructuring costs (2020: £6.1m) within separately reported items. We are
carrying forward a restructuring provision of £5.0m.
Vacant site remediation
The Group owns a number of disused properties in the US, which do not form
part of our trading operations. In 2020 costs of £10.3m (2021: nil) were
incurred at one of these sites to address the significant increase in the
volume of water run-off occurring in recent years. We engaged waste management
specialists and have taken actions to reduce the level of water. We are in
contact with the relevant regulatory authorities and are currently
implementing remediation solutions, including installation of a treatment
facility. These non-recurring costs were treated as a separately reported
item in 2020. There was no impact upon headline performance.
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 £35.9m (2020:
£24.4m), was 26.4% (2020: 26.9%).
The Group's total income tax costs for the period include a credit on
separately reported items of £16.2m (2020: £5.7m) which primarily relates to
a credit of £16.0m (2020: £nil) following the recognition of certain US
deferred tax assets.
A tax credit reflected in the Group Statement of Comprehensive Income in the
year amounted to £13.0m (2020: £3.2m debit) which primarily comprises a
£12.5m credit (2020: £2.8m debit) in respect of tax on net actuarial gains
and losses on employee benefits, inclusive of the buy-in of the UK pension
scheme and the restatement of UK deferred tax from 19% to 25%.
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 2022.
Capital expenditure
Capital expenditure in 2021 was £67.4m (2020: £59.0m) of which £47.2m was
in the Steel Division (2020: £45.9m) and £20.2m in the Foundry Division
(2020: £13.1m). Capital expenditure on revenue-generating customer
installation assets, primarily in Steel, was £5.7m (2020: £8.7m).
Pensions
The Group has a limited number of historical defined benefit plans located
mainly in the UK, USA, Germany and Belgium. The main plans in the UK and USA
are largely closed to further benefits accrual and all of the liabilities in
the UK have now been insured following a buy-in agreement with Pension
Insurance Corporation plc ("PIC") during December 2021. The Group's net
pension liability at 31 December 2021 was £77.0m (2020: £2.1m liability).
The increase in the liability and resulting charge of £80m through other
comprehensive income, is largely due to the reduction of the surplus for the
UK Plan following the pension insurance buy-in agreement with PIC. This final
buy-in agreement secures 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. This increase in liability has been partially offset
by an increase in bond yields resulting in a reduction in the value of German
and US liabilities.
Corporate activity
In December 2021, the Group acquired the assets and substantially all of the
liabilities of Universal Refractories Inc. ("Universal"), 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.
Universal's unaudited revenue and EBITDA in the trailing 12 months to October
were US$40.5m and US$8.6m, respectively. The acquisition will generate
attractive synergies and will be accretive to Group return-on-sales even
before synergies are considered.
The transaction valued Universal at US$57.1 million (£42.6 million) on a cash
and debt free basis and was funded from Vesuvius' internal resources.
The Group expects the acquisition to be highly synergistic. The acquisition
significantly expands Vesuvius' North American presence amongst electric arc
furnace steel producers in the Group's focus area of steel tundish
applications, while also further strengthening the foundry business.
In the period since acquisition, Universal has contributed £2.1m to revenue
and £(0.2)m to operating profit. In accordance with IFRS3, the acquired
inventory was revalued to fair value less costs to sell, resulting in a
reduction to operating profit of £0.6m.
Principal Risks and Uncertainties
Risk Management
The Board exercises oversight of principal risks through 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 specific risk and the mitigation in
place to address it. The Board also reviews and establishes 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 of risk identification and review,
which includes a formal process, conducted annually for mapping risks from the
bottom up, with each major business unit and key operational, senior
functional and senior management staff identifying their principal risks. This
assessment undergoes a formal review at half-year. The results are compiled
centrally to deliver a coordinated picture of the key operational risks
identified by the business. These risks are then reviewed by the Group
Executive Committee. As part of this process, each 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. The results of this assessment are then overlaid on the
internal assessment of risks to build a comprehensive analysis of existing and
emerging risk. The process extends to cover both financial and non-financial
risks, and considers the risks associated with the impact of the Group's
activities on employees, customers, suppliers, the environment, local
communities and society more generally.
Risk Mitigation
The 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 2021 as a result of the continuing Covid pandemic, the Principal
Risks remain the same. These risks are not the only ones that the Group will
face. Some risks are not yet known and some currently not deemed to be
material could become so.
Changes to Risk in 2021
The effects of the COVID-19 pandemic continued to be felt in certain
geographies and disciplines of the business in 2021. Managing the physical
risks to our staff, and in our interactions with customers continued to be a
priority, where our protocols for remote working, social distancing, and
management of production processes continued to be followed. As with many
companies, Vesuvius was exposed to post-Covid disruptions in global trade,
which placed supply chains under stress and affected elements of the Group's
financial performance. Against the backdrop of the continuing pandemic, and
its development during the year, the Board continued to focus on the Group's
existing risks, and the processes to mitigate and manage them. It also
remained alert to other emerging risks. The Board noted again the increasing
presence of cyber threats to business in general. Other emerging risks were
assessed, with the Board considering security of raw material supply, business
disruption driven by increasing inflation and interest rates, and the
continuing work required to ensure that the Group's decentralised management
and talent pipeline can deliver the consistent profitable growth identified in
the Group's strategy. 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 the year. The Group's existing measures in mitigation were initiated
and additional actions taken specific to the challenges posed by the
continuing COVID-19 pandemic. These were most notably:
- Business interruption: With the mandatory shutdowns of 2020
predominantly behind us, our manufacturing operations remained operational
throughout the year with enhanced health and safety protocols in place, in
each case in line with prevailing national rules. Remote working remained the
norm in many countries, with more than 1,500 people still working from home at
year end. Vesuvius also experienced the effects of the global trade
disruption, seeing significant increases in price for freight and raw
materials, and disrupted logistics, affecting the predictability of our global
supply chain. Our central purchasing team focused on addressing these issues,
but two product line supply interruptions were experienced.
- End Market Risk: Whilst end markets began to pick up at the end of
2020, with overall demand continuing to grow during the year, our end markets
did not return fully to pre-pandemic levels. We also saw significant raw
material price increases throughout the year. The Group's diversified sourcing
strategy helped mitigate this challenge,
with raw-material costs offset by the implementation of price increases.
- People, Culture and Performance: Across the Group, our people
continued to work in difficult circumstances and lockdowns affected different
parts of the business. The protocols put in place in 2020 - access to virtual
IT tools to support remote working, increased PPE provision and changes to
site working conditions - remained in force for all of the year. Internal
communication remained a focus, building on the success of the processes put
in place in early 2020. Once again, the focus on Values was maintained, with
our Living the Values Awards competition running again on a 'virtual' basis,
with the Group's senior leadership participating to celebrate the stories and
achievements of our values finalists. Our annual Senior Leaders' conference
was held in person, with enhanced health and safety protocols in place for
those who could travel, and with a significant number of staff who could not
travel joining remotely.
- Health and Safety: Our very strong focus on health and safety and
the consistency of its application across the Group continued to place us
extremely well to respond to the pandemic's challenges. In certain
jurisdictions our workforce was affected more acutely than in others with the
development of the Omicron variant, but operations were managed carefully to
ensure security of supply for our customers. It is clear that the Covid
pandemic has introduced shifts in working patterns and trading environment
that will not unwind for several months, and in some cases much longer. The
Board continues to monitor these changes, and in particular the disruption
that they could drive for global businesses and, in particular, for supply
chain security. Consequently, the mitigations established by the Group to
address its principal risks will remain strongly relevant as 2022 progresses.
Despite these challenges, the Board has not identified any overall material
change to the Group's identified principal risks and uncertainties, albeit
that within those risks a number of issues manifested themselves in 2021. No
new principal risks were identified during the year. As such, the Group's
statement of Principal Risk and Uncertainties was unchanged in 2021 from 2020.
The crisis unfolding in Ukraine since the end of the year, has the potential
to generate direct and indirect impacts that are reflected in our Principal
Risks, namely End Market Risks, Protectionism and Globalisation and Business
Interruption. Whilst we are concerned about the potential impact, we will put
our mitigation strategies into action in order to minimise any impact on
Vesuvius.
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. The Group
recognises that climate change could present further uncertainty for the Group
in terms of increased regulation, 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 customer's 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 Uncertainties that the Group has identified. The Group
continues to focus internally on the action we can take to drive our business'
sustainability. In 2021, the Group made further progress on its sustainability
KPIs and continued work on the Sustainability initiative announced in 2020.
Under this initiative the Group will seek to drive a lower CO2 intensity,
reduce energy usage, and take the steps necessary to meet the target set of
being emissions net zero by 2050.
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
• Trade restrictions • 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
• 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 control systems security, access 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
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
• Inability to attract the necessary workforce
process 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, CO2
the Steel Industry or Vesuvius fails to meet the expectations of its various • Loss of opportunity to increase margin 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
For the year ended 31 December 2021
2021 2020
((1) )Headline performance ((1) )Separately reported items Total ((1) )Headline performance ((1) )Separately reported items Total
Notes £m £m £m £m £m £m
Continuing operations
Revenue 2 1,642.9 - 1,642.9 1,458.3 - 1,458.3
Manufacturing costs (1,222.8) - (1,222.8) (1,084.7) - (1,084.7)
Administration, selling and distribution costs (277.7) - (277.7) (272.2) - (272.2)
Trading profit 2 142.4 - 142.4 101.4 - 101.4
Amortisation of acquired intangible assets - (9.7) (9.7) - (9.9) (9.9)
Restructuring charges 3 - - - - (6.1) (6.1)
Vacant site remediation costs - - - - (10.3) (10.3)
GMP equalisation charge 10 - - - - (0.8) (0.8)
Operating profit/(loss) 142.4 (9.7) 132.7 101.4 (27.1) 74.3
Finance expense (13.7) - (13.7) (18.9) - (18.9)
Finance income 7.3 - 7.3 8.0 - 8.0
Net finance costs 4 (6.4) - (6.4) (10.9) - (10.9)
Share of post-tax income of joint ventures and associates 1.3 - 1.3 1.1 - 1.1
Profit/(loss) before tax 137.3 (9.7) 127.6 91.6 (27.1) 64.5
Income tax (charge)/credits 5 (35.9) 16.2 (19.7) (24.4) 5.7 (18.7)
Profit/(loss) 101.4 6.5 107.9 67.2 (21.4) 45.8
Profit/(loss) attributable to:
Owners of the parent 95.6 6.5 102.1 62.7 (21.4) 41.3
Non-controlling interests 5.8 - 5.8 4.5 - 4.5
Profit/(loss) 101.4 6.5 107.9 67.2 (21.4) 45.8
Earnings per share - pence 6
Total operations - basic 37.7 15.3
- 37.5 15.2
diluted
(1) Headline performance is defined in Note 16.1 and separately reported
items are defined in Note 1.4.
The above results were derived from continuing operations. The separately
reported items would form part of Administration, selling & distribution
costs if classified within headline performance, which including these amounts
would total £287.4m (2020: £299.3m).
Group Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
£m £m
Profit 107.9 45.8
Items that will not subsequently be reclassified to income statement:
Remeasurement of defined benefit assets/liabilities (80.6) 7.7
Income tax relating to items not reclassified 12.5 (3.2)
Items that may subsequently be reclassified to income statement:
Exchange differences on translation of the net assets of foreign operations (31.4) (14.9)
Exchange differences on translation of net investment hedges 14.4 (9.7)
Net change in costs of hedging (1.2) 0.4
Change in the fair value of the hedging instrument 2.2 (8.1)
Amounts reclassified from the Income Statement (0.7) 6.3
Other comprehensive income/(loss), net of income tax (84.8) (21.5)
Total comprehensive income 23.1 24.3
Total comprehensive income attributable to:
Owners of the parent 17.7 22.0
Non-controlling interests 5.4 2.3
Total comprehensive income 23.1 24.3
The above results were derived from continuing operations.
Group Statement of Cash Flows
For the year ended 31 December 2021
2021 2020
Notes £m £m
Cash flows from operating activities
Cash generated from operations 9 82.9 193.7
Interest paid (11.9) (18.9)
Interest received 4.3 5.2
Income taxes paid (30.1) (27.5)
Net cash inflow from operating activities 45.2 152.5
Cash flows from investing activities
Capital expenditure (45.5) (40.5)
Proceeds from the sale of property, plant and equipment 1.2 1.1
Acquisition of subsidiaries and joint ventures, net of cash acquired (43.7) (1.4)
Dividends received from joint ventures 1.0 2.3
Net cash outflow from investing activities (87.0) (38.5)
Net cash (outflow)/inflow before financing activities (41.8) 114.0
Cash flows from financing activities
Proceeds from borrowings 89.4 320.4
Repayment of borrowings (31.4) (438.6)
Settlement of derivatives - 1.4
Purchase of ESOP shares (1.1) -
Dividends paid to equity shareholders 7 (55.5) (8.4)
Dividends paid to non-controlling shareholders (2.2) (1.9)
Net cash outflow from financing activities (0.8) (127.1)
Net decrease in cash and cash equivalents 8 (42.6) (13.1)
Cash and cash equivalents at 1 January 206.8 222.1
Effect of exchange rate fluctuations on cash and cash equivalents 8 (1.8) (2.2)
Cash and cash equivalents at 31 December 162.4 206.8
Free cash flow from continuing operations (Note 16.11)
Net cash inflow from operating activities 45.2 152.5
Capital expenditure (45.5) (40.5)
Proceeds from the sale of property, plant and equipment 1.2 1.1
Dividends received from joint ventures 1.0 2.3
Dividends paid to non-controlling shareholders (2.2) (1.9)
Free cash flow(1) 16 (0.3) 113.5
(1) For definitions of non-GAAP measures, refer to Note 16
Group Balance Sheet
As at 31 December 2021
2021 2020
Notes £m £m
Assets
Property, plant and equipment 352.5 337.5
Intangible assets 696.8 696.1
Employee benefits - net surpluses 10 25.1 117.1
Interests in joint ventures and associates 12.8 12.1
Investments 15 0.5 0.7
Deferred tax assets 104.2 96.1
Other receivables 16.2 18.6
Total non-current assets 1,208.1 1,278.2
Cash and short-term deposits 8 169.1 209.7
Inventories 299.4 187.3
Trade and other receivables 445.2 369.9
Income tax receivable 7.6 3.7
Derivative financial instruments 15 0.1 0.2
Assets classified as held for sale - 0.9
Total current assets 921.4 771.7
Total assets 2,129.5 2,049.9
Equity
Issued share capital 27.8 27.8
Retained earnings 2,483.4 2,502.9
Other reserves (1,467.6) (1,451.3)
Equity attributable to the owners of the parent 1,043.6 1,079.4
Non-controlling interests 54.6 51.4
Total equity 1,098.2 1,130.8
Liabilities
Interest-bearing borrowings 8 329.9 333.1
Employee benefits - net liabilities 10 102.1 119.2
Other payables 11.6 13.2
Provisions 14 32.6 34.0
Deferred tax liabilities 29.6 43.9
Derivative financial instruments 15 2.5 7.0
Total non-current liabilities 508.3 550.4
Interest-bearing borrowings 8 113.8 45.0
Trade and other payables 372.9 288.7
Income tax payable 18.1 12.2
Provisions 14 18.1 22.8
Derivative financial instruments 15 0.1 -
Total current liabilities 523.0 368.7
Total liabilities 1,031.3 919.1
Total equity and liabilities 2,129.5 2,049.9
Group Statement of Changes in Equity
For the year ended 31 December 2021
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 2020 27.8 (1,427.5) 2,463.1 1,063.4 51.0 1,114.4
Profit - - 41.3 41.3 4.5 45.8
Remeasurement of defined benefit liabilities/assets - - 7.7 7.7 - 7.7
Income tax relating to items not reclassified - - (3.2) (3.2) - (3.2)
Exchange differences on translation of the net assets of foreign operations - (12.7) - (12.7) (2.2) (14.9)
Exchange differences on translation of net investment hedges - (9.7) - (9.7) - (9.7)
Net change in costs of hedging - 0.4 - 0.4 - 0.4
Change in the fair value of the hedging instrument - (8.1) - (8.1) - (8.1)
Amounts reclassified from the Income Statement - 6.3 - 6.3 - 6.3
Other comprehensive (loss), -net of income tax - (23.8) 4.5 (19.3) (2.2) (21.5)
Total comprehensive income (loss) - (23.8) 45.8 22.0 2.3 24.3
Recognition of share-based payments - - 2.4 2.4 - 2.4
Dividends paid (Note 7) - - (8.4) (8.4) (1.9) (10.3)
Total transactions with owners - - (6.0) (6.0) (1.9) (7.9)
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 income/(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 31 December 2021 27.8 (1,467.6) 2,483.4 1,043.6 54.6 1,098.2
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
2021 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 3 March
2022.
The auditors have reported on the Group Financial Statements for the years
ended 31 December 2021 and 31 December 2020 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 2020 have been filed with
the Registrar of Companies and those for the year ended 31 December 2021 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.
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.
1.2 Going concern
The Directors have prepared cash flow forecasts for the Group for a period in
excess of 12 months from the date of approval of the 2021 financial
statements. These forecasts reflect an assessment of current and future
end-market conditions and their impact on the Group's future trading
performance.
The analysis undertaken includes a plausible but severe 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
2022 and 2023 to the level achieved in H2 2020, the period half-year most
severely impacted by COVID-19. On a full-year basis relative to 2021, this
implies a c.14% decline in sales and a c.34% decline in Trading Profit. Even
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 1.3x, compared to a leverage covenant of 3.25x.
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. Accordingly, they continue to adopt a going concern
basis in preparing the financial statements of the Group and the Company.
1.3 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.
1.4 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
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)
2020
Flow Control Advanced Refractories Sensors Steel Foundry Total
& Probes
£m £m £m
Segment revenue 561.3 458.6 25.5 1,045.4 412.9 1,458.3
at a point in time 1,035.7 412.9 1,448.6
Over time 9.7 - 9.7
Segment adjusted EBITDA * 110.6 41.4 152.0
Segment depreciation (34.2) (16.4) (50.6)
Segment trading profit 76.4 25.0 101.4
Return on sales margin 7.3% 6.1% 7.0%
Amortisation of acquired intangible assets (9.9)
Restructuring charges (6.1)
Vacant site remediation costs (10.3)
GMP equalisation charge (0.8)
Operating profit 74.3
Net finance costs (10.9)
Share of post-tax profit of joint ventures 1.1
Profit before tax 64.5
Capital expenditure additions 45.9 13.1 59.0
Inventory 151.0 36.3 187.3
Trade debtors 225.6 76.4 302.0
Trade creditors (131.1) (54.6) (185.7)
* Adjusted EBITDA is defined in note 16.13
3 Restructuring charges
There were no restructuring charges in 2021. Restructuring charges of £6.1m
in 2020 related to the completion of the programme first announced in March
2018, which was predominantly focused on rationalising our manufacturing
footprint, consolidating production and streamlining various back-office
functions. The charges reflected redundancy costs of £2.7m, plant closure
costs of £1.8m, asset write-offs of £1.5m and consultancy fees and travel of
£0.1m. The utilisation of costs continues in line with the phased timings for
the programmes to be completed.
Cash costs of £4.0m (2020: £16.7m) (Note 14) were incurred in the year in
respect of previously announced restructuring
programmes, leaving provisions made but unspent of £5.0m (Note 14) as at 31
December 2021 (2020: £9.2m).
4 Net finance costs
2021 2020
£m £m
Interest payable on borrowings
Loans, overdrafts and factoring arrangements 10.7 15.6
Interest on lease liabilities 1.5 1.8
Amortisation of capitalised borrowing costs 0.8 0.5
Total interest payable on borrowings 13.0 17.9
Interest on net retirement benefits obligations (0.3) (0.1)
Adjustments to discounts on provisions and other liabilities 0.7 1.0
Adjustments to discounts on receivables (0.3) (0.5)
Finance income (6.7) (7.4)
Total net finance costs 6.4 10.9
Within the table above, total finance costs are £13.7m (2020: £18.9m) and
total finance income is £7.3m (2020: £8.0m). Net finance costs are £6.4m
(2020: £10.9m).
5 Income tax
The Group's headline effective tax rate, based on the income tax costs
associated with headline performance of £35.9m (2020: £24.4m), was 26.4%
(2020: 26.9%).
The Group's total income tax costs include a credit on separately reported
items of £16.2m (2020: £5.7m), comprising a credit of £16.0m (2020: £nil)
relating to the recognition of US deferred tax assets, a credit of £0.2m
(2020: £2.3m credit) relating to the amortisation of intangible assets, a
credit of £nil (2020: £1.1m) relating to restructuring charges and a credit
of £nil (2020: £2.3m) related to vacant site remediation costs.
The net tax credit reflected in the Group Statement of Comprehensive Income in
the year amounted to £13.0m (2020: £3.2m debit), comprising: A £12.5m
credit (2020: £2.8m debit) in respect of tax on net actuarial gains and
losses on the employee benefits, inclusive of the buy-in of the UK pensions
scheme and the restatement of UK deferred tax from 19% to 25%; and a £0.5m
credit (2020 £nil) in respect of exchange adjustments and £nil (2020: £0.4m
debit) relating to other temporary timing differences.
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.
2021 2020
£m £m
Profit attributable to owners of the parent 102.1 41.3
Adjustments for separately reported items:
Amortisation of intangible assets 9.7 9.9
Restructuring charges - 6.1
Vacant site remediation costs - 10.3
GMP equalisation charge - 0.8
Income tax (credit)/charge (16.2) (5.7)
Headline profit attributable to owners of the parent 95.6 62.7
6.2 Weighted average number of shares
2021 2020
millions millions
For calculating basic and headline EPS 270.5 269.9
Adjustment for dilutive potential ordinary shares 1.8 1.7
For calculating diluted and diluted headline EPS 272.3 271.6
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
2021 2020
pence pence
Earnings per share - basic 37.7 15.3
- 35.3 23.2
headline
- diluted 37.5 15.2
- diluted 35.1 23.1
headline
7 Dividends
2021 2020
£m £m
Amounts recognised as dividends and paid to equity holders during the period
Interim dividend for the year ended 31 December 2020 of 3.1p per ordinary - 8.4
share
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
55.5 8.4
A proposed final dividend for the year ended 31 December 2021 of £40.5m
(2020: £38.7m), equivalent to 15.0 pence (2020: 14.3 pence) per ordinary
share, is subject to approval by shareholders at the Company's Annual General
Meeting on 18 May 2022 and has not been included as a liability in these
financial statements. If approved by shareholders, the dividend will be paid
on 27 May 2022 to holders of ordinary shares on the register on 19 April 2022.
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 2021
1 Jan 2021 gains/
(losses)
£m £m £m £m £m
Cash and cash equivalents
Cash at bank and in hand 169.7 (1.9) - - 1.3 169.1
Short term deposits 40.0 - - - (40.0) -
Bank overdrafts (2.9) 0.1 - - (3.9) (6.7)
206.8 (1.8) - - (42.6) 162.4
Borrowings, excluding bank overdrafts (376.5) 11.3 (17.1) (58.0) (440.3)
-
Capitalised borrowing costs 1.4 - - 1.9 - 3.3
Derivative financial instruments (6.8) - - (2.5)
4.3 -
Net debt (175.1) 9.5 4.3 (15.2) (100.6) (277.1)
(1) £17.1m (2020: £15.7m) of new leases were entered into during the
year.
9 Cash generated from operations
2021 2020
£m £m
Operating profit 132.7 74.3
Adjustments for:
Amortisation of intangible assets 9.7 9.9
Restructuring charges - 6.1
Vacant site remediation costs - 10.3
GMP equalisation charge - 0.8
Trading Profit 142.4 101.4
(Profit)/Loss on disposal of non-current assets 0.4 1.3
Depreciation 49.8 50.6
Defined benefit retirement plans net charge 6.4 6.7
Net decrease/(increase) in inventories (113.5) 21.7
Net decrease/(increase) in trade receivables (53.5) 3.4
Net increase/(decrease) in trade payables 70.6 12.4
Net decrease/(increase) in other working capital (5.5) 23.8
Outflow related to restructuring charges (4.0) (16.7)
Defined benefit retirement plans cash outflows (7.2) (9.0)
Vacant site remediation costs paid (3.0) (1.9)
Cash generated from operations 82.9 193.7
10 Employee benefits
The net employee benefits liability as at 31 December 2021 was £77.0m (2020:
£2.1m) derived from an actuarial valuation of the Group's defined benefit
pension and other post-retirement obligations as at that date.
The increase in the balance sheet liability is due to the UK Plan final
pension insurance buy-in agreement with Pension Insurance Corporation plc
(PIC). This buy-in secures 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 increase in liability has been partially offset by a decrease in
liabilities due to an increase in bond yields resulting in a reduction in the
value of German and US liabilities.
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.
2021 2020
£m £m
Employee benefits - net surpluses
UK defined benefit pension plans 23.7 116.4
ROW defined benefit pension plans 1.4 0.7
Net surpluses 25.1 117.1
Employee benefits - net liabilities
UK defined benefit pension plans (1.6) (1.8)
US defined benefit pension plans (21.9) (25.9)
Germany defined benefit pension plans (53.3) (63.1)
ROW defined benefit pension plans (18.3) (21.4)
Other post-retirement benefit plans (7.0) (7.0)
Net liabilities (102.1) (119.2)
Total liabilities (77.0) (2.1)
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.
2021 2020
£m £m
In arriving at trading profit - within other manufacturing costs 1.8 1.7
(as defined in Note 16)
- within administration, selling and distribution costs 4.6 5.0
In arriving at profit before tax - guaranteed minimum pension equalisation charge - 0.8
- within net finance costs (0.3) (0.1)
Total net charge 6.1 7.4
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 2021 are in line with those
transactions disclosed in Note 34 of the 2021 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 2021 Annual Report and Financial Statements. Transactions between
related parties that are Group subsidiaries are eliminated on consolidation.
2021 2020
Transactions with joint ventures and associates £m £m
Sales to joint ventures 4.8 3.8
Purchases from joint ventures 31.5 26.7
Purchases from associates - 0.3
Dividends received from joint ventures 1.0 2.3
Trade payables owed to joint ventures 10.3 5.5
Trade receivables owed by joint ventures 1.3 0.6
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.
Given timing of the acquisition final valuations have not all been completed
but the provisional fair values of the assets and liabilities recognised as a
result of the acquisition are as follows:
Book value Fair value adjustments Adjusted value
£m £m £m
Property, plant and equipment 4.5 6.9 11.4
Intangible asset (customer relationships, know-how and noncompete agreements) - 12.2 12.2
Inventories 5.0 1.1 6.1
Receivables 5.5 - 5.5
Payables (1.9) - (1.9)
Borrowings (5.4) - (5.4)
Deferred tax - (3.0) (3.0)
Net identifiable assets acquired 7.7 17.2 24.9
Goodwill 13.3
Consideration 38.2
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.
The decision to acquire URI was driven by its long-standing customer
relationships and know-how. The identifiable intangible assets acquired are
customer relationships, know-how and noncompete agreements. The fair value of
these intangibles is provisional pending final valuations. A deferred tax
liability of £3.0m has been provided in relation to these fair value
adjustments.
In the period since acquisition, URI has contributed £2.1m to revenue and
£(0.2)m to operating profit. In accordance with IFRS3, the acquired inventory
was revalued to fair value less costs to sell, resulting in a reduction to
operating profit of £0.6m. If the acquisition had occurred on the first day
of the financial year, it is estimated that the revenue and operating profit
from the acquisition would have been £31.2m and £6.8m respectively. 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 £43.6m, 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 £38.2m
and borrowings repaid immediately prior to acquisition of £5.4m. Receivables
of £5.5m are expected to be collected. Acquisition-related costs of £1.3m
were included in administrative expenses in the Income statement.
The Group did not acquire any material interests in any companies other than
URI during the year ended 31 December 2021; however, contingent consideration
of £0.1m was paid during 2021 in respect of the previous acquisition of Ecil
Met Tec.
The Group did not acquire any material interests in any companies in the year
ended 31 December 2020; however contingent consideration of £1.4m was paid
during the year 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 0.4 (0.2) (0.1) 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 41.8 5.0 3.9 50.7
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:
2021 2020
Assets Liabilities Assets Liabilities
£m £m £m £m
Investments (Level 2) 0.5 - 0.7 -
Derivatives not designated for hedge accounting purposes (level 2) 0.1 (0.3) 0.2 -
Derivatives designated for hedge accounting purposes (level 2) - (2.3) - (7.0)
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 2020 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 interim 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 2021 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 $86m Cross currency interest rate swap
('CCIRS'). The effect of this is to convert the $86m Private Placement Notes
issued in June 2020 into €76.6m. The timing and amount of the US Dollar
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 2021 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 2021, €224m and $60m of borrowings were designated as
hedges of net investments in €224m and $60m 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 100% effective with no
ineffectiveness. 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 2021, the Group had $146m, €198m and £28m (£302.3m in
total) of US Private Placement Loan Notes (USPP) outstanding, which carry a
fixed rate of interest, representing 74% 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 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
Sterling - 43.3 43.3
US dollar 106.8 0.3 107.1
Euro 160.8 31.5 192.3
Other - 0.5 0.5
Capitalised arrangement fees (1.3) (0.1) (1.4)
As at 31 December 2020 266.3 75.5 341.8
On 5 July 2021, the Group entered a new syndicated bank facility for
£385.0m. On the same date the previous syndicated bank facility for
£300.0m was cancelled. The new facility expires in July 2025 subject to a
one-year extension option exercisable in 2022 at the discretion of the Group
and of the lending banks. On 5 July 2021 the Group replaced its £14.0m and
€26.0m drawdowns under the previous facility with equivalent short-term
drawdowns under the new facility. Drawdowns under the new facility reference
SONIA for GBP drawdowns and EURIBOR for EUR drawdowns.
The maturity analysis of the Group's non-derivative financial liabilities is
shown in the tables below.
As at 31 December 2021 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 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
As at 31 December 2020 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 185.7 - - - 185.7 185.7
Loans & overdrafts 44.7 84.2 80.5 187.4 396.8 343.2
Finance leases 11.2 9.1 11.1 12.9 44.3 36.3
Capitalised arrangement fees - - - - - (1.4)
Derivative liability (0.5) (0.4) 2.7 1.4 3.2 7.0
Total financial liabilities 241.1 92.9 94.3 201.7 630.0 570.8
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.
2021 2020
£m £m
Cash generated from operations 82.9 193.7
Add: Outflows relating to restructuring charges 4.0 16.7
Less: Capital expenditure (45.5) (40.5)
Add: Vacant site remediation costs 3.0 1.9
Add: Proceeds from the sale of property, plant and equipment 1.2 1.1
Adjusted operating cash flow 45.6 172.9
Trading Profit 142.4 101.4
Cash Conversion 32% 171%
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.
2021 2020
£m £m
Average trade working capital 344.2 337.8
Total revenue 1,642.9 1,458.3
Average trade working capital to sales ratio 20.9% 23.2%
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.
2021 2020
£m £m
Total interest payable on borrowings (note 4) 13.0 17.9
Finance income (note 4) (6.7) (7.4)
Net interest payable on borrowings 6.3 10.5
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.
2021 2020
£m £m
Adjusted EBITDA (note 2) 192.2 152.0
Net interest payable on borrowings 6.3 10.5
Interest cover 30.5x 14.5x
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.
2021 2020
£m £m
Net debt (note 8) 277.1 175.1
Adjusted EBITDA (note 2) 192.2 152.0
Net debt to adjusted EBITDA 1.4x 1.2x
16.18 Return on invested capital (ROIC)
From 2022 onwards, the Group intends to use ROIC as its key measure of return
from the Group's invested capital. RONA performance measure will be 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 invested capital (total assets
excluding cash plus non interest bearing liabilities), at constant currency
(being the average over December and the previous year end invested capital).
2021 2020
£m £m
Average invested capital 1,329.1 1,300.3
Trading profit (note 16.4) 142.4 94.8
Amortisation of acquired intangible assets (9.7) (9.9)
Share of post-tax profit from joint ventures and associates 1.3 1.1
Tax on trading profit and amortisation of acquired intangible assets (35.1) (22.8)
98.9 63.2
ROIC 7.5% 4.9%
16.19 Constant currency
Figures presented at constant currency represent 2020 amounts retranslated at
average 2021 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.
2021 2020
£m £m
Cash and short term deposits 169.1 209.7
Undrawn committed debt facilities 308.1 246.6
Cash used as collateral on loans (21.0) (19.0)
Gross up of cash in notional pools (0.5) -
Liquidity 455.7 437.3
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
2021 2020 Change 2021 2020 Change
US Dollar 1.38 1.28 7.8% 1.35 1.37 (1.5%)
Euro 1.16 1.12 3.6% 1.19 1.12 6.2%
Chinese Renminbi 8.87 8.85 0.2% 8.61 8.89 (3.1%)
Japanese Yen 151.06 137.01 10.3% 155.69 141.16 10.3%
Brazilian Real 7.42 6.61 12.3% 7.54 7.1 6.2%
Indian Rupee 101.67 95.1 6.9% 100.75 99.86 0.9%
South African Rand 20.32 21.08 (3.6%) 21.64 20.08 7.8%
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. END FR DDGDXRBGDGDDRecent news on Vesuvius
See all newsREG - Vesuvius plc - Final Results
AnnouncementREG-Vesuvius Plc: Director/PDMR Shareholding
AnnouncementREG-Vesuvius Plc: Total Voting Rights
AnnouncementREG-Vesuvius Plc: Acquisition
AnnouncementREG-Vesuvius Plc: Trading Statement
Announcement