REG - Vesuvius plc - Half-year Results
28/07/2022 07:17
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220728:nRSb9976Ta&default-theme=true
RNS Number : 9976T Vesuvius plc 28 July 2022
28 July 2022
Half Year Results for the six months ended 30 June 2022
Strong financial performance driven by full mitigation of inflationary
pressures and market share gains
Vesuvius plc, a global leader in molten metal flow engineering and technology,
announces its unaudited results for the six months ended 30 June 2022.
Financial summary H1 2022 H1 2021 Year-on-year change Underlying change((1))
(£m) (£m)
Revenue 1,015.9 808.1 +26% +21%
Trading Profit ((2)) (adjusted EBITA) 127.4 73.3 +74% +69%
Return on Sales ((2)) 12.5% 9.1% +340 bps +350 bps
Operating Profit 122.3 68.5 +79%
Profit Before Tax 116.7 65.5 +78%
Headline Profit Before Tax ((2)) 121.8 70.3 +73%
Profit 84.9 46.3 +83%
Headline Earnings ((2) ) 84.7 48.5 +75%
Statutory EPS (pence) 30.0p 15.9p +89%
Headline EPS ((2)) (pence) 31.4p 17.9p +75%
Adjusted operating cash flow ((2) ) 33.1 37.9 (13%)
Cash generated from operations 69.0 50.2 +37%
Net Debt ((2)) 327.7 196.6 +67%
Dividend (pence per share) 6.5p 6.2p +5%
( )
( (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 15 in the Condensed
Group Financial Statements.
Half Year 2022 Highlights
· Revenue of £1,015.9m, an increase of +21% on an underlying
basis
· Trading profit (adjusted EBITA) of £127.4m, an increase of 69%
on an underlying basis
· These increases were driven by:
o Selling price increases to fully mitigate inflationary pressures and cover
the price lag from 2021
o Market share gains across both divisions
o Predicated on the relevance of our technology-driven business model that
provides value for customers
· Positive volume growth of c.2% in our Steel Division (excluding
the impact of Universal business acquisition) in the world excluding China and
Iran, despite a 4% decline in the corresponding steel production. Volume
decline in China was limited to c.1% despite a 6.5% decline in the
corresponding steel production. Flow Control volume growth worldwide was above
the average of the Steel division
· Despite market share gains, the Foundry division saw a decline
in volume of c.3% due to continued weakness in the automotive market. It
however delivered strong volume growth in key developing markets including
Turkey (+9%), Brazil (+8%) and Vietnam (+6%)
· The integration of the Universal Refractories business is
proceeding as planned and performance remains ahead of our expectations
· Strategic capacity expansion in Flow Control in Asia and EMEA
remains on track
· Trade working capital/sales increased, as planned, to mitigate
supply chain disruptions, reaching 22.8% (12m average) versus 20.9% at FY2021
· Net debt /adjusted EBITDA((2)) of 1.3x at 30 June 2022 versus
1.4x at FY2021
· Doubling of our 2025 target for carbon footprint reduction from
10% to 20% (versus 2019 levels) and introducing an additional 2035 target of a
50% reduction
· Proposed interim dividend of 6.5p, a 5% increase on the prior
year
Comment from Patrick André, CEO:
"Despite difficult market conditions, we achieved a record level of trading
profit and profitability in the first half of 2022 thanks to the benefits of
the restructuring of our manufacturing footprint over the past years and our
continued investment in Research and Development. These results confirm the
long-term profitability potential of our activity under normal market
conditions and the importance of our technology driven business model.
"In the coming months, we expect a further deterioration of our market
environment. Vesuvius is, however, well prepared to confront this temporary
slowdown thanks to our lean, entrepreneurial and decentralised organisation.
This, together with the positive results of the first half, make us confident
that full year Group trading profit (EBITA) will be towards the top end of the
range of current analysts' expectations.((3))
"Beyond the current temporary slowdown of activity, we remain fully confident
in the longer-term growth potential of both our Steel and Foundry end markets
and are continuing at pace the implementation of our expansion programme
through capital investments, in particular in Flow Control."
(2) For definitions of non-GAAP measures, refer to Note 15 in the Condensed
Group Financial Statements.
(3) The range of analyst expectations as at 25 July 2022 for 2022 Trading
Profit (EBITA) is between £155m and £199m compiled by Vesuvius.
Presentation of Half Year 2022 Results
Vesuvius management will make a presentation to analysts and investors on 28
July 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/63b71e06-8646-4e38-83c0-104720326e9a)
. Participants can also join via an audio conference call. Please click here
(https://cossprereg.btci.com/prereg/key.process?key=PMNMAVGCY) 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
+44 (0) 7584 641 315
Euan Drysdale, Group Head of Corporate Finance
+44 (0) 7387 545 271
Rachel Stevens, Head of Investor Relations
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
Half Year Results for the six months ended 30 June 2022
Vesuvius delivered its strongest ever half year performance, driven by full
mitigation of inflationary pressures and market share gains
£m H1 2022 Reported Acquisitions / Disposals H1 2022 Underlying H1 2021 Reported Currency Acquisitions / Disposals H1 2021 Underlying Reported % Change Underlying % Change
Revenue 1,015.9 (18.3) 997.6 808.1 13.7 821.8 25.7% 21.4%
Trading Profit 127.4 (2.9) 124.5 73.3 0.3 73.6 73.8% 69.1%
Return on Sales 12.5% 12.5% 9.1% 9.0% +340bps +350bps
Group trading performance
In H1 2022, the Group generated revenues of £1,015.9m, an increase of 26%
compared to H1 2021, on a reported basis. Underlying Group revenue, adjusted
for the effects of currency translation and acquisitions/disposals, increased
by 21%, driven primarily by selling price increases which fully mitigated
inflationary pressures. Trading profit (adjusted EBITA) was £127.4m, an
increase of 74% on a reported basis and 69% on an underlying basis. The Group
achieved a return on sales of 12.5% in H1 2022, an increase of +340bps
(+350bps on an underlying basis) which brings our return on sales for the last
12 months to 10.6%, in line with that delivered in 2019. This was our
strongest ever half year performance, which was achieved despite a challenging
back drop of steel production declines and broad-based inflationary pressures.
Market backdrop
Steel production in the world excluding China and Iran, which accounts for
approximately 90% of Vesuvius' sales, decreased by -4% year-on-year to the end
of June (Source: the World Steel Association), with all major geographies
recording volume declines, except for India which grew by +9%. The production
declines in EMEA excluding Iran, NAFTA and South America were -9%, -2% and
-3%, respectively.
Non-automotive Foundry end-markets have achieved limited growth since H1 2021,
with production in general engineering, mining & construction, power
generation and railway & marine growing by +3%, +1%, +1% and -1%,
respectively, according to Oxford Economics data.
This contrasts with global production of light vehicles and medium & heavy
commercial vehicles which declined in H1 2022 versus H1 2021 by -3% and -28%,
respectively, according to IHS data. Encouragingly, automotive end markets
appear to have stabilised in H1 2022 versus H2 2021, with light vehicle
volumes up +1% and medium & heavy vehicles up +5%. These figures are more
likely to reflect a stabilisation than a return to growth given that
automotive production is typically higher in H1 versus H2 as a result of
summer plant shutdowns during the third quarter.
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 our key execution priorities. We continued to make progress on these
priorities in H1 2022, and believe we are well-positioned to deliver a robust
performance in the coming months.
· Reinforce our technology leadership
o Maintained our industry-leading level of R&D investment, with a 19%
increase in H1 2022 R&D spend to £17.6m, up from £14.8m in H1 2021
o We are targeting a doubling in Robot Casting Technology ("RCT") customer
installations by 2025
· Develop our technical service offering and increase the
penetration of our value-creating solutions
o Flow Control: Continued development of our RCT range for the ladle make-up
area. The Flow Control device and refractory consumables are tailor-made for
robotic operations. These products increase the ergonomics of the process,
consistency, productivity and reduce the cost of usage through greater
efficiency of refractory consumption and reduced manpower requirement
o Advanced Refractories: Further development of Vesuvius Advanced Robotic
Gunning ("VARG"), where we have partnered with a major steel producer to
commission the first VARG installation. VARG enables steel producers to
undertake fully automated, "hands-free" furnace repair gunning on BOF enabled
by a combination of advanced Vesuvius technology, systems and materials
o Foundry: Product for the rotary cleaning of steel, a new steel treatment
process that significantly reduces non-metallic inclusion defects in high
integrity castings, reducing the need for costly rectification.
· Capture growth in developing markets
o Our Steel division delivered strong growth in Brazil, India, Vietnam and
Turkey
o Our Foundry division delivered strong growth in Brazil, Vietnam and Turkey
· Improve our cost leadership and margins
o Return on sales increased to 12.5%, up 350bps versus H1 2021
o The Steel division return on sales improved 500bps to 13.7%, driven by the
recovery of the cost headwinds which impacted the division in 2021 and 2022
and a favourable mix effect with higher sales of Flow Control products
o The Foundry division achieved meaningful margin recovery compared to H2
2021, due to price increases and operational improvements at two important
plants in Germany and the USA
Enhanced ambitious sustainability targets for reducing our carbon emissions
In alignment with our target to achieve net zero by 2050, we have enhanced our
target for 2025 up to -20% (vs. 2019 levels), compared to our earlier target
of -10%, which we exceeded in 2021. We have also added a staging-point target
of -50% by 2035. Both targets are supported by a roadmap of actions to deliver
these savings, including planning our first pilot study to convert gas kilns
to electricity.
Good progress in integration of the Universal Refractories Inc ("Universal")
business
Following the acquisition of the Universal business in December 2021, it has
made a strong contribution to the Group to date, slightly ahead of plan. The
acquisition reinforces our core tundish business (within Advanced
Refractories) and expands our presence amongst the growing electric arc
furnace ("EAF") steel producers in North America, while also further
strengthening our Foundry business. During this initial period of integration,
we have sought to maintain and develop the strong elements of the business,
while realising synergies through the consolidation of both Advanced
Refractories and Foundry production lines. We have also implemented our global
health and safety standards and brought managers on to our incentive schemes,
such that they have a financial interest in the performance of Vesuvius. These
actions, combined with regular communication with the employee base, has
facilitated high employee retention through the transition period.
Foreign exchange
The net impact of average H1 2022 exchange rates compared to 2021 averages has
been an H1 2022 tailwind of approximately £2.6m at a trading profit level.
The implied impact of average H1 2022 exchange rates, when compared to average
2021 exchange rates, would be a tailwind of 3% on our 2022 full year trading
profit.
Selling price increases have fully mitigated all inflationary pressures
Our active management of selling prices has successfully offset all cost
inflation to date, with the recovery in full of the cost headwind that
impacted the Group in 2021. Our H1 2022 results bring our LTM margin to 10.6%,
in line with that delivered in 2019. We do not expect raw material costs to
continue to increase in 2022, although broader based inflation, energy and
labour costs remain under pressure.
Working capital
As indicated previously, we have continued to see working capital growth in
early 2022 due to higher business activity and our decision during 2021 to
build-up raw material inventory to counteract the risk of supply chain
disruption and ensure customer deliveries. This resulted in an increase in
trade working capital/sales to 22.8% (12m average) versus 20.9% at year-end
2021.
A reduction of working capital intensity is contingent on an improved supply
chain, which is not expected until late in 2022 or early 2023.
Tax
Our headline Effective Tax Rate ("ETR") for H1 2022 was 27.5% (H1 2021:
26.5%). This resulted in an H1 2022 headline tax charge of £33.2m (H1 2021:
£18.5m).
Capital expenditure
Capex for the period was £38.6m, over double that in H1 2021 of £17.6m.
Major projects included are the significant investment in additional Flow
Control capacity at the Skawina plant in Poland, to support the growing EEMEA
market, and the Flow Control capacity expansion in Kolkata, India to serve the
fast-growing markets of both India and South-East Asia.
Financial position and liquidity
As at 30 June 2022, Net Debt was £327.7m, up from £277.1m at the end of
2021. Our adjusted operating cash flow was £33.1m, after payment of £40.5m
of dividends, £5.3m of net finance costs, and £23.6m of income taxes.
Our Net Debt/adjusted EBITDA ratio was 1.3x at 30 June 2022, versus 1.4x at 31
December 2021. This provides us with significant headroom against our debt
covenant limit of 3.25x net debt/adjusted EBITDA. Our available committed
liquidity was £416m at 30 June 2022, compared to £456m at 31 December 2021.
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 1.07 in the first half of 2022,
broadly in-line with our record low level of 1.06 which we achieved in 2021.
Exposure to hostilities between Russia and Ukraine
We have ceased trading with all sanctioned customers in Russia. In parallel,
having considered the approach taken by the majority of our peers and the
effectiveness of stopping all trade with Russia, in that context we have now
resolved to continue to supply non-sanctioned customers in Russia.
Potential gas supply issues in Europe
At the time of writing, there is political uncertainty regarding the
sustainability of gas supplies from Russia into Europe over the coming months,
which could impact both our operations and those of our customers. We have
been reviewing possible scenarios and have put in place mitigation plans to
support our operations in Europe, including, if necessary, the mobilisation of
available production capacity in India, Mexico, the Middle East and China. As
a result, we anticipate that we will be able to continue providing essential
products and services to our European customers even in the case of a complete
cessation of Russian gas imports. Furthermore, as our most energy intensive
European based manufacturing processes were closed or transferred out of
Europe in the framework of our European footprint restructuring two years ago,
our exposure to rising European energy prices is now relatively limited.
Interim Dividend
The Board has declared an interim dividend of 6.5 pence per share, which is a
5% increase on the interim dividend for H1 2021 of 6.2 pence per share.
The interim dividend will be paid on 16 September 2022 to shareholders on the
register at the close of business on 5 August 2022. Any shareholder wishing to
participate in the Vesuvius Dividend Reinvestment Plan needs to have submitted
their election to do so by 25 August 2022.
Outlook
In the coming months, we expect a further deterioration of our market
environment. Vesuvius is, however, well prepared to confront this temporary
slowdown thanks to our lean, entrepreneurial and decentralised organisation.
This, together with the positive results of the first half, make us confident
that full year Group trading profit (EBITA)((1)) will be towards the top end
of the range of current analysts' expectations.((2))
Beyond the current temporary slowdown of activity, we remain fully confident
in the longer term growth potential of both our Steel and Foundry end markets
and are continuing at pace the implementation of our expansion programme
through capital investments, in particular in Flow Control.
(1) For definitions of non-GAAP measures, refer to Note 15 in the
Condensed Group Financial Statements.
(2) The range of analyst expectations as at 25 July 2022 for 2022
Trading Profit (EBITA) is between £155m and £199m compiled by Vesuvius.
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, decreased by 4% year-on-year to the end
of June, with all major geographies recording volume declines, except for
India which grew by9%. The production declines in EMEA excluding Iran, NAFTA
and South America were -9%, -2% and -3%, respectively.
Vesuvius' Steel Division reported revenues of £744.0m in H1 2022, an increase
of 31% compared to
H1 2021 on a reported basis. On an underlying basis, Steel Division revenue
was up 25% (2% volume), with particularly strong performance in Turkey,
Vietnam and India, where volumes grew 71%, 18% and 8%, respectively.
Flow Control strongly outperformed steel production in all regions, with
underlying sales growth of 25% (4% volume growth). Volume growth in the world
excluding China and Iran was 5%, versus a steel production decline of -4% in
the year to June, reflecting our ability to continue gaining market share,
even in a difficult cost and pricing environment, thanks to the technological
differentiation of our product range. In Advanced Refractories, we achieved
underlying sales growth of 24%, which included a volume decline limited to -1%
(excluding the impact of the Universal business acquisition), as compared with
a decline of 4% of world Steel volumes outside of China and Iran (-6.5% in
China).
Steel Division trading profit improved 106% to £101.7m. Return on sales
expanded 500bps to 13.7%, driven by two key factors: (1) recovery of the cost
headwind that impacted the Group in 2021 and 2022 and (2) a positive mix
effect due to higher volume growth in the more profitable Flow Control
products.
Steel Division H1 2022 (£m) H1 2021 (£m) Change Underlying change (%)
(%)
Flow Control Revenue 402.6 315.5 28% 25%
Advanced Refractories Revenue 320.8 238.6 35% 24%
Steel Sensors &Probes Revenue 20.6 16.2 27% 22%
Total Steel Revenue 744.0 570.3 31% 25%
Total Steel Trading Profit 101.7 49.4 106% 97%
Total Steel Return on Sales 13.7% 8.7% +500bps +500bps
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 H1 2022 (£m) H1 2021 (£m) Change Underlying change (%)
(%)
Americas 155.4 101.9 53% 43%
Europe, Middle East & Africa (EMEA) 142.2 124.1 15% 19%
Asia-Pacific 105.0 89.4 17% 13%
Total Flow Control Revenue 402.6 315.5 28% 25%
In H1 2022, underlying revenues in the Group's Flow Control business increased
by 25% year-on-year to £402.6m, driven by significant price increases and
market share gains in all regions.
In EMEA excluding Iran, revenues grew 19% year-on-year on an underlying basis,
resulting from significant price increases and a volume decline of -4%, which
represents an outperformance versus steel production which declined by -9% in
the year to June. Our outperformance in the region was greatest in Eastern
Europe, Middle East and Africa ("EEMEA") (excluding Iran), where we
experienced a volume decline of only -5% versus a -12% decline in steel
volumes.
In the Americas, underlying revenues grew 43%, also driven by significant
price rises. On a volume basis, we outperformed steel production growth in key
markets including Mexico, Brazil and the United States, where our volumes grew
6%, 5%, and 1%, respectively, versus steel production decline in the year to
June of -1%, -3% and -2% respectively.
In Asia Pacific, revenues grew +13% on an underlying basis, which included a
mix of both price rises and volume increases. On a volume basis, we
outperformed steel production growth in key markets such as Japan, Vietnam,
India and China where our volumes changed +16%, +18%, +13% and -2%,
respectively, versus changes in steel production in the year to June of -4%,
-7%, +9% and -6%.
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 H1 2022 (£m) H1 2021 (£m) Change Underlying change (%)
(%)
Americas 120.1 80.3 50% 20%
Europe, Middle East & Africa (EMEA) 120.1 90.3 33% 34%
Asia-Pacific 80.6 68.0 19% 16%
Total Advanced Refractories Revenue 320.8 238.6 35% 24%
Advanced Refractories reported revenues of £320.8m in H1 2022, an increase of
24% on an underlying basis, driven by significant price rises and an
outperformance of steel production volumes in several key regions, as we
regained market share lost in 2021, when we were a first mover in raising
prices to offset inflationary pressures.
On an underlying basis, revenues grew 20% in the Americas driven by price
rises. In EMEA excluding Iran, underlying revenues grew by 34% during the
period, driven by significant price rises and a volume decline of -4%, which
represents a material outperformance of steel production, which was down -9%
in the year to June.
In Asia Pacific, revenues grew 16% on an underlying basis, which included a
mix of both price rises and volume increases. On a volume basis, we
outperformed steel production growth in key markets such as Vietnam and China
where our volumes grew 17% and 2%, respectively, versus steel production
declines in the year to June of -7% and -6%.
Steel Sensors & Probes
The Steel Sensors & Probes business unit offers products to our customers
to enable them to make their underlying processes more efficient and reliable.
The business unit focuses on providing a range of products that enhance the
control and monitoring of our customers' production processes, complementing
Vesuvius' strong presence and expertise in molten metal engineering. 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 H1 2022 (£m) H1 2021 (£m) Change Underlying change (%)
(%)
Americas 13.8 10.5 31% 22%
Europe, Middle East & Africa (EMEA) 6.6 5.7 16% 21%
Asia-Pacific 0.2 0.1 287% 298%
Total Steel Sensors & Probes Revenue 20.6 16.2 27% 22%
Revenues in Steel Sensors & Probes were £20.6m in H1 2022, representing
an underlying increase of 22% year-on-year. The strong performance was driven
by price rises as well as new customer wins in both the Americas and EMEA.
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 H1 2022 (£m) H1 2021 (£m) Change Underlying change (%)
(%)
Foundry Revenue 271.9 237.8 14% 14%
Foundry Trading Profit 25.7 23.9 7% 9%
Foundry Return on Sales 9.5% 10.1% -60bps -40bps
Despite an improved level of trading profit resulting from successful price
increase initiatives, the profitability of the Foundry division in H1 2022 as
measured by return on sales was negatively impacted by a significant volume
decline in the light and heavy vehicles markets as compared with H1 2021,
which was not compensated by the slight improvement in other markets.
Global production of light vehicles and medium & heavy commercial vehicles
declined in H1 2022 versus H1 2021 by -3% and -28%, respectively, according to
IHS data. Encouragingly however, automotive end markets appear to have
stabilised in H1 2022 versus H2 2021, with light vehicle volumes up 1% and
medium & heavy vehicles up 5%. These figures are more likely to reflect a
stabilisation than a return to growth given that automotive production is
typically higher in H1 versus H2 as a result of summer plant shutdowns during
the third quarter.
Automotive production remains for the time being significantly below the
pre-covid level of 2019, with global light vehicle production in H1 2022
versus H1 2019 down -16% and medium & heavy commercial vehicles down -22%,
due to supply chain constraints such as the persistent semi-conductor
shortage.
In parallel, non-automotive Foundry end-markets have only achieved limited
growth globally since H1 2021, with production in general engineering, mining
& construction, power generation and railway & marine changing by +3%,
+1%, +1% and -1%, respectively, according to Oxford Economics data.
Vesuvius' Foundry Division reported revenues of £271.9m in H1 2022, an
increase of +14% compared to H1 2021 on a reported basis. On an underlying
basis, Foundry Division revenue was up +14%. This increase in revenues was
driven by price increases despite a low single digit volume decline due
primarily to continued weakness in automotive end markets.
The Foundry Division's margin, albeit lower than H1 2021, shows a meaningful
recovery compared to H2 2021 (+240bps), when trading profit was negatively
impacted by operational issues at two important plants in Germany and the USA
as well as the time lag between price and cost increases, which has now been
fully eliminated. Good progress has been made in resolving these operational
issues and we expect them to be fully eliminated during 2022.
When compared to H1 2021, trading profit increased by 9% on an underlying
basis to £25.7m.
Foundry Revenue H1 2022 (£m) H1 2021 (£m) Change Underlying change (%)
(%)
Americas 67.2 48.6 38% 25%
Europe, Middle East & Africa (EMEA) 116.9 104.4 12% 18%
Asia-Pacific 87.7 84.7 4% 2%
Total Foundry Revenue 271.9 237.8 14.3% 13.5%
Foundry revenues in the Americas grew 25% year-on-year on an underlying basis,
which reflects a significant increase in prices in addition to single digit
volume growth in key end markets such as Brazil (8%), Mexico (3%) and the
United States (3%). Volumes in the Americas benefitted from positive
year-on-year growth in NAFTA automotive production.
In EMEA, underlying revenues increased by 18% compared to H1 2021, which was
driven by price increases. Volumes posted a low single digit decline, driven
by production declines of greater than 10% in both the light vehicle and
medium & heavy vehicles markets.
In Asia Pacific, sales increased by 2% on an underlying basis, with a low
single digit volume decline driven by weakness in China due to two key
factors: the impact of further lock-downs resulting from an increase in
Covid-19 infections; and a decline in automotive production with light vehicle
and medium and heavy vehicle production down -5% and -52%, respectively.
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 15.1 to the Group Financial Statements for the
definition of headline performance.
H1 2022 performance overview
We are pleased with the performance of the Group in H1 2022, following
implementation of price increases to recover increased raw material costs.
Reported revenue increased by £207.8m (25.7%) over the prior year. H1 2021
revenues on H2 2022 FX rates were £821.7m. Revenue on a constant currency
basis (excluding the impact of acquisitions) grew by £175.8m (+21%), which
was almost entirely due to price increases. The revenue contribution from the
acquisition of the Universal business was £18.3m.
Our Steel division achieved positive volume growth of c.2% despite a 4%
decline in steel production in the world excluding China and Iran. Our Foundry
division experienced a low single digit volume decline due primarily to
continued weakness in automotive end markets.
The Group is actively managing working capital to drive a strong reduction in
inventory and overdues in response to weakening end markets.
Trading profit for H1 2022 was £127.4, 69.1% higher than prior year on an
underlying basis. This was a result of a £6.1m benefit from increased volumes
and mix, £10.3m recovery of comparable prior period input cost increases, and
a £34.5m benefit from the net impact of price rises. The Universal business
acquisition contributed £2.9m. Return on sales was 12.5%, higher than prior
year by 350 bps on an underlying basis.
Operating profit increased by 79% to £122.3m, reflecting the changes in
trading profit described above, net of amortisation of intangible assets of
£5.1m (HY21: £4.8m).
The Group's cash conversion in H1 2022 was impacted by increases in working
capital and higher investments in capex.
Dividend
The Board declared an interim dividend of 6.5 pence per share to be paid on 16
September 2022 to shareholders on the register at the close of business on 5
August 2022. Any shareholder wishing to participate in the Vesuvius Dividend
Reinvestment Plan needs to have submitted their election to do so by 25 August
2022.
It remains the Board's intention to deliver long-term dividend growth,
provided this is supported by underlying earnings and cash flows, and taking
into account capital expenditure requirements and the prevailing market
outlook.
Key Performance Indicators
We have identified a number of KPIs against which we have consistently
reported. As with prior years, we measure our results on an underlying basis,
where we adjust to ensure appropriate comparability between periods,
irrespective of currency fluctuations and any business acquisitions and
disposals.
This is done by:
· Restating the previous period's results at the same foreign
exchange (FX) rates used in the current period
· Removing the results of disposed businesses in both the current
and prior years
· Removing the results of acquired businesses in both the current
and prior years
Therefore, for 2022, we have retranslated 2021 results at the FX rates used in
calculating the 2022 results. Adjustment has also been made for 2022 results
to remove the results of Universal, which was acquired during 2021.
Objective: Deliver growth
KPI: Underlying revenue growth
Reported revenue for H1 2022 was £1,015.9m. Reported revenue for H1 2021 was
£808.1m which equated to £821.8m on an underlying basis. H1 2022 underlying
revenue increased by 21.4% year-on-year. The strong increase in revenue in
Steel has been driven by strong price increases (+23% price) as well as strong
underlying performance in Steel (+2% volume). The Foundry Division increase in
revenues was driven primarily by price increases.
£m H1 2022 Revenue H1 2021 Revenue % change
As reported Acquisition/ Underlying As reported Currency Acquisition/ Underlying Reported Underlying
Disposals Disposals
Steel 744.0 (17.3) 726.8 570.3 12.9 - 583.1 31% 25%
Foundry 271.9 (1.0) 270.8 237.8 0.9 - 238.7 14% 14%
Total Group 1,015.9 (18.3) 997.6 808.1 13.7 - 821.8 26% 21%
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 H1 2022 was £127.4m and Return on Sales was 12.5%. On an
underlying basis, trading profit of £124.5m increased by 69% and Return on
Sales by 350bps versus prior year. The increase in trading profit and Return
on Sales is due to pricing in Steel and Foundry, and volume growth in Steel.
In H1 2022, the Steel Division recorded underlying Return on Sales of 13.6%, a
500bps underlying improvement from H1 2021. Trading profit increased by 97% on
an underlying basis, to £99.0m during the period.
The Foundry division recorded underlying Return on Sales of 9.4%, a 40bps
decline from H1 2021 on an underlying basis. Underlying trading profit was
£25.5m representing an 8.8% increase on an underlying basis versus prior
year.
£m H1 2022 Trading profit H1 2021 Trading profit % change
As reported Acquisition/ Underlying As reported Currency Acquisition/ Underlying Reported Underlying
Disposals Disposals
Steel 101.7 (2.7) 99.0 49.4 0.8 - 50.2 106% 97%
Foundry 25.7 (0.2) 25.5 23.9 (0.5) - 23.4 7% 9%
Total Group 127.4 (2.9) 124.5 73.3 0.3 - 73.6 74% 69%
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
£6.6m in H1 2022, £3.0m higher than H1 2021.
Our Headline PBT was £121.8m, 73.3% above last year on a reported basis.
Including amortisation of acquired intangibles of £5.1m, our PBT of £116.7m
was 78% higher than H1 2021. Headline EPS from continuing operations at 31.4p
is 75% higher than H1 2021.
KPI: Return on invested capital (ROIC)
ROIC has been recently introduced as a KPI to measure the returns we generate
on the capital provided to us by our investors. The choice of ROIC as our
preferred returns metric is predicated on it being a return that is applicable
to both equity and debt investors and in addition is a post-tax measure. Our
ROIC for the 12 months to 30 June 2022 was 9.6% (12 months to 31 December
2021: 7.4% on a constant currency basis). See note 15.18 for details of
calculation.
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 flows of
£33.1m, representing a 13% decrease versus H1 2021. This implies a cash
conversion rate in H1 2022 of 26% (2021: half year 52%; full year 32%). H1
2022 cash conversion was impacted by growing working capital and higher
investments in capex. Free cash flow from continuing operations was £1.5m in
H1 2022 (2021: half year £16.4m; full year £(0.3)m).
We measure working capital both in terms of actual cash flow movements, and as
a percentage of sales revenue. Trade working capital as a percentage of sales
in H1 2022 was 22.8% (2021: half year 20.7%; full year 20.9%), measured on a
12-month moving average basis. In absolute terms on a constant currency basis
trade working capital increased by £93.1m in H1 2022.
The increase in inventory on a constant currency basis versus December 2021
(+£40.3m) and debtors (+£62.9m) was partially offset by an increase in
creditors (+£10.1m).
£40.3m inventory increase was mainly reported in finished goods (£23.6m) and
raw materials (£17.8m).
The £62.9m increase in trade debtors on a constant currency basis versus
December 2021 was mainly recorded in current debtors +£56.1m. £7.0m increase
was reported in overdues over 30 days. Regionally, the increase in overdues
was reported in EMEA (£6.2m), partially offset by a decrease in NAFTA
(£1.9m). While total trade debtors have increased, debtors days have remained
relatively flat. We continue our focus on driving down overdues.
KPI: Net debt and interest cover
The Group had committed borrowing facilities of £721.4m as at 30th June 2022
(2021: 30 June £664.0m; 31 December £706.3m), of which £257.1m was undrawn
(2021: 30 June £348.7m; 31 December £308.1m).
At the end of H1 2022, the net debt to EBITDA ratio was 1.3x (2021: 30 June
1.1x; 31 December 1.4x) and EBITDA to interest was 29.2x (2021: 30 June 21.4x;
31 December 30.5x). These ratios are monitored regularly to ensure that the
Group has sufficient financing available to run the business and fund future
growth.
The Group's debt facilities have two financial covenants: the ratios of net
debt to EBITDA (maximum 3.25x limit) and EBITDA to interest (minimum 4x
limit). Certain adjustments are made to the net debt calculations for bank
covenant purposes, the most significant of which is to exclude the impact of
IFRS 16.
Objective: Think beyond innovation
KPI: R&D Spend
We believe that our market-leading product technology and services deliver
fundamental value to our customers and that the primary mechanism to deliver
that value is to invest significantly in research and development. In H1 2022,
we spent £17.6m on R&D activities (2021: half year £14.8m; full year
£30.6m at constant 2022 currency), which represents 1.7% of our revenue
(2021: half year 1.8%; full year 1.8%).
Financial Risk Factors
The Group undertakes regular risk reviews and, as a minimum, a full risk
assessment process twice a year. As in previous years this included input from
the Board in both the assessment of risk and the proposed mitigation. We
consider the main financial risks faced by the Group as being those posed by a
decline in our end-markets, leading to reduced revenue and profit as well as
potential customer default. We also carefully monitor the challenges that come
from broader financial uncertainty, which could bring lack of liquidity and
market volatility. Important but lesser risk exists in interest rate
movements, foreign exchange rate movements and cost inflation, but these are
not expected to have a material impact on the business after considering the
controls we have in place.
Our key mitigation of end-market risk is to manage the Group's exposure
through balancing our portfolio of business geographically and to invest in
product innovation. We do so through targeted capital investment in new and
growing businesses and a combination of capital and human resource in emerging
markets. When considering other financial risks, we mitigate liquidity
concerns by financing, using both the bank and private placement markets. The
Group also seeks to avoid a concentration of debt maturities in any one period
to spread its refinancing risk. Liquidity stood at £416.2m on 30 June 2022.
We define liquidity as undrawn committed debt facilities plus our cash on
balance sheet, less the cash in China which is used as collateral against an
equivalent loan from Standard Chartered.
Taxation
A key measure of the Group's tax burden is the headline effective tax rate,
which the Group calculates on the income tax associated with headline
performance, divided by the headline profit before tax and before the Group's
share of post-tax profit of joint ventures. The Group's headline effective tax
rate was in-line with expectations at 27.5% in H1 2022 (2021: half year 26.5%;
full year 26.4%) based on the income tax costs associated with headline
performance of £33.2m (2021: half year £18.5m; full year £35.9m).
We expect the Group's 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 H1 2022 was £38.2m (2021: half year £20.6m; full year
£67.4m) of which £33.2m was in the Steel Division (2021: half year £16.1m;
full year £47.2m) and £5.0m in the Foundry Division (2021: half year £4.5m;
full year £20.2m).
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. In the funded UK plan, an
insurance asset from PIC 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 this UK Plan. The
Group's net pension liability on 30 June 2022 was £54.0m (2021 full year:
£77.0m deficit). The improvement is largely attributable to £27.9m from
changes to actuarial assumptions (increasing discount rates; updated mortality
assumptions and pension membership data) which was mainly due to an increase
in bond yields resulting in a reduction in the value of German, Belgian and US
liabilities. These gains were partially offset by foreign exchange losses of
£4.0m.
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 below, certain elements of the Group's risks have
manifested in 2022 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 2022
The Board believes that there has been no material change to the Group's
principal risks and uncertainties during the year to date. However, as in
previous years, a number of issues identified in the Group's principal risks
and uncertainties have materialised in the first half of the year. These are
most notably:
- End Market Risk: The Board continues to monitor the implications
of the changing global economic environment, with short term forecasts for
steel volumes and automotive output having been revised downwards (despite the
longer term growth trend continuing). The implications of inflation (seen most
notably in energy prices) and interest rate increases are closely monitored,
particularly as the effects are not universal across the globe with some of
our jurisdictions suffering much higher inflationary pressures than others,
impacting our staff and the cost base of our business.
- Health & Safety/Business Interruption: Whilst the effects of
the Covid pandemic have receded in many places, the Board is still keenly
focused on managing the risks this poses, both for the health and safety of
our employees and the effects on our business. The impact of Covid continues
to bring some uncertainty, particularly in jurisdictions where specific
lockdowns can still be imposed, which could affect our manufacturing base and
ability to operate as well as that of our customers.
- Protectionism and Globalisation: As set out elsewhere in this
release, at the time of writing, there is political uncertainty regarding the
sustainability of gas supplies from Russia into Europe over the coming months,
which could impact both our operations and those of our customers. We have
been reviewing possible scenarios and have put in place mitigation plans to
support our operations in Europe, including, if necessary, the mobilisation of
available production capacity in India, Mexico, Middle East and China. As a
result, we anticipate that we will be able to continue providing essential
products and services to our European customers even in case of a complete
cessation of Russian gas imports. Furthermore, as our most energy intensive
European based manufacturing processes were closed or transferred out of
Europe in the framework of our European footprint restructuring two years ago,
our exposure to rising European energy prices is now relatively limited.
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 customers' sustainability transition - badged as ESG - are identified
as a separate element of the Group risk register, recognising the work
Vesuvius can do to mitigate the environmental impact of our customers'
processes. Other elements of this risk are incorporated into the appropriate
Principal Risk and Uncertainties that the Group has identified. The Group
continues to focus internally on the action we can take to drive our business'
sustainability. In the first half of 2022, 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
CO(2) 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
Half Year Results for the six months ended 30 June 2022
Directors' responsibility statement
We confirm that to the best of our knowledge:
(a) The Condensed Group Financial Statements have been prepared in accordance
with UK adopted International Accounting Standard 34, 'Interim Financial
Reporting' and give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group as required by DTR 4.2.4 R; and
(b) This half-yearly financial report includes a fair review of the
information required by:
- DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the financial year; and
- DTR 4.2.8R of the Disclosure and Transparency Rules, being related parties'
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or the
performance of the Group during that period; and any changes in the related
parties' transactions described in the last Annual Report that could do so.
The names and functions of the Directors of Vesuvius plc are as follows:
John McDonough CBE Chairman
Patrick André Chief Executive
Guy Young Chief Financial Officer
Douglas Hurt Non-executive Director,
Senior Independent Director and
Chairman of the Audit Committee
Kath Durrant Non-executive Director and
Chairman of the Remuneration
Committee
Dinggui Gao Non-executive Director
Friederike Helfer Non-executive Director
Jane Hinkley Non-executive Director
On behalf of the Board
Guy Young
Chief Financial Officer
27 July 2022
Independent review report to Vesuvius plc
Report on the Condensed Group Financial Statements
Our conclusion
We have reviewed Vesuvius plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Half Year Results of
Vesuvius plc for the 6 month period ended 30 June 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed Group Balance Sheet as at 30 June 2022;
· the Condensed Group Income Statement and Condensed Group Statement of
Comprehensive Income for the period then ended;
· the Condensed Group Statement of Cash Flows for the period then
ended;
· the Condensed Group Statement of Changes in Equity for the period
then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year Results of Vesuvius
plc have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Half Year Results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year Results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Half Year Results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the Half Year Results, including the
interim financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Half Year Results based on our review. Our conclusion,
including our Conclusion relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 July 2022
Condensed Group Income Statement
For the six months ended 30 June 2022
Half year 2022 (Unaudited) Half year 2021 (Unaudited) Full year 2021
Headline performance((1)) Separately reported items((1)) Total Headline performance((1)) Separately reported items((1)) Total Headline performance((1)) Separately reported items((1)) Total
Continuing operations Notes £m £m £m £m £m £m £m £m £m
Revenue 2 1,015.9 - 1,015.9 808.1 - 808.1 1,642.9 - 1,642.9
Manufacturing costs (718.0) - (718.0) (592.6) - (592.6) (1,222.8) - (1,222.8)
Administration, selling & distribution costs (170.5) - (170.5) (142.2) - (142.2) (277.7) - (277.7)
Trading profit((2)) 2 127.4 - 127.4 73.3 - 73.3 142.4 - 142.4
Amortisation of acquired intangible assets - (5.1) (5.1) - (4.8) (4.8) - (9.7) (9.7)
Operating profit/(loss) 2 127.4 (5.1) 122.3 73.3 (4.8) 68.5 142.4 (9.7) 132.7
Finance expense (9.2) - (9.2) (6.2) - (6.2) (13.7) - (13.7)
Finance income 2.6 - 2.6 2.6 - 2.6 7.3 - 7.3
Net finance costs 3 (6.6) - (6.6) (3.6) - (3.6) (6.4) - (6.4)
Share of post-tax profit of joint ventures and associates 1.0 - 1.0 0.6 - 0.6 1.3 - 1.3
Profit/(loss) before tax 2 121.8 (5.1) 116.7 70.3 (4.8) 65.5 137.3 (9.7) 127.6
Income tax (charge)/credits 4 (33.2) 1.4 (31.8) (18.5) (0.7) (19.2) (35.9) 16.2 (19.7)
Profit/(loss) 88.6 (3.7) 84.9 51.8 (5.5) 46.3 101.4 6.5 107.9
Profit/(loss) attributable to:
Owners of the parent 84.7 (3.7) 81.0 48.5 (5.5) 43.0 95.6 6.5 102.1
Non-controlling interests 3.9 - 3.9 3.3 - 3.3 5.8 - 5.8
Profit/(loss) 88.6 (3.7) 84.9 51.8 (5.5) 46.3 101.4 6.5 107.9
Earnings per share - pence 5
- basic 30.0 15.9 37.7
- diluted 29.8 15.8 37.5
(1) Headline performance and Separately reported items are non-GAAP
measures. Headlineperformance is defined in Note 15.1 and Separately reported
items are defined in Note 1.5.
(2) Trading profit is a non-GAAP measure and is defined in Note 15.4.
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 £175.6m (2021 half year: £147.0m, 2020 full year:
£287.4m).
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2022
Unaudited Unaudited
Half year Half year Full year
2022 2021 2021
Notes £m £m £m
Profit 84.9 46.3 107.9
Items that will not subsequently be reclassified to income statement:
Remeasurement of defined benefit assets/liabilities 27.9 8.5 (80.6)
Income tax relating to items not reclassified 4 (7.9) (9.6) 12.5
Items that may subsequently be reclassified to income statement:
Exchange differences on translation of the net assets of foreign 100.4 (28.8) (31.4)
Operations
Exchange differences arising on translation of net investment hedges (11.6) 10.3 14.4
Net change in costs of hedging - (0.3) (1.2)
Change in the fair value of the hedging instrument 6.8 (0.2) 2.2
Amounts reclassified from the income statement (7.1) 0.7 (0.7)
Other comprehensive income (loss), net of income tax 108.5 (19.4) (84.8)
Total comprehensive income 193.4 26.9 23.1
Total comprehensive income attributable to:
Owners of the parent 186.9 24.9 17.7
Non-controlling interests 6.5 2.0 5.4
Total comprehensive income 193.4 26.9 23.1
The above results were derived from continuing operations.
Condensed Group Statement of Cash Flows
For the six months ended 30 June 2022
Unaudited Unaudited
Half year Half year Full year
2022 2021 2021
Notes £m £m £m
Cash flows from operating activities
Cash generated from operations 8 69.0 50.2 82.9
Interest paid (7.4) (5.5) (11.9)
Interest received 2.1 2.1 4.3
Income taxes paid (23.6) (13.7) (30.1)
Net cash inflow from operating activities 40.1 33.1 45.2
Cash flows from investing activities
Capital expenditure (38.6) (17.6) (45.5)
Proceeds from the sale of property, plant and equipment 1.3 0.6 1.2
Acquisition of subsidiaries and joint ventures, net of cash acquired 12 0.5 - (43.7)
Dividends received from joint ventures - 1.0 1.0
Net cash outflow from investing activities (36.8) (16.0) (87.0)
Net cash inflow/(outflow) before financing activities 3.3 17.1 (41.8)
Cash flows from financing activities
Proceeds from borrowings 7 50.1 - 89.4
Repayment of borrowings 7 (9.1) (22.5) (31.4)
Purchase of ESOP Shares (1.9) - (1.1)
Dividends paid to equity shareholders 6 (40.5) (38.7) (55.5)
Dividends paid to non-controlling shareholders (1.3) (0.7) (2.2)
Net cash (outflow) from financing activities (2.7) (61.9) (0.8)
Net (decrease)/increase in cash and cash equivalents 7 0.6 (44.8) (42.6)
Cash and cash equivalents at 1 January 162.4 206.8 206.8
Effect of exchange rate fluctuations on cash and cash equivalents 9.2 (4.0) (1.8)
Cash and cash equivalents at the end of the reporting period 172.2 158.0 162.4
Free cash flow 15.11
Net cash inflow from operating activities 40.1 33.1 45.2
Capital expenditure (38.6) (17.6) (45.5)
Proceeds from the sale of property, plant and equipment 1.3 0.6 1.2
Dividends received from joint ventures - 1.0 1.0
Dividends paid to non-controlling shareholders (1.3) (0.7) (2.2)
Free cash flow(1) 15.11 1.5 16.4 (0.3)
((1))For definitions of alternative performance measures, refer to Note 15
Condensed Group Balance Sheet
As at 30 June 2022
Unaudited Unaudited
Half year Half year Full year
2022 2021 2021
Notes £m £m £m
Assets
Property, plant and equipment 380.2 325.1 352.5
Intangible assets 732.6 675.5 696.8
Employee benefits - surpluses 9 24.5 113.2 25.1
Interests in joint ventures and associates 14.5 11.6 12.8
Investments 0.8 0.9 0.5
Deferred tax assets 94.8 84.9 104.2
Other receivables 18.8 17.7 16.2
Derivative financial instruments 14 3.1 - -
Total non-current assets 1,269.3 1,228.9 1,208.1
Cash and short-term deposits 7 177.2 162.1 169.1
Inventories 360.7 236.9 299.4
Trade and other receivables 547.1 410.2 445.2
Income tax receivable 2.3 1.8 7.6
Derivative financial instruments 14 0.2 - 0.1
Assets classified as held for sale - 0.9 -
Total current assets 1,087.5 811.9 921.4
Total assets 2,356.8 2,040.8 2,129.5
Condensed Group Balance Sheet (continued)
As at 30 June 2022
Unaudited Unaudited
Half year Half year Full year
2022 2021 2021
Notes £m £m £m
Equity
Issued share capital 27.8 27.8 27.8
Retained earnings 2,545.5 2,508.1 2,483.4
Other reserves (1,381.7) (1,468.3) (1,467.6)
Equity attributable to the owners of the parent 1,191.6 1,067.6 1,043.6
Non-controlling interests 59.8 52.7 54.6
Total equity 1,251.4 1,120.3 1,098.2
Liabilities
Interest-bearing borrowings 7 348.2 273.1 329.9
Employee benefits - liabilities 9 78.5 102.3 102.1
Other payables 7.8 9.4 11.6
Provisions 13 36.0 32.4 32.6
Income tax liabilities - - -
Deferred tax liabilities 28.9 49.7 29.6
Derivative financial instruments 14 - 5.0 2.5
Total non-current liabilities 499.4 471.9 508.3
Interest-bearing borrowings 7 159.8 80.4 113.8
Trade and other payables 416.8 341.7 372.9
Income tax payable 11.9 9.2 18.1
Provisions 13 17.3 17.2 18.1
Derivative financial instruments 14 0.2 0.1 0.1
Total current liabilities 606.0 448.6 523.0
Total liabilities 1,105.4 920.5 1,031.3
Total equity and liabilities 2,356.8 2,040.8 2,129.5
Condensed Group Statement of Changes in Equity
For the six months ended 30 June 2022
Issued share capital Other reserves Retained earnings Owners of the parent Non-controlling interests Total equity
£m £m £m £m £m £m
As at 1 January 2022 27.8 (1,467.6) 2,483.4 1,043.6 54.6 1,098.2
Profit - - 81.0 81.0 3.9 84.9
Remeasurement of defined benefit assets/liabilities - - 27.9 27.9 - 27.9
Income tax relating to items not reclassified - - (7.9) (7.9) - (7.9)
Exchange differences on translation of the net assets of foreign operations - 97.8 - 97.8 2.6 100.4
Exchange differences arising on translation of net investment hedges - (11.6) - (11.6) - (11.6)
Net change in costs of hedging - - - - - -
Change in the fair value of the hedging instrument - 6.8 - 6.8 - 6.8
Amounts reclassified from the income statement - (7.1) - (7.1) - (7.1)
Other comprehensive income/(loss), net of income tax - 85.9 20.0 105.9 2.6 108.5
Total comprehensive income/(loss) - 85.9 101.0 186.9 6.5 193.4
Recognition of share-based payments - - 3.5 3.5 - 3.5
Purchase of ESOP shares - - (1.9) (1.9) - (1.9)
Dividends paid (Note 6) - - (40.5) (40.5) (1.3) (41.8)
Total transactions with owners - - (38.9) (38.9) (1.3) (40.2)
As at 30 June 2022 27.8 (1,381.7) 2,545.5 1,191.6 59.8 1,251.4
Issued share capital Other reserves Retained earnings Owners of the parent Non-controlling interests Total equity
£m £m £m £m £m £m
As at 1 January 2021 27.8 (1,451.3) 2,502.9 1,079.4 51.4 1,130.8
- - 43.0 43.0 3.3 46.3
Profit
Remeasurement of defined benefit liabilities/assets - - 8.5 8.5 - 8.5
Income tax relating to items not reclassified - - (9.6) (9.6) - (9.6)
Exchange differences on translation of the net assets of foreign operations - (27.5) - (27.5) (1.3) (28.8)
Exchange differences arising on translation of net investment hedges - 10.3 - 10.3 - 10.3
Net change in costs of hedging - (0.3) - (0.3) - (0.3)
Change in the fair value of the hedging instrument - (0.2) - (0.2) - (0.2)
Amounts reclassified from the Income Statement - 0.7 - 0.7 - 0.7
Other comprehensive income/(loss), net of income tax - (17.0) (1.1) (18.1) (1.3) (19.4)
Total comprehensive income/(loss) - (17.0) 41.9 24.9 2.0 26.9
Recognition of share-based payments - - 2.0 2.0 - 2.0
Dividends paid (Note 6) - - (38.7) (38.7) (0.7) (39.4)
Total transactions with owners - - (36.7) (36.7) (0.7) (37.4)
As at 30 June 2021 27.8 (1,468.3) 2,508.1 1,067.6 52.7 1,120.3
Basis of preparation
1.1 Basis of accounting
These Condensed Group Financial Statements of Vesuvius plc ("Vesuvius" or the
"Company") and its subsidiary and joint venture companies (the "Group") have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority.
These Condensed Group Financial Statements have been prepared using the same
accounting policies as used in the preparation of the Group's Annual financial
statements for the year ended 31 December 2021, except for taxes on income in
the interim period which are accrued using the tax rate that would be
applicable to the expected total annual profit or loss. The assessment of the
Group's critical accounting estimates and judgements remain consistent with
the 2021 Annual Report and Financial Statements. The Group's Annual report
and financial statements for the year ended 31 December 2021 were prepared in
accordance with UK-adopted international accounting standards (IFRS) and the
requirements of the Companies Act 2006.
The Condensed Group Financial Statements do not include all of the information
required for full annual financial statements, and should be read in
conjunction with the consolidated financial statements of the Group for the
year-ended 31 December 2021. The financial information presented in this
document is unaudited but has been reviewed by the Company's auditor.
The comparative figures for the financial year ended 31 December 2021 are not
the Group's statutory accounts for that financial year but have been extracted
from those accounts. Those accounts have been reported on by the Company's
auditor and delivered to Companies House. The report of the auditor was
unqualified, did not include reference to any matters to which the auditor
drew attention by way of emphasis without qualifying its report and did not
contain a statement under section 498(2) or (3) of the Companies Act 2006.
These sections address whether proper accounting records have been kept,
whether the Company's accounts are in agreement with those records and whether
the auditor has obtained all the information and explanations necessary for
the purposes of its audit.
1.2 Basis of consolidation
The Condensed 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 Condensed 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
Condensed 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 Condensed 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 less their
dividends since the date of the combination. Their share of comprehensive
income/(loss) is attributed to the non-controlling interests even if this
results in the non-controlling interests having a deficit balance.
1.3 Going concern
The Directors have prepared cash flow scenarios for the Group for a period at
least 12 months from the date of approval of the 2022 Interim Condensed
Financial Statements. These forecasts reflect an assessment of current and
future end market conditions, including the impact of covid-related lockdowns
in China and war in Ukraine, and their impact on the Group's future trading
performance. The analysis undertaken includes a severe but plausible downside
scenario which assumes a decline in business activity and profitability in H2
2022 to the level achieved in H2 2020. Relative to H1 2022, this implies an
c.30% decline in sales and a c.60% decline in Trading Profit, with no
improvement from this level assumed in 2023. 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 1.0x, compared to a
leverage covenant of 3.25x.
On the basis of the exercise described above and the Group's available
committed liquidity which stands at £416m at 30 June 2022, 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 Interim Condensed Financial Statements. Accordingly, they
continue to adopt a going concern basis in preparing the Condensed Financial
statements of the Group and the Company.
1.4 Functional and presentational currency
The financial statements are presented in millions of pounds sterling, which
is the functional currency of the Company, and rounded to one decimal place.
1.5 Disclosure of "separately reported items"
Columnar presentation
The Group has adopted a columnar presentation for its Condensed Group Income
Statement, to separately identify headline performance results, as the
Directors consider that this gives a useful view of the underlying 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.
1.6 New and revised IFRS
Certain new accounting standards and interpretations have been published that
are applicable for periods commencing 1 January 2022 and others that are not
mandatory for reporting periods commencing on 1 January 2022 and have not been
early adopted by the Group. The Group's assessment of the impact of these new
standards and interpretations is that they are not expected to have a
significant impact on the Group's financial position, performance, cash flows
and disclosures.
Benchmark reform
The replacement of Libor with alternative interest rate benchmarks is now well
progressed and the Group has reviewed the impact of this on its financial
statements.
The £385m central bank facility signed on 5 July 2021 provides for the use of
SONIA and EURIBOR for GBP and EUR drawdowns respectively. USD Libor remains
quoted until June 2023; a replacement reference rate for USD drawdowns will be
agreed by that date as provided for within the terms of the facility.
The Group's US private placement notes and cross currency interest rate swaps
are not exposed to Libor rates and as a result are unaffected by the benchmark
reform. The Group's £19m bi-lateral loan agreement was amended in October
2021 with GBP Libor replaced by SONIA.
The Group concludes that benchmark reform has no material impact on its
financial statements. The Group also confirms it has made no changes to its
risk management strategy as a result of benchmark reform.
Hyperinflationary accounting in Turkey
Turkey became a hyperinflationary economy from 1 April 2022 and IAS 29
'Financial Reporting in Hyperinflationary Economies' is effective for periods
ending on or after 30 June 2022. The group operates in Turkey through its
subsidiary, Vesuvius Istanbul Sanayi ve Ticaret AS.
The standard applies retrospectively and impact assessments for the year ended
31 December 2021 and period ended 30 June 2022 have been completed. We have
concluded that the impact of hyperinflation in Turkey is not material for
adjustment as at 1 January 2022 and for the half year results to 30 June 2022.
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 makes the key operating decisions and is responsible for allocating
resources and assessing performance of the components. Taking into account the
Group's management and internal reporting structure, the operating segments
are Steel Flow Control, Steel Advanced Refractories, Steel Sensors &
Probes and the Foundry Division. The principal activities of each of these
segments are described in the 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.
The revenue recognition policy applicable to the current and comparative
periods and information about the Group's performance obligations was
disclosed in Note 5 of the 2021 Annual Report and Financial Statements.
Segmental analysis
Unaudited Half Year 2022
Flow Control Advanced Refractories Sensors Steel Foundry Total
& Probes
£m £m £m
Segment revenue 402.6 320.8 20.6 744.0 271.9 1,015.9
at a point in time 743.3 271.9 1,015.2
Over time 0.7 - 0.7
Segment adjusted EBITDA * 119.5 34.1 153.6
Segment depreciation (17.8) (8.4) (26.2)
Segment trading profit 101.7 25.7 127.4
Return on sales # 13.7% 9.5% 12.5%
Amortisation of acquired intangible assets (5.1)
Operating profit 122.3
Net finance costs (6.6)
Share of post-tax profit of joint ventures 1.0
Profit before tax 116.7
Capital expenditure additions 33.2 5.0 38.2
Inventory 296.7 64.0 360.7
Trade debtors 334.2 103.9 438.1
Trade creditors (210.3) (68.6) (278.9)
Unaudited Half Year 2021
Flow Control Advanced Refractories Sensors Steel Foundry Total
& Probes
£m £m £m
Segment revenue 315.5 238.6 16.2 570.3 237.8 808.1
at a point in time 567.4 237.8 805.2
Over time 2.9 - 2.9
Segment adjusted EBITDA * 66.0 31.8 97.8
Segment depreciation (16.6) (7.9) (24.5)
Segment trading profit 49.4 23.9 73.3
Return on sales # 8.7% 10.1% 9.1%
Amortisation of acquired intangible assets (4.8)
Operating profit 68.5
Net finance costs (3.6)
Share of post-tax profit of joint ventures 0.6
Profit before tax 65.5
Capital expenditure additions 16.1 4.5 20.6
Inventory 189.2 47.7 236.9
Trade debtors 248.2 89.8 338.0
Trade creditors (162.7) (64.7) (227.4)
Full Year 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 # 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)
# Return on sales is defined in note 15.3
* Adjusted EBITDA is defined in note 15.13
3 Net finance costs
Unaudited Half year Unaudited Half year Full year
2022 2021 2021
£m £m £m
Interest payable on borrowings
Loans and overdrafts 6.7 5.0 10.7
Interest on lease liabilities 0.8 0.7 1.5
Amortisation of capitalised arrangement costs 0.5 0.1 0.8
Total interest payable on borrowings 8.0 5.8 13.0
Interest on net retirement benefits obligations 0.7 (0.1) (0.3)
Adjustments to discounts on provisions and other liabilities 0.5 0.4 0.7
Adjustments to discounts on receivables (0.3) (0.2) (0.3)
Finance income (2.3) (2.3) (6.7)
Total net finance costs 6.6 3.6 6.4
Within the table above, total finance costs are £9.2m (2021 half year:
£6.2m, 2021 full year: £13.7m) and total finance income is £2.6m (2021 half
year: £2.6m, 2021 full year: £7.3m).
4 Income tax
A key measure of the Group's tax burden is the headline effective tax rate,
which the Group calculates on the income tax associated with headline
performance, divided by the headline profit before tax excluding the Group's
share of post-tax profit of joint ventures. The Group's headline effective tax
rate was in-line with expectations at 27.5% in H1 2022 (2021: half year 26.5%;
full year 26.4%) based on the income tax costs associated with headline
performance of £33.2m (2021: half year £18.5m; full year £35.9m).
The Group's total income tax costs include a credit of £1.4m (2021 half year:
£0.7m debit; 2021 full year: £16.2m credit) relating to separately reported
items comprising a credit of £nil (2021 half year: £nil; 2021 full year
£16.0m credit) relating to the recognition of US deferred tax assets and a
credit of £1.4m (2021 half year: £nil; 2021 full year £0.2m credit)
relating to the amortisation of intangible assets.
The net income tax debit reflected in the Condensed Group Statement of
Comprehensive Income amounted to £7.9m (2021 half year: £9.6m debit; 2021
full year: £13.0m credit), comprising the following:
· a debit of £7.9m (2021: half year £9.6m credit, inclusive of
the restatement of UK deferred tax from 19% to 25%; full year £12.5m credit,
inclusive of the buy-in of the UK pension scheme and the restatement of UK
deferred tax from 19% to 25%) in respect of tax on net actuarial gains and
losses on the employee benefits; and
· a debit of £nil in respect of exchange adjustments (2021: half
year £nil; full year £0.5m credit).
Certain corporate tax liabilities were classified as non-current income tax
payable (£7.7m) in the 30 June 2021 reported balance sheet within the 2021
Half Year Results. These have been reclassified to current income tax payable
within the 30 June 2021 comparative balance sheet. There is no change to the
net assets as at 30 June 2021, Condensed Group Income Statement for the 6
month period ended 30 June 2021 and non-current and current income tax payable
balance as at 31 December 2021 as a result of this reclassification. A related
interest liability of £3.6m as at 30 June 2021, included within other
payables has been reclassified to Trade and other payables, within current
liabilities.
5 Earnings per share ("EPS")
5.1 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 Condensed Group
Income Statement. The table below reconciles these different profit measures.
Unaudited Half year Unaudited Half year Full year
2022 2021 2021
£m £m £m
Profit attributable to owners of the parent 81.0 43.0 102.1
Adjustments for separately reported items:
Amortisation of acquired intangible assets 5.1 4.8 9.7
Income tax (credit)/charge (1.4) 0.7 (16.2)
Headline profit attributable to owners of the parent 84.7 48.5 95.6
5.2 Weighted average number of shares
Unaudited Half year Unaudited Half year Full year
2022 2021 2021
millions millions millions
For calculating basic and headline EPS 270.1 270.4 270.5
Adjustment for potentially dilutive ordinary shares 1.4 1.5 1.8
For calculating diluted and diluted headline EPS 271.5 271.9 272.3
For the purposes of calculating diluted and diluted headline EPS, the weighted
average number of ordinary shares is adjusted to include the weighted average
number of ordinary shares that would be issued were all outstanding share
options to vest in full, 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.
5.3 Per share amounts
Unaudited Half year Unaudited Half year Full year 2021
2022 2021
Pence pence pence
Earnings per share - basic 30.0 15.9 37.7
- diluted 29.8 15.8 37.5
- 31.4 17.9 35.3
headline
- diluted headline 31.2 17.8 35.1
6 Dividends
Unaudited Half year Unaudited Half year Full year
2022 2021 2021
£m £m £m
Amounts recognised as dividends and paid to equity shareholders
during the period
Final dividend for the year-ended 31 December 2020 of 14.3p per ordinary share - 38.7 38.7
Interim dividend for the year-ended 31 December 2021 of 6.2p per ordinary - - 16.8
share
Final dividend for the year-ended 31 December 2021 of 15.0p per ordinary share 40.5 - -
40.5 38.7 55.5
The Directors have declared an interim dividend of 6.5p in respect of the
year-ending 31 December 2022.
7 Reconciliation of movement in net debt
Balance as at Foreign exchange adjustments Fair value gains/ Non-cash movements(*) Cash flow Balance as at 30 June 2022
1 Jan 2022 (losses)
£m £m £m £m £m
Cash and cash equivalents
Cash at bank and in hand 169.1 9.4 - - (1.3) 177.2
Short term deposits - - - - - -
Bank overdrafts (6.7) (0.2) - - 1.9 (5.0)
162.4 9.2 - - 0.6 172.2
Borrowings, excluding bank overdrafts (440.3) (19.0) - (5.5) (41.0) (505.8)
Capitalised arrangement costs 3.3 - - (0.5) - 2.8
Derivative financial instruments (2.5) - 5.6 - - 3.1
Net debt (277.1) (9.8) 5.6 (6.0) (40.4) (327.7)
(*) (£5.5m (2021 half year: £6.4m) of new leases were entered into during
the year.)
Net debt is a measure of the Group's net indebtedness to banks and other
external financial institutions and comprises the total of cash and short-term
deposits, current and non-current interest-bearing borrowings and derivative
financial instruments.
£50.1m proceeds from borrowings, shown in the Statement of cash flows,
includes £29.0m and £21.1m (€25.0m) of Sterling and Euro drawings under
the Group's £385msyndicated bank facility.
£9.1m repayment of borrowings, shown in the statement of cash flows, includes
£3.0m repayments of Sterling drawings under the collateralised bi-lateral
loan facility and £6.1m of lease repayments.
Cash is held both centrally and in operating territories. There is no
restricted cash. For certain territories including China, India and Russia
cash is more readily used locally than for broader group purposes.
8 Cash Generated from Operations
Unaudited Half year Unaudited Half year
2022 2021
£m £m
Operating profit 122.3 68.5
Adjustments for:
Amortisation of acquired intangible assets 5.1 4.8
Trading Profit 127.4 73.3
(Gain)/loss on disposal of non-current assets (0.1) 0.2
Depreciation 26.2 24.5
Defined benefit retirement plans net charge 3.0 3.3
Net increase in inventories (40.2) (53.3)
Net increase in trade receivables (62.9) (43.1)
Net increase in trade payables 9.8 45.3
Net decrease in other working capital 10.0 8.7
Outflow related to restructuring charges (0.5) (3.0)
Defined benefit retirement plans cash outflows (2.8) (4.0)
Vacant site remediation costs paid (0.9) (1.7)
Cash generated from operations 69.0 50.2
Full year 2021
£m
Operating profit 132.7
Adjustments for:
Amortisation of acquired intangible assets 9.7
Trading Profit 142.4
Loss on disposal of non-current assets 0.4
Depreciation 49.8
Defined benefit retirement plans net charge 6.4
Net decrease in inventories (113.5)
Net decrease in trade receivables (53.5)
Net increase in trade payables 70.6
Net decrease in other working capital (5.5)
Outflow related to restructuring charges (4.0)
Defined benefit retirement plans cash outflows (7.2)
Vacant site remediation costs paid (3.0)
Cash generated from operations 82.9
9 Employee benefits
The net employee benefits liability as at 30 June 2022 was £54.0m (2021 half
year: £10.9m asset; 2021 full year: £77.0m liability) derived from an
actuarial valuation of the Group's defined benefit pension and other
post-retirement obligations as at that date.
The improvement in the balance sheet position has been driven primarily by an
increase in bond yields resulting in a reduction in the value of German,
Belgian and US liabilities. The German discount rate increased from 1.2% as
at 31 December 2021 to 3.3% at 30 June 2022. In the funded UK plan, an
insurance asset from PIC 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 this UK Plan.
As disclosed in note 26 of the 2021 Annual Report and Financial Statements,
the above amounts may materially change in the next 12 months if there is a
change in assumptions.
Unaudited Unaudited Full year
Half year Half year
2022 2021 2021
£m £m £m
Employee benefits - net surpluses
UK defined benefit pension plans 23.3 112.6 23.7
ROW defined benefit pension plans 1.2 0.6 1.4
Net surpluses 24.5 113.2 25.1
Employee benefits - net liabilities
UK defined benefit pension plans (1.6) (1.7) (1.6)
US defined benefit pension plans (21.8) (20.6) (21.9)
Germany defined benefit pension plans (34.7) (53.4) (53.3)
ROW defined benefit pension plans (13.1) (19.9) (18.3)
Other post-retirement benefit plans (7.3) (6.7) (7.0)
Net liabilities (78.5) (102.3) (102.1)
Net assets/(liabilities) (54.0) 10.9 (77.0)
The expense recognised in the Condensed Group Income Statement in respect of
the Group's defined benefit retirement plans and other post-retirement benefit
plans is shown below.
Unaudited Half year Unaudited Half year 2021 Full year 2021
2022
£m £m £m
In arriving at trading profit - within other manufacturing costs 0.8 0.9 1.8
(as defined in Note 15.4)
- within administration, selling and distribution costs 2.2 2.4 4
.
6
In arriving at profit before tax - within net finance costs 0.7 (0.1) (0.3)
Total net charge 3.7 3.2 6.1
10 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.
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.
11 Related parties
The nature of related party transactions in H1 2022 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.
Unaudited Half year Unaudited Half year
2022
2021
Transactions with joint ventures and associates £m £m
Sales to joint ventures 2.6 2.0
Purchases from joint ventures 19.4 14.2
Dividends received from joint ventures - 1.0
Trade payables owed to joint ventures 11.4 7.4
Trade receivables owed by joint ventures 0.6 0.9
12 Acquisitions and divestments
There were no acquisitions or divestments in the period.
On 6 December 2021, Vesuvius plc acquired the trade and assets of Universal
Refractories Inc. (URI), a specialty refractory producer based in
Pennsylvania, USA, which is focused on tundish (steel continuous casting)
applications as well as consumable products for the foundry industry. It has
become part of the Group's Steel Advanced Refractories business unit, with the
exception of the ladle liners business which has been absorbed by our Foundry
Division (<10% of sales). The transaction valued URI at an enterprise value
of $57.1m (£42.6m) on a cash and debt-free basis and was funded from
Vesuvius' internal resources.
The fair values of the assets and liabilities recognised as a result of the
acquisition have been updated during the six months ended 30 June 2022.There
was a decrease of £1.1m to net identifiable assets acquired, largely due to a
reduction in non-compete intangible assets of £0.9m. There was also a
decrease of £0.5m to consideration.
Book value Fair value adjustments Adjusted value
£m £m £m
Property, plant and equipment 4.5 6.9 11.4
Intangible asset (customer relationships and know-how) - 11.3 11.3
Inventories 5.0 1.3 6.3
Receivables 5.5 - 5.5
Payables (1.9) (0.6) (2.5)
Borrowings (5.4) - (5.4)
Deferred tax - (2.8) (2.8)
Net identifiable assets acquired 7.7 16.1 23.8
Goodwill 13.9
Consideration 37.7
The goodwill is attributable to URI's reputation in the marketplace and the
synergies that Vesuvius expects to gain from its integration. It is expected
to be tax deductible.
Included within the property, plant and equipment acquired were right of use
leased assets of £0.2m.
The decision to acquire URI was driven by its long-standing customer
relationships and know-how. The identifiable intangible assets acquired are
customer relationships and know-how. The fair value of these intangibles
continues to be provisional pending final valuations. A deferred tax liability
of £2.8m has been provided in relation to these fair value adjustments.
On acquisition, URI was subsumed into the Steel Advanced Refractories business
unit and the Foundry Division and goodwill is monitored at the level of the
Steel Advanced Refractories operating segment.
The net cash outflow on acquisition was £43.1m, including related excess
working capital payment, the business was acquired on a cash and debt-free
basis. In accordance with IFRS3, we disclose above consideration of £37.7m
and borrowings repaid immediately prior to acquisition of £5.4m.
The Group did not acquire any material interests in any companies during the
period ended 30 June 2022.
There was no contingent consideration paid during the period ended 30 June
2022. Contingent consideration of £0.1m was paid during 2021 in respect of
the previous acquisition of Ecil Met Tec.
13 Provisions
Disposal, closure and environmental costs Restructuring charges Other Total
£m £m £m £m
As at 1 January 2021 42.2 9.2 5.4 56.8
Exchange adjustments (0.6) (0.2) (0.1) (0.9)
Charge to Condensed Group Income Statement 0.7 - 5.0 5.7
Adjustment to discount 0.4 - - 0.4
Cash spend (4.0) (3.0) (5.4) (12.4)
As at 30 June 2021 38.7 6.0 4.9 49.6
Disposal, closure and environmental costs Restructuring charges Other Total
£m £m £m £m
As at 1 January 2022 41.8 5.0 3.9 50.7
Exchange adjustments 4.4 (0.4) 0.4 4.4
Charge to Condensed Group Income Statement 2.0 - 5.7 7.7
Adjustment to discount 0.5 - - 0.5
Cash spend (3.7) (0.5) (5.8) (10.0)
As at 30 June 2022 45.0 4.1 4.2 53.3
Of the total provision balance at 30 June 2022 of £53.3m (30 June 2021:
£49.6m), £36.0m (30 June 2021: £32.4m) is recognised in the Group Balance
Sheet within non-current liabilities and £17.3m (30 June 2021: £17.2m)
within current liabilities.
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. The nature of the provisions
held remains consistent with those held at 31 December 2021 and further
description is set out within Note 30 of the 2021 Annual Report and Financial
Statements.
14 Financial instruments
The Company's financial assets are measured at amortised cost with the
exception of certain investments in debt, which are measured at fair value
through other comprehensive income, and certain derivative instruments, which
are measured at fair value through profit or loss. Financial liabilities are
measured at amortised cost with the exception of certain derivative
instruments, which are measured at fair value through profit and loss. The
carrying value of financial assets and liabilities carried at amortised cost
approximates the fair value.
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:
Unaudited Unaudited
Half year 2022 Half year 2021 Full year 2021
Assets Liabilities Assets Liabilities Assets Liabilities
£m £m £m £m £m £m
Investments (Level 2) 0.8 - 0.9 - 0.5 -
Derivatives not designated for hedge 0.2 (0.2) - (0.1) 0.1 (0.3)
accounting purposes (Level 2)
Derivatives designated for hedge 3.1 - - (5.0) - (2.3)
accounting purposes (Level 2)
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 2021 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') with 3 of its relationship banks. 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
30 June 2022 has been booked through the Income Statement. All of the fair
values shown in the table above are classified under IFRS 13 as Level 2
measurements which have been calculated using quoted prices from active
markets, where similar contracts are traded and the quotes reflect actual
transactions in similar instruments. All of the derivative assets and
liabilities not designated for hedge accounting purposes reported in the table
above will mature within a year of the balance sheet date.
The cross-currency interest rate swaps are fair valued at each reporting date
and the Group applies hedge accounting in accordance with IFRS 9 such that the
movement in fair value is accounted for directly within equity. The USD
component is designated as a cashflow hedge of the $86m US Private Placement
Notes. The Euro component is designated as a net investment hedge of the
Group's Euro denominated net assets.
As at 30 June 2022, €249m and $60m of borrowings were designated as hedges
of net investments in €249m 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 30 June 2022, the Group had $146m, €198m and £28m (£318.4m in total)
of US Private Placement Loan Notes (USPP) outstanding, which carry a fixed
rate of interest, representing 68% of the Group's total borrowings outstanding
at that date. Maturities of the corresponding USPP Notes were disclosed in
Note 25 to the 2021 Annual Report and Financial Statements.
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.
The currency and interest rate profile of the Group's borrowings is detailed
in the tables below.
Financial liabilities (gross borrowings)
Fixed rate Floating rate Total
£m £m £m
Sterling 28.0 102.0 130.0
United States dollar 119.9 0.2 120.1
Euro 170.5 48.2 218.7
Other - 0.6 0.6
Capitalised costs (1.0) (1.7) (2.7)
As at 30 June 2022 315.7 151.0 466.7
Sterling 28.0 76.4 104.4
United States dollar 107.9 1.2 109.1
Euro 166.4 27.2 193.6
Other - - -
Capitalised costs (1.2) (2.1) (3.3)
As at 31 December 2021 301.1 102.7 403.8
The maturity analysis of the Group's financial liabilities is shown in the
tables below. The cash flows shown are undiscounted.
As at 30 June 2022 Within one year Between 1-2 years Between 2-5 years Over 5 years Total contractual cash flows Carrying amount
£m £m £m £m £m £m
Trade payables 278.9 - - - 278.9 278.9
Loans & overdrafts 33.4 34.3 276.7 176.2 520.6 469.4
Lease liabilities 11.3 9.6 14.8 15.3 51.0 41.2
Capitalised arrangement fees - - - - - (2.7)
Derivative liability 0.2 - - - 0.2 0.2
Total financial liabilities 323.8 43.9 291.5 191.5 850.7 787.0
As at 31 December 2021 Within one year Between Between Over 5 years Total contractual cash flows Carrying amount
1-2 years 2-5 years
£m £m £m £m £m £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 noted above, the syndicated bank facility was replaced in July 2021 and the
replacement facility references SONIA for GBP drawdowns. The maturity of the
£19.0m bi-lateral bank facility was extended from October 2021 to October
2022; at the time of the extension the reference to GBP LIBOR was replaced
with a reference to SONIA.
In H1 2022, the Group did not hold any borrowings for which the interest
payable referenced LIBOR benchmarks, nor does it intend to do so in the
foreseeable future. The Group's £385m syndicated bank facility allows for
USD denominated borrowings and any such borrowings would currently reference
USD LIBOR. It is further noted that the terms of the facility require an
alternative reference rate for USD borrowings to be agreed by June 2023.
15 Alternative performance measures (unreviewed)
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 KPI's
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 and therefore may not be
directly comparable to similar measures presented by other companies.
15.1 Headline performance
Headline performance, reported separately on the face of the Condensed Group
Income Statement, is from continuing operations and before items reported
separately on the face of the Condensed Group Income Statement.
15.2 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 and disposals.
15.3 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. ROS is included in Note 2.
15.4 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.
15.5 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.
15.6 Headline effective tax rate ('ETR')
The Group's headline ETR is calculated on the income tax costs associated with
headline performance, divided by headline profit before tax and before the
Group's share of post-tax profit of joint ventures and associates.
15.7 Headline earnings
Headline earnings is profit after tax before separately reported items
attributable to owners of the parent.
15.8 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 5.
15.9 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.
Unaudited Half year Unaudited Half year Full year
2022 2021 2021
£m £m £m
Cash generated from continuing operations 69.0 50.2 82.9
Add: Outflows relating to restructuring charges 0.5 3.0 4.0
Add: Vacant site remediation costs paid 0.9 1.7 3.0
Less: Capital expenditure (38.6) (17.6) (45.5)
Add: Proceeds from the sale of property, plant and equipment 1.3 0.6 1.2
Adjusted operating cash flow 33.1 37.9 45.6
Trading Profit 127.4 73.3 142.4
Cash Conversion 26% 52% 32%
15.10 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.
15.11 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 key performance indicators 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 Condensed Group Statement of Cash Flows.
15.12 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.
Unaudited Half year Unaudited Half year Full year
2022 2021
£m £m 2021
£m
Average trade working capital 426.4 319.4 350.6
Last 12 months total revenue 1,868.6 1,542.3 1,674.6
Average trade working capital to sales ratio 22.8% 20.7% 20.9%
15.13 Adjusted earnings before interest, tax, depreciation and amortisation
(adjusted EBITDA)
Adjusted EBITDA is calculated as the total of trading profit before
depreciation and amortisation of non-acquired intangible assets. It is used in
the calculation of the Group's interest cover and net debt to adjusted EBITDA
ratios. A reconciliation of adjusted EBITDA is included in Note 2.
15.14 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.
Unaudited Half year Unaudited Half year Full year
2022 2021
£m £m 2021
£m
Total interest payable on borrowings (note 3) 8.0 5.8 13.0
Finance income (note 3) (2.3) (2.3) (6.7)
Net interest payable on borrowings 5.7 3.5 6.3
15.15 Interest cover
Interest cover is the ratio of adjusted EBITDA for the last 12 months to net
interest payable on borrowings for the last 12 months. It is one of the
Group's 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.
Unaudited Half year Unaudited Half year Full year
2022 2021
£m £m 2021
£m
Last 12 months adjusted EBITDA 248.0 173.3 192.2
Last 12 months net interest payable on borrowings 8.5 8.1 6.3
Interest cover 29.2x 21.4x 30.5x
15.16 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 7.
15.17 Net debt to adjusted EBITDA
Net debt to adjusted EBITDA is the ratio of net debt at the period-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.
Unaudited Half year Unaudited Half year Full year
2022 2021
£m £m 2021
£m
Net debt (note 7) 327.7 196.6 277.1
Last 12 months adjusted EBITDA (note 2) 248.0 173.3 192.2
Net debt to adjusted EBITDA 1.3x 1.1x 1.4x
15.18 Return on invested capital (ROIC)
From 2022 onwards, the Group has adopted ROIC as its key measure of return
from the Group's invested capital. RONA performance measure has been replaced
with ROIC which provides a more complete measure of Vesuvius's returns. ROIC
is calculated as trading profit less amortisation of acquired intangibles plus
share of post-tax profit of joint ventures and associates for the previous 12
months after tax, divided by the average invested capital (total assets
excluding cash plus non-interest bearing liabilities), at constant currency
(being the average over balance sheet date and the 12 month's prior balance
sheet date invested capital).
Unaudited Unaudited Full year
Half year Half year
2022 2021 2021
£m £m
Average invested capital 1,437.9 1,349.5 1,371.6
Trading profit (note 15.4) 198.7 122.4 145.0
Amortisation of acquired intangible assets (9.9) (9.8) (9.7)
Share of post-tax profit from joint ventures and associates 1.7 1.2 1.4
Tax on trading profit and amortisation of acquired intangible assets (51.9) (29.9) (35.8)
138.6 83.9 100.9
ROIC 9.6% 6.2% 7.4%
15.19 Constant currency
Figures presented at constant currency represent 2021 amounts retranslated at
average 2022 exchange rates.
15.20 Liquidity
Liquidity is the Group's cash and short-term deposits plus undrawn committed
debt facilities less cash used as collateral on loans and any gross up of cash
in notional cash pools.
Unaudited Half year Unaudited Half year Full year
2022 2021
£m £m 2021
£m
Cash and short term deposits 177.2 162.1 169.1
Undrawn committed debt facilities 257.1 348.7 308.1
Cash used as collateral on loans (18.0) (19.0) (21.0)
Gross up of cash in notional pools (0.1) (3.3) (0.5)
Liquidity 416.2 488.5 455.7
15.21 Last twelve months ('LTM')
Some results are presented or calculated using data from the last twelve
months from the reference date.
16 Exchange rates (unreviewed)
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
period end rates. The principal exchange rates used were as follows:
Income and expense
Average rates
Half year 2022 Half year 2021 Half year to Half year change Full year to Half year change
Full year 2021
US Dollar 1.30 1.39 1.38 -6.5% -5.8%
Euro 1.19 1.15 1.16 3.5% 2.6%
Chinese Renminbi 8.42 8.98 8.87 -6.2% -5.1%
Japanese Yen 159.48 149.63 151.06 6.6% 5.6%
Brazilian Real 6.59 7.48 7.42 -11.9% -11.2%
Indian Rupee 98.87 101.82 101.67 -2.9% -2.8%
South African Rand 19.97 20.17 20.32 -1.0% -1.7%
Assets and liabilities
Period end rates
Half year 2022 Half year 2021 Half year to Half year change Full year to Half year change
Full year 2021
US Dollar 1.22 1.38 1.35 -11.6% -9.6%
Euro 1.16 1.17 1.19 -0.9% -2.5%
Chinese Renminbi 8.15 8.94 8.61 -8.8% -5.3%
Japanese Yen 165.25 153.62 155.69 7.6% 6.1%
Brazilian Real 6.4 6.87 7.54 -6.8% -15.1%
Indian Rupee 96.12 102.82 100.75 -6.5% -4.6%
South African Rand 19.81 19.73 21.64 0.4% -8.5%
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR EANXXAEAAEFARecent news on Vesuvius
See all newsREG-Vesuvius Plc: Transaction in Own Shares
AnnouncementREG-Vesuvius Plc: Transaction in Own Shares
AnnouncementREG-Vesuvius Plc: Transaction in Own Shares
AnnouncementREG-Vesuvius Plc: Transaction in Own Shares
AnnouncementREG-Vesuvius Plc: Transaction in Own Shares
Announcement