Annual Report and Accounts 2017 1
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Building the future Annual Report and Accounts 2017 1 Contents Financial Performance ÕÞìùïâùìâìÚàåèÛÚååÞÚÝÞëâçæèåøÞçæÞøÚåěèðÞçàâçÞÞëâçà Strategic Report Vesuvius develops innovative, customised high-quality products, Revenue Return on sales2 Headline earnings Section One: Our Business per share3 4 Vesuvius at a Glance services and solutions, to be used in extremely demanding, 40.7 pence 8 Our Markets £1,683.9m 9.8% 2016: 30.4 pence 10 Our Strategy 2016: £1,401.4m 2016: 9.5% high-temperature industrial environments. Our goal is to create 33.9% increase 12 Business Model +20.2% on a reported basis +30 basis points value for our customers, using our expertise to improve the +12.5% on an underlying +30 basis points on an Recommended Business Our Section Two: Our Performance 1 1 basis underlying basis ĚçÚåÝâïâÝÞçÝ 16 Chairman’s Statement ìÚßÞøòÚçÝÞßĚÜâÞçÜòèßøáÞâëæÚçùßÚÜøùëâçàéëèÜÞììÞì 18 Chief Executive’s Strategic Review 12.50 pence per share 20 Key Performance Indicators ÓëÚÝâçàéëèĚø2 ÏëèĚøÛÞßèëÞøÚñ 18.00 pence Group enhance their end product quality and reduce their costs. 22 Risk full year dividend 26 Financial Review £165.5m £97.1m 2016: 16.55 pence 32 Innovation Group full year dividend ÈçÝèâçàøáâìðÞÚâæøèÝÞåâïÞëìùìøÚâçÚÛåÞéëèĚøÚÛåÞàëèðøáÚçÝ 2016: £133.3m 2016: £79.4m 36 Operating Review Year-end net debt2 36 Steel Flow Control +24.2% on a reported basis 22.3% increase provide our shareholders with a superior return on their investment, £274.3m 40 Advanced Refractories +16.1% on an underlying 1 1.3x net debt to 44 Digital Services basis whilst providing each of our employees with a safe workplace EBITDA ratio 46 Foundry 2016: £320.3m where he or she is recognised, developed and properly rewarded. 50 Board of Directors 1.8x 52 Group Executive Committee Section Three: Our Responsibility Revenue £m Trading profit2 £m 56 Our Principles 17 1,683.9 17 165.5 60 Health and Safety 64 Sustainability 16 1,401.4 16 133.3 67 People and Community 15 1,322.0 15 124.0 Section Four: Governance 76 Chairman’s Governance Letter At a Glance Ourur SStrategytrategy 2,3 78 Governance Report Operating Profit £m Headline earnings £m What we do & where Ourur aims 85 Audit Committee 17 109.7 17 110.1 See page 4 SeeSee pagepage 10 93 Nomination Committee 96 Directors’ Remuneration Report 16 92.9 16 82.1 96 Remuneration Overview 15 92.8 15 75.7 98 Remuneration Policy 106 Annual Report on Directors’ Remuneration Statutory EPS pence Free cash flow2 £m 117 Directors’ Report 17 14.1 17 93.1 121 Statement of Directors’ Responsibilities 16 21.1 16 61.4 Innovation Section Five: Financial Statements 15 18.1 15 65.3 Our R&D Focus 124 Independent Auditors’ Report See page 32 130 Group Income Statement 1. Underlying basis is at constant currency and excludes separately reported items and the impact of acquisitions 131 Group Statement of Comprehensive and disposals. Income ÅèëÝÞĚçâøâèçìèßÚåøÞëçÚøâïÞéÞëßèëæÚçÜÞæÞÚìùëÞìëÞßÞëøèÍèøÞ èßøáÞÆëèùéÅâçÚçÜâÚåÒøÚøÞæÞçøì 132 Group Statement of Cash Flows 3. Headline results refer to continuing operations and exclude separately reported items. 133 Group Balance Sheet 134 Group Statement of Changes of Equity Forward-looking statements This Annual Report contains certain forward-looking statements with respect 135 Notes to the Group Financial øèøáÞèéÞëÚøâèçììøëÚøÞàòéÞëßèëæÚçÜÞĚçÚçÜâÚåÜèçÝâøâèçÚçÝàëèðøáèééèëøùçâøâÞìèßøáÞÕÞìùïâùì Group. By their nature, these statements involve uncertainty and are based on assumptions and involve risks, Statements uncertainties and other factors that could cause actual results and developments to differ materially from 181 Company Balance Sheet øáèìÞÚçøâÜâéÚøÞÝÓáÞßèëðÚëÝåèèäâçàìøÚøÞæÞçøìëÞěÞÜøäçèðåÞÝàÞÚçÝâçßèëæÚøâèçÚïÚâåÚÛåÞÚøøáÞÝÚøÞ 183 Notes to the Company Financial of preparation of this Annual Report and, other than in accordance with its legal and regulatory obligations, Statements the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual ÑÞéèëøìáèùåÝÛÞÜèçìøëùÞÝÚìÚéëèĚøßèëÞÜÚìø 188 Five-year Summary: Divisional Results 189 Shareholer Information 191 Glossary Melvin Bond, Plastic Operator & Union Steward, Chicago Heights, USA Vesuvius plc 2 Annual Report and Accounts 2017 3 Section One Our Business Business Our In this section 4 Vesuvius at a Glance 8 Our Markets 10 Our Strategy 12 Business Model The Strategic Report set out on pages 1 to 73 contains a fair review of our businesses, strategy, and business model and the associated principal risks and uncertainties. We also deliver a review of our 2017 performance and set out an overview of “I joined Vesuvius in our markets. Details of our principles, our people and community engagement, together with our focus on safety, are also contained in the Strategic Report. Brazil as part of Approved by the Board on 28 February 2018 and signed on its behalf by Project Columbus” Patrick André Guy Young ÂáâÞßÄñÞÜùøâïÞ ÂáâÞßÅâçÚçÜâÚåÎßĚÜÞë Aline Barros, Quality Coordinator and Production Manager Assistant, Vesuvius Fluxes, Germany Building on my degree in Chemical mould powder plant in Mülheim. Engineering and several industry Whilst there, I worked on the internships, I joined Vesuvius in Brazil optimisation of spraying processes, in 2013, as part of Project Columbus, improved packaging standards and the Group’s international graduate implemented other safety standards programme. I always wanted to work – all whilst learning to speak German. èïÞëìÞÚììâçÜÞĚëìøìøÚëøâçàÜèååÞàÞ More recently, I was pleased to and was excited to start my nine- accept the additional responsibility month international assignment. of working as the Quality Coordinator at Mülheim, which allows me to After initial training at home in Brazil, work with Vesuvius’ many different I moved to India where over the departments and learn how the course of my nine month secondment, company works as a whole. I developed three projects, focusing on resin production and machine ÈáÚïÞÚÜáâÞïÞÝÚåèøâçæòĚëìøĚïÞ maintenance at Foseco in Pune, years at Vesuvius, developing technical and on VISO production in Vesuvius skills, growing in experience and Calcutta . This enabled me to apply expanding my language capabilities my interest and expertise in process and geographical horizons. management and optimisation. It also gave me the opportunity to immerse myself in a culturally very different operation. Having enjoyed the challenge of working abroad, I then moved to Germany as a Production Manager Assistant at the newly acquired See more about Vesuvius careers People and community on p 67-73 Vesuvius plc 4 Annual Report and Accounts 2017 5 Vesuvius Our global presence Americas EMEA ÀìâÚÏÚÜâĚÜ £487.0m £735.2m £461.7m at a Glance 37 11,010 Revenue Revenue Revenue Countries Employees (2016: £415.3m) (2016: £585.6m) (2016: £400.5m) 77.2% Steel 67.5% Steel 59.9% Steel 22.8% Foundry 32.5% Foundry 40.1% Foundry We are a global group with a business model based on offering customised products, 6 88 Business Our Continents ÒÚåÞìèßĚÜÞì 17 5 30 10 19 2 solutions and services from production facilities Production sites R&D centres Production sites R&D centres Production sites R&D centres in close proximity to our customers. See our Business Model on p12-13 66 17 3,183 21 4,472 34 3,355 33 See more about our Steel and Foundry divisions on p6-7 Production sites R&D centres Employees ÒÚåÞìèßĚÜÞì Employees ÒÚåÞìèßĚÜÞì Employees ÒÚåÞìèßĚÜÞì The map shows our production, R&D and commercial sites worldwide Steel Flow Control Operating Advanced Refractories Digital Services Operating Foundry Operating Review Review See p36 Operating Review See p40 Review See p44 See p46 Michelle Chapman, HR Associate, Pittsburgh West, USA Vesuvius plc 6 Annual Report and Accounts 2017 7 Steel Division Revenue ÓëÚÝâçàéëèĚø Return on sales Foundry Division Revenue ÓëÚÝâçàéëèĚø Return on sales £1,148.7m £100.4m 8.7% £535.2m £65.1m 12.2% 2016: £942.0m 2016: £79.2m 2016: 8.4% 2016: £459.4m 2016: £54.1m 2016: 11.8% Overview Business Units Key Strengths Overview Key Strengths Our customers are steel producers, Steel Flow Control Scale: One of the world’s largest Our primary customers are ferrous and Product offering: Full range of high manufacturers in our market quality products and services manufacturers of steel production Specialised parts used to protect and non-ferrous foundries serving various end equipment and other high-temperature ÜèçøëèåøáÞěèðèßæèåøÞçæÞøÚå Technology: Leading products and markets, from large bespoke castings to Innovation: Industry-leading Business Our industries. Vesuvius is a world leader in the services high-volume automotive pieces. Trading as technologies with a focus on Advanced Refractories continuous innovation Integration: Deep knowledge of supply of refractory products, systems and Specialised materials for lining Foseco, we are a world leader in products solutions. These help our customers increase customers’ processes allows us to offer and services that serve the global foundry Integration: Detailed knowledge of vessels for steel making (furnaces, bespoke systems customers’ processes allows us to provide øáÞâëÞßĚÜâÞçÜòÚçÝéëèÝùÜøâïâøòÞçáÚçÜÞ ladles and tundishes) and other industry, improving casting quality and customised solutions quality, improve safety and reduce their high temperature industries Innovation: Capability to develop new ßèùçÝëòÞßĚÜâÞçÜò value-adding solutions Technical support: Access to Foseco’s costs and their environmental impact. Digital Services extensive application engineering Proximity: ÄßßÞÜøâïÞÚçÝÞßĚÜâÞçøìùééåò See Foundry Division