Vesuvius PLC — Annual Report 2021

Apr 6, 2022

VESUVIUS PLC

2021 Annual Report

Performance Highlights

Metric	2021 Reported Basis	2020 Reported Basis	Change	2021 Underlying Basis	2020 Underlying Basis	Change
Revenue (£m)	1,642.9	1,458.3	+12.7%	1,642.9	1,458.3	+18.1%
Trading profit (£m)	142.4	101.4	+40.4%	142.4	101.4	+50.4%
Return on sales (%)	8.7%	7.0%	+170 bps	8.7%	7.0%	+190 bps
Profit before tax (£m)	127.6	64.5	+97.8%	-	-	-
Headline earnings per share (p)	35.3	23.2	+52.3%	-	-	-
Recommended final dividend (p)	15.0	14.3	-	-	-	-
Group full-year dividend (p)	21.2	17.4	-	-	-	-
Year-end net debt (£m)	277.1	175.1	-	-	-	-
Net debt to EBITDA ratio (x)	1.4	1.2	-	-	-	-

Notes:
1. Underlying basis is at constant currency and excludes separately reported items and the impact of acquisitions and disposals.
2. For definitions of alternative performance measures, refer to Note 4 of the Group Financial Statements.
3. Headline results refer to continuing operations and exclude separately reported items.

Table of Contents

• Our business
  • Our purpose
  • Vesuvius at a glance
  • Divisional overviews
• Chairman’s statement
• Chief Executive’s strategic review
• Our strategy
• Our external environment
• Our markets
• Business model
• Section 1 72(1) Statement – Our stakeholders
• Risk, viability and going concern
• Our performance
  • Key Performance Indicators
  • Financial review
• Operating reviews
  • Steel Division
  • Steel Flow Control
  • Steel Advanced Refractories
  • Steel Sensors & Probes
  • Foundry Division
• Sustainability
  • Non-financial information statement
  • Introduction
  • Our Sustainability strategy and objectives
  • Our sustainability targets
  • United Nations Global Compact and Sustainable Development Goals
  • Our principles, approach and governance
  • TCFD
  • Our planet
  • Our customers
  • Our people
  • Our communities
• Governance
  • Board of Directors
  • Group Executive Committee
  • Corporate Governance Statement
  • Chairman’s governance letter
  • Board Report
  • Audit Committee
  • Nomination Committee
  • Directors’ Remuneration Report
  • Remuneration overview
  • 2020 Remuneration Policy
  • Annual Report on Directors’ Remuneration
• Directors’ Report
• Statement of Directors’ Responsibilities
• Independent Auditor’s Report
• Financial Statements
  • Group Income Statement
  • Group Statement of Comprehensive Income
  • Group Statement of Cash Flows
  • Group Balance Sheet
  • Group Statement of Changes in Equity
  • Notes to the Group Financial Statements
  • Company Balance Sheet
  • Company Statement of Changes in Equity
  • Notes to the Company Financial Statements
• Five-Year Summary: Divisional Results
• Shareholder Information
• Glossary

Financial Performance Summary

Metric	2021 (£m)	2020 (£m)	2019 (£m)
Revenue	1,642.9	1,458.3	1,710.4
Operating profit	132.7	74.3	127.5
Statutory EPS (p)	37.7	15.3	29.8
Trading profit	142.4	101.4	181.4
Headline earnings	95.6	62.7	121.4
Free cash flow	-0.3	113.5	121.5

Forward-looking statements

This Annual Report contains certain forward-looking statements with respect to the operations, strategy, performance, financial condition and growth opportunities of the Vesuvius Group. By their nature, these statements involve uncertainty and are based on assumptions and involve risks, uncertainties and other factors that could cause actual results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Annual Report and, other than in accordance with its legal and regulatory obligations, the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual Report should be construed as a profit forecast.

Strategic Report

Think beyond. Shape the future.

Vesuvius is a global leader in molten metal flow engineering and technology, serving process industries operating in challenging high-temperature conditions. We think beyond today to create the innovative solutions that will shape the future for everyone, delivering products and services that help our customers make their industrial processes safer, more efficient and more sustainable. In turn, we provide our employees with a safe workplace where they are recognised, developed and properly rewarded, and aim to deliver sustainable, profitable growth to provide our shareholders with a superior return on their investment.

• Our purpose
• Our business
• Our performance
• Sustainability
• Governance
• Financial Statements

We think beyond today’s products and shape the future through innovation.

Vesuvius at a glance

• Revenue: £1,642.9m
• Foundry Revenue: £471.4m (28.7%)
• Steel Revenue: £1,171.5m (71.3%)

Divisional Overviews

• Steel Division: £1,171.5m
• Foundry Division: £471.4m

Chairman’s statement

Chief Executive’s strategic review

Our strategy

Our external environment

Our markets

Business model

Section 1 72(1) Statement – Our stakeholders

Risk, viability and going concern

Our performance

Key Performance Indicators

Financial review

Operating reviews

Steel Division

Vesuvius is a world leader in the supply of refractory products, systems and solutions. Our customers are steel producers and other high-temperature industries.

Steel Flow Control

Steel Advanced Refractories

Steel Sensors & Probes

Foundry Division

Sustainability

Non-financial information statement

Introduction

Our Sustainability strategy and objectives

Our sustainability targets

United Nations Global Compact and Sustainable Development Goals

Our principles, approach and governance

TCFD

Our planet

Our customers

Our people

Our communities

Governance

Board of Directors

Group Executive Committee

Corporate Governance Statement

Chairman’s governance letter

Board Report

Audit Committee

Nomination Committee

Directors’ Remuneration Report

Remuneration overview

2020 Remuneration Policy

Annual Report on Directors’ Remuneration

Directors’ Report

Statement of Directors’ Responsibilities

Independent Auditor’s Report

Financial Statements

Group Income Statement

Group Statement of Comprehensive Income

Group Statement of Cash Flows

Group Balance Sheet

Group Statement of Changes in Equity

Notes to the Group Financial Statements

Company Balance Sheet

Company Statement of Changes in Equity

Notes to the Company Financial Statements

Five-Year Summary: Divisional Results

Shareholder Information

Glossary

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Vesuvius plc

Annual Report and Financial Statements 2021

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Our business

Our global presence

We are a global group with a business model based on offering customised products, solutions and services from production facilities in close proximity to our customers. Our two divisions – Steel and Foundry – mainly serve the global steel and foundry industries.

At a glance:

• Revenue: £1,642.9m
• Production sites: 54
• Sales offices: 75
• R&D centres: 6
• Employees: 11,204
• Countries: 40
• Continents: 6

Region	Revenue (£m)	% Foundry	% Steel	Employees	Production Sites	Sales Offices	R&D Centres
Americas	644.8	30.9%	69.1%	3,367	18	21	1
EME A	492.2	34.9%	65.1%	4,352	28	21	3
Asia-Pacific	505.9	19.9%	80.1%	3,485	17	13	2

This map shows our production, R&D and commercial sites worldwide.

Our business

Our performance

Sustainability

Governance

Financial Statements

Operating review

Steel Division

Our customers are steel producers and other high-temperature industries. Vesuvius is a world leader in the supply of refractory products, systems and solutions.

Steel Flow Control

Steel Advanced Refractories

Steel Sensors & Probes

Foundry Division

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Vesuvius plc

Annual Report and Financial Statements 2021

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Our performance

Sustainability

Governance

Financial Statements

Steel Division

Steel Flow Control

Steel Advanced Refractories

Steel Sensors & Probes

Foundry Division

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Steel Division

Steel Flow Control

Steel Advanced Refractories

Steel Sensors & Probes

Foundry Division

Operating review

Operating review

H1

H2

These help our customers increase their efficiency and productivity, enhance quality, improve safety and reduce their costs and their environmental impact.

• Revenue
• Return on sales
• Trading profit

H3

What we do

The Vesuvius 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.

How the process works

The continuous casting process enables steel manufactured from a blast furnace or an electric arc furnace to be cast without interruption, whilst protecting it from the atmosphere. Avoiding atmospheric contact is crucial as it significantly reduces contamination and oxidation of the steel being produced.

Our products

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.

The Sensors & Probes business unit offers digital measurement solutions 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 substance probes, and 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.

Divisional overviews

Business unit
£1,171.5m	8.7%	£102.0m
2020: £1,045.4m	2020: 7.3%	2020: £76.4m
6 Vesuvius plc Annual Report and Financial Statements 2021

Impact pad

• Steel slab, billet or bloom
• CONTINUOUS CASTER
• Ladle
• Tundish
• Mould
• Linings, bottoms
• Purging plug
• Slide-gate, tube changer
• Robotic arm
• Linings
• Ladle shroud
• Sub-entry nozzle
• Tundish slide-gate
• Mould level control
• Robotic arm
• Flux
• Stopper and rigging
• Tundish tube changer
• Temperature measurement
• Flux
• CONVERTER AND REFINING LADLES
• Refining ladles
• Converter linings and repair
• 3
• 2
• 4
• Steel
• Advanced Refractories

H3

What we do

Vesuvius’ 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.

Our customers and the process

Our main customers are steel producers and manufacturers of steel production equipment, where our products accompany the steel-making process from its early steps all the way to the end of production in the rolling mill. The specialist refractory materials are subject to extreme temperatures, corrosion and abrasion, and 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 on 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 on our best-in-class installation technologies which use robots and lasers to track the performance of installed Vesuvius refractories, as well as the high level of collaboration with our customers.

Broader offer

In addition, Vesuvius’ Advanced Refractories business unit supplies other high-temperature industries such as primary and secondary aluminium, copper, cement, petrochemicals and energy from waste.

Business unit

Operating review	46	7
Our business
Our performance
Sustainability
Governance
Financial Statements
Treatment / pouring ladle	Final casting	Mould production and pouring
Induction furnace	1	2
3

H3

The casting 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 production solutions.

Our products

The conditioning of molten metal, the nature of the mould used and, especially, the design of the way in which 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. Each of our products typically represents a small element of the overall cost of the foundry process but contributes significantly to product quality and yield, thus driving efficiency and reducing environmental impact. In Foundry, customers are evolving towards more sophisticated and increasingly complex castings with increased requirements for cleaner and lighter metal, resulting in a greater need for Vesuvius’ products.

Our customers

We are also focused on expanding the cross-selling opportunities between the Advanced Refractories business unit and Foundry Division. Foundries utilise the refractory products manufactured by Advanced Refractories, which allows us to offer a complete product offering to our customers.

CASTITE TM (before fettling)

• 3
• Foundry

H3

Foundry Division

We are a world leader in the supply of consumable products, technical advice and application support to the global foundry industry, improving casting quality and foundry efficiency. Our primary customers are ferrous and non-ferrous foundries serving various end-markets, from large bespoke castings to high-volume automotive pieces. We operate in the foundry sector under the Foseco brand.

£471.4m	8.6%	£25.0m
Revenue
2020: £412.9m	2020: 6.1%	2020: £25.0m
Trading profit

• Operating review | 48 | 8 |
• Vesuvius plc Annual Report and Financial Statements 2021 | | |

POURING INTO MOULD

• Linings
• Stopper rod
• Nozzle
• MOULD PRODUCTION
• Drag
• Cope
• Pouring cup
• Downsprue
• Filter
• Feeder
• Cores, coating
• Sand binder
• Runner
• Mould coating
• 2

• 1

• Business unit | 9 |

• Our business | |
• Our performance | |
• Sustainability | |
• Governance | |
• Financial Statements | |

H2

Revenue

£m
£1,642.9m
1,642.9
1,458.3
1,710.4
10 Vesuvius plc Annual Report and Financial Statements 2021

2021 was another challenging year for Vesuvius. Despite a recovery across the majority of our end markets starting at the end of 2020, the COVID-19 pandemic continued to result in operational restrictions and promoted widespread global supply chain and freight disruption together with raw material and freight cost increases. Throughout this uncertain trading backdrop, our top priority remained the health and safety of our people and other stakeholders as they interacted with Vesuvius. Despite all of our efforts, we lost 11 people to the pandemic during 2021. We offer our sincere condolences to all those who have lost family and friends.

Throughout 2021 the Board prioritised actions to respond to the continuing pandemic, particularly where they pertained to the well-being of our employees. I am incredibly proud of the great efforts that have been made across the globe to enable our employees to be vaccinated. In India, for example, we made available private vaccinations for all of our employees and their immediate families. Our local site managers have continued to work tirelessly to implement measures to protect and support our employees whilst at the same time keeping our plants operational to serve our customers. On my visits to our sites I am consistently struck by the dedication and focus of our people and their commitment to building the business through excellent customer service.We therefore start 2022 with renewed vigour to face the challenges that lie ahead. Whilst supply chain, freight issues and cost inflation may persist well into 2022, we know that our people have the determination and capability to overcome these challenges.

Strategy

We continued to progress our strategy successfully in 2021. Despite the difficult circumstances, the Board was happy to support further key investments in the Group. In December 2021, we acquired the business of Universal Refractories, which enhanced our presence and expertise in the US and positions us well for growth. Alongside targeted M&A, we also invested in our existing operations, commencing a programme to increase capacity in VISO* products and slide-gate capacity in Europe and slide-gate capacity for South East Asia. These investments will strengthen Vesuvius’ manufacturing base, which coupled with our ongoing R&D investment – delivering regular new product launches – reinforces Vesuvius’ position for the future.

Sustainability

Sustainability remains at the core of our strategy and in 2021 we progressed our plans to achieve our objective of reaching a net zero carbon footprint at the latest by 2050. Our Sustainability Council, chaired by the Chief Executive, met on a quarterly basis to oversee the Group’s sustainability activity, monitoring progress against our targets and assisting the Group with identifying and assessing the implications of long-term climate-related risks and opportunities. Our operational targets – driving emissions reduction; increasing manufacturing efficiency; reducing waste; and critically, enhancing the efficiency of our customers’ operations – are clear areas of focus for 2022 and the future. The Board believes that the ongoing formalisation and increased breadth of our sustainability initiative is a fundamental building block in the future of Vesuvius – both as we examine our own operations and as we further understand how to contribute to better sustainability outcomes for our customers. All of our activities are underpinned by our CORE values – Courage, Ownership, Respect and Energy. We have considerable pride in how our values and our commitment to pursuing them run through Vesuvius from top to bottom. These CORE values promote our determination to be a company that is at the forefront of active, rather than reactive sustainability. They are recognised annually – as they were again in December – when we hosted the global Vesuvius finals ceremony for our “Living The Values Awards”.

Stakeholders

The Board values every opportunity to engage with our various stakeholders. The Non-executive Directors, both collectively and individually, have always sought to meet as many colleagues as possible; and in doing so, they have broadened and deepened their knowledge and understanding of the global business. Again in 2021, the pandemic restricted the Board’s ability to travel to as many locations as we would have liked. Where possible, the Non-executive Directors made physical site visits, including to the European shared services centre in Krakow, Poland, as well as visiting our operations in Skawina in Poland, Borken in Germany, Ghlin in Belgium, Suzhou in China, and Charlotte, Cleveland and Pittsburgh in the USA. In each case the questions and feedback we received from our employees gave valuable insights that the Non-executive Directors could take back into the Board’s deliberations and discussions. Where we have been unable to travel, we have continued with ‘virtual’ site visits conducting meetings with sites in China, India and NAFTA. The Group again conducted an employee engagement survey in 2021 through our I-Engage programme, and it is a pleasure to see the participation rate remaining reassuringly high, above 90% in both of the past two years.

Maintaining strong momentum during disrupted trading conditions

Chairman’s statement

• Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.

11

Our business

Our performance

Sustainability

Governance

Financial Statements

Corporate Governance

We were delighted to welcome Dinggui Gao as an independent Non-executive Director in April. He brings with him nearly 40 years of global operational experience and has already made a strong contribution to the Board. Unfortunately, due to pandemic-related restrictions, Board meetings started the year being held virtually. However, it was a pleasure to welcome the majority of Board members back to in-person meetings in June. Despite the challenges of remote meetings the Board has learnt from this experience and incorporated some elements of it into regular Board meetings.

Dividend

Our dividend policy aims to deliver long-term dividend growth, provided this is supported by cash flow and underlying earnings, and is justified in the context of our capital expenditure requirements and the prevailing market outlook. The Board has recommended a final dividend of 15.0 pence per share (2020: 14.3 pence per share). If approved at the Annual General Meeting, this final dividend will be paid on 27 May 2022.

Annual General Meeting

The Annual General Meeting will be held on 18 May 2022. The Notice of Meeting and explanatory notes containing details of the resolutions to be put to the meeting accompany this Annual Report and are available on our website: www.vesuvius.com.

Reflections and farewell

Having served for nine years as the Chairman of Vesuvius, this will be my last Annual Report to shareholders. During the year we commenced a process to select my successor, more details of which are set out in the Corporate Governance Report. I am pleased to report that this process is progressing well. For my own part, I am delighted by the progress Vesuvius has made during my tenure and the organisation it has become. I am particularly proud of the Board’s detailed focus on global safety, especially during the pandemic. Safety sits at the core of the promise we make to our employees and everyone who visits Vesuvius sites. Much progress has been made, and there is more to come. The Board has also increased its focus on quality processes and operational performance, as well as maintaining strong and robust governance and risk management processes. Vesuvius’ global management structure has evolved to delegate authority to managers to act locally with resilience and agility. During the pandemic, this enabled us to respond rapidly and effectively to ensure that production was maintained and customers were supplied as required. This decentralised management structure, which draws deeply on the skills of our talented managers, remains the cornerstone of Vesuvius’ flexibility and responsiveness. Meanwhile, we have invested significantly in R&D, underpinning one of the cornerstones of Vesuvius’ strategy, that of technology leadership. We have rejuvenated our manufacturing footprint to enable profitable and cash-backed growth, and developed our IT and systems capability to deliver improved customer management and systems security. In doing all of these things, we have strengthened Vesuvius for the present and the future. Vesuvius has a strong, cohesive and diverse Board which embraces our Group values and culture of open debate. We continue to support and constructively challenge management to deliver the Group’s strategy. I have every confidence that your Directors will continue to lead Vesuvius from strength to strength and I wish them, and all of our colleagues across the globe, the very best in doing so in the years ahead.

John McDonough CBE Chairman

3 March 2022

John McDonough CBE Chairman

On my visits to our sites I am consistently struck by the dedication and focus of our people and their commitment to building the business through excellent customer service

12

Vesuvius plc Annual Report and Financial Statements 2021

	19	20	21
Trading profit £m	142.4	101.4	181.4

During 2021, we delivered resilient results and protected the health and safety of our employees and the security of supply to our customers, despite the persistent COVID-19 crisis and unprecedented supply chain disruptions.

Priority given to the protection of the health and safety of our employees.

Best ever safety result

During 2021, our priority remained the protection of the health and safety of our employees.We remained focused on adapting the layout of our operations to ensure safe social distancing while enabling the ramp-up of our production to cope with the increased level of activity of our customers. We also continued to promote remote working whenever possible and supported vaccination of our employees and their families each time it was legally possible to do so. I was deeply saddened that despite these efforts, we lost 11 of our colleagues to COVID-19 in 2021. My thoughts remain with their families and friends. Throughout 2021, we maintained our efforts to improve the safety performance of our operations. Our Lost Time Injury Frequency Rate (LTIFR) progressed further to 1.06 from 1.16 in 2020, our best result ever. Despite this improvement, we remain unsatisfied and will intensify our efforts in 2022 to make further progress towards our objective of zero accidents. See more in the Our people section on p 82–96

Strong operational performance and resilient financial results despite very challenging supply chain disruptions

In 2021, our two main end markets of Steel and Foundry recovered significantly from the low point of 2020. In Steel, the recovery was particularly strong in the world excluding China, while in China, after a positive start to the year, steel production declined significantly in the second half. In Foundry, all sectors and all geographies exhibited positive growth, with the notable exception of the automotive sector, which remained at a low level of activity, equivalent to 2020, due to the persistent shortage of semi-conductors. At the same time as our end markets were recovering, we were confronted with extraordinary supply chain disruption for raw materials and logistics services – both in respect of pricing and in respect of their physical availability, which impacted businesses around the globe. Thanks to our decentralised, entrepreneurial, non-matrix business model, and the dedication of our management teams and personnel worldwide, we were able to react quickly to these challenges, increasing prices to compensate for raw material and logistics cost increases, while at the same time protecting the security of supply to our customers. We had to declare a temporary force majeure on two product lines during the second half of the year but were able in both cases to subsequently find solutions that avoided interrupting the production of our customers. In this challenging environment, our Flow Control, Foundry and Sensors & Probes business units registered strong commercial performance, outperforming their underlying markets and gaining market share globally, while at the same time adjusting prices upwards to compensate for cost increases. Our Advanced Refractories business unit however, lost market share in 2021 as priority was given very early in the year to pricing over volumes to compensate for raw material and logistics cost increases. As a consequence of this overall strong commercial performance, our underlying revenue increased by 18% in 2021, to £1,642.9m. This increase was made up 75% by volume increments and 25% by price. This strong growth in our revenue supported a significant increase in our trading profit and return on sales: our trading profit was £142.4m in 2021, compared with £101.4m in 2020 and our return on Sales reached 8.7%, +190 bps vs 2020 on an underlying basis. Our trading profit and return on sales were, however, negatively impacted by the timing difference between the pace of our price increases and the pace of the raw material and logistics cost increases we incurred. This generated a headwind of £14m in trading profit for the full year, although this headwind was fully eliminated by year-end as cost inflation was successfully passed through to customers. We continued to focus on cash generation in 2021 and further reduced our working capital intensity to 20.9% of sales, as compared with 23.2% in 2020 and 24.0% in 2019, despite investing in raw material inventory to mitigate some of the supply chain disruptions we experienced, and the necessary increase in working capital investment as associated with a rebound in our end markets. Thanks to this effort, we maintained our Net Debt to EBITDA ratio at 1.4x, a very limited increase as compared with 2020 (1.2x).

See Financial review section on p40 – 43
See Our strategy section on p14 –15

Delivering resilient results, whilst protecting our employees and the security of supply to our customers

Chief Executive’s strategic review

19 20 21
1.4 1.2 1.1
Net debt to EBITDA 1.4x
* Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.

Our business

Our performance

Sustainability

Governance

Financial Statements

Launch of an ambitious manufacturing expansion programme to support future organic growth in Flow Control

To support the strong growth and market share gains of our Flow Control business, we launched an important programme to increase our VISO and slide-gate plate manufacturing capacity. These expansions will increase the VIS O and slide-gate capacity at our Skawina plant in Poland by 35% and 100% respectively, as well as increasing the VIS O* capacity of our Kolkata plant in India by 50%. These strategically important investments will support our ongoing expansion in the fast-growing markets of EMEA, India and SEA s ia.

Sustained R&D effort supporting strong New Product launches

Despite the pandemic, in 2020 we resolved to maintain our R&D investment. Thanks to this decision, we were able to launch 27 new products in 2021, more than double the number of new products launched in 2020. Consequently, our new product sales ratio (the share in our turnover contributed by products which didn’t exist five years ago) reached 15.3% in 2021 (vs 12.4% in 2020). In 2021, we continued to increase our investment in R& D, in particular expanding our mechatronics centre of excellence in Belgium, which now supports both our Flow Control and Advanced Refractories robotics technology leadership. We also decided to increase our R&D investment to focus further on sustainability, with the development of innovative products and solutions that will lead the market in helping our customers improve their sustainability performance by reducing their CO2 emissions, and by improving the safety of their people.

Expansion in North America through the acquisition of the Universal Refractories business

We were pleased to announce the acquisition of the business of Universal Refractories, Inc. at the end of 2021. A specialty refractory producer based in Pennsylvania, Universal Refractories serves the Steel (tundish applications) and Foundry (consumables) industries. The acquisition delivers further expertise to our core business in both the Steel and Foundry markets in North America and in particular provides new opportunities in the growing sector of electric arc furnace steel producers. We are looking forward to the opportunity to integrate the Universal teams and know-how into the Vesuvius business and are expecting to derive significant synergies from this integration.

Significant progress in our sustainability journey

In 2020, we decided to launch a new comprehensive action plan to accelerate our sustainability efforts – bringing together all of our environmental, social and governance initiatives into a global co-ordinated programme with clear priorities, quantified targets, and milestones. In particular, we made a commitment to reach a net zero carbon footprint at the latest by 2050. 2021 was the first full year since the launch of this new Sustainability strategy and, on most parameters, we are running ahead of schedule. In particular, we have continued to make significant progress in the reduction of our carbon footprint with a 16.5% reduction in our carbon intensity as compared with our base year 2019 (versus 3.9% in 2020). We achieved this by improving the energy efficiency of our plants worldwide (9% improvement as compared with 2019) and shifting an increasing number of our operations to carbon-free electricity. We will make further progress in 2022. We also continued to advance in our journey towards greater gender diversity.# Fema le s now re pre se nt 21 % of o ur to p management , a lev el that we c onsider is s ti ll to o low, bu t whi ch re pre se nt s a sig nican t improve men t as co mp are d wi th t he l evel o f 1 2.5% in 201 9. In par allel, we engaged in a comprehens ive mul ti-ye ar p rogra mm e to as se ss t he sustainabil it y performance of ou r suppliers worldwide, with a particular focu s on gr een ho use g as e mis si ons , anti-briber y and corruption, and child and f orce d lab ou r . Mo re th an 4 0% o f our raw m ate ri al sup pl ier b as e ha s alre ad y been assessed. We are ver y p roud t o se e th es e ef fo r t s an d pro gre ss s ta r ti ng to b e re cogn is ed: ou r MSCI rat in g pro gre ss ed f rom B BB to A and o ur EcoV adi s rat in g inc rea se d fro m Sil ver to G ol d du rin g th e yea r . Gi ven o ur s tra te gic f ocus i n th is are a, we exp ec t to make sign i cant fur the r pro gre ss in 2022.

Board C hairman

A s you w ill h ave re ad i n th e Chai rm an’s st at eme nt, Jo hn McD on oug h CBE w ill b e st ep pin g dow n fro m th e Bo ard l at er t his yea r . Jo hn ha s se r ved a s Cha irm an of t he Bo ard si nce t he Co mp any de me rge d from Coo k so n Gro up pl c in 201 2. Si nce t he n he has s ucce ss f ull y gui de d th e Comp any and w orke d tir ele s sly i n th e se r vi ce of t he Gro up’s sta keho ld er s. H e ha s b e en a so urce of inva lua bl e ad vic e and g uid ance and h as b ee n a tre me nd ous su pp or t t o me and t he B o ard as a w ho le. O n be hal f of th e Gro up, I of fe r him my s ince re th an ks for a ll th at h e ha s do ne fo r V e su viu s over th e year s .

Outlook

Bo th ou r en d mar ket s of Ste el an d Foun dr y rem ain p osi t ive ly o rie nte d a t th e st ar t of 2022. In 2021 , V e su viu s de mon s tra ted i t s abi li t y to su cces s fu lly p as s-thro ugh co s t in at io n th roug h p ri ce i ncr eas es and will cont in ue to d o so in 2022, as n ec es sar y . Stra teg ic R&D a nd cap ac it y inves tm ent s are pro ce edi ng a s pla nn ed an d wi ll sup po r t mark et shar e gains going for ward . While we rem ain co nce rn ed ab ou t t he p ote nti al dire c t an d ind ire c t imp ac t s of re cen t ge op oli t ical ev ent s , whi ch h ave l ed us t o susp en d ou r de live ri es to Ru ss ian cu st om er s for t he d urat io n of ho s til it ie s, w e are neve r t he le ss cond en t t ha t the Group will de live r a sig ni can t i mp rovem ent in n anc ial per f orm an ce i n 2022.

Patrick André
Chi ef E xec ut iv e
3 Mar ch 2022

Patrick André
Chi ef E xec ut iv e

V esuvius ended 20 2 1 in a s trong position, our dedic ated management team s have laid the foundations f or fu ture gr ow th

S trate g ic objec tiv es

• Develop our technical ser vice offering and increase penetration of value-creating solutions
• Reinforce o ur technology leadership

W e are dedic a ted to ac celerating the achie vement of our S trategic Objectives to deliver protable gro w th. In par ticular , we will foc us our ef for ts on the high -qualit y , high - technology segments o f the s teel and foundry markets, and increase the automation and ef ciency of our manufacturing base. W e will drive this change w ith a t e am of skilful, motivated and talented p eople.

In 2021 , we d ram at ic all y ste pp ed up ou r n ew pro duc t lau nc h progr amm e wi th 27 new pro du c t s laun ch ed in 2021 , vs 10 i n 2020, incl udi ng th e fol lo wi ng hig hli gh ts by busi ne ss uni t :

• Fl ow Co nt ro l: l aun ch of th e A ir- Sh ie ld * T e chn ol og y, w hic h crea te s a b et ter se al be t we en th e tw o pla te s of o ur sl id e- ga te me cha ni sm to i nc rea se the yi el d a nd qua li t y of st ee l p ro duc e d .
• Advanced Refr actories: launch of th e BA SI LIT E* Qu ick Sta r t co mp os it i on wh ich is an ene rgy- ef cie nt tu ndi sh lin in g de vel op e d to b e use d o n a ‘Qu ick Sta r t ’ h ea ti ng cy cle . It el imi na te s the t yp ic al dr yi ng cy cle , increasing productivity and reduc ing en erg y cos t s and C O 2 emissions.
• Foundry : l au nch of t he new FEEDE X* FEF sle eve ran ge whi ch eli mi na te s u or id e emis si on s for high pre s sure greensand iron c as ting customers. Th is new rang e supp o r t s foun dr ie s in reducing harmful emissions and haza rdo us was t e whil e deli ve ri ng high thermal and feeding pe r fo rm an ce at sam e tim e.

In 2021 , Adv an ced Ref rac t or ie s ins t all e d 2 1 la se r and mec ha tr on ic s so lu ti on s at cus tom er lo ca ti on s. Mo re tha n 30 pro je c t s are unde r dis cu ss io n for the fu tu re.

Du ri ng 2021 , we inves t ed 1 .8 % of ou r revenu e in R&D. We rema in com mi t t ed to spe nd c.2 % of s al es on inn ova ti on eve r y year. We inves t th rou gh ou t the pro du c t cycl e from fro nt-e nd inn ova ti on to exi s ti ng pro du c t deve lo pm en t, f ocu si ng on the proj ect s that del iver the highest imp a c t to o ur cus to me rs .

In 2021 , our Ad van ced Ref ra c tor ie s business unit investe d signicantly in the de vel op me nt of a n ew me ch at ron ic Cen tr e of E xce ll en ce in Ghl in , Bel giu m. Thi s is now full y op era t io na l and will be th e glo ba l a gs hip for ou r Steel Di vi si on mechatronic c apabilit y . We c ont in ue to wor k on p ro du c ts that combi ne dev elopments in rob ot ic s , auto ma t io n and dat a an aly tic s capa bi li ti es wi t h our well-established material science res e arch an d mod ell in g abil it y . In addition, bri nging together our diverse research capabilities continues to strengthen our te chn ol og y lea de r shi p. We h ave al so in cr ea se d ou r foc us on p ro du c ts that help our c ustomers impr ove th ei r own safe t y pe r fo rm an ce and environ mental footprint .

• Deliv er pro tab le grow th
• Mai nta in an e f ci ent capi tal struc ture
• Think be yond in inno vation
• Ge ne rate val ue fo r our shareholders
• Alwa ys put safet y rs t
• Run be st -in- class sustainable operations
• Fost er ta len t , sk ill a nd motivati on in our peop le

W e measure and monit or our p erformance ag ains t t he se St rat egi c Ob je c ti ves t hro ugh our Key Per fo rma nce Ind ica tor s ( K PIs). Se e our Ke y P erformance Indicat ors o n p38 and 39

Exec ution priorities

Ou r tech no lo gy ha s bee n wide l y ad op te d by t he mos t so ph is ti ca te d producers in the most advanc ed ma rket s . Howe ver, m ar ked differences r emain i n the penetration of our sol u ti on s wit hin th e ind us tr y. Con se qu en tl y, t he re is a wi de r au di enc e of c us to me rs wh o we be li eve can be ne t fro m our so lu ti on s. A s ste el an d foun dr y ma rket s in deve lo pi ng eco no mi es be co me mor e qual it y fo cus ed , we have t he opp or tunit y to signicantly increase our penetration of t hese ma rket s th rou gh the val ue de li ver ed by our sol ut i ons . Vesuv iu s was buil t and grew th rou gh tec hn ol og y brea k th rou gh s. These enabled the steel c ontinuous cas t in g and foun dr y in dus t ri es to imp rove sig ni ca nt ly th ei r ef  ci en c y and qual it y . We fo cu s on delivering market -leading te chn ol og y whi ch cont in ue s to dri ve ou r uniqu e valu e prop os it io n and un de rp ins ou r abili t y to del iv er ongoing v alue en hancement to our customers.

Our strate g y

Progre s s i n 202 1

Imp rove cost leadership and margins	Capture growth in dev elopin g mark ets
Drive sustainabilit y (Se e our Sustainabilit y section on p5 0 to 101)

W e hav e con ti nue d to d el iv er o n our restructuring savings pr ogramme wi th a f ur t h er £4. 1m of rec ur rin g sa vi ng s deli ve red in 2021 . Ou r rigo rou s work in g capi ta l management has also paid di vi de nd s as w e achi eve d a 20 .9% rat i o of t rad e wor ki ng capi ta l to sa le s, sho wi ng an imp rove me nt of 230 bp s vs 2020 des pi te the bu il d up of inven tor y re qui re d to e na bl e us t o serve our customers under current mark e t conditions. Th rou gho u t 2022, ou r team s continued to pursue oppor tunitie s to im plement lean prac tices and au to ma te p roc es se s in o ur p la nt s to incre a se prod uc t iv i t y and qual it y . We als o fo cus ed o n pr ice ma na ge me nt in 2021 to res po nd to t he in cr ea se of o ur i npu t co s t s an d ad apt t he p ri ce of o ur p rod uc t s acco rd ing ly. This rem ain s a s t ron g foc us in 2022.

Th e sa le s vol um e of t he Ste e l Di vi si on in 2021 o ut pe r fo rm ed s tee l pro duc t io n in the wor ld by 1 3.7% , wi th pa r t icu la rl y str on g performance in Ind ia, Ja pa n, Chin a, Sou t h Am er ica , Vie tn am and EEME A . Ou r Found r y Div is io n regi st er ed s tro ng sa le s grow t h in em erg in g cou nt ri es in 2021 : wit h grow t h of 68 % in Sout h Am er ica; 36% i n In dia; 35% in V ie t nam; an d 5 2 % in T urke y . In C hin a, al th ou gh our customers fac ed decreasing ac t iv i t y thro ug h 202 1 , we wer e able to grow by 1 2 % , outper forming the mark et.

In 2021 , de spi te th e chal le ng in g env iro nm en t crea te d by t he COVID- 1 9 pa nd em ic, we mad e go od p ro gre ss o n ou r ni ne sus ta in ab ili t y tar ge t s. Thi s exemplies the c ommitment of V e su vi us’ pe op l e to w or k for a bet ter tomo rr ow, f or th e be ne  t of a ll st akeh ol de r s. In 2021 , we spe nt tim e anal y sin g th e risk s an d oppo r t un it ie s crea te d for th e Grou p by c li ma te cha ng e, foc usi ng on th ree lo ng-t er m sce na ri os . W or k the n took pl ace to en sure th a t the se were acc ura te ly re e c te d in t h e Grou p’s s t ra teg ic pl an nin g. In 2021 , we also la unc he d a sust ai na bil it y a ss es s me nt progra mme f or our suppliers and dev el op ed a met ho do lo g y to a ss e ss th e sus tai na bi li t y per form anc e of ou r produ c t s.

14 V e suvius plc Annual Report and Financial S tatements 2 02 1# Our business

Our performance

Sustainability has been a key focus for us in 2021. Our efforts have been recognised with our MSCI rating improving from BBB to A, and our EcoVadis rating moving from Silver to Gold. Vesuvius was also honoured to be included in the Financial Times’ European Climate Leaders list.

Execution priorities

We continuously pursue initiatives to adapt our business and our cost base to the changing trading environment. This is central to our efforts to improve profitability. We have embedded the principles of lean manufacturing across all our sites, continuously focusing on quality and productivity. Building on our long-standing presence in all markets, we can leverage the high growth enjoyed by our customers’ industries in emerging markets, which are large consumers of steel goods and foundry castings.

In line with our updated Sustainability initiative, we are taking steps within the organisation to create a better future for our planet, our customers, our people and our communities. We develop products that seek to help our customers drive efficiency and reduce their environmental footprint, and we are focusing on our own operations to reduce our environmental impact. We focus on giving our employees opportunities for growth and development, and support wider and deeper engagement with our communities.

Progress in 2021

• Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.

15

Our business

Our performance

Vesuvius has articulated a number of key execution priorities. These enable us to achieve our core Strategic Objectives of delivering profitable growth, generating value for our shareholders and in line with our sustainability initiative delivering a better tomorrow for our stakeholders.

Foundry industry customers

The pressure on the Steel and Foundry industries to reduce greenhouse gas emissions, particularly CO2, is increasing significantly as governments are enforcing stricter regulations, especially in the EU, the US and, recently, China. Our customers will continue to focus on reducing absolute energy consumption and CO2 emissions (through the elimination of higher emission processes) and reducing normalised energy consumption and CO2 emissions via increased efficiency. Our customers are following several different routes to deliver this reduction and to comply with stricter regulations.

The rise of scrap availability and of its recycling is supporting a shift to electric arc furnaces away from blast furnaces, to produce steel – in particular, in the US and the EU. We also expect this trend to gain momentum in China as the country implements its strategy towards net zero. Alongside this, the use of hydrogen in steel production, particularly in the EU27+UK, to manufacture ‘Green Steel’ is gaining traction and more and more steel producers are exploring hydrogen-based steelmaking technologies. In addition, failure to introduce a Carbon Border Mechanism Adjustment in more regulated regions like the EU is likely to accelerate the delocalisation of steel production from these areas.

In Foundry, as the move to hybrid/electric vehicles and low-carbon forms of transport accelerates, the foundry industry will shift away from manufacturing internal combustion engines. We expect aluminium and steel foundries to grow at a higher rate than iron foundries to support the manufacture of lighter-weight components for vehicles. Governmental funding and regulations are supporting these trends. In construction, we also see a continued trend of using lighter-weight steel and glass to replace concrete.

Steel

Steel production is a highly energy-intensive process. The World Steel Association has estimated that the steel industry generates between 7% and 9% of global direct emissions from the use of fossil fuel. However, steel continues to play an integral part in the modern world. Steel is a necessary material for the sectors and technologies that will drive a more sustainable economy. It is also infinitely recyclable and the by-products created during steel making, along with the waste energies, are valuable resources.

Vesuvius’ consumables enable our customers to increase manufacturing throughput whilst lowering energy consumption. For several decades, Vesuvius’ products have been assisting the steel industry in reducing greenhouse gas emissions by increasing yields and end-product consistency, therefore improving the energy efficiency of production.

Foundry

Foundries consume large amounts of energy in heating metals, generating significant amounts of CO2. They are experiencing a drastic change in their end-markets as parts of the world shift towards hybrid and electric vehicles, accelerating a transitition away from traditional ferrous casting, as well as a significant movement towards green electricity generation. Vesuvius’ products help our Foundry customers to maximise their energy efficiency and increase the ratio of metal melted to finished end castings. We systematically monitor the positive CO2 impact of our products.

Solutions for the changing demands of business

Climate change and the Vesuvius proposition

How Vesuvius will respond

We work closely with our customers to develop new products and technologies to meet these challenges with sustainability being a critical focus in new product development. Our Steel Division is participating in hydrogen R&D projects to develop solutions for the future of steel making. Additionally, we continue to develop new products with superior sustainability characteristics. Our Foundry Division teams are developing new filtration, feeding, mould coating and molten metal treatment products to support the availability of higher-performance metal and the manufacture of lighter-weight components for the automotive industry. They are also developing new products for aluminium foundries to support the fast-growing market in electric vehicles.

Our external environment

Almost two thirds of Vesuvius’ revenue comes from providing goods and services to the steel industry. One third of Vesuvius’ revenue is generated from the provision of products and solutions to the foundry industry. The remainder comes from products sold to high temperature industries such as aluminium, cement and energy from waste.

16

Vesuvius plc Annual Report and Financial Statements 2021

What’s happening

Companies face ever-increasing regulation and scrutiny to ensure safety and reduce emissions from their operations and products. Advancements in automation can help transform production, bringing greater consistency whilst lowering cost and delivering significantly improved safety performance in a plant. Thus robotics can support or even substitute operators in hazardous production areas.

Market volatility is increasing and labour shortage is a growing challenge, creating uncertainty and requiring even more flexibility in production. Automation can create more flexible operations to enable a more rapid response to changing market conditions.

How we are responding

Vesuvius has the global and in-depth capability to combine know-how in steel mills and foundries with robotic capabilities to deliver superior safety performance in hazardous areas of production. We provide laser technology to assess refractory wear, allowing targeted repair with our broad range of refractory consumables and application solutions – for efficient and safe operation. We have invested significant resources in the development of our mechatronics capabilities to shape the future operations of steel and foundry plants with our current robotics offering (e.g. Tundish, Continuous Casting) as well as with new automation capabilities in other areas. We are also exploring new ways to integrate continuous data capture into our solutions to give our customers further insights into the use of consumables in their production processes.

What’s happening

Our view on the long-term growth for the global steel and foundry markets remains positive. The importance of technology to differentiate steel and foundry producers continues to grow, supported by the development of more demanding product applications.# Whi ls t lower-qu ali t y cons t ru c ti on ste el s are curre ntl y ben e ti ng from sol id grow t h, thi s s tem s fro m gove rnm en t inves t me nt in inf ras tr uc t ure p rogr amm es to s hie ld t he ir economies from the ongoing impac t of t he CO V ID - 19 pa nd emi c. W e beli eve this is only a t emporary phenomenon. Stee l produ cer s are i ncre as ing ly focus ed on supp ly ing hig her -qu ali t y st ee l grade s for aut omo ti ve and power gen era ti on , wh ere the cons is ten c y of t he nis he d st ee l is f un dam ent al. Thi s is driv in g an ab ove-m arke t grow th f ore cas t for hig h-tech no lo gy ste el in all regio ns . In found rie s , th ere cont inu es to be a tre nd towa rds high er meta l and pro ces s quali t y, as they focu s on a g rea te r num be r of app li cat io ns tha t require cas ti ng s to comb in e high stre ng th wi th thi nne r , lig hte r prol es and grea ter comp le xi t y. H o w w e a r e r e s p o n d i n g V e su viu s is s t ron gly pos it io ne d to fa cil ita te th es e upgrad es and to bene  t from thes e tre nd s. W e ha ve a wi de pro duc t and s e r v i c e of f eri ng d esi gn ed to s upp or t the produ ction of high-te chn ol og y stee l and comp le x cast ed comp on ent s acros s our bro ad, glo ba l man ufa c tu rin g base . We co nti nue to inves t heav il y in R&D wi th ded ica te d centre s of e xcell en ce to thi nk beyon d wha t exis t s toda y . V e su viu s’ innova t ive por tf oli o of pro duc t s and ser vices , toge th er wit h it s glo ba l footp ri nt, e na ble us to p rovi de hig h-tech no lo gy sol ut io ns to o ur worldwide customers.

T echnic al upgrade of steel a nd fo undry

Aut om ation – safet y and ef cienc y

Improving qual ity with our new produc ts

In Flow Co nt rol , we h av e enha nce d our Com po si te De si gn T ech no lo g y ( CDT) wi th a new sol ut io n, th e Sur fa ce Laye r CD T , th at all ow s us to d es ig n a b roa de r rang e of s ha pe s an d sizes for our sli de -g a te pla te s and use a gre at er pro po r t io n of r ec yc le d mat eri al s, wh il e main tai nin g a h ig h leve l of p er form an ce. By comb in ing th is tec hn ol og y and our inn ova t ion on th e comp osi t io n of t he pl at es , we can off er hig h per formi ng an d sust ai nab l e produ c t s wit h gre at er e xi bi li t y in des ign .

Ou r Found r y Div is io n laun ch ed a new lt er ran ge th is year, t he STEL E X* pure o w lte r , for small castings in steel and other high temperature all oy s. Thi s lt er ran ge min imi se s inc lus io ns to imp rove th e puri t y of the me tal , reduc es de pe nd en c y on zircon ia (whic h is o f te n dif  cu lt to sou rce) and opt imi se s l tra ti on cap ab il it ie s.

L e a v i n g t h e m o s t h a z a r d o u s w o r k t o r o b o t s

In 2021 , our Ad van ced Ref ra c tor ie s busi ne s s uni t comm is si on ed se vera l tun dis h spra y robo t s at cus to me r sit es all ow in g them to aut om at e th e re-li ni ng pro ce ss of the ir tun di sh es , thus in cre as ing th e saf et y an d reli abi li t y of the ir op era t io ns , and redu ci ng the do wn ti me of their equipment.

* T ra d em ar k of th e Vesu vi us G ro up of c om pa ni es , un reg is t ere d o r reg is te re d in c er t ai n cou nt ri es , us e d und e r li cen ce.

17

Our business

Our pe r formance

Sustainabilit y

G overnance

Financial Statements

Found ry industry end-mark ets

T h e mos t imp or t ant end -mar ket s for the foun dr y ind us tr y are gen era l engin ee rin g, lig ht vehic le s, incl udi ng pas se ng er car s and light comm erci al vehic le s, me dium and he av y comm erci al vehi cle s, cons t ru c ti on, agr icul t ure and minin g equipment , p ower -generation equipment , and rail roa d. Whi ls t the C OVID- 1 9 pa nde mi c caus ed a sha rp dec lin e in Fo und r y end-m arket s in 2020, end -ma rket s rebo und ed in 20 21 wi th par ticul ar improv eme nt s in gene ral en gin ee rin g ( 12.7% ) and minin g and cons t ru c ti on equi pm ent ( 19 . 2%) . However , th e a ut omo ti ve mar ket conti nue d to suf fer fro m th e severe sem i-co ndu c tor supply sho r ta ge s i n 2021 , whic h s ign i cant ly imp ac t ed ligh t vehicl e produ c ti on, esp e cial ly duri ng the se con d hal f of t he yea r , lead ing to only a sli ght inc rea se in pro duc t io n volum e of 2.5% in 2021 .

Above-average market growth for highly sophisticated and compl ex cas ting s

T h e Foun dr y Div is ion be ne t s fro m it s cap abi li tie s to im prove high ly sop his t ica te d and comp le x cast in gs , which are the se gme nt s of t he foun dr y mar ket growin g th e faste s t. Fo und r y cust ome r s are evol vi ng toward s th es e ty pe s of ca st in g be caus e of i ncre as ed requ irem en ts for cle an er meta l to ca st comp le x shap es wi th thi nne r sec t ion s. Whi ls t Found r y Divi si on produ c t s ty pi call y rep res ent le ss tha n 5 % of a fo und r y ’s pro duc t io n cost s , they contr ib ute sig ni can tl y to t he impro vem ent of pro duc t qua li t y and manu fac t uri ng ef  ci enc y, wh ils t redu cin g the envi ron men tal i mpa c t of t he ca st in g pro ces s an d imp rovi ng t he ra ti o of ni sh ed cas tin gs to the amoun t of me tal pou red. T he la t t er is a k ey pa rame ter for foun dr y ef  cie nc y.

‘High-technology steel ’

‘ Hig h-tech nol o gy ste el ’ is our inte rn al se gme nta t ion th at des cri be s ste el whi ch is eit he r hig h per fo rmi ng, e.g. adva nce d hig h-s t ren gt h ste el for auto mot ive app li cat io ns, or for which th e produ c tio n pro ces s to p rod uce the st ee l is compl ex , e.g. the nea r net shap e produ c ti on pro ces s, whi ch is a contin uou s cast in g pro ces s tha t produ ces ste el in ver y thin sla bs nea r to i t s nal requi red thi ckn es s . T he se pro ces se s and ste el grad es , wh ere th e consis te nc y of th e ni sh ed ste el is pa ramo unt, are g ain ing mom en tu m wor ld wid e beca use th ey provid e ste el pro duce rs wi th eit he r dif fe ren ti ate d pro duc t s or signi  cant ben e t s in ter ms of co st s av in gs an d a red uce d envi ron men tal foot pr int.

Our mark ets

S te e l Div is ion

Business units

Flow Co ntro l

Steel produ c ti on volum e is t he pri mar y dri ver of dema nd for Flow Contro l ’s pro duc t s , whils t th e tre nd for ‘ hi gh-tec hno lo gy st ee l ’ allow s us t o lever age our advanc ed solutions and ach ieve above -m arket grow t h rate s.

Stee l produ c tion volum e and ce r ta in other high- temp erature industries, such as alumi niu m, copp er , ceme nt, pe tro che mi cal and energ y from was te, are t he dr ive rs f or th e Ad van ced Refra c to rie s busin es s unit ’s pro duc t dem an d.

Sensors & P robes

Steel production volume and the need to incre as e th e quali t y and consi s ten c y of cas t s te el dr ive s de ma nd fo r our Sen so rs & Prob es bus ine ss .

F oun dr y Div is ion

Higher sophistication, demanding hig he r -qu ali t y me tal and incre asi ng ly comp le x cast in gs is the long -term dri ver fo r pro du c t de man d for t he Foun dr y Div is ion .

High-technology –

• Ne ar n et s hap e production proc ess
• Stainless steel
• Engineering steel: be ar in g, sha f t s , tool s, et c.
• Au to mot i ve s te el

S teel usage

Ves uvius’ internal segmentation of global crude steel production

Steel type
High-t e chnology	33%
Medium-technology	33%
Commodity	34%

Flow Control business unit end markets

Steel type
High-t e chnology	58%
Medium-technology	25%
Commodity	17%

Commodity

• Basic rebar for c oncrete reinf orcemen t

Medium-technology

• Construction sheets: roong, cladding, etc.
• He av y pl a te s for ship b uilding, pipe

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V esuvius plc Annua l R epor t and Fi nancial Statemen ts 20 2 1

T echnology changes and envir onmental driv ers

New tec hno lo gie s , such as 3D p rin ti ng, are exp ec t ed to cont in ue to i n uen ce the me tal cas tin g indus t r y , all owi ng for fas ter prot ot y pin g and produ c ti on of sma lle r vol ume par ts. Enviro nm ent al regul at io ns , dri ven by th e desir e to reduce vol at il e organic compound emissi ons and the use of silica wi th in indu st r y, are als o ex pe c te d to conti nue to tigh ten . Thi s will drive th e trend to nd proce ss es and cons uma bl e pro duc t s whi ch supp or t pro duc t io n ef ci en c y and redu ce a foun dr y ’s imp ac t on the envi ronm ent.

Iron cas ting

Iron cas ti ng is spli t bet we en grey and duc t il e iron, wit h grey iron repr es ent in g mos t of the meta l be ing cas t. T his is a cost-ef  ci ent and robu st pro ces s produci ng c omponents that do not ne ed to tol era te ex t rem e me cha nica l st re ss . All iron cast in gs requi re lte rs and coa ti ng s, but grey iron is not as relia nt on fee di ng sys te m uti lis at io n due to i t s lower shr inkag e on soli di ca ti on. Conver s el y , duc t il e iron produ c ti on requi res more sophisticated c onsumable feeding pro duc t s to cope wit h the high shri nkag es of metal whi ls t sol idi f yi ng.

Steel casting

Stee l is u se d to cast comp on ent s requ iri ng ver y hig h me cha nica l per fo rma nce. Steel casting is the m ost demanding casting pr o cess due to higher melting tem pe rat ure s and great er tend en c y for shr inkag e. This dri ves grea te r dema nd for consu mab le s and techn ical ex pe r t ise in this se gme nt.

Aluminium/Non- ferrous casting

Al umin ium ca s ti ng is t he s eg men t of th e foun dr y mar ket growin g the fas tes t, capt ur ing a signi ca nt share of the light vehi cl e m arket. B ei ng mo lte n b el ow 700 ° C, alu mini um can b e cas t i n iron m ou lds whi ch can th en be reuse d. The cas ti ng pro ces s g rowi ng t he fast es t i s Hi gh Pres su re Di e Cas t ing (HPDC), s upp or ted b y t he grow th of elec t ri c ve hic le produ c ti on.# Vesuvius develops and supplies fluxes, filters and machines that refine the composition and clean lines of the metal.

Crude steel production is a structurally growing market. The COVID-19 crisis has disrupted global demand and supply chains around the world. However, from the end of 2020, we have observed a strong rebound in steel demand and thus in production, as our customers were restarting and increasing capacity to meet their own customers’ demand. Despite steel producers facing issues ramping up production to meet full demand, crude steel production in the world, excluding China, increased by 12.5% in 2021 compared to the prior year, while China’s crude steel production in 2021 decreased by 3%, reversing a growth trend that has been running for several years.

In 2021, we saw the driving forces behind steel production changing, primarily influenced by decarbonisation targets in the US, EU and China. China is now targeting net zero by 2060 and limiting crude steel outputs and exports. We believe this action will benefit other regions.

2021 saw a strong rebound in US and EU27 + UK, production at 18.3% vs 2020 and 14.8% vs 2020, respectively. However, we believe the long-term growth will mostly come from emerging regions, in particular from India and South-East Asia, EEMEA and Latin America. Longer term, we expect global crude steel production to grow at a rate of 1.3% per annum and excluding China, at a rate of 2.5%.

Notes to the above charts:
1. Eastern Europe, Middle East (incl. Turkey), Africa, Latin America and South East Asia.
2. EU27, UK, USA, Canada and North Asia.
3. Eastern Europe, Middle East (incl. Turkey) and Africa.

World crude steel production (mt)

Changing driving forces in global crude steel production

Year	Crude steel production growth 2021	FY 2021	H1 2021	H2 2021
World	+3.7%	+14.4%	-5.6%
China	-3.0%	+11.8%	-16.3%
World excluding China	+12.5%	+17.9%	+8.0%

Crude steel production volume 2021

• Crude steel production growth year-on-year
  • India 17.8%
  • China -3.0%
  • South East Asia 22.5%
  • Latin America 15.4%
  • EU27 + UK 14.8%
  • NAFTA 16.6%
  • EEMEA 3 excl Iran 9.2%

Our business

Business model

A profitable, flexible, cash-generative model focused on sustainable growth.

Financial capital

We use the cash generated by our business to invest in innovation, people, operating assets, technology and sales to generate further growth.

Manufacturing capital

We have a global footprint, with 54 production sites on six continents, giving us proximity to our customers.

Intellectual capital

We have six R&D centres of excellence, together with dedicated R&D staff worldwide, generating innovative products and services that help our customers make their industrial processes safer, more efficient and more sustainable.

Human capital

We invest in developing our skilled and motivated workforce of more than 11,000 people and provide them with a safe environment in which to work.

Social capital

We champion our Values and our ethical conduct. We maintain strong relationships with customers and our wider stakeholder groups.

Natural capital

We utilise high-quality raw materials, secured through reliable and well-developed and sustainable supply chains.

We develop and manufacture high-technology products and solutions predominantly for supply to the steel and foundry casting industries, operating a profitable, flexible, cash-generative and growth-building business model. Over many years, we have built the brand equity of our Vesuvius and Foseco products through technology leadership, reliability and service.

The sustainability of our model

The items we have now formalised in our Sustainability initiative have long been at the heart of Vesuvius’ value proposition. We act as a responsible corporate citizen, developing products that help our customers to improve their efficiency and reduce their environmental impact.

Our key resources

What we do

Global presence

Using our global expertise to identify and create market opportunities.
Vesuvius is present on six continents, supporting the development of global steel and foundry manufacturing processes with new technologies. We have manufacturing capability in all the main steel and foundry markets and hire and train local engineers. Our local manufacturing, local expertise and global knowledge of customers’ processes give us a special relationship with our customers. See more about Our global presence on p4 and 5.

Sustainable competitive advantages

Optimised manufacturing

Low-cost lean manufacturing provides reliable ‘just-in-time’ products.
Our successfully tested products can be produced at high volumes across all of our manufacturing footprint, guaranteeing cost-competitive and time-efficient delivery. We optimise our cost-competitiveness by investing in low-cost production sites and increasing production automation – and have established manufacturing facilities to support our expansion in emerging markets. See more about Our operations on p44 – 49.

• R&D centres of excellence: 6
• Employees: 11,204
• Production sites: 54

Vesuvius plc Annual Report and Financial Statements 2021

Our investors

Strategic alignment

Our cash-generative and low capital intensity business provides returns to our shareholders and underpins sustainable growth.

Our customers

Strategic alignment

Our investment in innovation creates cutting-edge products and solutions, delivering enhanced value for our customers and differentiating us from our competitors. Our technology solutions improve customer safety and remove operators from the most dangerous parts of our customers’ processes. We embed technical experts within our customers, giving us a fundamental understanding of their needs and delivering them access to our global network of highly skilled individuals.

• Our industry experts are embedded at many customer locations and are therefore ideally placed to collaborate with customers to identify their needs, and potential service and process improvements. This also enables us to grow our solutions and service portfolio.
• We develop high-technology products that deliver quality enhancement, efficiency gains and energy savings to our customers. We focus on environmental sustainability in our own business through the efficient use of energy and natural resources.

Our suppliers

Strategic alignment

Maintaining cost-effective access to high-quality raw materials is vital to our success. Our suppliers are critical to our business.

Our people

Strategic alignment

We focus on the health and safety of all our staff. We engage with our people, encouraging and rewarding high performance to create an environment where all can realise their individual potential.

Our communities

Strategic alignment

We are committed to maintaining positive relationships with the communities in which we operate. Our social responsibility activities complement our Values and we encourage our employees to engage with communities and groups local to our operations.

Students and graduates

Strategic alignment

Attracting new talent to Vesuvius is vital for the Group’s continuing success. Recruiting new students and graduates feeds the talent pipeline and allows us to tap into new sources of up-to-date business ideas and R&D capability.

• Our model is profitable by allowing value pricing for bespoke products and services. It generates growth as we enlarge our market with additional innovative products and solutions.
• Our model is resilient to end-market volatility due to the flexibility of our diversified manufacturing footprint and adjustable cost base, increasingly supported by automation.
• Our commitment to ethical business delivers strong, long-term, sustainable commercial relationships.

Advanced technology

Our technology centres develop value-adding solutions involving engineered systems and high-value consumables.
Our continuing investment in Vesuvius’ R&D centres of excellence is reflected in all areas of our offering. We have knowledge of the most advanced ceramic and metallurgical techniques using state-of-the-art equipment and the most advanced technologies of flow simulation and finite element analysis. We are therefore able to provide our customers with sophisticated, innovative, custom-designed solutions.# Our business

Our operations

Read more about our Value-added solutions on p 14 and 15

Service and consistency Serving our customers reliably, competitively and consistently with consumables critical for their manufacturing processes. Alongside our global presence, we ensure a local service to our customers, from inventory management to high-quality technical support at their sites and the ability to swiftly modify production and supply to reflect changes in customer requirements. Our knowledge of end-market processes, specifications and techniques around the world gives our experts an unparalleled ability to support our customers. Read more about Our operations on p 44 – 49

Strategic alignment

• Deliver profitable growth
• Generate value for our shareholders
• Maintain an efficient capital structure
• Always put safety first
• Think beyond in innovation
• Run best-in-class sustainable operations
• Foster talent, skill and motivation in our people

How we deliver

The value we create

Under Section 172 of the Companies Act 2006, the Directors have a duty to promote the success of the Company over the long term for the benefit of shareholders as a whole, having regard to a range of other key stakeholders and interests. The Board is responsible for the overall direction of the Group. It focuses primarily upon strategic and policy issues and is responsible for the Group’s long-term success. It sets the Group’s strategy, oversees the allocation of resources and monitors the performance of the Group, to ensure that the Group is structured appropriately for the challenges and opportunities of the future. In performing these duties, the Board is focused on the sustainable success of the Group in the long term, and the existence of a culture that supports this success. The Board recognises the need for the Group to have effective engagement with, and encourage participation from, all key stakeholders to promote these long-term interests. The Group’s key stakeholder groups, reflecting those who have the biggest impact on the business and modes of engagement, are outlined in the table on pages 26 and 27. The Board has regard to the activities undertaken throughout the Group in considering its own Section 172 responsibilities.

Effective engagement with stakeholders promotes the long-term sustainability of the Group.

Section 172 (1) Statement

The Directors must have regard (among other matters) to the:

• Likely consequences of any decision in the long term
• Interests of the Company’s employees
• Need to foster the Company’s business relationships with suppliers, customers and others
• Impact of the Company’s operations on the community and the environment
• Desirability of the Company maintaining a reputation for high standards of business conduct
• Need to act fairly as between members of the Company

22 Vesuvius plc Annual Report and Financial Statements 2021

Vesuvius employee photography competition: Saugata Datta – see inside back cover

Likely consequences of any decision in the long term

Throughout the year, the Board considered the long-term consequences of the decisions it made, focusing on the interests of relevant stakeholders as appropriate. Examples of how these activities impacted some of the key decisions taken by the Board during 2021 are given below.

Acquisition of the assets and business of Universal Refractories, Inc.
The Board approved the acquisition of the assets and business of Universal Refractories, Inc. in December 2021. This is a strategically important acquisition for Vesuvius, supporting our commitment to shareholders to develop our technical service offering. It significantly expands our North American presence among electric arc furnace steel producers, delivering further expertise to our core business in steel tundish applications, while also further strengthening our Foundry business. This allows us to enhance our customer offering and will provide further opportunities for our suppliers. We are delighted to welcome 140 of Universal’s employees to the Group.

• Stakeholder alignment – Shareholders, Employees, Customers, Suppliers
• Strategic alignment

Ongoing operational response to the COVID-19 pandemic
Recognition of the impact of COVID-19 continued to play an important part in the Board’s decision-making throughout 2021. With the primary focus remaining on protecting the health and safety of employees, the Board monitored the level of COVID-19 throughout the Group and the steps that were being taken in each country to enable employees to be vaccinated. The Board also monitored the impact of the pandemic on global supply chains, in particular on the Group’s ability to source and ship raw materials to fulfil customers’ orders on a timely basis, and the increasing costs that resulted. The Board oversaw the Group’s response to these challenges, and scrutinised the actions being taken to promote continuity of supply and ensure that the Group’s financial position was protected by the pass-through of additional costs.

• Stakeholder alignment – Employees, Shareholders, Customers, Suppliers
• Strategic alignment

Capital investment in VISO and slide-gate capacity
The Board approved the investment in additional slide-gate capacity in Europe, and VISO and slide-gate capacity for Southeast Asia. The Board considered the current Group capacity and the need for expansion to ensure that the Group was able to continue to fulfil customers’ orders on a timely basis. The Board noted that the new equipment would produce products more efficiently, thus supporting the Group’s sustainability objectives. Consideration was given to the appropriate geographical location for the extra capacity as well as the environmental consequences of increased production. The Board noted the actions taken to make adjustments to project planning and the additional improvements to legacy production processes at the nominated sites. The additional capacity will also create additional jobs in Poland and India.

• Stakeholder alignment – Shareholders, Employees, Customers, Suppliers, Communities
• Strategic alignment

Strategic alignment

• Deliver profitable growth
• Generate value for our shareholders
• Maintain an efficient capital structure
• Always put safety first
• Think beyond in innovation
• Run best-in-class sustainable operations
• Foster talent, skill and motivation in our people

See more about Our strategy on p14 and 15

23

Our business
Our performance
Sustainability
Governance
Financial Statements

Interests of the Company’s employees

The Board takes the health and safety of our employees as its primary responsibility. Throughout 2021, it continued to monitor the impact of the COVID-19 pandemic on employees, focusing particularly on the roll-out of vaccinations around the world and any steps that Vesuvius’ businesses could take to facilitate the availability of vaccinations for their staff. At each Board meeting, the Board received a report on the Group’s performance against Health and Safety KPIs and reviewed, in detail, the circumstances of any Lost Time Injuries that had been recorded since its last meeting. As part of the regular schedule of business unit presentations, the Board reviewed progress against the specific HR objectives for each business unit and monitored the initiatives that are being implemented to enhance the career and personal development of employees, and talent development as a whole within the Group. In October, the Company undertook its third global employee engagement exercise. The Board oversaw this process, which commenced with an engagement survey, aimed at canvassing the opinions of all of our > 11,000 employees worldwide. The Board received feedback on the results, including comparator data versus the norm for other global manufacturing companies and considered what this indicated about the culture of the Group. It reviewed management’s response to the outcome of the survey and the follow-up actions that would be undertaken throughout the Group. Further information about the survey can be found on pages 91 and 92. Further information about the work of the Board’s Committees in considering and supporting the interests of the Company’s employees can be found in the Nomination and Remuneration Committee Reports on pages 125 – 153.# Section 172 (1) Statement

Need to foster the Company’s business relationships with suppliers, customers and others

During 2021, the Board received regular updates from the Chief Executive on the actions being taken throughout the Group to ensure continuity of supply for the Group’s customers despite the supply chain disruptions caused by the COVID-19 pandemic and the increased cost of raw materials and freight. The Board received regular updates on the impact of the pandemic on the Group’s suppliers, and the availability and pricing of raw materials. The Board discussed the need to pass these increased costs through to customers to protect the Group’s business and the Chief Executive was tasked with ensuring this was being appropriately actioned throughout the Group. The Board was then kept appraised of progress in the price negotiations being undertaken with customers. The Board received presentations from the business unit Presidents, Head of Strategy and President Operations and Technology on end-markets, the Group’s relationships with customers and key matters of concern to them. It discussed the steps being taken by the Group to respond to customers’ ongoing requirements, and the research and development, marketing and new product launch strategies being actioned to respond to these. The Board regularly reviewed information on the Group’s performance against key manufacturing quality targets and was updated at Board meetings on actions undertaken to rectify any significant quality issues or customer complaints. The Board considered market trends at each meeting and undertook a thorough review of macro trends and their likely long-term implications at the Board’s annual strategy meeting. Alongside the regular customer contact maintained by the Chief Executive the full Board visited a steel customer in Belgium in September. This provided the Directors with the opportunity to speak directly to one of our customers about their business and to hear from them first-hand about their immediate challenges and longer-term expectations. In addition to understanding business unit-specific procurement and pricing issues during the year, the Board also received an update from the Group’s Chief Purchasing Officer and discussed the Group’s procurement organisation structure, raw material supply, relationships with its suppliers and its purchasing practices.

Impact of the Company’s operations on the community and the environment

The Group’s Sustainability initiative ensures that sustainability is consistently at the centre of the Group’s strategy. A key tenet of Vesuvius’ business has always been to support our customers’ efforts to reduce their own environmental footprint and improve safety on the shop floor (especially exposure to hot metal). The Sustainability initiative provides further detail about the Group’s efforts in this regard and the actions Vesuvius has committed to take to reduce its own environmental footprint and create a better tomorrow for our people and stakeholders. The Board received bi-annual presentations from the VP Sustainability on the work of the Sustainability Council and the Group’s progress against its sustainability targets. It also received specialist advice on the ongoing governance and regulatory changes to ESG disclosure requirements. The Board and Audit Committee monitored the Group’s progress with TCFD compliance, reviewing the results of the Sustainability Council’s detailed scenario and risks and opportunities analysis. Further details of the Board’s oversight of the Group’s sustainability activities can be found in the Sustainability section on pages 50 – 101. The Board recognises that the success of the Group’s operations is dependent on maintaining positive relations with the communities in which we operate. The Board encourages Vesuvius’ sites to support their local communities through charitable activities and community events. As part of our commitment to encourage more young people to pursue careers in scientific and technical subjects, Vesuvius looks for opportunities to develop the next generation of leaders in our sector and supports training and education programmes. In 2021, this included partnering with the Polytecnic Faculty of Mons in Belgium, supporting their Mechatronic Award and operating a young apprentice programme in Piedade, Brazil to provide professional training to young people with minimal education. Further examples of the Group’s activities can be found in the Community section on page 99.

Section 172 (1) Statement continued

Desirability of the Company maintaining a reputation for high standards of business conduct

The Group’s Code of Conduct states that Vesuvius must maintain an unquestioned reputation for integrity. The Board takes seriously the Group’s obligation to maintain this high standard of business conduct and assessed compliance with this requirement through a variety of mechanisms during 2021, including reports from Internal and External Audit, along with feedback from the Group’s employee engagement survey. Vesuvius agrees terms with its suppliers and seeks to pay in accordance with those terms. When reviewing the Group’s tax strategy, the Board ensured that the Group’s approach to tax management reinforced the need for the Company to maintain a reputation for high standards of business conduct. In addition, the Board received formal reports during 2021 on the Group’s compliance activities, including the Group’s risk assessment programme and training practices, and specific issues raised through the Group’s Speak Up helpline and internal reporting processes. Further details of the Group’s compliance activities can be found in the Our communities section on pages 97–101.

Need to act fairly as between members of the Company

The primary focus of the Board’s business decisions is on ensuring the long-term sustainability of the Group. The Board recognises that, in seeking to maintain long-term profitability, the Group is reliant on the support of all of its stakeholders, including the Group’s workforce, its customers, suppliers and the communities in which its businesses operate. In taking capital allocation decisions during 2021, the Board was cognisant of the need to balance the interests of different stakeholders. Decisions on the Group’s approach to investment opportunities, working capital, capex, R&D, investment in people, dividend policy and pension contributions, taken during the year, were all considered against this backdrop. The Board is committed to communicating with shareholders and other stakeholders in a clear and open manner and seeks to ensure effective engagement through the Company’s regular communications, the AGM and other investor relations activities. During 2021, the Company undertook an ongoing programme of meetings with investors. The majority of these meetings were led by the Chief Executive and Chief Financial Officer, and during 2021 a large portion were conducted by virtual means. In advance of each AGM, we write to our largest shareholders inviting discussion on any questions they might like to raise and making the Chairs of the Board, the Audit Committee and the Remuneration Committee available to meet shareholders should they so wish. In addition, the Chair of the Remuneration Committee wrote to our largest shareholders and key governance agencies in early 2022, to provide additional detail on changes to the Group’s executive remuneration proposals and invite further engagement. Feedback was received from the majority of shareholders and governance agencies and dialogue entered into with a number of them regarding the specificities of the proposals. As a result of this engagement, the Committee was pleased to be able to implement these changes with the support of shareholders. Further detail is contained in the Directors’ Remuneration Report on pages 130 – 153. The Company reports its financial results to shareholders twice a year, with the publication of its annual and half-year financial reports. In addition, to maintain transparency in performance, we also issued a number of trading updates during 2021. Presentations or teleconference calls were held by the Chief Executive and Chief Financial Officer with institutional investors and analysts on each of these dates.

24 Vesuvius plc Annual Report and Financial Statements 2021# In a normal year all the Directors attend the Company’s AGM, providing shareholders with the opportunity to question them about issues relating to the Group, either during the meeting or informally afterwards. In 2021 travel restrictions operating in the UK curtailed attendance at the AGM. It is hoped that the majority of Directors will be able to attend this year’s AGM in person.

Relations with shareholders

25 Our business

Our performance

Sustainability

Governance

Financial Statements

Our Stakeholders

Why we engage

Types of engagement undertaken

Issues relevant to the stakeholder group

Our people

With our decentralised management model, the dedication and professionalism of our people, their capacity for owning their roles and their drive for results are the most significant contributors to Vesuvius’ success. We focus on the health and safety of all our staff, and engage with our people, encouraging and rewarding high performance to create an environment where all can realise their individual potential.

• Fundamental focus on health and safety and the care of all employees
• Continuing dialogue between employees and their managers, including the conduct of regular performance reviews
• Competitive remuneration and benefits strategy, emphasizing talent development with tailored career-stage programmes.
• Living the Values and other award schemes celebrate individual achievements
• Global communication mechanisms include an internal intranet, global email communications and a Vesuvius app, alongside forums such as local ‘town hall’ meetings.
• The Group is reconstituting its European Works Council, operates local works councils and recognises trade unions
• Wide-ranging internal training is offered on key job-related issues, with programmes such as the Vesuvius University – HeaT – and the Foseco University

Health and safety

Diversity and inclusion

Remuneration evolution

International mobility

Employee engagement

Development and retention

Career opportunities

Sustainability performance

Students and graduates

Attracting new talent to Vesuvius is vital. Recruiting new students and graduates feeds the talent pipeline and allows us to tap into new sources of up-to-date business ideas and innovation. The Group maintains contact with universities to identify and develop talent and undertakes R&D collaborations which complement our in-house R&D capability

• Our businesses attend careers fairs and provide student work placements and internships
• Vesuvius’ website provides prospective applicants with detailed information about the Group

Career opportunities

Personal development

Engagement and retention

Research and innovation

Training and mobility

Business sustainability

Customers

Engaging with our customers helps us to understand their needs and identify opportunities and challenges. Collaborating with our customers enables us to use our expertise to improve the safety and efficiency of their manufacturing processes, enhance their end-product quality and reduce their costs. Senior-level dialogue is maintained with all key customers, including Directors’ visits to customers’ sites, as appropriate

Our business model focuses on collaboration with customers, to provide customised solutions, and more than 2,500 Vesuvius representatives are embedded at customer locations

The Group manages customer relationships on a global basis as required, complemented by diverse local servicing capability

We engage with customers on safety leadership and support their training requirements. During the pandemic there has been a greater focus on virtual training

We provide technical customer training, including the Foseco University, and participate in industry forums and events. In 2021, the majority of these interactions had to be conducted virtually with more focus on e-learning

Customer satisfaction

Product quality and performance

Innovation and provision of solutions

Health and safety

Sustainability performance

Suppliers and contractors

Maintaining a flexible workforce through the use of contractors and cost-effective access to high-quality raw materials is vital to our success. Our contractors and suppliers are critical to our business. In an normal year Vesuvius conducts regular visits to key suppliers. In 2021, opportunities for such visits were more limited

Senior-level relationships are built with large suppliers. In 2021, the majority of these meetings were held virtually

• All suppliers/brokers have regular interaction with the Global Purchasing Team
• Dedicated category directors build long-term relationships and product expertise
• There is a rigorous and consistent supplier accreditation procedure
• Effective working protocols, including work risk assessments, are established with contractors

Operational performance

Responsible procurement

Trust and ethics

Payment practices

Section 172 (1) Statement continued

26 Vesuvius plc Annual Report and Financial Statements 2021

Why we engage

Types of engagement undertaken

Issues relevant to the stakeholder group

Investors

Continued access to funding is vital to the performance of our business. We work to ensure that our investors have a clear understanding of our strategy, performance and objectives. Supportive investors are more likely to provide the Company with funds for expansion. Vesuvius’ Investor Relations Strategy managed by the Group Finance Director and Chief Executive includes regular meetings with key and prospective investors

• The Group’s Annual Report provides an overview of the Group.
• Regular announcements and press releases are published to provide updates on the Group’s performance and progress
• The AGM provides all shareholders with an opportunity to directly engage with the Board
• There is ongoing dialogue with the Company’s analysts to address enquiries and promote the business

Financial performance

Strong governance and transparency

Sustainability performance

Diversity and inclusion

Director remuneration

Board performance

Lenders (banks and debt investors)

The Group needs to access funding to ensure it has sufficient financing to run the business and fund future growth. We ensure that our relationship banks have a clear understanding of our strategy, performance and objectives. We engage with lenders to fulfil our compliance obligations and to ensure that we have clear knowledge and awareness of market sensitivities and trends. Group Treasury maintains an ongoing dialogue with key lenders through the relationship banks and other local banks in the countries in which Vesuvius operates. In 2021, this dialogue was maintained by virtual means

The Group Treasurer, Group Head of Corporate Finance and CFO hold regular meetings with key personnel from banks and other lenders who provide the Group’s debt funding. In 2021, these meetings were held virtually

• Representatives from the banks are invited to the Group’s results presentations

Annual Report and Financial Statements

Financial performance

Group internal control and audit processes

Strategic planning and ability to repay debt

Gearing and monitoring of financial covenant ratios

Business continuity planning

Transparency and ethical behaviour

Communities

We are committed to maintaining positive relationships with the communities in which we operate. Our social responsibility activities complement our Values and we encourage our employees to engage with communities and groups local to our operations.

• Provision of work experience and internships to local university students and school children
• Sponsoring of charitable activities
• Participation in local volunteering initiatives

Operational performance

Transparency and ethical behaviour

Environmental performance

Environmental agencies and organisations

Good environmental management is aligned with our focus on cost optimisation and operational excellence. We engage with appropriate organisations to ensure that we are complying with regulatory requirements, and to publicise our performance.

• Signatory to the UN Global Compact
• Online Sustainability Report published on the Vesuvius website
• Visits and inspection of sites by government agencies

Annual Report and Financial Statements

Response to environmental research as part of customer and supplier due diligence

Participation in environmental and social responsibility research and questionnaires

Governance and transparency

Operational performance

Reporting on performance metrics

Environmental performance

Governments and regulatory agencies

National governments set the regulatory framework within which we operate. We engage where appropriate to ensure that we can help in shaping new policies, regulations and standards, and ensure compliance with existing requirements.# Transparent communication with government officials as required

Participation in appropriate government and industry working groups

Membership of industry associations and contribution to best practice guidance

Lobbying and direct contact with appropriate bodies on key business issues

Trust and ethics

Pensioners and deferred pensioners

Providing for and managing future pension liabilities in our defined benefit schemes is an important part of financial planning.

Ongoing contact with members of the Group’s pension plans, including annual member updates and contact on specific regulatory developments

Contact with the trustees and custodians of the Group’s defined benefit plan

Trust and ethics

Financial performance

27 Our business

Our performance

Sustainability

Governance

Financial Statements

Vesuvius adopts an open and honest approach to employee communications, with regular updates from senior management across businesses and operations within the Group. The Senior Leadership Group comprising the 160 most senior managers in the Group participates in monthly webcasts with the Group Executive Committee, to ensure clear communication of the Group’s key targets and priorities. In September, this Group met for a three-day off-site leadership meeting to discuss the organisation’s challenges and objectives for 2022. The Board and Group Executive Committee usually visit operations throughout the year, touring the sites, meeting with employees and conducting ‘town hall’ meetings when they do. These activities were curtailed during the first half of 2021 by COVID-19-related travel restrictions, but some visits did take place in the second half. Other regular employee communications include direct email updates on the financial performance of the Group, the industrial environment in which Vesuvius operates and other significant operational developments. The Company operates an employee intranet which distributes Company news and events, and an employee ‘app’ for information dissemination, as well as undertaking local initiatives for employee engagement on a site-by-site basis. The HR department is the primary point of contact for employees on employment and workplace matters, operating with an open-door policy and advising employees of any local legal, tax, pension or other employment changes.

There are numerous employee-sponsored and led representative bodies within Vesuvius which differ with respect to jurisdiction and geography. The Group’s agreement constituting its European Works Council (EWC) was terminated in 2020, following notice given by management, and with the subsequent departure of the United Kingdom from the European Union. Management has nominated Poland as its representative country under the relevant legislation and has constituted a Special Negotiating Body which is engaged in discussions on the formation of a new EWC Agreement and Council. Senior management, supported and facilitated by the HR department, encourages open dialogue and consults with all employee representative bodies, as appropriate.

All members of the Group Executive Committee participate in the Vesuvius Share Plan and receive awards of Performance Shares, which vest in accordance with measures set against financial and sustainability targets. For certain senior managers, awards are made under the Vesuvius Medium Term Plan (MTP). These managers participate in the MTP at varying percentage levels, and awards are made in shares and based on the same measures and targets as the Annual Incentive Plan. In this way, a broad cadre of management has incentives that are aligned with shareholders’ interests.

In accordance with the UK Corporate Governance Code, Jane Hinkley is the designated Non-executive Director responsible for overseeing engagement with the work force. Vesuvius is a diverse, multinational Group, with four business units, employing more than 11,000 people located in 40 different countries. The Board has adopted an approach that builds on existing engagement initiatives and targets specific issues for attention when considering employee engagement. These processes engage the entire Board and are overseen by Jane Hinkley.

The primary mode of engagement for Directors is through direct interaction with the work force during the Directors’ site visits. During 2021, these engagement activities were again curtailed by the COVID-19-related travel restrictions. However, during the latter part of the year, the Chairman and each of the Non-executive Directors were able to visit sites in Belgium, China, Germany, Poland and the US. The Non-executive Directors also held a ‘virtual’ Board visit with managers in Vesuvius India and South East Asia, to hear more about the activities of the Group there. During the visits the Directors were able to interact with a cross-section of different employees, from various functions and organisational levels. At most sites ‘town hall’ meetings were held, providing the Non-executive Directors with the opportunity to engage with the work force to explain the function of the Board and also to explain how executive remuneration aligns with wider company pay policies. These meetings gave the Non-executive Directors the opportunity to hear the views of employees and answer their questions about the organisation. A more extensive site visit schedule is currently being planned for 2022, as soon as travel restrictions allow.

In 2021, the Board also oversaw the launch of the Group’s third employee engagement survey. This provided the Board with valuable insight into the attitudes, engagement and concerns of employees. The data was analysed in a number of different ways, identifying the results of various sub-groups of employees and providing the Board with a valuable opportunity to track areas of organisational strength and weakness. The Board considered the key workforce-related issues highlighted in the survey and other employee feedback in reviewing management actions with regard to employee engagement. Further information about the survey can be found on pages 91 and 92.

Employee involvement

Employee engagement

Section 172 (1) Statement continued

28 Vesuvius plc Annual Report and Financial Statements 2021

The Board continually monitors the internal and external risks that could significantly impact the Group’s long-term performance.

Risk, viability and going concern

The Group undertakes a continuous process to review and understand existing and emerging risks.

Risk management in 2021

Each year, 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.# Governance

Risk management

As in previous years, in 2021 the Group’s assessment of principal risks was reviewed and considered against any emerging risks and uncertainties that were identified through our Board review process. The Board continues to monitor the implications of emerging macro trends on the business, including automation in manufacturing, business digitalisation, automotive electrification, and in particular the significant steps being taken in our end-markets to combat climate change as businesses commit to future net zero emissions targets. All of these could act as disruptors to our business. Commentary on some of these areas is contained in the Our external environment section on pages 16 and 17 of this Report. No additional critical macro trends were identified in 2021.

The Board was able to return to conducting physical site visits in 2021, particularly in the latter part of the year. The Board continues to believe that this direct engagement with our staff is the most effective way to assess the ‘temperature’ of the organisation – hearing first-hand about issues, concerns and potential risks that might impact the Group. The Directors’ views on each of the above issues, and on emerging risks in general, were independently gathered and integrated into the management discussions and actions taken on risk. Risk remains an integrated part of all business unit presentations to the Board, informing the Board of the operational approach taken to risk management on a day-to-day basis.

Changes to risk in 2021

The effects of the COVID-19 pandemic continued to be felt in certain geographies and disciplines of the business in 2021. Managing the physical risks to our staff and in our interactions with customers continued to be a priority, where our protocols for remote working, social distancing, and management of production processes continued to be followed.

As with many companies, Vesuvius was exposed to post-COVID-19 disruptions in global trade, which placed supply chains under stress and affected elements of the Group’s financial performance. Against the backdrop of the continuing pandemic, and its development during the year, the Board continued to focus on the Group’s existing risks, and the processes to mitigate and manage them. It also remained alert to other emerging risks.

The Board noted again the increasing presence of cyber threats to business in general, further commentary on which is set out in the section on business continuity below. Other emerging risks were assessed, with the Board considering security of raw material supply, business disruption driven by increasing inflation and interest rates, and the continuing work required to ensure that the Group’s decentralised management and talent pipeline can deliver the consistent profitable growth identified in the Group’s strategy. It was noted that a number of these and other issues were already addressed in the Group’s principal risks and by related mitigation activities.

29

Our business
Our performance
Sustainability
Governance
Financial Statements

Issues identified in certain of the Group’s principal risks materialised during the year. The Group’s existing measures in mitigation were initiated and additional actions taken specific to the challenges posed by the continuing COVID-19 pandemic. These were most notably:

• Business interruption: With the mandatory shutdowns of 2020 predominantly behind us, our manufacturing operations remained operational throughout the year with enhanced health and safety protocols in place, in each case in line with prevailing national rules. Remote working remained the norm in many countries, with more than 1,500 people still working from home at year end. Vesuvius also experienced the effects of the global trade disruption, seeing significant increases in price for freight and raw materials, and disrupted logistics, affecting the predictability of our global supply chain. Our central purchasing team focused on addressing these issues, but two product line supply interruptions were experienced.

• End-market risk: Whilst end-markets began to pick up at the end of 2020, with overall demand continuing to grow during the year, our end-markets did not return fully to pre-pandemic levels. We also saw significant raw material price increases throughout the year. The Group’s diversified sourcing strategy helped mitigate this challenge, with raw material costs offset by the implementation of price increases.

• People, culture and performance: Across the Group, our people continued to work in difficult circumstances and lockdowns affected different parts of the business. The protocols put in place in 2020 – access to virtual IT tools to support remote working, increased PPE provision and changes to site working conditions – remained in force for all of the year. Internal communication remained a focus, building on the success of the processes put in place in early 2020. On once again, the focus on Values was maintained, with our Living the Values Awards competition running again on a ‘virtual’ basis, with the Group’s senior leadership participating to celebrate the stories and achievements of our Values finalists. Our annual Senior Leaders’ conference was held in person, with enhanced health and safety protocols in place for those who could travel, and with a significant number of staff who could not travel joining remotely.

• Health and safety: Our very strong focus on health and safety and the consistency of its application across the Group continued to place us extremely well to respond to the pandemic’s challenges. In certain jurisdictions our workforce was affected more acutely than in others with the development of the Omicron variant, but operations were managed carefully to ensure security of supply for our customers.

It is clear that the COVID-19 pandemic has introduced shifts in working patterns and trading environment that will not unwind for several months, and in some cases much longer. The Board continues to monitor these changes, and in particular the disruption that they could drive for global businesses and, in particular, for supply chain security. Consequently, the mitigations established by the Group to address its principal risks will remain strongly relevant as 2022 progresses.

Despite these challenges, the Board has not identified any overall material change to the Group’s identified principal risks and uncertainties, albeit that within those risks a number of issues manifested themselves in 2021. No new principal risks were identified during the year. As such, the Group’s statement of Principal Risk and Uncertainties was unchanged in 2021 from 2020.

The crisis unfolding in Ukraine since the end of the year has the potential to generate direct and indirect impacts that are reflected in our Principal Risks, namely End Market Risks, Protectionism and Globalisation and Business Interruption. Whilst we are concerned about the potential impact, we will put our mitigation strategies into action in order to minimise any impact on Vesuvius.

Climate change

The Group’s overall risk management processes also incorporate consideration of the potential impact of climate-related risks on the Group. The Group does not regard climate change itself to represent a material stand-alone risk for the Group’s operations. Whilst a significant proportion of the Group’s revenue is generated from steel manufacture and automotive castings, industries that are under transition as a result of their focus on improving environmental performance, we believe these changes will be positive for the Group. The opportunities in the Group’s business strategy, which is founded on helping our customers to improve their manufacturing efficiency and the quality of their products – and therefore reduce their climate impact – will play a critical part in the development of the Group going forward.

The Group recognises that climate change could present further uncertainty for the Group in terms of increased regulation, evolution of the geographical distribution of our customer base and the costs of meeting more onerous disclosure requirements.

Further information about the Group’s consideration of climate-related risks and opportunities can be found in the Our planet section on pages 60 – 66.# Risk, viability and going concern continued

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’s sustainability. In 2021, the Group made further progress on its sustainability KPIs and continued work on the Sustainability Initiative announced in 2020. Under this initiative the Group will seek to drive a lower CO2 intensity, reduce energy usage, and take the steps necessary to meet the target set of being emissions net zero by 2050. Further information can be found in the Our planet section on pages 60 – 77.

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.

Business continuity

In partnership with our risk management advisers and our insurers, we seek to identify the most effective means of reducing or eliminating insurable risks, through a combination of risk management and the placing of insurance cover. Our insurer property loss control programme is based upon insurer loss modelling and focuses on insured losses. The insurer’s loss control engineers undertake a series of on-site inspections focused on machinery breakdown, fire, natural catastrophe and other property damage and business interruption risks. These surveys yield a series of loss-reduction recommendations. The execution of these recommendations is agreed with site management and then followed through to completion. In parallel, Vesuvius’ own loss management programme focuses on strategic sites and sites not covered by insurers. Assisted by an independent consultant, we undertake property loss control and business continuity surveys using Vesuvius’ bespoke risk and exposure-based protocol. These reports yield further risk reduction recommendations, and improvement actions and timescales are agreed and followed through by site management. To support the Group’s loss control activities, risk management workshops are conducted covering loss prevention, emergency planning, crisis management and business recovery. As the footprint of the Group develops and, in certain cases, production concentrates in a smaller number of flagship sites, business continuity planning is conducted to ensure that sufficient resilience remains in the manufacturing network to address projected supply interruptions. With regard to fire safety, the Group monitors all fire-related near misses or minor dangerous occurrences. Any fires, including overheating, are reported and analysed both locally and by senior HSE management in order that safety improvement initiatives can be prioritised and communicated throughout the Group. Underlying causes are established with detailed analysis undertaken as a means of proposing improvement priorities in order that safety and process safety initiatives can be targeted on a risk-assessed basis. The Group also focuses on cyber security issues in terms of business continuity. This is overseen by the Group’s IT Committee which meets on a regular basis to review and progress the Group’s plans for tackling cyber issues. The Audit Committee and Board receive regular updates on the Group’s activities in this area including general developments and specific actions and activities within the Vesuvius business. A comprehensive plan was established in 2020 to further strengthen Vesuvius’ overall IT security, which is well progressed. During 2021, we worked further to strengthen our IT security seeking to protect against the risks presented by developments in external cyber threats. A holistic approach is taken to addressing cyber challenges, focusing on the improvement of the Group’s overall IT infrastructure, procedures and framework. The Group continues to run regular training programmes on cyber/IT security. See page 121 of the Audit Committee Report for further information.

Internal control

The Group’s internal control system is designed to manage, rather than eliminate, the financial risks facing the Group and safeguard its assets. No system of internal control can provide absolute assurance against material misstatement or loss. The Group’s system is designed to provide the Directors with reasonable assurance that problems are identified on a timely basis and are dealt with appropriately. The Audit Committee assists the Board in reviewing the effectiveness of the Group’s system of internal control, including financial, operational and compliance controls, and risk management systems. The key features of the Group’s system of internal control are set out in the table on page 32.

Reviewing the effectiveness of risk management and internal control

The internal control system covers the Group as a whole and is monitored and supported by the Group’s Internal Audit function, which conducts reviews of Vesuvius’ businesses and reports objectively both on the adequacy and effectiveness of the system of internal control and on those businesses’ compliance with Group policies and procedures. The Audit Committee receives reports from the Group Head of Internal Audit and reports to the Board on the results of its review. The Group also conducts a self-certification exercise by which senior financial, operational and functional management certify the compliance throughout the year of the areas under their responsibility with the Group’s policies and procedures and highlight any material issues that have occurred during the year. As part of the Board’s process for reviewing the effectiveness of the system of internal control, it delegates certain matters to the Audit Committee. Following the Audit Committee’s review of internal financial controls and of the processes covering other controls, the Board annually evaluates the results of the internal control and risk management procedures conducted by senior management. Since the date of this evaluation, there have been no significant changes in internal controls or other matters identified which could significantly affect them. In accordance with the provisions of the UK Corporate Governance Code, the Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that threaten its business model, future performance, solvency or liquidity. They have also reviewed the effectiveness of the Group’s system of internal control and confirm that the necessary actions have been taken to remedy any control weaknesses identified during the year and to the date of this report. Further detail regarding the Audit Committee’s review of the effectiveness of the Group’s risk management and internal control systems is contained in the Audit Committee report on pages 120 and 121.# Our business

Key features of risk management and internal control

Strategy and financial reporting

• Comprehensive strategic planning and forecasting process
• Annual budget approved by the Board
• Monthly operating financial information reported against budget
• Key trends and variances analysed and action taken as appropriate
• Vesuvius GAAP Accounting policies and procedures formulated and disseminated to all Group operations
• Covers the application of accounting standards, the maintenance of accounting records and key financial control procedures
• Operational controls: Operating companies and corporate offices maintain internal controls and procedures appropriate to their structure and business environment. Compliance with Group policies on items such as authorisation of capital expenditure, treasury transactions, the management of intellectual property and legal/regulatory issues.
• Use of common accounting policies and procedures and financial reporting software used in financial reporting and consolidation
• Significant financing and investment decisions reserved to the Board
• Monitoring of policy and control mechanisms for managing treasury risk by the Board
• Clearly delegated authority for capital expenditure, purchasing, customer contracts and hiring

Risk assessment and management

• Continuous process for identifying, evaluating and managing any significant risks.
• Risk management process designed to identify the key risks facing each business.
• Reports made to the Board on how those risks are managed.
• Each major Group business unit produces a risk map to identify key risks, and assess the likelihood of risks occurring, as well as their impact and mitigating actions.
• Top-down risk identification undertaken at Group Executive Committee and Board meetings.
• Board review of insurance and other measures used in managing risks across the Group.
• The Board is notified of major issues and makes an annual assessment of whether risks have changed.
• Ongoing assurance processes by the legal function and Internal Audit including the annual self-certification process.
• Externally supported ‘Speak Up’ whistleblowing line.

Internal Audit Reviews

• Vesuvius’ businesses are reviewed and report on the adequacy and effectiveness of their systems of internal control and compliance with Group policies and procedures.
• Agrees action plans for the resolution of any improvement actions identified by their audits, and monitors with local management and the business unit Presidents, progression with their completion.
• Reports to the Audit Committee on the results of each audit and provides regular updates on high-priority action items.
• The Audit Committee discusses the key risks identified by Internal Audit.

Risk, viability and going concern

Viability process

Identify
Assess
Viability time horizon and risk analysis framework
Principal risks and stress scenarios
Viability against risk scenarios, examining probabilities and impacts

See Viability Statement

Principal risks

The risks identified on pages 34 and 35 are those the Board considers to be the most relevant to the Group in relation to their potential impact on the achievement of its Strategic Objectives. All of the risks set out on these pages could materially affect the Group, its businesses, future operations and financial condition, and could cause actual results to differ materially from expected or historical results. The Group continues to focus on risk mitigation, and whilst, as identified above, certain elements of the Group’s risks have manifested in 2021 as a result of the continuing COVID-19 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.

Viability Statement

In accordance with the UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three-year period to 31 December 2024, taking into account the Group’s current position and the potential impact of the principal risks and uncertainties. The Directors have determined that three years is an appropriate period over which to provide the Viability Statement because this is the Company’s planning cycle and it is sufficiently funded by financing facilities with average maturity terms of approximately six years. The projected cash flows for the next three years have been based on the latest Board-approved budgets and strategic plans.

In making this statement, the Directors have carried out a robust assessment of the principal risks that may threaten the business model, future performance, solvency and liquidity of the Group. This is embodied in the annual review of a three-year business plan which includes a review of sensitivity to ‘business as usual’ risks, such as profit growth and working capital variances, severe but plausible events and the impact these could have on the Group’s debt covenants and available liquidity. The results take account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks.

Whilst the review has considered all the principal risks identified by the Group, the following were selected for enhanced stress testing: an unplanned drop in customer demand; debt recovery risk due to customer default; business interruption due to the unplanned closure of several key plants; and raw material price inflation.

The Group’s prudent balance sheet management, flexible cost base, ability to react quickly to end-market conditions, access to long-term capital at acceptable financing costs and well diversified international businesses leave it well placed to manage these principal risks.

In performing the stress testing, certain assumptions were made, including that: customer failures result in write-offs of the full value of the receivables with no lost revenue replacement; and cash flow is supported by working capital releases, restricted capital expenditure and operating cost reductions. Under the enhanced stress testing described above, a potential breach of a covenant would only occur in the event of an unforeseen reduction in revenue of greater than 30%.

Accordingly, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 December 2024.

Furthermore, the Board believes that the Group continues to be well positioned for success in the longer term because of:

• our exposure to end-markets that are growing faster through the cycle than underlying global GDP;
• our market-leading position that is supported by ongoing investment in innovation and R&D;
• our strong degree of customer intimacy with around a quarter of our employees working at customer facilities; and
• the focus we have on building quality teams with clear organisational responsibility.

Going Concern Statement

The Directors have prepared cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of the 2021 financial statements. These forecasts reflect an assessment of current and future end-market conditions and their impact on the Group’s future trading performance.

The analysis undertaken includes a plausible but severe downside scenario, based on an assumed protracted COVID-19 related demand impact, despite emerging confidence that the worst of the pandemic may be behind us. This downside scenario assumes a decline in business activity and profitability in 2022 and 2023 to the level achieved in H2 2020, the period half-year most severely impacted by COVID-19. On a full-year basis relative to 2021, this implies a c. 14% decline in sales and a c. 34% decline in trading profit.

Even in this downside scenario, the forecasts show that the Group’s maximum net debt / EBITDA (pre-IFRS 16 in-line with the covenant calculation) does not exceed 1.3x, compared with a leverage covenant of 3.25x. The forecasts show that the Group will be able to operate within the current committed debt facilities and show continued compliance with the Company’s financial covenants.

32 Vesuvius plc Annual Report and Financial Statements 2021On the basis of the exercise described above and the Group’s available committed debt facilities, the Directors consider that the Group and the Company have adequate resources to continue in operational existence for a period of at least 12 months from the date of signing of these financial statements. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group and the Company.

Our business

Our performance

Sustainability

Governance

Financial Statements

Risk

Potential impact

Mitigation

End-market risks
Vesuvius suffers an unplanned drop in demand, revenue and/or margin because of market volatility beyond its control.
* Strategic alignment
* Unplanned drop in demand and/or revenue due to reduced production by our customers
* Margin reduction
* Customer failure leading to increased bad debts
* Loss of market share to competition
* Cost pressures at customers leading to use of cheaper solutions
* Geographic diversification of revenues
* Product innovation and service offerings securing long-term revenue streams and maintaining performance differential
* Increase in service and product lines by the development of the Technical Services offering
* R&D includes assessment of emerging technologies
* Manufacturing capacity rationalisation and flexible cost base
* Diversified customer base: no customer is greater than 10% of revenue
* Robust credit and working capital control to mitigate the risk of default by counterparties

Protectionism and globalisation
The Vesuvius business model cannot adapt or respond quickly enough to threats from protectionism and globalisation.
* Strategic alignment
* Restricted access to market due to enforced preference of local suppliers
* Increased barriers to entry for new businesses or expansion
* Increased costs from import duties, taxation or tariffs
* Loss of market share
* Trade restrictions
* Highly diversified manufacturing footprint with manufacturing sites located in 26 countries
* Strong local management with delegated authority to run their businesses and manage customer relationships
* Cost flexibility
* Tax risk management and control framework together with a strong control of inter-company trading

Product quality failure
Vesuvius staff/contractors are injured at work or customers, staff or third parties suffer physical injury or financial loss because of failures in Vesuvius products.
* Strategic alignment
* Injury to staff and contractors
* Product or application failures lead to adverse financial impact or loss of reputation as technology leader
* Incident at customer plant causes manufacturing downtime or damage to infrastructure
* Customer claims from product quality issues
* Quality management programmes including stringent quality control standards, monitoring and reporting
* Experienced technical staff knowledgeable in the application of our products and technology
* Targeted global insurance programme
* Experienced internal legal function overseeing third-party contracting

Complex and changing regulatory environment
Vesuvius experiences a contracting customer base or increased transaction and administrative costs due to compliance with changing regulatory requirements.
* Strategic alignment
* Revenue reduction from reduced end-market access
* Disruption of supply chain and route to market
* Increased internal control processes
* Increased frequency of regulatory investigations
* Reputational damage
* Compliance programmes and training across the Group
* Independent Internal Audit function
* Experienced internal legal function including dedicated compliance specialists
* Global procurement category management of strategic raw materials

Failure to secure innovation
Vesuvius fails to achieve continuous improvement in its products, systems and services.
* Strategic alignment
* Product substitution by customers
* Increased competitive pressure through lack of differentiation of Vesuvius offering
* Commoditisation of product portfolio through lack of development
* Lack of response to changing customer needs
* Loss of intellectual property protection
* Enduring and significant investment in R&D, with market-leading research
* A shared strategy for innovation throughout the Group, deployed via our R&D centres
* Stage gate process from innovation to commercialisation to foster innovation and increase alignment with strategy
* Programme of manufacturing and process excellence
* Quality programme, focused on quality and consistency
* Stringent intellectual property registration and defence

Principal risks and uncertainties

34
Vesuvius plc Annual Report and Financial Statements 2021

Risk

Potential impact

Mitigation

Business interruption
Vesuvius loses production capacity or experiences supply chain disruption due to physical site damage (accident, fire, natural disaster, terrorism), or other events such as industrial action, cyber attack or global health crises.
* Strategic alignment
* Loss/closure of a major plant temporarily or permanently impairing our ability to serve our customers
* Damage to or restriction in our ability to use assets
* Denial of access to critical systems or control processes
* Disruption of manufacturing processes
* Inability to source critical raw materials
* Diversified manufacturing footprint
* Disaster recovery planning
* Business continuity planning with strategic maintenance of excess capacity
* Physical and IT control systems security, access and training
* Cyber risks integrated into wider risk-management structure
* Well-established global insurance programme
* Group-wide safety management programmes
* Dual sourcing strategy and development of substitutes

People, culture and performance
Vesuvius is unable to attract and retain the right calibre of staff, fails to instil an appropriate culture or fails to embed the right systems to drive personal performance in pursuit of the Group’s long-term growth.
* Strategic alignment
* Organisational culture of high performance is not achieved
* Staff turnover in growing economies and regions
* Stagnation of ideas and development opportunities
* Loss of expertise and critical business knowledge
* Reduced management pipeline for succession to senior positions
* Internal focus on talent development and training, with tailored career-stage programmes and clear performance management strategies
* Contacts with universities to identify and develop talent
* Career path planning and global opportunities for high-potential staff
* Internal programmes for the structured transfer of technical and other knowledge
* Clearly defined Values underpin business culture

Health and safety
Vesuvius staff or contractors are injured at work because of failures in Vesuvius’ operations, equipment or processes.
* Strategic alignment
* Injury to staff and contractors
* Health and safety breaches
* Manufacturing downtime or damage to infrastructure from incident at plant
* Inability to attract the necessary workforce
* Reputational damage
* Active safety programmes, with ongoing wide-ranging monitoring and safety training
* Independent safety audit team
* Quality management programmes including stringent manufacturing process control standards, monitoring and reporting

Environmental, Social and Governance criteria
Vesuvius fails to capitalise on the opportunity to help its customers significantly reduce their carbon emissions as environmental pressure grows on the steel industry or Vesuvius fails to meet the expectations of its various stakeholders including employees and investors.
* Strategic alignment
* Loss of opportunity to grow sales
* Loss of opportunity to increase margin
* Loss of stakeholder confidence including investors
* Reputational damage
* Development and implementation of a new Sustainability initiative, which includes stretching targets focused on reducing the Group’s Energy usage, CO2 emissions, waste and recycled materials
* R&D focus on products that assist customers to reduce carbon emissions and improve their own sustainability measures
* 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

• Strategic alignment
  • Deliver profitable growth
  • Generate value for our shareholders
  • Maintain an efficient capital structure
  • Always put safety first
  • Think beyond in innovation
  • Run best-in-class sustainable operations
  • Foster talent, skill and motivation in our people

See more about Our strategy on p14 and 15

35
Our business
Our performance
Sustainability
Governance
Financial Statements

38
Key Performance Indicators

40
Financial review# Operating reviews

Steel Division

Steel Flow Control

Steel Advanced Refractories

Steel Sensors & Probes

Foundry Division

Our performance

We think beyond today’s industrial processes and shape the future through research and development

36

37

Our business

Our performance

Sustainability

Governance

Financial Statements

Key Performance Indicators

Financial KPIs

| Strategic alignment KPI | Purpose | Link to remuneration | 2019 | 2020 | 2021 |
| :--- | :---

Financial KPIs

| Strategic alignment KPI | Purpose | Link to remuneration | 2019 | 2020 | 2021 |
| :--- | :---# Our business

As with prior years, we measure our results on an underlying basis, where we adjust to ensure appropriate comparability between periods, irrespective of currency fluctuations and any business acquisitions and disposals. This is done by:
– Restating the previous period’s results at the same foreign exchange (FX) rates used in the current period
– Removing the results of disposed businesses in both the current and prior years
– Removing the results of acquired businesses in both the current and prior years

Therefore, for 2021, we have:
– Retranslated 2020 results at the FX rates used in calculating the 2021 results
– Removed the results of Universal, which was acquired during 2021

Objective: Deliver profitable growth

KPI: Underlying revenue growth

Reported revenue for 2021 was £1,642.9m, which equated to £1,640.8m on an underlying basis. Reported revenue for 2020 was £1,458.3m, which equated to £1,389.6m on an underlying basis. 2021 underlying revenue increased by 18.1% year-on-year. The increase in revenue has been driven by a recovery across most geographies in both steel and foundry end-markets versus 2020, and by price increases.

Objective: Generate value for our shareholders

KPI: Trading profit and Return on Sales

We continue to measure underlying trading profit of the Group as well as trading profit as a percentage of sales, which we refer to as our Return on Sales or RoS. Trading profit for 2021 was £142.4m and Return on Sales was 8.7%. On an underlying basis, trading profit increased by 50.4% and Return on Sales by 190 bps. The increase in trading profit and Return on Sales is due to higher revenue, ongoing delivery of benefits from the restructuring programme and income from recurring recovery of overpaid taxes to and from the Brazilian entities partially offset by temporary friction costs linked to supply chain disruptions. The Steel Division recorded Return on Sales of 8.7%, a 150 bps underlying improvement from 2020. Trading profit increased by 41.6% on an underlying basis, to £102.0m during the period. Return on Sales in the Foundry Division increased by 280 bps year-on-year on an underlying basis, to 8.6% in 2021. Trading profit was £40.4m representing a 78.7% increase on an underlying basis versus prior year.

KPI: Headline PBT and Headline EPS

Headline profit before tax (PBT) and headline earnings per share (EPS) are used to measure the underlying financial performance of the Group. The main difference between trading profit and PBT is net finance costs which were £6.4m in 2021, £4.5m lower than 2020. Our Headline PBT was £137.3m, 49.9% higher than last year on a reported basis. After the inclusion of separately reported expenses of £9.7m (2020: £27.1m) our PBT of £127.6m was 97.8% higher than last year on a reported basis. Headline EPS from continuing operations at 35.3p was 52.3% higher than 2020.

Guy Young
Chief Financial Officer

Positive trends in our key end-markets of steel and foundry led to an increase in revenue and trading profit

	19	20	21
Average working capital to sales* %	20.9%	20.9	23.2
Underlying revenue growth* %	18.1%	18.1	-12.7
Operating profit £m	132.7	74.3	127.5
Headline earnings per share* pence	35.3p	23.2	45.1
Statutory earnings per share pence	37.7p	15.3	29.8

• For definitions of alternative performance measures, refer to Note 4 of the Group Financial Statements.

KPI: Return on invested capital (ROIC)

From 2022 onwards, the Group intends to use ROIC as its key measure of return from the Group’s invested capital. The RONA performance measure will be replaced with ROIC which provides a more complete measure of Vesuvius’ returns. ROIC is calculated as trading profit less amortisation of acquired intangibles, plus share of post-tax profit of joint ventures and associates for the previous 12 months after tax, divided by the average invested capital (total assets excluding cash plus non-interest bearing liabilities), at constant currency (being the average over December and the previous year end invested capital). Our ROIC for 2021 was 7.5% (2020: 4.9%).

Objective: Maintain an efficient capital structure

KPI: Free cash flow and working capital

Fundamental to ensuring that we have adequate capital to execute our corporate strategy is converting our profits into cash, partly through strict management of our working capital. The Group generated adjusted operating cash flow of £45.6m (2020: £172.9m), and a cash conversion rate of 32% (2020: 173%) in the period. 2021 cash conversion was impacted by growing working capital to sustain revenue growth and higher investments in capex. Free cash flow from continuing operations was £(0.3)m in 2021 (2020: £113.5m). We measure working capital both in terms of actual cash flow movements, and as a percentage of sales revenue. Trade working capital as a percentage of sales in 2021 was 20.9% (2020: 23.2%), measured on a 12-month moving average basis. In absolute terms on a constant currency basis trade working capital increased by £106.0m in 2021.

KPI: Net debt and interest cover

Following the refinancing of the Group’s syndicated bank facility on 5 July 2021, the Group had committed borrowing facilities of £706.3m as at 31 December 2021 (2020: £586.6m), of which £308.1m was undrawn (2020: £246.6m). Net debt at 31 December 2021 was £277.1m, a £102.0m increase from 31 December 2020. The increase is mainly comprised of £45.6m from operations and a favourable foreign exchange impact of £13.8m, offset by payments of income taxes of £30.1m, net finance costs of £7.6m, the acquisition of the business of Universal Refractories, Inc for £43.6m, including related excess working capital, payments of dividends of £55.5m and £17.1m of additional leases. At the end of 2021, the net debt to EBITDA ratio was 1.4x (2020: 1.2x) and EBITDA to interest was 30.5x (2020: 14.5x). These ratios are monitored regularly to ensure that the Group has sufficient financing available to run the business and fund future growth. The Group’s debt facilities have two financial covenants: the ratios of net debt to EBITDA (maximum 3.25x limit) and EBITDA to interest (minimum 4x limit). Certain adjustments are made to the net debt calculations for bank covenant purposes, the most significant of which is to exclude the impact of IFRS 16. During 2021, Vesuvius recognised a further £3.5m (2020: £1.7m) of income and interest of £1.9m (2020: £1.2m) in relation to further recoveries of overpaid indirect taxes, and interest, by the Brazilian entities within the Group. The amounts recognised do not represent the full amount of income and interest claimed as we do not yet have clarity on the ability of the Group to fully utilise these credits. The amounts recognised have been presented as headline trading profit and finance income given their recurring nature as the original indirect tax expenses were incurred over a prolonged period and partial recovery has taken place in the past two years.

Objective: Think beyond in innovation

KPI: R&D spend

We believe that our market-leading product technology and services deliver fundamental value to our customers and that the primary mechanism to deliver that value is to invest significantly in research and development. In 2021, we spent £30.3m on R&D activities (2020: £26.7m at constant 2021 currency), which represents 1.8% of our revenue (2020: 1.9%).

Financial risk factors

The Group undertakes regular risk reviews and, as a minimum, a full risk assessment process twice a year. As in previous years this included input from the Board in both the assessment of risk and the proposed mitigation. We consider the main financial risks faced by the Group as being those posed by a decline in our end-markets, leading to reduced revenue and profit as well as potential customer default. We also monitor carefully the challenges that come

	19	20	21
Net debt* £m	277.1m	175.1	245.8
Unutilised committed debt facilities £m	308.1m	246.6	174.2
Total R&D spend** £m	30.3m	26.7	27.6
Net defined benefit pension deficit £m	77.0m	2.1	8.5
Return on invested capital* %	7.5%	4.9	8.6

• For definitions of alternative performance measures, refer to Note 4 of the Group Financial Statements.
  ** At constant 2021 currency.

Financial review continued42 Vesuvius plc Annual Report and Financial Statements 2021

from broader financial uncertainty, which could bring lack of liquidity and market volatility. Important but lesser risk exists in interest rate movements, foreign exchange rate movements and cost inflation, but these are not expected to have a material impact on the business after considering the controls we have in place. See Note 25 to the Group Financial Statements.

Our key mitigation of end-market risk is to manage the Group’s exposure through balancing our portfolio of business geographically and to invest in product innovation. We do so through targeted capital investment in new and growing businesses and a combination of capital and human resource investment in emerging markets. When considering other financial risks, we mitigate liquidity concerns by financing, using both the bank and private placement markets. The Group also seeks to avoid a concentration of debt maturities in any one period to spread its refinancing risk. Following the refinancing of the Group’s syndicated bank facility on 5 July 2021, our liquidity stood at £455.7m at 31 December 2021. We define liquidity as undrawn committed debt facilities plus our cash on balance sheet, less the cash in China which is used as collateral against an equivalent loan from Standard Chartered.

Restructuring
In 2021, we benefited from £4.1m of restructuring savings related to a full period impact of actions taken during 2020. During the year, we reported nil restructuring costs (2020: £6.1m) within separately reported items. We are carrying forward a restructuring provision of £5.0m.

Vacant site remediation
The Group owns a number of disused properties in the US, which do not form part of our trading operations. In 2020, costs of £10.3m (2021: nil) were incurred at one of these sites to address the significant increase in the volume of water run-off occurring in recent years. We engaged waste management specialists and have taken action to reduce the level of water. We are in contact with the relevant regulatory authorities and are currently implementing remediation solutions, including installation of a treatment facility. These non-recurring costs were treated as a separately reported item in 2020. There was no impact upon headline performance.

Taxation
A key measure of tax performance is the Headline Effective Tax Rate (ETR), which is calculated on the income tax associated with headline performance, divided by the headline profit before tax and before the Group’s share of post-tax profit of joint ventures. The Group’s headline ETR, based on the income tax costs associated with headline performance of £35.9m (2020: £24.4m), was 26.4% (2020: 26.9%). The Group’s total income tax costs for the period include a credit on separately reported items of £16.2m (2020: £5.7m) which primarily relates to a credit of £16.0m (2020: nil) following the recognition of certain US deferred tax assets. A tax credit reflected in the Group Statement of Comprehensive Income in the year amounted to £13.0m (2020: £3.2m debit) which primarily comprises a £12.5m credit (2020: £2.8m debit) in respect of tax on net actuarial gains and losses on employee benefits, inclusive of the buy-in of the UK pension scheme and the restatement of UK deferred tax from 19% to 25%. We expect the Group’s headline effective tax rate on headline profit before tax and before the share of post-tax profits from joint ventures to be between 27% and 28% in 2022.

Capital expenditure
Capital expenditure in 2021 was £67.4m (2020: £59.0m) of which £47.2m was in the Steel Division (2020: £45.9m) and £20.2m in the Foundry Division (2020: £13.1m). Capital expenditure on revenue-generating customer installation assets, primarily in Steel, was £5.7m (2020: £8.7m).

Pensions
The Group has a limited number of historical defined benefit plans located mainly in the UK, USA, Germany and Belgium. The main plans in the UK and USA are largely closed to further benefit accrual and all of the liabilities in the UK have now been insured following a buy-in agreement with Pension Insurance Corporation plc (PIC) during December 2021. The Group’s net pension liability at 31 December 2021 was £77.0m (2020: £2.1m liability). The increase in the liability and resulting charge of £80m through other comprehensive income, is largely due to the reduction of the surplus for the UK Plan following the pension insurance buy-in agreement with PIC. This final buy-in agreement secures an insurance asset from PIC that matches the remaining pension liabilities of the UK Plan, with the result that the Company no longer bears any investment, longevity, interest rate or inflation risks in respect of the UK Plan. This increase in liability has been partially offset by an increase in bond yields resulting in a reduction in the value of German and US liabilities.

Corporate activity
In December 2021, the Group acquired the assets and substantially all of the liabilities of Universal Refractories, Inc. (“Universal”), a specialty refractory producer based in Pennsylvania, USA, which is focused on tundish (steel continuous casting) applications as well as consumable products for the foundry industry. Universal’s unaudited revenue and EBITDA in the trailing 12 months to October were US$40.5m and US$8.6m, respectively. The acquisition will generate attractive synergies and will be accretive to Group Returns on Sale even before synergies are considered. The transaction valued Universal at US$57.1 million (£42.6 million) on a cash and debt free basis and was funded from Vesuvius’ internal resources. The Group expects the acquisition to be highly synergistic. The acquisition significantly expands Vesuvius’ North American presence among electric arc furnace steel producers in the Group’s focus area of steel tundish applications, while also further strengthening the Foundry business. In the periods since acquisition, Universal has contributed £2.1m to revenue and £(0.2)m to operating profit. In accordance with IFRS3, the acquired inventory was revalued to fair value less costs to sell, resulting in a reduction to operating profit of £0.6m.

Guy Young
Chief Financial Officer
3 March 2022

43

Our business

Sustainability

Governance

Financial Statements

Vesuvius comprises two Divisions, Steel and Foundry. The Steel Division operates as three business lines: Steel Flow Control, Steel Advanced Refractories, and Steel Sensors & Probes.

Revenue £m
£ 1,171.5m

Trading profit £m
£ 102.0m

Steel production in the world excluding China and Iran, which accounts for approximately 90% of Vesuvius’ sales, increased by 13% year-on-year with all geographies recording positive volume growth. Production growth was especially strong in India (+18%), South America (+18%) and NAFTA (+17%).

Vesuvius’ Steel Division reported revenues of £1,171.5m in 2021, an increase of 12% compared with 2020. On an underlying basis, Steel Division revenue was up 17%, with particularly strong performance in the growing markets of South America, India, Vietnam and EEMEA (EMEA excluding EU 27 +UK), where we grew 55%, 34%, 32% and 18% respectively.

Flow Controls strongly outperformed the steel market in all regions, with underlying sales growth of 21.5% (3.5% price impact), versus global steel production growth of 13% (excluding China and Iran). In Advanced Refractories, we prioritised prices over volumes. As a whole, Steel Division revenues incorporate a moderate average positive price impact in 2021, as price increases were progressively implemented during the year to compensate for inflation in raw materials and freight costs.

Steel Division trading profit improved 34% to £102.0m, with return on sales expanding 140 bps to 8.7%. Raw material and freight inflation were fully compensated for by year-end in both Flow Control and Advanced Refractories.

Steel Division Operating reviews

Steel Division	2021 (£m)	2020 (£m)	Change (%)	Underlying change (%)
Steel Flow Control revenue	648.7	561.3	15.6%	21.5%
Steel Advanced Refractories revenue	489.1	458.6	6.7%	11.0%
Steel Sensors & Probes revenue	33.7	25.5	32.0%	42.7%
Total Steel revenue	1,171.5	1,045.4	12.1%	17.4%
Total Steel trading profit	102.0	76.4	33.6%	41.6%
Total Steel Return on Sales	8.7%	7.3%
	2021/2020	2021/2019
:----	:----------	:----------
China	-3.0%	3.1%
India	17.8%	6.1%
NAFTA	16.6%	-1.6%
South America	17.9%	9.3%
EMEA ex Iran	11.8%	4.2%
EEMEA ex Iran	9.2%	6.6%
EU 27 + UK	14.8%	1.6%
World	3.7%	5.6%
World ex China & Iran	13.0%	8.5%

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

Vesuvius plc Annual Report and Financial Statements 2021

Steel Flow Control

Pascal Genest
President, Flow Control

Revenue £m	2019	2020	2021
	648.7	561.3	626.3

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 ow 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 signicant 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 nished metal being produced and the productivity, protability and safety of our customers’ processes.

Steel Flow Control revenue (£m)	2021	2020	Change (%)	Underlying change (%)
Americas	217.0	182.9	18.7%	28.8%
Europe, Middle East & Africa (EMEA)	247.7	204.7	21.0%	26.2%
Asia-Pacific	184.0	173.7	6.0%	8.7%
Total Steel Flow Control revenue	648.7	561.3	15.6%	21.5%

In 2021, underlying revenue in the Group’s Steel Flow Control business increased by 21.5% year-on-year to £648.7m, driven by strong market recovery and market share gains in all regions. In EMEA excluding Iran, revenues grew 26% compared to 2020 on an underlying basis, versus steel production growth of 12%. This outperformance was broad-based, with revenue growth exceeding 20% in both the EU 27 +UK and EEMEA (EMEA excluding EU 27 +UK). In the Americas, underlying revenues grew 29%, outperforming steel production growth of 17%. This outperformance was mostly driven by revenue growth of 47% in South America, while revenue growth of 23% in NAFTA also out performed steel production. In Asia-Pacific, revenues grew 9% on an underlying basis, versus steel production growth of 1%. Revenues in Vietnam, India and China grew 38%, 31% and 7% respectively, versus steel production growth of 18%, 18% and -3%.

Strategic highlights from the year

In 2021, we announced a £28m capacity expansion, to be operational from late 2022, to support future organic growth and market share gains. At our Skawina, Poland plant, we will increase EMEA capacity in VISO products by 35% and ladle slide gates by 100%. This is intended to serve EMEA, and in particular fast-growing markets in EEMEA. At our Kolkata, India plant, we will increase capacity in VISO products by 50%, to serve the fast-growing markets of both India and Southeast Asia.

We launched nine new products during 2021. Among them, the Air-Shield* technology, a technology that creates a better seal between the two plates of our ladle slide-gate mechanism to increase both the yield and quality of steel produced. We launched a new Composite Design Technology (CDT) solution, the Surface Layer CDT, which allows us to offer high-performing products with a greater exibility in design, while also enabling a greater use of recycled materials. A new generation of tundish shroud was also launched, allowing our customers to improve their productivity, whilst also reducing usage of other consumables, resulting in positive sustainability benets. In terms of mechatronics, we continue to develop additional features for our robotic offering, helping customers to reduce the exposure of their operators.

Looking forward

The successful completion of the expansion projects at Skawina and Kolkata will be a key focus in the coming year, with the target that the expanded capacity will be operational from late 2022. This expansion will support our market share gains objectives from 2023. We will also continue our efforts to develop products with superior sustainability characteristics, to help our customers drive eciency and reduce their environmental footprint.

Steel Advanced Refractories

Thiago Avelar
President, Advanced Refractories

Revenue £m	2019	2020	2021
	539.8	458.6	489.1

The Steel 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 uid 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 on 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.

Strategic highlights from the year

In December 2021, we acquired the assets and substantially all of the liabilities of Universal Refractories, Inc., a specialty refractory producer based in Pennsylvania, USA, which is focused on tundish (steel continuous casting) applications as well as consumable products for the foundry industry. Universal is a strategically important acquisition for Advanced Refractories, which reinforces our core tundish business and expands our North American presence among electric arc furnace (EAF) steel producers.

We made signicant progress with the roll-out of our mechatronics products and services across key regions. In Asia, we commissioned a New Generation of Tundish SMART Robots (Next Gen TSR*). We continue to gain traction in marketing our Gunning Robot combined with our leading laser scanner technology in North America (EAF) and Europe.

In 2021, we introduced five new value-added products, including MgO-carbon bricks with an enhanced binder system for better heat-life and new Tundish Spray technology, increasing our customers’ productivity and reducing their energy costs and CO2 emissions.

Looking forward to 2022

In January 2022, we commissioned our new Mechatronic Centre of Excellence in Ghlin, Belgium. Our differentiated technology is at the core of our strategy as we continue to develop combined robotic and laser technologies that further enhance the eciency of our high-performance refractory products. Integrating Universal into our NAFTA manufacturing footprint will be a key project during the course of 2022. In R&D, we will increase the focus on delivering new products that improve our customers’ environmental footprint.

Steel Advanced Refractories revenue (£m)	2021	2020	Change (%)	Underlying change (%)
Americas	165.3	153.0	8.0%	13.4%
Europe, Middle East & Africa (EMEA)	187.7	187.8	-0.1%	3.1%
Asia-Pacific	136.1	117.9	15.5%	20.6%
Total Steel Advanced Refractories revenue	489.1	458.6	6.7%	11.0%

Steel Advanced Refractories reported revenues of £489.1m in 2021, an increase of 11% on an underlying basis. In a number of markets our growth lagged steel production increases, as priority was given to price increases over volumes, resulting in a temporary loss of market share.

• Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.

Our business
Our performance
Sustainability
Governance
Financial StatementsOn an underlying basis, revenues grew 13% in the Americas, with strong outperformance in South America, which grew 68% versus steel production growth of 18%. In EMEA excluding Iran, revenues grew by only 3% during the period as we continued to exit unprofitable contracts and also led price increases during the first half of the year in product lines that were impacted by higher raw material costs. In Asia-Pacific, revenues grew 21% on an underlying basis driven by strong outperformance in India (+36%), Vietnam (+30%) and China (+13%). Volumes in H2 were negatively impacted in NAFTA as we had to declare force majeure as a result of disruptions to raw material supply brought on by Hurricane Ida in the US. Alternative raw material supply and logistics support was obtained and no customer suffered interruption as a result.

Vesuvius plc Annual Report and Financial Statements 2021

*Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.

Steel Sensors & Probes

Davide Guarnieri

Director, Sensors & Probes

	2021	2020	Change (%)	Underlying change (%)
Revenue £m	33.7	25.5	32.0%	42.7%

The Steel Sensors & Probes business unit offers products to our customers to enable them to make their underlying processes more efficient and reliable. The business unit focuses on providing a range of products that enhance the control and monitoring of our customers’ production processes, complementing Vesuvius’ strong presence and expertise in molten metal engineering. This aims to create new technologies that can be integrated into expert process management systems. These products include temperature sensors, oxygen, hydrogen and sublance probes, iron oxide and metal sampling for the steel, aluminium and foundry industries. By using these technologies, customers can focus on critical parameters within their processes, enabling them to refine their production methods to improve quality, lower production costs and maximise efficiency. Revenues in Steel Sensors & Probes were £33.7m in 2021, representing an underlying increase of 43% year-on-year. The strong performance in the Americas was driven by new customer wins, especially in South America. In EMEA, we also performed well and continued to gain traction.

Steel Sensors & Probes revenue	2021 (£m)	2020 (£m)	Change (%)	Underlying change (%)
Americas	23.2	16.4	41.1%	56.3%
Europe, Middle East & Africa (EMEA)	10.1	8.9	13.6%	17.8%
Asia-Pacific	0.4	0.2	109.1%	116.5%
Total Steel Sensors & Probes revenue	33.7	25.5	32.0%	42.7%

Looking forward to 2022

In 2022, we will continue to execute our revenue growth strategy. In particular, our new facility in Mexico will increase our service level and operational efficiency in the NAFTA market. A reinforced structure in Asia will drive growth in this important region. We will continue to invest in new products and seek to integrate them with robotic solutions to bring greater safety and both operational and sustainability efficiencies to our customers.

The 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.

Non-automotive Foundry end-markets across all regions saw significant growth in 2021, with production in the mining & construction and general engineering end-markets up 19% and 13%, respectively, according to Oxford Economics data. This was in contrast to global production of light vehicles and medium & heavy commercial vehicles which remained weak with growth of only 2% and 0.5%, respectively, according to IHS data. The disappointing automotive markets (representing c.36% of Foundry Division sales) reflect the persistent global shortage of semi-conductors, which constrained the ability of OEMs to ramp-up production. Compared to 2019, mining & construction and general engineering are both up 12%, while global light vehicle production is down 14% and medium & heavy commercial vehicles is down 4%.

Vesuvius’ Foundry Division reported revenues of £471.4m in 2021, an increase of 14% compared to 2020. On an underlying basis, Foundry Division revenue was up 20%. The Foundry Division also achieved meaningful margin recovery, with trading profit growing 79% on an underlying basis to £40.4m, as Return on Sales increased 250 bps to 8.6% in 2021. Profitability was impacted by the time lag we experienced between cost increases and selling price rises, although this was successfully eliminated by year-end. In H2 our volumes were negatively impacted as automotive production slowed further. In addition, we experienced operational issues at two important plants in Germany and the USA. Both these factors are temporary in nature and are expected to be eliminated during 2022.

Foundry revenues in the Americas grew 27% year-on-year on an underlying basis, driven by 15% growth in NAFTA, and very strong performance in South America, which was up 68%. In EMEA, underlying revenues increased by 17%, with EEMEA (EMEA excluding EU 27 + UK) growing at 18%. In Asia-Pacific, we benefited from continued strong performance in China, where revenues grew 12% and India where revenues grew 36%.

Foundry Division	2021 (£m)	2020 (£m)	Change (%)	Underlying change (%)
Foundry revenue	471.4	412.9	14.2%	19.9%
Foundry trading profit	40.4	25.0	61.2%	78.7%
Foundry Return on Sales	8.6%	6.1%	250 bps	280 bps

Foundry revenue	2021 (£m)	2020 (£m)	Change (%)	Underlying change (%)
Americas	100.4	85.6	17.4%	27.1%
Europe, Middle East & Africa (EMEA)	199.3	177.0	12.6%	17.3%
Asia-Pacific	171.7	150.3	14.2%	19.1%
Total Foundry revenue	471.4	412.9	14.2%	19.9%

	Revenue £m	Trading profit £m
Foundry Division	471.4	40.4

Karena Cancilleri

President, Foundry

In 2021, the Foundry Division launched a number of important new products which delivered both product performance improvements as well as sustainability performance improvements for our customers. The new FEEDEX FEF sleeve range supports foundries in reducing harmful emissions and hazardous waste while maintaining high thermal and feeding performance. We launched the STELEX Pure flow filter, a filter for small castings which improves the metal purity for highly demanding casting applications, such as automotive turbochargers. We also launched the SEMCO* formaldehyde-free coating, which helps our customers reduce emissions of harmful substances generated in the casting process. The Foundry Division continued to focus on digitisation, developing simulation tools to provide further thermal and physical data modelling to optimise casting quality. We also launched an app for our leading aluminium melt treatment equipment and implemented a digital product selection tool, to assist our application engineers.

Looking forward

We expect 2022 to be a record year in terms of new product launches, as a result of our extensive new product development efforts to support the manufacture of lighter-weight, high-performance metals and components. We are focusing on developing products for high growth end markets such as wind turbines, turbo-chargers and electric vehicles. We will further complement our new product development with simulation and equipment solutions to create a complete offering to respond to increasingly complex technical customer requirements. The technical work will be further supported through several meaningful external research partnerships, several of which were initiated in 2021.# Vesuvius plc Annual Report and Financial Statements 2021

We create innovative solutions that enable our customers to reduce their manufacturing costs, improve quality and safety performance, and help them to become more efficient in their processes. We aim to deliver sustainable, profitable growth to provide our shareholders with a superior return on their investment, whilst providing our employees with a safe workplace where they are recognised, developed and properly rewarded.

Our Sustainability initiative embodies this purpose. It sets out the Group’s formal objectives and targets for supporting our customers, our employees and our communities, and for protecting our planet for future generations. It is embedded in the Group’s overall strategy and informs how we deliver on the Group’s Execution Priorities.

The key objectives and priorities of our Sustainability initiative are outlined here. They were defined following the identification and analysis of the Group’s most important and material sustainability risks and opportunities.

Creating a better tomorrow for our planet, our customers, our people and our communities

Our planet – To tackle climate change by reducing our CO2 emissions and help our customers reduce theirs with our products and services. We are committed to reaching a net zero carbon footprint at the latest by 2050. – To engage in the circular economy by reducing our waste, recovering more of our products after they have been used and increasing the usage of recycled materials.

Our people – To ensure the safety of our people and everyone else who accesses our sites. This is our first priority. We take safety very seriously and are constantly striving to improve. – To offer growth opportunities to all our employees through training and career progression to develop diverse, engaged and high-performing teams.

Our communities – To support the communities in which we operate, with a focus on promoting and supporting women’s education in scientific fields. – To ensure ethical business conduct both internally and with our trading partners. – To extend our sustainability commitment to our suppliers and encourage them to progress.

Our customers – To support our customers’ efforts to improve safety on the shop floor, especially exposure to hot metal. – To help customers improve their operational performance and thereby reduce their environmental footprint, and especially their CO2 emissions.

Our Sustainabilit y strategy and objectives

During the year we were very pleased to see our efforts and progress recognised externally. In particular, our MSCI rating progressed from BBB to A, and our EcoVadis rating progressed from Silver to Gold. Vesuvius was also honoured to be included in the Financial Times’ European Climate Leaders list.

In December 2021, Vesuvius completed the acquisition of the assets and business of US-based Universal Refractories, Inc. (“Universal”). In 2022, we will integrate these operations into our sustainability programme. All statements and figures in this Sustainability section therefore do not include the Universal business.

2022 will be dedicated to consolidating and strengthening our sustainability plans. We will continue educating and engaging our employees at every level, detailing and implementing action plans to progress our strategy. Emphasis will be placed on further defining our roadmap to net zero and developing the support we provide to our customers in their own sustainability journey.

The content of the Sustainability section is primarily based on our materiality analysis, feedback from our internal and external stakeholders, and requirements of the UN Global Compact. We are committed to transparent and thorough reporting on our sustainability performance. We would welcome any input or feedback to: sustainability@vesuvius.com.

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Non-nancial in formation s tatement

This non-nancial information statement provides information on the Group’s activities and policies in respect of:

• Environmental matters Our planet p60–77
• The Company’s employees Our people p82–96
• Social matters Our communities p97–101
• Respect for human rights Our communities p97
• Anti-corruption and anti-bribery matters Our communities p98

The statement also details, where relevant, the due diligence processes implemented by the Company in pursuance of these policies.

Further information, disclosed in other sections of the Strategic Report, is incorporated into this statement by reference, including:

• Information on the Group’s principal risks Details of the Group’s principal risks relating to these non-financial matters are detailed in the Group’s schedule of Principal risks and uncertainties. p34–35
• Risk, viability and going concern p29–35
• Details of the Group’s business model p20–21
• Details of the Group’s non-financial KPIs p39

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Introduction: Towards a better tomorrow

We believe that we can create more value for our customers, our shareholders and our employees by embedding sustainability in all aspects of our business and strategy. Our long-term success is tightly bound to our sustainability initiative, with its primary focus on helping our customers improve their operational performance to enable them to deliver on their own sustainability agenda. At the same time we seek to benefit the communities in which we operate and develop our people to build diverse, engaged and high-performing teams to promote our work.

We launched our formal Sustainability strategy at the end of 2020 to bring together all our environmental, social and governance initiatives into one coordinated programme. We developed a new governance structure to support our objectives and a new set of targets to direct our efforts. The strategy was built on four pillars: our planet, our customers, our people and our communities, identifying ten key areas of focus across these pillars.

In 2021, despite the difficulties created by the COVID-19 pandemic and the operational challenges facing the business, we continued to deliver on our commitments. The progress shown in our key performance indicators illustrates the engagement of our teams around the world.

Key initiatives launched in 2021 included:

• Further embedding sustainability into the Group and business unit strategic plans, via a more detailed analysis of the risks and opportunities presented by climate change and the evaluation of three long-term scenarios.
• Building a methodology and tools to evaluate CO2 emissions avoided at customers by using our products.
• Building a scorecard and assessing the sustainability performance of our existing products and new product pipeline.
• Launching our Sustainable Procurement Policy and Supplier Assessment programme.

Progress on our sustainability roadmap

• Reducing Scope 1 and 2 emissions, measuring Scope 3 emissions and creating action plans to minimise these.
• Determining CO2 emissions avoided by customers, and creating further action plans to maximise this.
• Switching to carbon-free electricity on our sites wherever possible.
• Assessing new product developments and technologies based on their safety and environmental benefits.
• Supporting education for women in scientific fields.
• Increasing gender diversity in the Group Executive Committee and top management.
• Increasing employee engagement.
• Undertaking environmental impact analysis of capital expenditure; with the internal price of CO2 emissions reviewed every year.
• Seeking ISO 14001 certification of manufacturing sites.
• Undertaking sustainability assessments of suppliers.

Areas of focus

Revenue £m	2019	2020	2021
	471.4m	412.9	515.1
	471.4

*Trademark of the Vesuvius Group of companies, unregistered or registered in certain countries, used under licence.

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Alexander Laugier-Werth
VP Sustainability, HSE & Quality

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52 Vesuvius plc Annual Report and Financial Statements 2021# Sustainability

Alexander La ugier- Werth VP Su st ai nab il it y , HSE & Qu ali t y

Our b usi ne ss Our p er forma nce Sustainabilit y Governanc e Financ ial Statemen t s

Our sustainabilit y targets

The Bo ard has ide nti  ed elev en signi  cant non- na nci al KPIs for the busin es s. For nine of thes e we h ave se t st re tchi ng targe t s for t he Gro up to re ach w it hi n se t ti mef ram es, whi ch are s et o ut b el ow. The ta bl e be low i llu st ra tes h ow ac hiev in g ea ch targ et w ill co nt rib ut e to achieving ou r objectives.

KPI	Measure	Target	2021 pro g res s v s 2019
Our planet
Safety	Los t T ime I nju r y Fr equenc y R ate	below 1	<1
Energy consumption	By 2025, reduce en ergy consumption per metric tonne of pro duc t p ac ked for shi pm en t ( vs 2019 )	-1 0 %	- 9. 0 %
Energy CO 2 e emission s	By 2025, reduce (Scope 1 and S cop e 2) energ y CO 2 e emi ss ion s pe r me tr ic to nne of p rod uc t pack ed for shipment ( vs 2019 )	-1 0 %	-1 6 . 5 %
Wastewater	By 2025, reduce was te wat er p er m et ric ton ne of p rodu c t pack ed for shipment ( vs 2019 )	-2 5 %	-2 . 8 %
Solid w a ste	By 2025, reduce so lid waste (hazar d ous and s e n t to la n d  l l) p e r me tr ic to nne of p rod uc t pack ed for shipment ( vs 2019 )	-2 5 %	-2 1. 8 %
Rec yc le d material	By 2025, inc rea se t he pro por tio n of rec ycl ed material s from extern al sourc es used in production	7%	6 . 2%
Our customers
Our people
Gender diversity	By 2025, increa se female represent a tion in the top ma nagement (GEC plus t hei r key dire c t repo r t s 1 )	30 %	2 1%
Compliance training	Increase the percen tage of t argeted staf f who complete anti-briber y and corruption training annually	90%	10 0 %
Our communities
Supply chain	By th e en d of 2023, conduct sustainab ilit y assessments of suppliers cover ing a t l eas t 5 0% of Gro up sp en d	50 %	52 %

1. The B o ard h as r es ol ve d to e xp an d th e G rou p to w hi ch t he g en de r di ve rs it y targ et ap p lie s fo r 2022, t o fo cus o n t he S en io r Lea d er sh ip G rou p of t he C om pa ny wh ic h comprises c. 1 60 individuals.

54 V esuvius plc Annual Report and Financ ial St atements 2 02 1

In Oc t ob er 2020, Vesuv ius b eca me a sig na tor y to the Un it ed Na t ion s Gl ob al Comp ac t. We have co mmi t ted to ba se o ur bus ine s s app roa ch on i t s ten P rin cip le s on hum an ri ght s , la bou r , env iro nme nt, an d anti-c orruption, and t o engage in activities which advanc e the de velopment of the UN Sustainable Development Goals ( SDGs ).

Communic ation on progress

V e su viu s rep or t s a nnu all y on i t s sustainabil it y activities, commitments and pro gre ss in t he A nn ual Re po r t an d al so in a separate Sustainabilit y Repor t published each year . Thi s cover s t he env iro nme nta l, so cia l an d gove rn ance is sue s den ned in the four dimensions of the Group ’s Sustainabilit y Char ter: O ur Pl an et, Our Cu st om er s, Our Pe op le, O ur Co mmu nit ie s. I n pa r ti cul ar , we inc lude updates on k ey performance indicators and progress against tar get s.

V e su viu s has ident i e d the prac t ice s wi th in it s o pe rat io ns th at c an dir ec t ly o r ind ire c tl y cont ri bu te to t he SD Gs. We will fo cus o ur ef fo r t s on t he f oll owi ng s even SD Gs – f our priorit y goals and three s upport ing goals – whi ch are p ar ticul arl y rel evan t to ou r bus ine s s an d w he re we be li eve we can mak e the m ost meaningful contribution.

United Nat ions Global Compact Sust ainable Dev elopment Goals

	Priorit y SDGs	Supporting SDGs
Human rights	Principle 1 Businesse s should support and r espect the prot ection of in ternationally pr oclaimed human ri ght s wi th in th e scop e of t h eir in u en ce
	Principle 2 Businesse s should mak e sure th at t h ey are n ot co mp li ci t in hu ma n rights abuse
Labour standards	Principle 3 Businesses shou ld uphold the freedom of association and the ef f ec t iv e reco gn it i o n of t he r ig ht to collect ive bargaining
	Principle 4 Bu sinesses shou ld uphold th e el imi na t io n of al l for ms o f forc ed and compulsory labo ur
	Principle 5 Businesses shou ld uphold th e ab ol it io n of c hil d la bo ur
	Principle 6 Bu sinesses shou ld uphold the elimination of discrimination in respect of employment and occupation
Environment	Principle 7 Businesses shou ld support a prec aut ionary approach to environ mental challenges	Take u rge nt a c ti on t o combat c limate c hange an d it s im pa c t s
	Principle 8 Businesse s shou ld undertake ini t ia ti ve s to p rom ote g re at er environmental r esponsibilit y	Ens ure h ea lt hy li ve s an d promote well-being f or al l at al l ages
	Principle 9 Businesses shou ld enc ourage the dev elopment and dif fusion of environ mentally friendly technologies	Ens ure availabilit y and sustainable management of wa te r an d sa ni ta ti on for al l
Anti-corruption	Principle 10 Businesses shou ld work against corru pt ion in all its forms, including ex tor tion and briber y	Achieve gender equalit y and empo wer al l women and girls
Overall Contribution Areas	Promote sus tained, inclusive and sustainable economic growth, full and productive emplo y ment an d de cen t wo rk fo r al l	Build resilient infrastructure, promote inclusive and sustainable industr ialisation and fos ter inn ovati on
	Ensure sus tainable consumption and production patterns

55 Our b usi ne ss Our p er forma nce Sustainabilit y Governanc e Financ ial Statemen t s

V esuv ius is a geographically and culturally div er se gro up, em pl oyin g mo re th an 1 1 , 0 0 0 p eo pl e in 4 0 coun tr ies . Our g eo gra phi cal di ver si t y p la ces u s clo se to ou r cus tom er s aro und t he g lo be. I t als o highlight s the impor tance of maintaining and applyi ng strong a nd consistent v alues and ethi cal principles in our worldwide app roa ch to b usin es s . Our e mp loye es ’ engagement with o ur V alues and cu lture is vi ta l to our s ucce ss a nd t he su st ain abl e de live r y of t he G rou p’s stra te gy.

V esuvius has es tablished a fr amework for explaining and embedding the culture and principles we c onsider to be fundamental to ou r succe ss . T o do t his w e comm uni cate openly and tra nspar ently wi th in the organi sation, thro ugh ‘town ha ll’ meetings, senior managemen t visits, management feedback, performance evaluation, measuring s taff engagement and res po ndi ng to t he fe ed ba ck we re cei ve. Critical ly , there is ongoing and consistent comm uni cat io n of ou r CORE V a lue s an d th e pri nci pl es of o ur Co de of Co nd uc t. This i s underpin ned b y engaging s taff acro ss t he G rou p in b oth g en eral and t arge te d tra inin g, to e nsu re a consistent unders tanding of our po lic ies a nd p roce dure s . This transparency of communication als o ex tends t o our s ta keho ld er s. We want to in cre ase t he k no wl edg e and u nd er s tan din g of our s t akeho ld er s, through internal and ex ternal repor ti ng and transparent and meaningful disclosure. Our S ustainabili t y Repor t is a key pa r t of t his .

Our C ORE V alues

The Gro up’s C O RE Values – C oura ge, Ow ne rs hip, Re sp ec t an d Ene rgy – a re actively supporting the Group ’s priorities, encouraging consistent behaviour s across th e Gro up to su st ain o ur bu sin es s suc ces s in t he fu t ure. These V alues, and the behaviours underpinning them, con vey the mindset and a t tit ude s we e xp ec t e ach e mp loye e to sh ow ever y day . Th ey are a t th e he ar t of th e cul tu re of th e G roup, pro mo tin g our i ma ge to e x te rn al s takeh ol de rs , an d underpinning the commerc ial promise we prov id e to ou r cus tom er s . The Value s are rei nfo rced t hrou gh ou r pe r fo rma nce management systems a nd ar e celebrated ea ch yea r th roug h our L iv ing t he Value s Awards which selec t regional and global winners for each V alue. At ea ch of ou r si tes w e dis pl ay CORE V a lue s p os te rs in l o cal la ngu ag es an d use t oo ls su ch as s cre en sa ver s as a cons ta nt re min de r of th e be ha vi our s our people display .

Cod e of Con du c t

Our C od e of Con duc t s et s o ut t he s ta nd ards of c o nduct expec ted, without exception, of ever yone wh o wor k s for Vesu vius i n any of our worldwide operations. Th e Cod e of Con duc t e mp has is es ou r comm it me nt to e th ic s and c omp lia nce w it h th e la w, and cover s eve r y asp e c t of our app roa ch to b usin es s , from t he w ay t ha t we en ga ge w it h cus to mer s , emp loye es , th e mar ket s an d oth er s ta keho ld er s, to t he sa fet y of our em ploy ee s and wo rk pl ace s. Ev er yone within Ves uvius is ind ividually accountable for upholding it s requirements.

We recog nis e th at l as ti ng b usi nes s su cces s is mea sure d not onl y in o ur na nci al pe r for ma nce, b ut i n th e way we d ea l wi th o ur cus to me rs , bu sin es s as so cia te s, emp loye es , inve s tor s an d lo cal co mmun it ie s. Th e Cod e of Con duc t i s dis pl aye d pro min ent ly a t al l our s ite s an d is pu bl ish ed in our 29 major f unctional languages. It is availa ble to view at: ww w . vesuvius. com.

We conti nue t o enh an ce th e po lic ies t ha t und er pin t he p ri nci ple s se t ou t in t he Co de of Con duc t. Th es e as sis t e mpl oye es to comp ly w it h ou r et hica l s tan dard s an d t he le gal re qui rem en ts o f th e juri sd ic t ion s in whi ch we co ndu c t ou r busi ne ss . Th ey al so giv e prac t ica l gui dan ce on h ow t his can be a chi eved .# Our principles, approach and governance

• Health, safety and the environment
• Trading, customers, products and services
• Anti-bribery and corruption
• Employees and human rights
• Disclosure and investors
• Government, society and local communities
• Conflicts of interest
• Competitors

I systematically say, decide and do what is right for Vesuvius including when it is difficult, unpopular, or not consensual. I express my opinions openly during discussions, but I also defend Group decisions once they’ve been taken, even if they do not correspond to my initial position. I proactively take leadership responsibility on difficult projects and topics that are important to the Group’s performance, motivated by the perspective of success rather than paralysed by the risk of personal failure. I demonstrate respect for other people’s ideas and opinions even if I disagree with them. I welcome open debate. I listen to others, foster esteem and fairness with customers, suppliers, co-workers, shareholders and the communities where we operate. I communicate my objectives clearly and take time to explain all decisions. I behave with the highest level of integrity. I promote diversity at all levels of the Company. I am personally accountable for the consequences of my actions and for the performance of the Group in my area of responsibility or oversight, without blaming external circumstances or the actions of others. I demonstrate an entrepreneurial spirit, looking for and seizing business opportunities and I immediately address problems that come up as soon as I become aware of them. I manage the Group’s money and resources as though they were my own. I work hard and professionally in pursuit of excellence. I constantly raise the bar and challenge the status quo. For me, the sky is the limit. I lead by example, inspiring and motivating my team to go the extra mile. I promote a positive and energising work environment. I continuously deliver outstanding customer experience and innovative solutions. I never underestimate competitors and permanently strive to reinforce the Group’s leadership position.

CORE Values

• Ownership
• Courage
• Respect
• Energy

Code of Conduct

The Code covers:

• RE – Respect, Energy
• C O – Courage, Ownership

56 Vesuvius plc Annual Report and Financial Statements 2021

Vesuvius materiality assessment

Our Sustainability initiative focuses on our most significant sustainability issues and opportunities. These are defined by our ongoing materiality assessment, which identifies and prioritises issues based on two criteria: the impact or likely impact on the achievement of Vesuvius’ Strategic Objectives; and the impact or potential impact on Vesuvius’ stakeholders and their interests. Our materiality assessment is informed by our risk management processes, which not only consider immediate risks to the Group, but also longer-term emerging macro trends such as the electrification of light vehicles, accelerating growth in demand for renewable energies, technological developments in iron and steel making and policy changes impacting the cost of CO2 emissions, all of which could profoundly affect our markets. This report has been prepared in accordance with the GRI Standards: Core option. In preparing our assessment, and developing our Sustainability initiative, we engage with various stakeholders, formally and informally. Details of these engagements and the parties involved are described in our disclosures on pages 22 to 28. We undertake regular surveys of Vesuvius’ operational teams to collect data on management approaches, systems, and performance relating to environmental, safety, and human resource management. The Board of Directors formally reviews all significant sustainability programmes and signs off the content of all sustainability reporting disclosures. Our Sustainability Council and VP Sustainability ensure that we have a clear set of KPIs and targets to track the Group’s progress.

Material sustainability topics

The material topics have been validated as material by the Board; they apply in our own operations and to varying degrees in those of our suppliers. No change in the relative prioritisation of topics was recorded in 2021. The exclusion of topics from this list does not mean that they are not considered important to Vesuvius or are not being managed, but only that we have chosen not to address them in detail in this report. Where appropriate we have incorporated some commentary on these additional topics into our report. Details of water stress and water consumption, biodiversity, conflict minerals and environmental compliance are all included.

• Material topics
  • Climate change – energy efficiency – CO2 emissions – renewable energy – sustainable products
  • Circular economy – solid waste – recovered and recycled materials
  • Protection of the environment – wastewater – solid waste – environmental management – responsible procurement
  • Human rights – modern slavery – gender diversity – employee well-being – responsible procurement
  • Employee work relationships and conditions – health and safety – employee representation – engagement and development – values
  • Communities – education – business practices – supply chain
  • Governance – Code of Conduct – anti-bribery and corruption – privacy and data security – responsible procurement

Materiality assessment process

• Step 1 – Survey of key internal and external stakeholders
• Step 2 – Review of external agency ratings
• Step 3 – Benchmark of current policies, targets, reporting practices vs peers and customers
• Step 4 – Interviews with senior managers and experts
• Step 5 – Evaluation of current activities and reporting
  • Selection and definition of a broad set of metrics
  • Assessment of capabilities
  • Selection of key KPIs covering the most important objectives
  • Identification of metrics and setting of targets by Group Executive Committee
  • Approval by Board of Directors
  • Strategy launch with Senior Leadership Group
  • Constitution of Sustainability Council
  • Deployment throughout the Group
  • Ongoing dialogue with internal and external stakeholders
  • Building action plans and monitoring progress
  • Reporting of performance against targets and review of objectives

57

Task Force on Climate-related Financial Disclosures

The Task Force on Climate-related Financial Disclosures (TCFD) has developed a disclosure framework to help companies improve and increase the understanding of their reporting of climate-related financial information. We have therefore aligned the reporting of our existing Sustainability initiatives to the risk management and reporting recommendations of the TCFD. The Board is pleased to confirm that, for the year ended 31 December 2021, the Group’s environmental disclosures are reported in a TCFD framework. The table below sets out where you can find information on how we have applied each of the recommendations of the TCFD. For a number of years we have disclosed the metrics and targets we use to assess and manage relevant climate-related risk and opportunities. The core of our Sustainability initiative remains our commitment to continuing our progress to create a better tomorrow for our planet.

Topic	Disclosure summary	Vesuvius disclosure
Governance	Disclose the organisation’s governance around climate-related risks and opportunities.
a	Describe the board’s oversight of climate-related risks and opportunities.	Sustainability: TCFD p59; Risk, Viability and Going Concern p29 –33
b	Describe management’s role in assessing and managing climate-related risks and opportunities.	Sustainability: TCFD p59; Risk, Viability and Going Concern p29 –33
Strategy	Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning where such information is material.
a	Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term.	Sustainability: Our planet p60 – 63
b	Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning.	Sustainability: Our planet p60 – 77; Our external environment p16 and 17; Sustainability: Our customers p80 and 81
c	Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.	Sustainability: Our planet p64 – 66
Risk management	Disclose how the organisation identifies, assesses and manages climate-related risks.
a	Describe the organisation’s processes for identifying and assessing climate-related risks.	Sustainability: Our planet p60 – 63; Risk, Viability and Going Concern p29 –33
b	Describe the organisation’s processes for managing climate-related risks.

Our planet

Risk, Viability and Going Concern p30

Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management.

Sustainability: Our planet p60 – 63

Risk, Viability and Going Concern p29 – 33

Metrics and targets

Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
a Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process.

Sustainability p54

b Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 GHG emissions, and the related risks.

Sustainability: Our planet p68, 69 and 71

c Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.

Sustainability: Our planet p68 – 75

58 Vesuvius plc Annual Report and Financial Statements 2021

Governance structure

Board oversight

The Board holds overall accountability for all matters related to sustainability and the management of all risks and opportunities, including the impact of climate change on the Group. The Group’s Audit Committee supports the Board in ensuring climate-related issues are integrated into the Group’s risk management process and reviewing the Group’s TCFD reporting. As the Executive Director with key responsibility for the delivery of the Group’s strategy, our Chief Executive, Patrick André, is ultimately responsible for the Sustainability initiative. The Board’s oversight of the Group’s response to climate change is integrated both into its monitoring of the Group’s broader Sustainability strategy and initiatives, and its approach to significant capital and other investments. The Board formally discusses sustainability, including reviewing the Group’s performance and progress against the targets embedded in our Sustainability initiative, particularly those relating to climate, twice per year. In 2021, the Board undertook a more detailed assessment of the Group’s climate-related risks and opportunities, including reviewing an analysis of the Group’s physical and transition risks. It also considered the formulation of three different climate-related scenarios constructed to assess the potential financial implications of climate change and assessed the impact of climate-related risks and opportunities on the Group’s strategy. Every capital expenditure above £5m requiring Board approval includes a sustainability assessment, which includes climate-related parameters. The Remuneration Committee supports the Group’s Sustainability initiative and climate-change-related objectives, through the alignment of the Group’s remuneration strategy. All business unit Presidents and each of the regional business unit Vice Presidents have a part of their annual incentive compensation tied to performance targets on CO2 emissions reduction. In addition, the Remuneration Committee has determined that commencing in 2022 the Group’s Long-term Incentive Plan should also include three ESG measures, focused on a reduction in the Group’s Scope 1 & 2 CO2 emissions, a reduction in the Lost Time Incident Frequency Rate and an improvement in the gender representation in senior management.

Management oversight

In 2020, with the launch of the Group’s new Sustainability initiative, a new governance structure was established, comprising a Sustainability Council, supported by the new role of VP Sustainability, and a clear set of KPIs and targets delineated. The Vesuvius Sustainability Council is chaired by the Chief Executive, and comprises the Group Executive Committee, VP Sustainability and regional Vice Presidents from each business unit. It meets on a quarterly basis and oversees the Group’s sustainability activity, monitors progress against our targets and assists the Group with identifying and assessing the implications of long-term climate-related risks and opportunities. The Council reports to the Board twice per year. In 2021, it was integral in preparing a complete climate change risk and opportunities assessment for the Group, exploring the potential impact of climate change on business strategy and evaluating the associated financial projections.

Scope 1, 2 and 3 CO2 and CO2e emissions

Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the Company. Scope 3 includes all other indirect emissions that occur in the Company’s value chain.

To illustrate the strategic alignment of our sustainability agenda at Vesuvius, as of 1 January 2022, the VP Sustainability reports directly to the Chief Executive. The VP Sustainability leads the Group’s sustainability activities, coordinating the work of the Sustainability Council including the Group’s assessment of climate-change risks and opportunities and formulation of climate-related scenarios. He is also responsible for the collation of data to assess the Group’s performance against its sustainability targets and KPIs, producing quarterly performance reports and managing Group-wide communications. Responsibility for the progress of the Group against its sustainability objectives lies with the Group Executive Committee and, operationally, each business unit President. These BU Presidents and the Regional business unit Vice Presidents are also responsible for communicating the sustainability targets inside their organisations and for implementing plans – including overseeing capital allocation and the selection of R&D priorities – to achieve these targets and address the climate-related risks and opportunities. The VP Sustainability is responsible for overseeing reporting on the Group’s sustainability matters and metrics. Formal channels for reporting a range of data points are embedded in the organisation. Escalation mechanisms, routine reviews, and internal controls such as auditing and due diligence are in place to ensure transparency, consistency and completeness of information. For certain topics these are supported by independent third-party verification.

59

Sustainability

Financial Statements

Our planet

Supporting our customers

According to estimates from the World Steel Association (WSA), on average for 2020, 1.89 metric tonnes of CO2 were emitted for every tonne of steel produced. The WSA also estimated that the steel industry generates between 7% and 9% of global direct emissions from the use of fossil fuels. The iron and steel industries are taking action to address the decarbonisation challenge. We want to support them and will work in partnership with them to develop more sustainable solutions. With around 10kg of refractory material required per tonne of steel produced, the careful selection and use of energy-saving refractories can beneficially impact on the net emission of CO2 in the steel manufacturing process. In the foundry process, the amount of metal melted versus the amount sold as finished castings is the critical factor impacting a foundry’s environmental efficiency. Vesuvius continuously works with its customers to increase this metal yield.

Climate-related risks and opportunities

The actions being taken by governments and society around the world to mitigate climate change, and the changes in temperature and weather patterns resulting from it, present both opportunities and risks to Vesuvius. In its broadest context, we believe that the need for climate change initiatives will create ever greater opportunities for the Group to support our customers – to improve their efficiency and reduce their environmental impact. Each year the Group undertakes a robust assessment of the principal risks which could have a material impact on the Group. A number of sustainability risks are recorded in this analysis (see the Risk, Viability and Going Concern section on p29–35). In line with the recommendations of the TCFD, Vesuvius also undertakes a review of the key climate-related opportunities and risks that we foresee impacting the Group over the short, medium and long term.The completed climate-related risk and opportunity register was reviewed and approved by the Audit Committee in 2021 and the significance of climate-related risks was considered in relation to risks identified in the standard risk management process. Climate-related risks are reviewed every six months as part of the Group’s standard risk management process, to ensure the register reflects any material changes in the operating environment and business strategy, and to ensure that the management of climate-related risks is integrated into our overall principal risk management framework. The business units use the analysis of risks and opportunities to inform their business development priorities and focus their R&D project portfolios. They factor climate change risks and opportunities into their business planning processes assessing the long-term impacts on profitability of both the risks and opportunities. Sustainability has always been at the heart of Vesuvius’ business and the Group’s analysis concludes that the opportunities for the Group manifested by the global pressure to mitigate climate change outweigh the risks. Our technology helps our customers improve their process efficiency and their environmental footprint. We describe the Group’s strategy for addressing the climate-related opportunities impacting our business in ‘Our external environment’ p 16 and 17 Then, in more detail, we describe how practically we are maximising those opportunities to help our customers in the ‘Our customers’ section p 80 and 81 Vesuvius takes seriously its responsibility for managing the impact of its operations and its supply chain on the environment. We recognise the finite nature of the majority of natural resources and the obligation we have to preserve the environment for future generations.

Tackling climate change

We are committed to reducing the environmental footprint of both our own and our customers’ operations and to growing our engagement in the circular economy by reducing the amount of waste we generate, recovering more of our products after they have been used and increasing the usage of recycled materials.

Supporting policy development

To transition to a low-carbon global economy, Vesuvius supports the call for policymakers to:
– Build a level global playing field, including carbon border adjustments and robust and predictable carbon pricing for companies. This will strengthen incentives to invest in sustainable technologies and to change behaviours
– Develop the necessary energy production and distribution infrastructure to provide access to abundant and affordable clean energy

Reducing our impact

Vesuvius actively participates in measures to tackle climate change by reducing our CO2 emissions and use of raw materials, and helping our customers reduce their own CO2 footprint thanks to the use of our products and services. We have set ourselves the goal of reaching a net zero carbon footprint at the latest by 2050. Vesuvius embraces society’s expectations for greater transparency around climate change, expressed by initiatives such as the recommendations of the TCFD.

60 Vesuvius plc Annual Report and Financial Statements 2021

Physical risks and business continuity

Thanks to significant restructuring efforts carried out since 2017, Vesuvius now operates in a highly optimised global footprint. Proximity with customers limits transportation and associated CO2 emissions, ensures higher flexibility and reactivity, and reduces working capital. Yet, a significant amount of redundancy for most product lines remains, providing backup in case of local disruption and ensuring continuity of supply for our customers. Vesuvius operates in 54 manufacturing sites and six R&D centres of excellence located in 40 countries, and from time to time our operations can be subject to physical damage driven by weather events, such as severe storms and flooding, water shortages or wildfires whose frequency and intensity may be exacerbated by climate change. Such events may also impact the manufacturing capabilities of our customers, our tier 1 and lower tier suppliers and our supply chain logistics. Vesuvius has undertaken a comprehensive analysis of our sites’ susceptibility to physical risks arising from climate change. In 2021, we built a weather event risk map covering our 30 most material manufacturing sites and R&D centres of excellence. Of these, 18 were identified as being high risk for at least one type of weather event (flooding, hailstorm, lightning, storms and tornadoes), and three are located in areas of very high water stress. We anticipate that the occurrence of adverse weather events will continue to increase and we therefore manage our business to prepare for them and mitigate their impact when they do occur. As the Group has restructured and concentrated its manufacturing footprint on a reduced number of locations, our strategy to address short-term risks has transitioned from a focus on redundant capacity to improved prevention and risk management. Sites are routinely audited by our insurers and our external risk manager. Their reports are combined with water stress analyses (based on the Aqueduct water risk atlas) covering all our manufacturing sites and R&D centres of excellence, to create our physical risks map. Local and product line business continuity plans are maintained by our manufacturing sites and are regularly reviewed. Vesuvius sites maintain and exercise emergency plans to deal with such events as part of their normal risk management and business continuity processes. Exercises and drills are organised covering IT disaster recovery, fire, explosion, weather and geophysical events, and our processes are improved based on the lessons learned. In 2021, a Vesuvius manufacturing site in Malaysia suffered damage from flooding due to an abnormally intense rain storm. This disrupted operations for a few days but sound emergency and business recovery planning meant there was no material impact on the Vesuvius business and assets. Customer operations were unaffected.

Transition risks

We believe that the main climate change transition risks facing the Group relate to:
1. the potential for carbon taxing or emissions rights trading schemes to be introduced or increased, without effective border adjustment mechanisms to accompany them, in Europe and the US but not uniformly elsewhere; and
2. the rapid transition from iron to aluminium for light vehicles castings.

An increase in the cost of carbon emissions would affect our manufacturing costs. We are addressing this through our energy efficiency improvement initiatives and conversion to non-fossil fuels wherever possible. A very rapid transition from iron to aluminium for light vehicle castings would affect our revenue in the iron castings market. We expect this to be compensated for by increased sales for aluminium castings, and growing sales of products for thin-section automotive component iron castings and turbo-charger castings for hybrid vehicles.

Sites with the highest exposure to weather events

Country	Site	Water stress	Flood – water bodies	Flood – precipitation	Hailstorm	Lightning	Wind – tropical storms	Wind – extra tropical storms	Tornado
China	Anshan			X
	Changshu		X
Belgium	Ostend		X
Italy	Muggio		X
Netherlands	Hengelo		X
South Africa	Johannesburg					X
India	Kolkata				X
	Mehsana					X
	Puducherry					X
	Pune					X
	Vizag					X
USA	Champaign							X
	Charleston							X
	Chicago Heights							X
	Wurtland							X
Japan	Toyokawa
Taiwan	Ping Tung
Brazil	Piedade						X
	Resende						X
	Sao Paulo						X

61

Our business

Our performance

Sustainability

Governance

Financial Statements

Tackling climate change

Opportunities

Climate-related risks and opportunities analysis

Vesuvius considers the key climate-related opportunities and risks that we foresee impacting the Group over the following short, medium and long-term time horizons.

Short term (2025)

Our current strategic plans operate within this timeframe. Most of the intermediate sustainability targets approved by the Board were set with 2025 as a deadline. This horizon encompasses our capital expenditure cycle, allowing time to decide, implement and measure the progress of actions.

Medium term (2035)

This is the most likely horizon for the regulatory frameworks (such as the EU Emissions Trading System and Carbon Border Adjustment Mechanism) currently being defined in many regions to reach their full effect.We anticipate that the major adjustments to customers’ footprints and technology investments will be in full swing by then.

Long term (2050)
This deadline has been retained by the United Nations and many policy-making bodies to set decarbonisation goals. Vesuvius is committed to reaching net zero by 2050 at the latest.

Opportunity	Description	Impact	Potential annual impact on trading profit in the short, medium and long term
			Short term 2025
Products and services	Ability to diversify business activities
	Commercialise refractory solutions for low-CO2 emitting processes in the production of aluminium to replace carbon-based products	Increased revenue and trading profit	Minor
	Commercialise refractory solutions for hydrogen based Direct Reduction Iron production and steel to replace traditional refractory products		Insignificant
Markets	Access to new markets
	Accelerated growth of the wind turbine market	Increased revenue and trading profit	Minor
	Accelerated growth of the aluminium castings market for electric vehicles and lightweighting		Minor
	Accelerated growth of ferrous castings for hybrid vehicles (turbo-chargers) and thin-section castings for internal combustion engines		Insignificant to minor
	Accelerated growth of the high technology steel segment		Minor

Vesuvius plc Annual Report and Financial Statements 2021 | 62

Impact categories (trading profit)
We have assessed our risks and opportunities, and sorted them according to the following classification:

• Very high (>£25m)
• Major (£15 – 25m)
• High (£10 – 15m)
• Moderate (£5 – 10m)
• Minor (£1– 5m)

• Insignificant (£0– 1m)

• Catastrophic (>£25m)

• Major (£15 – 25m)
• High (£10 – 15m)
• Moderate (£5 – 10m)
• Minor (£1– 5m)
• Insignificant (£0– 1m)

Risks	Description	Impact	Mitigating actions being undertaken	Potential annual impact on trading profit in the short, medium and long term
				Short term 2025
Physical risks	Increased frequency and severity of extreme weather events (heat waves, rain and river flooding, cyclones, snow)	Physical damage to Vesuvius locations and people	Business disruption due to natural disaster	Increased cost due to physical damage
Transition risks – Policy and legal	Carbon taxing/emissions rights trading/border adjustment mechanisms introduced or extended	Increase in manufacturing costs	Increased operating costs (main risk in Europe)	Capex to improve energy efficiency and conversion to non-fossil fuels to eliminate CO2 emissions.
Transition risks – Market	Rapid transition from iron to aluminium for light vehicle castings	Reduced volume of internal combustion engine castings and so risk of revenue loss for the Foundry Division	Reduced revenue from shrinking market as some iron castings will disappear or be converted to aluminium (due to conversion to electric vehicles)	In ferrous, push to develop sales of feedex and coatings for thin-section automotive components, and products for turbo-charger casting.
	Transition from Blast Furnaces – Blast Oxygen Furnaces converted to Direct Reduction Iron or Electric Arc Furnaces (EAF) for iron and steel making	Share of EAF in total steel production increases	Reduced size of market where Vesuvius is strongest, leading to weaker positions in the steel market	Adjust R&D and product development priorities.

Risks	Opportunities	Risks
63	Our business	Our performance

Scenario analysis
Vesuvius has undertaken scenario analysis to seek to quantify the likely impact of climate change on the business and to test the resilience of the Group’s strategy to the changes that lie ahead. We considered three scenarios, modelling the potential financial impact of 2°C, 3°C and 4°C temperature increases on our business.

Best case scenario
In formulating our scenarios, we took as our ‘best case’ a 2°C scenario. This was based on the premise that despite the tremendous acceleration of public awareness, regulation, technology development and capital allocation in recent years, we doubt that there is sufficient time for the 1.5°C target to be achieved. We therefore identified our most optimistic scenario as 2°C. Our assumption is that any further acceleration which would allow the planet to get back on to a 1.5°C course would reinforce the main characteristics and accelerate the timeline of our 2°C scenario, without fundamentally changing its features.

From assumptions to strategy
The scenarios take as their starting point the regulatory and macro-economic assumptions underpinned by the International Energy Agency’s WEO 2020 Stated Policies Scenario and Sustainable Development Scenario. Supplementing this we have identified, for each scenario, the areas of our business in which changes may occur, such as the evolution of end-markets, customer footprint, pace and breadth of technology transition in iron and steel making, pace of conversion from fossil fuels to clean electricity and hydrogen, and evolution of the aluminium market. We then evaluated the potential magnitude of the risks and opportunities in each scenario. We analysed the implications for Vesuvius and considered our strategic response in terms of our manufacturing and our commercial footprint, our portfolio of products and services, the conversion of our manufacturing processes to clean energy and the prospects for our aluminium casting business. With this approach, the impacts on all key areas of the business were covered (sales, R&D, manufacturing and procurement). The outcomes of the scenario analyses have been taken into account in formulating plans for achieving the Group’s strategy.

Tackling climate change continued

4°C warming scenario
‘Good intentions hampered by fear of economic war’
Incomplete policy and fiscal packages distort competition, slowing down technology development and leading to geographic shifts in steel supply.

3°C warming scenario
‘Closed doors’
Regional/national self-interest drives economic policy, competition wins over cooperation, regulatory framework and technologies evolve differently.

2°C warming scenario
‘Global accord’
High cooperation and commitment to limit emissions facilitates technology development and the transition to a low carbon world.

Three long-term scenarios | 64

	4°C warming scenario – ‘Good intentions hampered by fear of economic war’	3°C warming scenario – ‘Closed doors’	2°C warming scenario – ‘Global accord’
1 Regulatory and macro-economic environment	The European Union and United States implement carbon pricing mechanisms (taxation or cap on trade), but no Carbon Border Adjustment Mechanism or Tariffs (or insufficient to prevent the transfer of manufacturing away from these regions)	The European Union and United States implement carbon pricing mechanisms (taxation or cap on trade), and Carbon Border Adjustment Mechanisms or Tariffs to protect their industries from delocalisation	All major economies implement carbon pricing mechanisms. The cost of CO2 increases in all regions at a comparable pace
2 Conversion of power generation from fossil fuels to clean electricity and hydrogen	Fast growth of non-CO2 emitting electricity sources (nuclear and renewable) in Europe	The cost of fossil fuels increases significantly in Europe	Coal reduces progressively, but does not disappear. Natural gas continues to grow outside Europe
	Hydrogen does not become available on a wide scale and economically competitive until well after 2040	Fast growth of non-CO2 emitting energy sources in Europe	The cost of fossil fuels increases significantly in Europe.

1 Regulatory and macro-economic drivers differentiate our scenarios

Firstly, effective border adjustment mechanisms to accompany carbon taxation, or cap and trade systems in regions with ambitious emissions reduction objectives, will greatly support the implementation of technologies required to decarbonise steel making (including the development of hydrogen as the reducing agent). Conversely, the absence or ineffective implementation of border adjustments would lead to significant delocalisation of the steel industry and a displacement of CO2 emissions to other countries rather than a significant reduction on a worldwide scale. This shift in our customer footprint would lead to the need to adapt our own manufacturing footprint.

Secondly, public policy will significantly affect the relative cost and availability of non-CO2 emitting energy sources vs fossil fuels and respective infrastructures. These will greatly influence the pace of deployment of various technologies and industries (electric vehicles, green hydrogen, decarbonised steel making). Infrastructure, construction and other downstream markets will also be incentivised to reduce steel consumption, accelerating the shift towards high technology steel.

Finally, the level of international cooperation to encourage and support less developed economies to engage in the technology transition will also affect our customer manufacturing footprint.

2 The future of steel

All three scenarios assume that the strong connection between world GDP and world steel output will continue as there is no significant substitute for steel. The fight against climate change is expected to have a far-reaching impact on many different industries translating into the accelerated growth of the high-tech steel segment in which Vesuvius has a key presence. For example, solar and wind power plants, where investment is growing fast, are far more steel intensive per kWh of installed capacity than their fossil fuel equivalents. Likewise, hydrogen transportation, another area of rapid growth, also requires considerable amounts of special grades of steel for new pipelines and ships.

3 Technology transition

Our scenarios consider the pace and extent of the technology transition in iron and steel making. The Blast Furnace – Basic Oxygen Furnace (BF-BOF) route for steel making is significantly more CO2 intensive than the Electric Arc Furnace (EAF) route. However, EAFs cannot currently be used to produce all higher quality steel grades and they rely on the availability of scrap steel (itself a function of the level of economic development). Going forward, quality levels produced by EAFs will continue to improve.

Various technologies to decarbonise the BF-BOF route are being developed, including solutions which seek to capture the carbon as it is emitted and either store or use it, or its replacement, by a combination of Direct Reduction of Iron (DRI) and EAF. Hydrogen-based DRI associated with EAFs has the potential to be nearly carbon-free if carbon-free electricity and hydrogen are available. We anticipate that there will be a gradual reduction in steel production via the BF-BOF route and growth in the EAF route. The extent and pace of this will depend on technologies coming to maturity, the availability of infrastructure (carbon-free electricity and hydrogen), and regulatory frameworks.

Conclusion on strategic resilience

We estimate the financial impact of the opportunities and risks on the Group will be most adverse under a 4° scenario and most positive under a 2° scenario.

Under all three scenarios, we expect to benefit from the continuing growth in the production of steel in line with GDP, along with the accelerating shift towards higher performance iron and steel castings, as we support customers to maximise the efficiency and quality of their production. With our technological expertise, strong customer relationships and broad manufacturing footprint, we expect to play a key role in supporting our customers’ efforts to decarbonise their operations.

We also believe there is a low downside for Vesuvius in all three scenarios as approximately 75% of our business in Steel is in the steel casting part of the operation which, as a standalone process, is low CO2 emitting (1% to 3% of a steel plant’s CO2 emissions), and which we do not expect to be affected by technology shifts that the decarbonisation of iron and steel making will require.

Whilst the electrification of light vehicles and ongoing light-weighting efforts are expected to translate into a shrinking of the market for certain iron castings, it is anticipated that this will be more than compensated for by the growth in other markets such as wind turbines and aluminium castings.

Energy conservation and CO2 emissions reduction

Vesuvius launched its Energy Conservation Plan in 2011 and significant progress has been made. Between 2019 and 2021 the Group achieved an overall reduction in normalised (measured per metric tonne of product packed for shipment) energy consumption of 9% and a 15.5% reduction in normalised CO2e emissions (Scope 1 and Scope 2, market based), comprising a 16.5% reduction in normalised Energy CO2e usage and a 12.6% reduction in normalised Process CO2. Our energy conservation plan is now in its third cycle of improvement.

Technology transition

Iron and steel making

The transition in blast furnaces to clean processes (e.g. Direct Reduction Iron (DRI), hydrogen, Carbon Capture Storage (CCS), Carbon Capture Utilisation Storage (CCUS)) does not happen on a large scale.

• US steel producers convert blast furnaces to DRI and Electric Arc Furnaces (EAF) to benefit from the low cost and high availability of natural gas.
• European iron making transitions to clean processes (e.g. hydrogen, DRI, CCS, CCUS). The speed of the transition is dictated by the availability of green hydrogen in large quantities.
• Some US blast furnaces are converted to hydrogen, others to DRI + EAF.
• Chinese steel plants convert to clean iron and steel making processes, albeit at a slower pace.
• Little or no transition outside China, the EU and USA.
• Fast transition of iron making to clean processes in all regions; blast furnaces are revamped ahead of their normal schedule.
• European and Chinese integrated steel making will grow primarily in hydrogen-based iron production, implementing CCS and CCUS technologies as well.
• DRI + EAF will grow in the US (benefiting from the availability of low cost shale gas) and Europe.
• Customers also invest to increase the performance of furnaces, including downstream of casting.

High technology steel market

• High technology steel market grows at 0.9% per year.
• High technology steel market grows at 1.2% per year (lighting and material efficiency efforts by downstream industries accelerate shift from lower to higher performance grades).
• High technology steel market grows at 1.6% per year (lighting and material efficiency efforts by downstream industries accelerate shift from lower to higher performance grades).

Aluminium market

• Aluminium market grows at 3% per year.
• Aluminium market grows at 5% per year (driven by the demand for transportation, construction and packaging) until 2035. It accelerates afterwards as the demand for hybrid vehicles shifts to electric vehicles.
• Aluminium market grows at 7% per year (driven by the demand for transportation, construction and packaging) until 2035. It accelerates afterwards as the demand for hybrid vehicles shifts to electric vehicles.

Potential financial impact by 2035 (profit before tax)
£-5m to £0
£5m to £10m
£15m to £20m

65 Our business

• Our performance
• Sustainability
• Governance
• Financial StatementsManaging our energy intensity not only has an environmental benefit but is also part of our long-term strategy to enhance our cost-competitiveness.

2025 energy targets

In 2020, the Board set a new objective targeting a 10% improvement in the Group’s normalised energy consumption, measured per metric tonne of product packed for shipment between 2019 and 2025. 2019 was selected as the baseline for all GHG emissions data and targets, absolute and relative, as this was the last year of normal trading prior to the COVID-19 pandemic. The Board also set a related target for the Group to achieve a 10% reduction in Energy CO2e emissions per metric tonne of product packed for shipment (Scope 1 and Scope 2) vs 2019. This target covers 100% of Vesuvius’ operations and is to be achieved without the use of any offsets. The Group Energy CO2e emissions reduction 2025 target has been cascaded to all business units, which have built action plans accordingly. Each site monitors and reports its energy consumption on a quarterly basis. Performance and variation are analysed, and improvement plans built accordingly.

Tackling climate change continued

Focus areas

In seeking to meet these new targets and decarbonise our manufacturing processes, the Group is focusing on five main areas:

• Modernising and upgrading installed equipment to reduce our energy consumption
• Investing to renew equipment to the best available technologies and converting to less CO2 intensive energy sources
• When possible, replacing high CO2e emission electricity (generated from coal) with greener electricity or other sources of energy
• Reducing our energy wastage, recovering heat to feed processes and hot water
• Generating clean energy

Key Group initiatives for energy conservation and for increasing energy efficiency

Carbon-free energy sources

The Group supports the transition towards renewable energy sources and cleaner carbon-free technology when possible. Our energy strategy includes an ongoing effort to convert to carbon-free electricity contracts whenever practical and economically manageable, invest in solar panels, and the conversion of processes to electricity as soon as the technology is cost-effective. In 2021, nine sites converted to carbon-free electricity contracts, taking the total number to 12, representing 20% of our manufacturing sites and R&D centres of excellence. We also inaugurated a solar panel installation in our plant in Ig in 2021 and launched projects in our Kolkata and Vizag plants. 19 manufacturing sites and R&D centres of excellence are also investigating solar panel projects. In 2021, 51% of the grid electricity consumed in our sites was generated using processes that did not emit CO2, of which 41% was generated from renewable sources. At the end of 2021, four sites were equipped with renewable energy installations, and one had invested in a combined heat and power installation.

Capital commitments and internal CO2 pricing

In 2020, we took the decision to include an environmental impact analysis in the evaluation of each of our capital expenditure projects as these are the key decisions that drive long-term future sustainability performance, and CO2 emissions in particular. Our Environmental policy, which is the responsibility of the Chief Executive and the Group Executive Committee, covers all our operations and states that all our investment decisions will include an analysis of their environmental impact. An internal price for CO2 emissions (Scope 1 and Scope 2) is included in the calculation of payback for all investments reaching the threshold for approval by the BU Presidents or Chief Executive. Vesuvius views this shadow pricing mechanism as a key mechanism to ensure that the environmental impact of long-term investment decisions is understood. It seeks to ensure that the best available technology is adopted, even in locations where no external cost for carbon is in place or foreseen. The internal price of CO2 was initially set at €30 per tonne of CO2. This price is reviewed annually and is applicable across all business units and all regions for the full year. It has been increased to €90 per tonne of CO2 for 2022.

Key progress since 2019

Since 2019, four major projects have helped significantly reduce the Scope 1 CO2 emissions of the Group by addressing some of its most CO2e intensive installations – closure of the Skawina bricks plant, elimination of dirty coke oven gas as a fuel in Wuhan with a new natural gas-fired tunnel kiln, transfer of the Tyler plant activity to Monterey, and replacement of the burner system of the Olifantsfontein in rotary kiln. We endeavour to use the best available technologies to reduce CO2 emissions in all our major capital expenditure projects. For example, we are taking advantage of the closure of our Chinese plant at Kuatang and relocation of its activity, to replace all drying ovens and kilns with new ones with an energy efficiency improvement target of 20%. Many other projects are being undertaken to upgrade or retrofit equipment to improve energy efficiency and reduce CO2 emissions. These include new refractory furniture and installation of heat recovery systems in ovens and kilns, upgrades of compressors, replacement of light sources with LED lights, solar panel installation and the purchase of electric forklifts. In 2021, the Board approved major capacity expansion capital expenditure projects totalling more than £20m. Available technologies and their impacts in terms of energy efficiency and CO2e emissions were systematically considered, and the most efficient technologies for the purposes selected. In addition, new capital expenditure worth circa £1.7m dedicated to 25 incremental improvement projects with energy efficiency and CO2 emissions reduction in their prime objectives was approved in 2021. In 2021, we analysed our CO2 emissions in detail (Scope 1 and Scope 2), evaluated our Scope 3 emissions (using the GHG approved Scope 3 Evaluator), initiated a comprehensive survey of technologies in development and of their level of maturity, and started engaging with our suppliers of key raw materials on their CO2 emissions levels and reduction plans.

Next steps

Our goal in 2022 will be to translate our commitment to net zero into a precise road map including short, medium and long-term milestones. We also intend to submit our first CDP Climate Change questionnaire in 2022. In the short term (2025), various projects are being studied, including the installation of further solar panels, retrofitting of ovens and kilns or replacement of older and less efficient ones, and burner settings, loading and cycle optimisation. We will also continue the conversion of our electricity supply to carbon-free sources. In the medium term (2035), we anticipate that further emissions reduction will be possible through further upgrades to our ovens and kilns, and possibly the combination of natural gas and renewable energy such as green hydrogen to fire refractory materials. In the longer term (2050), various technologies are promising candidates for the near zero emissions curing and firing of refractory products (electricity, green hydrogen, synthetic gas, biomass).

Energy consumption and Scope 1 and Scope 2 CO2e emissions

While Vesuvius’ products differ significantly in the energy intensity of their manufacture, most of our manufacturing processes are not energy intensive nor do they produce significant quantities of waste and emissions. Two of our 32 main manufacturing processes (VISO and Dolime production) account for 41% of our energy consumption and 58% of our location-based CO2e emissions. (We report in metric tonnes of CO2 equivalents CO2e.) A further five processes consume 34% of the Group’s total energy consumption and represent 24% of our location-based CO2e emissions, giving a clear focus for 75% of our energy and 82% of our emissions-reduction initiatives. The Group has clear targets for energy saving, with ongoing efforts focused on increasing the efficiency of our production processes. Dolime production, which uses coal to calcine dolomite, is our major emitter of CO2 and, building on the successes of previous years, continues to be a clear focus for our investment to reduce CO2 emissions.# Tackling climate change continued

Normalised energy consumption and CO2 e emissions decrease

In 2021, the Group’s normalised energy consumption decreased by 5.3% to 1,177 kWh per metric tonne (2020: 1,243), and the Group’s normalised CO2e emissions reduced to the lowest level ever recorded:
– Location based: by 5.6% to 0.418 metric tonnes CO2e per metric tonne product packed for shipment (2020: 0.443)
– Market based by 9.4% to 0.40 metric tonnes CO2e per metric tonne product packed for shipment (2020: 0.44)

These reductions which countered the effect of the 13% increase in energy consumed were primarily driven by changes in product mix to lower energy intensity products and the significant increase in production volumes (19.3%). Natural gas use increased by 14.7%, electricity consumption by 6.6% and coal (a CO2 intensive fuel) consumption by 9.8%, to 30.3 thousand metric tonnes in 2021 from 27.6 thousand metric tonnes in 2020. During 2021, the Group also consumed 352 cubic metres of diesel (+32.2% 2020: 266) primarily in the operation of forklift trucks on its sites and 157 cubic metres of fuel oil, an increase of 26% (2020: 124). In total 509 cubic metres of oils were used as fuel in 2021 (2020:390).

Scope 1 covers emissions from fuels used in our factories and offices, fugitive emissions and non-fuel process emissions. Scope 2 relates to the indirect emissions resulting from the generation of electricity, heat, steam and hot water we purchase to supply our offices and factories.

Vesuvius plc long-term energy consumption and normalised energy consumption (aggregate of Scope 1 and Scope 2)

	2021	2020	2019	2018	2017
Total Energy consumption (million kWh)	1,159	1,026	1,176	1,339	1,410
Energy consumption per metric tonne of product packed for shipment (kWh/MT)	1,177	1,243	1,293	1,294	1,400

Greenhouse gas reporting

In reporting GHG emissions, we have used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) methodology to identify our Location based GHG inventory of Scope 1 (direct) and Scope 2 (indirect) CO2e. We report in metric tonnes of CO2 equivalent (CO2e). Our energy-related greenhouse gas (GHG) emissions, reported as carbon dioxide equivalents (CO2e), include direct emissions of the three main GHGs (Carbon Dioxide (CO2), Methane (CH4) and nitrous oxide N2O).

Process related emissions of the following in CO2 equivalent and in metric tonnes are not significant:
– Direct methane CH4 Emissions
– Direct nitrous oxide N2O Emissions

Emissions of the following in CO2 equivalent and in metric tonnes are not significant:
– Direct Sulphur Hexafluoride (SF6) Emissions
– Direct HFC Emissions
– Direct PFC Emissions

The Group also meets all its obligations in relation to the Producer Responsibility Packaging Waste regulations and the Energy Saving Opportunity Scheme by which the UK implemented the EU Energy Efficiency Directive. All sites report their energy consumption and GHG emissions on a quarterly basis. Figures are verified for consistency and coherence.

68 Vesuvius plc Annual Report and Financial Statements 2021

Fuel consumption, emissions and normalised emissions for the main fuels consumed across the Group (location based statutory reporting)

Location based statutory reporting of global GHG emissions (metric tonnes CO2e) and energy consumption (‘000 kWh) by type of fuel and emission.

Fuel and emission category	Energy used ‘000 kWh 2021	Energy used ‘000 kWh 2020	% change	CO2e ‘000 metric tonnes 2021	CO2e ‘000 metric tonnes 2020	% change	CO2e metric tonnes per metric tonne of product 2021	CO2e metric tonnes per metric tonne of product 2020	% change
Coal	224,846	204,693	10%	73	66	11%	0.074	0.079	-7%
Electricity	207,238	194,441	7%	100	92	8%	0.101	0.112	-10%
Ext. Heat	3,177	2,324	37%	1	1	40%	0.001	0.001	0%
LPG	77,379	61,605	26%	17	13	26%	0.017	0.016	5%
Natural Gas	641,168	559,011	15%	117	103	14%	0.119	0.124	-4%
Other Fuels	5,643	4,308	31%	1	1	30%	0.001	0.001	9%
Total Fuels	1,159,451	1,026,382	13%	309	276	12%	0.314	0.334	-6%
Non-Fuel Process Emissions				101	89	14%	0.103	0.107	-4%
Fugitive Emissions				1	1	30%	0.001	0.001	9%
Grand Total	1,159,451	1,026,382	13%	411	365	13%	0.418	0.443	-6%

1. All fuel consumption is converted to ‘000 kWh for reporting.
2. In 2021, the Group consumed 58,288 thousand m3 of natural gas.
3. Vesuvius does not use any alternative fuels (% used zero).
4. Heat from biomass 0.01%.
5. Fugitive emissions are leaks of greenhouse gases, for example from refrigeration and air-conditioning units.
6. Location based Statutory Reporting of Global GHG emissions (metric tonnes of CO2e) and energy consumption (‘000 kWh).

Global GHG emissions (kg of CO2e) and energy consumption (‘000 kWh) (Location based statutory reporting)

Emissions and energy sources	UK and Offshore CO2e ‘000 metric tonnes 2021	Global CO2e ‘000 metric tonnes 2021	Proportion relating to the UK and Offshore Area	UK and Offshore CO2e ‘000 metric tonnes 2020	Global CO2e ‘000 metric tonnes 2020	Proportion relating to the UK and Offshore Area	UK and Offshore energy used ‘000 kWh 2021	Global energy used ‘000 kWh 2021	Proportion relating to the UK and Offshore Area	UK and Offshore energy used ‘000 kWh 2020	Global energy used ‘000 kWh 2020	Proportion relating to the UK and Offshore Area
Combustion of fuel and operation of facilities including fugitive emissions (Scope 1)	2.433	311	0.8%	2.196	272	0.8%	12,688	949,036	1.3%	11,442	829,617	1.4%
Electricity, heat, steam and cooling purchased for own use (Scope 2)	0.480	101	0.5%	0.503	93	0.5%	2,503	210,415	1.2%	2,619	196,765	1.3%
Total GHG emissions and energy	2.914	411	0.7%	2.699	365	0.7%	15,191	1,159,451	1.3%	14,061	1,026,382	1.4%
Change	8.0%	12.6%		8.0%	13.0%

Vesuvius’ chosen intensity measurement (location based statutory reporting)

Metric tonnes CO2e per metric tonne of product packed for shipment	UK and Offshore 2021	Global 2021	UK and Offshore 2020	Global 2020	kWh of energy per metric tonne of product packed for shipment	UK and Offshore 2021	Global 2021	UK and Offshore 2020	Global 2020
Emissions and energy reported above normalised to metric tonnes CO2e per metric tonne of product packed for shipment	3.304	0.418	2.607	0.443		17,223	1,177	13,586	1,243
Change	26.7%	-5.6%	26.8%	-5.3%

Total GHG emissions as metric tonnes CO2e per £m revenue (location based)	2021	2020	2019	2018	2017
	26	250	272	251
Change	-1.0%	-0.1%

Methodology

We have reported to the extent reasonably practicable on all the emission sources required under Part 7 of the Accounting Regulations which fall within our Group Financial Statements. Statutory Reporting is location based according to the GHG Protocol. Scope 1 covers emissions from fuels used in our factories and offices, fugitive emissions and non-fuel process emissions. Scope 2 relates to the indirect emissions resulting from the generation of electricity, heat, steam and hot water we purchase to supply our offices and factories. We have used emission factors from the UK Government’s (DBEIS) and the IEA GHG Conversion Factors for Company Reporting 2021 in the calculation of our GHG. Scope 1 and Scope 2 emissions were verified by Carbon Footprint Ltd.

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Governance

Financial Statements

Tackling climate change continued

Metric tonnes CO2e per metric tonne of product packed for shipment	2015	2016	2017	2018	2019	2020	2021
Category Energy	0.405	0.139	0.133	0.387	0.391	0.357	0.354
Category CO2e	0.333	0.295	0.136	0.125	0.117	0.107	0.103
Category Process CO2
% improvement vs 2015		-5%	-3%	-11%	-13%	-19%	-27%

Global electricity usage

	2021	2020	2019
Total electricity consumption (‘000 kWh)	207,238	194,441	214,336
Electricity from non-CO2 emitting sources (‘000 kWh)	105,258	75,629	79,910
Electricity from non-CO2 emitting sources (% of total)	51%	39%	37%
Electricity from renewable sources (‘000 kWh)	84,641	55,873	55,512
Electricity from renewable sources (% of total)	41%	29%	26%

Energy from renewable sources (‘000 kWh)

	2021	2020	2019
	84,796	56,011	55,688
2021

Emissions per region (market based)

Category	CO 2 e ‘000 metric tonnes	% of total
Europe	260.5	66%
China & NA	59.7	15%
India & SA	19.9	5%
South America	9.4	2%
US, Mexico, Canada	42.4	11%

5-year evolution of Scope 1 and Scope 2 CO 2 e emissions (market based)

	2021	2020	2019	2018	2017
CO 2 e ‘000 metric tonnes	393	364	429	499	531
CO 2 e metric tonnes per metric tonne of product packed for shipment	0.398	0.440	0.471	0.482	0.528
CO 2 e metric tonnes per million £ revenue (Scope 1 & 2)	238	249	250	277	315

2021 energy consumption by fuel type

Category	Energy used ‘000 kWh	%
Natural gas	641,168	55.3%
Coal	224,846	19.4%
Electricity	207,238	17.9%
LPG	77,379	6.7%
Other fuels	5,643	0.5%
External heat	3,177	0.3%

Scope 3 emissions

Vesuvius’ Scope 3 CO 2 e emissions, mainly upstream, contribute to a greater part of our total CO 2 e emissions than our Scope 1 and Scope 2 emissions. In 2021, we assessed the most relevant and influenceable elements of our Scope 3 emissions, with a goal to set material science-based targets. Scope 3 CO 2 e emissions for 2019, 2020 and 2021 were evaluated using the Quantis Scope 3 Evaluator software, approved by the GHG protocol. The evaluation covered 100% of operations. The categories in the table above represent more than 95% of Vesuvius’ total estimated Scope 3 emissions. Purchased goods and services represent the largest category of Scope 3 CO 2 emissions. In 2021, we also undertook a more focused evaluation of emissions associated with raw materials using publicly available average CO 2 emissions factors. In addition, we started collecting information on energy source, CO 2 emissions data and reduction plans from our raw materials suppliers as part of the RFQ process. Suppliers representing 25% of the raw material spend have responded to our requests. Parallel to this, various initiatives have been launched to reduce our Scope 3 CO 2 emissions. A few examples include:
* Returnable packaging solutions being implemented both with suppliers and customers
* Policies aimed at limiting the CO 2 emissions of company fleet vehicles are being deployed in various countries.
More than 1,800 Vesuvius employees benefit from bus or other forms of collective transportation for their commute to work.

Scope 1, Scope 2 and Scope 3 emissions

	Metric tonnes CO 2 e 2021	%	Metric tonnes 2020	%	Metric tonnes 2019	%
Scope 1 Process CO 2 e emissions	101,121	5.4%	88,516	5.9%	106,737	6.0%
Scope 1 Energy CO 2 e emissions*	209,592	11.2%	183,741	12.2%	215,836	12.0%
Scope 1 CO 2 e emissions	310,713	16.6%	272,257	18.0%	322,573	18.0%
Scope 2 CO 2 e emissions (market based)	82,519	4.4%	92,145	6.1%	106,681	5.9%
Scope 3 CO 2 e emissions	1,483,438	79.0%	1,147,557	75.9%	1,363,709	76.1%
Total	1,876,670	100%	1,511,959	100%	1,792,963	100%

*Includes fugitive emissions. In 2021, Vesuvius’ total Scope 1, Scope 2 and Scope 3 CO 2 e emissions were 1,876,670 metric tonnes. This represented 1,140 metric tonnes per million £ revenue.

Scope 3 emissions

	Metric tonnes CO 2 e 2021	%	Metric tonnes 2020	%	Metric tonnes 2019	%
Purchased goods and services	1,159,810	78.2%	871,993	76.0%	1,039,766	76.3%
Capital goods	62,004	4.2%	53,736	4.7%	68,461	5.0%
Fuel - and energy -related activities (not included in Scope 1 or 2)	94,182	6.4%	86,493	7.5%	101,979	7.5%
Upstream transportation and distribution	48,791	3.3%	30,762	2.7%	31,937	2.3%
Waste generated in operations	5,833	0.4%	5,660	0.5%	6,312	0.5%
Business travel	15,488	1.0%	13,574	1.2%	31,373	2.3%
Employee commuting	20,400	1.4%	20,400	1.8%	20,400	1.5%
Upstream leased assets	6,375	0.4%	6,375	0.6%	6,375	0.5%
Downstream transportation and distribution	37,761	2.5%	25,770	2.2%	27,231	2.0%
Processing of sold products	32,794	2.2%	32,794	2.9%	29,875	2.2%
Total Scope 3 CO 2 e emissions	1,483,438	100.0%	1,147,557	100.0%	1,363,709	100.0%

Vesuvius plc statement of verification

Scope 1, Scope 2 and Scope 3 carbon footprint reporting and supporting evidence contained herein for the period 1 January 2019 to 31 December 2021 were verified by Carbon Footprint Ltd in accordance with the ‘ISO 14064 Part 3 (2019): Greenhouse Gases: Specification with guidance for the verification and validation of greenhouse gas statements’. A copy of the full assurance statement can be found on our website: www.vesuvius.com.

The drive to improve the sustainability performance of Vesuvius and the refractory industry’s products was initiated many decades ago. The continuous improvements both in the durability of our products and in their disposal after usage have led to considerable reductions in both the raw materials used and the quantity of product shipped to landfill. As the amount of refractory material per tonne of steel cast continues to level off, the purpose and value of the use of refractory materials will move from delivering insulation to an even greater emphasis on helping to improve steel quality and process efficiency.

Product durability

Our first, and preferred, strategy to reduce the depletion of resources is the extension of product durability. The amount of refractory material required per tonne of steel cast has been reduced by 80% since 1960, and the average product lifetime multiplied by as much. Approximately 10kg of refractory material are now consumed per tonne of steel cast, with some customers requiring as little as 7kg. We are continuously working to extend the lifetime of our consumable products. Strategies include the development of advanced materials, the design of shapes that allow dual usage of products, and product repair and remanufacture. For mechanisms and equipment, we also offer wear monitoring and maintenance services to our customers to ensure their optimum performance and extend their lifetime. We have introduced innovative refractory lining monitoring, to enable repairs to be made only where needed. Our i-G VARD system automates the monitoring of slide-gate wear, providing decision-makers with critical data to choose when to renew refractory plates. We have developed longer life DuraFlex ladle shrouds, and methodologies to reuse bottom slide-gate plates as top plates. Each of these systems and processes drives production efficiency and reduces refractory volumes.

Product recyclability

At the same time as reducing the quantity of raw materials required for each casting, technical solutions and economic cycles have grown to enable the recycling of refractory materials after usage in the production of iron and steel. Whereas in the early 1970s nearly all refractory materials were disposed of after use, it is estimated that more than half is now recycled. In Europe, as little as 5% of refractory materials now go to landfill. A large portion of this is open loop recycling, with spent refractories used in low value-adding applications such as aggregates for roadbed materials. Closed loop recycling will allow greater substitution of virgin material by secondary material, with a positive impact on Scope 3 CO 2 emissions. It is estimated that only 7% of spent refractories currently enter closed loop recycling. Many factors such as consistency of material quality, cost of sorting and mineral processing, transportation costs, and the administrative burden associated with the transportation of waste, have prevented the wide adoption and investment in closed loop recycling. We therefore support initiatives being pursued by authorities to improve the regulatory framework for the circulation of waste materials across borders, making it easier for them to be recovered and recycled in different countries.

Growing our engagement in the circular economy

Amount of refractory consumed per tonne of steel cast in Germany

Source: Statistisches Jahrbuch der Stahlindustrie.Specific consumption, kg/t crude steel Oxygen steel making (beginning) Slide gate Continuous casting (beginning) Use of water cooling in electric arc furnace (beginning) End of Thomas process End of open-hearth furnace MgO-C bricks (beginning) Reduction of FeO-content in slag by bottom-blowing convertors Basic ladle lining Recycling of refractories Fused MgO-C bricks Clean Steel

Distribution of refractory material after use in the steel industry in Europe

Destination of refractories	Share
Dissolution in hot metal, steel or slags	33%
Internal recycling	25%
External recycling	37%
Landfilling	5%

Source: A review of recycling of refractories for the iron and steel industry, Researchgate November 2017.

	2021	2020	2019
Amount of recycled materials used in Vesuvius products (metric tonnes)	75,516	56,599	67,900
Amount of recovered materials that are not recycled used in Vesuvius products (metric tonnes)	0	0	0
Percentage of recycled materials in Vesuvius products from total materials	6.2%	5.6%	5.9%
Percentage of revenue from products including recycled materials	25.0%	23.3%	22.6%

All recovered materials undergo some processing before their usage in our products. Therefore, they are all included in the recycled materials category, and the recovered materials category is empty.

Vesuvius’ use of recovered and recycled materials

Vesuvius is determined to increase the usage of recovered and recycled materials in its product formulations. A comprehensive quarterly reporting system for the use of recovered and recycled materials by all manufacturing sites was launched in 2019. It includes the reporting of recovered and recycled materials from sources external to Vesuvius and across Vesuvius facilities. In 2020, the Board set a target for 7% of the raw materials used by the Group in production, to be recycled materials from external sources by 2025 (measured by weight of materials).

In 2021, 75,516 metric tonnes of recycled materials were used in our products. The percentage of recovered or recycled materials from external sources used in production was 6.2% (5.6% in 2020). 25.0% of our revenue was generated from products that include recycled materials (23.3% in 2020). We estimate that more than 70,000 metric tonnes of Scope 3 CO2 e emissions were avoided by using recycled materials in lieu of virgin materials.

Increasing the share of recovered and recycled materials in product formulations poses multiple challenges, in terms of availability, consistency of quality, competitiveness versus virgin material whose prices fluctuate, regulatory frameworks for the transportation of end-of-life waste materials, and validations to ensure that product performance and reliability remain unaffected. Cross-functional teams incorporating experts from R&D, Purchasing, and Manufacturing are working to identify and analyse opportunities in order to increase the share of recovered and recycled materials. We have implemented programmes with some of our customers to recover and recycle refractory products, with new initiatives being discussed. We also offer our customers various options with regard to mechanisms and equipment, including rental.

Material waste

Alongside the monitoring of recovered and recycled materials, a quarterly reporting system for material waste from all manufacturing sites was implemented in 2019. This was enhanced in 2020 by introducing the separate reporting of toxic and other hazardous waste. Our system now includes the reporting of waste to landfill, toxic and other hazardous waste, waste for recycling, waste to sewers and by-products (materials recovered and recycled outside the site where they were generated). 100% of our manufacturing sites report the various categories of waste and by-products they generate.

The Board has set a target of a 25% reduction of our solid waste (hazardous and sent to landfill) per metric tonne of product packed for shipment by 2025 (vs the 2019 baseline). Action plans were implemented at ten pilot sites in 2020, with an increased sharing of action plans and results. In 2021, the programme was extended, and manufacturing sites started building action plans covering both hazardous and non-hazardous waste to eliminate, reduce and recycle waste. Our plants in Mülheim and Třinec received Circular Economy Awards from the European Refractory Producers Association (PRE) in recognition of the success of their waste reduction and recycling programmes.

Breakdown of 2021 solid waste

Recycled waste (by-products)	47.6%
Non-hazardous waste	45.6%
Other hazardous waste	6.7%
Toxic waste	0.1%

Our business | Our performance | Sustainability | Governance | Financial Statements

Hazardous and toxic waste

We are committed to the reduction of toxic and other hazardous waste. In 2021, 13.0% of our solid waste (excluding recycled waste), was classified as hazardous (2020: 14.7%), while toxic waste represents 0.16% of solid waste (excluding recycled waste). Whenever relevant, action plans to reduce hazardous waste are incorporated by manufacturing sites into their solid waste reduction action plans. Manufacturing sites ensure that hazardous and toxic materials, and waste, are stored in protected containers and kept in delineated storage areas, with sufficient retention capability to prevent any release in case of accidental spillage. Out of our manufacturing sites and R&D Centres of Excellence handling hazardous and toxic waste, 89% have defined emergency plans including provisions relating to toxic and hazardous waste and materials. Of these 72% have tested them through simulation exercises in 2021.

Growing our engagement in the circular economy continued

Manufacturing site raw materials & waste/(metric tonnes)	2021	2020	Variation
Raw materials
Recycled materials used (from external sources)	75,516	56,599	33.4%
Recovered materials used (from external sources)	0	0	0.0%
Raw materials and intermediates used excluding recycled (from external sources)	1,133,807	949,615	19.4%
Total raw materials and intermediates used	1,209,323	1,006,214	20.2%
% Recycled materials (from external sources)	6.2%	5.6%	10.0%
% Recovered materials (from external sources)	0%	0%	0.0%
Waste (solid waste, by-products and wastewater)
Solid waste and by-products	56,755	58,524	-3.0%
Ratio of solid waste and by-products in metric tonnes per tonne of product packed for shipment	0.058	0.071	-18.7%
Solid waste (hazardous and sent to landfill)	29,747	26,607	11.8%
– Non-hazardous waste	25,894	22,695	14.1%
– Tailing waste	0	0	0
– Hazardous waste	3,853	3,912	-1.5%
– Toxic waste	48	28	72.6%
– Other hazardous waste	3,805	3,885	-2.0%
– Ratio of hazardous waste to total solid waste	13.0%	14.7%	-11.9%
Ratio of solid waste per tonne of product packed for shipment (in metric tonnes)	0.030	0.032	-6.3%
By-products (recycled waste)	27,008	31,917	-15.4%
Ratio of by-products per tonne of product packed for shipment (in metric tonnes)	0.023	0.036	-36.0%
Wastewater*	165,965	131,366	26.3%
Ratio of wastewater per tonne of product packed for shipment (in metric tonnes)	0.168	0.159	5.9%
Total solid waste, by-products and wastewater	222,720	189,890	17.3%

• 1 m³ wastewater = 1 metric tonne.

Reducing consumption, waste and emissions

The Board has set a target for the Group to reduce the amount of wastewater per metric tonne of product packed for shipment by 25% by 2025 (vs the 2019 baseline).

Water consumption

Out of 745,000 metric tonnes of fresh water consumed in total, 728,000 metric tonnes (97.7%) were consumed in our manufacturing sites, the remaining 17,000 tonnes (2.3%) in our R&D centres of excellence, offices and warehouses. 28,326 metric tonnes were incorporated into our finished products (3.8% of total fresh water), the balance being consumed as part of our manufacturing processes and social water (96.2%). Our objective is to reduce both the amount of water consumed in our manufacturing process and social water usage. The main area of focus is the reduction of wastewater. In 2021, our overall fresh water usage per tonne of product packed for shipment decreased by 16.4%.# Protecting the environment

Vesuvius takes seriously its obligations to its local communities and to ecological preservation. Environmental compliance at our sites, reduction in waste, increased recycling and treatment of emissions are key to Vesuvius’ operations, and can be a significant differentiator for our business.

Environmental policy

All employees are expected to adhere to the Group’s Environmental policy, which is translated into local languages and displayed prominently in all locations. The policy is supported by standards and procedures which are reviewed and updated on an ongoing basis. A copy is available to view on our website at: www.vesuvius.com.

ISO 14001:2015 certifications

Country	Company name	Site
Australia	Foseco Pty Ltd	Sydney
Belgium	Vesuvius Belgium N.V.	Ostend
Brazil	Foseco Industrial e Comercial Ltda	Sao Paulo
China	Vesuvius Advanced Ceramic (China) Co., Ltd	Suzhou
China	Vesuvius Advanced Ceramics (Anshan) Co., Ltd	Anshan
Czech Republic	Vesuvius Česká Republika, a.s.	Trinec
Germany	SIR Feuerfestprodukte GmbH	Siegen
Germany	SIR Feuerfestprodukte GmbH	Kreuztal
Germany	Vesuvius Europe GmbH & Co.KG., Vesuvius Mülheim GmbH & Co.KG.	Mülheim an der Ruhr
Germany	Vesuvius GmbH	Grossalmerode
Germany	Vesuvius GmbH	Borken
India	Foseco India Limited	Puducherry
India	Foseco India Limited	Pune
Indonesia	P.T.Foseco Indonesia	Jakarta
Japan	Foseco Japan Limited	Toyokawa
Netherlands	Foseco Nederland BV	Hengelo
Poland	Vesuvius Poland Sp. z o.o.	Skawina
South Africa	Vesuvius South Africa (Pty) Limited	Olifantsfontein
South Korea	Foseco Korea Limited	Gyeonggi-do
Sweden	Vesuvius Scandinavia AB	Amal
Taiwan	Foseco Golden Gate Co. Limited	Ping Tung
United Kingdom	Vesuvius UK Limited	Tamworth

Environmental monitoring and environmental regulation

Vesuvius operates sites in some developing markets where environmental concerns have become politically significant as air quality deteriorates, and residential expansion takes people closer to areas historically reserved for manufacturing. In addition, some of the sites Vesuvius operates have known ecological sensitivities, being in the vicinity of watercourses or environmentally sensitive areas. All our factory emissions to air, ground and water, as well as waste are proactively managed in accordance with local regulations. All our manufacturing operations monitor key environmental indicators.

Regular analysis

Regular analysis enables us to act to reduce our emissions where possible and to operate more efficiently. Environmental performance records are kept for the period of time required to comply with local regulations. Manufacturing plants maintain and test emergency plans to ensure compliance with local regulations and Vesuvius standards in the event of an accidental release. Reports from external inspections, including those with findings, are centrally stored and shared internally with executive and senior management. Where local authorities carry out routine inspections, observations, recommendations and actions are recorded and acted upon appropriately.

Local compliance

Vesuvius is committed to addressing exceedances and complying with local regulations. All exceedances are reported in a central database. In 2021, Vesuvius recorded 52 minor environmental incidents. Of these, four related to emissions to air, two to emissions to water and 46 to ground.

Total environmental releases across the Group in 2021 are estimated to have totaled 10 metric tonnes (including 2.9 metric tonnes of water-based materials) and 7.4 m³ hydrocarbons. All releases to water and to the ground were fully contained apart from one incident in Ostend where an intermediate bulk container leaked c. 15 litres of hydrocarbons in water onto the ground, this was remedied and the result confirmed by analysis. Where incidents occur, they are managed via Vesuvius’ site environmental response plans and reported through the Vesuvius incident reporting system. We comply with local reporting requirements in respect of such incidents. In Germany a slightly increased legionella contamination was detected in showers and remedial action taken. An existing earlier action in relation to a disused US property for wastewater exceedances remains open. Two regulatory actions issued in 2021 against Vesuvius in Belgium remain open. No other action was taken by any authority in relation to an environmental incident in 2021 which resulted in financial penalties against Vesuvius. The Group does not operate any mines and consequently the Group generates zero tailings waste.

Water

As with energy use, normalised consumption of water varies with product mix. This decrease was driven by an evolution in our product mix towards products that require less water in their processing and was partly offset by the increase in wastewater per tonne of product packed for shipment (5.9 %). Vesuvius works to reduce the consumption of water in its manufacturing operations by recycling and improving water management processes. No salt water or cooling water is abstracted with no related out flow.

Water stress

An assessment of all Vesuvius manufacturing sites was carried out using the Aqueduct Water Risk Atlas. A small number of the areas in which Vesuvius operates are water stressed. In these areas, we make strenuous efforts to reclaim, recycle and minimise the overall use of water.

Wastewater

Our sites with the highest level of water consumption are equipped with wastewater treatment plants. These represent 47% of all manufacturing sites and R&D centres of excellence. Additionally, many types of activity are routinely undertaken by our sites to control and reduce their water consumption, and we have action plans in place to reduce our wastewater generation globally. Some of the most significant examples include:

• Replacing wet scrubbing systems for particulate removal with dry filter systems
• Optimising container cleaning processes
• Installing high pressure stations to improve efficiency and speed of tool cleaning
• Optimising production schedules to reduce the need for cleaning between recipes
• The provision of environmental awareness training to employees

Water stress	Location of manufacturing sites	Number of main manufacturing sites	Percentage of revenue	Manufacturing site fresh water use (m³)
		2021	2020	2019
Very high-water stress		4	4%	4%
Moderate to high water stress		19	42%	41%
Low to moderate water stress		31	54%	55%

This data covers 100% of our manufacturing sites. Water stress classification based on World Resources Institute Aqueduct Water Risk Atlas.

5-year evolution of fresh water consumption
% change 2021/2019	2021	2020	2019	2018	2017
Water in m³	-12.7%	745,369	747,439	853,381	896,785
Water in m³ used per metric tonne of product packed for shipment	-19.4%	0.757	0.905	0.939	0.866
Water in m³ used per £million revenue	-9.1%	454	513	499	499

Emissions into the air

Some Vesuvius manufacturing processes can lead to low levels of emissions into the air. These include post thermal treatment residual Volatile Organic Compounds (from the curing and firing of products including solvents and resin binders, or pitch impregnation), residual GHGs from the combustion of fuels and process emissions, and residual dusts post capture and filtration. Vesuvius’ emissions of VOC, residual GHGs, and residual dusts are at levels too low to warrant any form of continuous measurement and reporting of quantities emitted, but all manufacturing plants monitor their levels of emissions into the air through regular sampling, and actively work to reduce them. Actions to reduce emissions include the upgrade of equipment to the best available technologies, and the implementation of filtration, vapour extraction and regenerative thermal oxidiser systems.

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Our business
Our performance
Sustainability
Governance
Financial Statements

Environmental management / certifications

We have 20 manufacturing sites, one customer location and one warehouse certified to ISO 14001:2015, representing 37% of our 54 manufacturing sites. External annual compliance audits are carried out by the global assurance provider, LRQA.# 100 % of o ur ISO 1 4 0 01:201 5 cer t i ca ti ons cov er the handling of waste and hazar dous materials , including regular en vironmental imp ac t a udi t s an d imp le men ted r is k prev ention procedur es (inc luding emergency pl anni ng a nd te s ti ng) re la ti ng to wa s te an d haz ardou s materials handling. Where pr eviously t he d eci si on to p ur su e ISO 1 4 0 01 cer ti ca tio n was taken at a lo cal l evel, G rou p po li cy i s now fo r all pro duc t io n si tes t o se ek ISO 140 01 cer t i ca ti on. A list of cer ti ed site s is ava ila bl e abov e and m ay a lso b e vi ewed o n th e Vesuv ius we bsi te: w w w. ve suv ius .com.

Biodiversity and greenery

Whi ls t ri sk s to b io dive r sit y were no t cons id ere d as ma te ri al by th e int er nal a nd external stak eholders we engaged wi th, we no ne th el es s ini ti at ed a su r vey of a ll manufac turing site s. This did not highlight any risk s fr om our ongoing operations, other than accidental envir onmental rel ea se s and e mis si ons i nto t he a ir as de tail ed e ls ew here i n th is rep or t . Th e ver y l imi te d foo tp rin t of V esu vi us’ si tes cont ri bu tes sig ni can tl y to l imi ti ng our Co mp any ’s im pa c t on bi od ive rs it y and greener y . Ac t ion s ha ve be en t aken in va rio us man ufa c tu rin g si te s to imp rove gre en er y and b io di ver si t y on t he ir gro un ds an d neighbouring communitie s, including planting trees.

77

Our b usi ne ss

Our p er forma nce

Sustainabilit y

Governanc e Financ ial Statemen t s

Ou r cor e bu si ne ss i s to h el p ou r customers protect their employ ees and improv e their operational p erformance an d ef ci en cy. Cu st om er s rely on the quality of our products, and t heir st ruc t ura l inte gr it y, to con tro l the ow of molten metal safely in their f acilities. The rel iability and performance of our pro duc t s a re cri ti cal to o ur cus to me rs i n terms of o verall equipment effec tivenes s, lab ou r pro duc t iv i t y an d me tal y iel d, an d their environmental impac t ( reducing energy consu mption, C O 2 emissions and r efractory material w as te ). Many of o ur p rodu c t s all ow ou r cus to mer s to ac hieve i mp roved m eta llu rgica l pro pe r ti es i n th eir p rod uc t s, t he reby all owi ng t he p rodu c ti on of w in d tu rbi ne components, the light weighting of vehi cl es an d ot he r envi ronm en tall y fr ien dl y pro duc t s tha t ben e t soci et y .

Building safety into our produc ts

At all t im es , our g oa l is to s er v e cus tom er s’ ne eds i n th e sa fes t, mo st s ec ure an d compliant manner possi ble. Many of o ur p rodu c t s – rob ot ic s, s ys t ems and co nsu mab le s – are cr it ica l to t he sa fet y of our cus to me rs ’ op era tor s . Th erefo re, p rodu c t sa fet y is para mou nt to us. We ha ve imp le me nte d a wi de ran ge o f practices to optimise the performance of our product s, reduce failur es and increase their lifetime. We follo w a st ri c t s tag e ga te p roce ss for the development of new products, ensuring tha t safety performance obj ec t iv es are den ed from th e ini ti al stages and progressively completed up to th e pro du c t lau nch . Key del ive rab le s inc lud e ri sk as se s sme nt s, p rep ara ti on of user and maintenance documentation, manufacturing c ontrol plans, a nd V esuvius and customer operator t rain ing. We unde r ta ke ex te nsi ve te s tin g th rou gh rig oro us al pha a nd b eta t ri al s wi th sy s tem at ic tr ial repo r t s to con rm tha t target ed performance and r obus tness obj ec t iv es are m et a nd to a llo w for n e-tun ing be fore prod uc t laun ch.

Automated system s

Our a ut om ate d an d rob ot ic s ys te ms are fully custom ised a nd embedded into our cu s tom er s’ p roce ss es . Th eir d es ign and im plementation r e quir e additional precautions to ensure optimum safety dur ing t he p roj ec t an d in o pe rat io ns . T eams working on their developmen t and installation at customers ther efor e rec eive targ ete d sa fe t y tra ini ng fo cus ed o n th e sp eci c ris k s at vari ous proj ec t st ag es . Deve lo pm ent p roj ec t s fo llo w th e ISO 10 21 8 - 2 n or m (Safet y requir eme nt s for i ndu st ri al rob ot s) . Ex terna l ex pe r t cons ul tan cy s upp or t is provi de d alo ng w it h regular audits , and all foll ow the rules req uire d for CE co nfor mi t y or e qu ival en t. The dev elopment of these human-c entred rob oti c so lu ti ons f or s te el sh op s, re du ces the ergon omic strain on our c ustomers’ operat ors together with their exposu re to high temperatures.

Compliance today and t omorrow

For the dev elopment and pr oduction of cons uma bl e pro duc t s , we ha ve im pl eme nte d R&D sc ree nin g of raw m at eri als a nd che mica ls to a voi d int rod uci ng un want ed sub st ance s in to th e rec ip es an d pro ces s es . Where potentiall y hazar d ous substances are nonetheless requ ired, s trict validation che ck lis t s have bee n de ned to ensure ad equ at e prot ec t io n me asur es are t aken at ev er y s te p of th e pro ces s . We docum en t reg ula to r y com pli anc e thro ugh S afe t y Da ta Sh ee t s for al l raw m at eri als consu med and all products manufactured, and sha re these wi th cu stomers.

REAC H regulation

Our o bj ec t ive i s to rem ai n ful ly co mpl ian t with our r egist ration obl igations under t he Registration, Ev aluat ion, Authoriz a tion and re s tr ic t io n of Che mica ls (REACH) reg ula ti on . Sin ce 20 07 , Vesuv ius ha s app oi nte d RE ACH man ag er s for i t s Stee l and F oundr y Divisions, implementing an on goi ng p roce ss t o ide nt if y t he R E ACH imp ac t ed ra w ma ter ial s ba se d on t he ir Saf et y D a ta Sh eet s . Th es e sub s tan ces are then monitored thr oughou t the pr o duction pro ces s in Vesuv ius . Th is al so al low s us to tra ck th e qu ant it ie s con sume d an d ver if y th at t he se re ma in wi th in t he li mi t s of our reg is tra ti on s. Re sul t s are do cum en ted i n a cent ral d at aba se. We rou ti ne ly o rgan ise tra inin g se s sio ns fo r emp loye es i n th e R&D, Sales, and Purchasing organisations to ens ure t ha t any new s ubs ta nce i ncl ude d in a ne w pro duc t re cip e o r oth er w is e purc has ed w il l be in cor po rat ed in to ou r monitoring and r egistration pr ocess. Upd at es to t he l is t of sub s tan ces u nd er RE ACH regu la ti on i ssu ed by t he Euro pe an Che mica ls Ag en c y (ECHA) are cont in uou sl y review ed and our internal monitoring adapted whenever necessary . V esuvius als o mo ni tor s pro je c ted c han ge s to t he li s t of sub s tan ces un de r RE ACH reg ula ti on , to pro ac t ive ly t ake into a ccou nt fu t ure evol ut io ns in o ur pro du c t dev elo pm ent pro ces se s. W he neve r rel evan t, we als o pa r ti cip at e in t he co nsul ta ti on s le d by ECHA to de ne the mos t appro pri at e st at us fo r sub s tanc es .

Our cust omers

Our technology helps our customers impro ve their processes and t heir environmental footprint. Advanc ements in mater ial science, pioneered by V e s uv iu s, h ave h el pe d to e ns ure t ha t th e amo un t of ref rac t or y m ate ri al re q uir ed t o cas t o ne to nn e of st ee l ha s re du ced b y 80 % in t he p as t 6 0 yea rs .

Product s afet y and qualit y

78 V e suvius plc Annual Report and Financial S tatements 2 02 1

In 2018, we la unch ed a p rog ramm e of for mal a ss es sm en ts o f our su pp lie rs , wi t h an ob je c ti ve to as s es s all re lev ant su pp lie rs of raw m at eri al s by th e end o f 2022. Foll owi ng t he U K’s de pa r t ure fro m th e EU in 2021 , we a dap ted o ur re gis t rat io ns an d purc hasing or ganisation and systems, to ensure that we r emain fully compliant wi th o ur ob li ga ti ons b ot h in t he Un ite d Kingdom and in the Eu ropean Union.

A learning or ganisation

Af te r pro du c t lau nch , wh ene ver a sa fet y-rela ted i nci de nt (an inju r y or a dan ge rous o ccur ren ce) occur s at one of our customers, that may have invol ve d a V e su viu s pro duc t o r se r vi ce, it i s sy s tem at ica lly r ep or t ed an d inv estigated. The outc ome of the inve st ig at io n, in clu din g roo t caus es a nd cor rec t ive a c ti ons , is s hare d wi t h th e cus to mer . It is a ls o pre se nte d to th e Gro up Exe cu ti ve Com mit tee an d th e Bo ard . Each of o ur pro du c t man ag er s is tasked with responsibilit y for collectin g feedback on our product s and ma naging imp rovem ent s . Rout ine de bri e ng is organised af ter projec t s are c o mpleted. Fie ld t ri al re po r t s and i nci de nt re po r t s are rou ti nel y rev iewe d to co lle c t inf orm at io n on failures and improvement oppor tunitie s. Whenever relevant , subsequent changes ma de to t he d esi gn of p rod uc t s are de ploy ed to i ns tal la ti ons i n se r vi ce at other c ustomers and lessons learned a re inco rp ora te d int o th e des ign o f fol low ing ge nera t ion s of pro du c ts . We mon ito r th e num be r of CCAR s (Cus tom er Co rre c ti ve Ac t ion Re qu es t s) , s eve ri t y 1 CCA R s (saf et y-related i ncidents or quality issues affec ting the c ustomer o f our customer ), and re pe a t CCAR s . In 2021 , no p rod uc t fa ilur es l ed to l os t t ime inj uri es a t cus to mer s . T wo min or i njur ie s ( a sho ul der s trai n and a mi nor n ger cut) did o ccur h oweve r , an d th e so urce s of th e inj uri es we re fu lly i nves t ig ate d, an d corr ective actions implemented.

V e su viu s pl ace s a hig h valu e on ISO 90 01:201 5 cer t i ca ti on and the busi ne ss assura nce that t his q uality management sy s tem bri ng s. W e have 66 cer t i e d V e su viu s and c us tom er si te s, e mp loy ing qua li t y pro fes si ona ls to m ain tai n and deve lo p qua li t y s ys te ms un de r our q ual it y po lic y.# 1 0 0 % of t he m an age me nt s ys te ms use d to m ake our p rod uc t s are cove red by ISO 90 01 :201 5. A li st of cer ti  ed site s is ava ila bl e to vi ew on t he Vesuv ius w ebs it e: w w w. ve suv ius .com.

Reliability and performance

Our c onstant performance monitoring develops deep and lasting relationsh ips wi th o ur cus to me rs . Is su es are d ea lt w it h th roug h a rig oro us pro bl em- so lv ing methodology and in -depth investigation. Thi s ens ure s we le arn f rom p rob le ms an d preve nt t he m recu rri ng, a s wel l as e nab lin g us to co ns tan tl y evol ve an d upd a te ou r services in line wit h cha nging customer expec tations and technologic al developments.

Al l is sue s raise d by th e V es uv ius el d tea ms or b y cus tom er s are s ys t ema t ical ly rep or t ed , do cume nte d and clas si e d, ba se d on t hei r na tu re and s eve ri t y. Th ey are t hen i nves t ig ate d, w it h th e followi ng objectives:

• Implem enting immediate containment actions to pr otec t cu stomers
• I den ti f y ing t he ro ot cau se s
• Implementing c orrective actions
• Learning lessons and providi ng feedback for the development of fu tu re pro duc t s

Regional business unit manageme nt teams are responsible for organising problem-solving teams to address i ssues and lead routine revie ws of ongoing quality per formanc e. Qua lit y performance , including the number of customer comp la int s , th e num be r of rep ea t complain ts for the same issue and their seve ri t y i s rep or t ed to t he B o ard on a reg ula r ba sis , and r evi ewe d dur ing e ach Gro up E xecu ti ve Co mmi t t ee m ee tin g. The most serious issues and those that af f ec t, or cou ld p ote nt ial ly a f fe c t, mult ip le cus to mer s are re vi ewed i n de tai l dur ing th es e me et ing s. A dve rs e tre nd s resu lt i n pro mpt, clear ly de ne d init ia ti ve s to permanently solve issues and pr event repeats.

Al on g wi th o ur fo cus on t he co mp le ten es s and q ual it y of repo r t ing , a st ron g em ph asi s is pl ace d on t he e f fe c ti ven es s of ou r problem-solving . Our cross- func tional teams involv e sales, research and development , and manufact uring experts, who work collaboratively to add ress the most challe nging technical issues.

Problem-solving

We use th e 8D p rac t ica l prob le m-s ol vi ng me th od olo gy. In 2021 , our t eam s rec orded , r eported and i nv es tigated 2,75 6 i s s u e s . In 2020, we un de r to ok a t ho roug h assessment of the problem-solving cap abi li tie s an d pra c ti ces in e ac h of our business unit s regionally , identif y ing the gap s an d requ ire d ac t ion s to rei nforce them wher e necessary , especia lly i n ter ms of s t af  ng and trai nin g. In 2021 , we s tar ted imp le me nti ng t he se p lan s de spi te the dif cul ti es cause d by t he C OVID- 1 9 pandemic.

The 8D methodology is implemented as the primary problem -solving tool acr os s th e Gro up. It i s a cons is te nt ap pro ach de sig ne d to id ent if y root caus es a nd ensur e appr opriate corrective action is tak en.

8D – The eight Discipline s of Practical Problem Solving

• D1: Clarify the pr oblem
• D2: Dene countermeasures
• D3: Cont ain & s et t arge t
• D4: Chec k resul t s
• D5: Grasp the current situation
• D6: Exe cu te & tra ck p rogre s s
• D7: Analyse c auses
• D8: Stand ardi se & e s tab lis h cont rol s

Recognition

An a nnu al 8D Aw ards Co mp et it io n is organised to recognise the bes t teams and proj ec t s . Th is com pe ti ti on i s orga nis ed acro ss a ll bu sin es s uni t s, i n ea ch reg io n, wi th a j ur y co mpo se d of se ni or ma na ge rs and s po ns ore d by mem be rs o f th e Gro up Exe cu ti ve Com mit tee. In 2021 , m ore th an 1 25 p roje c t s were p res en ted i n th e Regional 8D Competitions. In addition to recogn ising the best problem -solving and proj ec t s , th es e eve nt s are an o pp or tuni t y to recognise talent and disseminate knowledge.

Our b usi ne ss

Our p er forma nce

Sustainabilit y

Supporting o ur cust omers ’ jour ne y to net z ero

Sustainable solut ions

V e su viu s is com mi t te d to gro win g i ts cont ri bu ti on to a s us tain ab le wo rl d, th roug h pro duc t s an d se r v ice s tha t imp rove sa fe t y , m ax imi se e nviro nme nta l pe r form ance, re duce gre enh ous e gas e mi ssi on s, an d con tr ibu te to t he circu lar e cono my . Our p rod uc t s h ave t he p ote nt ial to h el p customers reduce and avoid gr eenhouse gas e mi ssi on s wh en com pa red w it h th eir curr ent p rac t ice s by amo unt s t ha t far exce ed t he e mis si ons re qui red t o manufac ture and distribu te them.

How o ur p ro du c ts h e lp re d uce a nd a vo id greenhouse ga s emissions, they:

• Increase metal y ield i n cas t in gs
• Reduce downgrading, re-melting of sc rap an d rep ai r of de fe c t s
• Minimise casting temperat ure
• Reduc e heat losses
• Maximise casting spee d and throughput
• Ex tend pr oduc tion sequence leng th, reduce downtime
• Impro ve met al per formance
• Reduce and avoid greenhouse gas emission s

We ac ti vel y coo pe rat e wi th cu st ome r s to he lp th em eva lua te t he CO 2 emissions red uc t ion o ur pro du c t s bri ng to t he ir complete value chain. Our c us tom er s in t he i ron, s te el a nd aluminium industri es are embracing the challenge of d ramatic ally r educing their CO 2 emissions. Many hav e pledged to rea ch n et zero by 20 50. T hey are inve st in g signi ca nt ly to t ran sfo rm th eir manufacturing tec hnologies for the long term, wo rk ing o n a ran ge of in it ia ti ve s inc lud ing t he d ire c t red uc t ion o f iron w it h gre en hydro ge n and t he re pl ace me nt of carbon anodes in aluminium smelt ing. We contr ibu te t o th eir e f for ts t hrou gh technology par tnerships and developing new pr oduc t s for the next generation zero emissions aluminium, iron and steel-maki ng processes.

Asses sing our p roduct port folio

We have cre at ed a co mpr ehe nsi ve sco reca rd to eval ua te ou r pro duc t s ove r th eir f ull p rod uc t li fe c ycl e. We rate o ur pro duc t s i n comp ar iso n wi th t he s t and ard offering in the mark et consideri ng their pe r for ma nce in t er ms of he al th a nd s afe t y, envi ron men tal i mpa c t, gree nho us e gas emissions, a nd end-o f -life proc essing. Al l cri ter ia a re as sig ne d a wei ght ing . In li ne wi th o ur ob je c ti ves t o redu ce bo th o ur ow n CO 2 emissions and help our customers red uce t hei r CO 2 emi ss ion s, w e give t he se cri te ria a sig ni can tl y highe r weigh tin g. Performin g this analysis suppor t s our obj ec t iv e to dev elo p an d sup ply p rod uc t s th at p rovi de ou r cus to me rs w it h a sup er io r over all sustainabi lit y performance against the mark et standard.

In 2021 , we co mme nce d th e rol l-o ut of t he sco reca rd acro ss o ur pro du c t po r t fo li o and a ss es s ed mo re t han 9 0% o f our reven ue. O f o ur 2021 sale s 1 6% were generated from mark et -leading sus tai na bl e pro duc t s . Our o bj ec t ive i s to con ti nue g rowin g th ei r sha re of ou r pro duc t p or tf oli o yea r af t er ye ar .

Sustainability in new p roduct dev elopment

V e su viu s inves t sig ni can tl y in n ew product dev elopment, w orking closely with our cu s tom er s to of f er op ti mis ed s ol ut io ns for the ir spe ci c nee ds . W e have a uni que comb in at io n of ex pe r t ise c over ing a w id e rang e of e lds incl udi ng meta llu rgy, refr actor y cer amics, robotics and me cha tro ni cs , an d IT . Thi s is com bin ed wi th cl os e con tac t w it h cus to me rs t hro ugh our network of account managers and se r vi ce te ams , and t hro ugh re gu lar tec hni cal an d R&D me et ing s wi t h our key cus tom er s to dr ive i nnov at io n.

Mark et -l eading sustainable products

Our C le an Stee l sub me rge d ent r y n ozzl e (S EN) – a produ c t th at a c t s as a con dui t for m ol ten m et al fro m t he tu ndi sh to t he mou ld i n t he cont inu ous c as ti ng p roce ss – min imises the formation of inc lusion clus t er s on t he SEN wall t ha t can d et ach and caus e defec t s in t he nal cas t ste el sla b. Th e hig h-pu ri t y ma te ri al of t he SEN do es n ot rea c t wi t h th e inc lusi on s in th e st ee l to fo rm th es e clu s ter s. A s a resul t, our cu s tom er s’ y iel d of hi gh- qua li t y s te el will increase.

Ano th er rece nt inn ovat ion, Vesuv ius Air - Shield* technology , wa s dev eloped af ter r eques ts from c us tomers to imp rove th e se al b et ween t he su r face of our m on ob lo ck tu nd ish s hrou d pl ate (MTSP ) pl ate s ur fa ce an d t he bot tom plate of the tundish gate . The connection be t we en t he se t wo sur face s is t he m os t pro bab le p la ce for a ir in gre ss d uri ng cas ti ng , whi ch can ca use q ual it y downgrades in the steel pr oduced and lim it s ref rac t or y l ife. T his p rod uc t h as imp roved st ee l quali t y sign i can tl y for severa l custo mer s.

* T ra d em ar k of th e Vesu vi us G ro up of c om pa ni es , un reg is t ere d o r reg is t ere d in c er t ai n cou nt ri es , used under licence.

Financ ial Statemen t s

Vesuv ius plc An nual R epor t and F inancial S tatements 2 0 21

	2019	2020	2021
% of sales generated by mark et-leading s ustainable products*	13.1%	14.8%	15.8%
R&D s pe nd (£m)	30.3	28.6	26.7

* Using Vesuvius’ internal sc orecard.# Vesuvius plc Annual Report and Financial Statements 2021

Product sustainability benefits scorecard

When designing new products, the Marketing and Technology teams in our six R&D centres of excellence listen to our customers, closely observing their processes to understand their current and future challenges, needs and expectations. We combine this learning with the information we have collected from our analysis of past issues, and seek to achieve both incremental improvements and breakthrough innovations in safety, robustness, reliability and performance, to steer the development of next-generation products and services. We have formally integrated sustainability considerations into product R&D. Using the same criteria and scorecard as we use in the assessment of the existing product portfolio, we have begun a complete assessment of the pipeline of R&D and new product development projects, to check that their contribution is aligned with our sustainability ambitions, adjust priorities and allocation of resources, and fine-tune the selection of new projects entering the pipeline. R&D covers a wide range of activities ranging from fundamental research and front-end innovation to the evaluation of alternative material sources and support to operations.

In 2021, our R&D spend was £30.3m, of which c. £10.8m (36%) was dedicated to the development of products which outperformed existing marketed products in terms of sustainability outcomes. These constituted well over 80% of our New Product Development projects. Our objective is to reach 100% of such products in the development pipeline.

In 2022, we plan to launch 40 new products (2021: 27), of which 28 will allow customers to achieve superior sustainability performance (2021: 17).

The challenge of decarbonising iron making or aluminium smelting requires the development and industrialisation of radically new technologies. We complement our internal efforts with partnerships with over a dozen research institutions, universities and strategic customers, working to develop the refractory solutions that will support these novel processes.

Improves users’ comfort, health and safety
Safety in manufacturing and transportation
Safety during usage
Exposure to health hazards

Limits our impact on natural resources
Product weight
Product lifetime
Recycled materials

Minimises energy consumption and emissions
Cradle to grave greenhouse gas emissions
Reduced and avoided CO2 emissions for the customer
Volatile compounds emissions

Reduces waste, avoids landfill and increases recycling
Waste generation during manufacturing and usage
Recyclability after usage

Financial Statements

Our people

The safety, diversity, personal growth and job satisfaction of our people are key to the success and growth of our business.

Health, safety and well-being at work

Our strategic ambition is to provide a safe working environment for all our people and to deliver value to them by providing development opportunities. This section details our performance and initiatives in both Health and Safety and Human Resources.

Safety is our top priority and our overriding commitment to health and safety is embedded throughout the organisation. Our approach is to identify, eliminate, reduce or control all workplace risks, and an ongoing system of training, assessment and improvement is in place to focus on achieving this. We remain fundamentally committed to protecting the health and safety of employees, contractors, visitors, customers and any other persons affected by our activities. We want to become a zero-accident company and are striving to become a best-in-class organisation for safety performance and leadership.

Our principles

1. Good health and safety is good business
2. Safety is everybody’s responsibility
3. Working safely is a condition of employment
4. All work-related injuries and work-related ill health are preventable

COVID-19

In 2021, the ongoing COVID-19 pandemic continued to affect Vesuvius in a wide variety of ways. In 2021 we lost 11 colleagues to this dreadful disease, and share the grief of the families and friends of those who passed away. As many parts of the world were hit by third and fourth waves of infection, we continued to focus on protecting our employees whilst at the same time supporting our customers. Due to the outstanding efforts of our colleagues around the world we were able to maintain our operations and supplies during these difficult times. With vaccines becoming widely available, we encouraged our colleagues to protect themselves and their families, whilst at the same time acknowledging that this is a matter of personal choice. In a number of countries, including India, Poland and South Africa, we were able to work with local health authorities to offer free vaccinations to our employees.

Safety leadership

Safety performance remains the priority item on the agenda at all our Group Executive Committee and management meetings, and safety performance is reported to the Board by the Chief Executive as a matter of priority at each Board meeting. In addition, as part of management reporting, the Board receives a detailed monthly update on all Lost Time Injuries (LTIs). The Group Executive Committee reviews all of the more serious incidents, including all LTIs, and the responses to these from local management. The Group remains fully committed to continuing safety improvement with a Group Health and Safety Policy stating a clear goal of:

• No Lost Time Injuries
• No repeat injuries
• No harm to our people or contractors

Health and safety governance

The Board has overall responsibility for health and safety-related matters and delegates authority for the management of the health and safety performance of the business to the Chief Executive. The Health and Safety Policy is signed by all members of the Group Executive Committee and the business unit Presidents are responsible for its deployment, with the support of the President of Operations. The Board receives monthly information on every Lost Time Injury and key safety performance indicator. In addition, the Board carries out a biannual review of health and safety performance and overall Company safety strategy. Annual presentations of business unit strategy also include health and safety strategy. The results of our Group Safety Audits are presented to the Board twice per year.

Business accountability

The Group VP Sustainability, HSE & Quality is responsible for setting the Group’s policies for health and safety and controlling their application. The business units are responsible for the implementation of these policies and are directly accountable for the health and safety performance of their operations, with each business unit determining its own priorities and resource allocations, aligned with Group-wide targets on safety performance. A majority of senior managers has a portion of their variable compensation tied to the achievement of safety performance targets.

Executive Safety Tours

This tone from the top is also demonstrated by the requirement for all senior managers, irrespective of discipline, to perform Executive Safety Tours, report on their findings to local operations management and follow up on improvement requirements. In this structure, all employees understand that they have a responsibility to take care of themselves and others whilst at work. Through this process, we expect everyone to participate positively in the task of preserving workplace health and safety. The tours encourage dialogue with staff, setting action points for discussion and implementation. In this way, these tours provide visible safety leadership on the shop floor in our sites and at our customer locations. Along with our daily safety audits, they are a central pillar of our Safety Breakthrough initiative.

In 2021, 80 Executive Safety Tours were carried out by members of the Group Executive Committee and their direct reports. This represented a decline from the 103 conducted in 2020, primarily because of continuing travel restrictions imposed by the COVID-19 pandemic. Unfortunately, no Safety Tours were able to be conducted at customer locations in 2021.

Vesuvius plc Annual Report and Financial Statements 2021 81

Vesuvius plc Annual Report and Financial Statements 2021 82# Whi ls t COVID- 1 9 t rave l res t ri c ti ons lim it ed t he nu mb er of E xecu t ive Sa fe t y T o ur s con duc t ed i n 2021 , th e numb e r of Sa fet y T our s co ndu c te d b y mid dle management i ncreased, assis ted b y the int rod uc t ion o f a mob il e app t o enh an ce th e pro ces s.

Review, as se ss a nd i mp le me nt

Ever y b usi nes s fa cil it y has an ap po int ed health and safety manager , who works wi th m ana ge me nt an d all e mp loye es to rev iew s ite h ea lt h an d sa fet y , a ss es s traini ng needs a nd develop and implement si te sa fet y improve me nt pl an s. T hes e lo cal health and safety managers are as sisted by cent ral e xp er ts wh o not o nl y id ent if y ad ver se t ren ds an d res po nd to t he m, bu t als o en abl e t he sh ari ng of b es t p rac t ice acro ss Vesu viu s. We conti nue t o wor k hard t o redu ce incident s everity and gener ate actionable insights fr om the performance ind icators we cap ture . The L TI f re que nc y ch ar t s pre pare d mo nt hl y for e ach b usi nes s un it and s it e, sho w wh ere in jur ie s hav e be en red uced a nd w he re fur the r ef fo r t is req uire d, th rou gh a com bin at io n of a be ha vio ur -b as ed a pp roa ch to sa fe t y and the implementation of physic al sa feg uard s. We focu s on t he s afe t y of a ll personnel, whether the y are emplo yees, third -part y contr actors or visitors. Ba se d on t he an al ysi s of th e ki nd of acci de nt, t yp e of in jur y a nd p ar t s of t he body affected, the busin esses dev elop ris k -b as ed a c ti on p lan s th at co nsi de r bo th t he fr equ en c y and s ever i t y of inc id ent s an d tra ck p rogre s s. Eve r y si te management t eam r eceives a monthly dashboard of health and safety-related per formanc e indicators, c overing both lagging and leading metrics.

Safety leadership

Al l sit e ma nag em ent t ea ms mus t d evel op and i mpl em en t sit e sa fet y improve me nt pl ans , incor po rat ing th e iden tica ti on and re du c ti on of t he s ite ’s m ain r isk s , comp li ance w it h t he G roup s afe t y st and ards , dep loy men t of s hop o or safety leadership practices and r esolution of is sue s hi ghl igh ted d uri ng G roup s af et y aud it s . Imp rovem ent p la ns are n ow in pl ace fo r all p rod uc t ion s it es , wi th implementatio n being the direct responsibilit y of local managers . Any si te e xp er ie nci ng a s evere i nci de nt, an L TI, a m ed ical ly t rea te d inj ur y , or a se rio us da ng erou s occu rre nce i s requ ire d to inve s ti ga te th e in cid ent. Vesuv ius’ inve st ig at io n pro ced ures a re ba se d on t he 8D pr actical pr oblem-solving tool, which aim s to id ent if y the t rue ro ot ca use s of inc id ent s to p reve nt a rep ea t. Resu lt s are formally presented to management , with de tail s of t he 8 D-b as ed ro ot cau se s. T he si te then inco rp ora te s the ndi ngs int o th eir s ite saf et y improve men t pl ans a nd shares t heir i ncident inv estigation so that imp rovem ent a c t ion s can b e cas cad ed throughout the or ganisat ion. Our e mp loye es ar e hig hly s upp or tive of th e Gro up’s ef for ts to im prove w ork pl ace safet y and ac knowledge how seriously we take t his i ssu e. In t he 2021 I-En gag e emp loye e en ga ge men t sur v ey , 83% agreed that the C ompany will address sa fet y concer ns i f th ey are rai se d.

Health and Saf ety governance

The Board	Overall responsibilit y for health and sa fe t y re la te d ma t t er s, a pp rove s t a rg e t s
Chief Executiv e	T akes responsibilit y and is accountable for the safet y performance o f the Company , sets targets
Business Unit Presidents	Are responsible for resources, training, action plans and per formance
Vi ce Pr es id e nt He a lth a n d Saf et y	De n es s tan da rds , orga ni se s Grou p safet y audits and benchmark s and guides s trategy

Health and Safety Policy and St andards

Al l emp loye es a re req uire d to ad her e to th e Gro up’s Heal t h and S afe t y Pol ic y an d Al coh ol an d Dr ug Pol ic y. Copie s of th e po lic ies a re tra nsl at ed i nto l oca l lan gua ge s and d isp la yed p romi ne nt ly in a ll lo ca ti ons . Th e Hea lt h and Saf ety P o li c y is sup po r te d wi th s ta nd ards , pro ced ure s and ISO cer t ica ti on s, whic h are rev ie wed and upd a ted on an ong oi ng bas is. The n din gs and lessons learned fr om inc ident inv estigations are incorpor a ted int o upd a tes t o preve nt any re cur ren ce and new o r imp rove d st and ards a re is sue d for i mpl em ent at io n acro ss t he G rou p.

Group Saf ety Standards

Ov er t he ye ar s, Vesuv ius h as d evel op ed a se t of 28 Saf ety Po lic ie s and Sta nda rds . Th es e are reg ul arl y revi ewe d an d upd a ted , bas e d on th e b es t pra c ti ces imp le me nte d in si te s and l ea rni ng s from inc id ent s in p ar ticul ar . T he G roup S afe t y Aud it ch ec kli s t is de si gne d to cove r th e es se nt ial p oi nt s of th e Gro up Sa fe t y Policies and S tandards. V e su viu s als o ma inta ins a w ork in g hou rs p ol ic y an d mo nth ly re po r t ing o f he adco un t and h our s wo rked. T hi s all ows us to i den ti f y if m ax imu m wor kin g ho ur s are b ein g exce ed ed w hic h can t hen b e inv estigated by management .

Health and Safety St andards

• Acci de nt & In cid ent Reporting (Rev e w e d 2021)
• 5S Colo ur Stan da rd (I s su e d 2021)
• Business C ontinuit y
• Contr ol of Contractors
• Customer Location (Re v i ew e d 2021)
• Crisis Management & Crisis Communic ation
• Dr ug an d Al coh ol
• Er gonomics
• Exe cu ti ve Sa fet y T our
• Ga s Sa fet y
• High-Risk Act ivit ies
• Inspec tion, Maintenance and T e s ti ng of F ixed Elect rical Installations
• Isola ted and Lone W orking
• Isostatic P resses
• Legionella (R ev i ew e d 2021)
• Lif ting and Handling
• Loc k, T ag a nd T r y
• Machine Safet y
• Over time Policy
• Permit to Wor k
• Personal Protec tive Equipment (R ev i e we d 2021)
• Proc es s Saf ety
• On Si te Vehic le operations
• Road Safety
• Risk Ass essment
• Safe S torage o f Bulk Ba gs an d Pall et s of 25 kg B ag s
• W arehousing R acking
• W orking Safely wi th F ibr es

Pillars of health and s afety

Risk asses sments

We rout ine ly ca rr y o ut r isk a ss es sm en ts t o id ent if y and rat e hazard s and i mpl em en t prot ec t ive m ea sure s to mi nim ise e xp os ure. These inclu de:

• Engineering sol utions to eliminate or minimise risks
• Pro ced ural m ea sure s, s uch a s trai nin g and auditing
• Work i ns tr uc t io ns, w ri t t en w it h th e invol vem en t of th e em ploy ee s who ca rr y ou t th e tas k s, w it h ill us tra ti on s and i n local languages
• Provi di ng personal pr otec tive equ ipment to em pl oyee s fre e of cha rge

T raining employ ees to w ork safely

Our p rop ri eta r y T urb oS tra ini ng p ull s together all of our saf e ty management practices. U sing a train- t he- trainer app roa ch, T urboS t rai nin g se ss ion s are ta ilo red t o th e aud ien ce an d th eir ac t iv it ie s. Fo r exam pl e, th ere i s a spe ci al tra inin g cou rs e dev elo pe d fo r emp loye es at cu st om er lo ca ti ons t ha t fo cus es on t he sp ecic ris k s faced by t he se ind iv idu als . We condu c t Permi t to Wor k tra ini ng in all G rou p faci li ti es , inc lud ing cu s tom er lo cat io ns , whi ch en sure s th at a ll no n- standard work conducted in our facilities, wh et her by o ur e mpl oyee s or co nt rac to rs , is the subject of a pre-commenc ement risk as se ss men t an d a for mal p er mis si on to commenc e the activi ty , with the safety req uire men t s se t ou t. W e h ave d eve lop e d ma chin er y s af et y t rai nin g wi th a n ou t sid e ind us tr y lead er , P ilz G mb H & Co, a compan y specialising in safe automation technology . Rec ognised best pr actices ar e ex t en de d thro ugh ou t th e G roup t hrou gh a series of machinery assessment s and tra inin g pro gra mme s, w it h ea ch si te id ent if ying and addr es sin g the top ve is sue s by sev eri t y a s a ma t t er of p rio ri t y. T u rb oS is a p ar t of t he G rou p’s Safet y Bre ak t hrou gh in it ia ti ve, wh ich wa s ins t ig ate d in 20 0 8 . It i ncl ud es a s tro ng focu s on t he s ta nda rdis at io n of al l of our repetitiv e activities. T urbo S also i ntegrates good management prac tices i n the workplace , with a strong empha sis on developing an organi sation that enables ever ybod y to wo rk to t he s am e hig h standards in safet y performance .

Health, safet y and w ell-being at w ork

A s pa r t of t he co nti nui ng T ur boS in it ia ti ve:

• Senior ex e cutives regularly lead safet y tou rs a t all l oca t ion s
• Se vere a ccid ent s a re for mal ly rev ie wed by th e Gro up E xecu ti ve Co mmi t t ee
• Emp loye es a re rou ti ne ly en ga ge d in safet y audit s
• Employ ees receiv e regular comm uni cat io n (toolb ox tal k s at t he be gin nin g of ea ch sh if t , ‘ t own h all ’ me et ing s, saf et y br ie ng s af te r L TIs)
• We inves t sig ni can tl y in s afe t y trai nin g for a ll em ploy ee s, ir res pe c ti ve of t hei r rol e and f un c ti on wi t hin o ur bu sin es s
• A ll em pl oyee s are e xp ec te d to rou ti nel y rai se an d imp le me nt s afe t y imp rovem ent o pp or tuni ti es; we f ocu s on t he nu mb er of im pl em ent ed i dea s
• Safet y s tandards are c ontinually update d, translated and deployed throughout the Gr oup
• A ll in jur ies a nd d ang ero us oc curre nce s are an al ys ed l ocal ly, wit h a form al pre se nta ti on of nd in gs, roo t caus es and im prov ement actions cascaded through management

Workin g i n tid y p la nt s – 5S

T he cont inu ing u se of 5S , th e wor kpl ace organisation method, thr oughout the Gro up has d ri ven signi cant improve me nt s in ou r wor kp la ce envi ron men t.Employe es are en cou rag ed to d evel op o wne r ship o f th eir wo rk in g area s an d take pr id e in th ei r cleanliness and or ganisation. The added sup po r t of ou r le an sp ec ial is t s ha s be en key to imp rovi ng p lan t sa fet y by removi ng hazard s for e mp loye es an d of fe ri ng a cle an, b ri ght a nd s afe wo rk ing environment. Regular 5 S audit s led by tea m le ad er s ens ure co nti nuo us impro vement of working conditions and pr omote a safer workplace.

Take 2

Our T a ke 2 ini tia t ive e nsur es t ha t emp loye es t hi nk ag ain b efo re p er fo rmi ng any unusual or non-standard activit y. Simp ly s ta te d, t he e mpl oyee s take t w o min ute s to di scu ss t he t ask, any ha zards and h ow to p reven t acci de nt s be fore a ny wor k is s tar ted. T his p roce ss a llo ws t he tea m to co nsi de r and re ec t on hazards and t he co nt rol s requ ire d be fore work c ommences.

Contractor management

Contractor management i s a part icularly imp or tant are a of at tent io n, as i t invo lve s employees of third-party companie s wor kin g on o ur p remi se s to pe r fo rm vari ous t ype s of pro je c t wor k. Vesuv ius h as de n ed st ric t rul es whi ch are ou tl ine d in the Con trol o f Contractors standar d. Th es e rul es i ncl ude a p re- scr een in g for safety per formance and risks before a cont rac t i s sig ne d, a com mi tm ent t o respecting the same safet y standards as V e su viu s emp loye es a nd a s afe t y in du c ti on for a ll con tra c tor e mpl oyee s on Vesu viu s si tes. Al l ac t iv it ie s sub je c t to a Per mit t o Work are a udi te d on a d ail y ba sis. Contractor safety management and per formanc e is monitored. Saf et y per formanc e targets for contractors are s et a t th e sam e lev el as f or Vesuv ius employ ees.

Investing in technology for safety

Saf et y c an be i mp roved t hrou gh t he evol ut io n of pro ced ure s and b et ter behaviours, but technology of fers new opp or tuni ti es t o cont inu e to m ake our workplaces safer. V esuvius i s there fo re inve st in g in a ran ge of t ech no lo gie s wi th t he g oa l to au tom at e s tre nuo us or dangerou s tasks a nd impr ove er gonomic s. We are als o ex pl ori ng a ran ge o f new technologie s including exosk el etons, weara ble sensors a nd autonomou s guided vehic l es. In 2021, we te s te d th e Bri ght mi le mo bi le phone driv er safe behaviour a pp. W e carried out pilot projects in four coun tr ie s reco gni se d for t he hi gh l evel of roa d traf  c fatal it ie s and with a large num be r of V esu vi us emp loye es (Br azil, India, Mexico and South Africa).

Monitoring work conditions and employee health

Vesuvius ha s dev eloped and implem ented a vari et y of progra mme s to e nsur e th at we prov id e our e mp loye es w it h wor k con dit io ns t ha t are n ot de tr im enta l to th eir h ea lt h. Th es e in clu de t he rou t ine mon it ori ng of n oi se, du s t leve ls, and volatile or ganic compounds emissions. Rou tin e he al th c he ck -u ps are a ls o req uire d for e mpl oyee s in p os it io ns th at coul d prese nt cer ta in spe ci c risk s ( e.g. fo rkl if t drive rs).

85

Governance

Financial Statements

Process Safety initiative

In 2020, V esu vi us la unc he d a new Pro ce ss Saf et y i ni ti at ive, s t ar t in g wi th an a nal y sis of th e hig h-r isk p roce ss es i n th e Com pany, th e el abo rat io n of a gl ob al pro ce ss s afe t y fram ewo rk and a  rs t tech nic al stan da rd co vering high-pr essure iso static pr esses. In 2021, we d evel op ed o ur s econ d pro ces s safety standard, cov ering dust and explosive powders. Th e dep loy me nt pl an s for t he se s tan da rds include traini ng, the development of a cen tral is ed d ata ba se an d th e imp le me nta ti on of a ro ut in e rep or t in g pro ces s.

Safety training

We regard t he understanding and app li cat io n of th e Gro up Sa fet y Standa rds by man ag em ent a nd al l emp loye es as e ss ent ia l to en sure t he ir pro pe r imp le me nta ti on on the shop o or and ongoing adher ence. W e theref ore expec t our m an age r s to carr y out co mpl ian ce self -assessments for their sites based on th e Gro up Sa fet y Audi t che ck lis t an d inve s t in t he t raini ng of e mp loye es o n th e HSE st and ard s. In 2021, w e de live red m ore th an 1 69 ,0 00 h our s of t rain ing o n sa fet y standards and safet y leadership (T urboS ), to ou r emp loye es i n Man ufa c tu rin g, R&D, and C us tomer L ocations representi ng on ave rag e, mor e th an 1 5 h our s p er p er so n. In ad di ti on to t he t rain in g on G roup S afe t y Stand ard s and T ur boS, bus ine s s uni t s and si tes d eve lop a nd of fer pro gramm es ad dres si ng the spe ci c pro ces se s and risks. Commu nication and tr aining on hand safety and ergonomic pract ices ha ve be en m ajo r are as of re cen t focu s.

8 Core Safety Rules

In 201 9, we la unch ed t he Vesu viu s 8 Core Saf et y Ru le s th at o ut li ne ou r coll ea gu es ’ basic safet y responsibilit ies. These were roll ed o ut a cros s t he o rgan isa t ion a s th e mandated pr ac tices for employee and manager c onduc t. In conju nc tion with this, th e Gro up ha s imp le me nte d pro ced ures to en sure t he r ule s are fo ll owe d. Th e rul es were incorporated in to the contractual ter ms of a ll em ploy ee s, an d all e mp loye es are e xp ec te d to re po r t br eac he s and vi ola t ion s of th e ru le s, w it h app rop ri ate sanctions im posed whene ver req uir ed. Fail ure to d o so is a d is cip lin ar y i ssu e.

1. I always wear mandated personal protective equipment
2. I only operate equipment or vehicles if trained and authorised
3. I do not remove, bypass or tamper with machine guarding and safety devices
4. I lock, tag and try before any intervention on a machine
5. I make sure all high-risk activities are covered by a daily Permit to Work
6. I always ensure my fall protection is secure before working at height
7. Before entering a confined space, I check I will be able to breathe and escape
8. I only perform electrical work if certified and authorised

Customer Location Standard

In li ne w it h our s af et y p ri orit y, we have sp ent d ec ade s imp rovi ng s ys te ms, pro ces se s an d tec hno lo gy a t ou r si tes t o prot ec t o ur p eop le a t wo rk. We also ap pl y th e sam e sa fe t y s tan dard s for o ur te ams working at customer locations. Our C us tomer L ocation S tandard ad dres s es the spe cic risk s face d by ou r emp loye es w hil s t op era ti ng in c us tom er lo cat io ns an d app li es to a pprox im ate ly 2,500 V esuvius employees worldwide. The standar d focuses on s tructuring cooperation between our c ustomers’ man ag em ent t eam s an d our ow n to ens ure he al th a nd s afe t y is su es a re joi nt ly id ent i ed and add res se d. For new c ontra c ts in c us tom er loc a tions, we us e a for mal r isk a ss es sm en t whi ch aim s to id en ti f y signi  cant ris ks to our emp loye es a nd co ntra c to rs. Thi s en abl es app rop ri ate co nt rol m eas ure s to be agre ed a nd i mpl em ent ed w it h th e sup po r t of our c us tom er s in a dva nce of wo rk commenci ng. These are then f ormally included in the contr actual conditions we imp os e wh en wo rk ing a t a cus to me r si te.

86

Health and safety auditing

Group safety audits

Th e Gro up op era te s a cent ral s afe t y aud it in g tea m of th ree a udi to rs, ea ch wi th m ore t han 10 yea rs ’ ex pe ri ence, who rep or t t o th e VP Sus ta in abi li t y, HSE & Qu ali t y. The te am’s m ain p ur po se is t o verify the deploymen t and ongoing app li cat io n of th e Gro up’s sta nd ards an d policies in ou r locations, including our man ufa c tu rin g si te s, R&D fa cil it ie s and t he cus to mer lo cat io ns in whi ch a s ign i cant num be r of our e mp loye es o pe rate d ai ly. Each au di t als o in clu de s an as se s sme nt of th e si te ’s HSE le ade r ship. Foll owi ng e ach a udi t, ac t ion p la ns are crea te d by th e si te m ana ge men t te ams to ad dres s any i ss ue s ident i e d and wor k on comple ting these is assessed on a r egular basis. The obser vations made du ring aud it s h ave b ee n use d to i mprove t he Gro up’s traini ng p rog ramm es a nd to enh an ce th e Gro up’s heal t h and s af et y st and ard s. T he re sul t s of th e Gro up HSE aud it s, as we ll as t he p rog res s of ac t io n pl ans a ddre s sin g th e mos t c ri tic al is sue s, are rep or ted to t he B oa rd t wi ce a yea r. Du rin g 2021, th e te am con duc t ed 22 audit s, visiting manufac turing locat ions, R&D cen tre s of exce ll en ce and cu s tom er lo cat io ns w it h 40 e mp loye es o r more, as pa r t of a pro gra mme o f sy s tem at ic a udi t s of all G rou p lo cat io ns wo rl dwi de. T rave l res t ric t io ns du e to t he COVID- 1 9 cri sis p reven te d th e tea m fro m comp le ti ng th e ful l 2021 audi t pl an of in sp ec t io n vis it s. Ins t ead , th e rem ote a ss es sm ent pro gram me de vel op ed i n 2020 was use d to rea ch si te s th at co ul d not b e phy sic all y audited. These assessments w ere carried out via videoconfer ences, during which the site management t eam pr e sented the pro gre ss m ad e in th e imp le me nta ti on of Gro up sa fe t y s tan da rds, a nd i mprove me nt pl ans fo r th e com ing m ont hs. In 2021, we car rie d ou t 1 38 re mo te as se ss me nt s. Sit es a re enco ura ge d to car r y ou t se lf-ass es sm ent s, ba se d on t he G rou p sa fet y audi t comp li ance c hec kl is t, to monitor their progress.# Safety audits and improvement opportunities

In our plants in 2021, more than 78% of our working population performed routine safety audits every month. This generated an average of more than seven implemented safety improvement opportunities per person from almost 10,000 employees, resulting in an improvement in worker safety. This audit programme involves employees at all levels – from the Group Executive Committee and safety specialists through to local site management, employees and directly supervised contractors.

Health and safety certifications

We have five manufacturing sites (representing 9% of our manufacturing sites), one warehouse and three Vesuvius operations in customer sites certified to ISO 45001:2018. Vesuvius sites chose to certify based on local regulatory and customer requirements. A list of certified sites is available to view on our website: www.vesuvius.com.

Unique Executive Safety Tours

	2021
Europe	36
NAFTA	15
China	12
Australia-New Zealand	7
North Asia	5
South America	5

Training activities routinely undertaken for our employees and contractors include:

• Arc Flash Hazard
• Bike Safety
• Control of Contractors
• Crane Operation
• Defensive Driving
• Electrical Testing
• Environmental Waste Reporting
• Ergonomics
• Executive Safety Tour Leader
• Exoskeleton
• Fire Fighting
• First Aid
• Forklift Truck
• Gas Safety
• General Health & Safety and refresher training
• Hand Hazard and Protection
• Hazard Perception
• Hazardous Goods
• Health and Safety Representatives
• ISO 45001:2018
• Legionella
• Lock, Tag and Try
• Incident and Performance reporting
• Machine Safety
• Permit to Work
• PPE Safety
• Practical Safety in Steel
• Customers
• Radiation
• Road Safety
• Safe Stacking
• Safety and Environmental Auditing
• Steel Mill Orientation
• TurboS Safety and Safety Leadership
• Warehouse Material Stacking and Handling
• Welding Certification
• Working at Height

Safety performance in 2021

Lost Time Injuries per million hours worked (LTIFR)

Lost Time Severity Rate (12 months rolling)

Safety performance 5-year table with main performance indicators

Performance indicators	All employees, contractors and visitors	2021	2020	2019	2018	2017
Work Related Death		0	0	0	1	0
Severe Injuries		3	4	0	2	1
Lost Time Injuries (LTI)		29	28	40	39	46
LTI Frequency Rate (LTIFR) per million hours		1.06	1.16	1.54	1.42	1.66
Recordable Injuries		123	116	126	125	147
RFR per million hours		4.51	5.20	5.53	4.54	5.31
Medically Treated Injuries (MTI)		201	164	198	202	214
MTIFR per million hours		7.38	6.77	7.60	7.34	7.73
Total Number of Injuries		627	419	520	492	563
Injury FR per million hours		23.01	17.31	19.96	17.87	20.33
LTI Lost Days		1,851	2,094	1,811	1,824	1,738
LTI Severity Frequency Rate (Lost Days) per million hours		68	86	70	66	63
Dangerous Occurrences (DO)		1180	779	736	649	409
DO FR		43.30	32.18	28.25	23.57	14.77
Safety Audits Number		108,895	95,290	113,428	121,117	120,266
Safety Audits per 20 Employees per month		14	14	16	16	15
Employees Participating in monthly Safety Audits		9,994	8,559	8,804	9,973	10,086
Employees Participating in monthly Safety Audits %		78%	73%	75%	80%	77%
Safety Improvement Opportunities with a Permanent Action (SIOPA)		95,322	81,075	92,038	92,778	91,725
Other Improvement Opportunities with a Permanent Action (IOPA)		27,235	29,236	30,611	36,436	34,663
IOPA Total		122,557	110,311	122,649	129,214	126,388
SIOPA per Employee		7	7	8	7	7
Other IOPA per Employee		2	2	3	3	3
IOPA Total per Employee		10	9	10	10	10
Hours Worked (thousands)		27,254	24,211	26,053	27,533	27,688

All frequency rates (FR) are per million hours worked. Excludes Universal acquisition. There were two minor injuries involving third-party truck drivers on Vesuvius’ operations in 2017, with none in 2018 to 2021. Average third-party contractors and visitors in 2021: 414.

Health, safety and well-being at work continued

Safety performance in 2021

With the aim of becoming ‘best in class’, the Group has re-energised its safety agenda to further enhance efforts to achieve its safety goals. With a Lost Time Injury Frequency Rate (LTIFR) of 1.06 per million hours worked in 2021, we recorded our lowest frequency rate ever. Excluding third-party contractors, the LTIFR was less than 1.0.

Fatalities and severe injuries

Sadly, in 2021, two of our colleagues were killed in road traffic accidents while commuting to work. Vesuvius is providing financial and social support to their families and has actively taken steps to reduce commuting related risks. Regrettably, two of our colleagues and a contractor also suffered severe injuries: deep hand lacerations requiring hospitalisation in Australia, an eye injury while changing a bit on a pneumatic tool in China, and a foot amputation after being run over by a customer engine in a customer location in Vietnam. Following full root cause analyses, robust preventative measures were implemented across Vesuvius with changes made to our HSE standards to reduce the risk of recurrence.

Lost time and medically treated injuries

Vesuvius operates a robust and comprehensive process for the timely reporting of incidents. In our internal standards, third-party contractors are included, and we use more stringent definitions for Lost Time Injuries (LTIs) and ‘severe accidents’ than the definitions used by many regulatory bodies. All sites are required to report on all Medically Treated Injuries (MTIs), broader than recordable, to maintain the focus on safety. As an illustration of the precautionary preventative approach taken by Vesuvius in accident investigation, all LTIs and MTIs required a full 8D report.

In 2021, 29 LTIs were reported which resulted in 1,851 lost days giving the LTI frequency rate for the year of 1.06 per million hours. This was a significant improvement versus the 1.16 recorded in 2020. 201 MTIs were reported in 2021 (versus 164 in 2020) out of a total of 627 injuries reported (versus 419 in 2020), resulting in an MTI frequency rate of 7.38, (versus 6.77 in 2020). Whilst both 2021 and 2020 were unusual years because of the COVID-19 pandemic and associated changes in working, we believe that the significant improvements in Lost Time Injury rates reflect a broader trend of underlying improvement for the Group and result from a strong management commitment to change.

Main types of work-related injury

In 2021, the main causes of work-related injuries were, in descending order of frequency: handling, lifting or carrying; being struck by moving objects; striking against something fixed or stationary; and slips, trips and falls. The main injuries suffered were contusions, lacerations, sprains and strains, fractures and abrasions to the eye. The main body parts affected were hands, wrists and fingers, backs, feet, knees and eyes. Based on this incident data, targeted campaigns are launched by the business units.

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Safety performance in 2021

Performance indicators	Employees and directly supervised contractors	2021	Third-party contractors and visitors	2021	All employees, contractors and visitors	2021
Work Related Death		0		0		0
Severe Injuries		3		0		3
Lost Time Injuries (LTI)		26		3		29
LTI Frequency Rate (LTIFR) per million hours		0.99		2.94		1.06
Recordable Injuries		117		6		123
Recordable FR per million hours		4.46		5.89		4.51
Medically Treated Injuries (MTI)		195		6		201
MTIFR per million hours		7.43		5.89		7.38
Total Number of Injuries		618		9		627
Injury FR per million hours		23.56		8.83		23.01
LTI Lost Days		1,851		0		1,851
LTI Severity FR (Lost Days) per million hours		71		0		68
Dangerous Occurrences (DO)		1,177		3		1,180
DO FR		44.86		2.94		43.30
Safety Audits Number		108,895		n/a		108,895
Safety Audits per 20 Employees per month		14		n/a		14
Employees Participating in monthly Safety Audits		9,994		n/a		9,994
Employees Participating in monthly Safety Audits %		78%		n/a		78%
Safety Improvement Opportunities with Permanent Action (SIOPA)		95,322		n/a		95,322
Other Improvement Opportunities with Permanent Action (IOPA)		27,235		n/a		27,235
IOPA Total		122,557		n/a		122,557
SIOPA per Employee		7		n/a		7
Other IOPA per Employee		2		n/a		2
IOPA Total per Employee		10		n/a		10
Hours Worked (thousands)		26,235		1,019		27,254

Dangerous Occurrences

Dangerous Occurrences include all non-lost time and non-medically treated injury incidents and incidents with and without actual damage whether work related or not). The renewed emphasis on the reporting of dangerous occurrences and injuries in 2021 so that root cause analysis could be undertaken, and preventative action plans implemented to prevent future occurrences. Consequently, there was an increase in the number of Dangerous Occurrences reported in 2021 to 1,180 (2020: 779). Out of the Dangerous Occurrences occurring in 2021, the more serious 27% that could have resulted in a severe accident also required a full 8D report, the remainder being dealt with via line PPS (Practical Problem Solving).

WRA Safety awards

The Pune plant and JSW Vijaynagar customer location, both located in India, received safety awards from the World Refractories Association and more than 50 Vesuvius locations (manufacturing sites and customer locations) received safety certificates.

ERPA Safety award

The Hengelo plant in the Netherlands received a safety award from the European Refractories Producers Association.

TATA 4-star ratings

Vesuvius teams in three TATA Steel locations in Thailand achieved a 4-star rating recognising their excellence in contractor safety.

Ternium Safe Supplier

Vesuvius was recognised as a ‘Safe Supplier’ by Ternium in Mexico and received a Safety Award in Brazil.

Usiminas Safety innovation award

We received the highest safety award granted by Usiminas in the innovation category for reducing the exposure of people to hot metal.

Shougang Jingtang Iron & Steel Outstanding Supplier

Shougang Jingtang Iron & Steel recognised Vesuvius as an outstanding supplier.

Vesuvius Safety Awards

Vesuvius has also created internal Safety Awards, to recognise its best performing locations. In 2021, we distributed Safety Awards to 11 regions, as recognition of their outstanding performance in the previous year. These regions each completed 2020 without recording a Lost Time Injury, recorded a participation of more than 80% of employees in monthly Safety Audits and implemented more than ten improvement opportunities per person per year.

Safety awards and recognition

In addition to our efforts to keep our employees and contractors safe, we take pride in sharing our safety management practices with our customers. We are very proud of the external recognition received by our teams for their safety leadership and achievements. Some of the awards received in 2021 included:

Awards

We create this culture by building broad organisational understanding of our strategy, goals and accountability, supported by our CORE Values and positive management behaviours. We seek to foster a working environment that is inclusive and diverse, where people can be themselves without fear of harassment, bullying or discrimination. True to our decentralised business model, each of our business units has their own strategic HR agenda supporting delivery of their business strategies. As a result of ongoing COVID-19 challenges in 2021, we continued to adapt our working practices to ensure the safety and well-being of all our employees. In addition, our recruitment and talent sourcing strategy was adjusted to accommodate working remotely. Currently 422 employees participate in the global Annual Incentive Plan (AIP). Eligibility for participation is based on job grade and is subject to approval by the Chief HR Officer. The AIP structure is based 80% on Company performance and 20% on performance against employees’ personal objectives. In addition, 209 of these employees participate in various forms of share-based incentives. Another 57% of our permanent employees worldwide, both salaried and hourly, participate in various local incentive schemes. The BU Presidents and Regional VPs are responsible for the target setting and the pay-out approval of these local plans. Non-compensation benefits including pension and retirement benefits are managed locally in accordance with local laws.

Employee engagement

Companies with highly engaged staff deliver better business outcomes. They have lower absenteeism, lower staff turnover, fewer safety incidents, better product quality, and higher productivity, sales and profitability. At Vesuvius, we regard engagement as critical to our ongoing success and we work hard to listen to our people and act when issues impacting engagement are identified. Engagement is a collective responsibility, particularly among our management community. We conduct an annual employee engagement survey to measure our employees’ attitudes to Vesuvius and their work. The survey generates reports of team responses to the survey. Managers then share the results openly with their teams and, working together, develop Action Plans to address issues. The survey has been conducted since 2019 in partnership with Mercer. The results are clustered in eight strategic categories and benchmarked externally against global and manufacturing industry results.

People and Culture Strategy

Permanent employee turnover per region

Region	2021 turnover (%)	2021 voluntary turnover (%)	2020 turnover (%)	2020 voluntary turnover (%)
Americas	20%	10%	18%	6%
Asia-Pacific	16%	14%	12%	10%
EMEA	12%	9%	14%	6%
Total	16%	11%	14%	7%

Distribution of Vesuvius employees by category

	2021 (%)	2020 (%)
Direct employees	96%	97%
Agency employees	4%	3%
Total	100%	100%

1. Employee numbers exclude employees joining Vesuvius as a result of the acquisition of the Universal Refractories business.
2. In addition to the headcount above, Vesuvius employed the services of 191 contractors and consultants in 2020 and 134 in 2021, to work on specific short-term projects.

In 2021, the implementation of our People and Culture Strategy which we launched in 2020 continued. This aims to build an outstanding business by ensuring we have the people, skills and capabilities critical to the delivery of our strategy. We aim to grow outstanding people: we ensure our people managers have what they need to lead their diverse, engaged and high-performing teams for business and personal growth. These goals are strongly underpinned by a values-driven, winning culture that embraces diversity of thinking and continuous innovation to achieve high levels of performance and growth.

Distribution of Vesuvius employees – full-time versus part-time

	2021 Full-time employees	2021 Full-time employees (%)	2021 Part-time employees	2021 Part-time employees (%)	2020 Full-time employees	2020 Full-time employees (%)	2020 Part-time employees	2020 Part-time employees (%)
Permanent salaried	4,086	99.0%	43	1.0%	3,905	98.7%	53	1.3%
Permanent hourly	5,878	99.9%	6	0.1%	5,647	99.9%	7	0.1%
Temporary salaried	90	98.9%	1	1.1%	64	97.0%	2	3.0%
Temporary hourly	966	99.4%	6	0.6%	674	99.7%	2	0.3%
Total	11,020	99.5%	56	0.5%	10,290	99.4%	64	0.6%

Note: Employee numbers exclude employees joining Vesuvius as a result of the acquisition of the Universal Refractories business.

Our business | Our performance | Sustainability | Governance | Financial Statements
91

Employee engagement action plans

We focus action plans not on the pure statistics, but on seeking to bring about meaningful change in line with our CORE Values of Courage, Ownership, Respect and Energy. For example, much of the action taken to date has resulted in improved communications between managers and their teams and on greater cross-functional understanding and collaboration, all of which are key to the principles of our CORE Values. In 2021, despite the ongoing challenges caused by the COVID-19 pandemic, and thanks to a tremendous effort by local management, supported by an effective communication campaign, we again achieved a very high participation level in our engagement survey with 92% of all employees completing it, the same level of participation as we achieved in 2020. Following improvements across all survey categories in 2020, the overall engagement score remained stable, with further improvement across six of the eight categories of questions and no change in the remaining two categories. For the third consecutive year, safety remained our top strength with employees confident in the Company’s approach to safety.# O th er hi ghl igh t s inc lud ed p os it ive at titudes towar ds immediate ma nagers and e mp loye es fe el ing t ha t t hey are treated wi th r espect. Whi le t he re was a n inc reas e in t he b el ief th at a c ti on p lan s fro m th e 2020 sur vey h ad a po si ti ve imp ac t, it co nt inu es to r ema in an are a for im prove me nt.

Liv in g The Value s Award s 2021

Our CORE Valu es are ce nt ral to t he cu lt ure we are b uil din g at Vesuv ius . By l ivi ng t he se valu es , we wi ll cre at e a tr ul y ent rep ren eur ial cul tu re th at fo cus es o n th e ne ed s of our cus to mer s . On e of th e way s we en cou rag e and r ecognise c olleagues who di splay ou r values is our annual r egional and global Li vin g Th e V a lu es Awa rds. Win ne rs of e ac h of th e cat eg or ies o f th es e Award s were n omi na te d for t he Gl ob al Awa rds, t he r esu lt s of w hic h were ann oun ced a t a sp ec ial o nli ne ce rem ony in De cem be r 2021 . Chie f Exe cu ti ve Pat ric k An dré pai d tr ibu te to all  na lis t s , notin g th at t hey e ach p rovi de a re ma rkabl e exam pl e of wh at ca n be a chi eved by be ing t ru e to t he CORE Value s.

Embr acing diversity of thinki ng and continuous i nnov ation to ac hieve h igh l eve ls of p er f orm an ce and g row t h

Winning culture

P e o p l e a n d s t r a t e g y

Global Living T he V alues A wards winner: Co urage

Audrey Pra dhita

Commerc ial Sa les Eng ineer , Adva nced Refractories, Pelabuha n Klang, Indonesia
Aud rey w or ks i n Ad van ce d Ref rac t or ie s sa le s in So u th Ea st A sia. H er h ard wo rk a nd com mi tm en t to n din g bet ter way s of working ha s enabled her to deliver huge in cre as es i n sa le s vol um es a nd e ar ne d he r th e re sp ec t of e ver yone sh e wo rk s w it h.

Global Living T he V alues A wards winner: R espec t

Jhuma C howdhury

As sistant HR Manager , Flow Contr ol, K olkata
A s pa r t of h er ro le , Jhu ma m an ag es t h e ad min is t rat io n of Vesu vi us I ndi a ’s tr ave l requir ements, both domestic and international. Jhuma treats everyone’s needs wi th t h e ut mo s t imp o r ta nce, a c t in g wi th universal dedicati on and seriousness. Jhu ma i s a cre di t to o ur Co mp any.

Global Living T he V alues A wards winner: Ownership

Darla Coulter

Master Data Ma nager , Centr al Operations, Champaign
In the hi ghl y dive r si e d V e su vi us environme nt , Darla demonstrated r eal ownership in successfully establ ishing the global Master D ata Management practice. She s ho wed u nb el ie vab le d ri ve to d el ive r something she considers essential f or V e suvius’ success .

Global Living T he V alues A wards winner: Ener gy

Balla Murugesh

As sistant Manager – Mechatronic s, Advanced Refractories, K olkata
Aft er sup po r t in g the r st eve r T u nd ish Spr ay Rob ot i ns ta ll at io n in t he r egi on , Ba ll a was as ked to s upp o r t a se co nd i ns ta lla t io n in Vi et na m. B al la li ve d in o ne ro om o f a cl os ed ho tel ne ar th e ste el pl ant for v e mont hs relying on the help and cooperation of th e lo cal Ves uv ius t ea m for f oo d an d tr ave l. The commissioning was succ essf ul and Balla n all y ret ur ne d home to Ind ia at th e end of September 202 1.

Outstanding bu siness

Outstanding p eople

Outstanding func tion

Cri ti cal sk ill s an d cap abi li tie s to w in

Capable managers lead ing div er se, engage d and high-perfor ming teams

T eam ing u p wi th t he b usi ne ss to s ol ve th eir b ig ge st p eo pl e is sue s

P eople and Cu ltur e S tra tegy contin ue d

92 V e suvius plc Annual Re port and Financ ial S tatements 2 021

Internal communic ations

In 2021 , we co nti nue d to d evel op o ur internal communications programme, to ens ure we h ave a s t rong m ix of c han nel s to rea ch ou r dive r se p opu la ti on. T he Ch ief Executive regularly ad dresses the whole Gro up vi a Com pany-w id e em ail a nd v ide o and strate gic messag es, and Company news and announcements are regularly sha red o n th e Gro up in tra net a nd s ta f f app. 2021 sa w an ac t ive u se of s cre en sa ver s to com mun ica te ma jo r new s, and w e cont inu ed t o ut ili se p os te rs a nd si te ‘ tow n ha ll ’ m ee ti ngs fo r on -si te communications. Whenever possib le, face- to- face communic ation is c onduc ted at d if fe ren t leve ls of t he o rga nis at io n provi ding the ne cessary oppor tunities for i nte rac t ive Q& A ses sio ns w it h business leaders. Du rin g 2021 , th e Gro up E xecu t ive Comm it tee he ld 14 intera c ti ve v ir t ual se ss ion s wi th t he S eni or Le ad er sh ip Gro up to sh are re gul ar bu sin es s up da te s and ans we r que s ti ons . We also h el d ou r annu al leadership con ferenc e, SP ARK . With CO V ID - 19 travel r es tr ic t io ns s ti ll in p la ce in so me co unt ri es , th e 2021 S P A RK wa s a hybr id ev ent, wi th c los e to 10 0 coll ea gu es at tending in per son and 6 0 c olleagues at tending onl ine.

Growth opportunities with training and career progres sion

Talent management

T he Gro up E xecu ti ve Com mi t te e ho ld s dire c t res po nsi bil it y for th e rol es an d deve lo pm ent o f our s eni or l ea de rs , jo int ly revi ewi ng ca pab ili t y n ee ds a nd d eci din g on suc cession and c ross -organisational move s for t he l ea de rs hip gro up. T his ill us tra te s th e st ron g com mi tm ent a t the highest le vel of ou r or ganisation towa rds grow in g th e Gro up usi ng i t s Comp any-wid e res ources . We empl oy ind iv idu al s wi th an entrepreneurial minds et and an international outlook. Whether they are recent grad uates or seasoned profe s sio nal s, e ver y bo dy w ho wa nt s to le ave t he ir ma rk in a d yn ami c rapi dl y developing business envir onment has a cha nce to s ucce ed. Sp e cia l at tent ion i s pa id to b uil din g st ron g, d ive rs e te ams that bring d ifferent back grounds and experiences to our daily work.

Leadership pipeline

Str engthening the leadership pipeli ne and f acilitating people developme nt th roug hou t t he org ani sa ti on re ma in key are as of fo cus fo r V e suviu s. We cont inue to wor k ha rd to en sure t ha t we ha ve t he rig ht cap ab ili t y i n ever y par t of t he org anis a ti on to dr ive o ur s t rate gy a nd rea lis e mar ket op po r t uni t ies . A s a re sul t, we ha ve bui lt h igh -cal ib re le ade r shi p tea ms , many of w ho m are re la ti vel y new to th ei r role s an d to Vesuv ius . We empow er our p eo pl e to dr ive t he b usi ne ss w it h an ent rep ren eur ia l spi ri t, and to de vel op a per formanc e-oriented culture . In 2021 , Vesuv ius e xp and ed i t s me nto rin g pro gram me fo cus ed o n le ade r ship a nd talent de velopment. There a re c urrently 50 me nte es t ak ing p ar t i n th e 1 2 - mon th pro gram me. M ent ee s le arn f rom t he ex pe rie nce a nd p er sp ec t ive s of a mo re se nio r pe rs on i n V e su viu s, cre a tin g an individual p er sonal dev elopment plan to en han ce th ei r caree r s and l ea de rs hip cap abi li tie s. T he p rog ramm e ens ure s int ern al k now le dg e tran sf er an d bui ld s a bro ad er , d ee pe r and m ore re ad y talent po ol. We aim to ad op t an id ea l bal an ce bet ween ex ter nal hires and internal pro mot io n, fu el le d by a st ron g pro ces s of ba ckup a nd su cces si on p lan nin g, especially for ma nagement positions. In 2 02 1 , for middle ma nagement and T o p Ma nag em en t rol es , 72% of op en po si tio ns were ll ed by e x te rn al cand id ate s , re ec t in g a pe ri od of transformation and capability building fro m ex t ern al hi res . In 2021 , t he percent age of Senior Management ( comp ri sin g th e key lea de rs hip ro le s rep or t in g dir ec t ly to m emb e rs of t he Gro up E xecu ti ve Co mmi t t ee) wi th mo re th an th ree ye ar s of s er v ice wa s 42%. In 2021 , Vesuv ius l aun che d a ne w global onboar ding framew ork, in order to prov id e ma xim um sup po r t to n ew joi ne rs in thei r rs t thre e mon th s wit h th e Comp any. The ne w ma ter ial i ncl ud es a compr ehensive presentation about our bus ine s s, ou r his to r y , CORE V a lue s an d mai n pro ces se s an d pro ced ures , to ge th er with technical training on V esu vius’ pro duc t s fo r all ro le s. I t is d esi gn ed to b e ad apte d to e ach e mpl oye e, dep e ndi ng on th e res po nsib il it ie s of th e rol e and l eve l in the orga nisation. It suppor ts the employ ee in fou r ma in s tep s of t he on bo ardi ng ph ase: be fore arr ival , r s t day , r s t mon th and r s t th ree mont hs .

V esuvius onboarding frame work

• Be fore a rri val
  • Do cum en t s sh are d to b e sig ne d on  r st day
• First d ay
  • Equipment and sys tems accesses
  • Prepar e the onboarding agenda
  • Line manager welcome email
  • Announcement pr eparation
  • W elcome package
  • Mandatory training s
  • Announcement
• First month
  • Understanding the organisation V esuvius F oundations
  • Knowing the business an d our i nd us tr y
  • Kn ow ing t h e tea m and sh areholders
  • Knowledge tr ansfer
  • Complete career in formation r egistered on ‘m yV esuvius’
  • Objectives setting
  • Meeting/ Q& A session wit h senior leaders
  • People leader training
  • Probation pe riod feedbac k
• Fir st t hre e mo nth s

93 Our b usi ne ss Our p er forma nce Sustainabilit y Governanc e Financ ial Statemen t s

Mandatory online tr aining courses

Number of employees trained	% of ta rg eted audience completing course	T otal training hours
Anti-Brib er y and Corruption: 4,38 8	10 0 %	2 ,19 4
Gif t s, Hospitalit y and Enter tainment: 929	98%	465
Modern Slavery: 61	10 0 %	20
Anti- T ax Evasion: 74	9 10 0 %	375
Da ta Pro tec t io n: 4,466	99%	2 , 2 33
C yber Security: 5 ,1 0 9	74 %	1 5 ,9 6 2
1. Cybe r se cu ri t y a wa ren es s t rai ni ng c ons is t s of  ve m o dul e s. 74% of emp l oye es h av e al rea dy suc ces s fu ll y co mp le te d al l v e mo du le s.
## T raining and developm ent
Our leader s tak e responsibili t y for managing and dev eloping their team s.# People and Culture Strategy Continued

Workforce by Gender

	Women	Men	Women	Men
Board	3	5	38%	62%
Group Executive Committee	2	6	25%	75%
Senior Management	210	39	20%	80%
Middle Managers	63	427	13%	87%
All other employees	1,540	8,989	15%	85%
All employees	1,615	9,461	15%	85%

1. Employee numbers exclude employees joining Vesuvius as a result of the acquisition of the Universal Refractories business.
2. Senior Management comprises key leadership roles reporting directly to members of the Group Executive Committee.

	Women	Men	Women	Men
Americas	517	2,721	16%	84%
Asia-Pacific	324	3,161	9%	91%
EMEA	774	3,579	18%	82%
Total	1,615	9,461	15%	85%

Diversity and Inclusion

Vesuvius operates in 40 countries around the world, employing people with 69 nationalities, making us a truly diverse business. We regard this diversity as a critical aspect of our success and future growth as it allows us to access the widest range of skills and experience. At the end of 2021, the Senior Leadership team (comprising c. 160 senior managers) consisted of 21 nationalities located in 22 countries.

15% of our overall workforce were women, which was an increase of 1% versus 2020. Over the past three years we have made visible progress in gender diversity. Females now represent 21% in our top management (members of the GEC and their Senior Management direct reports), a level that we consider is still too low, but which represents a significant improvement as compared with the level of 12.5% in 2019. Our ambition remains to reach 30% women in this tier by the end of 2025.

Copies of the Board Diversity Policy and Group Policy on Diversity and Equality are available to view on the Vesuvius website: www.vesuvius.com.

Employee Consultation and Industrial Relations

In all of the countries in which we operate, the Group informs and consults local work councils and trade unions in matters concerning the Vesuvius business as required. These processes and procedures are regulated by local law and generate constructive dialogue between employee representatives and management, which provides benefit to our business. In 2021, 72% of permanent employees were represented by local work councils, trade unions or other bodies.

In addition to local employee representation, the Group has operated a European Works Council (EWC) containing representatives from each of the EU countries in which Vesuvius has employees. The existing EWC Agreement terminated in 2020, following notice given by management and the departure of the UK from the European Union. The Group is in the process of negotiating the agreement for the formation of a new EWC with a Special Negotiating Body made up of representatives from the 13 European countries in which we operate. The new EWC Agreement will be registered in and operated under Polish law, as the representative country of Vesuvius plc, following the departure of the United Kingdom from the European Union. When a new EWC Agreement is signed, and the Council constituted, European management will expect to meet the EWC formally at least once a year. At this meeting, management will provide an update on the performance of the business, with a focus on the developments likely to impact European employees.

Global Reward

Reward and recognition are integral components of our employee value proposition, enabling us to attract, engage and retain key talent and highly qualified employees. They are provided with access to a central resource, offering expertise in Global Rewards and Mobility, Talent and Performance Management, Culture and Learning, and supported by Group-wide processes and information systems. We encourage and reward high performance, foster talent and aim to create an environment where all can realise their individual potential. To meet the demands of the business and add rigour to our employee value proposition, we have launched training programmes to assist our employees to develop their skills and progress their careers.

In 2021, the main training focus areas included health and safety, compliance, technical skills, and commercial excellence. Some of the key initiatives are highlighted below.

In Q4 2021, we implemented a new Learning Management System (LMS) on ‘myVesuvius’, our online people management platform, in order to provide a global hub for Vesuvius online training courses. Mandatory training courses are automatically assigned to new joiners and completion statistics are easily reportable. Targeted training courses can also be allocated to employees in specific roles, e.g. Modern Slavery training for specific people in purchasing. Compliance, Data Protection and Cyber Security training are all accessible via the LMS.

During the course of our activities, we may collect, store and process personal data about our staff, customers, suppliers and other third parties and our Data Protection Policy recognises our commitment to treating this data in an appropriate and compliant manner. Specific data protection training through e-learning is a mandatory training course for all employees with email access. At the end of 2021, the completion rate was 99%. It is regularly audited for non-completion.

In 2021, further training was undertaken relating to the Brazilian General Data Protection Law and the Data Security Law in China which came into force on 1 September 2021.

Vesuvius continues to develop information technology and the use of apps, internet and other sites, in particular relating to marketing. Specific e-marketing training was prepared and delivered to business unit marketing teams in 2021.

Technical Training

‘HeaTt’ training is aimed at the continuous technical development of Vesuvius employees. Courses range from entry to expert levels and are continuously updated to keep pace with developing technology and delivery methods, thereby guaranteeing that Vesuvius experts are at the forefront of technical innovation. They are a great way for our hugely experienced technical experts to pass on their knowledge to the next generation and ensure the sustainability of our know-how. The first introductory module is mandatory for all new employees and is available on the LMS, allowing participants to access learning at any time, anywhere. Expert level of ‘HeaTt’ training is still held face-to-face, as the course content is not suitable for web-based training. In 2021, 695 employees completed the first module online and 45 employees completed face-to-face ‘HeaTt’ training sessions.

In addition, in 2021 Vesuvius launched a Commercial Excellence transformation programme, known as ‘ComPro’, for account managers in our steel business units, addressing specific skills gaps. 222 employees have completed the nine-month programme, which is a mix of theory, e-learning, workshops, coaching and on-job application to ensure new habits are embedded and commercial capability strengthened.

During the year, we continued to develop our training programme on the principles contained in the Vesuvius Code of Conduct and associated anti-bribery, corruption and other compliance policies and procedures. Training gives our employees a clearer understanding of the scope of risks that exist as we conduct our business and gives context to how the Group expects each employee to respond to those risks.

Compliance training provided during 2021 included:
* An annual mandatory e-learning module for Anti-Bribery and Corruption, available in 22 of our functional languages.
* Webinar and video conference training hosted by the Compliance team to staff at several sites covering Anti-Bribery and Corruption, Speak Up and trade sanctions.
* Updated face-to-face training for senior management on the overall compliance framework and process for policy and procedure implementation and monitoring.
* New Senior Manager compliance induction training – all new senior leaders received dedicated training from the Compliance Director. This induction contains training and guidance on all relevant Compliance policies and procedures.

The Board has set a target of at least 90% of targeted staff completing the Anti-Bribery and Corruption training annually. 100% of the targeted staff (4,388 employees) completed the 2021 Anti-Bribery and Corruption training.# Our reward systems are designed to create a market-competitive and fair pay environment for all our employees and to reinforce the vision, strategy and expectations set by the Board. We seek to create a culture that champions performance, building a strong link between individual performance and pay. Supported by our online people management platform, ‘myVesuvius’, performance reviews and subsequent reward decisions are based not only on how employees have performed against their individual objectives but also on assessments of behaviour and commitment to our CORE Values. Our global job grading framework, based on a structured assessment methodology, enables us to compare roles and ensure internal consistency throughout the organisation. We are committed to creating reward and performance management systems which are transparent and objective, where employees receive equal pay for work of equal value, regardless of their age, race, disability, sexual orientation, gender, marital, civil partnership or parental status, religion or beliefs. Our management Annual Incentive Plans are measured against both Vesuvius’ financial targets and personal performance, an incentive structure consistent with that of our Executive Directors. The Vesuvius Share Plan for Executive Directors and Group Executive Committee members encourages decisions based on long-term goals rather than short-term gains and works to align the interests of participants and shareholders. In 2021, 93% of our salaried permanent employees undertook a performance review with their line management. This compared with 95% in 2020 and 92% in 2019.

95 Our business

Our performance

Sustainability

Governance

Financial Statements

Global mobility

Vesuvius operates worldwide. We believe that our companies should be managed and staffed by local personnel. However, we also provide selected groups of employees with a range of international assignments. These assignments are usually for a limited period, most often three years. Vesuvius expatriates do not come from one or two countries alone. We have a truly international mix of nationalities in our expatriate population. Individuals move not only within a region, but also between regions, with existing assignments including China to USA, France to Japan, UK to USA, Japan to Thailand, Germany to UK and Belgium to UK. Our mobility programme shows that our expatriate population is as diverse as our Group. Vesuvius operates several international assignment policies to provide for the different circumstances of these assignments – whether they be short-term, longer-term or require extended commuting. These policies are supplemented with clearly identified benefits, delivering support appropriate to the nature of the assignment. By accessing this broad range of policies, we can manage our international assignments with greater flexibility, thus catering for changing expectations and demands from employees, whilst at the same time meeting the needs of the business.

Key rationale behind international assignments

Vesuvius considers individuals for international assignment for three primary reasons:

• Providing Vesuvius companies with skills that are not locally available and that are required at short notice. This typically occurs in countries where we are establishing or developing our presence. The number of expatriates working on this basis diminishes over time as the organisation matures and we recruit and train local talent to take over.
• Career development. We believe that the personal development plan of any employee being developed for a senior management or senior expert position should include a posting outside their home country. This encourages them to develop the skills necessary to function successfully in an international environment. These postings are tailored to the needs of the organisation and the needs of the individual.
• Enhancing diversity. Management teams benefit from having a mix of gender and cultures. In specific cases, we use international assignments to achieve this goal.

People and Culture Strategy continued

96 Vesuvius plc Annual Report and Financial Statements 2021

Vesuvius is committed to making a positive contribution to society. As part of this, we focus on operating an ethical business with appropriate policies in place to ensure compliance with the regulations and laws in all our markets. We are particularly conscious of the need to support the communities in which we operate.

Governance and policies

The Board is responsible for setting the culture and values of the organisation. The Group Executive Committee is responsible for implementing the culture and values, including ethics-related matters. Vesuvius’ operating policies underpin the principles set out in our Code of Conduct. They are the practical representation of our status as a good corporate citizen and they assist employees to understand and comply with our ethical standards and the legal requirements of the jurisdictions in which we conduct our business. They also give practical guidance on how this can be achieved.

Human rights

The Group Human Rights Policy reflects the principles contained within the UN Universal Declaration of Human Rights, the International Labour Organization’s Fundamental Conventions on Labour Standards and the UN Global Compact, to which the Group is a signatory. The Policy applies to all Group employees. It sets out the principles for our actions and behaviour in conducting our business and provides guidance to those working for us on how we approach human rights issues. The Group commits not to discriminate in any of our employment practices and to offer equal opportunities to all. The Group respects the principles of freedom of association and the effective recognition of the right to collective bargaining, and opposes the use of, and will not use, forced, compulsory or child labour. These principles have been integrated into the work of our procurement teams as we assess our suppliers and their business practices.

Prevention of slavery and human trafficking

During 2021, we published our sixth transparency statement outlining the Group’s approach to the prevention of slavery and human trafficking in our business and supply chain. A copy of our latest statement is available to view on our website: www.vesuvius.com. Since the publication of our first statement we have conducted a risk assessment of our purchasing activities, seeking to identify, by location and industry, where the potential risks of modern slavery are highest. Our assessment identified the following four industries that pose a higher risk of modern slavery for Vesuvius:

1. Mining and extractive industries (raw materials)
2. Textiles (personal protective equipment (PPE) and work clothing)
3. Transport and packaging
4. Maintenance, cleaning, agricultural work and food preparation (contracted workers)

Following our modern slavery risk assessment, we provided webinar training to our key purchasing staff and we continue to use an online e-learning module to upgrade the training given to all supplier-facing staff. This provides key guidance on the red flags associated with modern slavery to assist them in identifying these during supplier visits and accreditation. Since the launch of the Modern Slavery red flag training we have trained 100% of the targeted staff.

Our communities

We seek to establish strong relationships with all our key stakeholders, founded on mutual benefit and respect.

Our principles – a responsible company

97 Our business

Our performance

Sustainability

Governance

Financial Statements

Conflict minerals

We actively and routinely review our purchasing portfolio to check for conflict minerals. In 2021 we did not purchase any conflict minerals.

Mica and child labour

Vesuvius is committed to working only with suppliers that respect the UN Global Compact’s 10 principles, and in particular do not employ child labour. As the mica industry has been widely recognised as a risk in this respect, we have engaged in a process of verifying our supplier base. In 2021, we contacted all our suppliers of mica, asking for written confirmation that they are not using child labour. Upon analysis of their replies, we asked suppliers to undergo sustainability assessments, including a strong focus on human rights. By year end, suppliers representing 96.6% of our mica spend had already confirmed not employing any child labour and had completed or were in the process of undergoing a Sustainability Assessment.We have since existed our relationships with those suppliers not willing to undergo a Sustainability Assessment. Working with trade associations, lobbying and political expenses Vesuvius and its employees on behalf of Vesuvius, do not make contributions to political candidates or political parties. Similarly, Vesuvius does not make any direct lobbying expenditure or spend any corporate funds on political advocacy. Around the world, we participate in government and industry working groups, are members of industry associations, and engage in direct contact with independent bodies on key business issues. This ensures that we can help in shaping new policies, regulations and standards, and ensure compliance with existing requirements. Vesuvius has established long-term relationships, either directly, or through some of its employees with several national and international trade associations directly related to our activities and to those of our customers. These trade associations advocate on major public policy issues of importance to Vesuvius, and are helpful for networking, building industry skills, civic participation and monitoring of industry policies and trends. They also provide information and perspectives on legislative matters of significance to the Group and our lines of business. Vesuvius’ participation as a member of these associations comes with the understanding that we may not always agree with all the positions of an association or its other members. Vesuvius is a member of the World Refractory Association, CerameUnie, the European Refractory Association, the Association for Iron & Steel Technology, the Confederation of Indian Industries, and the British Ceramics Association. These trade associations have all made climate change a clear focus area, with a variety of resulting actions such as engaging with regulators and policymakers, awareness and capability building within the industry, promotion of best available practices and technologies, and management of collaborative research projects. Business ethics/ anti-bribery and corruption and working with third parties Vesuvius’ Code of Conduct affirms our commitment to competing vigorously, but honestly, and not seeking competitive advantage through unlawful means. We conduct ourselves ethically in all public affairs activities, in alignment with local laws and regulations. We do not engage in unfair competition, exchange commercially sensitive information with competitors, or acquire information regarding a competitor by inappropriate means. When received for business purposes, we safeguard third-party confidential information and use it only for the purpose for which it was provided. We engage with various third-party representatives and intermediaries in our business. We recognise that they can present an increased anti-bribery and corruption risk. Our procedure on working with third parties clearly outlines our zero-tolerance approach to bribery and provides practical guidance for our employees in identifying concerns and how to report them. Vesuvius engages with third-party sales agents, many of whom operate in countries where we do not have a physical presence. Our employees’ use of, and interaction with, sales agents is supported by an ongoing training programme for those who have specific responsibility for these relationships. As part of communication around anti-bribery and ethics, employees are actively encouraged to consult on ethical issues. They have open access to the Compliance Director and Legal function who provides support on a regular basis. Working with third parties During 2021, the Group continued the due diligence review of our third-party representatives and intermediaries. Following the previous years’ enhanced review of sales agents, customs clearance agents, distributors and logistics providers, we conducted repeat due diligence on specific third parties operating in higher risk jurisdictions or providing specific services. This included a detailed review of our due diligence activities on active distributors across the Group. This process covers public information searches, regulatory searches and activity reviews. During the year, we also continued our ongoing monitoring of the sales agents used across the Group. This included a review of the agent reporting, invoice data and commission calculation. Our due diligence processes will continue to be extended using a risk-based approach during 2022 and beyond. Supporting our communities continued 4,388 employees received Anti-Bribery and Corruption training in 2021 98 Vesuvius plc Annual Report and Financial Statements 2021 Vesuvius wants to make a positive contribution to the communities in which we work by supporting a wide variety of fundraising and community-based programmes around the world. Below are some examples of the many community programmes and activities our colleagues were involved in throughout 2021. Community engagement Contributing to Mülheim disaster relief after devastating floods caused millions of Euros’ damage to homes and businesses. Germany Raising funds for people with disabilities by entering a team in the Poland Business Run, the country’s largest charity business run. Poland Helping local food banks with financial support and clothing donations. USA Distributing ‘back to school’ kits containing uniforms, shoes, school bags and stationery to disadvantaged children. Running internal campaigns to raise funds for a range of programmes including breast cancer awareness, clothing collections and elderly people who are without care. Brazil Supporting Pune University with a seminar on leadership for more than 300 students. India Supporting the Rotary Club to provide Ramadan food packages to 150 impoverished families. Turkey Opening up Vesuvius to colleagues of the future Giving young and talented students opportunities to see, experience and become interested in manufacturing and engineering is important for the future of our business. At the Wurtland plant in Kentucky, USA, we welcome around 100 students from Marshall University and Ashland Community and Technical College every year. The visits last around two hours on-site, and the students have an opportunity to speak to staff from across the plant to learn more about the type of career path available to them. This builds on a long-established partnership with Ashland Community and Technical College, which allows us to offer internships and hands-on experience working in manufacturing. Students at Ashland are studying Advanced Integration Technology, a two-year manufacturing-based programme and undergraduates at Marshall University are on a Supply Chain Logistics programme. Our Wurtland team also attends job and career fairs at the university and the college, helping make our team and the manufacturing industry more widely accessible to students. By taking this open and accessible approach to welcoming students, the Wurtland plant has benefited from some amazing success stories. In 2021, nine students were hired from the programmes and are now working in production and maintenance roles. Another benefit of hiring local university graduates is that talented young professionals can stay local to the area and build successful careers. This brings us closer to the wider community and helps the area to prosper. 99 Our business Our performance Sustainability Governance Financial Statements Supplier sustainability assessment criteria Environment Energy Consumption & GHGs Water Biodiversity Local & Accidental Pollution Materials, Chemicals & Waste Product Use Product End-of-Life Customer Health & Safety Environmental Services & Advocacy Labour & Human Rights Employee Health & Safety Working Conditions Social Dialogue Career Management & Training Child Labour, Forced Labour & Human Trafficking Diversity, Discrimination & Harassment External Stakeholder Human Rights Ethics Corruption Anticompétitive Practices Responsible Information Management Sustainable Procurement Supplier Environmental Practices Supplier Social Practices Vesuvius recognizes the crucial role that its Suppliers play in creating value in the products and services that Vesuvius ultimately provides to its customers. In addition to the consistent and timely supply of materials, products, and services which are of the highest quality, we expect our suppliers to operate in a manner that is appropriate, in terms of their ethical, legal, environmental, and social responsibilities.# Principles

The satisfaction of our customers, the safety and reliability of Vesuvius’ products, and the efficiency of Vesuvius’ internal processes are dependent on the reliability of its network of suppliers. Vesuvius is committed to ensuring that we utilise high-quality raw materials, secured through reliable and well-developed raw material suppliers. The principles of sustainable procurement are prescribed within the Vesuvius Sustainable Procurement Policy and supported by supplementary processes.

Long-term goals

Overall, our objective is to encourage suppliers to implement a meaningful sustainability programme, embrace the UN Global Compact principles, evaluate and reduce our upstream CO2 emissions and identify potential risks (and if necessary, address them) in our supply chain.

Sustainable Procurement Policy

During 2021, a specific Sustainability Procurement Policy which outlines key criteria for suppliers was approved and deployed. The policy uses the Group Procurement’s ‘Request for Quotation’ (RFQ) process to engage a significant number of Vesuvius suppliers, and is provided in conjunction with the Vesuvius Terms and Conditions of Purchase. For suppliers to participate in the RFQ, they are obliged to accept and agree to the terms of the Sustainability Procurement Policy, as it forms an addendum to Vesuvius’ standard contract clauses. This policy is available on the Vesuvius website. 164 suppliers representing a spend of £71.5m have already formally agreed to comply with the policy. The policy applies to all suppliers of goods and/or services either used in our manufacturing processes and/or sold directly by us to customers, including Tolling and Resale suppliers. It applies to suppliers, their agents and their sub-contractors. Once accepted, it is the responsibility of the supplier to verify and monitor compliance against this policy – both for their operations and those of any sub-contractors. Compliance with the requirements in the policy is a key consideration in the selection of suppliers.

The major elements of the policy are:
* Employees and human rights
* Ethical and compliant business practices
* Environment
* Quality
* Business continuity
* Documentation and Verification encompassing Supplier due diligence and Supplier assessments

Supplier sustainability assessments

As part of our sustainability agenda, Vesuvius has implemented a Supplier Sustainability Assessment programme, setting targets for the proportion of the total raw material spend value covered by the assessment. Vesuvius has partnered with an independent third-party service provider – EcoVadis – to rate our raw material suppliers using a detailed set of criteria. These cover four themes and 21 criteria based on international standards: Labour & Human Rights; Ethics; Environment; and Sustainable Procurement. Group procurement and regional procurement teams are heavily involved in the programme. 84 employees from these teams have already received specific training on supplier sustainability assessments (72% of the target group).

21 criteria based on international standards
Responsible sourcing

100 Vesuvius plc Annual Report and Financial Statements 2021

We aim to assess at least 50% of our raw material spend by the end of 2023 – a target approved by the Board – using criteria such as supplier size and risk metrics (including country, category of raw material, availability of alternative sources, delivery and quality performance) to identify participants. Since its launch in January 2021, 131 suppliers have joined the programme, representing a spend value of £188 million, being approx. 52% of the Group’s raw material spend. We have initiated a process of corrective and preventative actions to support our suppliers’ Corporate Social Responsibility (CSR) capacity building and assessments scores. Of the rated suppliers, 16% did not meet the minimum score defined by Vesuvius, and were asked to implement improvement actions within a three-year timeline. Routine reviews and an annual reassessment will enable progress to be measured. The average overall score of Vesuvius suppliers was 46.8 against an industry benchmark of 43.8 across the critical themes.

Supplier sustainability programme monitoring

The Vesuvius supplier sustainability programme is coordinated and monitored via an independent third-party platform which consolidates information, manages and tracks actions, and provides feedback to our suppliers. We work closely with the independent third-party service provider through scheduled engagements fortnightly and monthly. The Group Executive Committee reviews updates on Procurement Sustainability at its regular meetings.

Supplier CO2 emissions

It was estimated that the CO2 emissions from purchased goods and services represented 1,160 thousand metric tonnes of CO2 in 2021 (78.2% of Vesuvius Scope 3 emissions and 61.8% of Vesuvius’ total CO2 emissions, see page 71). A more precise knowledge of these emissions, including data per raw material and supplier, will be required to properly establish and drive improvement plans. As noted above, we are using our RFQ process to gain a better understanding of these upstream CO2 emissions and collect supporting data. This requires participating raw material suppliers to provide information on their energy sources, CO2 emissions and improvement plans. Of the 138 suppliers (representing a total spend of £71.5m) who responded to the request for information on their energy sources and CO2 emissions, 50 (representing a total spend of £48m) reported that they had set emissions reduction targets and established action plans.

Supplier quality development

Vesuvius is very proud of the close relationships we have with our suppliers around the world. We work with them to ensure that the highest-quality materials and products enter our supply chain. The process entails an extremely comprehensive review including research and development to ascertain compatibility of supplier products.

Supplier audits

Vesuvius also conducts an annual Supplier Audit programme targeting product quality and security of supply. The programme is led by the Group’s Purchasing and Quality teams, located across all regions. The goal of the audits is to reduce the number of quality issues that may affect our raw materials, and consequently our operations and those of our customers. As part of this, we carry out on-site inspections, share expectations with our suppliers, identify risks, and adapt our internal controls accordingly. We encourage our suppliers to improve their own processes and help them prioritise actions to achieve this.

Areas of focus include:
a) Quality management rules: final inspection, controls at important process steps, management of incoming materials, data tracking, customer feedback and communication.
b) Management of non-conformities: reaction to non-conformities, protection of customer, problem resolution and application of lessons learned.
c) Sustainability criteria: this has been newly introduced to align the supplier audits as a second platform to drive and visibly verify supplier sustainability efforts and programmes, complementing the assessments carried out by our third-party partner. The main areas of attention are environmental and social practices. A particular emphasis is being placed on child and forced labour. Any observation of such practice would be immediately escalated to the Group’s senior management, and the supplier barred from doing business with Vesuvius.

In 2021, despite the impact of COVID-19 travel restrictions, 138 (2020: 98) audits were conducted at 138 supplier facilities. Seven suppliers (5% of suppliers audited) received grades below threshold. Actions were taken either to support them or to terminate our relationship with them.

Supplier corrective actions requests

To ensure the integrity of our products, we have a rigorous approach to issues relating to the quality of raw materials and other inputs to our processes. When a supplier does not meet expectations, we issue a formal Supplier Corrective Action Request. Our proven 8D Methodology is then used to investigate the root cause of the issues and define corrective actions. A web-based portal is available for suppliers to document the containment actions implemented and outcome of the investigation, to enable review by us. In most cases, issues are identified and resolved quickly.# Vesuvius plc Annual Report and Financial Statements 2021

Governance

We think beyond today’s production outcomes and shape the future with sustainable solutions.

Approved by the Board on 3 March 2022 and signed on its behalf by

Patrick André
Chief Executive

Guy Young
Chief Financial Officer

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Our business

Our performance

Sustainability

Governance

Financial Statements

10
4
Board of Directors
106
Group Executive Committee
107
Corporate Governance Statement
107
Chairman’s governance letter
108
Board Report
117
Audit Committee
125
Nomination Committee
130
Directors’ Remuneration Report
130
Remuneration overview
134
2020 Remuneration Policy
142
Annual Report on Directors’ Remuneration
154
Directors’ Report
160
Statement of Directors’ Responsibilities
161
Independent Auditors’ Report

102

John McDonough CBE

Chairman

Appointed to the Board 31 October 2012

Nine years on the Board

• Proven strategic and leadership skills gained in a complex multinational business
• Strong engineering background and global commercial experience
• Clear leadership understanding of safety issues
• Operational and strategic understanding of a range of business environments gained from working in Asia-Pacific, EMEA and the UK
• Experience as CEO with an international listed company

Current external appointments
John is Chairman of Sunbird Business Services Limited and a Non-executive Director of Cornerstone Property Assets Limited and Inceptum2 Solutions Limited.

Career experience
John spent 11 years as Group Chief Executive Officer of Carillion plc until he retired in 2011. Prior to this, he spent nine years working for Johnson Controls. He served as Chairman of The Vitec Group plc for seven years, retiring from the board in 2019. He has also previously served as a Non-executive Director and Chairman of the Remuneration Committee of Tomkins plc, as a Non-executive Director of Exel plc and as a Trustee of Team Rubicon UK. John was awarded a CBE in 2011 for services to industry.

Guy Young

Chief Financial Officer

Appointed to the Board 1 November 2015

Six years on the Board

• Extensive international experience gained in the mining and industrial sectors
• Qualified Chartered Accountant, with significant financial and business development experience
• Drive and energy in managing people and teams
• Focus on strategic execution and business optimisation

Current external appointments
None

Career experience
Guy was Chief Financial Officer of Tarmac and latterly Lafarge Tarmac, the British building materials company, between 2011 and 2015. Prior to this he spent 13 years working at Anglo American plc in various senior financial and business development positions, including as Chief Financial Officer of Scaw Metals Group, the South African steel products manufacturer. Guy is qualified with the South African Institute of Chartered Accountants.

Patrick André

Chief Executive

Appointed to the Board 1 September 2017

Four years on the Board

• Global career serving the steel industry
• Strong background in strategic development and implementation
• Customer focus and proven record of delivery, with strong commercial acumen
• Drive and energy in promoting his strategic vision

Current external appointments
None

Career experience
Patrick joined the Group as President of the Vesuvius Flow Control business unit in 2016, until his appointment as Chief Executive in September 2017. Before joining the Group, Patrick served as Executive Vice President Strategic Growth, CEO Europe and CEO for Asia, CIS and Africa for Lhoist company, the world leader in lime production. Prior to this, he was CEO of the Nickel division, then CEO of the Manganese division of ERAMET group, a global manufacturer of nickel and special alloys.

103

104

Kath Durrant

Non-executive Independent Director

Appointed to the Board 1 December 2020

One year on the Board

• 30 years’ experience of people management
• Strong operational and strategic track record, gained working at a number of large global manufacturing companies
• Experienced UK governance professional

Current external appointments
Non-executive Director and Chair of the Remuneration Committee of SIG plc.

Career experience
Kath held various operational and specialist HR roles at GlaxoSmithKline plc and AstraZeneca plc and was Group HR Director of Rolls-Royce plc. She was most recently Group HR Director of Ferguson plc and Chief HR Officer of CRH plc. Kath served as a Non-executive Director and Chair of the Remuneration Committee of Renishaw plc from 2015 to 2018 and as a Non-executive Director and Chair of the Remuneration Committee of Calisen plc from 2020 to 2021.

Friederike Helfer

Non-executive Director

Appointed to the Board 4 December 2019

Two years on the Board

• An experienced strategist, with strong analytic capability
• Commercial acumen and a strong track record of working with a portfolio of companies to identify scope for operational and strategic improvement

Current external appointments
Partner of Cevian Capital* and a Non-executive director of the Supervisory Board of thyssenkrupp AG.

Career experience
Friederike is a Partner of Cevian Capital. She joined Cevian in 2008 and from 2013 to 2017, served on the Board of Directors and the Audit Committee of Valmet, a Finnish engineering company, in which Cevian was also invested. Prior to joining Cevian, Friederike worked at McKinsey & Company. She is a CFA Charterholder.

Dinggui Gao

Non-executive Independent Director

Appointed to the Board 1 April 2021

Eleven months on the Board

• Strong operational experience driving performance at a range of multinational companies
• Proven track record of leadership and international commercial experience
• Strong focus on technology and in-depth knowledge of Asian markets

Current external appointments
Non-executive Director Intramco Europe B.V and Operating Partner CITIC Capital Holdings Ltd.

Career experience
Dinggui has nearly 40 years of operational experience having worked in a range of multinational companies including Bosch, Honeywell, Eagle Ottawa and Sandvik AB. He latterly served as Managing Director, China of Formel D Group, the German global service provider to the automotive and components supply industry, joining the company in 2017 and stepping down at the end of October 2021.

Douglas Hurt

Senior Independent Director (SID)

Appointed to the Board 2 April 2015

Six years on the Board

• Qualified Chartered Accountant, with recent and relevant financial experience
• Highly knowledgeable in operational and corporate financial matters, with significant US and European experience
• Proven management and leadership skills

Current external appointments
SID and Chair of the Audit Committee of Countryside Partnerships PLC, and a Non-executive Director and Chair of the Audit Committees of Hikma Pharmaceuticals PLC and the British Standards Institution.

Career experience
Douglas was Finance Director of IMI plc, a UK listed company, until 2015. He spent 23 years at GlaxoSmithKline plc where he held senior finance and general management positions. Douglas served as SID and Chair of the Audit Committee of Tate & Lyle plc until 2019.

Changes to the Board during the year
The Directors named were in office during the year and up to the date of this Annual Report, with the exception of Dinggui Gao who was appointed to the Board on 1 April 2021. Hock Goh and Holly Koeppels stepped down as Non-executive Directors at the close of the 2021 AGM, held on 12 May 2021. Kath Durrant took over as Chair of the Remuneration Committee when Jane Hinkley stepped down from that role at the close of the 2021 AGM. Jane remains a Non-executive Director.

105

Suppliers with repeat issues and poor problem-solving are required to undergo a Supplier Quality Audit. Whilst COVID-19 impacted on the ability to progress supplier audits during 2021, every effort has been made to sustain our critical internal control processes through virtual means.

The Strategic Report set out on pages 1–101 contains a fair review of our business, strategy and business model, and the associated principal risks and uncertainties. We also deliver a review of our 2021 performance and set out an overview of our markets and our stakeholders. Details of our principles, and our people and community engagement, together with our focus on safety, are also contained in the Strategic Report.# Jane Hinkley
Non-executive Independent Director
Appointed to the Board 3 December 2012
Nine years on the Board
* Proven track record of managing complex global trading businesses
* Qualified Chartered Accountant, with significant financial and operational experience in large multinational companies
* Leadership and global management skills

Career experience
Jane is a Chartered Accountant and was Managing Director of Navion Shipping AS for three years until 2001. Prior to this, she spent her executive career as Chief Financial Officer and Managing Director of Gotaas-Larsen Shipping Corporation. She was previously Chairman of Teekay GP LLC, a Non-executive Director and Chairman of the Remuneration Committee of Premier Oil plc, and a Non-executive Director of Revus Energy ASA.

A N R N A N R E A N R
Key to Board Committee membership
A Audit Committee
N Nomination Committee
R Remuneration Committee
N Committee Chair

Engagement with the workforce
E Jane Hinkley serves as the designated Non-executive Director responsible for overseeing engagement with the workforce.

• Cevian Capital is a shareholder of Vesuvius plc and, at 3 March 2022, held 21.11% of Vesuvius’ issued share capital.

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Our business

Our performance

Sustainability

Governance

Financial Statements

Group Executive Committee

Guy Young
Chief Financial Officer
Six years with the Group
For biographical details please see the Board of Directors on page 104.

Patrick André
Chief Executive
Six years with the Group
For biographical details, please see the Board of Directors on page 104.

Thiago Avelar
President, Advanced Refractories
Three years with the Group
Appointed President, Advanced Refractories on 1 January 2020. Thiago joined Vesuvius in February 2019 as Regional VP Steel, South America, where he was responsible for Vesuvius’ Steel Operations in South America. Prior to joining the Group, he worked for RHI Magnesita and ArcelorMittal in various technical and marketing roles based in Europe and Brazil. Thiago is based in London, UK.

Agnieszka Tomczak
Chief HR Officer
Three years with the Group
Appointed as Chief HR Officer in October 2018. Agnieszka has over 25 years of senior leadership experience in multinational companies spanning various business sectors and industries. Prior to joining Vesuvius, she spent 12 years at ICI, which was subsequently acquired by AkzoNobel, in regional and global HR roles. Agnieszka is based in London, UK.

Karena Cancilleri
President, Foundry
Two years with the Group
Appointed President, Foundry in October 2019. Karena joined the Group from Beaulieu International Group, where she served for six years as VP Engineered Products and latterly President Engineered Products. She has a broad breadth of managerial experience spanning various international leadership roles in companies such as FibreVisions, Kraton Corporation and Shell. Karena is based in London, UK.

Henry Knowles
General Counsel and Company Secretary
Eight years with the Group
Appointed as General Counsel and Company Secretary in September 2013. Prior to joining Vesuvius, Henry spent eight years at Hikma Pharmaceuticals PLC, a generic pharmaceutical manufacturer with significant operations in the Middle East, North Africa and the US where he held the roles of General Counsel and Company Secretary. Henry is also responsible for the Group’s Intellectual Property function. Henry is based in London, UK.

Pascal Genest
President, Flow Control
One year with the Group
Appointed President, Flow Control in January 2021. Pascal joined the Group from GF Alliance where he held the position of CEO Liberty Ostrava in the Czech Republic. Prior to this he was CEO of SULB in Bahrain. Pascal has more than 15 years’ experience working in the steel industry, mainly with ArcelorMittal. He has also worked in consulting, in private equity and in the aluminium industry. Pascal is based in London, UK.

Patrick Bikard
President, Operations and Technology
14 years with the Group
Appointed President, Operations in January 2014, with responsibility for Technology since 2019. He was previously Vice President for Manufacturing, QHSE, Engineering and Purchasing and, prior to joining Vesuvius, he held senior operational roles at Renault, Alstom and Faurecia. Patrick is based in Ghlin, Belgium.

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Dear Shareholder,

On behalf of the Board, I am delighted to present the 2021 Corporate Governance Statement. The Board of Vesuvius plc is committed to maintaining high standards of governance and to continuous improvement to reflect best practice. This Statement provides investors and other stakeholders with an annual insight into the governance activities of the Board and its Committees. It describes how the Group has complied with the Principles of the UK Corporate Governance Code during 2021, except where we considered it more natural for us to describe the application of a Principle elsewhere in this Annual Report. The table on page 108 signposts where detailed information on each section of the Code (and associated Principles) can be found.

During 2021, the Nomination Committee gave significant focus to Board succession planning, overseeing the further strengthening of the Board with the appointment of Dinggui Gao as a new Non-executive Director on 1 April 2021. In addition, and led by the Senior Independent Director, Douglas Hurt, the Committee commenced the process to identify my successor. I am pleased to report that this process is progressing well.

During the year, the Nomination Committee also continued its work reviewing the pipeline of talent below Board level, to ensure that we maintain a pipeline of talented individuals to fill future leadership positions.

In 2021, the Remuneration Committee welcomed Kath Durrant as the new Chair, replacing Jane Hinkley who remains on the Board as an independent Non-executive Director. Kath commenced her tenure with a review of the Group’s executive remuneration arrangements. She met with Board members as well as members of the senior management team to gather their perspectives on remuneration at Vesuvius. She undertook a detailed analysis of whether pay and performance at Vesuvius have been aligned over recent years and how executive pay levels compare to the market. The findings of this review will aid preparations for our 2023 Remuneration Policy submission. In the meantime, the Remuneration Committee resolved to make modest changes to the incentive structure in 2022, primarily focused on updating the performance conditions for the Annual Incentive and Vesuvius Share Plan. More details about these changes and the other work undertaken by the Committee in 2021 can be found in the Directors’ Remuneration Report.

After handing over her stewardship of the Remuneration Committee, the Directors were very pleased that Jane Hinkley undertook to remain on the Board. Given her tenure, the Board considered whether she continued to display the independence of thought and constructive challenge to management required from her role. After careful review, we resolved that Jane continues to satisfy the criteria for independence.

In light of the ongoing impact of the COVID-19 pandemic, the Audit Committee continued to carefully monitor the Group’s financial situation throughout 2021, undertaking particularly detailed analysis of the Group’s impairment assessments and the going concern and viability statements. In addition, the Committee again spent time focusing on the Group’s TCFD compliance, and cyber security measures, as well as receiving updates throughout the year on the implementation of changes to the Group’s finance operating model and internal controls.

As detailed elsewhere in this report, the Directors take their responsibility to engage with the workforce seriously as a key part of their role. A number of site visits were conducted by the Board during 2021, enabling the Board to meet management and staff face-to-face, conduct ‘town hall’ meetings to receive direct feedback from our people, and explain the alignment of executive remuneration with wider Company pay policies. As COVID-19 travel restrictions hopefully recede further in 2022, the Board will continue with this critical part of its role.

The Board’s formal evaluation process for 2021 was externally facilitated by the corporate advisory firm, Lintstock.# Corporate Governance Statement

Board Leadership and Company Purpose

Overall, the Board was considered to be diverse and seen to operate effectively with an open culture. The Non-executive Directors were deemed to have provided effective support and constructive challenge in their interactions with management and Board relationships were rated positively overall. The evaluation highlighted a number of ongoing Board priorities, including a continued focus on the development of the Group’s Sustainability strategy and its integration into business planning, and ongoing work to develop robust succession plans for the Executive Directors and GEC members. The Board is progressing these in 2022.

Yours sincerely,

John McDonough CBE
Chairman

3 March 2022

In this section
* Board leadership and Company purpose on p108
* Division of responsibilities on p112
* Audit Committee report on p117
* Nomination Committee report on p125
* Directors’ Remuneration Report on p130

Also see:
* Group’s statement of purpose on p1
* Strategic Report on p1–101

107

Board Leadership and Company Purpose

The Board is responsible for leading the Group in an efficient and entrepreneurial manner, establishing the Group’s purpose, values and strategy and satisfying itself that these and the Group’s culture are aligned. It focuses primarily on strategic and policy issues and is responsible for ensuring the long-term sustainable success of the Group. It sets the Group’s strategy, oversees the allocation of resources and monitors the performance of the Group. It is responsible for effective risk assessment and management. In performance of these duties, the Board has regard to the interests of the Group’s key stakeholders and is cognizant of the potential impact of the decisions it makes on wider society.

Purpose

Vesuvius’ purpose is to be a global leader in molten metal flow engineering and technology, servicing process industries operating in challenging high-temperature conditions. We think beyond today to create the innovative solutions that will shape the future for everyone. We help our customers make their industrial processes safer, more efficient and sustainable. The Group aims to deliver sustainable, profitable growth, providing its shareholders with a superior return on their investment, whilst providing each of its employees with a safe workplace where they are recognised, developed and properly rewarded.

Corporate Governance Statement continued

Board Report 2018

UK Corporate Governance Code – Information Availability

Board Leadership and Company Purpose

The Corporate Governance statement (CG Statement) on pages 107–153 gives information on the Group’s compliance with the Principles relating to the Board’s Leadership and Company Purpose. More detailed information on:
* the Group’s statement of purpose can be found on page 1
* the Group’s strategy, resources and the indicators it uses to measure performance can be found on pages 14 and 15, 20 and 21, and 38 and 39, respectively
* the Group’s engagement with stakeholders and the Group’s Section 172(1) Statement is contained in the Section 172(1) Statement and Stakeholder Engagement section on pages 22–28
* the Group’s approach to workforce matters can be found in the ‘Our people’ section on pages 82–96, with further details of the Group’s approach to employee involvement and engagement contained in the Section 172(1) Statement on page 28

Details of the Group’s framework of controls is contained in the Audit Committee report on pages 120–122 of the CG Statement and in the Risk, viability and going concern section on pages 31 and 32.

Division of Responsibilities

The CG Statement describes the structure and operation of the Board. The Nomination Committee report, described on pages 128 and 129, the process the Company conducts to evaluate the Board, to ensure that it continues to operate effectively, that individual Directors’ contributions are appropriate and that the oversight of the Chairman promotes a culture of openness and constructive yet challenging debate.

Composition, Succession and Evaluation

Details of the skills, experience and knowledge of the existing Board members can be found in the Board biographies contained on pages 104 and 105. Information on the Board’s appointment process and approach to succession planning and Board evaluation is contained in the Nomination Committee report on pages 125–129 of the CG Statement.

Audit, Risk and Internal Control

Information on the policies and procedures the Group has in place to monitor the effectiveness of the Group’s Internal and External Audit functions, and the integrity of the Group’s financial statements is contained in the Audit Committee report on pages 117–124 of the CG Statement, along with an overview of the procedures in place to manage risk and oversee the internal control framework. Further information on the Group’s approach to risk management is contained in the Risk, viability and going concern section of the Strategic Review on pages 29–35.

The Board believes the 2021 Annual Report to be a fair, balanced and understandable assessment of the Company’s position and prospects. A description of the Audit Committee’s work in enabling the Board to reach this conclusion is contained in the Audit Committee report on page 120.

Remuneration

The Directors’ Remuneration Report section of the CG Statement describes the Group’s approach to Directors’ remuneration, including the procedure for developing policy and the Remuneration Committee’s discretion for authorising remuneration outcomes. Details of linkage of the Directors’ Remuneration Policy with long-term strategy is contained on pages 131 and 132 and also highlighted on pages 38 and 39 in the section on Key Performance Indicators.

108

The Board has identified seven Strategic Objectives for achieving long-term sustainable success. It is currently pursuing five shorter-term key execution priorities, which encapsulate the Group’s immediate aims, including its strategic focus on sustainability. Further information on these can be found on pages 14 and 15. The Board regularly reviews the Group’s performance against a number of Key Performance Indicators (KPIs) which provide information on key aspects of the Group’s financial and non-financial performance. This information assists the Board to assess progress with the execution of the Group’s strategy and to determine any remedial action that needs to be taken. Detailed information on the Group’s KPIs can be found on pages 38 and 39. The Group has established a framework of controls to enable risk to be assessed and managed, and further information on this can be found in the Audit, risk and internal control section on page 116 of this Board Report.

Vesuvius recognises that lasting business success is measured not only in financial performance but in the way in which the Group deals with its customers, business associates, employees, investors and local communities. Our Sustainability strategy was launched in 2020. This supports the Group’s key Strategic Objectives which are focused on creating a better tomorrow in a profitable and sustainable way. To drive change throughout the Group, the Board has set specific targets focused on ways in which the Group can improve its impact on our planet, our communities, our people and our customers. The Board monitors these and oversees the work of the Sustainability Council in spearheading new activities to enhance our performance. Further information can be found in the Sustainability section on pages 52–101.

Culture

The Board takes seriously its responsibility for shaping and monitoring the corporate culture of the Group. The Group’s CORE Values – Courage, Ownership, Respect and Energy – define our behaviours across the business and are the practical representation of the culture we seek to foster, aligning with the Company’s purpose and strategy, and supporting our governance and control processes. These Values are prominently displayed at all sites. Our CORE Values are reinforced in our performance management systems, which ensures that they are firmly embedded in our day-to-day conversations and behaviours. Further detail can be found on page 56.# CORE Values and Code of Conduct

The CORE Values are supported by the Group’s Code of Conduct which sets out the standards of conduct expected, without exception, of everyone who works for Vesuvius in any of its worldwide operations. The Code of Conduct emphasises the Group’s commitment to ethical behaviour and compliance with the law. It also covers every aspect of Vesuvius’ approach to business, from the way that the Group engages with customers, employees, its markets and each of its other stakeholders, to the safety of its employees and places of work. Everyone within Vesuvius is individually accountable for upholding these requirements. The Board seeks to ensure that the Group’s workforce policies and practices are consistent with the Group’s long-term sustainable success. Further information about the Group’s remuneration practices for senior managers can be found in the Directors’ Remuneration Report on pages 130 – 153, the Group’s approach to diversity in the Nomination Committee report on page 127, the Group’s approach to HR matters in the Our people section on pages 82–96. Information on the Group’s Speak Up confidential employee concern helpline is set out below.

Whistleblowing Policy: Speak Up

All Vesuvius employees can speak up without fear of retaliation, either to Vesuvius management or via independent channels. We have implemented a Speak Up whistleblowing policy, which is under the responsibility of our Board, and included in our Code of Conduct. It is available on the internal Vesuvius website, and communicated by local language posters in all our locations. A third-party operated confidential Speak Up Helpline is available 365 days per year, 24 hours per day, to all employees wishing to raise concerns anonymously or in situations where they feel unable to report internally. This independent facility supports online reporting through a web portal or reporting by phone or by voicemail. Ensuring global accessibility, employees can speak with operators in any of our 29 functional languages. All reports received are reviewed and, where appropriate, investigated and feedback is provided to the reporter via the helpline portal. Vesuvius’ Speak Up helpline is highlighted during internal compliance training and new joiner inductions. No Vesuvius employee will ever be penalised or disadvantaged for reporting a legitimate concern in good faith. Reports received via Speak Up channels are managed by the General Counsel and Compliance Director. When received, reports are assessed for risk and category of concern. All reports are considered in line with a protocol for review, investigation, action, closure and feedback, independent of management where necessary, but involving senior business unit or HR management as appropriate. For complex issues, formal investigation plans are drawn up, and support from external experts is engaged where necessary. Feedback is recognised as an important element of the Speak Up process and we aim to provide an update on all reports within 28 days of receipt. In line with good practice, details of the Group’s Speak Up channels, and the Group’s approach to addressing such issues, was recommunicated in 2020. This relaunch included a recommunication on the channels available to employees including nominated individuals at each site who received training in relation to concerns raised in person at local sites. We continue to monitor the volume, geographic distribution and range of reports made to the Speak Up facility to ascertain not only whether there are significant regional compliance concerns, but also whether there are countries where access to this facility is less well understood or publicised. During 2021, the Board monitored and oversaw the Group’s procedures for reporting allegations of improper behaviour, and throughout the year received updates on the nature and volume of reports received from the confidential Speak Up Helpline, key themes emerging from these reports and the results of any investigations undertaken. In 2021, we received 93 reports (2020: 95) through the Speak Up facility and 94 walk-in reports (2020: 32). Each one of these was reviewed and, where appropriate, investigated. Similar to 2020, a substantial majority of reports received in 2021 related to HR issues which indicated no compliance concerns, nor serious breaches of the Code of Conduct. Of the small number of reports received that contained allegations of a breach of our Code of Conduct, thorough investigations were performed and, where appropriate, disciplinary action was taken, including individuals leaving the Group as a result.

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During the year, the Board’s assessment of the Group’s culture focused on the Group’s:

(1) Adherence to the CORE Values – The Board focused on ensuring that there was a consistent culture across the Group, underpinned by the CORE Values. The Board continued to receive regular feedback on the Group’s response to the COVID-19 pandemic, and the efforts being made to support employees, customers and communities throughout the Group. During site visits, the Directors focused on the extent to which the Values are published, understood and motivate employee behaviour, and reported on their individual findings to the Board. Towards the end of the year, nominations were once again sought for the Group’s Living The Values Awards. The Board was delighted that there were almost 1,000 nominations, showcasing examples of individuals and teams going the ‘extra mile’ to live the CORE Values. Members of the Group Executive Committee presented both regional and global awards as part of the process.

(2) Commitment to safety – At each meeting during the year, the Board received an update on the health and well-being of the Group’s employees. The Board received regular updates on the Group’s performance against safety targets, and a thorough analysis of all Lost Time Incidents – all of which were reported in detail at the next Board meeting. In addition, the Board received annual reports on the progress of the Group’s safety programmes. The Directors used individual site visits to assess each site’s commitment to safety, and the Remuneration Committee set the Chief Executive a specific safety target as part of his personal objectives for the Annual Incentive Plan. A core tenet of the Group’s Sustainability initiative is a focus on ensuring the Group affords a safe working environment for all its employees. A more challenging Group safety target of fewer than one lost time injury per million hours worked was implemented for 2021. This is equivalent to an average of less than two lost time work-related injuries or illnesses per month.

(3) Entrepreneurship – As part of the Board’s rolling agenda, the Board received reports from each of the business unit Presidents on their business’s strategy, new commercial initiatives and future technology trends. These were complemented by a presentation from the President, Operations and Technology on R&D activities throughout the Group, including the process of new product launches. The Board also received reports on the Group’s progress on innovation as part of the quarterly reporting on strategic progress.

(4) Transparency – During the early part of the year, the Board was cognizant of the impact that severely reduced travel had on opportunities in the organisation for face-to-face interactions, with Board meetings again taking place online. As travel restrictions eased, the Board was once again able to undertake individual and collective site visits to meet employees face-to-face. The engagement and openness of the employees the Board met, both in person and virtually over the course of the year, was assessed in terms of the Group’s culture. These first-hand reviews were supported by the Directors’ review of the output of the Group’s Speak Up processes. The Audit Committee sought qualitative feedback from External and Internal Audit on how transparent/engaged managers had been during audit interactions.

(5) Customer focus – The Chief Executive undertook customer visits where this was possible, and also held virtual meetings with customers in 2021.# Corporate Governance Statement

Board Leadership and Company Purpose

As travel restrictions eased, the Board was able to incorporate a customer visit into its Vesuvius site visit programme during the latter part of the year. A continued critical focus of the Group’s response to the pandemic and associated supply chain impacts has been on continuity of supply to customers. The Board received regular reports on the impact of the pandemic on customer service and the state of the Group’s markets. The Board also received regular updates on quality performance; these were supported by a full annual presentation on the Group’s ongoing initiatives on quality and a review at each Board meeting of specific quality issues. At each Board meeting, the Board also considered the state of the Group’s markets and the associated customer developments.

Diversity and respect for local cultures

During 2021, the Board, through the work of the Nomination Committee, focused on progress with the achievement of the Group’s gender diversity targets seeking 30% female representation in Top Management (Group Executive Committee plus key direct reports) by 2025. Going forward, the Board has resolved to expand the Group to which the gender diversity target applies for 2022, to focus on the Senior Leadership Group of the Company which comprises c. 160 individuals. In 2021, the Board also reviewed the results of the employee engagement survey and subsequent management actions to support its diversity initiatives.

Corporate Governance Statement continued

110 Vesuvius plc Annual Report and Financial Statements 2021

The usual extensive schedule of individual site visits undertaken by the Executive and Non-executive Directors was again somewhat curtailed in 2021 by COVID-19-related travel restrictions. Towards the latter part of the year, the Chairman and each of the Non-executive Directors were able to visit a number of sites including Charlotte, Cleveland and Pittsburgh in the US, Krakow and Skawina in Poland, Borken in Germany, Ghlin in Belgium and Suzhou in China. The Non-executive Directors also held a ‘virtual’ Board visit with senior managers in China, India and the US during the year to hear more about the activities of the Group there. The visits and calls provided the Board with greater clarity on local organisation and management, along with providing updates on business performance. During the visits the Directors were able to interact with a cross-section of employees, from various functions and organisational levels. At most sites ‘town hall’ meetings were held, providing the Non-executive Directors with the opportunity to engage with the work force to explain the function of the Board and also to explain how executive remuneration aligns with wider Company pay policies. These meetings also gave the Non-executive Directors the opportunity to hear the views of employees and answer their questions about the Company. The Directors engaged in first-hand discussions on culture and purpose, providing direct feedback to the Board on their perceptions of each site and potential areas for improvement, alongside highlighting examples of best practice that could be shared more widely.

Section 172 duties

The Directors are cognizant of the duty they have under Section 172 of the Companies Act 2006, to promote the success of the Company over the long term for the benefit of shareholders as a whole, having regard to a range of other key stakeholders. In performance of its duties throughout the year, the Board has had regard to the interests of the Group’s key stakeholders and remained cognizant of the potential impact on these stakeholders of the Group’s activities. The effects of business decisions on the broader stakeholder group continued to be brought into sharp focus by the impact of the pandemic. Details of the Board and the Company’s engagement with stakeholders during the year can be found in the Section 172(1) Statement on pages 22–28. The Board is committed to communicating with shareholders and other stakeholders in a clear and open manner and seeks to ensure effective engagement through the Company’s regular activities. The Company undertakes an ongoing programme of meetings with investors, which is managed by the Investor Relations team. The majority of meetings with investors are led by the Chief Executive and the Chief Financial Officer. In advance of the 2021 AGM, we wrote to our largest shareholders inviting discussion on any questions they might like to raise and making the Chairs of the Board, the Audit Committee and the Remuneration Committee available to meet them should they so wish. In addition, the Chair of the Remuneration Committee wrote to our largest shareholders and key governance agencies early this year, to provide additional detail on the Group’s executive remuneration proposals for 2022 and invite further engagement. Responses were received from the majority of shareholders and governance agencies, and further information provided as requested. As a result of this dialogue, the Remuneration Committee concluded that their proposals were well supported and proceeded to implement them. Further detail is contained in the Directors’ Remuneration Report on page 133.

Statement on compliance with the UK Corporate Governance Code

Save as set out for Provisions 19 and 38 below, the Company was fully compliant with the Principles and Provisions of the 2018 UK Corporate Governance Code (the ‘Code’) for the year ended 31 December 2021. A copy of the Code can be found on the FRC website at: https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code.

Provision 19: John McDonough CBE completed nine years’ service as Chairman of the Board on 31 October 2021. During the year the Nomination Committee commenced the process to search for a new Chairman. The search is well advanced. On appointment of a new Chair, John McDonough will step down from the Board.

Provision 38: The Company has implemented plans to align the level of pension allowance for Executive Directors with that applicable to the majority of the work force. Our incumbent Directors’ pension contributions were frozen at the 1 January 2020 amount and will be reduced to 17% at the end of 2022, being the level of the majority of the work force. Further details can be found on page 145.

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Division of responsibilities

The Board currently comprises eight Directors – the Non-executive Chairman, John McDonough CBE; the Chief Executive, Patrick André; the Chief Financial Officer, Guy Young; and five Non-executive Directors, Kath Durrant, Dinggui Gao, Friederike Helfer, Jane Hinkley and Douglas Hurt. Douglas Hurt is the Senior Independent Director. Henry Knowles is the Company Secretary. Dinggui Gao joined the Board on 1 April 2021. Holly Koeppel and Hock Goh also served as Non-executive Directors until they stepped down from the Board on 12 May 2021, at the close of the AGM.

The Board considers that, for the purposes of the UK Corporate Governance Code, 57% of the Board – four of the current Non-executive Directors (excluding the Non-executive Chairman), namely Kath Durrant, Dinggui Gao, Jane Hinkley and Douglas Hurt, are independent of management and free from any business or other relationship which could affect the exercise of their independent judgement. Jane Hinkley continues to be regarded as independent despite having completed nine years of service on the Board on 3 December 2021, as she continues to operate with an independent spirit and exhibits robust challenge at Board and Committee meetings. Friederike Helfer is a Partner of Cevian Capital, which continues to hold 21.11% of Vesuvius’ issued ordinary share capital. As a result Friederike Helfer is not considered to be independent. The Chairman satisfied the independence criteria on his appointment to the Board.

The Board and its Committees have a wide range of skills, experience and knowledge, and further details of each Director’s individual contribution in this regard can be found in their biographical details on pages 104 and 105.# Corporate Governance Statement

The division of responsibilities between the Chairman and the Chief Executive is set out in writing. These were reviewed during the year as part of the Company’s annual corporate governance review. They are available to view on the Company’s website: www.vesuvius.com.

Division of Responsibilities

The Board
Responsible for Group strategy, risk management, succession and policy issues. Sets the purpose, Values and culture for the Group. Monitors the Group’s progress against the targets set.

Chairman
Provides leadership and guidance for the Board, promoting a high standard of corporate governance. Sets the Board agenda and chairs and manages meetings. Independent on appointment, he is the link between the Executive and Non-executive Directors.

Chief Executive
Develops strategy for review and approval by the Board. Directs, monitors and manages the operational performance of the Company. Responsible for the application of Group policies, implementation of Group strategy and the resources for their delivery. Accountable to the Board for Group performance.

Non-executive Directors
Exercise a strong, independent voice, constructively challenging and supporting the Executive Directors. Scrutinise performance against objectives and monitor financial reporting. Monitor and oversee risks and controls, determine Executive Director remuneration and manage Board succession through their Committee responsibilities. The Non-executive Directors meet at least twice a year without the Executive Directors being present.

Company Secretary
Advises the Chairman on governance, together with updates on regulatory and compliance matters. Supports the Board agenda with clear information flow. Acts as a link between the Board and its Committees and between Non-executive Directors and senior management.

Corporate Governance Statement Continued

Senior Independent Director
Acts as a sounding board for the Chairman, an alternative contact for shareholders and an intermediary for other Non-executive Directors. Leads the annual evaluation of the Chairman and recruitment process for the Chairman’s replacement, when required.

112 Vesuvius plc Annual Report and Financial Statements 2021

Audit Committee

To monitor the integrity of financial reporting and to assist the Board in its review of the effectiveness of the Group’s internal controls and risk management systems.

• Chair: Douglas Hurt
• Membership: All independent Non-executive Directors

Remuneration Committee

To determine the remuneration policy for the Executive Directors and set the appropriate remuneration for the Chairman, Executive Directors and senior management.

• Chair: Kath Durrant
• Membership: All independent Non-executive Directors

Nomination Committee

To advise the Board on appointments, retirements and resignations from the Board and its Committees and to review succession planning and talent development for the Board and senior management.

• Chair: John McDonough, Chairman (except when considering his own succession, in which case the Committee is chaired by the Senior Independent Director)
• Membership: Chairman and the Non-executive Directors

Governance Committees

Finance Committee

To approve specific funding and treasury-related matters in accordance with the Group’s delegated authorities or as delegated by the Board.

• Chair: John McDonough, Chairman
• Membership: Chairman, Chief Executive, Chief Financial Officer and Group Head of Corporate Finance

Administrative Committees

In addition, the Board delegates certain responsibilities to a Finance Committee and Share Scheme Committee, which operate in accordance with the delegated authority agreed by the Board.

Share Scheme Committee

To facilitate the administration of the Company’s share schemes.

• Chair: Any Board member
• Membership: Any two Directors or any two Directors and the Company Secretary

Board

The Board

The Board has a formal schedule of matters reserved to it and delegates certain matters to its Committees. It is anticipated that the Board will convene on seven occasions during 2022, holding ad hoc meetings to consider non-scheduled business if required.

Board Committees

The principal governance Committees of the Board are the Audit, Nomination and Remuneration Committees. Each Committee has written terms of reference which were reviewed during the year. These terms of reference are available to view on the Company’s website: www.vesuvius.com.

Committee composition is set out in the relevant Committee reports. No one, other than the Committee Chairman and members of the Committee, is entitled to participate in meetings of the Audit, Nomination and Remuneration Committees. However, as detailed in the Committee reports, where the agenda permits, other Directors and senior management regularly attend by invitation, supporting the operation of each of the Committees in an open and consensual manner. The interactions in the governance process are shown in the schematic below.

Group Executive Committee

The Group also operates a Group Executive Committee (GEC), which is convened and chaired by the Chief Executive and assists him in discharging his responsibilities. The GEC comprises the Chief Executive, Chief Financial Officer, the business unit Presidents, the Chief HR Officer, the President Operations and Technology and the General Counsel/Company Secretary. The GEC continued its formal schedule of five meetings and two R&D reviews during 2021, and also, in response to the demands of the pandemic held weekly, or later in the year bi-weekly, virtual meetings to discuss the Group’s business activities.

113 Our business Our performance Sustainability Governance Financial Statements 2021

Board Programme

The Board discharges its responsibilities through an annual programme of meetings. At each of the regularly scheduled meetings, a number of standard items were considered. These included:
* Directors’ duties, including those in respect of s172, and conflicts of interest
* Minutes of the previous meeting and matters arising
* Reports from the Chief Executive, the Chief Financial Officer and the General Counsel and Company Secretary on key aspects of the business

In 2021, the Board focused on key areas of strategy, performance and governance, including the matters outlined below:

Strategy

• Reviewing M&A opportunities and overseeing the negotiation of the acquisition terms for the assets of Universal Refractories, Inc.
• Receiving and reviewing reports on strategy from the Flow Control, Advanced Refractories, Sensors & Probes and Foundry business units
• Reviewing and approving significant items of capital expenditure
• Receiving and reviewing regular reports from the Chief Executive (CEO) on business highlights and the implementation of the Group’s strategic objectives
• Reviewing the progress of the Group’s Sustainability strategy, including receiving regular updates on the Group’s quality, health, safety and environmental objectives and progress with the preparation of the Group’s TCFD compliance
• Participation in a two-day off-site review of strategy presented by the CEO, CFO and the three main business unit Presidents and the Company’s key financial advisers
• Receiving and considering reports on the Group’s HR, Purchasing, IT, tax and treasury strategies, legal and compliance activities and the management of the Group’s key pension liabilities
• Receiving and considering a progress report on the Group’s R&D strategy and objectives
• Reviewing the Group’s financing structure

Performance

• Receiving regular business reports from the CEO, including information on the ongoing impact of COVID-19 on the Group, its employees and customers
• Reviewing the measures being taken to mitigate the impact of raw material cost increases and supply chain disruption
• Receiving regular reports on the Group’s financial performance against key indicators, including each of the Group’s KPIs
• Receiving regular reports on progress against the Group’s sustainability targets and regular updates from the CEO on the performance of the Group’s businesses
• Receiving regular safety reports setting out performance against key indicators and summaries of the investigations conducted after any serious safety incident
• Receiving regular reports on performance against product quality targets
• Scrutinising the Group’s financial performance and forecasts
• Reviewing and agreeing the annual budget and financial plans
• Approving trading updates, and preliminary and half-year results

Governance

• Receiving regular reports from the Board Commit# Corporate Governance Statement continued

Information and support

The Board ensures that it receives, in a timely manner, information of an appropriate quality to enable it to adequately discharge its responsibilities. Papers are provided to the Directors in advance of the relevant Board or Committee meeting to enable them to make further enquiries about any matters prior to the meeting should they so wish. This also allows Directors who are unable to attend to submit views to the relevant Chair person in advance of the meeting.

In addition to the formal Board processes, the Chief Executive provides written updates on important Company business issues between meetings, and the Board is provided with a regular monthly report of key financial and management information, including information on safety and quality performance.

Regular updates on shareholder matters are provided to the Directors, who also receive copies of analysts’ notes issued on the Company. For the distribution of all information, Directors have access to a secure online portal, which contains a reference section containing relevant background information. All Directors have access to the advice and services of the Company Secretary. There is also an agreed procedure in place for Non-executive Directors, in the furtherance of their duties, to take independent legal advice at the Company’s expense. The procedure was not utilised during the year under review.

Directors’ conflicts of interest

The Board has established a formal system to authorise situations where a Director has an interest that conflicts, or may possibly conflict, with the interests of the Company (situational conflicts). Directors declare situational conflicts so that they can be considered for authorisation by the non-conflicted Directors. In considering a situational conflict, these Directors act in the way they consider would be most likely to promote the success of the Company and may impose limits or conditions when giving authorisation, or subsequently, if they think this is appropriate. The Company Secretary records the consideration of any conflict and any authorisations granted. The Board believes that the approach it has in place for reporting situational conflicts continues to operate effectively. No situational conflicts were presented to the Board for authorisation during the year under review.

Board and Committee attendance

The attendance of Directors at the Board meetings and at meetings of the principal Committees of which they are members held during 2021 is shown in the table below. The maximum number of meetings in the period during which the individual was a Board or Committee member is shown in brackets.

	Board	Audit Committee	Remuneration Committee	Nomination Committee
Chairman
John McDonough CBE	9 (9)	–	–	5 (5)
Executive Directors
Patrick André	9 (9)	–	–	–
Guy Young	9 (9)	–	–	–
Non-executive Directors
Kath Durrant	9 (9)	4 (5)	5 (5)	5 (5)
Dinggui Gao	1 7 (7)	3 (3)	4 (4)	4 (4)
Hock Goh	2 3 (3)	2 (2)	1 (1)	1 (2)
Friederike Helfer	9 (9)	–	–	5 (5)
Jane Hinkley	9 (9)	5 (5)	5 (5)	5 (5)
Douglas Hurt	9 (9)	5 (5)	5 (5)	5 (5)
Holly Koeppel	2 3 (3)	2 (2)	1 (1)	1 (2)

1. Dinggui Gao was appointed to the Board on 1 April 2021 and the table reflects the number of Board and Committee meetings that he could attend following his appointment.
2. Hock Goh and Holly Koeppel stood down from the Board at the close of the 2021 AGM on 12 May 2021. The table reflects the number of Board and Committee meetings that they could attend prior to their departures.

Kath Durrant was unable to attend one Audit Committee meeting, and Hock Goh and Holly Koeppel one Nomination Committee meeting during the year due to clashes with other professional responsibilities that had been previously notified to the Chairman.

Dinggui Gao, Hock Goh and Holly Koeppel attended meetings virtually as they were precluded from participating in person due to travel restrictions between the UK and their countries of residence, being China, Australia and the US, respectively.

To the extent that Directors were unable to attend scheduled meetings, they received the papers in advance and relayed their comments to the Chairman of the relevant Committee for communication at the meeting. The Committee Chairs followed up after the meeting in relation to the decisions taken.

The Chairman and Non-executive Directors each have a letter of appointment which sets out the terms and conditions of their directorship. An indication of the anticipated time commitment is provided in recruitment role specifications, and each Non-executive Director’s letter of appointment provides details of the meetings that they are expected to attend, along with the need to accommodate travelling time. Non-executive Directors are required to set aside sufficient time to prepare for meetings, and regularly to refresh and update their skills and knowledge.

Copies of all contracts of service or, where applicable, letters of appointment of the Directors are available for inspection during business hours at the registered office of the Company and are available for inspection at the location of the Annual General Meeting (AGM) for 15 minutes prior to and during each AGM.

All Non-executive Directors have agreed to commit sufficient time for the proper performance of their responsibilities, acknowledging that this will vary from year to year depending on the Group’s activities, and will involve visiting operational and customer sites around the Group. The Chairman in particular dedicates a significant amount of time to Vesuvius in discharging his duties. Directors are expected to attend all scheduled Board and Committee meetings and any additional meetings as required. Each Director’s other significant commitments are disclosed to the Board during the process prior to their appointment and they are required to notify the Board of any subsequent changes. The Company has reviewed the availability of the Chairman and the Non-executive Directors to perform their duties and considers that each of them can, and in practice does, devote the necessary amount of time to the Company’s business.

Composition, evaluation and succession

Appointment and replacement of Directors

The Company’s Articles of Association specify that Board membership should not be fewer than five nor more than 15 Directors, save that the Company may, by ordinary resolution, from time to time, vary this minimum and/or maximum number of Directors. Directors may be appointed by ordinary resolution or by the Board. The Board may appoint one or more Directors to any executive office, on such terms and for such period as it thinks fit, and it can also terminate or vary such an appointment at any time. The Articles specify that, at every AGM, any Director who has been appointed by the Vesuvius Board since the last AGM and any Director who held office at the time of the two preceding AGMs, and who did not retire at either of them, shall retire from office.# Corporate Governance Statement continued

Recommendations for re-election of Directors

However, in accordance with the requirements of the Code, all the Directors who wish to continue to serve on the Board will offer themselves for re-election at the 2022 AGM. The Board believes that each of the current Directors is effective and demonstrates commitment to his or her respective role. Accordingly, the Board recommends that shareholders approve the resolutions to be proposed at the 2022 AGM relating to the re-election of the Directors. The biographical details of the Directors offering themselves for re-election, including details of their other directorships and relevant skills and experience, will be set out in the 2022 Notice of AGM. The biographical details of the Directors are also set out on pages 104 and 105.

Recommendations for appointments to the Board and rotation of the Board

Recommendations for appointments to the Board and rotation of the Board are made by the Nomination Committee. The Nomination Committee is also responsible for overseeing the maintenance of an effective succession plan for the Board and senior management. Further information on the activities of the Nomination Committee is set out in the Nomination Committee report on pages 125 –129.

Induction and training of Directors

A comprehensive induction programme is available to new Directors. The induction programme is tailored to meet the requirements of the individual appointee and explains the dynamics and operations of the Group, and its markets and technology. The induction includes, as a minimum, a series of meetings with key Group executives and advisers, along with site visits to the Group’s key strategic sites. During the COVID-19 travel restrictions, Dinggui Gao’s induction has been limited to site visits in China, virtual meetings with the Group’s executives and senior management, and a ‘virtual’ site visit to Vesuvius India. A more comprehensive plan of personal site visits is planned for 2022.

The Chairman, through the Company Secretary, continues to ensure that there is an ongoing process to review training and development needs. Directors are provided with details of seminars and training courses relevant to their role and are encouraged and supported by the Company to attend them. In 2021, regulatory updates were provided as a standing item at each Board meeting in a Secretary’s Report. External input on legal and regulatory developments impacting the business was also given, with specialist advisers invited to the Board and Committee meetings to provide briefings on topics such as the changing landscape of Corporate Governance, particularly the latest FRC consultations and guidance, and material developments in the legal environment, including trends in M&A, changes in UK pension legislation and ESG disclosure requirements.

Performance evaluation

The Board carries out an evaluation of its performance and that of its Committees and individual Directors, including the Chairman, every year. Details of the evaluation conducted in 2021 can be found in the Nomination Committee report.

Audit, risk and internal control

The Board is responsible for ensuring that policies and procedures are in place to ensure the independence and effectiveness of the Internal and External Audit functions. The Audit Committee assists the Board in reviewing the effectiveness of the Group’s Internal and External Audit functions, in addition to monitoring the integrity of the Group’s financial and narrative statements. Further information about the work of the Audit Committee can be found in the Audit Committee report on pages 117–124.

The Board is also responsible for setting the Group’s risk appetite and ensuring that appropriate risk management systems are in place. The Audit Committee assists the Board in reviewing the effectiveness of the system of internal control, including financial, operational and compliance controls, and risk management systems. The Group’s approach to risk management and internal control is discussed in greater detail on pages 29–33 and the Group’s principal risks and how they are being managed or mitigated are detailed on pages 34 and 35. The Viability Statement which considers the Group’s future prospects is included on page 33. Risk management and internal control are also discussed in greater detail in the Audit Committee report.

All of the independent Non-Executive Directors serve on both the Audit and Remuneration Committees. They therefore bring their experience and knowledge of the activities of each Committee to bear when considering critical areas of judgement. This means that, for example, the Directors are able to consider carefully the impact of incentive arrangements on the Group’s risk profile and to ensure that the Group’s Remuneration Policy and programme are structured to align with the long-term objectives and risk appetite of the Company.

Remuneration

The Directors’ Remuneration Report on pages 130 –153 describes the work of the Remuneration Committee in developing the Group’s policy on executive remuneration, determining Director and senior management remuneration, reviewing workforce remuneration and related policies – including ensuring that these align with the Group’s Strategic Objectives and culture, and overseeing the operation of the executive share incentive plans.

116

Dear Shareholder,

On behalf of the Audit Committee, I am pleased to present the Audit Committee Report for 2021.

The foundation of the Committee’s work each year is a recurring and structured programme of activities which are defined in an annual rolling Audit Committee timetable. The Audit Committee then considers additional items as matters arise and priorities change.

During 2021, the Committee continued to monitor the impact of the COVID-19 pandemic on the Group’s activities, undertaking particularly detailed analysis of the Group’s impairment assessments and the going concern and viability statements, along with the Group’s TCFD reporting. In addition, the Committee again spent some time focusing on the Group’s cybersecurity measures, as well as receiving updates throughout the year on the implementation of changes to the Group’s Finance Operating Model.

The Audit Committee Report describes the work of the Committee during the year, including its role in monitoring the integrity of the Company’s financial statements and the effectiveness of the internal and external audit processes. It provides an overview of the significant issues the Committee has considered during the year and its material judgements. It also describes how the Committee fulfilled its responsibilities to assist the Board in reviewing the effectiveness of the Group’s system of internal financial controls and its internal control and risk management systems.

Yours sincerely,

Douglas Hurt
Chairman, Audit Committee

The Audit Committee

The Audit Committee comprises all the independent Non-Executive Directors of the Company, who bring a wide range of financial and commercial expertise to the Committee’s decision-making processes. Douglas Hurt is the Senior Independent Director and Chairman of the Audit Committee. He was the Finance Director of IMI plc for nine years prior to his appointment and has worked in various financial roles throughout his career. Douglas currently serves as the Chairman of the Audit Committees of Countryside Partnerships PLC, Hikma Pharmaceuticals PLC and the British Standards Institution. He is a Chartered Accountant. This background provides him with the ‘recent and relevant financial experience’ required under the Code. The Code and Financial Conduct Authority Disclosure Guidance and Transparency Rules also contain requirements for the Audit Committee as a whole to have competence relevant to the sector in which the Company operates. Vesuvius’ Non-executive Directors have significant breadth of experience and depth of knowledge on matters related to Vesuvius’ operations, both from their previous roles and from their induction and other activities since joining the Vesuvius Board.# Audit Committee

The Directors’ biographies on pages 104 and 105 outline their range of multinational business-to-business experience and expertise in fields such as engineering, manufacturing, services, logistics and human resources, as well as financial and commercial acumen. Biographies for Hock Goh and Holly Koeppel are available in the Company’s 2020 Annual Report which can be viewed on our website: www.vesuvius.com. The Board considers that the Audit Committee as a whole has competence relevant to Vesuvius’ business sector.

Meetings

The Committee met five times during 2021. The Committee has also met twice since the end of the financial year and prior to the signing of this Annual Report. The Board Chairman, the non-independent Non-executive Director, the Chief Executive, the Chief Financial Officer, the Head of Finance, the Group Head of Internal Audit and the External Auditors were all invited to each meeting. Other management staff were also invited to attend as appropriate.

Audit Committee meetings are conducted to promote an open debate, they enable the Committee to provide constructive challenge of significant accounting judgements, and guidance and oversight to management, to ensure that the business maintains an appropriately robust control environment. Between Audit Committee meetings, the Chairman of the Audit Committee encourages open dialogue between the External Auditors, the management team and the Group Head of Internal Audit to ensure that emerging issues are addressed in a timely manner.

Audit Committee

Kath Durrant	Joined the Committee on his appointment to the Board on 1 April 2021
Dinggui Gao	Served on the Committee until his retirement from the Board on 12 May 2021
Hock Goh
Jane Hinkley
Holly Koeppel	Served on the Committee until her retirement from the Board on 12 May 2021

The Company Secretary is Secretary to the Committee

Douglas Hurt – Committee Chairman

During the year, as is the Audit Committee’s established practice, the Committee members met and discussed business and control matters with senior management during Board presentations. The Committee also met privately with the Group Head of Internal Audit and the External Auditors without any executives present. The outcomes of Audit Committee meetings were reported to the Board, and all members of the Board received the agenda, papers and minutes of the Committee.

Statement of compliance with the Competition and Markets Authority (CMA) Order

The Committee considers that the Company has complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 (Article 7.1), published by the CMA on 26 September 2014, including with respect to the Audit Committee’s responsibilities for agreeing the audit scope and fees and authorising non-audit services.

118 Vesuvius plc Annual Report and Financial Statements 2021

Audit Committee continued

1. During 2021, the Committee’s activities were once again focused on the impact of COVID-19 on the Group, as well as on the impact on raw material and freight availability, and inflation. The work of Internal Audit was adapted to accommodate the travel restrictions, and the Group’s liquidity and cash generation remained under particular scrutiny. The Committee ensured that despite the continued changes in working patterns, critical resources in internal control and compliance functions worked effectively. The work of the External Auditors was carefully monitored given the continued use of virtual tools and where appropriate and possible, audit work was accelerated to reflect the potentially longer time frames for completion.

2. The Committee’s agenda covered the usual standing items – the review of financial results, the effectiveness of the Group’s internal financial controls, and the review of the internal control and risk management systems – as well as additional topics, including updates on cybersecurity and an in-depth review of the Group’s European Shared Services function.

3. The Committee continued to receive feedback throughout the year on the implementation of the new finance operating model. This continued the transition of the business unit finance functions from purely accounting to forward-looking business support, with clearer accountabilities for controlling functions and a focus on further standardising core processes. The Committee monitored changes to the structure of finance roles and the roll-out of the new model.

4. The Audit Committee continued to devote time to ensure that initiatives to mitigate potential risks and financial exposure remained robust and appropriate.

5. The Committee challenged the assumed growth rates and discount rates used for asset impairment assessments.

6. The Committee considered the Company’s going concern statement and challenged the nature, quantum and assessment of the significant risks to the business model, future performance, solvency and liquidity of the Group that were modelled as part of the scenarios and stress testing undertaken to support the viability statement made by the Company in the Annual Report and Financial Statements. In particular the Committee examined the criteria selected for enhanced stress testing, which included an unplanned drop in customer demand, debt recovery risk due to customer default, business interruption due to unplanned closure of several key plants and raw material cost inflation. The Committee also considered the potential effect of a combination of risk factors occurring at the same time. At the half year the Committee undertook another detailed look at the Company’s going concern statement. The going concern and viability statements, which were also critically reviewed, are contained within the Strategic Report on page 33.

7. The Committee reviewed the resourcing and delivery of the 2021 Internal Audit plan, monitoring the effect of ongoing COVID-19 travel restrictions and approved the 2022 Internal Audit plan. The Committee monitored both the responses from and follow-up by management to Internal Audit recommendations arising during the year. The Committee discussed at length the significant issues raised, the root causes for those issues and the actions being taken to resolve the issues.

8. The Committee conducted regular, detailed reviews of provisions, challenging the reasonableness of underlying assumptions and estimates of costs and the quantum of any related insurance assets.

9. The Committee reviewed the accounting, disclosures and resulting impacts of the final buy-in for the UK pension plan. The buy-in did not impact the underlying terms on which the remaining surplus asset is deemed recoverable and recognised.

10. The Committee reviewed the accounting for the acquisition of the business of Universal Refractories, Inc. including determining the allocation of the purchase price and the identification and valuation of intangible assets.

11. The Committee reviewed the Group’s work on TCFD reporting and the assurance received regarding the sustainability KPI data.

12. The Committee reviewed the effectiveness of the Internal and External Audit processes.

13. The Committee met with Internal and External Audit without management present and received valuable feedback on a range of topics.

14. The Committee reviewed the activities being undertaken to prepare for filing the 2021 annual financial report in European Single Electronic Format (ESEF). A dry run tagging the 2020 Annual Report was undertaken during the year to ensure the Company was ready to comply with its obligation in 2022.

15. The Committee conducted an evaluation of its performance and effectiveness, concluding that the Committee continued to work effectively across all key areas, with meetings remaining well managed and appropriately resourced.

16. The Committee reviewed and updated its terms of reference.# Activit ie s in 20 2 1

Role and responsibilities

Du rin g 2021, th e mai n rol e and r esp on sib ili t ies o f th e Comm it tee cont in ued t o be t o:

• Mon it or t he in teg ri t y of t he F in anci al Sta tem en t s of th e Comp any a nd t he G roup, an d any fo rma l ann oun cem en ts rel at in g to the Grou p’s n an cial pe r for ma nce, revi ewi ng sig ni can t na nci al rep or t in g judg eme nt s conta ine d in t he m
• Provi de a dv ice, a s requ es t ed by t he B oa rd, on w he th er t he An nua l Repo r t a nd Fi na nci al Stat em ent s, taken a s a wh ol e, are fai r , b ala nce d and u nd er s tan dab le a nd pro vid e th e information ne cessary for the shareholders to assess the Gro up’s posi t ion a nd p er f orm an ce, bus ine s s mo del a nd s t rat eg y
• Revi ew an d mo nit or t he ef fec ti ven es s of t he Co mpa ny ’s int ern al na nci al contro ls, and inter na l cont rol and ris k management systems
• Revi ew pro ce dure s for d ete c t ing f rau d, an d sy s tem s and cont rol s for t he p reve nti on of b ri be r y an d ens ure t ha t a th orou gh rev iew i s car rie d ou t of al l all eg ed i ns tan ces of frau d noti e d to t he Comm it tee
• Mon it or an d rev iew t he ro le an d ef f ec t ive ne ss of t he Comp any ’s In te rna l Aud it f unc tion an d au di t pro gramm e, ensuring tha t the function is adequately resourced and operates fr ee from managemen t or other r estric tions
• Mak e r ecommendations to the B oard on the appointment, rea ppo in tm ent a nd rem oval of t he E x t er nal Au di tor s an d negotiate and agree the fees and terms o f engagement of the External Auditors
• Mon it or and revie w wi th the Ex terna l Audi tor s the ndi ng s of th eir wor k, incl udi ng key a ccoun ti ng and audi t judg eme nt s, how a ny ris ks t o aud it q ual it y were add res se d an d th e Ex terna l Auditors’ vie w s of their inter actions with senior ma nagement
• Revie w and monitor the External Auditors’ independence, obj ec t iv i t y and ef fec t iv ene s s, taki ng into consi de rat io n relevan t law, regulation, the Ethical S tandard, other professiona l req uire men t s and any FRC audi t insp ec t io n ndin gs
• Ov er se e th e op era ti on of t he p ol ic y on t he e ng ag eme nt of th e Ex terna l Aud ito r s to sup pl y non -au di t se r vi ces
• Rep or t t o th e Bo ard o n how t he Co mmi t t ee h as di sch arg ed its responsib ilities

Th e Comm it tee op era te s und er f orm al te rm s of refe ren ce app roved by t he B o ard. T he se we re revi ewe d dur in g th e yea r and a m ino r ame nd me nt ma de to u pd at e a le gis la ti ve refe ren ce. Th ey are a vail ab le to v iew i n th e Inves t or s/Corp ora te Governance/Bo ard C ommit te es sec tion of the Company’s website: w w w .vesuvius.com.

Within these terms, the Commit tee and i t s in div id ual m emb e rs ar e emp owe red to o bta in ou t si de le gal o r ot he r ind ep en de nt prof es sio na l ad vic e at t he co st o f th e Comp any. Thes e po wer s we re not u ti lis e d dur ing t he ye ar. Th e Comm it tee ma y al so s ecur e th e at tend ance a t i ts m ee ti ng s of any em pl oyee o r oth er p ar ties w it h rel eva nt ex pe ri enc e and ex pe r t ise s ho uld i t b e cons id ere d nec es sar y.

Th e Comm it tee memb er s bel ieve th at they rece ive d suf  cie nt, rel evan t and re li abl e info rm at io n thro ug hou t t he ye ar fro m management a nd the I nternal and External Aud i tors to enable th e Comm it tee to f ull y dis ch arge i t s res po nsi bil it ies. T he wo rk of th e Aud it Co mmi t t ee i s fur ther e la bo rat ed in t he r ema ind er o f this report.

Financial r eporting

Th e Comm it tee ful ll ed it s prim ar y resp on sib ili t y to review th e integrit y of the half year and annual Financial Statements and reco mme nd ed t he ir ap prova l to th e Bo ard.

In for mi ng i ts v ie ws, th e Comm it tee as s es se d:

• The qual it y, acc eptabilit y and consistency of the accounting policies and pr ac tices
• Th e cla ri t y an d cons is te nc y of t he di scl os ures, in clu din g comp li ance wi th rele vant na nci al repo r t ing st and ard s and other r epor ting r equiremen ts
• Sig ni can t issue s wher e man ag em ent jud ge men t s and/ o r estimates had been made tha t wer e material to the repor ting or w her e dis cus sio ns h ad ta ken pl ace w it h th e Ex terna l Aud it or s in arri vi ng at the judg em ent or es ti ma te
• In rel a tio n to t he ove rall A nnu al Re po r t, whe th er t he A nnu al Rep or t a nd F ina nci al Sta tem en ts t aken as a w ho le we re fai r, balanced and understandable, taking int o consider ation all the inf orma tion av ailable t o the Committee
• Th e Gro up’s compl ian ce wi th t he n ew re qui rem ent s in r esp ec t of T CF D Report ing, i ncluding the assuranc e rec eived regar ding th e sus tai na bil it y KPI da ta. Th e Com mi t te e al so rev iew ed an d app roved t he co mp le ted c lim at e-re la te d ris k and o pp or tuni ti es reg is ter a nd th e wo rk un de r ta ken by th e Gro up to fo rm ula te t he scenario analys es
• Th e app lica t ion o f th e FRC’s gu ida nce o n cle ar an d con cis e rep or t in g an d th e key takea way s fro m th e The ma ti c Rev iew s is sue d by th e FRC th roug ho ut t he ye ar o n th eme s suc h as Int eri m Resu lt s, Go in g Con cern a nd V iab ili t y Sta te me nt s, Stre aml ine d Ene rgy an d Car bo n Rep or t in g an d IA S 37 – Provi sio ns, Conti ng ent Lia bil it ies and Conti ng ent A ss et s
• The disc losure and presentation of a lternative performance me asur es , in vi ew of t he gu id eli ne s is sue d by th e FRC

Th e Com mi t tee actively deli berated and challenged reports fro m th e Chief Fina nci al Of cer and the Hea d of Fi na nce. Th es e were well pre pare d and, for areas of judg eme nt and/o r estimation, set out the rationale for the accounting treatment and dis clo sure s, and t he p er t inen t as su mpt io ns an d th e se nsi ti vi ti es of th e es t ima te s to ch ang es i n th e as sum pti on s. T he E x te rn al Auditors a lso deliver ed memoranda for the half-year a nd yea r-e nd, st at ing it s view s on the trea tm en t of signi ca nt issu es. Th e Ex t er nal A udi tor s p rovi de d a summ ar y fo r ea ch is su e, including it s assessment o f the a ppropriateness of ma nagement ’s jud ge me nt s or e s ti ma tes.

Signicant issues and material judgements

Th e Comm it tee consi de red the foll ow ing sig ni can t issue s in th e contex t of the 2021 Fi nan cia l S tat em ent s. It i de nt i ed the se are as to b e signi  cant, takin g into accoun t th e level of m at er ial it y and th e degre e of ju dg em ent exerc ise d by m ana ge me nt. Th e Comm it tee reso lve d tha t the judg eme nt s and es tim a tes ma de on each of t he sig ni can t issu es deta il ed bel ow were appropriate and acce ptable.

Impairment of intangible assets

Th e 2021 yea r-e nd car r yi ng va lue o f go od wil l of £614.2m was tested against the current a nd planned p erformance o f the Stee l Flo w Cont rol, Stee l Adv ance d Ref rac to ri es, Stee l Sen so rs & Prob es a nd Fo und r y CGUs. Th e Com mi t te e con sid ere d th e 119 Our business Our per formance Sustainabilit y Governanc e Financial Statements Board-approved medium-term business plans, medium-term and t er min al grow th as sump ti ons, as w ell a s th e dis cou nt rat es us ed i n th e as se ss men t s. Re leva nt s ens it iv it ie s usi ng rea so nab ly p os sib le c han ge s to key as sum pti on s were ev alu ate d. Th e det ail ed a ss umpt io ns ar e prov ide d in N ote 17 t o th e Gro up Financial Statement s. Gi ven t ha t th e mo de ls in di cat ed, ev en wi th th e app lic at io n of rea so nab le s ens it iv i tie s to t he a ssu mpt io ns, th at t he re rem ain s sig ni can t head roo m bet we en th e value in use and the carr ying value, the Committee concu rred that no goodwill impairment charg es were re quire d.

Other pro visions

Th e Comm it tee con ti nue s to mo ni tor t he i mpl ica ti ons o f a num be r of pot ential expos ures and c laims a rising from ongoing litigation, pro duc t q ual it y issu es, emp loye e dis pu te s, re s tr uc t uri ng, va can t si tes , env iro nme nta l ma t te rs , le ga c y ma t t er la ws ui ts, in dire c t ta x dis pu tes a nd i nde mni t ie s or war rant ie s ou t s tan din g for d isp os ed bus ine s se s. D ue to t he l on g ge st at io n pe rio d b efo re se t t le men t fo r a nu mb er of t he se i ssu es ca n be re ac he d, prov isi on ing fo r th es e item s requ ire s careful jud ge men t in o rde r to e s tab lis h a rea so nab le e s tim at e of fu t ure li abi li ti es. Th e Comm it tee al so as se ss ed t he s t ren gt h of any in sura nce cove rag e for ce r ta in of these liabil ities and c hallenged the acco unting treatment f or an y amo unt s d ee me d to be re cove rabl e fro m ins urer s. Af te r du e consider at ion and challenge, a nd having consider ed legal advice obt ain ed by th e Comp any, th e Commi t t ee is sat is ed tha t th ere are ap pro pri at e leve ls of p rovi sio ns s et a sid e to se t t le t hi rd-pa r t y cla ims a nd di spu te s (Note 30 to th e Gro up F ina nci al Sta tem en ts) and t ha t ad eq ua te di scl osu re ha s be en m ad e. Wh ere no r eli abl e es t ima te of t he p ot ent ial l iab il it y can be ma de fo r th e ou tcom e of an e xis t ing i ss ue, n o prov isi on ha s be en m ad e and a pp ropr ia te dis clo sure i s in clu de d und er co nti ng ent l iab il it ie s (Note 32 to th e Group Financial Statement s ).# Report of the Audit Committee

Operating segments for continuing operations

The Committee considered the aggregation of the Steel Flow Control, Steel Advanced Refractories, and Steel Sensors & Probes operating segments into the Steel reportable segment, noting the economic characteristics of these operating segments which include a similar nature of products, customers, production processes and margins. The Committee concluded that this segmentation remained appropriate.

Impairment of investment in subsidiaries

The Committee has also reviewed management’s impairment analysis of the parent company’s investment in subsidiaries. Following this review it concurred that no impairment was required.

Defined benefit pensions

The Committee carefully reviewed the accounting for, and valuation of, the UK pension assets, following the purchase by the Trustees of an insurance contract to match the remaining pension liabilities.

Fair, balanced and understandable reporting

The Committee considered all the information available to it in reviewing the overall content of the Annual Report and Financial Statements and the process by which it was compiled and reviewed, to enable it to provide advice to the Board that the Annual Report and Financial Statements are fair, balanced and understandable. In doing so, the Committee ensured that time was again dedicated to the drafting and review process so that internal linkages were identified and consistency was tested. Drafts of the Annual Report and Financial Statements were also reviewed by a senior executive not directly involved in the year-end process who reported to the Committee on his impressions of their clarity, comprehensiveness, and the balance of disclosure in the document. On completion of the process, the Committee was satisfied that it could recommend to the Board that the Annual Report and Financial Statements are fair, balanced and understandable.

Risk management and internal controls

As highlighted in the reviews of strategy and principal risks in the Strategic Report, risk management is inherent in management’s thinking and is embedded in the business planning processes of the Group. The Board has overall responsibility for establishing and maintaining a system of risk management and internal control, and for reviewing its effectiveness. The Audit Committee assists the Board in reviewing the effectiveness of the Group’s system of internal control, including financial, operational and compliance controls, and risk management systems. This framework is consistent with the Code.

In 2021, Committee members fully participated in the Board review of existing risks and ongoing mitigating actions, further details of which are given on pages 34 and 35. The Committee believes that the Group’s process for identifying and understanding its principal risks and uncertainties remains robust and appropriate.

The Committee considered the Company’s going concern statement and challenged the nature, quantum and effects of the combination of the unlikely but significant risks to the business model, future performance, solvency and liquidity of the Group. These were all modelled as part of the scenarios and stress testing undertaken to support the viability statement.

As part of this review, the Committee considered the Group’s forecast funding requirements over the next three years and analysed the impact of key risks faced by the Group with reference to the Group’s debt covenants; these included stress testing for an unplanned drop in customer demand, debt recovery risk due to customer default, business interruption due to unplanned closure of several key plants and raw material cost inflation. The scenarios considered the impact of multiple risks occurring simultaneously and the additional mitigating actions that the Group could take. The Committee noted that the Group’s debt headroom was sufficient to accommodate the modelled stress scenarios. As a result of its review, the Committee was satisfied that the going concern statement and viability statement had been prepared on an appropriate basis. The 2021 going concern statement and the 2021 viability statement are contained within the Risk, viability and going concern section on page 33.

The key features of the Group’s internal control system, which provides assurance on the accuracy and reliability of the Group’s financial reporting, are detailed in the Risk, viability and going concern section on pages 29–35.

During 2021, the Committee considered the process by which management evaluates internal controls across the Group. The Group Head of Internal Audit provided the Committee with a summary overview of the assurance provided by the Group’s control framework and the testing of these controls. PwC also reports if there are any significant control deficiencies identified during the course of their audit.

The Group is made up of several large operating units, but also many small units in geographically diverse locations. Consequently, segregation of duties, overlapping access controls on systems and remote management oversight can give rise to control vulnerabilities and fraud opportunities. The Group has not adopted a common Enterprise Resource Planning system as a Group-wide standard. Over time, the Group is moving towards a shared services model, enabled by control, process and systems standardisation between businesses. This is expected to enhance the overall internal control environment in the smaller operating units. The Group undertakes a range of activities to mitigate the risk of fraud.

Cyber security

The Board places significant emphasis on operational security, of which Information and Communication Technology and Cyber awareness are a vital part. Cyber resilience continues to be a significant area of focus for the Group. Cyber risks are integrated into our wider risk-management, including forming part of the Business Continuity Plan (BCP) undertaken to counteract business interruption – either in loss of production capacity or supply chain disruption due to physical site damage (accidents, fires, natural disasters, terrorism), industrial action, cyber attack or global health crises.

Integration between BCP and cyber security is done in several areas. We constantly conduct cyber security risk assessments, analysing business impact to mitigate potential downtime. We have an Incident Handling and Response Policy, which sets out how we improve visibility and monitoring of all network infrastructure. These processes give us an effective way to proactively manage risk and mitigate business continuity concerns. Furthermore, IT has developed a Disaster Recovery Plan for inclusion in wider business continuity plans to address network, data centre and infrastructure issues.

Vesuvius has a multi-year strategy for maintaining and developing cyber security based on best practices and standards, and monitoring trends and cyber threats against appropriate indicators. This also encompasses in-house vulnerability testing and analysis, using external reports and benchmarks to develop our processes. Our cyber security work therefore supports and protects our production capacity, and invests in appropriate resources in this fast-changing environment.

The Group’s IT Security Strategy and Roadmap is based on the ISO 27001 standard and NIST frameworks, implementing best practices in the area, but currently without ISO accreditation.

In 2021, against the increasing trend in phishing emails and ransomware attacks affecting operational capabilities, we carried out disaster recovery tests to assess the resilience of our systems and continuity both for suppliers and customers. In 2021, Vesuvius experienced no such interruptions or service denials.

During the year, the Group worked to strengthen IT security, through the development of operational technologies, the optimisation of the Group’s overall IT procedures and framework, and the continuation of regular cyber security training programmes. We also focused on staff development to increase operational capacity. We continued to improve our Incident Handling and Response Policy, which was used successfully to handle minor incidents as they occurred. This demonstrates that we have the correct building blocks for responding to cyber incidents.

Vesuvius plc Annual Report and Financial Statements 2021
Audit Committee continued
120# Governance

The Board of Directors is responsible for the overall governance of the Group and for setting the Group’s strategy and values. The Board delegates the day-to-day management of the business to the Executive Directors and the senior management team.

Board of Directors

The Board comprises a significant majority of independent Non-Executive Directors. The Directors have a diverse range of skills and experience and their biographies are set out in the Directors' biographies section of this report. The Board has established a Nomination Committee, a Remuneration Committee and a Sustainability Committee to assist it in carrying out its duties.

Audit Committee

The Audit Committee is comprised of three independent Non-Executive Directors. The Chairman of the Audit Committee is also the Chairman of the Board. The other members are independent Non-Executive Directors. The committee meets regularly throughout the year and its terms of reference are reviewed annually by the Board.

The key responsibilities of the Audit Committee include:

• Reviewing the Group’s annual financial statements and interim results prior to their approval by the Board.
• Reviewing the effectiveness of the Group’s internal control systems and internal audit function.
• Reviewing the scope and findings of the external audit.
• Reviewing the Group’s risk management processes and policies.
• Considering and advising the Board on the appointment of the external auditor.
• Reviewing the Group’s compliance with legal and regulatory requirements.

Internal Audit

The Group’s Internal Audit function operates on a global basis through professionally qualified and experienced individual members located in the UK and Poland. They report to the Group Head of Internal Audit, based in London, who in turn reports directly to the Chairman of the Audit Committee.

Throughout 2021, Internal Audit continued to perform a program of audits focusing on internal financial controls and key Board compliance issues. The Committee received, considered and approved the 2021 Internal Audit plan which was constructed using a risk-based approach to cover the Group’s control environment. The plan was based on the premise that all operating units are audited at least once every three to four years, including the smaller operating units. Internal Audit annually audits each of the large operating entities located in Germany, the US, China, Mexico and Brazil.

Due to the travel restrictions arising from the COVID-19 pandemic, the 2021 plan focused on European financial controls audits and remote desk top audits in the first half, with no long haul international travel before June 2021. Some on-site long haul audits were performed in the second half of the year but these continued to be severely limited due to COVID-19 restrictions. As a result, the remainder were performed remotely.

Whilst the scope of the audit work was modified to facilitate remote testing, the entities tested remained aligned with the original risk-based plan. On-site controls-based testing was replaced with remote financial controls health check audits supplemented by the continued use of trial balance deep dive testing which involved a detailed review of the trial balance and its underlying transactions. The health check audits required entities to submit evidence of the operation of key balance sheet reconciliations and key financial controls which were then reviewed remotely. This approach continued to allow the identification of areas for control improvement.

The actions being taken to address these issues have been discussed at length at the Audit Committee with regular updates on the progress made. Internal Audit reported significant progress made against issues reported in previous years. In 2021, a total of 34 audit assignments were undertaken (27 in 2020).

The Committee received a report from the Group Head of Internal Audit at each of its meetings detailing progress against the agreed plan. Key trends and findings and an update on the progress made towards resolving open issues was also given.

Common themes emerging from Internal Audit reports coupled with Internal Audit and management’s assessment of risk have informed the development of the 2022 Internal Audit plan.

When necessary, Internal Audit contracts auditors from other audit firms to supplement internal resources on an ad hoc basis. This process provides valuable learning opportunities and we expect to continue to use external resources in specialist areas and geographies in the future.

Control issues continue to be recorded in a live web-based database into which management is required to report progress towards addressing any open issues. Internal Audit monitors the progress made and frequent meetings continue to be held with each business unit President to ensure that engagement on the resolution of issues is clearly understood at all levels of the business and responsibility for remediation has been appropriately assigned. The results are communicated to the Audit Committee which also involves senior management as necessary to provide an update against any high-priority actions. Internal Audit undertakes follow-up reviews as required.

This framework is regularly reviewed to determine areas for improvement. Eliminating the risk of fraud remains one of the key areas of focus for Internal Audit, forming a fundamental part of ‘full scope’ and financial audits. These assess the quality of the balance sheet reconciliations, review key judgement matters, consider ERP access rights, review tenders and quotations, review the entity’s controls over master data changes, and review controls over payments, journals and associated applications, along with travel and expense reimbursements. Any control issues identified by management locally or as a result of the work performed by Internal Audit are escalated as appropriate. Internal Audit rate all control issues they identify in terms of their significance and agree remediation plans with the auditee and an action owner, establishing a target date for remediation. For significant issues, management at all levels within the business are engaged to agree the actions and remediation dates. The status of the remediation is monitored and overdue issues are escalated appropriately with management, and reported at Audit Committee meetings. The Audit Committee continues to challenge management on the root cause where issues arise on the progress of remediation activities.

Cyber risks continue to be a significant area of focus for the Group, with Vesuvius like most other companies, receiving a large number of ‘phishing’ emails presenting fake credentials and subject to repeated attempts at social engineering fraud. The Group has an IT Committee that meets on a regular basis to review and progress the Group’s plans for tackling cyber issues, and the Audit Committee receives regular updates on the Group’s activities in this area. During 2021, the Group continued to enhance its infrastructure and networks to improve its IT security. A holistic approach is taken to addressing cyber challenges, focusing on the improvement of the Group’s overall IT procedures and framework. The Group continues to run regular training programmes on cyber/IT security.

During 2021, the Group continued its review of third-party representatives and intermediaries. This included detailed due diligence for new third parties and ongoing monitoring of our sales agents. The Committee also continued its assessment of the Group’s potential exposure to bribery and corruption risks, noting the ongoing work conducted by the Group in this context. The face-to-face visits to operations usually conducted to assist with the work were curtailed by the COVID-19 pandemic. In 2020 we undertook a detailed review of the existing compliance program and resources, and in 2021 the output of this review, combined with previous risk assessments, was used to further develop the Group’s framework, policies and procedures for the management of anti-bribery and corruption risk, to ensure they reflect a continued appropriate level of control for the business.

In line with the requirements of the Code, responsibility for the oversight and monitoring of the Group’s Speak Up helpline, which collates allegations of improper behaviour and employee concerns, has passed from the Audit Committee to the full Board. The Committee is kept appraised of any complaints received by the Company regarding fraud, accounting, internal accounting controls and auditing matters. Further details of the operation of the Group’s Speak Up policy and helpline can be found on page 109.

Each year, the senior financial, operational and functional management of the businesses self-certify compliance with Group policies and procedures for the areas of the business under their responsibility and confirm the existence of adequate internal control systems throughout the year. The Committee reviews any exceptions noted in this bottom-up exercise.

The work undertaken during the year indicated the existence of an appropriate control environment, albeit with some areas for improvement, for which clearly defined improvement actions have been identified, particularly in respect of the Group’s cyber risks. No significant control issues were raised by our External Auditors, PwC and Mazar s, and no material issues were identified in 2021.

After considering these various inputs, the Committee was able to provide assurance to the Board on the effectiveness of internal financial control within the Group, and on the adequacy of the Group’s broader internal control systems.# Instructions where audit findings require longer-term solutions, the Committee oversees the process for ensuring that adequate mitigating controls are in place. An internal review was undertaken of the effectiveness of the Internal Audit function in 2021, canvassing the views of the divisional finance Vice Presidents, business unit Presidents and other key stakeholders. This concluded that the function remains effective in adding value to the organisation and provides appropriate challenge to the Group’s businesses and functions. Going forward the need for the more timely escalation and reporting of findings were noted as key areas for improvement. Having considered the work of the Internal Audit function during 2021, including progress against the 2021 Internal Audit plan, the quality of reports provided to the Committee, and the results of the review of the function’s effectiveness, the Committee concluded that the Internal Audit function operated effectively during 2021.

External Audit

Auditors’ appointment

In 2017, the Company appointed PricewaterhouseCoopers LLP (PwC) as External Auditors to the Company and the Group, and Mazars LLP (Mazars) to audit the non-material entities within the Group. PwC has nominated Darryl Phillips as the audit partner responsible for the Group audit. Darryl assumed this role following the completion of the 2020 half year review.

Under the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order, the Audit Committee is required to report in which year the Company proposes to complete a competitive tender process in respect of the statutory external auditor, and the reasons why the proposed year for the competitive tender process is in the best interests of the shareholders.

In compliance with the Order, the Audit Committee confirms that a competitive tender process for the appointment of a statutory auditor will, subject to satisfactory annual reviews of the effectiveness of the External Auditors and its costs in the intervening period, be conducted during 2026 with a view to recommending the appointment of a new statutory auditor or the reappointment of the incumbent auditor, for the financial year ending December 2027.

The Audit Committee believes that conducting a competitive tender process during 2026 for the appointment of a new statutory auditor for the financial year ending December 2027 is appropriate, and in the best interests of the shareholders.

Audit Committee continued

12
Vesuvius plc Annual Report and Financial Statements 2021

2021

Audit plan

PwC’s 2021 year-end audit plan was based on agreed objectives. The audit focused on areas identified as representing significant risk and requiring significant judgement. PwC maintained an ongoing dialogue with the Audit Committee throughout the year providing regular updates, including commentaries on significant issues and its assessment of consistency and appropriateness in the judgements and estimates made by management. Private sessions were held with PwC without management being present.

PwC confirmed that its work had not been constrained in any way and that it was able to exercise appropriate professional scepticism and challenge throughout the audit process. The Chairman of the Audit Committee met on a number of occasions with PwC to monitor the progress of the audit and discuss questions as they arose. The Independent Auditor’s Report provided by PwC on pages 161–169 includes PwC’s assessment of the key audit matters. The key audit matters are discussed in the significant issues and material judgements comments above. The report also summarises the scope, coverage and materiality levels applied by PwC in its audit.

As part of the audit planning process and based on a detailed risk assessment, the Committee agreed a materiality figure of £6.3m for Group financial reporting purposes which is 10% lower than last year (£7.0m) and is set at 4.6% of headline profit before tax of £137.3m. Importantly, much lower levels of materiality are used in the audit fieldwork on the individual businesses across the Group and these lower figures drive the scope and depth of audit work. Any misstatement at or above £0.35m was reported to the Committee.

There were no significant changes this year to the coverage of the audit which stood at 70% of the Group’s revenue, 67% of profit before tax and 69% of headline profit before tax. This coverage was considered to be sufficient by the Committee. The audit coverage is reflective of the long tail of smaller businesses within the Group that individually are not ‘material’ to the Group result.

The Committee also received a report from Mazars during the year which noted that there were no findings or recommendations in respect of its statutory audits of the non-material Group subsidiaries for the year ended 31 December 2020, that Mazars deemed sufficiently material or significant to bring to the attention of the Audit Committee.

During the year the Committee evaluated the PwC Group audit scope for 2021. This included additional components audited by Mazars. Along with responsibility for the statutory audits of the non-material Group subsidiaries for the year ended 31 December 2021 Mazars were also tasked with undertaking specific audit procedures for certain component entities that were within PwC’s Group audit scope. This latter work was directed, supervised and reviewed by PwC.

The PwC audit fee approved by the Audit Committee was £1.8m. This was constructed bottom up on a local currency basis and was assessed in light of the audit work required by the agreed materiality level and scope. The fee agreed with Mazars for the audit of the non-material entities and three material entities was £0.8m, resulting in a combined audit fee for 2021 of £2.6m, compared with £2.4m in 2020.

Independence and objectivity

The Committee is responsible for safeguarding the independence and objectivity of the External Auditors in order to ensure the integrity of the external audit process. In discharging this responsibility during 2021, the Committee:

– Sought regular confirmation from the incumbent External Auditors that they considered themselves to be independent of the Company in their own professional judgement, and within the context of applicable professional standards
– Assessed the work of the External Auditors and considered whether they were exercising an appropriate level of professional scepticism
– Evaluated all the relationships between the External Auditors and the Group, including compliance with the Group’s policy on the employment of former employees of the External Auditors, to determine whether these impaired, or appeared to impair, the Auditors’ independence
– Reviewed compliance against the policy on the provision of non-audit services by the External Auditors
– Reviewed details of the non-audit services provided by the External Auditors and associated fees

As a result of its review, the Committee concluded that the External Auditors remained appropriately independent.

Non-audit services

Vesuvius operates a policy for the approval of non-audit services. A copy of the current policy is available to view in the Audit Committee section of the ‘Investors/Corporate Governance’ pages of the Company’s website: www.vesuvius.com.

The use of the External Auditors for the provision of non-audit services is strictly prohibited except for specific permitted audit related services. These comprise:

Category 1 services which the External Auditors are obliged to perform due to law or regulation, such as regulatory and solvency reports; and

Category 2 services which could be provided by others (albeit there are typically significant efficiencies to be had when done in combination with the audit such as interim reporting).

An annual budget for the additional Category 2 service fees proposed to be paid to the External Auditors in the following year is presented for pre-approval to the Audit Committee each year. Audit Committee approval is required for expenditure in excess of this approved budget.# Effectiveness of the External Audit process

The Committee and the Board are committed to maintaining the high quality of the external audit process. Each year the Committee carries out a formal assessment of the performance of the External Auditors in carrying out their work and of the audit process in general. Input into the evaluation in 2021 was obtained from management and other key Company personnel, members of the Audit Committee and the External Audit team. The review focused on the External Auditors’ mindset and culture, skills, character and knowledge, and the quality of its controls, as set out in the guidance for audit committees prepared by the FRC. The evaluation of the External Auditors included the following steps:

• A survey of key finance and non-finance stakeholders in Head Office and in-scope countries
• A commentary-based survey of Audit Committee members focused on their experience of working with PwC
• Consideration of PwC’s approach to assessing the risks to its audit quality and an evaluation of the actions it had taken to mitigate these
• A review of other external evidence on PwC audit quality (e.g. report on PwC by the FRC)
• An assessment against the objectives outlined in PwC’s Audit Objectives report
• Discussions with PwC and key finance and non-finance personnel

The evaluation concluded that the audit process had been suitably rigorous, with PwC providing an effective, objective and challenging audit process for the 2020 financial year. The learnings from previous audits and the resultant actions taken had had a positive impact on the overall efficiency and effectiveness of the audit. The continuity of PwC team members had greatly enhanced the audit. PwC had further improved their audit approach and communications, challenging the team in the right areas and providing strong technical expertise. The PwC team was also seen as independent by the Audit Committee and management. To further improve the process it was agreed that update meetings continue to be held in 2021. Debrief meetings were held at a local level to discuss the 2020 audit and to constructively share feedback that would facilitate further improvements to the audit planning for the 2021 audit and an improved understanding of the audit approach and requirements.

Reappointment of PwC for 2022

The Committee is responsible for making recommendations to the Board in relation to the appointment, reappointment and removal of the External Auditors. In undertaking this duty, the Committee takes into consideration a number of factors concerning the External Auditors and the Group’s current activity, including:

• The results of its most recent review of the effectiveness of the Auditors
• The results of its review of the independence and objectivity of the Auditors, particularly in light of the provision of non-audit services
• Its ability to coordinate a global audit, working to tight deadlines
• The cost-competitiveness of the Auditors in relation to the audit costs of comparable UK companies
• The tenure of the incumbent Auditors
• The periodic rotation of the senior audit management assigned to the audit of the Company
• External reviews of the performance and quality of the Auditors, including:
  • The annual report issued by the Audit Quality Review team of the Financial Reporting Council on the work of the Auditors
  • The Auditors’ own annual Transparency Report

Having considered the aforementioned factors, the Committee recommended to the Board that PwC be reappointed for 2022. It confirms that its recommendation is free from the influence of any third party and that there are no contractual restrictions on the choice of auditor. A resolution proposing the reappointment of PwC will be included in the notice of AGM for 2022. The Committee has noted the ruling by the Securities Exchange Board of India (SEBI) regarding the prohibition placed on PwC network companies performing audits of listed entities in India for two years from 1 January 2018. PwC subsequently won the appeal at the Securities Appellate Tribunal (SAT) allowing PwC to continue with existing audits of listed companies. SEBI appealed against the SAT order in November 2019 and this was stayed by the Supreme Court pending final disposal of the appeal. For the rest of the order, dealing with the ban, there has not been any hearing and no date has been fixed. The Committee continues to monitor developments on this matter in the context of the Group’s two listed Indian subsidiaries, Foseco India Limited and Vesuvius India Limited.

Audit Committee evaluation

The Audit Committee’s performance was evaluated as part of the overall externally facilitated Board and Committee performance evaluation, which is described in depth on pages 128 and 129. The review concluded that the Committee continued to function well, with the Committee judged to effectively monitor the work of the internal and external auditors. The level of engagement between the Audit Committee and the Chief Financial Officer and his team, the Head of Internal Audit and the External Audit Partner was considered to be appropriate, open and candid. The Committee noted that work continued to improve the Group’s internal controls systems through further standardisation of processes. A number of priorities were identified for the Audit Committee over the coming year, including supporting the internal audit function as it re-focused its work to align with the lifting of Covid-19 travel restrictions, continuing the focus on the implementation of the financial operating model, maintaining oversight of the Group’s cyber risk mitigation actions and monitoring the outcome of the BEIS consultation and any resultant actions that needed to be taken by the Group.

On behalf of the Audit Committee
Douglas Hurt
Chairman, Audit Committee
3 March 2022

Audit Committee continued

On behalf of the Nomination Committee, I am pleased to present the Nomination Committee Report for 2021. The primary responsibility of the Nomination Committee is to focus on Board composition and succession planning, to ensure that the Board is composed of individuals with the appropriate drive, abilities, diversity and experience to lead the Company in the delivery of its strategy. As part of this work, the Committee is also responsible for overseeing succession plans for senior management to ensure that the Group has a consistent pool and pipeline of diverse talent for future potential progression to the Board.

In early 2021, the Committee progressed with the appointment of new non-executive expertise on the Board, with the appointment of Dinggui Gao to the Board on 1 April 2021. This followed the announcement of the departures of Hock Goh and Holly Koeppel, who stepped down at the close of the 2021 AGM. Subsequently, the Committee, led by the Senior Independent Director, Douglas Hurt, commenced the process for the appointment of a new Chair. The Committee is well advanced in this process.# Nomination Committee

On consideration of this focus on Board recruitment, the Committee also spent a considerable amount of time during the year reviewing senior management succession. This included the recruitment and development of additional talent in our business unit executive committees, as well as further progress on the Group’s diversity strategy.

Your sincere rely,

John McDonough CBE
Chairman, Nomination Committee
3 March 2022

Meetings

The Committee met five times during the year.

Key activities during the year

Board composition

The Committee reviewed the structure, size and composition of the Board, including the skills, knowledge and experience required for the Board to continue to function effectively and support the delivery of our strategy. This analysis took into consideration the need to ensure an appropriate balance of independence and diversity among Board members. The Committee then evaluated the current Board composition against an assessment of future business needs.

Board succession

The Committee considered the anticipated rotation of Directors from the Board and future requirements for Board composition, with a focus on ensuring that the Board continues to be resourced by a group of Directors with the skills, diversity and experience necessary to support the future accomplishment of the Group’s Strategic Objectives. As part of this review the Committee considered the Company’s ongoing compliance with the Board Diversity Policy. The Committee engaged recruitment consultants to assist in the search for new Board members and oversaw the successful recruitment process to identify Dinggui Gao, as a Non-executive Director. During the year Jane Hinkley succeeded Holly Koeppel as the designated Non-executive Director responsible for overseeing engagement with the workforce.

Senior management development and succession

The Committee reviewed the Group’s succession processes and candidates for the Group Executive Committee and the management cadre below this level, focusing particularly on the recruitment and retention of talent in the business unit executive committees. It also examined how the Group’s talent management processes were developing, how the senior management cadre was performing and how the mentoring programme established for the development of individuals flagged as ‘high potential’ was proceeding – all aimed at providing a pipeline of experienced and talented managers to succeed to roles at the highest level of the business. In this process, the Committee focused both on the bench strength in key skills and expertise as well as the talent pipeline in critical geographies.

Diversity

The Committee reviewed the Group’s progress in achieving its diversity targets, with a particular focus on the recruitment of women to the senior management tiers.

Directors’ elections

The Committee considered the Directors’ annual elections and re-elections at the AGM.

Kath Durrant	Joined the Committee on his appointment to the Board on 1 April 2021
Dinggui Gao
Hock Goh	Served on the Committee until his retirement from the Board on 12 May 2021
Friederike Helfer
Jane Hinkley
Douglas Hurt
Holly Koeppel	Served on the Committee until her retirement from the Board on 12 May 2021
John McDonough CBE	– Committee Chairman

Committee evaluation

The Committee reviewed its performance and effectiveness during 2021, including evaluating whether each Non-executive Director was spending sufficient time fulfilling their duties.

Committee terms of reference

The Committee reviewed its terms of reference.

The Nomination Committee

The Nomination Committee is made up of me, as Chairman of the Company, and the Non-executive Directors. During the year, I was Chairman of the Committee, though I did not act as Chairman when the Committee was discussing issues surrounding my succession; in these instances Douglas Hurt our Senior Independent Director served as Chairman in my place. The Company Secretary is Secretary to the Committee. Members’ biographies are set out on pages 104 and 105.

Role and responsibilities

The Nomination Committee’s foremost priorities are to ensure that the Company has the best possible leadership, to oversee the process for Board appointments, to ensure that plans are in place for orderly succession to both the Board and Group Executive Committee positions, and to oversee the development of a diverse pipeline for succession. The Committee ensures that the procedure for the selection of potential candidates for Board appointments – either as an Executive Director or independent Non-executive Director – is formal, rigorous and transparent and undertaken in a manner consistent with best practice. It also ensures that appointments to the Board are made on merit, against objective criteria and with due regard for the benefits of diversity of gender, social and ethnic backgrounds, and cognitive and personal strengths.

The Nomination Committee advises the Board on appointments, retirements and resignations from the Board and its Committees. The Committee operates under formal terms of reference. A copy of these terms of reference, which were reviewed during the year, is available on the Group’s website: www.vesuvius.com. The Committee and its members are empowered to obtain outside legal or other independent professional advice at the cost of the Company in relation to its deliberations. These rights were not exercised during the year. The Committee may also secure the attendance at its meetings of any employee or other parties it considers necessary.

Process for Board appointments

The Committee follows formal, rigorous and transparent procedures for the appointment of new Directors. When considering a Board appointment, the Nomination Committee draws up a specification for the role, taking into consideration the balance of skills, knowledge and experience of its existing members, the diversity of the Board, the independence of continuing Board members, and the ongoing requirements and anticipated strategic developments of the Group. The search process is then able to focus on appointing a candidate with the necessary attributes to enhance the Board’s performance.

During 2021, the Committee oversaw the selection process to identify and recruit a new independent Non-executive Director, as part of the Group’s planned Director rotation and also commenced the process to identify a new Chair for the Board. The Senior Independent Director chaired the Committee for all matters pertaining to the recruitment of the new Chair. The Committee reviewed the skills and attributes required for the roles and agreed individual job specifications. The Committee approached three agencies to submit applications to assist the Company with the recruitment of a new Chair. After careful consideration, the global specialist recruitment agency, Spencer Stuart, was retained to undertake the brief, having also assisted with the successful search for Dinggui Gao during the year. Spencer Stuart has adopted the Voluntary Code of Conduct addressing gender diversity and best practice in search assignments. It does not have any other connection with the Group, other than in respect of management recruitment work undertaken during normal trading activities. It was selected for these assignments following a review of potentially qualified agencies, based on its skills and expertise.

The searches for these new Directors were conducted globally and long-lists of potential appointees were produced by Spencer Stuart. For each appointment, the Committee reviewed a long-list of candidates, from which a short-list of candidates for interview was drawn up, based upon the objective criteria identified at the inception of each process. In the case of the appointment of Dinggui Gao, members of the Committee conducted initial interviews with the short-listed candidates. He then met with all other Board members by videoconference, given that travel restrictions from China prohibited face-to-face meetings. Detailed external references were taken up and, following this, the Committee made formal recommendations to the Board for the appointment of Dinggui Gao as a new Non-executive Director.Din gg ui was r equ ire d to de mon s tra te tha t he h ad suf cie nt time avai la bl e to devote to his rol e and to iden ti f y any p ot ent ia l con ic t s of inte res t. No co n ic t s were ide nt i ed . A simil ar proce ss is well advan ced for the id ent i ca ti on of a new Chai r un der t he g uid an ce of Do ugl as H ur t o ur Se nio r Independent Dir ec tor . A comp reh en sive i nd uc ti on p rog ramm e was p ut i n pl ace fo r Di ngg ui G ao, al th ou gh t he Com mi t te e ’s de sire t ha t he s ho uld b e abl e to v isi t a se le c ti on of o ur gl ob al m anu fac t uri ng s ite s ha s be en hampered by travel restric tions. Nonetheless, Dinggui has visited seve ral of t he G rou p’s site s in Chi na an d he h as v isi t s pl ann ed to many of o ur ot he r gl ob al si te s in 2022.

Board composition

On an o ng oi ng b asi s, t he Co mmi t t ee rev iew s t he cur ren t and fu tu re need s of t he Bo ard and its Com mit tee s – ree c tin g on th e bal an ce of sk ill s, k now le dg e an d ex pe rie nce of t he c urre nt Di rec to rs a nd co mpa ri ng th is a gai ns t th e Bo ard ’s lis t of key sk ill s ne ed ed to s upp or t the de li ver y o f th e Comp any ’s s tra te gy. Th e ind ep en de nce an d di ver si t y of t he B oa rd and t he b al an ce of sk ill s, e xp er ien ce an d deve lo pm ent n ee ds of B o ard me mb er s are al so e xami ne d as p ar t of t he G rou p’s annual co rp ora te gove rn ance re vie w. The Com mi t te e’ s key skil ls m at ri x is rev iewe d ann ual ly an d th e Com mit tee co nsi der s t he e xis t in g ten ure an d th e pros pe c ti ve rot at io n and re ti rem ent o f Bo ard m emb er s, s o t ha t it can pl an su cces si on a ccordi ng ly. Alon gs ide t he re cr uit me nt of a new N on- exe cu ti ve Di rec to r in 2021 , a nd t he pro gre ss io n of pl ans for a n ew Cha ir , t he Co mmi t tee cons id ere d th e ten ure of al l me mbe r s of th e Bo ard, n ot ing t ha t, on 3 De cem be r 2021 , Ja ne Hin kl ey ha d ser ved nin e yea rs o n th e Bo ard. Fo ll owi ng de tai le d 12 6 V esuvius plc Annual Report and Financial S tatements 2 02 1 Nomination Commit tee con t inued dis cus sio ns J ane h as a gre ed to re ma in on t he B oa rd an d has und er taken to con tin ue to s upp or t the G roup, in clu din g ac t in g as the Board Non-executive Dir ec tor respons ible f or o verseeing wo rk fo rc e en gag em en t, until a s ucce ss or i s recr ui ted f oll ow ing t he appoin tment of th e new C hai r , at w hi ch po int s he w ill s te p dow n fro m th e Bo ard. I n th e mea nt ime , the B o ard un de r to ok a th orou gh an d rob us t rev iew of J ane ’s in de pe nd en ce. It co nsi de red he r ski lls a nd co ntr ib ut io n to th e Bo ard , not in g th at sh e now n o lo nge r se r ve s on any o th er e x ter na l bo ards a nd d oe s not h ave a ny bus ine s s or rela ti on ship s tha t could mat eri all y inu en ce or int er fe re wit h her abili t y to exerci se obje c t ive or inde pe nd ent jud ge me nt or her abi li t y to a c t in th e be s t intere s ts of the Grou p. Th e Bo ard con clu de d th at s he co nti nu es to b e in de pe nde nt of management a nd a strong and valuable c ontributor t o the Bo ard ’s wo rk .

Diversity

The Gro up Di ver si t y a nd Equ ali t y Pol ic y ou t lin es Vesuv ius ’ commitment to encouraging a s uppor tive and inclusive culture among its global workforce, promoting div er sit y and eliminating any po ten ti al di scr imi na ti on in o ur wo rk e nviro nme nt. V e su viu s’ Bo ard D ive rs it y P oli c y ex pl ain s how t his co mmi tme nt man ife s t s in rel at io n to th e Bo ard . V e su viu s reco gni se s th e valu e of a di ver se and s ki lle d wor k force a nd is co mmi t ted to cre at in g and maintaining an inclusive and collaborative workplace culture that wil l prov id e sus tai na bil it y for the o rga nis at io n int o th e fu tu re. We be lie ve th at t he d edica ti on an d prof es sio na lis m of our p e opl e is th e most sig ni can t contr ibu to r to o ur succes s. Ha vin g a b ala nce of cul tu res , et hni ci ti es an d ge nd er s he lps t o prom ote i nno vat io n, crea t iv it y and eng ag em en t. Th e di ver si t y of o ur em pl oyee s is on e of th e core s t ren gt hs of t he G rou p. Copi es of t he G rou p’s Dive rs it y po lic ies c an be f oun d on t he G roup’s web si te: w w w .vesuv ius .com .

As an organisat ion, V esu vius has a global, multicultural op era ti on al and custo me r base, whi ch we w is h to re e c t insid e our o rga nis at io n wi th a m ult ic ult ura l, di ver se co mmu ni t y of exce lle nt p rofes si on als f rom a ll ba ckgro und s. T his s ta r t s by focu sin g on b roa d div er si t y of g end er a nd n at io nal it y , w ith an a im to ensure th at all empl oyee s and job appl ican t s are give n equ al opp or tuni t y a nd t ha t our o rga nis at io n is rep res en ta ti ve of all se c ti ons o f so cie t y w here w e op era te. Eac h emp loye e is re sp ec te d and va lu ed an d as a re sul t th ey are a ll ab le to g ive t he ir b es t. Al l emp loye es a re giv en he lp, tra ini ng an d en coura ge me nt to deve lo p th eir f ul l pot ent ia l and u t ili se t hei r uni que t ale nt s . In li ne w it h th e Gro up’s glob al co mmi tm en t to di ver si t y , th e Nomination C ommit tee f o cuses on ens uring that the Board and it s Co mmi t t ee s als o ha ve th e ap prop ri at e rang e of di ver si t y, skill s, experience, independence and kno wledge of the Company and th e mar ket s in w hic h it o pe rate s , to dis ch arge t he ir du ti es a nd res po nsib il it ie s ef fe c ti ve ly. W e co nti nue t o lo ok a t div er si t y in i t s bro ad es t sens e – re e c te d in t he rang e of b ackgro und s and ex pe rie nce o f Bo ard me mb er s wh o are dra wn f rom d if f eren t nationalities and have ma naged a v ariet y of complex global businesses. The Nomination Committee recognises tha t div ersit y is a key in gred ie nt in cr ea tin g a ba la nce d cul tu re for o pe n dis cus sio ns a t Bo ard l eve l and i n mini mis in g ‘ gro upt hin k ’ . Th e Bo ard’s ove rall s ki lls a nd e xp er ien ce, as we ll a s th e Non-exec utive Dir ectors’ independence, were re viewed during th e year. The Bo ard ’s co mp osi t ion a ls o for me d par t of the B oa rd eval ua tio n pro ces s . The B o ard con sid er s i ts d ive rs it y , size an d comp os it io n to be a pp ropr ia te fo r th e req uire me nt s of th e bus ine s s. In 2019 , i t ach ieve d it s t arge t of a t le as t 33% fema le Bo ard m emb er sh ip, and a t th e en d of 2021 , 38 % of t he D ire c tor s were wo me n. T hree D ire c to rs ar e non -UK ci t izens a nd t w o of th e Dir ec to rs (25%) iden ti f y as h av ing B AME h er it age . The Bo ard Dive rs it y Pol ic y conr ms the Gro up’s co mmi tme nt to ma inta ini ng a B oa rd comp ri sin g at l ea st 33% fe mal e me mbe r ship, w hil e con tin uin g to ap po int ca ndi da te s bas ed o n me ri t and re cog nis ing t ha t ove r ti me t he pro po r t io n of fem al e Di rec to rs wil l uc tu at e nat urall y as Bo ard memb er s reti re and new D ire c tor s are a pp oin te d. In 2021 , 1 4% (2020: 1 4%) of our wo rk forc e were wo me n, wh ich was s ta ble v er sus 2020. The G roup p revi ous ly s et a ta rge t of ens uri ng t ha t 30 % of th e T op Ma na ge me nt (memb er s of t he Gro up E xecu ti ve Co mmi t t ee p lus t hei r key dire c t rep or ts) are fem ale b y 2025. The n umb er of wo me n in t he T op M ana ge me nt tea m incre ase d by 1 perc enta ge po int in 20 21 to 21 %. Loo ki ng for w ard, t he B oa rd has r eso lv ed to e xp an d th e scop e of t his ge nde r di ver si t y ta rge t to en comp as s t he bro ad er S eni or Lea de rs hip Grou p of t he Comp any , whi ch compr is es c. 1 6 0 ind iv idu als . Th is K PI has a ls o be en i ncor po rat ed i nto t he l ong - ter m in cent ive s of o ur se nio r ma na gem en t. The Com mi t te e wi ll continue to monitor the Group ’s ongoing pr ogress towa rds ach iev ing i t s di ver si t y ta rge ts . Each o f th e Gro up’s four bu sin es s uni t s ha s pu t in pl ace s t rat egi es t o add res s ge nd er d ive rsi t y. Fu r ther in formation on the Group ’s appr o ach t o promoting div er si t y can b e fou nd o n pa ge 95.

As at 31 De cemb e r 202 1 , t he g en de r ba lan ce of th e G roup’s emp loye es wa s as fo llo ws:

	Female	Male	Total	Female	Male
Group Executive Committee member	2	6	8	25%	75%
Senior Management	10	39	49	20%	80%
Top Management	12	45	57	21%	79%
Middle Management	63	427	490	13%	87%
All other employees	1,544	9,113	10,657	14%	86%
Grand total	1,619	9,585	11,204	14%	86%

	Female	Male	Total	Female	Male
Directors of subsidiaries included in consolidation	2	35	37	5%	95%

1. Top Management comprises key leadership roles reporting directly to members of the Group Executive Committee.
2. There are 406 directors of Group subsidiaries, 9% of whom are women. This disclosure is made to comply with regulatory requirements. It includes directors of dormant companies. Some individuals hold multiple directorships.

12 7

• Austrian
• British
• French
• South African
• Chinese

Board evaluation

The Bo ard car ri es ou t an e valu at io n of it s p er f orm an ce and t ha t of it s Co mmi t tees eve r y ye ar . Th is ye ar ’s eval ua ti on wa s ag ain ex t ern al ly facil it ate d by t he corp ora te adv is or y rm , Lin t st ock . Th e Gro up uses Lin t st ock ’s Insid er Lis t da ta ba se too l but has no oth er conn ec t io n wit h th e organi sa ti on and Lint s to ck doe s not ha ve a conn ec t io n wi th a ny of th e Di rec to r s. Each eva lua ti on wa s con duc t ed v ia a s eri es of t arg ete d que s ti onn ai res .# A s wi th p rev iou s year s , th e evalu at io n pro ces s no t onl y cove red t he p er fo rm an ce of th e Bo ard b ut al so t ha t of i ts Comm it tees , al on g wi th i ndi vi dua l revi ew s of ea ch D irec t or an d an an aly si s of th e pe r fo rma nce of t he Ch ai rma n. Na rra ti ve rep or t s w ere pr epa red fo r th e B oard , th e Aud it, No min at io n and Re mun era ti on Co mmi ttees , and i n res pe c t of th e Cha irm an . In 202 1, ra th er tha n target in g a sp ec i c act io n or pro ces se s, th e Bo ard eva lua t ion wa s fo cuse d on p rovi din g an ove rall ‘he alth-check ’ for the Board’s performance, so that this c ould act as a b ase li ne fo r an in comi ng Ch air . Thu s, t he B oar d as se ssm en t focu se d on s even co re are as: B oa rd comp os it io n, ove rs igh t of st akeh old er s , Bo ard d yna mic s , Bo ard su pp or t a nd fo cus of meetings, Board oversight , risk ma nagement , and priorities for ch an ge. I t als o cover ed t he co ndu c t of th e Bo ard ’s strategy meetings. Ov eral l, th e Bo Ard wa s se en to o p era te ef f ec t ive ly w it h an app rop ria te co mp osi ti on . It wa s not ed t ha t th e rece nt B oard cha ng es ha d af fec ted t he B oar d dy na mic s bu t t ha t Bo ard rel at io nsh ips we re ra ted p os it ive ly ove ral l. Th e No n-e xecu t ive Directors’ engagement with management in pr oviding effective sup po r t an d cons t ru c ti ve cha ll eng e al so re cei ved hi gh ra ti ngs . Me et ing s were co ns ide red t o be we ll m ana ge d an d th e use of vir tual me et ing s as a ppro pr ia te, was consid ere d ben e cia l. The bal an ce of th e B oard ’s focus wa s gen era lly v ie wed fa vou rabl y al th oug h th e cont inu ed t ens io n be t we en co mpl et in g a bro ad agenda and spending more time concentrating on key issues and dis cus sio n, wa s hig hli ght ed. T he B oa rd ’s un de rs ta ndi ng of t he vi ews a nd re qui reme nt s of s ta keho ld er s was ra te d hig hly w it h reg ard to i nves to rs a nd p osi ti vel y wi t h reg ard to cus t ome r s and emp loye es , bu t sco pe f or im prov ing t he B oar d’s un de rs t and ing of our suppl y chain was ide nti  ed. The Bo ard ’s ef fe c ti ven es s in set ting and monitoring culture throughout the or ganisation was rated pos itively , although the oppor tunities for e ngagement wi th t he wo rk fo rce ha d be en h amp ere d in 2021 by the COV I D - 1 9 pandemic. In te rms o f lon ge r -ter m st ra teg y , Vesuv ius ’ cap aci t y t o de live r on thi s was ra te d hig hl y overal l, wi t h emp ha sis p la ced o n th e ne ed to ens ure tha t the Grou p cont in ued to recru it and retai n suf  cie nt hig h cali bre ta le nt to su pp or t s uch d eli ver y in the f ut ure . Thi s woul d be a n are a of focu s in 2022, alo ng w it h th e con ti nue d rol l-o ut of th e Gro up’s Sus tain ab ili t y s t rat egy a ge nd a. In a ddi t ion , th e Bo ard re so lve d to ag ain f ur ther i t s un der s ta ndi ng of co mp et ito r dy nam ic s in 2022 and gain fur ther ins igh ts on spe ci  c cus tom er and su pplier dynamics. With the f or thcoming changes in Non-exec utive Dir ectors, succ ession planni ng and induc tion were a ga in hi ghli ght ed a s an are a of fo cus . Th e Gro up’s off-si te s tra te gy s es sio n was p os it ive ly re ga rde d wi th a hig h qua li t y of d eb ate a nd g oo d leve l of p ar t ici pa ti on . The t op pri or it y fo r the Board ’s n ex t st ra teg y ses sio n was ide nt i ed as sus tai na bil it y and th e cont in uin g ne ed to e nsu re thi s was f ull y int egra te d int o th e bus ine s s st ra teg y an d op era ti ons . In addition to the primary focu s on safety , and the iss ues hig hli ght ed ab ove, t he to p pr ior it ie s fo r V e su viu s as a bu sin es s over the comi ng year were ide nt i ed by t he Bo ard as bein g impro ving margins, capturing or ganic and wher e possible inorgan ic gr ow th, and mana ging mar ket volatilit y . Th e ind iv idu al as se s sme nt of D ire c tor s con clu de d th at a ll of t he Di rec to rs co nt inu ed to c ont ri bu te ef f ec t ive ly, provid ing e xp er t and strategic advice as ap propriate and holding managemen t to acco unt i n an op en a nd co ns tr uc t ive m ann er . T hey w ere cons id ere d to dev ote a de qua te t ime t o th eir d ut ie s and t o be engaged and proac tive in deba te at all meetings. The Chairman was viewe d to op era te wit h obj ec t iv e j udg em ent, and h is appro ach to ch air ing m ee ti ngs w as de em ed t o be i ncl usi ve and t o faci li ta te de ba te. Eac h of th e Comm it tee s was al so co nsi de red to h ave op era te d ef fe c ti vel y du rin g th e yea r . A s in p revi ous ye ar s, a s et of a c ti on p oi nt s was co mpi le d fro m th e ou tp ut of the evalua ti on to ensure tha t it s  ndin gs are inclu de d in th e Bo ard ’s a c ti vi t ies . Th es e wi ll b e imp le men ted b y the B oar d in 2022, wit h pro gre ss re vi ewed by t he B oar d th rou gho ut t he ye ar .

Further inf ormation on the Group ’s approach to promoting diversit y

Board nationalities

Board c omposition

Female Directors

Independent Directors

Prior experience of serving as a director of a listed plc

Experience managing a finance function

International business experience

8	3	3	4	4	12
8

V e suvius plc Annual Report and Financia l S tatements 2 02 1

Nomination Commit tee con t inued

Th e 2020 ev alu at io n ide nt i ed th e follow in g Board pri or it ie s for f u tur e Bo ard at t ent io n; th es e were add res se d duri ng 202 1 as follo ws:

Area

Issue

Act io n ta ken i n 2021

Strategy

Over s ee t he im pl em ent at ion o f th e Gro up’s sust ain abi li t y in it ia ti ve ens uri ng i t is fu ll y emb ed de d in th e Gro up’s st rate gy

Thro ugh ou t t he year t he Board receiv ed b ri e ngs from t he Chief Exe cu ti ve and V P Sus ta ina bil it y on the a c ti vi ti es of t he G rou p’s Sus tai nab il it y Counci l, wh ich i s taske d wi th i mme di ate ov er sig ht of t he Gro up’s sust ain ab ili t y a c ti vi t y. The Bo ard m oni to red p rog res s ag ain st th e Gro up’s targe t s and n ote d th e mo re de tail ed w ork t ha t ha d be en und er taken to id ent if y and as se ss t he i mpl ica ti on s of lo ng-ter m cli ma te-r ela te d ri sk s an d opp or tuni ti es , as we ll as t he G rou p’s as sump ti ons o n th e po ten ti al im pa c t of th os e cha nge s .

Enhanc e the Board’s awa reness of c ompeti tors’ activities

Mor e de tail ed i nfor ma ti on o n th e Gro up’s key glob al com pe ti to rs , V esuvius’ dif ferenti ation and compar ative stre ngths an d wea knes ses was i nclu de d dur in g th e Stra teg y me et in g.

Maintain the Board’s understanding o f cu s tomers’ requi reme nt s

Th e Bo ard re ceiv ed up da te s at e ach B oar d me et in g on t he is su es impacting our c us tomers and Ves u vius’ response . A compr ehensive presentation cov ering long- term customer trends was pr esented at th e Oc to be r Boar d m ee ti ng. T he B oa rd vis it ed a cus t ome r of ou r Stee l bus ine s s in 2021 .

People and organisation

Gro up E xecu ti ve Co mmi t t ee succ ession

Thro ugh ou t th e yea r th e No min at io n Comm it tee re ceiv ed up da te s on th e ac t ion s be in g taken to re cr uit, de vel op an d reta in in di vi dual s in t he senior managemen t c adres, and the impact of these actions on the tal ent p ip eli ne fo r Gro up E xecu t ive Co mmi t tee ro le s in th e G roup.

Enhanc e the Board’s understanding of se nio r tal en t thro ugh ou t th e organi sation

Al th ou gh op po r t uni ti es to v is it t he G roup’s si tes w ere cur taile d by t he COV I D - 19 p an d e m i c in th e  r st h a l f o f 2 021, d ur i n g t h e l a t te r p a r t o f th e year, the Cha irm an an d No n-e xec ut ive D ire c tor s we re ab le to v isi t eig ht Vesuv ius si te s in p er so n al ong w i th a nu mb er of ‘ vir tual ’ Board vis it s . Th e vis it s e nab le d th e Boar d to i nte rac t w it h se ni or ma na ger s and ‘ high po ten ti al ’ s ta f f a t ea ch of th es e si te s, w it h so cia l fun c t ion s arra ng ed to p rovi de t he o ppo r t uni t y f or inf orm al di scu ss ion s.

Senior management succ e ssion

Th e Comm it tee’ s succe ss ion p la nni ng a c ti vi ti es d o not e xclu sive ly relate t o the Board b ut encompass t he senior management levels immediately belo w the Boar d, aiming to s uppor t and enc ourage th e grow th of a po ol of t ale nt ab le to s t ep u p to t he t op ro le s in fu tu re yea rs . Th e Com mit tee con sid er s su cces si on pl an s for al l the senior f unctional and b usiness un i t positions, a ssessing th e avai la bil it y of candi da tes w ho co uld c over t he ro le s on a sho r t-term con ti ng enc y b as is sh oul d th e ne ed a ris e, al on g wi th t he po ol of m ed ium-te rm an d lo ng-te rm ta len t ava ila bl e for f ut ure deve lo pm ent into sp eci c rol es . The Commi t te e conti nue d to focu s on t he G roup’s tal ent d eve lop me nt an d suc ces sio n pl ann ing pro ces se s in 2021 , w it h a con tin uin g emp ha sis o n th e rec rui tm en t, development and retention of candidates wi thin thi s senior management c adre. The Commit tee cons idered the activities be ing und er taken to ll the gaps in this tale nt po ol, and to develo p and re cr uit n ew e xecu ti ve s.

Comm it tee eval ua tio n

Th e Comm it tee’ s ac t ivi t ie s were p ar t o f th e ex t ern all y fa cili ta te d eval ua tio n of B oar d e f fe c ti ven es s du rin g th e yea r , wi th Committee members completing individual questionnair es. Th e resu lt s of t he se su bmi ss io ns we re coll at ed a nd a wr it ten report tabled and discussed by the Commit tee. The management of No min at io n Com mit tee m eet in gs wa s hig hl y rate d ove rall, wi th t he q ual it y of infor ma tio n prov id ed a ls o rate d po si ti vel y .# Directors’ Remuneration Report

Remuneration overview

Dinggui Gao
Joined the Committee on his appointment to the Board on 1 April 2021

Hock Goh
Served on the Committee until his retirement from the Board on 12 May 2021

Jane Hinkley
Served on the Committee until her retirement from the Board on 12 May 2021

Douglas Hurt

Holly Koeppel

Kath Durrant – Committee Chair

Performance

Health & Safety

As the Chairman and Chief Executive outlined in their statements, the Company again operated a range of safety protocols to protect our teams against the transmission of COVID-19 in 2021, as we continued to place the highest priority on health and safety. We are pleased that our businesses continued to operate effectively, serving our customers despite the continuing pandemic. The Company received no financial support from the UK government during the year.

Operational

Revenue for the year increased to £1,642.9m (+18.1% on an underlying basis vs 2020), marking the bounce back in key markets. Trading profit at £142.4m was 50.4% greater than 2020 (on an underlying basis) and return on sales increased by 190bps, on an underlying basis, to 8.7%. These results exceeded expectations in what has been a challenging year for Vesuvius and many industrial businesses. Extensive supply chain disruptions for raw materials and logistics services, added significant challenge and complexity to each area of our operations. The management of pricing and the ability to pass on frequent price increases has been a critical area of focus both centrally and in our decentralised operations requiring extensive customer interaction. The Flow Control, Foundry and Sensors & Probes business units all out performed their underlying markets and grew market share. Deliberate decisions were taken in Advanced Refractories to protect pricing over volumes, and as a result some market share erosion occurred. The continued focus on operational effectiveness enabled our trade working capital to sales ratio to improve further to 20.9%, an improvement of 230bps vs 2020. These results demonstrate disciplined leadership at multiple levels of the organisation. Product quality metrics also continued to improve.

Strategic

The focus on R&D continued in the period with further investment in mechatronics and product development, and a focus on supporting our customers to reduce their CO2 emissions. 27 new products were launched in 2021, with revenue from new products launched in the past five years now at 15.3% (vs 12.4% in 2020). Significant focus on the Sustainability initiative launched in 2020 has enabled a continued improvement in Scope 1 & 2 emission reductions, with 2021 emissions 16.5% lower than the 2019 base year, improvements in diversity with women now representing 21% of Top Management (vs 12.5% in 2019), and succession candidates identified for the majority of critical roles. Health and Safety performance improved further towards our zero accident goal with a Lost Time Injury Frequency Rate (LTIFR) of 1.06 per million hours worked, the best performance achieved to date. The Chief Executive led the Board through extensive strategy discussions exploring options for both organic and inorganic growth. Significant investments in both Poland and India were approved in 2021 and at the end of the year the acquisition of the business of Universal Refractories, Inc in the United States was announced. The Company’s debt position remains well controlled at 1.4x EBITDA.

Incentive outturns

In 2021, the Annual Incentive Plan (AIP) was based 60% on Group headline earnings per share (EPS), 20% on the Group’s working capital to sales ratio (based on the 12-month moving average) and 20% on specified personal objectives. Performance against these measures is illustrated below and full detail of the targets are detailed on page 146.

Our adjusted headline earnings per share of 38.8 pence was above the maximum annual incentive plan target of 36.9 pence and above the 2020 outturn of 27.6 pence. The Group’s working capital to sales ratio of 20.9% also exceeded the maximum annual incentive plan target of 21.7%, and was above the 2020 outturn of 23.2%. The Committee agreed personal objectives for the Chief Executive and CFO at the start of 2021 and assessed their performance to merit 71% and 65% of maximum targets respectively. The overall formulaic outcome of the bonus scorecard was 94.2% of maximum for the Chief Executive and 93.0% of maximum for the CFO. The Committee gave careful consideration to these outcomes and was satisfied that they were consistent with the strong financial and operational performance and strategic progress outlined above.# Remuneration Overview Continued

The Committee noted that similar and complementary KPIs exist in the incentive programmes for managers and employees and was mindful of the outturns for the wider workforce in confirming its decisions for Executive Directors and the Executive Committee. Consequently, the Committee concluded that no discretionary adjustment was required.

Strategic alignment
* Deliver profitable growth
* Generate value for our shareholders
* Maintain an efficient capital structure
* Always put safety first
* Think beyond in innovation
* Run best-in-class sustainable operations
* Foster talent, skill and motivation in our people

See more about Our strategy on p14 and p15

Personal objectives

Item	Weighting	CEO	CFO
Working capital/sales ratio	20%	71%	65%
EPS	80%	100%	100%

On-target Threshold Performance achieved.

1. 60% weighting.
2. 20% weighting.

Reshaped 2022 Performance Measures

In light of these findings, we have made some modest changes to the performance measures in our incentive structure for 2022 whilst maintaining our focus on key financial metrics.

1. The Introduction of a Returns Measure

A returns measure has been introduced into the AIP and VSP in 2022. This change is in response to shareholder feedback and is designed to provide fairer and better alignment between delivery of our strategic and financial goals, and the incentive outturns. Its introduction into the VSP in place of EPS allows us to maintain focus on long-term profitability whilst removing the historic difficulty in setting robust three-year EPS targets. A range of returns measures were considered and post-tax ROIC was selected as the most complete measure during both steady state and periods of inorganic growth. Post-tax ROIC targets will be set by reference to a number of relevant factors including: our strategy, market conditions and anticipated cost of capital, which is less volatile and easier to forecast than other financial metrics. It is also consistent with a philosophy of management being rewarded for value generating activity. As an important driver of post-tax ROIC is the return generated on our capital base, delivering sustainable profits will continue to be an important element in our remuneration arrangements.

2. The Introduction of ESG Measures

Of most importance to the Company and aligned with our Sustainability strategy:

• Energy: Reduction in Scope 1 & 2 CO2e emissions per metric tonne of product packed and shipped. Energy intensity is a key measure for the Group and validation of data over time provides confidence to set targets aligned with our goal to achieve net zero status at the latest by 2050.
• Safety: A reduction in the Lost Time Incident Frequency Rate. The industry in which we work poses significant risks, not least due to the large numbers of staff working at customer locations around the world. Safety remains a priority and continued improvement towards zero accidents remains management’s top operational priority.
• Diversity: An improvement in the gender representation in our senior management population; whilst improvements have been made in the number of women serving amongst our Top Management of c. 60 individuals in recent years, there remains a significant task to continue this progress further down the organisation.

The performance period for the awards made under the Vesuvius Share Plan (VSP) in 2019 was completed at the end of 2021. Performance was measured equally by reference to total shareholder return (TSR) relative to the FTSE 250 (excluding investment trusts) and headline EPS growth over the three-year period. This has been a particularly challenging period for the global economy and, by extension, a cyclical business like Vesuvius. Consequently, relative TSR performance (measured against the constituents of the FTSE 250 and so including companies operating in many different sectors and impacted by different macro-economic drivers to Vesuvius) was below median and headline EPS growth was below the threshold target of a range set prior to the COVID-19 pandemic. These results mean that none of the shares potentially available to the Chief Executive and CFO under this award will vest. The Committee has not applied any discretion with respect to this nil vesting of the 2019 VSP awards, mindful of the experience of shareholders and other stakeholders in what has been a difficult period for many.

Review of Executive Remuneration Arrangements

Following my appointment as Committee Chair, the Committee and I decided it was an opportune moment to undertake a review of executive remuneration arrangements to understand our competitive positioning, the alignment of pay and performance over time, recent feedback from shareholders and the views of all Board and Executive Committee members. In relation to incentives, central themes emerging from the review were:

• The challenge of setting long-term EPS targets in a cyclical business, as highlighted by the second consecutive cycle of VSP awards delivering zero vesting as outlined above.
• That alignment with strategy may be improved through the selection of alternative KPIs; in this we noted the request from several shareholders to consider a returns metric.
• A desire to incorporate ESG KPIs more explicitly into incentive arrangements. In this we noted the support of the executive team and the broad investor sentiment expressed by a range of shareholders regarding ESG and pay.
• A desire to ensure both the incentivisation and retention of an executive team that is now fully formed and focused.

Other Changes in 2022 Executive Remuneration

Another theme that emerged from our review was the importance of retaining key senior executives and ensuring that their remuneration appropriately reflected their performance, development in the role and importance to the business. In that context, the Remuneration Committee has particularly focused on the remuneration of our CFO, Guy Young. When Guy joined Vesuvius in 2015, his salary was set well below that of his predecessor given his then lack of experience as a Group CFO and Executive Director. After six years in the role, he is now an experienced FTSE plc CFO. The Committee believes that his current remuneration package still positions him below market compared to less experienced sector peers, and does not accurately reflect his value to the business. It is also inconsistent with his sustained performance and role criticality. Accordingly, Guy’s salary has been increased in 2022 by 9% to £420,000 which we believe more fairly reflects his level of experience and importance to the Group. The Committee has also reviewed the salary of our Chief Executive, Patrick André, and agreed an increase of 4% in 2022 to £643,000. This is a lower increase than our budgeted Group global workforce salary increase for 2022 of 5.2%. There will be no change in 2022 in AIP opportunity (150% of salary) or VSP award level (CE: 200% of salary; CFO: 150% of salary) for either Executive Director. As outlined in last year’s Remuneration Report, these Directors’ pension allowances are frozen at the 1 January 2020 amount and will be reduced to 17% of salary from the end of 2022 in line with the average of that received by the majority of the workforce.

Chairman and Non-Executive Directors’ Fees

During the year, the Committee reviewed the Chairman’s annual fee, taking account of factors including the time commitment associated with the role and the need to continue to attract talented candidates as the Board plans for an orderly succession once John completes his term as Chairman. Following that review, the Committee set the Chairman’s fee for 2022 at £240,000. Separately, the Board considered Non-Executive Director fees, taking into account similar factors and made a number of consequent adjustments to the fee structure that are detailed on page 145. Those adjustments include the introduction of a new supplementary fee for the Non-Executive Director responsible for workforce engagement which reflects the significant time commitment associated with this role. These are the first increases in fee levels since 2019.

Workforce Remuneration and Employee Engagement

The Group’s operations are geographically diverse in nature.The Group does not operate a central workforce engagement mechanism. However, in spite of travel restrictions brought about by COVID-19, visits to operations by the Non-executive Directors enabled all Committee members to host discussions explaining corporate governance and specifically the area of executive remuneration with large groups of employees in Poland, Germany, India, China and Belgium. Copies of the Company’s Annual Report detailing the Executive Directors’ remuneration are also widely disseminated throughout the Group and available for employees to view on the Company’s website. In 2021, despite the ongoing challenges caused by the COVID-19 pandemic, and thanks to a tremendous effort by local management, supported by an effective communication campaign, we again achieved a very high participation level in the Company’s employee engagement survey with 92% participation, the same participation as in 2020. Following improvements across all survey categories in 2020, the overall engagement score remained stable.

Shareholder engagement
At the 2021 AGM, the Directors’ Remuneration Report was supported by 99.32% of voting shareholders and I am very grateful for this demonstration of broad-based support for our executive remuneration arrangements. The Company’s top 20 shareholders were consulted on the changes to the KPIs for the AIP and VSP, and on the proposed salary increase for our CFO. We are grateful for the responses received and discussions had, and appreciate the support expressed by many of our shareholders. I welcome feedback at any point in time from our entire shareholder base regarding our remuneration arrangements and I hope that we will earn your support at the forthcoming AGM.

Kath Durrant
Chair of the Remuneration Committee
3 March 2022

The resulting structure of performance measures in 2022 is summarised in the table below.

KPI	2021	2022	Strategic rationale
Annual Incentive Plan: one-year performance
EPS	60%	40%	Consistent with our strategic aim of sustainable, profitable growth. Maintains the primary focus on a profit measure in short-term incentivisation
Working capital / sales	20%	20%	Consistent with our strategic aim of maintaining strong cash generation and an efficient capital structure
Post-tax ROI C	–	20%	Consistent with our strategic aim of generating sustainable profitability and creating shareholder value
Personal measures	20%	20%	Enables a focus on specific personal deliverables, managed through the performance management system
Vesuvius Share Plan: three-year performance
Relative TSR	50%	40%	Consistent with our strategic aim of delivering shareholders a superior return on their investment
EPS	50%	–	Removal of EPS reflects the difficulty in setting long-term targets for a cyclical business
Post-tax ROI C	–	40%	Consistent with our strategic aim of generating sustainable profitability and creating shareholder value
ESG	–	20%	Provides a specific focus on the three priority long-term ESG measures for the Group. CO2 intensity (10%), Safety (5%) and Diversity (5%)

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Financial Statements

Directors’ Remuneration Report

2020 Remuneration Policy

At the 2020 AGM, held on 13 May 2020, the Company obtained shareholder support for a new Remuneration Policy which took effect from the close of that meeting. The previous policy has been applied in its entirety up until this date. A copy of it is contained within the 2019 Annual Report which can be viewed in the Investors section (Results, Reports and Presentations) of the Vesuvius website: www.vesuvius.com. The elements of the previous policy that relate to remuneration that remained extant on this date (such as outstanding share awards) continue to apply until these commitments cease. The Policy operated as intended in 2021. For the benefit of shareholders, we have reprinted the Policy below.

To ensure that the Policy is relevant to the 2022 financial year, we have made minor textual changes to refer to the applicable financial year in the following sections: ‘Illustration of the Application of the Remuneration Policy for 2022’ (which also contains, as described, 2022 data); ‘Consideration of conditions elsewhere in the Group in developing policy’; and ‘Consideration of Shareholder Views’.

The Policy notes that vesting of awards under the Vesuvius Share Plan will be subject to performance conditions as determined by the Remuneration Committee ahead of each award. The performance conditions for awards made in 2020 and 2021 were based on Group EPS and relative TSR. In 2022 these are based on relative TSR, post-tax ROI C and ESG measures. The ‘VSP section’ of the Policy table and the section on ‘Performance measures’ note this application of the Policy in 2022.

Finally, the ‘Terms of service’ section refers to the dates of appointment of the current Non-executive Directors.

The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with such payments), notwithstanding that they are not in line with the Policy set out here, where the terms of the payment were agreed:

(i) before the date the Company’s first Remuneration Policy approved by shareholders in accordance with Section 439A of the Companies Act came into effect;

(ii) before the Policy set out here came into effect, provided that the terms of the payment were consistent with the shareholder-approved Remuneration Policy in force at the time they were agreed; or

(iii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Remuneration Committee, the payment was not in consideration for the individual becoming a Director of the Company.

For these purposes, ‘payments’ include the Remuneration Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is granted.

Remuneration Policy Table for Executive Directors

| Alignment / purpose | Operation ### Remuneration Policy Table for Executive Directors

| Alignment / purpose | Operation # Remuneration Policy continued

Retirement

An allowance is given as a percentage of base salary. This may be used to participate in Vesuvius’ pension arrangements, invested in own pension arrangements or taken as a cash supplement (or any combination of the above options). Maximum of 25% of base salary for incumbent Executive Directors at the date that this policy is adopted. This was frozen at the 1 January 2020 amount and will be reduced to 17% from the end of 2022 in line with the average of that received by the majority of the workforce. The level of allowance for Executive Directors appointed following the adoption of this policy will be aligned with the post-retirement benefits applicable to the majority of the workforce or, where appropriate, to the majority of the workforce of the relevant geography.

None.

Annual Incentive

Incentivises Executive Directors to achieve key short-term financial and strategic targets of the Group.

Additional alignment with shareholders’ interests through the operation of bonus deferral.

Normally 33% of any Annual Incentive earned by Executive Directors will be deferred into awards over shares under the Vesuvius Deferred Share Bonus Plan which normally vest after at least three years, other than in specified circumstances outlined elsewhere in this Policy. These may be cash or share settled.

The Committee has the discretion to determine that actual incentive payments should be lower than levels calculated by reference to achievement against targets if it considers this to be appropriate.

The Committee has the discretion to award participants the equivalent value of dividends accrued during the vesting period on any shares that vest.

Subject to malus and clawback.

• Below threshold: 0%.
• On-target: 50% of the applicable maximum opportunity in any year.
• Maximum: Up to 150% of base salary.

The Remuneration Committee will set the level of maximum bonus opportunity for each Executive Director at the start of each year, with 50% of the applicable maximum payable for on-target performance. Payments start to accrue on meeting the threshold level of performance, with payments between threshold and on-target and between on-target and maximum made on a pro rata basis.

The Annual Incentive is measured on targets set at the beginning of each year. The Committee establishes threshold and maximum performance targets for each financial year. The majority of the Annual Incentive will be determined by measure(s) of Group financial performance. The remainder of the Annual Incentive will be based on financial, strategic or operational measures appropriate to the individual Director. Performance is measured over a one-year period.

Actual performance targets will be disclosed after the performance period has ended. They are not disclosed in advance due to their commercial sensitivity.

Vesuvius Share Plan (VSP)

Aligns Executive Directors’ interests with those of shareholders through the delivery of shares.

Rewards Executive Directors for achieving the strategic objectives of growth in shareholder value and earnings.

Assists retention of Executive Directors over a three-year performance period.

VSP awards to Executive Directors are granted as Performance Share awards. These may be cash or share settled.

Awards vest three years after their award date, other than in specified circumstances outlined elsewhere in this Policy, subject to the achievement of specified conditions. All vested shares, net of any tax liabilities, are then subject to a further two-year holding period after the vesting date, which will continue to apply notwithstanding the termination of employment of the participants during this holding period, except at the Committee’s discretion in exceptional circumstances, including a change of control or where the participant dies or has left employment due to ill health, injury or disability.

The Committee has the discretion to award participants the equivalent value of dividends accrued during the vesting period and further two-year holding period on any shares that vest.

Subject to malus and clawback.

Executive Directors are eligible to receive an annual award with a face value of up to 200% of base salary in Performance Share awards.

Vesting at threshold performance is at 25% of the award, rising to vesting of the full award at maximum. Vesting will be subject to performance conditions as determined by the Remuneration Committee ahead of each award. Those conditions will be disclosed in the Annual Report on Directors’ Remuneration section of the Remuneration Report.

The performance conditions for awards made in 2020 and 2021 were Group EPS and relative TSR, and in 2022 will change to Relative TSR, post-tax ROIC and ESG measures as discussed elsewhere in this report.

The Remuneration Committee will retain discretion for future awards to include additional or alternative performance conditions which are aligned with the corporate strategy. At its discretion, the Committee may elect to add additional underpinning performance conditions.

The Company reserves the right only to disclose certain of the performance targets after the performance period has ended, due to their commercial sensitivity.

Prior to any vesting, the Remuneration Committee reviews the underlying financial performance of the Group over the performance period, and the non-financial performance of the Group and participants, to ensure that the vesting is justified. Following this review, the Committee has the discretion to amend the final vesting level if it does not consider that it is justified.

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2020 Remuneration Policy continued

Malus/ clawback arrangements

The Executive Directors’ variable remuneration is subject to malus and clawback provisions. These provide the Committee with the flexibility, if required, to withhold or recover payments made to Executive Directors under the Annual Incentive Plan (including deferred awards) and/or to withhold or recover share awards granted to Executive Directors under the Vesuvius Share Plan, including any dividends granted on such awards.

The circumstances in which the Committee could potentially elect to apply malus and clawback provisions include: a material misstatement in the Group’s financial results; an error in the calculation of the extent of payment or vesting of an incentive; gross misconduct by an individual; or significant financial loss or serious reputational damage to Vesuvius plc resulting from an individual’s conduct, a material failure of risk management or a serious breach of health and safety. These malus and clawback provisions apply for a period of up to three years after the end of a performance period (or end of the deferral period in respect of awards made under the Vesuvius Deferred Share Bonus Plan).

Performance measures

In selecting performance measures for the Annual Incentive, the Committee seeks to reflect key strategic aims and the need for a rigorous focus on financial performance. Each year, the Committee agrees challenging targets to ensure that underperformance is not rewarded. The Company will not be disclosing the specific financial or personal objectives set until after the relevant performance period has ended because of commercial sensitivities. The personal objectives are all job-specific in nature and track performance against key strategic, organisational and operational goals.

In selecting performance measures for the Vesuvius Share Plan, the Committee seeks to focus Executive Directors on the execution of long-term strategy and also align their rewards with value created for shareholders. On this basis, the performance conditions for the Vesuvius Performance Share awards initially included measures based on TSR and EPS performance and for 2022 will include measures based on TSR and Return on Invested Capital (post-tax ROIC) and ESG.

Remuneration Policy Design

The Committee is satisfied that the Remuneration Policy is designed to promote the long-term success of the Company in accordance with the requirements of the Code with regard to:

• Clarity: There is complete transparency on the executive remuneration arrangements with full disclosure in the Annual Report.
• Simplicity:
• Risk:# Annual Report and Financial Statements 2021

Remuneration Report

The Annual Incentive bonus structure for the Executive Directors is based on the same structure utilised for annual bonus arrangements for senior executives throughout the Group. The focus of incentive arrangements on long-term sustainable growth clearly aligns the interests of executives with those of the Group’s shareholders. The Vesuvius Share Plan, with its emphasis on the retention of shares for a period of at least five years, clearly aligns the long-term objectives of the Directors with that of its investors. The new Policy with its focus on three core elements: fixed pay, Annual Incentive and Long-Term Incentive is clear, simple and easy to understand. The Committee has carefully analysed the range of possible outcomes of awards and believes the Policy to be fair and proportionate, with the clear linkage to Group profitability mitigating the potential for excessive rewards and the reliance on audited profit numbers and externally verified TSR targets serving to mitigate behavioural risk. The Committee has discretion under the Vesuvius Share Plan to determine the vesting of awards in accordance with the Code requirement and malus and clawback provisions also apply.

• Predictability
• Proportionality
• Alignment to culture

The charts on page 137 provide estimates of the total remuneration for the Executive Directors for 2022 for minimum, on-target and maximum performance, showing the split between fixed and variable remuneration. The charts also indicate the maximum potential remuneration assuming 50% share price appreciation. Prior to any vesting under the Vesuvius Share Plan the Committee reviews the underlying financial performance of the Company over the performance period, and the non-financial performance of the Group and participants, to ensure that the vesting is justified. Following this review, the Committee has the discretion to amend the final vesting level if it does not consider that it is justified. The Committee believes that the performance-related elements of remuneration have financial targets which are transparent, stretching and clearly align the Executive Directors’ remuneration with the delivery of the Group’s strategy. The Vesuvius Share Plan rewards long-term performance directly linked with the Group’s strategy and results, ensuring that only strong performance is rewarded. The Executive Directors’ incentive arrangements are consistent with the Group’s core strategic objective of delivering long-term sustainable and profitable growth and support our performance-orientated culture. The inclusion of personal objectives in the Annual Incentive Plan affords the opportunity for attention to be focused on key non-financial strategic objectives each year.

136 Vesuvius plc Annual Report and Financial Statements 2021

Within the Policy period, the Committee will continually review the performance measures used to ensure that awards are made on the basis of challenging targets that clearly support the achievement of the Group’s strategic aims. The Committee may vary or waive any performance condition(s) if circumstances occur which cause it to determine that the original condition(s) have ceased to be appropriate, provided that any such variation or waiver is fair, reasonable and not materially less difficult to satisfy than the original condition (in its opinion). In the event that the Committee were to make an adjustment of this sort, a full explanation would be provided in the next Remuneration Report. The Committee may: (a) in the event of a variation of the Company’s share capital, demerger, special dividend or any other corporate event which it reasonably determines justifies such an adjustment, adjust; and (b) amend the terms of awards granted under the share schemes referred to above in accordance with the rules of the relevant plans. Share awards may be settled by the issue of new shares or by the transfer of existing shares. In line with prevailing best practice at the time this Policy was approved, any issuance of new shares is limited to 5% of share capital over a rolling ten-year period in relation to discretionary employee share schemes and 10% of share capital over a rolling ten-year period in relation to all employee share schemes.

Illustration of the application of the Remuneration Policy for 2022

The charts below show the total remuneration for Executive Directors for 2022 for minimum, on-target and maximum performance. The fixed elements of remuneration comprise base salary, pension and other benefits, using 2022 salary data. The assumptions on which they are calculated are as follows:

• Minimum: Fixed remuneration only.
• On-target: Fixed remuneration plus on-target Annual Incentive (made at 75% of base salary for Patrick André and Guy Young); and for the Performance Share awards (made at 200% of base salary for Patrick André and 150% of base salary for Guy Young) under the Vesuvius Share Plan, median performance for the TSR element and the mid-point between threshold and maximum performance for the post-tax ROIC and ESG performance conditions. No share price appreciation is assumed.
• Maximum: Fixed remuneration plus maximum Annual Incentive (being full achievement of financial and personal targets, made at 150% of base salary for Patrick André and Guy Young) and 100% vesting for Performance Share awards (made at 200% of base salary for Patrick André and 150% of base salary for Guy Young) under the Vesuvius Share Plan. No share price appreciation is assumed.
• Maximum including assumed 50% share price appreciation: This shows the value of the maximum scenario if 50% share price appreciation is assumed over the three-year performance period of the Performance Share awards.

Note: In addition, the Committee retains the discretion to award dividends (either shares or their cash equivalent) on any shares that vest.

Remuneration Illustrations £000

	0	500	1000	1500	2000	2500	3000	3500	4000
Patrick André, Chief Executive
Minimum					£857k
On-target						£1,854k
Maximum							£3,108k
Maximum including share price appreciation								£3,751k
Guy Young, Chief Financial Officer
Minimum				£534k
On-target					£1,101k
Maximum						£1,794k
Maximum including share price appreciation							£2,109k

• Fixed elements
• Annual variable elements
• Long-term variable elements

Remuneration Illustrations £000

	0	500	1000	1500	2000	2500	3000	3500	4000
Patrick André, Chief Executive
Minimum				£857k
On-target						£1,854k
Maximum							£3,108k
Maximum including share price appreciation								£3,751k
Guy Young, Chief Financial Officer
Minimum				£534k
On-target					£1,101k
Maximum						£1,794k
Maximum including share price appreciation							£2,109k

137

Service contracts of Executive Directors

The Committee will periodically review the contractual terms for new Executive Directors to ensure that these reflect best practice. Service contracts currently operate on a rolling basis and are limited to a 12-month notice period. Patrick André is employed as Chief Executive of Vesuvius plc pursuant to the terms of a service agreement made with the Company dated 17 July 2017. Guy Young is employed as Chief Financial Officer pursuant to the terms of a service agreement with Vesuvius plc dated 16 September 2015. Each Executive Director’s appointment is terminable by Vesuvius on not less than 12 months’ written notice, and by each Executive Director on not less than six months’ written notice.

External appointments of Executive Directors

The Executive Directors do not currently serve as Non-executive Directors of any other quoted company. Subject always to consent being granted by the Company for them to take up such an appointment were they to so serve, the Company would allow them to retain any fees they received for the performance of their duties.

Remuneration Policy for Non-executive Directors

The Company seeks to appoint Non-executive Directors who have relevant professional knowledge and have gained experience in a relevant industry and geographical sector, to support diversity of expertise at the Board and match the wide geographical spread of the Company’s activities. Non-executive Directors attend Board, Committee and other meetings, held mainly in the UK, together with an annual strategy review to debate the Company’s strategic direction. All Non-executive Directors are expected to familiarise themselves with the scale and scope of the Company’s business and to maintain their specific technical skills and knowledge.# Remuneration Policy continued

Non-executive Directors

The Board sets the level of fees paid to the Non-executive Directors after considering the role and responsibilities of each Director and the practice of other companies of a similar size and international complexity. The Non-executive Directors do not participate in Board discussions on their own remuneration.

Alignment / purpose	Operation	Opportunity	Performance Fees	Benefits and expenses
To attract and retain Non-executive Directors of the necessary skill and experience by offering market-competitive fees	Fees are usually reviewed every year by the Board. Non-executive Directors are paid a base fee for the performance of their role plus additional fees for roles that involve significant additional time commitment and/or responsibility. Such roles could include, but are not limited to, Committee chairmanship (and, where appropriate, membership) or acting as the Senior Independent Director. Fees are paid in cash. The Chairman is paid a single cash fee and receives administrative support from the Company. Non-executive Directors and the Chairman will be paid market-appropriate fees, with any increase reflecting changes in the market or adjustments to a specific Non-executive Director’s role. No eligibility for bonuses, retirement benefits or to participate in the Group’s employee share plans.	Base fees paid to Non-executive Directors will in aggregate remain within the aggregate limit stated in our Articles, currently being £500,000.	None.	To facilitate execution of responsibilities and duties required by the role. All Non-executive Directors are reimbursed for reasonable expenses incurred in carrying out their duties (including any personal tax owing on such expenses). Non-executive Directors’ expenses are paid in accordance with Vesuvius’ expense procedures.

2020 Remuneration Policy continued

138 Vesuvius plc Annual Report and Financial Statements 2021

Terms of service of the Chairman and other Non-executive Directors

The terms of service of the Chairman and the Non-executive Directors are contained in letters of appointment. Each Non-executive Director is appointed subject to their election at the Company’s first Annual General Meeting following their appointment and re-election at subsequent Annual General Meetings.

During the first year of his/her appointment, the Chairman is entitled to 12 months’ notice from the Company; thereafter, he/she is entitled to six months’ notice from the Company. None of the other Non-executive Directors is entitled to receive compensation for loss of office at any time. All Non-executive Directors are subject to retirement, and election or re-election, in accordance with the Company’s Articles of Association. The current policy is for Non-executive Directors to serve on the Board for a maximum of nine years, with review at the end of three and six years, subject always to mutual agreement and annual performance evaluation. The Board retains discretion to extend the tenure of Non-executive Directors beyond this time, subject to the requirements of Board balance and independence being satisfied.

The table below shows the date of appointment for each of the Non-executive Directors:

Non-executive Director	Date of appointment
John McDonough CBE	31 October 2012
Kath Durrant	1 December 2020
Dinggui Gao	1 April 2021
Friederike Helfer	4 December 2019
Jane Hinkley	3 December 2012
Douglas Hurt	2 April 2015

Recruitment policy

On appointment or promotion of a new Executive Director, the Committee will typically use the Remuneration Policy in force at the time of the Committee’s decision to determine ongoing remuneration. Base salary levels will generally be set in accordance with the Remuneration Policy current at the time of the Committee’s decision, taking into account the experience and calibre of the appointee.

If it is appropriate to appoint an individual on a base salary initially below what is judged to be market positioning, contingent on individual performance, the Committee retains the discretion to realign base salary over the one to three years following appointment, which may result in a higher rate of annualised increase than might otherwise be awarded under the Policy. If the Committee intends to rely on this discretion, it will be noted in the first Remuneration Report following an individual’s appointment.

Other than in exceptional circumstances, other elements of annual remuneration will, typically, be set in line with the Remuneration Policy, including a limit on awards under the Annual Incentive and Vesuvius Share Plan of 350% of salary in aggregate.

The Committee retains the discretion to make the following further exceptions:

• In the event that an internal appointment is made, or where a Director is appointed as a result of transfer into the Group on an acquisition of another Company, the Committee may continue with existing remuneration provisions for this individual, where appropriate.
• If necessary and appropriate to secure the appointment of a candidate who has to move location as a result of the appointment, whether internal or external, the Committee may make additional payments linked to relocation, above those outlined in the policy table, and would authorise the payment of a relocation allowance and repatriation, as well as other associated international mobility terms. Such benefits would be set at a level which the Committee considers appropriate for the role and the individual’s circumstances.
• If appropriate the Committee may apply different performance measures and/or targets to a Director’s first incentive awards in his/her year of appointment.

Service contracts will be entered into on terms similar to those for the existing Executive Directors, summarised in the service contracts of Executive Directors section above. In addition to the annual remuneration elements noted above, the Committee may consider buying out terms, incentives and any other compensation arrangements forfeited on leaving a previous employer that an individual forfeits in accepting an appointment with Vesuvius.

The Committee will have the authority to rely on Listing Rule 9.4.2R(2) or to apply the existing limits within the Vesuvius Share Plan to make Restricted Share awards on recruitment. In making any such awards, the Committee will review the terms of any forfeited awards, including, but not limited to, vesting periods, the expected value of such awards on vesting and the likelihood of the performance targets applicable to such awards being met, while retaining the discretion to make any buy-out award the Committee determines is necessary and appropriate. The Committee may also require the appointee to purchase shares in Vesuvius to a pre-agreed level prior to vesting of any such awards. The value of any buy-out award will be capped, to ensure its maximum value is no higher than the value of the awards that the individual forfeited on joining Vesuvius. Any such awards will be subject to malus and clawback.

With respect to the appointment of a new Chairman or Non-executive Director, appointment terms will be consistent with those applicable at the time the appointment is agreed. Variable pay will not be considered. With respect to Non-executive Directors, fees will be consistent with the Policy at the time the appointment is agreed. If, in exceptional circumstances, a Non-executive Director was asked to assume an interim executive role, the Company retains the discretion to pay them appropriate executive compensation, in line with the Policy.

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Financial Statements

Exit payment policy

Vesuvius has the option to make a payment in lieu of part or all of the required notice period for Executive Directors. Any such payment in lieu will consist of the base salary, pension contributions and value of benefits to which the Director would have been entitled for the duration of the remaining notice period, net of statutory deductions in each case.Half of any payments in lieu of notice would be made in a lump sum, the remainder in equal monthly installments commencing in the month in which the midpoint of their foregone notice period falls (and are reduced or extinguished by salary from any role undertaken by the departing Executive in this time). Executive Directors are subject to certain non-compete covenants for a period of nine months, and non-solicitation covenants for a period of 12 months, following the termination of their employment. Their service agreements are governed by English law. Executive Directors’ contracts do not contain any change of control provisions; they do contain a duty to mitigate should the Director find an alternative paid occupation in any period during which the Company must otherwise pay compensation on early termination. The table below summarises how the awards under the annual bonus and Vesuvius Share Plan are typically treated in different leaver scenarios and on a change of control. Whilst the Committee retains overall discretion on determining ‘good leaver’ status, it typically defines a ‘good leaver’ in circumstances such as retirement with agreement of the Company, ill health, disability, death, redundancy, or part of the business in which the individual is employed or engaged ceasing to be part of the Group. Final treatment is subject to the Committee’s discretion.

Event	Timing	Calculation of vesting/ payment
Annual Incentive Plan – during period prior to payment
Good leaver		Paid at the same time as to continuing employees. Annual bonus is paid only to the extent that any performance conditions have been satisfied and is pro-rated for the proportion of the financial year worked before cessation of employment. In determining the level of bonus to be paid, the Committee may, at its discretion, take into account performance up to the date of cessation or over the financial year as a whole based on appropriate performance measures as determined by the Committee. The bonus may, at the Committee’s discretion, be paid entirely in cash.
Bad leaver		Not applicable. Individuals lose the right to their annual bonus.
Change of control		Paid on the effective date of change of control. Annual bonus is paid only to the extent that any performance conditions have been satisfied and is pro-rated for the proportion of the financial year worked.
Annual Incentive Plan – in respect of any amount deferred into awards over shares under the Vesuvius Deferred Share Bonus Plan
Good leaver	On the date of the event.	Deferred awards vest in full.
Bad leaver	On the date of the event.	Other than dismissal for cause, deferred awards will vest in full.
Change of control	Within seven days of the event.	Deferred awards vest in full.
Vesuvius Share Plan
Good leaver	On or normal release date (or earlier at the Committee’s discretion).	Unvested awards vest to the extent that any performance conditions have been satisfied and a pro rata reduction applies to the value of the awards to take into account the proportion of vesting period not served, unless the Committee decides that the reduction in the number of vested shares is inappropriate.
Bad leaver		Unvested awards lapse. Unvested awards lapse on cessation of employment.
Change of control	On the date of the event.	Unvested awards vest to the extent that any performance conditions have been satisfied and a pro rata reduction applies for the proportion of the vesting period not served, unless the Committee decides that the reduction in the number of vested shares is inappropriate.

1. Under the rules of the Vesuvius Share Plan, any vested shares, net of any tax liabilities, are subject to a further two-year holding period after the vesting date. The holding period may be terminated early at the Committee’s discretion in exceptional circumstances, including a change of control or where the award holder dies or leaves employment due to ill health, injury or disability.
2. In certain circumstances, the Committee may determine that unvested awards under the Vesuvius Deferred Bonus Plan and Vesuvius Share Plan will not vest on a change of control but will instead be replaced by an equivalent grant of a new award, as determined by the Committee, in the new company.

2020 Remuneration Policy continued

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Vesuvius plc Annual Report and Financial Statements 2021

Benefits normally cease to be provided on the date employment ends. However, the Committee has the discretion to allow some minor benefits (such as health insurance, tax advice and repatriation expenses) to continue to be provided for a period following cessation where this is considered fair and reasonable, or appropriate on the basis of local market practice. In addition, the Committee retains discretion to fund other expenses for the Executive Director; for example, payments to meet legal fees incurred in connection with termination of employment, or to meet the costs of providing outplacement support, and de minimis termination costs up to £5,000 to cover transfer of mobile phone or other administrative expenses. The Committee reserves the right to make any other payments in connection with a Director’s cessation of office or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of a compromise or settlement of any claim arising in connection with the cessation of a Director’s office or employment. In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors, including (but not limited to) settlement, confidentiality, restrictive covenants and/or consultancy arrangements. These would be used only where the Committee believed it was in the best interests of the Company to do so.

Comparison of Remuneration Policy for Executive Directors with that for other employees

The Remuneration Policy for Executive Directors is designed in line with the remuneration philosophy set out in this report – which also underpins remuneration for the wider Group. Remuneration arrangements for Executive Directors draw on the same elements as those for other employees – base salary, fixed benefits and retirement benefits – with performance-related pay extending to the management cadres and beyond. However, given that remuneration structures for other employees need to reflect both seniority and local market practice, they differ from the policy for Executive Directors. In particular, Executive Directors receive a higher proportion of their remuneration in performance-related pay and share-based payments. Individual percentages of variable versus fixed remuneration and participation in share-based structures increase as seniority increases. As for Executive Directors, all employees receive an annual performance appraisal, and receive salary reviews on an annual basis. Middle and senior managers participate in the Annual Incentive Plan. For functional members of the Group Executive Committee, the award is predominantly based on Group performance, with the remainder focused upon the achievement of personal objectives. For business unit Presidents and other operational business unit employees, any potential award is based upon four separate measures relating to Group performance, business unit performance, regional performance, where relevant, and achievement of personal objectives. All members of the Group Executive Committee participate in the Vesuvius Share Plan and receive awards of Performance Shares, which vest on the basis of the same performance targets set for the Executive Directors. The level of awards granted to members of the Group Executive Committee who don’t serve on the Board are lower than those payable to the Executive Directors. For certain senior and middle managers, awards are made under the Vesuvius Medium Term Plan (MTP). These managers participate in the MTP at varying percentage levels, and awards are based on the same measures and targets as the Annual Incentive Plan.# Directors’ Remuneration Report

Introduction

The senior management cadre receives MTP awards made over Vesuvius shares, whilst other managers who participate in the MTP receive their awards in cash. In each case, awards are granted following the end of the relevant financial year. The MTP share awards vest on the second anniversary of the date of grant, subject to continuing employment.

Consideration of conditions elsewhere in the Group in developing policy

The Non-executive Directors participated in a number of ‘town hall’ meetings during the year which provided the opportunity to engage with the workforce to explain how executive remuneration aligns with wider Company pay policies. The Remuneration Committee takes into account the pay and employment conditions of other Group employees when determining Executive Directors’ remuneration, particularly when determining base salary increases, when the Committee will consider the salary increases for other Group employees in the same jurisdiction.

Consideration of shareholder views

Vesuvius is committed to open and transparent dialogue with its shareholders on remuneration as well as other governance matters. As Chair of the Committee, Kath Durant welcomes shareholder engagement and is available for any discussions investors wish to have on remuneration matters. In early 2022, the Committee wrote to the top 20 shareholders and key governance agencies outlining its proposals for the 2022 incentive structure for the Executive Directors. We have received responses from around 80% of respondents and we responded to all questions that were raised.

Shareholding guidelines

The Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company equivalent in value to at least 200% of base salary. Compliance with the shareholding policy is tested at the end of each year for application in the following year, with the valuation of any holding being taken at the higher of: (1) the share price on the date of vesting of any shares derived from a share award, in respect of those shares only; and (2) the average of the closing prices of a Vesuvius ordinary share for the trading days in that December.

Unless exceptionally the Committee determines otherwise, under the post-employment shareholding guideline the Executive Directors will remain subject to their shareholding requirement in the first year after their cessation as an Executive Director and to 50% of the shares retained in the first year during the second year after such cessation, recognising that there is no requirement to purchase additional shares if the shares held when they cease to be an Executive Director are less than the applicable shareholding guideline.

General

The Committee may make minor amendments to the Policy set out in this Policy Report (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.

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Sustainability
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Financial Statements

Directors’ Remuneration Report

Directors’ Remuneration at a glance

Our remuneration for Executive Directors

The table below sets out the phasing of receipt of the various elements of Executive Director remuneration for 2022.

Description and link to strategy	2022	2023	2024	2025	2026	2027
Base salary
Benefits
Pension
Annual Incentive
Deferred Annual Incentive
Vesuvius Share Plan

• Base salary: Salaries are set at an appropriate level to enable the Company to recruit and retain key employees, and reflect the individual’s experience, role and contribution within the Company.
• Benefits: Provides normal market practice benefits.
• Pension: The pension benefit helps to recruit and retain key employees and ensures income in retirement.
• Annual Incentive: The Annual Incentive incentivises the Executive Directors to achieve key short-term financial and strategic targets of the Group.
• Deferred Annual Incentive: The deferral of a portion of the Annual Incentive increases alignment with shareholders.
• Vesuvius Share Plan: Awards under the Vesuvius Share Plan align Executive Directors’ interests with those of shareholders through the delivery of shares and assist in the retention of the Executive Directors. The VSP rewards the Executive Directors for achieving the strategic objectives of growth in shareholder value and earnings.

2022 Directors’ Remuneration

The table below sets out how the Remuneration Policy will be applied to the Executive Directors’ remuneration for 2022. Further details about each of the elements of remuneration are set out in the Remuneration Policy and the Annual Report on Directors’ Remuneration.

| Remuneration element | Remuneration structure In re cei ving views on remuneration matters from the Executive Directors and senior management, the Committee recognised the potential for conflicts of interest to arise and considered the advice accordingly. The Chair of the Committee reported the outcomes of all meetings to the Board. The Committee operates under formal terms of reference which were reviewed during the year. The terms of reference are available on the Group website: www.vesuvius.com. The Committee members are permitted to obtain outside legal advice at the Company’s expense in relation to their deliberations. These powers were not exercised during the year. The Committee may also secure the attendance at its meetings of any employee or other parties it considers necessary.

Role and responsibilities

The Committee is responsible for:

• Determining the overall remuneration policy for the Executive Directors, including the terms of their service agreements, pension rights and compensation payments
• Setting the appropriate remuneration for the Chairman, the Executive Directors and Senior Management (being the Group Executive Committee)
• Reviewing workforce remuneration and related policies, and the alignment of incentives and rewards with culture, taking these into account when setting the policy for Executive Director remuneration
• Overseeing the operation of the executive share incentive plans

Advice provided to the Remuneration Committee

Deloitte is appointed directly by the Remuneration Committee to provide advice on executive remuneration matters, including remuneration structure and policy, updates on market practice and trends, and guidance on the implementation and operation of share incentive plans. The Committee appointed Deloitte, a signatory to the Remuneration Consultants Group Code of Conduct in relation to Executive Remuneration Consulting in the UK, following a formal tender process in 2014. Deloitte also provides the Remuneration Committee with ongoing calculations of total shareholder return (TSR) to enable the Committee to monitor the performance of long-term share incentive plans. Deloitte does not have any other connection with any individual Director. In addition, in 2021, Deloitte provided the Group with IFRS 2 calculations for the purposes of valuing the share plan grants and, within the wider Group, was engaged in various jurisdictions to provide tax and treasury advisory work, and some consultancy services. During 2020, Deloitte’s fees for advice to the Remuneration Committee, charged on a time spent basis, amounted to £138,110. These were larger than in previous years reflecting the work Deloitte did to assist the remuneration review conducted during the year. The Committee conducted a review of the performance of Deloitte as remuneration adviser during the year and concluded that Deloitte continued to provide effective, objective and independent advice to the Committee. No conflict of interest arises as a result of other services provided by Deloitte to the Group.

Activities of the Remuneration Committee

In addition to the activities outlined within the Chair’s letter, the Committee was the subject of an externally moderated performance evaluation in 2021. The review noted that with the appointment of the new Committee Chair there was an opportunity to redefine the support the Committee required from internal and external sources. The management of the Committee was rated highly with regard to the annual cycle of work, the agenda for meetings and time management in meetings. The Committee members were also positive about the remuneration review undertaken by the new Chair.

Regulatory compliance

The Remuneration Policy, which is set out on pages 134–141, was prepared in accordance with the Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). It also meets the requirements of the Financial Conduct Authority’s Listing Rules and the Disclosure Guidance and Transparency Rules. This Remuneration Report sets out how the principles of the Code are applied by the Company in relation to matters of remuneration. Save as set out below, the Company was compliant with the provisions of the Code for the year under review in relation to remuneration matters.

Provision 38: The Company is progressing with its plans to align the level of pension allowance for Executive Directors with that applicable to the majority of the workforce. Our incumbent Directors’ pension contributions were frozen at the 1 January 2020 amount and will be reduced to 17% at the end of 2022, being the level of the majority of the work force. A statement of the Company’s compliance with the Code is set out on page 111.

Share usage

Under the rules of the VSP, the Company has the discretion to satisfy awards either by the transfer of Treasury shares or other existing shares, or by the allotment of newly issued shares. Awards made under the Deferred Share Bonus Plan to satisfy shares awarded to Directors in respect of their Annual Incentive, and awards made to management of the Company over shares pursuant to the Medium-Term Incentive Plan, must be satisfied out of Vesuvius shares held for this purpose by the Company’s Employee Benefit Trust (EBT). The decision on how to satisfy awards is taken by the Remuneration Committee, which considers the most prudent and appropriate sourcing arrangement for the Company. At 31 December 2021, the Company held 7,271,174 ordinary shares in Treasury and the EBT held 884,856 ordinary shares. Following the EBT’s purchase of an additional 332,596 ordinary shares in the market to satisfy future vestings, the EBT now holds 1,217,452 ordinary shares as at the date of this report. The EBT can be gifted Treasury shares by the Company, can purchase shares in the open market or can subscribe for newly issued shares, as required, to meet obligations to satisfy options and awards that vest. The VSP complies with the current Investment Association guidelines on headroom which provide that overall dilution under all plans over a rolling ten-year period should not exceed 10% of the Company’s issued share capital, with a further limitation over a rolling ten-year period of 5% for discretionary share schemes. More than 9.9% of the 10% limit and more than 4.9% of the 5% limit remains available as headroom for the issue of new shares or the transfer of Treasury shares for the Company. No Treasury shares were transferred, or newly issued shares allotted under the VSP during the year under review.

Policy implementation

The following section provides details of how the Company’s current Remuneration Policy was implemented during the financial year 2021 and how it will be implemented in the financial year 2022.

Directors’ Remuneration, single total figure table – audited

The table below sets out the total remuneration received by Executive Directors in the financial year under review:

	Patrick André	Guy Young
	2021 (£000)	2020 (£000)	2021 (£000)	2020 (£000)
Total salary	161	855	638	347
Taxable benefits	2	60	88	18
Pension	1,3	154	139	96
Total fixed pay	4	832	783	499
Annual Incentive	5	874	153	537
Long-Term Incentives	6,7	0	0	0
Total variable pay	8	874	153	537
Total	9	1,706	936	1,036

1. For 2020 this figure included a voluntary 20% reduction in salary and pension benefits for six months due to the impact of COVID-19.
2. Standard benefits for the Executive Directors include car allowance and private medical care. As an expatriate, Patrick André also receives relocation benefits under Vesuvius’ applicable expatriate localisation policy, as detailed in the 18 July 2017 RNS announcement of Mr André’s appointment. Those relocation benefits (totalling £27,782 in 2021) comprise housing costs, tax advice and school fees.
3. Patrick André and Guy Young currently receive a pension allowance of 25% of base salary capped at the January 2020 level. The figures for 2020 in the table represent the value of all cash allowances and contributions received in respect of pension benefits, at voluntarily reduced rates.
4. The sum of total salary, taxable benefits and pension.
   5.This figure includes the Annual Incentive payments to be made to the Executive Directors in relation to the year under review. 33% of these Annual Incentive payments will be deferred into awards over shares, to be held for a period of three years. See pages 145 and 146 for more details. 6. The 2021 figures represent the Performance Share awards granted to Patrick André and Guy Young in 2019 under the VSP that will lapse in 2022. 7. The 2020 figures represent the Performance Share awards granted to Patrick André and Guy Young in 2018 under the VSP that lapsed in 2021. 8. The sum of the value of the Annual Incentive and the Long-Term Incentives where the performance period ended during the financial year. 9. The sum of base salary, benefits, pension, Annual Incentive and Long-Term Incentives where the performance period ended during the financial year.

Annual Report on Directors’ Remuneration continued
144 Vesuvius plc Annual Report and Financial Statements 2021

Directors’ Remuneration – audited

The table below sets out the total remuneration received by Non-executive Directors in the financial year under review:

	2021		2020
	Total fees (£000)	Taxable benefits (£000)	Total (£000)	Total fees (£000)
John McDonough CBE	205	9	214	185
Kath Durrant	60	3	63	45
Dinggui Gao	38	0	38	–
Hock Goh	18	0	18	45
Friederike Helfer	50	3	53	45
Jane Hinkley	56	2	58	59
Douglas Hurt	70	1	71	63
Holly Koeppel	18	0	18	45
Total 2021	515	18	533
Non-executive Director remuneration				446
Total 2021
Executive Director remuneration	2,742
Total 2021			6,357
Director remuneration

1. For 2020 this figure included a voluntary 20% reduction in fees for six months due to the impact of COVID-19.
2. The UK regulations require the inclusion of benefits for Directors where these would be taxable in the UK on the assumption that the Director is tax resident in the UK. The figures in the table therefore include expense reimbursement and associated tax relating to travel, accommodation and subsistence for the Director (and, where appropriate, their spouse) in connection with attendance at Board meetings and other corporate business during the year, which are considered by HM Revenue and Customs to be taxable in the UK.
3. Kath Durrant became Chair following the AGM in 2021 and therefore received additional fees for a proportion of the year.
4. Dinggui Gao joined the Board on 1 April 2021.
5. Hock Goh and Holly Koeppel retired from the Board following the 2021 AGM. The figures listed are the actual fees paid in 2021 until their retirement.

Additional note:
6. Total 2020 Directors’ Remuneration for the Directors who served during 2020 was £1,942m.

Base salary and fees – audited

As outlined in the Chair’s letter and in line with the Group’s Remuneration Policy, the base salaries for each of the Executive Directors was reviewed in 2021. It was resolved the Chief Executive’s salary would be increased to £643,000 and the Chief Financial Officer’s salary would be increased to £420,000, effective 1 January 2022. The fee for the Chairman was also reviewed by the Committee during the year and the fees for the Non-executive Directors by the Board. Following an assessment of time commitment, roles and responsibilities it was decided that the fees would increase with effect from 1 January 2022. The Chairman’s fee was increased to £240,000; the Non-executive Directors’ fees were increased to £60,000. The supplementary fee for the Senior Independent Director was increased to £10,000 and the supplementary fee for the Chairs of the Audit and Remuneration Committees remained unchanged at £15,000. The Board also resolved to introduce a fee of £10,000 for the Non-executive Director responsible for workforce engagement.

Pension arrangements – audited

In accordance with their service agreements, Patrick André and Guy Young are entitled to pension allowances of 25% of base salary. This allowance can be used to participate in Vesuvius’ pension arrangements, be invested in their own pension arrangements or be taken as a cash supplement (or any combination of these alternatives). The Remuneration Committee has determined that this level of pension allowance be frozen at the 1 January 2020 amount and will be reduced to 17% from the end of 2022, in line with the average pension allowance received by the majority of the workforce.

Annual Incentive – audited

The Executive Directors are eligible to receive an Annual Incentive calculated as a percentage of base salary, based on achievement against specified financial targets and personal objectives. Each year, the Remuneration Committee establishes the performance criteria for the forthcoming year. The financial targets are set by reference to the Company’s financial budget. The target range is set to ensure that Annual Incentives are only paid out at maximum for significantly exceeding performance expectations. The Remuneration Committee considers that the setting and attainment of these targets is important in the context of achievement of the Company’s longer-term strategic goals. The Annual Incentive has a threshold level of performance below which no award is paid, a target level at which 50% of the maximum opportunity is payable, and a maximum performance level at which 100% of the maximum opportunity is earned, on a pro rata basis.

2021 Annual Incentive – audited

For 2021, the maximum Annual Incentive potential for the Executive Directors was 150% of base salary and their target Annual Incentive potential was 75% of base salary. For the financial year 2021, the Executive Directors’ Annual Incentives were based 60% on Group headline EPS, 20% on the Group’s working capital to sales ratio (based on the 12-month moving average) and 20% on specified personal objectives.

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Financial targets in 2021

The 2021 Vesuvius Group headline EPS performance targets set out below were set at the December 2020 full-year average foreign exchange rates, being the rates used for the 2021 budget process:

• Threshold: 26.4 p
• On-target: 31.6 p
• Maximum: 36.9 p

The 2021 Group’s working capital to sales ratio targets were set as follows:

• Threshold: 23.7 %
• On-target: 22.7 %
• Maximum: 21.7 %

In assessing the Group’s performance against these targets, the Committee uses a constant currency approach. Thus, the 2021 full-year EPS performance was retranslated at December 2020 full-year average foreign exchange rates to establish performance. This is consistent with practice in previous years. In 2021, Vesuvius’ EPS performance at the December 2020 full-year average foreign exchange rates was 38.8 pence and the working capital to sales ratio was 20.9%. Consequently, EPS performance was above the maximum target, and the Group working capital to sales ratio was above the maximum target. As a result, in respect of the financial performance metrics of the 2021 Annual Incentive, 100% is due on both the EPS and Working Capital targets (related to a maximum bonus opportunity of 90% and 30% of salary respectively).

Personal objectives

In 2021, a proportion (20%) of the Annual Incentive for Executive Directors (representing 30% of salary) was based on the achievement of personal objectives.

Patrick André

Summary of objective	Summary outcome
Drive performance and deliver results – Robust performance on quality, market share gains and R&D productivity measures
Reinforce talent management and prepare succession plans – During 2021 there was a significant increase in the identification of suitable successors to key management positions and a further deepening of the talent pool throughout the organisation’s leadership
Review and implement the Group strategy – Delivered a clear strategy to increase profitability both organically and inorganically (closed acquisition of the business of Universal Refractories, Inc)
Improve Vesuvius’ sustainability performance – Delivered strong reductions of CO2 energy emissions compared to 2019 levels; improvement of gender diversity in Top Management

In summary, after considering performance as outlined above, the Committee approved an Annual Incentive pay-out of 21.36% of contractual base salary, out of the maximum potential 30%, in respect of the personal objectives of Patrick André. Guy Young Summary of objective Summary outcome Optimise cash management – Significant improvement in trade creditors and tax management Optimise the Group’s liquidity position – Successfully concluded renegotiation of Group revolving credit facility and US private debt placement Drive IT performance – Significant improvement in IT performance especially in the area of cybersecurity Drive Opex reductions – Delivered reductions in line with the operating plan Improve Vesuvius’ sustainability performance – Delivered strong reductions of CO2 energy emissions compared to 2019 levels; improvement in gender diversity in Top Management In summary, after considering performance as outlined above, the Committee approved an Annual Incentive pay-out of 19.5% of contractual base salary, out of the maximum potential 30%, in respect of the personal objectives of Guy Young. The total Annual Incentive awards payable to Patrick André and Guy Young in respect of their service as Directors during 2021 are therefore 141.4% and 139.5% of salary, respectively. Of these Annual Incentive payments, 33% will be deferred into awards over shares, to be held for a period of three years. The Committee considered the appropriateness of these overall AIP payments in the context of the experience of our various stakeholders during 2021 and was satisfied that no discretionary adjustments were required. Annual Report on Directors’ Remuneration continued 146 Vesuvius plc Annual Report and Financial Statements 2021 2022 Annual Incentive The Annual Incentive opportunity for the Executive Directors in 2022 will remain unchanged at 150% of salary, with potential pay-outs of 75% of base salary for the achievement of target performance in all elements. Pay-outs will commence and increase incrementally from 0% once the threshold performance for any of the elements has been met. The structure of the Annual Incentive will change in 2022, with 40% of the Executive Directors’ Annual Incentives based on Group headline EPS, 20% on the Group’s working capital to sales ratio (based on the 12-month moving average), 20% on post-tax Return On Invested Capital (ROIC) and 20% on the achievement of personal objectives. The Company will not be disclosing the targets set until after the relevant performance period has ended because of commercial sensitivities. The personal objectives for 2022 are focused on long-term strategic objectives, or are job-specific in nature and track performance against the Group’s key strategic, organisational and operational goals with a specific focus on ESG outcomes. 33% of any Annual Incentive earned will be deferred into awards over shares, to be held for a period of three years. Deferred Share Bonus Plan allocations – audited 33% of the Annual Incentives earned by Patrick André and Guy Young in respect of their periods of service as Directors of Vesuvius plc during 2018, 2019 and 2020 were deferred into shares under the Company’s Deferred Share Bonus Plan. The following tables set out details of these awards:

Grant and type of award	Total share allocations as at 1 Jan 2021	Additional shares allocated during the year	Allocations lapsed during the year	Shares vested during the year	Total share allocations as at 31 Dec 2021	Market price of the shares on the day before award (p)	Earliest vesting/release date
Patrick André
15 March 2018	1 Deferred Bonus Shares	10,128	–	–	(10,128)	0	605.5
14 March 2019	2 Deferred Bonus Shares	29,646	–	–	–	29,646	608
12 March 2020	3 Deferred Bonus Shares	7,044	–	–	–	7,044	391.8
18 March 2021	4 Deferred Bonus Shares	–	9,430	–	–	9,430	538
Total	46,818	9,430	–	(10,128)	46,120
Guy Young
15 March 2018	1 Deferred Bonus Shares	18,118	–	–	(18,118)	0	605.5
14 March 2019	2 Deferred Bonus Shares	19,028	–	–	–	19,028	608
12 March 2020	3 Deferred Bonus Shares	5,345	–	–	–	5,345	391.8
18 March 2021	4 Deferred Bonus Shares	–	6,093	–	–	6,093	538
Total	42,491	6,093	–	(18,118)	30,466

1. In 2018, Patrick André and Guy Young received Annual Incentive bonuses in respect of their service as Directors of Vesuvius plc in 2017 of £185,544 and £331,906 respectively. 33% of each bonus was awarded in deferred shares (conditional awards) under the Vesuvius Deferred Share Bonus Plan. The shares vested on 15 March 2021.In addition, Messrs André and Young were given cash payments of £4,213 and £7,537 respectively, equivalent to the value of the dividends that would have been paid on the number of shares that vested in respect of dividend record dates occurring during the period between the award date and the date of vesting.
2. In 2019, Patrick André and Guy Young received Annual Incentive bonuses in respect of their service as Directors of Vesuvius plc in 2018 of £546,131 and £350,525 respectively. 33% of each bonus was awarded in deferred shares (conditional awards) under the Vesuvius Deferred Share Bonus Plan. The allocations of shares were made on 14 March 2019 and were calculated based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the award was made, being £6.079. The total value of these awards based on this share price was £180,218 and £115,671, respectively. There are no additional performance conditions applicable to these awards, therefore these shares will vest in full on the third anniversary of their award date.
3. In 2020, Patrick André and Guy Young were awarded Annual Incentive bonuses in respect of their service as Directors of Vesuvius plc in 2019 of £83,775 and £63,569 respectively. 33% of each bonus was awarded in deferred shares (conditional awards). The allocations of shares were made on 12 March 2020 and were calculated based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the award was made, being £3.9248. The total value of these awards based on this share price was £27,646 and £20,978 respectively. There are no additional performance conditions applicable to these awards, therefore these shares will vest in full on the third anniversary of their award date.
4. In 2021, Patrick André and Guy Young were awarded Annual Incentive bonuses in respect of their service as Directors of Vesuvius plc in 2020 of £153,419 and £99,138 respectively. 33% of each bonus was awarded in deferred shares (conditional awards). The allocations of shares were made on 18 March 2021 and were calculated based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the award was made, being £5.3690. The total value of these awards based on this share price was £50,628 and £32,715 respectively. There are no additional performance conditions applicable to these awards, therefore these shares will vest in full on the third anniversary of their award date.

Additional note:
5. The mid-market closing price of Vesuvius’ shares during 2021 ranged between 414 pence and 590 pence per share, and on 31 December 2021, the last dealing day of the year, was 450.2 pence per share.

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Financial Statements

Longer-term Pay (LTIPs) – audited

Performance Share awards are allocated to the Executive Directors under the Vesuvius Share Plan (VSP). In accordance with the Remuneration Policy and the rules of the VSP, they are eligible to receive, on an annual basis, a Performance Share award with a face value of up to 200% of salary. The vesting of awards is subject to performance conditions determined by the Remuneration Committee ahead of each award. For the outstanding 2019, 2020 and 2021 awards, vesting of 50% of shares awarded is based upon the Company’s three-year TSR performance relative to that of the constituent companies of the FTSE 250 (excluding investment trusts), and 50% on headline EPS performance.# For the 2022 awards, the Remuneration Committee has decided to amend the performance conditions with the introduction of a post-tax ROIC target along with ESG targets. As a result vesting of 40% of shares awarded under the 2022 VSP will be based on post-tax ROIC performance, 40% on the longstanding relative TSR targets, and the remaining 20% on ESG targets. Each of the VSP performance measures operates independently. The use of these measures is intended to align Executive Director remuneration with shareholder interests. Prior to the vesting of Performance Shares, the Remuneration Committee reviews the underlying financial performance of the Company and non-financial performance of the Company and individuals over the performance period to ensure that the vesting is justified, and to consider whether to exercise its discretion including consideration of any potential windfall gains. UK executives receive awards in the form of nil-cost options with a flexible exercise date and non-UK executives receive conditional awards which are exercised on the date of vesting. Performance Share awards vest after three years and, commencing with awards made in 2019, are then subject to a further two-year holding period.

2022 Performance Share Award

The Remuneration Committee has determined that Patrick André will again receive a Performance Share award in 2022 equivalent in value to 200% of his base salary and Guy Young an award equivalent in value to 150% of his base salary. The Committee considered the risk of windfall gains in making the awards for 2022. The Committee resolved to use a share price for the award which is the higher of:

– the average closing price on the five days prior to the date of the Committee decision (£4.02)
– the average closing price on the five days prior to the grant of the award

thereby mitigating the risk of windfall gains.

2021 Performance Share Award

In 2021, Patrick André and Guy Young received allocations of Performance Shares worth 200% and 150% of their base salaries, respectively.

2019 Performance Share Award (vesting in 2022)

The performance period applicable to the awards made in 2019 ended on 31 December 2021. These awards will lapse as the threshold performance level was not met for either the TSR or EPS performance conditions.

Targets for the Performance Share Awards for the year 2022 – unaudited

TSR rank ing re lative to FT SE 250 excluding investment trusts	Weighting	Vesting percentage (of total LTIP)
Below median	40%	0%
Median		10%
Between median and upper quartile		Pro rata between 10% and 40%
Upper q uintile and above		40%

Post-tax ROIC:	Weighting	Vesting percentage (of total LTIP)
Average ROIC over three year performance period	40%
Threshold and below		0%
7.5%		40%
10.0%

1. Vesting between these points will be on a straight-line basis.

New post-tax ROIC target

Definitions

ROIC is defined as Net Operating Profit After Tax (NOPAT), divided by invested capital (IC). NOPAT is defined as Group trading profit, plus post-tax share of JV results, less amortisation of intangible assets calculated as an average over the target period. (The inclusion of amortisation charges serves to reduce the calculation of ROIC returns though we believe this to be the most appropriate definition.) Invested capital is defined as total assets excluding cash and non-interest bearing liabilities, calculated as the average of IC at the start and the end of the target period.

ROIC target range

A 250bps spread is seen by the Remuneration Committee as a reasonable range for the first award using this metric. The Committee will review targets annually for future awards. The Committee has considered the Group’s strategy over the period, market conditions, and historic and current estimates of WACC provided by JP Morgan in determining the target range. To achieve the maximum pay-out representing 40% of the award, the Group would need to improve its ROIC performance over that achieved in any of the prior five years, and by a significant margin over the average achieved in the past five years. Post-tax ROIC in 2021 was calculated as 7.5%, an improvement on 4.9% in 2020. The target ranges starts at the ROIC achieved in 2021 and as a result the Committee has determined that threshold payments will change from a starting threshold payment of 25% used under the previous EPS KPI to a 0% threshold payment using ROIC. The Committee has satisfied itself by looking backwards that the application of this ROIC range would not have resulted in more generous pay-out levels overall, but that the vesting would have been less volatile in nature.

Annual Report on Directors’ Remuneration continued 148 Vesuvius plc Annual Report and Financial Statements 2021

Adjustment s to ROIC targets

Adjustments to the ROIC target range may be required should the Board approve certain mergers, acquisitions or disposals. For any such event that requires Board approval then management will assess the potential impact on ROIC as part of their broader submission, and the Committee will determine whether any adjustment to targets should be made. In general, the Committee will have regard to the materiality of the event and the timing in the life of the award cycle. The intention will be to maintain fair, stretching but achievable targets, whilst not providing a disincentive to management to bring forward proposals for mergers, acquisitions or disposals that are in the Company’s interest.

Environment, Social, Governance: Weighting: 20%
Safety: Average Lost Time Injury Frequency Rate (LTIFR) 1
Vesting percentage (of total LTIP) 2	Range
Threshold and below		0%
1.1
Maximum		5%
0.9
Energy: CO2e: Reduction Scope 1 and 2 energy CO2e emissions /tonne (vs 2019 baseline) in 2024 3
Vesting percentage (of total LTIP) 2	Range
Threshold and below		0%
-14%
Maximum		10%
-20%
Diversity: Gender diversity in senior leadership group 5 on 31 Dec 2024
Vesting percentage (of total LTIP) 2	Range
Threshold and below		0%
20%
Maximum		5%
26%

1. LTIFR is the Lost Time Injury Frequency Rate, the number of lost time injuries that occur during the performance period. The calculation rate is LTIFR per million hours worked.
2. Straight line vesting between threshold and maximum.
3. Reduction of energy CO2e emissions per metric tonne of product packed for shipment.
4. The target range has been determined using a re-stated level of current performance (-13% vs -16.5% in the sustainability report) and has factored in investments approved that will come on stream during the life of the award that have a negative effect on achievements to date.
5. Senior Leadership Group is defined as the Group Executive Committee plus the most senior Vesuvius managers worldwide, in terms of their contribution to the Group’s overall results and to the execution of the Group’s strategy. This group comprises between 150 and 160 members (number may slightly fluctuate from one year to the next based on organisational changes).

The Environment, Social and Governance targets for the 2022 awards represent key strategic priorities for the management team as well as the Board. Safety is culturally important and progressive improvement has been made in recent years. The targets are considered stretching in the context of an operationally challenging environment with many employees working remotely at customer sites. Lost Time Injury Frequency Rate is a recognised metric, and is measured per million hours worked. Energy, the reduction in Scope 1 and 2 emissions is a key feature of the Company’s sustainability strategy (see pages 52–77) and a measure of energy intensity is used – CO2e emissions per tonne of product shipped. Baseline and current emissions have been validated with the assistance of Carbon Footprint Ltd. Vesuvius has committed to achieve a net zero status by 2050 at the latest, and work continues to understand how this can be achieved, and the type of technological advances that will be required. Restated performance of -13% vs the 2019 baseline has been considered reasonable by the Committee in setting the forward target range. This restatement takes into account expansion projects in Skawina, Poland and Kolkata, India which will have a deleterious effect on the -16.5% (vs 2019 baseline) reported elsewhere.# Di ver si t y , a Focu s on Gend er D ive rs it y has Se en I mprove me nt s in th e T op Mana ge me nt of c . 50 – 6 0 indi vi dua ls in rece nt year s. Min df ul of t he n ee d and d es ire to d evel op a d ive rs e pi pe lin e th e targ et s have be en ex te nd ed to cover the top 1 50 – 1 6 0 lead er s in V esuvius.

T argets for t he P erformance Share awards for the years 201 9 an d 2020

	Vesting Percentage
Audited TSR Ranking Relative to FTSE 250 Excluding Investment Trusts
Below median	0%
Median	12.50%
Between median and upper quintile	Pro rata between 12.50% and 50%
Upper quintile and above	50%

	Vesting Percentage
Annual Compound Headline EPS Growth
Less than 3%	0%
3%	12.50%
Between 3% and 6%	Pro rata between 12.50% and 25%
6%	25%
Between 6% and 15%	Pro rata between 25% and 50%
15% or more	50%

T argets for t he P e rformance Share awards for 2021

	Vesting Percentage
Audited TSR Ranking Relative to FTSE 250 Excluding Investment Trusts
Below median	0%
Median	12.50%
Between median and upper quintile	Pro rata between 12.50% and 50%
Upper quintile and above	50%

	Vesting Percentage
Headline EPS for the Financial Year 2023
Less than 35 pence	0%
35 pence	12.50%
Between 35 pence and 47.5 pence	Pro rata between 12.50% and 25%
47.5 pence	25%
Between 47.5 pence and 60 pence	Pro rata between 25% and 50%
60 pence or more	50%

The Comm ittee is m ind fu l of th e pre se nt ge op ol it ica l envi ron men t and t he e xi s tin g en erg y cri sis. In t his co nte x t i t res er ve s i ts dis cre tio n to am en d targ et s fo r bo th t he AI P and V SP sho uld major ind ustrial mark et disruption prevail.

149

Our business

Our per formance

Sustainabilit y

Governanc e

Vesu vius Performance Share award allocat ions – audited

The foll ow ing t abl e se t s ou t th e Per fo rm ance S hare a ward s th at we re al lo cat ed in 2018, 201 9 , 2020 and 2021 und er t he VSP:

Grant and type of award	Total share allocations as at 1 Jan 2021	Additional shares allocated during the year	Allocations lapsed during the year	Shares vested during the year	Total share allocations as at 31 Dec 2021	Market price of the shares on the day before award (p)	Performance period	Earliest vesting date	End of holding period
Patrick André
15 March 2018 Performance Shares	173,697	–	(173,697)	–	0	605.5	1 Jan 18 – 31 Dec 20	15 Mar 2021	n/a
14 March 2019 Performance Shares	197,400	–	–	–	197,400	608	1 Jan 19 – 31 Dec 21	14 Mar 2022	14 Mar 2024
12 March 2020 Performance Shares	282,772	–	–	–	282,772	391.8	1 Jan 20 – 31 Dec 22	12 Mar 2023	12 Mar 2025
18 March 2021 Performance Shares	–	230,210	–	–	230,210	538	1 Jan 21 – 31 Dec 23	18 Mar 2024	18 Mar 2026
Total	653,869	230,210	(173,697)	0	710,382
Guy Young
15 March 2018 Performance Shares	86,848	–	(86,848)	–	0	605.5	1 Jan 18 – 31 Dec 20	15 Mar 2021	n/a
14 March 2019 Performance Shares	86,362	–	–	–	86,362	608	1 Jan 19 – 31 Dec 21	14 Mar 2022	14 Mar 2024
12 March 2020 Performance Shares	132,120	–	–	–	132,120	391.8	1 Jan 20 – 31 Dec 22	12 Mar 2023	12 Mar 2025
18 March 2021 Performance Shares	–	107,562	–	–	107,562	538	1 Jan 21 – 31 Dec 23	18 Mar 2024	18 Mar 2026
Total	305,330	107,562	(86,848)	0	326,044

1. Performance shares granted from 2019 onwards are subject to a further two-year holding period.
2. In 2018, Patrick André and Guy Young received allocations of Performance Shares worth 200% and 150% of their base salaries. Following an assessment of the performance conditions, these awards lapsed in full during 2021.
3. In 2019, Patrick André and Guy Young received allocations of Performance Shares worth 200% and 150% of their base salaries. The these allocations were calculated based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the award was made, being £6.079. The total value of these awards based on this share price was £1,199,994 and £524,994 respectively. Following an assessment of the performance conditions, these awards will lapse in full during 2022.
4. In 2020, Patrick André and Guy Young were entitled to receive allocations of Performance Shares worth 200% and 150% of their base salaries respectively. In light of the volatile share price, the Committee applied its discretion so that the number of shares in these allocations were capped at a level based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the February 2020 Remuneration Committee meeting of £4.371. As a result, Patrick André received an award of 282,772 shares which, at grant, was equivalent in value to 180% of his base salary (£1,109,823) and Guy Young received an award of 132,120 shares which, at grant, was equivalent in value to 135% of his base salary (£518,544).
   • Grant values are based on the average closing mid-market price of Vesuvius’ shares on the five dealing days prior to grant (£3.9248).
5. In 2021, Patrick André and Guy Young were entitled to receive allocations of Performance Shares worth 200% and 150% of their base salaries respectively. These allocations were calculated based upon the average closing mid-market price of Vesuvius’ shares on the five dealing days before the award was made, being £5.3690. The total value of these awards based on this share price was £1,235,997 and £577,500 respectively.

Additional notes:

1. If the respective performance conditions for Patrick André’s and Guy Young’s awards are not met, then the awards will lapse. If the threshold level of either of the two performance conditions applicable to the awards is met, then 12.50% of the awards will vest.
2. The Remuneration Committee also has the discretion to award cash or shares equivalent in value to the dividend that would have been paid during the vesting period on the number of shares that vest.
3. The mid-market closing prices of Vesuvius’ shares during 2021 ranged between 414 pence and 590 pence per share, and on 31 December 2021, the last dealing day of the year, was 450.2 pence per share.

Malus/ clawback arrangements in 2022

Vesuvius has malus and clawback arrangements in respect of Executive Directors’ variable remuneration. The structure of those arrangements is outlined in our Remuneration Policy.

Annual Report on Directors’ Remuneration continued

150

Statement of Directors’ shareholding – audited

The interests of Directors and their closely associated persons in ordinary shares as at 31 December 2021, including any interests in share options and shares provisionally awarded under the VSP, are set out below:

	Beneficial holding in shares	Beneficial holding %	With performance conditions	Without performance conditions
Executive Directors
Patrick André	111,160	0.04	710,382	46,120
Guy Young	134,802	0.05	326,044	30,466
Non-executive Directors
John McDonough CBE (Chairman)	120,000	0.04	–	–
Kath Durrant	–	0.00	–	–
Friederike Helfer	–	0.00	–	–
Dinggui Gao	–	0.00	–	–
Hock Goh	45,000	<0.01	–	–
Jane Hinkley	12,000	<0.01	–	–
Douglas Hurt	18,000	0.01	–	–
Holly Koeppel	27,500	0.01	–	1

1. These are Performance Shares granted under the VSP. The awards were all granted subject to performance conditions.
2. These are awards granted under the Deferred Share Bonus Plan. These awards are not subject to any additional performance conditions.
3. Friederike Helfer is a Partner of, and has a financial interest in, Cevian Capital which held 21.11% of Vesuvius’ issued share capital as at 31 December 2021 and at the date of this report.
4. Hock Goh stepped down from the Board following the 2021 AGM and this was his share holding at the time of stepping down.
5. Holly Koeppel stepped down from the Board following the 2021 AGM and this was her share holding at the time of stepping down.

Additional notes:

1. None of the other Directors, nor their spouses, nor their minor children, held non-beneficial interests in the ordinary shares of the Company during the year.
2. There were no changes in the interests of the Directors in the ordinary shares of the Company in the period from 1 January 2022 to the date of this Report.
3. All awards under the VSP are subject to performance conditions and continued employment until the relevant vesting date as set out on pages 148 and 149.# Annual Report on Directors’ Remuneration continued

Full details of Directors’ shareholdings and incentive awards are given in the Company’s Register of Directors’ Interests, which is open to inspection at the Company’s registered office during normal business hours.

Payments to past Directors and loss of office payments – audited

There were no payments made to any Director for loss of office during the year ended 31 December 2021, and no payments were made to any other past Directors of the Company during the year ended 31 December 2021.

Shareholding guidelines

The Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company. Under the 2020 Remuneration Policy, the required holding is 200% of salary for all Executive Directors. Executive Directors are required to retain at least 50% (measured as the value after tax) of any shares received through the operation of share schemes; in addition, permission to sell shares held – whether acquired through the operation of share schemes or otherwise – will not be given, other than in exceptional circumstances, if, following the disposal, the shareholding requirement is not achieved or is not maintained. Compliance with the shareholding policy is tested at the end of each year for application in the following year. Under the 2020 Remuneration Policy, the valuation of any holding is taken at the higher of: (1) the share price on the date of vesting of any shares derived from a share award, in respect of those shares only; and (2) the average of the closing prices of a Vesuvius ordinary share for the trading days in that December.

Executive Directors’ shareholdings – audited

As at 31 December 2021, the Executive Directors’ shareholdings against the shareholding guidelines contained in the Directors’ Remuneration Policy in force on that date (using the Company’s share price averaged over the trading days of the period 1 December to 31 December 2021, of 432.59 pence per share) were as follows:

Director	Actual share ownership as a percentage of salary at 31 Dec 2021	Policy share ownership as a percentage of salary	Policy met?
Patrick André	78%	200%	In the build-up period
Guy Young	151%	200%	In the build-up period

Annual changes in Executive Directors’ pay versus employee pay

Executive Directors’ pay comparison

The London headquartered salaried employee workforce is presented as a voluntary disclosure of the representative comparator group for the Vesuvius Group parent company as there are only two non-Director employees in the parent company.

Year-on-year change in pay for Directors compared to the London head-quartered employee average:

	2021			2020
	Salary²˒³	Bonus³	Benefits⁴	Salary²˒³	Bonus³	Benefits⁴
London head-quartered employee average¹	19%	236%	120%	0%	165%	18%
Executive Directors
Patrick André	11%	469%	6%	(7%)	183%	(25%)
Guy Young	11%	42%	9%	(1%)	155%	(14%)
Non-executive Directors
John McDonough CBE	11%	–	(35%)	(10%)	–	(46%)
Kath Durrant⁵	19%	–	100%	n/a	–	n/a
Friederike Helfer	11%	–	502%	(10%)	–	(60%)
Dinggui Gao⁶	–	n/a	–	n/a	–	n/a
Jane Hinkley⁷	(5%)	–	(56%)	(10%)	–	(60%)
Douglas Hurt	11%	–	(22%)	(10%)	–	–
Hock Goh⁸	–	(60%)	–	(100%)	(10%)	–
Holly Koeppel⁸	–	(60%)	–	(100%)	(10%)	–

1. This is the average change calculated by dividing the staff cost related to salaries, median bonus and benefits by the average number of full-time equivalent employees in the Vesuvius headquarters in London, excluding the Executive Directors. Salaries, bonus and benefits relate to the relevant financial reporting year.
2. During 2020 all Executive and Non-executive Directors took a voluntary 20% pay reduction for six months. Other senior employees in London headquarters also took between a 10-20% pay reduction, depending on their level of seniority. Therefore, the total percentage increase for the Executive Directors between 2021 and 2022 will be higher than their agreed salary increases as these increases are based on the salary as at 31 December 2021.
3. Calculated using data from the single figure table in the Annual Report.
4. Calculated using data from the audited Directors’ Emoluments. Benefits relate to taxable travel benefits and is calculated as the percentage increase or decrease on the actual figures year-on-year and not annualised or pro-rated for any new starters. Travel was restricted during 2020 due to the COVID-19 pandemic.
5. Kath Durrant joined on 1 December 2020 and then became the Remuneration Committee Chair following the 2021 AGM, it is this change that accounts for the proportionally higher increase on her salary.
6. Dinggui Gao joined on 1 April 2021.
7. Jane Hinkley stood down as the Remuneration Committee Chair following the 2021 AGM, which accounts for her net reduction in year-on-year change.
8. Hock Goh and Holly Koeppel stepped down from the Committee at the 2021 AGM, their salaries have been calculated based on actual earnings in 2020 and 2021.
9. The Non-executive Directors’ fees were reviewed and increased in 2015, 2019 and 2022.

CEO pay ratio

The UK salaried employee workforce is the representative comparator group to the Chief Executive, Patrick André, who is based in the UK (albeit with a global role and responsibilities). Levels of pay vary widely across the Group depending on geography and local market conditions.

Year	Method	25th percentile pay ratio	50th percentile (median) pay ratio	75th percentile pay ratio
2019	Option A	35:1	28:1	17:1
2020	Option A	32:1	24:1	13:1
2021	Option A	53:1	41:1	21:1

	2021 Total pay and benefits (£)	2021 Salary (£)
25th percentile pay ratio	33,216	29,018
50th percentile (median) pay ratio	43,233	40,363
75th percentile pay ratio	82,829	73,000

The table above shows the Chief Executive pay ratios versus our UK employees for 2019, 2020 and 2021. The pay ratios compare amounts disclosed in the single total figure table for the Group Chief Executive to the annual full-time equivalent remuneration of our UK employees for 2019, 2020 and 2021. The data has been calculated in accordance with ‘Option’ A in The Companies (Miscellaneous Reporting) Regulations 2018, because it allows the Company to show the total annualised full-time equivalent remuneration (salary, incentives, allowances, fees, taxable benefits) and percentiles across the financial year as at 31 December 2019, 2020 and 2021. Amounts have been annualised for those who joined part way through the year or who are on part-time arrangements and exclude those who left the organisation during the reporting period. The approach to calculating the pay ratios is consistent with the prior year and there have not been any changes to the compensation models in the reporting period. The Committee is comfortable that the principles applied and the quantum of compensation are appropriate across the Group’s employee base. These are regularly benchmarked to ensure market competitiveness. There is a consistent approach of measuring against both business and personal performance for all those who participate in incentive programmes. The Group continues to monitor the effectiveness of all compensation practices to identify future opportunities to ensure they remain fair, consistent and in line with best practice.

Annual spend on employee pay¹ versus shareholder distributions²

The charts below show the annual spend on all employees (including Executive Directors) compared with distributions made and proposed to be made to shareholders for 2020 and 2021:

TSR performance and Chief Executive pay

The TSR performance graph compares Vesuvius’ TSR performance with that of the same investment in the FTSE 250 Index (excluding investment trusts). This index has been chosen as the comparator index to reflect the size, international scope and diversity of the Company. TSR is the measure of the returns that a company has provided for its shareholders, reflecting share price movements and assuming reinvestment of dividends. The demerger of Vesuvius plc was effective on 19 December 2012 and therefore the graphs shows the period from 19 December 2012 to 31 December 2021.# Vesuvius plc Annual Report and Financial Statements 2021

Directors’ Report

Chief Executive Pay

Financial year ended	François Wanecq	Patrick André
31/12/12	£1,227
31/12/13	£2,447
31/12/14	£1,519
31/12/15	£752
31/12/16	£1,173
31/12/17	£1,675	£465
31/12/18	£2,022
31/12/19	£1,220
31/12/20	£936
31/12/21	£1,706

Annual variable pay (% of maximum)	0%	100%	64%	0%	50%	81%	185%	283%	11%	20%	94%
Long-term variable pay (% of maximum)	67%	28%	27%	0%	0%	43.7%	n/a	100%	63%	0%	0%

1. Amounts shown in respect of François Wanecq for 2017 reflect payments in respect of his service as Chief Executive from 1 January 2017 to 31 August 2017 and the full value of his VSP award in relation to the performance period 2015–2017.
2. Amounts shown in respect of Patrick André for 2017 reflect payments in respect of his service as Chief Executive from 1 September 2017 to 31 December 2017.

Shareholder voting on remuneration resolutions

	Votes for	Votes against	Votes withheld
Approval of the Directors’ Remuneration Policy (2020 AGM)	244,618,671 (97.2%)	7,105,663 (2.8%)	3,640
Approval of the Annual Report on Remuneration (2021 AGM)	244,223,260 (99.32%)	1,673,458 (0.68%)	11,480

The Directors’ Remuneration Report has been approved by the Board and is signed on its behalf by

Kath Durrant
Chair of the Remuneration Committee

FTSE 250 Index (excluding Investment Trusts) Vesuvius plc

	19/12/12
250	200	150	100	50

Relative importance of spend on pay (2020)

£m	£47.0m (Remuneration)	£366.0m (Dividend)
88.6%	11.4%

Dividend 2021 (£ m)

	2020 (£ m)	Change
Employee pay¹	396.8	366.0
Dividends²	57.3	47.0

1. Employee pay includes wages and salaries, social security, share-based payments and pension costs, and other post-retirement benefits. See Note 8 to the Group Financial Statements.
2. Shareholder distributions/dividends includes interim and final dividends paid in respect of each financial year. See Note 24 of the Group Financial Statements.

Relative importance of spend on pay (2021)

£m	£57.3m (Remuneration)	£396.8m (Dividend)
87.4%	12.6%

153 Our business Our performance Sustainability Governance Financial Statements Directors’ Report

Going concern

Information on the business environment in which the Group operates, including the factors that are likely to impact the future prospects of the Group, is included in the Strategic Report. The principal risks and uncertainties that the Group faces throughout its global operations are shown on pages 34 and 35. The financial position of the Group, its cash flows, liquidity position and debt facilities are also described in the Strategic Report. In addition, the Group’s viability statement is set out within the Strategic Report on page 33. Note 25 to the Group Financial Statements sets out the Group’s objectives, policies and processes for managing its capital; financial risks; financial instruments and hedging activities; and its exposures to credit, market (both currency and interest rate related) and liquidity risk. Further details of the Group’s cash balances and borrowings are included in Notes 13, 14 and 25 to the Group Financial Statements.

The Directors have prepared profit and loss, balance sheet and cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of the 2021 financial statements. On the basis of the exercise described above, the Directors have prepared a going concern statement which can be found on page 33.

Events since the balance sheet

Since 31 December 2021, there have been no material items to report.

Future developments

A full description of the activities of the Group, including performance, significant events affecting the Group in the year and indicative information in respect of the likely future developments in the Group’s business, can be found in the Strategic Report.

Financial instruments

Information on Vesuvius’ financial risk management objectives and policies can be found in Note 25 to the Group Financial Statements.

Research and development

The Group’s investment in research and development (R&D) during the year under review amounted to £30.3m (representing approximately 1.8% (2020: 1.9%) of Group revenue). Further details of the Group’s R&D activities can be found in the Operating Reviews and Sustainability section of the Strategic Report.

Political and charitable donations

In accordance with Vesuvius policy, the Group did not make any political donations or incur any political expenditure in relation to any UK or non-UK political parties during 2021 (2020: nil). The Company made no charitable donations of more than £2,000 in the UK in 2021.

Task Force on Climate-Related Financial Disclosures (TCFD)

The Group has reported its climate-related information in accordance with the TCFD disclosure framework. The majority of this information is included in the Sustainability section of the Strategic Report. A schedule of disclosure is included on page 58.

The Directors submit their Annual Report together with the audited financial statements of the Group and of the Company, Vesuvius plc, registered in England and Wales No. 8217766, for the year ended 31 December 2021. The Companies Act 2006 requires the Company to provide a Directors’ Report for Vesuvius plc for the year ended 31 December 2021.

Information incorporated by reference

The information that fulfils this requirement and which is incorporated by reference into, and forms part of, this report is included in the following sections of the Annual Report:

• The Section 172(1) statement
• The Non-financial information statement (the Sustainability section)
• The Governance section, including the Corporate Governance Statement
• Financial instruments: the information on financial risk management objectives and policies contained in Note 25 to the Group Financial Statements

This Directors’ Report and the Strategic Report contained on pages 1 to 101 together represent the management report for the purpose of compliance with DTR 4.1.8R of the Financial Conduct Authority’s Disclosure and Transparency Rules.

154 Vesuvius plc Annual Report and Financial Statements 2021

Energy consumption and efficiency / greenhouse gas emissions

Information on our reporting of greenhouse gas emissions, and the methodology used to record these, is set out on page 69 of the Strategic Report. Details of the Group’s energy usage for 2021, and the efficiency initiatives currently being undertaken, can be found in the Sustainability section on pages 68–73.

Branches

A number of the Group’s subsidiary undertakings maintain branches; further details of these can be found in Note 33.1 to the Group Financial Statements.

Dividends

An interim dividend of 6.2 pence (2020: 3.1 pence) per Vesuvius ordinary share was paid on 17 September 2021 to shareholders on the register at the close of business on 6 August 2021. The Board is recommending a final dividend in respect of 2021 of 15.0 pence (2020: 14.30 pence) per ordinary share which, if approved, will be paid on 27 May 2022 to shareholders on the register at 19 April 2022.

Accountability and audit

A responsibility statement of the Directors and a statement by the auditor about its reporting responsibilities can be found on pages 160, and 161–169, respectively. The Directors fulfil the responsibilities set out in their statement within the context of an overall control environment of central strategic direction and delegated operating responsibility. As at the date of this report, so far as each Director of the Company is aware, there is no relevant audit information of which the Company’s auditors are unaware and each Director hereby confirms that they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

Auditors’ reappointment

PricewaterhouseCoopers LLP (PwC) were reappointed as External Auditors for Vesuvius plc for the year ended 31 December 2021, at the 2021 AGM. PwC have been Vesuvius’ External Auditors since 2017 and have expressed their willingness to continue in office as Auditors of the Company for the year ending 31 December 2022.# Directors’ Report

Consequently, resolutions for the reappointment of PwC as External Auditors of the Company and to authorise the Directors to determine their remuneration are to be proposed at the 2022 AGM.

Directors

The current Directors of the Company are Patrick André, Kath Durrant, Dinggui Gao, Friederike Helfer, Jane Hinkley, Douglas Hurt, John McDonough CBE and Guy Young. Dinggui Gao joined the Board on 1 April 2021 and Hock Goh and Holly Koeppel served on the Board until they stepped down at close of the AGM on 12 May 2021. All the current Directors will retire at the 2022 AGM and offer themselves for re-election. Biographical information for the Directors is given on pages 104 and 105. Further information on the remuneration of, and contractual arrangements for, the Executive and Non-executive Directors is given on pages 130–153 in the Directors’ Remuneration Report. The Non-executive Directors do not have service agreements.

Directors’ indemnities

The Directors have been granted qualifying third-party indemnity provisions by the Company and the Directors of the Group’s UK Pension Plans Trustee Board (none of whom is a Director of Vesuvius plc) have been granted qualifying pension scheme indemnity provisions by Vesuvius Pension Plans Trustees Limited. The indemnities for Directors of Vesuvius plc have been in force since the date of their appointments. The Pension Trustee indemnities were in force throughout the last financial year and remain in force.

Our business

Our performance

Sustainability

Governance

Financial Statements

Directors’ Report continued

Annual General Meeting

The Annual General Meeting of the Company will be held at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ on Wednesday 18 May 2022 at 11:00 am.

Amendments of Articles of Association

The Company may make amendments to the Articles by way of special resolution in accordance with the Companies Act. The Articles were amended at the 2021 AGM, to reflect changes in the law and developments in market practice and technology since the previous Articles had been adopted in November 2012.

Share capital

As at the date of this report, the Company had an issued share capital of 278,485,071 ordinary shares of 10 pence each; 7,271,174 of these ordinary shares are held in Treasury. Therefore, the total number of Vesuvius plc shares with voting rights is 271,213,897. Further information relating to the Company’s issued share capital can be found in Note 9 to the Company Financial Statements.

The Company’s Articles specify that, subject to the authorisation of an appropriate resolution passed at a General Meeting of the Company, Directors can allot relevant securities under Section 551 of the Companies Act up to the aggregate nominal amount specified by the relevant resolution. In addition, the Articles state that the Directors can seek the authority of shareholders in a General Meeting to allot equity securities for cash, without first being required to offer such shares to existing ordinary shareholders in proportion to their existing holdings under Section 561 of the Companies Act, in connection with a rights issue and in other circumstances up to the aggregate nominal amount specified by the relevant resolution.

At the AGM on 12 May 2021, the Directors were authorised to issue relevant securities up to an aggregate nominal amount of £9,040,463, and, in connection with a rights issue, to issue relevant securities up to a further nominal value of £9,040,463. In addition, the Directors were empowered to allot equity securities, or sell Treasury Shares, for cash on a non-pre-emptive basis up to an aggregate nominal amount of £1,356,069, and for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Board of the Company determines to be an acquisition or other capital investment, to allot equity securities, or sell Treasury Shares, for cash on a non-pre-emptive basis up to an additional nominal amount of £1,356,069.

Each of the authorities given in these resolutions expires on 30 June 2022 or the date of the AGM to be held in 2022, whichever is the earlier. The resolutions were all tabled in accordance with the terms of the Pre-Emption Group’s Statement of Principles. The Directors propose to renew these authorities at the 2022 AGM for a further year.

In the year ahead, other than potentially in respect of Vesuvius’ ability to satisfy rights granted to employees under its various share-based incentive arrangements, the Directors have no present intention of issuing any share capital of Vesuvius plc.

Authority for purchase of own shares

Subject to the provisions of company law and any other applicable regulations, the Company may purchase its own shares. At the AGM on 12 May 2021, Vesuvius shareholders gave authority to the Company to make market purchases of up to 27,121,389 Vesuvius ordinary shares, representing 10% of the Company’s issued ordinary share capital as at the latest practicable day prior to the publication of the Notice of AGM. This authority expires on 30 June 2022 or the date of the AGM to be held in 2022, whichever is the earlier. The Directors will seek renewal of this authority at the 2022 AGM.

In 2013, the Company acquired 7,271,174 ordinary shares, representing a nominal value of £727,117 and 2.6% of the entire called-up share capital of the Company prior to the purchase. These shares were purchased pursuant to the Board’s commitment to return the majority of the net proceeds of the disposal of the Precious Metals Processing Division to shareholders. These shares are currently held as Treasury shares. The Company has not subsequently disposed of any of the repurchased shares.

During the year, the Company did not make any further acquisitions of shares nor did it dispose of any shares previously acquired. The Company does not have a lien over any of its shares.

156

Share plans

Vesuvius operates a number of share-based incentive plans. Under these plans, the Group can satisfy entitlements by the acquisition of existing shares, the transfer of Treasury shares or by the issue of new shares. Existing shares are held in an employee benefit trust (EBT). The Trustee of the EBT purchases shares in the open market as required to enable the Group to meet liabilities for the issue of shares to satisfy awards that vest. The Trustee does not register votes in respect to these shares at the Company’s Annual General Meetings and has waived the right to receive any dividends.

At 31 December 2020, the EBT held 1,093,098 ordinary shares of 10p each in the Company. During the year, the EBT sold/transferred 475,646 shares to satisfy the vesting of awards under the Company’s share-based incentive plans. It also purchased 267,404 ordinary shares in Vesuvius with a nominal value of £26,740 at a total cost, including transaction costs, of approximately £1.14m, to hold to satisfy the future vesting of awards under the Company’s share incentive plans.

As at 31 December 2021, the EBT held 884,856 ordinary shares. The total purchases during the year represented <0.5% of the Company’s called-up share capital.

Since the year end the EBT has purchased an additional 332,596 ordinary shares (<0.2% of called up share capital), with a nominal value of £33,260 at a total cost of £1,587,367. As at the date of this report the EBT held 1,217,452 ordinary shares.

Restrictions on transfer of shares and voting

The Company’s Articles do not contain any specific restrictions on the size of a holding or on the transfer of shares. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or voting rights. No person has any special rights with regard to the control of the Company’s share capital and all issued shares are fully paid. This is a summary only and the relevant provisions of the Articles should be consulted if further information is required.

Change of control provisions

The terms of the Group’s committed bank facility and US Private Placement Loan Notes contain provisions entitling the counterparties to exercise termination or other rights in the event of a change of control on takeover of the Company.# Directors' Report

A number of the arrangements to which the Company and its subsidiaries are party, such as other debt arrangements and share incentive plans, may also alter or terminate on a change of control in the event of a takeover. In the context of the Group as a whole, these other arrangements are not considered to be significant.

Interests in the Company’s shares

The Company has been notified in accordance with DTR 5 of the Disclosure and Transparency Rules of the following interests of 3%, or more, of its issued ordinary shares:

As at 31 Dec 2021	As at 3 Mar 2022
Cevian Capital	21.11%
abrdn	9.81%
Martin Currie	below 5%
Franklin Templeton	5.10%
Aberforth Partners	4.93%

The interests of Directors and their connected persons in the ordinary shares of the Company as disclosed in accordance with the Listing Rules of the Financial Conduct Authority are as set out on page 151 of the Directors’ Remuneration Report and details of the Directors’ Deferred Share Bonus Plan and Long-Term Incentive awards are set out on pages 147 and 150.

Suppliers, customers and others

Information summarising how the Directors have regard to the need to foster the Company’s business relationships with suppliers, customers and others is included in the Group’s Section 172(1) Statement on pages 22–27. This also details how that regard impacted the principal decisions taken by the Directors during the year. Our approach to business places a significant number of Vesuvius Steel employees at customer sites on a permanent basis. In the Foundry Division, our success is built on our deep understanding of customer processes and technical requirements, and our ability to assist them in delivering the greatest efficiency from their operations. During the year, our supplier audit programme covered the operations of 138 suppliers. This approach allows Vesuvius to gain a deep understanding of our suppliers’ operations to ensure sustainability and quality of supply. Vesuvius agrees payment terms with its suppliers and seeks to pay in accordance with those terms.

157

Equal opportunities employment

Vesuvius is an equal opportunities employer, and decisions on recruitment, development, training and promotion, and other employment-related issues are made solely on the grounds of individual ability, achievement, expertise and conduct. These principles are operated on a non-discriminatory basis, without regard to race, colour, nationality, culture, ethnic origin, religion, belief, gender, sexual orientation, age, disability or any other reason not related to job performance or prohibited by applicable law. In cases where employees are injured or disabled during employment with the Group, support, including appropriate training, is provided to those employees and workplace adjustments are made as appropriate in respect of their duties and working environment, supporting recovery and continued employment.

Employee engagement

Information on the mechanisms through which Vesuvius engages with its workforce is included in the Section 172(1) Statement on pages 22–28 and in the Sustainability section on pages 91–93.

Pensions

In each country in which the Group operates, the pension arrangements in place are considered to be consistent with good employment practice in that particular area. Independent advisors are used to ensure that the plans are operated in accordance with local legislation and the rules of each plan. Group policy prohibits direct investment of pension fund assets in the shares of Vesuvius plc. Outside the UK, the US, Germany and Belgium, the majority of pension plans in the Group are of a defined contribution nature. In 2016, the main German defined benefit plan was closed for new entrants and existing members were offered a buy-out of their benefits under this plan. Those who accepted this buy-out then joined the new defined contribution plan. The Group’s UK defined benefits plan (the ‘UK Plan’) and the main US defined benefit plans are closed to new entrants and have ceased providing future benefits accrual, with all eligible employees instead being provided with benefits through defined contribution arrangements.

For the Group’s closed UK Plan, a Trustee Board exists comprising employees, former employees and an independent trustee. The Board currently comprises six trustee Directors, of whom two are member-nominated. The administration of the UK Plan is outsourced. The Company is mindful of its obligations under the Pensions Act 2004 and of the need to comply with the guidance issued by the Pensions Regulator. Regular dialogue is maintained between the Company and the Trustee Board of the UK Plan to ensure that both the Company and Trustee Board are apprised of the same financial and other information about the Group and the UK Plan. This is pertinent to each being able to contribute to the effective functioning of the UK Plan.

Vesuvius continues to seek ways to de-risk its existing pension plans through a combination of asset matching, buy-in opportunities and, where prudent, voluntary cash contributions. The total gross defined benefit obligations at 31 December 2021 were £565.9m funded (2020: £610.0m funded) and £77.2m unfunded (2020: £88.3m unfunded). After asset funding there was a net deficit of £77.0m (2020: £2.1m) representing an increase of £74.9m. The increase is largely due to a reduction in surplus on the UK pension plan as a result of the final pension insurance buy-in agreement with Pension Insurance Corporation plc (PIC). This buy-in secures an insurance asset from PIC that matches the remaining pension liabilities of the UK Plan, with the result that the Company no longer bears any investment, longevity, interest rate or inflation risks in respect of the UK Plan. The decrease in surplus on the UK plan has been partially offset by a decrease in liabilities due to an increase in bond yields resulting in a reduction in the value of German and US liabilities.

The majority of the ongoing pension plans are defined contribution plans, where our only obligation is to make contributions, with no further commitments on the level of post-retirement benefits. During 2021, cash contributions of £10.2m (2020: £9.7m) were made into the defined contribution plans and charged to trading profit.

Directors' Report continued

158

Listing Rule 9.8.4R Disclosures

The following disclosures are made in compliance with the Financial Conduct Authority’s Listing Rule 9.8.4R:

Disclosure requirement under LR 9.8.4R	Reference/Location
(1) Interest capitalised by the Group during the year	None
(2) Publication of unaudited financial information	Not applicable
(3) Details of any Long-Term Incentive schemes	Pages 148 –150
(4) Director waiver of emoluments	Not applicable
(5) Director waiver of future emoluments	Not applicable
(6) Allotment for cash of equity securities made during the year	Not applicable
(7) Allotment for cash of equity securities made by a major unlisted subsidiary during the year	Not applicable
(8) Details of participation of parent undertaking in any placing made during the year	Not applicable
(9) Details of relevant material contracts in which a Director or controlling shareholder was interested during the year	Not applicable
(10) Contracts for the provision of services by a controlling shareholder during the year	Not applicable
(11) Details of any arrangement under which a shareholder has waived or agreed to waive any dividends	Vesuvius plc holds 7,271,174 of its 10 pence ordinary shares as Treasury shares. No dividends are payable on these shares. The Trustee of the Company’s EBT has agreed to waive, on an ongoing basis, any dividends payable on shares it holds in trust for use under the Company’s Employee Share Plans, details of which can be found on pages 144, 147, 148, 149, 150 and 157.
(12) Details of where a shareholder has agreed to waive future dividends	See above
(13) Statements relating to controlling shareholders and ensuring company independence	Not applicable

The Directors’ Report has been approved by the Board and is signed, by order of the Board, by the Secretary of the Company.# Henry Knowles Company Secretary 3 March 2022

159 Our business Our performance Sustainability Governance Financial Statements

Statement of Directors’ Responsibilities in respect of the Financial Statements

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the Group financial statements in accordance with UK-adopted international accounting standards and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law).

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period.

In preparing the financial statements, the Directors are required to:

• Select suitable accounting policies and then apply them consistently
• State whether applicable UK-adopted international accounting standards have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101 have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements
• Make judgements and accounting estimates that are reasonable and prudent
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors’ confirmations

The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed below, confirm that, to the best of their knowledge:

• The Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 Reduced Disclosure Framework, and applicable law), give a true and fair view of the assets, liabilities and financial position of the Company
• The Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group
• The Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that the Group faces

The names and functions of the Directors of Vesuvius plc who were in office during the year and at the signing of these financial statements were:

Name	Function
John McDonough CBE	Chairman
Patrick André	Chief Executive
Guy Young	Chief Financial Officer
Kath Durrant	Non-executive Director and Chair of the Remuneration Committee
Dinggui Gao	Non-executive Director
Friederike Helfer	Non-executive Director
Jane Hinkley	Non-executive Director
Douglas Hurt	Non-executive Director, Senior Independent Director and Chair of the Audit Committee

On behalf of the Board

Guy Young
Chief Financial Officer
3 March 2022

160 Vesuvius plc Annual Report and Financial Statements 2021

Independent auditors’ report to the members of Vesuvius plc

Opinion

In our opinion:

• Vesuvius plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2021 and of the Group’s profit and the Group’s cash flows for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report, which comprise: the Group and Company Balance Sheets as at 31 December 2021; the Group Income Statement and the Group Statement of Comprehensive Income, the Group Statement of Cash Flows and the Group and Company Statements of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided. Other than those disclosed in Note 6.2 of the Group Financial Statements, we have provided no non-audit services to the Company or its controlled undertakings in the period under audit.

Report on the audit of the financial statements

Context

The Vesuvius Group (Vesuvius plc together with its subsidiaries) has operations in 40 countries, including 75 sales offices and has 54 production sites. In 2021, as set out in the Chairman’s statement, despite some recovery across the majority of the Group’s end markets, the COVID-19 pandemic continued to result in operational restrictions and promoted wide-spread global supply chain and freight disruption which led to some costs increasing, not all of which were passed on to end customers. The sustainability strategy is important for the Group and includes plans to achieve a net zero carbon footprint by 2050 at the latest.

Overview

• Our audit included full scope audits of 18 components and specific audit procedures on certain balances and transactions for 15 additional components.
• Taken together, the components at which either full scope audit work or specified audit procedures were performed enabled us to get coverage on 70% of revenue, 67% of profit before tax and 69% of profit before tax and separately reported items (Headline profit before tax).

Key audit matters

• Impairment of goodwill and other non-financial assets (Group).
• Provisions for exposures (Group).
• Impairment of investment in subsidiaries (Company).

Materiality

• Overall Group materiality: £6,300,000 (2020: £7,000,000) based on approximately 4.6% of profit before tax and separately reported items (‘Headline profit before tax’).# Independent auditors’ report to the members of Vesuvius plc

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. This year we also specifically considered the impacts of climate change on the audit. The ‘Sustainability’ section of the Strategic report sets out the Group’s climate change risk assessment, the climate related targets set and an evaluation of the potential financial impacts. In planning and executing our audit we considered this risk assessment and management’s analysis of impacts to the financial statements. These, together with discussions with our own climate change experts, provided us with an understanding of the potential impacts of climate change on the financial statements. Based on this we understood the key impacts on the Group could include potential increases in costs from carbon pricing mechanisms, costs and benefits of technology transition in Iron and Steelmaking and the conversion of manufacturing processes to clean energy. This would most likely impact the financial statements line items and estimates associated with future cash flows because the impact of climate change for Vesuvius is expected to become more notable in the medium to long term. The key areas impacted include valuation of goodwill and other non-financial assets, and useful lives applied to tangible and intangible assets. Management’s assessment is that the current impact on Vesuvius is not material. Nevertheless, in our audit of the forecasts used in the valuation, we challenged management on significant assumptions in the cash flows that might be impacted by climate change, including the potential impact of any climate change related commitments. For further details see our Key Audit Matter on impairment of goodwill and other non-financial assets. We have not noted any issues as part of this work which contradict the disclosures in the Annual Report or materially impact the financial statements.

Our audit approach

16 | Vesuvius plc Annual Report and Financial Statements 2021

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on:
* the overall audit strategy;
* the allocation of resources in the audit; and
* directing the efforts of the engagement team.

These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and informing our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

The impact of COVID-19 (Group and Company), which was a key audit matter last year, is no longer included because of in the case of COVID-19, whilst there are continued operating environment disruptions such as to the supply chain, there is improved financial position and performance in 2021. This has mitigated some of the financial statement risks and we are not aware of any significant control deficiencies after another year of working under a hybrid working environment. Otherwise, the key audit matters below are consistent with last year.

### Key audit matter	How our audit addressed the key audit matter
Impairment of goodwill and other non-financial assets (Group)

At 31 December 2021, the carrying value of goodwill is £614.2 million (2020: £617.6 million). Goodwill arising from acquisitions has an indefinite expected useful life and so is not amortised but rather is tested for impairment at least annually at the cash-generating unit (“CGU”) level. Management has determined its CGUs to align with the operating segments, which are Steel Advanced Refractories, Steel Flow Control and Foundry. Steel Sensors and Probes goodwill was previously impaired and is fully written down. The Group also carries Property, Plant and Equipment assets of £352.5 million (2020: £337.5 million) and other intangible assets of £82.6 million (2020: £78.5 million). The carrying value of these assets was assessed for impairment as part of the impairment test performed in respect of the CGUs, and also separately for indicators of impairment. Management prepares a Value in Use (VIU) model (discounted cash flow) to test for impairment of the carrying value of the above CGUs. This is based on a Board approved 3 year forecast, on which a terminal value is calculated based on long term growth rates. The VIU model requires estimation of projected future cash flows and involves making key assumptions of revenue growth rates, an appropriate discount rate and long term growth rates for each of the CGUs. In making such future assumptions there is an inherent level of estimation uncertainty to consider.

We focused on the valuation of the CGUs due to the material carrying value of goodwill and other non-financial assets, and with regard to the estimation uncertainties arising from the factors set out above. Refer to Property, Plant and Equipment (Note 15), Intangible Assets (Note 16), Impairment of Tangible and Intangible Assets (Note 17), Critical Accounting Judgements and Estimates (Note 3) and Significant issues and material judgements in the Audit Committee report.

Our audit procedures included:

– For each CGU we obtained management’s Value in Use model. We ensured the calculations were mathematically accurate and that the valuation methodology conformed with the requirements of IAS 36 ‘Impairment of Assets’.

– For key assumptions made by management in respect of forecast revenue and cash flow growth:
– We obtained management’s supporting evidence such as the Board approved budget and 3 year strategic plan and agreed the forecast cash flows and underlying assumptions to these, and assessed historical evidence of CGU growth rates.
– We also obtained evidence through our own independent research. This included evidence supporting forecast production levels for the CGUs end customer markets, historical evidence of Vesuvius growth rates and of recoveries in cyclical end markets.
– We further considered market valuation evidence such as current and target share price and understood any material differences.
– Our audit evidence corroborated trends in the cash flows modelled, although in year 3 and into perpetuity estimation uncertainty increases (see our sensitivities below).
– We utilised internal valuation experts to support our audit procedures over the discount rate and long term growth rate assumptions used in the impairment model and sensitised the impacts of changes in the discount rate within our view of a reasonable range.
– We remained professionally sceptical of the impacts of forecasting uncertainty, particularly where evidence in later years is more judgemental as set out above. We determined alternative sensitivity scenarios to ascertain the extent of changes in projections that would be required for the goodwill and other non-financial assets to be impaired. These included scaling back year 3 forecasts and factoring in historical levels of forecasting inaccuracy. We also evaluated the sensitivity of impairment model cash flows to the impacts of climate change set out in the ‘Sustainability’ section of the Strategic report, including identified costs of working to ‘net zero’ and the potential financial impacts of the scenarios for temperature change.# Independent auditors’ report to the members of Vesuvius plc

Key audit matter

How our audit addressed the key audit matter

Provisions for exposures (Group)

The Group holds a provision for ‘Disposal, closure and environmental costs’ (which includes provisions relating to legacy legal matters for closed businesses) amounting to £41.8 million (2020: £42.2 million). Determining the quantum of this provision involves modelling and estimation of expected future legal claim volumes and amounts. It also requires the directors to use judgement to determine whether associated insurance recoverable amounts should be recognised within assets. We focused on this area due to the material quantum of the provision and associated insurance asset, and the judgement and estimates involved in determining its valuation. Refer to Critical Accounting Judgements and Estimates (Note 3), Trade and Other Receivables (Note 18), Provisions (Note 30), Contingent Liabilities (Note 32) and Significant issues and material judgements in the Audit Committee report.

Our audit procedures included:
– Obtaining management’s model of the estimated legal costs, associated insurance recoverable and testing the mathematical accuracy and integrity of this model.
– We discussed claims arising, settlements made and expected trends with management’s in-house and external legal experts.
– We tested the accuracy of historical source data which is used to determine estimates of future trends of volumes and amounts of claims, to supporting claim documentation.
– We utilised our own auditor’s expert to support our audit of the key assumptions and to provide a view of a range of potential outcomes due to the estimation uncertainty involved. We independently sensitised the model for changes in the average cost of claims, increase in the level of larger value claims and duration over which claims are expected to be received.
– We inspected evidence of available insurance cover, the routine and consistent collection of this and considered the financial condition of insurance providers to gain evidence over the recognition and recoverability of the insurance asset. We also verified that this was appropriately presented as gross of the associated provisions (within ‘Other receivables’).

From our procedures, we concluded the amount of the provision held was within our acceptable range, albeit towards the optimistic end of the range. We evaluated the level of disclosures and that these adequately explain estimation uncertainty of key assumptions including over the long term. Critical Accounting Judgements and Estimates (Note 3) highlights this area as a critical accounting estimate although it is not expected to materially impact the financial statements in the next 12 months. Our findings were discussed with the Audit Committee.

Impairment of investment in subsidiaries (Company)

The Company holds investments in subsidiaries with a total carrying amount of £1,778.0 million at 31 December 2021 (2020: £1,778.0 million) in addition to amounts owed to Subsidiary undertaking of £977.4 million (2020: £953.5 million). IAS 36 ‘Impairment of assets’ requires management to consider whether there are any indicators of impairment in respect of non-financial assets. Due to the quantum of the carrying amount and levels of estimation uncertainty that exist similar to assumptions used in testing for impairment of goodwill and other non-financial assets (Group) this was an area of focus for the audit of the Company. Consistent with the prior year management performed an impairment test at 31 October 2021. This utilises cash flow forecasts used for testing for impairment of the Group’s goodwill together with additional considerations of cash flows relevant to the subsidiaries that the Company owns. The judgements and estimates required to determine the cash flow forecasts are aligned with those set out in ‘Impairment of goodwill and other non-financial assets (Group)’ above. Refer to Investments (Note 7), Other Creditors including Taxation and Social Security (Note 8), Critical Accounting Judgements and Estimates (Note 3) in the Company financial statements and Significant issues and material judgements in the Audit Committee report.

Our audit procedures included:
– We assessed the results of the Value in Use model used for the impairment test for goodwill and other non-financial assets, together with adjustments made to reflect cash inflows to subsidiaries from the Company.
– Our testing of the Group Value in Use model, including procedures performed over management’s model and evidence obtained in respect of key assumptions made is set out in Key audit matter ‘Impairment of goodwill and other non-financial assets’. We also compared the carrying value of the investment in subsidiaries and the Group Value in Use to the market capitalisation and market valuation expectations.
– We performed sensitivity analyses including consideration of historical forecasting inaccuracies which showed there was no reasonably possible scenarios of impairment when taking account of estimation uncertainty in key assumptions.
– This indicated headroom in the determined Value in Use and that the investment in subsidiaries balance was not impaired.

We reviewed financial statement disclosures and these are consistent with the results of management’s testing and our audit evidence. Critical Accounting Judgements and Estimates (Note 3) in the Company financial statements highlights this area as a critical accounting estimate although it is not expected to materially impact the financial statements in the next 12 months. Our findings were discussed with the Audit Committee.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Vesuvius Group (Vesuvius plc together with its subsidiaries) has operations in 40 countries, including 75 sales offices and has 54 production sites. The Group consolidates financial information through reporting from its components which include divisions and functions at these sites. Our audit scope was determined by considering the significance of the component’s contribution to profit before tax and separately reported items (Headline profit before tax). We also evaluated contribution to revenue and to other individual financial statement line items, with specific consideration to obtaining sufficient coverage over areas of heightened risk and locations.

We did not identify reasonable sensitivities that would result in impairment of any of the CGUs being tested. In addition to the above procedures (which comprised our area of focus), we instructed our component audit teams to evaluate the appropriateness of management impairment indicator assessments performed within territory components and to also assess any material impacts of climate change. These assessments focused on individual or groups of assets below the levels of the CGUs. Our component teams, under our supervision, did not identify any additional impairments required or inconsistent findings to our Group level assessment in respect of climate change. From our procedures we concluded that estimates and key assumptions made by management in performing impairment testing, including reasonably possible downside sensitivities which showed no scenarios of impairment, were supported. Appropriate disclosures have been included within the Annual Report. Critical Accounting Judgements and Estimates (Note 3) accordingly highlights this area as a critical accounting estimate although it is not expected to materially impact the financial statements in the next 12 months. Our findings were discussed with the Audit Committee.# Vesuvius plc Annual Report and Financial Statements 2021

Due to the geographically dispersed nature of the Group’s activities we determined there were no financially significant components. The audit scope comprised 18 components for which we determined that full scope audits would need to be performed and 15 components for which specific audit procedures on certain balances and transactions were performed by either component teams or the Group team. This collectively provided audit coverage of 70% of the Group’s revenue, 67% of the Group’s profit before tax and 69% of the Group’s Headline profit before tax. This, together with the additional procedures performed at the Group level, including testing the consolidation process, gave us the evidence we needed for our opinion on the financial statements as a whole.

In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the Group audit team, or by component auditors in both PwC network firms and other audit firms. Where the work was performed by component auditors, we determined the level of involvement and oversight we needed to have in the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the financial statements as a whole. This was achieved through:

– Issuance of formal instructions and regular communications with the component auditors throughout the audit;
– Attendance at audit clearance meetings by Group audit senior team members;
– Interactions with local management;
– Our direction and supervision of the audit approach and review of audit findings; and
– For material components, meetings with the Group audit quality review partner and our review of selected audit workpapers of the component auditors’.

The Group audit team also performed the audit of the Company and other procedures over those components of the Group not subject to full scope audits.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgment, we determined materiality for the financial statements as a whole as follows:

	Financial statements – Group	Financial statements – Company
Overall materiality	£6,300,000 (2020: £7,000,000)	£6,300,000 (2020: £7,000,000)

How we determined it

	Financial statements – Group	Financial statements – Company
	Approximately 4.6% of profit before tax and separately reported items (‘Headline profit before tax’).	1.0% of total assets, capped at the level of overall Group materiality.

Rationale for benchmark applied

We believe that profit before tax and separately reported items (‘Headline profit before tax’) provides us with an appropriate basis for determining our overall Group audit materiality given our understanding that it is a key measure for users of the financial statements both internally and externally. Headline profit before tax is an Alternative Performance Measure presented and defined in the Annual Report and Financial Statements.

(2020: In the prior year, due to the significant volatility caused in the results by COVID-19, a 3 year average of the Headline profit before tax was used as a benchmark to provide a more normalised threshold for determining materiality. In the current year, we reverted to determining materiality based only on the 2021 performance.)

We believe that total assets is an appropriate basis for determining materiality for the Company, given this entity is an investment holding company and this is an accepted auditing benchmark. The materiality was capped to the level of Group overall materiality. The Company is not an in-scope component for our Group audit.

(2020: 1% of total assets, capped at the level of overall Group materiality.)

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was £400,000 and £3,900,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.

Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £4,730,000 (2020: £5,250,000) for the Group financial statements and £4,730,000 (2020: £5,250,000) for the Company financial statements.

In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £350,000 (Group audit) (2020: £350,000) and £350,000 (Company audit) (2020: £350,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of accounting included:

– Evaluating management’s base case and severe but plausible downside case for liquidity and available financial resources and obtaining supporting evidence for key assumptions. This included agreeing the underlying cash flow projections to the Board approved forecast, assessing how these forecasts were compiled and assessing the historical accuracy of the forecasts. We also evaluated current performance and available financing facilities and related liquidity head room.
– Testing the accuracy of cash flow models used to assess available liquidity during the going concern periods disclosed.
– Inspected facility agreements to ensure key terms were considered including covenants, and evaluated covenant compliance during the year.
– Determining alternative sensitivity scenarios to ascertain the impact of changes in assumptions. These included scaling back forecasts and increasing working capital as a percentage of forecast revenue.
– Reading management’s disclosures in the financial statements and relevant ‘other information’ in the Annual Report, and assessing consistency with the financial statements and our knowledge based on our audit.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Company’s ability to continue as a going concern.

In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.# Responsibilities of the directors and auditors with respect to other information

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Conclusions relating to going concern

166 Vesuvius plc Annual Report and Financial Statements 2021

The other information comprises all of the information in the Annual Report other than the Financial Statements and our auditor’s report thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Our opinion on the Financial Statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the Financial Statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below.

Strategic report and Directors’ Report

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 December 2021 is consistent with the Financial Statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.

Directors’ Remuneration

In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the Financial Statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:

• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated;
• The directors’ statement in the Financial Statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the Financial Statements;
• The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Reporting on other information
Corporate governance statement
167

• Our business
• Our performance
• Sustainability
• Governance
• Financial Statements

Independent auditor's report to the members of Vesuvius plc (continued)

Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only consisted of making enquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the Financial Statements and our knowledge and understanding of the Group and Company and their environment obtained in the course of the audit.

In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the Financial Statements and our knowledge obtained during the audit:

• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.

We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.

Responsibilities of the directors for the Financial Statements

As explained more fully in the Statement of Directors’ Responsibilities in respect of the Financial Statements, the directors are responsible for the preparation of the Financial Statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.

In preparing the Financial Statements, the directors are responsible for assessing the Group’s and the Company’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 the Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.# Vesuvius plc Annual Report and Financial Statements 2021

Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to income and other tax, international trade restrictions, health and safety, environmental and anti-bribery, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006 and Listing Rules of the Financial Conduct Authority (FCA). We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries and management bias in accounting estimates. The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work.

Responsibilities for the financial statements and the audit

168 Vesuvius plc Annual Report and Financial Statements 2021

Audit procedures performed by the Group engagement team and/or component auditors included:

• Enquiries of Group and local management, those charged with governance, internal audit and the Group’s legal counsel (internal and, where relevant, external), including consideration of known or suspected instances of non-compliance with laws and regulations and fraud;
• Understanding and evaluation of the design and implementation of management’s controls designed to prevent and detect irregularities, including compliance, whistle-blowing arrangements and the results of management’s investigation of such matters;
• Inspecting management reports and Board minutes in relation to health and safety and other compliance matters;
• Reading key correspondence with regulatory authorities, including in respect of uncertain tax positions;
• Testing assumptions and judgements made by management in their critical accounting estimates, in particular relating to impairment of goodwill and non-financial assets and provisions for exposures (see related key audit matters section of this report);
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations including in respect of journals posted to revenue, cash and other credits to non-revenue accounts in the Group Income Statement; and
• Obtained an understanding of the nature of any trade restrictions and our component auditors tested relevant supporting evidence that exists locally.

There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of this report

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Audit Committee, we were appointed by the members on 10 May 2017 to audit the financial statements for the year ended 31 December 2017 and subsequent financial periods. The period of total uninterrupted engagement is 5 years, covering the years ended 31 December 2017 to 31 December 2021.

Other matter

In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS.

Darryl Phillips
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
3 March 2022

169

We think beyond today’s industrial processes and shape the future through mechatronics

171

Group Income Statement

172

Group Statement of Comprehensive Income

173

Group Statement of Cash Flows

174

Group Balance Sheet

175

Group Statement of Changes in Equity

176

Notes to the Group Financial Statements

229

Company Balance Sheet

230

Company Statement of Changes in Equity

231

Notes to the Company Financial Statements

237

Five-Year Summary: Divisional Results from Continuing Operations

238

Shareholder Information (Unaudited)

240

Glossary

170

Group Income Statement

For the year ended 31 December 2021

	Notes	2021			2020
		£m	£m	£m	£m	£m	£m
		Headline performance	Separately reported items	Total	Headline performance	Separately reported items	Total
Continuing operations
Revenue	4, 5	1,642.9	–	1,642.9	1,458.3	–	1,458.3
Manufacturing costs		(1,222.8)	–	(1,222.8)	(1,084.7)	–	(1,084.7)
Administration, selling and distribution costs		(277.7)	–	(277.7)	(272.2)	–	(272.2)
Trading profit	2 5	142.4	–	142.4	101.4	–	101.4
Amortisation of acquired intangible assets	16	–	(9.7)	(9.7)	–	(9.9)	(9.9)
Restructuring charges	7	–	–	–	–	(6.1)	(6.1)
Vacant site remediation costs	7	–	–	–	–	(10.3)	(10.3)
GMP equalisation charge	26	–	–	–	–	(0.8)	(0.8)
Operating profit	6	142.4	(9.7)	132.7	101.4	(27.1)	74.3
Finance expense		(13.7)	–	(13.7)	(18.9)	–	(18.9)
Finance income	7.3	–	7.3	7.3	8.0	–	8.0
Net finance costs	9	(6.4)	–	(6.4)	(10.9)	–	(10.9)
Share of post-tax profit of joint ventures and associates	33	1.3	–	1.3	1.1	–	1.1
Profit before tax		137.3	(9.7)	127.6	91.6	(27.1)	64.5
Income tax charge	10	(35.9)	16.2	(19.7)	(24.4)	5.7	(18.7)
Profit		101.4	6.5	107.9	67.2	(21.4)	45.8
Profit attributable to:
Owners of the Parent	11	95.6	6.5	102.1	62.7	(21.4)	41.3
Non-controlling interests		5.8	–	5.8	4.5	–	4.5
		101.4	6.5	107.9	67.2	(21.4)	45.8
Earnings per share – pence	11
Total operations – basic		37.7			15.3
– diluted		37.5			15.2

1. Headline performance and Separately reported items are non-GAAP measures. Headline performance is defined in Note 4.1 and Separately reported items is defined in Note 2.5.
2. Trading profit is a non-GAAP measure and is defined in Note 4.4. The above results were derived from continuing operations. The separately reported items would form part of Administration, selling and distribution costs if classified within Headline performance, which including these amounts would total £287.4 m (2020: £299.3 m).# Group Statement of Comprehensive Income
   For the year ended 31 December 2021

Notes	2021 £m	2020 £m
Profit	107.9	45.8
Items that will not subsequently be reclassified to Income Statement
Remeasurement of defined benefit liabilities/assets	26.6	(80.6)
Income tax relating to items not reclassified	10.4	12.5
Items that may subsequently be reclassified to Income Statement
Exchange differences on translation of the net assets of foreign operations	(31.4)	(14.9)
Exchange differences on translation of net investment hedges	23	14.4
Net change in costs of hedging	(1.2)	0.4
Change in the fair value of the hedging instrument	2.2	(8.1)
Amounts reclassified from the income statement	(0.7)	6.3
Other comprehensive loss, net of income tax	(84.8)	(21.5)
Total comprehensive income	23.1	24.3
Total comprehensive income attributable to:
Owners of the Parent	17.7	22.0
Non-controlling interests	5.4	2.3
Total comprehensive income	23.1	24.3

The above results were derived from continuing operations.

Group Statement of Cash Flows

For the year ended 31 December 2021

Notes	2021 £m	2020 £m
Cash flows from operating activities
Cash generated from operations	12	82.9
Interest paid		(11.9)
Interest received		4.3
Income taxes paid		(30.1)
Net cash inflow from operating activities		45.2
Cash flows from investing activities
Capital expenditure		(45.5)
Proceeds from the sale of property, plant and equipment		1.2
Acquisition of subsidiaries and joint ventures, net of cash acquired	20	(43.7)
Dividends received from joint ventures		1.0
Net cash outflow from investing activities		(87.0)
Net cash (outflow)/inflow before financing activities		(41.8)
Cash flows from financing activities
Proceeds from borrowings	14	89.4
Repayment of borrowings	14	(31.4)
Settlement of derivatives	25	–
Purchase of ESOP shares	22	(1.1)
Dividends paid to equity shareholders	24	(55.5)
Dividends paid to non-controlling shareholders		(2.2)
Net cash outflow from financing activities		(0.8)
Net decrease in cash and cash equivalents	14	(42.6)
Cash and cash equivalents at 1 January		206.8
Effect of exchange rate fluctuations on cash and cash equivalents	14	(1.8)
Cash and cash equivalents at 31 December	13	162.4

Alternative performance measure (non-statutory):

Notes	2021 £m	2020 £m
Free cash flow	4.11
Net cash inflow from operating activities		45.2
Capital expenditure		(45.5)
Proceeds from the sale of property, plant and equipment		1.2
Dividends received from joint ventures		1.0
Dividends paid to non-controlling shareholders		(2.2)
Free cash flow	4.11	(0.3)

Group Balance Sheet

As at 31 December 2021

Notes	2021 £m	2020 £m
Assets
Property, plant and equipment	15	352.5
Intangible assets	16	696.8
Employee benefits – surpluses	26	25.1
Interests in joint ventures and associates	33	12.8
Investments		0.5
Deferred tax assets	10	104.2
Other receivables	18	16.2
Total non-current assets		1,208.1
Cash and short-term deposits	13	169.1
Inventories	19	299.4
Trade and other receivables	18	445.2
Income tax receivable	10	7.6
Derivative financial instruments	25	0.1
Assets classified as held for sale		–
Total current assets		921.4
Total assets		2,129.5
Equity
Issued share capital	21	27.8
Retained earnings	22	2,483.4
Other reserves	23	(1,467.6)
Equity attributable to the owners of the Parent		1,043.6
Non-controlling interests		54.6
Total equity		1,098.2
Liabilities
Interest-bearing borrowings	25	329.9
Employee benefits – liabilities	26	102.1
Other payables	28	11.6
Provisions	30	32.6
Deferred tax liabilities	10	29.6
Derivative financial instruments	25	2.5
Total non-current liabilities		508.3
Interest-bearing borrowings	25	113.8
Trade and other payables	28	372.9
Income tax payable	10	18.1
Provisions	30	18.1
Derivative financial instruments	25	0.1
Total current liabilities		523.0
Total liabilities		1,031.3
Total equity and liabilities		2,129.5

Company number 7766821

The financial statements on pages 171 to 228 were approved and authorised for issue by the Directors on 3 March 2022 and signed on their behalf by:

Patrick André Guy Young
Chief Executive

	Chief Financial Officer

Group Statement of Changes in Equity

For the year ended 31 December 2021

	Issued share capital £m	Other reserves £m	Retained earnings £m	Owners of the Parent £m	Non-controlling interests £m	Total equity £m
As at 1 January 2020	27.8	(1,427.5)	2,463.1	1,063.4	51.0	1,114.4
Profit	–	–	41.3	41.3	4.5	45.8
Remeasurement of defined benefit liabilities/assets	–	–	7.7	7.7	–	7.7
Income tax relating to items not reclassified	–	–	(3.2)	(3.2)	–	(3.2)
Exchange differences on translation of the net assets of foreign operations	–	(12.7)	–	(12.7)	(2.2)	(14.9)
Exchange differences on translation of net investment hedges	–	(9.7)	–	(9.7)	–	(9.7)
Net change in costs of hedging	–	0.4	–	0.4	–	0.4
Change in the fair value of the hedging instrument	–	(8.1)	–	(8.1)	–	(8.1)
Amounts reclassified from the income statement	–	6.3	–	6.3	–	6.3
Income tax relating to items that may be reclassified	–	–	–	–	–	–
Other comprehensive income/(loss) net of income tax	–	(23.8)	4.5	(19.3)	(2.2)	(21.5)
Total comprehensive income/(loss)	–	(23.8)	45.8	22.0	2.3	24.3
Recognition of share-based payments	–	–	2.4	2.4	–	2.4
Dividends paid (Note 24)	–	–	(8.4)	(8.4)	(1.9)	(10.3)
Total transactions with owners	–	–	(6.0)	(6.0)	(1.9)	(7.9)
As at 31 December 2020	27.8	(1,451.3)	2,502.9	1,079.4	51.4	1,130.8
As at 1 January 2021	27.8	(1,451.3)	2,502.9	1,079.4	51.4	1,130.8
Profit	–	–	102.1	102.1	5.8	107.9
Remeasurement of defined benefit liabilities/assets	–	–	(80.6)	(80.6)	–	(80.6)
Income tax relating to items not reclassified	–	–	12.5	12.5	–	12.5
Exchange differences on translation of the net assets of foreign operations	–	(31.0)	–	(31.0)	(0.4)	(31.4)
Exchange differences on translation of net investment hedges	–	14.4	–	14.4	–	14.4
Net change in costs of hedging	–	(1.2)	–	(1.2)	–	(1.2)
Change in the fair value of the hedging instrument	–	2.2	–	2.2	–	2.2
Amounts reclassified from the income statement	–	(0.7)	–	(0.7)	–	(0.7)
Income tax relating to items that may be reclassified	–	–	–	–	–	–
Other comprehensive (loss) net of income tax	–	(16.3)	(68.1)	(84.4)	(0.4)	(84.8)
Total comprehensive income/(loss)	–	(16.3)	34.0	17.7	5.4	23.1
Recognition of share-based payments	–	–	3.1	3.1	–	3.1
Purchase of ESOP shares	–	–	(1.1)	(1.1)	–	(1.1)
Dividends paid (Note 24)	–	–	(55.5)	(55.5)	(2.2)	(57.7)
Total transactions with owners	–	–	(53.5)	(53.5)	(2.2)	(55.7)
As at 31 December 2021	27.8	(1,467.6)	2,483.4	1,043.6	54.6	1,098.2

1. General Information

Vesuvius plc (‘Vesuvius’ or ‘the Company’) is a public company limited by shares. It is incorporated and domiciled in England and Wales, United Kingdom, and listed on the London Stock Exchange. The nature of the operations and principal activities of the Company and its subsidiary and joint venture companies (‘the Group’) is set out in the Strategic Report on pages 1 to 101. The address of its registered office is 165 Fleet Street, London EC4A 2AE.

2. Basis of Preparation

2.1 Basis of accounting

The Group financial statements have been prepared in accordance with UK adopted international accounting standards (IFRS) and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The financial statements have been prepared under the historical cost convention, with the exception of fair value measurement applied to defined benefit pension plans, investments and derivative financial instruments.

2.2 Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled directly and indirectly by the Company (its ‘subsidiaries’). Control exists when the Company has the power to direct the relevant activities of an entity that significantly affect the entity’s return so as to have rights to the variable return from its activities. In assessing whether control exists, potential voting rights that are currently exercisable are taken into account. The results of subsidiaries acquired or disposed of during the year are included in the Group Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The principal accounting policies applied in the preparation of these Group financial statements are set out in the Notes. These policies have been consistently applied to all of the years presented, unless otherwise stated.# Notes to the Group Financial Statements

2. Basis of Preparation (continued)

2.3 Going Concern

The Group’s available committed liquidity stood at £456m at year-end 2021, up from £437m at year-end 2020, as a result of an increase in the Group’s committed facilities partially offset by additional borrowings under these facilities. The Directors have prepared cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of the financial statements. These forecasts reflect an assessment of current and future end-market conditions and their impact on the Group’s future trading performance. The analysis undertaken includes a plausible but severe downside scenario, based on an assumed protracted COVID-19 related demand impact, despite emerging confidence that the worst of the pandemic may be behind us. This downside scenario assumes a decline in business activity and profitability in 2022 and 2023 to the level achieved in H2 2020, the period half-year most severely impacted by COVID-19. On a full-year basis relative to 2021, this implies a c. 14% decline in sales and a c. 34% decline in trading profit. Even in this downside scenario, the forecasts show that the Group’s maximum net debt/EBITDA (pre-IFRS 16 in line with the covenant calculation) does not exceed 1.3x, compared to a leverage covenant of 3.25x. The forecasts show that the Group will be able to operate within the current committed debt facilities and show continued compliance with the Company’s financial covenants. On the basis of the exercise described above and the Group’s available committed debt facilities, the Directors consider that the Group and the Company have adequate resources to continue in operational existence for a period of at least 12 months from the date of signing of these financial statements. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group and the Company.

2.4 Functional and Presentation 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. Foreign operations are included in accordance with the policies set out in Note 2.5.

2.5 Disclosure of ‘separately reported items’

Columar presentation

The Group has adopted a columar presentation for its Group Income Statement, to separately identify headline performance results, as the Directors consider that this gives a useful view of the core results of the ongoing business. As part of this presentation format, the Group has adopted a policy of disclosing separately on the face of its Group Income Statement, within the column entitled ‘Separately reported items’, the effect of any components of financial performance for which the Directors consider separate disclosure would assist users both in a useful understanding of the financial performance achieved for a given year and in making projections of future results.

Separately reported items

Both materiality and the nature of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, the financial effect of exceptional items which occur infrequently, such as major restructuring activity (which may require more than one year to complete), significant movement in the Group’s deferred tax balances such as was, for example, caused by the impact of US tax reform in 2017, items reported separately for consistency, such as amortisation charges relating to acquired intangible assets, profits or losses arising on the disposal of continuing or discontinued operations and the taxation impact of the aforementioned items reported separately. The amortisation charge in respect of intangible assets recognised on business combinations is excluded from the trading results of the Group since they are non-cash charges and are not considered reflective of the core trading performance of the Group. In its adoption of this policy, the Company applies an even-handed approach to both gains and losses and aims to be both consistent and clear in its accounting and disclosure of such items.

2.6 Consideration of Climate Change

In preparing the financial statements, we have considered the impact of climate change, particularly in the context of the disclosures included in the Strategic Report this year. There has not been a material impact on the financial reporting judgements and estimates arising from our considerations, consistent with our assessment that climate change is not expected to have a meaningful impact on the viability of the Group in the medium term. Specifically, we note that we have considered the impact of climate change on the carrying value and the estimation of useful lives of property, plant and equipment (see Note 1.5) and goodwill and intangibles (see Note 1.6).

2.7 Changes in Accounting Policies

There have been no changes in accounting policies during the year.

2.8 New and Revised IFRS

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2021 reporting periods 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 bilateral 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.

177

3. Critical Accounting Judgements and Estimates

Determining the carrying amount of some assets and liabilities and amounts recognised as reported profit requires judgement and/or estimation of the effect of uncertain future events. The major sources of judgement and estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities and amounts recognised as reported profit are noted below. As part of the evaluation of critical accounting judgements and key sources of estimation uncertainty, the Group has considered the implications of climate change on its operations and activities. All other accounting policies are included within the respective Notes to the Financial Statements.# 3. Critical Accounting Judgements and Estimates

3.1 Separately Reported Items (Judgement)

In accordance with IAS 1, 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 both in a useful understanding of the financial performance achieved for a given year and in making projections of future results. 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, and 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 exceptional items and other items reported separately.

3.2 Deferred Tax Asset Recognition (Judgement)

The Directors apply judgement in determining whether temporary differences, including historical tax losses, should be recognised as deferred tax assets. The judgement considers the time horizon of expected utilisation and the history of taxable profits generated. See Note 10.4.

3.3 Operating Segments for Continuing Operations (Judgement)

The Group’s operating segments are determined taking into consideration how the Group’s components are reported to the Group’s Chief Executive, who makes the key operating decisions and is responsible for allocating resources and assessing performance of the component. Taking into account the Group’s management and internal reporting structure, the operating segments are Steel Flow Control, Steel Advanced Refractories, Steel Sensors & Probes, and the Foundry Division. The principal activities of each of these segments are described in the Strategic Report. 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.

3.4 Employee Benefits (Estimate)

The Group’s financial statements include the costs and obligations associated with the provision of pension and other post-retirement benefits to current and former employees. It is the Directors’ responsibility to set the assumptions used in determining the key elements of the costs of meeting such future obligations. These assumptions are set after consultation with the Group’s actuaries and include those used to determine regular service costs and the financing elements related to the plans’ assets and liabilities. Whilst the Directors believe that the assumptions used are appropriate, a change in the assumptions could affect the Group’s profit and financial position. The pension obligations are most sensitive to a change in the discount rate and therefore could materially change in the next financial year if the discount rate changes significantly. Sensitivity disclosures are included in Note 26.3. For the estimates below, the Group does not have any key assumptions concerning the future or other key sources of estimation uncertainty in the reporting period that are reasonably expected to have a significant risk of causing a material adjustment to the carrying amounts of assets/ liabilities within the next financial year. Nonetheless, these estimates have the potential to materially vary over time and are therefore highlighted.

178 Vesuvius plc Annual Report and Financial Statements 2021

3.5 Impairment Testing of Intangible Assets (Estimate)

Determining whether intangible assets are impaired requires an estimation of the recoverable amount, which is the higher of Value in Use and fair value less cost to sell, of the cash generating units to which these assets have been allocated. The Value in Use calculation requires estimation of future cash flows expected to arise for the cash-generating unit, the selection of suitable discount rates and the estimation of long-term growth rates. As determining such assumptions is inherently uncertain and subject to future factors, there is the potential these may differ in subsequent periods and therefore materially change the conclusions reached. In light of this, consideration is made each year as to whether sensitivity disclosures are required for reasonably possible changes to assumptions. Sensitivity disclosures are included in Note 17.2.

3.6 Provisions (Judgement and Estimate)

Vesuvius has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation and environmental matters. Some of the Group’s subsidiaries are parties to legacy matters and other lawsuits, certain of which are insured claims, which have arisen in the ordinary course of the operations of the company involved. Some of these provisions relate to businesses that are closed or have been disposed of. Provisions are made for the expected amounts payable in respect of known or probable costs resulting both from these third-party lawsuits or other regulatory requirements. To the extent insurance is in place, an asset is recognised in other receivables in respect of associated insurance reimbursements. As the resolution of many of the potential obligations for which provision is made is subject to legal or other regulatory process, it requires estimation of the timing, quantum and amount of associated outflows, which are subject to some uncertainty. The Directors use their judgement, using historical evidence, current information and expert experience, to determine whether to recognise a provision, and make appropriate estimates of provisions in the financial statements for amounts relating to such matters. Associated assets for insurance recoverable are recognised, which involves assessing the likelihood of insurance being paid, which is a critical judgement. The Directors have considered the available cover and the historical evidence to determine that this is virtually certain. Estimating the amount of provisions and insurance receivable is subject to estimation uncertainty. See Note 30 for further information.

4. Alternative Performance Measures

The Company uses a number of alternative performance measures (APMs) in addition to those reported in accordance with IFRS. The Directors believe that these APMs, listed below, are important when assessing the underlying financial and operating performance of the Group and its divisions, providing management with key insights and metrics in support of the ongoing management of the Group’s performance and cash flow. A number of these align with Key Performance Indicators (KPIs) and other key metrics used in the business and therefore are considered useful to also disclose to the users of the financial statements. The following APMs do not have a standard definition prescribed by IFRS and therefore may not be directly comparable with similar measures presented by other companies.

4.1 Headline Performance

Headline performance, reported separately on the face of the Group Income Statement, is from continuing operations and before items reported separately on the face of the Group Income Statement.

4.2 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 Review. Underlying revenue growth is one of the Group’s KPIs and provides an important measure of organic growth of Group businesses between reporting periods by eliminating the impact of exchange rates, acquisitions and disposals.

4.3 Return on Sales (ROS)

ROS is calculated as trading profit divided by revenue. It is one of the Group’s KPIs and is used to assess the trading performance of Group businesses.# 4. Alternative Performance Measures

A reconciliation of ROS is included in Note 5.3.

4.4 Trading profit / adjusted EBITA

Trading profit / adjusted EBITA is defined as operating profit before separately reported items. It is one of the Group’s KPIs 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.

4.5 Headline profit before tax

Headline profit before tax, reported separately on the face of the Group Income Statement, 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 KPIs and is used to assess the financial performance of the Group as a whole.

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Our business
Our performance
Sustainability
Governance

Financial Statements
Notes to the Group Financial Statements continued

4. Alternative Performance Measures continued

4.6 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.

4.7 Headline earnings

Headline earnings is profit after tax before separately reported items attributable to owners of the Parent.

4.8 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 KPIs and is used to assess the 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 11.

4.9 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. In the prior year, net retirement benefit obligations were added back in this calculation; this has been discontinued as the management believes that these represent core cash flows of the Group.

	2021 £m	2020 £m restated
Cash generated from operations	82.9	193.7
Add: Outflows relating to restructuring charges	4.0	16.7
Less: Capital expenditure	(45.5)	(40.5)
Add: Vacant site remediation costs	3.0	1.9
Add: Proceeds from the sale of property, plant and equipment	1.2	1.1
Adjusted operating cash flow	45.6	172.9
Trading profit	142.4	101.4
Cash conversion	32%	171%

4.10 Cash conversion

Cash conversion is calculated as adjusted operating cash flow from continuing operations divided by trading profit. It is useful for measuring the rate at which cash is generated from trading profit. It is also used as one of the targets against which the annual bonuses of certain employees are measured. The calculation of cash conversion is detailed in Note 4.9 above.

4.11 Free cash flow

Free cash flow is defined as net cash flow from operating activities after net outlays for the purchase and sale of property, plant and equipment, dividends from joint ventures and dividends paid to non-controlling shareholders. It is one of the Group’s KPIs and is used to assess the underlying cash generation of the Group and is one of the measures used in monitoring the Group’s capital. A reconciliation of free cash flow is included underneath the Group Statement of Cash Flows.

4.12 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 KPIs and is useful for measuring the level of working capital used in the business and is one of the measures used in monitoring the Group’s capital.

	2021 £m	2020 £m
Average trade working capital	344.2	337.8
Total revenue	1,642.9	1,458.3
Average trade working capital to sales ratio	21.0%	23.2%

4.13 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 5.

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1. Alternative Performance Measures continued

4.14 Net interest payable on borrowings

Net interest payable on borrowings is calculated as total interest payable on borrowings less finance income, excluding interest on net retirement benefit obligations, adjustments to discounts and any item separately reported. It is used in the calculation of the Group’s interest cover ratio.

	2021 £m	2020 £m
Total interest payable on borrowings	13.0	17.9
Finance income	(6.7)	(7.4)
Net interest payable on borrowings	6.3	10.5

4.15 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 KPIs and is used to assess the financial position of the Group and its ability to fund future growth.

	2021 £m	2020 £m
Adjusted EBITDA	192.2	152.0
Net interest payable on borrowings	6.3	10.5
Interest cover	30.5x	14.5x

4.16 Net debt

Net debt comprises the net total of current and non-current interest-bearing borrowings (including IFRS 16 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 14.

4.17 Net debt to adjusted EBITDA

Net debt to adjusted EBITDA is the ratio of net debt at the year-end to adjusted EBITDA for that year. It is one of the Group’s KPIs and is used to assess the financial position of the Group and its ability to fund future growth and is one of the measures used in monitoring the Group’s capital.

	2021 £m	2020 £m
Net debt	277.1	175.1
Adjusted EBITDA	192.2	152.0
Net debt to adjusted EBITDA	1.4x	1.2x

4.18 Return on invested capital (ROIC)

From 2022 onwards, the Group intends to use ROIC as its key measure of return from the Group’s invested capital. The RONA performance measure will be replaced with ROIC, which provides a more complete measure of Vesuvius’ returns. ROIC is calculated as trading profit less amortisation of acquired intangibles plus share of post-tax profit of joint ventures and associates for the previous 12 months after tax, divided by the average invested capital (total assets excluding cash plus non-interest-bearing liabilities), at constant currency (being the average over December and the previous year-end invested capital).

	2021 £m	2020 £m
Average invested capital	1,329.1	1,300.3
Trading profit (Note 4.4)	142.4	94.8
Amortisation of acquired intangible assets	(9.7)	(9.9)
Share of post-tax profit from joint ventures and associates	1.3	1.1
Tax on trading profit and amortisation of acquired intangible assets	(35.1)	(22.8)
Total	98.9	63.2
ROIC	7.5%	4.9%

4.19 Constant currency

Figures presented at constant currency represent 2020 amounts retranslated at average 2021 exchange rates.

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Our business
Our performance
Sustainability
Governance

Financial Statements
Notes to the Group Financial Statements continued

4. Alternative Performance Measures continued

4.20 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.

	2021 £m	2020 £m
Cash and short-term deposits	169.1	209.7
Undrawn committed debt facilities	308.1	246.6
Cash used as collateral on loans	(21.0)	(19.0)
Gross up of cash in notional pools	(0.5)	–
Liquidity	455.7	437.3

4.21 Last twelve months (LTM)

Some results are presented or calculated using data from the last 12 months from the reference date.

5. Segment Information

The segment information contained in this Note refers to several alternative performance measures, definitions of which can be found in Note 4. The Group has considered climate change in making segmental and revenue disclosures.# 5. Segment Information

The opportunities and risks for the reported segments are further explained in the Sustainability section.

5.1 Business segments

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, who makes the key operating decisions and is responsible for allocating resources and assessing performance of the component. Taking into account the Group’s management and internal reporting structure, the operating segments are Steel Flow Control, Steel Advanced Refractories, Steel Sensors & Probes, and the Foundry Division. The principal activities of each of these segments are described in the Strategic Report. 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. Segment revenue represents revenue from external customers (inter-segment revenue is not material). Trading profit includes items directly attributable to a segment as well as those items that can be allocated on a reasonable basis.

5.2 Accounting policy – revenue recognition

The Group derives all of its revenue from contracts with customers. The Group enters into contracts to provide one or multiple products to customers in the steel and foundry industries globally.

Revenue recognition at a point in time

Where the Group provides consumable products only, one performance obligation is present. The performance obligation is to deliver consumables to the customer and is satisfied upon delivery of these items. Similarly, where a contract is for the supply of standard equipment, there is one performance obligation and revenue is primarily recognised at a point in time, being upon delivery of these items. The form of a contract is typically a purchase order from a customer. The Group also enters into some contracts with customers in the steel industry under which they primarily provide consumable items, but also supply equipment and/or technical assistance (‘service contracts’) to facilitate these customers’ steel production processes. The Group applies judgement in assessing whether the performance obligations (i.e. provision of consumables, equipment and technical assistance) are distinct per performance obligations or if these may be bundled when assessing the point at which the customer obtains control of or consumes the benefit of promised goods or services. The judgement takes into account that:

• The equipment provided in these contracts remains the property of Vesuvius and is used by Vesuvius technicians at customers’ sites.
• The customer benefits from the combined output of the contract, being the use of Vesuvius consumables, equipment and technicians to support the customer’s production of steel.
• The value of the equipment and technician support is minimal relative to the total value of the contract to the customer being the benefit from use of Vesuvius consumables.

182 Vesuvius plc Annual Report and Financial Statements 2021

1. Segment Information continued

5.2 Accounting policy – revenue recognition continued

Revenue recognition at a point in time continued

Based on the above, the individual elements of the contract are not considered distinct and therefore the performance obligations are deemed to be bundled into a single performance obligation. Revenue is therefore recognised at a point in time, every time the customers purchase and consume materials as they produce steel. In the event this judgement was not applied and the performance obligations were not bundled, this would likely result in minor amounts of revenue being recognised earlier primarily in respect of the technician support. Approximately 89% (2020: 87%) of the aforementioned revenue relates to the sale of consumables and equipment only. Approximately 11% (2020: 13%) of revenue relates to contracts that contain multiple performance obligations, which in the majority of cases are deemed to be bundled into a single performance obligation and revenue recognised over the course of the contract as the customer consumes and benefits from Vesuvius products.

Revenue recognition over time

The Group enters into bespoke equipment design and build (and installation in some cases) contracts with customers. Performance obligations are usually defined by milestones agreed with the customers in the contract. The customer usually does not have a right to a refund as work progresses towards achieving the milestones in the contract. Revenue is recognised over time by measuring the progress of completion or achievement of a milestone for each performance obligation identified within the contract, usually with reference to cost inputs incurred against overall estimated costs for the contract. This does not typically entail significant estimation or judgements as the contracts are usually not material in isolation and do not span more than 12 months. This approach to revenue recognition is considered to faithfully reflect the value and timing of goods or services transferred and the rights of Vesuvius to revenue.

Determining and allocating the transaction price to performance obligations

For revenue recognised at a point in time, the transaction price is determined and allocated with reference to the individual prices of consumables or equipment specified in the contract or customer purchase order. If a standalone selling price is not available, the Group will estimate the selling price with reference to the price that would be charged for the goods or services if they were sold separately. This estimate is not considered complex. For service contracts the bundled performance obligation is deemed to be the provision of consumables and, in some cases, labour to facilitate production of customer steel. The transaction price is determined and allocated with reference to either an agreed price list for each of the consumables input or, for some contracts, the transaction price is determined and allocated as an amount per unit of customer steel output. For revenue recognised over time, the transaction price is determined with reference to the prices set out in the contract. For bespoke equipment builds, the transaction price is allocated to performance obligations (milestones) within the contract and the payment schedules agreed with the customer that align to these milestones. For installations, the transaction price is allocated with reference to the progress of completion. Where payment schedules include customer advance payments (i.e. not aligned with a milestone/performance obligation), the amounts received are included within contract liabilities until the performance obligation to which they relate is satisfied. Contracts are to be settled in cash. They do not typically contain any variable consideration, discounts, refunds, rebates, warranties or significant financing components.

Duration and costs of obtaining contracts

The duration of the Group’s contracts with customers is typically less than one year and accordingly the Group has taken the practical expedient within IFRS 15 to not disclose the transaction price allocated to unsatisfied (whole or partially) performance obligations as of the end of the reporting period. Service contracts may span over more than one year as they remain in effect up to a specified level of customer production of steel. However, the choice to purchase from Vesuvius under the contract remains with the customer and therefore there is no commitment for the customer/Vesuvius to purchase/produce up to the specified level. Costs of obtaining contracts are not considered significant and these are expensed as incurred.

Customer credit risk and payment terms

The Group assesses customer credit risk and recognises revenue when such risk is considered low and the consideration cash flows due are reasonably expected to flow to the Group. Typically, the Group will not transact with customers where credit risk concerns are identified and therefore there is no material unrecognised revenue as a result of credit risk.# 5. Segment Information

5.2 Accounting policy – revenue recognition

Uncertainties

There are no uncertainties involving economic factors, significant estimation or judgements (other than as disclosed above) in respect of revenue recognition. Credit risk relating to the collection of cash inflows from revenue recognised is addressed through an allowance for expected credit loss losses, as set out in the trade and other receivables accounting policy. The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

	2021 £m	2020 £m
Receivables, which are included in ‘Trade and other receivables’	352.2	302.0
Contract assets, which are included in ‘Trade and other receivables’	1.9	1.3
Contract liabilities, which are included in ‘Trade and other payables’	3.3	1.5

Contract liabilities of £3.3m (2020: £1.5m) include advances received from a customer that precede the satisfaction of performance obligations by the Group. £1.5m of the contract liabilities recognised in the prior year was recognised as revenue in 2021.

5.3 Segmental analysis

The reportable segment results from continuing operations for 2021 and 2020 are presented below.

2021

	Flow Control £m	Advanced Refractories £m	Sensors & Probes £m	Total Steel £m	Foundry £m	Total £m
Segment revenue	648.7	489.1	33.7	1,171.5	471.4	1,642.9
– at a point in time	1,169.9	471.4				1,641.3
– over time	1.6					1.6
Segment adjusted EBITDA	135.9	56.3				192.2
Segment depreciation	(33.9)	(15.9)				(49.8)
Segment trading profit	102.0	40.4				142.4
Return on sales margin	8.7%	8.6%				8.7%
Amortisation of acquired intangible assets	(9.7)
Operating profit						132.7
Net finance costs						(6.4)
Share of post-tax profit of joint ventures						1.3
Profit before tax						127.6
Capital expenditure additions	47.2	20.2				67.4
Inventory	19	248.1	51.3			299.4
Trade debtors	18	267.5	84.7			352.2
Trade payables	28	(191.3)	(62.5)			(253.8)

2020

	Flow Control £m	Advanced Refractories £m	Sensors & Probes £m	Total Steel £m	Foundry £m	Total £m
Segment revenue	561.3	458.6	25.5	1,045.4	412.9	1,458.3
– at a point in time	1,035.7	412.9				1,448.6
– over time	9.7					9.7
Segment adjusted EBITDA	110.6	41.4				152.0
Segment depreciation	(34.2)	(16.4)				(50.6)
Segment trading profit	76.4	25.0				101.4
Return on sales margin	7.3%	6.1%				7.0%
Amortisation of acquired intangible assets	(9.9)
Restructuring charges						(6.1)
Vacant site remediation costs						(10.3)
Guaranteed minimum pensions (GMP) equalisation charge						(0.8)
Operating profit						74.3
Net finance costs						(10.9)
Share of post-tax profit of joint ventures						1.1
Profit before tax						64.5
Capital expenditure additions	45.9	13.1				59.0
Inventory	151.0	36.3				187.3
Trade debtors	225.6	76.4				302.0
Trade creditors	(131.1)	(54.6)				(185.7)

The Chief Operating Decision Maker does not review non-current assets at a segmental level so these disclosures are not included.

5.4 Geographical analysis

	2021 £m	2020 £m	2021 £m	2020 £m
	External revenue	Non-current assets
EMEA	644.8	578.5	452.1	474.2
Asia	492.2	442.0	223.8	225.5
North America	377.7	346.8	367.0	328.6
South America	128.2	91.0	35.9	36.7
Continuing operations	1,642.9	1,458.3	1,078.8	1,065.0

External revenue disclosed in the table above is based upon the geographical location of where products and services are delivered from. Non-current assets exclude employee benefit net surpluses and deferred tax assets. Information relating to the Group’s products and services is given in the Strategic Report. The Group is not dependent on any single customer for its revenue and no single customer, for either of the years presented in the table above, accounts for more than 10% of the Group’s total external revenue. £57.6m (2020: £56.2m) of revenue was generated from the UK, and total non-current assets in the UK amounted to £94.9m (2020: £97.1m).

6. Operating Profit

6.1 Operating profit is stated after charging

	Notes	2021 £m	2020 £m
Cost of inventories recognised as an expense	19	658.6	533.5
Research and development		30.3	27.9
Employee expenses	8	396.8	366.0
Depreciation	15	49.8	50.6
Amortisation	16	10.1	9.9
Operating lease charges	29	2.9	4.2

Amounts payable to PricewaterhouseCoopers LLP and their associates

	2021 £m	2020 £m
Fees payable to the Company’s auditors and their associates for the audit of the Parent Company and Consolidated Financial Statements	0.7	0.7
Fees payable to the Company’s auditors and their associates for other services:
Audit of the Company’s subsidiaries	1.0	1.0
Audit-related assurance services	0.1	0.1
Total auditors’ remuneration	1.8	1.8

Total auditors’ remuneration of £1.8m in 2021 all related to continuing operations, of which £1.7m related to audit fees and £0.1m of non-audit fees, in respect of the Group’s half-year financial statements, quarterly reviews and tax form audits in India (as required by regulation) along with review of an R&D claim in Italy (2020: £1.8m, including £1.7m of audit fees and £0.1m of non-audit fees, the latter in respect of the Group’s half-year review fee and quarterly reviews and tax form audits in India). It is the Group’s policy not to use the Group’s auditors for non-audit services other than for audit-related services that are required to be performed by an auditor.

6.3 Amounts payable to Mazars LLP

Mazars LLP acts as external auditor of the non-material entities and three material entities within the Group. Total remuneration for the audit of these entities was £0.8m (2020: £0.6m). This amount is not included in the table above.

7. Restructuring Charges and Vacant Site Remediation Costs

As explained in the Financial review on page 43, there were no restructuring charges in 2021. Restructuring charges of £6.1m in 2020 related to the completion of the programme first announced in March 2018, which was predominantly focused on rationalising our manufacturing footprint, consolidating production and streamlining various back office functions. The charges reflected redundancy costs of £2.7m, plant closure costs of £1.8m, asset write-offs of £1.5m and consultancy fees and travel of £0.1m. The utilisation of costs continues in line with the phased timing for the programmes to be completed. The net tax credit attributable to the total restructuring charges in 2020 was £1.1m. Cash costs of £4.0m (2020: £16.7m) (Note 12) were incurred in the year in respect of previously announced restructuring programmes, leaving provisions made but unspent of £5.0m (Note 30) as at 31 December 2021 (2020: £9.2m). The Group owns a number of disused properties in the US, which do not form part of our trading operations. In 2020, costs of £10.3m (2021: nil) were incurred at one of these sites to address the significant increase in the volume of water run-off occurring in recent years. We engaged waste management specialists and have taken actions to reduce the level of water. We are in contact with the relevant regulatory authorities and are currently implementing remediation solutions, including the installation of a treatment facility. These non-recurring costs were treated as a separately reported item in 2020. There was no impact upon headline performance.

8. Employees

8.1 Employee expenses

	Notes	2021 £m	2020 £m
Wages and salaries		329.1	302.9
Social security costs		48.0	43.5
Share-based payments	27	3.1	2.4
Pension costs – defined contribution pension plans	26	10.2	9.7
– defined benefit pension plans	26	6.0	7.1
Other post-retirement benefits	26	0.4	0.4
Total employee expenses		396.8	366.0

Included within wages and salaries is income from government s of £0.4m (2020: £3.# Vesuvius plc Annual Report and Financial Statements 2021

Notes to the Group Financial Statements continued

8. Employees

8.2 Monthly average number of employees

	2021	2020
Steel	7,997	7,613
Foundry	2,856	2,710
Total monthly average number of employees	10,853	10,323

As at 31 December 2021, the Group had 11,204 employees (2020: 10,354).

8.3 Remuneration of key management personnel

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration Report on pages 142 to 153.

	2021 £m	2020 £m
Short-term employee benefits	2.5	1.4
Post-employment benefits	0.3	0.2
Share-based payments	–	1.2
Total remuneration of key management personnel	2.8	2.8

9. Net Finance Costs

	2021 £m	2020 £m
Interest payable on borrowings
Loans and overdrafts	10.7	15.6
Interest on lease liabilities	1.5	1.8
Amortisation of capitalised arrangement fees	0.8	0.5
Total interest payable on borrowings	13.0	17.9
Interest on net retirement benefit obligations	(0.3)	(0.1)
Adjustment to discounts on provisions and other liabilities	0.7	1.0
Adjustment to discounts on receivables	(0.3)	(0.5)
Finance income	(6.7)	(7.4)
Total net finance costs	6.4	10.9

Within the table above, total finance costs are £13.7m (2020: £18.9m) and total finance income is £7.3m (2020: £8.0m).

10. Income Tax

10.1 Accounting policy

Tax expense represents the sum of current tax and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to items charged or credited in the Group Statement of Comprehensive Income or Group Statement of Changes in Equity, in which case the associated tax is also recognised in those statements.

Current tax
Current tax is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Group Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date. A provision is recognised when the Group considers it has a present tax obligation as the result of a past event and it is probable that the Group will be required to settle that obligation. Provisions established for such uncertain tax positions are made using a best estimate of the tax expected to be paid, based on a qualitative and quantitative assessment of all relevant information. Such a provision is typically required where the underlying tax issue is subject to interpretation and remains to be agreed, and therefore is uncertain as to outcome. Principally, the uncertain tax positions for which a provision is made relate to the interpretation of tax legislation and guidance regarding transfer pricing arrangements that have been entered into in the normal course of business. In accordance with IAS 12, tax provisions are included as income tax payable on the face of the Group Balance Sheet, and movements in tax provisions are included within income tax charges or credits in the Group Income Statement. In assessing any appropriate provision requirements for uncertain tax items, the Group considers progress made in discussions with the tax authorities, expert advice on the likely outcome and any recent developments in case law. Due to the uncertainty associated with such tax items, it is possible that at a future date, on conclusion of the open matters, the final outcome may vary materially. Any such variations will affect the financial results in the year in which such a determination is made.

Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

10.2 Income tax charge

	2021 £m	2020 £m
Current tax
Overseas taxation	34.0	28.1
Adjustments in respect of prior years	(1.5)	(3.0)
Total current tax, continuing operations	32.5	25.1
Deferred tax
Origination and reversal of temporary taxable differences	(11.6)	(7.8)
Adjustments in respect of prior years	(1.2)	1.4
Total deferred tax, continuing operations	(12.8)	(6.4)
Total income tax charge	19.7	18.7
Total income tax charge attributable to:
Continuing operations – headline performance	35.9	24.4
– separately reported	(16.2)	(5.7)
Total income tax charge	19.7	18.7

Included in the Group’s total income tax charge are charges and credits meeting the criteria set out in Note 2.5 to be treated as separately reported items, as analysed in the following table:

	2021 £m	2020 £m
Separately reported items
Restructuring charges	–	(1.1)
Amortisation and utilisation of acquired intangibles	(0.2)	(2.3)
Additional recognition of US deferred tax asset	(16.0)	–
Vacant site remediation costs	–	(2.3)
Total tax charge/(credit) separately reported	(16.2)	(5.7)

As a result of the consistent profitability of the US business, including during the current pandemic, the Group has decided to reverse a valuation allowance of (£16.0m) held against US deferred tax assets that have no expiry date. In recognising these assets, the Group has considered the future profitability of the US business from approved budgets and business plans and an extrapolation from them assuming that profits continue to grow at a rate consistent with those plans. These assets are available for carry-forward indefinitely and can be offset against any taxable income generated in the US. The net tax debit reflected in the Group Statement of Comprehensive Income in the year amounted to £13.0m credit (2020: £3.2m debit), comprising a £12.5m credit (2020: £2.8m debit) related to tax on net actuarial gains and losses on the employee benefit plans, a £0.5m credit (2020: £nil) related to exchange adjustments and £nil (2020: £0.4m debit) relating to other temporary timing differences. The Group operates in a number of countries that have differing tax rates, laws and practices. Changes in any of these areas could, adversely or positively, impact the Group’s tax charge in the future.Continuing losses, or insufficiency of taxable profit to absorb all expenses, in any subsidiary, could have the effect of increasing tax charges in the future as headline effective tax relief may not be available for those losses or expenses. Other significant factors affecting the tax charge are described in Notes 10.1 and 10.6.

10.3 Reconciliation of income tax charge to profit before tax

	2021 £m	2020 £m
Profit before tax	127.6	64.5
Tax at the UK corporation tax rate of 19.0% (2020: 19.0%)	24.2	12.3
Overseas tax rate differences	8.7	2.7
Withholding taxes	3.9	7.2
Expenses not deductible for tax purposes	0.3	2.3
Income taxed in advance	–	(4.2)
Deferred tax assets not recognised	0.3	1.3
Utilisation of previously unrecognised tax losses	(0.3)	(1.3)
US deferred tax not previously recognised	(16.0)	–
Deferred tax rate changes	1.3	–
Adjustments in respect of prior years	(2.7)	(1.6)
Total income tax charge	19.7	18.7

18

Our business Our performance Sustainability Governance Financial Statements Notes to the Group Financial Statements continued

10. Income Tax continued

10.4 Deferred tax

Interest £m	Other operating losses £m	Pension costs £m	Intangible assets £m	Other temporary differences £m	Total £m
As at 1 January 2020	23.9	18.8	3.5	(22.4)	27.5
Exchange adjustments/other	(0.6)	(2.2)	0.4	0.1	–
Other net charge to Group Statement of Comprehensive Income	–	–	(2.8)	–	(0.4)
Other net (charge)/credit to Group Income Statement	(0.1)	(1.6)	0.2	2.3	3.1
Other net (charge)/credit to Group Income Statement US	(1.2)	3.9	(0.5)	(0.3)	0.6
As at 1 January 2021	22.0	18.9	0.8	(20.3)	30.8
Exchange adjustments/other	0.4	(0.1)	(0.8)	(0.3)	0.3
Acquisition	–	–	–	(2.9)	–
Other net credit to Group Statement of Comprehensive Income	–	–	12.5	0.5	–
Other net credit/(charge) to Group Income Statement	0.8	0.7	1.0	(0.6)	1.5
Other net credit/(charge) to Group Income Statement US	11.2	(4.0)	(0.1)	(0.2)	2.5
As at 31 December 2021	34.4	15.5	13.4	(23.8)	35.1

	2021 £m	2020 £m
Recognised in the Group Balance Sheet as:
Non-current deferred tax assets	104.2	96.1
Non-current deferred tax liabilities	(29.6)	(43.9)
Net total deferred tax assets	74.6	52.2

Included in these deferred tax assets and liabilities are amounts expected to be utilised in 2022 as follows:

	2021 £m	2020 £m
Deferred tax assets	9.6	8.4
Deferred tax liabilities	(2.3)	(2.3)

As a result of the consistent profitability of the US business, the Group has decided to recognise certain US deferred tax assets that have no expiry date. Included in non-current deferred tax assets is £70.8m (2020: £61.8m) in respect of the partial recognition of temporary differences arising in the US computed in accordance with the policy set out in Note 10.1 above. The Group remains confident of the recovery of these assets. £3.0m (2020: £19.3m) remains unrecognised as detailed in the tables below. Tax loss carry-forwards and other temporary differences with a tax value of £15.5m (2020: £17.7m) were recognised by subsidiaries reporting a loss. Based on approved business plans of these subsidiaries, the Directors consider it probable that the tax loss carry-forwards and temporary differences can be offset against future taxable profits of these subsidiaries. The total deferred tax assets not recognised as at 31 December 2021 were £209.6m (2020: £182.5m), as analysed below. In accordance with the accounting policy in Note 10.1, these items have not been recognised as deferred tax assets on the basis that their future economic benefit is not probable. In total, there was an increase of £27.1m (2020: £14.7m increase) in net unrecognised deferred tax assets during the year, primarily driven by the increase in the UK corporation tax rate from 19% to 25%. All UK unrecognised deferred tax assets are now reported at the 25% rate.

	2021 £m	2020 £m
Operating losses (further described below)	135.2	109.3
Unrelieved US interest (may be carried forward indefinitely)	0.7	17.9
Capital losses available to offset future UK capital gains (may be carried forward indefinitely)	46.2	35.1
UK ACT credits (may be carried forward indefinitely)	19.3	14.6
US tax credits	2.2	1.4
Other temporary differences	6.0	4.2
Total deferred tax assets not recognised	209.6	182.5

19

1. Income Tax continued

10.4 Deferred tax continued

The Group has significant net operating losses with a tax value of £150.7m (2020: £128.2m), only £15.5m (2020: £18.9m) of which meet the criteria set out in Note 10.1 to be recognised on the Group Balance Sheet.

	Operating losses recognised 2021 £m	Operating losses not recognised 2021 £m	Total 2021 £m	Operating losses recognised 2020 £m	Operating losses not recognised 2020 £m	Total 2020 £m
UK (may be carried forward indefinitely)	–	116.9	116.9	–	87.9	87.9
US (due to expire 2024–2031)	9.1	0.1	9.2	13.1	–	13.1
ROW (may be carried forward indefinitely)	6.4	18.2	24.6	5.6	21.4	27.0
ROW (due to expire within 5 years)	–	–	–	0.2	–	0.2
Total	15.5	135.2	150.7	18.9	109.3	128.2

The £24.6m (2020: £27.0m) operating losses available to set against future income in the rest of the world arise in a number of countries, reflecting the spread of the Group’s operations. A liability of £1.0m (2020: £0.9m) has been recognised in respect of withholding taxes that will be due on a repatriation of funds from the Group’s Chinese subsidiaries. Deferred tax is not recognised in respect of the value of the Group’s investments in subsidiaries and interests in joint ventures where we are able to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The amount of these temporary differences for which deferred tax liabilities have not been recognised was £14.6m (2020: £12.7m).

10.5 Income tax payable and recoverable

	2021 £m	2020 £m
Liabilities for income tax payable	11.2	3.7
Provisions for uncertain tax positions	6.9	8.5
Total	18.1	12.2
Less: Income tax recoverable within one year	7.6	3.7
Net liability	10.5	8.5

Provisions for uncertain tax positions are calculated in accordance with the policy outlined in Note 10.1, and are treated as income tax payable in accordance with IAS 12. These provisions cover litigated tax matters as well as provisions for other risks where the Group believes it is more likely than not that there would be a successful challenge by a tax authority to positions it has taken in its tax filings. By its nature, litigation can result in sharp fluctuations in cash flow, both in and out, relating to taxes. Currently, management does not expect any material adjustments to these provisions in 2021. During the year the provisions for uncertain tax positions have reduced to £6.9m (2020: £8.5m). The decrease of £1.6m (2020: £3.3m) can be explained by the partial settlement of a tax audit in Spain, £0.2m (2020: £nil), reassessment of potential uncertain tax positions following a lack of previously expected challenges by the tax authorities, £nil (2020: £2.0m credit), the expiration of the statute of limitations on certain other exposures, £1.2m (2020: £1.6m), and foreign exchange movements on the remaining balances, £0.2m credit (2020: £0.3m charge).

191

Our business Our performance Sustainability Governance Financial Statements Notes to the Group Financial Statements continued

1. Income Tax continued

10.6 Key factors impacting the sustainability of the headline effective tax rate are as follows:

Material changes in the geographic mix of profits

The Group’s headline effective tax rate is sensitive to changes in the geographic mix of profits and level of profits and reflects a combination of higher rates in certain jurisdictions such as Brazil, China, Germany, India, Mexico and the US, a nil headline effective tax rate in the UK due to the availability of unutilised tax losses, and rates that lie somewhere in between.

Changes in tax rates, tax reform and its interpretation

Changes in tax rates and laws in the jurisdictions in which the Group operates could have a material effect on the Group’s headline effective tax rate.

Availability of tax advantaged rates

Vesuvius in China qualifies for a tax advantaged rate of 15% (rather than the headline rate of 25%) on part of its profits due to the high technology nature of its business. Eligibility for this rate is reviewed on a regular basis by the Chinese tax authority and was worth approximately £0.7m in 2021 (2020: £1.1m). Without that benefit, the Group’s headline effective tax rate on headline performance would have been 0.5% higher in 2021 (2020: 1.2%).

Resolution of tax judgements

At any one time, the Group can be subject to a number of challenges by tax authorities in the jurisdictions in which it operates.# Th e ou tcom e of th es e cha ll eng es i s inh ere nt ly un cer tain, p ote nt ial ly re sul ti ng in a d if f ere nt ta x cha rge fro m th e am oun ts initially provided. Imp a ct o f Br ex it o n Vesu vi us ’ t ax p os it io n Foll owi ng Bre xi t, t he EU Pare nt Subsi dia r y and Inter es t and Royalt y dire c ti ves no lon ger app ly to divi den d, inte res t and oth er pa ym ent s to V esu vi us in t he UK . Add it io nal wi th ho ldi ng taxes wil l there fore be com e pa yabl e subje c t to re li ef s avail abl e unde r app li cabl e tax t re at ie s. T he G roup d oe s no t exp e c t th e imp ac t of t he c han ge s to b e ma ter ial t o it s ta x po si ti on.

11. Ear nin g s pe r Sha re (EPS )

11.1 Ear ni ng s fo r EPS

Basic and dilu te d EPS f rom cont inu ing op era ti ons are bas ed upo n the pro t at trib ut abl e to ow ne rs of the Parent, as repo r te d in the Grou p Incom e Stat eme nt. Th e tab le bel ow recon cil es the se dif ferent pro t mea sure s.

	2021 £m	2020 £m
Protattributable toowners of theParent	102.1	41.3
Adjustments for separately reported items:
Amortisation of acquired intangible assets	9.7	9.9
Restructuring charges	–	6.1
Vacant site remediation costs	–	10.3
Guaranteed minimum pensions (GMP) equalisation charge	–	0.8
Income tax (credit)/charge	(16.2)	(5.7)
Headlineprot attributabletoowners oftheParent	95.6	62.7

11.2 W eighted av erage number o f shar es

	2021 millions	2020 millions
For calculating basic and headline EPS	270.5	269.9
Adjustment for potentially dilutive ordinary shares	1.8	1.7
For calculating diluted and diluted headline EPS	272.3	271.6

For the pur pos es of calcul at in g dilut ed and dilu te d head lin e EPS, the weigh ted ave rag e num be r of ordin ar y share s is adj us ted to inc lud e the weigh te d ave rag e num be r of ord in ar y share s tha t would be issu ed on the conver si on of all pot ent ia lly dil ut ive ordi nar y sha res exp e c ted to ves t, re la tin g to t he Comp any ’s shar e-b as ed pay me nt plan s. Poten tia l ordin ar y share s are onl y trea te d as dil ut ive whe n thei r conver sio n to o rdin ar y sha res woul d decre as e EPS or inc rea se los s per share.

11.3 Per s ha re a mo un ts

	2021 pence	2020 pence
Earnings per share – basic	37.7	15.3
– diluted	37.5	15.2
– headline	35.3	23.2
– diluted headline	35.1	23.1

12. Cash G en er ate d fro m Op era tio ns

Notes	2021 £m	2020 £m
Operatingprot	132.7	74.3
Adjustments for:
Amortisation of acquired intangible assets	9.7	9.9
Restructuring charges	–	6.1
Vacant site remediation costs	–	10.3
Guaranteed minimum pensions (GMP) equalisation charge	–	0.8
Tradingprot	142.4	101.4
Loss on disposal of non-current assets	0.4	1.3
Depreciation	49.8	50.6
Dened benet retirement plans net charge	6.4	6.7
Net (increase)/decrease in inventories	(113.5)	21.7
Net (increase)/decrease in trade receivables	(53.5)	3.4
Net increase/(decrease) in trade payables	70.6	12.4
Net decrease/(increase) in other working capital	(5.5)	23.8
Outow related to restructuring charges	(4.0)	(16.7)
Dened benet retirement plans cash outows	(7.2)	(9.0)
Vacant site remediation costs paid	(3.0)	(1.9)
Cash generated from operations	82.9	193.7

13. Cash a nd Ca sh Eq uiva le nt s

13.1 Accounti ng polic y

Cash and sho r t-term dep osi t s in t he Gro up bala nce she et consi s t of ca sh at bank and in han d, and shor t -ter m depo si t s wi th ori gi nal ma tur it y of thre e mont hs or les s. Ban k overd raf t s th at are repaya bl e on d em and and for m an in te gral par t of t he Gro up’s cash man ag em ent are inclu de d as a comp on en t of cash and cash equiv ale nt s for the purp os e of t he Grou p Stat eme nt of Cash Flo ws .

	2021 £m	2020 £m
Cash at bank and in hand	169.1	169.7
Short-term deposits	–	40.0
Cash and short-term deposits	169.1	209.7
Bank overdrafts	(6.7)	(2.9)
Cash and cash equivalents in the Group Statement of Cash Flows	162.4	206.8

14. Reconciliation of Movement in Net Debt

	Balance as at 1 January 2021 £m	Foreign exchange adjustments £m	Fair value gains £m	Non-cash movements* £m	Cash ow £m	Balance as at 31 December 2021 £m
Cash and cash equivalents
Cash at bank and in hand	169.7	(1.9)	–	–	1.3	169.1
Short-term deposits	40.0	–	–	–	(40.0)	_
Bank overdrafts	(2.9)	0.1	–	–	(3.9)	(6.7)
	206.8	(1.8)	–	–	(42.6)	162.4
Borrowings, excluding bank overdrafts	(376.5)	11.3	–	(17.1)	(58.0)	(440.3)
Capitalised arrangement fees	1.4	–	–	1.9	–	3.3
Derivative nancial instruments	(6.8)	–	4.3	–	–	(2.5)
Net debt	(175.1)	9.5	4.3	(15.2)	(100.6)	(277.1)

	Balance as at 1 January 2020 £m	Foreign exchange adjustments £m	Fair value losses £m	Non-cash movements* £m	Cash ow £m	Balance as at 31 December 2020 £m
Cash and cash equivalents
Cash at bank and in hand	229.2	(2.2)	–	–	(57.3)	169.7
Short-term deposits	–	–	–	–	40.0	40.0
Bank overdrafts	(7.1)	–	–	–	4.2	(2.9)
	222.1	(2.2)	–	–	(13.1)	206.8
Borrowings, excluding bank overdrafts	(469.0)	(10.0)	–	(15.7)	118.2	(376.5)
Capitalised arrangement fees	1.2	–	–	0.2	–	1.4
Derivative nancial instruments	(0.1)	–	(5.3)	–	(1.4)	(6.8)
Net debt	(245.8)	(12.2)	(5.3)	(15.5)	103.7	(175.1)

* £17.1m (2020: £15.7m ) o f ne w le as es w er e en ter ed i nt o dur in g t he ye ar. Ne t de bt is a me asu re of the Grou p ’s net inde bte dn es s to b ank s and oth er ex te rn al nan cia l inst i tu ti on s and comp ris es th e total of cash and shor t-term dep os it s , curren t and non -cur ren t intere s t-bear in g borrow in gs and deri va ti ve nan cia l ins t rum en ts . £89 .4 m proce ed s from b orro win gs , show n in th e Grou p State me nt of Cash Fl ows , inc lud es £28 .0 m and £28 .4m ( € 33.0m) US Priva te Place me nt Note s (‘USPP ’ ), £ 31 .0 m of s te rl ing draw in gs unde r the UK sy nd ica ted ban k facili t y and £2.0 m of s te rl ing draw in gs unde r the coll ate ral ise d bila te ral loan faci li t y (see Note 25 ). £31 .4m rep ay me nt of bo rrow in gs, sh ow n in the G roup Sta tem en t of Cash Flo ws , incl ud es £1 2. 9m ($ 1 5.0 m) of USPP repa yme nt s , £6.0 m ( € 7 . 0m) of eu ro drawin gs repa id und er the UK syn dica te d bank facil it y an d net leas e repa ym ent s of £1 2.5m.

15. P r o p e r t y, P l a n t a n d E q u i p m e n t

15.1 Acc ounting policy

Freeh ol d land and cons tr uc t io n in p rog res s are ca rri ed at cos t less accu mul at ed impa ir men t loss es . Ot he r items of prope r t y , pl ant and equ ipm en t are carri ed at cos t less accu mul ate d depr eci at io n and accumul at ed impa ir men t loss es . Cos ts are capi tali se d only wh en it is p rob ab le tha t they will resu lt in fut ure econ om ic ben et s owin g to t he Gro up and when th ey can b e meas ure d rel iab ly. Cos t s are c api tal ise d to co ns t ruc t io n in p rog res s wher e an ass et is bein g devel op ed. Thi s is the n trans fer red to releva nt ass et cla ss and dep rec ia ted wh en the ass et is read y for u se. All oth er rep air s and maint en ance ex pe ndi t ures are charg ed to the Group Inco me State me nt in th e peri od in which th ey are i ncur red . Freeh ol d land is not de pre cia te d as it has an i nn it e life. Dep reci at io n on o th er ite ms of p rop er ty, pl an t and equ ipm en t begi ns wh en the ass et is avail ab le for use and is c harg ed to the Group Inco me State me nt on a stra igh t -li ne basi s so a s to w ri te of f the cos t les s the est im at ed resi dua l value of t he as se t over it s es tim at ed use ful lif e as foll ows :

Asset category	Estimated useful life
Freehold property	between 10 and 50 years
Leasehold property	the term of the lease
Right-of-use assets	shorter of the asset’s useful life and lease term
Plant and equipment – motor vehicles and information technology equipment	between 1 and 5 years
– other	between 3 and 15 years

Th e dep re cia ti on met ho d used, res idu al value s and est im ate d usef ul live s are re vie wed annu all y and chang ed , if a pp ropr ia te. A s desc rib ed in Note 17 .1 , an ass et ’s ca rr ying amo unt is imme dia te ly wri t t en down to it s recove rab le amou nt if its carr ying amou nt is grea ter th an it s es t ima te d recoverab le amo unt. Gain s and loss es ari sin g on d isp os als are dete rm ine d by co mpa rin g sale s pro cee ds wit h carr y ing amo unt and are recogn is ed in the Group Inco me State me nt.

15.2 Movement in net book value

	Freehold property £m	Leasehold property £m	Right-of-use assets – land & buildings (Note 29.2) £m	Right-of-use assets – plant & equipment (Note 29.2) £m	Plant and equipment £m	Construction in progress £m	Total £m
Cost
As at 1 January 2020	221.1	2.4	24.6	22.6	554.6	57.7	883.0
Exchange adjustments	(0.2)	–	(0.3)	–	(6.3)	(0.7)	(7.5)
Capital expenditure additions	1.9	–	8.4	7.3	19.6	21.8	59.0
Acquisitions through business combinations	–	–	–	–	–	–	–
Disposals	(0.1)	(1.5)	(1.9)	(3.2)	(8.1)	–	(14.8)
Assets classied as held for sale	(1.0)	–	–	–	–	–	(1.0)
Reclassications	19.0	–	–	–	26.5	(45.5)	–
As at 31 December 2020 and 1 January 2021	240.7	0.9	30.8	26.7	586.3	33.3	918.7
Exchange adjustments	(5.4)	–	(0.9)	(1.0)	(14.0)	(1.1)	(22.4)
Capital expenditure additions	2.3	–	9.9	7.2	17.0	29.1	65.5
Acquisitions through business combinations	6.6	–	–	–	4.3	0.5	11.4
Disposals	(4.5)	(0.1)	(0.7)	(3.3)	(31.9)	(0.7)	(41.2)
Assets reclassied from held for sale	0.9	–	–	–	–	–	0.9
Reclassications	4.0	(0.1)	–	(0.6)	11.0	(19.2)	(4.9)
As at 31 December 2021	244.6	0.7	39.1	29.0	572.7	41.9	928.0
Accumulated depreciation and impairment losses
As at 1 January 2020	109.5	1.7	3.9	8.9	421.3	–	545.3
Exchange adjustments	0.4

Notes to the Group Financial Statements continued

15. Property, Plant and Equipment continued

15.2 Movement in net book value continued

	2021	2020
Cost
As at 1 January	581.2	337.7
Exchange adjustments	(13.2)	(33.3)
Depreciation charge	(49.8)	(50.6)
Impairment	(2.9)	(1.5)
Disposals	(36.7)	(11.4)
Assets reclassified from held for sale	0.1	0.1
Reclassifications	(2.8)	(2.5)
As at 31 December	575.5	581.2
Net book value as at 31 December	352.5	337.5
Net book value as at 31 December 2021	127.5	–
Net book value as at 31 December 2020	122.9	0.1
Net book value as at 1 January 2020	111.6	0.7

Capital expenditure on customer-installation assets was £5.7m (2020: £8.7m). Capital commitments as at 31 December 2021 were £nil (31 December 2020: £nil).

The impact of climate change has been considered in the review of carrying values to consider whether there are indications of material impairment arising from the potential physical risks arising from climate change. We have not impaired any assets this year as a result of this exercise. We have also considered the impact of climate change on the estimation of useful lives and no material impacts were noted.

As at 1 January, £2.1m net book value of Enterprise Resource Planning tools in use were reclassified from Construction in progress within Property, Plant and Equipment to Software within Intangible Assets (Note 16).

16. Intangible Assets

Intangible assets comprise goodwill, other intangible assets that have been acquired through business combinations, and software costs.

16.1 Accounting policy

(a) Goodwill

Goodwill arising in a business combination is initially recognised as an asset at cost, measured as the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount of any non-controlling interest acquired over the net of the acquisition-date fair value amounts of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Goodwill is subsequently measured at cost less accumulated impairment losses, with impairment testing carried out annually, or more frequently when there is an indication that the cash generating unit (CGU) to which the goodwill has been allocated may be impaired. On disposal of a business, the attributable amount of goodwill is included in the calculation of the profit or loss on disposal.

(b) Other intangible assets

Intangible assets other than goodwill are recognised on business combinations if they are separable, or if they arise from contractual or other legal rights, and their value can be measured reliably. They are initially measured at cost, which is equal to the acquisition-date fair value, and subsequently measured at cost less accumulated amortisation charges and accumulated impairment losses. Other intangible assets are subject to impairment testing when there is an indication that an impairment loss may have been incurred and are amortised over their estimated useful lives.

(c) Research and development costs

The Group’s research activity involves long-range, ‘blue sky’ investigation, the findings from which may be used in the future to develop new or substantially improved products. Expenditure on research activities is recognised in the Group Income Statement as an expense in the year in which it is incurred. Development is the application of research findings for the production of new or substantially improved products, processes and services before the start of commercial production. Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in the Group Income Statement as an expense in the year in which it is incurred. Capitalised development expenditure, where there is any, is stated at cost less accumulated amortisation and impairment losses. In determining whether development expenditure is capitalised as an intangible asset, management considers whether the strict intangible asset recognition criteria set out in IAS 38 Intangible Assets have been met at the time the expenditure is incurred. In making this determination, management recognises that a significant amount of the development expenditure undertaken by the Group is focused on dealing with local customer technical support issues and incremental developments to existing products as opposed to new or substantially improved products, and that at the time the feasibility of the project is determined, a significant proportion of the development expenditure for that project has already been incurred. In 2021 and 2020 no projects met the criteria for IAS 38 capitalisation.

(d) Software

The costs of ERP system implementations, including the purchase cost of the software and the time costs of employees directly involved in the implementation work is capitalised and amortised over a period of no more than ten years.

16.2 Movement in net book value

	Goodwill £m	Other acquired intangible assets £m	Software £m	2021 total £m	Goodwill £m	Other acquired intangible assets £m	2020 total £m
Cost
As at 1 January	617.6	279.4	–	897.0	620.2	279.2	899.4
Exchange adjustments	(16.7)	(5.9)	(0.1)	(22.7)	(2.6)	0.2	(2.4)
Capital expenditure additions	–	–	1.9	1.9	–	–	–
Business combinations	13.3	12.2	–	25.5	–	–	–
Reclassifications	–	–	4.9	4.9	–	–	–
As at 31 December	614.2	285.7	6.7	906.6	617.6	279.4	897.0
Accumulated amortisation and impairment losses
As at 1 January	–	200.9	–	200.9	–	190.9	190.9
Exchange adjustments	–	(3.9)	(0.1)	(4.0)	–	0.1	0.1
Amortisation charge for the year	–	9.7	0.4	10.1	–	9.9	9.9
Reclassifications	–	–	2.8	2.8	–	–	–
As at 31 December	–	206.7	3.1	209.8	–	200.9	200.9
Net book value as at 31 December	614.2	79.0	3.6	696.8	617.6	78.5	696.1

Amortisation charge of £9.7m (2020: £9.9m) in respect of other acquired intangible assets includes £5.4m (2020: £5.6m) recognised in respect of Foseco customer relationships, £3.6m (2020: £3.6m) in respect of Foseco trade name and £0.7m (2020: £0.7m) in respect of CCPI customer relationships.

The impact of climate change has been considered in the review of carrying values to consider whether there are indications of material impairment arising from risks arising from climate change. We have not impaired any intangible assets this year as a result of this exercise. We have also considered the impact of climate change on the estimation of useful lives and no material impacts were noted.

As at 1 January, £2.1m net book value of ERP system implementations was reclassified from Construction in progress within Property, Plant and Equipment (Note 15) to Software within Intangible Assets.

16.3 Analysis of goodwill by cash generating unit (CGU)

Goodwill acquired in a business combination is allocated to each of the Group’s CGUs expected to benefit from the synergies of the combination. For the purposes of impairment testing, the Directors consider that the Group has four CGUs: Steel Advanced Refractories, Steel Flow Control, Steel Sensors & Probes, and the Foundry Division. These CGUs represent the lowest level within the Group at which goodwill is monitored (Note 17.2).

	2021 £m	2020 £m
Steel Flow Control	269.0	276.5
Steel Advanced Refractories	140.2	130.3
Foundry	205.0	210.8
Total goodwill	614.2	617.6

16.4 Analysis of other acquired intangible assets

Other acquired intangible assets are amortised on a straight-line basis over their estimated useful lives. The assets acquired and their remaining useful lives are shown below.

	Remaining useful life years	Net book value as at 31 Dec 2021 £m	Net book value as at 31 Dec 2020 £m
Foseco – customer relationships (useful life: 20 years)		32.9	40.2
– trade name (useful life: 20 years)		22.6	26.3
Universal Refractories, Inc.

17.1 Accounting policy

The Directors regularly review the performance of the business and the external business environment to determine whether there is any indication that the Group’s tangible and intangible assets have suffered an impairment loss. If such indication exists, the higher of the Value in Use and the fair value less costs to sell of the asset is estimated and compared with the carrying value in order to determine the extent, if any, of the impairment loss. Where it is not feasible to estimate the recoverable amount of an individual asset, the Directors estimate the recoverable amount of the CGU to which the asset belongs. In addition, goodwill is tested for impairment on an annual basis. Goodwill acquired in a business combination is allocated to each of the Group’s CGUs expected to benefit from the synergies of the combination and the Directors carry out annual impairment testing of the carrying value of each CGU, to assess the need for any impairment of the carrying value of the associated goodwill and other intangible and tangible assets. For the purpose of impairment testing, the recoverable amount of an asset or CGU is the higher of (i) its fair value less costs to sell and (ii) its Value in Use. If the recoverable amount of a CGU is less than its carrying amount, the resulting impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. An impairment loss recognised for goodwill is not reversed in a subsequent period. An impairment loss recognised in a prior year for an asset other than goodwill may be reversed where there has been a change in the estimates used to measure the asset’s recoverable amount since the impairment loss was recognised.

17.2 Key assumptions and methodology

The key assumptions in determining Value in Use are projected cash flows, growth rates and discount rates. These are disclosed as critical accounting estimates in Note 3.5. Projected cash flows for the next three years have been based on the latest Board-approved budgets and strategic plans. They reflect management’s expectations of revenue, EBITDA growth, capital expenditure, working capital and adjusted operating cash flows, based on past experience and future expectations of business performance, and take into account the cyclicality of the business in which the CGU operates. Cash flows beyond the period of the strategic plans have been extrapolated using a perpetuity growth rate of 2.5% (2020: 2.5%). The growth rate has been calculated using GDP growth forecasts published by the International Monetary Fund for the Group’s end-markets. These GDP growth forecasts have been weighted to reflect the Group’s weighted average sales in each end-market during 2021.

The cash flows have been discounted to their current value using pre-tax discount rates, which represent each CGU’s weighted average cost of capital (WACC). The assumptions used in the calculation of the WACC for each CGU have been benchmarked to externally available data. These are industry-specific beta coefficients, risk-free rates and equity risk premiums. The pre-tax discount rate used for the Steel Flow Control, Steel Advanced Refractories and Steel Sensors & Probes CGUs was 12.4% (2020: 13.7%) and for the Foundry CGU was 11.6% (2020: 15.0%). The decrease in the pre-tax discount rates has been driven by a decrease in the equity risk premiums partially offset by an increase in risk-free rates – these changes are not specific to Vesuvius. The Group carried out its annual goodwill impairment test as at 31 October 2021 (2020: 31 October 2020). The recoverable amount of each CGU significantly exceeded its carrying value, therefore no impairment charges have been recognised. The recoverable amount of each CGU was also checked against its carrying value as at 31 December 2021 and no impairment triggers were identified. The Directors have considered the impact of climate change on the cash flows and other assumptions used for goodwill impairment testing and no material impacts were noted.

Sensitivity of impairment reviews

Steel Flow Control (FC), Steel Advanced Refractories (AR) and the Foundry Division are the key CGUs. There were no intangible assets in the Steel Sensors & Probes CGU. The recoverable amount of all CGUs exceeded their carrying value on the basis of the assumptions set out above and any reasonably possible changes thereof. A sensitivity analysis was carried out using reasonably possible changes to the key assumptions as set out in the table below. The following decreases to the recoverable amount of the Group’s goodwill and intangible assets were observed:

Key assumption	Relevant CGUs	Assumption	Sensitivity	Decrease in recoverable value, £m	Impairment arising
Free cash flow average annual growth rate	FC, AR, Foundry	12.9% – 25.6%	Decrease cash flows by 20%	(472.0)	None
Pre-tax discount rate	FC, AR	12.4%	Increase by 1%	(140.2)	None
Pre-tax discount rate	Foundry	11.6%	Increase by 1%	(78.5)	None
Long-term growth rate	FC, AR, Foundry	2.5%	Decrease by 1.5%	(274.9)	None

18. Trade and Other Receivables

18.1 Accounting policy

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method, less impairment losses. Details on impairment of financial assets are disclosed in Note 25.

18.2 Analysis of trade and other receivables (current)

	2021					2020
	Gross £m	ECL provision £m	Net £m	ECL provision coverage¹	Gross £m	ECL provision £m	Net £m	ECL provision coverage¹
Trade receivables – current	292.1	(0.4)	291.7	0.1%	250.6	(0.5)	250.1	0.2%
– 1 to 30 days past due	38.5	(0.1)	38.4	0.3%	35.6	(0.3)	35.3	0.8%
– 31 to 60 days past due	10.5	(0.1)	10.4	1.0%	9.1	(0.1)	9.0	1.1%
– 61 to 90 days past due	4.6	–	4.6	0.0%	3.0	(0.2)	2.8	6.7%
– over 90 days past due	29.2	(22.1)	7.1	75.7%	27.7	(22.9)	4.8	82.7%
Trade receivables	374.9	(22.7)	352.2		326.0	(24.0)	302.0
Other receivables	65.4				49.1
Prepayments	27.6				18.8
Total trade and other receivables	445.2				369.9

¹ ECL provision coverage is expected credit loss provision divided by gross trade receivables.

There is no significant difference between the fair value of the Group’s trade and other receivables balances and the amount at which they are reported in the Group Balance Sheet. Historical experience has shown that the Group’s trade receivable provisions are maintained at levels that are sufficient to absorb actual bad debt write-offs, withou t being excessive. The Group considers the credit quality of financial assets that are neither past due nor impaired as good. Included within Other receivables are promissory notes of £22.0m (2020: £20.4m). The majority of these notes relate to customers in China and have typical maturities of six months from the issuing date. The full amount of revenue is recognised from the customer when performance obligations are satisfied in accordance with IFRS 15. Other receivables also include VAT receivables of £32.5m (2020: £18.6m) and insurance reimbursements (see Note 30.2) of £2.0m (2020: £2.0m).

18.3 Other receivables (non-current)

Non-current other receivables of £16.2m (2020: £18.6m) include insurance reimbursements (see Note 30.2) of £12.4m (2020: £10.4m) and prepaid taxes of £1.6m (2020: £4.1m). The Group applies the expected credit loss model under IFRS 9 to these other receivables. The expected credit loss for other receivables is immaterial. The maximum exposure to credit risk at the end of the reporting period is the net carrying amount of these trade and other receivables.# 8.4 Impairment of trade and other receivables
Details relating to the impairment of trade receivables are disclosed in Note 25.

19. Inventories

19.1 Accounting policy

Inventories are stated at the lower of cost (using the first in, first out method) and net realisable value. Cost comprises expenditure incurred in purchasing or manufacturing inventories together with all other costs directly incurred in bringing the inventory to its present location and condition and, where appropriate, attributable production overheads based on normal activity levels. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. The amount of any write-down of inventories to net realisable value is recognised as an expense in the year in which the write-down occurs.

19.2 Analysis of inventories

	2021 £m	2020 £m
Raw materials	118.8	62.3
Work-in-progress	19.6	16.9
Finished goods	161.0	108.1
Total inventories	299.4	187.3

The cost of inventories recognised as an expense and included in manufacturing costs of continuing operations in the Group Income Statement during the year was £658.6 m (2020: £533.5m). The net inventories of £299.4 m include a provision for obsolete stock of £12.5m (2020: £12.8 m). There were inventory write-downs of £0.9m (2020: write-down reversals of £1.5m).

20. Acquisitions and Divestments

20.1 Universal Refractories

On 6 December 2021, Vesuvius plc acquired the trade and assets of Universal Refractories, Inc. (URI), a specialty refractory producer based in Pennsylvania, USA, which is focused on tundish (steel continuous casting) applications as well as consumable products for the foundry industry. It has become part of the Group’s Steel Advanced Refractories business unit, with the exception of the ladle liners business, which has been absorbed by our Foundry Division (<10% of sales). The transaction valued URI at an enterprise value of $57.1m (£42.6 m) on a cash and debt-free basis and was funded from Vesuvius’ internal resources.

20.1 Universal Refractories continued

Given the timing of the acquisition, final valuations have not all been completed, but the provisional fair values of the assets and liabilities recognised as a result of the acquisition are as follows:

	Book value £m	Fair value adjustments £m	Adjusted value £m
Property, plant and equipment	4.5	6.9	11.4
Intangible assets (customer relationships, know-how and non-compete agreements)	–	12.2	12.2
Inventories	5.0	1.1	6.1
Receivables	5.5	–	5.5
Payables	(1.9)	–	(1.9)
Borrowings	(5.4)	–	(5.4)
Deferred tax	–	(3.0)	(3.0)
Net identifiable assets acquired	7.7	17.2	24.9
Goodwill	13.3
Consideration	38.2

The goodwill is attributable to URI’s reputation in the marketplace and the synergies that Vesuvius expects to gain from its integration. It is expected to be tax deductible. The decision to acquire URI was driven by its long-standing customer relationships and know-how. The identifiable intangible assets acquired are customer relationships, know-how and non-compete agreements. The fair value of these intangibles is provisional pending final valuations. A deferred tax liability of £3.0m has been provided in relation to these fair value adjustments. In the period since acquisition, URI has contributed £2.1m to revenue and £(0.2)m to operating profit. In accordance with IFRS 3, the acquired inventory was revalued to fair value less costs to sell, resulting in a reduction to operating profit of £0.6m. If the acquisition had occurred on the first day of the financial year, it is estimated that the revenue and operating profit from the acquisition would have been £31.2m and £6.8m respectively. On acquisition, URI was subsumed into the Steel Advanced Refractories activities business unit and the Foundry Division and goodwill is monitored at the level of the Steel Advanced Refractories operating segment. The net cash outflow on acquisition was £43.6m, including related excess working capital payment; the business was acquired on a cash and debt-free basis. In accordance with IFRS 3, we disclose above consideration of £38.2m and borrowings repaid immediately prior to acquisition of £5.4m. Receivables of £5.5m are expected to be collected. Acquisition-related costs of £1.3m were included in administrative expenses in the Income Statement.

20.2 Other acquisitions

The Group did not acquire any material interests in any companies other than URI during the year ended 31 December 2021; however, contingent consideration of £0.1 m was paid during 2021 in respect of the previous acquisition of Ecil Met Tec. The Group did not acquire any material interests in any companies in the year ended 31 December 2020; however, contingent consideration of £1.4m was paid during 2020 in respect of the previous acquisition of Ecil Met Tec.

21. Issued Share Capital

21.1 Accounting policy

Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.

21.2 Analysis of issued share capital

The allotted, issued and fully paid ordinary share capital of the Company as at 1 January 2021 and 31 December 2021 was 278,485,071 shares of 10 pence each. Further information relating to the Company’s share capital is given in Note 9 to the Company’s Financial Statements.

201 Our business Our performance Sustainability Governance Financial Statements Notes to the Group Financial Statements continued

22. Retained Earnings

	Reserve for own shares £m	Share option reserve £m	Other retained earnings £m	Total retained earnings £m
As at 1 January 2020	(39.3)	4.5	2,497.9	2,463.1
Profit for the year	–	–	41.3	41.3
Remeasurement of defined benefit liabilities/assets	–	–	7.7	7.7
Recognition of share-based payments	–	2.4	–	2.4
Release of share option reserve on exercised and lapsed options	3.4	(3.4)	–	–
Income tax on items recognised in other comprehensive income	–	–	(3.2)	(3.2)
Dividends paid 24	–	–	(8.4)	(8.4)
As at 31 December 2020 and 1 January 2021	(35.9)	3.5	2,535.3	2,502.9
Profit for the year	–	–	102.1	102.1
Remeasurement of defined benefit liabilities/assets	–	–	(80.6)	(80.6)
Recognition of share-based payments	–	3.1	–	3.1
Release of share option reserve on exercised and lapsed options	2.5	(2.5)	–	–
Income tax on items recognised in other comprehensive income	–	–	12.5	12.5
Purchase of ESOP shares	(1.1)	–	–	(1.1)
Dividends paid 24	–	–	(55.5)	(55.5)
As at 31 December 2021	(34.5)	4.1	2,513.8	2,483.4

23. Other Reserves

	Other reserves £m	Cash flow hedge reserve £m	Translation reserve £m	Total other reserves £m
As at 1 January 2020	(1,499.3)	–	71.8	(1,427.5)
Exchange differences on translation of the net assets of foreign operations	–	–	(12.7)	(12.7)
Exchange differences on translation of net investment hedges	–	–	(9.7)	(9.7)
Net change in costs of hedging	–	0.4	–	0.4
Change in the fair value of the hedging instrument	–	(8.1)	–	(8.1)
Amounts reclassified from the income statement	–	6.3	–	6.3
As at 31 December 2020 and 1 January 2021	(1,499.3)	(1.4)	49.4	(1,451.3)
Exchange differences on translation of the net assets of foreign operations	–	–	(31.0)	(31.0)
Exchange differences on translation of net investment hedges	–	–	14.4	14.4
Net change in costs of hedging	–	(1.2)	–	(1.2)
Change in the fair value of the hedging instrument	–	2.2	–	2.2
Amounts reclassified from the income statement	–	(0.7)	–	(0.7)
As at 31 December 2021	(1,499.3)	(1.1)	32.8	(1,467.6)

Within other reserves as at 31 December 2021 is £1,499.0m (2020: £1,499.0m) arising from the demerger of Cookson Group plc, being the excess of the Vesuvius plc share capital of £1,777.9m over the total share capital and share premium of Cookson Group plc as at 14 December 2012 of £278.9m. The translation reserve in the table above comprises foreign exchange differences attributable to the owners of the Parent. These exchange differences arise from the translation of the financial statements of foreign operations and from the translation of financial instruments that hedge the Group’s net investment in foreign operations. In addition to foreign exchange differences attributable to the owners of the Parent, the Group Statement of Comprehensive Income includes foreign exchange differences attributable to non-controlling interests. Of the closing balance in the translation reserve, a £3.0m debit relates to net investment hedging arrangements put in place on or after 1 January 2018 but discontinued as at 31 December 2021. The full closing balance in the cash flow hedge reserve relates to continuing hedges. Cash flow hedge reserve balance includes cost of hedging balance of £0.8m debit (2020: £0.4m credit).

202 Vesuvius plc Annual Report and Financial Statements 2021
24.# Dividends

	2021 £m	2020 £m
Amounts recognised as dividends and paid to equity shareholders during the year
Interim dividend for the year ended 31 December 2020 of 3.1p per ordinary share	–	8.4
Final dividend for the year ended 31 December 2020 of 14.3p per ordinary share	38.7	–
Interim dividend for the year ended 31 December 2021 of 6.2p per ordinary share	16.8	–
Total	55.5	8.4

A proposed final dividend for the year ended 31 December 2021 of £40.5m (2020: £38.7m), equivalent to 15.0 pence (2020: 14.3 pence) per ordinary share, is subject to approval by shareholders at the Company’s Annual General Meeting on 18 May 2022 and has not been included as a liability in these financial statements. If approved by shareholders, the dividend will be paid on 27 May 2022 to holders of ordinary shares on the register on 19 April 2022.

25. Financial Risk Management

25.1 Accounting policy

(a) Valuation of financial assets and liabilities
The Group’s financial assets and liabilities are measured as appropriate either at amortised cost or at fair value through other comprehensive income or at fair value through profit and loss. IFRS 13 Fair Value Measurement requires classification of financial instruments within a hierarchy that prioritises the inputs to fair value measurement. The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3 – Inputs that are not based on observable market data.

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are recognised initially at their fair value, which is the amount of consideration that is unconditional. The Group holds the trade receivables with the objective of collecting the contractual cash flows (held to collect) and therefore measures them subsequently at amortised cost using the effective interest method.
Derivatives which do not meet the hedge accounting criteria are classified as fair value through profit and loss (held for trading). The cross-currency interest rate swaps (see Note 25.2) which meet the hedging criteria are measured at fair value through other comprehensive income.

Loans and borrowings are initially recognised at fair value net of directly attributable transaction costs. After initial recognition, they are measured at amortised cost, using the effective interest method.

(b) Foreign currencies
The individual financial statements of each Group entity are prepared in their functional currency, which is the currency of the primary economic environment in which that entity operates. For the purpose of the Group Financial Statements, the results and financial position of each entity are translated into pounds sterling, which is the presentational currency of the Group.

Reporting foreign currency transactions in functional currency
Transactions in currencies other than the entity’s functional currency are initially recorded at the rates of exchange prevailing at the end of the preceding month or on the date of the transaction itself. At each subsequent balance sheet date:
(i) Foreign currency monetary items are retranslated at the rates prevailing at the balance sheet date. Exchange differences arising on the settlement or retranslation of monetary items are recognised either in the Group Income Statement or the Group Statement of Comprehensive Income
(ii) Non-monetary items measured at historical cost in a foreign currency are not retranslated.

Translation from functional currency to presentational currency
When the functional currency of a Group entity is different from the Group’s presentational currency (pounds sterling), its results and financial position are translated into the presentational currency as follows:
(i) Assets and liabilities are translated using exchange rates prevailing at the balance sheet date
(ii) Income and expense items are translated at average exchange rates for the year, except where the use of such average rates does not approximate the exchange rate at the date of a specific transaction, in which case the transaction rate is used
(iii) All resulting exchange differences are recognised in other comprehensive income and presented in the translation reserve in equity and are reclassified to profit or loss in the period in which the foreign operation is disposed of.

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Our business
Our performance
Sustainability
Governance
Financial Statements
Notes to the Group Financial Statements continued

25. Financial Risk Management continued

25.1 Accounting policy continued

Net investment in foreign operations
Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation are initially recognised in other comprehensive income and presented in the translation reserve in equity and reclassified to profit or loss on disposal of the net investment.

(c) Derivative financial instruments
The Group uses derivative financial instruments (‘derivatives’) to manage the financial risks associated with its underlying activities and the financing of those activities. Derivatives are measured at fair value using market prices at the balance sheet date. Any derivatives which form part of a hedge accounting relationship are designated as such on the date on which they are executed. Any derivatives which do not form part of a designated hedge accounting relationship are classified as ‘held for trading’ for accounting purposes and are accounted for at fair value through profit or loss. They are presented as current assets or liabilities to the extent they are expected to be settled within 12 months after the end of the reporting period.

(d) Cash flow hedges
Changes in the fair value of derivatives designated as cash flow hedges are recognised in other comprehensive income to the extent that the hedges are effective. Any ineffective portion would immediately be recognised in net finance costs in the profit or loss. If a forecast transaction is no longer expected to occur, the amounts previously recognised in other comprehensive income would be transferred to net finance costs in the profit or loss.

(e) Net investment hedges
The Group designates certain of its borrowings and derivatives as net investment hedges of its foreign operations. As with cash flow hedges, the effective portion of the gain or loss on hedging instruments is recognised in other comprehensive income whilst any ineffective portion would immediately be recognised in net finance costs in the profit or loss. In the event a foreign operation is disposed of or liquidated, amounts recognised in other comprehensive income are reclassified from equity to profit or loss.

25.2 Financial risk factors

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.

Analysis of financial instruments
The following table summarises Vesuvius’ financial instruments measured at fair value and shows the level within the fair value hierarchy in which the financial instruments have been classified.

	2021	2020
	Assets £m	Liabilities £m
Investments (Level 2)	0.5	–
Derivatives not designated for hedge accounting purposes (Level 2)	0.1	(0.3)
Derivatives designated for hedge accounting purposes (Level 2)	–	(2.3)

(a) Derivative financial instruments
The Group uses derivatives in the form of forward foreign currency contracts to manage the effects of its exposure to foreign exchange risk on trade receivables, trade payables and cash. Derivatives are only used for economic hedging purposes and not as speculative investments.
In June 2020, the Group executed a US$86m cross-currency interest rate swap (CCIRS). The effect of this is to convert the $86m Private Placement Notes issued in June 2020 into €76.6m. The timing and amount of the US dollar cash flows 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 cash flow 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 the year-end has been booked through the Income Statement in 2021. 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. Derivative financial instruments are subject to International Swaps and Derivatives Association (ISDA) agreements. Derivatives designated for hedge accounting purposes are presented net £2.3m, of which gross assets are £3.7m and gross liabilities £6.0m (2020: gross assets £1.1m and gross liabilities £8.1m).

204 Vesuvius plc Annual Report and Financial Statements 2021

25. Financial Risk Management continued

25.2 Financial risk factors continued

(b) Market risk
Market risk is the risk that either the fair values or the cash flows of the Group’s financial instruments may fluctuate because of changes in market prices. The Group is principally exposed to market risk through fluctuations in exchange rates and interest rates.

Currency risk
The Group Income Statement is exposed to currency risk on monetary items that are denominated in currencies other than the functional currency of the companies in which they are held. The currency profile of these financial assets and financial liabilities is shown in the table below.

	2021			2020
	Euro £m	US dollar £m	Other £m	Euro £m	US dollar £m	Other £m
Trade receivables	70.7	38.7	28.3	31.3	34.8	30.5
Cash at bank	5.2	8.3	15.7	9.8	5.3	16.1
Trade payables	(40.4)	(36.8)	(19.9)	(18.7)	(21.8)	(27.5)
Private Placement Notes	(166.4)	(107.9)	–	(160.8)	(106.8)	–
Bank loans and overdrafts	(23.1)	–	–	(29.6)	(0.1)	–
Finance leases	(0.6)	–	(0.9)	(0.5)	–	(1.1)
Cross-currency interest rate swaps	(64.4)	63.6	–	(68.4)	62.9	–
Foreign currency forward contracts
– Buy foreign currency	0.9	5.5	–	1.1	1.2	–
– Sell foreign currency	(20.1)	(21.2)	(0.6)	(17.7)	(23.5)	–
	(238.2)	(49.8)	22.6	(253.5)	(48.0)	18.0

The Group has £(1.8)m (2020: £(1.3)m) of exchange differences recognised in the Income Statement of which £(0.9)m arose on the revaluation of derivatives (2020: £(0.7)m). The tables below show the net unhedged monetary assets and liabilities of Group companies that are not denominated in their functional currency and which could give rise to exchange gains and losses in the Group Income Statement.

Net unhedged monetary (liabilities)/assets	Euro £m	US dollar £m	Other £m	Total £m
Functional currency Sterling	(252.3)	(42.3)	5.2	(289.4)
Other	14.1	(7.5)	17.4	24.0
As at 31 December 2021	(238.2)	(49.8)	22.6	(265.4)

Net unhedged monetary (liabilities)/assets	Euro £m	US dollar £m	Other £m	Total £m
Functional currency Sterling	(253.6)	(44.1)	–	(297.7)
Other	0.1	(3.9)	18.0	14.2
As at 31 December 2020	(253.5)	(48.0)	18.0	(283.5)

The Group finances its operations partly by obtaining funding through external borrowings. Where these borrowings are not in sterling, they may be designated as net investment hedges. This enables gains and losses arising on translation to be charged to other comprehensive income, providing a partial offset in equity against the gains and losses arising on translation of overseas net assets. As at 31 December 2021, €224m and $60m of borrowings were designated as hedges of net investments in €224m and $60m worth of overseas foreign operations. In addition, the €76.6m CCIRS liability has been designated as a net investment hedge of a further €76.6m worth of overseas foreign operations.

205 Our business Our performance Sustainability Governance Financial Statements Notes to the Group Financial Statements continued

25. Financial Risk Management continued

25.2 Financial risk factors continued

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 the there were insufficient euro-denominated overseas foreign operations to be matched against the €76.6m CCIRS liability. The total translation impact of the borrowings and CCIRS designated as net investment hedges was £14.4m (2020: £9.7m). The $86m CCIRS asset has been designated as a cash flow hedge of the $86m USPP Notes issued in 2020. As all principal and interest cash flows under the CCIRS exactly mirror those under the USPP Notes, the cash flow hedge is 100% effective with no ineffectiveness. It is noted that hedge ineffectiveness would arise in the event there was a change in the contractual terms of either the USPP Notes or the CCIRS. Hedge effectiveness is determined at inception of the hedge relationship and through periodic effectiveness assessments, to ensure that an economic relationship exists between the hedged item and hedging instrument.

Interest rate risk
The Group’s interest rate risk principally arises in relation to its borrowings. Where borrowings are held at floating rates of interest, fluctuations in interest rates expose the Group to variability in the cash flows associated with its interest payments, and where borrowings are held at fixed rates of interest, fluctuations in interest rates expose the Group to changes in the fair value of its borrowings. The Group’s policy is to maintain an appropriate mix of fixed and floating rate borrowings based on the Vesuvius trading environment, market conditions and other economic factors. As at 31 December 2021, the Group had $146m, €198m and £28m (£302.3m in total) of USPP Notes outstanding, which carry a fixed rate of interest, representing 75% of the Group’s total borrowings out standing at that date. The interest rate profile of the Group’s borrowings is detailed in the tables below.

Financial liabilities (gross borrowings)	Fixed rate £m	Floating rate £m	Total £m
Sterling	28.0	76.4	104.4
US dollar	107.9	1.2	109.1
Euro	166.4	27.2	193.6
Capitalised arrangement fees	(1.2)	(2.1)	(3.3)
As at 31 December 2021	301.1	102.7	403.8

Financial liabilities (gross borrowings)	Fixed rate £m	Floating rate £m	Total £m
Sterling	–	43.3	43.3
US dollar	106.8	0.3	107.1
Euro	160.8	31.5	192.3
Other	–	0.5	0.5
Capitalised arrangement fees	(1.3)	(0.1)	(1.4)
As at 31 December 2020	266.3	75.5	341.8

Information in respect of the currency risk management of $86m of US dollar-denominated fixed rate financial liabilities is provided above. The floating rate financial liabilities shown in the tables above typically bear interest at the inter-bank offered rate of the appropriate currency, plus a margin. The fixed rate financial liabilities of £302.3m (2020: £267.6m) have a weighted average interest rate of 3.2% (2020: 3.4%) and a weighted average period for which the rate is fixed of 6.2 years (2020: 6.2 years). The financial assets attract floating rate interest. Based upon the interest rate profile of the Group’s financial liabilities shown in the tables above, a 1% increase in market interest rates would increase both the finance costs charged in the Group Income Statement and the interest paid in the Group Statement of Cash Flows by £1.0m (2020: £0.8m), and a 1% reduction in market interest rates would decrease both the finance costs charged in the Group Income Statement and the interest paid in the Group Statement of Cash Flows by £1.0m (2020: £0.8m).

206 Vesuvius plc Annual Report and Financial Statements 2021

(c) Credit risk
Credit risk arises from cash and cash equivalents, derivative financial assets and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables.

(i) Risk management
For banks and financial institutions, apart from certain limited circumstances, Group policy is that only independently rated entities with a minimum rating of ‘A-’ are accepted as counterparties.In addition, the Group’s operating companies have policies and procedures in place to assess the credit worthiness of the customers with whom they do business.

(ii) Impairment of financial assets
The Group subjects trade receivables for sales of inventory and from the provision of services to the expected credit loss model. Whilst cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial. The Group applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables and contract assets. The expected loss rates are based on the payment profiles of sales over a period of 60 months before 31 December 2021 and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macro-economic factors affecting the ability of the customers to settle the receivables. The Group has identified the current state of the economy (such as market interest rates or growth rates) and particular industry issues in the countries in which it sells its goods and services to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment. Where objective evidence exists that a trade receivable balance may be impaired, provision is made for the difference between its carrying amount and the present value of the estimated cash that will be recovered. Evidence of impairment may include such factors as a change in credit risk profile of the customer, the customer being in default on a contract, or the customer entering bankruptcy or financial reorganisation proceedings. All significant balances are reviewed individually for evidence of impairment. Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst other things, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 120 days past due. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised within the Income Statement. The closing expected credit loss allowance for trade receivables as at 31 December 2021 reconciles to the opening loss allowances as follows:

As at 1 January	2021 £m	2020 £m
(Decrease)/increase in expected credit loss allowance recognised in profit or loss during the year	24.0	26.6
Receivables written off during the year as uncollectable	(0.5)	(0.3)
Exchange adjustments	(0.3)	(2.2)
As at 31 December	(0.5)	(0.1)
Total	22.7	24.0

The credit for the year shown in the table above is recorded within administration, selling and distribution costs in the Group Income Statement. Historical experience has shown that the Group’s trade receivable provisions are maintained at levels that are sufficient to absorb actual bad debt write-offs, without being excessive. The Group considers the credit quality of financial assets that are neither past due nor impaired as good. The Group also applies the expected credit loss model under IFRS 9 to other receivables. If, at the reporting date, the credit risk of the receivables has not increased significantly since initial recognition, the Group measures the loss allowance at an amount equal to 12-month expected credit losses. If the credit risk on that receivable has increased significantly since initial recognition, the Group measures the loss allowance at an amount equal to the lifetime expected credit losses. The expected credit loss on other receivables is not material.

207
Our business Our performance Sustainability Governance Financial Statements Notes to the Group Financial Statements continued 25. Financial Risk Management continued 25.2 Financial risk factors continued

(d) Liquidity risk
Liquidity risk is the risk that the Group might have difficulties in meeting its financial obligations. The Group manages this risk by ensuring that it maintains sufficient levels of committed borrowing facilities and cash and cash equivalents to ensure that it can meet its operational cash flow requirements and any maturing financial liabilities, whilst at all times operating within its financial covenants. The level of operational headroom provided by the Group’s committed borrowing facilities is reviewed at least annually as part of the Group’s three-year planning process. Where this process indicates a need for additional finance, this is addressed on a timely basis by means of either additional committed bank facilities or raising finance in the capital markets. The Group’s £300m committed bank facility was scheduled to mature in June 2022. This was cancelled early in July 2021 and re-financed with an enlarged committed bank facility for £385m. The replacement facility is scheduled to mature in July 2025 and there is a one-year extension option exercisable at the discretion of the Group and its lenders. In December 2021, the Group issued £28m and €33m of USPP Notes. These Notes mature in December 2031 and have a weighted average interest rate of 1.77%. As at 31 December 2021, the Group had committed borrowing facilities of £706.3m (2020: £586.6m), of which £308.1m (2020: £246.6m) were undrawn. These undrawn facilities are due to expire in July 2025. The Group’s borrowing requirements are met by USPP, a multi-currency committed syndicated bank facility of £385.0m (2020: £300.0m) and a committed bilateral bank facility of £19.0m (2020: £19.0m) which is fully collateralised against a portion of the Group’s cash balance in China. USPP Notes issued as at 31 December 2021 amounted to £302.3m ($146.0m, €198.0m and £28.0m) and had a weighted average period to maturity of 6.2 years. $30.0m is repayable in December 2023, €15.0m and $60.0m in 2025, €100.0m and $26.0m in 2027, $30.0m in 2028, €50.0m in 2029 and €33.0m and £28.0m in 2031. The maturity analysis of the Group’s gross borrowings (including interest) is shown in the tables below. The cash flows shown are undiscounted.

As at 31 December 2021	Within 1 year £m	Between 1 and 2 years £m	Between 2 and 5 years £m	Over 5 years £m	Total contractual cash flows £m	Carrying amount £m
Trade payables	253.8	–	–	–	253.8	253.8
Loans and overdrafts	37.4	9.6	178.2	235.0	460.2	407.1
Lease liabilities	11.6	9.2	13.4	13.2	47.4	39.9
Capitalised arrangement fees	–	–	–	–	–	(3.3)
Derivative liability	(0.6)	(0.6)	(0.6)	0.2	(1.6)	2.6
Total financial liabilities	302.2	18.2	191.0	248.4	759.8	700.1

As at 31 December 2020	Within 1 year £m	Between 1 and 2 years £m	Between 2 and 5 years £m	Over 5 years £m	Total contractual cash flows £m	Carrying amount £m
Trade payables	185.7	–	–	–	185.7	185.7
Loans and overdrafts	44.7	84.2	80.5	187.4	396.8	343.2
Lease liabilities	11.2	9.1	11.1	12.9	44.3	36.3
Capitalised arrangement fees	–	–	–	–	–	(1.4)
Derivative liability	(0.5)	(0.4)	2.7	1.4	3.2	7.0
Total financial liabilities	241.1	92.9	94.3	201.7	630.0	570.8

Capitalised arrangement fees shown in the tables above, which have been recognised as a reduction in borrowings in the financial statements, amounted to £3.3m as at 31 December 2021 (31 December 2020: £1.4m), of which £1.2m (2020: £1.3m) related to the USPP and £2.1m (2020: £0.1m) related to the newly signed syndicated bank facility. The carrying amount of lease liabilities falling due within one year was £11.6m (2020: 11.2m). The carrying amount of lease liabilities falling due after more than one year was £28.3m (2020: £25.1m).

208 Vesuvius plc Annual Report and Financial Statements 2021 25. Financial Risk Management continued 25.3 Capital management
The Company considers its capital to be equal to the sum of its total equity, disclosed on the Group Balance Sheet, and net debt (Note 14). It monitors its capital using a number of KPIs, including free cash flow, average working capital to sales ratios, net debt to EBITDA ratios and ROIC (Note 4).# Financial Statements

Notes to the Group Financial Statements

25. Capital management

The Group’s objectives when managing its capital are:
– To ensure that the Group and all of its businesses are able to operate as going concerns and ensure that the Group operates within the financial covenants contained within its debt facilities
– To have available the necessary financial resources to allow the Group to invest in areas that may deliver acceptable future returns to investors
– To maintain sufficient financial resources to mitigate against risks and unforeseen events
– To maximise shareholder value through maintaining an appropriate balance between the Group’s equity and net debt.

The Group operated within the requirements of its debt covenants throughout the year and has sufficient liquidity headroom within its committed debt facilities. Details of the Group’s covenant compliance and committed debt facilities can be found in the Strategic Report on page 42.

25.4 Cash pooling arrangements

The Group enters into zero balancing and notional cash pooling arrangements as part of its ongoing Treasury management activities. Certain notional cash pooling arrangements meet the criteria for offsetting as clarified in amendments to IAS 32 Financial Instruments: Presentation about a legally enforceable right of set-off both in the ordinary course of business and in the event of default.

The following tables set out the amounts of recognised financial assets and liabilities shown as cash and cash borrowings and those amounts which are subject to these agreements.

Financial assets/liabilities	Gross amounts of recognised financial assets/ liabilities	Gross amounts of recognised financial assets/ liabilities offset in the statement of financial position	Net amounts of financial assets/liabilities presented in the statement of financial position
Cash deposits	169.1	–	169.1
Cash borrowings	(6.7)	–	(6.7)
As at 31 December 2021	162.4	–	162.4
Financial assets/liabilities	Gross amounts of recognised financial assets/ liabilities	Gross amounts of recognised financial assets/ liabilities offset in the statement of financial position	Net amounts of financial assets/liabilities presented in the statement of financial position
Cash deposits	209.8	(0.1)	209.7
Cash borrowings	(3.0)	0.1	(2.9)
As at 31 December 2020	206.8	–	206.8

26. Employee Benefits

26.1 Accounting policy

The net liability or net surplus recognised in the Group Balance Sheet for the Group’s defined benefit plans is the present value of the defined benefit obligation at the balance sheet date, less the fair value of the plan assets. The defined benefit obligation is calculated by independent actuaries using the projected unit credit method and by discounting the estimated future cash flows using interest rates on high-quality corporate bonds that have durations approximating the terms of the related pension liability. Any asset recognised in respect of a surplus arising from this calculation is limited to the asset ceiling, where this is the present value of any economic benefits available in the form of refunds or reductions in future contributions in respect of the plans. The Group has an unconditional right to a refund of the UK surplus, as defined under IFRIC 14, and considers that the possibility that a surplus could be reduced or extinguished by discretionary actions by the Trustee does not affect the existence of the asset at the end of the reporting period. The Group therefore recognises a pension asset with respect to the scheme valued on an IAS 19 basis. No liability is recognised with respect to further funding contributions.

The expense for the Group’s defined benefit plans is recognised in the Group Income Statement as shown in Note 26.8. Actuarial gains and losses arising on the assets and liabilities of the plans are reported within the Group Statement of Comprehensive Income; and gains and losses arising on settlements and curtailments are recognised in the Group Income Statement in the same line as the item that gave rise to the settlement or curtailment or, if material, separately reported as a component of operating profit.

26.2 Group post-retirement plans

The Group operates a number of pension plans around the world, both defined benefit and defined contribution, and accounts for them in accordance with IAS 19. The Group’s principal defined benefit pension plans are in the UK and the US, the benefits of which are based upon the final pensionable salaries of plan members. The assets of these plans are held separately from the Group in trustee-administered funds. The Trustees are required to act in the best interests of the plans’ beneficiaries. The Group also has defined benefit pension plans in other territories but, except for those in Germany, these are not individually material in relation to the Group.

(a) Defined benefit pension plans – UK

The Group’s main defined benefit pension plan in the UK (‘the UK Plan’) is closed to new members and to future benefit accrual. The existing plan was established under a trust deed and is subject to the Pension Act 2004 and guidance issued by the UK Pensions Regulator. In November 2021, the Trustee of the Vesuvius Pension Plan signed a pension insurance buy-in agreement with Pension Insurance Corporation plc (PIC). This buy-in secures an insurance asset from PIC that matches the remaining pension liabilities of the UK Plan, with the result that the Company no longer bears any investment, longevity, interest rate or inflation risks in respect of the UK Plan. The insurance policies with PIC now cover over £450m of liabilities, and all benefits in the UK Plan (with the exception of a small amount of benefits expected to arise in future as a result of guaranteed minimum pensions (GMP) equalisation) are now insured with PIC. There is a ‘long-term scheme-specific funding standard’ in Part 3 of the Pensions Act 2004. In terms of Part 3, the UK Plan is subject to a requirement (‘the statutory funding objective’) that it must have sufficient and appropriate assets to cover its technical provisions. Such technical provisions are determined as part of the triennial valuation. Under the rules of the UK Plan, the Trustee, after consultation with the Company, has the power to set the funding contributions taking into account the results of the triennial valuation and the Pension Act 2004 legislation. Following the buy-in referred to above, no further contributions are expected to be paid to the UK Plan by the Company, and the cost of GMP equalisation will be met out of the surplus UK Plan assets.

(b) Defined benefit pension plans – US

The Group has several defined benefit pension plans in the US, providing retirement benefits based on final salary or a fixed benefit. The Group’s principal US defined benefit pension plans are closed to new members and to future benefit accrual for existing members. Actuarial valuations of the US defined benefit pension plans are carried out every year and the last full valuation was carried out as at 31 December 2021. At that date, the market value of the plan assets was $65.4m, representing a funding level of 80.6% of funded accrued plan benefits at that date (using the projected unit method of valuation) of $81.1m. Funding levels for the Group’s US defined benefit pension plans are based upon annual valuations carried out by independent qualified actuaries and are governed by US Government regulations. The Group’s US qualified defined benefit pension plan is subject to the minimum contribution requirements of the Internal Revenue Code Sections 412 and 430. Contributions are determined by trustees, in consultation with the Company, based on the annual valuations which are submitted to the Internal Revenue Service. During the fiscal year beginning 1 January 2021, total minimum required contributions were approximately $1.0m. Under these funding laws and based on the plan deficit, the required minimum annual contribution for the 2022 fiscal year is expected to be $ nil and the required annual contributions for the period 2023–2024 are expected to be in the $0.0m to $1.0m range. Contributions of $1.3m were made during 2021. There was a $0.2m settlement gain reported in the main US defined benefit pension plan in 2020 which related to annuity purchases of $7.8m being made in May 2020 (the defined benefit obligation settled was $8.0m).

(c) Defined benefit pension plans – Germany

The Group has several defined benefit pension arrangements in Germany which are unfunded, as is common practice in that country.# 26. Employee Benefits

The main plan was closed to new entrants on 31 December 2016 and replaced by a defined contribution plan for new joiners. The German defined benefit plan contains mainly direct pension promises based on works council agreements as well as on some individual pension promises. The legal framework is the German Company Pensions Act (‘Betriebsrentengesetz’). The plan is unfunded (book reserved) and the company pays all benefit payments when they fall due.

(d) Defined benefit pension plans – rest of the world and other post-retirement benefits

The Group has several defined benefit pension arrangements across the rest of the world (ROW), the largest of which are in Belgium. The net liability of the ROW plans at 31 December 2021 was £16.9m (2020: £20.7m). The Group also has liabilities relating to medical insurance arrangements and termination plans which provide for benefits to be paid to employees on retirement. The net liability of these other post-retirement benefits as at 31 December 2021 was £7.0m (2020: £7.0m).

(e) Defined contribution pension plans

The total expense for the Group’s defined contribution plans in the Group Income Statement amounted to £10.2m (2020: £9.7m) and represents the contributions payable for the year by the Group to the plans.

210 Vesuvius plc Annual Report and Financial Statements 2021

26. Employee Benefits continued

26.2 Group post-retirement plans continued

(f) Multi-employer plans

Due to collective agreements, Vesuvius in the US participates, together with other enterprises, in union-run multi-employer pension plans for temporary workers hired on sites. These are accounted for as defined contribution plans. The bulk of the multi-employer pension plans related to BMI, which was disposed of in 2018. The BMI sale transaction was structured to ensure as best as possible that any pension liability would go to the acquiring company. There is a five-year window where Vesuvius US could still have some liability for any short fall in the BMI plans should the buyer cease to exist.

26.3 Post-retirement liability valuation

The main assumptions used in calculating the costs and obligations of the Group’s defined benefit pension plans, as detailed below, are set by the Directors after consultation with independent professionally qualified actuaries and include those used to determine regular service costs and the financing elements related to the plans’ assets and liabilities. It is the Directors’ responsibility to set the assumptions used in determining the key elements of the costs of meeting such future obligations. Whilst the Directors believe that the assumptions used are appropriate, a change in the assumptions used could affect the Group’s profit and financial position.

(a) Mortality assumptions

The mortality assumptions used in the actuarial valuations of the Group’s UK, US and German defined benefit pension liabilities are summarised in the table below and have been selected to reflect the characteristics and experience of the membership of those plans. For the UK Plan, the assumptions used have been derived from the Self-Administered Pension Schemes (‘SAPS S3’) All table, with future longevity improvements in line with the ‘core’ mortality improvement tables published in 2020 by the Continuous Mortality Investigation (CMI), with a long-term rate of improvement of 1.25% per year. For the Group’s US plans, the assumptions used have been based on the Pri-2012 mortality tables and MP-2021 projection scale. The Group’s major plans in Germany have been valued using the modified Heubeck Richttafeln 2018G mortality tables. In respect of the life expectancy tables below, current pensioners are assumed to be 65 years old, while future pensioners are assumed to be 45 years old.

Life expectancy of pension plan members

| | \multicolumn{3}{c|}{2021} | \multicolumn{3}{c|}{2020} |
| :-------------------------------------------------- | :----------------------- | :-------- | :-------- | :-------- | :-------- | :-------- |
| | UK years | US years | Germany years | UK years | US years | Germany years |
| Age to which current pensioners are expected to live: | | | | | | |
| – Men | 87.2 | 85.0 | 85.5 | 87.1 | 85.4 | 85.3 |
| – Women | 88.9 | 87.0 | 88.9 | 89.4 | 87.4 | 88.8 |
| Age to which future pensioners are expected to live: | | | | | | |
| – Men | 87.5 | 86.5 | 88.2 | 87.5 | 86.9 | 88.1 |
| – Women | 90.4 | 88.4 | 91.1 | 90.8 | 88.8 | 91.0 |

(b) Other main actuarial valuation assumptions

| | \multicolumn{3}{c|}{2021} | \multicolumn{3}{c|}{2020} |
| :------------------------------------------------ | :------------------------ | :-------- | :-------- | :-------- | :-------- | :-------- |
| | UK % p.a. | US % p.a. | Germany % p.a. | UK % p.a. | US % p.a. | Germany % p.a. |
| Discount rate | 2.00 | 2.45 | 1.20 | 1.40 | 2.05 | 0.60 |
| Price inflation – using RPI for UK | 3.25 | 2.25 | 2.00 | 2.90 | 2.00 | 1.50 |
| – using CPI for UK | 2.45 | n/a | n/a | 2.20 | n/a | n/a |
| Rate of increase in pensionable salaries | n/a | n/a | 2.75 | n/a | n/a | 2.25 |
| Rate of increase to pensions in payment | 3.15 | n/a | 2.00 | 2.80 | n/a | 1.50 |

The discount rate used to determine the liabilities of the UK Plan for IAS 19 accounting purposes is required to be determined by reference to market yields on high-quality corporate bonds. The UK discount rate in the above table is based on analysis using the expected future cash flows of the Vesuvius Pension Plan and the AON Hewitt AA yield curve; the US discount rate is based on the FTSE (formerly Citigroup) pension discount curve; and the Germany discount rate is based on AA corporate bond yields included in the iBoxx Euro AA corporate bond indices. The assumptions for UK price inflation are set by reference to the difference between yields on longer-term conventional government bonds and index-linked bonds, except for CPI, for which no appropriate bonds exist, which is assumed to be 0.8 points lower (2020: 0.7 points lower) than RPI-based inflation.

211 Our business Our performance Sustainability Governance Financial Statements Notes to the Group Financial Statements continued

26. Employee Benefits continued

26.3 Post-retirement liability valuation continued

(c) Sensitivity analysis of the impact of changes in significant IAS 19 actuarial assumptions

The UK Plan Trustee has entered into a pension insurance buy-in agreement with the Pension Insurance Corporation (PIC). The US pensions are not inflation linked. The rate of increase in pensionable salaries and of pensions in payment is therefore not significant to the valuation of the Group’s overall pension liabilities. The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

Assumption	Change in assumption	UK	US	Germany
Discount rate	Increase/decrease by 0.1%
– impact on plan liabilities		Decrease/increase by £7.7m	Decrease/increase by £0.7m	Decrease/increase by £1.1m
– impact on plan assets		Decrease/increase by £7.7m	n/a	n/a
Price inflation	Increase/decrease by 0.1%
– impact on plan liabilities		Increase/decrease by £5.1m	n/a	Increase/decrease by £0.3m
– impact on plan assets		Increase/decrease by £5.1m	n/a	n/a
Mortality	Increase by one year
– impact on plan liabilities		Increase by £23.9m	Increase by £3.0m	Increase by £2.0m
– impact on plan assets		Increase by £23.9m	n/a	n/a

26.4 Defined benefit obligation

The average duration of the obligations to which the liabilities of the Group’s principal pension plans relate is 16 years for the UK, 19 years for Germany and 12 years for the US.

Defined benefit pension plans

| | \multicolumn{5}{c|}{Other post-retirement benefit plans} |
| :------------------------------------------------- | :----------------------- | :-------- | :-------- | :-------- | :-------- |
| £m | UK £m | US £m | Germany £m | ROW £m | Total £m |
| Present value as at 1 January 2021 | 501.8 | 74.3 | 63.1 | 52.1 | 691.3 |
| Exchange differences | – | 0.7 | (3.7) | (3.0) | (6.0) |
| Current service cost | – | – | 1.7 | 3.1 | 4.8 |
| Interest cost | 6.8 | 1.5 | 0.3 | 0.5 | 9.1 |
| Remeasurement of liabilities: | | | | | |
| – demographic changes | (0.4) | 0.2 | – | 0.1 | (0.1) |
| – financial assumptions | (24.8) | (2.9) | (5.7) | (0.6) | (34.0) |
| – experience (gains)/losses | 5.0 | 0.5 | (0.9) | (0.8) | 3.8 |
| Benefits paid | (24.1) | (4.1) | (1.5) | (3.1) | (32.8) |
| Present value as at 31 December 2021 | 464.3 | 70.2 | 53.3 | 48.3 | 636.1 |

| | \multicolumn{5}{c|}{Other post-retirement benefit plans} |
| :------------------------------------------------- | :----------------------- | :-------- | :-------- | :-------- | :-------- |
| £m | UK £m | US £m | Germany £m | ROW £m | Total £m |
| Present value as at 1 January 2020 | 482.0 | 78.9 | 54.5 | 47.5 | 662.9 |
| Exchange differences | – | (2.2) | 3.1 | 1.7 | 2.6 |
| Current service cost | – | 0.1 | 1.6 | 3.1 | 4.8 |
| Past service cost | 0.8 | – | – | (0.1) | 0.7 |
| Interest cost | 9.0 | 2.0 | 0.6 | 0.7 | 12.3 |
| Settlements | – | (6.2) | – | – | (6.2) |
| Remeasurement of liabilities: | | | | | |
| – demographic changes | 2.2 | (0.7) | – | – | 1.5 |
| – financial assumptions | 38.2 | 6.4 | 4.8 | 1.9 | 51.3 |
| – experience losses/(gains) | (6.2) | 0.5 | – | 0.3 | (5.4) |
| Benefits paid | (24.2) | (4.5) | (1.5) | (3.0) | (33.2) |
| Present value as at 31 December 2020 | 501.8 | 74.3 | 63.1 | 52.1 | 691.3 |

212 Vesuvius plc Annual Report and Financial Statements 2021

26.4 Defined benefit obligation continued

26. Employee Benefits continued

26.7 Balance sheet recognition

The amount recognised in the Group Balance Sheet in respect of the Group’s defined benefit pension plans and other post-retirement benefit plans is analysed in the following tables, which all relate to continuing operations. All equity securities and bonds have quoted prices in active markets.

	Defined benefit pension plans
£m	2021 total £m	UK £m	US £m	Germany £m	ROW £m	Total £m
Equities	15.5	9.8	3.3	–	2.4	15.5
Bonds	47.0	–	44.0	–	3.0	47.0
Annuity insurance contracts	479.2	456.7	–	–	22.5	479.2
Other assets	24.4	19.9	1.0	–	3.5	24.4
Fair value of plan assets	566.1	486.4	48.3	–	31.4	566.1
Present value of funded obligations	(565.9)	(462.7)	(59.9)	–	(43.3)	(565.9)
	0.2	23.7	(11.6)	–	(11.9)	0.2
Present value of unfunded obligations	(70.2)	(1.6)	(10.3)	(53.3)	(5.0)	(70.2)
Total net surpluses/(liabilities)	(70.0)	22.1	(21.9)	(53.3)	(16.9)	(70.0)
Recognised in the Group Balance Sheet as:
Net surpluses	25.1	23.7	–	–	1.4	25.1
Net liabilities	(95.1)	(1.6)	(21.9)	(53.3)	(18.3)	(95.1)
Total net surpluses/(liabilities)	(70.0)	22.1	(21.9)	(53.3)	(16.9)	(70.0)

	Other post- retirement benefit plans
£m	2021 total £m	UK £m	US £m	Germany £m	ROW £m	Total £m
Equities	15.5	9.8	3.3	–	2.4	15.5
Bonds	47.0	–	44.0	–	3.0	47.0
Annuity insurance contracts	479.2	456.7	–	–	22.5	479.2
Other assets	24.4	19.9	1.0	–	3.5	24.4
Fair value of plan assets	566.1	486.4	48.3	–	31.4	566.1
Present value of funded obligations	(565.9)	(462.7)	(59.9)	–	(43.3)	(565.9)
	0.2	23.7	(11.6)	–	(11.9)	0.2
Present value of unfunded obligations	(70.2)	(1.6)	(10.3)	(53.3)	(5.0)	(70.2)
Total net surpluses/(liabilities)	(70.0)	22.1	(21.9)	(53.3)	(16.9)	(70.0)
Recognised in the Group Balance Sheet as:
Net surpluses	25.1	23.7	–	–	1.4	25.1
Net liabilities	(95.1)	(1.6)	(21.9)	(53.3)	(18.3)	(95.1)
Total net surpluses/(liabilities)	(70.0)	22.1	(21.9)	(53.3)	(16.9)	(70.0)

	Defined benefit pension plans
£m	2020 total £m	UK £m	US £m	Germany £m	ROW £m	Total £m
Equities	35.7	29.7	4.3	–	1.7	35.7
Bonds	347.8	301.3	43.2	–	3.3	347.8
Annuity insurance contracts	304.5	282.1	–	–	22.4	304.5
Other assets	8.2	3.3	0.9	–	4.0	8.2
Fair value of plan assets	696.2	616.4	48.4	–	31.4	696.2
Present value of funded obligations	(610.0)	(500.0)	(63.2)	–	(46.8)	(610.0)
	86.2	116.4	(14.8)	–	(15.4)	86.2
Present value of unfunded obligations	(81.3)	(1.8)	(11.1)	(63.1)	(5.3)	(81.3)
Total net surpluses/(liabilities)	4.9	114.6	(25.9)	(63.1)	(20.7)	4.9
Recognised in the Group Balance Sheet as:
Net surpluses	117.1	116.4	–	–	0.7	117.1
Net liabilities	(112.2)	(1.8)	(25.9)	(63.1)	(21.4)	(112.2)
Total net surpluses/(liabilities)	4.9	114.6	(25.9)	(63.1)	(20.7)	4.9

	Other post- retirement benefit plans
£m	2020 total £m	UK £m	US £m	Germany £m	ROW £m	Total £m
Equities	35.7	29.7	4.3	–	1.7	35.7
Bonds	347.8	301.3	43.2	–	3.3	347.8
Annuity insurance contracts	304.5	282.1	–	–	22.4	304.5
Other assets	8.2	3.3	0.9	–	4.0	8.2
Fair value of plan assets	696.2	616.4	48.4	–	31.4	696.2
Present value of funded obligations	(610.0)	(500.0)	(63.2)	–	(46.8)	(610.0)
	86.2	116.4	(14.8)	–	(15.4)	86.2
Present value of unfunded obligations	(81.3)	(1.8)	(11.1)	(63.1)	(5.3)	(81.3)
Total net surpluses/(liabilities)	4.9	114.6	(25.9)	(63.1)	(20.7)	4.9
Recognised in the Group Balance Sheet as:
Net surpluses	117.1	116.4	–	–	0.7	117.1
Net liabilities	(112.2)	(1.8)	(25.9)	(63.1)	(21.4)	(112.2)
Total net surpluses/(liabilities)	4.9	114.6	(25.9)	(63.1)	(20.7)	4.9

(a) UK Plan asset allocation

As at 31 December 2021, of the UK Plan’s total assets, 93.9% (2020: 45.8%) were represented by the annuity insurance contracts covering the UK Plan’s pension liabilities; 2.0% (2020: 4.8%) were allocated to equities; nil % (2020: 48.9%) to fixed income securities; and 4.1% (2020: 0.5%) to cash. The UK Plan Trustee has entered into a pension insurance buy-in agreement with the Pension Insurance Corporation (PIC), whereby the UK Plan Trustee has paid insurance premiums to PIC to insure all of the UK Plan’s liabilities. Under this arrangement, the value of the PIC insurance contract matches the value of the liabilities for current benefits because the inflation, interest rate, investment and longevity risk for Vesuvius in respect of these liabilities are eliminated. The buy-in agreement ensures that the UK pension plan obligations in respect of all its members and their approved dependants are insured. As at 31 December 2021, the IAS 19 valuation of the PIC insurance contract value associated with the bought-in liabilities was £456.7m (2020: £282.1m). The policy and the associated valuation are updated annually to reflect retirements and mortality.

(b) US Plan asset allocation

All of the assets in the main US Plan have a quoted market price in an active market. The Plan mitigates exposure to interest rates by employing a liability matching investment strategy. All non-derivative assets are invested in liability matching bonds with a similar average duration to the liabilities of the Plan. Since 2018, the investment allocation has been de-risked from an allocation of 72% liability matching and 28% return seeking assets, to an allocation of 100% liability matching. The Plan retains equity risk through use of equity derivative contracts, which provides equity market exposure with some level of equity downside protection.

(c) Defined benefit contributions in 2022

In 2022, the Group is expected to make contributions into its defined benefit pension and other post-retirement benefit plans of around £6.2m with specific contributions of approximately £1.1m, £1.6m and £1.8m anticipated for the US Plans, German Plans and Belgian Plans respectively.

26.8 Income statement recognition

The expense recognised in the Group Income Statement in respect of the Group’s defined benefit retirement plans and other post-retirement benefit plans is shown below:

	Defined benefit pension plans	Other post- retirement benefit plans	Total		Defined benefit pension plans	Other post- retirement benefit plans	Total
£m	2021	2021	2021	£m	2020	2020	2020
Current service cost	4.8	0.4	5.2	Current service cost	4.8	0.4	5.2
Past service cost	–	–	–	Past service cost	–	–	0.7
Settlements	–	–	–	Settlements	–	–	(0.2)
Administration expenses	1.2	–	1.2	Administration expenses	1.8	–	1.8
Net interest (gain)/cost	(0.5)	0.2	(0.3)	Net interest (gain)/cost	(0.3)	0.2	(0.1)
Total net charge	5.5	0.6	6.1	Total net charge	6.8	0.6	7.4

The total net charge of £6.1m (2020: £7.4m), recognised in the Group Income Statement in respect of the Group’s defined benefit pension plans and other post-retirement benefits plans, is analysed in the following table:

	2021 £m	2020 £m
In arriving at trading profit
– within other manufacturing costs	1.8	1.7
– within administration, selling and distribution costs	4.6	5.0
In arriving at profit before tax
– guaranteed minimum pension equalisation charge	–	0.8
– within net finance costs	(0.3)	(0.1)
Total net charge	6.1	7.4

GMP equalisation

A UK High Court ruling was made on 26 October 2018 in respect of the gender equalisation of guaranteed minimum pensions (GMPs) for occupational pension schemes. The impact of GMP equalisation as at 31 December 2018 was estimated to be £4.5m. A second UK High Court GMP equalisation ruling was issued on 20 November 2020. This second ruling considered the treatment of historical transfers out, i.e. those members who had transferred out before 26 October 2018. The 2020 ruling covers both individual and bulk transfers out. It does not revisit any of the issues addressed in the 2018 ruling. The impact of GMP equalisation for these second ruling was estimated to be £0.8m as at 31 December 2020. The increase in pension liabilities resulting from these judgements have been treated for IAS 19 purposes as plan amendments and resulted in an increase in the pension deficit in the balance sheet and a corresponding past service cost in the Income Statement. These amendments have previously been treated as separately reported items so that there has been no impact on headline performance. We are working with the Trustees of our UK pension plan and our actuarial and legal advisors to understand the extent to which these judgements crystallise additional liabilities for the UK pension plan.

26.9 Risks to which the defined benefit pension plans expose the Group

The principal risks faced by these plans comprise:
(i) the risk that the value of the plan assets is not sufficient to meet all plan liabilities as they fall due;
(ii) the risk that plan beneficiaries live longer than envisaged, causing liabilities to exceed the available plan assets; and
(iii) the risk that the market-based factors used to value plan liabilities and assets change materially adversely to increase plan liabilities over the value of available plan assets. Further details are given below.# Foll owi ng the UK Plan pen sio n insura nce buy-in agre em en t, t he in at io n, intere s t rate, inves tm en t and lo ng evi t y risk s for V e suv ius in resp ec t of th e UK Pl an are elimi na te d. The foll owi ng risk s rela te to the othe r plan s opera te d by th e Group:

Counterpart y risk

Thi s is m it ig ate d by us in g a diver si e d range of coun ter pa r t ies of high sta ndi ng and ensu rin g posi ti ons are coll ate rali se d as requi red.

Asset volatility

Th e lia bil it ie s are ca lcu la ted usi ng a d isco unt rat e se t with refe ren ce to co rp ora te bon d yi eld s; if as se t s und er pe r for m agai ns t this yi eld , this will crea te a d e ci t. T o redu ce this risk , the pen sio n plan s are large ly inves t ed in govern me nt and corpo rat e bond s.

Changes in bond yields

A decre as e in corp ora te bon d yie ld s will incre as e the sche me liab ili t ie s, alt ho ugh thi s wil l be par t ial ly of fs et by an i ncre as e in t he valu e of t he sch eme s’ bo nd hol din gs.

Ination risk

Muc h of the plan s’ ben e t obli ga ti on s out sid e the US a re linked to i n at io n, and high er ina t ion wil l lead to highe r liabi li ti es.

Life exp ectancy

Th e maj or it y of the pla ns’ ob lig at io ns are to pro vid e ben e t s for t he lif e of t he memb e r and in some cas es the ir spou se on dea th of the memb er, so inc rea se s in life exp e c tan cy wil l resul t in an inc rea se in t he liab ili ti es. In Augus t 201 6, th e pe nsi ons for the maj or it y of curre nt pens io ner s in the US m ain pla n were bo ugh t ou t with an insura nce comp any, rem ovi ng all resp ons ibi li t y and risk rela te d to t he se pen si ons from th e Gro up. In r ece nt year s, a n umb er of fur t her exe rcis es have be en carri ed ou t to bu y out US b en e t s.

27. Share-based Payments

27.1 Accounting policy

The Gro up ope rate s an equ it y-set tle d sha re-b as ed pa yme nt arran ge me nt for its emp loye es. Equit y- se t t le d share -ba se d pa ym ent s are meas ured at fair valu e at the da te of g rant. For g rant s wit h marke t -ba se d condi ti ons at tache d to t he m, such as tota l shareh ol de r retur n, fair value is meas ure d usi ng a fo rm of st och as t ic opt ion pri cin g mode l. For grant s wit h non-ma rket- ba se d condi ti ons , such as grow t h in he adl ine ear nin gs pe r sha re, fair value is measu red usin g the Bla ck -Scho le s opti on pric ing mo de l. The fair value is exp ens ed on a s t raig ht-line ba sis over the ves ti ng per io d wit h a cor res po ndi ng incre as e in e qui t y. Th e cumu la ti ve exp ens e recog nis ed is adjus te d for the bes t es tim at e of t he shar es tha t will event ua lly ves t.

27.2 Income statement recognition

The tota l expe ns e recogn ise d in th e Group Inco me State men t is s how n belo w:

	2021 £m	2020 £m
Long-Term Incentive Plan	0.2	0.8
Other plans	2.9	1.6
Total expense	3.1	2.4

The Gro up ope rate s a nu mb er of dif ferent sha re-b as ed pa yme nt pla ns, th e mos t sig ni can t of w hich is the Long - T e rm Incen ti ve Pla n ( L TI P) , det ail s of w hich can be found in the Dire c tor s’ Remu nera t ion Rep or t.

27. Share-based Payments continued

27.3 Details of outstanding options

Number of outstanding awards

	As at 1 Jan 2021	Granted	Exercised	Forfeited/ lapsed	Expired	As at 31 Dec 2021
LTIP	1,717,225	702,982	(31,637)	(448,606)	nil	1,939,964
Weighted average exercise price	nil	nil	nil	nil	nil	nil
Other plans	635,031	391,769	(437,328)	(40,439)	nil	549,033
Weighted average exercise price	nil	nil	nil	nil	nil	nil

For th e awar ds exe rcis ed du rin g 2021 , t he ma rket val ue a t t he d ate of e xerci se ran ge d f rom 473 p en ce t o 57 4 pe nce p er sh are.

Number of outstanding awards

	As at 1 Jan 2020	Granted	Exercised	Forfeited/ lapsed	Expired	As at 31 Dec 2020
LTIP	1,833,220	847,503	(345,500)	(617,998)	nil	1,717,225
Weighted average exercise price	nil	nil	nil	nil	nil	nil
Other plans	685,099	198,891	(207,211)	(41,748)	nil	635,031
Weighted average exercise price	nil	nil	nil	nil	nil	nil

For the opt io ns exerc ise d durin g 2020, t he mar ket value at the da te of exe rcis e range d from 35 1 penc e to 5 40 pe nce. De tai ls of m arke t per fo rm ance cond it io ns are inclu de d in the Dire c to rs ’ Remu ne rat io n Rep or t.

	2021	2020
Awards exercisable as at 31 Dec	no.	no.
Weighted average outstanding contractual life of awards years
Range of exercise prices pence
Awards exercisable as at 31 Dec	no.	no.
Weighted average outstanding contractual life of awards years
Range of exercise prices pence
LTIP	– 8.3	– 8.4
Weighted average exercise price	– n/a	– n/a
Other plans	– 0.9	– 0.5
Weighted average exercise price	– n/a	– n/a

27. Share-based Payments continued

27.4 Options granted under the LTIP during the year

	2021		2020
	EPS element	TSR element	EPS element	TSR element
Fair value of options granted	538p	340p	392p	242p
Share price on date of grant	538p	538p	392p	392p
Expected volatility	n/a	39.2%	n/a	30.3%
Risk-free interest rate	n/a	0.2%	n/a	0.2%
Exercise price (per share)	nil	nil	nil	nil
Expected term (years)	3	3	3	3
Expected dividend yield	nil	nil	nil	nil

V e s ti ng of 50 % of sh are s awarde d is b as ed on the Grou p’s t hree -yea r tota l shareh ol de r retur n (TSR) p er forma nce rela t ive to th at of the cons ti t uen t compa nie s of t he FT SE 25 0 ( exc lud ing inves t me nt tru st s) a nd ves ti ng of th e remain in g 50 % of sh are s awarde d is bas ed on head lin e EPS g row t h. Ex pe c te d vola t ili t y wa s dete rmi ned by calcul at in g th e hist ori cal vola t ili t y of th e Group’s s har e pri ce over the 2.8 years (20 20: 2.8 year s) p rio r to t he grant da te for the March 202 1 grant. The risk- f ree rate of retur n was as sum ed to be the yie ld to mat uri t y on a U K xed gilt wi th the ter m to mat uri t y equ al to th e expe c te d life of t he opt io n. At t he dis cret io n of t he Remun era t ion Comm it tee, award hol de rs rece ive the valu e of di vi de nds th at woul d have bee n paid on thei r vest ed sha res in the peri od be t we en grant and ves ti ng . Accord in gly, t her e is no dis cou nt to th e valu at io n for div id end s foreg one dur in g th e vest in g peri od.

28. Trade and Other Payables

28.1 Accounting policy

T rade a nd ot he r pa yab le s are in it ia lly re cog nis ed a t fai r valu e an d sub se que nt ly m eas ure d at am or tise d cos t, usin g th e ef f ec t ive inte rest m ethod.

28.2 Analysis of trade and other payables

	2021 £m	2020 £m
Non-current
Accruals and other payables	11.6	13.1
Deferred purchase and contingent consideration	–	0.1
Total non-current other payables	11.6	13.2
Current
Trade payables	253.8	185.7
Other taxes and social security	33.5	31.5
Accruals and other payables	85.6	71.5
Total current trade and other payables	372.9	288.7

Th ere is no sign i cant dif feren ce be t we en the fair valu e of t he Grou p’s tra de and oth er pa yabl es bal an ces and the amo unt at whi ch they are repo r te d in t he Gro up Bala nce She et. Inc lud ed wi thi n trade pa yabl es in the tabl e above is £2 7 . 8m (20 20 : £ 1 7 . 5m) su bje c t to s upp li er nan cin g agree me nt s ente red into wi th cer t ain of th e Group’s b an k s. Unde r the term s of t he agre em ent s , the Group’s suppl ier s in cer t ain coun tr ies can ele c t to b e pa id earl ier th an the term s of th e ir agree me nt wit h V es uv ius by re qu es t ing dis coun ted ear ly se t t le men t from the arran gin g bank . Thi s earl y set t le me nt is ef fe c te d bet w een th e bank and the supp li er; fro m th e per spe c t ive of th e Gro up, the term s of each paya bl e rem ain unch an ge d. The Group is not charg ed any inte res t cos t or f ee in respe c t of t he agre em en t s.

29. Leases

29.1 Accounting policy

Lea se l iab ili ti es a re reco gni se d at t he p res en t valu e of th e rem ai nin g le ase p ay me nt s , dis coun te d u sin g th e int ere s t rat e imp lic it in th e lea se if tha t rate can b e read ily de ter min ed . If tha t rate cannot be read il y de ter min ed , th e less ee ’s incre me ntal bo rrow in g rat e is used , calcul at ed as the local gove rnm en t bo nd rate plus an inte res t rate spre ad. In cases wh ere the re was an opti on to ter min at e or e x te nd a le ase , th e durat ion of the lea se ass ume d for thi s purp os e re ec t ed the Gro up’s e xis t in g inten tio ns rega rdin g such opt io ns. Lease lia bil it ie s inclu de the net pre se nt value of the follo win g leas e pay me nt s:
– Fixe d pay me nt s ( i ncl udi ng in-su bs tan ce xed pay me nt s) , le ss any leas e incen ti ves recei vab le
– V a ri abl e leas e pay me nt s th at are bas ed on an i nde x or a ra te
– Am oun t s exp e c ted t o be p aya bl e by th e le ss ee un de r res idu al val ue g uara nte es
– Th e exerc is e pri ce of a pu rcha se o pt ion i f th e le ss ee i s rea so nab ly ce r ta in to e xerci se t ha t op ti on
– Paym en ts of pen alt ie s for termi na tin g the lea se, if the lea se ter m re ec t s the le ss ee exerc isi ng tha t opti on.

Lea se s of l ow-val ue ass et s and shor t -ter m leas es (shor ter than 1 2 mon th s) are cla ssi  ed as opera t ing le ase s and neit he r the ass et nor th e corres po ndi ng liab ili t y to the les so r is re co gnis ed in the Grou p Bala nce Shee t.Re ntals payable under operating leases are charged to the Group Income Statement on a straight-line basis over the term of the lease. Benefits received and receivable as an incentive to enter an operating lease are also spread on a straight-line basis over the lease term.

29.2 Lease liabilities

The maturity analysis of the lease liabilities is disclosed in Note 25.2 (d). The net book value of the Group’s property, plant and equipment assets held as right-of-use assets under lease contracts at 31 December 2021 was £41.9m (2020: £37.7m) (Note 15). The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. The cash payments for leases during the year were £14.1m (2020: £14.3m).

29.3 Operating lease commitments

The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows:

	2021 £m	2020 £m
Not later than one year	0.5	0.9
Later than one year and not later than five years	0.2	0.6
Later than five years	–	0.1
Total operating lease commitments	0.7	1.6

The cost incurred by the Group in the year in respect of assets held under operating leases, all of which was charged within trading profit, amounted to £2.9m (2020: £4.2m), of which £2.2m (2020: £3.7m) related to short-length leases and £0.7m (2020: £0.5m) related to leases of low-value items.

219

Our business
Our performance
Sustainability
Governance
Financial Statements
Notes to the Group Financial Statements continued

30. Provisions

30.1 Accounting policy

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date. Where the effect of the time value of money is material, provisions are discounted using a pre-tax discount rate that reflects both the current market assessment of the time value of money and the specific risks associated with the obligation. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

30.2 Analysis of provisions

	Disposal, closure and environmental costs £m	Restructuring charges £m	Other £m	Total £m
As at 1 January 2020	34.8	19.1	2.9	56.8
Exchange adjustments	(1.7)	0.7	–	(1.0)
Charge to Group Income Statement – separately reported items	10.3	6.1	–	16.4
Charge to Group Income Statement – trading profit	4.8	–	11.8	16.6
Adjustment to discount	1.0	–	–	1.0
Cash spend	(7.0)	(16.7)	(9.3)	(33.0)
As at 31 December 2020 and 1 January 2021	42.2	9.2	5.4	56.8
Exchange adjustments	0.4	(0.2)	(0.1)	0.1
Charge to Group Income Statement – trading profit	7.4	–	9.2	16.6
Adjustment to discount	0.7	–	–	0.7
Cash spend	(8.9)	(4.0)	(10.6)	(23.5)
As at 31 December 2021	41.8	5.0	3.9	50.7

Of the total provision balance as at 31 December 2021 of £50.7m (2020: £56.8m), £32.6m (2020: £34.0m) is recognised in the Group Balance Sheet within non-current liabilities and £18.1m (2020: £22.8m) within current liabilities.

Disposal, closure and environmental costs

The provision for disposal, closure and environmental costs includes the Directors’ current best estimate of the amounts to be payable in respect of known or probable costs resulting from third-party claims, including legacy matter lawsuits. There remains inherent uncertainty associated with estimating the future costs of legacy matter lawsuits. In assessing the probable costs and realisation certainty of these provisions, or related assets, management has made reasonable assumptions, including projections of the number of future claims, the approximate average cost of those claims (including legal costs and infrequent larger value claims) and the length of time taken to resolve such claims. The provision reflects the Directors’ best estimate of the future liability and the value of the corresponding asset. By nature, these assumptions are uncertain and therefore changes to the assumptions used could significantly alter the Directors’ assessment of the value, volume of claims, timing or certainty of the costs or related amounts.

Sensitivity analyses have been conducted using variations to the key assumptions listed above and indicatively show:
– A 10% change in the average cost of claims would impact the gross provision by approximately £1.0m
– A 20% change in the level of larger value claims would impact the gross provision by approximately £0.7m
– An increase in the duration over which claims are received of 10% would increase the gross provision by approximately £1.9m.

Assumptions are determined with reference to historical information and trends experienced to date, combined with specialist views on future outlook. As assumptions can vary individually or in combination, over the longer term there can be no guarantee that the assumptions used to estimate the provision will result in an accurate prediction of the actual costs that may be incurred.

220

1. Provisions continued

30.2 Analysis of provisions continued

Disposal, closure and environmental charges continued

As the resolution of many of the obligations for which provision is made is subject to legal or other regulatory process, the timing of the associated cash outflows is also subject to some uncertainty. However, the majority of the amounts provided are expected to be utilised over the next ten years. The provision, underlying estimates of costs and associated insurance estimates are regularly assessed, to reflect any changed circumstances with regard to individual matters. Any movements impacting the Income Statement are included within headline performance.

As set out above, where insurance cover exists for any of these known or probable costs, a related asset is recognised in the Group Balance Sheet only when its value can be reliably measured and reimbursement is considered to be virtually certain by management. As at 31 December 2021, £14.4m (2020: £12.4m) was recorded in other receivables in respect of associated insurance reimbursements, of which £12.4m (2020: £10.4m) is non-current.

In addition, this provision covers the estimate of costs to be payable both in the fulfilment of obligations incurred in connection with former Group businesses, resulting from either disposal or closure, together with those related to the demolition and clean-up of closed sites. The Group owns a number of disused properties in the US, which do not form part of our trading operations. In 2020, costs of £10.3m (2021: nil) were incurred at one of these sites to address the significant increase in the volume of water run-off occurring in recent years. We engaged waste management specialists and have taken actions to reduce the level of water. We are in contact with the relevant regulatory authorities and are currently implementing remediation solutions, including the installation of a treatment facility. These non-recurring costs were treated as a separately reported item in 2020. There was no impact upon headline performance.

Restructuring charges provisions

The provision for restructuring charges includes the costs to complete the Group’s major restructuring programmes. The majority of this balance of £5.0m as at 31 December 2021 (2020: £9.2m) is expected to be paid out over the next two years.

Other

Other provisions comprise amounts payable in respect of known or probable costs resulting from legal or other regulatory requirements, workers’ compensation and medical claims, and from third-party claims. As the settlement of many of the obligations for which provision is made is subject to reasonable assumptions, legal or other regulatory process, the timing of the associated outflows is subject to some uncertainty, but the majority of amounts provided are expected to be utilised over the next two years and the underlying estimates of costs are regularly updated to reflect changed circumstances with regard to individual matters. During 2021, the Group recognised net charges of £9.2m (2020: £11.8m) in the Group Income Statement to provide for various medical benefits and other claims. The Group has considered the impact of climate change on provisions including decommissioning or environmental rehabilitation and there have been no material changes needed to amounts already provided.

31.# Notes to the Group Financial Statements continued

32. Contingent Liabilities

Details of guarantees given by the Company, on behalf of the Group, are given in Note 11 to the Company Financial Statements. 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 the 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 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 year.

33. Investments in Subsidiaries, Joint Ventures and Associates

33.1 Investment in subsidiaries

A subsidiary is an entity over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and can affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The subsidiaries, joint ventures and associates of Vesuvius plc and the countries in which they are incorporated are set out below. With the exception of Vesuvius Holdings Limited, whose ordinary share capital was directly held by Vesuvius plc, the ordinary capital of the companies listed below was wholly owned by a Vesuvius plc subsidiary as at 31 December 2021.

Company legal name	Registered office address	Jurisdiction
Advent Process Engineering Inc.	333 Prince Charles Drive, Welland, Ontario, L3B 5P4	Canada (Ontario)
BMI Refractory Services Inc.	600 N 2nd Street, Suite 401, Harrisburg, PA 17101-1071	US (Pennsylvania)
Brazil 1 Limited	165 Fleet Street, London, EC4A 2AE	England
CCPI Inc.	Suite 201, 910 Foulk Road, Wilmington, New Castle, DE 19803	US (Delaware)
Cookson Dominicana, SRL	Km 7 1/2, Autopista San Isidro, Edificio Modelo A, Zona Franca San Isidro, Santo Domingo Oeste	Dominican Republic
East Moon Investment (HK Holding) Company Limited	Unit 01, 82/F, International Commerce Centre, 1 Austin Road West, Kowloon	Hong Kong
Flo-Con Holding, Inc.	CT Corporation, 1209 Orange Street, The Corporation Trust Company, Wilmington, DE 19801	US (Delaware)
Foseco (FS) Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire, S43 4XA	England
Foseco (Jersey) Limited	44 Esplanade, St Helier, JE4 9WG	Jersey
Foseco (UK) Limited	165 Fleet Street, London, EC4A 2AE	England
Foseco Canada Limited	181 Bay Street, Suite 1800, Toronto, Ontario, M5J 2T9	Canada (Ontario)
Foseco Espanola S.A.	5, Barrio Elizalde, Izurza, Bizkaia, 48213	Spain
Foseco Foundry (China) Co Limited	Room 819, Shekou Zhaoshang Building, Nanshan District, Shenzhen, Guangdong, 518067	China
Foseco Fundición Holding (Espanola), S.L.	5, Barrio Elizalde, Izurza, Bizkaia, 48213	Spain
Foseco Holding (Europe) Limited	165 Fleet Street, London, EC4A 2AE	England
Foseco Holding (South Africa) (Pty) Limited	12 Bosworth Street, Alrode, Alberton, 1449	South Africa
Foseco Holding BV	Rivium Boulevard 301, Capelle aan den Ijssel, Rotterdam 2909LK	Netherlands
Foseco Holding International Limited	165 Fleet Street, London, EC4A 2AE	England
Foseco Holding Limited	165 Fleet Street, London, EC4A 2AE	England
Foseco Industrial e Comercial Ltda	Km 15, Rodovia Raposo Tavares, Butanta Cep, São Paulo, 05577-100	Brazil
Foseco International Holding (Thailand) Limited	170/69, 22nd Floor Ocean Tower 1, Ratchadapisek Road, Klongtoey, Bangkok, 10110	Thailand
Foseco International Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire, S43 4XA	England
Foseco Japan Limited	9th Floor, Orix Kobe Sannomiya Building, 6-1-10, Goko dori, Chuo-ku, Kobe Hyogo, 651-0087	Japan
Foseco Korea Limited	74 Jeongju-ro, Wonmi-gu, Bucheon-si, Gyeonggi-do, 14523	South Korea
Foseco Limited	165 Fleet Street, London, EC4A 2AE	England
Foseco Metallurgical Inc.	CT Corporation, 1209 Orange Street, The Corporation Trust Company, Wilmington, DE 19801	US (Delaware)
Foseco Nederland BV	Binnenhavenstraat 20, 7553 GJ Hengelo (OV)	Netherlands
Foseco Overseas Limited	165 Fleet Street, London, EC4A 2AE	England
Foseco Philippines Inc.	Unit 401, 4th Floor 8 Antonio Centre, Prime St. Madrigal Business Park 2, Ayala Alabang Muntinlupa City, 1770	Philippines
Foseco Portugal Produtos Para Fundição Lda	Rua Manuel Pinto de Azevedo, No 626 4100-320 Porto	Portugal
Foseco S.A.S.	Le Newton C, 7 Mail Barthélémy Thimonnier, 77185 Lognes	France
Foseco Steel (UK) Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire, S43 4XA	England
Foseco Technology Limited	165 Fleet Street, London, EC4A 2AE	England
J.H. France Refractories Company	CT Corporation, 1209 Orange Street, The Corporation Trust Company, Wilmington, DE 19801	US (Delaware)
John G. Stein & Company Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire, S43 4XA	England
Mainsail Insurance Company Limited	Victoria Place, 5th floor, 31 Victoria Street, Pembroke, Hamilton, HM 10	Bermuda
Mascinco Empreendimentos e Participações Ltda	Avenida Brasil, 49550 – parte, Distrito Industrial de Palmares – Campo, Grande – Cep: 23065-480, Rio de Janeiro, RJ	Brazil
Mastercodi Industrial Ltda	Rodovia Raposo Tavares, KM15, Butantã, 05577-100, Butantã, São Paulo	Brazil
Mercajoya, S.A.	Capitán Haya, 56 – 1ºH, 28020 Madrid	Spain
Metal Way Equipamentos Metalurgicos Ltda	Estrada Santa Isabel, 7655 KM37, Bairro Do Una, Itaquaquecetuba, São Paulo – SP, CEP: 08580 000	Brazil
New Foseco (UK) Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire, S43 4XA	England
Process Metrix, LLC	6622 Owens Drive, Pleasanton, CA 94588	US (California)
PT Foseco Indonesia	Jl Rawa Gelam 2/5, Kawasan Industri, Pulogadung, Jakarta, 13930	Indonesia
PT Foseco Trading Indonesia	Jl Rawa Gelam 2/5, Kawasan Industri, Pulogadung, Jakarta, 13930	Indonesia
Realisations 789, LLC	CT Corporation, 1209 Orange Street, The Corporation Trust Company, Wilmington, DE 19801	US (Delaware)
S G Blair & Company Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire, S43 4XA	England
SIDERMES Inc.	Business name Vesuvius Sensors and Probes 175 montée, Calixa-Lavallée Verchêres, Québec J0L2R0	Canada
SIDERMES Do Brasil Sensores Termicos Ltda	Estrada Municipal PDD 436, S/N, Prédio ‘C’, Bairro da Boa Vista, Municipio de Piedade, Estado de São Paulo	Brazil
SIDERMES Latinoamericana CA	Zona Industrial, San Vicente Av., Anton Phillips Grupo Industrial, San Vicente Local 4, Maracay	Venezuela
SIDERMES S.A.	Urquiza 919 Piso 2 Rosario, Santa Fe, CP 2000	Argentina
SIR Feuerfestprodukte GmbH	Siegener Strasse 152, Kreuztal, D-57223	Germany
SOLED S.A.S.	Centre d’Activités Economiques Zone Industrielle de Franchepré 54240 Joeuf	France
Veservice Ltda	Av Brasil, 49550, Distrito Industrial de Palmares, Campo Grande, Rio de Janeiro, 23065-480	Brazil
Vesuvius (Thailand) Co., Limited	170/69, 22nd Floor Ocean Tower 1, Ratchadapisek Road, Klongtoey, Bangkok, 10110	Thailand
Vesuvius (V.E.A.R.) S.A.	Street Urquiza, 919,Floor 2, Rosario, Provincia de Santa Fé	Argentina
Vesuvius Advanced Ceramics (China) Co., Limited	221 Xing Ming Street, China- Singapore Suzhou Ind Park, Suzhou, Jiangsu Province, 215021	China
Vesuvius America, Inc.	1209 Orange Street, Wilmington, DE 19801	US (Delaware)
Vesuvius Australia (Holding) Pty Limited	40-46 Gloucester Boulevarde, Port Kembla, NSW, 2505	Australia
Vesuvius Australia Pty Limited	40-46 Gloucester Boulevarde, Port Kembla, NSW, 2505	Australia
Vesuvius Belgium N.V.

33.1 Investment in subsidiaries continued

Company legal name	Registered office address	Jurisdiction
Vesuvius Belgium	Zandvoordestraat 366, Oostende, B-8400, Belgium	Belgium
Vesuvius Canada Inc	181 Bay Street, Suite 1800, Toronto, Ontario, M5J 2T9, Canada	Canada
Vesuvius Ceramics Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius China Holdings Co. Limited	Unit 01, 82/F International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong	Hong Kong
Vesuvius China Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Colombia S.A.S.	Calle 26 No. 102-20 Floor 3, Bogota, Colombia	Colombia
Vesuvius Corporation S.A.	Via Nassa 17, Lugano, CH 6900, Switzerland	Switzerland
Vesuvius CSD Sp z.o.o.	ul. Jasnogórska 11, Kraków, 31-358, Poland	Poland
Vesuvius Emirates FZE	Warehouse No: 1J-09/3, P O Box 49261, Hamriyah Free Zone, Sharjah, United Arab Emirates	United Arab Emirates
Vesuvius Europe Beteiligungs GmbH	Geschaftsanschrift, Schieferbank 2-16, 45472 Mülheim an der Ruhr, Germany	Germany
Vesuvius Europe GmbH & Co KG	Geschaftsanschrift, Schieferbank 2-16, 45472 Mülheim an der Ruhr, Germany	Germany
Vesuvius Europe S.A.	17 Rue de Douvrain, Ghlin, 7011, Belgium	Belgium
Vesuvius Europe S.A.S.	3, Avenue De L’europe, Parc Les Pivolles, 69150 Décines-Charpieu, France	France
Vesuvius Financial 1 Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Finland OY	Pajamäentie 8D7, 00360 Helsinki, Finland	Finland
Vesuvius Foundry Products (Suzhou) Co. Limited	12 Wei Wen Road, China-Singapore Suzhou Ind Park, Suzhou, Jiangsu Province, 215122, China	China
Vesuvius Foundry Technologies (Jiangsu) Co. Limited	2 Changchun Road, Economic Development Area, Changshu, Jiangsu, 215537, China	China
Vesuvius France S.A.	Rue Paul Deudon 68, Boite Postale 19, Feignies 59750, France	France
Vesuvius GmbH	Gelsenkirchener Strasse 10, Borken, D-46325, Germany	Germany
Vesuvius Group Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Group S.A.	17 Rue de Douvrain, Ghlin, 7011, Belgium	Belgium
Vesuvius Holding Deutschland GmbH	Gelsenkirchener Strasse 10, Borken, D-46325, Germany	Germany
Vesuvius Holding France S.A.S.	68 Rue Paul Deudon, Boite Postale 19, Feignies 59750, France	France
Vesuvius Holding Italia – Società a Responsabilità Limitata	Via Mantova 10, 20835 Muggio MB, Italy	Italy
Vesuvius Holdings Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Ibérica Refractarios S.A.	Capitán Haya, 56 – 1ºH, 28020 Madrid, Spain	Spain
Vesuvius International Corporation	CT Corporation, 1209 Orange Street, The Corporation Trust Company, Wilmington, DE 19801, United States	US (Delaware)
Vesuvius Investments Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Istanbul Refrakter Sanayi ve Ticaret AS	Gebze OSB2 Mh. 1700., Sok No:1704/1, Cayirova, Kocaeli, 41420, Turkey	Turkey
Vesuvius Italia S.p.A.	Via Mantova 10, 20835 Muggio MB, Italy	Italy
Vesuvius Japan Inc.	9th Floor, Orix Kobe Sannomiya Building 6-1-10, Goko dori, Chou- ku, Kobe Hyogo, 651-0087, Japan	Japan
Vesuvius K.S.R. Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire S43 4XA, England	England
Vesuvius Life Plan Trustee Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius LLC	502, 5th Floor, 1 Myasicsheva str., Zhukovsky, Moscow region, 140180, Russian Federation	Russia
Vesuvius Malaysia Sdn Bhd	Unit 30-01, Level 30 Tower A, Vertical Business Suite Avenue 3, Bangsar South, No 8 Jalan Kirinchi, Kuala Lumpur Wilayah Persekutuan, 59200, Malaysia	Malaysia
Vesuvius Management Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Management Services Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Mexico S.A. de C.V.	Av. Ruiz Cortinez, Num. 140, Colonia Jardines de San Rafael, Guadalupe, Nuevo León, CP 67119, Mexico	Mexico
Vesuvius Mid-East Limited	56, rd 15, Apt 103, Maadi, Cairo, Egypt	Egypt
Vesuvius Moravia, s.r.o.	Konska c.p. 740, Trinec, 739 61, Czech Republic	Czech Republic
Vesuvius Mulheim Beteiligungs GmbH	Geschaftsanschrift, Schieferbank 2-16, 45472 Mülheim an der Ruhr, Germany	Germany
Vesuvius Mulheim GmbH & Co KG	Geschaftsanschrift, Schieferbank 2-16, 45472 Mülheim an der Ruhr, Germany	Germany
Vesuvius NC, LLC	Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, DE 19801, United States	US (Delaware)
Vesuvius New Zealand Limited	Bell Gully, Level 22, Vero Centre, 48 Shortland Street, Auckland, 1010 New Zealand	New Zealand
Vesuvius Overseas Investments Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Overseas Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Penn Corporation	CT Corporation, 1209 Orange Street, Wilmington, DE 19801, United States	US (Delaware)
Vesuvius Pension Plans Trustees Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Peru SAC	Jiron Saenz Pena 185, Magdalena del Mar, Lima, Peru	Peru
Vesuvius Poland Sp z.o.o.	Ul Tyniecka 12, Skawina, 32-050, Poland	Poland
Vesuvius Ras Al Khaimah FZ-LLC	Street No. F14, RAK Investment Authority Free Zone, Al Hamra, Ras Al Khaimah, PO Box 86408, United Arab Emirates	United Arab Emirates
Vesuvius Refractarios de Chile S.A.	Street San Martin 870, Room 308, Tower B, Concepcion, Chile	Chile
Vesuvius Refractories S.r.l.	Galati, Marea Unire avenue 107, Galati county, 800329, Romania	Romania
Vesuvius Refractory India Private Limited	Room No. 9, 3rd Floor, 7 Ganesh Chandra Avenue, Kolkata, WB 700013, India	India
Vesuvius Refratários Ltda	Av Brasil, 49550, Distrito Industrial de Palmares, Campo Grande, Rio de Janeiro, 23065-480, Brazil	Brazil
Vesuvius Scandinavia AB	4, Forradsgatan, Amal, S-662 34, Sweden	Sweden
Vesuvius Sensors & Probes Europe S.p.A.	10 Via Mantova, Muggio, Monza e Brianza, 20835, Italy	Italy
Vesuvius-SERT S.A.S.	3, Avenue de l’Europe, Parc, Les Pivolles, Decines-Charpieu 69150, France	France
Vesuvius Solar Crucible (Suzhou) Co., Ltd	1/F, building 3, No. 12, Weiwen Road China-Singapore Suzhou Ind Park, Suzhou, Jiangsu Province, 215122, China	China
Vesuvius South Africa (Pty) Limited	Pebble Lane, Private Bag X2, Olifantsfontein, Gauteng Province, 1665, South Africa	South Africa
Vesuvius Sp z.o.o.	ul. Jasnogórska 11, Kraków, 31-358, Poland	Poland
Vesuvius SSC Sp z.o.o.	ul. Jasnogórska 11, Kraków, 31-358, Poland	Poland
Vesuvius UK Limited	1 Midland Way, Central Park, Barlborough Links, Derbyshire, S43 4XA, England	England
Vesuvius Ukraine LLC	27, Udarnykiv Street, City of Dnipropetrovsk, 49000, Ukraine	Ukraine
Vesuvius USA Corporation	CT Corporation, 208 South LaSalle Street, Chicago, Cook County, IL 60604, United States	US (Illinois)
Vesuvius VA Limited	165 Fleet Street, London, EC4A 2AE, England	England
Vesuvius Vietnam Limited	7th Floor, Peakview Tower Building, No.36 Hoang Cau Street, O Cho Dua Ward, Don Da District, Hanoi City, Vietnam	Vietnam
Vesuvius Zyarock Ceramics (Suzhou) Co., Limited	1/F, building 3, No. 12, Weiwen Road China-Singapore Suzhou Ind Park, Suzhou, Jiangsu Province, 215122, China	China

The following subsidiary companies have branches registered in the named countries: Foseco (Jersey) Limited in England, Fosco Holding BV in England, Vesuvius LLC in Kazakhstan, Vesuvius UK Limited in Taiwan and Republic of Korea and Vesuvius International Corporation in Belgium.

33.2 Investment in joint ventures and associates

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of the arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control or joint control over those policies. The Group’s investments in its associates and joint ventures are accounted for using the equity method from the date significant influence/joint control is deemed to arise until the date on which significant influence/joint control ceases to exist or when the interest becomes classified as an asset held for sale. The Group Income Statement reflects the Group’s share of profit after tax of the related associates and joint ventures. Investments in associates and joint ventures are carried in the Group Balance Sheet at cost adjusted in respect of post-acquisition changes in the Group’s share of net assets, less any impairment in value.

	2021 £m	2020 £m
As at 1 January	12.1	12.7
Share of post-tax profit of joint ventures	1.3	1.1
Dividends received from joint ventures	(1.0)	(2.3)
Foreign exchange	0.4	0.6
As at 31 December	12.8	12.1

The investment in joint ventures and associates includes £12.3m (2020: £11.6m) in respect of joint ventures and £0.5m (2020: £0.5m) in respect of associates. Dividends received from joint ventures consists of £0.## 33. Investments in Subsidiaries, Joint Ventures and Associates

33.2 Investment in joint ventures and associate

Set out below is the summarised financial information for Wuhan Wugang-Vesuvius Advanced Ceramics Co., Limited, a joint venture that has transactions and balances which are material to the Group.

	2021 £m	2020 £m
Revenue	42.7	34.5
Depreciation	(0.9)	(0.9)
Trading profit	3.0	2.4
Net finance costs	–	–
Profit before tax	3.0	2.4
Income tax expense	(0.8)	(0.6)
Profit after tax	2.2	1.8
Non-current assets	7.3	7.5
Current assets	116.6	11.7
Non-current liabilities	–	–
Current liabilities	(7.8)	(4.2)
Net assets	16.1	15.0

1. Included in current assets are cash and cash equivalents of £3.2m (2020: £2.4m). The purpose of the Chinese joint venture companies is to research, develop, manufacture and sell refractory products. The role of Vesuvius is to provide technical personnel, training and access to the Group’s international sales network.

Name of entity	Registered address	Jurisdiction	2021 % ownership	2020 % ownership
Wuhan Wugang-Vesuvius Advanced CCR Co., Limited	Gongnong Village Qingshan District, Wuhan, Hubei Province, 430082, China	China	50	50
Wuhan Wugang-Vesuvius Advanced Ceramics Co., Limited	Gongnong Village Qingshan District, Wuhan, Hubei Province, 430082, China	China	50	50

Associates

Name of entity	Registered address	Jurisdiction	2021 % ownership	2020 % ownership
Sapotech Oy	Paavo Havaksen tie 5 D, 90570 Oulu, Finland	Finland	14.9	14.9
Newshelf 480 Proprietary Limited	144 Oxford Road, Rosebank, Melrose, Johannesburg, 2196, South Africa	South Africa	45	45

The Group is considered to hold significant influence over Sapotech Oy despite holding less than 20% of its shares because the agreement under which the Group invested in Sapotech Oy provides that the Group holds one of the four seats on the company’s board. This allows the Group to participate in policy-making processes and have additional controls over Sapotech Oy’s major decision-making that do not amount to control but give significant influence.

33.3 Non-controlling interests

Non-controlling interests represent the portion of the equity of a subsidiary not attributable either directly or indirectly to the Parent Company and are presented separately in the Group Income Statement and within equity in the Group Balance Sheet, distinguished from Parent Company shareholders’ equity. The total profit attributable to non-controlling interests as at 31 December 2021 is £5.8m (2020: £4.5m) of which £3.1m relates to Vesuvius India Limited (2020: £2.6m). The profit attributable to non-controlling interests in respect of the Group’s other subsidiaries is not considered to be material.

Name of entity	Registered address	Jurisdiction	2021 % ownership	2020 % ownership
Vesuvius India Limited	P-104 Taratala Road, Kolkata, 700 088, India	India	55.57	55.57
Foseco India Limited	922/923, Gat, Sanaswadi, Taluka, Shirur, Pune, 412208, India	India	74.98	74.98
Foseco Golden Gate Company Limited	6 Kung Yeh 2nd Road, Ping Tung Dist, Ping Tung, 90049, Taiwan	Taiwan	51	51
Foseco (Thailand) Limited	170/69, 22nd Floor Ocean Tower 1, Ratchadapisek Road, Klongtoey, Bangkok, 10110, Thailand	Thailand	74	74
Vesuvius Ceska Republika, a.s.	Prumyslová 726, Konská, Trinec, 739 61, Czech Republic	Czech Republic	60	60

As with Vesuvius plc, all of the above companies have a 31 December year-end. The summarised financial information for Vesuvius India Limited is presented below:

Summarised balance sheet

	2021 £m	2020 £m
Current assets	99.4	88.6
Current liabilities	(24.9)	(17.8)
Current net assets	74.5	70.8
Non-current assets	17.0	15.7
Non-current liabilities	(2.4)	(2.3)
Non-current net assets	14.6	13.4
Net assets	89.1	84.2
Accumulated NCI	(39.9)	37.8

Summarised statement of comprehensive income

	2021 £m	2020 £m
Revenue	102.5	82.8
Profit after tax	6.9	5.9
Profit allocated to NCI	3.1	2.6
Dividends paid to NCI	(0.6)	(0.7)

Summarised cash flows

	2021 £m	2020 £m
Cash flows from operating activities	4.0	12.7
Cash flows from investing activities	(3.1)	(1.4)
Cash flows from financing activities	(1.4)	(1.7)
Net increase/decrease in cash and cash equivalents	(0.5)	9.6

34. Related Parties

All transactions with related parties are conducted on an arm’s length basis and in accordance with normal business terms. Transactions between related parties that are Group subsidiaries are eliminated on consolidation. The related parties identified by the Directors include joint ventures, associates and key management personnel. To enable users of our financial statements to form a view on the effects of related party relationships on the Group, we disclose the related party relationship irrespective of whether there have been transactions between the related parties.

34.1 Transactions with joint ventures and associates

All transactions with joint ventures and associates are in the normal course of business. Transactions between the Group and its joint ventures and associates are disclosed below:

	2021 £m	2020 £m
Sales to joint ventures	4.8	3.8
Purchases from joint ventures	31.5	26.7
Purchases from associates	–	0.3
Dividends received	1.0	2.3
Trade payables owed to joint ventures	10.3	5.5
Trade receivables owed by joint ventures	1.3	0.6

Trade payables owed to joint ventures are settled net of trade receivables owed by joint ventures 60 days after the delivery of goods or services. There are no loans to and from joint ventures.

34.2 Transactions with key management personnel

There have been no transactions with key management personnel of the Group other than the Directors’ remuneration. Directors’ remuneration is disclosed in Note 8 to the Group Financial Statements and in the Directors’ Remuneration Report.

34.3 Transactions with other related parties

There are no controlling shareholders of the Group as defined by IFRS. There have been no material transactions with the shareholders of the Group. Pension contributions to Group schemes are disclosed in Note 26 to the Group Financial Statements. Other than the parties disclosed above, the Group has no other material related parties.

Company Balance Sheet

As at 31 December 2021

	Notes	2021 total £m	2020 total £m
Fixed assets
Investments	7	1,778.0	1,778.0
Total fixed assets		1,778.0	1,778.0
Current assets
Debtors – amounts falling due within one year		4.7	1.2
Cash at bank and in hand		–	–
Total current assets		4.7	1.2
Creditors – amounts falling due within one year
Bank loans and overdraft		–	(0.1)
Other creditors including taxation and social security	8	(979.8)	(955.4)
Net current liabilities		(975.1)	(954.3)
Total assets less current liabilities		802.9	823.7
Net assets		802.9	823.7
Equity capital and reserves
Called up share capital	9	27.8	27.8
Retained earnings	9	775.1	795.9
Total shareholders’ funds		802.9	823.7

Company number: 8217766

Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own income statement. During 2021, the Company recognised a profit of £32.7m (2020: £17.0m loss).# Vesuvius plc Annual Report and Financial Statements 2021

Company Statement of Changes in Equity

For the year ended 31 December 2021

Notes	Share capital £m	Retained earnings £m	Total £m
As at 1 January 2020	27.8	818.9	846.7
Comprehensive loss recognised for the year	–	(17.0)	(17.0)
Recognition of share-based payments	10	–	2.4
Dividend paid	6	–	(8.4)
As at 31 December 2020	27.8	795.9	823.7
As at 1 January 2021	27.8	795.9	823.7
Comprehensive income recognised for the year	–	32.7	32.7
Recognition of share-based payments	10	–	3.1
Purchase of ESOP shares	–	(1.1)	(1.1)
Dividend paid	6	–	(55.5)
As at 31 December 2021	27.8	775.1	802.9

Notes to the Company Financial Statements

1. General Information

Vesuvius plc (‘Vesuvius’ or ‘the Company’) is a public company limited by shares. It is incorporated and domiciled in England and Wales, United Kingdom, and listed on the London Stock Exchange. The nature of the company is a holding company. The address of its registered office is 165 Fleet Street, London EC4A 2AE.

2. Basis of Preparation

2.1 Basis of accounting

The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and the Companies Act 2006 as applicable to companies using FRS 101. The financial statements have been prepared under the historical cost convention. The results of the Company are included in the preceding Group Financial Statements. In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:

• A cash flow statement and related notes (IAS 1 para 10(d) and IAS 7)
• Disclosures in respect of capital management and financial instruments (IAS 1 paras 134–136 and IFRS 7)
• Disclosures in respect of related party transactions with wholly owned members of the Vesuvius plc Group (IAS 24)
• Disclosures in respect of the compensation of key management personnel (IAS 24 para 17)
• Disclosures in respect of fair value measurements (IFRS 13 paras 91–99)
• The effects of new but not yet effective IFRSs (IAS 8 paras 30–31).

Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own profit and loss account. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

2.2 Going concern

The Directors have a reasonable expectation 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 approval of these financial statements (disclosed in Note 2.3 to the Group Financial Statements) and that there is no material uncertainty in respect of going concern. The net current liabilities are due to amounts owed to subsidiary undertakings, therefore the Directors do not believe that they will affect the Company’s ability to continue in operational existence. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group and the Company.

2.3 Accounting policy

Taxation
Both current and deferred tax are calculated using tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date. Current tax payable is based on the taxable result for the year. Deferred tax is recognised, without discounting, in respect of all temporary differences that have originated, but not reversed, at the balance sheet date, with the exception that deferred taxation assets are only recognised if it is considered more likely than not that there will be suitable future profits from which the reversal of the underlying temporary differences can be deducted. Provision is made for the tax that would arise on remittance of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable. All other accounting policies are set out within the respective notes.

3. Critical Accounting Judgements and Estimates

Impairment of investment in subsidiaries and other companies (estimate and judgement)
For the below estimate, the Group does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the reporting period, that are reasonably expected to have a significant risk of causing a material adjustment to the carrying amounts of assets/liabilities within the next financial year. Nonetheless, this estimate has the potential to materially vary over time and is therefore highlighted. The Company assesses its investments in subsidiaries and other companies for impairment shortly before the Company’s year-end or whenever events or changes in circumstances indicate that the recoverable amount of the investment could be less than the carrying amount of the investment. If this is the case, the investment is considered to be impaired and is written down to its recoverable amount. Judgement is required in the determination of the recoverable amount as the Company evaluates various factors related to the operational and financial position of the relevant investee business, appropriate discounting and long-term growth rates. The annual investment impairment test is described in Note 7.3 below.

4. Employee Benefits Expense

	2021 £m	2020 £m
Wages and salaries	2.8	2.5
Social security costs	0.4	0.5
Share-based payments	0.1	1.3
Total employee benefits expense	3.3	4.3

The total average number of employees for 2021 was 3 (2020: 3). As at 31 December 2021, the Company had 3 (2020: 3) employees. Details of the Directors’ remuneration are disclosed in the Directors’ Remuneration Report on pages 144 and 145.

5. Audit and Non-Audit Fees

Amounts payable to PricewaterhouseCoopers LLP in relation to audit and non-audit fees are disclosed within Note 6 to the Group Financial Statements.

6. Dividend Paid

	2021 £m	2020 £m
Amounts recognised as dividends and paid to equity shareholders during the year
Interim dividend for the year ended 31 December 2020 of 3.1p per ordinary share	–	8.4
Final dividend for the year ended 31 December 2020 of 14.3p per ordinary share	38.7	–
Interim dividend for the year ended 31 December 2021 of 6.2p per ordinary share	16.8	–
	55.5	8.4

A proposed final dividend for the year ended 31 December 2021 of £40.5m (2020: £38.7m), equivalent to 15.0 pence (2020: 14.3 pence) per ordinary share, is subject to approval by shareholders at the Company’s Annual General Meeting on 18 May 2022 and has not been included as a liability in these financial statements. If approved by shareholders, the dividend will be paid on 27 May 2022 to holders of ordinary shares on the register on 19 April 2022.

7. Investments

7.1 Accounting policy

Shares in subsidiaries, associates and joint ventures are stated at cost less any impairment in value. Impairment is assessed in accordance with Note 17.1 to the Group Financial Statements.

7.2 Analysis of investments

	Shares in subsidiaries £m
As at 1 January 2021 and 31 December 2021	1,778.0

The subsidiaries, joint ventures and associates of Vesuvius plc, their country of incorporation and percentage ownership are set out in Note 33 to the Group Financial Statements. With the exception of Vesuvius Holdings Ltd, whose ordinary share capital was directly held by Vesuvius plc, the ordinary share capital of the other companies was owned by a Vesuvius plc subsidiary as at 31 December 2021.

7.3 Impairment of investment in subsidiaries, associates and joint ventures

The Group carried out its investment impairment test as at 31 October 2021. The recoverable amount of the investment exceeded its carrying value, therefore no impairment charges have been recognised. No further impairment indicators were identified up to 31 December 2021. The cash flow predictions are based on financial budgets and strategic plans approved by the Board.Thes e assu me a l evel of revenue and prot s whic h are bas ed on both pa st pe r for ma nce and exp ec t at io ns for fut ure marke t deve lo pm ent and take int o accou nt the cyc lica li t y of t he bus ine ss in whic h th e Group ope rat es . In a ss es si ng the cash ow s of t he Parent ’s i nves t me nt in i t s sub sid iar ie s, t he am oun t s pa yabl e by th e Pare nt to su bsi dia rie s are a ls o taken i nto ac coun t. A sens it iv it y analy si s was ca rri ed o ut usi ng re aso na bl y po ssi bl e cha ng es to t he key as su mpt io ns se t ou t in N ote 1 7 .2 t o th e Gro up Fi nan cia l Stat em ent s . No s cen ari os of imp air me nt were iden ti e d.

8. Other Creditors including T axation and S ocial Security

	2021 £m	2020 £m
Amounts owed to subsidiary undertakings	977.4	953.5
Accruals and other creditors	2.4	1.9
Total amounts falling due within one year	979.8	955.4

Am oun t s owed to subsi dia r y unde r ta ki ngs are inter es t free, have no xed dat e of re pa ym ent and are repa yabl e on dem an d.

9 . Issued Share Capital and R etained Earnings

9.1 Accounting policy

Equi t y in st ru me nt s is sue d by th e Com pa ny are reco rde d at t he p roc ee ds re ceiv ed, n et of d ire c t is sue co st s .

9.2 A na ly si s of i s su ed s h ar e cap it al

The all ot t ed, i ss ue d and f ull y pa id o rdin ar y s hare ca pi tal of t he Co mp any as a t 1 Ja nua r y 2021 and 31 Dece mb er 2021 was 278,485, 071 sha res of £0. 10 e ach . 7 , 271 , 1 7 4 (2020: 7 , 271 , 1 7 4 ) sha res of £0. 10 e ach we re he ld in T re asu r y and 8 8 4, 856 (2020: 1 , 093,0 98) share s of £0. 10 each we re he ld by t he Vesu viu s Gro up em ploy ee sh are ow ne rs hip p la n tr us t (ESOP) . The C omp any has on e cla ss of share s in issu e, ordin ar y shar es . Al l sha reh ol de r s enjoy th e same righ t s in rela ti on to thes e share s, incl udi ng rig ht s in re la ti on to vo tin g at G e ne ral Me et in gs of t he Co mpa ny , di s tr ibu t ion of d iv id end s an d rep ay men t of cap ita l.

9.3 Distr ibutabl e r eserves

The Comp any had dis t rib ut abl e reser ves in e xces s of £ 7 65m as at 3 1 Dece mb er 202 1 (202 0: £796m) , subj ec t to ling th es e n anc ial sta te me nt s wit h Compa nie s Hous e. When mak ing a dist ri bu t ion to s ha reho ld er s , th e Direc to r s de ter min e prot s ava ila bl e for dis tr ib ut io n by referen ce to g uid an ce on real ise d and dis tri bu tab le pro t s unde r the Compa nie s Ac t 20 06 is sue d by th e Ins t it ut e of Cha r te red A ccoun tan ts i n Eng lan d an d Wales a nd t he In st i tu te of Ch ar t ere d Accou nta NTs of Sco tl and i n Ap ril 201 7 . Th e pro t s of t he Comp any have be en recei ved in the form of divi den ds from subs idi ar ies and thro ug h cour t - app roved capi tal red uc t ion . The avail abi li t y of d is tr ibu ta bl e res er ve s in th e Company is dep end en t on t ho se div id end s meet in g the de ni tio n of qua lif ying co nsi de rat io n wi th in th e gui da nce an d on a vail ab le ca sh res ou rces of t he G rou p and o th er a cces sib le s ou rces of f un ds . Th e dis t rib ut abl e rese r ve s are subj ec t to any fut ure res tr ic t ion s or l imi ta ti on s at th e ti me such dis tr ibu t ion is made .

Notes to the C ompan y Financial S tatements continued
234 V esuvius plc Annual Report and Financia l S tatements 2 02 1

10. Rec ogn iti on o f Sha re -b as ed Pay me nt s

10.1 Accounting polic y

The Comp any o pe rate s an e qui t y- se t t le d sha re-b as ed p ay me nt ar rang em ent f or i t s emp loye es . Equi t y-s et tle d sh are-b as ed pa ym ent s ar e me asure d a t fair va lu e at t he d ate o f gran t. For grant s w it h ma rket-bas ed co nd it io ns at tach ed to t he m, su ch as tota l sha reh ol de r ret urn , fair va lu e is me asu red u sin g a for m of s toc has t ic o pti on p ric ing mo del . For gra nt s wi th n on -mar ket- ba se d cond it io ns , such a s grow th in he ad lin e ea rni ngs p er s ha re, fair v alu e is me asu red u sin g th e Bl ack- Sch ole s op ti on p ric ing mo de l. Th e fair v alu e is e xp ens ed o n a s trai ght-lin e ba sis o ver t he ve s tin g pe ri od w it h a cor res po ndi ng in cre as e in eq ui t y. Th e cumu la ti ve exp ens e recog nis ed is adjus te d for the bes t es tim at e of t he shar es tha t will event ua lly ves t. Th e Comp any re cha rge s it s su bsi dia rie s fo r th e IFRS 2 e xp en se re la ti ng to t he ir e mpl oyee s on a n annu al b asi s.

10.2 Prot a nd lo s s a cc oun t re cog ni ti on

The Comp any o pe rate s a nu mbe r of di f fe rent s ha re-b as ed p ay me nt sc hem es , th e ma in fe at ure s of wh ich a re de tail ed i n th e Di rec to rs ’ Remune ra tio n Repo r t and Note 2 7 to t he Grou p Finan cia l S t at eme nt s . A tot al of £0. 1m was cha rge d to the prot and lo ss accou nt in t he year wi th reg ard to s hare -b ase d pay me nt s ( 2020: £1 .3 m ).

10.3 Details of outs tanding opt ions

	As at 1 Jan 2021	Granted	Exercised	Forfeited/ lapsed	Expired	As at 31 Dec 2021	Awards exercisable as at 31 Dec 2021	Weighted average outstanding contractual life of awards years	Range of exercise prices pence
Number of outstanding awards
LTIP	1,110,699	391,786	(5,955)	(295,946)	nil	1,200,584	_	8.3	n/a
Weighted average exercise price	nil	nil	nil	nil	nil	nil	_	n/a
Other plans	89,309	15,523	(28,246)	–	nil	76,586	_	0.8	n/a
Weighted average exercise price	nil	nil	nil	nil	nil	nil	–	n/a

For t he aw ards e xerc ise d dur in g 2021 , th e mar ket val ue a t th e da te of e xerci se wa s 531 p en ce p er sh are.

	As at 1 Jan 2020	Granted	Exercised	Forfeited/ lapsed	Expired	As at 31 Dec 2020	Awards exercisable as at 31 Dec 2020	Weighted average outstanding contractual life of awards years	Range of exercise prices pence
Number of outstanding awards
LTIP	872,737	481,238	(243,276)	–	nil	1,110,699	–	8.4	n/a
Weighted average exercise price	nil	nil	nil	nil	nil	nil	–	n/a
Other plans	76,920	12,389	–	–	nil	89,309	–	0.5	n/a
Weighted average exercise price	nil	nil	nil	nil	nil	nil	–	n/a

For op ti ons e xerc is ed du rin g 2020, th e mar ket val ue a t th e da te of e xerci se ra nge d fro m 351 p en ce to 395 pen ce. Details o f market per formance c onditions are included in the Directors’ Rem uneration Report. A s at 31 De cemb e r 202 1 , t he t otal o pt io ns exe rcis ab le by al l Gro up em pl oyee s over t he £0. 10 ordin ar y s ha res an d cap abl e of be ing sa ti s ed th roug h new all ot men t s of share s or t hro ugh sha res hel d by t he Comp any ’s ESOP were as f oll ow s:

	Years of award/grant	Option prices	Latest year of exercise/ vesting	Number of options/ allocations outstanding
Long-Term Incentive Plan	2019–2021	nil	2031	1,939,964
Medium-Term Incentive Plan	2020–2021	nil	2023	472,447
Deferred Share Bonus Plan	2019–2021	nil	2024	76,586

235 Our business Our pe r formance Sustainabilit y G overnance Financial Statements

10. Share-based P ayments continued

10.3 Det ai l s of ou t st an di ng o pt io n s continued

Fair valu e of opti ons gran ted und er the L TIP duri ng the year :

	2021
EPS element	538p
TSR element	340p
Fair value of options granted
Share price on date of grant	538p
Expected volatility	n/a
Risk-free interest rate	n/a
Exercise price (per share)	nil
Expected term (years)	3
Expected dividend yield	nil

V e s ti ng of 5 0% of s ha res a ward ed is b as ed o n th e Gro up’s thre e-ye ar tot al sh are hol de r ret ur n (TSR) p er fo rm ance r ela t ive to t ha t of t he con st i tu ent co mp ani es of t he F TSE 25 0 ( excl udi ng inv es tm en t tr us t s ) and v es ti ng of t he re ma ini ng 50 % of s hare s awa rde d is b ase d on h ea dli ne EPS g row t h. Ex pe c te d vola til it y wa s dete rmi ned by calcul at in g th e hist ori cal vola t ili t y of th e Group’s s har e pri ce over the 2.8 years (20 20: 2.8 ye ar s) prio r to th e gran t da te fo r th e Marc h 2020 grant. The r isk- f ree ra te of r et urn wa s as sum ed t o be t he y iel d to m at uri t y o n a UK  xed gil t wi th th e ter m to m at ur it y eq ual to the exp ec te d life of th e opti on. At th e discre ti on of th e Remune rat io n Commi t te e, awa rd hol de rs r ecei ve t he val ue of d iv ide nd s th at wo ul d ha ve be en p aid o n th ei r ves te d sh are s in th e pe ri od b et ween gra nt an d ves t ing . Acco rdin gly, ther e is no d isco unt t o th e valu at io n for d iv ide nd s fore go ne du rin g th e ve st in g pe ri od.

11 . Con tingent Liabi lities

Wh ere the Comp any ente rs into n anc ial guara nte e contra c t s to gu aran te e th e inde bte dne s s of othe r compa nie s wit hin it s Gro up, th e Com pany co nsi de rs t he se t o be in sura nce ar ran gem en t s and a ccoun t s fo r t he m as su ch. In t hi s resp e c t, the Co mpa ny tre at s t he g uara nte e cont rac t a s a con tin ge nt li ab ili t y un ti l such t im e as i t be com es p rob ab le t ha t th e Comp any w ill b e req uire d to make a p ay men t un der t he g uara nte e. G uara nte es p rovid ed by t he C omp any as a t 31 Dece mb er 2021 in res pe c t of t he li abi li ti es of it s su bsi dia r y com pa nie s amo unt ed to £4 1 8. 8m (2020: £362.7 m) , whi ch in clu de s g uara nte es of $1 4 6.0 m, € 1 98 .0 m an d £28. 0m (202 0: $1 4 6. 0m an d €1 8 0. 0 m ) in respe c t of US P ri vate Pl ace me nt Loan No tes; £76. 9m (2 020: £53.5m) in resp e c t of draw in gs und er th e sy ndi ca ted ban k facili t y ; £32. 9m ( 2020: £32. 9m) in res pe c t of a guara nte e provid ed to the Comp any ’s UK su bsi di ar y whi ch ac t s as T r us tee for the Gro up’s UK pe nsi on pla n; £ 2.6 m (2020: £ 7 .0 m) i n respe c t of g uara nte es iss ue d to cer tai n bank s cover ing t he ir e xp osu re on d eri va ti ve cont rac t s g over ne d by ISDA agre em ent s; a nd £4. 1m ( 2020: £1. 7m ) in re sp ec t o f overdra f t faci li ti es u ti lis ed by ce r ta in of t he Co mp any ’s sub sid iar y compa nie s.The guarantee in respect of the UK pension plan is overall present and future pension liabilities of the plan and the contingent liability amount represents the net deficit on a buy-out basis as shown in the most recent valuation. Vesuvius has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation and environmental matters. Several of the Company’s subsidiaries are parties to legal proceedings, certain of which are insured claims arising in the ordinary course of the operations of the company involved, and are aware of a number of issues which are, or may be, the subject of dispute with tax authorities. Whilst the outcome of litigation and other disputes can never be predicted with certainty, having regard to legal advice received and the insurance arrangements of the Company and its subsidiaries, the Directors believe that none of these matters will, either individually or in the aggregate, have a materially adverse effect on the Company’s financial condition or results of operations.

Notes to the Company Financial Statements continued

12. Related Parties

All transactions with related parties are conducted on an arm’s-length basis and in accordance with normal business terms. Transactions between related parties that are wholly owned Company subsidiaries are not disclosed in this Note. The related parties identified by the Directors include joint ventures, associates and key management personnel. To enable users of our financial statements to form a view on the effects of related party relationships on the Company, we disclose the related party relationship, irrespective of whether there have been transactions between the related parties.

Transactions with joint ventures and associates

All transactions with joint ventures and associates are in the normal course of business. Further details of joint ventures and associates are included in Note 33 to the Group Financial Statements.

Transactions with key management personnel

There have been no transactions with key management personnel of the Company other than the Directors’ remuneration. Directors’ remuneration is disclosed in the Annual Report on Directors’ Remuneration.

Transactions with other related parties

There are no controlling shareholders of the Company as defined by IFRS. There have been no material transactions with the shareholders of the Company. Pension contributions are disclosed in Note 26 to the Group Financial Statements. Other than the parties disclosed above, the Company has no other material related parties.

Five-Year Summary: Divisional Results from Continuing Operations (Unaudited)

	Steel Division
	2021	2020	2019	2018	2017
Revenue £m	1,171.5	1,045.4	1,195.3	1,236.7	1,148.7
Trading profit £m	102.0	76.4	120.1	128.3	100.4
Return on sales %	8.7	7.3	10.0	10.4	8.7
Employees: year-end no.	8,323	7,619	7,677	7,766	7,930
	Foundry Division
	2021	2020	2019	2018	2017
Revenue £m	471.4	412.9	515.1	561.3	535.2
Trading profit £m	40.4	25.0	61.3	68.9	65.1
Return on sales %	8.6	6.1	11.9	12.3	12.2
Employees: year-end no.	2,881	2,735	2,819	3,043	3,080

Shareholder Information

Enquiries

The share register is managed by Equiniti, who can be contacted if you have any Vesuvius shareholding queries.

Equiniti Limited
Aspect House, Spencer Road
Lancing, West Sussex, BN99 6DA
United Kingdom

Telephone* 0371 384 2335 (UK only)
+44 121 415 7047 (Outside the UK)
Website: www.shareview.co.uk
Email: customer@equiniti.com

For the hard of hearing, Equiniti offers a Textel service which can be accessed by dialling 0371 384 2255 (or +44 121 415 7028 if calling from outside the UK).

Any shareholder enquiries not related to the share registers should be sent by email to shareholder.information@vesuvius.com or by letter to the Company Secretary at the registered office.

Registered Office and Group Head Office
Vesuvius plc
165 Fleet Street
London EC4A 2AE
United Kingdom

Telephone: +44 (0)20 7822 0000

Registered in England and Wales No. 8217766
LEI: 213800ORZ521W585SY02

Vesuvius Website

Shareholder and other information about the Company, including details of the current and historical share price, can be accessed on the Vesuvius website: www.vesuvius.com. You can view the online Annual Report 2021 on the website.

Shareview and Electronic Communication

Equiniti’s website, www.shareview.co.uk, enables shareholders to register online to view details of their shareholdings. To access online information on your shareholding, you will require your shareholder reference number, which can be found at the top of your share certificate or on your dividend confirmation. The Shareview website provides answers to frequently asked questions and information useful for the management of investments, including indicative share valuations and dividend payment details.

Shareholders can register on Shareview to receive shareholder communications electronically, including the Company’s Annual Report and Financial Statements, rather than receiving them in paper form. The registration process requires shareholders to input their shareholder reference number. To receive shareholder communications in electronic form, shareholders should select ‘email’ as their mailing preference. Once registered, shareholders will receive an email notifying them each time a shareholder communication has been published on the Vesuvius website.

Share Dealing Service

The Company’s shares can be traded through most banks, building societies or stock brokers. UK resident shareholders can also buy and sell shares by telephone or on line using Equiniti’s Shareview dealing service.

Telephone: 0345 603 7037 between 8.00 am and 4.30 pm on any business day (excluding public holidays in England and Wales)
Website: www.shareview.co.uk/dealing
Email: sharedealing@equiniti.com

The shareholder reference number (at the top of your share certificate or on your dividend confirmation) is required to use the dealing service.

ShareGift

ShareGift, the charity share donation scheme, is a free service for shareholders wishing to give shares to a wide range of UK charitable causes. It is particularly useful for those shareholders who may wish to dispose of a small quantity of shares where the market value makes it uneconomic to sell on a commission basis. Further information can be obtained from ShareGift.

Telephone: +44 (0)20 7930 3737
Website: www.sharegift.org
Email: help@sharegift.org

Dividend Reinvestment Plan

Equiniti offers a dividend reinvestment plan through which shareholders can use their Vesuvius cash dividends to buy additional shares in Vesuvius. Further details, including how to sign up and the terms and conditions of the plan, are available from the Share Dividend Helpline.

Telephone: 0371 384 2335 (or +44 121 415 7047 if calling from outside the UK)
Website: www.shareview.co.uk

Overseas Payment Service

Equiniti provides a dividend payment service in over 90 countries that automatically converts dividend payments into local currency and pays the funds into a shareholder’s bank account. Further details, including an application form and the terms and conditions of the service, are available from Equiniti.

Telephone: +44 (0)121 415 7047
Website: www.shareview.co.uk

By post: Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom

Please quote Overseas Payment Service, the Company’s name and your shareholder reference number.

Financial Calendar 2022

Annual General Meeting 18 May 2022

• Lines are open Monday to Friday 8.30 am to 5.30 pm (excluding public holidays in England and Wales).

Analysis of Ordinary Shareholders

Investor type	Shareholdings
	As at 31 December 2021	Private	Institutional and other	Total
Number of holders	1 – 1,000	2,362	519	2,881
Percentage of holders	1,001 – 50,000	2,232	452	13
	50,001– 500,000	65
	500,001 +
	Percentage of holders	81.99 %	18.01 %	100 %
	Percentage of shares held	0.48 %	99.52 %	100 %
		77.47 %	15.69 %	4.58 %
		2.26 %
		0.11 %	1.34 %	7.98 %
		90.57 %

Share Fraud – Spot the Warning Signs

Investment scams are designed to look like genuine investments.# How to Avoid Share Fraud

Have you been…
– Contacted out of the blue?
– Promised tempting returns and told the investment is safe?
– Called repeatedly?
– Told the offer is only available for a limited time?

If so, you might have been contacted by fraudsters.

How to Avoid Share Fraud

1. Reject cold calls
   If you have been contacted by telephone, email or post, or via a third party or at a seminar or exhibition, with an offer to buy or sell shares, the chances are that it’s a high-risk investment or a scam. You should treat any offer with extreme caution. The safest thing to do is to ignore the approach and if you were contacted by phone to hang up on the call.

2. Check if the firm is authorised by the Financial Conduct Authority (FCA) and recorded on the Financial Services register at https://register.fca.org.uk/
   The Financial Services Register is a public record of all the firms and individuals in the financial services industry that are, or have been, regulated by the Prudential Regulation Authority and/or the FCA. If there are no contact details on the Register or if the firm claims the Register is out of date, call the FCA Consumer Helpline on 0800 111 6768. If you’re dealing with an overseas firm, you should check with the regulator in that country and also check the scam warnings from foreign regulators.

3. Get impartial advice
   Think about getting impartial financial advice before you hand over any money. Seek advice from someone unconnected to the firm that has approached you.

Reporting a Scam

If you suspect that you have been approached by fraudsters, please tell the FCA Consumer Helpline by contacting them on 0800 111 6768 (or +44 20 7066 1000 from outside the UK) or by using the share fraud reporting form at www.fca.org.uk/scams, where you can find out more about investment scams.

If you have lost money to investment fraud, you should report it to Action Fraud on 0300 123 2040 (or +44 300 123 2040 from outside the UK) or online at www.actionfraud.police.uk.

Find out more at www.fca.org.uk/scamsmart.

Our business

Our performance

Sustainability

Governance

Financial Statements

Glossary

5S
Five Steps to improve housekeeping and therefore workplace safety and efficiency: separate, sort, shine, standardise and sustain

8D
Eight Disciplines: an eight-step methodology to resolve customer, supplier and internal quality issues

AGM
Annual General Meeting

CG Statement
The Corporate Governance Statement

CO2
Carbon dioxide

CO2e
Carbon dioxide equivalent

Code
The UK Corporate Governance Code

Company
Vesuvius plc

CORE Values
The Group’s key values of Courage, Ownership, Respect and Energy

COVID-19
Coronavirus disease (COVID-19), the infectious disease caused by the newly discovered coronavirus, and the pandemic that has arisen from this

DO
Dangerous occurrence

DO FR
Dangerous occurrence frequency rate

DSBP
Deferred Share Bonus Plan

DTR
The Disclosure and Transparency Rules of the UK Financial Conduct Authority

EBITDA
Trading profit before depreciation and amortisation of non-acquired intangible charges

ECL
Expected Credit Loss

EEMEA
Eastern Europe, Middle East and Africa

EMEA
Europe, Middle East and Africa

EPS
Earnings per share

ESOP
Employee Share Ownership Plan

EU
European Union

EU27
The 27 European Union countries

FRC
Financial Reporting Council

FRS
Financial Reporting Standards

FTSE 250
Equity index whose constituents are the 101st to 350th largest companies listed on the London Stock Exchange in terms of their market capitalisation

FX
Foreign exchange

GEC
Group Executive Committee

GHG
Greenhouse gas

Group
Vesuvius plc and its subsidiary companies

IAS
International Accounting Standards

IFRS
International Financial Reporting Standards

KPI
Key Performance Indicator

LMS
Learning Management System

LTI
Lost time injury

LTIFR
Lost time injury frequency rate, a KPI which calculates the number of LTIs per million hours worked

Median
The middle number in a sorted list of numbers

MTI
Medically treated injury

MTIFR
Medically treated injury frequency rate

PwC
PricewaterhouseCoopers LLP

NAFTA
Canada, Mexico and USA

Ordinary share
An ordinary share of 10 pence in the capital of the Company

R&D
Research and development

Scope 1 emissions
Direct CO2 and CO2e emissions from owned or controlled sources

Scope 2 emissions
Direct CO2 and CO2e from indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the Company

Scope 3 emissions
All other direct CO2 and CO2e emissions that occur in the Company’s value chain

Senior Leadership Group
The Group Executive Committee plus the most senior Vesuvius managers worldwide, in terms of their contribution to the Group’s overall results and to the execution of the Group’s strategy. This group comprises between 150 and 160 members

Top Management
Key leadership roles reporting directly to members of the GEC

TSR
Total shareholder return

Turbo S
The Vesuvius safety training programme

UK GAAP
UK Generally Accepted Accounting Principles

VISO
Vesuvius Isostatic

VSP
Vesuvius Share Plan

Vesuvius plc Annual Report and Financial Statements 2021 | 239

Designed and produced by Friend | www.friendstudio.com
Print: Pureprint Group

This report has been printed on Image Indigo Offset which is FSC® certified and made from 100% Elemental Chlorine Free (ECF) pulp. The mill and the printer are both certified to ISO 14001 environmental management system. The report was printed by a CarbonNeutral® printer.

These images were taken by Vesuvius colleagues who were asked to submit photographs of different aspects of their work in a staff competition:

• Page 22: Photography by Sauga ta Datta, Process Specialist Dry Processes, Vesuvius Visakhapatnam
• Page 76: Photography by Michel Wissink, Development & Service Technician, Vesuvius Hengelo

Vesuvius plc Annual Report 2021 | Vesuvius plc | 165 Fleet Street | London EC4A 2AE | T +44 (0) 20 7822 0000 | www.vesuvius.com

Visit our online annual report at report2021.vesuvius.com