Vesuvius Regulatory News (VSVS)

29 July 2016

Half Year Results for the six months ended 30 June 2016

First half progress in a marginally firmer trading environment

Vesuvius plc, a global leader in molten metal flow engineering, announces its results for the six months ended

30 June 2016.

Financial summary

(1) Underlying basis is at constant currency and excludes separately reported items and the impact of acquisitions

(2) For definitions of non-GAAP measures, refer to the notes in the financial statements

(3) Headline results refer to continuing operations and exclude separately reported items

Key Points:

· Revenue, profit and return on sales in line with expectations

· Global steel and foundry markets showing signs of stabilisation; albeit mixed and at weak levels

· Improvement in revenue and margins compared to H2 2015

· Restructuring programme delivered £7.1m cost savings in H1 2016 vs 2015 cost base

· Total annual restructuring programme benefits increased to £25m by the end of 2017 at a total cost of £35m

· Improved debtor provision coverage of £3.7m

· Strong cash performance, with cash conversion of 111%

· Maintained interim dividend of 5.15 pence per share to be paid on 23 September 2016

François Wanecq, Chief Executive of Vesuvius, commented:

"We have delivered an encouraging result in the first half of 2016, with an improvement in financial performance relative to the second half of 2015. This reflects the strength of our market position and progress in implementing our self-help initiatives and ongoing restructuring programme. Our end markets in steel and foundry are showing signs of stabilisation, although we expect them to remain at relatively weak levels for the remainder of the year.

Based on our strategic and operational progress in the first half, and assuming current exchange rates continue for the rest of the year, our full year expectations remain unchanged. We remain confident in our ability to capitalise on any recovery in our addressable markets in the medium term."

For further information, please contact:

Shareholder/analyst enquiries:

Vesuvius plc François Wanecq, Chief Executive +44 (0) 207 822 0000

Guy Young, Chief Financial Officer +44 (0) 207 822 0000

Virginia Skroski, Investor Relations Manager +44 (0) 207 822 0016

Media enquiries:

MHP Communications John Olsen/ Jamie Ricketts/ Ollie Hoare +44 (0) 203 128 8100

Vesuvius management will make a presentation to analysts and investors on 29 July 2016 at 10.30am (BST) at Bank of America Merrill Lynch, 2 King Edward Street, London EC1A 1HQ. For those unable to attend in person, an audio webcast and conference call will also be available (UK participant dial in +44(0)20 3364 5721; US participant dial in +1 646 254 3362; confirmation code 7676096). This presentation will be broadcast live on Vesuvius' website, http://investors.vesuvius.com/investor-relations and an archive version of the presentation will be available on the website later that day.

About Vesuvius plc

Vesuvius is a global leader in molten metal flow engineering principally serving the steel and foundry industries.

We develop innovative and customised solutions, often used in extremely demanding industrial environments, which enable our customers to improve their manufacturing processes, enhance product quality and reduce energy consumption. These include flow control solutions, advanced refractories and other consumable products and increasingly, related technical services including data capture.

We have a worldwide presence. We serve our customers through a network of low-cost manufacturing plants located close to their own facilities, and embed our industry experts within their operations, who are all supported by our global technology centres.

Our core competitive strengths are our market and technology leadership, strong customer relationships, well established presence in developing markets and our global reach, all of which facilitate the expansion of our addressable markets.

Our ultimate goal is to create value for our customers, and to deliver sustainable, profitable growth for our shareholders giving a superior return on their investment whilst providing each of our employees with a safe workplace where he or she is recognised, developed and properly rewarded.

Forward looking statements

This announcement contains certain forward looking statements which may include reference to one or more of the following: the Group's financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters.

Statements in this announcement that are not historical facts are hereby identified as "forward looking statements". Such forward looking statements, including, without limitation, those relating to the future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, in each case relating to Vesuvius, wherever they occur in this announcement, are necessarily based on assumptions reflecting the views of Vesuvius and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward looking statements. Such forward looking statements should, therefore, be considered in light of various important factors that could cause actual results to differ materially from estimates or projections contained in the forward looking statements. These include without limitation: economic and business cycles; the terms and conditions of Vesuvius' financing arrangements; foreign currency rate fluctuations; competition in Vesuvius' principal markets; acquisitions or disposals of businesses or assets; and trends in Vesuvius' principal industries.

The foregoing list of important factors is not exhaustive. When considering forward looking statements, careful consideration should be given to the foregoing factors and other uncertainties and events, as well as factors described in documents the Company files with the UK regulator from time to time including its annual reports and accounts.

You should not place undue reliance on such forward looking statements which speak only as of the date on which they are made. Except as required by the Rules of the UK Listing Authority and the London Stock Exchange and applicable law, Vesuvius undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward looking events discussed in this announcement might not occur.

Vesuvius plc, 165 Fleet Street, London EC4A 2AE

Registered in England and Wales No. 8217766

www.vesuvius.com

Vesuvius plc

Half Year Results for the six months ended 30 June 2016

During the first half of 2016, Vesuvius continued to make further strategic and operational progress.

Group trading performance

Group revenue from our continuing operations was £668.3m, a reduction of 4.9% compared to the first half of 2015 on a reported basis. Underlying Group revenue, adjusted for the effects of acquisitions and currency translation differences, decreased by 7.5% compared to the same period last year. Trading profit for the half year was £59.1m, down 16.5% on an underlying basis and down 16.0% on a reported basis (H1 2015: £70.4m). Return on sales decreased by 120 basis points on a reported basis (100 basis points on an underlying basis) to 8.8% in the first half of 2016 (H1 2015: 10.0%).

Given that end markets are still weaker than they were in the first half of 2015 the decreases detailed above were expected. However, a comparison to the second half of 2015, which is more comparable from a market perspective, shows sales were up 7.9% (1.5% on an underlying basis) and trading profit increased 10.3% (2.5% on an underlying basis). On a reported basis, the results were assisted by a weaker Pound Sterling. On an underlying basis, the performance indicates a halt to the declines seen in 2015 and supports the view that markets have started to stabilise. Our margins have also continued to benefit from the restructuring programme.

Restructuring

We continue to make good progress in delivering our self-help and restructuring plan. Actions taken in the first six months of this year include the recent announcement of the planned closure of the European Flow Control site plant in Ostrawa, Czech Republic, and of our sales office in Lugano, Switzerland. Furthermore, we announced in July that we will begin discussions with the Ostend Works Council and unions on a proposal for a restructuring plan in Ostend, Belgium.

An additional £5m of restructuring benefit has been identified. To date, this brings total annualised cost savings to £25m, which we expect to be delivered by the end of 2017. This will be at a cost of a total exceptional restructuring charge of around £35m over 2015 to 2017, an increase of £5m over the expected total costs as announced in March.

Foreign Exchange

The weakening of Pound Sterling versus both the US Dollar and the Euro has had a dual effect: it has resulted in a positive foreign exchange variance when translating income but has increased the translated amount of debt held in currencies other than Pound Sterling.

The adverse impact of any potential ongoing weaker Pound Sterling on Vesuvius is limited as a result of our relatively low exposure to UK revenue (

Strategic progress

The previously defined strategy of the Group to deliver profitable growth remains unchanged and we have continued to deliver in 2016 on our five stated strategic priorities:

· reinforcing our technology and innovation leadership positions;

· enlarging our addressable markets through the increasing penetration of existing and new value-creating solutions;

· leveraging our strong positions in developing markets to capture the growth opportunities that they represent;

· improving our cost leadership and our margins; and

· building organically, and through acquisition, an increasingly comprehensive technical services offering.

Health and safety

Vesuvius places great emphasis on the importance of health and safety in the workplace and in the communities in which we operate. Safety is of paramount importance as our employees often operate in harsh environments. We continue to work hard at reducing incident severity and developing robust standards and practices aimed at improving the safety and health of our people in all that they do. Having made good progress in reducing lost time incidents in 2015, in the first half of 2016, we saw this number decline further. We continue to focus our efforts to build on the progress made last year.

Board and senior management

As announced in March, Patrick Andre has assumed the role of President, Flow Control. We also continue to further strengthen our senior management team through internal promotion, today announcing that Alexander Laugier-Werth has been appointed to the role of President, Technical Services, following Luis Reyes's move within the company. Alexander was previously Vice President, Operations Foundry. In his new role, Alexander joins our Group Executive Committee.

Result of Statutory Audit Tender

Following the completion of a formal tender process for the statutory audit contract, PriceWaterhouseCoopers LLP will be appointed as external auditor for Vesuvius plc for the year ending 31 December 2017, replacing KPMG LLP. KPMG LLP will audit the Group's accounts for the year ending 31 December 2016. Shareholder approval to confirm the appointment of PriceWaterhouseCoopers LLP will be sought at the Vesuvius plc Annual General Meeting in 2017.

Dividend

The Board has recommended an interim dividend of 5.15 pence per share (H1 2015: 5.15 pence per share). This dividend will be paid on 23 September 2016 to shareholders on the register at the close of business on 12 August 2016. Any shareholder wishing to participate in the Vesuvius Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 2 September 2016. The Board intends to deliver long-term dividend growth provided that this is supported by underlying earnings, cash flows, capital expenditure requirements and the prevailing market outlook.

Outlook

Our end markets in steel and foundry are showing signs of stabilisation, although we expect them to continue at relatively weak levels for the remainder of the year. Notwithstanding this, we delivered an improvement in our financial performance relative to the second half of 2015, reflecting the strength of our market position and the ongoing improvement in implementing our self-help actions.

Based on our strategic and operational progress in the first half, and assuming current exchange rates continue for the rest of the year, our full year expectations remain unchanged. We remain confident in our ability to capitalise on any recovery in our addressable markets in the medium term.  

We will also continue to focus on identifying acquisitions to reinforce our growth opportunities during the rest of the year, whilst retaining a strong balance sheet in order to maintain financial flexibility.

Operational Review

Our business comprises two divisions, Steel and Foundry, with the Steel division operated as three business lines, Steel Flow Control, Advanced Refractories and Technical Services.

Steel Division

Compared to H1 2015

According to the World Steel Association, global steel production decreased by approximately 1.6% in the first half of the year compared to the first half of 2015. Increases in production of 2.7% in India and 0.2% in the US were offset by declines in production in China of 0.6%, Japan of 1.1% and Russia of 1.3%.

Revenue in the Steel division declined by 9.6% on an underlying basis over the same period as markets with higher penetration of sales per ton of steel, like North America and Europe, were hardest hit and a number of key customers were idled or shut.

Compared to H2 2015

Compared with H2 2015, global steel production increased by 2.0% over the period, with six of the top 10 steel producing countries reporting increases, most notably in China (2.1%), India (5.0%) and the US (3.1%). Over the same period Steel division revenue increased 5.2% as markets showed signs of stabilisation in the second quarter. On an underlying basis, Steel Division revenue was broadly stable. This reflects a depressed demand in Q1 and an improvement in Q2.

Trading profit was impacted in part by the reduction in revenue as noted above as well as an increase of £3.7m in our bad debt provision mainly due to difficult steel market conditions in China.

Steel Flow Control

Steel Flow Control supplies products used to channel and control the flow of molten steel from ladle to tundish and from tundish to mould; slide gate refractories for furnaces, ladles and tundishes; slide gate systems; tundish and mould fluxes; and control devices to monitor and regulate steel flow into the mould.

These products have been designed to resist extreme thermomechanical stress and corrosive environments. The majority of these products are consumed during the process of making steel and, consequently, demand is primarily linked to steel production volumes. Continuing innovation allows us to offer enriched solutions that create additional value in our customers' processes.

Compared to H1 2015

Revenue in Steel Flow Control was down 8.7% year-on-year to £240.8m on an underlying basis mostly due to the Americas and EMEA. This reduction exceeded the overall weakening in steel production as a result of the factors highlighted below.

In the Americas, Flow Control underlying revenue declined 8.8% to £80.7m against a 4.4% reduction in crude steel production volumes. This mostly reflects subdued demand from the heavy equipment, agricultural and energy sectors. Conversely, construction is improving and the automotive sector continues to perform well in the region. South American steel production experienced sharp declines over the period.

In EMEA, underlying revenue decreased by 13.6% to £92.8m, whilst crude steel production volume declined by 3.4%, reflecting closures in 2015 of customers where Vesuvius had high penetration rates - most notably in the UK - and sales timing differences in the Middle East.

Underlying revenue declined by 1.0% in Asia-Pacific compared to a 0.7% decline in crude steel production volume in the region. This reflects slightly lower sales in China linked with our desire to improve customer payment terms and lower sales in Taiwan and South East Asia due to steel production decline. This was partly compensated by higher sales in India, both year-on-year and compared to H2 2015, linked with steel production increases and new business gains.

Compared to H2 2015

Compared with H2 2015, underlying revenue in Steel Flow Control was down 1.1%. In EMEA, underlying revenue was up 2.3%. However, this was offset by lower revenues in the Americas (3.1%) and in Asia-Pacific (3.0%). Within Asia-Pacific revenue in India was up by 4.4% but was offset by declines experienced in North Asia, China and South East Asia.

Advanced Refractories

Products of the Advanced Refractories business line include specialist refractory materials for lining steelmaking vessels such as blast furnaces, ladles and tundishes, which are subject to extreme temperatures, corrosion and abrasion. These materials 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 and dams). Vesuvius is one of the world's largest manufacturers of monolithic refractory linings. Advanced Refractories delivers installation technologies, products adapted to fit customers' processes and effective and efficient logistics services. These factors are combined with significant R&D, a deep knowledge of customers' processes and project management capability to deliver market-leading solutions for customers.

Compared to H1 2015

Year-on-year, overall revenue in Advanced Refractories decreased 10.3% to £185.3m on an underlying basis, due to the comparatively poorer global market conditions experienced in 2016. Underlying revenue in the mature markets of EMEA and the Americas moved in tandem with the steel output in the region declining 9.9% and 15.1% respectively. In contrast, revenue in India experienced a 16.2% increase year-on-year.

Compared to H2 2015

In comparison to the second half of 2015 revenue remained flat thereby arresting the slide that we experienced in the second half. Revenue in EMEA grew by 4.8% on an underlying basis, whilst revenue in the Americas remained flat. Underlying revenue in India continued to grow at 1.8%. Revenue in the rest of South East Asia and Oceania declined by 10.9% due to the slow down experienced in the industrial production market segment and ongoing pressure from Chinese imports on steel production in the region.

Technical Services

Technical Services is a new business line for the Group which complements existing product lines with new services to our existing customers. Technical Services focuses on the capture of key manufacturing data, combining this with Vesuvius' strong presence and expertise in metal casting to create new technologies and integrate them into expert process management systems.

Compared to H1 2015

In the first half of the year, Technical Services generated revenues of £17.1m (H1 2015: £15.1m). On an underlying basis however revenues fell by 17.3% when adjusting for acquisitions. This predominantly reflects the drop in steel manufacturing activity in South America in line with the macroeconomic difficulties experienced in that region and currency evolution.

As a new business line, the key challenge in its first year of operation was to establish a presence independent from our other businesses, and to integrate new acquisitions, while starting to develop complementary solutions for our customers. This reflects our customers' demand for the delivery of solutions that will enable further integration and automation of their production processes. The acquisition of Sidermes SpA in May 2015, combined with the previous acquisition of Avemis, SERT, ECIL Met Tec, Process Metrix, has significantly enhanced our technical services capabilities.

Foundry Division

Vesuvius' Foundry division, trading as Foseco, is a world leader in the supply of consumable products, solutions and associated services related to the foundry industry. The foundry process is highly sequential and is critically dependent on consistency of quality and productivity optimisation. The Foundry division's products, solutions and use of advanced computer simulation techniques allow foundries to reduce defects and hence reduce labour-intensive fettling and machining, minimise metal usage requirements, influence the metal solidification process and automate moulding and casting, thus reducing cost, energy usage and mould size.

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 provides products and associated services to foundries that improve these parameters.

The worldwide foundry market continues to be adversely affected by difficulties within the railway, agriculture, construction and mining industries, as a result of the general decline in commodity and precious metal prices. This has reduced investment and activity worldwide, including a reduction in demand in the valuable steel casting market for the extractive industries. However, year-on-year light vehicle production increased by 2% globally and worldwide heavy truck output increased 7%, primarily from increases in India and China. Some jurisdictions have also faced challenges from political and economic instability.

Compared to H1 2015

Underlying revenue in the Foundry division decreased year-on-year by 3.1% to £225.2m. Despite the difficult market conditions trading margins held up well at 11.5%, 10 basis points ahead of H1 2015 on an underlying basis.

The Americas were particularly hard hit with US market weakness (heavy truck, agriculture, construction and mining industries) adding to a very difficult market in South America dominated by Brazilian economic contraction and political instability, partially offset by growth in Mexico.

Revenue in EMEA was down 2.4% on an underlying basis as increases of 4% in light vehicle production and 6% heavy truck production were offset by reductions in mining, construction, railroad and wind mill castings. Western Europe was most impacted by the reduced activity levels partially offset by good growth in Central Europe.

In Asia-Pacific, underlying revenue in China fell 7.1% due to reduced mining activity. A solid performance was again seen in India with underlying revenue up 14.3% year-on-year, benefitting from increased light vehicle and truck production, up 7% and 32% respectively. Despite tough market conditions in South East Asia foundry sales were up 7%.

Compared to H2 2015

Underlying revenue increased by 5.9% and trading profit increased significantly by 27.0%. This increase in activity and market share, together with some seasonality, increased trading margin by 210 basis points on a reported basis. Underlying revenue in key regions increased compared to the second half, most notably in EMEA by 10.7%, and the Americas and Asia-Pacific by 2.4% and 1.7% respectively. End markets remain mixed with rail and mining in particular not having shown signs of improvement. Heavy and light vehicle production has held up better although it varies by region.

The significant increase in trading profit was due to improved gross margins and flat operating expenditure, both of which have benefited from ongoing cost reductions.

FINANCIAL REVIEW

The following review considers a number of our financial KPIs and sets out other relevant financial information

Basis of Preparation

We have continued to adopt a columnar presentation format for our accounts separately identifying headline performance results, as we consider that this gives a better view of the underlying results of the ongoing business. In the first half of 2016 the most significant elements of separately reported items included restructuring charges associated with the programme launched in 2015.

Headline profit before tax (PBT) and earnings per share (EPS)

Details relating to revenue, trading profit and return on sales are provided in the Financial Summary and Operating Review in this release. Net finance costs for the half year 2016 of £7.9m were marginally lower than last year at £8.0m. Lower interest payable and higher interest income was partially offset by a larger charge for unwinding the discounted provisions.

Headline PBT, including our share of the losses from joint ventures of £0.4m (H1 2015: £0.5m) is £50.8m (H1 2015: £61.9m), 17.9% behind last year. Including amortisation, the exceptional restructuring charge of £5.3m and the £1.0m gain on settlement of an employee benefit plan, our PBT falls to £38.2m (H1 2015: £51.4m).

Headline EPS at 12.8 pence per share is lower than 16.0 pence at H1 2015.

Return on Net Operating Assets

RONA is our principal measure of capital efficiency. As with most of our KPIs, we measure this on a 12-month moving average basis at constant currency to ensure we focus on sustainable underlying improvements. Our RONA for the first half of 2016 fell to 19.4% (H2 2015: 21.1%), driven by the lower profits over the trailing 12-month period.

Free Cash Flow and Working Capital

Trade working capital as a percentage of sales as at June 2016 was 26.6% (H1 2015: 25.5%), measured on a 12-month moving average basis. This is marginally higher than the 2015 year-end indicator of 26.3%. The key contributing factor remains the increased developing market sales profile and in particular an increase in receivables in China.

Operating cash flow was £65.8m, up £6.6m from £59.2m in H1 2015. This represented a cash conversion ratio of 111% up on the H1 2015 ratio of 84%. This improvement in operating cash flow was primarily driven by capital expenditure being managed below depreciation.

Free cash flow of £33.3m (H1 2015: £26.2m) is after £10.2m of cash costs related to restructuring activities. Excluding these one-off items, the free cash flow from continuing operations was £43.7m, which is a healthy 66% of operating cash flow generation.

Interest Cover and Net Debt

Net debt as at 30 June 2016 was £310.3m, a £18.7m increase since 31 December 2015. The main driver of the increase was the impact of the weaker Pound Sterling, which gave rise to a foreign exchange impact of £20.8m. Absent this translation difference net debt would have decreased to £289.5m.

The Group has committed borrowing facilities of £558.0m (H1 2015: £518.7m, H2 2015: £532.4m), of which £163.7m were undrawn (H1 2015: £170.8m, H2 2015: £181.1m). Under the terms of the revolving credit facility (taken out in June 2015) the Group has the option until the end of 2016 to increase the amount of committed funds by up to £200m either from the existing bank group or by introducing additional banks on the same lending terms. This provides us with sufficient debt capacity for the short term.

The Group's debt facilities have two financial covenants: the ratios of net debt to EBITDA (maximum three times limit) and EBITDA to interest (minimum four times limit). These ratios are monitored regularly to ensure the Group has sufficient financing available to run the business and fund future growth. At the half year, the net debt to EBITDA ratio was 2.0x, an increase on the H1 2015 position of 1.6x, and EBITDA to interest was 11.5x, versus the 14.0x at H1 2015. As detailed above, the gearing has been adversely impacted by the movement in foreign exchange.

Restructuring

As noted previously, the Group continued with the restructuring programme that was launched in 2015 in response to the declines in the majority of our end-markets. Costs incurred year to date of £5.3m were predominantly on redundancy (£4.9m) and consultancy (£0.4m).

Capital Expenditure

Capital expenditure in the half year 2016 of £9.4m (H1 2015: £15.4m) comprised £6.7m in the Steel division (H1 2015: £11.3m) and £2.7m in the Foundry division (H1 2015: £4.1m). The reduction is in recognition of weaker end-markets and preserves cash as profits have reduced.

Pensions

The Group has a limited number of historical defined benefit plans mainly in the UK, USA, Germany and Belgium. The main plans in UK and US are largely closed to further benefit accruals and 57% of the liabilities in UK have already been insured. The total net deficit attributed to these defined benefit obligations at the end of June 2016 was £54.2m (December 2015: £35.3m), an increase of £18.9m, which reflected an increase in the surplus in the UK plan, offset by increased deficits in all other plans. This is mainly due to:

· a net increase of £10.0m in pension obligations due to changes to actuarial assumptions and returns on assets;

· exchange rate movements of £12.2m;

· these were partially offset by settlements and contributions.

The majority of the ongoing pension schemes are defined contribution plans, where our only obligation is to make contributions with no further commitments on the level of post-retirement benefits. Year to date £5.3m (H1 2015: £5.5m) of pension contributions were made into the plans and charged to trading profit.

Taxation

The Group's effective tax rate, based on the income tax costs associated with headline performance of £13.1m (H1 2015: £15.9m), was 25.5% in the first half of 2016 (H1 2015: 25.5%).

The Group's total income tax costs include a credit of £2.7m (H1 2015: £2.4m) relating to separately reported items comprising: a credit of £0.8m (H1 2015: £0.5m) in relation to restructuring charges; and a credit of £1.9m (H1 2015: £1.9m) relating to the amortisation of acquired intangible assets.

Tax charged in the Group statement of comprehensive income during the half year amounted to £1.4m (H1 2015: £0.7m credit), which related to net actuarial gains on the UK employee benefit plan and settlements on one of the German plans.

Going concern

The Directors have prepared cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of the 2016 interim 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 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 Company have adequate resources to continue in operational existence for a period of 12 months from the date of approval of the 2016 interim financial statements. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group and the Company.

Principal Risks and Uncertainties

Principal Risks

The risks identified are those the Board considers to be the most relevant to the Group in relation to their potential impact on achievement of its strategic objectives. All of the risks set out 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. 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.

Risk Management

Risks are actively managed in order to mitigate exposure and, where cost effective, the risk is transferred to insurers. The process for risk identification includes both 'top down' and 'bottom up' processes, which allow operational, functional, senior executive and Board members' views on risk to be independently gathered to identify principal risks. Once identified, the senior management 'owners' for each principal risk update the mitigations of that specific risk and contribute to the analysis of likelihood and materiality. This is reported to the Board. We have also built a business structure that gives protection against the 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. During 2015, the Group further developed its processes for business continuity planning, conducting workshops across the Group's major sites and across all business lines. At 2015 year end, the Group's risks were also analysed in the context of viability, examining both financial and economic trend risks and significant event risks.

Board Monitoring

Vesuvius operates a continuous process for identifying and evaluating significant risks, with regular reports made to the Board on the processes by which these are managed and mitigated. Thus, the Board exercises its ultimate responsibility for the Group's risk management, by analysing major issues that have arisen, considering how risks have changed over time, and assessing whether they are being effectively managed.

Changes to Risk in 2016

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2015. Whilst the underlying risks have not changed, the risk previously referred to as "Loss of a Major Site" is now named "Business continuity" to reflect the broad basis from which a production interruption could arise. The risks and uncertainties are summarised below: 

Directors' responsibility statement

We confirm that to the best of our knowledge:

(a) The condensed financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU; and

(b) This half-yearly financial report includes a fair review of the information required by:

· DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· DTR 4.2.8R of the Disclosure and Transparency Rules, being related parties' transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period; and any changes in the related parties' transactions described in the last annual report that could do so.

On behalf of the Board

Guy Young

Chief Financial Officer

29 July 2016

Vesuvius plc Board of Directors:

John McDonough CBE, Chairman

François Wanecq, Chief Executive

Guy Young, Chief Financial Officer

Douglas Hurt, Non-executive Director, Senior Independent Director and Chairman of the Audit Committee

Nelda Connors, Non-executive Director

Jane Hinkley, Non-executive Director and Chairman of the Remuneration Committee

Christer Gardell, Non-executive Director

Hock Goh, Non-executive Director

Independent review report to Vesuvius plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the condensed Group income statement, the condensed Group statement of comprehensive income, the condensed Group statement of cash flows, the condensed Group balance sheet, the condensed Group statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34, Interim Financial Reporting as adopted by the EU. 

Our responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. 

Paul Korolkiewicz

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London, E14 5GL

29 July 2016

Condensed Group Income Statement

For the six months ended 30 June 2016

Condensed Group Statement of Changes in Equity

For the six months ended 30 June 2016

*Restated to reflect the amendments to the acquisition balance sheet of Sidermes spa (note 8)

 *Restated to reflect the amendments to the acquisition balance sheet of Sidermes spa (note 8)

Notes to the condensed financial statements

1. Basis of preparation

1.1 Basis of accounting

These condensed financial statements of Vesuvius plc ("Vesuvius" or the "Company") and its subsidiary and joint venture companies (the "Group") have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the EU and in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority.

These condensed financial statements have been prepared using the same accounting policies as used in the preparation of the Group's annual financial statements for the year ended 31 December 2015, which were prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2015. The financial information presented in this document is unaudited, but has been reviewed by the Company's auditor.

The comparative figures for the financial year ended 31 December 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. These sections address whether proper accounting records have been kept, whether the Company's accounts are in agreement with those records and whether the auditor has obtained all the information and explanations necessary for the purposes of its audit.

1.2 Basis of consolidation

The consolidated financial statements of the Group incorporate the financial statements of the Company and entities controlled by the Company (its "subsidiaries"). Control exists when the Company has the power to direct the relevant activities of an entity that significantly affect the entity's return so as to have rights to the variable return from its activities. In assessing whether control exists, potential voting rights that are currently exercisable are taken into account. The results of subsidiaries acquired or disposed of during the year are included in the Group income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those detailed herein to ensure that the Group financial statements are prepared on a consistent basis. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's interest therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination together with the non-controlling interests' share of profit or loss, each component of other comprehensive income, and dividends paid since the date of the combination. Total comprehensive income is attributed to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

1.3 Going concern

The Directors have prepared cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of the 2016 interim 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 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 Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group.

1.4 Functional and presentation currency

The condensed financial statements are presented in millions of pounds sterling, which is the functional currency of the Company, and rounded to one decimal place.

1.5 Disclosure of "separately reported items"

International Accounting Standard 1 ("IAS 1"), Presentation of Financial Statements, provides no definitive guidance as to the format of the income statement, but states key lines which should be disclosed. It also encourages the disclosure of additional line items and the reordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In accordance with IAS 1, the Company has adopted a policy of disclosing separately on the face of its condensed 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 better understanding of the financial performance achieved and in making projections of future results. 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.

Both materiality and the nature and function 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, initial recognition and subsequent increase, decrease and amortisation of deferred tax assets, together with items always reported separately, 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 items separately reported.

2. Segment information

Operating segments for continuing operations:

Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Directors of the Board, who make the key operating decisions and are responsible for allocating resources and assessing performance of the operating segments. Reflecting the Group's management and internal reporting structure, segmental information is presented in respect of the two main business segments: Steel and Foundry.

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.

The operating segment results from continuing operations are presented below.