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Strong corporate governance is central to the delivery of sustainable long-term shareholder value

Dear Shareholder,

2013 was the first full year in which the Board, supported by our management team, embraced the governance responsibilities that come with being an independent public company. It was a year in which narrative reporting was significantly updated, with new disclosure requirements on strategic issues, remuneration and audit matters. For the first time we cover our approach to human rights (see the Corporate Responsibility section), and the identification our own greenhouse gas emissions including case studies showing the major impact we have in reducing our customers' CO2 emissions (see the Sustainability section). We welcome the opportunity that these changes give us to continue to explain the Vesuvius story and how we approach the management of our business.

Board

Following the changes at the demerger, in 2013 we continued to shape our Board for the future. John Sussens and Jan Oostervelt retired at the 2013 AGM, and we thank them for their considerable contribution to the successful start-up of Vesuvius plc. Nelda Connors joined the Board in March 2013, Jane Hinkley took over the Chair of the Remuneration Committee following the AGM and Jeff Hewitt became our Senior Independent Director, continuing as Chairman of the Audit Committee. I chair the Nomination Committee (other than when the committee is considering my successor). We each report on the activities of our respective committees in this governance report. I believe that the Board's composition addresses our current requirements for expertise, diversity and experience and, as such, is well equipped to face the challenge of setting and managing the strategic direction of the business.

Evaluation

We undertook an externally moderated evaluation of the Board, its committees and individual Directors towards the end of 2013. I am delighted to report that the overall outcome from the evaluation was that the Board and its individual Directors are performing effectively, that the Board is well supported and presents an open forum for debate. Arising out of the evaluation, the primary areas for future focus were succession planning and ensuring that we spend adequate time on strategy, particularly in the light of the increasing and evolving governance and compliance obligations placed on all listed companies.

Succession

The Board is content with its current composition but will continue to keep succession under review. In 2014 the primary focus will be on Executive Director and senior management succession and, as part of the Board's overall review of strategy, this will be a key area for further development.

Training

As part of its training and development remit, the Board visited operations in China, and during the year had discussions with our advisers on the capital structure of the Group, returns to shareholders, strategy, and anti-bribery and corruption issues. I also continued to develop my wider understanding of the business with visits to operations in Germany, Poland, Belgium, South Africa and the USA, plus a second visit to China. Board development relating to the Vesuvius business and the wider corporate environment is an ongoing process. The Board engages directly with senior management, both through set-piece presentations at the Board and through Board and individual Director visits to operations. We will continue to do this throughout 2014.

Risk

Alongside every successful strategy has to be the management of the risks that come with its execution. During the year we re-examined how we identify and analyse risk, so that major issues are identified across the Group's business. The methods by which we manage our risks and assess their impact will be reviewed again in 2014.

Looking Ahead

In 2014 we will take the messages that came out of the external evaluation to build on existing Board practices, and develop our stewardship of the Company and its overall governance. We will continue to develop both as a Board and as individual Directors, and we look forward to contributing towards and overseeing the development of Vesuvius over the next year and beyond.

Yours sincerely

John McDonough CBE
Chairman
4 March 2014