The Directors submit their Annual Report together with the audited accounts of the Group and of the Company, Vesuvius plc, registered in England and Wales No. 8217766, for the year ended 31 December 2013.
The Companies Act 2006 requires the Company to provide a Directors' Report for Vesuvius plc for the year ended 31 December 2013. 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 Corporate Governance Report
- Financial Instruments: the information on financial risk management objectives and policies contained in Notes 22 and 30 to the consolidated financial statements
- details on Greenhouse Gas emissions, set on in Sustainability.
This Directors' Report and the Strategic Report together represent the management report for the purpose of compliance with DTR 4.1.8R of the UK Listing Authority's Disclosure and Transparency Rules. The Company does not have any overseas branches within the meaning of the Companies Act 2006.
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 Chief Executive's review and the Strategic Report. The principal risks and uncertainties that the Group faces throughout its global operations are shown within the Principal Risks and Uncertainties section. The financial position of the Group, its cash flows, liquidity position and debt facilities are also described in the Strategic Report. In addition, Notes 22 and 30 to the consolidated Financial Statements set 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 15, 16 and 30 to the consolidated Financial Statements.
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 2013 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 and the Company.
Research and Development
The Group's investment in research and development ("R&D") during the year under review amounted to £26.7 million (representing 1.8% of Group revenue (2012:1.6%). Further details of the Group's R&D activities can be found in the Innovation section of the Strategic Report.
An interim dividend of 4.75 pence (2012: 7.5 pence, which was the interim dividend of Cookson Group plc) per Vesuvius ordinary share was paid on 7 October 2013 to Vesuvius shareholders. The Board is recommending a final dividend in respect of 2013 of 10.25 pence per ordinary share which, if approved, will be paid on 23 May 2014 to shareholders on the register at 25 April 2014.
Accountability and audit
A responsibility statement of the Directors and a statement by the Auditor about its reporting responsibilities can be found in the Statement of Directors' Responsibilities and the Independent Auditor's Report 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 Auditor is 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.
KPMG LLP has expressed its willingness to continue in office as Auditor of the Company, and consequently, resolutions for the reappointment of KPMG as Auditor of the Company and to authorise the Directors to determine its remuneration are to be proposed at the AGM.
The Directors of the Company are Ms Connors who was appointed on 1 March 2013, Ms Hinkley, who was appointed on 3 December 2012, Messrs Gardell, Hewitt, McDonough, who were appointed on 31 October 2012, and Messrs O'Shea and Wanecq whose contracts were assigned to the Company on 19 December 2012. John Sussens and Jan Oostervelt were Directors of the company until 4 June 2013. Biographical information for the continuing Directors is given within the Board of Directors.. All Directors will retire at the AGM and offer themselves for re-election. Further information on the remuneration of, and contractual arrangements with, the Executive Directors and Non-executive Directors is given in the Directors' Remuneration Report. The Non-executive Directors do not have service agreements.
The Directors have been granted Qualifying Third Party Indemnity Provisions by the Company and the directors of the Group's UK Pension Plan Trustee Board (none of whom are Directors of Vesuvius plc) have been granted Qualifying Pension Scheme Indemnity Provisions by Vesuvius Plans Trustees Ltd. The indemnities for Directors of Vesuvius plc have been in force since the date of their appointment. The Pension Trustee indemnities were in force throughout the last financial year and remain in force.
Annual General Meeting
The Annual General Meeting of the Company will be held at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED on Thursday 15 May 2014 at 11.00 am.
A fundamental concept embodied in the Company's Code of Conduct is that Vesuvius' goals can only be met through the efforts of its employees. Vesuvius recognises that job satisfaction requires working environments that motivate employees to be productive and innovative and provide opportunities for employee training and development to maximise personal potential and develop careers within the Group. Vesuvius is managed on a decentralised basis and it is the responsibility of the Vice President Human Resources, together with the relevant operational managers, to adopt employment policies and practices that best suit the size, style and geographical location of their operations. This management structure allows the Group's operations to respond competitively to changes in the marketplace and to develop and retain a strong sense of identity, whilst benefiting from being a part of a major international group.
Vesuvius values the involvement of its employees and keeps them informed on matters affecting them as employees and factors relevant to Group performance. Decisions on recruitment, career development, training, 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, sex, sexual orientation, age, disability or any other reason not related to job performance or prohibited by applicable law. Vesuvius gives full and fair consideration to applications for employment from disabled persons. Should an employee become disabled during their employment with Vesuvius, every effort is made to enable them to continue their service with the Group.
Greenhouse Gas Emissions
Information on our reporting of greenhouse gas emissions, and the methodology used to record these, is set out in the Sustainability section of the Strategic Report.
In accordance with Company policy, no political donations were made in 2013.
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. A number of the arrangements to which the Company and its subsidiaries are party, such as other debt arrangements and share incentive plans, may 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.
As at the date of this report, the Company had an issued share capital of 278,485,071 ordinary shares of 10p each, being the total number of Vesuvius plc shares with voting rights. The Company cancelled its one Deferred Share of £1 and also redeemed its full holding of 50,000 Redeemable Preference Shares on 11 December 2013.
Further information relating to the Company's issued share capital can be found in Note 7 to the Company Financial Statements.
The Company's Articles specify that, subject to the authorisation of an appropriate resolution passed by 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 that Act. In addition, the Articles state the Directors can seek the authority of shareholders in 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 in connection with a rights issue and in other circumstances up to an aggregate nominal amount as specified in Section 561 of the Companies Act.
At the Annual General Meeting on 4 June 2013, the Directors were authorised to issue relevant securities up to an aggregate nominal amount of £9,282,835, and to be empowered to allot equity securities for cash on a non pre-emptive basis up to an aggregate nominal amount of £1,392,425, at any time up to the earlier of the date of the 2014 Annual General Meeting or 30 June 2014. The Directors propose to renew these authorities at the 2014 Annual General Meeting for a further year. In the year ahead, other than in respect of Vesuvius's 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.
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 advisers 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 Company's shares. Outside the UK, the US, Germany and Belgium, the majority of pension plans in the Group are of a defined contribution nature.
The Group's UK defined benefits plan (the "UK Plan") and the main US defined benefits plan 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.
Cookson Group plc was the principal employer of the UK Plan. Following the demerger, the UK Plan remained with Vesuvius and all pension liabilities of the Alent plc ("Alent") employers who participated in the UK Plan immediately prior to the demerger were discharged in full. Cookson had agreed, with the Trustee of the UK Plan, a mitigation package in light of the loss of support from the Alent participating employers. That mitigation package comprised a £38m payment to the UK Plan. See Note 31 to the consolidated financial statements for further information.
For the Group's closed UK Plan a Trustee Board exists comprising employees, former employees and an independent trustee. The Board currently comprises seven trustee directors, of whom three are member-nominated. The administration of the 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 Company and Trustee 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. The latest full valuation of the UK Plan showed a funding surplus, as a result of which Company contributions ceased in July 2013. However, the Company has agreed to make voluntary contributions of £2.0m per annum at least until the next valuation date in recognition of the potential funding strain resulting from the ongoing derisking initiatives likely to be undertaken in the short term.
The Group's worldwide net pension deficit at 31 December 2013 was £48 million (31 December 2012: £69m). The decrease arose largely as a result of asset returns and Company contributions.
On 19 July 2012, the Trustee of the UK Plan and Pension Insurance Corporation ("PIC") announced that they had signed a pension insurance buy-in agreement covering all of the pensioner members of the UK Plan. An extension to this agreement was signed in December 2012 which is expected to result in the transfer to PIC of up to £30 million of additional pensioner liabilities over the period to December 2015. This eliminates inflation, interest rate, investment and longevity risk in respect of around 65% of Vesuvius' total UK pension liabilities.
Current active employees in the UK are offered membership of a defined contribution plan, which is operated on a contract basis, with oversight by a governance committee.
All US retirement plan assets are held in trust for the exclusive benefit of plan participants and their beneficiaries. An independent financial institution acts as the Trustee. The trust assets are protected by law and by Federal Government Regulation and are subject to annual audit by an independent accountant, the Internal Revenue Service and the Department of Labour. Further details of pension arrangements are given in Note 31 to the consolidated financial statements.
Vesuvius operates a number of share-based incentive plans which have been carried over from Cookson Group plc. For the majority of these plans the Group can satisfy entitlements either by the acquisition of existing shares or by the issue of new shares. Existing shares are held in an employee share ownership trust ("ESOT"). The trustee of the ESOT 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 of these shares and has waived the right to receive any dividends.
In 2013 the trustee of the ESOT purchased 851,736 ordinary shares of 10p each in Vesuvius plc with a nominal value of £0.9 million at an average price, including transaction costs of 479.77 pence per share, a cash cost of £4.1 million to satisfy the actual and potential vesting of awards under the Group's share-based payment plans. Subsequent to the year-end, the ESOT purchased a further 82,152 shares at an average price, including transaction costs, of 503.52 pence per share. See Note 26 to the consolidated Financial Statements for further information.
Adjustments were made to outstanding share-based incentives as appropriate following the demerger of Cookson Group plc including to the number of shares granted under options and awards and any relevant performance conditions. Such adjustments were made in accordance with the rules of the relevant plans. Participants in the Cookson Group Executive Share Option Scheme were notified in February 2013 that, under the rules of this scheme, they had one month in which to exercise their outstanding options following the demerger. The Cookson shares that they acquired were compulsorily exchanged for Vesuvius shares pursuant to a new article which was incorporated into the articles of association of Cookson Group plc as part of the demerger. The number of Vesuvius shares which they acquired was increased to reflect the fact that they were not able to acquire any Alent shares. Consequently, during the year, 45,613 Vesuvius shares were issued to participants in the Cookson Group plc share option plans (pursuant to the provisions of those plans and the terms of the Demerger Agreement), which plans have now terminated for new awards.
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 General Meeting of the Company held on 4 June 2013 Vesuvius shareholders gave authority to the Company to make market purchases of up to 27,848,507 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 2014 or the date of the AGM to be held in 2014, whichever is the earlier. The Directors will seek renewal of this authority at the forthcoming AGM.
During the year under review, 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 acquisitions by nominee, nor did it dispose of any shares previously acquired. The Company does not have a lien over any of its shares.
Restrictions on Transfer of Shares and Voting
The Company's Articles of Association ("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 issues shares are fully paid. As set out above, the Company placed 7,271,174 ordinary shares in treasury during the year under review. This is a summary only and the relevant provisions of the Articles should be consulted if further information is required.
Amendment of Articles of Association
The Company may make amendments to the Articles by way of special resolution in accordance with the Companies Act.
Interests in the Company's Shares
The Company has been notified in accordance with DTR 5 of the Disclosure and Transparency Rules of interests of 3%, or more, of its issued ordinary shares:
|28 February 2014|
|Pelham Capital Management CfD||6.07|
|LSV Asset Management||4.00|
|Dimensional Fund Advisors||3.96|
|T Rowe Price Global Investments||3.30|
|Legal & General Investment Management||3.21|
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 UK Listing Authority are as set in the Directors' Remuneration Report and details of the Directors' long-term incentive awards are set out in the Directors Remuneration Report.
The Directors' Report has been approved by the Board and is signed on its behalf by:
4 March 2014