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• to have available the necessary financial resources to allow <strong>Vesuvius</strong> to invest in areas that may deliver<br />
acceptable future returns to investors; and<br />
• to maintain sufficient financial resources to mitigate against risks and unforeseen events.<br />
<strong>Vesuvius</strong> operated comfortably within the requirements of its debt covenants throughout the year and has<br />
substantial liquidity headroom within its committed debt facilities. Details of <strong>Vesuvius</strong>’ covenant<br />
compliance and committed debt facilities can be found in Part VIII: “Operating and Financial Review” of<br />
this document.<br />
24 Financial risk management<br />
24.1 Accounting policy<br />
(a) Non-derivative financial instruments<br />
Loans and borrowings are initially recognised at fair value plus directly attributable<br />
transaction costs. After initial recognition they are measured at amortised cost, using the<br />
effective interest method.<br />
(b) Foreign currencies<br />
The individual financial statements of each <strong>Vesuvius</strong> entity are prepared in their functional<br />
currency, which is the currency of the primary economic environment in which that entity<br />
operates. For the purpose of the consolidated financial statements, the results and financial<br />
position of each entity are translated into pounds sterling, which is the presentational<br />
currency of <strong>Vesuvius</strong> <strong>plc</strong>.<br />
Reporting foreign currency transactions in functional currency<br />
Transactions in currencies other than the entity’s functional currency (foreign currencies)<br />
are initially recorded at the rates of exchange prevailing on the dates of the transactions. At<br />
each subsequent balance sheet date:<br />
(i) foreign currency monetary items are re-translated at the rates prevailing at the<br />
balance sheet date. Exchange differences arising on the settlement or re-translation<br />
of monetary items are recognised in the income statement; and<br />
(ii) non-monetary items measured at historical cost in a foreign currency are not<br />
re-translated.<br />
Translation from functional currency to presentational currency<br />
When the functional currency of a <strong>Vesuvius</strong> entity is different from <strong>Vesuvius</strong>’<br />
presentational currency (pounds sterling), its results and financial position are translated<br />
into the presentational currency as follows:<br />
(i) assets and liabilities are translated using exchange rates prevailing at the balance<br />
sheet date;<br />
(ii) income and expense items are translated at average exchange rates for the year,<br />
except where the use of such average rates does not approximate the exchange rate<br />
at the date of a specific transaction, in which case the transaction rate is used; and<br />
(iii) all resulting exchange differences are recognised in other comprehensive income<br />
and presented within changes in invested capital and are re-classified to profit or<br />
loss in the period in which the foreign operation is disposed.<br />
Net investment in foreign operations<br />
Exchange differences arising on a monetary item that forms part of a reporting entity’s net<br />
investment in a foreign operation are initially recognised in other comprehensive income<br />
and presented within changes in invested capital and re-classified to profit or loss on<br />
disposal of the net investment.<br />
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