Vesuvius plc Prospectus

Revenue of £530 million was 1 per cent. lower than the first half of 2011. On an underlying
basis (being revenue at constant exchange rates and adjusted for the acquisitions of SERT in
November 2011 and Metallurgica in March 2012), revenue was 3 per cent. lower than the
first half of 2011.
During 2011, the cost of the key raw materials used in the Steel business’ products rose
significantly, notably for graphite and zirconia. Compensating price increases were agreed
with customers throughout 2011 and these have benefited the first half of 2012. Raw
material prices have stabilised somewhat in the first half of 2012. The Steel business’
results have been negatively impacted by a reserve for a potential bad debt of £2 million
relating to one of its US customers, RG Steel, which filed for Chapter Eleven bankruptcy
protection in May 2012.
The acquisition of Metallurgica was completed on 29 March 2012. Metallurgica is one of
the world’s leading suppliers of mould flux used alongside refractory products in the
enclosed continuous steel casting process. The business has been integrated into the Steel
business and made a positive contribution in the second quarter of 2012, in line with
expectations. In FY 2011, Metallurgica had revenue of €48 million (£42 million) and a
trading profit of €4.6 million (£4.0 million).
The second phase of the project to double the capacity of the existing Flow Control facility
in Trinec, Czech Republic to service more effectively the Eastern Europe and CIS steel
market is progressing well and is expected to be completed by the end of 2012. A new
facility is being built in Brazil to improve the efficiency of raw material processing. The
construction of a new monolithic lining products facility in Ras Al Khaimah, United Arab
Emirates at a total cost of £4 million is progressing well, with completion expected by the
end of 2012. The fast-growing Middle East market is currently being served from existing
facilities in the UK and Malaysia. Local production should facilitate greater penetration of
the linings market in this region, which is growing strongly due to significant capacity
expansion, particularly in the steel, cement and aluminium industries.
The decrease in reported revenue was wholly due to a reduction in revenue in Andreco-
Hurll, the refractory lining installation operation based in Australia. As part of the business’
strategy of exiting low margin businesses, on 24 July 2012, Andreco-Hurll was sold to
Veolia Environmental Services for a cash consideration of approximately Aus$8 million
(£5 million). In the first half of 2012, Andreco-Hurll had revenue of Aus$17 million
(£11 million) and a trading profit of Aus$0.7 million (£0.4 million).
Foundry business
Revenue of £289 million represented a 8 per cent. decrease compared to the first half of
2011. Foundry casting end-market conditions have been mixed with good levels of activity
in North America and Northern Europe (notably Germany and Scandinavia), but relative
softness in Southern Europe, South Korea, China and Japan. Generally, end-market
conditions have weakened in the second quarter compared to a relatively strong first
quarter, particularly in Europe.
The Fused Silica product line represents less than 8 per cent. of revenue in the Foundry
business. Revenue of £23 million represented a 50 per cent. decrease compared to the first
half of 2011. Solar Crucible revenue, which now represents around one third of total
Fused Silica revenue, decreased by 78 per cent. compared to the first half of 2011. The
reduction in demand for Solar Crucibles has led to the trading losses in the Fused Silica
product line in the second half of 2011 continuing into 2012. The product line incurred a
trading loss of £5 million in the first half of 2012 compared to a trading profit of £8 million
in the first half of 2011 (trading loss of £1 million in the second half of 2011).
Steps were taken during the period to adapt to these market conditions by removing
temporary workers and adopting some short-time working arrangements in Europe, and by
some permanent workforce reductions in the Chinese operations. In addition, the Solar
Crucible production facility in Moravia in the Czech Republic was closed, involving a
headcount reduction of approximately 100 and resulting in cash-related redundancy costs of
£0.6 million and a non-cash asset write-off of £14 million. In view of the continuing
weakness in the end-market, the closure of one of the two Chinese Solar Crucible
production facilities was announced on 8 October 2012.
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