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.

Principal risks

The risks identified below 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. 

Changes to risk in 2015

In 2015, the principal risks identified by the Group remained similar to those identified in 2014, though our ongoing review enabled us to refine some concerns, and recognise that two risks previously identified as being separate should be amalgamated. Thus in 2015, as part of our review we combined product liability and loss of business reputation (a risk added in 2014) into one risk area. In addition in 2015 we identified more clearly the challenges posed by our Technical Services strategy and, as a consequence, successful delivery of this medium-term strategic aim is now characterised as one of our principal risks and uncertainties. Having identified cyber security as a key risk in 2013, our ongoing assessment of Vesuvius’ exposure in this area led us to remove this from our principal risks in 2014 – whilst noting that it remains, as for all companies, an area for our ongoing attention.

Principal risks and uncertainties 

Risk Potential Impact Mitigation/Management
Demand volatility
  • Unplanned drop in demand and revenue
  • Failure of one or more customers leading to debtor bankruptcy
  • Prudent balance sheet management to maintain robust financial position
  • Strong internal reporting and monitoring of external data to identify economic trends
  • Flexible cost base to react quickly to end-market conditions
  • No single customer exceeds 10% of revenue
  • Robust credit control processes
  • Loss of business from enforced preference of local suppliers
  • Imposition of increased import duties
  • Increased tax burden or changes to rules and enforcement
  • Local competitors promoted overseas by government-to-government action
  • Local manufacturing operations in 26 countries
  • Robust internal tax policies and strict transfer pricing rules
  • Strong internal control of inter-Company trading
  • Maintenance of quality and innovation leadership differentiating Vesuvius and mitigating government intervention on supplier selection
Product liability and loss of business reputation 
  • Claims from third parties resulting from use of potentially hazardous materials
  • Customer claims and loss of business from product quality issues
  • Product or application failures not promptly addressed create an adverse financial impact and damage our reputation as a technological leader
  • Incident at customer plant resulting in significant health and safety breach and/or customer downtime
  • Active monitoring of HSE issues
  • Stringent quality control standards systematically implemented in manufacturing
  • Experienced legal team used to negotiating appropriate contractual protections
  • Active quality management programme in place with full root cause analysis for
  • customer complaints and follow-up
  • Robust product qualification process in place for raw materials
  • Active monitoring of customers’ improvement requests
  • Appropriate insurance cover obtained
Regulatory compliance 
  • Financial loss from failure to comply with appropriate regulations
  • Business disruption from investigations
  • Reputational damage
  • Widely disseminated Code of Conduct and supporting policies which highlight the Group’s ethical approach to business
  • Speak-up procedure implemented across the Group
  • Ongoing training and review of policy effectiveness
Protection of leading technologies 
  • Loss of business through new technology developed by others
  • Failure to adapt solutions to meet changing customer needs
  • Revenue lost through ineffective protection of intellectual property
  • Market-leading research and development team with significant investment in R&D, and use of structured development methodologies
  • Patent protection sought when new developments are made
  • Stringent defence of patents and other intellectual property
  • Control of access to intellectual property through IT controls and physical security
Financial uncertainty 
  • Inability to raise sufficient capital to fund growth of business
  • Reduction in earnings from increased interest charges
  • Weakness in foreign currencies leading to reduced profitability
  • Long-term capital structure planning to secure availability of capital at acceptable costs
  • Substantial proportion of debt capital secured at fixed rates of interest
  • International presence reduces the Group’s reliance on any one currency
  • Hedging of transactional foreign exchange exposure when necessary
  • Alignment of cost structure with revenue where possible
  • The Group adopts appropriate functional currencies for its operations in some countries to reduce translational foreign exchange risks
Loss of a major site 
  • Loss of revenue resulting from inability to supply customers on loss of production facilities 
  • Geographically diversified manufacturing footprint
  • Maintenance of excess capacity to allow plants to meet peak demands
  • Enhanced Business Continuity planning undertaken
  • Appropriate business interruption insurance cover maintained
Ability to source critical raw materials 
  • Manufacturing interruption from failure of a key supplier, or the loss of availability of a source of critical raw materials 
  • Strategic stocks of certain materials are retained
  • Number of single-sourced materials reduced through expanding supplier base
  • Development of new products and research on substitution of raw materials

Retention of staff

  • Insufficient high-quality staff to run base business and generate growth through innovation
  • Availability of suitable talent in the pipeline to offer internal succession options for senior positions including the Group Executive Committee and Executive Directors
  • Contacts with universities to identify and develop talent
  • Internal programme to attract and develop high potential staff from emerging markets through cross-border exchange programmes
  • Extensive internal courses run by experienced staff to transfer knowledge in a structured manner
  • Building career trajectories for technical staff to show potential and reduce attrition
  • Group Talent Management Director driving assessment of internal talent at the middle and senior management levels, identifying gaps and implementing development programmes to provide suitable succession options
Technical Services strategy implementation 
  • Inability to leverage the benefits of newly acquired entities
  • Financial control and reporting risk of newly acquired entities
  • Proactive approach to identify potential targets in line with the business strategy
  • Central structure in place to support the integration and active collaboration between the business units