STEEL FLOW CONTROL

Steel
revenue
£m

Steel
trading profit
£m

Steel
return on sales
%

Steel
revenue by
location of customer

Global steel production represents almost 100% of the end-market for Steel Flow Control products and services. There is therefore a strong correlation between steel production and Steel Flow Control revenues. Whilst global steel production in the first half of the year was approximately 1% higher than the first half of 2011, from September onwards there was a weakening in steel production. This resulted in lower Steel Flow Control revenues, particularly in Europe, Brazil and the USA.

Revenue of £542 million was 2% higher compared with 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 down 2% on the prior year.

Price increases were implemented in 2012, but these increases have still not fully compensated for the escalation of raw material prices in 2011. However, whilst the latter prices are still higher, particularly for graphite and zirconia, they have remained relatively stable during 2012.

The Steel Flow Control results have been negatively impacted by reserves for specific potential bad debts totalling £3 million, including £2 million relating to one of its US customers, 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 Flow Control product line and made a positive contribution in 2012, in line with expectations.

Integration of both SERT and Metallurgica continues with increasing benefits from the elimination of agents and commercial responsibility being absorbed by the Vesuvius commercial organisation. In the USA this has allowed us to secure a number of upgrades to Flow Control Systems at thin slab casters.

We have continued to focus our efforts on developing innovative technical solutions around the continuous caster. The latest robot compatible Tundish Tube Changer (SEM3085) and the first products of our new Robotic Casting Technology ("RCT") range have been launched with contracts already secured in Europe, Asia, South America and the USA.

We have also successfully launched our innovative new concept Ladle Slidegate (LT80) which offers a 'Plug & Play' replacement for existing Flow Control Systems.

Construction associated with the project to double the capacity of the existing facility in Trinec, Czech Republic to service more effectively the Eastern Europe and CIS steel market is complete. Equipment installation, commissioning and production ramp-up is ongoing. The new facility in Brazil to improve the efficiency of raw material processing and sourcing is also progressing well and is on schedule to be operational during 2013.