Morgan Adv.Materials - Half-year results
29/07/2022 07:00
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RNS Number : 1696U Morgan Advanced Materials PLC 29 July 2022
Half-year results for the period ended 30 June 2022
£ million 1H 1H As reported Organic
unless otherwise stated 2022 2021 change constant- currency(1) change
Adjusted results 530.2 461.2 15.0% 11.2%
Revenue
Group adjusted operating profit(1) 72.5 59.1 22.7% 16.6%
Group adjusted operating profit margin(1) 13.7% 12.8%
Return on invested capital(1) 22.2% 15.4%
Adjusted EPS(1) 15.9p 12.7p 25.2%
Free cash flow before acquisitions, disposals and dividends(1) (1.0) 36.5
Statutory results
Revenue 530.2 461.2 15.0% 11.2%
Operating profit 70.2 60.2 16.6%
Profit before tax 65.7 56.2 16.9%
Continuing EPS(2) 15.1p 13.2p
Interim dividend per share 5.3p 3.2p
Cash generated from continuing operations 45.2 63.1
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found
on pages 16 to 20. Throughout this report these non-GAAP measures are clearly
identified by an asterisk (*) where they appear in text and by a footnote
where they appear in tables.
2. EPS is presented on a 'continuing' and a combined 'continuing and
discontinued' basis for statutory reporting. Further details are provided in
note 7 to the condensed consolidated financial statements.
Group highlights
• Organic constant-currency* revenue growth of 11.2% with 15% from
our faster growing markets (excluding one-off solar projects) and 11% from our
core markets.
• Adjusted operating profit margin* of 13.7%, up by 90 bps,
reflecting the drop through on organic growth and the benefits from our
restructuring programme.
• Pricing and continuous improvement efficiencies continue to more
than offset inflation.
• Strong sales and profit growth drives a material improvement in
return on invested capital* to 22.2%, up 680 bps on 1H 2021.
• Adjusted earnings per share* of 15.9p, up 25.2% on 1H 2021.
• Positive cash generated from continuing operations at £45.2m,
free cash flow* of £(1.0) million and net debt/EBITDA (excluding lease
liabilities) of 0.5 times.
• Absolute CO(2)e emissions (from scope 1 and 2) reduced by 11%
compared with 1H 2021.
• Full year outlook around top end of current analysts' forecasts.
Commenting on the results for Morgan Advanced Materials, Chief Executive
Officer, Pete Raby said:
"We have delivered robust revenue growth in the first half of the year
reflecting growing markets and the benefits of our strategy. This was a really
good performance from our team in a challenging environment. Profitability has
improved from the drop through on the higher volumes and the benefits from our
restructuring programme.
Our order momentum remains good. We have seen higher levels of inflation
across the business, and we continue to more than offset that through pricing
and continuous improvement activity. As previously stated on 5 May 2022, we
expect a moderation of growth rates in the second half, reflecting challenges
in the wider economy. While mindful of market conditions, we now expect
adjusted operating profit for full year 2022 to be around the top end of
current analysts' forecasts(1)."
1. Company-compiled summary of current analysts' forecasts for full year 2022
is a range of £132.9 million to £139.2 million.
COVID-19
The safety of our people remains our priority. Parts of our business,
particularly in Asia, continue to be impacted by COVID-19. We have maintained
our COVID-19 controls across the business in line with the requirements of
local jurisdictions. I would like to thank our people for their hard work in
the first half of the year and the focus they have shown in keeping each other
safe whilst supporting our customers.
Our purpose
Our purpose is to use advanced materials to make the world more sustainable
and to improve the quality of life. This purpose guides our actions: it
underpins our work to reduce our environmental impact, informs how we treat
our people, and ensures we fulfil our responsibility for good corporate
governance.
We deliver on our purpose through the products that we make and the way that
we make them.
· We improve the quality of life by supporting medical diagnostics
with our power tubes in medical scanners. Our feedthroughs are at the core of
cochlear implants and our seals are used in blood pumps. These products
transform people's lives.
· Our products help keep people safe. We are proud to design fire
protection in everything from cars to buildings, and ships to oil platforms.
· We design and manufacture our products to help customers save
energy.
· Our carbon brushes are integral to wind turbines and power
generators and enable electrified rail transport. Our ceramic rollers are used
to make thin-film solar panels, our insulation is used in solar towers and
steam turbines, and our ceramic cores are used to make more efficient
industrial gas turbines. These are all products which promote a more
sustainable and environmentally secure future for our planet.
Our strategy
Our strategy builds on our strengths and focuses the Group on scalable
businesses in attractive markets, and on the development of our three core
capabilities in customer focus, application engineering and materials science.
To continue the development of our core capabilities we have three execution
priorities:
Big positive difference - making sure we govern our business the right way,
looking after the environment, looking after our people and operating to high
ethical standards. This priority supports our focus on living and breathing
our commitments on inclusion, treating people fairly, reducing waste, managing
our water consumption, and reducing emissions.
Delight the customer - following on from our foundational work on sales
effectiveness, we are working to shape our product and service offerings
further based on customer needs, with the overall objective of making our
business more customer-centric. We are gathering customer feedback during the
year through a range of channels and using that to understand our customer
segments in more detail. This will enable us to align our product, service and
support offerings more closely to customer needs.
Innovate to grow - many of our customers have an increasing need to reduce
their energy consumption and CO(2)e emissions, these customers need our help.
This priority supports our focus on working with the customer to innovate in
traditional heavy industries whilst also contributing to greener technologies
for the future.
We want to accelerate our growth, by winning in our core markets and
increasing our exposure to four faster growing market segments: clean energy,
clean transportation, semiconductors and healthcare.
We have been focusing our product development and business development efforts
in these markets over the last several years to develop new and differentiated
products that solve complex problems for our customers.
· Clean energy - solutions for energy storage, brushes and slip rings for
onshore wind applications and ceramic and carbon products used in solar panel
manufacture.
· Clean transportation - our rail collector business for metro and main
rail applications, and in water and vacuum pump components for electric
vehicle applications.
· Semiconductors - we supply carbon and ceramic consumables for key
semiconductor process steps including crystal growth, deposition, lithography
and etch.
· Healthcare - enabling medical imaging and supply of low temperature
insulation for medicine and vaccine transport and storage.
Organic constant-currency* revenue growth in these segments was 15% (excluding
one-off solar projects*), and they represented 21% of our revenue overall.
Our environment, social and governance (ESG) objectives:
In March 2021, we set stretching targets to improve our environmental, social
and governance performance and become a more sustainable business. We take
these commitments seriously and have plans in place to deliver against them in
the coming years, making a step change in our performance.
Whilst some progress has been achieved, we recognise that there is more work
to do, particularly around water sustainability, safety and employee
engagement.
Reduce our environmental impact
· Our aspiration is to be a CO(2)e net zero business by 2050. Our 2030
target is to reduce scope 1 and scope 2 CO(2)e emissions by 50% (from a 2015
baseline). We will start to measure scope 3 emissions from 2023 onwards. In
the first half we have reduced our CO(2)e emissions by 11% compared with 1H
2021 through a combination of switching to renewable or carbon free
electricity and a range of energy reduction projects across the Group.
· Our aspiration is to use water sustainably across our business. Our
2030 target is to reduce our overall water usage by 30% and reduce water usage
in high stress areas by 30% (from a 2015 baseline). In the first half, overall
water usage increased by 10% whilst high stress water usage increased by 6%
compared with 1H 2021. Ongoing capital projects to improve both overall water
usage and usage in high stress areas include water harvesting and recycling.
We are reviewing our manufacturing processes to reduce the amount of water
they consume and we are implementing submetering capabilities to identify
leaks and efficiencies promptly.
Improve our safety performance
· Our aspiration is to create an environment and culture with zero harm
to our employees. Our 2030 target is a lost time accident rate below 0.1 (lost
time accidents per 100,000 hours worked). Our lost time accident rate in the
first half was 0.29, an increase compared with 0.22 as at 31 December 2021.
Last year we launched our thinkSAFE programme, a major refresh to our approach
to safety. Formal training is being deployed to all employees focusing on our
safety culture; more than 80% of our employees have participated in this
training so far, and it will be completed during the second half. The changes
are being sustained by our leaders in their daily engagement with our teams,
and via follow-up training on specific safety topics throughout the year.
Improve the diversity & inclusion of our business
· Our aspiration is that our employee demographics reflect the
communities that we operate in. Our 2030 target is for 40% female
representation across our leadership population. At 30 June 2022, we have 31%
female representative in our leadership population compared with 29% as at 31
December 2021.
· Our aspiration is to be a welcoming and inclusive environment where our
employees can grow and thrive. Our 2030 target is to attain a top quartile
employee engagement score. We conducted an employee engagement survey in the
fourth quarter of 2021 which directed our focus to the areas most important to
our people. During the first half, we have been regularly communicating our
improvement plans to our employees as they are being developed. We have sought
feedback through employee resource groups and meetings across all levels of
the organisation to ensure we meet their expectations.
Capital Markets Event
We plan to hold a capital markets event in the second half of 2022. Further
information will be published shortly.
Enquiries
Pete Raby Morgan Advanced Materials 01753 837 000
Richard Armitage Morgan Advanced Materials
Nina Coad Brunswick 0207 404 5959
Results presentation today
There will be an analyst and investor presentation at 10:00 (UK time) today
via web-conference.
A live audio webcast and slide presentation of this event will be available on
www.morganadvancedmaterials.com (http://www.morganadvancedmaterials.com)
We recommend that you register by 09:45 (UK time).
Basis of preparation
Non-GAAP measures
Throughout this report adjusted measures are used to describe the Group's
financial performance. These are not recognised under IFRS or other generally
accepted accounting principles (GAAP). The Executive Committee and the Board
manage and assess the performance of the business on these measures and they
are presented as the Directors consider they provide useful information to
shareholders, including additional insight into ongoing trading and
year-on-year comparisons. These non-GAAP measures should be viewed as
complementary to, not replacements for, the comparable GAAP measures.
Throughout this report these non-GAAP measures are clearly identified by an
asterisk (*) where they appear in text, and by a footnote when they appear in
tables. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
All periods presented in these condensed consolidated financial statements are
for continuing operations, with separate disclosure of discontinued operations
where appropriate.
Operating review
Revenue Operating profit(1) Margin %(1)
1H 2022 1H 2021 1H 2022 1H 2021 1H 2022 1H 2021
£m £m £m £m % %
Thermal Ceramics 200.5 174.7 22.7 21.2 11.3% 12.1%
Molten Metal Systems 28.1 22.8 4.2 2.5 14.9% 11.0%
Electrical Carbon 91.3 82.3 18.9 15.6 20.7% 19.0%
Seals and Bearings 71.8 64.3 10.9 10.7 15.2% 16.6%
Technical Ceramics 138.5 117.1 18.8 12.1 13.6% 10.3%
Segment total(2) 530.2 461.2 75.5 62.1 14.2% 13.5%
Corporate costs (3.0) (3.0)
Group adjusted operating profit(1) 72.5 59.1 13.7% 12.8%
Amortisation of intangible assets (2.3) (2.6)
Operating profit before specific adjusting items 70.2 56.5 13.2% 12.3%
Specific adjusting items included in operating profit(3) - 3.7
Operating profit 70.2 60.2 13.2% 13.1%
Net financing costs (4.5) (4.4)
Share of profit of associate (net of income tax) - 0.4
Profit before taxation 65.7 56.2
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
2. The Group reported the results of its five global business units as two
divisions until 31 December 2021. From 1 January 2022 onwards, divisional
subtotals have been removed from our segmental reporting; we continue to
report the five separate global business units.
3.Details of specific adjusting items can be found in note 3 to the condensed
consolidated financial statements.
Thermal Ceramics
Revenue for the Thermal Ceramics global business unit for the six months ended
30 June 2022 was £200.5 million, representing an increase of 14.8% compared
with £174.7 million in 1H 2021. On an organic constant-currency* basis,
year-on-year revenue increased by 11.1%, with strong growth from industrial
and energy market segments.
Operating profit for the six months ended 30 June 2022 was £21.8 million (1H
2021: £18.9 million) with an operating profit margin of 10.9% (1H 2021:
10.8%), with margin decline due to price and continuous operational
improvement only recovering inflation. Adjusted operating profit* was £22.7
million (1H 2021: £21.2 million) with an adjusted operating profit margin* of
11.3% (1H 2021: 12.1%).
Molten Metal Systems
Revenue for the Molten Metal Systems global business unit for the six months
ended 30 June 2022 was £28.1 million, representing an increase of 23.2%
compared with £22.8 million in 1H 2021. On an organic constant-currency*
basis, year-on-year revenue increased by 20.6% with growth from strong demand
in the aluminium segment.
Operating profit for the six months ended 30 June 2022 was £4.1 million (1H
2021: £2.4 million) with an operating profit margin of 14.6% (1H 2021:
10.5%), with margin improvement from volume leverage and efficiency measures.
Adjusted operating profit* was £4.2 million (1H 2021: £2.5 million) with an
adjusted operating profit margin* of 14.9% (1H 2021: 11.0%).
Electrical Carbon
Revenue for the Electrical Carbon global business unit for the six months
ended 30 June 2022 was £91.3 million, representing an increase of 10.9%
compared with £82.3 million in 1H 2021. On an organic constant-currency*
basis, year-on-year revenue increased by 8.4%, with strong growth in the
semiconductor and wind market segments.
Operating profit for the six months ended 30 June 2022 was £18.6 million (1H
2021: £14.8 million) with an operating profit margin of 20.4% (1H 2021:
18.0%), with margin expansion from volume leverage and strong operational
efficiencies. Adjusted operating profit* was £18.9 million (1H 2021: £15.6
million) with an adjusted operating profit margin* of 20.7% (1H 2021:
19.0%).
Seals and Bearings
Revenue for the Seals and Bearings global business unit for the six months
ended 30 June 2022 was £71.8 million, representing an increase of 11.7%
compared with £64.3 million in 1H 2021, with the ceramic armour sales
declining to £12 million in the first half (1H 2021: £13 million). On an
organic constant-currency* basis year-on-year revenue increased by 7.8%,
driven by growth in the petrochemical and aerospace market segments.
Operating profit for the six months ended 30 June 2022 was £10.5 million (1H
2021: £10.5 million) with an operating profit margin of 14.6% (1H 2021:
16.3%), with the lower margin driven by adverse ceramic armour mix. Adjusted
operating profit* was £10.9 million (1H 2021: £10.7 million) with an
adjusted operating profit margin* of 15.2% (1H 2021: 16.6%).
Technical Ceramics
Revenue for the Technical Ceramics global business unit for the six months
ended 30 June 2022 was £138.5 million, an increase of 18.3% compared with
£117.1 million in 1H 2021. On an organic constant-currency* basis,
year-on-year revenue increased by 13.3%, with growth in industrial,
semiconductor, healthcare and aerospace market segments.
Operating profit for the six months ended 30 June 2022 was £18.2 million (1H
2021: £11.4 million) with an operating profit margin of 13.1% (1H 2021:
9.7%), with margin improvements from volume leverage and benefits from the
restructuring programme, which concluded in 2021. Adjusted operating profit*
was £18.8 million (1H 2021: £12.1 million) with an adjusted operating profit
margin* of 13.6% (1H 2021: 10.3%).
Group financial review
Group revenue for the six months ended 30 June 2022 was £530.2 million (1H
2021: £461.2 million), an increase of 15.0% on a reported basis compared with
1H 2021. On an organic constant-currency* basis revenue increased by 11.2%.
Group adjusted operating profit* for the six months ended 30 June 2022 was
£72.5 million (1H 2021: £59.1 million). Adjusted operating profit margin*
was 13.7%, compared with 12.8% for 1H 2021.
There were no specific adjusting items for the six months ended 30 June 2022.
Specific adjusting items before income tax for the comparable period last year
were a net gain of £3.7 million, comprising: restructuring costs of £(0.6)
million; impairment of non-financial assets of £(0.8) million and a net
profit on disposal of businesses of £5.1 million. Note 3 to the condensed
consolidated financial statements on page 32, provides additional information
on the Group's specific adjusting items.
Operating profit for the six months ended 30 June 2022 was £70.2 million (1H
2021: £60.2 million) and profit before taxation was £65.7 million (1H 2021:
£56.2 million).
The Group amortisation charge for the six months ended 30 June 2022 was
£2.3 million (1H 2021: £2.6 million).
The net finance charge for the six months ended 30 June 2022 was £4.5 million
(1H 2021: £4.4 million) comprising net bank interest and similar charges of
£2.7 million (1H 2021: £2.5 million), net interest on IAS 19 pension
obligations of £0.7 million (1H 2021: £0.8 million), and interest expense on
lease liabilities of £1.1 million (1H 2021: £1.1 million).
Looking forward to the full year, we anticipate that the net finance charge be
around £10 million, comprising net bank interest and similar charges of £7
million; net interest on IAS 19 pension obligations of £1 million; and
interest expense on lease liabilities of £2 million.
The Group taxation charge for the six months ended 30 June 2022, excluding
specific adjusting items, was £17.7 million (1H 2021: £14.4 million), tax on
specific adjusting items was £nil (1H 2021: credit of £0.3 million). The
effective tax rate, excluding specific adjusting items, was 27.0% (1H 2021:
27.4%). Note 5 to the condensed consolidated financial statements provides
additional information on the Group's tax charge. Looking forward to the
full year, we anticipate an effective tax rate in the range of 26-28%.
Adjusted earnings per share* for the six months ended 30 June 2022 was 15.9
pence (1H 2021: 12.7 pence) and basic profit per share from continuing
operations was 15.1 pence (1H 2021: 13.2 pence). Details of these calculations
can be found in note 7 to the condensed consolidated financial statements.
The Group's balance sheet and liquidity remains robust. Net debt* for the six
months ended 30 June 2022 was £128.5 million, with net debt* excluding lease
liabilities of £76.3 million, with no material debt maturities until 2024.
The Group has net cash and cash equivalents of £120.5 million, with £10
million of its £200 million revolving credit facility drawn owing to short
term intra group funding needs.
Our key financial covenants are measured on a pre-IFRS 16 Leases basis. As at
30 June 2022, net debt* to EBITDA*, excluding the impact of IFRS 16 Leases,
was 0.5 times compared to a covenant not to exceed 3.0 times, and our interest
cover excluding the impact of IFRS 16 Leases was 30.0 times, compared to a
covenant to exceed 4.0 times.
Acquisitions, divestments and business exits
2022
There were no acquisitions, divestments or business exits in the six months to
30 June 2022.
2021
On 15 January 2021, the Group sold the inventory and fixed assets of the
Technical Ceramics business based in Latrobe, US. The cash consideration was
£0.6 million and a loss on disposal of £0.1 million, recognised in specific
adjusting items.
On 1 March 2021, the Group purchased the trade and assets of the magnesium
oxide milling business from Delamin Limited, previously a supplier to the
Seals and Bearings business, for a cash consideration of £1.9 million. The
assets largely comprised largely intangible assets such as know-how, customer
lists and contracts.
On 28 April 2021, the Group completed the disposal of its non-controlling
interest (35% share) in Jemmtec. Jemmtec had been accounted for as an
associate to the Group using the equity method. Morgan's share of the proceeds
as at 30 June 2021 was an initial consideration of £12.2 million with a £5.2
million gain on disposal, recognised within specific adjusting items. In the
second half of 2021, the Group received £0.2 million for working capital
adjustments and a further £1.8 million of contingent consideration.
Specific adjusting items
In the consolidated income statement, the Group presents specific adjusting
items separately. In the judgement of the Directors, as a result of the nature
and value of these items they should be disclosed separately from the
underlying results of the Group to allow the reader to obtain an alternative
understanding of the financial information and an indication of the underlying
performance of the Group.
There were no specific adjusting items in the six months to 30 June 2022.
Details of the specific adjusting items arising during the comparative period
are given in note 3 to the condensed consolidated financial statements.
1H 2022 1H 2021
£m £m
Specific adjusting items
Impairment of non-financial assets - (0.8)
Restructuring costs - (0.6)
Net profit on disposal of businesses - 5.1
Total specific adjusting items before income tax - 3.7
Income tax credit from specific adjusting items - 0.3
Total specific adjusting items after income tax - 4.0
Specific adjusting items before income tax for the six months ended 30 June
2021 were a net gain of £3.7 million and related to the Group's restructuring
and efficiency programme, as follows:
Impairment of non-financial assets
A £0.8 million charge was recognised, primarily relating to assets associated
with closed manufacturing lines within Thermal Ceramics.
Restructuring costs
The Group recognised a charge of £0.6 million for redundancies and other
costs associated with the restructuring and efficiency programme. Whilst these
costs were anticipated in 2020, they did not meet the recognition criteria set
out by IAS 37 Provisions, Contingent Liabilities and Contingent Assets until
2021.
Net profit on disposal of businesses
In the period ended 30 June 2021, the Group disposed of its 35% shareholding
in Jemmtec Limited and the business assets associated with the Latrobe
business. These disposals generated a gain of £5.2 million and a loss of
£0.1 million respectively. See the above 'acquisitions, divestments and
business exits' section.
Emerging stronger: Group restructuring and efficiency programme
The Group has delivered its restructuring and efficiency programme, which has
simplified Morgan's structure and driven efficiency in operations. The
programme was completed last year. The current year's expected benefits of
£23 million remain unchanged.
The phasing of the benefits and costs is as follows:
FY 2020 FY 2021 FY 2022 Total
£m £m £m £m
Adjusted operating profit(1) benefits (cumulative) 6 20 23 n/a
Cash cost to specific adjusting items (24) - - (24)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
The principal exchange rates used in the translation of the results of
overseas subsidiaries were as follows:
1H 2022 1H 2021
GBP to: Closing rate Average rate Closing rate Average rate
US dollar 1.22 1.30 1.38 1.39
Euro 1.16 1.19 1.17 1.15
For illustrative purposes, the table below provides details of the impact on
1H 2022 revenue and adjusted operating profit* if the actual reported results,
calculated using 1H 2022 average exchange rates were restated for GBP
weakening by 10 cents against US dollar in isolation and 10 cents against the
Euro in isolation:
Increase in 2022 revenue/adjusted operating profit(1) if: Revenue Adjusted operating profit(1)
£m
£m
GBP weakens by 10c against the US dollar in isolation 18.6 2.5
GBP weakens by 10c against the Euro in isolation 10.0 1.7
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
Cash flow
1H 2022 1H 2021
£m £m
Cash generated from continuing operations 45.2 63.1
Net capital expenditure (22.5) (8.6)
Net interest on cash and borrowings (2.7) (2.5)
Tax paid (15.3) (9.9)
Lease payments and interest (5.7) (5.6)
Free cash flow before acquisitions, disposals and dividends(1) (1.0) 36.5
Dividends paid to external plc shareholders (16.5) (10.0)
Net cash flows from other investing and financing activities (2.6) 7.5
Exchange movement and other non-cash movements (9.5) 1.8
Opening net debt(1) excluding lease liabilities (46.7) (101.0)
Closing net debt(1) excluding lease liabilities (76.3) (65.2)
Closing lease liabilities (52.2) (51.4)
Closing net debt(1) (128.5) (116.6)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
Cash generated from continuing operations for the six months ended 30 June
2022 was £45.2 million (1H 2021: £63.1 million). Working capital increased
by £38.7m as a result of an increase in inventory of £18.8m and other
working capital of £19.9m. Whilst this increase was principally driven by
higher sales, an element of the inventory increase reflects additional safety
stocks held in response to global supply chain risks, some of which may
reverse over time.
The increase in capital expenditure reflects a return to a more normalised
level of investment following the pandemic. The increased tax charge
reflects the growth in profitability with the Group's effective tax rate
unchanged from 26-28%.
Free cash flow before acquisitions, disposals and dividends* was £(1.0)
million (1H 2021: £36.5 million).
Net debt* for the six months ended 30 June 2022 was £128.5 million (1H 2021:
£116.6 million), representing a net debt* to EBITDA* ratio of 0.7 times (1H
2021: 0.9 times).
Net debt* for the six months ended 30 June 2022 excluding lease liabilities
was £76.3 million (1H 2021: £65.2 million), representing a net debt* to
EBITDA* ratio excluding the impact of IFRS 16 Leases of 0.5 times (1H 2021:
0.5 times).
Further information on the Group's net debt* is provided in note 10 to the
condensed consolidated financial statements.
Defined benefit pension plans
The Group pension deficit for the six months ended 30 June 2022 has decreased
by £29.2 million since 31 December 2021 to £73.5 million on an IAS 19
(revised) basis, with UK, US and Eurozone discount rates increasing as a
result of an increase in corporate bond yields, whilst the Rest of World
discount rates have remained stable:
· The UK schemes deficit decreased by £21.3 million to £30.4
million (FY 2021: £51.7 million; 1H 2021: £76.9 million), (discount rate 1H
2022: 3.86%; FY 2021: 1.92%; 1H 2021: 1.87%).
· The US schemes deficit increased by £0.5 million to £8.2
million (FY 2021: £7.7 million; 1H 2021: £6.1 million), (discount rate 1H
2022: 4.52%; FY 2021: 2.71%; 1H 2021: 2.65%).
· The European schemes deficit decreased by £9.2 million to £29.8
million (FY 2021 £39.0 million; 1H 2021: £40.8 million), (discount rate 1H
2022: 3.00%; FY 2021: 0.90%; 1H 2021: 0.80%).
· The Rest of World schemes deficit increased by £0.8 million to
£5.1 million (FY 2021: £4.3 million; 1H 2021: £4.4 million), (discount rate
1H 2022: 2.90%; FY 2021: 2.90%; 1H 2021: 2.40%).
Note 12 to the condensed consolidated financial statements provides additional
information on the Group's pension plans.
The full actuarial valuation process for the UK Schemes as at 31 March 2022 is
currently in progress and is expected to be completed in the Autumn. The
most recent full valuations in 2019 reported combined assessed deficits of
£120.3 million. The Group has been making past service deficit recovery
payments of £16.5 million a year since January 2020, increasing by 2.75% per
annum from April 2021 until 2025, with further payments to Morgan Pension
Scheme for 2026 and 2027.
Interim dividend
The Board has resolved to pay an interim dividend of 5.3 pence per Ordinary
share. The interim dividend will be paid on 18 November 2022 to Ordinary
shareholders on the register of members at the close of trading on 28 October
2022. The ex-dividend date will be 27 October 2022. This compares to an
interim dividend paid in the fourth quarter of 2021 of 3.2 pence per Ordinary
share.
The Board has committed to grow the Ordinary dividend as the economic
environment and the Group's earnings improve, targeting a dividend cover of
around 3 times adjusted EPS* on average over the medium term.
This level of cover ensures sufficient resources are available to continue to
invest to support the Group's long-term prospects, as well as meet the needs
of other stakeholders of the Group, including deficit contributions to the
Group's defined benefit pension schemes.
Principal risks and uncertainties
The Group has an established risk management methodology, which seeks to
identify, prioritise and mitigate risks, underpinned by a 'three lines of
defence' model comprising of an internal control framework, internal
monitoring and independent assurance processes. The Board considers that risk
management and internal control are fundamental to achieving the Group aim of
creating long-term sustainable shareholder value.
The current principal risks, representing those risks that the Board feels
could have the most significant impact on achieving the Group's strategy of
building a sustainable business for the long-term and delivering strong
returns to the Group's shareholders, are set out in the 2021 Annual Report and
Accounts, which are available on the Group's website at
www.morganadvancedmaterials.com (http://www.morganadvancedmaterials.com)
The following are the Group's principal risks and uncertainties:
· Technical leadership
The Group's strategic success depends on maintaining and developing its
technical leadership in materials science over its competitors. Any inability
to recruit, retain and develop the right people would negatively impact the
Group's ability to achieve its strategic goals.
· Operational execution/organisational change
To improve the efficiency of the Group's operations and organisation, various
changes have been made from individual sites to the global business unit
set-up. Failure to manage these changes adequately could result in
interruption to operations or customer service, or a failure to maximise the
Group's opportunities.
· Portfolio management
Failure to manage the Group's portfolio of businesses across a wide range of
product and technology families proactively and in line with this technology
profile could lead to the value of the Group's businesses being eroded over
time or to a failure to exploit opportunities to acquire businesses.
· Macro-economic and political environment
The Group operates in a range of markets and geographies around the world and
could be affected by political, economic, social or regulatory developments or
instability, for example, inflationary pressure on raw materials, energy and
labour, or an economic slowdown driven by current global changes.
· Environment, health and safety
The Group operates a number of manufacturing facilities around the world. A
failure in the Group's EHS procedures could lead to environmental damage or
to injury or death of employees or third parties, with a consequential
impact on operations and increased risk of regulatory or legal action being
taken against the Group.
· Product quality, safety and liability
Some products are used in potentially high-risk applications such as
aerospace, automotive, electric vehicle, medical and power industries.
Products used in applications for which they were not intended or inadequate
quality control/over-commitment on customer specifications could result
in products not meeting customer requirements, which could in turn lead to
significant liabilities and reputational damage.
· IT & cyber security
Across the industry, the impact of cyber-attacks has been growing. The general
rise in remote working and an accelerated shift to cloud platforms continues.
If the Group were to lose critical information (such as IP or regulatory data)
or if critical systems availability is affected through cyber-attacks, the
business would be impacted or could suffer reputational damage.
· Supply chain and business continuity
The Group has a number of potential single-point exposure risks. These
include:
Single-point supplier: a significant interruption of internal or external key
supply could impact business continuity.
Single-point customer: the unmitigated loss of a major customer could have an
impact on Group profit. Single-point site: key sites exposed to a strike, a
natural catastrophe or serious incident, such as fire, could impact business
continuity.
· Treasury
The Group's global reach means that it is exposed to uncertainties in the
financial markets, the fiscal jurisdictions where it operates, and the banking
sector. These heighten the Group's funding, foreign exchange, tax, interest
rate, credit and liquidity risks as well as the risk that a bank failure could
impact the Group's cash.
· Pension funding
The Group sponsors several defined benefit pension arrangements, whose
liabilities are subject to fluctuating interest rates, investment values and
inflation. Increased longevity of members and a tougher regulatory funding
regime can result in increased funding burdens on the Group in the future.
· Tax
The Group operates in many jurisdictions around the world and could be
affected by changes in tax laws and regulations within the complex
international tax environment.
· Contract management
As a global advanced materials business supplying components into critical
applications, the Group may be exposed to liabilities arising from the use of
its products.
· Compliance
A failure to comply with any applicable laws/regulations could result in civil
or criminal liabilities and/or individual or corporate fines and could also
result in debarment from government-related contracts or rejection by
financial market counterparties and reputational damage.
Since the beginning of 2022 there have been favourable movements in Compliance
risk and IT & cyber security risk as a consequence of investments in
training, monitoring and other measures.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the 2021
Annual Report and Accounts on pages 2 to 57. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities are
described earlier in this financial review. Additionally note 11 to the
condensed consolidated financial statements for the six months ended 30 June
2022 provide details of the Group's policies and processes for managing
financial risk; details of its financial instruments and hedging activities;
and details of its exposures to credit risk and liquidity risk.
The Group meets its day-to-day working capital requirements through local
banking arrangements underpinned by the Group's £200 million unsecured
multi-currency revolving credit facility, which matures in September 2024. As
at 30 June 2022 the Group had significant headroom on its covenants and
available liquidity with the Group's £200 million multi-currency revolving
credit facility being £10 million drawn. Total committed borrowing facilities
were £386.7million, none of which are due to mature in the following 12
months. The amount drawn under these facilities was £196.7 million, which
together with net cash and cash equivalents of £120.5 million, gave a total
headroom of £310.5 million.
The Group has carefully modelled its cash flow outlook, taking account of
reasonably possible changes in trading performance, exchange rates and
plausible downside scenarios. This review indicated that there was sufficient
headroom and liquidity for the business to continue for the 18-month period
based on the facilities available. The Group was also expected to be in
compliance with the required covenants discussed above.
The Board has also reviewed the Group's reverse stress testing performed to
demonstrate how much headroom is available on covenant levels in respect of
changes in net debt, EBITDA, and underlying revenue. Based on this assessment,
a combined reduction in EBITDA of 70% and an increase in net debt of 120%
would still allow the Group to operate within its financial covenants. The
Directors do not consider either of these scenarios to be plausible given the
diversity of the Group's end-markets and its broad manufacturing base.
The Board and Executive Committee have regular reporting and review processes
in place in order to closely monitor the ongoing operational and financial
performance of the Group. As part of the ongoing risk management process,
principal and emerging risks are identified and reviewed on a regular basis.
This process includes the ongoing review of the impact of the prevailing
macroeconomic environment on the Group and its stakeholders. In addition, the
Directors have assessed the risk of climate change and do not consider that it
will impact the Group's ability to operate as a going concern for the period
under consideration.
The Board fully recognises the challenges that lie ahead but, after making
enquiries, and in the absence of any material uncertainties, the Directors
have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for a period of 18 months from
the date of signing this statement. Accordingly, they continue to adopt the
going concern basis in preparing the condensed consolidated financial
statements for the six months ended 30 June 2022.
Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge:
· The condensed consolidated financial statements have been
prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting;
· The interim management report for the six-month period ended 30 June
2022 includes a fair review of the information required by DTR 4.2.7R
(indication of important events and their impact during the first six months
of the financial year and a description of the principal risks and
uncertainties for the remaining six months of the year); and
· The interim management report for the six-month period ended 30 June
2022 includes a fair review of the information required by DTR 4.2.8R
(disclosure of related parties' transactions and changes therein).
Information about the current Directors of Morgan Advanced Materials plc
responsible for providing this Statement is maintained on the Company's
website at www.morganadvancedmaterials.com
(http://www.morganadvancedmaterials.com)
By order of the Board
Pete Raby
Chief Executive Officer
Richard Armitage
Chief Financial Officer
29 July 2022
Definitions and reconciliations of non-GAAP to GAAP measures
Reference is made to the following non-GAAP measures throughout this document.
These measures are shown because the Directors consider they provide useful
information to shareholders, including additional insight into ongoing trading
and year-on-year comparisons. These non-GAAP measures should be viewed as
complementary to, not replacements for, the comparable GAAP measures. As
defined in the basis of preparation on page 6, these measures are calculated
on a continuing basis.
Adjusted operating profit
Adjusted operating profit is stated before specific adjusting items and
amortisation of intangible assets. Specific adjusting items are excluded on
the basis that they distort trading performance. Amortisation is excluded as
the charge arises primarily on externally acquired intangible assets since the
adoption of IFRS and does not therefore reflect all intangible assets
consistently.
1H 2022 Thermal Ceramics Molten Electrical Carbon Seals and Bearings Technical Ceramics Segment total(1) Corporate costs(2) Group
Metal Systems
£m £m £m £m £m £m £m
£m
Operating profit 21.8 4.1 18.6 10.5 18.2 73.2 (3.0) 70.2
Add back: specific adjusting items included in operating profit - - - - - - - -
Add back: amortisation of intangible assets 0.9 0.1 0.3 0.4 0.6 2.3 - 2.3
Group and segmental adjusted operating profit/(loss) 22.7 4.2 18.9 10.9 18.8 75.5 (3.0) 72.5
1. The Group reported the results of its five global business units as two
divisions until 31 December 2021. From 1 January 2022 onwards, divisional
subtotals have been removed from our segmental reporting; we continue to
report the five separate global business units.
2.Corporate costs consist of central head office costs.
1H 2021 Thermal Ceramics Molten Electrical Carbon Seals and Bearings Technical Ceramics Segment total(1) Corporate costs(2) Group
Metal Systems
£m £m £m £m £m £m £m
£m
Operating profit 18.9 2.4 14.8 10.5 11.4 58.0 2.2 60.2
Add back: specific adjusting items included in operating profit 1.4 (0.3) 0.4 - - 1.5 (5.2) (3.7)
Add back: amortisation of intangible assets 0.9 0.4 0.4 0.2 0.7 2.6 - 2.6
Group and segmental adjusted operating profit/(loss) 21.2 2.5 15.6 10.7 12.1 62.1 (3.0) 59.1
1. The Group reported the results of its five global business units as two
divisions until 31 December 2021. From 1 January 2022 onwards, divisional
subtotals have been removed from our segmental reporting; we continue to
report the five separate global business units.
2.Corporate costs consist of central head office costs.
Organic growth
Organic growth is the growth of the business excluding the impacts of
acquisitions, divestments and foreign currency impacts. This measure is used
as it allows revenue and adjusted operating profit to be compared on a
like-for-like basis.
Commentary on the underlying business performance is included as part of the
operating review on pages 6 to 13.
Year-on-year movements in segment revenue
Thermal Ceramics Molten Metal Systems Electrical Carbon Seals and Bearings Technical Ceramics Segment
total(1)
£m £m £m £m £m £m
1H 2021 174.7 22.8 82.3 64.3 117.1 461.2
Impact of foreign currency movements 5.8 0.5 2.0 2.1 5.2 15.6
Impacts of acquisitions, disposals and business exits - - - 0.2 (0.1) 0.1
Organic constant-currency change 20.0 4.8 7.0 5.2 16.3 53.3
Organic constant-currency change % 11.1% 20.6% 8.3% 7.8% 13.3% 11.2%
1H 2022 200.5 28.1 91.3 71.8 138.5 530.2
1. The Group reported the results of its five global business units as two
divisions until 31 December 2021. From 1 January 2022 onwards, divisional
subtotals have been removed from our segmental reporting; we continue to
report the five separate global business units.
Year-on-year movements in segment and Group adjusted operating profit
Thermal Ceramics Molten Metal Systems Electrical Carbon Seals and Bearings Technical Ceramics Segment total(1) Corporate costs(2) Group
£m £m £m £m £m £m £m £m
1H 2021 21.2 2.5 15.6 10.7 12.1 62.1 (3.0) 59.1
Impact of foreign currency movements 1.2 0.1 0.2 0.6 0.7 2.8 - 2.8
Impact of acquisitions, disposals and business exits - - - 0.2 0.1 0.3 - 0.3
Organic constant-currency change 0.3 1.6 3.1 (0.6) 5.9 10.3 - 10.3
Organic constant-currency change % 1.3% 61.5% 19.6% (5.2)% 45.7% 15.8% - 16.6%
1H 2022 22.7 4.2 18.9 10.9 18.8 75.5 (3.0) 72.5
1. The Group reported the results of its five global business units as two
divisions until 31 December 2021. From 1 January 2022 onwards, divisional
subtotals have been removed from our segmental reporting; we continue to
report the five separate global business units.
2.Corporate costs consist of the cost of the central head office.
Group EBITDA
Group EBITDA is defined as operating profit before specific adjusting items,
depreciation and amortisation of intangible assets. The Group uses this
measure as it is a key metric in covenants over debt facilities, these
covenants use EBITDA on a pre-IFRS 16 Leases basis. A reconciliation of
operating profit to Group EBITDA is as follows:
1H 2022 1H 2021
£m £m
Operating profit 70.2 60.2
Add back: specific adjusting items included in operating profit - (3.7)
Add back: depreciation - property, plant and equipment 14.4 14.6
Add back: depreciation - right-of-use assets 3.9 3.8
Add back: amortisation of intangible assets 2.3 2.6
Group EBITDA 90.8 77.5
Group EBITDA excluding IFRS 16 Leases impact 85.1 71.9
Free cash flow before acquisitions, disposals and dividends
Free cash flow before acquisitions, disposals and dividends is defined as cash
generated from continuing operations less net capital expenditure, net
interest (interest paid on borrowings, overdrafts and lease liabilities, net
of interest received), tax paid and lease payments.
The Group discloses this measure of free cash flow as this provides readers of
the condensed consolidated financial statements with a measure of the cash
flows from the business before corporate level cash flows (acquisitions,
disposals and dividends).
A reconciliation of cash generated from continuing operations to free cash
flow before acquisitions, disposals and dividends is as follows:
1H 2022 1H 2021
£m £m
Cash generated from continuing operations 45.2 63.1
Net capital expenditure (22.5) (8.6)
Net interest on cash and borrowings (2.7) (2.5)
Tax paid (15.3) (9.9)
Lease payments and interest (5.7) (5.6)
Free cash flow before acquisitions, disposals and dividends (1.0) 36.5
Net cash and cash equivalents
Net cash and cash equivalents is defined as cash and cash equivalents less
bank overdrafts. The Group also discloses this measure as it provides an
indication of the net short-term liquidity available to the Group.
1H 2022 1H 2021
£m £m
Cash and cash equivalents 121.6 107.6
Bank overdrafts (1.1) (0.1)
Net cash and cash equivalents 120.5 107.5
Net debt
Net debt is defined as borrowings, bank overdrafts and lease liabilities, less
cash and cash equivalents. The Group also discloses this metric excluding
lease liabilities as this is the measure used in the covenants over the
Group's debt facilities.
1H 2022 1H 2021
£m £m
Cash and cash equivalents 121.6 107.6
Non-current borrowings (187.1) (172.7)
Non-current lease liabilities (42.2) (41.1)
Current borrowings and bank overdrafts (10.8) (0.1)
Current lease liabilities (10.0) (10.3)
Closing net debt (128.5) (116.6)
Closing net debt excluding IFRS 16 Leases liabilities (76.3) (65.2)
Return on invested capital
Return on invested capital (ROIC) is defined as the 12-month Group adjusted
operating profit (operating profit excluding specific adjusting items and
amortisation of intangible assets) divided by the 12-month average adjusted
net assets (third-party working capital, plant and equipment, land and
buildings, right-of-use assets, intangible assets and other balance sheet
items). This measure excludes long-term employee benefits, deferred tax assets
and liabilities, current tax payable, provisions, cash and cash equivalents,
borrowings and lease liabilities.
1H 2022 1H 2021
£m £m
Operating profit before specific adjusting items 132.2 93.0
Add back: amortisation of intangible assets 5.7 5.0
Group adjusted operating profit 137.9 98.0
12-month average adjusted net assets:
Third-party working capital 152.1 144.7
Plant and equipment 154.0 159.2
Land and buildings 98.0 104.8
Right-of-use assets 31.9 35.5
Intangible assets 184.8 186.8
Other assets (net) 1.4 6.2
12-month average adjusted net assets 622.2 637.2
ROIC 22.2% 15.4%
ROIC excluding IFRS 16 Leases impact 22.8% 15.7%
Adjusted earnings per share
Adjusted earnings per share is defined as operating profit adjusted to exclude
specific adjusting items and amortisation of intangible assets, plus share of
profit of associate less net financing costs, income tax expense and
non-controlling interests, divided by the weighted average number of Ordinary
shares during the period. This measure of earnings is shown because the
Directors consider it provides an indication of adjusted performance which is
less impacted by adjusting items and therefore reflects the underlying
performance trends in the business.
A reconciliation from IFRS profit to the profit used to calculate adjusted
earnings per share is included in note 7 to the condensed consolidated
financial statements.
Constant-currency revenue and adjusted operating profit
Constant-currency revenue and adjusted operating profit are derived by
translating the prior year results at current year average exchange rates.
These measures are used as they allow revenue to be compared excluding the
impact of foreign exchange rates. Page 10 provides further information on the
principal foreign currency exchange rates used in the translation of the
Group's results to constant-currency at average exchange rates.
Condensed Consolidated Financial Statements
for the six months ended 30 June 2022
Condensed consolidated income statement
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Results Specific Total Results Specific Total Results Specific Total
before specific adjusting before specific adjusting before specific adjusting
adjusting items items( 1) adjusting items items( 1) adjusting items items( 1)
Note £m £m £m £m £m £m £m £m £m
Revenue 2 530.2 - 530.2 461.2 - 461.2 950.5 - 950.5
Operating costs before amortisation of intangible assets (457.7) - (457.7) (402.1) 3.7 (398.4) (826.0) (5.4) (831.4)
Profit/(loss) from operations before amortisation of intangible assets 2 72.5 - 72.5 59.1 3.7 62.8 124.5 (5.4) 119.1
Amortisation of intangible assets (2.3) - (2.3) (2.6) - (2.6) (6.0) - (6.0)
Operating profit/(loss) 2 70.2 - 70.2 56.5 3.7 60.2 118.5 (5.4) 113.1
Finance income 0.4 - 0.4 0.4 - 0.4 0.8 - 0.8
Finance expense (4.9) - (4.9) (4.8) - (4.8) (10.0) - (10.0)
Net financing costs 4 (4.5) - (4.5) (4.4) - (4.4) (9.2) - (9.2)
Share of profit of associate (net of income tax) - - - 0.4 - 0.4 0.4 - 0.4
Profit/(loss) before taxation 65.7 - 65.7 52.5 3.7 56.2 109.7 (5.4) 104.3
Income tax (charge)/credit 5 (17.7) - (17.7) (14.4) 0.3 (14.1) (29.7) 1.5 (28.2)
Profit/(loss) from continuing operations 48.0 - 48.0 38.1 4.0 42.1 80.0 (3.9) 76.1
Profit from discontinued operations 6 - - - - - - - 5.7 5.7
Profit for the period 48.0 - 48.0 38.1 4.0 42.1 80.0 1.8 81.8
Profit for the period attributable to:
Shareholders of the Company 42.9 - 42.9 33.6 4.0 37.6 71.5 2.3 73.8
Non-controlling interests 5.1 - 5.1 4.5 - 4.5 8.5 (0.5) 8.0
Profit for the period 48.0 - 48.0 38.1 4.0 42.1 80.0 1.8 81.8
Earnings per share 7
Continuing and discontinued operations
Basic earnings per share 15.1p 13.2p 25.9p
Diluted earnings per share 15.0p 13.1p 25.7p
Continuing operations
Basic earnings per share 15.1p 13.2p 23.9p
Diluted earnings per share 15.0p 13.1p 23.7p
Dividends(2)
Proposed interim dividend - pence 5.30p 3.20p 3.20p
15.1 9.1 9.1
- £m
Final dividend - pence 5.90p
16.8
- £m
1. Details of specific adjusting items are given in note 3 to the condensed
consolidated financial statements.
2. The proposed interim and approved final dividends are based upon the number
of shares outstanding at the balance sheet date.
Condensed consolidated statement of comprehensive income
At 30 June 2022 At 30 June 2021 At 31 December 2021
£m £m £m
Profit for the period 48.0 42.1 81.8
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gain on defined benefit plans 23.3 38.6 55.5
Tax effect of components of other comprehensive income not reclassified (3.1) (0.8) (0.6)
20.2 37.8 54.9
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences 21.6 (5.4) 1.0
Tax effect of components of other comprehensive income that may be - - (0.8)
reclassified
Cash flow hedges:
Change in fair value (0.9) 0.1 (0.1)
Transferred to profit or loss - (0.4) (0.4)
20.7 (5.7) (0.3)
Total other comprehensive income 40.9 32.1 54.6
Total comprehensive income 88.9 74.2 136.4
Attributable to:
Shareholders of the Company 82.3 70.5 128.5
Non-controlling interests 6.6 3.7 7.9
88.9 74.2 136.4
Total comprehensive income attributable to shareholders of the Company arising
from:
Continuing operations 82.3 70.5 122.8
Discontinued operations - - 5.7
82.3 70.5 128.5
Condensed consolidated balance sheet
At 30 June 2022 At 30 June 2021 At 31 December 2021
Note £m £m £m
Assets
Property, plant and equipment 8 268.1 251.0 248.1
Right-of-use assets 33.2 33.2 31.9
Intangible assets: goodwill 9 181.2 171.5 172.9
Intangible assets: other 9 8.9 12.1 10.2
Other receivables 4.5 2.8 2.9
Deferred tax assets 14.9 13.8 15.9
Total non-current assets 510.8 484.4 481.9
Inventories 169.0 128.7 140.7
Derivative financial assets 11 0.4 0.7 0.6
Trade and other receivables 195.2 161.2 161.4
Current tax receivable 0.6 0.5 0.6
Cash and cash equivalents 10 121.6 107.6 127.3
Total current assets 486.8 398.7 430.6
Total assets 997.6 883.1 912.5
Liabilities
Borrowings 187.1 172.7 174.0
Lease liabilities 42.2 41.1 40.0
Employee benefits: pensions 12 73.5 128.2 102.7
Provisions 13 17.4 11.7 14.8
Non-trade payables 2.3 3.6 2.4
Deferred tax liabilities 1.1 0.5 1.2
Total non-current liabilities 323.6 357.8 335.1
Borrowings and bank overdrafts 10.8 0.1 -
Lease liabilities 10.0 10.3 9.8
Trade and other payables 186.2 165.1 177.2
Current tax payable 29.6 24.0 25.4
Provisions 13 13.0 21.8 14.8
Derivative financial liabilities 11 1.7 0.4 0.6
Total current liabilities 251.3 221.7 227.8
Total liabilities 574.9 579.5 562.9
Total net assets 422.7 303.6 349.6
Equity
Share capital 71.3 71.3 71.3
Share premium 111.7 111.7 111.7
Reserves 37.7 13.8 18.5
Retained earnings 157.9 67.0 109.1
Total equity attributable to shareholders of the Company 378.6 263.8 310.6
Non-controlling interests 44.1 39.8 39.0
Total equity 422.7 303.6 349.6
Condensed consolidated statement of changes in equity
Share capital Share premium Translation Hedging Fair value reserve Capital redemption reserve Other reserves Retained earnings Total parent equity Non-controlling interests Total
reserve reserve equity
£m £m £m £m £m £m £m £m £m £m £m
At 1 January 2021 71.3 111.7 (17.0) 0.4 (1.0) 35.7 0.6 0.6 202.3 37.7 240.0
Profit for the period - - - - - - - 37.6 37.6 4.5 42.1
Other comprehensive income/(expense):
Remeasurement gain on defined benefit plans and related taxes - - - - - - - 37.8 37.8 - 37.8
Foreign exchange differences and related taxes - - (4.6) - - - - - (4.6) (0.8) (5.4)
Cash flow hedging fair value changes and transfers - - - (0.3) - - - - (0.3) - (0.3)
Total comprehensive income/(expense) - - (4.6) (0.3) - - - 75.4 70.5 3.7 74.2
Transactions with owners:
Dividends - - - - - - - (10.0) (10.0) (1.6) (11.6)
Equity settled share-based payments - - - - - - - 2.2 2.2 - 2.2
Own shares acquired for share incentive schemes (net) - - - - - - - (1.2) (1.2) - (1.2)
At 30 June 2021 71.3 111.7 (21.6) 0.1 (1.0) 35.7 0.6 67.0 263.8 39.8 303.6
At 1 January 2021 71.3 111.7 (17.0) 0.4 (1.0) 35.7 0.6 0.6 202.3 37.7 240.0
Profit for the year - - - - - - - 73.8 73.8 8.0 81.8
Other comprehensive income/(expense):
Remeasurement gain on defined benefit plans and related taxes - - - - - - - 54.9 54.9 - 54.9
Foreign exchange differences and related taxes - - 0.3 - - - - - 0.3 (0.1) 0.2
Cash flow hedging fair value changes and transfers - - - (0.5) - - - - (0.5) - (0.5)
Total comprehensive income/(expense) - - 0.3 (0.5) - - - 128.7 128.5 7.9 136.4
Transactions with owners:
Dividends - - - - - - - (19.1) (19.1) (6.6) (25.7)
Equity settled share-based payments - - - - - - - 4.5 4.5 - 4.5
Own shares acquired for share incentive schemes (net) - - - - - - - (5.6) (5.6) - (5.6)
At 31 December 2021 71.3 111.7 (16.7) (0.1) (1.0) 35.7 0.6 109.1 310.6 39.0 349.6
At 1 January 2022 71.3 111.7 (16.7) (0.1) (1.0) 35.7 0.6 109.1 310.6 39.0 349.6
Profit for the period - - - - - - - 42.9 42.9 5.1 48.0
Other comprehensive income/(expense):
Remeasurement gain on defined benefit plans and related taxes - - - - - - - 20.2 20.2 - 20.2
Foreign exchange differences - - 20.1 - - - - - 20.1 1.5 21.6
Cash flow hedging fair value changes and transfers - - - (0.9) - - - - (0.9) - (0.9)
Total comprehensive income/(expense) - - 20.1 (0.9) - - - 63.1 82.3 6.6 88.9
Transactions with owners:
Dividends - - - - - - - (16.5) (16.5) (1.5) (18.0)
Equity settled share-based payments - - - - - - - 3.0 3.0 - 3.0
Own shares acquired for share incentive schemes (net) - - - - - - - (0.8) (0.8) - (0.8)
At 30 June 2022 71.3 111.7 3.4 (1.0) (1.0) 35.7 0.6 157.9 378.6 44.1 422.7
Condensed consolidated statement of cash flows
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Note £m £m £m
Operating activities
Profit for the period from continuing operations 48.0 42.1 76.1
Profit for the period from discontinued operations 6 - - 5.7
Adjustments for:
Depreciation - property, plant and equipment 2,8 14.4 14.6 30.1
Depreciation - right-of-use assets 2 3.9 3.8 7.9
Amortisation 2,9 2.3 2.6 6.0
Net financing costs 4 4.5 4.4 9.2
Profit on disposal of business 3,6 - (5.1) (7.1)
Non-cash specific adjusting items included in operating profit 3,6 - 0.8 10.4
Share of profit from associate (net of income tax) - (0.4) (0.4)
(Profit)/loss on sale of property, plant and equipment (0.2) 1.2 0.3
Income tax expense 5 17.7 14.1 28.2
Equity-settled share-based payment expenses 2.3 2.2 4.5
Cash generated from operations before changes in working capital and 92.9 80.3 170.9
provisions
Increase in trade and other receivables (23.4) (18.9) (17.2)
Increase in inventories (18.8) (9.2) (20.1)
Increase in trade and other payables 3.5 20.7 28.3
Decrease in provisions (0.7) (1.8) (5.8)
Payments to defined benefit pension plans (net of IAS 19 pension charges) (8.3) (8.0) (16.9)
Cash generated from operations 45.2 63.1 139.2
Interest paid - borrowings and overdrafts (3.1) (2.9) (6.1)
Interest paid - lease liabilities (1.1) (1.1) (2.3)
Income tax paid (15.3) (9.9) (25.4)
Net cash from operating activities 25.7 49.2 105.4
Investing activities
Purchase of property, plant and equipment and software (22.9) (10.9) (31.6)
Purchase of investments (0.3) (0.5) (0.9)
Acquisition of business assets - (1.9) (1.9)
Proceeds from sale of property, plant and equipment 0.4 2.3 5.5
Interest received 0.4 0.4 0.8
Disposal of investments - 12.2 14.2
Disposal of subsidiaries, net of cash disposed - 0.5 0.8
Net cash from investing activities (22.4) 2.1 (13.1)
Financing activities
Purchase of own shares for share incentive schemes (0.9) (1.4) (5.9)
Proceeds from exercise of share options 0.1 0.2 0.3
Increase in borrowings 9.7 - -
Reduction and repayment of borrowings - (72.4) (72.3)
Payment of lease liabilities (4.6) (4.5) (8.6)
Dividends paid to shareholders of the Company (16.5) (10.0) (19.1)
Dividends paid to non-controlling interests (1.5) (1.6) (6.6)
Net cash from financing activities (13.7) (89.7) (112.2)
Net decrease in cash and cash equivalents (10.4) (38.4) (19.9)
Cash and cash equivalents at start of period 127.3 147.8 147.8
Effect of exchange rate fluctuations on cash held 4.7 (1.8) (0.6)
Cash and cash equivalents at period end 10 121.6 107.6 127.3
Notes to the condensed consolidated financial statements
Note 1. Basis of preparation, accounting policies and judgment and estimates
Morgan Advanced Materials plc (the 'Company') is a company incorporated in the
UK under the Companies Act 2006.
The unaudited condensed consolidated financial statements of the Company for
the six months ended 30 June 2022 comprise the Company, its subsidiaries and
the Group's interest in associates (together 'the Group').
The condensed consolidated financial statements for the six months ended 30
June 2022 have been prepared in accordance with International Accounting
Standard 34 Interim Financial Reporting and International Financial Reporting
Standards ('IFRSs') as adopted by the UK. There has been no change to the
recognition, measurement or disclosure from preparation in previous periods
under IFRSs as adopted by the European Union. Selected explanatory notes are
included to explain events and transactions that are significant to an
understanding of the changes in financial position and performance of the
Group since the last annual consolidated financial statements for the year
ended 31 December 2021.
The condensed consolidated financial statements and the comparative
information for the six months ended 30 June 2022 have neither been audited
nor reviewed, do not comprise statutory accounts for the purpose of section
434 of Companies Act 2006 and should be read in conjunction with the Annual
Report and Accounts for the year ended 31 December 2021. Those accounts have
been reported on by the Group's auditor and delivered to the Registrar of
Companies. The report of the auditor was unqualified, did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying his report, and did not contain a statement under
section 498(2) or (3) of the Companies Act 2006. The condensed consolidated
financial statements have been prepared on a going concern basis, see page 27
for further details.
The consolidated financial statements of the Group for the year ended 31
December 2021 are available on request from the Company's registered office at
York House, Sheet Street, Windsor, SL4 1DD or at morganadvancedmaterials.com.
The condensed consolidated financial statements for the six months ended 30
June 2022 were approved by the Board on 29 July 2022.
Accounting policies
As required by the Disclosure and Transparency Rules of the Financial Conduct
Authority, these condensed consolidated financial statements have been
prepared by applying the accounting policies that were applied in the
preparation of the Group's published consolidated financial statements for the
year ended 31 December 2021, except for newly effective standards listed
below.
Use of judgements and estimates
Preparing the condensed consolidated financial statements requires management
to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates. The Group's
critical accounting judgments and key sources of estimation uncertainty remain
unchanged from those set out in the Group's consolidated financial statements
for the year ended 31 December 2021.
Adoption of new and revised accounting standards
During the period the following amendments to standards became effective. The
amendments did not have a material impact on the Group:
· Amendments to IAS 16 - Property, Plant and Equipment - Proceeds
before Intended Use;
· Annual Improvements to IFRS Standards 2018 - 2020;
· Amendments to IFRS 3 - Reference to the Conceptual Framework;
· Amendments to IAS 37 - Onerous Contracts - Cost of Fulfilling a
Contract; and
· Amendments to IFRS 16 - Covid-19-related Rent Concessions beyond
30 June 2021.
Accounting developments and changes
New standards and interpretations that are in issue but not yet effective are
listed below, none of which are anticipated to have a material impact on the
Group's financial statements:
· Amendments to IFRS 17 - Insurance Contracts;
· Amendments to IAS 1 - Classification of Liabilities as Current or
Non-current;
· Amendments to IFRS 4 - Extension of the Temporary Exemption from
Applying IFRS 9;
· Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of
Accounting Policies;
· Amendments to IAS 12 - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction; and
· Amendments to IAS 8 - Definition of Accounting Estimates.
Non-GAAP measures
Where non-GAAP measures have been referenced, these have been identified by an
asterisk (*) where they appear in text and by a footnote where they appear in
a table. Definitions of these non-GAAP measures, and their reconciliation to
the relevant GAAP measure, are provided on pages 16 to 20.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the 2021
Annual Report and Accounts on pages 2 to 57. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities are
described earlier in this financial review. Additionally note 11 to the
condensed consolidated financial statements for the six months ended 30 June
2022 provide details of the Group's policies and processes for managing
financial risk; details of its financial instruments and hedging activities;
and details of its exposures to credit risk and liquidity risk.
The Group meets its day-to-day working capital requirements through local
banking arrangements underpinned by the Group's £200 million unsecured
multi-currency revolving credit facility, which matures in September 2024. As
at 30 June 2022 the Group had significant headroom on its covenants and
available liquidity with the Group's £200 million multi-currency revolving
credit facility being £10 million drawn. Total committed borrowing facilities
were £386.7 million, none of which are due to mature in the following 12
months. The amount drawn under these facilities was £196.7 million, which
together with net cash and cash equivalents of £120.5 million, gave a total
headroom of £310.5 million.
The Group has carefully modelled its cash flow outlook, taking account of
reasonably possible changes in trading performance, exchange rates and
plausible downside scenarios. This review indicated that there was sufficient
headroom and liquidity for the business to continue for the 18-month period
based on the facilities available. The Group was also expected to be in
compliance with the required covenants discussed above.
The Board has also reviewed the Group's reverse stress testing performed to
demonstrate how much headroom is available on covenant levels in respect of
changes in net debt, EBITDA, and underlying revenue. Based on this assessment,
a combined reduction in EBITDA of 70% and an increase in net debt of 120%
would still allow the Group to operate within its financial covenants. The
Directors do not consider either of these scenarios to be plausible given the
diversity of the Group's end-markets and its broad manufacturing base.
The Board and Executive Committee have regular reporting and review processes
in place in order to closely monitor the ongoing operational and financial
performance of the Group. As part of the ongoing risk management process,
principal and emerging risks are identified and reviewed on a regular basis.
This process includes the ongoing review of the impact of the prevailing
macroeconomic environment on the Group and its stakeholders. In addition, the
Directors have assessed the risk of climate change and do not consider that it
will impact the Group's ability to operate as a going concern for the period
under consideration.
The Board fully recognises the challenges that lie ahead but, after making
enquiries, and in the absence of any material uncertainties, the Directors
have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for a period of 18 months from
the date of this statement. Accordingly, they continue to adopt the going
concern basis in preparing the condensed consolidated financial statements for
the six months ended 30 June 2022.
Note 2. Segment reporting
The Group reports as five global business units, which have been identified as
the Group's reportable operating segments. These have been identified on the
basis of internal management reporting information that is regularly reviewed
by the Group's Board of Directors (the Chief Operating Decision Maker) in
order to allocate resources and assess performance.
Segment results, assets and liabilities include items directly attributable to
a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly investments and related income, borrowings
and related expenses, corporate assets and head office expenses, and income
tax assets and liabilities.
The information presented below represents the operating segments of the
Group.
Six months ended 30 June 2022
Thermal Ceramics Molten Metal Systems Electrical Carbon Seals and Bearings Technical Ceramics Segment totals Corporate costs Group
Continuing operations £m £m £m £m £m £m £m £m
Revenue from external customers 200.5 28.1 91.3 71.8 138.5 530.2 - 530.2
Segment adjusted operating profit(1) 22.7 4.2 18.9 10.9 18.8 75.5 - 75.5
Corporate costs (3.0) (3.0)
Group adjusted operating profit(1) 72.5
Amortisation of intangible assets (0.9) (0.1) (0.3) (0.4) (0.6) (2.3) - (2.3)
Operating profit before specific adjusting items 21.8 4.1 18.6 10.5 18.2 73.2 (3.0) 70.2
Specific adjusting items included in operating profit(2) - - - - - - - -
Operating profit 21.8 4.1 18.6 10.5 18.2 73.2 (3.0) 70.2
Finance income 0.4
Finance expense (4.9)
Share of profit of associate (net of income tax) -
Profit before taxation 65.7
Segment assets 360.9 45.9 152.5 112.4 183.5 855.2 142.4 997.6
Segment liabilities 98.9 8.7 31.9 22.6 80.8 242.9 332.0 574.9
Segment capital expenditure 6.9 1.1 3.0 3.8 8.1 22.9 - 22.9
Segment depreciation - property, plant and equipment 5.2 1.0 2.5 3.0 2.7 14.4 - 14.4
Segment depreciation - right-of-use assets 1.7 0.1 0.5 0.3 1.3 3.9 - 3.9
Segment impairment of non-financial assets - - - - - - - -
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
2. Details of specific adjusting items are given in note 3 to the condensed
consolidated financial statements.
Six months ended 30 June 2021
Thermal Ceramics Molten Metal Systems Electrical Carbon Seals and Bearings Technical Ceramics Segment totals Corporate costs Group
Continuing operations £m £m £m £m £m £m £m £m
Revenue from external customers 174.7 22.8 82.3 64.3 117.1 461.2 - 461.2
Segment adjusted operating profit(1) 21.2 2.5 15.6 10.7 12.1 62.1 - 62.1
Corporate costs (3.0) (3.0)
Group adjusted operating profit(1) 59.1
Amortisation of intangible assets (0.9) (0.4) (0.4) (0.2) (0.7) (2.6) - (2.6)
Operating profit before specific adjusting items 20.3 2.1 15.2 10.5 11.4 59.5 (3.0) 56.5
Specific adjusting items included in operating profit(2) (1.4) 0.3 (0.4) - - (1.5) 5.2 3.7
Operating profit 18.9 2.4 14.8 10.5 11.4 58.0 2.2 60.2
Finance income 0.4
Finance expense (4.8)
Share of profit of associate (net of income tax) 0.4
Profit before taxation 56.2
Segment assets 309.2 39.1 143.5 102.9 161.6 756.3 126.8 883.1
Segment liabilities 85.2 7.6 31.0 19.6 80.5 223.9 355.6 579.5
Segment capital expenditure 2.4 0.9 1.4 2.9 3.3 10.9 - 10.9
Segment depreciation - property, plant and equipment 5.2 1.0 2.6 2.9 2.9 14.6 - 14.6
Segment depreciation - right-of-use assets 1.7 0.2 0.5 0.3 1.1 3.8 - 3.8
Segment impairment of non-financial assets (0.7) - - - (0.1) (0.8) - (0.8)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
2. Details of specific adjusting items are given in note 3 to the condensed
consolidated financial statements.
Year ended 31 December 2021
Thermal Ceramics Molten Metal Systems Electrical Carbon Seals and Bearings Technical Ceramics Segment totals Corporate costs Group
Continuing operations £m £m £m £m £m £m £m £m
Revenue from external customers 364.7 47.7 164.9 135.9 237.3 950.5 - 950.5
Segment adjusted operating profit(1) 42.0 6.3 32.8 22.9 26.4 130.4 - 130.4
Corporate costs (5.9) (5.9)
Group adjusted operating profit(1) 124.5
Amortisation of intangible assets (2.1) (0.6) (0.9) (0.9) (1.5) (6.0) - (6.0)
Operating profit before specific adjusting items 39.9 5.7 31.9 22.0 24.9 124.4 (5.9) 118.5
Specific adjusting items included in operating profit(2) (2.1) 0.3 (6.3) - (6.0) (14.1) 8.7 (5.4)
Operating profit 37.8 6.0 25.6 22.0 18.9 110.3 2.8 113.1
Finance income 0.8
Finance expense (10.0)
Share of profit of associate (net of income tax) 0.4
Profit before taxation 104.3
Segment assets 319.9 41.8 137.6 107.5 156.5 763.3 149.2 912.5
Segment liabilities 88.9 8.4 30.6 23.6 73.9 225.4 337.5 562.9
Segment capital expenditure 8.0 2.2 5.9 7.6 7.9 31.6 - 31.6
Segment depreciation - property, plant and equipment 10.2 2.0 5.5 6.4 6.0 30.1 - 30.1
Segment depreciation - right-of-use assets 3.5 0.3 1.1 0.6 2.4 7.9 - 7.9
Segment impairment of non-financial assets 0.7 - 5.7 - 6.0 12.4 - 12.4
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
2. Details of specific adjusting items are given in note 3 to the condensed
consolidated financial statements.
Revenue from external customers by geography
Continuing operations Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
US 190.7 161.8 336.4
China 61.0 55.6 114.4
Germany 39.1 33.6 68.7
UK (the Group's country of domicile) 22.9 20.3 38.5
Other Asia, Australasia, Middle East and Africa 94.1 85.3 174.6
Other Europe 88.2 78.1 157.4
Other North America 18.2 16.2 33.4
South America 16.0 10.3 27.1
530.2 461.2 950.5
Revenue from external customers is based on geographic location of the
end-customer. No customer represents more than 5% of revenue.
Revenue from external customers by end-market
Continuing operations Six months ended Six months ended Year ended
30 June 2022 30 June 2021(1) 31 December 2021(1)
£m £m £m
Clean energy and clean transportation 27.3 29.7 54.3
Semiconductors 44.5 28.5 63.8
Healthcare 37.8 34.9 70.1
Faster growing markets 109.6 93.1 188.2
Conventional transportation 81.6 71.9 141.7
Conventional energy 14.9 16.0 30.4
Petrochemical and chemical 55.8 46.8 98.7
Industrial and metals 238.9 204.6 431.0
Security and defence 29.4 28.8 60.5
Core markets 420.6 368.1 762.3
530.2 461.2 950.5
1. Revenue from external customers by end market for the period ended 30 June
2021 and the year ended 31 December 2021 has been re-presented to better
reflect the end-markets of our customers.
Intercompany sales to other segments
Continuing operations Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Thermal Ceramics 0.3 0.2 0.8
Molten Metal Systems - 0.1 0.1
Electrical Carbon 0.1 - 0.2
Seals and Bearings 0.4 0.4 1.0
Technical Ceramics 0.6 0.2 0.5
1.4 0.9 2.6
Note 3. Specific adjusting items
Continuing operations Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Specific adjusting items:
Impairment of non-financial assets - (0.8) (12.4)
Restructuring credit/(cost) - (0.6) 0.1
Net profit on disposal of businesses - 5.1 7.1
Business closure and exit costs - - (0.2)
Total specific adjusting items before income tax - 3.7 (5.4)
Income tax credit from specific adjusting items - 0.3 1.5
Total specific adjusting items after income tax - 4.0 (3.9)
Specific adjusting items in relation to discontinued operations are disclosed
in note 6.
2022
There were no specific adjusting items in the six months to 30 June 2022.
2021
Specific adjusting items before income tax for the six months ended 30 June
2021 were a net gain of £3.7 million and related to the Group's restructuring
and efficiency programme, as follows:
Impairment of non-financial assets
A £0.8 million charge was recognised, primarily relating to assets associated
with closed manufacturing lines within Thermal Ceramics.
Restructuring costs
The Group recognised a charge of £0.6 million for redundancies and other
costs associated with the restructuring and efficiency programme. Whilst these
costs were anticipated in 2020, they did not meet the recognition criteria set
out by IAS 37 Provisions, Contingent Liabilities and Contingent Assets until
2021.
Net profit on disposal of businesses
In the period ended 30 June 2021, the Group disposed of its 35% shareholding
in Jemmtec Limited and the business assets associated with the Latrobe
business. These disposals generated a profit of £5.2 million and a loss of
£0.1 million respectively.
Note 4. Finance income and expense
Continuing operations Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Interest on bank balances and cash deposits 0.4 0.4 0.8
Finance income 0.4 0.4 0.8
Interest expense on borrowings and overdrafts (3.1) (2.9) (6.1)
Interest expense on lease liabilities (1.1) (1.1) (2.3)
Net interest on IAS 19 defined benefit pension obligations (0.7) (0.8) (1.6)
Finance expense (4.9) (4.8) (10.0)
Net financing costs recognised in profit or loss (4.5) (4.4) (9.2)
No finance income or expense related to discontinued operations in either the
current or preceding periods.
Note 5. Taxation
Continuing operations Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Income tax charge on profit before specific adjusting items (17.7) (14.4) (29.7)
Income tax credit from specific adjusting items - 0.3 1.5
Total income tax expense recognised in profit or loss (17.7) (14.1) (28.2)
The Group's consolidated effective tax rate, excluding specific adjusting
items, was 27.0% for the six months ended 30 June 2022 (30 June 2021: 27.4%;
31 December 2021: 27.1%) and is based on the Directors' best estimate of the
effective tax rate for the year.
The Group operates in many jurisdictions around the world and is subject to
factors that may impact future tax charges including the implementation of the
OECD's BEPS actions, tax rate and legislation changes, expiry of the statute
of limitations and resolution of tax audits and disputes.
Note 6. Discontinued operations
The results from discontinued operations, which represent the Composites and
Defence Systems business disposed in 2018, are set out below:
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Results Specific Total Results Specific Total Results Specific Total
before specific adjusting before specific adjusting before specific adjusting
adjusting items items adjusting items items adjusting items items
£m £m £m £m £m £m £m £m £m
Revenue - - - - - - - 3.3 3.3
Operating income - - - - - - - 2.4 2.4
Profit before taxation - - - - - - - 5.7 5.7
Income tax expense - - - - - - - - -
Profit from discontinued operations - - - - - - - 5.7 5.7
Basic profit per share from discontinued operations - - 2.0p
Diluted profit per share from discontinued operations - - 2.0p
In 2021, £3.3 million of the specific adjusting items balance relate to the
full and final settlement of certain long-term contracts. A further £2.4
million relates to the reassessment of certain provisions associated with the
disposal of the Composites and Defence Systems business.
There was no income tax expense in relation to the discontinued operations in
either the current or preceding periods.
Cash flows from discontinued operations are set out below:
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Net cash inflow from operating activities - - 3.3
Net cash inflow from investing activities - - 2.0
Net cash flow used in financing activities - - -
- - 5.3
Note 7. Earnings per share
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Earnings Basic earnings Diluted earnings Earnings/ (loss) Basic earnings/ Diluted earnings/ (loss) Earnings/ (loss) Basic earnings/ Diluted earnings/ (loss)
per share per share (loss) per share (loss) per share
per share per share
£m pence pence £m pence pence £m pence pence
Profit for the period attributable to shareholders of the Company 42.9 15.1p 15.0p 37.6 13.2p 13.1p 73.8 25.9p 25.7p
Profit from discontinued operations - - - - - - (5.7) (2.0)p (2.0)p
Profit from continuing operations 42.9 15.1p 15.0p 37.6 13.2p 13.1p 68.1 23.9p 23.7p
Specific adjusting items - - - (3.7) (1.3)p (1.3)p 5.4 1.9p 1.9p
Amortisation of intangible assets 2.3 0.8p 0.8p 2.6 0.9p 0.9p 6.0 2.1p 2.1p
Tax effect of the above - - - (0.3) (0.1)p (0.1)p (1.5) (0.5)p (0.5)p
Non-controlling interests' share of the above adjustments - - - - - - (0.5) (0.2)p (0.2)p
Adjusted profit for the period from continuing operations as used in adjusted 45.2 15.9p 15.8p 36.2 12.7p 12.6p 77.5 27.2p 27.0p
earnings per share(1)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
millions millions millions
Number of shares
Weighted average number of Ordinary shares for the purposes of basic earnings 284.4 284.8 284.6
per share(1)
Effect of dilutive potential Ordinary shares:
Share options 1.8 2.2 2.4
Weighted average number of Ordinary shares for the purposes of diluted 286.2 287.0 287.0
earnings per share
1. The calculation of the weighted average number of shares excludes the
shares held by The Morgan General Employee Benefit Trust, on which dividends
are waived.
Note 8. Property, plant and equipment
Land and Plant, Total
buildings equipment
and fixtures
£m £m £m
Cost
At 1 January 2022 199.8 677.2 877.0
Additions 1.1 16.5 17.6
Disposals (0.1) (4.5) (4.6)
Effect of movement in foreign exchange 15.2 47.4 62.6
At 30 June 2022 216.0 736.6 952.6
Depreciation and impairment losses
At 1 January 2022 103.0 525.9 628.9
Depreciation charge for the period 2.1 12.3 14.4
Disposals - (4.3) (4.3)
Effect of movement in foreign exchange 8.4 37.1 45.5
At 30 June 2022 113.5 571.0 684.5
Carrying amounts
At 1 January 2022 96.8 151.3 248.1
At 30 June 2022 102.5 165.6 268.1
Note 9. Intangible assets
Acquisition intangibles
Goodwill Customer Other Capitalised Computer Total
relationships development software
costs
£m £m £m £m £m £m
Cost
At 1 January 2022 172.9 57.6 4.1 0.7 34.8 270.1
Additions - - - - 0.7 0.7
Disposals - - - - (0.1) (0.1)
Effect of movement in foreign exchange 8.3 5.9 0.1 0.2 1.8 16.3
At 30 June 2022 181.2 63.5 4.2 0.9 37.2 287.0
Amortisation and impairment losses
At 1 January 2022 - 56.1 3.5 0.7 26.7 87.0
Amortisation charge for the period - 0.4 0.1 - 1.8 2.3
Effects of movement in foreign exchange - 5.8 0.1 0.2 1.5 7.6
At 30 June 2022 - 62.3 3.7 0.9 30.0 96.9
Carrying amounts
At 1 January 2022 172.9 1.5 0.6 - 8.1 183.1
At 30 June 2022 181.2 1.2 0.5 - 7.2 190.1
Note 10. Cash and cash equivalents reconciled to net debt*
At 30 June 2022 At 30 June 2021 At 31 December 2021
£m £m £m
Bank balances 114.6 101.0 101.2
Cash deposits 7.0 6.6 26.1
Cash and cash equivalents 121.6 107.6 127.3
Reconciliation of cash and cash equivalents to net debt*
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Opening borrowings and lease liabilities (223.8) (303.4) (303.4)
Increase in borrowings (9.7) - -
Reduction and repayment of borrowings - 72.4 72.3
Payment of lease liabilities 4.6 4.5 8.6
Total changes from cash flows (5.1) 76.9 80.9
New leases and lease remeasurement (3.0) (2.3) (4.4)
Effect of movements in foreign exchange on borrowings (18.2) 4.6 3.1
Closing borrowings and lease liabilities (250.1) (224.2) (223.8)
Cash and cash equivalents 121.6 107.6 127.3
Closing net debt(2) (128.5) (116.6) (96.5)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes.
Borrowings Lease liabilities Total financing liabilities Cash and cash equivalents Movement in
net debt(1)
£m £m £m
£m
£m
At 1 January 2022 (174.0) (49.8) (223.8) 127.3 (96.5)
Cash outflow - - - (5.3) (5.3)
Borrowings and lease liability cash flow (9.7) 4.6 (5.1) - (5.1)
Interest paid - - - (4.2) (4.2)
Net cash inflow/(outflow) (9.7) 4.6 (5.1) (9.5) (14.6)
Share purchases - - - (0.9) (0.9)
New leases and lease remeasurement - (3.0) (3.0) - (3.0)
Exchange and other movements (14.2) (4.0) (18.2) 4.7 (13.5)
At 30 June 2022 (197.9) (52.2) (250.1) 121.6 (128.5)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 44, reconciliations of the statutory results to the adjusted
measures can be found on pages 16 to 20.
Note 11. Financial risk management
Fair values
At 30 June 2022 At 30 June 2021 At 31 December 2021
Carrying Fair value Carrying Fair value Carrying Fair value
amount amount amount
£m £m £m
Level 1 Level 2 Total Level 1 Level 2 Total Level 1 Level 2 Total
£m £m £m £m £m £m £m £m £m
Financial assets and liabilities held at
amortised cost
1.18% Euro Senior Notes 2023 (21.6) - (21.3) (21.3) (21.5) - (21.6) (21.6) (21.0) - (21.1) (21.1)
3.17% US Dollar Senior Notes 2023 (12.4) - (12.2) (12.2) (10.9) - (11.2) (11.2) (11.1) - (11.3) (11.3)
1.55% Euro Senior Notes 2026 (21.6) - (20.7) (20.7) (21.5) - (22.0) (22.0) (21.1) - (21.4) (21.4)
3.37% US Dollar Senior Notes 2026 (80.1) - (75.4) (75.4) (70.5) - (72.7) (72.7) (72.2) - (72.8) (72.8)
4.87% US Dollar Senior Notes 2026 (20.9) - (20.8) (20.8) (18.4) - (19.9) (19.9) (18.8) - (20.6) (20.6)
1.74% Euro Senior Notes 2028 (8.6) - (8.1) (8.1) (8.6) - (8.8) (8.8) (8.4) - (8.6) (8.6)
2.89% Euro Senior Notes 2030 (21.5) - (20.2) (20.2) (21.4) - (22.8) (22.8) (21.0) - (22.1) (22.1)
5.50% Cumulative First Preference shares (0.1) - (0.1) (0.1) (0.1) - (0.1) (0.1) (0.1) - (0.1) (0.1)
5.00% Cumulative First Preference shares (0.3) - (0.3) (0.3) (0.3) - (0.3) (0.3) (0.3) - (0.3) (0.3)
Bank and other borrowings (10.0) - (10.0) (10.0) - - - - - - - -
(197.1) - (189.1) (189.1) (173.2) - (179.4) (179.4) (174.0) - (178.3) (178.3)
Derivatives held at fair value
Derivative financial assets 0.4 - 0.4 0.4 0.7 - 0.7 0.7 0.6 - 0.6 0.6
Derivative financial liabilities (1.7) - (1.7) (1.7) (0.4) - (0.4) (0.4) (0.6) - (0.6) (0.6)
(1.3) - (1.3) (1.3) 0.3 - 0.3 0.3 - - - -
(198.4) - (190.4) (190.4) (172.9) - (179.1) (179.1) (174.0) - (178.3) (178.3)
The table above analyses financial instruments carried at fair value, by
valuation method, together with the carrying amounts shown in the balance
sheet. The fair value of cash and cash equivalents, current trade and other
receivables/ payables and floating-rate bank and other borrowings are excluded
from the preceding table as their carrying amount approximates to their fair
value.
Fair value hierarchy
The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: not traded in an active market but the fair values are based on
quoted market prices or alternative pricing sources with reasonable levels of
price transparency. Fair value is calculated using discounted cash flow
methodology, future cash flows are estimated based on forward exchange rates.
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
There were no transfers between Level 1 and Level 2 during 2022 or 2021 and
there were no Level 3 financial instruments in either 2022 or 2021.
The major methods and assumption used in estimating the fair values of
financial instruments reflected in the preceding table are as follows:
Fixed-rate borrowings
Fair value is calculated based on discounted expected future principal and
interest cash flows. The interest rates used to determine the fair value of
borrowings are 2.1-5.1% (30 June 2021: 1.0-3.0%; 31 December 2021: 1.0-3.1%).
Equity securities
Fair value is based on quoted market prices at the balance sheet date.
Derivatives
Forward exchange contracts are marked to market either using listed market
prices or by discounting the contractual forward price and deducting the
current spot rate.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. The Group is exposed to credit risk on financial instruments such
as liquid assets, derivative assets and trade receivables.
The current economic climate gives rise to an increased credit risk, primarily
with respect to trade receivables.
The Group establishes an allowance for impairment that represents its estimate
of expected credit losses in respect of trade receivables.
The loss allowance for trade receivables by ageing category is as follows:
30 June 2022 30 June 2021 31 December 2021
Expected credit loss rate Gross trade receivables Expected credit losses Net trade receivables Expected credit loss rate Gross trade receivables Expected credit losses Net trade receivables Expected credit loss Gross trade receivables Expected credit losses Net trade receivables
rate
% £m £m £m % £m £m £m % £m £m £m
Not past due 0.1% 146.9 (0.1) 146.8 0.2% 123.0 (0.3) 122.7 0.3% 119.1 (0.4) 118.7
Past due 0-30 days 0.5% 18.9 (0.1) 18.8 1.4% 14.5 (0.2) 14.3 - 14.8 - 14.8
Past due 31-60 days 0.0% 3.6 - 3.6 1.9% 5.4 (0.1) 5.3 - 3.8 - 3.8
Past due 61-90 days 7.7% 1.3 (0.1) 1.2 6.9% 2.9 (0.2) 2.7 7.1% 1.4 (0.1) 1.3
Past due more than 90 days 90.7% 10.7 (9.7) 1.0 95.1% 8.2 (7.8) 0.4 94.5% 11.0 (10.4) 0.6
181.4 (10.0) 171.4 154.0 (8.6) 145.4 150.1 (10.9) 139.2
Full details of the Group's policies and processes for managing financial risk
are described in note 22 of the Group's 2021 Annual Report and Accounts.
Offsetting financial assets and liabilities
The following table shows the amounts recognised for forward exchange
contracts, which are subject to offsetting arrangements on a gross basis, and
the amounts offset in the balance sheet.
The Group also has cash pooling agreements which cannot be offset under IFRS,
but which could be settled net under the terms of master netting agreements,
are also presented in the table to show the total net exposure of the Group.
Gross amounts of recognised financial assets/ (liabilities) Amounts set off Net amounts presented on the balance sheet Financial instruments not set off in the balance sheet Net amount
£m £m £m £m £m
At 30 June 2022
Derivative financial assets 75.2 (74.8) 0.4 - 0.4
Derivative financial liabilities (76.5) 74.8 (1.7) - (1.7)
Cash and cash equivalents 121.6 - 121.6 (1.1) 120.5
Current bank and other borrowings (10.8) - (10.8) 1.1 (9.7)
At 30 June 2021
Derivative financial assets 64.4 (63.7) 0.7 - 0.7
Derivative financial liabilities (64.1) 63.7 (0.4) - (0.4)
Cash and cash equivalents 107.6 - 107.6 (0.1) 107.5
Current bank and other borrowings (0.1) - (0.1) 0.1 -
At 31 December 2021
Derivative financial assets 84.0 (83.4) 0.6 - 0.6
Derivative financial liabilities (84.0) 83.4 (0.6) - (0.6)
Cash and cash equivalents 127.3 - 127.3 - 127.3
Current bank and other borrowings - - - - -
Note 12. Pensions and other post-retirement employee benefits
Defined benefit obligations
Six months ended 30 June 2022
UK US Europe Rest of World Total
£m £m £m £m £m
Summary of net obligations
Present value of unfunded defined benefit obligations - (7.1) (29.1) (4.3) (40.5)
Present value of funded defined benefit obligations (404.7) (121.2) (1.1) (8.2) (535.2)
Fair value of plan assets 374.3 120.1 0.4 7.4 502.2
(30.4) (8.2) (29.8) (5.1) (73.5)
Movements in present value of defined benefit obligation
At 1 January 2022 (544.0) (139.3) (39.4) (11.8) (734.5)
Current service cost - - (0.4) (0.8) (1.2)
Interest cost (5.1) (1.9) (0.1) (0.1) (7.2)
Actuarial gain/(loss):
Experience (loss)/gain on plan obligations (8.2) (0.1) - 0.4 (7.9)
Changes in financial assumptions - gain/(loss) 140.0 22.9 9.9 (0.1) 172.7
Changes in demographic assumptions - gain/(loss) - - - - -
Benefits paid 12.6 4.4 0.6 0.3 17.9
Exchange adjustments - (14.3) (0.8) (0.4) (15.5)
At 30 June 2022 (404.7) (128.3) (30.2) (12.5) (575.7)
Movements in fair value of plan assets
At 1 January 2022 492.3 131.6 0.4 7.5 631.8
Interest on plan assets 4.6 1.8 - 0.1 6.5
Remeasurement loss (118.6) (22.5) - (0.4) (141.5)
Contributions by employer 8.6 0.3 0.6 0.3 9.8
Benefits paid (12.6) (4.4) (0.6) (0.3) (17.9)
Exchange adjustments - 13.3 - 0.2 13.5
At 30 June 2022 374.3 120.1 0.4 7.4 502.2
Actual return on assets (114.0) (20.7) - (0.3) (135.0)
Fair value of plan assets by category
Equities 26.5 - - - 26.5
Growth assets 85.4 5.9 - - 91.3
Bonds 59.1 110.5 - - 169.6
Liability-driven investments (LDI) 82.4 - - - 82.4
Matching insurance policies 119.1 - 0.4 4.8 124.3
Other 1.8 3.7 - 2.6 8.1
374.3 120.1 0.4 7.4 502.2
Principal actuarial assumptions at 30 June 2022 were: % % % %
Discount rate 3.86 4.52 3.00 2.90
Inflation (UK: RPI/CPI) 3.23/2.44 n/a 2.00 n/a
30 June 2021
UK US Europe Rest of World Total
£m £m £m £m £m
Summary of net obligations
Present value of unfunded defined benefit obligations - (6.3) (39.8) (2.6) (48.7)
Present value of funded defined benefit obligations (549.1) (131.8) (1.5) (8.5) (690.9)
Fair value of plan assets 472.2 132.0 0.5 6.7 611.4
(76.9) (6.1) (40.8) (4.4) (128.2)
Principal actuarial assumptions at 30 June 2021 were: % % % %
Discount rate 1.87 2.65 0.80 2.40
Inflation (UK: RPI/CPI) 3.17/2.32 n/a 1.70 n/a
31 December 2021
UK US Europe Rest of World Total
£m £m £m £m £m
Summary of net obligations
Present value of unfunded defined benefit obligations - (6.4) (37.5) (3.4) (47.3)
Present value of funded defined benefit obligations (544.0) (132.9) (1.9) (8.4) (687.2)
Fair value of plan assets 492.3 131.6 0.4 7.5 631.8
(51.7) (7.7) (39.0) (4.3) (102.7)
Principal actuarial assumptions at 31 December 2021 were: % % % %
Discount rate 1.92 2.71 0.90 2.90
Inflation (UK: RPI/CPI) 3.40/2.61 n/a 1.90 n/a
Note 13. Provisions and contingent liabilities
Closure and Legal and other Environmental Total
restructuring provisions provisions
provisions
£m £m £m £m
At 1 January 2022 11.8 10.0 7.8 29.6
Provisions made during the period 0.3 1.1 0.5 1.9
Provisions used during the period (1.7) (0.2) (0.6) (2.5)
Provisions reversed during the period - (0.1) - (0.1)
Effect of movements in foreign exchange 1.2 0.2 0.1 1.5
At 30 June 2022 11.6 11.0 7.8 30.4
Current 3.6 6.4 3.0 13.0
Non-current 8.0 4.6 4.8 17.4
At 30 June 2022 11.6 11.0 7.8 30.4
Closure and restructuring provisions
Closure and restructuring provisions are based on the Group's restructuring
programmes and represent committed expenditure at the balance sheet date. The
amounts provided are based on the costs of terminating relevant contracts,
under the contract terms, and management's best estimate of other associated
restructuring costs including professional fees.
Whilst the Group's restructuring programme was completed in 2021, we retain
provisions for remaining lease exit costs and multi-employer pension
obligations from two sites which were closed last year. The cash outflows
relating to the pension obligations may continue for up to 20 years, subject
to any settlement being reached in advance of that date.
Legal and other provisions
Legal and other provisions mainly comprise amounts provided against open legal
and contractual disputes arising in the normal course of business and
long-service costs. Provisions are made for the expected costs associated with
such matters, based on past experience of similar items and other known
factors, taking into account professional advice received, and represent
management's best estimate of the most likely outcome. The timing of
utilisation of these provisions is frequently uncertain, reflecting the
complexity of issues and the outcome of various court proceedings and
associated negotiations.
Legal and other contingent
liabilities
The Group has ceased all trading with Russia. There is a contingent liability
in relation to terminated/suspended contracts with some Russian customers.
These customers have indicated that they dispute our termination/suspension
rights and may initiate formal proceedings. The timing of any such proceedings
is uncertain.
Environmental provisions
Environmental provisions are made for quantifiable environmental liabilities
arising from known environmental issues. The amounts provided are based on the
best estimate of the costs required to remedy these issues. At one site, a
remediation feasibility study is currently being conducted in relation to
a known environmental issue and in conjunction with the local Environmental
Regulator. A remediation plan has been prepared. The provision recorded
reflects the estimated costs of remediation and awaits final regulatory
approval. The provision is expected to be utilised in the next five years.
Environmental contingent liabilities
The Group is subject to local health, safety and environmental laws and
regulations concerning its manufacturing operations around the world. These
laws and regulations may require the Group to take future action to remediate
the impact of historical manufacturing processes on the environment or lead to
other economic outflows. Such contingencies may exist for various sites which
the Group currently operates or has operated in the past. There is a
contingent liability arising from additional, as yet unknown, environmental
issues at the site referred to above, pending the completion of the
feasibility study.
Tax contingent liabilities
The Group is subject to periodic tax audits by various fiscal authorities
covering corporate, employee and sales taxes in the various jurisdictions in
which it operates. We have provided for estimates of the Group's likely
exposures where these can be reliably estimated.
Note 14. Related parties
Identification of related parties
The Company has related party relationships with its subsidiaries and its
associates and with its Directors and executive officers.
Transactions with key management personnel
Details of transactions with key management personnel are described in note 27
of the Group's 2021 Annual Report and Accounts.
Transactions with associate:
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Sales to associate - - -
Purchases from associate - 0.6 0.6
Trade receivables due from associate - - -
Trade payables due to associate - - -
On 28 April 2021, the Group sold its share in its associate undertaking
Jemmtec Limited.
Except as disclosed above:
· There were no related party transactions during the period that
have materially affected the financial position or the performance of the
Group during the period; and
· There have been no changes in the nature of related party
transactions as described in note 27 to the Group's 2021 Annual Report and
Accounts which could have a material effect on the financial position or
performance of the Group during the period.
Note 15. Subsequent events
There were no reportable events subsequent to the balance sheet date.
Glossary
Constant-currency(1) Constant-currency revenue and Group adjusted operating profit are derived by
translating the prior year results at current year average exchange rates.
Corporate costs Corporate costs consist of the costs of the central head office.
Free cash flow before acquisitions, disposals and dividends(1) Cash generated from continuing operations less net capital expenditure, net
interest paid, tax paid and lease payments.
Group earnings before interest, tax, depreciation EBITDA is defined as operating profit before specific adjusting items,
and amortisation (EBITDA)(1) amortisation of intangible assets and depreciation.
Group adjusted operating profit(1) Operating profit adjusted to exclude specific adjusting items and amortisation
of intangible assets.
Adjusted earnings per share (EPS)(1) Adjusted earnings per share is defined as operating profit adjusted to exclude
specific adjusting items and amortisation of intangible assets, plus share of
profit of associate less net financing costs, income tax and non-controlling
interests, divided by the weighted average number of Ordinary shares during
the period.
Net debt(1) Borrowings, bank overdrafts and lease liabilities less cash and cash
equivalents.
Net cash and cash Net cash and cash equivalents is defined as cash and cash equivalents less
bank overdrafts.
equivalents(1)
Group organic(1) The Group results excluding acquisition, disposal and business exit impacts at
constant-currency.
Return on invested capital (ROIC)(1) Group adjusted operating profit (operating profit excluding specific adjusting
items and amortisation of intangible assets) divided by the 12-month average
adjusted net assets (excludes long-term employee benefits, deferred tax assets
and liabilities, current tax payable, provisions, cash and cash equivalents,
borrowings, bank overdrafts and lease liabilities).
Specific adjusting items See note 3 to the condensed consolidated financial statements for further
details.
1. See definitions and reconciliations of non-GAAP measures to GAAP
measures on pages 16 to 20.
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