REG - Morgan Adv.Materials - Morgan Advanced Materials Full Year 2023 Results
12/03/2024 07:15
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RNS Number : 4266G Morgan Advanced Materials PLC 12 March 2024
Full-year results for the period ended 31 December 2023
Results in line, business simplification announced, higher growth outlook
£ million As reported Organic
unless otherwise stated 2023 2022 change constant- currency(1) change
Adjusted results +0.2% +2.5%
Revenue 1,114.7 1,112.1
Group adjusted operating profit(1) 120.3 151.0 (20.3)% (16.6)%
Group adjusted operating profit margin(1) 10.8% 13.6% (280)bps
Return on invested capital(1,2) 17.6% 23.7% (610)bps
Adjusted EPS(1) 25.0p 33.8p (26.0)%
Free cash flow before acquisitions, disposals and dividends(1) 14.6 (46.9) +131.1%
Net debt (excl. lease liabilities)(1) 185.2 148.5 +24.7%
Statutory results
Revenue 1,114.7 1,112.1
Operating profit 91.9 140.8 (34.7)%
Profit before taxation 77.8 131.6 (40.9)%
Continuing EPS(3) 16.4p 30.6p (46.4)%
Continuing and discontinued EPS(3) 16.6p 31.0p (46.5)%
Cash generated from continued operations 126.3 59.1 +113.7%
Total dividend per share 12.0p 12.0p
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18. 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. The return on invested capital calculation has been simplified so that it
can be calculated from published information and the prior period comparative
has been restated. See details on page 17.
3. EPS is presented on a 'continuing' and a combined 'continuing and
discontinued' basis for statutory reporting. Further details are provided in
note 8 to the consolidated financial statements.
Group highlights
· Organic constant-currency* revenue growth of 2.5%, with 10.4% from our faster
growing markets
· Adjusted operating profit £120.3m, adjusted operating profit margin 10.8% and
ROIC 17.6%
· Recovery from cyber security incident now substantially complete
· Cash generated from continued operations of £126.3 million, reflecting full
recovery of the mid-year increase in working capital
· Strong balance sheet with net debt*/EBITDA (excl. leasing)* of 1.2 times
· Absolute CO(2)e emissions (from scope 1 and 2) reduced by 25% compared with
2022
· Simplification of Group structure announced alongside additional cost
reduction programme
· Further market demand driving an acceleration of Semiconductor investment,
with higher medium-term Group growth now expected
· Underlying outlook for 2024 performance unchanged, foreign exchange headwind
anticipated
Commenting on the results, Chief Executive Officer, Pete Raby said:
"Our product differentiation and successful business model have enabled us to
deliver solid revenue growth in both our Core and Faster Growing markets,
despite the impact of the cyber security incident in the first half and weaker
market conditions in the second. We have substantially completed our recovery
from the cyber security incident, with our profitability and cash performance
in line with our financial framework in the second half. We are pleased to
be able to announce an acceleration of our Semiconductor capacity investment,
and a simplification of the Group that supports a leaner structure as we enter
2024. I want to thank all our employees for their hard work in achieving this
result."
Semiconductor Investment
The Company continues to experience strong demand for its semiconductor
consumable products driven by growth in the Silicon Carbide wafer market for
power electronics. Having announced in December 2022 a £60 million
investment over three years to create additional capacity, we are now
increasing our investment such that we expect to have invested £100 million
by 2026. We expect this investment to drive attractive long-term growth and
strong returns, transitioning the Group further towards faster growing
markets.
Business Simplification
The Company's growth targets are underpinned by the development of leading
differentiated positions in attractive growth markets delivered through deep
process and material know how in our manufacturing sites. In order to
streamline our management structures and optimise plant operations, we will in
future manage the Company through three distinct segments:
Thermal Products: comprising the current Thermal Ceramics and MMS segments,
focused on growth opportunities in which heat resistance, fire protection and
insulation are principal product attributes.
Performance Carbon: comprising the current Electrical Carbon and part of the
Seals and Bearings segments, with a clear strategy to pursue opportunities for
carbon-based components in Semiconductor, Rail, Aerospace, Power Generation
and other markets.
Technical Ceramics: comprising the current Technical Ceramics and part of the
Seals and Bearings segments, focused on development of our advanced ceramic
applications in Semiconductor, Healthcare, Aerospace and Industrial equipment.
This change forms part of a broader restructuring plan that is expected to
deliver £10 million of annualised savings by 2025, with an expected
implementation cost of around £20 million, of which £18 million are cash
costs expected to be incurred over 2023 to 2025. As well as the savings from
simplification of our structure, the Company is progressing with the next
phase of its site rationalisation programme with four factories identified for
closure.
FY 2023 FY 2024 FY 2025 Total
£m £m £m £m
Adjusted operating profit(1) benefits (incremental) 1 7 10 -
Costs charged to specific adjusting items (7) (11) (2) (20)
Outlook
Whilst mindful of weaker market conditions in the near term, our outlook for
full-year constant currency revenue growth remains in line with our financial
framework. We expect our restructuring plan to deliver initial cost benefits
in 2024, whilst we are also accelerating our investment in Semiconductor
capacity as we ramp up to meet strong demand, and increasing our investment in
IT. Our underlying outlook for 2024 performance is unchanged, with a slight
weighting to our second half as additional capacity comes online, and a
foreign exchange headwind anticipated.
1. Definitions of these non-GAAP measures can be found in the glossary
of terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
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 tunnels, 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 gathered customer feedback during 2022
through a range of channels and are 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) emissions, or to deliver higher performance
from their processes, and these customers need our help. This priority
supports our focus on working with the customer to innovate in traditional
heavy industries whilst accelerating our development in our faster growing
markets: clean energy, clean transportation, semiconductors and healthcare.
We have been focusing our product development and business development efforts
in these markets over the recent years to develop new and differentiated
products that solve complex problems for our customers.
· Clean energy. Growth in energy storage, brushes and slip rings for onshore
wind applications and ceramic and carbon products used in solar panel
manufacture.
· Clean transportation. Growth in our rail collector business for metro and main
rail applications, and in water and vacuum pump components for electric
vehicle applications.
· Semiconductors. Growth from carbon and ceramic consumable supply into key
semiconductor process steps including crystal growth, deposition, lithography
and etch.
· Healthcare. Growth from medical imaging and supply of low temperature
insulation for medicine and vaccine transport and storage.
During 2023, organic constant-currency* revenue growth in these segments was
10.4%, which represented 21.3% of our revenue overall.
Our financial framework
We have a clear, through-cycle financial framework, consisting of:
· Organic constant-currency* revenue growth of 4%-7% through the cycle
· Adjusted operating profit margin* of 12.5%-15%
· Return on invested capital* of 17%-20%
· Leverage (net debt*/EBITDA excl. leasing*) of 1.0-2.0 times
Our framework drives enhanced earnings growth and underpins our strategy. We
have upgraded our constant-currency* growth guidance for 2024 onwards
(previously 3%-6%) in anticipation of the significant Semiconductor
investment, noted on page 2.
Our environment, social and governance (ESG) priorities
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.
Protect the environment
· Our goal is to be a CO(2)e Scope 1 and 2 net zero business by 2050. Our 2030
target is to reduce our scope 1 and 2 CO(2)e emissions by 50% (from a 2015
baseline), and during the year we reduced our emissions by 25%. We are now
54% below our 2015 baseline and on track to meet our 2030 goal.
· Our goal is to use water sustainably across our business. Our 2030 target is
to reduce our overall water usage, as well as our water usage in high and
extremely high stress areas, by 30% (from a 2015 baseline). Our overall water
usage decreased by 11% compared with last year and water in high-stress areas
has reduced by 14%. We are on track to meet our 2030 goal.
Provide a safe, fair and inclusive workplace
· Our goal 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 LTA rate was 0.19 (2022: 0.28), an
improvement over the prior year reflecting the significant focus on employee
safety and wellbeing. During the year we refreshed our 'take 5 for safety'
process, introducing new templates and training all of our people. We also
completed further work to improve the safety of our high temperature processes
and deployed a new EHS system to facilitate reporting and management of EHS
activities.
· Our goal is that our employee demographics reflect the communities that we
operate in. Our 2030 target is for 40% female representation across our
leadership population of our organisation. Our diversity position improved
slightly over the year with 30% females in our leadership population. While we
have done a lot to improve our business as an environment for female leaders,
we have yet to make progress on this metric and we will be taking further
steps in 2024 including further policy improvements, ensuring diverse
shortlists when filling roles and accelerating the development of our female
leaders.
· Our goal 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 completed a pulse engagement survey in December 2023 and
our engagement score was 54%, this reflects a 1% reduction from the equivalent
population last year. We will be completing a full survey in June 2024 and are
continuing to drive actions locally and globally to improve the experience of
our people.
Our Group Environment, Health and Sustainability Director and Group HR
Director coordinate our improvement projects. In addition, the Board reviews
progress quarterly and takes an active role in holding the executive team to
account on improving ESG performance.
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 09:30 (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 you register by 09:15 (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 and charts. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 46, and reconciliations of the statutory results to
the adjusted measures can be found on pages 14 to 18.
Review of operations
Revenue Adjusted operating profit(1) Adjusted operating
profit margin(1) %
2023 2022 2023 2022 2023 2022
£m £m £m £m % %
Thermal Ceramics 402.2 421.4 34.5 48.7 8.6% 11.6%
Molten Metal Systems 52.2 57.8 5.7 7.8 10.9% 13.5%
Electrical Carbon 201.4 188.7 41.5 39.7 20.6% 21.0%
Seals and Bearings 145.8 148.5 11.4 19.0 7.8% 12.8%
Technical Ceramics 313.1 295.7 33.1 41.7 10.6% 14.1%
Segment total 1,114.7 1,112.1 126.2 156.9 11.3% 14.1%
Corporate costs (5.9) (5.9)
Group adjusted operating profit(1) 120.3 151.0 10.8% 13.6%
Amortisation of intangible assets (3.3) (4.7)
Operating profit before specific adjusting items 117.0 146.3 10.5% 13.2%
Specific adjusting items included in operating profit(2) (25.1) (5.5)
Operating profit 91.9 140.8 8.2% 12.7%
Net financing costs (14.1) (9.2)
Profit before taxation 77.8 131.6
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
2. Details of specific adjusting items from continuing operations are
disclosed in note 4 to the consolidated financial statements.
Thermal Ceramics
Revenue for Thermal Ceramics for the year was £402.2 million, representing a
decrease of 4.6% compared with £421.4 million in 2022. Reductions in
Conventional energy and Industrial segments were partially offset by growth
across several segments including Healthcare, Conventional transportation and
Metals. Foreign exchange has been a substantial driver of the decline as on an
organic constant-currency* basis, year-on-year revenue decreased by 0.7%.
Thermal Ceramics operating profit was £25.3 million (2022: £44.3 million),
and operating margin was 6.3% (2022: 10.5%). Operating margin has declined
versus prior year owing to inefficiencies from the cyber security incident
impacting the first half of the year. Full year margins show significant
recovery through H2. Details of the specific adjusting items charge of £8.0
million (2022: £2.8 million) are included in note 4. Adjusted operating
profit* was £34.5 million (2022: £48.7 million) with adjusted operating
profit margin* of 8.6% (2022: 11.6%).
Molten Metal Systems
Revenue for Molten Metals Systems for the year was £52.2 million, a decrease
of 9.7% compared with £57.8 million in 2022. Revenue decline is seen across
both Industrial and Metals segments due to reduced market demand. On an
organic constant-currency* basis, year-on-year revenue decreased by 8.1%.
Molten Metal Systems operating profit was £4.2 million (2022: £7.5 million),
and operating profit margin was 8.0% (2022: 13.0%). Margin weakening has been
caused by the drop through of volume decline as well as cyber security related
inefficiencies in the first half. Details of the specific adjusting items
charge of £1.3 million (2022: £nil) are included in note 4. Adjusted
operating profit* was £5.7 million (2022: £7.8 million) with adjusted
operating profit margin* of 10.9% (2022: 13.5%).
Electrical Carbon
Revenue for Electrical Carbon for the year was £201.4 million, representing
an increase of 6.7% compared with £188.7 million in 2022, driven by
significant growth in our Semiconductor segment. On an organic
constant-currency* basis, year-on-year revenue increased by 9.7%.
Electrical Carbon operating profit was £38.7 million (2022: £39.1 million),
and operating profit margin was 19.2% (2022: 20.7%). Slight margin reduction
is a result of cyber security incident related inefficiencies in the first
half of the year. Details of the specific adjusting items charge of £2.3
million (2022: £0.1 million credit) are included in note 4. Adjusted
operating profit* was £41.5 million (2022: £39.7 million) with an adjusted
operating profit margin* of 20.6% (2022: 21.0%).
Seals and Bearings
Revenue for Seals and Bearings in 2023 was £145.8 million, representing a
decrease of 1.8% compared with £148.5 million in 2022, with the primary
driver being a decline in the Industrial segment offset by strong growth in
the Healthcare and Petrochemical segments. On an organic constant-currency*
basis, year-on-year revenue decreased by 1.2%. Ceramic armour sales in 2023
were £25.4 million (2022: £25.5 million).
Seals and Bearings operating profit was £3.3 million (2022: £16.6 million),
and operating profit margin was 2.3% (2022: 11.2%). Details of the specific
adjusting items charge of £7.4 million (2022: £1.6 million) are included in
note 4. Margin deteriorated as a result of manufacturing inefficiencies from
the cyber security incident. Adjusted operating profit* was £11.4 million
(2022: £19.0 million), with an adjusted operating profit margin* of 7.8%
(2022: 12.8%).
Technical Ceramics
Revenue for the Technical Ceramics global business unit in 2023 was £313.1
million, an increase of 5.9% compared with £295.7 million in 2022, driven by
strong growth in Conventional transport (particularly Aerospace) and Security
and defense with a combination of market growth and share wins. On an organic
constant-currency* basis, year-on-year revenue increased by 6.4%.
Technical Ceramics operating profit was £40.4 million (2022: £39.2 million),
and operating profit margin was 12.9% (2022: 13.3%). Details of the specific
adjusting items credit of £8.0 million (2022: £1.2 million charge) are
included in note 4. Margin decline due to continued system recovery from the
cyber security incident and related inefficiencies. Adjusted operating profit*
was £33.1 million (2022: £41.7 million), with an adjusted operating profit
margin* of 10.6% (2022: 14.1%).
Group financial review
Group revenue was £1,114.7 million (2022: £1,112.1 million), an increase of
0.2% on a reported basis compared with 2022.
Group adjusted operating profit* was £120.3 million (2022: £151.0 million).
Adjusted operating profit margin* was 10.8%, compared with 13.6% for 2022.
Operating profit was £91.9 million (2022: £140.8 million) and profit before
tax was £77.8 million (2022: £131.6 million). Specific adjusting items in
2023 was a net pre-tax charge of £25.1 million (2022: £5.5 million),
primarily relating to the cyber security incident in January 2023, impairment
of non-financial assets, and impact of Argentina's currency devaluation.
Further details are included under Specific adjusting items below.
The Group amortisation charge was £3.3 million (2022: £4.7 million).
The net finance charge was £14.1 million (2022: £9.2 million) comprising net
bank interest and similar charges of £11.7 million (2022: £5.4 million), net
interest on IAS 19 pension obligations of £nil (2022: £1.4 million), and the
interest expense on lease liabilities of £2.4 million (2022: £2.4 million)
resulting from IFRS 16 Leases. Bank charges have increased because of higher
borrowings and interest rates.
Looking forward to 2024, we anticipate that the net finance charge will be
around £18-20 million, comprising: net bank interest and similar charges of
£16-17 million; net interest on IAS 19 pension obligations of £0.5 million;
and net interest expense on lease liabilities of £2 million.
The Group tax charge from continuing operations, excluding specific adjusting
items, was £26.0 million (2022: £37.1 million). The effective tax rate,
excluding specific adjusting items, was 25.3.% (2022: 27.0%). Note 6 to the
consolidated financial statements on page 34 provides additional information
on the Group's tax charge. Looking forward to 2024, we anticipate that the
effective tax rate will be around 25%-27%. On a statutory basis, the Group tax
charge was £22.2 million (2022: £36.0 million), lower than the previous year
due to the lower taxable profits.
Basic earnings per share from continuing operations was 16.4 pence (2022: 30.6
pence) and adjusted earnings per share* was 25.0 pence (2022: 33.8 pence).
Details of these calculations can be found in note 8 to the consolidated
financial statements on page 36.
The Group's balance sheet and liquidity remain robust. Net debt* for the year
ended 31 December 2023 was £232.3 million, with net debt excluding lease
liabilities* of £185.2 million. The Group has cash and cash equivalents* of
£124.5 million and undrawn headroom on its revolving credit facility of
£187.9 million.
Our key financial covenants are measured on a pre-IFRS 16 Leases basis. As at
31 December 2023, net debt* to EBITDA*, excluding lease liabilities, was 1.2
times compared to a covenant not to exceed 3.0 times, and our interest cover
was 12.7 times, compared with a covenant to exceed 4.0 times.
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 the performance of the Group
excluding these items.
Details of specific adjusting items arising from continuing operations during
the year and the comparative period are given in note 4 to the consolidated
financial statements. Specific adjusting items in relation to discontinued
operations are disclosed in note 7 to the consolidated financial statements.
In 2023, pre-tax specific adjusting items from continuing operations totalled
£25.1 million (2022: £5.5 million) and comprised the following:
2023 2022
£m £m
Specific adjusting items from continuing operations(1)
Costs associated with the cyber security incident (14.7) -
Charges in relation to the impact of Argentina's currency devaluation (5.8) -
Net restructuring (charge)/credit (3.5) 0.6
Net business closure and exit costs (1.9) -
Impairment review of non-financial assets (7.3) (6.5)
Reversal of impairment of non-financial assets 8.1 -
Net profit on disposal of business - 0.4
Total specific adjusting items before income tax (25.1) (5.5)
Income tax credit from specific adjusting items 3.8 1.1
Total specific adjusting items after income tax (21.3) (4.4)
1.Specific adjusting items relating to discontinued operations are disclosed
in note 7.
2023
Costs associated with the cyber security incident
During 2023, we incurred £14.7 million of exceptional costs and charges in
relation to the cyber security incident in January 2023. These were comprised
of legal and advisory costs, IT recovery and support costs and impairment
charges for IT assets which were rendered unusable as a result of the
incident.
Charges in relation to the impact of Argentina's currency devaluation
On 13 December 2023, Argentina devalued its currency by more than 50%. The
impact of the currency devaluation (£2.6 million) has been classified as a
specific adjusting item. An impairment review was also performed as at 31
December 2023 and, due to restrictions on imports limiting the ability to
purchase raw materials and the subsequent effect on forecast trading, we have
fully impaired the carrying value of property, plant and equipment and the
value of raw materials which, in the current circumstances, we would be unable
to sell. The impairment charges in relation to property, plant and equipment
and inventory were £1.9 million and £1.3 million respectively.
Net restructuring charge
The Group has taken the opportunity to reduce our global footprint and
rationalise costs in order to focus resources on our faster growing markets
and optimise factory operations. This restructuring programme commenced in the
second half of 2023 and will continue into 2024. A charge of £6.5 million has
been recognised in relation to this and comprises costs associated with staff
redundancies and site closure costs.
A restructuring provision of £3.0 million held for Technical Ceramics,
ceramic cores during the Group's 2020 restructuring programme has been
released following settlement of a multi-employer pension plan and the
re-letting of the site.
Net business closure and exit costs
During 2023, we commenced liquidation of a Thermal Ceramics business in China.
Costs associated with this were £1.9 million and included severance,
decommissioning and advisory fees.
The land and buildings owned by another Thermal Ceramics business in China
which was closed in 2020 were sold in December 2023. The gain associated with
this sale was £2.4 million.
We disposed of a Thermal Ceramics business in France in 2015, for which we
retained responsibility for remediating the impact of historical manufacturing
processes on the environment. An assessment of the remaining required
remediation was performed in 2023 and as a consequence of this review we have
provided £2.4 million.
Impairment of non-financial assets
Seals and Bearings, Europe
An impairment charge of £2.9 million was recognised after reassessing the
value in use of property, plant and equipment in a business in Italy, which
was experiencing limited growth. This represents a partial impairment of the
assets; the carrying value of the assets following this impairment was £5.3
million. The calculation of value in use was performed as at 31 December 2023,
a long-term growth rate of 1.0% was used for years beyond the five-year
forecast period and in calculating the terminal value, with a pre-tax discount
rate of 17.3%.
An impairment charge of £0.3 million was recognised after assessing the
viability of a development asset, which could not be successfully
commissioned.
Seals and Bearings, Asia
An impairment charge of £1.9 million was recognised after reassessing the
value in use of property, plant and equipment in a business which was
experiencing limited growth and under-utilisation of key assets. This
represents a partial impairment of assets; the carrying value of the assets
following this impairment was £2.2 million. The calculation was performed as
at 31 December 2023, using a long-term growth rate of 1.0% and a pre-tax
discount rate of 13.9%.
Electrical Carbon, North America
An impairment charge of £1.5 million was recognised after assessing the
viability of a development asset in North America which was not deemed to be
commercially viable.
Electrical Carbon, Asia
An impairment charge of £0.7 million was recognised in relation to assets
associated with a manufacturing line which, based on current projections, is
expected to be under-utilised from 2025 onwards.
Reversal of impairment of non-financial assets (recognised in previous
periods)
In 2020, as a result of the COVID-19 pandemic, we impaired property, plant and
equipment within our Technical Ceramics, ceramic cores business and Thermal
Ceramics, Europe. Following our review as at 31 December 2023 of assets which
continue to be used and which were impaired in previous years, we have
reversed a portion of this impairment. For the ceramic cores business, we
reversed £5.7 million being a full reversal, reinstating the net book value
at which the assets would have been held if the impairment had not been booked
in 2020, because the business and the aerospace industry have demonstrated
sustained growth. For Thermal Ceramics, Europe we have recorded a partial
impairment reversal of £2.4 million following sustained recovery of the
industrial market segments. This reversal is based on a value in use
calculation which was performed at 31 December 2023, using a long-term growth
rate of 1.0% for years beyond the five-year forecast period and in calculating
terminal value, with a pre-tax discount rate of 13.6%.
Review of cumulative impairment of non-financial assets
Impairment charges of £20.6 million for non-financial assets which the
business continues to use have been recorded during the current and previous
years (Technical Ceramics, Asia £7.7 million, Thermal Ceramics £7.2 million,
Seals and Bearings, Asia £2.9 million and Seals and Bearings, Europe £2.8
million). These impaired amounts could be reversed if the related businesses
were to outperform significantly against their budget. A sensitivity analysis
was carried out using reasonably possible changes to the key assumptions in
assessing the value in use of these non-financial assets. This did not result
in a material reversal of the impaired amounts.
2022
Impairment of non-financial assets
Seals and Bearings, Asia
An impairment charge of £0.6 million was recognised relating to assets
purchased to support a customer contract which did not materialise.
A further impairment charge of £1.0 million was recognised after reassessing
the value in use of property, plant and equipment in a business in Asia which
was taking longer than anticipated to generate revenues. This represented a
partial impairment of the assets; the carrying value of the assets following
this impairment was £5.2 million. The calculation of the value in use was
performed as at December 2022. A long-term growth rate of 1.0% was used for
years beyond the five-year forecast period and in calculating the terminal
value. A pre-tax discount rate of 12.9% was used to determine the value in
use.
Thermal Ceramics, Europe
An impairment charge of £1.2 million was recognised following a fire in
December which destroyed a warehouse and inventory. The assets were
subsequently written off.
An impairment charge of £1.1 million was recognised after reassessing the
value in use of property, plant and equipment in a business in France which
was experiencing limited growth and under-utilisation of key assets. This
represented a partial impairment of the assets. The carrying value of the
assets following the impairment was £0.3 million. The calculation of value in
use was performed as at December 2022. A long-term growth rate of 1.0% was
used for years beyond the five-year forecast period and in calculating the
terminal value. A pre-tax discount rate of 13.7% was used to determine the
value in use.
Thermal Ceramics, South America
An impairment charge of £0.9 million was recognised in relation to assets
associated with a closed manufacturing line.
Technical Ceramics, Asia
An impairment charge of £1.7 million was recognised after reassessing the
value in use of property, plant and equipment in a business in Asia which was
taking longer than anticipated to generate revenues. This represented a
partial impairment of the assets; the carrying value of the assets following
this impairment was £3.2 million. The calculation of the value in use was
performed as at December 2022.
A long-term growth rate of 1.0% was used for years beyond the five-year
forecast period and in calculating the terminal value. A pre-tax discount rate
of 12.9% was used to determine the value in use.
Restructuring credit
A credit of £0.6 million was recognised in the year ended 31 December 2022.
This represented the release of restructuring provisions recorded in relation
to the Group's 2020 restructuring programme. The remaining provision of £10.5
million as at 31 December 2022 included lease exit costs and multi-employer
pension obligations for two sites which were closed in 2021. In 2022, the cash
outflows relating to the pension obligations were expected to continue for up
to 19 years, subject to any settlement being reached in advance of that date.
Cash outflows in relation to the lease were expected to continue for four
years.
Net profit on disposal of business
The Group disposed of its investment in the joint venture Sukhoy Log, based in
Russia, during 2022. This disposal generated a net profit of £0.4 million.
Refer to note 2 for further information.
Foreign currency impact
The principal exchange rates used in the translation of the results of
overseas subsidiaries were as follows:
2023 2022
GBP to: Closing rate Average rate Closing rate Average rate
US dollar 1.27 1.24 1.21 1.24
Euro 1.15 1.15 1.13 1.17
For illustrative purposes, the table below provides details of the impact on
2023 revenue and Group adjusted operating profit* if the actual reported
results, calculated using 2023 average exchange rates were restated for GBP
weakening by 10 cents against USD in isolation and 10 cents against the Euro
in isolation:
Increase in 2023 revenue/adjusted operating profit(1) if: Revenue Adjusted operating profit(1)
£m
£m
GBP weakens by 10c against the USD in isolation 42.8 4.9
GBP weakens by 10c against the Euro in isolation 21.5 2.5
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
Retranslating the 2023 full year results at the February 2024 closing exchange
rates would lead to revenue of £1,091.7 million and adjusted operating
profit* of £112.7 million.
Cash flow
2023 2022
£m £m
Cash generated from continuing operations 126.3 59.1
Net capital expenditure (58.5) (57.4)
Net interest on cash and borrowings (11.6) (5.4)
Tax paid (30.3) (31.8)
Lease payments and interest (11.3) (11.4)
Free cash flow before acquisitions, disposals and dividends(1) 14.6 (46.9)
Dividends paid to external plc shareholders (34.2) (31.6)
Net cash flows from other investing and financing activities (17.8) (10.3)
Cash flows from sale of subsidiaries and associates - 0.4
Net cash flows from discontinued operations 0.4 1.1
Exchange movement and other non-cash movements 0.3 (14.5)
Opening net debt(1) excluding lease liabilities (148.5) (46.7)
Closing net debt(1) excluding lease liabilities (185.2) (148.5)
Closing lease liabilities (47.1) (51.9)
Closing net debt(1) (232.3) (200.4)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
Cash generated from continuing operations was £126.3 million (2022: 59.1
million).
Free cash flow before acquisitions, disposals and dividends* was £14.6
million (2022: £(46.9) million).
Net debt* at the year end was £232.3. million (2022: £200.4 million),
representing a net debt* to EBITDA* ratio of 1.5. times (2022: 1.1 times).
Net debt* excluding lease liabilities was £185.2. million (2022: £148.5
million), representing a net debt* to EBITDA* ratio excluding lease
liabilities of 1.2 times (2022: 0.8 times).
Defined benefit pension plans
The Group pension deficit has increased by £9.6 million since last year end
to £25.2 million on an IAS 19 (revised) basis.
· The UK Schemes' surplus decreased by £12.7 million to £12.5 million (2022
surplus: £25.2 million), (discount rate 2023: 4.52%; discount rate 2022:
4.81%).
· The US Schemes' deficit decreased by £3.7 million to £5.5 million (2022:
£9.2 million), (discount rate 2023: 4.80%; discount rate 2022: 4.99%).
· The European Schemes' deficit increased by £0.3 million to £28.2 million
(2022: £27.9 million), (discount rate 2023: 3.40%; discount rate 2022:
3.70%).
· The Rest of World Schemes' deficit increased by £0.3 million to £4.0 million
(2022: £3.7 million), (discount rate 2023: 5.52%; discount rate 2023: 5.30%).
The most recent full actuarial valuations of the UK Schemes were undertaken as
at 31 March 2022 and resulted in combined assessed deficits of £49.7 million
on the 'Technical Provisions' basis. The Company subsequently agreed with the
Trustees to make a lump sum contribution to the Schemes of £67.0 million on
29 December 2022 in lieu of the remaining contributions that would otherwise
have been due under the existing recovery plans from the 31 March 2019
valuations. The sum paid represented the value of the deficit on the more
prudent 'Long Term Objective' basis on the date of that agreement, 25 October
2022. As a result, no further contributions to the Schemes are expected to be
required pending the results of the next full valuations as at 31 March 2025.
Final dividend
The Board is recommending a final dividend, subject to shareholder approval,
of 6.7 pence per share on the Ordinary share capital of the Group, payable on
17 May 2024 to Ordinary shareholders on the register at the close of business
on 26 April 2024. The ex-dividend date is 25 April 2024.
Together with the interim dividend of 5.3 pence per share paid on 17 November
2023, this final dividend, if approved by shareholders, brings the total
distribution for the year to 12.0 pence per share (2022: 12.0 pence).
A total dividend of 12.0 pence per share represents a dividend cover of
adjusted EPS* of 2.1 times.
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 2.5 times over the medium term. While the results in 2023 were
depressed by the impact of the cyber security incident, the balance sheet is
strong and the Board is confident about the outlook for the business.
Consequently, the Board is recommending a flat dividend in 2023 even though
cover is lower than our target for this year.
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 24, 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
consistent with previous years.
2023 Thermal Ceramics Molten Electrical Carbon Seals and Bearings Technical Ceramics Segment total Corporate Group
£m Metal Systems £m £m £m £m costs(1) £m
£m £m
Operating profit 25.3 4.2 38.7 3.3 40.4 111.9 (20.0) 91.9
Add back specific adjusting items included in operating profit 8.0 1.3 2.3 7.4 (8.0) 11.0 14.1 25.1
Add back amortisation 1.2 0.2 0.5 0.7 0.7 3.3 - 3.3
of intangible assets
Adjusted operating profit 34.5 5.7 41.5 11.4 33.1 126.2 (5.9) 120.3
Adjusted operating profit margin 8.6% 10.9% 20.6% 7.8% 10.6% 10.8%
1. Corporate costs consist of central head office costs.
2022 Thermal Ceramics Molten Electrical Carbon Seals and Bearings Technical Ceramics Segment total Corporate Group
£m Metal Systems £m £m £m £m costs(1) £m
£m £m
Operating profit 44.3 7.5 39.1 16.6 39.2 146.7 (5.9) 140.8
Add back specific adjusting items included in operating profit 2.8 - (0.1) 1.6 1.2 5.5 - 5.5
Add back amortisation 1.6 0.3 0.7 0.8 1.3 4.7 - 4.7
of intangible assets
Adjusted operating profit 48.7 7.8 39.7 19.0 41.7 156.9 (5.9) 151.0
Adjusted operating profit margin 11.6% 13.5% 21.0% 12.8% 14.1% 13.6%
1. Corporate costs consist of central head office costs.
Organic growth
Organic growth is the growth of the business excluding the impacts of
acquisitions and 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 within the Review of operations on pages 6 to 8.
Year-on-year movements in segment revenue
Thermal Ceramics Molten Metal Systems Electrical Carbon Seals and Bearings Technical Ceramics Segment
£m £m £m £m £m total
£m
2022 revenue 421.4 57.8 188.7 148.5 295.7 1,112.1
Impact of foreign currency movements (16.3) (1.0) (5.1) (0.9) (1.5) (24.8)
Impact of acquisitions, disposals and business exits - - - - - -
Organic constant-currency change (2.9) (4.6) 17.8 (1.8) 18.9 27.4
Organic constant-currency change % (0.7)% (8.1)% 9.7% (1.2)% 6.4% 2.5%
2023 revenue 402.2 52.2 201.4 145.8 313.1 1,114.7
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 Corporate Group
£m £m £m £m £m £m costs(1) £m
£m
2022 adjusted operating profit 48.7 7.8 39.7 19.0 41.7 156.9 (5.9) 151.0
Impact of foreign currency movements (4.7) (0.3) (1.7) (0.2) 0.1 (6.8) - (6.8)
Impact of acquisitions, disposals and business exits - - - - - - - -
Organic constant-currency change (9.5) (1.8) 3.5 (7.4) (8.7) (23.9) - (23.9)
Organic constant-currency change % (21.6)% (24.0)% 9.2% (39.4)% (20.8)% (15.9)% - -
2023 adjusted operating profit 34.5 5.7 41.5 11.4 33.1 126.2 (5.9) 120.3
1. Corporate costs consist of central head office costs.
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 basis i.e. excluding capital and
interest payments on leases which have been capitalised following the adoption
of IFRS 16. This is used as a proxy for the charge that would have been
attributable to operating leases under the now defunct IAS 17. A
reconciliation of operating profit to Group EBITDA is as follows:
2023 2022
£m £m
Operating profit 91.9 140.8
Add back: specific adjusting items included in operating profit 25.1 5.5
Add back: depreciation - property, plant and equipment 31.9 30.3
Add back: depreciation - right-of-use assets 7.6 7.8
Add back: amortisation of intangible assets 3.3 4.7
Group EBITDA 159.8 189.1
Group EBITDA excluding IFRS 16 Leases impact 148.5 177.7
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 free
cash flow as this provides readers of the 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:
2023 2022
£m £m
Cash generated from continuing operations 126.3 59.1
Net capital expenditure (58.5) (57.4)
Net interest on cash and borrowings (11.6) (5.4)
Tax paid (30.3) (31.8)
Lease payments and interest (11.3) (11.4)
Free cash flow before acquisitions, disposals and dividends 14.6 (46.9)
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.
2023 2022
£m £m
Cash and cash equivalents 124.5 117.7
Bank overdrafts (0.6) (1.5)
Net cash and cash equivalents 123.9 116.2
Net debt
Net debt is defined as borrowings, bank overdrafts and lease liabilities, less
cash and cash equivalents. The Group discloses net debt because it helps
readers of the consolidated financial statements assess its ability to meet
financial obligations, manage debt and its capacity to invest in growth
opportunities. The Group also discloses this metric excluding lease
liabilities as this is the measure used in the covenants over the Group's debt
facilities.
2023 2022
£m £m
Cash and cash equivalents 124.5 117.7
Non-current borrowings (309.1) (230.1)
Non-current lease liabilities (36.6) (41.4)
Current borrowings and bank overdrafts (0.6) (36.1)
Current lease liabilities (10.5) (10.5)
Closing net debt (232.3) (200.4)
Closing net debt excluding lease liabilities (185.2) (148.5)
Return on invested capital
The Group discloses return on invested capital (ROIC) to assess its efficiency
in generating profits from the capital it has invested in its operations. The
ROIC calculation has been simplified this year so that it can be calculated
from published information. Prior period comparatives have been restated to
follow the same methodology. ROIC is now defined as 12-month adjusted
operating profit (operating profit excluding specific adjusting items and
amortisation of intangible assets) divided by the 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). Third party working capital includes
inventories, trade and other receivables, and trade and other payables.
2023 2022(1)
£m £m
Operating profit 91.9 140.8
Add back: specific adjusting items 25.1 5.5
Add back: amortisation of intangible assets 3.3 4.7
Group adjusted operating profit 120.3 151.0
Third-party working capital 174.7 181.7
Plant and equipment 293.8 283.2
Right-of-use assets 31.6 33.6
Goodwill 177.5 181.9
Other Intangible assets 4.7 7.1
Capital employed 682.3 687.5
Average capital employed 684.9 637.8
ROIC 17.6% 23.7%
1. The return on invested capital calculation has been simplified so that it
can be calculated from published information and the prior period comparative
has been restated. Under the previous methodology (which used 12-month
adjusted operating profit and 12-month adjusted net assets), ROIC as at 31
December 2023 was 16.9% (2022: 23.0%).
Adjusted earnings per share
Adjusted earnings per share is defined as operating profit adjusted to exclude
specific adjusting items and amortisation of intangible assets, 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 that it provides a helpful
indication of the Group's financial performance excluding material
non-recurring expenses or gains and non-financial asset impairments and
impairment reversals, and therefore facilitates the evaluation of the Group's
performance over time.
A reconciliation from IFRS profit to the profit used to calculate adjusted
earnings per share* is included in note 8 to the consolidated financial
statements on page 36.
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 11 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.
Business simplification
As mentioned on page 2, in order to focus our resources on the most attractive
opportunities, we will in future manage the Company through three distinct
segments, Thermal Products, Performance Carbon and Technical Ceramics. This
structure is effective from 1 January 2024.
Revenue Adjusted operating profit Adjusted operating
profit margin %
2023 2022 2023 2022 2023 2022
£m £m £m £m % %
Thermal Products 454.4 479.2 40.2 56.5 8.8% 11.8%
Performance Carbon 327.2 321.7 50.0 57.3 15.3% 17.8%
Technical Ceramics(1) 333.1 311.2 36.0 43.1 10.8% 13.8%
Segment total 1,114.7 1,112.1 126.2 156.9 11.3% 14.1%
Corporate costs (5.9) (5.9)
Group adjusted operating profit 120.3 151.0 10.8% 13.6%
The table above displays restated comparative figures for 2022. The
restatements reflect the impact of the changes made to the Group's internal
organisation which has caused the composition of its reportable segments to
change.
1.The new Technical Ceramics segment comprises the current Technical Ceramics
GBU and one business from the Seals and Bearings GBU.
Consolidated income statement
Year ended 31 December 2023 Year ended 31 December 2022
Results before specific adjusting items Specific adjusting items(1) Total Results before specific adjusting items Specific adjusting items(1) Total
Note £m £m £m £m £m £m
3 1,114.7 - 1,114.7 1,112.1 - 1,112.1
Revenue
Operating costs before amortisation of intangible assets, impairments and (994.4) (25.9) (1,020.3) (961.1) 1.0 (960.1)
reversal of impairments of non-financial assets
Profit from operations before amortisation of intangible assets, impairments 3 120.3 (25.9) 94.4 151.0 1.0 152.0
and reversal of impairments of non-financial assets
Amortisation of intangible assets (3.3) - (3.3) (4.7) - (4.7)
Impairment of non-financial assets 4 - (7.3) (7.3) - (6.5) (6.5)
Reversal of impairment of non-financial assets 4 - 8.1 8.1 - - -
Operating profit 3 117.0 (25.1) 91.9 146.3 (5.5) 140.8
Finance income 3.9 - 3.9 1.6 - 1.6
Finance expense (18.0) - (18.0) (10.8) - (10.8)
Net financing costs 5 (14.1) - (14.1) (9.2) - (9.2)
Profit before taxation 102.9 (25.1) 77.8 137.1 (5.5) 131.6
Income tax expense 6 (26.0) 3.8 (22.2) (37.1) 1.1 (36.0)
Profit from continuing operations 76.9 (21.3) 55.6 100.0 (4.4) 95.6
Profit from discontinued operations(2) 7 - 0.7 0.7 - 1.1 1.1
Profit for the year 76.9 (20.6) 56.3 100.0 (3.3) 96.7
Profit for the year attributable to:
Shareholders of the Company 67.9 (20.6) 47.3 91.3 (3.3) 88.0
Non-controlling interests 9.0 - 9.0 8.7 - 8.7
Profit for the year 76.9 (20.6) 56.3 100.0 (3.3) 96.7
Earnings per share 8
Continuing and discontinued operations
Basic earnings per share 16.6p 31.0p
Diluted earnings per share 16.5p 30.7p
Continuing operations
Basic earnings per share 16.4p 30.6p
Diluted earnings per share 16.3p 30.3p
Dividends(3)
Interim dividend - pence 5.30p 5.30p
15.1 15.1
- £m
Proposed final dividend - pence 6.70p 6.70p
19.1 19.1
- £m
1. Details of specific adjusting items from continuing operations are given in
note 4 to the consolidated financial statements.
2. Profits from discontinued operations are entirely attributable to the
Shareholders of the Company.
3. The proposed final dividend is based upon the number of Ordinary shares
outstanding at the balance sheet date.
Consolidated statement of comprehensive income
31 December 2023 31 December 2022
Note £m £m
Profit for the year 56.3 96.7
Other comprehensive (expense)/income:
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (loss)/gain on defined benefit plans 14 (11.5) 5.5
Tax effect of components of other comprehensive income not reclassified 6 (0.5) (3.4)
(12.0) 2.1
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences (32.8) 17.5
Cash flow hedges:
Change in fair value 1.1 (0.2)
Transferred to profit or loss 0.2 0.1
Net investment hedges:
Change in fair value (0.3) -
(31.8) 17.4
Total other comprehensive (expense)/income (43.8) 19.5
Total comprehensive income 12.5 116.2
Attributable to:
Shareholders of the Company 6.7 106.7
Non-controlling interests 5.8 9.5
12.5 116.2
Total comprehensive income attributable to shareholders of the Company arising
from:
Continuing operations 6.0 105.6
Discontinued operations 0.7 1.1
6.7 106.7
Consolidated balance sheet
As at As at
31 December 2023 31 December
2022
Note £m £m
Assets
Property, plant and equipment 9 293.8 283.2
Right-of-use assets 10 31.6 33.6
Intangible assets: goodwill 11 177.5 181.9
Intangible assets: other 11 4.7 7.1
Investments 2.2 -
Other receivables 3.4 3.2
Deferred tax assets 17.6 15.3
Total non-current assets 530.8 524.3
Inventories 175.1 174.2
Derivative financial assets 13 1.5 1.3
Trade and other receivables 191.6 202.5
Current tax receivable 1.2 0.3
Cash and cash equivalents 12 124.5 117.7
Total current assets 493.9 496.0
Total assets 1,024.7 1,020.3
Liabilities
Borrowings 309.1 230.1
Lease liabilities 36.6 41.4
Employee benefits: pensions 14 25.2 15.6
Provisions 15 11.5 16.1
Non-trade payables 2.4 2.1
Deferred tax liabilities 1.8 2.0
Total non-current liabilities 386.6 307.3
Borrowings and bank overdrafts 0.6 36.1
Lease liabilities 10.5 10.5
Trade and other payables 192.0 195.0
Current tax payable 25.6 30.3
Provisions 15 10.3 9.9
Derivative financial liabilities 13 0.5 1.6
Total current liabilities 239.5 283.4
Total liabilities 626.1 590.7
Total net assets 398.6 429.6
Equity
Share capital 71.3 71.3
Share premium 111.7 111.7
Reserves 6.5 35.1
Retained earnings 170.8 170.9
Total equity attributable to shareholders of the Company 360.3 389.0
Non-controlling interests 38.3 40.6
Total equity 398.6 429.6
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 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 year - - - - - - - 88.0 88.0 8.7 96.7
Other comprehensive income/(expense):
Remeasurement gain on defined benefit plans and related taxes - - - - - - - 2.1 2.1 - 2.1
Foreign exchange differences and related taxes - - 16.7 - - - - - 16.7 0.8 17.5
Cash flow hedging fair value changes and transfers - - - (0.1) - - - - (0.1) - (0.1)
Total other comprehensive income/(expense) - - 16.7 (0.1) - - - 2.1 18.7 0.8 19.5
Total comprehensive income/(expense) - - 16.7 (0.1) - - - 90.1 106.7 9.5 116.2
Transactions with owners:
Dividends - - - - - - - (31.6) (31.6) (7.9) (39.5)
Equity-settled share-based payments - - - - - - - 5.7 5.7 - 5.7
Own shares acquired for share incentive schemes (net) - - - - - - - (2.4) (2.4) - (2.4)
At 31 December 2022 71.3 111.7 - (0.2) (1.0) 35.7 0.6 170.9 389.0 40.6 429.6
At 1 January 2023 71.3 111.7 - (0.2) (1.0) 35.7 0.6 170.9 389.0 40.6 429.6
Profit for the year - - - - - - - 47.3 47.3 9.0 56.3
Other comprehensive income/(expense):
Remeasurement loss on defined benefit plans and related taxes - - - - - - - (12.0) (12.0) - (12.0)
Foreign exchange differences and related taxes - - (29.6) - - - - - (29.6) (3.2) (32.8)
Cash flow hedging fair value changes and transfers - - - 1.3 - - - - 1.3 - 1.3
Net investment hedging fair - - (0.3) - - - - - (0.3) - (0.3)
value changes and transfers
Total other comprehensive income/(expense) - - (29.9) 1.3 - - - (12.0) (40.6) (3.2) (43.8)
Total comprehensive income/(expense) - - (29.9) 1.3 - - - 35.3 6.7 5.8 12.5
Transactions with owners:
Dividends - - - - - - - (34.2) (34.2) (8.1) (42.3)
Equity-settled share-based payments - - - - - - - 2.9 2.9 - 2.9
Own shares acquired for share incentive schemes (net) - - - - - - - (4.1) (4.1) - (4.1)
At 31 December 2023 71.3 111.7 (29.9) 1.1 (1.0) 35.7 0.6 170.8 360.3 38.3 398.6
Consolidated statement of cash flows
Year ended Year ended
31 December 2023 31 December 2022
Note £m £m
Operating activities
Profit for the year from continuing operations 55.6 95.6
Profit for the year from discontinued operations 7 0.7 1.1
Adjustments for:
Depreciation - property, plant and equipment 31.9 30.3
Depreciation - right-of-use assets 7.6 7.8
Amortisation 3.3 4.7
Net financing costs 5 14.1 9.2
Profit on disposal of business 2,4 - (0.4)
Non-cash specific adjusting items included in operating profit (2.5) 6.6
Fair value gain on equity instruments held at FVTPL (0.9) -
Profit on sale of property, plant and equipment (1.6) (0.3)
Income tax expense 6 22.2 36.0
Equity-settled share-based payment expense 2.9 5.1
Cash generated from operations before changes in working capital and 133.3 195.7
provisions
Increase in trade and other receivables (4.0) (26.5)
Increase in inventories (12.3) (25.2)
Increase in trade and other payables 13.3 7.0
Decrease in provisions (3.4) (4.9)
Payments to defined benefit pension plans (net of IAS 19 pension charges) 14 (0.2) (85.9)
Cash generated from operations 126.7 60.2
Interest paid - borrowings and overdrafts (15.5) (7.0)
Interest paid - lease liabilities (2.4) (2.4)
Income tax paid (30.3) (31.8)
Net cash from operating activities 78.5 19.0
Investing activities
Purchase of property, plant and equipment and software (60.4) (58.0)
Purchase of investments (5.6) -
Proceeds from sale of property, plant and equipment 1.8 0.6
Grants received for purchase of equipment 0.1 -
Interest received 3.9 1.6
Disposal of investments - 0.4
Net cash from investing activities (60.2) (55.4)
Financing activities
Purchase of own shares for share incentive schemes (4.7) (2.9)
Proceeds from exercise of share options 0.6 0.5
Increase in borrowings 247.2 113.3
Repayment of borrowings (193.9) (39.0)
Payment of lease liabilities (8.9) (9.0)
Dividends paid to shareholders of the Company (34.2) (31.6)
Dividends paid to non-controlling interests (8.1) (7.9)
Net cash from financing activities (2.0) 23.4
Net decrease in cash and cash equivalents 16.3 (13.0)
Cash and cash equivalents at start of the year 117.7 127.3
Effect of exchange rate fluctuations on cash held (9.5) 3.4
Cash and cash equivalents at year end 12 124.5 117.7
Notes on consolidated financial statements
Note 1. Basis of preparation, changes in accounting policies and areas of
significant judgement and estimate
The preliminary announcement for the year ended 31 December 2023, which is an
abridged statement of the full Annual Report and Accounts, has been prepared
in accordance with the requirements of the Companies Act 2006 and
International Financial Reporting Standards ('IFRSs') as adopted by the UK.
Except for the changes set out in the adoption of new and revised standards
section, there has been no other significant impact arising from new
accounting policies adopted in the year.
The financial information set out in this report does not constitute the
Company's statutory accounts for the years ended 31 December 2023 or 31
December 2022. Statutory accounts for the year ended 31 December 2022 have
been delivered to the registrar of companies, and those for the year ended 31
December 2023 will be delivered in due course.
The auditors have reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 498(2) or (3) of the Companies
Act 2006 in respect of the accounts for 2023 and 2022.
Critical accounting judgements and key sources of estimation uncertainty
In preparing these consolidated financial statements, management has made
judgements, estimates and assumptions that affect the application of the
Group's accounting policies and the reported amounts of assets, liabilities,
income and expenses. Final outcomes may differ from these estimates. Estimates
and underlying assumptions are reviewed on an ongoing basis.
Critical accounting judgements
Information about judgements made in applying accounting policies that have
the most significant effects on the amounts recognised in the consolidated
financial statements is included in the following notes:
Note 4: Specific adjusting items
The Group uses specific adjusting items, which are not defined or specified
under IFRS. These specific adjusting items, which are not considered to be a
substitute for IFRS measures, provide additional helpful information. In the
consolidated income statement, the Group presents specific adjusting items
separately. In the judgement of the Directors, due to the nature and value of
these items they should be disclosed separately from the underlying results of
the Group to provide the reader with an alternative understanding of the
financial information and an indication of the underlying performance of the
Group. These items which occur infrequently and include (but are not limited
to):
· Individual restructuring projects which are material or relate to the closure
of a part of the business and are not expected to recur.
· Impairment of non-financial assets which are material.
· Gains or losses on disposal or exit of businesses.
· Significant costs incurred as part of the integration of an acquired business.
· Gains or losses arising on significant changes to or closures of defined
benefit pension plans.
For the year ended 31 December 2023, costs associated with our response to the
cyber security incident and charges in relation to the impact of Argentina's
currency devaluation were also classified as specific adjusting items, due to
their size and nature.
Determining whether an item is part of specific adjusting items requires
judgement to determine the nature and the intention of the transaction.
Note 15: Provisions and contingent liabilities
Due to the nature of its operations, the Group holds provisions for its
environmental obligations. Judgement is needed in determining whether a
contingent liability has crystallised into a provision. Management assesses
whether there is sufficient information to determine that an environmental
liability exists and whether it is possible to estimate with sufficient
reliability what the cost of remediation is likely to be. For environmental
remediation matters, this tends to be at the point in time when a remediation
feasibility study has been completed, or sufficient information becomes
available through the study to estimate the costs of remediation.
The Group will recognise a legal provision at the point when the outcome of a
legal matter can be reliably estimated. Estimates are based on past experience
of similar issues, professional advice received and the Group's assessment 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.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the reporting period that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are included in the notes below.
Management has assessed the potential financial impacts relating to climate
change-related risks, primarily considering the useful lives of property,
plant and equipment, the possibility of impairment of goodwill and other
long-lived assets and the recoverability of the Group's deferred tax assets.
Management has exercised judgement in concluding that there are no further
material financial impacts of the Group's climate-related risks and
opportunities on the consolidated financial statements. These judgements are
kept under review by management as the future impacts of climate change depend
on environmental, regulatory and other factors outside of the Group's control
which are not all currently known.
Note 14: Pensions and other post-retirement employee benefits: key actuarial
assumptions
The principal actuarial assumptions applied to pensions are shown in note 14.
The actuarial evaluation of pension assets and liabilities is based on
assumptions in respect of inflation, future salary increases, discount rates,
returns on investments and mortality rates. Relatively small changes in the
assumptions underlying the actuarial valuations of pension schemes can have a
significant impact on the net pension liability included in the balance sheet.
Adoption of new and revised accounting standards
Newly adopted standards
In the current year, the Group has applied a number of amendments to IFRS
Accounting Standards as adopted by the UK that are mandatorily effective for
an accounting period that begins on or after 1 January 2023. Their adoption
has not had any material impact on the disclosures or on the amounts reported
in these financial statements.
· IFRS 17 Insurance Contracts (including the June 2020 and December 2021
Amendments to IFRS 17)
· Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice
Statement 2 Making Material Judgements - Disclosure of Accounting Policies
· Amendments to IAS 12 Income Taxes - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
· Amendments to IAS 12 Income Taxes - International Tax Reform - Pillar Two
Model Rules
· Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - Definition of Accounting Estimates.
Accounting developments and changes
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet effective are
listed below:
· Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
· Amendments to IAS 1 Classification of Liabilities as Current or Non-current
· Amendments to IAS 1 Non-current Liabilities with Covenants
· Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements
· Amendments to IFRS 16 Lease Liability in a Sale and Leaseback.
The above standards and interpretations are effective for the period beginning
1 January 2024 and adoption is not expected to lead to any material changes to
the Group's accounting policies or have any other material impact on the
financial position or performance of the Group.
There are no other upcoming accounting standards or amendments that are
applicable to the Group.
Non-GAAP measures
Where non-GAAP measures have been referenced these have been identified by an
asterisk (*) where they appear in the 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 14 to 18.
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 Strategic
Report contained in the Annual Report and Accounts. The financial position of
the Group, its cash flows, liquidity position and borrowing facilities, are
described in the Financial Review contained in the Annual Report and Accounts.
In addition, note 21 to the Annual Report and Accounts includes 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 £230.0 million unsecured
multi-currency revolving credit facility, which matures in November 2028. As
at 31 December 2023, the Group had both significant available liquidity and
headroom on its covenants. Total committed borrowing facilities were £496.9
million. The amount drawn under these facilities was £309.0 million, which
together with net cash and cash equivalents of £123.9 million, gave a total
headroom of £311.8 million. The multi-currency revolving credit facility was
£42.1 million drawn. The Group had no scheduled debt maturities until 2026.
The principal borrowing facilities are subject to covenants that are measured
semi-annually in June and December, being net debt to EBITDA of a maximum of 3
times and interest cover of a minimum of 4 times, based on measures defined in
the facilities agreements which are adjusted from the equivalent IFRS amounts.
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 as discussed in note 21 to the Annual Report
and Accounts. 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 46% and an increase in net debt of 40% 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. 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 Annual Report and Accounts. Accordingly, they
continue to adopt the going concern basis in preparing the Annual Report and
Accounts.
Directors’ Responsibility Statement
The 2023 Annual Report and Accounts, which will be issued in March 2024,
contains a responsibility statement in compliance with DTR 4.1.12 of the
Listing Rules which sets out that as at the date of approval of the Annual
Report on 11 March 2024, the directors confirm to the best of their knowledge:
- the Group and unconsolidated Company financial statements, prepared
in accordance with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit or loss of
the Group and Company, and the undertakings included in the consolidation
taken as a whole; and
- the performance review contained in the Annual Report and Accounts
includes a fair review of the development and performance of the business and
the position of the Group and the undertakings including the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties they face.
Note 2. Acquisitions and disposals
2023
There were no acquisitions or disposals of businesses by the Group in 2023.
2022
Disposal of Sukhoy Log
On 29 July 2022, the Group completed the sale of its investment in the joint
venture Sukhoy Log, based in Russia. The investment had a carrying value of
£nil having been fully impaired in previous years. The Group received
consideration of £0.6 million and incurred transaction costs of £0.2
million, resulting in a net consideration of £0.4 million. A profit on
disposal of £0.4 million was recognised in specific adjusting items within
the consolidated income statement, see also note 4.
There was no income received from Sukhoy Log in the year ended 31 December
2022. The disposal group was included in the Thermal Ceramics operating
segment.
Note 3. Segment reporting
The Group's results are reported as five separate 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. We will
in future manage the Group through three distinct segments: Thermal Products,
Performance Carbon and Technical Ceramics. This new structure will be
effective from 1 January 2024.
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:
Year ended 31 December 2023
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 402.2 52.2 201.4 145.8 313.1 1,114.7 - 1,114.7
Segment adjusted operating profit(1) 34.5 5.7 41.5 11.4 33.1 126.2 - 126.2
Corporate costs(2) (5.9) (5.9)
Group adjusted operating profit(1) 120.3
Amortisation of intangible assets (1.2) (0.2) (0.5) (0.7) (0.7) (3.3) - (3.3)
Operating profit before specific adjusting items 33.3 5.5 41.0 10.7 32.4 122.9 (5.9) 117.0
Specific adjusting items included in operating profit/(loss)(3) (8.0) (1.3) (2.3) (7.4) 8.0 (11.0) (14.1) (25.1)
Operating profit/(loss) 25.3 4.2 38.7 3.3 40.4 111.9 (20.0) 91.9
Finance income 3.9
Finance expense (18.0)
Profit before taxation 77.8
Segment assets 333.9 42.6 174.1 110.8 210.6 872.0 152.7 1,024.7
Segment liabilities 92.6 8.5 35.5 25.1 74.7 236.4 389.7 626.1
Segment capital expenditure 13.6 3.6 16.1 12.1 14.9 60.3 - 60.3
Segment depreciation - property, plant and equipment 11.8 2.1 5.8 5.8 6.4 31.9 - 31.9
Segment depreciation - right-of-use assets 3.2 0.3 0.9 0.5 2.7 7.6 - 7.6
Segment impairment of non-financial assets - - 1.5 5.8 - 7.3 - 7.3
Segment reversal of impairment of non-financial assets 2.4 - - - 5.7 8.1 - 8.1
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
2. Corporate costs consist of central head office costs.
3. Details of specific adjusting items from continuing operations are given in
note 4 to the consolidated financial statements.
Year ended 31 December 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 421.4 57.8 188.7 148.5 295.7 1,112.1 - 1,112.1
Segment adjusted operating profit(1) 48.7 7.8 39.7 19.0 41.7 156.9 - 156.9
Corporate costs(2) (5.9) (5.9)
Group adjusted operating profit(1) 151.0
Amortisation of intangible assets (1.6) (0.3) (0.7) (0.8) (1.3) (4.7) - (4.7)
Operating profit before specific adjusting items 47.1 7.5 39.0 18.2 40.4 152.2 (5.9) 146.3
Specific adjusting items included in operating profit/(loss)(3) (2.8) - 0.1 (1.6) (1.2) (5.5) - (5.5)
Operating profit 44.3 7.5 39.1 16.6 39.2 146.7 (5.9) 140.8
Finance income 1.6
Finance expense (10.8)
Profit before taxation 131.6
Segment assets 361.2 44.0 159.5 115.8 199.8 880.3 140.0 1,020.3
Segment liabilities 93.2 8.9 32.6 26.5 86.3 247.5 343.2 590.7
Segment capital expenditure 16.8 3.5 8.7 9.7 19.3 58.0 - 58.0
Segment depreciation - property, plant and equipment 11.2 2.1 5.3 6.0 5.7 30.3 - 30.3
Segment depreciation - right-of-use assets 3.2 0.3 1.0 0.6 2.7 7.8 - 7.8
Segment impairment of non-financial assets 3.2 - - 1.6 1.7 6.5 - 6.5
Segment reversal of impairment of non-financial assets - - - - - - - -
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
2. Corporate costs consist of central head office costs.
3. Details of specific adjusting items from continuing operations are given in
note 4 to the consolidated financial statements.
Revenue from external customers and non-current assets by geography
Revenue from Non-current assets
external customers
(excluding tax and
financial instruments)
Continuing operations 2023 2022 2023 2022
£m £m £m £m
US 427.4 405.6 219.8 212.6
China 114.8 121.4 43.4 45.5
Germany 88.7 85.1 41.9 38.0
UK (the Group's country of domicile) 43.6 53.2 101.6 101.1
Other Asia, Australasia, Middle East and Africa 197.1 194.1 54.6 61.2
Other Europe 173.2 182.0 37.1 37.5
Other North America 44.9 39.1 2.1 2.1
South America 25.0 31.6 12.7 11.0
1,114.7 1,112.1 513.2 509.0
Revenue from external customers is based on geographic location of the
end-customer. Segment assets are based on geographical location of the assets.
No customer represents more than 5% of revenue.
Revenue from external customers by end-market
Continuing operations 2023 2022
£m £m
Semiconductors 108.6 91.3
Healthcare 78.7 74.7
Clean energy and clean transportation 50.0 51.7
Faster growing markets 237.3 217.7
Industrial 315.9 344.5
Conventional transportation 200.2 179.9
Metals 150.2 159.9
Petrochemical and chemical 110.8 112.6
Security and defence 68.5 65.2
Conventional energy 31.8 32.3
Core markets 877.4 894.4
1,114.7 1,112.1
Intercompany sales to other segments
Thermal Molten Electrical Seals and Technical Segment
Ceramics Metal Carbon Bearings Ceramics totals
Systems
Continuing operations 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m £m £m £m £m £m £m
Intercompany sales to other segments 1.0 0.4 0.1 0.1 0.7 0.5 2.0 0.7 0.7 1.0 4.5 2.7
Note 4. Specific adjusting items
2023 2022
Continuing operations Note £m £m
Costs associated with the cyber security incident (14.7) -
Charges in relation to the impact of Argentina's currency devaluation (5.8) -
Net restructuring (charge)/credit (3.5) 0.6
Net business closure and exit costs (1.9) -
Impairment of non-financial assets (7.3) (6.5)
Reversal of impairment of non-financial assets 8.1 -
Net profit on disposal of business 2 - 0.4
Total specific adjusting items before income tax (25.1) (5.5)
Income tax credit from specific adjusting items 3.8 1.1
Total specific adjusting items after income tax (21.3) (4.4)
Specific adjusting items in relation to discontinued operations are disclosed
in note 7.
2023
Costs associated with the cyber security incident
During 2023, we incurred £14.7 million of exceptional costs and charges in
relation to the cyber security incident in January 2023. These were comprised
of legal and advisory costs, IT recovery and support costs and impairment
charges for IT assets which were rendered unusable as a result of the attack.
Charges in relation to the impact of Argentina's currency devaluation
On 13 December 2023, Argentina devalued its currency by more than 50%. The
impact of the currency devaluation (£2.6 million) has been classified as a
specific adjusting item. An impairment review was also performed as at 31
December 2023 and, due to restrictions on imports limiting the ability to
purchase raw materials and the subsequent effect on forecast trading, we have
fully impaired the carrying value of property, plant and equipment and the
value of raw materials which, in the current circumstances, we would be unable
to sell. The impairment charge in relation to property, plant and equipment
and inventory were £1.9 million and £1.3 million respectively.
Net restructuring charge
The Group has taken the opportunity to reduce our global footprint and
rationalise costs in order to focus resources on our faster growing markets,
and optimise factory operations. This restructuring programme commenced in the
second half of 2023 and will continue into 2024. A charge of £6.5 million has
been recognised in relation to this and comprises costs associated with staff
redundancies and site closure costs.
A restructuring provision of £3.0 million recorded for Technical Ceramics,
ceramic cores during the Group's 2020 restructuring programme has been
released following settlement of a multi-employer pension plan and the
re-letting of a site.
Net business closure and exit costs
During 2023, we commenced liquidation of a Thermal Ceramics business in China.
Costs associated with this were £1.9 million and included severance,
decommissioning and advisory fees.
The land and buildings owned by another Thermal Ceramics business in China
which was closed in 2020 were sold in December 2023. The gain associated with
this sale was £2.4 million.
We disposed of a Thermal Ceramics business in France in 2015, for which we
retained responsibility for remediating the impact of
historical manufacturing processes on the environment. An assessment of the
remaining required remediation was performed in 2023 and as a consequence of
this review we have provided £2.4 million.
Net credit from impairment review of non-financial assets
Seals and Bearings, Europe
An impairment charge of £2.9 million has been recognised after reassessing
the value in use of property, plant and equipment in a business in Italy which
was experiencing limited growth. This represents a partial impairment of the
assets; the carrying value of the assets following this impairment was £5.3
million. The calculation of value in use was performed as at 31 December 2023,
a long-
term growth rate of 1.0% was used for years beyond the five-year forecast
period and in calculating the terminal value, with a pre-tax discount rate of
17.3%.
An impairment charge of £0.3 million has been recognised after assessing the
viability of a development asset, which could not be successfully
commissioned.
Seals and Bearings, Asia
An impairment charge of £1.9 million has been recognised after reassessing
the value in use of property, plant and equipment in a business which was
experiencing limited growth and under-utilisation of key assets. This
represents a partial impairment of assets; the carrying value of the assets
following this impairment was £2.2 million. The calculation was performed as
at 31 December 2023, using a long-term growth rate of 1.0% and a pre-tax
discount rate of 13.9%.
Electrical Carbon, North America
An impairment charge of £1.5 million has been recognised after assessing the
viability of a development asset in North America which was not deemed to be
commercially viable.
Electrical Carbon, Asia
An impairment charge of £0.7 million has been recognised in relation to
assets associated with a manufacturing line which, based on current
projections, is expected to be under-utilised from 2025 onwards.
Reversal of impairments recognised in prior periods
In 2020, as a result of the COVID-19 pandemic, we impaired property, plant and
equipment within our Technical Ceramics, ceramic cores business and Thermal
Ceramics, Europe. Following our review as at 31 December 2023 of assets which
continue to be used and which were impaired in previous years, we have
reversed a portion of this impairment. For the ceramic cores business, we
reversed £5.7 million being a full reversal, reinstating the net book value
at which the assets would have been held if the impairment had not been booked
in 2020, because the business and the aerospace industry have demonstrated
sustained growth. For Thermal Ceramics, Europe we have recorded a partial
impairment reversal of £2.4 million following sustained recovery of the
industrial market segments. This reversal is based on a value in use
calculation which was performed at 31 December 2023, using a long-term growth
rate of 1.0% for years beyond the five-year forecast period and in calculating
terminal value, with a pre-tax discount rate of 13.6%.
Review of cumulative impairment of non-financial assets
Impairment charges of £20.6 million for non-financial assets which the
business continues to use have been recorded during the current and previous
years (Technical Ceramics, Asia £7.7 million, Thermal Ceramics £7.2 million,
Seals and Bearings, Asia £2.9 million and Seals and Bearings, Europe £2.8
million). These impaired amounts could be reversed if the related businesses
were to outperform significantly against their budget. A sensitivity analysis
was carried out using reasonably possible changes to the key assumptions in
assessing the value in use of these non-financial assets. This did not result
in a material reversal of the impaired amounts.
2022
Impairment of non-financial assets
Seals & Bearings, Asia
An impairment charge of £0.6 million was recognised relating to assets
purchased to support a customer contract which did not
materialise.
A further impairment charge of £1.0 million was recognised after reassessing
the value in use of property, plant and equipment in a business in Asia which
is taking longer than anticipated to generate revenues. This represented a
partial impairment of the assets; the carrying value of the assets following
this impairment was £5.2 million. The calculation of value in use was
performed as at December 2022. A long-term growth rate of 1.0% was used for
years beyond the five-year forecast period and in calculating the terminal
value. A pre-tax discount rate of 12.9% was used to determine the value in
use.
Thermal Ceramics, Europe
An impairment charge of £1.2 million was recognised following a fire in
December which destroyed a warehouse and inventory. The assets were
subsequently written off.
An impairment charge of £1.1 million was recognised after reassessing the
value in use of property, plant and equipment in a business in France which
was experiencing limited growth and under-utilisation of key assets. This
represented a partial impairment of the assets; the carrying value of the
assets following this impairment was £0.3 million. The calculation of value
in use was performed as at December 2022. A long-term growth rate of 1.0% was
used for years beyond the five-year forecast period and in calculating the
terminal value. A pre-tax discount rate of 13.7% was used to determine the
value in use.
Thermal Ceramics, South America
An impairment charge of £0.9 million was recognised in relation to assets
associated with a closed manufacturing line.
Technical Ceramics, Asia
An impairment charge of £1.7 million was recognised after reassessing the
value in use of property, plant and equipment in a business in Asia which was
taking longer than anticipated to generate revenues. This represented a
partial impairment of the assets; the carrying value of the assets following
this impairment was £3.2 million. The calculation of value in use was
performed as at December 2022. A long-term growth rate of 1.0% was used for
years beyond the five-year forecast period and in calculating the terminal
value. A pre-tax discount rate of 12.9% was used to determine the value in
use.
Restructuring credit
A credit of £0.6 million was recognised in the year ended 31 December 2022.
This represented the release of restructuring provisions recorded in relation
to the Group's 2020 restructuring programme. The remaining provision of £10.5
million as at 31 December 2022 included lease exit costs and multi-employer
pension obligations for two sites which were closed during the year ended 31
December 2021. In 2022, the cash outflows relating to the pension obligations
were expected to continue for up to 19 years, subject to any settlement being
reached in advance of that date. Cash outflows in relation to the lease were
expected to continue for four years.
Net profit on disposal of business
The Group disposed of its investment in the joint venture Sukhoy Log, based in
Russia, during the year ended 31 December 2022. This disposal generated a net
profit of £0.4 million.
Note 5. Finance income and expense
2023 2022
Continuing operations £m £m
Recognised in profit or loss
Interest on bank balances and cash deposits 3.9 1.6
Finance income 3.9 1.6
Interest expense on borrowings and overdrafts (15.6) (7.0)
Interest expense on lease liabilities (2.4) (2.4)
Net interest on IAS 19 defined benefit pension obligations - (1.4)
Finance expense (18.0) (10.8)
Net financing costs recognised in profit or loss (14.1) (9.2)
No finance income or expense related to discontinued operations in either the
current or preceding year.
Note 6. Taxation
2023 2022
Continuing operations £m £m
Recognised in profit or loss
Current tax
Current year 25.5 36.5
Adjustments for prior years - 0.5
25.5 37.0
Deferred tax
Current year (2.5) (0.4)
Adjustments for prior years (0.8) (0.6)
(3.3) (1.0)
Total income tax expense recognised in profit or loss 22.2 36.0
Recognised in other comprehensive income
Tax effect on components of other comprehensive income:
Deferred tax associated with defined benefit schemes 0.5 3.4
Total tax recognised in other comprehensive income 0.5 3.4
Reconciliation of effective tax rate 2023 2023 2022 2022
£m % £m %
Profit before tax 77.8 131.6
Income tax charge using the domestic corporation tax rate 18.3 23.5 25.0 19.0
Effect of different tax rates in other jurisdictions 1.4 1.8 7.5 5.7
Local taxes including withholding tax suffered 1.3 1.7 3.4 2.6
Permanent differences 0.1 0.1 0.2 0.2
Movements related to unrecognised temporary differences 2.0 2.6 (0.1) (0.1)
Adjustments in respect of prior years (0.9) (1.2) - -
Statutory effective rate of tax 22.2 28.5 36.0 27.4
The effective rate of tax before specific adjusting items is 25.3% (2022:
27.0%).
The Group operates in many jurisdictions around the world and is subject to
factors that may impact future tax charges including the recently enacted US
tax reform, 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.
The Organisation for Economic Co-operation and Development (OECD)/G20
Inclusive Framework on BEPS (Base Erosion and Profit Shifting) published the
Pillar Two model rules designed to address the tax challenges arising from the
digitalisation of the global economy.
The International Accounting Standards Board ("IASB") issued amendments to IAS
12 'Income taxes'. The Amendments apply with
immediate effect and introduce a mandatory temporary exception from the
recognition and disclosure of deferred taxes arising from the implementation
of the OECD's Pillar Two Model Rules. The Group has applied the exception
under the IAS 12 amendment to recognising and disclosing information about
deferred tax assets and liabilities related to top-up income in preparing its
consolidated financial statements for the year ending 31 December 2023.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up-tax which will be
effective for the Group's financial year beginning 1 January 2024. The Group
is in scope of the substantively enacted legislation and has performed an
assessment of the Group's potential exposure to Pillar Two income taxes.
The assessment of the potential exposure to Pillar Two income taxes is based
on the submitted country-by-country reporting data of the constituent entities
in the Group. Based on the assessment, the Pillar Two effective tax rates in
the majority of the jurisdictions in which the Group operates are above 15%.
However, the Group has an entity in United Arab Emirates where the
transitional safe harbour relief does not apply as the Pillar Two effective
tax rate is below 15%. The Group does not expect a material exposure to Pillar
Two income taxes in this jurisdiction.
Note 7. Discontinued operations
The Group disposed of its Composites and Defence Systems business on 20
November 2018. The business represented a separate reportable segment and
therefore, in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, the disposal group was classified as
discontinued.
The results from discontinued operations, which have been disclosed in the
consolidated income statement, are set out below:
Year ended 31 December 2023 Year ended 31 December 2022
Results before specific adjusting items Specific adjusting items Total Results before Specific adjusting Total
specific adjusting items
items
Note £m £m £m £m £m £m
Revenue - 0.7 0.7 - 0.7 0.7
Operating income - - - - 0.4 0.4
Profit before taxation - 0.7 0.7 - 1.1 1.1
Income tax expense - - - - - -
Profit from discontinued operations - 0.7 0.7 - 1.1 1.1
Basic earnings per share from discontinued operations 8 0.2p 0.4p
Diluted earnings per share from discontinued operations 8 0.2p 0.4p
In 2023, a gain of £0.7 million was recognised from a long-term contract.
In 2022, a gain of £1.1 million was recognised following the receipt of cash
from a long-term contract and disposal of an investment in accordance with the
terms of the disposal agreement.
There is no income tax expense in relation to the discontinued operations in
either the current or preceding year.
Cash flows from discontinued operations are set out below:
Year ended Year ended
31 December 2023 31 December 2022
£m £m
Net cash generated in operating activities 0.4 1.1
Net cash generated from investing activities - -
Net cash flow used in financing activities - -
0.4 1.1
Note 8. Earnings per share
Year ended 31 December 2023 Year ended 31 December 2022
Earnings Basic earnings per share Diluted earnings per share Earnings Basic Diluted earnings per share
earnings per share
£m pence pence £m pence pence
Profit for the year attributable to shareholders of the Company 47.3 16.6p 16.5p 88.0 31.0p 30.7p
Profit from discontinued operations (0.7) (0.2)p (0.2)p (1.1) (0.4)p (0.4)p
Profit from continuing operations 46.6 16.4p 16.3p 86.9 30.6p 30.3p
Specific adjusting items 25.1 8.8p 8.7p 5.5 1.9p 1.9p
Amortisation of intangible assets 3.3 1.2p 1.1p 4.7 1.7p 1.6p
Tax effect of the above(1) (3.8) (1.3)p (1.3)p (1.1) (0.4)p (0.4)p
Non-controlling interests' share of the - - - - - -
above adjustments
Adjusted profit for the year from continuing operations as used in 71.2 25.0p 24.8p 96.0 33.8p 33.5p
adjusted earnings
per share(2)
1. The tax effect of the amortisation of intangible assets was £nil (2022:
£nil).
2. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
2023 2022
Number of shares (millions)
Weighted average number of Ordinary shares for the purposes of basic earnings 284.8 284.2
per share(1)
Effect of dilutive potential Ordinary shares:
Share options 2.5 2.6
Weighted average number of Ordinary shares for the purposes of diluted 287.3 286.8
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 the
dividends are waived.
Note 9. Property, plant and equipment
Land and Plant, Total
buildings equipment
and fixtures
£m £m £m
Cost
Balance at 1 January 2022 199.8 677.2 877.0
Additions 3.8 49.7 53.5
Disposals (1.3) (9.1) (10.4)
Transfers between categories 0.3 (0.3) -
Effect of movement in foreign exchange 16.6 52.7 69.3
Balance at 31 December 2022 219.2 770.2 989.4
Balance at 1 January 2023 219.2 770.2 989.4
Additions 7.3 54.0 61.3
Disposals (0.3) (12.4) (12.7)
Transfers between categories 0.4 (0.4) -
Effect of movement in foreign exchange (10.5) (34.0) (44.5)
Balance at 31 December 2023 216.1 777.4 993.5
Depreciation and impairment losses
Balance at 1 January 2022 103.0 525.9 628.9
Depreciation charge for the year 5.0 25.3 30.3
Impairment losses 2.0 2.6 4.6
Disposals (0.7) (8.4) (9.1)
Transfers between categories (0.4) 0.4 -
Effect of movement in foreign exchange 8.8 42.7 51.5
Balance at 31 December 2022 117.7 588.5 706.2
Balance at 1 January 2023 117.7 588.5 706.2
Depreciation charge for the year 6.0 25.9 31.9
Impairment losses 1.7 8.3 10.0
Impairment reversals (0.1) (5.4) (5.5)
Disposals (0.2) (11.6) (11.8)
Effect of movement in foreign exchange (6.1) (25.0) (31.1)
Balance at 31 December 2023 119.0 580.7 699.7
Carrying amounts
At 1 January 2022 96.8 151.3 248.1
At 31 December 2022 101.5 181.7 283.2
At 31 December 2023 97.1 196.7 293.8
In 2023, no assets were pledged as security for liabilities (2022: none).
Profit on sale of property, plant and equipment presented in the cash flow
includes £nil (2022: £nil) of insurance proceeds for replacement of assets.
Note 10. Leases
The reconciliation in the movement of the Group's right-of-use assets is set
out in the table below:
Land and Plant and Total
buildings equipment £m
£m £m
Balance at 1 January 2022 27.5 4.4 31.9
Additions 1.2 1.8 3.0
Remeasurements 3.1 0.6 3.7
Depreciation charge for the year (5.1) (2.7) (7.8)
Effect of movement in foreign exchange 2.3 0.5 2.8
Balance at 31 December 2022 29.0 4.6 33.6
Balance at 1 January 2023 29.0 4.6 33.6
Additions 0.6 5.1 5.7
Remeasurements 0.9 (0.2) 0.7
Depreciation charge for the year (4.8) (2.8) (7.6)
Impairment losses - (0.4) (0.4)
Impairment reversals 1.3 - 1.3
Effect of movement in foreign exchange (1.8) 0.1 (1.7)
Balance at 31 December 2023 25.2 6.4 31.6
The weighted average lease term is 10.8 years for land and buildings and 3.7
years for plant and equipment (2022: 11.6 years and 3.3 years respectively).
Amounts recognised in the consolidated income statement in respect of leasing
arrangements are set out in the table below:
2023 2022
£m £m
Depreciation expense on right-of-use assets (7.6) (7.8)
Interest expense on lease liabilities (2.4) (2.4)
Expense relating to short-term leases and leasing of low value assets (0.5) (0.5)
(10.5) (10.7)
The total cash flows from leasing activities in the year ended 31 December
2023 was £11.8 million (2022: £11.9 million) as set out in the table below:
2023 2022
£m £m
Payment of lease liabilities (8.9) (9.0)
Interest expense on lease liabilities (2.4) (2.4)
Expenses relating to short-term leases of low value assets (0.5) (0.5)
(11.8) (11.9)
At 31 December 2023, the Group is committed to future payments of £0.5
million (2022: £0.6 million) for short-term leases and leasing of low value
assets.
At 31 December 2023, future cash flows in respect of lease which the Group had
entered into, but which had not yet commenced was £nil (2022: £nil).
The total of future minimum lease income under non-cancellable leases, where
the Group is a lessor is £nil (2022: £nil).
Note 11. Intangible assets
Goodwill Customer Technology Capitalised Computer Total
relationships and development software
trademarks costs
£m £m £m £m £m £m
Cost
Balance at 1 January 2022 172.9 57.6 4.1 0.7 34.8 270.1
Additions (externally purchased) - - - - 1.2 1.2
Disposals - - - - (0.1) (0.1)
Effect of movement in foreign exchange 9.0 6.3 0.2 0.1 1.9 17.5
Balance at 31 December 2022 181.9 63.9 4.3 0.8 37.8 288.7
Balance at 1 January 2023 181.9 63.9 4.3 0.8 37.8 288.7
Additions (externally purchased) - - - - 0.6 0.6
Disposals - - - - (1.0) (1.0)
Effect of movement in foreign exchange (4.4) (3.0) (0.1) - (1.2) (8.7)
Balance at 31 December 2023 177.5 60.9 4.2 0.8 36.2 279.6
Amortisation and impairment losses
Balance at 1 January 2022 - 56.1 3.5 0.7 26.7 87.0
Amortisation charge for the year - 0.7 0.1 - 3.9 4.7
Disposals - - - - (0.1) (0.1)
Effects of movement in foreign exchange - 6.3 0.2 0.1 1.5 8.1
Balance at 31 December 2022 - 63.1 3.8 0.8 32.0 99.7
Balance at 1 January 2023 - 63.1 3.8 0.8 32.0 99.7
Amortisation charge for the year - 0.4 0.1 - 2.8 3.3
Impairment losses - - - - 0.7 0.7
Impairment reversals - (0.6) (0.7) - - (1.3)
Disposals - - - - (1.0) (1.0)
Effects of movement in foreign exchange - (3.1) - - (0.9) (4.0)
Balance at 31 December 2023 - 59.8 3.2 0.8 33.6 97.4
Carrying amounts
At 1 January 2022 172.9 1.5 0.6 - 8.1 183.1
At 31 December 2022 181.9 0.8 0.5 - 5.8 189.0
At 31 December 2023 177.5 1.1 1.0 - 2.6 182.2
Impairment test for cash-generating units or groups of cash-generating units
containing goodwill
In accordance with the requirements of IAS 36 Impairment of Assets, goodwill
is allocated to the Group's cash-generating units or
groups of cash-generating units that are expected to benefit from the
synergies of the business combination that gave rise to the goodwill. Goodwill
impairment testing is performed at the operating segment level as defined by
IFRS 8, as this is the lowest level at which goodwill is monitored.
Goodwill is attributed to each operating segment as follows:
2023 2022
£m £m
Thermal Ceramics 86.8 88.8
Molten Metal Systems 9.2 9.4
Electrical Carbon 30.0 30.7
Seals and Bearings 15.3 15.8
Technical Ceramics 36.2 37.1
177.5 181.8
Each operating segment is assessed for impairment annually and whenever there
is an indication of impairment.
The carrying value of goodwill has been assessed with reference to its value
in use, reflecting the projected discounted cash flows of
each operating segment to which goodwill has been allocated. The key
assumptions used in determining value in use relate to short- and long-term
growth rates and discount rates.
The cash flow projections in year one are based on the most recent Board
approved budget. Cash flow projections for years two to five are based on the
most recent Board approved strategic plan. The key assumptions that underpin
these cash flow projections relate to sales and operating margins, which are
based on past experience, taking into account the effect of known or likely
changes in market or operating conditions. External data sources have been
considered as to the strength and recovery of the Group's end-markets in
building an expectation of the future cash flows of each operating segment.
In 2023, a 1.0% growth rate (2022: 1.0%) has been used for years beyond 2028
and to calculate a terminal value. Management has
assessed these growth rates, including the terminal growth rate as reasonable
for each operating segment.
In 2023, the Group has used the following pre-tax discount rates for
calculating the value in use of each of the operating segments:
Thermal Ceramics: 14.4% (2022: 13.8%), Molten Metal Systems: 15.9% (2022:
15.6%), Electrical Carbon: 15.0% (2022: 14.6%),
Seals and Bearings: 14.2% (2022: 14.0%), Technical Ceramics 14.1% (2022:
14.1%).
The Directors have considered the following individual sensitivities and are
confident that no impairment would arise for each of the
Thermal Ceramics, Molten Metal Systems, Electrical Carbon, Seals and Bearings
and Technical Ceramics operating segments in any one of the following three
circumstances, which are considered reasonably possible changes:
Ø If the pre-tax discount rate was increased by 10%.
Ø If growth for years two to five was decreased by 10% and no growth was
assumed in the calculation of terminal value.
Ø If the cash flow projections of all businesses were reduced by 10%.
Note 12. Cash and cash equivalents
2023 2022
£m £m
Bank balances 112.5 105.8
Cash deposits 12.0 11.9
Cash and cash equivalents 124.5 117.7
In 2023, the Group had restricted cash of £1.6 million (2022: £4.0 million)
as a result of exchange controls in Argentina.
Reconciliation of cash and cash equivalents to net debt(1)
2023 2022
£m £m
Opening borrowings and lease liabilities (318.1) (223.8)
Increase in borrowings (247.2) (113.3)
Repayment of borrowings 193.9 39.0
Payment of lease liabilities 8.9 9.0
Total changes from cash flows (44.4) (65.3)
New leases and lease remeasurement (6.4) (6.7)
Effect of movements in foreign exchange 12.1 (22.3)
Closing borrowings and lease liabilities (356.8) (318.1)
Cash and cash equivalents 124.5 117.7
Closing net debt (1) (232.3) (200.4)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
2. Comparative information has been restated to present the increase and
reduction in borrowings separately.
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 - - - (0.7) (0.7)
Borrowings and lease liability cash flow (74.3) 9.0 (65.3) - (65.3)
Net interest paid - - - (9.4) (9.4)
Net cash inflow/(outflow) (74.3) 9.0 (65.3) (10.1) (75.4)
Share purchases - - - (2.9) (2.9)
New leases and lease remeasurement - (6.7) (6.7) - (6.7)
Exchange and other movements (17.9) (4.4) (22.3) 3.4 (18.9)
At 31 December 2022 (266.2) (51.9) (318.1) 117.7 (200.4)
At 1 January 2023 (266.2) (51.9) (318.1) 117.7 (200.4)
Cash inflow - - - 38.9 38.9
Borrowings and lease liability cash flow (53.3) 8.9 (44.4) - (44.4)
Net interest paid - - - (17.9) (17.9)
Net cash inflow/(outflow) (53.3) 8.9 (44.4) 21.0 (23.4)
Share purchases - - - (4.7) (4.7)
New leases and lease remeasurement - (6.4) (6.4) - (6.4)
Exchange and other movements 9.8 2.3 12.1 (9.5) 2.6
At 31 December 2023 (309.7) (47.1) (356.8) 124.5 (232.3)
1. Definitions of these non-GAAP measures can be found in the glossary
of terms on page 46, reconciliations of the statutory results to the adjusted
measures can be found on pages 14 to 18.
Note 13. Financial risk management
Fair Values
31 December 2023 31 December 2022
Carrying Fair value Carrying Fair value
amount amount
£m £m
Level 1 Level 2 Total Level 1 Level 2 Total
£m £m £m £m £m £m
Financial assets and liabilities held at amortised cost
1.18% Euro Senior Notes 2023 - - - - (22.1) - (21.6) (21.6)
3.17% US Dollar Senior Notes 2023 - - - - (12.4) - (12.1) (12.1)
3.37% US Dollar Senior Notes 2026 (76.6) - (71.6) (71.6) (80.6) - (73.5) (73.5)
1.55% Euro Senior Notes 2026 (21.7) - (20.3) (20.3) (22.2) - (20.1) (20.1)
4.87% US Dollar Senior Notes 2026 (20.0) - (19.4) (19.4) (21.1) - (20.2) (20.2)
1.74% Euro Senior Notes 2028 (8.7) - (8.0) (8.0) (8.9) - (7.7) (7.7)
2.89% Euro Senior Notes 2030 (21.7) - (19.6) (19.6) (22.1) - (19.0) (19.0)
5.47% US Dollar Senior Notes 2031 (7.9) - (7.7) (7.7) - - - -
5.53% US Dollar Senior Notes 2033 (7.9) - (7.6) (7.6) - - - -
5.61% US Dollar Senior Notes 2035 (23.7) - (22.8) (22.8) - - - -
5.50% Cumulative First Preference shares (0.1) - (0.1) (0.1) (0.1) - (0.1) (0.1)
5.00% Cumulative Second Preference shares (0.3) - (0.3) (0.3) (0.3) - (0.3) (0.3)
(188.6) - (177.4) (177.4) (189.8) - (174.6) (174.6)
Financial assets held at FVTPL 2.2 2.2 - 2.2 - - - -
Derivative financial assets held at fair value 1.5 - 1.5 1.5 1.3 - 1.3 1.3
3.7 2.2 1.5 3.7 1.3 - 1.3 1.3
Derivative financial liabilities held at fair value (0.5) - (0.5) (0.5) (1.6) - (1.6) (1.6)
The table above analyses the fair values of financial instruments held by the
Group, 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 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).
The major methods and assumption used in estimating the fair values of
financial instruments reflected in the preceding table are as follows:
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.
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 3.7%-6.3% (2022: 4.2%-6.4%).
There have been no transfers between Level 1 and Level 2 during 2023 and 2022
and there were no Level 3 financial instruments in either 2023 or 2022.
Note 14. Pensions and other post-retirement employee benefits
31 December 2023
UK US Europe Rest of World Total
£m £m £m £m £m
Summary of net obligations
Present value of unfunded defined benefit obligations - (5.2) (27.1) (4.6) (36.9)
Present value of funded defined benefit obligations (362.8) (107.0) (1.3) (8.1) (479.2)
Fair value of plan assets 375.3 106.7 0.2 8.7 490.9
12.5 (5.5) (28.2) (4.0) (25.2)
Movements in present value of defined benefit obligation
At 1 January 2023 (359.5) (121.9) (28.3) (12.1) (521.8)
Current service cost - - (0.8) (1.6) (2.4)
Interest cost (16.7) (5.6) (1.0) (0.3) (23.6)
Actuarial gain/(loss)
Experience gain/(loss) on plan obligations (0.3) 2.0 - (0.5) 1.2
Changes in financial assumptions - gain/(loss) (10.4) (1.9) (0.6) 0.2 (12.7)
Changes in demographic assumptions - gain/(loss) 2.9 - - - 2.9
Benefits paid 21.2 9.2 1.7 0.9 33.0
Exchange adjustments - 6.0 0.6 0.7 7.3
At 31 December 2023 (362.8) (112.2) (28.4) (12.7) (516.1)
Movements in fair value of plan assets
At 1 January 2023 384.7 112.7 0.4 8.4 506.2
Interest on plan assets 17.9 5.4 - 0.3 23.6
Remeasurement gain/(loss) (6.1) 2.9 - 0.3 (2.9)
Contributions by employer - 0.6 1.6 1.2 3.4
Benefits paid (21.2) (9.2) (1.7) (0.9) (33.0)
Exchange adjustments - (5.7) (0.1) (0.6) (6.4)
At 31 December 2023 375.3 106.7 0.2 8.7 490.9
Actual return on assets 11.8 8.3 - 0.6 20.7
31 December 2023
UK US Europe Rest of World Total
£m £m £m £m £m
Fair value of plan assets by category
Equities - 6.3 - - 6.3
Growth assets(1) 48.9 - - - 48.9
Bonds 26.5 97.7 - - 124.2
Liability-driven investments (LDI)(2) 196.6 - - - 196.6
Matching insurance policies 101.9 1.4 0.2 6.3 109.8
Other 1.4 1.3 - 2.4 5.1
375.3 106.7 0.2 8.7 490.9
1. Growth assets include investment in Global Diversified and Multi-Asset
Funds as well as UK Property.
2. The LDI assets are pooled funds in the UK that provide a leveraged return
linked to long duration fixed interest and index-linked government bonds
valued at the bid price of the units. This provides interest rate and
inflation hedging equivalent in size to circa 100% of the invested assets of
the UK Schemes measured on the 'Long Term Objective' basis (Gilts +50bps)
(excluding matching insurance policies).
The Group expects to contribute £3.6 million to these arrangements in 2024.
31 December 2022
UK US Europe Rest of Total
World
£m £m £m £m £m
Summary of net
obligations
Present value of unfunded defined benefit obligations - (5.8) (26.7) (4.0) (36.5)
Present value of funded defined benefit obligations (359.5) (116.1) (1.6) (8.1) (485.3)
Fair value of plan assets 384.7 112.7 0.4 8.4 506.2
25.2 (9.2) (27.9) (3.7) (15.6)
UK US Europe Rest of World
Principal actuarial assumptions at 31 December 2023 were: % % % %
Discount rate 4.52 4.80 3.40 5.52
Inflation (UK: RPI/CPI) 3.05/2.31 n/a 2.10 n/a
Principal actuarial assumptions at 31 December 2022 were: % % % %
Discount rate 4.81 4.99 3.70 5.30
Inflation (UK: RPI/CPI) 3.26/2.47 n/a 2.20 n/a
Note 15. Provisions and contingent liabilities
Closure and Legal and other Environmental Total
restructuring provisions provisions
provisions
£m £m £m £m
Balance at 1 January 2023 10.5 8.1 7.4 26.0
Provisions made during the year 3.0 0.9 2.6 6.5
Provisions used during the year (2.2) (1.3) (1.4) (4.9)
Provisions reversed during the year (3.0) (1.8) (0.2) (5.0)
Effect of movements in foreign exchange (0.4) (0.3) (0.1) (0.8)
Balance at 31 December 2023 7.9 5.6 8.3 21.8
Current 5.6 2.3 2.4 10.3
Non-current 2.3 3.3 5.9 11.5
7.9 5.6 8.3 21.8
Closure and restructuring provisions
Closure and restructuring provisions relate to 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. The provisions are expected
to be utilised in the next one to two years.
We have a provision for a multi-employer pension obligation for a site which
was closed during 2021. The cash outflows relating to the pension obligation
may continue for up to 18 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.
Where obligations are not capable of being reliably estimated, or if a
material outflow of economic resources is considered not probable, it is
classified as a contingent liability. The Group is of the opinion that any
associated claims that might be brought can be defeated successfully and,
therefore, the possibility of any material outflow in settlement is assessed
as remote.
Subsidiary undertakings within the Group have given unsecured guarantees of
£10.3 million (2022: £10.2 million) in the ordinary course of
business.
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. The provisions are expected to be utilised in the next five to ten
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.
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 16. Subsequent events
There were no reportable subsequent events following 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.
Group organic(1) The Group results excluding acquisition, disposal and business exit impacts at
constant-currency.
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 expense 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 equivalents(1) Net cash and cash equivalents is defined as cash and cash equivalents less
bank overdrafts.
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 4 to the consolidated financial statements for further details.
Underlying Reference to underlying reflects the trading results of the Group without the
impact of specific adjusting items and amortisation of intangible assets that
would otherwise impact the users understanding of the Group's performance. The
Directors believe that adjusted results provide additional useful information
on the core operational performance of the Group and review the results of the
Group on an adjusted basis internally.
1. See definitions and reconciliations of non-GAAP measures to GAAP
measures on page 14 to 18.
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