TIDMMGAM
RNS Number : 5334U
Morgan Advanced Materials PLC
30 July 2020
MORGAN ADVANCED MATERIALS
Half-year results for the period ended 30 June 2020
Organic
constant-
GBP million 1H 1H As reported currency(1)
unless otherwise stated 2020 2019 change change
============================================= ======= ======== ============ =============
Headline results
Revenue 477.8 525.8 (9.1)% (8.8)%
Group headline operating profit(1) 52.9 67.4 (21.5)% (19.8)%
Group headline operating profit margin
(1) 11.1% 12.8%
Headline EPS (1) 11.5p 13.8p (16.7)%
Interim dividend per share - 4.0p
Cash generated from continuing operations 59.0 61.1
Free cash flow before acquisitions,
disposals and dividends (1,2) 26.4 8.4
Statutory results
Operating profit/(loss)(3) (19.7) 63.3
Profit/(loss) before tax(3) (25.5) 54.7
Continuing earnings/(loss) per share(4) (9.9)p 12.4p
Continuing and discontinued earnings/(loss)
per share(4) (9.6)p 12.4p
============================================= ======= ======== ============ =============
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found
on pages 14 to 17. 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. Free cash flow before acquisitions, disposals and dividends
is re-presented for 1H 2019 to include lease payments and proceeds
from the sale of property, plant and equipment within its
definition.
3. The statutory loss in the period arises from an impairment
charge of GBP63.4 million. Further details are provided in note 3
to the condensed consolidated financial statements.
4. EPS is presented on a 'continuing' and a combined 'continuing
and discontinued' basis for statutory reporting. Further details
are provided in note 7 to the condensed consolidated financial
statements.
Group highlights
-- The safety of our people is our priority and we have measures
in place in all our facilities to ensure social distancing and
appropriate hygiene and disinfection during the pandemic.
-- Trading has been resilient with revenue decline of 8.8% on an
organic constant-currency* basis demonstrating the benefits of our
diverse end-market segments, with growth in healthcare and defence
segments offset by declines in other end-market segments.
-- Group headline operating profit* margin held at 11.1%,
demonstrating the impact of our rapid cost management actions.
-- Free cash flow* improved to GBP26.4 million to give a net
debt* to EBITDA* position of 1.0 times, excluding lease
liabilities, reflecting the decisive action we have taken to
maintain good liquidity. As at 30 June 2020, the Group has cash and
cash equivalents of GBP122.7 million and undrawn headroom on its
revolving credit facility of GBP116.6 million.
-- Restructuring actions accelerated to position the business
for a period of lower demand, targeting annual cost savings of
GBP20 million by 2022 for a cash cost of GBP30 million.
Commenting on the results for Morgan Advanced Materials, Chief
Executive Officer, Pete Raby said:
"I am very proud of the way our people have responded during
this crisis, changing our ways of working to keep everyone safe
while looking after our customers. This has been a tremendous
effort and I want to thank all of our employees for their
support.
Our first half results demonstrate the improvements we have made
to the business in the last four years, the rapid action we have
taken to manage our costs and the benefits of our diverse
end-market segments. While the current market environment is
difficult, we are maintaining our long-term investments in research
and development, sales and other infrastructure to support the
future growth of the business.
We have announced a restructuring and efficiency programme aimed
at reducing capacity in parts of the business to reflect the
reduced demand outlook, this will allow the business to emerge from
this crisis stronger and enable us to expand our margins when
volumes return to more normal levels.
We are well positioned to grow quickly as our markets
recover."
Outlook
The market outlook for the rest of the year remains uncertain
given the ongoing impact of the pandemic and its impact on economic
demand. Daily order intake in April and May was down around 30%
compared to the prior year. During June and July we have seen this
position improve slightly to a 20% decline in order intake
year-on-year. Based on these trends we anticipate a continued
revenue decline in the third quarter of 2020 versus prior year. We
will continue to actively manage the cost base of the business to
mitigate the impact of this revenue decline on the Group's
profits.
Given the considerable uncertainty around the outlook for the
virus, combined with the relatively short-term visibility of our
order book, we are not in a position to provide guidance for the
full year at this point. The full impact on the Group will depend
on the duration of the pandemic and how deeply it impacts our
end-market segments.
Update on the impact of Covid-19 on the business to date
The Covid-19 pandemic has led to significant challenges across
the world. We continue to work hard to respond to these
unprecedented circumstances and actively manage the ongoing risks
to our people, our operations and our customers.
We reduced activity and closed sites in geographies where that
was required. This included the closure of sites in China, Italy,
India, South Africa and Mexico for a period of time. Those plants
have now re-opened, however we may experience future plant closures
where local outbreaks are identified, and government lockdown
restrictions are implemented.
The health, safety and wellbeing of our employees remains our
absolute priority. We have introduced heightened safety measures
such as social distancing and hygiene measures in all of our plants
to ensure the safety of our employees and follow the advice of the
relevant local governments.
Short-term action: protecting the business and preserving
cash
In the short-term we have taken immediate action to reduce
costs, improve cash flow and increase liquidity. These actions
include:
-- Curtailment of discretionary spend.
-- A temporary hiring freeze for all but the most critical roles.
-- A significant reduction in the number of contractors engaged within the business.
-- Temporary salary reductions for the Executive Committee and the Board.
-- Reductions to capital expenditure other than for essential
health, safety and environmental matters.
-- The Board announced its decision to withdraw the proposed
final dividend for the 2019 full year. The Board will continue to
review future dividend payments during the second half, page 11
provides further details.
Emerging stronger: Group restructuring and efficiency
programme
A Group restructuring and efficiency programme is underway,
accelerating our existing plans to further simplify our structure,
and drive efficiency in our operations as well as to align our
capacity with the anticipated lower demand levels across the
business. These plans will allow us to expand our margins, when
volumes return to more normal levels.
In response to the significant downturn in aerospace demand, and
the anticipated long-tail effect of this, the Group have announced
the closure of Technical Ceramics ceramic cores manufacturing sites
in the UK and North America. We are also closing sites and closing
under-utilised production lines in the Thermal Ceramics business to
align our capacity to lower industrial and automotive demand and
restructuring other roles across the Group to align our cost base
to the lower overall demand position.
Overall, this will result in the closure of eight of our
manufacturing sites. We regret that this will lead to around 550
job losses, however this will allow the business to emerge from
this crisis stronger.
These actions will further reduce costs by a targeted GBP20
million per annum by 2022, with an anticipated cash cost of GBP30
million to deliver these savings:
FY 2020 FY 2021 FY 2022 Total
GBPm GBPm GBPm GBPm
======================================== ======= ======= ======= =====
Headline operating profit(1) benefits
(incremental) 5 14 20 -
Cash cost to specific adjusting
items (15) (14) (1) (30)
======================================== ======= ======= ======= =====
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
Our purpose and strategy
We have a clear purpose and focused strategy, underpinned by a
strong balance sheet. We expect these strengths, combined with the
quality of our people and our investment in research and
development to enable us to continue to create value for our key
stakeholders.
Our purpose
Our purpose is to use advanced materials to help make more
efficient use of the world's resources and to improve the quality
of life.
Our world is changing at an extraordinary pace and the world
needs advanced materials more than ever.
Using advanced materials w e deliver on our purpose through the
products that we make, and the way that we make them - w e enable
greener electricity generation; we enable the digital world, and
all the benefits to the environment and health that brings; we help
to keep people safe; we enable electrification for cleaner public
transport; we help our customers manage heat, reducing their energy
usage; we improve the quality of life through medical
applications.
Our strategy: driving long-term value
We are a global diversified business, with a clear strategy. We
remain focused on keeping our people safe, serving our customers,
containing our costs and preserving our financial position.
We have a strategy to make sure that we are the leaders in our
field, with the customer and materials insight to apply our
capabilities quickly and effectively.
The Group has four priorities underpinning its strategic
execution:
1. Extend our technical leadership. Our objective is to build
our technical lead and accelerate new product development,
supporting the Group's emphasis on both manufacturing process and
materials technology, producing materials which transform our
customers' processes.
Our technology teams continue to make good progress with the
development of new materials and new products. We have experienced
some delays from our customers, as they have responded to the
Covid-19 situation, and some delays in our own teams when sites
have closed for periods of time. However, we are continuing to work
with our customers, providing new materials samples, supporting
product qualification and new product introduction. Each of our
global business units has new products coming to market in our
growth markets in the next 12 months, including in electric
vehicles, healthcare, semiconductors and renewable energy. These
developments go through our stage gate process to control the
development, ensure we address the demanding technical issues early
and have a smooth introduction to production. We continue to
develop a pipeline of new materials and applications, working with
our customers, to support the growth of the business.
2. Drive sales effectiveness and market focus. Our objective is
to improve a number of aspects of our sales capabilities: sales
processes and their efficiency, the management of key customer
accounts and distribution channels, and deeper understanding of
end-markets and faster-growing segments.
We continue to focus on the changes we have made over the last
three years across the organisation, including embedding and
refining our pricing tools; completing the remaining training for
sales and customer service people not trained last year; and
deploying upgrades to our customer relationship management (CRM)
tool to provide a better user experience and functionality, as well
as embedding that tool into our review processes.
3. Increase investment in people management and development. Our
objective is to strengthen our leadership capability and deepen
functional capabilities across the business.
Our teams have switched to remote working seamlessly and have
been able to address the many short-term business issues quickly
and effectively. We are transitioning our face-to-face learning and
development training programmes to virtual. We ran virtual
three-day sessions for the final modules in our leadership
development programmes and we are taking the approach and lessons
from that into our wider learning programmes.
4. Improve operational execution. Our objective is to strengthen
our operational capabilities, reduce operational costs to fund
reinvestment in the business, and improve delivery and quality
performance.
We continue to make good progress with our operational
efficiency programmes and have met our targets for the first half
despite the disruption and lower activity levels. The deployment of
our standard tools and common approach has continued across the
Group and we are seeing the benefits of that in our performance.
This supported our profitability and enabled us to perform well for
our customers during this period of disruption.
Enquiries
Pete Raby Morgan Advanced Materials 01753 837 000
Peter Turner Morgan Advanced Materials
Nina Coad Brunswick 0207 404 5959
Results presentation today
There will be an analyst and investor presentation at 10:30 (UK
time) today via web-conference.
A live audio webcast and slide presentation of this event will
be available on www.morganadvancedmaterials.com
We recommend you register by 10:15 (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. Definitions of these non-GAAP
measures can be found in the glossary of terms on page 41,
reconciliations of the statutory results to the adjusted measures
can be found on pages 14 to 17.
All periods presented in these condensed consolidated financial
statements are for continuing operations, with separate disclosure
of discontinued operations where appropriate.
Operating review
Revenue Operating profit(1) Margin %(1)
================== ====================== ====================
1H 2020 1H 2019 1H 2020 1H 2019 1H 2020 1H 2019
================================
GBPm GBPm GBPm GBPm % %
================================ ======== ======== ========== ========== ======== ========
Thermal Ceramics 175.3 207.8 13.5 25.7 7.7% 12.4%
Molten Metal Systems 20.4 24.7 1.7 2.7 8.3% 10.9%
================================ ======== ======== ========== ========== ======== ========
Thermal Products division 195.7 232.5 15.2 28.4 7.8% 12.2%
================================ ======== ======== ========== ========== ======== ========
Electrical Carbon 77.7 85.4 12.5 11.1 16.1% 13.0%
Seals and Bearings 77.6 71.1 15.5 13.4 20.0% 18.8%
Technical Ceramics 126.8 136.8 12.2 17.5 9.6% 12.8%
================================ ======== ======== ========== ========== ======== ========
Carbon and Technical Ceramics
division 282.1 293.3 40.2 42.0 14.3% 14.3%
================================ ======== ======== ========== ========== ======== ========
Divisional total 477.8 525.8 55.4 70.4 11.6% 13.4%
================================ ======== ======== ========== ========== ======== ========
Corporate costs (2.5) (3.0)
========================================== ======== ========== ========== ======== ========
Group headline operating profit
(1) 52.9 67.4 11.1% 12.8%
========================================== ======== ========== ========== ======== ========
Amortisation of intangible assets (3.7) (4.1)
==================================================== ========== ========== ======== ========
Operating profit/(loss) before specific
adjusting items 49.2 63.3 10.3% 12.0%
Specific adjusting items included in operating (68.9) -
profit(2)
==================================================== ========== ========== ======== ========
Operating profit/(loss) (19.7) 63.3 (4.1)% 12.0%
Net financing costs (5.9) (8.6)
Share of profit of associate (net of income 0.1 -
tax)
==================================================== ========== ========== ======== ========
Profit/(loss) before taxation (25.5) 54.7
========================================== ======== ========== ========== ======== ========
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
2. Details of specific adjusting items can be found in notes 2
and 3 to the condensed consolidated financial statements.
Thermal Products division
Revenue for the Thermal Products division for the six months
ended 30 June 2020 was GBP195.7 million, representing a decrease of
15.8% compared with GBP232.5 million in 1H 2019. On an organic
constant-currency* basis, year-on-year revenue decreased by
14.1%.
Divisional headline operating profit* for the Thermal Products
division was GBP15.2 million (1H 2019: GBP28.4 million) with a
divisional headline operating profit* margin of 7.8% (1H 2019:
12.2%).
Revenue for the Thermal Ceramics global business unit for the
six months ended 30 June 2020 was GBP175.3 million, representing a
decrease of 15.6% compared with GBP207.8 million in 1H 2019. On an
organic constant-currency* basis, year-on-year revenue decreased by
13.9%. Thermal Ceramics' end-markets were heavily impacted by the
Covid-19 downturn, with declines seen in automotive, metals and
industrial market segments, this was partially offset by strong
growth in insulation projects for the chemical and petrochemical
(CPI) market segment, primarily in Asia and North America.
Additionally, performance was negatively affected a number of
temporary factory closures responding to the lockdown requirements
in some jurisdictions.
Headline operating profit* for the Thermal Ceramics global
business unit for the six months ended 30 June 2020 was GBP13.5
million (1H 2019: GBP25.7 million) with headline operating profit
margin* of 7.7% (1H 2019: 12.4%). Significant reductions in costs
have partially mitigated the impact of lower revenue. Margin was
also depressed by a GBP2.5 million charge in anticipation of higher
expected credit losses given the economic environment.
The Group completed the buyout of the non-controlling interest
of our Thermal Ceramics business in Argentina on 9 June 2020 for
GBP2.8 million.
Revenue for the Molten Metals Systems global business unit for
the six months ended 30 June 2020 was GBP20.4 million, representing
a decrease of 17.4% compared with GBP24.7 million in 1H 2019. On an
organic constant-currency* basis, year-on-year revenue decreased by
15.7%. Revenue decline was primarily driven by reduced global
demand within the aluminium and precious metals segments and some
temporary closures driven by the Covid-19 pandemic.
Headline operating profit* for the Molten Metals Systems global
business unit for the six months ended 30 June 2020 was GBP1.7
million (1H 2019: GBP2.7 million) with headline operating profit
margin* of 8.3% (1H 2019: 10.9%). The impact of reduced sales
volumes was partially offset by lower levels of discretionary
spend.
Carbon and Technical Ceramics division
Revenue for the Carbon and Technical Ceramics division for the
six months ended 30 June 2020 was GBP282.1 million, representing a
decrease of 3.8% compared with GBP293.3 million in 1H 2019. On an
organic constant-currency* basis, year-on-year revenue decreased
4.7%.
Divisional headline operating profit* for the Carbon and
Technical Ceramics division for the six months ended 30 June 2020
was GBP40.2 million (1H 2019: GBP42.0 million) with a divisional
headline operating profit margin* of 14.3% (1H 2019: 14.3%).
Revenue for the Electrical Carbon global business unit for the
six months ended 30 June 2020 was GBP77.7 million, representing a
decrease of 9.0% compared with GBP85.4 million in 1H 2019. On an
organic constant-currency* basis, year-on-year revenue decreased by
8.4%.
Performance was negatively affected by Covid-19, including a
number of temporary factory closures. The influence of the
subsequent downturn was seen particularly in the core industrial
and transportation market segments, primarily in North America.
Sales into the wind aftermarket contracted as a consequence of the
pandemic. The decreases in these market segments was partially
offset by strong growth in the semiconductor market segment.
Headline operating profit* for the Electrical Carbon global
business unit for the six months ended 30 June 2020 was GBP12.5
million (1H 2019: GBP11.1 million) with a headline operating profit
margin* of 16.1% (1H 2019: 13.0%). The year-on-year improvement
reflects the benefit of strong efficiency and cost reduction
actions taken in the first half of 2020 and one-off insurance
receipts (GBP1.5 million) have more than offset the negative impact
of volume declines.
Revenue for the Seals and Bearings global business unit for the
six months ended 30 June 2020 was GBP77.6 million, representing an
increase of 9.1% compared with GBP71.1 million in 1H 2019. On an
organic constant-currency* basis year-on-year revenue increased by
7.6%.
Growth in the ceramic armour and healthcare market segments more
than offset the declines in aerospace, automotive and some
industrial market segments. In an extension of the contracts
awarded in 2017, sales of ceramic armour increased to GBP25 million
in 1H 2020 (1H 2019: GBP15 million).
Headline operating profit* for the Seals and Bearings global
business unit for the six months ended 30 June 2020 was GBP15.5
million (1H 2019: GBP13.4 million) with a headline operating profit
margin* of 20.0% (1H 2019: 18.8%). Continuous improvement
initiatives, reductions in discretionary costs and benefits of
higher revenue supported margin growth.
Revenue for the Technical Ceramics global business unit for the
six months ended 30 June 2020 was GBP126.8 million, a decrease of
7.3% compared with GBP136.8 million in 1H 2019. On an organic
constant-currency* basis, year-on-year revenue decreased 8.9%
primarily driven by the downturn in ceramic cores in the commercial
aerospace market as well as the lower demand in the renewable
energy and industrial market segments. This was partially offset by
growth in the healthcare and defence market segments.
Headline operating profit* for the Technical Ceramics global
business unit for the six months ended 30 June 2020 was GBP12.2
million (1H 2019: GBP17.5 million) with a headline operating profit
margin* of 9.6% (1H 2019: 12.8%). Margins were compressed by the
decline in revenues, partially offset by cost reductions.
In 2017 the Group divested its UK Electro-ceramics business,
which was part of the Technical Ceramics global business unit. At
the same time, it announced the closure of its US Electro-ceramics
business, which formed the remainder of the Group's
Electro-ceramics business. The final delivery of the last-time
orders from customers was completed in the first half of 2020, and
the site closed on 30 June 2020. The revenues for the US
Electro-ceramics business for the period ended 30 June 2020 were
GBP4.7 million with a profit contribution of GBP2.9 million.
Group financial review
Group revenue for the six months ended 30 June 2020 was GBP477.8
million (1H 2019: GBP525.8 million), a decrease of 9.1% on a
reported basis compared with 1H 2019, driven by the weak market
conditions due to the Covid-19 pandemic. On an organic
constant-currency* basis revenue decreased by 8.8%.
Group headline operating profit* for the six months ended 30
June 2020 was GBP52.9 million (1H 2019: GBP67.4 million). Headline
operating profit margin* was 11.1%, compared to 12.8% for 1H
2019.
Specific adjusting items for the six months ended 30 June 2020
were GBP68.9 million (1H 2019: GBPnil). Note 3 to the condensed
consolidated financial statements on page 29, provides additional
information on the Group's specific adjusting items.
Operating loss for the six months ended 30 June 2020 was GBP19.7
million (1H 2019: profit GBP63.3 million) and loss before taxation
was GBP25.5 million (1H 2019: profit GBP54.7 million).
The Group amortisation charge for the six months ended 30 June
2020 was GBP3.7 million (1H 2019: GBP4.1 million).
The net finance charge for the six months ended 30 June 2020 was
GBP5.9 million (1H 2019: GBP8.6 million) comprising net bank
interest and similar charges of GBP3.3 million (1H 2019: GBP4.8
million), net interest on IAS 19 pension obligations of GBP1.2
million (1H 2019: GBP2.3 million), and interest expense on lease
liabilities of GBP1.4 million (1H 2019: GBP1.5 million).
Looking forward to the full year, we anticipate that the net
finance charge will reduce to around GBP13.5 million, comprising
net bank interest and similar charges of GBP7.0 million; net
interest on IAS 19 pension obligations of GBP3.0 million; and
interest expense on lease liabilities of GBP3.5 million.
The Group taxation charge for the six months ended 30 June 2020,
excluding specific adjusting items, was GBP11.7 million (1H 2019:
GBP15.3 million), tax on specific adjusting items was a credit of
GBP10.2 million (1H 2019: GBPnil). The effective tax rate,
excluding specific adjusting items, was 27.0% (1H 2019: 28.0%).
Note 5 to the condensed consolidated financial statements provides
additional information on the Group's tax charge.
Looking forward to the full year, we anticipate that the
effective tax rate will remain at around 27%, with cash tax paid
slightly higher than the charge to the income statement.
Headline earnings per share* for the six months ended 30 June
2020 was 11.5 pence (1H 2019: 13.8 pence) and basic loss per share
from continuing operations was 9.9 pence (1H 2019: earnings per
share 12.4 pence). Details of these calculations can be found in
note 7 to the condensed consolidated financial statements.
The Group's balance sheet and liquidity remains robust. Net
debt* for the six months ended 30 June 2020 was GBP211.8 million,
with net debt* excluding lease liabilities of GBP148.3 million,
with no debt maturities until 2023. The Group has cash and cash
equivalents of GBP122.7 million and undrawn headroom on its
revolving credit facility of GBP116.6 million.
The Group applied for the UK Government's 'Covid Corporate
Financing Facility' (CCFF) with an issuer limit of GBP300 million,
which was confirmed as successful on 10 June 2020. The facility was
undrawn at 30 June 2020. Additionally, the Group had received
GBP0.5 million from the UK Government under the 'Coronavirus Job
Retention Scheme' (CJRS) for employees placed on furlough. The
Group is in the process of voluntarily paying this back to the UK
Government.
Our key financial covenants are measured on a pre-IFRS 16 Leases
basis. As at 30 June, net debt* to EBITDA*, excluding lease
liabilities, was 1.0 times compared to a covenant not to exceed 3.0
times, and our interest cover was 19 times, compared to 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 a proper understanding of the
financial information and the best indication of underlying
performance of the Group.
Details of specific adjusting items arising during the year and
the comparative period are given in note 3 to the condensed
consolidated financial statements.
1H 2020 1H 2019
GBPm GBPm
============================================ ======= ===================
Specific adjusting items
Restructuring costs (5.5) -
Impairment of assets (63.4) -
============================================ ======= ===================
Total specific adjusting items before
income tax (68.9) -
Income tax credit from specific adjusting
items 10.2 -
============================================ ======= ===================
Total specific adjusting items after
income tax (58.7) -
============================================ ======= ===================
Specific adjusting items for the six months ended 30 June 2020
were GBP68.9 million (1H 2019: GBPnil) and comprised the following
associated with the Group restructuring and efficiency
programme:
Restructuring costs
Following the announcement of the Group's restructuring
programme the Group has recognised GBP5.5 million related to
initial staff redundancies and legal and professional fees.
Impairment of assets
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand has resulted in
impairment losses of GBP28.5 million relating to the ceramic cores
business. The impaired assets comprise intangible assets recognised
upon the acquisition of the Carpenter business in 2008, and
property, plant and equipment.
Technical Ceramics, China
On 15 June 2020 the Group announced the closure of its Suzhou
manufacturing facility in China and has recognised GBP1.1 million
relating to the termination of lease obligations and the impairment
of property, plant and equipment.
Thermal Ceramics
The continuing reduced demand in the aerospace, automotive and
industrial market segments has resulted in impairment losses of
GBP33.8 million in Thermal Ceramics, which relates to the closure
of sites and under-utilised product lines, as well as the
impairment of intangible assets recognised upon the acquisition of
Porextherm in Germany in 2014.
Cash flow
1H 2020 1H 2019(1)
GBPm GBPm
==================================================== ======= ===========
Cash generated from continuing operations 59.0 61.1
Net capital expenditure (15.8) (27.9)
Net interest (3.2) (4.6)
Tax paid (7.0) (14.4)
Lease payments (6.6) (5.8)
==================================================== ======= ===========
Free cash flow before acquisitions, disposals and
dividends(2) 26.4 8.4
==================================================== ======= ===========
Dividends paid to external plc shareholders - (19.9)
Net cash flows from other investing and financing
activities (7.2) (3.0)
Net cash flows from divestments and discontinued
operations (0.1) 0.3
Exchange movement and other non-cash movements (10.6) 0.1
Opening net debt(1) excluding lease liabilities (156.8) (179.8)
==================================================== ======= ===========
Closing net debt(1) excluding lease liabilities (148.3) (193.9)
==================================================== ======= ===========
Closing lease liabilities (63.5) (69.0)
==================================================== ======= ===========
Closing net debt(2) (211.8) (262.9)
==================================================== ======= ===========
1. Free cash flow before acquisitions, disposals and dividends
is re-presented for 1H 2019 to include lease payments and proceeds
from the sale of property, plant and equipment within its
definition.
2. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
Cash generated from continuing operations for the six months
ended 30 June 2020 was GBP59.0 million (1H 2019: GBP61.1
million).
Free cash flow before acquisitions, disposals and dividends* was
GBP26.4 million (1H 12019: GBP8.4 million).
Net debt* for the six months ended 30 June 2020 was GBP211.8
million (1H 2019: GBP262.9 million), representing a net debt* to
EBITDA* ratio of 1.3 times (1H 2019: 1.6 times).
Net debt* for the six months ended 30 June 2020 excluding lease
liabilities was GBP148.3 million (1H 2019: GBP193.9 million),
representing a net debt* to EBITDA* ratio excluding lease
liabilities of 1.0 times (1H 2019: 1.2 times).
Further information on the Group's net debt* is provided in note
10 to the condensed consolidated financial statements.
Defined benefit pension plans
The Group pension deficit for the six months ended 30 June 2020
has increased by GBP8.4 million since 31 December 2019 to GBP165.2
million on an IAS 19 (revised) basis, with UK and US discount rates
reducing as a result of a fall in corporate bond yields primarily
in the US and UK, whilst the Eurozone and Rest of World discount
rates have remained stable:
-- The UK schemes deficit increased by GBP5.4 million to
GBP106.9 million (FY 2019: GBP101.5 million; 1H 2019: GBP140.2
million), (discount rate 1H 2020: 1.47%; FY: 2019: 2.06%; 1H 2019:
2.22%).
-- The US schemes deficit increased by GBP0.7 million to GBP11.3
million (FY 2019 GBP10.6 million; 1H 2019: GBP9.3 million),
(discount rate 1H 2020: 2.58%; FY: 2019: 3.21%; 1H 2019:
3.53%).
-- The European schemes deficit increased by GBP1.6 million to
GBP41.2 million (FY 2019 GBP39.6 million; 1H 2019: GBP41.1
million), (discount rate 1H 2020: 0.90%; FY: 2019: 0.90%; 1H 2019:
1.00%).
-- The Rest of World schemes deficit increased by GBP0.7 million
to GBP5.8 million (FY 2019 GBP5.1 million; 1H 2019: GBP5.0
million), (discount rate 1H 2020: 2.20%; FY: 2019 2.20%; 1H 2019:
2.10%).
Note 12 to the condensed consolidated financial statements
provides additional information on the Group's pension schemes.
The most recent full actuarial valuations of the UK Schemes were
undertaken as at March 2019 and resulted in combined assessed
deficits of GBP120.3 million. On the basis of these full valuations
the Trustees of the UK Schemes, having consulted with the Group,
agreed past service deficit recovery payments totaling GBP16.5
million a year from January 2020, increasing by 2.75% pa until
2025, with further payments to Morgan Pension Scheme for 2026 and
2027. This recovery plan is subject to approval from the UK
Pensions Regulator.
Foreign currency impact
The principal exchange rates used in the translation of the
results of overseas subsidiaries were as follows:
1H 2020 1H 2019
=========== ============================ ============================
GBP to: Closing rate Average rate Closing rate Average rate
US dollar 1.24 1.26 1.27 1.29
Euro 1.10 1.14 1.12 1.15
=========== ============= ============= ============= =============
For illustrative purposes, the table below provides details of
the impact on the first half 2020 revenue and Group headline
operating profit* if the actual reported results, calculated using
average exchange rates for the period ended 30 June 2020 were
restated for GBP weakening by 10 cents against the US dollar in
isolation and 10 cents against the Euro in isolation:
Increase in 1H 2020 revenue/headline operating Revenue Headline operating
profit (1) if: profit (1)
GBPm GBPm
================================================ ======== ===================
GBP weakens by 10c against the US dollar
in isolation 19.4 3.0
GBP weakens by 10c against the Euro in
isolation 8.6 0.9
================================================ ======== ===================
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
Interim dividend
The 2019 final dividend was withdrawn in March 2020 due to the
financial uncertainty resulting from the Covid-19 pandemic. The
Group has seen a significant impact to its revenue during the
second quarter of 2020, although the Group continues to trade
profitably with the focus on cost actions, and to generate free
cash flow* with the focus on liquidity.
The Board recognises that dividends are an important part of the
returns for shareholders. At present, the outlook for global
economies remains particularly uncertain, and our forward
visibility is limited, and so the Board has decided not to resume
dividend payments at this stage. The Board will continue to review
during the second half of 2020 the potential to resume dividend
payments on Ordinary shares, and the timing of the resumption of
payments of dividends on the Preference shares. The Board intends
to resume dividend payments once we see a sustained improvement in
demand compared to the position seen during the second quarter.
Principal risks and uncertainties
The Group has an established risk management methodology, which
seeks to identify, prioritise and mitigate risks, underpinned by a
'three lines of defence' model comprising of an internal control
framework, monitoring and independent assurance processes. The
Board considers that risk management and internal control are
fundamental to achieving the Group aim of creating long-term
sustainable shareholder value.
The current and emerging risks, representing those risks that
the Board feels could have the most significant impact on achieving
the Group's strategy of building a sustainable business for the
long-term and delivering strong returns to the Group's
shareholders, are set out in the 2019 Annual Report and Accounts,
which is available on the Group's website at
morganadvancedmaterials.com .
The following are the Group's principal risks and uncertainties:
technical leadership; operational execution, organisational change
and sales effectiveness; portfolio management; macro-economic and
political environment; environment, health and safety; product
quality, safety and liability; IT and cyber security; supply chain
and business continuity; treasury; tax; pension funding; contract
management; and compliance.
The current economic climate continues to have an impact on the
Group, its customers and its suppliers. The impact of Covid-19 on
the Group's principal and emerging risks and uncertainties has been
reviewed in depth by the Board together with related mitigations,
and concluded that they adequately represent the current principal
risks and uncertainties of the Group and will continue to remain
relevant for the second half of the financial year.
The UK's exit from the European Union (EU) may have an impact on
the Group if subsequent tariff changes, or border effects,
negatively impact the profitability of the Group's products or the
ability to manufacture or distribute products on a timely basis.
However, given the current value of the Group's UK exports to the
EU (ca. GBP25 million in 2019) and imports into the UK from the EU
(ca. GBP15 million in 2019), it is not considered that this will
have a significant impact overall on the Group's liquidity or
operations.
The Board reviews the status of all principal and emerging risks
with a notable potential impact at Group level throughout the year.
Additionally, the Audit Committee carries out focused risk reviews
of each division. These reviews include an analysis of principal
risks, together with the controls, monitoring and assurance
processes established to mitigate those risks to acceptable
levels.
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 2019 Annual Report and Accounts on pages 6 to
44. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are reported on pages 30, 38-39,
and 119-130 of the 2019 Annual Report and Accounts. Additionally
notes 1 and 14 to the condensed consolidated financial statements
for the six months ended 30 June 2020 provide details of the
Group's policies and processes for managing financial risk; details
of its financial instruments and hedging activities; and details of
its exposures to credit risk and liquidity risk. The principal
risks of the Group are set out on pages 26 to 31 of the 2019 Annual
Report and Accounts. The Directors have considered all of these
areas and how they may impact going concern.
Net debt* for the six months ended 30 June 2020 was GBP211.8
million, with net debt* excluding lease liabilities of GBP148.3
million, with no debt maturities until 2023. The Group had cash and
cash equivalents of GBP122.7 million and undrawn headroom on its
revolving credit facility of GBP116.6 million.
Our key financial covenants are measured on a pre-IFRS 16 Leases
basis. As at 30 June, excluding lease liabilities, net debt* to
EBITDA*, was 1.0 times compared to a covenant not to exceed 3.0
times, and our interest cover was 19 times, compared to a covenant
to exceed 4.0 times.
The current economic climate continues to have an impact on the
Group, its customers and its suppliers. Covid-19 has introduced
unprecedented uncertainty into global markets, pages 2 and 3 of
this Statement details the short- and long-term actions the Group
is taking. In response to the current economic climate we have
undertaken extensive reviews of our business projections and
identified a range of potential economic scenarios, including
severe but plausible decreases in revenue of between 20% and 30%
compared to 2019, followed by an extended recovery period. We
assessed our headroom under each scenario against committed
facilities and key banking covenants over the going concern
period.
Although not included within our modelled scenarios, the
Directors note the additional funding available as an eligible
issuer under the UK Government's 'Covid Corporate Financing
Facility' (CCFF) with an issuer limit of GBP300 million.
Under all scenarios the Group has headroom against its available
facilities and considers there are sufficient controllable actions
it can take, even if the severe downside case were to materialise,
to operate within its financial covenants. The Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of 12 months from
the date of this Statement. Accordingly, they continue to adopt the
going concern basis in preparing the condensed consolidated
financial statements for the six months ended 30 June 2020.
Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge:
-- The condensed consolidated financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union;
-- The interim management report for the six-month period ended
30 June 2020 includes a fair review of the information required
by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority, being an indication of
important events that have occurred during the first six months of
the financial year and their impact on the condensed consolidated
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
Information on the current Directors of Morgan Advanced
Materials plc responsible for providing this Statement is
maintained on the Company's website at
morganadvancedmaterials.com.
By order of the Board
Pete Raby
Chief Executive Officer
Peter Turner
Chief Financial Officer
30 July 2020
Definitions and reconciliations of non-GAAP to GAAP measures
Reference is made to the following non-GAAP measures throughout
this document. These measures are shown because the Directors
consider they provide useful information to shareholders, including
additional insight into ongoing trading and year-on-year
comparisons. These non-GAAP measures should be viewed as
complementary to, not replacements for, the comparable GAAP
measures. As defined in the basis of preparation on page 6, these
measures are calculated on a continuing basis.
Headline operating profit
Headline operating profit is stated before specific adjusting
items and amortisation of intangible assets. Specific adjusting
items are excluded on the basis that they distort trading
performance. Amortisation is excluded as the charge arises
primarily on externally acquired intangible assets since the
adoption of IFRS and does not therefore reflect all intangible
assets consistently.
Thermal Molten Thermal Electrical Seals Technical Carbon Corporate Group
Ceramics Metal Products Carbon and Bearings Ceramics and costs(1)
Systems division Technical
Ceramics
GBPm GBPm GBPm GBPm GBPm GBPm division GBPm GBPm
1H 2020 GBPm
================ ========= ======== ========= ========== ============ ========= ============ ========= ======
Operating
profit/(loss) (22.4) 1.4 (21.0) 11.0 15.2 (22.3) 3.9 (2.6) (19.7)
Add back:
specific
adjusting
items
included in
operating
profit 35.0 0.2 35.2 1.2 0.2 32.2 33.6 0.1 68.9
Add back:
amortisation
of intangible
assets 0.9 0.1 1.0 0.3 0.1 2.3 2.7 - 3.7
================ ========= ======== ========= ========== ============ ========= ============ ========= ======
Group and
divisional
headline
operating
profit 13.5 1.7 15.2 12.5 15.5 12.2 40.2 (2.5) 52.9
================ ========= ======== ========= ========== ============ ========= ============ ========= ======
1. Corporate costs consist of central head office costs.
Thermal Molten Thermal Electrical Seals Technical Carbon Corporate Group
Ceramics Metal Products Carbon and Bearings Ceramics and costs(1)
Systems division Technical
Ceramics
GBPm GBPm GBPm GBPm GBPm GBPm division GBPm GBPm
1H 2019 GBPm
================ ========= ======== ========= ========== ============= ========= ============ ========= =====
Operating
profit/(loss) 24.6 2.5 27.1 10.7 13.2 15.3 39.2 (3.0) 63.3
Add back: - - - - - - - - -
specific
adjusting
items
included in
operating
profit
Add back:
amortisation
of intangible
assets 1.1 0.2 1.3 0.4 0.2 2.2 2.8 - 4.1
================ ========= ======== ========= ========== ============= ========= ============ ========= =====
Group and
divisional
headline
operating
profit 25.7 2.7 28.4 11.1 13.4 17.5 42.0 (3.0) 67.4
================ ========= ======== ========= ========== ============= ========= ============ ========= =====
1. Corporate costs consist of central head office costs.
Organic growth
Organic growth is the growth of the business excluding the
impacts of acquisitions, divestments and foreign currency impacts.
This measure is used as it allows revenue and headline operating
profit to be compared on a like-for-like basis.
Commentary on the underlying business performance is included as
part of the Operational review on pages 6 to 13.
Year-on-year movements in segment revenue
Thermal Molten Thermal Electrical Seals Technical Carbon Segment
Ceramics Metal Products Carbon and Ceramics and total
Systems division Bearings Technical
Ceramics
division
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ========== ========= ========== =========== ============ ========== ============ ========
1H 2019 207.8 24.7 232.5 85.4 71.1 136.8 293.3 525.8
================== ============ ========= ========== =========== ============ ========== ============ ========
Impact of
foreign currency
movements (4.3) (0.5) (4.8) (0.6) 1.0 2.4 2.8 (2.0)
Impacts of - - - - - - - -
disposals
and business
exits
Organic
constant-currency
change (28.2) (3.8) (32.0) (7.1) 5.5 (12.4) (14.0) (46.0)
Organic
constant-currency
change % (13.9)% (15.7)% (14.1)% (8.4)% 7.6% (8.9)% (4.7)% (8.8)%
1H 2020 175.3 20.4 195.7 77.7 77.6 126.8 282.1 477.8
================== ============ ========= ========== =========== ============ ========== ============ ========
Year-on-year movements in segment and Group headline operating
profit
Thermal Molten Thermal Electrical Seals Technical Carbon Corporate Group
Ceramics Metal Products Carbon and Ceramics and costs(1)
Systems division Bearings Technical
Ceramics
division
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ========== ========= ========== =========== ========== ========== ============= ========== ========
1H 2019 25.7 2.7 28.4 11.1 13.4 17.5 42.0 (3.0) 67.4
================== ========== ========= ========== =========== ========== ========== ============= ========== ========
Impact of foreign
currency
movements (1.7) (0.1) (1.8) (0.3) 0.3 0.4 0.4 - (1.4)
Impact of - - - - - - - - -
disposals
and business
exits
Organic
constant-currency
change (10.5) (0.9) (11.4) 1.7 1.8 (5.7) (2.2) 0.5 (13.1)
Organic
constant-currency
change % (43.8)% (34.6)% (42.9)% 15.7% 13.1% (31.8)% (5.2)% (16.7)% (19.8)%
1H 2020 13.5 1.7 15.2 12.5 15.5 12.2 40.2 (2.5) 52.9
================== ========== ========= ========== =========== ========== ========== ============= ========== ========
1. Corporate costs consist of the cost of the central head
office.
Group EBITDA
Group EBITDA is defined as operating profit before specific
adjusting items, depreciation and amortisation of intangible
assets. The Group uses this measure as it is a key metric in
covenants over debt facilities, these covenants use EBITDA on a
pre-IFRS 16 Leases basis. A reconciliation of operating profit to
Group EBITDA is as follows:
1H 2020 1H 2019
GBPm GBPm
============================================== ======== ========
Operating profit/(loss) (19.7) 63.3
Add back: specific adjusting items included 68.9 -
in operating profit/(loss)
Add back: depreciation - property, plant
and equipment 17.3 15.9
Add back: depreciation - right-of-use assets 5.1 4.7
Add back: amortisation of intangible assets 3.7 4.1
============================================== ======== ========
Group EBITDA 75.3 88.0
============================================== ======== ========
Group EBITDA excluding IFRS 16 Leases impact 68.8 81.8
============================================== ======== ========
Free cash flow before acquisitions, disposals and dividends
Free cash flow before acquisitions, disposals and dividends is
defined as cash generated from operations less net capital
expenditure, net interest (interest paid on borrowings, overdrafts
and lease liabilities, net of interest received), tax paid and
lease payments.
The Group discloses this measure of free cash flow as this
provides readers of the condensed consolidated financial statements
with a measure of the cash flows from the business before corporate
level cash flows (acquisitions, disposals and dividends).
A reconciliation of cash generated from continuing operations to
free cash flow before acquisitions, disposals and dividends is as
follows:
1H 2020 1H 2019(1)
GBPm GBPm
=============================================== ======== ===========
Cash generated from continuing operations 59.0 61.1
Net capital expenditure (15.8) (27.9)
Net interest (3.2) (4.6)
Tax paid (7.0) (14.4)
Lease payments (6.6) (5.8)
=============================================== ======== ===========
Free cash flow before acquisitions, disposals
and dividends 26.4 8.4
=============================================== ======== ===========
1. Free cash flow before acquisitions, disposals and dividends
is re-presented for 1H 2019 to include lease payments and proceeds
from the sale of property, plant and equipment within its
definition.
Net debt
Net debt is defined as borrowings, bank overdrafts and lease
liabilities, less cash and cash equivalents. The Group also
discloses this metric excluding lease liabilities as this is the
measure used in the covenants over the Group's debt facilities.
1H 2020 1H 2019
GBPm GBPm
=========================================== ======== ========
Cash and cash equivalents 122.7 59.7
Non-current borrowings (188.4) (184.9)
Non-current lease liabilities (51.5) (57.2)
Current borrowings and bank overdrafts (82.6) (68.7)
Current lease liabilities (12.0) (11.8)
=========================================== ======== ========
Closing net debt (211.8) (262.9)
=========================================== ======== ========
Closing net debt excluding IFRS 16 Leases
impact (148.3) (193.9)
=========================================== ======== ========
Return on invested capital
Return on invested capital (ROIC) is defined as the 12-month
Group headline operating profit (operating profit excluding
specific adjusting items and amortisation of intangible assets)
divided by the 12-month average adjusted net assets (third-party
working capital, plant and equipment, land and buildings,
right-of-use assets, intangible assets and other balance sheet
items). This measure excludes long-term employee benefits, deferred
tax assets and liabilities, current tax payable, provisions, cash
and cash equivalents, borrowings and lease liabilities.
1H 2020 1H 2019
GBPm GBPm
============================================= ======== ========
Operating profit before specific adjusting
items 112.0 121.4
Add back: amortisation of intangible assets 7.7 8.3
============================================= ======== ========
Group headline operating profit 119.7 129.7
============================================= ======== ========
12-month average adjusted net assets:
Third-party working capital 180.7 177.3
Plant and equipment 196.8 187.6
Land and buildings 121.4 120.8
Right-of-use assets 49.1 24.7
Intangible assets 209.0 213.7
Other assets (net) 8.3 10.8
============================================= ======== ========
12-month average adjusted net assets 765.3 734.9
============================================= ======== ========
ROIC 15.6% 17.6%
============================================= ======== ========
ROIC excluding IFRS 16 Leases impact 16.5% 18.1%
============================================= ======== ========
Headline earnings per share
Headline earnings per share is defined as operating profit
adjusted to exclude specific adjusting items and amortisation of
intangible assets, plus share of profit of associate less net
financing costs, income tax expense and non-controlling interests,
divided by the weighted average number of Ordinary shares during
the period. This measure of earnings is shown because the Directors
consider it provides a better indication of headline
performance.
Whilst amortisation of intangible assets is a recurring charge
it is excluded from these measures on the basis that it primarily
arises on externally acquired intangible assets and therefore does
not reflect consistently the benefit that all of Morgan's
businesses realise from their intangible assets, which may not be
recognised separately. Following the impairment of our customer
relationship intangible assets at the interim reporting period,
this measure will be adjusted for the full year to include
amortisation on our remaining intangible assets, namely
software.
A reconciliation from IFRS profit to the profit used to
calculate headline earnings per share is included in note 7 to the
condensed consolidated financial statements.
Constant-currency revenue and headline operating profit
Constant-currency revenue and headline 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.
Interim Results Announcement
Condensed Consolidated Financial Statements
for the six months ended 30 June 2020
Condensed consolidated income statement
Six months ended Six months ended Year ended
30 June 2020 30 June 2019 31 December 2019
Results Specific Total Results Specific Total Results Specific Total
before adjusting before adjusting before adjusting
specific items specific items specific items
adjusting (1) adjusting (1) adjusting (1)
items items items
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============================================== ==== ========= ========= ======= ========= ========= ======= ========= ========= =======
Revenue 2 477.8 - 477.8 525.8 - 525.8 1,049.5 - 1,049.5
Operating costs before
amortisation of intangible
assets (424.9) (68.9) (493.8) (458.4) - (458.4) (915.3) - (915.3)
Profit/(loss) from
operations before amortisation
of intangible assets 2 52.9 (68.9) (16.0) 67.4 - 67.4 134.2 - 134.2
Amortisation of intangible
assets (3.7) - (3.7) (4.1) - (4.1) (8.1) - (8.1)
Operating profit/(loss) 2 49.2 (68.9) (19.7) 63.3 - 63.3 126.1 - 126.1
Finance income 0.5 - 0.5 0.6 - 0.6 1.9 - 1.9
Finance expense (6.4) - (6.4) (9.2) - (9.2) (18.8) - (18.8)
=============================================== ==== ========= ========= ======= ========= ========= ======= ========= ========= =======
Net financing costs 4 (5.9) - (5.9) (8.6) - (8.6) (16.9) - (16.9)
Share of profit of
associate (net of income
tax) 0.1 - 0.1 - - - 0.5 - 0.5
Profit/(loss) before
taxation 43.4 (68.9) (25.5) 54.7 - 54.7 109.7 - 109.7
Income tax (charge)/credit 5 (11.7) 10.2 (1.5) (15.3) - (15.3) (29.9) - (29.9)
Profit/(loss) from
continuing operations 31.7 (58.7) (27.0) 39.4 - 39.4 79.8 - 79.8
=============================================== ==== ========= ========= ======= ========= ========= ======= ========= ========= =======
Profit from discontinued
operations 6 - 0.8 0.8 - - - 0.7 0.8 1.5
=============================================== ==== ========= ========= ======= ========= ========= ======= ========= ========= =======
Profit/(loss) for the
period 31.7 (57.9) (26.2) 39.4 - 39.4 80.5 0.8 81.3
=============================================== ==== ========= ========= ======= ========= ========= ======= ========= ========= =======
Profit/(loss) for the
period attributable
to:
Shareholders of the
Company 29.1 (56.5) (27.4) 35.3 - 35.3 72.3 0.8 73.1
Non-controlling interests 2.6 (1.4) 1.2 4.1 - 4.1 8.2 - 8.2
Profit/(loss) for the
period 31.7 (57.9) (26.2) 39.4 - 39.4 80.5 0.8 81.3
=============================================== ==== ========= ========= ======= ========= ========= ======= ========= ========= =======
Earnings per share 7
Continuing and discontinued
operations
Basic earnings/(loss)
per share (9.6)p 12.4p 25.7p
Diluted earnings/(loss)
per share (9.6)p 12.3p 25.5p
Continuing operations
Basic earnings/(loss)
per share (9.9)p 12.4p 25.2p
Diluted earnings/(loss)
per share (9.9)p 12.3p 25.0p
Dividends (2)
Proposed interim dividend
- pence - 4.00p 4.00p
-
GBPm - 11.4 11.4
Final dividend (3) -
- pence
- -
GBPm
=============================================== ==== ========= ========= ======= ========= ========= ======= ========= ========= =======
1. Details of specific adjusting items are given in note 3 to
the condensed consolidated financial statements.
2. The proposed interim and approved final dividends are based
upon the number of shares outstanding at the balance sheet
date.
3. On 31 March 2020, the Group announced the Board's decision to
withdraw the proposed 2019 final dividend due to the financial
uncertainty resulting from the Covid-19 pandemic.
Condensed consolidated statement of comprehensive income
At 30 June At 30 June At 31 December
2020 2019 2019
GBPm GBPm GBPm
================================================== ========== ========== ==============
Profit/(loss) for the period (26.2) 39.4 81.3
================================================== ========== ========== ==============
Other comprehensive income/(expense):
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement gain/(loss) on defined benefit
plans (12.0) (9.8) 20.5
Tax effect of components of other comprehensive
income not reclassified (0.3) 1.6 2.2
================================================== ========== ========== ==============
(12.3) (8.2) 22.7
================================================== ========== ========== ==============
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange translation differences 11.9 1.6 (18.3)
Cash flow hedges:
Change in fair value (0.5) 0.1 0.8
Transferred to profit or loss (0.6) 0.1 0.2
================================================== ========== ========== ==============
10.8 1.8 (17.3)
================================================== ========== ========== ==============
Total other comprehensive income/(expense) (1.5) (6.4) 5.4
================================================== ========== ========== ==============
Total comprehensive income/(expense) (27.7) 33.0 86.7
================================================== ========== ========== ==============
Attributable to:
Shareholders of the Company (30.4) 28.6 81.1
Non-controlling interests 2.7 4.4 5.6
================================================== ========== ========== ==============
(27.7) 33.0 86.7
================================================== ========== ========== ==============
Total comprehensive income/(expense) attributable
to shareholders of the Company arising from:
Continuing operations (31.3) 28.6 79.6
Discontinued operations 0.8 - 1.5
================================================== ========== ========== ==============
(30.5) 28.6 81.1
================================================== ========== ========== ==============
Condensed consolidated balance sheet
At 30 June At 30 June At 31 December
2020 2019 2019
Note GBPm GBPm GBPm
========================================== ==== ========== ========== ==============
Assets
Property, plant and equipment 8 286.8 321.1 317.2
Right-of-use assets 41.0 52.0 49.1
Intangible assets 9 196.3 213.8 204.8
Investments 6.7 5.9 6.5
Other receivables 2.8 5.1 5.7
Deferred tax assets 11.8 12.5 6.0
Total non-current assets 545.4 610.4 589.3
========================================== ==== ========== ========== ==============
Inventories 149.8 152.7 142.3
Derivative financial assets 11 0.6 0.3 1.5
Trade and other receivables 176.3 208.9 181.0
Current tax receivable 1.8 0.9 2.3
Cash and cash equivalents 10 122.7 59.7 68.7
========================================== ==== ========== ========== ==============
Total current assets 451.2 422.5 395.8
========================================== ==== ========== ========== ==============
Total assets 996.6 1,032.9 985.1
========================================== ==== ========== ========== ==============
Liabilities
Borrowings 188.4 184.9 176.2
Lease liabilities 51.5 57.2 52.6
Employee benefits: pensions 12 165.2 195.6 156.8
Provisions 13 9.6 8.5 9.2
Non-trade payables 2.5 2.5 2.5
Deferred tax liabilities 1.0 10.8 4.9
========================================== ==== ========== ========== ==============
Total non-current liabilities 418.2 459.5 402.2
========================================== ==== ========== ========== ==============
Borrowings and bank overdrafts 82.6 68.7 49.3
Lease liabilities 12.0 11.8 11.7
Trade and other payables 160.8 178.7 173.3
Current tax payable 31.6 27.0 26.9
Provisions 13 10.4 9.5 8.9
Derivative financial liabilities 11 1.4 0.5 0.6
========================================== ==== ========== ========== ==============
Total current liabilities 298.8 296.2 270.7
========================================== ==== ========== ========== ==============
Total liabilities 717.0 755.7 672.9
========================================== ==== ========== ========== ==============
Total net assets 279.6 277.2 312.2
========================================== ==== ========== ========== ==============
Equity
Share capital 71.8 71.8 71.8
Share premium 111.7 111.7 111.7
Reserves 31.6 38.7 22.5
Retained earnings 25.0 9.0 64.7
========================================== ==== ========== ========== ==============
Total equity attributable to shareholders
of the Company 240.1 231.2 270.7
Non-controlling interests 39.5 46.0 41.5
========================================== ==== ========== ========== ==============
Total equity 279.6 277.2 312.2
========================================== ==== ========== ========== ==============
Condensed consolidated statement of changes in equity
Share Share Translation Hedging Fair Capital Other Retained Total Non-controlling Total
capital premium reserve reserve value redemption reserves earnings parent interests equity
reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 1 January 2019
as reported 71.8 111.7 2.1 (0.2) (1.0) 35.7 0.6 12.1 232.8 44.4 277.2
Impact of change
in accounting
policy,
net of tax,
following
the adoption of
IFRS 16 - - - - - - - (12.2) (12.2) - (12.2)
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Adjusted 1
January
2019 71.8 111.7 2.1 (0.2) (1.0) 35.7 0.6 (0.1) 220.6 44.4 265.0
Profit for the
period - - - - - - - 35.3 35.3 4.1 39.4
Other comprehensive
income /(expense) :
Remeasurement
loss
on defined
benefit
plans and
related
taxes - - - - - - - (8.2) (8.2) - (8.2)
Foreign exchange
differences - - 1.3 - - - - - 1.3 0.3 1.6
Cash flow hedging
fair value
changes
and transfers - - - 0.2 - - - - 0.2 - 0.2
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Total
comprehensive
income - - 1.3 0.2 - - - 27.1 28.6 4.4 33.0
Transactions with
owners:
Dividends - - - - - - - (19.9) (19.9) (2.8) (22.7)
Share-based
payments - - - - - - - 1.6 1.6 - 1.6
Own shares
acquired
for share
incentive
schemes (net) - - - - - - - 0.3 0.3 - 0.3
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 30 June 2019 71.8 111.7 3.4 - (1.0) 35.7 0.6 9.0 231.2 46.0 277.2
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 1 January 2019
as reported 71.8 111.7 2.1 (0.2) (1.0) 35.7 0.6 12.1 232.8 44.4 277.2
Impact of change
in accounting
policy,
net of tax,
following
the adoption of
IFRS 16 - - - - - - - (12.2) (12.2) - (12.2)
Adjusted 1
January
2019 71.8 111.7 2.1 (0.2) (1.0) 35.7 0.6 (0.1) 220.6 44.4 265.0
Profit for the
period - - - - - - - 73.1 73.1 8.2 81.3
Other comprehensive
income /(expense) :
Remeasurement
gain
on defined
benefit
plans and
related
taxes - - - - - - - 22.7 22.7 - 22.7
Foreign exchange
differences - - (15.7) - - - - - (15.7) (2.6) (18.3)
Cash flow hedging
fair value
changes
and transfers - - - 1.0 - - - - 1.0 - 1.0
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Total
comprehensive
income
/(expense) - - (15.7) 1.0 - - - 95.8 81.1 5.6 86.7
Transactions with
owners:
Dividends - - - - - - - (31.3) (31.3) (8.5) (39.8)
Share-based
payments - - - - - - - 2.8 2.8 - 2.8
Own shares
acquired
for share
incentive
schemes (net) - - - - - - - (2.5) (2.5) - (2.5)
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 31 December
2019 71.8 111.7 (13.6) 0.8 (1.0) 35.7 0.6 64.7 270.7 41.5 312.2
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 1 January 2020 71.8 111.7 (13.6) 0.8 (1.0) 35.7 0.6 64.7 270.7 41.5 312.2
Profit/(loss) for
the period - - - - - - - (27.4) (27.4) 1.2 (26.2)
Other comprehensive
income/(expense):
Remeasurement
loss
on defined
benefit
plans and
related
taxes - - - - - - - (12.3) (12.3) - (12.3)
Foreign exchange
differences - - 10.4 - - - - - 10.4 1.5 11.9
Cash flow hedging
fair value
changes
and transfers - - - (1.1) - - - - (1.1) - (1.1)
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Total
comprehensive
income/(expense) - - 10.4 (1.1) - - - (39.7) (30.4) 2.7 (27.7)
Transactions with
owners:
Dividends - - - - - - - - - (4.1) (4.1)
Purchase of
non-controlling
interest - - - - - - - (2.2) (2.2) (0.6) (2.8)
Share-based
payments - - - - - - - 1.9 1.9 - 1.9
Own shares
acquired
for share
incentive
schemes (net) - - - - - - - 0.1 0.1 - 0.1
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 30 June 2020 71.8 111.7 (3.2) (0.3) (1.0) 35.7 0.6 24.8 240.1 39.5 279.6
================= ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Condensed consolidated statement of cash flows
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Note GBPm GBPm GBPm
=========================================== ==== ============= ============= ============
Operating activities
Profit/(loss) for the period from
continuing operations (27.0) 39.4 79.8
Profit for the period from discontinued
operations 6 0.8 - 1.5
Adjustments for:
Depreciation - property, plant and
equipment 17.3 15.9 32.3
Depreciation - right-of-use assets 5.1 4.7 10.1
Amortisation 3.7 4.1 8.1
Net financing costs 4 5.9 8.6 16.9
(Profit)/loss on disposal of business
and business exits 3,6 - - (0.7)
Non-cash specific adjusting items
included in operating profit 3,6 62.6 - -
Share of profit from associate (net
of income tax) (0.1) - (0.5)
Profit on sale of property, plant
and equipment (1.2) - (0.7)
Income tax expense 5 1.5 15.3 29.9
Share-based payment expense 1.4 1.2 2.4
=========================================== ==== ============= ============= ============
Cash generated from operations before
changes in working capital and provisions 70.0 89.2 179.1
=========================================== ==== ============= ============= ============
(Increase)/decrease in trade and other
receivables 14.8 (6.3) 9.0
(Increase)/decrease in inventories (1.2) (7.2) (5.9)
Increase/(decrease) in trade and other
payables (18.0) (6.7) (3.1)
Increase/(decrease) in provisions 1.3 (2.1) (0.5)
Payments to defined benefit pension
plans 12 (8.0) (6.2) (13.4)
=========================================== ==== ============= ============= ============
Cash generated from operations 58.9 60.7 165.2
=========================================== ==== ============= ============= ============
Interest paid - borrowings and overdrafts (3.6) (5.3) (11.2)
Interest paid - lease liabilities (1.4) (1.5) (3.0)
Income tax paid (7.0) (14.4) (28.8)
=========================================== ==== ============= ============= ============
Net cash from operating activities 46.9 39.5 122.2
=========================================== ==== ============= ============= ============
Investing activities
Purchase of property, plant and equipment
and software (16.0) (29.2) (56.4)
Purchase of investments (0.4) (0.5) (1.1)
Proceeds from sale of property, plant
and equipment 0.2 1.3 1.5
Interest received 0.4 0.7 1.9
Disposal of subsidiaries, net of cash
disposed - 0.7 0.7
Net cash from investing activities (15.8) (27.0) (53.4)
=========================================== ==== ============= ============= ============
Financing activities
Purchase of own shares for share incentive
schemes - - (3.3)
Proceeds from exercise of share options 0.1 0.3 0.8
Increase in borrowings 35.6 26.8 67.1
Reduction and repayment of borrowings (3.3) (20.7) (78.4)
Payment of lease liabilities (5.2) (4.3) (9.6)
Dividends paid to shareholders of
the Company - (19.9) (31.3)
Dividends paid to non-controlling
interests (4.1) (2.8) (8.5)
Purchase of shares from non-controlling
interest (2.8) - -
=========================================== ==== ============= ============= ============
Net cash from financing activities 20.3 (20.6) (63.2)
=========================================== ==== ============= ============= ============
Net increase/(decrease) in cash and
cash equivalents 51.4 (8.1) 5.6
Cash and cash equivalents at start
of period 68.7 67.6 67.6
Effect of exchange rate fluctuations
on cash held 2.6 0.2 (4.5)
=========================================== ==== ============= ============= ============
Cash and cash equivalents at period
end 10 122.7 59.7 68.7
=========================================== ==== ============= ============= ============
Notes to the condensed consolidated financial statements
Note 1. Basis of preparation, accounting policies and judgment
and estimates
Morgan Advanced Materials plc (the 'Company') is a company
incorporated in the UK under the Companies Act 2006.
The unaudited condensed consolidated financial statements of the
Company for the six months ended 30 June 2020 comprise the Company,
its subsidiaries and the Group's interest in associates (together
the 'Group').
The condensed consolidated financial statements for the six
months ended 30 June 2020 have been prepared in accordance with
International Accounting Standard 34 Interim Financial Reporting as
adopted by the European Union. Selected explanatory notes are
included to explain events and transactions that are significant to
an understanding of the changes in financial position and
performance of the Group since the last annual consolidated
financial statements for the year ended 31 December 2019.
The condensed consolidated financial statements and the
comparative information for the six months ended 30 June 2020 have
neither been audited nor reviewed, do not comprise statutory
accounts for the purpose of section 434 of Companies Act 2006 and
should be read in conjunction with the Annual Report and Accounts
for the year ended 31 December 2019. Those accounts have been
reported on by the Group's auditor and delivered to the Registrar
of Companies. The report of the auditor was unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying his report, and did
not contain a statement under section 498(2) or (3) of the
Companies Act 2006. The condensed consolidated financial statements
have been prepared on a going concern basis, refer to page 25 for
further details.
The consolidated financial statements of the Group for the year
ended 31 December 2019 are available on request from the Company's
registered office at Quadrant, 55-57 High Street, Windsor,
Berkshire SL4 1LP or at morganadvancedmaterials.com.
The condensed consolidated financial statements for the six
months ended 30 June 2020 were approved by the Board on 30 July
2020.
Accounting policies
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, these condensed consolidated financial
statements have been prepared by applying the accounting policies
that were applied in the preparation of the Company's published
consolidated financial statements for the year ended 31 December
2019.
Use of judgements and estimates
Preparing the condensed consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
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 3: Specific adjusting items
The Group separately presents specific adjusting items in the
consolidated income statement which, in the Directors' judgement,
need to be disclosed separately by virtue of their size and
incidence in order for users of the consolidated financial
statements to obtain a proper understanding of the financial
information and the underlying performance of the business. 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.
-- 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.
Deciding whether an item is part of specific adjusting items
requires judgement to determine the nature and the intention of the
transaction.
Note 5: Recognition of deferred tax assets
Deferred tax assets are recognised when management judges it
probable that future taxable profits will be available against
which the temporary differences can be utilised.
Note 13: 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 the utilisation of these provisions is frequently
uncertain, reflecting the complexity of issues and the outcome of
various court proceedings and associated negotiations.
Assumptions and estimates
Assumptions and estimation uncertainties that have a significant
risk of resulting in a material adjustment to the carrying amounts
of assets and liabilities within the six months ended 30 June 2020
are included in the following notes:
Note 12: Pensions and other post-retirement employee benefits:
key actuarial assumptions
The principal actuarial assumptions applied to pensions are
shown in note 12. 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.
Note 13: Provisions and contingent liabilities
Provisions for environmental costs and settlement of litigation
are estimated based on current legal and constructive requirements.
Actual costs and cash outflows can differ from current estimates
because of changes in laws and regulations, public expectations,
prices, more detailed analysis of site conditions and innovations
in clean-up technology.
Closure and restructuring costs can be estimated with greater
certainty and the carrying value of existing provisions at the
balance sheet date is less likely to change materially within the
next financial year.
Amounts provided are the Group's best estimate of exposure based
on currently available information.
Note 9: Impairment of intangible assets and goodwill
The Group tests at least annually whether goodwill and other
intangibles have suffered any impairment. This process relies on
the use of estimates of the future profitability and cash flows of
its cash-generating units which may differ from the actual results
delivered. In addition, the Group reviews whether identified
intangible assets have suffered any impairment. Note 9 contains
information about the assumptions relating to goodwill impairment
tests, including a sensitivity analysis
Other assumptions and estimates which have a lower risk of
resulting in a material adjustment to the carrying amounts of
assets and liabilities within the next 12 months include:
Note 5: Taxation
The level of current tax and deferred tax recognised is
dependent on the tax rates in effect at the balance sheet date, and
on subjective judgments as to the outcome of decisions to be made
by the tax authorities in the various tax jurisdictions around the
world in which the Group operates.
The Group periodically assesses its liabilities and
contingencies for all tax years open to audit based on the latest
information available. The Group records its best estimate of these
tax liabilities, including related interest charges. Whilst
management believes it has adequately provided for the probable
outcome of these matters, future results may include adjustments to
these estimated tax liabilities and the final outcome of tax
examinations may result in a materially different outcome than that
assumed in the tax liabilities. Provisions are made against
individual exposures taking into account the specific circumstances
of each case, including the strengths of technical arguments, past
experience with tax authorities, recent case law or rulings on
similar issues and external advice received.
Note 11: Credit risk
Note 11 contains information about the Group's exposure to
credit risk. The Group establishes allowances for impairment losses
against receivables. The allowance represents its estimate of
expected credit losses.
Adoption of new and revised accounting standards
There were no new accounting standards or amendments to
standards that were required to be adopted in the period and the
Group did not adopt any of the new accounting standards that could
have been adopted early.
Accounting developments and changes
There are no 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 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 17.
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 2019 Annual Report and Accounts on pages 6 to
44. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are reported on pages 30, 38-39,
and 119-130 of the 2019 Annual Report and Accounts. Additionally
this note and note 14 to the condensed consolidated financial
statements for the six months ended 30 June 2020 provide details of
the Group's policies and processes for managing financial risk;
details of its financial instruments and hedging activities; and
details of its exposures to credit risk and liquidity risk. The
principal risks of the Group are set out on pages 26 to 31 of the
2019 Annual Report and Accounts. The Directors have considered all
of these areas and how they may impact going concern.
Net debt* for the six months ended 30 June 2020 was GBP211.8
million, with net debt* excluding lease liabilities of GBP148.3
million, with no debt maturities until 2023. The Group had cash and
cash equivalents of GBP122.7 million and undrawn headroom on its
revolving credit facility of GBP116.6 million.
Our key financial covenants are measured on a pre-IFRS 16 Leases
basis. As at 30 June, net debt* to EBITDA* excluding lease
liabilities was 1.0 times compared to a covenant not to exceed 3.0
times, and our interest cover was 19 times, compared to a covenant
to exceed 4.0 times.
The current economic climate continues to have an impact on the
Group, its customers and its suppliers. Covid-19 has introduced
unprecedented uncertainty into global markets, pages 2 and 3 of
this Statement details the short- and long-term actions the Group
is taking. In response to the current economic climate we have
undertaken extensive reviews of our business projections and
identified a range of potential economic scenarios, including
severe but plausible decreases in revenue of between 20% and 30%
compared to 2019, followed by an extended recovery period. We
assessed our headroom under each scenario against committed
facilities and key banking covenants over the going concern
period.
Although not included within our modelled scenarios, the
Directors note the additional funding available as an eligible
issuer under the UK Government's 'Covid Corporate Financing
Facility' (CCFF) with an issuer limit of GBP300 million.
Under all scenarios the Group has headroom against its available
facilities and considers there are sufficient controllable actions
it can take, even if the severe downside case were to materialise,
to operate within its financial covenants. The Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of 12 months from
the date of this Statement. Accordingly, they continue to adopt the
going concern basis in preparing the condensed consolidated
financial statements for the six months ended 30 June 2020.
Note 2. Segment reporting
The Group reports as two divisions and five global business
units, which have been identified as the Group's reportable
operating segments. These have been identified on the basis of
internal management reporting information that is regularly
reviewed by the Group's Board of Directors (the Chief Operating
Decision Maker) in order to allocate resources and assess
performance.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Unallocated items comprise mainly investments
and related income, borrowings and related expenses, corporate
assets and head office expenses, and income tax assets and
liabilities.
The information presented below represents the operating
segments of the Group.
Six months ended 30 June 2020
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and totals costs
Systems division Bearings Technical
Ceramics
division
Continuing GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Revenue from
external
customers 175.3 20.4 195.7 77.7 77.6 126.8 282.1 477.8 - 477.8
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Segment
headline
operating
profit(1) 13.5 1.7 15.2 12.5 15.5 12.2 40.2 55.4 55.4
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Corporate costs (2.5) (2.5)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Group headline
operating
profit(1) 52.9
Amortisation of
intangible
assets (0.9) (0.1) (1.0) (0.3) (0.1) (2.3) (2.7) (3.7) - (3.7)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Operating
profit before
specific
adjusting
items 12.6 1.6 14.2 12.2 15.4 9.9 37.5 51.7 (2.5) 49.2
Specific
adjusting
items
included in
operating
profit(2) (35.0) (0.2) (35.2) (1.2) (0.2) (32.2) (33.6) (68.8) (0.1) (68.9)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Operating
profit/(loss) (22.4) 1.4 (21.0) 11.0 15.2 (22.3) 3.9 (17.1) (2.6) (19.7)
=============== ========= ======== ========= ========== ========= ========= ========== ======= =========
Finance income 0.5
Finance expense (6.4)
Share of profit
of associate
(net of income
tax) 0.1
======
Loss before
taxation (25.5)
======
Segment assets 341.6 42.3 383.9 157.1 111.9 200.3 469.3 853.2 143.4 996.6
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Segment
liabilities 83.8 7.2 91.0 31.8 20.5 76.0 128.3 219.3 497.7 717.0
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Segment capital
expenditure 4.0 2.0 6.0 1.8 4.1 4.1 10.0 16.0 - 16.0
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Segment
depreciation -
property,
plant and
equipment 6.8 1.1 7.9 2.8 2.9 3.7 9.4 17.3 - 17.3
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
Segment
depreciation -
right-of-use
assets 2.2 0.2 2.4 0.6 0.4 1.7 2.7 5.1 - 5.1
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= ======
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
2. Details of specific adjusting items are given in note 3 to
the condensed consolidated financial statements.
Six months ended 30 June 2019
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and totals costs
Systems division Bearings Technical
Ceramics
division
Continuing GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Revenue from
external
customers 207.8 24.7 232.5 85.4 71.1 136.8 293.3 525.8 - 525.8
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
headline
operating
profit(1) 25.7 2.7 28.4 11.1 13.4 17.5 42.0 70.4 70.4
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Corporate costs (3.0) (3.0)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Group headline
operating
profit(1) 67.4
Amortisation of
intangible
assets (1.1) (0.2) (1.3) (0.4) (0.2) (2.2) (2.8) (4.1) - (4.1)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Operating
profit before
specific
adjusting
items 63.3
Specific - - - - - - - - - -
adjusting items
included in
operating
profit(2)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Operating
profit/(loss) 24.6 2.5 27.1 10.7 13.2 15.3 39.2 66.3 (3.0) 63.3
=============== ========= ======== ========= ========== ========= ========= ========== ======= =========
Finance income 0.6
Finance expense (9.2)
Share of profit -
of associate
(net of income
tax)
=======
Profit before
taxation 54.7
=======
Segment assets 415.4 43.4 458.8 163.3 105.6 221.6 490.5 949.3 83.6 1,032.9
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
liabilities 102.8 8.6 111.4 33.7 21.6 79.7 135.0 246.4 509.3 755.7
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment capital
expenditure 6.0 1.4 7.4 4.2 5.0 12.6 21.8 29.2 - 29.2
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
depreciation -
property,
plant and
equipment 6.8 0.9 7.7 2.5 2.4 3.3 8.2 15.9 - 15.9
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
depreciation -
right-of-use
assets 1.9 0.2 2.1 0.6 0.3 1.7 2.6 4.7 - 4.7
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
2. Details of specific adjusting items are given in note 3 to
the condensed consolidated financial statements.
Year ended 31 December 2019
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and totals costs
Systems division Bearings Technical
Ceramics
division
Continuing GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Revenue from
external
customers 418.4 49.1 467.5 164.2 144.3 273.5 582.0 1,049.5 - 1,049.5
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
headline
operating
profit(1) 52.2 5.9 58.1 21.9 26.4 33.7 82.0 140.1 - 140.1
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Corporate costs (5.9) (5.9)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Group headline
operating
profit(1) 134.2
Amortisation of
intangible
assets (2.2) (0.3) (2.5) (0.7) (0.4) (4.5) (5.6) (8.1) - (8.1)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Operating
profit before
specific
adjusting
items 126.1
Specific - - - - - - - - - -
adjusting items
included in
operating
profit(2)
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Operating
profit/(loss) 50.0 5.6 55.6 21.2 26.0 29.2 76.4 132.0 (5.9) 126.1
=============== ========= ======== ========= ========== ========= ========= ========== ======= =========
Finance income 1.9
Finance expense (18.8)
Share of profit
of associate
(net of income
tax) 0.5
=======
Profit before
taxation 109.7
=======
Segment assets 387.5 42.8 430.3 154.8 101.9 209.6 466.3 896.6 88.5 985.1
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
liabilities 96.4 9.4 105.8 32.2 22.5 78.0 132.7 238.5 434.4 672.9
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment capital
expenditure 12.1 4.2 16.3 8.4 10.1 21.6 40.1 56.4 - 56.4
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
depreciation -
property,
plant and
equipment 13.6 1.8 15.4 5.2 5.0 6.7 16.9 32.3 - 32.3
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
Segment
depreciation -
right-of-use
assets 4.3 0.4 4.7 1.2 0.7 3.4 5.3 10.0 0.1 10.1
=============== ========= ======== ========= ========== ========= ========= ========== ======= ========= =======
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
2. Details of specific adjusting items are given in note 3 to
the condensed consolidated financial statements.
Revenue from external customers
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Continuing operations GBPm GBP m GBPm
================================================ ============= ============= ============
US 199.9 209.3 420.0
China 46.7 51.0 101.3
Germany 27.8 35.2 68.9
UK (the Group's country of domicile) 20.3 23.0 44.5
Other Asia, Australasia, Middle East and Africa 83.1 96.1 195.7
Other Europe 74.9 79.8 158.0
Other North America 15.9 16.0 33.6
South America 9.2 15.4 27.5
================================================ ============= ============= ============
477.8 525.8 1,049.5
================================================ ============= ============= ============
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 10% of
revenue.
Revenue from external customers by end-market
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Continuing operations GBPm GBP m GBPm
============================== ============= ============= ============
Industrial 196.2 243.6 472.0
Transportation 87.1 107.7 218.3
Chemical and petrochemical 55.4 48.6 106.0
Security and defence 50.3 33.9 73.0
Semiconductor and electronics 32.4 34.5 69.7
Healthcare 30.4 26.7 53.2
Energy 26.0 30.8 57.3
477.8 525.8 1,049.5
============================== ============= ============= ============
Intercompany sales to other segments
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Continuing operations GBPm GBP m GBPm
======================================= ============= ============= ============
Thermal Ceramics 0.5 0.8 1.0
Molten Metal Systems 0.1 0.1 0.1
======================================= ============= ============= ============
Thermal Products division 0.6 0.9 1.1
======================================= ============= ============= ============
Electrical Carbon 0.3 0.1 0.3
Seals and Bearings 0.6 0.6 1.2
Technical Ceramics 0.1 0.1 0.4
======================================= ============= ============= ============
Carbon and Technical Ceramics division 1.0 0.8 1.9
======================================= ============= ============= ============
Note 3. Specific adjusting items
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Continuing operations GBPm GBPm GBPm
Specific adjusting items:
Business closure and exit costs - - (0.7)
Release of provisions related to business exits
and disposals - - 0.7
Restructuring costs (5.5) - -
Impairment of assets (63.4) - -
Total specific adjusting items before income
tax (68.9) - -
Income tax credit from specific adjusting items 10.2 - -
Total specific adjusting items after income
tax (58.7) - -
================================================ ============= ============= ============
Specific adjusting items in relation to discontinued operations
are disclosed in note 6.
2020
Restructuring costs
Following the announcement of the Group's restructuring
programme on 5 June 2020 the Group has recognised GBP5.5 million
relating to initial staff redundancies and legal and professional
fees.
Impairment of assets
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand has resulted in
impairment losses of GBP28.5 million in the ceramic cores
businesses. The assets relating to these businesses have been
impaired to align their recoverable value to their value in use. To
calculate value in use management have prepared cash flow
projections to 2023 that assume the trends seen in the second
quarter persist for the aerospace industry into 2021, with a
gradual recovery of demand. A long-term growth rate of 1% has been
used for years beyond 2023 and in calculating the terminal value. A
pre-tax discount rate of 11.5% has been used to determine the value
in use. The impairment is allocated to customer relationship
intangible assets recognised upon the acquisition of the Carpenter
business in 2008, right-of-use assets and property, plant and
equipment.
Technical Ceramics, China
On 15 June 2020 the Group announced the closure of its Suzhou
manufacturing facility in China and has recognised GBP1.1 million
relating to the impairment of plant and equipment to its fair value
less costs of disposal.
Thermal Ceramics
The continuing reduced demand in the aerospace, automotive and
industrial market segments has resulted in impairment losses of
GBP33.8 million in Thermal Ceramics.
Impairments relating to the closure of sites and under-utilised
product lines, totalled GBP20.2 million relating to property, plant
and equipment and right-of-use assets, aligning their recoverable
value to their fair value less costs of disposal.
Two further businesses, which remain in operation, have
recognised combined impairment losses of GBP13.6 million after
reassessment of their value in use in the current economic climate.
To calculate value in use management have prepared cash flow
projections that assume the trends seen in the second quarter
persist into the second half of 2020, with a gradual recovery of
demand. A long-term growth rate of 1% has been used for years
beyond 2023 and in calculating the terminal value. A pre-tax
discount rate of 11.6% has been used to determine the value in use.
The impairment is allocated to customer relationship and technology
and trademark intangible assets recognised upon the acquisition of
Porextherm in Germany in 2014 as well as right-of-use assets and
property, plant and equipment across both businesses.
2019
Business closure and exit costs
China, Technical Ceramics
In 2019, the Group completed the exit of the ceramic cores
operations within China, Technical Ceramics initiated in 2018. The
Group recognised GBP0.7 million of costs in relation to this exit
for staff redundancies and legal and professional fees.
Release of provisions related to previous business exits and
disposals
In 2019, certain liabilities relating to previous business exits
and disposals lapsed and the Group released GBP0.7 million of legal
and other provisions.
Note 4. Finance income and expense
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Continuing operations GBPm GBPm GBPm
============================================== ============= ============= ============
Interest on bank balances and cash deposits 0.5 0.6 1.9
============================================== ============= ============= ============
Finance income 0.5 0.6 1.9
============================================== ============= ============= ============
Interest expense on borrowings and overdrafts (3.8) (5.4) (11.2)
Interest expense on lease liabilities (1.4) (1.5) (3.0)
Net interest on IAS 19 obligations (1.2) (2.3) (4.6)
============================================== ============= ============= ============
Finance expense (6.4) (9.2) (18.8)
============================================== ============= ============= ============
Net financing costs recognised in profit or
loss (5.9) (8.6) (16.9)
============================================== ============= ============= ============
No finance income or expense related to discontinued operations
in either the current or preceding periods.
Note 5. Taxation
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Continuing operations GBPm GBPm GBPm
================================================ ============= ============= ============
Income tax charge on profit before specific
adjusting items (11.7) (15.3) (29.9)
Income tax credit from specific adjusting items 10.2 - -
================================================ ============= ============= ============
Total income tax expense recognised in profit
or loss (1.5) (15.3) (29.9)
================================================ ============= ============= ============
The Group's consolidated effective tax rate for the six months
ended 30 June 2020 is based on the Directors' best estimate of the
effective tax rate for the year.
The Group operates in many jurisdictions around the world and is
subject to factors that may impact future tax charges including the
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.
EU State Aid
On 2 April 2019 the European Commission ruled that a Group
Financing Exemption under the UK controlled foreign company rules
was partly contrary to EU State Aid rules. The UK government has
filed an annulment application with the EU General Court against
this decision. Like many other multinational groups that have acted
in accordance with the UK legislation in force at the time, the
Group may be affected. The estimated maximum potential unprovided
liability for the Group is approximately GBP2.5 million.
Note 6. Discontinued operations
The results from discontinued operations, which represent the
Composites and Defence Systems business disposed in 2018, are set
out below:
Six months ended Six months ended Year ended
30 June 2020 30 June 2019 31 December 2019
Results Specific Total Results Specific Total Results Specific Total
before adjusting before adjusting before adjusting
specific items specific items specific items
adjusting (1) adjusting (1) adjusting (1)
items items items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== ========== ========== ===== ========== ========== ===== ========== ========== =====
Revenue - - - - - - - - -
Operating income - 0.8 0.8 - - - 0.7 0.8 1.5
Profit before
taxation - 0.8 0.8 - - - 0.7 0.8 1.5
Income tax expense - - - - - - - - -
Profit from
discontinued
operations - 0.8 0.8 - - - 0.7 0.8 1.5
===================== ========== ========== ===== ========== ========== ===== ========== ========== =====
Basic profit per
share from
discontinued
operations 0.3p - 0.5p
Diluted profit per
share
from discontinued
operations 0.3p - 0.5p
===================== ========== ========== ===== ========== ========== ===== ========== ========== =====
Specific adjusting items in both 2020 and 2019 relate to the
reassessment of certain provisions associated with the disposal. In
2019, operating income of GBP0.7 million relates to receipts from
contingent assets excluded from the disposal.
There was no income tax expense in relation to the discontinued
operations in either the current or preceding periods.
Cash flows from discontinued operations are set out below:
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
=========================================== ============= ============= ============
Net cash inflow from operating activities (0.1) (0.4) 0.4
Net cash inflow from investing activities - 0.7 0.7
Net cash flow used in financing activities - - -
=========================================== ============= ============= ============
(0.1) 0.3 1.1
=========================================== ============= ============= ============
Note 7. Earnings per share
Six months ended Six months ended Year ended
30 June 2020 30 June 2019 31 December 2019
Earnings/ Basic Diluted Earnings Basic Diluted Earnings Basic Diluted
(loss) earnings/ earnings/ earnings earnings earnings earnings
(loss) (loss) per share per share per per
per share per share share share
GBPm pence Pence GBPm pence pence GBPm pence pence
================ ========= ========= ========= ======== ========= ========== ======== ========= =========
Profit/(loss)
for the period
attributable to
shareholders
of the Company (27.4) (9.6)p (9.6)p 35.3 12.4p 12.3p 73.1 25.7p 25.5p
(Profit)/loss
from
discontinued
operations (0.8) (0.3)p (0.3)p - - - (1.5) (0.5)p (0.5)p
================ ========= ========= ========= ======== ========= ========== ======== ========= =========
Profit/(loss)
from continuing
operations (28.2) (9.9)p (9.9)p 35.3 12.4p 12.3p 71.6 25.2p 25.0p
================ ========= ========= ========= ======== ========= ========== ======== ========= =========
Specific
adjusting items 68.9 24.2p 24.1p - - - - - -
Amortisation of
intangible
assets 3.7 1.3p 1.3p 4.1 1.4p 1.4p 8.1 2.8p 2.8p
Tax effect of
the above (10.2) (3.6)p (3.6)p - - - - - -
Non-controlling
interests'
share of the
above
adjustments (1.4) (0.5)p (0.5)p - - - - - -
================ ========= ========= ========= ======== ========= ========== ======== ========= =========
Adjusted profit
for the period
from continuing
operations
as used in
headline
earnings
per share(1) 32.8 11.5p 11.5p 39.4 13.8p 13.8p 79.7 28.0p 27.8p
================ ========= ========= ========= ======== ========= ========== ======== ========= =========
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019
millions 2019 millions
millions
=============================================== ============= ========== ============
Number of shares
Weighted average number of Ordinary shares for
the purposes of basic earnings per share(1) 284.6 284.6 284.6
Effect of dilutive potential Ordinary shares:
Share options 1.2 1.8 1.6
=============================================== ============= ========== ============
Weighted average number of Ordinary shares for
the purposes of diluted earnings per share 285.8 286.4 286.2
=============================================== ============= ========== ============
1. The calculation of the weighted average number of shares
excludes the shares held by The Morgan General Employee Benefit
Trust, on which dividends are waived.
Note 8. Property, plant and equipment
Land and Plant, Total
buildings equipment
and fixtures
GBPm GBPm GBPm
======================================= ========== ============= =====
Cost
At 1 January 2020 215.4 686.0 901.4
Additions 0.9 9.6 10.5
Disposals (0.1) (8.3) (8.4)
Transfer to intangible assets - (2.5) (2.5)
Effect of movement in foreign exchange 11.2 35.4 46.6
======================================= ========== ============= =====
At 30 June 2020 227.4 720.2 947.6
======================================= ========== ============= =====
Depreciation and impairment losses
At 1 January 2020 95.7 488.5 584.2
Depreciation charge for the period 2.7 14.6 17.3
Impairment losses(1) 9.7 25.7 35.4
Disposals (0.1) (8.1) (8.2)
Effect of movement in foreign exchange 5.8 26.3 32.1
======================================= ========== ============= =====
At 30 June 2020 113.8 547.0 660.8
======================================= ========== ============= =====
Carrying amounts
At 1 January 2020 119.7 197.5 317.2
======================================= ========== ============= =====
At 30 June 2020 113.6 173.2 286.8
======================================= ========== ============= =====
1. For more details of impairment losses recognised in the
period see note 3.
Profit on sale of property, plant and equipment presented in the
cash flow includes GBP1.2 million of insurance proceeds for
replacement assets.
Note 9. Intangible assets
Goodwill Customer Technology Capitalised Computer Total
relationships and development software
trademarks costs
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ======== ============== =========== ============ ========= =====
Cost
At 1 January 2020 175.1 57.7 3.4 0.8 31.7 268.7
Additions (externally purchased) - - - - 4.4 4.4
Transfers from property,
plant and equipment - - - - 2.5 2.5
Effect of movement in foreign
exchange 6.1 3.9 0.3 0.1 1.1 11.5
================================= ======== ============== =========== ============ ========= =====
At 30 June 2020 181.2 61.6 3.7 0.9 39.7 287.1
================================= ======== ============== =========== ============ ========= =====
Amortisation and impairment
losses
At 1 January 2020 - 40.4 0.7 0.8 22.0 63.9
Amortisation charge for
the period - 2.1 0.1 - 1.5 3.7
Impairment losses(1) - 14.2 2.7 - 2.5 19.4
Effects of movement in foreign
exchange - 2.9 0.2 0.1 0.6 3.8
================================= ======== ============== =========== ============ ========= =====
At 30 June 2020 - 59.6 3.7 0.9 26.6 90.8
================================= ======== ============== =========== ============ ========= =====
Carrying amounts
At 1 January 2020 175.1 17.3 2.7 - 9.7 204.8
================================= ======== ============== =========== ============ ========= =====
At 30 June 2020 181.2 2.0 - - 13.1 196.3
================================= ======== ============== =========== ============ ========= =====
1. For more details of impairment losses recognised in the
period please see note 3.
Impairment test for 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
that are expected to benefit from the synergies of the business
combination that gave rise to the goodwill.
Goodwill is attributed to each cash-generating unit as
follows:
At 30 June At 30 June At 31 December
2020 2019 2019
GBPm GBPm GBPm
===================== ========== ========== ==============
Thermal Ceramics 88.1 87.5 85.2
Molten Metal Systems 9.4 9.3 9.1
Electrical Carbon 30.4 30.2 29.5
Seals and Bearings 15.5 15.4 14.9
Technical Ceramics 37.8 37.5 36.4
===================== ========== ========== ==============
181.2 179.9 175.1
===================== ========== ========== ==============
Each cash-generating unit is assessed for impairment annually or
more frequently if there are indicators that goodwill might be
impaired. Given the impact of the Covid-19 pandemic on the Group's
financial statements, management have performed an impairment
review as at 30 June 2020.
The carrying value of goodwill has been assessed with reference
to its value in use, reflecting the projected discounted cash flows
of each cash-generating unit to which goodwill has been allocated.
The key assumptions used in determining value in use relate to
growth rates and discount rates.
Cash flow projections are based on managements' expectations on
how sales and operating margins will develop to 31 December 2023.
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 cash generating unit. Management have
used conservative cash flow projections that assume the trends seen
in the second quarter persist into the second half of 2020, with a
gradual recovery of demand back to 2019 levels by either 2022 or
2023. A 1.0% growth rate has been used for years beyond 2023 and to
calculate a terminal value. Management has assessed these growth
rates, including the terminal growth rate as reasonable for each
cash-generating unit. In neither scenario is an impairment of
goodwill indicated.
At 30 June 2020, the Group has used the following pre-tax
discount rates for calculating the value in use of each of the
cash-generating units: Thermal Ceramics: 11.3%, Molten Metal
Systems: 11.2%, Electrical Carbon: 11.2%, Seals and Bearings:
10.6%, Technical Ceramics 10.7%.
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 cash-generating
units in any one of the following three circumstances, which are
considered reasonably possible changes:
-- If the pre-tax discount rate was increased to 15%.
-- If no recovery is assumed between 2021 to 2023 and no growth
in the calculation of terminal value.
-- If the cash flow projections of all businesses were reduced by 25%.
Note 10. Cash and cash equivalents reconciled to net debt*
At 30 June At 30 June At 31 December
2020 2019 2019
GBPm GBPm GBPm
Bank balances 71.9 49.6 59.6
Cash deposits 50.8 10.1 9.1
========================== ========== ========== ==============
Cash and cash equivalents 122.7 59.7 68.7
========================== ========== ========== ==============
Reconciliation of cash and cash equivalents to net debt*
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
Opening borrowings and lease liabilities
as reported (289.8) (247.6) (247.6)
Impact of change in accounting policy following
adoption of IFRS 16 - (67.4) (67.4)
Adjusted opening borrowings and lease liabilities (289.8) (315.0) (315.0)
Increase in borrowings (35.6) (26.8) (67.1)
Reduction and repayment of borrowings 3.3 20.7 78.4
Payment of lease liabilities 5.2 4.3 9.6
================================================== ============= ============= ============
Total changes from cash flows (27.1) (1.8) 20.9
New leases and lease remeasurement (0.8) (5.6) (8.8)
Effect of movements in foreign exchange on
borrowings (16.8) (0.2) 13.1
================================================== ============= ============= ============
Closing borrowings and lease liabilities (334.5) (322.6) (289.8)
Cash and cash equivalents 122.7 59.7 68.7
================================================== ============= ============= ============
Closing net debt(1) (211.8) (262.9) (221.1)
================================================== ============= ============= ============
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
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 Cash and Movement
liabilities cash equivalents in
GBPm GBPm GBPm GBPm net debt
(1)
GBPm
=================================== =========== ================== ================ ================== ==========
At 1 January 2020 (225.5) (64.3) (289.8) 68.7 (221.1)
Cash inflow - - - 56.4 56.4
Borrowings and lease liability
cash flow (32.3) 5.2 (27.1) - (27.1)
Net interest paid - - - (5.0) (5.0)
=================================== =========== ================== ================ ================== ==========
Net cash inflow/(outflow) (32.3) 5.2 (27.1) 51.4 24.3
=================================== =========== ================== ================ ================== ==========
New leases and lease remeasurement - (0.8) (0.8) - (0.8)
Exchange and other movements (13.2) (3.6) (16.8) 2.6 (14.2)
=================================== =========== ================== ================ ================== ==========
At 30 June 2020 (271.0) (63.5) (334.5) 122.7 (211.8)
=================================== =========== ================== ================ ================== ==========
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 41, reconciliations of the statutory
results to the adjusted measures can be found on pages 14 to
17.
Note 11. Financial risk management
Fair values
At 30 June 2020 At 30 June 2019 At 31 December 2019
=============
Fair value Fair value Fair value
============= ======== ======================= ======== ======================= ======== =======================
Carrying Level Level Total Carrying Level Level Total Carrying Level Level Total
amount 1 2 GBPm amount 1 2 GBPm amount 1 2 GBPm
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============= ======== ===== ======= ======= ======== ===== ======= ======= ======== ===== ======= =======
Financial assets and liabilities held at
amortised cost
6.26% US
Dollar
Senior
Notes 2019 - - - - (59.2) - (59.7) (59.7) - - - -
1.18% Euro
Senior
Notes 2023 (22.7) - (22.9) (22.9) (22.4) - (22.7) (22.7) (21.2) - (21.2) (21.2)
3.17% US
Dollar
Senior
Notes 2023 (12.2) - (12.7) (12.7) (11.9) - (11.8) (11.8) (11.4) - (11.3) (11.3)
1.55% Euro
Senior
Notes 2026 (22.7) - (23.5) (23.5) (22.4) - (23.1) (23.1) (21.2) - (21.5) (21.5)
3.37% US
Dollar
Senior
Notes 2026 (78.5) - (83.7) (83.7) (76.7) - (74.9) (74.9) (73.5) - (72.1) (72.1)
1.74% Euro
Senior
Notes 2028 (9.1) - (9.5) (9.5) (9.0) - (9.3) (9.3) (8.5) - (8.6) (8.6)
2.89% Euro
Senior
Notes 2030 (22.6) - (24.5) (24.5) (22.4) - (23.7) (23.7) (21.1) - (22.2) (22.2)
4.87% US
Dollar
Senior
Notes 2026 (20.6) - (23.0) (23.0) (20.1) - (21.1) (21.1) (19.2) - (20.2) (20.2)
(188.4) - (199.8) (199.8) (244.1) - (246.3) (246.3) (176.1) - (177.1) (177.1)
============= ======== ===== ======= ======= ======== ===== ======= ======= ======== ===== ======= =======
Financial instruments - held at FVOCI(1)
Equity
securities 0.8 0.8 - 0.8 0.5 0.5 - 0.5 0.6 0.6 - 0.6
============= ======== ===== ======= ======= ======== ===== ======= ======= ======== ===== ======= =======
Derivatives held at fair value
Derivative
financial
assets held
at fair
value 0.6 - 0.6 0.6 0.3 - 0.3 0.3 1.5 - 1.5 1.5
Derivative
financial
liabilities
held
at fair
value (1.4) - (1.4) (1.4) (0.5) - (0.5) (0.5) (0.6) - (0.6) (0.6)
============= ======== ===== ======= ======= ======== ===== ======= ======= ======== ===== ======= =======
(0.8) - (0.8) (0.8) (0.2) - (0.2) (0.2) 0.9 - 0.9 0.9
============= ======== ===== ======= ======= ======== ===== ======= ======= ======== ===== ======= =======
(188.4) 0.8 (200.6) (199.8) (243.8) 0.5 (246.5) (246.0) (174.6) 0.6 (176.2) (175.6)
============= ======== ===== ======= ======= ======== ===== ======= ======= ======== ===== ======= =======
1. Fair value through other comprehensive income.
The table above analyses financial instruments carried at fair
value, by valuation method, together with the carrying amounts
shown in the balance sheet. The fair value of cash and cash
equivalents, current trade and other receivables/ payables and
floating-rate bank and other borrowings are excluded from the
preceding table as their carrying amount approximates to their fair
value.
Fair value hierarchy
The different levels have been defined as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices)
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
There were no transfers between Level 1 and Level 2 during 2020
or 2019 and there were no Level 3 financial instruments in either
2020 or 2019.
The major methods and assumption used in estimating the fair
values of financial instruments reflected in the preceding table
are as follows:
Fixed-rate borrowings
Fair value is calculated based on discounted expected future
principal and interest cash flows. The interest rates used to
determine the fair value of borrowings are 0.9-2.5% (30 June 2019:
0.9-4.2%; 31 December 2019: 1.1-3.9%).
Equity securities
Fair value is based on quoted market prices at the balance sheet
date.
Derivatives
Derivatives relate to forward exchange contracts and are marked
to market either using listed market prices or by discounting the
contractual forward price and deducting the current spot rate.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Group is exposed to credit risk on
financial instruments such as liquid assets, derivative assets and
trade receivables.
The current economic climate gives rise to an increased credit
risk, primarily with respect to trade receivables.
The Group establishes an allowance for impairment that
represents its estimate of expected credit losses in respect of
trade receivables.
The ageing of trade receivables at the reporting date was:
At 30 June At 30 June At 31 December
2020 2019 2019
Gross Impairment Gross Impairment Gross Impairment
GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ========== ========== ===== ========== ===== ==========
Not past due 131.0 (0.3) 154.3 (0.4) 137.0 (0.3)
Past due 0-30 days 16.9 (0.2) 21.6 (0.3) 19.8 (0.3)
Past due 31-60 days 4.4 (0.1) 5.7 (0.1) 4.1 (0.2)
Past due 61-90 days 2.5 (0.2) 2.0 (0.1) 1.9 (0.1)
Past due more than 90 days 10.8 (10.0) 9.1 (8.4) 7.6 (7.5)
=========================== ========== ========== ===== ========== ===== ==========
165.6 (10.8) 192.7 (9.3) 170.4 (8.4)
=========================== ========== ========== ===== ========== ===== ==========
Full details of the Group's policies and processes for managing
financial risk are described in note 22 of the Group's 2019 Annual
Report and Accounts.
Note 12. Pensions and other post-retirement employee
benefits
Defined benefit obligations
Six months ended 30 June 2020
UK US Europe Rest of Total
GBPm GBPm GBPm World GBPm
GBPm
Summary of net obligations
Present value of unfunded defined
benefit obligations - (8.2) (39.4) (2.3) (49.9)
Present value of funded defined
benefit obligations (575.9) (156.4) (2.2) (12.0) (746.5)
Fair value of plan assets 469.0 153.3 0.4 8.5 631.2
====================================== ========= ======= ====== ======= =======
(106.9) (11.3) (41.2) (5.8) (165.2)
====================================== ========= ======= ====== ======= =======
Movements in present value of defined
benefit obligation
At 1 January 2020 (534.6) (146.0) (40.0) (14.3) (734.9)
Current service cost -- (0.5) (0.9) (1.4)
Interest cost (5.2) (2.4) (0.2) (0.1) (7.9)
Actuarial gain/(loss):
Experience gain/(loss) on plan
obligations (2.0)- - (0.1) (2.1)
Changes in financial assumptions
- gain/(loss) (46.2) (10.6) 1.1- (55.7)
Benefits paid 12.1 4.6 0.7 1.1 18.5
Curtailments and settlements -- - 0.3 0.3
Exchange adjustments - (10.2) (2.7) (0.3) (13.2)
====================================== ========= ======= ====== ======= =======
At 30 June 2020 (575.9) (164.6) (41.6) (14.3) (796.4)
====================================== ========= ======= ====== ======= =======
Movements in fair value of plan
assets
At 1 January 2020 433.1 135.4 0.4 9.2 578.1
Interest on plan assets 4.4 2.2 - 0.1 6.7
Remeasurement gain/(loss) 35.3 10.3 - 0.2 45.8
Contributions by employer 8.3 0.4 0.7 0.2 9.6
Benefits paid (12.1) (4.6) (0.7) (1.1) (18.5)
Curtailments and settlements -- - (0.3) (0.3)
Exchange adjustments - 9.6 - 0.2 9.8
====================================== ========= ======= ====== ======= =======
At 30 June 2020 469.0 153.3 0.4 8.5 631.2
====================================== ========= ======= ====== ======= =======
Actual return on assets 39.7 12.5 - 0.3 52.5
====================================== ========= ======= ====== ======= =======
Fair value of plan assets by category
Equities 58.0- -- 58.0
Growth assets 96.2 8.7 -- 104.9
Bonds 59.6 140.3 -- 199.9
Liability-driven investments (LDI) 88.6- -- 88.6
Matching insurance policies 164.0- 0.4 6.3 170.7
Other 2.6 4.3 - 2.2 9.1
====================================== ========= ======= ====== ======= =======
469.0 153.3 0.4 8.5 631.2
====================================== ========= ======= ====== ======= =======
Principal actuarial assumptions %% %%
at 30 June 2020 were:
Discount rate 1.47 2.58 0.90 2.20
Inflation (UK: RPI/CPI) 2.59/1.74 n/a 1.50 n/a
====================================== ========= ======= ====== =======
30 June 2019
UK US Europe Rest of Total
GBPm GBPm GBPm World GBPm
GBPm
Summary of net obligations
Present value of unfunded defined
benefit obligations - (8.0) (39.2) (2.0) (49.2)
Present value of funded defined benefit
obligations (582.4) (141.3) (2.4) (11.5) (737.6)
Fair value of plan assets 442.2 140.0 0.5 8.5 591.2
======================================== ========= ======= ====== ======= =======
(140.2) (9.3) (41.1) (5.0) (195.6)
======================================== ========= ======= ====== ======= =======
Principal actuarial assumptions at %% %%
30 June 2019 were:
Discount rate 2.22 3.53 1.00 2.10
Inflation (UK: RPI/CPI) 3.18/2.08 n/a 1.70 n/a
========================================
31 December 2019
UK US Europe Rest of Total
GBPm GBPm GBPm World GBPm
GBPm
Summary of net obligations
Present value of unfunded defined
benefit obligations - (7.6) (37.9) (2.7) (48.2)
Present value of funded defined benefit
obligations (534.6) (138.4) (2.1) (11.6) (686.7)
Fair value of plan assets 433.1 135.4 0.4 9.2 578.1
======================================== ========= ======= ====== =======
(101.5) (10.6) (39.6) (5.1) (156.8)
======================================== ========= ======= ====== =======
Principal actuarial assumptions at %% %%
31 December 2019 were:
Discount rate 2.06 3.21 0.90 2.20
Inflation (UK: RPI/CPI) 2.73/1.88 n/a 1.70 n/a
======================================== ========= ======= ====== =======
Note 13. Provisions and contingent liabilities
Closure and Legal and other Environmental Total
restructuring provisions provisions
provisions
GBPm GBPm GBPm GBPm
At 1 January 2020 2.4 8.8 6.9 18.1
Provisions made during the year 2.8 0.8 - 3.6
Provisions used during the year (1.0) (0.3) (0.2) (1.5)
Provisions reversed during the
year - (0.8) - (0.8)
Effect of movements in foreign
exchange - 0.3 0.3 0.6
At 30 June 2020 4.2 8.8 7.0 20.0
Current 4.2 5.0 1.2 10.4
Non-current - 3.8 5.8 9.6
At 30 June 2020 4.2 8.8 7.0 20.0
Closure and restructuring provisions
Closure and restructuring provisions are based on the Group's
restructuring programmes and represent committed expenditure at the
balance sheet date. The amounts provided are based on the costs of
terminating relevant contracts, under the contract terms, and
management's best estimate of other associated restructuring costs
including professional fees. Due to the nature of the provision for
closure and restructuring provisions, the timing of any future
potential future outflows in respect of these liabilities is
uncertain until the restructuring programme is completed.
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.
The Company has on occasion been required to take legal or other
actions to protect its intellectual property rights, to enforce
commercial contracts or otherwise and similarly to defend itself
against proceedings brought by other parties. 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.
Other provisions represent the best estimate of the cost of
settling current obligations although there is a higher degree of
judgement involved.
Where obligations are not capable of being reliably estimated,
or if a material outflow of economic resources is considered
remote, 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.
Environmental provisions
Environmental provisions are made for quantifiable environmental
liabilities arising from known environmental issues. The amounts
provided are based on the best estimate of the costs required to
remedy these issues. At one site, a remediation feasibility study
is currently being conducted in relation to a known environmental
issue, in conjunction with the local Environmental Regulator.
Whilst this study has yet to be finalised, sufficient work has been
completed to enable an estimate to be made for the costs of
remediating the known environmental issues at this site. This cost
was provided for in 2019 and is included in the table above.
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 historic manufacturing
processes on the environment or lead to other economic outflows.
Such contingencies may exist for various sites which the Group
currently operates or has operated in the past. There is a
contingent liability arising from the as yet unknown environmental
issues at the site referred to above, pending the completion of the
feasibility study.
Tax contingent liabilities
The Group is subject to periodic tax audits by various fiscal
authorities covering corporate, employee and sales taxes in the
various jurisdictions in which it operates. We have provided for
estimates of the Group's likely exposures where these can be
reliably estimated.
Note 14. Related parties
Identification of related parties
The Company has related party relationships with its
subsidiaries and its associates and with its Directors and
executive officers.
Transactions with key management personnel
Details of transactions with key management personnel are
described in note 27 of the Group's 2019 Annual Report and
Accounts.
Transactions with associate:
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
Sales to associate - - -
Purchases from associate 1.0 1.1 2.0
Trade receivables due from associate - - -
Trade payables due to associate 0.3 0.3 0.3
At 30 June 2020 the Group does not have any trade receivables
owed by associates which have been fully provided for (30 June 2019
and 31 December 2019: GBPnil).
Except as disclosed in the table above:
-- There were no related party transactions during the period
that have materially affected the financial position or the perfor
mance of the Group during the period; and
-- There have been no changes in the nature of related party
transactions as described in note 27 to the Group's 2019 Annual
Report and Accounts which could have a material effect on the
financial position or performance of the Group during the
period.
Note 15. Subsequent events
There were no reportable events subsequent to the balance sheet
date.
Glossary
Constant-currency(1) Constant-currency revenue and Group headline 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 Cash generated from continuing operations less net
before acquisitions, capital expenditure, net interest paid, tax paid
disposals and and lease payments.
dividends(1)
Group earnings EBITDA is defined as operating profit before specific
before interest, adjusting items, amortisation of intangible assets
tax, depreciation and depreciation.
and amortisation
(EBITDA)(1)
Group headline Operating profit adjusted to exclude specific adjusting
operating profit(1) items and amortisation of intangible assets.
Headline earnings Headline earnings per share is defined as operating
per share (EPS)(1) 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.
Group organic(1) The Group results excluding acquisition, disposal
and business exit impacts at constant-currency.
Return on invested Group headline operating profit (operating profit
capital (ROIC)(1) 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.
Revenue growth Revenue growth is defined as current year revenue
translated using current year average exchange rates
divided by prior year revenue translated using prior
year average exchange rates.
Specific adjusting See note 3 to the condensed consolidated financial
items statements for further details.
1. See definitions and reconciliations of non-GAAP measures to
GAAP measures on page 14 to 17.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR DKLFLBDLZBBZ
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