Morgan Advanced Materials PLC (LON:MGAM) has announced its full-year results for the period ended 31 December 2023.
Results in line, business simplification announced, higher growth outlook
| £ million unless otherwise stated | 2023 | 2022 | As reported change | Organicconstant- currency1 change |
| Adjusted resultsRevenue | 1,114.7 | 1,112.1 | +0.2% | +2.5% |
| Group adjusted operating profit1 | 120.3 | 151.0 | (20.3)% | (16.6)% |
| Group adjusted operating profit margin1 | 10.8% | 13.6% | (280)bps | |
| Return on invested capital1,2 | 17.6% | 23.7% | (610)bps | |
| Adjusted EPS1 | 25.0p | 33.8p | (26.0)% | |
| Free cash flow before acquisitions, disposals and dividends1 | 14.6 | (46.9) | +131.1% | |
| Net debt (excl. lease liabilities)1 | 185.2 | 148.5 | +24.7% | |
| Statutory results | ||||
| Revenue | 1,114.7 | 1,112.1 | ||
| Operating profit | 91.9 | 140.8 | (34.7)% | |
| Profit before taxation | 77.8 | 131.6 | (40.9)% | |
| Continuing EPS3 | 16.4p | 30.6p | (46.4)% | |
| Continuing and discontinued EPS3 | 16.6p | 31.0p | (46.5)% | |
| Cash generated from continued operations | 126.3 | 59.1 | +113.7% | |
| Total dividend per share | 12.0p | 12.0p |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 46, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 18. Throughout this report these non-GAAP measures are clearly identified by an asterisk (*) where they appear in text and by a footnote where they appear in tables.
2. The return on invested capital calculation has been simplified so that it can be calculated from published information and the prior period comparative has been restated. See details on page 17.
3. EPS is presented on a ‘continuing’ and a combined ‘continuing and discontinued’ basis for statutory reporting. Further details are provided in note 8 to the consolidated financial statements.
Group highlights
| · | Organic constant-currency* revenue growth of 2.5%, with 10.4% from our faster growing markets |
| · | Adjusted operating profit £120.3m, adjusted operating profit margin 10.8% and ROIC 17.6% |
| · | Recovery from cyber security incident now substantially complete |
| · | Cash generated from continued operations of £126.3 million, reflecting full recovery of the mid-year increase in working capital |
| · | Strong balance sheet with net debt*/EBITDA (excl. leasing)* of 1.2 times |
| · | Absolute CO2e emissions (from scope 1 and 2) reduced by 25% compared with 2022 |
| · | Simplification of Group structure announced alongside additional cost reduction programme |
| · | Further market demand driving an acceleration of Semiconductor investment, with higher medium-term Group growth now expected |
| · | Underlying outlook for 2024 performance unchanged, foreign exchange headwind anticipated |
Commenting on the results, Morgan Advanced Materials Chief Executive Officer, Pete Raby said:
“Our product differentiation and successful business model have enabled us to deliver solid revenue growth in both our Core and Faster Growing markets, despite the impact of the cyber security incident in the first half and weaker market conditions in the second. We have substantially completed our recovery from the cyber security incident, with our profitability and cash performance in line with our financial framework in the second half. We are pleased to be able to announce an acceleration of our Semiconductor capacity investment, and a simplification of the Group that supports a leaner structure as we enter 2024. I want to thank all our employees for their hard work in achieving this result.”
Semiconductor Investment
The Company continues to experience strong demand for its semiconductor consumable products driven by growth in the Silicon Carbide wafer market for power electronics. Having announced in December 2022 a £60 million investment over three years to create additional capacity, we are now increasing our investment such that we expect to have invested £100 million by 2026. We expect this investment to drive attractive long-term growth and strong returns, transitioning the Group further towards faster growing markets.
Business Simplification
The Company’s growth targets are underpinned by the development of leading differentiated positions in attractive growth markets delivered through deep process and material know how in our manufacturing sites. In order to streamline our management structures and optimise plant operations, we will in future manage the Company through three distinct segments:
Thermal Products: comprising the current Thermal Ceramics and MMS segments, focused on growth opportunities in which heat resistance, fire protection and insulation are principal product attributes.
Performance Carbon: comprising the current Electrical Carbon and part of the Seals and Bearings segments, with a clear strategy to pursue opportunities for carbon-based components in Semiconductor, Rail, Aerospace, Power Generation and other markets.
Technical Ceramics: comprising the current Technical Ceramics and part of the Seals and Bearings segments, focused on development of our advanced ceramic applications in Semiconductor, Healthcare, Aerospace and Industrial equipment.
This change forms part of a broader restructuring plan that is expected to deliver £10 million of annualised savings by 2025, with an expected implementation cost of around £20 million, of which £18 million are cash costs expected to be incurred over 2023 to 2025. As well as the savings from simplification of our structure, the Company is progressing with the next phase of its site rationalisation programme with four factories identified for closure.
| FY 2023£m | FY 2024£m | FY 2025£m | Total£m | |
| Adjusted operating profit1 benefits (incremental) | 1 | 7 | 10 | – |
| Costs charged to specific adjusting items | (7) | (11) | (2) | (20) |
Outlook
Whilst mindful of weaker market conditions in the near term, our outlook for full-year constant currency revenue growth remains in line with our financial framework. We expect our restructuring plan to deliver initial cost benefits in 2024, whilst we are also accelerating our investment in Semiconductor capacity as we ramp up to meet strong demand, and increasing our investment in IT. Our underlying outlook for 2024 performance is unchanged, with a slight weighting to our second half as additional capacity comes online, and a foreign exchange headwind anticipated.
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 46, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 18.
Our purpose
Our purpose is to use advanced materials to make the world more sustainable and to improve the quality of life. This purpose guides our actions: it underpins our work to reduce our environmental impact, informs how we treat our people, and ensures we fulfil our responsibility for good corporate governance.
We deliver on our purpose through the products that we make and the way that we make them.
| · | We improve the quality of life by supporting medical diagnostics with our power tubes in medical scanners. Our feedthroughs are at the core of cochlear implants and our seals are used in blood pumps. These products transform people’s lives. |
| · | Our products help keep people safe. We are proud to design fire protection in everything from cars to tunnels, and ships to oil platforms. |
| · | We design and manufacture our products to help customers save energy. |
| · | Our carbon brushes are integral to wind turbines and power generators and enable electrified rail transport. |
| · | Our ceramic rollers are used to make thin-film solar panels, our insulation is used in solar towers and steam turbines, and our ceramic cores are used to make more efficient industrial gas turbines. These are all products which promote a more sustainable and environmentally secure future for our planet. |
Our strategy
Our strategy builds on our strengths and focuses the Group on scalable businesses in attractive markets, and on the development of our three core capabilities in customer focus, application engineering and materials science. To continue the development of our core capabilities we have three execution priorities:
Big positive difference – making sure we govern our business the right way, looking after the environment, looking after our people and operating to high ethical standards. This priority supports our focus on living and breathing our commitments on inclusion, treating people fairly, reducing waste, managing our water consumption, and reducing emissions.
Delight the customer – following on from our foundational work on sales effectiveness, we are working to shape our product and service offerings further based on customer needs, with the overall objective of making our business more customer-centric. We gathered customer feedback during 2022 through a range of channels and are using that to understand our customer segments in more detail. This will enable us to align our product, service and support offerings more closely to customer needs.
Innovate to grow – many of our customers have an increasing need to reduce their energy consumption and CO2 emissions, or to deliver higher performance from their processes, and these customers need our help. This priority supports our focus on working with the customer to innovate in traditional heavy industries whilst accelerating our development in our faster growing markets: clean energy, clean transportation, semiconductors and healthcare.
We have been focusing our product development and business development efforts in these markets over the recent years to develop new and differentiated products that solve complex problems for our customers.
| · | Clean energy. Growth in energy storage, brushes and slip rings for onshore wind applications and ceramic and carbon products used in solar panel manufacture. |
| · | Clean transportation. Growth in our rail collector business for metro and main rail applications, and in water and vacuum pump components for electric vehicle applications. |
| · | Semiconductors. Growth from carbon and ceramic consumable supply into key semiconductor process steps including crystal growth, deposition, lithography and etch. |
| · | Healthcare. Growth from medical imaging and supply of low temperature insulation for medicine and vaccine transport and storage. |
During 2023, organic constant-currency* revenue growth in these segments was 10.4%, which represented 21.3% of our revenue overall.
Our financial framework
We have a clear, through-cycle financial framework, consisting of:
| · | Organic constant-currency* revenue growth of 4%-7% through the cycle |
| · | Adjusted operating profit margin* of 12.5%-15% |
| · | Return on invested capital* of 17%-20% |
| · | Leverage (net debt*/EBITDA excl. leasing*) of 1.0-2.0 times |
Our framework drives enhanced earnings growth and underpins our strategy. We have upgraded our constant-currency* growth guidance for 2024 onwards (previously 3%-6%) in anticipation of the significant Semiconductor investment, noted on page 2.
Our environment, social and governance (ESG) priorities
In March 2021, we set stretching targets to improve our environmental, social and governance performance and become a more sustainable business. We take these commitments seriously and have plans in place to deliver against them in the coming years.
Protect the environment
| · | Our goal is to be a CO2e Scope 1 and 2 net zero business by 2050. Our 2030 target is to reduce our scope 1 and 2 CO2e emissions by 50% (from a 2015 baseline), and during the year we reduced our emissions by 25%. We are now 54% below our 2015 baseline and on track to meet our 2030 goal. |
| · | Our goal is to use water sustainably across our business. Our 2030 target is to reduce our overall water usage, as well as our water usage in high and extremely high stress areas, by 30% (from a 2015 baseline). Our overall water usage decreased by 11% compared with last year and water in high-stress areas has reduced by 14%. We are on track to meet our 2030 goal. |
Provide a safe, fair and inclusive workplace
| · | Our goal is to create an environment and culture with zero harm to our employees. Our 2030 target is a lost-time accident rate below 0.1 (lost-time accidents per 100,000 hours worked). Our LTA rate was 0.19 (2022: 0.28), an improvement over the prior year reflecting the significant focus on employee safety and wellbeing. During the year we refreshed our ‘take 5 for safety’ process, introducing new templates and training all of our people. We also completed further work to improve the safety of our high temperature processes and deployed a new EHS system to facilitate reporting and management of EHS activities. |
| · | Our goal is that our employee demographics reflect the communities that we operate in. Our 2030 target is for 40% female representation across our leadership population of our organisation. Our diversity position improved slightly over the year with 30% females in our leadership population. While we have done a lot to improve our business as an environment for female leaders, we have yet to make progress on this metric and we will be taking further steps in 2024 including further policy improvements, ensuring diverse shortlists when filling roles and accelerating the development of our female leaders. |
| · | Our goal is to be a welcoming and inclusive environment where our employees can grow and thrive. Our 2030 target is to attain a top quartile employee engagement score. We completed a pulse engagement survey in December 2023 and our engagement score was 54%, this reflects a 1% reduction from the equivalent population last year. We will be completing a full survey in June 2024 and are continuing to drive actions locally and globally to improve the experience of our people. |
Morgan Advanced Materials’ Environment, Health and Sustainability Director and Group HR Director coordinate our improvement projects. In addition, the Board reviews progress quarterly and takes an active role in holding the executive team to account on improving ESG performance.
Results presentation today
There will be an analyst and investor presentation at 09:30 (UK time) today via web-conference.
A live audio webcast and slide presentation of this event will be available on www.morganadvancedmaterials.com We recommend you register by 09:15 (UK time).
