TIDMMGAM
RNS Number : 7838X
Morgan Advanced Materials PLC
28 April 2023
Full-year results for the period ended 31 December 2022
Strong growth, returns and strategic progress
Organic
constant-
GBP million As reported currency(1)
unless otherwise stated 2022 2021 change change
Adjusted results
Revenue 1,112.1 950.5 +17.0% +11.2%
Group adjusted operating profit(1) 151.0 124.5 +21.3% +14.7%
Group adjusted operating profit
margin (1) 13.6% 13.1% +50bps
Return on invested capital (1) 22.4% 20.5% +190bps
Adjusted EPS (1) 33.8p 27.2p +24.3%
Free cash flow before acquisitions,
disposals and dividends (1) (46.9) 66.2 -170.8%
Net debt (incl. lease liabilities)(1) 200.4 96.5 +107.7%
Statutory results
Revenue 1,112.1 950.5
Operating profit 140.8 113.1 +24.5%
Profit before taxation 131.6 104.3 +26.2%
Continuing EPS(2) 30.6p 23.9p +28.0%
Continuing and discontinued EPS(2) 31.0p 25.9p +19.7%
Total dividend per share 12.0p 9.1p +31.9%
======================================= ========== ======== ============ =============
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to 16.
Throughout this report these non-GAAP measures are clearly
identified by an asterisk (*) where they appear in text.
2. 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
-- Strong organic constant-currency* revenue growth of 11.2%
-- Improving returns: adjusted operating profit margin* +50 bps
to 13.6%, ROIC +190 bps to 22.4%, adjusted EPS* +24.3% to 33.8p and
dividend per share up 31.9%
-- Strong balance sheet with net debt*/EBITDA (excl. leasing)* of 0.8 times.
-- Disciplined and targeted investment: GBP67.0 million pension
contribution with UK pension funds substantially de-risked, and
increased investment to support future growth in both working
capital (+GBP35m) and capital expenditure (+GBP29.3m)
-- Absolute CO(2) e emissions (from scope 1 and 2) reduced by 8.2% compared with 2021
-- Outlook for FY2023 adjusted operating profit* unchanged from 7 February 2023 guidance
Commenting on the results, Chief Executive Officer, Pete Raby
said:
"I am delighted with the progress we have made in delivering on
all aspects of our strategy in 2022. We worked hard to recover
significant cost inflation in a challenging environment which,
together with robust growth in all of our markets, has enabled us
to achieve further expansion of margin and ROIC. We were pleased to
be able to take a further significant step in de-risking the
Company's pension liabilities and have made good progress in
reducing CO2e emissions. This performance, with our continued
investment in product innovation, provides us with a very solid
foundation to deliver the strategy and financial framework set out
in our recent Capital Markets Event.
Demand has remained robust coming into this year, particularly
from our faster growing markets. As previously announced, the cyber
event we experienced in January has impacted sales and
profitability in the short term, but our recovery is on track. We
are also taking the opportunity to accelerate the modernisation of
our IT infrastructure.
I want to thank our employees for their hard work since the
start of this year and in achieving the excellent progress we made
in 2022. Our leading, differentiated positions in attractive end
markets and the calibre of our team position us well to continue to
execute our strategy and further strengthen the growth and
sustainability of the business."
Outlook
Customer demand remains robust. As a consequence of the cyber
incident, we expect revenue in our first half to be in line with
prior year, whilst experiencing temporary cost inefficiency as
previously highlighted. In the second half, we expect to return to
growth, with growth and margins in line with our financial
framework. Outlook for full year adjusted operating profit(1) is
unchanged from our guidance of 7 February 2023.
We have seen further inflation as expected which we will
continue to offset through pricing and operational improvement. Our
targeted investment in capacity for our faster growing segments
continues at pace and we expect to increase further our exposure to
these markets.
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
Our purpose
Our purpose is to use advanced materials to make the world more
sustainable and to improve the quality of life. This purpose guides
our actions: it underpins our work to reduce our environmental
impact, informs how we treat our people, and ensures we fulfil our
responsibility for good corporate governance.
We deliver on our purpose through the products that we make and
the way that we make them.
-- We improve the quality of life by supporting medical
diagnostics with our power tubes in medical scanners. Our
feedthroughs are at the core of cochlear implants and our seals are
used in blood pumps. These products transform people's lives.
-- Our products help keep people safe. We are proud to design
fire protection in everything from cars to tunnels, and ships to
oil platforms.
-- We design and manufacture our products to help customers save energy.
-- Our carbon brushes are integral to wind turbines and power
generators, and enable electrified rail transport.
-- Our ceramic rollers are used to make thin-film solar panels,
our insulation is used in solar towers and steam turbines, and our
ceramic cores are used to make more efficient industrial gas
turbines. These are all products which promote a more sustainable
and environmentally secure future for our planet.
Our strategy
Our strategy builds on our strengths and focuses the Group on
scalable businesses in attractive markets, and on the development
of our three core capabilities in customer focus, application
engineering and materials science. To continue the development of
our core capabilities we have three execution priorities:
Big positive difference - making sure we govern our business the
right way, looking after the environment, looking after our people
and operating to high ethical standards. This priority supports our
focus on living and breathing our commitments on inclusion,
treating people fairly, reducing waste, managing our water
consumption, and reducing emissions.
Delight the customer - following on from our foundational work
on sales effectiveness, we are working to shape our product and
service offerings further based on customer needs, with the overall
objective of making our business more customer-centric. We gathered
customer feedback during 2022 through a range of channels and are
using that to understand our customer segments in more detail. This
will enable us to align our product, service and support offerings
more closely to customer needs.
Innovate to grow - many of our customers have an increasing need
to reduce their energy consumption and CO(2) e emissions, and need
our help. This priority supports our focus on working with the
customer to innovate in traditional heavy industries whilst also
contributing to greener technologies for the future.
We want to accelerate our growth, by winning in our core markets
and increasing our exposure to four faster growing market segments:
clean energy, clean transportation, semiconductors and
healthcare.
We have been focusing our product 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 implantable devices.
During 2022, organic constant-currency* revenue growth in these
segments was 11.7%, which represented 19.6% of our revenue
overall.
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, making
a step change in our performance.
Whilst some progress has been made, we recognise that there is
more work to do, particularly around water sustainability, safety
and employee engagement.
Protect the environment
-- Our goal is to be a scope 1 and 2 CO(2) e net zero business
by 2050. Our 2030 target is to reduce our scope 1 and scope 2 CO(2)
e emissions by 50% (from a 2015 baseline).
-- Our aspiration is to use water sustainably across our
business. Our 2030 target is to reduce our overall water usage by
30% and reduce our water usage in high and extremely high stress
areas by 30% (from a 2015 baseline).
Provide a safe, fair and inclusive workplace
-- Our aspiration is to create an environment and culture with
zero harm to our employees. Our 2030 target is a lost-time accident
rate below 0.1 (lost-time accidents per 100,000 hours worked).
-- Our aspiration is that our employee demographics reflect the
communities that we operate in. Our 2030 target is for 40% female
representation across our leadership population of our
organisation.
-- Our aspiration is to be a welcoming and inclusive environment
where our employees can grow and thrive. Our 2030 target is to
attain a top quartile employee engagement score.
Our performance to date is as follows:
-- Scope 1 & 2 CO(2) e emissions. We have continued to
migrate to carbon-free electricity across the Group with 49% of our
power carbon-free by the end of the year. We are continuing to
improve the efficiency of our gas fired kilns and have started to
evaluate electrically fired options for some kiln types. During the
year we reduced our absolute scope 1 and 2 CO(2) emissions by
8.2%.
-- Water usage in stressed areas. Our overall water usage
increased by 11.6% during the year driven by volume increases,
changes in mix to more water-intensive products and processes and
some significant water leaks. A number of process and
infrastructure improvements were completed during the year and we
expect to see this reflected in our water usage in 2023. Our water
usage in stressed areas decreased by 0.7%, despite volume growth,
showing the impact of improvement projects in our plants in high
water stress areas .
-- Lost-time accident (LTA) rate. Our LTA rate was 0.28 (2021
0.22), a worsening of our accident performance, in part reflecting
a larger number of new employees in the business as we ramped
volumes up. We are not satisfied with this and we are working hard
to improve. We have a broad programme of work underway across the
Group to improve our safety position and performance. During the
year we deployed our 'thinkSAFE' training in all of our plants. We
increased the robustness of plant-level activities including start
of shift briefings, safety tours, near miss identification and
reporting and 5S (Sort, Straighten, Shine, Standardise and Sustain)
and we put greater focus on cross-group learnings through safety
shares and quarterly focus topics. Safety is our top priority and
continues to receive a high level of focus throughout the
organisation .
-- Diversity in our leadership population. Our diversity
position was unchanged over the year with 29% females in our
leadership population. We implemented a number of changes during
the year, including the establishment of three employee resource
groups for women, veterans and the LGBTQ+ communities. We have also
introduced training for hiring managers and we are standardising
and modernising our parental leave policies, starting in the
UK.
-- We completed our engagement survey in December 2022 and our
engagement score was 53, a three point improvement on 2021's
engagement score of 50. We have a lot of activity underway at a
local level to improve, and we have a long way to go, but we are
pleased to see an improvement year-on-year .
Our Group Environment, Health and Sustainability Director and
Group HR Director coordinate our improvement projects. In addition,
the Board reviews progress quarterly and takes an active role in
holding the executive team to account on improving ESG
performance.
Enquiries
Pete Raby Morgan Advanced Materials 01753 837 000
Richard Armitage Morgan Advanced Materials
Nina Coad Brunswick 0207 404 5959
Results presentation today
There will be an analyst and investor presentation at 09:00 (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 08:45 (UK time).
Basis of preparation
Non-GAAP measures
Throughout this report, adjusted measures are used to describe the Group's
financial performance. These are not recognised under IFRS or other generally
accepted accounting principles (GAAP). The Executive Committee and the
Board manage and assess the performance of the business on these measures
and they are presented as the Directors consider they provide useful information
to shareholders, including additional insight into ongoing trading and
year-on-year comparisons. These non-GAAP measures should be viewed as complementary
to, not replacements for, the comparable GAAP measures.
Throughout this report these non-GAAP measures are clearly identified by
an asterisk (*) where they appear in text, and by a footnote when they
appear in tables and charts. Definitions of these non-GAAP measures can
be found in the glossary of terms on page 45, and reconciliations of the
statutory results to the adjusted measures can be found on pages 13 to
16.
Operating review
Revenue Adjusted operating Adjusted operating
profit(1) profit margin(1)
%
=================== ===================== =======================
2022 2021 2022 2021 2022 2021
=============
GBPm GBPm GBPm GBPm % %
============= ========== ======= ========== ========= ========== =========
Thermal
Ceramics 421.4 364.7 48.7 42.0 11.6% 11.5%
Molten Metal
Systems 57.8 47.7 7.8 6.3 13.5% 13.2%
Electrical
Carbon 188.7 164.9 39.7 32.8 21.0% 19.9%
Seals and
Bearings 148.5 135.9 19.0 22.9 12.8% 16.9%
Technical
Ceramics 295.7 237.3 41.7 26.4 14.1% 11.1%
============= ========== ======= ========== ========= ========== =========
Segment
total 1,112.1 950.5 156.9 130.4 14.1% 13.7%
============= ========== ======= ========== ========= ========== =========
Corporate
costs (5.9) (5.9)
============= ========== ======= ========== ========= ========== =========
Group adjusted operating
profit
(1) 151.0 124.5 13.6% 13.1%
========================= ======= ========== ========= ========== =========
Amortisation of intangible assets (4.7) (6.0)
================================== ========== ========= ========== =========
Operating profit before specific
adjusting
items 146.3 118.5 13.2% 12.5%
Specific adjusting items included
in operating
profit(2) (5.5) (5.4)
================================== ========== ========= ========== =========
Operating profit 140.8 113.1 12.7% 11.9%
Net
financing
costs (9.2) (9.2)
Share of profit of associate (net
of income
tax) - 0.4
================================== ========== ========= ========== =========
Profit before taxation 131.6 104.3
========================= ======= ========== ========= ========== =========
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
2. Details of specific adjusting items from continuing
operations are disclosed in note 4 to the consolidated financial
statements.
Thermal Ceramics
Revenue for Thermal Ceramics for the year was GBP421.4 million,
representing an increase of 15.5% compared with GBP364.7 million in
2021. This has been driven by recovery in industrial, metals,
aerospace and automotive markets, growing petrochemical project
revenues and growth in clean energy applications. On an organic
constant-currency* basis, year-on-year revenue increased by
11.4%.
Thermal Ceramics operating profit was GBP44.3 million (2021:
GBP37.8 million), and operating profit margin was 10.5% (2021:
10.4%), with the slight margin improvement due to increased
volumes, with price offsetting inflation. Details of the specific
adjusting items of GBP2.8 million (2021: GBP2.1 million) are
included in note 4. Adjusted operating profit* was GBP48.7 million
(2021: GBP42.0 million) with an adjusted operating profit* margin
of 11.6% (2021: 11.5%).
Molten Metal Systems
Revenue for Molten Metals Systems for the year was GBP57.8
million, an increase of 21.2% compared with GBP47.7 million in
2021. Revenue growth was driven by a strong end-market demand,
share wins in the aluminium market and growth in copper and
precious metals. On an organic constant-currency* basis,
year-on-year revenue increased by 15.8%.
Molten Metal Systems operating profit was GBP7.5 million (2021:
GBP6.0 million), and operating profit margin was 13.0% (2021:
12.6%). Margin improvement was from volume leverage and price and
efficiency actions more than offsetting inflation. Adjusted
operating profit* was GBP7.8 million (2021: GBP6.3 million) with
adjusted operating profit margin* of 13.5% (2021: 13.2%).
Electrical Carbon
Revenue for Electrical Carbon for the year was GBP188.7 million,
representing an increase of 14.4% compared with GBP164.9 million in
2021, driven by growth in the semiconductor and transportation
market segments. On an organic constant-currency* basis,
year-on-year revenue improved by 9.7%.
Electrical Carbon operating profit was GBP39.1 million (2021:
GBP25.6 million), and operating profit margin was 20.7% (2021:
15.5%). Margin improvement was driven by operational efficiency
savings and the impact of pricing increases which more than offset
cost inflation and investment. Adjusted operating profit* was
GBP39.7 million (2021: GBP32.8 million) with an adjusted operating
profit margin* of 21.0% (2021: 19.9%).
Seals and Bearings
Revenue for Seals and Bearings in 2022 was GBP148.5 million,
representing an increase of 9.3% compared with GBP135.9 million in
2021, with the expected reduction in armour sales more than offset
by growth in industrial, petrochemical and aerospace markets. On an
organic constant-currency* basis, year-on-year revenue increased by
2.8%. Ceramic armour sales in 2022 were GBP25.5 million (2021:
GBP32.3 million).
Seals and Bearings operating profit was GBP16.6 million (2021:
GBP22.0 million), and operating profit margin was 11.2% (2021:
16.2%). Details of the specific adjusting items of GBP1.6 million
(2021: GBPnil) are included in note 4. The margin declined due to
manufacturing inefficiencies in the second half and a provision for
a quality claim with an armour customer. Adjusted operating profit*
was GBP19.0 million (2021: GBP22.9 million), with an adjusted
operating profit margin* of 12.8% (2021: 16.9%).
Technical Ceramics
Revenue for the Technical Ceramics global business unit in 2022
was GBP295.7 million, an increase of 24.6% compared with GBP237.3
million in 2021, driven by growth in semiconductor, healthcare,
industrial, defence and aerospace market segments, with a
combination of market growth and share wins. On an organic
constant-currency* basis, year-on-year revenue increased by
15.8%.
Technical Ceramics operating profit was GBP39.2 million (2021:
GBP18.9 million), and operating profit margin was 13.3% (2021:
8.0%). Details of the specific adjusting items of GBP1.2 million
(2021: GBP6.0 million) are included in note 4. Margin improvement
was driven by volume leverage, pricing and efficiency actions and
the remaining benefits from our 2020 restructuring programme.
Adjusted operating profit* was GBP41.7 million (2021: GBP26.4
million), with an adjusted operating profit margin* of 14.1% (2021:
11.1%).
Group financial review
Group revenue was GBP1,112.1 million (2021: GBP950.5 million),
an increase of 17.0% on a reported basis compared with 2021,
reflecting continued strong demand across all global business
units.
Operating profit was GBP140.8 million (2021: GBP113.1 million)
and operating profit margin was 12.7% (2021: 11.9%). Profit before
tax was GBP131.6 million (2021: GBP104.3 million). Specific
adjusting items from continuing operations before tax in 2022 were
a net charge of GBP5.5 million (2022: GBP5.4 million), primarily
relating to the impairment of non-financial assets. Further details
are included under 'Specific adjusting items' below.
Group adjusted operating profit* was GBP151.0 million (2021:
GBP124.5 million). Adjusted operating profit margin* was 13.6%,
compared with 13.1% for 2021.
The Group amortisation charge was GBP4.7 million (2021: GBP6.0
million).
The net finance charge was GBP9.2 million (2021: GBP9.2
million), comprising: net bank interest and similar charges of
GBP5.4 million (2021: GBP5.3 million); net interest on IAS 19
pension obligations of GBP1.4 million (2021: GBP1.6 million); and
the interest expense on lease liabilities of GBP2.4 million (2021:
GBP2.3 million) resulting from IFRS 16 Leases.
Looking forward to 2023, we anticipate that the net finance
charge will be around GBP13-15 million, comprising: net bank
interest and similar charges of GBP10-12 million; net interest on
IAS 19 pension obligations of GBP0.5 million; and net interest
expense on lease liabilities of GBP2 million.
The Group tax charge from continuing operations, excluding
specific adjusting items, was GBP37.1 million (2021: GBP29.7
million). The effective tax rate, excluding specific adjusting
items, was 27.0% (2021: 27.1%). Note 6 to the consolidated
financial statements on page 32 provides additional information on
the Group's tax charge. Looking forward to 2023, we anticipate that
the effective tax rate will be around 26%-28%. On a statutory
basis, the Group tax charge was GBP36.0 million (2021: GBP28.2
million), higher than the previous year due to the higher taxable
profits.
Basic earnings per share from continuing operations was 30.6
pence (2021: 23.9 pence) and adjusted earnings per share* was 33.8
pence (2021: 27.2 pence). Details of these calculations can be
found in note 8 to the consolidated financial statements on page
34.
The Group's balance sheet and liquidity remain robust. Net debt*
for the year ended 31 December 2022 was GBP200.4 million, with net
debt excluding lease liabilities* of GBP148.5 million, with GBP34.5
million of senior notes due to mature in October 2023. The Group
has cash and cash equivalents* of GBP117.7 million and undrawn
headroom on its revolving credit facility of GBP154.0 million.
Our key financial covenants are measured on a pre-IFRS 16 Leases
basis. As at 31 December 2022, net debt* to EBITDA*, excluding
lease liabilities, was 0.8 times compared to a covenant not to
exceed 3.0 times, and our interest cover was 32.9 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 an alternative understanding of
the financial information and an indication of the underlying
performance of the Group.
Details of specific adjusting items arising from continuing
operations during the year and the comparative period are given in
note 4 to the consolidated financial statements. Specific adjusting
items in relation to discontinued operations are disclosed in note
7 to the consolidated financial statements.
2022 2021
GBPm GBPm
========================================================= ===== ======
Specific adjusting items from continuing operations(1)
Impairment of non-financial assets (6.5) (12.4)
Restructuring credit 0.6 0.1
Net profit on disposal of business 0.4 7.1
Business closure and exit costs - (0.2)
Total specific adjusting items before income tax (5.5) (5.4)
Income tax credit from specific adjusting items 1.1 1.5
Total specific adjusting items after income tax (4.4) (3.9)
========================================================= ===== ======
1.Specific adjusting items relating to discontinued operations
are disclosed in note 7.
In 2022, pre-tax specific adjusting items from continuing
operations totalled GBP5.5 million (2021: GBP5.4 million) and
comprised the following:
2022
Impairment of non-financial assets
Seals and Bearings, Asia
An impairment charge of GBP0.6 million has been recognised
relating to assets purchased to support a customer contract which
did not materialise.
A further impairment charge of GBP1.0 million has been
recognised after reassessing the value in use of property, plant
and equipment in a business in Asia which is taking longer than
anticipated to generate revenues. This represented a partial
impairment of the assets; the carrying value of the assets
following this impairment was GBP5.2 million. The calculation of
value in use was performed as at December 2022. A long-term growth
rate of 1.0% was used for years beyond the five-year forecast
period and in calculating the terminal value. A pre-tax discount
rate of 12.9% was used to determine the value in use.
Thermal Ceramics, Europe
An impairment charge of GBP1.2 million has been recognised
following a fire in December which destroyed a warehouse and
inventory. The assets have subsequently been written off.
An impairment charge of GBP1.1 million has been recognised after
reassessing the value in use of property, plant and equipment in a
business in France which is experiencing limited growth and under
utilisation of key assets. This represented a partial impairment of
the assets; the carrying value of the assets following this
impairment was GBP0.3 million. The calculation of value in use was
performed as at December 2022. A long-term growth rate of 1.0% was
used for years beyond the five-year forecast period and in
calculating the terminal value. A pre-tax discount rate of 13.7%
was used to determine the value in use.
Thermal Ceramics, South America
An impairment charge of GBP0.9 million has been recognised in
relation to assets associated with a closed manufacturing line.
Technical Ceramics, Asia
An impairment charge of GBP1.7 million was recognised after
reassessing the value in use of property, plant and equipment in a
business in Asia which is taking longer than anticipated to
generate revenues. This represented a partial impairment of the
assets; the carrying value of the assets following this impairment
was GBP3.2 million. The calculation of value in use was performed
as at December 2022. A long-term growth rate of 1.0% was used for
years beyond the five-year forecast period and in calculating the
terminal value. A pre-tax discount rate of 12.9% was used to
determine the value in use.
Review of cumulative impairment of non-financial assets
Impairment charges of GBP52.6 million for non-financial assets
which the business continues to use have been recorded during the
current and previous years (Technical Ceramics, Asia GBP7.7
million, Technical Ceramics, ceramic cores GBP28.8 million, Thermal
Ceramics GBP15.1 million and Seals and Bearings, Asia GBP1.0
million). These impaired amounts could be reversed if the related
businesses were to outperform significantly against their budget. A
sensitivity analysis was carried out using reasonably possible
changes to key assumptions in assessing the value in use of these
non-financial assets. This did not result in a material reversal of
the impaired amounts.
Restructuring costs
A credit of GBP0.6 million has been recognised in the current
year representing a release of restructuring provisions booked in
previous years in relation to the Group's restructuring programme.
Whilst this programme was completed in 2021, we retain
restructuring provision of GBP10.5 million for the Group's
obligations at the balance sheet date (2021: GBP11.8 million). This
provision includes remaining lease exit costs and multi-employer
pension obligations for two sites which were closed during the year
ended 31 December 2021. The cash outflows relating to the pension
obligations may continue for up to 19 years, subject to any
settlement being reached in advance of that date. Cash outflows in
relation to the lease may continue for the next four years. Refer
to note 15 for further information.
Net profit on disposal of business
The Group disposed of its investment in the joint venture Sukhoy
Log, based in Russia, during the year. This disposal generated a
net profit of GBP0.4 million. Refer to note 2 for further
information.
2021
Impairment of non-financial assets
Technical Ceramics, Asia
An impairment charge of GBP6.0 million was recognised after
reassessing the value in use of property, plant and equipment in a
business in Asia which is taking longer than anticipated to
generate revenues. This represented a partial impairment of the
assets; the carrying value of the assets following this impairment
was GBP5.4 million. The calculation of value in use was performed
as at December 2021. A long-term growth rate of 1.0% was used for
years beyond the five-year forecast period and in calculating the
terminal value. A pre-tax discount rate of 11.5% was used to
determine the value in use.
Electrical Carbon, Europe and North America
Impairment charges of GBP4.8 million and GBP1.0 million were
recognised after assessing the viability of two development assets
in Europe and North America, respectively. The European asset was
not deemed viable as we were unable to commission it safely and the
American asset was not deemed to be commercially viable.
Thermal Ceramics, North America
An impairment charge of GBP0.6 million was recognised relating
to assets associated with closed manufacturing lines within Thermal
Ceramics.
Restructuring costs
A net credit of GBP0.1 million was recognised in the year ended
31 December 2021 representing GBP2.1 million of further redundancy
and closure costs related to the Group's restructuring programme,
offset by a GBP2.2 million release of restructuring provisions
booked during 2020 in relation to this programme.
Net profit on disposal of business
The Group disposed of its 35% shareholding in Jemmtec Limited
and the business assets associated with the Latrobe business during
the year ended 31 December 2021. These disposals generated a profit
of GBP7.2 million and a loss of GBP0.1 million, respectively. Refer
to note 2 for further information.
Business closure and exit costs
A GBP0.2 million charge was recognised relating to the
liquidation of businesses in Europe and Asia.
Foreign currency impact
The principal exchange rates used in the translation of the
results of overseas subsidiaries were as follows:
2022 2021
=========== ============================ ============================
GBP to: Closing rate Average rate Closing rate Average rate
US dollar 1.21 1.24 1.35 1.38
Euro 1.13 1.17 1.19 1.16
=========== ============= ============= ============= =============
For illustrative purposes, the table below provides details of
the impact on 2022 revenue and Group adjusted operating profit* if
the actual reported results, calculated using 2022 average exchange
rates were restated for GBP weakening by 10 cents against USD in
isolation and 10 cents against the Euro in isolation:
Increase in 2022 revenue/adjusted operating Revenue Adjusted operating
profit (1) if: profit (1)
GBPm GBPm
============================================= ======== ===================
GBP weakens by 10c against the USD in
isolation 16.9 2.2
GBP weakens by 10c against the Euro in
isolation 21.8 3.5
============================================= ======== ===================
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
Retranslating the 2022 full year results at the March 2023
closing exchange rates would lead to revenue of GBP1,111.9 million
and adjusted operating profit* of GBP149.2 million.
Cash flow
2022 2021
GBPm GBPm
====================================================== ======= =======
Cash generated from continuing operations 59.1 135.9
Net capital expenditure (57.4) (28.1)
Net interest on cash and borrowings (5.4) (5.3)
Tax paid (31.8) (25.4)
Lease payments and interest (11.4) (10.9)
====================================================== ======= =======
Free cash flow before acquisitions, disposals
and dividends(1) (46.9) 66.2
====================================================== ======= =======
Dividends paid to external plc shareholders (31.6) (19.1)
Net cash flows from other investing and financing
activities (10.3) (15.0)
Cash flows from sale of subsidiaries and associates 0.4 15.0
Net cash flows from discontinued operations 1.1 5.3
Exchange movement and other non-cash movements (14.5) 1.9
Opening net debt(1) excluding lease liabilities (46.7) (101.0)
Closing net debt(1) excluding lease liabilities (148.5) (46.7)
======= =======
Closing lease liabilities (51.9) (49.8)
====================================================== ======= =======
Closing net debt(1) (200.4) (96.5)
====================================================== ======= =======
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
Cash generated from continuing operations was GBP59.1 million
(2021: 135.9 million).
Free cash flow before acquisitions, disposals and dividends* was
GBP(46.9) million (2021: GBP66.2 million).
Net debt* at the year end was GBP200.4 million (2021: GBP96.5
million), representing a net debt* to EBITDA* ratio of 1.1 times
(2021: 0.6 times).
Net debt* excluding lease liabilities was GBP148.5 million
(2021: GBP46.7 million), representing a net debt* to EBITDA* ratio
excluding lease liabilities of 0.8 times (2021: 0.3 times).
Defined benefit pension plans
The Group pension deficit has decreased by GBP87.1 million since
last year end to GBP15.6 million on an IAS 19 (revised) basis,
following a one-off contribution of GBP67.0 million to the UK
Schemes during the year.
-- The UK Schemes' deficit decreased by GBP76.9 million to a
surplus of GBP25.2 million (2021 deficit: GBP51.7 million),
(discount rate 2022: 4.81%; discount rate 2021: 1.92%).
-- The US Schemes' deficit increased by GBP1.5 million to GBP9.2
million (2021: GBP7.7 million), (discount rate 2022: 4.99%;
discount rate 2021: 2.71%).
-- The European Schemes' deficit decreased by GBP11.1 million to
GBP27.9 million (2021: GBP39.0 million), (discount rate 2022:
3.70%; discount rate 2021: 0.90%).
-- The Rest of World Schemes' deficit decreased by GBP0.6
million to GBP3.7 million (2021: GBP4.3 million), (discount rate
2022: 5.30%; discount rate 2021: 2.90%).
The most recent full actuarial valuations of the UK Schemes were
undertaken as at 31 March 2022 and resulted in combined assessed
deficits of GBP49.7 million on the 'Technical Provisions' basis.
The Company subsequently agreed with the Trustees to make a lump
sum contribution to the Schemes of GBP67.0 million on 29 December
2022 in lieu of the remaining contributions that would otherwise
have been due under the existing recovery plans from the 31 March
2019 valuations. The sum paid also represented the value of the
deficit on the more prudent 'Long Term Objective' basis on the date
of that agreement, 25 October 2022. As a result, no further
contributions to the Schemes are expected to be required pending
the results of the next full valuations as at 31 March 2025.
Final dividend
The Board is recommending a final dividend, subject to
shareholder approval, of 6.7 pence per share on the Ordinary share
capital of the Group, payable on 3 July 2023 to Ordinary
shareholders on the register at the close of business on 9 June
2023. The ex-dividend date is 8 June 2023.
Together with the interim dividend of 5.3 pence per share paid
on 18 November 2022, this final dividend, if approved by
shareholders, brings the total distribution for the year to 12.0
pence per share (2021: 9.1 pence).
A total dividend of 12.0 pence per share represents a dividend
cover of adjusted EPS* of 2.8 times.
The Board has committed to grow the Ordinary dividend as the
economic environment and the Group's earnings improve, targeting a
dividend cover of around 2.5 times over the medium term. This level
of cover ensures sufficient resources are available to continue to
invest to support the Group's long-term prospects, as well as to
meet the needs of other stakeholders of the Group, including by
making deficit contributions to the Group's defined benefit pension
schemes.
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 23, these
measures are calculated on a continuing basis.
Adjusted operating profit
Adjusted operating profit is stated before specific adjusting
items and amortisation of intangible assets. Specific adjusting
items are excluded on the basis that they distort trading
performance. Amortisation is excluded consistent with previous
years.
Molten
Thermal Metal Electrical Seals Technical Segment Corporate
Ceramics Systems Carbon and Bearings Ceramics total costs(1) Group
2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
Operating profit 44.3 7.5 39.1 16.6 39.2 146.7 (5.9) 140.8
Add back specific
adjusting items
included in operating
profit 2.8 - (0.1) 1.6 1.2 5.5 - 5.5
Add back amortisation
of intangible
assets 1.6 0.3 0.7 0.8 1.3 4.7 - 4.7
----------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
Adjusted operating
profit 48.7 7.8 39.7 19.0 41.7 156.9 (5.9) 151.0
----------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
Adjusted operating
profit margin 11.6% 13.5% 21.0% 12.8% 14.1% 13.6%
----------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
1. Corporate costs consist of central head office costs.
Molten
Thermal Metal Electrical Seals Technical Segment Corporate
Ceramics Systems Carbon and Bearings Ceramics totals costs(1) Group
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------- -----
Operating
profit 37.8 6.0 25.6 22.0 18.9 110.3 2.8 113.1
Add back
specific
adjusting
items
included in
operating
profit 2.1 (0.3) 6.3 - 6.0 14.1 (8.7) 5.4
Add back
amortisation
of
intangible
assets 2.1 0.6 0.9 0.9 1.5 6.0 - 6.0
------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------- -----
Adjusted
operating
profit 42.0 6.3 32.8 22.9 26.4 130.4 (5.9) 124.5
------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------- -----
Adjusted
operating
profit
margin 11.5% 13.2% 19.9% 16.9% 11.1% 13.1%
------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------- -----
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. This
measure is used as it allows revenue and adjusted operating profit
to be compared on a like-for-like basis.
Commentary on the underlying business performance is included as
part of the Operational review on pages 6 and 7.
Year-on-year movements in segment revenue
Molten
Thermal Metal Electrical Seals Technical Segment
Ceramics Systems Carbon and Bearings Ceramics total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- -------- ---------- ------------- --------- -------
2021 revenue 364.7 47.7 164.9 135.9 237.3 950.5
------------------------------ --------- -------- ---------- ------------- --------- -------
Impact of foreign currency
movements 13.7 2.2 7.1 8.4 18.2 49.6
Impact of acquisitions,
disposals and business exits - - - 0.2 (0.1) 0.1
Organic constant-currency
change 43.0 7.9 16.7 4.0 40.3 111.9
Organic constant-currency
change % 11.4% 15.8% 9.7% 2.8% 15.8% 11.2%
------------------------------ --------- -------- ---------- ------------- --------- -------
2022 revenue 421.4 57.8 188.7 148.5 295.7 1,112.1
------------------------------ --------- -------- ---------- ------------- --------- -------
Year-on-year movements in segment and Group adjusted operating
profit
Molten
Thermal Metal Electrical Seals Technical Segment Corporate
Ceramics Systems Carbon and Bearings Ceramics total costs(1) Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
2021 adjusted operating
profit 42.0 6.3 32.8 22.9 26.4 130.4 (5.9) 124.5
-------------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
Impact of foreign
currency movements (1.1) 0.1 - 1.2 1.0 1.2 5.7 6.9
Impact of acquisitions,
disposals and business
exits - - - 0.1 0.2 0.3 - 0.3
Organic constant-currency
change 7.8 1.4 6.9 (5.2) 14.1 25.0 (5.7) 19.3
Organic constant-currency
change % 19.3% 21.9% 21.0% (21.5%) 51.1% 14.7%
-------------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
2022 adjusted operating
profit 48.7 7.8 39.7 19.0 41.7 156.9 (5.9) 151.0
-------------------------- --------- -------- ---------- ------------- --------- ------- --------- -----
1. Corporate costs consist of central head office costs.
Group EBITDA
Group EBITDA is defined as operating profit before specific
adjusting items, depreciation and amortisation of intangible
assets. The Group uses this measure as it is a key metric in
covenants over debt facilities, these covenants use EBITDA on a
pre-IFRS 16 basis. A reconciliation of operating profit to Group
EBITDA is as follows:
2022 2021
GBPm GBPm
============================================= ====== ======
Operating profit 140.8 113.1
Add back: specific adjusting items included
in operating profit 5.5 5.4
Add back: depreciation - property, plant
and equipment 30.3 30.1
Add back: depreciation - right-of-use
assets 7.8 7.9
Add back: amortisation of intangible assets 4.7 6.0
============================================= ====== ======
Group EBITDA 189.1 162.5
============================================= ====== ======
Group EBITDA excluding IFRS 16 Leases
impact 177.7 151.6
============================================= ====== ======
Free cash flow before acquisitions, disposals and dividends
Free cash flow before acquisitions, disposals and dividends is
defined as cash generated from continuing operations less net
capital expenditure, net interest (interest paid on borrowings,
overdrafts and lease liabilities, net of interest received), tax
paid and lease payments. The Group discloses this measure of free
cash flow as this provides readers of the 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:
2022 2021
GBPm GBPm
=============================================== ======= =======
Cash generated from continuing operations 59.1 135.9
Net capital expenditure (57.4) (28.1)
Net interest on cash and borrowings (5.4) (5.3)
Tax paid (31.8) (25.4)
Lease payments and interest (11.4) (10.9)
=============================================== ======= =======
Free cash flow before acquisitions, disposals
and dividends (46.9) 66.2
=============================================== ======= =======
Net cash and cash equivalents
Net cash and cash equivalents is defined as cash and cash
equivalents less bank overdrafts. The Group also discloses this
measure as it provides an indication of the net short term
liquidity available to the Group.
2022 2021
GBPm GBPm
=============================== ====== ======
Cash and cash equivalents 117.7 127.3
Bank overdrafts (1.5) (0.5)
Net cash and cash equivalents 116.2 126.8
=============================== ====== ======
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.
2022 2021
GBPm GBPm
============================================== ======== ========
Cash and cash equivalents 117.7 127.3
Non-current borrowings (230.1) (174.0)
Non-current lease liabilities (41.4) (40.0)
Current borrowings and bank overdrafts (36.1) -
Current lease liabilities (10.5) (9.8)
============================================== ======== ========
Closing net debt (200.4) (96.5)
============================================== ======== ========
Closing net debt excluding lease liabilities (148.5) (46.7)
============================================== ======== ========
Return on invested capital
Return on invested capital (ROIC) is defined as the 12-month
Group adjusted operating profit (operating profit excluding
specific adjusting items and amortisation of intangible assets)
divided by the 12-month average adjusted net assets (third-party
working capital, plant and equipment, land and buildings,
right-of-use assets, intangible assets and other balance sheet
items). This measure excludes long-term employee benefits, deferred
tax assets and liabilities, current tax payable, provisions, cash
and cash equivalents, borrowings, overdrafts and lease
liabilities.
2022 2021
GBPm GBPm
============================================= ====== ======
Operating profit 140.8 113.1
Add back: specific adjusting items 5.5 5.4
============================================= ====== ======
Add back: amortisation of intangible assets 4.7 6.0
============================================= ====== ======
Group adjusted operating profit 151.0 124.5
============================================= ====== ======
12-month average adjusted net assets:
Third-party working capital 183.8 135.0
Plant and equipment 166.5 152.2
Land and buildings 101.0 98.9
Right-of-use assets 33.1 33.0
Intangible assets 188.7 183.8
Other assets (net) 1.5 3.3
============================================= ====== ======
12-month average adjusted net assets 674.6 606.2
============================================= ====== ======
ROIC 22.4% 20.5%
============================================= ====== ======
Adjusted earnings per share
Adjusted earnings per share is defined as operating profit
adjusted to exclude specific adjusting items and amortisation of
intangible assets, plus share of profit of associate less net
financing costs, income tax expense and non-controlling interests,
divided by the weighted average number of Ordinary shares during
the period. This measure of earnings is shown because the Directors
consider it provides an indication of adjusted performance which is
less impacted by adjusting items and therefore reflects the
underlying performance trends in the business.
A reconciliation from IFRS profit to the profit used to
calculate adjusted earnings per share* is included in note 8 to the
consolidated financial statements on page 34.
Constant-currency revenue and adjusted operating profit
Constant-currency revenue and adjusted operating profit are
derived by translating the prior year results at current year
average exchange rates. These measures are used as they allow
revenue to be compared excluding the impact of foreign exchange
rates. Page 10 provides further information on the principal
foreign currency exchange rates used in the translation of the
Group's results to constant-currency at average exchange rates.
Consolidated Financial Statements
for the 12 months ended 31 December 2022
Consolidated income statement
Year ended 31 December Year ended 31 December
2022 2021
Results Specific Total Results Specific Total
before adjusting before adjusting
specific items(1) specific items(1)
adjusting adjusting
items items
Note GBPm GBPm GBPm GBPm GBPm GBPm
================================================ ===== ========== ========== ======== ========== ========== ========
Revenue 3 1,112.1 - 1,112.1 950.5 - 950.5
Operating costs before
amortisation of intangible
assets (961.1) (5.5) (966.6) (826.0) (5.4) (831.4)
Profit from operations
before amortisation of
intangible assets 3 151.0 (5.5) 145.5 124.5 (5.4) 119.1
Amortisation of intangible
assets (4.7) - (4.7) (6.0) - (6.0)
Operating profit 3 146.3 (5.5) 140.8 118.5 (5.4) 113.1
Finance income 1.6 - 1.6 0.8 - 0.8
Finance expense (10.8) - (10.8) (10.0) - (10.0)
================================================ ===== ========== ========== ======== ========== ========== ========
Net financing costs 5 (9.2) - (9.2) (9.2) - (9.2)
Share of profit of associate
(net of income tax) - - - 0.4 - 0.4
Profit before taxation 137.1 (5.5) 131.6 109.7 (5.4) 104.3
Income tax expense 6 (37.1) 1.1 (36.0) (29.7) 1.5 (28.2)
Profit from continuing
operations 100.0 (4.4) 95.6 80.0 (3.9) 76.1
================================================ ===== ========== ========== ======== ========== ========== ========
Profit from discontinued
operations(2) 7 - 1.1 1.1 - 5.7 5.7
================================================ ===== ========== ========== ======== ========== ========== ========
Profit for the year 100.0 (3.3) 96.7 80.0 1.8 81.8
================================================ ===== ========== ========== ======== ========== ========== ========
Profit for the year attributable
to:
Shareholders of the Company 91.3 (3.3) 88.0 71.5 2.3 73.8
Non-controlling interests 8.7 - 8.7 8.5 (0.5) 8.0
Profit for the year 100.0 (3.3) 96.7 80.0 1.8 81.8
================================================ ===== ========== ========== ======== ========== ========== ========
Earnings per share 8
Continuing and discontinued
operations
Basic earnings per share 31.0p 25.9p
Diluted earnings per share 30.7p 25.7p
Continuing operations
Basic earnings per share 30.6p 23.9p
Diluted earnings per share 30.3p 23.7p
Dividends (3)
Interim dividend - pence 5.30p 3.20p
-
GBPm 15.1 9.1
Proposed final dividend
- pence 6.70p 5.90p
-
GBPm 19.1 16.8
================================================ ===== ========== ========== ======== ========== ========== ========
1. Details of specific adjusting items from continuing
operations are given in note 4 to the consolidated financial
statements.
2. Profits from discontinued operations are entirely
attributable to the Shareholders of the Company.
3. The proposed final dividend is based upon the number of
Ordinary shares outstanding at the balance sheet date.
Consolidated Financial Statements (continued)
for the 12 months ended 31 December 2022
Consolidated statement of comprehensive income
31 December 31 December
2022 2021
Note GBPm GBPm
=================================================== ==== =========== ===========
Profit for the year 96.7 81.8
=================================================== ==== =========== ===========
Other comprehensive income/(expense):
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement gain on defined benefit plans 14 5.5 55.5
Tax effect of components of other comprehensive
income not reclassified 6 (3.4) (0.6)
=================================================== ==== =========== ===========
2.1 54.9
=================================================== ==== =========== ===========
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange translation differences 17.5 1.0
Tax effect of components of other comprehensive
income that may be reclassified 6 - (0.8)
Cash flow hedges:
Change in fair value (0.2) (0.1)
Transferred to profit or loss 0.1 (0.4)
=================================================== ==== =========== ===========
17.4 (0.3)
=================================================== ==== =========== ===========
Total other comprehensive income 19.5 54.6
=================================================== ==== =========== ===========
Total comprehensive income 116.2 136.4
=================================================== ==== =========== ===========
Attributable to:
Shareholders of the Company 106.7 128.5
Non-controlling interests 9.5 7.9
=================================================== ==== =========== ===========
116.2 136.4
=================================================== ==== =========== ===========
Total comprehensive income attributable to
shareholders of the Company arising from:
Continuing operations 105.6 122.8
Discontinued operations 1.1 5.7
=================================================== ==== =========== ===========
106.7 128.5
=================================================== ==== =========== ===========
Consolidated balance sheet
As at As at
31 December 31 December
2022 2021
Note GBPm GBPm
=========================================== ===== ============= =============
Assets
Property, plant and equipment 9 283.2 248.1
Right-of-use assets 10 33.6 31.9
Intangible assets: goodwill 11 181.9 172.9
Intangible assets: other 11 7.1 10.2
Other receivables 3.2 2.9
Deferred tax assets 15.3 15.9
Total non-current assets 524.3 481.9
============================================ ===== ============= =============
Inventories 174.2 140.7
Derivative financial assets 13 1.3 0.6
Trade and other receivables 202.5 161.4
Current tax receivable 0.3 0.6
Cash and cash equivalents 12 117.7 127.3
============================================ ===== ============= =============
Total current assets 496.0 430.6
============================================ ===== ============= =============
Total assets 1,020.3 912.5
============================================ ===== ============= =============
Liabilities
Borrowings 230.1 174.0
Lease liabilities 41.4 40.0
Employee benefits: pensions 14 15.6 102.7
Provisions 15 16.1 14.8
Non-trade payables 2.1 2.4
Deferred tax liabilities 2.0 1.2
============================================ ===== ============= =============
Total non-current liabilities 307.3 335.1
============================================ ===== ============= =============
Borrowings and bank overdrafts 36.1 -
Lease liabilities 10.5 9.8
Trade and other payables 195.0 177.2
Current tax payable 30.3 25.4
Provisions 15 9.9 14.8
Derivative financial liabilities 13 1.6 0.6
============================================ ===== ============= =============
Total current liabilities 283.4 227.8
============================================ ===== ============= =============
Total liabilities 590.7 562.9
============================================ ===== ============= =============
Total net assets 429.6 349.6
============================================ ===== ============= =============
Equity
Share capital 71.3 71.3
Share premium 111.7 111.7
Reserves 35.1 18.5
Retained earnings 170.9 109.1
============================================ ===== ============= =============
Total equity attributable to shareholders
of the Company 389.0 310.6
Non-controlling interests 40.6 39.0
============================================ ===== ============= =============
Total equity 429.6 349.6
============================================ ===== ============= =============
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
2021 71.3 111.7 (17.0) 0.4 (1.0) 35.7 0.6 0.6 202.3 37.7 240.0
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Profit for the
year - - - - - - - 73.8 73.8 8.0 81.8
Other
comprehensive
income/(expense):
Remeasurement
gain on defined
benefit plans
and related taxes - - - - - - - 54.9 54.9 - 54.9
Foreign exchange
differences and
related taxes - - 0.3 - - - - - 0.3 (0.1) 0.2
Cash flow hedging
fair value
changes
and transfers - - - (0.5) - - - - (0.5) - (0.5)
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Total other
comprehensive
income/(expense) - - 0.3 (0.5) - - - 54.9 54.7 (0.1) 54.6
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Total
comprehensive
income/(expense) - - 0.3 (0.5) - - - 128.7 128.5 7.9 136.4
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Transactions
with owners:
Dividends - - - - - - - (19.1) (19.1) (6.6) (25.7)
Equity-settled
share-based
payments - - - - - - - 4.5 4.5 - 4.5
Own shares
acquired
for share
incentive
schemes (net) - - - - - - - (5.6) (5.6) - (5.6)
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 31 December
2021 71.3 111.7 (16.7) (0.1) (1.0) 35.7 0.6 109.1 310.6 39.0 349.6
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 1 January
2022 71.3 111.7 (16.7) (0.1) (1.0) 35.7 0.6 109.1 310.6 39.0 349.6
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Profit for the
year - - - - - - - 88.0 88.0 8.7 96.7
Other
comprehensive
income/(expense):
Remeasurement
gain on defined
benefit plans
and related taxes - - - - - - - 2.1 2.1 - 2.1
Foreign exchange
differences and
related taxes - - 16.7 - - - - - 16.7 0.8 17.5
Cash flow hedging
fair value
changes
and transfers - - - (0.1) - - - - (0.1) - (0.1)
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Total other
comprehensive
income/(expense) - - 16.7 (0.1) - - - 2.1 18.7 0.8 19.5
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Total
comprehensive
income/(expense) - - 16.7 (0.1) - - - 90.1 106.7 9.5 116.2
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Transactions
with owners:
Dividends - - - - - - - (31.6) (31.6) (7.9) (39.5)
Equity-settled
share-based
payments - - - - - - - 5.7 5.7 - 5.7
Own shares
acquired
for share
incentive
schemes (net) - - - - - - - (2.4) (2.4) - (2.4)
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
At 31 December
2022 71.3 111.7 - (0.2) (1.0) 35.7 0.6 170.9 389.0 40.6 429.6
================== ======= ======= =========== ======= ======= ========== ======== ======== ====== =============== ======
Consolidated statement of cash flows
Year ended Year ended
31 December 31 December
2022 2021
restated(1)
Note GBPm GBPm
===================================================== ==== ============ ============
Operating activities
Profit for the year from continuing operations 95.6 76.1
Profit for the year from discontinued operations 7 1.1 5.7
Adjustments for:
Depreciation - property, plant and equipment 30.3 30.1
Depreciation - right-of-use assets 7.8 7.9
Amortisation 4.7 6.0
Net financing costs 5 9.2 9.2
Profit on disposal of business 2,4 (0.4) (7.1)
Non-cash specific adjusting items included
in operating profit 6.6 10.4
Share of profit from associate (net of income
tax) - (0.4)
(Profit)/loss on sale of property, plant and
equipment (0.3) 0.3
Income tax expense 6 36.0 28.2
Equity-settled share-based payment expense 5.1 4.5
===================================================== ==== ============ ============
Cash generated from operations before changes
in working capital and provisions 195.7 170.9
===================================================== ==== ============ ============
Increase in trade and other receivables (26.5) (17.2)
Increase in inventories (25.2) (20.1)
Increase in trade and other payables 7.0 28.3
Decrease in provisions (4.9) (5.8)
Payments to defined benefit pension plans (net
of IAS 19 pension charges) 14 (85.9) (16.9)
===================================================== ==== ============ ============
Cash generated from operations 60.2 139.2
===================================================== ==== ============ ============
Interest paid - borrowings and overdrafts (7.0) (6.1)
Interest paid - lease liabilities (2.4) (2.3)
Income tax paid (31.8) (25.4)
===================================================== ==== ============ ============
Net cash from operating activities 19.0 105.4
===================================================== ==== ============ ============
Investing activities
Purchase of property, plant and equipment and
software (58.0) (31.6)
Purchase of investments - (0.9)
Acquisition of business assets - (1.9)
Proceeds from sale of property, plant and equipment 0.6 5.5
Interest received 1.6 0.8
Disposal of investments 0.4 14.2
Disposal of subsidiaries, net of cash disposed - 0.8
Net cash from investing activities (55.4) (13.1)
===================================================== ==== ============ ============
Financing activities
Purchase of own shares for share incentive
schemes (2.9) (5.9)
Proceeds from exercise of share options 0.5 0.3
Increase in borrowings 113.3 27.3
Reduction and repayment of borrowings (39.0) (99.6)
Payment of lease liabilities (9.0) (8.6)
Dividends paid to shareholders of the Company (31.6) (19.1)
Dividends paid to non-controlling interests (7.9) (6.6)
Purchase of shares from non-controlling interest - -
===================================================== ==== ============ ============
Net cash from financing activities 23.4 (112.2)
===================================================== ==== ============ ============
Net decrease in cash and cash equivalents (13.0) (19.9)
Cash and cash equivalents at start of the year 127.3 147.8
Effect of exchange rate fluctuations on cash
held 3.4 (0.6)
===================================================== ==== ============ ============
Cash and cash equivalents at year end 12 117.7 127.3
===================================================== ==== ============ ============
1. Comparative information has been restated to present the
increase and reduction in borrowings separately.
Notes on consolidated financial statements
Note 1. Basis of preparation, changes in accounting policies and
areas of significant judgement and estimate
The preliminary announcement for the year ended 31 December
2022, which is an abridged statement of the full Annual Report and
Accounts, has been prepared in accordance with the requirements of
the Companies Act 2006 and International Financial Reporting
Standards ('IFRSs') as adopted by the UK. Except for the changes
set out in the adoption of new and revised standards section, there
has been no other significant impact arising from new accounting
policies adopted in the year.
The financial information set out in this report does not
constitute the Company's statutory accounts for the years ended 31
December 2022 or 31 December 2021. Statutory accounts for the year
ended 31 December 2021 have been delivered to the registrar of
companies, and those for the year ended 31 December 2022 will be
delivered in due course.
The auditors have reported on those accounts; their report was
(i) unqualified, (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498(2) or (3) of the Companies Act 2006 in respect of the
accounts for 2022 and 2021.
Critical accounting judgements and key sources of estimation
uncertainty
In preparing these consolidated financial statements, management
has made judgements, estimates and assumptions that affect the
application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Final outcomes
may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis.
Critical accounting judgements
Information about judgements made in applying accounting
policies that have the most significant effects on the amounts
recognised in the consolidated financial statements is included in
the following notes:
Note 4: Specific adjusting items
The Group uses specific adjusting items, which are not defined
or specified under IFRS. These specific adjusting items, which are
not considered to be a substitute for IFRS measures, provide
additional helpful information. In the consolidated income
statement the Group presents specific adjusting items separately.
In the judgement of the Directors, due to the nature and value of
these items they should be disclosed separately from the underlying
results of the Group to provide the reader with an alternative
understanding of the financial information and an indication of the
underlying performance of the Group. These items which occur
infrequently and include (but are not limited to):
-- Individual restructuring projects which are material or
relate to the closure of a part of the business and are not
expected to recur.
-- Impairment of non-financial assets which are material.
-- Gains or losses on disposal or exit of businesses.
-- Significant costs incurred as part of the integration of an acquired business.
-- Gains or losses arising on significant changes to or closures
of defined benefit pension plans.
Determining whether an item is part of specific adjusting items
requires judgement to determine the nature and the intention of the
transaction.
Note 15: Provisions and contingent liabilities
Due to the nature of its operations, the Group holds provisions
for its environmental obligations. Judgement is needed in
determining whether a contingent liability has crystallised into a
provision. Management assesses whether there is sufficient
information to determine that an environmental liability exists and
whether it is possible to estimate with sufficient reliability what
the cost of remediation is likely to be. For environmental
remediation matters, this tends to be at the point in time when a
remediation feasibility study has been completed, or sufficient
information becomes available through the study to estimate the
costs of remediation.
The Group will recognise a legal provision at the point when the
outcome of a legal matter can be reliably estimated. Estimates are
based on past experience of similar issues, professional advice
received and the Group's assessment of the most likely outcome. The
timing of utilisation of these provisions is frequently uncertain,
reflecting the complexity of issues and the outcome of various
court proceedings and associated negotiations.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are included in the notes below.
Note 14: Pensions and other post-retirement employee benefits:
key actuarial assumptions
The principal actuarial assumptions applied to pensions are
shown in note 14, including a sensitivity analysis. 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 15: Environmental provisions and contingent liabilities
Provisions for environmental costs are estimated based on
current legal and constructive requirements. Actual costs and cash
outflows can differ from current estimates because of changes in
underlying factors including laws and regulations, public
expectations, prices, more detailed analysis of site conditions and
innovations in clean-up technology. The ultimate requirement for
remediation and its costs are inherently difficult to estimate.
Amounts provided are the Group's best estimate of exposure based on
currently available information. Although at present no additional
costs of environmental issues have been identified beyond our best
estimate, future possible costs that are not provided for could be
material to the Group's results in the period in which they are
recognised. However, we do not expect these costs to have a
material impact on the Group's financial position or liquidity.
Note 4: Impairment of non-financial assets (excluding
goodwill)
In addition to the impairment assessment of goodwill, described
below, management also monitors the performance of individual
assets and cash-generating units. Where indicators of impairment
exist, they perform an impairment review on those assets or
cash-generating units.
For assets or cash-generating units which the business continues
to use, the review process relies on the use of estimates of the
future profitability and cash flows which may differ from the
actual results delivered.
Where non-financial assets or cash-generating units are not
utilised by the business and will not be utilised in the future
they are written down to their recoverable amount. There is a lower
level of judgement associated with these impairments.
Adoption of new and revised accounting standards
Newly adopted 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
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet
effective are listed below:
-- IFRS 17 - Insurance Contracts
-- Amendments to IFRS 17 - Initial Application of IFRS17 & IFRS 9 - Comparative Information
-- Amendments to IAS 1 - Classification of Liabilities as Current or Non-current
-- Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies
-- Amendments to IAS 8 - Definition of Accounting Estimates
-- Amendments to IAS 12 - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
The adoption of the above standards and interpretations is not
expected to lead to any material changes to the Group's accounting
policies or have any other material impact on the financial
position or performance of the Group.
There are no other upcoming accounting standards or amendments
that are applicable to the Group.
Non-GAAP measures
Where non-GAAP measures have been referenced these have been
identified by an asterisk (*) where they appear in the text and by
a footnote where they appear in a table.
Definitions of these non-GAAP measures, and their reconciliation
to the relevant GAAP measure, are provided on pages 13 to 16.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report contained in the Annual Report
and Accounts. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities, are described in the
Financial Review contained in the Annual Report and Accounts. In
addition, note 21 to the Annual Report and Accounts includes the
Group's policies and processes for managing financial risk, details
of its financial instruments and hedging activities and details of
its exposures to credit risk and liquidity risk.
The Group meets its day-to-day working capital requirements
through local banking arrangements underpinned by the Group's
GBP230.0 million unsecured multi-currency revolving credit
facility, which matures in November 2027. As at 31 December 2022,
the Group had both significant available liquidity and headroom on
its covenants. Total committed borrowing facilities were GBP418.3
million. The amount drawn under these facilities was GBP264.3
million, which together with net cash and cash equivalents of
GBP116.2 million, gave a total headroom of GBP270.3 million. The
multi-currency revolving credit facility was GBP76.0 million drawn.
GBP34.5 million of senior notes are due to mature in October
2023.
The principal borrowing facilities are subject to covenants that
are measured semi-annually in June and December, being net debt to
EBITDA of a maximum of 3 times and interest cover of a minimum of 4
times, based on measures defined in the facilities agreements which
are adjusted from the equivalent IFRS amounts.
The Group has carefully modelled its cash flow outlook, taking
account of reasonably possible changes in trading performance,
exchange rates and plausible downside scenarios, including the
impact of the cyber security incident on 2023 cashflows. This
review indicated that there was sufficient headroom and liquidity
for the business to continue for the 18-month period based on the
facilities available as discussed in note 21 to the Annual Report
and Accounts. The Group was also expected to be in compliance with
the required covenants discussed above.
The Board has also reviewed the Group's reverse stress testing
performed to demonstrate how much headroom is available on covenant
levels in respect of changes in net debt, EBITDA, and underlying
revenue. Based on this assessment, a combined reduction in EBITDA
of 40% and an increase in net debt of 45% would still allow the
Group to operate within its financial covenants. The Directors do
not consider either of these scenarios to be plausible given the
diversity of the Group's end-markets and its broad manufacturing
base.
The Board and Executive Committee have regular reporting and
review processes in place in order to closely monitor the ongoing
operational and financial performance of the Group. As part of the
ongoing risk management process, principal and emerging risks are
identified and reviewed on a regular basis. In addition, the
Directors have assessed the risk of climate change and do not
consider that it will impact the Group's ability to operate as a
going concern for the period under consideration.
The Board fully recognises the challenges that lie ahead but,
after making enquiries, and in the absence of any material
uncertainties, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for a period of 18 months from the date of
signing this Annual Report and Accounts. Accordingly, they continue
to adopt the going concern basis in preparing the Annual Report and
Accounts.
Directors' Responsibility Statement
The 2022 Annual Report and Accounts which will be issued in
April 2023, contains a responsibility statement in compliance with
DTR 4.1.12 of the Listing Rules which sets out that as at the date
of approval of the Annual Report on 27 April 2023, the directors
confirm to the best of their knowledge:
- the Group and unconsolidated Company financial statements,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group and Company, and
the undertakings included in the consolidation taken as a whole;
and
- the performance review contained in the Annual Report and
Accounts includes a fair review of the development and performance
of the business and the position of the Group and the undertakings
including the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face.
Note 2. Acquisitions and disposals
2022
Disposal of Sukhoy Log
On 29 July 2022, the Group completed the sale of its investment
in the joint venture Sukhoy Log, based in Russia. The investment
had a carrying value of GBPnil having been fully impaired in
previous years. The Group received consideration of GBP0.6 million
and incurred transaction costs of GBP0.2 million, resulting in a
net consideration of GBP0.4 million. A profit on disposal of GBP0.4
million was recognised in specific adjusting items within the
consolidated income statement, see also note 4.
There was no income received from Sukhoy Log in the year ended
31 December 2022 (2021: GBPnil). The disposal group was included in
the Thermal Ceramics operating segment.
2021
Disposal of Latrobe
On 15 January 2021, the Group completed the sale of assets
associated with the Technical Ceramics business, based in Latrobe,
US. The transaction was structured as a sale of the business and
related assets for total consideration of GBP0.6 million. The
disposal resulted in a loss of GBP0.1 million which was recognised
in specific adjusting items within the consolidated income
statement, see also note 4.
The loss on disposal was as follows:
31 December
2021
GBPm
================================ ============
Trading net assets of disposal
group 0.6
Goodwill of disposal group 0.1
Cumulative foreign exchange
gains and losses recycled on
disposal (0.1)
================================= ============
Total net assets 0.6
Total consideration 0.6
Transaction costs associated
with the disposal (0.1)
================================= ============
Loss on disposal (0.1)
================================= ============
In 2021, Latrobe generated an operating profit of GBPnil on
revenues of GBP0.1 million in the period prior to the disposal.
The disposal group was included in the Technical Ceramics
operating segment.
Disposal of Jemmtec
On 28 April 2021, the Group completed the sale of its investment
in associate, Jemmtec Limited ('Jemmtec'). The Group's share of the
total consideration was GBP14.2 million, comprising GBP12.2 million
of initial consideration, on a cash-free, debt-free basis, a
further consideration of GBP0.2 million for working capital
adjustments and GBP1.8 million of contingent consideration that has
been received in full in 2021. The disposal resulted in a gain of
GBP7.2 million which was recognised in specific adjusting items
within the consolidated income statement, see also note 4.
The gain on disposal was as follows:
31 December
2021
GBPm
=========================== ============
Investment carrying value 7.0
Total consideration 14.2
Gain on disposal 7.2
============================ ============
In 2021, the Group's share of profit in associate (net of income
tax) was GBP0.4 million in the period prior to the disposal.
Acquisition of Delamag
On 1 March 2021, Morgan Technical Ceramics Limited wholly
purchased the business and assets of the 'Delamag' business of
sourcing raw materials for the processing and manufacture of
magnesium oxide from Delamin Limited. The acquisition comprised
primarily all rights to the 'Delamag' business name, technical
knowledge, intellectual property and business contracts.
The assets acquired and the consideration was as follows:
31 December
2021
GBPm
================================ ============
Identifiable intangible assets
acquired 1.8
Goodwill 0.1
================================= ============
Total consideration 1.9
================================= ============
The intangible assets recognised represent customer listings,
trademarks and intellectual property rights.
The acquisition was a vertical integration and preserves
existing income, as such the incremental profit from acquisition
was immaterial in 2022 and 2021. The Delamag acquisition forms part
of the Seals and Bearings operating segment.
Note 3. Segment reporting
The Group's results are reported as five separate global
business units, which have been identified as the Group's
reportable operating segments. These have been identified on the
basis of internal management reporting information that is
regularly reviewed by the Group's Board of Directors (the Chief
Operating Decision Maker) in order to allocate resources and assess
performance.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Unallocated items comprise mainly investments
and related income, borrowings and related expenses, corporate
assets and head office expenses, and income tax assets and
liabilities.
The information presented below represents the operating
segments of the Group:
Year ended 31 December
2022
============================ ======================================================================================
Thermal Molten Electrical Seals Technical Segment Corporate Group
Ceramics Metal Carbon and Bearings Ceramics totals costs
Systems
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ========= ======== ========== ============= ========= ======= ========= =======
Revenue from external
customers 421.4 57.8 188.7 148.5 295.7 1,112.1 - 1,112.1
============================ ========= ======== ========== ============= ========= ======= ========= =======
Segment adjusted
operating profit(1) 48.7 7.8 39.7 19.0 41.7 156.9 - 156.9
============================ ========= ======== ========== ============= ========= ======= ========= =======
Corporate costs(2) (5.9) (5.9)
============================ ========= ======== ========== ============= ========= ======= ========= =======
Group adjusted
operating profit(1) 151.0
Amortisation of
intangible assets (1.6) (0.3) (0.7) (0.8) (1.3) (4.7) - (4.7)
============================ ========= ======== ========== ============= ========= ======= ========= =======
Operating profit
before specific
adjusting items 47.1 7.5 39.0 18.2 40.4 152.2 (5.9) 146.3
Specific adjusting
items included in
operating profit/(loss)(3) (2.8) - 0.1 (1.6) (1.2) (5.5) - (5.5)
============================ ========= ======== ========== ============= ========= ======= ========= =======
Operating profit/(loss) 44.3 7.5 39.1 16.6 39.2 146.7 (5.9) 140.8
============================ ========= ======== ========== ============= ========= ======= ========= =======
Finance income 1.6
Finance expense (10.8)
Share of profit -
of associate (net
of income tax)
=======
Profit before taxation 131.6
=======
Segment assets 361.2 44.0 159.5 115.8 199.8 880.3 140.0 1,020.3
============================ ========= ======== ========== ============= ========= ======= ========= =======
Segment liabilities 93.2 8.9 32.6 26.5 86.3 247.5 343.2 590.7
============================ ========= ======== ========== ============= ========= ======= ========= =======
Segment capital
expenditure 16.8 3.5 8.7 9.7 19.3 58.0 - 58.0
============================ ========= ======== ========== ============= ========= ======= ========= =======
Segment depreciation
- property, plant
and equipment 11.2 2.1 5.3 6.0 5.7 30.3 - 30.3
============================ ========= ======== ========== ============= ========= ======= ========= =======
Segment depreciation
- right-of-use assets 3.2 0.3 1.0 0.6 2.7 7.8 - 7.8
Segment impairment
of non-financial
assets 3.2 - - 1.6 1.7 6.5 - 6.5
============================ ========= ======== ========== ============= ========= ======= ========= =======
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
2. Corporate costs consist of central head office costs.
3. Details of specific adjusting items from continuing
operations are given in note 4 to the consolidated financial
statements.
Year ended 31 December
2021
============================ =====================================================================================
Thermal Molten Electrical Seals Technical Segment Corporate Group
Ceramics Metal Carbon and Bearings Ceramics totals costs
Systems
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ========= ======== ========== ============= ========= ======= ========= ======
Revenue from external
customers 364.7 47.7 164.9 135.9 237.3 950.5 - 950.5
============================ ========= ======== ========== ============= ========= ======= ========= ======
Segment adjusted
operating profit(1) 42.0 6.3 32.8 22.9 26.4 130.4 - 130.4
============================ ========= ======== ========== ============= ========= ======= ========= ======
Corporate costs(2) (5.9) (5.9)
============================ ========= ======== ========== ============= ========= ======= ========= ======
Group adjusted
operating profit(1) 124.5
Amortisation of
intangible assets (2.1) (0.6) (0.9) (0.9) (1.5) (6.0) - (6.0)
============================ ========= ======== ========== ============= ========= ======= ========= ======
Operating profit
before specific
adjusting items 39.9 5.7 31.9 22.0 24.9 124.4 (5.9) 118.5
Specific adjusting
items included in
operating profit/(loss)(3) (2.1) 0.3 (6.3) - (6.0) (14.1) 8.7 (5.4)
============================ ========= ======== ========== ============= ========= ======= ========= ======
Operating profit 37.8 6.0 25.6 22.0 18.9 110.3 2.8 113.1
============================ ========= ======== ========== ============= ========= ======= ========= ======
Finance income 0.8
Finance expense (10.0)
Share of profit
of associate (net
of income tax) 0.4
======
Profit before taxation 104.3
======
Segment assets 319.9 41.8 137.6 107.5 156.5 763.3 149.2 912.5
============================ ========= ======== ========== ============= ========= ======= ========= ======
Segment liabilities 88.9 8.4 30.6 23.6 73.9 225.4 337.5 562.9
============================ ========= ======== ========== ============= ========= ======= ========= ======
Segment capital
expenditure 8.0 2.2 5.9 7.6 7.9 31.6 - 31.6
============================ ========= ======== ========== ============= ========= ======= ========= ======
Segment depreciation
- property, plant
and equipment 10.2 2.0 5.5 6.4 6.0 30.1 - 30.1
============================ ========= ======== ========== ============= ========= ======= ========= ======
Segment depreciation
- right-of-use assets 3.5 0.3 1.1 0.6 2.4 7.9 - 7.9
Segment impairment
of non-financial
assets 0.7 - 5.7 - 6.0 12.4 - 12.4
============================ ========= ======== ========== ============= ========= ======= ========= ======
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
2. Corporate costs consist of central head office costs.
3. Details of specific adjusting items from continuing
operations are given in note 4 to the consolidated financial
statements.
Revenue from external customers and non-current assets by
geography
Revenue from Non-current assets
external customers (excluding tax
and
financial instruments)
===================== =========================
2022 2021 2022 2021
Continuing operations GBPm GBPm GBPm GBPm
=========================================== ============ ======= ============ ===========
US 405.6 336.4 212.6 181.3
China 121.4 114.4 45.5 29.1
Germany 85.1 68.7 38.0 34.4
UK (the Group's country of domicile) 53.2 38.5 101.1 101.6
Other Asia, Australasia, Middle East and
Africa 194.1 174.6 61.2 61.4
Other Europe 182.0 157.4 37.5 36.3
Other North America 39.1 33.4 2.1 6.1
South America 31.6 27.1 11.0 15.8
=========================================== ============ ======= ============ ===========
1,112.1 950.5 509.0 466.0
=========================================== ============ ======= ============ ===========
Revenue from external customers is based on geographic location
of the end-customer. Segment assets are based on geographical
location of the assets. No customer represents more than 5% of
revenue.
Revenue from external customers by end-market
2022 2021
Continuing operations GBPm GBPm
======================================== ======= =====
Semiconductors 91.3 62.1
Healthcare 74.7 68.2
Clean energy and clean transportation 51.7 53.0
========================================== ======= =====
Faster growing markets 217.7 183.3
========================================== ======= =====
Industrial 344.5 296.4
Conventional transportation 179.9 142.6
Metals 159.9 137.4
Petrochemical and chemical 112.6 99.4
Security and defence 65.2 60.9
Conventional energy 32.3 30.5
========================================== ======= =====
Core markets 894.4 767.2
========================================== ======= =====
1,112.1 950.5
======================================== ======= =====
Intercompany sales to other segments
Thermal Molten Electrical Seals and Technical Segment
Ceramics Metal Carbon Bearings Ceramics totals
Systems
============ ============ ============ ============ ============ ==============
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Intercompany sales
to other segments 0.4 0.8 0.1 0.1 0.5 0.2 0.7 1.0 1.0 0.5 2.7 2.6
======================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Note 4. Specific adjusting items
2022 2021
Continuing operations Note GBPm GBPm
============================================== ===== ====== =======
Impairment of non-financial assets (6.5) (12.4)
Restructuring credit 0.6 0.1
Net profit on disposal of business 2 0.4 7.1
Business closure and exit costs - (0.2)
Total specific adjusting items before income
tax (5.5) (5.4)
Income tax credit from specific adjusting
items 1.1 1.5
Total specific adjusting items after income
tax (4.4) (3.9)
============================================== ===== ====== =======
Specific adjusting items in relation to discontinued operations
are disclosed in note 7.
2022
Impairment of non-financial assets
Seals & Bearings, Asia
An impairment charge of GBP0.6 million has been recognised
relating to assets purchased to support a customer contract which
did not materialise.
A further impairment charge of GBP1.0 million has been
recognised after reassessing the value in use of property, plant
and equipment in a business in Asia which is taking longer than
anticipated to generate revenues. This represented a partial
impairment of the assets; the carrying value of the assets
following this impairment was GBP5.2 million. The calculation of
value in use was performed as at December 2022. A long-term growth
rate of 1.0% was used for years beyond the five-year forecast
period and in calculating the terminal value. A pre-tax discount
rate of 12.9% was used to determine the value in use.
Thermal Ceramics, Europe
An impairment charge of GBP1.2 million has been recognised
following a fire in December which destroyed a warehouse and
inventory. The assets have subsequently been written off.
An impairment charge of GBP1.1 million has been recognised after
reassessing the value in use of property, plant and equipment in a
business in France which is experiencing limited growth and
under-utilisation of key assets. This represented a partial
impairment of the assets; the carrying value of the assets
following this impairment was GBP0.3 million. The calculation of
value in use was performed as at December 2022. A long-term growth
rate of 1.0% was used for years beyond the five-year forecast
period and in calculating the terminal value. A pre-tax discount
rate of 13.7% was used to determine the value in use.
Thermal Ceramics, South America
An impairment charge of GBP0.9 million has been recognised in
relation to assets associated with a closed manufacturing line.
Technical Ceramics, Asia
An impairment charge of GBP1.7 million was recognised after
reassessing the value in use of property, plant and equipment in a
business in Asia which is taking longer than anticipated to
generate revenues. This represented a partial impairment of the
assets; the carrying value of the assets following this impairment
was GBP3.2 million. The calculation of value in use was performed
as at December 2022. A long-term growth rate of 1.0% was used for
years beyond the five-year forecast period and in calculating the
terminal value. A pre-tax discount rate of 12.9% was used to
determine the value in use.
Review of cumulative impairment of non-financial assets
Impairment charges of GBP52.6 million for non-financial assets
which the business continues to use have been recorded during the
current and previous years (Technical Ceramics, Asia GBP7.7
million, Technical Ceramics, ceramic cores GBP28.8 million, Thermal
Ceramics GBP15.1 million and Seals and Bearings, Asia GBP1.0
million). These impaired amounts could be reversed if the related
businesses were to outperform significantly against their budget. A
sensitivity analysis was carried out using reasonably possible
changes to the key assumptions in assessing the value in use of
these non-financial assets. This did not result in a material
reversal of the impaired amounts.
Restructuring costs
A credit of GBP0.6 million has been recognised in the current
year representing a release of restructuring provisions booked in
previous years in relation to the Group's restructuring programme.
Whilst this programme was completed in 2021, we retain a
restructuring provision of GBP10.5 million for the Group's
obligations at the balance sheet date (2021: GBP11.8 million). This
provision includes remaining lease exit costs and multi-employer
pension obligations for two sites which were closed during the year
ended 31 December 2021. The cash outflows relating to the pension
obligations may continue for up to 19 years, subject to any
settlement being reached in advance of that date. Cash outflows in
relation to the lease may continue for the next four years. Refer
to note 15 for further information.
Net profit on disposal of business
The Group disposed of its investment in the joint venture Sukhoy
Log, based in Russia, during the year. This disposal generated a
net profit of GBP0.4 million. Refer to note 2 for further
information.
2021
Impairment of non-financial assets
Technical Ceramics, Asia
An impairment charge of GBP6.0 million was recognised after
reassessing the value in use of property, plant and equipment in
Asia which is taking longer than anticipated to generate revenues.
This represented a partial impairment of the assets; the carrying
value of the assets following this impairment was GBP5.4 million.
The calculation of value in use was performed as at December 2021.
A long-term growth rate of 1% was used for years beyond the
five-year forecast period and in calculating the terminal value. A
pre-tax discount rate of 11.5% was used to determine the value in
use.
Electrical Carbon, Europe and North America
Impairment charges of GBP4.8 million and GBP1.0 million were
recognised after assessing the viability of two development assets
in Europe and North America, respectively. The European asset was
not deemed viable as we were unable to commission it safely and the
American asset was not deemed to be commercially viable.
Thermal Ceramics, North America
An impairment charge of GBP0.6 million was recognised relating
to assets associated with closed manufacturing lines within Thermal
Ceramics.
Restructuring costs
A net credit of GBP0.1 million was recognised in the year ended
31 December 2021 representing GBP2.1 million of further redundancy
and closure costs related to the Group's restructuring programme,
offset by a GBP2.2 million release of restructuring provisions
booked during 2020 in relation to this programme.
Net profit on disposal of business
The Group disposed of its 35% shareholding in Jemmtec Limited
and the business assets associated with the Latrobe business during
the year ended 31 December 2021. These disposals generated a profit
of GBP7.2 million and a loss of GBP0.1 million, respectively. Refer
to note 2 for further information.
Business closure and exit costs
A GBP0.2 million charge was recognised relating to the
liquidation of businesses in Europe and Asia.
Note 5. Finance income and expense
2022 2021
Continuing operations GBPm GBPm
================================================ ======= =======
Recognised in profit or loss
Interest on bank balances and cash deposits 1.6 0.8
================================================ ======= =======
Finance income 1.6 0.8
================================================ ======= =======
Interest expense on borrowings and overdrafts (7.0) (6.1)
Interest expense on lease liabilities (2.4) (2.3)
Net interest on IAS 19 defined benefit pension
obligations (1.4) (1.6)
================================================ ======= =======
Finance expense (10.8) (10.0)
================================================ ======= =======
Net financing costs recognised in profit or
loss (9.2) (9.2)
================================================ ======= =======
No finance income or expense related to discontinued operations
in either the current or preceding year.
Note 6. Taxation
2022 2021
Continuing operations GBPm GBPm
================================================== ===== =====
Recognised in profit or loss
Current tax
Current year 36.5 30.7
Adjustments for prior years 0.5 0.4
==================================================== ===== =====
37.0 31.1
================================================== ===== =====
Deferred tax
Current year (0.4) (2.3)
Adjustments for prior years (0.6) (0.6)
==================================================== ===== =====
(1.0) (2.9)
================================================== ===== =====
Total income tax expense recognised
in profit or loss 36.0 28.2
==================================================== ===== =====
Recognised in other comprehensive income
Tax effect on components of other comprehensive
income:
Deferred tax associated with defined
benefit schemes 3.4 0.6
Deferred tax associated with foreign
exchange differences - 0.8
Total tax recognised in other comprehensive
income 3.4 1.4
==================================================== ===== =====
2022 2022 2021 2021
Reconciliation of effective tax rate GBPm % GBPm %
============================================== ===== ===== ===== =====
Profit before tax 131.6 104.3
Income tax charge using the domestic
corporation tax rate 25.0 19.0 19.8 19.0
Effect of different tax rates in other
jurisdictions 7.5 5.7 5.8 5.5
Local taxes including withholding tax
suffered 3.4 2.6 2.6 2.5
Permanent differences 0.2 0.2 0.4 0.4
Movements related to unrecognised temporary
differences (0.1) (0.1) (0.2) (0.2)
Adjustments in respect of prior years - - (0.2) (0.2)
Statutory effective rate of tax 36.0 27.4 28.2 27.0
============================================== ===== ===== ===== =====
The effective rate of tax before specific adjusting items is
27.0% (2021: 27.1%).
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.
Note 7. Discontinued operations
The Group disposed of its Composites and Defence Systems
business on 20 November 2018. The business represented a separate
reportable segment and therefore, in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations, the
disposal group was classified as discontinued.
The results from discontinued operations, which have been
disclosed in the consolidated income statement, are set out
below:
Year ended 31 December Year ended 31 December
2022 2021
Results Specific Total Results Specific Total
before adjusting before adjusting
specific items specific items
adjusting adjusting
items items
Note GBPm GBPm GBPm GBPm GBPm GBPm
============================= ==== ========== ========== ===== ========== ========== =====
Revenue - 0.7 0.7 - 3.3 3.3
Operating income - 0.4 0.4 - 2.4 2.4
Profit before taxation - 1.1 1.1 - 5.7 5.7
Income tax expense - - - - - -
Profit from discontinued
operations - 1.1 1.1 - 5.7 5.7
Basic earnings per
share from discontinued
operations 8 0.4p 2.0p
Diluted earnings
per share from discontinued
operations 8 0.4p 2.0p
============================= ==== ========== ========== ===== ========== ========== =====
In 2022, a gain of GBP1.1 million was recognised following the
receipt of cash from a long-term contract and disposal of an
investment in accordance with the terms of the disposal
agreement.
In 2021, GBP3.3 million of the specific adjusting items balance
relate to the full and final settlement of certain long-term
contracts. A further GBP2.4 million relates to the reassessment of
certain provisions associated with the disposal of the Composites
and Defence Systems business.
There is no income tax expense in relation to the discontinued
operations in either the current or preceding year.
Cash flows from discontinued operations are set out below:
Year ended Year ended
31 December 31 December
2022 2021
GBPm GBPm
============================================= ============ ============
Net cash generated in operating activities 1.1 3.3
Net cash generated from investing activities - 2.0
Net cash flow used in financing activities - -
============================================= ============ ============
1.1 5.3
============================================= ============ ============
Note 8. Earnings per share
Year ended 31 December Year ended 31 December
2022 2021
================================ ================================
Earnings Basic Diluted Earnings Basic Diluted
earnings earnings earnings earnings
per share per share per share per share
GBPm pence pence GBPm pence pence
====================================== ======== ========== ========== ======== ========== ==========
Profit for the year attributable
to shareholders of the Company 88.0 31.0p 30.7p 73.8 25.9p 25.7p
Profit from discontinued operations (1.1) (0.4)p (0.4)p (5.7) (2.0)p (2.0)p
====================================== ======== ========== ========== ======== ========== ==========
Profit from continuing operations 86.9 30.6p 30.3p 68.1 23.9p 23.7p
====================================== ======== ========== ========== ======== ========== ==========
Specific adjusting items 5.5 1.9p 1.9p 5.4 1.9p 1.9p
Amortisation of intangible
assets 4.7 1.7p 1.6p 6.0 2.1p 2.1p
Tax effect of the above(1) (1.1) (0.4)p (0.4)p (1.5) (0.5)p (0.5)p
Non-controlling interests'
share of the
above adjustments - - - (0.5) (0.2)p (0.2)p
====================================== ======== ========== ========== ======== ========== ==========
Adjusted profit for the year
from continuing operations
as used in adjusted earnings
per share(2) 96.0 33.8p 33.5p 77.5 27.2p 27.0p
====================================== ======== ========== ========== ======== ========== ==========
1. The tax effect of the amortisation of intangible assets was
GBPnil (2021: GBPnil).
2. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
2022 2021
===================================================== ===== =====
Number of shares (millions)
Weighted average number of Ordinary shares for the
purposes of basic earnings per share(1) 284.2 284.6
Effect of dilutive potential Ordinary shares:
Share options 2.6 2.4
====================================================== ===== =====
Weighted average number of Ordinary shares for the
purposes of diluted earnings per share 286.8 287.0
====================================================== ===== =====
1. The calculation of the weighted average number of shares
excludes the shares held by The Morgan General Employee Benefit
Trust, on which the dividends are waived.
Note 9. Property, plant and equipment
Land and Plant, Total
buildings equipment GBPm
GBPm and fixtures
Note GBPm
========================================= ==== ========== ============= ======
Cost
Balance at 1 January 2021 215.2 678.2 893.4
Additions 2.6 27.9 30.5
Disposals (16.7) (21.1) (37.8)
Sale of business 2 (0.8) (3.5) (4.3)
Transfers between categories 1.2 (1.2) -
Effect of movement in foreign exchange (1.7) (3.1) (4.8)
========================================= ==== ========== ============= ======
Balance at 31 December 2021 199.8 677.2 877.0
========================================= ==== ========== ============= ======
Balance at 1 January 2022 199.8 677.2 877.0
Additions 3.8 49.7 53.5
Disposals (1.3) (9.1) (10.4)
Transfers between categories 0.3 (0.3) -
Effect of movement in foreign exchange 16.6 52.7 69.3
========================================= ==== ========== ============= ======
Balance at 31 December 2022 219.2 770.2 989.4
========================================= ==== ========== ============= ======
Depreciation and impairment losses
Balance at 1 January 2021 109.7 516.1 625.8
Depreciation charge for the year 5.3 24.8 30.1
Impairment losses - 12.3 12.3
Disposals (11.6) (20.1) (31.7)
Sale of business 2 (0.6) (3.5) (4.1)
Transfers between categories 0.3 (0.3) -
Effect of movement in foreign exchange (0.1) (3.4) (3.5)
========================================= ==== ========== ============= ======
Balance at 31 December 2021 103.0 525.9 628.9
========================================= ==== ========== ============= ======
Balance at 1 January 2022 103.0 525.9 628.9
Depreciation charge for the year 5.0 25.3 30.3
Impairment losses 2.0 2.6 4.6
Disposals (0.7) (8.4) (9.1)
Transfers between categories (0.4) 0.4 -
Effect of movement in foreign exchange 8.8 42.7 51.5
========================================= ==== ========== ============= ======
Balance at 31 December 2022 117.7 588.5 706.2
========================================= ==== ========== ============= ======
Carrying amounts
========================================= ==== ========== ============= ======
At 1 January 2021 105.5 162.1 267.6
========================================= ==== ========== ============= ======
At 31 December 2021 96.8 151.3 248.1
========================================= ==== ========== ============= ======
At 31 December 2022 101.5 181.7 283.2
========================================= ==== ========== ============= ======
In 2022, no assets were pledged as security for liabilities
(2021: none). Profit on sale of property, plant and equipment
presented in the cash flow includes GBPnil (2021: GBPnil) of
insurance proceeds for replacement of assets.
Note 10. Leases
The reconciliation in the movement of the Group's right-of-use
assets is set out in the table below:
Land and Plant and Total
buildings equipment GBPm
GBPm GBPm
========================================= ========== ========== =====
Balance at 1 January 2021 29.2 6.3 35.5
Additions 2.7 1.5 4.2
Remeasurements 0.6 0.1 0.7
Depreciation charge for the year (4.7) (3.2) (7.9)
Effect of movement in foreign exchange (0.3) (0.3) (0.6)
========================================== ========== ========== =====
Balance at 31 December 2021 27.5 4.4 31.9
========================================== ========== ========== =====
Balance at 1 January 2022 27.5 4.4 31.9
Additions 1.2 1.8 3.0
Remeasurements 3.1 0.6 3.7
Depreciation charge for the year (5.1) (2.7) (7.8)
Effect of movement in foreign exchange 2.3 0.5 2.8
========================================== ========== ========== =====
Balance at 31 December 2022 29.0 4.6 33.6
========================================== ========== ========== =====
The weighted average lease term is 11.6 years for land and
buildings and 3.3 years for plant and equipment (2021: 12.2 years
and 3.5 years respectively).
Amounts recognised in the consolidated income statement in
respect of leasing arrangements are set out in the table below:
2022 2021
GBPm GBPm
======================================== ====== ======
Depreciation expense on right-of-use
assets (7.8) (7.9)
Interest expense on lease liabilities (2.4) (2.3)
Expense relating to short-term leases
and leasing of low value assets (0.5) (0.3)
Income from leasing owned assets - 0.2
========================================== ====== ======
(10.7) (10.3)
======================================== ====== ======
The total cash flows from leasing activities in the year ended
31 December 2022 was GBP11.9 million (2021: GBP11.0 million) as set
out in the table below:
2022 2021
GBPm GBPm
========================================= ====== ======
Payment of lease liabilities (9.0) (8.6)
Interest expense on lease liabilities (2.4) (2.3)
Expenses relating to short-term leases
of low value assets (0.5) (0.3)
Income from leasing owned assets - 0.2
=========================================== ====== ======
(11.9) (11.0)
========================================= ====== ======
At 31 December 2022, the Group is committed to future payments
of GBP0.6 million (2021: GBP0.6 million) for short-term leases and
leasing of low value assets.
At 31 December 2022, future cash flows in respect of lease which
the Group had entered into but which had not yet commenced was
GBPnil (2021: GBP0.2 million).
The total of future minimum lease income under non-cancellable
leases, where the Group is a lessor is GBPnil (2021: GBPnil).
Note 11. Intangible assets
Goodwill Customer Technology Capitalised Computer Total
relationships and development software
trademarks costs
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ======== ============== =========== ============ ========= =====
Cost
Balance at 1 January
2021 173.2 56.2 3.6 0.7 34.5 268.2
Acquisition of businesses 0.1 1.1 0.7 - - 1.9
Additions (externally
purchased) - - - - 2.0 2.0
Disposals of businesses (0.1) - - - - (0.1)
Disposals - - - - (1.9) (1.9)
Effect of movement in
foreign exchange (0.3) 0.3 (0.2) - 0.2 -
=============================== ======== ============== =========== ============ ========= =====
Balance at 31 December
2021 172.9 57.6 4.1 0.7 34.8 270.1
=============================== ======== ============== =========== ============ ========= =====
Balance at 1 January
2022 172.9 57.6 4.1 0.7 34.8 270.1
Additions (externally
purchased) - - - - 1.2 1.2
Disposals - - - - (0.1) (0.1)
Effect of movement in
foreign exchange 9.0 6.3 0.2 0.1 1.9 17.5
=============================== ======== ============== =========== ============ ========= =====
Balance at 31 December
2022 181.9 63.9 4.3 0.8 37.8 288.7
=============================== ======== ============== =========== ============ ========= =====
Amortisation and impairment
losses
Balance at 1 January
2021 - 54.8 3.6 0.7 23.7 82.8
Amortisation charge
for the year - 1.0 0.1 - 4.9 6.0
Disposals - - - - (1.9) (1.9)
Effects of movement
in foreign exchange - 0.3 (0.2) - - 0.1
=============================== ======== ============== =========== ============ ========= =====
Balance at 31 December
2021 - 56.1 3.5 0.7 26.7 87.0
=============================== ======== ============== =========== ============ ========= =====
Balance at 1 January
2022 - 56.1 3.5 0.7 26.7 87.0
Amortisation charge
for the year - 0.7 0.1 - 3.9 4.7
Disposals - - - - (0.1) (0.1)
Effects of movement
in foreign exchange - 6.3 0.2 0.1 1.5 8.1
=============================== ======== ============== =========== ============ ========= =====
Balance at 31 December
2022 - 63.1 3.8 0.8 32.0 99.7
=============================== ======== ============== =========== ============ ========= =====
Carrying amounts
At 1 January 2021 173.2 1.4 - - 10.8 185.4
=============================== ======== ============== =========== ============ ========= =====
At 31 December 2021 172.9 1.5 0.6 - 8.1 183.1
=============================== ======== ============== =========== ============ ========= =====
At 31 December 2022 181.9 0.8 0.5 - 5.8 189.0
=============================== ======== ============== =========== ============ ========= =====
Impairment test for cash-generating units or groups of
cash-generating units containing goodwill
In accordance with the requirements of IAS 36 Impairment of
Assets, goodwill is allocated to the Group's cash-generating units
or groups of cash-generating units that are expected to benefit
from the synergies of the business combination that gave rise to
the goodwill. Goodwill impairment testing is performed at the
operating segment level as defined by IFRS 8, as this is the lowest
level at which goodwill is monitored.
Goodwill is attributed to each operating segment as follows:
2022 2021
GBPm GBPm
===================== ===== =====
Thermal Ceramics 88.8 84.5
Molten Metal Systems 9.4 9.0
Electrical Carbon 30.7 29.3
Seals and Bearings 15.8 14.9
Technical Ceramics 37.1 35.2
===================== ===== =====
181.8 172.9
===================== ===== =====
Each operating segment is assessed for impairment annually and
whenever there is an indication of impairment.
The carrying value of goodwill has been assessed with reference
to its value in use, reflecting the projected discounted cash flows
of each operating segment to which goodwill has been allocated. The
key assumptions used in determining value in use relate to short
and long-term growth rates and discount rates.
The cash flow projections in year one are based on the most
recent Board approved budget. Cash flow projections for years two
to five are based on the most recent Board approved strategic plan.
The key assumptions that underpin these cash flow projections
relate to sales and operating margins, which are based on past
experience, taking into account the effect of known or likely
changes in market or operating conditions. External data sources
have been considered as to the strength and recovery of the Group's
end-markets in building an expectation of the future cash flows of
each operating segment.
In 2022, a 1.0% growth rate (2021: 1.0%) has been used for years
beyond 2027 and to calculate a terminal value. Management has
assessed these growth rates, including the terminal growth rate as
reasonable for each operating segment.
In 2022, the Group has used the following pre-tax discount rates
for calculating the value in use of each of the operating segments:
Thermal Ceramics: 13.8% (2021: 13.2%), Molten Metal Systems: 15.6%
(2021: 12.9%), Electrical Carbon: 14.6% (2021: 12.3%), Seals and
Bearings: 14.0% (2021: 11.2%), Technical Ceramics 14.1% (2021:
11.1%).
The Directors have considered the following individual
sensitivities and are confident that no impairment would arise for
each of the Thermal Ceramics, Molten Metal Systems, Electrical
Carbon, Seals and Bearings and Technical Ceramics operating
segments in any one of the following three circumstances, which are
considered reasonably possible changes:
Ø If the pre-tax discount rate was increased to 18%.
Ø If no growth was assumed for years two to five and in the
calculation of terminal value.
Ø If the cash flow projections of all businesses were reduced by
25%.
Note 12. Cash and cash equivalents
2022 2021
GBPm GBPm
Bank balances 105.8 101.2
Cash deposits 11.9 26.1
=========================== ====== ======
Cash and cash equivalents 117.7 127.3
=========================== ====== ======
In 2022, the Group had restricted cash of GBP4.0 million (2021:
GBP1.5 million) as a result of exchange controls in Argentina.
Reconciliation of cash and cash equivalents to net debt(1)
2022 2021 restated
(2)
GBPm GBPm
========================================== ======== ==============
Opening borrowings and lease liabilities (223.8) (303.4)
Increase in borrowings (113.3) (27.3)
Reduction and repayment of borrowings 39.0 99.6
Payment of lease liabilities 9.0 8.6
========================================== ======== ==============
Total changes from cash flows (65.3) 80.9
New leases and lease remeasurement (6.7) (4.4)
Effect of movements in foreign exchange (22.3) 3.1
========================================== ======== ==============
Closing borrowings and lease liabilities (318.1) (223.8)
Cash and cash equivalents 117.7 127.3
========================================== ======== ==============
Closing net debt (1) (200.4) (96.5)
========================================== ======== ==============
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
2. Comparative information has been restated to present the
increase and reduction in borrowings separately.
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes.
Borrowings Lease liabilities Total Cash and Movement
financing cash equivalents in
GBPm liabilities GBPm net debt(1)
GBPm GBPm GBPm
=================================== =========== ================== ============= ================== =============
At 1 January 2021 (248.8) (54.6) (303.4) 147.8 (155.6)
Cash outflow - - - (5.6) (5.6)
Borrowings and lease liability
cash flow 72.3 8.6 80.9 - 80.9
Net interest paid - - - (8.4) (8.4)
=================================== =========== ================== ============= ================== =============
Net cash inflow/(outflow) 72.3 8.6 80.9 (14.0) 66.9
=================================== =========== ================== ============= ================== =============
Share purchases - - - (5.9) (5.9)
New leases and lease remeasurement - (4.4) (4.4) - (4.4)
Exchange and other movements 2.5 0.6 3.1 (0.6) 2.5
=================================== =========== ================== ============= ================== =============
At 31 December 2021 (174.0) (49.8) (223.8) 127.3 (96.5)
=================================== =========== ================== ============= ================== =============
At 1 January 2022 (174.0) (49.8) (223.8) 127.3 (96.5)
Cash outflow - - - (0.7) (0.7)
Borrowings and lease liability
cash flow (74.3) 9.0 (65.3) - (65.3)
Net interest paid - - - (9.4) (9.4)
=================================== =========== ================== ============= ================== =============
Net cash inflow/(outflow) (74.3) 9.0 65.3 (10.1) (75.4)
=================================== =========== ================== ============= ================== =============
Share purchases - - - (2.9) (2.9)
New leases and lease remeasurement - (6.7) (6.7) - (6.7)
Exchange and other movements (17.9) (4.4) (22.3) 3.4 (18.9)
=================================== =========== ================== ============= ================== =============
At 31 December 2022 (266.2) (51.9) (318.1) 117.7 (200.4)
=================================== =========== ================== ============= ================== =============
1. Definitions of these non-GAAP measures can be found in the
glossary of terms on page 45, reconciliations of the statutory
results to the adjusted measures can be found on pages 13 to
16.
2.
Note 13. Financial risk management
Fair Values
31 December 2022 31 December 2021
=============================
Fair value Fair value
============================= ======== ======================= ======== =======================
Carrying Level Level Total Carrying Level Level Total
amount 1 2 GBPm amount 1 2 GBPm
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======== ===== ======= ======= ======== ===== ======= =======
Financial assets and liabilities
held at amortised cost
1.18% Euro Senior Notes
2023 (22.1) - (21.6) (21.6) (21.0) - (21.1) (21.1)
3.17% US Dollar Senior
Notes 2023 (12.4) - (12.1) (12.1) (11.1) - (11.3) (11.3)
1.55% Euro Senior Notes
2026 (22.2) - (20.1) (20.1) (21.1) - (21.4) (21.4)
3.37% US Dollar Senior
Notes 2026 (80.6) - (73.5) (73.5) (72.2) - (72.8) (72.8)
1.74% Euro Senior Notes
2028 (8.9) - (7.7) (7.7) (8.4) - (8.6) (8.6)
2.89% Euro Senior Notes
2030 (22.1) - (19.0) (19.0) (21.0) - (22.1) (22.1)
4.87% US Dollar Senior
Notes 2026 (21.1) - (20.2) (20.2) (18.8) - (20.6) (20.6)
5.50% Cumulative First
Preference shares (0.1) - (0.1) (0.1) (0.1) - (0.1) (0.1)
5.00% Cumulative Second
Preference shares (0.3) - (0.3) (0.3) (0.3) - (0.3) (0.3)
(189.8) - (174.6) (174.6) (174.0) - (178.3) (178.3)
============================= ======== ===== ======= ======= ======== ===== ======= =======
Derivative financial
assets held at fair value 1.3 - 1.3 1.3 0.6 - 0.6 0.6
============================= ======== ===== ======= ======= ======== ===== ======= =======
Derivative financial
liabilities held at fair
value (1.6) - (1.6) (1.6) (0.6) - (0.6) (0.6)
============================= ======== ===== ======= ======= ======== ===== ======= =======
The table above analyses the fair values of financial
instruments held by the Group, by valuation method, together with
the carrying amounts shown in the balance sheet.
The fair value of cash and cash equivalents, current trade and
other receivables/payables and floating-rate bank and other
borrowings are excluded from the preceding table as their carrying
amount approximates their fair value.
Fair value hierarchy
The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: not traded in an active market but the fair values are
based on quoted market prices or alternative pricing sources with
reasonable levels of price transparency. Fair value is calculated
using discounted cash flow methodology, future cash flows are
estimated based on forward exchange rates.
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The major methods and assumption used in estimating the fair
values of financial instruments reflected in the preceding table
are as follows:
Equity securities
Fair value is based on quoted market prices at the balance sheet
date.
Derivatives
Forward exchange contracts are marked to market either using
listed market prices or by discounting the contractual forward
price and deducting the current spot rate.
Fixed-rate borrowings
Fair value is calculated based on discounted expected future
principal and interest cash flows. The interest rates used to
determine the fair value of borrowings are 4.2%-6.4% (2021:
1.0%-3.1%).
There have been no transfers between Level 1 and Level 2 during
2022 and 2021 and there were no Level 3 financial instruments in
either 2022 or 2021.
Note 14. Pensions and other post-retirement employee
benefits
31 December 2022
UK US Europe Rest Total
of World
GBPm GBPm GBPm GBPm GBPm
======================================= ======== ======== ======= ========== ========
Summary of net obligations
Present value of unfunded defined
benefit obligations - (5.8) (26.7) (4.0) (36.5)
Present value of funded defined
benefit obligations (359.5) (116.1) (1.6) (8.1) (485.3)
Fair value of plan assets 384.7 112.7 0.4 8.4 506.2
======================================= ======== ======== ======= ========== ========
25.2 (9.2) (27.9) (3.7) (15.6)
======================================= ======== ======== ======= ========== ========
Movements in present value of
defined benefit obligation
At 1 January 2022 (544.0) (139.3) (39.4) (11.8) (734.5)
Current service cost - - (1.1) (1.6) (2.7)
Interest cost (10.3) (3.9) (0.3) (0.2) (14.7)
Actuarial gain/(loss)
Experience gain/(loss) on plan
obligations (14.7) (0.1) 0.4 - (14.4)
Changes in financial assumptions
- gain 184.5 28.2 12.2 0.7 225.6
Changes in demographic assumptions
- gain/(loss) 0.9 - (0.1) - 0.8
Benefits paid 24.1 9.2 1.6 1.2 36.1
Curtailments and settlements - - - 0.2 0.2
Exchange adjustments - (16.0) (1.6) (0.6) (18.2)
======================================= ======== ======== ======= ========== ========
At 31 December 2022 (359.5) (121.9) (28.3) (12.1) (521.8)
======================================= ======== ======== ======= ========== ========
Movements in fair value of plan
assets
At 1 January 2022 492.3 131.6 0.4 7.5 631.8
Interest on plan assets 9.4 3.8 - 0.1 13.3
Remeasurement loss (177.2) (28.9) - (0.4) (206.5)
Contributions by employer 84.3 0.7 1.6 2.0 88.6
Benefits paid (24.1) (9.2) (1.6) (1.2) (36.1)
Exchange adjustments - 14.7 - 0.4 15.1
======================================= ======== ======== ======= ========== ========
At 31 December 2022 384.7 112.7 0.4 8.4 506.2
======================================= ======== ======== ======= ========== ========
Actual return on assets (167.8) (25.1) - (0.3) (193.2)
======================================= ======== ======== ======= ========== ========
31 December
2022
UK US Europe Rest Total
of World
GBPm GBPm GBPm GBPm GBPm
======================================= ====== ====== ======= ========== ======
Fair value of plan assets by category
Equities - 6.1 - - 6.1
Growth assets(1) 40.3 - - - 40.3
Bonds 18.0 104.8 - - 122.8
Liability-driven investments (LDI)(2) 210.9 - - - 210.9
Matching insurance policies 106.1 1.4 0.4 6.4 114.3
Other 9.4 0.4 - 2.0 11.8
======================================= ====== ====== ======= ========== ======
384.7 112.7 0.4 8.4 506.2
======================================= ====== ====== ======= ========== ======
1. Growth assets include investment in Global Diversified and
Multi-Asset Funds as well as UK Property.
2. The LDI assets are pooled funds in the UK that provide a
leveraged return linked to long duration fixed interest and
index-linked government bonds valued at the bid price of the units.
This provides interest rate and inflation hedging equivalent in
size to circa 100% of the invested assets of the UK Schemes
measured on the 'Long Term Objective' basis (Gilts +50bps)
(excluding matching insurance policies).
The Group expects to contribute GBP3.8 million to these
arrangements in 2023.
31 December 2021
UK US Europe Rest of Total
World
GBPm GBPm GBPm GBPm GBPm
=================================== ======== ======== ======= ======== ========
Summary of net obligations
Present value of unfunded defined
benefit obligations - (6.4) (37.5) (3.4) (47.3)
Present value of funded defined
benefit obligations (544.0) (132.9) (1.9) (8.4) (687.2)
Fair value of plan assets 492.3 131.6 0.4 7.5 631.8
=================================== ======== ======== ======= ======== ========
(51.7) (7.7) (39.0) (4.3) (102.7)
=================================== ======== ======== ======= ======== ========
UK US Europe Rest
of World
======================================= ========== ===== ======= ==========
Principal actuarial assumptions at 31 % % % %
December 2022 were:
Discount rate 4.81 4.99 3.70 5.30
Inflation (UK: RPI/CPI) 3.26/2.47 n/a 2.20 n/a
======================================= ========== ===== ======= ==========
Principal actuarial assumptions at 31 % % % %
December 2021 were:
Discount rate 1.92 2.71 0.90 2.90
Inflation (UK: RPI/CPI) 3.40/2.61 n/a 1.90 n/a
======================================= ========== ===== ======= ==========
Note 15. Provisions and contingent liabilities
Closure and Legal and Environmental Total
restructuring other provisions
provisions provisions
GBPm GBPm GBPm
GBPm
================================= ============== =========== ============= =====
Balance at 1 January 2022 11.8 10.0 7.8 29.6
Provisions made during the
year 1.3 0.2 1.1 2.6
Provisions used during the
year (3.2) (1.7) (1.3) (6.2)
Provisions reversed during
the year (0.6) (0.6) (0.5) (1.7)
Effect of movements in foreign
exchange 1.2 0.2 0.3 1.7
================================= ============== =========== ============= =====
Balance at 31 December 2022 10.5 8.1 7.4 26.0
================================= ============== =========== ============= =====
Current 2.5 3.5 3.9 9.9
Non-current 8.0 4.6 3.5 16.1
================================= ============== =========== ============= =====
10.5 8.1 7.4 26.0
================================= ============== =========== ============= =====
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.
Whilst the Group's restructuring programme was completed in
2021, we retain provisions for remaining lease exit costs and
multi-employer pension obligations from two sites which were closed
during 2021. The cash outflows relating to the pension obligations
may continue for up to 19 years, subject to any settlement being
reached in advance of that date. Cash outflows in relation to the
lease may continue for the next four years.
Legal and other provisions
Legal and other provisions mainly comprise amounts provided
against open legal and contractual disputes arising in the normal
course of business and long-service costs. Provisions are made for
the expected costs associated with such matters, based on past
experience of similar items and other known factors, taking into
account professional advice received, and represent management's
best estimate of the most likely outcome. The timing of utilisation
of these provisions is frequently uncertain, reflecting the
complexity of issues and the outcome of various court proceedings
and associated negotiations.
Where obligations are not capable of being reliably estimated,
or if a material outflow of economic resources is considered
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.
Subsidiary undertakings within the Group have given unsecured
guarantees of GBP10.2 million (2021: GBP10.5 million) in the
ordinary course of business.
Environmental provisions
Environmental provisions are made for quantifiable environmental
liabilities arising from known environmental issues. The amounts
provided are based on the best estimate of the costs required to
remedy these issues. At one site, a remediation feasibility study
is currently being conducted in relation to a known environmental
issue and in conjunction with the local environmental regulator. A
remediation plan has been prepared. The provision recorded reflects
the estimated costs of remediation and awaits final regulatory
approval. The provision is expected to be utilised in the next five
years.
Environmental contingent liabilities
The Group is subject to local health, safety and environmental
laws and regulations concerning its manufacturing operations around
the world. These laws and regulations may require the Group to take
future action to remediate the impact of historical manufacturing
processes on the environment or lead to other economic outflows.
Such contingencies may exist for various sites which the Group
currently operates or has operated in the past. There is a
contingent liability arising from 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 16. Subsequent events
Morgan experienced a cyber security incident in January 2023,
having detected unauthorised activity on the network. Immediate
steps were taken to contain the incident, launch incident response
plans, engage specialist support services and embark on restoring
systems. All manufacturing sites are operational, although some
continue to use manual processes as work continues to restore their
systems.
This has been treated as a non-adjusting post balance sheet
event and there has been no impact on the financial results
reported for the year ended 31 December 2022.
We expect to incur around GBP15 million of system recovery and
specialist support costs, including IT asset impairment charges of
GBP0.7 million. These charges will be presented separately as
specific adjusting items in the consolidated income statement for
the year ending 31 December 2023. At the date of signing, and
following consultation with our advisors, we also have a
non-adjusting post balance sheet contingent liability relating to
potential enforcement action or civil claims pending the completion
of our investigation into what data was accessed and regulatory
engagement.
Glossary
Constant-currency(1) Constant-currency revenue and Group adjusted operating
profit are derived by translating the prior year
results at current year average exchange rates.
====================== ========================================================
Corporate costs Corporate costs consist of the costs of the central
head office.
====================== ========================================================
Free cash flow 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 adjusted Operating profit adjusted to exclude specific adjusting
operating profit(1) items and amortisation of intangible assets.
====================== ========================================================
Group organic(1) The Group results excluding acquisition, disposal
and business exit impacts at constant-currency.
====================== ========================================================
Adjusted earnings Adjusted 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.
====================== ========================================================
Net cash and Net cash and cash equivalents is defined as cash
cash equivalents(1) and cash equivalents less bank overdrafts.
====================== ========================================================
Return on invested Group adjusted 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.
====================== ========================================================
Specific adjusting See note 4 to the consolidated financial statements
items for further details.
====================== ========================================================
Underlying Reference to underlying reflects the trading results
of the Group without the impact of specific adjusting
items and amortisation of intangible assets that
would otherwise impact the users understanding of
the Group's performance. The Directors believe that
adjusted results provide additional useful information
on the core operational performance of the Group,
and review the results of the Group on an adjusted
basis internally.
====================== ========================================================
1. See definitions and reconciliations of non-GAAP measures to
GAAP measures on page 13 to 16.
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END
FR IRMLTMTJTBRJ
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April 28, 2023 02:00 ET (06:00 GMT)
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