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[August 2009]
Morgan Crucible Half-Year Figures
In reporting results for the half-year ended 5 July 2009, Morgan Crucible Plc summarised as follows:
- Revenue for the half year increased to £492.0 million (2008: £401.2 million) up 22.6% on the first half of 2008.
- On a pro forma constant currency basis revenues declined by 7.3% (the pro forma calculation assumes that NP Aerospace had also been consolidated in 2008 to enable a like for like comparison).
- Group EBITA before restructuring charges and one off items was £45.3 million (2008: £51.3 million) at a margin of 9.2% (2008: 12.8%).
- Underlying operating profit (EBITA after restructuring costs and one-off items) was £38.2 million (2008: £46.4 million) at a margin of 7.8% (2008: 11.6%).
- NP Aerospace, in which Morgan Crucible increased its ownership from 49% to 60% in January, continues to perform very well, with revenues in the first half of the year at £95.5 million (2008: £36.8 million) and with a strong order book providing good visibility through to the end of this year and into 2010.
- The Group has acted decisively on cost reduction initiatives across its businesses over the past several months with the majority of the benefits expected to come through in the second half of the year. Restructuring costs in the first half of the year were £8.2 million.
- Net cash flow from operations increased substantially to £58.6 million (2008: £33.0 million) up 78% on the previous year and free cash flow before one-off items and dividends was a positive £30.6 million (2008: negative £1.7 million).
- Net debt reduced to £282.9 million (2008 year end: £290.4 million) and net debt to EBITDA ratio improved to 2.0 times.
- The Group refinanced its maturing bank debt in the first half of the year with a new 3 year multi-currency facility for £280 million leaving the Group with a supportive banking group going forward.
- The interim dividend is maintained at last year’s level at 2.5 pence per share.
Commenting on the results, strategy and outlook for Morgan Crucible, CEO Mark Robertshaw said: “The Group’s results for the first half of 2009 demonstrate the improved resilience of the business in what is a particularly difficult market environment. Our strategy of reducing exposure to economically cyclical markets has mitigated the worst effects of a very significant downturn in global industrial demand. The most notable example of this positive mix shift towards a more resilient portfolio is the excellent performance of our NP Aerospace business which is on track to deliver a record year of sales and profits.
“Operationally we remain focussed on self-help initiatives rather than relying on a market recovery. To this end, we have undertaken significant cost reductions over the past several months and expect to see progressively increasing benefits coming through to the bottom line in the second half of this year to mitigate any further end market softening. In parallel, we are also maintaining a very rigorous focus on cash generation and balance sheet management and have improved our net debt to EBITDA ratio as a result of strong operational cash inflows.
“The global economic environment has been particularly challenging in the first half of 2009 and it is our expectation that industrial markets will remain weak for the second half of the year. Whilst we believe it is still premature to call an end to the downturn, there are some signs of a stabilisation in order books and sales levels in recent weeks in certain sectors. Having acted decisively in our cost reduction initiatives we believe that we are well placed to capitalise on any recovery as and when it occurs. Overall, we believe that Morgan Crucible is a higher quality, more resilient business than in the past.”
In the company’s sectoral review, it said that total revenues for Technical Ceramics for the first half of 2009 were £110.6 million (2008: £98.3 million), an increase of 12.5%. This included £26.0 million (2008: £14.4 million) of revenue contributed by the businesses acquired from Carpenter in 2008. At constant currency, revenue in Technical Ceramics excluding the Carpenter businesses declined by 15.7%. Divisional EBITA was £12.3 million (2008: £14.0 million), a decrease of 12.1%. This included £3.5 million (2008: £2.4 million) of EBITA from the acquired Carpenter businesses. EBITA margin in the underlying Technical Ceramics businesses was 10.4% (2008: 13.8%), and in the acquired Carpenter businesses 13.5% (2008: 16.7%), resulting in an overall divisional EBITA margin for the first half of 11.1% (2008: 14.2%).
The company said that demand in the Technical Ceramics businesses has inevitably been impacted by the overall economic environment although there are some end-markets which have continued to show resilience. In the USA during the first half, demand held up well for Industrial Gas Turbine applications in the Certech business and for advanced medical components. Aerospace markets started the year well but weakened during the second quarter as customers have been de-stocking. Consumer electronic customers also saw a period of de-stocking in the supply chain which now appears to be stabilising.
The European and Asian regions had a challenging first half with weak market conditions in general industrial markets and in construction, affecting the thermal processing business, particularly in Germany. Niche business in defence and medical markets was more robust. The more commodity product focussed site in Shanghai was successfully closed on time and to plan during the first half of the year.
In response to the weaker global market conditions, Morgan took early and decisive action to protect its margins. These cost actions included headcount reductions of close to 600 employees relative to June of last year. These cost measures will deliver progressively greater benefits in the second half of the year without detriment to the company’s ability to respond to better market conditions as and when the macroeconomic climate improves. As a result, the company expects the division to continue its performance in line with first half trading.
Over at the Insulating Ceramics division there are two reportable segments: Thermal Ceramics and Molten Metal Systems. Revenues within the Insulating Ceramics division in the first half were down by 2.2% at £180.8 million (2008: £184.8 million). On a constant currency basis revenues were down by 16.9%. Divisional EBITA was £15.8 million, down from £21.9 million in 2008, representing margins of 8.7% and 11.9% respectively.
In the first half of 2009 the Thermal Ceramics business revenues were at a similar level to last year taking into account favourable currency translation. However on a constant currency basis, the global slowdown has led to a 16.0% year on year reduction in revenue.
Regionally, the business has shown resilience in Asia and Latin America with the expectation that the industrial markets of China, India and Brazil will be the first economies to show recovery in the last quarter of 2009 and into 2010. In contrast, the North American and European markets have been weak with recovery in these two regions not expected until 2010.
Many of Thermal Ceramics markets continue to remain challenging, such as construction, automotive and iron and steel. There are, however, positive signs in specific regions; China accounts for more than 50% of the world’s iron and steel capacity, and government infrastructure incentives are already inducing improved utilisation and demand in the Petrochemical sector has also remained robust through the first half of 2009.
The business has implemented a global cost reduction programme with divisional headcount having been reduced by approximately 350 since June last year. Thermal Ceramics have also announced the closure of two fibre plants, Erwin USA and Skawina Poland, which will take effect in the second half of this year.
Looking forward, considerable efforts remain focussed on the development of new products and the continued commercialisation of recently launched products such as Superwool HT™ and Superwool Plus™. At the same time, engineering and research resource is also being utilised to optimise manufacturing processes to improve gross margins through improved raw material and energy yield enhancements. Overall, the later cycle characteristics of the Thermal Ceramics business mean that it expects end market demand to be more challenging in the second half of the year.
Full details of the results and other sectoral analyses appear on the website.
ENDS