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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Morgan Advanced Materials Plc | LSE:MGAM | London | Ordinary Share | GB0006027295 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -4.50 | -1.47% | 302.50 | 303.00 | 304.00 | 304.00 | 299.50 | 301.00 | 674,803 | 16:35:10 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Carbon And Graphite Products | 1.12B | 47.3M | 0.1663 | 18.22 | 862.04M |
From Apr 2019 to Apr 2024
TIDMMGAM
RNS Number : 6080X
Morgan Advanced Materials PLC
23 February 2017
FULL-YEAR RESULTS FOR THE PERIODED 31 DECEMBER 2016
Results summary
Hot Features
Premium
GBP million unless otherwise stated 2016 2015 Change Constant
% Currency(1)
Change
%
------------------------------------------- ------ ------ ------- -------------
Headline performance
Revenue 989.2 911.8 8.5% -1.5%
Group headline operating profit(1) 116.9 106.0 10.3% -2.5%
Group headline operating profit margin(1) 11.8% 11.6%
Headline EPS (pence) (1) 22.7p 20.8p
Total dividend per share (pence) 11.0p 11.0p
Cash flow from operations(1)(2) 128.3 139.4
Free cash flow before acquisitions
and dividends(1)(2) 48.0 30.1
Statutory reporting
Operating profit 107.3 82.9
Profit before tax 87.9 59.0
Basic EPS (pence) 18.4p 11.9p
------------------------------------------- ------ ------ ------- -------------
1. Further information on the use of these non-GAAP measures is provided on page 9.
2. 2015 has been re-presented for the reclassification of GBP3.8 million of dividends paid to non-controlling interests from 'Cash flow from operations' to 'Net cash flows from other investing and financing activities'.
Group highlights
-- Financial performance is in line with management expectations, despite trading conditions remaining challenging in the second half of the year, with the full year book-to-bill ratio at 0.99 times (2015: 0.99 times).
-- Strategy implementation on track - two divestments recently announced, which will simplify the Electrical Carbon and Technical Ceramics global business units, with an aggregate gross consideration of ca. GBP80 million.
-- Good progress in improving operational execution, which is providing the funds for increased investment in research and development.
-- Group headline operating profit margin* improved to 11.8% (2015: 11.6%).
-- Headline EPS* increased to 22.7 pence (2015: 20.8 pence). Proposed final dividend of 7.0 pence per share (2015: final 7.0 pence per share), which would result in a full-year dividend of 11.0 pence (2015: 11.0 pence).
-- Balance sheet strengthened with completion of US private placement refinancing. Free cash flow before dividends improved to GBP48.0 million (2015: GBP30.1 million).
Divisional highlights
-- Thermal Products revenue was GBP456.8 million (2015: GBP412.1 million), an increase of 10.8% compared to 2015. Constant currency revenue* increased by 0.1% compared to 2015. EBITA* for Thermal Products was GBP61.7 million (2015: GBP60.5 million), EBITA margin* was 13.5% (2015: 14.7%).
-- Carbon and Technical Ceramics revenue was GBP502.0 million (2015: GBP472.0 million), an increase of 6.4% compared to 2015. Constant currency revenue* decreased by 3.5% compared to 2015. EBITA* was GBP60.5 million (2015: GBP55.3 million), EBITA margin* was 12.1% (2015: 11.7%).
-- Composites and Defence Systems revenue was GBP30.4 million (2015: GBP27.7 million), an increase of 9.7% compared to 2015. EBITA* was GBP1.1 million (2015: GBP(1.0) million), EBITA margin* was 3.6% (2015: -3.6%).
Strategy implementation on track
We have made good progress with the implementation of our strategy, against the execution priorities we defined in February 2016:
1. Move to a global structure. We successfully completed the move to a global structure in March 2016 with the establishment of six global business units: Thermal Ceramics, Molten Metal Systems, Electrical Carbon, Seals & Bearings, Technical Ceramics, and Composites and Defence Systems.
2. Extend our technology leadership. We have increased technology investment by GBP3.8 million in 2016 (to 3.0% of sales) and established two new Centres of Excellence in Carbon Science and Metals and Joining to support the longer term development of new materials and production processes, and enhance the technical differentiation of the group. We will increase investment by a further GBP3 million in 2017 against our three to four-year goal of increasing R&D investment to around 4% of sales.
3. Improve operational execution. We are driving improvements in global procurement, in particular in Thermal Ceramics, through lean and continuous improvement activity in our production plants, through targeted improvements in yield and scrap, and through further investments in automation. Our operational improvement activity is ahead of plan with GBP6 million of net savings now planned for 2017 that funds GBP3 million of investment in R&D and GBP3 million investment in sales and business development capability.
4. Drive sales effectiveness and market focus. We have completed the global mapping of our sales resources to understand the roles and capabilities of our people and following this we will be sharpening roles and accountabilities and training our sales teams. We have two pilot projects underway to assess and improve our sales approach in the automotive and separately the Chinese market in our Thermal business. This will establish the right structures, capabilities, sales processes and incentives for those teams.
5. Increase investment in people management and development. During 2016 we have strengthened the senior leadership population in the group and made good progress in understanding the capabilities of our scientists and started to define the roles and career paths for our materials science personnel. We have defined the leadership behaviours we need across the group to deliver the strategy and deliver more resilient financial performance and faster growth, and will be introducing these in the first quarter of 2017.
6. Simplify the business. We have recently announced two divestments that will materially simplify the Electrical Carbon and Technical Ceramics global business units. Additionally, the Group will close a small electro-ceramics site in the USA. These divestments see the group exiting businesses where we are sub-scale and where there is limited synergy with the remainder of the group and enable a sharpened focus on our core business areas in both of these global business units.
Commenting on the results for Morgan Advanced Materials, Chief Executive Officer, Pete Raby said:
"We are making good progress with the implementation of our strategy and have delivered a solid set of results in a difficult market.
Looking forward to 2017, we are expecting the challenging market conditions to continue and we have planned prudently as a result. However, we are making operational improvements across our business as part of our strategy execution and this is creating the funds to increase research and development, strengthen our selling capability and add business development resources, all aimed at supporting future growth in key business areas."
For further enquiries:
Pete Raby Morgan Advanced Materials 01753 837 000 Peter Turner Morgan Advanced Materials Mike Smith Brunswick 0207 404 5959
There will be an analyst and investor presentation at 09.00 (UK time) today at The Lincoln Centre, 18 Lincoln's Inn Fields WC2A 3ED. A live video 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 Group Executive and the Board manage and assess the performance of
the business on these measures and believe that they are more representative
of ongoing trading, facilitate year-on-year comparisons, and hence provide
additional useful information to shareholders.
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.
Operating review
Revenue EBITA(1) Margin %
------------------------------ --------------- ---------------- ---------------
2016 2015 2016 2015 2016 2015
------------------------------
GBPm GBPm GBPm GBPm % %
------------------------------ ------- ------ ------- ------- ------ -------
Thermal Ceramics 413.3 372.4 55.0 55.2 13.3% 14.8%
Molten Metal Systems 43.5 39.7 6.7 5.3 15.4% 13.4%
------------------------------ ------- ------ ------- ------- ------ -------
Thermal Products Total 456.8 412.1 61.7 60.5 13.5% 14.7%
------------------------------ ------- ------ ------- ------- ------ -------
Electrical Carbon 156.2 145.6 19.7 19.3 12.6% 13.3%
Seals and Bearings 97.7 88.6 14.2 9.9 14.5% 11.2%
Technical Ceramics 248.1 237.8 26.6 26.1 10.7% 11.0%
------------------------------ ------- ------ ------- ------- ------ -------
Carbon and Technical Ceramics
Total 502.0 472.0 60.5 55.3 12.1% 11.7%
------------------------------ ------- ------ ------- ------- ------ -------
Composites and Defence
Systems 30.4 27.7 1.1 (1.0) 3.6% (3.6)%
------------------------------ ------- ------ ------- ------- ------ -------
989.2 911.8
Divisional EBITA(1) 123.3 114.8
Corporate costs (5.4) (5.2)
------------------------------ ------- ------ ------- ------- ------ -------
Group EBITA(1) 117.9 109.6 11.9% 12.0%
Restructuring costs and
other items (1.0) (3.6)
------------------------------ ------- ------ ------- ------- ------ -------
Group headline operating profit(1) 116.9 106.0 11.8% 11.6%
Amortisation of intangible assets (7.9) (7.1)
----------------------------------------------- ------- ------- ------ -------
Operating profit before specific adjusting
items 109.0 98.9
Specific adjusting items included in operating
profit (1.7) (16.0)
----------------------------------------------- ------- ------- ------ -------
Operating profit 107.3 82.9 10.8% 9.1%
Net financing costs (20.0) (18.1)
Loss on disposal of business - (6.1)
Share of profit of associate (net of income
tax) 0.6 0.3
----------------------------------------------- ------- ------- ------ -------
Profit before taxation 87.9 59.0
--------------------------------------- ------ ------- ------- ------ -------
1. Definitions of these non-GAAP measures are provided on page 9.
Thermal Products
Revenue for Thermal Products for 2016 was GBP456.8 million (2015: GBP412.1 million), an increase of 10.8% compared with 2015. At constant currency revenue* increased by 0.1% compared to 2015.
Thermal Products EBITA* for 2016 was GBP61.7 million (2015: GBP60.5 million), with an EBITA margin* of 13.5% (2015: 14.7%).
Revenue for Thermal Ceramics for the year was GBP413.3 million (2015: GBP372.4 million), an increase of 11.0% compared with 2015. Constant currency revenue* increased by 0.1% compared with 2015. The increase was driven by growth in Asia, in particular in Japan, and in Europe, driven by applications in consumer products and medical, as well as projects in iron and steel, and ceramics.
The growth in Asia and Europe was offset by significantly lower activity levels in North America in most industrial markets, a continuation of the environment seen at the end of 2015.
Thermal Ceramics 2016 EBITA* was GBP55.0 million (2015: GBP55.2 million) with EBITA margin* declining to 13.3% (2015: 14.8%), driven by geographical mix effects.
Revenue for Molten Metals Systems for the year was GBP43.5 million (2015: GBP39.7 million), an increase of 9.6% compared with 2015. Constant currency revenue* remained unchanged year-on-year, due to weak activity in the automotive (aluminium) and construction (copper) end markets.
Molten Metal Systems 2016 EBITA* was GBP6.7 million (2015: GBP5.3 million) with EBITA margin* of 15.4% (2015: 13.4%), reflecting the benefits from operational improvements.
Carbon and Technical Ceramics
Revenue for 2016 was GBP502.0 million (GBP472.0 million), an increase of 6.4% compared with 2015. Constant currency revenue* decreased by 3.5% year-on-year.
Carbon and Technical Ceramics EBITA* for 2016 was GBP60.5 million (2015: GBP55.3 million), with an EBITA margin* of 12.1% (2015: 11.7%).
Revenue for Electrical Carbon for the year was GBP156.2 million (GBP145.6 million), an increase of 7.3% compared with 2015. Constant currency revenue* decreased by 2.4%.
The North American business was impacted by weak demand from the mining, traction and industrial sectors in particular, general industrial demand was also weaker relative to 2015. Asian revenues were marginally lower against prior year, growth in rail collector revenues was offset by continued weakness in the China wind and general industrial markets.
Electrical Carbon EBITA* was GBP19.7 million (2015: GBP19.3 million) with an EBITA margin* of 12.6% (2015: 13.3%). The impact of the reduced volumes was largely, but not fully, offset by operational improvements and other cost savings.
Revenue for Seals and Bearings for the year was GBP97.7 million (2015: GBP88.6 million) an increase of 10.3% compared with 2015. Constant currency revenue* increased by 0.4%, with strong sales into the aerospace, automotive and water markets more than offset the impact of the weaker oil and gas market.
Seals and Bearings EBITA* for the year was GBP14.2 million (2015: GBP9.9 million) with an EBITA margin* of 14.5% (2015: 11.2%), driven by increased revenue and continued operational improvements.
Revenue for Technical Ceramics was GBP248.1 million (2015: GBP237.8 million) an increase of 4.3% compared with 2015. Constant currency revenue* declined by 5.6%, primarily as a result of the completion of a contract to supply electro ceramic components to the hard disk drive market.
Technical Ceramics EBITA* was GBP26.6 million (2015: GBP26.1 million) with an EBITA margin* of 10.7% (2015: 11.0%). The decline in the high margin hard disk drive business was partially offset by operational improvements.
Composites and Defence Systems
Revenue for Composites and Defence Systems for the year was GBP30.4 million, representing an increase of 9.7% compared with GBP27.7 million in 2015.
EBITA* for Composites and Defence Systems was GBP1.1 million (2015: GBP(1.0) million) with an EBITA margin* of 3.6% (2015: -3.6%). The EBITA* improvement reflects the mix of contracts delivered, as well as the benefits from efficiency improvements.
On a statutory basis Composites and Defence Systems reported an operating loss of GBP8.7 million (2015: GBP9.0 million loss), due to an impairment charge of GBP8.5 million. Following the continued reduction in demand in the defence market, a review of the carrying value of the remaining intangible assets of Composites and Defence Systems was carried out, which resulted in the impairment charge, this reflected the full impairment of the remaining technology intangible asset.
Financial review
Group revenue was GBP989.2 million (2015: GBP911.8 million), an increase of 8.5% compared with 2015. The increase was as a result of the decline in value of sterling against other currencies, with much of the Group's businesses being denominated in non-sterling currencies. At constant currency revenue* declined by 1.5%.
Group headline operating profit* was GBP116.9 million (2015: GBP106.0 million). Headline operating profit margin* was 11.8%, compared to 11.6% for 2015.
Operating profit was GBP107.3 million (2015: GBP82.9 million). Operating profit margin was 10.8%, compared to 9.1% for 2015, reflecting a higher level of restructuring costs and impairments in 2015.
Restructuring costs and other items in 2016 were GBP1.0 million (2015: GBP3.6 million). In 2016 these costs represent the conclusion of the significant rationalisation of the Carbon Materials footprint, corporate restructuring and a gain on disposal of property within the Carbon business.
Specific adjusting items
2016 2015
GBPm GBPm
---------------------------------- ----- -----
Specific adjusting items
Restructuring costs - 1.5
Net pension settlement credit (6.8) -
Business exit costs - 2.8
Impairment of property,
plant and equipment - 5.9
Impairment of intangible assets 8.5 5.8
Net loss on disposal of business - 6.1
---------------------------------- ----- -----
1.7 22.1
Income tax charge / (credit) from
specific adjusting items 2.8 (3.3)
---------------------------------- ----- -----
4.5 18.8
---------------------------------- ----- -----
Specific adjusting items were a GBP1.7 million charge (2015: GBP22.1 million charge), and consisted of two items:
-- GBP6.8 million net pension settlement credit: during 2016 the Group completed the final termination and payment of all earned benefits for one of its North American Defined Benefit Plans. The Group also completed a one-time lump-sum cash out payment to certain former, deferred and vested employees of the Morgan US Employees' Retirement Plan in settlement of the benefits promised by the Group.
-- GBP8.5 million impairment charge: as a result of the continued reduction in demand in the defence market, a review of the carrying value of the remaining intangible assets of Composites and Defence Systems resulted in an impairment charge of GBP8.5 million.
The Group amortisation charge for 2016 was GBP7.9 million (2015: GBP7.1 million).
The net finance charge was GBP20.0 million (2015: GBP18.1 million), comprising the net bank interest and similar charges of GBP13.2 million (2015: GBP12.2 million), gain from financial instruments of GBP0.3 million (2015: GBP1.0 million) and the finance charge under IAS 19 (revised), being the interest charge on pension scheme net liabilities, which was GBP7.1 million (2015: GBP6.9 million).
The Group has completed the refinancing of its private placement debt ahead of the current maturities coming due in 2017. The new private placement provides secure long term debt, with lower interest costs.
The Group taxation charge, excluding specific adjusting items, was GBP26.6 million (2015: GBP24.2 million). The effective tax rate, excluding specific adjusting items for 2016 was 29.7% (2015: 29.8%).
Headline EPS* was 22.7 pence (2015: 20.8 pence), and basic earnings per share was 18.4 pence (2014: 11.9 pence).
Cash Flow
2016 2015(2)
GBPm GBPm
------------- -------------------------------- ---------------- -------- ---------
Cash generated from operations 121.7 133.9(2)
Add back cash flows from restructuring costs
and other items 6.6 5.5
--------------------------------------------------------------------- -------- ---------
Cash flow from operations(1) 128.3 139.4
Net capital expenditure (38.4) (62.7)
Net interest paid (13.1) (11.2)
Tax paid (22.2) (29.9)
Restructuring costs and other items (6.6) (5.5)
Free cash flow before acquisitions and
dividends(1) 48.0 30.1
Dividends paid to external plc shareholders (31.4) (31.4)
Net cash flows from other investing and financing
activities (15.6) (2.9)(2)
Exchange movement (27.5) (4.8)
--------------------------------------------------- ------------ -------- ---------
Movement in net debt(1) in period (26.5) (9.0)
--------------------------------------------------- ------------ -------- ---------
Opening net debt(1) (216.0) (207.0)
--------------------------------------------------- ------------ -------- ---------
Closing net debt(1) (242.5) (216.0)
--------------------------------------------------- ------------ -------- ---------
1. Definitions of these non-GAAP measures are provided on page 9.
2. 2015 has been re-presented for the reclassification of GBP3.8 million of dividends paid to non-controlling interests from 'cash generated from operations' to 'net cash flows from other investing and financing activities'.
Cash flow from operations* was GBP128.3 million (2015: GBP139.4 million) reflecting a working capital outflow following a strong end of year performance in 2015; significantly lower net capital expenditure, primarily due to the one-off purchase of the Swansea site in the first half of 2015; and lower tax paid as a result of the shift in profit expectations from the business in the second half of 2015.
Free cash flow before acquisitions and dividends* was GBP48.0 million (2015: GBP30.1 million). Net debt* at 31 December 2016 was GBP242.5 million (31 December 2015: GBP216.0 million) representing a net debt to EBITDA ratio* of 1.6 times (2015: 1.6 times).
Defined benefit pension plans
The Group pension deficit has increased by GBP66.6 million since last year end to GBP271.1 million on an IAS 19 basis due to lower discount rates and the weakening of sterling against the US dollar and the euro.
-- The UK schemes deficit increased by GBP63.1 million to GBP180.5 million (2015: GBP117.4 million), mainly as a result of the discount rate reducing to 2.62% (2015: 3.70%).
-- The US schemes deficit decreased by GBP6.1 million to GBP49.0 million (2015: GBP55.1 million), as settlement gains, employer contributions and investment gains more than offset changes in assumptions and exchange rate adjustments. The discount rate on US schemes reduced to 4.16% (2015: 4.50%).
-- The European schemes deficit increased by GBP9.2 million to GBP37.5 million (2015: GBP28.3 million), with approximately 50% of the deterioration due to exchange rate adjustments, with the remainder due to changes in assumptions, service costs and interest charges. The discount rate on European schemes reduced to 1.6% (2015: 2.3%).
Foreign exchange
The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:
2016 2015
----------- ------------------ ------------------
GBP to: Closing Average Closing Average
rate rate rate rate
US dollar 1.23 1.35 1.47 1.53
Euro 1.17 1.22 1.36 1.38
----------- -------- -------- -------- --------
For illustrative purposes, the table below provides details of the impact on 2016 revenue and Group EBITA* if the actual reported results, calculated using 2016 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 2016 revenue/Group EBITA((1) Revenue Group EBITA(1) if: GBPm GBPm GBP weakens by 10c against the US dollar in isolation +29.0 +3.7 GBP weakens by 10c against the Euro in isolation +20.6 +2.8 ------------------------------------------ -------- --------------- 1. A definition of this non-GAAP measure is provided on page 9.
Final dividend
The Board is recommending a final dividend, subject to shareholder approval, of 7.0 pence per share on the ordinary share capital of the Group, payable on 26 May 2017 to ordinary shareholders on the register at the close of business on 5 May 2017. Together with the interim dividend of 4.0 pence per share paid on 25 November 2016, this final dividend, if approved by shareholders, brings the total distribution for the year to 11.0 pence per share (2015: 11.0 pence). A total dividend of 11.0 pence per share represents a dividend cover of headline EPS* 2.1 times in 2016.
Glossary of terms
Book-to-bill ratio The Book-to-bill ratio is the ratio of
orders received to sales in the period.
Cash flow from operations* Cash generated from operations before cash
flows from restructuring costs and other
items.
Constant currency Constant currency revenue and Group headline
operating profit is derived by translating
the prior year results at current year
average exchange rates.
Corporate costs Corporate costs consist of the cost of
the central head office.Cf s of the cost
of central head officeiceo the relevant
GAAP measure, are provided on and across
all levels of the Group.
Free cash flow before Cash generated from operations less net
acquisitions and dividends* capital expenditure, net interest paid
and tax paid.
Group earnings before EBITA is defined as operating profit before
interest, tax and amortisation specific adjusting items and amortisation
(EBITA)* of intangible assets.
Segment - Divisional and global business
unit - EBITA is stated before unallocated
corporate costs.
Group earnings before EBITDA is defined as operating profit before
interest, tax, depreciation specific adjusting items, amortisation
and amortisation (EBITDA)* of intangible assets, restructuring costs
and other items, and depreciation.
Group headline operating Operating profit adjusted to exclude specific
profit* adjusting items and amortisation of intangible
assets.
Headline earnings per Headline earnings per share is defined
share (EPS)* as operating profit adjusted to exclude
specific adjusting items and amortisation
of intangible assets, plus share of profit
of associate less net financing costs,
income tax expense and non-controlling
interests, divided by the weighted average
number of ordinary shares during the period.
Net debt* Interest-bearing loans and borrowings,
bank overdrafts less cash and cash equivalents.
Net debt to EBITDA This is calculated as net debt divided
ratio* by EBITDA for the year.
Restructuring costs Include the costs of restructuring activity
and other items and gain on disposal of property.
Specific adjusting Items disclosed separately due to their
items nature and value to allow the reader to
obtain a proper understanding of the financial
information and the best indication of
underlying performance of the Group.
CONSOLIDATED INCOME
STATEMENT
for the year ended 31
December
2016
Results Results
before specific Specific before specific Specific
adjusting adjusting adjusting adjusting
items items(1) Total items items(1) Total
2016 2016 2016 2015 2015 2015
Note GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ---------- -------- ----------------- ---------- --------
Revenue 2 989.2 - 989.2 911.8 - 911.8
Operating costs before
restructuring
costs and other items and
amortisation/impairment
of intangible assets (871.3) - (871.3) (802.2) - (802.2)
Profit from operations
before
restructuring costs and
other
items and
amortisation/impairment
of intangible assets 117.9 - 117.9 109.6 - 109.6
Restructuring costs and
other
items:
Restructuring costs (1.5) - (1.5) (4.1) (1.5) (5.6)
Net pension
settlement credit - 6.8 6.8 - - -
Business exit costs - - - - (2.8) (2.8)
Impairment of
property, plant
and equipment - - - - (5.9) (5.9)
Gain on disposal of
properties 0.5 - 0.5 0.5 - 0.5
----------------- ---------- -------- ----------------- ---------- --------
Profit from operations
before
amortisation/impairment
of intangible
assets 2 116.9 6.8 123.7 106.0 (10.2) 95.8
Amortisation of intangible
assets (7.9) - (7.9) (7.1) - (7.1)
Impairment of intangible
assets - (8.5) (8.5) - (5.8) (5.8)
----------------- ---------- -------- ----------------- ---------- --------
Operating profit 2 109.0 (1.7) 107.3 98.9 (16.0) 82.9
Finance income 2.3 - 2.3 2.5 - 2.5
Finance expense (22.3) - (22.3) (20.6) - (20.6)
----------------- ---------- -------- ----------------- ---------- --------
Net financing costs 4 (20.0) - (20.0) (18.1) - (18.1)
Loss on disposal of
business 3 - - - - (6.1) (6.1)
Share of profit of
associate
(net of income tax) 0.6 - 0.6 0.3 - 0.3
----------------- ---------- -------- ----------------- ---------- --------
Profit before taxation 89.6 (1.7) 87.9 81.1 (22.1) 59.0
Income tax expense 5 (26.6) (2.8) (29.4) (24.2) 3.3 (20.9)
Profit for the period 63.0 (4.5) 58.5 56.9 (18.8) 38.1
----------------- ---------- -------- ----------------- ---------- --------
Profit for period
attributable
to:
Owners of the parent 56.8 (4.5) 52.3 52.3 (18.4) 33.9
Non-controlling
interests 6.2 - 6.2 4.6 (0.4) 4.2
63.0 (4.5) 58.5 56.9 (18.8) 38.1
----------------- ---------- -------- ----------------- ---------- --------
1. Details of 'Specific adjusting items' are given in note 3.
CONSOLIDATED INCOME STATEMENT (continued)
for the year ended 31 December
2016
Total Total
Note 2016 2015
--------- -------
Basic earnings per share 6
Continuing operations 18.4p 11.9p
Diluted earnings per share
Continuing operations 18.3p 11.9p
Dividends
Interim dividend Pence 4.00p 4.00p
GBPm 11.4 11.4
Proposed final dividend Pence 7.00p 7.00p
GBPm 20.0 20.0
The proposed final dividend is based upon the number of shares outstanding at the balance sheet date.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2016
Total
parent Non- Total
Translation Hedging Retained comprehensive controlling comprehensive
reserve reserve earnings income interests income
GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- --------- -------------- ------------ --------------
2015
Profit for the period - - 33.9 33.9 4.2 38.1
------------ -------- --------- -------------- ------------ --------------
Items that will not be reclassified
subsequently
to profit or loss:
Remeasurement gain on defined
benefit plans - - 1.3 1.3 - 1.3
Tax effect of components of other
comprehensive
income not reclassified - - (0.9) (0.9) - (0.9)
------------ -------- --------- -------------- ------------ --------------
- - 0.4 0.4 - 0.4
------------ -------- --------- -------------- ------------ --------------
Items that may be reclassified
subsequently
to profit or loss:
Foreign exchange translation
differences (5.0) - - (5.0) 0.6 (4.4)
Net gain on hedge of net investment
in foreign
subsidiaries 2.0 - - 2.0 - 2.0
Cash flow hedges:
Change in fair value - (0.1) - (0.1) - (0.1)
(3.0) (0.1) - (3.1) 0.6 (2.5)
------------ -------- --------- -------------- ------------ --------------
Total comprehensive income, net of
tax (3.0) (0.1) 34.3 31.2 4.8 36.0
------------ -------- --------- -------------- ------------ --------------
2016
Profit for the period - - 52.3 52.3 6.2 58.5
------------ -------- --------- -------------- ------------ --------------
Items that will not be reclassified
subsequently
to profit or loss:
Remeasurement loss on defined
benefit plans - - (68.1) (68.1) - (68.1)
Tax effect of components of other
comprehensive
income not reclassified - - 0.6 0.6 - 0.6
------------ -------- --------- -------------- ------------ --------------
- - (67.5) (67.5) - (67.5)
------------ -------- --------- -------------- ------------ --------------
Items that may be reclassified
subsequently
to profit or loss:
Foreign exchange translation
differences 37.4 - - 37.4 5.5 42.9
Net loss on hedge of net investment
in foreign
subsidiaries (17.7) - - (17.7) - (17.7)
Cash flow hedges:
Change in fair value - (3.7) - (3.7) - (3.7)
Transferred to profit or
loss - 0.8 - 0.8 - 0.8
19.7 (2.9) - 16.8 5.5 22.3
------------ -------- --------- -------------- ------------ --------------
Total comprehensive income, net of
tax 19.7 (2.9) (15.2) 1.6 11.7 13.3
------------ -------- --------- -------------- ------------ --------------
CONSOLIDATED BALANCE SHEET
as at 31 December 2016
2016 2015
Note GBPm GBPm
---------- ------------
Assets
Property, plant and equipment 303.7 256.7
Intangible assets 240.4 229.8
Investments 6.0 5.4
Other receivables 4.7 5.3
Deferred tax assets 6.1 4.4
Total non-current assets 560.9 501.6
---------- ------------
Inventories 148.2 129.2
Derivative financial assets 2.1 2.0
Trade and other receivables 205.7 174.4
Cash and cash equivalents 7 122.4 49.8
Total current assets 478.4 355.4
---------- ------------
Total assets 1,039.3 857.0
---------- ------------
Liabilities
Interest-bearing loans and borrowings 7 204.0 257.4
Employee benefits: pensions 8 271.1 204.5
Provisions 2.3 1.6
Non-trade payables 1.8 0.7
Derivative financial liabilities 0.3 -
Deferred tax liabilities 8.3 2.3
Total non-current liabilities 487.8 466.5
---------- ------------
Interest-bearing loans and borrowings
and bank overdrafts 7 160.9 8.4
Trade and other payables 192.5 168.6
Current tax payable 16.6 14.4
Provisions 5.8 10.4
Derivative financial liabilities 11.0 2.3
Total current liabilities 386.8 204.1
---------- ------------
Total liabilities 874.6 670.6
---------- ------------
Total net assets 164.7 186.4
---------- ------------
Equity
Share capital 71.8 71.8
Share premium 111.7 111.7
Reserves 46.8 30.0
Retained earnings (109.5) (63.7)
Total equity attributable to equity
owners of parent Company 120.8 149.8
Non-controlling interests 43.9 36.6
---------- ------------
Total equity 164.7 186.4
---------- ------------
The financial statements were approved by the Board of Directors
on 23 February 2017 and were signed on its behalf by:
Pete Raby, Chief Executive Officer Peter Turner, Chief Financial
Officer
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
for the year ended 31 December 2016
Fair Capital Total Non-
Share Share Translation Hedging value redemption Other Retained parent controlling Total
capital premium reserve Reserve reserve reserve reserves earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- -------------- -------- -------- ------------- --------- --------- ------- -------------- -------
Balance at 1 January 2015 71.8 111.7 (13.5) 0.5 (1.0) 35.7 11.4 (65.4) 151.2 36.5 187.7
Profit for the year - - - - - - - 33.9 33.9 4.2 38.1
Other comprehensive income - - (3.0) (0.1) - - - 0.4 (2.7) 0.6 (2.1)
Transactions with owners:
Dividends - - - - - - - (31.4) (31.4) (3.8) (35.2)
Equity-settled share-based
payment
transactions - - - - - - - 1.7 1.7 - 1.7
Own shares acquired for share
incentive
schemes - - - - - - - (2.9) (2.9) - (2.9)
Adjustment arising from change
in non-controlling interest - - - - - - - - - (0.9) (0.9)
Balance at 31 December 2015 71.8 111.7 (16.5) 0.4 (1.0) 35.7 11.4 (63.7) 149.8 36.6 186.4
-------- -------- -------------- -------- -------- ------------- --------- --------- ------- -------------- -------
Balance at 1 January 2016 71.8 111.7 (16.5) 0.4 (1.0) 35.7 11.4 (63.7) 149.8 36.6 186.4
Profit for the year - - - - - - - 52.3 52.3 6.2 58.5
Other comprehensive income - - 19.7 (2.9) - - - (67.5) (50.7) 5.5 (45.2)
Transactions with owners:
Dividends - - - - - - - (31.2) (31.2) (4.4) (35.6)
Equity-settled share-based
payment
transactions - - - - - - - 0.8 0.8 - 0.8
Own shares acquired for share
incentive
schemes - - - - - - - (0.2) (0.2) - (0.2)
Balance at 31 December 2016 71.8 111.7 3.2 (2.5) (1.0) 35.7 11.4 (109.5) 120.8 43.9 164.7
-------- -------- -------------- -------- -------- ------------- --------- --------- ------- -------------- -------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2016
2016 2015(1)
Note GBPm GBPm
-------- ------------
Operating activities
Profit for the period 58.5 38.1
Adjustments for:
Depreciation 2 29.5 27.1
Amortisation 2 7.9 7.1
Net financing costs 4 20.0 18.1
Loss on disposal of business 3 - 6.1
Share of profit from associate (net of
income tax) (0.6) (0.3)
Profit on sale of property, plant and equipment (0.4) (0.4)
Income tax expense 5 29.4 20.9
Non-cash operating costs relating to restructuring - 0.2
Non-cash specific adjusting items included
in operating profit 1.1 15.5
Equity-settled share-based payment expenses 0.8 1.4
-------- ------------
Cash generated from operations before changes
in working capital and provisions 146.2 133.8
(Increase)/decrease in trade and other receivables (6.1) 15.5
Decrease/(increase) in inventories 1.4 (4.7)
(Decrease)/increase in trade and other payables (0.1) 5.7(1)
Decrease in provisions (5.2) (3.4)
Payments to defined benefit pension plans (14.5) (13.0)
-------- ------------
Cash generated from operations 121.7 133.9
Interest paid (15.3) (13.4)
Income tax paid (22.2) (29.9)
-------- ------------
Net cash from operating activities 84.2 90.6
-------- ------------
Investing activities
Purchase of property, plant and equipment (39.5) (63.5)
Forward contracts used in net investment
hedging (12.3) 4.9
Purchase of investments (1.0) -
Proceeds from sale of property, plant and
equipment 1.1 0.8
Loan repaid by associate 2.1 -
Interest received 2.2 2.2
Loan made to purchaser of business - (1.5)
Disposal of subsidiaries, net of cash disposed - (0.1)
Investment made by non-controlling interests - 0.5
Net cash from investing activities (47.4) (56.7)
-------- ------------
Financing activities
Purchase of own shares for share incentive
schemes (0.2) (2.9)
Net increase/(decrease) in borrowings 7 63.4 (8.5)
Payment of finance lease liabilities 7 (0.3) (0.2)
Dividends paid to external plc shareholders (31.4) (31.4)
Proceeds from unclaimed dividends 0.2 -
Dividends paid to non-controlling interests (4.4) (3.8)(1)
-------- ------------
Net cash from financing activities 27.3 (46.8)
-------- ------------
Net increase in cash and cash equivalents 64.1 (12.9)
Cash and cash equivalents at start of period 49.8 63.0
Effect of exchange rate fluctuations on
cash held 8.5 (0.3)
Cash and cash equivalents at period end 7 122.4 49.8
-------- ------------
A reconciliation of cash and cash equivalents to net borrowings is shown
in note 7.
1. 2015 has been re-presented for the reclassification of GBP3.8 million
of dividends paid to non-controlling interests from '(decrease)/increase
in trade and other payables' to 'dividends paid to non-controlling interests'.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Basis of preparation
The preliminary announcement for the year ended 31 December 2016 has been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the European Union and
as issued by the International Accounting Standards Board. There has been no 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 2016 or 31 December 2015. Statutory accounts for
the year ended 31 December 2015 have been delivered to the registrar of companies, and those
for the year ended 31 December 2016 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 2016 and 2015.
Going Concern
The Group meets its day-to-day working capital requirements through local banking arrangements
underpinned by the Group's GBP200 million unsecured multi-currency revolving credit facility
maturing October 2019. The Group's forecasts and projections, taking account of reasonably
possible changes in trading performance and exchange rates, show the Group operating comfortably
within its debt financial covenants for the next 12 months.
The current economic climate continues to have an impact on the Group, its customers and suppliers.
The Board fully recognises the challenges that lie ahead but, after making enquiries, the
Directors have a reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the consolidated statements for the year ended
31 December 2016.
Non-GAAP measures
Where non-GAAP measures have been referenced these have been identified by an asterisk (*).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Segment reporting
The Group reports as two Divisions and six 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, loans and borrowings and related expenses, corporate assets
and head office expenses, and income tax assets and liabilities.
Segment totals Corporate costs Group
2016 2015(2) 2016 2015(2) 2016 2015(2)
GBPm GBPm GBPm GBPm GBPm GBPm
-------- ---------- --------- ---------- ---------- --------
Revenue from external customers 989.2 911.8 - - 989.2 911.8
-------- ---------- --------- ---------- ---------- --------
Divisional EBITA* 123.3 114.8 - - 123.3 114.8
-------- ----------
Corporate costs (5.4) (5.2) (5.4) (5.2)
--------- ---------- ---------- --------
Group EBITA* 117.9 109.6
Restructuring costs and other
items 0.2 (2.2) (1.2) (1.4) (1.0) (3.6)
-------- ---------- --------- ---------- ---------- --------
Group headline operating profit* 116.9 106.0
Amortisation of intangible assets (7.9) (7.1) - - (7.9) (7.1)
-------- ---------- --------- ---------- ---------- --------
Operating profits before specific
adjusting items 109.0 98.9
Specific adjusting items included
in operating profit(1) (8.5) (16.0) 6.8 - (1.7) (16.0)
-------- ---------- --------- ---------- ---------- --------
Operating profit/(loss) 107.1 89.5 0.2 (6.6) 107.3 82.9
-------- ---------- --------- ----------
Finance income 2.3 2.5
Finance expense (22.3) (20.6)
Loss on disposal of business - (6.1)
Share of profit of associate
(net of income tax) 0.6 0.3
---------- --------
Profit before taxation 87.9 59.0
---------- --------
Segment assets 904.9 795.9 134.4 61.1 1,039.3 857.0
-------- ---------- --------- ---------- ---------- --------
Segment liabilities 189.1 169.4 685.6 501.2 874.7 670.6
-------- ---------- --------- ---------- ---------- --------
Segment capital expenditure 39.5 63.5 - - 39.5 63.5
-------- ---------- --------- ---------- ---------- --------
Segment depreciation 29.5 27.1 - - 29.5 27.1
-------- ---------- --------- ---------- ---------- --------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Segment reporting (continued)
Thermal Molten Thermal Electrical Seals and Technical Carbon & Composites Segment
Ceramics Metal Systems Products Carbon Bearings Ceramics Technical & Defence totals
Division Ceramics Systems
Division
2016 2015(2) 2016 2015(2) 2016 2015(2) 2016 2015(2) 2016 2015(2) 2016 2015(2) 2016 2015(2) 2016 2015(2) 2016 2015(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Revenue 413.3 372.4 43.5 39.7 456.8 412.1 156.2 145.6 97.7 88.6 248.1 237.8 502.2 472.0 30.4 27.7 989.2 911.8
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Divisional
EBITA* 55.0 55.2 6.7 5.3 61.7 60.5 19.7 19.3 14.2 9.9 26.6 26.1 60.5 55.3 1.1 (1.0) 123.3 114.8
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Restructuring
costs and
other items 0.1 (0.1) - - 0.1 (0.1) (0.1) (0.7) 0.1 (0.7) - (0.4) - (1.8) 0.1 (0.3) 0.2 (2.2)
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Amortisation
of intangible
assets (1.5) (1.8) (0.1) (0.2) (1.6) (2.0) (0.4) (0.3) (0.3) (0.2) (4.2) (2.7) (4.9) (3.2) (1.4) (1.9) (7.9) (7.1)
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Specific
adjusting
items
included in
operating
profit(1) - (2.8) - - - (2.8) - (3.9) - (3.5) - - - (7.4) (8.5) (5.8) (8.5) (16.0)
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Operating
profit/(loss) 53.6 50.5 6.6 5.1 60.2 55.6 19.2 14.4 14.0 5.5 22.4 23.0 55.6 42.9 (8.7) (9.0) 107.1 89.5
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Segment assets 417.8 359.4 42.2 38.1 460.0 397.5 154.9 132.4 86.1 74.0 188.1 169.4 429.1 375.8 15.8 22.6 904.9 795.9
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Segment
liabilities 88.5 74.6 7.5 7.0 96.0 81.6 30.0 27.4 18.2 16.0 37.0 35.0 85.2 78.4 7.9 9.4 189.1 169.4
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Segment
capital
expenditure 17.7 24.4 2.1 2.3 19.8 26.7 8.3 19.8 4.4 5.8 6.5 10.7 19.2 36.3 0.5 0.5 39.5 63.5
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
Segment
depreciation 10.8 9.7 1.7 1.5 12.5 11.2 4.9 4.5 4.3 4.1 7.3 6.9 16.5 15.5 0.5 0.4 29.5 27.1
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ ----------
1. Details of 'specific adjusting items' are given in note 3.
2. The information presented above represents the operating segments of the Group. The tables above show restated comparative figures for the operating segments for 2015. The restatements reflect the impact of the changes the Group made to its internal organisation during 2016, which caused the composition of its reportable segments to change.
During 2016 the Group recognised impairment losses totalling GBP8.5 million in the Composite and Defence
Systems reportable operating segment, which has been recognised in the 'Impairment of intangible assets'
line of the income statement. During 2015 the Group recognised impairment losses totalling GBP3.5 million
in the Seals & Bearings reportable operating segment and GBP2.4 million in the Electrical Carbon reportable
operating segment, which has been recognised in the 'Impairment of property, plant and equipment' line
of the income statement, impairment losses totalling GBP5.8 million in the Composite and Defence Systems
reportable operating segment, which has been recognised in the 'Impairment of intangible assets' line
of the income statement and further impairment losses totalling GBP0.7 million in the Electrical Carbon
reportable operating segment, which has been recognised in 'Restructuring costs' line of the income statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Segment reporting (continued)
Revenue from Non-current assets
external customers (excluding tax
and financial
instruments)
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
---------------- ------------- -------- ----------------
USA 342.5 323.8 215.0 186.5
China 82.9 75.7 66.1 56.8
Germany 74.5 64.6 50.5 44.5
UK (the Group's country of domicile) 67.6 64.0 120.6 129.7
France 31.2 29.9 14.9 17.3
Other Asia, Australasia, Middle
East and Africa 186.2 162.9 50.8 30.4
Other Europe 140.8 130.8 21.3 18.4
Other North America 31.6 32.2 5.6 5.4
South America 31.9 27.9 10.0 8.2
---------------- ------------- -------- ----------------
989.2 911.8 554.8 497.2
---------------- ------------- -------- ----------------
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 greater than 10% of revenue.
Segment revenue by product
2016 2015
GBPm GBPm
---------------- -------------
Industrial 449.2 398.3
Transportation 214.3 197.9
Petrochemical 84.2 79.5
Energy 66.2 61.7
Security and Defence 62.6 58.6
Electronics 57.2 63.7
Healthcare 55.5 52.1
---------------- -------------
989.2 911.8
---------------- -------------
Intercompany sales to other segments
Thermal Molten Metal Thermal Products Electrical Seals and Technical Carbon & Composites
Ceramics Systems Division Carbon Bearings Ceramics Technical &
Ceramics Defence Systems
Division
2016 2015(1) 2016 2015(1) 2016 2015(1) 2016 2015(1) 2016 2015(1) 2016 2015(1) 2016 2015(1) 2016 2015(1)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- ---------- ----- ----------- -------- ---------- ------- ---------- ----- ---------- ----- ---------- ----- ---------- ------- --------------
Intercompany
sales 0.1 0.3 0.1 0.1 0.2 0.4 1.0 0.8 0.4 0.5 0.2 0.3 1.6 1.6 - -
----- ---------- ----- ----------- -------- ---------- ------- ---------- ----- ---------- ----- ---------- ----- ---------- ------- --------------
1. The information presented above represents the operating segments of the Group. The tables above show restated comparative figures for the operating segments for 2015. The restatements reflect the impact of the changes the Group made to its internal organisation during 2016, which caused the composition of its reportable segments to change.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Specific adjusting items
The Group separately presents specific adjusting items in the consolidated income statement which,
in the Directors' judgment, need to be disclosed separately by virtue of their size and incidence
in order for users of the consolidated financial statements to obtain a proper understanding of
the financial information and the underlying performance of the business. These include the financial
effect of items which occur infrequently, such as major individual restructuring projects.
In 2016 and 2015 restructuring costs related to a major individual project, net pension settlement
credit, business exit costs, impairment of plant, property and equipment, impairment of intangible
assets and net loss on disposal of businesses are included as specific adjusting items as they
meet this criteria.
2016 2015
GBPm GBPm
------ ------
Specific adjusting items:
Restructuring costs - 1.5
Net pension settlement credit (6.8) -
Business exit costs - 2.8
Impairment of property, plant and
equipment - 5.9
Impairment of intangible assets 8.5 5.8
Net loss on disposal of businesses - 6.1
------ ------
Total specific adjusting items before
income
tax charge/(credit) 1.7 22.1
Income tax charge/(credit) from
specific
adjusting items 2.8 (3.3)
Total specific adjusting items after income
tax charge/(credit) 4.5 18.8
------ ------
2016
Net pension settlement credit
The Group has completed the final termination and payment of all earned benefits for one of its
North American Defined Benefit Plans.
The Group has also completed a one-time lump-sum cash out payment to certain former, deferred and
vested employees of the Morgan US Employees' Retirement Plan in settlement of the benefits promised
by the Group.
As a result of these changes the Group has recognised a net pension settlement credit of GBP6.8
million, after deduction of transaction costs. An income tax charge of GBP2.8 million was recognised
in respect of the net pension settlement credit.
Impairment of intangible assets
As a result of the continued reduction in demand in the defence market, a review of the carrying
value of the remaining intangible assets of Composites and Defence Systems resulted in an impairment
charge of GBP8.5 million, relating to a full impairment of the Composites and Defence Systems technology
intangible asset. This impairment was calculated by looking at the fair value of the assets less
cost of disposal.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Specific adjusting items (continued)
2015
Restructuring costs
As reported in 2014, the strategic objective to drive the performance of the Electrical Carbon
and Seals and Bearings businesses to mid-teen margins and beyond has resulted in the Group undertaking
a significant rationalisation of the carbon material footprint. This started in 2014 with the downsizing
of activities at the Swansea, UK site. This footprint rationalisation has continued in 2015 with
the decision to and the announcement of the cessation of carbon material manufacturing at the Shanghai,
China site. These operations will be consolidated into other Group locations, mainly the USA. This
decision has resulted in a charge of GBP1.5 million in 2015, GBP0.7 million of which relates to
the impairment loss on plant and equipment and the balance to site clean-up costs and other write-offs.
An income tax credit of GBP0.2 million was recognised in respect of these restructuring costs.
Business exit costs
The business exit costs in 2015 relate to the deconsolidation of Thermal Ceramics Sukhoy Log Limited
Liability Company ('Sukhoy') and the subsequent remeasurement to fair value of the retained investment.
In April 2006 the Group acquired a 51% shareholding in Sukhoy, a fibre business based near Yekaterinburg,
Russia. The results and assets of Sukhoy have previously been consolidated on the basis that the
Group was satisfied that it exercised management control. During 2015 there has been a deterioration
in the relationship between Morgan and the minority partner, exacerbated by the increasingly difficult
market conditions in Russia. As a result, it became clear to the Group towards the end of 2015
that it no longer had effective control of the business and that it was no longer appropriate to
consolidate. Based on the recent financial performance and the Group's view of the future prospects
of the business it was concluded that the value of the Group's investment in Sukhoy is nil. As
a result the Group has recognised a GBP2.8 million charge in business exit costs in the 2015 accounts.
Impairment of property, plant and equipment
The impairment of property, plant and equipment in 2015 is as a result of a review of the carrying
value of assets that support the Group's North America vehicle and personal protection and high-temperature
furnace-lining businesses. Both of these businesses saw significant growth and investment in previous
years but more recently they have been in decline. The Group has compared its expected future cash
flows from these businesses with the book value of the property, plant and equipment that is dedicated
to them and determined that a total impairment charge of GBP5.9 million is required. An income tax
credit of GBP2.1 million was recognised in respect of the impairment charge. The GBP5.9 million
of impairment loss forms part of the total plant and equipment impairment loss of GBP6.6 million.
Impairment of intangible assets
As a result of the continued reduction in demand on Composites and Defence Systems from UK MoD, the review of the carrying value of the remaining intangible assets of Composites and Defence Systems resulted in a further impairment charge of GBP5.8 million in 2015, relating to a full impairment of the customer relationships. Following this impairment charge, the carrying value of the Composites and Defence Systems intangibles was GBP9.8 million, all in respect of technology. This was supported by the current expectations of the future trading performance of the Composites and Defence Systems business. An income tax credit of GBP1.0 million was recognised in respect of the impairment charge. Loss on disposal of business As reported in the 2014 Annual Report and Accounts, on 30 January 2015 the Group completed the sale of a Thermal Ceramics business in Wissembourg, France. This business manufactures low-temperature fibre boards used mainly in the building industry. The Group has incurred a loss on the disposal of this business of GBP6.1 million in 2015, in addition to the GBP1.9 million of business exit costs recognised in the 2014 accounts.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Net finance income and expense
2016 2015
GBPm GBPm
------- ------------
Recognised in profit or loss
Amounts derived from financial instruments 0.3 1.0
Interest income on bank deposits measured
at amortised cost 2.0 1.5
Finance income 2.3 2.5
------- ------------
Interest expense on financial liabilities
measured at amortised cost (15.2) (13.7)
Net interest on IAS 19 obligations (7.1) (6.9)
Finance expense (22.3) (20.6)
------- ------------
Net financing costs recognised in profit
or loss (20.0) (18.1)
------- ------------
Recognised directly in equity
Cash flow hedges:
Effective portion of changes in fair
value
of cash flow hedges (3.7) (0.1)
Transferred to profit or loss 0.8 -
Effective portion of change in fair value
of net investment hedge (17.7) 2.0
Foreign currency translation differences
for foreign operations 37.4 (5.0)
16.8 (3.1)
------- ------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Taxation - income tax expense
Recognised in the income statement
2016 2015
GBPm GBPm
------ ------
Current tax
Current year 27.8 22.2
Adjustments for prior years (3.3) (4.9)
24.5 17.3
------ ------
Deferred tax
Current year 1.6 1.7
Adjustments for prior years 3.3 1.9
------ ------
4.9 3.6
------ ------
Total income tax expense in income statement 29.4 20.9
------ ------
Reconciliation of effective tax rate 2016 2016 2015 2015
GBPm % GBPm %
Profit before tax 87.9 59.0
Income tax using the domestic corporation tax rate 17.6 20.0 11.9 20.2
Effect of different tax rates in other jurisdictions 8.8 10.0 6.9 11.7
Local taxes including withholding tax suffered 3.3 3.7 3.1 5.3
Permanent differences 1.5 1.7 1.6 2.7
Movements related to unrecognised temporary differences (1.5) (1.7) 1.6 2.7
Adjustments in respect of prior years - - (3.0) (5.1)
Other (0.3) (0.3) (1.2) (2.0)
29.4 33.4 20.9 35.5
-------- ------ ------ ------
Income tax recognised directly in equity
Tax effect on components of other comprehensive income:
Deferred tax associated with defined benefit schemes
and share schemes (0.6) 0.9
Total tax recognised directly in equity (0.6) 0.9
-------- ------
The effective rate of tax before specific adjusting items is 29.7% (2015: 29.8%).
The prior year adjustments in 2016 principally relate to the true up of tax provisions to tax
returns and includes the release of a tax provision whilst the prior year adjustments in 2015
are mainly in respect of true up of tax provisions to tax returns and settlement of tax audits.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Earnings per share
The calculation of basic/diluted earnings per share from continuing operations at 31 December 2016
was based on the net profit attributable to equity shareholders of GBP52.3 million (2015: GBP33.9
million), and a weighted average number of shares outstanding during the year of 284.9 million (2015:
285.1 million). 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.
Headline earnings per ordinary 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 that they give a better indication of headline performance.
The diluted earnings per share calculation takes into account the dilutive effect of share incentives.
The diluted, weighted average number of shares is 285.1 million
(2015: 285.5 million). Diluted earnings per share is 18.3 pence (2015: 11.9 pence).
2016 2015
GBPm GBPm
--------- ----------
Profit for the period attributable
to equity shareholders 52.3 33.9
Specific adjusting items 1.7 22.1
Amortisation of intangible assets 7.9 7.1
Tax effect of the above 2.8 (3.3)
Non-controlling interests' share of
the above adjustments - (0.4)
--------- ----------
Adjusted profit for the period 64.7 59.4
--------- ----------
2016 2015
pence pence
--------- ----------
Earnings per ordinary share 18.4p 11.9p
Specific adjusting items 0.6p 7.7p
Amortisation of intangible assets 2.7p 2.5p
Tax effect of the above 1.0p (1.2)p
Non-controlling interests' share of
the above adjustments - (0.1)p
--------- ----------
Headline earnings per share(*) 22.7p 20.8p
--------- ----------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Cash and cash equivalents
2016 2015
GBPm GBPm
--------- --------
Bank balances 61.4 38.8
Cash deposits 61.0 11.0
--------- --------
Cash and cash equivalents 122.4 49.8
--------- --------
Reconciliation of cash and cash equivalents
to net debt*
2016 2015
GBPm GBPm
--------- --------
Opening borrowings (265.8) (270.0)
Net (increase)/decrease in
borrowings(1) (63.4) 8.5
Payment of finance lease liabilities 0.3 0.2
Effect of movements in foreign
exchange
on borrowings (36.0) (4.5)
--------- --------
Closing borrowings (364.9) (265.8)
Cash and cash equivalents 122.4 49.8
--------- --------
Closing net debt(*) (242.5) (216.0)
--------- --------
1. The increase in borrowings in 2016 principally comprises the currency equivalent of GBP146 million
of new private placement debt received in October 2016 less
GBP76 million repaid under the Group's revolving credit facility.
In October 2016 the Group completed a new US private placement amounting to $112 million and EUR60 million. The new debt extends the Group's debt maturity profile
and the proceeds will be used for repayment of the Notes falling due in 2017.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Cash and cash equivalents (continued)
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Carrying amount Fair value Carrying amount Fair value
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
---------------- ----------- ---------------- -----------
Financial assets and liabilities at amortised cost
4.32% Euro Senior Notes 2017 (17.3) (17.5) (14.9) (15.5)
6.12% US Dollar Senior Notes 2017 (142.1) (146.3) (118.8) (125.5)
6.26% US Dollar Senior Notes 2019 (60.8) (65.4) (50.9) (56.0)
1.18% Euro Senior Notes 2023 (21.3) (21.0) - -
3.17% US Dollar Senior Notes 2023 (12.2) (11.7) - -
1.55% Euro Senior Notes 2026 (21.4) (20.8) - -
3.37% US Dollar Senior Notes 2026 (79.0) (73.1) - -
1.74% Euro Senior Notes 2028 (8.6) (8.3) - -
Bank and other loans (1.3) (1.3) (80.2) (80.2)
Obligations under finance leases (0.9) (0.9) (1.0) (1.0)
Trade and other payables (100.5) (100.5) (96.1) (96.1)
Loans and receivables 184.5 184.5 155.9 155.9
Cash and cash equivalents 122.4 122.4 49.8 49.8
---------------- ----------- ---------------- -----------
(158.5) (159.9) (156.2) (168.6)
Available-for-sale financial instruments
Available-for-sale financial assets 0.5 0.5 0.5 0.5
---------------- ----------- ---------------- -----------
Derivatives and other items at fair value
Forward exchange contracts used for hedging (2.0) (2.0) 0.5 0.5
Cross-currency swaps used for hedging (7.2) (7.2) (0.8) (0.8)
---------------- ----------- ---------------- -----------
(167.2) (168.6) (156.0) (168.4)
---------------- ----------- ---------------- -----------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Employee benefits: pensions
2016 2016 2016 2016 2016
UK USA Europe Rest of Total
World
GBPm GBPm GBPm GBPm GBPm
-------- -------- ------- -------- --------
Pension plans and employee benefits
Present value of unfunded defined benefit obligations - (9.4) (35.9) (2.5) (47.8)
Present value of funded defined benefit obligations (588.7) (146.5) (2.0) (9.8) (747.0)
Fair value of plan assets 408.2 106.9 0.4 8.2 523.7
-------- -------- ------- -------- --------
Net obligations (180.5) (49.0) (37.5) (4.1) (271.1)
-------- -------- ------- -------- --------
Movements in present value of defined benefit obligation
At 1 January 2016 (500.9) (178.9) (28.7) (14.9) (723.4)
Current service cost (1.9) (0.1) (0.7) (1.6) (4.3)
Interest cost (18.1) (7.7) (0.7) (0.3) (26.8)
Remeasurement gains/(losses)
Changes in financial assumptions 14.4 4.4 (0.3) (2.2) 16.3
Changes in demographic assumptions (105.6) (11.2) (3.8) - (120.6)
Experience adjustments on benefit obligations 4.9 4.8 - - 9.7
Benefits paid 19.2 9.1 1.1 1.6 31.0
Contributions by members (0.7) - - - (0.7)
Curtailments and settlements - 53.4 - 6.4 59.8
Exchange adjustments - (29.7) (4.8) (1.3) (35.8)
-------- -------- ------- -------- --------
At 31 December 2016 (588.7) (155.9) (37.9) (12.3) (794.8)
-------- -------- ------- -------- --------
Movements in fair value of plan assets
At 1 January 2016 383.5 123.8 0.4 11.2 518.9
Interest on plan assets 14.0 5.4 - 0.3 19.7
Remeasurement gains 21.1 3.4 0.1 2.0 26.6
Contributions by employer 9.0 8.7 1.0 2.1 20.8
Contributions by member 0.7 - - - 0.7
Benefits paid (19.2) (9.1) (1.1) (1.6) (31.0)
Administrative expenses (0.9) - - - (0.9)
Curtailments and settlements - (45.9) - (6.5) (52.4)
Exchange adjustments - 20.6 - 0.7 21.3
-------- -------- ------- -------- --------
At 31 December 2016 408.2 106.9 0.4 8.2 523.7
-------- -------- ------- -------- --------
Actual return on assets 35.1 8.8 0.1 2.3 46.3
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Employee benefits: pensions (continued)
2015 2015 2015 2015 2015
UK USA Europe Rest of Total
World
GBPm GBPm GBPm GBPm GBPm
-------- -------- ------- -------- --------
Pension plans and employee benefits
Present value of unfunded defined benefit obligations - (8.3) (27.2) (1.9) (37.4)
Present value of funded defined benefit obligations (500.9) (170.6) (1.5) (13.0) (686.0)
Fair value of plan assets 383.5 123.8 0.4 11.2 518.9
-------- -------- ------- -------- --------
Net obligations (117.4) (55.1) (28.3) (3.7) (204.5)
-------- -------- ------- -------- --------
Movements in present value of defined benefit obligation
At 1 January 2015 (512.4) (178.8) (32.1) (14.0) (737.3)
Current service cost (2.5) - (0.6) (1.2) (4.3)
Interest cost (18.2) (7.1) (0.5) (0.3) (26.1)
Remeasurement gains/(losses)
Changes in financial assumptions 6.7 6.6 1.9 - 15.2
Changes in demographic assumptions - - - (0.2) (0.2)
Experience adjustments on benefit obligations 8.8 2.1 (0.2) 0.2 10.9
Benefits paid 17.6 8.3 1.2 0.8 27.9
Contributions by members (0.9) - - - (0.9)
Exchange adjustments - (10.0) 1.6 (0.2) (8.6)
-------- -------- ------- -------- --------
At 31 December 2015 (500.9) (178.9) (28.7) (14.9) (723.4)
-------- -------- ------- -------- --------
Movements in fair value of plan assets
At 1 January 2015 393.6 120.0 0.5 11.4 525.5
Interest on plan assets 14.1 4.9 - 0.2 19.2
Remeasurement losses (16.1) (7.5) - (1.0) (24.6)
Contributions by employer 9.4 7.9 1.1 1.2 19.6
Contributions by member 0.9 - - - 0.9
Benefits paid (17.6) (8.3) (1.2) (0.8) (27.9)
Administrative expenses (0.8) - - - (0.8)
Exchange adjustments - 6.8 - 0.2 7.0
-------- -------- ------- -------- --------
At 31 December 2015 383.5 123.8 0.4 11.2 518.9
-------- -------- ------- -------- --------
Actual return on assets (2.0) (2.6) - (0.8) (5.4)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Employee benefits: pensions (continued)
Actuarial assumptions were:
2016 2016 2016 2016
UK USA Europe Rest of the
World
% % % %
Discount rate 2.62 4.16 1.60 2.90
Inflation (UK: RPI/CPI) 3.20/2.10 n/a 1.70 n/a
Salary increase n/a n/a 2.20 5.00
Pensions increase 3.00/3.10/3.70 n/a 1.70 n/a
Mortality - post retirement:
Life expectancy of a male aged 60 in accounting year 26.8 25.1 23.7 n/a
Life expectancy of a male aged 60 in accounting year + 20 28.7 26.8 26.5 n/a
2015 2015 2015 2015
UK USA Europe Rest of the
World
% % % %
Discount rate 3.70 4.50 2.30 2.90
Inflation (UK: RPI/CPI) 3.00/1.80 n/a 1.70 n/a
Salary increase n/a n/a 2.20 5.0
Pensions increase 2.90/3.10/3.70 n/a 1.70 n/a
Mortality - post retirement:
Life expectancy of a male aged 60 in accounting year 26.6 26.2 23.6 n/a
Life expectancy of a male aged 60 in accounting year + 20 28.2 28.0 26.4 n/a
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. Subsequent events
Since the balance sheet date, the Group has announced the following transactions:
The sale of its global Rotary Transfer Systems business was announced on February 17(th) 2017. The business is principally located at two manufacturing sites; Antweiler, Germany, and Chalon, France. The sale values the business at EUR40 million on a cash-free, debt-free basis, with consideration payable in cash at completion, subject to customary closing working capital adjustments. Completion is subject to customary conditions of closing, including merger clearance in Germany. In the year to 31 December 2016, the Rotary business generated EUR4.7 million of operating profit on EUR19.5 million of sales. Gross assets at 31 December 2016 were EUR7.1 million.
The sale of its UK electro-ceramics business was announced on February 22(nd) 2017. The business comprises two sites at Ruabon and Southampton. The transaction is structured as a sale of the business, assets and goodwill for a consideration of GBP47 million on a cash-free, debt-free basis, payable in cash on completion and subject to customary working capital adjustments.
In the year ended 31 December 2016, UK Electro-Ceramics generated an operating profit of GBP6.2 million on revenues of GBP22.7 million. Gross assets at 31 December 2016 were GBP7.0million.
There have been no further material subsequent events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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(END) Dow Jones Newswires
February 23, 2017 02:00 ET (07:00 GMT)
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