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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 | 302.00 | 303.00 | 303.00 | 299.50 | 301.00 | 400,406 | 13:27:30 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Carbon And Graphite Products | 1.12B | 47.3M | 0.1663 | 18.19 | 860.61M |
From Apr 2019 to Apr 2024
TIDMMGAM
RNS Number : 6373G
Morgan Advanced Materials PLC
25 July 2019
Morgan Advanced Materials
Half-year results for the six months ended 30 June 2019
Hot Features
Premium
Organic
constant-
As reported currency(2)
GBP million 1H 1H change change
unless otherwise stated 2019(1) 2018(1) % %
Headline results
Revenue 525.8 514.4 2.2% 1.0%
Group headline operating profit(2) 67.4 62.4 8.0% 3.1%
Group headline operating profit
margin(2) 12.8% 12.1%
Headline EPS(2) 13.8p 13.4p 3.0%
Interim dividend per share 4.0p 4.0p
Cash generated from continuing operations 61.1 55.2 10.7%
Free cash flow before acquisitions,
disposals and dividends(2) 11.4 20.5
Statutory results
Operating profit 63.3 58.6
Profit before tax 54.7 52.4
Cash generated from operations(3) 60.7 53.5
Continuing EPS(4) 12.4p 12.1p
Continuing and discontinued EPS(4) 12.4p 9.1p
=========================================== ========= ========= ============ =============
1. The Group disposed of the Composites and Defence Systems business in 2018, the disposal group formed the Composites and Defence Systems operating segment and has been classified as a discontinued operation under IFRS 5. In line with the requirements of IFRS 5 all periods presented in these condensed consolidated financial statements are for continuing operations, with separate disclosure of discontinued operations where appropriate. Further details are provided in notes 2 and 7 to the condensed consolidated financial statements.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
3. Cash generated from continuing and discontinued operations.
4. 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 condensed consolidated financial statements.
Highlights
-- Strategy implementation continuing to progress well and remains on track. -- Revenue growth of 1.0% on an organic constant-currency* basis.
-- Group headline operating profit margin* of 12.8% an improvement of 70bps from organic revenue* growth and benefit of efficiency actions.
-- Headline EPS* growth of 3.0% reflecting improvement in operating profit. -- The expectations of profitability for the full year remain unchanged.
Pete Raby - Chief Executive Officer:
'The Group has made good progress during the first half of the year. We are on track with the implementation of our strategy, improving our sales capability, driving new product development and improving operational performance. We have delivered organic constant-currency* revenue growth of 1.0% under more challenging end market conditions and we have expanded our headline operating margin* to 12.8%.
Looking forward into the second half of 2019 there are a number of global headwinds and uncertainties leading to a slowing of industrial markets. Based on our current assessment of business trends and orders, we expect Group revenues to be broadly flat in the second half compared to the prior year. Our expectations of profitability for the full year remain unchanged.'
Strategic progress
The Group has four execution priorities which will continue the implementation of our strategy.
We have made good progress against those priorities in the first half of 2019:
1. Drive sales effectiveness and market focus. The Group is focused on improving a number of aspects of its sales capabilities: sales processes and their efficiency, the management of key customer accounts and distribution channels, and deeper understanding of end-markets and faster-growing segments.
Throughout 2019 we have been deploying the approaches we developed in 2018 including: embedding our pricing tools across the sales teams; rolling out our sales skills training to our commercial organisation; launching our new sales incentive plans across; deploying and enhancing our customer relationship management (CRM) system and implementing a clearly defined and mapped sales process with associated leading KPIs across the business.
2. Extend technical leadership. Investment has been increased to build our technical lead and accelerate new product development, supporting the Group's emphasis on both manufacturing process and materials technology, producing materials which transform our customers' processes.
We have maintained investment levels in line with the prior year and we continue to focus our new product development efforts in our four research and development Centres of Excellence. Our development teams are focused on 5-10 priority development projects in each global business unit that deliver improved materials properties and performance to meet the needs of our customers, and expand our fundamental understanding of the characteristics of our materials as well as their performance in varied environments.
There has been good progress across our business including the development of new insulation products for our Thermal customers; further development of materials and material combinations to enhance corrosion resistance and resistivity for semiconductor manufacturing applications; continued development of our additive manufacturing capability for ceramic materials expanding the size and tolerance range of parts that we can produce. We are making good progress with a number of developments of our carbon materials for both electrical and seals and bearings applications. We are developing materials with better wear characteristics, better temperature performance and higher current carrying capabilities for a range of end markets.
3. Increase investment in people management and development. Our objective is to strengthen our leadership capability and deepen functional capabilities across the business, including in sales and engineering.
We have been filling the last remaining gaps in our leadership teams and working with them to strengthen their performance as teams. In 2019 we also launched new Group-wide development programmes for our future leaders at multiple levels of the organisation. These programmes are designed to develop a global network and pipeline of leaders who inspire and develop our people, drive alignment to our purpose and strategic execution priorities, and to support the leaders to drive and manage change. As part of the sales effectiveness programme, we have training programmes underway with our sales and customer service functions.
We also continue to enhance our approach to driving higher performance by integrating our leadership behaviours into a globally consistent performance management process, creating a stronger link between performance and reward, and building the performance culture across the Group.
4. Improve operational execution. Our objective is to strengthen our operational capabilities, reduce operational costs to fund reinvestment in the business, and improve delivery and quality performance.
We continue to make good progress with our operational efficiency programmes, with year-to-date net savings underpinning the margin expansion seen in the first half. These savings come from a wide variety of projects in automation, global sourcing and multiple local projects designed to improve efficiency and eliminate waste across all of our global business units.
Enquiries
Pete Raby Morgan Advanced Materials 01753 837 000 Peter Turner Morgan Advanced Materials Alison Lea Brunswick 0207 404 5959
Results presentation today
There will be an analyst and investor presentation at 11.30 (UK time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London, WC2A 3ED.
A live video webcast and slide presentation of this event will be available on morganadvancedmaterials.com. We recommend you register by 11.15 (UK time).
Basis of preparation
Non-GAAP measures
Throughout this report adjusted measures are used to describe the Group's financial performance. These are not recognised under IFRS or other generally accepted accounting principles (GAAP). 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.
The Executive Committee and the Board manage and assess the performance of the business on these measures as they are more representative of performance, facilitate meaningful 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 on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
The Group disposed of the Composites and Defence Systems business in 2018. The disposal group formed the Composites and Defence Systems operating segment and has been classified as a discontinued operation under IFRS 5 Non-current Assets Held For Sale and Discontinued Operations. In line with the requirements of IFRS 5 all periods presented in these condensed consolidated financial statements are for continuing operations, with separate disclosure of discontinued operations where appropriate.
Further details on the disposal of Composites and Defence Systems are provided in notes 2 and 7 on pages 23 and 30 of the condensed consolidated financial statements.
Operating review
Revenue Segment EBITA(1) Margin
================ ================== ================
1H 2019 1H 2018 1H 2019 1H 2018 1H 2019 1H 2018
GBPm GBPm GBPm GBPm %%
================================ ======= ======= ======== ======== ======= ======
Thermal Ceramics 207.8 217.3 25.7 26.1 12.4% 12.0%
Molten Metal Systems 24.7 24.5 2.7 3.6 10.9% 14.7%
Thermal Products Division 232.5 241.8 28.4 29.7 12.2% 12.3%
Electrical Carbon 85.4 82.9 11.1 10.3 13.0% 12.4%
Seals and Bearings 71.1 65.6 13.4 12.1 18.8% 18.4%
Technical Ceramics 136.8 124.1 17.5 13.2 12.8% 10.6%
Carbon and Technical Ceramics
Division 293.3 272.6 42.0 35.6 14.3% 13.1%
================================ ======= ======= ======== ======== ======= =======
Divisional total 525.8 514.4 70.4 65.3 13.4% 12.7%
================================ ======= ======= ======== ======== ======= =======
Corporate costs (3.0) (2.9)
================================ ======= ======= ======== ======== ======= =======
Group headline operating
profit(1) 67.4 62.4 12.8% 12.1%
================================ ======= ======= ======== ======== ======= =======
Amortisation of intangible
assets (4.1) (3.8)
Operating profit 63.3 58.6 12.0% 11.4%
Net financing costs (8.6) (6.6)
Share of profit of associate (net
of income tax) - 0.4
========================================= ======= ======== ======== ======= =======
Profit before taxation 54.7 52.4
================================ ======= ======= ======== ======== ======= =======
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
Thermal Products Division
Revenue for Thermal Products for the six months ended 30 June 2019 was GBP232.5 million, representing a decrease of 3.8% compared with GBP241.8 million in 1H 2018. On an organic constant-currency* basis, year-on-year revenue decreased by 3.3%.
Divisional EBITA* for Thermal Products was GBP28.4 million (1H 2018: GBP29.7 million) with a Divisional EBITA* margin of 12.2% (1H 2018: 12.3%).
Revenue for Thermal Ceramics for the six months ended 30 June 2019 was GBP207.8 million, representing a decrease of 4.4% compared with GBP217.3 million in 1H 2018. On an organic constant-currency* basis, year-on-year revenue decreased by 3.8%. The year-on-year decrease in revenue was primarily driven by the automotive market segment, which declined GBP7.7 million (30%) from prior year, and the decline in the overall European industrial market segment. Growth was seen in the North American and Asian chemical and petrochemical (CPI) market segments as well as iron and steel.
EBITA* for Thermal Ceramics for the six months ended 30 June 2019 was GBP25.7 million (1H 2018: GBP26.1 million) with EBITA margin* of 12.4% (1H 2018: 12.0%). The year-on-year margin improvement was driven by prior year plant closures and operational efficiencies.
Revenue for Molten Metals Systems for the six months ended 30 June 2019 was GBP24.7 million, representing an increase of 0.8% compared with GBP24.5 million in 1H 2018. On an organic constant-currency* basis, year-on-year revenue increased by 0.4%. The core crucibles business growth was primarily driven by good performance in India and South America, offsetting automotive industry driven demand decline in China, North America and Europe. Industrial equipment sales increased globally into the precious metals fire assay markets.
EBITA* for Molten Metals Systems for the six months ended 30 June 2019 was GBP2.7 million (1H 2018: GBP3.6 million) with EBITA margin* of 10.9% (1H 2018: 14.7%). During 2019 margin was impacted by one-off restructuring costs, as well as the annualised impact of prior year planned investments in technology, product development and sales capability, designed to improve the future prospects of the business.
Carbon and Technical Ceramics Division
Revenue for the Carbon and Technical Ceramics Division for the six months ended 30 June 2019 was GBP293.3 million, representing an increase of 7.6% compared with GBP272.6 million in 1H 2018. On an organic constant-currency* basis, year-on-year revenue increased 4.6%.
Divisional EBITA* for the Carbon and Technical Ceramics Division was GBP42.0 million (1H 2018: GBP35.6 million) with Divisional EBITA margin* of 14.3% (1H 2018: 13.1%).
Revenue for Electrical Carbon for the six months ended 30 June 2019 was GBP85.4 million, representing an increase of 3.0% compared with GBP82.9 million in 1H 2018. On an organic constant-currency* basis, year-on-year revenue increased by 2.0%.
The year-on-year growth was driven primarily by the wind and semiconductor market segments. On a regional basis, Europe achieved strong sales into the semiconductor market segment and also from sales of carbon collector strip products for electrified rail applications, supported by recent investments. Within North America products for diesel-electric locomotives in the rail market were negatively impacted by the general industrial slowdown in the region, this was partially mitigated by growth in products supporting power generation applications in the growing wind market. Sales in Asia were impacted by slowing general industrial output.
EBITA* for Electrical Carbon for the six months ended 30 June 2019 was GBP11.1 million (1H 2018: GBP10.3 million) with an EBITA margin* of 13.0% (1H 2018: 12.4%), reflecting the benefit of revenue growth supported by operational efficiency actions.
Revenue for Seals and Bearings for the six months ended 30 June 2019 was GBP71.1 million, representing an increase of 8.4% compared with GBP65.6 million in 1H 2018. On an organic constant-currency* basis year-on-year revenue increased by 5.2%. Revenue growth was driven by the petrochemical, healthcare and ceramic armour market segments, partially offset by some contraction in the Asian domestic heating circulating pumps end market caused by demand outpacing local infrastructure capabilities, and decline in the automotive market segment. In a continuation of the contracts awarded in 2017, sales of ceramic armour increased to GBP15 million in 1H 2019 (1H 2018: GBP11 million).
EBITA* for Seals and Bearings for the six months ended 30 June 2019 was GBP13.4 million (1H 2018: GBP12.1 million) with an EBITA margin* of 18.8% (1H 2018: 18.4%). The increase in volume and a continued strong continuous improvement projects pipeline yielded incremental savings, which offset cost inflation and investments in its sales and operations teams, research and development and targeted functional capabilities in support of its growth strategy.
Revenue for Technical Ceramics for the six months ended 30 June 2019 was GBP136.8 million, an increase of 10.2% compared with GBP124.1 million in 1H 2018. On an organic constant-currency* basis, year-on-year revenue increased by 6.0% primarily driven by demand increases for ceramic cores in the aerospace market, the supply of ceramic parts into the semiconductor and medical markets, and growth in the renewable energy market segment.
EBITA* for Technical Ceramics for the six months ended 30 June 2019 was GBP17.5 million (1H 2018: GBP13.2 million) with an EBITA margin* of 12.8% (1H 2018: 10.6%). Margins expanded due to the benefit of higher volume, operational efficiencies, and the implementation of the new lease accounting standard, IFRS 16.
Group financial review
Group revenue for the six months ended 30 June 2019 was GBP525.8 million (1H 2018: GBP514.4 million), an increase of 2.2% on a reported basis compared with 1H 2018, driven by improvements in the underlying business and foreign exchange. On an organic constant-currency* basis revenue increased by 1.0%.
Group headline operating profit* for the six months ended 30 June 2019 was GBP67.4 million (1H 2018: GBP62.4 million). Headline operating profit* margin was 12.8%, compared to 12.1% for 1H 2018.
Operating profit was GBP63.3 million (1H 2018: GBP58.6 million) and profit before tax was GBP54.7 million (1H 2018: GBP52.4 million). There were no specific adjusting items in either six month period.
The net finance charge was GBP8.6 million (1H 2018: GBP6.6 million), primarily comprising net bank interest and similar charges of GBP4.8 million (1H 2018: GBP4.2 million), the IAS 19 (revised) finance charge, being the interest charge on pension scheme net liabilities, of GBP2.3 million (1H 2018: GBP2.4 million), and the interest charge on the Group's lease liabilities of GBP1.5 million (1H 2018: GBPnil), following the implementation of IFRS 16 Leases.
The Group amortisation charge was GBP4.1 million (1H 2018: GBP3.8 million), with the higher year-on-year charge driven by the amortisation of computer software.
The Group tax charge was GBP15.3 million (1H 2018: GBP14.4 million). The effective tax rate was 28.0% (1H 2018: 27.5%). Further information is provided in note 6 on page 29 to the condensed consolidated financial statements.
We anticipate that the effective tax rate will remain at around 28% for the full year, with cash tax paid slightly higher than the charge to the income statement.
Headline earnings per share* was 13.8 pence (1H 2018: 13.4 pence) and basic earnings per share from continuing operations was 12.4 pence (1H 2018: 12.1 pence). Details of these calculations can be found in note 8 to the condensed consolidated financial statements on page 31.
Specific adjusting items
For the six month periods ended 30 June 2019 and 2018 there were no specific adjusting items.
Cash flow
1H 2019 1H 2018
GBPm GBPm
============================================================== ======= =======
Cash generated from continuing operations 61.1 55.2
Capital expenditure (29.2) (23.1)
Net interest (6.1) (4.1)
Tax paid (14.4) (7.5)
============================================================== ======= =======
Free cash flow before acquisitions, disposals and
dividends(1) 11.4 20.5
============================================================== ======= =======
Dividends paid to external plc shareholders (19.9) (20.0)
Net cash flows from other investing and financing
activities (1.7) (1.3)
Net cash flows from divestments and discontinued operations 0.3 (1.7)
Exchange movement and other non-cash movements (5.6) (4.4)
Movement in net debt(1) in period (15.5) (6.9)
======= =======
Opening net debt(1) (180.0) (181.3)
======= =======
Impact of change in accounting policy (IFRS 16 Leases) (67.4) -
============================================================== ======= =======
Closing net debt(1) (262.9) (188.2)
============================================================== ======= =======
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
Cash generated from continuing operations was GBP61.1 million (1H 2018: GBP55.2 million), an improvement on 2018 driven by cash generated from operations, partially offset by movements in working capital.
Free cash flow before acquisitions, disposals and dividends* was GBP11.4 million (1H 2018: GBP20.5 million), with the increase in cash generated from operations offset by increased capital expenditure and higher cash tax paid compared to 2018, which benefitted by the one-off US pension contribution in December 2017.
Net debt* was GBP262.9 million (1H 2018: GBP188.2 million). Net debt* excluding lease liabilities was GBP193.9 million (1H 2018: GBP187.8 million), representing a net debt*(excluding lease liabilities) to EBITDA* ratio of 1.2x (1H 2018: 1.2x). Further information on the Group's net debt* is provided on page 13 and within note 11 to the condensed consolidated financial statements on page 33.
Defined benefit pension plans
The Group pension deficit has increased by GBP5.2 million since last year end to GBP195.6 million (FY 2018: GBP190.4 million) on an IAS 19 (revised) basis as a result of the lower European discount rates.
-- The UK schemes deficit increased by GBP0.1 million to GBP140.2 million, (discount rate 2019 2.22%; FY 2018 2.74%).
-- The US schemes deficit increased by GBP0.5 million to GBP9.3 million, (discount rate 2019 3.53%; FY 2018 4.34%).
-- The European schemes deficit increased by GBP4.2 million to GBP41.1 million, (discount rate 2019 1.00%; FY 2018 1.70%).
-- The Rest of World schemes deficit increased by GBP0.4 million to GBP5.0 million, (discount rate 2019 2.10%; FY 2018 2.60%).
Note 13 to the condensed consolidated financial statements, on pages 35 to 36, provides additional information on the Group's pension schemes.
Foreign exchange
The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:
1H 2019 1H 2018
=========== ============================ ============================
GBP to: Closing rate Average rate Closing rate Average rate
US dollar 1.27 1.29 1.32 1.38
Euro 1.12 1.15 1.13 1.14
=========== ============= ============= ============= =============
For illustrative purposes, the table below provides details of the impact on first half 2019 revenue and Group headline operating profit* if the actual reported results, calculated using 2019 average exchange rates for the six months ended 30 June 2019 were restated for GBP weakening by 10 cents against USD in isolation and 10 cents against the Euro in isolation:
Increase in first half 2019 revenue/Group Revenue Group headline
headline operating profit(1) if: GBPm operating profit(1)
GBPm
================================================== ======== =====================
GBP weakens by 10c against the US dollar
in isolation +19.6 +3.2
GBP weakens by 10c against the Euro in isolation +9.9 +1.5
================================================== ======== =====================
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
Interim dividend
The Board has resolved to pay an interim dividend of 4.0 pence per Ordinary share. The interim dividend will be paid on 22 November 2019 to Ordinary shareholders on the register of members at the close of business on 1 November 2019.
Principal risks and uncertainties
The Group has an established risk management methodology, which seeks to identify, prioritise and mitigate risks, underpinned by a 'three lines of defence' model comprising of an internal control framework, monitoring and independent assurance processes. The Board considers that risk management and internal control are fundamental to achieving the Group aim of creating long-term sustainable shareholder value.
The current risks, representing those risks that the Board feels could have the most significant impact on achieving the Group's strategy of building a sustainable business for the long-term and delivering strong returns to the Group's shareholders, are set out in the 2018 Annual Report, which is available on the Group's website at morganadvancedmaterials.com.
The Group has reviewed these risks and concluded that they adequately represent the current principal risks and uncertainties of the Group and will continue to remain relevant for the second half of the financial year.
The following are the Group's principal risks and uncertainties: technical leadership; operational execution, organisational change and sales effectiveness; portfolio management; macro-economic and political environment; environment, health and safety; product quality, safety and liability; IT and cyber security; supply chain and business continuity; treasury and tax; pension funding; contract management; and compliance.
The current economic climate continues to have an impact on the Group, its customers and its suppliers. The UK's exit from the European Union (EU) may have an impact on the Group if subsequent tariff changes, or border effects, negatively impact the profitability of the Group's products or the ability to manufacture or distribute products on a timely basis. However, given the current value of the Group's UK exports to the EU (ca. GBP25 million in 2018) and imports into the UK from the EU (ca. GBP15 million in 2018), it is not considered that this will have a significant impact overall on the Group's liquidity or operations.
The Board reviews the status of all principal risks with a notable potential impact at Group level throughout the year. Additionally, the Audit Committee carries out focused risk reviews of each Division. These reviews include an analysis of principal risks, together with the controls, monitoring and assurance processes established to mitigate those risks to acceptable levels.
Going concern
As reported on pages 20, 29-30, and 116-124 of the 2018 Annual Report and Accounts, the Group meets its day-to-day working capital requirements through local banking arrangements and the committed GBP200 million unsecured five-year multi-currency revolving credit facility.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to operate within the level of its committed facilities. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of 12-months from the date of this Statement. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements for the six months ended 30 June 2019.
Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge:
-- The condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;
-- The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Information on the current directors of Morgan Advanced Materials plc responsible for providing this Statement is maintained on the Company's website at morganadvancedmaterials.com.
By order of the Board
Pete Raby
Chief Executive Officer
Peter Turner
Chief Financial Officer
25 July 2019
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 4, these measures are calculated on a continuing basis.
Headline profit and earnings measures
Group headline operating profit is stated before specific adjusting items and amortisation of intangible assets. Specific adjusting items are excluded on the basis that they distort trading performance. For the six month periods ended 30 June 2019 and 2018 there were no specific adjusting items. Amortisation is excluded as the charge arises primarily on externally acquired intangible assets since the adoption of IFRS and does not therefore reflect all intangible assets consistently.
Earnings before interest, tax and amortisation (EBITA) is stated before specific adjusting items and amortisation of intangible assets. Segment EBITA is stated before unallocated corporate costs.
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and total costs(1)
Systems Division Bearings Technical
Ceramics
GBPm GBPm GBPm GBPm GBPm Division GBPm GBPm GBPm
GBPm GBPm
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
Operating
profit/(loss) 24.6 2.5 27.1 10.7 13.2 15.3 39.2 66.3 (3.0) 63.3
Add back:
amortisation
of intangible
assets 1.1 0.2 1.3 0.4 0.2 2.2 2.8 4.1 - 4.1
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
Group headline
operating
profit 67.4
Corporate
costs(1) 3.0 3.0
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
1H 2019 EBITA 25.7 2.7 28.4 11.1 13.4 17.5 42.0 70.4
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
1.Corporate costs consist of the cost of the central head office.
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and total costs(1)
Systems Division Bearings Technical
Ceramics
GBPm GBPm GBPm GBPm GBPm Division GBPm GBPm GBPm
GBPm GBPm
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
Operating
profit/(loss) 25.1 3.5 28.6 9.9 11.9 11.1 32.9 61.5 (2.9) 58.6
Add back:
amortisation
of intangible
assets 1.0 0.1 1.1 0.4 0.2 2.1 2.7 3.8 - 3.8
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
Group headline
operating
profit 62.4
Corporate
costs(1) 2.9 2.9
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
1H 2018 EBITA 26.1 3.6 29.7 10.3 12.1 13.2 35.6 65.3
============== ========= ======== ========= ========== ========= ========= ========= ======= ========= =====
1.Corporate costs consist of the cost of the central head office.
Group organic growth
Group organic growth is the growth of the business excluding the impact of acquisitions, divestments, business exits and foreign currency. This measure is used as it allows revenue and EBITA 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 4 to 6.
Year-on-year movements in segment revenue
Thermal Molten Thermal Electrical Seals Technical Carbon Segment
Ceramics Metal Products Carbon and Bearings Ceramics and total
Systems Division Technical
Ceramics
Division
========== ========= ========== =========== ============= ========== ============ ========
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ========== ========= ========== =========== ============= ========== ============ ========
1H 2018 revenue 217.3 24.5 241.8 82.9 65.6 124.1 272.6 514.4
=================== ========== ========= ========== =========== ============= ========== ============ ========
Impact of foreign
currency
movements 0.3 0.1 0.4 0.8 2.0 4.9 7.7 8.1
Impact of
disposals
and business
exits (1.7) - (1.7) - - - - (1.7)
Organic
constant-currency
change (8.1) 0.1 (8.0) 1.7 3.5 7.8 13.0 5.0
Organic
constant-currency
change % (3.8)% 0.4% (3.3)% 2.0% 5.2% 6.0% 4.6% 1.0%
1H 2019 revenue 207.8 24.7 232.5 85.4 71.1 136.8 293.3 525.8
=================== ========== ========= ========== =========== ============= ========== ============ ========
Year-on-year movements in segment and Group EBITA
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and total costs(1)
Systems Division Bearings Technical
Ceramics
Division
========== ========= ========== =========== ========== ========== =========== ======== ========== ======
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ========== ========= ========== =========== ========== ========== =========== ======== ========== ======
2018 EBITA 26.1 3.6 29.7 10.3 12.1 13.2 35.6 65.3 (2.9) 62.4
=================== ========== ========= ========== =========== ========== ========== =========== ======== ========== ======
Impact of foreign
currency
movements (0.3) - (0.3) 0.1 0.6 0.6 1.3 1.0 - 1.0
Impact of
disposals
and business
exits 1.9 - 1.9 - - 0.1 0.1 2.0 - 2.0
Organic
constant-currency
change (2.0) (0.9) (2.9) 0.7 0.7 3.6 5.0 2.1 (0.1) 2.0
Organic
constant-currency
change % (7.2)% (25.0)% (9.3)% 6.7% 5.5% 25.9% 13.5% 3.1% (3.4)% 3.1%
2019 EBITA 25.7 2.7 28.4 11.1 13.4 17.5 42.0 70.4 (3.0) 67.4
=================== ========== ========= ========== =========== ========== ========== =========== ======== ========== ======
1.Corporate costs consist of the cost of the central head office.
Group EBITDA
Group EBITDA is defined as operating profit before specific adjusting items, depreciation and amortisation of intangible assets. The Group uses this measure as it is a key metric in covenants over debt facilities. A reconciliation of operating profit to Group EBITDA is as follows:
1H 2019 1H 2018
GBPm GBPm
============================================== ======== ========
Operating profit 63.3 58.6
Add back: depreciation - property, plant
and equipment 15.9 15.4
Add back: depreciation - right-of-use assets 4.7 -
Add back: amortisation of intangible assets 4.1 3.8
============================================== ======== ========
Group EBITDA 88.0 77.8
============================================== ======== ========
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 capital expenditure, net interest (interest paid on borrowings, overdrafts and lease liabilities, net of interest received) and tax paid.
The Group discloses this measure of free cash flow as this provides readers of the condensed consolidated financial statements with a measure of the cash flows from the business before corporate level cash flows (acquisitions, disposals and dividends).
A reconciliation of cash generated from continuing operations to free cash flow before acquisitions, disposals and dividends is as follows:
1H 2019 1H 2018
GBPm GBPm
=============================================== ======== ========
Cash generated from continuing operations 61.1 55.2
Capital expenditure (29.2) (23.1)
Net interest (6.1) (4.1)
Tax paid (14.4) (7.5)
=============================================== ======== ========
Free cash flow before acquisitions, disposals
and dividends 11.4 20.5
=============================================== ======== ========
Net debt
Net debt is defined as borrowings, bank overdrafts and lease liabilities, less cash and cash equivalents. The Group also discloses this metric excluding lease liabilities as this is the measure used in the covenants over the Group's debt facilities.
1H 2019 1H 2018
GBPm GBPm
======================================== ======== ========
Cash and cash equivalents 59.7 58.9
Non-current borrowings (184.9) (195.6)
Current borrowings and bank overdrafts (68.7) (51.1)
Lease liabilities (69.0) (0.4)
Net debt (262.9) (188.2)
======================================== ======== ========
Net debt excluding lease liabilities (193.9) (187.8)
======================================== ======== ========
Return on invested capital
Return on invested capital (ROIC) is defined as the 12-month Group headline operating profit (operating profit excluding specific adjusting items and amortisation of intangible assets) divided by the 12-month average adjusted net assets (third-party working capital, plant and equipment, land and buildings, right-of-use assets, intangible assets and other balance sheet items). This measure excludes long-term employee benefits, deferred tax assets and liabilities, current tax payable, provisions, cash and cash equivalents, borrowings and lease liabilities.
1H 2019 1H 2018
GBPm GBPm
============================================= ======== ========
Operating profit 121.4 114.0
Add back: amortisation of intangible assets 8.3 7.6
============================================= ======== ========
Group headline operating profit (12-month
rolling) 129.7 121.6
============================================= ======== ========
12-month average adjusted net assets:
Third-party working capital 177.3 166.6
Plant and equipment 187.6 176.2
Land and buildings 120.8 115.1
Right-of-use assets 24.7 -
Intangible assets 213.7 213.8
Other assets (net) 10.8 9.5
============================================= ======== ========
12-month average adjusted net assets 734.9 681.2
============================================= ======== ========
ROIC 17.6% 17.9%
============================================= ======== ========
Headline earnings per share
Headline earnings per share is defined as operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets, plus share of profit of associate less net financing costs, income tax expense and non-controlling interests, divided by the weighted average number of Ordinary shares during the period. This measure of earnings is shown because the Directors consider it provides a better indication of headline performance.
Whilst amortisation of intangible assets is a recurring charge it is excluded from these measures on the basis that it primarily arises on externally acquired intangible assets and therefore does not reflect consistently the benefit that all of Morgan's businesses realise from their intangible assets, which may not be recognised separately.
Constant-currency revenue and Group headline operating profit
Constant-currency revenue and Group headline operating profit are derived by translating the prior year results at current year average exchange rates. These measures are used as they allow revenue to be compared excluding the impact of foreign exchange rates. Page 8 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.
Condensed Consolidated Financial Statements
for the six months ended 30 June 2019
Condensed consolidated income statement
Six months ended Restated six months Year ended
30 June 2019 ended 31 December 2018
30 June 2018(1)
Results Specific Total Results Specific Total Results Specific Total
before adjusting before adjusting before adjusting
specific items(2) specific items(2) specific items(2)
adjusting adjusting adjusting
items items items
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========= ========= ======= ========= ========= ======= ========= ========= =======
Revenue 3 525.8 - 525.8 514.4 - 514.4 1,033.9 - 1,033.9
Operating costs before
amortisation of intangible
assets (458.4) - (458.4) (452.0) - (452.0) (909.1) (9.5) (918.6)
Profit from operations
before amortisation
of intangible assets 3 67.4 - 67.4 62.4 - 62.4 124.8 (9.5) 115.3
Amortisation of intangible
assets (4.1) - (4.1) (3.8) - (3.8) (8.0) - (8.0)
Operating profit 3 63.3 - 63.3 58.6 - 58.6 116.8 (9.5) 107.3
Finance income 0.6 - 0.6 0.5 - 0.5 1.3 - 1.3
Finance expense (9.2) - (9.2) (7.1) - (7.1) (14.5) - (14.5)
========= ========= ======= ========= ========= ======= ========= ========= =======
Net financing costs 5 (8.6) - (8.6) (6.6) - (6.6) (13.2) - (13.2)
Share of profit of
associate (net of income
tax) - - - 0.4 - 0.4 0.8 - 0.8
Profit before taxation 54.7 - 54.7 52.4 - 52.4 104.4 (9.5) 94.9
Income tax expense 6 (15.3) - (15.3) (14.4) - (14.4) (29.0) (1.7) (30.7)
Profit from continuing
operations 39.4 - 39.4 38.0 - 38.0 75.4 (11.2) 64.2
========= ========= ======= ========= ========= ======= ========= ========= =======
Loss from discontinued
operations(1) 7 - - - (0.9) (7.6) (8.5) (1.4) (9.3) (10.7)
========= ========= ======= ========= ========= ======= ========= ========= =======
Profit for the period 39.4 - 39.4 37.1 (7.6) 29.5 74.0 (20.5) 53.5
========= ========= ======= ========= ========= ======= ========= ========= =======
Profit for the period
attributable to:
Shareholders of the
Company 35.3 - 35.3 33.5 (7.6) 25.9 66.8 (20.5) 46.3
Non-controlling interests 4.1 - 4.1 3.6 - 3.6 7.2 - 7.2
39.4 - 39.4 37.1 (7.6) 29.5 74.0 (20.5) 53.5
========= ========= ======= ========= ========= ======= ========= ========= =======
Earnings per share 8
Continuing operations and discontinued
operations
Basic earnings per
share 12.4p 9.1p 16.2p
Diluted earnings per
share 12.3p 9.0p 16.1p
Continuing operations
Basic earnings per
share 12.4p 12.1p 20.0p
Diluted earnings per
share 12.3p 12.0p 19.9p
Dividends(3)
Proposed interim dividend
- pence 4.0p 4.0p 4.0p
-
GBPm 11.4 11.4 11.4
Final dividend - pence 7.0p
-
GBPm 20.0
1. The Group disposed of the Composites and Defence Systems business in 2018, the disposal group formed the Composites and Defence Systems operating segment and has been classified as a discontinued operation under IFRS 5. In line with the requirements of IFRS 5 all periods presented in these condensed consolidated financial statements are for continuing operations, with separate disclosure of discontinued operations where appropriate. Further details are provided in notes 2 and 7 to the condensed consolidated financial statements.
2. Details of specific adjusting items are given in note 4 to the condensed consolidated financial statements.
3. The proposed interim and approved final dividends are based upon the number of shares outstanding at the balance sheet date.
Condensed consolidated statement of comprehensive income
Translation Hedging Retained Total parent Non- Total comprehensive
reserve reserve earnings comprehensive controlling income
income interests
GBPm GBPm GBPm GBPm GBPm GBPm
=========== ======== ========= ============== ============ ===================
Six months ended 30 June 2019
Profit for the period - - 35.3 35.3 4.1 39.4
=========== ======== ========= ============== ============ ===================
Items that will not be
reclassified
subsequently to profit or loss:
Remeasurement loss on defined
benefit plans - (9.8) (9.8) - (9.8)
Tax effect of components of other
comprehensive income not
reclassified - - 1.6 1.6 - 1.6
=========== ======== ========= ============== ============ ===================
- - (8.2) (8.2) - (8.2)
=========== ======== ========= ============== ============ ===================
Items that may be reclassified
subsequently to profit or loss:
Foreign exchange translation
differences 1.3 - - 1.3 0.3 1.6
Cash flow hedges:
Change in fair value - 0.1 - 0.1 - 0.1
Transferred to profit or loss - 0.1 - 0.1 - 0.1
=========== ======== ========= ============== ============ ===================
1.3 0.2 - 1.5 0.3 1.8
=========== ======== ========= ============== ============ ===================
Total comprehensive income, net
of tax 1.3 0.2 27.1 28.6 4.4 33.0
=========== ======== ========= ============== ============ ===================
Total comprehensive income
attributable
to:
Continuing operations 1.3 0.2 27.1 28.6 4.4 33.0
Discontinued operations - - - - - -
=========== ======== ========= ============== ============ ===================
Total comprehensive income, net
of tax attributable to
shareholders
of the Company 1.3 0.2 27.1 28.6 4.4 33.0
=========== ======== ========= ============== ============ ===================
Year ended 31 December 2018
Profit for the period - - 46.3 46.3 7.2 53.5
=========== ======== ========= ============== ============ ===================
Items that will not be
reclassified
subsequently to profit or loss:
Remeasurement gain on defined
benefit plans - - 14.2 14.2 - 14.2
Tax effect of components of other
comprehensive income not
reclassified - - (0.7) (0.7) - (0.7)
=========== ======== ========= ============== ============ ===================
- - 13.5 13.5 - 13.5
=========== ======== ========= ============== ============ ===================
Items that may be reclassified
subsequently to profit or loss:
Foreign exchange translation
differences 9.9 - - 9.9 0.2 10.1
Cash flow hedges:
Change in fair value - (0.2) - (0.2) - (0.2)
Transferred to profit or
loss - (0.5) - (0.5) - (0.5)
=========== ======== ========= ============== ============ ===================
9.9 (0.7) - 9.2 0.2 9.4
=========== ======== ========= ============== ============ ===================
Total comprehensive income, net
of tax 9.9 (0.7) 59.8 69.0 7.4 76.4
=========== ======== ========= ============== ============ ===================
Total comprehensive
income/(expense)
attributable to:
Continuing operations 9.9 (0.7) 70.5 79.7 7.4 87.1
Discontinued operations - - (10.7) (10.7) - (10.7)
=========== ======== ========= ============== ============ ===================
Total comprehensive income, net
of tax attributable to
shareholders
of the Company 9.9 (0.7) 59.8 69.0 7.4 76.4
=========== ======== ========= ============== ============ ===================
Condensed consolidated statement of comprehensive income (continued)
Translation Hedging Retained Total parent Non- Total comprehensive
reserve reserve earnings comprehensive controlling income
income interests
GBPm GBPm GBPm GBPm GBPm GBPm
=========== ======== ========= ============== ============ ===================
Six months ended 30 June 2018
Profit for the period - - 25.9 25.9 3.6 29.5
=========== ======== ========= ============== ============ ===================
Items that will not be
reclassified
subsequently to profit or loss:
Remeasurement gain on defined
benefit plans - - 22.8 22.8 - 22.8
Tax effect of components of other
comprehensive income not
reclassified - - (0.5) (0.5) - (0.5)
=========== ======== ========= ============== ============ ===================
- - 22.3 22.3 - 22.3
=========== ======== ========= ============== ============ ===================
Items that may be reclassified
subsequently to profit or loss:
Foreign exchange translation
differences (1.5) - - (1.5) (0.2) (1.7)
Cash flow hedges:
Change in fair value - (0.2) - (0.2) - (0.2)
Transferred to profit or loss - (0.4) - (0.4) - (0.4)
=========== ======== ========= ============== ============ ===================
(1.5) (0.6) - (2.1) (0.2) (2.3)
=========== ======== ========= ============== ============ ===================
Total comprehensive income, net
of tax (1.5) (0.6) 48.2 46.1 3.4 49.5
=========== ======== ========= ============== ============ ===================
Total comprehensive
income/(expense)
attributable to:
Continuing operations (1.5) (0.6) 56.7 54.6 3.4 58.0
Discontinued operations - - (8.5) (8.5) - (8.5)
=========== ======== ========= ============== ============ ===================
Total comprehensive income, net
of tax attributable to
shareholders
of the Company (1.5) (0.6) 48.2 46.1 3.4 49.5
=========== ======== ========= ============== ============ ===================
Condensed consolidated balance sheet
30 June 2019 30 June 2018(1) 31 December
Note 2018(1)
GBPm GBPm GBPm
============ =============== ===========
Assets
Property, plant and equipment 9 321.1 296.4 314.5
Right-of-use assets 52.0 - -
Intangible assets 10 213.8 214.8 215.6
Investments 5.9 6.8 5.9
Other receivables 5.1 6.0 6.3
Deferred tax assets 12.5 9.3 6.9
============ =============== ===========
Total non-current assets 610.4 533.3 549.2
============ =============== ===========
Inventories 152.7 152.1 145.3
Derivative financial assets 0.3 0.9 0.6
Trade and other receivables 208.9 204.9 200.5
Current tax receivable 0.9 2.8 1.3
Cash and cash equivalents 11 59.7 58.9 67.6
============ =============== ===========
Total current assets 422.5 419.6 415.3
============ =============== ===========
Total assets 1,032.9 952.9 964.5
============ =============== ===========
Liabilities
Borrowings 184.9 195.6 164.8
Lease liabilities 57.2 - -
Employee benefits: pensions 13 195.6 191.2 190.4
Provisions 14 8.5 11.1 10.1
Non-trade payables 2.5 3.1 2.5
Deferred tax liabilities 10.8 10.9 11.0
============ =============== ===========
Total non-current liabilities 459.5 411.9 378.8
============ =============== ===========
Borrowings and bank overdrafts 68.7 51.1 82.6
Lease liabilities 11.8 0.4 0.2
Trade and other payables 178.7 190.3 190.5
Current tax payable 27.0 26.6 26.0
Provisions 14 9.5 7.6 8.6
Derivative financial liabilities 0.5 1.1 0.6
============ =============== ===========
Total current liabilities 296.2 277.1 308.5
============ =============== ===========
Total liabilities 755.7 689.0 687.3
============ =============== ===========
Total net assets 277.2 263.9 277.2
============ =============== ===========
Equity
Share capital 71.8 71.8 71.8
Share premium 111.7 111.7 111.7
Reserves 38.7 37.2 37.2
Retained earnings 9.0 1.4 12.1
============ =============== ===========
Total equity attributable
to shareholders of the Company 231.2 222.1 232.8
============ =============== ===========
Non-controlling interests 46.0 41.8 44.4
============ =============== ===========
Total equity 277.2 263.9 277.2
============ =============== ===========
1. Borrowings on the comparative balance sheets have been re-presented to disaggregate lease liabilities and align with the current period. See note 1 to the condensed consolidated financial statements for more information on IFRS 16 Leases.
Condensed consolidated statement of changes in equity
Share Share Translation Hedging Fair Capital Other Retained Total Non- Total
capital premium reserve reserve value redemption reserves earnings parent controlling equity
reserve reserve equity interests
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Balance at 1
January
2018 71.8 111.7 (7.8) 0.5 (1.0) 35.7 11.8 (27.5) 195.2 39.1 234.3
Profit for the
period - - - - - - - 25.9 25.9 3.6 29.5
Other
comprehensive
income - - (1.5) (0.6) - - - 22.3 20.2 (0.2) 20.0
Transactions
with
owners:
Transfer between
reserves - - - - - - 0.1 (0.1) - - -
Dividends - - - - - - - (20.0) (20.0) (0.7) (20.7)
Equity-settled
share-based
payment
transactions - - - - - - - 1.1 1.1 - 1.1
Own shares
acquired
for share
incentive
schemes - - - - - - - (0.3) (0.3) - (0.3)
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Balance at 30
June
2018 71.8 111.7 (9.3) (0.1) (1.0) 35.7 11.9 1.4 222.1 41.8 263.9
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Balance at 1
January
2018 71.8 111.7 (7.8) 0.5 (1.0) 35.7 11.8 (27.5) 195.2 39.1 234.3
Profit for the
period - - - - - - - 46.3 46.3 7.2 53.5
Other
comprehensive
income - - 9.9 (0.7) - - - 13.5 22.7 0.2 22.9
Transactions
with
owners:
Capital
contributions
by
non-controlling
interests - - - - - - - - - 0.5 0.5
Transfer between
reserves - - - - - - (11.2) 11.2 - - -
Dividends - - - - - - - (31.4) (31.4) (2.6) (34.0)
Equity-settled
share-based
payment
transactions - - - - - - - 2.8 2.8 - 2.8
Own shares
acquired
for share
incentive
schemes - - - - - - - (2.8) (2.8) - (2.8)
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Balance at 31
December
2018 71.8 111.7 2.1 (0.2) (1.0) 35.7 0.6 12.1 232.8 44.4 277.2
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Balance at 1
January
2019 as
previously
reported 71.8 111.7 2.1 (0.2) (1.0) 35.7 0.6 12.1 232.8 44.4 277.2
Impact of change
in
accounting
policy,
net of tax - - - - - - - (12.2) (12.2) - (12.2)
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Adjusted balance
at
1 January
2019 71.8 111.7 2.1 (0.2) (1.0) 35.7 0.6 (0.1) 220.6 44.4 265.0
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Profit for the
period - - - - - - - 35.3 35.3 4.1 39.4
Other
comprehensive
income - - 1.3 0.2 - - - (8.2) (6.7) 0.3 (6.4)
Transactions
with
owners:
Dividends - - - - - - - (19.9) (19.9) (2.8) (22.7)
Equity-settled
share-based
payment
transactions - - - - - - - 1.6 1.6 - 1.6
Own shares
acquired
for share
incentive
schemes - - - - - - - 0.3 0.3 - 0.3
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Balance at 30
June
2019 71.8 111.7 3.4 - (1.0) 35.7 0.6 9.0 231.2 46.0 277.2
======= ======= =========== ======= ======= ========== ======== ======== ======= =========== =======
Condensed consolidated statement of cash flows
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
Continuing Discontinued Total Continuing Discontinued Total Continuing Discontinued Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========== ============ ====== ========== ============ ====== ========== ============ ======
Operating activities
Profit for the period 39.4 - 39.4 38.0 (8.5) 29.5 64.2 (10.7) 53.5
Adjustments for:
Depreciation - property,
plant and equipment 3 15.9 - 15.9 15.4 0.3 15.7 31.3 0.4 31.7
Depreciation -
right-of-use
assets 3 4.7 - 4.7 - - - - - -
Amortisation 3 4.1 - 4.1 3.8 - 3.8 8.0 - 8.0
Net financing costs 5 8.6 - 8.6 6.6 - 6.6 13.2 - 13.2
Loss on disposal of
businesses 2,7 - - - - - - - 1.7 1.7
Non-cash specific
adjusting
items included in
operating
profit 4,7 - - - - 2.0 2.0 6.5 1.5 8.0
Share of profit from
associate
(net of income tax) - - - (0.4) - (0.4) (0.8) - (0.8)
(Profit)/loss on sale
of property, plant and
equipment - - - (0.1) - (0.1) 0.4 - 0.4
Income tax expense 6 15.3 - 15.3 14.4 - 14.4 30.7 - 30.7
Equity-settled
share-based
payment expenses 1.2 - 1.2 0.9 - 0.9 2.8 - 2.8
========== ============ ====== ========== ============ ====== ========== ============ ======
Cash generated from
operations
before changes in working
capital and provisions 89.2 - 89.2 78.6 (6.2) 72.4 156.3 (7.1) 149.2
========== ============ ====== ========== ============ ====== ========== ============ ======
(Increase)/decrease in
trade and other
receivables (6.3) - (6.3) (9.5) (0.1) (9.6) (7.2) (0.1) (7.3)
(Increase)/decrease in
inventories (7.2) - (7.2) (11.5) - (11.5) (4.2) (0.7) (4.9)
Increase/(decrease) in
trade and other payables (6.7) - (6.7) 5.5 (0.7) 4.8 1.7 (1.4) 0.3
Increase/(decrease) in
provisions (1.7) (0.4) (2.1) (1.4) 5.3 3.9 (2.4) 6.3 3.9
Payments to defined
benefit
pension plans 13 (6.2) - (6.2) (6.5) - (6.5) (12.9) - (12.9)
========== ============ ====== ========== ============ ====== ========== ============ ======
Cash generated from
operations 61.1 (0.4) 60.7 55.2 (1.7) 53.5 131.3 (3.0) 128.3
========== ============ ====== ========== ============ ====== ========== ============ ======
Interest paid - borrowings
and overdrafts 11 (5.3) - (5.3) (4.6) - (4.6) (9.7) - (9.7)
Interest paid - lease
liabilities 11 (1.5) - (1.5) - - - - - -
Income tax paid (14.4) - (14.4) (7.5) - (7.5) (20.9) - (20.9)
========== ============ ====== ========== ============ ====== ========== ============ ======
Net cash from operating
activities 39.9 (0.4) 39.5 43.1 (1.7) 41.4 100.7 (3.0) 97.7
========== ============ ====== ========== ============ ====== ========== ============ ======
Investing activities
Purchase of property,
plant
and equipment and
software (29.2) - (29.2) (23.1) - (23.1) (53.1) - (53.1)
Purchase of investments (0.5) - (0.5) (0.5) - (0.5) (1.0) - (1.0)
Disposal of investments - - - - - - 0.6 - 0.6
Proceeds from sale of
property,
plant and equipment 1.3 - 1.3 0.1 - 0.1 - - -
Loan made to associate 15 - - - (1.0) - (1.0) (1.0) - (1.0)
Loan repaid by associate 15 - - - 1.0 - 1.0 1.0 - 1.0
Interest received 0.7 - 0.7 0.5 - 0.5 1.3 - 1.3
Disposal of subsidiaries,
net of cash disposed - 0.7 0.7 - - - - 1.9 1.9
Net cash from investing
activities (27.7) 0.7 (27.0) (23.0) - (23.0) (52.2) 1.9 (50.3)
========== ============ ====== ========== ============ ====== ========== ============ ======
Financing activities
Purchase of own shares
for share incentive
schemes - - - (0.3) - (0.3) (3.2) - (3.2)
Proceeds from exercise
of share options 0.3 - 0.3 0.2 - 0.2 0.4 - 0.4
Net increase/(decrease)
in borrowings 11 6.1 - 6.1 13.0 - 13.0 7.5 - 7.5
Payment of lease
liabilities
(2018: payment of finance
lease liabilities) 11 (4.3) - (4.3) (0.2) - (0.2) (0.4) - (0.4)
Dividends paid to external
plc shareholders (19.9) - (19.9) (20.0) - (20.0) (31.4) - (31.4)
Dividends paid to
non-controlling
interests (2.8) - (2.8) (0.7) - (0.7) (2.6) - (2.6)
Capital contributions made
by non-controlling
interest
partners - - - - - - 0.5 - 0.5
========== ============ ====== ========== ============ ====== ========== ============ ======
Net cash from financing
activities (20.6) - (20.6) (8.0) - (8.0) (29.2) - (29.2)
========== ============ ====== ========== ============ ====== ========== ============ ======
Net (decrease)/increase
in cash and cash
equivalents (8.4) 0.3 (8.1) 12.1 (1.7) 10.4 19.3 (1.1) 18.2
========== ============ ========== ============ ========== ============
Cash and cash equivalents
at start of period 67.6 50.4 50.4
Effect of exchange rate
fluctuations on cash held 0.2 (1.9) (1.0)
====== ====== ======
Cash and cash equivalents
at period end 11 59.7 58.9 67.6
====== ====== ======
Notes to the condensed consolidated financial statements
1. Basis of preparation, accounting policies, judgements and estimates
Morgan Advanced Materials plc (the 'Company') is a company incorporated in the UK under the Companies Act 2006.
The unaudited condensed consolidated financial statements of the Company for the six months ended 30 June 2019 comprise the Company, its subsidiaries and the Group's interest in associates (together the 'Group'). The half-year condensed consolidated financial statements have been prepared for the six months ended 30 June 2019.
The condensed consolidated financial statements for the six months ended 30 June 2019 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements for the year ended 31 December 2018.
The condensed consolidated financial statements and the comparative information for the six months ended 30 June 2019 have neither been audited nor reviewed, do not comprise statutory accounts for the purpose of section 434 of Companies Act 2006 and should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2018. Those accounts have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying his report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The financial statements have been prepared on a going concern basis, refer to page 9 for further details.
The consolidated financial statements of the Group for the year ended 31 December 2018 are available on request from the Company's registered office at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP or at morganadvancedmaterials.com.
The condensed consolidated financial statements for the six months ended 30 June 2019 were approved by the Board on 25 July 2019.
Judgements and estimates
Preparing the condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing the condensed consolidated financial statements, significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2018.
Accounting policies
Except for the changes set out in the newly adopted standards section below, as required by the Disclosure and Transparency Rules of the Financial Conduct Authority, these condensed consolidated financial statements have been prepared by applying the accounting policies that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2018.
Newly adopted standards - IFRS 16 Leases
The Group adopted IFRS 16 Leases with effect from 1 January 2019. IFRS 16 introduced a single, on-balance sheet accounting model that is similar to previous finance lease accounting. Under the standard, from 1 January 2019 the Group:
-- recognises right-of-use assets and lease liabilities (including those previously assessed as operating leases) on the consolidated balance sheet at the present value of future lease payments;
-- recognises depreciation relating to the right-of-use asset and interest charge on the lease liability in the consolidated income statement; and
-- separates cash payments made on the outstanding lease liability into repayment of principal (within financing activities) and interest paid (within operating activities) in the consolidated statement of cash flows.
Under IFRS 16, right-of-use assets are tested annually for impairment in accordance with IAS 36 Impairment of Assets, replacing the previous requirement to recognise a provision for onerous lease contracts.
Applied transition options
For leases in existence at 31 December 2018, the Group applied a modified retrospective approach. Comparative periods are not restated. The modified retrospective approach has two available options, under both options the calculation of the lease liability considered future lease payments only and current discount rates.
In the calculation of the right-of-use assets for material land and buildings leases, the Group adopted a modified retrospective approach using historical payment data as if IFRS 16 had always existed but with the benefit of hindsight for actual events. This calculation led to an equity adjustment of GBP16 million before tax.
1. Basis of preparation, accounting policies, judgements and estimates (continued)
In the calculation of right-of-use assets for its remaining lease portfolio (non-material land, buildings, plant and equipment), the Group used the alternative modified retrospective approach, whereby the asset is equal to the liability (with the exception of any transition balance sheet adjustments such as rent-free periods). There is no equity adjustment arising from this calculation.
On 1 January 2019 the Group recognised right-of-use assets of GBP51 million, lease liabilities of GBP67 million and an equity adjustment of GBP16 million before tax.
The Group utilised the practical expedient available on transition to IFRS 16 to grandfather assessments on whether an existing contract contains a lease. From 1 January 2019, the Group applies the definition of a lease as outlined in IFRS 16, which examines whether the Group has the right to control the use of an asset in exchange for consideration. The difference in definition would not have had a material impact on the Group's financial statements on transition.
The Group also utilised practical expedients available under a modified retrospective approach, namely excluding leases with short remaining terms, excluding leases of low value and relying on the assessment on whether a lease is considered onerous by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review.
The following table provides a reconciliation of the Group's reported lease liability obligations as at 31 December 2018 and the lease liabilities recognised under IFRS 16 as at 1 January 2019:
GBPm
======
Future operating lease commitments as at 31
December 2018 64.8
Recognition exemptions:
For leases of low value assets (0.4)
Reasonably certain lease extension/termination
options 24.5
Operating lease commitments for which IFRS 16
has been applied 88.9
Effect of discounting at the incremental borrowing
rate (23.6)
======
Liabilities additionally recognised on initial
application of IFRS 16 on 1 January 2019 65.3
======
Liabilities from finance leases as at 31 December
2018 0.2
Effect of foreign exchange rates(1) 1.9
======
Liabilities from leases as at 1 January 2019 67.4
======
1. Representing the difference in foreign exchange rates between future operating lease commitments, prepared using 2018 average rates, and the opening balance sheet rates used for the initial application of IFRS 16.
The weighted-average incremental borrowing rate for lease liabilities recognised on 1 January 2019 was 5.14%.
Newly adopted standards - other
The Group has also adopted the following standards and with effect from 1 January 2019. There has been no material impact on the Group on adoption of these standards:
-- IFRIC 23 Uncertainty over Income Tax Treatments
There were no other new accounting standards or amendments to standards that were required to be adopted in the period and the Group did not adopt any of the new accounting standards that could have been adopted early.
Accounting developments and changes
There are no upcoming accounting standards or amendments that are applicable to the Group.
2. Business exits and disposals
2019
There were no business exits or disposals in the six months ended 30 June 2019.
2018
Composites and Defence Systems
On 20 November 2018, the Group completed the sale of its Composites and Defence Systems business with its principle site in Coventry, UK. The transaction was structured as a share sale on a debt-free and cash-free basis, for a total consideration of GBP2.5 million, of which GBP2.0 million was received on completion and GBP0.5 million was received on 21 January 2019, with a closing cash adjustment also received of GBP0.2 million.
The transaction was structured to leave Morgan with the economic benefit of certain assets, most notably the principal freehold property associated with the business, as well as certain liabilities relating to the exit of parts of the business. These liabilities were provided for in the interim results for the six months ended 30 June 2018.
In the year ended 31 December 2017, the Composite and Defence Systems business generated a GBP1.0 million headline operating loss* on GBP21.0 million of revenue.
The disposal and closure of the Composites and Defence Systems business reduced the Group's assets and liabilities as follows:
31 December
2018
GBPm
===========
Trading net assets of disposal
group (4.2)
Transaction costs associated
with the business exit and disposal (7.6)
Recycling of deferred foreign
exchange losses (0.2)
Total consideration 2.7
===========
Loss on disposal (9.3)
===========
The disposal group formed the Composites and Defence Systems operating segment, it was therefore classified as a discontinued operation under IFRS 5. Further detail is disclosed in note 7 to the condensed consolidated financial statements.
3. Segment reporting
The Group reports as two Divisions and five global business units, which have been identified as the Group's reportable operating segments. These have been identified on the basis of internal management reporting information that is regularly reviewed by the Group's Board of Directors (the Chief Operating Decision Maker) in order to allocate resources and assess performance.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments and related income, borrowings and related expenses, corporate assets and head office expenses and income tax assets and liabilities. The results for the six months to 30 June 2018 have been restated for discontinued operations, for further details see note 7 to the condensed consolidated financial statements.
The information presented below represents the operating segments of the Group.
Six months ended 30 June 2019
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and total costs
Systems Division Bearings Technical
Ceramics
Division
Continuing GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Revenue from
external
customers 207.8 24.7 232.5 85.4 71.1 136.8 293.3 525.8 - 525.8
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment EBITA1 25.7 2.7 28.4 11.1 13.4 17.5 42.0 70.4 70.4
======== ======= ======== ========== ======== ========= ========= =======
Corporate
costs (3.0) (3.0)
========= =======
Group headline
operating
profit1 67.4
Amortisation
of intangible
assets (1.1) (0.2) (1.3) (0.4) (0.2) (2.2) (2.8) (4.1) - (4.1)
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Operating
profit before
specific
adjusting
items 63.3
Specific
adjusting
items included
in
operating
profit2 - - - - - - - - - -
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Operating
profit/(loss) 24.6 2.5 27.1 10.7 13.2 15.3 39.2 66.3 (3.0) 63.3
======== ======= ======== ========== ======== ========= ========= ======= =========
Finance income 0.6
Finance
expense (9.2)
Share of
profit of
associate (net
of
income tax) -
=======
Profit before
taxation 54.7
=======
Segment assets 415.4 43.4 458.8 163.3 105.6 221.6 490.5 949.3 83.6 1,032.9
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment
liabilities 102.8 8.6 111.4 33.7 21.6 79.7 135.0 246.4 509.3 755.7
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment
capital
expenditure 6.0 1.4 7.4 4.2 5.0 12.6 21.8 29.2 - 29.2
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment
depreciation
- property,
plant
and equipment 6.8 0.9 7.7 2.5 2.4 3.3 8.2 15.9 - 15.9
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment
depreciation
-
right-of-use
assets 1.9 0.2 2.1 0.6 0.3 1.7 2.6 4.7 - 4.7
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
2. Details of specific adjusting items are given in note 4 to the condensed consolidated financial statements.
3. Segment reporting (continued)
Six months ended 30 June 2018
=====
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Restated1 Group
Ceramics Metal Products Carbon and Ceramics and total corporate
Systems Division Bearings Technical costs
Ceramics
Division
Continuing GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
Revenue from
external
customers 217.3 24.5 241.8 82.9 65.6 124.1 272.6 514.4 - 514.4
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
Segment EBITA2 26.1 3.6 29.7 10.3 12.1 13.2 35.6 65.3 65.3
======== ======= ======== ========== ======== ========= ========= =======
Corporate
costs (2.9) (2.9)
========= =====
Group headline
operating
profit2 62.4
Amortisation
of intangible
assets (1.0) (0.1) (1.1) (0.4) (0.2) (2.1) (2.7) (3.8) - (3.8)
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
Operating
profit before
specific
adjusting
items 58.6
Specific
adjusting
items included
in
operating
profit3 - - - - - - - - - -
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
Operating
profit/(loss) 25.1 3.5 28.6 9.9 11.9 11.1 32.9 61.5 (2.9) 58.6
======== ======= ======== ========== ======== ========= ========= ======= =========
Finance income 0.5
Finance
expense (7.1)
Share of
profit of
associate
(net of
income tax) 0.4
=====
Profit before
taxation 52.4
=====
Segment
assets4 397.0 40.4 437.4 152.1 93.3 183.2 428.6 866.0 79.6 945.6
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
Segment
liabilities4 86.6 7.3 93.9 30.3 20.6 41.6 92.5 186.4 493.0 679.4
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
Segment
capital
expenditure4 7.5 0.7 8.2 4.5 4.0 6.4 14.9 23.1 - 23.1
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
Segment
depreciation
- property,
plant
and
equipment4 6.6 0.9 7.5 2.4 2.3 3.2 7.9 15.4 - 15.4
======== ======= ======== ========== ======== ========= ========= ======= ========= =====
1. Specific adjusting items of GBP7.6 million were previously reported within corporate costs, these costs relate solely to business closure and exit costs within the Composites and Defence Systems business, therefore they have been restated under IFRS 5 discontinued operations, see also note 7 to the condensed consolidated financial statements.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
3. Details of specific adjusting items are given in note 4 to the condensed consolidated financial statements.
4. Segment assets, liabilities, capital expenditure and depreciation attributed to discontinued operations at 30 June 2018 were GBP7.3 million, GBP9.6 million, GBPnil and GBP0.3 million respectively and are excluded from the table above.
3. Segment reporting (continued)
Year ended 31 December 2018
Thermal Molten Thermal Electrical Seals Technical Carbon Segment Corporate Group
Ceramics Metal Products Carbon and Ceramics and total costs
Systems Division Bearings Technical
Ceramics
Division
Continuing GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Revenue from
external
customers 433.6 48.6 482.2 166.8 132.7 252.2 551.7 1,033.9 - 1,033.9
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment EBITA1 52.9 6.6 59.5 19.4 23.7 28.1 71.2 130.7 130.7
======== ======= ======== ========== ======== ========= ========= =======
Corporate
costs (5.9) (5.9)
========= =======
Group headline
operating
profit1 124.8
Amortisation
of intangible
assets (2.2) (0.3) (2.5) (0.7) (0.4) (4.4) (5.5) (8.0) - (8.0)
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Operating
profit before
specific
adjusting
items 116.8
Specific
adjusting
items
included in
operating
profit2 (13.8) - (13.8) - - (1.4) (1.4) (15.2) 5.7 (9.5)
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Operating
profit/(loss) 36.9 6.3 43.2 18.7 23.3 22.3 64.3 107.5 (0.2) 107.3
======== ======= ======== ========== ======== ========= ========= ======= =========
Finance income 1.3
Finance
expense (14.5)
Share of
profit of
associate
(net of
income tax) 0.8
=======
Profit before
taxation 94.9
=======
Segment assets 393.1 41.2 434.3 157.6 97.6 187.2 442.4 876.7 87.8 964.5
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment
liabilities 83.3 8.0 91.3 32.2 21.4 42.4 96.0 187.3 500.0 687.3
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment
capital
expenditure 15.7 2.4 18.1 11.1 8.8 15.1 35.0 53.1 - 53.1
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
Segment
depreciation
- property,
plant
and equipment 13.6 1.9 15.5 4.7 4.5 6.6 15.8 31.3 - 31.3
======== ======= ======== ========== ======== ========= ========= ======= ========= =======
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
2. Details of specific adjusting items are given in note 4 to the condensed consolidated financial statements.
3. Segment reporting (continued)
Segment revenue from external customers by geography
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018
Continuing operations GBPm GBPm GBPm
========== ========== ============
US 209.3 186.6 381.3
China 51.0 52.3 104.0
Germany 35.2 37.2 69.9
UK (the Group's country of domicile) 23.0 21.0 42.8
France 13.0 14.6 29.0
Other Asia, Australasia, Middle
East and Africa 96.1 96.3 202.9
Other Europe 66.8 74.7 140.5
Other North America 16.0 16.0 32.4
South America 15.4 15.7 31.1
========== ========== ============
525.8 514.4 1,033.9
========== ========== ============
Revenue from external customers is based on geographic location of the end customer. No customer represents greater than 10% of revenue.
Segment revenue by end market
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018
Continuing operations GBPm GBPm GBPm
========== ========== ============
Industrial 243.6 250.2 492.5
Transportation 107.7 110.4 221.9
Chemical and petrochemical 48.6 46.5 96.7
Semiconductor and electronics 34.5 29.5 61.9
Security and defence 33.9 25.3 52.3
Energy 30.8 29.5 58.8
Healthcare 26.7 23.0 49.8
========== ========== ============
525.8 514.4 1,033.9
========== ========== ============
4. Specific adjusting items
In the condensed 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 allow the reader to obtain a proper understanding of the financial information and the best indication of underlying performance of the Group.
Six months Six months Year ended
ended ended 31 December
30 June 2019 30 June 2018
2018
Continuing operations GBPm GBPm GBPm
============= ========== ============
Specific adjusting items:
Net pension past service credit - - 5.7
Business closure and exit costs - - (15.2)
============= ========== ============
Total specific adjusting items
before income tax charge - - (9.5)
Income tax charge from specific
adjusting items - - (1.7)
============= ========== ============
Total specific adjusting items
after income tax charge - - (11.2)
============= ========== ============
Specific adjusting items relating to discontinued operations are disclosed in note 7 to the condensed consolidated financial statements.
2019
There were no specific adjusting items from continuing operations in the six months ended 30 June 2019.
2018
Net pension past service credit, UK
Early and late retirement adjustment
In 2018, the Group reviewed with the Trustees of Morgan Pension Scheme the factors applied on early and late retirement, and clarified the practice regarding the calculation of pension payments with members who elected to retire other than at the normal date of retirement. This was effected via a Deed of Amendment. This change resulted in a net gain of GBP7.6 million in the income statement.
Adjustment for Guaranteed Minimum Pensions (GMPs)
On 26 October 2018, the High Court ruled that the Trustee of the Lloyds Banking Group pension schemes needed to remove the inequalities in pension scheme benefits that arise from unequal GMPs. This resulted in a charge of GBP1.9 million to reflect the potential cost of removing the GMP inequalities for the Group's UK defined benefit pension schemes.
The net impact of these pension adjustments was a credit to the income statement of GBP5.7 million.
Business closure and exit costs
Brazil, Thermal Ceramics
In 2018 the Group announced its decision to close the Thermal Ceramics site in Rio de Janeiro. A GBP6.2 million charge was recognised. This comprised cash exit costs of GBP2.6 million relating to site clean-up costs, professional and legal fees and staff redundancies and impairment costs of GBP3.6 million relating to the impairment of property, plant and equipment and other assets. In the year ended December 2018 the business generated a headline operating loss* of GBP2.6 million on revenues of GBP3.0 million, (year ended 31 December 2017: headline operating loss* of GBP2.0 million on revenues of GBP6.5 million).
China, Technical Ceramics
In 2018 the Group decided to close its ceramic cores operations in China, a part of the Technical Ceramics operating segment. A GBP1.4 million impairment charge was recognised relating to the impairment of plant and equipment and other assets. In the year ended December 2018 the business generated a headline operating loss* of GBP0.9 million on revenues of GBP0.5 million, (year ended 31 December 2017: headline operating loss* of GBP0.9 million on revenues of GBP0.6 million).
Venezuela, Thermal Ceramics
In 2018 the Group decided to exit its Thermal Ceramics operations in Venezuela. A GBP7.6 million charge was recognised, of which GBP7.3 million related to the recycling of deferred foreign exchange translation losses in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates and GBP0.3 million related to the impairment of assets. In the years ended December 2018 and December 2017 the business had negligible revenue and headline operating profit* (GBP0.0 million).
5. Finance income and expense
Six months Six months Year ended
ended ended 31 December
30 June 2019 30 June 2018
2018
Continuing operations GBPm GBPm GBPm
============= ========== ============
Interest on bank balances and
cash deposits 0.6 0.5 1.3
============= ========== ============
Finance income 0.6 0.5 1.3
============= ========== ============
Interest on borrowings and overdrafts (5.4) (4.7) (9.8)
Interest on lease liabilities (1.5) - -
Net interest on IAS 19 obligations (2.3) (2.4) (4.7)
============= ========== ============
Finance expense (9.2) (7.1) (14.5)
============= ========== ============
Net financing costs recognised
in profit or loss (8.6) (6.6) (13.2)
============= ========== ============
6. Taxation - income tax expense
Six months Six months Year ended
ended ended 31 December
30 June 2019 30 June 2018
2018
Continuing operations GBPm GBPm GBPm
============= ========== ============
Total income tax expense in profit
of loss (15.3) (14.4) (30.7)
============= ========== ============
The Group's consolidated effective tax rate for the six months ended 30 June 2019 is based on the Directors' best estimate of the effective tax rate for the year.
EU State Aid
On 2 April 2019 the European Commission ruled that a Group Financing Exemption under the UK controlled foreign company rules was partly contrary to EU State Aid rules. The UK government has filed an annulment application with the EU General Court against this decision. Like many other multinational groups that have acted in accordance with the UK legislation in force at the time, the Group may be affected. The estimated maximum potential liability for the Group is approximately GBP2.5 million. Based on the Group's current assessment of the circumstances under which tax would be payable, no provision has been made.
7. Discontinued operations
The Group disposed of its Composites and Defence Systems business on 20 November 2018. The business represented a separate reportable operating segment and therefore, in accordance with IFRS 5 Non-current Assets Held For Sale and Discontinued Operations, the disposal group was classified as discontinued and the six month period ended 30 June 2018 has been restated to reflect this.
The results from discontinued operations, which have been disclosed in the Group's income statement, are set out below:
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
Results Specific Total Results Specific Total Results Specific Total
before adjusting before adjusting before adjusting
specific items(1) specific items(1) specific items(1)
adjusting adjusting adjusting
items items items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========= ========= ===== ========= ========= ======== ========= ========= ========
Revenue - - - 7.4 - 7.4 11.2 - 11.2
Operating costs - - - (8.3) (7.6) (15.9) (12.6) (9.3) (21.9)
========= ========= ===== ========= ========= ======== ========= ========= ========
Loss before taxation - - - (0.9) (7.6) (8.5) (1.4) (9.3) (10.7)
Income tax expense - - - - - - - - -
========= ========= ===== ========= ========= ======== ========= ========= ========
Loss from
discontinued
operations - - - (0.9) (7.6) (8.5) (1.4) (9.3) (10.7)
========= ========= ===== ========= ========= ======== ========= ========= ========
Basic loss per
share - (3.0)p (3.8)p
Diluted loss per
share - (3.0)p (3.7)p
1. The discontinued specific adjusting items relate to the loss on disposal of assets and provisions for business exit costs. Refer also to note 2 to the condensed consolidated financial statements.
There is no income tax expense in relation to discontinued operations in either the current or preceding periods.
8. Earnings per share
Six months ended Restated six months Year ended
30 June 2019 ended 31 December 2018
30 June 2018
Earnings Basic Diluted Earnings Basic Diluted Earnings Basic Diluted
earnings earnings earnings earnings earnings earnings
per share per share per share per share per share per share
GBPm pence pence GBPm pence pence GBPm pence pence
======== ========= ========= ======== ========= ========= ======== ========= ==========
Profit for the
period
attributable to
shareholders
of the Company 35.3 12.4p 12.3p 25.9 9.1p 9.0p 46.3 16.2p 16.1p
Loss from
discontinued
operations - - - 8.5 3.0p 3.0p 10.7 3.8p 3.7p
======== ========= ========= ======== ========= ========= ======== ========= ==========
Profit from
continuing
operations 35.3 12.4p 12.3p 34.4 12.1p 12.0p 57.0 20.0p 19.9p
======== ========= ========= ======== ========= ========= ======== ========= ==========
Specific
adjusting items - - - - 9.5 3.3p
Amortisation of
intangible
assets 4.1 1.4p 3.8 1.3p 8.0 2.8p
Tax effect of
the above - - - - 1.7 0.6p
Non-controlling - - - - - -
interests'
share of the
above
adjustments
======== ========= ======== ========= ======== =========
Adjusted profit
for the
period from
continuing
operations
for use in
headline
earnings
per share1 39.4 13.8p 38.2 13.4p 76.2 26.7p
======== ========= ======== ========= ======== =========
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
30 June 30 June 31 December
Number of shares 2019 2018 2018
======== ========================= =========================
Weighted average number of Ordinary
shares for the purposes of basic
earnings per share(1) 284.6 285.3 285.2
Effect of dilutive potential
Ordinary shares:
Share options 1.8 1.8 1.6
======== ========================= =========================
Weighted average number of Ordinary
shares for the purposes of diluted
earnings per share 286.4 287.1 286.8
======== ========================= =========================
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.
9. Property, plant and equipment
Land and Plant, equipment Total
buildings and
fixtures
GBPm GBPm GBPm
========== ================================ ======
Cost
At 1 January 2019 218.3 697.6 915.9
Additions 6.3 16.8 23.1
Disposals (2.4) (13.7) (16.1)
Transfers between categories 0.3 (0.3) -
Effect of movement in foreign exchange 0.6 1.7 2.3
========== ================================ ======
At 30 June 2019 223.1 702.1 925.2
========== ================================ ======
Depreciation and impairment losses
At 1 January 2019 95.9 505.5 601.4
Depreciation charge for the period 2.7 13.2 15.9
Reversal of impairment charge - (0.5) (0.5)
Disposals (1.2) (13.6) (14.8)
Transfers between categories - - -
Effect of movement in foreign exchange 0.6 1.5 2.1
========== ================================ ======
Balance at 30 June 2019 98.0 506.1 604.1
========== ================================ ======
Carrying amounts
At 1 January 2019 122.4 192.1 314.5
========== ================================ ======
At 30 June 2019 125.1 196.0 321.1
========== ================================ ======
10. Intangible assets
Goodwill Customer Technology Capitalised Computer Total
relationships and trademarks development software
costs
GBPm GBPm GBPm GBPm GBPm GBPm
======== ============== =============== ============ ========= =====
Cost
At 1 January 2019 179.4 60.4 3.7 0.8 29.8 274.1
Additions - - - - 1.6 1.6
Disposals - - - - - -
Effect of movement in
foreign exchange 0.5 0.3 - - 0.1 0.9
======== ============== =============== ============ ========= =====
At 30 June 2019 179.9 60.7 3.7 0.8 31.5 276.6
======== ============== =============== ============ ========= =====
Amortisation and impairment
losses
At 1 January 2019 - 38.1 0.5 0.8 19.1 58.5
Amortisation charge for
the year - 2.0 0.1 - 2.0 4.1
Impairment losses for - - - - - -
the period
Disposals - - - - - -
Effect of movement in
foreign exchange - 0.2 - - - 0.2
======== ============== =============== ============ ========= =====
Balance at 30 June 2019 - 40.3 0.6 0.8 21.1 62.8
======== ============== =============== ============ ========= =====
Carrying amounts
At 1 January 2019 179.4 22.3 3.2 - 10.7 215.6
======== ============== =============== ============ ========= =====
At 30 June 2019 179.9 20.4 3.1 - 10.4 213.8
======== ============== =============== ============ ========= =====
11. Cash and cash equivalents reconciled to net debt*
At 30 June At 30 June At 31 December
2019 2018 2018
GBPm GBPm GBPm
========== ========== ==============
Bank balances 49.6 49.5 57.9
Cash deposits 10.1 9.4 9.7
========== ========== ==============
Cash and cash equivalents 59.7 58.9 67.6
========== ========== ==============
Reconciliation of cash and cash
equivalents to net debt*
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2018
2019 2018
GBPm GBPm GBPm
========== ========== ==============
Opening borrowings and lease liabilities
as reported (247.6) (231.7) (231.7)
Impact of change in accounting
policy (67.4) - -
========== ========== ==============
Adjusted opening borrowings and
lease liabilities (315.0) (231.7) (231.7)
Net increase in borrowings (6.1) (13.0) (7.5)
Payment of lease liabilities 4.3 0.2 0.4
========== ========== ==============
Total changes from cash flows (1.8) (12.8) (7.1)
New leases and lease remeasurement (5.6) - -
Effect of movements in foreign
exchange (0.2) (2.6) (8.8)
========== ========== ==============
Closing borrowings and lease liabilities (322.6) (247.1) (247.6)
========== ========== ==============
Cash and cash equivalents 59.7 58.9 67.6
========== ========== ==============
Closing net debt(1) (262.9) (188.2) (180.0)
========== ========== ==============
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes:
Borrowings Lease liabilities Total financing Cash and Movement
liabilities cash equivalents in
net debt(1)
GBPm GBPm GBPm GBPm GBPm
=========== ================== ================ ================== =============
At 1 January 2019 as
reported (247.4) (0.2) (247.6) 67.6 (180.0)
Impact of change in accounting
policy - (67.4) (67.4) - (67.4)
=========== ================== ================ ================== =============
Adjusted 1 January 2019 (247.4) (67.6) (315.0) 67.6 (247.4)
Cash outflow - - - (2.0) (2.0)
Borrowings and lease
liability cash flow (6.1) 4.3 (1.8) - (1.8)
Net interest paid - - - (6.1) (6.1)
=========== ================== ================ ================== =============
Net cash (outflow)/inflow (6.1) 4.3 (1.8) (8.1) (9.9)
Share purchases - - - - -
New leases and lease
remeasurement - (5.6) (5.6) - (5.6)
Exchange and other movements (0.1) (0.1) (0.2) 0.2 -
=========== ================== ================ ================== =============
At 30 June 2019 (253.6) (69.0) (322.6) 59.7 (262.9)
=========== ================== ================ ================== =============
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 10 to 14.
12. Financial risk management
Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
At 30 June 2019 At 30 June 2018 At 31 December
2018
==================== ==================== ====================
Carrying Fair value Carrying Fair value Carrying Fair value
amount amount amount
GBPm GBPm GBPm GBPm GBPm GBPm
======== ========== ======== ========== ======== ==========
Financial assets and liabilities
at amortised cost
6.26% US Dollar Senior Notes
2019 (59.2) (59.7) (56.8) (58.1) (59.0) (59.6)
1.18% Euro Senior Notes 2023 (22.4) (22.7) (22.1) (22.0) (22.5) (22.3)
3.17% US Dollar Senior Notes
2023 (11.9) (11.8) (11.4) (10.7) (11.8) (11.3)
1.55% Euro Senior Notes 2026 (22.4) (23.1) (22.2) (21.9) (22.5) (22.3)
3.37% US Dollar Senior Notes
2026 (76.7) (74.9) (73.8) (67.0) (76.4) (70.6)
1.74% Euro Senior Notes 2028 (9.0) (9.3) (8.9) (8.6) (9.0) (8.8)
2.89% Euro Senior Notes 2030 (22.4) (23.7) - - (22.5) (22.5)
4.87% US Dollar Senior Notes
2026 (20.1) (21.1) - - - -
Bank and other borrowings (9.5) (9.5) (51.5) (51.5) (23.7) (23.7)
Obligations under finance
leases(1) - - (0.4) (0.4) (0.2) (0.2)
Trade and other payables (90.1) (90.1) (104.2) (104.2) (95.0) (95.0)
Trade and other receivables 183.4 183.4 182.7 182.7 177.8 177.8
Cash and cash equivalents 59.7 59.7 58.9 58.9 67.6 67.6
======== ========== ======== ========== ======== ==========
(100.6) (102.8) (109.7) (102.8) (97.2) (90.9)
Financial instruments - held
at FVOCI(2)
Financial assets - held at
FVOCI(2) 0.5 0.5 1.0 1.0 0.5 0.5
======== ========== ======== ========== ======== ==========
Derivatives and other items
at fair value
Forward exchange contracts
used for hedging (0.2) (0.2) (0.2) (0.2) - -
======== ========== ======== ========== ======== ==========
(100.3) (102.5) (108.9) (102.0) (96.7) (90.4)
======== ========== ======== ========== ======== ==========
1. Comparative information represents finance leases accounted for under IAS 17.
2. Fair value through other comprehensive income.
On 28 January 2019, the Group completed funding on a US private placement, raising $25 million for a seven year tenor, to refinance existing financial indebtedness.
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the preceding table.
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.
Borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows. The interest rates used to determine the fair value of borrowings are 0.9 - 4.2% (30 June 2018: 1.4 - 4.7%; 31 December 2018: 1.4 - 4.7%).
At 30 June 2019, the carrying value of fixed-interest rate bearing borrowings totalled GBP244.1 million (30 June 2018: GBP195.2 million and 31 December 2018: GBP223.7 million) and the fair value approximated GBP246.3 million (30 June 2018: GBP188.3 million and 31 December 2018: GBP217.4 million).
Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables/payables are discounted to determine the fair value.
Cash and cash equivalents, trade and other payables and trade and other receivables
The Group has disclosed the fair value of cash and cash equivalents, current trade and other receivables and current payables at their carrying amount, given their notional amount is deemed to be their fair value.
There have been no transfers between level 1 and level 2 during 2019 and 2018 and there were no level 3 financial instruments in either 2019 or 2018.
13. Employee benefits
30 June 30 June 30 June 30 June 30 June
2019 2019 2019 2019 2019
UK US Europe Rest of Total
World
GBPm GBPm GBPm GBPm GBPm
========= ======= ======= ======== =======
Pension plans and employee benefits
Present value of unfunded defined
benefit obligations - (8.0) (39.2) (2.0) (49.2)
Present value of funded defined benefit
obligations (582.4) (141.3) (2.4) (11.5) (737.6)
Fair value of plan assets 442.2 140.0 0.5 8.5 591.2
========= ======= ======= ======== =======
Net obligations (140.2) (9.3) (41.1) (5.0) (195.6)
========= ======= ======= ======== =======
Movements in present value of defined
benefit obligation
At 1 January 2019 (544.4) (138.8) (37.3) (13.6) (734.1)
Current service cost - - (0.4) (0.9) (1.3)
Interest cost (7.2) (2.9) (0.3) (0.1) (10.5)
Actuarial gain/(loss):
Experience gain/(loss) on plan obligations 0.8 - - 0.5 1.3
Changes in financial assumptions
- gain/(loss) (49.4) (11.5) (4.3) (0.3) (65.5)
Changes in demographic assumptions
- gain/(loss) 5.3 - - - 5.3
Benefits paid 12.5 4.6 0.7 0.5 18.3
Contributions by members - - - - -
Curtailments and settlements - - - 0.1 0.1
Exchange adjustments - (0.7) - 0.3 (0.4)
========= ======= ======= ======== =======
At 30 June 2019 (582.4) (149.3) (41.6) (13.5) (786.8)
========= ======= ======= ======== =======
Movements in fair value of plan assets
At 1 January 2019 404.3 130.0 0.4 9.0 543.7
Interest on plan assets 5.4 2.7 - 0.1 8.2
Remeasurement gain/(loss) 38.9 10.6 - (0.4) 49.1
Contributions by employer 6.1 0.5 0.8 0.6 8.0
Contributions by members - - - - -
Benefits paid (12.5) (4.6) (0.7) (0.5) (18.3)
Curtailments and settlements - - - (0.1) (0.1)
Exchange adjustments - 0.8 - (0.2) 0.6
========= ======= ======= ======== =======
At 30 June 2019 442.2 140.0 0.5 8.5 591.2
========= ======= ======= ======== =======
The fair values of the plan assets
at 30 June 2019 were as follows:
Equities and growth assets 125.6 6.9 - - 132.5
Bonds and liability-driven investments 142.6 129.0 - - 271.6
Matching insurance policies 173.3 - 0.5 6.4 180.2
Other 0.7 4.1 - 2.1 6.9
========= ======= ======= ======== =======
Total 442.2 140.0 0.5 8.5 591.2
========= ======= ======= ======== =======
Principal actuarial assumptions at % % % %
30 June 2019 were:
Discount rate 2.22 3.53 1.00 2.10
Inflation (UK: RPI/CPI) 3.18/2.08 n/a 1.70 n/a
13. Employee benefits (continued)
30 June 30 June 30 June 30 June 30 June
2018 2018 2018 2018 2018
UK US Europe Rest of Total
World
GBPm GBPm GBPm GBPm GBPm
Pension plans and employee benefits
Present value of unfunded defined
benefit obligations - (7.9) (34.9) (2.7) (45.5)
Present value of funded defined benefit
obligations (560.0) (131.2) (2.0) (9.6) (702.8)
Fair value of plan assets 419.0 129.7 0.6 7.8 557.1
======= ========
Net obligations (141.0) (9.4) (36.3) (4.5) (191.2)
======= ========
Principal actuarial assumptions at
30 June 2018 were: % % % %
Discount rate 2.63 4.26 1.60 3.20
Inflation (UK: RPI/CPI) 3.05/1.95 n/a 1.70 n/a
31 December 31 December 31 December 31 December 31 December
2018 2018 2018 2018 2018
UK US Europe Rest of Total
World
GBPm GBPm GBPm GBPm GBPm
Pension plans and employee benefits
Present value of unfunded defined
benefit obligations - (7.9) (35.9) (2.8) (46.6)
Present value of funded defined benefit
obligations (544.4) (130.9) (1.4) (10.8) (687.5)
Fair value of plan assets 404.3 130.0 0.4 9.0 543.7
===========
Net obligations (140.1) (8.8) (36.9) (4.6) (190.4)
===========
Principal actuarial assumptions at
31 December 2018 were: % % % %
Discount rate 2.74 4.34 1.70 2.60
Inflation (UK: RPI/CPI) 3.17/2.07 n/a 1.70 n/a
14. Provisions and contingent liabilities
Closure Legal and Environmental Total
and restructuring other provisions
provisions provisions
GBPm GBPm GBPm GBPm
At 1 January 2019 3.5 10.3 4.9 18.7
Provisions made during the year 0.1 1.1 - 1.2
Provisions used during the year (0.7) (0.4) (0.6) (1.7)
Provisions reversed during the year - (0.2) - (0.2)
Transfers between categories (0.1) (0.5) 0.6 -
Effect of movements in foreign exchange - - - -
At 30 June 2019 2.8 10.3 4.9 18.0 Current 2.2 6.0 1.3 9.5 Non-current 0.6 4.3 3.6 8.5 At 30 June 2019 2.8 10.3 4.9 18.0
14. Provisions and contingent liabilities (continued)
Closure and restructuring provisions
Closure and restructuring provisions are based on the Group's restructuring programmes and represent committed expenditure at the balance sheet date. The amounts provided are based on the costs of terminating relevant contracts, under the contract terms, and management's best estimate of other associated restructuring costs including professional fees. Due to the nature of the provision for closure and restructuring provisions, the timing of any potential future outflows in respect of these liabilities is uncertain until the restructuring programme is completed.
Legal and other provisions
Legal and other provisions mainly comprise amounts provided against open legal and contractual disputes arising in the normal course of business and long-service costs.
The Company has on occasion been required to take legal or other actions to protect its intellectual property rights, to enforce commercial contracts or otherwise and similarly to defend itself against proceedings brought by other parties. Provisions are made for the expected costs associated with such matters, based on past experience of similar items and other known factors, taking into account professional advice received, and represent management's best estimate of the most likely outcome. The timing of utilisation of these provisions is frequently uncertain, reflecting the complexity of issues and the outcome of various court proceedings and associated negotiations.
Other provisions represent the best estimate of the cost of settling current obligations although there is a higher degree of judgement involved.
Where obligations are not capable of being reliably estimated, or if a material outflow of economic resources is considered remote, it is classified as a contingent liability. The Group is of the opinion that any associated claims that might be brought can be defeated successfully and, therefore, the possibility of any material outflow in settlement is assessed as remote.
Environmental provisions
Environmental provisions are made for quantifiable environmental liabilities arising from known environmental issues. The amounts provided are based on the best estimate of the costs required to remedy these issues. At one site, a remediation feasibility study is currently being conducted in relation to a known environmental issue, in conjunction with the local Environmental Regulator. The costs of completing this study have been provided. At this stage it is not possible to reliably quantify the liabilities arising from this environmental issue until the outcome of this feasibility study is known.
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 known environmental issue referred to above under the heading 'environmental provisions' where the financial impact cannot be reliably estimated until the completion of the remediation feasibility study.
The Group is of the opinion that, whilst the amounts of future costs not provided for could be significant, it is not possible to estimate the amounts involved reliably. However, the Group does not expect that costs associated with these environmental contingent liabilities will significantly impact the Group's operations or its liquidity.
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.
15. Related parties
Identification of related parties
The Company has related party relationships with its subsidiaries and its associates and with its Directors and executive officers.
Transactions with key management personnel
Details of transactions with key management personnel are described in note 26 of the Group's 2018 Annual Report and Accounts.
Six months Six months Year ended
ended 30 ended 30 31 December
June 2019 June 2018 2018
Transactions with associate: GBPm GBPm GBPm
Sales to associate - - 0.3
Purchases from associate 1.1 0.8 1.3
Loan made to associate - 1.0 1.0
Loan repaid by associate - 1.0 1.0
Trade receivables due from associate - - -
Trade payables due to associate 0.3 0.3 1.2
At 30 June 2019 the Group does not have any trade receivables owed by associates which have been fully provided for (30 June 2018 and 31 December 2018: GBPnil).
Except as disclosed in the table above:
-- There were no related party transactions during the period that have materially affected the financial position or the perfor mance of the Group during the period; and
-- There have been no changes in the nature of related party transactions as described in note 26 to the Group's 2018 Annual Report and Accounts (page 135) which could have a material effect on the financial position or performance of the Group during the period.
Glossary of terms
Constant-currency1 Constant-currency revenue and Group headline operating profit
are derived by translating the prior year results at current
year average exchange rates.
Corporate costs Corporate costs consist of the costs of the central head
office.
Free cash flow Cash generated from operations less capital expenditure,
before acquisitions, net interest paid and tax paid.
diposals and dividends1
Earnings before EBITA is defined as Group operating profit before specific
interest, tax adjusting items and amortisation of intangible assets.
and amortisation
(EBITA)1 Segment - Divisional and global business unit - EBITA is
stated before unallocated corporate costs.
Group earnings EBITDA is defined as operating profit before specific adjusting
before interest, items, amortisation of intangible assets and depreciation.
tax, depreciation
and amortisation
(EBITDA)1
Group headline Operating profit adjusted to exclude specific adjusting
operating profit1 items and amortisation of intangible assets.
Headline earnings Headline earnings per share is defined as operating profit
per share (EPS)1 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 debt1 Borrowings, bank overdrafts and lease liabilities less cash
and cash equivalents.
Group organic1 The Group results at constant-currency excluding the impacts
of acquisitions, disposals and business exits.
Return on invested Group headline operating profit (operating profit excluding
capital (ROIC)1 specific adjusting items and amortisation of intangible
assets) divided by the 12-month average adjusted net assets
(third-party working capital, plant and equipment, land
and buildings, right-of-use assets, intangible assets and
other balance sheet items). This measure excludes long-term
employee benefits, deferred tax assets and liabilities,
current tax payable, provisions, cash and cash equivalents,
borrowings and lease liabilities.
Specific adjusting See note 4 to the condensed consolidated financial statements
items1 for further details.
1. Reconciliations of these non-GAAP measures and reconciliations to GAAP measures can be found on pages 10 to 14.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR LLFLDDAISFIA
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