Morgan Advanced Materials plc · LSE:MGAM
Morgan Advanced Materials — Morgan Crucible Company — H1 2002 Earnings Presentation
41 slides from Morgan Advanced Materials's earnings presentation, Sep 10, 2002
Slide 1: 2002 Interim Results
HIJ 2002 Interim Results 10 September 2002
Slide 2: Introduction
25.82 Mp Introduction
Slide 3: Interim results summary
Interim results summary First Half 2002 2001 Turnover + £m 449.5 520.7 Operating profit + * £m 16.0 45.4 Net finance charge £m (6.6) (9.9) Profit before taxation ** £m 9.1 37.6 Underlying EPS ** p 2.2p 10.9p Dividend per share p - 7.4p + On a continuing basis *Before goodwill amortisation of £3.9m (
Slide 4: 1st Half 2002 geographic sales
1st Half 2002 geographic sales Americas 42% Rest of World Europe 15% 43% Morgan’s broad geographic spread HIJ
Slide 5: Organisation
Organisation 5 Businesses Electrical Engineered Magnetics Technical Insulating Carbon Carbon Ceramics Ceramics Combined strength - Global strength HIJ
Slide 6: 1st Half 2002 sales by business
1st Half 2002 sales by business Insulating Ceramic 28% Electrical Carbon 23% Engineered Carbon 13% Magnetics Technical 21% Ceramics 15% HIJ
Slide 7: 1st Half 2002 operating profit by business
1st Half 2002 operating profit by business Insulating Ceramic 36% Magnetics -7 % Technical Ceramics Electrical Carbon 11% Engineered 48% Carbon 12% HIJ
Slide 8: 1st Half 2002 market sector sales
1st Half 2002 market sector sales Automotive Consumer Goods Industrial Equipment Chemical and Petrochem. Power Generation Non Ferrous Metals Defence / Aerospace Steel Telecommunications Railway & Marine Electronics Mechanical Engineering Biomedical & Health Ceramics & Glass Construction 0 2 4 6 8 10
Slide 9: 1st Half 2002 operating cash flow by business
1st Half 2002 operating cash flow by business Insulating Ceramic 43% Magnetics 11 % Electrical Carbon Technical 36% Engineered Ceramics Carbon -2% 12% HIJ
Slide 10: Cash generation profile 2001
Cash generation profile 2001 £'m 120 109.4 100 70.6 80 60 38.8 40 20 0 1st Half 2nd Half Full Year Operating profit (before goodwill) Operating cash flow Profit Impact high… but cash achievement excellent HIJ
Slide 11: Cash generation profile
Cash generation profile £'m 29.7 30 25 20 15 10 5 0 1st Half 2002 Operating profit (before goodwill) Operating cash flow Continued emphasis on cash generation HIJ
Slide 12: Financial Review
HIJ Financial Review Nigel Young
Slide 13: Summary Profit and Loss Account
Summary Profit and Loss Account First Half £m 2002 2001 Turnover (continuing) 449.5 520.7 Underlying operating profit (continuing) 16.0 45.4 (discontinued) (0.3) 2.1 Goodwill amortisation (3.9) (3.7) Exceptional items (38.0) (2.3) Net finance charge (6.6) (9.9) Pre-tax (loss)/profit (32.8) 31.6 Tax
Slide 14: EPS and order book outlook
EPS and order book outlook First Half 2002 2001** Underlying EPS* p 2.2 10.9 Dividend per share p - 7.4 *Before goodwill amortisation of £3.9m (2001 - £3.7m) and operating and corporate exceptional costs of £38.0m (2001:£2.3m loss) - **2001 figures are restated HIJ
Slide 15: Cost reduction programme
Cost reduction programme • Increased efficiency & simplicity of operating structure • Original overall plan • Current overall position • Annualised improvement in costs within 2 years HIJ
Slide 16: Operating cash flow
Operating cash flow First half £m Inflow/(outflow) 2002 2001 Operating profit (16.5) 43.8 Depreciation and amortisation 28.3 29.3 Reorganisation costs/ write offs 13.7 (0.1) Increase in working capital (3.6) (35.5) Other 7.8 1.3 Operating cash flow 29.7 38.8 HIJ
Slide 17: Free cash flow
Free cash flow First Half £m Inflow/(outflow) 2002 2001 Operating cash flow 29.7 38.8 Net interest (7.0) (9.4) Taxation (3.7) (9.0) Cash earnings 19.0 20.4 Dividends (18.2) (18.2) Net cash flow before capex 0.8 2.2 Net capital spend (17.4) (29.3) Free cash flow (16.6) (27.1) HIJ
Slide 18: Borrowings and gearing
Borrowings and gearing Half year £m Inflow/(outflow) 2002 2001 Opening net borrowings (276.1) (220.0) Free cash flow (16.6) (27.1) Acquisitions/disposals (3.4) (47.1) Other 1.0 (2.0) Closing net borrowings (295.1) (296.2) Net assets 379.0 444.9 Gearing 78.0% 67.0% HIJ
Slide 19: Funding
Funding • Strong banking relationships • Reduce predominance of bank finance • Increase proportion of alternative funding sources • Targeted net debt reduction to £200m – commitment to non-core corporate disposals (T/O £70m+) – disposal of surplus property (proceeds c£20m over years 02-04) – tight c
Slide 20: Increasing competitiveness and reducing net debt
Increasing competitiveness and reducing net debt • Cost reduction programme is on track • Strong cash management in place • Good first half free cash flow performance • Substantial reduction in net debt targeted through portfolio adjustment and disposals • Interim dividend “reinvested” in the cost r
Slide 21: First half key areas
25.82 Mp First half key areas
Slide 22: Cost reduction programme
Cost reduction programme • Significant reduction in total employee cost. • Headcount reduction of 1,000 employees. • Transfer of an additional 1,000 jobs to low cost countries. • Announced impact – Operating cost base reduced by £30m per annum from 2004 – Exceptional costs of £70m during 2002 – 2004
Slide 23: Cost reduction programme – current position
Cost reduction programme – current position Of the total of 71 projects 26 completed Est. £10m annualised saving by end of 2002. Total Costs £70m Total Cash effect £40m Full year savings (mid 2004) £33m 2002 Costs £45m 2002 Cash Outflow £19m HIJ
Slide 24: Cost reduction programme cumulative effect
£ Mill’s 80 Cost reduction programme Cumulative effect 70 Cumluative OP Benefit 60 50 Cumulative cash "cost" 40 30 Cumulative 20 asset write off 10 - 2002 2003 2004 HIJ
Slide 25: Restructuring – progress
Restructuring – progress Major Priorities Large IFB/ Castables restructuring Restructure EU Adv. Ceramics site Early wins Strategic Wins Thermal Inc. cost restructuring Magnetic Mechanical Carbon Size of Dev. Slovakia Rationalisation benefit USA Crucible Closure of US ferrites EU Industrial Restruct
Slide 26: Business analysis
Business analysis Operating profit First Half £m Turnover before goodwill 2002 2001 2002 2001 Magnetics 95.7 117.7 (1.2) 7.6 Electrical 102.9 105.9 7.6 11.4 Engineered 56.7 68.3 2.0 6.6 Technical 65.7 81.8 1.8 8.6 Insulating 128.5 147.0 5.8 11.2 Continuing businesses 449.5 520.7 16.0 45.4 Discontinu
Slide 27: Business Highlights: Electrical Carbon
Business Highlights Operating profit First Half £m Turnover before goodwill 2002 2001 2002 2001 Electrical Carbon 102.9 105.9 7.6 11.4 • Industrial replacement market strengthening • Industrial and Automotive Gross Margin recovering • Automotive - record new business contracts won • Opportunities in
Slide 28: Business Highlights: Magnetics
Business Highlights Operating profit First Half £m Turnover before goodwill 2002 2001 2002 2001 Magnetics 95.7 117.7 (1.2) 7.6 • Sales down 18.7% on first half 2001 • Major fixed cost reduction programme on target • Focus on working capital reduction • Good growth in sales and profit in Superconduct
Slide 29: Business Highlights: Engineered Carbon
Business Highlights Operating profit First Half £m Turnover before goodwill 2002 2001 2002 2001 Engineered Carbon 56.7 68.3 2.0 6.6 • US and Asian markets for OEM’s are weak • Commercial aero weakness over last 12 months • Business focusing on cost and cash control • Specialty Margins increased desp
Slide 30: Business Highlights: Technical Ceramics
Business Highlights Operating profit First Half £m Turnover before goodwill 2002 2001 2002 2001 Technical Ceramics 65.7 81.8 1.8 8.6 • Consolidation of US Advanced Ceramic sites • Move to low cost countries progressing • Consolidation proposals within Europe nearing completion • Further approvals ga
Slide 31: Business Highlights: Insulating Ceramics
Business Highlights Operating profit First Half £m Turnover before goodwill 2002 2001 2002 2001 Insulating Ceramics 128.5 147.0 5.8 11.2 • US Crucible site closure in progress and on target • UK site consolidation delivering cost and efficiency target • Increasing demand for soluble Superwool • All
Slide 32: Morgan Group gross margin
Morgan Group 43% 42% 41% 40% 39% 38% 1 2 2 1 1 1 2 1 02 02 02 1 -0 -0 -0 -0 -0 l-0 -0 -0 -0 n- n- b- ct pr ep ay ar ug ec ov Ju Ja Fe Ju O M A M D S A N Quarterly Moving Average Gross Margin % Note: Information extracted from management accounts HIJ
Slide 33: Industrial Railway Traction
Industrial Railway Traction 53% 51% 49% 47% 45% 1 2 2 1 1 1 1 2 02 02 02 1 -0 -0 -0 -0 -0 l-0 -0 -0 -0 n- b- n- ct ep pr ar ay ug ec ov Ju Ja Fe Ju O M A M D S A N Quarterly Moving Average Gross Margin % Note: Information extracted from management accounts HIJ
Slide 34: Thermal Ceramics
Thermal Ceramics 43% 41% 39% 37% 35% 1 2 2 1 1 1 2 1 02 02 02 1 -0 -0 -0 -0 -0 l-0 -0 -0 -0 n- n- b- ct pr ep ay ar ug ec ov Ju Ja Fe Ju O M A M D S A N Quarterly Moving Average Gross Margin % Note: Information extracted from management accounts HIJ
Slide 35: Trading Environment
Trading Environment • General manufacturing environment: – Order visibility has shortened – Variability of customer delivery schedules increased – Rapid lead time requirement is a norm • Morgan response – Rapid delivery units established – Focus on working capital reduction – Cost cutting initiative
Slide 36: Trading Environment
Trading Environment • Need to strategically transform ourselves from - – an acquisition led company – to a company capable of self funded organic growth • Never an easy task in good market conditions - – Investment in your product development is required – order books are developed – Pipelines of fu
Slide 37: Applied Technology
Applied Technology • Investment has continued in our technology • Customers have also been focussing on new innovations during the downturn • They demand materials and products which are :- – Stronger – Lighter – Smaller – Smarter – And of the highest purity. • We continue to meet that requirement •
Slide 38: Applied Technology
Applied Technology • Technology only makes return when properly applied to our markets • Our market development focus now expanded by Bill Macfarlane to cover all 5 Morgan businesses provides – Cross business market data (e.g. Medical, Aerospace, Defence.Automotive,e.t.c.) – Merging of materials & p
Slide 39: Debt reduction
Debt reduction • Disposals – – The detailed analysis which we are conducting within all 5 businesses, identified further portfolio rationalisation – Turnover approx. £70 Million • Working capital reduction – Real focus and continuing reductions anticipated • Property disposals – – Site reduction and
Slide 40: Outlook
Outlook Timing of significant recovery remains uncertain Improved demand in second quarter Given normal seasonal order patterns, the strength of our replacement and after-sales demand positions us to achieve progress during the remainder of the year Positioned to resume profitable organic growth HIJ
Slide 41: HIJ
HIJ
Morgan Crucible Company — H1 2002 Earnings Presentation on 6ix