Morgan Advanced Materials Plc · LSE:MGAM
Morgan Advanced Materials — H1 2014 Earnings Presentation
43 slides from Morgan Advanced Materials's earnings presentation, Jul 23, 2014
Slide 1: 2014 half year Group results
2014 half year Group results 23rd July 2014 www.morganadvancedmaterials.com
Slide 2: Agenda
Agenda Overview Mark Robertshaw 2014 half year Group results Kevin Dangerfield Strategy update Mark Robertshaw Summary and outlook Mark Robertshaw 2
Slide 3: Overview
Overview • Solid H1 financial performance with encouraging year-on-year growth in order book, particularly in Asia • Significant progress on portfolio reshaping • approximately half of the low margin business identified in our November Capital Markets presentation now exited • Electrical Carbon marg
Slide 4: 2014 half year Group results
2014 half year Group results Kevin Dangerfield 4
Slide 5: Improving margins year-on-year despite currency headwinds
Improving margins year-on-year despite currency headwinds H1 2014* H1 2013* % change from H1 2013 At constant As reported currency £m £m % % Revenue 448.4 486.1 -7.8% -0.9% EBITA before restructuring** 56.4 58.3 -3.3% +6.0% EBITA margin % before restructuring** 12.6% 12.0% EBITA after restructuring*
Slide 6: Modest levels of one-off costs in H1
Modest levels of one-off costs in H1 Before specific Specific adjusting items adjusting items Total Total H1 2014 H1 2014 H1 2014 H1 2013 £m £m £m £m Revenue 448.4 0.0 448.4 486.1 EBITA before restructuring* 56.4 0.0 56.4 58.3 Net restructuring* (2.1) 0.0 (2.1) (6.7) Amortisation and impairment of i
Slide 7: Net debt/EBITA at 1.3 times
Net debt/EBITA at 1.3 times – estimate of 1.2 times by year end (at current FX rates) H1 2014 H1 2013 £m £m • Operating working Cash from trading* 70.4 73.8 capital/sales ratio Change in working capital (21.4) (11.5) of 22.9% (H1 Change in provisions (6.5) (6.6) 2013: 23.4%) Cash flow from operation
Slide 8: Year-on-year margin increase overall, with significant improvement in Asia/RoW
Year-on-year margin increase overall, with significant improvement in Asia/RoW At reported rates £ million Revenue EBITA* Profit Margins % H1 2014 H1 2013 H1 2014 H1 2013 H1 2014 H1 2013 North America 171.7 183.9 26.2 27.3 15.3% 14.8% Europe 159.4 180.4 17.8 20.2 11.2% 11.2% Asia/Rest of World 117.3
Slide 9: North America – maintaining mid-teen margins
North America – maintaining mid-teen margins Revenue* 200.0 169.3 171.7 • H1 2014 revenue 1.4% higher than 150.0 H1 2013 at constant currency Revenue* £m 100.0 50.0 • Thermal, Electrical Carbon and Seals and Bearings good revenue 0.0 H1 2013 H1 2014 and profit progress offset by weak EBITA** margin
Slide 10: Europe – performance impacted by C&DS
Europe – performance impacted by C&DS Revenue* 200.0 175.9 159.4 • H1 2014 revenue 1.8% lower than 150.0 H1 2013 at constant currency Revenue* £m 100.0 excluding C&DS. Stable markets in general 50.0 0.0 H1 2013 H1 2014 • EBITA margin improvement at EBITA** margin % constant currency compared to H1 1
Slide 11: Asia/RoW – strong revenue growth and significant margin increase
Asia/RoW – strong revenue growth and significant margin increase Revenue* 150.0 • H1 2014 revenue 9.4% higher than 117.3 107.2 H1 2013 at constant currency Revenue* £m 100.0 50.0 • Recovery across most geographies, with growth in petrochem, energy 0.0 H1 2013 H1 2014 and marine markets EBITA** margi
Slide 12: Exchange rates: sterling has continued to strengthen during H1 2014
Exchange rates: £ sterling has continued to strengthen against all major currencies during H1 2014 HY 2014 FX impact of HY 2014 Reported using H1 2014 at H1 2014 (average rates) closing rates closing rates £m £m £m Revenue 448.4 (8.1) 440.3 EBITA before restructuring** 56.4 (1.2) 55.2 EBITA margin %
Slide 13: Encouraging progress across the majority of the Group's businesses
Encouraging progress across the majority of the Group’s businesses Revenue* 450 419.9 432.9 375 • Graphs at constant currency, Revenue* £m 300 adjusted for exited/sold businesses 225 150 and Composites and Defence 75 Systems (C&DS) 0 H1 2013 H1 2014 EBITA** margin % • H1 2014 revenue up 3.1% 14.0% 1
Slide 14: Summary
Summary • Solid growth at constant currency, excluding C&DS and exited businesses, at 3.1% (H1 2014 v H1 2013) • Higher order book: book-to-bill ratio year to date at 1.06 times • Profits and margins improved year-on-year at constant currency • FX headwinds material to reported results • Interim div
Slide 15: Strategy update
Strategy update Mark Robertshaw 15
Slide 16: Strategy – key themes
Strategy – key themes • Building sustainable competitive advantage in attractive markets… • …with truly, differentiated products underpinned by world- leading technology • Our goal is for all of our businesses and technologies to have the potential to deliver mid-teen EBITA margins… • …targeting thr
Slide 17: Portfolio reshaping – status as at November 2013
Portfolio reshaping – status as at November 2013 Capital Markets presentation • Electrical Carbon • Seals and Bearings • IFB/castables • C&DS advanced composites 60% 35% • Fibre • Piezo ceramics 5% • Brazed alloys and assemblies • Ceramic cores • C&DS – logistics support • Structural ceramics • Lith
Slide 18: Continued progress on loss-making/low margin businesses
Continued progress made on addressing loss- making/low margin businesses Nov 13Nov 13 Feb 14 Jul 14 5% 5% 3% c.2.5% • Merger of UK fired shapes business with Magma fully completed • 35% minority stake in larger entity • Disposal of loss-making Chinese lithium ion materials business (2013 revenue - £
Slide 19: Significant progress in Electrical Carbon
Significant progress in Electrical Carbon – now into mid-teen margin territory • EBITA margin improved by 300bps since 2013 driven by: Electrical Carbon EBITA* margin • positive mix shift 16.0% • continued rationalisation of 14.0% headcount and footprint in 12.0% higher cost labour markets and 10.0%
Slide 20: Good improvement made in Seals and Bearings
Good improvement made in Seals and Bearings • Revenue up c.10% compared to H1 2013 at constant Seals & Bearings EBITA* margin currency, driven by 12.0% petrochem and water markets 10.0% 8.0% • As with Electrical Carbon, EBITA* % further opportunities to drive 6.0% 9.2% 10.3% margin over next 12 – 24
Slide 21: Improving signs in IFB/castables
Improving signs in IFB/castables following slow down in 2013 • Margin beginning to benefit from increasing levels of project IFB/castables EBITA* margin business, particularly in Asia and 10.0% North America 8.0% • Targeting further EBITA EBITA* % 6.0% improvement through: 9.1% 9.5% 4.0% • enhanced
Slide 22: Business exits and phasing of shipments impacted C&DS
Business exits and phasing of shipments impacted C&DS • Revenues down c.50% compared to H1 2013: C&DS EBITA* margin • Exit of the UK MoD vehicles 10.0% logistics and spares contract 8.0% • Phasing of shipments more 6.0% weighted to H2 4.0% 8.1% EBITA* % 2.0% • Significant rationalisation of 0.0% hea
Slide 23: Sustaining mid-teen margins in Technical Ceramics
Sustaining mid-teen margins in Technical Ceramics • Revenue down c.7% compared to H1 2013 at Technical Ceramics EBITA* margin constant currency, primarily 20.0% driven by lower volumes for hard disk drive (HDD) and 16.0% ceramic cores EBITA* % 12.0% 8.0% 15.5% • H1 2014 margin impacted 14.5% by volu
Slide 24: Fibre - a high-teen margin business
Fibre - a high-teen margin business • Positive mix shift with continued rollout of Superwool® fibre Fibre EBITA* margin 20.0% • Growth in differentiated products 16.0% e.g. vehicle emissions control EBITA* % 12.0% • Increased levels of investment in 17.7% 17.7% 8.0% fibre R&D to further enhance 4.0%
Slide 25: Growing our differentiated businesses: acquisition of Porextherm
Growing our differentiated businesses: acquisition of Porextherm • Group acquired 100% of Porextherm on 14 July 2014 for an enterprise value of c.€26.5m • Single plant in Germany with 2013 revenue c.€24m that complements our existing microporous plants in North America and Asia • Microporous is a lo
Slide 26: Continued investment for long-term profitable growth
Continued investment for long-term profitable growth • Key areas of growth capex: • Construction of new greenfield high-temperature ceramics manufacturing site in Dalian, China now completed with operational commissioning under way • Work started on new Superwool® greenfield site in Kizad, UAE with
Slide 27: Summary and outlook
Summary and outlook Mark Robertshaw 27
Slide 28: Summary
Summary • Significant progress on portfolio reshaping • Continued investment to drive future profitable growth both organically in technology and growth capex and through acquisitions • Encouraging year-on-year growth in order book 28
Slide 29: Outlook
Outlook • Focus remains on self-help initiatives: • positive mix • cost efficiencies • continued investment in technology and differentiation • Continued self-help and an improved order book gives confidence of further progress in H2 2014 29
Slide 30: 2014 half year Group results
2014 half year Group results 23rd July 2014 www.morganadvancedmaterials.com
Slide 31: Appendix
Appendix 31
Slide 32: Revenue and EBITA as historically presented
Revenue and EBITA as historically presented – strong margin progression in AM&T businesses At reported rates £ million Revenue EBITA* Profit Margins % H1 2014 H1 2013 H1 2014 H1 2013 H1 2014 H1 2013 Technical Ceramics 118.9 135.5 17.2 21.0 14.5% 15.5% Thermal Ceramics 177.4 178.6 24.4 21.7 13.8% 12.
Slide 33: Key exchange rates
Key exchange rates H1 2014 FY 2013 H1 2013 Closing Average Closing Average Closing Average GBP to: rate rate rate rate rate rate USD 1.71 1.67 1.66 1.56 1.52 1.54 EUR 1.25 1.22 1.20 1.18 1.17 1.18 CNY 10.61 10.30 10.03 9.62 9.31 9.55 33
Slide 34: Exchange rates: sterling strengthened against all major currencies throughout H1 2014
Exchange rates: £ sterling has continued to strengthen against all major currencies throughout H1 2014 UPDATED FY 2013 FX impact of FX impact of FY 2013 Reported using 2013 using H1 2014 at H1 2014 (average rates) closing rates closing rates closing rates £m £m £m £m Revenue 957.8 (44.2) (69.1) 888.
Slide 35: Sterling strengthened substantially against most currencies Morgan trades in
During H1 2014 £ sterling strengthened substantially against most currencies that Morgan trades in • The half year closing rates of exchange were materially different from the average rates used in the Income Statement • The impact of 2014 half year closing foreign exchange rates on the Group’s 2014
Slide 36: Reconciliation of Group revenue
Reconciliation of Group revenue H1 2014 H1 2013 H1 2014 H1 2013 £m £m £m £m At constant As reported currency* Revenue as disclosed 448.4 486.1 448.4 452.4 Revenue growth % -7.8% -0.9% Exits: C&DS spares 0.0 (4.8) 0.0 (4.8) Indian loss making carbon business 0.0 (1.8) 0.0 (1.5) UK fired shapes (0.7)
Slide 37: Technology families (examples)
We aim to leverage innovation and differentiation across the full breadth of our geographies and end-markets Geographies and end-markets Technology families (examples) High-temperature fibre Structural ceramics Advanced composites and ballistics 37
Slide 38: End-market mix across regions
End-market mix across regions Revenue by market H1 2014 100% 90% 80% 70% Healthcare 60% Security & Def ence Electronics 50% Energy 40% Transportation Petrochemical 30% Industrial 20% 10% 0% Group North America Europe Asia/RoW 38
Slide 39: Insulating ceramics products
Insulating ceramics products Product Key properties/end-markets Up to circa 1400°C - unique low bio-persistence Superwool® fibre range Fibre (RCF and Superwool® range) offering typically 20% more energy efficiency across our market sectors Up to 1600°C - high strength fibre with chemical and thermal
Slide 40: Operating ROCE
Operating ROCE All £ million 2014 2013 At reported rates Half Year Half Year LTM Underlying EBITA 111.3 92.0 Change -v- 2013 Half Year 21.0% Operating Capital Land & Building - NBV 90.4 105.4 Plant & Equipment - NBV 138.8 146.7 Third Party Working Capital 167.1 181.5 396.3 433.6 Change -v- 2013 Half
Slide 41: Net financing costs
Net financing costs H1 2014 H1 2013 £m £m Bank interest charge 8.3 9.2 Bank interest income (0.8) (0.6) Net interest on IAS19 obligations 3.0 3.3 10.5 11.9 41
Slide 42: Underlying EPS
Underlying EPS H1 2014 H1 2013 £m £m Basic earnings from continuing operations 23.9 24.0 Amortisation 4.3 4.0 Specific adjusting items 2.0 0.0 Underlying earnings 30.2 28.0 Weighted average number of shares in the period 285.2m 281.0m Underlying earnings per share from continuing 10.6p 10.0p operati
Slide 43: 2014 half year Group results
2014 half year Group results 23rd July 2014 www.morganadvancedmaterials.com
Morgan Advanced Materials — H1 2014 Earnings Presentation on 6ix