Morgan Advanced Materials
Full-year results for the period ended 31 December 2020
| £ million unless otherwise stated
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2020 |
2019 | As reported change | Organic constant- currency1 change |
| Adjusted results Revenue |
910.7 |
1,049.5 | (13.2)% | (11.4)% |
| Group adjusted operating profit1 | 91.7 | 134.2 | (31.7)% | (28.1)% |
| Group adjusted operating profit margin1 | 10.1% | 12.8% |
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| Adjusted EPS1 | 19.0p | 28.0p |
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| Total dividend per share | 5.5p | 4.0p |
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| Cash generated from continuing operations | 146.3 | 164.8 |
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| Free cash flow before acquisitions, disposals and dividends1 | 72.4 |
59.2
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| Statutory results |
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| Operating (loss)/profit3 | (1.8) | 126.1 |
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| (Loss)/profit before tax3 | (13.1) | 109.7 |
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| Continuing EPS2 | (8.6)p | 25.2p |
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| Continuing and discontinued EPS2 | (7.9)p | 25.7p |
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1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16. Throughout this report these non-GAAP measures are clearly identified by an asterisk (*) where they appear in text.
2. 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 consolidated financial statements.
3. The statutory loss principally arises as a result of the impairment of assets of £65.6 million and charge for restructuring costs of £24.0 million recorded within specific adjusting items - see page 8 for further details.
Group highlights
• The safety of our people is our priority and we have robust protection measures in place in all facilities to protect our employees during the pandemic.
• Trading has been resilient with a revenue decline of 11.4% on an organic constant-currency* basis, showing the benefit of diverse end-markets, with growth in healthcare and security and defence segments offset by declines in industrial and transportation.
• Focus on cost and cash management delivering an operating margin of 10.1% and free cash flow* of £72.4 million to give a net debt* to EBITDA* position of 0.8 times, excluding lease liabilities.
• The group wide restructuring programme is ahead of plan and we have increased our cost savings target to £23 million per annum by 2022 for a cash cost of £30 million.
• We are committing to reduce our Scope 1 & 2 CO2 emissions by 50% by 2030 as part of our aspiration to reach a net zero goal by 2050.
Commenting on the results for Morgan Advanced Materials, Chief Executive Officer, Pete Raby said:
"I want to thank all of our employees for their tremendous efforts during this crisis, handling considerable change through the year, whilst keeping everyone safe, looking after colleagues, our customers and our communities.
The resilience of our results demonstrates the improvements we have made to the business in the last four years, the rapid action we have taken to manage our costs and the benefits of our diverse end-market segments. Through this difficult period, we have continued with our long-term investments in research and development, sales and other infrastructure to support the future growth of the business.
As part of our focus on ESG, I am delighted to announce that we are committing to reduce our Scope 1 and Scope 2 CO2 emissions by 50% by 2030 as part of our aspiration to be net zero by 2050.
We are well positioned to grow our business and expand our margins as our markets recover."
Outlook
The outlook for 2021 is uncertain given the ongoing COVID-19 pandemic and its impact on customer demand. However, we have seen sustained sequential improvement in order intake rates since the second quarter of 2020. Recent order momentum across the three months from November 2020 to January 2021 has improved to a 3.5% decline in average daily orders compared to the same period last year.
Subject to no significant change in COVID related operating conditions, and based on our current assessment of business trends and orders, we expect modest growth in the Group's organic constant-currency revenue* for the full year, with a decline in the first quarter offset by growth from the second quarter onwards. Operating profit margins will benefit from the impact of volume leverage and the delivery of the benefits of our restructuring actions.
Beyond the underlying trends in the business, we have headwinds to our reported results from foreign exchange translation, the impact of the completion of our previously announced exits from the Electro-ceramics site in the US and the divestment of the Diamonex business.
Managing the impact of COVID-19
2020 was a very challenging year with the COVID-19 pandemic impacting every part of our business. We saw the initial effects in China in January, with our plants in China closed for an extended period over the Chinese New Year holidays. This quickly spread to Europe, the Americas, wider Asia and the rest of the world. During the first half of the year, we saw a small number of plants closed for multi-week periods in each region as local, regional, or national governments took steps to control the spread of the virus.
The safety of our people has always been our top priority and our immediate focus at the outset of the pandemic was to ensure their safety and wellbeing, as well as the safety of our customers and communities. We have a range of measures in place in all of our facilities to protect our employees including physical changes to layout and people flow, social distancing, requirements for additional protective equipment, and additional hygiene and disinfection protocols. We enacted flexible working for all roles (that could do so) and enhanced our cleaning regimes where our people attended site.
Emerging stronger: Group restructuring and efficiency programme
A Group restructuring and efficiency programme is underway, accelerating our existing plans to further simplify our structure, drive efficiency in our operations and to align our capacity with the anticipated lower demand levels across the business. These plans will allow us to expand our margins when volumes return to more normal levels.
In response to the significant downturn in aerospace demand, and the anticipated long-tail effect of this, the Group announced during the first half of the 2020 financial year the closure of Technical Ceramics ceramic cores manufacturing sites in the UK and North America and the closure of sites and under-utilised production lines in the Thermal Ceramics business to align our capacity to lower industrial and automotive demand and restructuring other roles across the Group to align our cost base to the lower overall demand position. In total, regretfully the closure of eight of our manufacturing sites and around 550 job losses were announced in July 2020. However, these actions will allow the business to emerge from this crisis stronger.
The programme is ahead of plan and we are increasing our target, now expecting to reduce costs by £23 million per annum by 2022, with an anticipated cash cost of £30 million to deliver these savings:
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| FY 2020 £m | FY 2021 £m | FY 2022 £m | Total £m |
| Adjusted operating profit1 benefits (incremental) | 6 | 17 | 23 | - |
| Cash costs charged to specific adjusting items | (24) | (6) | - | (30) |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Our purpose
Our purpose is to use advanced materials to make the world more sustainable and to improve the quality of life.
The world is changing at an extraordinary pace, sustainability is ever more important and advanced materials have a key role to play in delivering a sustainable world.
Using advanced materials we deliver on our purpose through the products that we make, and the way that we make them - we enable greener electricity generation; we enable electrification for cleaner transportation, we enable the digital world, and all the benefits to the environment and health that brings; we help to keep people safe, we help our customers manage heat, reducing their energy usage; we improve the quality of life through medical applications.
Our strategy
Our strategy is to build distinctive capabilities in customer focus, application engineering and materials science and apply those capabilities to solve difficult problems for our customers where they value our solutions. Over the last five years we have made considerable progress in developing our capabilities and simplifying our portfolio to improve our performance. During 2020 we completed further work to enhance our customer focus and materials science capabilities, and to improve our wider leadership capability:
Customer focus
We have continued to enhance our sales effectiveness and improve the customer experience through further deployments of our CRM tool and its integration into our sales and pipeline management processes. We have also completed our initial sales training and undertaken further pricing work.
While plant activity has been somewhat disrupted, we have made further improvements to delivery and responsiveness, and reduced operating costs through the deployment of lean production techniques, kaizen events and procurement improvements.
Materials science
We have progressed our new technology and product developments, with new products in early stage trials at a number of customers. We have seen some delays to new product launch as our customers were impacted by the pandemic and we expect those to pick up pace in 2021 as markets recover.
Leadership capability
We have completed our in-flight leadership development programmes with a very successful series of virtual events and completed a number of key appointments to strengthen our leadership teams.
We are seeing growing demand for advanced materials as customers push the boundaries of technology to make their processes and products more efficient and more sustainable. This applies across our end markets, and in particular in four faster growing segments where we have been working closely with our customers to develop new solutions for their next generation of products and processes:
· Clean energy. We have developed new ceramic materials for customers producing solar panels that support their latest generation of production technology. We are developing brushes that provide longer lifetimes and higher current carrying capability to support the next generation of wind turbines.
· Clean transportation. We have streamlined our production processes for carbon strips allowing us to develop and test new materials formulations quickly to meet the very diverse needs of customers in the rail and metro markets. We have a leading range of products and solutions that provide fire protection around battery packs in electric vehicles and we are constantly innovating these to meet the myriad requirements of our customers.
· Semiconductors. Our materials are used throughout the semiconductor manufacturing process, in etch, ion implantation, photolithography, and deposition steps. As chip density increases, the manufacturing processes get more demanding and put increasing demands on the components used in the process. We are working with our customers on carbon and ceramic materials and product configurations to support their latest generation of equipment.
· Healthcare. We provide ceramic and brazing products for diagnostic and life support equipment, and for implantable devices. Our latest generation of materials solutions deliver performance improvements for our customers. Our materials are used in power tubes for medical scanning and with new materials design we can increase the lifetime of the product. We have developed new capabilities for the implantable feedthrough market (e.g. for cochlear implants and neurostimulation) that allow us to provide higher pin densities enabling smaller package sizes for our customers' next generation products.
Through our investments in sales, application engineering and technology we are increasing our exposure to these faster growing market segments and steadily improving the underlying growth rate of the group.
Our environment, social and governance (ESG) objectives
Supported by our purpose we are becoming a more sustainable business, while also helping our customers to become more sustainable through the products we design and manufacture. We have stretching environmental goals that we are working hard to achieve. We are improving social factors to keep our people safe and we are looking to provide meaningful work that contributes to an improved society and enables the communities where we operate to thrive. We have robust governance processes across our business and operate to high ethical standards.
As part of our next phase of improvement we have set stretching targets to make further improvements to our environmental impact, to the safety of our employees and to the diversity and inclusion of our workplaces.
We have defined five ESG improvement objectives and targets to improve our performance as a Group:
Reduce our environmental impact
1. Our aspiration is to be a CO2 net zero business by 2050. Our 2030 target is to reduce our Scope 1 and Scope 2 CO2 emissions by 50% (from a 2015 baseline).
2. Our aspiration is to use water sustainably across our business. Our 2030 target is to reduce our overall water usage by 30% and reduce our water usage in high stress areas by 30% (from a 2015 baseline).
Improve our safety performance
3. Our aspiration is to create an environment and culture with zero harm to our employees. Our 2030 target is a lost time accident rate below 0.1 (lost time accidents per 100,000 hours worked).
Improve the diversity & inclusion of our business
4. Our aspiration is that our employee demographics reflect the communities that we operate in. Our 2030 target is for 40% female representation across our leadership population of our organisation.
5. Our aspiration is a welcoming and inclusive environment where our employees can grow and thrive. Our 2030 target is to attain a top quartile employee engagement score.
Our performance to date is as follows:
1. Scope 1 & 2 CO2 emissions. 23% reduction from 2015 to 2020. We delivered a 10% reduction from 2015 to 2019. We delivered a further 13% reduction in 2020, largely reflecting the reduction in business volumes during 2020 (from the COVID-19 pandemic).
2. Water usage in stressed areas. We delivered a 20% reduction in water usage from 2015 to 2020.
3. Lost time accident rate. Our lost time accident rate reduced from 0.45 to 0.18 from 2015 to 2020. Our 2020 position was worse than 2019 (0.14) with a similar number of lost time accidents and fewer hours worked.
4. Diversity in our leadership population. Today we measure this for our Executive team and our next two layers down through our organisation. The percentage of female representation is 30%.
5. No employee survey was conducted in 2020 given the pandemic, but we plan to reinstate this going forward.
To coordinate our improvement efforts and ensure that we integrate ESG factors into our business processes and decision making, we have created a Group Director of Environment and Sustainability role, reporting to the CEO. In addition, the Board review progress quarterly and take an active role in holding the executive team to account on improving ESG performance.
"We are passionate about doing business the right way, for our people, our customers and the communities in which we operate. The goals we outlined today are an important step towards meeting our ESG aspirations, and I am delighted with the commitment and improvements we are making for the longer term, to help make the world more sustainable."
Enquiries
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Pete Raby |
Morgan Advanced Materials |
01753 837 000 |
| Peter Turner
| Morgan Advanced Materials |
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| Nina Coad | Brunswick | 0207 404 5959 |
Results presentation today
There will be an analyst and investor presentation at 08:30 (UK time) today via web-conference.
A live audio webcast and slide presentation of this event will be available on www.morganadvancedmaterials.com We recommend you register by 08:15 (UK time).
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Basis of preparation
Non-GAAP measures
Throughout this report, adjusted measures are used to describe the Group's financial performance. These are not recognised under IFRS or other generally accepted accounting principles (GAAP). The Executive Committee and the Board manage and assess the performance of the business on these measures and they are presented as 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.
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 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Operating review
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1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
2. Details of specific adjusting items can be found in note 4 to the consolidated financial statements.
Thermal Products division
Revenue for Thermal Products for the year was £385.5 million, representing a decrease of 17.5% compared with £467.5 million in 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 15.3%. Divisional adjusted operating profit* for Thermal Products was £29.9 million (2019: £58.1 million) with a divisional adjusted operating profit* margin of 7.8% (2019: 12.4%). Divisional operating loss was £12.6 million (2019: profit £55.6 million) primarily as a result of impairments and restructuring activity recognised in specific adjusting items, see note 4 for further details.
Revenue for Thermal Ceramics for the year was £344.3 million, representing a decrease of 17.7% compared with £418.4 million in 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 15.5%. Revenue was lower due to a reduction in the transportation segment, in particular the aerospace impact of the COVID-19 pandemic, as well as a broad-based market decline in the industrial segment across Europe and North America.
Thermal Ceramics 2020 adjusted operating profit* was £26.7 million (2019: £52.2 million) with adjusted operating profit margin* of 7.8% (2019: 12.5%). Margin decline was driven by the impact of lower volume, partially offset by efficiency actions, as well as a £2 million charge for an increase in the expected credit loss provision.
Revenue for Molten Metals Systems for the year was £41.2 million, a decrease of 16.1% compared with £49.1 million in 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 13.8%. The lower demand was driven by reduced demand for crucibles in the core aluminum market.
Molten Metal Systems 2020 adjusted operating profit* was £3.2 million (2019: £5.9 million) with adjusted operating profit margin* of 7.8% (2019: 12.0%). During 2020, margins declined due to the lower volume partially offset by cost control actions.
Carbon and Technical Ceramics division
Revenue for the Carbon and Technical Ceramics division for the year was £525.2 million, representing a decrease of 9.8% compared with £582.0 million in 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 8.3%. Divisional adjusted operating profit* for the Carbon and Technical Ceramics division was £65.9 million (2019: £82.0 million) with divisional adjusted operating profit margin* of 12.5% (2019: 14.1%). Divisional operating profit was £15.4 million (2019: £76.4 million) the year-on-year reduction primarily as a result of impairments and restructuring activity recognised in specific adjusting items, see note 4 for further details.
Revenue for the Electrical Carbon global business unit in 2020 was £151.4 million, representing a decrease of 7.8% compared with £164.2 million in 2019. On an organic constant-currency* basis, year-on-year revenue declined by 6.3%. Growth in the semiconductor and electronics end-market segments was offset by the year-on-year decline driven primarily by economic weakness in a number of segments in our core industrial markets.
Electrical Carbon adjusted operating profit* was £23.6 million (2019: £21.9 million) with an adjusted operating profit margin* of 15.6% (2019: 13.3%). Despite the revenue decline, adjusted operating profit margins* were expanded through strong operational efficiency actions, as well as a £2 million one-off benefit from an insurance settlement.
Revenue for the Seals and Bearings global business unit in 2020 was £146.4 million, representing an increase of 1.5% compared with £144.3 million in 2019. On an organic constant-currency* basis year-on-year revenue increased by 1.5%. The business growth was driven by a continuation of contract awards in ceramic armour (2020: £49 million; 2019: £35 million). This was largely offset by a decline in the industrial, petrochemical and aerospace segments.
Seals and Bearings adjusted operating profit* was £27.5 million (2019: £26.4 million) with an adjusted operating profit margin* of 18.8% (2019: 18.3%). Margins improved with the benefit of increased volume and from continuous improvement efficiency savings.
Revenue for the Technical Ceramics global business unit in 2020 was £227.4 million, a decrease of 16.9% compared with £273.5 million in 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 14.8% primarily driven by declines in the transportation segment, in particular aerospace, and with wider industrial market declines.
Technical Ceramics adjusted operating profit* was £14.8 million (2019: £33.7 million) with an adjusted operating profit margin* of 6.5% (2019: 12.3%). Margins declined with the impact of lower volumes, partially offset by cost control measures.
Group financial review
Group revenue was £910.7 million (2019: £1,049.5 million), a decrease of 13.2% on a reported basis compared with 2019, driven by a decline in the underlying business, foreign exchange headwinds and the impact of divestments. On an organic constant-currency* basis revenue decreased by 11.4%.
Group adjusted operating profit* was £91.7 million (2019: £134.2 million). Adjusted operating profit margin* was 10.1%, compared to 12.8% for 2019.
Throughout the economic downturn associated with the COVID-19 pandemic we have taken action to reduce costs, improve cash flow and increase liquidity. These actions included reductions to capital expenditure, other than for vital health, safety and environmental matters, a temporary hiring freeze for all but the most critical roles, a curtailment of discretionary expenditure and temporary salary reductions for the Board and our Executive team.
Operating loss was £(1.8) million (2019: profit £126.1 million) and loss before tax was £(13.1) million (2019: profit £109.7 million). Specific adjusting items in 2020 before tax were of £87.4 million (2019: net nil), primarily relating to restructuring charges and the impairment of assets. Further details are included under 'Specific adjusting items' below.
The Group amortisation charge was £6.1 million (2019: £8.1 million).
The net finance charge was £11.9 million (2019: £16.9 million) comprising net bank interest and similar charges of £6.5 million (2019: £9.3 million), net interest on IAS 19 pension obligations of £2.6 million (2019: £4.6 million), and the interest expense on lease liabilities of £2.8 million (2019: £3.0 million) resulting from IFRS 16 Leases.
Looking forward to 2021, we anticipate that the net finance charge will be around £12 million, comprising net bank interest and similar charges of £7 million; net interest on IAS 19 pension obligations of £2 million; and the net interest expense on lease liabilities of £3 million.
The Group tax charge, excluding specific adjusting items, was £20.2 million (2019: £29.9 million). The effective tax rate, excluding specific adjusting items, was 27.2% (2019: 27.3%). Note 6 to the consolidated financial statements, on page 31, provides additional information on the Group's tax charge. Looking forward to 2021, we anticipate that the effective tax rate will be around 27-28%. On a statutory basis, the Group tax charge was £6.9 million (2019: £29.9 million), lower than the prior year due to the tax credit arising on the specific adjusting items.
Adjusted earnings per share* was 19.0 pence (2019: 28.0 pence) and basic loss per share from continuing operations was (8.6) pence (2019 earnings per share: 25.2 pence). Details of these calculations can be found in note 8 to the consolidated financial statements on page 33.
The Group's balance sheet and liquidity remains robust. Net debt* for the year ended 31 December 2020 was £155.6 million, with net debt* excluding lease liabilities of £101.0 million, with no term debt maturities until 2023. The Group has net cash and cash equivalents* of £75.8 million and undrawn headroom on its revolving credit facility of £200 million.
The Group applied for the UK Government's 'COVID Corporate Financing Facility' (CCFF) with an issuer limit of £300 million, which was confirmed as successful on 10 June 2020. The facility was undrawn throughout the period. Additionally, the Group received £0.5 million from the UK Government under the 'Coronavirus Job Retention Scheme' (CJRS) for employees placed on furlough. The Group repaid the £0.5 million in full to the UK Government in the third quarter of the year once the economic impact of the pandemic became clearer.
Our key financial covenants are measured on a pre-IFRS 16 Leases basis. As at 31 December 2020, net debt* to EBITDA*, excluding lease liabilities, was 0.8 times compared to a covenant not to exceed 3.0 times, and our interest cover was 18.7 times, compared to a covenant to exceed 4.0 times.
Specific adjusting items
In the consolidated income statement, the Group presents specific adjusting items separately. In the judgement of the Directors, as a result of 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 an alternative understanding of the financial information and an indication of the underlying performance of the Group.
Details of specific adjusting items arising from continuing operations during the year and the comparative period are given in note 4 to the consolidated financial statements. Specific adjusting items in relation to discontinued operations are disclosed in note 7 to the consolidated financial statements.
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| 2020 £m | 2019 £m |
| Specific adjusting items |
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| Impairment of assets | (65.6) | - |
| Restructuring costs | (24.0) | - |
| Profit on disposal of business | 2.2 | - |
| Business closure and exit costs | - | (0.7) |
| Release of provisions related to previous business exits and disposals | - | 0.7 |
| Total specific adjusting items before income tax | (87.4) | - |
| Income tax credit from specific adjusting items | 13.3 | - |
| Total specific adjusting items after income tax | (74.1) | - |
In 2020 specific adjusting items were £87.4 million (2019: net £nil) and comprised the following:
2020
Impairment of assets
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand has resulted in impairment losses of £28.8 million relating to the ceramic cores business. The impaired assets comprise intangible assets recognised upon the acquisition of the Carpenter business in 2008, and property, plant and equipment.
Technical Ceramics, China
On 15 June 2020 the Group announced the closure of its Suzhou manufacturing facility in China and has recognised £1.1 million relating to the impairment of property, plant and equipment.
Thermal Ceramics
The continuing reduced demand in the aerospace, automotive and industrial market segments has resulted in impairment losses of £35.7 million in Thermal Ceramics, which relates to the closure of sites and under-utilised product lines, as well as the impairment of intangible assets recognised upon the acquisition of Porextherm in Germany in 2014.
Restructuring costs
Following the announcement of the Group's restructuring programme the Group has recognised £24.0 million related to staff redundancies, site closure costs, legal and professional fees and the exit of certain multi-employer defined contribution pension plans.
Profit on disposal of business
On 31 August 2020, the Group completed the sale of its Diamonex business, based in Allentown, US. The transaction was structured as a sale of the business and related assets for total consideration of up to £6.5 million. The consideration comprises £5.6 million paid in cash on completion, £0.3 million of deferred consideration due in 2021 and up to £0.5 million of consideration contingent on the future performance of the disposed business which, if earned, would also be payable in 2021. A gain of £2.2 million was realised on disposal - see note 2 for more details.
2019
Release of provisions related to previous business exits and disposals
In 2019, certain liabilities relating to previous business exits and disposals lapsed and the Group released £0.7 million of legal and other provisions.
Business closure and exit costs
In 2019, the Group completed the exit of the ceramic cores operations within China, initiated in 2018. The Group recognised £0.7 million of costs in relation to this exit relating to staff redundancies and legal and professional fees.
Foreign currency impact
The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:
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| 2020 | 2019 | ||
| GBP to: | Closing rate | Average rate | Closing rate | Average rate |
| US dollar | 1.37 | 1.28 | 1.33 | 1.28 |
| Euro | 1.12 | 1.13 | 1.18 | 1.14 |
For illustrative purposes, the table below provides details of the impact on 2020 revenue and Group adjusted operating profit* if the actual reported results, calculated using 2020 average exchange rates were restated for GBP weakening by 10 cents against US dollar in isolation and 10 cents against the Euro in isolation:
| Increase in 2020 revenue/adjusted operating profit1 if: | Revenue
£m | Adjusted operating profit1 £m |
| GBP weakens by 10c against the US dollar in isolation | 33.9 | 4.3 |
| GBP weakens by 10c against the Euro in isolation | 17.4 | 1.8 |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Retranslating the 2020 full year results at the February 2021 closing exchange rates would lead to revenue of £863.8 million and adjusted operating profit* of £85.0 million.
Cash flow
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| 2020
£m | 2019 restated1 £m |
| Cash generated from continuing operations | 146.3 | 164.8 |
| Net capital expenditure | (28.6) | (54.9) |
| Net interest on cash and borrowings | (6.6) | (9.3) |
| Tax paid | (26.0) | (28.8) |
| Lease payments and interest | (12.7) | (12.6) |
| Free cash flow before acquisitions, disposals and dividends2 | 72.4 | 59.2 |
| Dividends paid to external plc shareholders | (5.7) | (31.3) |
| Net cash flows from other investing and financing activities | (7.8) | (12.1) |
| Net cash flows from divestments and discontinued operations | (0.1) | 1.1 |
| Exchange movement and other non-cash movements | (2.5) | 6.1 |
| Opening net debt2 excluding lease liabilities | (157.3) | (180.3) |
| Closing net debt2 excluding lease liabilities | (101.0) | (157.3) |
| Closing lease liabilities | (54.6) | (64.3) |
| Closing net debt2 | (155.6) | (221.6) |
1. 2019 has been restated to classify the Group's cumulative preference shares, totalling £0.4 million, as borrowings. See note 1 to the condensed consolidated financial statements.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Cash generated from continuing operations was £146.3 million (2019: £164.8 million).
Free cash flow before acquisitions, disposals and dividends* was £72.4 million (2019: £59.2 million).
Net debt* at the year end was £155.6 million (2019 restated: £221.6 million), representing a net debt* to EBITDA* ratio of 1.2x (2019: 1.3x).
Net debt* excluding lease liabilities was £101.0 million (2019 restated: £157.3 million), representing a net debt* to EBITDA* ratio excluding lease liabilities of 0.8x (2019: 1.0x).
Defined benefit pension plans
The Group pension deficit has increased by £19.5 million since last year end to £176.3 million on an IAS 19 (revised) basis as employer contributions and investment gains were more than offset by the impact of lower discount rates:
· The UK Schemes deficit increased by £18.8 million to £120.3 million (2019: £101.5 million), (discount rate 2020: 1.23%; 2019: 2.06%).
· The US Schemes deficit decreased by £3.3 million to £7.3 million (2019: £10.6 million), (discount rate 2020: 2.34%; discount rate 2019: 3.21%).
· The European Schemes deficit increased by £5.2 million to £44.8 million (2019: £39.6 million), (discount rate 2020: 0.40%; discount rate 2019: 0.90%).
· The Rest of World Schemes deficit decreased by £1.2 million to £3.9 million (2019: £5.1 million), (discount rate 2020: 2.40%; discount rate 2019: 2.20%).
The most recent full actuarial valuations of the UK Schemes were undertaken as at March 2019 and resulted in combined assessed deficits of £120.3 million. Further details can be found on in note 14 on page 40. On the basis of these full valuations, the Trustees of the UK Schemes, having consulted with the Group, agreed past service deficit recovery payments totaling £16.5 million a year from January 2020, increasing by 2.75% pa until 2025, with further payments to the Morgan Pension Scheme for 2026 and 2027. The recovery plans are subject to approval from the UK Pensions Regulator.
Final dividend
The Board is recommending a final dividend, subject to shareholder approval, of 3.5 pence per share on the Ordinary share capital of the Group, payable on 21 May 2021 to Ordinary shareholders on the register at the close of business on 30 April 2021. The ex-dividend date is 29 April 2021.
Together with the interim dividend of 2.0 pence per share paid on 11 December 2020, this final dividend, if approved by shareholders, brings the total distribution for the year to 5.5 pence per share (2019: 4.0 pence).
A total dividend of 5.5 pence per share represents a dividend cover of adjusted EPS* of 3.5 times.
Looking forward, the Board is looking to grow the ordinary dividend as the economic environment and the Group's earnings improve, targeting a dividend cover of around 3 times adjusted EPS* on average over the medium term.
This level of cover ensures sufficient resources are available to continue to invest to support the Group's long-term prospects, as well as meet the needs of other stakeholders of the Group, including deficit contributions to the Group's defined benefit pension schemes.
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 22, these measures are calculated on a continuing basis.
Adjusted operating profit
Adjusted 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. Amortisation is excluded as the charge includes externally acquired intangible assets since the adoption of IFRS and does not therefore reflect all intangible assets consistently.
| 2020 | Thermal Ceramics
£m | Molten Metal Systems
£m | Thermal Products division
£m | Electrical Carbon
£m | Seals and Bearings
£m | Technical Ceramics
£m | Carbon and Technical Ceramics division £m | Corporate costs1
£m | Group
£m |
| Operating (loss)/profit | (14.6) | 2.0 | (12.6) | 19.2 | 26.5 | (30.3) | 15.4 | (4.6) | (1.8) |
| Add back specific adjusting items included in operating profit | 39.4 | 0.9 | 40.3 | 3.7 | 0.6 | 42.3 | 46.6 | 0.5 | 87.4 |
| Add back amortisation of intangible assets | 1.9 | 0.3 | 2.2 | 0.7 | 0.4 | 2.8 | 3.9 | - | 6.1 |
| Group and divisional adjusted operating profit | 26.7 | 3.2 | 29.9 | 23.6 | 27.5 | 14.8 | 65.9 | (4.1) | 91.7 |
1. Corporate costs consist of central head office costs.
| 2019 | Thermal Ceramics
£m | Molten Metal Systems
£m | Thermal Products division
£m | Electrical Carbon
£m | Seals and Bearings
£m | Technical Ceramics
£m | Carbon and Technical Ceramics division £m | Corporate costs1
£m | Group
£m |
| Operating profit/(loss) | 50.0 | 5.6 | 55.6 | 21.2 | 26.0 | 29.2 | 76.4 | (5.9) | 126.1 |
| Add back specific adjusting items included in operating profit | - | - | - | - | - | - | - | - | - |
| Add back amortisation of intangible assets | 2.2 | 0.3 | 2.5 | 0.7 | 0.4 | 4.5 | 5.6 | - | 8.1 |
| Group and divisional adjusted operating profit | 52.2 | 5.9 | 58.1 | 21.9 | 26.4 | 33.7 | 82.0 | (5.9) | 134.2 |
1. Corporate costs consist of central head office costs.
Organic growth
Organic growth is the growth of the business excluding the impacts of acquisitions, divestments and foreign currency impacts. This measure is used as it allows revenue and adjusted operating profit 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 6 to 8.
Year-on-year movements in segment revenue
|
| Thermal Ceramics | Molten Metal Systems | Thermal Products division | Electrical Carbon | Seals and Bearings | Technical Ceramics | Carbon and Technical Ceramics division | Group |
|
| £m | £m | £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
|
|
|
| 2019 revenue | 418.4 | 49.1 | 467.5 | 164.2 | 144.3 | 273.5 | 582.0 | 1,049.5 |
|
|
|
|
|
|
|
|
|
|
| Impact of foreign currency movements | (11.0) | (1.3) | (12.3) | (2.7) | (0.1) | (0.2) | (3.0) | (15.3) |
| Impact of disposals and business exits | - | - | - | - | - | (6.3) | (6.3) | (6.3) |
| Organic constant-currency change | (63.1) | (6.6) | (69.7) | (10.1) | 2.2 | (39.6) | (47.5) | (117.2) |
| Organic constant-currency change % | (15.5)% | (13.8)% | (15.3)% | (6.3)% | 1.5% | (14.8)% | (8.3)% | (11.4%) |
|
|
|
|
|
|
|
|
|
|
| 2020 revenue | 344.3 | 41.2 | 385.5 | 151.4 | 146.4 | 227.4 | 525.2 | 910.7 |
Year-on-year movements in segment and Group adjusted operating profit
|
| Thermal Ceramics | Molten Metal Systems | Thermal Products division | Electrical Carbon | Seals and Bearings | Technical Ceramics | Carbon and Technical Ceramics division | Corporate costs1 | Group |
|
| £m | £m | £m | £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
|
|
|
|
| 2019 adjusted operating profit | 52.2 | 5.9 | 58.1 | 21.9 | 26.4 | 33.7 | 82.0 | (5.9) | 134.2 |
|
|
|
|
|
|
|
|
|
|
|
| Impact of foreign currency movements | (3.3) | (0.2) | (3.5) | (0.7) | (0.1) | - | (0.8) | - | (4.3) |
| Impact of disposals and business exits | - | - | - | - | - | (2.4) | (2.4) | - | (2.4) |
| Organic constant-currency change | (22.2) | (2.5) | (24.7) | 2.4 | 1.2 | (16.5) | (12.9) | 1.8 | (35.8) |
| Organic constant-currency change % | (45.4)% | (43.9)% | (45.2)% | 11.3% | 4.6% | (52.7)% | (16.4)% | - | (28.1)% |
|
|
|
|
|
|
|
|
|
|
|
| 2020 adjusted operating profit | 26.7 | 3.2 | 29.9 | 23.6 | 27.5 | 14.8 | 65.9 | (4.1) | 91.7 |
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, these covenants use EBITDA on a pre-IFRS 16 basis. A reconciliation of operating profit to Group EBITDA is as follows:
|
| 2020 £m | 2019 £m |
| Operating (loss) / profit | (1.8) | 126.1 |
| Add back: specific adjusting items included in operating profit | 87.4 | - |
| Add back: depreciation - property, plant and equipment | 32.7 | 32.3 |
| Add back: depreciation - right-of-use assets | 9.2 | 10.1 |
| Add back: amortisation of intangible assets | 6.1 | 8.1 |
| Group EBITDA | 133.6 | 176.6 |
| Group EBITDA excluding IFRS 16 Leases impact | 120.9 | 163.5 |
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 net capital expenditure, net interest (interest paid on borrowings, overdrafts and lease liabilities, net of interest received), tax paid and lease payments.
The Group discloses this measure of free cash flow as this provides readers of the 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:
|
| 2020 £m | 2019 £m |
| Cash generated from continuing operations | 146.3 | 164.8 |
| Net capital expenditure | (28.6) | (54.9) |
| Net interest on cash and borrowings | (6.6) | (9.3) |
| Tax paid | (26.0) | (28.8) |
| Lease payments and interest | (12.7) | (12.6) |
| Free cash flow before acquisitions, disposals and dividends | 72.4 | 59.2 |
Net cash and cash equivalents
Net cash and cash equivalents is defined as cash and cash equivalents less bank overdrafts. The Group also discloses this measure as it provides an indication of the net short term liquidity available to the Group.
|
| 2020
£m | 2019 restated1 £m |
| Cash and cash equivalents | 147.8 | 132.8 |
| Bank overdrafts | (72.0) | (64.1) |
| Net cash and cash equivalents | 75.8 | 68.7 |
1. As disclosed in note 1, cash and cash equivalents and bank overdrafts have been restated to meet the presentational requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt.
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.
|
| 2020
£m | 2019 restated1 £m |
| Cash and cash equivalents | 147.8 | 132.8 |
| Non-current borrowings | (177.5) | (176.7) |
| Non-current lease liabilities | (43.1) | (52.6) |
| Current borrowings and bank overdrafts | (71.3) | (113.4) |
| Current lease liabilities | (11.5) | (11.7) |
| Closing net debt | (155.6) | (221.6) |
| Closing net debt excluding lease liabilities | (101.0) | (157.3) |
1. As disclosed in note 1, 2019 has been restated to include the Group's cumulative preference shares within borrowings, this increased borrowings and net debt* by £0.4 million and decreased net assets by £0.4 million. Cash and cash equivalents and borrowings and overdrafts have been restated to meet the presentational requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt.
Return on invested capital
Return on invested capital (ROIC) is defined as the 12-month Group adjusted 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, overdrafts and lease liabilities.
|
| 2020 £m | 2019 £m |
| Operating profit before specific adjusting items | 85.6 | 126.1 |
| Add back: amortisation of intangible assets | 6.1 | 8.1 |
| Group adjusted operating profit | 91.7 | 134.2 |
|
|
|
|
| 12-month average adjusted net assets: |
|
|
| Third-party working capital | 166.4 | 181.0 |
| Plant and equipment | 179.8 | 194.1 |
| Land and buildings | 114.0 | 122.9 |
| Right-of-use assets | 42.2 | 50.2 |
| Intangible assets | 198.2 | 211.4 |
| Other assets (net) | 7.5 | 12.4 |
| 12-month average adjusted net assets | 708.1 | 772.0 |
|
|
|
|
| ROIC | 13.0% | 17.4% |
Adjusted earnings per share
Adjusted 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 an indication of adjusted performance which is less impacted by adjusting items and therefore reflects the underlying performance trends in the business.
A reconciliation from IFRS profit to the profit used to calculate adjusted earnings per share* is included in note 8 to the consolidated financial statements on page 33.
Constant-currency revenue and adjusted operating profit
Constant-currency revenue and adjusted 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 10 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.
Consolidated Financial Statements
for the 12 months ended 31 December 2020
Consolidated income statement
|
|
| Year ended 31 December 2020 |
| Year ended 31 December 2019 | ||||
|
|
| Results before specific adjusting items | Specific adjusting items1 | Total |
| Results before specific adjusting items | Specific adjusting items1 | Total |
|
| Note | £m | £m | £m |
| £m | £m | £m |
|
Revenue
| 3 | 910.7 | - | 910.7 |
| 1,049.5 | - | 1,049.5 |
| Operating costs before amortisation of intangible assets |
| (819.0) | (87.4) | (906.4) |
| (915.3) | - | (915.3) |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) from operations before amortisation of intangible assets | 3 | 91.7 | (87.4) | 4.3 |
| 134.2 | - | 134.2 |
|
|
|
|
|
|
|
|
|
|
| Amortisation of intangible assets |
| (6.1) | - | (6.1) |
| (8.1) | - | (8.1) |
|
|
|
|
|
|
|
|
|
|
| Operating profit/(loss) | 3 | 85.6 | (87.4) | (1.8) |
| 126.1 | - | 126.1 |
|
|
|
|
|
|
|
|
|
|
| Finance income |
| 0.9 | - | 0.9 |
| 1.9 | - | 1.9 |
| Finance expense |
| (12.8) | - | (12.8) |
| (18.8) | - | (18.8) |
| Net financing costs | 5 | (11.9) | - | (11.9) |
| (16.9) | - | (16.9) |
|
|
|
|
|
|
|
|
|
|
| Share of profit of associate (net of income tax) |
| 0.6 | - | 0.6 |
| 0.5 | - | 0.5 |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) before taxation |
| 74.3 | (87.4) | (13.1) |
| 109.7 | - | 109.7 |
|
|
|
|
|
|
|
|
|
|
| Income tax (expense)/credit | 6 | (20.2) | 13.3 | (6.9) |
| (29.9) | - | (29.9) |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) from continuing operations |
| 54.1 | (74.1) | (20.0) |
| 79.8 | - | 79.8 |
| Profit from discontinued operations2 | 7 | - | 2.0 | 2.0 |
| 0.7 | 0.8 | 1.5 |
| Profit/(loss) for the period |
| 54.1 | (72.1) | (18.0) |
| 80.5 | 0.8 | 81.3 |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) for the period attributable to: |
|
|
|
|
|
|
|
|
| Shareholders of the Company |
| 48.1 | (70.6) | (22.5) |
| 72.3 | 0.8 | 73.1 |
| Non-controlling interests |
| 6.0 | (1.5) | 4.5 |
| 8.2 | - | 8.2 |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) for the period |
| 54.1 | (72.1) | (18.0) |
| 80.5 | 0.8 | 81.3 |
|
|
|
|
|
|
|
|
|
|
| Earnings per share | 8 |
|
|
|
|
|
|
|
| Continuing and discontinued operations |
|
|
|
|
|
|
| |
| Basic earnings per share |
|
|
| (7.9)p |
|
|
| 25.7p |
| Diluted earnings per share |
|
|
| (7.9)p |
|
|
| 25.5p |
|
|
|
|
|
|
|
|
|
|
| Continuing operations |
|
|
|
|
|
|
|
|
| Basic earnings per share |
|
|
| (8.6)p |
|
|
| 25.2p |
| Diluted earnings per share |
|
|
| (8.6)p |
|
|
| 25.0p |
|
|
|
|
|
|
|
|
|
|
| Dividends3 |
|
|
|
|
|
|
|
|
| Interim dividend - pence |
|
|
| 2.00p |
|
|
| 4.00p |
| - £m |
|
|
| 5.7 |
|
|
| 11.4 |
|
|
|
|
|
|
|
|
|
|
| Proposed final dividend4 - pence |
|
|
| 3.50p |
|
|
| - |
| - £m |
|
|
| 10.0 |
|
|
| - |
1. Details of specific adjusting items are given in note 4 to the consolidated financial statements.
2. Profits from discontinued operations are entirely attributable to the Shareholders of the Company.
3. The proposed final dividend is based upon the number of Ordinary shares outstanding at the balance sheet date.
4. On 31 March 2020, the Group announced the Board's decision to withdraw the proposed 2019 final dividend due to the financial uncertainty resulting from the COVID-19 pandemic.
Consolidated Financial Statements (continued)
for the 12 months ended 31 December 2020
Consolidated statement of comprehensive income
|
|
| 31 December 2020 | 31 December 2019 |
|
| Note | £m | £m |
|
|
|
|
|
| (Loss)/profit for the period |
| (18.0) | 81.3 |
|
|
|
|
|
| Other comprehensive income/(expense): |
|
|
|
| Items that will not be reclassified subsequently to profit or loss: |
|
|
|
| Remeasurement (loss)/gain on defined benefit plans | 14 | (33.9) | 20.5 |
| Tax effect of components of other comprehensive income not reclassified | 6 | 0.4 | 2.2 |
|
|
| (33.5) | 22.7 |
| Items that may be reclassified subsequently to profit or loss: |
|
|
|
| Foreign exchange translation differences |
| (3.2) | (18.3) |
| Cash flow hedges: |
|
|
|
| Change in fair value |
| 0.4 | 0.8 |
| Transferred to profit or loss |
| (0.8) | 0.2 |
|
|
| (3.6) | (17.3) |
| Total other comprehensive (expense)/income |
| (37.1) | 5.4 |
| Total comprehensive (expense)/income |
| (55.1) | 86.7 |
|
|
|
|
|
| Attributable to: |
|
|
|
| Shareholders of the Company |
| (59.8) | 81.1 |
| Non-controlling interests |
| 4.7 | 5.6 |
|
|
| (55.1) | 86.7 |
|
|
|
|
|
| Total comprehensive (expense)/income attributable to shareholders of the Company arising from: |
|
|
|
| Continuing operations |
| (61.8) | 79.6 |
| Discontinued operations |
| 2.0 | 1.5 |
|
|
| (59.8) | 81.1 |
Consolidated balance sheet
|
|
| As at 31 December 2020 | As at 31 December 2019 restated1,2 | As at 31 December 2018 restated1,2 |
|
| Note | £m | £m | £m |
| Assets |
|
|
|
|
| Property, plant and equipment | 9 | 267.6 | 317.2 | 314.5 |
| Right-of-use assets | 10 | 35.5 | 49.1 | - |
| Intangible assets | 11 | 185.4 | 204.8 | 215.6 |
| Investments |
| 7.2 | 6.5 | 5.9 |
| Other receivables |
| 4.0 | 5.7 | 6.3 |
| Deferred tax assets |
| 14.4 | 6.0 | 6.9 |
| Total non-current assets |
| 514.1 | 589.3 | 549.2 |
| Inventories |
| 122.4 | 142.3 | 145.3 |
| Derivative financial assets | 13 | 1.0 | 1.5 | 0.6 |
| Trade and other receivables |
| 143.6 | 181.0 | 200.5 |
| Current tax receivable |
| 1.6 | 2.3 | 1.3 |
| Cash and cash equivalents | 12 | 147.8 | 132.8 | 138.5 |
| Total current assets |
| 416.4 | 459.9 | 486.2 |
| Total assets |
| 930.5 | 1,049.2 | 1,035.4 |
| Liabilities |
|
|
|
|
| Borrowings |
| 177.5 | 176.7 | 165.3 |
| Lease liabilities |
| 43.1 | 52.6 | - |
| Employee benefits: pensions | 14 | 176.3 | 156.8 | 190.4 |
| Provisions | 15 | 8.5 | 9.2 | 10.1 |
| Non-trade payables |
| 4.9 | 2.5 | 2.5 |
| Deferred tax liabilities |
| 0.5 | 4.9 | 11.0 |
| Total non-current liabilities |
| 410.8 | 402.7 | 379.3 |
| Borrowings and bank overdrafts |
| 71.3 | 113.4 | 153.5 |
| Lease liabilities |
| 11.5 | 11.7 | 0.2 |
| Trade and other payables |
| 148.4 | 173.3 | 190.5 |
| Current tax payable |
| 20.4 | 26.9 | 26.0 |
| Provisions | 15 | 27.3 | 8.9 | 8.6 |
| Derivative financial liabilities | 13 | 0.8 | 0.6 | 0.6 |
| Total current liabilities |
| 279.7 | 334.8 | 379.4 |
| Total liabilities |
| 690.5 | 737.5 | 758.7 |
| Total net assets |
| 240.0 | 311.7 | 276.7 |
| Equity |
|
|
|
|
| Share capital |
| 71.3 | 71.3 | 71.3 |
| Share premium |
| 111.7 | 111.7 | 111.7 |
| Reserves |
| 18.7 | 22.5 | 37.2 |
| Retained earnings |
| 0.6 | 64.7 | 12.1 |
| Total equity attributable to shareholders of the Company |
| 202.3 | 270.2 | 232.3 |
| Non-controlling interests |
| 37.7 | 41.5 | 44.4 |
| Total equity |
| 240.0 | 311.7 | 276.7 |
1. Comparative information has been restated to include the Group's cumulative preference shares within borrowings. The cumulative preference shares were previously presented in equity, see note 1 for further details.
2. Cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt*.
Consolidated statement of changes in equity
|
| Share capital | Share premium | Translation reserve | Hedging reserve | Fair value reserve | Capital redemption reserve | Other reserves | Retained earnings
| Total parent equity | Non-controlling interests | Total equity |
|
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| At 1 January 2019 as 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, following the adoption of IFRS 16 | - | - | - | - | - | - | - | (12.2) | (12.2) | - | (12.2) |
| Restatement of prior period1 | (0.5) | - | - | - | - | - | - | - | (0.5) | - | (0.5) |
| 1 January 2019 restated | 71.3 | 111.7 | 2.1 | (0.2) | (1.0) | 35.7 | 0.6 | (0.1) | 220.1 | 44.4 | 264.5 |
| Profit for the year | - | - | - | - | - | - | - | 73.1 | 73.1 | 8.2 | 81.3 |
| Other comprehensive income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
| Remeasurement gain on defined benefit plans and related taxes | - | - | - | - | - | - | - | 22.7 | 22.7 | - | 22.7 |
| Foreign exchange differences | - | - | (15.7) | - | - | - | - | - | (15.7) | (2.6) | (18.3) |
| Cash flow hedging fair value changes and transfers | - | - | - | 1.0 | - | - | - | - | 1.0 | - | 1.0 |
| Total comprehensive (expense)/income | - | - | (15.7) | 1.0 | - | - | - | 95.8 | 81.1 | 5.6 | 86.7 |
| Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
|
| Dividends | - | - | - | - | - | - | - | (31.3) | (31.3) | (8.5) | (39.8) |
| Equity settled share-based payments | - | - | - | - | - | - | - | 2.8 | 2.8 | - | 2.8 |
| Own shares acquired for share incentive schemes (net) | - | - | - | - | - | - | - | (2.5) | (2.5) | - | (2.5) |
| At 31 December 2019 | 71.3 | 111.7 | (13.6) | 0.8 | (1.0) | 35.7 | 0.6 | 64.7 | 270.2 | 41.5 | 311.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| At 1 January 2020 | 71.3 | 111.7 | (13.6) | 0.8 | (1.0) | 35.7 | 0.6 | 64.7 | 270.2 | 41.5 | 311.7 |
| (Loss)/profit for the year | - | - | - | - | - | - | - | (22.5) | (22.5) | 4.5 | (18.0) |
| Other comprehensive income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
| Remeasurement loss on defined benefit plans and related taxes | - | - | - | - | - | - | - | (33.5) | (33.5) | - | (33.5) |
| Foreign exchange differences | - | - | (3.4) | - | - | - | - | - | (3.4) | 0.2 | (3.2) |
| Cash flow hedging fair value changes and transfers | - | - | - | (0.4) | - | - | - | - | (0.4) | - | (0.4) |
| Total comprehensive (expense)/income | - | - | (3.4) | (0.4) | - | - | - | (56.0) | (59.8) | 4.7 | (55.1) |
| Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
|
| Dividends | - | - | - | - | - | - | - | (5.7) | (5.7) | (7.9) | (13.6) |
| Purchase of non-controlling interest | - | - | - | - | - | - | - | (2.2) | (2.2) | (0.6) | (2.8) |
| Equity settled share-based payments | - | - | - | - | - | - | - | 1.2 | 1.2 | - | 1.2 |
| Own shares acquired for share incentive schemes (net) | - | - | - | - | - | - | - | (1.4) | (1.4) | - | (1.4) |
| At 31 December 2020 | 71.3 | 111.7 | (17.0) | 0.4 | (1.0) | 35.7 | 0.6 | 0.6 | 202.3 | 37.7 | 240.0 |
1. 2019 has been restated to remove the cumulative preference shares previously presented in equity, see note 1 for further details.
Consolidated statement of cash flows
|
|
| Year ended 31 December 2020 | Year ended 31 December 2019 restated1 |
|
| Note | £m | £m |
| Operating activities |
|
|
|
| (Loss)/profit for the year from continuing operations |
| (20.0) | 79.8 |
| Profit for the year from discontinued operations | 7 | 2.0 | 1.5 |
|
|
|
|
|
| Adjustments for: |
|
|
|
| Depreciation - property, plant and equipment |
| 32.7 | 32.3 |
| Depreciation - right-of-use assets |
| 9.2 | 10.1 |
| Amortisation |
| 6.1 | 8.1 |
| Net financing costs | 5 | 11.9 | 16.9 |
| Profit on disposal of business | 2,4 | (2.2) | (0.7) |
| Non-cash specific adjusting items included in operating profit | 4,7 | 65.7 | - |
| Share of profit from associate (net of income tax) |
| (0.6) | (0.5) |
| Profit on sale of property, plant and equipment |
| (1.0) | (0.7) |
| Income tax expense | 6 | 6.9 | 29.9 |
| Equity-settled share-based payment expenses |
| 0.7 | 2.4 |
| Cash generated from operations before changes in working capital and provisions |
| 111.4 | 179.1 |
| Decrease/(increase) in trade and other receivables |
| 36.1 | 9.0 |
| Decrease/(increase) in inventories |
| 18.4 | (5.9) |
| (Decrease)/increase in trade and other payables |
| (19.7) | (3.1) |
| Increase/(decrease) in provisions |
| 17.8 | (0.5) |
| Payments to defined benefit pension plans (net of IAS 19 pension charges) | 14 | (17.9) | (13.4) |
| Cash generated from operations |
| 146.1 | 165.2 |
| Interest paid - borrowings and overdrafts |
| (7.5) | (11.2) |
| Interest paid - lease liabilities |
| (2.8) | (3.0) |
| Income tax paid |
| (26.0) | (28.8) |
| Net cash from operating activities |
| 109.8 | 122.2 |
| Investing activities |
|
|
|
| Purchase of property, plant and equipment and software | 9,11 | (30.0) | (56.4) |
| Purchase of investments |
| (1.0) | (1.1) |
| Proceeds from sale of property, plant and equipment |
| 1.4 | 1.5 |
| Interest received |
| 0.9 | 1.9 |
| Disposal of subsidiaries, net of cash disposed |
| 5.3 | 0.7 |
| Net cash from investing activities |
| (23.4) | (53.4) |
| Financing activities |
|
|
|
| Purchase of own shares for share incentive schemes |
| (1.8) | (3.3) |
| Proceeds from exercise of share options |
| 0.4 | 0.8 |
| Increase in borrowings |
| 7.9 | 67.1 |
| Reduction and repayment of borrowings |
| (49.8) | (85.2) |
| Payment of lease liabilities |
| (9.9) | (9.6) |
| Dividends paid to shareholders of the Company |
| (5.7) | (31.3) |
| Dividends paid to non-controlling interests |
| (7.9) | (8.5) |
| Purchase of shares from non-controlling interest |
| (2.8) | - |
| Net cash from financing activities |
| (69.6) | (70.0) |
| Net increase in cash and cash equivalents |
| 16.8 | (1.2) |
| Cash and cash equivalents at start of the year |
| 132.8 | 138.5 |
| Effect of exchange rate fluctuations on cash held |
| (1.8) | (4.5) |
| Cash and cash equivalents at year end | 12 | 147.8 | 132.8 |
1. As disclosed in note 1, the Group's cash and cash equivalents have been restated to meet the presentational requirements for offsetting in accordance with IAS 32. Comparative information for the year ended 31 December 2019 has increased from £68.7 million to £132.8 million. This has had no impact on the Group's net assets.
Notes on consolidated financial statements
Note 1. Basis of preparation, changes in accounting policies and areas of significant judgment and estimate
The preliminary announcement for the year ended 31 December 2020 has been prepared in accordance with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) no 1606/2002 as it applies in the European Union. Except for the changes set out in the adoption of new and revised standards section, there has been no other significant impact arising from new accounting policies adopted in the year.
The financial information set out in this report does not constitute the Company's statutory accounts for the years ended 31 December 2020 or 31 December 2019. Statutory accounts for the year ended 31 December 2019 have been delivered to the registrar of companies, and those for the year ended 31 December 2020 will be delivered in due course.
The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2020 and 2019.
Use of judgements and estimates
In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Final outcomes results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Judgements
Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements is included in the following notes:
Note 4: Specific adjusting items
The Group separately presents specific adjusting items in the consolidated income statement which, in the Directors' judgement, need to be disclosed separately by virtue of their size and incidence in order for users of the consolidated financial statements to obtain an alternative understanding of the financial information and an indication of the underlying performance of the business. These items which occur infrequently and include (but are not limited to):
· Individual restructuring projects which are material or relate to the closure of a part of the business and are not expected to recur.
· Gains or losses on disposal or exit of businesses.
· Significant costs incurred as part of the integration of an acquired business.
· Gains or losses arising on significant changes to or closures of defined benefit pension plans.
Determining whether an item is part of specific adjusting items requires judgement to determine the nature and the intention of the transaction.
Note 6: Recognition of deferred tax assets
Deferred tax assets are recognised when management judges it probable that future taxable profits will be available against which the temporary differences can be utilised. This relies on the use of estimates of future taxable profits which may differ from the actual results delivered. In the event future taxable profits do not materialise this would lead to a write-off of recognised deferred tax assets.
Note 15: Provisions and contingent liabilities
Due to the nature of its operations, the Group holds provisions for its environmental obligations. Judgement is needed in determining whether a contingent liability has crystallised into a provision. Management assesses whether there is sufficient information to determine that an environmental liability exists and whether it is possible to estimate with sufficient reliability what the cost of remediation is likely to be. For environmental remediation matters, this tends to be at the point in time when a remediation feasibility study has been completed, or sufficient information becomes available through the study to estimate the costs of remediation.
The Group will recognise a legal provision at the point when the outcome of a legal matter can be reliably estimated. Estimates are based on past experience of similar issues, professional advice received and the Group's assessment 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.
Assumptions and estimates
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are included in the below notes:
Note 14: Pensions and other post-retirement employee benefits: key actuarial assumptions
The principal actuarial assumptions applied to pensions are shown in note 14, including a sensitivity analysis. The actuarial evaluation of pension assets and liabilities is based on assumptions in respect of inflation, future salary increases, discount rates, returns on investments and mortality rates. Relatively small changes in the assumptions underlying the actuarial valuations of pension schemes can have a significant impact on the net pension liability included in the balance sheet.
In 2018, based on the results of a High Court hearing, the Group recognised a liability in relation to Guaranteed Minimum Pensions (GMPs), an initiative to remove inequalities in scheme benefits that arise from Guaranteed Minimum Pensions being unequal between men and women. As a result of a further judgement in November 2020 relating to the need to equalise historical transfer payments, a further charge of £0.1 million has been included in these accounts. Legal uncertainty remains in this area in relation to how equalisation will be practically implemented.
Note 15: Environmental provisions and contingent liabilities
Provisions for environmental costs and settlement of litigation are estimated based on current legal and constructive requirements. Actual costs and cash outflows can differ from current estimates because of changes in laws and regulations, public expectations, prices, more detailed analysis of site conditions and innovations in clean-up technology.
Amounts provided are the Group's best estimate of exposure based on currently available information.
Note 4: Impairment of non-financial assets (excluding goodwill)
In addition to the impairment assessment of goodwill, described below, management also monitor the performance of individual assets and where indicators of impairment exist, perform an impairment review on those assets.
This process relies on the use of estimates of the future profitability and cash flows which may differ from the actual results delivered. Due to the current COVID-19 global pandemic, there is an increased level of risk and therefore a key source of estimation uncertainty in these assumptions. It is reasonably possible that a change in these assumptions could lead to a material reversal of impairment, for ceramic cores within Technical Ceramics and Porextherm within Thermal Ceramics, in the next financial year. See note 4 for a sensitivity analysis for these in respect to the recoverable amount of these assets.
Adoption of new and revised accounting standards
Newly adopted standards
There were no 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
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet effective are listed below:
· Amendments to IFRS 9, IAS 39 and IFRS 7 - interest rate benchmark reform - phase 2
· Amendments to IFRS 16 - COVID-19 related rent concessions
· Amendments to IAS 1- classification of liabilities as current or non-current and disclosure of accounting policies
· Amendments to IAS 8 - definition of accounting estimates
· Amendments to IAS 16- property, plant and equipment- proceeds before intended use
· 2018-2020 annual improvements cycle
The adoption of the above standards and interpretations is not expected to lead to any material changes to the Group's accounting policies or have any other material impact on the financial position or performance of the Group.
There are no other upcoming accounting standards or amendments that are applicable to the Group.
Prior period restatement
Cash pooling arrangements
Within the period, it was determined that the Company's cash and overdrafts within notional cash pooling arrangements did not meet the requirements for offsetting in accordance with IAS 32 Financial Instruments: Presentation. For presentational purposes, amounts have therefore been restated for the preceding period ended 31 December 2019 and the beginning of the preceding period being 1 January 2019 in accordance with IAS 8 Accounting Policies, Change in Accounting Policies and Errors. The impact of this change for the period ended 31 December 2019 is to increase both cash and cash equivalents and overdrafts within current loans and other borrowings by £64.1 million (2018: £70.9 million).
This has had no impact on net assets as seen on the face of the Consolidated balance sheet.
Preference shares
Within the period, the Group financial statements have also been restated to reclassify the Group's cumulative preference shares previously classified as equity to borrowings. Following a review of the substance of the shares it was determined that the cumulative preference shares do not contain an equity element. The impact of this change for the period ended 31 December 2019 is an increase in non-current borrowings and a decrease in share capital of £0.4 million (2018: £0.4 million), this change decreased net assets by the same amount.
There was no impact to the consolidated income statement as the dividends, previously classified as distributions from equity that have been reclassified to finance charges within the consolidated income statement totalled less than £0.1 million.
Non-GAAP measures
Where non-GAAP measures have been referenced these have been identified by an asterisk (*) where they appear in the text and by a footnote where they appear in a table.
Definitions of these non-GAAP measures, and their reconciliation to the relevant GAAP measure, are provided on pages 12 to 16.
Going concern
The Group meets its day-to-day working capital requirements through local banking arrangements underpinned by the Group's £200 million unsecured multi-currency revolving credit facility, which matures in September 2024. As at 31 December 2020 the Group had significant headroom on its covenants and available liquidity with the Group's undrawn £200 million multi-currency revolving credit facility and net cash and cash equivalents* of £75.8 million. The Group applied for the UK Government's 'COVID Corporate Financing Facility' (CCFF) with an issuer limit of £300 million, which was confirmed as successful in June 2020. As a result of available liquidity and cash preservation measures taken the facility remained undrawn through the period. During 2020 the Group announced a restructuring and efficiency programme to reduce costs by a targeted £23 million per annum by 2022, with an anticipated cash cost of £30 million to deliver these savings. This has been implemented in 2020 and is expected to complete through 2021. No further restructuring activities have therefore been modelled into the sensitivity analysis performed. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, exchange rates and plausible downside scenarios as a result of COVID-19 and its impact on the global economy, show the Group operating within its debt financial covenants for the next 18 months.
The Board has also reviewed the Group's reverse stress testing performed to demonstrate how much headroom is available on covenant levels in respect of changes in net debt*, EBITDA* and underlying revenue. Based on this assessment, a combined reduction in EBITDA* of 40% and an increase in net debt* of 80% would still allow the Group to operate within its financial covenants. The Board has reviewed this with management and is satisfied that this is appropriate and is supporting the Group as a Going Concern.
The current economic climate continues to have an impact on the Group, its customers and its suppliers. Due to the Group's broad end-market base, as a result of the COVID-19, it is anticipated that some markets will continue to see reduced activity, but others will continue to grow. The UK's exit from the EU may have an impact on the Group if tariffs are subsequently introduced or border controls negatively impact either 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 (c. £24 million) and imports into the UK from the EU (c. £17 million), it is not considered that this will have a significant impact on the Group's overall liquidity or operations.
The Board and Executive Committee have regular reporting and review processes in place in order to monitor the ongoing operational and financial performance of the Group closely. These processes include the ongoing review of the impact of COVID-19 on the Group and its stakeholders.
The Board fully recognises the challenges that lie ahead but, after making enquiries, and in the absence of any material uncertainties, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a period of 18 months from the date of signing this Annual Report and Accounts. Accordingly, they continue to adopt the going concern basis in preparing the consolidated statements for the year ended 31 December 2020.
Note 2. Disposals
2020
Diamonex, Technical Ceramics
On 31 August 2020, the Group completed the sale of its Diamonex business, based in Allentown, US. The transaction was structured as a sale of the business and related assets for total consideration of up to £6.5 million. The consideration comprises £5.6 million paid in cash on completion, £0.3 million of deferred consideration due in 2021 and up to £0.5 million of consideration contingent on the future performance of the disposed business which, if earned, would also be payable in 2021.
In 2020, Diamonex generated an operating profit of £0.5 million on revenues of £4.3 million in the period prior to their disposal (year ended 31 December 2019: £0.5 million on revenues of £6.4 million).
The disposal of the Diamonex business reduced the Group's assets and liabilities as follows:
|
| 31 December 2020 |
|
| £m |
| Trading net assets of disposal group | 2.2 |
| Goodwill of disposal group | 0.9 |
| Cumulative foreign exchange gains and losses recycled on disposal | 0.3 |
| Total net assets | 3.4 |
|
|
|
| Consideration | 5.9 |
| Transaction costs associated with the disposal | (0.3) |
| Gain on disposal | 2.2 |
The disposal group was included in the Technical Ceramics operating segment.
2019
There were no disposals in the year ended 31 December 2019.
Note 3. Segment reporting
The Group reports as two divisions and five (2019: 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 information presented below represents the operating segments of the Group.
|
| Year ended 31 December 2020 | |||||||||
|
| Thermal Ceramics | Molten Metal Systems | Thermal Products division | Electrical Carbon | Seals and Bearings | Technical Ceramics | Carbon and Technical Ceramics division | Segment totals | Corporate costs | Group |
| Continuing operations | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue from external customers | 344.3 | 41.2 | 385.5 | 151.4 | 146.4 | 227.4 | 525.2 | 910.7 | - | 910.7 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment adjusted operating profit1 | 26.7 | 3.2 | 29.9 | 23.6 | 27.5 | 14.8 | 65.9 | 95.8 |
| 95.8 |
| Corporate costs |
|
|
|
|
|
|
|
| (4.1) | (4.1) |
| Group adjusted operating profit1 |
|
|
|
|
|
|
|
|
| 91.7 |
| Amortisation of intangible assets | (1.9) | (0.3) | (2.2) | (0.7) | (0.4) | (2.8) | (3.9) | (6.1) | - | (6.1) |
| Operating profit/(loss) before specific adjusting items | 24.8 | 2.9 | 27.7 | 22.9 | 27.1 | 12.0 | 62.0 | 89.7 | (4.1) | 85.6 |
| Specific adjusting items included in operating (loss)/profit2 | (39.4) | (0.9) | (40.3) | (3.7) | (0.6) | (42.3) | (46.6) | (86.9) | (0.5) | (87.4) |
| Operating (loss)/profit | (14.6) | 2.0 | (12.6) | 19.2 | 26.5 | (30.3) | 15.4 | 2.8 | (4.6) | (1.8) |
| Finance income |
|
|
|
|
|
|
|
|
| 0.9 |
| Finance expense |
|
|
|
|
|
|
|
|
| (12.8) |
| Share of profit of associate (net of income tax) |
|
|
|
|
|
|
|
|
| 0.6 |
| Loss before taxation |
|
|
|
|
|
|
|
|
| (13.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment assets | 315.7 | 39.5 | 355.2 | 141.5 | 98.7 | 158.3 | 398.5 | 753.7 | 176.8 | 930.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment liabilities | 84.8 | 7.4 | 92.2 | 31.1 | 19.9 | 72.6 | 123.6 | 215.8 | 474.7 | 690.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment capital expenditure | 7.2 | 2.9 | 10.1 | 4.8 | 7.7 | 7.4 | 19.9 | 30.0 | - | 30.0 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment depreciation - property, plant and equipment | 12.5 | 2.3 | 14.8 | 5.4 | 5.7 | 6.8 | 17.9 | 32.7 | - | 32.7 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment depreciation - right-of-use assets | 4.1 | 0.4 | 4.5 | 1.2 | 0.7 | 2.8 | 4.7 | 9.2 | - | 9.2 |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
2. Details of specific adjusting items are given in note 4 to the consolidated financial statements.
|
| Year ended 31 December 2019 restated1 | |||||||||
|
| Thermal Ceramics | Molten Metal Systems | Thermal Products division | Electrical Carbon | Seals and Bearings | Technical Ceramics | Carbon and Technical Ceramics division | Segment totals | Corporate costs | Group |
| Continuing operations | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue from external customers | 418.4 | 49.1 | 467.5 | 164.2 | 144.3 | 273.5 | 582.0 | 1,049.5 | - | 1,049.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment adjusted operating profit1 | 52.2 | 5.9 | 58.1 | 21.9 | 26.4 | 33.7 | 82.0 | 140.1 | - | 140.1 |
| Corporate costs |
|
|
|
|
|
|
|
| (5.9) | (5.9) |
| Group adjusted operating profit2 |
|
|
|
|
|
|
|
|
| 134.2 |
| Amortisation of intangible assets | (2.2) | (0.3) | (2.5) | (0.7) | (0.4) | (4.5) | (5.6) | (8.1) | - | (8.1) |
| Operating profit before specific adjusting items | 50.0 | 5.6 | 55.6 | 21.2 | 26.0 | 29.2 | 76.4 | 132.0 | (5.9) | 126.1 |
| Specific adjusting items included in operating profit3 | - | - | - | - | - | - | - | - | - | - |
| Operating profit/(loss) | 50.0 | 5.6 | 55.6 | 21.2 | 26.0 | 29.2 | 76.4 | 132.0 | (5.9) | 126.1 |
| Finance income |
|
|
|
|
|
|
|
|
| 1.9 |
| Finance expense |
|
|
|
|
|
|
|
|
| (18.8) |
| Share of profit of associate (net of income tax) |
|
|
|
|
|
|
|
|
| 0.5 |
| Profit before taxation |
|
|
|
|
|
|
|
|
| 109.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment assets | 387.5 | 42.8 | 430.3 | 154.8 | 101.9 | 209.6 | 466.3 | 896.6 | 152.6 | 1,049.2 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment liabilities | 96.4 | 9.4 | 105.8 | 32.2 | 22.5 | 78.0 | 132.7 | 238.5 | 499.0 | 737.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment capital expenditure | 12.1 | 4.2 | 16.3 | 8.4 | 10.1 | 21.6 | 40.1 | 56.4 | - | 56.4 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment depreciation - property, plant and equipment | 13.6 | 1.8 | 15.4 | 5.2 | 5.0 | 6.7 | 16.9 | 32.3 | - | 32.3 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment depreciation - right-of-use assets | 4.3 | 0.4 | 4.7 | 1.2 | 0.7 | 3.4 | 5.3 | 10.0 | 0.1 | 10.1 |
1. Cash and cash equivalents (within segment assets) and borrowings (within segment liabilities) have been restated to meet the presentational requirements of IAS 32, as further described in
note 1. This has had no impact on net assets. Segment liabilities have also been restated to include the Group's cumulative preference shares within borrowings, see note 1 for further details.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
3. Details of specific adjusting items are given in note 4 to the consolidated financial statements.
Revenue from external customers and non-current assets by geography
|
| Revenue from | Non-current assets (excluding tax and financial instruments) | ||
| Continuing operations | 2020 £m | 2019 £m | 2020 £m | 2019 £m |
| US | 359.8 | 420.0 | 182.3 | 226.8 |
| China | 97.1 | 101.3 | 40.9 | 60.1 |
| Germany | 59.3 | 68.9 | 36.1 | 46.9 |
| UK (the Group's country of domicile) | 37.5 | 44.5 | 120.0 | 120.8 |
| France | 21.4 | 29.8 | 15.2 | 17.6 |
| Other Asia, Australasia, Middle East and Africa | 164.6 | 195.7 | 71.2 | 71.6 |
| Other Europe | 120.9 | 128.2 | 25.1 | 26.0 |
| Other North America | 32.9 | 33.6 | 6.2 | 9.4 |
| South America | 17.2 | 27.5 | 2.7 | 4.1 |
|
| 910.7 | 1,049.5 | 499.7 | 583.3 |
Revenue from external customers is based on geographic location of the end-customer. Segment assets are based on geographical location of the assets. No customer represents more than 10% of revenue.
Revenue from external customers by end market
| Continuing operations |
|
| 2020 £m | 20191 £m |
| Industrial |
|
| 390.9 | 469.8 |
| Transportation |
|
| 157.0 | 218.2 |
| Chemical and petrochemical |
|
| 103.7 | 106.0 |
| Semiconductor and electronics |
|
| 57.8 | 62.7 |
| Energy |
|
| 50.5 | 57.4 |
| Security and defence |
|
| 90.1 | 78.1 |
| Healthcare |
|
| 60.7 | 57.3 |
|
|
|
| 910.7 | 1,049.5 |
1. Revenue from external customers by end market for the year ended 31 December 2019 has been re-presented to better reflect the end-markets of our customers.
Intercompany sales to other segments
|
| Thermal Ceramics | Molten Metal Systems | Thermal Products division | Electrical Carbon | Seals and Bearings | Technical Ceramics | Carbon and Technical Ceramics division | ||||||||
| Continuing operations | 2020 £m | 2019 £m | 2020 £m | 2019 £m | 2020 £m | 2019 £m | 2020 £m | 2019 £m | 2020 £m | 2019 £m | 2020 £m | 2019 £m | 2020 £m | 2019 £m |
|
| Intercompany sales to other segments | 0.9 | 1.0 | 0.1 | 0.1 | 1.0 | 1.1 | 0.3 | 0.3 | 0.8 | 1.2 | 1.0 | 0.4 | 2.1 | 1.9 |
|
Note 4. Specific adjusting items
|
| 2020 | 2019 |
| Continuing operations | £m | £m |
| Specific adjusting items: |
|
|
| Restructuring costs | (24.0) | - |
| Impairment of assets | (65.6) | - |
| Profit on disposal of business | 2.2 | - |
| Business closure and exit costs | - | (0.7) |
| Release of provisions related to business exits and disposals | - | 0.7 |
| Total specific adjusting items before income tax | (87.4) | - |
| Income tax credit from specific adjusting items | 13.3 | - |
| Total specific adjusting items after income tax | (74.1) | - |
Specific adjusting items in relation to discontinued operations are disclosed in note 7.
2020
Impairment of assets
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand has resulted in impairment losses of £28.8 million in the ceramic cores businesses. The assets relating to these businesses have been impaired to align their recoverable value to their value in use. The calculation of value in use, which was performed in June 2020, assumed trends seen in the second quarter of 2020 persisted into the second half of 2020, with a gradual recovery of demand. A long-term growth rate of 1% was used for years beyond 2025 and in calculating the terminal value. A pre-tax discount rate of 11.5% was used to determine the value in use. The impairment was allocated to customer relationship intangible assets recognised upon the acquisition of the Carpenter business in 2008, right-of-use assets and property, plant and equipment.
A reasonably possible change in the above assumptions could lead to a material reversal of impairment. An accelerated recovery of demand, with return to 2019 demand levels in the forecast period to 2025, would lead to a full reversal of the above impairment. There is no scenario that would lead to a further, material impairment of the existing assets.
Technical Ceramics, China
On 15 June 2020 the Group announced the closure of its Suzhou manufacturing facility in China and has recognised £1.1 million relating to the impairment of plant and equipment to its fair value less costs of disposal.
Thermal Ceramics
The continuing reduced demand in the aerospace, automotive and industrial market segments has resulted in impairment losses of £35.7 million in Thermal Ceramics.
Impairments relating to the closure of sites and under-utilised product lines, totalled £21.7 million relating to property, plant and equipment, land use rights, right-of-use assets, other debtors and inventory, aligning their recoverable value to their fair value less costs of disposal.
Two further businesses, which remain in operation, have recognised combined impairment losses of £14.0 million after reassessment of their value in use in the current economic climate. The calculation of value in use, which was performed in June 2020, assumed trends seen in the second quarter of 2020 persisted into the second half of 2020, followed by a gradual recovery of demand. A long-term growth rate of 1% was used for years beyond the forecast period and in calculating the terminal value. A pre-tax discount rate of 11.6% was used to determine the value in use. The impairment was allocated to customer relationship and technology and trademark intangible assets recognised upon the acquisition of Porextherm in Germany in 2014 as well as right-of-use assets and property, plant and equipment across both businesses.
A reasonably possible change in the above assumptions for the Porextherm impairment assessment could lead to a material reversal of impairment. An accelerated recovery of demand in the forecast period to levels which existed before the decline, which started in 2018, would lead to a full reversal of the above impairment. There is no scenario that would lead to a further, material impairment of the existing assets.
Restructuring costs
Following the announcement of the Group's restructuring programme on 5 June 2020 the Group has recognised £24.0 million relating to staff redundancies, site closure costs, legal and professional fees and the exit of certain multi-employer defined contribution pension plans.
US Electro-ceramics update
In 2017, the Group divested its UK Electro-ceramics business, which was part of the Technical Ceramics operating segment. At the same time, it announced the closure of its US Electro-ceramics business, which formed the remainder of the Group's Electro-ceramics business, once the delivery of the last time orders from customers had been completed. On 30 June 2020, the business ceased trading. Costs associated with the closure of the site were provided for in 2017. In 2020, the US Electro-ceramics business generated an operating profit contribution of £2.8 million on revenues of £4.6 million.
2019
Business closure and exit costs
China, Technical Ceramics
In 2019, the Group completed the exit of the ceramic cores operations within China, initiated in 2018. The Group recognised £0.7 million of costs in relation to this exit relating to staff redundancies and legal and professional fees.
Release of provisions related to previous business exits and disposals
In 2019, certain liabilities relating to previous business exits and disposals lapsed and the Group released £0.7 million of legal and other provisions.
Note 5. Finance income and expense
|
| 2020 | 2019 |
| Continuing operations | £m | £m |
| Recognised in profit or loss |
|
|
| Interest on bank balances and cash deposits | 0.9 | 1.9 |
| Finance income | 0.9 | 1.9 |
|
|
|
|
| Interest expense on borrowings and overdrafts | (7.4) | (11.2) |
| Interest expense on lease liabilities | (2.8) | (3.0) |
| Net interest on IAS 19 defined benefit pension obligations | (2.6) | (4.6) |
| Finance expense | (12.8) | (18.8) |
| Net financing costs recognised in profit or loss | (11.9) | (16.9) |
No finance income or expense related to discontinued operations in either the current or preceding year.
Note 6. Taxation
|
Continuing operations |
|
| 2020 £m | 2019 £m |
| Recognised in profit or loss |
|
|
|
|
| Current tax |
|
|
|
|
| Current year |
|
| 21.0 | 29.3 |
| Adjustments for prior years |
|
| (1.3) | 0.3 |
|
|
|
| 19.7 | 29.6 |
| Deferred tax |
|
|
|
|
| Current year |
|
| (12.5) | 1.5 |
| Adjustments for prior years |
|
| (0.3) | (1.2) |
|
|
|
| (12.8) | 0.3 |
| Total income tax expense recognised in profit or loss |
|
| 6.9 | 29.9 |
|
Recognised in other comprehensive income |
|
|
|
|
| Tax effect on components of other comprehensive income: |
|
|
|
|
| Deferred tax associated with defined benefit schemes and share schemes |
|
| (0.4) | (2.2) |
| Total tax recognised in other comprehensive income |
|
| (0.4) | (2.2) |
| Reconciliation of effective tax rate
| 2020 £m | 2020 % | 2019 £m | 2019 % |
| (Loss)/profit before tax | (13.1) |
| 109.7 |
|
|
|
|
|
|
|
| Income tax (credit)/charge using the domestic corporation tax rate | (2.5) | 19.0 | 20.8 | 19.0 |
| Effect of different tax rates in other jurisdictions | (0.8) | 6.1 | 5.8 | 5.3 |
| Local taxes including withholding tax suffered | 2.0 | (15.3) | 3.9 | 3.6 |
| Permanent differences | 10.2 | (77.9) | 3.9 | 3.6 |
| Movements related to unrecognised temporary differences | (0.4) | 3.1 | (3.6) | (3.3) |
| Adjustments in respect of prior years | (1.6) | 12.2 | (0.9) | (0.8) |
| Statutory effective rate of tax | 6.9 | (52.7) | 29.9 | 27.3 |
The effective rate of tax before specific adjusting items is 27.2% (2019: 27.3%).
The Group operates in many jurisdictions around the world and is subject to factors that may impact future tax charges including the recently enacted US tax reform, implementation of the OECD's BEPS actions, tax rate and legislation changes, expiry of the statute of limitations and resolution of tax audits and disputes.
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. HM Revenue & Customs have been reviewing the position for the Group and concluded in February 2021 that the Group was not the beneficiary of State Aid.
Note 7. Discontinued operations
The Group disposed of its Composites and Defence Systems business on 20 November 2018. The business represented a separate reportable segment and therefore, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the disposal group was classified as discontinued. .
The results from discontinued operations, which have been disclosed in the consolidated income statement, are set out below:
|
| Year ended 31 December 2020 |
| Year ended 31 December 2019 | ||||
|
| Results before specific adjusting items | Specific adjusting items | Total |
| Results before specific adjusting items | Specific adjusting items | Total |
|
| £m | £m | £m |
| £m | £m | £m |
|
|
|
|
|
|
|
|
|
| Revenue | - | - | - |
| - | - | - |
|
|
|
|
|
|
|
|
|
| Operating income | - | 2.0 | 2.0 |
| 0.7 | 0.8 | 1.5 |
|
|
|
|
|
|
|
|
|
| Profit before taxation | - | 2.0 | 2.0 |
| 0.7 | 0.8 | 1.5 |
|
|
|
|
|
|
|
|
|
| Income tax expense | - | - | - |
| - | - | - |
|
|
|
|
|
|
|
|
|
| Profit from discontinued operations | - | 2.0 | 2.0 |
| 0.7 | 0.8 | 1.5 |
|
|
|
|
|
|
|
|
|
| Basic earnings per share from discontinued operations |
|
| 0.7p |
|
|
| 0.5p |
| Diluted earnings per share from discontinued operations |
|
| 0.7p |
|
|
| 0.5p |
In both 2019 and 2020, specific adjusting items relate to the reassessment of certain provisions associated with the disposal. In 2019, operating income of £0.7 million related to receipts from contingent assets excluded from the disposal.
There is no income tax expense in relation to the discontinued operations in either the current or preceding year.
Cash flows from discontinued operations are set out below:
|
| Year ended 31 December 2020 | Year ended 31 December 2019 |
|
| £m | £m |
| Net cash (outflow)/inflow from operating activities | (0.1) | 0.4 |
| Net cash inflow from investing activities | - | 0.7 |
| Net cash flow used in financing activities | - | - |
|
| (0.1) | 1.1 |
Note 8. Earnings per share
|
| Year ended 31 December 2020 |
| Year ended 31 December 2019 | ||||
|
| Earnings | Basic earnings per share | Diluted earnings per share |
| Earnings | Basic earnings per share | Diluted earnings per share |
|
| £m | pence | pence |
| £m | pence | pence |
| (Loss)/profit for the period attributable to shareholders of the Company | (22.5) | (7.9)p | (7.9)p |
| 73.1 | 25.7p | 25.5p |
| (Profit) from discontinued operations | (2.0) | (0.7)p | (0.7)p |
| (1.5) | (0.5)p | (0.5)p |
| (Loss)/profit from continuing operations | (24.5) | (8.6)p | (8.6)p |
| 71.6 | 25.2p | 25.0p |
| Specific adjusting items | 87.4 | 30.7p | 30.5p |
| - | - | - |
| Amortisation of intangible assets | 6.1 | 2.1p | 2.1p |
| 8.1 | 2.8p | 2.8p |
| Tax effect of the above | (13.3) | (4.7)p | (4.6)p |
| - | - | - |
| Non-controlling interests' share of the | (1.5) | (0.5)p | (0.5)p |
| - | - | - |
| Adjusted profit for the period from continuing operations as used in adjusted earnings | 54.2 | 19.0p | 18.9p |
| 79.7 | 28.0p | 27.8p |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
|
|
| 2020 | 2019 |
| Number of shares (millions) |
|
|
|
| Weighted average number of Ordinary shares for the purposes of basic earnings per share1 |
| 284.7 | 284.6 |
| Effect of dilutive potential Ordinary shares: |
|
|
|
| Share options |
| 1.4 | 1.6 |
| Weighted average number of Ordinary shares for the purposes of diluted earnings per share |
| 286.1 | 286.2 |
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.
Note 9. Property, plant and equipment
|
| Note | Land and buildings
£m | Plant, equipment and fixtures £m | Total
£m |
| Cost |
|
|
|
|
| Balance at 1 January 2019 |
| 218.3 | 697.6 | 915.9 |
| Additions |
| 9.2 | 41.8 | 51.0 |
| Disposals |
| (2.6) | (22.0) | (24.6) |
| Effect of movement in foreign exchange |
| (9.5) | (31.4) | (40.9) |
| Balance at 31 December 2019 |
| 215.4 | 686.0 | 901.4 |
|
|
|
|
|
|
| Balance at 1 January 2020 |
| 215.4 | 686.0 | 901.4 |
| Additions |
| 0.9 | 22.1 | 23.0 |
| Disposals |
| (1.5) | (18.6) | (20.1) |
| Sale of business | 2 | - | (6.5) | (6.5) |
| Transfers between categories |
| 0.3 | (0.3) | - |
| Transfer to intangible assets | 11 | - | (1.5) | (1.5) |
| Effect of movement in foreign exchange |
| 0.1 | (3.0) | (2.9) |
| Balance at 31 December 2020 |
| 215.2 | 678.2 | 893.4 |
|
|
|
|
|
|
| Depreciation and impairment losses |
|
|
|
|
| Balance at 1 January 2019 |
| 95.9 | 505.5 | 601.4 |
| Depreciation charge for the year |
| 5.4 | 26.9 | 32.3 |
| Reversal of impairment |
| - | (0.5) | (0.5) |
| Disposals |
| (1.4) | (21.6) | (23.0) |
| Effect of movement in foreign exchange |
| (4.2) | (21.8) | (26.0) |
| Balance at 31 December 2019 |
| 95.7 | 488.5 | 584.2 |
|
|
|
|
|
|
| Balance at 1 January 2020 |
| 95.7 | 488.5 | 584.2 |
| Depreciation charge for the year |
| 5.3 | 27.4 | 32.7 |
| Impairment losses | 4 | 10.1 | 26.9 | 37.0 |
| Disposals |
| (0.8) | (18.3) | (19.1) |
| Sale of business | 2 | - | (5.1) | (5.1) |
| Transfers between categories |
| (0.3) | 0.3 | - |
| Effect of movement in foreign exchange |
| (0.3) | (3.6) | (3.9) |
| Balance at 31 December 2020 |
| 109.7 | 516.1 | 625.8 |
| Carrying amounts |
|
|
|
|
| At 1 January 2019 |
| 122.4 | 192.1 | 314.5 |
| At 31 December 2019 |
| 119.7 | 197.5 | 317.2 |
| At 31 December 2020 |
| 105.5 | 162.1 | 267.6 |
In 2020, no assets were pledged as security for liabilities (2019: none). Profit on sale of property, plant and equipment presented in the cash flow includes £1.2 million (2019: £0.8 million) of insurance proceeds for replacement of assets.
Note 10. Leases
The reconciliation in the movement of the Group's right-of-use assets is set out in the table below:
|
|
| Land and buildings £m | Plant and equipment £m | Total £m |
| Balance at 1 January 2019 |
| 40.8 | 10.3 | 51.1 |
| Additions |
| 6.4 | 3.1 | 9.5 |
| Remeasurements |
| 0.6 | 0.1 | 0.7 |
| Depreciation charge for the year |
| (6.1) | (4.0) | (10.1) |
| Effect of movement in foreign exchange |
| (1.7) | (0.4) | (2.1) |
| Balance at 31 December 2019 |
| 40.0 | 9.1 | 49.1 |
|
|
|
|
|
|
| Balance at 1 January 2020 |
| 40.0 | 9.1 | 49.1 |
| Additions |
| 1.8 | 2.0 | 3.8 |
| Remeasurements |
| (2.0) | (0.8) | (2.8) |
| Depreciation charge for the year |
| (5.5) | (3.7) | (9.2) |
| Impairment losses |
| (5.0) | (0.3) | (5.3) |
| Effect of movement in foreign exchange |
| (0.1) | - | (0.1) |
| Balance at 31 December 2020 |
| 29.2 | 6.3 | 35.5 |
The weighted average lease term is 13.2 years for land and buildings and 3.7 years for plant and equipment (2019: 13.2 years and 3.5 years respectively).
Amounts recognised in the consolidated income statement in respect of leasing arrangements are set out in the table below:
|
|
|
| 2020 £m | 2019 £m |
| Depreciation expense on right-of-use assets |
|
| (9.2) | (10.1) |
| Interest expense on lease liabilities |
|
| (2.8) | (3.0) |
| Expense relating to short-term leases and leasing of low value assets |
|
| (0.5) | (0.8) |
| Income from leasing owned assets |
|
| 0.3 | 0.3 |
|
|
|
| (12.2) | (13.6) |
The total cash flows from leasing activities in the year ended 31 December 2020 was £12.9 million (2019: £13.1 million) as set out in the table below:
|
|
|
| 2020 £m | 2019 £m |
| Payment of lease liabilities |
|
| (9.9) | (9.6) |
| Interest expense on lease liabilities |
|
| (2.8) | (3.0) |
| Expenses relating to short-term leases of low value assets |
|
| (0.5) | (0.8) |
| Income from leasing owned assets |
|
| 0.3 | 0.3 |
|
|
|
| (12.9) | (13.1) |
At 31 December 2020, the Group is committed to future payments of £0.3 million (2019: £0.7 million) for short-term leases and leasing of low value assets.
At 31 December 2020, the Group had entered into leases which had not yet commenced with future cash flows totalling £0.3 million (2019: £nil).
The total of future minimum lease income under non-cancellable leases, where the Group is a lessor is £0.3 million (2019: £0.3 million).
Note 11. Intangible assets
|
| Note | Goodwill
£m | Customer relationships
£m | Technology and trademarks £m | Capitalised development costs £m | Computer software
£m | Total
£m |
| Cost |
|
|
|
|
|
|
|
| Balance at 1 January 2019 |
| 179.4 | 60.4 | 3.7 | 0.8 | 29.8 | 274.1 |
| Additions (externally purchased) |
| - | - | - | - | 2.8 | 2.8 |
| Disposals |
| - | - | - | - | (0.1) | (0.1) |
| Effect of movement in foreign exchange |
| (4.3) | (2.7) | (0.3) | - | (0.8) | (8.1) |
| Balance at 31 December 2019 |
| 175.1 | 57.7 | 3.4 | 0.8 | 31.7 | 268.7 |
|
|
|
|
|
|
|
|
|
| Balance at 1 January 2020 |
| 175.1 | 57.7 | 3.4 | 0.8 | 31.7 | 268.7 |
| Additions (externally purchased) |
| - | - | - | - | 7.0 | 7.0 |
| Disposals |
| (0.9) | - | - | - | (5.2) | (6.1) |
| Transfers from property, plant & equipment | 9 | - | - | - | - | 1.5 | 1.5 |
| Effect of movement in foreign exchange |
| (1.0) | (1.5) | 0.2 | (0.1) | (0.5) | (2.9) |
| Balance at 31 December 2020 |
| 173.2 | 56.2 | 3.6 | 0.7 | 34.5 | 268.2 |
|
|
|
|
|
|
|
|
|
| Amortisation and impairment losses |
|
|
|
|
|
|
|
| Balance at 1 January 2019 |
| - | 38.1 | 0.5 | 0.8 | 19.1 | 58.5 |
| Amortisation charge for the year |
| - | 4.3 | 0.2 | - | 3.6 | 8.1 |
| Disposals |
| - | - | - | - | (0.1) | (0.1) |
| Effects of movement in foreign exchange |
| - | (2.0) | - | - | (0.6) | (2.6) |
| Balance at 31 December 2019 |
| - | 40.4 | 0.7 | 0.8 | 22.0 | 63.9 |
|
|
|
|
|
|
|
|
|
| Balance at 1 January 2020 |
| - | 40.4 | 0.7 | 0.8 | 22.0 | 63.9 |
| Amortisation charge for the year |
| - | 2.5 | 0.1 | - | 3.5 | 6.1 |
| Impairment losses | 4 | - | 13.9 | 2.7 | - | 3.1 | 19.7 |
| Disposals |
| - | - | - | - | (4.5) | (4.5) |
| Effects of movement in foreign exchange |
| - | (2.0) | 0.1 | (0.1) | (0.4) | (2.4) |
| Balance at 31 December 2020 |
| - | 54.8 | 3.6 | 0.7 | 23.7 | 82.8 |
|
|
|
|
|
|
|
|
|
| Carrying amounts |
|
|
|
|
|
|
|
| At 1 January 2019 |
| 179.4 | 22.3 | 3.2 | - | 10.7 | 215.6 |
| At 31 December 2019 |
| 175.1 | 17.3 | 2.7 | - | 9.7 | 204.8 |
| At 31 December 2020 |
| 173.2 | 1.4 | - | - | 10.8 | 185.4 |
Impairment test for cash-generating units containing goodwill
In accordance with the requirements of IAS 36 Impairment of Assets, goodwill is allocated to the Group's cash-generating units that are expected to benefit from the synergies of the business combination that gave rise to the goodwill.
Goodwill is attributed to each cash-generating unit as follows:
|
| 2020 £m | 2019 £m |
| Thermal Ceramics | 84.6 | 85.2 |
| Molten Metal Systems | 9.0 | 9.1 |
| Electrical Carbon | 29.3 | 29.5 |
| Seals and Bearings | 14.9 | 14.9 |
| Technical Ceramics | 35.4 | 36.4 |
|
| 173.2 | 175.1 |
Each cash-generating unit is assessed for impairment annually and whenever there is an indication of impairment.
The economic uncertainty caused by the COVID-19 pandemic, and its impact Group's financial statements in the six months to 30 June 2020, led management to perform an impairment assessment on goodwill at 30 June 2020. No impairment was indicated at that time. At 31 December 2020 management has reperformed these impairment tests with updated assumptions.
The carrying value of goodwill has been assessed with reference to its value in use, reflecting the projected discounted cash flows of each cash-generating unit to which goodwill has been allocated. The key assumptions used in determining value in use relate to growth rates and discount rates.
The cash flow projections in year one are based on the most recent Board approved budget. Cash flow projections for years two and three are based on the most recent Board approved strategic plan. The key assumptions that underpin these cash flow projections relate to sales and operating margins, which are based on past experience, taking into account the effect of known or likely changes in market or operating conditions. External data sources have been considered as to the strength and recovery of the Group's end-markets in building an expectation of the future cash flows of each cash generating unit.
A 1.0% growth rate has been used for years beyond 2023 and to calculate a terminal value. Management has assessed these growth rates, including the terminal growth rate as reasonable for each cash-generating unit.
In 2020, the Group has used the following pre-tax discount rates for calculating the value in use of each of the cash-generating units: Thermal Ceramics: 11.7%, Molten Metal Systems: 13.7%, Electrical Carbon: 11.9%, Seals and Bearings: 10.7%, Technical Ceramics 10.8%.
The Directors have considered the following individual sensitivities and are confident that no impairment would arise for each of the Thermal Ceramics, Molten Metal Systems, Electrical Carbon, Seals and Bearings and Technical Ceramics cash-generating units in any one of the following three circumstances, which are considered reasonably possible changes:
® If the pre-tax discount rate was increased to 15%.
® If no growth was assumed for years two to five and in the calculation of terminal value.
® If the cash flow projections of all businesses were reduced by 25%.
Note 12. Cash and cash equivalents
|
| 2020 | 2019 restated1 |
|
| £m | £m |
|
|
|
|
| Bank balances | 139.7 | 123.7 |
| Cash deposits | 8.1 | 9.1 |
| Cash and cash equivalents | 147.8 | 132.8 |
1. As disclosed in note 1, the Group's cash and cash equivalents have been restated to meet the presentational requirements for offsetting in accordance with IAS 32. Comparative information for the year ended 31 December 2019 has increased from £68.7 million to £132.8 million. This has had no impact on the Group's net assets.
In 2020, the Group had restricted cash of £0.9 million (2019: £0.6 million) as a result of exchange controls in Argentina.
Reconciliation of cash and cash equivalents to net debt1
|
| 2020 | 2019 restated1 |
|
| £m | £m |
| Opening borrowings and lease liabilities | (354.4) | (386.4) |
| Increase in borrowings | (7.9) | (67.1) |
| Reduction and repayment of borrowings | 49.8 | 85.2 |
| Payment of lease liabilities | 9.9 | 9.6 |
| Total changes from cash flows | 51.8 | 27.7 |
| New leases and lease remeasurement | (0.9) | (8.8) |
| Effect of movements in foreign exchange | 0.1 | 13.1 |
| Closing borrowings and lease liabilities | (303.4) | (354.4) |
| Cash and cash equivalents | 147.8 | 132.8 |
| Closing net debt 2 | (155.6) | (221.6) |
1. 2019 has been restated to include the Group's cumulative preference shares within borrowings, this increased net debt* and decreased net assets by £0.4 million. Cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32. This has had no impact on net assets or net debt*. Further details of both adjustments are described in note 1.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes.
|
| Borrowings £m | Lease liabilities
£m | Total financing liabilities £m | Cash and cash equivalents £m | Movement in £m |
| At 1 January 2019 restated2 | (318.8) | (67.6) | (386.4) | 138.5 | (247.9) |
| Cash inflow | - | - | - | 16.3 | 16.3 |
| Borrowings and lease liability cash flow | 18.1 | 9.6 | 27.7 | - | 27.7 |
| Net interest paid | - | - | - | (14.2) | (14.2) |
| Net cash inflow | 18.1 | 9.6 | 27.7 | 2.1 | 29.8 |
| Share purchases | - | - | - | (3.3) | (3.3) |
| New leases and lease remeasurement | - | (8.8) | (8.8) | - | (8.8) |
| Exchange and other movements | 10.6 | 2.5 | 13.1 | (4.5) | 8.6 |
| At 31 December 2019 | (290.1) | (64.3) | (354.4) | 132.8 | (221.6) |
|
|
|
|
|
|
|
| At 1 January 2020 | (290.1) | (64.3) | (354.4) | 132.8 | (221.6) |
| Cash inflow | - | - | - | 28.9 | 28.9 |
| Borrowings and lease liability cash flow | 41.9 | 9.9 | 51.8 | - | 51.8 |
| Net interest paid | - | - | - | (10.3) | (10.3) |
| Net cash inflow | 41.9 | 9.9 | 51.8 | 18.6 | 70.4 |
| Share purchases | - | - | - | (1.8) | (1.8) |
| New leases and lease remeasurement | - | (0.9) | (0.9) | - | (0.9) |
| Exchange and other movements | (0.6) | 0.7 | 0.1 | (1.8) | (1.7) |
| At 31 December 2020 | (248.8) | (54.6) | (303.4) | 147.8 | (155.6) |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 44, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
2. 2019 has been restated to include the Group's cumulative preference shares within borrowings, this increased net debt* and decreased net assets by £0.4 million. Cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32. This has had no impact on net assets or net debt*. Further details of both adjustments are described in note 1.
Note 13. Financial risk management
Fair Values
|
| 31 December 2020 | 31 December 20191 | ||||||
| Carrying amount £m | Fair value | Carrying amount £m | Fair value | |||||
| Level 1 £m | Level 2 £m | Total £m | Level 1 £m | Level 2 £m | Total £m | |||
| Financial assets and liabilities held at amortised cost |
|
|
|
|
|
| ||
| 1.18% Euro Senior Notes 2023 | (22.4) | - | (22.6) | (22.6) | (21.2) | - | (21.2) | (21.2) |
| 3.17% US Dollar Senior Notes 2023 | (11.0) | - | (11.4) | (11.4) | (11.4) | - | (11.3) | (11.3) |
| 1.55% Euro Senior Notes 2026 | (22.4) | - | (23.2) | (23.2) | (21.2) | - | (21.5) | (21.5) |
| 3.37% US Dollar Senior Notes 2026 | (71.4) | - | (75.1) | (75.1) | (73.5) | - | (72.1) | (72.1) |
| 1.74% Euro Senior Notes 2028 | (9.0) | - | (9.4) | (9.4) | (8.5) | - | (8.6) | (8.6) |
| 2.89% Euro Senior Notes 2030 | (22.3) | - | (24.3) | (24.3) | (21.1) | - | (22.2) | (22.2) |
| 4.87% US Dollar Senior Notes 2026 | (18.6) | - | (20.7) | (20.7) | (19.2) | - | (20.2) | (20.2) |
| 5.5% Cumulative First Preference shares | (0.1) | - | (0.1) | (0.1) | (0.1) | - | (0.1) | (0.1) |
| 5.0% Cumulative Second Preference shares | (0.3) | - | (0.3) | (0.3) | (0.3) | - | (0.3) | (0.3) |
|
| (177.5) | - | (187.1) | (187.1) | (176.5) | - | (177.5) | (177.5) |
|
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|
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|
|
|
|
|
|
| Financial assets held at FVOCI | 0.7 | 0.7 | - | 0.7 | 0.6 | 0.6 | - | 0.6 |
| Derivative financial assets held at fair value | 1.0 | - | 1.0 | 1.0 | 1.5 | - | 1.5 | - |
|
| 1.7 | 0.7 | 1.0 | 1.7 | 2.1 | 0.6 | 1.5 | 0.6 |
|
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|
|
|
|
|
|
|
|
| Derivative financial liabilities held at fair value | (0.8) | - | (0.8) | (0.8) | (0.6) | - | (0.6) | (0.6) |
1. 2019 has been restated to include the Group's cumulative preference shares within borrowings, see note 1 for further details.
The table above analyses financial instruments carried at fair value, by valuation method, together with the carrying amounts shown in the balance sheet. The fair value of cash and cash equivalents, current trade and other receivables/ payables and floating-rate bank and other borrowings are excluded from the preceding table as their carrying amount approximates to their fair value.
Fair value hierarchy
The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: not traded in an active market but the fair values are based on quoted market prices or alternative pricing sources with reasonable levels of price transparency. Fair value is calculated using discounted cash flow methodology, future cash flows are estimated based on forward exchange rates.
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The major methods and assumption used in estimating the fair values of financial instruments reflected in the preceding table are as follows:
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.
Fixed-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 0.9-2.4% (2019: 1.1-3.9%).
There have been no transfers between Level 1 and Level 2 during 2020 and 2019 and there were no Level 3 financial instruments in either 2020 or 2019.
Note 14. Pensions and other post-retirement employee benefits
|
| 31 December 2020 | ||||
|
| UK | US | Europe | Rest of World | Total |
|
| £m | £m | £m | £m | £m |
| Summary of net obligations |
|
|
|
|
|
| Present value of unfunded defined benefit obligations | - | (6.9) | (43.1) | (2.6) | (52.6) |
| Present value of funded defined benefit obligations | (603.4) | (140.6) | (2.2) | (8.5) | (754.7) |
| Fair value of plan assets | 483.1 | 140.2 | 0.5 | 7.2 | 631.0 |
|
| (120.3) | (7.3) | (44.8) | (3.9) | (176.3) |
|
|
|
|
|
|
|
| Movements in present value of defined benefit obligation |
|
|
|
|
|
| At 1 January 2020 | (534.6) | (146.0) | (40.0) | (14.3) | (734.9) |
| Current service cost | - | - | (1.1) | (1.7) | (2.8) |
| Past service cost | (0.1) | - | - | - | (0.1) |
| Interest cost | (10.8) | (4.6) | (0.3) | (0.3) | (16.0) |
| Actuarial gain/(loss) |
|
|
|
|
|
| Experience gain/(loss) on plan obligations | 2.2 | 1.3 | (0.2) | 0.6 | 3.9 |
| Changes in financial assumptions - (loss)/gain | (82.7) | (13.8) | (3.0) | 0.1 | (99.4) |
| Changes in demographic assumptions - gain/(loss) | - | 1.3 | - | - | 1.3 |
| Benefits paid | 22.6 | 9.2 | 1.6 | 4.8 | 38.2 |
| Curtailments and settlements | - | 0.3 | - | - | 0.3 |
| Contributions by members | - | - | - | - | - |
| Exchange adjustments | - | 4.8 | (2.3) | (0.3) | 2.2 |
| At 31 December 2020 | (603.4) | (147.5) | (45.3) | (11.1) | (807.3) |
|
|
|
|
|
|
|
| Movements in fair value of plan assets |
|
|
|
|
|
| At 1 January 2020 | 433.1 | 135.4 | 0.4 | 9.2 | 578.1 |
| Interest on plan assets | 8.9 | 4.3 | - | 0.2 | 13.4 |
| Remeasurement gain/(loss) | 47.2 | 13.5 | - | (0.4) | 60.3 |
| Contributions by employer | 16.5 | 0.9 | 1.6 | 2.7 | 21.7 |
| Contributions by members | - | - | - | - | - |
| Benefits paid | (22.6) | (9.2) | (1.6) | (4.8) | (38.2) |
| Curtailments and settlements | - | - | - | - | - |
| Exchange adjustments | - | (4.7) | 0.1 | 0.3 | (4.3) |
| At 31 December 2020 | 483.1 | 140.2 | 0.5 | 7.2 | 631.0 |
|
|
|
|
|
|
|
| Actual return on assets | 56.1 | 17.8 | - | (0.2) | 73.7 |
|
|
|
|
| 31 December 2020 | |
|
| UK | US | Europe | Rest of World | Total |
|
| £m | £m | £m | £m | £m |
| Fair value of plan assets by category |
|
|
|
|
|
| Equities1 | 57.8 | - | - | - | 57.8 |
| Growth assets2 | 99.1 | 8.0 | - | - | 107.1 |
| Bonds | 64.1 | 128.9 | - | - | 193.0 |
| Liability-driven investments (LDI)3 | 93.8 | - | - | - | 93.8 |
| Matching insurance policies | 164.4 | - | 0.5 | 4.5 | 169.4 |
| Other | 3.9 | 3.3 | - | 2.7 | 9.9 |
|
| 483.1 | 140.2 | 0.5 | 7.2 | 631.0 |
1. Equity values include both physical equities and the value of equity futures contracts, used to gain leveraged exposure to global equity markets.
2. Growth assets include investment in Global Diversified and Multi-Asset Funds as well as UK Property.
3. The LDI assets are pooled funds in the UK that provide a leveraged return linked to long duration fixed interest and index-linked government bonds valued at the bid price of the units. This provides interest rate and inflation hedging equivalent in size to c.100% of the invested assets of the UK Schemes.
The Group expects to contribute £20.8 million to these arrangements in 2021.
|
| 31 December 2019 | ||||
|
| UK | US | Europe | Rest of World | Total |
|
| £m | £m | £m | £m | £m |
| Summary of net obligations |
|
|
|
|
|
| Present value of unfunded defined benefit obligations | - | (7.6) | (37.9) | (2.7) | (48.2) |
| Present value of funded defined benefit obligations | (534.6) | (138.4) | (2.1) | (11.6) | (686.7) |
| Fair value of plan assets | 433.1 | 135.4 | 0.4 | 9.2 | 578.1 |
|
| (101.5) | (10.6) | (39.6) | (5.1) | (156.8) |
|
| UK | US | Europe | Rest of World |
|
|
|
|
|
|
| Principal actuarial assumptions at 31 December 2020 were: | % | % | % | % |
| Discount rate | 1.23 | 2.34 | 0.40 | 2.40 |
| Inflation (UK: RPI/CPI) | 2.88/2.03 | n/a | 1.60 | n/a |
|
|
|
|
|
|
| Principal actuarial assumptions at 31 December 2019 were: | % | % | % | % |
| Discount rate | 2.06 | 3.21 | 0.90 | 2.20 |
| Inflation (UK: RPI/CPI) | 2.73/1.88 | n/a | 1.70 | n/a |
Note 15. Provisions and contingent liabilities
|
| Closure and restructuring provisions £m | Legal and other provisions
£m | Environmental provisions
£m | Total
£m |
| Balance at 31 December 2019 | 2.4 | 8.8 | 6.9 | 18.1 |
| Provisions made during the year | 20.0 | 3.7 | 2.7 | 26.4 |
| Provisions used during the year | (3.3) | (0.5) | (0.7) | (4.5) |
| Provisions reversed during the year | (0.9) | (1.9) | (0.6) | (3.4) |
| Effect of movements in foreign exchange | (0.9) | 0.1 | - | (0.8) |
| Balance at 31 December 2020 | 17.3 | 10.2 | 8.3 | 35.8 |
|
|
|
|
|
|
| Current | 16.7 | 6.6 | 4.0 | 27.3 |
| Non-current | 0.6 | 3.6 | 4.3 | 8.5 |
|
| 17.3 | 10.2 | 8.3 | 35.8 |
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. 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.
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.
Subsidiary undertakings within the Group have given unsecured guarantees of £9.0 million (2019: £7.4 million) in the ordinary course of business.
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. Whilst this study has yet to be finalised, sufficient work has been completed to enable an estimate to be made for the costs of remediating the known environmental issues at this site. This cost has been provided for in the table above.
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 as yet unknown environmental issues at the site referred to above, pending the completion of the feasibility study.
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.
Note 16. Subsequent events
There were no reportable subsequent events following the balance sheet date.
Glossary
|
|
1. See definitions and reconciliations of non-GAAP measures to GAAP measures on page 12 to 16.
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