2009 Revenue up 12.9% for Morgan Crucible

Feb. 22, 2010
Morgan Crucible recently released its full-year results for the period ended January 3, 2010. Revenue for the full year increased to 942.6 million (approximately $1.5 billion), up 12.9% compared to 2008. Group EBITA before restructuring charges and one-off items was 89.0 million (~ $138.9 million), delivering a margin of 9.4%. Margins in the second half were 9.7%, reflecting the benefit of significant cost reductions taken early in the year. Net cash flow from operations increased substantially to 134.5 million (~ $209.8 million), up 21% on the previous year, and free cash inflow before one-off items was 85.9 million (~ $134.1 million).
"I am proud of the results that Morgan Crucible has delivered in the most challenging environment for industrial companies in decades," said Mark Robertshaw, CEO. "Throughout 2009, we maintained a proactive stance of tight operational management and a rigorous focus on cash generation. As a result, our margins held up robustly and operating cash flow was strong, underpinning the board's decision to maintain the dividend.
"Over the last five years, we have improved the Group's business model. Our portfolio transition toward higher-growth, higher-margin, less economically cyclical markets, our sustained pricing discipline and our unremitting focus on cost control has changed the game at Morgan Crucible. In recent months, there have been early signs of improving order intake, although I believe it is premature to be calling a recovery just yet. However, Morgan Crucible is well-placed to benefit from any economic recovery as and when it occurs."
Revenues for the Carbon division were up by 63% on a reported basis compared to 2008, at 391.4 million (~ $611.0 million). This increase reflects the inclusion of NP Aerospace in the division's consolidated results for the first time following the increase in Morgan Crucible's shareholding in NP Aerospace from 49% to 60% in January 2009. The like-for-like revenue increase (including NP Aerospace revenues for all of 2008 when it was accounted for as an associate) on a constant currency basis was 13%. This was driven by strong performance from the NP Aerospace business, for which revenues were 186.2 million (~ $290.7 million), up 159% on the previous year.
Revenues for the underlying Carbon business, excluding NP Aerospace, were down approximately 25% on a like-for-like constant currency basis, reflecting the impact that the economic downturn had on almost all of the markets the division serves, combined with a significant reduction in North America body armor revenues in 2009. Revenues in the second half were broadly flat with the first half, reflecting a seasonally quiet third quarter, especially in Europe, followed by some improvement in the fourth quarter.
Aggressive cost reduction programs in the underlying Carbon business were initiated in the second half of 2008 in anticipation of weakening demand, with total headcount being reduced by nearly 700 (18%). Morgan Crucible also implemented, wherever possible, reduced working weeks at a large number of sites and accelerated the relocation of manufacturing to lower-cost regions such as Mexico, China and Hungary. As a result of these actions, full-year total employment costs were reduced by more than 12 million (~ $18.7 million) compared with 2008. Nevertheless, the Group has maintained its commitment throughout the year to devote resources to new growth opportunities to advance its position in the renewable energy sector, the global armor market and in China.
End-market demand in the underlying Carbon business stabilized during the third quarter and has shown some signs of improvement entering 2010. Morgan Crucible expects that its actions to reduce the cost base in 2009 will deliver further benefits in 2010, and it will continue to advance its strategy to manufacture in low-cost regions wherever possible.
Revenues for the Technical Ceramics division in 2009 were 206.0 million (~ $321.6 million), a decrease of 3%. This included 45.9 million (~ $71.7 million) of revenue contributed by the businesses acquired from Carpenter in 2008. The underlying year-on-year revenue decrease at constant currency (including the Carpenter acquisition on a full 12-month basis) was 19.4%.
Despite the unprecedented economic conditions, the Technical Ceramics division was, in the main, able to substantially protect profit margins, which were 12.2% for the year. EBITA for the year was 25.1 million (~ $39.2 million), with performance in the second half showing an improved EBITA margin of 13.4%.
In response to the weaker global market conditions, the division took early action to protect its margins. These actions included headcount reductions of 670 employees, compared to June 2008. These cost-control measures continued to deliver benefits in the second half of the year and drove the improved margins seen over the first half.
During the year, Technical Ceramics maintained its focus on a positive mix shift, moving toward higher-margin, higher-value-added end markets such as medical and aerospace. In parallel, the continuous operational improvement program, cost reduction initiatives and emphasis on positive price pass through all contributed to supporting operating margins in very difficult market conditions.
Although the overall market demand declined in 2009, some areas are now showing positive signs of improvement. The most notable example is the initiation of a production ramp-up to meet demand for the next generation of components for hard disc drive (HDD) products, which is currently under way. The European business had a difficult year in 2009, being consistently challenged by weak market conditions in general industrial markets and construction. This principally affected the business in Germany, which supplies products for thermal processing applications. In both Europe and North America, a highlight of 2009 was the continuing strength of the medical business. Increasing its exposure to this sector remains an important focus for the division.
Work on footprint consolidation continued in the second half of the year. In July, the division announced and started the move of business from its Auburn site into the Hayward location in California; the full-year benefits of this are expected to come through during 2010. In October, the division completed the sale of its New Bedford-based small Metal Injection Moulding (MIM) business for 1.1 million (~ $1.7 million) cash to make room to expand the medical business there. The Shanghai site, which produced mostly commodity products for domestic applications, was successfully closed on time and to plan during the first half of the year. Entering 2010, the division has improving momentum in its order book, with certain end markets, particularly in the U.S., showing signs of recovery.
The Insulating Ceramics division includes two operating segments: Thermal Ceramics and Molten Metal Systems. Total Insulating Ceramics division revenue decreased by 9.8% to 345.2 million in 2009 (~ $538.9 million). On a constant currency basis, the year-on-year decline was 19.7%. Divisional EBITA and margins dropped to 27.6 million (~ $43.1 million) and 8.0%.
The Thermal Ceramics business' revenue decreased by 9.3% to 315.1 million in 2009 (~ $491.9 million). On a constant currency basis, the year-on-year decline was 19.4%. As indicated at the half year, end market demand was indeed more challenging in the second half of the year and resulted in a revenue decline of 6.6% at constant currency compared to the first half of 2009. Due to early management action, Thermal Ceramics profitability showed encouraging resilience to this sales decline, with EBITA margins holding up well at 8.5% and EBITA for the year at 26.7 million (~ $41.7 million).
Regionally, businesses in the developed economies of Europe and North America saw the worst impact of the global downturn. In contrast, Asia and Latin America held up somewhat better and started to show some order book recovery in the latter part of the year. Operational excellence initiatives, including the World Class Manufacturing program, drove cost improvements. Two small fiber plants (Erwin, U.S. and Skawina, Poland) were also closed in the second half of the year.