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Morgan Advanced Materials Plc

Morgan Advanced Materials Plc implementation of strategy going well and accelerated growth

Morgan Advanced Materials Plc (LON:MGAM), today announced full-year results for the period ended 31 December 2018

Group highlights

· Strategy implementation progressing well, accelerating growth

· Revenue growth of 7.4% and headline operating profit growth of 9.4% on an organic constant-currency* basis

· Group headline profit margin of 12.1%

· Headline EPS growth of 17.1% reflecting improvement in operating profit, lower financing charges and a lower effective tax rate

· The completion of the divestment of Composite and Defence Systems further simplifies the portfolio

Commenting on the results for Morgan Advanced Materials, Chief Executive Officer, Pete Raby said:

‘The Group has made good progress during the year with the implementation of our strategy going well and accelerating growth. We have delivered organic revenue* growth of 7.4% and organic headline operating profit* growth of 9.4% while investing in R&D, sales and wider business infrastructure. We are now investing £10 million per year more in R&D than we were three years ago, a vital investment in the technical differentiation of the Group.

Looking forward to 2019, we are likely to see slower growth in the key industrial economies in which we participate, and there are several macro-economic and geopolitical uncertainties which could have a significant impact. However, based on our current assessment of business trends and orders, we expect to deliver modest revenue growth in 2019, with efficiency savings delivering benefits to Group headline operating profit.’

Strategy implementation progressing well.

In 2016 we defined six execution priorities that would be our focus to address the immediate issues that were holding the Group back, with the objective to get the business growing in line with our markets in 2019.

We have made good progress against those objectives:

1. Move to a global structure. We changed to a global organisation structure in March 2016 and have progressively changed the structures within the global business units to build larger units and create more customer and market focus. The change in structure has improved global co-ordination across the Group and has sharpened the accountability within each of our global business units. This is an important change to enable the wider changes we need to make and we completed this without any loss of business momentum

2. Extend our technology leadership. Our objective is to strengthen our technical teams and increase our annual investment in research and development by around 1% of sales (around £10m), from our 2015 starting point.

At the end of 2018 our R&D spend is £10 million higher than the 2015 level. We have established two new Centres of Excellence to drive materials development activity in carbon science and the metallising and joining of ceramics. Both of these new centres are up and running with the teams working on new product developments to enhance our differentiation and accelerate the growth of the Group. We have also worked with our technical teams during the year to reduce the overall number of developments they are working on to get more resource and faster progress on a smaller number of projects.

3. Improve operational execution. Our objective is to strengthen our operational capabilities, reduce operational costs to fund reinvestment in the business, and improve delivery and quality performance.

We have continued to make good progress with our operational improvements during the year. We generated net savings that funded reinvestment in the year. The savings came from a wide variety of projects in automation, procurement and small-scale waste elimination across all of our global business units. We have also launched a number of larger lean manufacturing projects to reduce waste and cost and improve delivery performance in select sites. Those projects have delivered cost savings and delivery improvements during the year and will continue into 2019.

4. Drive sales effectiveness and market focus. Our objective is to strengthen our sales capability, and

increase the intensity of effort with new customers and in new markets.

We have a sizeable programme of work underway to improve sales effectiveness: redesigning our sales processes and approach, building capabilities, deploying new segmentation and pricing tools, streamlining sales processes, increasing business development resources and changing sales incentives. These approaches have been developed through pilot activity in 2017 and in 2018 we have deployed these more widely across the business, typically starting with segmentation and sales structures and then moving to sales processes and incentives. We have developed training programmes for our sales and customer service teams and piloted those during the year ahead of wider deployment in 2019.

5. Increase investment in people management and development. We are aiming to strengthen our leadership capability and deepen functional capabilities across the business, including in sales and engineering.

We have made further progress in strengthening the senior leadership population across the Group and in developing our IT, EHS, finance and HR functions. We have also broadened our focus beyond the senior population with the design of new Group-wide development programmes for our future leaders, and we will launch those during 2019.

We have improved our approach to driving higher performance by integrating the leadership behaviours – launched in 2017 – into an enhanced, globally consistent performance management process. A stronger link between performance and reward has also been introduced to build the performance culture.

6. Simplify the business. We have completed the planned divestment of the Composites and Defence Systems business in the year, the last of the priority divestments that we identified in 2016. Through these actions we have exited businesses where we were sub-scale or where there was limited synergy with the remainder of the Group. We have sharpened the focus on the core business and reduced overhead costs. We received consideration of £82.2 million from these sales and have used that to reduce our net debt* position, creating funds for reinvestment in the business in due course. Additionally in 2018, we have also simplified our Thermal business in South America with the closure of our Thermal plant in Brazil, and the exit of our Venezuelan business, and we have taken the decision to close our ceramic cores business in China.

The health of the business has improved significantly over the last three years, as has the financial position of the Group. We have completed significant investment in business capabilities, reduced debt, reduced the pension deficit and lowered the cost of long-term funding for the Group. Operating margins have improved while we have reinvested in the business, ROIC* has expanded from 16.0% to 18.1%. We have returned the business to growth delivering a second year of organic revenue* growth.

We will continue to focus on the following four priorities: driving sales effectiveness and market focus; extending our technology leadership; increasing investment in people management and development, and improving operational execution.

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