Morgan Advanced Materials Regulatory News (MGAM)

15 May 2009 07:00



Press Release

Interim Management Statement

Morgan Crucible Co PLC

15th May 2009

The Morgan Crucible Company plc - Interim Management Statement

The Morgan Crucible Company plc ('Morgan Crucible'), the advanced materials company, is issuing today its 'Interim Management Statement' regarding current trading, financial performance and outlook for the half year 2009. This statement constitutes Morgan Crucible's Interim Management Statement for the period from 5 January to 14 May 2009 as required by the UK Listing Authority's Disclosure and Transparency Rules.

Group revenues for the first half of 2009 are expected to be close to £500m

The businesses acquired in the past 12 months, and NP Aerospace in particular, are performing well and have contributed c.£75m to Group revenues for the year to date through April

For the first four months of the year Group revenues, excluding the benefits of acquisitions, are broadly in line with the equivalent period last year with positive currency translation offsetting reduced end-market demand caused by the global economic downturn

As we indicated in our AGM trading statement last month, we anticipate that end-market demand will continue on a downward trend over the coming months. In response, we have taken further decisive action on our cost base to mitigate the impact on margins. The Group's overall headcount, excluding acquisitions, has now been reduced by over 1,200 employees since the summer of last year and a number of other cost reduction initiatives, such as short time working, have been implemented across our sites

Operating profit margins before restructuring costs are expected to be in high single digits at the half year, with a greater proportion of the benefits of our cost reduction initiatives anticipated in the second half of the year 

The recent announcement of a new 3 year multi-currency facility for £280m leaves the Group with a strong and supportive banking group going forward

Commenting on the year to date performance and outlook, Mark Robertshaw, Chief Executive Officer, said:

"Our expectation of revenues approaching £500 million at the half year reflects the progress we continue to make in our strategy of improving the quality and resilience of our business and in reducing the Group's exposure to economically cyclical markets. However, as we noted in our AGM trading statement last month, our expectation remains that markets will continue to deteriorate further before they improve. As a result, we have taken additional decisive actions to align our cost base to demand including reducing headcount by a further 200 employees in April. We believe these actions position us as a leaner and fitter business for when markets ultimately recover.

I am delighted that we were able to announce last month the successful renewal of our banking facilities. We believe this successful refinancing signals a strong endorsement from our relationship banks of the Group's financial position and its future prospects." 

Carbon

The Carbon division, excluding NP Aerospace, has experienced the most difficult overall trading conditions of the Group's divisions in the first half.  Organic revenues in the first four months of the year have remained in line with the equivalent period in 2008 with the benefits of favourable currency translation offsetting lower market demand. However, first half margins have been impacted by a lower level of body armour sales compared to H1 2008. Body armour revenues are expected to be c.$10m for the half year compared to c.$28m in the equivalent period last year. As we look to the second half of the year, we continue to pursue new body armour contract opportunities particularly in the US and the UK.

Our NP Aerospace business is continuing to perform above expectations on the back of major contract wins with the UK Ministry of Defence. The recently announced c.£30m contract for Tactical Support Vehicles (TSV) has reinforced an already strong order book which now provides good visibility well into 2010.

The remaining businesses in the Carbon division, excluding body armour, have seen a c.15% reduction in revenues year to date to the end of April on a constant currency basis. We have seen some stabilisation in demand in our Electrical Carbon business in recent weeks but the Seals and Bearings business continues to trend downwards in terms of orders and revenues. Demand from the semi-conductor and solar markets has been very subdued so far this year.

In response to the difficult trading conditions, the Carbon division has implemented a range of aggressive cost reduction plans in early 2009 including permanent headcount reductions and the extensive use of short time working.

Technical Ceramics

Revenues for the first four months of 2009 for the Technical Ceramics division are up c.35% year on year helped by favourable currency translation and the addition of the businesses acquired from Carpenter Technology last year. On a constant currency organic basis, revenues are down c.11% year on year. 

Order intake in the Technical Ceramics division has continued on a downward trend in H1 across a number of end markets and in particular in the USA and Europe. Nevertheless, despite the much more difficult environment, the division continues to win new business particularly in the aerospace and medical markets. The strategic focus on these markets has helped to offset the continuing softness in markets such as construction and semi-conductor equipment manufacture. 

The businesses acquired from Carpenter Technology last year have continued to perform well with the synergy benefits coming through as expected. 

To protect bottom line margins, the division has acted swiftly to implement a wide range of cost reduction programmes and has further initiatives currently underway. 

Insulating Ceramics

In the first four months of 2009 the Thermal Ceramics business revenues were at a similar level to last year taking into account favourable currency translation. On a constant currency basis, the year on year reduction in revenue this year is c.12%. Order books have continued on a downward trend as the year has progressed and we expect this to continue over the coming months. End markets such as construction, automotive and iron and steel remain weak while the chemical and petroleum (CPI) sector which had remained fairly robust is now showing some signs of projects being deferred or cancelled. Regionally, our business has shown resilience in our Asian and Latin American markets while North America and particularly Europe continue to see demand deteriorating.

The Thermal business has implemented a number of cost reduction programmes in the first four months of the year which include site and production line rationalisations. Further cost reduction plans are in place to counteract continuing softening in demand, particularly in Europe, as we focus on mitigating the impact to our profitability in the coming months. 

The Molten Metal Systems business, by far the smallest of the Group's divisions, has seen difficult trading conditions throughout the first four months of the year notably in North America and Europe with constant currency revenues down close to 25% compared to the equivalent period in 2008. The restructuring of this business in the last eighteen months has meant that our expanded manufacturing facility in Aurangabad, India is now fully operational and our new green field site in China has recently come on stream. This provides us with a much lower ongoing cost base leaving the business operationally well placed to benefit as end-markets recover.

Financial Position

A major area of focus in the first four months of 2009 has been the refinancing of our bank syndication which we formally completed on the 1st May. This provides the Group with a level of facilities (£280 million) commensurate with the previous arrangements and with the same financial covenants. Upfront fees for the new facility were c.£3.5 million and the present overall coupon we are paying on this bank debt is c.5%. The other major tranche to our financing arrangements is our c.$400m US Private Placement long-term debt on which we pay a c.6% fixed coupon.

Given the challenging trading environment we continue to manage our cash and balance sheet position very tightly. We have significantly reduced capital expenditure spend to an anticipated c.£12m in the first half and are actively targeting ongoing improvements to working capital.

Restructuring costs in 2009 are expected to be c.£15 million, a higher figure than previously indicated, reflecting the increased level of actions we have taken and plan to take in the coming months. These costs will be weighted more to the first half while we will see benefits accruing from these actions coming through more in the second half of the year with an average payback time of just over one year.

The Group has recently settled a tax liability in the USA relating to a disputed position from the late 1990's. The settlement was c.£20 million and will be reflected in our cash flow in the first half of 2009. This tax liability was fully provided for in the Group's balance sheet which will therefore see some degree of net tax provision release at the half year.

Our expectation for the half year is that the actions taken on both our income statement and balance sheet will mean that our net debt/EBITDA ratio will be broadly in line with the 2008 year end position at 2.1 times.

Outlook

The Group continues to face a challenging economic environment with demand remaining on a downward trend. However, in anticipation of conditions continuing to deteriorate before they improve, we have been taking decisive action on our operating cost base with the benefits of our cost reduction initiatives expected to have a greater impact in the second half of the year. We believe that these actions position the Group well to benefit as end markets ultimately recover.

For further enquiries:

Mark Robertshaw Morgan Crucible 01753 837207

Kevin Dangerfield

Mike Smith Finsbury 020 7251 3801

Clare Strange