Morgan Advanced Materials Regulatory News (MGAM)

4 Dec 2006 07:01

Morgan Crucible Co PLC04 December 2006 The Morgan Crucible Company plc ("Morgan"), the specialist materials company,issues its pre-close trading update ahead of its 2006 full year results to beannounced on 20th February 2007. Trading Highlights •The momentum in Group profit margins has continued into the second half of the year with underlying operating profit margins before restructuring and one-off costs expected to approach 11% for the full year €2006 like-for-like sales growth from continuing businesses has remained robust and is forecast to be over 7% for the year on a constant currency basis. The weakness of the US dollar in the second half of the year will negatively impact the Group's sterling reported numbers compared to 2005 •The three year profit improvement plan is now drawing to a close having achieved double digit operating profit margins well ahead of schedule •The balance sheet remains very healthy with negligible levels of net debt giving the scope to invest in profitable growth both organically and through appropriate bolt-on acquisitions •Given this financial strength, the Group is pleased to announce that it will be initiating an ongoing share buyback programme of up to £50m to improve balance sheet efficiency Commenting on the results, Mark Robertshaw, Chief Executive, said: "Our 2006 results will continue to reflect the ongoing improvements that we aremaking in our business and to the quality of our earnings stream. Our strategyremains to focus on higher margin, higher growth, higher value-added productsand markets and to continue to move away from more commoditised and cyclicalmarket segments. In parallel we will continue to drive down our cost base as wefurther rationalise our manufacturing footprint and increase our proportion ofmanufacturing in low-cost locations. The successful delivery of our profitimprovement plan and our robust balance sheet puts Morgan in a strong positionto continue to target mid-teen margins. As a result, the Board looks to thefuture with confidence. " Divisional Trading Comment Carbon The Carbon division has continued to trade well in the second half of 2006, withsales and operating profit margins ahead of the first half of the year and wellahead of 2005 comparatives. These improvements have been made across almost allregions and markets. The Americas business has remained strong in thetraditional seals and bearings and electrical brush markets and there has beenfurther growth in the Armour business with investment being made in additionalcapacity to meet demand levels. In Europe, there have been further signs ofbusiness improvement including new Armour opportunities. The Asian business hasalso continued to show good growth, particularly in China and Taiwan. The majorrestructuring projects have progressed well including a number of siterationalisations and these have contributed to reduced overheads and improvedoperating profit margins. Technical Ceramics The Technical Ceramics division has enjoyed good underlying trading in thesecond half of the year which, combined with a particularly strong first half,leaves the business well placed to show healthy margin improvement over 2005. Aswe indicated in our half year results, the high top-line growth rates in thefirst half of 2006 were somewhat flattered by the significant increases we sawin precious metal prices which feed straight through to our revenues but have anegligible impact on our operating profits. As precious metal prices havedeclined from their peaks this will be reflected in lower headline reportedrevenues for Technical Ceramics in the second half. The business remains focusedon continued profit margin progression with improvements seen in all regions in2006, supported by investment in new product introductions. Although rawmaterial and energy costs have increased compared to 2005 these have beencountered by a combination of operational efficiencies and price increases.Globally, the industrial equipment, medical, aerospace and electronics segmentscontinue to show good growth. The US markets have remained strong and ourEuropean business is also seeing strong performance, particularly in laser andpower tube products for communications and security equipment. In Asia theadditional capacity recently installed to meet demand for the thermal processingmarket is now fully utilised and further expansion is anticipated as a result.As we look forward, a product line with one of our larger US customers comes tothe end of its natural life in 2007 which will mean top line growth next year islikely to be more muted than the double digit growth of Technical Ceramics wehave seen over the past three years. Overall the new business pipeline remainshealthy. Thermal Ceramics The Thermal Ceramics division has continued to see good revenue growth over2005. The drivers are continuing positive market conditions in the USA, MiddleEast and Asia, as well as a number of major orders for aluminium andpetrochemical projects sourced from our European production sites.The Thermal business has seen the largest impact for any Morgan division ofrising input prices over the past couple of years, particularly for energy andalumina costs. However, we have taken a number of steps to counteract thesemargin pressures both in terms of operational improvements and price increasesin January 2006 and again in July. Furthermore an additional overhead and costrationalisation programme was implemented earlier in the year, including theclosure of fibre production in the UK. The new Joint Ventures in China andRussia have started well, while the Vesuvius fibre acquisition in the US is nowfully integrated into our organisation and operations. Overall, marginimprovement has continued in the second half of the year for the Thermaldivision and the order books remain solid in all regions. Crucibles Trading conditions have remained relatively stable during the second half of theyear, following a period of sustained improvement during the first half year.Overall, demand in the Americas, the Middle East and in most parts of Asia wasrelatively robust, with only the European region remaining flat. Furtherprogress was made in consolidating our Indian manufacturing operations,following the acquisition of the Diamond Crucible Company in Gujarat, earlier inthe year. Additional sales resources have recently been deployed in India, Chinaand in Malaysia in order to exploit continuing market growth in the region. Financial Position The Group has continued its profit improvement programme into the second half of2006 which combined with healthy top line performance should see us achieveclose to 11% underlying operating margins for the full year. As over 40% ofGroup revenues and over 50% of profits are dollar denominated, the weakening ofthe US dollar in the second half of the year will negatively impact our resultswhen translated back into sterling. A movement of 1 cent in dollar exchangerates costs us c. £1.5 million in annualised revenue and over £200k in operatingprofit. The average exchange rate for the US $ to the pound was $1.79 for thefirst half of the year. By the year end we estimate that the 2006 annual averageexchange rate is likely to be c. $1.85. The impact of this 6 cent moverepresents a reduction of £9 million of revenues and c. £1.2 million ofoperating profits on the 2006 results vs the half year exchange rate position. The restructuring activity from our three year profit improvement plan isnearing completion. As part of our ongoing plans there will be furtherrestructuring activity as we pursue profitable growth opportunities bothorganically and through acquisition, as well as continuing to rationalise ourmanufacturing footprint and drive down our fixed cost base. Cash costs of thisrestructuring are likely to be in the £5 - £10 million range annually with thegoal being to target a close to one year cash payback on restructuringinitiatives. As we announced in August, the Board received a preliminary approach for anacquisition of the Group. Following careful evaluation and in depth discussionswith the prospective buyer the Board took the decision to terminate talks inOctober. The Group incurred professional fees in relation to the approachamounting to c. £2.5 million. These will be shown on a separate line in theincome statement as a one-off item. Our virtually debt free balance sheet gives the Group the flexibility to pursuebolt-on acquisitions, continue organic investment in our core businesses and, asannounced today, to initiate an on-market share buy back scheme to return up to£50 million. The acquisitions we have made in 2006 are fully integrated into theGroup and are performing well. In summary, we remain confident in the strength of our top line performance andin the continued improvement in our operating profit margins. We enter 2007 froma position of strength and look to the future with optimism. For further information, please contact: The Morgan Crucible Company PlcVictoria Gould 01753 837 237 Director of Group Communications Finsbury LtdRobin Walker 020 7251 3801 Patrick Allerton This information is provided by RNS The company news service from the London Stock Exchange