Morgan Advanced Materials
Full-year results for the period ended 31 December 2021
| £ million unless otherwise stated
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2021 |
2020 | As reported change | Organic constant- currency1 change |
| Adjusted results Revenue |
950.5 |
910.7 | 4.4% | 10.3% |
| Group adjusted operating profit1 | 124.5 | 91.7 | 35.8% | 48.6% |
| Group adjusted operating profit margin1 | 13.1% | 10.1% |
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| Return on invested capital1 | 20.5% | 13.0% |
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| Adjusted EPS1 | 27.2p | 19.0p | 43.2% |
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| Free cash flow before acquisitions, disposals and dividends1 | 66.2 | 72.4 |
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| Statutory results |
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| Revenue | 950.5 | 910.7 | 4.4% | 10.3% |
| Operating profit/(loss) | 113.1 | (1.8) |
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| Profit/(loss) before taxation | 104.3 | (13.1) |
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| Continuing EPS2 | 23.9p | (8.6)p |
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| Continuing and discontinued EPS2 | 25.9p | (7.9)p |
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| Total dividend per share | 9.1p | 5.5p |
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| Cash generated from continuing operations | 135.9 | 146.3 | (7.1)% |
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1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 45, 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.
• Organic constant-currency* revenue growth of 10.3% with 22% from our faster growing markets (excluding one-off solar projects)* and 7% from our core markets*.
• Adjusted operating profit margin* was 13.1%, up by 300 bps, the highest in more than 20 years.
• Pricing and continuous improvement efficiency actions continue to more than offset cost inflation.
• Return on invested capital* of 20.5%, up 750 bps on the previous year.
• Adjusted earnings per share* of 27.2p, up 43% on the previous year.
• Strong cash flow, with cash generated from continuing operations of £135.9 million and free cash flow* of £66.2m driving a further reduction in leverage, with net debt* / EBITDA (excluding leasing)* of 0.3 times.
• Absolute CO2e emissions (from scope 1 and 2) reduced by 17% compared with the previous year.
"I am extremely proud of how our people have worked together this year, looking out for each other and delivering for our customers. We made further progress with the execution of our strategy, strengthening our capabilities and improving the sustainability of our business.
2021 was the second challenging year with the COVID-19 pandemic driving various restrictions on mobility and activity around the world. Demand recovered strongly across the global economy following the sharp slowdown in 2020, and the combination of high demand and the pandemic led to supply chain disruptions and inflation in materials and labour in various parts of our business. Nevertheless, in spite of these challenges, we have made good progress as a business, with further implementation of our strategy and progress against our long-term goals. This resulted in strong growth and saw margins at their highest point in more than 20 years.
I would like to thank our employees for their outstanding commitment and support during the year as they have cared for each other while working diligently to meet the increased demand from our customers."
We have seen good order momentum coming into the year and anticipate organic revenue growth of 4-7% in 2022, assuming no significant change in market momentum. With our investments in new products and new technologies, we plan to increase further our exposure to our faster growing segments (clean energy, clean transportation, semiconductors and healthcare), and to continue to win in our core markets.
We will see higher inflation in 2022 and expect higher pricing and continuous improvement to offset this. We expect our margins to expand further reflecting the drop-through on our organic growth and the remaining full-year benefits from our restructuring programme.
Russia
We fully support the sanctions that have been put in place against Russia and we have ceased all trading with Russia. In 2021, we had £4.0 million of revenues from Russia, representing less than 0.5% of Group revenues. We have no significant dependency on material supply from Russia or Ukraine.
We have maintained our COVID-19 controls across the business as needed, in line with the requirements of local jurisdictions and our Group COVID-19 standards. Our employees have been diligent in looking out for one another and following our protocols to keep each other safe. Sadly, we have seen further loss of life due to the pandemic, and our thoughts are with all those affected.
Emerging stronger: Group restructuring and efficiency programme
We concluded our restructuring programme during 2021 by completing the last of our planned site closures as we moved volumes to more efficient plants around the Group. This has improved our robustness as a Group, concentrating work where we have more scale and, in line with our targets, delivered £20 million of annual savings during 2021. Full-year run-rate benefits of £23 million for 2022 remain unchanged:
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| FY 2020 £m | FY 2021 £m | FY 2022 £m | Total £m |
| Adjusted operating profit1 benefits (incremental) | 6 | 20 | 23 | - |
| Cash costs charged to specific adjusting items | (24) | - | - | (24) |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 45, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Our purpose is to use advanced materials to make the world more sustainable and to improve the quality of life. This purpose guides our actions: it underpins our work to reduce our environmental impact, informs how we treat our people, and ensures we fulfil our responsibility for good corporate governance.
We deliver on our purpose through the products that we make and the way that we make them.
| · | We improve the quality of life by supporting medical diagnostics with our power tubes in medical scanners. Our Vacuum Insulation Panels are used to insulate COVID-19 vaccines as they are transported. Our feedthroughs are at the core of cochlear implants and our seals are used in blood pumps. These products transform people's lives.
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| · | Our products help keep people safe. We are proud to design fire protection in everything from cars to tunnels, and ships to oil platforms.
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| · | We design and manufacture our products to help customers save energy.
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| · | Our carbon brushes are integral to wind turbines and power generators and enable electrified rail transport. Our ceramic rollers are used to make thin-film solar panels, our insulation is used in solar towers and steam turbines, and our ceramic cores are used to make more efficient industrial gas turbines. These are all products which promote a more sustainable and environmentally secure future for our planet. |
Our strategy
Our strategy builds on our strengths and focuses the Group on scalable businesses in attractive markets, and on the development of our three core capabilities in customer focus, application engineering and materials science. To continue the development of our core capabilities we have three new execution priorities:
Big positive difference - making sure we govern our business the right way, looking after the environment, looking after our people and operating to high ethical standards. This priority supports our focus on living and breathing our commitments on inclusion, treating people fairly, reducing waste, managing our water consumption, and reducing emissions.
Delight the customer - following on from our foundational work on sales effectiveness, we are working to shape our product and service offerings further based on customer needs, with the overall objective of making our business more customer-centric. We will be gathering customer feedback during 2022 through a range of channels and using that to understand our customer segments in more detail. This will enable us to align our product, service and support offerings more closely to customer needs.
Innovate to grow - many of our customers have an increasing need to reduce their energy consumption and CO2e emissions, these customers need our help. This priority supports our focus on working with the customer to innovate in traditional heavy industries whilst also contributing to greener technologies for the future.
We want to accelerate our growth, by winning in our core markets and increasing our exposure to four faster growing market segments: clean energy, clean transportation, semiconductors and healthcare.
We have been focusing our product development and business development efforts in these markets over the last several years to develop new and differentiated products that solve complex problems for our customers.
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During 2021, organic constant-currency* revenue growth in these segments was 22% (excluding one-off solar projects*), which represented 20% of our revenue overall.
Our environment, social and governance (ESG) priorities
In March 2021, we set stretching targets to improve our environmental, social and governance performance and become a more sustainable business. We take these commitments seriously and have plans in place to deliver against them in the coming years, making a step change in our performance.
We are making investments in our manufacturing processes and technology to reduce the environmental impact of our business. We are also investing in new materials and process technologies that improve the performance of our products, to deliver greater environmental and safety benefits to our customers.
Protect the environment
| · | Our aspiration is to be a CO2e net zero business by 2050. Our 2030 target is to reduce our scope 1 and scope 2 CO2e emissions by 50% (from a 2015 baseline). |
| · | 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 and extremely high stress areas by 30% (from a 2015 baseline).
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Provide a safe, fair and inclusive workplace
| · | 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).
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| · | 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.
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| · | Our aspiration is to be a welcoming and inclusive environment where our employees can grow and thrive. Our 2030 target is to attain a top quartile employee engagement score.
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Our performance to date is as follows:
| · | Scope 1 & 2 CO2e emissions. We have delivered a 33% reduction from 2015 to 2021. During 2021, we reduced our absolute CO2e emissions by 17%. We will start to measure scope 3 emissions from 2023 onwards, with coverage increasing over time. |
| · | Water usage in stressed areas. Our water usage increased by 15% during the year and water usage in stressed areas has increased by 9%. The increase was driven by business growth and changes in mix. We launched a number of projects in 2021 to recycle water and improve water efficiency. These will start to drive reductions during 2022. |
| · | Lost-time accident rate. Our lost-time accident rate reduced from 0.45 to 0.22 from 2015 to 2021. Our 2021 position was higher than the previous year (0.18). We launched a major refresh of our approach to safety during the year, with training being deployed to all employees focusing more on our safety culture. This formal training will complete during 2022 and the changes will be sustained by our leaders in their daily engagement with our teams, and via follow-up training on specific safety topics through the year. |
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Our Group Environment and Sustainability Director, Group Health and Safety Director and Group HR Director coordinate our improvement projects. In addition, the Board reviews progress quarterly and takes an active role in holding the executive team to account on improving ESG performance.
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).
We plan to hold a capital markets event in the second half of 2022.
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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 45, 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 45, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
2. From 2022 onwards, we will no longer present our reporting at the divisional level. We will continue to report five separate global business units.
3. Details of specific adjusting items from continuing operations are disclosed in note 4 to the consolidated financial statements.
Thermal Products division
Revenue for Thermal Products for the year was £412.4 million, representing an increase of 7.0% compared with £385.5 million in 2020. On an organic constant-currency* basis, year-on-year revenue increased by 11.0%. Divisional operating profit was £43.8 million (2020: loss of £12.6 million), divisional operating profit margin was 10.6% (2020: loss 3.3%). Details of the specific adjusting items of £1.8 million (2020: £40.3 million) are included in note 4. Divisional adjusted operating profit* for Thermal Products was £48.3 million (2020: £29.9 million) with a divisional adjusted operating profit* margin of 11.7% (2020: 7.8%) with improvement driven by the delivery of the restructuring programme and volume growth.
Revenue for Thermal Ceramics for the year was £364.7 million, representing an increase of 5.9% compared with £344.3 million in 2020. On an organic constant-currency* basis, year-on-year revenue increased by 9.8%. Revenue was higher due to a strong recovery in the industrial markets and energy segments and growth in healthcare and automotive.
Thermal Ceramics' 2021 adjusted operating profit* was £42.0 million (2020: £26.7 million) with adjusted operating profit margin* of 11.5% (2020: 7.8%). Margin improvement was driven by higher volumes and the delivery of efficiency actions from the restructuring programme.
Revenue for Molten Metals Systems for the year was £47.7 million, an increase of 15.8% compared with £41.2 million in 2020. On an organic constant-currency* basis, year-on-year revenue increased by 20.8%. Revenue growth is driven by a strong demand in the aluminium and copper segments.
Molten Metal Systems' 2021 adjusted operating profit* was £6.3 million (2020: £3.2 million) with adjusted operating profit margin* of 13.2% (2020: 7.8%). During 2021, margins improved due to the higher volumes and cost control actions.
Carbon and Technical Ceramics division
Revenue for the Carbon and Technical Ceramics division for the year was £538.1 million, representing an increase of 2.5% compared with £525.2 million in 2020. On an organic constant-currency* basis, year-on-year revenue increased by 9.7%. Divisional operating profit was £66.5 million (2020: £15.4 million), divisional operating profit margin was 12.4% (2020: 2.9%). Details of the specific adjusting items of £12.3 million (2020: £46.6 million) are included in note 4. Divisional adjusted operating profit* for the Carbon and Technical Ceramics division was £82.1 million (2020: £65.9 million), with divisional adjusted operating profit margin* of 15.3% (2020: 12.5%).
Revenue for the Electrical Carbon global business unit in 2021 was £164.9 million, representing an increase of 8.9% compared with £151.4 million in 2020. On an organic constant-currency* basis, year-on-year revenue improved by 13.1%. The increase in revenue has been driven by growth in the industrial, renewable energy and semiconductor market segments.
Electrical Carbon's adjusted operating profit* was £32.8 million (2020: £23.6 million) with an adjusted operating profit margin* of 19.9% (2020: 15.6%). Adjusted operating profit margins* were expanded through operational efficiency, cost reduction actions and increased volume.
Revenue for the Seals and Bearings global business unit in 2021 was £135.9 million, representing a decrease of 7.2% compared with £146.4 million in 2020. On an organic constant-currency* basis, year-on-year revenue decreased by 3.1%. The business decline was driven by an expected reduction of volumes in ceramic armour; ceramic armour sales in 2021 were £29 million (2020: £49 million). This was largely offset by growth in the industrial, petrochemical and transportation market segments.
Seals and Bearings' adjusted operating profit* was £22.9 million (2020: £27.5 million), with an adjusted operating profit margin* of 16.9% (2020: 18.8%). The margin decline was driven by the lower ceramic armour volume.
Revenue for the Technical Ceramics global business unit in 2021 was £237.3 million, an increase of 4.4% compared with £227.4 million in 2020. On an organic constant-currency* basis, year-on-year revenue increased by 16.1%, primarily driven by growth in the industrial, semiconductor, healthcare, energy and aerospace market segments.
Technical Ceramics' adjusted operating profit* was £26.4 million (2020: £14.8 million), with an adjusted operating profit margin* of 11.1% (2020: 6.5%). Margins improved with the impact of higher volumes benefits and from the restructuring programme, partially offset by a £3 million headwind from business exits.
Group financial review
Group revenue was £950.5 million (2020: £910.7 million), an increase of 4.4% on a reported basis compared with 2020, as demand starts to recover following last year's slowdown.
Operating profit was £113.1 million (2020: loss of £1.8 million) and operating profit margin was 11.9% (2020: 0.0%). Profit before tax was £104.3 million (2020: loss of £13.1 million). Specific adjusting items from continuing operations before tax in 2021 were a net charge of £5.4 million (2020: £87.4 million), primarily relating to the impairment of non-financial assets offset by profit on disposal of our shareholding in an associate. Further details are included under 'Specific adjusting items' below.
Group adjusted operating profit* was £124.5 million (2020: £91.7 million). Adjusted operating profit margin* was 13.1%, compared with 10.1% for 2020.
The Group amortisation charge was £6.0 million (2020: £6.1 million).
The net finance charge was £9.2 million (2020: £11.9 million), comprising: net bank interest and similar charges of £5.3 million (2020: £6.5 million); net interest on IAS 19 pension obligations of £1.6 million (2020: £2.6 million); and the interest expense on lease liabilities of £2.3 million (2020: £2.8 million) resulting from IFRS 16 Leases.
Looking forward to 2022, we anticipate that the net finance charge will be around £9 million, comprising: net bank interest and similar charges of £6 million; net interest on IAS 19 pension obligations of £1 million; and net interest expense on lease liabilities of £2 million.
The Group tax charge from continuing operations, excluding specific adjusting items, was £29.7 million (2020: £20.2 million). The effective tax rate, excluding specific adjusting items, was 27.1% (2020: 27.2%). Note 6 to the consolidated financial statements, on page 32, provides additional information on the Group's tax charge. Looking forward to 2022, we anticipate that the effective tax rate will be around 27-28%, with cash tax paid slightly lower than the charge to the income statement. On a statutory basis, the Group tax charge was £28.2 million (2020: £6.9 million), higher than the previous year due to the higher taxable profits.
Basic earnings per share from continuing operations was 23.9 pence (2020: loss per share 8.6 pence). Adjusted earnings per share* was 27.2 pence (2020: 19.0 pence). Details of these calculations can be found in note 8 to the consolidated financial statements on page 34.
The Group's balance sheet and liquidity remain robust. Net debt* for the year ended 31 December 2021 was £96.5 million, with net debt excluding lease liabilities* of £46.7 million, with no term debt maturities until 2023. The Group has cash and cash equivalents* of £127.3 million and undrawn headroom on its revolving credit facility of £200 million.
Specific adjusting items
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| 2021 £m | 2020 £m |
| Specific adjusting items from continuing operations1 |
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| Impairment of non-financial assets | (12.4) | (65.6) |
| Restructuring credit/(costs) | 0.1 | (24.0) |
| Net profit on disposal of business | 7.1 | 2.2 |
| Business closure and exit costs | (0.2) | - |
| Total specific adjusting items before income tax | (5.4) | (87.4) |
| Income tax credit from specific adjusting items | 1.5 | 13.3 |
| Total specific adjusting items after income tax | (3.9) | (74.1) |
1.Specific adjusting items relating to discontinued operations are disclosed in note 7.
In 2021, pre-tax specific adjusting items from continuing operations totalled £5.4 million (2020: £87.4 million) and comprised the following:
2021
Impairment of non-financial assets
Technical Ceramics, Asia
An impairment charge of £6.0 million has been recognised after reassessing the value in use of property, plant and equipment in a business in Asia which is taking longer than anticipated to generate revenues. This represents a partial impairment of the assets; the carrying value of the assets following this impairment is £5.4 million. The calculation of value in use was performed as at 31 December 2021. A long-term growth rate of 1% was used for years beyond the five year forecast period and in calculating the terminal value. A pre-tax discount rate of 11.5% was used to determine the value in use.
Electrical Carbon, Europe and North America
Impairment charges of £4.8 million and £1.0 million have been recognised after assessing the viability of two development assets in Europe and North America, respectively. The European asset was not deemed viable as we were unable to commission it safely and the American asset was not deemed to be commercially viable.
Thermal Ceramics, North America
An impairment charge of £0.6 million has been recognised relating to assets associated with closed manufacturing lines within Thermal Ceramics.
Restructuring credit
A net credit of £0.1 million has been recognised in the current year representing £2.1 million of further redundancy and closure costs related to the Group's restructuring programme, offset by a £2.2 million release of restructuring provisions booked last year in relation to this programme. Whilst the Group's restructuring programme was completed in 2021, we retain restructuring provisions of £11.8 million for the Group's obligations at the balance sheet date (2020: £17.3 million). This provision includes remaining lease exit costs and multi-employer pension obligations for two sites which have been closed during the year. The cash outflows relating to the pension obligations may continue for up to 20 years, subject to any settlement being reached in advance of that date. Refer to note 15 for further information.
Net profit on disposal of business
The Group disposed of its 35% shareholding in Jemmtec Limited and the business assets associated with the Latrobe business during the year. These disposals generated a profit of £7.2 million and a loss of £0.1 million, respectively. Refer to note 2 for further information.
Business closure and exit costs
A £0.2 million charge has been recognised relating to the liquidation of businesses in Europe and Asia.
2020
Impairment of non-financial assets
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand in 2020 resulted in impairment losses of £28.8 million relating to the ceramic cores business. The impaired assets comprised 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 recognised £1.1 million relating to the impairment of property, plant and equipment.
Thermal Ceramics
Reduced demand in the aerospace, automotive and industrial market segments in 2020 resulted in impairment losses of £35.7 million in Thermal Ceramics, which related 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 in 2020, the Group recognised a £24.0 million charge which related to staff redundancies, site closure costs, legal and professional fees and the exit of certain multi-employer defined contribution pension plans.
Net 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 £5.9 million. The consideration comprised £5.6 million received in cash on completion and £0.3 million of deferred consideration which was received in December 2021. A gain of £2.2 million was realised on disposal - see note 2 for more details.
Foreign currency impact
The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:
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| 2021 | 2020 | ||
| GBP to: | Closing rate | Average rate | Closing rate | Average rate |
| US dollar | 1.35 | 1.38 | 1.37 | 1.28 |
| Euro | 1.19 | 1.16 | 1.12 | 1.13 |
For illustrative purposes, the table below provides details of the impact on 2021 revenue and Group adjusted operating profit* if the actual reported results, calculated using 2021 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 2021 revenue/adjusted operating profit1 if: | Revenue
£m | Adjusted operating profit1 £m |
| GBP weakens by 10c against the US dollar in isolation | 29.6 | 3.9 |
| GBP weakens by 10c against the Euro in isolation | 18.8 | 3.3 |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 45, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Cash flow
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| 2021
£m | 2020
£m |
| Cash generated from continuing operations | 135.9 | 146.3 |
| Net capital expenditure | (28.1) | (28.6) |
| Net interest on cash and borrowings | (5.3) | (6.6) |
| Tax paid | (25.4) | (26.0) |
| Lease payments and interest | (10.9) | (12.7) |
| Free cash flow before acquisitions, disposals and dividends1 | 66.2 | 72.4 |
| Dividends paid to external plc shareholders | (19.1) | (5.7) |
| Net cash flows from other investing and financing activities | (15.0) | (13.1) |
| Cash flows from sale of subsidiaries and associates | 15.0 | 5.3 |
| Net cash flows from discontinued operations | 5.3 | (0.1) |
| Exchange movement and other non-cash movements | 1.9 | (2.5) |
| Opening net debt1 excluding lease liabilities | (101.0) | (157.3) |
| Closing net debt1 excluding lease liabilities | (46.7) | (101.0) |
| Closing lease liabilities | (49.8) | (54.6) |
| Closing net debt1 | (96.5) | (155.6) |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 46, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Cash generated from continuing operations was £135.9 million (2020: £146.3 million).
Free cash flow before acquisitions, disposals and dividends* was £66.2 million (2020: £72.4 million).
Net debt* at the year end was £96.5 million (2020: £155.6 million), representing a net debt* to EBITDA* ratio of 0.6 times (2020: 1.2 times).
Net debt* excluding lease liabilities was £46.7 million (2020: £101.0 million), representing a net debt* to EBITDA* ratio excluding lease liabilities of 0.3 times (2020: 0.8 times).
Defined benefit pension plans
The Group pension deficit has decreased by £73.6 million since last year end to £102.7 million on an IAS 19 (revised) basis, largely driven by employer contributions and higher corporate bond yields in the UK which have led to a higher discount rate.
• The UK Schemes' deficit decreased by £68.6 million to £51.7 million (2020: £120.3 million), (discount rate 2021: 1.92%; discount rate 2020: 1.23%).
• The US Schemes' deficit increased by £0.4 million to £7.7 million (2020: £7.3 million), (discount rate 2021: 2.71%; discount rate 2020: 2.34%).
• The European Schemes' deficit decreased by £5.8 million to £39.0 million (2020: £44.8 million), (discount rate 2021: 0.90%; discount rate 2020: 0.40%).
• The Rest of World Schemes' deficit increased by £0.4 million to £4.3 million (2020: £3.9 million), (discount rate 2021: 2.90%; discount rate 2020: 2.40%).
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 in note 14 to the consolidated financial statements on page 41. On the basis of these full valuations, the Trustees of the UK Schemes, having consulted with the Group, agreed past service deficit recovery payments totalling £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.
Final dividend
The Board is recommending a final dividend, subject to shareholder approval, of 5.9 pence per share on the Ordinary share capital of the Group, payable on 20 May 2022 to Ordinary shareholders on the register at the close of business on 29 April 2022. The ex-dividend date is 28 April 2022.
Together with the interim dividend of 3.2 pence per share paid on 19 November 2021, this final dividend, if approved by shareholders, brings the total distribution for the year to 9.1 pence per share (2020: 5.5 pence).
A total dividend of 9.1 pence per share represents a dividend cover of adjusted EPS* of 3.0 times.
The Board has committed 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.
Adjusted operating profit
| 2021 | 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 | 37.8 | 6.0 | 43.8 | 25.6 | 22.0 | 18.9 | 66.5 | 2.8 | 113.1 |
| Add back specific adjusting items included in operating profit | 2.1 | (0.3) | 1.8 | 6.3 | - | 6.0 | 12.3 | (8.7) | 5.4 |
| Add back amortisation of intangible assets | 2.1 | 0.6 | 2.7 | 0.9 | 0.9 | 1.5 | 3.3 | - | 6.0 |
| Group and divisional adjusted operating profit | 42.0 | 6.3 | 48.3 | 32.8 | 22.9 | 26.4 | 82.1 | (5.9) | 124.5 |
1. Corporate costs consist of central head office costs.
| 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.
Organic growth
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 |
| 2020 revenue | 344.3 | 41.2 | 385.5 | 151.4 | 146.4 | 227.4 | 525.2 | 910.7 |
|
|
|
|
|
|
|
|
|
|
| Impact of foreign currency movements | (12.3) | (1.7) | (14.0) | (5.6) | (6.8) | (12.0) | (24.4) | (38.4) |
|
|
|
|
|
|
|
|
|
|
| Impact of acquisitions, disposals and business exits | - | - | - | - | 0.7 | (11.0) | (10.3) | (10.3) |
|
|
|
|
|
|
|
|
|
|
| Organic constant-currency change | 32.7 | 8.2 | 40.9 | 19.1 | (4.4) | 32.9 | 47.6 | 88.5 |
|
|
|
|
|
|
|
|
|
|
| Organic constant-currency change % | 9.8% | 20.8% | 11.0% | 13.1% | (3.1)% | 16.1% | 9.7% | 10.3% |
|
|
|
|
|
|
|
|
|
|
| 2021 revenue | 364.7 | 47.7 | 412.4 | 164.9 | 135.9 | 237.3 | 538.1 | 950.5 |
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 |
| 2020 adjusted operating profit | 26.7 | 3.2 | 29.9 | 23.6 | 27.5 | 14.8 | 65.9 | (4.1) | 91.7 |
|
|
|
|
|
|
|
|
|
|
|
| Impact of foreign currency movements | (0.7) | (0.1) | (0.8) | (1.2) | (1.7) | (1.2) | (4.1) | - | (4.9) |
|
|
|
|
|
|
|
|
|
|
|
| Impact of acquisitions, disposals and business exits | - | - | - | - | 0.1 | (3.1) | (3.0) | - | (3.0) |
|
|
|
|
|
|
|
|
|
|
|
| Organic constant-currency change | 16.0 | 3.2 | 19.2 | 10.4 | (3.0) | 15.9 | 23.3 | (1.8) | 40.7 |
|
|
|
|
|
|
|
|
|
|
|
| Organic constant-currency change % | 61.5% | 103.2% | 66.0% | 46.4% | (11.6)% | 151.4% | 39.6% |
| 48.6% |
|
|
|
|
|
|
|
|
|
|
|
| 2021 adjusted operating profit | 42.0 | 6.3 | 48.3 | 32.8 | 22.9 | 26.4 | 82.1 | (5.9) | 124.5 |
1. Corporate costs consist of central head office costs.
Revenue from faster growing markets and core markets
|
| Faster growing markets | Core markets |
| 2020 revenue | 148.9 | 712.3 |
| 2021 revenue | 188.2 | 762.2 |
| Less: one-off solar projects | (5.9) | - |
| 2021 revenue (excluding one-off solar projects) | 182.3 | 762.2 |
| Year-on-year movement | 33.4 | 49.9 |
| Year-on-year movement (%) | 22% | 7% |
Group EBITDA
|
| 2021 £m | 2020 £m |
| Operating profit/(loss) | 113.1 | (1.8) |
| Add back: specific adjusting items included in operating profit | 5.4 | 87.4 |
| Add back: depreciation - property, plant and equipment | 30.1 | 32.7 |
| Add back: depreciation - right-of-use assets | 7.9 | 9.2 |
| Add back: amortisation of intangible assets | 6.0 | 6.1 |
| Group EBITDA | 162.5 | 133.6 |
| Group EBITDA excluding IFRS 16 Leases impact | 151.6 | 120.9 |
Free cash flow before acquisitions, disposals and dividends
|
| 2021 £m | 2020 £m |
| Cash generated from continuing operations | 135.9 | 146.3 |
| Net capital expenditure | (28.1) | (28.6) |
| Net interest on cash and borrowings | (5.3) | (6.6) |
| Tax paid | (25.4) | (26.0) |
| Lease payments and interest | (10.9) | (12.7) |
| Free cash flow before acquisitions, disposals and dividends | 66.2 | 72.4 |
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.
|
| 2021 £m | 2020 £m |
| Cash and cash equivalents | 127.3 | 147.8 |
| Bank overdrafts | (0.5) | (72.0) |
| Net cash and cash equivalents | 126.8 | 75.8 |
Net debt
|
| 2021 £m | 2020 £m |
| Cash and cash equivalents | 127.3 | 147.8 |
| Non-current borrowings | (174.0) | (177.5) |
| Non-current lease liabilities | (40.0) | (43.1) |
| Current borrowings and bank overdrafts | - | (71.3) |
| Current lease liabilities | (9.8) | (11.5) |
| Closing net debt | (96.5) | (155.6) |
| Closing net debt excluding lease liabilities | (46.7) | (101.0) |
Return on invested capital
|
| 2021 £m | 2020 £m |
| Operating profit/(loss) | 113.1 | (1.8) |
| Add back: specific adjusting items | 5.4 | 87.4 |
| Add back: amortisation of intangible assets | 6.0 | 6.1 |
| Group adjusted operating profit | 124.5 | 91.7 |
|
|
|
|
| 12-month average adjusted net assets: |
|
|
| Third-party working capital | 135.0 | 166.4 |
| Plant and equipment | 152.2 | 179.8 |
| Land and buildings | 98.9 | 114.0 |
| Right-of-use assets | 33.0 | 42.2 |
| Intangible assets | 183.8 | 198.2 |
| Other assets (net) | 3.3 | 7.5 |
| 12-month average adjusted net assets | 606.2 | 708.1 |
|
|
|
|
| ROIC | 20.5% | 13.0% |
Adjusted earnings per share
Constant-currency revenue and adjusted operating profit
Consolidated Financial Statements
for the 12 months ended 31 December 2021
Consolidated income statement
|
|
| Year ended 31 December 2021 |
| Year ended 31 December 2020 | ||||
|
|
| 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 | 950.5 | - | 950.5 |
| 910.7 | - | 910.7 |
| Operating costs before amortisation of intangible assets |
| (826.0) | (5.4) | (831.4) |
| (819.0) | (87.4) | (906.4) |
|
|
|
|
|
|
|
|
|
|
| Profit from operations before amortisation of intangible assets | 3 | 124.5 | (5.4) | 119.1 |
| 91.7 | (87.4) | 4.3 |
|
|
|
|
|
|
|
|
|
|
| Amortisation of intangible assets |
| (6.0) | - | (6.0) |
| (6.1) | - | (6.1) |
|
|
|
|
|
|
|
|
|
|
| Operating profit/(loss) | 3 | 118.5 | (5.4) | 113.1 |
| 85.6 | (87.4) | (1.8) |
|
|
|
|
|
|
|
|
|
|
| Finance income |
| 0.8 | - | 0.8 |
| 0.9 | - | 0.9 |
| Finance expense |
| (10.0) | - | (10.0) |
| (12.8) | - | (12.8) |
| Net financing costs | 5 | (9.2) | - | (9.2) |
| (11.9) | - | (11.9) |
|
|
|
|
|
|
|
|
|
|
| Share of profit of associate (net of income tax) |
| 0.4 | - | 0.4 |
| 0.6 | - | 0.6 |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) before taxation |
| 109.7 | (5.4) | 104.3 |
| 74.3 | (87.4) | (13.1) |
|
|
|
|
|
|
|
|
|
|
| Income tax (expense)/credit | 6 | (29.7) | 1.5 | (28.2) |
| (20.2) | 13.3 | (6.9) |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) from continuing operations |
| 80.0 | (3.9) | 76.1 |
| 54.1 | (74.1) | (20.0) |
| Profit from discontinued operations2 | 7 | - | 5.7 | 5.7 |
| - | 2.0 | 2.0 |
| Profit/(loss) for the year |
| 80.0 | 1.8 | 81.8 |
| 54.1 | (72.1) | (18.0) |
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) for the year attributable to: |
|
|
|
|
|
|
|
|
| Shareholders of the Company |
| 71.5 | 2.3 | 73.8 |
| 48.1 | (70.6) | (22.5) |
| Non-controlling interests |
| 8.5 | (0.5) | 8.0 |
| 6.0 | (1.5) | 4.5 |
| Profit/(loss) for the year |
| 80.0 | 1.8 | 81.8 |
| 54.1 | (72.1) | (18.0) |
|
|
|
|
|
|
|
|
|
|
| Earnings per share | 8 |
|
|
|
|
|
|
|
| Continuing and discontinued operations |
|
|
|
|
|
|
| |
| Basic earnings per share |
|
|
| 25.9p |
|
|
| (7.9)p |
| Diluted earnings per share |
|
|
| 25.7p |
|
|
| (7.9)p |
|
|
|
|
|
|
|
|
|
|
| Continuing operations |
|
|
|
|
|
|
|
|
| Basic earnings per share |
|
|
| 23.9p |
|
|
| (8.6)p |
| Diluted earnings per share |
|
|
| 23.7p |
|
|
| (8.6)p |
|
|
|
|
|
|
|
|
|
|
| Dividends3 |
|
|
|
|
|
|
|
|
| Interim dividend - pence |
|
|
| 3.20p |
|
|
| 2.00p |
| - £m |
|
|
| 9.1 |
|
|
| 5.7 |
|
|
|
|
|
|
|
|
|
|
| Proposed final dividend - pence |
|
|
| 5.90p |
|
|
| 3.50p |
| - £m |
|
|
| 16.8 |
|
|
| 10.0 |
Consolidated statement of comprehensive income
|
|
| 31 December 2021 | 31 December 2020 |
|
| Note | £m | £m |
|
|
|
|
|
| Profit/(loss) for the year |
| 81.8 | (18.0) |
|
|
|
|
|
| Other comprehensive income/(expense): |
|
|
|
| Items that will not be reclassified subsequently to profit or loss: |
|
|
|
| Remeasurement gain/(loss) on defined benefit plans | 14 | 55.5 | (33.9) |
| Tax effect of components of other comprehensive income not reclassified | 6 | (0.6) | 0.4 |
|
|
| 54.9 | (33.5) |
| Items that may be reclassified subsequently to profit or loss: |
|
|
|
| Foreign exchange translation differences |
| 1.0 | (3.2) |
| Tax effect of components of other comprehensive income that may be reclassified | 6 | (0.8) | - |
| Cash flow hedges: |
|
|
|
| Change in fair value |
| (0.1) | 0.4 |
| Transferred to profit or loss |
| (0.4) | (0.8) |
|
|
| (0.3) | (3.6) |
| Total other comprehensive income/(expense) |
| 54.6 | (37.1) |
| Total comprehensive income/(expense) |
| 136.4 | (55.1) |
|
|
|
|
|
| Attributable to: |
|
|
|
| Shareholders of the Company |
| 128.5 | (59.8) |
| Non-controlling interests |
| 7.9 | 4.7 |
|
|
| 136.4 | (55.1) |
|
|
|
|
|
| Total comprehensive income/(expense) attributable to shareholders of the Company arising from: |
|
|
|
| Continuing operations |
| 122.8 | (61.8) |
| Discontinued operations |
| 5.7 | 2.0 |
|
|
| 128.5 | (59.8) |
Consolidated balance sheet
|
|
|
| As at 31 December 2021 | As at 31 December 2020 |
|
|
| Note | £m | £m |
| Assets |
|
|
|
|
| Property, plant and equipment |
| 9 | 248.1 | 267.6 |
| Right-of-use assets |
| 10 | 31.9 | 35.5 |
| Intangible assets: goodwill |
| 11 | 172.9 | 173.2 |
| Intangible assets: other |
| 11 | 10.2 | 12.2 |
| Investments |
|
| - | 7.2 |
| Other receivables |
|
| 2.9 | 4.0 |
| Deferred tax assets |
|
| 15.9 | 14.4 |
| Total non-current assets |
|
| 481.9 | 514.1 |
| Inventories |
|
| 140.7 | 122.4 |
| Derivative financial assets |
| 13 | 0.6 | 1.0 |
| Trade and other receivables |
|
| 161.4 | 143.6 |
| Current tax receivable |
|
| 0.6 | 1.6 |
| Cash and cash equivalents |
| 12 | 127.3 | 147.8 |
| Total current assets |
|
| 430.6 | 416.4 |
| Total assets |
|
| 912.5 | 930.5 |
| Liabilities |
|
|
|
|
| Borrowings |
|
| 174.0 | 177.5 |
| Lease liabilities |
|
| 40.0 | 43.1 |
| Employee benefits: pensions |
| 14 | 102.7 | 176.3 |
| Provisions |
| 15 | 14.8 | 8.5 |
| Non-trade payables |
|
| 2.4 | 4.9 |
| Deferred tax liabilities |
|
| 1.2 | 0.5 |
| Total non-current liabilities |
|
| 335.1 | 410.8 |
| Borrowings and bank overdrafts |
|
| - | 71.3 |
| Lease liabilities |
|
| 9.8 | 11.5 |
| Trade and other payables |
|
| 177.2 | 148.4 |
| Current tax payable |
|
| 25.4 | 20.4 |
| Provisions |
| 15 | 14.8 | 27.3 |
| Derivative financial liabilities |
| 13 | 0.6 | 0.8 |
| Total current liabilities |
|
| 227.8 | 279.7 |
| Total liabilities |
|
| 562.9 | 690.5 |
| Total net assets |
|
| 349.6 | 240.0 |
| Equity |
|
|
|
|
| Share capital |
|
| 71.3 | 71.3 |
| Share premium |
|
| 111.7 | 111.7 |
| Reserves |
|
| 18.5 | 18.7 |
| Retained earnings |
|
| 109.1 | 0.6 |
| Total equity attributable to shareholders of the Company |
|
| 310.6 | 202.3 |
| Non-controlling interests |
|
| 39.0 | 37.7 |
| Total equity |
|
| 349.6 | 240.0 |
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 |
| 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 income/(expense) | - | - | (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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| At 1 January 2021 | 71.3 | 111.7 | (17.0) | 0.4 | (1.0) | 35.7 | 0.6 | 0.6 | 202.3 | 37.7 | 240.0 |
| Profit for the year | - | - | - | - | - | - | - | 73.8 | 73.8 | 8.0 | 81.8 |
| Other comprehensive income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
| Remeasurement gain on defined benefit plans and related taxes | - | - | - | - | - | - | - | 54.9 | 54.9 | - | 54.9 |
| Foreign exchange differences and related taxes | - | - | 0.3 | - | - | - | - | - | 0.3 | (0.1) | 0.2 |
| Cash flow hedging fair value changes and transfers | - | - | - | (0.5) | - | - | - | - | (0.5) | - | (0.5) |
| Total comprehensive income/(expense) | - | - | 0.3 | (0.5) | - | - | - | 128.7 | 128.5 | 7.9 | 136.4 |
| Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
|
| Dividends | - | - | - | - | - | - | - | (19.1) | (19.1) | (6.6) | (25.7) |
| Equity settled share-based payments | - | - | - | - | - | - | - | 4.5 | 4.5 | - | 4.5 |
| Own shares acquired for share incentive schemes (net) | - | - | - | - | - | - | - | (5.6) | (5.6) | - | (5.6) |
| At 31 December 2021 | 71.3 | 111.7 | (16.7) | (0.1) | (1.0) | 35.7 | 0.6 | 109.1 | 310.6 | 39.0 | 349.6 |
Consolidated statement of cash flows
|
|
| Year ended 31 December 2021 | Year ended 31 December 2020 |
|
| Note | £m | £m |
| Operating activities |
|
|
|
| Profit/(loss) for the year from continuing operations |
| 76.1 | (20.0) |
| Profit for the year from discontinued operations | 7 | 5.7 | 2.0 |
|
|
|
|
|
| Adjustments for: |
|
|
|
| Depreciation - property, plant and equipment |
| 30.1 | 32.7 |
| Depreciation - right-of-use assets |
| 7.9 | 9.2 |
| Amortisation |
| 6.0 | 6.1 |
| Net financing costs | 5 | 9.2 | 11.9 |
| Profit on disposal of business | 2,4 | (7.1) | (2.2) |
| Non-cash specific adjusting items included in operating profit |
| 10.4 | 65.7 |
| Share of profit from associate (net of income tax) |
| (0.4) | (0.6) |
| Loss/(profit) on sale of property, plant and equipment |
| 0.3 | (1.0) |
| Income tax expense | 6 | 28.2 | 6.9 |
| Equity-settled share-based payment expense |
| 4.5 | 0.7 |
| Cash generated from operations before changes in working capital and provisions |
| 170.9 | 111.4 |
| (Increase)/decrease in trade and other receivables |
| (17.2) | 36.1 |
| (Increase)/decrease in inventories |
| (20.1) | 18.4 |
| Increase/(decrease) in trade and other payables |
| 28.3 | (19.7) |
| (Decrease)/increase in provisions |
| (5.8) | 17.8 |
| Payments to defined benefit pension plans (net of IAS 19 pension charges) | 14 | (16.9) | (17.9) |
| Cash generated from operations |
| 139.2 | 146.1 |
| Interest paid - borrowings and overdrafts |
| (6.1) | (7.5) |
| Interest paid - lease liabilities |
| (2.3) | (2.8) |
| Income tax paid |
| (25.4) | (26.0) |
| Net cash from operating activities |
| 105.4 | 109.8 |
| Investing activities |
|
|
|
| Purchase of property, plant and equipment and software |
| (31.6) | (30.0) |
| Purchase of investments |
| (0.9) | (1.0) |
| Acquisition of business assets |
| (1.9) | - |
| Proceeds from sale of property, plant and equipment |
| 5.5 | 1.4 |
| Interest received |
| 0.8 | 0.9 |
| Disposal of investments |
| 14.2 | - |
| Disposal of subsidiaries, net of cash disposed |
| 0.8 | 5.3 |
| Net cash from investing activities |
| (13.1) | (23.4) |
| Financing activities |
|
|
|
| Purchase of own shares for share incentive schemes |
| (5.9) | (1.8) |
| Proceeds from exercise of share options |
| 0.3 | 0.4 |
| Increase in borrowings |
| - | 7.9 |
| Reduction and repayment of borrowings |
| (72.3) | (49.8) |
| Payment of lease liabilities |
| (8.6) | (9.9) |
| Dividends paid to shareholders of the Company |
| (19.1) | (5.7) |
| Dividends paid to non-controlling interests |
| (6.6) | (7.9) |
| Purchase of shares from non-controlling interest |
| - | (2.8) |
| Net cash from financing activities |
| (112.2) | (69.6) |
| Net (decrease)/increase in cash and cash equivalents |
| (19.9) | 16.8 |
| Cash and cash equivalents at start of the year |
| 147.8 | 132.8 |
| Effect of exchange rate fluctuations on cash held |
| (0.6) | (1.8) |
| Cash and cash equivalents at year end | 12 | 127.3 | 147.8 |
The preliminary announcement for the year ended 31 December 2021, which is an abridged statement of the full Annual Report and Accounts, has been prepared in accordance with the requirements of the Companies Act 2006 and International Financial Reporting Standards ('IFRSs') as adopted by the UK. There has been no change to the recognition, measurement or disclosure from preparation in previous periods under IFRSs as adopted by 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.
Critical accounting judgements and key sources of estimation uncertainty
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.
Critical accounting 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 uses specific adjusting items, which are not defined or specified under IFRS. These specific adjusting items, which are not considered to be a substitute for IFRS measures, provide additional helpful information. In the consolidated income statement the Group presents specific adjusting items separately. In the judgement of the Directors, due to the nature and value of these items they should be disclosed separately from the underlying results of the Group to provide the reader with an alternative understanding of the financial information and an indication of the underlying performance of the Group. 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.
· Impairment of non-financial assets which are material.
· 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.
Key sources of estimation uncertainty
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.
Note 15: Environmental provisions and contingent liabilities
Provisions for environmental costs are estimated based on current legal and constructive requirements. Actual costs and cash outflows can differ from current estimates because of changes in underlying factors including laws and regulations, public expectations, prices, more detailed analysis of site conditions and innovations in clean-up technology. The ultimate requirement for remediation and its costs are inherently difficult to estimate. Amounts provided are the Group's best estimate of exposure based on currently available information. Although at present no additional costs of environmental issues have been identified beyond our best estimate, future possible costs that are not provided for could be material to the Group's results in the period in which they are recognised. However, we do not expect these costs to have a material impact on the Group's financial position or liquidity.
Note 4: Impairment of non-financial assets (excluding goodwill)
In addition to the impairment assessment of goodwill, described below, management also monitors the performance of individual assets and cash-generating units. Where indicators of impairment exist, they perform an impairment review on those assets or cash-generating units.
For assets or cash-generating units which the business continues to use, the review process relies on the use of estimates of the future profitability and cash flows which may differ from the actual results delivered. There is a higher level estimation uncertainty inherent in these assumptions and it is reasonably possible that a change in these assumptions could lead to a reversal of the impairment charge.
Where non-financial assets or cash-generating units are not utilised by the business and will not be utilised in the future they are written down to their recoverable amount. There is a lower level of judgement associated with these impairments.
Adoption of new and revised accounting standards
Newly adopted standards
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:
| · | IFRS 17 (including the June 2020 Amendments to IFRS 17) - Insurance Contracts |
| · | Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate of Joint Venture |
| · | Amendments to IAS 1 - Classification of Liabilities as Current or Non-current |
| · | Amendments to IFRS 3 - Reference to the Conceptual Framework |
| · | Amendments to IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use |
| · | Amendments to IAS 37 - Onerous Contracts - Cost of Fulfilling a Contract |
| · | Annual Improvements to IFRS Standards 2018-2020 Cycle - Amendments to IFRS First Time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture |
| · | Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies |
| · | Amendments to IAS 8 - Definition of Accounting Estimates |
| · | Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction |
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report contained in the Annual Report and Accounts. The financial position of the Group, its cash flows, liquidity position and borrowing facilities, are described earlier in this Financial Review. In addition, note 22 to the Annual Report and Accounts, includes the Group's policies and processes for managing financial risk, details of its financial instruments and hedging activities and details of its exposures to credit risk and liquidity risk.
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 2021 the Group had significant headroom on its covenants and available liquidity with the Group's £200 million multi-currency revolving credit facility being undrawn. Total committed borrowing facilities were £372.6 million, none of which is due to mature in the following 12 months. The amount drawn under these facilities was £172.6 million, which together with cash and cash equivalents of £127.3 million, gave a total headroom of £327.3 million.
The principal borrowing facilities are subject to covenants that are measured biannually in June and December, being net debt to EBITDA of a maximum of 3 times and interest cover of a minimum of 4 times, based on measures defined in the facilities agreements which are adjusted from the equivalent IFRS amounts.
The Group has carefully modelled its cash flow outlook, taking account of reasonably possible changes in trading performance, exchange rates and plausible downside scenarios. This review indicated that there was sufficient headroom and liquidity for the business to continue for the 18-month period based on the facilities available as discussed in note 22 to the Annual Report and Accounts. The Group was also expected to be in compliance with the required covenants discussed above.
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 80% and an increase in net debt of 80% would still allow the Group to operate within its financial covenants. The Directors do not consider either of these scenarios to be plausible given the diversity of the Group's end-markets and its broad manufacturing base.
The Board and Executive Committee have regular reporting and review processes in place in order to closely monitor the ongoing operational and financial performance of the Group. As part of the ongoing risk management process, principal and emerging risks are identified and reviewed on a regular basis. This process includes the ongoing review of the impact of the pandemic on the Group and its stakeholders. Potential uncertainties in demand remain across the countries that the Group operates in as a result of COVID-19, despite these uncertainties the Group saw a robust recovery in most of its end-markets, leading to a return to growth for the 2021 financial year. In addition, the Directors have assessed the risk of climate change and do not consider that it will impact the Group's ability to operate as a going concern for the period under consideration.
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 Annual Report and Accounts.
The 2021 Annual Report and Accounts which will be issued in March 2022, contains a responsibility statement in compliance with DTR 4.1.12 of the Listing Rules which sets out that as at the date of approval of the Annual Report on 3 March 2022, the directors confirm to the best of their knowledge:
- the Group and unconsolidated Company financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company, and the undertakings included in the consolidation taken as a whole; and
- the performance review contained in the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Group and the undertakings including the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
2021
Disposal of Latrobe
On 15 January 2021, the Group completed the sale of assets associated with the Technical Ceramics business, based in Latrobe, US. The transaction was structured as a sale of the business and related assets for total consideration of £0.6 million. The disposal resulted in a loss of £0.1 million which was recognised in specific adjusting items within the consolidated income statement, see also note 4.
The loss on disposal is as follows:
|
|
| 31 December 2021 |
|
|
| £m |
| Trading net assets of disposal group |
| 0.6 |
| Goodwill of disposal group |
| 0.1 |
| Cumulative foreign exchange gains and losses recycled on disposal |
| (0.1) |
| Total net assets |
| 0.6 |
|
|
|
|
| Total consideration |
| 0.6 |
| Transaction costs associated with the disposal |
| (0.1) |
| Loss on disposal |
| (0.1) |
In 2021, Latrobe generated an operating profit of £nil on revenues of £0.1 million in the period prior to the disposal (year ended 31 December 2020, £0.2 million operating profit on revenues of £3.0 million).
The disposal group was included in the Technical Ceramics operating segment.
Disposal of Jemmtec
On 28 April 2021, the Group completed the sale of its investment in associate, Jemmtec Limited ('Jemmtec'). The Group's share of the total consideration was £14.2 million, comprising £12.2 million of initial consideration, on a cash-free, debt-free basis, a further consideration of £0.2 million for working capital adjustments and £1.8 million of contingent consideration that has been received in full in 2021. The disposal resulted in a gain of £7.2 million which was recognised in specific adjusting items within the consolidated income statement, see also note 4.
The gain on disposal is as follows:
|
|
| 31 December 2021 |
|
|
| £m |
| Investment carrying value |
| 7.0 |
|
|
|
|
| Total consideration |
| 14.2 |
| Profit on disposal |
| 7.2 |
In 2021, the Group's share of profit in associate (net of income tax) was £0.4 million in the period prior to the disposal (year ended 31 December 2020: £0.6 million).
Acquisition of Delamag
On 1 March 2021, Morgan Technical Ceramics Limited wholly purchased the business and assets of the 'Delamag' business of sourcing raw materials for the processing and manufacture of magnesium oxide from Delamin Limited. The acquisition comprised primarily all rights to the 'Delamag' business name, technical knowledge, intellectual property and business contracts.
The assets acquired and the consideration is as follows:
|
|
| 31 December 2021 |
|
|
| £m |
| Identifiable intangible assets acquired |
| 1.8 |
| Goodwill |
| 0.1 |
| Total consideration |
| 1.9 |
The intangible assets recognised represent the initial measurement of assets acquired based on information available at acquisition. Assets acquired may be remeasured as further information is obtained during the measurement period, which is up to 12 months from the date of acquisition.
The acquisition was a vertical integration and preserves existing income, as such the incremental profit from acquisition is immaterial in the year. The Delamag acquisition forms part of the Seals and Bearings operating segment.
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 £5.9 million. The consideration comprised £5.6 million paid in cash on completion and £0.3 million of deferred consideration received in December 2021.
The disposal resulted in a gain of £2.2 million which was recognised in specific adjusting items within the consolidated income statement, see also note 4. The gain on disposal was 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 |
For 2020 and 2021, the Group reported as two divisions and 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. From 2022 onwards, we will no longer present divisional totals in our segmental reporting. We will continue to report five separate global business units.
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.
|
| Year ended 31 December 2021 | |||||||||
|
| 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 | 364.7 | 47.7 | 412.4 | 164.9 | 135.9 | 237.3 | 538.1 | 950.5 | - | 950.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment adjusted operating profit1 | 42.0 | 6.3 | 48.3 | 32.8 | 22.9 | 26.4 | 82.1 | 130.4 | - | 130.4 |
| Corporate costs |
|
|
|
|
|
|
|
| (5.9) | (5.9) |
| Group adjusted operating profit1 |
|
|
|
|
|
|
|
|
| 124.5 |
| Amortisation of intangible assets | (2.1) | (0.6) | (2.7) | (0.9) | (0.9) | (1.5) | (3.3) | (6.0) | - | (6.0) |
| Operating profit before specific adjusting items | 39.9 | 5.7 | 45.6 | 31.9 | 22.0 | 24.9 | 78.8 | 124.4 | (5.9) | 118.5 |
| Specific adjusting items included in operating profit/(loss)2 | (2.1) | 0.3 | (1.8) | (6.3) | - | (6.0) | (12.3) | (14.1) | 8.7 | (5.4) |
| Operating profit | 37.8 | 6.0 | 43.8 | 25.6 | 22.0 | 18.9 | 66.5 | 110.3 | 2.8 | 113.1 |
| Finance income |
|
|
|
|
|
|
|
|
| 0.8 |
| Finance expense |
|
|
|
|
|
|
|
|
| (10.0) |
| Share of profit of associate (net of income tax) |
|
|
|
|
|
|
|
|
| 0.4 |
| Profit before taxation |
|
|
|
|
|
|
|
|
| 104.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment assets | 319.9 | 41.8 | 361.7 | 137.6 | 107.5 | 156.5 | 401.6 | 763.3 | 149.2 | 912.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment liabilities | 88.9 | 8.4 | 97.3 | 30.6 | 23.6 | 73.9 | 128.1 | 225.4 | 337.5 | 562.9 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment capital expenditure | 8.0 | 2.2 | 10.2 | 5.9 | 7.6 | 7.9 | 21.4 | 31.6 | - | 31.6 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment depreciation - property, plant and equipment | 10.2 | 2.0 | 12.2 | 5.5 | 6.4 | 6.0 | 17.9 | 30.1 | - | 30.1 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment depreciation - right-of-use assets | 3.5 | 0.3 | 3.8 | 1.1 | 0.6 | 2.4 | 4.1 | 7.9 | - | 7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment impairment of non-financial assets | 0.7 | - | 0.7 | 5.7 | - | 6.0 | 11.7 | 12.4 | - | 12.4 |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 45, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
|
| 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 profit | 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 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 profit/(loss)2 | (39.4) | (0.9) | (40.3) | (3.7) | (0.6) | (42.3) | (46.6) | (86.9) | (0.5) | (87.4) |
| Operating profit/(loss) | (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 |
| Profit 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 |
|
|
|
|
|
|
|
|
|
|
|
|
| Segment impairment of non-financial assets | 35.7 | - | 35.7 | 0.1 | - | 29.8 | 29.9 | 65.6 | - | 65.6 |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 45, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
2. Details of specific adjusting items from continuing operations 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 | 2021 £m | 2020 £m | 2021 £m | 2020 £m |
| US | 336.4 | 359.8 | 181.3 | 182.3 |
| China | 114.4 | 97.1 | 29.1 | 40.9 |
| Germany | 68.7 | 59.3 | 34.4 | 36.1 |
| UK (the Group's country of domicile) | 38.5 | 37.5 | 101.6 | 120.0 |
| Other Asia, Australasia, Middle East and Africa | 174.6 | 164.6 | 61.4 | 71.2 |
| Other Europe | 157.4 | 142.3 | 36.3 | 40.3 |
| Other North America | 33.4 | 32.9 | 6.1 | 6.2 |
| South America | 27.1 | 17.2 | 15.8 | 2.7 |
|
| 950.5 | 910.7 | 466.0 | 499.7 |
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 5% of revenue.
Revenue from external customers by end-market
| Continuing operations |
|
| 2021 £m | 20201 £m |
| Industrial |
|
| 431.0 | 384.7 |
| Transportation2 |
|
| 160.4 | 157.0 |
| Chemical and petrochemical |
|
| 98.7 | 103.7 |
| Semiconductor and electronics |
|
| 63.8 | 57.8 |
| Energy3 |
|
| 66.0 | 52.8 |
| Security and defence |
|
| 60.5 | 90.1 |
| Healthcare |
|
| 70.1 | 64.6 |
|
|
|
| 950.5 | 910.7 |
1. Revenue from external customers by end-market for the year ended 31 December 2020 has been re-presented to better reflect the end-markets of our customers.
2. Included within Transportation is £18.7 million relating to clean transportation.
3. Included within Energy is £35.6 million relating to clean energy.
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 | 2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m |
|
| Intercompany sales to other segments | 0.8 | 0.9 | 0.1 | 0.1 | 0.9 | 1.0 | 0.2 | 0.3 | 1.0 | 0.8 | 0.5 | 1.0 | 1.7 | 2.1 |
|
Note 4. Specific adjusting items
|
| 2021 | 2020 |
| Continuing operations | £m | £m |
| Specific adjusting items: |
|
|
| Impairment of non-financial assets | (12.4) | (65.6) |
| Restructuring credit/(cost) | 0.1 | (24.0) |
| Net profit on disposal of business | 7.1 | 2.2 |
| Business closure and exit costs | (0.2) | - |
| Total specific adjusting items before income tax | (5.4) | (87.4) |
| Income tax credit from specific adjusting items | 1.5 | 13.3 |
| Total specific adjusting items after income tax | (3.9) | (74.1) |
Specific adjusting items in relation to discontinued operations are disclosed in note 7.
2021
Impairment of non-financial assets
Technical Ceramics, Asia
An impairment charge of £6.0 million has been recognised after reassessing the value in use of property, plant and equipment in Asia which is taking longer than anticipated to generate revenues. This represents a partial impairment of the assets; the carrying value of the assets following this impairment is £5.4 million. The calculation of value in use was performed as at December 2021. A long-term growth rate of 1% was used for years beyond the five-year forecast period and in calculating the terminal value. A pre-tax discount rate of 11.5% was used to determine the value in use.
Electrical Carbon, Europe and North America
Impairment charges of £4.8 million and £1.0 million have been recognised after assessing the viability of two development assets in Europe and North America, respectively. The European asset was not deemed viable as we were unable to commission it safely and the American asset was not deemed to be commercially viable.
Thermal Ceramics, North America
An impairment charge of £0.6 million has been recognised relating to assets associated with closed manufacturing lines within Thermal Ceramics.
Impairment charges of £70.5 million for non-financial assets which the business continues to use have been recorded during the current and previous year (Technical Ceramics, Asia £6.0 million, Technical Ceramics, ceramic cores £28.8 million and Thermal Ceramics £35.7 million). The impaired amounts could be reversed if the related businesses were to outperform significantly against their budget.
Restructuring costs
A net credit of £0.1 million has been recognised in the current year representing £2.1 million of further redundancy and closure costs related to the Group's restructuring programme, offset by a £2.2 million release of restructuring provisions booked last year in relation to this programme. Whilst the Group's restructuring programme was completed in 2021, we retain restructuring provision of £11.8 million for the Group's obligations at the balance sheet date (2020: £17.3 million). This provision includes remaining lease exit costs and multi-employer pension obligations for two sites which have been closed during the year. The cash outflows relating to the pension obligations may continue for up to 20 years, subject to any settlement being reached in advance of that date. Refer to note 15 for further information.
Net profit on disposal of business
The Group disposed of its 35% shareholding in Jemmtec Limited and the business assets associated with the Latrobe business during the year. These disposals generated a profit of £7.2 million and a loss of £0.1 million, respectively. Refer to note 2 for further information.
Business closure and exit costs
A £0.2 million charge has been recognised relating to the liquidation of businesses in Europe and Asia.
2020
Impairment of non-financial assets
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand in 2020 resulted in impairment losses of £28.8 million relating to the ceramic cores business. The impaired assets comprised 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 recognised a £1.1 million charge relating to the impairment of property, plant and equipment.
Thermal Ceramics
Reduced demand in the aerospace, automotive and industrial market segments in 2020 resulted in impairment losses of £35.7 million in Thermal Ceramics, which related 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.
Following the announcement of the Group's restructuring programme in 2020, a £24.0 million charge was recognised which related to staff redundancies, site closure costs, legal and professional fees and the exit of certain multi-employer defined contribution pension plans.
On 31 August 2020, the Group completed the sale of its Diamonex business, based in Allentown, USA. The transaction was structured as a sale of the business and related assets. Consideration of £5.9 million was recognised, which comprised £5.6 million cash received on completion and £0.3 million of deferred consideration which was received in December 2021. A gain of £2.2 million was realised on disposal - see note 2 for more details.
Note 5. Finance income and expense
|
| 2021 | 2020 |
| Continuing operations | £m | £m |
| Recognised in profit or loss |
|
|
| Interest on bank balances and cash deposits | 0.8 | 0.9 |
| Finance income | 0.8 | 0.9 |
|
|
|
|
| Interest expense on borrowings and overdrafts | (6.1) | (7.4) |
| Interest expense on lease liabilities | (2.3) | (2.8) |
| Net interest on IAS 19 defined benefit pension obligations | (1.6) | (2.6) |
| Finance expense | (10.0) | (12.8) |
| Net financing costs recognised in profit or loss | (9.2) | (11.9) |
No finance income or expense related to discontinued operations in either the current or preceding year.
Note 6. Taxation
|
Continuing operations |
|
| 2021 £m | 2020 £m |
| Recognised in profit or loss |
|
|
|
|
| Current tax |
|
|
|
|
| Current year |
|
| 30.7 | 21.0 |
| Adjustments for prior years |
|
| 0.4 | (1.3) |
|
|
|
| 31.1 | 19.7 |
| Deferred tax |
|
|
|
|
| Current year |
|
| (2.3) | (12.5) |
| Adjustments for prior years |
|
| (0.6) | (0.3) |
|
|
|
| (2.9) | (12.8) |
| Total income tax expense recognised in profit or loss |
|
| 28.2 | 6.9 |
|
Recognised in other comprehensive income |
|
|
|
|
| Tax effect on components of other comprehensive income: |
|
|
|
|
| Deferred tax associated with defined benefit schemes and share schemes |
|
| 0.6 | (0.4) |
| Deferred tax associated with foreign exchange differences |
|
| 0.8 | - |
| Total tax recognised in other comprehensive income |
|
| 1.4 | (0.4) |
| Reconciliation of effective tax rate
| 2021 £m | 2021 % | 2020 £m | 2020 % |
| Profit/(loss) before tax | 104.3 |
| (13.1) |
|
|
|
|
|
|
|
| Income tax charge/(credit) using the domestic corporation tax rate | 19.8 | 19.0 | (2.5) | 19.0 |
| Effect of different tax rates in other jurisdictions | 5.8 | 5.5 | (0.8) | 6.1 |
| Local taxes including withholding tax suffered | 2.6 | 2.5 | 2.0 | (15.2) |
| Permanent differences | 0.4 | 0.4 | 10.2 | (77.9) |
| Movements related to unrecognised temporary differences | (0.2) | (0.2) | (0.4) | 3.1 |
| Adjustments in respect of prior years | (0.2) | (0.2) | (1.6) | 12.2 |
| Statutory effective rate of tax | 28.2 | 27.0 | 6.9 | (52.7) |
The effective rate of tax before specific adjusting items is 27.1% (2020: 27.2%).
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.
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 2021 |
| Year ended 31 December 2020 | ||||
|
| 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 | - | 3.3 | 3.3 |
| - | - | - |
|
|
|
|
|
|
|
|
|
| Operating income | - | 2.4 | 2.4 |
| - | 2.0 | 2.0 |
|
|
|
|
|
|
|
|
|
| Profit before taxation | - | 5.7 | 5.7 |
| - | 2.0 | 2.0 |
|
|
|
|
|
|
|
|
|
| Income tax expense | - | - | - |
| - | - | - |
|
|
|
|
|
|
|
|
|
| Profit from discontinued operations | - | 5.7 | 5.7 |
| - | 2.0 | 2.0 |
|
|
|
|
|
|
|
|
|
| Basic earnings per share from discontinued operations |
|
| 2.0p |
|
|
| 0.7p |
| Diluted earnings per share from discontinued operations |
|
| 2.0p |
|
|
| 0.7p |
In 2021, £3.3 million of the specific adjusting items balance relate to the full and final settlement of certain long-term contracts. A further £2.4 million relates to the reassessment of certain provisions associated with the disposal of the Composites and Defence Systems business.
In 2020, specific adjusting items related to the reassessment of certain provisions associated with 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 2021 | Year ended 31 December 2020 |
|
| £m | £m |
| Net cash generated/(used) in operating activities | 3.3 | (0.1) |
| Net cash generated from investing activities | 2.0 | - |
| Net cash flow used in financing activities | - | - |
|
| 5.3 | (0.1) |
Note 8. Earnings per share
|
| Year ended 31 December 2021 |
| Year ended 31 December 2020 | ||||
|
| Earnings | Basic earnings per share | Diluted earnings per share |
| Earnings | Basic earnings per share | Diluted earnings per share |
|
| £m | pence | pence |
| £m | pence | pence |
| Profit/(loss) for the period attributable to shareholders of the Company | 73.8 | 25.9p | 25.7p |
| (22.5) | (7.9)p | (7.9)p |
| Profit from discontinued operations | (5.7) | (2.0)p | (2.0)p |
| (2.0) | (0.7)p | (0.7)p |
| Profit/(loss) from continuing operations | 68.1 | 23.9p | 23.7p |
| (24.5) | (8.6)p | (8.6)p |
| Specific adjusting items | 5.4 | 1.9p | 1.9p |
| 87.4 | 30.7p | 30.5p |
| Amortisation of intangible assets | 6.0 | 2.1p | 2.1p |
| 6.1 | 2.1p | 2.1p |
| Tax effect of the above | (1.5) | (0.5)p | (0.5)p |
| (13.3) | (4.7)p | (4.6)p |
| Non-controlling interests' share of the | (0.5) | (0.2)p | (0.2)p |
| (1.5) | (0.5)p | (0.5)p |
| Adjusted profit for the period from continuing operations as used in adjusted earnings | 77.5 | 27.2p | 27.0p |
| 54.2 | 19.0p | 18.9p |
|
|
| 2021 | 2020 |
| Number of shares (millions) |
|
|
|
| Weighted average number of Ordinary shares for the purposes of basic earnings per share1 |
| 284.6 | 284.7 |
| Effect of dilutive potential Ordinary shares: |
|
|
|
| Share options |
| 2.4 | 1.4 |
| Weighted average number of Ordinary shares for the purposes of diluted earnings per share |
| 287.0 | 286.1 |
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 2020 |
| 215.4 | 686.0 | 901.4 |
| Additions |
| 0.9 | 22.1 | 23.0 |
| Disposals |
| (1.5) | (18.6) | (20.1) |
| Sale of business |
| - | (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 |
|
|
|
|
|
|
| Balance at 1 January 2021 |
| 215.2 | 678.2 | 893.4 |
| Additions |
| 2.6 | 27.9 | 30.5 |
| Disposals |
| (16.7) | (21.1) | (37.8) |
| Sale of business |
| (0.8) | (3.5) | (4.3) |
| Transfers between categories |
| 1.2 | (1.2) | - |
| Effect of movement in foreign exchange |
| (1.7) | (3.1) | (4.8) |
| Balance at 31 December 2021 |
| 199.8 | 677.2 | 877.0 |
|
|
|
|
|
|
| Depreciation and impairment losses |
|
|
|
|
| Balance at 1 January 2020 |
| 95.7 | 488.5 | 584.2 |
| Depreciation charge for the year |
| 5.3 | 27.4 | 32.7 |
| Impairment losses |
| 10.1 | 26.9 | 37.0 |
| Disposals |
| (0.8) | (18.3) | (19.1) |
| Sale of business |
| - | (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 |
|
|
|
|
|
|
| Balance at 1 January 2021 |
| 109.7 | 516.1 | 625.8 |
| Depreciation charge for the year |
| 5.3 | 24.8 | 30.1 |
| Impairment losses |
| - | 12.3 | 12.3 |
| Disposals |
| (11.6) | (20.1) | (31.7) |
| Sale of business |
| (0.6) | (3.5) | (4.1) |
| Transfers between categories |
| 0.3 | (0.3) | - |
| Effect of movement in foreign exchange |
| (0.1) | (3.4) | (3.5) |
| Balance at 31 December 2021 |
| 103.0 | 525.9 | 628.9 |
| Carrying amounts |
|
|
|
|
| At 1 January 2020 |
| 119.7 | 197.5 | 317.2 |
| At 31 December 2020 |
| 105.5 | 162.1 | 267.6 |
| At 31 December 2021 |
| 96.8 | 151.3 | 248.1 |
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 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 |
|
|
|
|
|
|
| Balance at 1 January 2021 |
| 29.2 | 6.3 | 35.5 |
| Additions |
| 2.7 | 1.5 | 4.2 |
| Remeasurements |
| 0.6 | 0.1 | 0.7 |
| Depreciation charge for the year |
| (4.7) | (3.2) | (7.9) |
| Effect of movement in foreign exchange |
| (0.3) | (0.3) | (0.6) |
| Balance at 31 December 2021 |
| 27.5 | 4.4 | 31.9 |
The weighted average lease term is 12.2 years for land and buildings and 3.5 years for plant and equipment (2020: 13.2 years and 3.7 years respectively).
Amounts recognised in the consolidated income statement in respect of leasing arrangements are set out in the table below:
|
|
|
| 2021 £m | 2020 £m |
| Depreciation expense on right-of-use assets |
|
| (7.9) | (9.2) |
| Interest expense on lease liabilities |
|
| (2.3) | (2.8) |
| Expense relating to short-term leases and leasing of low value assets |
|
| (0.3) | (0.5) |
| Income from leasing owned assets |
|
| 0.2 | 0.3 |
|
|
|
| (10.3) | (12.2) |
The total cash flows from leasing activities in the year ended 31 December 2021 was £11.0 million (2020: £12.9 million) as set out in the table below:
|
|
|
| 2021 £m | 2020 £m |
| Payment of lease liabilities |
|
| (8.6) | (9.9) |
| Interest expense on lease liabilities |
|
| (2.3) | (2.8) |
| Expenses relating to short-term leases of low value assets |
|
| (0.3) | (0.5) |
| Income from leasing owned assets |
|
| 0.2 | 0.3 |
|
|
|
| (11.0) | (12.9) |
At 31 December 2021, the Group is committed to future payments of £0.6 million (2020: £0.3 million) for short-term leases and leasing of low value assets.
At 31 December 2021, the Group had entered into leases which had not yet commenced with future cash flows totalling £0.2 million (2020: £0.3 million).
The total of future minimum lease income under non-cancellable leases, where the Group is a lessor is £nil (2020: £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 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 |
|
|
|
|
|
|
|
|
|
| Balance at 1 January 2021 |
| 173.2 | 56.2 | 3.6 | 0.7 | 34.5 | 268.2 |
| Acquisition of businesses |
| 0.1 | 1.1 | 0.7 | - | - | 1.9 |
| Additions (externally purchased) |
| - | - | - | - | 2.0 | 2.0 |
| Disposal of businesses |
| (0.1) | - | - | - | - | (0.1) |
| Disposals |
| - | - | - | - | (1.9) | (1.9) |
| Effect of movement in foreign exchange |
| (0.3) | 0.3 | (0.2) | - | 0.2 | - |
| Balance at 31 December 2021 |
| 172.9 | 57.6 | 4.1 | 0.7 | 34.8 | 270.1 |
|
|
|
|
|
|
|
|
|
| Amortisation and impairment losses |
|
|
|
|
|
|
|
| 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 |
|
| 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 |
|
|
|
|
|
|
|
|
|
| Balance at 1 January 2021 |
| - | 54.8 | 3.6 | 0.7 | 23.7 | 82.8 |
| Amortisation charge for the year |
| - | 1.0 | 0.1 | - | 4.9 | 6.0 |
| Disposals |
| - | - | - | - | (1.9) | (1.9) |
| Effects of movement in foreign exchange |
| - | 0.3 | (0.2) | - | - | 0.1 |
| Balance at 31 December 2021 |
| - | 56.1 | 3.5 | 0.7 | 26.7 | 87.0 |
|
|
|
|
|
|
|
|
|
| Carrying amounts |
|
|
|
|
|
|
|
| At 1 January 2020 |
| 175.1 | 17.3 | 2.7 | - | 9.7 | 204.8 |
| At 31 December 2020 |
| 173.2 | 1.4 | - | - | 10.8 | 185.4 |
| At 31 December 2021 |
| 172.9 | 1.5 | 0.6 | - | 8.1 | 183.1 |
Impairment test for cash-generating units or groups of 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 or groups of cash-generating units that are expected to benefit from the synergies of the business combination that gave rise to the goodwill. Goodwill impairment testing is performed at the operating segment level as defined by IFRS 8, as this is the lowest level at which goodwill is monitored.
Goodwill is attributed to each operating segment as follows:
|
| 2021 £m | 2020 £m |
| Thermal Ceramics | 84.5 | 84.6 |
| Molten Metal Systems | 9.0 | 9.0 |
| Electrical Carbon | 29.3 | 29.3 |
| Seals and Bearings | 14.9 | 14.9 |
| Technical Ceramics | 35.2 | 35.4 |
|
| 172.9 | 173.2 |
Each operating segment is assessed for impairment annually and whenever there is an indication of impairment.
The carrying value of goodwill has been assessed with reference to its value in use, reflecting the projected discounted cash flows of each operating segment to which goodwill has been allocated. The key assumptions used in determining value in use relate to short and long-term 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 to five 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 operating segment.
A 1.0% growth rate has been used for years beyond 2026 and to calculate a terminal value. Management has assessed these growth rates, including the terminal growth rate as reasonable for each operating segment.
In 2021, the Group has used the following pre-tax discount rates for calculating the value in use of each of the operating segments: Thermal Ceramics: 13.2%, Molten Metal Systems: 12.9%, Electrical Carbon: 12.3%, Seals and Bearings: 11.2%, Technical Ceramics 11.1%.
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 operating segments 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
|
| 2021 | 2020 |
|
| £m | £m |
|
|
|
|
| Bank balances | 101.2 | 139.7 |
| Cash deposits | 26.1 | 8.1 |
| Cash and cash equivalents | 127.3 | 147.8 |
In 2021, the Group had restricted cash of £1.5 million (2020: £0.9 million) as a result of exchange controls in Argentina.
Reconciliation of cash and cash equivalents to net debt1
|
| 2021 | 2020 |
|
| £m | £m |
| Opening borrowings and lease liabilities | (303.4) | (354.4) |
| Increase in borrowings | - | (7.9) |
| Reduction and repayment of borrowings | 72.3 | 49.8 |
| Payment of lease liabilities | 8.6 | 9.9 |
| Total changes from cash flows | 80.9 | 51.8 |
| New leases and lease remeasurement | (4.4) | (0.9) |
| Effect of movements in foreign exchange | 3.1 | 0.1 |
| Closing borrowings and lease liabilities | (223.8) | (303.4) |
| Cash and cash equivalents | 127.3 | 147.8 |
| Closing net debt 1 | (96.5) | (155.6) |
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 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) |
|
|
|
|
|
|
|
| At 1 January 2021 | (248.8) | (54.6) | (303.4) | 147.8 | (155.6) |
| Cash outflow | - | - | - | (5.6) | (5.6) |
| Borrowings and lease liability cash flow | 72.3 | 8.6 | 80.9 | - | 80.9 |
| Net interest paid | - | - | - | (8.4) | (8.4) |
| Net cash inflow/(outflow) | 72.3 | 8.6 | 80.9 | (14.0) | 66.9 |
| Share purchases | - | - | - | (5.9) | (5.9) |
| New leases and lease remeasurement | - | (4.4) | (4.4) | - | (4.4) |
| Exchange and other movements | 2.5 | 0.6 | 3.1 | (0.6) | 2.5 |
| At 31 December 2021 | (174.0) | (49.8) | (223.8) | 127.3 | (96.5) |
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 45, reconciliations of the statutory results to the adjusted measures can be found on pages 12 to 16.
Note 13. Financial risk management
Fair Values
|
| 31 December 2021 | 31 December 2020 | ||||||
| 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 | (21.0) | - | (21.1) | (21.1) | (22.4) | - | (22.6) | (22.6) |
| 3.17% US Dollar Senior Notes 2023 | (11.1) | - | (11.3) | (11.3) | (11.0) | - | (11.4) | (11.4) |
| 1.55% Euro Senior Notes 2026 | (21.1) | - | (21.4) | (21.4) | (22.4) | - | (23.2) | (23.2) |
| 3.37% US Dollar Senior Notes 2026 | (72.2) | - | (72.8) | (72.8) | (71.4) | - | (75.1) | (75.1) |
| 1.74% Euro Senior Notes 2028 | (8.4) | - | (8.6) | (8.6) | (9.0) | - | (9.4) | (9.4) |
| 2.89% Euro Senior Notes 2030 | (21.0) | - | (22.1) | (22.1) | (22.3) | - | (24.3) | (24.3) |
| 4.87% US Dollar Senior Notes 2026 | (18.8) | - | (20.6) | (20.6) | (18.6) | - | (20.7) | (20.7) |
| 5.50% Cumulative First Preference shares | (0.1) | - | (0.1) | (0.1) | (0.1) | - | (0.1) | (0.1) |
| 5.00% Cumulative Second Preference shares | (0.3) | - | (0.3) | (0.3) | (0.3) | - | (0.3) | (0.3) |
|
| (174.0) | - | (178.3) | (178.3) | (177.5) | - | (187.1) | (187.1) |
|
|
|
|
|
|
|
|
|
|
| Financial assets held at FVOCI | - | - | - | - | 0.7 | 0.7 | - | 0.7 |
| Derivative financial assets held at fair value | 0.6 | - | 0.6 | 0.6 | 1.0 | - | 1.0 | 1.0 |
|
| 0.6 | - | 0.6 | 0.6 | 1.7 | 0.7 | 1.0 | 1.7 |
|
|
|
|
|
|
|
|
|
|
| Derivative financial liabilities held at fair value | (0.6) | - | (0.6) | (0.6) | (0.8) | - | (0.8) | (0.8) |
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).
There have been no transfers between Level 1 and Level 2 during 2021 and 2020 and there were no Level 3 financial instruments in either 2021 or 2020.
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 1.0%-3.1% (2020: 0.9-2.4%).
Note 14. Pensions and other post-retirement employee benefits
|
| 31 December 2021 | ||||
|
| UK | US | Europe | Rest of World | Total |
|
| £m | £m | £m | £m | £m |
| Summary of net obligations |
|
|
|
|
|
| Present value of unfunded defined benefit obligations | - | (6.4) | (37.5) | (3.4) | (47.3) |
| Present value of funded defined benefit obligations | (544.0) | (132.9) | (1.9) | (8.4) | (687.2) |
| Fair value of plan assets | 492.3 | 131.6 | 0.4 | 7.5 | 631.8 |
|
| (51.7) | (7.7) | (39.0) | (4.3) | (102.7) |
|
|
|
|
|
|
|
| Movements in present value of defined benefit obligation |
|
|
|
|
|
| At 1 January 2021 | (603.4) | (147.5) | (45.3) | (11.1) | (807.3) |
| Current service cost | - | - | (1.1) | (2.1) | (3.2) |
| Interest cost | (7.2) | (3.3) | (0.2) | (0.1) | (10.8) |
| Actuarial gain/(loss) |
|
|
|
|
|
| Experience gain/(loss) on plan obligations | (5.2) | (0.4) | 0.9 | (0.2) | (4.9) |
| Changes in financial assumptions - gain/(loss) | 43.3 | 5.5 | 2.0 | 0.5 | 51.3 |
| Changes in demographic assumptions - gain/(loss) | 7.2 | (0.5) | - | - | 6.7 |
| Benefits paid | 21.3 | 8.5 | 1.5 | 0.3 | 31.6 |
| Curtailments and settlements | - | - | - | 0.2 | 0.2 |
| Exchange adjustments | - | (1.6) | 2.8 | 0.7 | 1.9 |
| At 31 December 2021 | (544.0) | (139.3) | (39.4) | (11.8) | (734.5) |
|
|
|
|
|
|
|
| Movements in fair value of plan assets |
|
|
|
|
|
| At 1 January 2021 | 483.1 | 140.2 | 0.5 | 7.2 | 631.0 |
| Interest on plan assets | 5.9 | 3.2 | - | 0.1 | 9.2 |
| Remeasurement gain/(loss) | 7.8 | (5.3) | - | (0.1) | 2.4 |
| Contributions by employer | 16.8 | 0.7 | 1.5 | 1.1 | 20.1 |
| Benefits paid | (21.3) | (8.5) | (1.5) | (0.3) | (31.6) |
| Curtailments and settlements | - | - | - | (0.1) | (0.1) |
| Exchange adjustments | - | 1.3 | (0.1) | (0.4) | 0.8 |
| At 31 December 2021 | 492.3 | 131.6 | 0.4 | 7.5 | 631.8 |
|
|
|
|
|
|
|
| Actual return on assets | 13.6 | (2.1) | - | (0.1) | 11.4 |
|
|
|
|
| 31 December 2021 | |
|
| UK | US | Europe | Rest of World | Total |
|
| £m | £m | £m | £m | £m |
| Fair value of plan assets by category |
|
|
|
|
|
| Equities1 | 42.9 | - | - | - | 42.9 |
| Growth assets2 | 103.6 | 7.2 | - | - | 110.8 |
| Bonds | 90.4 | 119.9 | - | - | 210.3 |
| Liability-driven investments (LDI)3 | 108.4 | - | - | - | 108.4 |
| Matching insurance policies | 144.5 | - | 0.4 | 4.8 | 149.7 |
| Other | 2.5 | 4.5 | - | 2.7 | 9.7 |
|
| 492.3 | 131.6 | 0.4 | 7.5 | 631.8 |
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 circa 100% of the invested assets of the UK Schemes.
The Group expects to contribute £20.4 million to these arrangements in 2022.
|
| 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) |
|
| UK | US | Europe | Rest of World |
|
|
|
|
|
|
| Principal actuarial assumptions at 31 December 2021 were: | % | % | % | % |
| Discount rate | 1.92 | 2.71 | 0.90 | 2.90 |
| Inflation (UK: RPI/CPI) | 3.40/2.61 | n/a | 1.90 | n/a |
|
|
|
|
|
|
| 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 |
Note 15. Provisions and contingent liabilities
|
| Closure and restructuring provisions £m | Legal and other provisions
£m | Environmental provisions
£m | Total
£m |
| Balance at 1 January 2021 | 17.3 | 10.2 | 8.3 | 35.8 |
| Provisions made during the year | 2.6 | 3.6 | 1.8 | 8.0 |
| Provisions used during the year | (5.9) | (0.5) | (1.8) | (8.2) |
| Provisions reversed during the year | (2.1) | (3.2) | (0.3) | (5.6) |
| Effect of movements in foreign exchange | (0.1) | (0.1) | (0.2) | (0.4) |
| Balance at 31 December 2021 | 11.8 | 10.0 | 7.8 | 29.6 |
|
|
|
|
|
|
| Current | 6.6 | 4.8 | 3.4 | 14.8 |
| Non-current | 5.2 | 5.2 | 4.4 | 14.8 |
|
| 11.8 | 10.0 | 7.8 | 29.6 |
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.
Whilst the Group's restructuring programme was completed in 2021, we retain provisions for remaining lease exit costs and multi-employer pension obligations from two sites which have been closed during the year. The cash outflows relating to the pension obligations may continue for up to 20 years, subject to any settlement being reached in advance of that date.
Legal and other provisions
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 and in conjunction with the local Environmental Regulator. A remediation plan has been prepared. The provision recorded reflects the estimated costs of remediation and awaits final regulatory approval. The provision is expected to be utilised in the next five years.
Environmental contingent liabilities
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
Glossary
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1. See definitions and reconciliations of non-GAAP measures to GAAP measures on page 12 to 16.
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