Annual Report 2022
Resilient,
Sustainable,
Innovative.
Overview
Morgan Advanced Materials is a business rich in history
and innovation. Founded in the UK in 1856, we
have grown into a global organisation with 70 sites in
18 countries. Our model to serve our customers where
they need us has led to a diversified product range
using our unparalleled expertise in ceramic and carbon
materials, which we exploit to solve difficult problems
for our customers across a diverse range of markets.
We are a purpose driven organisation. Our purpose
is to use advanced materials to make the world more
sustainable and to improve the quality of life. We deliver
on that purpose through the products that we make,
and the way that we make them.
We help our customers push the limits of their processes
and products to meet the demanding requirements they
face, from higher process temperatures to higher product
performance to increasing miniaturisation.
Sustainable solutions
for a greener future
We play a role in helping the world become more
sustainable, enabling energy transition through our
products and by reducing our own environmental impact.
Our approach to sustainability is embedded within our
strategy. We see this as fundamental to our future growth
and resilience, and to delivering exceptional value to our
stakeholders and building a company that our people can
be proud of.
Read more on pages 32 to 39
1
STRATEGIC REPORT
Overview
Inside Front Cover
Morgan in numbers
2
Business overview
6
Investment case
8
Chair’s statement
10
Business model
12
Market context
14
Strategy overview
16
CEO review
18
Strategy in action
20
Stakeholders
24
Section 172(1) statement
28
Non-financial information statement
30
Environmental, Social & Governance goals
32
TCFD
38
Risk management
40
Review of operations
48
Group financial review
50
Directors’ statements
55
Definitions and reconciliations of non-GAAP
measures to GAAP measures
57
GOVERNANCE
Chair’s letter to shareholders
61
Board of Directors
62
Governance at a glance
64
Strategic oversight by the Board
66
Measuring and living our culture
68
Listening to employees
72
Assessing Board performance
74
UK Corporate Governance Code 2018
compliance statement
75
Report of the Audit Committee
79
Report of the Nomination Committee
86
Remuneration report
90
Other disclosures
117
Independent auditor’s report to the members
of Morgan Advanced Materials plc
121
FINANCIAL STATEMENTS
Consolidated income statement
130
Consolidated statement of
comprehensive income
131
Consolidated balance sheet
132
Consolidated statement of changes in equity
133
Consolidated statement of cash flows
134
Notes to the consolidated
financial statements
135
Company balance sheet
186
Company statement of changes in equity
187
Notes to the Company balance sheet
188
Group statistical information
205
Cautionary statement
206
Glossary of terms
206
Shareholder information
207
Contents
Our strategy in action
Making a big positive
difference
See page 20
Delighting
the customer
See page 22
Innovating
to grow
See page 23
Strategic report
2
–
Morgan Advanced Materials plc
Annual Report 2022
Morgan in numbers
We assess our
performance
across a wide
range of metrics.
To support the
Group’s strategy
and to monitor
performance,
the Board of
Directors and
the Executive
Committee
use a number
of financial key
performance
indicators (KPIs).
Financial KPIs
(statutory and adjusted performance KPIs)
Free cash flow before acquisitions,
disposals and dividends
*
(£m)
Performance
Lower free cash flow
*
from a one-off pension
contribution of £67.0m and increased investment
in working capital to secure our supply chain and
capital expenditure to support ongoing growth.
Adjusted operating
profit margin
*
(%)
Performance
Margin improvement from increased
volumes, with pricing and efficiency
savings more than offsetting cost inflation.
See the Review of operations on
pages 48 to 49 for more detail.
Revenue
(£m)
Performance
On a reported basis, revenue increased by
£161.6 million, 17.0%, reflecting continued
strong demand across all global business units.
See the Review of operations on pages 48
to 49 for more detail.
Organic constant currency
revenue growth
*
(%)
Performance
On an organic constant currency
*
basis
revenue grew by 11.2%, with growth across
all global business units. See the Review of
operations on pages 48 to 49 for more detail.
22
21
20
910.7
1,112.1
950.5
22
21
20
(11.4)
11.2
10.3
22
21
20
10.1
13.6
13.1
22
21
20
72.4
(46.9)
66.2
Throughout the Annual Report, including the Strategic Report, adjusted measures are used to describe the Group’s financial
performance. These adjusted measures are not recognised under IFRS or other generally accepted accounting principles
(GAAP). These measures are shown because 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 where they appear
in tables and charts. Definitions and reconciliations of these non-GAAP measures to the relevant GAAP measures can be
found in the Group Financial Review on pages 57 to 59.
3
Strategic report
Net debt
*
to EBITDA
*
(excluding lease liabilities)
(X)
Performance
Net debt
*
to EBITDA
*
(excluding lease liabilities)
was 0.8 times at the end of 2022, following
a one-off pension contribution of £67.0m,
increased working capital investment and
increased capital expenditure.
Dividend per share
(p)
Performance
The Board has committed to growing the
dividend with earnings to around 2.5 times
dividend cover. For the year ended
31 December 2022, the Board is recommending
a dividend equivalent to 2.8 times.
Return on invested capital
*
(%)
Performance
Higher return on invested capital
*
, as we have
increased investment in working capital and
capital expenditure to support improved
adjusted operating profit
*
.
Continuing EPS
(p)
Performance
Benefits arising from increased volumes across all
global business units, with pricing and efficiency
savings more than offsetting cost inflation.
Adjusted EPS
*
(p)
Performance
Benefits arising from increased volumes
across all global business units, with pricing
and efficiency savings more than offsetting
cost inflation.
Operating profit
(£m)
Performance
Operating profit improvement from increased
volumes, with pricing and efficiency savings more
than offsetting cost inflation. See the Review of
operations on pages 48 to 49 for more detail.
22
21
20
(1.8)
140.8
113.1
22
21
20
13.0
22.4
20.5
22
21
20
5.5
12.0
9.1
22
21
20
19.0
33.8
27.2
22
21
20
(8.6)
30.6
23.9
22
21
20
0.8
0.8
0.3
Our financial KPIs are a balanced set of metrics which help the Board and the
Executive Committee assess performance and progress against our execution
priorities and business plans. These and other KPIs are used to evaluate operating
performance and make financial, strategic and operating decisions.
The continuing and discontinued EPS KPI has been
removed from the 2022 Annual Report because the
impact of discontinued operations is reducing. It has
been replaced with net debt
*
to EBITDA
*
(excluding lease
liabilities) because this metric is a key part of the financial
framework which supports our investment proposition
as set out in the Chief Executive Officer’s review on
page 19.
4
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Morgan Advanced Materials plc
Annual Report 2022
Morgan in numbers
continued
Key environmental, social and governance (ESG) measures
Employee engagement rate
Lost-time accident (LTA) rate
*
CO
2
e scope 1 and 2 emissions
(metric tonnes)
Alignment to strategy
1
2
3
Why do we measure this KPI?
Our sustainability agenda includes actions to reduce greenhouse
gas (GHG) emissions and combat climate change. In March 2021,
we announced a commitment to reduce absolute GHG emissions
(scope 1 and 2) by 50% (against 2015 levels) by 2030.
Alignment to strategy
1
2
3
Why do we measure this KPI?
We are working towards our aspiration of zero harm to all our
employees. We are committed to conducting all our activities
in a manner that builds a caring safety culture and develops
a world-class safety system that supports this effort.
Alignment to strategy
1
2
3
Why do we measure this KPI?
By 2030, we will reduce our total withdrawal of water by 30% (against our
2015 baseline), and we are implementing water sustainability projects
globally to achieve this goal.
Alignment to strategy
1
2
3
Why do we measure this KPI?
We measure the engagement of our people through an all-employee
engagement survey called ‘Your Voice’. As a result of the survey we build
a tailored engagement plan to tackle the key issues across our sites,
businesses and the Group.
Overall water withdrawal
(million m
3
)
2030
22
21
20
19
18
338,531
318,842
276,678
211,104
Target
171,347
229,887
2030
22
21
20
19
18
0.22
0.14
0.18
0.28
0.22
Target
0.10
2030
22
21
20
19
18
2.17
1.88
1.50
1.93
1.73
Target
1.63
2030
22
21
20
19
18
No survey
this year
55%
No survey
this year
53%
50%
New yearly
survey introduced
Target
75%
At Morgan Advanced Materials we are committed to a sustainable future. In March 2021,
we set stretching goals across a number of environmental, social and governance areas.
*
A lost-time accident (LTA) is defined as an accident or work-related illness which
results in one or more days of lost time. Calculated as total number of lost-time
accidents in the year, multiplied by 100,000 hours worked, divided by total number
of hours worked.
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Strategic report
Female representation in leadership
*
Alignment to strategy
1
2
3
Why do we measure this KPI?
We recognise that in some instances our water demands are in areas
of increasing water stress. Approximately 21% of our manufacturing
operations are in these water stress areas.
Our goal is to maintain a 30% reduction despite year-on-year business
growth. By improving our water use in these areas, we will positively
impact the local communities in which we operate.
Alignment to strategy
1
2
3
Why do we measure this KPI?
A greater gender diversity just makes sense – it is good for Morgan
and good for employees. We are continuing to take action to achieve
a more balanced proportion of women in senior positions.
Water withdrawal in stressed areas
*
(% reduction from 2015 baseline)
2030
22
21
20
19
18
32%
32%
37%
34%
33%
Target
30%
2030
22
21
20
19
18
No data – not measured
30%
29%
29%
Target
40%
To deliver our strategy and to achieve our
ESG goals we align our efforts to our three
execution priorities.
Alignment to strategy
Read more on pages 20 to 23
1
Big positive difference
2
Delight the customer
3
Innovate to grow
*
Water stressed areas include Spain, Italy, Turkey, Mexico, India, United Arab Emirates,
Argentina, Australia, and the state of California, USA.
2021 and prior years have been restated to include the manufacturing site at
Casalpusterlengo, Italy.
*
Includes Executive w/o CEO/CFO plus 2nd to 4th tier.
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Morgan Advanced Materials plc
Annual Report 2022
We are the global manufacturer of advanced carbon and ceramic materials
for complex and technologically demanding applications.
Our core capabilities
Our strategy builds on our strengths and focuses the Group on scalable businesses in attractive markets.
We serve markets that are growing and where we have room to grow, and where our customers value
our differentiated products and services.
Business overview
The versatility and performance of ceramics and carbon materials enables us to support
a wide variety of applications in diverse end-markets. Our applications range from
ceramic cores for casting aero engine turbine blades to silicon carbide focus rings for
semiconductor etch, and from carbon brushes in onshore wind turbines to thermal
insulation solutions for hydrogen reformers.
In each of these applications, in each of these markets, we bring our deep materials
and engineering expertise to bear, helping our customers to reduce their energy
consumption, emissions and operating costs, with applications that frequently
require extensive qualifications.
Materials science
We are an acknowledged leader in
materials science for our chosen
technology families. We have four
global materials Centres of Excellence
(CoE) which consolidate the Group’s
R&D efforts.
Application engineering
We have built an understanding of
the application of our materials science
in our customers’ products and
processes, in order to provide
maximum benefit through advanced
application engineering.
Customer focus
We build deep and trusted
relationships with our customers,
working to understand their business
and their markets, and their technical
challenges and product roadmaps.
We align our materials development
to solve our customers’ problems.
We have three core capabilities:
7
Strategic report
Our five global business units
Thermal Ceramics
Our thermal products are used in high-temperature
industrial processing of metals, petrochemicals,
cement, ceramics and glass, and by manufacturers
in automotive, marine, aerospace, and domestic
applications in insulation and fire protection.
Molten Metal Systems
Our Molten Metal Systems business manufactures
an extensive range of high-performance crucibles
and foundry consumables for non-ferrous metal
melting applications.
Electrical Carbon
Our electrical carbon products include electrical
carbon brushes and collectors, brush holders, slip
rings and linear transfer systems. We engineer
high-performance graphite materials, components
and sub-assemblies to address our customers’
technical challenges.
Seals and Bearings
Our seals and bearing products use advanced carbon/
graphite, silicon carbide, alumina and zirconia materials,
which we engineer into lightweight, low-friction and
self-lubricating bearings and seals, predominantly used
in pumps.
Technical Ceramics
Our technical ceramics products are used in selected
segments of the electronics and semiconductor,
energy, healthcare, industrial, petrochemicals, security
and transport markets, typically in close collaborative
customer relationships.
We are well positioned
in large and fast-growing
markets driven by global
mega trends
The demand for renewable energy is growing
rapidly as the world seeks to decarbonise.
Ongoing urbanisation drives the need for clean
energy and transportation solutions. Our
growing and ageing population places more,
and more complex, demands on healthcare.
Digitisation brings huge benefits in efficiency
and increasingly in capability, and with that
we see ever increasing demand for more and
faster processing.
This all translates into a robust growth outlook
for our business. Revenues from our faster
growing segments, semiconductors, healthcare,
clean energy and clean transportation are
expected to grow between 7% and 12% per
year (through the cycle). Revenue from our
core business is expected to grow 2% to 4%
per year.
Read more on pages 14 to 15
We have leading
differentiated positions,
and this all starts with
our strategy
Our development of strategic capabilities
supports the positions we have in each of
our markets.
We have deep expertise in carbon and ceramic
materials. We spend around £30 million in
research and development each year to maintain
and strengthen our technical leadership.
We have 460 scientists and engineers across
the Group representing 20% of our white-collar
workforce. They work in four Centres
of Excellence, and within the businesses,
sustaining our current materials portfolio,
and developing new materials and products.
Each business unit has a clear strategy and has
technology roadmaps that flow from this to inform
the prioritisation of development resources.
Our application engineers are the bridge
between our materials expertise and the
specifics of our customers’ markets and
applications. Our application engineers work
with customers every day to take their technical
challenge and marry it up to a material, and then
a manufacturing process.
Through the execution of our strategy, we are
strengthening our market positions and steadily
building closer relationships with our customers.
Read more on page 22
Investment case
£31.6
m
RESEARCH AND
DEVELOPMENT EXPENSE
+4
%
EXPECTED CORE
BUSINESS GROWTH
8
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Morgan Advanced Materials plc
Annual Report 2022
Our purpose, our strategy and our people differentiate us at Morgan Advanced
Materials, altogether driving superior value for our stakeholders. We are experts
in materials science with a track record of delivering for our customers, drawing on
our 166 years of innovation.
We play a crucial
role in helping the
world become
more sustainable
We do this through the products we make,
and the way that we make them.
Our products help our customers to be
more efficient – to use less energy in their
manufacturing process or in their product,
and to generate less CO
2
.
We are also working hard to decarbonise our
own operations – to produce our products more
efficiently and to reduce our own CO
2
emissions
and manage our water usage more sustainably.
We have a solid plan for the coming years
and are making excellent progress so far.
At this point our absolute CO
2
emissions are
around 40% down on our 2015 starting point.
Whilst our overall water usage has increased
during the year, we expect to see the process
and infrastructure improvements we have
completed during the year reflected in our
water usage for 2023.
Read more on pages 32 to 33
We are resilient,
delivering attractive
through-cycle returns
This resilience comes from the robustness of
our strategy and market positions, and from
the diversity in our portfolio.
We operate in a diverse set of markets.
Some are global, some are regional, but across
these markets we have early and later cycle,
and counter cyclical exposures.
We have a widely spread customer base. Our
largest customer accounts for only 2% of our
revenues. Our top ten equate to around 11%
of revenues, meaning a significant loss of one
customer has limited impact on the Group.
We largely make products where we sell them,
with localised supply chain, and this gives us
resilience against local shocks. You can see this
resilience in our financial performance over the
last seven years. We have grown profitability
every year except during the height of the
pandemic in 2020, and even during that global
shock, our revenues only declined 11% and
we maintained operating margins above 10%.
Read more on pages 2 to 3
–40
%
REDUCTION IN
CO
2
EMISSIONS
Strategic report
9
3-6
%
THROUGH-CYCLE GROWTH
10
–
Morgan Advanced Materials plc
Annual Report 2022
This is my final Annual Report
as your Chair before standing
down from the Board in June
2023, having served on the
Board since 2014. It has been
an enormous privilege to be your
Chair and as I look back on the
last nine years it is gratifying to
reflect on the transformation in
business performance that our
colleagues have achieved. Over
that time, through innovation and
judicious investment, the Group
has repositioned into new growth
markets of clean energy, clean
transportation, healthcare and
semiconductors. At the same time,
margins have increased from low
single digits to very respectable
mid-teens with a trajectory of
further improvement.
Looking back at 2022
Our first imperative is the safety and
wellbeing of our people and I am
disappointed that during 2022 our safety
performance dipped. Supporting the
executive team, your Board has spent
a significant amount of time discussing
how safety performance and culture
can be improved. These discussions have
emphasised a more holistic approach to
safety, and this now encompasses greater
focus on the wellbeing of our people.
My fellow non-executive Directors and
I will continue to support the executive
team to achieve a position of ‘zero harm’.
Chair’s statement
11
Strategic report
“
I would like to say a huge thanks
to all our colleagues, customers,
suppliers and investors for
their continuing commitment
and support to Morgan.
”
We delivered robust revenue growth in
2022 reflecting growing markets and
the benefits of our strategy. Despite the
well-documented supply challenges and
disruptions, we successfully worked
with our customers and suppliers to
maintain operational service levels.
That is particularly pleasing given the
extent of supply chain deficiencies,
unprecedented inflation on input costs
and challenges in labour supply.
We have covered increased input costs
and other inflation impacts through
price increases and through continuous
improvement in our plants. Our profitability
improvement has then flowed from higher
volumes, pricing and efficiency focus.
We have invested in supporting our
people through the ongoing cost-of-living
pressures, both through salary increases
and through a wide range of other support
measures, including access to a shopping
discount platform, site-based recognition
activities and family-friendly policies.
We are continuing to work to reduce the
Group’s environmental impact. I am pleased
by the progress we have made this year
and the opportunities we have identified
for the future. Not only are we making our
manufacturing processes more efficient and
reducing our CO
2
e emissions, but more
importantly our products, which have
properties to withstand heat and endure
other extreme environments, assist our
customers in reducing their environmental
impact, either by lasting longer or improving
the efficient use of resources.
The Board in 2022
In January 2023, we were delighted to
appoint Ian Marchant as an independent
non-executive Director and Chair
Designate, assuming the position of
Chair at the conclusion of Morgan’s
AGM on 29 June 2023, subject to
shareholder approval. Ian is a highly
strategic and successful leader with more
than 35 years of wide-ranging experience
at major businesses, bringing a strong track
record of value creation and listed board
experience. In his capacity as the new
Chair, I am confident that Ian will provide
the strong leadership required to oversee
the future success of Morgan.
In May 2022, after six years with the
Company, Chief Financial Officer Peter
Turner stepped down from the Board.
On behalf of the entire Board, I would
like to thank Peter for his outstanding
contribution to the Company and wish him
a long and happy retirement. Peter was
succeeded by Richard Armitage, who joined
Morgan from Victrex Group plc, where
he was Chief Financial Officer. Richard,
who has broad experience in financial
management, investor relations, capital
markets, M&A, and commercial
management, gained through roles in
a number of listed and privately owned
chemicals and consumer goods companies,
is already making a valuable contribution
to our Company and I would like to
formally welcome him to the Board.
Looking forward to 2023
We experienced a cyber security incident in
January 2023, having detected unauthorised
activity on our network. Our immediate
priority was to respond quickly to
the incident to protect the Group’s
infrastructure and to minimise the impact
on operations. I am incredibly grateful for
the hard work and dedication shown by
our teams in responding to this event.
Further details on the impact of the incident
can be found on page 19.
We are confident that continued focus on
the strengths of the business, underpinned
by our resilient balance sheet and the
efficiency and productivity gains related
to our restructuring programme will
support the further successful progress
of the Group in the years ahead.
Thank you
It has been a privilege to work with so many
talented colleagues at Morgan for the past
nine years, as we transformed the Group
into the global manufacturer of advanced
carbon and ceramic materials for complex
and technologically demanding applications.
I am particularly proud of the work we have
done in creating a diverse Board. As at
31 December 2022, the Board has 43%
female representation, one of whom is
the Senior Independent Director, and
one Director of Southeast Asian origin.
The Board has therefore met the FCA’s
new board diversity targets since 2019.
I have every confidence that the Group,
under Pete’s leadership, has the capabilities
to continue to lead and grow in its markets
in the years ahead and I know that our new
Chair, Ian Marchant, will provide the Board
with strong and effective direction. Finally,
I would like to say a huge thanks to all
our colleagues, customers, suppliers and
investors for their continuing commitment
and support to Morgan.
Douglas Caster
CBE FIET
Non-executive Chair
12
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Morgan Advanced Materials plc
Annual Report 2022
We have three core capabilities:
Business model
We utilise our distinct
competencies
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 play an important role in society,
using our deep materials science knowledge
and process capability to solve customer
problems and deliver on our purpose.
We support the United Nations
Sustainable Development Goals
We aim to be a CO
2
net zero¹ business
by 2050
1.
Excludes indirect emissions generated by our supply chain,
distribution network and employee travel.
Materials
science
Application
engineering
Customer
focus
Thermal Ceramics
Molten Metal Systems
Electrical Carbon
Seals and Bearings
Technical Ceramics
We serve markets that are growing and where
we have room to grow, and where our customers
value our differentiated products and services.
The Group’s products are produced
within five global business units.
Our strategy builds on our strengths and
focuses the Group on scalable businesses
in attractive markets.
13
We service markets
ranging from industrial
to healthcare
We manufacture advanced ceramic materials,
products and systems for thermal insulation in
high-temperature environments.
We engineer systems for the safety of people and equipment
in demanding applications. Our products help customers,
especially those operating energy-intensive processes, to
reduce energy consumption, emissions and operating costs.
We manufacture an extensive range of high-performance,
energy-saving crucibles and foundry consumables for
non-ferrous metal melting applications.
We produce a wide range of products which are used to
transfer electrical current between stationary and rotating
or linear moving parts in motor, generator, and current
collector applications.
We create high-performance self-lubricating bearing
and seal components, used predominantly in pumps.
We engineer high-performance functional and structural
ceramic materials, components and sub-assemblies to
address customer-specific technical challenges.
Our products
deliver on our purpose
We contribute positively to the economy and support an improved society
for our people, customers, and investors. The economic value we generate
includes wages paid to our people, purchases from local and global suppliers,
taxes, and dividends – in addition to indirect benefits arising from expenditure
by our suppliers, customers and employees.
Our business contributes positively to society. We support the skills
development of our people, from apprentice level and operators, through to
senior executives. Our global makeup reflects the communities we serve with
representatives from many backgrounds, and we strive to promote inclusivity
and opportunity for all.
Our operations look to benefit our environment through the products we design
and manufacture, products which make more efficient use of resources and can
improve the quality of life.
To find out how our people work with our communities visit our website at
morganadvancedmaterials.com/community
To find out more about our products and services visit
morganadvancedmaterials.com/whatwedo
Strategic report
Our thermal products
are used in high-temperature industrial
processing of metals, petrochemicals,
cement, ceramics and glass, and by
manufacturers of equipment for automotive,
marine, aerospace, and domestic applications
in insulation and fire protection.
Our electrical carbon products
are used in electrified rail, conventional
and wind power generation, industrial
applications and in high performance
semiconductor manufacturing applications.
Our seals and bearings products
are used in pumps for industrial and
domestic use, or other sealing applications.
We use advanced carbon/graphite, silicon
carbide, alumina and zirconia materials to
engineer lightweight, low-friction bearings
and seals.
Our technical ceramics products
are used in selected segments of the
electronics and semiconductor, energy,
healthcare, industrial, petrochemicals,
security and transport markets, typically in
close collaborative customer relationships.
14
–
Morgan Advanced Materials plc
Annual Report 2022
Market context
We have a strategy based on building deep expertise in materials, markets and customer
needs, and that translates into leading, differentiated positions across our markets.
Morgan Advanced Materials is:
A design partner for our customers, translating
their needs into product solutions, distinguishing
ourselves through the application engineering
that we provide
Supporting our customers through investments
in application testing and using this to inform our
technology and product development and to
develop bespoke solutions for our customers
Investing in manufacturing capacity to support
customer demand in our cour and in four faster
growing segments: semiconductors, healthcare,
clean energy and clean transportation
Committed to operating sustainably and helping
our customers to improve the sustainability of
their products and processes
Core markets
Our core market portfolio is diversified
and differentiated. Our core markets
make up 80% of Group revenues.
Revenue from core markets
(£m)
22
21
20
19
874
746
767
894
Growth markets
We are specifically targeting four faster
growing markets:
semiconductors,
healthcare, clean energy and
clean transportation.
Read more on Semiconductors
morganadvancedmaterials.com/Semiconductor
Read more on Healthcare
morganadvancedmaterials.com/Healthcare
Read more on Clean energy
morganelectricalmaterials.com/CleanEnergy
Read more on Clean transportation
morganthermalceramics.com/CleanTransportation
Revenue from faster growing markets
(£m)
22
21
20
19
156
153
183
218
CAGR
11.7
%
15
Strategic report
In these core markets, we are leading, or are among the market
leaders. We have around a 20% share, with strong customer
loyalty, a respected brand and deep application expertise.
The
Industrial sector
is the largest component of our core.
It is composed of the diverse customers who incorporate our
carbon and ceramic materials and parts into their products and
manufacturing equipment. For example, we supply wear parts
for industrial pumps, components for metrology equipment,
thermal insulation for power generation and heat recovery,
and ceramic rollers for glass and tile manufacturing.
Petrochemicals
– we offer to operators, installers and
technology licensors insulation design and a range of insulation
products and fire protection solutions.
Metals processing
– this segment includes high-volume
metallurgy such as aluminium, iron and copper, as well as lower
volume metals such as zinc, titanium and gold. We provide
insulation solutions as well as crucibles which hold liquid metals
and provide flow control to metallurgists and furnace OEMs.
Defence and aerospace
– we supply various parts and
subsystems. In aerospace, we supply cores for precision
casting of engine parts and fire protection materials for
flight data recorders.
Automotive
– we produce components and
subsystems that we supply into internal combustion
engine cars at multiple layers of the value chain. They
include friction materials for brake pad suppliers, carbon
brushes for manufacturers of electric motors and filters
for airbag manufacturers.
The common thread in all these markets is that we provide
challenging technical features which are critical to our
customers’ products and/or processes.
These are market segments where demands
on materials are increasingly stringent, and our
materials expertise is increasingly relevant.
We have a smaller share and less mature position
in these segments, however we generally have
higher levels of differentiation with newer products,
where we are developing options and scaling up.
We have dedicated market specialists who face
into these industries and ensure we address the
needs of today, while developing new products
and approaches for the needs of tomorrow.
Share of revenue
Faster growing
Semiconductors
8%
Healthcare
7%
Clean energy +
5%
clean transportation
Total
20%
Core
Industrial
31%
Conventional transportation
16%
Metals
14%
Petrochemical and chemical
10%
Security and defence
6%
Conventional energy
3%
Total
80%
20
%
80
%
16
–
Morgan Advanced Materials plc
Annual Report 2022
We have a strategic framework that connects our purpose with
our strategy, our distinctive competencies and our Morgan Code.
Our strategy, in brief
We have a strategy to make sure that we are the leaders in our field, with the
customer and materials insight to apply our capabilities quickly and effectively.
Our strategy builds on our strengths and focuses the Group on scalable businesses
in attractive markets, and on the development of three core capabilities.
Reliable problem
solving
Ethically, safely and
sustainably
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Materials science
We are an acknowledged leader in materials
science for our chosen technology families.
Key
Application engineering
We have built an understanding of the application
of our materials science in our customers’ products
and processes, in order to provide maximum
benefit through advanced application engineering.
Customer focus
Our success comes from aligning everything
we do to focus on the customer.
Our purpose
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.
The Morgan Code
A set of principles, supported by Group policies,
which set out how we conduct ourselves
in support of our people, our communities,
our business partners and our shareholders.
17
Strategic report
1.
Big positive difference
We govern our business the right way, look
after the environment, look after our people and
operate to high ethical standards. This priority
supports our purpose and our commitments
on inclusion, treating people fairly, reducing
waste, managing our water consumption,
and reducing emissions.
Read more on pages 20 to 21
2.
Delight the customer
We are tailoring out products, services
and support offering to align with customer
needs more closely. This is achieved through
working in partnership with our customers
at all stages of development to understand
any technical challenges and by applying our
materials expertise.
Read more on page 22
3.
Innovate to grow
We are supporting our customers in both
heavy industries and in green sectors to minimise
their environmental impact. Our innovations
are supporting the decarbonisation of industry.
For example, our thermal engineers are
innovating to design bespoke packages
that accommodate higher temperatures as
customers convert their processes from the
combustion of natural gas to hydrogen.
Read more on page 23
Our purpose
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 feedthroughs are at the core of cochlear implants
and our seals are used in blood pumps. These products
transform people’s lives.
Our products help keep people safe. We are proud to
design fire protection in everything from cars to tunnels,
and ships to oil platforms.
We design and manufacture our products to help
customers save energy.
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.
We have three execution priorities that
are helping us deliver our strategy:
18
–
Morgan Advanced Materials plc
Annual Report 2022
“
Our people
showed great
commitment
in looking out
for each other
and delivering
for our customers
in this turbulent
environment
and I would like
to thank them
for their terrific
contribution
during 2022.
”
I am pleased with the progress we made as a Group in 2022. We saw
rapid growth in a number of our end-markets as global economies
recovered from the COVID-19 pandemic. We experienced a challenging
operating environment with rapidly increasing inflation, an energy price
shock in Europe driven by the Russian invasion of Ukraine, ongoing supply
chain and labour shortages in many geographies, and pandemic-related
absenteeism and disruption, in particular in China.
Sustainability
Our purpose is to use advanced materials
to make the world more sustainable and to
improve the quality of life. In 2021, we set
out five long-term goals for our business
together with intermediate goals for 2030.
1. A scope 1 and 2 CO
2
net zero
business by 2050, with a 2030 goal of
a 50% reduction in scope 1 and 2 CO
2
emissions. We have continued to migrate
to carbon-free electricity across the
Group with 49% of our power carbon-
free by the end of the year. We are
continuing to improve the efficiency of
our gas fired kilns and have started to
evaluate electrically fired options for
some kiln types. During the year
we reduced our absolute scope
1 and 2 CO
2
emissions by 8.2%.
2. Use water sustainably across our
business, with 2030 goals of reducing
water use and water use in high-stress
areas by 30%. Our overall water usage
increased by 11.6% during the year
driven by volume increases, changes in
mix to more water-intensive products
and processes and some significant
water leaks. A number of process and
infrastructure improvements were
completed during the year and we
expect to see this reflected in our
water usage in 2023. Our water usage
in stressed areas decreased by 0.7%,
showing the impact of improvement
projects in our plants in high water
stress areas.
3. Zero harm to our employees, with
a 2030 goal of a lost-time accident
(LTA) rate of 0.10. Our LTA rate was
0.28 (2021: 0.22), a worsening of our
accident performance, in part reflecting
a larger number of new employees in
the business as we ramped volumes up.
We are not satisfied with this and we
are working hard to improve. We have
a broad programme of work underway
across the Group to improve our safety
position and performance.
During the year we deployed our
‘thinkSAFE’ training in all of our plants.
We increased the robustness of
plant-level activities including start of
shift briefings, safety tours, near miss
identification and reporting and 5S
(Sort, Straighten, Shine, Standardise
and Sustain) and we put greater focus
on cross-group learnings through safety
shares and quarterly focus topics.
Safety is our top priority and continues
to receive a high level of focus
throughout the organisation.
4. A workforce reflective of the
communities in which we operate,
with a 2030 goal of 40% of our
leadership population being female.
Our diversity position was unchanged
over the year with 29% females in our
leadership population. We implemented
a number of changes during the year,
including the establishment of three
employee resource groups for women,
veterans and the LGBTQ+ communities.
We have also introduced training for
hiring managers and we are standardising
and modernising our parental leave
policies, starting in the UK.
5. A welcoming and inclusive environment
where employees can grow and thrive
with a 2030 goal of a top-quartile
engagement score. We completed our
engagement survey in December 2022
and our engagement score was 53%,
a 3 percentage point improvement over
the 50% score in 2021. We have a lot
of activity underway at a local level to
improve, and we have a long way
to go, but we are pleased to see an
improvement year on year.
In light of Russia’s invasion of Ukraine, we
took the decision to stop our trading activity
with Russia in February of 2022.
Chief Executive Officer’s review
19
Strategic report
Group results
We delivered robust organic growth
reflecting the good market conditions
and the benefits of our strategy. Our
focus on four faster growing markets
(semiconductors, healthcare, clean
energy and clean transportation) is showing
results with 11.7% organic growth in those
markets during the year. These four
markets represent 19.6% of our revenues.
Operating margins expanded with the drop
through on the volumes and the remaining
benefits of our 2020 restructuring
programme coming through. Free cash flow
was lower than the prior year reflecting
increased capital expenditure and higher
working capital primarily reflecting growth
of the business and increased inventory
holdings to mitigate supply chain risk.
Financial results
Group revenue in 2022 was
£1,112.1 million, 17.0% ahead of
the prior year at reported rates
and 11.2% higher on an organic
constant-currency basis
Statutory operating profit was
£140.8 million, profit before tax
was £131.6 million, earnings per
share was 31.0p
Adjusted operating profit
*
was
£151.0 million representing adjusted
operating profit margin
*
of 13.6%
Group adjusted earnings per share
*
was 33.8p (2021: 27.2p)
Net capital expenditure was
£57.4 million (2021: £28.1 million),
with investment focused on health,
safety and environmental improvements,
investments in efficiency, select capacity
expansion and improvements to the
underlying infrastructure of the Group
Free cash flow
*
was £(46.9) million
(2021: £66.2 million)
Net debt
*
excluding lease liabilities
*
was £148.5 million, with a net debt
*
excluding lease liabilities to EBITDA
*
ratio of 0.8 times
Pension scheme
Over the last six years we have significantly
improved the health and performance of
the Group, improving growth rates and
profitability, and substantially reducing
liabilities. Continuing these improvements,
we completed a payment of £67 million
into our UK pension schemes at the end of
2022 to move those schemes to a fully
funded position on a long-term objective
basis. This eliminates the £17 million per
year we were due to pay to the scheme
over the next three years and gives us an
expectation of modest or zero payments
after 2025, and is an important step on the
way to an eventual buyout of the scheme.
Investment proposition and
medium-term targets
We held our first capital market event in
nearly 10 years in December of 2022
during which we laid out our investment
proposition and the medium-term targets
for the Group. There are four reasons to
invest in us:
1. We are well positioned in attractive,
high-growth markets
2. We have leading, differentiated
market positions
3. We provide sustainable solutions
to support the energy transition
4. We are a resilient Group delivering
attractive through-cycle returns
In support of our investment proposition,
we have set out a clear through-cycle
financial framework consisting of:
Organic revenue growth
*
of 3%-6% pa
12.5%-15% adjusted operating
profit margin
*
Return on invested capital
*
of 17%-20%
Leverage of 1-2 times with the
combination of organic growth,
M&A and shareholder returns to
deliver enhanced EPS growth
This is a credible set of goals, and an
attractive investment proposition for the
Group, consistent with the performance
we have delivered in recent years,
enhanced by M&A and/or shareholder
returns given our strong balance sheet and
the substantially de-risked pension position.
Cyber incident
In early January 2023 we experienced
a significant cyber attack on our business.
While the attack was detected relatively
quickly, and we were able to limit the
damage through rapid compartmentalisation
of the network, the attack resulted in the
encryption of a number of our applications
and data storage systems, and damage to
network devices.
Following the incident, we have been
progressively restoring our networks and
systems including rebuilding of certain
applications and file systems where they
were not recoverable. We have engaged
a number of specialist organisations to help
us with the restoration and with wider
network security. We released a statement
to the stock market on 7 February laying
out the expected financial consequences
of the incident including one-off costs of
around £15 million for the recovery of
systems and specialist support, and a
10%-15% reduction in operating profit
in 2023, compared with analysts’ consensus
at the start of the year, as a result of
inefficiencies in our plants from the
cyber disruption.
In addition to restoring our systems
and infrastructure, we are also accelerating
our IT modernisation programme to
improve our cyber defences and to
provide greater resilience in the event
of a subsequent attack.
We delayed the publication of our full year
results for 2022 to 28 April 2023 to allow
rescheduling of the audit process.
Outlook
During the first quarter we continued to
experience good levels of demand in most
market segments. Looking at the whole of
2023, we are expecting slowdowns in the
large industrial economies as inflation and
the impact of central bank tightening hit
consumer and business activity. We expect
some improvements in China following the
end of COVID-19 restrictions and that may
support growth in South Korea and Japan,
and we expect good growth in India.
We expect to make further progress in
our faster growing markets given the
strong underlying demand drivers and the
investments we have been making there.
We expect inflation to reduce as we
go through the year. We will continue to
pass on inflation in higher pricing to our
customers and expect our pricing and
continuous improvement efforts to
more than offset inflation as they have
in prior years.
Pete Raby
Chief Executive Officer
“
We are making great progress against
our 2030 sustainability goals.
”
20
–
Morgan Advanced Materials plc
Annual Report 2022
Greater diversity
makes sense
for our business,
our people and the
wider communities
we serve. That
is how we make
a ‘big positive
difference’.
Strategy in action
Big positive
difference
In 2022, we have made a big positive
difference by serving our communities,
and by driving inclusion and diversity.
Our goal is to have a positive impact on the communities
we serve, from supporting job creation and skills advancement
to reducing energy and water consumption at our plants.
In 2022, we have:
Championed involvement at a local level, looking to understand
each community’s priorities and concerns. Our people made
a big positive difference. For example, our Stourport, UK, team
supported a local primary school with the design and build of
a unique eco-friendly learning windmill, in collaboration with
pupils from the school.
Committed time to sustainability activities. For example, our
Singapore team carried out a park clean up in their local area,
demonstrating their support for creating a cleaner and improved
environment for everyone in the local community.
Supported the next generation and STEM activities. For example,
our Saint Marcellin, France, plant welcomed students from the
Lyon CESI engineers school, to complete internal audits on site.
Students had the opportunity to apply their audit knowledge to
real life situations, with the support of our local team.
Undertaken a number of water conservation projects to reduce
water usage, especially in high water stress areas. Our Gujarat, India,
team commissioned a new on-site waste water treatment plant
following a water audit to identify opportunities to reduce, reuse
and recycle water at the site. The treatment plant has led to an
impressive 15 kl/day of water recycling capacity.
1
21
Strategic report
Our Singapore team completed a park clean up in their local area.
Our Gujarat team are reducing, reusing and recycling water.
We want our leadership teams to be more representative of the
communities that we serve.
In 2022, we:
Launched our new licence to recruit programme, supporting our
hiring managers through diversity training. We implemented more
diverse hiring panels and created more inclusive language for our
job adverts to have a broader appeal to diverse candidates.
Developed a new DE&I framework which helped us
launch three new employee resource groups (ERGs) supporting
women, veterans and our LGBTQ+ colleagues. These ERGs
in turn held virtual and in-person events marking important dates
on the diversity and inclusion calendar and opening direct lines
of communication to leaders on key topics.
Started to develop a modern and appealing inclusive employer
brand, with a reward and benefits programme to attract and
retain talented global leaders.
22
–
Morgan Advanced Materials plc
Annual Report 2022
Our success comes
from aligning
everything we do,
across every role,
to focus on the
customer. This is how
we are becoming
a partner of choice.
Delight the
customer
We seek to build trusted partnerships
with our customers, as they have
come to expect that Morgan can
help solve their problems and grow
their businesses.
The more we understand about their business, their market
and their technical challenges, the more effective we can be
at providing them with a solution.
This means we collaborate closely at the technical level to
ensure that our products pass any customer’s stringent and
extensive performance tests. It also means we are often
specified as the supplier for spare parts and maintenance
during the lifespan of products.
During 2022, we have made great progress in supporting
our customers in utilising silicon carbide in power electronics.
One of our customers in the silicon carbide space recently
turned to us for help. Given the sharp growth of the industry,
not all their suppliers were ready to grow with them and our
customer faced the potential of a major supply shortage.
Our dedicated team was quick to establish a new product
and service offering, and within three months started to
supply that new product to our customer. We worked hand
in hand with the customer to clearly understand their product
requirements and rapidly prototype the product through
design testing cycles, and we delivered a precision
manufactured product to meet the immediate need.
We are now scaling the production platform to grow
with our customer.
Long-time and newer customers appreciate how Morgan
delivers great materials science, problem-solving and
operational capabilities to support their business.
Our strategy in action
continued
2
23
Innovate
to grow
With more than 400 scientists and
engineers across the Group, our
people are busy developing new
materials and applications.
Our deep expertise in carbon and ceramics is maintained
and strengthened through our ongoing process of research
and development, an area that we invest approximately
£30 million in each year.
Each business unit has a clear strategy and a technology
roadmap that supports our customers and fulfils our purpose
to make the world more sustainable. Today, our innovative
products and solutions are helping customers to reduce
their carbon emissions.
We manufacture precision ceramic cores that are used
to cast turbine blades for aero engines and industrial gas
turbines. Our customers come to us for their most
demanding applications, for example when they need to
hold very fine features on small components. And these
demanding applications arise as the latest generation
of engines need to run hotter to be more efficient.
Our cores enable these new engine technologies.
We produce some of the leading brush grades for wind
turbines, offering longer lifetimes than our competitors.
In addition to enabling wind technology, we also drive
lower maintenance activity, and costs, for wind farm
operators, further reducing the CO
2
footprint.
In the electrified rail market, we produce a range of collector
strips and carbon shoes to connect the train to the power
cable or rail. In the metro market in China, we have
developed a wide range of high-performance material
grades to perform in the varied climatic conditions across
China. Our products directly enable electrified rail,
and offer superior lifetimes.
Our products are widely used in the semiconductor
manufacturing process. We are seeing rapid growth in
power electronics applications for electric vehicles and
grid power conditioning, and we are directly enabling
clean transportation and the renewable grid.
Through their life, our products typically save 10s or 100s
of times the CO
2
emitted in manufacture.
Innovation is at the heart of
our business. Whether we are
innovating in our faster growing
market segments, or supporting
the changing requirements
through our energy savings
solutions for more traditional
industries, our materials
innovations enable rapid change.
Strategic report
3
24
–
Morgan Advanced Materials plc
Annual Report 2022
Our stakeholders are key to the delivery of our strategy.
Below we set out the many ways we engage with stakeholders
and why their engagement matters.
Investors
Those who own shares
or wish to own shares in
Morgan Advanced Materials
Why our investors are
important to us
Our investors provide capital for our
business. We value this commitment
and want to ensure investors have
a deep understanding of our business,
our strategy, the market environment
and our governance arrangements.
It is important to us that we foster
an open and transparent relationship
to enable investors to make effective
investment decisions.
How we engage with investors
We engage with our investors directly
through both the formal presentation
of results and investor roadshows.
In 2022, we also held a capital markets
event to talk more in depth with our
investors about our four faster growing
market segments.
We also use these opportunities to talk
about the future and the longer-term
plans for our business.
When asked, we complete investor
questionnaires which give a further
insight into key aspects of our
business performance.
We provide a dedicated section on our
website which offers timely information
on how we are performing against our
stated ESG goals.
We publish a yearly sustainability and
responsibility report that details the
progress we are making against our
ESG targets, including full disclosure
of metrics and ratings linked to
environmental performance.
What matters to our investors?
Capital gain through share
price appreciation
Capital return via dividends
Profitability and business growth potential
Quality of governance
Responsibility and fairness
The protection of the environment
through the use of more sustainable
materials and the reduction of carbon
emissions, reduction in water use and
improved waste management
Demonstrating our ‘good governance’
approach throughout our
decision-making
Demonstrating the positive contribution
we make to society through the
employment opportunities we provide,
through our interactions with the
communities where we have our sites
and through the support we provide
our people
To find out more about investing in
Morgan, please visit our website:
morganadvancedmaterials.com/Invest
Stakeholders
Our capital markets
event brought to life our
investment proposition
and enabled investors to
hear directly from each
of our global business
unit presidents.
Find out more:
morganadvancedmaterials.com/
CapitalMarkets
25
Why our customers are
important to us
We aim to deliver great service so that our
customers feel valued and choose us as
their ‘go-to’ supplier. To do this effectively
we need to listen to and engage with them.
We develop relationships with our
customers based on mutual trust and
constructive dialogue.
We have a diverse customer base
across the globe, which we serve directly,
and also through joint venture partnerships
and local suppliers.
We are seeing growing demand for
advanced materials as customers push
the boundaries of technology.
We have been working closely with
our customers to develop new solutions
for their next generation of products
and processes.
We are providing products that
are differentiated from those of
our competitors.
How we engage with customers
The relationship with our customers starts
from the moment they look to find out
about our products. We keep customers
updated on the progress of our innovation
and new product applications through
digital and physical channels.
Our sales and service colleagues also keep
customers updated on the progress of
manufacturing; sometimes working
alongside the customer to fine-tune
the product and production process.
We also gather key feedback from
customers about the service we provide
and use this to help improve relationships
and secure future business.
What matters to our customers?
Reliable and consistent service
Quality products
Product and process innovation
Ability to solve complex problems
Application engineering capabilities
How we source our raw materials
Environmental impact of the products
we produce
Customers
Those who have purchased our
products or will do so in the future
Why our suppliers are
important to us
We believe in an open and collaborative
business approach and seek opportunities
for innovation. This collaborative approach
is particularly important to ensure a more
sustainable supply chain.
We aim to use all our resources as
efficiently as possible, minimising the
environmental and social impact on
ourselves, our suppliers, our customers
and the world around us.
How we engage with suppliers
We treat our suppliers as an extension of
our business and therefore expect them to
uphold the same high standards we set
for ourselves. To achieve this, we are
in constant dialogue with our suppliers
to address any issues and maintain
productive relationships.
We publish a Supplier Code of Conduct
which we expect our suppliers to sign up
to and we have regular check points to
ensure that this is adhered to.
What matters to our suppliers?
Human rights
Environmental and climate impact
Quality management
Cost-efficiency
Ethical trading policies and
sustainable sourcing
Developing long-term relationships
Suppliers
Those from whom we purchase
goods or services
Strategic report
26
–
Morgan Advanced Materials plc
Annual Report 2022
Why our employees are
important to us
Having people who bring a diverse range
of talents and perspectives, and who feel
engaged in their role, is of paramount
importance to our long-term success.
Our employees have been instrumental
in making Morgan Advanced Materials the
company it is today. They are key to driving
the brand forward and ensuring it remains
relevant in the future.
We work to attract, develop and retain
the right people and ensure they are in
the right roles.
How we engage with employees
The Board is committed to fostering a safe,
ethical and inclusive workplace and spends
time engaging with a diverse cross-section
of employees, as well as monitoring and
assessing the Group’s culture. These insights
help inform the Board’s discussions on
health, safety and environmental matters,
in monitoring progress in relation to
embedding ethical conduct and
implementation of the Morgan Code,
and in strengthening the capabilities of
our leaders and teams.
At a local level, leadership teams use
feedback from surveys, focus groups, pilot
groups, manager one-to-one conversations
and employee communications to shape
engagement activities with employees.
At a Group level we solicit feedback through
our annual employee survey ‘Your Voice’,
through social media channels both
internally and externally, and through
employee satisfaction platforms such
as Glassdoor.
At all levels we engage on subjects
important to our people including mental
health at work, safety, the environment,
developing a diverse and inclusive culture,
and the important role of community
and charity.
In 2022, we introduced three new
employee resource groups (PRISM,
Women@Morgan and Military@Morgan)
to give voice to those who may feel
underrepresented. These ERGs are
a key tool in understand the needs of
our people and help to shape thinking
and policy changes.
What matters to our employees?
Meaningful roles linked to our purpose
Flexible working
Focus on wellbeing
Career development
Recognition and competitive
compensation
A safe, ethical and inclusive
working environment
Employees
Anyone directly employed by Morgan Advanced Materials
Our people contribute
to the culture and
are the driving force
behind our success.
Stakeholders
continued
27
Strategic report
We aim to have a positive
impact on the communities
we serve, from supporting job
creation and skills advancement
to reducing energy and water
consumption at our plants.
As our sites and operations are spread
across the globe, we have the opportunity
to work with many communities. We pride
ourselves on engaging at a local level and
look to understand each community’s
priorities and concerns. We also support
our employees’ involvement in their local
community, from charity giving to local
fundraising, and from volunteering to health
and wellbeing initiatives.
What matters to our
communities?
Our commitment to the
local environment
Our conduct as a socially
responsible organisation
The positive impact we can have on the
community living and working around us
Employment opportunities
Why our communities are
important to us
Our people live and work within wider
communities and relationships with these
communities are key in supporting our
business for the future.
Our relationship with local communities
is mutually beneficial, offering us the ideal
place to find the talent of tomorrow,
while enabling our people to get involved
in activities which directly benefit
these communities.
We seek to build trust by understanding
the issues core to our communities,
operating responsibly and addressing
concerns that are material to them.
We aim to create long-term relationships
with the communities where we operate,
that drive positive change and help build
a more sustainable future.
How we engage with communities
Our aim is to have a positive impact
on the communities we serve, from
supporting job creation and skills
advancement, to reducing energy and
water consumption at our plants. All our
efforts and engagements are governed by
the Morgan Code, our purpose and our
policies on the environment.
Why our pensioners and pension
trustees are important to us
After more than 160 years in business,
we would not be as strong as we are
today without the combined efforts of all
those who went before. By keeping our
pension commitments, we honour the
hard work and dedication of both current
and past employees.
How we engage with our
pensioners and pension trustees
We engage with both current pensioners
and those yet to retire through regular
pension communications in conjunction
with our pension trustees.
New employees receive communications
about our pension schemes in a bid to
promote financial wellbeing.
What matters to our pensioners
and pension trustees?
The commitment of the Company to
ensure the pension scheme is fully funded
and any deficit reduction plan is maintained
Pensioners
and pension
trustees
Communities
Those who live or operate in areas where we work –
for example, residents, businesses and charities
28
–
Morgan Advanced Materials plc
Annual Report 2022
We believe that considering our stakeholders in key business decisions is not only the right thing to do but is fundamental to our ability
to drive value creation over the longer term and deliver on our purpose: to use advanced materials to make the world more sustainable,
and to improve the quality of life.
It is not always possible to provide positive outcomes for all stakeholders and the Board sometimes has to make decisions based on
balancing the competing priorities of stakeholders. Our stakeholder engagement processes enable our Board to understand what matters
to stakeholders, and to consider carefully all the relevant factors and select the course of action that best leads to high standards of business
conduct and the success of Morgan in the long term. The principles underpinning s.172 of the Companies Act 2006 are not only
considered at Board level, they are part of our culture. They are embedded in all that we do as a company.
The differing interests of stakeholders are considered in the business decisions we make across the Company, at all levels, and are
reinforced by our Board setting the right tone from the top. All of the Board’s significant decisions are subject to a s.172 evaluation to
identify the likely consequences of any decision in the long term and the impact of the decision on our stakeholders. Details of our
key stakeholders, how we have engaged with them during the year and the outcomes of that engagement, are set out on pages 24 to 27.
Engagement activities specifically carried out by the Board collectively and individually can be found on page 73.
In performing their duties during 2022, the Directors have had regard to the matters set out in s.172. You can read more on how the
Board had regard to each matter, during the year, as follows:
Key decisions in the year
Reducing the pensions burden
At the Capital Markets Day in December
2022, we announced that we had reached
agreement with the trustees of our UK
Defined Benefit Pension Schemes to make
an accelerated contribution of £67 million.
As part of their arrangement with the
Company, the trustees have agreed to
move to full hedging of inflation and interest
risk. This will benefit both the Schemes
and the Company by significantly reducing
the volatility of valuations in the future,
and represents a significant milestone
towards being able to secure member
benefits by means of annuities with
insurance companies.
The benefits to the Company will be:
Immediate improvement to free cash
flow, with a reduction in cash pension
contributions of £17 million per annum
for at least the next three years, and
modest or zero contributions thereafter
Reduced volatility, with the likelihood of
a material deficit arising at future triennial
revaluations substantially reduced
Prudent approach to hedging, with
leverage on the scheme’s LDI portfolio
targeted below 2.0x.
How the Board reached its decision
When considering the proposals to
accelerate the contribution to the schemes,
the Board considered the Company’s
obligations in relation to funding the
schemes and the benefits of de-risking
of the schemes, in light of the prevailing
macro-economic conditions.
The Board met with the Group Pensions
Director on two occasions to consider the
proposal, who in turn met with the trustees
of the pension schemes, to ensure that their
views were taken into consideration.
Stakeholder considerations
Pensioners and pension
trustees
– Accelerating the contribution
benefits pensioners and deferred members
as it represents a significant milestone
towards being able to secure member
benefits by means of annuities with
insurance companies. In addition, the
Board considered the likely impact of
reducing the deficit and de-risking the
schemes, thereby enhancing the resilience
of the schemes to changing market
scenarios which would benefit pensioners
and deferred members in the longer term.
Shareholders –
The benefits to
shareholders include the improvement
to free cash flow and the removal of
uncertainty and risk linked to pension
deficit. This step also enhances future
flexibility for capital allocation, enabling
optionality for future cash return
to shareholders.
Lenders/providers of debt –
The impact
of funding the schemes on whether the
Company remained within the financial
covenants agreed with lenders.
Outcome and impact of the decision
The Group has had a collaborative
relationship with the pension trustees.
With the accelerated funding and prudent
approach to hedging, the deficit has fallen,
and the contributions have been reduced
by £17 million per annum for the next
three years in line with the Company’s
proposal to achieve funding on a low
dependency basis.
Section 172(1) statement
29
Renewal of the revolving credit facility
We also announced in December 2022
that the Group has secured a new
five-year revolving credit facility (RCF)
of £230 million that replaces our existing
RCF that was due to mature in 2023.
The RCF incorporates sustainability-linked
performance targets which align with
our ambitious sustainability plans.
How the Board reached its decision
When considering the proposal, the Board
considered the benefits of securing the
facility early as a contingency in case of
worsening market conditions, and to
ensure continued access to funding.
Stakeholder considerations
Shareholders –
By securing the RCF early,
the Company was able to navigate the
deterioration in the general credit and
macro-economic background during 2022
and ensure the Group continues to meet
its going concern requirements.
Lenders/providers of debt –
The need to
maintain mutually beneficial relationships
with existing lenders and establish similarly
beneficial relationships with new lenders.
Community and environment –
By incorporating sustainability-linked
performance targets which align with
our ambitious sustainability plans, we
further demonstrate our commitment
to our ESG goals.
Outcome and impact of the decision
The renewal of, and increase in, the RCF
provides the Group with additional financial
flexibility for the future.
Approval of a progressive dividend policy
We also announced that we would enhance
regular returns via a progressive dividend
policy, by growing the regular dividend
through the cycle with adjusted earnings
cover of circa 2.5x, and provide additional
returns of surplus capital to shareholders
as appropriate.
How the Board reached its decision
When considering the proposals to resume
the payment of dividends for FY22 and
adopt a progressive dividend policy, the
Board considered cash generation, the
performance of the underlying business
and the long-term impact of paying the
dividends on the liquidity and solvency
positions. The Board also considered
the impact of the dividend decisions on
expectations relating to the dividend policy.
Stakeholder considerations
Shareholders –
Shareholders’ expectations
in relation to the payment of dividends,
both from a capital return perspective
and as a signal of future performance.
Lenders/providers of debt –
The impact
of paying dividends on whether the business
remained within the financial covenants
agreed with lenders.
Employees –
For colleagues who
participate in the Group’s employee
share schemes, the payment of dividends
enabled returns for those colleagues.
Outcome and impact of the decision
Following due consideration of all the
matters set out in s.172, the Board
recommended a full-year dividend of 12.0p
per share, with payment of a final dividend
of 6.7p to shareholders in July 2023 and
an interim dividend of 5.3p in November
2022. This recommendation reflected the
Group’s resilient performance for 2022
and the Board’s confidence in the Group’s
structural growth drivers into the future.
The Board concluded that it was in the
long-term interest of the Company to
proceed with the payment of the dividends.
Strategic report
30
–
Morgan Advanced Materials plc
Annual Report 2022
Non-financial information statement
The information which follows is
intended to explain our non-financial
information, the relevant Group
policies, the due diligence processes
we follow to embed these policies and
their effectiveness.
Our business model on pages 12 to 13
provides an insight into the key
resources and relationships that
support the generation and
preservation of value within Morgan.
Policies
Employees
Our Environmental, Health and Safety (EHS) Policy is
designed to promote a culture of zero harm for our
employees, contractors and visitors and eliminate and
control health risks proactively.
Detail of our safety programme and safety performance is
set out on pages 34, and our EHS Policy is highlighted on
page 37.
The Group has an overarching policy designed to attract,
develop, recognise/reward, retain and engage talented
people and support an inclusive, safe and ethical
workplace. The Group policy is supplemented by a wide
range of detailed people policies specific to the business
or jurisdiction.
Environmental
matters
Our EHS Policy sets out the Group’s commitment to the
protection of the environment in the communities where
we operate, work and live. The Policy sets out our
intention to reduce energy and water use, reduce our
dependence on natural resources, protect biodiversity
and aim to maximise the positive impact of our products.
Additional information is set out on pages 32 to 33, and
page 36. The full policy is published on our website
morganadvancedmaterials.com/EnvironmentalPolicy.
Social matters
Our sites currently take ownership of local community
engagement, through a variety of initiatives, to support
our strategic priorities and benefit local communities,
for example educational outreach and wellbeing support.
We are working to consolidate and align local policies
and practices where appropriate, and to provide
a framework for community engagement that recognises
our global presence alongside local needs.
Human rights
Our Human Rights Policy establishes our commitment to
protect the human rights of everyone who works for the
Morgan Group and all those who have dealings with us.
The Policy is supplemented by the Morgan Code.
Further information on our approach to human rights
is contained on pages 36 to 37 and published on our
website morganadvancedmaterials.com/HumanRights.
Anti-bribery
and anti-
corruption
The Morgan Code; Bribery, Corruption & Facilitation
Payments Policy; Gifts & Entertainment Policy and
Donations & Sponsorships Policy make up Morgan’s key
anti bribery and corruption policies. Together these
policies seek to prevent bribery and ensure that our
business is undertaken in an ethical manner and
in compliance with all applicable anti-bribery and
anti-corruption laws. More information on the policies
and processes to prevent bribery and corruption are
contained on pages 37 and 47 and published on
our website morganadvancedmaterials.com/
EthicsCompliance.
31
Due diligence in
pursuance of policies
Outcome of policies
and impacts of activities
Related principal risks
Audits under the EHS programme
Annual self-certification process
‘Speak Up’ hotline
All other applicable regulatory reporting
Our KPI in relation to Lost-Time Accident
Frequency is set out on page 4.
Our safety performance for 2022 is set out
on page 34.
See page 42 of the Risk Management section:
environment, health and safety risk.
A detailed description of the methods used to
support the Group’s people policies is set out on
pages 36 to 37 and published on our website
morganadvancedmaterials.com/ESGPolicies.
Our workforce composition and information
on gender diversity is set out on page 34,
and in our 2022 Gender Pay Gap Report
morganadvancedmaterials.com/
GenderPayGap.
The attraction, retention and engagement of
people is not considered a principal risk.
An emerging risk relates to potential difficulties
in recruiting to replace an ageing direct
workforce in some parts of the business,
particularly in remote locations.
Data gathering on greenhouse gas
(GHG) emissions
Our submission to the Carbon Disclosure
Project (CDP)
Annual self-certification
Our ‘Speak Up’ hotline
Internal audit processes
We have engaged ERM CVS to conduct
third-party data assurance of the
environmental metrics for 2022
See pages 4 to 5 and pages 32 to 33 for
information on our GHG emissions, and
progress in 2022 in respect of CO
2
e intensity,
total energy use, water use and withdrawal,
Additional details are available from our 2022
Full Year Sustainability and Responsibility
Report morganadvancedmaterials.com/
SRReport.
Minimising our environmental impact helps to
protect the environment and enables us to
attract talented employees and to win new
business from customers.
See page 42 of the Risk Management section:
environment, health and safety risk.
Activities are reported internally, including on
our social media platforms
Our business and our employees are more
deeply connected to our local communities.
Although not a principal risk, social risk, and
specifically potential difficulties in recruiting
to replace an ageing direct workforce in some
parts of the business, particularly in remote
locations, is an emerging risk.
Monitoring of compliance with the
Morgan Code
Due diligence processes associated with new
suppliers and our supply chain
Publication of our Modern Slavery Statement
on our website
More information is contained on pages 36
and 37
No incidents of human rights abuse or
modern slavery were identified during 2022.
See page 47 of the Risk Management section:
compliance risk.
Detailed procedures in place designed to
prevent bribery and corruption, supported
by explanatory manuals and the ethics and
compliance programme of work
Regular training for relevant employees
is undertaken
Any reports of breaches in compliance
are investigated and reported to the Audit
Committee, and appropriate action is taken
A description of the control environment,
the internal audit function and the processes
for the review of investigations by the Audit
Committee are set out in the Report of the
Audit Committee on pages 79 to 85.
During the year more than 97% of relevant
employees participated in the Group’s ethics
e-learning programme, which included specific
training modules on bribery and corruption.
There were 162 reports made to the Group’s
whistleblowing hotline during 2022, including
reports on concerns relating to potential
unethical conduct. The reports varied in their
nature and materiality, with certain matters
requiring the support of external advisors
and giving rise to disciplinary action against
employees for breaches of Group policies.
See page 47 of the Risk Management section:
compliance risk.
Strategic report
32
–
Morgan Advanced Materials plc
Annual Report 2022
Environmental, social and governance goals
Greenhouse gas emissions
Morgan’s greenhouse gas (GHG) emissions, such as carbon
dioxide (CO
2
), are mostly generated by the combustion of fossil
fuels at various stages of our manufacturing processes. We track
these using a reporting methodology based on the internationally
recognised Greenhouse Gas Protocol. This stipulates the source
for the global warming potential (GWP) rates that we use to
convert non-carbon dioxide emissions into the standard measure
of carbon accounting, i.e. carbon dioxide equivalents (CO
2
e).
Our sustainability strategy includes actions to reduce GHG
emissions and combat climate change. As public concern grows,
more customers are asking about our GHG emissions as
part of the manufacturing process. The increasing demand for
low-carbon products and processes, and the need to consider
the effects of climate change in general, have had an impact on
our long-term strategy.
The composition of our carbon footprint is shown in the
table below.
Metric tonnes (MT) CO
2
e
2015
2020
2021
2022
Scope 1
1
205,570 116,552 122,817
121,989
Scope 2
2
137,124
160,126 107,070
89,115
Total
3
342,694
276,678 229,887
211,104
Biogenic
1,368
501
877
978
Total Energy Use (GWh)
1,222
994
1,067
1,058
Intensity (MT CO
2
e/£m
4
)
391
304
242
190
1.
Total scope 1 emissions were calculated from the addition of emissions from fuels,
refrigerants and other process emissions. Carbon emission factors are used to convert
energy used in our operations to emissions of CO
2
e. Carbon emission factors for fuels
are provided by the International Energy Agency (IEA). Process emissions disclosed
(4,516 tonnes, or circa 3.7% of scope 1) in 2022 rely on historical calculations that could
not be evidenced for assurance purposes. We report our emissions with reference to
the latest Greenhouse Gas Protocol Corporate Accounting and Reporting Standard.
2.
Carbon emission factors for grid electricity are calculated according to the ‘location-based
method’ and ‘market-based’ where received. The location-based method reflects
the average emissions intensity of the grids on which energy consumption occurs
(using mostly grid-average emission factor data). In 2022, the value of scope 2 GHG
location-based only emissions is 161,235 tonnes.
3.
Total emissions include scope 1 and scope 2 only. Biogenic emissions are treated as
carbon neutral and reported separately.
4.
For manufacturing, we have selected an intensity ratio based on sales (on a constant-
currency* basis). This aligns with our longstanding reporting of manufacturing
performance. Emissions from the combustion of biogenic fuels (such as biomass and
coffee husks) within our operations are reported separately from other scope 1 and 2
emissions, as recommended by the GHG Protocol, and are excluded from our intensity
ratio calculation. The data also excludes scope 3 emissions and emissions from
Company-owned and leased vehicles.
In March 2021, we set stretching targets
to improve our environmental, social
and governance (ESG) 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.
Environment
At Morgan Advanced Materials we
are committed to a sustainable future.
Our aim is to ensure that our products
and manufacturing processes are
designed, built and managed in a way
that enhances their value to society
and our environment.
The information provided is a summary of progress to date.
Further details can be found in our Sustainability and
Responsibility Report 2022 – morganadvancedmaterials.com/
SRReport
33
Strategic report
Morgan’s aspirations
and 2030 goals
A CO
2
net zero
business by 2050.
By 2030, a 50% reduction
in scope 1
1,2
and scope 2
3
CO
2
emissions.
2022 progress and performance
2022 Total GHG emissions (tCO
2
e) is
211,104 tonnes
;
which is an 8% decrease over 2021 levels and a 38%
decrease over 2015 values
2022 scope 1 GHG emissions (tCO
2
e) is
121,989 tonnes
, which is a 1% decrease
over 2021 values and a 41% decrease over 2015 values
2022 scope 2 GHG emissions (tCO
2
e) is
89,115 tonnes
, which is a 17% decrease over
2021 values and a 35% decrease over 2015 values
Achieved a “B” management score for Climate Change
from CDP recognising we are taking co-ordinated action
on climate issues
What’s next
Embedding the decarbonisation roadmap to 2050 across
the business. Ensuring the right actions are being taken
to support our near-term and long-term goals
Awaiting validation and approval of our submitted
GHG reduction targets from the Science Based Targets
initiative (SBTi), in line with our 2030 direct GHG
emission reduction commitments
Continue to build our green energy (electricity consumption)
portfolio to 49% of total electricity in 2022
Continuing scope 3 GHG emissions screening and
inventory development work
Morgan’s aspirations
and 2030 goals
Use water sustainably
across our business.
By 2030, a 30% reduction
in water use in high and
extremely high stress areas.
A 30% reduction in total
water usage.
2022 progress and performance
For 2022, total water withdrawal is
1.93 million m
3
;
which is a
12% increase
over 2021 levels and
17%
decrease
over 2015. The negative trend towards water
withdrawal is due to increase in production demand
and a few major water leak incidents across the business
In 2022, water intensity is measured at
1.74m
3
/£000
,
which is higher than 2021 (1.82 m
3
/£000)
Total water withdrawal in high water-stressed areas
4
is
1% lower
than 2021
Achieved a “B” management score for Water Security
from CDP recognising we are taking co-ordinated action
on water issues
What’s next
Investing in CAPEX projects towards water savings
across our global sites. This water saving will involve
various methods from rainwater harvesting to
wastewater recycling
Commencing a programme of water reduction and
leak detection across our production sites to help
combat some of the issues identified in 2022
3.
Scope 2 encompasses “indirect emissions” (the result of Company activities
occurring at sources owned or controlled by another company) associated
with the production of purchased electricity. Scope 2 emissions physically
occur at the facility where electricity is generated. Scope 2 reported includes
market-based and location-based factors. Value for scope 2 GHG location-
based only emissions is 161,235 tonnes.
4.
Water stressed areas include countries Spain, Italy, Turkey, Mexico, India,
The United Arab Emirates, Argentina, Australia and the state of California, USA.
1.
Scope 1 includes “direct emissions,” which come from sources owned or
controlled by the Company, from the stationary combustion fuel sources at
each site to generate heat or energy.
2.
Total scope 1 emissions were calculated from the addition of emissions from
fuels, refrigerants and other process emissions. Carbon emission factors are
used to convert energy used in our operations to emissions of CO
2
e. Carbon
emission factors for fuels are provided by the International Energy Agency (IEA).
Process emissions disclosed (4,516 tonnes, or circa 3.7% of scope 1) in 2022
rely on historical calculations that could not be evidenced for assurance
purposes. We report our emissions with reference to the latest Greenhouse
Gas Protocol Corporate Accounting and Reporting Standard.
34
–
Morgan Advanced Materials plc
Annual Report 2022
Environmental, social and governance goals
continued
Morgan’s aspirations
and 2030 goals
Zero harm to employees.
By 2030, a 0.10 lost-time
accident rate
2022 progress and performance
In 2022, our lost-time accident rate was 0.28. This is an
improvement of 37% against our 2015 baseline of 0.45,
but a worsening of 27% compared with last year (0.22),
in part reflecting a larger number of new employees in the
business as volumes increased.
Throughout the year we focused on increasing the
use of our Don’t Walk By (DWB) hazard identification/
good practice reporting system, resulting in over 30,000
submissions and a corrective action closure rate of 95%.
We spent time in 2022 building the caring culture across
our business:
Our ‘thinkSAFE’ ambassadors delivered our cultural
improvement safety commitment workshops to more
than 9,000 employees
Our positive employee behaviours and practices were
also recognised over 2,000 times
In Q2, Earth Day was celebrated across the organisation
with activities focused on protecting our planet
We launched a refresh of our ‘take 5 for safety’ process
that helps our employees think through the risks before
undertaking a task
What’s next
In 2023, we are:
Implementing ‘EHS 360’, a stand-alone EHSS reporting system
to improve dynamic data and consolidate reporting platforms
Making ergonomic improvements at several sites across
the organisation
Continuing our monthly and quarterly ESG topics
Continuing our ‘thinkSAFE’ workshops and ambassador training
Social
Our people contribute to the culture
and are the driving force behind
our success. In return we aim to be a
caring organisation where everyone
feels valued and appreciated.
Our key principle is that ‘it is not just what you do, but
how you do it’ that is important. This ethos affects how
we treat our people, how we support the communities
we work in, and how we engage our stakeholders.
For LTA rate calculation, the total resource working hours are derived from the addition
of employee working hours and agent/contract worker waged hours. We acknowledge
a few limitations in terms of the standard methodology for total resource working hours
calculation/reporting; however, we are currently in-process to finalise standard
calculation/reporting methodology and policy at the Morgan Group level.
35
Strategic report
Morgan’s aspirations
and 2030 goals
A work environment where
all employees are valued and
can do their best work.
By 2030, we will have a top
quartile engagement score.
2022 progress and performance
In 2022, we launched three employee resource groups (ERG)
to serve as a visible sign of our commitment to a diverse and
inclusive workplace. The three ERGs are:
Women@Morgan
Military@Morgan
PRISM – Pride, Respect, Inclusion and Support at Morgan,
supporting our LGBTQ+ community and their allies
We held a number of inclusive events and supported chapters
of our ERGs to get together on sites.
We also took steps to address the feedback received from
our previous global employee engagement survey, and
improved our score to 53% in 2022 (2021: 50%).
What’s next
In 2023, we are:
Supporting our hiring managers through our new
licence to recruit programme. This initiative brings
inclusiveness and diversity training to hiring managers,
supports the implementation of more diverse hiring
panels and supports the development of more inclusive
language in our job adverts
Developing a global Respect@Work policy
Introducing childcare and eldercare concierge services in
some of our biggest geographies to support those in our
workforce with caring commitments
Using both positive and negative feedback from our
‘Your Voice’ survey, to tackle the issues that our people
have identified and that they care about the most
Morgan’s aspirations
and 2030 goals
Our employee demographics
will be inclusive and reflective
of the communities in which
we operate.
By 2030, 40% of our leadership
population will be female.
2022 progress and performance
In 2022, we relaunched our early careers programme,
with an increased focus on diversity; 45% of the cohort
were female.
Following the launch of Women@Morgan, our employee
resource group, we held virtual and in-person events
marking important dates such as World Menopause Day
and opening direct lines of communication to leadership.
A key area of development in supporting our women has
been driving acceptance on open communication around
gender issues.
Our recent employee engagement survey told us that:
Women are more engaged than men (57% v 52%)
at Morgan
Work life balance is better for women than men in
Morgan (69% v 62%)
85% of women feel valued at Morgan, versus 81%
for men
What’s next
In 2023, we are:
Focusing on the recruitment of our direct labour force.
Our entry-level employees are the future leaders and
managers of tomorrow and getting the gender balance
right at this level will support greater diversity at the
mid and senior levels in the organisation by 2030
Developing an appealing employer brand, in order
to articulate better our culture and in part the positive
experiences of women in Morgan. Through this
work we will also support the creation of more
female-friendly policies
Utilising more female-specific development programmes,
better supporting the diverse development needs of
women at all levels
36
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Morgan Advanced Materials plc
Annual Report 2022
Morgan’s aspirations
and 2030 goals
Responsible procurement
and supply chain management.
2022 progress and performance
We publish a Supplier Code of Conduct which provides
a set of minimum conduct standards that we expect from
our suppliers globally. Our Supplier Code focuses on
treating people fairly, complying with health and safety rules,
protecting the environment, and adhering to important
ethics and compliance obligations.
In 2022, we distributed the Supplier Code to ensure awareness
of our conduct standards. We collected responses through
a self-assessment questionnaire to determine how our
top tier suppliers implement ESG-related targets, policies,
and practices within their operations.
What’s next
We are:
Continuing to review our population of third parties,
with emphasis on entities who may act on our behalf or
interact with government officials
Analysing ESG self-assessment responses to determine
the status of our contracting parties’ ESG programmes
and offer guidance for further development
Continuing active participation in voluntary industry-wide
Product Stewardship Programmes (PSP) in both the
US and EU, with internal and external targets for airborne
fibre monitoring met in US and internal targets in
EU (with data driving targeted improvements)
Governance
We view good governance as crucial
to business success, and conducting
and managing our activities in a
responsible manner has always been
an important part of our strategy.
We are committed to fulfilling our responsibilities
to our stakeholders and seek continuous improvement
in the standards of governance that apply across all of
our businesses.
Environmental, social and governance goals
continued
Policies
We are committed to a sustainable future.
To support our goals, we have policies
and practices in place to ensure we are
meeting our obligations.
Read more at morganadvancedmaterials.
com/ESGPolicies
Environment
Our EHS Policy sets out the Group’s
commitment to protect and enhance
the environment, to minimise the
environmental impacts of our activities
and to maximise the positive effects of our
products and services. Our manufacturing
processes have environmental impacts
arising from the consumption of
resources, air emissions, waste generation
and water discharge. We seek to minimise
these impacts and to go beyond minimum
legal requirements, by focusing on
continuous improvement and establishing
certified environmental management
systems at our operating facilities.
The Policy and framework set minimum
standards and provide guidance on what
is expected of our sites. Environmental
performance is managed at the local level,
with top-level oversight by the Group.
Guided by our Policy, designated EHS
personnel are responsible for compliance
with local laws and regulations and for
facilitating continuous improvement at
a site level.
37
Strategic report
Morgan’s aspirations
and 2030 goals
Transparency in our reporting.
2022 progress and performance
Our policies and frameworks set minimum standards and
provide guidance on what is expected of our sites. For example:
Morgan Advanced Materials’ EHS Policy sets out the
Group’s commitment to protect and enhance the
environment, to minimise the environmental impacts of
our activities and to maximise the positive effects of our
products and services
Morgan Advanced Materials’ Conflict Minerals Policy which
sets out the Group’s commitment not to support the sourcing
of conflict minerals originating from countries which are
involved in or contribute to social or environmental abuses.
In 2022, we also piloted ‘Life Cycle Assessment’ (LCA) across
two of our GBUs. We used the LCA results internally to
understand our products and their hotspots.
We’ve shared our EcoVadis scorecard with circa
80 companies which demonstrates how we align and
support our customers with their ESG aspirations
What’s next
In 2023, we aim to have Environmental Product
Declarations (EPDs) and Product Carbon Footprints
available for selected products to support customers
with their own reporting obligations
As we do this, we will be able to use the data to help inform
our environmental decisions, looking to reduce the impact
of our products on energy usage, water usage, waste and
other environmental factors
Morgan’s aspirations
and 2030 goals
Ethical conduct.
2022 progress and performance
The Morgan Code is a foundational component of our ethics
and compliance programme. The Morgan Code is a set of
principles, supported by Group policies, which set out how
we must conduct ourselves in support of our people, our
communities, our business partners and our shareholders.
It applies to all employees and extends, as appropriate, to
Morgan’s business partners including agents, joint venture
partners and other third-party representatives.
In 2022, we held numerous engagements with our people
worldwide including Morgan’s first Ethics Week to provide
training on business ethics topics and consider potential
ethical dilemma scenarios. We remained committed to
providing required quarterly ethics training for over 3,000
in-scope employees, and enhanced our collection and
analysis of ethics and compliance programme data to
ensure senior leaders have visibility of how risk controls
are working in practice.
What’s next
Our ongoing focus is to continue employee
engagement on ethics and compliance
We are focused on ensuring awareness of ethical
conduct expectations and increasing effectiveness of
controls across our business
In addition, we are completing periodic reviews of risks
and controls in areas of our operations that may give
rise to heightened bribery or antitrust risks
Safety
Our Health and Safety Policy provides all
our locations with minimum standards,
advice and guidance. Our minimum
standard is based on current requirements
from the UK and US legislative codes
and associated best practice. If a local
in-country standard is higher than these,
the sites are required to achieve the local
standard. There are a number of key sub
policies. The compliance audit programme
is conducted against the health and safety
framework, systems and KPIs, with a focus
on high-risk items. All our manufacturing
facilities are reviewed on a four-year
rolling cycle.
People
Our employee policies are set locally to
comply with local law and are within the
overall Group framework. Individuals
who are aware of, or suspect, issues
contravening our Group policies or
the Morgan Code, can report these
confidentially via a ‘Speak Up’ hotline.
As an international business, the Group
supports the UN’s Universal Declaration
of Human Rights, and the Group’s Human
Rights Policy applies to all our businesses
worldwide. The Policy is available on our
website and covers child labour, forced
labour, health and safety, freedom of
association, discrimination, discipline,
working hours and compensation.
The Group’s Modern Slavery Act
Transparency Statement, which is
published annually on our website, details
action taken to support the elimination of
modern slavery and human trafficking.
We promote equal opportunities for all
employees and job applicants and do
not unlawfully discriminate. We make
reasonable adjustments to accommodate
any employee who may have a disability
within the meaning of all global equality
legislation, and where the Company is
aware of such disability.
38
–
Morgan Advanced Materials plc
Annual Report 2022
Our full TCFD statement has been
published separately on our website.
We have chosen to publish this separately
from the Annual Report in order to provide
a more detailed analysis, in addition to
the mandatory disclosures. We see this
document as an important area of
governance, and therefore we are
publishing in the same way as our
policies, the Morgan Code and our
other obligations.
morganadvancedmaterials.com/TCFD
We have included a summary of the
TCFD Report in this section.
Climate change is a complex challenge
to navigate, requiring the development of
new methodologies and strategies and
new ways of thinking about the risks and
opportunities to our business. We have
built on our previous statement and
improved in the following ways:
1. Our net zero roadmap
Within the disclosure, we have shared
our net zero roadmap which outlines
our strategy towards carbon neutrality
in 2050.
2. Scenario analysis
In 2022, Morgan undertook a physical
and a transitional scenario analysis pilot.
As a large energy consumer, a potential
risk to Morgan is exposure to carbon
taxation. In response to the results from
the scenario analysis, we have developed
a kiln strategy and incorporated this into
our net zero roadmap.
3. Further embedding of targets
Greenhouse gas emissions targets are now
part of our Long-Term Incentive Plan (LTIP).
Climate change is one of the greatest
challenges facing society. We believe it is
important to all our stakeholders to report
our approach in a transparent and robust
way. The Task Force on Climate-related
Financial Disclosures has developed a
disclosure framework to help companies
improve and increase the understanding
of their reporting of climate-related financial
information. We are pleased to be
reporting in line with the recommendations
for a second year and building on this
disclosure in years to come.
Listing Rule 9.8.6R Compliance
Statement
Morgan Advanced Materials is reporting
in line with FCA Listing Rule 9.8.6R(8)
by including climate-related financial
disclosures consistent with the TCFD
recommendations in this TCFD Report.
We consider our climate-related financial
disclosures to be consistent with eight of
the recommendations, however we
are adopting an explain stance for the
following three recommendations:
1. Strategy B – The impact and responses
to climate-related risks are disclosed,
but many are not yet fully quantified.
Further scenario analysis through 2023
on the remaining risks and opportunities
will allow for more quantitative analysis
in future years.
2. Strategy C – Scenario analysis has not
been completed on all listed risks and
opportunities. Analysis on remaining risks
and opportunities will be completed for
future reporting years.
3. Metrics and Targets B – scope 1 & 2
data is disclosed but it was not possible to
complete a scope 3 inventory for the
reporting year. Results of an initial scope 3
screening exercise based on prior year data
are included, and the development of a
scope 3 inventory is planned during 2023.
Streamlined Energy and
Carbon Report
This report summarises our energy usage,
associated emissions, energy efficiency
actions and energy performance under
the government policy Streamlined Energy
& Carbon Reporting (SECR). This is
implemented by the Companies (Directors’
Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations
2018. Also, it summarises in the appendix,
the methodologies utilised for all
calculations related to the elements
reported under energy & carbon.
Morgan Advanced Materials PLC are
a UK incorporated business and is also
a main-market listed company. Under SECR
legislation we are mandated to include
energy consumption, emissions, intensity
metrics and all energy efficiency
improvements implemented in our most
recent financial year, for our UK operations.
An operational boundary has been applied
for the purposes of the reporting.
Since 2015 we have reduced our scope 1
and 2 GHG emissions by 38%. Absolute
emissions are our key metric for monitoring
our annual efficiency savings. 92 projects
which tackled our energy and water
consumption were completed across
the Group as we work towards our
2030 ESG goals.
Examples of energy efficiency projects
delivered in 2022 include:
Solar capacity – we have increased our
solar capacity at three of our sites: Yixing,
China, South Africa and Aurangabad,
India. This increased capacity will move
these sites closer to becoming entirely
energy independent.
LED Installation – we continue to install
LED lights at our facilities. During 2022,
and additional nine sites had LED lighting
systems installed. This has made our
lighting systems at these sites as energy
efficient as possible.
Task Force on Climate-related
Financial Disclosures (TCFD)
39
Equipment Efficiency – during 2022,
we replaced equipment with more
efficient models. At out facility in Ranipet,
India, fuel oil furnaces were replaced with
electric furnaces, eliminating the need
for fuel oil heating and moving to a more
efficient energy source. At our facilities in
Coudersport, USA and St Marys, USA,
the ovens have been changed to electric
models which are 30% more efficient.
Efficient compressed air systems have
also been installed at our facility in New
Bedford, USA, further reducing our
energy consumption.
Fuel Efficiency – through the installation
of a heat recovery system at our facility
in Suzhou, China, our furnace fuel
consumption has reduced by 15%.
Equipment Optimisation – during
2022 we have optimised the furnace
loading and firing pattern to avoid
suboptimal use.
We have also replaced existing heat
pumps with more energy efficient
models. Compressed air systems have
been improved with leak detection
and upgrades.
Energy Monitoring – improvements in
energy monitoring have been made at
our facility in Fostoria, USA. This includes
the installation of sub-meter and energy
monitoring systems that will allow a more
accurate view at one of our largest sites.
Our GHG emissions are reported on
an operational control basis. Our UK
operations comprise five manufacturing
sites and two non-manufacturing sites.
Units
2022
2021
2020
Total scope 1 Energy Consumption
1
MWh
636,583
648,833
592,325
UK operations (total)
MWh
37,988
37,358
36,277
Natural Gas
MWh
37,987
37,355
36,253
LPG
MWh
1
3
24
Global (excluding UK)
MWh
598,595
611,475
556,048
Total scope 1 GHG emissions
1
tCO
2
e
117,474
118,747
108,321
UK operations
tCO
2
e
6,934
6,763
6,670
Global (excluding UK)
tCO
2
e
110,540
111,984
101,651
Total scope 2 Energy Consumption
MWh
421,490
417,835
387,177
UK operations
MWh
15,205
15,083
15,673
Global (excluding UK)
MWh
406,285
402,752
371,504
Total scope 2 GHG emissions
2
tCO
2
e
89,115
107,070
160,126
UK operations
tCO
2
e
-
-
3,657
Global (excluding UK)
tCO
2
e
89,115
107,070
156,469
GHG intensity
3
tCO
2
e/MWh
0.195
0.212
0.274
UK operations
tCO
2
e/MWh
0.130
0.129
0.199
Global (excluding UK)
tCO
2
e/MWh
0.199
0.216
0.278
1.
Excludes transport and process emissions.
2.
Market-based method.
3.
GHG intensity figure uses the total Scope 1 and Scope 2 market-based GHG emission figures.
Methodology
This report (including the Scope 1 and 2 consumption and CO2e emissions data) have been developed and calculated using the GHG Protocol – A Corporate Accounting and Reporting
Standard (World Business Council for Sustainable Development and World Resources Institute, 2004); Greenhouse Gas Protocol – Scope 2 Guidance (World Resources Institute, 2015);
Environmental Reporting Guidelines: Including Streamlined Energy and Carbon Reporting Guidance (HM Government, 2019). Global (Excluding UK) Scope 1 and 2 calculations have
been developed using IEA 2022 emission factors along with supplier-specific emission factors. Government Emissions Factor Database 2022 version 1 has been used, utilising the
published kWh gross calorific value (CV) and kgCO2e emissions factors relevant for reporting period 01/01/2022 – 31/12/2022. All consumption data for Morgan Advanced Materials PLC
was complete for the reporting period. Therefore, no estimations were required.
Strategic report
40
–
Morgan Advanced Materials plc
Annual Report 2022
Risk management
We have an established risk
management methodology
which seeks to identify,
prioritise and mitigate risks,
underpinned by a ‘three
lines of defence’ model
comprising an internal
control framework, internal
monitoring and independent
assurance processes.
The Board considers that risk management
and internal control are fundamental to
achieving the Group aim of delivering
long-term sustainable growth in
shareholder value.
Principal and emerging risks are identified
both ‘top down’ by the Board and the
Executive Committee and ‘bottom up’
through the Group’s global business
units (GBUs). The severity of each risk is
quantified by assessing its inherent impact
and mitigated probability, to ensure that
the residual risk exposure is understood
and prioritised for control throughout
the Group.
Senior executives are responsible for
the strategic management of the Group’s
principal and emerging risks, including
related policy, guidelines and processes,
subject to Board oversight.
During the year, a number of actions
were identified to continue to improve
internal controls and the management
of risk, including:
increased focus on the Group’s
‘thinkSAFE’ programme, focusing
on developing a caring safety culture,
together with work to strengthen
our safety systems
continued focus on Trade Compliance
with the implementation of ‘thinkTRADE’
continued focus on a robust internal
financial control environment
continued focus on the Group’s
‘Speak Up’ process; including
strengthening the visibility of the process
further emphasis on the ethics
agenda, including self-certification of
policy compliance and the ethics and
compliance training platform providing
mandatory global quarterly training
driving forward the Group’s
sustainability agenda.
Cyber incident
We informed the market on 10 January
2023 that we had detected unauthorised
activity on our network. Immediate steps
were taken to contain the incident, launch
response plans, engage our specialist
support services and embark on restoring
systems. A small number of systems have
proven irrecoverable. We are accelerating
the implementation of a new, cloud-based
ERP solution at the affected sites and
across the Group as a whole. We are also
expediting improvements to the Group’s
overall IT infrastructure, procedures and
framework. The Board continues to
monitor the impact of the incident and
receives regular updates on the progress
against the actions taken to mitigate the risk
of further incidents. We continue to run
regular training programmes on cyber risk
and IT security.
Risk appetite
The Board reviewed its appetite for the
Group’s principal risks and concluded that
its appetite for these risks was unchanged
from the previous year. The Group is willing
to take considered risks to develop new
technologies, applications, partnerships
and markets for its products and to meet
customer needs. The Group strives to
eliminate risks to product quality and health
and safety, as these underpin the success
of the Company’s products and the safety
of our people and contractors.
The appetite for risk in the areas of legal
and regulatory compliance continues to
be extremely low, and the Group expects
its businesses to comply with all laws and
regulations in the countries in which they
operate. The Group also has a low
appetite for financial risk. During the year,
the Board monitored the Group’s current
risk exposure relative to the Board’s
appetite for different risks. There were
no risks where the current risk exposure
exceeded the Board’s risk appetite.
Emerging risks
As part of the ongoing risk management
process, the Board and the GBUs identified
and assessed emerging risks. None of these
emerging risks are currently deemed to be
significant and they are therefore not listed
amongst the Group’s principal risks below.
They are identified, assessed and monitored
continuously to be able to respond
effectively when they crystallise. The key
emerging risk areas identified were:
Regulatory risk: manufacturing regulations
– regulatory requirements for certain
hazardous materials. Tax regulations
– with governments globally aiming to
reduce their national debts following
the COVID-19 pandemic.
Social/Societal – potential recruitment
challenges to replace an ageing direct
workforce in some locations; longer-term
changes to end-markets, redirecting
effort to new end-markets for example,
electric vehicles, domestic heating,
decentralised generation of energy.
Business model: route to market –
potential permanent change in traditional
selling models requiring an accelerated
shift to e-commerce. Change to
permanent remote working with our
employees, customers and vendors.
These emerging risks are continually
monitored so that their potential impact
can be understood and mitigated to prevent
them from becoming more significant.
They are also considered as an integral part
of the strategic planning process, and they
form part of the focused risk review of
each GBU.
The following are the Group’s principal risks
and uncertainties and they represent the
risks that the Board feels could have the
most significant impact on achieving the
Group’s strategy of building a sustainable
business for the long term, and could
impact the delivery of strong returns to the
Group’s shareholders. An indication of the
Board’s assessment of the trend of each
principal risk – whether the potential
severity has increased, decreased or is
broadly unchanged over the past year –
is provided.
41
Strategic report
Risk description, assessment and trend from 2021
Mitigation
Technical
leadership
Severity:
Moderate
Trend:
Unchanged
Risk appetite:
Higher
The Group’s strategic success depends on
maintaining and developing its technical leadership
in materials science over its competitors.
Unforeseen or unmitigated technology
obsolescence, the emergence of competing
technologies, the loss of control of proprietary
technology or the loss of intellectual property/
know-how would impact the Group’s business
and its ability to deliver on its strategic goals.
The advanced technological nature of the Group
requires people with highly differentiated skill sets.
Any inability to recruit, retain and develop the
right people would negatively impact the Group’s
ability to achieve its strategic goals.
The Group has a dedicated technology team within
each GBU which monitors relevant technology and business
developments, using technology roadmaps linked to
20 major technology families, to ensure it remains at the
leading edge of development. The Group also has four
Centres of Excellence. These Centres focus Morgan Advanced
Materials’ expertise and research resources on further
developing core technologies and identifying new
opportunities and applications.
The GBU leadership teams proactively monitor their
technology priorities and R&D investments and have
implemented a stage-gate process to manage this effectively.
These projects are also regularly reviewed by the CEO
and CFO.
Where Group products are designed for a specific customer,
they are developed in partnership with the customer.
The Group seeks to secure intellectual property protection,
where appropriate via a Trade Secret Standard, for its existing
and emerging portfolio of products and has an in-house
counsel dedicated to intellectual property protection,
with the support of external advisors.
The GBU IP Strategies place emphasis on improving
trade secret management activities. Group policy includes
a Trade Secret Standard document.
Operational
execution/
organisational
change
Severity:
Moderate
Trend:
Unchanged
Risk appetite:
Moderate
As part of the Group’s strategy to improve the
efficiency of its operations and organisation,
various changes have been made to operational
processes at individual sites, to the GBU set
up and to the Group’s structure. Further
improvements and changes are planned for
future years. Failure to manage these changes
adequately could result in interruption to
operations or customer service, or a failure
to maximise the Group’s opportunities.
Changes to operational processes are carefully considered
by site and GBU management before implementation.
Operational improvements and savings are monitored against
budget by the GBUs and the Executive Committee to ensure
that changes deliver the savings promised without disruption
to business operations. New capital investments are approved
at appropriate levels of the Group and delivery of these is
overseen by GBU and Group management.
Organisational changes are assessed by the Chief Executive
Officer, the Executive Committee and in certain cases by
the Board before being implemented in line with local
employment regulations.
A number of global functionalisation initiatives were
implemented within the GBUs and IT in 2022 to align
and standardise data and processes. The benefits of these
projects will strengthen our business in 2023.
Change management capabilities throughout the business
were developed to address the current global changes
and challenges.
Further detail on our strategy can be found on pages 16 to 17
and 20 to 23
Operational risks
42
–
Morgan Advanced Materials plc
Annual Report 2022
Risk management
continued
Risk description, assessment and trend from 2021
Mitigation
Portfolio
management
Severity:
Low
Trend:
Unchanged
Risk appetite:
Moderate
The Group operates across a range of product
and technology families. These are subject to
long-term market trends which may lead to either
obsolescence or opportunities to further expand
the Group. Failure to manage the Group’s
portfolio of businesses proactively and in line
with this technology profile could lead to the value
of the Group’s businesses being eroded over time
or to a failure to exploit opportunities to acquire
businesses with the capability to add further value
to the Group.
The Board performs regular reviews of the Group’s portfolio.
During 2020, the Group launched a COVID-19-related
restructuring and efficiency programme. This accelerated
existing plans to simplify the Group’s portfolio and align
capacity with the anticipated demand across the business.
This programme was completed in 2021.
During 2022, opportunities to acquire businesses were
actively reviewed on a continuing basis.
Macro-
economic and
political
environment
Severity:
Significant
Trend:
Adverse
The Group operates in a range of markets and
geographies around the world and could be
affected by political, economic, social or regulatory
developments or instability, for example an
economic slowdown or issues stemming
from oil and natural resource price shocks.
The Group’s broad market and geographic spread helps to
mitigate the effects of political and economic changes.
Annual Budgets and Strategic Plans, as well as monthly
forecasts for Morgan’s different businesses are used to monitor
delivery against expectations and anticipate potential external
risks to performance. These are subject to regular review by
the Executive Committee and the Board.
In 2022, the macro-economic and political environment has
declined further, driven by increased energy costs and inflation,
deglobalisation and the various global conflicts.
Further global issues considered by the Board this year
included the continuing impact and uncertainty relating to
the trade negotiations between the US and China.
Environment,
health and
safety (EHS)
Severity:
High
Trend:
Unchanged
Risk appetite:
Very low
The Group operates a number of manufacturing
facilities around the world. A failure in the Group’s
EHS procedures could lead to environmental
damage or to injury or death of employees or
third parties, with a consequential impact on
operations and increased risk of regulatory or
legal action being taken against the Group.
Any such action could result in both financial
damages and damage to reputation. Given the
long history of many of the operations of the
Group, there is also a risk that historical operating
and environmental standards may not have met
today’s environmental regulations. In addition,
the Group may have obligations relating to prior
asset sales or closed facilities.
Managing its operations safely is the Group’s number one
priority. The Group has a comprehensive EHS programme
managed by the Group Environment, Health, Safety and
Sustainability Director, with clear EHS standards and a
comprehensive programme of audits to assess compliance.
The Group Environment, Health, Safety and Sustainability
Director, working with the Global EHS Leads, sets annual
priorities for EHS which are approved by the Executive
Committee. These form the basis for individual sites’ own
EHS priorities and plans and complement the Group’s
‘thinkSAFE’ behavioural safety programme.
EHS performance is monitored by the Group Executive
Committee and the Board. Our LTA rate was 0.28 (2021:
0.22); it has been impacted by a larger number of new
employees in the business as we ramped up production
volumes. During 2022, our ‘thinkSAFE’ behavioural
programme was fully deployed, with all employees taking
part. Safety continues to receive a high level of focus
throughout the organisation.
As at 31 December 2022, the Group was managing projects
to remediate legacy contamination at a number of former
operational sites in conjunction with external specialists
and relevant authorities.
The Group’s commitment to protecting and enhancing the
environment is set out on pages 32 to 33 and 36 to 37.
TCFD disclosures are set out on pages 38 to 39.
Details of the Group’s provisions and contingent liabilities can
be found in note 24 to the consolidated financial statements.
Operational risks
43
Strategic report
Risk description, assessment and trend from 2021
Mitigation
Pandemic
Severity:
High
Trend:
Adverse
The overall risk severity has been increased
based on assessing a potentially higher impact of
a future pandemic.
Communicable disease impacts ways of working,
the supply chain and the ability of employees to
travel to work in affected areas.
The Company’s priority is to take all actions and
precautions necessary to ensure the safety and
wellbeing of our employees.
In all manufacturing sites, ways of working to respond to the
pandemic were successfully adapted and matured further –
including social distancing, hygiene measures and additional
PPE – to keep our people safe. Flexible working from home
was also established, and further strengthened for all roles
that could do so.
The Group has provided clear and timely communication to
reinforce the importance of following safety measures in every
part of the organisation.
Climate
change
Severity:
High
Trend:
Unchanged
Global climate change poses short-term and
longer-term challenges for our business. The
expected changes are far-reaching and irreversible.
The Group actively mitigates the two transitional risks of
carbon pricing and eliminating natural gas.
The Group evaluated climate scenario analysis via modelling
by an external consultant in 2022.
This includes several longer-term risks like heat stress,
water scarcity, sea level rise, and supply chain disruption.
Additionally, adverse/extreme weather changes are a potential
risk which is monitored by the GBUs and the respective sites.
Science Based Target initiative (SBTi) targets are under
development to align with a well below 2ºC scenario
climate risk.
Product
quality, safety
and liability
Severity:
High
Trend:
Unchanged
Risk appetite:
Low
Products used in applications for which they
were not intended or inadequate quality control/
over-commitment on customer specifications
could result in products not meeting customer
requirements, which could in turn lead to
significant liabilities and reputational damage.
Some of our products are used in potentially
high-risk applications, for example in the
aerospace, automotive, electric vehicle,
medical and power industries.
Many of the Group’s products are designed to customer
specifications. Morgan Advanced Materials’ quality
management systems and training help ensure that all
our products meet or exceed customer requirements
and national/international standards.
The Group Legal Policy requires that contracts relating to
products used in potential high-risk applications are subject
to legal review to ensure that appropriate protections are in
place for product quality risks. Group-wide training on the
policy requirements continues.
The Group insurance programme includes product liability
insurance and is reviewed annually by the Board.
IT, cyber
security
and data
management
Severity:
Significant
Trend:
Adverse
Risk appetite:
Very low
Across the industry the frequency of cyber attacks
is growing, influenced by increased connectivity,
an accelerated shift to cloud platforms and
remote working.
The global regulatory compliance landscape,
including export regulations, continues to mature
and add complexity to how we process, store and
share internal and external data on a global level
within the Group. Failure adds significant risk to
the GBUs and the Company.
The effective management of the Group’s
IT infrastructure is important in enabling our
businesses to deliver customer requirements
reliably. Key business system failure might
impact the ability of the business to deliver
on its strategic goals.
Following the cyber incident experienced in January 2023
(referred to above on page 19), the Group’s security and
monitoring programme has been expedited. We continue
to run training programmes on cyber risk and IT security and
have strengthened the ‘thinkSECURE’ internal brand as an
awareness programme.
We continue to monitor the regulatory and compliance
landscape and emerging regulations, such as the US
Department of Defense’s Cybersecurity Maturity Model
Certificate (CMMC), and the EU-GDPR and UK Data
Protection Act (DPA) 2018.
Data management is seen as an increased risk area. Steps
to address this are in place, including a Data Governance
Committee and a data classification project which is focused
on identifying, monitoring and protecting the use of data across
the Group.
Operational risks
44
–
Morgan Advanced Materials plc
Annual Report 2022
Risk management
continued
Risk description, assessment and trend from 2021
Mitigation
Supply chain/
business
continuity
Severity:
High
Trend:
Favourable
Risk appetite:
Higher
The Group has potential single-point exposure
risks, which include:
Single-point supplier – a significant interruption
of a key internal or external supply could impact
business continuity.
Single-point site – a key site exposed to a strike,
a natural catastrophe or a serious incident,
such as fire, could impact business continuity.
One Group site, Hayward, is situated in the
California earthquake zone (US). Certain of
the Group’s businesses are important for
intercompany supply purposes.
The Group has a diversified manufacturing, customer and
geographic base which provides a level of resilience against
single-point exposures. Were any site to be unavailable,
production in many cases could be switched to other sites.
The Business Continuity Policy supports minimum standards
at the Group’s most important sites for intercompany supply.
Management of these risks also involves monitoring and
reviewing supply chains (internal and external), dual/multiple
sourcing of materials or strategic stock, site security and safety
mechanisms, business continuity plans, and maintenance of
product quality and strong customer relationships.
The overall risk severity has improved based on a reduced
probability resulting from the effects of the ongoing
GBU activities.
The Group insurance programme includes business
interruption cover and specific cover in relation to the impact
of an earthquake in California, US; this Group-level insurance
is reviewed annually by the Board.
Treasury
Severity:
Moderate
Trend:
Unchanged
Risk appetite:
Low
The Group’s global reach means that it is exposed
to uncertainties in the financial markets, the fiscal
jurisdictions where it operates, and the banking
sector. These heighten the Group’s funding,
foreign exchange, tax, interest rate, credit and
liquidity risks as well as the risk that a bank failure
could impact the Group’s cash.
The Group’s treasury function operates on a risk-averse basis.
Required controls over selection of banks, cash management
and other treasury practices and payments globally are
documented in Morgan’s Treasury Policy and related
procedures. The Group treasury team manages the Group’s
funding, liquidity, cash management, interest rate, foreign
exchange, counterparty credit and other treasury-related risks.
Treasury matters are regularly reviewed by the Board and
Audit Committee.
The refinance of the Group’s revolving credit facility (RCF)
was completed in November 2022. As at 31 December 2022,
£76 million of the Group’s £230 million revolving credit facility
was drawn down.
Further detail on the Company’s Treasury Policy is set out in
the Group Financial Review, which can be found on page 54.
Operational risks
45
Strategic report
Risk description, assessment and trend from 2021
Mitigation
Pension
funding
Severity:
Low
Trend:
Favourable
Risk appetite:
Low
The Group sponsors several defined benefit
pension arrangements (the Schemes), whose
liabilities are subject to fluctuating interest rates,
investment values and inflation. This coupled with
the increased longevity of members and a tougher
regulatory funding regime will result in increased
funding burdens on the Group in the future.
The deficit in Morgan’s global defined benefit
pension schemes calculated on the basis required
for IAS 19 accounting disclosures decreased
from £102.7 million as at 31 December 2021
to £15.6 million as at 31 December 2022.
The Group also participates in two multi-
employer defined benefit schemes in the US,
both of which have significant funding deficits.
Morgan’s primary means of mitigating pension funding risk
is proactive management of the pension scheme assets and
liabilities through an integrated pension strategy focusing on
funding, investment and benefit risk. This involves both internal
management within the Group and also external management
through the Schemes’ trustees, corporate actuaries and
professional advisors.
In the UK both Schemes are closed to the future accrual of
benefits and, in consultation with the Company, the Trustees
have adopted a proactive approach to the management of risk.
Following the most recent Scheme valuations in March 2022,
the Company agreed to make a lump sum contribution of
£67 million to the Schemes, equivalent to the total
contributions remaining due under the existing Recovery
Plans and sufficient to fully fund the Schemes on the basis of
the Trustees’ prudent ‘Long Term Objective’. In addition, the
Schemes’ interest and inflation rate exposure is now 100%
hedged using only moderate levels of leverage. As a result,
overall levels of risk in the Schemes have been significantly
reduced and the security of member benefits greatly enhanced.
No further contributions will be required from the Company
at least until the next Scheme Valuations in March 2025.
Risk for both of the defined benefit Pension Plans in the US
has been reduced. One completed a full legal termination
(in June 2016). For the other Scheme, a formal offer of a
present-value-equivalent, lump-sum cash payment was made
to members. Following a $36 million additional contribution
(in December 2017) and a move to a significantly de-risked
investment portfolio, this Scheme is now almost fully funded
on an accounting basis.
A liability management strategy for both the US multi-employer
plans has been agreed and a proposal for withdrawal made to
the Trustees of the more severely underfunded arrangement.
No significant funding obligations exist in any other individual
country although German legacy defined benefit schemes are
unfunded, in accordance with local practice. The recent risk
review identified no significant liability increases were likely in
the foreseeable future.
Financial risks
46
–
Morgan Advanced Materials plc
Annual Report 2022
Risk management
continued
Risk description, assessment and trend from 2021
Mitigation
Tax
Severity:
Moderate
Trend:
Unchanged
Risk appetite:
Low
The Group operates in many jurisdictions around
the world and could be affected by changes in
tax laws and regulations within the complex
international tax environment.
The OECD’s Base Erosion and Profit Shifting
(BEPS) framework is generating additional
obligations and filing requirements for the Group
as countries continue to implement the actions
in the framework. These could have an impact
on the tax paid by the Group.
The Group’s tax function, working in conjunction with
external specialists as required, closely monitors fiscal
developments and changes such as BEPS to ensure that the
Group’s tax arrangements and practices continue to comply
with the requirements of all relevant jurisdictions, whilst also
enabling efficient management of the tax liability. The Group’s
Head of Tax reports to the Audit Committee on key tax
issues and initiatives.
The Group has published its tax strategy on its website
in line with UK corporate governance requirements:
morganadvancedmaterials.com/ESGPolicies
Financial risks
47
Strategic report
Risk description, assessment and trend from 2021
Mitigation
Contract
management
Severity:
High
Trend:
Unchanged
Risk appetite:
Low
As a global advanced materials business,
supplying components into critical applications,
the Group may be exposed to liabilities arising
from the use of its products. Ineffective
contract risk management could result in
significant liabilities for the Group and could
damage customer relationships.
The Group has an in-house legal function supplemented by
specialist external lawyers.
The Group’s legal policy requires in-house legal review of
high-value or high-liability contracts to ensure they contain
appropriate protections for the Group. The policy requires
Chief Executive Officer approval before a business can enter
into a high value contract exceeding £2 million and unlimited
liability contracts or contracts where the liability cap exceeds
£5 million.
The Group has product liability insurance that would respond
to product liability claims (up to policy limits) to the extent this
is not limited contractually.
Compliance
Severity:
High
Trend:
Unchanged
Risk appetite:
Very low
The Group’s global operations must comply with
a range of national and international laws and
regulations including those related to bribery and
corruption, human rights, trade/export compliance
and competition/anti-trust activities.
A failure to comply with any applicable laws/
regulations could result in civil or criminal liabilities
and/or individual or corporate fines and could also
result in debarment from government-related
contracts or rejection by financial market
counterparties and reputational damage.
The Group is committed to the highest standards of corporate
and individual behaviour. To support this, in 2018 the Group
issued the Morgan Code, which has been continuously in force
since then. The Code defines the Group’s approach to doing
business ethically and confirms Morgan’s commitments to
high standards of ethical behaviour. The Code is supported by
a range of documents and mechanisms: global Group policies,
standards and guidance; training materials; the provision
of an ethics ‘Speak Up’ hotline for employees; and systems
to support effective screening of and due diligence on
third parties.
Mandatory ethics training for staff covers topics including
anti-bribery and anti-corruption, anti-trust, harassment and
bullying and trade controls. The Group’s ‘Speak Up’ methods
enable staff to report concerns anonymously.
The Group has a Global Ethics and Compliance Director
organising and leading the Group’s activities and programmes.
The Group also has a Global Trade Compliance Director
whose role is dedicated to ensuring compliance with trade
controls. In 2022, the Company introduced the ‘thinkTRADE’
programme including global training on export control.
In addition to Group-level compliance specialists, the
businesses have established compliance officers, who are
responsible for supporting local training and monitoring.
Morgan also employs country-specific trade and
export compliance specialists in higher-risk businesses
and jurisdictions.
Further details on ethics and compliance can be found on
page 30 to 31 and 37.
Legal and compliance risks
48
–
Morgan Advanced Materials plc
Annual Report 2022
Global business
unit performance
The Group’s results are
reported as five separate
global business units,
which have been
identified as the Group’s
reportable operating
segments, as detailed on
page 7. 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.
The strategy for each of our global
business units aligns with the execution
priorities of the Group. We have put
increased emphasis on faster growing
markets. Our core markets are critical,
providing a strong base with a diversified
portfolio. Our four Centres of Excellence
drive technological differentiation,
support a strong pipeline of innovation
and margin expansion. Our sustainable
solutions are enabling the energy
transition and our Group is resilient,
benefitting from diverse end-markets
and its global footprint.
Thermal Ceramics
Thermal Ceramics manufactures advanced
ceramic materials, products and systems for
thermal insulation in high-temperature
environments. As at 31 December 2022,
it comprised 23 operating sites employing
approximately 2,430 people, with
manufacturing sites across the world.
It also has a network of sales offices
allowing immediate access to and facilitating
direct working with end-users.
We engineer systems for the safety of people
and equipment in demanding applications.
Our products help customers, especially
those operating energy-intensive processes,
to reduce energy consumption, emissions
and operating costs. Our products are used
in high-temperature industrial processing of
metals, petrochemicals, cement, ceramics
and glass, and by manufacturers of equipment
for aerospace, automotive, marine and
domestic applications. Our core strength is
our ability to address individual customer
problems, using our materials and our
applications expertise to design, manufacture
and install optimum thermal solutions.
Our product range includes high-
temperature insulating fibre products,
microporous products, firebricks,
monolithic products, heat shields,
fired refractory shapes and structural
block insulation products. Revenue for
Thermal Ceramics for the year was £421.4
million, representing an increase of 15.5%
compared with £364.7 million in 2021. This
has been driven by recovery in industrial,
metals, aerospace and automotive markets,
growing petrochemical project revenues
and growth in clean energy applications.
On an organic constant-currency
*
basis,
year-on-year revenue increased by 11.4%.
Thermal Ceramics operating profit was
£44.3 million (2021: £37.8 million), and
operating margin was 10.5% (2021: 10.4%),
with the slight margin improvements due to
increased volumes, with price offsetting
inflation. Details of the specific adjusting
items of £2.8 million (2021: £2.1 million)
are included in note 6. Adjusted operating
profit
*
was £48.7 million (2021: £42.0 million)
with adjusted operating profit margin
*
of
11.6% (2021: 11.5%).
Molten Metal Systems
Molten Metal Systems manufactures an
extensive range of high-performance
crucibles and foundry consumables for
non-ferrous metal melting applications.
We provide melting solutions for foundries,
die-casters and melting facilities working
with zinc, precious metals, aluminium,
copper, brass, bronze and other non-
ferrous metals. At 31 December 2022,
it comprised five operating sites employing
approximately 430 people with some
sales also being made through a well-
established distributor network.
With its extensive applications experience
and process knowledge, Molten Metal
Systems helps customers put together the
optimal system for their needs. The global
business unit works with customers in
non-ferrous castings, metal powder
production, refining and recycling of
precious metals, and the production of
pure aluminium for electronics applications.
Our product range includes crucibles and
foundry products.
Revenue for Molten Metals Systems for
the year was £57.8 million, an increase
of 21.2% compared with £47.7 million in
2021. Revenue growth is driven by strong
end-market demand, share wins in the
aluminium market and growth in copper
and precious metals. On an organic
constant-currency
*
basis, year-on-year
revenue increased by 15.8%.
Molten Metal Systems operating profit
was £7.5 million (2021: £6.0 million),
and operating profit margin was 13.0%
(2021: 12.6%). Margin improvement is from
volume leverage and price and efficiency
actions more than offsetting inflation. 2022
adjusted operating profit
*
was £7.8 million
(2021: £6.3 million) with adjusted operating
profit margin
*
of 13.5% (2021: 13.2%).
Review of operations
49
Electrical Carbon
Electrical Carbon develops and
manufactures a wide range of products
which are used to transfer electrical current
between stationary and rotating or linear
moving parts in motor, generator, and
current-collector applications. The business
also makes graphite and felt products used
in the high temperature processing of
materials and in semiconductor processing.
Electrical Carbon’s main markets are
semiconductors, rail, industrial drives,
power generation, iron and steel, mining
and wind-power.
As at 31 December 2022, Electrical
Carbon comprised 16 operating sites
employing approximately 1,390 people,
with manufacturing sites across the world.
The global spread of its operating sites is
supplemented by a comprehensive network
of sales offices. The business’s core strength
is its longstanding materials and applications
experience and its ability to engineer
appropriate, reliable solutions for
individual customer requirements.
Our product range includes electrical carbon
brushes and collectors, brush holders, slip
rings and linear transfer systems, felt and
graphite components.
Revenue for the Electrical Carbon global
business unit in 2022 was £188.7 million,
representing an increase of 14.4%
compared with £164.9 million in 2021,
driven by growth in semiconductor
and transportation market segments.
On an organic constant-currency
*
basis,
year-on-year revenue improved by 9.7%.
Electrical Carbon operating profit was
£39.1 million (2021: £25.6 million), and
operating profit margin was 20.7%
(2021: 15.5%). Margin improvement is
driven by operational efficiency savings
and the impact of pricing increases which
more than offset cost inflation and
investment. Adjusted operating profit
*
was £39.7 million (2021: £32.8 million)
with an adjusted operating profit margin
*
of 21.0% (2021: 19.9%).
Seals and Bearings
Seals and Bearings makes high-performance
self-lubricating bearing and seal components,
used predominantly in pumps – industrial
and domestic – or other sealing applications.
We use advanced carbon/graphite, silicon
carbide, alumina and zirconia materials to
engineer lightweight, low-friction bearings
and seals. These materials help solve the
problems associated with use of lubricants in
extreme temperatures, corrosive or hygienic
environments and where access is restricted,
and are engineered into products which
provide customer-specific solutions. As at
31 December 2022, Seals and Bearings
comprised 11 operating sites employing
approximately 1,370 people, with
manufacturing sites across the world.
The business’s components often help
to extend the operating life of customers’
equipment and make it more energy-
efficient. The main markets served are
specialist applications in the oil and gas,
automotive, industrial, water pump,
aerospace and home appliance sectors.
Our product range includes seals,
bearings and general pump components
(shafts, vanes, rotors and washers).
Revenue for the Seals and Bearings global
business unit in 2022 was £148.5 million,
representing an increase of 9.3% compared
with £135.9 million in 2021, with the
expected reduction in armour sales
more than offset by growth in industrial,
petrochemical and aerospace markets.
On an organic constant-currency
*
basis,
year-on-year revenue increased by 2.8%.
Ceramic armour sales in 2022 were
£25.5 million (2021: £32.3 million).
Seals and Bearings operating profit was
£16.6 million (2021: £22.0 million),
with operating profit margin of 11.2%
(2021: 16.2%). Details of the specific
adjusting items of £1.6 million (2021: £nil)
are included in note 6. The margin has
declined due to manufacturing inefficiencies
in the second half and a quality claim with
an armour customer. Adjusted operating
profit
*
was £19.0 million (2021: £22.9
million), with an adjusted operating profit
margin
*
of 12.8% (2021: 16.9%).
Technical Ceramics
Technical Ceramics engineers high-
performance functional and structural
ceramic materials, components and
sub-assemblies to address customer-specific
technical challenges. The business employs
advanced materials science and applications
expertise to produce parts that enhance
reliability or improve the performance
of its customers’ products. Much of what
the global business unit makes is used in
demanding, harsh or critical environments.
The global business unit works in selected
segments of the semiconductor, energy,
healthcare, industrial, petrochemicals,
security and transport markets, typically in
close collaborative customer relationships.
As at 31 December 2022, Technical
Ceramics comprised 17 operating sites
employing approximately 2,560 people,
with manufacturing sites across the world.
Our product range includes structural
ceramic components, engineered coatings,
ceramic-to-metal assemblies including
brazed and metallised assemblies, ceramic
cores, braze alloys and ceramic tubes
and rollers.
Revenue for the Technical Ceramics
global business unit in 2022 was
£295.7 million, an increase of 24.6%
compared with £237.3 million in 2021,
driven by growth in semiconductor,
healthcare, industrial, defence and
aerospace market segments, with a
combination of market growth and share
wins. On an organic constant-currency
*
basis, year-on-year revenue increased
by 15.8%.
Technical Ceramics operating profit was
£39.2 million (2021: £18.9 million), and
operating margin was 13.2% (2021: 11.6%).
Details of the specific adjusting items
of £1.2 million (2021: £6.0 million) are
included in note 6. Margin improvement is
driven by volume leverage, pricing and
efficiency actions and the remaining benefits
from our 2020 restructuring programme.
Adjusted operating profit
*
was £41.7 million
(2021: £26.4 million), with an adjusted
operating profit margin
*
of 14.1%
(2021: 11.1%).
Strategic report
50
–
Morgan Advanced Materials plc
Annual Report 2022
Group performance
Group revenue and operating profit
Group revenue was £1,112.1 million
(2021: £950.5 million), an increase of 17.0%
on a reported basis compared with 2021.
Group adjusted operating profit
*
was
£151.0 million (2021: £124.5 million).
Adjusted operating profit margin
*
was
13.6%, compared with 13.1% for 2021.
Operating profit was £140.8 million
(2021: £113.1 million) and profit before tax
was £131.6 million (2021: £104.3 million).
Specific adjusting items in 2022 was
a net pre-tax charge of £5.5 million
(2021: £5.4 million), primarily relating to
the impairment of non-financial assets.
Further details are included under
Specific adjusting items below.
Continuing operations
Revenue
Adjusted
operating profit
1
Margin %
1
2022
£m
2021
£m
2022
£m
2021
£m
2022
%
2021
%
Thermal Ceramics
421.4
364.7
48.7
42.0
11.6%
11.5%
Molten Metal Systems
57.8
47.7
7.8
6.3
13.5%
13.2%
Electrical Carbon
188.7
164.9
39.7
32.8
21.0%
19.9%
Seals and Bearings
148.5
135.9
19.0
22.9
12.8%
16.9%
Technical Ceramics
295.7
237.3
41.7
26.4
14.1%
11.1%
Segment total
1,112.1
950.5
156.9
130.4
14.1%
13.7%
Corporate costs
(5.9)
(5.9)
Group adjusted
operating profit
1
151.0
124.5
13.6%
13.1%
Amortisation of intangible assets
(4.7)
(6.0)
Operating profit before
specific adjusting items
146.3
118.5
13.2%
12.5%
Specific adjusting items included
in operating profit
2
(5.5)
(5.4)
Operating profit
140.8
113.1
12.7%
11.9%
Net financing costs
(9.2)
(9.2)
Share of profit of associate
(net of income tax)
–
0.4
Profit before taxation
131.6
104.3
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the
statutory results to the adjusted measures can be found on pages 57 to 59.
2.
The Group reported the results of its five global business units as two divisions until 31 December 2021. From 1 January
2022 onwards, divisional subtotals have been removed from our segmental reporting; we continue to report the five
separate global business units.
3.
Details of specific adjusting items from continuing operations can be found in note 6 to the consolidated financial statements.
Specific adjusting items
from continuing operations
In the consolidated income statement, the
Group presents specific adjusting items
separately. In the judgement of the
Directors, as a result of the nature and
value of these items they should be
disclosed separately from the results of the
Group to allow the reader to obtain an
understanding of the financial information
and the performance of the Group
excluding these items.
Details of specific adjusting items arising
during the year and the comparative period
are given in note 6 to the consolidated
financial statements. Specific adjusting items
in relation to discontinued operations are
disclosed in note 9 to the consolidated
financial statements.
In 2022, specific adjusting items were
£5.5 million (2021: £5.4 million) and
comprised the following:
2022
£m
2021
£m
Specific adjusting items from continuing operations
1
Impairment of non-financial assets
(6.5)
(12.4)
Restructuring credit
0.6
0.1
Net profit on disposal of business
0.4
7.1
Business closure and exit costs
–
(0.2)
Total specific adjusting items before income tax
(5.5)
(5.4)
Income tax credit from specific adjusting items
1.1
1.5
Total specific adjusting items after income tax
(4.4)
(3.9)
1.
Specific adjusting items relating to discontinued operations are disclosed in note 9 to the consolidated financial statements.
Read more about our five global
business units on pages 48 to 49.
Group financial review
51
Strategic report
2022
Impairment of non-financial assets
Seals & Bearings, Asia
An impairment charge of £0.6 million
has been recognised relating to assets
purchased to support a customer contract
which did not materialise.
A further impairment charge of £1.0 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 represented a partial
impairment of the assets; the carrying value
of the assets following this impairment was
£5.2 million. The calculation of the value in
use was performed as at December 2022.
A long-term growth rate of 1.0% was used
for years beyond the five-year forecast
period and in calculating the terminal
value. A pre-tax discount rate of 12.9%
was used to determine the value in use.
Thermal Ceramics, Europe
An impairment charge of £1.2 million
has been recognised following a fire in
December which destroyed a warehouse
and inventory. The assets have
subsequently been written off.
An impairment charge of £1.1 million has
been recognised after reassessing the value
in use of property, plant and equipment in
a business in France which is experiencing
limited growth and under-utilisation of key
assets. This represents a partial impairment
of the assets. The carrying value of the
assets following the impairment was
£0.3 million. The calculation of value in use
was performed as at December 2022.
A long-term growth rate of 1.0% was used
for years beyond the five-year forecast
period and in calculating the terminal value.
A pre-tax discount rate of 13.7% was used
to determine the value in use.
Thermal Ceramics, South America
An impairment charge of £0.9 million
has been recognised in relation to assets
associated with a closed manufacturing line.
Technical Ceramics, Asia
An impairment charge of £1.7 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 was £3.2 million.
The calculation of the value in use was
performed as at December 2022.
A long-term growth rate of 1.0% was used
for years beyond the five-year forecast
period and in calculating the terminal value.
A pre-tax discount rate of 12.9% was used
to determine the value in use.
Review of non-financial assets
impaired in previous years
Impairment charges of £52.6 million for
non-financial assets which the business
continues to use have been recorded during
the current and previous years (Technical
Ceramics, Asia £7.7 million, Technical
Ceramics, ceramic cores £28.8 million and
Thermal Ceramics £15.1 million, and Seals
and Bearings, Asia £1.0 million). These
impaired amounts could be reversed if the
related businesses were to outperform
significantly against their budget. A sensitivity
analysis was carried out using reasonably
possible changes to key assumptions in
assessing the value in use of these non-
financial assets. This did not result in a
material reversal of the impaired amounts.
Restructuring credit
A credit of £0.6 million has been recognised
in the current year representing a release
of restructuring provisions booked in
previous years in relation to the Group’s
restructuring programme. Whilst this
programme was completed in 2021,
we retain a restructuring provision of
£10.5 million for the Group’s obligations at
the balance sheet date (2021: £11.8 million).
This provision includes remaining lease
exit costs and multi-employer pension
obligations for two sites which were closed
in 2021. The cash outflows relating to the
pension obligations may continue for up to
19 years, subject to any settlement being
reached in advance of that date. Cash
outflows in relation to the lease may
continue for the next four years. Refer
to note 24 for further information.
Net profit on disposal of business
The Group disposed of its investment in
the joint venture Sukhoy Log, based in
Russia, during the year. This disposal
generated a net profit of £0.4 million.
Refer to note 2 for further information.
2021
Impairment of non-financial assets
Technical Ceramics, Asia
An impairment charge of £6.0 million
was recognised after reassessing the value
in use of property, plant and equipment in
a business in Asia which was 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 1.0% 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 were 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 was
recognised relating to assets associated
with closed manufacturing lines within
Thermal Ceramics.
Restructuring credit
A net credit of £0.1 million was recognised
in the year ended 31 December 2021
representing £2.1 million of redundancy
and closure costs which related to the
Group’s restructuring programme, offset
by a £2.2 million release of restructuring
provisions booked during 2020 in relation
to this programme.
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 ended
31 December 2021. These disposals
generated a profit of £7.2 million and
a loss of £0.1 million, respectively. Refer
to note 2 to the consolidated financial
statements for further information.
Business closure and exit costs
A £0.2 million charge was recognised
relating to the liquidation of businesses
in Europe and Asia.
52
–
Morgan Advanced Materials plc
Annual Report 2022
Foreign currency impact
The principal exchange rates used in the translation of the results of overseas subsidiaries
were as follows:
GBP to:
2022
2021
Closing rate
Average rate
Closing rate
Average rate
US dollar
1.21
1.24
1.35
1.38
Euro
1.13
1.17
1.19
1.16
The potential impact of changes in foreign
exchange rates is given in note 21 to
the consolidated financial statements on
page 166.
Retranslating the 2022 full-year results
at the March 2023 closing exchange
rates would lead to revenue of
£1,111.9 million and adjusted operating
profit
*
of £149.2 million.
For illustrative purposes, the table below
provides details of the impact on 2022
revenue and Group adjusted operating
profit
*
if the actual reported results,
calculated using 2022 average exchange
rates were restated for GBP weakening by
10 cents against the US dollar in isolation
and 10 cents against the Euro in isolation:
Increase in 2022 revenue/adjusted operating profit
1
if:
Revenue
£m
Adjusted
operating
profit
1
£m
GBP weakens by 10c against the US dollar in isolation
16.9
2.2
GBP weakens by 10c against the Euro in isolation
21.8
3.5
1
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the
statutory results to the adjusted measures can be found on pages 57 to 59.
Amortisation of intangible assets
The Group amortisation charge was
£4.7 million (2021: £6.0 million).
Finance costs
The net finance charge was £9.2 million
(2021: £9.2 million) comprising net bank
interest and similar charges of £5.4 million
(2021: £5.3 million), net interest on
IAS 19 pension obligations of £1.4 million
(2021: £1.6 million), and the interest
expense on lease liabilities of £2.4 million
(2021: £2.3 million) resulting from
IFRS 16 Leases.
The impacts of potential changes in interest
rates on profit or loss are stated in note 21
to the consolidated financial statements on
page 166.
Looking forward to 2023, we anticipate that
the net finance charge will be around
£13-15 million, comprising: net bank interest
and similar charges of £10-12 million; net
interest on IAS 19 pension obligations of
£0.5 million; and net interest expense on
lease liabilities of £2 million.
Taxation
The Group tax charge from continuing
operations, excluding specific
adjusting items, was £37.1 million
(2021: £29.7 million). The effective
tax rate, excluding specific adjusting items,
was 27.0% (2021: 27.1%). Note 8 to
the consolidated financial statements,
on page 153, provides additional
information on the Group’s tax charge.
Looking forward to 2023, we anticipate
that the effective tax rate will be around
26%-28%.
On a statutory basis, the Group tax charge
was £36.0 million (2021: £28.2 million),
higher than the previous year due to the
higher taxable profits.
Earnings per share
Basic earnings per share from
continuing operations was 30.6 pence
(2021: 23.9 pence) and adjusted
earnings per share
*
was 33.8 pence
(2021: 27.2 pence). Details of these
calculations can be found in note 10
to the consolidated financial statements
on page 155.
Final dividend
The Board is recommending a final
dividend, subject to shareholder approval,
of 6.7 pence per share on the Ordinary
share capital of the Group, payable on
3 July 2023 to Ordinary shareholders
on the register at the close of business
on 9 June 2023. The ex-dividend date is
8 June 2023.
Together with the interim dividend of
5.3 pence per share paid on 18 November
2022, this final dividend, if approved by
shareholders, brings the total distribution
for the year to 12.0 pence per share
(2021: 9.1 pence).
A total dividend of 12.0 pence per share
represents a dividend cover of adjusted
EPS
*
of 2.8 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 2.5 times 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 to meet the needs of
other stakeholders of the Group, including
by making deficit contributions to the
Group’s defined benefit pension schemes.
Note 41 to the Company financial
statements, on page 199, provides
additional information on the Company’s
distributable reserves.
Cash flow
Cash generated from continuing operations
was £59.1 million (2021: £135.9 million).
Free cash flow before acquisitions,
disposals and dividends
*
was £(46.9) million
(2021: £66.2 million).
Net debt
*
at the year end was
£200.4 million (2021: £96.5 million),
representing a net debt
*
to EBITDA
*
ratio of 1.1 times (2021: 0.6 times).
The Group has cash and cash equivalents
*
of £117.7 million and undrawn headroom
on its revolving credit facility of
£154.0 million.
Net debt excluding lease liabilities
*
was £148.5 million (2021: £46.7 million),
representing a net debt
*
to EBITDA
*
ratio
excluding lease liabilities of 0.8 times
(2021: 0.3 times).
Group financial review
continued
53
Strategic report
Commitments for property, plant and equipment and computer software for which no
provision has been made are set out in note 25 to the consolidated financial statements on
page 184.
2022
£m
2021
£m
Cash generated from continuing operations
59.1
135.9
Net capital expenditure
(57.4)
(28.1)
Net interest on cash and borrowings
(5.4)
(5.3)
Tax paid
(31.8)
(25.4)
Lease payments and interests
(11.4)
(10.9)
Free cash flow before acquisitions, disposals
and dividends
(46.9)
66.2
Dividends paid to external plc shareholders
(31.6)
(19.1)
Net cash flows from other investing and financing activities
(10.3)
(15.0)
Cash flows from sale of subsidiaries and associates
0.4
15.0
Net cash flows from discontinued operations
1.1
5.3
Exchange movement and other non-cash movements
(14.5)
1.9
Opening net debt
1
excluding lease liabilities
(46.7)
(101.0)
Closing net debt
1
excluding lease liabilities
(148.5)
(46.7)
Closing lease liabilities
(51.9)
(49.8)
Closing net debt
1
(200.4)
(96.5)
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the
statutory results to the adjusted measures can be found on pages 57 to 59.
Capital structure
At the year end total equity was
£429.6 million (2021: £349.6 million)
with closing net debt
*
of £200.4 million
(2021: £96.5 million).
Non-current assets were £524.3 million
(2021: £481.9 million) and total assets were
£1,020.3 million (2021: £912.5 million).
Details of undiscounted contracted
maturities of financial liabilities and capital
management are set out in note 21 to
the consolidated financial statements on
page 166.
Capital structure is further discussed in
note 21 to the consolidated financial
statements on page 166 under the
heading Capital management.
Pensions
The Group operates a number of
pension schemes throughout the world,
the majority of which are of a funded
defined benefit type. The largest of
these are located in the UK and the
USA, and the majority of the others in
continental Europe.
The charge incurred in relation to the
Group’s defined benefit arrangements
is summarised in the table below.
2022
£m
2021
£m
Operating costs:
Current and past service cost
(2.7)
(3.2)
Administration expenses recognised outside the
pension liabilities
(1.5)
(1.3)
Curtailments and settlements
0.2
0.1
Total operating costs
(4.0)
(4.4)
Net interest on net defined benefit liability
(1.4)
(1.6)
Total
(5.4)
(6.0)
Defined benefit pension plans
The Group pension deficit has decreased
by £87.1 million since last year end to
£15.6 million on an IAS 19 (revised) basis,
largely driven by higher corporate bond
yields in the UK leading to a higher discount
rate and employer contributions.
The UK Schemes’ deficit decreased by
£76.9 million to a surplus of £25.2 million
(2021 deficit: £51.7 million), (discount
rate 2022: 4.81%; discount rate
2021: 1.92%).
The US Schemes’ deficit increased by
£1.5 million to £9.2 million (2021:
£7.7 million), (discount rate 2022:
4.99%; discount rate 2021: 2.71%).
The European Schemes’ deficit
decreased by £11.1 million to
£27.9 million (2021: £39.0 million),
(discount rate 2022: 3.70%; discount
rate 2021: 0.90%).
The Rest of World Schemes’ deficit
decreased by £0.6 million to £3.7 million
(2021: £4.3 million), (discount rate 2022:
5.30%; discount rate 2021: 2.90%).
The most recent full actuarial valuations
of the UK Schemes were undertaken as at
31 March 2022 and resulted in combined
assessed deficits of £49.7 million on the
‘Technical Provisions’ basis. The Company
subsequently agreed with the Trustees to
make a lump sum contribution to the
Schemes of £67.0 million on 29 December
2022 in lieu of the remaining contributions
that would otherwise have been due
under the existing recovery plans from the
31 March 2019 valuations. The sum paid
also represented the value of the deficit on
the more prudent ‘Long Term Objective’
basis on the date of that agreement,
25 October 2022. As a result, no further
contributions to the Schemes are expected
to be required pending the results of the
next full valuations as at 31 March 2025.
Post balance sheet event
In January 2023 we detected unauthorised
activity on our network. Immediate steps
were taken to contain the incident, launch
response plans, engage our specialist
support services and embark on restoring
systems. All manufacturing sites are
operational, although some continue to use
manual processes as work continues to
restore their systems. This has been treated
as a non-adjusting post balance sheet event
and there has been no impact on the
54
–
Morgan Advanced Materials plc
Annual Report 2022
financial results reported for the year ended
31 December 2022. A small number of
systems have proven irrecoverable; we are
accelerating the implementation of a new,
cloud-based solution at the affected sites.
We expect to incur around £15 million
of systems recovery and specialist support
costs, including IT asset impairment
charges of £0.7 million. These costs
will be presented separately as specific
adjusting items in the consolidated income
statement for the year ending 31 December
2023. At the date of signing, and following
consultation with our advisors, we also
have a non-adjusting post balance
sheet contingent liability relating to
potential enforcement action or civil
claims pending the completion of our
investigation into what data was accessed
and regulatory engagement.
Treasury policies
The following policies were in place
across the Group throughout the year.
The manager of each global business
unit is required to confirm compliance
as part of the year-end process.
Financial Risk Management
and Treasury Policy
Group Treasury works within a framework
of policies and procedures approved by
the Audit Committee. It acts as a service to
Morgan Advanced Materials’ businesses, not
as a profit centre and manages and controls
risk in the treasury environment through
the establishment of such procedures.
Group Treasury seeks to align treasury
goals, objectives and philosophy to those
of the Group. It is responsible for all
of the Group’s funding, liquidity, cash
management, interest rate risk, foreign
exchange risk and other treasury business.
As part of the policies and procedures,
there is strict control over the use of
financial instruments to hedge foreign
currencies and interest rates. Speculative
trading in derivatives and other financial
instruments is not permitted.
Foreign exchange risks
Currency transaction exposures exist as
a result of the global nature of the Group.
The Group has a policy in place to hedge
all material firm commitments and a large
proportion of highly probable forecast
foreign currency exposures in respect of
sales and purchases over the following
12 months and achieves this through the
use of the forward foreign exchange
markets. A significant proportion of the
forward exchange contracts have maturities
of less than one year after the balance
sheet date. The Group continues its
practice of not hedging income statement
translation exposure.
There are exchange control restrictions
which affect the ability of a small number
of the Group’s subsidiaries to transfer funds
to the Group. The Group does not believe
such restrictions have had or will have any
material adverse impact on the Group as
a whole or on the ability of the Group to
meet its cash flow requirements.
Currency translation risks are controlled
centrally. To defend against the impact of
a permanent reduction in the value of its
overseas net assets through currency
depreciation, the Group seeks to match
the currency of financial liabilities with
the currency in which the net assets are
denominated. This is achieved by raising
funds in different currencies and through
the use of hedging instruments such as
swaps and is implemented only to the
extent that the Group’s gearing covenant
under the terms of its loan documents,
as well as its facility headroom, are likely
to remain comfortably within limits. In this
way, the currencies of the Group’s financial
liabilities become more aligned to the
currencies of the trading cash flows which
service them.
Interest rate risk
The Group seeks to reduce the volatility
in its interest charge caused by rate
fluctuations. The proportions of fixed and
floating rate debt are determined having
regard to a number of factors, including
prevailing market conditions, interest rate
cycle, the Group’s interest cover and
leverage position, and any perceived
correlation between business performance
and rates.
Credit risk
Credit risk is the risk of financial loss to
the Group if a customer or counterparty
to a financial instrument fails to meet its
contractual obligations. The Group is
exposed to credit risk on financial
instruments such as liquid assets,
derivative assets and trade receivables.
Cash balances held by companies
representing over 65% of the Group’s
revenue are managed centrally through
a number of pooling arrangements. Credit
risk is managed by investing in liquid assets
and acquiring derivatives in a diversified
way from high-credit-quality financial
institutions. Counterparties are assessed
through the use of rating agencies, systemic
risk considerations, and regular review of
the financial press. Credit risk is further
discussed in note 21 to the consolidated
financial statements on page 166.
Capital investment
The Group has well-established formal
procedures for the approval of investment
in new businesses and for capital
expenditure, to ensure appropriate
senior management review and sign-off.
Borrowing facilities and liquidity
All of the Group’s borrowing facilities are
arranged by Group Treasury with Morgan
Advanced Materials plc as the principal
obligor. In a few cases operating subsidiaries
have external borrowings but these are
supervised and controlled centrally.
Group Treasury seeks to obtain certainty
of access to funding in the amounts,
diversity of maturities and diversity of
counterparties as required to support
the Group’s medium-term financing
requirements and to minimise the impact
of poor credit market conditions.
The Group’s debt and its maturity profile
are detailed in notes 20 and 21 to the
consolidated financial statements on
pages 165 and 166.
Tax risks
The Group follows a tax policy to fulfil
local and international tax requirements,
maintaining accurate and timely tax
compliance whilst seeking to maximise
long-term shareholder value. The Group
adopts an open and transparent approach
to relationships with tax authorities and
continues to monitor and adopt new
reporting requirements, for example those
arising from the implementation of the
OECD Base Erosion and Profit Shifting
proposals within tax legislation across
various jurisdictions.
The tax strategy is aligned to the Group’s
business strategy and ensures that tax affairs
have strong commercial substance. Tax risks
are set out in the Risk Management section
on page 40.
Group financial review
continued
55
Strategic report
Directors’ statements
Going concern statement
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 on pages
2 to 59. The financial position of the Group,
its cash flows, liquidity position and
borrowing facilities, are described earlier in
the Financial Review on pages 50 to 54.
In addition, note 21 to the consolidated
financial statements 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
£230.0 million unsecured multi-currency
revolving credit facility, which matures in
November 2027. As at 31 December 2022,
the Group had both significant available
liquidity and headroom on its covenants.
Total committed borrowing facilities were
£418.3 million. The amount drawn under
these facilities was £264.3 million, which
together with net cash and cash equivalents
of £116.2 million, gave a total headroom
of £270.3 million. The multi-currency
revolving credit facility was £76.0 million
drawn. £34.5 million of senior notes are
due to mature in October 2023.
The principal borrowing facilities are subject
to covenants that are measured semi-
annually 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, including the impact of the cyber
security incident on 2023 cashflows. 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
21 to the financial statements. 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 40% and an increase in net
debt of 45% 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.
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.
Viability statement
In accordance with provision 31 of the
UK Corporate Governance Code, the
Directors have assessed the prospects of
the Company over a period significantly
longer than 12 months. The viability
assessment period remained at five years
to 31 December 2027 in line with
impairment review testing and the strategic
planning process. The Directors consider
this an appropriate period over which to
provide the viability statement based on
management’s reasonable expectations
of the position and performance of the
Company and the dynamics in the markets
in which it operates. Taking into account
the Group’s current position and the
potential impact of the principal risks
documented on pages 40 to 47 of
the Annual Report, the Directors have a
reasonable expectation that the Company
will be able to continue in operation and
meet its liabilities as they fall due over
the period to 31 December 2027.
To allow the Directors to make this
assessment, a business base case has
been built up, initially using a detailed,
bottom-up approach, and then applying
what the Directors consider to be an
appropriate set of assumptions in respect
of growth, margins, working capital flows,
capital expenditure, dividends, refinancing
of borrowing facilities and all other matters
that could have a significant impact on the
financial performance and liquidity of the
Group. The resulting base case provides
the Directors with EBITDA, net debt,
and finance charge headroom relative
to current bank covenants.
The Directors’ assessment also included
a review of the financial impact on revenue,
EBITDA, net debt, and the adequacy of the
financial headroom, relative to a severe
but plausible combination of principal risks
crystalising that could threaten the viability
of the Company. The Directors also
considered the likely effectiveness of the
potential mitigations that management
reasonably believes would be available
to the Company over this period.
56
–
Morgan Advanced Materials plc
Annual Report 2022
While the review has considered all the principal risks identified by the Group, the following were focused on for enhanced stress testing:
Scenarios modelled
Impacts modelled
Link to principal risks
and uncertainties
IT and cyber security
We considered the combination of a failure of a key business system
following the cyber security attack and ineffective implementation
of core systems impacting the Group’s ability to deliver its strategic
goals. The sensitivity analysis performed considered the impact of
a loss of access to the Group’s main ERP system as well as additional
accelerated investment in systems following the cyber incident
which occurred in January 2023.
Reduction in revenue reflecting 2 weeks’
loss of a main ERP system along with
one-off exceptional costs required to
reinstate the system to the latest cyber
security standards. Additional accelerated
costs of rolling out new system in each
year of the assessment.
IT, cyber security
and data management
risks
Compliance breach
We considered the impact of the breach of national and
international laws and regulations including those related to bribery
and corruption, human rights, trade/export compliance and
competition/anti-trust activities. The impact of a regulatory fine
or a penalty has been considered.
Combined 8% reduction in revenue
due to reputational impacts. Increase in
costs and net debt from regulatory fines
and legal fees.
Compliance risk
As part of the ongoing risk management process, principal and emerging risks are identified and reviewed on a regular basis. There are
a number of mitigating actions the Group takes to manage and reduce risk, further details of which can be found in the Risk Management
section on pages 40 to 47.
The Group has significant financial resources including committed and uncommitted banking and debt facilities, as outlined in the going
concern statement. In assessing the Group’s viability, the Directors have assumed availability of debt capital markets and that the existing
banking and debt facilities will remain in place or mature as intended.
Whilst this review does not consider all of the possible risks that the Group could face, the Directors consider that the approach adopted,
and the work performed is reasonable in the circumstances of the inherent uncertainty involved and that it allows the Board to confirm
that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over
the period to 31 December 2027.
Directors’ statements
continued
57
Strategic report
Definitions and reconciliations of
non-GAAP measures to GAAP measures
Reference is made to the following non-GAAP measures throughout this document. These measures are shown because 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. As defined
in the basis of preparation section on page 144, these measures are calculated on a continuing basis.
Adjusted operating profit
Adjusted operating profit is stated before specific adjusting items and amortisation of intangible assets. Specific adjusting items are excluded
on the basis that they distort trading performance. Amortisation is excluded, consistent with previous years.
2022
Thermal
Ceramics
£m
Molten
Metal
Systems
£m
Electrical
Carbon
£m
Seals and
Bearings
£m
Technical
Ceramics
£m
Segment
total
£m
Corporate
costs
1
£m
Group
£m
Operating profit
44.3
7.5
39.1
16.6
39.2
146.7
(5.9)
140.8
Add back specific adjusting items
included in operating profit
2.8
–
(0.1)
1.6
1.2
5.5
–
5.5
Add back amortisation of intangible assets
1.6
0.3
0.7
0.8
1.3
4.7
–
4.7
Adjusted operating profit
48.7
7.8
39.7
19.0
41.7
156.9
(5.9)
151.0
Adjusted operating profit margin
11.6%
13.5%
21.0%
12.8%
14.1%
13.6%
1.
Corporate costs consist of central head office costs.
2021
Thermal
Ceramics
£m
Molten
Metal
Systems
£m
Electrical
Carbon
£m
Seals and
Bearings
£m
Technical
Ceramics
£m
Segment
total
£m
Corporate
costs
1
£m
Group
£m
Operating profit
37.8
6.0
25.6
22.0
18.9
110.3
2.8
113.1
Add back specific adjusting items
included in operating profit
2.1
(0.3)
6.3
–
6.0
14.1
(8.7)
5.4
Add back amortisation of intangible assets
2.1
0.6
0.9
0.9
1.5
6.0
–
6.0
Adjusted operating profit
42.0
6.3
32.8
22.9
26.4
130.4
(5.9)
124.5
Adjusted operating profit margin
11.5%
13.2%
19.9%
16.9%
11.1%
13.1%
1.
Corporate costs consist of central head office costs.
Organic growth
Organic growth is the growth of the business excluding the impacts of acquisitions and divestments, and foreign currency impacts.
This measure is used as it allows revenue and adjusted operating profit to be compared on a like-for-like basis.
Commentary on the underlying business performance is included as part of the Review of operations on pages 48 to 49.
Year-on-year movements in segment revenue
Thermal
Ceramics
£m
Molten
Metal
Systems
£m
Electrical
Carbon
£m
Seals and
Bearings
£m
Technical
Ceramics
£m
Segment
total
£m
2021 revenue
364.7
47.7
164.9
135.9
237.3
950.5
Impact of foreign currency movements
13.7
2.2
7.1
8.4
18.2
49.6
Impact of acquisitions, disposals and business exits
–
–
–
0.2
(0.1)
0.1
Organic constant-currency change
43.0
7.9
16.7
4.0
40.3
111.9
Organic constant-currency change %
11.4%
15.8%
9.7%
2.8%
15.8%
11.2%
2022 revenue
421.4
57.8
188.7
148.5
295.7
1,112.1
58
–
Morgan Advanced Materials plc
Annual Report 2022
Definitions and reconciliations of non-GAAP measures to GAAP measures
continued
Year-on-year movements in segment and Group adjusted operating profit
Thermal
Ceramics
£m
Molten
Metal
Systems
£m
Electrical
Carbon
£m
Seals and
Bearings
£m
Technical
Ceramics
£m
Segment
total
£m
Corporate
costs
1
£m
Group
£m
2021 adjusted operating profit
42.0
6.3
32.8
22.9
26.4
130.4
(5.9)
124.5
Impact of foreign currency movements
(1.1)
0.1
–
1.2
1.0
1.2
5.7
6.9
Impact of acquisitions, disposals and
business exits
–
–
–
0.1
0.2
0.3
–
0.3
Organic constant-currency change
7.8
1.4
6.9
(5.2)
14.1
25.0
(5.7)
19.3
Organic constant-currency change %
19.3%
21.9%
21.0%
(21.5%)
51.1%
14.7%
2022 adjusted operating profit
48.7
7.8
39.7
19.0
41.7
156.9
(5.9)
151.0
Group EBITDA
*
Group EBITDA
*
is defined as operating profit before specific
adjusting items, depreciation and amortisation of intangible assets.
The Group uses this measure as it is a key metric in covenants over
debt facilities, these covenants use EBITDA
*
on a pre-IFRS 16 basis.
A reconciliation of operating profit to Group EBITDA
*
is as follows:
2022
£m
2021
£m
Operating
profit/(loss)
140.8
113.1
Add back: specific adjusting items included
in operating profit
5.5
5.4
Add back: depreciation – property, plant
and equipment
30.3
30.1
Add back: depreciation – right-of-use assets
7.8
7.9
Add back: amortisation of intangible assets
4.7
6.0
Group EBITDA
*
189.1
162.5
Group EBITDA
*
excluding IFRS 16
Leases impact
177.7
151.6
Free cash flow before acquisitions, disposals
and dividends
Free cash flow before acquisitions, disposals and dividends is
defined as cash generated from continuing operations less net
capital expenditure, net interest (interest paid on borrowings,
overdrafts and lease liabilities, net of interest received), tax paid
and lease payments.
The Group discloses this measure of free cash flow as this provides
readers of the consolidated financial statements with a measure
of the cash flows from the business before corporate-level cash
flows (acquisitions, disposals and dividends).
A reconciliation of cash generated from continuing operations
to free cash flow before acquisitions, disposals and dividends is
as follows:
2022
£m
2021
£m
Cash generated from
continuing operations
59.1
135.9
Net capital expenditure
(57.4)
(28.1)
Net interest on cash and borrowings
(5.4)
(5.3)
Tax paid
(31.8)
(25.4)
Lease payments and interests
(11.4)
(10.9)
Free cash flow before acquisitions,
disposals and dividends
(46.9)
66.2
Net cash and cash equivalents
Net cash and cash equivalents is defined as cash and cash
equivalents less bank overdrafts. The Group discloses this measure
as it provides an indication of the net short-term liquidity available
to the Group.
2022
£m
2021
£m
Cash and cash equivalents
117.7
127.3
Bank overdrafts
(1.5)
(0.5)
Net cash and cash equivalents
116.2
126.8
59
Strategic report
Net debt
Net debt is defined as borrowings, bank overdrafts and lease
liabilities, less cash and cash equivalents. The Group also discloses
this metric excluding lease liabilities as this is the measure used in
the covenants over the Group’s debt facilities.
2022
£m
2021
£m
Cash and cash equivalents
117.7
127.3
Non-current borrowings
(230.1)
(174.0)
Non-current lease liabilities
(41.4)
(40.0)
Current borrowings and bank overdrafts
(36.1)
–
Current lease liabilities
(10.5)
(9.8)
Closing net debt
(200.4)
(96.5)
Closing net debt excluding
lease liabilities
(148.5)
(46.7)
Return on invested capital
Return on invested capital (ROIC) is defined as the 12-month
Group adjusted operating profit (operating profit excluding specific
adjusting items and amortisation of intangible assets) divided by the
12-month average adjusted net assets (third-party working capital,
plant and equipment, land and buildings, right-of-use assets,
intangible assets and other balance sheet items). This measure
excludes long-term employee benefits, deferred tax assets and
liabilities, current tax payable, provisions, cash and cash equivalents,
borrowings, overdrafts and lease liabilities.
2022
£m
2021
£m
Operating profit
140.8
113.1
Add back: specific adjusting items
5.5
5.4
Add back: amortisation of intangible assets
4.7
6.0
Group adjusted operating profit
151.0
124.5
12-month average adjusted net assets:
Third-party working capital
183.8
135.0
Plant and equipment
166.5
152.2
Land and buildings
101.0
98.9
Right-of-use assets
33.1
33.0
Intangible assets
188.7
183.8
Other assets (net)
1.5
3.3
12-month average adjusted
net assets
674.6
606.2
ROIC
22.4%
20.5%
Adjusted earnings per share
Adjusted earnings per share is defined as operating profit adjusted
to exclude specific adjusting items and amortisation of intangible
assets, plus share of profit of associate less net financing costs,
income tax expense and non-controlling interests, divided by the
weighted average number of Ordinary shares during the period.
This measure of earnings is shown because the Directors consider
it provides an indication of adjusted performance, which is less
impacted by adjusting items and therefore reflects the underlying
performance trends in the business.
Whilst amortisation of intangible assets is a recurring charge it is
excluded from these measures on the basis that it primarily arises
on externally acquired intangible assets and therefore does not
reflect consistently the benefit that all of Morgan’s businesses realise
from their intangible assets, which may not be recognised separately.
A reconciliation from IFRS profit to the profit used to calculate
adjusted earnings per share
*
is included in note 10 to the
consolidated financial statements on page 155.
Constant-currency revenue and
adjusted operating profit
Constant-currency revenue and adjusted operating profit are
derived by translating the prior year results at current year average
exchange rates. These measures are used as they allow revenue to
be compared excluding the impact of foreign exchange rates.
Pages 171 to 173 provides further information on the principal
foreign currency exchange rates used in the translation of the
Group’s results to constant-currency at average exchange rates.
This Strategic Report, as set out on pages 2 to 59, has been
approved by the Board.
On behalf of the Board
Winifred Chime
Company Secretary
27 April 2023
60
–
Morgan Advanced Materials plc
Annual Report 2022
Governance
Chair’s letter to shareholders
61
Board of Directors
62
Governance at a glance
64
Strategic oversight by the Board
66
Measuring and living our culture
68
Listening to employees
72
Assessing Board performance
74
UK Corporate Governance Code 2018
compliance statement
75
Report of the Audit Committee
79
Report of the Nomination Committee
86
Remuneration report
90
Other disclosures
117
Independent auditor’s report to the members
of Morgan Advanced Materials plc
121
Contents
“
The guiding principle of
the board is to do the
right thing with respect
to all our stakeholders
and the environment.
”
Douglas Caster
CBE FIET
Non-executive Chair
Governance
61
Dear shareholder
On behalf of the Board,
I am pleased to introduce our
Governance Report for the year
ended 31 December 2022.
This report sets out our approach
to effective corporate governance
and outlines key areas of focus
of the Board and the activities
undertaken during the year as we
continue to drive long-term value
creation for all our stakeholders.
Board’s focus during the year
Our strong trading performance this year
has been underpinned by good governance
practice, which has given the business the
resilience to prosper even in challenging
times. It would be easy to assume that
this resilience was just inherent within
the business, but that is not the case.
It comes from good governance, clear
accountabilities and reporting lines,
careful planning and relentless execution.
The resilience of our business was tested
in January 2023 after we were called on
to manage the consequences of a cyber
security incident, having detected
unauthorised activity on our network.
Immediate steps were taken to contain the
incident, launch incident response plans,
engage specialist support services and
embark on restoring systems. The Board
oversaw the work to contain the incident
and recover the systems, with meetings
regularly held throughout this period.
I would like to thank the team on behalf
of the Board for their resilience and the
considerable efforts and dedication they
demonstrated throughout this period.
Chair succession
After serving on the Board for nine years
and as Chair since January 2019, Morgan
announced in January 2023 that I would
retire from the Board at the conclusion of
the Annual General Meeting on 29 June
2023. Our Nomination Committee, led
by our Senior Independent Director,
Laurence Mulliez, oversaw the succession
and appointment process which led to
the appointment of Ian Marchant as
non-executive Director and Chair designate
on 1 February 2023. Ian’s strong track
record of value creation and listed board
experience at major businesses across
various sectors over the last 35 years
stand him in an excellent position to
succeed me and to lead the Morgan Board.
A comprehensive induction programme
was provided to Ian which gave him an
opportunity to meet members of the
Executive Committee, senior management
and a number of other Morgan colleagues
and to gain rapid insight and understanding
of Morgan, its business and culture. Further
information on the Chair selection process
and induction can be found on page 89.
It has been a privilege to work with so
many talented colleagues at Morgan as we
repositioned the Group into the leading
global manufacturer of advanced carbon
and ceramic materials. I have every
confidence that the Group has the
capabilities to continue to lead and grow
in its markets in the years ahead. I wish
Ian and the Morgan Board every success.
Board evaluation
We carried out an internal review of our
performance this year, following the
externally facilitated review in 2021.
Both reviews were facilitated by Clare
Chalmers Limited. I’m pleased to confirm
that the Board concluded that it, its
Committees and the individual Directors
had continued to operate effectively and
fully discharged their responsibilities during
2022. The results of this review are set
out on page 74.
Stakeholder engagement
Our stakeholder relationships are also vital
in building resilience and safeguarding value,
and the Board will continue to focus on
these relationships. Our strong relationships
with our colleagues and our customers
helped to contain the impact of the cyber
incident and the move towards recovery.
But in addition to fostering good
stakeholder relationships, resilience
also comes from good business as usual
governance safeguards. During the year,
the Board continued to prioritise health
and safety, risk and ethics.
The non-executive Directors participated
directly in employee listening sessions and
carried out a full programme of activities
during the year. The insights from these
sessions add an important perspective
to Board discussions and decisions. This
ensures employee voices are heard and
considered as the Board makes decisions
that influence the future of Morgan. Further
detail on the listening sessions are included
on pages 72 to 73.
UK Corporate Governance Code
and statement of compliance
Morgan applied all the principles and
complied with all the relevant provisions
of the 2018 UK Corporate Governance
Code (the Code) during FY22, with the
exception of provision 38 (alignment of
executive Director pension contribution
rates with those available to the workforce).
Richard Armitage was appointed in May
2022 with a pension benefit which was
aligned to the workforce. Pete Raby’s
pension benefit was fully aligned with the
wider workforce from 1 January 2023.
Details on how we have applied the
principles set out in the Code and how
governance operates at Morgan have
been summarised on pages 75 to 78.
Douglas Caster
CBE FIET
Non-executive Chair
Chair’s letter to shareholders
Pete Raby
Chief Executive Officer
Richard Armitage
Chief Financial Officer
Douglas Caster CBE FIET
Non-executive Chair
Appointed:
Non-executive
Director in February 2014. Non-
executive Chair and Nomination
Committee Chair in January 2019.
Skills and contribution:
Douglas is an experienced
chair with leadership and
governance experience and a
strong track record of managing
and driving growth within
electronics businesses.
Career and experience:
Douglas began his career as
an electronics design engineer
with the Racal Electronics Group
in 1975, before moving to
Schlumberger in 1986 and then
to Dowty as Engineering Director
of Sonar & Communication
Systems in 1988. In 1992, he
became Managing Director of that
business and, after participating
in the management buyout
that formed Ultra Electronics,
joined the Board in October
1993. In April 2000, he became
Managing Director of Ultra’s
Information & Power Systems
division. In April 2004, he was
appointed Chief Operating Officer
and became Chief Executive in
April 2005. He was appointed
Deputy Chair in April 2010
and was Chair of Ultra from
April 2011 until 28 January 2019.
Douglas was non-executive
Chair of Metalysis Limited from
January 2015 until June 2019.
Douglas was Morgan Advanced
Materials plc’s Senior Independent
Director from January 2015
until December 2017. He was
appointed Chair in January
2019, and will retire from that
role, and step down from the
Board after the Company’s
AGM on 29 June 2023.
Additional appointments:
None
Committees
N
R
Appointed:
February 2023.
Ian will succeed Douglas Caster
as the Company’s Chair after
the Company’s 2023 AGM.
Skills and contribution:
Ian is a highly strategic and
successful leader with more
than 35 years of wide-ranging
experience at major businesses,
bringing a strong track record of
value creation and listed board
experience. He brings significant
expertise in governance,
finance, regulation, renewable
energy and climate change
mitigation to Morgan’s Board.
Career and experience:
Ian served as Chief Executive of
SSE plc from October 2002 to
June 2013; prior to this he was
the Finance Director of SSE and
Southern Electric plc. He is a
seasoned non-executive director
and chair, having served as Chair
of John Wood Group plc and
on the Board of Aggreko plc.
Additional appointments:
Chair of Thames Water Utilities
Ltd (He will step down as
Chair and Director in July
2023) and Logan Energy Ltd.
Committees
N
R
Board of Directors
Appointed:
August 2015.
Skills and contribution:
Pete has a strong technical
background and extensive
experience in planning and
executing business strategy
across global technology and
manufacturing operations.
As CEO, he leads the Executive
Committee and is responsible
for Morgan’s overall ESG
performance, central to
our strategic objectives and
business model. The Group’s
Environment, Health, Safety
and Sustainability (EHSS)
team reports directly to Pete,
enabling him to keep the Board
apprised on the establishment
of goals, management of risks
and opportunities, reporting
and related governance
procedures in that area.
Career and experience:
Pete joined Morgan Advanced
Materials in August 2015 as
Chief Executive Officer. Before
joining Morgan, Pete was
President of the Communications
and Connectivity sector of
Cobham plc. Pete demonstrated
strong leadership across a range
of senior strategy, technology
and operational positions at
Cobham over a nine-year period.
Prior to Cobham, Pete was a
partner at McKinsey & Company
in London, specialising in strategy
and operations in the aerospace,
defence and power and gas
sectors. He has a PhD in satellite
navigation and an MEng from
the Department of Electronic
and Electrical Engineering at
the University of Leeds.
Additional appointments:
Non-executive Director,
Hill & Smith plc.
Appointed:
May 2022.
Skills and contribution:
Richard has broad experience
including financial management,
investor relations, capital
markets, M&A, and commercial
management, gained through
roles in a number of listed and
privately owned chemicals and
consumer goods companies.
Career and experience:
Richard joined Morgan Advanced
Materials in May 2022 as Chief
Financial Officer. Before this,
Richard was Chief Financial
Officer at Victrex Group plc
between 2018 and 2022.
During this time, he was
responsible for Finance,
I.T., Legal and Corporate
Development, as well as
the development of the
Group’s Chinese businesses.
Prior to Victrex, Richard was
CFO at Samworth Brothers
from 2014 to 2018, CFO of
McBride plc from 2009 to
2014, and before that held
senior finance positions
at Courtaulds plc, ICI plc,
and Premier Foods plc.
Additional appointments:
Senior Independent Director
and Chair of the Audit
Committee at NWF Group plc.
62
–
Morgan Advanced Materials plc
Annual Report 2022
Ian Marchant
Chair Designate &
Independent
Non-executive Director
Jane Aikman
Independent
Non-executive Director
Helen Bunch
Independent
Non-executive Director
Laurence Mulliez
Senior Independent Director
Clement Woon
Independent
Non-executive Director
Appointed:
Non-executive
Director and Audit Committee
Chair in July 2017.
Skills and contribution:
Jane brings to the Board
significant financial experience
and knowledge of growing
manufacturing, technology
and marketing businesses
gained in a variety of senior
executive positions. Jane brings
a valuable perspective from
her current executive role
in the marketing sector.
Career and experience:
Jane has been Chief Financial
Officer of Inside Ideas Group
Limited since July 2020. Up
until May 2019, Jane was Chief
Financial Officer of Arqiva
Group Limited, a communications
infrastructure company. Prior to
this, she was the Chief Financial
Officer of KCOM Group plc,
a listed communications services
and IT solutions provider. She
was Chief Financial Officer
and Chief Operating Officer of
Phoenix IT Group plc until its
acquisition by Daisy Group in
2015. Jane has also held Chief
Financial Officer positions at Infinis
plc, Wilson Bowden plc and
Pressac plc, and a senior finance
position at Asia Pulp and Paper in
Southeast Asia. Jane was a non-
executive Director of Halma plc
from 2007 and chaired its Audit
Committee from 2009 until her
departure in July 2016. Jane
holds a civil engineering degree
and qualified as a Chartered
Accountant with Ernst & Young.
Additional appointments:
Group Director and Group
Chief Financial Officer of
Inside Ideas Group Limited.
Committees
A
N
R
Appointed:
Non-executive
Director in February 2016.
Remuneration Committee
Chair on January 2019.
Skills and contribution:
Helen has significant
experience of driving business
performance, forging long-
term relationships and building
businesses in new markets, with
a background encompassing
corporate governance and
customer relations. Helen is
a member of the Executive
Committee at Wates Group,
a construction sector pioneer
in creating social value, with
strong ESG credentials.
Career and experience:
At the start of her career, Helen
spent 17 years working in global
businesses serving a wide variety
of industries from automotive
to household products, including
11 years with ICI and the
remainder with a successor
company, Lucite International
Ltd. In 2006, Helen joined
Wates Group as Group Strategy
Director, and became Managing
Director of Wates Retail Limited
in January 2011. From 2015 to
July 2020 Helen was Managing
Director of Wates Smartspace
Limited, the enlarged property
services business, following a
merger with another Wates
company and the acquisition
of a facilities management
business. In July 2020, Helen
became Executive Managing
Director of Wates Residential.
Additional appointments:
Executive Managing Director
of Wates Residential.
Committees
A
N
R
Appointed:
Non-executive
Director in May 2016.
Senior Independent Director
in December 2017.
Skills and contribution:
Laurence has significant
experience in growing, simplifying
and unifying complex international
and industrial manufacturing
businesses and brings valuable
knowledge of the energy
(including renewables), steel
and infrastructure industries,
and insight into some of
Morgan’s key markets.
Career and experience:
Laurence joined Banque
Nationale de Paris in 1988,
followed by M&M Mars Inc. in
1992 and then Amoco Chemical
Inc. in 1993, which was acquired
by BP p.l.c. in 1998. She spent a
further 11 years at BP in a variety
of roles including Chief Executive
of Castrol Industrial Lubricants
and Services. Laurence was
Chief Executive of independent
power producer Eoxis UK
Limited from 2010 to 2013.
Additional appointments:
Chair of Voltalia S.A. and
Globeleq Ltd. Member of
the supervisory board and
Chair of the Audit Committee
of Siemens Energy AG.
Committees
A
N
R
Appointed:
May 2019.
Skills and contribution:
Clement has broad managerial
experience in globally operating
technology and consumer-related
industries. He has a strong track
record of renewing traditional
industries and revitalising growth
through strategic interventions,
and in-depth experience and
knowledge of markets within
the Asia Pacific region.
Career and experience:
From August 2016 to March
2020, Clement was Group CEO
of Saurer Intelligent Technology
Co. Ltd, a €1 billion textile
machinery and components
business listed on the Shanghai
Stock Exchange. Clement
continued to serve on the board
of Saurer as non-executive
director until August 2021. Prior
to this, from April 2014 to July
2016, Clement was Advisor and
Co-CEO of Jinsheng Industry
Co Ltd, an industrial company
in China with diverse interests
including biotech, automotive
and textiles. Previously Clement
held various senior positions at
companies based in Switzerland
and Singapore including Division
CEO of Leica Geosystems AG,
President and CEO of SATS Ltd,
and CEO Textile Division of
OC Oerlikon AG. Clement has an
MBA in Technology Management
from Nanyang Technological
University, Singapore, an MSc in
Industrial Engineering and a BEng
in Electrical Engineering from the
National University of Singapore.
Additional appointments:
Non-executive Director
of Elementis plc.
Committees
A
N
R
Committees
Committee Chair
Audit
Nomination
Remuneration
Governance
63
64
–
Morgan Advanced Materials plc
Annual Report 2022
Governance at a glance
Governance at a glance
Desired/required skills, experience, attributes
Douglas
Ian
Laurence
Helen
Jane
Clement
Pete
Richard
Leadership and business operations
Strategy development
Commercial
Accounting and finance
Audit, risk management and assurance
Remuneration/People
Corporate governance
Engineering and industrial sector
Technology/Innovation/R&D
International business
M&A/Portfolio management
Safety/Environmental/Sustainability
Significant change/Large transformation
Director attendance at meetings of the Board and its Committees
Director
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Douglas Caster
8/8
4/4
1
3/3
4/4
Ian Marchant
2
0/0
0/0
0/0
0/0
Pete Raby
8/8
4/4
1
3/3
1
4/4
1
Richard Armitage
3
5/5
3/3
1
–
–
Peter Turner
3
3/3
1/1
1
–
–
Jane Aikman
8/8
4/4
3/3
4/4
Helen Bunch
8/8
4/4
3/3
4/4
Laurence Mulliez
8/8
4/4
3/3
4/4
Clement Woon
8/8
4/4
3/3
4/4
1.
Attended by invitation.
2.
Ian Marchant joined the Board on 1 February 2023.
3.
Richard Armitage joined the Board on 30 May 2022. Peter Turner retired from the Board on 30 May 2022.
Board composition
Female
3
Male
5
Gender
Chair (independent
on appointment)
1
Executive Directors
2
Senior Independent
Director
1
Independent non-executive
Directors
4
Board balance of roles
Ethnic origin
White British
6
White European
1
Southeast Asian
1
Non-executive Director
tenure
0-3 years
1
4-6 years
2
7-9 years
3
Governance
65
Chief
Executive
Officer’s
report
At every Board meeting, the Chief Executive presented
a paper covering topics such as:
safety
business, markets and customers
acquisitions and divestments
investor meetings
information systems and technology
key project and GBU updates
people.
The Chief Executive’s report incorporates matters
relating to strategy and matters discussed at Executive
Committee meetings.
Chief
Financial
Officer’s
report
At every Board meeting, the Chief Financial Officer
presented on topics such as:
Group and GBU financial performance
investor engagement and feedback
capital allocation
refinancing
pensions.
Further information about the refinancing and funding
of the pension schemes can be found in the s.172
statement on pages 28 to 29.
EHSS
update
At every Board meeting, the EHSS Director presented
on topics such as:
Group safety performance
progress on safety initiatives
performance on environmental and sustainability
matters and initiatives.
Company
Secretary’s
report
At every Board meeting, the Company Secretary
presented a paper on topics such as:
governance and regulatory matters
litigation update
share register analysis.
Non-
executive
Directors
only session
At every Board meeting, the non-executive Directors
met without management present.
Standing agenda items
In addition to the matters shown on the 2022 timeline, at each
meeting the Board received strategic, operational and financial
updates from the Chief Executive Officer and Chief Financial
Officer. The Board also received updates from the Environmental,
Health, Safety & Sustainability (EHSS) Director and Group
Company Secretary.
Key Board activity
Set out below are highlights of the matters the Board considered
in 2022. Not all of the matters the Board considered are listed,
therefore this should not be considered an exhaustive list of activities.
Strategic priorities overview
Approval of capital expenditure
Approval of 2021 annual results and dividend policy
2021 ‘Your Voice’ survey results
2021 Board performance evaluation – actions
Update from the independent trustee of UK Pension Scheme
Investor feedback on 2021 results
Approval of trading update
Approval of capital expenditure
Broker updates
Inclusion & Diversity update
Review feedback from shareholders pre AGM
and review proxy voting results
IT update
Group strategy review
Global business unit (GBU) strategy reviews
Modern Slavery & supplier engagement
Corporate Governance Code compliance
Key risks update
Insurance renewal
Group Strategy update
GBU strategy reviews
Approval of 2022 interim results and dividend policy
2021 Board performance evaluation update
Pension update
Treasury update
Monitoring and assessment of culture
Group Portfolio Strategy update
Talent, leadership, capability and succession update
Approval of capital expenditure
Ethics update
Investor feedback on 2022 interim results
Capital allocation
RCF refinancing
Funding for UK pension schemes
Approval of trading update
Defence strategy review
IT update
ERP Project update
2022 Board performance evaluation results
Group risk review
Approval of capital expenditure
February
April
May
June
July
September
November
December
66
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Morgan Advanced Materials plc
Annual Report 2022
Setting strategy
The Board reviews and agrees the
strategy for the Group on an annual
basis and reviews aspects of strategy
at Board meetings during the year.
The Board considers a wide range of
matters when setting Group strategy
including, but not limited to:
market overview
trends, including megatrends and
those affecting customer behaviour
competitor environment
investor sentiment and
shareholder returns
global business unit strategies
environmental, social and
governance (ESG) and
sustainability matters
finance
people and talent.
How governance contributes
to the delivery of strategy
Details of how opportunities and risks to
the future success of the business have
been considered and addressed can be
found in the Strategic Report on pages
40 to 47. Details of the sustainability
of the Company’s business model can
be found in the Strategic Report on
pages 12 to 13. Details of Morgan’s
governance framework which underpins
the delivery of strategy can be found
on page 75. An overview of Morgan’s
strategy can be found in the Strategic
Report on pages 16 to 17 and 20 to 23.
The Board monitors progress against the
strategic execution priorities underpinning
delivery of the Group strategy:
Big positive difference
Delight the customer
Innovate to grow
Strategic oversight by the Board
Big positive
difference
Strategic execution priorities
Progressing
2030 goals
Protect the environment
50% reduction in scope 1 and scope 2 CO
2
e emissions
1
30% reduction in water use in high and extremely high stress areas
30% reduction in total water usage
Provide a safe, fair and inclusive workplace
0.10 lost-time accident rate
40% of our leadership population will be female
Top quartile engagement score
What did the
Board consider
and approve?
Monitored strategic progress against 2030 business goals, ensuring clear and
continued linkage to sustainable outcomes, meeting the strategic objective to
create value for shareholders, stakeholders and society.
Reports from the EHSS Director on the progress of our journey towards
zero harm, training being deployed to all employees focusing on our
safety culture, investment in safety improvements and progress against
our commitments to reduce waste, manage our water consumption,
and reduce our emissions
Succession plans for the Executive Committee members and
senior management
The results of the 2021 employee engagement survey, ‘Your Voice’
The new five-year revolving credit facility which incorporates
sustainability-linked performance targets which align with our ambitious
sustainability plans
What were
the material
stakeholder
considerations?
Full stakeholder benefit.
The ability of Morgan’s 2030 goals to deliver
value for shareholders, stakeholders and society by driving towards net
zero at pace, and in a socially just way
Embedded in culture.
Employees and GBUs continue to embrace the
2030 goals as a long-term vision and symbol of Morgan’s commitment
to delivering social value through business operations
Clear tracking of progress.
Shareholders engaged constructively on
Morgan’s 2030 goals, citing the importance of quantifiable criteria and
meaningful linkage including when considering remuneration metrics
1.
Reduction targets shown are compared with a 2015 baseline.
1
Governance
67
Investment in
product and
service
offerings
Shape our product and service offerings
further based on customer needs, with the
overall objective of making our business
more customer-centric.
What did the
Board consider
and approve?
Opportunities to better align our product
and service offerings to meet the needs of
our customers.
Update on a voice of customer exercise to
understand customer views from across the
Group. Once complete, the results will be
shared with the Board and will provide an
additional route for the Board to understand
customer views
Capital investments to tailor our product,
service and support offerings more closely
to customer needs, based on customer
feedback gathered during 2022 which
enabled us to understand our customer
segments in more detail
What were
the material
stakeholder
considerations?
Addressing customer needs.
The outputs
and performance levels to deliver on stated
customer priorities, including customer
service, maintaining focus on safety, quality,
delivery, inventory and productivity
Sustainable
solutions
to support
the energy
transition
Develop a diversified portfolio of sustainable
solutions including:
Aerospace: Leading material for high
efficiency engines
Clean energy: Increasing lifetime and
performance of solar, wind and energy storage
Clean transportation: Superior materials for
longer lifetimes
Healthcare: Best-in-class materials and
miniaturisation technology
Semiconductors: Higher performance materials
for the most demanding process steps
Industrial: Higher efficiency solutions for
industrial customers
What did the
Board consider
and approve?
Opportunities to support the growth of Morgan’s
portfolio of sustainable solutions and to maintain a
sustained pipeline of development opportunities.
Capital investments in our core markets to
provide our customers with products and
solutions that make them more sustainable
Capital investments to increase our exposure
to our four faster growing markets that reflect
global trends: semiconductors, healthcare,
clean energy, clean transportation
What were
the material
stakeholder
considerations?
Strategic proposition.
To ensure an acceptable
investment case, the opportunities and risks
of each investment are assessed across a
range of criteria, including: fit with strategy,
geographic and market economics, policy
and societal context, revenue certainty and
future return profile
Risk and portfolio diversification.
Diversification across geographies and
technologies creates optionality, mitigates
development risk, and exploits existing
in-house capabilities.
Delight the
customer
Innovate
to grow
“
The more we understand
our customers, their businesses,
markets and technical challenges,
the more effective we can be at
providing them with a solution.
”
2
3
68
–
Morgan Advanced Materials plc
Annual Report 2022
Measuring and living our culture
Morgan’s core values help define the behaviours of our people and underpin our purpose.
Culture at Morgan is underpinned by our purpose ‘to use advanced materials to make
the world more sustainable, and to improve the quality of life’.
To use advanced materials
to make the world more
sustainable, and to improve
Our culture
Our leadership behaviours
We are ambitious about the future
We build strong teams
We are relentless in driving
performance
Whilst ensuring that we are:
Always working safely
Always working ethically
Treating our people fairly
Protecting our business
Our long-term sustainability
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.
Reliable problem
solving
Ethically, safely and
sustainably
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Governance
69
How the Board measures
and assesses culture
The Board is responsible for monitoring and
assessing our culture. The Chair ensures
that the Board is operating appropriately
and sets the Board’s culture which in turn
forms the culture of the Company. The
Chief Executive, supported by members of
the Executive Committee, is responsible
for ensuring the right culture and behaviours
are embedded throughout the business and
its operations and in all our dealings with
our stakeholders.
The Board measures the culture of
the Group using internal and external
metrics which also enable it to identify
further actions to ensure our culture
remains appropriate. The Board considers
the following:
Safety
– an area of paramount
importance to our people, customers
and partners, especially given the
continuing impact of the COVID-19
pandemic. We continue to adapt business
operations to ensure that our people,
customers and partners can perform
their roles safely and effectively. We
closely monitor the developing situation
and challenges to ensure we provide the
appropriate requirements and support.
The Board receives an update in person
from the Director of Environment,
Health, Safety and Sustainability at
most Board meetings which contains
safety statistics, both leading and lagging
indicators, progress on safety initiatives
and against the plan of work for the year,
and details of serious incidents and root
cause analysis. Safety performance is
also part of presentations to the Board
by the Presidents of the GBUs, proposals
for capital expenditure, key risks and
other ad hoc presentations to the Board.
This enables the Board to gauge ‘tone
at the top’.
Employee retention
– our employees
are our greatest asset and it is important
that we do everything we can to retain
them. We conduct an annual employee
engagement survey – ‘Your Voice’.
The survey was conducted in November
2021 and 2022 to provide feedback to
senior management to identify whether
further actions were required. The
feedback was reviewed by the Executive
Committee with the findings reported
to the Board.
Further information on the actions taken
as a result of the 2021 ‘Your Voice’ survey
during 2022 can be found on pages 70
to 71
Whistleblowing
– Morgan has an
independent ‘Speak Up’ service through
EQS to enable employees, customers,
suppliers and third parties to report any
concerns or wrongdoing anonymously
without any fear of retaliation. The
whistleblowing service and related
internal procedures are structured to
ensure that all reports are reviewed
and investigated independently from
the area of the business to which they
relate, thereby minimising the risk of
conflicts arising. All reports are copied
to and reviewed by the Global Ethics
and Compliance function. This helps to
ensure transparency and enables any
trends to be identified and addressed.
Comprehensive information on
the whistleblowing reports made is
provided to the Audit Committee at
each meeting and to the Ethics and
Compliance Steering Committee, which
comprises the members of the Executive
Committee, Ethics and Compliance
Director, Head of Internal Audit and
Group Company Secretary. The updates
to the Audit Committee include details
of incident reports received in the period
between meetings as well as details of
ongoing investigations. Trends identified
from these reports were escalated to,
and considered by, the Board where
they were considered to be inconsistent
with the desired culture. The summary
of reports to the ‘Speak Up’ hotline
presented to the Audit Committee
provided an insight into the frequency
and type of issues being raised by
employees and whether safety was
a particular concern.
Workforce engagement
– the non-
executive Directors heard first-hand
from employees during the employee
listening sessions held during 2022.
The non-executive Directors asked open
questions and listened to the feedback
from employees. Coupled with the
Board site visits and presentations to
the Board by those below the Executive
Committee, this helps the Board to
gauge the mood of the organisation.
Further information on workforce
engagement can be found on pages 72
to 73
Alignment of remuneration and
culture
– our purpose has never been
more meaningful than in the present
context, as the world continues to
navigate the long-lasting impacts of
the pandemic. Our incentive schemes
are designed to drive behaviours
consistent with the Company’s purpose,
values and strategy. We believe that
our Remuneration Policy and its
implementation are value-based, and
will create sustainable momentum for
the business, our people, our customers
and our shareholders in the years
to come, whilst also supporting the
sustainable delivery of Morgan’s clear
and differentiated strategy.
Further information on the remuneration
policy can be on pages 94 to 102
70
–
Morgan Advanced Materials plc
Annual Report 2022
Measuring and living our culture
continued
Culture in action
‘Your Voice’ survey
Morgan’s annual employee engagement survey, ‘Your Voice’, provides employees with the opportunity to give feedback on what is
working well and what we could be doing differently to make Morgan a great place to work. The results of the survey provide feedback
that can be acted upon by management to improve the experience of working at Morgan and provide the Board with a Group-wide
snapshot of how employees rate Morgan’s culture and employee engagement. A timeline with details of how this information reaches
and is considered by the Board can be found below and on page 71.
The 2021 ‘Your Voice’ engagement
survey was launched. The survey
was open to all employees, and was
translated into the languages of countries
where Morgan employees are based.
The survey was conducted entirely
digitally and achieved a 77%
participation rate.
Survey results were presented to the
Board at its February 2022 meeting
and key Morgan-wide actions for
improvement were identified. Action
planning occurred at three levels –
Morgan-wide, by global business
units and at individual site level.
Further detail on focus areas can
be found on page 71.
The results of ‘Your Voice’ were
comprehensively communicated
across the business. Maximum use of
infographics was made. Employees
received communications on Group-
wide results, business unit results and
results for the location where they
worked. Next steps and plans to address
the matters raised from the 2021
‘Your Voice’ survey were established.
Initiatives taken in response to the
survey, details of which can be found
below, were communicated to
colleagues throughout the year.
Our communication approach was
‘You Said’; ‘We Did’.
Your Voice
November 2021
February 2022
February 2022
onwards
Participation
rate
All employees
Multiple
languages
Results presented
to the Board
Digital
survey
Action
planning
77
%
Governance
71
‘Your Voice’ showed that employees recognise the priority that Morgan gives to health and safety, that our strategy and purpose were clear
and that we work hard to exceed the expectations of our customers with innovative products and solutions. The majority of employees
felt that they have a good work-life balance.
Our people said
What we did
Reward
Getting reward and recognition
right across all our sites
We conducted a comprehensive review of our direct labour wage and benefits and
where adjustments were required versus the local market, these were made
We introduced a pilot Morgan Employee Discount Scheme, which will be extended
Company-wide, to help employees’ money go further
A wide range of site-based recognition activities have taken place and family days
introduced following the pause that was implemented during the pandemic
We launched an emergency childcare programme/childcare concierge service
in the US
Purpose
Ensuring we have the right
people in the right place
at the right time
to deliver our purpose
We are developing a modern employer brand to ensure we can attract as diverse
a candidate pool as possible to reflect the communities in which we operate
We have introduced our licence to recruit programme, which all hiring managers
are required to complete. This is to ensure we improve our recruiting processes
and have inclusive hiring
We have strengthened our talent acquisition team so that it can operate in the
Americas and EMEA
We have introduced a standardised approach to talent reviews
We launched three employee resource groups, as part of our drive to foster
a diverse, inclusive workplace
Leadership
Greater visible leadership
and two-way communication
We launched a bi-weekly all employee newsletter
We hold regular leadership calls, promote two-way communication via Yammer
and have introduced regular Leadership Forums with members of the executive
team and the wider workforce
Collaboration
Working together more at our sites,
within GBUs and across GBUs
Cross-business groups have been established to work on key business priorities
Our leadership development cohorts are deliberately constructed to ensure
maximum cross-business unit interaction
72
–
Morgan Advanced Materials plc
Annual Report 2022
The Board is at the forefront of the journey
to Morgan making a ‘Big positive difference’
and is keen to understand the views of all
employees and the impact its decisions have
on them. For this reason, the Board took
the decision that all non-executive Directors
should have the opportunity to engage
with the workforce, rather than limit this
important role to a designated non-executive
Director. Furthermore, given the global
nature of the business, having all of the
non-executive Directors participate increases
the Board’s reach. The non-executive
Directors participated directly in employee
engagement initiatives and carried out a full
programme of activities during the year.
The insights from these engagements add
an important perspective to Board
discussions and decisions. This ensures
employee voices are heard and considered
as the Board makes decisions that influence
the future of Morgan. The outputs from the
discussions are fed back to the leadership
team for further discussion with the Chief
Executive Officer and Group HR Director
and reported back to the next Board
meeting, to create a greater awareness of
the views of employees amongst the whole
Board. Follow-up discussions were held
with site managers to convey key themes,
foster a positive culture and, where there
were specific matters raised, to ensure
those matters were considered and
appropriately addressed.
While each event varies in structure,
generally the non-executive Directors
have a tour or receive an overview of
the site followed by an informal session
with the site teams without managers
present. No specific topics for discussion
are provided in advance, though site teams
are advised that the Directors would like
to hear from them about their experience
of working at Morgan, whether they have
any challenges, concerns or ideas for
improvement, and the things that they
consider Morgan does well. Coupled with
meetings with employees in their place of
work during Board visits to Morgan facilities
and during other Morgan events, the Board
is satisfied that this provides a range of
effective methods with which to engage
with employees, despite not being one of
the methods set out in the Code.
Actions taken in response to feedback received from employee listening sessions
Positive feedback
Improvement areas
Actions taken
Training and career progression
Several colleagues praised the access to
training and development opportunities
at Morgan.
Leadership development courses
were described as enabling collaboration
across GBUs, functions and countries.
They were diverse and inclusive,
with positive acknowledgement of the
encouragement and support for the
courses from managers.
The Percipio learning platform helped
colleagues access Morgan’s full Learning
& Development offering.
There was a request for reinforcement
of the learning from the leadership
development courses with a refresher
to prevent fallback to old habits.
Some colleagues raised a lack of clarity
on what training is available to them and
how to access this.
The feedback from colleagues attending
these courses has been used to develop
the courses further. Opportunities to
incorporate the learnings from the
courses when back in the business are
explored with attendees. Attendees are
also encouraged to maintain the networks
that they develop through the courses.
Percipio and the courses available through
the platform are regularly advertised
through the Morgan Group
Communications e-newsletter.
Recruitment and retention
Colleagues recognised the benefits of
working in Morgan including the flexible
working hours, job security, training and
importance placed on safety in the
organisation but considered that there
was more work to do to strengthen
employer brand awareness.
Some colleagues noted the ageing
demographic of the workforce and the
need to recruit younger colleagues to
ensure the transfer of skills.
We are developing a modern employer
brand to ensure we can attract as diverse
a candidate pool as possible. More
information on this and other action we
have taken to strengthen our recruitment
and retention can be found on page 71.
We conducted a comprehensive review
of our direct labour wage and benefits
and, where adjustments were required
versus the local market, these were
made. A number of other benefits were
also introduced and more information
about this can be found on page 71.
Collaboration across the GBUs
Different sites were working together
to establish best practice across the
board. This was further enabled by the
leadership development courses which
encouraged collaboration.
There was however not always a
systematic approach to working together
to improve processes and procedures.
Various actions have been taken to
encourage collaboration and share
learnings between the GBUs including the
two-day meeting of the EHSS Group and
GBU leadership teams with a key focus to
make a Big positive difference in 2023.
Listening to employees
Governance
73
Engagement with employees and other stakeholders
Non-executive Directors and
employee listening activities
2022
Engagement with other stakeholders
Guest speaker
at the Internal
Audit Conference
Feb
Feb – Apr
Engagement meetings were held with a significant proportion of major
shareholders on remuneration policy matters.
The Board met with the independent trustee of the UK pension scheme
at its meeting in February.
Virtual engagement
session with colleagues
on Ignite Leadership
Development
Programme
(two sessions)
Mar
Following publication of the FY21 results, one-to-one meetings were held
with institutional investors and potential investors. The Board reviewed
the feedback from investors and potential investors to gauge investor
sentiment and establish whether their expectations have been met.
Meetings were held with banks to present FY21 results.
Virtual engagement
session in Pachua,
Mexico (Thermal)
Apr
Virtual engagement
session in Certech,
Wilkes-Barre
(Thermal Ceramics)
May
The 2022 Annual General Meeting was held in Windsor. Shareholders put
questions to the Board in person. Shareholders not attending were able
to submit their questions ahead of the meeting. The Board encouraged
shareholders to appoint the Chair of the AGM as their proxy and provide
voting instructions in advance of the meeting in accordance with the
instructions set out in the Notice of AGM. At the meeting, all resolutions
were passed, with more than 89% of the votes cast in favour.
Virtual engagement
session in Swansea, UK
(Electrical Carbon)
Jun
Jul
Following publication of the HY22 results, meetings were held with
institutional shareholders and potential investors. The Board reviewed
the feedback from investors to gauge investor sentiment and establish
whether their expectations have been met.
Aug
Meetings were held with banks to present HY22 results.
Board visit and site tour
in Kempten, Germany
(Thermal Ceramics)
European Employee
Forum event in
Windsor, UK
Sep
Sep – Nov
Meetings were held with banks to discuss revolving credit facility
refinancing.
Guest speaker at
Thermal Ceramics
Global and Regional
Leadership Conference
Oct
Oct – Dec
Meetings were held with pension trustees to discuss the de-risking of
UK pension schemes.
Site tour in Swansea,
UK (Electrical Carbon)
Nov
Dec
The Chief Executive Officer, Chief Financial Officer and members of
the Executive Committees held a Capital Markets Event to provide
more detail on the key areas of differentiation that we believe will drive
outperformance in the years ahead, benefitting all our stakeholders.
The Chairman introduced the event and met with investors.
Meetings were held with banks to present HY22 results.
Ad hoc meetings
were held with brokers
and institutional
investors throughout
the year, including
attendance at investment
conferences
Quarterly
Virtual All Hands
were held by the
Chief Executive and
Chief Financial Officer
throughout the year,
with colleagues
invited to join.
74
–
Morgan Advanced Materials plc
Annual Report 2022
An internal review of the Board’s
performance was undertaken in 2022,
following the externally-facilitated review
in 2021. Both reviews were facilitated by
Clare Chalmers Limited, which has no
other relationship with the Company or
the individual Directors and is independent.
The evaluation of the Board and its
Committees was undertaken via the
completion of tailored questionnaires
prepared by Clare Chalmers Limited, in
consultation with the Chair and Company
Secretary and taking into account the
recommendations from the 2021 Board
performance review. The views of
Directors were consolidated into formal
reports which were discussed by the
Chair with individual Directors and then
in a plenary session by the Board and the
relevant Committees. A questionnaire
was also sent to the Group Company
Secretary to obtain her perspectives on
the effectiveness of the Board and its
Committees. The Chair held one-to-one
meetings with individual Directors to
evaluate their performance. Led by
the Senior Independent Director,
the non-executive Directors met
without the Chair present to appraise
the Chair’s performance.
The Board concluded that it, its
Committees and the individual Directors
had continued to operate effectively
and fully discharged their responsibilities
during 2022.
Highlighted strengths
Input of management to the Board,
noting management is open, balanced
and transparent, and that there is an
inclusive and productive process of
taking away Board inputs for further
deliberation, and bringing them back
to close the loop
There was also positive feedback for
the non-executive Directors in terms
of sharing their broader perspectives
and experiences, to identify weak signals,
which may present challenges in future,
at an early stage
The highest scoring was around
employee listening sessions which
were considered to be really valuable
since all non-executive Directors
participate directly, and all have first-hand
information – improvement opportunities
are fed back to the executives who then
focus on the resolutions
The Committees all received high scores
across all questions including the feedback
on the Nomination Committee which
noted the successful transition of the
Chief Financial Officer and upcoming
Chair succession. The feedback on the
Audit and Remuneration Committees
noted the support they receive from
management and its advisers, with the
only suggestions of enhancements being
around getting stakeholder views and
demonstrating this
Recommended areas for
development and actions
going forward
More in-person meetings, including
Board dinners, would be arranged
for 2023
Further discussions of risk and risk
appetite would take place in 2023,
in light of the worsening macro-economic
environment
More information would be provided
to the Board on the Group’s customer
and supplier base, trends and priorities
More structured individual feedback
would be provided to Directors. These
meetings took place in December 2022
Recommendations from the
2021 Board performance review
Actions taken during 2022
Incorporation of discussions on different
aspects of Group strategy during the year.
Several dedicated strategy discussions were held in 2022 and were well received by the
Directors. The 2022 evaluation concluded that the review of strategy and focus on strategic
priorities, with more time allocated for strategic discussions, helped the Board to digest the key
themes, with valuable discussions around development, growth markets, and portfolio strategy.
A review of the way risk is presented
to the Board to encourage focus on the
key risks and risk appetite.
The presentation of the key risks was reviewed during the year with a view to eliminating risks
which do not fundamentally constitute a risk to life nor the value of the Group and ensuring
alignment of risks with Group strategy.
Adjustments to be made to the scheduling
of certain Committee meetings so that
more time is allowed for discussion.
The Audit Committee meetings were held on a separate day to the Board meetings
in 2022, allowing more time for discussions. The 2022 evaluation concluded that agenda
planning and the changes to the scheduling of the Board and Committee meetings had
improved energy levels and focus.
Format of presentations to the Board
would be reviewed to encourage
discussion on the key points.
Format of presentations and papers was reviewed and updated. The 2022 evaluation
concluded that the papers and presentations to the Board had resulted in improved
Board discussions.
More regular reporting on people matters
by the Group HR Director would be
provided to the Board.
The Group HR Director reported to the Board on three aspects of the Group’s people
strategy during 2022.
Assessing Board performance
Governance
75
UK Corporate Governance Code 2018
compliance statement
Application of Code Principles
The table below sets out how the Board has applied the Code Principles during 2022.
Board leadership and company purpose
A.
The role of
the Board
The Board is responsible for Morgan’s system of corporate governance. As such, Directors are committed to
developing and maintaining high standards of governance that reflect evolving good practice.
The Board provides strategic and entrepreneurial leadership within a framework of strong governance, effective
controls and an open and transparent culture. This enables opportunities and risks to be assessed and managed
appropriately. The Board also sets our strategic aims and risk appetite, makes sure that we have the financial and
human resources in place to meet our objectives, and monitors our compliance and performance against targets.
Lastly, the Board ensures that we engage effectively with all our stakeholders and consider their views in setting
our strategic priorities. Morgan’s section 172 statement detailing how the Board has engaged with the Group’s
stakeholders and approached decisions made during the year can be found in the Strategic Report on pages 28 to 29.
The Corporate Governance Report, which includes the principal Committee Reports
and Directors’ Report, explains how the Board has applied the principles and complied
with the provisions of the UK Corporate Governance Code 2018 (the Code), which is
available at www.frc.org.uk.
The Board has applied the principles and
complied with the provisions of the Code
throughout the year ended 31 December
2022, except for provision 38 which
requires pension contribution rates for
executive Directors to be aligned with
those available to the wider workforce.
As stated in the 2021 Annual Report
and the 2022 Remuneration Policy,
newly appointed executive Directors’
pension contributions are now aligned to
the wider workforce from appointment.
Incumbent executive Directors were
on higher pension contribution rates
until 31 December 2022, after which
they were aligned to UK workforce rates,
ensuring compliance with the Code going
forward. Further information can be found
in the Directors’ Remuneration Report on
pages 90 to 116.
Governance framework
Board
Audit Committee
Helps the Board to monitor
decisions and processes designed
to ensure the integrity of financial
reporting, the independence
and effectiveness of the external
auditor, and robust systems
of internal control and
risk management.
See page 79
Nomination Committee
Helps the Board determine
its composition, and that of its
Committees. They are regularly
reviewed and refreshed, so they
are able to operate effectively
and have the right mixture of
skills, experience and background.
See page 86
Remuneration Committee
Helps the Board ensure that
remuneration policy and
practices reward employees and
executives fairly and responsibly,
with a clear link to corporate
and individual performance.
See page 90
Executive Committee
Drives Group and global business
unit strategic implementation
Delivers operational, financial
and non-financial performance
Reviews health, safety and
environmental performance,
drives improvement and
embeds the safety culture
Approves Group policies and
reviews their implementation
and effectiveness
Leads on assessment and
control of risk
Oversees prioritisation and
allocation of resources
Disclosure Committee
Assists and inform the Board
concerning the identification
of inside information
Recommends how and when
the Company should disclose
such information
Ensures any such information
is managed and disclosed
in accordance with all
applicable legal and
regulatory requirements
General Purpose Committee
Approves opening of/changes
to bank accounts
Approves arrangements
with financial institutions
Approves guarantees
and indemnities
Approves substantive
intra-Group loans
Approves intra-Group dividends
and capital restructuring
Approves awards under the
Company’s share schemes
(after Remuneration Committee
approval) and any Employee
Benefit Trust-related loans
76
–
Morgan Advanced Materials plc
Annual Report 2022
UK Corporate Governance Code 2018 compliance statement
continued
Board leadership and company purpose
continued
A.
The role of the
Board
continued
There is a formal schedule of matters reserved for the Board that sets out the structure under which the Board
manages its responsibilities providing guidance on how it discharges its authority and manages the Board’s activities.
The schedule of matters reserved is reviewed and approved by the Board on an annual basis. Our governance
framework means we have a robust decision-making process and a clear framework within which decisions can be
made and strategy can be delivered. Our delegated authority framework ensures that decisions are taken by the
right people at the right level with accountability up to the Board, and enables an appropriate level of debate,
challenge and support in the decision-making process.
The Board met eight times in 2022 and all Directors continue to act in what they consider to be in the best interests
of the Company, consistent with their statutory duties. Further details of 2022 Board meetings, including information
on the Board’s assessment of strategic and operational matters, are set out on pages 65, attendance information on
page 64, and skills, experience and biographical information on pages 62 to 64.
A description of Morgan’s business model is set out on pages 12 to 13. An assessment of the principal risks facing the
Group is included on pages 40 to 47.
Potential conflicts of interest are reviewed annually and powers of authorisation are exercised in accordance with
the Companies Act and the Company’s Articles of Association. During the year, if any Director has unresolved
concerns about the operation of the Board or the management of the Company, these would be recorded in
the minutes of the meeting.
B.
The Company’s
purpose, values
and strategy
Our purpose is to use advanced materials to make the world more sustainable, and to improve the quality of life.
The Board believes that a healthy culture, which drives the right behaviours, protects and generates value and helps
employees engage with the Morgan Code, will lead to the successful delivery of our strategy. It is responsible for
defining our values and setting clear standards from the top. Our Chair leads the way by ensuring the Board operates
correctly and with a clear culture of its own which can be promoted to our wider operations and dealings with all
stakeholders. Our Chief Executive Officer, with the help of the Executive Committee, is responsible for the culture
within our wider operations. The Board receives regular reports that allow it to assess our culture to ensure it
continues to support our strategy and purpose. For more information, see page 69.
C.
Resources and
controls
The Board annually approves the Group’s annual budget ensuring that sufficient resources are available to
achieve objectives.
The Board retains ultimate responsibility for risk management and internal controls, with detailed oversight carried
out by the Audit Committee.
The Board sets the Group’s risk appetite. This sets out the principal risks facing the Group and the nature and
extent of risk the Board is willing for the Group to take in order to achieve the Group’s strategic objectives.
For more information, see pages 40 to 47.
D.
Shareholders and
stakeholders
The Board acknowledges the importance of forming and retaining sound relationships with all stakeholder groups.
Accordingly, the Board reviewed and discussed the Group’s key stakeholders along with the engagement mechanisms
in place to ensure that they support effective, two-way communication. These are kept under periodic review to
ensure ongoing effectiveness.
The Board engaged actively throughout 2022 with shareholders and other stakeholders. A full programme of formal
and informal events, institutional investor meetings and presentations is held throughout the year. This programme
of shareholder engagement aims to ensure that the performance, strategies and objectives of the Group are
clearly communicated to the investment community and provides a forum for institutional shareholders to address
any issues. Morgan engages proactively with the investment community and sell-side and buy-side analysts and
accommodates requests for meetings and calls with senior management from existing and potential institutional
investors. The programme is led by the executive Directors. The Chair of the Remuneration Committee also held
a series of investor consultation meetings in connection with votes relating to the Directors’ Remuneration Policy
at the Company’s 2022 Annual General Meeting. The Board is regularly kept informed of investor feedback,
stockbroker updates and detailed analyst reports. For more information, see pages 65 and 73.
The Board receives regular management information and considers the impact of decisions on relevant stakeholders,
as described further in the section 172 statement on pages 28 to 29. Across the Group, there is an active programme
of engagement with our key stakeholders including our colleagues. For more information, see page 73.
E.
Workforce policies
and practices
The Board has overarching responsibility for the Group’s workforce policies and practices and delegates day-to-day
responsibility to the Chief Executive Officer and Group HR Director to ensure that they are consistent with the
Company’s values and support its long-term success.
Employees are able to report matters of concern confidentially through our ‘Speak Up’ hotline. The Audit Committee
routinely reviews reports generated from the disclosures and ensures that arrangements are in place for investigation
and follow-up action as appropriate.
Governance
77
Division of responsibilities
F.
Role of the Chair
Douglas Caster leads the Board in an open and transparent manner, encouraging debate and challenge. He plays
a pivotal role in fostering the effectiveness of the Board and the individual Directors both in and outside the
boardroom. He was considered to be independent upon his appointment as Chair.
The Chair works with the Group Company Secretary to ensure that sufficient time is available to discuss agenda
items for each Board meeting and to ensure that papers are of a high standard and circulated in a timely manner.
G.
Balance of
the Board
The Board comprises the Chief Executive Officer, Chief Financial Officer, Chair and five independent non-executive
Directors. For more information, see page 64.
The roles of the Chair and Chief Executive are separate, with distinct accountabilities set out in their role profiles. The
Chief Executive Officer is responsible for the day-to-day leadership and management of the business, in line with the
strategic framework, risk appetite and annual and long-term objectives approved by the Board. The Chief Executive
Officer cascades his authority through a delegated authority framework which is approved by the Board annually.
The Board undertakes an annual review of the independence of each non-executive Director and in 2022 continued
to consider each non-executive Director to be independent.
H.
Non-executive
Directors
The non-executive Directors provide an independent view on the running of our business, governance and
boardroom best practice. They oversee and constructively challenge management in its implementation of strategy
within the Group’s system of governance and the risk appetite set by the Board.
Prior to his or her appointment as a Director, the Board considers whether each non-executive Director has
sufficient time to devote to their role at Morgan. This is reassessed by the Nomination Committee annually and
in light of any changes to a non-executive Director’s external commitments during the year. The Committee is
satisfied that their other duties and time commitments do not conflict with those as Directors. The Board considered
Clement Woon’s other external commitments, and was comfortable that he had sufficient time to devote to his role
at Morgan, before agreeing his appointment as a non-executive Director of Elementis plc.
Laurence Mulliez was appointed as Senior Independent Director in December 2017. She is available to liaise with
shareholders who have concerns that they feel have not been addressed through the normal channels of the Chair, Chief
Executive Officer and Chief Financial Officer. She also leads the annual performance review of the Chair (see page 74),
and as necessary, provides advice and judgement to the Chair, and serves as an intermediary for other Directors.
After each Board meeting, the non-executive Directors and the Chair meet without executive Directors being present.
I.
The Company
Secretary
Winifred Chime joined Morgan as Group Company Secretary in July 2022. She is responsible to the Chair for ensuring
that all Board and Board Committee meetings are properly conducted, that the Directors receive appropriate information
prior to meetings to enable them to make an effective contribution, and that governance requirements are considered and
implemented. The appointment and removal of the Group Company Secretary is a matter for the Board.
Composition, succession and evaluation
J.
Board
appointments
The Nomination Committee and, where appropriate, the full Board, regularly review the composition of the Board
and the status of succession to both senior executive management and Board-level positions. Directors have regular
contact with and access to succession candidates for senior executive management positions.
During 2022, the Board appointed the Chief Financial Officer, Richard Armitage, and Chair designate and
independent non-executive Director, Ian Marchant. The Company engaged the independent executive search
agency Korn Ferry to assist with the search for Ian. For information on the Nomination Committee, including
appointments and Directors’ induction, see pages 86 to 89.
All Directors retire at each AGM and may offer themselves for re-election by shareholders. Accordingly, all the Directors
will retire at the AGM in June 2023. The Notice of AGM will give details of those Directors seeking election or re-election.
K.
Skills, experience
and knowledge of
the Board
The Nomination Committee regularly reviews the balance, composition and structure of the Board, including reviewing
the skills of each non-executive Director against a skills matrix. This identifies the key skills, knowledge and experience
relevant to the markets in which Morgan operates and for the effective operation of the Board and leadership of the
Group. The Directors’ skills matrix was revised and enhanced during the year. For more information, see page 64.
The Nomination Committee keeps the length of service of each Board member under review, and recommends the
reappointment of the non-executive Directors and any extensions to their term. It ensures that Board recruitment
is commenced in a timely manner to regularly refresh the membership of the Board.
The Chair and Group Company Secretary ensure that new Directors receive a full induction and that all Directors
continually update their skills and have the requisite knowledge and familiarity with the Group to fulfil their role.
The individual training and development needs of each Director are considered by the Chair on an annual basis.
The Board receives detailed technical updates on corporate governance and other regulatory changes, presentations
from external specialists or internal managers, training via online platforms, and site visits to ensure its skills,
knowledge and experience are kept up to date.
78
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Morgan Advanced Materials plc
Annual Report 2022
UK Corporate Governance Code 2018 compliance statement
continued
Composition, succession and evaluation
continued
L.
Annual evaluation
The Board undertakes either an internal or external annual Board effectiveness evaluation. The last external
evaluation was carried out in 2021, so in 2022 an internal evaluation of the Board and its Committees was conducted.
Performance evaluations of Directors, including the Chair, are also carried out on an annual basis. A summary of
the 2022 evaluation is set out on page 74.
Audit, risk and internal control
M.
Audit functions
The Audit Committee comprises four independent non-executive Directors and the Board delegates a number of
responsibilities to the Audit Committee, including oversight of the Group’s financial reporting processes and internal
control, and the work undertaken by the external and internal auditors. The Committee also supports the Board’s
consideration of the Company’s viability statement and its ability to operate as a going concern. The Audit Committee
Chair provides regular updates to the Board on key matters discussed by the Committee. For more information,
see page 79.
N.
Fair, balanced and
understandable
assessment
The Strategic Report, located on pages 2 to 59, sets out the performance of the Company, the business model,
strategy, and the risks and uncertainties relating to the Company’s future prospects. When taken as a whole, the
Directors consider the Annual Report is fair, balanced and understandable and provides information necessary
for shareholders to assess the Company’s performance, business model and strategy. The process which supports
the Board’s confirmation that the presentation of results is fair, balanced and understandable is set out in the Audit
Committee Report on page 80.
O.
Risk management
The Board determines the nature and extent of the principal risks the organisation is willing to take to achieve its
strategic objectives. A robust assessment of the principal and emerging risks facing the Group was carried out during
the year, including those risks that would threaten the Group’s business model, future performance, solvency or
liquidity and reputation (see pages 41 to 47 for further details of the principal risks).
The Board and Audit Committee monitor the Group’s risk management and internal controls systems and conduct an
annual review of their effectiveness. Throughout the year, the Board has directly, and through delegated authority to
the Executive Committee and the Audit Committee, overseen and reviewed all material controls, including financial,
operational and compliance controls. See pages 41 to 47 and 83 to 84.
Remuneration
P.
Remuneration
policies and
practices
The Company aims to reward employees fairly and its Remuneration Policy is designed to promote the long-
term success of the Company whilst aligning the interests of both the Directors and shareholders. An updated
remuneration policy was approved by shareholders at the 2022 Annual General Meeting. The Directors’
Remuneration Policy is set out on pages 94 to 102.
Q.
Policy on
executive
remuneration
The Remuneration Committee, on behalf of the Board, sets the remuneration of the Chair, the executive
Directors and Executive Committee members. It also reviews the remuneration of certain senior management.
In setting remuneration, the Remuneration Committee seeks to ensure it is aligned with the Group’s remuneration
principles which are applicable to all colleagues. See pages 115 for more information on the work of the
Remuneration Committee.
R.
Remuneration
outcomes
When determining remuneration outcomes, the Remuneration Committee takes account of wider circumstances
relevant to that decision, including Group and individual performance. The Remuneration Committee has the
discretion to amend the final vesting level of incentives if it does not believe that it reflects underlying performance.
The Remuneration Committee may also apply malus and clawback in certain circumstances. No Director is involved
in determining their own remuneration outcome.
Governance
79
Dear shareholder
I am pleased to present the Audit
Committee’s report for 2022.
This report provides insight into
key areas considered by the Audit
Committee during the year in
discharging its responsibilities in
relation to financial reporting,
risk management, internal control,
the internal audit function, and
interaction with Deloitte LLP
(the Group’s external auditor).
During 2022, whilst the Committee’s
primary focus centred on the accuracy
of the Group’s financial reporting, we have
applied additional focus to assess the
risk management and internal control
framework, together with the additional
work carried out to support the long-term
viability statement. Regardless of the
challenging macro-economic environment,
Morgan’s business model remains resilient,
but like other companies operating during
these challenging times, we continue to
support and closely monitor the financial
results of the Group.
In early January 2023, we were called
on to manage the consequences of
a cyber security incident, having detected
unauthorised activity on our network.
Immediate steps were taken to contain
the incident, launch incident response
plans, engage specialist support services
and embark on restoring systems. The
Committee oversaw the work to contain
the incident and recover the systems, was
in regular communication with management
throughout this period and met with the
third-party advisers supporting the
restoration of our networks and systems.
Details of the incident can be found on
page 19 and further information on the
matters considered by the Committee can
be found on page 82.
The Committee continues to monitor
the external ESG reporting and, more
specifically, climate-related reporting, in
order to assess the appropriateness of the
climate-related disclosures and evaluate if
the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations have
been addressed appropriately.
We advised the Board that the 2022
Annual Report and Accounts is fair,
balanced and understandable and
provides the necessary information for our
shareholders to assess the Group’s position,
performance, business model and strategy.
The process of review is described in
greater detail on page 80.
Deloitte completed their third full audit of
the Group. During the year, the Committee
reviewed and agreed the independence
and effectiveness of the audit process,
in establishing positive relationships and
providing a good level of service to
the Group, whilst seeking continual
improvements in the audit of Morgan.
We monitored the reports raised through
the ethics hotline and ensured that
executive management has responded
to these quickly and appropriately.
The Committee reviewed the key themes
and trends in the number, type and source
of these reports to gain an understanding
of how effectively the Morgan Code of
Conduct is embedded. This information
has been used by the Board as part of its
assessment of Morgan’s culture.
Throughout the year, the Committee
also ensured that separate meetings with
Deloitte, the Head of Internal Audit and
the Director of Ethics and Compliance took
place without management present in order
to provide an open forum for any issues to
be raised.
The Committee’s performance was
reviewed as part of the internal evaluation
aimed at identifying areas for improvement.
I am pleased to report that the Committee
is continuing to work well and is fully
discharging its responsibilities, whilst
contributing effectively to the Group’s
overall governance framework.
Jane Aikman
Committee Chair
Report of the Audit Committee
Committee members
Jane Aikman
(chair)
Helen Bunch
Laurence Mulliez
Clement Woon
Jane Aikman has chaired the Committee
since July 2017 and has recent and relevant
financial experience and competence
in accounting and auditing gained from
her current executive role and various
prior Chief Financial Officer roles.
The Committee as a whole has competence
in the sectors in which the Group operates.
All Committee members are independent
non-executive Directors. Biographies
of the Committee members including
details of relevant sector experience
are set out on pages 62 to 64.
The Chair of the Board, the executive
Directors and key members of
senior management attend the
meetings by invitation, as do senior
representatives of the external auditor.
At the end of each meeting, Committee
members meet with the external
auditor, the Head of Internal Audit and
the Director of Ethics and Compliance
without the executive Directors or other
members of management present.
Between meetings, the Chair of the
Audit Committee keeps in contact with
the Chief Financial Officer, the Group
Financial Controller, the external auditor,
the Head of Internal Audit and the Director
of Ethics and Compliance as necessary.
The terms of reference of the Committee
are available on the Company’s website,
morganadvancedmaterials.com.
80
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Morgan Advanced Materials plc
Annual Report 2022
Report of the Audit Committee
continued
Key activities in 2022
Financial reporting
Reviewed and discussed reports from the Chief Financial Officer on the financial statements, considered
management’s significant accounting judgments and the policies being applied, and assessed the findings of
the statutory audit in respect of the integrity of the financial reporting of full- and half-year results.
Reviewed the 2022 Annual Report and Accounts and provided a recommendation to the Board that,
as a whole, they complied with the UK Corporate Governance Code principle to be ‘fair, balanced and
understandable and provide the information necessary for shareholders to assess the Company’s position,
performance, business model and strategy’.
Internal controls and
risk management
Reviewed the effectiveness of the Group’s risk management and internal control systems, and integration of the
components of the risk framework into Board and Committee reporting, prior to making a recommendation
to the Board. The Committee also reviewed reports from the Presidents and Finance Directors of each of
the global business units on their key risks, how these risks are managed and an assessment of the control
environment, on an annual basis.
Monitored fraud reporting and incidents of whistleblowing, including a review of the adequacy of the Group’s
whistleblowing processes and procedures, prior to reporting to the Board on this activity.
Oversight of the Group’s ethics and compliance programme and monitoring progress in compliance with the
Morgan Code across the Group.
Oversight and monitoring of the Group’s key taxation issues and tax strategy.
Internal Audit
Considered Internal Audit reports presented to the Committee and satisfied itself that management had
resolved or was in the process of resolving any outstanding issues or actions.
Reviewed and approved the Internal Audit plan and approach for 2023.
Reviewed the quality and effectiveness of Internal Audit function.
External Audit
Oversaw the 2022 statutory audit, including the key audit risks and level of materiality applied by Deloitte,
audit reports from Deloitte on the financial statements and the areas of particular focus for the 2022 audit.
Assessed the effectiveness of Deloitte and made a recommendation to the Board on the reappointment of
Deloitte as the external auditor.
Agreed the statutory audit fee for the 2022 audit.
Reviewed and approved the non-audit services, and related fees, provided by Deloitte for 2022.
Governance
81
Financial reporting
Fair, balanced and
understandable reporting
At the request of the Board, the Committee
has considered whether, in its opinion,
this Annual Report and Accounts,
taken as a whole, is ‘fair, balanced and
understandable’ (‘FBU’) and whether it
provides the ‘information necessary for
shareholders to assess the Company’s
position, performance, business model
and strategy’.
The following process was followed by the Committee in making its assessment:
considered the questions which need to be answered in order to evaluate whether
the Annual Report and Accounts meets the fair, balanced and understandable test
reviewed the methodology used to construct the narrative sections of the Annual Report
reviewed the disclosure judgements made by the authors of each section and considered
the overall balance and consistency of the Annual Report
received confirmation from external advisors that all regulatory requirements are satisfied
received confirmation of verification of content from the authors of each section
received confirmation from the Chief Financial Officer that the narrative reports and
consolidated financial statements are consistent
made a recommendation to the Board to assist it in determining whether it is able to
make the statement that the Annual Report and Accounts taken as a whole is fair, balanced
and understandable.
The Board approved the Committee’s recommendation that the FBU statement could
be made, which can be found in the Directors’ Responsibility Statement on page 120 of this
Annual Report.
Significant issues
The significant areas of judgement considered by the Committee in relation to the 2022 consolidated financial statements, and how these
were addressed, were as follows:
Significant issues and judgements
Specific adjusting items
In the consolidated income statement, the Group presents specific adjusting items separately. In the judgement of the Directors, as a result of
the nature and value of these items they should be disclosed separately from the underlying results of the Group. The Group believes that these
Alternative Performance Measures, which are not considered to be a substitute for, or superior to, IFRS measures, provide stakeholders with
additional helpful information on the performance of the business.
Details of specific adjusting items arising during the year and the comparative period are given in note 6 to the consolidated financial statements.
Specific adjusting items in relation to discontinued operations are disclosed in note 9 to the consolidated financial statements.
How the Committee addressed these issues
The Committee reviewed the key assumptions underpinning the accounting for specific adjusting items for the half- and full-year results,
including receiving presentations from Deloitte LLP on this matter.
Provisions and contingent liabilities
Provisions made for:
legal and other provisions: given the nature of the contracts undertaken by the Group, there is an inherent risk of claims being made against one
or more of the Group’s businesses in relation to performance on specific contracts
environmental provisions: due to the nature of its operations, the Group holds environmental provisions for its environmental obligations.
Judgement is required to determine whether a contingent liability has crystallised into a provision
closures and restructuring provisions: judgements made in relation to provisions made in relation to the Group’s restructuring activities.
These claims can include risks for which the Group has external insurance coverage.
How the Committee addressed these issues
These are addressed by the Committee and the Board discussing with various members of senior management the key judgements made, supported,
where appropriate, by relevant external advice.
Deloitte LLP also regularly present their view on all material provisions and contingent liabilities. Environmental provisions are disclosed in note 24
to the consolidated financial statements.
Pensions and other post-retirement employee benefits
The Group operates a number of defined benefit arrangements as well as defined contribution plans. The defined benefit plans primarily related to
the UK, US and Europe and predominantly provide pensions based on service and career-average pay.
Accounting assumptions, given in note 22 to the consolidated financial statements, are used to calculate the year-end net pension liability in
accordance with the relevant accounting standard, IAS 19 (revised) Employee Benefits. 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.
How the Committee addressed these issues
The Committee reviewed the key assumptions underpinning the accounting for these defined benefit arrangements for the half- and full-year results,
including receiving presentations from Deloitte LLP on this matter.
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Morgan Advanced Materials plc
Annual Report 2022
Report of the Audit Committee
continued
Significant issues and judgements
Impairment of non-financial assets (excluding goodwill)
The Group monitors the performance of individual assets and cash-generating units at each balance sheet date to determine whether there is
any indication of impairment. An impairment loss is recognised in the income statement where the carrying amount of an asset exceeds its
recoverable amount.
The impairment charge for the year of £6.5 million relates to the impairment of assets in Seals and Bearings (Asia), Thermal Ceramics (Europe and
South America) and Technical Ceramics (Asia). Additional disclosure is included in note 6 to the consolidated financial statements.
How the Committee addressed these issues
The Committee reviewed the key assumptions that underpin the value-in-use calculations, including receiving the views of Deloitte LLP on
these matters.
Matters identified following the FRC review of the 2021 Annual Report
The FRC reviewed the 2021 Annual Report and drew to the Company’s attention changes which could be made to the 2022 Annual Report, where
the information is material and of relevance. The FRC did not enter into substantive correspondence with the Company. The FRC asks that companies
make clear the inherent limitations of their review, and that their review is based on Morgan’s Annual Report and does not benefit from detailed
knowledge of our business or an understanding of the underlying transactions entered into during the period.
How the Committee addressed these issues
These matters were addressed as part of the year-end process. The Committee reviewed how these matters were addressed in the Annual Report.
Impact of the cyber incident
In early January 2023, the Group detected unauthorised activity on its network and is continuing to manage the consequences of this cyber security
incident. Details of the incident can be found on page 19.
How the Committee addressed these issues
The Committee considered the following including documentation to support key conclusions on the impact of the incident:
Engagement with in-house IT team and external advisors to assess the cause, timing and impact of the cyber incident
Management assessment of whether there is any known or suspected fraud associated with the incident
Engagement with in-house legal and legal advisors regarding possible regulatory or customer-related exposures
Update on fraud risk and control environment risk
Update on business risk factors
Management assessment of going concern and long-term viability, including updated view on future trading performance
Steps taken to ensure integrity and completeness of the accounting records, in order to be satisfied that the financial statements give a true and
fair value of the assets, liabilities, financial position and profit of the Group
Clear and transparent disclosure of the non-adjusting post balance sheet event in the Annual Report
Assessment of fair, balanced and understandable nature of the Annual Report in light of the cyber incident.
Financial reporting
continued
Governance
83
The Committee assists the Board in fulfilling its responsibilities
relating to the adequacy and effectiveness of the control
environment and risk management systems. The Group’s system
of internal control has been in place for the year under review
and up to the date of approval of the Annual Report.
The Committee, on behalf of the Board, undertakes an annual
review of the effectiveness of the Group’s system of internal
control and did so again for the year under review. This system
is consistent with the FRC’s guidance on internal control
requirements contained within the Code. The review conducted
in April 2023 comprised:
a review of the relevant Principles and Provisions in the Code
a review of the Company’s governance structures
a review of the sources of assurance and the Company’s
three lines of defence model, including policies, annual
self-certification process, reports from specialist functions
such as the Ethics and Compliance, Tax, Treasury and Legal
functions, and internal audit reports
a review of all material controls, including financial, operational
and compliance controls, and risk management systems, including
the improvements achieved in 2022 and identification of further
areas for improvement
the Committee and Board receive regular risk management
reports and together they ensure that there are adequate internal
controls in place and that these are functioning effectively
the Committee also evaluated whether the cyber incident
in January 2023 impacted its conclusions on the control
environment for the 2022 year end. Having reviewed the internal
controls assessment, the results of the ongoing investigation and
subsequent responses to the incident, the Committee assessed
that the controls in place during 2022 were adequate and that
the incident did not impact the 2022 financial records.
The Directors consider that the Group’s system of internal financial
control provides reasonable, but not absolute, assurance in the
following areas: that the assets of the Group are safeguarded; that
transactions are authorised and recorded in a correct and timely
manner; and that such controls would prevent or detect, within
a timely period, material errors or irregularities. The system is
designed to mitigate and manage risk, rather than eliminate it, and
to address key business and financial risks. The majority of internal
financial controls are manual; this is driven by a diverse IT landscape
and the Group’s geographical breadth; as such, there is a heavy
reliance on central review controls. The Directors are satisfied that
an appropriate amount of time and consideration is dedicated to
the review and challenge of results, judgements and estimates
– both by the global business units and the Group leadership team.
The main features of the Group’s system of internal control and for
assessing the potential risks to which the Group is exposed are
summarised as follows:
Control environment
The Group’s control environment is underpinned by the Morgan
Code and its associated policies and guidelines. The Group policies
cover: financial procedures; environmental, health and safety
practice; ethics and compliance (for example, anti-bribery and
anti-corruption, anti-trust and anti-competitive behaviour and trade
compliance); and other areas such as IT and HR. There is a Limits
of Authority Policy, which describes the matters reserved for the
Board and the delegations granted to the Chief Executive Officer
and other executives. The Group operates various programmes
to improve the control environment and management of risk.
These include the Group’s ethics and compliance programme and
the Group internal audit function, which present updates to the
Committee at each meeting. In addition, the Committee receives
reports from the Presidents and Finance Directors of each of
the global business units on their key risks, how these risks
are managed and an assessment of the control environment,
on an annual basis.
Part of the ethics and compliance programme is the provision of
an externally managed, independent whistleblower (‘Speak Up’)
hotline which is made available to workers to raise concerns.
Any reports made to the hotline are investigated by senior
management, with reports made to the Committee at each
meeting. The Committee oversees the progress and outcome
of any investigations arising from reports made to the hotline or
directly to management, where there is a concern regarding ethical
conduct. The reports investigated have varied in their nature and
materiality, with certain matters requiring the support of external
advisors and giving rise to disciplinary action against employees for
breaches of Group policies.
The global business unit Presidents and other senior operational
and functional management make an annual statement of
compliance to the Board confirming that, for each of the
businesses for which they are responsible, the consolidated
financial statements are fairly presented in all material respects,
appropriate systems of internal controls have been developed
and maintained, and the businesses comply with Group policies
and procedures or have escalated known exceptions to an
appropriate level of management.
Internal control and risk management
84
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Morgan Advanced Materials plc
Annual Report 2022
Report of the Audit Committee
continued
Financial reporting
Risk management systems and internal controls are in place
in relation to the Group’s financial reporting processes and the
process for preparing consolidated accounts. These include
policies and procedures which require the maintenance of records
which accurately and fairly reflect transactions and disposals of
assets, provide reasonable assurance that transactions are recorded
as necessary to allow the preparation of consolidated financial
statements in accordance with International Financial Reporting
Standards (IFRS), and the review and reconciliation of reported
data. Representatives of the businesses are required to certify
that their reported information gives a true and fair view of the
state of affairs of the business and its results for the period.
The Audit Committee is responsible for monitoring these
systems and controls.
Performance monitoring
The Board and the Executive Committee hold regular, scheduled
meetings, at which they monitor performance and consider
a comparison of forecast and actual results, including cash flows
and comparisons against budget and the prior year. Global business
unit management teams also meet regularly to review performance.
Executive Committee members also visit sites on a regular basis.
Risk management
The Board undertakes a formal assessment of the Group’s principal
and emerging risks at least twice a year. The identification,
assessment and reporting of risks is a continuous process carried
out in conjunction with operational management. Appropriate steps
are taken to mitigate and manage all material risks including those
relating to the Group’s business model, solvency and liquidity. The
Board, either directly or through the Committee, receives updates
on risks, internal controls and future actions from both global
business units and Group perspectives. The Executive Committee
collectively reviews risk management and internal controls for all
principal Group risks. The Group’s risk management system, which
is described in more detail in the Risk Management section of the
Strategic Report on pages 40 to 47, supports the Directors’
statements on going concern and viability on pages 55 to 56.
Risk factors
The Group’s businesses are affected by a number of factors,
many of which are influenced by macro-economic trends beyond
Morgan’s control; nevertheless, as described above and in the
Strategic Report, the identification and mitigation of such risks are
regularly reviewed by the Executive Committee and the Board.
These risk factors are further discussed in the Risk Management
section on pages 40 to 47.
Internal control and risk management
continued
Internal audit
The Group’s internal audit function provides objective assurance
of the adequacy and effectiveness of risk management and internal
control systems. It also may recommend improvements. While the
Head of Internal Audit reports administratively to the Chief Financial
Officer, appointment to, or removal from, this role requires the
consent of the Audit Committee Chair. The Head of Internal Audit
is accountable to the Chair of the Audit Committee, attends all
regular Committee meetings and meets separately with Committee
members without executive management at every meeting.
Each year’s internal audit plan is approved by the Audit Committee.
The plan is focused on higher-risk areas and any specific areas or
processes chosen by the Committee. It is also aligned with any
risks identified by the external auditor and Ethics and Compliance
team. The Committee is given regular updates on progress,
including any material findings, and can refine the plans as needed.
The Committee ensures that there are adequate resources in place
for the function to carry out the plan. The Committee receives
reports showing the ratings and key findings from each audit. The
Committee challenges management over the key findings, discusses
key themes identified by the internal audits and guides management
in identifying areas of focus to continuously improve controls.
Actions arising from internal audit reviews are agreed with
management and the Committee monitors progress on any
outstanding actions.
In 2022, the Committee reviewed the effectiveness of the function
by way of surveys completed by Committee members and key
management personnel. This is the approach taken in those years
that the review is not externally facilitated. The last externally
facilitated review was in 2018, and an external review is planned
for 2023. We are satisfied that the quality, experience and expertise
of the internal audit function are appropriate for the business and
that the function was objective and performed its role effectively.
We also monitored management’s response to internal audits
during the year. We are satisfied that improvements are being
implemented promptly in response to the findings, and believe
that management supports the effective working of the function.
Internal audit
Governance
85
External auditor, including independence
and Non-Audit Services Policy
The external auditor, Deloitte LLP, has processes in place to
safeguard its independence and objectivity, including specific
safeguards where it is providing permissible non-audit services,
and has confirmed in writing to the Committee that, in its opinion,
it is independent. In addition, the Company has a policy on the
provision of non-audit services by the external auditor which
was revised in 2019 and is in line with the FRC’s revised Ethical
Standard 2019 which took effect on 15 March 2020:
certain non-audit services may not be provided. The external
auditor may not review their own work, make any management
decisions, create a mutuality of interest, and/or put themselves
in the position of advocate
any permissible non-audit work proposed to be placed with
the external auditor with a total fee between £50,000 and
£200,000 must be approved in advance by the Chair of the
Audit Committee. Projects in excess of £200,000, must be
approved in advance by the Audit Committee, with any such
proposal being submitted in writing to the Chief Financial Officer,
who would in turn seek approval from the Audit Committee.
All permissible non-audit work, regardless of value, must be
approved by the Group Financial Controller. Work which
includes multiple phases is treated as a single project for
approval purposes
the prior approval of the Audit Committee is required for any
non-audit work which, when added to the fees paid for other
non-audit work, would total more than 60% (previously 80%)
of the audit fee
the value of non-audit fees must not under any circumstances
exceed 70% of the average Group statutory audit fee incurred
in the last three consecutive financial years.
To safeguard the objectivity and independence of the external
auditor, the Company ensures that any non-audit services to
be provided by the auditor are given prior approval by the
Audit Committee where required under the policy.
In the opinion of the Committee, the auditor’s objectivity and
independence were safeguarded despite the provision of a limited
number of non-audit services by Deloitte LLP during 2022.
In 2022, the proportion of the auditor’s fees for non-audit work
relative to the audit fee was 0.0% (or £41,000), (2021: 0.0%).
Auditor effectiveness
The Committee discussed the quality of the audit during the year
and considered the performance of the external auditor as a
separate agenda item at the meeting in April 2023. The Committee
conducted a full review following the 2022 year end to gather
feedback and look for continuous improvement opportunities.
The Committee considered all aspects of the auditor’s
performance, based on a review of the effectiveness of the external
audit process, which was conducted through a questionnaire
taking into consideration relevant professional and regulatory
requirements. The questionnaire was completed by each GBU
finance director and nine Group functional teams. In addition to the
questionnaire, the following external auditor areas were reviewed:
independence confirmation
audit methodology, use of component auditors and audit scope
and coverage
assessment of materiality and areas of audit focus, consideration
of appropriate audit procedures, professional scepticism,
appropriate management challenge, clarity and candour
in reporting
the FRC’s AQR findings for Deloitte for the 2021–22 cycle
of reviews and Deloitte’s proposed actions to address these
findings as a firm.
The Committee concluded that the external audit process in
respect of the financial statements for the year ended 31 December
2022 was effective. The Committee confirmed Deloitte’s
independence before recommending its reappointment for
approval by shareholders at the Annual General Meeting (AGM)
on 29 June 2023.
External audit rotation
Deloitte LLP was appointed by shareholders as the Group’s
statutory auditor in 2020 following a formal tender process.
For 2022, Deloitte continued to provide external audit services to
the Group. Jane Makrakis was the lead partner for Deloitte on
the audit. The Audit Committee considers annually the need to
tender the audit for audit quality or independence reasons. There
are no contractual obligations in place that restrict the Group’s
choice of statutory auditor. The external audit contract will be put
out to tender at least every 10 years. The Committee considers
that it would be appropriate to conduct an external audit tender
by no later than 2030. The Company has complied with the
provisions of the Competition and Markets Authority’s Order
on statutory audit services.
External auditor
86
–
Morgan Advanced Materials plc
Annual Report 2022
Dear shareholder
On behalf of the Nomination
Committee, I present our report
for 2022. The Committee met
three times during 2022 and
members’ attendance is set out
in the table on page 64.
The Committee performs a vital role in
reviewing the composition and balance of
skills and experience on the Board, enabling
it to lead the process for appointments
to the Board, keep under review the
leadership needs of the Group, and ensure
plans are in place for orderly succession to
Board and senior management positions.
During 2022, led by Laurence Mulliez
as Senior Independent Director, the
Committee was primarily concerned with
identifying my successor as Chair of the
Board. The Committee also oversaw the
appointment of Richard Armitage as Chief
Financial Officer, reviewed Board succession
and assessed whether the objectives of
the Board’s Diversity and Inclusion Policy,
including how it supports Morgan’s strategy,
had been implemented and what progress
has been achieved. During the year, the
Board reviewed succession planning and
talent strategy for the Executive Committee
and its direct reports, with a particular lens
on our aim to foster diversity within the
leadership population and increase the
female leadership population to 40%
by 2030.
The Committee remains conscious that
to execute on Morgan’s strategic priorities
of Big positive difference, Delight the
customer and Innovate to grow, building
our talent pool with individuals whose
skill sets and thinking can drive Morgan’s
strategy and shape our culture is critical
to the Group’s long-term success.
The Committee’s performance was
reviewed as part of the internal evaluation
aimed at identifying areas for improvement.
I am pleased to report that the Committee
is continuing to work well and is fully
discharging its responsibilities, whilst
contributing effectively to the Group’s
overall governance framework.
Douglas Caster CBE FIET
Committee Chair
Key responsibilities
The Nomination Committee supports the
Board in ensuring that the Board and its
Committees are appropriately staffed
and operate effectively. The Committee
identifies qualified individuals to join the
Board, recommends any changes to the
Board and Committee composition and
monitors an annual process to assess
Board effectiveness.
This involves:
overseeing and facilitating annual reviews
of the Chair, the Board, its Committees
and individual Directors, including
externally facilitated reviews
evaluating and overseeing the balance
of skills, knowledge and experience
on the Board and its Committees
monitoring the independence
of Directors
overseeing Board succession plans
and leading the process to identify
suitable candidates to fill vacancies,
nominating such candidates for approval
by the Board and ensuring that
appointments are made on merit
and against objective criteria
overseeing the induction of
new Directors
overseeing succession plans for
the executive Directors and
senior management.
The terms of reference of the Committee
are available on the Company’s website,
morganadvancedmaterials.com.
Report of the Nomination Committee
Committee members
Douglas Caster
(chair)
Jane Aikman
Helen Bunch
Ian Marchant
(from appointment
on 1 February 2023)
Laurence Mulliez
Clement Woon
The Nomination Committee seeks to
ensure that the Board has the requisite
mixture of skills, knowledge and expertise
to provide robust oversight, and to identify
and respond effectively to current and
future opportunities and challenges.
The Committee is composed solely
of non-executive Directors and is
chaired by the Chair of the Board.
Biographies of the Committee members
can be found on pages 62 to 63
The Company Secretary is secretary to
the Committee and attends all meetings
The Chief Executive and Group
HR Director attend all scheduled
meetings by invitation
Governance
87
Key activities in 2022
Board and
Committee
composition
Monitored the global search carried out by Korn Ferry for a Chair designate and independent non-executive Director
led by the Senior Independent Director
Interviewed and considered potential Board candidates
Reviewed the independence of all Directors, making recommendations to the Board
Reviewed the structure, size and composition of the Board and its Committees, ensuring that they remain appropriate
Reviewed and updated the Board’s Diversity and Inclusion Policy, and assessed progress against its objectives
Succession
planning
Reviewed and endorsed succession plans for the Board and its Committees
Reviewed updated succession plans for the Chief Executive Officer
Continued to provide input to the succession plans for the Executive Committee (excluding the Chief Executive Officer)
and the Group’s diversity and inclusion programme
Reviewed and endorsed updates to the Board’s skills matrix
Board
effectiveness
reviews
Oversaw the implementation of recommendations arising from the 2021 external evaluation of the Board and
Committees’ performance
Carried out the 2022 internal evaluation of the Board and Committees’ performance
Corporate
governance
Monitored the fulfilment of the new requirements, principles and expectations of the Code
Reviewed Directors’ declarations on potential conflicts of interest
Reviewed requests by Directors to undertake additional appointments
Considered whether each Director continued to be able to allocate sufficient time to discharge their responsibilities effectively
Considered the annual election or re-election of Directors at the 2023 Annual General Meeting (AGM)
Reviewed the Committee’s terms of reference
Diversity and inclusion
The Board’s Diversity and Inclusion Policy reflects the Board’s
belief in the benefits of diversity and that more diverse companies
attract and maintain the best talent and achieve stronger
overall performance.
The Board considers a broad definition of diversity when setting
policies and appointing Directors, including gender, disability,
nationality, educational and professional experience, personality
type, culture and perspective.
Statement on compliance against regulatory
targets on gender and ethnicity
The Committee has worked hard to ensure that the Board is
suitably diverse according to these criteria. The Board reviews its
effectiveness in meeting diversity goals each year as part of the
annual Board evaluation process. The Board confirms that as at
31 December 2022 (being the reference date selected by the
Board for the purposes of this disclosure), the Company complied
with the regulatory targets set out in LR 9.8.6 R(9)(a) as if they
applied to the Company’s financial year under review. Accordingly,
there was 43% female representation on the Board, one of whom
is the Senior Independent Director, and the Board currently has
one Director of Southeast Asian origin. Both the Audit Committee
Chair and the Remuneration Committee Chair are female.
Morgan’s intention is to at least maintain that level of diversity, in
order that the Board’s composition can more closely reflect the
Group’s workforce and society more generally. It is however
acknowledged that in periods of Board change, there may be times
when this balance is not maintained. The percentage of women
on the Group’s Executive Committee is 30%. At 31 December
2022, 29% (2021: 27% and 2020: 25%) of senior management,
defined in accordance with the Code as the members of the
Executive Committee including the Company Secretary and their
direct reports, were female. The Committee takes diversity into
account in broader discussions on succession planning and talent
development and supports management in its wider commitment
to promoting diversity. The Company submitted data to both the
FTSE Women Leaders Review and the Parker Review during 2022.
Board and Executive Committee diversity as at 31 December 2022
Number of
Board members
Percentage of
the Board
Number of
senior positions
on the Board
Number in
executive
management
Percentage
in executive
management
Men
4
57
3
7
70
Women
3
43
1
3
30
White British or other White (incl minority-White groups)
6
90
4
9
90
Mixed Multiple Ethnic Groups
–
–
–
–
–
Asian/Asian British
1
10
–
1
10
Black/African/Caribbean/Black British
–
–
–
–
–
Other ethnic group, including Arab
–
–
–
–
–
Not specified/Prefer not to say
–
–
–
–
–
This disclosure is based on data collected from the individuals on joining Morgan.
88
–
Morgan Advanced Materials plc
Annual Report 2022
Diversity policy
The Board has agreed objectives for achieving gender, ethnic
and cultural diversity on the Board and its Committees which
have informed the appointments made during the year. With the
refreshment of the Board into future years, the policy will inform
and steer the Committee in identifying candidates and set the tone
for the wider Group’s diversity aspirations, in particular in the
context of developing its leadership population.
To promote diversity and inclusion the Board will:
consider all aspects of diversity when reviewing the composition
and effectiveness of the Board and its Committees
only engage with executive search firms which are accredited
under the Enhanced Code of Conduct for Executive Search
Firms, or which have a proven track record in sourcing diverse
candidates, when seeking to make new appointments
ensure that candidate lists include individuals from a broad and
diverse range of backgrounds and that all candidates with the
requisite skills and capability are considered, including those with
less traditional track records than the corporate mainstream
agree new Board appointments based on merit against the
objective criteria set, taking account of the unique benefits each
candidate can bring
review senior executive succession planning annually and monitor
the development of a diverse pipeline of future senior leaders,
reflecting the composition of Morgan’s workforce
set the tone and provide visible support for the Group’s diversity
and inclusion objectives, including the fostering of an inclusive
culture which allows individuals to bring their whole selves to
work, role-modelling and promoting inclusive leadership
review and challenge the goals and progress of executive
management in improving inclusion and diversity.
Succession
An integral part of the work of the Nomination Committee is
to establish and maintain a stable leadership framework and to
proactively manage changes and their impacts on the future
leadership needs of the Company, both in terms of executive and
non-executive leadership. Ensuring the correct leaders are in place
enables the organisation to compete effectively in the marketplace
and therefore to meet its various obligations to its stakeholders.
The Committee has managed succession programmes for both
the Board and senior management which have ensured that the
necessary skills, expertise and experience are present in the
leadership of the organisation.
Board succession
The Committee regularly reviews the skills and expertise that are
present on the Board and compares these to the expertise that
it believes is required given the strategy, business priorities and
culture of the organisation. The Board’s succession plan is reviewed
formally at least once per year and addresses Board size,
Committee structure and composition, skills on the Board, Board
and Committee members’ tenure, independence of Directors,
diversity (including gender), Board roles, Board policies and
individual succession plans for all Board and Committee positions.
During 2022, the Committee discussed succession planning at each
of its meetings. The Committee considered both the Board skills
matrix and the Board’s Diversity and Inclusion Policy in the context
of succession planning as tools to help identify potential composition
needs for the future, and to ensure that plans are proactive and
not just reactive in nature. There were no non-executive Director
retirements or appointments in 2022. We continue to manage a
phased succession programme for non-executive Directors and
are pleased with the balance of length of tenure, as well as of
diversity, background and perspective of our current non-executive
Directors. The process for the Chair’s succession is set out in the
case study on page 89.
Senior management succession
The Committee received regular updates regarding senior
management succession planning. These updates included the
planning and processes involved with the appointment of a new
Chief Information Officer and President for Thermal Products.
The Committee is responsible for succession planning for the
Executive Committee which allows for ongoing monitoring of the
impact of the diversity and inclusion strategy on appointments that
are made and their progress within the Company, including at the
level of those who report to the Executive Committee, to develop
a pipeline of female and diverse talent that will serve to widen the
pool of candidates for Board and leadership positions in the future.
The Nomination Committee will continue to work with the Chief
Executive Officer and Group HR Director on senior management
succession and development in 2023.
Report of the Nomination Committee
continued
89
Governance
Chair succession
On 18 January 2023, the Board announced that it had selected Ian Marchant to succeed Douglas Caster as Morgan’s Chair. Ian joined the
Board with effect from 1 February 2023 and will be appointed to the role of Chair at the conclusion of Morgan’s AGM on 29 June 2023,
subject to shareholder approval. Douglas will step down from the Board at the same time, having served on the Board for nine years.
Ian is a highly strategic and successful leader with more than 35 years of wide-ranging experience at major businesses, bringing a strong
track record of value creation and listed board experience. Further information on Ian’s skills and contribution can be found on page 62.
The Board is delighted to have appointed such an outstanding individual and is confident Ian will lead the Morgan Board with distinction.
Define
In preparedness for the ninth anniversary of Douglas’s appointment to the Board in February 2023, the Nomination Committee,
under the leadership of the Senior Independent Director, commenced the search for his successor in 2022. At no point was the
incumbent Chairman involved in the process of selecting his successor.
The executive search agency, Korn Ferry, was engaged to conduct the external search. Korn Ferry has no other relationship with
the Company or the individual Directors and is independent. A candidate specification was prepared and agreed with the Committee.
This included proven experience of leading a business of significant scale and complexity, knowledge and experience of the
engineering and industrial sector, international experience, a commitment to the highest ESG standards, and a proven ability to lead
a board and act as a mentor to the executive team. The Committee requested a diverse long list of candidates, in respect of gender,
ethnicity and background, be produced.
Review
The executive search agency, Korn Ferry, identified potential candidates to create a longlist and presented this to the Committee
for consideration.
Identify
The Board agreed the most suitable potential candidates from the long list which included diverse candidates and instructed the
executive search agency to approach them for interview and assessment.
Assessment
The shortlisted candidates were invited for initial assessment and interview, initially by the executive search agency and then by
the full Board.
Appointment
The successful candidate was recommended for appointment to the Board.
Induction
The Group Company Secretary has arranged a comprehensive induction programme for Ian. It includes meetings with each Board
member, the members of the Executive Committee and the senior leadership team. The overall programme is designed to ensure
that Ian gains a thorough understanding of our:
1.
purpose, strategy and values
2.
culture and people, including visits to our major sites, with opportunities to meet with the local management teams and workforce
3.
business and operations, through a series of tailored teach-ins, training programmes and site visits
4.
ESG agenda and what we are targeting to build our impeccable credentials
5.
investors, including a detailed engagement plan with institutional and retail investors
6.
key advisors, including brokers, auditors and corporate advisers
7.
governance and regulatory framework and our capital and financing structure.
90
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
Statement to shareholders
from the Chair of the
Remuneration Committee
As a business, Morgan Advanced Materials
in common with most industry players
is facing high inflation that is affecting the
cost of raw materials, energy and freight,
and has experienced some raw materials
and labour shortages. Despite this Morgan
has delivered 11.2% organic revenue
*
growth for the 2022 financial year, while
investing further in the wider business to
support sustainable long-term growth.
During 2022, we have continued to focus
on our reporting requirements within the
UK Corporate Governance Code. Within
this context, the Committee conducted
a review of the implementation of the
current Remuneration Policy (approved
by 96.4% of shareholders at the 2022
AGM) to ensure it remains fit for purpose.
This review concluded that the current
framework continues to support Group
strategy and culture, as well as providing
strong alignment of executive Director
and shareholder interests.
2022 Committee activity
During the year, the Committee
met four times. Its activities included
determination of current incentive
outcomes, remuneration packages for the
Company’s Chair and executive Directors
(including the new Chief Financial Officer,
and his retiring predecessor), and a review
of the implementation of the Group’s
Remuneration Policy. Further details
regarding the activities of the Committee
can be found in the Remuneration
governance section at the end of this
Report on page 115.
2022 remuneration outcomes
In reviewing performance in 2022,
the Committee determined that payouts
of 27.6% of the 2022 annual bonus
opportunity for the Chief Executive Officer
(CEO) and new Chief Financial Officer
(CFO), and 29.6% for the former CFO
were appropriate (the incoming and
outgoing CFOs will receive pro-rated bonus
payments based on proportion of the
year respectively worked). The 2020
LTIP award will partially vest, resulting in
a 67.9% achievement of the maximum.
These outcomes are consistent with the
Group’s performance, details of which
are summarised later in this Report. The
Committee considered it appropriate not
to adjust performance targets during the
year, and concluded that no discretion
needs to be applied for 2022 remuneration
outcomes, which were considered to
appropriately reflect the underlying
performance of the Group. However, the
Committee will review the value at vesting
of the 2020 LTIP award (which is due to
vest in October 2023) to ensure that any
gain reflects the underlying performance
of the Group rather than a windfall due
to a wider stock market rebound since the
time of grant. However, at present the
Committee considers the risk of a windfall
gain unlikely, in part given the decision to
delay making 2020 LTIP awards until later in
2020 and following a partial recovery in the
share price from the initial market downturn
at the time of the pandemic’s onset.
Committee members
Helen Bunch
(chair)
Jane Aikman
Douglas Caster
Ian Marchant
(from appointment
on 1 February 2023)
Laurence Mulliez
Clement Woon
I am pleased to present the
Remuneration Report for the year
ended 31 December 2022.
The health, safety and wellbeing of our
employees remains our top priority, and
in view of the impact of increased inflation
and the continued presence of COVID-19
on the workforce we continue to put
measures in place to protect and support
our employees. We have carefully reviewed
our direct labour remuneration packages by
location and have implemented additional
salary increase budgets where appropriate.
We have also maintained heightened
safety measures to protect our employees.
There has been an intense focus on the
‘thinkSAFE’ programme and the Morgan
Code of Conduct, and we have continued
to roll-out leadership development
programmes across the organisation.
Governance
91
Implementation of Policy in 2023
In keeping with our usual approach, salary
increases have been determined by the
Committee in the context of the continued
performance of the Group in 2022, labour
market conditions, and the average salary
increases awarded to the wider workforce.
The process for reviewing executive
Director salaries takes into account
individual and Group performance,
demonstration of the defined leadership
behaviours and salary position relative to
the relevant market, which is consistent
with the approach taken for the entire
professional population. However, the
Committee also factored into its decision-
making this year the prevailing inflationary
environment and its asymmetric cost-of-
living impact on different organisational
levels of the Group, and determined to
award salary increases of 4% for both the
CEO and CFO (compared to the average
increase for the wider UK workforce of
4.5%). The Committee also approved
a 3% increase to the Chairman’s fee
(which Mr Caster has voluntarily waived),
and the Chairman and executive Directors
approved a similar 3% increase to the
non-executive Directors’ base fee for 2023.
The Committee also reviewed the
structure of the annual bonus and LTIP
plans to ensure that the framework remains
appropriately aligned with our strategic
aims and culture, motivates and rewards
management for delivering sustainable
performance, and supports retention.
For the 2023 annual bonus, the cash
generation metric will be replaced with
a single measure of year-end working
capital in order to drive the recovery of our
working capital position following the recent
cyber security incident. No other changes
are proposed to the performance linkage
of the annual bonus for 2023 as measures
remain aligned to Morgan’s key objectives,
including ESG (environmental, social and
governance) measures being covered in the
executive Directors’ personal objectives
and therefore reflected in the personal
performance element of the bonus. For the
LTIP, it is proposed to maintain ESG targets
at 5% to 15% carbon reduction over the
three-year performance period, reflecting
our stated longer-term ambition to reduce
carbon emissions by 50% by 2030 (from
a 2015 baseline). The EPS performance
range for the 2023 LTIP will be set at
4%-11% per annum over the three-year
performance period, which is in line with
the performance ranges set pre-pandemic
(these having been temporarily increased
during the pandemic to take into account
the reduced base level resulting from the
impact of the pandemic). The Committee
considers this to be appropriately
challenging in the context of the Group’s
strategic plan, external market factors and
broker forecasts. No changes are proposed
to the TSR benchmarks and relative TSR
performance range (median-upper quartile).
It is proposed to maintain the ROIC
*
range
for that element of the executive Directors’
2023 LTIP at 17%-20%, to reflect our latest
expectations for performance over the
three-year performance period. For the
annual bonus, the EBITA performance
range has been set at -1.6% to 13.0% of
target, and the year-end working capital
performance range is set at ±6.0%
of target. These reflect the continued
economic volatility externally, and potential
residual impact of the recent cyber incident,
and the potential impact on performance
outcomes. Annual bonus targets are
considered to be commercially sensitive
at this time but will ordinarily be disclosed
in next year’s Remuneration Report.
This Report is consistent with the current
reporting regulations for executive
remuneration and, as in prior years,
includes a Remuneration at a glance section
summarising the key elements of executive
Director remuneration. I hope we have
been successful in continuing to achieve the
clarity and transparency that will be of help
to our shareholders.
Helen Bunch
Committee Chair
92
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Morgan Advanced Materials plc
Annual Report 2022
Remuneration at a glance
Components of remuneration
Salary
+
Pension and Benefits
=
Fixed total
+
=
Total remuneration
Annual bonus
+
LTIP
=
Variable total
Key features of how our executive remuneration policy will be implemented in 2023
Fixed components
Base salary
Policy
Executive Directors’ salaries are generally reviewed
each January, with reference to individual and Group
performance, experience and salary levels at companies
of similar sector, size and complexity.
Pete Raby (CEO)
£620,000
Richard Armitage
(CFO)
£442,000
Pension and other benefits
Pension
Benefits (estimated values)
Policy
Policy change approved at the 2022 AGM aligns pension
contributions (and/or cash in lieu thereof) for executive
Directors with the level of contributions available to
the UK workforce from 31 December 2022 onwards.
Other benefits can include company car/car allowance,
health insurance and, where appropriate, relocation
allowances and other expenses.
Implementation
For 2023, executive Director pension contributions
are now fully aligned with those of the wider workforce
(8% based on UK population). Richard Armitage’s
pension allowance was set at this level on appointment,
and for Pete Raby was reduced to this level in line
with our stated commitment to alignment from
31 December 2022.
Pete Raby (CEO)
8% of salary
Pete Raby (CEO)
£13,847
Richard Armitage
(CFO)
8% of salary
Richard Armitage
(CFO)
£12,960
Variable components, annual bonuses
Maximum opportunities
for 2023
(no change)
Performance measures
weighting
Policy
Maximum award opportunity: 150% of base salary
Performance measures are set by the Committee at the
start of the year and are weighted to reflect a balance
of financial and strategic objectives. 67% of any annual
bonus paid is delivered in cash with the remainder
deferred into shares and released after a further period
of three years. 50% of the bonus opportunity is paid
for on-target performance.
Pete Raby (CEO)
150% of salary
Operating profit
*
40%
Richard Armitage
(CFO)
150% of salary
Year-end working
capital
40%
Strategic personal
objectives
20%
LTIP
Maximum opportunities
for 2023
Performance measures
weighting
Policy
Maximum award opportunity: 200% of base salary.
The award levels and performance conditions on which
vesting depend are reviewed prior to the start of each
award cycle to ensure they remain appropriate. Vested
shares are subject to a post-vesting holding period of
two years. The vesting of awards is usually subject to
continued employment and to the Group’s performance
over a three-year performance period. 25% of an
award vests for achievement of the threshold level
of performance.
Pete Raby (CEO)
200% of salary
TSR vs. FTSE
All-Share
Industrials Index
15%
Richard Armitage
(CFO)
150% of salary
TSR vs. peer group
15%
EPS growth
27.5%
Group ROIC
*
27.5%
ESG (carbon
reduction)
15%
93
Governance
Pay at risk
Pay scenarios
Annual bonus
36.5%
LTIP
36.5%
Variable
73%
Fixed
27%
Richard Armitage (CFO)
Pete Raby (CEO)
0
1,000
2,000
3,000
4,000
Below threshold
Target
Stretch
Stretch with 50%
share price increase
£3,473k
20%
27%
53%
24%
47%
32%
21%
100%
33%
43%
£2,853k
£1,458k
£683k
0
500
1,000
1,500
2,000
2,500
Below threshold
Target
Stretch
Stretch with 50%
share price increase
£2,148k
23%
31%
46%
27%
49%
34%
17%
100%
36.5%
36.5%
£1,816k
£988k
£490k
Richard Armitage (CFO)
Annual bonus
33%
LTIP
43%
Variable
76%
Fixed
24%
Pete Raby (CEO)
Variable
Fixed total (base salary, pension and benefits)
Annual bonus
LTIP
Shareholding requirements
Pete Raby (CEO) 200% of salary
(current shareholding 270.1%)
Richard Armitage (CFO) 200% of salary
(current shareholding 29.5%)
94
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
This Report covers the period 1 January 2022 to 31 December 2022 and provides details of how the Remuneration Committee has
operated and implemented the Remuneration Policy, approved by shareholders at the 2022 AGM, during the year under review.
The proposed implementation of this Policy for the 2023 financial year is summarised on pages 91 to 93.
1. Policy report
Key principles of the Remuneration Policy
The Remuneration Committee aims to ensure that all executive remuneration packages offered by Morgan Advanced Materials are
competitive and designed to promote the long-term success of the Company by ensuring that Morgan is able to attract, retain and
motivate executive Directors and senior executives of the right calibre to create value for shareholders.
The Committee ensures that a significant proportion of the total remuneration opportunity is performance-related, with an appropriate
balance between short-term and long-term performance, and is based on the achievement of measurable targets that are relevant to,
and support, the business strategy through the execution of the Policy.
The Remuneration Committee will keep the Remuneration Policy under periodic review to ensure it remains aligned with the Group’s
strategy, reinforces the Group’s culture, and is in line with the principles set out in the UK Corporate Governance Code in relation to
directors’ remuneration. This includes ensuring that performance-related elements are transparent, stretching and rigorously applied,
as well as reflecting the views and guidance of institutional investors and their representative bodies.
Summary of Morgan Advanced Materials plc’s Remuneration Policy
This section of the Report sets out the current Remuneration Policy for executive Directors and non-executive Directors. This Policy
remains unchanged from that which was approved by shareholders at the Company’s AGM on 5 May 2022, and which is effective for
a period of up to three years from that date. The only updates to the Policy report published in the 2021 Annual Report are: (i) page
numbers; (ii) the section on performance measure selection (which has been updated to relate to 2023 incentive cycles); and (iii) the pay
scenario charts (which have been updated to reflect the implementation of Policy for the 2023 financial year).
The Committee has developed the Remuneration Policy to be consistent with the six factors outlined in Provision 40 of the Code,
as set out below:
Clarity:
Our Policy is clear, and disclosures on our decision-making (in relation to policy and its implementation) are transparent.
The Committee also engages regularly with shareholders and employees to facilitate a greater understanding on a range of subjects,
including remuneration.
Simplicity:
The Policy and the Committee’s approach to implementation is simple and well understood. The performance measures
used in the incentive plans are well aligned to the Group’s strategy.
Risk:
The Committee has ensured that remuneration arrangements do not encourage or reward excessive risk taking by setting targets
to be stretching and achievable, with discretion to adjust formulaic bonus and LTIP outcomes.
Predictability:
The range of outcomes under our Policy are quantifiable, clearly linked to defined performance outcomes, and capped.
Proportionality:
The link of the performance measures to strategy and the setting of targets ensures outcomes are proportionate to
performance, and importantly do not reward poor performance.
Culture:
The Policy is consistent with the Group’s culture, driving behaviours that promote the long-term and sustainable success of
the Group for the benefit of all stakeholders.
Governance
95
Purpose and link
to strategy
Operation
Opportunity
Performance metrics
Fixed pay
Base salary
Provides the fixed
element of the
remuneration package.
Set at competitive levels
against the market.
Base salaries are generally
reviewed each January, with
reference to an individual’s
performance (and that of
the Group as a whole),
their experience, and the range
of salary increases applying
across the Group.
The Committee also considers
salary levels at companies
of similar sector, size
and complexity when
determining increases.
Our policy is to pay salaries that are
broadly market-aligned, with increases
applied in line with the outcome of
the annual review. Salaries in respect
of the year under review (and for the
following year) are disclosed in the
Annual Report on Remuneration.
Salary increases for executive Directors
will normally be within the range of
increases for the general employee
population over the period of this
Policy. Where increases are awarded
in excess of those for the wider
employee population, for example in
instances of sustained strong individual
performance, if there is a material
change in the responsibility, size or
complexity of the role, or if an individual
was intentionally appointed on a
below-market salary, the Committee
will provide the rationale in the relevant
year’s Annual Report on Remuneration.
An executive Director’s
performance (and that of the
Group as a whole) and also
their demonstration of the
defined leadership behaviours,
are taken into account when
making decisions in relation
to base salary.
Pension
Provides post-retirement
benefits for participants
in a cost-efficient manner.
Defined contribution
scheme (and/or a cash
allowance in lieu thereof).
For current executive Directors from
31 December 2022 onwards, and for
new executive Directors on
appointment, contributions (or cash
in lieu thereof) will be aligned with the
level of contribution available to the
UK workforce at that time.
Not applicable.
Benefits
Designed to be
competitive in the
market in which the
individual is employed.
Can include company car/car
allowance, health insurance and,
where appropriate, relocation
allowances and other expenses.
Benefits values vary by role and
are reviewed periodically relative
to the market.
It is not anticipated that the cost of
benefits provided will change materially
year on year over the period for which
this Policy will apply.
The Committee retains the discretion
to approve a higher cost in exceptional
circumstances (e.g. relocation expenses,
expatriate allowances etc.) or in
circumstances where factors outside the
Group’s control have changed materially
(e.g. market increases in insurance costs).
Benefits in respect of the year under
review are disclosed in the Annual
Report on Remuneration.
Not applicable.
96
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
Purpose and link
to strategy
Operation
Opportunity
Performance metrics
Variable pay
Annual bonus
Provides a direct link
between annual
performance and reward.
Incentivises the
achievement of key
specific goals over the
short term that are also
aligned to the long-term
business strategy.
Deferred bonus supports
retention and provides
additional alignment
with the interests
of shareholders.
Performance measures are set
by the Committee at the start
of the year and are weighted
to reflect a balance of financial
and strategic objectives.
At the end of the year, the
Remuneration Committee
determines the extent to which
these have been achieved.
To the extent that the
performance criteria have been
met, up to 67% of the resulting
annual bonus is paid in cash.
The remaining balance is
deferred into shares and
released after a further period
of three years, subject to
continued employment only.
Cash and deferred share
bonuses awarded for
performance will be subject to
malus and clawback until the
end of the deferral period.
Further details of our Malus
and Clawback Policy are set
out at the end of this table.
Dividends may accrue over the
deferral period on deferred
shares that vest. Any dividends
that accrue will be paid in shares
at the end of the vesting period.
Up to 150% of salary.
The payout for threshold
performance may vary year on
year but will not exceed 25% of
the maximum opportunity.
Bonuses for the executive
Directors may be based on
a combination of financial
and non-financial measures.
The weighting of non-financial
performance will be capped
at 30% of the maximum
opportunity.
The Committee retains
discretion to adjust the bonus
outcome if it considers that
the payout is inconsistent with
the Company’s underlying
performance when taking
into account any factors it
considers relevant.
Further details are set out in the
Annual Report on Remuneration
on pages 102 to 116.
Governance
97
Purpose and link
to strategy
Operation
Opportunity
Performance metrics
Long-Term Incentive
Plan (LTIP)
Aligns the interests of
executives and
shareholders with
sustained long-term
value creation.
Incentivises participants to
manage the business for
the long term and deliver
the Company’s strategy.
The Remuneration Committee
has the authority each year to
grant an award under the LTIP.
The award levels and
performance conditions on
which vesting depends are
reviewed prior to the start
of each award cycle to ensure
they remain appropriate.
Vested shares are subject
to a post-vesting holding period
of two years.
Awards are subject to malus
and/or clawback for a period of
five years from the date of grant.
Further details of our Malus and
Clawback Policy are set out at
the end of this table.
Dividends may accrue on vested
shares during the holding period.
Under the Policy, the LTIP provides
for a conditional award of shares up
to an annual limit of 200% of salary.
25% of an award vests for achievement
of the threshold level of performance.
The vesting of awards is usually
subject to continued employment
and the Group’s performance
over a three-year performance
period. Subject to shareholder
approval, this will be based on a
combination of TSR, EPS, ROIC
*
and ESG measures.
The Committee has discretion to
extend the performance period
and adjust the measures, their
weighting, and performance
targets prior to the start of each
cycle, to ensure they continue to
align with the Group’s strategy.
The Committee also retains
discretion to adjust the vesting
outcome if it considers that the
level of vesting is inconsistent
with the Company’s underlying
performance when taking
into account any factors it
considers relevant.
Further details of the measures
attached to the LTIP awarded in
the year under review (and the
coming year) are set out in the
Annual Report on Remuneration
on pages 102 to 116.
Sharesave
A voluntary scheme
open to all UK employees
which aligns the interests
of participants with those
of shareholders through
any growth in the value
of shares.
An HMRC-approved scheme
where employees may save
up to a monthly savings limit
out of their own pay towards
options granted at up to a 20%
discount. Options may not be
exercised for three years.
Up to the savings limit as determined
by HMRC from time to time, across
all Sharesave schemes in which an
individual has enrolled.
None.
Malus and Clawback Policy
Malus and clawback will apply to the annual
bonus and LTIP (as set out above) in cases
of error in determining performance,
corporate failure, misconduct or material
misstatement in the published results of
the Group or where, as a result of an
appropriate review of accountability,
a participant has been deemed to have
caused in full or in part a material loss for
the Group as a result of reckless, negligent
or wilful actions or inappropriate values
or behaviour, including (but not limited to)
significant breaches of EHS codes, fraud,
or other events which may cause serious
reputational damage. Cash bonuses will be
subject to clawback, with deferred shares
subject to malus over the deferral period.
LTIP awards are subject to malus and
clawback over the vesting period to the
fifth anniversary of grant.
Payments under existing awards
The Company will honour any commitment
entered into, and Directors will be eligible
to receive payment from any award
granted, prior to the approval and
implementation of the Remuneration
Policy detailed in this Report (i.e. before
5 May 2022), even if these commitments
and/or awards fall outside the above
Policy. The Company will also honour any
commitment entered into at a time prior to
an individual becoming a Director if, in the
opinion of the Committee, the payment
was not in consideration of the individual
becoming a Director of the Company.
Details of these awards will be disclosed
in the Annual Report on Remuneration.
Difference in policy between
executive Directors and
other employees
The Remuneration Policy for other
employees is based on principles broadly
consistent with those described in this
Report for the executive Directors’
remuneration. Annual salary reviews
across the Group take into account
individual and business performance,
demonstration of the defined leadership
behaviours, experience, local pay and
market conditions, and salary levels for
similar roles in comparable companies.
98
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
All executives are eligible to participate in
an annual bonus scheme. Opportunities
and performance measures vary by
organisational level, geographical region and
an individual’s role. Other senior executives
participate in the LTIP on similar terms to
the executive Directors, although award
sizes and performance measures may
vary according to each individual, and by
organisational level. Below this level,
executives are eligible to participate in
the LTIP and other share-based incentives
by annual invitation.
Use of discretion
To ensure fairness and align executive
Director remuneration with underlying
individual and Group performance, the
Committee may exercise its discretion
to adjust, upwards or downwards, the
outcome of any short- or long-term
incentive plan payment (within the limits
of the relevant Plan Rules) for corporate or
exceptional events including, but not limited
to: corporate transactions, changes in the
Group’s accounting policies, minor or
administrative matters, internal promotions,
external recruitment, and terminations.
Any adjustments in light of corporate events
will be made on a neutral basis, meaning
that they will not be to the benefit or
detriment of participants.
Any use of discretion by the Committee
during the financial year under review will
be detailed in the relevant Annual Report
on Remuneration.
Performance measure selection
The Committee considers carefully the
selection of performance measures at the
start of each performance cycle, taking
into consideration the macro-economic
environment as well as specific Group
strategic objectives.
Annual bonus measures are selected to
closely reinforce the Group’s short-term
KPIs. Because these can change from year
to year (in line with the Remuneration
Policy), information on the rationale for
the selection of bonus measures for each
year will be detailed in the relevant year’s
Annual Report on Remuneration.
LTIP performance measures are reviewed
periodically to ensure they continue to
align with the Company’s strategy,
as well as provide an appropriate balance
between growth and returns, internal and
external performance, and absolute and
relative performance.
For 2023 awards, the TSR element of the
LTIP award will continue to comprise two
parts. One half of the TSR element will
vest subject to the Group’s performance
relative to a TSR benchmark comprising
the 83 constituents of the FTSE All-Share
Industrials Index. This benchmark is robust
to merger and acquisition activity and
comprises companies that are subject to
the same market influences as Morgan
Advanced Materials plc. The remaining
half of the TSR element will vest subject
to Morgan’s performance relative to
a TSR benchmark comprising 15 listed
international carbon, ceramics and other
materials companies. This benchmark was
selected to complement the FTSE All-Share
Industrials Index with a group of companies
that better reflect Morgan’s business, the
markets in which Morgan operates and
the geographical footprint of the Group.
For each part of the TSR award, the
vesting performance range is calibrated to
be stretching and in line with common
market practice for FTSE TSR-based
long-term incentives.
EPS targets are set taking account of
multiple relevant reference points, including
internal forecasts, external expectations
for future EPS performance at both Morgan
Advanced Materials plc and its closest
sector peers, and typical EPS performance
ranges at other FTSE 350 companies.
LTIP EPS performance ranges are set to
represent demanding and challenging
performance targets over the three-year
performance period.
ROIC
*
targets are set using a similar
approach to the EPS targets, after
consideration of external reference points
and reflecting the returns required to meet
and exceed the Group’s internal strategic
plan. For the 2023 LTIP cycle, ROIC
*
will
continue to be calculated as follows:
Group headline operating profit
*
(pre-specific adjusting items)
12-month average (third-party working
capital + total fixed assets + total
intangible fixed assets)
The ESG measure is based on the
percentage reduction in CO
2
emissions,
with targets aligned to Morgan’s overall
strategic goals.
Share ownership guidelines
In order to encourage alignment with
shareholders, executive Directors are
required to build and maintain an individual
shareholding in the Company equivalent to
at least 200% of base salary. The required
level of shareholding is expected to be
achieved within five years of an executive
Director’s appointment. Executive
Directors’ shareholdings are reviewed
annually by the Committee to ensure
progress is being made towards
achievement of the guideline level of
shareholding. If it becomes apparent to
the Committee that the guideline is
unlikely to be met within the timeframe,
the Committee will discuss with the
Director a plan to ensure that the guideline
is met over an acceptable timeframe.
From 2019, executive Directors have also
been subject to a post-employment
shareholding requirement. Executive
Directors are required to hold shares at
a level equal to the lower of the share
ownership requirement or the actual
shareholding on departure for a period of
one year from departure date. Morgan’s
relatively short business cycle ensures the
Board has good visibility within a 12-month
period of the quality of decision-making
and, in addition, unvested awards for good
leavers subsist to the normal vesting date
(albeit pro-rated for time), ensuring
incentive outcomes remain linked to
Morgan’s performance beyond the date
of cessation. The Committee retains the
discretion to modify the post-employment
shareholding requirement in certain,
extraordinary circumstances; for example,
on a change of control during the period
or if a conflict of interest arises with an
executive Director’s next appointment.
Current executive Director shareholdings
are set out in the Annual Report on
Remuneration on page 111.
External appointments
With the approval of the Board in each
case, and subject to the overriding
requirements of the Group, executive
Directors may accept external
appointments as non-executive Directors
of other companies and retain any fees
received. Details of external directorships
held by executive Directors along with fees
retained are provided in the Annual Report
on Remuneration on page 107.
Governance
99
Pay-for-performance: scenario analysis
The graphs below provide detailed illustrations of the potential future reward opportunity for executive Directors, and the potential mix
between the different elements of remuneration under four different performance scenarios; ‘Below threshold’, ‘Target’, ‘Stretch’ and
‘Stretch with 50% share price appreciation’. These have been updated to illustrate the potential opportunity under the 2023 packages
approved for executive Directors.
Pete Raby (CEO)
0
1,000
2,000
3,000
4,000
Below threshold
Target
Stretch
Stretch with 50%
share price increase
£3,473k
20%
27%
53%
24%
47%
32%
21%
100%
33%
43%
£2,853k
£1,458k
£683k
0
500
1,000
1,500
2,000
2,500
Below threshold
Target
Stretch
Stretch with 50%
share price increase
£2,148k
23%
31%
46%
27%
49%
34%
17%
100%
36.5%
36.5%
£1,816k
£988k
£490k
Richard Armitage (CFO)
Fixed total (base salary, pension and benefits)
Annual bonus
LTIP
The potential reward opportunities illustrated above are within the 2022 Policy applied to the annual base salary in effect at 1 January
2023. For the annual bonus, the amounts illustrated are those potentially receivable in respect of performance for 2023 (before mandatory
deferral into shares). The LTIP is based on the face value of awards to be granted in 2023 (200% of salary for the CEO and 150% for
the CFO). It should be noted that any awards granted under the LTIP in a year do not normally vest until the third anniversary of the date
of grant. This illustration is intended to provide further information to shareholders on the relationship between executive pay and
performance. The value of the LTIP assumes no change in the underlying value of the shares once an award is made, apart from in the
‘Stretch with 50% share price appreciation’ scenario. The following assumptions have been made in compiling the above charts:
Scenario
Annual bonus
LTIP
Fixed pay
Stretch with 50% share
price appreciation
Maximum annual bonus.
Performance warrants full
vesting (100% of the award).
LTIP award value has additionally
been uplifted by 50%.
Latest disclosed base salary,
pension and benefits.
Stretch
Maximum annual bonus.
Performance warrants full
vesting (100% of the award).
Target
On-target annual bonus.
Performance warrants threshold
vesting (25% of the award).
Below threshold
No annual bonus payable.
Nil vesting.
Details of executive Directors’ service contracts
The executive Directors are employed under contracts of employment with Morgan Advanced Materials plc. Contracts may be terminated
on 12 months’ notice given by the Company or on six months’ notice given by the executive Director concerned. The following table
shows the date of the contract for each executive Director who served during the year:
Executive Director
Position
Date of appointment
Date of service
agreement
Notice period
From employer
From employee
Pete Raby
CEO
1 August 2015
30 January 2015
12 months
6 months
Peter Turner
Former CFO
(stepped down from
the Board 30.05.22)
11 April 2016
30 March 2016
12 months
6 months
Richard Armitage
CFO
30 May 2022
16 September 2021
12 months
6 months
Exit Payments Policy
The Group’s policy on exit payments is to limit severance payments on termination to pre-established contractual arrangements
comprising base salary and any other statutory payments only. In the event that the employment of an executive Director is terminated,
any compensation payable will be determined in accordance with the terms of the service contract between the Company and the
employee, as well as the rules of any incentive plans.
100
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
The Group may terminate the employment of an executive Director by making a payment in lieu of notice equal to base salary, together
with the fair value of any other benefits to which the executive is contractually entitled under his or her service agreement, for the duration
of the notice period.
The Remuneration Committee will exercise discretion in making appropriate payments in the context of outplacement or the settling of
legal claims or potential legal claims by the departing executive Director, including any other amounts reasonably owing to the executive
Director, for example, to meet legal fees incurred by the executive Director in connection with the termination of employment, where the
Company wishes to enter into a settlement agreement and the individual must seek independent legal advice.
On termination of an executive Director’s service contract, the Remuneration Committee will consider the departing Director’s duty to
mitigate his or her loss when determining the timing of any payment in lieu of notice. There is no automatic entitlement to bonus or the
vesting of long-term incentives on termination. However, the table that follows summarises the Policy on how awards under the annual
bonus, LTIP and deferred bonus plan will normally be treated in specific circumstances, with the final treatment remaining subject to
Committee discretion:
Treatment of awards on cessation of employment and a change of control
Reason for cessation
Calculation of vesting/payment
Time of vesting
Annual bonus
All reasons
The Committee may determine that a bonus is payable on
cessation of employment, and the Committee retains
discretion to determine that the bonus should be paid
wholly in cash. The amount of bonus payable will be
determined in the context of the time served during the
performance year, the performance of the Group and
of the individual over the relevant period, and the
circumstances of the Director’s loss of office. If Group or
individual performance has been poor, or if the individual’s
employment has been terminated in circumstances
amounting to misconduct, no bonus will be payable.
Mandatory deferred bonus share awards
Injury, disability, death, redundancy,
retirement, or other such event as
the Committee determines
Awards will normally vest in full (i.e. not pro-rated
for time).
At the normal vesting date, unless the
Committee decides that awards should
vest earlier (e.g. in the event of death).
Change of control
Awards will normally vest in full (i.e. not pro-rated for
time). Awards may alternatively be exchanged for
equivalent replacement awards, where appropriate.
On change of control.
All other reasons
Awards normally lapse.
Not applicable.
LTIP awards
Injury, disability, death, redundancy,
retirement, or other such event as
the Committee determines
Awards will normally be pro-rated for time and will vest
based on performance over the original performance
period (unless the Committee decides to measure
performance to the date of cessation).
At the normal vesting date, unless the
Committee decides that awards should
vest earlier (e.g. in the event of death).
Change of control
LTIP awards will be pro-rated for time and will vest
subject to performance over the performance period
to the change of control. LTIP awards may alternatively
be exchanged for equivalent replacement awards,
where appropriate.
On change of control.
All other reasons
Awards normally lapse.
Not applicable.
The Remuneration Committee retains discretion, where permitted by the plan rules, to alter these default provisions on a case-by-case
basis, following a review of circumstances and to ensure fairness for both shareholders and participants.
Governance
101
Approach to recruitment remuneration
External appointment
In cases of hiring or appointing a new executive Director from outside the Group, the Committee may make use of all existing
components of remuneration, as follows:
Pay element
Policy on recruitment
Maximum
Salary
Based on: the size and nature of the responsibilities of the proposed role, current
market pay levels for comparable roles, the candidate’s experience, implications for
total remuneration, internal relativities, and the candidate’s current salary.
–
Pension
Option to join the defined contribution scheme available to the wider workforce.
If the executive Director is ineligible to join the standard defined contribution scheme,
the Company may grant a cash allowance of equivalent value.
In line with
Policy limits.
Benefits
As described in the Policy table and may include, but are not limited to, car, medical
insurance, and relocation expenses and/or allowances.
–
Sharesave
New appointees will be eligible to participate on identical terms to all other
UK employees.
Up to HMRC limits.
Annual bonus
As described in the Policy table and typically pro-rated for the proportion of the year
served; performance measures may include strategic and operational objectives tailored
to the individual in the financial year of joining.
Up to 150% of salary.
LTIP
New appointees may be granted awards under the LTIP on similar terms to
other executives.
Up to 200% of salary.
Other
The Remuneration Committee may make an award under a different structure under
the relevant Listing Rule to replace incentive arrangements forfeited on leaving a previous
employer. Any such award would have a fair value no higher than that of the awards
forfeited, taking into account relevant factors including performance conditions, the
likelihood of those conditions being met and the proportion of the vesting period
remaining. Details of any such award will be disclosed in the first Annual Report on
Remuneration following its grant.
–
Internal promotion to the Board
In cases of appointing a new executive Director via internal promotion, the Policy will be consistent with that for external appointees
detailed above. Where an individual has contractual commitments made prior to their promotion to executive Director, the Company
will continue to honour these arrangements even if there are instances where they would not otherwise be consistent with the prevailing
executive Director Remuneration Policy at the time of promotion.
Chairman and non-executive Directors’ Remuneration Policy
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Annual fee
1
To attract and retain high-calibre
non-executive Directors.
Annual fees paid to the Chairman
and non-executive Directors
are reviewed periodically. An
additional fee is payable to the
Senior Independent Director,
and also in respect of chairing
a Board Committee.
Currently paid 100% in cash.
Annual fees are applied in
line with the outcome of
each periodic review.
None.
1.
The maximum aggregate annual fee for all non-executive Directors (including the Chairman) as provided in the Company’s Articles of Association is £750,000.
None of the non-executive Directors has a service contract with the Company. They do have letters of appointment. The non-executive
Directors do not participate in any of the incentive, share or share option plans. The dates relating to the appointments of the Chairman
and non-executive Directors who served during the reporting period are as follows:
Non-executive Director
Position
Date of appointment
Date of letter of
appointment
Date of re-election
Douglas Caster
Chairman
14 February 2014
15 January 2014
1
5 May 2022
Helen Bunch
Non-executive Director
24 February 2016
19 January 2016
5 May 2022
Laurence Mulliez
Senior Independent Director
6 May 2016
4 April 2016
5 May 2022
Jane Aikman
Non-executive Director
31 July 2017
27 April 2017
5 May 2022
Clement Woon
Non-executive Director
10 May 2019
7 May 2019
5 May 2022
1.
Douglas Caster received a subsequent letter of appointment on 18 December 2018.
102
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
Consideration of stakeholder views
The Executive Management team seeks to promote and maintain good relations with employee representative bodies – including trade
unions and works councils – as part of its broader employee engagement strategy and consults on matters affecting employees and
business performance as required in each case by law and regulation in the jurisdictions in which the Group operates. When making
decisions on executive remuneration, the Committee considers the pay and employment conditions across the Group. Engagement with
employees on remuneration is currently achieved through non-executive Director employee listening sessions where employees have the
opportunity to raise issues. The non-executive Directors undertook several employee listening sessions in 2022, to ensure that the Board
understands the views of employees and the impact its decisions have on them. They engaged with the employees on a broad range of
topics, including reward and benefits. Details of these employee listening sessions can be found on pages 72 to 73. In addition, we
undertake an annual engagement survey, ‘Your Voice’, in order to better understand the views of a wider range of employees. The
engagement survey includes a range of specific questions on the Company’s pay practices and presents an opportunity for the workforce
to share feedback and ask its own questions about employee or executive reward. Through the feedback from the engagement survey,
supplemented with the learnings from the employee listening sessions, the voice of Morgan employees is heard at Remuneration
Committee meetings. This enables the Remuneration Committee to take into account the views of employees when considering
executive remuneration and the pay and employment conditions throughout the wider workforce. Laurence Mulliez, our Senior
Independent Director and a member of the Remuneration Committee, attended a listening session in March 2023 with employees on
the Ignite and Catalyst leadership programmes specifically focused on reward and executive remuneration. It was a useful session; the
employees were reassured to hear about the Board’s rigour around fairness for the consideration of reward for the Executive Directors
in line with that of the wider workforce. In the UK, engagement is further facilitated by the Sharesave programme, which enables UK
employees to become shareholders and provides them with the same voting rights as other shareholders in relation to resolutions for
approval at the AGM (and which include executive remuneration matters). Prior to the annual salary review, the Committee is provided
with pay increase data that individual business units consider when deciding local pay awards for their specific businesses and countries.
The Committee is also kept fully informed of remuneration policy and implementation decisions affecting the wider workforce. This
important context forms part of the Committee’s considerations for determining executive Director remuneration. See also the
Stakeholders section on pages 24 to 27.
The Committee considers shareholder views received during the year and at the AGM each year, as well as guidance from investor
representative bodies more broadly, in shaping and implementing Morgan’s Remuneration Policy. The Committee keeps the
Remuneration Policy under regular review, to ensure it continues to reinforce the Group’s long-term strategy and aligns executive
Directors’ interests with those of shareholders. It is the Committee’s policy to consult with major shareholders prior to any major changes
to its executive Remuneration Policy.
2. Annual report on remuneration
The following section provides details of how the Remuneration Policy was implemented during the year and will be implemented
in 2023.
Single total figure of remuneration for executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each executive Director for the year ended 31 December
2022 and the prior year.
Pete Raby
Richard Armitage
1
Peter Turner
2
2022
2021
2022
2021
2022
2021
1. Salary
£596,000
£581,175
£249,551
n/a
£176,421
£426,160
2. Pension
£104,000
£104,000
£19,964
n/a
£33,168
£80,120
3. Benefits
£13,637
£13,644
£8,378
n/a
£5,188
£12,242
Fixed pay subtotal
£713,637
£698,819
£277,893
n/a
£214,777
£518,522
4. Bonus
£246,708
£845,610
£102,623
n/a
£78,320
£620,063
5. LTIP
£696,494
£497,238
n/a
n/a
£427,683
£372,792
6. Other
£1,800
–
£444,800
n/a
–
–
Variable pay subtotal
£945,002
£1,342,848
£547,423
n/a
£506,003
£992,855
Total
£1,658,639
£2,041,667
£825,316
n/a
£720,780
£1,511,377
1.
Richard Armitage joined the Board on 30 May 2022. His remuneration for 2022 reflects the period 30 May to 31 December 2022.
2.
Peter Turner stepped down from the Board on 30 May 2022 and retired from the Group on 30 June 2022. His remuneration for 2022 in the table above reflects the period 1 January to
30 May 2022, with the exception of LTIP which reflects the full value of the pro-rated 2020 LTIP award that is expected to vest during 2023.
The figures have been calculated as follows:
1. Base salary: amount earned for the year.
2. Pension: the figure is a cash allowance in lieu of pension.
3. Benefits: the taxable value of benefits received in the year. Includes private medical insurance and a company car (or car allowance).
Pete Raby’s 2022 private medical insurance has been trued up from the number indicated in the Remuneration at a glance section in
last year’s annual report, based on October policy renewal.
Governance
103
4. Bonus: the total bonus earned on performance during the year (before any mandatory deferral into shares). Richard Armitage and
Peter Turner were eligible for a pro-rata bonus in relation to the 2022 financial year. Peter Turner’s payment will be made wholly in
cash as disclosed in last year’s annual report.
5. LTIP: the estimated value on 31 December 2022 of 2020 LTIP shares vesting in 2023, subject to performance over the three-year
period ended 31 December 2022. Richard Armitage, who joined Morgan in 2022, did not participate in this LTIP cycle. Figures are
based on the average share price for the three months to 31 December 2022 of 282.90p. The value of Peter Turner’s award has been
pro-rated for time based on the proportion of the performance period worked. The figure for 2021 has been trued up from that
disclosed in last year’s Remuneration Report to reflect the share price on the vesting date (21 March 2022) of 312.60p. The impact
of share price movement on the vesting value of Pete Raby’s and Peter Turner’s 2020 LTIP award is as follows (Peter Turner’s figures
have been pro-rated):
Pete Raby
Peter Turner
Value of awards vesting using share price at award (234.7p)
£577,827
(362,377 shares x 67.94% x 234.7p)
£354,815
(222,518 shares x 67.94% x 234.7p)
Value of awards vesting using three-month average
share price at 31 December 2022 (282.90p)
£696,494
(362,377 shares x 67.94% x 282.90p)
£427,683
(222,518 shares x 67.94% x 282.90p)
Impact of share price movements on vesting values
£118,667
£72,868
6. Other: For Pete Raby and Richard Armitage comprises the value (£1,800) of Sharesave options granted in the year, based on the
embedded value at grant (20% of the grant-date share price multiplied by the number of options granted). For Richard Armitage,
in addition to Sharesave options, ‘other’ includes a one-time award of restricted shares with a face value on grant of £443,000, granted
in 2022 following his appointment to offset forfeited bonus from his prior employer. The face value of the award is higher (by £33,000)
than that disclosed in the 2021 Annual Report due to Mr Armitage’s forfeited bonus being higher than originally expected. This award is
due to vest to Mr Armitage at the end of May 2023, on the first anniversary of grant.
Incentive outcomes for the year ended 31 December 2022
Annual bonus in respect of 2022 performance
Targets for the annual bonus are set by the Remuneration Committee, taking into account the short- and long-term requirements of the
Group. Challenging goals are set, which must be met before any bonus is paid. This approach is intended to align executive reward with
shareholder returns by rewarding the achievement of ‘stretch’ targets.
For 2022, the bonus targets for the executive Directors were split between Group headline operating profit
*
before restructuring
(weighted 40%), cash generation
*
(weighted 40%) and individual strategic personal objectives (weighted 20%). The targets were set
to incentivise the executive Directors to deliver stretching profit and cash performance for the Group. Performance in line with target
results in a payout of 50% of maximum.
In addition to the achievement of the targets set, in considering any awards to be made, the Committee also takes into account the quality
of the overall performance of the Group.
The table that follows sets out retrospectively the assessment of performance relative to the 2022 bonus targets for the executive
Directors. Actual bonus payments are shown in the single total figure of remuneration table on page 102.
Performance measure
% of maximum
bonus element
Performance range
Actual
performance
outcome
% payout
of element
% salary earned
Threshold
(0% payout)
Maximum
(100% payout)
Group headline operating profit
*1
40%
131.2m
152.4m
136.3m
24.0%
14.4%
Cash generation
*
40%
153.2m
178.1m
131.8m
0%
0%
Personal objectives
Pete Raby
20%
Please see narrative below for
further details on objectives and
performance against these
90%
27%
Peter Turner
2
20%
100%
30%
Richard Armitage
3
20%
90%
27%
Overall outcome
Maximum
bonus
(% salary)
% of salary earned
Total outcome
Total payable
Group headline
operating profit
1
Cash
generation
*
Personal
objectives
Pete Raby
150%
14.4%
0%
27%
41.4%
£246,708
Peter Turner
2
150%
14.4%
0%
30%
44.4%
£78,320
Richard Armitage
3
150%
14.4%
0%
27%
41.4%
£102,623
1.
For the profit metric there was a straight-line payout between the threshold and maximum figures. All figures were calculated using 2022 budgeted exchange rates.
2.
Peter Turner stepped down from the Board on 30 May 2022, and retired from the Group on 30 June 2022 – he was eligible for a pro-rated bonus payment based on the proportion
of the year worked. The bonus payment value in the table above relates to the period 1 January to 30 May 2022; remuneration for the period 31 May to 30 June 2022 is covered in the
Exit payments made in year section on page 106.
3.
Richard Armitage joined the Group on 30 May 2022 and was eligible for a pro-rated bonus payment based on the proportion of the year worked.
104
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
For 2022, personal objectives continued to be set for each executive Director in the key areas of: ESG (comprising Health, Safety &
Environment, and People & Culture), Morgan’s strategic delivery, and other identified priorities for the year.
Collective goals for 2022 (which applied to each executive Director) included:
1. Continue to develop and embed Morgan’s culture of safety and environmental responsibility, driving the implementation of our
‘thinkSAFE’ training programme to plan, reducing the Group’s LTA rate below 0.2 and deliver progress against our environmental
commitments, and
2. Deliver progress against approved plans to create a diverse and inclusive workforce and encourage an open and positive culture,
and deploy a revised leadership training programme to plan and build a strong succession pipeline.
In addition to the above, the following individual objectives were set for Pete Raby:
1. Complete market and prospect identification and develop an M&A pipeline that reflects a good strategic fit either by adding to our
presence in our four faster growing markets or providing consolidation opportunities in our core
2. Lead the development of a common Voice of the Customer programme, to be rolled out and identified priority areas addressed
to plan
3. Refresh our investor proposition and communications (including the ESG strategy) and deliver to investors through the year and
through a specific capital markets event, and
4. Complete a scoping and sizing project to confirm the ERP platform choice, system scope and high-level deployment plan.
In addition to the collective goals identified above, Peter Turner’s and Richard Armitage’s individual objectives for 2022 were to:
1. Conclude the ongoing execution of plans to strengthen the control environment and prepare for UK SOx legislation, and
2. Establish metrics and review processes to track, manage and deliver pricing increases that compensate for inflationary increases such that
pricing plus continuous improvement is greater than cost inflation plus reinvestment, to maintain or increase GBU and Group margins.
Peter Turner had an additional objective to support an efficient and effective handover of responsibilities to the incoming CFO.
Performance of our leaders is assessed against all expectations of the role, specific personal objectives that are set and how outcomes are
delivered with reference to our defined leadership behaviours.
Taking into account all of these considerations in the round, the personal performance element has been assessed at 90% of the
maximum to reflect Pete Raby’s delivery against the agreed strategic objectives and the leadership behaviours demonstrated in doing so.
Despite a challenging operating environment, Morgan continued to deliver organic revenue growth and operating margin expansion.
Safety training was deployed within all plants to plan, and the robustness of plant-level safety practices was enhanced. Good progress
continues to be made towards our sustainability goals, with absolute CO
2
emissions reducing throughout the year, and further process
and infrastructure improvements being completed to drive water efficiency. The Company continues to prioritise its focus on diversity,
establishing further employee resource groups – Military@Morgan and Prism (supporting LGBTQ+ employees and their allies) – in
addition to Women@Morgan. The completion of the Company’s employee engagement survey resulted in an improved engagement
score year on year and, lastly, the first capital market event in nearly ten years was held to lay out an attractive investment proposition
for the Group.
In addition to the valued contributions by Richard Armitage and Peter Turner to the collective goals identified above, both individuals made
significant contributions during the year to driving operating margin expansion and led the substantial de-risking of the Company’s pension
position. In addition, Peter Turner fully delivered against the additional objective of supporting the CFO transition during the year. In light
of their excellent contribution and the extent to which the objectives were assessed to be met, the personal performance element of
Richard Armitage and Peter Turner’s bonuses has been assessed at 90% and 100% of the maximum respectively.
Performance against the objectives above is referred to further in the Chairman’s statement and elsewhere within the Annual Report.
2019 Deferred Bonus Plan vesting
In 2019, 33% of the annual bonus earned by Pete Raby and Peter Turner (for performance in the 2018 financial year) was deferred into
shares under the Deferred Bonus Plan (DBP), in line with Morgan’s Remuneration Policy. Dividends accrued over the deferral period on
the deferred shares that vested, and the dividends were paid in shares at the end of the vesting period. Details of the DBP awards which
vested in 2022 to the executive Directors are set out in the table below:
Director
Date of grant
Number of
DBP shares
granted
Number
of dividend
reinvestment
shares
Total number
of DBP shares
vested
Market value at
grant
£
Market value at
vesting
£
Date of vesting
Pete Raby
19 March 2019
65,358
4,719
70,077
2.6812
3.126
18 March 2022
Peter Turner (retired from
the Group 30.06.22)
19 March 2019
50,351
3,634
53,985
2.6812
3.126
18 March 2022
Governance
105
2020 LTIP award vesting
Awards granted to executive Directors in 2020 were subject to relative TSR performance, EPS growth and Group ROIC
*
over
a three-year period ended 31 December 2022. The EPS target (applying to one-third of each award) required three-year EPS growth
of 4% per annum for 25% of that element to vest, rising to full vesting for EPS growth of 11% per annum or higher. Over the period
Morgan Advanced Materials plc’s actual EPS growth was 6.65%, which results in a 17.79% vesting for this element.
The TSR element (applying to one-third of each award) required Morgan Advanced Materials plc’s three-year TSR performance to rank
at median against two comparator groups (equally split) – the FTSE All-Share Industrials Index and a tailored comparator group comprising
15 listed international carbon, ceramics and other materials companies – for 25% of that element to vest, rising to full vesting if Morgan
Advanced Materials plc’s TSR ranked at or above the upper quartile against these two comparators.
Morgan Advanced Materials plc’s TSR was 11.3%, which was at the 64th percentile versus the FTSE All-Share Industrials Index and at the
54th percentile versus the tailored comparator group. Accordingly, this results in a 16.83% vesting for the TSR element of the award.
The Group ROIC
*
target (applying to the remaining one-third of each award) required three-year Group ROIC
*
of 17% for 25% of that
element to vest, rising to full vesting for Group ROIC
*
of 20% or higher. Morgan Advanced Materials plc’s Group ROIC
*
was 20%, and
accordingly this results in a 33.32% vesting for the ROIC
*
element of the award.
This combined performance resulted in a partial vesting of the 2020 awards equivalent to 67.94% of maximum. The vesting outcome is
considered by the Committee to appropriately reflect business performance. Executive Directors’ 2020 LTIP awards were granted later in
the year than usual (5 October 2020) to allow the share price to recover from the general stock market downturn initially experienced at
the onset of the pandemic, therefore reducing the risk of windfall gains resulting from a material bounce back in share price at vesting.
The Committee will review the actual gain at the time of vesting (5 October 2023) to ensure a significant windfall does not arise.
Details of the awards to executive Directors are set out in the table below:
Director
Maximum
potential
LTIP award
Maximum
potential LTIP-
CSOP
1
award
Estimated LTIP
award vesting
Estimated
LTIP-CSOP
1
award vesting
LTIP-CSOP
1
award
exercising
Date of vesting
Pete Raby
362,377
–
246,198
–
–
5 October 2023
Peter Turner
2
211,866
10,652
143,941
7,237
–
5 October 2023
1.
CSOP refers to the Company Share Option Plan – further information is included in the Details of plans section later on in this report.
2.
In line with the provisions of the Policy, Peter Turner was treated as a good leaver in respect of outstanding LTIP awards. Peter Turner’s award will therefore vest on a pro-rated basis
calculated on the proportion of the performance period worked. Figures in the table reflect pro-ration to his retirement from the Group on 30 June 2022.
For the purposes of the 2020 LTIP award (and consistent with the approach taken in previous years), the financial results were adjusted
to neutralise the effects of closed businesses in 2020.
Pension (audited)
In 2022, Pete Raby and Peter Turner each received a cash allowance in lieu of pension of a fixed monetary value (unchanged since 2018).
Pete Raby’s allowance was £104,000 and Peter Turner’s was £33,168 (being the annualised allowance of £80,120, pro-rated for the period
1 January to 30 May 2022 when he stepped down from the Board). Peter Turner’s remuneration for the period 31 May to 30 June 2022 is
covered in the Exit payments made in year section on page 106. Richard Armitage received a cash allowance in lieu of pension of 8% of
base salary (pro-rated based on joining the Group on 30 May 2022), which is in line with the pension contribution available to the wider
UK workforce.
Non-executive Director fees (audited)
The table below sets out the fees received by each non-executive Director in respect of the year ended 31 December 2022 and the
prior year.
Douglas Caster
Helen Bunch
Laurence Mulliez
Jane Aikman
Clement Woon
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
£202,100
£197,166
£61,220
£59,918
£61,220
£59,918
£61,220
£59,918
£53,220
£51,918
Non-executive Directors do not receive any other fixed or variable pay, or benefits, in addition to their fee. Figures shown are inclusive
of additional fees of £8,000 payable to Laurence Mulliez as Senior Independent Director and to Helen Bunch and Jane Aikman as
Committee Chairs.
Scheme interests awarded in 2022
2022 LTIP awards
In 2022, Pete Raby and Richard Armitage were granted awards under the LTIP as shown in the table below. The performance period for
the 2022 LTIP awards is 1 January 2022 to 31 December 2024. Vesting outcomes will continue to be assessed to ensure they reflect
business performance and will be adjusted as appropriate.
106
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
Executive Director
Number of LTIP
shares granted
1
Value of awards at grant
£
As % of 2022
annualised salary
Date of vesting
Pete Raby
414,320
1,192,000
200%
13 May 2025
Richard Armitage
207,587
637,500
150%
30 May 2025
1.
Calculated using the award prices of £2.877 and £3.071, being the average share price for the five dealing days prior to the award dates (13 May 2022 and 30 May 2022) for Pete Raby and
Richard Armitage respectively.
The Committee discusses and reviews the performance criteria for new three-year LTIP awards before they are granted. For the awards
granted in 2022, the Committee considered the balance of measures in light of the Group’s business plan and shareholder feedback and
as part of the Remuneration Policy review decided to introduce an ESG metric (carbon reduction in terms of scope 1 and 2 emissions) to
further support Morgan’s overall targets and purpose. The revised weightings across all performance measures are shown in the table
below. The TSR element continues to be split into two parts. One-half of this element will vest based on Morgan’s TSR performance
relative to the constituents of the FTSE All-Share Industrials Index and one-half will vest based on Morgan’s TSR performance relative
to a tailored comparator group of 15 industry comparators.
The table below sets out the targets attaching to the 2022 LTIP awards:
TSR vs FTSE All-Share
Industrials Index
% of award
that vests
TSR
performance
vs peer group
% of award
that vests
EPS growth
% of award
that vests
Group
ROIC
*
% of award
that vests
ESG
(carbon
reduction)
% of award
that vests
Upper quartile
15%
Upper quartile
15%
13% pa
27.5%
20%
27.5%
15%
15%
Median
3.75%
Median
3.75%
6% pa
6.88%
17%
6.88%
5%
3.75%
Below median
Nil
Below median
Nil
< 6% pa
Nil
<17%
Nil
<5%
Nil
For executive Directors, a two-year holding period applies to any shares that vest in relation to the 2022 LTIP. Dividends accrue over this
holding period and will be paid on any shares that vest.
2022 Deferred Bonus Plan awards
In 2022, 33% of the annual bonus results for Pete Raby and Peter Turner (for performance in the 2021 financial year) were deferred into
shares under the Deferred Bonus Plan (DBP), in line with Morgan’s Remuneration Policy. The following DBP awards were granted:
Executive Director
Value of awards at grant
Number of DBP shares granted
1
Value of award £
Date of vesting
Pete Raby
89,853
281,870
21 March 2025
Peter Turner
65,887
206,688
21 March 2025
1.
Calculated using the award price of £3.137, being the average share price for the five dealing days prior to the award date (21 March 2022).
Recruitment award
As noted in last year’s report and referenced in the footnote to the single figure table on page 102, Richard Armitage was granted a
one-time award of restricted shares with a face value of £443,000 to offset the bonus forfeited from his previous employer. This award will
vest after 12 months, conditional on Mr Armitage not having resigned or having been dismissed in specified circumstances. Details of the
award are set out below:
Executive Director
Number of
shares granted
1
Value of awards at grant
£
As % of 2022
annualised salary
Date of vesting
Richard Armitage
144,252
443,000
104%
30 May 2023
1. Calculated using the award price of £3.071, being the average share price for the five dealing days prior to the award date (30 May 2022).
Exit payments made in year (audited)
Payments made to Peter Turner from 1 January to 30 May 2022 (when he stepped down from the Board) are captured in the single
figure table on page 102, and include the full estimated value of his pro-rated 2020 LTIP award which is due to vest in October 2023.
In relation to the period between 31 May 2022 and when he retired from the Group on 30 June 2022, Peter Turner received £60,903 in
remuneration, comprising salary, pension allowance, benefits and bonus pro-rated for this period. No other exit payments were made to
Peter Turner or other executive Directors during the 2022 financial year.
Payments to past Directors (audited)
No payments (other than those captured in the single figure table and above in relation to Peter Turner) were made to past Directors
during the 2022 financial year.
Governance
107
External appointments
Details of external appointments held by executive Directors and the fees retained in 2022 are provided in the table below:
Executive Director
Company
Role
Date of appointment
Fees paid & retained
Pete Raby
Hill & Smith PLC
Non-executive Director
2 December 2019
£53,840
Richard Armitage
NWF Group PLC
Senior Independent Director and
Chair of the Audit Committee
5 July 2020
£43,200
Implementation of Remuneration Policy for 2023
Base salary
In line with the Remuneration Policy, executive Directors’ salaries were reviewed by the Committee and increased for 2023 at the rates
set out in the table below. As in previous years, the Group maintained the formal link between performance and pay within the senior
leadership population in 2022; specifically, taking into account individual and Group performance, as well as salary relative to the relevant
market. The increases awarded to Pete Raby and Richard Armitage were calibrated in line with this. The Committee considered the strong
performance in their roles as well as the market positioning of their salaries, in determining to award increases. However, for 2023 the
increases awarded to our executive Directors were lower than the average increases awarded to the wider workforce (4.5% in the UK)
and other colleagues who received similar performance ratings (5.5% in the UK), reflecting the greater pressure from the cost-of-living
crisis on take-home pay for our lower-paid colleagues, and the higher incentive leverage of executive Director remuneration. The table
below shows the base salaries in 2022, and those that took effect from 1 January 2023:
Executive Director
Base salary at:
Increase
1 January 2023
1 January or on
appointment
2022
Pete Raby
£620,000
£ 596,000
4%
Richard Armitage
1
£442,000
£425,000
4%
1.
Richard Armitage was appointed to the Board on 30 May 2022. The above figure for 2022 is an annualised amount.
The rationale for any future increases will continue to be disclosed in the relevant Annual Report on Remuneration.
Pension
Pete Raby and Richard Armitage will continue to receive a cash allowance in lieu of pension in 2023. These are aligned to the pension
contribution levels available to the wider workforce (8% of salary, based on our UK population).
Annual bonus in respect of 2023 performance
The maximum bonus opportunity remains at 150% of salary (with the payout for on-target performance continuing to be 50% of the
maximum).
33% of any bonus result will ordinarily be deferred into shares for a further three-year period. The performance measures attached to
the annual bonus are as follows, the only change being the cash generation metric being replaced with year-end working capital:
Headline operating profit
*
– 40%
Year-end working capital
– 40%
Strategic personal objectives
– 20%
The actual performance targets set at the beginning of the performance period are not disclosed as they are considered commercially
sensitive at this time, given the close link between performance measures and the Group’s longer-term strategy. This is particularly relevant
in the context of some of the Group’s close and unlisted competitors who are not required to disclose such information, and for whom the
assumptions in our targets would provide valuable information in the current trading year. These targets will be disclosed retrospectively,
at such time as they have become less commercially sensitive, and within three years of the end of the performance year.
2023 LTIP awards
In May 2023, Pete Raby and Richard Armitage will be granted awards under the 2023 LTIP with face values of 200% and 150% of their
2023 base salaries respectively. Formulaic vesting outcomes will continue to be evaluated by the Committee to ensure they reflect
business performance and will be adjusted as appropriate. The three-year performance period over which performance will be measured
began on 1 January 2023 and will end on 31 December 2025. Further details of the awards will be disclosed in next year’s Remuneration
Report.
The performance measures are detailed below:
Each TSR element will operate independently, with vesting determined based on Morgan’s TSR rank relative to constituents of each
TSR benchmark. The performance range for each element will remain median to upper quartile.
108
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Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
The EPS performance range has been set at 4%-11% per annum, in line with the EPS range set prior to the onset of the pandemic (and
having been temporarily increased during the pandemic to take into account the previously reduced base level resulting from the impact
of the pandemic).
The ROIC
*
range will remain unchanged at 17%-20%.
The ESG measure (carbon reduction) will have a performance range of 5% to 15% carbon reduction (scope 1 and 2 emissions) over the
three-year performance period, to support the Group’s overall sustainability goals and its stated 2030 target to reduce scope 1 and 2
CO
2
emissions by 50%.
The Committee believes these ranges appropriately support the Group’s strategy for sustainable long-term growth over the next three
years whilst continuing to represent suitably demanding targets.
For all four measures, awards will continue to vest on a straight-line basis between threshold and maximum, with 25% of each element
vesting at threshold.
For the 2023 LTIP cycle, executive Directors will be required to hold any vested 2023 LTIP awards for an additional two-year period.
Vested awards that are subject to the holding period will remain subject to clawback in line with our Policy but will not be forfeitable
on cessation of employment.
Chairman and non-executive Director fees
The Chairman’s and non-executive Directors’ fees were reviewed in December 2022. The table below shows the fees in 2022, and those
that were agreed for 2023:
Role
2023 fee pa
2022 fee pa
Increase
Chairman
1,2
£210,000
£202,100
3.9%
Non-executive Director
2
£54,820
£53,220
3%
Committee Chair (additional fee)
£8,000
£8,000
n/a
Senior Independent Director (additional fee)
£8,000
£8,000
n/a
1.
Douglas Caster has voluntarily waived the increase in his fee for 2023.
2.
Ian Marchant will be paid the non-executive Director fee from 1 February 2023 until he succeeds Mr Caster as Chairman, at which point his fee will comprise the Chairman’s annual fee of
£210,000 plus an £18,000 contribution towards the cost of administrative support.
Percentage change in Directors’ remuneration
The table below shows the percentage change in the executive and non-executive Directors’ remuneration in 2022 compared to the
average percentage change in remuneration for other employees of Morgan Advanced Materials plc over the same period, in accordance
with the guidelines.
2022 %
change in
salary or
fees
2021 %
change in
salary or
fees
2
2020 %
change in
salary or
fees
3
2022 %
change in
benefits
4
(excluding
pension)
2021 %
change in
benefits
4
(excluding
pension)
2020 %
change in
benefits
4
(excluding
pension)
2022 %
change
in annual
bonus
2021 %
change
in annual
bonus
7
2020 %
change
in annual
bonus
Executive Directors
Pete Raby
2.6%
32.3%
(2.5%)
-19.4%
-0.1%
-0.5%
1.9%
-70.8%
1,029.3%
-89.1%
Richard Armitage
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Peter Turner
0%
1
31.6%
(2.0%)
-20.8%
2.4%
1
0.6%
1.1%
-69.5%
1
1,023.8%
-89.3%
Non-executive Directors
5
Douglas Caster
2.5%
31.6%
(2.0%)
-20.9%
n/a
n/a
n/a
n/a
n/a
n/a
Helen Bunch
2.2%
26.3%
(1.7%)
-18.1%
n/a
n/a
n/a
n/a
n/a
n/a
Laurence Mulliez
2.2%
26.3%
(1.7%)
-18.1%
n/a
n/a
n/a
n/a
n/a
n/a
Jane Aikman
2.2%
26.3%
(1.7%)
-18.1%
n/a
n/a
n/a
n/a
n/a
n/a
Clement Woon
2.5%
31.6%
(2.0%)
-20.9%
n/a
n/a
n/a
n/a
n/a
n/a
Average per
employee
3.4%
3.6%
(2.6%)
3.0%
-1.2%
0.9%
-5.8%
6
-44.1%
53.6%
-2.1%
1.
Peter Turner stepped down from the Board on 30 May 2022 and retired from the Group on 30 June 2022. The percentages above are based on annualised figures.
Governance
109
2.
Figures in brackets reflect percentage increase from original 2020 salary/fee prior to reductions implemented in response to the pandemic.
3.
Percentages reflect the temporary Board salary/fee reductions implemented in response to the pandemic. All figures are based on full-time equivalent comparisons.
4.
Benefits figures include private medical insurance and car allowance. The decrease in Pete Raby’s and other employees’ benefits reflects a reduction in private medical premium over time.
5.
Non-executive Directors do not receive any additional benefits or bonus payments.
6.
Decrease reflects change in type of medical cover required by individual employees.
7.
The personal performance element of the 2020 bonus was cancelled for executive Directors (as a result of the pandemic), contributing to the higher percentage increase in 2021 bonus for
executive Directors compared to other employees.
CEO pay ratio
Year
Method
25th
percentile
pay ratio
Median (50th
percentile)
pay ratio
75th
percentile
pay ratio
2022
Option B
65:1
39:1
34:1
2022 (excluding variable)
Option B
32:1
22:1
16:1
2021
1
Option B
91:1
59:1
48:1
2021 (excluding variable)
Option B
32:1
24:1
17:1
2020
Option B
35:1
25:1
20:1
2020 (excluding variable)
Option B
25:1
20:1
14:1
2019
Option B
74:1
62:1
41:1
2019 (excluding variable)
Option B
34:1
27:1
19:1
1.
Ratios trued up from those disclosed in last year’s Remuneration Report to reflect final value of LTIP vesting for CEO.
Details of the salary and total pay and benefits figures for each of the individuals identified in the table is set out below:
Year
Salary
Total pay and benefits
CEO
25th
percentile
Median
(50th
percentile)
75th
percentile
CEO
25th
percentile
Median
(50th
percentile)
75th
percentile
2022
£596,000
£21,414
£23,225
£41,202
£1,658,639
£25,451
£42,005
£49,371
2021
£581,175
£17,379
£29,129
£37,989
£2,041,667
£22,533
£34,725
£42,442
2020
£439,425
£21,000
£23,960
£36,900
£791,238
£22,464
£31,550
£38,723
2019
£545,000
£17,599
£24,300
£30,610
£1,618,605
£21,958
£25,927
£39,926
In line with the CEO pay ratio regulations, the table above shows for 2022 the ratio of the CEO’s single total figure of remuneration (STFR)
to that of UK employees at the 25th, 50th (median) and 75th percentiles. In addition to the mandatory calculation using total remuneration,
ratios have also been calculated excluding variable pay elements such as bonus and share awards.
Of the three reporting options available to companies, Morgan has applied Option B, where the most recent gender pay gap reporting
data has been used to identify the 25th, 50th and 75th percentile employees. The 25th, 50th and 75th percentile pay ratios are based on
the remuneration of a representative employee who falls on each of these pay percentiles. Option B has been used to calculate the CEO
pay ratios, as Option A requires the ability to calculate a single total remuneration figure for each UK employee, and Morgan does not
currently have the systems in place to support this methodology. The ‘best equivalent’ employees identified using the gender pay gap
information are representative of the 25th, 50th and 75th percentiles of Company remuneration, since base pay constitutes a large
proportion of the remuneration package for the majority of employees, so it is likely that a similar set of employees would have been
identified using Option A. The calculation covers base pay, annual bonus, pension and where applicable share awards and benefits
including car allowance and private medical insurance. Total remuneration figures used in the calculation for 25th, 50th and 75th percentile
employees include annual bonus relating to 2022 performance, in order to be consistent with the methodology used for the CEO’s total
remuneration figure.
2022 CEO pay ratios are significantly lower than those in 2021 as a consequence of the impact of the inflationary headwinds on 2022
business results (and therefore on levels of variable pay), especially with variable pay representing a greater proportion of the CEO’s
package compared to the wider workforce. The 2022 ratios are not however as low as in 2020 where, as disclosed in the 2020
Remuneration Report, ratios were significantly lower as a consequence of the CEO’s temporary salary reduction, cancellation of the
CEO’s personal performance bonus element in response to the COVID-19 pandemic, and also due to the pandemic’s impact on
business results (and variable pay outcomes).
Notwithstanding the year-on-year change in pay ratio, pay and benefits for the CEO and wider employee population are based on the
same philosophies, for example driving pay for performance and alignment to external benchmarks, in order to promote consistency,
fairness and equity across all levels in the organisation. As the same methodology underpins the remuneration used in the above
calculations, the resulting median pay ratio is consistent with the Company’s wider policies on employee pay, reward and progression.
Pay ratios are significantly reduced when variable pay elements are excluded, so the gap between CEO and employee pay is largely
attributable to non-fixed pay elements, some of which (e.g. share awards) the majority of the wider workforce would not typically be
eligible for (reflecting competitive external market practice). The range of levels and types of roles found in a manufacturing environment
110
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Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
such as at Morgan may also result in a higher CEO pay ratio than companies which have predominantly professional and/or more senior
staff. It is therefore important to compare Morgan’s data to companies in similar industries.
Relative importance of spend on pay
The graphs below show shareholder distributions (i.e. dividends and share buybacks) and total employee pay expenditure for the financial
years ended 31 December 2021 and 31 December 2022.
Total employee pay
expenditure (£m)
375.7
333.6
2021
2022
Shareholder
distributions (£m)
31.8
19.1
2021
2022
Shareholder distributions increased back to pre-pandemic levels during 2022. Total employee pay across the Group has increased by
12.6% to £375.7 million (2021: £333.6 million).
Comparison of Company performance
The graph below shows the value, at 31 December 2022, of £100 invested in Morgan Advanced Materials plc’s shares on 31 December
2012 compared with the current value of the same amount invested in the FTSE 350 Index. The FTSE 350 Index – of which the Company
is a constituent – has been chosen because it is widely followed by the UK’s investment community and easily tracked over time.
FTSE 350 Index
Morgan Advanced Materials plc
£186
£163
£0
£50
£100
£150
£200
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
The table below details the CEO’s ‘single figure’ of remuneration over the 10-year period to 31 December 2022.
CEO
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
M Robertshaw
P Raby
CEO single
figure
£648,932 £1,001,448
£788,252
£787,492 £1,210,856 £1,479,738 £1,618,605
£791,238 £2,041,667 £1,658,639
Annual bonus
(% of maximum)
0%
65%
50%
29.5%
1
71.3%
67.4%
84.3%
9%
97%
27.6%
BDSMP vesting
(% of maximum)
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
LTIP vesting
(% of maximum)
0%
0%
n/a
n/a
15.4%
42.9%
61.3%
21.8%
52.17%
67.94%
1.
Figure represents percentage achievement of maximum opportunity. Bonus maximum as a percentage of salary increased to 150% of base salary in 2016 compared to 100% in
previous years.
Governance
111
Executive Directors’ interests in shares and shareholding guidelines (audited)
The table below shows the shareholding of each executive Director against their respective shareholding guideline as at 31 December
2022 or date of leaving (in the case of Peter Turner).
Shareholding
guideline (%
2022 salary)
Shares owned outright
Shares
subject to
performance
1
Performance-
tested but
unvested
shares
2
Shares
subject
to DBP
deferral
3
Options
vested but
unexercised
4
Options
granted but
subject to
continued
employment
4
Current
shareholding
(% of 2022
salary)
5
Guideline
met
As at
1 January
2022 or date
of joining
As at 31
December
2022 or
date of
leaving
Pete Raby
200%
318,637
446,686
690,806
246,198
113,529
4,477
4,285
270.1%
Yes
Richard
Armitage
200%
–
40,000
207,587
144,252
–
–
4,285
29.5%
Building
Peter Turner
200%
308,815
400,346
202,740
151,178
84,277
–
4,477
324.7%
Yes
1.
2021 and 2022 LTIP and LTIP-CSOP awards.
2.
The expected number of shares due to vest under the 2020 LTIP. Richard Armitage joined the Board on 30 May 2022. His performance-tested but unvested share award relates to the
recruitment share award made on 30 May 2022 (to which no performance conditions were attached).
3.
Estimated number of shares, net of tax (47%), deferred under the DBP.
4.
Options granted under the Sharesave scheme.
5.
Based on an executive Director’s annualised 2022 salary and the average share price for the three months to 31 December 2022 of 282.90 pence, comprising shares owned outright and
shares subject to deferral.
As at 24 April 2023, the executive Directors’ interests in shares had not changed since the end of the period under review. Unless
otherwise stated, figures given in the tables on pages 111 to 113 are for shares or interests in shares.
Non-executive Directors’ interests in shares (audited)
The table below shows the shareholding of each non-executive Director as at 31 December 2022.
As at
1 January
2022
As at
31 December
2022
Douglas Caster
110,454
110,454
Laurence Mulliez
6,919
7,161
Helen Bunch
2,028
2,028
Jane Aikman
1,000
1,000
Clement Woon
55,000
55,000
As at 24 April 2023, the non-executive Directors’ interests in shares had not changed since the end of the period under review.
Post-employment share ownership guidelines mechanics
Peter Turner stepped down from the Board on 30 May 2022, and retired from the Group on 30 June 2022. Under the Company’s
Remuneration Policy, he is required to hold shares equivalent to 200% of his salary until 30 June 2023, calculated by reference to his
annualised salary and the three-month average share price to 31 December 2021. A written agreement was put in place between
Mr Turner and the Company setting out these requirements. This agreement, together with Mr Turner’s unvested LTIP and DBP awards,
allows the Company to confirm that he continues to comply with his post-cessation shareholding requirements.
All other executive Directors, including future Directors, are required to build their shareholding through vesting of executive share awards
in a Global Nominee over time to ensure policy compliance with share ownership guidelines, including post-employment guidelines.
Mechanisms are in place to restrict the sale or transfer of vested shares held in the Nominee that are subject to (i) post-vesting holding
periods and (ii) shareholder ownership guidelines on cessation of employment.
112
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
Executive Directors’ share plans (audited)
Pete Raby
LTIP
Plan
As at
1 January
2022
Allocations
during the
year
Vested during
the year
Lapsed
during the
year
As at 31
December
2022
Market price
at date of
allocation
Market price
at date of
vesting
Performance
period
No further performance
conditions, vested
(subject to two-year
post-vesting holding)
2019
293,711
–
153,229
140,482
–
268.12p
312.60p
01.01.19 –
31.12.21
2019
funding
11,189
–
5,007
6,182
–
268.12p
312.60p
01.01.19 –
31.12.21
No further
performance conditions,
not yet vested
2020
362,377
–
–
–
362,377
234.70p
–
01.01.20 –
31.12.22
Subject to
performance conditions
2021
276,486
–
–
–
276,486
315.30p
–
01.01.21 –
31.12.23
2022
–
414,320
–
–
414,320
287.70p
–
01.01.22 –
31.12.24
Share options
Plan
As at
1 January
2022
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
As at 31
December
2022
Option price
at grant
Market price
at date of
vesting/
exercise
Performance/
maturity
period
No further
performance
conditions, vested
(subject to two-year
post-vesting holding)
2019 LTIP-
CSOP
11,189
–
5,837
5,352
–
268.12p
312.60p
01.01.19 –
31.12.21
Continued service met
Sharesave
4,477
–
-
–
4,477
201.00p
–
01.12.19 –
30.11.22
Subject to
continued service
Sharesave
–
4,285
–
–
4,285
210.00p
–
01.12.22 –
31.05.26
Total interests in share plans
As at 1 January 2022
As at 31 December 2022
1,137,952
1,2,3
1,276,152
3,4
1.
Includes a funding award of 11,189 shares used to pay the exercise price which arose on exercise of the CSOP, and therefore not transferable to Pete Raby.
2.
Includes 2019 deferred bonus award.
3.
Includes 2020 and 2021 deferred bonus awards.
4.
Includes 2022 deferred bonus award.
Richard Armitage
LTIP
Plan
As at
1 January
2022 or date
of joining
Allocations
during the
year
Vested during
the year
Lapsed
during the
year
As at 31
December
2022
Market price
at date of
allocation
Market price
at date of
vesting
Performance
period
Subject to
performance conditions
2022
–
207,587
–
–
207,587
307.10p
–
01.01.22 –
31.12.24
Recruitment award
Plan
As at
1 January
2022 or date
of joining
Allocations
during the
year
Vested during
the year
Lapsed
during the
year
As at 31
December
2022
Market price
at date of
allocation
Market price
at date of
vesting
Vesting
period
Subject to
continued service
2022
–
144,252
–
–
144,252
307.10p
–
30.05.22 –
30.05.23
Governance
113
Share options
Plan
As at
1 January
2022 or date
of joining
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
As at 31
December
2022
Option price
at grant
Market price
at date of
vesting
Maturity
period
Subject to
continued service
Sharesave
–
4,285
–
–
4,285
210.00p
–
01.12.22 –
31.05.26
Total interests in share plans
As at 1 January 2022
or date of joining
As at 31 December 2022
–
356,124
Peter Turner
LTIP
Plan
As at 1
January 2022
Allocations
during the
year
Vested during
the year
Lapsed
during the
year
As at date
of leaving
Market price
at date of
allocation
Market price
at date of
vesting
Performance
period
No further performance
conditions, vested
2019
228,591
–
119,256
109,335
–
268.12p
312.60p
01.01.19 –
31.12.21
No further
performance conditions,
not yet vested
2020
254,239
–
–
–
254,239
234.70p
–
01.01.20 –
31.12.22
2020
funding
12,782
–
–
–
12,782
234.70p
–
01.01.20 –
31.12.22
Subject to
performance conditions
2021
202,740
–
–
–
202,740
315.30p
–
01.01.21 –
31.12.23
Share options
Plan
As at
1 January
2022
Allocations/
grants during
the year
Released/
exercised
during the
year
Lapsed
during the
year
As at date
of leaving
Market/
option price
at date of
allocation/
grant
Market price
at date of
exercise/
vesting
Performance/
maturity
period
Subject to
performance conditions
2020
LTIP-CSOP
12,782
–
–
–
12,782
234.70p
–
01.01.20 –
31.12.22
Continued service met
Sharesave
4,477
–
4,477
–
4,477
201.00p
305.50p
1.12.19 –
30.12.22
Total interests in share plans
As at 1 January 2022
As at 31 December
2022 or date of leaving
846,309
1,2,4
633,254
2,3,4
1.
Includes 2019 deferred bonus award.
2.
Includes 2020 and 2021 deferred bonus awards.
3.
Includes 2022 deferred bonus award.
4.
Includes a funding award of 12,782 shares to be used to the extent required to pay the exercise price arising on exercise of the CSOP, and therefore not transferable to Peter Turner.
114
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
Details of plans
LTIP
Details
LTIP
The performance conditions attached to the 2020 awards are set out on page 105.
The performance conditions attached to the 2021 awards are on the same basis as the 2020 awards, except that
the EPS range was amended to 15%-22%.
The performance conditions attached to the 2022 awards are set out on pages 105 to 106.
LTIP-CSOP
LTIP 2019: The award to the CFO was structured as LTIP awards in the form of a conditional award of free
shares. The CEO’s award was structured as an Approved Performance Share Plan (APSP) and comprised three
elements: (i) HMRC-approved options (CSOP) over shares to the value of up to £30,000 with an exercise price
of 268.12 pence per share; (ii) an LTIP award in the form of a conditional award of free shares to the value of the
remainder of the award above this limit; and (iii) a funding award, also in the form of a conditional award of free
shares, over such numbers of shares whose value at exercise at the approved option equals up to £30,000.
The award is also subject to malus and clawback provisions.
The provisions of these CSOP options, funding awards and LTIP awards were linked, so that the maximum
aggregate number of shares that could be acquired on exercise of LTIP and CSOP awards (the funding award
being used to pay the exercise price arising on exercise of the CSOP) was limited to that number of shares that
had a market value on the date of the awards equal to 150% of Pete Raby’s 2019 annual salary. Vested funding
awards were not transferable to the participant.
LTIP 2020: The award to the CEO was structured as LTIP awards in the form of a conditional award of free
shares. The CFO’s award was structured as an Approved Performance Share Plan (APSP) and comprised three
elements: (i) HMRC-approved options (CSOP) over shares to the value of up to £30,000 with an exercise price
of 234.70 pence per share; (ii) an LTIP award in the form of a conditional award of free shares to the value of the
remainder of the award above this limit; and (iii) a funding award, also in the form of a conditional award of free
shares, over such numbers of shares whose value at exercise at the approved option equals up to £30,000.
The award is also subject to malus and clawback provisions.
The provisions of these CSOP options, funding awards and LTIP awards were linked, so that the maximum
aggregate number of shares that could be acquired on exercise of LTIP and CSOP awards (the funding award
being used to pay the exercise price arising on exercise of the CSOP) was limited to that number of shares that
had a market value on the date of the awards equal to 150% of Peter Turner’s 2020 annual salary. Vested funding
awards were not transferable to the participant.
LTIP 2021 and 2022: The awards to the CEO, Peter Turner and Richard Armitage were structured as LTIP awards
in the form of a conditional award of free shares.
UK Sharesave
Details
HMRC-approved all-employee Sharesave scheme. Exercise price set at 20% discount to share price on
date of grant. Options mature after the three-year savings period and must be exercised within six months of
vesting. Details of options held by Directors under Sharesave are outlined in the individual Director shareholding
tables above.
Deferred Bonus Plan
Details
Mandatory deferral of one-third of gross bonus result relating to the previous year, which is provided as a
conditional award of shares of equivalent value. The award vests on the third anniversary of the award date and
is subject to forfeiture if the executive Director leaves before the vesting date. The award is also subject to malus
and clawback provisions.
Recruitment award
Details
A one-off conditional award of shares on Richard Armitage’s recruitment, to replace the value of bonus forfeited
by him on leaving his former employer to join Morgan. These shares vest subject to Richard Armitage’s continued
employment to the first anniversary of grant (in May 2023).
Other transactions involving Directors are set out in note 26 (Related parties) to the consolidated financial statements. This Report was
approved by the Board on 27 April 2023.
Governance
115
Remuneration governance
Remuneration Committee role
The Remuneration Committee determines and agrees with the Board the framework and Policy for the remuneration, including pension
rights and any compensation payments, of the Group’s executive Directors and the Chairman. The Committee also reviews the
remuneration in relation to other senior executives and is kept fully informed of remuneration policy decisions impacting the wider
workforce. The Committee’s terms of reference are available on the Group’s website.
The Remuneration Committee consults the Chief Executive Officer and invites him to attend meetings when appropriate. The Group
Human Resources Director, the Group Head of Reward and Ellason LLP, the Committee’s independent advisor, attend meetings of the
Committee by invitation.
The Committee also has access to advice from the Chief Financial Officer. The Company Secretary acts as secretary to the Committee.
No executive Director or other attendee is present when his or her own remuneration is being discussed.
Remuneration Committee membership
The Remuneration Committee is currently composed of six non-executive Directors. Each of the non-executive Directors is regarded
by the Board as independent, except the Chairman of the Company who was considered independent upon appointment. The
Remuneration Committee met four times during the year. Attendance at meetings by individual members is detailed in the Corporate
Governance Report on page 64.
Key activities during 2022
During 2022, the key areas of focus for the Committee were:
engaging with shareholders on the proposed 2022 Remuneration Policy
determining whether targets for the 2021 bonus and 2019 LTIP were achieved, and, if so, to what extent
having reviewed the remuneration of the wider workforce, determining remuneration for executive Directors and other senior
executives, applying consistent guiding principles
reviewing whether the measures and structure for the bonus and share incentive schemes remain appropriate, as well as reviewing
the overall effectiveness of such schemes
reviewing and agreeing executive Director personal objectives for 2023
receiving reports on share awards to employees, and employee participation in the Sharesave scheme
reviewing feedback from institutional investors ahead of the Company’s 2022 Annual General Meeting
reviewing executive Director share ownership guidelines, and Directors’ holdings against the guidelines
receiving regulatory and governance updates, and receiving reports on external market remuneration practices
reviewing and discussing the Company’s annual Gender Pay Gap Report
appraising the independent remuneration advisor’s performance and reviewing the terms of engagement
approving the Chair’s 2023 fees
determining performance targets for the 2022 share incentive schemes, and
reviewing the Committee’s terms of reference.
Committee performance evaluation
The Committee’s performance was reviewed as part of the Board evaluation (see page 74 for details). It was concluded that the
Committee had operated effectively during the period under review.
116
–
Morgan Advanced Materials plc
Annual Report 2022
Remuneration report
continued
Committee advisor
Ellason LLP was appointed as the Committee’s executive remuneration advisor, following their principal advisor moving from Mercer
Kepler to Ellason LLP, from 1 January 2021. Ellason specialises in executive remuneration advice and during 2022 provided independent
advice on remuneration policy, performance measurement, the setting of incentive targets, TSR analysis and the structure of long-term
incentives, and provided market data in respect of senior executive remuneration and non-executive Director fees. Ellason reports directly
to the Chair of the Remuneration Committee, does not provide any non-remuneration-related services to the Group, has no other
connections either with Morgan or any of its individual Directors, and is considered to be independent.
Ellason is a signatory to the Remuneration Consultants Group’s voluntary Code of Conduct.
Fees paid during the year to advisors for advice to the Remuneration Committee, charged on a time and materials basis, were as follows:
Advisor
Fees (including expenses,
excluding VAT)
Ellason
£23,983
Summary of shareholder voting
The following table shows the results of the latest binding vote on the 2022 Remuneration Policy and advisory vote on the 2021 Annual
Report on Remuneration at the 2022 AGM:
Resolution
For
Against
Withheld
Remuneration Policy
96.45%
3.55%
98,036
Annual Report on Remuneration
99.27%
0.73%
102,306
Compliance statement
During the year under review, the Company has complied with the provisions relating to Directors’ remuneration in the UK Corporate
Governance Code except for provision 38. Executive Directors’ pension contributions were aligned with those available to the workforce,
for incumbent Directors effective 31 December 2022 and on appointment for Directors appointed during 2022, as set out in more detail
on page 92. This Remuneration Report has been prepared in accordance with the Companies Act 2006 (as amended) and Schedule 8 of
the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). In accordance with section
439 of the Companies Act 2006 an advisory resolution to approve the Annual Report on Remuneration will be proposed at the Annual
General Meeting (AGM) on 29 June 2023.
Signed on behalf of the Board
Helen Bunch
Committee Chair
Governance
117
Other disclosures
The Directors’ Report is
required to be produced by
law. The Financial Conduct
Authority (FCA)’s Disclosure
Guidance and Transparency
Rules (DTRs) and Listing
Rules (LRs) also require
the Company to make
certain disclosures.
Pages 60 to 120 inclusive (together
with the sections of the Annual Report
incorporated by reference) constitute
a Directors’ Report that has been drawn
up and presented in accordance with
applicable law, and the liabilities of the
Directors in connection with that Report
are subject to the limitations and restrictions
provided by that law.
The Company
Legal form of the Company
Morgan Advanced Materials plc is a
company incorporated in England and
Wales with company number 286773.
Name change
The Company changed its name to Morgan
Advanced Materials plc (from The Morgan
Crucible Company plc) on 27 March 2013.
Annual General Meeting (AGM)
The Company’s 2023 AGM will be held
on 29 June 2023, commencing at 10:30am
at the offices of Slaughter and May at
One Bunhill Row, London, EC1Y 8YY.
A circular incorporating the 2023 Notice
of AGM is available in the investor section
of morganadvancedmaterials.com
Statutory disclosures
Amendment of the Articles
of Association
The Company’s constitution, known as
the Articles of Association (the Articles),
is essentially a contract between the
Company and its shareholders, governing
many aspects of the management of the
Company. It deals with matters such as
the rights of shareholders, the appointment
and removal of Directors, the conduct
of the Board and general meetings and
communications by the Company.
The Articles may be amended by special
resolution of the Company’s shareholders.
Appointment and
replacement of Directors
The Articles provide that the Company
may by ordinary resolution at a general
meeting appoint any person to act as a
Director, provided that notice is given of the
resolution identifying the proposed person
by name and that the Company receives
written confirmation of that person’s
willingness to act as Director if he or she
has not been recommended by the Board.
The Articles also empower the Board to
appoint as a Director any person who is
willing to act as such.
The maximum possible number of
Directors under the Articles is 15. The
Articles provide that the Company may
by special resolution, or by ordinary
resolution of which special notice is given,
remove any Director before the expiration
of his or her period of office. The Articles
also set out the circumstances in which a
Director shall vacate office. The Articles
require that at each AGM any Director
who was appointed after the previous
AGM must be proposed for election by
the shareholders. Additionally, any other
Director who has not been elected or
re-elected at one of the previous two
AGMs must be proposed for re-election by
the shareholders. The Articles also allow
the Board to select any other Director to
be proposed for re-election. In each case,
the rules apply to Directors who were
acting as Directors on a specific date
selected by the Board. This is a date not
more than 14 days before, and no later
than, the date of the Notice of AGM.
Notwithstanding the provisions of the
Articles, all the Directors will stand for
election or re-election on an annual basis in
compliance with the provisions of the UK
Corporate Governance Code (the Code).
Details of the skills, experience and career
history of Directors in post as at the date of
this Report, and the Board Committees on
which they serve, can be found on pages 62
to 64.
Results and dividends
The total profit (attributable to owners of
the parent and non-controlling interests)
for the year ended 31 December 2022
was £96.7 million (2021: £81.8 million).
The increase in profit for the period arises
principally as a result of improved volumes
and the impact of pricing and continuous
improvement activity more than offsetting
cost inflation. Profit before taxation for
the same period was £131.6 million
(2021: £104.3 million). Revenue was
£1,112.1 million (2021: £950.5 million)
and operating profit was £140.8 million
(2021: £113.1 million). Basic earnings per
share
*
from continuing operations was
30.6 pence (2021: 23.9 pence). Capital
and reserves at the end of the year were
£429.6 million (2021: £349.6 million).
The total profit of £96.7 million (2021:
£81.8 million) will be transferred to equity.
The Directors recommend the payment of
a final dividend of 6.7 pence per share on
the Ordinary share capital of the Company,
payable on 3 July 2023 to shareholders
on the register at the close of business on
9 June 2023. Together with the interim
dividend of 5.3 pence per share paid on
18 November 2022, this final dividend,
if approved by shareholders, brings the
total distribution for the year to 12.0 pence
per share (2021: 9.1 pence).
Directors
All those who served as Directors
at any time during the year under
review are set out on pages 62 to 63.
Peter Turner also served as a Director
up until 30 May 2022.
Powers of the Directors
Subject to the Company’s Articles,
UK legislation and any directions given
by special resolution, the business of
the Company is managed by the Board,
which may exercise all the powers of
the Company.
Directors’ interests
Details of Directors’ interests (and their
connected persons’ beneficial interests)
in the share capital of the Company are
listed on page 111.
Directors’ indemnities
The Company has entered into separate
indemnity deeds with each Director
containing qualifying indemnity provisions,
as defined in section 236 of the Companies
Act 2006, under which the Company
has agreed to indemnify each Director
in respect of certain liabilities which may
attach to each of them as a Director or
as a former Director of the Company or
any of its subsidiaries. The indemnity deeds
were in force during the financial year to
which this Directors’ Report relates and
are in force as at the date of approval of
the Directors’ Report.
118
–
Morgan Advanced Materials plc
Annual Report 2022
Other disclosures
continued
Engagement with customers
and suppliers
Details of the Group’s engagement with
customers and suppliers are set out on
pages 22 and 25 of the Strategic Report
and on pages 67 and 73 of the Corporate
Governance Report.
Information required by LR 9.8.4R
The information required to be disclosed
by Listing Rule 9.8.4 can be found in the
following locations:
Publication of
unaudited
financial
information
On 4 November 2022,
the Company published its
trading update stating that
adjusted operating profit
(AOP) for the full year 2022
to be marginally above the
top end of current analysts’
forecasts. Actual AOP for
the period was above/
below analyst forecasts.
Details of
any long-term
incentive
schemes
Remuneration Report,
page 97
Shareholder
waiver of
dividends
Financial Statements,
note 19, pages 163 to 165
Shareholder
waiver of
future dividends
Financial Statements,
note 19, pages 163 to 165
The remaining disclosures required by
LR 9.8.4 are not applicable to the Company.
Overseas branches
As at 31 December 2022, the Company
had branches as follows:
Morgan AM&T BV (Sweden and Belgium)
Carbo San Luis SA (Peru) (in liquidation)
Morgan Advanced Materials Industries
Ltd (UAE)
Morgan Advanced Materials plc (Belgium)
Thermal Ceramics UK Limited (Sweden)
People
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of
office or employment (whether through
resignation, purported redundancy
or otherwise) that occurs because of
a takeover bid.
Employment of disabled people
Morgan has a range of employment policies
which set out the standards, processes,
expectations and responsibilities of its
people and the organisation. These policies
are designed to ensure that everyone,
including those with existing or new
disabilities, are dealt with fairly and have
equal opportunity.
Morgan promotes equal opportunities for
all employees and job applicants and does
not unlawfully discriminate. The Group
makes reasonable adjustments to
accommodate any employee who may
have a disability within the meaning of
all global equality legislation, and where
the Group is aware of such disability.
Research and development
The Group recognised £31.6 million
in expense in respect of research and
development (2021: £28.5 million).
The Group did not capitalise any
development costs in 2022 (2021: £nil).
Morgan has established four Centres of
Excellence (CoEs), which are dedicated
to driving materials development, to
exacting customer specifications, and
delivering performance through materials
and production process innovation.
The CoEs consolidate the Group’s R&D
efforts around its core technologies, to
increase the effectiveness of Morgan’s
R&D spend, accelerate key projects and
increase technical differentiation. The CoEs
focus on the execution priorities for the
global business units and the Group.
Greenhouse gas emissions,
energy consumption and
energy efficiency
Details of the Group’s annual greenhouse
gas emissions, energy consumption and
energy efficiency are shown in the ESG
goals section on pages 32 and 33.
Political donations
No political donations have been made.
Morgan Advanced Materials plc has a policy
of not making donations to any political
party, representative or candidate in any
part of the world.
Financial instruments
Details of the Group’s use of financial
instruments, together with information
on policies and exposure to price, liquidity,
cash flow, credit, interest rate and currency
risks, can be found in note 21 to the
consolidated financial statements on pages
166 to 176. All information detailed in this
note is incorporated into the Directors’
Report by reference and is deemed to form
part of the Directors’ Report.
Share capital and related matters
Share capital
The Company’s share capital as at
31 December 2022 is set out in note 40
to the consolidated financial statements
on page 199. The rights and obligations
attaching to the Company’s Ordinary
shares, and restrictions on the transfer
of shares in the Company (which include
specific circumstances in which the Board
is entitled to refuse to register the transfer
of shares), are set out in the Articles.
Shareholders’ rights
The holders of Ordinary shares are entitled
to receive dividends, when declared,
to receive the Company’s reports and
accounts, to attend and speak at general
meetings of the Company, to appoint
proxies and to exercise voting rights.
No person holds securities in the Company
carrying special rights with regard to
control of the Company. The Company
is not aware of any agreements between
holders of securities that may result in
restrictions on the transfer of securities
or on voting rights.
Additionally the Company has
authorised, issued and fully paid 437,281
(2021: 437,281) cumulative Preference
shares classified as borrowings totalling
£0.4 million (2021: £0.4 million). The
Preference shares comprise 125,327 of
5.5% Cumulative First Preference shares
of £1 each and 311,954 issued 5.0%
Cumulative Second Preference shares of
£1 each.
Details of the structure of the Company’s
Preference share capital and the rights
attaching to the Company’s Preference
shares are set out in note 19 to the
consolidated financial statements on
page 165.
Governance
119
Share allotment and
repurchase authorities
The Directors were granted authority
at the 2022 AGM to allot shares in the
Company and to grant rights to subscribe
for or convert any securities into shares
in the Company up to an aggregate
nominal amount of £23,780,832 in any
circumstances. This amount represented
approximately one-third of the Company’s
issued share capital prior to that meeting.
The Directors were also authorised to allot
shares and to grant rights up to an aggregate
nominal amount of £47,561,664 in
connection with a rights issue only (but such
amount to be reduced by any allotments
made under the first limb of the authority).
This amount represented approximately
two-thirds of the Company’s issued share
capital prior to the meeting.
The Directors were also empowered at
the 2022 AGM to allot shares for cash on a
non-pre-emptive basis, both in connection
with a rights issue or similar pre-emptive
issue and, otherwise than in connection
with any such issue, up to a maximum
aggregate nominal amount of £3,567,124.
Such amount represented approximately
5% of the Company’s issued share capital
as it stood prior to the meeting in line with
the Pre-Emption Group’s Statement of
Principles on disapplying pre-emption
rights. As permitted by those Principles,
the Directors were also empowered to
allot shares for cash on a non-pre-emptive
basis up to the same amount for use only in
connection with an acquisition or a specified
capital investment.
The Directors were also authorised at
the 2022 AGM to repurchase shares in the
capital of the Company up to a maximum
aggregate number of 28,536,998 shares.
This represented approximately 10% of
the Company’s issued share capital prior
to the meeting.
These share capital authorities and powers
are due to lapse at the 2023 AGM at which
time the Board will seek fresh authorities
and powers.
Employee share and share
option schemes
The Company operates a number of
employee share and share option schemes.
Details of outstanding share awards and
share options are given in note 23 to
the consolidated financial statements on
pages 181 to 183.
Major shareholdings
As at the date of this report, insofar as it is known to the Company by virtue of
notifications made in accordance with DTR 5, the table below sets out holders of
notifiable interests representing 3% or more of the issued Ordinary share capital of
the Company (such holdings may have changed since notification to the Company).
As at 31 December 2022
Number of
Ordinary
shares
Percentage
of issued
share capital
Ameriprise Financial Inc., and its group
24,186,489
8.48
FIL Limited
15,414,047
5.40
Janus Henderson Group plc
14,540,443
5.10
Aberforth Partners LLP
14,338,459
5.03
Black Creek Investment Management Inc.
14,269,458
5.00
BlackRock, Inc.
14,263,250
4.99
M&G Plc
14,251,115
4.99
AXA Investment Managers SA
14,039,985
4.92
GLG Partners LP
11,410,477
3.99
No changes have been notified to the Company pursuant to Chapter 5 of the Disclosure
Guidance and Transparency Rules between the end of the period under review and
27 April 2023, the latest practicable date prior to the date of this report.
All the Company’s share schemes contain
provisions relating to a change of control.
Outstanding options and awards would
normally vest and become exercisable
on a change of control, subject to being
pro-rated for time and to the satisfaction of
any performance conditions at that time.
The trustees of the Morgan General
Employee Benefit Trust have absolute and
unfettered discretion in relation to voting
any shares held in the Trust at any general
meeting. Their policy is not to vote the
shares. If any offer is made to shareholders
to acquire their shares, the Trustees will
have absolute and unfettered discretion
as to whether to accept or reject the offer
in respect of any shares held by them.
Transactions, contractual
arrangements and post balance
sheet events
Significant agreements
– change of control
The Group has a number of borrowing
facilities provided by various financial
institutions. The facility agreements
generally include change of control
provisions which, in the event of a change
in ownership of the Company, could result
in their renegotiation or withdrawal.
The most significant of such agreements
are the UK £230 million multi-currency
revolving credit facility agreement, which
was signed on 18 November 2022 and the
privately placed Note Purchase and
Guarantee Agreements signed on
27 October 2016 and 20 March 2017,
for which the aggregate outstanding
loan amounts are US$137 million and
€85 million.
There are a number of other agreements
that would take effect, alter or terminate
upon a change of control of the Company
following a takeover bid, such as
commercial contracts and joint venture
agreements. No such individual contract is
considered to be significant in terms of its
potential impact on the business of the
Group as a whole.
Post balance sheet events
Morgan experienced a cyber security
incident in January 2023, having detected
unauthorised activity on the network.
Immediate steps were taken to contain the
incident, launch incident response plans,
engage specialist support services and
embark on restoring systems. All
manufacturing sites are operational,
although some continue to use manual
processes as work continues to restore
their systems. There has been no impact
on the financial results reported for the
year ended 31 December 2022.
We expect to incur around £15 million of
system recovery and specialist support
costs, including IT asset impairment charges
of £0.7 million. These will be presented
separately as specific adjusting items in the
consolidated income statement for the year
ending 31 December 2023.
120
–
Morgan Advanced Materials plc
Annual Report 2022
Other disclosures
continued
Reporting, accountability
and audit
Statement of Directors’
responsibilities
The Directors are responsible for
preparing the Annual Report and the
Group and Parent company financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors
to prepare Group and Parent company
financial statements for each financial year.
Under that law they are required to prepare
the Group consolidated financial statements
in accordance with United Kingdom
adopted international accounting standards
and applicable law and have elected to
prepare the Parent company financial
statements in accordance with UK
Accounting Standards, including FRS 101
Reduced Disclosure Framework.
Under company law the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair
view of the state of affairs of the Group and
Parent company and of their profit or loss
for that period.
In preparing each of the Group and Parent
company financial statements, the Directors
are required to:
Select suitable accounting policies and
then apply them consistently.
Make judgements and estimates that
are reasonable and prudent.
For the Group consolidated financial
statements, state whether they have
been prepared in accordance with
United Kingdom adopted international
accounting standards.
Assess the Group and Parent company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
to going concern.
For the Parent company financial
statements, state whether applicable
UK Accounting Standards have been
followed, subject to any material
departures disclosed and explained in
the Parent company financial statements.
They are responsible for such internal
control as they determine is necessary
to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or
error, and have general responsibility for
taking such steps as are reasonably open
to them to safeguard the assets of the
Group and to prevent and detect fraud
and other irregularities.
Prepare the financial statements on
the going concern basis of accounting
unless they intend to liquidate the Group
or the Parent company or to cease
operations or have no realistic alternative
but to do so.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Parent
company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the Parent company and enable
them to ensure that its financial statements
comply with the Companies Act 2006.
They have general responsibility for taking
such steps as are reasonably open to them
to safeguard the assets of the Group and
to prevent and detect fraud and other
irregularities. They are responsible for
such internal control as they determine is
necessary to enable the preparation of
financial statements that are free from
material misstatement, whether due
to fraud or error, and have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing
a Strategic Report, Directors’ Report,
Remuneration Report and Corporate
Governance Statement that comply with
that law and those regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the Company’s website. Legislation in
the UK governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
In its reporting to shareholders, the Board
is satisfied that the Annual Report and
Accounts, taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the Group’s position and
performance, business model and
strategy as required by the Code.
The Directors as at the date of this Report,
whose names and functions are set out on
pages 62 to 63, confirm that, to the best of
their knowledge:
The Group’s consolidated financial
statements, which have been prepared
in accordance with United Kingdom
adopted international accounting
standards, give a true and fair view
of the assets, liabilities, financial position
and profit of the Group.
The management report (comprising
the Directors’ Report and the Strategic
Report) includes a fair review of the
development and performance of the
business and the position of the Group,
together with a description of the
principal risks and uncertainties that
it faces.
Scope of the reporting in
this Annual Report
The Board has prepared a Strategic
Report which provides an overview of
the development and performance of
the Group’s business in the year ended
31 December 2022.
For the purposes of DTR 4.1.5R(2) and
DTR 4.1.8, the Directors’ Report on
pages 60 to 120 and the Strategic Report
on pages 2 to 59 comprise the management
report, including the sections of the
Annual Report and consolidated financial
statements incorporated by reference.
Each Director holding office at the date
of approval of this Directors’ Report
confirms that, so far as they are aware,
there is no relevant audit information of
which the Company’s auditor is unaware,
and that they have taken all steps that
they ought to have taken as a Director
to make themselves aware of any relevant
audit information and to establish that
the Company’s auditor is aware of
that information.
The Strategic Report, the Directors’ Report
and the Remuneration Report were
approved by the Board on 27 April 2023.
For and on behalf of the Board
Winifred Chime
Company Secretary
27 April 2023
Morgan Advanced Materials plc
York House
Sheet Street
Windsor
Berkshire SL4 1DD
Registered in England and Wales,
No. 286773
Governance
121
Independent Auditor’s Report
Report on the audit of the
financial statements
1. Opinion
In our opinion:
the financial statements of Morgan
Advanced Materials plc (the ‘Parent
company’) and its subsidiaries (the
‘Group’) give a true and fair view of the
state of the Group’s and of the Parent
company’s affairs as at 31 December
2022 and of the Group’s profit for the
year then ended;
the Group financial statements have been
properly prepared in accordance with
United Kingdom adopted international
accounting standards and International
Financial Reporting Standards (IFRSs) as
issued by the International Accounting
Standards Board (IASB);
the Parent company financial statements
have been properly prepared in
accordance with United Kingdom
Generally Accepted Accounting Practice,
including Financial Reporting Standard 101
“Reduced Disclosure Framework”; and
the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006.
We have audited the financial statements
which comprise:
the Consolidated income statement;
the Consolidated statement of
comprehensive income;
the Consolidated and Parent company
balance sheets;
the Consolidated and Parent company
statements of changes in equity;
the Consolidated statement of
cash flows; and
the related notes 1 to 44.
The financial reporting framework that has been applied in the preparation of the Group
financial statements is applicable law, United Kingdom adopted international accounting
standards and IFRSs as issued by the IASB. The financial reporting framework that has
been applied in the preparation of the parent company financial statements is applicable
law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK)
(ISAs (UK)) and applicable law. Our responsibilities under those standards are further
described in the auditor’s responsibilities for the audit of the financial statements section
of our report.
We are independent of the Group and the Parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including
the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. The non-audit services provided to the Group and Parent company
for the year are disclosed in note 4 to the financial statements. We confirm that we have
not provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group
or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
3. Summary of our audit approach
Key audit
matters
The key audit matters that we identified in the current year were:
Inventory valuation;
Impairment of non-financial assets; and
Post year-end cyber security incident.
Materiality
The materiality that we used for the Group financial statements
was £6.0m (FY21: £5.0m) which was determined based on
4.4% (FY21: 4.6%) profit before tax and specific adjusting items
(see note 6).
Scoping
Full scope audit work was performed on 17 (FY21: 17) reporting
components, and specified audit procedures were undertaken
on a further 12 (FY21: 13) reporting components. Our full scope
and specified audit procedures covered 72% of Group revenue
(FY21: 72%) and 73% of absolute Group profit before tax
(FY21: 74%).
Significant
changes in
our approach
Our audit approach is consistent with the previous year, with the
exception of identifying a new key audit matter this year relating to
a post year-end cyber security incident.
122
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Morgan Advanced Materials plc
Annual Report 2022
Independent Auditor’s Report
continued
4. Conclusions relating to
going concern
In auditing the financial statements,
we have concluded that the directors’
use of the going concern basis of accounting
in the preparation of the financial
statements is appropriate.
Our evaluation of the directors’ assessment
of the Group’s and Parent company’s ability
to continue to adopt the going concern
basis of accounting included:
obtaining an understanding of the
financing facilities including nature of
facilities, repayment terms and covenants;
obtaining an understanding of the
controls around the budgeting and
forecasting process used in the going
concern preparation process;
evaluating the linkage to business model
and principal risks as identified on pages
12 and 40;
challenging the assumptions used in the
Board approved forecasts by reference
to historical performance and other
supporting evidence such as market data;
challenging management’s assessment of
the cash flow impact of the cyber security
incident response related activities and
impact on trading forecasts;
recalculation of the amount of headroom
in the forecasts (in liquidity terms and
against the relevant covenant limits);
assessing the appropriateness of the
sensitivity analysis and reverse stress
tests performed by management;
assessing the impact of macro-economic
conditions on the business; and
assessing the adequacy of the disclosures
in the financial statements.
Based on the work we have performed,
we have not identified any material
uncertainties relating to events or conditions
that, individually or collectively, may cast
significant doubt on the Group’s and Parent
company’s ability to continue as a going
concern for a period of at least twelve
months from when the financial statements
are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance
Code, we have nothing material to add or draw attention to in relation to the directors’
statement in the financial statements about whether the directors considered it appropriate
to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern
are described in the relevant sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether or not due to fraud) that
we identified. These matters included those which had the greatest effect on: the overall
audit strategy, the allocation of resources in the audit and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
5.1. Inventory valuation
Key audit matter
description
The Group manufactures thermal, carbon and technical ceramic
products for a diverse range of end markets. The Group had
material gross inventory balances of £174.2m as at 31 December
2022 (FY21: £140.7m). There is a risk that inventory is not valued
appropriately because of local manufacturing sites not correctly
applying the Group provisioning accounting policy to write-down
the net realisable value of excess and obsolescent stock due to:
System limitations, whereby significant manual intervention is
required to record and value inventory, which requires regular
manual adjustments to inventory; and
The level of management judgement involved in determining
whether a provision should be recognised and how it should
be measured. The provision is typically determined based on
ageing and expected future usage.
In the Consolidated Financial Statements, note 1 sets out the
Group’s accounting policy for inventory valuation and Note 15
provides further analysis of the account balance.
How the scope
of our audit
responded to
the key audit
matter
We have performed the following audit procedures in respect of
this key audit matter:
Assessed any unusual manual adjustments to inventory;
Obtained an understanding of the relevant controls over the
inventory provisioning process;
Assessed the inventory ageing and assessed whether the group
accounting policy of fully providing for inventory more than
12 months has been applied. For items less than 12 months
we evaluated the breakdown of the inventory by age;
Challenged management’s key assumptions in determining
inventory provisions by assessing the accuracy and completeness
of items included in the provision by taking into account the
impact on future usage; and
Assessed the mathematical accuracy of the inventory provision
by obtaining management’s analysis and performing a
recalculation based on the key inputs.
Key observations
Based on our procedures performed, we are satisfied that the
valuation of inventory at 31 December 2022 is appropriate.
Governance
123
5.2.
Impairment of non-financial assets
Key audit matter
description
IAS 36 requires that at the end of each reporting period, an entity should assess whether there are any indicators
of impairment or indicators that an impairment loss recognised in prior periods should be reversed. If such
indication exists, the entity shall estimate the recoverable amount of that asset. Management’s review for indicators
of impairment or reversal identified sites and assets that required further consideration. Impairment indicators
were identified for certain assets in Seals and Bearings Asia, Thermal Ceramics Europe, and Technical Ceramics
Asia. Total impairment charges for the year were £6.5 million.
We focused the majority of our work on the carrying values of the cash generating units (CGUs) where the risk of
impairment or impairment reversal was material and the model was sensitive to changes to the input assumptions:
Seals and Bearings Asia, where an impairment of £1.6m was recorded in the year.
Technical Ceramics Cores North America – where impairment of £28.8m has been recorded in previous years,
and for which no reversal was made in the current year.
Management has determined the recoverable amount based on a value-in-use model calculated from cash flow
projections, which are based on management’s assumptions and estimates of future trading performance.
Estimating a value-in-use is inherently judgemental, and a range of assumptions can reasonably be applied in
determining the estimates used therein. The key judgements in assessing non-financial assets for impairment are
the discount rate, long-term growth rate, and the short-term projected cash flows. The value-in-use models are
sensitive to changes in these estimates, all of which must reflect a long-term view of underlying growth in the
respective economy within which these businesses operate and the reasonableness of projected cash flows.
We have focused this key audit matter to the discount rate and short-term future cash flows and material
judgements contained therein. This is where the highest degree of sensitivity exists in determining the value-in-use.
The Audit Committee Report on page 82 refers to impairment of non-financial assets as an area considered
by the Audit Committee. Note 1 to the Consolidated Financial Statements sets out the Group’s accounting
policy for testing of non-financial assets for impairment and contains further details on the key source of
estimation uncertainty.
How the scope
of our audit
responded to
the key audit
matter
We have performed the following procedures in respect of this key audit matter:
Obtained an understanding of the relevant key controls relating to the impairment process;
Challenged management’s indicator assessment for impairment or reversal by performing our own independent
consideration of possible indicators;
Assessed the integrity of management’s impairment model through testing of the mechanical accuracy and the
application of the input assumptions;
Evaluated the process management undertook to prepare the cash flow forecasts in their impairment models
including agreement with the latest Board-approved plans and management approved forecasts;
Challenged the cash flow projections through assessing the accuracy of historical budgeting by comparing
them with actual performance and independent evidence to support any significant expected future changes
to the business;
Assessed the impact of macro-economic conditions on the CGUs
Assessed a range of available market data and performing a peer benchmarking exercise to assess and challenge
the growth rates forecasted by management in revenue and margins;
Assessed reasonable possible changes in assumptions to challenge the appropriateness of management’s
assessment of reasonable possible change scenarios; and
Involved internal valuation specialists to assess the appropriateness of the discount rates used.
Key observations
Based on our procedures performed, we consider the key assumptions taken by management to be within an
acceptable range. We have separately reported to the Audit Committee our control observations related to the
review controls over the process to identify impairment indicators and the value in use models.
124
–
Morgan Advanced Materials plc
Annual Report 2022
Independent Auditor’s Report
continued
5.3. Post year-end cyber security incident
Key audit matter
description
The Group was the subject of a cyber security incident in January 2023. Following the detection of unauthorised
activity on its network, the Group took the decision to temporarily remove access and isolate various of its IT
systems, including the Group’s core financial reporting systems, while the threat was assessed. Following a forensic
investigation, access to those systems was restored in an orderly manner.
The Group has determined the cyber security incident to have occurred after the year-end date. Consequently,
disclosure of the incident has been included as a Subsequent event in note 27 to the financial statements, including
their estimate of the associated costs to be recorded in 2023.
The Audit Committee Report on page 82 refers to cyber security as an area discussed by the Audit Committee.
How the scope
of our audit
responded to
the key audit
matter
We have performed the following procedures in respect of this key audit matter:
With the assistance of our IT specialists, we have:
Held discussions with Finance and IT management to understand whether any control deficiencies existed that
allowed the unauthorised activity to occur.
Held discussions with management’s cyber experts and assessed their reports, to understand:
the cause and timing of the cyber incident, which formed the basis of our challenge of whether this was a post
year-end event.
the impact of the cuber incident and the assessment they have made regarding the availability and integrity of key
information and data used in the financial reporting.
Assessed the capability, objectivity and competence of the experts used by management.
We considered whether the cyber breach would have an impact on the nature, timing and extent of our audit
procedures to test the completeness and accuracy of information on which we relied and as a result performed
further audit procedures where we considered it necessary,
We have assessed the Board’s response to the incident, changes to the IT control environment since the incident,
and the wider suite of remediation that has taken place to reduce the likelihood of similar incidents reoccurring.
Based on our understanding gained of the cyber incident, we have re-evaluated our financial statement risk
assessment. We performed incremental substantive testing relating to the risk of management override, focusing
on journals recorded post year-end during periods of systems outages where a higher level of manual controls
was operating.
We have assessed the completeness and valuation of management’s estimates of costs incurred or anticipated
post year-end, impairment of IT assets as well as liabilities or contingent liabilities relating to the risk of any future
investigation, litigation or fines.
Key observations
We did not identify any significant accounting issues as a consequence of the post year-end cyber incident.
We concur with the conclusion that this is a non-adjusting post balance sheet event and that the disclosures
made in the financial statements, including the estimate of costs, are reasonable.
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£6.0m (FY21: £5.0m)
£3.6m (FY21: £3.0m)
Basis for
determining
materiality
The materiality was determined based on 4.4%
of profit before tax and specific adjusting items as
described in note 6 (FY21: 4.6%).
Materiality was determined based on the Parent
company’s net assets (3%). This was then capped
at 60% of Group materiality (FY21: 60%).
Rationale for
the benchmark
applied
Profit before tax and specific adjusting items is
a key metric for users of the financial statements and
reflects the way business performance is reported and
assessed by external users of the financial statements.
The Parent company is non-trading and contains
investments in all the Group’s trading components
and as a result, we have determined net assets for
the current year to be the appropriate basis.
Governance
125
PBT before specific adjusting items
Group materiality
Group materiality £6.0m
Component materiality range,
excluding the parent company:
£1.76m to £1.95m
Profit before tax and
specific adjusting
items £137.1m
Audit Committee reporting
threshold £0.30m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Group financial statements
Parent company financial statements
Performance
materiality
65% (FY21: 65%) of Group materiality
65% (FY21: 65%) of Parent company materiality
Basis and rationale
for determining
performance
materiality
In determining performance materiality, we considered the following factors:
our risk assessment, including our assessment of the Group’s overall control environment and our past
experience of the audit;
the disaggregated nature of the Group and the degree of centralisation in the Group’s financial reporting
processes which reduces the likelihood of an individually material error; and
the level of corrected and uncorrected misstatements identified in the prior year audit.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.30m (FY21: £0.25m),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
The Group operates and manufactures in 70 sites in 18 countries spread across five continents with the largest footprint being in
North America, Asia and Europe. Our Group audit was scoped by obtaining an understanding of the Group and its environment,
including Group-wide controls, and assessing the risks of material misstatement at the Group and component level.
Based on that assessment, we focused our Group audit scope across all five of the established business units: Thermal Ceramics,
Molten Metal systems, Seals and Bearings, Technical Ceramics and Electrical Carbon.
These five business units are composed of many individual reporting components, which are the lowest level at which management
prepares financial information that is included in the Financial Statements. The Parent company is located in the UK and is audited directly
by the Group audit team.
We have considered reporting components based on their contribution to Group revenue, and profit, as well as those that require local
statutory audits in their jurisdiction. Full scope audit work was completed on 17 (FY21: 17) components and specified audit procedures
were undertaken on a further 12 (FY21:13) components. Each reporting component in scope, excluding the parent company, was subject
to an audit materiality level between £1.76m and £1.95m (FY21: 1.46m and £1.63m). Our full scope and specified audit procedures
covered 72% of Group revenue (FY21: 72%) and 73% of absolute Group profit before tax (FY21: 74%).
126
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Morgan Advanced Materials plc
Annual Report 2022
Independent Auditor’s Report
continued
At a Group level, we tested the
consolidation and performed analytical
review procedures over components
not in scope.
7.2. Our consideration of
the control environment
The Group uses a number of different IT
systems across the reporting components,
and we worked with our IT specialists to
obtain an understanding of the General IT
controls for relevant systems. The control
environment is decentralised and reliant
on manual processes with improvements
required to the IT environment in order
for us to adopt a controls reliance approach
to our audit. As management develops
and completes its controls improvement
programme of work in future years,
we expect our audit approach to evolve
alongside these developments in the
internal control environment.
In response to a post year-end Cyber
Security incident, we performed
incremental procedures as described
in section 5.3.
7.3. Our considerations of
climate-related risks
In planning our audit, we have considered
the potential impact of climate change
on the Group’s business and its
financial statements.
The Group considers the risk and
opportunities relevant to be an emerging
issue for the Group. As a part of our
audit procedures, we have obtained
management’s climate-related risk
assessment and held discussions with those
charged with governance to understand the
process of identifying climate-related risks,
the determination of mitigating actions
and the impact on the Group’s financial
statements. While the directors
acknowledged that the transition and
physical risks posed by climate change have
the potential to impact the medium to long
term success of the business, they have
assessed that there is no material impact
arising from climate change on the
judgements and estimates made in the
financial statements as at 31 December
2022 as explained in note 1 on page 135.
We performed our own qualitative risk
assessment of the potential impact of
climate change on the Group’s account
balances and classes of transaction and did
not identify any additional risks of material
misstatement. Our procedures include
reading disclosures included in the Strategic
Report to consider whether they are
materially consistent with the financial
statements and our knowledge obtained
in the audit.
7.4. Working with other auditors
The audit work on all components was
performed by Deloitte Touche Tohmatsu
Limited member firms with the exception
of one component business in France
which continued to be audited by KPMG.
The component work was performed
under the direction, supervision and
review of the Group audit team.
The planned programme which we
designed as part of our involvement
in the component auditors’ work was
delivered over the course of the Group
audit. The extent of our involvement
which commenced from the planning
phase included:
Setting the scope of the component
auditors and assessment of their
independence;
Designing the audit procedures for all
significant risks to be addressed by the
component auditors and issuing Group
audit instructions detailing the nature and
form of the reporting required;
Providing direction on enquiries made by
the component auditors through online
and telephone conversations; and
A review of the component auditors’
engagement file by a senior member
of the Group engagement team.
8. Other information
The other information comprises the
information included in the annual report,
other than the financial statements and our
auditor’s report thereon. The directors
are responsible for the other information
contained within the annual report.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in our report, we do not express
any form of assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements,
or our knowledge obtained in the course
of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies
or apparent material misstatements,
we are required to determine whether this
gives rise to a material misstatement in the
financial statements themselves. If, based on
the work we have performed, we conclude
that there is a material misstatement of this
other information, we are required to
report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’
responsibilities statement, the directors
are responsible for the preparation of the
financial statements and for being satisfied
that they give a true and fair view, and for
such internal control as the directors
determine is necessary to enable the
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error.
Revenue
Full audit scope
54%
Specified audit procedures
18%
Review at group level
28%
Absolute Profit before tax
Full audit scope
54%
Specified audit procedures
19%
Review at group level
27%
Governance
127
In preparing the financial statements, the
directors are responsible for assessing the
group’s and the parent company’s ability to
continue as a going concern, disclosing as
applicable, matters related to going concern
and using the going concern basis of
accounting unless the directors either
intend to liquidate the group or the parent
company or to cease operations, or have
no realistic alternative but to do so.
10. Auditor’s responsibilities
for the audit of the financial
statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level of
assurance but is not a guarantee that
an audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are
considered material if, individually or in
the aggregate, they could reasonably
be expected to influence the economic
decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities
for the audit of the financial statements
is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
auditor’s report.
11. Extent to which the audit was
considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances
of non-compliance with laws and
regulations. We design procedures in line
with our responsibilities, outlined above,
to detect material misstatements in respect
of irregularities, including fraud. The extent
to which our procedures are capable of
detecting irregularities, including fraud is
detailed below.
11.1. Identifying and
assessing potential risks
related to irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities,
including fraud and non-compliance with
laws and regulations, we considered
the following:
the nature of the industry and sector,
control environment and business
performance including the design
of the group’s remuneration policies,
key drivers for directors’ remuneration,
bonus levels and performance targets;
results of our enquiries of directors,
management, internal audit and the
audit committee about their own
identification and assessment of the
risks of irregularities;
any matters we identified having obtained
and reviewed the group’s documentation
of their policies and procedures relating to:
– identifying, evaluating and complying
with laws and regulations and whether
they were aware of any instances of
non-compliance;
– detecting and responding to the
risks of fraud and whether they have
knowledge of any actual, suspected
or alleged fraud;
– the internal controls established
to mitigate risks of fraud or
non-compliance with laws and
regulations; and
– the post year-end cyber
security incident.
the matters discussed among the audit
engagement team including significant
component audit teams and relevant
internal specialists, including tax,
valuations, pensions, and IT specialists
regarding how and where fraud might
occur in the financial statements and
any potential indicators of fraud.
As a result of these procedures, we
considered the opportunities and incentives
that may exist within the organisation for
fraud and identified the greatest potential
for fraud in the following area: revenue
recognition. In common with all audits
under ISAs (UK), we are also required to
perform specific procedures to respond
to the risk of management override.
We also obtained an understanding of the
legal and regulatory frameworks that the
group operates in, focusing on provisions of
those laws and regulations that had a direct
effect on the determination of material
amounts and disclosures in the financial
statements. The key laws and regulations
we considered in this context included the
UK Companies Act, Listing Rules, pensions
legislation and tax legislation in all relevant
jurisdictions where the Group operates.
In addition, we considered provisions
of other laws and regulations that do
not have a direct effect on the financial
statements but compliance with which
may be fundamental to the group’s
ability to operate or to avoid a material
penalty. These included the group’s
environmental regulations.
11.2. Audit response to
risks identified
As a result of performing the above,
we did not identify any key audit matters
related to the potential risk of fraud or
non-compliance with laws and regulations.
Our procedures to respond to risks
identified included the following:
reviewing the financial statement
disclosures and testing to supporting
documentation to assess compliance
with provisions of relevant laws and
regulations described as having a direct
effect on the financial statements;
enquiring of management, the audit
committee and in-house legal counsel
concerning actual and potential litigation
and claims, including in respect of the
cyber security incident as described in
section 5.3;
performing analytical procedures to
identify any unusual or unexpected
relationships that may indicate risks of
material misstatement due to fraud;
reading minutes of meetings of those
charged with governance, reviewing
internal audit reports and reviewing
correspondence with HMRC;
in addressing the risk of fraud in
relation to revenue recognition,
we tested a sample of sales recognised
during the period by agreeing to invoice,
dispatch note and cash collection
(where appropriate) to assess whether
the performance obligations have been
met; and
in addressing the risk of fraud through
management override of controls, testing
the appropriateness of journal entries and
other adjustments; assessing whether the
judgements made in making accounting
estimates are indicative of a potential
bias; and evaluating the business rationale
of any significant transactions that are
unusual or outside the normal course
of business.
128
–
Morgan Advanced Materials plc
Annual Report 2022
Independent Auditor’s Report
continued
We also communicated relevant identified
laws and regulations and potential fraud
risks to all engagement team members
including significant component audit
teams and internal specialists and
remained alert to any indications of
fraud or non-compliance with laws
and regulations throughout the audit.
Report on other legal and
regulatory requirements
12. Opinions on other matters
prescribed by the Companies
Act 2006
In our opinion the part of the directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
the information given in the strategic
report and the directors’ report for
the financial year for which the financial
statements are prepared is consistent
with the financial statements; and
the strategic report and the directors’
report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and
understanding of the group and the parent
company and their environment obtained
in the course of the audit, we have not
identified any material misstatements in the
strategic report or the directors’ report.
13. Corporate Governance
Statement
The Listing Rules require us to review the
directors’ statement in relation to going
concern, longer-term viability and that part
of the Corporate Governance Statement
relating to the group’s compliance with
the provisions of the UK Corporate
Governance Code specified for our review.
Based on the work undertaken as part of
our audit, we have concluded that each of
the following elements of the Corporate
Governance Statement is materially
consistent with the financial statements and
our knowledge obtained during the audit:
the directors’ statement with regards
to the appropriateness of adopting the
going concern basis of accounting and
any material uncertainties identified set
out on page 55;
the directors’ explanation as to its
assessment of the group’s prospects,
the period this assessment covers and
why the period is appropriate set out
on page 55;
the directors’ statement on fair,
balanced and understandable set
out on page 120;
the board’s confirmation that it has
carried out a robust assessment of the
emerging and principal risks set out
on page 40;
the section of the annual report that
describes the review of effectiveness of
risk management and internal control
systems set out on page 83; and
the section describing the work of the
audit committee set out on page 79.
14. Matters on which we are
required to report by exception
14.1. Adequacy of explanations
received and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
we have not received all the information
and explanations we require for our
audit; or
adequate accounting records have
not been kept by the parent company,
or returns adequate for our audit have
not been received from branches not
visited by us; or
the parent company financial statements
are not in agreement with the accounting
records and returns.
We have nothing to report in respect of
these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we
are also required to report if in our
opinion certain disclosures of directors’
remuneration have not been made or the
part of the directors’ remuneration report
to be audited is not in agreement with the
accounting records and returns.
We have nothing to report in respect of
these matters.
15. Other matters which we are
required to address
15.1. Auditor tenure
Following the recommendation of the audit
committee, we were appointed in June
2019 to audit the financial statements for
the year ending 31 December 2020 and
subsequent financial periods. The Board’s
decision was approved by the shareholders
at the AGM in May 2020. The period of
total uninterrupted engagement of the
firm is 3 years, covering the years ending
31 December 2020 to 31 December 2022.
15.2. Consistency of the audit
report with the additional report
to the audit committee
Our audit opinion is consistent with the
additional report to the audit committee
we are required to provide in accordance
with ISAs (UK).
16. Use of our report
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this
report, or for the opinions we have formed.
As required by the Financial Conduct
Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.14R, these
financial statements will form part of the
European Single Electronic Format (ESEF)
prepared Annual Financial Report filed
on the National Storage Mechanism of
the UK FCA in accordance with the ESEF
Regulatory Technical Standard (‘ESEF RTS’).
This auditor’s report provides no assurance
over whether the annual financial report
has been prepared using the single
electronic format specified in the ESEF RTS.
Jane Makrakis, ACA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
27 April 2023
129
Consolidated income statement
130
Consolidated statement of
comprehensive income
131
Consolidated balance sheet
132
Consolidated statement of changes
in equity
133
Consolidated statement of cash flows
134
Notes to the consolidated
financial statements
135
Company balance sheet
186
Company statement of changes in equity
187
Notes to the Company balance sheet
188
Group statistical information
205
Cautionary statement
206
Glossary of terms
206
Shareholder information
207
Contents
Financial
statements
“
We are well placed
to exploit our growth
opportunities.
”
Richard Armitage
Chief Financial Officer
Financial statements
130
–
Morgan Advanced Materials plc
Annual Report 2022
Consolidated income statement
Note
31 December 2022
31 December 2021
Results
before
specific
adjusting
items
£m
Specific
adjusting
items
1
£m
Total
£m
Results
before
specific
adjusting
items
£m
Specific
adjusting
items
1
£m
Total
£m
Revenue
3
1,112.1
–
950.5
–
Operating costs before amortisation
of intangible assets
4
(961.1)
(5.5)
(966.6 )
(826.0)
(5.4)
(831.4 )
Profit from operations before
amortisation of intangible
assets
3
151.0
(5.5)
124.5
(5.4)
Amortisation of intangible assets
4
(4.7)
–
(4.7 )
(6.0)
–
(6.0 )
Operating profit
3
146.3
(5.5)
118.5
(5.4)
Finance income
1.6
–
0.8
–
Finance expense
(10.8)
–
(10.8 )
(10.0)
–
(10.0 )
Net financing costs
7
(9.2)
–
(9.2 )
(9.2)
–
(9.2 )
Share of profit of associate
(net of income tax)
–
–
0.4
–
Profit before taxation
137.1
(5.5)
109.7
(5.4)
Income tax expense
8
(37.1)
1.1
(36.0 )
(29.7)
1.5
(28.2 )
Profit from continuing
operations
100.0
(4.4)
80.0
(3.9)
Profit from discontinued
operations
2
9
–
1.1
–
5.7
Profit for the year
100.0
(3.3)
80.0
1.8
Profit for the year
attributable to:
Shareholders of the Company
91.3
(3.3)
71.5
2.3
Non-controlling interests
8.7
–
8.5
(0.5)
100.0
(3.3)
80.0
1.8
Earnings per share
10
Continuing and
discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations
Basic earnings per share
Diluted earnings per share
Dividends
3
Interim dividend
– pence
– £m
Proposed final dividend
– pence
– £m
1.
Details of specific adjusting items from continuing operations are given in note 6 to the consolidated financial statements.
2.
Profits from discontinued operations are entirely attributable to the shareholders of the Company.
3.
The proposed final dividend is based upon the number of Ordinary shares outstanding at the balance sheet date.
FOR THE YEAR ENDED 31 DECEMBER 2022
Financial statements
131
Consolidated statement
of comprehensive income
Note
31 December
2022
£m
31 December
2021
£m
Profit for the year
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gain on defined benefit plans
22
Tax effect of components of other comprehensive income not reclassified
8
(3.4 )
(0.6 )
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
Tax effect of components of other comprehensive income that may be reclassified
8
(0.8 )
Cash flow hedges:
Change in fair value
(0.2 )
(0.1 )
Transferred to profit or loss
(0.4 )
(0.3 )
Total other comprehensive income
Total comprehensive income
Attributable to:
Shareholders of the Company
Non-controlling interests
Total comprehensive income attributable to shareholders of the
Company arising from:
Continuing operations
Discontinued operations
FOR THE YEAR ENDED 31 DECEMBER 2022
132
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Morgan Advanced Materials plc
Annual Report 2022
Consolidated balance sheet
Note
2022
£m
2021
£m
Assets
Property, plant and equipment
11
Right-of-use assets
12
Intangible assets: goodwill
13
Intangible assets: other
13
Other receivables
16
Deferred tax assets
14
Total non-current assets
Inventories
15
Derivative financial assets
Trade and other receivables
16
Current tax receivable
Cash and cash equivalents
17
Total current assets
Total assets
Liabilities
Borrowings
20
Lease liabilities
20
Employee benefits: pensions
22
Provisions
24
Non-trade payables
18
Deferred tax liabilities
14
Total non-current liabilities
Borrowings and bank overdrafts
20
Lease liabilities
20
Trade and other payables
18
Current tax payable
Provisions
24
Derivative financial liabilities
Total current liabilities
Total liabilities
Total net assets
Equity
Share capital
19
Share premium
Reserves
Retained earnings
Total equity attributable to shareholders of the Company
Non-controlling interests
Total equity
Pete Raby
Richard Armitage
Chief Executive Officer
AS AT 31 DECEMBER 2022
Financial statements
133
Consolidated statement of changes in equity
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Hedging
reserve
£m
Fair value
reserve
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
parent
equity
£m
Non-
controlling
interests
£m
Total
equity
£m
At 1 January 2021
(17.0 )
(1.0 )
Profit for the year
Other comprehensive
income/(expense):
Remeasurement gain on
defined benefit plans and
related taxes
Foreign exchange differences
and related taxes
(0.1 )
Cash flow hedging fair value
changes and transfers
(0.5 )
(0.5 )
(0.5 )
Total other
comprehensive income/
(expense)
(0.5 )
(0.1 )
Total comprehensive
income/(expense)
(0.5 )
Transactions with
owners:
Dividends
(19.1 )
(19.1 )
(6.6 )
(25.7 )
Equity-settled
share-based payments
Own shares acquired for
share incentive schemes (net)
(5.6 )
(5.6 )
(5.6 )
At 31 December 2021
(16.7 )
(0.1 )
(1.0 )
At 1 January 2022
(16.7 )
(0.1 )
(1.0 )
Profit for the year
Other comprehensive
income/(expense):
Remeasurement gain on
defined benefit plans and
related taxes
Foreign exchange differences
and related taxes
Cash flow hedging fair value
changes and transfers
(0.1 )
(0.1 )
(0.1 )
Total other
comprehensive income/
(expense)
(0.1 )
Total comprehensive
income/(expense)
(0.1 )
Transactions with
owners:
Dividends
(31.6 )
(31.6 )
(7.9 )
(39.5 )
Equity-settled
share-based payments
Own shares acquired for
share incentive schemes (net)
(2.4 )
(2.4 )
(2.4 )
At 31 December 2022
(0.2 )
(1.0 )
Details of the reserves are provided in note 19.
FOR THE YEAR ENDED 31 DECEMBER 2022
134
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Annual Report 2022
Note
31 December
2022
£m
31 December
2021
restated
1
£m
Operating activities
Profit for the year from continuing operations
Profit for the year from discontinued operations
9
Adjustments for:
Depreciation – property, plant and equipment
Depreciation – right-of-use assets
Amortisation
Net financing costs
7
Profit on disposal of business
2,6
(0.4 )
(7.1 )
Non-cash specific adjusting items included in operating profit
Share of profit from associate (net of income tax)
(0.4 )
(Profit)/loss on sale of property, plant and equipment
(0.3 )
Income tax expense
8
Equity-settled share-based payment expense
4
Cash generated from operations before changes in working capital and provisions
Increase in trade and other receivables
(26.5 )
(17.2 )
Increase in inventories
(25.2 )
(20.1 )
Increase in trade and other payables
Decrease in provisions
(4.9 )
(5.8 )
Payments to defined benefit pension plans (net of IAS 19 pension charges)
22
(85.9 )
(16.9 )
Cash generated from operations
Interest paid – borrowings and overdrafts
(7.0 )
(6.1 )
Interest paid – lease liabilities
(2.4 )
(2.3 )
Income tax paid
(31.8 )
(25.4 )
Net cash from operating activities
Investing activities
Purchase of property, plant and equipment and software
(58.0 )
(31.6 )
Purchase of investments
(0.9 )
Acquisition of business assets
2
(1.9 )
Proceeds from sale of property, plant and equipment
Interest received
Disposal of investments
2
Disposal of subsidiaries, net of cash disposed
2
Net cash from investing activities
(55.4 )
(13.1 )
Financing activities
Purchase of own shares for share incentive schemes
19
(2.9 )
(5.9 )
Proceeds from exercise of share options
19
Increase in borrowings
17
Reduction and repayment of borrowings
17
(39.0 )
(99.6 )
Payment of lease liabilities
17
(9.0 )
(8.6 )
Dividends paid to shareholders of the Company
(31.6 )
(19.1 )
Dividends paid to non-controlling interests
(7.9 )
(6.6 )
Purchase of shares from non-controlling interest
Net cash from financing activities
(112.2 )
Net decrease in cash and cash equivalents
(13.0 )
(19.9 )
Cash and cash equivalents at start of the year
Effect of exchange rate fluctuations on cash held
(0.6 )
Cash and cash equivalents at year end
17
1. Comparative information has been restated to present the increase and reduction in borrowings separately.
Financial statements
135
Notes to the consolidated financial statements
Act and is headquartered in the UK. The address of the registered office is given in Shareholder information on page 208.
The principal activities of the Company and its subsidiaries and the nature of the Group’s operations are set out in the Strategic
Report on pages 2–59.
The Group’s financial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’), and include
the Group’s interest in associates. The Parent Company financial statements present information about the Company as a separate entity
and not about its Group. These consolidated financial statements have been drawn up to 31 December 2022 . The Group maintains
a 12-month calendar financial year ending on 31 December.
prepare its Parent Company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework;
these are presented on pages 186–204.
Except for the changes set out in the adoption of new and revised standards section, the accounting policies set out below have been
The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements
of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which
(ii) Acquisitions
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is
transferred to the Group. The Group measures goodwill as the acquisition-date fair value of the consideration transferred, including the
amount of any non-controlling interest in the acquiree, less the net of the acquisition-date fair values of the identifiable assets acquired
and liabilities assumed, including contingent liabilities as required by IFRS 3.
Consideration transferred includes the fair values of assets transferred, liabilities incurred by the Group to the previous owners of the
acquiree, equity interests issued by the Group, contingent consideration, and share-based payment awards of the acquiree that are
replaced in the business combination. Any contingent consideration payable is recognised at fair value at the acquisition date. Subsequent
changes to the fair value of contingent consideration that is not classified as equity is recognised in the income statement.
Transaction costs that the Group incurs in connection with a business combination, such as finder’s fees, legal fees, due diligence fees
and other professional and consulting fees, are expensed as incurred.
Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies.
Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity.
(iv) Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated
in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the
investment to the extent of the Group’s interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains,
–
Morgan Advanced Materials plc
Annual Report 2022
(i) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date are translated to pounds sterling at the foreign exchange rate ruling
at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair
value are translated to pounds sterling at foreign exchange rates ruling at the dates the fair values are determined.
(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to
pounds sterling at foreign exchange rates ruling at the balance sheet date. The revenues, expenses and cash flows of foreign operations
are translated to pounds sterling at an average rate for the period where this approximates to the foreign exchange rates ruling at the
dates of the transactions. Foreign exchange differences arising on retranslation since the adoption of IFRS are recognised directly in other
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
Revenue is recognised when or as the Group satisfies a performance obligation by transferring a promised good or service to a customer.
The Group’s principal performance obligation is the provision of products and components, and is satisfied at a point in time and subject
to payment terms typical to the geography in which the business operates. Products and components are transferred when the customer
obtains control of the goods. For goods that are collected by the customer, revenue is recognised at the point the customer has taken
physical possession of the goods. For contracts that include delivery of goods, the delivery element of the contract constitutes a separate
performance obligation because it is distinct. For these contracts, control of the goods does not transfer to the customer until the goods
have been delivered and therefore both performance obligations are satisfied simultaneously. Revenue for these contracts is therefore
recognised on delivery.
Substantially all of the Group’s revenue is derived from short-term contracts for the provision of products and components. A smaller
portion of the Group’s revenue relates to project-based business, principally within the Thermal Ceramics global business unit. Revenue
for these contracts is recognised in line with fulfilment of contractual performance obligations stated in the contract and is not significant;
consequently (except for trade receivables) the Group does not have significant assets or liabilities relating to its contracts with customers.
Revenue is only recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised
will not occur. The transaction price is determined as the amount receivable for the provision of products and components excluding
rebates, discounts and similar items. Determining the transaction price does not require significant judgement. The costs incurred in
obtaining contracts are not material. The Group acts as a principal in its transactions with customers. In 2022, there were no material
adjustments to revenue which related to performance obligations satisfied in the previous year.
IFRS 15 Revenue from Contracts with Customers requires revenue to be disaggregated into categories that depict how the nature,
amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Group discloses revenue disaggregated
by geography, end-market and by global business unit, which are aligned by product type, in note 3 to the consolidated financial
The Group’s research and development expenditure is widely dispersed with no individually material projects. It is often some time into
a project before the Group is able to test technical or commercial feasibility and therefore whether the Group will continue to fund any
individual project, as such materially all of the Group’s expenditure is recognised in the income statement as an expense as incurred.
Development activities are capitalised when research findings are applied to a plan or design for the production of new or substantially
improved products and processes and relate to a product or process that is technically and commercially feasible, and when the Group
has sufficient resources to complete development, use and sale of products or processes. Capitalised development expenditure is stated
Notes to the consolidated financial statements
continued
Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on
funds invested, gains and losses on hedging instruments that are recognised in the income statement, interest on IFRS 16 lease liabilities
and net interest on IAS 19 pension assets and IAS 19 obligations. Interest income is recognised in the income statement as it accrues,
using the effective interest method.
project which will be a significant productive asset, or to the extent that funds borrowed generally are used for the purposes of obtaining
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised in equity
or other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance
sheet date, and any adjustment to tax payable in respect of previous years.
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are
not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable
profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
Where the Group has disposed of or has classified as held-for-sale a business component which represents a separate major line of
business or geographical area of operations, it classifies such operations as discontinued. The post-tax profit or loss of the discontinued
The Group designates certain derivatives as hedging instruments in respect of foreign currency risk and interest rate risk in cash flow
hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. At the inception of the hedge
relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management
objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis,
the Group documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item
attributable to the hedged risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements:
there is an economic relationship between the hedged item and the hedging instrument;
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually
hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management
objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship
(i.e. rebalances the hedge) so that it meets the qualifying criteria again. The Group designates the full change in the fair value of a forward
contract (i.e. including the forward elements) as the hedging instrument for all of its hedging relationships involving forward contracts.
Note 21 sets out details of the fair values of the derivative instruments used for hedging purposes.
Movements in the hedging reserve in equity are detailed in note 19.
Fair value hedges
The fair value change on qualifying hedging instruments is recognised in profit or loss.
Where hedging gains or losses are recognised in profit or loss, they are recognised in the same line as the hedged item.
138
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Cash flow hedges
The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify
as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of hedging reserve, limited to
the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion
is recognised immediately in profit or loss.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods
when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast
transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other
comprehensive income and accumulated in equity are removed from equity and included in the initial measurement of the cost of the
non-financial asset or non-financial liability. This transfer does not affect other comprehensive income. Furthermore, if the Group expects
that some or all of the loss accumulated in the hedging reserve will not be recovered in the future, that amount is immediately reclassified
to profit or loss.
The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria
(after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The
discontinuation is accounted for prospectively. Any gain or loss recognised in other comprehensive income and accumulated in cash flow
hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast
transaction is no longer expected to occur, the gain or loss accumulated in the cash flow hedge reserve is reclassified immediately to
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses. The cost
of self-constructed assets includes the cost of materials, direct labour, and an appropriate proportion of production overheads.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property,
plant and equipment.
Gains and losses on the disposal of property, plant and equipment are determined by comparing the proceeds from disposal with the
carrying amount of the asset. Gains and losses on the disposal of property, plant and equipment are recognised in ‘Operating costs
before amortisation of intangible assets’ in the income statement.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property,
plant and equipment. Land is not depreciated. Depreciation methods, useful lives and residual values are reviewed at each balance sheet
date. The estimated useful lives are as follows:
Buildings
50 years
The Group assesses whether a contract is or contains a lease at inception of the contract. The Group recognises a right-of-use asset
and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as
leases with a lease term of 12 months or less) and leases of low value assets (defined as leases of a value of less than USD5,000 at lease
commencement). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the
term of the lease.
(i) Lease liabilities
The lease liability is initially measured at the present value of future lease payments, discounted by using the rate implicit in the lease or,
where the rate cannot be readily determined, an incremental borrowing rate. The lease payments included in the lease liability comprise
fixed lease payments, variable payments that depend on an index or rate and any payments due under lease extension, termination or
purchase options to the extent they are assessed as reasonably certain.
The lease liability is subsequently measured by using the effective interest method and by reducing the carrying amount to reflect the
lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever there is
a lease modification, a change in lease term or there is a significant event or change in circumstances resulting in a change in the assessment
or exercise of other lease variables, such as purchase options. A remeasurement will also occur when the lease payments change due to
changes in index rates.
Notes to the consolidated financial statements
continued
(ii) Right-of-use assets
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement date, less any lease incentives received and initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or
restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured
under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless
those costs are incurred to produce inventories.
(iii) Depreciation of right-of-use assets
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The depreciation starts
All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the
acquisition and the fair value of assets, liabilities and contingent liabilities acquired.
Goodwill is not amortised. Goodwill is allocated to cash-generating units or groups of cash-generating units and is tested at least annually
for impairment. If the recoverable amount of the cash-generating unit or group of cash-generating units is less than the carrying amount
of the unit or group, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit or group and
then to reduce the carrying amount of the other intangibles and other assets of the unit or group on a pro-rate basis. An impairment loss
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such
lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each balance sheet date.
Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
Capitalised development costs
3 years
Computer software
3-10 years
Customer relationships
15-20 years
Technology and trademarks
15-20 years
When the Group incurs configuration and customisation costs as part of a cloud-based software-as-a-service agreement, and where
The carrying amounts of the Group’s assets and cash-generating units are reviewed at each balance sheet date to determine whether
there is any indication of impairment. If any such indication exists, the asset or cash-generating unit’s recoverable amount is estimated.
The recoverable amount of other assets and cash-generating units is the greater of their value in use and fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. An impairment loss
is recognised immediately in profit or loss.
An impairment loss is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after
the impairment loss was recognised. A reversal of an impairment loss is recognised immediately in profit or loss to the extent that the
asset’s or cash-generating unit’s carrying amount does not exceed the carrying amount that would have been determined, net of
Investments in equity securities held by the Group are classified as fair value through other comprehensive income (‘FVOCI’) and are
stated at fair value, with any resultant gain or loss being recognised directly in other comprehensive income (in the fair value reserve).
The gains or losses arising from changes in fair value are recognised in other comprehensive income until the security is disposed of,
at which time the cumulative gain or loss previously recognised in other comprehensive income and accumulated in the FVOCI reserve
140
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Annual Report 2022
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and selling expenses.
The cost of inventories is based on the first-in-first-out principle and includes expenditure incurred in acquiring the inventories and
bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an
Trade receivables are recorded initially at transaction price and subsequently measured at amortised cost less the loss allowance. The loss
allowance is recognised based on management’s expectation of losses without regard to whether an impairment trigger happened or not
(an ‘expected credit loss (ECL)’ model). The Group measures the loss allowance for trade receivables at an amount equal to lifetime ECL,
estimated based on historical write-offs and adjusted for forward-looking information where appropriate. Trade receivables more than
180 days past due are generally considered not recoverable and a 100% loss allowance is recognised, except where historical experience
with certain customers or geographies indicates otherwise. The loss is recognised in the income statement. Trade receivables are
written off when recoverability is assessed as being remote. Subsequent recoveries of amounts previously written off are credited to
Cash and cash equivalents comprise cash balances and call deposits. Short-term deposits include demand deposits and short-term
highly liquid investments with maturities of three months or less that are readily convertible to known amounts of cash and are subject
to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash
Trade and other payables are recognised initially at transaction price. Subsequent to initial recognition they are measured at amortised cost
Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings are stated
at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of
Financial instruments issued by the Group are treated as equity (i.e. forming part of shareholders’ funds) only to the extent that they meet
the following two conditions:
(i)
they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
(ii) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called-up share capital and
share premium account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial
(i) Defined contribution plans
For defined contribution plans, the Group pays contributions to either publicly or privately administered pension plans, and the Group
has no further payment obligations once the contributions have been paid. Obligations for contributions to defined contribution pension
plans are recognised as an expense in the income statement as incurred.
Notes to the consolidated financial statements
continued
(ii) Defined benefit plans
A defined benefit plan is any retirement plan which is not a defined contribution plan. Typically, defined benefit plans define an amount of
retirement benefit that an employee will receive, usually depending on one or more factors such as age, years of service and earnings.
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount
of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on
AA-credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed by
a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Group, the recognised asset is limited to the total of the present value of economic benefits
available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available
to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities. Remeasurement gains and losses, differences
between the interest income and actual returns on assets, and the effect of changes in actuarial assumptions, are recognised in full in other
comprehensive income in the year in which they arise.
(iii) Long-term service benefits
The Group’s net obligation in respect of long-term service benefits, other than pension plans, is the amount of future benefit that
employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit
credit method, or similar approximation, and is discounted to its present value and the fair value of any related assets is deducted.
The discount rate is the yield at the balance sheet date on AA-credit-rated bonds that have maturity dates approximating the terms of
The grant date fair value of share-based payment awards granted to employees is recognised as an expense, with a corresponding increase
in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is
adjusted to reflect the actual number of awards for which the related service and non-market performance conditions are met, such that
the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market
A provision is recognised in the consolidated balance sheet when the Group has a present legal or constructive obligation as a result
of a past event and there is probable outflow of resources which can be reliably measured and will be required to settle the obligation.
Provisions are recognised at an amount equal to the best estimate of the expenditure required to settle the Group’s liability. If the effect
is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate reflective of the current market
assessments of the time value of money and, where appropriate, the risks specific to the liability.
A contingent liability is disclosed, where significant, if the existence of the obligation will only be confirmed by future events or where the
amount of the obligation cannot be measured with reasonable reliability. A contingent liability is not disclosed if the likelihood of a material
outflow in excess of any amounts provided is considered remote. Obligations arising from restructuring plans are recognised when detailed
formal plans have been established and when there is a valid expectation that such a plan will be carried out. The Group’s contingent
liabilities are reviewed on a regular basis.
Preference share capital is classified as a financial liability within borrowings if the substance of the shares does not contain an equity
Ordinary shares are classified as equity.
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs,
is net of any tax effects, and is recognised as a deduction from equity. Repurchased shares and the purchase of own shares by The Morgan
Equity dividends on Ordinary share capital are recognised as a liability in the Company’s financial statements on the date that the
shareholder’s right to receive payment is established. Dividends declared after the balance sheet date are not recognised as there is
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. Actual results may
differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
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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 6: Specific adjusting items
The Group separately presents specific adjusting items in the consolidated income statement which, in the Directors’ judgement, need
to be disclosed separately by virtue of their size and incidence in order for users of the consolidated financial statements to obtain an
alternative understanding of the financial information and the underlying performance of the business. These are 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 24: 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 the
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
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are included
The potential climate change-related risks and opportunities to which the Group is exposed, as identified by management, are disclosed
in the Group’s TCFD disclosures on pages 38 and 39. Management has assessed the potential financial impacts relating to the identified
risks, primarily considering the useful lives of property, plant and equipment, the possibility of impairment of goodwill and other long-lived
assets and the recoverability of the Group’s deferred tax assets. Management has exercised judgement in concluding that there are no
further material financial impacts of the Group’s climate-related risks and opportunities on the consolidated financial statements. These
judgements will be kept under review by management as the future impacts of climate change depend on environmental, regulatory
and other factors outside of the Group’s control which are not all currently known.
The principal actuarial assumptions applied to pensions are shown in note 22, 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.
The Group has recognised a liability in relation to Guaranteed Minimum Pensions (GMPs), an initiative to remove inequalities in scheme
benefits that arise from GMPs being unequal between men and women. A project to equalise members’ benefits in the Morgan Pension
Scheme is currently being progressed by a Joint Trustee and Employer Working Group.
Notes to the consolidated financial statements
continued
Note 24: 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 6: Impairment of non-financial assets (excluding goodwill)
In addition to the impairment assessment of goodwill management also monitors the performance of individual assets and cash-generating
units. Where indicators of impairment exist, an impairment review on those assets or cash-generating units is performed.
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.
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
Other assumptions and estimates which have a lower risk of resulting in a material adjustment
to the carrying amounts of assets and liabilities within the next 12 months include:
Notes 8 and 14: Taxation
The level of current tax and deferred tax recognised is dependent on the tax rates in effect at the balance sheet date, and on subjective
judgements as to the outcome of decisions to be made by the tax authorities in the various tax jurisdictions around the world in which
the Group operates.
The Group periodically assesses its liabilities and contingencies for all tax years open to audit based on the latest information available.
The Group records its best estimate of these tax liabilities, including related interest charges. Whilst management believes it has adequately
provided for the probable outcome of these matters, future results may include adjustments to these estimated tax liabilities and the final
outcome of tax examinations may result in a materially different outcome than that assumed in the tax liabilities. Provisions are made
against individual exposures taking into account the specific circumstances of each case, including the strengths of technical arguments,
past experience with tax authorities, recent case law or rulings on similar issues and external advice received.
Note 21: Credit risk
Note 21 contains information about the Group’s exposure to credit risk, including a sensitivity analysis. The Group establishes a loss
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 on pages 2 to 59. The financial position of the Group, its cash flows, liquidity position and borrowing facilities, are
described in the Financial Review on pages 50 to 54. In addition, note 21 to the consolidated financial statements 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
£230.0 million unsecured multi-currency revolving credit facility, which matures in November 2027. As at 31 December 2022, the Group
had both significant available liquidity and headroom on its covenants. Total committed borrowing facilities were £418.3 million. The
amount drawn under these facilities was £264.3 million, which together with net cash and cash equivalents of £116.2 million, gave a total
headroom of £270.3 million. The multi-currency revolving credit facility was £76.0 million drawn. £34.5 million of senior notes are due
to mature in October 2023.
The principal borrowing facilities are subject to covenants that are measured semi-annually 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, including the impact of the cyber security incident on 2023 cashflows. 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 21 to the financial statements. The Group was also expected to be in compliance with the required covenants
discussed above.
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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
40% and an increase in net debt of 45% 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. 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
Non-GAAP measures
Where non-GAAP measures have been referenced these have been identified by an asterisk (
*
) where they appear in text, and by
a footnote where they appear in tables in this Report. Further details can be found in the Definitions and reconciliations of non-GAAP
measures to GAAP measures section on pages 57 to 59.
There were no new standards applicable to the Group in the year.
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 Insurance Contracts
Amendments to IFRS 17 – Initial Application of IFRS 17 and IFRS 9 – Comparative Information
Amendments to IAS 1 – Classification of Liabilities as Current or Non-current
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 adoption of the above standards and interpretations is not expected to lead to any material changes to the Group’s accounting policies
or have any other material impact on the financial position or performance of the Group.
Notes to the consolidated financial statements
continued
2022
Disposal of Sukhoy Log
On 29 July 2022, the Group completed the sale of its investment in the joint venture Sukhoy Log, based in Russia. The investment had
a carrying value of £nil having been fully impaired in previous years. The Group received consideration of £0.6 million and incurred
transaction costs of £0.2 million, resulting in a net consideration of £0.4 million. A profit on disposal of £0.4 million was recognised in
specific adjusting items within the consolidated income statement, see also note 6.
There was no income received from Sukhoy Log in the year ended 31 December 2022 (2021: £nil). The disposal group was included in
the Thermal Ceramics operating segment.
2021
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 6.
The loss on disposal was 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
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.
The disposal group was included in the Technical Ceramics operating segment.
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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 had 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 6.
The gain on disposal was as follows:
31 December
2021
£m
Investment carrying value
7.0
Total consideration
14.2
Gain on disposal
7.2
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 was as follows:
31 December
2021
£m
Identifiable intangible assets acquired
1.8
Goodwill
0.1
Total consideration
1.9
The intangible assets recognised represent customer listings, trademarks and intellectual property rights.
The acquisition was a vertical integration and preserves existing income, as such the incremental profit from acquisition was immaterial
Notes to the consolidated financial statements
continued
The Group’s results are reported as five separate global business units, which have been identified as the Group’s reportable operating
segments, as detailed on page 7. 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.
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.
The information presented below represents the operating segments of the Group.
Continuing operations
Thermal
Ceramics
Molten
Metal Systems
Electrical
Carbon
Seals and
Bearings
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Revenue from external customers
421.4
364.7
57.8
47.7
188.7
164.9
148.5
135.9
Segment adjusted operating profit
1
48.7
42.0
7.8
6.3
39.7
32.8
19.0
22.9
Corporate costs
2
Group adjusted operating profit
1
Amortisation of intangible assets
(1.6)
(2.1)
(0.3)
(0.6)
(0.7)
(0.9)
(0.8)
(0.9)
Operating profit before specific adjusting items
47.1
39.9
7.5
5.7
39.0
31.9
18.2
22.0
Specific adjusting items included in operating
profit/(loss)
3
(2.8)
(2.1)
–
0.3
0.1
(6.3)
(1.6)
–
Operating profit/(loss)
44.3
37.8
7.5
6.0
39.1
25.6
16.6
22.0
Finance income
Finance expense
Share of profit of associate (net of income tax)
Profit before taxation
Segment assets
361.2
319.9
44.0
41.8
159.5
137.6
115.8
107.5
Segment liabilities
93.2
88.9
8.9
8.4
32.6
30.6
26.5
23.6
Segment capital expenditure
16.8
8.0
3.5
2.2
8.7
5.9
9.7
7.6
Segment depreciation – property, plant and equipment
11.2
10.2
2.1
2.0
5.3
5.5
6.0
6.4
Segment depreciation – right-of-use assets
3.2
3.5
0.3
0.3
1.0
1.1
0.6
0.6
Segment impairment of non-financial assets
3.2
0.7
–
–
–
5.7
1.6
–
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on
pages 57–59.
2.
Corporate costs consist of central head office costs.
3.
Details of specific adjusting items from continuing operations are given in note 6 to the consolidated financial statements.
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Continuing operations
Technical
Ceramics
Segment
totals
Corporate
costs
Group
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Revenue from external customers
295.7
237.3
1,112.1
950.5
–
–
1,112.1
950.5
Segment adjusted operating profit
1
41.7
26.4
156.9
130.4
–
–
156.9
130.4
Corporate costs
2
(5.9)
(5.9)
(5.9)
(5.9)
Group adjusted operating profit
1
151.0
124.5
Amortisation of intangible assets
(1.3)
(1.5)
(4.7)
(6.0)
–
–
(4.7)
(6.0)
Operating profit before specific adjusting items
40.4
24.9
152.2
124.4
(5.9)
(5.9)
146.3
118.5
Specific adjusting items included in operating profit
3
(1.2)
(6.0)
(5.5)
(14.1)
–
8.7
(5.5)
(5.4)
Operating profit/(loss)
39.2
18.9
146.7
110.3
(5.9)
2.8
140.8
113.1
Finance income
1.6
0.8
Finance expense
(10.8)
(10.0)
Share of profit of associate (net of income tax)
–
0.4
Profit before taxation
131.6
104.3
Segment assets
199.8
156.5
880.3
763.3
140.0
149.2
1,020.3
912.5
Segment liabilities
86.3
73.9
247.5
225.4
343.2
337.5
590.7
562.9
Segment capital expenditure
19.3
7.9
58.0
31.6
–
–
58.0
31.6
Segment depreciation – property, plant and equipment
5.7
6.0
30.3
30.1
–
–
30.3
30.1
Segment depreciation – right-of-use assets
2.7
2.4
7.8
7.9
–
–
7.8
7.9
Segment impairment of non-financial assets
1.7
6.0
6.5
12.4
–
–
6.5
12.4
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on
pages 57 to 59.
2.
Corporate costs consist of central head office costs.
3.
Details of specific adjusting items from continuing operations are given in note 6 to the consolidated financial statements.
Revenue from external customers and non-current assets by geography
Continuing operations
Revenue from
external customers
Non-current assets (excluding
tax and financial instruments)
2022
£m
2021
£m
2022
£m
2021
£m
US
405.6
336.4
212.6
181.3
China
121.4
114.4
45.5
29.1
Germany
85.1
68.7
38.0
34.4
UK (the Group’s country of domicile)
53.2
38.5
101.1
101.6
Other Asia, Australasia, Middle East and Africa
194.1
174.6
61.2
61.4
Other Europe
182.0
157.4
37.5
36.3
Other North America
39.1
33.4
2.1
6.1
South America
31.6
27.1
11.0
15.8
1,112.1
950.5
509.0
466.0
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.
Notes to the consolidated financial statements
continued
Revenue from external customers by end-market
Continuing operations
2022
£m
2021
£m
Semiconductors
91.3
62.1
Healthcare
74.7
68.2
Clean energy and clean transportation
51.7
53.0
Faster growing markets
217.7
183.3
Industrial
344.5
296.4
Conventional transportation
179.9
142.6
Metals
159.9
137.4
Petrochemical and chemical
112.6
99.4
Security and defence
65.2
60.9
Conventional energy
32.3
30.5
Core markets
894.4
767.2
1,112.1
950.5
Intercompany sales to other segments
Thermal
Ceramics
Molten
Metal Systems
Electrical
Carbon
Seals and
Bearings
Technical
Ceramics
Segment
totals
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Intercompany sales to
other segments
0.4
0.8
0.1
0.1
0.5
0.2
0.7
1.0
1.0
0.5
2.7
Continuing operations
Note
2022
£m
2021
£m
Change in stocks of finished goods and work in progress
(4.5)
(3.1)
Raw materials and consumables
308.6
255.9
Other operating costs
176.4
141.5
480.5
394.3
Employee costs:
Wages and salaries
292.3
259.6
Equity-settled share-based payment expense
23
5.1
4.5
Social security costs and other benefits
62.1
54.4
Pension costs
22
16.2
15.1
375.7
333.6
Depreciation – property, plant and equipment
11
30.3
30.1
Depreciation – right-of-use assets
12
7.8
7.9
38.1
38.0
Short-term leases and leasing of low value assets:
Plant and equipment
0.1
–
Other leases
0.4
0.3
0.5
0.3
Other operating charges and income:
Net foreign exchange gains
(2.0)
(0.1)
Net other operating charges
68.3
59.9
66.3
59.8
Total operating costs before specific adjusting items and amortisation of intangible assets
961.1
826.0
Amortisation of intangible assets
13
4.7
6.0
Total operating costs before specific adjusting items
965.8
832.0
150
–
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Annual Report 2022
The following costs are included in total operating costs before specific adjusting items in the table above:
The Group recognised £31.6 million in expense in respect of research and development (2021: £28.5 million). These costs are included in
A summary of the audit and non-audit fees in respect of services provided by the auditor, which are included in net other operating costs,
for the year ended 31 December 2022 is set out below. Additional audit fees of approximately £1.2 million are expected to be incurred
for the audit of the Company’s annual accounts and the audits of the subsidiaries of the Company in relation to the cyber incident which
occurred subsequent to the year end.
2022
£m
2021
£m
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts:
in respect of the current year
0.8
0.7
in respect of the prior year
–
0.1
Fees payable to the Company’s auditor and its associates for other services:
the auditing of accounts of any subsidiaries of the Company
2.1
1.9
audit-related assurance services
0.1
0.1
3.0
The monthly average number of persons employed by the Group (including Directors) during the year, analysed by reporting segment,
was as follows:
Number of employees
2022
2021
Reportable operating segments
Thermal Ceramics
2,430
2,410
Molten Metal Systems
430
420
Electrical Carbon
1,390
1,340
Seals and Bearings
1,370
1,270
Technical Ceramics
2,560
2,130
Segment total
8,180
7,570
Corporate (UK and North America)
50
50
Group
8,230
7,620
Continuing operations
Note
2022
£m
2021
£m
Impairment of non-financial assets
(6.5)
(12.4)
Restructuring credit
0.6
0.1
Net profit on disposal of business
2
0.4
7.1
Business closure and exit costs
–
(0.2)
Total specific adjusting items before income tax
(5.5)
(5.4)
Income tax credit from specific adjusting items
1.1
1.5
Total specific adjusting items after income tax
(4.4)
(3.9)
Specific adjusting items in relation to discontinued operations are disclosed in note 9.
Notes to the consolidated financial statements
continued
2022
Impairment of non-financial assets
Seals and Bearings, Asia
An impairment charge of £0.6 million has been recognised relating to assets purchased to support a customer contract which did
not materialise.
A further impairment charge of £1.0 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 represented a partial impairment of the assets;
the carrying value of the assets following this impairment was £5.2 million. The calculation of value in use was performed as at December
2022. A long-term growth rate of 1.0% was used for years beyond the five-year forecast period and in calculating the terminal value.
A pre-tax discount rate of 12.9% was used to determine the value in use.
Thermal Ceramics, Europe
An impairment charge of £1.2 million has been recognised following a fire in December which destroyed a warehouse and inventory.
The assets have subsequently been written off.
An impairment charge of £1.1 million has been recognised after reassessing the value in use of property, plant and equipment in a business
in France which is experiencing limited growth and under-utilisation of key assets. This represented a partial impairment of the assets;
the carrying value of the assets following this impairment was £0.3 million. The calculation of value in use was performed as at December
2022. A long-term growth rate of 1.0% was used for years beyond the five-year forecast period and in calculating the terminal value.
A pre-tax discount rate of 13.7% was used to determine the value in use.
Thermal Ceramics, South America
An impairment charge of £0.9 million has been recognised in relation to assets associated with a closed manufacturing line.
Technical Ceramics, Asia
An impairment charge of £1.7 million was 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 represented a partial impairment of the assets; the carrying value
of the assets following this impairment was £3.2 million. The calculation of value in use was performed as at December 2022. A long-term
growth rate of 1.0% was used for years beyond the five-year forecast period and in calculating the terminal value. A pre-tax discount rate
of 12.9% was used to determine the value in use.
Review of cumulative impairment of non-financial assets
Impairment charges of £52.6 million for non-financial assets which the business continues to use have been recorded during the
current and previous years (Technical Ceramics, Asia £7.7 million, Technical Ceramics, ceramic cores £28.8 million, Thermal Ceramics
£15.1 million and Seals and Bearings, Asia £1.0 million). These impaired amounts could be reversed if the related businesses were to
outperform significantly against their budget. A sensitivity analysis was carried out using reasonably possible changes to the key assumptions
in assessing the value in use of these non-financial assets. This did not result in a material reversal of the impaired amounts.
Restructuring costs
A credit of £0.6 million has been recognised in the current year representing a release of restructuring provisions booked in previous years
in relation to the Group’s restructuring programme. Whilst this programme was completed in 2021, we retain a restructuring provision
of £10.5 million for the Group’s obligations at the balance sheet date (2021: £11.8 million). This provision includes remaining lease exit costs
and multi-employer pension obligations for two sites which were closed during the year ended 31 December 2021. The cash outflows
relating to the pension obligations may continue for up to 19 years, subject to any settlement being reached in advance of that date.
Cash outflows in relation to the lease may continue for the next four years. Refer to note 24 for further information.
Net profit on disposal of business
The Group disposed of its investment in the joint venture Sukhoy Log, based in Russia, during the year. This disposal generated a net profit
of £0.4 million. Refer to note 2 for further information.
152
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2021
Impairment of non-financial assets
Technical Ceramics, Asia
An impairment charge of £6.0 million was 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 represented a partial impairment of the assets; the carrying value
of the assets following this impairment was £5.4 million. The calculation of value in use was performed as at December 2021. A long-term
growth rate of 1.0% 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 were 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 was recognised relating to assets associated with closed manufacturing lines within
Thermal Ceramics.
Restructuring costs
A net credit of £0.1 million was recognised in the year ended 31 December 2021 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 during
2020 in relation to this programme.
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 ended 31 December 2021. 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
Continuing operations
2022
£m
2021
£m
Recognised in profit or loss
Interest on bank balances and cash deposits
1.6
0.8
Finance income
1.6
0.8
Interest expense on borrowings and overdrafts
(7.0)
(6.1)
Interest expense on lease liabilities
(2.4)
(2.3)
Net interest on IAS 19 defined benefit pension obligations
(1.4)
(1.6)
Finance expense
(10.8)
(10.0)
Net financing costs recognised in profit or loss
(9.2)
(9.2)
Notes to the consolidated financial statements
continued
Continuing operations
2022
£m
2021
£m
Recognised in profit or loss
Current tax
Current year
36.5
30.7
Adjustments for prior years
0.5
0.4
37.0
31.1
Deferred tax
Current year
(0.4)
(2.3)
Adjustments for prior years
(0.6)
(0.6)
(1.0)
(2.9)
Total income tax expense recognised in profit or loss
36.0
28.2
Recognised in other comprehensive income
Tax effect on components of other comprehensive income:
Deferred tax associated with defined benefit schemes
3.4
0.6
Deferred tax associated with foreign exchange differences
–
0.8
Total tax recognised in other comprehensive income
3.4
1.4
There was no deferred tax associated with share schemes recognised in other comprehensive income (2021: none).
Reconciliation of effective tax rate
2022
£m
2022
%
2021
£m
2021
%
Profit before tax
131.6
104.3
Income tax charge using the domestic corporation tax rate
25.0
19.0
19.8
19.0
Effect of different tax rates in other jurisdictions
7.5
5.7
5.8
5.5
Local taxes including withholding tax suffered
3.4
2.6
2.6
2.5
Permanent differences
0.2
0.2
0.4
0.4
Movements related to unrecognised temporary differences
(0.1)
(0.1)
(0.2)
(0.2)
Adjustments in respect of prior years
–
–
(0.2)
(0.2)
Statutory effective rate of tax
36.0
27.4
28.2
27.0
The effective rate of tax before specific adjusting items is 27.0% (2021: 27.1%).
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
154
–
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Annual Report 2022
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:
Note
31 December 2022
31 December 2021
Results
before
specific
adjusting
items
£m
Specific
adjusting
items
£m
Total
£m
Results
before
specific
adjusting
items
£m
Specific
adjusting
items
£m
Total
£m
Revenue
–
0.7
0.7
–
3.3
3.3
Operating income
–
0.4
0.4
–
2.4
2.4
Profit before taxation
–
1.1
1.1
–
5.7
5.7
Income tax expense
–
–
–
–
–
–
Profit from
discontinued operations
–
1.1
1.1
–
5.7
5.7
Basic earnings per share from
discontinued operations
10
0.4p
2.0p
Diluted earnings per share from
discontinued operations
10
0.4p
2.0p
In 2022, a gain of £1.1 million was recognised following the receipt of cash from a long-term contract and disposal of an investment in
accordance with the terms of the disposal agreement.
In 2021, £3.3 million of the specific adjusting items balance related to the settlement of certain long-term contracts. A further £2.4 million
related to the reassessment of certain provisions associated with the disposal of the Composites and Defence Systems business.
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:
31 December
2022
£m
31 December
2021
£m
Net cash generated from operating activities
1.1
3.3
Net cash generated from investing activities
–
2.0
Net cash used in financing activities
–
–
1.1
Notes to the consolidated financial statements
continued
31 December 2022
31 December 2021
Earnings
£m
Basic
earnings
per share
pence
Diluted
earnings
per share
pence
Earnings
£m
Basic
earnings
per share
pence
Diluted
earnings
per share
pence
Profit for the year attributable to
shareholders of the Company
88.0
31.0p
30.7p
73.8
25.9p
25.7p
Profit from discontinued operations
(1.1)
(0.4)p
(0.4)p
(5.7)
(2.0)p
(2.0)p
Profit from continuing operations
86.9
30.6p
30.3p
68.1
23.9p
23.7p
Specific adjusting items
5.5
1.9p
1.9p
5.4
1.9p
1.9p
Amortisation of intangible assets
4.7
1.7p
1.6p
6.0
2.1p
2.1p
Tax effect of the above
1
(1.1)
(0.4)p
(0.4)p
(1.5)
(0.5)p
(0.5)p
Non-controlling interests’ share of the
above adjustments
–
–
–
(0.5)
(0.2)p
(0.2)p
Adjusted profit for the year from
continuing operations as used in
adjusted earnings per share
2
96.0
33.8p
33.5p
77.5
27.2p
27.0p
1.
The tax effect of the amortisation of intangible assets was £nil (2021: £nil).
2.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on pages 57–59.
Number of shares (millions)
2022
2021
Weighted average number of Ordinary shares for the purposes of basic earnings per share
1
284.2
284.6
Effect of dilutive potential Ordinary shares:
Share options
2.6
2.4
Weighted average number of Ordinary shares for the purposes of diluted earnings
per share
286.8
287.0
1.
156
–
Morgan Advanced Materials plc
Annual Report 2022
Notes to the consolidated financial statements
continued
Note
Land and
buildings
£m
Plant,
equipment
and fixtures
£m
Total
£m
Cost
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
2
(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
Balance at 1 January 2022
199.8
677.2
877.0
Additions
3.8
49.7
53.5
Disposals
(1.3)
(9.1)
(10.4)
Transfers between categories
0.3
(0.3)
–
Effect of movement in foreign exchange
16.6
52.7
69.3
Balance at 31 December 2022
219.2
770.2
989.4
Depreciation and impairment losses
Balance at 1 January 2021
109.7
516.1
625.8
Depreciation charge for the year
5.3
24.8
30.1
Impairment losses
6
–
12.3
12.3
Disposals
(11.6)
(20.1)
(31.7)
Sale of business
2
(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
Balance at 1 January 2022
103.0
525.9
628.9
Depreciation charge for the year
5.0
25.3
30.3
Impairment losses
6
2.0
2.6
4.6
Disposals
(0.7)
(8.4)
(9.1)
Transfers between categories
(0.4)
0.4
–
Effect of movement in foreign exchange
8.8
42.7
51.5
Balance at 31 December 2022
117.7
588.5
706.2
Carrying amounts
At 1 January 2021
105.5
162.1
267.6
At 31 December 2021
96.8
151.3
248.1
At 31 December 2022
101.5
181.7
283.2
In 2022, no assets were pledged as security for liabilities (2021: none). Profit on sale of property, plant and equipment presented in the
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 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
Balance at 1 January 2022
27.5
4.4
31.9
Additions
1.2
1.8
3.0
Remeasurements
3.1
0.6
3.7
Depreciation charge for the year
(5.1)
(2.7)
(7.8)
Effect of movement in foreign exchange
2.3
0.5
2.8
Balance at 31 December 2022
29.0
4.6
33.6
The weighted average lease term is 11.6 years for land and buildings and 3.3 years for plant and equipment (2021: 12.2 years and 3.5 years
respectively). The maturity analysis of lease liabilities is presented in note 20.
Amounts recognised in the consolidated income statement in respect of leasing arrangements are set out in the table below:
2022
£m
2021
£m
Depreciation expense on right-of-use assets
(7.8)
(7.9)
Interest expense on lease liabilities
(2.4)
(2.3)
Expense relating to short-term leases and leasing of low value assets
(0.5)
(0.3)
Income from leasing owned assets
–
0.2
(10.7)
(10.3)
The total cash flows from leasing activities in the year ended 31 December 2022 was £11.9 million (2021: £11.0 million) as set out in the
table below:
2022
£m
2021
£m
Payment of lease liabilities
(9.0)
(8.6)
Interest expense on lease liabilities
(2.4)
(2.3)
Expense relating to short-term leases and leasing of low value assets
(0.5)
(0.3)
Income from leasing owned assets
–
0.2
(11.9)
(11.0)
At 31 December 2022, the Group is committed to future payments of £0.6 million (2021: £0.6 million) for short-term leases and leasing
of low value assets.
At 31 December 2022, future cash flows in respect of leases which the Group had entered into but which had not yet commenced was
£nil (2021: £0.2 million).
158
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Annual Report 2022
Note
Goodwill
£m
Customer
relationships
£m
Technology and
trademarks
£m
Capitalised
development
costs
£m
Computer
software
£m
Total
£m
Cost
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
Balance at 1 January 2022
172.9
57.6
4.1
0.7
34.8
270.1
Additions (externally purchased)
–
–
–
–
1.2
1.2
Disposals
–
–
–
–
(0.1)
(0.1)
Effect of movement in
foreign exchange
9.0
6.3
0.2
0.1
1.9
17.5
Balance at 31 December 2022
181.9
63.9
4.3
0.8
37.8
288.7
Amortisation and
impairment losses
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
Balance at 1 January 2022
–
56.1
3.5
0.7
26.7
87.0
Amortisation charge for the year
–
0.7
0.1
–
3.9
4.7
Disposals
–
–
–
–
(0.1)
(0.1)
Effects of movement in
foreign exchange
–
6.3
0.2
0.1
1.5
8.1
Balance at 31 December 2022
–
63.1
3.8
0.8
32.0
99.7
Carrying amounts
At 1 January 2021
173.2
1.4
–
–
10.8
185.4
At 31 December 2021
172.9
1.5
0.6
–
8.1
183.1
At 31 December 2022
181.9
0.8
0.5
–
5.8
189.0
Notes to the consolidated financial statements
continued
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.
2022
£m
2021
£m
Thermal Ceramics
88.8
84.5
Molten Metal Systems
9.4
9.0
Electrical Carbon
30.7
29.3
Seals and Bearings
15.8
14.9
Technical Ceramics
37.1
35.2
181.8
172.9
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.
In 2022, a 1.0% growth rate (2021: 1.0%) has been used for years beyond 2027 and to calculate a terminal value. Management has
assessed these growth rates, including the terminal growth rate as reasonable for each operating segment.
In 2022, the Group has used the following pre-tax discount rates for calculating the value in use of each of the operating segments:
Thermal Ceramics: 13.8% (2021: 13.2%), Molten Metal Systems: 15.6% (2021: 12.9%), Electrical Carbon: 14.6% (2021: 12.3%),
Seals and Bearings: 14.0% (2021: 11.2%), Technical Ceramics 14.1% (2021: 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 18%.
If no growth was assumed for years two to five and in the calculation of terminal value.
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Annual Report 2022
Deferred tax assets and liabilities are attributable to the following:
Assets
2022
£m
Assets
2021
£m
Liabilities
2022
£m
Liabilities
2021
£m
Net
2022
£m
Net
2021
£m
Property, plant and equipment
–
–
(12.7)
(12.3)
(12.7)
(12.3)
Right-of-use assets and lease liabilities
3.6
3.9
–
–
3.6
3.9
Intangible assets
–
–
(0.4)
(0.6)
(0.4)
(0.6)
Employee benefits
10.2
13.1
–
–
10.2
13.1
Provisions
11.4
10.8
–
–
11.4
10.8
Tax value of loss carried
forward recognised
1.7
1.0
–
–
1.7
1.0
Other items
–
–
(0.5)
(1.2)
(0.5)
(1.2)
Offset
(11.6)
(12.9)
11.6
12.9
–
–
15.3
15.9
(2.0)
(1.2)
13.3
14.7
Deferred tax assets and liabilities are offset when there is a legally enforceable right to do so.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
2022
£m
2021
£m
UK pension deficit
–
51.8
Tax losses
107.8
110.9
Capital losses
43.4
39.9
Other deductible temporary differences
129.7
75.1
280.9
277.7
Deferred tax assets have not been recognised in relation to these temporary differences due to uncertainty surrounding future utilisation.
Based on current tax legislation the tax losses will not expire. Although the Group as a whole is profitable, the unrecognised losses relate
to entities where it is not probable that there will be future taxable profits against which these losses can be utilised.
Movements in temporary differences during the year
Recognised
in profit
or loss
£m
Recognised
directly in
equity
£m
31 December
2021
£m
Recognised
in profit
or loss
£m
Recognised
directly in
equity
£m
31 December
2022
£m
Property, plant and equipment
0.8
–
(12.3)
(0.4)
–
(12.7)
Right-of-use assets and lease liabilities
–
–
3.9
(0.3)
–
3.6
Intangible assets
0.6
–
(0.6)
0.2
–
(0.4)
Employee benefits
0.5
(0.6)
13.1
0.5
(3.4)
10.2
Provisions
(0.6)
–
10.8
0.6
–
11.4
Tax value of loss carried
forward recognised
0.6
–
1.0
0.7
–
1.7
Others
1.0
(1.5)
(1.2)
(0.3)
1.0
(0.5)
2.9
(2.1)
14.7
1.0
(2.4)
13.3
Deferred income tax of £4.0 million (2021: £3.8 million) is provided on the potential unremitted earnings of overseas subsidiary undertakings.
Notes to the consolidated financial statements
continued
161
2022
£m
2021
£m
Raw materials and consumables
55.5
39.9
Work in progress
53.3
40.1
Finished goods
65.4
60.7
174.2
140.7
The Group holds consignment inventory amounting to £28.8 million (2021: £25.2 million) which is not reflected in the balance sheet.
The majority of this balance is for precious metals, which are held on consignment by a subsidiary and are invoiced only when the material
is required.
2022
£m
2021
£m
Non-current
Prepayments
0.2
0.4
Other receivables
3.0
2.5
Non-trade receivables
3.2
2.9
Current
Gross trade receivables
179.7
150.1
Expected credit losses
(9.1)
(10.9)
Net trade receivables
170.6
139.2
Contract assets
1.0
0.6
Prepayments
14.8
9.2
Other non-trade receivables
16.1
12.4
202.5
161.4
The Group’s exposure to credit and currency risks related to trade and other receivables is disclosed in note 21.
Contract assets relate to the Group’s right to consideration for project-based business which was completed but not billed at the end
162
–
Morgan Advanced Materials plc
Annual Report 2022
£m
2021
£m
Bank balances
105.8
101.2
Cash deposits
11.9
26.1
Cash and cash equivalents
117.7
Reconciliation of cash and cash equivalents to net debt
1
2022
£m
2021 restated
2
£m
Opening borrowings and lease liabilities
(223.8)
(303.4)
Increase in borrowings
(113.3)
(27.3)
Reduction and repayment of borrowings
39.0
99.6
Payment of lease liabilities
9.0
8.6
Total changes from cash flows
(65.3)
80.9
New leases and lease remeasurement
(6.7)
(4.4)
Effect of movements in foreign exchange
(22.3)
3.1
Closing borrowings and lease liabilities
(318.1)
(223.8)
Cash and cash equivalents
117.7
127.3
Closing net debt
1
(200.4)
(96.5)
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on pages 57–59.
2.
Comparative information has been restated to present the increase and reduction in borrowings separately.
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
net debt
1
£m
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)
At 1 January 2022
(174.0)
(49.8)
(223.8)
127.3
(96.5)
Cash outflow
–
–
–
(0.7)
(0.7)
Borrowings and lease liability cash flow
(74.3)
9.0
(65.3)
–
(65.3)
Net interest paid
–
–
–
(9.4)
(9.4)
Net cash inflow/(outflow)
(74.3)
9.0
(65.3)
(10.1)
(75.4)
Share purchases
–
–
–
(2.9)
(2.9)
New leases and lease remeasurement
–
(6.7)
(6.7)
–
(6.7)
Exchange and other movements
(17.9)
(4.4)
(22.3)
3.4
(18.9)
At 31 December 2022
(266.2)
(51.9)
(318.1)
117.7
(200.4)
1.
Notes to the consolidated financial statements
continued
2022
£m
2021
£m
Non-current
Accruals
0.6
0.2
Other tax and social security
–
0.1
Other payables
1.5
2.1
2.1
2.4
Current
Trade payables
78.6
61.8
Contract liabilities
8.9
12.2
Accruals
69.6
69.0
Other tax and social security
19.9
14.0
Other payables
18.0
20.2
195.0
177.2
The Directors consider that the carrying amount of trade payables approximates to their fair value.
Contract liabilities relate to payments received from customers for project-based business in advance of the performance obligation
being satisfied. All of the £8.9 million of contract liabilities as at 31 December 2022 are expected to be recognised as revenue in 2023.
Contract liabilities outstanding as at 31 December 2021 of £12.2 million were recognised as revenue in 2022.
Included in trade payables are amounts due where extended payment terms have been agreed with the supplier using a supplier financing
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.
Hedging reserve
The cash flow hedge reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in cash
flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedged
transaction impacts the profit or loss, or is included directly in the initial cost or other carrying amount of the hedged non-financial items
(basis adjustment).
2022
£m
2021
£m
Balance at 1 January
(0.1)
0.4
Loss arising on changes in fair value of hedging instruments during the period
(0.2)
(0.1)
Gain/(loss) reclassified to profit or loss
0.1
(0.4)
Balance at 31 December
(0.2)
(0.1)
Fair value reserve
The fair value reserve includes the cumulative net change in the fair value of FVOCI investments until the investment is derecognised.
Capital redemption reserve
Retained earnings
The Company has acquired its own shares to satisfy the requirements of the various share option incentive schemes. At 31 December
2022, 1,173,686 shares (2021: 1,360,098) were held by The Morgan General Employee Benefit Trust (‘the Trust’) and are treated as
a deduction from equity. No treasury shares were held by the Company (2021: none). All rights conferred by those shares are suspended
until they are reissued.
164
–
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Annual Report 2022
A summary of the movements in own shares held by the Trust is set out in the table below:
2022
2021
Shares
Cost
£m
Shares
Cost
£m
As at 1 January
1,360,098
5.0
841,880
2.1
New shares purchased
1,102,704
2.9
1,600,000
5.9
Exercise of share options
(1,289,116)
(4.8)
(1,081,782)
(3.0)
As at 31 December
1,173,686
3.1
1,360,098
5.0
Consideration received in respect of shares transferred to participants of employee share schemes was £0.5 million (2021: £0.3 million).
The following Ordinary dividends were declared and paid by the Company:
Per share
Total
2022
pence
2021
pence
2022
£m
2021
£m
2020 final
–
3.5
–
10.0
2021 interim
–
3.2
–
9.1
2021 final
1
5.9
–
16.5
–
2022 interim
5.3
–
15.1
–
11.2
6.7
31.6
19.1
1.
The 2021 final dividend paid is shown net of £0.3 million returned from untraced shareholders, in accordance with the Company’s Articles of Association.
After 31 December 2022 the following dividends were proposed by the Directors for 2022. These dividends have not been provided for
and there are no income tax consequences. The proposed 2022 final dividend is based upon the number of shares outstanding at the
balance sheet date.
£m
6.7 pence per qualifying Ordinary share
19.1
2022
£m
2021
£m
Equity share capital
Fully paid: 285,369,988 (2021: 285,369,988) issued Ordinary shares of 25 pence each
71.3
71.3
71.3
71.3
Number of Ordinary shares in issue
2022
2021
In issue at beginning and end of period
285,369,988
285,369,988
As at the date of this Report 285,369,988 Ordinary shares have been issued (2021: 285,369,988).
Details of options outstanding in respect of Ordinary shares are given in note 23.
Additionally the Company has authorised, issued and fully paid 437,281 (2021: 437,281) cumulative Preference shares classified as
borrowings totalling £0.4 million (2021: £0.4 million). The Preference shares comprise 125,327 of 5.5% Cumulative First Preference shares
of £1 each and 311,954 issued 5.0% Cumulative Second Preference shares of £1 each. The voting rights of these shares are set out below.
Voting rights of shareholders
Ordinary shares
The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the Company.
Notes to the consolidated financial statements
continued
Preference shares
The 5.5% Cumulative First Preference shares of £1 each and the 5.0% Cumulative Second Preference shares of £1 each confer on the
holders thereof the right to receive a cumulative preferential dividend at the rate of 5.5% and 5.0% respectively, calculated up to 30 June
and 31 December in every year. The First and Second Cumulative Preference shares shall not entitle the holders thereof to attend or vote
at any general meeting unless either:
(i)
the meeting is convened to consider any resolutions for reducing the capital, or authorising any issue of debentures or debenture stock,
or increasing the borrowing powers of the Board under the Articles of Association of the Company, or winding up, or sanctioning a sale
of the undertaking, or altering the Articles in any manner affecting their respective interests, or any other resolutions directly altering
their respective rights and privileges; or
(ii) at the date of the notice convening the general meeting the Preference dividend is upwards of one month in arrears from the payment
date of any half-yearly instalment.
On a return of capital on a winding-up, the assets of the Company available for distribution shall be applied:
First, in payment to the holders of the First Preference shares of the amounts paid up on such shares, together with interest at the rate
of 5.5% per annum.
Second, in payment to the holders of the Second Preference shares of the amounts paid up on such shares, together with interest at the
rate of 5.0% per annum.
Third, in repaying the capital paid up or credited as paid up on the Ordinary shares.
Fourth, any surplus shall be distributed rateably amongst the holders of the Ordinary shares in proportion to the nominal amount paid
This note provides information about the contractual terms of the Group’s borrowings and lease liabilities which are measured at
amortised cost.
For more information about the Group’s exposure to interest rate and foreign currency risk, see note 21.
Borrowing facilities and liquidity
All of the Group’s borrowing facilities are arranged by Group Treasury with Morgan Advanced Materials plc as the principal obligor.
Where ancillary credit facilities are provided to operating subsidiaries, they are authorised and supervised by Group Treasury in accordance
with the Group’s Treasury Policy. Group Treasury seeks to obtain certainty of access to funding in the amounts, diversity of maturities and
diversity of counterparties as required to support the Group’s medium-term financing requirements and to minimise the impact of poor
credit market conditions.
2022
£m
2021
£m
Non-current liabilities
Senior Notes
154.8
173.6
Bank and other borrowings
74.9
–
Cumulative Preference shares
0.4
0.4
Lease liabilities
41.4
40.0
271.5
214.0
Current liabilities
Senior Notes
34.6
–
Bank and other borrowings
1.5
–
Lease liabilities
10.5
9.8
46.6
9.8
In 2022, bank and other borrowings did not include any borrowings secured on the assets of the Group (2021: £nil).
166
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Annual Report 2022
Notes to the consolidated financial statements
continued
This note presents information about the Group’s exposure to a variety of financial risks: credit risk, liquidity risk, market risk and
foreign currency risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated
financial statements.
Financial risk management and Treasury Policy
Group Treasury works within a framework of policies and procedures approved by the Board. It acts as a service centre for Morgan
Advanced Materials plc’s businesses, not as a profit centre, and manages and controls risk in the treasury environment through the
establishment of such procedures. Group Treasury seeks to align treasury goals, objectives and philosophy to those of the Group. It is
responsible for all of the Group’s funding, liquidity, cash management, interest rate risk, foreign exchange risk and other treasury business.
As part of the policies and procedures, there is strict control over the use of financial instruments to hedge foreign currencies and interest
rates. Speculative trading in derivatives and other financial instruments is not permitted.
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
The Group is exposed to credit risk on financial instruments such as liquid assets, derivative assets and trade receivables.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting
date was:
Carrying amount
2022
£m
2021
£m
Trade and other receivables
170.6
139.2
Cash and cash equivalents
117.7
127.3
Derivatives
1.3
0.6
289.6
267.1
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the
Group’s customer base, including the default risk of the industries and countries in which customers operate, have less influence on
credit risk.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are
performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets.
The Group serves thousands of customers. Many of these have purchased the same product for several years and in some cases
decades. Others have modified and enhanced designs or adopted the same components into new products, extending the lifecycle of
the components that the Group supplies. The Group’s level of customer retention is very high, particularly with its major accounts and,
although the top 20 ranking will alter from year to year, many of the names remain consistent over time.
The Group establishes a provision that represents its estimate of expected credit losses in respect of trade and other receivables and
investments. At the point the amount is considered irrecoverable it is written off against the financial asset directly.
Movements on the provision for expected credit losses were as follows:
2022
£m
2021
£m
Balance at 1 January
(10.9)
(7.4)
Net remeasurement of loss allowance
(1.4)
(4.5)
Amounts written off
3.9
1.0
Effect of movement in foreign exchange
(0.7)
–
Balance at 31 December
(9.1)
(10.9)
There has been no change in the estimation techniques or significant assumptions made during the current reporting period in assessing
the loss allowance for these financial assets. The loss allowance for trade receivables by ageing category is as follows:
2022
2021
Expected
credit loss
rate
%
Gross trade
receivables
£m
Expected
credit losses
£m
Net trade
receivables
£m
Expected
credit loss
rate
%
Gross trade
receivables
£m
Expected
credit losses
£m
Net trade
receivables
£m
Not past due
0.1%
144.7
(0.2)
144.5
0.3%
119.1
(0.4)
118.7
Past due 0-30
days
0.5%
21.5
(0.1)
21.4
–
14.8
–
14.8
Past due 31-60
days
–
3.9
–
3.9
–
3.8
–
3.8
Past due 61-90
days
61.9%
2.1
(1.3)
0.8
7.1%
1.4
(0.1)
1.3
Past due more
than 90 days
100.0%
7.5
(7.5)
–
94.5%
11.0
(10.4)
0.6
179.7
(9.1)
170.6
150.1
(10.9)
139.2
Cash, cash equivalents and derivatives
Cash balances held by companies representing over 65% of the Group’s revenue are managed centrally through a number of pooling
arrangements. Credit risk is managed by investing in liquid assets and acquiring derivatives in a diversified way from high-credit-quality
financial institutions. Counterparties are reviewed through the use of rating agencies, systemic risk considerations and through regular
review of the financial press.
The following table shows the amounts recognised for forward exchange contracts, which are subject to offsetting arrangements on
a gross basis, and the amounts offset in the balance sheet.
The Group also has cash pooling agreements which cannot be offset under IFRS, but which could be settled net under the terms of
master netting agreements, and are also presented in the table to show the total net exposure of the Group.
Gross amounts
of recognised
financial assets/
(liabilities)
£m
Amounts
offset
£m
Net amounts
presented
on the
balance sheet
£m
Financial
instruments not
offset in the
balance sheet
£m
Net
amount
£m
2022
Derivative financial assets
97.4
(96.1)
1.3
–
1.3
Derivative financial liabilities
(97.7)
96.1
(1.6)
–
(1.6)
Cash and cash equivalents
117.7
–
117.7
(1.5)
116.2
Bank and other borrowings
(1.5)
–
(1.5)
1.5
–
2021
Derivative financial assets
84.0
(83.4)
0.6
–
0.6
Derivative financial liabilities
(84.0)
83.4
(0.6)
–
(0.6)
Cash and cash equivalents
127.3
–
127.3
–
127.3
Bank and other borrowings
–
–
–
–
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are
settled by cash.
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions.
The Group seeks a balance between certainty of funding and a flexible, cost-effective borrowing structure. The policy is to ensure that the
Group has sufficient borrowings and committed facilities to meet its medium-term financing requirements.
168
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Annual Report 2022
The following are the undiscounted contracted maturities of financial liabilities, including interest payments:
Cash flows associated with non-derivative financial liabilities
31 December 2022
Effective
interest
rate
Year of
maturity
Carrying
amount
£m
Contractual
cash flows
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
Non-derivative
financial liabilities
1.18% Euro
Senior Notes 2023
1.18%
2023
22.1
22.4
22.4
–
–
–
3.17% US Dollar
Senior Notes 2023
3.17%
2023
12.4
12.8
12.8
–
–
–
1.55% Euro
Senior Notes 2026
1.55%
2026
22.2
23.4
0.3
0.3
22.8
–
3.37% US Dollar
Senior Notes 2026
3.37%
2026
80.6
91.0
2.7
2.7
85.6
–
4.87% US Dollar
Senior Notes 2026
4.87%
2026
21.1
24.2
1.0
1.0
22.2
–
1.74% Euro
Senior Notes 2028
1.74%
2028
8.9
9.9
0.2
0.2
0.5
9.0
2.89% Euro
Senior Notes 2030
2.89%
2030
22.1
27.1
0.6
0.6
1.9
24.0
Bank and other
borrowings
Up to 2027
76.4
76.2
1.6
(0.3)
74.9
–
5.50% Cumulative
First Preference shares
5.50%
0.1
–
–
–
–
–
5.00% Cumulative
Second Preference
shares
5.00%
0.3
–
–
–
–
–
Lease liabilities
4.77%
Up to 2051
51.9
65.3
10.5
8.5
19.9
26.4
Trade and
other payables
78.6
78.6
78.6
–
–
–
396.7
430.9
130.7
13.0
227.8
59.4
Bank and other borrowings includes an unsecured multi-currency revolving credit facility set to mature in November 2027.
Notes to the consolidated financial statements
continued
31 December 2021
Effective
interest
rate
Year of
maturity
Carrying
amount
£m
Contractual
cash flows
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
Non-derivative
financial liabilities
1.18% Euro
Senior Notes 2023
1.18%
2023
21.0
21.6
0.2
21.4
–
–
3.17% US Dollar
Senior Notes 2023
3.17%
2023
11.1
11.8
0.4
11.4
–
–
1.55% Euro
Senior Notes 2026
1.55%
2026
21.1
25.1
0.3
0.3
24.5
–
3.37% US Dollar
Senior Notes 2026
3.37%
2026
72.2
81.5
2.4
2.4
76.7
–
4.87% US Dollar
Senior Notes 2026
4.87%
2026
18.8
22.5
0.9
0.9
20.7
–
1.74% Euro
Senior Notes 2028
1.74%
2028
8.4
9.8
0.1
0.1
0.9
8.7
2.89% Euro
Senior Notes 2030
2.89%
2030
21.0
26.9
0.6
0.6
2.2
23.5
Bank and other
borrowings
Up to 2024
–
–
–
–
–
–
5.50% Cumulative First
Preference shares
5.50%
0.1
–
–
–
–
–
5.00% Cumulative
Second Preference
shares
5.00%
0.3
–
–
–
–
–
Lease liabilities
4.77%
Up to 2051
49.8
63.5
9.8
7.9
18.2
27.6
Trade and
other payables
61.8
61.8
61.8
–
–
–
285.6
324.5
76.5
45.0
143.2
59.8
170
–
Morgan Advanced Materials plc
Annual Report 2022
Cash flows associated with derivatives
The following table indicates the periods in which cash flows associated with cash flow hedges are expected to occur. This is matched with
the periods in which cash flows associated with cash flow hedges are expected to impact profit or loss. All derivatives are net settled.
Carrying
amount
£m
Contractual
cash flows
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
2022
Cash flow hedges
Forward exchange contracts – assets
1.1
79.7
79.2
0.5
–
–
Forward exchange contracts – liabilities
(1.3)
(79.5)
(79.0)
(0.5)
–
–
(0.2)
0.2
0.2
–
–
–
Fair value flow hedges
Forward exchange contracts – assets
0.2
18.0
18.0
–
–
–
Forward exchange contracts – liabilities
(0.3)
(17.9)
(17.9)
–
–
–
(0.1)
0.1
0.1
–
–
–
(0.3)
0.3
0.3
–
–
–
2021
Cash flow hedges
Forward exchange contracts – assets
0.5
64.0
64.0
–
–
–
Forward exchange contracts – liabilities
(0.5)
(64.0)
(64.0)
–
–
–
–
–
–
–
–
–
Fair value flow hedges
Forward exchange contracts – assets
0.1
20.1
20.1
–
–
–
Forward exchange contracts – liabilities
(0.1)
(20.1)
(20.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices, will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk.
The Group enters into derivatives for hedging purposes, and also incurs financial liabilities, in order to manage market risks. All such
transactions are carried out in accordance with the Treasury Policy, which has been approved by the Board. Generally the Group seeks
Interest rate risk
The Group seeks to reduce the volatility in its interest charge caused by rate fluctuations. The proportions of fixed and floating rate debt
are determined having regard to a number of factors, including prevailing market conditions, interest rate cycle, the Group’s interest cover
and leverage position and any perceived correlation between business performance and rates.
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Fixed rate instruments
carrying amount
Variable rate instruments
carrying amount
2022
£m
2021
£m
2022
£m
2021
£m
Financial assets
–
–
117.7
127.3
Financial liabilities
(241.7)
(223.8)
(76.4)
–
(241.7)
(223.8)
41.3
127.3
Notes to the consolidated financial statements
continued
The fixed rate financial liabilities comprise the currency equivalent of £189.4 million (2021: £173.6 million) of Senior Notes, £0.4 million
(2021: £0.4 million) of cumulative Preference shares and lease liabilities of £51.9 million (2021: £49.8 million). The average cost of the
Group’s fixed rate instruments is 3.32% (2021: 3.29%) including lease liabilities and 2.92% (2021: 2.90%) excluding lease liabilities.
The variable rate financial assets include the bank balances and cash deposits detailed in note 17 and the variable rate financial liabilities
include bank borrowings detailed in note 20. Where cash and overdrafts are included in Group cash pool arrangements interest is charged
on net bank balances and borrowings. The average rate of the Group’s variable rate instruments is 2.5% (2021: 2.5%).
An increase of 100 basis points in interest rates on the variable element of the Group’s net floating rate liabilities and cash at the reporting
date would have increased profit by £0.5 million (2021: £1.3 million). A decrease of 100 basis points would have decreased profit by
£0.3 million (2021: £0.6 million). This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
Foreign currency risk
Due to the international reach of the Group, currency transaction exposures exist. The Group has a policy in place to hedge all material
firm commitments and a large proportion of highly probable forecast foreign currency exposures in respect of sales and purchases over
the following 12 months, and achieves this through the use of the forward foreign exchange markets. A significant proportion of the
forward exchange contracts have maturities of less than one year after the balance sheet date. The Group continues its practice of not
hedging income statement translation exposure.
There are exchange control restrictions which affect the ability of a small number of the Group’s subsidiaries to transfer funds to the
Group. The Group does not believe such restrictions have had or will have any material adverse impact on the Group as a whole or
the ability of the Group to meet its cash flow requirements.
The table below shows the Group’s currency exposures, being exposures on currency transactions that give rise to net currency gains
and losses recognised in the income statement. Such exposures comprise the monetary assets and liabilities of the Group that are not
denominated in the functional currency of the operating company involved.
Functional currency of Group operations
2022
2021
GBP
£m
USD
£m
Euro
£m
GBP
£m
USD
£m
Euro
£m
Trade receivables
9.5
0.3
(0.1)
11.4
(0.1)
(3.2)
Trade payables
(3.8)
0.2
1.7
(1.3)
(0.3)
3.6
Net debt
1
(8.0)
0.6
1.1
(10.2)
1.3
0.4
Net balance sheet exposure
(2.3)
1.1
2.7
(0.1)
0.9
0.8
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on pages 57–59.
The amounts shown in the table take into account the effect of the forward contracts entered into to manage these currency exposures.
In respect of other monetary assets and liabilities held in currencies other than the currency of the reporting unit, the Group ensures
that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address
short-term imbalances.
The Group classifies its forward exchange contracts which hedge forecasted transactions as cash flow hedges and states them at fair
value. The fair value of forward exchange contracts used as hedges of forecasted transactions at 31 December 2022 was a liability of
£0.2 million (2021: £nil).
The contractual cash flows associated with the forward exchange contracts that are designated as cash flow hedges are shown in the
section on liquidity risk. The impact on profit or loss is expected to occur at the same time as the associated cash flows.
Currency translation risks are controlled centrally. To defend against the impact of a permanent reduction in the value of its overseas
net assets through currency depreciation, the Group seeks to match the currency of financial liabilities with the currency in which the net
assets are denominated. This is achieved by raising funds in different currencies and through the use of hedging instruments such as swaps,
and is implemented only to the extent that the Group’s gearing covenant under the terms of its borrowing documents, as well as its facility
headroom, are likely to remain comfortably within limits. In this way, the currency of the Group’s financial liabilities becomes more aligned
to the currency of the trading cash flows that service them.
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The Group’s currency split of total borrowings was as follows:
2022
£m
2021
£m
GBP
76.7
0.5
USD
114.2
102.1
Euro
75.3
71.4
Other
–
–
266.2
174.0
The Group’s sensitivity to changes in foreign exchange rates on financial assets and liabilities as at 31 December 2022 is as follows:
Based upon the currency profile of the Group’s net financial assets and liabilities, if GBP had strengthened by 10%, reported net financial
liabilities would have decreased by £11.2 million (2021: £9.9 million). Conversely, if GBP had weakened by 10%, reported net financial
liabilities would have increased by £13.9 million (2021: £12.2 million). Assuming the change occurred on the balance sheet date, there
would be no impact on reported profit, as either the net financial liabilities are in the same currency as that of the respective Group entity,
or the change would be offset by an equal and opposite change in the foreign currency monetary items in the Group’s holding company.
The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming certain adverse market
conditions occur. Actual results in the future may differ materially from those projected results. The impact of a weakening in GBP on
the Group’s financial assets and liabilities would be more than offset in equity and income by its impact on the Group’s overseas net assets
and earnings respectively.
Hedging instruments
Maturity date
Notional value:
Local currency
Change in fair value
for recognising hedge
ineffectiveness
Carrying amount
of the hedging
instruments assets/
(liabilities)
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Cash flow hedges
Highly probable forecast sales
to Jun
2024
to Dec
2022
29.7
40.4
0.3
0.6
0.5
0.2
Highly probable forecast purchases
to Jun
2024
to Dec
2022
9.7
7.1
0.1
(0.1)
0.1
–
Weighted average hedge rates for the year were as follows:
Weighted average exchange rates
2022
£m
2021
£m
EUR/GBP
1.15
1.16
AUD/GBP
1.70
1.84
SGD/GBP
1.62
1.85
USD/GBP
1.20
1.37
Hedged items
Change in value used for
calculating hedge ineffectiveness
Balance in cash flow hedge
reserve/foreign currency
translation reserve for
continuing hedges
2022
£m
2021
£m
2022
£m
2021
£m
Cash flow hedges
Forecast sales
(0.3)
(0.6)
(0.5)
0.1
Forecast purchases
(0.1)
0.1
(0.1)
–
Notes to the consolidated financial statements
continued
As at 31 December 2022 the amount in the hedging reserve and translation reserve arising from hedging relationships for which hedge
accounting is no longer applied was £nil (2021: £nil).
The Group expects highly probable sales and purchases in UK, Europe, North America, Australia and Asia. The Group has entered into
foreign exchange forward contracts (for terms not exceeding 18 months) to hedge the exchange rate risk arising from these anticipated
future transactions. It is anticipated that the transactions will take place during the next financial year, at which time the amount deferred
in equity will be reclassified to profit or loss.
All hedging instruments are presented within derivative financial instruments on the Group balance sheet.
The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:
2022
2021
Closing rate
Average rate
Closing rate
Average rate
GBP to:
USD
1.21
1.24
1.35
1.38
Euro
1.13
1.17
1.19
1.16
For illustrative purposes, the table below provides details of the impact on 2022 revenue, Group adjusted operating profit and profit
before tax if the actual reported results, calculated using 2022 average exchange rates, were restated for GBP weakening by 10 cents
against USD in isolation and 10 cents against the Euro in isolation:
2022
2021
Revenue
£m
Group
adjusted
operating
profit
1
£m
Profit
before tax
£m
Revenue
£m
Group
adjusted
operating
profit
1
£m
Profit
before tax
£m
Increase in revenue/Group adjusted
operating profit
1
/profit before tax if:
GBP weakens by 10c against USD
in isolation
16.9
2.2
2.0
29.6
3.9
3.5
GBP weakens by 10c against the Euro
in isolation
21.8
3.5
3.2
18.8
3.3
3.1
1.
Other market price risk
Equity price risk arises from FVOCI equity instruments held for meeting partially the unfunded portion of the Group’s defined benefit
pension obligations. The primary goal of the Group’s investment strategy is to maximise returns in order to meet partially the Group’s
unfunded defined benefit obligations.
The Board’s policy is to maintain a strong capital base (total equity) so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The Board uses a number of measures, identified as key performance indicators (KPIs),
to ensure the continued success of the Group.
The Board encourages employees of the Group to hold the Company’s Ordinary shares. The Group operates a number of employee
share and share option schemes. From time to time the Company purchases its own shares on the market; the timing of these purchases
depends on market prices. Primarily the shares are intended to be used for issuing shares under the Group’s various share option
incentive schemes.
The Board seeks to maintain a balance between the advantages and security afforded by a sound capital position, and the higher returns
that might be possible with higher levels of borrowings.
The Group monitors capital using the indicators set out in the table below. These indicators are also presented excluding the impact of
174
–
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Annual Report 2022
Debt to adjusted capital
2022
2021
As stated
£m
IFRS 16
impact
£m
Excluding
IFRS 16
£m
As stated
£m
IFRS 16
impact
£m
Excluding
IFRS 16
£m
Borrowings and overdrafts
266.2
–
266.2
174.0
–
174.0
Lease liabilities
51.9
(51.9)
–
49.8
(49.8)
–
Less: cash and cash equivalents
(117.7)
–
(117.7)
(127.3)
–
(127.3)
Net debt
1
200.4
(51.9)
148.5
96.5
(49.8)
46.7
Total equity
429.6
–
429.6
349.6
–
349.6
Less: amounts accumulated in equity
relating to cash flow hedges
0.2
–
0.2
0.1
–
0.1
Adjusted capital
429.8
–
429.8
349.7
–
349.7
Net debt
1
to adjusted capital ratio
0.5
n/a
0.3
0.3
n/a
0.1
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on pages 57–59.
Net debt
1
to EBITDA
1
2022
2021
As stated
£m
IFRS 16
impact
£m
Excluding
IFRS 16
£m
As stated
£m
IFRS 16
impact
£m
Excluding
IFRS 16
£m
Net debt
1
200.4
(51.9)
148.5
96.5
(49.8)
46.7
Operating profit before specific
adjusting items
146.3
(3.6)
142.7
118.5
(3.0)
115.5
Depreciation and amortisation
42.8
(7.8)
35.0
44.0
(7.9)
36.1
EBITDA
1
189.1
(11.4)
177.7
162.5
(10.9)
151.6
Net debt
1
to EBITDA
1
ratio
1.1x
n/a
0.8x
0.6x
n/a
0.3x
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on pages 57–59.
Interest cover
2022
2021
As stated
£m
IFRS 16
impact
£m
Excluding
IFRS 16
£m
As stated
£m
IFRS 16
impact
£m
Excluding
IFRS 16
£m
EBITDA
1
189.1
(11.4)
177.7
162.5
(10.9)
151.6
Net finance costs (excluding IAS 19
pension charge)
7.8
(2.4)
5.4
7.6
(2.3)
5.3
Interest cover
24.2x
n/a
32.9x
21.4x
n/a
28.6x
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on pages 57–59.
There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries
are subject to externally imposed capital requirements.
Notes to the consolidated financial statements
continued
31 December 2022
31 December 2021
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
(22.1)
–
(21.6)
(21.6)
(21.0)
–
(21.1)
(21.1)
3.17% US Dollar
Senior Notes 2023
(12.4)
–
(12.1)
(12.1)
(11.1)
–
(11.3)
(11.3)
1.55% Euro
Senior Notes 2026
(22.2)
–
(20.1)
(20.1)
(21.1)
–
(21.4)
(21.4)
3.37% US Dollar
Senior Notes 2026
(80.6)
–
(73.5)
(73.5)
(72.2)
–
(72.8)
(72.8)
1.74% Euro
Senior Notes 2028
(8.9)
–
(7.7)
(7.7)
(8.4)
–
(8.6)
(8.6)
2.89% Euro
Senior Notes 2030
(22.1)
–
(19.0)
(19.0)
(21.0)
–
(22.1)
(22.1)
4.87% US Dollar
Senior Notes 2026
(21.1)
–
(20.2)
(20.2)
(18.8)
–
(20.6)
(20.6)
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)
(189.8)
–
(174.6)
(174.6)
(174.0)
–
(178.3)
(178.3)
Derivative financial assets
held at fair value
1.3
–
1.3
1.3
0.6
–
0.6
0.6
1.3
–
1.3
1.3
0.6
–
0.6
0.6
Derivative financial liabilities
held at fair value
(1.6)
–
(1.6)
(1.6)
(0.6)
–
(0.6)
The table above analyses the fair values of financial instruments held by the Group, 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
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).
The major methods and assumptions 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.
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Forward exchange contracts are marked to market either using listed market prices or by discounting the contractual forward price and
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 4.2%-6.4% (2021: 1.0%-3.1%).
There have been no transfers between Level 1 and Level 2 during 2022 and 2021 and there were no Level 3 financial instruments in either
The Group operates a number of defined benefit arrangements as well as defined contribution plans. The defined benefit plans
are primarily in the UK, US and Europe and predominantly provide pensions based on service and career-average pay. In addition
post-retirement medical plans are operated in the US.
Summary of net defined benefit obligations
2022
£m
2021
£m
Present value of unfunded defined benefit obligations
(36.5)
(47.3)
Present value of funded defined benefit obligations
(485.3)
(687.2)
Fair value of plan assets
506.2
631.8
(15.6)
(102.7)
Amounts recognised in profit or loss
Note
2022
£m
2021
£m
Current service cost
(2.7)
(3.2)
Administrative expenses recognised outside of the pension liability
(1.5)
(1.3)
Curtailments and settlements
0.2
0.1
Total expense within operating costs relating to defined benefit plans
(4.0)
(4.4)
Defined contribution plans
(12.2)
(10.7)
Total expense within operating costs
4
(16.2)
(15.1)
Net interest on net defined benefit liability
7
(1.4)
(1.6)
Total expense recognised in profit or loss
(17.6)
(16.7)
Amounts recognised in other comprehensive income
2022
£m
2021
£m
Experience loss on plan obligations
(14.4)
(4.9)
Changes in financial assumptions underlying the present value of plan obligations – gain
225.6
51.3
Changes in demographic assumptions underlying the present value of plan obligations – gain
0.8
6.7
Actual return on plan assets (excluding amounts included in net interest expense)
(206.5)
2.4
Remeasurements recognised in other comprehensive income
5.5
55.5
Deferred tax associated with the above
(3.4)
(0.6)
Total amount recognised in other comprehensive income
2.1
54.9
Defined contribution plans
The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current
year was £12.2 million (2021: £10.7 million). The expense includes contributions to two US Multi-Employer Plans of £0.3 million
(2021: £0.3 million). The Group expects to contribute £13.0 million to ongoing defined contribution arrangements in 2023.
Notes to the consolidated financial statements
continued
Defined benefit plans
UK Schemes
In the UK, the Group operates two defined benefit pension schemes, the Morgan Pension Scheme and the Morgan Group Senior Staff
Pension and Life Assurance Scheme (‘the UK Schemes’). The two UK Schemes provide a benefit based upon an employee’s total service
and their career average earnings (including allowance for consumer price inflation), although historically benefits were based upon an
employee’s final salary. Once in payment, pensions receive increases as set out in the rules, at either a fixed level, or in line with the
Retail Price Index. The overall duration of the UK Schemes is around 12 years.
The UK Schemes’ assets are held in trustee-administered funds which are governed by UK regulations, as is the nature of the relationship
between the Group and the Trustees. Responsibility for the governance of the UK Schemes – including investment decisions and
contribution schedules – lies with the Board of Trustees which must consult with the Group in such matters. The Board of Trustees
must be composed of representatives of the Company, plan participants and independent trustee directors, in accordance with the
UK Scheme’s governing documents.
Funding legislation in the UK requires that schemes are fully funded on a scheme-specific basis, and this must be assessed at least every
three years. To the extent that there is a deficit against this measure, a payment schedule must be agreed such that the deficit is removed
over a reasonable period of time.
The most recent full actuarial valuations of the UK Schemes were undertaken as at 31 March 2022 and resulted in combined assessed
deficits of £49.7 million on the ‘Technical Provisions’ basis. The Company subsequently agreed with the Trustees to make a lump sum
contribution to the Schemes of £67.0 million on 29 December 2022 in lieu of the remaining contributions that would otherwise have been
due under the existing recovery plans from the 31 March 2019 valuations. The sum paid also represented the value of the deficit on the
more prudent ‘Long Term Objective’ basis. As a result, no further contributions to the Schemes are expected to be required pending the
results of the next full valuations as at 31 March 2025.
The UK Schemes were closed to new entrants on 1 August 2011, with any new employees receiving benefits through the Morgan Group
Personal Pension Plan, a defined contribution arrangement. The Morgan Group Senior Staff Pension and Life Assurance Scheme was
closed to the future accrual of benefits on and with effect from 6 April 2016. The Morgan Pension Scheme was closed to the future
accrual of benefits with effect from 6 April 2018. Current employees, including those who were active in the Schemes at closure,
are auto-enrolled into the Morgan Group Personal Pension Plan for their future pension benefits.
The Group has considered third-party powers and does not believe the Trustees have any powers that would prevent the Group
obtaining a refund of any surplus on wind-up of the Scheme following gradual settlement of the plan obligations. As such the Group’s
interpretation is that the current version of IFRIC 14 does not have an impact and, as a result, any IAS 19 surplus can be recognised as
an asset and it is not necessary to recognise additional liabilities in respect of contribution agreements reached with the pension scheme
Trustees, managers or any third party.
US Schemes
The Group operates a tax qualified defined benefit pension scheme in the US (‘MUSE DB Scheme’), and a Supplemental Executive
Retirement Plan (‘SERP’) which is not tax approved (together ‘the US Schemes’). The MUSE DB Scheme is frozen, and therefore
employees accrue benefits within a 401k arrangement.
The US Schemes provide a benefit based upon an employee’s service and earnings. The benefits are level both prior to, and whilst in,
payment. Overall, the US Schemes’ duration is around nine years.
The qualified MUSE DB Scheme’s assets are held in a trust separately from the Group’s assets. For the SERP the Group holds an asset
to meet the obligations; however, due to its nature this is accounted for as a Group asset, rather than an asset of the SERP. Responsibility
for the governance of the US Schemes, including investment decisions and contribution schedules, lies with a management committee,
all of whose members are appointed by the Group.
The funding requirements in the US, ERISA, require schemes to be fully funded at all times, and if not to target full funding within a period
of seven years.
The most recent full actuarial valuation of the MUSE DB Scheme was undertaken as at 1 January 2022 and the Scheme was fully funded
on this basis.
On the more stringent DBO (Defined Benefit Obligation) basis used for IAS 19 purposes, the deficit of the MUSE DB Scheme as at
31 December 2022 totalled £3.4 million (2021: £1.3 million).
No further significant contributions to the MUSE DB Scheme are anticipated in the medium term.
European schemes
In Europe (excluding UK), the Group operates a number of retirement schemes, with the bulk of the obligations relating to arrangements
for employees in Germany. In line with local practice these arrangements are not funded in advance, with benefits being met by the Group
as they fall due.
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Annual Report 2022
31 December 2022
UK
£m
US
£m
Europe
£m
Rest of
the World
£m
Total
£m
Summary of net obligations
Present value of unfunded defined benefit obligations
–
(5.8)
(26.7)
(4.0)
(36.5)
Present value of funded defined benefit obligations
(359.5)
(116.1)
(1.6)
(8.1)
(485.3)
Fair value of plan assets
384.7
112.7
0.4
8.4
506.2
25.2
(9.2)
(27.9)
(3.7)
(15.6)
Movements in present value of defined benefit obligation
At 1 January 2022
(544.0)
(139.3)
(39.4)
(11.8)
(734.5)
Current service cost
–
–
(1.1)
(1.6)
(2.7)
Interest cost
(10.3)
(3.9)
(0.3)
(0.2)
(14.7)
Actuarial gain/(loss)
Experience gain/(loss) on plan obligations
(14.7)
(0.1)
0.4
–
(14.4)
Changes in financial assumptions – gain
184.5
28.2
12.2
0.7
225.6
Changes in demographic assumptions – gain/(loss)
0.9
–
(0.1)
–
0.8
Benefits paid
24.1
9.2
1.6
1.2
36.1
Curtailments and settlements
–
–
–
0.2
0.2
Exchange adjustments
–
(16.0)
(1.6)
(0.6)
(18.2)
At 31 December 2022
(359.5)
(121.9)
(28.3)
(12.1)
(521.8)
Movements in fair value of plan assets
At 1 January 2022
492.3
131.6
0.4
7.5
631.8
Interest on plan assets
9.4
3.8
–
0.1
13.3
Remeasurement loss
(177.2)
(28.9)
–
(0.4)
(206.5)
Contributions by employer
84.3
0.7
1.6
2.0
88.6
Benefits paid
(24.1)
(9.2)
(1.6)
(1.2)
(36.1)
Exchange adjustments
–
14.7
–
0.4
15.1
At 31 December 2022
384.7
112.7
0.4
8.4
506.2
Actual return on assets
(167.8)
(25.1)
–
(0.3)
(193.2)
Fair value of plan assets by category
Equities
–
6.1
–
–
6.1
Growth assets
1
40.3
–
–
–
40.3
Bonds
18.0
104.8
–
–
122.8
Liability-driven investments (LDI)
2
210.9
–
–
–
210.9
Matching insurance policies
106.1
1.4
0.4
6.4
114.3
Other
9.4
0.4
–
2.0
11.8
384.7
112.7
0.4
8.4
506.2
1.
Growth assets include investment in Global Diversified and Multi-Asset Funds as well as UK Property.
2.
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 measured on the ‘Long Term Objective’ basis (Gilts +50bps)
(excluding matching insurance policies).
Notes to the consolidated financial statements
continued
The Group expects to contribute £3.8 million to these arrangements in 2023.
UK
£m
US
£m
Europe
£m
Rest of
the World
£m
Total
£m
Estimate of employer contributions to be paid into the plans
during the 12-month period beginning 1 January 2023
–
0.7
1.7
1.4
3.8
31 December 2021
UK
£m
US
£m
Europe
£m
Rest of
the World
£m
Total
£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
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
Fair value of plan assets by category
Equities
1
42.9
–
–
–
42.9
Growth assets
2
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.
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Actuarial assumptions
The actual liability in respect of global employee benefits will not be known until the last payments have been made. In placing a current
estimate on the Group’s past service benefit obligations, a number of assumptions about the future are required. For defined benefit
schemes, the Directors make annual estimates and assumptions in respect of discount rates, future changes in salaries, employee turnover,
inflation rates, life expectancy and several other assumptions. In making these estimates and assumptions, the Directors consider advice
provided by external advisors, such as actuaries.
The assumptions used are best estimate assumptions chosen from a reasonable range and which may not be borne out in practice.
The principal assumptions are the discount rate and inflation assumptions which are long-term and measured on external factors, based
upon each plan’s duration. In addition to these, the mortality assumption in the UK and the US is material to the cost of the promised
benefits. In both the UK and Europe, where relevant, the assumed increases in salaries and pensions in payment are derived from
assumed future inflation.
The rates shown below are single equivalents for the obligations as a whole derived from discounting along the yield curve. In line
with IAS 19, in determining the value of the annuity contract held in the UK we have reflected the same methodology as used to value
the corresponding obligations, reflecting the actual cash flow profile and duration of the insured obligations, rather than those of the
Schemes as a whole.
Actuarial assumptions were:
UK
%
US
%
Europe
%
Rest of
the World
%
2022
Discount rate
4.81
4.99
3.70
5.30
Salary increase
n/a
n/a
2.20
5.00
Inflation (UK: RPI/CPI)
3.26/2.47
n/a
2.20
n/a
Pensions increase
1
3.00/3.11/3.70
n/a
2.20
n/a
Mortality – post-retirement:
Life expectancy of a male aged 60 in accounting year (years)
25.79
24.80
25.19
n/a
Life expectancy of a male aged 60 in accounting year + 20 (years)
27.24
24.90
27.98
n/a
2021
Discount rate
1.92
2.71
0.90
2.90
Salary increase
n/a
n/a
2.40
4.30
Inflation (UK: RPI/CPI)
3.40/2.61
n/a
1.90
n/a
Pensions increase
1
3.00/3.22/3.75
n/a
1.90
n/a
Mortality – post-retirement:
Life expectancy of a male aged 60 in accounting year (years)
26.0
24.7
25.0
n/a
Life expectancy of a male aged 60 in accounting year + 20 (years)
27.4
24.8
27.9
n/a
1.
Pension increases in the UK reflect both fixed rate and RPI-related increases to different elements of members’ pensions.
The accounting assumptions noted above are used to calculate the year-end net pension liability in accordance with the relevant accounting
standard, IAS 19 (revised) Employee Benefits. Changes in these assumptions have no impact on the Group’s cash payments to their
arrangements. The payments due are calculated based on local funding requirements, or in the case of the Group’s unfunded
arrangements on the incidence of benefit payments falling due.
Notes to the consolidated financial statements
continued
The sensitivities of the Group’s net balance sheet to the principal assumptions are:
Change in assumption
2022
2021
Increase
on defined
benefit
obligation
£m
Increase
on deficit
£m
Increase on
defined
benefit
obligation
£m
Increase
on deficit
£m
Discount rate
Decrease by 0.1%
5.8
5.0
10.7
9.4
Discount rate
Decrease by 0.5%
30.0
25.9
55.9
49.4
Inflation
Increase by 0.1%
1.8
1.7
3.7
3.5
Inflation
Increase by 0.5%
9.2
8.7
18.6
17.6
Mortality – post-retirement
Pensioners live 1 year longer
20.5
13.6
33.3
21.9
Exchange rates
GBP weakens against USD by 10%
13.5
1.0
15.5
0.9
GBP weakens against EUR by 10%
3.3
3.2
4.4
4.3
These sensitivities have been calculated to show the movement in the net balance sheet in isolation, and assume no other changes in
market conditions at the accounting date. This is unlikely in practice – for example, a change in discount rate is unlikely to occur without
any movement in the value of the assets held by the Group’s Schemes.
Risks
The balance sheet net pension liability is a snapshot view which can be significantly influenced by short-term market factors. The
calculation of the surplus or deficit depends, therefore, on factors which are beyond the control of the Group – principally the value at
the balance sheet date of equity shares in which the Scheme has invested and long-term interest rates which are used to discount future
liabilities. The funding of the Scheme is based on long-term trends and assumptions relating to market growth, as advised by qualified
actuaries and investment advisors.
The most significant risks to which the Group is exposed are:
Investment returns
: The Group’s net balance sheet and contribution requirements are heavily dependent upon the return on the
assets invested in by the schemes.
Longevity:
The cost to the Group of the pensions promised to members is dependent upon the expected term of these payments.
To the extent that members live longer than expected this will increase the cost of these arrangements.
Inflation rate risk:
In the UK, the pension promises are, in the main, linked to inflation, and higher inflation will lead to higher liabilities.
The above risks have been mitigated for the majority of the UK Schemes’ pensioner population through the purchase of an insurance
policy, the payments from which exactly match the promises made to employees. Remaining investment risks have also been mitigated
to some extent by diversification of the return-seeking assets and backing uninsured pensioner liabilities via bonds and various hedging
instruments. In the UK, the bonds and LDI mandates target an interest rate hedge against movements in government bond yields
(including providing protection against changes to future inflation expectations) for an amount equal to approximately 100% of the liabilities
valued on the ‘Long Term Objective’. In the US, the bond mandates provide an interest rate hedge of approximately 100% of the liabilities
for funded plans.
In addition, the IAS 19 defined benefit obligation is linked to yields on AA-rated corporate bonds; however some of the Group’s
arrangements invest in a number of other assets which will move in a different manner from these bonds. Therefore, changes in market
conditions may lead to volatility in the net pension liability on the Group’s balance sheet and in other comprehensive income, and to
The Group operates various share option programmes that allow Group employees to acquire shares in the Company. During 2022,
awards were made to executives and senior employees under the Morgan Advanced Materials plc Long-Term Incentive Plan (LTIP),
the Morgan Advanced Materials plc Deferred Bonus Plan (DBP) and the Morgan Advanced Materials plc Restricted Stock Units (RSU).
The Company also maintains a UK all-employee Sharesave scheme (Sharesave). Further details can be found in the Remuneration Report
on pages 90–116.
The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity,
over the period that the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to
reflect the actual number of share options for which the related service and non-market vesting conditions are met.
The charge expensed to the income statement in 2022 was £5.7 million (2021: £4.5 million).
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Notes to the consolidated financial statements
continued
The following options and awards were outstanding at 31 December 2022 in respect of Ordinary shares:
Employees
entitled
Vesting conditions
Exercise/award
price(s)
Number
of shares
outstanding
Exercise dates ranging
from
to
LTIP
Senior
employees
Continued employment
plus satisfaction of
performance metrics
–
4,585,134
1 January 2023
30 May 2025
Sharesave
All UK
employees
Continued employment
181.00p-321.00p
1,053,084
1 December 2022
1 June 2026
DBP
Senior
employees
Continued employment
–
513,137
18 March 2022
21 March 2025
RSU
Select
employees
Continued employment
–
1,366,351
21 May 2023
30 May 2025
The numbers and weighted average exercise prices of share options are as follows:
2022
2021
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
Number of
options
Outstanding at the beginning of the period
26.44p
8,174,265
28.68p
8,532,753
Granted during the period
23.24p
2,985,494
11.58p
2,654,176
Forfeited during the period
39.31p
(158,602)
25.37p
(659,714)
Exercised during the period
39.31p
(1,280,013)
31.21p
(1,081,782)
Lapsed during the period
0.71p
(2,203,438)
6.92p
(1,271,168)
Outstanding at the end of the period
28.30p
7,517,706
26.44p
8,174,265
Exercisable at the end of the period
182.49p
138,258
90.14p
115,153
The weighted average share price at the date of exercise during the period was 293.19 pence (2021: 328.64 pence).
The DBP is an award of deferred shares which include the accumulated value of any dividends which fall during the period from the date of
grant to the vesting date. The RSU is an award of shares, which are released in tranches to the participant over a specified period of time
with no performance conditions except continued employment by the Group. As such, the grant-date fair value of the DBP and RSU are
equal to the share price at the date of grant.
Awards made in 2022
LTIP
Sharesave
DBP
RSU
Share price at award date
294.50p-
317.50p
234.50p
318.00p
294.50p-
317.50p
Exercise price
n/a
210.00p
n/a
n/a
Fair value at measurement date
101.00p-
260.00p
48.00p
318.00p
294.50p-
317.50p
Fair value measurement method
Actuarial
binomial
model
Modified
binomial
model
n/a
n/a
Fair value model inputs:
Expected volatility (expressed as weighted average volatility
used in the model)
30%
35%
Option life (expressed as weighted average life used in
the model)
3.0 years
3.3 years
Expected dividends
3.2%-3.5%
4.2%
Risk-free interest rate
1.3%-1.5%
4.0%
The expected volatility is based on the historical volatility (calculated based on the weighted average remaining life of the share options)
adjusted for any expected changes to future volatility due to publicly available information.
The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted.
Closure and
restructuring
provisions
£m
Legal and
other
provisions
£m
Environmental
provisions
£m
Total
£m
Balance at 1 January 2022
11.8
10.0
7.8
29.6
Provisions made during the year
1.3
0.2
1.1
2.6
Provisions used during the year
(3.2)
(1.7)
(1.3)
(6.2)
Provisions reversed during the year
(0.6)
(0.6)
(0.5)
(1.7)
Effect of movements in foreign exchange
1.2
0.2
0.3
1.7
Balance at 31 December 2022
10.5
8.1
7.4
26.0
Current
2.5
3.5
3.9
9.9
Non-current
8.0
4.6
3.5
16.1
10.5
8.1
7.4
26.0
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 were closed during 2021. The cash outflows relating to the pension obligations
may continue for up to 19 years, subject to any settlement being reached in advance of that date. Cash outflows in relation to the lease
may continue for the next four years.
Legal and other provisions
Legal and other provisions mainly comprise amounts provided against open legal and contractual disputes arising in the normal course of
business and long-service costs. Provisions are made for the expected costs associated with such matters, based on past experience of
similar items and other known factors, taking into account professional advice received, and represent management’s best estimate 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.
Where obligations are not capable of being reliably estimated, or if a material outflow of economic resources is considered remote, it is
classified as a contingent liability. The Group is of the opinion that any associated claims that might be brought can be defeated successfully
and, therefore, the possibility of any material outflow in settlement is assessed as remote.
Subsidiary undertakings within the Group have given unsecured guarantees of £10.2 million (2021: £10.5 million) in the ordinary course
of business.
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.
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Annual Report 2022
Environmental contingent liabilities
The Group is subject to local health, safety and environmental laws and regulations concerning its manufacturing operations around the
world. These laws and regulations may require the Group to take future action to remediate the impact of historical manufacturing
processes on the environment or lead to other economic outflows. Such contingencies may exist for various sites which the Group
currently operates or has operated in the past. There is a contingent liability arising from the as yet unknown environmental issues at
the site referred to above, pending the completion of the feasibility study.
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.
In 2022, commitments for property, plant and equipment and computer software expenditure for which no provision has been made in
Identification of related parties
The Group has related party relationships with its subsidiaries (a list of all related undertakings and associates is shown in note 43),
and with its Directors, executive officers and their close family members.
The Company has written service contracts or letters of appointment with each of its Directors, under which the Directors receive
a salary or a fee and other emoluments.
The key management of the Group and Parent Company consists of the Board of Directors (including non-executive Directors) and
members of the Executive Committee.
The compensation for the executive and non-executive Directors and members of the Executive Committee charged in the year was:
2022
£m
2021
£m
Short-term employee benefits
4.8
7.5
Employer national insurance contributions
1.0
0.4
Pension and other post-employment costs
0.3
0.3
Share-based payment expense
1
1.9
1.7
Termination payments
0.1
–
Non-executive Directors’ fees and benefits
0.5
0.5
Total compensation of key management personnel
8.6
10.4
1.
Share-based payment expense represents the net IFRS 2 share-based payment (credit)/charge to the consolidated income statement in the year for the members of the Executive
Committee. In 2022, due to changes in assumptions in non-market-based performance conditions, a net credit of £0.1 million was recognised in the consolidated income statement
Other related party transactions
On 28 April 2021, the Group completed the sale of its investment in associate, as detailed in note 2. In 2022, there was £nil sales to
(2021: £nil) and £nil purchases from (2021: £0.6 million) the associate. As at 31 December 2022, trade receivables due from the associate
Notes to the consolidated financial statements
continued
Morgan experienced a cyber security incident in January 2023, having detected unauthorised activity on the network. Immediate steps
were taken to contain the incident, launch incident response plans, engage specialist support services and embark on restoring systems.
All manufacturing sites are operational, although some continue to use manual processes as work continues to restore their systems.
This has been treated as a non-adjusting post balance sheet event and there has been no impact on the financial results reported for the
year ended 31 December 2022.
We expect to incur around £15 million of system recovery and specialist support costs, including IT asset impairment charges of
£0.7 million. These charges will be presented separately as specific adjusting items in the consolidated income statement for the year
ending 31 December 2023. At the date of signing, and following consultation with our advisors, we also have a non-adjusting post balance
sheet contingent liability relating to potential enforcement action or civil claims pending the completion of our investigation into what
186
–
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Annual Report 2022
Note
2022
£m
2021
£m
Non-current assets
Intangible assets
30
1.1
2.6
Property, plant and equipment
31
3.7
3.4
Right-of-use assets
32
0.9
0.8
Investments in subsidiary undertakings
33
757.8
718.2
Debtors – amounts due after more than one year
34
139.0
218.0
Employee benefits: pensions
38
6.4
–
908.9
943.0
Current assets
Debtors – amounts due within one year
34
159.1
22.9
Cash and cash equivalents
7.2
19.4
166.3
42.3
Current liabilities
Creditors – amounts falling due within one year
35
122.4
68.6
Provisions
39
2.2
–
124.6
68.6
Net current assets/(liabilities)
41.7
(26.3)
Total assets less current liabilities
950.6
916.7
Non-current liabilities
Creditors – amounts falling due after more than one year
36
270.6
202.7
Employee benefits: pensions
38
–
15.0
Provisions
39
3.0
5.1
273.6
222.8
Net assets
677.0
693.9
Capital and reserves
Equity shareholders’ funds
Share capital
40
71.3
71.3
Share premium
111.7
111.7
Merger reserve
17.0
17.0
Capital redemption reserve
35.7
35.7
Retained earnings
441.3
458.2
Shareholders’ funds
677.0
693.9
Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own income statement.
During 2022, the Company recognised a profit of £13.6 million (2021: £122.6 million).
The financial statements were approved by the Board of Directors on 27 April 2023 and were signed on its behalf by:
Pete Raby
Richard Armitage
Chief Executive Officer
Chief Financial Officer
Company balance sheet
AS AT 31 DECEMBER 2022
Financial statements
187
Called-up
share capital
£m
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Profit and
loss account
£m
Total
equity
£m
Balance at 1 January 2021
71.3
111.7
17.0
35.7
341.0
576.7
Total comprehensive income
for the year:
Profit for the year
–
–
–
–
122.6
122.6
Other comprehensive income
–
–
–
–
14.8
14.8
Transactions with owners:
Dividends
–
–
–
–
(19.1)
(19.1)
Equity-settled share-based
payment transactions
–
–
–
–
4.5
4.5
Own shares acquired for share
incentive schemes (net)
–
–
–
–
(5.6)
(5.6)
Balance at 31 December 2021
71.3
111.7
17.0
35.7
458.2
693.9
Balance at 1 January 2022
71.3
111.7
17.0
35.7
458.2
693.9
Total comprehensive income
for the year:
Profit for the year
–
–
–
–
13.6
13.6
Other comprehensive income
–
–
–
–
(2.5)
(2.5)
Transactions with owners:
Dividends
–
–
–
–
(31.6)
(31.6)
Equity-settled share-based
payment transactions
–
–
–
–
6.0
6.0
Own shares acquired for share
incentive schemes (net)
–
–
–
–
(2.4)
(2.4)
Balance at 31 December 2022
71.3
111.7
17.0
35.7
441.3
677.0
Company statement of changes in equity
FOR THE YEAR ENDED 31 DECEMBER 2022
188
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Annual Report 2022
Notes to the Company balance sheet
28. Accounting policies
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’)
and the Companies Act 2006.
The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the
definition of a qualifying entity under FRS 100 Application of Financial Reporting Requirements issued by the FRC. Accordingly, these
financial statements are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
a cash flow statement and related notes
comparative period reconciliations for share capital, tangible fixed assets and intangible assets
transactions with wholly-owned subsidiaries
the effects of new but not yet effective IFRS
the compensation of key management personnel; and
capital management.
As the consolidated financial statements of Morgan Advanced Materials plc include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
IFRS 2 Share-Based Payments in respect of Group-settled share-based payments; and
the disclosures required by IFRS 7 Financial Instruments Disclosures.
The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next financial statements.
Under Section 408(4) of the Companies Act 2006 the Company is exempt from the requirement to present its own income statement
or statement of comprehensive income.
The Company’s financial statements are presented in its functional currency, pounds sterling, generally rounded to the nearest million.
The Company’s financial statements are prepared on a going concern basis as set out in note 1 the consolidated financial statements of
the Group.
The accounting policies set out below have, unless otherwise stated, been applied consistently to the period presented in these
Measurement convention
The financial statements are prepared on the historical cost basis except for certain financial instruments that are measured at fair value.
Foreign currency
Transactions in foreign currencies are translated to the Company’s functional currency at the foreign exchange rate ruling at the date of
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional
currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income
statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair
value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined.
Intangible assets
Intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and less accumulated impairment losses.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such
lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance
sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
Software: 3-7 years
Financial statements
189
28. Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of tangible
fixed assets. Land is not depreciated. The estimated useful lives are as follows:
Plant, equipment and fixtures: 3-20 years
Buildings:
50 years
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Leasing
The Company assesses whether a contract is or contains a lease at inception of the contract. The Company recognises a right-of-use
asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee.
The lease liability is initially measured at the present value of future lease payments including adjustments for any lease incentives
receivable. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally
the case of leases in the company, the lessee’s incremental borrowing rate is used, being the rate the individual lessee would have to pay
to borrow the funds necessary to obtain an asset of similar value on similar terms.
The right-of-use-assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement date, less any lease incentives received and initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of the lease term and useful life of the underlying asset. The depreciation starts
at the commencement date of the lease.
Investments in subsidiaries
Investments in subsidiaries are carried at cost less provision for impairment. The Company tests the investment balances for impairment
annually or when there are indicators of impairment. If any such indication of impairment exists, the Company makes an estimate of its
recoverable amount. Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired
and is written down to its recoverable amount. Where these circumstances have reversed, the impairment previously made is reversed to
the extent of the original cost of the investment.
Financial instruments
Financial instruments and financial liabilities are recognised in the Company balance sheet when the Company becomes party to the
contractual provisions of the instrument.
Classification of financial instruments issued by the Company
Financial instruments issued by the Company are treated as equity only to the extent that they meet the following two conditions:
a)
they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets
or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and
b)
where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the
Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called-up share capital and
share premium account exclude amounts in relation to those shares.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other debtors, cash and cash
equivalents, loans and borrowings, and trade and other creditors.
Trade and other debtors
Trade and other debtors are recorded initially at transaction price and subsequently measured at amortised cost. This results in their
recognition at nominal value less an allowance for any doubtful debts. The allowance for doubtful debts is recognised based on
management’s expectation of losses without regard to whether an impairment trigger happened or not (an ‘expected credit loss’
(ECL) model). The Group measures the loss allowance for trade receivables at an amount equal to lifetime ECL.
190
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Annual Report 2022
28. Accounting policies (continued)
Trade and other creditors
Trade and other creditors are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost
using the effective interest method. The Directors consider that the carrying amount of trade payables approximates to their fair value.
Interest-bearing borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value of the consideration received, net of direct issue costs.
They are subsequently held at amortised cost using the effective interest method. Finance charges, including premiums payable on
settlement or redemption and direct issue costs, are accounted for using an effective interest rate method and are added to or deducted
from the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Impairment of financial assets
The Company recognises provisions for expected credit losses (ECLs) on financial assets measured at amortised cost. The amount of
expected credit losses is updated at each reporting date to reflect changes in credit risk with lifetime ECL recognised when there has been
a significant increase in credit risk since initial recognition. Life ECL represents the expected credit losses that will result from all possible
defaults over the expected life of the financial instrument.
To assess whether the credit risk has increased significantly since initial recognition the Company compares the risk of default occurring
at the reporting date with the risk of default at the date of initial recognition. The Company utilises both quantitative and qualitative
information to support this assessment, including historical experience and forward-looking information.
The Company considered amounts due from Group undertakings to be in default when the borrower is unlikely to pay its credit
obligations to the Company in full. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on
the estimated future cash flows of the financial asset have occurred.
Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately
in profit or loss. The Group enters into derivative financial instruments to manage its exposure to foreign exchange rate risks including
non-designated foreign exchange forward contracts as detailed in note 45.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a
financial liability. Derivatives are not offset in the financial statements unless the Group has both a legally enforceable right and intention
to offset. The impact of the Master Netting Agreements on the Group’s financial position is disclosed in note 22. A derivative is presented
as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not due to be
realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the Company pays fixed contributions into a separate entity
and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans
are recognised as an expense in the income statement in the periods during which services are rendered by employees.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect
of defined benefit pension plans and other post-employment benefits is calculated separately for each plan by estimating the amount
of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value, and the fair value of any plan assets (at bid price) and any unrecognised past service costs are deducted.
The liability discount rate is the yield at the balance sheet date on AA-credit-rated bonds denominated in the currency of, and having
maturity dates approximating to the terms of the Company’s obligations. The calculation is performed by a qualified actuary using the
projected unit credit method. When the calculation results in a benefit to the Company, the recognised asset is limited to the total of any
unrecognised past service costs and the present value of benefits available in the form of any future refunds from the plan, reductions in
future contributions to the plan or on settlement of the plan and takes into account the adverse effect of any minimum funding requirements.
Actuarial gains and losses that have arisen since the adoption of FRS 101 are recognised in the period that they occur directly into equity
through the statement of comprehensive income.
The Company is the sponsoring and principal employer of two UK defined benefit pension schemes, the Morgan Pension Scheme and the
Morgan Group Senior Staff Pension and Life Assurance Scheme (‘the UK Schemes’). The Company also guarantees certain obligations and
liabilities to the employees that currently participate in the two UK Schemes. During 2016, the Company adopted a new policy to allocate
costs associated with the UK pension schemes between itself, as Principal Employer, and the various Participating Employers, based on an
evaluation of each entity’s share of overall Scheme liabilities. This ensures that the pension liability is reflected in the entity that employed
the participant. Previously all of the Scheme assets and liabilities were recognised on the balance sheet of the Company only. Further
details are provided in note 38.
Notes to the Company balance sheet
continued
Financial statements
191
28. Accounting policies (continued)
Share-based payment transactions
Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are
accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company.
The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with
a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. Share-based
payment charges and credits relating to awards granted to employees of subsidiaries are recharged to those subsidiaries with a
corresponding entry in the Company’s income statement. The fair value of the awards granted is measured using an option valuation
model, taking into account the terms and conditions upon which the awards were granted. The amount recognised as an expense is
adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met,
such that the amount ultimately recognised as an expense is based on the number of awards that do not meet the related service and
non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair
value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and
actual outcomes.
Share-based payment transactions in which the Company receives goods or services by incurring a liability to transfer cash or other assets
that is based on the price of the Company’s equity instruments are accounted for as cash-settled share-based payments. The fair value of
the amount payable to employees is recognised as an expense, with a corresponding increase in liabilities, over the period in which the
employees become unconditionally entitled to payment. The liability is remeasured at each balance sheet date and at settlement date.
Any changes in the fair value of the liability are recognised as personnel expense in profit or loss.
Disclosure of the share-based payment transactions can be found in note 23 to the Group financial statements.
Own shares held by the Morgan General Employee Benefit Trust
Transactions of the Group-sponsored Morgan General Employee Benefit Trust are treated as being those of the Company and are
therefore reflected in the Company’s financial statements. In particular, the Trust’s purchases and sales of shares in the Company are
debited and credited to equity.
Provisions
A provision is recognised in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event
that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability where the effect of
discounting is expected to be material.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent
that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or
other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill;
the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and
differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount
of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised.
Dividends on shares presented within shareholders’ funds
Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately approved
and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the
financial statements.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the
Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee
contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the
192
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Morgan Advanced Materials plc
Annual Report 2022
28. Accounting policies (continued)
Use of judgements and estimates
In preparing these financial statements, management has made judgements, estimates, and assumptions that affect the application of the
Company’s accounting policies and the reported amount of assets, liabilities, income and expenses.
In addition to the areas of judgement and estimates outlined in note 1 to the consolidated Group financial statements, the Company
also identifies the assumptions required in investments impairment assessments as a source of significant risk of resulting in a material
adjustment to the asset carrying values of the Company. Assessment of impairment relies on the use of estimates of the future profitability
in a multiple-based valuation which may differ from the actual results achieved. Due to global economic uncertainty, there is an increased
level of risk and therefore a key source of estimate uncertainty in these assumptions, see note 33 for sensitivity analysis.
29. Staff numbers and costs
The monthly average number of persons employed by the Company (including Directors) during the year was as follows:
Number of employees
2022
2021
Directors and corporate staff
69
58
Full details of the Directors’ remuneration for the period can be found in the Remuneration Report on pages 90–116.
Aggregate employee-related costs were as follows:
Note
2022
£m
2021
£m
Wages and salaries
9.0
11.3
Equity-settled share-based payments
23
5.1
4.5
Social security costs
1.6
1.5
Other pension costs
0.7
0.6
16.4
17.9
In 2022, £2.2 million (2021: £0.7 million) of the equity-settled share-based payments amount was recharged to other Morgan Group companies.
30. Intangible assets
Software
£m
Cost
Balance at 1 January 2022
10.3
Additions – externally purchased
0.2
Disposals
–
Balance at 31 December 2022
10.5
Amortisation
Balance at 1 January 2022
7.7
Amortisation for the year
1.7
Disposals
–
Balance at 31 December 2022
9.4
Carrying amounts
At 31 December 2021
2.6
At 31 December 2022
1.1
Notes to the Company balance sheet
continued
Financial statements
193
31. Property, plant and equipment
Plant,
equipment
and fixtures
£m
Land and
buildings
£m
Total
£m
Cost
Balance at 1 January 2022
1.3
6.5
7.8
Additions
0.9
–
0.9
Disposals
(0.1)
–
(0.1)
Balance at 31 December 2022
2.1
6.5
8.6
Depreciation and impairment losses
Balance at 1 January 2022
0.6
3.8
4.4
Depreciation charge for the year
0.5
–
0.5
Disposals
–
–
–
Balance at 31 December 2022
1.1
3.8
4.9
Carrying value
At 31 December 2021
0.7
2.7
3.4
At 31 December 2022
1.0
2.7
3.7
32. Leasing
The reconciliation in the movement of the carrying value of right-of-use assets is set out in the table below:
Plant and
equipment
£m
Land and
buildings
£m
Total
£m
Balance at 1 January 2022
0.2
0.6
0.8
Additions
0.5
–
0.5
Depreciation charge for the year
(0.3)
(0.1)
(0.4)
Balance at 31 December 2022
0.4
0.5
0.9
The Company leases several assets including buildings and IT equipment. The average lease term at 31 December 2022 is 1.9 years
(2021: 2.1 years).
At 31 December 2022, the Company has not applied any exemptions for short-term leases or leases of low value assets.
194
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Morgan Advanced Materials plc
Annual Report 2022
33. Investment in subsidiary undertakings
Shares
in Group
undertakings
£m
Loans
£m
Total
£m
Cost
Balance at 1 January 2022
449.4
353.8
803.2
Reclassification
–
1.0
1.0
Loans advanced
–
18.0
18.0
Loan repayments
–
–
–
Effect of movement in foreign exchange
–
21.8
21.8
Balance at 31 December 2022
449.4
394.6
844.0
Provisions
Balance at 1 January 2022
20.8
64.2
85.0
Provided in the year
1.0
–
1.0
Reversal of impairment
(0.2)
(0.2)
(0.4)
Disposals
–
–
–
Effect of movement in foreign exchange
–
0.6
0.6
Balance at 31 December 2022
21.6
64.6
86.2
Carrying amounts
At 31 December 2021
428.6
289.6
718.2
At 31 December 2022
427.8
330.0
757.8
In December, management conducted a review of the Company’s investment in subsidiary undertakings. Following this review
management identified impairment losses of £1.0 million (2021: £nil) and the reversal of impairment losses of £0.2 million
(2021: £118.9 million) against a number of shares in Group undertakings. In addition, management identified no impairment losses
(2021: £nil) and no reversal of impairment losses (2021: £0.7 million) against loans.
The impairment assessment of shares in Group undertakings uses the 2022 results in an EBITDA
*
multiple valuation, which is sensitive
to changes in the principal assumptions. A 2% increase in either EBITDA
*
or the multiple would increase the carrying value of the share
in Group undertakings by £3.7 million at 31 December 2022. A 2% decrease would decrease the carrying value by £4.3 million.
Management considers these changes in assumptions to be reasonably possible.
Note 43 to the financial statements gives details of the Company’s fixed asset investments.
Notes to the Company balance sheet
continued
Financial statements
195
34. Debtors
Note
2022
£m
2021
£m
Due within one year
Amounts owed by Group undertakings
152.8
19.1
Other debtors
2.2
1.3
Derivative financial assets
44
2.0
1.0
Prepayments
2.1
1.5
159.1
22.9
Due after more than one year
Derivative financial assets
44
–
8.2
Amounts owed by Group undertakings
139.0
209.8
139.0
218.0
35. Creditors: amounts falling due within one year
Note
2022
£m
2021
£m
Bank overdrafts
37
1.6
0.2
Borrowings
37
34.5
–
Lease liabilities
0.5
0.4
Trade creditors
2.6
2.9
Amounts owed to Group undertakings
69.1
53.3
Other creditors
–
0.1
Accruals
7.5
10.8
Derivative financial liabilities
44
6.4
0.9
122.4
68.6
36. Creditors: amounts falling due after more than one year
Note
2022
£m
2021
£m
Amounts owed to Group undertakings
33.5
25.4
Borrowings
37
229.6
173.6
Lease liabilities
0.3
0.4
Derivative financial liabilities
44
7.2
2.7
Other creditors
–
0.6
270.6
202.7
196
–
Morgan Advanced Materials plc
Annual Report 2022
37. Borrowings and lease liabilities
Terms and debt repayment schedule
31 December 2022
31 December 2021
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
(22.1)
–
(21.6)
(21.6)
(21.0)
–
(21.1)
(21.1)
3.17% US Dollar
Senior Notes 2023
(12.4)
–
(12.1)
(12.1)
(11.1)
–
(11.3)
(11.3)
1.55% Euro
Senior Notes 2026
(22.2)
–
(20.1)
(20.1)
(21.1)
–
(21.4)
(21.4)
3.37% US Dollar
Senior Notes 2026
(80.6)
–
(73.5)
(73.5)
(72.2)
–
(72.8)
(72.8)
1.74% Euro
Senior Notes 2028
(8.9)
–
(7.7)
(7.7)
(8.4)
–
(8.6)
(8.6)
2.89% Euro
Senior Notes 2030
(22.1)
–
(19.0)
(19.0)
(21.0)
–
(22.1)
(22.1)
4.87% US Dollar
Senior Notes 2026
(21.1)
–
(20.2)
(20.2)
(18.8)
–
(20.6)
(20.6)
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)
(189.8)
–
(174.6)
(174.6)
(174.0)
–
(178.3)
(178.3)
Derivative financial assets
held at fair value
1.3
–
1.3
1.3
0.6
–
0.6
0.6
1.3
–
1.3
1.3
0.6
–
0.6
0.6
Derivative financial liabilities
held at fair value
(1.6)
–
(1.6)
(1.6)
(0.6)
–
(0.6)
(0.6)
In 2022, no borrowings were secured on the assets of the Company (2021: £nil).
Notes to the Company balance sheet
continued
Financial statements
197
38. Employee benefits: pensions
Defined benefit plans
The Company participates in two defined benefit pension schemes, the Morgan Pension Scheme and the Morgan Group Senior Staff
Pension and Life Assurance Scheme (‘the Schemes’). The Schemes were closed to new entrants on 1 August 2011, with any new
employees receiving benefits through the Morgan Group Personal Pension Plan, a defined contribution arrangement. The Morgan
Group Senior Staff Pension and Life Assurance Scheme was closed to the future accrual of benefits on and with effect from 6 April 2016.
The Morgan Pension Scheme was closed to the future accrual of benefits on and with effect from 6 April 2018. Current employees,
including those who were active in the Schemes at closure, were auto-enrolled into the Morgan Group Personal Pension Plan for their
future pension benefits.
2022
£m
2021
£m
Pension plans and employee benefits
Present value of funded defined benefit obligations
(118.9)
(175.9)
Fair value of plan assets
125.3
160.9
Net obligations
6.4
(15.0)
Movements in present value of defined benefit obligation
At 1 January
(175.9)
(195.5)
Interest cost
(3.5)
(2.4)
Remeasurement (losses)/gains:
Changes in financial assumptions
57.0
14.3
Changes in demographic assumptions
0.9
1.9
Experience adjustments on benefit obligations
(6.1)
(1.6)
Benefits paid
8.7
7.4
Net past service credit
–
–
At 31 December
(118.9)
(175.9)
Movements in fair value of plan assets
At 1 January
160.9
160.7
Interest on plan assets
3.1
2.0
Remeasurement (losses)/gains
(54.3)
0.1
Contributions by employer
24.3
5.5
Benefits paid
(8.7)
(7.4)
At 31 December
125.3
160.9
Actual return on assets
(51.2)
2.1
Expense recognised in the income statement
2022
£m
2021
£m
Net past service credit
–
–
Administrative expenses (including administration expenses incurred by the Company directly)
(1.2)
(0.9)
Net interest on net defined benefit liability
(0.4)
(0.4)
Total expense recognised in the income statement
(1.6)
(1.3)
The fair values of the plan assets were as follows:
2022
£m
2021
£m
Equities and growth assets
59.8
43.6
Bonds
17.9
56.2
Matching insurance policies
44.9
60.1
Other
2.7
1.0
Total
125.3
160.9
198
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Morgan Advanced Materials plc
Annual Report 2022
38. Employee benefits: pensions (continued)
The assumptions used are best estimate assumptions chosen from a range of possible actuarial assumptions which may not be borne
out in practice. The principal assumptions are the discount rate and inflation assumptions which are long-term and measured on external
factors, based upon each plan’s duration. In addition to these, the mortality assumption in the UK is material to the cost of the promised
benefits. The assumed increases in salaries and pensions in payment are derived from assumed future inflation.
Principal actuarial assumptions at the year end were as follows:
Assumptions:
2022
%
2021
%
Inflation (RPI/CPI)
3.26/2.47
3.40/2.61
Discount rate
4.81
1.92
Pensions increase
3.00/3.11/3.70
3.00/3.22/3.75
Salary increase
n/a
n/a
Mortality – post-retirement:
Life expectancy of a male aged 60 in accounting year (years)
25.8
26.0
Life expectancy of a male aged 60 in accounting year + 20 (years)
27.2
27.4
Funding
The most recent full actuarial valuations of the UK Schemes were undertaken as at 31 March 2022 and resulted in combined assessed
deficits of £49.7 million on the ‘Technical Provisions’ basis. The Company subsequently agreed with the Trustees to make a lump sum
contribution to the Schemes of £67.0 million on 29 December 2022 in lieu of the remaining contributions that would otherwise have
been due under the existing recovery plans from the 31 March 2019 valuations. The sum paid represented the value of the deficit on the
more prudent ‘Long Term Objective’ basis on the date of that agreement, 25 October 2022. As a result, no further contributions to the
Schemes are expected to be required pending the results of the next full valuations as at 31 March 2025.
Sensitivity analysis
The sensitivities of the Company’s net balance sheet to the principal assumptions are:
Change in assumption
2022 Increase
effect
£m
2021 Increase
effect
£m
Discount rate
Decrease by 0.1%
1.0
2.1
Inflation
Increase by 0.1%
0.4
0.8
Mortality – post-retirement
Pensioners live 1 year longer
2.5
5.1
These sensitivities have been calculated to show the movement in the net balance sheet in isolation, and assuming no other changes in
market conditions at the accounting date (except where a fully matching insurance policy is held where this asset is assumed to change in
value to match the change in obligations). This is unlikely in practice, for example, a change in discount rate is unlikely to occur without
any movement in the value of the assets held by the Company’s schemes.
Defined contribution plans
The Group operates a defined contribution pension plan (‘the Morgan Group Personal Pension Plan’). The total Company expense
relating to this plan in 2022 was £0.7 million (2021: £0.6 million).
39. Provisions and contingent liabilities
Dilapidation
provisions
£m
Other
provisions
£m
Total
£m
Balance at 1 January 2022
0.1
5.0
5.1
Provisions made during the year
–
1.5
1.5
Provisions used during the year
–
(1.4)
(1.4)
Effects of movement on foreign exchange
–
–
–
Balance at 31 December 2022
0.1
5.1
5.2
Current
0.1
2.1
2.2
Non-current
–
3.0
3.0
0.1
5.1
5.2
Other provisions relate to legal claims and environmental provisions and are based on the Company’s assessment of the probable cost of
these activities.
Notes to the Company balance sheet
continued
Financial statements
199
39. Provisions and contingent liabilities (continued)
Contingent liabilities and guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the
Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee
contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the
guarantee, at which point a liability would be recognised.
The Group has been subject to legal claims in a number of countries. In some cases it will not be possible to form a view, either because
the facts are unclear or because further time is needed to properly assess the merits of the case, and no provisions are held against such
cases. The Board, having taken legal advice, is of the opinion that the remainder of these actions will not have a material impact on the
Company’s financial position.
The Company participates in a cash pooling arrangement provided by Lloyds Bank plc with other UK Group companies. As part of that
pooling arrangement, the Company has provided a guarantee for any liabilities of the other participating companies to the bank, limited
to the lower of:
a) an amount equal to the base currency amount of the total liabilities in the cash pool; and
b) an amount equal to the base currency amount of such guarantor’s own net credit balance in the cash pool.
At the balance sheet date, the guaranteed amount was £0.1 million (2021: £0.1 million).
There are no other contingent liabilities in the Company as at 31 December 2022.
40. Share capital
Ordinary shares
In issue at beginning and end of the period
285,369,988
2022
£m
2021
£m
Allotted, called up and fully paid
Ordinary shares of 25 pence each
71.3
71.3
71.3
71.3
Additionally the Company has authorised, issued and fully paid 437,281 (2021: 437,281) cumulative Preference shares classified as
borrowings totalling £0.4 million (2021: £0.4 million). The Preference shares comprise 125,327 of 5.5% Cumulative First Preference
shares of £1 each and 311,954 issued 5.0% Cumulative Second Preference shares of £1 each.
Refer to note 19 for details of the rights to dividends, voting rights and return of capital relating to the Preference shares.
For proposed Ordinary dividends see the consolidated income statement on page 130.
41. Share premium and reserves
The merger reserve comprises the balance associated with the premium of shares issued during previous acquisitions. Further details on
share premium and reserves are given in note 19.
Apex Financial Services (Trust Company) Limited administer the Morgan General Employee Benefit Trust (‘the Trust’) in which shares are
held to satisfy awards granted under the Company’s share plans. The shares are distributed via discretionary settlement governed by the
rules of the Trust deed dated 1 March 1996 (as amended).
The total number of own shares held by the Trust at 31 December 2022 was 1,173,686 (2021: 1,360,098) and at that date had a market
value of £3.7 million (2021: £4.6 million).
In 2022, the amount of reserves of Morgan Advanced Materials plc that may be distributed under Section 831(4) of the Companies Act
2006 was £264.5 million (2021: £281.5 million). This comprises a portion of the profit and loss account.
200
–
Morgan Advanced Materials plc
Annual Report 2022
42. Related parties
The Company has related party relationships with its subsidiaries, its associate, its Directors and executive officers and their close family
members. The Company is exempt from providing information relating to these parties with the exception of transactions with entities
where the Company does not directly or indirectly own 100% of the shareholding, these are set out in the table below:
2022
£m
2021
£m
Transactions with subsidiaries
Income from management services
1.9
1.0
Net interest income
4.6
4.5
Dividend income
13.9
8.9
Loans owed by related parties
–
–
Loans owed to related parties
2.3
–
Other amounts owed by related parties
1.8
2.7
Other amounts owed to related parties
1.0
0.9
In accordance with Section 409 of the Companies Act 2006, a full list of related undertakings as at 31 December 2022 is disclosed
below. Related undertakings include subsidiary undertakings, all significant holdings (being 20% or more interest), associated undertakings,
joint ventures and qualifying partnerships. Unless otherwise stated the Group’s shareholding represents Ordinary shares held indirectly by
the Company.
Name of undertaking
Country of
incorporation
Registered office address
% shareholding
owned by
the Group
Carbo San Luis S.A.
11
Argentina
Talcahuano 736, 4th Floor, Buenos Aires, C1013AAP, Argentina
100.00%
Morgan Technical Ceramics
Australia Pty Ltd
Australia
4 Redwood Drive, Clayton, VIC 3168, Australia
100.00%
Morganite Australia Pty Ltd
12
Australia
30-36 Birralee Road, Regency Park, SA 5010, Australia
100.00%
Morgan Mechanical Carbon
Australasia Pty Ltd
1
Australia
Unit 4, 92-100 Belmore Road, Riverwood, NSW 2210, Australia
100.00%
Morganite Brasil Ltda
13
Brazil
Avenida do Taboão 3265, Taboão, São Bernardo do Campo,
São Paulo, CEP 09656-000, Brazil
100.00%
Morgan Advanced Materials
Canada Inc.
14
Canada
1185 Walkers Line, Burlington, ON L7M 1L1, Canada
100.00%
Carbo Chile S.A.
Chile
Avenida San Eugenio 12462, Sitio 3, Loteo Estrella del Sur,
Santiago, Chile
100.00%
Dalian Morgan Ceramics
Company Ltd
15
China
Zhenxing Road, Pulandian Economic Development Zone,
Dalian, Liaoning Province, China
100.00%
Morgan Guangzhou Trading
Company Limited
China
Room 204, No. 10, Dalang North Street, Huangpu District,
Guangzhou, China
100.00%
Morgan Haldenwanger Technical
Ceramics (Wuxi) Co. Ltd
15
China
Gongyuanxi Road, Ding Shu Zhen, Yixing, Jiangsu Province
214221, China
100.00%
Morgan Molten Metal Systems
(Suzhou) Co. Ltd
1,16
China
108 Tongsheng Road, Suzhou Industrial Park, Suzhou,
Jiangsu Province, 215126, China
100.00%
Morgan Technical Ceramics
(Suzhou) Co. Ltd
China
Room 09, 28th Floor (2809), 288 LongShan Road, Greenland
Kanhu Plaze, Suzhou New District, Suzhou, 215163, China
100.00%
Morgan Thermal Ceramics
(Shanghai) Co. Ltd
1,15
China
18 Kang An Road, Kang Qiao Industrial Zone, Pudong,
Shanghai 201315, China
100.00%
Morgan International Trading
(Shanghai) Co. Ltd
1,15
China
18 Kang An Road, Kang Qiao Industrial Zone, Pudong,
Shanghai 201315, China
100.00%
Shanghai Morgan Advanced Material
and Technology Co. Ltd
1,16
China
4250 Long Wu Road, Shanghai, 200241, China
100.00%
Jiangsu Morgan Ceramic Core
Technology Co. Ltd
13,25
China
2 Liye Road, Economic Development Zone, Wuxi, Jiangsu
Province, 214131, China
100.00%
Notes to the Company balance sheet
continued
Name of undertaking
Country of
incorporation
Registered office address
% shareholding
owned by
the Group
Morgan AM&T (Shanghai) Co. Ltd
5,13
China
4250 Long Wu Road, Shanghai, 200241, China
70.00%
Morgan Kailong (Jingmen) Thermal
Ceramics Co. Ltd
5,15
China
20-1 Quankou Road, Jingmen City, Hubei Province, 448032, China
70.00%
Dalian Morgan Refractories Ltd
5,15
China
No. 06 Xi’nan Road, Shahekou District, Dalian, Liaoning Province
116200, China
70.00%
Yixing Morgan Thermal Ceramics
Co. Ltd
6,15
China
2 Beidan Road, Taodu Industrial Park, Ding Shu Zhen, Yixing,
Jiangsu, 214222, China
51.00%
Thermal Ceramics de Colombia
9
Colombia
Calle 18 No. 23-31, Bodega 1, Guadalajara de Buga-Valle,
AA 5086, Colombia
100.00%
Morgan Carbon France S.A.S
France
6 rue du Réservoir, 68420 Eguisheim, France
100.00%
Thermal Ceramics de France S.A.S.U.
16
France
Centre de Vie BP 75, 3 rue du 18 Juin 1827,
42162 Andrézieux-Bouthéon, France
100.00%
Thermal Ceramics S.A.
10,16
France
Centre de Vie BP 75, 3 rue du 18 Juin 1827,
42162 Andrézieux-Bouthéon, France
100.00%
Morgan Advanced Materials
Haldenwanger GmbH
17
Germany
Teplitzerstraße 27, 84478 Waldkraiburg, Germany
100.00%
Morgan Electrical Carbon
Deutschland GmbH
Germany
Zeppelinstraße 26, 53424 Remagen, Germany
100.00%
Morgan Thermal Ceramics
Deutschland GmbH
Germany
Weidenbaumsweg 103, 21035, Hamburg, Germany
100.00%
Morgan Molten Metal Systems GmbH
Germany
Noltinastraße 29, 37297 Berkatal-Frankenhain, Germany
100.00%
Morgan Deutschland Holding GmbH
Germany
Zeppelinstraße 26, 53424 Remagen, Germany
100.00%
Porextherm Dämmstoffe GmbH
Germany
Heisingerstraße 8/10, 87437 Kempten (Allgäu), Germany
100.00%
Morgan Holding GmbH
Germany
Zeppelinstraße 26, 53424 Remagen, Germany
100.00%
The Morgan Crucible
Management GmbH
Germany
Zeppelinstraße 26, 53424 Remagen, Germany
100.00%
Wesgo Ceramics GmbH
Germany
Willi-Grasser-Straße 11, 91056 Erlangen, Germany
100.00%
Refractarios Nacionales S.A.
Guatemala
Km. 34.5, Ruta al Pacífico, Palín, Escuintla, Guatemala
100.00%
Morgan AM&T Hong Kong
Company Ltd
Hong Kong
Units 4-6, 11/F, Siu Wai Industrial Centre, 29-33 Wing Hong Street,
Cheung Sha Wan, Kowloon, Hong Kong
100.00%
Morgan Materials Hungary Limited
Liability Company
15
Hungary
Csillagvirág utca 7, 1106 Budapest, Hungary
100.00%
Morgan Advanced Materials India
Private Ltd
India
P-11, Pandav Nagar, Mayur Vihar Phase 1, Delhi, 110091, India
100.00%
Morganite Crucible (India) Ltd
India
B-11, MIDC Industrial Area, Waluj, Aurangabad, 431136,
Maharashtra, India
75.00%
Ciria India Limited
15
India
P-11, Pandav Nagar, Mayur Vihar Phase 1, Delhi, 110091 India
70.00%
Murugappa Morgan Thermal
Ceramics Ltd
6
India
PO Box 1570, Dare House Complex, Old No. 234/New No. 2,
NSC Bose Road, Chennai, 600001 India
51.00%
Thermal Ceramics Italiana S.R.L.
13
Italy
Via Vittori Pisani 20, 20124, Milan, Italy
100.00%
Morgan Carbon Italia S.R.L.
Italy
Via Vittori Pisani 20, 20124, Milan, Italy
100.00%
Morganite Carbon Kabushiki Kaisha
Japan
1-5, Isogamidori 7-chome, Chuo-ku, Kobe-shi, Hyogo, Japan
100.00%
Shin-Nippon Thermal
Ceramics Corporation
Japan
Portus Center Building 12F, 4-45-1 Ebisujimacho, Sakai-ku,
Sakai-shi, Osaka 590-0985, Japan
50.00%
Morgan Korea Company Ltd
4,18
Korea
27 Nongongjoongang-ro 46 gil, Nongong-eup, Dalseong-gun,
Daegu-si, Republic of Korea
93.19%
Morganite Luxembourg S.A.
Luxembourg
BP 15, Capellen, L-8301, Luxembourg
100.00%
Grafitos y Maquinados S.A. de C.V.
1,19
Mexico
Cerrada de la Paz No. 101, Col. Industrial La Paz,
Pachuca Hidalgo, Mexico
100.00%
202
–
Morgan Advanced Materials plc
Annual Report 2022
Name of undertaking
Country of
incorporation
Registered office address
% shareholding
owned by
the Group
Grupo Industrial Morgan
S.A. de C.V.
1,19
Mexico
Cerrada de la Paz No. 101, Fraccionamiento Industrial La Paz,
Mineral de la Reforma, 42181 Hidalgo, 42092, Mexico
100.00%
Morgan Technical Ceramics
S.A. de C.V.
19
Mexico
Av. Fulton No. 20, Fraccionamiento Industrial Valle de Oro,
San Juan del Rio, Queretaro C.P. 76802, Mexico
100.00%
Morgan Holding Netherlands B.V.
Netherlands
Oude Veiling 3, 1689 AA Zwaag, The Netherlands
100.00%
Morgan Terrassen B.V.
Netherlands
Oude Veiling 3, 1689 AA Zwaag, The Netherlands
100.00%
Morgan AM&T B.V.
Netherlands
Oude Veiling 3, 1689 AA Zwaag, The Netherlands
100.00%
Morgan Carbon Polska Sp.zoo
Poland
ul. Iskry 26, 01-472 Warszawa, Poland
100.00%
Thermal Ceramics Polska Sp.zoo
Poland
Towarowa 9, 44-100 Gliwice, Poland
100.00%
Morgan Ceramics Asia Pte Ltd
1
Singapore
150 Kampong Ampat, #05-06A, KA Centre, 368324, Singapore
100.00%
Morganite Ujantshi (Pty) Ltd
South Africa
149 South Rand Road, Tulisa Park, Johannesburg 2197, South Africa
74.90%
Thermal Ceramics South Africa
(Pty) Ltd
South Africa
149 South Rand Road, Tulisa Park, Johannesburg 2197, South Africa
100.00%
Morganite South Africa (Pty) Ltd
South Africa
149 South Rand Road, Tulisa Park, Johannesburg 2197, South Africa
100.00%
Thermal Ceramics España S.L.
Spain
Av. Europa, 106, 12006, Castellón, Spain
100.00%
Morganite Española S.A.
Spain
Av. Europa, 106, 12006, Castellón, Spain
100.00%
Morgan Matroc S.A. (in liquidation)
Spain
Roger de Lluria 104 5º-2ª, 08037 Barcelona, Spain
100.00%
Morgan Advanced Materials
(Taiwan) Co. Ltd
Taiwan
25 Hsin-Yeh Street, Hsiao Kang, Kaohsiung 81208, Taiwan
100.00%
Morganite Thermal Ceramics
(Taiwan) Ltd
Taiwan
c/o Baker & McKenzie, 15/f, 168 Tun Hwa North Road,
Taipei 105, Taiwan
88.00%
Morgan Holdings
(Thailand) Ltd
2
Thailand
22nd-25th Floor, 990 Abdulrahim Place, Rama IV Road, Khwaeng
Silom Sub-district, Bangrak District, Bangkok, 10500, Thailand
100.00%
Morgan Technical Ceramics
(Thailand) Ltd
2
Thailand
No. 958 On-nuch Road, Khwaeng Suanluang, Khet Suanluang,
Bangkok, 10250, Thailand
100.00%
MKGS Morgan Karbon Grafit
Sanayi Anonim Sirketi
Turkey
Osmangazi Mahallesi 2647, Sokak No. 27/3, Kıraç, Esenyurt,
Istanbul 34522, Turkey
100.00%
Morgan Advanced Materials
Industries Ltd
United Arab
Emirates
KHIA4–07A, Khalifa Industrial Zone Abu Dhabi (KIZAD),
Abu Dhabi, United Arab Emirates
100.00%
Certech International Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
MCCo Limited
7
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
MNA Finance Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morgan Electro Ceramics Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morgan Europe Holding Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morgan European Finance Limited
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morgan Finance Management Limited
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morgan Holdings Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morgan International
Holding Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morgan North America
Holding Limited
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Notes to the Company balance sheet
continued
Name of undertaking
Country of
incorporation
Registered office address
% shareholding
owned by
the Group
Morgan Technical Ceramics Limited
United
Kingdom
Morgan Advanced Materials – Technical Ceramics, Morgan Drive,
Stourport-on-Severn, Worcestershire DY13 8DW, UK
100.00%
Morgan Trans Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morganite Carbon Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morganite Crucible Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Morganite Electrical Carbon Limited
United
Kingdom
Upper Fforest Way, Morriston, Swansea, West Glamorgan,
SA6 8PP, UK
100.00%
Morganite Special Carbons Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Petty France Investment
Nominees Limited
1
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
TCG Guardian 1 Limited
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
TCG Guardian 2 Limited
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Terrassen Holdings Limited
8
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
The Morgan Crucible
Company Limited
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Thermal Ceramics Limited
7
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
100.00%
Thermal Ceramics UK Limited
United
Kingdom
Tebay Road, Bromborough, Wirral, CH62 3PH, UK
100.00%
Clearpower Ltd
3,20
United
Kingdom
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
99.01%
Certech, Inc.
22
United States
1 Park Place West, Wood-Ridge, New Jersey, 07075, USA
100.00%
Graphite Die Mold, Inc.
22
United States
18 Air Line Park, Durham, Connecticut 06422-1000, USA
100.00%
Morgan Advanced Ceramics, Inc.
22
United States
2425 Whipple Road, Hayward, California 94544, USA
100.00%
Morgan Advanced Materials and
Technology Inc.
22
United States
441 Hall Avenue, St Marys, Pennsylvania 15857, USA
100.00%
Morganite Crucible Inc.
23
United States
2102 Old Savannah Road, Augusta, Georgia 30906, USA
100.00%
Morganite Industries Inc.
24
United States
4000 West Chase Blvd, Suite 170, Raleigh,
North Carolina 27607, USA
100.00%
National Electrical Carbon
Products, Inc.
14
United States
PO Box 1056, 251 Forrester Drive, Greenville,
South Carolina 29602, USA
100.00%
Thermal Ceramics Inc.
22
United States
PO Box 923, 2102 Old Savannah Road, Augusta,
Georgia 30906, USA
100.00%
Thermal Ceramics de
Venezuela C.A.
15
Venezuela
Zona Ind. El Recreo, Av. 87 N°105-121, Flor Amarillo,
Valencia Edo. Carabobo, Venezuela
100.00%
1.
Directly owned by Morgan Advanced Materials plc.
2.
99.98% owned by Morgan Advanced Materials plc.
3.
99% owned by Morgan Advanced Materials plc.
4.
93.19% owned by Morgan Advanced Materials plc.
5.
70% owned by Morgan Advanced Materials plc.
6.
51% owned by Morgan Advanced Materials plc.
7.
50% owned by Morgan Advanced Materials plc.
8.
8.18% owned by Morgan Advanced Materials plc.
9.
4% owned by Morgan Advanced Materials plc.
10. 1.98% owned by Morgan Advanced Materials plc.
11.
Ownership held in Class A and Class B Common Stock.
12. Ownership held in Ordinary and Non-Cumulative Non-Participating Redeemable
Preference Shares.
13. Ownership held in Quotas.
14. Ownership held in Common Stock of no par value.
15. Ownership held in Registered Capital.
16. Ownership held in Ordinary Shares of no par value.
17. Ownership held in Partnership Shares.
18. Ownership held in Common and Preference Shares.
19. Ownership held in Series A and Series B.
20. Ownership held in Ordinary A, B and C and Preference A and B Shares.
21. Ownership held in Ordinary A and B Shares.
22. Ownership held in Common Stock.
23. Ownership held in Preferred Stock and no par Common Stock.
24. Ownership held in Class A, Class B and Class C Common Stock.
25. De-registered February 2023.
204
–
Morgan Advanced Materials plc
Annual Report 2022
UK incorporated subsidiaries which have taken exemption from audit per Section 479A of the Companies Act 2006 for the year ended
31 December 2022 are listed below.
Morgan Advanced Materials plc will guarantee the debts and liabilities of the companies claiming the statutory audit exemption at the
balance sheet date in accordance with Section 479C of the Companies Act 2006. The Company has assessed the probability of loss
under the guarantee as remote.
Name of undertaking
Registered
number
Clearpower Limited
06247523
MCCO Limited
03246886
MNA Finance Limited
10423297
Morgan Europe Holding Limited
02540399
Morgan European Finance Limited
09910922
Morgan Finance Management Limited
10423619
Morgan Holdings Limited
01956134
Morgan International Holding Limited
10677668
Morgan North America Holding Limited
08789720
Morgan Trans Limited
02557161
Morganite Carbon Limited
00679647
Morganite Crucible Limited
02133533
TCG Guardian 2 Limited
05564065
Terrassen Holdings Limited
01352995
The Morgan Crucible Company Limited
44. Derivative financial assets and liabilities
2022
£m
2021
£m
Derivative financial assets
Forward foreign exchange contracts non-designated
– amounts falling due within one year
2.0
1.0
– amounts falling due after more than one year
–
8.2
2.0
9.2
Derivative financial liabilities
Forward foreign exchange contracts non-designated
– amounts falling due within one year
(6.4)
(0.9)
– amounts falling due after more than one year
(7.2)
(2.7)
(13.6)
(3.6)
Fair values are measured using a hierarchy where the inputs are:
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).
The derivative financial assets and liabilities are all measured using Level 2 inputs. The fair value of forward foreign exchange contracts is
estimated by discounting the future cash flows using appropriate market-sourced data at the balance sheet date.
43. Fixed asset investments (continued)
Notes to the Company balance sheet
continued
Financial statements
205
2018
Results before
specific adjusting
items
restated
1,2
£m
2019
Results before
specific adjusting
items
restated
2
£m
2020
Results before
specific adjusting
items
£m
2021
Results before
specific adjusting
items
£m
2022
Results before
specific
adjusting items
£m
Revenue
1,033.9
1,049.5
910.7
950.5
1,112.1
Profit from operations before
amortisation of intangible assets
124.8
134.2
91.7
124.5
151.0
Amortisation of intangible assets
(8.0)
(8.1)
(6.1)
(6.0)
(4.7)
Operating profit
116.8
126.1
85.6
118.5
146.3
Net financing costs
(13.2)
(16.9)
(11.9)
(9.2)
(9.2)
Share of profit of associate (net of income tax)
0.8
0.5
0.6
0.4
–
Profit before taxation
104.4
109.7
74.3
109.7
137.1
Income tax expense
(29.0)
(29.9)
(20.2)
(29.7)
(37.1)
Profit after taxation before
discontinued operations
75.4
79.8
54.1
80.0
100.0
Discontinued operations
(1.4)
0.7
–
–
–
Profit for the period
74.0
80.5
54.1
80.0
100.0
Assets employed
Property, plant and equipment
314.5
317.2
267.6
248.1
283.2
Right-of-use assets
–
49.1
35.5
31.9
33.6
Intangible assets
215.6
204.8
185.4
183.1
189.0
Investments and other receivables
12.2
12.2
11.2
2.9
3.2
Deferred tax assets
6.9
6.0
14.4
15.9
15.3
Net current assets
106.8
125.1
136.7
202.8
212.6
Total assets less current liabilities
656.0
714.4
650.8
684.7
736.9
Employee benefits: pensions
190.4
156.8
176.3
102.7
15.6
Non-current provisions and other items
177.9
241.0
234.0
231.2
289.7
Deferred tax liabilities
11.0
4.9
0.5
1.2
2.0
276.7
311.7
240.0
349.6
429.6
Equity
Total equity attributable to equity holders
of the Parent Company
232.3
270.2
202.3
310.6
389.0
Non-controlling interests
44.4
41.5
37.7
39.0
40.6
Total equity
276.7
311.7
240.0
349.6
429.6
Ordinary dividends per share
3
11.0p
4.0p
5.5p
9.1p
12.0p
Earnings per share
Continuing and discontinued operations
Basic earnings/(loss) per share
16.2p
25.7p
(7.9)p
25.9p
31.0p
Diluted earnings/(loss) per share
16.1p
25.5p
(7.9)p
25.7p
30.7p
Adjusted earnings per share
4
26.7p
28.0p
19.0p
27.2p
33.8p
Diluted adjusted earnings per share
4
26.6p
27.8p
18.9p
27.0p
33.5p
1.
The Group disposed of the Composites and Defence Systems business in 2018, the disposal group formed the Composites and Defence Systems operating segment and has been
classified as a discontinued operation under IFRS 5.
2.
Figures for 2018-2019 have been restated to classify the Group’s cumulative Preference shares as borrowings.
3.
On 31 March 2020, the Group announced the Board’s decision to withdraw the proposed 2019 final dividend due to the financial uncertainty resulting from the COVID-19 pandemic.
4.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 206, reconciliations of the statutory results to the adjusted measures can be found on pages 57–59.
Group statistical information
UNDER ADOPTED IFRSs
206
–
Morgan Advanced Materials plc
Annual Report 2022
Cautionary statement
This document has been prepared for and only for the members of the Company as a body and no other persons. Its purpose is to assist
members in assessing how the Directors have performed their duties, the Company’s strategies and the potential for those strategies to
succeed and for no other purpose. Save as would otherwise arise under English law, the Company, its Directors, employees, agents or
advisors do not accept or assume responsibility or liability to any third parties to whom this document is shown or into whose hands it
may come and any such responsibility or liability is expressly disclaimed.
This document contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic
and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. These and
other factors could adversely affect the outcome and financial effects of the plans and events described. Forward-looking statements by
their nature involve a number of risks, uncertainties and assumptions because they relate to events and/or depend on circumstances that
may or may not occur in the future and could cause actual results and outcomes to differ materially from those expressed in or implied
by the forward-looking statements.
It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a wide range of such
variables. No assurances can be given that the forward-looking statements in this document will be realised. The forward-looking
statements reflect the knowledge and information available at the date this document was prepared and will not be updated during
the year but will be considered in the Annual Report for next year. Nothing in this document should be construed as a profit forecast.
Constant-currency
1
Constant-currency revenue and Group adjusted operating profit are derived by translating
the prior year results at current year average exchange rates.
Corporate costs
Corporate costs consist of the costs of the central head office.
Free cash flow before acquisitions,
disposals and dividends
1
Cash generated from continuing operations less net capital expenditure, net interest paid,
tax paid and lease payments.
Group earnings before interest,
tax, depreciation and
amortisation (EBITDA)
1
EBITDA is defined as operating profit before specific adjusting items, amortisation of
intangible assets and depreciation.
Group adjusted operating profit
1
Operating profit adjusted to exclude specific adjusting items and amortisation of
intangible assets.
Group organic
1
The Group results excluding acquisition, disposal and business exit impacts at
constant-currency.
Adjusted earnings
per share (EPS)
1
Adjusted earnings per share is defined as operating profit adjusted to exclude specific
adjusting items and amortisation of intangible assets, plus share of profit of associate less
net financing costs, income tax expense and non-controlling interests, divided by the
weighted average number of Ordinary shares during the period.
Net debt
1
Borrowings, bank overdrafts and lease liabilities less cash and cash equivalents.
Net cash and cash equivalents
1
Net cash and cash equivalents is defined as cash and cash equivalents less bank overdrafts.
Return on invested
capital (ROIC)
1
Group adjusted operating profit (operating profit excluding specific adjusting items and
amortisation of intangible assets) divided by the 12-month average adjusted net assets
(excludes long-term employee benefits, deferred tax assets and liabilities, current tax payable,
provisions, cash and cash equivalents, borrowings, bank overdrafts and lease liabilities).
Specific adjusting items
See note 6 and note 1 to the consolidated financial statements for further details.
Underlying
Reference to underlying reflects the trading results of the Group without the impact of specific
adjusting items and amortisation of intangible assets that would otherwise impact the users’
understanding of the Group’s performance. The Directors believe that adjusted results provide
additional useful information on the core operational performance of the Group, and review
the results of the Group on an adjusted basis internally.
1.
Reconciliations of these non-GAAP measures to GAAP measures can be found on pages 57–59.
Glossary of terms
Financial statements
207
Shareholder information
Analysis of Ordinary shareholdings as at 31 December 2022
Number of
holdings
% of total
holdings
Number of
shares
% of share
capital
Size of holding
1-2,000
3,472
74.59
1,862,128
0.65
2,001-5,000
559
12.01
1,790,817
0.63
5,001-10,000
193
4.15
1,358,937
0.48
10,001-50,000
202
4.34
4,381,254
1.54
50,001-100,000
57
1.22
4,107,516
1.44
100,001 and above
172
3.69
271,869,336
95.26
4,655
100.00
285,369,988
100.00
Holding classification
Individuals
4,158
89.32
6,806,939
2.39
Nominee companies
373
8.01
233,445,427
81.80
Trusts (pension funds etc)
4
0.09
30,519
0.01
Others
120
2.58
45,087,106
15.80
4,655
100.00
285,369,988
100.00
Key dates
29 June 2023
2023 Annual General Meeting (AGM), commencing at 10.30am.
28 July 2023
Half-year results announced via the Regulatory News Service and on the Company’s website.
2022 and 2023 dividend payment dates
1 April and 1 October 2022
Dividend payment dates in respect of the 5.5% Cumulative First Preference shares of £1 each
and the 5.0% Cumulative Second Preference shares of £1 each.
18 November 2022
An interim cash dividend of 5.3 pence per Ordinary share of 25 pence each was paid to
shareholders registered at the close of business on 28 October 2022.
3 July 2023
Subject to shareholders’ approval at the 2023 AGM, a final cash dividend of 6.7 pence per
Ordinary share of 25 pence each will be paid to shareholders registered at the close of business
on 9 June 2023.
1 October 2023
Dividend payment date in respect of the 5.5% Cumulative First Preference shares of £1 each
and the 5.0% Cumulative Second Preference shares of £1 each.
Other information
Capital gains tax
The market values of quoted shares and stocks at 31 March 1982 were:
Ordinary shares of 25 pence each: 122.5 pence
5.5% Cumulative First Preference shares of £1 each: 30.5 pence
5.0% Cumulative Second Preference shares of £1 each: 28.5 pence
For capital gains tax purposes, the cost of Ordinary shares is adjusted to take account of rights
issues. Any capital gains arising on disposal will also be adjusted to take account of indexation
allowances. Since the adjustments will depend on individual circumstances, shareholders are
recommended to consult their professional advisors.
Share price
The price can be obtained on the Company’s website: morganadvancedmaterials.com
ISIN Code
GB0006027295
LEI
I4K14LL95N2PHDL7EG85
Ticker symbol
MGAM
208
–
Morgan Advanced Materials plc
Annual Report 2022
Company details
Company
name
change
The Company changed its name to Morgan Advanced Materials plc (from The Morgan Crucible Company plc) on
27 March 2013. Following this change, share certificates issued in the name ‘The Morgan Crucible Company plc’ remain
valid (replacement share certificates in the name ‘Morgan Advanced Materials plc’ were not issued to existing shareholders).
Registered
office
Registered in England and Wales No. 286773 Telephone: +44 (0)1753 837000
morganadvancedmaterials.com
Website
The Company’s website provides information about the Group including the markets in which it operates, its strategy and
recent news from the Group. The Investors section is a key source of information for shareholders, containing details of
financial results, shareholder meetings and dividends, and providing access to frequently asked questions. Current and
past annual half-year and sustainability and responsibility/EHS reports are also available to view and download.
Company
registrars
Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
Telephone: +44 (0)371 384 2412
Website: www.shareview.co.uk
Lines are open between 8.30am and 5.30pm, Monday to Friday (excluding UK public holidays). Shareholders with queries
relating to their shareholding should contact Equiniti directly. Alternatively, shareholders may find the Investors section of
our website useful for general enquiries.
Shareview
portfolio
The most efficient way to communicate with Equiniti is by registering for a portfolio at
www.shareview.co.uk
. This is
a service which enables shareholders to manage their shareholdings online.
Dividend
payments
You can choose to receive your dividend in a number of ways. Dividends will automatically be paid to you by cheque
in UK pounds sterling and sent to your registered address unless you have chosen one of the options below:
Direct payment to your bank
Cash dividends can be paid directly to a UK bank or building society account. This means that your dividend reaches
your bank account on the payment date, it is more secure (cheques can sometimes get lost in the post), you avoid the
inconvenience of depositing a cheque and cheque fraud is reduced. If you are a shareholder who has a UK bank or
building society account you can arrange to have dividends paid directly via a bank/building society mandate. You can
add or change your mandate online at
www.shareview.co.uk
, or by contacting Equiniti.
Overseas payments
If you live overseas and would like dividends paid to an overseas account, please contact Equiniti by post to set up or
amend a mandate. They offer an overseas payment service for 90 countries worldwide. Please see further information
at
www.shareview.co.uk
.
Multiple
accounts
on the
shareholder
register
If a shareholder receives two or more sets of AGM documents, or multiple dividend payments, this means that there
is more than one account in their name on the shareholder register, perhaps because the name or the address appears
on each account in a slightly different way. If you have multiple accounts and would like them to be combined, please
contact Equiniti.
Buying
and selling
shares
Equiniti offer a service to buy and sell shares in UK listed companies. For more information, visit
www.shareview.co.uk
or call 03456 037 037. Providing this information is not a recommendation to buy or sell shares and this service may not
be suitable for all shareholders. The price and value of any investments and income from them can fluctuate and may fall.
Therefore, you may get back less than the amount you invested. Past performance is not a guide to future performance.
Neither the Company nor Equiniti provides advice or makes recommendations about investments. If you have any doubts
about the suitability of an investment, you should seek advice from a suitably qualified professional advisor.
Donate your
shares to
charity
If you have only a small number of shares which are uneconomical to sell, you may wish to consider donating them to
charity, free of charge, through ShareGift (registered charity 1052686), a charity that specialises in the donation of small,
unwanted shareholdings to good causes. You can find out more by visiting
www.sharegift.org
or by telephoning
+44 (0)20 7930 3737.
Unsolicited
telephone
calls
and mail
Shareholders in companies may receive unsolicited phone calls or correspondence concerning investment matters.
If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company
or research reports, please check the company or person contacting you is properly authorised by the Financial Conduct
Authority before getting involved. Further information about what you should do is available on our website in the
‘Shareholder Centre’ within the Investors section.
Asset
Reunification
Programme
Morgan has launched a tracing programme with the aim of reuniting ‘lost’ shareholders or their estates with unclaimed
cash entitlements in respect of Morgan dividend payments. Cash entitlements may not have been claimed due to an
address change, or where a shareholder is deceased and the beneficiaries or executors of an estate are not aware of
the holding. If you would like to clarify whether you or a deceased person for whose estate you act holds shares in
Morgan please contact Equiniti for further assistance.
Shareholder information
continued
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