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
"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."
Pete Raby, CEO
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.
- A scope 1 and 2 CO2 net zero business by 2050, with a 2030 goal of a 50% reduction in scope 1 and 2 CO2 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 CO2 emissions by 8.2%.
- 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.
- 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.
- 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.
- 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.
"We delivered robust organic growth reflecting the good market conditions and the benefits of our strategy."
Pete Raby, CEO
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:
- We are well positioned in attractive, high-growth markets
- We have leading, differentiated market positions
- We provide sustainable solutions to support the energy transition
- We are a resilient Group delivering attractive through-cycle returns
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. 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.
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.