Annual Report 2023
Resilient, Sustainable, Innovative
Morgan Advanced Materials is
a purpose driven organisation,
with a long history of innovation.
Founded in the UK in 1856, we have deep
expertise in ceramics and carbon materials
and we exploit our knowledge and experience
to solve difficult problems for our customers.
Our model means we serve customers where
they need us, across a diverse range of markets,
and this has seen us grow to become a global
organisation with around 70 manufacturing
sites in 20 countries.
Our focus is on helping customers push the
limits of their processes and products to meet
demanding requirements, from higher process
temperatures and higher product performance,
to increasing miniaturisation.
Sustainable
solutions
for a greener
future
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 play a role in helping the world become
more sustainable. 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
.
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, while building
a company that our people can be proud of.
Read more on pages 34 to 53
Morgan Advanced Materials
Annual Report 2023
STRATEGIC REPORT
Overview
Inside Front Cover
Morgan in numbers
02
Business overview – what we do
06
Investment case
08
Chair’s statement
10
Business model
12
Market environment and industry trends
14
Our strategy
18
CEO review
20
Strategy in action
23
Stakeholders
26
Section 172(1) statement
30
Non-financial and sustainability information statement
33
A responsible business incorporating TCFD
34
Risk management
54
Review of operations
62
Group financial review
64
Directors’ statements
70
Definitions and reconciliations of
non-GAAP measures to GAAP measures
72
GOVERNANCE
Chair’s letter to shareholders
77
Board of Directors
78
Governance at a glance
80
Strategic oversight by the Board
82
Focusing on culture
84
Listening to employees
86
Assessing Board performance
88
UK Corporate Governance Code 2018
compliance statement
89
Report of the Audit Committee
93
Report of the Nomination Committee
100
Remuneration report
104
Other disclosures
131
Independent auditor’s report to the members
of Morgan Advanced Materials plc
135
FINANCIAL STATEMENTS
Consolidated income statement
144
Consolidated statement of
comprehensive income
145
Consolidated balance sheet
146
Consolidated statement of changes in equity
147
Consolidated statement of cash flows
148
Notes to the consolidated
financial statements
149
Company balance sheet
198
Company statement of changes in equity
199
Notes to the Company financial statements
200
Group statistical information
217
Cautionary statement
218
Glossary of terms
218
Shareholder information
219
Contents
Our strategy in action
Making a big
positive difference
See page 23
Delighting
the customer
See page 24
Innovating
to grow
See page 25
01
Strategic report
Morgan Advanced Materials
Annual Report 2023
02
Financial KPIs
(statutory and adjusted performance KPIs)
Free cash flow before acquisitions,
disposals and dividends
*
(£m)
Performance
We continue to invest in capital expenditure
to support future growth. Increase in 2023
reflects improvement in working capital.
Adjusted operating
profit margin
*
(%)
Performance
Adjusted operating profit margin has
decreased following the cyber security
incident in January 2023, with strong recovery
in the second half of the year. Pricing and
efficiency savings continue to more than
offset inflation. See the Review of operations
on pages 62 and 63 for more detail.
Revenue
(£m)
Performance
On a reported basis, revenue increased by
£2.6 million, 0.2%. Growth is lower than prior
year but reflects strong recovery in the second half
of the year following the cyber security incident
experienced in January 2023. See the Review of
operations on pages 62 and 63 for more detail.
Organic constant currency
revenue growth
*
(%)
Performance
On an organic constant currency
*
basis revenue
grew by 2.5%. Growth is lower than prior year
but reflects strong recovery in the second half
of the year following the cyber security incident
experienced in January 2023. See the Review of
operations on pages 62 and 63 for more detail.
23
22
21
950.5
1,114.7
1,112.1
23
22
21
2.5
11.2
10.3
23
22
21
13.1
10.8
13.6
23
22
21
(46.9)
66.2
14.6
*
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 72 to 75.
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).
Strategic report
03
Net debt
*
to EBITDA
*
(excluding lease liabilities)
(X)
Performance
Net debt
*
to EBITDA
*
(excluding lease
liabilities) was 1.2 times following increased
investment in capital expenditure and
working capital, and costs associated
with the cyber security incident.
Dividend per share
(p)
Performance
For the year ended 31 December 2023,
the Board is recommending a dividend
of 12.0 pence, in line with last year.
Return on invested capital
*
(%)
Performance
Return on invested capital for the year ended
31 December 2023 remains within our
financial framework (see page 22).
Continuing EPS
(p)
Performance
Reduction driven by the impact of the cyber
security incident in January 2023, with strong
recovery in the second half of the year.
Adjusted EPS
*
(p)
Performance
Reduction driven by the impact of the cyber
security incident in January 2023, with strong
recovery in the second half of the year.
Operating profit
(£m)
Performance
Operating profit has decreased following the
cyber security incident in January 2023, with
strong recovery in the second half of the year.
Pricing and efficiency savings continue to more
than offset inflation. See the Review of operations
on pages 62 and 63 for more detail.
23
22
21
91.9
140.8
113.1
23
22
21
17.6
23.7
20.9
23
22
21
12.0
12.0
9.1
23
22
21
25.0
33.8
27.2
23
22
21
16.4
30.6
23.9
23
22
21
1.2
0.8
0.3
The ROIC calculation has been simplified so that it can
be calculated from published information. Prior period
comparatives have been restated to follow the same
methodology. Please see page 75 for further information.
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.
Morgan Advanced Materials
Annual Report 2023
04
Morgan in numbers
continued
Key environmental, social and governance (ESG) KPIs
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. See page 37
for more information
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.
See pages 39 and 40 for more information.
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.
See page 38 for more information.
Alignment to strategy
1
2
3
Why do we measure this KPI?
We measure the engagement of our people through an employee
engagement survey called ‘Your Voice’. As a result of the survey
we build tailored engagement plans to address key issues across our
sites, businesses and the Group. See page 39 for more information.
Total water withdrawal
(million m
3
)
2030
23
22
21
20
19
318,842
276,678
157,574
211,104
Target
171,347
229,887
2030
23
22
21
20
19
0.14
0.18
0.19
0.28
0.22
Target
0.10
2030
23
22
21
20
19
1.88
1.50
1.72
1.93
1.73
Target
1.63
2030
23
22
21
20
19
55%
No survey
this year
54%
**
53%
50%
*
Target
upper
quartile
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.
*
New yearly survey introduced.
**
This was a pulse survey including employees with a Morgan Advanced Materials
email address only. On a like-for-like basis, engagement went down by ~1%.
A full survey will take place in 2024.
Strategic report
05
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 30% of our manufacturing
operations are in these water stress areas.
Our goal is to deliver a 30% reduction by 2030. By improving our
water use in these areas, we will positively impact the local communities
in which we operate. See page 38 for more information.
Alignment to strategy
1
2
3
Why do we measure this KPI?
A greater gender diversity is good for Morgan Advanced Materials
and good for employees. We are continuing to take action to
achieve a more balanced proportion of women in senior positions.
See page 39 for more information.
Water withdrawal in water stressed areas
*
(% reduction from 2015 baseline)
2030
23
22
21
20
19
7%
14%
10%
23%
9%
Target
30%
2030
23
22
21
20
19
No data –
not measured
30%
30%
29%
29%
Target
40%
*
Water stressed areas include Spain, Italy, Turkey, Mexico, India, United Arab Emirates,
Argentina, Australia and the state of California, USA. Using the most recent WRI data,
2023 and prior years have been restated to include China. See page 38 for details.
*
Includes Executive w/o CEO/CFO plus 2nd to 4th tier.
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 23 to 25
1
Big positive difference
2
Delight the customer
3
Innovate to grow
We are a global manufacturer of advanced carbon
and ceramic materials for complex and technologically
demanding applications. Working across many
industries, you will find our products all around you.
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. We act as a design partner for
our customers, translating their needs into product solutions, distinguishing
ourselves through the application engineering that we provide.
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 and increasing
miniaturisation. And we do all of this while helping our customers
to reduce their energy consumption, emissions and operating costs;
helping them to improve the sustainability of their products and processes.
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 saving
solutions for more traditional industries, our materials innovations
enable rapid change. Our deep expertise in carbon and ceramics is
maintained and strengthened through our ongoing process of research
and development. Each business has a clear strategy and a technology
roadmap, and we invest in application testing to inform our technology
and product development, resulting in many bespoke solutions.
Business overview
– what we do
Our strategy focuses on three core capabilities
Materials science
Application engineering
Customer focus
Morgan Advanced Materials
Annual Report 2023
06
The Group operates as five distinct global business units
Thermal Ceramics
The Thermal Ceramics business makes advanced temperature insulation for
high-temperature processes and fire protection. Our solutions help customers,
especially those operating energy-intensive processes, to reduce energy
consumption, emissions and operating costs. Our products and systems 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.
Molten Metal Systems
Molten Metal Systems provides crucibles for foundries, die-casters and melting
facilities working with customers in non-ferrous castings, metal powder production,
refining and recycling of precious metals, and the production of pure aluminium for
electronics applications. Extensive applications experience and process knowledge
help us to put together the optimal system for a customer’s needs.
Electrical Carbon
*
The Electrical Carbon business provides speciality graphite components, engineers
high-performance graphite materials, components and sub-assemblies to address
customer-specific technical challenges. Working in selected segments of the
semiconductor, energy, healthcare, industrial, petrochemicals, security and transport
markets, we apply our materials science expertise and engineer elegant and reliable
solutions to individual customer problems.
Seals and Bearings
*
The Seals and Bearings business makes high-performance self-lubricating bearing
and seal components, predominantly used 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 the use of lubricants
in extreme temperatures, corrosive or hygienic environments where access is
restricted, and are engineered into products which provide customer-specific
solutions. The main markets served are specialist applications in the oil and gas,
automotive, industrial, water pump, aerospace and home appliance sectors.
Technical Ceramics
Our Technical Ceramics business employs advanced materials science and
applications expertise to produce parts that enhance reliability or improve the
performance of customers’ products. Products are designed to be used in
demanding, harsh or critical environments, where we work with selected segments
of the electronics, energy, healthcare, industrial, petrochemicals, security and
transport markets, typically in close collaborative customer relationships.
Semiconductor consumables
Collector strips and carbon brushes
Graphite powders
High-temperature insulating fibre
products (Low biopersistent fibres,
Superwool
®
family, RCF, Polycrystalline)
Microporous products (WDS
®
, Min-K
®
)
Firebricks and mortars
Heat shields
Crucibles (Morganite
®
and Noltina
®
)
Foundry products
Furnace Industries furnace range
Face seals
Sliding bearings
Shafts
Rotary vane pump components
Components from our specialist
alumina formulations
Ceramic cores
Extruded products
Laser products
MACOR
TM
machinable glass ceramic
Semiconductor products
Products include
Business unit
07
*
In 2024 we will streamline our management structures and manage the Company through three distinct
segments: Thermal Products, Performance Carbon and Technical Ceramics. See further details on page 31.
Strategic report
1. 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 increases 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.
2. 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 440 scientists and engineers across the
Group, representing 17% 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.
Investment case
+2.5%
2023 ORGANIC CONSTANT-CURRENCY
REVENUE GROWTH
+10.4%
2023 CONSTANT-CURRENCY GROWTH IN
OUR FASTER GROWING MARKETS
£32.9m
RESEARCH AND DEVELOPMENT SPEND
Morgan Advanced Materials
Annual Report 2023
08
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 more than 160 years of innovation.
3. 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
scope 1 and scope 2 CO
2
emissions are around 54%
down on our 2015 starting point, whilst our water usage
is 26% down on our 2015 starting point.
4. 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 1.7% of our revenues. Our
top 10 equate to around 10.4% of revenues, meaning
a loss of one customer has limited impact on the Group.
We largely make products where we sell them, with a
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. Despite the impact
of the cyber security incident in January 2023 impacting
the full year results, our operating margins in the second
half of 2023 returned to 12.5%.
-54%
REDUCTION IN
SCOPE 1 & 2 CO
2
EMISSIONS
+1.4%
ADJUSTED EPS
CAGR 2016–2023
09
Strategic report
Morgan Advanced Materials
Annual Report 2023
10
“Since joining the business
in February 2023, I have spent
time meeting my new colleagues
and major shareholders to
build a full understanding of
the challenges we face as well
as the many opportunities
we have to grow.”
All our colleagues across the
organisation have shown
tremendous dedication, rising to
the challenge of supporting our
customers and one another
since the cyber security incident
which occurred in January 2023.
I am proud of their resilience
and continued commitment and
I want to thank them for their
outstanding efforts.
The Group has emerged from the cyber
security incident in good shape and we are
well placed as we enter 2024. We have a
clear strategy for growth and are investing
in the business to deliver this growth.
We are starting to see the benefits of
the capital investment programme which
will grow capacity in our faster growing
markets as well as our core markets and
the increased investment in our IT estate,
accelerating our modernisation plans and
improving our resilience.
As we prepare for the future, I am confident
in our prospects and that our team will
continue to help deliver on our purpose –
to use advanced materials to make the
world more sustainable and to improve
the quality of life.
Looking back at 2023
Our first imperative is the safety and
wellbeing of our colleagues and I am
pleased to report that during 2023
our safety performance improved,
reflecting the significant focus on
employee safety and wellbeing.
The lost time accident (LTA) rate, the
headline measure for health and safety, was
0.19 (2022: 0.28). Supporting the executive
team, your Board has spent a significant
amount of time discussing how safety
performance and culture can be improved.
My fellow non-Executive Directors and
I will continue to support the executive
team to achieve a position of ‘zero harm’.
While it has been a challenging year,
with the continuing supply chain issues,
inflation on input costs and challenges in
labour supply, we have seen the benefits
of our positioning in attractive, high-growth
markets, our leading, differentiated
market positions and our diverse,
geographic footprint.
Chair’s statement
Ian Marchant
NON-EXECUTIVE CHAIR
Strategic report
11
We are well placed to benefit from the
long-term growth driver of providing
sustainable solutions to support the
energy transition.
We delivered organic revenue growth in
2023, driven by strong growth in our faster
growing markets and more moderate
growth in the core markets. Operating
margins declined, reflecting the impact of
the cyber security incident and the slower
end market demand.
Following the cyber security incident, our
teams worked quickly to compartmentalise
the network and shut down our systems to
limit the damage and minimise the impact
on operations. Despite their efforts, there
was considerable damage to networks
and systems. Our factories nonetheless
operated throughout the disrupted first
half and our teams worked closely with
our customers to manage their deliveries.
Customer demand remained robust
during our recovery.
Further details can be found on page 20.
The Board in 2023
The Board invited me to take on the role
of Chair from Douglas Caster following
his decision to stand down, having served
nine years on the Board. I would like to
thank Douglas on behalf of the Board for
his hard work in helping the Group evolve
its strategy and growth journey.
The change of Chair comes at an
opportune time, with the Group’s strategy
pivoting to leveraging the progress made in
the Group’s transformation to drive growth.
I am confident I can help the Group as it
seeks to achieve these growth ambitions
and I look forward to working with the
Board to lead the Group in the next
stage of its journey.
During 2023, the Nomination Committee
commenced the search for three new
non-Executive Directors to replace
existing Directors nearing the end of their
nine-year tenure, as part of a phased
succession programme. Two Directors
will be recruited in 2024 and with a third
Director recruited in 2025. Further
information on the process can be found
on pages 102 and 103.
Responsible business
The Board takes its responsibilities to all
its stakeholders seriously and we are
committed to maintaining direct and
productive relationships with our
shareholders, colleagues and communities,
taking a range of perspectives and
feedback into account in our
decision-making and stewardship.
The wellbeing of our colleagues remained
a priority throughout the year. We have
listened to their views through regular
engagement surveys and employee listening
sessions. Information on how we as a Board
and business responded to their views and
some of the actions we took locally and
globally to improve their experiences can
be found on pages 85 to 86.
We have invested in supporting
our colleagues through the ongoing
cost-of-living pressures, both through
salary increases and through a wide
range of other support measures.
I am pleased by the progress we have
made this year in reducing the Group’s
environmental impact. We reduced scope
1 and 2 emissions during the year and
are now 54% below our 2015 baseline.
Whilst we have met this 2030 goal,
continued focus is needed to maintain this
as the business grows. We also reduced
our overall water usage as well as usage
of water in high-stress areas.
We are on track to meet our 2030 goals.
Not only are we making our manufacturing
processes more efficient, 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.
Dividend
The Board is recommending a final dividend
for 2023 of 6.7p (2022: 6.7p). Combined
with the interim dividend of 5.3p (2022:
5.3p), the resulting total dividend in
respect of 2023 is 12.0p (2022: 12.0p).
The dividend will be payable on 17 May
2024 to shareholders on the register
on 26 April 2024, subject to shareholder
approval. 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.
Looking forward to 2024
As we enter 2024, we remain cautious
about the pressures on some of our
geographical markets with the ongoing
geopolitical risks. We nonetheless
expect our faster growing markets,
in particular semiconductors and
healthcare, to continue to grow strongly.
We expect the slowdown in parts of our
core markets to be countered by recovery
and growth in other parts. We are focused
on capitalising on the increased capacity in
our business from the capital investment
programme and remain open to inorganic
growth opportunities.
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 progress and the success of the
Group in the years ahead.
Ian Marchant
NON-EXECUTIVE CHAIR
HIGHLIGHTS
0.19
LOST-TIME ACCIDENT FREQUENCY
PER 100,000 HOURS WORKED
(2022: 0.28)
12.0p
DIVIDEND PER SHARE
(2022: 12.0p)
Business model
Morgan Advanced Materials
Annual Report 2023
12
To use advanced materials to make the world more
Vast process know-how throughout the
businesses in systems, process engineers
and plant personnel
Significant proprietary equipment
Vertical integration to ensure tight process
and product quality control, and protect IP
Deep understanding of the interaction
of process steps on material properties
Ability to manufacture bespoke components
and combine into value added solutions
Skilled and motivated workforce in a
decentralised and entrepreneurial organisation
Long relationships with trusted suppliers
& responsible procurement practices
Extensive process
know-how
D
e
e
p
m
a
t
e
r
i
a
l
s
e
x
p
e
r
t
i
s
e
440 engineers and materials
scientists in four centres of
excellence and in our plants
Deep understanding of how
and why materials work, and
how to change their properties
Extensive materials testing
and characterisation capability
and expertise
Market focused, and sustainability
focused, product innovation
and technological ingenuity
Rich intellectual property
protected through trade
secrets & select patents
Broad materials technology
portfolio in ceramics
and carbon
Our markets
Faster growth markets
Semiconductors
Healthcare
Clean energy
and clean
transportation
Strategic report
13
Dedicated/tailored sales channels
for customer centricity
Deep insights through engineering relationships
and strategic marketing into customer needs
& developments
Significant application expertise –
solution engineering and co-development
Broad product portfolio for complete
and optimal solutions
Extensive application testing capability,
including simulating actual conditions
A high level of qualification and repeat business
Ability to serve globally with agile and
reliable local manufacturing
Customer intimacy
and application expertise
Long term,
trusted, relationships
with customers
Expanding R&D
opportunities
Product annuity
streams underpinning
revenue and
margin growth
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
Core markets
Industrial
Conventional
transportation
Metals
Petrochemical
and chemical
Security and defence
Conventional
energy
1.
Scope 1 and scope 2.
Morgan Advanced Materials
Annual Report 2023
14
Market environment and industry trends
There are a number of significant trends or megatrends shaping our world: climate change, resource scarcity,
urbanisation and migration, a growing middle class, an ageing population and digitisation. These trends drive
an ever greater need for advanced materials, as our customers push the limits of their process and product
technology. We manufacture an extensive range of specialist products, satisfying a variety of niche applications
across numerous end-markets.
Faster growth markets
We are specifically targeting our faster
growing markets: semiconductors,
healthcare, clean energy and clean
transportation. These are market
segments where demands on materials
are increasingly stringent, and our
materials expertise is increasingly relevant.
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.
Semiconductors
Trends
Our world is becoming more digital and increasingly
connected. The quantity and complexity of semiconductor
devices is increasing, and this is driven by many of the
megatrends around us – cars are getting smarter, greater
computation and data storage is supporting digitisation and
artificial intelligence, wireless technologies are growing and
semiconductors play a big role in the transition.
Consumables used during silicon chip fabrication is an area
expected to grow 8% per year through 2025, as leading-edge
semiconductors require new processing technologies.
Consumables used during the manufacture of silicon
carbide semiconductor materials are expected to grow
at a 28% compound annualised growth rate.
Opportunities and solutions
We make consumables used during silicon chip
fabrication. Our products are leading, best in class carbon-,
graphite- and ceramic-based components used during the
manufacture of chips.
We also make consumables used during the manufacture
of silicon carbide semiconductor material. Silicon carbide is
a new compound being adopted in power devices. Electric
vehicle car makers are developing cars with silicon carbide
main power inverters, as these are lighter, more efficient and
lower the system cost.
Until recently, silicon carbide wafers could not be made in
sufficient quality, cost, and quantity to support the growth
in this space. Our products have become a key enabler to
unlock adoption.
Strategic report
15
Healthcare
Trends
An aging global population is looking for solutions to chronic
diseases to improve their quality of life.
In emerging markets, a growing middle class is experiencing
related ailments due to exposure to more processed and
higher-calorie foods. More vehicle accidents are occurring
due to the increased accessibility of transportation, and air
quality challenges are increasing with further industrialisation.
These factors, combined with innovative new therapies, are
driving the accelerated demand for healthcare technology
solutions, with an increased focus on materials for test and
measurement equipment.
The demand in this space is expected to grow by over 6%
to 2025.
Opportunities and solutions
We manufacture a broad variety of components for use in
medical instrumentation as well as in tools for treatment and
surgery. Biocompatibility, excellent chemical and electrical
resistance and low wear rates, plus our high-quality, volume
manufacturing means we are perfectly placed to supply
components for medical applications.
Medical engineering demands the highest standards of
precision, accuracy, reliability and performance. Equipment
manufacturers and medical professionals choose our materials
for their exceptional physical characteristics.
Our deep understanding of ceramic material properties,
together with our expertise in braze alloy design, allows us
to produce high-density, highly reliable feedthroughs for
a range of medical applications, including cochlear implants
and neuro-stimulation. Our components are also used
for critical functions in gear pumps, apheresis systems,
micro-dosing systems and oxygen compression.
Clean energy and
clean transportation
Trends
The demand for renewable energy is growing rapidly
as the world seeks to decarbonise, while car companies
specifically are racing to develop electric vehicles to comply
with locally set emissions targets.
These markets are expected to grow at a 9% compound
annualised growth rate to 2025.
Opportunities and solutions
Our new ceramic materials for customers producing
solar panels support the latest generation of production
technology. We produce some of the leading brush grades
for wind turbines, offering longer lifetimes. In addition to
enabling wind technology, we also drive lower maintenance
activity, and costs, for the wind farm operators, further
reducing their CO
2
footprint.
We support the EV market with carbon seals and bearings
for cooling pumps which are produced to fine dimensional
tolerance, improving efficiency and minimising pump noise.
We have a leading range of products and solutions that
provide fire protection around battery packs and we are
constantly innovating these to meet evolving requirements.
Our thermal insulation Superwool
®
is used in heat recovery
steam generators, fuel cells and energy storage walls to
improve energy efficiency.
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, further reducing CO
2
emissions.
Morgan Advanced Materials
Annual Report 2023
16
Market environment and industry trends
continued
Core markets
Our core market portfolio is diversified and differentiated. Our core markets make up 79% of Group
revenues. In these core markets, we are leading, or are among the market leaders, with strong customer
loyalty, a respected brand and deep application expertise.
Conventional transportation
Trends
Ongoing urbanisation is driving the need for more sustainable
transportation solutions.
Increased requirement for materials to withstand exposure to
greater heat sources and run more efficiently.
Opportunities and solutions
We make high-performance components and sub-assemblies
to exacting standards for aerospace, automotive, marine
and rail applications, including carbon brushes for trains,
and high-temperature fibre products used for emission
control in vehicles.
In aerospace we continue to enable more efficient jet
engines through the production of more complex cores
for casting turbine blades. 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 next generation engines
run hotter to be more efficient. Our cores enable these
advances in engine technology.
Our seals and bearings are used in vehicle fuel and thermal
management, providing near frictionless running and low
wear rates, whilst our fused silica and mullite rollers enable
thermal annealing of automotive chassis parts.
Industrial
Trends
Need for customers to reduce their energy consumption
and carbon dioxide emissions to make their business
more sustainable.
Opportunities and solutions
We engineer components which are highly resistant to
chemical and physical wear, corrosion and extreme
temperatures. These components sit at the heart of
many industrial processes.
In the industrial market:
We are engineering thermal ceramic fibre like Superwool
®
XTRA to support better energy consumption
We have produced reduced wear, reliable seals
which extend pump life by up to 4x, (compared to
spray coated stainless steel rings), resulting in the
significant reduction of through life costs
Our Pyro-Bloc
®
modules for regenerative thermal
oxidisers reduce the number of through-joints between
modules, resulting in fewer opportunities for heat loss,
and reduced fuel related expenses.
Strategic report
17
Petrochemical
and chemical
Trends
Demand for better insulation solutions
and lower carbon options to meet
sustainability targets.
Opportunities and solutions
We manufacture a range of
components ideally suited to the
uniquely demanding operating
environments found in the global
petrochemical and chemical industry.
Our products and materials are
routinely chosen to fulfil critical
applications for on- and offshore
exploration, drilling and downstream
processing owing to their resistance
to chemical and physical wear,
corrosion and extreme heat.
Our self-lubricating seals and bearings
and our ceramic shafts are reducing
the energy consumption of pumps in
chemical plants.
Security
and defence
Trends
Increased demands for digitisation
in this market, with AI led advances
increasing.
Need for further materials
that can withstand greater strains
and pressures.
Opportunities and solutions
We supply precision-engineered
materials, components and
assemblies to meet the exacting
standards of the global defence and
security market. Our components for
night vision systems enable superior
performance. Our ceramic tiles are
used to build high-performance body
and vehicle armour.
Our advanced ceramic materials offer
superior dimensional stability, strength,
stiffness and chemical resistance across
a wide range of temperatures.
Energy
Trends
Climate change and shareholder
influence is supporting the shift
by oil companies as they invest heavily
in renewable energy and hydrogen.
Electricity demand is growing as
economies grow and modernise.
More efficient seals are required
for the development of new pumps.
Opportunities and solutions
We manufacture products for power
generation from hydroelectric, nuclear
and traditional sources and insulation
materials for heat management.
Our carbon brushes are integral to
efficient power generation systems.
Our advanced thermal insulation is
being used to insulate heat recovery
steam generators in power and
industrial plants.
Our strategy
Morgan Advanced Materials
Annual Report 2023
18
Reliable problem
solving
Ethically, safely
and sustainably
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Strategic report
19
We have three execution priorities which we are pursuing over the medium term
to enhance our capabilities and improve our strategy execution.
Big positive difference
We will build a sustainable business,
getting to net zero
1
by 2050, and create
a fair and inclusive working environment
that is reflective of the communities we
operate in. A business where everyone is
welcome and can do their best.
Read more on page 23
Delight the customer
We will make our businesses more customer-
centric. We are getting feedback from our
customers and making improvements to
customer service, responsiveness and
delivery. We are simplifying and improving
our digital communication.
Read more on page 24
Innovate to grow
We will win in our core markets by
providing products and solutions that
make our customers more sustainable.
We will increase our exposure to our
faster growing markets that reflect global
trends: semiconductors, healthcare,
clean energy and clean transportation.
Read more on page 25
2.
3.
We apply these skills to solve difficult problems for our customers while operating safely, ethically and sustainably.
We will operate businesses that are, or can be:
At scale.
Among the leaders of their markets and
big enough to be resilient and able to invest to sustain
their position.
Scalable.
Running on a global basis, getting synergies
in technology, operations and sales.
Our strategy is to build distinctive capabilities in three areas
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
Our success comes from aligning everything we do to focus on the customer. 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.
1.
1.
Scope 1 and scope 2.
Morgan Advanced Materials
Annual Report 2023
20
“Our business and our people
have demonstrated great
resilience this year, responding
to and recovering from a cyber
security incident while keeping
each other safe and delivering for
our customers. I would like to
thank all of our people for their
commitment and support during
the year.”
While it has been a tough year,
we are well placed as we head
into 2024. We have good positions
in our core markets, a significant
capital programme underway to
add growth capacity for our faster
growing segments and for the core,
and increased investment going
into our IT estate, accelerating our
modernisation plans and improving
our resilience. We are taking steps
to reduce costs and we have a
strong balance sheet to support
our organic and inorganic
growth ambitions.
Cyber security incident
On 8 January 2023, we experienced
a cyber security incident in our
network. Our teams worked quickly to
compartmentalise the network and shut
down our systems to limit the damage.
Despite the rapid action of our teams, there
was considerable damage to networks and
systems, in particular in our US businesses.
During the first half we recovered our core
ERP systems and started recovery of
supporting applications. In parts of the
business, representing around 27% of
revenues, ERP systems could not be
restored and we implemented a new
ERP solution, accelerating the work we
had underway to implement a new,
common, Group system.
By the end of the year, we had largely
recovered with a few applications still
to be restored and some local network
constraints still being addressed.
We have accelerated our IT modernisation
programme which includes changes to
our network design, the deployment of
additional security tooling and acceleration
of our Group ERP programme. Our
factories operated throughout the disrupted
first half. Our teams worked closely with
our customers to manage their deliveries
and customer demand remained robust
during our recovery.
The cyber security incident impacted
revenues and profitability largely in the
first half, and £14.7 million of exceptional
costs associated with the IT remediation.
Pete Raby
CHIEF EXECUTIVE OFFICER
Chief Executive Officer’s review
Strategic report
21
Group results
Markets have been mixed during the year
with high inflation persisting in some
geographies leading to high interest rates
as central banks look to cool economies
and contain inflation. Growth in our
faster growing segments, driven by
power semiconductor demand for electric
vehicles, along with growth in aerospace
and petrochemical has offset contraction
in European and Chinese industrial and
metals markets.
We have grown the business 2.5%
organically during the year with growth
accelerating after the cyber security incident.
Adjusted operating profit margins declined
to 10.8% reflecting the cyber security
incident and the slower end market
demand. The majority of the impact of
the cyber incident was experienced in
the first half, with second half operating
margins of 12.5%, in our target range.
Financial results
Group revenue in 2023 was
£1,114.7 million, 0.2% ahead of the prior
year at reported rates and 2.5% higher
on an organic constant-currency basis
Statutory operating profit was
£91.9 million, profit before tax was
£77.8 million, earnings per share
was 16.4p
Adjusted operating profit
*
was
£120.3 million representing adjusted
operating profit margin
*
of 10.8%
Group adjusted earnings per share
*
was 25.0p (2022: 33.8p)
Net capital expenditure was
£58.5 million (2022: £57.4 million),
with investment focused on health,
safety and environmental improvements,
investments in efficiency, capacity
expansion and improvements to the
underlying infrastructure of the Group
Free cash flow
*
was £14.6 million inflow
(2022: £46.9 million outflow)
Net debt
*
excluding lease liabilities
*
was £185.2 million, with a net debt
*
excluding lease liabilities to EBITDA
*
ratio of 1.2 times
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:
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 reduced scope 1 & 2 emissions by
25% during the year and are now 54%
below our 2015 baseline.
As our business grows, continued
focus is needed on process efficiencies
and technological advancements to
maintain this.
We are on track to meet our 2030 goal.
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 reduced by
11% and water in high-stress areas
reduced by 14%.
We are on track to meet our 2030 goal.
‘Zero harm’ to our employees, with a
2030 goal of a lost-time accident (LTA)
rate of 0.10.
Our LTA rate was 0.19 (2022: 0.28),
an improvement over the prior year
reflecting the significant focus on
employee safety and wellbeing.
During the year we refreshed our
‘Take 5’ for safety process, introducing
new templates and training all of
our people.
We also completed further
work to improve the safety of our
high-temperature processes and
deployed a new EHS system to
facilitate reporting and management
of EHS activities.
A workforce reflective of the
communities in which we operate,
with a 2030 goal of 40% of our
leadership population being female.
Our gender diversity position was
unchanged over the year with 30%
females in our leadership population.
While we have done a lot to improve
our business as an environment for
female leaders, we have yet to make
progress on this metric and we will be
taking further steps in 2024 including
further policy improvements, ensuring
diverse shortlists when filling roles and
accelerating the development of our
female leaders.
A welcoming and inclusive environment
where employees can grow and thrive
with a 2030 goal of a top-quartile
engagement score.
We completed a pulse engagement
survey in December 2023 sampling
2,559 employees and our engagement
score was 54, one point down on the
equivalent population in the prior year.
We will be completing a full survey in
June 2024 and are continuing to drive
actions locally and globally to improve
the experience of our people.
*
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 72 to 75.
Morgan Advanced Materials
Annual Report 2023
22
Investment proposition
I believe the Group remains an attractive
investment opportunity. 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.
Medium-term targets
In support of our investment proposition,
we have set out a clear through-cycle
financial framework consisting of:
Organic revenue growth
*
of 4%–7%
per annum
12.5%–15% adjusted operating
profit margin
*
Return on invested capital
*
of 17%–20%
Leverage of 1.0–2.0 times with the
combination of organic growth, M&A
and shareholder returns to deliver
enhanced EPS growth.
We have upgraded our constant-currency
*
growth guidance in 2024 (previously
3%-6%) in anticipation of the significant
semiconductor investment.
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.
Our organic performance will be enhanced
by M&A and/or shareholder returns given
our strong balance sheet and the
substantially de-risked pension position.
Even with the impact of the cyber incident
in 2023, we have delivered ROIC and
leverage within the range, and margins
in the range in the second half. Revenue
growth was just below the range with an
estimated 2–3% reduction in growth from
the cyber security incident.
Outlook
As has been typical in recent years, there is
a high level of uncertainty as we head into
2024, with ongoing geopolitical risks and
a broad range of possible outcomes.
We expect our faster growing markets
to continue to grow strongly, driven by
semiconductors and healthcare in particular.
In our core markets, our central case is for
European and South East Asian markets
to start to recover in the second half, and
the US to slow in the first half.
We expect strong growth in India and
continued strength in aerospace and
defence markets.
We expect inflation to continue to
moderate and we will continue to recover
inflationary impacts through pricing,
with pricing and continuous improvement
more than offsetting inflation.
Pete Raby
CHIEF EXECUTIVE OFFICER
Chief Executive Officer’s review
continued
Strategic report
23
Big
We are making a big positive difference by driving inclusion and diversity
and reducing energy and water consumption at our plants. Here are just
some of the ways that we made a difference in 2023.
1.
Learning
Our people really embraced a culture of
learning in 2023, clocking an impressive
6,640 hours on Percipio – our online
learning tool. That’s 13,211 courses
completed during the year. Our goFLUENT
language platform, available to all our
people, also saw nearly 600 individuals
brush up on their language skills, helping us
to collaborate more effectively across our
global footprint.
Earth Day
We ran a photo competition for Earth Day,
focused on demonstrating positive
environmental changes, where 29 of
our sites took part. Winners across four
categories were chosen, with donations
made to local reforestation projects on
behalf of each winning site.
Energy
We completed the installation of an on-site
solar array at our plant in South Africa in
2022, generating nearly 500MWh of green
electricity in 2023. Another project helping
to cut our carbon emissions.
Diversity
To support greater diversity and especially
our women at Morgan, in 2023 we:
Completed our first female
mentoring pilot
Created a Morgan ‘wall of appreciation’
to highlight the fantastic role women play
in our organisation and linked this to
International Women’s Day celebrations
Held female focused talks on key issues
impacting women at Morgan and across
the world, such as menopause and the
gender pension gap.
Environment
We made further substantial reductions
to scope 1 and scope 2 CO
2
emissions
and water usage during the year.
positive
difference
Strategic report
23
Strategy in action
Morgan Advanced Materials
Annual Report 2023
24
Delight
the
We know that the more we
understand our customers,
their businesses, markets, and
technical challenges, the more
effective we are at providing
them with solutions. That is
why we are building trusted
partnerships with our customers
and investing in understanding
our customer segments.
Strategy in action
continued
We are shaping our product and service
offerings based on customer needs and
key ‘voice of the customer feedback’, and
monitor our performance closely including
our customer service performance,
our focus on safety, quality control and
delivery metrics, so we can meet and
exceed our customers’ expectations.
This also means we collaborate closely
at the technical level to ensure that our
products pass any customer’s stringent
and extensive performance tests.
2.
customer
Morgan Advanced Materials
Annual Report 2023
24
Strategic report
25
Innovation in materials, products and
services enables rapid change for our
customers. We are innovating in our
core markets to support customers’
transition to more sustainable products
and solutions and increasing our
exposure to our faster growing
markets: semiconductors, healthcare,
clean energy and clean transportation.
In aerospace our innovative materials are enabling higher
efficiency engines, ultimately reducing carbon emissions.
In high-temperature industrial processes our material
solutions are producing a more energy efficient process
for our customers.
In our growth markets we are:
Increasing the lifetime and performance of solar, wind
and energy storage, providing much-needed clean energy
Creating best-in-class materials and miniaturisation
technology, helping the healthcare industry make
huge leaps forward
Developing higher performance materials for the most
demanding process steps in the semiconductor market
Providing superior materials which support the longer
lifetime of products in the clean transportation field.
Our deep expertise in carbon and ceramics is maintained
and strengthened through our ongoing process of research
and development, centred around our four global Centres
of Excellence. As a business, we continue to invest
approximately £30 million each year in R&D, furthering
our materials science knowledge and solutions expertise.
3.
Innovate
to grow
Strategic report
25
Morgan Advanced Materials
Annual Report 2023
26
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.
The Board seeks regular feedback from our investors, customers, employees and pension trustees through various mechanisms and requires
management to have action plans to improve that engagement. From this feedback we have identified what matters to our stakeholders.
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 formal presentation of results
and market updates, and periodic capital
markets events to update on specific
markets and opportunities and describe
aspects of our business and business model
in more detail. We 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 sustainability goals, 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
Advanced Materials,
please visit our website:
morganadvancedmaterials.
com/invest-in-us/
Stakeholders
Investors
Those who own shares
or wish to own shares in
Morgan Advanced Materials
Strategic report
27
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 that are value
for money
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 behave ethically in our interactions with
our suppliers, seeking to build long-term
relationships with trust at the centre. We
seek to ensure our suppliers operate in a
responsible way. We publish a Supplier Code
of Conduct which we expect our suppliers
to sign up to. The Morgan Supplier Code
of Conduct defines the minimum standards
that must be met by our suppliers, vendors,
subcontractors and contract manufacturers,
and we have regular checkpoints to ensure
that this is adhered to.
What matters to our suppliers?
Human rights
Environmental and climate impact
Quality management
Fair treatment and timely payment
Growing their business
Cost-efficiency
Ethical trading policies and
sustainable sourcing
Developing long-term relationships
Suppliers
Those from whom we purchase
goods or services
Morgan Advanced Materials
Annual Report 2023
28
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 business 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. We also listen to and work
closely with representatives from our three
employee resource groups (ERGs): PRISM,
Women@Morgan and Military@Morgan.
These ERGs are a key tool in understanding
the needs of our people and help to shape
thinking and policy changes.
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.
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
Our people contribute to the culture and
are the driving force behind our success.
Employees
Anyone directly employed by Morgan Advanced Materials
Stakeholders
continued
Strategic report
29
We aim to have
a positive impact
on those around us,
from supporting job
creation and skills
advancement to
providing a helping
hand in our local
communities.
look to understand each community’s
priorities and concerns.
We want our people to have the freedom
to support what they care about most.
We share these stories through our internal
social media platform Viva Engage, where
you will often see the generous spirit and
nature of our employees – from bake sales
to cultural celebrations and charity
donations to sponsorship events.
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.
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
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.
In 2023, as part of a wider set of
communications on reward and benefits,
we have engaged our current employees
further on the subject of pensions. In
conjunction with our Women@Morgan
ERG we gave employees the chance to
talk to leading UK pension experts on the
gender pension gap. Our goal is to help
people feel more engaged with their
pension and gain further understanding.
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
Morgan Advanced Materials
Annual Report 2023
30
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.
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 Advanced
Materials in the long term.
The principles underpinning Section 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 Section
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 26 to 29 and are
incorporated by reference into this Section
172(1) statement. Engagement activities
specifically carried out by the Board
collectively and individually can be found
on page 87.
In performing their duties during 2023,
the Directors have had regard to the
matters set out in Section 172. You can
read more on how the Board had regard
to each matter, during the year, as follows:
Accelerate our IT
modernisation programme
How the Board reached
its decisions
During the year, the Board took the decision
to accelerate our IT modernisation
programme which includes changes to our
network design, the deployment of additional
security tooling, and acceleration of our
Group ERP programme. The Board received
several presentations during the year from
management and third-party consultants on
lessons learnt following a post-cyber security
incident review and recommendations to
improve the security posture of the business.
The newly appointed Chief Information
Officer also presented the refreshed IT
strategy, which was discussed in detail and
approved. The Board considered the impact
of the increased spend on the capital allocation
framework before taking the decisions.
Stakeholder considerations
Colleagues
The changes will enable our colleagues to
carry out their work more efficiently to
meet customer demand; and
Ensuring effective engagement with
colleagues on the changes, communicating
how the changes will impact them and
giving them the opportunity to input into
the changes that will impact on their work.
Customers and suppliers
Enabling the businesses to more efficiently
meet customer demand; and
Increasing efficiencies and reducing costs
associated with supply chain management.
Shareholders
Adequacy of return on invested
capital; and
Expected stronger financial profile
supporting a progressive dividend policy.
Outcome and impact of
the decision
The Board approved the acceleration of the
programme. The business is already benefiting
from the improvements made to its security
posture and the roll out of the Group ERP
programme is underway, which will deliver
business-wide benefits.
Capital investment programme
to add growth capacity for
our faster growing segments
and for the core segments
How the Board reached
its decisions
We announced at the capital markets event
that we would focus on organic investment
to enhance growth and returns, including
investing an additional £60 million of capital in
our semiconductor manufacturing capacity
over the next few years. During the year,
the Board took the decision to increase that
investment to £100 million to add growth
capacity for our faster growing segments and
for the core segments. The Board received
several presentations during the year from
management outlining the business case
for making the investment, environmental,
health and safety considerations and impact
on stakeholders.
Stakeholder considerations
Customers
Enabling the business to meeting increased
customer demand for existing products; and
Opportunities to enhance our product
portfolio, enabling us to deliver new
products to existing and new customers.
Shareholders
Adequacy of return on invested capital; and
Expected stronger financial profile
supporting a progressive dividend policy.
Colleagues
Creation of new jobs in new and existing
sites and refurbishment of sites to support
this expansion. Ensuring safe processes
and practices are embedded in the sites;
Management bandwidth to deliver
the programme.
Communities
Creation of new jobs; and
Ensuring new plant and equipment
are as efficient as possible and meet
environmental standards.
Outcome and impact of
the decision
The programme is on track and progressing
well. The Board continues to receive regular
progress updates from the presidents of
the global business units on the delivery of
these investments.
Section 172(1) statement
Key decisions in the year
Application of the capital allocation framework
The Board applied the capital allocation framework (see page 32), disclosed
at the capital markets event in December 2022, when considering the relative
priorities for the use of cash during 2023.
Strategic report
31
Approval of a progressive
dividend policy
How the Board reached its decisions
We also announced at the capital markets
event 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.
When considering the proposals to pay interim
and final dividends during 2023, 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; and
The Board also considered the impact of the
dividend decisions on expectations relating
to the dividend policy.
Lenders and debt holders
The impact of paying dividends on whether
the business remained within the financial
covenants agreed with lenders.
Colleagues
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 Section 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 May 2024 and an interim
dividend of 5.3p in November 2023. This
recommendation reflected the Group’s resilient
performance for 2023 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.
Restructuring programme
How the Board reached its decisions
In the development of the capital allocation
framework, some degree of restructuring had
been identified to address the cost base in parts
of the business and streamline our organisation
through the simplification of our business into
three distinct segments (Thermal Products,
Performance Carbon and Technical Ceramics)
and the closure of some uneconomic sites.
Restructuring costs for the year of £6.5 million
have been presented as a specific adjusting item.
The programme will continue into 2024.
The Board received detailed papers on the
impact of the restructuring programme,
including the potential synergies arising from the
combination of the business units, the approach
which will be taken to manage the programme
and the expected payback from the programme.
Stakeholder considerations
Colleagues
The impact of the changes on affected
colleagues, ensuring the communication is
carefully planned and the systems are in
places to support them through the changes;
Management bandwidth to deliver the
programme, given other projects already
underway; and
The need to allay any concerns that
colleagues may have about the changes
and reassure them that they are a necessary
step to deliver on our strategy and
growth ambitions.
Shareholders
The need to explain the restructuring charges
to provide overall context as to the type of
restructuring we are doing and to explain
the phasing of estimated savings; and
Impact on distributable reserves and ability
to pay dividends.
Customers and suppliers
The steps which will be taken to ensure
that supply chain changes are well-planned
and we maintain the service levels for
our customers.
Outcome and impact of the decision
The implementation of the programme is
underway, with the initial phase partially
completed. The Board continues to receive
regular progress updates on the programme.
Morgan Advanced Materials
Annual Report 2023
32
Section 172(1) statement
continued
Morgan Advanced Materials’ capital allocation framework is used to prioritise the use of cash generated by the Group. The framework
addresses the investment needs of the business, regular dividend payments and additional returns to shareholders. The framework also
seeks to maintain an appropriate capital structure for the business and a strong balance sheet with solid investment grade credit metrics.
The diagram below summarises the key priorities.
Reinvest for
organic growth
Maintain a strong balance sheet with solid investment grade credit metrics
Progressive
dividend policy
Strategic
investments
Return excess
cash to shareholders
Committed to
maintaining or growing
the dividend through
the cycle with an
adjusted earnings
cover of circa 2.5x
Deliver regular cash
returns to shareholders
Review the principal risks of the Group and relevant financial parameters, both historical and projected, including liquidity,
net debt and measures covering balance sheet strength and cash flow
These risks and financial parameters are considered by the Board when assessing the viability of the Group, as set out
on page 70.
Capital spend to increase
capacity in our core and
faster growing markets,
to sustain our existing
operations, drive
efficiency and improve
safety and environmental
performance
Investment in structural
changes to our business
activities that typically
tend to be infrequent
Complementary,
disciplined M&A focused
on accelerating revenue
growth opportunities in
faster growing markets
Return cash through
share buyback
programmes or payment
of special dividends
as appropriate
Capital allocation framework
Morgan Advanced Materials has applied its capital allocation framework during 2023 as follows:
Reinvested £60.4 million into the
business as capital expenditure,
to grow capacity, improve health
and safety and improve efficiency
and environmental performance
Maintained its full-year dividend
at 12.0p
Invested £6.5 million in restructuring
of the business.
£6.5
m
£60.4
m
12.0
p
Strategic report
33
Non-financial and sustainability
information statement
The information which follows is intended
to explain our non-financial and
sustainability information, the relevant
Group policies, the due diligence processes
we follow to embed these policies and
their effectiveness.
Our business model on pages 12 and 13
provides an insight into the key resources
and relationships that support the
generation and preservation of value
within Morgan Advanced Materials.
All of our non-financial KPIs are presented
together on pages 4 and 5.
A summary of our principal and emerging
risks, including those related to ESG
matters, as well as a description of our risk
management process, starts at page 54.
Areas of impact
Related
principal risks,
pages 55 to 61
Outcome of policies,
due diligence, and
impact of activities
Annual report page
references and relevant
sections on our website
Employees
The Group has an overarching policy
designed to attract, develop, reward,
retain and engage talented people
and support an inclusive, safe and
ethical workplace. The Group policy
is supplemented by a number of
people policies specific to the business
or jurisdiction.
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.
Environment,
health and safety
Technical
leadership
Employee engagement is at
54%, from a pulse survey
conducted during the year
LTA rate, the headline
measure for health and
safety, was 0.19
Our people and
communities, pages 39 to 42
Stakeholders, pages 26 to 29
Focusing on culture,
pages 84 to 85
Listening to employees,
page 86
ESG policies
People and communities
Health and safety
Diversity, inclusion
and equity
Gender pay gap reporting
Wellbeing
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. For our CFD regulation
disclosure see pages 44 to 53.
Climate change
Environment,
health and safety
Data gathering on
GHG emissions
Audits under the
EHS programme
Annual self-certification
Our ‘Speak Up’ hotline
Internal audit processes
TCFD, pages 44 to 53
ESG goals, pages 35 to 36
The environment,
pages 37 to 38
Environmental Policy
ESG goals
Sustainability and
responsibility report
TCFD reporting
Net zero
Energy, water and waste
Social and
community
matters
Our sites take ownership of local
community engagement, to support
our strategic priorities and benefit
local communities.
Tax
Supply chain/
business
continuity
Our business and our
employees are more
deeply connected to
our local communities
Big positive difference,
page 23
Stakeholders,
pages 26 to 29
ESG policies
Community
Human rights
Our Human Rights Policy establishes our
commitment to protect the human rights
of everyone who works for the Group
and all those who have dealings with us.
The Policy is supplemented by the
Morgan Code.
Compliance
No incidents of human rights
abuse or modern slavery
were identified during 2023
Monitoring of compliance
with the Morgan Code
Supplier due diligence
processes
Publication of our
Modern Slavery Statement
on our website
Stakeholders,
pages 26 to 29
ESG goals, pages 35 to 36
ESG policies
Modern slavery
Human rights
Whistleblowing Policy
Anti-bribery,
and anti-
corruption
The Morgan Code; Bribery, Corruption
& Facilitation Payments Policy; Gifts &
Entertainment Policy and Donations &
Sponsorships Policy make up our 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.
Compliance
Regular training provided to
employees, via e-learning
modules, with high
completion rates
Any reports of breaches in
compliance are investigated
and reported to the Audit
Committee, and appropriate
action is taken
Focusing on culture,
pages 84 to 85
Internal control and
risk management,
pages 97 to 98
Ethics and compliance
The Morgan Code
Supplier Code of Conduct
Morgan Advanced Materials
Annual Report 2023
34
Our ESG goals
35
A commitment to net zero
36
The environment
37
Our people and communities
39
ESG policies
43
TCFD reporting
44
Contents
A responsible business
We believe that being a responsible business matters.
It helps us to achieve our purpose and contribute positively to society,
while balancing the protection of our environment. We estimate that
around 60% of our products make a positive contribution, making the
world more sustainable and improving the quality of life. We are also
proud that through their life, our products typically save tens or hundreds
of times the CO
2
emitted during manufacture, allowing our customers
to lessen the impact of climate change. We are committed to a more
sustainable future and this is why in 2021 we set stretching targets
across a number of Environmental, Social and Governance (ESG) areas.
Environment
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.
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.
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 fulfilling our
responsibilities to our stakeholders and
seek continuous improvement in the
standards of governance that apply
across all of our businesses.
Strategic report
35
Our ESG goals
We have set stretching goals to
reduce our environmental impact,
manage our business well and to
make sure we do the right thing
for our people and society.
Net zero
Our goal is to be a scope 1 and 2 net
zero business by 2050. Our 2030 target
is to reduce our scope 1 and scope 2
CO
2
emissions by 50% (from a 2015
baseline). We started to measure scope 3
emissions in 2023 (with coverage
increasing over time).
Water
Our aspiration is to use water sustainably
across our business. Our 2030 target is
to reduce our overall water usage by 30%
and reduce our water usage in high-stress
areas by 30% (from a 2015 baseline).
As approximately 20% of our total water
usage is in stressed areas we maintain
a 30% target across both stressed and
non stressed areas to ensure we are taking
positive steps to reduce our overall impact.
Safety
Our aspiration is ‘zero harm’ to our
employees. Our 2030 target is a LTA
rate below 0.1 (lost time accidents per
100,000 hours worked).
Diversity and inclusion
Our aspiration is that our employee
demographics reflect the communities that
we operate in. Our 2030 target is for 40%
female representation across our leadership
population of our organisation.
Our aspiration is a welcoming and
inclusive environment where our
employees can grow and thrive.
Our 2030 target is to attain a top
quartile employee engagement score.
Alignment to strategy
To improve the execution of our strategy
and deliver our sustainability goals we
have set three execution priorities for
the coming years:
1. Big positive difference
2. Delight the customer
3. Innovate to grow.
We also align our efforts to the United
Nations Sustainable Development Goals
(UNSDG).
The Goals aim to overcome global
challenges such as inequality and climate
change, and present the opportunity to
put the world on a more sustainable path.
We have identified nine goals that directly
relate to our purpose and ambitions for
creating a more sustainable world.
The UN goals covering environment and
sustainability are; Goal 7, Affordable and
Clean Energy; Goal 9, Industry, Innovation
and Infrastructure; and Goal 11, Sustainable
Cities and Communities.
To meet these Goals, we help our
customers to manage heat and reduce
their energy usage, as well as enable green
energy production through wind and solar.
We contribute to the electrification of
public transport, reducing emissions
and increasing efficiency, and we help
create safer medical devices and better
fire protection.
To support Goals 12, 13 and 6, governing
Responsible Consumption and Production,
Climate Action, and Clean Water and
Sanitation, we have introduced clear water,
waste and energy reduction goals to
help protect our environment, including
programmes to reduce greenhouse gas
emissions through more efficient
manufacturing processes.
To support Goal 3, Good Health and
Well-Being; Goal 5, Gender Equality;
and Goal 8, Decent Work and Economic
Growth, we have set targets for gender
diversity, safety and employee engagement
and have programmes underway to
meet them.
We have set targets
for gender diversity,
safety and employee
engagement and have
programmes underway
to meet them.
Morgan Advanced Materials
Annual Report 2023
36
A commitment to net zero
Our sustainability strategy includes actions to reduce greenhouse
gas (GHG) emissions and combat climate change. We are making
this happen through the products that we manufacture and the
way we manufacture them.
Our decarbonisation roadmap
The risks and opportunities considered
by the Board have directly informed the
Company’s strategy to deliver on our 2030
goals and 2050 aspirations. These risks and
opportunities form the foundation of our
net zero roadmap, to ensure we achieve
our targets.
Our plans cover:
Short-term (0–3 years) – preparing for
the future
Medium-term (3–10 years) – scaling up
Long-term (10–25 years) – investment in
key technologies.
For further information on our path to net
zero, please see refer to page 49 of our full
Task Force on Climate-Related Financial
Disclosures report.
Science Based Targets
initiative (SBTi)
The SBTi is a global body enabling
businesses to set ambitious emissions
reduction targets in line with the latest
climate science.
SBTi has approved our near-term science-
based emissions reduction targets and has
classified our scope 1 and 2 target ambition
as in line with a well below 2°C trajectory:
We commit to reduce absolute
scope 1 and 2 GHG emissions 50%
by 2030 from a 2015 base year
*
We commit to increase active annual
sourcing of renewable electricity from
0% in 2015 to 80% in 2025 and 100%
by 2030
We commit to reduce absolute
scope 3 GHG emissions 15% by
2030 from a 2019 base.
AAA MSCI ESG rating
In 2023 we were awarded an ‘AAA’ ESG
rating by MSCI.
An MSCI ESG rating is designed to measure
a company’s resilience to long-term,
industry material ESG risks. MSCI uses
a rules-based methodology to identify
industry leaders and laggards according to
their exposure to ESG risks, and how well
they manage those risks relative to peers.
The ESG ratings range from Leader
(AAA) to Laggard (CCC). As a result of
our efforts to date, we have been awarded
the AAA rating consecutively in 2023, 2022
and 2021.
These ratings highlight our commitment to
a sustainable future and demonstrate our
resilience to long-term ESG risks.
Our products help our customers to be
more efficient – to use less energy in their
manufacturing processes or in their
products 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:
We are migrating to carbon-free
electricity across the Group. 72% of
our power was carbon free at the
end of 2023
We continue to improve the efficiency
of our gas-fired kilns and continue to
move to electrically fired options for
some kiln types.
During 2023 we reduced our absolute
scope 1 and 2 CO
2
e emissions by 25.4%.
*
The target boundary includes biogenic land-related
emissions and removals from bioenergy feedstocks.
50
%
REDUCE ABSOLUTE SCOPE 1
AND 2 GHG EMISSIONS BY 2030
100
%
SOURCING OF RENEWABLE
ELECTRICITY BY 2030
Strategic report
37
The environment
Our progress
Scope 1 and 2 CO
2
e emissions reduced by 25% in 2023
(compared with 2022). This was driven by improvements in:
Increased sourcing of renewable electricity
Efficiency improvements in our high-temperature processes
Continued investment in electric furnaces.
We have a broad-based improvement programme underway
covering energy procurement, process improvements and
behavioural changes in our plants.
In 2023, we improved our energy intensity, price adjusted, by
around 11% and continued the transition to carbon-free energy
for a number of our sites. Nearly three-quarters of our electricity
now comes from green or carbon-free sources.
Energy performance in 2023
Total GHG emissions (tCO
2
e) were 157,574 tonnes, a 25%
decrease over 2022 levels and 54% decrease over 2015 values
Scope 1 GHG emissions (tCO
2
e) from stationary fuel
combustion were 105,946 tonnes and scope 1 GHG
emissions (tCO
2
e) from process emissions were 4,617 tonnes.
For 2023, total scope 1 GHG emissions (tCO
2
e) accounted
was 110,563 tonnes, which is a 9% decrease over 2022 values
and 46% decrease over 2015 values
Market-based scope 2 GHG emissions (tCO
2
e) were
47,011 tonnes, which is a 47% decrease over 2022 values
and 66% decrease over 2015 values
Achieved a “B” management score for Climate Change
from CDP recognising we are taking co-ordinated action
on climate issues.
Energy procurement
The total energy consumption (fuel and electricity) for the
Group was 969.9 GWh for 2023, which is 8.5% lower than
2022. In 2023, we reached the milestone of 72% green
(renewable and carbon-free) electricity.
Scope 3 emissions
Details of our scope 3 screening exercise can be found on
page 51 of the TCFD section of this report.
Greenhouse gas emissions
The Group’s 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, ie, carbon dioxide equivalents (CO
2
e).
Energy
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.
Every year, we aim to decrease waste intensity by 5% and increase recycling efforts by the same percentage compared to
the previous year. We achieve this through Kaizen and 6S (Sort, Set in order, Shine, Standardise, Sustain and Safety) activities,
which focus on eliminating waste, improving quality, increasing efficiency, reducing idle time and minimising unnecessary activities.
Our year-on-year progress in each category are shown in the following tables.
Unit
2023
2022
2021
2020
2019
2018
Total waste generated
metric tonnes
36,853
47,879
39,918
35,660
48,676
46,605
Waste generation
intensity
metric tonnes/£m
33
43
42
39
46
45
Unit
2023
2022
2021
2020
2019
2018
Total waste recycled
metric tonnes
17,384
25,406
21,547
18,214
27,833
25,943
% Recycling of
total waste
%
47
53
54
51
57
56
The Group’s environment and sustainability data is calculated with reference to our Basis of Reporting (BoR) and EHS Definitions documents.
These are available on request from info@morganplc.com.
Waste
Through continuous improvement efforts we are reducing
all hazardous and non-hazardous waste streams.
Morgan Advanced Materials
Annual Report 2023
38
The environment
continued
As a result, the manufacturing sector is aligning itself to
understand their impact on biodiversity and is taking measures
to mitigate the impact.
Biodiversity at Morgan Advanced Materials
We value the protection of biological diversity as a means of
preserving natural resources, and flora and fauna survival.
We understand the interdependence of our raw material
usage, freshwater consumption and waste generation on the
natural ecosystem.
Our 2030 ESG objectives are consistent with the UNSDGs,
particularly Goal 6 (Clean Water and Sanitation), Goal 12
(Responsible Consumption and Production), and Goal 13
(Climate Action).
Our EHS&S policy and our corporate sustainability goals, such as
those related to product manufacturing, circular economy, water
management, material consumption, GHG reduction and climate
protection, are aimed at mitigating the risks to biodiversity.
Biodiversity strategy
Our focus moving forward will centre on three key areas of
impact: responsible production at our manufacturing sites, the
effects of our products on the ecosystem, and our supply chain.
As part of our ESG strategy, we intend to conduct assessments
to determine the impact on ecosystems and dependencies
within the Group’s manufacturing value chain.
As the world tackles climate change, our bioenergy demands will
exacerbate water demand, meaning many will face water scarcity
due to both physical shortages and scarcity in access. We use
water in a number of our manufacturing processes, and we
recognise that in some instances our water demands are in areas
of increasing water stress. By improving our water usage we will
positively impact the local communities in which we operate,
and therefore society more generally.
Water is used both for production operations and sanitary
purposes in our facilities. Our aim is to utilise water sustainably
throughout our business. By 2030, we intend to reduce our
overall water consumption by 30% and decrease water usage
in high-stress areas by 30% (compared to a 2015 baseline).
2023 progress and performance
Total water withdrawal is 1.72 million m
3
; which is an 11%
decrease over 2022 levels and a 26% decrease over 2015.
This reduction was driven by our investment in water
recirculation projects in late 2022 and through 2023, better
water management practices and changes in product mix
Water withdrawal intensity is measured at 1,543m
3
/£m,
compared to 1,738m
3
/£m of 2022
Total water withdrawal in water-stressed areas was
332,687m
3
. This is 14% lower than 2022 with a 23% decrease
over 2015.
Achieved a ‘B-’ management score for water security
from CDP, recognising we are taking co-ordinated action
on water issues.
Water-stressed areas
Morgan Advanced Materials identifies water-stressed sites
using the ‘Aqueduct Projected Water Stress Country Rankings’.
We determine our water-stressed sites by referring to the list
of countries categorised into high (40–80% | score 3–4)
and extremely high (>80% score 4–5) water stress levels.
We utilise the 2030 business-as-usual scenario for industrial
water usage to classify sites in water-stressed areas. For 2023
the list of water-stressed countries was revised to include Spain,
Italy, Turkey, Mexico, India, UAE, Argentina, China and Australia.
Additionally, our sites in the state of California USA, are included
in our water stress figures, based on water stress issues within
the state. Following this, we have restated our 2015 baseline
and all metrics are now compared to the new baseline.
Water
Water is a precious resource and we’re committed to using water effectively in our production processes
and across our sites. Water scarcity is an increasing challenge in many parts of the world.
Biodiversity
Investors and funding agencies now recognise biodiversity loss as a significant risk, and are
beginning to request that organisations monitor, report and mitigate their biodiversity risks.
Strategic report
39
Our people and communities
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. In return
we aim to be a caring organisation where everyone feels valued and appreciated. We use our Morgan Code to guide the actions we take.
This helps us to achieve our strategic aim of delivering performance and value creation for our stakeholders.
Our aspirations and 2030 goals outline our focus for making Morgan Advanced Materials a better place for our people.
Our aspirations
Our 2030 goals
Progress in 2023
‘Zero harm’ to
our employees
0.10 lost time
accident rate
EHS performance is monitored by the Group Executive Committee and the Board.
Our LTA rate was 0.19 (2022: 0.28), with the improvement reflecting the significant focus
on employee safety and wellbeing. During 2023, we refreshed our ‘take 5 for safety’
process, improved the safety of our high-temperature processes and deployed a new
EHS system to facilitate the reporting and management of EHS activities. Safety continues
to receive a high level of focus throughout the organisation.
Our employee
demographics will
be inclusive and
reflective of the
communities in
which we operate
40% of our
leadership
population will be
female
In 2023 30% of our leadership population is female, compared to 29% in 2022.
We supported our employees by asking them what would help them to progress further
within the organisation. This led to the introduction of WeeCare and PME Familienservice
to support employees with caring responsibilities.
We have created a new employer brand that features real Morgan people to open
up our culture to our communities, so they can see what it is like to work for us.
A work environment
where all employees
are valued and can
do their best work.
Top quartile
engagement score.
We listened to the feedback of our employees, especially what they told us on the
themes of retention and recognition of talent, and simplifying or improving our systems.
For example, we introduced better benefit communications to help our people
understand what we have to offer. We’ve simplified our performance management
system and explained more clearly our bonus structure for our salaried employees,
in order to set expectations.
Our engagement score is 54% based on a pulse survey and on a like-for-like basis,
engagement went down ~1%.
We are bringing the
experience alive of what it
means to work at Morgan
Advanced Materials through
our new employer brand. In
2024 this will be rolled out
further, with a focus on real
Morgan people. We are also
going to showcase local sites
and opportunities through
new dedicated ‘life at our sites’
pages on our website.
We are bringing further
training to our HR teams and
hiring managers to help
support them in achieving
greater diversity. One such
way is helping them to use
more inclusive language within
job descriptions and adverts.
We are working on new
policy initiatives to support the
growing diversity of our teams,
including engaging our people
to have greater understanding
of their entitlements today.
To support our reward
goals we will roll out
a new recognition scheme
that aligns with our execution
priorities and offers on
the spot recognition for
great contributions.
Our plans for 2024 and beyond
Morgan Advanced Materials
Annual Report 2023
40
Our people and communities
continued
Health and safety
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.
By 2030, we aim to accomplish the
following objectives:
First, we aspire to prevent any
occurrence of injuries or illnesses
by promoting a culture of care. Our
approach involves designing equipment
and processes that eliminate or control
potential risks. In situations where
engineering solutions are not feasible,
we continually assess and implement
standards to safeguard people
from hazards
Second, we prioritise the elimination of
risks that could result in serious injury.
We aim to eradicate all cases of
employee and contractor injuries and
occupational illnesses not only at work
but encourage the same best practices
at home.
To achieve our ambitious safety objective of
zero accidents and injuries, the involvement
of every individual affiliated with Morgan
Advanced Materials – employees,
contractors, and visitors – is crucial.
Our employees play a pivotal role in
influencing health and safety processes
and protocols by providing valuable
input through various channels, such
as safety teams and committees, site
communication meetings, pre-shift
meetings and training sessions.
We proactively identify and mitigate hazards
through a corrective and preventive action
process. Our approach to health and safety
employs several tools, such as machine-
specific risk assessments, ‘Take 5’ for
safety assessments, root cause incident
investigations, permit to work processes,
and ‘Don’t Walk By’ hazard and Good
Practice reporting.
Progress in 2023
In 2023 our LTA rate reduced to 0.19.
This is an improvement of 58% against
our 2015 baseline of 0.45, and
improvement against 2022 (0.28) of
32%. This improvement reflected
our continued focus on ‘thinkSAFE’ –
our safety programme – and targeted
safety interventions.
We improved our ‘Take 5’ for safety
process, introducing a standardised
assessment form. This is now used by
all and includes a ‘Stop Work Authority’
element. Since the roll out of this
assessment there has been a 33% increase
in ‘Don’t Walk By’ reports, with a
corrective action closure rate of 94%.
When incidents did occur, to increase
accountability and ownership of safety,
sites were required to present outcomes
of incident investigations with high severity
potential to senior leaders. The learning
outcomes were then shared business-wide.
We increased the implementation and
the use of an ergonomic assessment
software (Humantech), which includes
online training courses.
We implemented EHS360, a Group data
management platform, including mobile
applications. This includes incident and
‘Don’t Walk By’ reporting, incident
investigations, action tracking, plus risk
and assurance activities. This improved
our data consistency, reporting and tracking
of safety performance.
All of our 2023 activities were also
supported by a continued focus on
the ‘thinkSAFE’ (behavioural safety)
programme, where we trained further
safety ambassadors who in turn delivered
workshops, quarterly topics and
monthly topics.
Our plans for 2024
Over the coming year we will further
embed ‘Take 5’ for safety as a key
‘thinkSAFE’ commitment. We will also drive
‘Don’t Walk By’ reporting including action
closure via the EHS360 platform.
Further focus will be given to expanding
the adoption and utilisation of EHS360,
where we will enhance the reporting and
performance tracking functionality and add
environmental and sustainability measures
to give our leaders a greater picture.
Our people and communities
continued
Strategic report
41
Community
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 get
involved at a local level and look to
understand each community’s priorities
and concerns.
We also pride ourselves on having some
of the most passionate and inspiring people
working at Morgan Advanced Materials.
Not only do our people have a real love of
science, maths and technology, but many
also follow that passionate spirit through
into other aspects of their lives by giving
back to their local communities.
We want our people to have the freedom
to support what they care about most.
We share these stories through our internal
social media platform Viva Engage, where
you will often see the generous spirit and
nature of our employees – from bake sales
to cultural celebrations, and charity
donations to sponsorship events.
What our people got up to in 2023
Our people continued to make a positive
contribution to their community, to society
and to each other in 2023. We saw people
taking part in big clean-ups, supporting the
education of the next generation but also
for those needing extra support.
Our employees donated toys and clothes
and gave their time generously to fix things,
giving back where they could. All this
alongside personal donations to charity
and sponsorship of activities.
Diversity and inclusion
At Morgan Advanced Materials we are
committed to creating a diverse and
inclusive culture. We are clear that it is
our people who are the driving force
behind our success, so, in return for their
dedication, we aim to be open, engaging
and make those crucial adjustments to
open up our organisation to all.
Inclusion at Morgan
Marking and celebrating global awareness
days which reflect our differences, as well
as our similarities, gives our teams a great
opportunity to learn more about each
other, and fosters an inclusive work
environment. We support a number of
these awareness days throughout the
year as a way to celebrate, educate and
engage ourselves, and to highlight our
desire to make a big positive difference.
Diversity at Morgan
It takes a large number of very talented
people to keep Morgan Advanced Materials
running and we believe that our diversity is
our strength. As a global business, we speak
20 different languages and use our differing
experiences and knowledge gained from
our own lives to help solve complex
problems for our customers.
Recognising that each of our people needs
a different type of support to grow and
thrive, is key to reaching our goal.
We want to enable our employees to reach
their full potential, so we work together to
make this happen.
What we got up to in 2023
In 2023, we continued to build upon the
successful launch of our three employee
resource groups (ERGs) to serve as a visible
sign of our commitment to a diverse and
inclusive workplace. The three ERGs are
Women@Morgan, Military@Morgan and
PRISM – Pride, Respect, Inclusion and
Support at Morgan, supporting our
LGBTQ+ community and their allies.
We distributed challenge coins to our
Military@Morgan colleagues in the US
ahead of Veterans Day celebrations.
We opened up several new chapters
of our Women@Morgan ERG including
in China. The global group brought
us informative talks on topics such as
menopause, while the UK chapter hosted
a session on the UK gender pension gap.
Everyone came together in March to
highlight the amazing contribution of
women at Morgan Advanced Materials
as part of celebrations linked to
International Women’s Day.
During 2023 we also appointed our first
Diversity and Inclusion Director and
continued to support our managers to
achieve more inclusive recruitment by
expanding our ‘license to recruit’ training.
To support the next generation of female
leaders, we also ran a pilot female
mentoring programme in one of our global
business units. After fantastic feedback we
hope to widen the participation of this to
more women across the whole Group.
Morgan Advanced Materials
Annual Report 2023
42
Wellbeing
At Morgan Advanced Materials we
recognise the importance of our
people, and we strive to support
their wellbeing.
We have built up a grassroots wellbeing
programme called ‘Better You, Better Life’,
which supports our purpose of improving
quality of life. In a similar way to our safety
week, the programme runs activities across
the Group to promote healthy choices and
encourages our people to take part.
Mental health
In October each year we run our mental
health awareness month, supporting our
people to make better, healthier choices.
We believe that good mental health is as
important as good physical health and
wellbeing. We therefore provide our
people with resources and links to charities
and organisations across the globe that can
support them. We offer managers and
colleagues practical tips on communicating
with employees with mental health issues,
and we are backing a campaign to help
break down the stigma of asking for help
at work.
We have an employee assistance
programme in the UK and US that our
people can contact, and we are looking
at similar schemes in other locations,
alongside trained mental health first-aiders
on our sites.
What we got up to in 2023
We care about the wellbeing of our people,
and continue to build upon the structured
programmes and support we have in place.
In 2023 we introduced new wellbeing
learning journeys through our online
training platform, available to all our
employees. We have also focused on
specific topic areas to provide additional
education and support, for example on
dealing with stress.
Gender pay gap reporting
Recruiting and retaining the best people
from the widest possible talent pool is
a priority for us, and that is why our
gender diversity matters.
The UK Government introduced gender
pay gap reporting regulations for companies
with more than 250 employees. The phrase
‘gender pay gap’ refers to the difference in
the average earnings of men and women
within the same organisation.
In 2023, the average gender pay gap for our
UK workforce was 18.9% (2022: 21.6%,
2021: 26.0%). Our full Gender Pay Gap
Report is available on our website.
During 2023, Morgan Advanced Materials
met the board diversity targets set out in
the Financial Conduct Authority’s Listing
Rules: our Board composition was 43%
female, and the role of Senior Independent
Director was held by a woman.
Our people and communities
continued
WORKFORCE BY GENDER
MEMBERS AS AT 31 DECEMBER 2023
MALE
FEMALE
BOARD
4
MALE 57%
(2022: 57%)
BOARD
3
FEMALE 43%
(2022: 43%)
EXECUTIVE
COMMITTEE
6
MALE 67%
(2022: 70%)
EXECUTIVE
COMMITTEE
3
FEMALE 33%
(2022: 30%)
SENIOR LEADERS
66
MALE 74%
(2022: 74%)
SENIOR LEADERS
23
FEMALE 26%
(2022: 26%)
ALL LEADERS
296
MALE 70%
(2022: 71%)
ALL LEADERS
128
FEMALE 30%
(2022: 29%)
ALL
EMPLOYEES
5,798
MALE 67%
(2022: 66%)
ALL
EMPLOYEES
2,896
FEMALE 33%
(2022: 34%)
Strategic report
43
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. Our policies and
practices set out how our ESG
approach is governed.
Health and Safety Policy
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.
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.
Morgan Code
The Morgan Code is a foundational
component of our ethics and compliance
programme. The Code is a set of principles
supported by policies that lay out how
we must conduct ourselves, in support
of our people, our communities, our
business partners and our shareholders.
The Code applies to all employees and, to the
extent appropriate, to Morgan 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. 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. Morgan Code The
Morgan Code is a foundational component
of our ethics and compliance programme.
The Code is a set of principles supported by
policies that lay out how we must conduct
ourselves, in support of our people, our
communities, our business partners and
our shareholders. The Code applies to all
employees and, to the extent appropriate, to
Morgan Advanced Materials’ business partners
including agents, joint venture partners and
other third-party representatives.
Tax Policy
The Group’s business activities incur a
substantial amount and variety of taxes
including corporate income taxes, excise
duties, employment and other taxes.
The Group also collects and pays employee
taxes and other indirect taxes such as VAT.
The Group is committed to complying
with tax laws in the jurisdictions in which it
does business. The Group works closely
with tax authorities and supports initiatives
to increase trust in the tax systems around
the world. The Group’s tax strategy
applies to all Group entities.
Board and committee structure
The Board of Directors is collectively
responsible for promoting the success of
the Company consistent within its Articles
of Association, regulatory requirements
and good Corporate Governance.
The principal committees which support
the Board in its functions are as follows:
Executive Committee
Audit Committee
Nomination Committee
Remuneration Committee.
Monitoring and assurance
The Board has overall responsibility for
establishing and maintaining a sound
system of internal control to safeguard
shareholders’ investment and the Group’s
assets, and for reviewing the effectiveness
of such system.
Policies and control practices
Supporting the principles of the Morgan
Code are a suite of Group policies,
including Bribery Corruption and Facilitation
Payments, Competition Law and Anti-Trust,
Trade Controls, and Information Security.
Board Inclusion and Diversity Policy
The Board recognises the value of having
a diverse range of skills, experience and
thinking on which to draw. For good
governance and decision-making it is vital
to have a mix of people from different
backgrounds who can offer diverse
perspectives, industry and market
experience and who can challenge
effectively from an independent standpoint.
Modern Slavery Statement
The Group is committed to conducting
business legally, ethically, and with integrity
wherever we operate. We do not
condone any form of slavery, forced or
compulsory labour, or human trafficking
in our operations.
Gender Pay Gap Report
Recruiting and retaining the best people
from the widest possible talent pool is
a priority at Morgan Advanced Materials,
and that is why our gender diversity matters.
Human Rights Policy
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.
Supplier Code of Conduct
We behave ethically in our interactions with
our suppliers, seeking to build long-term
trusting relationships. We seek to ensure
our suppliers operate in a responsible way.
The Morgan Supplier Code of Conduct
defines the minimum standards that
must be met by our suppliers, vendors,
subcontractors and contract manufacturers.
Conflict Minerals Policy
Morgan Advanced Materials complies with
all laws related to conflict minerals and
does not support sourcing of conflict
minerals originating from countries that are
involved in or contributing to illegal armed
groups, human rights violations or financial
wrongdoings. Our commitment to comply
with all conflict minerals laws is covered in
our policy and is available on our website.
ESG policies
All policies are available on our website.
Morgan Advanced Materials
Annual Report 2023
44
The Task Force on Climate-Related Financial
Disclosures (TCFD) was established by the
Financial Stability Board in 2015, and focused
on improving the reliability of climate-related
risks and opportunities.
We recognise climate change as both a risk
and an opportunity for our business, and
we fully support the implementation of the
recommendations of the TCFD. Climate
change poses challenges to our supply chain
and production operations, as well as to
our employees and customers.
Listing Rule 9.8.6R
compliance statement
Morgan Advanced Materials is reporting
in line with FCA Listing Rule 9.8.6R(8)
by providing climate-related financial
disclosures consistent with the
TCFD recommendations in this 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. and 2. Strategy B and C
– The impact of
climate-related risks and opportunities
on the organisation’s businesses, strategy
has been explained, however detailed
financial plans to mitigate these are still
being developed. Scenario analysis has
been completed for most risks and
opportunities. For reliance on natural
gas we have only modelled the financial
impact of GHG taxes. The financial
impact of Heat Stress incident has not
been included as we are working on
methodologies to calculate this. It was
considered that the potential risk in the
short term would not be material and
therefore scenarios were examined over
the medium and long term time horizons.
However we recognise the importance of
scenario analysis in the development of our
strategy and will enhance the detail and
accuracy in future reporting cycles.
3. Metrics and targets B
– Scope 3
screening data for the reporting year
has been disclosed however, given the
spend-based approach taken, this should
be used for guidance purposes only until
the full inventory is completed for the
most material categories.
Although no formal strategy to achieve
compliance has yet to be developed,
each of these recommendations remains
a key focus for ESG compliance.
The climate-related financial disclosures
made by Morgan Advanced Materials
comply with the requirements of the
Companies Act 2006 as amended
by the Companies (Strategic Report)
(Climate-related Financial Disclosure)
Regulations 2022.
Summary of disclosures:
Section
Requirement
Location
Governance
a) Describe the Board’s oversight of climate-related risks and opportunities.
b) Describe management’s role in assessing and managing climate-related risks and opportunities.
page 44
page 45
Strategy
a) Describe the climate-related risks and opportunities the organisation has identified
over the short, medium, and long term.
b) Describe the impact of climate-related risks and opportunities on the organisation’s
businesses, strategy and financial planning.
c) Describe the resilience of the organisation’s strategy, taking into consideration different
climate-related scenarios, including a 2°C or lower scenario.
pages 47 to 48
pages 46 to 49
page 47
Risk
management
a) Describe the organisations processes for identifying and assessing climate-related risks.
b) Describe the organisations processes for managing climate-related risks.
c) Describe how processes for identifying, assessing and managing climate-related risks are
integrated into the organisations overall risk management.
page 50
page 50
page 50
Metrics and
targets
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities
in line with its strategy and risk management processes.
b) Disclose scope 1, 2 and if appropriate, scope 3 GHG emissions and related risks.
c) Describe the targets used by the organisation to manage climate-related risks and
opportunities and performance against targets.
page 50
pages 50 to 51
pages 51 to 52
Governance
Morgan Advanced Materials’ climate-related
risk and opportunities governance starts at
our highest level – the Board, and cascades
down through the organisation, as outlined
in the table on page 45.
Our Board has oversight of our climate
change, environmental and corporate
responsibility matters and ensures that our
executive team progresses as planned to
meet our commitments and goals.
The Board Chair and Board of Directors
monitor the Group’s progress against
climate related actions at each meeting.
The metrics reviewed at each meeting include:
Progress towards our 2030 absolute
Scope 1 and & 2 CO
2
e emissions target
1
Progress towards our 2030 water
withdrawal and water stress targets
2
.
The impact of capital expenditure projects
on our 2030 environment goals is assessed
as part of the Board review process.
Climate change risks and opportunities are
considered as part of a top-down (from the
Board) and a bottom-up (from the Global
Business Units (GBUs) risk management
process, where it is considered as a
contributory factor within several risk
categories, and as a risk itself. 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. Substantive impacts
are assessed and monitored through our
risk assessment process.
3
1.
See metrics and targets section.
2.
See metrics and targets section.
Task Force on Climate-Related
Financial Disclosures (TCFD) reporting
Strategic report
45
3.
See Risk Management page 54.
4.
See Directors Remuneration Report pages 104 to 130.
Table 1 – Board and Management oversight of climate-related risks and opportunities
Board of
Directors
Has oversight of our climate change, environmental and corporate responsibility matters to ensure
our executive team progresses as planned to meet our commitments and goals.
Climate-related risks and opportunities are a scheduled Board agenda item twice per year and progress
on environmental matters is reviewed four times per year, with updates on CO
2
and water progress in
each meeting.
The competencies of the Board can be found on page 80 of the annual report, which included skills
and experience relevant to climate matters.
Chief Executive
Officer
Has overall responsibility for climate risk management and delivery of the Sustainability strategy.
Environmental performance metrics, including CO
2
emissions and water usage, are reviewed each month
with the GBU presidents as part of the monthly performance review cadence.
Nomination
Committee
Ensures the Board possesses the correct depth and balance of capabilities to support the Group’s
long-term position, including the expertise to assess the impact of climate change.
Audit
Committee
Supports the Board on matters relating to financial reporting, internal control and risk management.
The Committee reviews the integrity of the Group’s climate-related financial reporting and the process
used to develop our TCFD-aligned disclosures and assesses climate-related risks for the purpose of
monitoring management’s progress in addressing them.
Remuneration
Committee
Responsible for remuneration policy, including the inclusion of sustainability-linked metrics and targets within
performance-related pay. Greenhouse gas emissions targets are part of our Long-Term Incentive Plan (LTIP).
4
Executive
Committee
Responsible for execution and monitoring of the sustainability strategy, including environmental and
corporate responsibility matters, and the processes and controls regarding climate risks at a Group level.
Includes GBU presidents.
Group Director,
Environment
Health, Safety
and Sustainability
(EHS&S)
Reporting to the CEO, is responsible for developing further, and driving execution of, the ESG strategy.
They manage and report progress on environment and sustainability matters to the executive team and
to the Board of Directors.
Is a key part of the Group risk review process – which reviews current and emerging risks every six months
and reports these to the executive team.
EHS&S
Leadership Team
Led by the Group Director EHS&S and comprising EHS&S leads from each of the GBUs, the team meets
monthly to review strategy implementation and performance against 2030 targets.
GBU leadership
teams
Each GBU has a leadership team and they are responsible for sharing, reviewing and managing of both
principal and emerging risks including climate risks. This includes related policy, guidelines and process,
and is subject to Board oversight.
The GBUs develop business-specific risk registers and business continuity plans which are used in their
annual strategic planning. These are presented to the Audit Committee and Executive Committees.
The individual GBUs monitor their own performance against ESG targets and implement climate-related
policies and projects.
Morgan Advanced Materials plc Board of Directors
Group Director EHS&S
EHS&S SLT
Executive Committee
Chief Executive Officer
Audit Committee
Remuneration
Committee
Nomination Committee
Morgan Advanced Materials’ climate governance structure
GBU Leadership Teams
Direct reporting line
Reporting on climate-related business risks
Reporting on business climate risk
Informing, directing climate risk response
Morgan Advanced Materials
Annual Report 2023
46
Task Force on Climate-Related Financial Disclosures (TCFD) reporting
continued
Strategy
Identification of risks
and opportunities
In late 2020, our Executive Committee,
our Group Director EHS&S, and the CEO
conducted a comprehensive materiality
assessment to establish our ESG priorities
up to 2030. We obtained feedback from
our Board and surveyed over 160 senior
business leaders to determine what ESG
means to our organisation. Additionally,
we gathered input from internal and
external stakeholders and assessed our
business performance. Based on this
materiality information we identified our
sustainability impacts on the environment
and society as well as the risks and
opportunities that were material to our
business and set ambitious goals for the
future. During 2023, scenario analysis was
conducted on the identified material risks to
better understand our business strategy and
resilience. Having considered the all sector
and sector specific risks and opportunities in
Tables A1.1 and A1.2 in the TCFD guidance,
the information in the table below
summarises our material risks
7
and
opportunities across the appropriate
time horizons.
8
Our products contribute to environmental
sustainability by significantly improving the
energy efficiency of our customers’
operations. We provide products
that enable solar and wind energy,
as well as those that support efficient
high-temperature processes such as
ceramic and glass manufacturing, and
industrial gas turbines.
Strategic execution priorities
1. Big positive difference
2. Delight the customer
3. Innovate to grow
9
As part of our ongoing assessment of
material risks and opportunities the
previous year’s disclosures have been
reviewed to determine if they would
continue to have a material impact on
the Group.
Following this review and considering
legislation timelines and requirements it
was deemed that obligations for enhanced
emissions reporting did not cause a material
impact on the Group as any increased costs
would be modest.
New product development was previously
disclosed in isolation however this has
now been included within the overall
opportunity of expanding within our
faster growing markets.
Availability of raw materials was previously
included within this section. It is considered
to be an operational risk due to certain
single-point suppliers, and is therefore
included within the Risk Management
section on page 58.
Changing customer behaviours leading to
reduced demand for our core markets
is no longer considered to be material.
The flexibility and adaptability of our
product portfolio enables us to support the
requirements of our customers net zero
transitions, giving strong resilience against
any such changes in core market demand.
Scenarios chosen
Transition scenarios were chosen to
explore different potential approaches
that governments and the international
community could take when setting carbon
prices, and how this could impact the
Group in different regions. These were
taken from World Energy Outlook 2022
– published by the International Energy
Agency. The Net Zero Emissions (NZE)
scenario was chosen to understand
the effect on the business of rapid
implementation, and the Announced
Pledges Scenario (APS) was chosen to
explore the current trajectory. Likelihood
scores were assessed based on anticipated
speed of adoption of these measures across
the international community. In undertaking
this analysis we have assumed future growth
in line with our financial framework.
Physical scenarios were chosen to
explore best (<2°C) , medium (2–4°C)
and worst case (4°C) impacts from
physical climate change at individual sites.
These were modelled using different
Intergovernmental Panel on Climate
Change (IPCC) Representative
Concentration Pathways (RCPs).
For the physical risks, the likelihood of
reaching each global temperature rise was
considered. For example, it was considered
to be almost certain that the world will
experience a temperature rise of 1.5°C,
whereas it is less likely that 4°C would be
reached. This likelihood was then combined
with the likelihood of an incident occurring
at one of our sites to give a final result.
7.
Climate-related materiality impacts are aligned with our broader risk assessment criteria,
which is defined using EBITA impact as follows:
– 1 – Negligible financial impact (£0–£0.1 million) – The lowest level are those risks
where the Company can absorb the financial impact, and the reputational impact is
relatively non-existent or negligible.
– 2 – Low financial impact (£0.1–£1 million), with a potential to be known by the
public via regulatory notices.
– 3 – Moderate financial impact (£1–£5 million), with the potential to be known
by the public or to damage our Company reputation.
– 4 – High financial impact (£5–£10 million), with the potential to impact
customer confidence.
– 5 – Significant financial impact (£10–£20 million) and/or reputational damage.
– 6 – Critical financial impact (>£20 million) and/or reputational damage.
Likelihood assessments are aligned with our broader risk assessment criteria,
and reflects the likelihood of the scenario and incident occurrence, where the risk
probability is defined as follows:
– 1 – Rare 0–5%
– 2 – Low 5–10%
– 3 – Moderate 15–25%
– 4 – High 25–50%
– 5 – Significant 50–75%
– 6 – Inevitable >75%.
8.
Climate-related risks and opportunities could impact the Group strategy over the short,
medium and long term. These are aligned with our broader risk assessment criteria and
are defined as follows:
– Short term (0–3 years). Detailed financial plans are developed, incorporating the
strategic spending requirements to decarbonise our business and realise growth
opportunities.
– Medium term (3–10 years). Aligns with our 2030 ESG targets. Each GBU develops
transition plans within this time horizon to realise these targets.
– Long term (10–25 years). Aligns with our 2050 ESG ambitions. In this time horizon we
expect to see a significant shift in technologies to allow us to decarbonise our business
but realise that significant uncertainties exist and must be considered when developing
long-term transition plans.
9.
For more detail on our execution priorities see page 19.
Strategic report
47
Table 2 – Summary of our material risks and opportunities
Risk/
opportunity &
time horizon
How it impacts Morgan
Advanced Materials
Link to our
strategy/
associated
opportunity
Scenario
likelihood/
Impact
Comments and response
Related metrics
and targets
Transition risks & opportunities
Reliance on
natural gas
Medium to
long term
1. Impact of
rising wholesale
costs and
GHG pricing
instruments.
2. New
manufacturing
technology to
reduce natural
gas use and
lower carbon
output.
3. Damage
to reputation.
Natural gas is widely
used across the Group
especially in our high-
temperature furnaces.
1. Continued reliance
on natural gas increases
the Group’s financial
exposure with increasing
wholesale costs.
2. Transitioning to lower
carbon manufacturing
processes requires
investment. In many
cases, the technology is
not yet available to enable
either electrification or
other low carbon fuels
(such as green hydrogen).
3. The reputational
impact from being a
carbon intensive business
may deter potential
employees and third
parties that want to work
with the Company.
1, 2 and 3
Reducing the
carbon
footprint of
key products
will support
our customers
with their
net zero
ambitions.
Investing in
new and
existing
manufacturing
processes
to drive
efficiency
improvements
will help
mitigate
financial
exposure.
1.5°C
10
Likelihood 3
Impact 3
(medium
term)
<2°C
11
Likelihood 4
Impact 3
(medium
term)
For reliance on natural gas the financial
impact of GHG taxes was modelled,
however rising wholesale prices has not
been modelled as we have considered
this within our strategic and financial
planning which mitigates any significant
risk. Our reputational damage has not
been assessed.
The results show an increasing likelihood
and impact from reliance on natural
gas across both scenarios. GHG pricing
instruments will likely begin to come
into force closer to 2030. Based on
current guidance the majority of our
sites produce CO
2
emissions at a level
lower than the thresholds.
In response, we will continue to leverage
our core capability in materials science.
A key part of our Transition Plan before
2030 is our investment in R&D for
key product families to establish their
decarbonisation pathway. The cross-GBU
furnace working group is working to
establish efficiency improvement and
decarbonisation opportunities.
As an example, we are signatories of
the Ceramics UK Towards Net Zero
initiative and are part of their Hydrogen
research project.
Our products help our customers to save
energy. The impact from high fuel prices
in recent years has been passed on to
our customers and we would expect to
pass on carbon costs in the same way,
enabling our customers to choose the
most carbon-efficient technology.
Our pledge to increasingly source
carbon-free energy demonstrates
our commitment to decarbonisation.
Commitment to
reduce scope 1
and 2 emissions
by 50% by
2030 from
a 2015 baseline.
Commitment
to source 80%
carbon-free
energy by 2025.
Growth in
our faster
growing
markets
Short-medium
term
Increasing demand
for semiconductors,
healthcare, clean energy
and clean transportation
solutions to support the
global net zero transition
offers growth opportunity
for the Group.
1, 2 and 3
These
markets align
well with both
our purpose
and strategy.
Our products
support
the global
transition
to a more
sustainable
future.
Forecast
7–12%
growth per
year, through
the cycle.
These
segments
contribute
21% of
total sales.
Increasing decarbonisation drivers
will increase demand for our products.
We are investing in capacity to better
serve these growing markets and have
dedicated market specialists to ensure
we address their needs. In these markets,
we have newer products with high levels
of differentiation and we continue to
invest in R&D to develop products
which meet the needs of tomorrow.
Revenue and
% growth
in our faster
growing markets.
Investment
in R&D.
10. Net Zero Emissions (NZE) scenario from World Energy Outlook 2022 – International Energy Agency.
11.
Announces Pledges Scenario (APS) from World Energy Outlook 2022 – International Energy Agency.
Morgan Advanced Materials
Annual Report 2023
48
Risk/
opportunity &
time horizon
How it impacts Morgan
Advanced Materials
Link to our
strategy/
associated
opportunity
Scenario
likelihood/
Impact
Comments and response
Related metrics
and targets
Physical risks & opportunities
Heat stress
Medium term
Heat stress at our
manufacturing facilities
could negatively affect our
staff, plant and materials.
1
The health
and safety
of our
employees
is our top
priority.
Supporting
them delivers
on our big
positive
difference
strategic
priority.
<2°C
12
Likelihood 3
2–4°C
13
Likelihood 4
>4°C
14
Likelihood 3
Extreme heat events become more likely
and impactful in the worst-case scenario.
Mitigations such as the strategic provision
of air-conditioned rest rooms for workers,
which are already widely available across
our sites, are relatively straightforward to
implement to protect employee health
whilst minimising GHG growth.
Our global manufacturing footprint and
diversified supply chain means products
could be temporarily manufactured at other
facilities in the event of business disruption.
During periods of high heat that have
already occurred at some manufacturing
locations, we have been able to shift
manufacturing to cooler times of day.
The potential impacts from heat stress
are considered as part of our ongoing
manufacturing strategy.
We are now
monitoring heat
stress incidents
through our H&S
reporting system.
A 0.10 LTA rate.
Top quartile
engagement
score.
Water stress
Medium term
Water is used in the
manufacture of our
materials. Drought
events where process
water is limited could
impact our sites.
3
Innovating
to reduce
the process
water used
in our
manufacturing
processes
reduces both
the cost of
the water and
the energy
required
to dry the
product.
<2°C
7
Likelihood 3
Impact 1
2–4°C
8
Likelihood 4
Impact 1
>4°C
9
Likelihood 3
Impact 2
Drought events increase in duration
in the worst-case scenario. Drought
events of greater than one month
were considered in our modelling.
As a key part of our Transition Plan before
2030 we are investing in R&D for key
product families to reduce water use and
share best practice in water conservation.
The water stress at a location is evaluated as
part of our ongoing manufacturing strategy.
The three sites affected in the <2C
scenario already have mitigation plans
to reduce consumption. In Aurangabad,
India we have introduced a water
harvesting system, in Kizad, UAE a new
recirculating water tower was installed.
In Gujarat, India we are evaluating the
installation of a recirculating cooling
tower. By reducing our consumption in
these locations we mitigate the possibility
of being forced to reduce operations.
30% reduction in
water withdrawal
by 2030 from
a 2015 baseline.
30% reduction in
water withdrawal
at water-stressed
sites by 2030
from a 2015
baseline.
Sea level rise
Medium to
long term
Some of our factories
are in low-lying locations.
Although sea level rise in
isolation is not predicted
to affect these locations,
when combined with
high tide and storm
surges, flood events
could damage our plants
and interrupt supply of
product to customers.
2
Our global
manufacturing
footprint
means
products
could be
manufactured
at other
facilities,
supporting
our
customers
through any
interruptions.
<2°C
15
Likelihood 3
Impact 3
2–4°C
Likelihood 4
Impact 3
>4°C
Likelihood 3
Impact 3
The impact from seal level rise on our
facilities was found to be moderate with
flood damage and potential protection
or relocation costs the key impact.
We undertook an analysis of our
exposure to sea level rise in 2022.
Of our 70 manufacturing locations,
four were identified as having >1%
annual risk of flooding before 2050.
This is a long-term risk and it is being actively
considered as part of the ongoing review of
our physical portfolio. One of the identified
high-risk sites from the last report (Dalian,
China), closed in the course of 2023.
Ongoing
monitoring,
metrics not
developed.
12. RCP 4.5 – IPCC.
13. RCP 4.5 (High) – IPCC.
14. RCP 8.5 – IPCC.
15. Climate central coastal risk screening tool – based on IPCC RCPs.
Task Force on Climate-Related Financial Disclosures (TCFD) reporting
continued
Strategic report
49
Impact of risks and opportunities
on the business strategy
The first transition risk explored was the
Company’s reliance on natural gas in the
manufacturing process. Although only
one of our sites is currently exposed to an
emissions trading scheme, there is risk in
the future that more of our operations will
be exposed to carbon pricing instruments
as well as the rising wholesale cost of
natural gas. Assuming annual growth in
emissions linked to business growth, both
the 1.5°C and <2°C scenarios predicted
a similar impact in 2030, but increasingly
diverged in 2040 and 2050, with higher
impact in the 2°C scenario. The impact
shows the potential costs to the Company
of not being proactive in planning for
decarbonisation and enacting our
decarbonisation roadmap.
Our customers, exposure to carbon pricing
mechanisms could also be an opportunity.
Our products help our customers to
become more efficient, by reducing losses
in their manufacturing operations or in the
operation of their product. For example,
our thermal management solutions are
supporting our customers to maximise
throughput efficiency and minimise their
carbon footprints.
We have significant transition opportunity
in our faster growing market segments of
semiconductors, healthcare, clean energy
and clean transportation. A number of
projections have been compiled using
external sources and internal analysis which
show a through-cycle CAGR of 7–12%
in the next three to five years. Given the
relatively short time horizon we have not
run scenario analysis on these growth rates.
Heat stress and water stress scenario
analysis examined potential changes in peak
temperatures and drought months at 25
of our largest sites. Sea level rise risk was
assessed for sites with >1% chance of
flooding before 2050. Impact scorings were
based on potential temporary interruptions
to manufacturing operations. Changing
physical risks are being actively considered
as part of the ongoing review of our
physical portfolio.
Business resilience
The resilience of the Group to these climate
risks has been assessed. Our global
footprint, strong market positions and
diverse portfolio is our strength.
Our customer base is widely spread.
We largely make products where we sell
them with localised supply chains. In the
event of a local shock, manufacturing of
product could be transferred to other sites
within the GBU.
Our scenario analysis around our natural
gas reliance allows us to plan for changes
in operating costs and balance our global
manufacturing strategy. Our financial
performance over recent years has
demonstrated our resilience, growing
profitably every year. Even during the
shock of the global pandemic in 2020 we
maintained operating margins above 10%.
Transition Plan
The risks and opportunities considered
by the Board have directly informed the
Group’s strategy to deliver on our 2030
goals and 2050 aspirations. These form
the foundation of our net zero roadmap,
as set out below, to ensure we achieve
our targets.
Preparing for the future
The Company’s short-term planning
(0–3 years) focuses on climate change-
related actions towards process efficiency,
improving net-water consumption, and
changing electricity providers to carbon-free
sources to achieve our 2025 target of 80%
carbon-free electricity:
Conversion of lower temperature
furnaces to electricity
. Building on
the development work to convert low
temperature processes, minimising
exposure to carbon taxation
Development of a scope 3 emissions
strategy and targets
. In 2023 we further
refined our scope 3 screening exercise
in line with SBTi guidance. In 2024 we
will commence work on our scope 3
inventory, starting with the most material
categories. From this we will develop
strategies to reduce emissions across the
categories which are key to the Group
Life cycle assessment on our key
products
. To better support our
customers in their decarbonisation
journeys, we will conduct life cycle
assessment on our key products,
making carbon footprints available,
but also identifying opportunities to
reduce their impact
Engineering solutions to increase
efficiency and water recycling
.
In particular, leveraging our furnace
working group to ensure our existing
assets are performing
Inclusion of a shadow carbon price in
Capex business cases
. This will drive
visibility of the potential environmental
costs of business decisions
Investing in early stage R&D projects
for carbon-free furnaces
.
Acknowledging that the solutions are not
yet deployable in many cases, we will
work with academia, industry groups
and suppliers to develop solutions
Investing to grow capacity in key
markets
. We will invest in equipment
to support the fast growth in the
semiconductor, clean energy and clean
transportation markets, embedding and
improving our market position.
Scaling up
The Company’s medium-term planning
(3–10 years) delivers more permanent
solutions to achieve our 2030 ESG goals:
Installation of pilot carbon-free
furnaces
. Higher temperature processes
require more technology development,
and the installation of pilot furnaces
for the different furnace types will
support this
Further conversion of lower
temperature furnaces to electricity
.
Converting further low temperature
furnaces to electricity
Working with our value chain to
reduce scope 3 emissions
. Deploying
our strategy to reduce our scope 3
footprint in key categories to achieve
our target of 15% reduction by 2030.
Investment in key technologies
The Company’s long-term approach
(10–25 years) considers the achievement
of long-term goals and implementing the
solutions needed to decarbonise our
business. Climate change-related
long-term planning includes decisions on
the future of power generation and supply,
advancements in low carbon technology
and larger investments in waste heat
recovery and carbon capture:
Further conversion of lower
temperature furnaces to electricity
.
Converting remaining low temperature
furnaces that can be converted
to electricity
Conversion of higher temperature
furnaces to electricity
. Where
technologically possible, converting
higher temperature furnaces to electricity
Morgan Advanced Materials
Annual Report 2023
50
Working with our value chain to
further reduce our scope 3 emissions
.
Building on our progress, we will
continue to work with our value chain
to decarbonise
Conversion of remaining furnaces to
carbon-free alternatives
. Electrification
may not be possible or viable in all
cases, so parallel R&D paths will develop
and deploy alternative solutions.
Risk management
The Board recognises the need to
understand and assess climate-related
risk and the inherent uncertainty therein.
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.
Senior executives including the CEO and
Executive Committee are responsible for
the management of the Group’s principal
risks, including climate-related risk. Further
details on the Company’s procedures for
identifying, assessing and managing risk
can be found on page 54, in the Risk
Management section of our Annual Report.
Our Environment, Health, Safety &
Sustainability Senior Leadership Team
(EHS&S SLT) meets monthly to oversee
management of our most significant
environmental and climate risks. This group
is chaired by our Group Director EHS&S.
The senior management teams for the
different GBUs are responsible for
developing risk mitigation and management
strategies for the risks they identified for
their individual businesses. Each risk is
assessed by using the indicators of relevance
and their associated impact as part of
their annual strategic planning. Impact on
revenue, litigation outcomes, sites disrupted
and applicable fines are all quantifiable
indicators that could affect each sites,
risk classification.
Climate change and environmental
remediation are recorded as two principal
risks on the Group risk register. Climate
change covers transition and physical term
risks listed on pages 47 to 48 in the Strategy
section of this report. Environmental
remediation covers the risk of
environmental incidents and risks to
remediation activities underway in parts
of the Group. These are assessed in the
same way as all of the other principal risks.
Climate risk is also considered as a
component of other principal risks.
During 2023, the Board reviewed the
preparedness of the Company to the
principal risks with a significant potential
impact at Group level every six months.
Additionally, the Audit Committee carried
out a focused risk review of each GBU.
These reviews included an analysis of the
principal risks, and the controls, monitoring
and assurance processes established to
mitigate those risks to acceptable levels.
The overall risk from climate change was
assessed to have a high severity rating.
Metrics and targets
We are pleased that our 2030 targets have
been scrutinised and validated by the
Science Based Targets initiative (SBTi)
as being aligned with the well below
2°C trajectory. Our commitments are
as follows:
Morgan Advanced Materials commits to
reduce absolute scope 1 and 2 GHG
emissions 50% by 2030 from a 2015
base year
16
Morgan Advanced Materials also commits
to increase active annual sourcing of
carbon-free electricity from 0% in 2015
to 80% in 2025 and 100% by 2030
Morgan Advanced Materials further
commits to reduce absolute scope 3
GHG emissions 15% by 2030 from
a 2019 base year.
We engaged ERM CVS to obtain limited
assurance in relation to selected information
and data in this Report. The Assurance
Report can be found on our website
17
.
Morgan Advanced Materials outlines its
organisational boundary on an operational
control basis, and our scope 1 and 2
emissions are reported on this basis.
The Company has reviewed the
cross-industry climate-related metrics
Table A2.1 from the TCFD guidance and
has developed metrics for GHG emissions.
Although ESG targets are part of the
Executive Management Team’s LTIP
(see pages 104 to 130), we do not intend
to develop metrics in this area.
Scope 1 and 2
We monitor our scope 1 and 2 emissions
to understand our natural gas consumption,
and potential exposure to carbon pricing
mechanisms. It also allows us to understand
and track how mitigating actions such as
increasing efficiency and new technologies
are impacting and reducing our exposure.
Scope 1 and 2 emissions
reduction performance
Morgan Advanced Materials has reduced
its scope 1 and 2 emissions by 54% from
a 2015 baseline. This has been achieved
through the increased procurement of
carbon-free energy and driving energy
efficiency within our operations. Our
manufacturing sites account for 99% of our
scope 1 and 2 emissions so improving the
efficiency of these in the short term is key
to reducing our scope 1 CO
2
e emissions.
Although we have surpassed the target for
2030 continued focus on efficiencies and
technology advancements is needed to
maintain this. In the medium term our
furnace working group will evaluate and
pilot alternative fuel furnace technology
in line with our Transition Plan.
16. The target boundary includes biogenic land-related
emissions and removals from bioenergy feedstocks.
17.
The assurance statement is available on our website:
morganadvancedmaterials.com/en-gb/being-responsible/
sustainability-responsibility-report/
2030
23
22
21
20
19
318,842
276,678
157,574
211,104
Target
171,347
229,887
Task Force on Climate-Related Financial Disclosures (TCFD) reporting
continued
CO
2
e scope 1 and 2 emissions
(metric tonnes)
Strategic report
51
20. Carbon-free electricity includes renewable and nuclear sources.
21.
Scope 3 values were estimated using volume-based data where available and spend-based where not. Emission factors used are from the GHG evaluator tool with the exceptions of
categories 10, 11 and 12 which were estimated using life cycle assessment insights for key products.
22. Our 2019 results have been updated from figures published in the 2022 TCFD disclosure following an improvement in the upstream and downstream transport calculation to introduce
estimates for supplier and customer transport not procured by Morgan Advanced Materials.
Carbon-free energy procurement target
We monitor our carbon-free energy procurement as it is part of our strategy to reach our 2030 scope 1 and 2 reduction target.
This in turn mitigates our exposure to carbon pricing mechanisms.
As part of our commitment to the SBTi, one of our validated targets is to increase our sourcing of renewable and carbon-free electricity
from 1% in 2019 to 80% by December 2025, and we commit towards sourcing 100% renewable and carbon-free electricity by 2030.
Table 3 – carbon-free energy progress
Metric
2019
2020
2021
2022
2023
2025 Target
Carbon-free energy procurement
as a % of total electricity procured
1%
6%
33%
49%
72%
80%
Our strategy is based on reducing our scope 2 emissions through the purchase of carbon-free electricity.
20
In 2023 we procured 72%
of our electricity from green or carbon-free sources. We continue to evaluate the procurement options for renewable energy on
a regional basis, including options for on-site generation. During the course of 2023, three additional solar PV systems were commissioned
at our sites, with further plans for investment. In total in 2023 we generated 1.5 GWh renewable electricity on-site, an increase from
1.2 GWh in 2022.
Scope 3
We recognise assessment of our value-chain emissions is an important part of our long-term sustainability strategy. In 2022, we completed
a scope 3 screening exercise
21
across all relevant categories as part of our SBTi submission. The figures for 2023 and our 2019 baseline
22
are shown below.
The screening exercise uses both spend-based and volume-based methods to estimate emissions in each of the categories. In the future
we intend to review the emissions factors used for the existing data and to transition away from spend-based factors in the most material
categories.
Table 4 – Scope 3 emissions screening results
Morgan Advanced Materials scope 3 GHG emissions results (tCO
2
e)
2023
2022
2021
2020
2019
Category 1
Purchased goods and services
410,641
474,257
439,775
394,744
444,705
Category 2
Capital goods
100,351
75,768
49,794
42,816
76,684
Category 3
Fuel and energy related activities
31,567
30,497
52,118
61,163
70,647
Category 4
Upstream Transport
46,613
71,143
58,777
48,935
65,109
Category 5
Waste generated in operations
9,597
12,344
11,889
11,210
15,968
Category 6
Business travel
13,903
9,360
5,509
3,953
20,036
Category 7
Employee commuting
12,750
12,750
12,750
12,750
12,750
Category 8
Upstream leased assets
–
–
–
–
–
Category 9
Downstream transport
22,705
18,780
18,052
15,912
17,228
Category 10
Processing of sold products
26,995
30,361
28,116
28,477
30,340
Category 11
Use of sold products
53,146
49,843
43,389
39,837
43,205
Category 12
End of life of sold products
81,107
57,050
58,062
53,725
56,427
Category 13
Downstream leased assets
–
–
–
–
–
Category 14
Franchises
–
–
–
–
–
Category 15
Investments
–
–
–
–
–
Total scope 3
GHG emissions (tCO
2
e)
809,375
842,153
778,231
713,522
853,099
Total scope 1 and 2
GHG emissions (tCO
2
e)
157,574
211,104
229,887
276,678
318,842
Total GHG emissions (tCO
2
e)
966,949
1,053,257
1,008,118
990,200
1,171,941
Morgan Advanced Materials
Annual Report 2023
52
Revenue in faster growing markets and R&D spend
Growth in our faster growing markets of semiconductors, healthcare, clean energy and clean transportation is a transition opportunity
for the Group. In 2023 we recognised sales of £237.3 million in these sectors, increasing from £217.7 million in 2022. We monitor our
revenue in faster growing markets to ensure we are accessing the climate related opportunities in these markets. In addition, in 2023 we
invested £32.9 million in R&D, increasing from £31.6 million in 2022. R&D investment is key to mitigating the technology transition risk,
as we move away from fossil fuel powered furnaces.
Heat stress monitoring, Lost time accident rate and employee engagement
We are now monitoring heat stress incidents through our H&S reporting system. This allows us to understand the impact that heat stress
is having on our employees, and allows us to take action to reduce their exposure. In 2023 we saw one LTA attributable to heat stress
and a further six incidents where the employee was able to return to work. In 2023 we improved our LTA rate to 0.19
25
as we continue
to work towards our 2030 goal of a LTA rate of 0.10. In 2023 we achieved an engagement score of 54%.
26
23. Water withdrawal includes water drawn from the Company’s owned sources, local authority and commercial sources.
24. Morgan Advanced Materials identifies water-stressed sites using the ‘Aqueduct Projected Water Stress Country Rankings’ (https://www.wri.org/data/aqueduct-projected-water-stress-
country-rankings). We determine our water-stressed sites by referring to the list of countries categorised into high (40–80% | score 3–4) and extremely high (>80% | score 4–5)
water stress levels. We utilise the 2030 business-as-usual scenario for industrial water usage to classify sites in water-stressed areas. Previous reports used the 2020 database. For 2023
reporting, we have used the 2022 database and have restated historical figures accordingly. Additionally, our sites in the State of California, USA are included in our water stress figures,
due to the water stress issues in the state of California. Countries classified as water-stressed are Australia, China, India, Italy, Mexico, Spain, Turkey, UAE and USA – California.
25. See page 40.
26. See page 39.
Task Force on Climate-Related Financial Disclosures (TCFD) reporting
continued
Total water withdrawal
(million m
3
)
Water withdrawal in water-stressed areas
*
(% reduction from 2015 baseline)
2030
23
22
21
20
19
7%
14%
10%
23%
9%
Target
30%
2030
23
22
21
20
19
1.88
1.50
1.72
1.93
1.73
Target
1.63
*
Water-stressed areas include Spain, Italy, Turkey, Mexico, India, United Arab Emirates,
Argentina, Australia and the state of California, USA. Using the most recent WRI data,
2023 and prior years have been restated to include China. See page 38 for details.
Our Stourport facility in the UK has made strategic
investments in water recirculation systems, particularly this
one in the materials manufacturing section. In 2023 alone,
their efforts have reduced site water consumption by
a commendable 43%, demonstrating their commitment to
minimising their environmental footprint while maximising
operational effectiveness.
Total water withdrawal and withdrawal in water-stressed regions
Our aspiration is to use water sustainably across our business. Our 2030 target is to reduce our overall water withdrawal by 30% and
reduce our water withdrawal in high-stress areas by 30% (from a 2015 baseline).
23
In line with the most recent data, we have updated
our water-stressed definition to include China
24
and our 2015 baseline has been restated. We monitor our water withdrawal in water
stressed regions to ensure that we are taking action at those sites to minimise water consumption. This mitigates against the risk of business
interruptions in case of a drought event. We have reduced our total water withdrawal by 26%, and by 23% in water-stressed areas
compared to this baseline. In 2023, due to the cumulative effect of a number of water saving investments, and an impactful water leak in
2022, our total water withdrawal had decreased by 11% compared to the prior year. Withdrawal in water-stressed areas is also improved,
due to the impact of water reduction projects.
Strategic report
53
27. Total scope 1 emissions were calculated from the addition of emissions from fuels, refrigerants and other process emissions. Biogenic CO
2
e emissions are calculated and reported separately
in Table 3. Process emissions disclosed (4,617 tCO
2
e, or circa 4% of scope 1 emissions in 2023) are calculated using internally derived calculations. Scope 1 emissions for 2020 to 2022
have been restated from prior years to include process emissions. The scope 1 figure excludes mobile emissions which were estimated to be circa 200 tCO
2
e in 2023 but could not be
evidenced for assurance purposes.
28. The scope 2 emissions figure was calculated using the market-based methodology. The location-based figure for the same period is 155,957 tCO
2
e.
29. Biogenic emissions result from the combustion of biological materials. These are considered carbon neutral and therefore reported separately. Emissions were calculated using the
UK Government GHG Conversions Factors for Company Reporting (2023 version).
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
and 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 and carbon.
Morgan Advanced Materials PLC is
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.
Specific examples of actions taken
within the year to reduce energy
consumption include:
Investment in on-site solar energy. Our
site in Swansea completed the installation
of a 278kW solar array, bringing their
installed capacity to over 500kW, with
other installations completed at our
Kailong, China plants
Replacement of a gas furnace with an
electric furnace at our Kempten site
in Germany
Use of thermographic analysis to improve
the efficiency of furnaces in Kizad, UAE
Installation of transparent roof panels
to improve the quality of light at our
facility in Chile.
Table 5 – Scope 1 and 2 Emissions and Streamlined Energy and Carbon Reporting
1 January – 31 December 2023
Units
2023
2022
2021
2020
2015
Scope 1 energy consumption
MWh
574,531
636,583
648,833
592,325
UK
MWh
38,316
37,988
37,358
36,277
Global excluding UK
MWh
536,215
598,595
611,475
556,048
Scope 1 GHG emissions
27
tCO
2
e
110,563
121,989
122,817
116,552
205,570
UK
tCO
2
e
7,374
5,657
6,880
6,686
Global excluding UK
tCO
2
e
103,189
116,332
115,937
109,866
Scope 2 energy Consumption
MWh
395,366
423,955
417,835
387,177
UK
MWh
14,198
15,205
15,083
15,673
Global excluding UK
MWh
381,168
408,750
402,752
371,504
Scope 2 GHG emissions
(market-based)
28
tCO
2
e
47,011
89,115
107,070
160,126
137,124
UK
tCO
2
e
0
0
0
3,657
Global excluding UK
tCO
2
e
47,011
89,115
107,070
156,469
GHG intensity
tCO
2
e/£m
141
190
242
304
391
UK
tCO
2
e/£m
169
106
179
276
Global excluding UK
tCO
2
e/£m
140
194
245
305
Biogenic CO
2
emissions
29
tCO
2
e
719
978
877
501
1,368
Methodology
This report (including the scope 1 and 2
consumption and CO
2
e 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).
Scope 1 calculations use the UK
Government GHG Conversion Factors
for Company Reporting (2023 version).
Scope 2 location-based calculations use
emission factors from the IEA 2023
publication, Scope 2 market-based
calculations follow the GHG Protocol
emission factor hierarchy and apply
supplier-specific factors and residual factors,
where available. All consumption data
was complete for the reporting period.
We are committed to a sustainable future
and our approach to sustainability continues
to evolve as we bring into scope more and
more elements related to our operations,
processes and products.
Our products are benefiting the
environment by making the operations of
our customers significantly more energy
efficient, and over the last five years we
have made steady reductions to our own
CO
2
e emissions and water consumption.
Morgan Advanced Materials
Annual Report 2023
54
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 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:
maintaining significant focus on employee
safety and wellbeing, we have: refreshed
our ‘Take 5’ for safety process, improved
the safety of our high-temperature
processes and deployed a new EHS
system to facilitate the reporting and
management of EHS activities
strengthening our security posture,
following the cyber security incident
which we experienced in January 2023,
and accelerating our IT infrastructure
modernisation programme
increased focus on a robust internal
financial control environment
continued focus on the ethics agenda,
including self-certification of policy
compliance and mandatory quarterly
training on ethics and compliance
driving forward the Group’s
sustainability agenda, we have
a broad-based improvement programme
underway covering energy procurement,
process improvements and behavioural
changes in our plants.
Risk appetite
The Board has reviewed its appetite for
the Group’s principal risks and concluded
that its appetite for these risks remains
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 new end-markets, such as
electric vehicles, domestic heating and
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 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.
Strategic report
55
Risk description, assessment and trend from 2022
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 setup 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.
From 1 January 2024, Electrical Carbon and Seals and Bearings
GBUs were consolidated into a new GBU: Performance
Carbon, to take advantage of potential synergies. Change
management capabilities have been developed to mitigate the
associated integration risk.
Further detail on our strategy can be found on pages 18 to 19
and 23 to 25.
Operational risks
Morgan Advanced Materials
Annual Report 2023
56
Risk management
continued
Risk description, assessment and trend from 2022
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.
Following the cyber security incident in January 2023,
the Group launched a restructuring and efficiency programme.
This aims to simplify the Group’s portfolio and align
capacity with the anticipated demand across the business.
This programme will continue into 2024.
During 2023, opportunities to acquire businesses were
actively reviewed on a continuing basis.
Macro-
economic and
political
environment
Severity:
Significant
Trend:
Unchanged
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 our 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 2023, the macro-economic and political environment
remains muted, driven by high energy costs and the various
global conflicts.
The Board continues to monitor the global issues which impact
the Group, including trade restrictions and sanctions and the
relationship 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 Executive Committee approves annual priorities for EHS.
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 0.19 (2022:
0.28); with the improvement reflecting the significant focus
on employee safety and wellbeing. During 2023, we refreshed
our ‘take 5 for safety’ process, improved the safety of our
high-temperature processes and deployed a new EHS system
to facilitate the reporting and management of EHS activities.
Safety continues to receive a high level of focus throughout
the organisation.
The Group continues to manage 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 35 to 38.
TCFD disclosures are set out on pages 44 to 53.
Details of the Group’s provisions and contingent liabilities can
be found in note 24 to the consolidated financial statements.
Operational risks
Strategic report
57
Risk description, assessment and trend from 2022
Mitigation
Pandemic
Severity:
High
Trend:
Unchanged
The overall risk severity remains high as the
impact of a future pandemic could be significant.
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
COVID-19 pandemic were successfully adapted – 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.
These measures can be swiftly replicated in the event of
another pandemic.
Climate
change
Severity:
High
Trend:
Unchanged
Global climate change poses a number of
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 has completed scenario analysis for all identified
risks and is in the process of developing its strategy. See further
details on pages 46 to 48.
Longer-term risks include heat stress, water scarcity, sea level
rise, and supply chain disruption. Adverse and extreme
weather changes are also a potential risk which is monitored
by the GBUs and the respective sites.
Science based targets have been validated by SBTi and are in
line with a well below 2°C scenario.
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:
Unchanged
Risk appetite:
Very low
Across the industry the frequency of cyber security
incidents 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 security incident experienced in January
2023, 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 changing regulatory and
compliance landscape and the impact of 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.
The Data Governance Committee was set up during 2023,
alongside a data classification project which is focused on
identifying, monitoring and protecting the use of data across
the Group.
Operational risks
Morgan Advanced Materials
Annual Report 2023
58
Risk management
continued
Risk description, assessment and trend from 2022
Mitigation
Supply chain/
business
continuity
Severity:
High
Trend:
Unchanged
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, US earthquake zone. Certain sites
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 our 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. No material debt
maturities are due until 2026. As at 31 December 2023,
£42.1 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 68.
Operational risks
Strategic report
59
Risk description, assessment and trend from 2022
Mitigation
Pension
funding
Severity:
Low
Trend:
Favourable
Risk appetite:
Low
The Group sponsors several defined benefit
pension arrangements (‘the Schemes’), which
are largely fully funded and with an investment
strategy that aims to insulate them from fluctuating
interest rates, investment values and inflation.
The deficit in Morgan Advanced Materials’ global
defined benefit pension schemes calculated on the
basis required for IAS 19 accounting disclosures
increased from £15.6 million as at 31 December
2022 to £25.2 million at 31 December 2023,
principally as a result of a reduction in the UK
Schemes’ surplus, measured on the accounting
basis. Both UK Schemes remain over 100%
funded on the valuation basis, on which future
contribution requirements would be assessed.
Our 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.
In the UK both Schemes are closed to the future accrual of
benefits. 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 the one remaining defined benefit pension plan in
the US has been reduced. 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 the remaining US
multi-employer plan has been agreed and a proposal for
withdrawal made to the Trustees.
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
Morgan Advanced Materials
Annual Report 2023
60
Risk management
continued
Risk description, assessment and trend from 2022
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
Strategic report
61
Risk description, assessment and trend from 2022
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 our commitment 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 appointed compliance officers, who are
responsible for supporting and monitoring local training.
Morgan Advanced Materials 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
pages 33 and 43.
Legal and compliance risks
Morgan Advanced Materials
Annual Report 2023
62
Review of operations
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 2023,
it comprised 21 operating sites employing
approximately 2,470 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 £402.2 million,
representing a decrease of 4.6% compared
with £421.4 million in 2022. Reductions
in Conventional energy and Industrial
segments were partially offset by growth
across several segments including
Healthcare, Conventional transportation
and Metals. FX has been a substantial
driver of the decline as on an organic
constant-currency
*
basis, year-on-year
revenue decreased by 0.7%.
Thermal Ceramics operating profit was
£25.3 million (2022: £44.3 million), and
operating margin was 6.3% (2022: 10.5%).
Operating margin has declined versus prior
year owing to inefficiencies from the cyber
security incident impacting the first half of
the year. Full year margins show significant
recovery through H2. Details of the specific
adjusting items charge of £8.0 million
(2022: £2.8 million) are included in
note 6. Adjusted operating profit
*
was £34.5 million (2022: £48.7 million)
with adjusted operating profit margin
*
of 8.6% (2022: 11.6%).
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 2023, it comprised five
operating sites employing approximately
440 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 £52.2 million, a decrease of
9.7% compared with £57.8 million in 2022.
Revenue decline is seen across both
Industrial and Metals segments due to
reduced market demand. On an organic
constant-currency
*
basis, year-on-year
revenue decreased by 8.1%.
Molten Metal Systems operating profit
was £4.2 million (2022: £7.5 million),
and operating profit margin was 8.0%
(2022: 13.0%). Margin weakening has
been caused by the drop through of volume
decline as well as cyber security incident
related inefficiencies in the first half.
Details of the specific adjusting items charge
of £1.3 million (2022: £nil) are included in
note 6. Adjusted operating profit
*
was
£5.7 million (2022: £7.8 million) with
adjusted operating profit margin
*
of
10.9% (2022: 13.5%).
Strategic report
63
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 2023, Electrical Carbon
comprised 16 operating sites employing
approximately 1,440 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 Electrical Carbon for the year
was £201.4 million, representing an increase
of 6.7% compared with £188.7 million in
2022, driven by significant growth in our
Semiconductor segment. On an organic
constant-currency
*
basis, year-on-year
revenue increased by 9.7%.
Electrical Carbon operating profit was
£38.7 million (2022: £39.1 million), and
operating profit margin was 19.2%
(2022: 20.7%). Slight margin reduction is
a result of cyber security incident related
inefficiencies in the first half of the year.
Details of the specific adjusting items
charge of £2.3 million (2022: £0.1 million
credit) are included in note 6. Adjusted
operating profit
*
was £41.5 million
(2022: £39.7 million) with an adjusted
operating profit margin
*
of 20.6%
(2022: 21.0%).
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 2023, Seals and
Bearings comprised 11 operating sites
employing approximately 1,410 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 Seals and Bearings in 2023 was
£145.8 million, representing a decrease of
1.8% compared with £148.5 million in
2022, with the primary driver being a
decline in the Industrial segment offset
by strong growth in the Healthcare and
Petrochemical segments. On an organic
constant-currency
*
basis, year-on-year
revenue decreased by 1.2%. Ceramic
armour sales in 2023 were £25.4 million
(2022: £25.5 million).
Seals and Bearings operating profit
was £3.3 million (2022: £16.6 million),
and operating profit margin was 2.3%
(2022: 11.2%). Details of the specific
adjusting items charge of £7.4 million
(2022: £1.6 million) are included in
note 6. Margin deteriorated as a result
of manufacturing inefficiencies from
the cyber security incident. Adjusted
operating profit
*
was £11.4 million (2022:
£19.0 million), with an adjusted operating
profit margin
*
of 7.8% (2022: 12.8%).
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
GBU makes is used in demanding, harsh or
critical environments. The GBU 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 2023, Technical
Ceramics comprised 17 operating sites
employing approximately 2,860 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 in
2023 was £313.1 million, an increase of
5.9% compared with £295.7 million in
2022, driven by strong growth in
Conventional transport (particularly
Aerospace) and Security and defence
with a combination of market growth
and share wins. On an organic constant-
currency
*
basis, year-on-year revenue
increased by 6.4%.
Technical Ceramics operating profit
was £40.4 million (2022: £39.2 million),
and operating profit margin was 12.9%
(2022: 13.3%). Details of the specific
adjusting items credit of £8.0 million
(2022: £1.2 million charge) are included in
note 6. Margin decline due to continued
system recovery from the cyber security
incident and related inefficiencies. Adjusted
operating profit
*
was £33.1 million (2022:
£41.7 million), with an adjusted operating
profit margin
*
of 10.6% (2022: 14.1%).
Strategic report
Morgan Advanced Materials
Annual Report 2023
64
Group financial review
Group performance
Group revenue and operating profit
Group revenue was £1,114.7 million
(2022: £1,112.1 million), an increase of 0.2%
on a reported basis compared with 2022.
Group adjusted operating profit
*
was
£120.3 million (2022: £151.0 million).
Adjusted operating profit margin
*
was
10.8%, compared with 13.6% for 2022.
Operating profit was £91.9 million
(2022: £140.8 million) and profit before
tax was £77.8 million (2022: £131.6 million).
Specific adjusting items in 2023 were
a net pre-tax charge of £25.1 million
(2022: £5.5 million), primarily relating to
the cyber security incident in January 2023,
impairment of non-financial assets, and the
impact of Argentina’s currency devaluation.
Further details are included under Specific
adjusting items below.
Read more about our five global business
units on pages 62 to 63.
Continuing operations
Revenue
Adjusted
operating profit
1
Margin %
2023
£m
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
Thermal Ceramics
402.2
421.4
34.5
48.7
8.6%
11.6%
Molten Metal Systems
52.2
57.8
5.7
7.8
10.9%
13.5%
Electrical Carbon
201.4
188.7
41.5
39.7
20.6%
21.0%
Seals and Bearings
145.8
148.5
11.4
19.0
7.8%
12.8%
Technical Ceramics
313.1
295.7
33.1
41.7
10.6%
14.1%
Segment total
1,114.7
1,112.1
126.2
156.9
11.3%
14.1%
Corporate costs
(5.9)
(5.9)
Group adjusted
operating profit
1
120.3
151.0
10.8%
13.6%
Amortisation of intangible assets
(3.3)
(4.7)
Operating profit before
specific adjusting items
117.0
146.3
10.5%
13.2%
Specific adjusting items included
in operating profit
2
(25.1)
(5.5)
Operating profit
91.9
140.8
8.2%
12.7%
Net financing costs
(14.1)
(9.2)
Share of profit of associate
(net of income tax)
–
–
Profit before taxation
77.8
131.6
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the
statutory results to the adjusted measures can be found on pages 72 to 73.
2.
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 2023, specific adjusting items were
£25.1 million (2022: £5.5 million) and
comprised the following:
2023
£m
2022
£m
Specific adjusting items from continuing operations
1
Costs associated with the cyber security incident
(14.7)
–
Charges in relation to the impact of Argentina’s currency devaluation
(5.8)
–
Net restructuring (charge)/credit
(3.5)
0.6
Net business closure and exit costs
(1.9)
–
Impairment of non-financial assets
(7.3)
(6.5)
Reversal of impairment of non-financial assets
8.1
–
Net profit on disposal of business
–
0.4
Total specific adjusting items before income tax
(25.1)
(5.5)
Income tax credit from specific adjusting items
3.8
1.1
Total specific adjusting items after income tax
(21.3)
(4.4)
1.
Specific adjusting items relating to discontinued operations are disclosed in note 9 to the consolidated financial statements.
Strategic report
65
2023
Costs associated with the
cyber security incident
During 2023, we incurred £14.7 million of
exceptional costs and charges in relation to
the cyber security incident in January 2023.
These were comprised of legal and advisory
costs, IT recovery and support costs and
impairment charges for IT assets which
were rendered unusable as a result of
the incident.
Charges in relation to the impact of
Argentina’s currency devaluation
On 13 December 2023, Argentina devalued
its currency by more than 50%. The impact
of the currency devaluation (£2.6 million)
has been classified as a specific adjusting
item. An impairment review was also
performed as at 31 December 2023 and,
due to restrictions on imports limiting the
ability to purchase raw materials and the
subsequent effect on forecast trading,
we have fully impaired the carrying value
of property, plant and equipment and the
value of raw materials which, in the
current circumstances, we would be
unable to sell. The impairment charges
in relation to property, plant and equipment
and inventory were £1.9 million and
£1.3 million, respectively.
Net restructuring charge
The Group has taken the opportunity to
right-size our global footprint and rationalise
costs in order to focus resources on our
faster growing markets. This restructuring
programme commenced in the second
half of 2023 and will continue into 2024.
A charge of £6.5 million has been
recognised in relation to this and comprises
costs associated with staff redundancies
and site closure costs.
A restructuring provision of £3.0 million
held for Technical Ceramics, ceramic cores
has been released following settlement
of a multi-employer pension plan and the
re-letting of the site.
Net business closure and exit costs
During 2023, we commenced liquidation
of a Thermal Ceramics business in China.
Costs associated with this were £1.9 million
and included severance, decommissioning
and advisory fees.
The land and buildings owned by another
Thermal Ceramics business in China which
was closed in 2020 were sold in December
2023. The gain associated with this sale was
£2.4 million.
We disposed of a Thermal Ceramics
business in France in 2015, for which we
retained responsibility for remediating the
impact of historical manufacturing processes
on the environment. An assessment of
the remaining required remediation was
performed in 2023 and as a consequence of
this review we have provided £2.4 million.
Impairment of non-financial assets
Seals and Bearings, Europe
An impairment charge of £2.9 million was
recognised after reassessing the value in
use of property, plant and equipment in
a business in Italy which was experiencing
limited growth. This represents a partial
impairment of the assets; the carrying value
of the assets following this impairment was
£5.3 million. The calculation of value in use
was performed as at 31 December 2023,
a long-term growth rate of 1.0% was used
for years beyond the five-year forecast
period and in calculating the terminal value,
with a pre-tax discount rate of 17.3%.
An impairment charge of £0.3 million was
recognised after assessing the viability of
a development asset, which could not be
successfully commissioned.
Seals and Bearings, Asia
An impairment charge of £1.9 million was
recognised after reassessing the value in
use of property, plant and equipment in
a business which was experiencing limited
growth and under-utilisation of key assets.
This represents a partial impairment of
assets; the carrying value of the assets
following this impairment was £2.2 million.
The calculation was performed as at
31 December 2023, using a long-term
growth rate of 1.0% and a pre-tax
discount rate of 13.9%.
Electrical Carbon, North America
An impairment charge of £1.5 million was
recognised after assessing the viability of a
development asset in North America which
was not deemed to be commercially viable.
Electrical Carbon, Asia
An impairment charge of £0.7 million was
recognised in relation to assets associated
with a manufacturing line which, based
on current projections, is expected to
be under-utilised from 2025 onwards.
Reversal of impairments recognised
in prior periods
In 2020, as a result of the COVID-19
pandemic, we impaired property, plant and
equipment within our Technical Ceramics,
ceramic cores business and Thermal
Ceramics, Europe. Following our review
as at 31 December 2023 of assets which
continue to be used and which were
impaired in previous years, we have
reversed a portion of this impairment.
For the ceramic cores business we reversed
£5.7 million, being a full reversal, reinstating
the net book value at which the assets
would have been held if the impairment
had not been booked in 2020, because
the business and the aerospace industry
have demonstrated sustained growth.
For Thermal Ceramics, Europe we
have recorded a partial impairment
reversal of £2.4 million following sustained
recovery of the industrial market segments.
This reversal is based on a value in use
calculation which was performed at
31 December 2023, using a long-term
growth rate of 1.0% for years beyond the
five-year forecast period and in calculating
terminal value, with a pre-tax discount
rate of 13.6%.
Review of cumulative impairment of
non-financial assets
Impairment charges of £20.6 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, Thermal
Ceramics £7.2 million, Seals and Bearings,
Asia £2.9 million and Seals and Bearings,
Europe £2.8 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.
Morgan Advanced Materials
Annual Report 2023
66
Group financial review
continued
2022
Impairment of non-financial assets
Seals & Bearings, Asia
An impairment charge of £0.6 million was
recognised relating to assets purchased to
support a customer contract which did
not materialise.
A further impairment charge of £1.0 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 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 was
recognised following a fire in December
which destroyed a warehouse and
inventory. The assets were subsequently
written off.
An impairment charge of £1.1 million was
recognised after reassessing the value in
use of property, plant and equipment in a
business in France which was experiencing
limited growth and under-utilisation of
key assets. This represented 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 was
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 was 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
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.
Restructuring credit
A credit of £0.6 million was recognised in the year ended 31 December 2022.
This represented the release of restructuring provisions recorded in relation to the
Group’s 2020 restructuring programme. The remaining provision of £10.5 million as at
31 December 2022 included lease exit costs and multi-employer pension obligations for
two sites which were closed in 2021. In 2022, the cash outflows relating to the pension
obligations were expected to continue for up to 19 years, subject to any settlement being
reached in advance of that date. Cash outflows in relation to the lease were expected to
continue for 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 2022. This disposal generated a net profit of £0.4 million. Refer to note 2 for
further information.
Foreign currency impact
The principal exchange rates used in the translation of the results of overseas subsidiaries
were as follows:
GBP to:
2023
2022
Closing rate
Average rate
Closing rate
Average rate
US dollar
1.27
1.24
1.21
1.24
Euro
1.15
1.15
1.13
1.17
The potential impact of changes in foreign exchange rates is given in note 21 to the
consolidated financial statements on
page 185.
Retranslating the 2023 full-year results at the February 2024 closing exchange rates would
lead to revenue of £1,091.7 million and adjusted operating profit
*
of £112.7 million.
For illustrative purposes, the table below provides details of the impact on 2023 revenue
and Group adjusted operating profit* if the actual reported results, calculated using 2023
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 2023 revenue/adjusted operating profit
1
if:
Revenue
£m
Adjusted
operating
profit
1
£m
GBP weakens by 10c against the US dollar in isolation
42.8
4.9
GBP weakens by 10c against the Euro in isolation
21.5
2.5
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the
statutory results to the adjusted measures can be found on pages 72 to 73.
Strategic report
67
Amortisation of intangible assets
The Group amortisation charge was
£3.3 million (2022: £4.7 million).
Finance costs
The net finance charge was £14.1 million
(2022: £9.2 million) comprising net bank
interest and similar charges of £11.7 million
(2022: £5.4 million), net interest on
IAS 19 pension obligations of £nil
(2022: £1.4 million), and the interest
expense on lease liabilities of £2.4 million
(2022: £2.4 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 184.
Looking forward to 2024, we anticipate
that the net finance charge will be around
£18–20 million, comprising: net bank
interest and similar charges of £16–17
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 £26.0 million (2022:
£37.1 million). The effective tax rate,
excluding specific adjusting items,
was 25.3% (2022: 27.0%). Note 8 to
the consolidated financial statements,
on page 165, provides additional
information on the Group’s tax charge.
Looking forward to 2024, we anticipate
that the effective tax rate will be around
25%–27%.
On a statutory basis, the Group tax charge
was £22.2 million (2022: £36.0 million),
lower than the previous year due to the
lower taxable profits.
Earnings per share
Basic earnings per share from continuing
operations was 16.4 pence (2022:
30.6 pence) and adjusted earnings per
share
*
was 25.0 pence (2022: 33.8 pence).
Details of these calculations can be found
in note 10 to the consolidated financial
statements on page 168.
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 17 May 2024 to Ordinary
shareholders on the register at the close of business on 26 April 2024. The ex-dividend
date is 25 April 2024.
Together with the interim dividend of 5.3 pence per share paid on 17 November 2023,
this final dividend, if approved by shareholders, brings the total distribution for the year to
12.0 pence per share (2022: 12.0 pence).
A total dividend of 12.0 pence per share represents a dividend cover of adjusted EPS
*
of
2.1 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. While the results in 2023 were depressed by the impact of the cyber
security incident, the balance sheet is strong and the Board is confident about the outlook
for the business. Consequently, the Board is recommending a flat dividend in 2023 even
though cover is lower than our target for this year.
Note 41 to the Company financial statements, on
page 211, provides additional information
on the Company’s distributable reserves.
Cash flow
Cash generated from continuing operations was £126.3 million (2022: £59.1 million).
Free cash flow before acquisitions, disposals and dividends
*
was £14.6 million
(2022: £(46.9) million).
Net debt
*
at the year end was £232.3 million (2022: £200.4 million), representing
a net debt
*
to EBITDA
*
ratio of 1.5 times (2022: 1.1 times).
The Group has cash and cash equivalents
*
of £124.5 million and undrawn headroom on
its revolving credit facility of £187.9 million.
Net debt excluding lease liabilities
*
was £185.2 million (2022: £148.5 million), representing
a net debt
*
to EBITDA
*
ratio excluding lease liabilities of 1.2 times (2022: 0.8 times).
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 197.
2023
£m
2022
£m
Cash generated from continuing operations
126.3
59.1
Net capital expenditure
(58.5)
(57.4)
Net interest on cash and borrowings
(11.6)
(5.4)
Tax paid
(30.3)
(31.8)
Lease payments and interests
(11.3)
(11.4)
Free cash flow before acquisitions, disposals
and dividends
14.6
(46.9)
Dividends paid to external plc shareholders
(34.2)
(31.6)
Net cash flows from other investing and financing activities
(17.8)
(10.3)
Cash flows from sale of subsidiaries and associates
–
0.4
Net cash flows from discontinued operations
0.4
1.1
Exchange movement and other non-cash movements
0.3
(14.5)
Opening net debt
1
excluding lease liabilities
(148.5)
(46.7)
Closing net debt
1
excluding lease liabilities
(185.2)
(148.5)
Closing lease liabilities
(47.1)
(51.9)
Closing net debt
1
(232.3)
(200.4)
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the
statutory results to the adjusted measures can be found on pages 72 to 73.
Morgan Advanced Materials
Annual Report 2023
68
Group financial review
continued
Capital structure
At the year end total equity was
£398.6 million (2022: £429.6 million)
with closing net debt
*
of £232.3 million
(2022: £200.4 million).
Non-current assets were £530.8 million
(2022: £524.3 million) and total assets were
£1,024.7 million (2022: £1,020.3 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 181.
Capital structure is further discussed
in note 21 to the consolidated financial
statements on page 186 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.
2023
£m
2022
£m
Operating costs:
Current and past service cost
(2.4)
(2.7)
Administration expenses recognised outside
the pension liabilities
(1.1)
(1.5)
Curtailments and settlements
–
0.2
Total operating costs
(3.5)
(4.0)
Net interest on net defined benefit liability
–
(1.4)
Total
(3.6)
(5.4)
Defined benefit pension plans
The Group pension deficit has increased
by £9.6 million since last year end to
£25.2 million on an IAS 19 (revised) basis:
The UK Schemes’ surplus decreased
by £12.7 million to £12.5 million (2022
surplus: £25.2 million), (discount rate
2023: 4.52%; discount rate 2022: 4.81%)
The US Schemes’ deficit decreased by
£3.7 million to £5.5 million (2022:
£9.2 million), (discount rate 2023:
4.80%; discount rate 2022: 4.99%)
The European Schemes’ deficit increased
by £0.3 million to £28.2 million (2022:
£27.9 million), (discount rate 2023:
3.40%; discount rate 2022: 3.70%)
The Rest of World Schemes’ deficit
increased by £0.3 million to £4.0 million
(2022: £3.7 million), (discount rate 2023:
5.52%; discount rate 2022: 5.30%).
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
There were no reportable post balance
sheet events following the balance
sheet date.
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.
Strategic report
69
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 179.
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 178 and 179.
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 60.
Business simplification in 2024
As mentioned on page 31, in order to focus our resources on the most attractive opportunities, we will in future manage the Group
through three distinct segments, Thermal Products, Performance Carbon and Technical Ceramics. This structure is effective from
1 January 2024.
Revenue
Adjusted operating profit
1
Adjusted operating
profit margin %
1
2023
£m
2022
£m
2023
£m
2022
£m
2023
%
2022
%
Thermal Products
454.4
479.2
40.2
56.5
8.8%
11.8%
Performance Carbon
327.2
321.7
50.0
57.3
15.3%
17.8%
Technical Ceramics
333.1
311.2
36.0
43.1
10.8%
13.8%
Segment total
1,114.7
1,112.1
126.2
156.9
11.3%
14.1%
Corporate costs
(5.9)
(5.9)
Group adjusted operating profit
1
120.3
151.0
10.8%
13.6%
The table above shows 2022 and 2023’s results using the operating segments of the Group going forward.
Morgan Advanced Materials
Annual Report 2023
70
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 75
. The financial position of the
Group, its cash flows, liquidity position
and borrowing facilities, are described
in the Financial Review on pages 64 to 69.
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 2028. As at 31 December 2023,
the Group had both significant available
liquidity and headroom on its covenants.
Total committed borrowing facilities were
£496.9 million. The amount drawn under
these facilities was £309.0 million, which
together with net cash and cash equivalents
of £123.9 million, gave a total headroom
of £311.8 million. The multi-currency
revolving credit facility was £42.1 million
drawn. The Group had no scheduled
debt maturities until 2026.
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. 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 46% and an increase in net
debt of 40% 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 2028 in the line with
impairment review testing and the strategic
planning process. The Directors consider
this an appropriate period over which to
provide its 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 54 to 61 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 2028.
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.
Strategic report
71
While the review has considered all the principal risks identified by the Group, the following were focused on for enhanced stress testing:
Scenarios modelled
Link to principal risks
and uncertainties
Cyber security incident
The failure of a key business system following another cyber security incident. The sensitivity analysis
performed considered the impact of a two-week loss of access to the Group’s main ERP system on the
revenue and EBITA as well as exceptional costs to reinstate the system to the latest cyber security standards.
IT, Cyber security and
data management risks
IT projects failure
The failure or ineffective implementation of core systems impacting the Group’s ability to deliver its
strategic goals. The sensitivity analysis performed considered the impact of additional accelerated investment
in IT following the cyber security incident which occurred in January 2023.
IT, Cyber security and
data management Risks
Bribery and corruption
The breach of national and international laws and regulations including those related to bribery and corruption,
and competition/anti-trust activities. The sensitivity analysis performed considered impacts on the Group’s
revenue and EBITA as well as a regulatory fine or a penalty.
Compliance risk
Trade compliance breach
The failure of sanctions screening programme and non-compliance with export regulations. The sensitivity
analysis performed considered impacts on the Group’s revenue and EBITA as well as additional legal costs.
Compliance risk
The combined impact of the above four scenarios results is a 10% reduction in Group’s revenue and 43% reduction in Group’s EBITA in
2024 before taking mitigating actions. In this worst-case scenario the Group remains within banking covenants.
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 54 to 61.
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 they have 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 2028.
Morgan Advanced Materials
Annual Report 2023
72
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 158, 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. The exclusion of amortisation of intangible assets is to allow for consistent comparability
internally and externally between our businesses, regardless of whether they have been grown organically or through acquisition.
2023
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
25.3
4.2
38.7
3.3
40.4
111.9
(20.0)
91.9
Add back specific adjusting items
included in operating profit
8.0
1.3
2.3
7.4
(8.0)
11.0
14.1
25.1
Add back amortisation of intangible assets
1.2
0.2
0.5
0.7
0.7
3.3
–
3.3
Adjusted operating profit
34.5
5.7
41.5
11.4
33.1
126.2
(5.9)
120.3
Adjusted operating profit margin
8.6%
10.9%
20.6%
7.8%
10.6%
10.8%
1.
Corporate costs consist of central head office costs.
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.
Strategic report
73
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 62 to 63.
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
2022 revenue
421.4
57.8
188.7
148.5
295.7
1,112.1
Impact of foreign currency movements
(16.3)
(1.0)
(5.1)
(0.9)
(1.5)
(24.8)
Impact of acquisitions, disposals and business exits
–
–
–
–
–
–
Organic constant-currency change
(2.9)
(4.6)
17.8
(1.8)
18.9
27.4
Organic constant-currency change %
(0.7)%
(8.1)%
9.7%
(1.2)%
6.4%
2.5%
2023 revenue
402.2
52.2
201.4
145.8
313.1
1,114.7
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
2022 adjusted operating profit
48.7
7.8
39.7
19.0
41.7
156.9
(5.9)
151.0
Impact of foreign currency movements
(4.7)
(0.3)
(1.7)
(0.2)
0.1
(6.8)
–
(6.8)
Impact of acquisitions, disposals and
business exits
–
–
–
–
–
–
–
–
Organic constant-currency change
(9.5)
(1.8)
3.5
(7.4)
(8.7)
(23.9)
–
(23.9)
Organic constant-currency change %
(21.6)%
(24.0)%
9.2%
(39.4)%
(20.8)%
(15.9)%
2023 adjusted operating profit
34.5
5.7
41.5
11.4
33.1
126.2
(5.9)
120.3
Morgan Advanced Materials
Annual Report 2023
74
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
i.e. excluding capital and interest payments on leases which have
been capitalised following the adoption of IFRS 16. This is used
as a proxy for the charge that would have been attributable to
operating leases under the now defunct IAS 17.
A reconciliation of operating profit to Group EBITDA
*
is as follows:
2023
£m
2022
£m
Operating profit
91.9
140.8
Add back: specific adjusting items included
in operating profit
25.1
5.5
Add back: depreciation – property, plant
and equipment
31.9
30.3
Add back: depreciation – right-of-use assets
7.6
7.8
Add back: amortisation of intangible assets
3.3
4.7
Group EBITDA
*
159.8
189.1
Group EBITDA
*
excluding
IFRS 16 Leases impact
148.5
177.7
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 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:
2023
£m
2022
£m
Cash generated from
continuing operations
126.3
59.1
Net capital expenditure
(58.5)
(57.4)
Net interest on cash and borrowings
(11.6)
(5.4)
Tax paid
(30.3)
(31.8)
Lease payments and interests
(11.3)
(11.4)
Free cash flow before acquisitions,
disposals and dividends
14.6
(46.9)
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.
2023
£m
2022
£m
Cash and cash equivalents
124.5
117.7
Bank overdrafts
(0.6)
(1.5)
Net cash and cash equivalents
123.9
116.2
Net debt
Net debt is defined as borrowings, bank overdrafts and lease
liabilities, less cash and cash equivalents. The Group discloses
net debt because it helps readers of the consolidated financial
statements assess its ability to meet its financial obligations, manage
debt and its capacity to invest in growth opportunities. The Group
also discloses this metric excluding lease liabilities as this is the
measure used in the covenants over the Group’s debt facilities.
2023
£m
2022
£m
Cash and cash equivalents
124.5
117.7
Non-current borrowings
(309.1)
(230.1)
Non-current lease liabilities
(36.6)
(41.4)
Current borrowings and bank overdrafts
(0.6)
(36.1)
Current lease liabilities
(10.5)
(10.5)
Closing net debt
(232.3)
(200.4)
Closing net debt excluding
lease liabilities
(185.2)
(148.5)
Definitions and reconciliations of non-GAAP measures to GAAP measures
continued
Strategic report
75
Return on invested capital
The Group discloses return on invested capital (ROIC) to assess its
efficiency in generating profits from the capital it has invested in its
operations. The ROIC calculation has been simplified this year so
that it can be calculated from published information. Prior period
comparatives have been restated to follow the same methodology.
ROIC is now defined as 12-month adjusted operating profit
(operating profit excluding specific adjusting items and amortisation
of intangible assets) divided by the 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). Third-party
working capital includes inventories, trade and other receivables,
and trade and other payables.
2023
£m
2022
£m
Operating profit
91.9
140.8
Add back: specific adjusting items
25.1
5.5
Add back: amortisation of intangible assets
3.3
4.7
Group adjusted operating profit
120.3
151.0
Third-party working capital
174.7
181.7
Property, plant and equipment
293.8
283.2
Right-of-use-assets
31.6
33.6
Goodwill
177.5
181.9
Other intangible assets
4.7
7.1
Capital employed
682.3
687.5
Average capital employed
684.9
637.8
ROIC
17.6%
23.7%
Under the previous methodology (which used 12-month adjusted
operating profit and 12-month average adjusted net assets),
ROIC as at 31 December 2023 was 16.9% (2022: 23.0%).
Adjusted earnings per share
Adjusted earnings per share is defined as operating profit adjusted
to exclude specific adjusting items and amortisation of intangible
assets 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 that it provides a helpful
indication of the Group’s financial performance excluding material
non-recurring expenses or gains and non-financial asset
impairments and impairment reversals, and therefore facilitates
the evaluation of the Group’s performance over time.
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 the Group’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 168.
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 184 to 186 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 75, has been
approved by the Board.
On behalf of the Board
Winifred Chime
COMPANY SECRETARY
11 March 2024
Morgan Advanced Materials
Annual Report 2023
76
Governance
Chair’s letter to shareholders
77
Board of Directors
78
Governance at a glance
80
Strategic oversight by the Board
82
Focusing on culture
84
Listening to employees
86
Assessing Board performance
88
UK Corporate Governance Code 2018
compliance statement
89
Report of the Audit Committee
93
Report of the Nomination Committee
100
Remuneration report
104
Other disclosures
131
Independent auditor’s report to the members
of Morgan Advanced Materials plc
135
Contents
“The guiding principle of
the Board is to do the
right thing with respect
to all our stakeholders
and the environment.”
Ian Marchant
NON-EXECUTIVE CHAIR
Governance
77
Dear shareholder
On behalf of the Board,
I am pleased to introduce our
Governance Report for the
year ended 31 December 2023.
This report sets out our approach
to effective corporate governance,
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
It has been another busy year for the Board
and a summary of our key activities is set
out on page 81. In addition to overseeing
the work to contain the impact of the
cyber security incident in January 2023
and recover the systems, with meetings
regularly held throughout this period, the
Board also oversaw a significant capital
investment programme to add growth
capacity for our faster growing and core
segments. Volumes have been resilient
throughout the year. 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.
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.
We introduced a two-day strategy
session this year. The session provided
the Board with an opportunity to review
progress made on longer-term strategic
plans, consider Morgan Group’s global
footprint and discuss options for growth.
We also invited members of the Executive
Committee and the finance directors of the
global business units (GBUs) to the session.
Board composition
The Board invited me to take on the role
of Chair from Douglas Caster following
his decision to stand down, having served
nine years on the Board. Since joining the
Board in February 2023 and as part of my
induction, I have spent time meeting my
new colleagues and major shareholders to
build a full understanding of the challenges
we face as well as the many opportunities
we have to grow. Further information on
the Chair selection process and induction
can be found on page 89 of the 2022
Annual Report.
During 2023, the Nomination Committee
commenced the search for three new
non-Executive Directors to replace
existing Directors nearing the end of
their nine-year tenure, as part of a phased
succession programme. Two Directors
will be recruited in 2024 with a third
Director recruited in 2025. Further
information on the process can be found
on pages 102 and 103.
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 2023. The results of this review
are set out on page 88.
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 security 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 Advanced Materials. Further
detail on the listening sessions are included
on pages 86 to 87.
Focus for 2024
Given the Board changes detailed above,
one of the key priorities for the Board
in 2024 will be ensuring that the new
non-Executive Directors are successfully
onboarded and there is a smooth transition
with the outgoing Directors.
The Board will also continue to oversee
the delivery of Morgan Advanced Materials’
strategy and in particular the delivery of the
capital investment programme, organisation
changes and strategic priorities identified for
each of the key Group functions and GBUs
during the strategy session.
Ian Marchant
NON-EXECUTIVE CHAIR
Chair’s letter to shareholders
Morgan Advanced Materials
Annual Report 2023
78
1. Ian Marchant
Non-executive Chair
Appointed:
Chair Designate and non-Executive
Director in February 2023. Non-executive Chair
and Nomination Committee Chair in June 2023.
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 our 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
Thames Water Utilities Ltd and John Wood
Group plc and on the Board of Aggreko plc.
External appointments:
Chair of Logan Energy Ltd and non-
Executive Director of Fred Olsen UK Ltd.
Committees
N
R
Board of Directors
2. Pete Raby
Chief Executive Officer
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 our overall performance. The Group’s
Environment, Health, Safety and Sustainability
(EHSS) team also 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.
External appointments:
Non-Executive Director, Hill & Smith plc.
3. Richard Armitage
Chief Financial Officer
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, IT,
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 and
CFO of McBride plc from 2009 to 2014.
External appointments:
Senior Independent Director, Chair of the
Audit Committee and interim Chair of the
Remuneration Committee at NWF Group plc.
1.
2.
3.
6.
5.
4.
7.
Governance
79
Committees
Committee Chair
Audit
Nomination
Remuneration
4. Jane Aikman
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. Prior to
this, Jane held Chief Financial Officer positions
in Arqiva Group Limited, KCOM Group plc
and Phoenix IT Group plc, where she was
also Chief Operating Officer. She has
also held Chief Financial Officer positions
at Infinis plc, Wilson Bowden plc and Pressac
plc. 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 is a Chartered Accountant.
External appointments:
Group Director and Group Chief Financial
Officer of Inside Ideas Group Limited.
Committees
A
N
R
5. Helen Bunch
Independent non-Executive Director
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:
Helen is Executive Managing Director of Wates
Residential, having started with the company
in 2006 and undertaken a variety of roles
including Group Strategy Director, Managing
Director of Wates Retail Limited and Managing
Director of Wates Smartspace Limited.
Prior to Wates, Helen gained knowledge and
experience in global businesses including ICI.
External appointments:
Executive Managing Director
of Wates Residential.
Committees
A
N
R
6. Laurence Mulliez
Senior Independent Director
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 our key markets.
Career and experience:
Laurence was Chief Executive of independent
power producer Eoxis UK Limited from 2010
to 2013. Prior to this, she spent 11 years
at BP in a variety of roles including Chief
Executive of Castrol Industrial Lubricants
and Services. Laurence also held senior
positions in Amoco Chemical Inc, M&M
Mars Inc. and Banque Nationale de Paris.
External 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
7. Clement Woon
Independent non-Executive Director
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,
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 including
Division CEO of Leica Geosystems AG,
President and CEO of SATS Ltd, and CEO
Textile Division of OC Oerlikon AG.
External appointments:
Non-Executive Director of Elementis plc.
Committees
A
N
R
Morgan Advanced Materials
Annual Report 2023
80
Desired/required skills, experience, attributes
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
4
Audit
Committee
Nomination
Committee
Remuneration
Committee
Ian Marchant
2
9/9
4/4
1
2/2
4/4
Douglas Caster
3
4/4
2/2
1
1/1
2/2
Pete Raby
9/9
5/5
1
2/2
1
4/4
1
Richard Armitage
9/9
5/5
1
–
–
Jane Aikman
9/9
5/5
2/2
4/4
Helen Bunch
5
8/9
5/5
2/2
4/4
Laurence Mulliez
9/9
5/5
2/2
4/4
Clement Woon
9/9
5/5
2/2
4/4
1.
Attended by invitation.
2.
Ian Marchant joined the Board on 1 February 2023.
3.
Douglas Caster resigned from the Board on 29 June 2023.
4.
In addition to the scheduled Board meetings mentioned in the table above, the Board also held calls to oversee the response to the cyber security incident.
5.
Helen Bunch was unable to join an additional Board meeting arranged at short notice because of a pre-existing hospital appointment.
Board composition
Female
3
Male
4
Gender
Chair (independent
on appointment)
1
Executive Directors
2
Senior Independent
Director
1
Independent
non-executive Directors
3
Board balance of roles
Ethnic origin
White British
5
White European
1
Southeast Asian
1
Non-executive Director
tenure
0–3 years
1
4–6 years
2
7–9 years
2
Governance at a glance
Governance
81
Key Board activity
Set out in the table below are highlights of the matters the Board considered in 2023.
Not all of the matters the Board considered are listed, therefore this should not be
considered an exhaustive list of activities.
Activity
Link to
strategic
priorities
Link to
stakeholders
Link to
principal risks
Strategy
GBU strategy reviews
1,2,3
I,C,S,E,Co
1, 2,3,4 5,6,9
IT strategy
2,3
I,E,C,S
1, 8,9,7
M&A strategy
3
I,C,S
1,4,3,9
Group portfolio strategy
3
I,C,S, E
3
ESG strategy
1, 2
I,C,S,E,P,Co
5, 6
Defence strategy
3
I,E
3
Capital allocation
3
I,C,S E,Co
1,3,5,6,8
Geographical markets
– outlook and implications
3
I, C,S,E
3, 4
Operational and commercial
Updates on the cyber security incident,
recovery planning and IT security
1,2,3
E,C,S,I
8, 9, 14
Approval of capital expenditure
2,3
C,S
1, 2, 3,5,6, 9
ERP project update
2,3
E,S,C
2, 3,7,8, 9
‘Voice of the customer’ survey results
1,2
C
1, 2, 7
Financial and risk management
Approval of 2024 Budget
1, 3
I, E,S
4, 10, 11
Approval of 2022 annual results
and 2023 interim results and dividends
3
I,E,P
2, 3, 9
Brokers updates and
investor feedback
1,3
I
3
Approval of new debt facility
1,2,3
I, E
10
Insurance renewal
1
E,S,C
7, 9, 13
Treasury update
3
I, C, S,E, P
10
Principal risks review
1,2,3
I, C,S,E,C, P
People
2022 ‘Your Voice’ survey results
1
E
1,2
Pension update
1
E, P
11
Talent, leadership, capability
and succession update
1
E
1
Governance
AGM
1
I
14
Modern slavery & supplier engagement
1
S
14
Board performance evaluation
1
I,E
14
Monitoring and assessment of culture
1
E
14
Corporate Governance Code compliance
1
I,C,S,E,P,Co
14
Chief Executive
Officer’s report
Covering topics such as:
safety and
environmental progress
and performance
strategy
business, markets
and customers
acquisitions and
divestments
investor relations
information systems
and technology
key project and
GBU updates
people updates
updates on the cyber
security incident and
the Group’s response.
Chief Financial
Officer’s report
Covering topics such as:
Group and GBU
financial performance
investor engagement
and feedback
capital allocation
refinancing
pensions.
Company
Secretary’s
report
Covering topics such as:
governance and
regulatory matters
litigation update
share register analysis.
Non-Executive
Directors
only session
The non-Executive
Directors meet without
management present.
Standing agenda items
Key to stakeholders
I
Investors
C
Customers
S
Suppliers
E
Employees
P
Pensioners and
pension trustees
Co
Communities
Key to strategic
priorities
1
Big positive
difference
2
Delight the customer
3
Innovate to grow
Key to principal risks
1
Technical leadership
2
Operational execution/
organisational change
3
Portfolio management
4
Macro-economic and
political environment
5
Environment, health
& safety
6
Climate change
7
Product quality,
safety and liability
8
IT, cyber security and
data management
9
Supply chain/
business continuity
10
Treasury
11
Pension funding
12
Tax
13
Contract
management
14
Compliance
15
Pandemic
Morgan Advanced Materials
Annual Report 2023
82
Setting strategy
The Board reviews and agrees the strategy
for the Group 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
GBU strategies
environmental, social and governance
(ESG) and sustainability matters
finance
capital allocation
people and talent.
Strategic execution priorities
Big positive
difference
Strategic oversight
by the Board
Board strategy review – September 2023
Purpose
To review and shape the Group and GBU strategy, evaluating market and
competitor shifts, business competitiveness and manufacturing strategy.
To agree growth opportunities and investments and assess key risks, and to
agree capital allocation and implementation priorities and milestones.
Attendees
The Board
Executive Committee
GBU finance Directors for GBU strategy reviews
Discussion
themes
progress against the strategic plan in each GBU and identification of
further opportunities
progress against the 2030 environment and sustainability goals
update to the IT strategy, motivated by the shift in technology requirements
and need for acceleration of execution
financial strategy incorporating the balance of capital allocation and the ways
to increase shareholder value
investor priorities and views surrounding Morgan Advanced Materials
strategy and ambitions
the role of Morgan Advanced Materials’ people, the embedded
organisational culture, skills and capabilities.
Outcomes
approval of capital and resource allocation
approval of the strategic priorities for each GBU and the Group, and
agreement on the optimal growth. Approval of the strategic priorities
for key Group functions
setting an ongoing programme of strategic questions and topics for
consideration throughout 2024
identification of key actions and milestones for subsequent Board review.
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 2 to 75.
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 89. An overview of
Morgan’s strategy can be found in the
Strategic Report on pages 18 to 19
and 23 to 25.
The Board monitors progress against the
strategic execution priorities underpinning
delivery of the Group strategy:
Big positive difference
Delight the customer
Innovate to grow.
1.
Delight the
customer
2.
Innovate
to grow
3.
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 progress against 2030 goals, ensuring clear and
continued linkage to sustainable outcomes.
Reports from the EHSS Director on the progress 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 2022 employee engagement survey,
‘Your Voice’.
Updates on workforce planning, focusing on critical talent
and targeted programmes for diversity, pipelines, training
and development.
What were the material
stakeholder considerations?
Full stakeholder benefit.
The ability of the Group’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 long-term vision and
make progress against our 2030 goals.
Clear tracking of progress.
Shareholders engaged on the Group’s
2030 goals, citing the importance of
quantifiable criteria and meaningful
linkage including when considering
remuneration metrics.
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 the Group’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
three faster growing markets that reflect global trends:
semiconductors, healthcare, clean energy and 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.
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.
A report on the ‘voice of the customer’ survey carried out
across all of the GBUs to understand customer views from
across the Group and inform the Delight the Customer
strategies. The report identified the key strengths and areas
for improvement from the customer perspective and allowed
the GBUs to identify key priorities.
Capital investments to tailor our product, service and support
offerings more closely to customer needs, based on customer
feedback gathered during 2023 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.
Governance
The more we understand our customers, their businesses,
markets and technical challenges, the more effective we can
be at providing them with a solution
83
Morgan Advanced Materials
Annual Report 2023
84
Focusing on culture
Our culture is underpinned by our purpose:
to use advanced materials to make the
world more sustainable, and to improve
the quality of life. We work together to
deliver our strategy and reliably solve
problems in an ethical, safe and sustainable
way. As a business with a global footprint,
we strive to work collaboratively, value
our differences and treat each other fairly
to deliver a positive outcome for our
stakeholders. Our Directors lead by
example and promote the desired culture.
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. The CEO updates
the Board on safety progress and
performance in every Board meeting.
The Board receives an update from the
Director of Environment, Health, Safety
and Sustainability at Board meetings
through the year 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
– we conduct
an annual employee engagement
survey – ‘Your Voice’. The survey
was conducted in November 2022
and 2023 to provide feedback to senior
management and the Board on employee
satisfaction. Group-wide and site-specific
actions are identified and implemented to
address the issues raised. This provides
the Board with rich insight into culture,
areas of strong performance and areas
of improvement across the Group.
Further information on the actions taken
as a result of the 2022 ‘Your Voice’ survey
during 2023 can be found on page 85
Whistleblowing
– We have an
independent ‘Speak Up’ service through
EQS to enable employees, customers,
suppliers and other 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. 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. 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 or
ethics was a particular concern.
Workforce engagement
–
the non-Executive Directors heard
first-hand from employees during the
employee listening sessions held during
2023. 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 culture of the organisation.
Further information on workforce
engagement can be found on
pages 86 to 87
Alignment of remuneration and
culture
– the Remuneration committee
sets remuneration for the Executive
Directors and Executive Committee
members, and oversees remuneration
for senior leaders and the wider
organisation, with incentives designed to
support delivery of the strategy and the
establishment of the appropriate culture.
The Board, through some listening
sessions, discusses Executive Director
remuneration with employees as a
further input to the impact on culture.
Further information on the remuneration
policy can be on pages 108 to 116
Governance
85
Culture in action
‘Your Voice’ survey
Our 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 Advanced Materials 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 Advanced Materials and provide the
Board with a Group-wide snapshot of how employees rate our culture and employee engagement.
During 2023, we worked to improve engagement based on the ‘Your Voice’ survey conducted at the end of 2022. Survey results
were presented to the Board at its February 2023 meeting and key Group-wide actions for improvement were discussed.
Next steps and action plans were established. Initiatives taken in response to the survey, details of which can be found below,
were communicated to colleagues throughout the year.
‘Your Voice’ showed that employees recognise the priority that we give 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
Recruitment
We need to do more to
attract people to Morgan
Advanced Materials.
We developed a modern, appealing and inclusive employer brand that features
real employees.
Retention
We need to do more to retain
people to deliver our strategy.
We carried out a comprehensive review of why people are leaving Morgan
Advanced Materials and improved our hiring processes, so people have a better
understanding of us and our expectations before they join.
We expanded our employee resource groups, publicised their activities, opened
further chapters and offered more events (that our people can be involved with).
We introduced childcare concierge services in the US (through WeeCare) and
Germany (through PME Familienservice).
Performance
management
Our performance management
system is too complicated.
In 2024 we will be launching a refreshed performance management system that
stresses the importance of coaching and development.
Reward and recognition
Get reward and recognition
right everywhere.
We are rolling out a Morgan Advanced Materials discount scheme, country by
country. We already have four countries on board.
We will be introducing a real-time recognition programme as part of our refreshed
performance management system.
We awarded all employees an additional day of vacation as a ‘thank you’ for
their support during the cyber security incident.
Your Voice
Morgan Advanced Materials
Annual Report 2023
86
Listening to employees
The Board is at the forefront of the journey
to Morgan Advanced Materials 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 (see page 87
for further details).
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 Advanced Materials.
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 among the whole Board.
Follow-up discussions were held with site
managers/function leads 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 the Group, whether they have
any challenges, concerns or ideas for
improvement, and the things that they
consider we do well. Coupled with
meetings with employees in their place of
work during Board visits to Group facilities
and during other 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.
The Board will continue to keep the
effectiveness of this method under review.
Actions taken in response to feedback received from employee listening sessions
Positive feedback
Improvement areas
Actions taken
Safety
The feedback was that workforce safety is a key
priority and a particular focus for our leaders.
Employees are focused on improving safety.
Investments were being made to improve
safety, as required.
Feedback was positive on the Group’s handling
of COVID-19 pandemic. Although there
were still sporadic flares of Covid infections in
certain regions, a flexible policy is in place and
management and employees are responding
proactively to emerging situations.
While colleagues welcomed the focus on safety,
it was considered by some that there had been
too many initiatives.
Some colleagues considered that newer
employees, employed post COVID-19,
were less sensitive to the risks.
Fewer projects were rolled out during
the year, with the focus on simplifying and
embedding the initiatives in place, including
the induction of new joiners.
The Chief Executive reinstated reviews of each
lost time accidents (LTAs) with site leaders
who experienced serious LTAs or near misses.
Reward and recognition
Colleagues welcomed receiving information
on the role of the Remuneration Committee
in setting executive pay, the procedure for
determining executive remuneration and how
executive remuneration aligns with wider
Company pay policy.
Adjustments made by Group to pay/pay
structures were well received, recognising that
this helped to attract talent.
Receiving information on the process used to
review blue- and white-collar pay rates was
also welcomed.
Performance management was seen by some
colleagues as a pay process rather than for
recognition/development. There was more
focus on filling in the performance management
system than the conversation on performance.
The need to regularly review the pay
benchmarking data, particularly in regions
affected by high inflation, was recognised.
The performance management system for the
2024 reviews will be simplified to encourage
more focus on the conversation.
Pay data continues to be regularly reviewed
and adjusted, as necessary.
Cyber security incident
Colleagues were very positive about the
communication throughout the incident.
They welcomed the focus on health and
wellbeing of employees. They considered that
colleagues were going above and beyond and
pulling together.
Lessons learnt should be developed to capture
and share knowledge about what has worked
well and what could have been done differently
during the incident.
Lessons learnt exercises were carried out
during the year. The recommendations from
these exercises are being implemented.
Employees were given an extra day of leave to
thank them for their efforts.
Governance
87
Engagement with employees and other stakeholders
Non-Executive Directors and
employee listening activities
2023
Engagement with other stakeholders
Feb
The Board met with the independent trustee of
the UK pension scheme at its meeting in February.
Engagement session with Senior
Independent Director and colleagues
on Ignite and Catalyst Leadership
Development Programmes on
executive pay
Mar
Virtual listening session with the
Environment, Health, Safety and
Sustainability team
Apr
May
Following publication of the FY22 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 FY22 results.
The Chair met with major investors following his
appointment to the Board in order to understand their
views on governance and performance against the strategy.
He provided feedback on those meetings to the Board.
Jun
The 2023 Annual General Meeting was held in London.
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 96% of the votes cast in favour.
Investors roadshows were held in the UK and in the USA.
Virtual listening session with
Electrical Carbon colleagues in
Fostoria, Ohio, US
The Chair visited several UK
(Bromborough, Rugby, Stourport,
Swansea) sites, providing direct
access to operations and ensuring
front-line employees could share
their experiences with him.
Jul
Investors and bankers visited the Technical Ceramics
site in Rugby, UK.
Aug
Following publication of the HY23 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.
Meetings were held with banks to present HY23 results.
The Chair met with major investors following his appointment
to the Board in order to understand their views on
governance and performance against the strategy.
He provided feedback on those meetings to the Board.
Chair attended and spoke at
European Employee Forum event
in Stourport, UK
Sep
Board site visit, presentation from
the Centre of Excellence, lunch with
the management team and employee
listening session with Technical
Ceramics colleagues in Stourport, UK
Nov
Following publication of the Q3 trading update,
meetings were held with institutional shareholders
and potential investors.
Virtual listening session with
Technical Ceramics colleagues
in Erlangen, Germany
Dec
Ad hoc meetings
were held with
brokers and
institutional investors
throughout the year,
including attendance
at investment
conferences.
Quarterly
leadership calls
held for the top
~100 leaders with
the Chief Executive
and members of the
executive team
Morgan Advanced Materials
Annual Report 2023
88
Assessing Board performance
An internal review of the Board’s
performance was undertaken in 2023,
following the externally facilitated review
in 2021. These reviews were facilitated
by Clare Chalmers Limited, which has no
other relationship with the Company or the
individual Directors and is independent. An
external review will be carried out in 2024.
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 Group
Company Secretary and taking into account
the recommendations from the 2022
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 2023.
Highlighted strengths
The engagement, commitment and
visibility of the new Chair was noted.
He had brought a clear drive and focus on
the purpose and output from discussions.
Input of management to the Board,
noting management were open, balanced
and transparent, responded well to
feedback and that the different roles of
the Board and Management were clear,
with the line between them respected.
The strategic discussions, process and
outputs were enhanced in the year,
with more time allocated. The Board
Strategy Review (see page 82), with
the whole management team present,
had worked well.
The Committees all received high scores
across all questions. The feedback on
the Nomination and Remuneration
Committees noted the need to ensure
they have appropriate coverage at the
Senior Management level of individual
succession plans, performance objectives
and remuneration.
Recommended areas for
development and actions
going forward
Further discussions of risk and risk
appetite would take place in 2024, in
light of the worsening macro-economic
environment, the advancement of
technology and increasing regulation.
The quality of HR data available to the
Board would continue to be developed.
While the employee listening sessions
continued to be considered to be really
valuable, individual NEDs would visit
more of the sites for themselves,
where possible.
More information would be provided
to the Board on the various activities
underpinning the Delight the customer
execution priority and on Morgan
Advanced Materials’ social and
community impact.
Recommendations from the 2022
Board performance review
Actions taken during 2023
More in-person meetings and
Board dinners to be held
Six in-person Board meetings were held in 2023 including a two-day strategy review.
Three Board dinners (including a Strategy Review dinner with senior leadership) and one
non-Executive Directors’ dinner were held in 2023.
Further discussions around risk and
risk appetite to be held around risks
not fully captured or recognised in
the risk register
The principal and emerging risks were reviewed in December 2023, at which the Board members
were able to discuss risks and concerns not fully captured or recognised on the risk register.
The Group risks were also reviewed at the meeting in July 2023. The changes proposed to the
risk management function will further enhance the discussion of risks.
Non-Executive Directors’ engagement
with shareholders
Feedback was provided to the Board by the executive Directors following investor meetings and
results roadshows. The brokers presented to the Board in June and September 2023, providing
insights on investor matters.
More understanding of the
perspectives of the customers
and suppliers
The results of the ‘voice of the customer’ survey were presented to the Board in February
2023. Insights into the views of suppliers were given as in the Chief Executive Officer’s Report,
where relevant.
More structure around one-to-one
individual feedback to Directors
Ian Marchant met with each of the Directors throughout the year.
Governance
89
UK Corporate Governance Code
2018 compliance statement
The Board has applied the principles and complied with the provisions of the Code throughout the year ended 31 December 2023.
Application of Code principles
The table below sets out how the Board has applied the Code principles during 2023.
Board leadership and company purpose
A.
The role of
the Board
The Board is responsible for Morgan Advanced Materials’ 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. The 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 30 to 32.
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.
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 93
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 100
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 104
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 informs 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
Morgan Advanced Materials
Annual Report 2023
90
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 nine times in 2023. 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 2023 Board meetings, including information
on the Board’s assessment of strategic and operational matters, are set out on page 81, attendance information on
page 80, and skills, experience and biographical information on pages 78 to 80.
A description of Morgan Advanced Materials’ business model is set out on pages 12 to 13. An assessment of the
principal risks facing the Group is included on pages 54 to 61.
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 84.
C.
Resources and
controls
The Board 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 54 to 61.
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 2023 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 Advanced Materials 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 met with major investors
following his appointment to the Board in order to understand their views on governance and performance against
the strategy. The Board is regularly kept informed of investor feedback, stockbroker updates and detailed analyst
reports. For more information, see pages 81 and 87.
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 30 to 32. Across the Group, there is an active programme
of engagement with our key stakeholders including our colleagues. For more information, see page 87.
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
91
Division of responsibilities
F.
Role of the Chair
Ian Marchant 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 joined the Board on 1 February 2023 and succeeded Douglas Caster as the Chair on 29 June 2023.
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 four independent non-Executive
Directors. For more information, see page 80.
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 2023 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.
The expected time commitment of the Chair and non-Executive Directors is agreed and set out in writing in a Letter
of Appointment. 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 Advanced Materials. 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 Ian Marchant’s other external commitments, and was comfortable that he had sufficient time
to devote to his role before agreeing his appointment as a non-Executive Director and Chair Designate.
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
88), 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
As Group Company Secretary, Winifred Chime 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.
The process for the appointment of Ian Marchant as Chair is set out in a case study on page 89 of the 2022 Annual
Report. The Nomination Committee has commenced the search for three new non-Executive Directors. The
Company engaged the independent executive search agency Korn Ferry to assist with the search. For further
information on the search process, see pages 102 to 103.
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 May 2024 and offer themselves for re-election. The Notice of AGM will give
details of those Directors seeking re-election, including their experience, and contribution that each Director brings
to the Board and its Committees. The terms of appointment for non-Executive Directors and service contracts for
Executive Directors are available for inspection at the Company’s registered office and will be available at the AGM.
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 we operate and for the effective operation of the Board and leadership
of the Group. The Directors’ skills matrix was revised during the year. For more information, see page 80.
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. During the year, cyber security sessions were held covering the
threat landscape, cyber awareness and defence, and actions to support Morgan Advanced Materials’ security posture.
Morgan Advanced Materials
Annual Report 2023
92
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 2023 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
2023 evaluation is set out on page 88.
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 93.
N.
Fair, balanced and
understandable
assessment
The Strategic Report, located on pages 2 to 75, 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 95.
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 55 to 61 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 55 to 61 and 97 to 98.
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 while 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 108 to 116.
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. No Director is involved in determining their own remuneration outcome.
See pages 129 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.
UK Corporate Governance Code 2018 compliance statement
continued
Governance
93
Report of the Audit Committee
Dear shareholder
I am pleased to present the Audit
Committee’s report for 2023.
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 2023, while the Committee’s
primary focus centred on the accuracy
of the Group’s financial reporting, the
Committee also oversaw the work to
contain the impact of the cyber security
incident that occurred in January 2023, was
in regular communication with management
throughout this period and met with
the third-party advisors supporting the
restoration of our networks and systems.
Details of the incident can be found on
page 20 and further information on the
matters considered by the Committee
can be found on page 96.
The Committee applied additional focus
to audit and recovery planning following
the incident, to ensure the integrity and
completeness of the accounting records.
The Committee also focused on assessing
the risk management and internal control
framework, together with the additional
work carried out to support the long-term
viability statement. Regardless of the
incident and the challenging macro-
economic environment, Morgan Advanced
Materials’ business model remains resilient,
but, during these challenging times, we
continue to support and closely monitor
the financial results of the Group.
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 2023 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 95.
Deloitte completed their fourth 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, while seeking continual
improvements in the audit of Morgan
Advanced Materials.
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 Advanced
Materials’ 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, while
contributing effectively to the Group’s
overall governance framework.
Jane Aikman
COMMITTEE CHAIR
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 78 to 80.
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.
Morgan Advanced Materials
Annual Report 2023
94
Report of the Audit Committee
continued
Key activities in 2023
Financial reporting
Reviewed and discussed reports from the Chief Financial Officer on the financial statements, considered impact
of the cyber security incident on audit and annual report process, considered management’s significant
accounting judgements 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.
Following the cyber security incident, met with the third-party advisors supporting the restoration of our
systems and providing assurance as to the integrity and robustness of the response.
Reviewed the 2023 Annual Report and Accounts and provided a recommendation to the Board that, as a whole,
it 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 in light of the cyber
security incident, 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.
Reviewed the adequacy of the manual processes and controls put in place during the cyber security incident, the
storage and reconciliation process for manual records and the orderly restart or implementation of ERP systems.
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 monitored 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 adjusted internal audit plan for 2023 which incorporated enhanced reviews for sites
impacted by the cyber security incident.
Reviewed and approved the internal audit plan and approach for 2024.
Reviewed the quality and effectiveness of internal audit function.
External audit
Oversaw the 2023 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 2023 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 2023 audit.
Reviewed and approved the non-audit services, and related fees, provided by Deloitte for 2023.
Governance
95
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’
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
considered the additional steps taken to ensure integrity and completeness of the accounting
records in light of the cyber security incident
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 ‘fair, balanced and
understandable’ statement could be made, which can be found in the Directors’ Responsibility
Statement on page 134 of this Annual Report.
Significant issues
The significant areas of judgement considered by the Committee in relation to the 2023 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 (including the costs associated with the cyber security incident) 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.
Inventory valuation
For 17 of our sites, local management used a manual process to calculate the inventory provision at 31 December 2023 due to system
limitations following the cyber security incident in early 2023.
The manual process followed was consistent across these sites and in line with Group policy. The methodology used replicated the
provision calculation that would have been automated within our ERP systems.
How the Committee addressed these issues
The Committee reviewed the inventory valuation process and overall balance sheet prudence. They also received the views of
Deloitte LLP on these matters.
Morgan Advanced Materials
Annual Report 2023
96
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.
An impairment charge for the year of £7.3 million was recorded in relation to the impairment of non-financial assets in Seals and
Bearings (Europe and Asia) and Electrical Carbon (North America and Asia). In addition to these charges, reversals of impairments
recognised in prior periods were recorded, totalling £8.1 million. The reversals were for our Technical Ceramics, ceramic cores
business in North America and a Thermal Ceramics business in Germany. 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.
Impact of the cyber security incident
On 8 January 2023, we experienced a cyber security incident. Our teams worked quickly to limit the damage by temporarily shutting
down our network. Following a detailed investigation, access to systems was restored in an orderly fashion. Despite the rapid action,
there was considerable damage to our networks and systems. In parts of the business (representing around 27% of our revenues)
ERP systems could not be restored and we implemented a new ERP solution. We have accelerated our IT modernisation programme
in response to this incident. This includes the acceleration of our Group-wide ERP programme, enhancing our security and monitoring
processes and continued awareness training for our employees.
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 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
steps taken to ensure integrity and effectiveness of the Group’s internal financial controls and internal control and risk
management systems
clear and transparent disclosure of this event in the Annual Report
assessment of fair, balanced and understandable nature of the half-year results and the Annual Report in light of the incident.
Governance
97
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 systems
of risk management and 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 systems of risk
management and internal control and did so again for the year
under review. These systems are consistent with the FRC’s
guidance on internal control requirements contained within
the Code. The review conducted in February 2024 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 2023 and identification of further
areas for improvement. In considering areas for improvement,
we note that management has plans in place to factor in
Deloitte’s controls observations in relation to data migration
(for our future ERP implementations) and review of the value
in use models (during the non-financial asset impairment
review process).
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 security
incident in January 2023 impacted its conclusions on the control
environment for the 2023 year end. The adequacy of the manual
processes and controls which were put in place during the cyber
security incident were reviewed, together with storage and
reconciliation process for manual records and the orderly
restart or implementation of ERP systems. Having reviewed the
internal controls assessment, the results of the investigation and
subsequent responses to the incident, the Committee assessed
that the controls in place during 2023 were adequate and that
the incident did not impact the 2023 financial records.
The Directors consider that the Group’s systems of risk
management and internal 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 systems are 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 GBUs
and the Group leadership team.
The main features of the Group’s systems of risk management and
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
GBUs 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 GBU 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
Morgan Advanced Materials
Annual Report 2023
98
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. GBU
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 54 to 61, supports the Directors’
statements on going concern and viability on pages 70 to 71.
Risk factors
The Group’s businesses are affected by a number of factors,
many of which are influenced by macro-economic trends beyond
Morgan Advanced Materials’ 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 54 to 61.
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 internal audit plan was adapted to include additional reviews
of recovery actions for sites most impacted by the cyber security
incident. 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 2023, 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
recommended for 2024. 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. The function was agile in its
response to the cyber security incident and adapted the plan to
support the recovery from the incident. 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
99
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 2023.
In 2023, the proportion of the auditor’s fees for non-audit work
relative to the audit fee was 0.7% (or £38,000), (2022: 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 February 2024.
The Committee conducted a full review following the 2023 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 2022–23 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 2023 was effective. The Committee confirmed
Deloitte’s independence before recommending its reappointment
for approval by shareholders at the Annual General Meeting
(AGM) on 9 May 2024.
External audit rotation
Deloitte LLP was appointed by shareholders as the Group’s
statutory auditor in 2020 following a formal tender process.
For 2023, 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 and the Audit Committees and the External Audit:
Minimum Standard.
External auditor
Morgan Advanced Materials
Annual Report 2023
100
Report of the Nomination Committee
Dear shareholder
On behalf of the Nomination
Committee, I present our report
for 2023. The Committee met
twice during 2023 and members’
attendance is set out in the table
on page 80.
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 2023, the Committee commenced
the search for three new non-Executive
Directors, to replace existing Directors
reaching the end of their nine-year tenure.
Further information on the process can be
found on pages 102 and 103.
The Committee also assessed whether
the objectives of the Board’s Diversity and
Inclusion Policy, including how it supports
Morgan Advanced Materials’ 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 (includes the Executive Committee
excluding Chief Executive Officer and
Chief Financial Officer plus 2nd to 4th tier).
The Committee remains conscious that to
execute on our strategy, building our talent
pool with individuals whose skill sets and
thinking can deliver the 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, while
contributing effectively to the Group’s
overall governance framework.
Ian Marchant
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.
Committee members
Douglas Caster
(Chair until 29 June 2023)
Ian Marchant
(from 1 February 2023;
Chair from 29 June 2023)
Jane Aikman
Helen Bunch
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 78 to 79
The Group Company Secretary
is secretary to the Committee
and attends all the meetings
The Chief Executive and Group
HR Director attend all scheduled
meetings by invitation
Governance
101
Key activities in 2023
Board and
Committee
composition
Commenced the global search for the independent non-Executive Directors
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 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
Discussed the percentage target for senior management positions that will be occupied by ethnic minority executives in
December 2027
Reviewed and endorsed updates to the Board’s skills matrix
Board
effectiveness
reviews
Oversaw the implementation of recommendations arising from the 2022 external evaluation of the Board and
Committees’ performance
Carried out the 2023 internal evaluation of the Board and Committees’ performance
Corporate
governance
Monitored the fulfilment of the requirements, principles and expectations of the Code
Reviewed Directors’ declarations on potential conflicts of interest
Considered whether each Director continued to be able to allocate sufficient time to discharge their
responsibilities effectively
Considered the annual re-election of Directors at the 2024 AGM
Reviewed the Committee’s terms of reference
Diversity and inclusion
The Board’s Diversity and Inclusion Policy, which also applies to
the Remuneration Committee, Audit Committee and Nomination
Committee, 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, ethnicity,
sexual orientation, disability, nationality, educational and
professional experience, socio-economic background,
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 2023
(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).
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. Our 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 33%.
At 31 December 2023, 31% (2022: 29%) 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 2023.
Morgan Advanced Materials
Annual Report 2023
102
Board and Executive Committee diversity as at 31 December 2023
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on
the Board
(CEO, CFO,
Chair and SID)
Number in
executive
management
Percentage
in executive
management
Men
4
57
3
6
67
Women
3
43
1
3
33
Not specified/Prefer not to say
–
–
–
–
–
White British or other White
(including minority-white groups)
6
90
4
8
89
Mixed/Multiple ethnic groups
–
–
–
–
–
Asian/Asian British
1
10
–
1
11
Black/African/Caribbean/Black British
–
–
–
–
–
Other ethnic group, including Arab
–
–
–
–
–
Not specified/Prefer not to say
–
–
–
–
–
This disclosure, and the calculation as to whether targets have been met, is based on data collected from the individuals on joining Morgan Advanced Materials.
Diversity and inclusion policy
The Board has agreed objectives for achieving gender, ethnic and
cultural diversity on the Board and its Committees. With the
planned 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 Advanced
Materials’ workforce
set the tone and provide visible support for the Group’s diversity
and inclusion objectives, including the fostering of an inclusive
culture, 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 2023, 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. Ian Marchant was appointed as an
independent non-Executive Director and Chair designate on
1 February 2023. Further information on his appointment, including
details of the external search consultancy engaged in connection
with his appointment and their independence, can be found on
page 89 of 2022 Annual Report.
We continue to manage a phased succession programme for
non-Executive Directors. Two Directors will be recruited in
2024 and with a third Director recruited in 2025. Korn Ferry,
an external search consultancy, was selected to lead the search
for the Directors, following a tender process. Korn Ferry has
no other connection with the Company or individual Directors.
Report of the Nomination Committee
continued
Governance
103
The usual process for selection of a non-Executive Director is
described below:
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
The Committee formulates a candidate specification for the
role, taking into account the balance of skills, knowledge,
experience, diversity and geographical representation on
the Board, and considering the desired skills and experience
required to complement the existing membership and to
support the implementation of the Group’s strategy
The external search agent produces a long-list of
candidates for the role, taking the identified
requirements into consideration
Interviews with members of the Nomination Committee
take place with short-listed candidates. Interviews with
other Board members take place with the final candidate(s)
The Committee makes a recommendation for the
appointment to the Board, taking into account the views of
the Board members. Any new Director appointed by the
Board must be elected by shareholders at the next AGM
All Directors receive a comprehensive induction
programme. The programme comprises a balance of
knowledge-based sessions with internal functions and
external advisors, in addition to site visits across locations
to provide exposure to Morgan Advanced Materials’
businesses and working environments. Delivery is in phases
with information material to the non-Executive Director
role provided in the early stages
Senior management succession
Succession for senior leadership roles, and strategy to
support talent development by building capability for the
future, is overseen by the Committee with support from Group
HR. The internal pipeline of candidates for immediate and
medium- to longer-term movement into key leadership and
functional roles is reviewed annually.
During the year, updates were provided on the Board and
Executive Committee succession options, which included a review
of timing of readiness, and consideration of new talent and
succession capability that had been recruited into Morgan Advanced
Materials. The Committee also received updates on the targeted
development activity that is taking place across the population.
The Committee monitors 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 2024.
Morgan Advanced Materials
Annual Report 2023
104
As described elsewhere in this
Annual Report, Morgan Advanced
Materials was significantly impacted
by the cyber security incident in
January 2023. This affected our
revenues, profitability and cash
flow, predominantly during the
first half of the year.
I would like to echo the thanks of my
Board colleagues to our employees for
the commitment and extraordinary effort
demonstrated across all parts of our
business to help us recover as quickly
as possible from this incident, while
continuing to deliver for our customers.
Morgan Advanced Materials (in line with
the wider industry) also continues to be
impacted by high inflation in raw materials,
energy and freight. Despite these challenges
our business is well placed for success,
delivering 2.5% organic revenue
*
growth
for the 2023 financial year and accelerating
investment in the wider business to
support longer-term growth.
2023 Committee activity
As a Committee, we remain focused on
ensuring that executive remuneration is fit
for purpose and aligned with the interests
of key stakeholders (our employees and
shareholders in particular), and that our
governance practices and processes adhere
to the provisions of the UK Corporate
Governance Code.
During the year, the Committee met four
times. Its activities included determination of
incentive outcomes, approving remuneration
packages for the Company’s Chair and
Executive Directors, and reviewing
the implementation of the Group’s
Remuneration Policy that was approved by
96.4% of shareholders at the 2022 AGM.
This review concluded that the current
framework continues to support Group
strategy and culture, as well as providing
strong alignment of Executive Director
and stakeholder interests. As a result, no
changes are proposed to our approach
to implementing the policy in 2024.
Further details regarding the activities
of the Committee can be found in the
Remuneration governance section at
the end of this Report on page 129.
2023 remuneration outcomes
Following a thorough review of
performance in 2023, the Committee
determined that payouts of 42.9% of the
2023 annual bonus opportunity for the
Chief Executive Officer (CEO) and 43.9%
for the Chief Financial Officer (CFO) were
appropriate. Further details are set out on
page 117 to 119.
As committed to in last year’s report, the
Committee also reviewed the value at
vesting (in October 2023) of the 2020 LTIP
award. We concluded that the embedded
gain in the value of the awards vesting
reflected the underlying performance of the
Group rather than a windfall due to a wider
stock market rebound since the time of
grant. This was in part due to the decision
to delay making 2020 LTIP awards until later
in 2020, following a partial recovery in the
share price from the initial market downturn
at the time of the pandemic’s onset.
The Committee also determined that the
2021 LTIP award will partially vest, resulting
in a 14.8% achievement of the maximum,
based on performance against the targets
set at the time of grant. The Committee
will again review the value of the 2021 LTIP
award at vesting, to ensure that any gain
reflects the Group’s performance rather
than a windfall due to general stock market
rises since the time of grant; however, the
Committee considers the risk of windfall
gain unlikely given Morgan Advanced
Materials’ relatively strong share price
position at the time of grant.
In all cases and in keeping with its usual
approach, the Committee reviewed these
outcomes in the context of the Group’s
underlying performance. The Committee
concluded from this review that, in the
round, a below-target bonus outturn
and modest vesting under the 2021 LTIP
balances appropriately Morgan Advanced
Materials’ underlying performance over
the relevant time horizon, the stakeholder
impact of the cyber security incident
and the Executive Directors’ significant
contribution to the recovery from that
in 2023. As a result, the Committee
determined that no discretion needed
to be applied in respect of 2023
remuneration outcomes.
Committee members
Helen Bunch
(Chair)
Jane Aikman
Douglas Caster
(until 29 June 2023)
Ian Marchant
(from 1 February 2023)
Laurence Mulliez
Clement Woon
I am pleased to present the
Remuneration Report for the year
ended 31 December 2023.
The cost of living remains a challenge in
many countries and during the year we have
carefully kept our direct labour remuneration
packages in each location under review.
Where appropriate we have implemented
additional salary increases during 2023 to
support our colleagues – with a particular
focus on lower-paid employees. We have
also maintained our focus on the safety
measures that protect our employees while
they work. Our ‘thinkSAFE’ programme and
the Morgan Code of Conduct are now well
embedded into the organisation, and we
have continued to roll out leadership
development programmes to give our
leaders the skills necessary for them –
and by extension the Group – to succeed.
Remuneration report
Governance
105
Governance
Implementation of Policy in 2024
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 2023, labour
market conditions, and the average salary
increase 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, and remains consistent
with the approach taken for the entire
professional population. However, the
Committee also continued to factor into
its decision-making this year the prevailing
inflationary environment and its ongoing
and asymmetric cost-of-living impact on
different organisational levels of the Group.
In this context, the Committee 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%, and 5% for colleagues
with similar performance ratings). The
Committee also approved a 4% increase to
the Chairman’s fee, and the Chairman and
Executive Directors approved a similar 4%
increase to the non-Executive Directors’
base fee for 2024.
As disclosed later in this Report, an increase
to the additional Committee Chair and
Senior Independent Director fees
was also approved, to more closely align
to market rates, and to better reflect the
responsibilities and time commitment of
these roles.
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.
No changes are proposed to the
performance linkage of the annual bonus
for 2024 as measures remain aligned to
Morgan Advanced Materials’ key objectives,
including ESG 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 2024 LTIP will
be set at 9% to 16% per annum over
the three-year performance period. The
higher range for this year reflects the lower
earnings starting point in 2023 as a result of
the cyber security incident. 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 (Total Shareholder Return)
benchmarks and relative TSR performance
range (median-upper quartile). It is
proposed to maintain the ROIC
*
range for
that element of the Executive Directors’
2024 LTIP at 17% to 20%, to reflect our
latest expectations for performance over
the three-year performance period.
For the annual bonus, the performance
ranges for EBITA and year-end working
capital have been set to reflect the Group’s
budget as well as the continued economic
volatility externally (and the potential impact
this may have 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
Morgan Advanced Materials
Annual Report 2023
106
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 2024
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)
£645,000
Richard Armitage
(CFO)
£459,680
Pension and other benefits
Pension
Benefits (estimated values)
Policy
Pension contributions (and/or cash in lieu thereof)
for Executive Directors are aligned with the level
of contributions available to the UK workforce.
Other benefits can include company car/car allowance,
health insurance and, where appropriate, relocation
allowances and other expenses.
Pete Raby
(CEO)
8% of salary
Pete Raby
(CEO)
£14,584
Richard Armitage
(CFO)
8% of salary
Richard Armitage
(CFO)
£13,320
Variable components, annual bonuses
Maximum opportunities
for 2024
(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
Adjusted
operating profit
*
40%
Richard Armitage
(CFO)
150% of salary
Year-end
working capital
40%
Strategic personal
objectives
20%
LTIP
Maximum opportunities
for 2024
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%
Remuneration at a glance
Governance
107
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
£3,614k
20%
27%
53%
24%
47%
32%
21%
100%
33%
43%
£2,969k
£1,517k
£711k
0
500
1,000
1,500
2,000
2,500
Below threshold
Target
Stretch
Stretch with 50%
share price increase
£2,234k
23%
31%
46%
27%
49%
34%
17%
100%
36.5%
36.5%
£1,889k
£1,027k
£510k
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
The assumptions made in compiling the above charts can be found on page 113.
Shareholding requirements
Pete Raby (CEO) 200% of salary
(current shareholding 291.2%)
Richard Armitage (CFO) 200% of salary
(current shareholding 82.6%)
Morgan Advanced Materials
Annual Report 2023
108
Remuneration report
continued
This report covers the period 1 January 2023 to 31 December 2023 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 2024 financial year is summarised on pages 105 to 107.
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 we are 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 2024 incentive cycles); (iii) the pay
scenario charts (which have been updated to reflect the implementation of Policy for the 2024 financial year); and (iv) the opportunity
section under ‘Pension’ (to drop references to legacy arrangements in place prior to 31 December 2022).
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 sustainable success of the
Group for the benefit of all stakeholders.
Governance
109
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).
Contributions (or cash in lieu thereof)
are – and, for any new appointments,
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 (eg relocation expenses,
expatriate allowances etc) or in
circumstances where factors outside the
Group’s control have changed materially
(eg market increases in insurance costs).
Benefits in respect of the year
under review are disclosed in the
Annual Report on Remuneration.
Not applicable.
Morgan Advanced Materials
Annual Report 2023
110
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 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 116 to 130.
Governance
111
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. This is currently 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 116 to 130.
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 (ie 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.
Morgan Advanced Materials
Annual Report 2023
112
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, upward 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
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 2024 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 our
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 our business, the markets in which
we operate 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 2024 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 Advanced
Materials’ 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. The Group’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 the
Group’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 126.
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 121.
Governance
113
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 2024 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
£3,614k
20%
27%
53%
24%
47%
32%
21%
100%
33%
43%
£2,969k
£1,517k
£711k
0
500
1,000
1,500
2,000
2,500
Below threshold
Target
Stretch
Stretch with 50%
share price increase
£2,234k
23%
31%
46%
27%
49%
34%
17%
100%
36.5%
36.5%
£1,889k
£1,027k
£510k
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
2024. For the annual bonus, the amounts illustrated are those potentially receivable in respect of performance for 2024 (before mandatory
deferral into shares). The LTIP is based on the face value of awards to be granted in 2024 (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
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.
Morgan Advanced Materials
Annual Report 2023
114
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 (ie not pro-rated
for time).
At the normal vesting date, unless the
Committee decides that awards should
vest earlier (eg in the event of death).
Change of control
Awards will normally vest in full (ie 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 (eg 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
115
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 (until 29 June 2023)
14 February 2014
15 January 2014
1
n/a
Ian Marchant
Chairman (from 29 June 2023)
1 February 2023
2
17 January 2023
29 June 2023
Helen Bunch
Non-Executive Director
24 February 2016
19 January 2016
29 June 2023
Laurence Mulliez
Senior Independent Director
6 May 2016
4 April 2016
29 June 2023
Jane Aikman
Non-Executive Director
31 July 2017
27 April 2017
29 June 2023
Clement Woon
Non-Executive Director
10 May 2019
7 May 2019
29 June 2023
1.
Douglas Caster received a subsequent letter of appointment on 18 December 2018.
2.
Ian Marchant was appointed non-Executive Director on 1 February 2023, prior to succeeding Douglas Caster as Chairman on 29 June 2023.
Morgan Advanced Materials
Annual Report 2023
116
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 held several employee listening sessions in 2023, 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 sessions can be found on pages 86 to 87. 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 views of Morgan Advanced Materials employees are
represented at Remuneration Committee meetings. This enables the Remuneration Committee to take into account those views 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, met with employees on the Ignite
and Catalyst leadership programmes in March 2023 to discuss reward and executive remuneration matters. 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 26 to 29.
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, when shaping and implementing Morgan Advanced Materials’ 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.
During 2023, the Board received twice-yearly updates from the Group Pensions Director on matters concerning the global defined benefit
pension schemes and met with the Chair of trustees of the Group pension trusts in February 2023 to ensure the views of the trustees on
key pension matters are understood and taken into consideration.
2. Annual report on remuneration
The following section provides details of how the Remuneration Policy was implemented during 2023 and will be implemented in 2024.
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
2023 and the prior year.
Pete Raby
Richard Armitage
1
2023
2022
2023
2022
1. Salary
£620,000
£596,000
£442,000
£249,551
2. Pension
£49,600
£104,000
£35,360
£19,964
3. Benefits
£14,031
£13,637
£13,320
£8,378
Fixed pay subtotal
£683,631
£713,637
£490,680
£277,893
4. Bonus
£399,193
£246,708
£291,216
£102,623
5. LTIP
£102,093
£589,693
n/a
n/a
6. Other
–
£1,800
–
£444,800
Variable pay subtotal
£501,286
£838,201
£291,216
£547,423
Total
£1,184,917
£1,551,838
£781,896
£825,316
1.
Richard Armitage joined the Board on 30 May 2022. His remuneration for 2022 reflects the period 30 May to 31 December 2022.
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 (8% of base salary, aligned with the level of contributions available to the
UK workforce).
Governance
117
3. Benefits: the taxable value of benefits received in the year. Includes private medical insurance and a company car (or car allowance)
4. Bonus: the total bonus earned on performance during the year (before any mandatory deferral into shares). In accordance with the
Remuneration Policy, 67% of the amount shown above will be paid in cash, with the remaining 33% deferred into shares which will
be released after three years subject to continued employment
5. LTIP: the estimated value on 31 December 2023 of 2021 LTIP shares vesting in 2024, subject to performance over the three-year
period ended 31 December 2023. Richard Armitage, who joined Morgan Advanced Materials in 2022, did not participate in this LTIP
cycle. Figures are based on the average share price for the three months to 31 December 2023 of 249.16p. The figure for 2022 has been
trued up from that disclosed in last year’s Remuneration Report (£696,494) to reflect the share price on the vesting date (5 October
2023) of 239.52p (362,377 shares × 67.94% × 239.52p = £589,693). The impact of share price movement on the vesting value of
Pete Raby’s 2021 LTIP award is as follows:
Pete Raby
Richard Armitage
Value of awards vesting using share price at award (315.3p)
£129,194
(276,486 shares × 14.82% × 315.3p)
n/a
Value of awards vesting using 3-month average
share price at 31 December 2023 (249.16p)
£102,093
(276,486 shares × 14.82% × 249.16p)
n/a
Impact of share price movements on vesting values
-£27,101
n/a
6. Other: 2022 values for Pete Raby and Richard Armitage comprise 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, 2022 ‘other’ value 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. This award vested to
Richard Armitage at the end of May 2023, on the first anniversary of grant.
Incentive outcomes for the year ended 31 December 2023
Annual bonus in respect of 2023 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 2023, the bonus targets for the Executive Directors were split between adjusted operating profit
*
before restructuring (weighted
40%), year-end working capital
*
(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.
The table that follows sets out retrospectively the assessment of performance relative to the 2023 bonus targets for the Executive
Directors. Actual bonus payments are shown in the single total figure of remuneration table on page 116. In accordance with the
Remuneration Policy, 67% of the amount reported will be paid in cash, with the remaining 33% deferred into shares which will be
released after three years subject to continued employment.
Performance measure
% of maximum
bonus element
Performance range
Actual
performance
outcome
% payout
of element
% salary
earned
Threshold
(0% payout)
Maximum
(100% payout)
Adjusted operating profit
*1
40%
119.3m
137.0m
124.4m
60.3%
36.2%
Year-end working capital
*1
40%
183.2m
162.4m
182.8m
2.0%
1.2%
Personal objectives
Pete Raby
20%
Please see narrative below for
further details on objectives and
performance against these
90%
27%
Richard Armitage
20%
95%
28.5%
Overall outcome
Maximum
bonus
(% salary)
% of salary earned
Total outcome
Total payable
Adjusted
operating
profit
*1
Year-end
working capital
*1
Personal
objectives
Pete Raby
150%
36.2%
1.2%
27%
64.4%
£399,193
Richard Armitage
150%
36.2%
1.2%
28.5%
65.9%
£291,216
1.
For the financial measures in the 2023 bonus, the payout curve included an additional on-target performance level at which the payout was calibrated to be 50% of each element.
On-target adjusted operating profit* was £121.2m and on-target year-end working capital* was £172.8m. For both elements, there was a straight-line payout between threshold
and on-target, and between on-target and maximum. All figures were calculated using 2023 budgeted exchange rates.
For 2023, personal objectives were set for each Executive Director to focus on Morgan Advanced Materials’ key execution priorities
(Big positive difference, Innovate to grow and Delight the customer), improving Morgan Advanced Materials’ operational performance,
and recovery from the cyber security incident at the start of the year.
Morgan Advanced Materials
Annual Report 2023
118
Remuneration report
continued
Collective goals for 2023 (which applied to each Executive Director) included:
(1) Continue to develop and embed the safety culture of the business (actively engaging our employees, completing the deployment of
the new safety system, reducing the Group LTA rate below 0.25 by year end, and driving ‘Don’t Walk By’ reporting to 200 – a 5%
improvement over 2022)
(2) Drive diversity by increasing the percentage of women in leadership to 32% – an increase of 3% from year end 2022
(3) Drive employee engagement, increasing the outcome of the ‘Your Voice’ survey by 3%
(4) Ensure Morgan Advanced Materials recovers from the cyber security incident at the earliest opportunity with non-compromised
ERP systems online by end of March, provision of data and systems to support the completion of the audit, implementation of new
ERP solutions for unrecoverable sites by end of July
(5) Work with the GBUs to develop plans to reduce structural costs by £20 million per year by 2025 through plant consolidation,
automation, shared services and other restructuring; and
(6) Develop and execute an IR campaign to refresh investor understanding of the equity story following the capital markets event –
developing a target list of US, UK and European investors and completing two sets of US roadshows and site visits.
In addition to the above, the following individual objectives were set for Pete Raby:
(1) Develop plans to accelerate the organic growth rate of the Group, enhancing plans for faster growing segments to achieve 10% volume
growth CAGR from 2022–2025, and for the core to achieve 5%+ volume growth CAGR from 2022–2025; and
(2) Develop plans to enhance the customer focus of the Group, improving the customer experience and increasing innovation to meet
their needs, developing common ‘voice of the customer’ and needs-based segmentation tools and deploying across the GBUs,
completing VoC activities in each GBU and developing and executing plans to address the priority improvement areas identified,
and developing plans to conduct needs-based segmentation pilot activities in each GBU.
In addition to the collective goals identified above, Richard Armitage’s individual objectives for 2023 were to:
(1) Continue to strengthen the M&A pipeline leading the GBUs to complete segment acquisition strategies based on bottom-up market
research and analysis, targeting a qualified pipeline of 20 prospects by year end, and having a transaction ready to execute by the second
half of the year; and
(2) Improve cash management across the Group, strengthening the Group-wide cash management process, strengthening capital
investment disciplines to improve prioritisation and returns, and developing and maintaining monthly Group-level cash forecasting.
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.
Reflecting the Committee’s assessment of each of these objectives individually, the personal performance element has been assessed at
90% of the maximum to reflect Pete Raby’s delivery against the objectives set and the Leadership Behaviours demonstrated in doing so.
In particular, the Committee noted:
the significant progress on accelerating the implementation of a new ERP solution (work on which was already underway prior to the
cyber security incident) while still delivering for our customers;
continued improvements in Morgan Advanced Materials’ safety processes and systems, and additional training for all of our people,
resulting in an improvement to our LTA rate over the prior year; and
continued good progress 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 also continues to prioritise its focus on diversity, for example through employee resource groups Military@Morgan, PRISM and
Women@Morgan. The completion of a pulse employee engagement survey in December resulted in an engagement score 1% down on the
equivalent population in the prior year, however actions continue to be driven locally and globally to improve the experience of our people.
Notwithstanding the need to focus on the recovery of the cyber security incident, the overall outcome of this element reflected that some
of the objectives set had not been met (such as employee engagement, as described above). The Committee also evaluated the wider
context of Morgan Advanced Materials’ overall performance in the year, notably Pete’s key role in leading the recovery from the incident.
In determining the payout under the personal element, the Committee considered the incentive outcomes in the round (and which reflect
the financial impact of the incident) but also the context of our continued delivery of organic revenue growth, and operating margins
within the target range in the second half of the year, which underpinned an underlying performance outturn in line with the expectations
communicated to the market in February 2023 in what continued to be a tough operating environment.
In addition to the valued contributions by Richard Armitage to the extent to which the collective goals identified above were achieved,
the Committee noted Richard’s significant role in driving ROIC and leverage to within our target range (and operating margins in the range
in the second half of the year) despite the impact of the cyber security incident. In light of his excellent contribution to, and leadership role
in, ensuring that the Group delivered a performance outcome for the full year ahead of the expectations we set in February 2023, and the
extent to which the objectives set for Richard prior to the start of the year were assessed to be met, the personal performance element of
Richard’s bonus has been assessed at 95% of the maximum.
Governance
119
Performance against the objectives above is referred to further in the Chairman’s statement and elsewhere within the Annual Report.
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. This year, as well as reviewing the assessed outcomes against the Group’s underlying
performance over the relevant time horizon, the Committee also reflected the specific context of the stakeholder impact of the cyber
security incident and the Executive Directors’ significant contribution to the recovery from that in 2023. The Committee concluded from
this review that, in the round, a below-target bonus outturn (together with the modest vesting outcome under the 2021 LTIP reported
below) balances appropriately these important perspectives for remuneration decision-making. As a result, the Committee determined
that no discretion needed to be applied in respect of the 2023 bonus outcome.
2020 Deferred Bonus Plan vesting
In 2020, 33% of the annual bonus earned by the incumbent Executive Directors at the time (for performance in the 2019 financial year)
was deferred into shares under the Deferred Bonus Plan (DBP), in line with the Group’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
Pete Raby’s DBP awards which vested in 2023 are set out in the table below. Richard Armitage, who joined Morgan Advanced Materials
in 2022, did not participate in this DBP cycle:
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
20 May 2020
116,438
8,312
124,750
1.9724
2.895
22 May 2023
2021 LTIP award vesting
Awards granted to Executive Directors in 2021 were subject to relative TSR performance, EPS growth and Group ROIC
*
over a three-
year period ended 31 December 2023.
The EPS target (applying to one-third of each award) required three-year EPS growth of 15% per annum for 25% of that element to vest,
rising to full vesting for EPS growth of 22% per annum or higher. Over the period Morgan Advanced Materials plc’s actual EPS growth
was 10.9% per annum, and accordingly the EPS element of the award will not vest.
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 0.9%, which was at the 37th percentile versus the FTSE All-Share Industrials Index and at the 20th percentile versus the tailored
comparator group. Accordingly, the TSR element of the award will not vest.
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 17.78%,
and accordingly this results in a 14.82% vesting for the ROIC
*
element of the award.
This combined performance resulted in a partial vesting of the 2021 awards, equivalent to 14.82% of maximum. The vesting outcome is
considered by the Committee to appropriately reflect business performance. Executive Directors’ 2021 LTIP awards were granted when
Morgan Advanced Materials’ share price was 315.3 pence, reducing the risk of windfall gains from short-term stock market volatility since
the time of grant. The Committee is therefore comfortable that a windfall has not arisen.
Details of Pete Raby’s awards are set out in the table below. Richard Armitage, who joined Morgan Advanced Materials in 2022, did not
participate in this LTIP cycle.
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
276,486
–
40,975
–
–
22 March 2024
1.
CSOP refers to the Company Share Option Plan – further information is included in the Details of plans section later on in this report.
For the purposes of the 2021 LTIP award (and consistent with the approach taken in previous years), the financial results were adjusted to
neutralise the effects of closed businesses during the relevant period and specific adjusting items, to ensure performance is measured on
a basis consistent with that on which targets were set.
Share dilution
The Company manages dilution rates within the standard guidelines of 10% of issued Ordinary share capital in respect of all-employee
schemes and 5% in respect of discretionary schemes. Only market purchased shares, held in the Company’s Employee Benefit Trust
(EBT), have been used for the purpose of satisfying awards under these schemes that have vested since 2012. It is the Company’s
intention to use market purchased shares to satisfy awards vesting in 2024. Further information regarding the EBT can be found on
pages 133, 177, 203 and 211.
Morgan Advanced Materials
Annual Report 2023
120
Remuneration report
continued
2022 recruitment award vesting
As noted in last year’s report, Richard Armitage was granted a one-time award of restricted shares to offset bonus forfeited from his
previous employer. Details of Richard Armitage’s award, which vested in 2023, are set out in the table below.
Director
Date of grant
Number of
shares granted
Number of
shares vested
Market value
at grant
£
Market value
at vesting
£
Date of vesting
Richard Armitage
30 May 2022
144,252
144,252
3.071
2.882
30 May 2023
Pension (audited)
In 2023, Pete Raby and Richard Armitage each received a cash allowance in lieu of pension of 8% of base salary, 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 2023 and the
prior year.
Douglas Caster
(until 29 June)
Helen Bunch
Laurence Mulliez
Jane Aikman
Clement Woon
Ian Marchant
(From 1 February)
2023
1
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2
2022
£100,273
£202,100
£62,820
£61,220
£62,820
£61,220
£62,820
£61,220
£54,820
£53,220
£128,649
n/a
1.
Douglas Caster’s 2023 fee reflects an annualised fee of £202,100, pro-rated until his retirement on 29 June 2023.
2.
Ian Marchant’s 2023 fee reflects an annualised fee of £54,820 from 1 February 2023 to 28 June 2023, and an annualised fee of £210,000 on becoming Chairman on 29 June 2023.
As disclosed in last year’s report, Ian Marchant also receives an £18,000 annual contribution towards the cost of administrative support. The contribution paid to him in 2023 was
pro-rated to £13,500 as he joined the Board part way through the year.
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 2023
2023 LTIP awards
In 2023, Pete Raby and Richard Armitage were granted awards under the LTIP as shown in the table below. The performance period
for the 2023 LTIP awards is 1 January 2023 to 31 December 2025. Vesting outcomes will continue to be assessed to ensure they reflect
business performance and will be adjusted as appropriate.
Executive Director
Number of LTIP
shares granted
1
Value of awards at grant
£
As % of 2023 salary
Date of vesting
Pete Raby
412,782
1,240,000
200%
10 May 2026
Richard Armitage
220,705
663,000
150%
10 May 2026
1.
Calculated using the award price of £3.004, being the average share price for the five dealing days prior to the award date (10 May 2023).
The Committee discusses and reviews the performance criteria for new three-year LTIP awards before they are granted. For the awards
granted in 2023, the Committee considered the balance of measures in light of the Group’s business plan and shareholder feedback and
decided to maintain the current weightings of the four performance criteria, with the TSR element continuing to be split into two parts.
One-half of this element will vest based on Morgan Advanced Materials’ TSR performance relative to the constituents of the FTSE
All-Share Industrials Index and one-half will vest based on Morgan Advanced Materials’ TSR performance relative to a tailored comparator
group of 15 industry comparators.
The table below sets out the targets attaching to the 2023 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%
11% pa
27.5%
20%
27.5%
15%
15%
Median
3.75%
Median
3.75%
4% pa
6.88%
17%
6.88%
5%
3.75%
Below median
Nil
Below median
Nil
<4% pa
Nil
<17%
Nil
<5%
Nil
For Executive Directors, a two-year holding period applies to any shares that vest in relation to the 2023 LTIP. Dividends accrue over this
holding period and will be paid on any shares that vest.
Governance
121
2023 Deferred Bonus Plan awards
In 2023, 33% of the total annual bonus earned by Pete Raby and Richard Armitage (for performance in the 2022 financial year)
was deferred into shares under the DBP, in line with Morgan Advanced Materials’ 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
27,375
82,236
10 May 2026
Richard Armitage
11,387
34,208
10 May 2026
1.
Calculated using the award price of £3.004, being the average share price for the five dealing days prior to the award date (10 May 2023).
Exit payments made in year (audited)
No exit payments were made to Executive Directors during the 2023 financial year.
Payments to past Directors (audited)
As set out in last year’s report, Peter Turner stepped down from the Board on 30 May 2022 and retired from the Group on 30 June 2022.
All payments made to Peter in relation to the 2022 financial year were disclosed fully in last year’s Remuneration Report. Peter was treated
as a ‘good leaver’ in respect of outstanding LTIP awards. Vesting of previously-granted awards during the 2023 financial year were as
follows: 93,569 shares (inclusive of dividend) granted under the 2020 DBP on 20 May 2023, 143,941 shares and 7,237 CSOP options
under the 2020 LTIP cycle on 5 October 2023 (equivalent to 67.94% of maximum). In addition, he retains interests granted under the
DBP in 2021 and 2022 and under the LTIP granted in 2021, details of which will be disclosed on vesting in future reports.
External appointments
Details of external appointments held by Executive Directors and the fees retained in 2023 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
£55,455
Richard Armitage
NWF Group PLC
Senior Independent Director and
Chair of the Audit Committee
5 July 2020
£43,958
Implementation of Remuneration Policy for 2024
Base salary
In line with the Remuneration Policy, Executive Directors’ salaries were reviewed by the Committee and increased for 2024 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 2023; 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, the increases
awarded to our Executive Directors in 2024, while in line with the average increases awarded to the wider workforce (4% in the UK),
were lower than the increases for other colleagues who received similar performance ratings (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 2023, and those that took effect from 1 January 2024:
Executive Director
Base salary at:
Increase
1 January 2024
1 January 2023
Pete Raby
£645,000
£620,000
4%
Richard Armitage
£459,680
£442,000
4%
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 2024. These are aligned to the pension
contribution levels available to the wider workforce (8% of salary, based on our UK population).
Morgan Advanced Materials
Annual Report 2023
122
Remuneration report
continued
Annual bonus in respect of 2024 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 remain unchanged from 2023, and are as follows:
Adjusted 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.
2024 LTIP awards
In March 2024, Pete Raby and Richard Armitage will be granted awards under the 2024 LTIP with face values of 200% and 150% of their
2024 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 2024 and will end on 31 December 2026. 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 Advanced Materials’ TSR rank relative to
constituents of each TSR benchmark. The performance range for each element will remain median to upper quartile
The EPS performance range has been set at 9% to 16% per annum to take into account the reduced 2023 base level resulting from
the impact of the 2023 cyber security incident
The ROIC
*
range will remain unchanged at 17% to 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 while 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 2024 LTIP cycle, Executive Directors will be required to hold any vested 2024 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 2023. Increases are based on salary market movement
and are in line with the average increases awarded to the wider workforce (4% in the UK). The additional Committee Chair and Senior
Independent Director fees have also been increased to more closely align to market rates. The table below shows the fees in 2023, and
those that were agreed for 2024:
Role
2024 fee pa
2023 fee pa
Chairman
1
£218,400
£210,000
Non-Executive Director
1
£57,013
£54,820
Committee Chair (additional fee)
£10,000
£8,000
Senior Independent Director (additional fee)
£10,000
£8,000
1.
Ian Marchant was paid the non-Executive Director fee from 1 February 2023 until he succeeded Douglas Caster as Chairman, at which point his fee comprised of the Chairman’s annual fee
of £210,000 plus an £18,000 contribution towards the cost of administrative support.
Governance
123
Percentage change in Directors’ remuneration
The table below shows, for each individual who was an Executive or non-Executive Director during 2023, the annual percentage change
in their remuneration over the past four years 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. Note that individuals who were Directors during
the period under review, but not at any point during 2023, have not been included. The percentage changes in their remuneration for
prior years (and in which they were a Director) are disclosed in relevant previous Annual Reports.
2023 %
change
in salary
or fees
2022 %
change
in salary
or fees
2021 %
change
in salary
or fees
2
2020 %
change
in salary
or fees
3
2023 %
change in
benefits
4
(excluding
pension)
2022 %
change in
benefits
4
(excluding
pension)
2021 %
change in
benefits
4
(excluding
pension)
2020 %
change in
benefits
4
(excluding
pension)
2023 %
change
in annual
bonus
9
2022 %
change
in annual
bonus
2021 %
change
in annual
bonus
7
2020 %
change
in annual
bonus
Executive Directors
Pete Raby
4.0%
2.6%
32.3%
(2.5%)
-19.4%
2.9%
-0.1%
-0.5%
1.9%
61.8%
-70.8% 1029.3%
-89.1%
Richard Armitage
4.0%
1
n/a
n/a
n/a
2.8%
1
n/a
n/a
n/a
65.5%
1
n/a
n/a
n/a
Non-Executive
Directors
5
Ian Marchant
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Douglas Caster
8
0%
2.5%
31.6%
(2.0%)
-20.9%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Helen Bunch
2.6%
2.2%
26.3%
(1.7%)
-18.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Laurence Mulliez
2.6%
2.2%
26.3%
(1.7%)
-18.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Jane Aikman
2.6%
2.2%
26.3%
(1.7%)
-18.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Clement Woon
3.0%
2.5%
31.6%
(2.0%)
-20.9%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Average per employee
6.7%
3.4%
3.6%
(2.6%)
3.0%
2.6%
-1.2%
0.9%
-5.8%
6
-2.73%
-44.1%
53.6%
-2.1%
1.
Richard Armitage joined the Board on 30 May 2022. The percentages above are based on annualised figures for 2022 remuneration.
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. Decreases in benefits reflects a reduction in private medical premium in certain years.
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.
8.
Douglas Caster voluntarily waived the increase in his fee for 2023.
9.
Employee average bonus based on an estimate of 2023 bonus paid in 2024 (final bonus award data was not available at the time of publication). The percentage change in 2023 bonus for
the Executive Directors differs from that for other employees, based on their differing bonus structures. 2023 percentage financial bonus outcomes for Executive Directors remain lower
than those for other employees.
CEO pay ratio
Year
Method
25th percentile
pay ratio
Median (50th
percentile)
pay ratio
75th percentile
pay ratio
2023
Option B
53:1
41:1
26:1
2023 (excluding variable)
Option B
31:1
24:1
15:1
2022
1
Option B
61:1
37:1
31:1
2022 (excluding variable)
Option B
32:1
22:1
16:1
2021
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.
Morgan Advanced Materials
Annual Report 2023
124
Remuneration report
continued
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
2023
£620,000
£21,164
£21,164
£39,605
£1,184,917
£22,345
£28,591
£45,426
2022
£596,000
£21,414
£23,225
£41,202
£1,551,838
£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 2023 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 Advanced Materials has applied Option B, where the most recent gender
pay gap reporting data (as at 5 April 2023) 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 Advanced Materials 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 2023 performance, in order to be
consistent with the methodology used for the CEO’s total remuneration figure.
The 2023 median CEO pay ratio is slightly higher than the 2022 median, and the 2023 25th and 75th percentile pay ratios are lower than
those reported in 2022. Both 2022 and 2023 CEO pay ratios are lower than those reported in 2021 as a consequence of the impact of
inflationary headwinds and the 2023 cyber security incident on 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 and 2023 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 (eg 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
such as at Morgan Advanced Materials 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 Advanced Materials’ data to companies in similar industries.
Governance
125
Relative importance of spend on pay
The graphs below show shareholder distributions (ie dividends and share buybacks) and total employee pay expenditure for the financial
years ended 31 December 2022 and 31 December 2023.
Total employee pay
expenditure (£m)
401.1
375.7
2022
2023
Shareholder
distributions (£m)
34.2
31.8
2022
2023
Shareholder distributions increased by 7.5% during 2023 to £34.2 million (2022: £31.8 million). Total employee pay across the Group has
increased by 6.8% to £401.1 million (2022: £375.7 million).
Comparison of Company performance
The graph below shows the value, at 31 December 2023, of £100 invested in Morgan Advanced Materials plc’s shares on 31 December
2013 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
£167
£125
£0
£50
£100
£150
£200
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
The table below details the CEO’s “STFR” over the 10-year period to 31 December 2023.
CEO
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
M Robertshaw
P Raby
CEO single
figure
£1,001,448
£788,252
£787,492 £1,210,856 £1,479,738 £1,618,605
£791,238
£2,041,667
£1,551,838 £1,184,917
Annual bonus
(% of maximum)
65%
50%
29.5%
1
71.3%
67.4%
84.3%
9%
97%
27.6%
42.9%
BDSMP vesting
(% of maximum)
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
LTIP vesting
(% of maximum)
0%
n/a
n/a
15.4%
42.9%
61.3%
21.8%
52.17%
67.94%
14.82%
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.
Morgan Advanced Materials
Annual Report 2023
126
Remuneration report
continued
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 2023.
Shareholding
guideline (%
2023 salary)
Shares owned outright
Shares
subject to
performance
1
Performance-
tested but
unvested
shares
2
Shares
subject
to DBP
deferral
3
Shares
subject to
post-
vesting
holding
4
Options
granted but
subject to
continued
employment
5
Current
shareholding
(% of 2023
salary)
6
Guideline
met
As at 1
January
2023
As at 31
December
2023
Pete Raby
200% 446,786
653,991
827,102
40,975
66,325
130,078
4,285
291.2%
Yes
Richard Armitage
200%
40,000
136,215
428,292
–
6,035
–
4,285
82.6%
Building
1.
2022 and 2023 LTIP awards.
2.
The expected number of shares due to vest under the 2021 LTIP.
3.
Estimated number of shares, net of tax (47%), deferred under the DBP.
4.
Shares vested (net of tax) but subject to two-year post-vesting holding period.
5.
Options granted under the Sharesave scheme.
6.
Based on an Executive Director’s annualised 2023 salary and the average share price for the three months to 31 December 2023 of 249.16 pence, comprising shares owned outright and
shares subject to deferral.
As at 11 March 2024, 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 126 to 127 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 2023.
As at
1 January
2023
As at 31
December
2023 or date
of leaving
Douglas Caster
110,454
110,454
Laurence Mulliez
7,161
7,336
Helen Bunch
2,028
2,028
Jane Aikman
1,000
1,000
Clement Woon
55,000
55,000
Ian Marchant
0
35,000
As at 11 March 2024, the non-Executive Directors’ interests in shares had not changed since the end of the period under review.
Post-employment share ownership guideline mechanics
All 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.
Executive Directors’ share plans (audited)
Pete Raby
LTIP
Plan
As at 1
January
2023
Allocations
during
the year
Vested
during
the year
Lapsed
during
the year
As at 31
December
2023
Market price
at date of
allocation
Market price
at date of
vesting
Performance
period
No further performance
conditions, vested (subject to
2-year post-vesting holding)
2020
362,377
–
246,198
116,179
–
234.70p
239.52p
01.01.20 –
31.12.22
No further performance
conditions, not yet vested
2021
276,486
–
–
–
276,486
315.30p
–
01.01.21 –
31.12.23
Subject to performance
conditions
2022
414,320
–
–
–
414,320
287.70p
–
01.01.22 –
31.12.24
2023
–
412,782
–
–
412,782
300.40p
–
01.01.23 –
31.12.25
Governance
127
Share options
Plan
As at 1
January
2023
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
As at 31
December
2023
Option
price at
grant
Market price
at date of
vesting/
exercise
Performance/
maturity
period
Continued service met
Sharesave
4,477
–
4,477
–
–
201.00p
297.50p
01.12.19 –
31.05.23
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 2023
As at 31 December 2023
1,276,152
1,2,
1,233,017
2,3
1.
Includes 2020 deferred bonus award.
2
Includes 2021 and 2022 deferred bonus awards.
3.
Includes 2023 deferred bonus award.
Richard Armitage
LTIP
Plan
As at 1
January
2023
Allocations
during
the year
Vested
during
the year
Lapsed
during
the year
As at 31
December
2023
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
2023
–
220,705
–
–
220,705
300.40p
–
01.01.23 –
31.12.25
Recruitment award
Plan
As at 1
January
2023
Allocations
during
the year
Vested
during
the year
Lapsed
during
the year
As at 31
December
2023
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
288.21p
30.05.22 –
30.05.23
Share options
Plan
As at 1
January
2023
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
As at 31
December
2023
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 2023
As at 31 December 2023
356,124
443,964
1
1.
Includes 2023 deferred bonus award.
Morgan Advanced Materials
Annual Report 2023
128
Remuneration report
continued
Details of plans
LTIP
Details
LTIP
The performance conditions attached to the 2021 awards are set out on page 119.
The performance conditions attached to the 2022 awards are on the same basis as the 2021 awards, except that
the EPS range was amended to 6% to 13%, and a new ESG measure (carbon reduction) was introduced with
a performance range of 5% to 15% carbon reduction.
The performance conditions attached to the 2023 awards are set out on page 120.
LTIP-CSOP
LTIP 2020: The award to the CEO was structured as LTIP awards in the form of a conditional award of free shares.
LTIP 2021, 2022 and 2023: The awards 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.
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 11 March 2024.
Governance
129
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 four non-Executive Directors and the Chairman of the Company. Each of the
non-Executive Directors is regarded by the Board as independent. The Chairman of the Company 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 80.
Key activities during 2023
During 2023, the key areas of focus for the Committee were:
determining whether targets for the 2022 bonus and 2020 LTIP were achieved, and, if so, to what extent (plus assessment of any
windfall gains associated with the 2020 LTIP);
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 2024;
receiving reports on share awards to employees, and employee participation in the Save As You Earn scheme;
reviewing feedback from institutional investors ahead of the Company’s 2023 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 2024 fees;
determining performance targets for the 2023 bonus;
determining performance targets for the 2024 share incentive schemes; and
reviewing the Committee’s terms of reference.
Morgan Advanced Materials
Annual Report 2023
130
Remuneration report
continued
Committee performance evaluation
The Committee’s performance was reviewed as part of the Board evaluation (see page 88 for details). It was concluded that the
Committee had operated effectively during the period under review.
Committee advisor
Ellason LLP was appointed as the Committee’s executive remuneration advisor from 1 January 2021. Ellason specialises in executive
remuneration advice and during 2023 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 Advanced Materials’ 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
£42,893
Summary of shareholder voting
The following table shows the results of the binding vote on the 2022 Remuneration Policy (at the 2022 AGM) and the advisory vote on
the 2022 Annual Report on Remuneration at the 2023 AGM:
Resolution
For
Against
Withheld
Remuneration Policy
96.45%
3.55%
98,036
Annual Report on Remuneration
98.30%
1.70%
85,987
Compliance statement
During the year under review, the Company has complied with the provisions relating to Directors’ remuneration in the UK Corporate
Governance Code. 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 AGM on 9 May 2024.
Signed on behalf of the Board
Helen Bunch
COMMITTEE CHAIR
Governance
131
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 76 to 134 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 00286773.
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 2024 AGM will be held
on 9 May 2024, commencing at 10:30am
at the offices of Slaughter and May at
One Bunhill Row, London, EC1Y 8YY.
A circular incorporating the 2024 Notice of
AGM is available in the Invest in us 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 78 to 80.
Results and dividends
The total profit (attributable to owners of
the parent and non-controlling interests)
for the year ended 31 December 2023
was £56.3 million (2022: £96.7 million).
Profit before taxation for the same period
was £77.8 million (2022: £131.6 million).
Revenue was £1,114.7 million (2022:
£1,112.1 million) and operating profit
was £91.9 million (2022: £140.8 million).
Basic earnings per share
*
from
continuing operations was 16.4 pence
(2022: 30.6 pence). Capital and reserves
at the end of the year were £398.6 million
(2022: £429.6 million). The total profit of
£56.3million (2022: £96.7 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 17 May 2024 to shareholders
on the register at the close of business on
26 April 2024. Together with the interim
dividend of 5.3 pence per share paid on
17 November 2023, this final dividend,
if approved by shareholders, brings the
total distribution for the year to 12.0 pence
per share (2022: 12.0 pence).
Directors
All those who served as Directors at any
time during the year under review are set
out on pages 78 to 79. Douglas Caster also
served as a Director up until 29 June 2023.
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 126.
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.
Engagement with customers,
suppliers and others
Details of how the Directors have had
regard to the need to foster the Company’s
business relationships with customers,
suppliers and others, and the effect of that
Morgan Advanced Materials
Annual Report 2023
132
Other disclosures
continued
regard including on the principal decisions
taken by the Group during the year, are set
out on pages 26 to 27 and pages 30 to 31
of the Strategic Report and on page 87 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:
Details of
any long-term
incentive
schemes
Remuneration Report,
page 111
Shareholder
waiver of
dividends
Financial Statements,
note 19, pages 176 to 178
Shareholder
waiver of
future dividends
Financial Statements,
note 19, pages 176 to 178
The remaining disclosures required by
LR 9.8.4 are not applicable to the Company.
Overseas branches
As at 31 December 2023, the Company
had branches as follows:
Morgan AM&T BV (Sweden and Belgium)
Carbo San Luis SA (Chile)
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.
Engagement with employees –
principal decisions
Details of how the Directors have engaged
with UK employees can be found on pages 30
to 31 of the Strategic Report. Details of how
the Directors had regards to the interests of
UK employees and the effect of that regard
on principal decisions taken by the Group
during the financial year can be found on
pages 31 and 32 of the Strategic Report.
Details of how Morgan Advanced Materials
encourages employee involvement can be
found in the Strategic report on pages 23 to 28.
Employment of disabled people
The Group 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, visible or invisible, are dealt
with fairly and have equal opportunity.
Morgan Advanced Materials 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 £32.9 million in
operating costs in respect of research and
development (2022: £31.6 million). The
Group did not capitalise any development
costs in 2023 (2022: £nil). The Group 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 our 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
Strategic Report on page 53.
Political donations
No political donations have been made.
Morgan Advanced Materials has a policy of
not making donations to any political party,
representative or candidate in any part of
the world.
Charitable donations
Morgan Advanced Materials made
donations of £42,825 to local charities and
community activities in various countries.
Future developments
An indication of likely future developments
of the Group is included in the Market
Environment and Industry Trends section
of the Strategic Report on pages 14 to 17
and the Our Strategy section of the
Strategic Report on pages 18 to 19.
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
179 to 189. 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 2023 is set out in note 40
to the consolidated financial statements
on page 211. 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
(2022: 437,281) cumulative Preference
shares classified as borrowings totalling
£0.4 million (2022: £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.
Governance
133
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
pages 176 to 178.
Share allotment and
repurchase authorities
The Directors were granted authority at the
2023 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 2023 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
2023 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 2024 AGM at which
time the Board will seek fresh authorities
and powers.
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 2023
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
11 March 2024, the latest practicable date prior to the date of this report.
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 194 to 196.
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, 20 March 2017
and 23 May 2023, for which the
aggregate outstanding loan amounts
are US$172 million, €60 million and the
€92 million Schuldschein loan agreement
signed on 16 June 2023.
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
There were no reportable subsequent
events following the balance sheet date.
Morgan Advanced Materials
Annual Report 2023
134
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 78 to 79, 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 2023.
For the purposes of DTR 4.1.5R(2) and
DTR 4.1.8, the Directors’ Report on pages
76 to 134 and the Strategic Report on pages
2 to 75 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 11 March 2024.
For and on behalf of the Board
Winifred Chime
COMPANY SECRETARY
11 March 2024
Morgan Advanced Materials plc
York House
Sheet Street
Windsor
Berkshire SL4 1DD
Registered in England and Wales,
No. 00286773
Governance
135
Report on the audit of the
financial statements
1. Opinion
In our opinion:
the financial statements of Morgan
Advanced Materials plc (the ‘Company’)
and its subsidiaries (the ‘Group’) give
a true and fair view of the state of the
Group’s and of the Company’s affairs
as at 31 December 2023 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;
the 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 balance sheets;
the Consolidated statement of
changes in equity;
the Consolidated statement of
cash flows;
the notes 1 to 27 to the Consolidated
financial statements;
the Company balance sheet;
the Company statement of changes
in equity;
the notes 28 to 44 to the Company
financial statements.
The financial reporting framework that has been applied in the preparation of the Group
financial statements is applicable law and United Kingdom adopted international accounting
standards. The financial reporting framework that has been applied in the preparation of
the 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 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 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 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
Cyber security incident.
Materiality
The materiality that we used for the Group financial statements was
£5.5m which was determined on the basis of 5.3% (FY22: 4.6%)
of profit before tax and specific adjusting items (see section 6).
Scoping
Full scope audit work was performed on 17 (FY22: 17) reporting
components, and specified audit procedures were undertaken on
a further 12 (FY22: 12) reporting components. Our full scope and
specified audit procedures covered 72.5% of Group revenue
(FY22: 72.0%) and 73.9% of absolute Group profit before tax
(FY22: 73.0%).
Significant
changes in
our approach
Our audit approach is consistent with the previous year with the
exception of:
The key audit matter with respect to the cyber security incident
has been modified to respond to the in-year risk for the Group
arising from the cyber incident, which occurred in January 2023,
compared with the focus in the previous year which was as
a post balance sheet event.
Independent Auditor’s Report
Morgan Advanced Materials
Annual Report 2023
136
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 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
key controls around the budgeting
and forecasting process used in the
preparation of the going concern analysis
and disclosures;
challenging the assumptions used in the
Board approved forecasts by reference
to historical performance and other
supporting evidence such as market data;
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
Company’s ability to continue as a going
concern for a period of at least 12 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 inventory balances of £175.1m as at 31 December 2023
(FY22: £174.2m). 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 obsolete stock due to system
limitations. Significant manual intervention is required
to record and value inventory.
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:
Understood the inventory provisioning processes at each
significant component and obtained an understanding of the
relevant controls in management’s review of the provision;
Specifically understood the manual processes and relevant
controls adopted during the period affected by the cyber
incident, how management maintained inventory records during
the impacted period; and the methodology used in the inventory
provisioning process;
Assessed any unusual manual adjustments to inventory;
Assessed the inventory ageing and 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 past data
and 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 2023 is appropriate.
Governance
137
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 Europe, Seals and Bearings Asia,
Electrical Carbon North America and Electrical Carbon Asia. Indicators for impairment reversal were identified
at Technical Ceramics Cores and Technical Ceramics Europe. Total impairment charges for the year were
£7.3m (FY22: £6.5m) and total impairment reversals were £8.1m (FY22: nil). Note 6 provides further analysis
of the balance.
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 charge of £1.9m (FY22: £1.6m) was recorded in the year.
Technical Ceramics Cores North America, where a full impairment reversal of £5.7m (FY22: nil) has
been recorded.
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 assumptions in assessing non-financial assets for impairment
include the discount rate and the short-term projected cash flows and we have focused this key audit matter
on those assumptions and the material judgements contained therein. 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.
The Audit Committee Report on page 96 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.
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 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
Worked with our 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 and are satisfied that with the valuation of non-financial assets. We provided recommendations to
management and the Audit Committee with respect to control improvements related to the review of the value in
use models.
Morgan Advanced Materials
Annual Report 2023
138
Independent Auditor’s Report
continued
5.3. 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 parts 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 cyber security incident has consumed a significant amount of management’s time and attention and disrupted
the monthly financial close processes across the Group, particularly during the first half of the year. The higher
proportion of manual processes and controls implemented in response during this period gives rise to an
inherently higher risk of fraudulent financial entries and/or errors.
Specifically we identified a risk relating to the valuation of cyber-related costs as set out in note 6, as well as the
completeness of any liabilities or contingent liabilities, relating to potential penalty claims from regulators and/or
customers relating to the cyber incident.
The Audit Committee Report on page 96 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:
performed inquiries with Finance and IT management to understand whether any control deficiencies existed
that allowed the unauthorised activity to occur;
performed inquiries with management’s cyber experts and assessed their reports, to understand:
– the cause and timing of the cyber security incident; and
– the impact of the cyber security incident and the assessment they have made regarding the availability and
integrity of key information and data used in the financial reporting.
assessed the competence, capabilities and objectivity of the experts used by management; and
considered whether the cyber security incident 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, we
performed further audit procedures where we considered it necessary.
We performed a higher degree of substantive testing at the most affected sites and accelerated the timing of our
work with a specific focus on the impacted period up to the recovery of existing IT systems or the implementation
of new IT systems.
We performed procedures to address the risk from the cyber security incident that incorrect or incomplete
financial entries were made, including obtaining an understanding of the relevant manual controls adopted over
the outage period, reconciliations of opening balances entered in the recovered or new systems from the manual
records maintained during the outage period.
We have assessed the valuation of the cyber-related costs incurred, impairment of IT assets as well as
completeness of any liabilities or contingent liabilities relating to the risk of any litigation or fines.
Our enquiries included direct contact with management’s external experts, including considerations of whether
there had been any reporting to regulators, to identify any financial reporting impact arising.
Key observations
We did not identify any significant accounting issues as a consequence of the cyber incident. We have shared
controls observations with management relating to the data migration and related reconciliations performed
between the previous and newly implemented ERP systems during the year.
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
Company financial statements
Materiality
£5.5m (FY22: £6.0m)
£3.3m (FY22: £3.6m)
Basis for
determining
materiality
Materiality was determined based on 5.3%
(FY22: 4.6%) of profit before tax and specific
adjusting items as described in note 6.
Materiality was determined based on the Company’s
net assets (3%). This was then capped at 60% of Group
materiality (FY22: 3% of net assets capped at 60% of
Group materiality).
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 Company is non-trading and contains investments in
the Group’s trading components and as a result, we have
determined net assets for the current year to be the
appropriate basis.
Governance
139
PBT before specific adjusting items
Group materiality
Group materiality £5.50m
Component materiality range
£1.60m to £1.78m
PBT before specific
adjusting items
£102.90m
Audit Committee reporting
threshold £0.28m
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
Company financial statements
Performance
materiality
65% (FY22: 65%) of Group materiality
65% (FY22: 65%) of 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 including the impact of
the cyber security incident on the Group, 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;
the consistency of senior personnel and executive management; 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 £0.28m (FY22: £0.30m),
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 20 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 Global 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 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. Full scope audit work was
completed on 17 (FY22: 17) components and specified audit procedures were undertaken on a further 12 (FY22:12) components.
Each reporting component in scope, with the exception of the Company, was subject to an audit materiality level between £1.60m
and £1.78m (FY22: £1.76m and £1.95m). The Company component was subject to an audit materiality of £3.30m. Our full scope and
specified audit procedures covered 72.5% of Group revenue (FY22: 72%) and 73.9% of absolute Group profit before tax (FY22: 73%).
At a Group level, we tested the consolidation and performed analytical review procedures over components that were not in scope for
full audits or specified audit procedures.
Morgan Advanced Materials
Annual Report 2023
140
Independent Auditor’s Report
continued
7.2. Our consideration of
the control environment
The Group uses a number of different IT
systems across the reporting components
and the control environment is decentralised
and reliant on manual processes. We
involved our IT specialists to obtain an
understanding of general IT controls,
including general IT controls in place over
the newly implemented ERP system in
certain geographies during the year.
We obtained an understanding of relevant
controls over revenue, inventory valuation,
impairment reviews, the financial close
and reporting process and management’s
review of judgements and estimates.
We did not place reliance on controls over
revenue at any site this year, due to the
impact of the cyber incident where there
were manual controls in operation during
the year and general IT controls were not
operating throughout the whole period.
Management is continuing work to
align the systems of financial control and
reporting across the Group, with further
improvements required to the IT
environment in order for us to adopt
a controls reliance approach to our audit.
Management have included an assessment
on page 95.
In response to the cyber security incident in
January 2023, 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
2023 as explained in note 1 on page 149.
We performed our own qualitative risk
assessment of the potential impact of
climate change on the Group’s account
balances and classes of transactions 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. 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 in-
person visits; 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.
Revenue
Full audit scope
54%
Specified audit procedures
19%
Review at group level
27%
Profit before tax
Full audit scope
54%
Specified audit procedures
20%
Review at group level
26%
Governance
141
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.
In preparing the financial statements, the
directors are responsible for assessing the
Group’s and the 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 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, including those that are
specific to the Group’s sector;
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; and
– the internal controls established
to mitigate risks of fraud or non-
compliance with laws and regulations.
the implications of the cyber security
incident which occurred in January 2023.
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 areas: the cyber
security incident and 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, data protection 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 identified the cyber security incident as
a key audit matter related to the potential
risk of fraud or non-compliance with laws
and regulations.
The key audit matters section of our report
explains the matter in more detail and also
describes the specific procedures we
performed in response to that key audit
matter. 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
Morgan Advanced Materials
Annual Report 2023
142
Independent Auditor’s Report
continued
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.
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
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 70;
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 70;
the directors’ statement on fair,
balanced and understandable set
out on page 134;
the board’s confirmation that it has
carried out a robust assessment of the
emerging and principal risks set out on
page 54;
the section of the annual report that
describes the review of effectiveness of
risk management and internal control
systems set out on page 97; and
the section describing the work of the
audit committee set out on page 93.
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 Company, or returns
adequate for our audit have not been
received from branches not visited
by us; or
the 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 four years, covering the years ending
31 December 2020 to 31 December 2023.
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) 4.1.15R – DTR
4.1.18R, these financial statements will form
part of the Electronic Format Annual Financial
Report filed on the National Storage
Mechanism of the FCA in accordance with
DTR 4.1.15R – DTR 4.1.18R. This auditor’s
report provides no assurance over whether
the Electronic Format Annual Financial Report
has been prepared in compliance with DTR
4.1.15R – DTR 4.1.18R.
Jane Makrakis, ACA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
11 March 2024
143
Consolidated income statement
144
Consolidated statement of
comprehensive income
145
Consolidated balance sheet
146
Consolidated statement of
changes in equity
147
Consolidated statement of cash flows
148
Notes to the consolidated
financial statements
149
Company balance sheet
198
Company statement of changes in equity
199
Notes to the Company financial statements
200
Group statistical information
217
Cautionary statement
218
Glossary of terms
218
Shareholder information
219
Contents
Financial
statements
Financial statements
Morgan Advanced Materials
Annual Report 2023
144
Consolidated income statement
Note
31 December 2023
31 December 2022
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
Operating costs before amortisation
of intangible assets, impairments
and reversal of impairments of
non-financial assets
4
(994.4 )
(25.9 )
(1,020.3 )
(961.1 )
(960.1 )
Profit from operations before
amortisation of intangible
assets, impairments and
reversal of impairments of
non-financial assets
3
(25.9 )
Amortisation of intangible assets
4
(3.3 )
(3.3 )
(4.7 )
(4.7 )
Impairment of non-financial assets
6
(7.3 )
(7.3 )
(6.5 )
(6.5 )
Reversal of impairment of
non-financial assets
6
Operating profit
3
(25.1 )
(5.5 )
Finance income
Finance expense
(18.0 )
(18.0 )
(10.8 )
(10.8 )
Net financing costs
7
(14.1 )
(14.1 )
(9.2 )
(9.2 )
Profit before taxation
(25.1 )
(5.5 )
Income tax expense
8
(26.0 )
(22.2 )
(37.1 )
(36.0 )
Profit from continuing
operations
(21.3 )
(4.4 )
Profit from discontinued
operations
2
9
Profit for the year
(20.6 )
(3.3 )
Profit for the year
attributable to:
Shareholders of the Company
(20.6 )
(3.3 )
Non-controlling interests
(20.6 )
(3.3 )
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 2023
Financial statements
145
Consolidated statement
of comprehensive income
Note
31 December
2023
£m
31 December
2022
£m
Profit for the year
Other comprehensive (expense)/income:
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (loss)/gain on defined benefit plans
22
(11.5 )
Tax effect of components of other comprehensive income not reclassified
8
(0.5 )
(3.4 )
(12.0 )
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
(32.8 )
Cash flow hedges:
Change in fair value
(0.2 )
Transferred to profit and loss
Net investment hedges:
Change in fair value
(0.3 )
(31.8 )
Total other comprehensive (expense)/income
(43.8 )
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 2023
Morgan Advanced Materials
Annual Report 2023
146
Consolidated balance sheet
Note
2023
£m
2022
£m
Assets
Property, plant and equipment
11
Right-of-use assets
12
Intangible assets: goodwill
13
Intangible assets: other
13
Investments
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 2023
Financial statements
147
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 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 )
At 1 January 2023
(0.2 )
(1.0 )
Profit for the year
Other comprehensive
income/(expense):
Remeasurement loss on
defined benefit plans and
related taxes
(12.0 )
(12.0 )
(12.0 )
Foreign exchange differences
and related taxes
(29.6 )
(29.6 )
(3.2 )
(32.8 )
Cash flow hedging fair value
changes and transfers
Net investment hedging fair
value changes and transfers
(0.3 )
(0.3 )
(0.3 )
Total other
comprehensive income/
(expense)
(29.9 )
(12.0 )
(40.6 )
(3.2 )
(43.8 )
Total comprehensive
income/(expense)
(29.9 )
Transactions with
owners:
Dividends
(34.2 )
(34.2 )
(8.1 )
(42.3 )
Equity-settled
share-based payments
Own shares acquired for
share incentive schemes (net)
(4.1 )
(4.1 )
(4.1 )
At 31 December 2023
(29.9 )
(1.0 )
Details of the reserves are provided in note 19.
FOR THE YEAR ENDED 31 DECEMBER 2023
Morgan Advanced Materials
Annual Report 2023
148
Consolidated statement of cash flows
Note
31 December
2023
£m
31 December
2022
£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 )
Non-cash specific adjusting items included in operating profit
(2.5 )
Fair value gain on equity instruments held at FVTPL
(0.9 )
Profit on sale of property, plant and equipment
(1.6 )
(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
(4.0 )
(26.5 )
Increase in inventories
(12.3 )
(25.2 )
Increase in trade and other payables
Decrease in provisions
(3.4 )
(4.9 )
Payments to defined benefit pension plans (net of IAS 19 pension charges)
22
(0.2 )
(85.9 )
Cash generated from operations
Interest paid – borrowings and overdrafts
(15.5 )
(7.0 )
Interest paid – lease liabilities
(2.4 )
(2.4 )
Income tax paid
(30.3 )
(31.8 )
Net cash from operating activities
Investing activities
Purchase of property, plant and equipment and software
(60.4 )
(58.0 )
Purchase of investments
21
(5.6 )
Proceeds from sale of property, plant and equipment
Grants received for purchase of equipment
Interest received
Disposal of investments
2
Net cash from investing activities
(60.2 )
(55.4 )
Financing activities
Purchase of own shares for share incentive schemes
19
(4.7 )
(2.9 )
Proceeds from exercise of share options
19
Increase in borrowings
17
Repayment of borrowings
17
(193.9 )
(39.0 )
Payment of lease liabilities
17
(8.9 )
(9.0 )
Dividends paid to shareholders of the Company
(34.2 )
(31.6 )
Dividends paid to non-controlling interests
(8.1 )
(7.9 )
Net cash from financing activities
(2.0 )
Net increase/(decrease) in cash and cash equivalents
(13.0 )
Cash and cash equivalents at start of the year
Effect of exchange rate fluctuations on cash held
(9.5 )
Cash and cash equivalents at year end
17
FOR THE YEAR ENDED 31 DECEMBER 2023
149
Financial statements
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 220.
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 to 75.
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 2023 . 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 198 to 216.
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
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
(iii) 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
Annual Report 2023
150
Notes to the consolidated financial statements
continued
(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 as or when 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 (GBU).
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 2023, 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
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
151
Financial statements
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
(ie 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 (ie 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.
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.
Morgan Advanced Materials
Annual Report 2023
152
Notes to the consolidated financial statements
continued
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 the 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
profit or loss.
Net investment hedge accounting
The Group uses foreign currency denominated borrowings as a hedge against translation exposure on the Group’s net investment in
overseas companies. Where the hedge is fully effective at hedging, the variability in the net assets of such companies caused by changes in
exchange rates and the changes in value of borrowings are recognised in other comprehensive income and accumulated in the translation
(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, impairments and reversal of impairments of non-financial 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 |
Plant, equipment and fixtures 3–20 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.
(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
Morgan Advanced Materials
Annual Report 2023
154
Notes to the consolidated financial statements
continued
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 bank balances and cash deposits. Cash deposits include demand deposits and short-term
highly liquid investments with maturities of three months or less on origination 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
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 (ie 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.
155
Financial statements
(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.
Morgan Advanced Materials
Annual Report 2023
156
Notes to the consolidated financial statements
continued
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.
For the year ended 31 December 2023, costs associated with our response to the cyber security incident and charges in relation to the
impact of Argentina’s currency devaluation were also classified as specific adjusting items, due to their size and nature.
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 44 to 53. 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 of the reasonably possible
changes for the inflation, discount rate and mortality rate assumptions. 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
157
Financial statements
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. While 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 75. The financial position of the Group, its cash flows, liquidity position and borrowing facilities, are
described in the Financial Review on pages 64 to 69. 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 2028. As at 31 December 2023,
the Group had both significant available liquidity and headroom on its covenants. Total committed borrowing facilities were £496.9 million.
The amount drawn under these facilities was £309.0 million, which together with net cash and cash equivalents of £123.9 million, gave a
total headroom of £311.8 million. The multi-currency revolving credit facility was £42.1 million drawn. The Group had no scheduled debt
maturities until 2026.
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. 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
46% and an increase in net debt of 40% 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
Morgan Advanced Materials
Annual Report 2023
158
Notes to the consolidated financial statements
continued
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 72 to 75.
In the current year, the Group has applied a number of amendments to IFRS Accounting Standards as adopted by the UK that are
mandatorily effective for an accounting period that begins on or after 1 January 2023. Their adoption has not had any material impact
on the disclosures or on the amounts reported in these financial statements.
IFRS 17 Insurance Contracts (including the June 2020 and December 2021 Amendments to IFRS 17)
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Material Judgements – Disclosure of
Accounting Policies
Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction
Amendments to IAS 12 Income Taxes – International Tax Reform – Pillar Two Model Rules
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates.
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.
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to IAS 1 Classification of Liabilities as Current or Non-current
Amendments to IAS 1 Non-current Liabilities with Covenants
Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements
Amendments to IFRS 16 Lease Liability in a Sale and Leaseback.
The above standards and interpretations are effective for the period beginning 1 January 2024 and adoption 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.
2023
There were no acquisitions or disposals of businesses by the Group in 2023.
2022
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. The disposal group was included in the
159
Financial statements
The Group’s results are reported as five separate GBUs, 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. We will in
future manage the Group through three distinct segments: Thermal Products, Performance Carbon and Technical Ceramics. This new
structure will be effective from 1 January 2024. More information on this is included on page 69.
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.
Thermal |
Molten |
Electrical |
Seals and |
|||||
Ceramics |
Metal Systems |
Carbon |
Bearings |
|||||
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|
Continuing operations |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Revenue from external customers |
402.2 |
421.4 |
52.2 |
57.8 |
201.4 |
188.7 |
145.8 |
148.5 |
Segment adjusted operating profit 1 |
34.5 |
48.7 |
5.7 |
7.8 |
41.5 |
39.7 |
11.4 |
19.0 |
Corporate costs 2 |
||||||||
Group adjusted operating profit 1 |
||||||||
Amortisation of intangible assets |
(1.2) |
(1.6) |
(0.2) |
(0.3) |
(0.5) |
(0.7) |
(0.7) |
(0.8) |
Operating profit before specific adjusting items |
33.3 |
47.1 |
5.5 |
7.5 |
41.0 |
39.0 |
10.7 |
18.2 |
Specific adjusting items included in |
||||||||
operating profit/(loss) 3 |
(8.0) |
(2.8) |
(1.3) |
– |
(2.3) |
0.1 |
(7.4) |
(1.6) |
Operating profit/(loss) |
25.3 |
44.3 |
4.2 |
7.5 |
38.7 |
39.1 |
3.3 |
16.6 |
Finance income |
||||||||
Finance expense |
||||||||
Profit before taxation |
||||||||
Segment assets |
333.9 |
361.2 |
42.6 |
44.0 |
174.1 |
159.5 |
110.8 |
115.8 |
Segment liabilities |
92.6 |
93.2 |
8.5 |
8.9 |
35.5 |
32.6 |
25.1 |
26.5 |
Segment capital expenditure |
13.6 |
16.8 |
3.6 |
3.5 |
16.1 |
8.7 |
12.1 |
9.7 |
Segment depreciation – property, plant and equipment |
11.8 |
11.2 |
2.1 |
2.1 |
5.8 |
5.3 |
5.8 |
6.0 |
Segment depreciation – right-of-use assets |
3.2 |
3.2 |
0.3 |
0.3 |
0.9 |
1.0 |
0.5 |
0.6 |
Segmental impairment of non-financial assets |
– |
3.2 |
– |
– |
1.5 |
– |
5.8 |
1.6 |
Segment reversal of impairment of non-financial assets |
2.4 |
– |
– |
– |
– |
– |
– |
– |
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
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.
Morgan Advanced Materials
Annual Report 2023
160
Notes to the consolidated financial statements
continued
Technical | Segment | Corporate | ||||||
Ceramics | totals | costs | Group | |||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
Continuing operations | £m | £m | £m | £m | £m | £m | £m | £m |
Revenue from external customers | 313.1 | 295.7 | 1,114.7 | 1,112.1 | – | – | 1,114.7 | 1,112.1 |
Segment adjusted operating profit 1 | 33.1 | 41.7 | 126.2 | 156.9 | – | – | 126.2 | 156.9 |
Corporate costs 2 | (5.9) | (5.9) | (5.9) | (5.9) | ||||
Group adjusted operating profit 1 | 120.3 | 151.0 | ||||||
Amortisation of intangible assets | (0.7) | (1.3) | (3.3) | (4.7) | – | – | (3.3) | (4.7) |
Operating profit before specific adjusting items | 32.4 | 40.4 | 122.9 | 152.2 | (5.9) | (5.9) | 117.0 | 146.3 |
Specific adjusting items included in operating | ||||||||
profit /(loss) 3 | 8.0 | (1.2) | (11.0) | (5.5) | (14.1) | – | (25.1) | (5.5) |
Operating profit/(loss) | 40.4 | 39.2 | 111.9 | 146.7 | (20.0) | (5.9) | 91.9 | 140.8 |
Finance income | 3.9 | 1.6 | ||||||
Finance expense | (18.0) | (10.8) | ||||||
Profit before taxation | 77.8 | 131.6 | ||||||
Segment assets | 210.6 | 199.8 | 872.0 | 880.3 | 152.7 | 140.0 | 1,024.7 | 1,020.3 |
Segment liabilities | 74.7 | 86.3 | 236.4 | 247.5 | 389.7 | 343.2 | 626.1 | 590.7 |
Segment capital expenditure | 14.9 | 19.3 | 60.3 | 58.0 | – | – | 60.3 | 58.0 |
Segment depreciation – property, plant and equipment | 6.4 | 5.7 | 31.9 | 30.3 | – | – | 31.9 | 30.3 |
Segment depreciation – right-of-use assets | 2.7 | 2.7 | 7.6 | 7.8 | – | – | 7.6 | 7.8 |
Segment impairment of non-financial assets | – | 1.7 | 7.3 | 6.5 | – | – | 7.3 | 6.5 |
Segment reversal of impairment of non-financial assets | 5.7 | – | 8.1 | – | – | – | 8.1 | – |
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
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
Revenue from | Non-current assets (excluding | |||
external customers | tax and financial instruments) | |||
2023 | 2022 | 2023 | 2022 | |
Continuing operations | £m | £m | £m | £m |
US | 427.4 | 405.6 | 219.8 | 212.6 |
China | 114.8 | 121.4 | 43.4 | 45.5 |
Germany | 88.7 | 85.1 | 41.9 | 38.0 |
UK (the Group’s country of domicile) | 43.6 | 53.2 | 101.6 | 101.1 |
Other Asia, Australasia, Middle East and Africa | 197.1 | 194.1 | 54.6 | 61.2 |
Other Europe | 173.2 | 182.0 | 37.1 | 37.5 |
Other North America | 44.9 | 39.1 | 2.1 | 2.1 |
South America | 25.0 | 31.6 | 12.7 | 11.0 |
1,114.7 | 1,112.1 | 513.2 | 509.0 | |
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.
161
Financial statements
Revenue from external customers by end-market
2023 | 2022 | |
Continuing operations | £m | £m |
Semiconductors | 108.6 | 91.3 |
Healthcare | 78.7 | 74.7 |
Clean energy and clean transportation | 50.0 | 51.7 |
Faster growing markets | 237.3 | 217.7 |
Industrial | 315.9 | 344.5 |
Conventional transportation | 200.2 | 179.9 |
Metals | 150.2 | 159.9 |
Petrochemical and chemical | 110.8 | 112.6 |
Security and defence | 68.5 | 65.2 |
Conventional energy | 31.8 | 32.3 |
Core markets | 877.4 | 894.4 |
1,114.7 | 1,112.1 |
Intercompany sales to other segments
Thermal | Molten | Electrical | Seals and | Technical | Segment | |||||||
Ceramics | Metal Systems | Carbon | Bearings | Ceramics | totals | |||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
Intercompany sales to | ||||||||||||
other segments | 1.0 | 0.4 | 0.1 | 0.1 | 0.7 | 0.5 | 2.0 | 0.7 | 0.7 | 1.0 | 4.5 | 2.7 |
2023 | 2022 | ||
Continuing operations | Note | £m | £m |
Change in stocks of finished goods and work in progress | (2.9) | (4.5) | |
Raw materials and consumables | 305.6 | 308.6 | |
Other operating costs | 164.9 | 176.4 | |
467.6 | 480.5 | ||
Employee costs: | |||
Wages and salaries | 315.3 | 292.3 | |
Equity-settled share-based payment expense | 23 | 2.9 | 5.1 |
Social security costs and other benefits | 66.5 | 62.1 | |
Pension costs | 22 | 16.4 | 16.2 |
401.1 | 375.7 | ||
Depreciation – property, plant and equipment | 11 | 31.9 | 30.3 |
Depreciation – right-of-use assets | 12 | 7.6 | 7.8 |
39.5 | 38.1 | ||
Short-term leases and leasing of low value assets: | |||
Plant and equipment | 0.1 | 0.1 | |
Other leases | 0.4 | 0.4 | |
0.5 | 0.5 | ||
Other operating charges and income: | |||
Net foreign exchange gains/(losses) | 2.3 | (2.0) | |
Net other operating charges | 83.4 | 68.3 | |
85.7 | 66.3 | ||
Total operating costs before specific adjusting items and amortisation of intangible assets | 994.4 | 961.1 | |
Amortisation of intangible assets | 13 | 3.3 | 4.7 |
Total operating costs before specific adjusting items | 997.7 | 965.8 |
Morgan Advanced Materials
Annual Report 2023
162
Notes to the consolidated financial statements
continued
The following costs are included in total operating costs before specific adjusting items in the table above:
The Group recognised £32.9 million in expense in respect of research and development (2022: £31.6 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 2023 is set out below. Additional audit fees of £2.4 million were incurred for the audit of the Company’s
annual accounts and the audits of the subsidiaries of the Company in relation to the cyber security incident, of which £1.2 million relates to
the previous year. Fees in relation to non-audit services were £38,000 (2022: £41,000).
2023 | 2022 | |
£m | £m | |
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts: | ||
in respect of the current year | 1.2 | 0.8 |
in respect of the prior year | 1.2 | – |
Fees payable to the Company’s auditor and its associates for other services: | ||
the auditing of accounts of any subsidiaries of the Company | 2.8 | 2.1 |
audit-related assurance services | – | 0.1 |
5.2 | 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 | ||
2023 | 2022 | |
Reportable operating segments | ||
Thermal Ceramics | 2,470 | 2,430 |
Molten Metal Systems | 440 | 430 |
Electrical Carbon | 1,440 | 1,390 |
Seals and Bearings | 1,410 | 1,370 |
Technical Ceramics | 2,860 | 2,560 |
Segment total | 8,620 | 8,180 |
Corporate | 50 | 50 |
Group | 8,670 | 8,230 |
2023 | 2022 | ||
Continuing operations | Note | £m | £m |
Costs associated with the cyber security incident | (14.7) | – | |
Charges in relation to the impact of Argentina’s currency devaluation | (5.8) | – | |
Net restructuring (charge)/credit | (3.5) | 0.6 | |
Net business closure and exit costs | (1.9) | – | |
Impairment of non-financial assets | (7.3) | (6.5) | |
Reversal of impairment of non-financial assets | 8.1 | – | |
Net profit on disposal of business | 2 | – | 0.4 |
Total specific adjusting items before income tax | (25.1) | (5.5) | |
Income tax credit from specific adjusting items | 3.8 | 1.1 | |
Total specific adjusting items after income tax | (21.3) | (4.4) |
Specific adjusting items in relation to discontinued operations are disclosed in note 9.
163
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.
In 2023, specific adjusting items were £25.1 million (2022: £5.5 million) and comprised the following:
2023
Costs associated with the cyber security incident
During 2023, we incurred £14.7 million of exceptional costs and charges in relation to the cyber security incident in January 2023.
These were comprised of legal and advisory costs, IT recovery and support costs and impairment charges for IT assets which were
rendered unusable as a result of the incident.
Charges in relation to the impact of Argentina’s currency devaluation
On 13 December 2023, Argentina devalued its currency by more than 50%. The impact of the currency devaluation (£2.6 million) has
been classified as a specific adjusting item. An impairment review was also performed as at 31 December 2023 and, due to restrictions
on imports limiting the ability to purchase raw materials and the subsequent effect on forecast trading, we have fully impaired the carrying
value of property, plant and equipment and the value of raw materials which, in the current circumstances, we would be unable to sell.
The impairment charge in relation to property, plant and equipment and inventory were £1.9 million and £1.3 million respectively.
Net restructuring charge
The Group has taken the opportunity to reduce our global footprint and rationalise costs in order to focus resources on our faster growing
markets, and optimise factory operations. This restructuring programme commenced in the second half of 2023 and will continue into
2024. A charge of £6.5 million has been recognised in relation to this and comprises costs associated with staff redundancies and site
closure costs.
A restructuring provision of £3.0 million recorded for Technical Ceramics, ceramic cores during the Group’s 2020 restructuring
programme has been released following settlement of a multi-employer pension plan and the re-letting of the site.
Net business closure and exit costs
During 2023, we commenced liquidation of a Thermal Ceramics business in China. Costs associated with this were £1.9 million and
included severance, decommissioning and advisory fees.
The land and buildings owned by another Thermal Ceramics business in China which was closed in 2020 were sold in December 2023.
The gain associated with this sale was £2.4 million.
We disposed of a Thermal Ceramics business in France in 2015, for which we retained responsibility for remediating the impact of
historical manufacturing processes on the environment. An assessment of the remaining required remediation was performed in 2023
and as a consequence of this review we have provided £2.4 million.
Impairment of non-financial assets
Seals and Bearings, Europe
An impairment charge of £2.9 million has been recognised after reassessing the value in use of property, plant and equipment in a business
in Italy which was experiencing limited growth. This represents a partial impairment of the assets; the carrying value of the assets following
this impairment was £5.3 million. The calculation of value in use was performed as at 31 December 2023, a long-term growth rate of
1.0% was used for years beyond the five-year forecast period and in calculating the terminal value, with a pre-tax discount rate of 17.3%.
An impairment charge of £0.3 million has been recognised after assessing the viability of a development asset, which could not be
successfully commissioned.
Seals and Bearings, Asia
An impairment charge of £1.9 million has been recognised after reassessing the value in use of property, plant and equipment in a business
which was experiencing limited growth and under-utilisation of key assets. This represents a partial impairment of assets; the carrying value
of the assets following this impairment was £2.2 million. The calculation was performed as at 31 December 2023, using a long-term
growth rate of 1.0% and a pre-tax discount rate of 13.9%.
Electrical Carbon, North America
An impairment charge of £1.5 million has been recognised after assessing the viability of a development asset in North America which was
not deemed to be commercially viable.
Electrical Carbon, Asia
An impairment charge of £0.7 million has been recognised in relation to assets associated with a manufacturing line which, based on
current projections, is expected to be under-utilised from 2025 onwards.
Morgan Advanced Materials
Annual Report 2023
164
Notes to the consolidated financial statements
continued
Reversal of impairment of non-financial assets
In 2020, as a result of the COVID-19 pandemic, we impaired property, plant and equipment within our Technical Ceramics, ceramic cores
business and Thermal Ceramics, Europe. Following our review as at 31 December 2023 of assets which continue to be used and which
were impaired in previous years, we have reversed a portion of this impairment. For the ceramic cores business we reversed £5.7 million,
being a full reversal, reinstating the net book value at which the assets would have been held if the impairment had not been booked in
2020, because the business and the aerospace industry have demonstrated sustained growth. For Thermal Ceramics, Europe we have
recorded a partial impairment reversal of £2.4 million following sustained recovery of the industrial market segments. This reversal is based
on a value in use calculation which was performed at 31 December 2023, using a long-term growth rate of 1.0% for years beyond the
five-year forecast period and in calculating terminal value, with a pre-tax discount rate of 13.6%.
Review of cumulative impairment of non-financial assets
Impairment charges of £20.6 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, Thermal Ceramics £7.2 million, Seals and Bearings, Asia £2.9 million and Seals
and Bearings, Europe £2.8 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.
2022
Impairment of non-financial assets
Seals and Bearings, Asia
An impairment charge of £0.6 million was recognised relating to assets purchased to support a customer contract which did not materialise.
A further impairment charge of £1.0 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 £5.2 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 was recognised following a fire in December which destroyed a warehouse and inventory. The assets
were subsequently written off.
An impairment charge of £1.1 million was recognised after reassessing the value in use of property, plant and equipment in a business in
France which was 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 was 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 was 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.
Restructuring credit
A credit of £0.6 million was recognised in the year ended 31 December 2022. This represented the release of restructuring provisions
recorded in relation to the Group’s 2020 restructuring programme. The remaining provision of £10.5 million as at 31 December 2022
included lease exit costs and multi-employer pension obligations for two sites which were closed during the year ended 31 December
2021. In 2022, the cash outflows relating to the pension obligations were expected to continue for up to 19 years, subject to any
settlement being reached in advance of that date. Cash outflows in relation to the lease were expected to continue for 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 ended 31 December 2022.
165
Financial statements
2023 |
2022 |
|
Continuing operations |
£m |
£m |
Recognised in profit or loss |
||
Interest on bank balances and cash deposits |
3.9 |
1.6 |
Finance income |
3.9 |
1.6 |
Interest expense on borrowings and overdrafts |
(15.6) |
(7.0) |
Interest expense on lease liabilities |
(2.4) |
(2.4) |
Net interest on IAS 19 defined benefit pension obligations |
– |
(1.4) |
Finance expense |
(18.0) |
(10.8) |
Net financing costs recognised in profit or loss |
(14.1) |
(9.2) |
2023 |
2022 |
|
Continuing operations |
£m |
£m |
Recognised in profit or loss |
||
Current tax |
||
Current year |
25.5 |
36.5 |
Adjustments for prior years |
– |
0.5 |
25.5 |
37.0 |
|
Deferred tax |
||
Current year |
(2.5) |
(0.4) |
Adjustments for prior years |
(0.8) |
(0.6) |
(3.3) |
(1.0) |
|
Total income tax expense recognised in profit or loss |
22.2 |
36.0 |
Recognised in other comprehensive income |
||
Tax effect on components of other comprehensive income: |
||
Deferred tax associated with defined benefit schemes |
0.5 |
3.4 |
Total tax recognised in other comprehensive income |
0.5 |
3.4 |
There was no deferred tax associated with share schemes recognised in other comprehensive income (2022: none).
Morgan Advanced Materials
Annual Report 2023
166
Notes to the consolidated financial statements
continued
Reconciliation of effective tax rate
2023 | 2023 | 2022 | 2022 | |
£m | % | £m | % | |
Profit before tax | 77.8 | 131.6 | ||
Income tax charge using the domestic corporation tax rate | 18.3 | 23.5 | 25.0 | 19.0 |
Effect of different tax rates in other jurisdictions | 1.4 | 1.8 | 7.5 | 5.7 |
Local taxes including withholding tax suffered | 1.3 | 1.7 | 3.4 | 2.6 |
Permanent differences | 0.1 | 0.1 | 0.2 | 0.2 |
Movements related to unrecognised temporary differences | 2.0 | 2.6 | (0.1) | (0.1) |
Adjustments in respect of prior years | (0.9) | (1.2) | – | – |
Statutory effective rate of tax | 22.2 | 28.5 | 36.0 | 27.4 |
The effective rate of tax before specific adjusting items is 25.3% (2022: 27.0%).
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 Organisation for Economic Co-operation and Development (OECD)’s BEPS
actions, tax rate and legislation changes, expiry of the statute of limitations and resolution of tax audits and disputes.
The OECD/G20 Inclusive Framework on BEPS (Base Erosion and Profit Shifting) published the Pillar Two model rules designed to address
the tax challenges arising from the digitalisation of the global economy.
The IASB issued amendments to IAS 12 Income Taxes. The amendments apply with immediate effect and introduce a mandatory
temporary exception from the recognition and disclosure of deferred taxes arising from the implementation of the OECD’s Pillar Two
Model Rules. The Group has applied the exception under the IAS 12 amendment to recognising and disclosing information about deferred
tax assets and liabilities related to top-up income in preparing its consolidated financial statements for the year ending 31 December 2023.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK, introducing a global minimum effective tax rate of 15%.
The legislation implements a domestic top-up tax and a multinational top-up-tax which will be effective for the Group’s financial year
beginning 1 January 2024. The Group is in scope of the substantively enacted legislation and has performed an assessment of the Group’s
potential exposure to Pillar Two income taxes.
The assessment of the potential exposure to Pillar Two income taxes is based on the submitted country-by-country reporting data of the
constituent entities in the Group. Based on the assessment, the Pillar Two effective tax rates in the majority of the jurisdictions in which the
Group operates are above 15%. However, the Group has an entity in United Arab Emirates where the transitional safe harbour relief does
not apply as the Pillar Two effective tax rate is below 15%. The Group does not expect a material exposure to Pillar Two income taxes in
167
Financial statements
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:
| 31 December 2023 |
31 December 2022 |
||||||
Results |
Results |
||||||
before |
before |
||||||
specific |
Specific |
specific |
Specific |
||||
adjusting |
adjusting |
adjusting |
adjusting |
||||
items |
items |
Total |
items |
items |
Total |
||
Note |
£m |
£m |
£m |
£m |
£m |
£m |
|
Revenue |
– |
0.7 |
0.7 |
– |
0.7 |
0.7 |
|
Operating income |
– |
– |
– |
– |
0.4 |
0.4 |
|
Profit before taxation |
– |
0.7 |
0.7 |
– |
1.1 |
1.1 |
|
Income tax expense |
– |
– |
– |
– |
– |
– |
|
Profit from |
|||||||
discontinued operations |
– |
0.7 |
0.7 |
– |
1.1 |
1.1 |
|
Basic earnings per share from |
|||||||
discontinued operations |
10 |
0.2p |
0.4p |
||||
Diluted earnings per share from |
|||||||
discontinued operations |
10 |
0.2p |
0.4p |
||||
In 2023, a gain of £0.7 million was recognised from a long-term contract.
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.
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 |
31 December |
|
2023 |
2022 |
|
£m |
£m |
|
Net cash generated from operating activities |
0.4 |
1.1 |
Net cash generated from investing activities |
– |
– |
Net cash used in financing activities |
– |
– |
0.4 |
1.1 |
Morgan Advanced Materials
Annual Report 2023
168
Notes to the consolidated financial statements
continued
| 31 December 2023 |
31 December 2022 |
|||||
Basic |
Diluted |
Basic |
Diluted |
|||
earnings |
earnings |
earnings |
earnings |
|||
Earnings |
per share |
per share |
Earnings |
per share |
per share |
|
£m |
pence |
pence |
£m |
pence |
pence |
|
Profit for the year attributable to |
||||||
shareholders of the Company |
47.3 |
16.6p |
16.5p |
88.0 |
31.0p |
30.7p |
Profit from discontinued operations |
(0.7) |
(0.2)p |
(0.2)p |
(1.1) |
(0.4)p |
(0.4)p |
Profit from continuing operations |
46.6 |
16.4p |
16.3p |
86.9 |
30.6p |
30.3p |
Specific adjusting items |
25.1 |
8.8p |
8.7p |
5.5 |
1.9p |
1.9p |
Amortisation of intangible assets |
3.3 |
1.2p |
1.1p |
4.7 |
1.7p |
1.6p |
Tax effect of the above 1 |
(3.8) |
(1.3)p |
(1.3)p |
(1.1) |
(0.4)p |
(0.4)p |
Non-controlling interests’ share |
||||||
of the above adjustments |
– |
– |
– |
– |
– |
– |
Adjusted profit for the year from |
||||||
continuing operations as used in |
||||||
adjusted earnings per share 2 |
71.2 |
25.0p |
24.8p |
96.0 |
33.8p |
33.5p |
1.
The tax effect of the amortisation of intangible assets was £nil (2022: £nil).
2.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
Number of shares (millions) |
2023 |
2022 |
Weighted average number of Ordinary shares for the purposes of basic earnings per share 1 |
284.8 |
284.2 |
Effect of dilutive potential Ordinary shares: |
||
Share options |
2.5 |
2.6 |
Weighted average number of Ordinary shares for the purposes of diluted earnings |
||
per share |
287.3 |
286.8 |
1.
169
Financial statements
Plant, |
||||
Land and |
equipment |
|||
buildings |
and fixtures |
Total |
||
Note |
£m |
£m |
£m |
|
Cost |
||||
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 |
|
Balance at 1 January 2023 |
219.2 |
770.2 |
989.4 |
|
Additions |
7.3 |
54.0 |
61.3 |
|
Disposals |
(0.3) |
(12.4) |
(12.7) |
|
Transfers between categories |
0.4 |
(0.4) |
– |
|
Effect of movement in foreign exchange |
(10.5) |
(34.0) |
(44.5) |
|
Balance at 31 December 2023 |
216.1 |
777.4 |
993.5 |
|
Depreciation and impairment losses |
||||
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 |
|
Balance at 1 January 2023 |
117.7 |
588.5 |
706.2 |
|
Depreciation charge for the year |
6.0 |
25.9 |
31.9 |
|
Impairment losses |
6 |
1.7 |
8.3 |
10.0 |
Impairment reversals |
(0.1) |
(5.4) |
(5.5) |
|
Disposals |
(0.2) |
(11.6) |
(11.8) |
|
Effect of movement in foreign exchange |
(6.1) |
(25.0) |
(31.1) |
|
Balance at 31 December 2023 |
119.0 |
580.7 |
699.7 |
|
Carrying amounts |
||||
At 1 January 2022 |
96.8 |
151.3 |
248.1 |
|
At 31 December 2022 |
101.5 |
181.7 |
283.2 |
|
At 31 December 2023 |
97.1 |
196.7 |
293.8 |
In 2023, no assets were pledged as security for liabilities (2022: none). Profit on sale of property, plant and equipment presented in the
Morgan Advanced Materials
Annual Report 2023
170
Notes to the consolidated financial statements
continued
The reconciliation in the movement of the Group’s right-of-use assets is set out in the table below:
Land and |
Plant and |
||
buildings |
equipment |
Total |
|
£m |
£m |
£m |
|
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 |
Balance at 1 January 2023 |
29.0 |
4.6 |
33.6 |
Additions |
0.6 |
5.1 |
5.7 |
Remeasurements |
0.9 |
(0.2) |
0.7 |
Depreciation charge for the year |
(4.8) |
(2.8) |
(7.6) |
Impairment losses |
– |
(0.4) |
(0.4) |
Impairment reversals |
1.3 |
– |
1.3 |
Effect of movement in foreign exchange |
(1.8) |
0.1 |
(1.7) |
Balance at 31 December 2023 |
25.2 |
6.4 |
31.6 |
The weighted average lease term is 10.8 years for land and buildings and 3.7 years for plant and equipment (2022: 11.6 years and 3.3 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:
2023 |
2022 |
|
£m |
£m |
|
Depreciation expense on right-of-use assets |
(7.6) |
(7.8) |
Interest expense on lease liabilities |
(2.4) |
(2.4) |
Expense relating to short-term leases and leasing of low value assets |
(0.5) |
(0.5) |
(10.5) |
(10.7) |
The total cash flows from leasing activities in the year ended 31 December 2023 was £11.8 million (2022: £11.9 million) as set out in the
table below:
2023 |
2022 |
|
£m |
£m |
|
Payment of lease liabilities |
(8.9) |
(9.0) |
Interest expense on lease liabilities |
(2.4) |
(2.4) |
Expense relating to short-term leases and leasing of low value assets |
(0.5) |
(0.5) |
(11.8) |
(11.9) |
At 31 December 2023, the Group is committed to future payments of £0.5 million (2022: £0.6 million) for short-term leases and leasing
of low value assets.
At 31 December 2023, future cash flows in respect of leases which the Group had entered into but which had not yet commenced was
£nil (2022: £nil).
171
Financial statements
Capitalised | ||||||
Customer | Technology and | development | Computer | |||
Goodwill | relationships | trademarks | costs | software | Total | |
Note | £m | £m | £m | £m | £m | £m |
Cost | ||||||
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 |
Balance at 1 January 2023 | 181.9 | 63.9 | 4.3 | 0.8 | 37.8 | 288.7 |
Additions (externally purchased) | – | – | – | – | 0.6 | 0.6 |
Disposals | – | – | – | – | (1.0) | (1.0) |
Effect of movement in | ||||||
foreign exchange | (4.4) | (3.0) | (0.1) | – | (1.2) | (8.7) |
Balance at 31 December 2023 | 177.5 | 60.9 | 4.2 | 0.8 | 36.2 | 279.6 |
Amortisation and | ||||||
impairment losses | ||||||
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 |
Balance at 1 January 2023 | – | 63.1 | 3.8 | 0.8 | 32.0 | 99.7 |
Amortisation charge for the year | – | 0.4 | 0.1 | – | 2.8 | 3.3 |
Impairment losses | – | – | – | – | 0.7 | 0.7 |
Impairment reversals | – | (0.6) | (0.7) | – | – | (1.3) |
Disposals | – | – | – | – | (1.0) | (1.0) |
Effects of movement in | ||||||
foreign exchange | – | (3.1) | – | – | (0.9) | (4.0) |
Balance at 31 December 2023 | – | 59.8 | 3.2 | 0.8 | 33.6 | 97.4 |
Carrying amounts | ||||||
At 1 January 2022 | 172.9 | 1.5 | 0.6 | – | 8.1 | 183.1 |
At 31 December 2022 | 181.9 | 0.8 | 0.5 | – | 5.8 | 189.0 |
At 31 December 2023 | 177.5 | 1.1 | 1.0 | – | 2.6 | 182.2 |
Morgan Advanced Materials
Annual Report 2023
172
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.
2023 | 2022 | |
£m | £m | |
Thermal Ceramics | 86.8 | 88.9 |
Molten Metal Systems | 9.2 | 9.4 |
Electrical Carbon | 30.0 | 30.7 |
Seals and Bearings | 15.3 | 15.8 |
Technical Ceramics | 36.2 | 37.1 |
177.5 | 181.9 |
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 2023, a 1.0% growth rate (2022: 1.0%) has been used for years beyond 2028 and to calculate a terminal value. Management has
assessed these growth rates, including the terminal growth rate as reasonable for each operating segment.
In 2023, the Group has used the following pre-tax discount rates for calculating the value in use of each of the operating segments:
Thermal Ceramics: 14.4% (2022: 13.8%), Molten Metal Systems: 15.9% (2022: 15.6%), Electrical Carbon: 15.0% (2022: 14.6%),
Seals and Bearings: 14.2% (2022: 14.0%), Technical Ceramics 14.1% (2022: 14.1%).
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 by 10%
If growth for years two to five was decreased by 10% and no growth was assumed in the calculation of terminal value
173
Financial statements
Deferred tax assets and liabilities are attributable to the following:
Assets | Assets | Liabilities | Liabilities | Net | Net | |
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
£m | £m | £m | £m | £m | £m | |
Property, plant and equipment | – | – | (10.6) | (12.7) | (10.6) | (12.7) |
Right-of-use assets and lease liabilities | 2.7 | 3.6 | – | – | 2.7 | 3.6 |
Intangible assets | – | – | (0.4) | (0.4) | (0.4) | (0.4) |
Employee benefits | 8.3 | 10.2 | – | – | 8.3 | 10.2 |
Provisions | 8.9 | 11.4 | – | – | 8.9 | 11.4 |
Tax value of loss carried | ||||||
forward recognised | 6.0 | 1.7 | – | – | 6.0 | 1.7 |
Other items | 0.9 | – | – | (0.5) | 0.9 | (0.5) |
Offset | (9.2) | (11.6) | 9.2 | 11.6 | – | – |
17.6 | 15.3 | (1.8) | (2.0) | 15.8 | 13.3 |
Deferred tax assets and liabilities are offset when there is a legally enforceable right to do so and when they relate to taxes levied by the
same tax authority on either the same entity or on different entities where it is intended to settle the tax on a net basis.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
2023 | 2022 | |
£m | £m | |
Tax losses | 139.2 | 107.8 |
Capital losses | 43.4 | 43.4 |
Other deductible temporary differences | 121.3 | 129.7 |
303.9 | 280.9 |
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 | Recognised | Recognised | Recognised | |||
in profit | directly in | 31 December | in profit | directly in | 31 December | |
or loss | equity | 2022 | or loss | equity | 2023 | |
£m | £m | £m | £m | £m | £m | |
Property, plant and equipment | (0.4) | – | (12.7) | 2.1 | – | (10.6) |
Right-of-use assets and lease liabilities | (0.3) | – | 3.6 | (0.9) | – | 2.7 |
Intangible assets | 0.2 | – | (0.4) | – | – | (0.4) |
Employee benefits | 0.5 | (3.4) | 10.2 | (1.4) | (0.5) | 8.3 |
Provisions | 0.6 | – | 11.4 | (2.5) | – | 8.9 |
Tax value of loss carried | ||||||
forward recognised | 0.7 | – | 1.7 | 4.3 | – | 6.0 |
Others | (0.3) | 1.0 | (0.5) | 1.7 | (0.3) | 0.9 |
1.0 | (2.4) | 13.3 | 3.3 | (0.8) | 15.8 |
Deferred income tax of £4.2 million (2022: £4.0 million) is provided on the potential unremitted earnings of overseas subsidiary
undertakings. Where the remittance of dividends is not anticipated deferred tax is not currently recognised or disclosed as it is
Morgan Advanced Materials
Annual Report 2023
174
Notes to the consolidated financial statements
continued
2023 | 2022 | |
£m | £m | |
Raw materials and consumables | 52.2 | 55.5 |
Work in progress | 56.5 | 53.3 |
Finished goods | 66.4 | 65.4 |
175.1 | 174.2 |
The Group holds consignment inventory amounting to £25.6 million (2022: £28.8 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.
2023 | 2022 | |
£m | £m | |
Non-current | ||
Trade receivables | 0.3 | – |
Prepayments | 0.6 | 0.2 |
Other receivables | 2.5 | 3.0 |
3.4 | 3.2 | |
Current | ||
Gross trade receivables | 169.0 | 179.7 |
Expected credit losses | (9.0) | (9.1) |
Net trade receivables | 160.0 | 170.6 |
Contract assets | 0.3 | 1.0 |
Prepayments | 15.6 | 14.8 |
VAT, goods and sales taxes receivable | 9.3 | 8.7 |
Other non-trade receivables 1 | 6.4 | 7.4 |
191.6 | 202.5 |
1.
Other non-trade receivables in 2022 have been re-presented to disaggregate VAT, goods and sales taxes receivable from the balance.
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
175
Financial statements
2023 | 2022 | |
£m | £m | |
Bank balances | 112.5 | 105.8 |
Cash deposits | 12.0 | 11.9 |
Cash and cash equivalents | 124.5 | 117.7 |
Reconciliation of cash and cash equivalents to net debt
1
2023 | 2022 | |
£m | £m | |
Opening borrowings and lease liabilities | (318.1) | (223.8) |
Increase in borrowings | (247.2) | (113.3) |
Repayment of borrowings | 193.9 | 39.0 |
Payment of lease liabilities | 8.9 | 9.0 |
Total changes from cash flows | (44.4) | (65.3) |
New leases and lease remeasurement | (6.4) | (6.7) |
Effect of movements in foreign exchange | 12.1 | (22.3) |
Closing borrowings and lease liabilities | (356.8) | (318.1) |
Cash and cash equivalents | 124.5 | 117.7 |
Closing net debt 1 | (232.3) | (200.4) |
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes.
Lease | Total financing | Cash and cash | Movement in | ||
Borrowings | liabilities | liabilities | equivalents | net debt 1 | |
£m | £m | £m | £m | £m | |
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) |
At 1 January 2023 | (266.2) | (51.9) | (318.1) | 117.7 | (200.4) |
Cash inflow | – | – | – | 38.9 | 38.9 |
Borrowings and lease liability cash flow | (53.3) | 8.9 | (44.4) | – | (44.4) |
Net interest paid | – | – | – | (17.9) | (17.9) |
Net cash inflow/(outflow) | (53.3) | 8.9 | (44.4) | 21.0 | (23.4) |
Share purchases | – | – | – | (4.7) | (4.7) |
New leases and lease remeasurement | – | (6.4) | (6.4) | – | (6.4) |
Exchange and other movements | 9.8 | 2.3 | 12.1 | (9.5) | 2.6 |
At 31 December 2023 | (309.7) | (47.1) | (356.8) | 124.5 | (232.3) |
1.
Morgan Advanced Materials
Annual Report 2023
176
Notes to the consolidated financial statements
continued
2023 | 2022 | |
£m | £m | |
Non-current | ||
Accruals | 0.7 | 0.6 |
Other payables | 1.7 | 1.5 |
2.4 | 2.1 | |
Current | ||
Trade payables | 78.1 | 78.6 |
Contract liabilities | 8.6 | 8.9 |
Accruals | 72.5 | 69.6 |
Other tax and social security | 15.6 | 19.9 |
Creditors in relation to capital expenditure | 9.7 | 8.3 |
Other payables 1 | 7.5 | 9.7 |
192.0 | 195.0 |
1.
Other payables in 2022 have been re-presented to disaggregate creditors in relation to capital expenditure from the balance.
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 £8.6 million of contract liabilities as at 31 December 2023 are expected to be recognised as revenue in 2024.
Contract liabilities outstanding as at 31 December 2022 of £8.9 million were recognised as revenue in 2023.
In 2022 trade payables included amounts due where extended payment terms had been agreed with the supplier using a supplier financing
facility. This facility was closed in 2023. The total amount outstanding on such extended payment terms at 31 December 2023 was £nil
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations and the cumulative foreign exchange differences deferred into the net investment hedge. The foreign exchange differences
deferred into the net investment hedge accumulated in the translation reserve are as follows:
2023 | 2022 | |
£m | £m | |
Balance at 1 January | – | – |
Loss arising on changes in fair value of net investment hedges during the period | (0.3) | – |
Balance at 31 December | (0.3) | – |
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).
2023 | 2022 | |
£m | £m | |
Balance at 1 January | (0.2) | (0.1) |
Gain/(loss) arising on changes in fair value of hedging instruments during the period | 1.1 | (0.2) |
Gain reclassified to profit or loss | 0.2 | 0.1 |
Balance at 31 December | 1.1 | (0.2) |
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
177
Financial statements
Retained earnings
The Company has acquired its own shares to satisfy the requirements of the various share option incentive schemes. At 31 December
2023, 807,911 shares (2022: 1,173,686) 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 (2022: none). All rights conferred by those shares are suspended
until they are reissued.
A summary of the movements in own shares held by the Trust is set out in the table below:
2023 | 2022 | |||
Cost | Cost | |||
Shares | £m | Shares | £m | |
As at 1 January | 1,173,686 | 3.1 | 1,360,098 | 5.0 |
New shares purchased | 1,774,145 | 4.7 | 1,102,704 | 2.9 |
Exercise of share options | (2,139,920) | (5.7) | (1,289,116) | (4.8) |
As at 31 December | 807,911 | 2.1 | 1,173,686 | 3.1 |
Consideration received in respect of shares transferred to participants of employee share schemes was £0.6 million (2022: £0.5 million).
The market value of shares held by the Trust at 31 December 2023 was £2.3 million (2022: £3.7 million).
The following Ordinary dividends were declared and paid by the Company:
Per share | Total | |||
2023 | 2022 | 2023 | 2022 | |
pence | pence | £m | £m | |
2021 final 1 | – | 5.9 | – | 16.5 |
2022 interim | – | 5.3 | – | 15.1 |
2022 final | 6.7 | – | 19.1 | – |
2023 interim | 5.3 | – | 15.1 | – |
12.0 | 11.2 | 34.2 | 31.6 | |
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 2023 the following dividends were proposed by the Directors for 2023. These dividends have not been provided for and there
are no income tax consequences. The proposed 2023 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 |
19.1 |
2023 | 2022 | |
£m | £m | |
Equity share capital | ||
Fully paid: 285,369,988 (2022: 285,369,988) issued Ordinary shares of 25 pence each | 71.3 | 71.3 |
71.3 | 71.3 |
Number of Ordinary shares in issue
2023 | 2022 | |
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 (2022: 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 (2022: 437,281) cumulative Preference shares classified as
borrowings totalling £0.4 million (2022: £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.
Morgan Advanced Materials
Annual Report 2023
178
Notes to the consolidated financial statements
continued
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.
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.
2023 | 2022 | |
£m | £m | |
Non-current liabilities | ||
Senior Notes | 188.2 | 154.8 |
Bank and other borrowings | 120.5 | 74.9 |
Cumulative Preference shares | 0.4 | 0.4 |
Lease liabilities | 36.6 | 41.4 |
345.7 | 271.5 | |
Current liabilities | ||
Senior Notes | – | 34.6 |
Bank and other borrowings | 0.6 | 1.5 |
Lease liabilities | 10.5 | 10.5 |
11.1 | 46.6 |
During the year, the Group entered into a new €92 million Schuldschein Loan Agreement with maturity in June 2028.
In 2023, bank and other borrowings did not include any borrowings secured on the assets of the Group (2022: £nil).
179
Financial statements
foreign currency risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated
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 | ||
2023 | 2022 | |
£m | £m | |
FVTPL – equity instruments | 2.2 | – |
Trade receivables | 160.3 | 170.6 |
Cash and cash equivalents | 124.5 | 117.7 |
Derivatives | 1.5 | 1.3 |
288.5 | 289.6 | |
FVTPL – equity instruments
In 2023, the Group purchased an equity instrument in Argentina for £5.0 million, designated in Argentine pesos. The equity instrument
has been classified as fair value through profit and loss (‘FVTPL’). In 2023, a fair value gain of £0.9 million has been recognised, offset
by a foreign exchange loss of £3.7 million. The carrying amount of the equity instrument as at 31 December 2023 was £2.2 million.
There were no such transactions in 2022.
Trade 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:
2023 | 2022 | |
£m | £m | |
Balance at 1 January | (9.1) | (10.9) |
Net remeasurement of loss allowance | (0.6) | (1.4) |
Amounts written off | 0.4 | 3.9 |
Effect of movement in foreign exchange | 0.3 | (0.7) |
Balance at 31 December | (9.0) | (9.1) |
Morgan Advanced Materials
Annual Report 2023
180
Notes to the consolidated financial statements
continued
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:
| 2023 | 2022 | |||||||
Expected | Expected | |||||||
credit loss | Gross trade | Expected | Net trade | credit loss | Gross trade | Expected | Net trade | |
rate | receivables | credit losses | receivables | rate | receivables | credit losses | receivables | |
% | £m | £m | £m | % | £m | £m | £m | |
Not past due | 0.2% | 133.3 | (0.2) | 133.1 | 0.1% | 144.7 | (0.2) | 144.5 |
Past due 0–30 | ||||||||
days | 1.0% | 19.9 | (0.2) | 19.7 | 0.5% | 21.5 | (0.1) | 21.4 |
Past due 31–60 | ||||||||
days | 0.0% | 3.7 | – | 3.7 | – | 3.9 | – | 3.9 |
Past due 61–90 | ||||||||
days | 6.3% | 1.6 | (0.1) | 1.5 | 61.9% | 2.1 | (1.3) | 0.8 |
Past due more | ||||||||
than 90 days | 81.0% | 10.5 | (8.5) | 2.0 | 100.0% | 7.5 | (7.5) | – |
169.0 | (9.0) | 160.0 | 179.7 | (9.1) | 170.6 | |||
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. These arrangements principally cover the USA, Eurozone and UK and are represented by both zero balancing
arrangements and notional pooling arrangements. The notional cash pooling arrangements are presented on a gross basis. 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 | Net amounts | Financial | |||
of recognised | presented | instruments not | |||
financial assets/ | Amounts | on the | offset in the | Net | |
(liabilities) 1 | offset | balance sheet | balance sheet | amount | |
£m | £m | £m | £m | £m | |
2023 | |||||
Derivative financial assets | 1.5 | – | 1.5 | – | 1.5 |
Derivative financial liabilities | (0.5) | – | (0.5) | – | (0.5) |
Cash and cash equivalents | 124.5 | – | 124.5 | (0.6) | 123.9 |
Bank and other borrowings | (0.6) | – | (0.6) | 0.6 | – |
2022 | |||||
Derivative financial assets | 1.3 | – | 1.3 | – | 1.3 |
Derivative financial liabilities | (1.6) | – | (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 | – |
1.
181
Financial statements
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.
The following are the undiscounted contracted maturities of financial liabilities, including interest payments:
Cash flows associated with non-derivative financial liabilities
31 December 2023 | ||||||||
Effective | Carrying | Contractual | Less than | More than | ||||
interest | Year of | amount | cash flows | 1 year | 1–2 years | 2–5 years | 5 years | |
rate | maturity | £m | £m | £m | £m | £m | £m | |
Non-derivative | ||||||||
financial liabilities | ||||||||
3.37% US Dollar | ||||||||
Senior Notes 2026 | 3.37% | 2026 | 76.6 | 84.0 | 2.6 | 2.6 | 78.8 | – |
1.55% Euro | ||||||||
Senior Notes 2026 | 1.55% | 2026 | 21.7 | 22.6 | 0.3 | 0.3 | 22.0 | – |
4.87% US Dollar | ||||||||
Senior Notes 2026 | 4.87% | 2026 | 20.0 | 22.1 | 1.0 | 1.0 | 20.1 | – |
1.74% Euro | ||||||||
Senior Notes 2028 | 1.74% | 2028 | 8.7 | 9.5 | 0.2 | 0.2 | 9.1 | – |
2.89% Euro | ||||||||
Senior Notes 2030 | 2.89% | 2030 | 21.7 | 26.0 | 0.6 | 0.6 | 1.9 | 22.9 |
5.47% US Dollar | ||||||||
Senior Notes 2031 | 5.47% | 2031 | 7.9 | 11.0 | 0.4 | 0.4 | 1.3 | 8.9 |
5.53% US Dollar | ||||||||
Senior Notes 2033 | 5.53% | 2033 | 7.9 | 11.9 | 0.4 | 0.4 | 1.3 | 9.8 |
5.61% US Dollar | ||||||||
Senior Notes 2035 | 5.61% | 2035 | 23.7 | 38.8 | 1.3 | 1.3 | 4.0 | 32.2 |
Bank and other | ||||||||
borrowings | Up to 2028 | 121.1 | 123.0 | 1.1 | – | 121.9 | – | |
5.50% Cumulative | ||||||||
First Preference shares | 5.50% | 0.1 | – | – | – | – | – | |
5.00% Cumulative | ||||||||
Second Preference | ||||||||
shares | 5.00% | 0.3 | – | – | – | – | – | |
Lease liabilities | 5.03% | Up to 2044 | 47.1 | 58.6 | 10.5 | 9.0 | 18.3 | 20.8 |
Trade payables | 78.1 | 78.1 | 78.1 | – | – | – | ||
Creditors in relation to | ||||||||
capital expenditure | 9.7 | 9.7 | 9.7 | – | – | – | ||
Other payables | 9.2 | 9.2 | 7.5 | 1.7 | – | – | ||
453.8 | 504.5 | 113.7 | 17.5 | 278.7 | 94.6 |
Bank and other borrowings includes an unsecured multi-currency revolving credit facility set to mature in November 2028.
Morgan Advanced Materials
Annual Report 2023
182
Notes to the consolidated financial statements
continued
| 31 December 2022 | ||||||||
Carrying | Contractual | Less than | More than | |||||
Effective | Year of | amount | cash flows | 1 year | 1–2 years | 2–5 years | 5 years | |
interest rate | maturity | £m | £m | £m | £m | £m | £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 1 | Up to 2027 | 76.4 | 77.9 | 1.9 | – | 76.0 | – | |
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 payables | 78.6 | 78.6 | 78.6 | – | – | – | ||
Creditors in relation to | ||||||||
capital expenditure | 8.3 | 8.3 | 8.3 | – | – | – | ||
Other payables | 11.2 | 11.2 | 9.7 | 1.5 | – | – | ||
416.2 | 452.1 | 149.0 | 14.8 | 228.9 | 59.4 | |||
1.
Contractual cashflows in 2022 have been re-presented to remove unamortised fees.
183
Financial statements
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 | Contractual | Less than | More than | |||
amount | cash flows | 1 year | 1–2 years | 2–5 years | 5 years | |
£m | £m | £m | £m | £m | £m | |
2023 | ||||||
Cash flow hedges | ||||||
Forward exchange contracts – assets | 1.5 | 107.2 | 107.2 | – | – | – |
Forward exchange contracts – liabilities | (0.4) | (105.6) | (105.6) | – | – | – |
1.1 | 1.6 | 1.6 | – | – | – | |
Fair value flow hedges | ||||||
Forward exchange contracts – assets | – | 16.1 | 16.1 | – | – | – |
Forward exchange contracts – liabilities | (0.1) | (16.0) | (16.0) | – | – | – |
(0.1) | 0.1 | 0.1 | – | – | – | |
1.0 | 1.7 | 1.7 | – | – | – |
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 | – | – | – |
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 | Variable rate instruments | |||
carrying amount | carrying amount | |||
2023 | 2022 | 2023 | 2022 | |
£m | £m | £m | £m | |
Financial assets | – | – | 124.5 | 117.7 |
Financial liabilities | (235.7) | (241.7) | (121.1) | (76.4) |
(235.7) | (241.7) | 3.4 | 41.3 | |
Morgan Advanced Materials
Annual Report 2023
184
Notes to the consolidated financial statements
continued
The fixed-rate financial liabilities comprise the currency equivalent of £188.2 million (2022: £189.4 million) of Senior Notes, £0.4 million
(2022: £0.4 million) of cumulative Preference shares and lease liabilities of £47.1 million (2022: £51.9 million). The average cost of the
Group’s fixed-rate instruments is 3.93% (2022: 3.32%) including lease liabilities and 3.65% (2022: 2.92%) 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 5.6% (2022: 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 £0.9 million (2022: £0.5 million). A decrease of 100 basis points would have decreased profit by
£0.7 million (2022: £0.3 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.
| 2023 | 2022 | |||||
GBP | USD | Euro | GBP | USD | Euro | |
Functional currency of Group operations | £m | £m | £m | £m | £m | £m |
Trade receivables | 12.4 | (6.9) | (2.8) | 9.5 | 0.3 | (0.1) |
Trade payables | (9.3) | 5.0 | 3.5 | (3.8) | 0.2 | 1.7 |
Net debt 1 | (8.8) | 1.5 | 0.3 | (8.0) | 0.6 | 1.1 |
Net balance sheet exposure | (5.7) | (0.4) | 1.0 | (2.3) | 1.1 | 2.7 |
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
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 2023 was a liability of
£1.1 million (2022: £0.2 million).
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.
185
Financial statements
The Group’s currency split of total borrowings was as follows:
2023 | 2022 | |
£m | £m | |
GBP | (0.4) | 76.7 |
USD | 156.5 | 114.2 |
Euro | 153.6 | 75.3 |
309.7 | 266.2 |
The Group’s sensitivity to changes in foreign exchange rates on financial assets and liabilities as at 31 December 2023 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 £18.9 million (2022: £11.2 million). Conversely, if GBP had weakened by 10%, reported net financial
liabilities would have increased by £27.9million (2022: £13.9 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
Carrying amount | ||||||||
Change in fair value | of the hedging | |||||||
Notional value: | for recognising hedge | instruments assets/ | ||||||
Maturity date | Local currency | ineffectiveness | (liabilities) | |||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Cash flow hedges | ||||||||
to Dec | to Jun | |||||||
Highly probable forecast sales | 2024 | 2024 | 37.7 | 29.7 | (1.0) | 0.3 | (0.5) | 0.5 |
to Dec | to Jun | |||||||
Highly probable forecast purchases | 2024 | 2024 | 35.6 | 9.7 | (0.7) | 0.1 | (0.6) | 0.1 |
Weighted average hedge rates for the year were as follows:
Weighted average exchange rates | ||
2023 | 2022 | |
£m | £m | |
EUR/GBP | 1.16 | 1.15 |
AUD/GBP | 1.99 | 1.70 |
SGD/GBP | 1.68 | 1.62 |
USD/GBP | 1.27 | 1.20 |
Hedged items
Balance in cash flow hedge | ||||
reserve/foreign currency | ||||
Change in value used for | translation reserve for | |||
calculating hedge ineffectiveness | continuing hedges | |||
2023 | 2022 | 2023 | 2022 | |
£m | £m | £m | £m | |
Cash flow hedges | ||||
Forecast sales | 1.0 | (0.3) | 0.5 | (0.5) |
Forecast purchases | 0.7 | (0.1) | 0.6 | (0.1) |
Morgan Advanced Materials
Annual Report 2023
186
Notes to the consolidated financial statements
continued
As at 31 December 2023 the amount in the hedging reserve and translation reserve arising from hedging relationships for which hedge
accounting is no longer applied was £nil (2022: £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:
2023 | 2022 | |||
Closing rate | Average rate | Closing rate | Average rate | |
GBP to: | ||||
USD | 1.27 | 1.24 | 1.21 | 1.24 |
Euro | 1.15 | 1.15 | 1.13 | 1.17 |
For illustrative purposes, the table below provides details of the impact on 2023 revenue, Group adjusted operating profit and profit
before tax if the actual reported results, calculated using 2023 average exchange rates, were restated for GBP weakening by 10 cents
against USD in isolation and 10 cents against the Euro in isolation:
2023 | 2022 | |||||
Group | Group | |||||
adjusted | adjusted | |||||
operating | Profit | operating | Profit | |||
Revenue | profit 1 | before tax | Revenue | profit 1 | before tax | |
£m | £m | £m | £m | £m | £m | |
Increase in revenue/Group adjusted | ||||||
operating profit 1 /profit before tax if: | ||||||
GBP weakens by 10c against USD | ||||||
in isolation | 42.8 | 4.9 | 4.1 | 42.0 | 5.3 | 5.0 |
GBP weakens by 10c against the Euro | ||||||
in isolation | 21.5 | 2.5 | 2.2 | 20.8 | 3.4 | 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
187
Financial statements
Debt to adjusted capital
| 2023 | 2022 | |||||
IFRS 16 | Excluding | IFRS 16 | Excluding | |||
As stated | impact | IFRS 16 | As stated | impact | IFRS 16 | |
£m | £m | £m | £m | £m | £m | |
Borrowings and overdrafts | 309.7 | – | 309.7 | 266.2 | – | 266.2 |
Lease liabilities | 47.1 | (47.1) | – | 51.9 | (51.9) | – |
Less: cash and cash equivalents | (124.5) | – | (124.5) | (117.7) | – | (117.7) |
Net debt 1 | 232.3 | (47.1) | 185.2 | 200.4 | (51.9) | 148.5 |
Total equity | 398.6 | – | 398.6 | 429.6 | – | 429.6 |
Less: amounts accumulated in equity | ||||||
relating to cash flow hedges | (1.1) | – | (1.1) | 0.2 | – | 0.2 |
Adjusted capital | 397.5 | – | 397.5 | 429.8 | – | 429.8 |
Net debt 1 to adjusted capital ratio | 0.6 | n/a | 0.5 | 0.5 | n/a | 0.3 |
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
Net debt
1
to EBITDA
1
2023 | 2022 | |||||||
IFRS 16 | Excluding | IFRS 16 | Excluding | |||||
As stated | impact | IFRS 16 | As stated | impact | IFRS 16 | |||
£m | £m | £m | £m | £m | £m | |||
Net debt 1 | 232.3 | (47.1) | 185.2 | 200.4 | (51.9) | 148.5 | ||
Operating profit before specific | ||||||||
adjusting items | 117.0 | (3.7) | 113.3 | 146.3 | (3.6) | 142.7 | ||
Depreciation and amortisation | 42.8 | (7.6) | 35.2 | 42.8 | (7.8) | 35.0 | ||
EBITDA 1 | 159.8 | (11.3) | 148.5 | 189.1 | (11.4) | 177.7 | ||
Net debt 1 to EBITDA 1 ratio | 1.5x | n/a | 1.2x | 1.1x | n/a | 0.8x | ||
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
Interest cover
| 2023 | 2022 | |||||
IFRS 16 | Excluding | IFRS 16 | Excluding | |||
As stated | impact | IFRS 16 | As stated | impact | IFRS 16 | |
£m | £m | £m | £m | £m | £m | |
EBITDA 1 | 159.8 | (11.3) | 148.5 | 189.1 | (11.4) | 177.7 |
Net finance costs (excluding IAS 19 | ||||||
pension charge) | 14.1 | (2.4) | 11.7 | 7.8 | (2.4) | 5.4 |
Interest cover | 11.3x | n/a | 12.7x | 24.2x | n/a | 32.9x |
1.
Definitions of these non-GAAP measures can be found in the glossary of terms on page 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
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.
Morgan Advanced Materials
Annual Report 2023
188
Notes to the consolidated financial statements
continued
| 31 December 2023 | 31 December 2022 | |||||||
Carrying | Fair value | Carrying | Fair value | |||||
amount | Level 1 | Level 2 | Total | amount | Level 1 | Level 2 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Financial assets and | ||||||||
liabilities held at | ||||||||
amortised cost | ||||||||
1.18% Euro | ||||||||
Senior Notes 2023 | – | – | – | – | (22.1) | – | (21.6) | (21.6) |
3.17% US Dollar | ||||||||
Senior Notes 2023 | – | – | – | – | (12.4) | – | (12.1) | (12.1) |
3.37% US Dollar | ||||||||
Senior Notes 2026 | (76.6) | – | (71.6) | (71.6) | (80.6) | – | (73.5) | (73.5) |
1.55% Euro | ||||||||
Senior Notes 2026 | (21.7) | – | (20.3) | (20.3) | (22.2) | – | (20.1) | (20.1) |
4.87% US Dollar | ||||||||
Senior Notes 2026 | (20.0) | – | (19.4) | (19.4) | (21.1) | – | (20.2) | (20.2) |
1.74% Euro | ||||||||
Senior Notes 2028 | (8.7) | – | (8.0) | (8.0) | (8.9) | – | (7.7) | (7.7) |
2.89% Euro | ||||||||
Senior Notes 2030 | (21.7) | – | (19.6) | (19.6) | (22.1) | – | (19.0) | (19.0) |
5.47% US Dollar | ||||||||
Senior Notes 2031 | (7.9) | – | (7.7) | (7.7) | – | – | – | – |
5.53% US Dollar | ||||||||
Senior Notes 2033 | (7.9) | – | (7.6) | (7.6) | – | – | – | – |
5.61% US Dollar | ||||||||
Senior Notes 2035 | (23.7) | – | (22.8) | (22.8) | – | – | – | – |
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) |
(188.6) | – | (177.4) | (177.4) | (189.8) | – | (174.6) | (174.6) | |
Financial assets held at FVTPL | 2.2 | 2.2 | – | 2.2 | – | – | – | – |
Derivative financial assets | ||||||||
held at fair value | 1.5 | – | 1.5 | 1.5 | 1.3 | – | 1.3 | 1.3 |
3.7 | 2.2 | 1.5 | 3.7 | 1.3 | – | 1.3 | 1.3 | |
Derivative financial liabilities | ||||||||
held at fair value | (0.5) | – | (0.5) | (0.5) | (1.6) | – | (1.6) | (1.6) |
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
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).
189
Financial statements
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.
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 3.7%–6.3% (2022: 4.2%–6.4%).
There have been no transfers between Level 1 and Level 2 during 2023 and 2022 and there were no Level 3 financial instruments in
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 USA.
Summary of net defined benefit obligations
2023 | 2022 | |
£m | £m | |
Present value of unfunded defined benefit obligations | (36.9) | (36.5) |
Present value of funded defined benefit obligations | (479.2) | (485.3) |
Fair value of plan assets | 490.9 | 506.2 |
(25.2) | (15.6) |
Amounts recognised in profit or loss
2023 | 2022 | ||
Note | £m | £m | |
Current service cost | (2.4) | (2.7) | |
Administrative expenses recognised outside of the pension liability | (1.1) | (1.5) | |
Curtailments and settlements | – | 0.2 | |
Total expense within operating costs relating to defined benefit plans | (3.5) | (4.0) | |
Defined contribution plans | (12.9) | (12.2) | |
Total expense within operating costs | 4 | (16.4) | (16.2) |
Net interest on net defined benefit liability | 7 | – | (1.4) |
Total expense recognised in profit or loss | (16.4) | (17.6) |
Amounts recognised in other comprehensive income
2023 | 2022 | |
£m | £m | |
Experience gain/(loss) on plan obligations | 1.2 | (14.4) |
Changes in financial assumptions underlying the present value of plan obligations – (loss)/gain | (12.7) | 225.6 |
Changes in demographic assumptions underlying the present value of plan obligations – gain | 2.9 | 0.8 |
Actual return on plan assets (excluding amounts included in net interest expense) | (2.9) | (206.5) |
Remeasurements recognised in other comprehensive income | (11.5) | 5.5 |
Deferred tax associated with the above | (0.5) | (3.4) |
Total amount recognised in other comprehensive income | (12.0) | 2.1 |
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 £12.9 million (2022: £12.2 million). The expense includes ongoing contributions to the US Multi-Employer Plan of £0.2 million
(2022: £0.3 million). The Group expects to contribute £13.5 million to ongoing defined contribution arrangements in 2024.
Morgan Advanced Materials
Annual Report 2023
190
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.
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.
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 while 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 2023 and the Scheme was 95% funded
on this basis.
On the Defined Benefit Obligation (DBO) basis used for IAS 19 purposes, the Scheme was almost 100% funded with a deficit as at
31 December 2023 of £0.3 million (2022: £3.4 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.
191
Financial statements
| 31 December 2023 | |||||
Rest of | |||||
UK | US | Europe | the World | Total | |
£m | £m | £m | £m | £m | |
Summary of net obligations | |||||
Present value of unfunded defined benefit obligations | – | (5.2) | (27.1) | (4.6) | (36.9) |
Present value of funded defined benefit obligations | (362.8) | (107.0) | (1.3) | (8.1) | (479.2) |
Fair value of plan assets | 375.3 | 106.7 | 0.2 | 8.7 | 490.9 |
12.5 | (5.5) | (28.2) | (4.0) | (25.2) | |
Movements in present value of defined benefit obligation | |||||
At 1 January 2023 | (359.5) | (121.9) | (28.3) | (12.1) | (521.8) |
Current service cost | – | – | (0.8) | (1.6) | (2.4) |
Interest cost | (16.7) | (5.6) | (1.0) | (0.3) | (23.6) |
Actuarial gain/(loss) | |||||
Experience gain/(loss) on plan obligations | (0.3) | 2.0 | – | (0.5) | 1.2 |
Changes in financial assumptions – gain/(loss) | (10.4) | (1.9) | (0.6) | 0.2 | (12.7) |
Changes in demographic assumptions – gain | 2.9 | – | – | – | 2.9 |
Benefits paid | 21.2 | 9.2 | 1.7 | 0.9 | 33.0 |
Exchange adjustments | – | 6.0 | 0.6 | 0.7 | 7.3 |
At 31 December 2023 | (362.8) | (112.2) | (28.4) | (12.7) | (516.1) |
Movements in fair value of plan assets | |||||
At 1 January 2023 | 384.7 | 112.7 | 0.4 | 8.4 | 506.2 |
Interest on plan assets | 17.9 | 5.4 | – | 0.3 | 23.6 |
Remeasurement gain/(loss) | (6.1) | 2.9 | – | 0.3 | (2.9) |
Contributions by employer | – | 0.6 | 1.6 | 1.2 | 3.4 |
Benefits paid | (21.2) | (9.2) | (1.7) | (0.9) | (33.0) |
Exchange adjustments | – | (5.7) | (0.1) | (0.6) | (6.4) |
At 31 December 2023 | 375.3 | 106.7 | 0.2 | 8.7 | 490.9 |
Actual return on assets | 11.8 | 8.3 | – | 0.6 | 20.7 |
Fair value of plan assets by category | |||||
Equities | – | 6.3 | – | – | 6.3 |
Growth assets 1 | 48.9 | – | – | – | 48.9 |
Bonds | 26.5 | 97.7 | – | – | 124.2 |
Liability-driven investments (LDI) 2 | 196.6 | – | – | – | 196.6 |
Matching insurance policies | 101.9 | 1.4 | 0.2 | 6.3 | 109.8 |
Other | 1.4 | 1.3 | – | 2.4 | 5.1 |
375.3 | 106.7 | 0.2 | 8.7 | 490.9 | |
1.
Growth assets include investment in 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).
Morgan Advanced Materials
Annual Report 2023
192
Notes to the consolidated financial statements
continued
The Group expects to contribute £3.6 million to these arrangements in 2024.
Rest of | |||||
UK | US | Europe | the World | Total | |
£m | £m | £m | £m | £m | |
Estimate of employer contributions to be paid into the plans | |||||
during the 12-month period beginning 1 January 2024 | – | 0.6 | 1.7 | 1.3 | 3.6 |
| 31 December 2022 | |||||
Rest of | |||||
UK | US | Europe | the World | Total | |
£m | £m | £m | £m | £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.
193
22. Pensions and other post-retirement employee benefits (continued)
Financial statements
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 USA 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:
Rest of | ||||
UK | US | Europe | the World | |
% | % | % | % | |
2023 | ||||
Discount rate | 4.52 | 4.80 | 3.40 | 5.52 |
Salary increase | n/a | n/a | 2.10 | 4.50 |
Inflation (UK: RPI/CPI) | 3.05/2.31 | n/a | 2.10 | n/a |
Pensions increase 1 | 3.00/2.94/3.62 | n/a | 2.10 | n/a |
Mortality – post-retirement: | ||||
Life expectancy of a male aged 60 in accounting year (years) | 25.62 | 25.00 | 25.33 | n/a |
Life expectancy of a male aged 60 in accounting year +20 (years) | 27.10 | 25.80 | 28.12 | n/a |
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 |
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.
Morgan Advanced Materials
Annual Report 2023
194
Notes to the consolidated financial statements
continued
The sensitivities of the Group’s net balance sheet to the principal assumptions are:
2023 | 2022 | ||||
Increase | Increase on | ||||
on defined | defined | ||||
benefit | Increase | benefit | Increase | ||
obligation | on deficit | obligation | on deficit | ||
Change in assumption | £m | £m | £m | £m | |
Discount rate | Decrease by 0.1% | 5.6 | 4.9 | 5.8 | 5.0 |
Discount rate 1 | Decrease by 0.5% | 29.2 | 25.6 | 30.0 | 25.9 |
Inflation | Increase by 0.1% | 1.8 | 1.7 | 1.8 | 1.7 |
Inflation 1 | Increase by 0.5% | 9.7 | 9.1 | 9.2 | 8.7 |
Mortality – post-retirement 1 | Pensioners live 1 year longer | 20.5 | 13.4 | 20.5 | 13.6 |
Exchange rates | GBP weakens against USD by 10% | 12.5 | 0.6 | 13.5 | 1.0 |
GBP weakens against EUR by 10% | 3.1 | 3.1 | 3.3 | 3.2 |
1.
Sensitivities included as reasonably possible changes under IAS1.
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 assets 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 a significant extent by a 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’ basis. 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 2023,
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 104 to 130.
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 2023 was £2.9 million (2022: £5.7 million).
195
Financial statements
The following options and awards were outstanding at 31 December 2023 in respect of Ordinary shares:
Number | Exercise dates ranging | |||||
Employees | Exercise/award | of shares | ||||
entitled | Vesting conditions | price(s) | outstanding | from | to | |
LTIP | Senior | Continued employment | – | 6,778,794 | 22 March 2024 | 21 March 2026 |
employees | plus satisfaction of | |||||
performance metrics | ||||||
Sharesave | All UK | Continued employment | 181.00p–321.00p | 1,156,881 | 1 December 2023 | 31 May 2027 |
employees | ||||||
DBP | Senior | Continued employment | – | 355,848 | 22 March 2024 | 21 March 2026 |
employees | ||||||
RSU | Select | Continued employment | – | 493,824 | 21 March 2024 | 14 November |
employees | 2026 | |||||
The numbers and weighted average exercise prices of share options are as follows:
2023 | 2022 | |||
Weighted | Weighted | |||
average | Number of | average | Number of | |
exercise price | options | exercise price | options | |
Outstanding at the beginning of the period | 28.30p | 7,517,706 | 26.44p | 8,174,265 |
Granted during the period | 29.62p | 4,240,455 | 23.24p | 2,985,494 |
Forfeited during the period | 24.87p | (580,988) | 39.31p | (158,602) |
Exercised during the period | 33.06p | (2,138,502) | 39.31p | (1,280,013) |
Lapsed during the period | 41.30p | (253,324) | 0.71p | (2,203,438) |
Outstanding at the end of the period | 27.63p | 8,785,347 | 28.30p | 7,517,706 |
Exercisable at the end of the period | 170.65p | 222,637 | 182.49p | 138,258 |
The weighted average share price at the date of exercise during the period was 276.49 pence (2022: 293.19 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 2023 | ||||
LTIP | Sharesave | DBP | RSU | |
Share price at award date | 287.50p– | 250.50p | 287.50p | 287.50p– |
294.50p | 294.50p | |||
Exercise price | n/a | 209.00p | n/a | n/a |
Fair value at measurement date | 96.00p– | 47.00p | 287.50p | 287.50p– |
257.00p | 294.50p | |||
Fair value measurement method | Actuarial | Modified | n/a | n/a |
binomial | binomial | |||
method | method | |||
Fair value model inputs: | ||||
Expected volatility (expressed as weighted average volatility | 30% | 35% | ||
used in the model) | ||||
Option life (expressed as weighted average life used in | 3.0 years | 3.3 years | ||
the model) | ||||
Expected dividends | 4.2% | 4.9% | ||
Risk-free interest rate | 3.8% | 4.3% | ||
Morgan Advanced Materials
Annual Report 2023
196
Notes to the consolidated financial statements
continued
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 | Legal and | |||
restructuring | other | Environmental | ||
provisions | provisions | provisions | Total | |
£m | £m | £m | £m | |
Balance at 1 January 2023 | 10.5 | 8.1 | 7.4 | 26.0 |
Provisions made during the year | 3.0 | 0.9 | 2.6 | 6.5 |
Provisions used during the year | (2.2) | (1.3) | (1.4) | (4.9) |
Provisions reversed during the year | (3.0) | (1.8) | (0.2) | (5.0) |
Effect of movements in foreign exchange | (0.4) | (0.3) | (0.1) | (0.8) |
Balance at 31 December 2023 | 7.9 | 5.6 | 8.3 | 21.8 |
Current | 5.6 | 2.3 | 2.4 | 10.3 |
Non-current | 2.3 | 3.3 | 5.9 | 11.5 |
7.9 | 5.6 | 8.3 | 21.8 |
Closure and restructuring provisions
Closure and restructuring provisions relate to 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. The provisions are expected to be utilised in the next one
to two years.
We have a provision for a multi-employer pension obligation for a site which was closed during 2021. The cash outflows relating to the
pension obligation may continue for up to 18 years, subject to any settlement being reached in advance of that date.
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 not probable,
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 £10.3 million (2022: £10.2 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. The provisions are expected to be utilised in
the next five to ten years.
197
24. Provisions and contingent liabilities (continued)
Financial statements
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.
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 2023, 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:
2023 | 2022 | |
£m | £m | |
Short-term employee benefits | 5.9 | 4.8 |
Employer national insurance contributions | 0.6 | 1.0 |
Pension and other post-employment costs | 0.3 | 0.3 |
Share-based payment expense | 0.9 | 1.9 |
Termination payments | – | 0.1 |
Non-Executive Directors’ fees and benefits | 0.5 | 0.5 |
Total compensation of key management personnel | 8.2 | 8.6 |
Other related party transactions
The Group pays an annual fee of £18,000 to Dunelm Energy for administrative support, a company in which Ian Marchant, the Group
Morgan Advanced Materials
Annual Report 2023
198
AS AT 31 DECEMBER 2023
2023 | 2022 | ||
Note | £m | £m | |
Non-current assets | |||
Intangible assets | 30 | – | 1.1 |
Property, plant and equipment | 31 | 3.5 | 3.7 |
Right-of-use assets | 32 | 0.4 | 0.9 |
Investments in subsidiary undertakings | 33 | 716.4 | 757.8 |
Debtors – amounts due after more than one year | 34 | 252.8 | 139.0 |
Employee benefits: pensions | 38 | 3.1 | 6.4 |
976.2 | 908.9 | ||
Current assets | |||
Debtors – amounts due within one year | 34 | 135.2 | 159.1 |
Cash and cash equivalents | 15.6 | 7.2 | |
150.8 | 166.3 | ||
Current liabilities | |||
Creditors – amounts falling due within one year | 35 | 126.8 | 122.4 |
Provisions | 39 | 1.1 | 2.2 |
127.9 | 124.6 | ||
Net current assets | 22.9 | 41.7 | |
Total assets less current liabilities | 999.1 | 950.6 | |
Non-current liabilities | |||
Creditors – amounts falling due after more than one year | 36 | 394.7 | 270.6 |
Provisions | 39 | 3.0 | 3.0 |
397.7 | 273.6 | ||
Net assets | 601.4 | 677.0 | |
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 | 365.7 | 441.3 | |
Shareholders’ funds | 601.4 | 677.0 |
Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own income statement.
During 2023, the Company recognised a net loss of £36.6 million (2022: net profit of £13.6 million).
The financial statements were approved by the Board of Directors on 11 March 2024 and were signed on its behalf by:
Pete Raby
Richard Armitage
CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
199
Company statement of changes in equity
FOR THE YEAR ENDED 31 DECEMBER 2023
Financial statements
Share | Capital | |||||
Called-up | premium | Merger | redemption | Profit and | Total | |
share capital | account | reserve | reserve | loss account | equity | |
£m | £m | £m | £m | £m | £m | |
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 |
Balance at 1 January 2023 | 71.3 | 111.7 | 17.0 | 35.7 | 441.3 | 677.0 |
Total comprehensive income | ||||||
for the year: | ||||||
Loss for the year | – | – | – | – | (36.6) | (36.6) |
Other comprehensive income | – | – | – | – | (3.6) | (3.6) |
Transactions with owners: | ||||||
Dividends | – | – | – | – | (34.2) | (34.2) |
Equity-settled share-based | ||||||
payment transactions | – | – | – | – | 2.9 | 2.9 |
Own shares acquired for share | ||||||
incentive schemes (net) | – | – | – | – | (4.1) | (4.1) |
Balance at 31 December 2023 | 71.3 | 111.7 | 17.0 | 35.7 | 365.7 | 601.4 |
Morgan Advanced Materials
Annual Report 2023
200
Notes to the Company financial statements
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 pounds sterling, which is the Company’s functional currency.
The Company’s financial statements are prepared on a going concern basis as set out in note 1 of 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 |
201
Financial statements
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 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.
Morgan Advanced Materials
Annual Report 2023
202
Notes to the Company financial statements
continued
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 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 44.
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 21. 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.
203
Financial statements
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
Morgan Advanced Materials
Annual Report 2023
204
Notes to the Company financial statements
continued
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 | 2023 | 2022 |
Number of employees including Directors | 69 | 69 |
Full details of the Directors’ remuneration for the period can be found in the Remuneration report on pages 104 to 130.
Aggregate employee-related costs were as follows:
2023 | 2022 | ||
Note | £m | £m | |
Wages and salaries | 7.6 | 9.0 | |
Equity-settled share-based payments | 23 | 2.9 | 5.1 |
Social security costs | 2.1 | 1.6 | |
Other pension costs | 1.2 | 0.7 | |
13.8 | 16.4 |
In 2023, £3.0 million (2022: £2.2 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 2023 | 10.5 |
Additions – externally purchased | – |
Disposals | (0.5) |
Balance at 31 December 2023 | 10.0 |
Amortisation | |
Balance at 1 January 2023 | 9.4 |
Amortisation for the year | 0.9 |
Impairment | 0.2 |
Disposals | (0.5) |
Balance at 31 December 2023 | 10.0 |
Carrying amounts | |
At 31 December 2022 | 1.1 |
At 31 December 2023 | – |
205
Financial statements
31. Property, plant and equipment
Plant, | |||
equipment | Land and | ||
and fixtures | buildings | Total | |
£m | £m | £m | |
Cost | |||
Balance at 1 January 2023 | 2.1 | 6.5 | 8.6 |
Additions | 0.2 | – | 0.2 |
Balance at 31 December 2023 | 2.3 | 6.5 | 8.8 |
Depreciation and impairment losses | |||
Balance at 1 January 2023 | 1.1 | 3.8 | 4.9 |
Depreciation charge for the year | 0.4 | – | 0.4 |
Balance at 31 December 2023 | 1.5 | 3.8 | 5.3 |
Carrying value | |||
At 31 December 2022 | 1.0 | 2.7 | 3.7 |
At 31 December 2023 | 0.8 | 2.7 | 3.5 |
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 | Land and | ||
equipment | buildings | Total | |
£m | £m | £m | |
Balance at 1 January 2023 | 0.4 | 0.5 | 0.9 |
Remeasurements | (0.3) | – | (0.3) |
Depreciation charge for the year | (0.1) | (0.1) | (0.2) |
Balance at 31 December 2023 | – | 0.4 | 0.4 |
The Company leases several assets including buildings and IT equipment. The average lease term at 31 December 2023 is 0.9 years
(2022: 1.9 years).
At 31 December 2023, the Company has not applied any exemptions for short-term leases or leases of low value assets.
Morgan Advanced Materials
Annual Report 2023
206
Notes to the Company financial statements
continued
33. Investment in subsidiary undertakings
Shares | |||
in Group | |||
undertakings | Loans | Total | |
£m | £m | £m | |
Cost | |||
Balance at 1 January 2023 | 449.4 | 394.6 | 844.0 |
Reclassification | – | 18.0 | 18.0 |
Loans advanced | – | 74.1 | 74.1 |
Loan repayments | – | (44.0) | (44.0) |
Effect of movement in foreign exchange | – | (10.3) | (10.3) |
Balance at 31 December 2023 | 449.4 | 432.4 | 881.8 |
Provisions | |||
Balance at 1 January 2023 | 21.6 | 64.6 | 86.2 |
Provided in the year | 43.2 | 17.8 | 61.0 |
Reclassification | – | 18.0 | 18.0 |
Effect of movement in foreign exchange | – | 0.2 | 0.2 |
Balance at 31 December 2023 | 64.8 | 100.6 | 165.4 |
Carrying amounts | |||
At 31 December 2022 | 427.8 | 330.0 | 757.8 |
At 31 December 2023 | 384.6 | 331.8 | 716.4 |
In December, management conducted a review of the Company’s investment in subsidiary undertakings. Following this review
management identified impairment losses of £43.2 million (2022: £1.0 million) and the reversal of impairment losses of £nil
(2022: £0.2 million) against a number of shares in Group undertakings. In addition, management identified £17.8 million impairment
losses (2022: £nil) and no reversal of impairment losses (2022: £nil) against loans.
The impairment assessment of shares in Group undertakings uses the 2024 results in an EBITDA
*
multiple valuation, which is sensitive
to changes in the principal assumptions. In line with the fair value hierarchy in note 21 this has been classified as a Level 2 valuation.
A 2% increase in either EBITDA
*
or the multiple would increase the carrying value of the share in Group undertakings by £3.2 million
at 31 December 2023. A 2% decrease would decrease the carrying value by £3.2 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.
207
Financial statements
34. Debtors
2023 | 2022 | ||
Note | £m | £m | |
Due within one year | |||
Amounts owed by Group undertakings | 127.1 | 152.8 | |
Other debtors | 3.3 | 2.2 | |
Derivative financial assets | 44 | 1.6 | 2.0 |
Prepayments | 3.2 | 2.1 | |
135.2 | 159.1 | ||
Due after more than one year | |||
Derivative financial assets | 44 | 0.4 | – |
Amounts owed by Group undertakings | 252.4 | 139.0 | |
252.8 | 139.0 |
35. Creditors: amounts falling due within one year
2023 | 2022 | ||
Note | £m | £m | |
Bank overdrafts | 0.8 | 1.6 | |
Borrowings | 37 | – | 34.5 |
Lease liabilities | 0.2 | 0.5 | |
Trade creditors | 2.9 | 2.8 | |
Amounts owed to Group undertakings | 109.4 | 69.1 | |
Other creditors | 3.0 | – | |
Accruals | 8.8 | 7.5 | |
Derivative financial liabilities | 44 | 1.7 | 6.4 |
126.8 | 122.4 |
36. Creditors: amounts falling due after more than one year
2023 | 2022 | ||
Note | £m | £m | |
Amounts owed to Group undertakings | 83.4 | 33.5 | |
Borrowings | 37 | 308.5 | 229.6 |
Lease liabilities | 0.1 | 0.3 | |
Derivative financial liabilities | 44 | 2.7 | 7.2 |
394.7 | 270.6 |
Morgan Advanced Materials
Annual Report 2023
208
Notes to the Company financial statements
continued
37. Borrowings
Terms and debt repayment schedule
| 31 December 2023 | 31 December 2022 | |||||||
Carrying | Fair value | Carrying | Fair value | |||||
amount | Level 1 | Level 2 | Total | amount | Level 1 | Level 2 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Financial assets and | ||||||||
liabilities held at | ||||||||
amortised cost | ||||||||
1.18% Euro | ||||||||
Senior Notes 2023 | – | – | – | – | (22.1) | – | (21.6) | (21.6) |
3.17% US Dollar | ||||||||
Senior Notes 2023 | – | – | – | – | (12.4) | – | (12.1) | (12.1) |
3.37% US Dollar | ||||||||
Senior Notes 2026 | (76.6) | – | (71.6) | (71.6) | (80.6) | – | (73.5) | (73.5) |
1.55% Euro | ||||||||
Senior Notes 2026 | (21.7) | – | (20.3) | (20.3) | (22.2) | – | (20.1) | (20.1) |
4.87% US Dollar | ||||||||
Senior Notes 2026 | (20.0) | – | (19.4) | (19.4) | (21.1) | – | (20.2) | (20.2) |
1.74% Euro | ||||||||
Senior Notes 2028 | (8.7) | – | (8.0) | (8.0) | (8.9) | – | (7.7) | (7.7) |
2.89% Euro | ||||||||
Senior Notes 2030 | (21.7) | – | (19.6) | (19.6) | (22.1) | – | (19.0) | (19.0) |
5.47% US Dollar | ||||||||
Senior Notes 2031 | (7.9) | – | (7.7) | (7.7) | – | – | – | – |
5.53% US Dollar | ||||||||
Senior Notes 2033 | (7.9) | – | (7.6) | (7.6) | – | – | – | – |
5.61% US Dollar | ||||||||
Senior Notes 2035 | (23.7) | – | (22.8) | (22.8) | – | – | – | – |
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) |
(188.6) | – | (177.4) | (177.4) | (189.8) | – | (174.6) | (174.6) | |
Derivative financial assets | ||||||||
held at fair value 1 | 2.0 | – | 2.0 | 2.0 | 2.0 | – | 2.0 | 2.0 |
2.0 | – | 2.0 | 2.0 | 2.0 | – | 2.0 | 2.0 | |
Derivative financial liabilities | ||||||||
held at fair value 1 | (4.4) | – | (4.4) | (4.4) | (13.6) | – | (13.6) | (13.6) |
1.
Derivative financial assets and liabilities in 2022 have been re-presented.
The fair value of cash and cash equivalents, current trade and other receivables/payables and floating-rate bank and other borrowings are
excluded from the preceding table as their carrying amount approximates to their fair value.
In 2023, no borrowings were secured on the assets of the Company (2022: £nil).
209
Financial statements
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.
2023 | 2022 | |
£m | £m | |
Pension plans and employee benefits | ||
Present value of funded defined benefit obligations | (119.1) | (118.9) |
Fair value of plan assets | 122.2 | 125.3 |
Net obligations | 3.1 | 6.4 |
Movements in present value of defined benefit obligation | ||
At 1 January | (118.9) | (175.9) |
Interest cost | (5.5) | (3.5) |
Remeasurement (losses)/gains: | ||
Changes in financial assumptions | (3.6) | 57.0 |
Changes in demographic assumptions | 1.1 | 0.9 |
Experience adjustments on benefit obligations | 0.3 | (6.1) |
Benefits paid | 7.5 | 8.7 |
At 31 December | (119.1) | (118.9) |
Movements in fair value of plan assets | ||
At 1 January | 125.3 | 160.9 |
Interest on plan assets | 5.8 | 3.1 |
Remeasurement losses | (1.4) | (54.3) |
Contributions by employer | – | 24.3 |
Benefits paid | (7.5) | (8.7) |
At 31 December | 122.2 | 125.3 |
Actual return on assets | 4.4 | (51.2) |
Expense recognised in the income statement
2023 | 2022 | |
£m | £m | |
Administrative expenses (including administration expenses incurred by the Company directly) | (0.8) | (1.2) |
Net interest on net defined benefit liability | 0.3 | (0.4) |
Total expense recognised in the income statement | (0.5) | (1.6) |
The fair values of the plan assets were as follows:
2023 | 2022 | |
£m | £m | |
Equities and growth assets | 56.9 | 59.8 |
Bonds | 7.6 | 17.9 |
Matching insurance policies | 43.1 | 44.9 |
Other | 14.6 | 2.7 |
Total | 122.2 | 125.3 |
Morgan Advanced Materials
Annual Report 2023
210
Notes to the Company financial statements
continued
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:
2023 | 2022 | |
Assumptions: | % | % |
Inflation (RPI/CPI) | 3.05/2.31 | 3.26/2.47 |
Discount rate | 4.52 | 4.81 |
Pensions increase | 3.00/2.94/3.62 | 3.00/3.11/3.70 |
Salary increase | n/a | n/a |
Mortality – post-retirement: | ||
Life expectancy of a male aged 60 in accounting year (years) | 25.6 | 25.8 |
Life expectancy of a male aged 60 in accounting year +20 (years) | 27.1 | 27.2 |
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:
2023 | 2022 | ||
Decrease effect | Decrease effect | ||
Change in assumption | £m | £m | |
Discount rate | Decrease by 0.1% | 1.0 | 1.0 |
Inflation | Increase by 0.1% | 0.4 | 0.4 |
Mortality – post-retirement | Pensioners live 1 year longer | 2.6 | 2.5 |
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 2023 was £0.7 million (2022: £0.7 million).
39. Provisions and contingent liabilities
Dilapidation | Other | ||
provisions | provisions | Total | |
£m | £m | £m | |
Balance at 1 January 2023 | 0.1 | 5.1 | 5.2 |
Provisions used during the year | – | (1.1) | (1.1) |
Balance at 31 December 2023 | 0.1 | 4.0 | 4.1 |
Current | 0.1 | 1.0 | 1.1 |
Non-current | – | 3.0 | 3.0 |
0.1 | 4.0 | 4.1 |
Other provisions relate to legal claims and environmental provisions and are based on the Company’s assessment of the probable cost of
these activities.
211
39. Provisions and contingent liabilities (continued)
Financial statements
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 £nil (2022: £0.1 million).
There are no other contingent liabilities in the Company as at 31 December 2023.
40. Share capital
Ordinary shares | |
In issue at beginning and end of the period | 285,369,988 |
2023 | 2022 | |
£m | £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 (2022: 437,281) cumulative Preference shares classified as
borrowings totalling £0.4 million (2022: £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 144.
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 2023 was 807,911 (2022: 1,173,686) and at that date had a market
value of £2.3 million (2022: £3.7 million).
In 2023, the amount of reserves of Morgan Advanced Materials plc that may be distributed under Section 831(4) of the Companies Act
2006 was £189.1 million (2022: £264.5 million). This comprises a portion of the profit and loss account.
Morgan Advanced Materials
Annual Report 2023
212
Notes to the Company financial statements
continued
42. Related parties
The Company has related party relationships with its subsidiaries, 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:
2023 | 2022 | |
£m | £m | |
Transactions with subsidiaries | ||
Income from management services | 4.0 | 1.9 |
Net interest income | 3.8 | 4.6 |
Dividend income | 14.0 | 13.9 |
Loans owed by related parties | – | – |
Loans owed to related parties | 4.6 | 2.3 |
Other amounts owed by related parties | 2.6 | 1.8 |
Other amounts owed to related parties | 1.0 | 1.0 |
In accordance with Section 409 of the Companies Act 2006, a full list of related undertakings as at 31 December 2023 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.
% shareholding | |||
Country of | owned by | ||
Name of undertaking | incorporation | Registered office address | the Group |
Carbo San Luis S.A. 22 | Argentina | Talcahuano 736, 4th Floor, Buenos Aires, C1013AAP, Argentina | 100.00% |
Morgan Technical Ceramics | Australia | 4 Redwood Drive, Clayton, VIC 3168, Australia | 100.00% |
Australia Pty Ltd | |||
Morganite Australia Pty Ltd 12 | Australia | 30–36 Birralee Road, Regency Park, SA 5010, Australia | 100.00% |
Morgan Mechanical Carbon | Australia | Unit 4, 92–100 Belmore Road, Riverwood, NSW 2210, Australia | 100.00% |
Australasia Pty Ltd 1 | |||
Morganite Brasil Ltda 13 | Brazil | Avenida do Taboão 3265, Taboão, São Bernardo do Campo, | 100.00% |
São Paulo, CEP 09656-000, Brazil | |||
Morgan Advanced Materials | Canada | 1185 Walkers Line, Burlington, ON L7M 1L1, Canada | 100.00% |
Canada Inc. 14 | |||
Carbo Chile S.A. | Chile | Avenida San Eugenio 12462, Sitio 3, Loteo Estrella del Sur, | 100.00% |
Santiago, Chile | |||
Dalian Morgan Ceramics | China | Zhenxing Road, Pulandian Economic Development Zone, | 100.00% |
Company Ltd 15 | Dalian, Liaoning Province, China | ||
Morgan Guangzhou Trading | China | No. A163 Room 326, Scientific Research Office Building 63 Pu | 100.00% |
Company Limited | South Road, Guangzhou, Huangpu District, China | ||
Morgan Haldenwanger Technical | China | Gongyuanxi Road, Ding Shu Zhen, Yixing, Jiangsu Province | 100.00% |
Ceramics (Wuxi) Co. Ltd 15 | 214221, China | ||
Morgan Molten Metal Systems | China | 108 Tongsheng Road, Suzhou Industrial Park, Suzhou, | 100.00% |
(Suzhou) Co. Ltd 1,16 | Jiangsu Province, 215126, China | ||
Morgan Technical Ceramics | China | Room 09, 28th Floor (2809), 288 LongShan Road, Greenland | 100.00% |
(Suzhou) Co. Ltd | Kanhu Plaza, Suzhou New District, Suzhou, 215163, China | ||
Morgan Thermal Ceramics | China | 18 Kang An Road, Kang Qiao Industrial Zone, Pudong, | 100.00% |
(Shanghai) Co. Ltd 1,15 | Shanghai 201315, China | ||
Morgan International Trading | China | 18 Kang An Road, Kang Qiao Industrial Zone, Pudong, | 100.00% |
(Shanghai) Co. Ltd 1,15 | Shanghai 201315, China | ||
Shanghai Morgan Advanced Material | China | 4250 Long Wu Road, Shanghai, 200241, China | 100.00% |
and Technology Co. Ltd 1,16 | |||
Jiangsu Morgan Ceramic Core | China | 2 Liye Road, Economic Development Zone, Wuxi, Jiangsu | 100.00% |
Technology Co. Ltd 11,13 | Province, 214131, China |
213
43. Fixed asset investments (continued)
Financial statements
% shareholding | |||
Country of | owned by | ||
Name of undertaking | incorporation | Registered office address | the Group |
Morgan AM&T (Shanghai) Co. Ltd 5,13 | China | 4250 Long Wu Road, Shanghai, 200241, China | 70.00% |
Morgan Kailong (Jingmen) Thermal | China | 20-1 Quankou Road, Jingmen City, Hubei Province, 448032, China | 70.00% |
Ceramics Co. Ltd 5,15 | |||
Dalian Morgan Refractories Ltd 5,15 | China | No. 06 Xi’nan Road, Shahekou District, Dalian, Liaoning Province | 70.00% |
116200, China | |||
Yixing Morgan Thermal Ceramics | China | 2 Beidan Road, Taodu Industrial Park, Ding Shu Zhen, Yixing, | 51.00% |
Co. Ltd 6,15 | Jiangsu, 214222, China | ||
Thermal Ceramics de Colombia 9 | Colombia | Calle 18 No. 23-31, Bodega 1, Guadalajara de Buga-Valle, | 100.00% |
AA 5086, Colombia | |||
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, | 100.00% |
42162 Andrézieux-Bouthéon, France | |||
Thermal Ceramics S.A. 10 | France | Centre de Vie BP 75, 3 rue du 18 Juin 1827, | 100.00% |
42162 Andrézieux-Bouthéon, France | |||
Morgan Advanced Materials | Germany | Teplitzerstraße 27, 84478 Waldkraiburg, Germany | 100.00% |
Haldenwanger GmbH 17 | |||
Morgan Electrical Carbon | Germany | Zeppelinstraße 26, 53424 Remagen, Germany | 100.00% |
Deutschland GmbH | |||
Morgan Thermal Ceramics | Germany | Weidenbaumsweg 103, 21035, Hamburg, Germany | 100.00% |
Deutschland GmbH | |||
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 | Germany | Zeppelinstraße 26, 53424 Remagen, Germany | 100.00% |
Management GmbH | |||
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 | Hong Kong | Units 4–6, 11/F, Siu Wai Industrial Centre, 29–33 Wing Hong | 100.00% |
Company Ltd | Street, Cheung Sha Wan, Kowloon, Hong Kong | ||
Morgan Materials Hungary Limited | Hungary | Csillagvirág utca 7, 1106 Budapest, Hungary | 100.00% |
Liability Company 15 | |||
Morgan Advanced Materials India | India | P-11, Pandav Nagar, Mayur Vihar Phase 1, Delhi, 110091, India | 100.00% |
Private Ltd | |||
Morganite Crucible (India) Ltd | India | B-11, MIDC Industrial Area, Waluj, Aurangabad, 431136, | 75.00% |
Maharashtra, India | |||
Ciria India Limited 15 | India | P-11, Pandav Nagar, Mayur Vihar Phase 1, Delhi, 110091 India | 70.00% |
Murugappa Morgan Thermal | India | PO Box 1570, Dare House Complex, Old No. 234/New No. 2, | 51.00% |
Ceramics Ltd 6 | NSC Bose Road, Chennai, 600001 India | ||
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 | Japan | Portus Center Building 12F, 4-45-1 Ebisujimacho, Sakai-ku, | 50.00% |
Ceramics Corporation 7 | Sakai-shi, Osaka 590-0985, Japan | ||
Morgan Korea Company Ltd 4,18 | Korea | 27 Nongongjoongang-ro 46 gil, Nongong-eup, Dalseong-gun, | 93.19% |
Daegu-si, Republic of Korea | |||
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, | 100.00% |
Pachuca Hidalgo, Mexico |
Morgan Advanced Materials
Annual Report 2023
214
Notes to the Company financial statements
continued
% shareholding | |||
Country of | owned by | ||
Name of undertaking | incorporation | Registered office address | the Group |
Grupo Industrial Morgan | Mexico | Cerrada de la Paz No. 101, Fraccionamiento Industrial La Paz, | 100.00% |
S.A. de C.V. 1,19 | Mineral de la Reforma, 42181 Hidalgo, 42092, Mexico | ||
Morgan Technical Ceramics | Mexico | Av. Fulton No. 20, Fraccionamiento Industrial Valle de Oro, | 100.00% |
S.A. de C.V. 19 | San Juan del Rio, Queretaro C.P. 76802, Mexico | ||
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 | South Africa | 149 South Rand Road, Tulisa Park, Johannesburg 2197, South Africa | 100.00% |
(Pty) Ltd | |||
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 | 25 Hsin-Yeh Street, Hsiao Kang, Kaohsiung 81208, Taiwan | 100.00% |
(Taiwan) Co. Ltd | |||
Morganite Thermal Ceramics | Taiwan | c/o Baker & McKenzie, 15/f, 168 Tun Hwa North Road, | 88.00% |
(Taiwan) Ltd | Taipei 105, Taiwan | ||
Morgan Holdings | Thailand | No. 98 Sathorn Square Building, 37th Floor, North Sathorn Road, | 100.00% |
(Thailand) Ltd 2 | Silom, Bangrak, Bangkok, Thailand | ||
Morgan Technical Ceramics | Thailand | No. 958 On-nuch Road, Khwaeng Suanluang, Khet Suanluang, | 100.00% |
(Thailand) Ltd 2 | Bangkok, 10250, Thailand | ||
MKGS Morgan Karbon Grafit | Turkey | Osmangazi Mahallesi 2647, Sokak No. 27/3, Kıraç, Esenyurt, | 100.00% |
Sanayi Anonim Sirketi | Istanbul 34522, Turkey | ||
Morgan Advanced Materials | United Arab | KHIA4–07A, Khalifa Industrial Zone Abu Dhabi (KIZAD), | 100.00% |
Industries Ltd | Emirates | Abu Dhabi, United Arab Emirates | |
Certech International Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
MCCo Limited 7 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
MNA Finance Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morgan Electro Ceramics Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morgan Europe Holding Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morgan European Finance Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morgan Finance Management Limited | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morgan Holdings Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morgan International | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Holding Limited 1 | Kingdom | ||
Morgan North America | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Holding Limited | Kingdom |
215
43. Fixed asset investments (continued)
Financial statements
% shareholding | |||
Country of | owned by | ||
Name of undertaking | incorporation | Registered office address | the Group |
Morgan Technical Ceramics Limited | United | Morgan Advanced Materials – Technical Ceramics, Morgan Drive, | 100.00% |
Kingdom | Stourport-on-Severn, Worcestershire DY13 8DW, UK | ||
Morgan Trans Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morganite Carbon Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morganite Crucible Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Morganite Electrical Carbon Limited | United | Upper Fforest Way, Morriston, Swansea, West Glamorgan, | 100.00% |
Kingdom | SA6 8PP, UK | ||
Morganite Special Carbons Limited 1 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Petty France Investment | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Nominees Limited 1 | Kingdom | ||
TCG Guardian 1 Limited | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 99.01% |
Kingdom | |||
TCG Guardian 2 Limited | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 99.01% |
Kingdom | |||
Terrassen Holdings Limited 8 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
The Morgan Crucible | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Company Limited | Kingdom | ||
Thermal Ceramics Limited 7 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 100.00% |
Kingdom | |||
Thermal Ceramics UK Limited | United | Tebay Road, Bromborough, Wirral, CH62 3PH, UK | 100.00% |
Kingdom | |||
Clearpower Ltd 3,20 | United | York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK | 99.01% |
Kingdom | |||
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 | United States | 441 Hall Avenue, St Marys, Pennsylvania 15857, USA | 100.00% |
Technology Inc. 22 | |||
Morganite Crucible Inc. 23 | United States | 2102 Old Savannah Road, Augusta, Georgia 30906, USA | 100.00% |
Morganite Industries Inc. 21 | United States | 4000 West Chase Blvd, Suite 170, Raleigh, | 100.00% |
North Carolina 27607, USA | |||
National Electrical Carbon | United States | PO Box 1056, 251 Forrester Drive, Greenville, | 100.00% |
Products, Inc. 14 | South Carolina 29602, USA | ||
Thermal Ceramics Inc. 22 | United States | PO Box 923, 2102 Old Savannah Road, Augusta, | 100.00% |
Georgia 30906, USA | |||
Thermal Ceramics de | Venezuela | Zona Ind. El Recreo, Av. 87 N°105–121, Flor Amarillo, | 100.00% |
Venezuela C.A. 15 | Valencia Edo. Carabobo, Venezuela |
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.
2% owned by Morgan Advanced Materials plc.
10. 1.98% owned by Morgan Advanced Materials plc.
11. Deregistered and liquidated in February 2023.
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 Class A, Class B and Class C Common Stock.
22. Ownership held in Common Stock.
23. Ownership held in Preferred Stock and no par Common Stock.
Morgan Advanced Materials
Annual Report 2023
216
Notes to the Company financial statements
continued
UK incorporated subsidiaries which have taken exemption from audit per Section 479A of the Companies Act 2006 for the year ended
31 December 2023 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.
Registered | |
Name of undertaking | 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 | 07328730 |
44. Derivative financial assets and liabilities
2023 | 2022 | |
£m | £m | |
Derivative financial assets | ||
Forward foreign exchange contracts non-designated | ||
– amounts falling due within one year | 1.6 | 2.0 |
– amounts falling due after more than one year | 0.4 | – |
2.0 | 2.0 | |
Derivative financial liabilities | ||
Forward foreign exchange contracts non-designated | ||
– amounts falling due within one year | (1.7) | (6.4) |
– amounts falling due after more than one year | (2.7) | (7.2) |
(4.4) | (13.6) |
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)
Financial statements
217
2019
Results before
specific adjusting
items
restated
1,2
£m
2020
Results before
specific adjusting
items
£m
2021
Results before
specific adjusting
items
£m
2022
Results before
specific adjusting
items
£m
2023
Results before
specific
adjusting
items
£m
Revenue
1,049.5
910.7
950.5
1,112.1
1,114.7
Profit from operations before
amortisation of intangible assets
134.2
91.7
124.5
151.0
120.3
Amortisation of intangible assets
(8.1)
(6.1)
(6.0)
(4.7)
(3.3)
Operating profit
126.1
85.6
118.5
146.3
117.0
Net financing costs
(16.9)
(11.9)
(9.2)
(9.2)
(14.1)
Share of profit of associate (net of income tax)
0.5
0.6
0.4
–
–
Profit before taxation
109.7
74.3
109.7
137.1
102.9
Income tax expense
(29.9)
(20.2)
(29.7)
(37.1)
(26.0)
Profit after taxation before
discontinued operations
79.8
54.1
80.0
100.0
76.9
Discontinued operations
0.7
–
–
–
–
Profit for the period
80.5
54.1
80.0
100.0
76.9
Assets employed
Property, plant and equipment
317.2
267.6
248.1
283.2
293.8
Right-of-use assets
49.1
35.5
31.9
33.6
31.6
Intangible assets
204.8
185.4
183.1
189.0
182.2
Investments and other receivables
12.2
11.2
2.9
3.2
5.6
Deferred tax assets
6.0
14.4
15.9
15.3
17.6
Net current assets
125.1
136.7
202.8
212.6
254.4
Total assets less current liabilities
714.4
650.8
684.7
736.9
785.2
Employee benefits: pensions
156.8
176.3
102.7
15.6
25.2
Non-current provisions and other items
241.0
234.0
231.2
289.7
359.6
Deferred tax liabilities
4.9
0.5
1.2
2.0
1.8
Total net assets
311.7
240.0
349.6
429.6
398.6
Equity
Total equity attributable to equity holders
of the Parent Company
270.2
202.3
310.6
389.0
360.3
Non-controlling interests
41.5
37.7
39.0
40.6
38.3
Total equity
311.7
240.0
349.6
429.6
398.6
Ordinary dividends per share
3
4.0p
5.5p
9.1p
12.0p
12.0p
Earnings per share
Continuing and discontinued operations
Basic earnings/(loss) per share
25.7p
(7.9)p
25.9p
31.0p
16.6p
Diluted earnings/(loss) per share
25.5p
(7.9)p
25.7p
30.7p
16.5p
Adjusted earnings per share
4
28.0p
19.0p
27.2p
33.8p
25.0p
Diluted adjusted earnings per share
4
27.8p
18.9p
27.0p
33.5p
24.8p
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 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 218, reconciliations of the statutory results to the adjusted measures can be found on pages 72 to 75.
Group statistical information
UNDER ADOPTED IFRSs
Morgan Advanced Materials
Annual Report 2023
218
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 72 to 75.
Glossary of terms
Cautionary statement
Financial statements
219
Analysis of Ordinary shareholdings as at 31 December 2023
Number of
holdings
% of total
holdings
Number of
shares
% of share
capital
Size of holding
1–2,000
3,365
75.30
1,784,334
0.63
2,001–5,000
538
12.04
1,717,747
0.60
5,001–10,000
180
4.03
1,273,528
0.45
10,001–50,000
177
3.96
3,836,547
1.34
50,001–100,000
44
0.98
3,283,233
1.15
100,001 and above
165
3.69
273,474,599
95.83
4,469
100.00
285,369,988
100.00
Holding classification
Individuals
4,031
90.20
6,658,653
2.33
Nominee companies
321
7.18
228,980,492
80.24
Trusts (pension funds etc)
3
0.07
2,652
0.00
Others
114
2.55
49,728,191
17.43
4,469
100.00
285,369,988
100.00
Key dates
9 May 2024
2024 Annual General Meeting (AGM), commencing at 10.30am.
6 August 2024
Half-year results announced via the Regulatory News Service and on the Company’s website.
2023 and 2024 dividend payment dates
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.
17 November 2023
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 27 October 2023.
1 April 2024
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.
17 May 2024
Subject to shareholders’ approval at the 2024 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 26 April 2024.
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
Shareholder information
Morgan Advanced Materials
Annual Report 2023
220
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
www.shareview.co.uk
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 +44(0)3456 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 Advanced Materials 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 Advanced Materials please contact Equiniti for further assistance.
Shareholder information
continued
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