Morgan Advanced Materials reorganises amid industrial slowdown

Morgan Advanced Materials impressed with its plans for a "new vision and direction" after final results showed sales slowed down sharply in the second half in the US.

The carbon and ceramics materials and application engineering group held its final dividend flat at 7p thanks to strong operational cash flow despite a 1.1% decline in group revenue to £911.8m, which implied a 3-4% decline in the second half.

Regional performance was mixed, with North America down 2.3% on a like-for-like basis, while Europe grew by 1.7% and but Asia/Rest of the World was down 1.5%, including an 11.2% year-on-year decline in China.

Earnings before interest, tax, depreciation and amortisation fell 7.1% to £109.6m and underlying profit before tax was down 3.7% to £88.2m, with underlying earnings per share slipping 5.9% to 20.8p.

But with cash flow from operations up 13% to £135.6m, capital expenditure was allowed to almost double yet net debt was only £9m higher at £216m.

Chief executive Pete Raby, who joined last August, revealed his strategic review had identified six "execution priorities to position Morgan to deliver resilient financial performance and faster growth" and he would now put in place a new organisational structure to improve global collaboration, with the group reorganised back into six product-based segments within two divisions: Thermal Products and Carbon and Technical Ceramics, plus a business unit called Composites & Defence Systems outside of this core.

Raby also plans to increase R&D investment to grow the company's technical lead and accelerate new product development, reducing the time to market.

On outlook, he concluded: "We are planning prudently for 2016 in a market where we take a cautious view of trading conditions, with a focus on increasing our efficiency and reinvesting in the business."

Having been one of the stand-out performers at the time of its interim results in July, analysts at Investec said the final result showed the sharp industrial slowdown caught up with the company later in the year, especially in North America.

"We suspect that Composites & Defence Systems (formerly NP Aerospace) will become non-core, having seen both UK and US assets impaired in the 2015 results, unless it sees rapid benefits from an uptick in defence spending."

Investec added that the annual yield of 5% "looks secure and provides an attraction while we wait for the strategic makeover to deliver".