Morgan Crucible Releases Interim Management Statement (posted 11/14/08)
The Morgan Crucible Co. plc recently issued its interim management statement for the period from July 4, 2008, to November 11, 2008. The Group has continued to show positive year-on-year momentum in revenues and operating profits in the second half of 2008 on a constant currency basis. At reported foreign exchange rates, full year revenue growth for 2008 is expected to be over 15%, helped by a strengthening U.S. dollar. Constant currency organic growth is expected to be around 5%.
The order book at the end of October remained healthy, at levels above the same period last year, and with close to four months of visibility. As a result, the Group expects to deliver performance for 2008 in line with expectations.
“I am pleased with the progress we have continued to make in the second half of this year in the face of increasing macroeconomic headwinds,” said Mark Robertshaw, chief executive officer. “Unprecedented volatility in the global economy clearly makes it much more difficult to forecast demand accurately. However, our ongoing strategy of moving toward less economically cyclical markets has successfully reduced the Group’s exposure to sectors which are coming under particular pressure such as automotive, consumer goods and semiconductors.
“Demand in markets such as defense and medical has remained strong, which to date has offset the softening we have seen in some sectors which are more linked in to the general industrial cycle. In those markets where we have seen weakening demand, we have taken decisive actions to reduce the cost base, including selective headcount reductions. Going forward, we remain watchful and prepared to react swiftly to any other signs of slowdowns in our end markets as they emerge.
“Our goal as a Group remains mid-teen operating profit margins in good times and double-digit in bad times. The general economic environment is clearly more difficult currently than it has been for many years, but I remain confident that Morgan Crucible is a higher quality, more resilient business than in the past. As we look to the future, we are committed to demonstrating this quality and resilience over the coming months.”
Trading for the Carbon division in the second half is anticipated to show profit progression compared to the equivalent period last year. The Group’s electrical business is achieving sales levels slightly ahead of 2007 in Europe and the Americas, with good growth in Asia. Similarly, the mechanical business is showing overall year-on-year growth in demand for seals and bearings, albeit with a visible softening of market conditions in North America and Europe in recent weeks. Semiconductor demand, while a relatively small market for the Carbon division, has also seen deferrals of orders in the second half.
The “lock out” situation in one of the India facilities has been resolved, with the full workforce back in place beginning November 1. The order book for the U.S. armor business remains full for the balance of the year, with significant progress made in addressing the capacity constraints from the first half of 2008. Delays to the U.S. military procurement program for the next generation of U.S. body armor (X-SAPI) still make it difficult at this point to forecast 2009 demand with certainty. The prospects for UK armor business look very encouraging, with the NP Aerospace business having secured additional contracts from the UK military with its order book strong through 2009.
Growth in high-temperature insulating applications used in the solar industry remains robust, with the new capacity brought on line in the second and third quarters sold out well into next year.
The Technical Ceramics division has continued to make good progress in the second half of the year, with a healthy order book underpinning year-on-year revenue growth and further profit margin progression in 2008. The division has continued to see strong demand in the medical and aerospace markets, with the strength of these segments more than offsetting some softness in markets related to the construction industry and semiconductor equipment manufacture. The Group expects to see sales in the second half of next year from the introduction of a new generation of technology in hard disk drives (HDD).
Morgan Crucible has made further progress in rationalizing the division’s manufacturing footprint and cost base over the past 12 months, with the consolidation of two small sites into larger existing facilities (including the closure in the third quarter of this year of the Shanghai facility). The businesses acquired earlier this year from Carpenter Technology Corp. continue to trade ahead of expectations in both sales and profits.
The Thermal Ceramics business has seen good trading for the year-to-date, with robust top-line growth driven primarily by demand from emerging market economies. Though products manufactured and sold into these markets have seen inflationary pressure on input costs in 2008, this has been offset through operational efficiencies and pricing action to maintain margins. While Europe and North America revenues have been flat compared to last year, both regions are expected to deliver improved underlying profits through a combination of pricing and operational efficiencies.
There will be a small impact on second half profits for Thermal Ceramics from one-off costs associated with providing replacement product for a niche previous-generation material utilized by a single customer. Overall, Thermal Ceramics is expected to deliver year-on-year profit progression in 2008.
The order book remains at robust levels on the back of large project orders in the chemical and processing (CPI) and energy end-markets for delivery into Asia and the Gulf Region. The rollout of high-temperature Superwool™ production in North America and the worldwide launch of Superwool Plus™ are also both progressing well.
The Group has continued to make progress in the second half of the year in the face of an increasing level of macroeconomic turbulence, which makes forecasting much more challenging than normal. Nevertheless, based on good year-to-date trading and a healthy current order book, performance for the full year is anticipated to be in line with expectations.
The Group’s website is located at www.morgancrucible.com.