The Morgan Crucible Co. plc recently issued its interim management statement regarding current trading, financial performance and outlook for the first half of 2009. This statement constitutes Morgan Crucible's interim management statement for the period from January 5 to May 14, 2009, as required by the UK Listing Authority's Disclosure and Transparency Rules.
Group revenues for the first half of 2009 are expected to be close to £500 million (approximately $778 million). The businesses acquired in the past 12 months, and NP Aerospace in particular, are performing well and have contributed approximately £75 million (~ $117 million) to Group revenues for the year-to-date through April. For the first four months of the year, Group revenues, excluding the benefits of acquisitions, were broadly in line with the equivalent period last year, with positive currency translation offsetting reduced end-market demand caused by the global economic downturn
Morgan Crucible anticipates that end-market demand will continue on a downward trend over the coming months. In response, the Group has taken further decisive action on its cost base to mitigate the impact on margins. The Group's overall headcount, excluding acquisitions, has now been reduced by over 1200 employees since the summer of last year, and a number of other cost reduction initiatives, such as short time working, have been implemented across its sites
“Our expectation of revenues approaching £500 million at the half-year reflects the progress we continue to make in our strategy of improving the quality and resilience of our business and in reducing the Group's exposure to economically cyclical markets,” said Mark Robertshaw, chief executive officer. “However, as we noted in our AGM trading statement last month, our expectation remains that markets will continue to deteriorate further before they improve. As a result, we have taken additional decisive actions to align our cost base to demand, including reducing headcount by a further 200 employees in April. We believe these actions position us as a leaner and fitter business for when markets ultimately recover.
“I am delighted that we were able to announce last month the successful renewal of our banking facilities. We believe this successful refinancing signals a strong endorsement from our relationship banks of the Group's financial position and its future prospects.”
The Carbon division, excluding NP Aerospace, has experienced the most difficult overall trading conditions of the Group's divisions in the first half. Organic revenues in the first four months of the year have remained in line with the equivalent period in 2008, with the benefits of favorable currency translation offsetting lower market demand. However, first-half margins have been impacted by a lower level of body armor sales compared to the first half of 2008. Body armor revenues are expected to be approximately $10 million for the half-year, compared to about $28 million in the equivalent period last year. The Group continues to pursue new body armor contract opportunities, particularly in the U.S. and the UK.
The NP Aerospace business is continuing to perform above expectations on the back of major contract wins with the UK Ministry of Defence. The recently announced £30 million (~ $47 million) contract for tactical support vehicles (TSV) has reinforced an already strong order book, which now provides good visibility well into 2010.
The remaining businesses in the Carbon division, excluding body armor, have seen an approximate 15% reduction in revenues year-to-date on a constant currency basis. Morgan Crucible has seen some stabilization in demand in its Electrical Carbon business in recent weeks, but the Seals and Bearings business continues to trend downward in terms of orders and revenues. Demand from the semiconductor and solar markets has been very subdued so far this year.
In response to the difficult trading conditions, the Carbon division has implemented a range of aggressive cost-reduction plans in early 2009, including permanent headcount reductions and the extensive use of short time working.
Revenues for the first four months of 2009 for the Technical Ceramics division were up about 35% year-on-year, helped by favorable currency translation and the addition of the businesses acquired from Carpenter Technology last year. On a constant currency organic basis, revenues are down about 11% vs. last year.
Order intake in the Technical Ceramics division has continued on a downward trend in the first half across a number of end markets, in particular in the U.S. and Europe. Nevertheless, despite the much more difficult environment, the division continues to win new business, particularly in the aerospace and medical markets. The strategic focus on these markets has helped to offset the continuing softness in markets such as construction and semiconductor equipment manufacture.
The businesses acquired from Carpenter Technology last year have continued to perform well, with the synergy benefits coming through as expected. To protect bottom line margins, the division has acted swiftly to implement a wide range of cost reduction programs and has further initiatives currently underway.
In the first four months of 2009, the Thermal Ceramics business revenues were at a similar level to last year, taking into account favorable currency translation. On a constant currency basis, the year-on-year reduction in revenue this year is about 12%. Order books have continued on a downward trend as the year has progressed, and the Group expects this to continue over the coming months. End markets, such as construction, automotive and iron and steel, remain weak while the chemical and petroleum (CPI) sector, which had remained fairly robust, is now showing some signs of projects being deferred or cancelled. Regionally, the business has shown resilience in Asian and Latin American markets, while North America and particularly Europe continue to see demand deteriorating.
The Thermal business has implemented a number of cost-reduction programs in the first four months of the year, including site and production line rationalizations. Further cost-reduction plans are in place to counteract continuing softening in demand, particularly in Europe, as Morgan Crucible focuses on mitigating the impact to its profitability in the coming months.
Additional details are available at www.morgancrucible.com