Morgan Advanced Materials Details 2015 Results, Plans for Long-Term Strategy and New Business Structure
Morgan Advanced Materials recently announced a review of its strategy and outlined its overall vision and direction, including six execution priorities. In very challenging markets, revenue on a like-for-like basis in 2015 decreased by 0.8% compared to 2014. The earnings before interest, taxes and amortization (EBITA) margin for the full-year was 12.0%, compared to 12.8% in 2014. Cash flow from operations was £135.6 million (approximately $192.6 million), compared to £120 million (~ $170.4 million) in 2014.
In North America, the majority of businesses saw a decline in revenue in the second half of 2015, having achieved revenue growth in the first half. For the full year, revenue decreased by 2.3% on a like-for-like basis compared to 2014, maintaining mid-teen EBITA margins at reported rates of 14.0%, compared to 14.9% in 2014. The Europe region achieved like-for-like currency revenue growth of 1.7% compared to 2014, despite a weaker second half of the year. Full year reported European EBITA margins declined to 11.7%, compared to 12.2% in 2014. The Asia/Rest of World region continued to experience headwinds in trading, with revenue down by 1.5% on a like-for-like basis. China remained the principal headwind, with revenue down 11.2% year-on-year. EBITA margin at reported rates reduced to 11.6% as compared to 12.8% in 2014.
Since September 2015 Morgan has carried out a review of its strategy and recently set out the overall vision and direction, and the execution priorities. The long-term strategy reportedly is to focus on building three distinctive core capabilities: materials science, applications engineering and customer focus. The company will apply these capabilities to a portfolio of scalable global businesses where technical expertise and differentiation is valued to solve challenging problems for its customers. Through this, the aim is to strengthen Morgan to deliver resilient financial performance and faster growth.
The six key execution priorities Morgan has set are: move to a global business structure; improve technical leadership; improve operational execution; drive sales effectiveness and market focus; increase investment in people management and development; and simplify the business.
The company is changing its organization structure, moving from the current regional model to a global business structure. The company will reportedly be organized around two global divisions and six business units: the Thermal Products division (organized in two global business units: Thermal Ceramics and Molten Metal Systems) and the Carbon and Technical Ceramics division (organized in three global business units: Electrical Carbon, Seals and Bearings, and Technical Ceramics). Composites and Defense Systems reportedly will be a single global business unit.
This reorganization is expected to improve global coordination across the company and will strengthen accountability within each global business unit. Through the reorganization efforts, there reportedly will be a simplified approach to global customers and markets, increased efficiencies driven through best practice sharing, and better leverage of R&D across regions, as well as a greater operational focus, including better capacity planning and management of the manufacturing footprint, better alignment of technology development priorities with customer needs and growth opportunities in global market segments. Morgan will ensure that the key benefits of the previous regional structure will not be lost. The Asia/Rest of World region is an important growth driver for the company. The investment in capability and capacity will continue and there is a dedicated senior resource in the structure to drive Asian growth.
The company also reportedly plans to increase its R&D investment to grow its technical lead and accelerate new product development, reducing time to market. Morgan has two successful centers of excellence, Insulating Fiber and Structural Ceramics, and will be establishing two more, Brazing and Joining, in Technical Ceramics, and one for carbon science that will support Electrical Carbon and Seals and Bearings. These centers allow the company to concentrate development efforts for these materials and capabilities. R&D investment was increased to 2.8% of sales in 2015 (previously 2.3% in 2014) and the company reportedly anticipates increasing this by around 1% of sales over the next three to five years, funded by savings from improved operational execution.
Morgan has a number of opportunities to improve operational execution, both in terms of efficiency and effectiveness. The operational opportunity varies by business unit, and the company reportedly will allocate capital and target specific improvements to efficiency and effectiveness on a business-by-business basis. For example, Thermal Ceramics will target efficiency improvements through a combination of global best practice implementation, application of lean manufacturing techniques and global sourcing of raw materials; Technical Ceramics will focus on improvements in quality, yield, scrap and delivery; and Electrical Carbon will focus on capacity utilization and efficiency.
During 2016, Morgan reportedly will focus on improving a number of aspects of its sales capabilities and process, focusing on the sales process and its efficiency, the management of key customer accounts, the management of distribution channels, and deepening the understanding of end markets and their faster growing segments. The company reportedly will also strengthen its leadership capability and deepen functional capabilities across the business, including in sales and engineering. Senior leaders will be benchmarked externally, new talent introduced and future leadership candidates identified from within the business. Performance management will be enhanced for the company’s top management and the structures and targets for incentive schemes will be reviewed. Morgan will invest more in executive training and create clear career paths for its technologists and engineers. The intake of graduate trainees will be increased from 30 to 50 a year over the next four years.
Through the reorganization of the business, Morgan reportedly will focus on running each business unit on a global basis. The intent is to grow each business to global scale and to exit those products and markets where that cannot be achieved. The company will continue to refine its strategy and approach during 2016 and, in particular, will build the implementation plans in greater detail as lessons are learnt from the initial work.
“Since joining the business in August, I have carried out a review of the group’s strategy and set out the vision and six execution priorities to position Morgan to deliver resilient financial performance and faster growth,” said Pete Raby, CEO. “We have committed employees, good businesses in attractive markets and we have a number of opportunities to grow. We will focus on the group’s core strengths, and on doing fewer things better in order to deliver resilient financial performance and faster growth. Whilst 2015 has been a very challenging year for the business, with sharp slowdowns in a number of our markets, we have delivered a solid set of results. 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.”
For more information, visit www.morganadvancedmaterials.com.