Advancing
materials
science
Annual Report 2020
HEALTH, SAFETY
AND ENVIRONMENTAL
PERFORMANCE
Lost-time accident frequency
per 100,000 hours worked
0.18
2019: 0.14
2018: 0.22
Energy intensity
MWh/£m revenue
1,057
2019: 1,080
2018: 1,130
2020 highlights
ADJUSTED
PERFORMANCE1
STATUTORY
PERFORMANCE
Revenue
Operating (loss)/profit
£910.7m
2019: £1,049.5m
2018: £1,033.9m
£(1.8)m
2019: £126.1m
2018: £107.3m
Group adjusted operating profit1
(Loss)/profit before tax
£91.7m
2019: £134.2m
2018: £124.8m
£(13.1)m
2019: £109.7m
2018: £94.9m
Adjusted EPS1
19.0p
2019: 28.0p
2018: 26.7p
Continuing EPS
(8.6)p
2019: 25.2p
2018: 20.0p
Total dividend per share
Continuing and discontinued EPS
5.5p
2019: 4.0p
2018: 11.0p
(7.9)p
2019: 25.7p
2018: 16.2p
1. 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). The Executive Committee and the Board manage and assess the performance of the business on these measures and
believe that they are more representative of ongoing trading and facilitate year-on-year comparisons; and hence provide
additional useful information to shareholders. 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 43 to 45.
CONTENTS
2020 highlights
IFC
STRATEGIC REPORT
Chairman’s statement and
Section 172 statement
Our stakeholders
Chief Executive Officer’s review
and strategy
Our business model
Sustainability and responsibility
Key performance indicators
Risk management
Review of operations
Group financial review
Directors’ statements
Definitions and reconciliations
of non-GAAP measures to
GAAP measures
02
04
06
08
10
24
26
32
38
41
43
GOVERNANCE
Chairman’s letter
to shareholders
Board of Directors
Corporate governance
Report of the Audit Committee
Report of the Nomination
Committee
Remuneration report
Other disclosures
Independent auditor’s report
to the members of
Morgan Advanced Materials plc
47
48
50
58
63
66
87
90
Consolidated statement
of cash flows
Notes to the consolidated
financial statements
Company balance sheet
Company statement of
changes in equity
Notes to the Company
balance sheet
Group statistical information
Cautionary statement
Glossary of terms
Shareholder information
103
104
150
151
152
169
170
170
171
FINANCIAL STATEMENTS
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated balance sheet
Consolidated statement
of changes in equity
100
101
102
99
COVID-19
Throughout the report this symbol
is used to denote content related
to the COVID-19 pandemic.
Front cover image: Image of graphite, with green polymer dye added to highlight the porous regions.
There are significant trends shaping our
modern world. Resources are becoming
scarce and harder to access, and the pace
of change is adding to the demand for new
advanced materials.
At Morgan Advanced Materials, utilising carbon and ceramics
we develop advanced materials to make the world more sustainable,
and to improve the quality of life. This purpose drives our people to
solve complex customer problems: from managing heat and enabling
greener technologies, to supporting improved medical diagnostics
and protecting life.
Our purpose ‘to use advanced materials to make the world more
sustainable, and to improve the quality of life’, is underpinned by our safe,
ethical and inclusive culture, embraced by our nearly 7,500 employees
spanning 30 countries. Working across many industries and in a
number of markets, we deliver the materials science and technologies
the world needs now.
Our diversified and resilient business supports growth and enables
us to achieve long-term success.
OUR STRATEGY
We are a global advanced manufacturing organisation with leading
capabilities in three areas: materials science, application engineering
and customer focus.
Read more on page 7
OUR BUSINESS MODEL
Our diversified business model is at the core of our strategy.
We operate as two global divisions and five global business units.
A strength during the pandemic has been our local and regional
approach, enabling us to apply our global skills and capabilities
whilst manufacturing locally to our customers.
Read more on pages 8 to 9
OUR ENVIRONMENTAL, SOCIAL AND
GOVERNANCE (ESG) CREDENTIALS
In line with our purpose we are becoming a more sustainable business,
while simultaneously helping our customers to also become more
sustainable through the products we design and manufacture. We have
stretching environmental goals that we are working hard to achieve.
At the same time, we are improving social factors to keep our people
safe and to ensure we provide meaningful work that contributes to
an improved society and enables the communities where we live and
work to thrive.
Read more on page 11
have remained focused on protecting our
colleagues, serving our customers and
“In a year of unprecedented change we
delivering on our purpose.”
Pete Raby
Chief Executive Officer
Morgan Advanced Materials | Annual Report 2020
01
Chairman’s statement
“
I am pleased to introduce Morgan’s
annual report for 2020. In common
with many businesses, 2020 for
Morgan was a difficult year that
presented challenges on a number
of fronts. ”Douglas Caster CBE FIET
Chairman
The year was dominated by
the effects of the worldwide
COVID-19 pandemic. As a global
company, no aspect of our activity
was untouched. The spread and
impact of the virus have been
widely reported with national
lockdowns impacting global
economic activity.
The initial uncertainty of how severe the decline
in our markets might have been immediately
forced us to focus sharply on conserving liquidity
to assure the cash resources to ride out financial
impacts on the business. Unfortunately, we were
compelled to suspend the payment of dividends
so as an indication to shareholders that we
understood the gravity of this all directors took
a voluntary 30% cut in pay and fees. To
demonstrate that we were ‘all in it together’.
In addition, a 20% pay cut was taken by the
executive team. Happily, the Company did not
have to rely on any UK governmental financial
support despite taking precautions to access
such support if it became necessary, and cash
husbandry was so effective that by the year end
we felt able to resume dividend payments,
albeit at a lower level. The Group’s diligence in
collecting and managing cash resulted in excellent
free cash flow performance which underpins
the quality of the Group’s earnings.
The first imperative was the safety of our people.
To this end, regimes including working from
home wherever possible, plant disinfection
and improved hygiene, the provision of personal
protection equipment and safe operator
separation were rapidly introduced. Once these
protocols were in place, we were able to keep
our plants operating, as much of Morgan’s
output is critical to the continued working of
essential industries, such as healthcare, water
and energy supply and transport.
02
In such straitened times, limiting the Group’s
organic-constant-currency year on year revenue
decline to just 11.4% while achieving double digit
margins is a testament to the resilience and
commitment of our people. I thank all our
employees for their hard work, and the
perseverance and dedication they have exhibited
in the particularly difficult circumstances of 2020.
Driven by the impacts on our markets such as
aerospace, automotive and industrial, we took
prompt action to contain costs and maximise the
utilisation and efficiency of our plants. Inevitably
this led to closing underutilised plants through
a process of restructuring, of which more will be
said in the operating review of this report. This
restructuring, which is progressing well and will
be completed within a relatively short timeframe,
will ensure that Morgan emerges from the
current depressed markets in a leaner and fitter
state able to benefit more fully from any eventual
economic recovery.
GOVERNANCE AND SOCIAL CARE
As Chairman, corporate governance is one of my
main concerns. Key to this is keeping in touch with
our operating units which we have continued to
do via electronic forums. My non-executive
colleagues have joined me in ‘virtual’ meetings
with employees at all levels which, in a time of
severe travel restrictions, are the next best way of
keeping an independent finger on the pulse of the
organisation. We were also able to take a view on
the mental health impacts of the lockdowns and
isolation of working from home and how people
were being supported by their local management.
We had some interesting and candid exchange of
views which we have been able to take up with
the Executive Directors, who will be taking action
as a result.
We have continued to stress the importance
of health and safety as well as emphasising our
ethical standards and at all times state the mantra
that good governance is key to good business. The
Board takes the ESG agenda very seriously and
has created a new role with a Group Environment
and Sustainability Director reporting directly to the
CEO to lead and implement our ESG agenda
throughout the Group.
During the year we have transitioned to new
Group auditors with Deloitte taking on the role.
This has been a thorough and successful transition
with no surprises emerging.
ENVIRONMENTAL
Morgan is an energy intensive business, but our
products benefit the environment by making the
operations of our customers significantly more
energy efficient. Over the last five years we have
made steady reductions to our own CO2
emissions and water consumption. Building on
these improvements, the Board has now set an
aspiration to align with the UK Government’s
commitment as a signatory to the Paris Agreement
and achieve net zero carbon emissions by 2050,
and has set an intermediate target of reducing our
absolute scope 1 and 2 CO2 emissions by 50% by
2030. This will require intense energy efficiency
work across our business, and process change: by
progressively moving away from fossil fuels and
adopting new technologies.
OUTLOOK
With new strains of the COVID-19 virus emerging,
the outlook is still uncertain with lockdowns and
travel restrictions being maintained around the
world. The great hope is the efficacy of the vaccine
roll-out but this will take time, well into 2021 in
the UK and potentially beyond in other countries.
Nevertheless, in the last quarter of 2020 we
experienced a rising trend in order intake which
has persisted into 2021.
Morgan’s strategy implementation and investment
in research and development for new products
and processes continue. These coupled with the
rationalisation already in train give some optimism
that progress can be achieved in 2021.
Douglas Caster CBE FIET
Chairman
Morgan Advanced Materials | Annual Report 2020 SECTION 172 STATEMENT
STATEMENT BY THE DIRECTORS IN PERFORMANCE
OF THEIR STATUTORY DUTIES IN ACCORDANCE WITH
SECTION 172(1) COMPANIES ACT 2006
The Board is committed to the creation of value through sustainable
growth. When making decisions and considering key matters of
business, the Board considers the implications of its decisions for
the long term; takes account of the interests of the Group’s key
stakeholders and how decisions might impact them; and has regard
to the need to maintain high standards of business conduct and our
commitment to environmental, social and governance (ESG) matters.
HOW THE BOARD TAKES STAKEHOLDER INTERESTS
AND OTHER MATTERS INTO ACCOUNT
All decisions and business conducted by the Board are considered
in the context of Morgan’s overriding purpose to ensure alignment.
During 2020 the Board reviewed the Group’s key stakeholders and
confirmed that they continue to be its investors, customers, employees,
suppliers, pensioners and pension trustees and communities. The
key stakeholders, why they are significant, the main methods used
to engage with them, and the issues of interest to the stakeholders
are set out on pages 4 to 5.
Further information on the mechanisms used by the Board to engage
with key stakeholders, in particular with investors and the workforce,
the issues raised by the stakeholders as a result of the engagement
and the effectiveness of the methods of engagement can be found
on page 4 of the Sustainability and Responsibility Report and
pages 50 to 57 of the Corporate Governance Report.
HOW THE BOARD TAKES DECISIONS
A robust governance framework ensures that the right decisions are
referred to the Board for consideration. Further information on the
governance structures, delegation of authority and how the Board
operates is set out in the in the Corporate Governance Report on
pages 50 to 57. The Board reviews the Group’s principal and emerging
risks regularly and takes into account the Group’s appetite for risk
when taking decisions.
The Board has spent time during 2020 engaging with a diverse
cross-section of employees, as well as monitoring and assessing the
Group’s culture. These insights have informed the Board’s discussion
when assessing progress in relation to fostering a safe, ethical and
diverse workplace. These interactions have also enabled the Board to
understand the capabilities of the current and future leadership team
and the extent to which employees understand and are aligned with
the Group’s strategic direction.
The principal matters and key decisions considered by the Board
during 2020 are set out on pages 56 and 57 of the Corporate
Governance Report.
CONSEQUENCE OF ANY DECISION
IN THE LONG TERM
The Board considers the long-term success of the Group when
conducting its business, for example, when monitoring the
implementation of the Group strategy, approving investments in
new product development, approving capital expenditure to upgrade
plant and equipment and in overseeing the development of Morgan’s
people. Information on the Group’s purpose and strategy, and how
these serve to guide the long-term direction of the Group, is set out
on page 7.
COVID-19
The spread of COVID-19 brought into sharp focus the need to act
quickly to address the immediate impact, consider the needs of key
stakeholders, whilst having regard to the longer-term consequences
of decisions taken. A number of significant decisions were taken
by the Board as a result of COVID-19:
1. Implementation of Group-wide safety protocols and hygiene
measures to protect our people working in our facilities and enable
trading to continue in order to fulfil requests from customers for
critical products.
How stakeholder interests were taken into account:
´ Workforce – The Board ensured that implementation of standard
safety protocols across all manufacturing sites was consistent and
that guidance issued on safety measures was clear.
´ Customers – The Board monitored the reopening of sites where
possible in order to fulfil orders of products deemed critical.
´ Investors – The swift introduction of safety measures lessened
disruption of trading.
2. Suspension of dividend payments on Ordinary and Preference
shares and other financial measures to preserve liquidity and
conserve cash, and subsequent resumption of dividend payments.
How stakeholder interests were taken into account:
´ Investors – The Board determined that it was in Shareholders’
interests to take these measures in order to preserve the
long-term financial health of the Group.
´ Pensioners and pension trustees – The Board took into account
the Company’s ability to continue to make contributions to the
Group’s pension schemes.
3. Approval of a Group-wide restructuring programme to improve
performance and support long-term growth.
How stakeholder interests were taken into account:
´ Employees – The Board considered the restructuring activities
taken to be in the interests of employees in order to promote
sustainable performance of the Group for the long-term. The
Board ensured that executive management provided clear and
timely communication of the decisions which impacted specific
sites, and that there was meaningful dialogue on the changes
between employees, their representatives and management.
´ Investors, customers, suppliers, pensioners and pension trustees
and communities – The Board determined that the restructuring
activities served these stakeholder groups’ interests for the
longer term.
Further information on these significant decisions can be found
throughout this Annual Report: specifically, the Chairman’s Statement
on page 2 and the CEO Report on pages 6 to 7 provides information
on the strategic context; the Review of Operations on pages 32 to 37
contains information on the restructuring programme; the Financial
Review on pages 38 to 40 provides information on measures taken
in relation to the Group’s financial performance; and pages 16 and 17
of the Sustainability and Responsibility section contain information
on measures taken to safeguard employee safety in the pandemic.
03
Strategic reportMorgan Advanced Materials | Annual Report 2020 Our stakeholders
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.
WHO ARE OUR
STAKEHOLDERS?
INVESTORS
CUSTOMERS
Those who own shares or
wish to own shares in Morgan
Those who have purchased our products
or will do so in the future
WHY OUR
STAKEHOLDERS
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.
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
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,
through joint venture partnerships and through 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.
WHAT MATTERS
TO OUR
STAKEHOLDERS?
HOW WE
ENGAGE WITH
STAKEHOLDERS
´ Capital gain through share price
appreciation
´ Capital return via dividends
´ Profitability and business growth
potential
´ Quality of governance
´ Responsibility and fairness
´ Environmental, social and governance
(ESG) factors
We engage with our investors directly
through the formal presentation of results
and through biannual investor roadshows
(delivered on a virtual basis given the
environment in 2020). We also 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 and provides
guidance on ESG factors.
´ Reliable and consistent service
´ Quality products
´ 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
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 channels.
Our sales and service colleagues also keep customers updated on the
progress of manufacturing; sometimes working alongside the customer
to fine-tune the application engineering process.
We also gather key feedback from customers about the service we provide
and use this to help improve relationships and secure future business.
During 2020 our technology teams continued to make progress in the
development of new materials and products. Despite the pandemic, we
carried on working with our customers, providing new materials samples,
supporting product qualification, cooperating with strong application
engineering and introducing new products. Each of our global business units
has new products coming to market in the next 12 months, including in the
electric vehicles, healthcare, semiconductors and renewable energy markets.
04
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 the company it is today.
They are key to driving the brand 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.
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
impact on ourselves, our
suppliers, our customers
and the world around 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.
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 partnerships
that drive positive change and help build
a more sustainable future through the
development and application of advanced
materials.
´ Meaningful roles linked to our purpose
´ Human rights
´ The commitment of the
´ Our commitment to the local
´ Flexible working
´ Focus on wellbeing
´ Career development
´ A diverse and inclusive culture
´ Environmental and
climate impact
´ Quality management
´ Cost-efficiency
´ Ethical trading policies
and sustainable sourcing
´ Developing long-term
relationships
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
We treat our suppliers as
an extension of our business
and therefore expect them
to uphold the same high
assessing the Group’s culture. These insights
standards we set for
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 the
current and future potential leadership team.
At a local level, leadership teams use
ourselves. To achieve this,
we are in constant dialogue
with our suppliers to address
any issues and maintain
productive relationships.
Our next step, targeted for
the end of 2021, is to widen
our Morgan Code (a set of
feedback from ‘pulse’ surveys, focus groups,
principles which govern
pilot groups, manager one-to-one
how we conduct business) to
conversations and employee communications
include a new supplier code.
to shape engagement activities with employees.
Company to ensure the
pension scheme is fully
funded and any deficit
reduction plan is
maintained
´ Our conduct as a socially responsible
environment
organisation
´ The positive impact we can have on the
community living and working around us
´ Employment opportunities
We engage both with current
Our aim is to have a positive impact on the
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.
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
look to understand each community’s
priorities and concerns. We also support
our employees’ involvement in their local
community, from charity giving to local
fundraising, and from volunteering
to health and wellbeing initiatives.
The COVID-19 pandemic has resulted in
a programme to ensure we are the right
size and fit for our key markets in the future.
A key principle of the programme has been
to keep our people informed and engage
them with the process. Although this has
sometimes involved difficult discussions, we
have worked productively with our people,
union representatives and others to keep
employee welfare and fairness at the centre
of our decision-making.
Morgan Advanced Materials | Annual Report 2020 WHO ARE OUR
STAKEHOLDERS?
WHY OUR
STAKEHOLDERS
ARE IMPORTANT
TO US
TO OUR
STAKEHOLDERS?
HOW WE
ENGAGE WITH
STAKEHOLDERS
EMPLOYEES
Anyone directly employed
by Morgan
SUPPLIERS
Those who have a
direct or contractual
relationship with us
PENSIONERS
AND
TRUSTEES
COMMUNITIES
Those who live in areas where
we work – for example residents,
businesses and charities
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.
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
and engage with them.
constructive dialogue.
We develop relationships with our customers based on mutual trust and
We have a diverse customer base across the globe, which we serve directly,
through joint venture partnerships and through 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.
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 the company it is today.
They are key to driving the brand 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.
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
impact on ourselves, our
suppliers, our customers
and the world around 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.
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.
WHAT MATTERS
´ Capital gain through share price
´ Reliable and consistent service
appreciation
´ Capital return via dividends
´ Profitability and business growth
potential
´ Quality of governance
´ Responsibility and fairness
´ Environmental, social and governance
(ESG) factors
We engage with our investors directly
through the formal presentation of results
and through biannual investor roadshows
(delivered on a virtual basis given the
environment in 2020). We also 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 and provides
guidance on ESG factors.
´ Quality products
´ 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
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 channels.
Our sales and service colleagues also keep customers updated on the
progress of manufacturing; sometimes working alongside the customer
to fine-tune the application engineering process.
We also gather key feedback from customers about the service we provide
and use this to help improve relationships and secure future business.
During 2020 our technology teams continued to make progress in the
development of new materials and products. Despite the pandemic, we
carried on working with our customers, providing new materials samples,
supporting product qualification, cooperating with strong application
engineering and introducing new products. Each of our global business units
has new products coming to market in the next 12 months, including in the
electric vehicles, healthcare, semiconductors and renewable energy markets.
´ The commitment of the
Company to ensure the
pension scheme is fully
funded and any deficit
reduction plan is
maintained
We engage both with 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.
´ Human rights
´ Environmental and
climate impact
´ Quality management
´ Cost-efficiency
´ Ethical trading policies
and sustainable sourcing
´ Developing long-term
relationships
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.
Our next step, targeted for
the end of 2021, is to widen
our Morgan Code (a set of
principles which govern
how we conduct business) to
include a new supplier code.
´ Meaningful roles linked to our purpose
´ Flexible working
´ Focus on wellbeing
´ Career development
´ A diverse and inclusive culture
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 the
current and future potential leadership team.
At a local level, leadership teams use
feedback from ‘pulse’ surveys, focus groups,
pilot groups, manager one-to-one
conversations and employee communications
to shape engagement activities with employees.
The COVID-19 pandemic has resulted in
a programme to ensure we are the right
size and fit for our key markets in the future.
A key principle of the programme has been
to keep our people informed and engage
them with the process. Although this has
sometimes involved difficult discussions, we
have worked productively with our people,
union representatives and others to keep
employee welfare and fairness at the centre
of our decision-making.
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 partnerships
that drive positive change and help build
a more sustainable future through the
development and application of advanced
materials.
´ 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
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
look to understand each community’s
priorities and concerns. We also support
our employees’ involvement in their local
community, from charity giving to local
fundraising, and from volunteering
to health and wellbeing initiatives.
05
Strategic reportMorgan Advanced Materials | Annual Report 2020 Chief Executive Officer’s review
“
In a year overshadowed by external
events I am very proud of how our
people have pulled together globally and
adapted to deliver for our customers,
and I remain confident in our strategic
direction and trajectory. ”
Pete Raby
Chief Executive Officer
2020 was a very challenging year,
with the COVID-19 pandemic
impacting every part of our
business. We saw the initial effects
in China in January, with our eight
plants in China closed for an
extended period over the Chinese
New Year holidays. This quickly
spread to Europe, the Americas,
wider Asia and the rest of the
world. During the first half of the
year, we saw a small number of
plants closed for multi-week
periods in each region as local,
regional or national governments
took steps to control the spread
of the virus.
MANAGING THE IMPACT
OF COVID-19
The safety of our people has always been our top
priority and our immediate focus at the outset
of the pandemic was to ensure their safety and
wellbeing, as well as the safety of our customers
and communities. We implemented a range
of measures at all our facilities to protect our
employees, including physical changes to layout
and people flow, social distancing, requirements
for additional protective equipment, and
additional hygiene, cleaning and disinfection
protocols. We introduced flexible working for
all roles that could do so, encouraging working
from home where possible.
1 am very proud of the way our employees have
responded through this crisis. They have shown
great professionalism and commitment, adjusting
quickly to new ways of working and looking out
for one another. It is with sadness that I report
that we have lost a small number of employees
to the virus, and many employees have lost
friends and loved ones. Our thoughts are with
them and their families.
ENVIRONMENTAL, SOCIAL
AND GOVERNANCE
We continue to work to reduce our environmental
impact and deliver robust environmental, social
and governance (ESG) practices.
We made further progress in reducing our
environmental impact during the year, with total
energy use reduced by 11%, total water use
reduced by 20% and total waste generation
reduced by 27%. These results were particularly
pleasing given the inefficiency caused by the
pandemic, as we had to stop and start our plants
more frequently, in addition to running with
lower levels of utilisation. Our percentage of
waste recycled declined to 51% (2019: 57%),
reflecting changes in product mix (as some
of our products have higher recyclable waste
than others).
In support of global efforts to reduce climate
change I am delighted that we have set an
aspiration as a business to reduce our CO2
emissions to net zero by 2050, in line with the
Paris Agreement, with a 2030 goal of reducing
CO2 emissions by 50%. We are a relatively
energy-intensive business (although our products
are designed to save significant amounts of
energy for our customers) and this will be a
big challenge for us, but it is one that we commit
to wholeheartedly.
From a safety perspective our performance was
mixed. Our lost-time accident rate1 worsened
to 0.18 (2019: 0.14) reflecting more lost-time
accidents (2020: 29, 2019: 27) and fewer hours
worked due to the reduction in business activity.
However, our accident rate2 improved to 2.46
(2019: 2.66). We remain focused on improving
our safety culture and performance through our
‘thinkSAFE’ programme, and in 2021 we will be
rolling out virtual training to our sites as part of
our work to improve behavioural safety.
We have continued to reinforce and embed
our ethical standards across the Group during the
year. We completed 38,400 training courses for
3,218 employees during the year covering our
Code of Conduct, anti-bribery and corruption,
anti-trust, cybersecurity and data protection, and
conflicts of interest. We also had 87 issues raised
by our employees through our ‘Speak Up’
hotline. We have completed investigations into
71 of those, with 16 still under investigation, and
for 34 we concluded that there was a substantive
issue and action has been taken as a result.
More details of our ESG performance and future
plans are included on page 11.
GROUP RESULTS
Trading conditions were very difficult during
the year, reflecting the impact of the pandemic
on global economies. We took rapid action to
reduce our discretionary cost base and focused
on protecting our cash position. We also
launched a restructuring programme during
the year to reduce capacity across the Group,
reflecting the sharp reduction in activity levels
and the expected lower medium-term volume
levels in the aerospace market in particular.
1. A lost-time accident (LTA) is defined as an accident
or work-related illness which results in one or more
days’ lost time.
2. Defined as total time lost due to health and safety
accidents in the year, divided by the number of
lost-time accidents reported in the year.
06
Morgan Advanced Materials | Annual Report 2020 Through this programme we are closing eight
manufacturing sites. We are ahead of our plans
and have increased our targets, aiming to deliver
structural cost reductions of £23m per year by
2022 for a cash cost of £30m.
Through our careful management of cost and
cash, and the implementation of our restructuring
programme, we have contained the profit
drop-through on the revenue decline to our goal
of around 30% and delivered an improved free
cash flow. Against this difficult market backdrop,
I am pleased with the resilient performance that
we have delivered as a Group.
The results show the improvements to our
execution following investment in our capabilities
over the last four years and the benefit of our
relatively diverse end markets.
´ Group revenue in 2020 was £910.7m, 13.2%
below the prior year at reported rates and
11.4% lower on an organic constant-currency
basis
´ The 2020 adjusted operating profit margin was
10.1%, a 270bps decline over the prior year
´ On a statutory reporting basis operating loss
was £(1.8)m and loss before tax was £(13.1)m
(see pages 32 to 40 for more details)
´ Group adjusted earnings per share* were
19.0p (2019: 28.0p)
´ Net capital expenditure was £28.6m (2019:
£54.9m), with investment focused on critical
health, safety and environmental improvements,
completion of inflight investment plans and
select efficiency improvements
´ Free cash flow* was £72.4m (2019: £59.2m)
´ Net debt* excluding lease liabilities* was
£101.0m, with a net debt* excluding lease
liabilities to EBITDA* ratio of 0.8x
Overall, our results demonstrate the
improvements we have made to the business
in the last five years. We are maintaining our
long-term investments in research and
development, sales and other infrastructure to
support the future growth of the business, and
we are well positioned to grow quickly and
expand our margins as our markets recover.
STRATEGY AND PURPOSE
Before the outbreak of the pandemic our
business performance was on track and our
strategy was delivering. We made further progress
with the implementation of our strategy during
the year:
´ We continued to enhance our sales
effectiveness, through further deployments
of our customer relationship management
(CRM) tool, its integration into our sales and
pipeline management processes, completion
of sales training and further pricing work.
´ We have continued to progress our
technology and product developments,
with new products in early-stage trials with
a number of customers. We have seen
some delays to new product launches as our
customers were impacted by the pandemic,
but we expect those to pick up pace in 2021
as markets recover.
´ While plant activity has been somewhat
disrupted, we have made further improvements
to operational performance and operating
costs through the deployment of lean
production techniques, Kaizen events and
procurement improvements.
´ We have completed our in-flight leadership
development programmes with a very
successful series of virtual events, and
completed a number of key appointments
to strengthen our leadership teams.
Given today’s uncertain global outlook, however,
we recognise the importance of agility and we
remain alert to the myriad of short and long-term
changes that could impact our business. We are
also guided by our purpose: a purpose which is
increasingly relevant, and guides our decision-
making and approach to business, and a purpose
which is helping us to better engage our people.
OUTLOOK
Looking forward, we saw order momentum
improving steadily during the fourth quarter
of 2020 and we are expecting the business to
return to growth from the second quarter of
2021, with the pace of recovery dependent on
vaccination progress and virus containment in
the large industrial geographies. Morgan is well
placed to grow over the medium term, as the
benefits of our capability investments support
faster growth and margin expansion, with
margins further supported by the structural
cost reductions we are delivering through our
restructuring programme.
Our technology teams have continued to make
progress with the development of new materials
and products. We are working with our
customers, providing new materials samples,
supporting product qualification and facilitating
the introduction of new products. Each of our
global business units has new products coming
to market in the next 12 months, including in the
faster growing clean transportation, healthcare,
semiconductor and clean energy markets.
I would like to thank our employees for their
engagement, care and support in 2020. On
behalf of everyone at Morgan, I hope that you,
our shareholders, and your loved ones keep safe
and healthy as we navigate these extraordinary
times.
Pete Raby
Chief Executive Officer
STRATEGY AND PURPOSE
We have a strategy to make sure
that we are the leaders in our
field, with the customer and
materials insight to apply our
capabilities quickly and effectively.
OUR STRATEGY
Our strategy builds on our strengths and
focuses the Group on scalable businesses in
attractive markets, and on the development
of three core capabilities:
us
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t
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n
RELIABLE
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OUR PURPOSE
Our purpose is to use advanced materials
to make the world more sustainable, and to
improve the quality of life. 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 deliver on our purpose through the
products that we make and the way that
we make them.
´ We improve the quality of life by
supporting medical diagnostics with
our power tubes in medical scanners.
Our feedthroughs are at the core of
cochlear implants and our seals are
used in blood pumps. These products
transform people’s lives.
´ Our products help keep people safe.
We are proud to design fire protection
in everything from cars to tunnels, and
ships to oil platforms.
´ We design and manufacture our
products to help customers save energy.
´ Our carbon brushes are integral to wind
turbines and power generators and
enable electrified rail transport. Our
ceramic rollers are used to make
thin-film solar panels, our insulation is
used in solar towers and steam turbines,
and our ceramic cores are used to make
more efficient industrial gas turbines.
These are all products which promote
a more sustainable and environmentally
secure future for our planet.
07
Strategic reportMorgan Advanced Materials | Annual Report 2020
Business model
Our strategy builds on our
strengths and focuses the
Group on scalable businesses
in attractive markets.
We have three core
capabilities:
´ Materials science
´ Application engineering
´ Customer focus
We serve markets that are
growing and where we have
room to grow, and where
our customers value our
differentiated products
and services.
The Group’s products are
produced within two global
divisions and five global
business units.
Thermal Products division,
organised in two global
business units:
Carbon and Technical
Ceramics division,
organised into three global
business units:
´ WE SUPPORT THE
UNITED NATIONS
SUSTAINABLE
DEVELOPMENT
GOALS
´ OUR ASPIRATION
IS TO BE A CO2 NET
ZERO BUSINESS
BY 2050
08 Morgan Advanced Materials | Annual Report 2020
Our purpose is to use advanced materials to make the world more sustainable, and to improve the quality of life. 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 capability and process knowledge to solve customer problems and deliver on our purpose.We utilise our distinct competencies…Thermal CeramicsMolten Metal SystemsElectrical CarbonSeals and BearingsTechnical Ceramics Our thermal products
are used in high-temperature
industrial processing of
metals, petrochemicals,
cement, ceramics and glass,
and by manufacturers of
equipment for automotive,
marine, aerospace, and
domestic applications in
insulation and fire protection.
Our electrical carbon
products are used in the
rail industry, for power
generation, in the mining of
iron and steel and to enable
wind power generation.
Our seals & bearings
products are used in pumps
for industrial and domestic
use, or other sealing
applications. We use advanced
carbon/graphite, silicon
carbide, alumina and zirconia
materials to engineer
lightweight, low-friction
bearings and seals.
Our technical ceramics
products are used in selected
segments of the electronics
and semiconductor, energy,
healthcare, industrial,
petrochemicals, security and
transport markets, typically
in close collaborative
customer relationships.
We manufacture advanced
ceramic materials, products
and systems for thermal
insulation in high-temperature
environments.
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.
We manufacture an
extensive range of high-
performance, energy saving
crucibles and foundry
consumables for non-ferrous
metal melting applications.
We produce 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.
We create high-performance
self-lubricating bearing
and seal components, used
predominantly in pumps.
We engineer high-
performance functional and
structural ceramic materials,
components and
sub-assemblies to address
customer-specific technical
challenges.
The economic value we
generate includes wages to
our people, purchases from
local and global suppliers,
taxes, and dividends, in
addition to indirect benefits
from expenditure by our
suppliers, customers and
employees.
Societal benefits come from
our treatment of our people
and communities, and the
interaction we have with
our environment through
the products we design and
manufacture, (products
which make more efficient
use of resources and can
improve the quality of life).
TO FIND OUT HOW
our people work with our communities
visit our website at www.
morganadvancedmaterials.com/community
TO FIND OUT MORE
about our products and services visit
www.morganadvancedmaterials.com/
whatwedo
Morgan Advanced Materials | Annual Report 2020 09
To service markets ranging from industrial to healthcare.Our products deliver on our purpose...Contributing to the economy and supporting an improved society for our people, customers, and investors. Strategic report NON-FINANCIAL INFORMATION STATEMENT
The information which follows is intended to
explain our non-financial information, the
relevant Group policies, the due diligence
processes we follow to embed these policies
and their effectiveness.
Our business model on pages 8 and 9 provides
an insight into the key resources and relationships
that support the generation and preservation of
value within Morgan.
ENVIRONMENTAL
MATTERS
EMPLOYEES
Policies
Our Environmental 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, and
the aim to maximise the positive impact
of our products. Detailed information
on implementation of our Environmental
Policy is set out on pages 12 to 15 of the
Sustainability and Responsibility section.
The EHS Policy is designed to
promote a culture of zero harm
for our employees, contractors and
visitors and to pro-actively eliminate
and control health risks.
A detailed description of our safety
programme and safety performance
is set out on pages 16 and 17 of the
Sustainability and Responsibility section.
The Group has an overarching policy
designed to attract, retain and engage
talented people and support an
inclusive, safe and ethical workplace.
The Group policy is supplemented by
a wide range of detailed policies specific
to the business or jurisdiction.
SOCIAL MATTERS We do not have formal policies
on community engagement, but
employees are encouraged to support
their community through a range
of activities, for example volunteering
and fundraising for good causes.
HUMAN RIGHTS
Our Human Rights Policy establishes
our commitment to protect the human
rights of everyone who works for
the Company and all those who have
dealings with us. Supplemented by
the Morgan Code.
ANTI-BRIBERY
AND ANTI-
CORRUPTION
Bribery Corruption and Facilitation
Policy, Ethical Trading Policy, Conflicts
of Interest Policy, the Morgan Code.
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.
More information on the policies and
processes to prevent bribery and
corruption are contained on page 23
of the Sustainability and responsibility
section.
Related principal risks
See pages 26 to 31
of the Risk Management
section.
See page 28 of the Risk
Management section.
The attraction, retention
and engagement of
people is not considered
a principal risk.
Although not a principal
risk, social risk, and
specifically potential
difficulties in recruiting to
replace an ageing direct
workforce in parts of the
business, is an emerging
risk. See page 26 of the
Risk Management section.
See page 31 of the Risk
Management section.
See page 31 of the Risk
Management section.
Due diligence in pursuance
of policies
Outcome of policies and
impacts of activities
´ Data gathering on GHG emissions
and our environmental KPIs
´ Our submission to CDP
´ Annual self-certification
´ Internal audit processes.
´ Audits under the EHS programme
´ Annual self-certification process
´ ‘Speak Up’ hotline
´ All other applicable regulatory
reporting.
A detailed description of the methods
used to support the Group’s people
policies is set out on pages 18 to 21
of the Sustainability and Responsibility
section.
Activities are reported internally,
including on our social media
platforms.
´ Monitoring of compliance with
the Morgan Code.
´ Due diligence processes associated
with new suppliers and our supply
chain.
´ Publication of our Modern Slavery
Statement on our website.
´ More information is contained on
page 23 of the Sustainability and
Responsibility section.
´ Detailed procedures in place
designed to prevent anti-bribery
and anti-corruption, supported by
explanatory manuals and the ethics
& compliance programme of work.
´ Regular training for relevant
employees is undertaken.
´ Any reports of breaches in
compliance are investigated,
reported to the Audit Committee
and appropriate action is taken.
´ A description of the control
environment, the internal audit
function and the processes for
the review of investigations by
the Audit Committee are set out
in the Report of the Audit
Committee on pages 58 to 62.
See pages 12 to 15 of the
Sustainability and Responsibility
section for information on our
GHG emissions, and progress in
2020 in respect of CO2 intensity,
total energy use, water use and
withdrawal. and waste intensity
and waste generation.
Minimising our environmental
impact helps us to attract talented
employees and to win new business
from customers.
Our KPI in relation to Lost Time
Accident Frequency is set out on
page 25.
Our safety performance is set out
in detail on pages 16 to 17 of the
Sustainability and Responsibility
section.
Our performance in relation to
our KPI on employee retention
is set out on page 25.
Our workforce composition and
information on gender diversity
is set out on page 21.
Employees are more motivated
and feel connected to their local
environment. The local community
supports Morgan and views us
as a responsible employer.
No incidents of human rights abuse
or modern slavery were identified
during 2020.
During the year 3,218 relevant
employees participated in the
Group’s ethics e-learning
programme, which included specific
training modules on bribery and
corruption. A 99% completion
rate was obtained.
87 reports were made to the
Group’s whistleblowing hotline
during 2020, including reports
on concerns relating to potential
unethical conduct. The reports
varied in their nature and materiality,
with certain matters requiring the
support of external advisers and
giving rise to disciplinary action
against employees for breaches
of Group policies.
10
Morgan Advanced Materials | Annual Report 2020Sustainability and responsibility OUR APPROACH TO ENVIRONMENTAL, SOCIAL AND GOVERNANCE
As we further develop our
management of environmental,
social and governance (ESG)
factors, we have appointed a
Group Director responsible for
environment and sustainability.
That individual leads our efforts
to define priorities, set targets,
establish plans and track and
communicate progress.
TO FIND OUT MORE
about our commitment to the
UN Sustainable Development Goals visit
our website at www.
morganadvancedmaterials.com/UNSDG
ESG PRIORITIES
At the end of 2020, the Group Executive Team
went through a process to define Morgan’s ESG
priorities through to 2030. In order to identify
material and emerging issues we performed a
dual materiality assessment that included a review
of more than one hundred ESG topics and
provided an opportunity for our employees to
express their views via a survey. Dual materiality
speaks to the fact that risks and opportunities can
be material from both a financial and non-financial
perspective. The internal insights gleaned were
then mapped against external stakeholder priorities.
These were captured through a comprehensive
data-driven process for monitoring external risks,
including peer corporate reports, mandatory
regulation, voluntary regulation, and public opinion
gathered from news and social media outlets.
These inputs were used by the Executive Team
and the Board to define our ESG priorities
(as shown below):
Moving forward, we are using real-time
analytics on strategic, regulatory and
reputational risks and opportunities,
to strengthen our understanding of ESG,
geopolitical, technology and emerging issues.
Everything we do is underpinned by the
highest ethical standards.
In the latter part of 2020, we introduced
energy teams to many of our sites, allowing
us to continually review and improve upon
our position. These teams are looking to
further reduce Scope 1 and 2 Greenhouse
Gas emissions as part of our emission
reduction programme. From 2021, GHG
emissions will be tracked and reported
monthly. We are also looking to develop
strong relationships and a collaborative
approach with suppliers to focus on Scope 3
emissions (raw materials emanating from
our supply chain).
Our aspiration
Our 2030 goals2
PROTECT THE
ENVIRONMENT
A CO2 net zero business
by 20501
Use water sustainably across
our business
50% reduction in Scope 1
and Scope 2 CO2 emissions2
30% reduction in water use
in high and extremely high
stress areas
30% reduction in total waste
usage
PROVIDE A
SAFE, FAIR AND
INCLUSIVE
WORKPLACE
1 Excludes indirect emissions generated
2 Reduction targets shown are compared
by our supply chain, distribution
network and employee travel.
to a 2015 baseline.
Zero harm to our employees
A workforce reflective of the
communities in which we
operate
A welcoming and inclusive
environment where employees
can grow and thrive
0.10 lost time accident rate
40% of our leadership
population will be female
Top quartile engagement
score
11
Strategic reportMorgan Advanced Materials | Annual Report 2020 ENVIRONMENT
At Morgan 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.
With our purpose at the heart
of what we do, we are dedicated
to helping our customers manage
and reduce heat, enabling
green energy generation and
electrification for cleaner public
transport, and reducing CO2
emissions.
Morgan’s products can be found in a number of
renewable technologies today. For example, our
Electrical Carbon business has partnered with
customers in the wind power market to produce
customised parts and bespoke systems which
operate more efficiently, while reducing overall
maintenance and costs.
In the US, our Technical Ceramics teams in
Massachusetts and California have collaborated
to eliminate TCE, an industrial solvent previously
used in cleaning parts. Through this effort
we have reduced our environmental impact,
improved working conditions for our people and
removed a significant volume of raw materials
from the process.
How we use resources matters to us. As part of
our aspiration to be a net zero CO2 business by
2050, in line with the Paris Agreement, we have
set an intermediate goal to reduce our absolute
scope 1 and 2 CO2 emissions by 50% by 2030.
We have ambitious water use reduction goals,
targeting a 30% reduction in total water use by
2030, and a 30% water use reduction in areas
of high and extremely high water stress by 2030.
We have programmes in place to deliver against
these goals and have additional targets in place
for waste reduction and recycling.
TO FIND OUT MORE
Visit our website to learn more about
how we are becoming a more sustainable
business www.morganadvancedmaterials.
com/sustainablebusiness
50% reduction
In support of global efforts to
reduce climate change, we have
made the commitment to reduce
our Scope 1 and 2 CO2 emissions
by 50% by 2030, as part of our
aspiration to be a net zero CO2
business by 2050. As a relatively
energy-intensive business this
presents a huge challenge for us,
but we are committed to improving
our environmental impact.
12
OUR PROGRESS IN 2020
Our approach to sustainability continues to
evolve as we encompass more and more
elements related to our operations, processes
and products.
The Group achieved improvements (as compared
to 2019) in the following environmental metrics:
´ CO2 intensity improved by 4% and absolute
CO2 reduced by 15%.
´ Total energy use reduced by 12%, with
a 1% reduction in overall energy intensity.
´ Water use intensity improved by 8%, while
total water withdrawal was reduced by 20%.
´ Waste intensity improved by 17%, while total
waste generation improved by 27%.
However, as a Group we did not achieve our full
recycling targets in 2020. Total recycling efforts
were reduced from 56% in 2019 to 50% in
2020. Our efforts were in some part dampened
by the COVID-19 pandemic, resulting in
restricted recycling opportunities (for example,
some recycling providers ceased operating)
across the globe. It is also the case that during
the pandemic several of our sites were shut
down temporarily, resulting in less waste
generation, less energy use and less water usage.
As part of our continuous improvement
commitment in environmental management,
we apply ‘lean’ principles to our processes,
resulting in year-on-year improvements in all
Group environmental metrics. We are constantly
evaluating and improving our operations to
optimise energy efficiency, and we are reducing
our overall consumption of fossil fuels and
standard electricity through the utilisation
of renewable energies.
USE OF ENERGY IN OUR
MANUFACTURING
During 2020 we focused on driving energy
efficiency improvements within our operations
through process efficiency. Sites continued
converting fluorescent and high-energy intensity
lighting to LED lighting. Furnace melt efficiency
and heat containment within our kilns, furnaces
and ovens also improved. Overall, these projects
have not only provided an increase in energy
efficiency but have also led to enhanced safety
and a lower environmental impact.
Furthermore, instead of relying on master-
metering systems, we invested in and installed
additional energy meters. This approach allows
us to monitor individual buildings and energy-
intensive equipment in order to identify efficiency
improvements, target energy use reductions and
identify retrofitting opportunities.
Morgan Advanced Materials | Annual Report 2020Sustainability and responsibility WATER FOOTPRINT
We are reducing our water usage through
investment and employee engagement
programmes.
Based on a three-year average (2018-2020),
our Thermal Ceramics site in Augusta, Georgia,
US accounts for 44% of all water use across the
Group. In 2020 we therefore introduced an
improved water monitoring system, which has
allowed us to better track and control high water
use areas within the site. We have invested in
and installed additional water meters, improving
efficiency and water recycling opportunities. This
one site has reduced its absolute water use (m3)
by 51% and water intensity (m3/£k) by 42% as
compared to 2016.
At our facility in Stourport, UK water used in
production processes comes from on-site wells.
After engaging engineers to evaluate and control
the amount of water used by each process, total
water usage has been brought down by 20%.
Water flow (used to cool our presses) is down
by 30% as compared to 2019. Even greater
reductions are expected in 2021 when the
additional controls see a full-year effect.
Our CDP (a global disclosure organisation for
investors, companies, cities, states and regions)
Water Security submission, available at
www.cdp.net, contains extensive disclosure
on our water risks, opportunities, impacts and
mitigating actions.
To further preserve our natural resources and
reduce our environmental impact, we are also
focusing on water reductions in areas of high or
extremely high-water stress. Water withdrawal
in water stress areas accounts for 5-6% of our
total water withdrawals. Water management
plans will be integrated into regular facility
assessments to proactively engage our workforce
in reduction activities in order to address
water-related issues within the watershed
of these local communities.
WASTE
Waste generation improvements have been
made at several sites, through an increased focus
on waste segregation and by improving waste
by category. This allows each site to better
understand its waste streams in order to evaluate
improvement opportunities. With a continued
focus on improvements in production scheduling,
and improved planning during production trials,
in 2020 our businesses reduced waste intensity
by 18% compared to 2019, with an overall waste
generation reduction of 27% (on an absolute
basis).
In 2020, a ‘Go Green’ initiative was set up by our
UK Seals and Bearings business, to drive lasting
change and improvements in our environmental
accountability. From reduced energy use, to
switching to recycled options and implementing
overall waste reduction, the team is working
hard to make positive changes to their approach.
Since introducing the recycling programme at our
Stourport facility, 3.9 tonnes of waste have been
diverted from landfill. Additionally, the site added
further recycling bins to support and give back
to the community.
WATER
Water Withdrawal (million m3)1
Water Use Intensity (m3/£m)2
Water Consumption (million m3)1
Water Consumption Intensity (m3/£m)2
2,313
2,097
1,790
1,646
955
593
613
609
2.32
0.96
2.17
0.61
1.88
0.64
2017
2018
2019
1.50 0.57
2020
1. Water from all sources, including process, irrigation and
sanitary use.
2. Constant-currency* revenue basis, updated to reflect
clarifications and changes in reporting methodology to
ensure year-on-year consistency.
WATER WITHDRAWAL IN STRESSED AREAS
Water Withdrawal (million m3)1
Water Consumption (million m3)1
TO FIND OUT MORE
Our CDP, Water Security submission,
available at www.cdp.net, contains extensive
disclosures on our water risks, opportunities,
impacts and mitigating actions.
0.112
0.080
2017
0.111 0.079
2018
0.110 0.076 0.109 0.077
2019
2020
1. Water from all sources, including process, irrigation and
sanitary use in countries of high and extremely high water
stress as identified by the World Resource Institute.
WASTE
Waste Generation (metric tons)
Waste Intensity (metric tons/£m)1
46.0
45.1
47.1
39.2
45,171
2017
46,605
2018
48,676
2019
35,660
2020
1. Constant-currency* revenue basis, updated to reflect
clarifications and changes in reporting methodology to
ensure year-on-year consistency.
RECYCLE
Recycle (tonnes)
Recycle (% of total waste)
ENERGY
Energy Use (GWh)1
Energy Intensity (MWh/£m)2
1,145
1,142
1,080
1,092
54
55
56
50
1,147
2017
1,180
2018
1,134
2019
994
2020
24,599
2017
25,457
2018
27,351
2019
17,847
2020
1. Energy from all sources.
2. Constant-currency* revenue basis, updated to reflect
clarifications and changes in reporting methodology to
ensure year-on-year consistency.
1. Energy from all sources.
2. Constant-currency* revenue basis, updated to reflect
clarifications and changes in reporting methodology to
ensure year-on-year consistency.
13
Strategic reportMorgan Advanced Materials | Annual Report 2020 ENVIRONMENT continued
GREENHOUSE GAS EMISSIONS
Morgan’s greenhouse gas (GHG) emissions,
such as carbon dioxide (CO2), 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,
i.e. carbon dioxide equivalents (CO2e).
The Group uses emission factors for standard
grid electricity by country and year from the
International Energy Agency, together with
other factors published by the UK Department
for Environment, Food and Rural Affairs,
to calculate the CO2e emissions included
in this Report.
SINGLE-USE PLASTIC
In the second half of 2020, our global
Thermal Products division launched an
initiative to phase out approximately
500,000 single-use plastic bottles.
Sites installed purified drinking water
stations and provided our people and
contractors with refillable drinking
bottles to drive this initiative.
To standardise and provide transparency in our
reporting, we report GHG emissions for all our
manufacturing operations, but provide minimal
tracking of our sales offices and warehouses
as these have a comparatively small carbon
footprint. We disclose our emissions from the
combustion of biomass (both process and fugitive
emissions) in addition to our emissions from
energy use. Our reporting includes the material
emission sources from the operations and
activities covered by the Group’s consolidated
financial statements, but excludes emissions
from Company-owned and -leased vehicles and
emissions relating to steam supplied by third
parties to two sites in China and one in Europe
(estimated to account for less than 1% of total
emissions).
We continue to report climate data to CDP and
were awarded a ‘C’ (awareness) score in 2020,
in the climate category. Our score dropped
from a ‘B’ (management) the previous year.
A few reasons for the drop in score were noted
as our emission reduction target was mistakenly
assigned as 2018 instead of 2015 and we did not
mention adoption of a science-based approach to
target setting and/or set a specifically noted SBTi
approved target(s). This will be our focus in 2021.
We reported we have target(s) to increase
low carbon energy consumption/production,
however we did not provide specific details as
to what those are. Additionally, we must disclose
and report on the % of revenue earned from
low carbon product(s). For detailed information
on how we calculate our carbon footprint,
including Scope 1 and 2 emissions, please
download our Climate Change Disclosure
statement available at www.cdp.net. Our CDP
climate submission also contains extensive
disclosures on our climate risks, opportunities,
impacts and mitigating actions.
Ongoing modernisation and optimisation
initiatives are helping to further reduce our
carbon footprint. We are pleased to report that
our absolute GHG emissions (~Scopes 1 and 2)
are down by 22% compared to 2018 levels and
15% compared to 2019 levels. The composition
of our carbon footprint is shown in the table below.
Metric
1
Tonnes CO2
Scope 1
Scope 22
Total
Total Energy
(MWh)
Intensity
(metric tonnes
CO2/£m)3
2018
2019
2020
163,866
202,289
366,155
149,084 125,048
185,499 160,126
334,583 285,170
1,161,389 1,112,597 988,962
356
319
305
1. For Scopes 1 and 2 we report our CO2 emissions
only, not other GHG emissions as these are not
material. Carbon emission factors are used to
convert energy used in our operations to emissions
of CO2. Carbon emission factors for fuels are
provided by the Intergovernmental Panel on Climate
Change (IPCC). We report our emissions with
reference to the latest Greenhouse Gas Protocol
Corporate Accounting and Reporting Standard.
Emissions are excluded from steam supplied by
two sites in China and one in Europe.
2. Carbon emission factors for grid electricity are
calculated according to the ‘location-based method’,
which reflects the average emissions intensity
of the grids on which energy consumption occurs
(using mostly grid-average emission factor data).
3. For manufacturing, we have selected an intensity
ratio based on sales (constant-currency basis).
This aligns with our longstanding reporting of
manufacturing performance. Emissions from the
combustion of biogenic fuels (biomass, coffee husks
etc.) within our operations are reported separately
to other Scope 1 and 2 emissions, as recommended
by the GHG Protocol, and are excluded from our
intensity ratio calculation. The data also excludes
Scope 3 emissions, and emissions from Company-
owned and leased vehicles.
14
Morgan Advanced Materials | Annual Report 2020Sustainability and responsibility STREAMLINED ENERGY
AND CARBON REPORTING
We comply with the Streamlined Energy and
Carbon Reporting (SECR) requirements.
We also support the recommendations of the
Financial Stability Boards Taskforce on Climate-
related Financial Disclosures (TCFD) and will
be taking action to implement these.
The table below represents our energy use
and associated GHG emissions from fuel and
electricity in the UK for the 2018, 2019 and
2020 reporting years, in compliance with the
mandatory reporting requirements by the
UK Government’s SECR policy. The scope of
this data includes six manufacturing sites and
two non-manufacturing sites based in the UK.
In 2020, the UK accounted for 4% of our global
total Scope 1 and 2 emissions, as outlined in
our mandatory GHG reporting. Our absolute
GHG emissions (Scopes 1 and 2) for our UK
operations were down by 22% compared to
2018 levels and 11% compared to 2019 levels.
UK OPERATIONS
Biogas (MWh)
Natural Gas
(MWh)
LPG (MWh)
Fuel Oils (MWh)
Coal (MWh)
Standard
Electricity
(MWh)
Green
Electricity
(MWh)
Total (MWh)
Total Scope 1
Emissions
(tonnes CO2)
Total Scope 2
Emissions
(tonnes CO2)1
Total Emissions
(tonnes CO2)
2018
0
2019
2020
0
0
45,661
23
0
0
42,210
31
0
0
36,253
24
0
0
17,705
16,894
986
215
63,604
200
59,245
14,687
51,434
8,380
7,750
6,670
4,919
3,818
3,657
13,299
11,568
10,324
1. Carbon emission factors for grid electricity are
calculated according to location-based method.
OUR POLICIES AND PROCESSES
Morgan’s Environmental Policy sets out the
Group’s commitment to protect and enhance
the environment, to minimise the environmental
impacts of our activities and to maximise the
positive effects of our products and services. Our
Policy is regularly reviewed and is communicated
across all sites within the Group and is applied
to all businesses worldwide.
Our manufacturing processes have environmental
impacts arising from the consumption of
resources, air emissions, waste generation
and water discharge. We seek to minimise
these impacts and to go beyond minimum
legal requirements, by focusing on continuous
improvement and establishing certified
environmental management systems (EMSs) at
our operating facilities. Our policy and framework
set minimum standards and provide guidance
on what is expected of our sites. The policy
is regularly reviewed, and our priorities are
communicated across all sites within the Group
and applied to all businesses worldwide.
Environmental performance is managed at the
local level, with top-level oversight by the Group.
Guided by our Policy, designated EHS personnel
are responsible for compliance with local laws
and regulations and for facilitating continuous
improvement at a site level. The Chief Executive
Officer, global business unit leadership teams
and site management teams are responsible and
accountable for environmental performance.
There are environmental leaders and resources
in each of the global business units. Our Group-
level environmental management processes
include a monthly review of performance
and progress in the implementation of our
improvement plans by the Executive Committee
and business leaders, and regular review of
performance by the Board. An audit programme
is conducted against the environmental
framework, systems and KPIs with a focus
on high-risk items.
25% reduction in fossil fuels
We have taken part in the CDP global
disclosure programme since 2010. During
those ten years we have taken steps which
have resulted in a reduction of our CO2
from fossil fuels by 25% across the Group.
15
Strategic reportMorgan Advanced Materials | Annual Report 2020 HEALTH AND SAFETY
We are committed to
conducting all our activities
in a manner that achieves
high standards of health and
safety for all employees and
stakeholders. Our aspiration is
‘zero harm’ to our employees.
Preventing fatalities and serious
injuries continues to be a focus.
We are pleased to report that
we have had no employee or
contractor fatalities in the past
five years.
TO FIND OUT MORE
Visit our website to find out more about
how we operate and our safety policies
www.morganadvancedmaterials.com/
safety
WORKING SAFELY DURING
THE PANDEMIC
Although our teams have now settled into new
ways of working, we have not lost sight of the
requirement to always work safely. Every action
we take has this ethos at its core.
We have put in place stringent physical and
procedural COVID-19 control measures to
ensure the safety of our people, contractors
and visitors. Every Morgan location provides
a COVID-19 secure environment, in line with
World Health Organization and local
jurisdictional guidance.
In 2020, we were also able to continue our
more established global employee involvement
activities and delivered three Group-wide
employee training topics: manual handling,
challenging positively and ‘We care, we check’.
All of these activities were delivered safely with
COVID-19 measures in place, utilising virtual
learning where possible and social distancing
and enhanced cleaning measures when delivered
face to face. The activities were well received
by our people and we achieved, for example,
85% completion of our Q2/3 safety topics.
Our traditional safety week was adapted to
become a COVID-19 secure safety week. Teams
engaged in a week of virtual activities, daily prize
draws and ‘thinkSAFE’ bingo. Our people spent
time learning about a host of safety topics, from
workplace fatigue to driving safely and education
on Morgan’s support of the UN Sustainable
Development Goals.
Our site teams also pulled together to provide
additional supplies of non-medical face coverings
for some locations at the start of the pandemic.
In-house teams used their facilities to manufacture
face coverings and distributed them to other
sites within the Group and externally. These
were greatly appreciated by our people and
organisations in our communities.
Despite the pandemic, we have continued to
investigate near misses proactively and generated
a safety alert focusing on high-risk activities
related to COVID-19. As the pandemic moved
across the world, so did this focus. We began
in our Chinese and Korean facilities and
subsequently rolled out to the wider population
in Europe and the Americas. The safety alert
generated a number of actions that have been
appropriately verified and closed, while others
are planned for completion in 2021.
OUR 2020 PERFORMANCE
Our key metric, the lost-time accident (LTA) rate
(namely, the number of LTAs per 100,000 hours
worked) increased to 0.18. There was a rise
in the number of LTAs (+2 vs 2019), but they
resulted in a greater LTA rate due to the lower
working hours.
We have performed well against leading indicator
metrics. Our near miss reporting has been
maintained (2.9 per employee vs target of 2.5),
our site ‘find/fix it’ programmes have been very
successful with a 99% action closure rate,
our audit action closure rate was 84%, and all
businesses achieved their visual safety leadership
targets.
The Group’s lost-time accident frequency in
2020 was 0.18 (2019: 0.14). The number of
reported LTAs in 2020 increased to 29 (2019: 27).
Lost-time
accidents 1
Number of LTAs
Lost-time
accident
frequency 2
LTAs1/100,000
hours worked
2020
2019
2018
2017
29
27
42
73
0.18
0.14
0.22
0.38
1. A lost-time accident (LTA) is defined as an accident
or work-related illness which results in one or more
days’ lost time.
2. Defined as total time lost due to health and safety
accidents in the year, divided by the number of
lost-time accidents reported in the year.
16
Morgan Advanced Materials | Annual Report 2020Sustainability and responsibility POLICY GOVERNANCE
Governance of Policy is achieved through
performance monitoring and the management
and mitigation of identified risks, to drive
continuous improvement in our health and
safety performance.
We are committed to providing effective
leadership in pursuit of a safe and healthy
workplace. The Chief Executive Officer,
global business unit leadership teams and site
management teams are responsible and
accountable for health and safety performance.
The Group’s Health and Safety Director is
responsible for Group direction and the oversight
of the Group’s strategic programmes. There
are health and safety leaders and resources in
each of the global business units and their locations.
Our Group-level processes include a monthly
review of performance and progress in the
implementation of our improvement plans by
the Executive Committee, and regular review
of performance by the Board.
‘THINKSAFE’ – OUR BEHAVIOURAL
SAFETY PROGRAMME
At the outset of 2020 our focus was the global
rollout of our ‘thinkSAFE’ programme refresh,
emphasising our five commitments to safety. The
programme (delivered predominantly through
group activities) aimed to positively impact our
behaviours and drive improved decision-making
to reach our aspiration of ‘zero harm’. As the full
implications of the global pandemic became
known, however, we paused this refresh. It is
restarting in a COVID-19 secure way in 2021.
POLICY AND FRAMEWORK
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.
There are a number of key sub-policies.
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.
TO FIND OUT MORE
Visit our website to find out more about
our Health and Safety Policy
www.morganadvancedmaterials.com/policy
2021 FOCUS
We have developed and agreed to
a five-year health and safety plan
that will drive us towards achieving
our aspiration of ‘zero harm’. The
programme focuses on two areas:
1. ACHIEVING CULTURAL MATURITY
PRIORITIES FOR 2021
´ ‘thinkSAFE’ refresh – developing
and delivering a number of pilot
sessions using COVID-19 secure
methods and virtual learning. After
learning from the pilot, we will roll
out the programme globally.
´ Capability – we are focusing on
strengthening our technical health
and safety teams, by providing
additional resources and enhancing
skills and competence through
coaching and training.
2. DRIVING RISK DOWN
Working with a third party, we are
constructing a framework and
methodology to further improve
our approach to managing health
and safety risks. We are working
hard to identify and control our
existing ‘known’ risks better, while
simultaneously working to identify
new risks.
SAFETY METRICS
The Group’s lost time accident
frequency in 2020 was
0.18
2019: 0.14
The number of reported LTAs
in 2020 increased to
29
2019: 27
Image taken at site during ‘safety week’.
17
Strategic reportMorgan Advanced Materials | Annual Report 2020
PEOPLE
Our people are responsible for
the culture and are the driving
force behind our success.
In return we aim to be an open
and engaging 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’.
We use our leadership
behaviours and the 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.
CULTURE
Our Board and governance systems, aligned
to our purpose, safeguard our approach. There
is commitment from both the Board and the
Executive Committee to demonstrating both the
leadership behaviours and the principles of the
Code, and this underpins the ‘tone from the top’.
In 2019, Board members met with our people
through site visits, development programmes and
engagement events. In 2020, due to COVID-19,
virtual site-based focus groups were created
to ensure the Board was still able to hear
direct feedback on our culture and employee
engagement.
The Board also received additional resources
to help measure and monitor our culture,
which included:
´ areas of culture highlighted in ethics reporting,
including any dismissals as a result of breach
of the Morgan Code
´ safety and environmental updates and
performance metrics
´ talent reviews with a focus on key talent
retention, employee turnover, diversity
and inclusion metrics and initiatives
´ updates on training and development
programmes – including ethics, leadership
development programmes and on-the-job
training.
The feedback is giving us a better picture of
our culture as a Group.
“
When a customer requested increased
volume during the coronavirus pandemic, the
site manager worked with the commercial
team, customer and operations team to scale
volume and deliver for the customer. It was
collaborative and engaging in the way the
teams came together, all helped by being on
the [leadership] programme.
“
18
PEOPLE POLICIES
We support the UN Universal Declaration of
Human Rights, and our Human Rights Policy
commits us to protect the rights of everyone
(who works for us) and all those who have
dealings with us. The principles of the Policy
cover child labour, forced labour, health and
safety, freedom of association, discrimination,
discipline, working hours and compensation.
The Policy is published on our website.
We do not unfairly discriminate, and we respect
human rights. Our employee policies are set
locally to comply with local law and are within
the overall Group framework. We operate
a ‘Speak Up’ hotline which enables individuals
who are aware of, or suspect, issues
contravening Morgan’s Human Rights Policy, or
wider concerns on policy adherence, to report
these confidentially. All issues are investigated,
individuals responded to, where contact
information is given and progress is tracked
to conclusion.
We have increased our use of internal social
media to reinforce messaging with employees.
UK GENDER PAY GAP REPORTING
We are continuing our efforts to improve
equality and transparency across the business.
The UK Government requires gender pay gap
reporting for companies with more than
250 employees. In 2020, the average gender
pay gap for our UK workforce was 19.4%
(2019: 21.5%, 2018: 18.6%, 2017: 24.7%).
Although we have achieved a year on year
improvement we recognise there is more
work to do in this area.
Our gender pay gap exists because a greater
proportion of our senior leadership is male;
however, the gap has decreased compared to
last year. We continue to work hard to increase
the number of women we employ, develop and
promote, to improve our gender balance and
to become a more diverse organisation. For
example, we ensure that our candidate lists are
diverse when hiring, and we also take gender
into consideration when selecting participants
for our development programmes.
We are proud that 30% of our leaders are female
which is higher than the percentage of women
in our workforce.
Morgan Advanced Materials | Annual Report 2020Sustainability and responsibility STRENGTHENING AND
ENGAGING OUR LEADERSHIP
TEAMS THROUGH ‘VIRTUAL’
LEARNING
HR Manager Monika is developing
her leadership skills remotely, using
our next-generation digital learning
system. Morgan’s new remote
learning programmes have provided
an accessible development
opportunity for leadership teams
in Morgan during 2020.
Monika commented on her recent
experiences: “Online learning has
helped me to develop my leadership
capability, teaching me how to
effectively articulate a vision that
motivates people and drives business
results.”
ATTRACTION AND RETENTION
We need to recruit a diverse range of
professionals to help solve our customers’
challenges, including materials scientists,
application engineers, functional specialists and
salespeople. We are evolving our strategies
for recruiting and developing talent, to promote
our culture and to ensure diverse representation
across the Group. This year, we have identified
diverse talent in disciplines which are historically
male dominated, assisted by an improved
capability for direct sourcing. Our successes
include hiring female engineers in Quality and
IT project management in the US, and female
European IT delivery leaders.
INCLUSION
We promote equal opportunities for all
employees and job applicants, and do not
unlawfully discriminate on the grounds of gender,
pregnancy/maternity leave, marriage/
civil partnership status, gender reassignment,
race, disability, sexual orientation, age, religion
or belief.
We make reasonable adjustments to
accommodate any employee who may have
a disability within the meaning of all global
equality legislation, and where the Company
is aware of such disability.
See our Board Inclusion & Diversity Policy
on page 54.
TO FIND OUT MORE
To hear from our people and find out
more about their stories, visit our website at
www.morganadvancedmaterials.com/
people
DEVELOPING OUR PEOPLE
We want every employee to perform at their
best, reach their full potential and feel rewarded
for what they do. In 2020 each employee received
on average 8.0 hours of training (2019: 14.1,
2018: 17.0 hours). Although our face-to-face
training per person has decreased (in part due
to the pandemic), we have widened our virtual
learning offering across our employee population.
Specific training on enhanced protective measures
to combat the COVID-19 has been prioritised.
In addition, we have provided wider access to
e-learning resources, which employees can utilise
on an ad-hoc basis to develop. These resources
are aligned to role and career aspirations.
We also identify and develop individuals with
the potential to take on bigger or more complex
roles in the future, and in 2020 we expanded
our succession planning scope. We continue
to review our senior leadership population,
as well as looking further down and across the
organisation. We identify successors with the
potential to take on senior or middle leadership
roles in the near term, as well as those individuals
(with potential) earlier in their career.
In 2019 we launched two global leadership
programmes – Catalyst and Ignite – to drive
greater global consistency in leadership behaviours
and improve alignment to our future capability
needs. In 2020 we adapted these programmes
to run virtually to enable the development
of participants to continue.
Participants having completed the programmes,
have developed greater alignment to our strategy
and purpose, have expanded their network and
are demonstrating enhanced leadership capability
and resulting business impact. Thirty-eight per
cent of participants have been promoted or have
expanded their roles thanks to their involvement
in the programmes. Externally we have also
received recognition, winning a Silver award
at the Learning Technologies Awards in
November 2020.
We have also continued to support leadership
and management development through
promotion of our global e-learning platform.
With significantly more of our people working
from home, use of this platform has increased
as a way to continue employee development.
Over a six-month period in 2020, over 1,200
courses were completed.
Our supervisor training is similarly being
upgraded to run virtually, or socially distanced
if face to face. In 2021, we will also increase
the support for line managers of programme
participants, to ensure that supervisor learning
is embedded, applied successfully in the
workplace and the return on investment realised.
19
Strategic reportMorgan Advanced Materials | Annual Report 2020 PEOPLE continued
REMOTE WORKING
AND LEARNING
Our Global Product Manager,
Gaurang, was one of the first to take
part in our new approach to learning,
adapted for the pandemic. Reflecting
on the realities of learning while all
your family is also working from
home, Gaurang shares his experience.
“We are living in an era of ‘forced
change’, so the idea of remote
learning sounded difficult at the
beginning. As we have slowly caught
up with the realities of the new
normal, the digital world has gained
more popularity. With each member
of my family occupying a different
room in our home to work virtually
every day it was difficult to start with,
but slowly we have acclimatised
ourselves.
When I was nominated for online
training, as part of my home-working,
I realised that this could be an
‘in-demand skillset’ and I was keen
to equip myself for the future. I found
the tool very flexible, allowing me
to learn at my own pace and challenge
myself with new chapter tests and
topics. My excitement of scoring
highly for each chapter motivated
me, as it reminded me of my
university days.
My nomination to the training,
alongside my fellow mentor group,
made me feel excited about the
journey. Throughout the experience
I have learned valuable project
management skills which will make
me more efficient and effective in
my project execution.”
PERFORMANCE MANAGEMENT
AND REWARD
Since 2020, all employees in professional
roles now participate in our globally consistent
performance management process. This process
measures both what is achieved and how it
is achieved, through assessment against our
leadership behaviours. We set clear expectations
for our leaders and managers, aimed at
driving a culture of constructive feedback, and
we provide development coaching to improve
performance in role. Our employees in
manufacturing roles follow a job-based approach
to setting expectations and feedback.
The principle of pay for performance underpins
our compensation approach and we set
compensation levels using external benchmarking
and relevant commercial considerations
(i.e. that are both competitive in the countries
in which they operate and affordable). We offer
short-term performance incentives globally to
managers and to technical and functional experts.
The Executive Committee and senior
management also have long-term incentives
tied to business performance. At manufacturing
site level, most sites offer incentives to their
people, with payments based on meeting
locally-set performance targets. We regularly
review bonus arrangements and benefits to
ensure they encourage and reward commercial
and personal performance.
ENGAGING OUR EMPLOYEES
Effective engagement enables our employees
to contribute to improving Morgan’s business
performance. We keep employees informed
about what is happening across the business,
including Company results, major business
decisions, and other matters which affect them.
We seek to maintain constructive relationships
with all trade and labour unions across the
geographies in which we work.
In 2020, the COVID-19 pandemic sharply
elevated the need for strong employee
communications and two-way feedback for our
people. As a result, we provided regular updates
using a variety of communication channels
and media, to keep our people updated on
our mitigating actions to deal with the pandemic.
Our principle has been to reach our people first
to discuss the impact on the business of what
is happening locally and globally. To address
any concerns at the height of the pandemic,
the executive team created personal videos,
recognising the situation as it unfolded.
20
To better understand how our people feel about
working at Morgan, we conduct formal biennial
employee engagement surveys. The overall
employee engagement score from our last
survey, in 2019, was 55%. Our people
highlighted that they wanted us to focus on
connecting them better with the direction our
Company is taking, on improving our
infrastructure to support greater collaboration,
and on supporting further career development.
In 2020 we therefore increased our efforts to
engage with employees and in 2021 we will be
communicating across the organisation on our
future direction and aspiration. In addition, virtual
development resources were made more widely
available and we also increased the variety of
materials available in other languages. In 2021, we
will conduct the next iteration of our engagement
survey to identify areas of improvement and
those where continued focus is required.
In 2020, we used online internal polls and sent
out short questionnaires to gather more personal
feedback about how our people were feeling
as a result of the pandemic. In addition, our
leadership community received monthly briefings
from the executive team, where they were also
able to share their feedback and provide critical
challenges.
The pandemic has impacted the end-markets
we serve. As a result, we have undertaken
a restructuring programme which has led to
a decline in our workforce overall. Throughout
our principle has been to keep our people
informed and engage them in the process, and
we have worked productively with employees,
union representatives and others to keep
employee welfare and fairness at the centre
of our decision-making.
“
After attending the leadership
development programme:
“I have modified my meeting
structure to incorporate more
time with individuals so that we
can spend time discussing their
goals and interests. We work as
a team to align the required
project tasks with individuals’
needs. Overall, it has helped to
improve the team.
“
Morgan Advanced Materials | Annual Report 2020Sustainability and responsibility WORKFORCE BY GEOGRAPHY
Number of employees as at 31 December 2020
US
2020
31.1%
2019: 32.8%
2018: 32.7%
UK
2020
9.1%
2019: 9.5%
2018: 9.8%
OTHER EUROPE
2020
19.7%
2019: 18.0%
2018: 18.2%
CHINA
2020
14.8%
2019: 14.2%
2018: 14.8%
REST OF WORLD
2020
13.8%
2019: 12.8%
2018: 12.6%
OTHER NORTH AMERICA
2020
SOUTH AMERICA
2020
TOTAL WORKFORCE
2020
9.0%
2019: 10.1%
2018: 8.9%
2.5%
2019: 2.6%
2018: 3.0%
7,466
2019: 8,560
2018: 8,720
WORKFORCE BY GENDER
Members as at 31 December 2020
MALE
FEMALE
All leaders
(includes Executive
w/o CEO/CFO plus
2nd to 4th tier)
315
Male 70%
All employees
5,450
Male 73%
Board
4
Male 57%
Executive
Committee
6
Male 67%
Senior leaders
48
Male 73%
All leaders
(includes Executive
w/o CEO/CFO plus
2nd to 4th tier)
132
Female 30%
All employees
2,016
Female 27%
Board
3
Female 43%
Executive
Committee
3
Female 33%
Senior leaders
18
Female 27%
21
Strategic reportMorgan Advanced Materials | Annual Report 2020 WELLBEING, COMMUNITY AND ETHICS
At Morgan we recognise the
importance of our people,
and we strive to support their
wellbeing. We have built up
a grass-roots wellbeing
programme called ‘Better You,
Better Life’, which supports
our purpose of improving the
quality of life. In a similar way
to our Morgan safety week,
the programme runs activities
across the Group to promote
healthy choices and encourages
our people to take part.
THE IMPORTANCE
OF WELLBEING
With the uncertainty that accompanied
COVID-19, we also kick-started an awareness
programme to support better mental health.
We provided resources and links to charities
and organisations across the globe, and we
started a conversation with our people on the
importance of recognising mental health at
work. In 2021, we are looking to train our first
mental health first-aiders and provide further
support to our sites and remote employees.
SUPPORTING OUR
COMMUNITIES
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.
All our efforts and engagements are driven
by our Morgan Code, our purpose and our
Group policies.
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. 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, Yammer, where you will often see
the generous spirit and nature of our employees
displayed: from bake sales to cultural celebrations,
and from charity donations to sponsorship
events.
TAX
Morgan has approximately 75 manufacturing
sites across more than 30 countries and has
approximately 7,500 employees. 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.
Morgan is committed to complying with tax
laws in the jurisdictions in which we do business.
We work closely with tax authorities and support
initiatives to increase trust in tax systems around
the world. The Group’s tax strategy applies
to all Group entities and the latest update
was approved by the Board of Directors on
11 December 2020.
BLOOD BANK DONATIONS
Our employees in China participated
in a voluntary blood donation scheme
organised by the Red Cross of Jingmen.
This was a positive way for the team
to give vital blood resources to those
in need in their local area.
CELEBRATING CHILDREN’S
DAY
Our Brazil team celebrated Children’s
Day by sending a small gift to employees’
children. Children’s Day was established
in 1954 and aims to promote international
awareness among children worldwide,
and to improve children’s welfare.
ENGAGING AT A LOCAL
LEVEL TO ADDRESS
LOCAL NEEDS
Since 2014, our Dunn team in the
United States have completed an annual
collection of vital food supplies for
children in the school system; supporting
those who do not have enough food
at home over the weekend and holiday
periods via the local ‘Backpack Buddies’
scheme.
The Morgan team make their donation
just ahead of Thanksgiving each year,
to support children in the community
through the whole festive period. The
donation of essential food fosters a
great sense of pride in all the employees
involved and strengthens ties to the
community.
TO FIND OUT MORE
Visit our communities page on our website
at www.morganadvancedmaterials.com/
community
22
Morgan Advanced Materials | Annual Report 2020Sustainability and responsibility SUPPORTING AN ETHICAL CULTURE
Our Morgan Code underpins our
commitment to our people, our
communities, our customers, our
suppliers and our shareholders.
It defines how we do business and
gives us our licence to operate.
Living by this Code has never been
more important to us as we look
to grow stronger following a year
of unprecedented global turmoil.
Our Code is a set of principles (supported by
Group policies) that lay out how we should
conduct ourselves. It applies to all employees
and, to the extent appropriate, to Morgan’s
business partners including agents, joint venture
partners and third-party representatives.
Our Code has four sections: working safely;
working ethically; treating our people fairly; and
protecting our business. The Code is available
to all employees in multiple languages. It requires
our people to operate not only in accordance
with applicable laws and regulations, but
also in line with internal rules and reporting
requirements relating to areas such as ethical
business behaviour, trade compliance, hospitality,
gifts, donations and sponsorships. Our Code is
brought to life through a suite of Group policies
which set out our expectations in more detail.
Processes are in place at the site level to
ensure our policies are effectively implemented.
Beyond this, Morgan’s internal audit function
monitors compliance with key ethics and
compliance processes and ensures that the
‘Speak Up’ hotline and its availability are
adequately promoted. In 2020, updated
explanatory manuals on the Group policies
covering anti-bribery and corruption, and
anti-trust and anti-competition, were launched,
accompanied by webinar training for senior
leaders. Divisional and global business unit
presidents are also required (on an annual basis)
to certify that the businesses and functions they
are responsible for have complied in full with
Group policies, or declare any exceptions.
This certification forms an integral part of the
Group’s system of internal control. No material
exceptions were declared in respect of 2020.
We provide ethics and compliance training for
our people appropriate to the nature of their
role. As a start, all our people are required
to complete mandatory online training on the
Morgan Code. Topics covered in 2020 included
anti-bribery and corruption, anti-trust and
anti-competition, conflicts of interest,
whistleblowing, GDPR, US trade controls,
diversity and cybersecurity. Overall, our training
completion rates continue to exceed 99%, with
3,218 employees trained, completing more than
38,400 courses during the year. Although our
planned face-to-face training halted early in the
year due to COVID-19 restrictions, we have
continued with webinar training for specific
topics, including cybersecurity anti-bribery
and corruption, anti-trust and anti-competition
and US trade controls.
Employees, contractors or other third parties
who have a question about our Code, or witness
something that they feel is unethical or unsafe,
can raise any concerns with their managers or
supporting teams, or through the ‘Speak Up’
hotline (a confidential helpline operated by an
independent company). A total of 87 concerns
or enquiries were recorded in 2020 through
this channel, up from 69 reports in 2019 and
highlighting a growing desire to put things right
where they may be going wrong. Commonly
raised concerns were about the fair treatment of
people, workplace harassment, ethical working,
COVID-19, and protecting the Company’s assets.
We work hard to identify and correct areas
of non-compliance and take disciplinary action
where appropriate. The programme was
refreshed in December 2020 to ensure
awareness remains strong.
ANTI-BRIBERY AND
ANTI-CORRUPTION
´ In some parts of the world where Morgan
operates, bribery and corruption present
a high risk. We have a responsibility to
our employees, our shareholders and the
countries and communities in which we
do business to be ethical and lawful in all our
work. The Code explicitly prohibits engaging
in bribery or corruption in any form.
´ A total of 3,186 employees completed
anti-bribery and anti-corruption training
in 2020, covering 100% of the relevant
employees.
´ During 2021 we will complete an update of
our bribery risk assessment for each of our
entities, which will help shape our anti-bribery
corruption programme for the following
12 months.
HUMAN RIGHTS
´ 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. The Policy is available on our
website and covers child labour, forced
labour, health and safety, freedom of
association, discrimination, discipline,
working hours and compensation.
´ The Director of Human Resources
reports to the Chief Executive Officer
and is responsible for the development
of the Human Rights Policy and related
matters, with the Presidents of each
global business unit having responsibility
for policy implementation within their
respective businesses.
´ The Group’s Modern Slavery Act
Transparency Statement, which is
published annually on our website, details
action taken to support the elimination
of modern slavery and human trafficking.
2021 ETHICAL PRIORITIES
´ Quarterly training aligned to categories
within the Code will remain at the
centre of the ethics programme, with
a new training supplier helping to bring
a refreshed look.
´ We are looking to launch an associated
code of conduct for our suppliers, and
an update of our third-party management
process.
MEET SUSI
Key Account Co-ordinator Susi has
worked in our Seals and Bearings
business for over 12 years. Originally
from Germany, Susi relocated to the
UK in the early 90’s and was recruited
by Morgan to support directly with
the customers in mainland Europe.
Her role is focused on supporting
customers from initial query, to
production timeline and delivery
of the goods to meet their needs.
We are delighted to have skilled team
members such as Susi, to support
our customers directly.
“ My role can be challenging at
times, keeping me on my toes.”
23
Strategic reportMorgan Advanced Materials | Annual Report 2020 Key performance indicators
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
and non-financial key performance indicators (KPIs).
FINANCIAL KPIs
(STATUTORY
AND ADJUSTED
PERFORMANCE
KPIs)
REVENUE (£M)
ORGANIC CONSTANT-
CURRENCY REVENUE
GROWTH/(DECLINE)1,2 (%)
ADJUSTED OPERATING
PROFIT MARGIN1 (%)
1,033.9
1,049.5
910.7
7.4
0.8
12.1
12.8
10.1
(11.4)
2018
2019
2020
2018
2019
2020
2018
2019
2020
WHY A KPI?
Creating consistent long-term
value for shareholders. Focus
on higher-growth markets.
PERFORMANCE COMMENTARY
On a reported basis, revenue
declined £138.8 million, 13.2%.
See Review of operations on
pages 32 to 37 for more detail.
WHY A KPI?
Creating consistent long-term
value for shareholders. Focus
on higher-growth markets.
PERFORMANCE COMMENTARY
On an organic constant-currency*
basis revenue declined £117.2
million, 11.4%. See Review of
operations on pages 32 to 37
for more detail.
WHY A KPI?
Creating consistent long-term
value for shareholders. To
have a culture of operational
excellence and cost-efficiency.
PERFORMANCE COMMENTARY
Margin decline due to the lower
revenue, partially offset by
operational efficiency and
restructuring actions.
OPERATING PROFIT (£M)
FREE CASH FLOW BEFORE
ACQUISITIONS, DISPOSALS
AND DIVIDENDS1 (£M)
RETURN ON INVESTED
CAPITAL1 (£M)
126.1
107.3
59.2
48.5
72.4
18.1
17.4
13.0
2018
2019
(1.8)
2020
WHY A KPI?
Creating consistent long-term
value for shareholders. To
have a culture of operational
excellence and cost-efficiency.
PERFORMANCE COMMENTARY
Profit declined due to the lower
revenues, partially offset by
operational efficiency and
restructuring actions.
2018
2019
2020
2018
2019
2020
WHY A KPI?
Creating consistent long-term
value for shareholders.
WHY A KPI?
Creating consistent long-term
value for shareholders.
PERFORMANCE COMMENTARY
Lower cash from operations
(from lower volume due to
COVID-19) was partially
offset by reduced net capital
expenditure and lower net
interest and tax paid.
PERFORMANCE COMMENTARY
The decline in return on
invested capital is primarily
driven by the decline in adjusted
operating profit*. See page 45
for more details.
* Pro forma
1. Definitions of these non-GAAP
measures, and their reconciliation
to the relevant GAAP measure,
are provided on pages 43 to 45.
2. This KPI uses revenue at constant
currency 1 in its calculation.
24
Morgan Advanced Materials | Annual Report 2020 Our KPIs provide a balanced set of
metrics that give emphasis to both
financial and non-financial measures.
These help the Board and the
Executive Committee assess
performance and progress against
our strategic priorities and business
plans. Divisional and global business
unit management use these and
additional benchmarks and other
KPIs to evaluate operating
performance and make financial,
strategic and operating decisions.
In order to measure the organic*
performance of the business,
management further review the
adjusted KPIs after excluding the
impacts of acquisitions and foreign
exchange.
REMUNERATION
To help align the focus of the Board
and the Executive Committee with
the interests of our shareholders,
certain measures are used for
executive remuneration.
Financial and non-financial
performance is reviewed in more
detail in the Sustainability and
responsibility, Review of operations
and Group financial review sections
of this Report.
Measures for employee annual
bonus are focused on both Group
financial and personal performance.
Measures for performance shares
(long-term share incentive
programmes), are focused on
shareholder value and future
growth. For more information on
Executive Directors’ remuneration
please see the Remuneration
Report on pages 66 to 86.
ADJUSTED EPS1 (P)
CONTINUING EPS (P)
NON-FINANCIAL
KPIs
EMPLOYEE TURNOVER (%)
26.7
28.0
25.2
20.0
19.0
2018
2019
2020
2018
2019
(8.6)
2020
WHY A KPI?
Creating consistent long-term
value for shareholders.
WHY A KPI?
Creating consistent long-term
value for shareholders.
PERFORMANCE COMMENTARY
The decline in adjusted EPS
is due to the lower profitability
in the year.
PERFORMANCE COMMENTARY
The loss for the year was
caused by the lower adjusted
profitability as well as charges for
restructuring and impairment –
see note 6 for more details.
CONTINUING AND
DISCONTINUED EPS (P)
DIVIDEND PER SHARE (P)
25.7
16.2
11.0
11.0
(7.9)
5.5
2018
2019
2020
2018
2019
2020
WHY A KPI?
Creating consistent long-term
value for shareholders.
WHY A KPI?
Creating consistent long-term
value for shareholders.
PERFORMANCE COMMENTARY
The loss for the year was caused
by the lower adjusted profitability
as well as charges for restructuring
and impairment – see note 10
for more details.
PERFORMANCE COMMENTARY
Looking forward, the Board
is looking to grow the dividend
as the economic environment
improves, targeting a dividend
cover of around 3 times on
average over the medium term.
15.6
17.5
13.4
2018
2019
2020
WHY A KPI?
To attract, retain, and develop
the right people in the right roles.
PERFORMANCE COMMENTARY
The increase in employee
turnover in 2020 was driven by
activities to adjust the cost base
to the lower demand levels
caused by COVID-19.
LOST-TIME ACCIDENT
FREQUENCY2 (PER 100,000
HOURS WORKED)
0.22
0.18
0.14
2018
2019
2020
WHY A KPI?
To maintain a workplace that
focuses on the health and safety
of its employees and others
affected by the Group’s operations.
PERFORMANCE COMMENTARY
A small increase in lost time
accidents occurred across the
business, which combined
with the reduction in hours
worked, led to an increase in
this measure.
25
* Pro forma
1. Definitions of these non-GAAP
measures, and their reconciliation
to the relevant GAAP measure,
are provided on pages 43 to 45.
2. This KPI uses revenue at constant
currency 1 in its calculation.
Strategic reportMorgan Advanced Materials | Annual Report 2020 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 comprised of an internal control
framework, internal monitoring and independent
assurance processes.
´ Regulatory risk: pension regulations, due
to the evolving regulatory environment.
´ Social risk – parts of the business have
an ageing direct workforce; this could lead
to potential loss of skills and know-how
(in the future) as it becomes more difficult
and expensive to attract the next generation
of workers.
´ Longer-term changes to end-markets –
redirecting effort to new end-markets when,
for example, gas boilers are phased out
and replaced by other forms of heating, or
petroleum-fueled vehicles are phased out
in favour of electric vehicles.
These emerging risks have been recorded
and will be continually monitored so that their
potential impact can be understood and
mitigated. They will also be considered as an
integral part of the strategic planning process.
The following are the Group’s principal risks
and uncertainties and 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.
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 Group’s
global business units (GBUs) and divisions. 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 risks,
including related policy, guidelines and process,
subject to Board oversight.
Throughout 2020, the Board reviewed the status
of all principal risks with a significant potential
impact at Group level. Additionally, the Audit
Committee carried out focused risk reviews
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.
As a result of these reviews, a number of actions
were identified to continue to improve internal
controls and the management of risk, including:
´ swift adoption of protocols to protect the
workforce from COVID-19;
´ increased focus on the environment with
the appointment of a Group Environment &
Sustainability Director in November 2020;
´ strengthening of information security and
compliance function by operating an IT
and cybersecurity programme called
‘thinkSECURE’, including comprehensive
security awareness training;
RISKS
´ focused actions within each business unit to
mitigate risks.
The Board reviewed its appetite for the Group’s
principal risks and concluded its appetite for these
risks was 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 is essential to the success of our
products and the safety of our people and
contractors.
The appetite for risk in the areas of legal and
regulatory compliance is 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. Certain risks, such as pension
funding, are likely to take a longer period of
time to mitigate. 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. The key emerging risk areas
identified were:
´ Environmental risk: climate change – including
the potential impact of rising sea levels on
low-lying or coastal sites and our role in
protecting and enhancing the environment.
Energy intensity was also considered –
including ways of adjusting our production
processes to reduce usage of fossil fuels.
Raw materials and potential issues with their
continued availability was also judged an area
to be monitored.
OPERATIONAL
RISKS
FINANCIAL RISKS
LEGAL AND
COMPLIANCE RISKS
26
Morgan Advanced Materials | Annual Report 2020 Risk Key
INCREASED
UNCHANGED
DECREASED
OPERATIONAL RISKS
Risk description, assessment and
trend from 2019
Mitigation
Technical leadership
SEVERITY: MODERATE
TREND: UNCHANGED
The Group’s strategic success depends
on maintaining and developing its technical
leadership in materials science over its
competitors.
Unforeseen/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 skillsets. 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’s 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 Executive Committee and the Board.
Where Group products are designed for a specific customer,
they are developed in partnership with the customer in order
to maintain leading-edge differentiation. The Group seeks to
secure intellectual property protection, where appropriate,
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 Group continued its global leadership programme adding
an advanced programme to develop more high-potential
commercial, functional and technical leaders.
Further detail on our people can be found on pages 18 to 21.
OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Operational execution/
organisational change/
sales effectiveness
SEVERITY: LOW
TREND: INCREASED WITHIN
SEVERITY BAND
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 Group’s structure, and to the
structure of and incentives for our sales force.
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, GBU and divisional 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 sometimes the Board
before being implemented in line with local employment regulations.
A number of functionalisation initiatives commenced within the
GBUs in 2020 to align and standardise data and processes. The
rollout of these projects will continue in 2021.
Changes to our sales structures and incentives are reviewed at
various levels of the organisation before being launched.
Further detail on our strategy can be found on page 7.
OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Portfolio management
SEVERITY: MODERATE
TREND: UNCHANGED
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.
During 2020, the Group launched a COVID-19-related
restructuring and efficiency programme. This accelerated existing
plans to simplify the Group’s portfolio and align capacity
with the anticipated demand across the business. The Group
has announced closure of Technical Ceramics ceramic cores
manufacturing sites (in response to the downturn in aerospace
demand) and closure of under-utilised production lines
in Thermal Ceramics.
Opportunities to acquire businesses are reviewed on
a continuing basis.
27
Strategic reportMorgan Advanced Materials | Annual Report 2020
Risk management
OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Macro-economic and
political environment
SEVERITY: HIGH
TREND: INCREASED WITHIN
SEVERITY BAND
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.
Whilst a ‘no-deal’ Brexit was avoided
and new tariffs have not currently been
introduced, the UK’s exit from the EU
impacts border controls, product standards,
and controls around the flow of data. The
current value of Group’s UK exports to the
EU is approximately £24 million and imports
into the UK from the EU are approximately
£17 million.
The Group’s broad market and geographic spread helps
to mitigate the effects of political and economic changes.
Budgets and forecasts for Morgan’s 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.
The overall macro-economic environment has weakened
compared with the previous year. However, the Group’s daily
order intake has improved during the second half of 2020.
Cost-control measures have been effective, and the Group
has sustained a strong balance sheet.
Global issues considered by the Board this year included the
continuing impact and uncertainty relating to the trade
negotiations between the US and China, as well as Russia/Iran
and Korea/Japan trade relations. The impact of the UK’s exit
from the EU has been reduced by the avoidance of a ‘no-deal’
Brexit; however, tariffs could be introduced in the future.
OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Environment, health
and safety (EHS)
SEVERITY: HIGH
TREND: UNCHANGED
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 H&S Director and the Group
Environment & Sustainability Director, with clear EHS standards
and a refreshed programme of audits to assess compliance.
The Group H&S Director and the Group Environment &
Sustainability Director, working with the Global EHS Leads,
set annual priorities for EHS which are approved by the
Executive Committee. 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. EHS metrics are regularly assessed.
Overall EHS performance deteriorated slightly during 2020.
As at 31 December 2020, the Group was managing 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 12 to 15.
Details of the Group’s provisions and contingent liabilities can
be found in note 25 to the consolidated financial statements.
OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Communicable disease impacts ways of
working, the supply chain and the ability of
employees to travel to work in affected areas.
Our priority is to take all actions and
precautions necessary to ensure the safety
and wellbeing of our employees. The
pandemic led to the shutdown of a number
of our manufacturing facilities during the year.
In all our manufacturing sites, we have successfully adapted our
ways of working to respond to the pandemic – introducing social
distancing, hygiene measures and additional PPE – to keep our
people safe. Flexible working from home was also introduced
for all roles that could do so.
We have continued to supply our key customers operating in
essential sectors, including healthcare and power generation.
The Group has provided clear and timely communication to
reinforce the importance of following safety measures in every
part of the organisation.
Coronavirus
(COVID-19) pandemic
SEVERITY: MODERATE
TREND: NOT APPLICABLE.
NEW RISK IN 2020.
28
Morgan Advanced Materials | Annual Report 2020 OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Product quality,
safety and liability
SEVERITY: HIGH
TREND: UNCHANGED
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, medical and power
industries.
Many of the Group’s products are designed to customer
specifications. Our businesses’ 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.
The Group insurance programme includes product liability
insurance; this Group-level insurance is reviewed annually by
the Board.
OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
IT and cybersecurity
SEVERITY: HIGH
TREND: INCREASED
During 2020 we strengthened our information security and
compliance function. We are currently operating to a three-year
approved security programme and introduced the
‘thinkSECURE’ internal brand as an awareness programme.
The Group has continued to monitor the regulatory and
compliance landscape and is working towards certification against
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.
We will mitigate residual and emerging risks through continuation
of our IT strategy and information security programme, including
‘thinkSECURE’ and implementation of the related cybersecurity
projects.
The COVID-19 pandemic resulted in a rise
in remote working and an accelerated shift
to cloud platforms, thereby increasing the
cyber risk severity due to threats such
as email-propagated attacks (phishing,
cyber-fraud, impersonation, malware,
ransomware).
If the Group were to lose critical information
(such as IP or regulatory data) or if critical
systems availability were affected through
cyber-attacks, the business would be
impacted or could suffer reputational
damage.
The effective management of the Group’s
IT infrastructure is important in enabling our
businesses to deliver customer requirements
reliably. If a key business system were to fail
or core systems implementation were to
be ineffective, the ability of the business to
deliver on its strategic goals might be
impacted.
OPERATIONAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Supply chain/business
continuity
SEVERITY: MODERATE
TREND: UNCHANGED
The Group has a number of 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 customer – the unmitigated
loss of a major customer could have an
impact on Group profit. The Group’s
largest customer represents circa 3%
of Group revenue.
´ Single-point site – a key site exposed to
a strike, a natural catastrophe or serious
incident, such as fire, could impact
business continuity. One Group site,
Hayward, is situated in the California
earthquake zone (US). Certain 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.
A new Business Continuity Policy has been rolled out to support
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 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.
29
Strategic reportMorgan Advanced Materials | Annual Report 2020 Risk management
FINANCIAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
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.
Treasury
SEVERITY: MODERATE
TREND: INCREASED WITHIN
SEVERITY BAND
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 Morgan’s 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.
In 2020, the Group was confirmed as an eligible issuer under
the UK Government’s ‘COVID-19 Corporate Financing Facility’
(CCFF) with an issuer limit of £300 million, providing additional
liquidity headroom. The facility was undrawn and expired in
March 2021.
As at 31 December 2020, the Group had an undrawn Revolving
Credit Facility of £200 million, which matures in September 2024.
Further detail on our Treasury Policy is set out in the Group
Financial Review, which can be found on pages 38 to 40.
FINANCIAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Pension funding
SEVERITY: HIGH
TREND: UNCHANGED
The Group sponsors several defined benefit
pension arrangements (the Schemes), whose
liabilities are subject to fluctuating interest
rates, investment values and inflation. This
coupled with the increased longevity of
members and a tougher regulatory funding
regime will result in increased funding
burdens on the Group in the future.
The deficit in Morgan’s global defined benefit
pension schemes calculated on the basis
required for IAS 19 accounting disclosures
increased from £156.8 million as at
31 December 2019 to £176.3 million
as at 31 December 2020.
The Group also participates in two
multi-employer defined benefit schemes
in the US, both of which have significant
funding deficits.
Morgan’s primary means of mitigating pensions funding risk
is proactive management of the pension scheme assets and
liabilities through an integrated pension strategy focusing on
funding, investment and benefit risk. This involves both internal
management within the Group and also external management
through the Schemes’ trustees, corporate actuaries and
professional advisers.
In the UK, both Schemes are closed to the future accrual of
benefits. In consultation with the Company, the trustees have
adopted a proactive approach to the management of risk in
the Schemes’ investment portfolios, significantly reducing their
unhedged interest and inflation rate exposure. Following the
most recent Scheme valuations in March 2019, Company
contributions increased to £16.5 million pa from 2020 (further
increasing by 2.75% pa) for the length of the current recovery
plans (2025 and 2027).
The impact of the evolving regulatory environment for UK
occupational pensions, and in particular the likely passing of
the Pensions Bill in Parliament, will continue to be monitored
closely in 2021.
Risk for both of the defined benefit Pension Plans in the US has
been reduced. One completed a full legal termination (in June
2016). For the other Scheme, a formal offer of a present-value-
equivalent, lump-sum cash payment was made to members.
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 one the US multi-employer
plans has been agreed and a proposal for withdrawal made to
the Trustees of the more severely underfunded arrangement.
No significant funding obligations exist in any other individual
country although German legacy defined benefit schemes are
unfunded, in accordance with local practice, with benefits being
met by the Group as they are due.
30
Morgan Advanced Materials | Annual Report 2020 FINANCIAL RISKS
Risk description, assessment
and trend from 2019
Mitigation
Tax
SEVERITY: MODERATE
TREND: UNCHANGED
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.
www.morganadvancedmaterials.com/tax
LEGAL AND
COMPLIANCE RISKS
Contract management
SEVERITY: SIGNIFICANT
TREND: UNCHANGED
LEGAL AND
COMPLIANCE RISKS
Compliance
SEVERITY: HIGH
TREND: INCREASED
Risk description, assessment
and trend from 2019
Mitigation
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 Legal Policy requires in-house legal review
of high-value or high-risk contracts to ensure they contain
appropriate protections for the Group. The Policy requires
Chief Executive Officer approval before a business can enter
into an unlimited liability contract or one where the liability cap
exceeds £5 million.
To the extent that risk cannot be mitigated through contractual
arrangements, the Group has insurance cover in place, including
product liability insurance.
Risk description, assessment
and trend from 2019
Mitigation
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 Morgan’s commitments to high
standards of ethical behaviour. The Code is supported by a range
of documents and mechanisms: policies, standards and guidance;
training materials; the provision of a ‘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, competition law, harassment
and bullying, and trade controls. In-depth face-to-face training
has also been held in some of the Group’s higher risk regions.
The Group’s ‘Speak Up’ methods enable staff to report concerns
anonymously.
The Group also has an Export Compliance Director in the
US whose role is dedicated to ensuring compliance with export
controls.
In addition to Group-level compliance specialists, our businesses
are required to establish compliance officer roles, which are
responsible for supporting local training and monitoring.
Morgan 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
page 23.
31
Strategic reportMorgan Advanced Materials | Annual Report 2020 Thermal Ceramics
Molten Metal Systems
Thermal Products division
Electrical Carbon
Seals and Bearings
Technical Ceramics
Carbon and Technical
Ceramics division
Divisional total
Corporate costs
Group adjusted operating profit1
Amortisation of intangible assets
Operating profit before specific
adjusting items
Specific adjusting items included
in operating profit2
Operating (loss)/profit
Net financing costs
Share of profit of associate
(net of income tax)
Loss/profit before taxation
Revenue
Operating profit1
Margin %1
2020
£m
344.3
41.2
385.5
151.4
146.4
227.4
525.2
2019
£m
418.4
49.1
467.5
164.2
144.3
273.5
582.0
910.7
1,049.5
2020
£m
26.7
3.2
29.9
23.6
27.5
14.8
65.9
95.8
(4.1)
91.7
(6.1)
85.6
2019
£m
52.2
5.9
58.1
21.9
26.4
33.7
82.0
140.1
(5.9)
134.2
(8.1)
126.1
2020
%
2019
%
7.8% 12.5%
7.8% 12.0%
7.8% 12.4%
15.6% 13.3%
18.8% 18.3%
6.5% 12.3%
12.5% 14.1%
10.5% 13.3%
10.1% 12.8%
9.4% 12.0%
(0.2)% 12.0%
(87.4)
–
(1.8)
(11.9)
0.6
126.1
(16.9)
0.5
(13.1)
109.7
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations
of the statutory results to the adjusted measures can be found on pages 43 to 45.
2. Details of specific adjusting items can be found in note 6 to the consolidated financial statements.
Read more about our Thermal Products division on pages 34 to 35 and our Carbon and
Technical Ceramics division on pages 36 to 37.
Specific adjusting items
Impairment of assets
Restructuring costs
Profit on disposal of business
Business closure and exit costs
Release of provisions related to previous business exits and disposals
Total specific adjusting items before income tax
Income tax credit from specific adjusting items
Total specific adjusting items after income tax
2020
£m
(65.6)
(24.0)
2.2
–
–
(87.4)
13.3
(74.1)
2019
£m
–
–
–
(0.7)
0.7
–
–
–
Review of operations
GROUP PERFORMANCE
GROUP REVENUE AND
OPERATING PROFIT
Group revenue was £910.7 million (2019:
£1,049.5 million), a decrease of 13.2%
on a reported basis compared with 2019,
driven by a decline in the underlying business,
foreign exchange headwinds and the impact of
divestments. On an organic constant-currency*
basis revenue decreased by 11.4%.
Group adjusted operating profit* was
£91.7 million (2019: £134.2 million). Adjusted
operating profit margin* was 10.1%, compared
to 12.8% for 2019.
Throughout the economic downturn associated
with the COVID-19 pandemic we have taken
appropriate action to reduce costs, improve cash
flow and increase liquidity. These actions included
reductions to capital expenditure, other than for
vital health, safety and environmental matters,
a temporary hiring freeze for all but the most
critical roles, a curtailment of discretionary
expenditure and temporary salary reductions
for the Board and our Executive team.
Operating loss was £(1.8) million (2019: profit
£126.1 million) and loss before tax was
£(13.1) million (2019: profit £109.7 million).
Specific adjusting items in 2020 before tax were
net pre-tax charge of £87.4 million (2019: net nil),
primarily relating to restructuring charges and
the impairment of assets. Further detailed
are included under ‘Specific adjusting items’.
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 to allow the
reader to obtain an understanding of the financial
information and the underlying performance
of the Group.
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 2020 specific adjusting items were
£87.4 million (2019: net £nil) and comprised
the following:
32
Morgan Advanced Materials | Annual Report 2020
2020
IMPAIRMENT OF ASSETS
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand has
resulted in impairment losses of £28.8 million
relating to the ceramic cores business. The
impaired assets comprise intangible assets
recognised upon the acquisition of the Carpenter
business in 2008, and property, plant and
equipment.
Technical Ceramics, China
On 15 June 2020 the Group announced the
closure of its Suzhou manufacturing facility in
China and has recognised £1.1 million relating to
the impairment of property, plant and equipment.
Thermal Ceramics
The continuing reduced demand in the
aerospace, automotive and industrial market
segments has resulted in impairment losses of
£35.7 million in Thermal Ceramics, which relates
to the closure of sites and under-utilised product
lines, as well as the impairment of intangible assets
recognised upon the acquisition of Porextherm
in Germany in 2014.
RESTRUCTURING COSTS
Following the announcement of the Group’s
restructuring programme the Group has
recognised £24.0 million related to staff
redundancies, site closure costs, legal and
professional fees and the exit of certain multi-
employer defined contribution pension plans.
The balance of these costs occur in 2021 and 2022.
PROFIT ON DISPOSAL OF BUSINESS
On 31 August 2020, the Group completed
the sale of its Diamonex business, based in
Allentown, US. The transaction was structured
as a sale of the business and related assets
for total consideration of up to £6.5 million.
The consideration comprises £5.6 million paid
in cash on completion, £0.3 million of deferred
consideration due in 2021 and up to £0.6 million
of consideration contingent on the future
performance of the disposed business which,
if earned, would also be payable in 2021.
A gain of £2.2 million was realised on disposal –
see note 2 for more details.
2019
RELEASE OF PROVISIONS RELATED
TO PREVIOUS BUSINESS EXITS
AND DISPOSALS
In 2019, certain liabilities relating to previous
business exits and disposals lapsed and the
Group released £0.7 million of legal and other
provisions.
BUSINESS CLOSURE AND EXIT
COSTS
China, Technical Ceramics
In 2019, the Group completed the exit of the
ceramic cores operations within China, initiated
in 2018. The Group recognised £0.7 million
of costs in relation to this exit relating to staff
redundancies and legal and professional fees.
People
INVESTMENT
IN PEOPLE
MANAGEMENT
AND
DEVELOPMENT
We have been
strengthening our
leadership capabilities,
deepening functional
capabilities and connecting
our people with our
purpose right across
our business. Despite
a year of change, we
are seeing the return
on this investment and
so are our people.
Our Global Operations Director Suranjan
Ghosh has been recognised in the 2020
Manufacturer’s Magazine Top 100 People
list, for his work ethic and approach to
making a positive impact in manufacturing.
This is a fantastic achievement.
Suranjan commented: “What fires me up
is to make the most of this one chance
I have in life to make a positive impact on the
world. To do so, I am constantly learning –
learning about science, technology and the
impact it has on mankind through business
and social change. Also learning about
people, teams, leadership and cultures, be
it organisations or countries. Marrying these
two elements to positively touch the lives of
the people that I work with, while we serve
our customers, is what drives me.”
Morgan Advanced Materials | Annual Report 2020
33
Strategic report
Review of operations
DIVISIONAL AND
GLOBAL BUSINESS
UNIT PERFORMANCE
THERMAL PRODUCTS
Revenue
(£M)
2020
2019
2018
385.5
467.5
482.2
Divisional adjusted operating profit*
(£M)
29.9
2020
2019
2018
34
HIGHLIGHTS
´ The Thermal Products division’s 2020
reported revenue was £385.5 million
(2019: £467.5 million), a decrease of 17.5%
compared to 2019.
´ On an organic constant-currency* basis,
revenue decreased by 15.3% compared
to 2019.
´ Divisional adjusted operating profit margin*
was 7.8% (2019: 12.4%).
BUSINESS DESCRIPTION
The Thermal Products division comprises the
Thermal Ceramics and Molten Metal Systems
global business units.
Thermal Ceramics manufactures advanced
ceramic materials, products and systems for
thermal insulation in high-temperature
environments.
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.
58.1
59.5
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.
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.
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.
FOOTPRINT
As at 31 December 2020 Thermal Products
comprised 28 operating sites employing
approximately 2,810 people, with manufacturing
sites across the world. It also has a comprehensive
network of sales offices allowing immediate
access to and facilitating direct working with
end-users. Some sales, particularly for the
insulating fibre and crucible product ranges,
are made through a well-established distributor
network.
PERFORMANCE AND
BUSINESS REVIEW
Revenue for Thermal Products for the year was
£385.5 million, representing a decrease of 17.5%
compared with £467.5 million in 2019. On an
organic constant-currency* basis, year-on-year
revenue decreased by 15.3%. Divisional adjusted
operating profit* for Thermal Products was
£29.9 million (2019: £58.1 million) with a
divisional adjusted operating profit* margin
of 7.8% (2019: 12.4%). Divisional operating loss
£12.6 million (2019: profit £55.6 million) primarily
as a result of impairments and restructuring
activities recognised in specific adjusting items,
see note 4 for further details.
Revenue for Thermal Ceramics for the year was
£344.3 million, representing a decrease of 17.7%
compared with £418.4 million in 2019. On an
organic constant-currency* basis, year-on-year
revenue decreased by 15.5%. Revenue was
lower due to a reduction in the transportation
segment, in particular the aerospace impact
of the COVID-19 pandemic, as well as a
broad-based market decline in the industrial
segment across Europe and North America.
Thermal Ceramics’ 2020 adjusted operating
profit* was £26.7 million (2019: £52.2 million)
with adjusted operating profit margin* of 7.8%
(2019: 12.5%). Margin decline was driven by
the impact of lower volume, partially offset by
efficiency actions, as well as a £2m charge for
an increase in the expected credit loss provision.
Revenue for Molten Metals Systems for the year
was £41.2 million, a decrease of 16.1% compared
with £49.1 million in 2019. On an organic
constant-currency* basis, year-on-year revenue
decreased by 13.8%. The lower demand was
driven by reduced demand for crucibles in the
core aluminium market.
Molten Metal Systems’ 2020 adjusted operating
profit* was £3.2 million (2019: £5.9 million)
with adjusted operating profit margin* of 7.8%
(2019: 12.0%). During 2020, margins declined
due to the lower volumes, partially offset by cost
control actions.
Morgan Advanced Materials | Annual Report 2020 Technology
INCREASING
OUR TECHNICAL
DIFFERENTIATION
We have been increasing
our investment in research
and development (R&D)
to build our technical lead
and to accelerate new
product development.
STRATEGY
The priorities for the division remain in line with
the execution priorities of the Group. We have
put increased emphasis on growth markets
where we bring clear technological differentiation.
We have invested in changes in our customer-
facing organisation to improve our understanding
of customer needs and market drivers and
to develop sales effectiveness as a distinctive
capability.
We recognise the key advantages we have in the
markets we serve and will build on these: our
global manufacturing footprint, broad product
range, application experience, and technological
advancements. We will continue to drive
operational excellence through lean manufacturing,
process efficiency, and automation. We are
investing in product and process technology to
optimise our products and processes to serve the
challenging performance needs of our customers.
We will continue to invest in this differentiation,
as we see increasing competition which is putting
pressure on margins for our standard products.
In our Thermal Ceramics business, we used
our R&D capabilities to look at the ethylene
cracking process: the process of breaking
down large molecules into smaller ones at
very high temperatures. The goal of this
work is to help our customers reduce CO2
emissions.
After partnering with customers on material
selection and furnace design, we have
been able to deliver savings ranging from
approximately 27 to 60+ times the CO2
required to manufacture lining materials.
+ These figures exclude indirect emissions such
as transportation of goods, waste, water, etc.
They also assume a weight of lining materials
appropriate to the typical radiant section of
an ethylene cracker single cell, and the use of
natural gas as an energy source.
Morgan Advanced Materials | Annual Report 2020
35
Strategic report Review of operations
DIVISIONAL AND
GLOBAL BUSINESS
UNIT PERFORMANCE
CARBON AND
TECHNICAL CERAMICS
Revenue
(£M)
2020
2019
2018
525.2
582.0
551.7
Divisional adjusted operating profit*
(£M)
2020
2019
2018
65.9
82.0
71.2
36
HIGHLIGHTS
´ The Carbon and Technical Ceramics
division’s reported revenue for 2020 was
£525.2 million (2019: £582.0 million),
a decrease of 9.8% compared to 2019.
´ On an organic constant-currency* basis,
revenue decreased by 8.3% compared to
2019, with an increase in Seals and Bearings
partially offsetting declines in Technical
Ceramics and Electrical Carbon.
´ Divisional adjusted operating profit margin*
was 12.5% (2019: 14.1%).
BUSINESS DESCRIPTION
The Carbon and Technical Ceramics division
comprises the Electrical Carbon, Seals and
Bearings and Technical Ceramics global business
units.
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.
Our products are engineered for specific
customer applications and they are often
required to operate in harsh or extreme
environments. Electrical Carbon’s main markets
are rail, industrial drives, power generation, iron
and steel, mining and wind-power. The business’
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.
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.
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).
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
global business unit makes is used in demanding,
harsh or critical environments. The global
business unit works in selected segments of the
semiconductor, energy, healthcare, industrial,
petrochemicals, security and transport markets,
typically in close collaborative customer
relationships.
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.
FOOTPRINT
As at 31 December 2020 the Carbon and
Technical Ceramics division comprised
47 operating sites employing approximately
4,520 people, with manufacturing sites across the
world. As a result of the customer-specific nature
of most of the products sold and the importance
of staying very close to the market, most sales
are made directly by the division’s sales force
and application engineers, with limited use being
made of distributors. The global spread of
operating sites supplemented by a comprehensive
network of sales offices allows immediate access
to and facilitates direct working with customers
and the products’ end-users.
PERFORMANCE AND
BUSINESS REVIEW
Revenue for the Carbon and Technical Ceramics
division for the year was £525.2 million,
representing a decrease of 9.8% compared with
£582.0 million in 2019. On an organic constant-
currency* basis, year-on-year revenue decreased
by 8.3%. Divisional adjusted operating profit* for
the Carbon and Technical Ceramics division was
£65.9 million (2019: £82.0 million), with divisional
adjusted operating profit margin* of 12.5%
(2019: 14.1%). Divisional operating profit was
£15.4 million (2019: £76.4 million) the year-on-
year reduction primarily as a result of impairments
and restructuring activity recognised in specific
adjusting items, see note 4 for further details.
Revenue for the Electrical Carbon global business
unit in 2020 was £151.4 million, representing
a decrease of 7.8% compared with £164.2 million
in 2019. On an organic constant-currency* basis,
year-on-year revenue declined by 6.3%. Growth
in the semiconductor and electronics end market
segments was offset by the year-on-year decline
driven primarily by economic weakness in a
number of segments in our core industrial markets.
Electrical Carbon adjusted operating profit*
was £23.6 million (2019: £21.9 million) with
an adjusted operating profit margin* of 15.6%
(2019: 13.3%). Despite the revenue decline,
adjusted operating profit margins* were
expanded through strong operational efficiency
actions as well as a £2 million one-off benefit
from an insurance settlement.
Morgan Advanced Materials | Annual Report 2020 Revenue for the Seals and Bearings global
business unit in 2020 was £146.4 million,
representing an increase of 1.5% compared with
£144.3 million in 2019. On an organic constant-
currency* basis, year-on-year revenue increased
by 1.5%. The business growth was driven by
a continuation of contract awards in ceramic
armour (2020: £49 million; 2019: £35 million).
This was largely offset by a decline in the
industrial, petrochemical and aerospace segments.
Seals and Bearings’ adjusted operating profit* was
£27.5 million (2019: £26.4 million), with an adjusted
operating profit margin* of 18.8% (2019: 18.3%).
Margins improved with the benefit of increased
volume and from continuous improvement
efficiency savings.
Revenue for the Technical Ceramics global
business unit in 2020 was £227.4 million, a
decrease of 16.9% compared with £273.5 million
in 2019. On an organic constant-currency* basis,
year-on-year revenue decreased by 14.8%,
primarily driven by declines in the transportation
segment, in particular aerospace, and with wider
industrial market declines.
Technical Ceramics’ adjusted operating profit*
was £14.8 million (2019: £33.7 million), with
an adjusted operating profit margin* of 6.5%
(2019: 12.3%). Margins declined with the impact
of lower volumes, partially offset by cost control
measures.
STRATEGY
The priorities of the Carbon and Technical
Ceramics division, and of the three global
business units which it comprises, remain in line
with the execution priorities of the Group. The
division remains focused on delivering operational
efficiencies to support reinvestment in product
development and sales effectiveness, to support
growth in our selected markets and to drive
margin expansion.
The focus on operating costs is reflected in the
division’s results, most notably in the improved
adjusted operating profit margins*. Plant-specific
initiatives include a focus on reducing scrap and
improving yields, which when combined with
the benefits of global footprint management,
and the increased use of low-cost manufacturing
operations, underpin the reductions in the
operational cost base of the business. A significant
part of the division’s capital expenditure is on
investments which will improve the operational
efficiency of the division.
Carbon and Technical Ceramics has two global
Centres of Excellence – Carbon Science,
and Metals and Joining. Their focus will be on
ensuring a strong pipeline of innovation for the
businesses within the Carbon and Technical
Ceramics division.
Progress
IMPROVING
AND
INNOVATING
OUR
OPERATIONAL
EXECUTION
We look across our
businesses to improve
operational execution.
Resource and capital
are allocated to support
specific improvements
to efficiency and
effectiveness on a
business-by-business basis.
During 2020, our UK Seals and Bearings
business tested the use of new automation
technologies on our material-forming
processes. This successful trial involved the
use of collaborative robotics to increase
the efficiency and output of component
manufacture. Now a permanent feature,
these collaborative robots are purpose-built
to work alongside our operators, fitting
seamlessly into site operations.
Morgan Advanced Materials | Annual Report 2020
37
Strategic report Group financial review
FOREIGN CURRENCY IMPACT
The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:
GBP to:
US dollar
Euro
The potential impact of changes in foreign
exchange rates is given in note 22 to the
consolidated financial statements on page 136.
Retranslating the 2020 full year results at the
February 2021 closing exchange rates would
lead to revenue of £863.8 million and adjusted
operating profit* of £85.0 million.
2020
2019
Closing rate Average rate Closing rate Average rate
1.37
1.12
1.28
1.13
1.33
1.18
1.28
1.14
For illustrative purposes, the table below
provides details of the impact on 2020 revenue
and Group adjusted operating profit* if the actual
reported results, calculated using 2020 average
exchange rates were restated for GBP weakening
by 10 cents against US dollar in isolation and
10 cents against the Euro in isolation:
Increase in 2020 revenue/adjusted operating profit1 if:
GBP weakens by 10c against the US dollar in isolation
GBP weakens by 10c against the Euro in isolation
Adjusted
operating
profit1
£m
4.3
1.8
Revenue
£m
33.9
17.4
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations
of the statutory results to the adjusted measures can be found on pages 43 to 45.
AMORTISATION OF INTANGIBLE
ASSETS
The Group amortisation charge was £6.1 million
(2019: £8.1 million).
Looking forward to 2021, we anticipate that the
effective tax rate will be around 27-28%, with
cash tax paid slightly higher than the charge to
the income statement.
Looking forward, the Board is looking to
grow the ordinary dividend as the economic
environment and the Group’s earnings improve,
targeting a dividend cover of around 3 times
on average over the medium term.
This level of cover ensures sufficient resources
are available to continue to invest to support the
Group’s long-term prospects, as well as meet
the needs of other stakeholders of the Group,
including deficit contributions to the Group’s
defined benefit pension schemes.
Note 42 to the Company financial statements,
on page 163, provides additional information
on the Company’s distributable reserves.
CASH FLOW
Cash generated from continuing operations
was £146.3 million (2019: £164.8 million).
Free cash flow before acquisitions, disposals and
dividends* was £72.4 million (2019: £59.2 million).
Net debt* at the year end was £155.6 million
(2019: £221.6 million), with no term debt
maturities until 2023, representing a net debt*
to EBITDA* ratio of 1.2x (2019: 1.3x).
The Group has net cash* and cash equivalents*
of £75.8 million and undrawn headroom on
its revolving credit facility of £200 million.
On a statutory basis, the Group tax charge was
£6.9 million (2019: £29.9 million), lower than
the prior year due to the tax credit arising on the
specific adjusting items.
Net debt* excluding lease liabilities was
£101.0 million (2019 restated: £157.3 million),
representing a net debt* to EBITDA* ratio
excluding lease liabilities of 0.8x (2019: 1.0x).
The Group applied for the UK Government’s
‘Covid Corporate Financing Facility’ (CCFF)
with an issuer limit of £300 million, which was
confirmed as successful on 10 June 2020.
The facility was undrawn throughout the period.
Additionally, the Group received £0.5 million
from the UK Government under the
‘Coronavirus Job Retention Scheme’ (CJRS)
for employees placed on furlough. The Group
repaid the £0.5 million in full to the UK
Government in the third quarter of the year once
the economic impact of the pandemic became
clearer.
EARNINGS PER SHARE
Adjusted earnings per share* was 19.0 pence
(2019: 28.0 pence) and basic loss per share
from continuing operations was 8.6 pence
(2019: earnings per share 25.2 pence). Details
of these calculations can be found in note 10 to
the consolidated financial statements on page 121.
FINAL DIVIDEND
The Board is recommending a final dividend,
subject to shareholder approval, of 3.5 pence per
share on the Ordinary share capital of the Group,
payable on 21 May 2021 to Ordinary shareholders
on the register at the close of business on 30 April
2021. The ex-dividend date is 29 April 2021.
Together with the interim dividend of 2.0 pence
per share paid on 11 December 2020, this final
dividend, if approved by shareholders, brings
the total distribution for the year to 5.5 pence
per share (2019: 4.0 pence).
A total dividend of 5.5 pence per share
represents a dividend cover of adjusted EPS* 3.5.
FINANCE COSTS
The net finance charge was £11.9 million
(2019: £16.9 million) comprising net bank
interest and similar charges of £6.5 million
(2019: £9.3 million), net interest on IAS 19
pension obligations of £2.6 million (2019:
£4.6 million), and the interest expense on lease
liabilities of £2.8 million (2019: £3.0 million)
resulting from IFRS 16 Leases.
The impacts of potential changes in interest rates
on profit or loss are stated in note 22 to the
consolidated financial statements on page 135.
Looking forward to 2021, we anticipate that
the net finance charge will reduce to around
£12 million, comprising: net bank interest and
similar charges of £7 million; net interest on
IAS 19 pension obligations of £2 million; and net
interest expense on lease liabilities of £3 million.
TAXATION
The Group tax charge, excluding specific adjusting
items, was £20.2 million (2019: £29.9 million).
The effective tax rate, excluding specific adjusting
items, was 27.2% (2019: 27.3%). Note 8 to the
consolidated financial statements, on page 120,
provides additional information on the Group’s
tax charge.
38
Morgan Advanced Materials | Annual Report 2020 Commitments for property, plant and equipment and computer software for which no provision
has been made are set out in note 26 to the consolidated financial statements on page 149.
Cash generated from continuing operations
Net capital expenditure
Net interest on cash and borrowings
Tax paid
Lease payments and interests
Free cash flow before acquisitions, disposals and dividends1
Dividends paid to external plc shareholders
Net cash* flows from other investing and financing activities
Net cash* flows from divestments and discontinued operations
Exchange movement and other non-cash movements
Opening net debt2 excluding lease liabilities
Closing net debt2 excluding lease liabilities
Closing lease liabilities
Closing net debt2
2020
£m
146.3
(28.6)
(6.6)
(26.0)
(12.7)
72.4
(5.7)
(7.8)
(0.1)
(2.5)
(157.3)
(101.0)
(54.6)
(155.6)
2019
restated1
£m
164.8
(54.9)
(9.3)
(28.8)
(12.6)
59.2
(31.3)
(12.1)
1.1
6.1
(180.3)
(157.3)
(64.3)
(221.6)
1. 2019 has been restated to classify the Group’s cumulative preference shares, totalling £0.4 million, as borrowings.
See note 1 to the condensed consolidated financial statements.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations
of the statutory results to the adjusted measures can be found on pages 43 to 45.
NET CASH AND CASH EQUIVALENTS
Net cash and cash equivalents is defined as cash and cash equivalents less bank overdrafts. The Group
also discloses this measure as it provides an indication of the net short term liquidity available to
the Group.
Cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents
CAPITAL STRUCTURE
At the year end total equity was £240.0 million
(2019 restated: £311.7 million) with closing
net debt* of £155.6 million (2019 restated:
£221.6 million).
Non-current assets were £514.1 million
(2019: £589.3 million) and total assets were
£860.7 million (2019: £985.1 million).
Details of undiscounted contracted maturities
of financial liabilities and capital management are
set out in note 22 to the consolidated financial
statements on page 139.
2020
£m
147.8
(72.0)
75.8
2019
£m
132.8
(64.1)
68.7
Capital structure is further discussed in note 22
to the consolidated financial statements on
page 139 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 US, 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.
Operating costs:
Current and past service cost
Administration expenses recognised outside the pension liabilities
Curtailments and settlements
Total operating costs
Net interest on net defined benefit liability
Total
2020
£m
(2.9)
(1.2)
0.3
(3.8)
(2.6)
(6.4)
2019
£m
(2.6)
(1.4)
0.2
(3.8)
(4.6)
(8.4)
Defined benefit pension plans
The Group pension deficit has increased by
£19.5 million since last year end to £176.3 million
on an IAS 19 (revised) basis as employer
contributions and investment gains were more
than offset by the impact of lower discount rates:
´ The UK Schemes deficit increased
by £18.8 million to £120.3 million
(2019: £101.5 million), (discount rate 2020:
1.23%; 2019: 2.06%).
´ The US Schemes deficit decreased by
£3.3 million to £7.3 million
(2019: £10.6 million), (discount rate 2020:
2.34%; discount rate 2019: 3.21%).
´ The European Schemes deficit increased
by £5.2 million to £44.8 million
(2019: £39.6 million), (discount rate 2020:
0.40%; discount rate 2019: 0.90%).
´ The Rest of World Schemes deficit
decreased by £1.2 million to £3.9 million
(2019: £5.1 million), (discount rate 2020:
2.40%; discount rate 2019: 2.20%).
The most recent full actuarial valuations of the
UK Schemes were undertaken as at March 2019
and resulted in combined assessed deficits of
£120.3 million. Further details can be found
in note 23 on page 141. On the basis of these
full valuations, the Trustees of the UK Schemes,
having consulted with the Group, agreed
past service deficit recovery payments totalling
£16.5 million a year from January 2020,
increasing by 2.75% pa until 2025, with further
payments to the Morgan Pension Scheme for
2026 and 2027.
39
Strategic reportMorgan Advanced Materials | Annual Report 2020
Group financial review
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.
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 22
to the consolidated financial statements on
page 132.
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 is
detailed in notes 21 and 22 to the consolidated
financial statements on page 132.
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 31.
40
Morgan Advanced Materials | Annual Report 2020 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 45. The financial
position of the Group, its cash flows, liquidity
position and borrowing facilities, are described
earlier in this Financial Review. In addition,
note 22 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 £200 million
unsecured multi-currency revolving credit facility,
which matures in September 2024. As at
31 December 2020 the Group had significant
headroom on its covenants and available liquidity
with the Group’s £200 million multi-currency
revolving credit facility being undrawn and
net cash* and cash equivalents* available
of £75.8 million. The Group applied for the
UK Government’s ‘Covid Corporate Financing
Facility’ (CCFF) with an issuer limit of
£300 million, which was confirmed as successful
in June 2020. As a result of available liquidity
and cash preservation measures taken the facility
remained undrawn through the period. During
2020 the Group announced a restructuring
and efficiency programme to reduce costs by
a targeted £23 million per annum by 2022, with
an anticipated cash cost of £30 million to deliver
these savings. This has been implemented in
2020 and is expected to complete through 2021.
No further restructuring activities have therefore
been modelled into the sensitivity analysis
performed. The Group’s forecasts and
projections, taking account of reasonably possible
changes in trading performance, exchange rates
and plausible downside scenarios as a result of
COVID-19 and its impact on the global economy,
show the Group operating within its debt
financial covenants for the next 18 months.
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 40% and
an increase in net debt* of 80% would still
allow the Group to operate within its financial
covenants. The Board has reviewed this with
management and is satisfied that this is appropriate
and is supporting the Group as a Going Concern.
The current economic climate continues to have
an impact on the Group, its customers and its
suppliers. Due to the Group’s broad-end-market
base, as a result of the COVID-19, it is anticipated
that some markets will continue to see reduced
activity but others will continue to grow. The
UK’s exit from the EU may have an impact on
the Group if tariffs are subsequently introduced
or border controls negatively impact either the
profitability of the Group’s products or the ability
to manufacture or distribute products on a timely
basis. However, given the current value of the
Group’s UK exports to the EU (ca. £24 million)
and imports into the UK from the EU
(ca. £17 million), it is not considered that this
will have a significant impact on the Group’s
overall liquidity or operations.
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. These processes include the ongoing
review of the impact of COVID-19 on the
Group and its stakeholders.
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 Directors believe that a viability assessment
period of three years to 31 December 2023
is an appropriate period over which to provide
its viability statement based on management’s
reasonable expectations of the position and
performance of the Company over this period.
This is the period reviewed by the Board in
the strategic planning process and is considered
to be appropriate given 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 26 to 31 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 2023.
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 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
an 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.
Viability statement continued over the page.
41
Strategic reportMorgan Advanced Materials | Annual Report 2020 Directors’ statements
While the review has considered all the principal risks identified by the Group, the following were
focussed on for enhanced stress testing:
Scenarios modelled
Impacts modelled
Link to
principal
risks and
uncertainties
Operational
Risk
Reduction in revenue linked to loss
of sales, additional costs to move
production with associated reduction
in profitability.
Reduction in revenue with associated
reduction in profitability.
Operational
Risk
Increase in costs and net debt* from
fines and legal fees. Reduction in revenue
due to reputational impacts.
Legal and
Compliance
Risk
Changes in the political environment
Due to the geographical spread of
the Group, it is exposed to a shifting
landscape in cross-border trade. The
impact of disruption in light of the UK’s
decision to leave the EU and the impact
of trade tariffs being imposed between
US and China were both considered.
Changes in the macro-economic
environment
The sensitivity analysis considered
a scenario where the global economy
moves into deep recession in 2021/22.
Compliance breach
The Group operates in a number of
different jurisdictions and 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. The
impact of a regulatory fine or penalty
has been considered.
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 2023.
The geographical and product diversification
of the Group’s operations helps minimise the risk
of serious business interruption or catastrophic
damage to our reputation. The impact of
the UK’s exit from the EU was considered in the
assessment, however given the footprint and
small size of the UK operations it has not changed
our overall assessment of the viability of the
Group. Furthermore, the spread of the Group’s
end-markets is such that it is not reliant on one
particular group of clients or sector. The current
economic climate continues to have an impact
on the Group, its customers and its suppliers.
Due to the Group’s diverse end-market base,
as a result of the COVID-19, we anticipate that
some markets will continue to see reduced
activity but others will continue to grow.
42
Morgan Advanced Materials | Annual Report 2020 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 on page 112, 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. Amortisation is excluded as the charge arises includes externally acquired intangible assets since the adoption of IFRS
and does not therefore reflect all intangible assets consistently.
2020
Operating (loss)/profit
Add back specific adjusting items
included in operating profit
Add back amortisation
of intangible assets
Group and divisional adjusted
operating profit
Thermal
Ceramics
£m
(14.6)
39.4
1.9
26.7
1. Corporate costs consist of central head office costs.
2.0
0.9
0.3
3.2
Molten
Metal
Systems
£m
Thermal
Products
division
£m
Electrical
Carbon
£m
Seals and
Bearings
£m
Technical
Ceramics
£m
(12.6)
19.2
26.5
(30.3)
40.3
2.2
3.7
0.7
0.6
0.4
42.3
2.8
Carbon and
Technical
Ceramics
division
£m
15.4
46.6
3.9
Corporate
costs1
£m
(4.6)
0.5
–
Group
£m
(1.8)
87.4
6.1
29.9
23.6
27.5
14.8
65.9
(4.1)
91.7
2019
Operating profit/(loss)
Add back specific adjusting items
included in operating profit
Add back amortisation
of intangible assets
Group and divisional adjusted
operating profit
50.0
–
2.2
52.2
5.6
–
0.3
5.9
Thermal
Ceramics
£m
Molten
Metal
Systems
£m
Thermal
Products
division
£m
Electrical
Carbon
£m
Seals and
Bearings
£m
Technical
Ceramics
£m
55.6
–
2.5
21.2
–
0.7
26.0
–
0.4
29.2
–
4.5
Carbon and
Technical
Ceramics
division
£m
76.4
–
5.6
Corporate
costs1
£m
(5.9)
–
Group
£m
126.1
–
–
8.1
58.1
21.9
26.4
33.7
82.0
(5.9)
134.2
1. Corporate costs consist of central head office costs.
ORGANIC GROWTH
Organic growth is the growth of the business excluding the impacts of acquisitions, 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 Operational review on pages 32 to 37.
Year-on-year movements in segment revenue
Thermal
Ceramics
£m
Molten Metal
Systems
£m
Thermal
Products
division
£m
Electrical
Carbon
£m
Seals and
Bearings
£m
Technical
Ceramics
£m
Carbon and
Technical
Ceramics
division
£m
Segment
total
£m
2019 revenue
Impact of foreign currency movements
Impacts of disposals and business exits
Organic constant-currency change
Organic constant-currency change %
2020 revenue
418.4
(11.0)
–
(63.1)
(15.5)%
344.3
49.1
(1.3)
–
(6.6)
467.5
(12.3)
–
(69.7)
(13.8)% (15.3)%
385.5
41.2
164.2
(2.7)
–
(10.1)
(6.3)%
151.4
144.3
(0.1)
–
2.2
1.5%
146.4
273.5
(0.2)
(6.3)
(39.6)
(14.8)%
227.4
1,049.5
582.0
(15.3)
(3.0)
(6.3)
(6.3)
(47.5)
(117.2)
(8.3)% (11.4)%
910.7
525.2
43
Strategic reportMorgan Advanced Materials | Annual Report 2020 Definitions and reconciliations of non-GAAP
measures to GAAP measures
Year-on-year movements in segment and Group adjusted operating profit
2019 adjusted operating profit
Impact of foreign currency
movements
Impact of disposals and business
exits
Organic constant-currency change
Organic constant-currency change %
2020 adjusted operating profit
Thermal
Ceramics
£m
Molten Metal
Systems
£m
52.2
(3.3)
–
5.9
(0.2)
–
Thermal
Products
division
£m
58.1
(3.5)
Electrical
Carbon
£m
21.9
(0.7)
Seals and
Bearings
£m
Technical
Ceramics
£m
26.4
(0.1)
33.7
–
Carbon and
Technical
Ceramics
division
£m
82.0
(0.8)
Corporate
costs1
£m
(5.9)
–
Group
£m
134.2
(4.3)
–
–
–
(2.4)
(2.4)
–
(2.4)
(22.2)
(45.4)%
26.7
(2.5)
(43.9)%
3.2
(24.7)
(45.2)%
29.9
2.4
11.3%
23.6
1.2
4.6%
27.5
(16.5)
(52.7)%
14.8
(12.9)
(16.4)%
65.9
1.8
–
(4.1)
(35.8)
(28.1)%
91.7
1. Corporate costs consist of the cost of the central head office.
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. A reconciliation of
operating profit to Group EBITDA* is as follows:
Operating (loss)/profit
Add back: specific adjusting
items included in operating
profit
Add back: depreciation –
property, plant and
equipment
Add back: depreciation –
right-of-use assets
Add back: amortisation
of intangible assets
Group EBITDA*
Group EBITDA* excluding
IFRS 16 Leases impact
2020
£m
2019
£m
(1.8)
126.1
87.4
–
32.7
32.3
9.2
10.1
6.1
133.6
8.1
176.6
120.9
163.5
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 this measure of 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:
Cash generated from
continuing operations
Net capital expenditure
Net interest on cash
and borrowings
Tax paid
Lease payments and interests
Free cash flow before
acquisitions, disposals and
dividends
2020
£m
2019
£m
146.3
(28.6)
164.8
(54.9)
(6.6)
(26.0)
(12.7)
(9.3)
(28.8)
(12.6)
72.4
59.2
NET DEBT*
Net debt* is defined as borrowings, bank
overdrafts and lease liabilities, less cash and cash
equivalents. The Group also discloses this metric
excluding lease liabilities as this is the measure
used in the covenants over the Group’s debt
facilities.
Cash and cash equivalents
Non-current borrowings
Non-current lease liabilities
Current borrowings and bank
overdrafts
Current lease liabilities
Closing net debt*
Closing net debt* excluding
lease liabilities
2020
£m
147.8
(177.5)
(43.1)
2019
restated1
£m
132.8
(176.7)
(52.6)
(71.3)
(11.5)
(155.6)
(113.4)
(11.7)
(221.6)
(101.0)
(157.3)
1. As disclosed in note 1, 2019 has been restated to
include the Group’s cumulative preference shares
within borrowings, this increased borrowings and
net debt* by £0.4 million and decreased net assets
by £0.4 million. Cash and cash equivalents and
borrowings and overdrafts have been restated to
meet the presentational requirements of IAS 32 as
further described in note 1. This has had no impact
on net assets or net debt*.
44
Morgan Advanced Materials | Annual Report 2020 RETURN ON INVESTED CAPITAL
Return on invested capital (ROIC) is defined as
the 12-month Group adjusted operating profit
(operating profit excluding specific adjusting items
and amortisation of intangible assets) divided
by the 12-month average adjusted net assets
(third-party working capital, plant and equipment,
land and buildings, right-of-use assets, intangible
assets and other balance sheet items). This
measure excludes long-term employee benefits,
deferred tax assets and liabilities, current tax
payable, provisions, cash and cash equivalents,
borrowings, overdrafts and lease liabilities.
Operating profit before
specific adjusting items
Add back: amortisation
of intangible assets
Group adjusted
operating profit
12-month average
adjusted net assets:
Third-party working capital
Plant and equipment
Land and buildings
Right-of-use assets
Intangible assets
Other assets (net)
12-month average
adjusted net assets
2020
£m
85.6
2019
£m
126.1
6.1
8.1
91.7
134.2
166.4
179.8
114.0
42.2
198.2
7.5
708.1
181.0
194.1
122.9
50.2
211.4
12.4
772.0
ROIC
13.0% 17.4%
ADJUSTED EARNINGS PER SHARE
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. This measure of earnings is shown
because the Directors consider it provides
an indication of adjusted performance, which
is less impacted by adjusting items and therefore
reflects the underlying performance trends
in the business.
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 Morgan’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 121.
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. Page 138
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 45,
has been approved by the Board.
On behalf of the Board
Stephanie Mackie
Company Secretary
3 March 2021
45
Strategic reportMorgan Advanced Materials | Annual Report 2020 Governance
46 Morgan Advanced Materials | Annual Report 2020
GOVERNANCEChairman’s letter to shareholders 47Board of Directors 48Corporate governance 50Report of the Audit Committee 58Report of the Nomination Committee 63Remuneration report 66Other disclosures 87Independent auditor’s report to the members of Morgan Advanced Materials plc 90 Chairman’s letter to shareholders
The guiding principle of the
Board is to ‘do the right
thing’ with respect to all
our stakeholders and
“
the environment.”
Douglas Caster CBE FIET
Chairman
“
DEAR SHAREHOLDER
I am pleased to report that Morgan’s governance
framework served the Company well during 2020.
Despite the backdrop of an unprecedented,
challenging year my fellow Directors and I continued
to support and guide executive management.
The report which follows explains the governance
framework and the workings of the Board and
Committees and demonstrates how the Board
continued to perform effectively.
Apart from the priorities I discussed in my introductory statement to this
report the key governance priorities for the Board during 2020 were:
INFORMATION FLOW TO THE BOARD
The spread of COVID-19 across the globe meant that different parts of
the business were impacted at different times and it was imperative to keep
abreast of developments. The Board received regular reports from the
CEO on the impact of COVID-19 on operations, trading performance and,
not least, employee health, safety and well-being. In addition to receiving
regular briefings from the CEO between Board meetings, the Board met
more frequently and received commentary on the impact of the pandemic
directly from the divisional and global business unit senior managers as
well as representatives of the workforce at all levels in the organisation.
SUPPORT AND CHALLENGE OF EXECUTIVE
MANAGEMENT
The role of a non-executive director is to support executive management
but also to challenge proposals put forward for consideration by the Board.
In this respect, a diverse board membership assists in ensuring that the
assessments made and conclusions drawn have been fully considered and
take the long-term sustainability of the business into account. My fellow
non-executive directors and I drew on our individual areas of expertise,
experience and different personal perspectives to probe and test to ensure
that decisions taken in light of the impact of the pandemic on the business
were robustly debated, balanced short and longer term considerations
and will support the long-term performance of the Group.
This image was taken pre-COVID-19.
CULTURE AND VALUES
The Board sets the tone from the top and ensures that the Group’s culture
is aligned with the values and behaviours which are underpinned by the
Morgan Code. The Board has continued to monitor and assess Group
culture during 2020 using a range of mechanisms. The Board was keen
to ensure that the Group’s focus on working safely and ethically was not
compromised as a result of the pandemic.
ENGAGEMENT WITH KEY STAKEHOLDERS
This report explains how the Board engaged with key stakeholders. The
Board was not able to fulfil the programme of site visits planned for 2020.
However, as referred to in my statement at the start of this Annual Report,
I was pleased that the non-executive Directors were able to speak directly
to a diverse cross-section of employees in different locations across the
world using video conferencing. The Directors heard first-hand employee
accounts of the impact of COVID-19 on their site, the COVID-19 protocols
and safety measures put in place, as well as broader issues, such as their
views on investment and the future of Morgan. We have plans in place to
continue to participate in ‘virtual’ employee engagement sessions during
2021. The CEO and CFO engaged with shareholders through meetings
at the half and full year to discuss Company performance and provide
explanation of the Company results where necessary. All of these meetings
were on a ‘virtual’ basis.
BOARD EFFECTIVENESS
All Board meetings have been held ‘virtually’ since March 2020. I am
pleased to say that the virtual model has worked very effectively and has not
compromised Board effectiveness in any way. To assure this, in November
the Board conducted an evaluation of its own performance. Despite the
remote method of working throughout the year the outcome of the
evaluation was very positive.
In conducting Morgan’s business, the guiding principle will always be to
‘do the right thing’ within a framework of strong corporate governance.
We will trade ethically within a culture that develops and values our people
while looking for ways to support long term sustainability by minimizing
the Company’s environmental impact.
Douglas Caster CBE FIET
Chairman
47
GovernanceMorgan Advanced Materials | Annual Report 2020 Board of Directors
1. DOUGLAS CASTER CBE FIET
Non-executive Chairman
Appointed: Non-executive Director in
February 2014. Non-executive Chairman
and Nomination Committee Chairman on
1 January 2019.
Skills and contribution: Douglas is an
experienced Chairman with leadership and
governance experience and a strong track
record of managing and driving growth within
electronics businesses.
Career and experience: Douglas began his
career as an electronics design engineer with the
Racal Electronics Group in 1975, before moving
to Schlumberger in 1986 and then to Dowty as
Engineering Director of Sonar & Communication
Systems in 1988. In 1992, he became Managing
Director of that business and, after participating
in the management buy-out that formed Ultra
Electronics, joined the Board in October 1993.
In April 2000, he became Managing Director
of Ultra’s Information & Power Systems division.
In April 2004 he was appointed Chief Operating
Officer and became Chief Executive in April 2005.
He was appointed Deputy Chairman in April 2010
and was Chairman of Ultra from April 2011 until
28 January 2019. Douglas was non-executive
Chairman of Metalysis Limited from January 2015
until June 2019. Douglas was Morgan Advanced
Materials plc’s Senior Independent Director from
January 2015 until December 2017. He was
appointed to the role of Chairman in January 2019.
Additional appointments: None
Committees:
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.
Career and experience: Pete joined
Morgan Advanced Materials in August 2015
as Chief Executive Officer. Before joining
Morgan Advanced Materials, 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. He has a PhD in satellite
navigation and an M.Eng. from the Department
of Electronic and Electrical Engineering at the
University of Leeds.
Additional appointments: Non-executive
Director, Hill & Smith Holdings PLC.
3. PETER TURNER
Chief Financial Officer
Appointed: April 2016.
Skills and contribution: Peter has significant
financial experience combined with a strong track
record of driving improved business performance
in multiple large-scale and complex organisations.
Career and experience: Peter joined
Morgan Advanced Materials in April 2016 as
Chief Financial Officer. Before this, Peter was
Finance Director at Smiths Group plc from 2010
to 2015. During this time, he was responsible for
driving restructuring programmes across the
Group to enhance operating margins, with
a strong focus on improving operating cash flow.
Prior to Smiths, Peter was Finance Director from
2007 to 2009 at Venture Production plc, before
it was acquired by Centrica plc in 2009. From
1995 to 2006, Peter held several senior positions
at The BOC Group plc, including Finance
Director of the Industrial and Special Products
division. Peter started his career as an auditor
at Price Waterhouse. He holds a degree in
chemistry from Oxford University.
Additional appointments: None.
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 and
technology businesses gained in a variety of
senior executive positions. Jane brings a valuable
perspective from her current executive role in
the technology marketing and advertising sector.
Career and experience: Jane has been
Group Director and Group Chief Operating
Officer of Inside Ideas Group Limited since July
2020. Up until May 2019, Jane was Chief Financial
Officer of Arqiva Group Limited, a communications
infrastructure company. Prior to this, she was
the Chief Financial Officer of KCOM Group plc,
a listed communications services and IT solutions
provider. She was Chief Financial Officer and
Chief Operating Officer of Phoenix IT Group plc
until its acquisition by Daisy Group in 2015.
Jane has also held Chief Financial Officer positions
at Infinis plc, Wilson Bowden plc and Pressac plc
and a senior finance position at Asia Pulp and
The image was taken pre-COVID.
48 Morgan Advanced Materials | Annual Report 2020
Paper in south-east Asia. 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 holds a civil engineering degree
and qualified as a Chartered Accountant with
Ernst & Young.
Additional appointments: Group Director
and Group Chief Operating Officer of Inside
Ideas Group Limited.
Committees:
5. HELEN BUNCH
Independent Non-executive Director
Appointed: Non-executive Director in
February 2016. Remuneration Committee Chair
on 1 January 2019.
Skills and contribution: Helen has significant
experience of driving business performance and
building businesses in new markets. Helen also
brings to the Board a valuable perspective from
her current executive role leading a business
in the construction sector.
Career and experience: At the start of her
career, Helen spent 17 years working in global
businesses serving a wide variety of industries
from automotive to household products,
including 11 years with ICI and the remainder
with a successor company, Lucite International
Ltd. In 2006, Helen joined Wates Group, the
privately-owned construction and property
services company, as Group Strategy Director
and became Managing Director of Wates Retail
Limited in January 2011. From 2015 to July 2020
Helen was Managing Director of Wates
Smartspace Limited, the enlarged property
services business following a merger with another
Wates company and the acquisition of a facilities
management business. In July 2020, Helen
became Executive Managing Director of Wates
Residential.
Additional appointments: Executive
Managing Director of Wates Residential.
Committees:
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 Morgan’s key markets.
Career and experience: Laurence joined
Banque Nationale de Paris in 1988 followed
by M&M Mars Inc. in 1992 and then Amoco
Chemical Inc. in 1993, which was acquired by
BP p.l.c. in 1998. She spent a further 11 years at
BP in a variety of roles including Chief Executive
of Castrol Industrial Lubricants and Services.
Laurence was Chief Executive of independent
power producer Eoxis UK Limited from 2010 to
2013. Laurence is currently Chair of Voltalia S.A.
and Globeleq Ltd, and a member of the
supervisory boards of SBM Offshore N.V. and
Siemens Energy AG.
Additional appointments: Chairman of
Voltalia S.A., Chairman of Globeleq Ltd, member
of the supervisory board of SBM Offshore N.V.
and member of the supervisory board of
Siemens Energy AG.
Committees:
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
continues to serve on the board of Saurer in the
capacity of non-executive director. Prior to this,
from April 2014 to July 2016, 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 at companies based in Switzerland
and Singapore including Division CEO of Leica
Geosystems AG, President & CEO of SATS Ltd,
and CEO Textile Division of OC Oerlikon AG.
Clement has an MBA in Technology
Management from Nanyang Technological
University, Singapore, an MSc in Industrial
Engineering and a BEng in Electrical Engineering
from the National University of Singapore.
Additional appointments: Non-executive
Director of Saurer AG and Chairman of PFI
Foods Industries Pte. Ltd.
Committees:
COMMITTEES
Committee Chairman
Audit
Nomination
Remuneration
3
5
4
7
1
6
2
49
GovernanceMorgan Advanced Materials | Annual Report 2020
Corporate governance
THE UK CORPORATE GOVERNANCE CODE
In July 2018 the Financial Reporting Council published the most recent version of the UK Corporate Governance Code (the Code), which is available
on its website www.frc.org.uk.
Listed below are the Code Principles, and details of where we have addressed them in this Annual Report.
APPLICATION OF CODE PRINCIPLES:
Code Principle
Summary
Board Leadership and Company Purpose Principles
A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable
success of the company, generating value for shareholders and contributing to wider society.
The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned.
All directors must act with integrity, lead by example and promote the desired culture.
The board should ensure that the necessary resources are in place for the company to meet its objectives, and measure
performance against them. The board should also establish a framework of prudent and effective controls, which enable
risk to be assessed and managed.
In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective
engagement with, and encourage participation from, these parties.
The board should ensure that workforce policies and practices are consistent with the company’s values and support its
long-term sustainable success. The workforce should be able to raise any matters of concern.
Division of Responsibilities Principles
The chair leads the board and is responsible for its overall effectiveness in directing the company. He or she should
demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition,
the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures
that directors receive accurate, timely and clear information.
The board should include an appropriate combination of executive and non-executive (and in particular, independent
non-executive) directors, such that no one individual or small group of individuals dominates the board’s decision-making.
There should be a clear division of responsibilities between the leadership of the board and the executive leadership
of the company’s business.
Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive
challenge and strategic guidance, offer specialist advice, and hold management to account.
The board, supported by the company secretary, should ensure that it has the policies, processes, information, time and
resources it needs in order to function effectively and efficiently.
Composition, Succession and Evaluation Principles
Appointments to the board should be subject to a formal, rigorous and transparent procedure, and an effective succession
plan should be maintained for board and senior management. Both appointments and succession plans should be based
on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds,
and cognitive and personal strengths.
The board and its committees should have a combination of skills, experience and knowledge. Consideration should
be given to the length of service of the board as a whole and membership regularly refreshed.
Annual evaluation of the board should consider its composition, diversity and how effectively members work together
to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively.
Audit, Risk and Internal Control Principles
The board should establish formal and transparent policies and procedures to ensure the independence and effectiveness
of internal and external audit functions and satisfy itself of the integrity of financial and narrative statements.
The board should present a fair, balanced and understandable assessment of the company’s position and prospects.
The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature
and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.
Remuneration Principles
Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success.
Executive remuneration should be aligned to company purpose and values and be clearly linked to the successful delivery
of the company’s long-term strategy.
A formal and transparent procedure for developing policy on executive remuneration and determining director and senior
management remuneration should be established. No director should be involved in deciding their own remuneration
outcome.
Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking account
of company and individual performance, and wider circumstances.
A
B
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Page(s)
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8 to 23
26 to 31
4, 5, 20,
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54 to 56
48, 49,
53, 54
55
56
63 to 65
48, 49, 54,
63 to 65
56 to 57
60 to 62
60
26 to 31
66 to 76
66 to 86
66 to 86
Morgan Advanced Materials | Annual Report 2020 STATEMENT OF COMPLIANCE
WITH THE CODE PROVISIONS
The Board confirms that during the year ended
31 December 2020, the Company has fully
complied with the provisions of the Code.
BOARD’S MONITORING AND
ASSESSMENT OF CULTURE AND
WORKFORCE ENGAGEMENT
As set out in greater detail on pages 18 to 23
in the sustainability and responsibility section,
Morgan’s cultural objective is to build an
organisation where collaboration and
empowered decision-making at all levels of
management (rather than in isolation locally)
is more prevalent, and where the right outcomes
are reached, in the right way (ethically, safely and
inclusively). The Morgan Leadership Behaviours
support the ethos that ‘it is not just what you do,
but how you do it that counts.’
The Board has monitored and assessed the
development of Morgan’s culture through
the methods used for employee engagement
as described below, supplemented by other
resources to help assess the culture and
which include:
´ Employee insight gathered from site visits,
virtual engagement sessions, and employee
events
´ Employee engagement survey metrics
and verbatim employee comments
´ Areas of culture highlighted in ethics reporting
´ Safety updates and metrics – presented
directly to the Board on a regular basis
´ Additional insights with a focus on diversity
and inclusion.
Workforce engagement
For the purposes of workforce engagement, the
Board defines the workforce as all employees
directly employed by the Group. The Board
considers that the most appropriate mechanism
for workforce engagement is a combination of
methods, (as permitted by the Code), involving
all Board members. This approach recognises the
Group’s global reach with facilities located in over
30 countries, and the fact that many employees
are in operational and manufacturing roles
without internet access in the workplace.
The mechanisms selected by the Board to
engage with the workforce primarily comprise
a number of meetings between the non-
executive Directors with employees, (without
senior management present), supplemented by
other methods, to provide insight into employee
views, which are summarised below. Due to
the global COVID-19 pandemic which severely
limited travel, most employee engagement that
took place in 2020 was virtual, rather than via
in-person meetings at the Group’s manufacturing
sites or offices.
Board attendee(s)
Date
Type of engagement
Location(s)
Who met
Helen Bunch and
Clement Woon
Clement Woon
Jan 2020
Site visit
Oct 2020
Site visit
Luxembourg
(Seals & Bearings site)
Singapore office
All NEDs
All NEDs
All NEDs
Douglas Caster and
Clement Woon
Nov 2020
Nov 2020
Nov 2020
Dec 2020
Virtual employee engagement
session
Virtual governance session
Johannesburg, South Africa
(Electrical Carbon facility)
Johannesburg, South Africa
Virtual employee engagement
session
Virtual employee engagement
session
New Bedford, United States
(Technical Ceramics facility)
Bromborough, United Kingdom
(Thermal Products – Thermal
Centre of Excellence, warehouse
and sales office)
Site visit, met local employees
and management
Site visit, met local and
regional finance managers
Met local employees and
management
Met non-executive directors
of Morganite South Africa
Met local employees
and management
Met local employees
and management
During the engagement sessions, employees
were encouraged to express their views on
working on site during the pandemic, safety,
culture, leadership, investment in the future
of the site and any other matters they wished to
raise, and the output from the discussion was
reported back to the next Board meeting, which
created greater awareness of employee views.
In addition, follow up discussions were held
to share employee feedback with managers,
to address any concerns and to foster a positive
culture.
The meetings between non-executive Directors
and small groups of employees from one site
creates an atmosphere of trust which encourages
employees to speak openly and honestly about
the issues they care about most. The Board
is satisfied that the combination of (i) dedicated
engagement sessions with diverse groups
of employees which encourages meaningful
discussion and frank feedback; (ii) meeting
employees in their place of work during Board
visits to Morgan facilities and non-executive
Director site visits; and (iii) the varied encounters
with employees during other Morgan events
provide a range of effective ways to engage with
employees. Feedback from employees indicates
that they appreciate these interactions, and that
employees would like engagement to continue.
During 2020, the inability to travel and visit sites
prevented the anticipated level of engagement
in person, and the Board instead held a number
of virtual engagement sessions. This approach
continues to evolve, and the Board will monitor
its effectiveness and develop its approach
during 2021.
51
GovernanceMorgan Advanced Materials | Annual Report 2020 Corporate governance
Engagement with Shareholders
The Chairman and the executive Directors
meet institutional investors and potential
institutional investors.
The Company’s brokers present to the Board
annually, including reporting insights from
investors and the market.
The Board also review the feedback provided by
investors and potential investors following annual
and half-year results presentations which sets
out the issues that investors are interested
in and whether they believe their expectations
have been met.
Ordinarily, the Annual General Meeting (AGM)
provides shareholders with the opportunity to
ask questions of the Directors in person and to
meet them informally after the meeting. This was
not possible during 2020 due to COVID-19 and
the UK Government’s ‘stay at home’ measures.
Instead, shareholders were asked to submit
questions ahead of the Company’s AGM for
the Board to respond to, by contacting the
Company Secretary.
The Investors section of the Company’s website
includes details of regulatory announcements,
press releases, presentations, webcasts and other
relevant Company and shareholder information.
Relations with customers and suppliers
The Board keeps abreast of relations with
customers through regular reports from the
Chief Executive Officer as well as insights
provided by the Presidents of the divisions
and global business units as part of their business
presentations to the Board. During 2020,
as a result of the Group’s restructuring project,
additional engagement and partnering with
customers was required where site closures
meant that manufacturing of products moved
from sites in one country to another, with the
need for additional quality control measures
as a result.
Morgan ensures its interactions with suppliers,
customers and competitors are always ethical,
through the Morgan Code and specific Group
policies, supported by risk assessment and due
diligence. The Company seeks to ensure that
suppliers and customers operate in a similarly
responsible manner, by fostering long-term
relationships built on trust, being truthful in
communications, and meeting agreed payment
terms. Morgan seeks to ensure that new
suppliers operate in a responsible way, that their
workers are safe and treated fairly, and ensures
that environmental and social impacts are taken
into consideration during its process for sourcing
new suppliers.
Morgan publishes its Modern Slavery Act
transparency statement annually, explaining steps
taken by the Group to seek to ensure that there
are no incidents of modern slavery within the
business and its supply chain, in accordance with
the UK Modern Slavery Act 2015. The Board
reviews the Group’s operational, legal and
compliance framework to prevent modern
slavery in its supply chain, which includes
employee training, contractual terms and
conditions and due diligence processes.
Engagement with pension trustees
on behalf of pensioners
The Board met the Chair of the UK defined
benefit pension scheme trustees in February 2020
and February 2021 and had the opportunity to
ask questions. The Director of Pensions and
the Chief Financial Officer also provide regular
updates to the Board on pension issues and
funding and regulatory developments affecting
the Company’s main defined benefit schemes
around the world, including those in the
US where, as in the UK, there are a significant
number of pensioner members.
52
Morgan Advanced Materials | Annual Report 2020 THE BOARD
The role of the Board
The Board is collectively and ultimately responsible to the Company’s
shareholders and oversees how the organisation generates and
preserves the long-term success of the Company. The Board
supervises and monitors progress against the key execution priorities,
whilst ensuring that there is a robust framework of prudent and
effective controls, which enables risks and emerging risks to be fully
considered, assessed and managed.
The Board sets the tone from the top and monitors the Company’s
compliance with the Morgan Code (referred to on page 23 of the
Sustainability and responsibility section of this Report), and in doing so
all the Directors fulfil their duties under section 172 of the Companies
Act 2006.
Matters reserved for the Board
´ Overall leadership, culture, strategic aims, long-term objectives
and risk appetite of the Group.
´ Alignment of Group’s culture with purpose and values.
´ Any changes relating to Group capital structure.
´ Oversight and approval of full-year and half-year financial results,
including approval of the Annual Report and ensuring a ‘fair,
balanced and understandable’ presentation of the Group’s financial
position.
´ Approval of contracts and expenditure as specified in the Limits
of Authority schedule.
´ Stakeholder communication and engagement.
´ Changes to Board membership following recommendations
from the Nomination Committee.
´ Determining remuneration policy for the Directors, Company
Secretary and other senior executives following recommendations
from the Remuneration Committee.
´ Delegation of authority, approving levels of authority including for
the principal committees, and approving their terms of reference.
´ Corporate governance matters, including a review of its own
performance, determining non-executive Director independence,
and review of overall governance arrangements and authorising
any conflicts of interest.
´ Other specific matters.
THE COMMITTEES OF THE BOARD
(and key responsibilities)
Audit
Committee
´ Financial reporting
´ External audit
´ Internal audit
´ Oversight of
principal risks
´ Oversight of ethics
and compliance
Remuneration
Committee
´ Executive and
senior
management
remuneration
´ Incentive structure
and target setting
´ Setting
remuneration
policy
´ Reviewing and
considering wider
workforce
remuneration
Nomination
Committee
´ Succession
planning (Board
and senior
management)
´ Board and
Committee
composition
´ Board
recruitment/
appointments
´ Diversity and
inclusion
Executive
Committee
´ Strategy
implementation
´ Delivery of
operational and
financial
performance
´ Approval of
policies
´ Assessment and
control of risk
´ Prioritisation and
allocation of
resources
´ Monitoring of
competitive forces
in each area of
operation
Disclosure
Committee
´ Assistance and
information to the
Board concerning
the identification of
inside information
´ Recommendations
as to how and
when the
Company should
disclose such
information
´ Ensuring any such
information is
managed and
disclosed in
accordance with all
applicable legal and
regulatory
requirements and
the Company’s
procedures on
controlling inside
information
General Purposes
Committee
´ Approve opening
of/changes to bank
accounts
´ Approve
arrangements with
financial institutions
´ Approve
guarantees and
indemnities
´ Approve
substantive
intra-Group loans
´ Intra-Group
dividends and
capital
restructuring
´ Grant options/
make awards
under Company’s
share schemes
(after
Remuneration
Committee
approval) and any
Employee Benefit
Trust-related loans
53
GovernanceMorgan Advanced Materials | Annual Report 2020
Corporate governance
The Company’s governance framework
is formally delivered through the following
mechanisms: the Company’s Articles of
Association, the clearly defined role of the Board
and the matters reserved for the Board, and
the principal Committees of the Board (Audit,
Remuneration and Nomination Committees)
and their clearly defined terms of reference.
The memberships, roles and activities of the
principal Committees are described in their
respective reports. The full terms of reference
of the principal Committees are available
on the Company’s website.
The Board delegates the day-to-day management
of the Group and operational matters to the
Chief Executive Officer and the Chief Financial
Officer. The two executive Directors together
with the Group Human Resources Director, the
Group General Counsel, the Group IT Director,
and the divisional or global business unit
Presidents form the Executive Committee.
The Company Secretary acts as Secretary
to the Committee and attends all meetings.
The Board has delegated authority for certain
other specific matters including approvals to
a General Purposes Committee at which
a non-executive Director must be present.
The General Purposes Committee meets
as required.
The Disclosure Committee meets on an ad-hoc
basis during the year to assess whether
information which directly concerns the Group
is inside information (as defined by the UK
(formerly EU) Market Abuse Regulation), and
to discharge other responsibilities relating to
the control and disclosure of inside information.
The membership of the Disclosure Committee
comprises the Directors and the Company
Secretary, but meetings are generally attended
by the executive Directors and the Company
Secretary.
Board – roles and responsibilities
In 2020 the Board comprised five non-executive
Directors (including the Chairman) and two
executive Directors. This is considered to be the
appropriate number of members for the Board,
given the scale of the Group’s operations at
this time. Biographies of the Directors in post
at the date of this Report, including details of
their skills, career and experience and any other
significant external commitments, are set out
on pages 48 and 49.
There is a clear division of responsibilities
between the Chairman and Chief Executive
Officer, and each role is clearly defined.
The Chairman
Responsible for:
´ Leading and ensuring the effectiveness
of the Board and the individual Directors;
´ Shaping boardroom culture;
´ Ensuring the Board has effective decision-
making processes and applies sufficient
challenge to major proposals;
´ Setting the Board’s agenda;
´ Ensuring sufficient time is available for all
agenda items;
´ Promoting a culture of open debate
and constructive challenge which results
in sound decision-making;
´ Encouraging all Directors’ effective
contributions, drawing on their skills,
experience and knowledge; and
´ Ensuring constructive relationships between
executive and non-executive Directors.
Chief Executive Officer
Responsible for:
´ Management of the Group;
´ Delivery of the Group’s business plan;
´ Formulation and implementation of Group
strategy;
´ Chairing the meetings of the Executive
Committee; and
´ Ensuring the implementation of the Group’s
policies, all within the authorities delegated
by the Board.
The Chairman and Chief Executive Officer
maintain a strong working relationship and
open dialogue, which ensures cogent leadership
of the Group.
Chief Financial Officer
´ Supports the Chief Executive Officer in the
development and delivery of the Group
strategy;
´ Leads the Group’s finance functions;
´ Oversees effective financial reporting and
ensures suitable processes and controls are
in place; and
´ In conjunction with the Chief Executive
Officer, recommends the annual budget
and long-term financial plans of the Group.
Senior Independent Director
´ Meets with the non-executive Directors
(without the Chairman present) at least
once a year to consider the Chairman’s
performance during the year and
communicates the outcomes to the
Chairman; and
´ Acts as a trusted sounding board for
the Chairman and as an intermediary for
the other non-executive Directors.
Non-executive Directors
´ Provide independent monitoring and review
of management’s performance;
´ Provide alternative insight, expertise and assist
with the development and review of the
strategy;
´ Engage with stakeholders and employees
in relation to Morgan’s culture; and
´ Chair/attend meetings of and contribute to
the work of the principal committees of the
Board, reviewing remuneration, financial
performance, internal audit and succession
planning of senior management.
Company Secretary
´ Supports the Board by ensuring information
is made available in a timely manner;
´ Supports the Board by facilitating induction,
training and performance evaluations;
´ Supports the Chairman in designing the
annual Board programme; and
´ Provides advice on corporate governance
matters.
Board balance, experience, diversity
and independence
The size, structure and composition of the Board
were reviewed during the year, taking into
account succession planning and the need to
progressively refresh the membership and update
the knowledge and range of skills and experience
of the Board, which are themselves regularly
reviewed. The Board wishes to ensure that it
maintains a blend of views and skills as well as a
cohesive and informed decision-making process.
The Board comprises members with a breadth
and depth of professional and sector experience,
and with varied and relevant backgrounds;
it has Directors with skills in strategy, finance
and technology, as well as global commercial
experience, and working knowledge of other
boards or executive roles.
Throughout the year, the Company complied
with the requirement of the Code that at least
half the Board, excluding the Chairman, should
comprise non-executive Directors determined
by the Board to be independent. In addition to
considering the factors set out in the Code, the
Board’s assessment of a non-executive Director’s
independence and effectiveness covers their total
number of commitments, and any relationships
with major suppliers or with charities receiving
material support from the Company.
During the year, the Chairman and the
non-executive Directors met on a number
of occasions without the executive Directors
present. The Senior Independent Director and
the other non-executive Directors also met
without the Chairman present.
54
Morgan Advanced Materials | Annual Report 2020 Board meetings
In 2020, the Board met formally on 11 occasions,
with a summary of the matters addressed
in these meetings set out on pages 56 to 57.
Meetings which took place from March 2020
onwards were held by video conference.
During the year, the Board considered the
Company’s response to the emerging global
pandemic, with regular reports on the impact of
COVID-19 on the Group’s trading performance
and operations. The Board was kept apprised of
how employees were safeguarded through new
site working practices and how customers’ needs
were met despite interruptions to manufacturing
processes. The Board also received regular
updates on the restructuring programme and
separate reviews on culture, diversity, talent,
technology and safety.
Attendance at meetings
The attendance of each Director at Board, Audit,
Remuneration and Nomination Committee
meetings is set out below:
Director
Douglas Caster
Pete Raby
Peter Turner
Jane Aikman
Helen Bunch
Laurence Mulliez
Clement Woon
Board
(maximum 11)
Audit
Committee
(maximum 4)
Nomination
Committee
(maximum 2)
Remuneration
Committee
(maximum 6)
11/11
11/11
11/11
11/11
102/11
11/11
11/11
4/41
4/41
4/41
4/4
4/4
4/4
4/4
2/2
2/21
–
2/2
2/2
2/2
2/2
6/6
6/61
–
6/6
6/6
6/6
6/6
1. Attended by invitation.
2. Helen Bunch was unable to attend a meeting convened specifically to approve a new precious metals facility
agreement due to a last-minute emergency.
Time commitment
Prior to undertaking an additional external
role or appointment, the Chairman and the
non-executive Directors are asked to confirm
that they will continue to have sufficient time
to fulfil their commitments to the Company.
In accordance with the Code, Directors are
asked to seek Board approval prior to accepting
any additional external appointments.
Conflicts of interest
The Board has procedures in place to address
the requirements of the Companies Act 2006
concerning the duty of the Directors to avoid
conflicts of interest. Accordingly, the Directors
are required to:
´ Disclose proposed outside commitments
and to seek Board approval before accepting
any additional external appointments, in order
to enable a prior assessment of any actual
or potential conflict.
´ Disclose without delay any situation which
gives rise to an actual or potential conflict.
The Board reviews the outside interests of
the Directors annually, including any disclosed
conflicts and authorisations. Should an actual
or potential conflict be identified, the Board
considers whether to authorise the situation
in accordance with the Company’s Articles
of Association and, if so, the terms of any
authorisation. In the event of an actual conflict
arising, the Director concerned must notify the
Chairman (the Chairman would notify the Senior
Independent Director) and the Director would
be denied access to the relevant information
and excluded from any associated debate
and decision.
The 2020 review confirmed that no potential
or actual conflicts had occurred during the year
under review.
Should a Director have concerns about the
running of the Company, or about a proposed
action, which are not resolved, their concerns
would be recorded in the Board minutes.
An appropriate Directors’ and Officers’ liability
insurance policy is in place.
55
GovernanceMorgan Advanced Materials | Annual Report 2020 Corporate governance
Summary of the Board’s work and key decisions taken during the year
Strategy
Performance
´ Monitored ongoing performance in relation
´ Received updates on health and safety
to the strategic priorities
of employees
´ Reviewed the progress of key technology
projects and considered potential
opportunities for growth
´ Reviewed the Group’s talent strategy,
succession planning and potential future
leadership capability and how best to retain
and promote talent to support the business
´ Received an update on implementation of
the Group’s IT strategy and how this had
been adapted to working conditions under
COVID-19
´ Approved a small number of specific
requests for capital expenditure above
a certain threshold to invest and grow
the business
´ Monitored the impact of the pandemic on
operations and ability to service customers
´ Reviewed Group financial performance
including actions to preserve cash, reduce
costs, and improve liquidity
´ Approved a Group restructuring
programme and received updates on its
implementation
´ Conducted post-implementation reviews
of capital expenditure projects
´ Reviewed the dividend policy;
recommended withdrawal of the 2019 final
dividend and approved the 2020 interim
dividend
´ Approved the 2021 budget
´ Considered reports from the Chief
Executive Officer and the Chief Financial
Officer at each Board meeting
´ Received updates from each of the
Presidents of the divisions and global
business units
Culture and stakeholder engagement
Governance and risk
´ Monitored the Group’s culture
´ Reviewed progress to date of the action
plan to promote diversity and inclusion
across the Group
´ Performed annual review of progress in
relation to fostering a safe, ethical and
diverse culture
´ Monitored implementation of ‘thinkSAFE’,
the Group’s behavioural safety programme
´ Through reports from the Audit
Committee, monitored progress against
implementation of the Morgan Code and
reviewed reports made to the ethics hotline
´ Conducted engagement sessions with
employees
´ Reviewed feedback from investors following
full-year and half-year results roadshows,
and met the Company’s joint brokers
´ Monitored environmental, health and safety
performance at every Board meeting and
set targets for the forthcoming year
´ Twice-yearly, reviewed the Group’s
principal risks and approach to risk
management
´ Reviewed the Group’s risk appetite,
including potential level of exposure for
emerging and principal risks
´ Approved a new precious metals financing
facility
´ Approved the Group’s tax strategy
´ Approved matters relating to the pension
strategy, and approach to discussions with
the pension trustees on funding strategy
´ Reviewed legal matters including material
litigation
´ Reviewed the outcomes of the annual
Board performance evaluation and agreed
actions for further improvement as well as
monitored progress against actions arising
from the 2019 performance evaluation
´ Considered the Board’s response to the
requirements of the Code and related
legislation
´ Reviewed reports from the Chairs of the
Audit, Nomination and Remuneration
Committees
´ Reviewed and approved the Group’s
half-year results and preliminary
announcement of the 2020 final results
´ Considered whether the Annual Report and
Accounts are ‘fair, balanced and
understandable’
56
Board support and access to information
The Company Secretary, with the Chairman,
is responsible for ensuring the Board has full
and timely access to all appropriate information
to enable it to fully discharge its duties. Board
papers are generally made available electronically
at least five working days prior to each meeting.
Non-executive Directors also receive
information and updates between formal Board
meetings. The Company Secretary attends all
Board meetings and all Directors have access
to her advice and, if necessary, to independent
professional advice at the Company’s expense
to assist them in fulfilling their duties as Directors.
New Directors receive a full, formal and tailored
induction on joining the Board. A new Director’s
experience and background is taken into account
in developing a tailored induction programme,
which will usually include: an information pack
with pertinent documents; meetings with
external advisers, senior executives and
functional heads; and a number of site visits.
All non-executive Directors have access to
management and employees at all levels and
are encouraged to visit operational sites.
The Chairman considers the individual training
and development needs of each Director.
The Company Secretary keeps the suitability
of external courses under review and facilitates
the continuing training and development of all
Directors as necessary. Training may be provided
via presentations at Board meetings as well as
through online learning. During 2020, the Board
received briefings on UK pension legislative
developments, the UN Sustainable Development
Goals and accounting for the impact of COVID
and undertook online training on cybersecurity
and elements of the Morgan Code and Morgan’s
policies in relation to ethical behaviour.
Board performance evaluation
An internal Board performance evaluation led
by the Chairman, and facilitated by Jack Telfer
of Auxesis Consulting, took place in 2020.
Jack Telfer is not involved in any other business
relationship with the Company and is independent.
The process for the evaluation of the Board
and its Committees was as follows:
1. All Board members completed online
questionnaires. The questionnaires
comprised a number of questions on general
Board effectiveness (including a selection
of questions repeated from last year’s
questionnaire to allow year-on-year
comparison), one question on the
performance of each of the principal
Committees, and additional questions
on the performance of the Chairman.
2. Auxesis Consulting reviewed Directors’
responses and spoke to each Director
individually by telephone to clarify points
of feedback.
Morgan Advanced Materials | Annual Report 2020 3. Auxesis Consulting produced a report
summarising the results of the questionnaires
and highlighting any significant changes from
last year, discussing the findings with the
Chairman initially.
4. The report on general Board effectiveness
was made available to the Board and the
Chairman presented his conclusion and
recommendations at the December Board
meeting.
5. The Board subsequently agreed an action
plan.
6. In addition, Auxesis Consulting provided
a separate summary for the Senior
Independent Director on the Chairman’s
performance, and the Senior Independent
Director provided feedback to the Chairman
on his effectiveness in chairing the Board.
The overall outcome of the 2020 performance
evaluation was that the Board is operating
effectively, that the membership was sufficiently
diverse, with individual Directors’ skills and
experience and thoughts complementing each
other, and that the Directors work well together,
including in the virtual meetings which were
prevalent during 2020. Proposed actions arising
from the 2020 evaluation which will be carried
out in 2021 include the following:
´ Monitoring implementation of strategy –
the specific impact of COVID-19 meant that
the Board focused more on short-term
considerations during 2020. The Board
intends to increase its focus on strategy
during 2021.
´ Oversight of the Group’s restructuring
programme – the Board agreed to continue
to oversee the implementation of the
restructuring programme. The Board will
monitor the senior leadership’s capacity
to maintain balance between short-term
execution priorities and the longer-term
development of the business.
´ Executive team bandwidth and wellbeing
– the Board will seek to strongly support
Morgan’s people given the heavy and
challenging workload arising from the
pandemic.
´ Employee engagement and site visits – whilst
travel restrictions continue options for virtual
Board engagement opportunities will be
developed until physical visits and meetings
can resume.
´ Board engagement – non-executive Directors
meet without executive management after
each Board meeting (currently meeting
virtually).
An externally facilitated Board performance
evaluation process will be carried out in 2021.
Actions were taken during the year to track and implement the recommendations made following
the 2019 Board performance review:
Recommendations from 2019
Action taken/progress made during 2020
Monitoring implementation of strategy –
In the context of assessing future strategic
direction, the Board agreed to consider
further whether it should spend more time
considering external economic and/or political
developments that might affect the Group.
Assessing the risk profile of the Group –
To assist the Board in understanding the
appetite for risk within the Group and to assist
executive management in formalising the level
of risk which is appropriate for the business,
the Board should continue to review whether
sufficient information is provided to the Board
to assess the Group’s risk profile.
Developing leadership capability and
succession planning – In order to support
executive management in the development of
leaders within the organisation, the Board will
continue to take advantage of opportunities
to meet senior leaders within the business,
in particular for more informal interactions
with Executive Committee members, and with
site-based individuals who are part of the senior
leadership team.
Board development – Recognising that the
current Board has a good mix of skills and
experience which complement each other, and
that no current recruitment needs have been
identified, the Board will continue to strengthen
itself through specific training and development,
with the selection of particular topics to be
supported by the Company Secretary.
ACCOUNTABILITY
Financial reporting
A summary of the statement of Directors’
responsibilities in respect of the Annual Report
and the consolidated financial statements is
set out on page 89, and the going concern and
viability statements are set out in the Strategic
Report on pages 41 and 42.
Business model and strategy
Details of the Group’s business model, how it is
working to generate and sustain long-term value,
and details of the Board’s strategy for ensuring
the Group meets its objectives are set out
in the Strategic Report on pages 7 to 9.
Environmental, Social and Governance
The Board has overall responsibility for the
Group’s ESG strategy and priorities and for
monitoring the implementation of the strategy.
´ Reviewed large growth opportunities
in target market sectors
´ Received briefings on the short- and
long-term prognosis for Morgan’s target
markets
´ Kept abreast of the economic, political
and societal trends which might impact the
strategic direction in the long term, including
climate change and barriers to trade in
particular in relation to the US, China
and the EU.
´ Although no dedicated assessment of risk
appetite took place during 2020, the Board
has addressed the Group’s risk profile in
relation to the key decisions made by the
Board during the year
´ The Board reviewed the Group’s principal
and emerging risks half-way through, and
at the end of, 2020.
´ All members of the Executive Committee
and a good number of their direct reports
presented to the Board during meetings
in 2020
´ The Board met site leaders to give feedback
following the virtual employee engagement
sessions
´ More will be done during 2021 to ensure
engagement and interaction continue.
´ The Board received briefings on a number
of specific topics and undertook online
training as described above.
Internal control
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 this system.
The system of internal control, and the role of
the Audit Committee in ensuring its effectiveness,
are set out in the Report of the Audit Committee
on pages 60 to 62.
Information on share capital and
other matters
The information about share capital required
to be included in this statement can be found
on pages 87 to 89 in the Other disclosures
section.
57
GovernanceMorgan Advanced Materials | Annual Report 2020 Report of the Audit Committee
This Report gives an insight into
the responsibilities, activities and
workings of the Audit Committee
(the Committee) and how it
discharged its duties during 2020.
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 48 to 49.
DEAR SHAREHOLDER
I am pleased to present the Audit Committee’s
report for 2020. This has been an exceptional
year for the Group, and the Committee’s
primary function to ensure the integrity of the
Group’s financial reporting and external audit
processes and the maintenance of sound internal
control and risk management procedures have
been more pertinent than ever.
The Committee has overseen the transition
following the change of external auditor from
KPMG to Deloitte LLP, who were appointed
following the audit tender process which concluded
in 2019. This is the first Annual Report to be
audited by Deloitte LLP. The Committee has
monitored the successful transition to a new audit
approach and has scrutinised the performance
and effectiveness of the external audit.
The Audit Committee reports to the Board of
Directors on whether the Annual Report and
Accounts, taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Company’s position and performance, business
model and strategy. The Audit Committee’s role
is to ensure that management’s disclosures
reflect the supporting detail or to challenge them
to explain and justify their interpretation and,
if necessary, re-present the information.
The Committee has provided assurance to the
Board that the Group’s financial statements have
faithfully represented the impact of COVID-19
on the Group’s financial performance, and the
accounting judgements required to report the
various activities which are being undertaken
as part of the Group’s restructuring programme.
This assurance has supported the Board with the
key decisions taken during 2020 and has provided
assurance to the Board when reviewing the going
concern and longer-term viability assessment
of the Group.
The Committee has monitored the reports
raised through the ethics hotline and ensured
that executive management have responded to
these quickly and appropriately. The Committee
reviews 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.
The Committee continues to monitor and
address any changes in governance and reporting
requirements. The landscape in which audit
services are provided is likely to change in the
near future. In particular, the Committee will
monitor developments following the publication
of the Brydon Report and developments
in relation to the audit profession.
As a Committee, we are also following
developments in the wake of the Kingman
Review and how we can address the Kingman
recommendation to promote greater ‘brevity,
comprehensibility and usefulness’ in the
Company’s own reporting in the coming year.
In addition, the Committee monitored the
systems of internal control to ensure that these
continued to operate effectively. In particular, the
Committee reviewed the progress of the internal
audit plan and the effectiveness of the internal
audit function, despite the limitations placed on
the team due to the restrictions on travelling to
Morgan sites.
COMMITTEE EVALUATION
The Committee’s performance was reviewed as
part of the main Board performance 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, whilst contributing effectively
to the Group’s overall governance framework.
Jane Aikman
Committee Chair
58
Morgan Advanced Materials | Annual Report 2020 MEETINGS
The Committee met four times during the year,
with the timing and the agendas of the meetings
closely linked to key points in the annual reporting
cycle.
The Chairman 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 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 Chairman
of the Board, the Chief Executive Officer, 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.
INFORMATION AND SUPPORT
The Committee may request the attendance
at meetings of any Director or employee as may
be considered appropriate by the Committee.
Committee members receive appropriate and
timely information on all matters needed to
enable the Committee to fulfil its responsibilities.
Training and development information is made
available to Committee members as appropriate.
AUDIT COMMITTEE TERMS
OF REFERENCE
The Committee supports the Board in its
responsibilities in relation to corporate reporting,
risk management and internal controls, and
manages the relationship with the Group’s
external auditor. The Committee provides
regular reports to the Board. The Committee’s
terms of reference, reviewed during the year,
are available on the Company’s website.
KEY ACTIVITIES DURING 2020
During 2020 the key areas of focus for the
Committee were:
´ Receiving reports on progress in relation
to the internal audit plan, providing guidance
and ensuring continuous improvement of
the function;
´ Conducting a robust review of the scope,
remit and effectiveness of the internal control
environment and ensuring risk management
procedures are appropriate and effective;
´ Overseeing the Group’s ethics and compliance
programme and monitoring progress in
compliance with the Morgan Code across
the Group;
´ Reviewing the management of all reports
made to the ‘Speak Up’ hotline, or to
management on ethics and compliance
matters, considering the findings and
recommending actions, including whether the
Board should be notified of any investigations;
´ Reviewing the trends arising from the ethics
and compliance investigations to draw
conclusions on control areas for improvement;
´ Assessing the key areas of significant judgement
in relation to the 2020 consolidated financial
statements, which were: pensions, provisions
and contingent liabilities and tax balances and
the presentation of specific adjusting items;
´ Considering the appropriateness of
management’s assessment of going concern
and the viability statement;
´ Reviewing the Company’s draft 2020 Annual
Report and Accounts and recommending to
the Board that the document be approved.
The review included specific consideration
of whether the document was fair, balanced
and understandable;
´ Reviewing the effectiveness of the external
audit process;
´ Receiving annual risk presentations from the
Thermal Products division, the Technical
Ceramics global business unit, the Electrical
Carbon global business unit and the Seals
and Bearings global business unit;
´ Receiving an update from the Director
of Group Tax on taxation issues; and
´ Recommending the tax strategy for Board
approval.
The Committee has an annual cycle of business
which is designed to ensure it discharges in full its
responsibilities over the course of each reporting
year. This plan includes a number of standing
agenda items, such as:
´ Scheduled financial reporting updates which
enable the Committee to monitor the
integrity of the consolidated financial
statements, agree the content of the full-year
and half-year announcements relating to the
Company’s financial performance, and review
all significant financial reporting judgements;
´ Review of the FRC’s most recent Annual
Review and Year-end Letter and
consideration of the proposed focus areas;
´ Reports from the external auditor covering
their views on key judgements and accounting
estimates, and progress against the agreed
audit plan;
´ Review and discussion of the external audit
plan and strategy for the 2020 year-end;
´ Approval of the audit engagement letter,
audit fee and confirmation of auditor
independence;
´ Updates presented by the Head of Internal
Audit covering progress against the internal
audit annual plan, management reports on
internal financial control and risk management
systems, and the implementation of
management actions to address any control
weaknesses that have been identified;
´ Review the internal audit plan for the coming
year;
´ Annual review of the effectiveness of the
internal audit function;
´ Ethics and compliance updates, including
reports on whistleblowing and investigations;
´ On behalf of the Board, review annually the
effectiveness of the whistleblowing reporting
line; and
´ Review of the Committee’s terms of reference.
59
GovernanceMorgan Advanced Materials | Annual Report 2020 Report of the Audit Committee
PUBLIC REPORTING
The Committee, as requested by the Board,
considered the Code requirement for the Board
to make a statement on whether the Annual
Report and Accounts taken as a whole is fair,
balanced and understandable. The Committee
approached this as follows, and:
´ 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;
´ 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 advisers
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; and
´ 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 significant areas of judgement considered
by the Committee in relation to the 2020
consolidated financial statements, and how these
were addressed, were as follows:
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 APMs, 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 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.
Pensions and other post retirement
employee benefits
The Group operates a number of defined benefit
arrangements as well as defined contribution
plans. The defined benefit plans primarily related
to the UK, US and Europe and predominantly
provide pensions based on service and
career-average pay.
Accounting assumptions given in note 23, are
used to calculate the year-end net pension liability
in accordance with the relevant accounting
Standard, IAS 19 (revised) Employee Benefits.
Credit Risk
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 Group limits its exposure to credit risk by
only investing in liquid securities and only with
counterparties that have a sound credit rating.
The Group has a credit policy in place and
the exposure to credit risk is monitored on an
ongoing basis.
The Committee reviewed the key assumptions
underpinning the accounting for these defined
benefit arrangements for the interim and full year
results, including receiving presentations from
Deloitte LLP on this matter.
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.
Provisions and contingent liabilities
The level of provisioning for known and
contingent liabilities, including those arising from
trading, environmental issues and litigation,
is an issue where management and third-party
judgements are important. These are addressed
by the Committee and the Board discussing
with various members of senior management
the key judgements made, supported, where
appropriate, by relevant external advice.
Deloitte LLP also regularly present their view
on all material provisions and contingent liabilities.
During the year the Group recorded redundancy
and restructuring provisions in the ordinary
course of business, which are disclosed separately
in note 25 to the consolidated financial
statements to provide investors with additional
information to assist in their assessment of the
Group’s performance.
Impairment of intangible assets and
goodwill
The carrying amounts of the Group’s assets
are reviewed at each balance sheet date to
determine whether there is any indication of
impairment. An impairment loss is recognised
whenever the carrying amount of an asset
exceeds its recoverable amount. Impairment
losses are recognised in the income statement.
The impairment charge in the year relates primarily
to the impairment of customer relationship
intangible assets recognised upon the acquisition
of the Carpenter business in 2008 and in relation
to Porextherm in Germany in 2014.
The Committee reviewed the key assumptions
and forecasts that underpin the value in use
calculations, including receiving the views from
Deloitte LLP on these matters.
The Committee reviewed the recoverability
of receivables as part of its key activities during
the period.
Tax balances
Accounting for current and deferred tax involves
a range of judgements. The Committee and the
Board address these issues through reporting
from the Chief Financial Officer and the Director
of Group Tax, supported as necessary by
external professional advice.
Public reporting Statement
The Committee reviewed the content of the
Annual Report and Accounts and advised the
Board that, taken as a whole, it is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the Group’s
position and performance, business model
and strategy.
INTERNAL FINANCIAL CONTROL
AND RISK MANAGEMENT SYSTEMS
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 system
of 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 system of internal control and did
so again for the year under review. This system
is consistent with the FRC’s guidance on the
internal control requirements of the Code. The
review covered all material controls, including
financial, operational and compliance controls,
and risk management systems. 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.
60
Morgan Advanced Materials | Annual Report 2020 The Directors consider that the Group’s system
of internal financial 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
system is designed to mitigate and manage risk,
rather than eliminate it, and to address key
business and financial risks.
The main features of the Group’s system of
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 (e.g. 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 divisions and global business units
on 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 advisers and
giving rise to disciplinary action against employees
for breaches of Group policies.
The divisional and business unit 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.
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 disposal 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 risk management systems
and internal 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. Divisional and global business unit
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
divisional 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 26 to 31,
supports the Directors’ statements on going
concern and viability on pages 41 and 42.
Risk factors
The Group’s businesses are affected by a number
of factors, many of which are influenced by
macro-economic trends beyond Morgan’s
control; although, 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
are further discussed in the ‘Risk management’
section on pages 26 to 31.
Internal audit
The Group’s internal audit function reviews
internal control and risk management processes.
The Audit Committee approves the annual
internal audit plan and 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. The Head
of Internal Audit has direct access to the
Committee’s Chair and meets separately
with Committee members without executive
management at least twice a year.
61
GovernanceMorgan Advanced Materials | Annual Report 2020 Report of the Audit Committee
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 2020.
In 2020, the proportion of the auditor’s fees
for non-audit work relative to the audit fee was
8.0% (2019: 8.0%).
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 2021. The Committee
considered all aspects of the auditor’s
performance including the following four areas
as recommended by the FRC’s Audit Quality
Practice Aid (December 2019): (i) mindset and
culture of the audit firm; (ii) skills, character
and knowledge; (iii) quality control; and
(iv) judgement. The Committee also considered
Deloitte’s approach and preparation to the
transition of the audit from KPMG LLP.
The Committee confirmed Deloitte’s
independence before recommending their
reappointment for approval by shareholders
at the Annual General Meeting (AGM). As the
audit of the FY2020 results is Deloitte’s first for
the Group, the Committee will conduct a full
review post year end to gather feedback and
look for continuous improvement opportunities.
External audit rotation
Deloitte LLP were appointed as auditor at the
AGM in May 2020. The appointment followed
a formal external audit tender process which
commenced in 2018 and concluded in June 2019,
when the Board confirmed the Audit Committee’s
recommendation that Deloitte LLP be appointed
as auditor to take over from KPMG LLP and
its predecessor firms. A detailed description
of the audit tender process was included in the
Report of the Audit Committee in the 2019
Annual Report.
The Company has complied with the provisions
of the Competition and Markets Authority’s
Order on statutory audit services.
During 2020, travel to sites was limited, but
the members of the internal audit team
continued to perform audits according to the
planned programme, using remote procedures.
In 2020, the Committee reviewed the effectiveness
of the Group’s internal audit 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. The Committee considers
the internal audit function to be effective, with
the quality, experience and expertise appropriate
to the business.
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 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
Chairman 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.
62
Morgan Advanced Materials | Annual Report 2020 Report of the Nomination Committee
The Nomination Committee
continued to evaluate the blend
of skills, diversity and experience
of the Board during the year.
COMMITTEE MEMBERS
Douglas Caster (Chairman)
Jane Aikman
Helen Bunch
Laurence Mulliez
Clement Woon
The Committee is composed solely of non-
executive Directors and is chaired by the Chairman
of the Board. Biographies of the Committee
members can be found on pages 48 to 49. The
Company Secretary is secretary to the Committee.
Other attendees may join the Committee by
invitation and currently the Chief Executive Officer
and Group Human Resources Director attend
scheduled meetings.
MEETINGS
The Committee met twice during 2020 and
members’ attendance is set out in the table
on page 55.
NOMINATION COMMITTEE ROLE
AND TERMS OF REFERENCE
The Nomination Committee is responsible for
keeping under review the composition of the
Board and its succession, and monitors and
regularly reviews the balance of skills, knowledge,
experience, independence and diversity of the
Board and its Committees. It reviews succession
planning for the Executive Committee and overall
talent strategy for senior leadership positions,
by reference to Morgan’s Board Inclusion &
Diversity Policy, which sets the overall tone for
the Group’s approach to diversity.
The Committee’s formal role is set out in its
terms of reference, which are available to view
on the Company’s website.
On behalf of the Nomination Committee,
I present our report for 2020. 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 2020,
the Committee reviewed Board succession and
formalised its Board Inclusion & Diversity Policy
in the context of the Group’s diversity and
inclusion aspirations. More work will be done
during 2021 to review succession planning and
talent strategy for the Executive Committee
as well as start the search process for my own
successor as Chair, and identify future Board
candidates.
During the past year, which has seen
unprecedented change and disruption globally,
Morgan has recognised the crucial need to
source, attract, engage and retain talented
individuals who can drive Morgan’s purpose
and values, and deliver our strategy responsibly,
for the future.
Douglas Caster CBE FIET
Committee Chair
63
GovernanceMorgan Advanced Materials | Annual Report 2020 Report of the Nomination Committee
MAIN AREAS OF WORK DURING 2020
During 2020, the Committee’s key activities
included:
´ Considering the skills mix on the Board,
including diversity of gender, ethnicity and
geographical representation.
´ Reviewing and updating the Board’s Inclusion
& Diversity Policy and monitoring its
effectiveness.
´ Reviewing the structure, size and composition
of the Board and its Committees, ensuring
that they remain appropriate.
´ Reviewing the results of the annual
performance evaluation of the Committee.
´ Considering whether each Director
continued to be able to allocate sufficient time
to discharge their responsibilities effectively.
´ Considering the Directors’ annual re-election
at the 2020 Annual General Meeting (AGM).
´ Reviewing the Committee’s terms of reference.
SKILLS, SIZE AND COMPOSITION
OF THE BOARD
The Committee reviews the Board’s
composition, including the length of tenure of
non-executive Directors, to ensure that it has the
correct balance of skills, experience, knowledge
and diversity required for the leadership of the
Group, to support the delivery of the Group’s
strategy, and to comply with the UK Corporate
Governance Code.
During the year, the Committee reviewed and
agreed that the overall size of the Board and
its Committees, including the Non-executive
Director/Executive Director split, was
appropriate for Morgan. It agreed that the current
Board and Committee structure remained
appropriate, and all Non-Executive Directors
should continue to be members of the main
committees (with the exception of the Chair
of the Audit Committee). The Committee
considers that the members of the Board and
Committees have the appropriate mix of skills,
experience, diversity and knowledge of the
Company, and that undue reliance was not
placed on any particular individual(s). In the
next couple of years, as the Chairman and other
Non-Executive directors’ tenures extend into
a third three-year term, the Committee will
actively start the process of identifying a new
Chair and other Board members and will more
proactively identify candidates from a diverse
range, ahead of Board vacancies arising.
DIVERSITY AND INCLUSION
The Board recognises the benefits that diversity
and inclusion bring at all levels of the Company,
and firmly believes diversity is an important factor
in enabling good decision-making at Board level.
Morgan continues to foster greater diversity
and inclusion and remains committed to, and
ambitious about, making Morgan a more diverse
place to work. During the year, the Committee
reviewed the diversity principles set out in
Morgan’s 2019 Annual Report applicable to the
Board and developed them into a formal Board
Inclusion & Diversity Policy, to reflect the Group’s
aspirations more closely, to set specific objectives,
and to monitor progress against objectives The
Nomination Committee annually reviews the
composition of the Board and considers the
balance of competencies to ensure alignment
with the Company’s purpose and strategic
priorities and the environment in which it
operates. The Nomination Committee reviews
the characteristics, perspectives, independence
and diversity of Board members; how the Board
works together; and other factors relevant to
its effectiveness.
When monitoring the development of leadership
and considering the succession planning for
executive management, the Board looks for
talented leaders from a diverse pool who have
the skills to lead a global company.
Currently, three of the seven Board Directors are
female, equating to 43% female representation
on the Board, and the Board currently has one
Director of colour and Morgan’s intention is to at
least maintain that level of diversity, in order that
the Board’s composition can more closely reflect
Morgan’s workforce and society more generally.
The percentage of women on the Group’s
Executive Committee increased to 44% during
2020. At 31 December 2020, 25% (2019: 29%
and 2018: 23%) 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
their wider commitment to promoting diversity.
The Board has agreed objectives for achieving
gender, ethnic and cultural diversity on the
Board, and places high emphasis on ensuring
the development of diversity both in senior
management roles and the workforce in general
within the Company.
To promote diversity and inclusion the Board will:
´ Consider all aspects of diversity when
reviewing the composition and effectiveness
of the Board.
´ Only engage with executive search firms who
are accredited under the Enhanced Code
of Conduct for Executive Search Firms when
seeking to make new appointments or have
a proven track record in sourcing diverse
candidates.
´ 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.
´ Recommend that the Board reviews senior
executive succession planning annually and
monitors the development of a diverse
pipeline of future senior leaders, reflecting
the composition of Morgan’s workforce.
´ Set the tone and provide visible support for
the Group’s diversity and inclusion objectives,
including the fostering of an inclusive culture
which allows individuals to bring their whole
selves to work, promoting inclusive leadership
and reducing unconscious bias.
´ Support a zero tolerance approach to any
unfair discrimination on the basis of sex,
ethnicity or other protected characteristics.
The Board’s Inclusion & Diversity Policy can
be viewed on the Company’s website
www.morganadvancedmaterials.com
64
Morgan Advanced Materials | Annual Report 2020 ANNUAL RE-ELECTION OF
DIRECTORS
All Directors are subject to annual re-election
under the UK Corporate Governance Code
(the Code).
Clement Woon is serving his first three-year
term as Director, and Douglas Caster, Jane
Aikman, Helen Bunch and Laurence Mulliez are
all in their second three-year term. In line with
Provision 18 of the Code , the specific reasons
why each Director’s contribution is, and
continues to be, important to the company’s
long-term sustainable success have been set out
in this year’s Notice of Annual General Meeting,
to accompany the formal re-election resolutions.
During the year, the Chairman reviewed the
performance of each Director and has confirmed
their continued effectiveness. A formal review
of each individual Director’s performance was
conducted as part of Morgan’s board evaluation
process in 2019, concluding with individual
meetings between the Chairman and each
Non-Executive Director. The Senior Independent
Director hosted a meeting of the Non-Executive
Directors without the Chairman present in
December 2020 to discuss the Chairman’s
performance.
Non-executive Directors, including the Chairman,
are asked to confirm that they will allocate
sufficient time to meet their commitments to the
Company and that their other appointments and
significant time obligations are disclosed to the
Board prior to appointment, with an indication
of the level of time commitment involved.
The Board is informed of any subsequent
changes, and additional commitments must
be disclosed before they are accepted.
COMMITTEE PERFORMANCE
EVALUATION
The Committee’s performance was reviewed
as part of the Board evaluation (see page 56
to 57 for details) and it was concluded that
it continued to improve and had operated
effectively during the period under review.
TIME COMMITMENT
The time commitment of each of the Chairman,
Chairs of Board Committees and Non-Executive
Directors are set out in their respective letters
of appointments. Non-Executive Directors are
expected to spend at least two days per month,
more if they act as Chair of a Board Committee
and the Chairman is expected to spend at least
50 days per annum on Company business.
During the year, the Committee considered
that each Board member fulfilled their respective
commitment, both in respect of board and
committee meetings (like many other companies,
additional ad-hoc meetings were held as a result
of the pandemic) and for employee engagement
sessions. Details of meeting attendance by Board
members are set out on page 55.
SUCCESSION PLANNING
The Committee regularly reviews the Board’s
composition, including the length of tenure of
non-executive Directors, to ensure that it has the
correct balance of skills, experience, knowledge
and diversity required for the leadership of the
Group, to support the delivery of the Group’s
strategy, and to comply with the UK Corporate
Governance Code.
The Committee did not actively consider the
talent pipeline for potential new appointments to
the Board during 2020. In 2021 and beyond, the
Committee will continue to support the Group’s
work on culture, people and succession as part
of the Group’s strategic execution, in line with
the findings of the Board’s 2019 performance
evaluation. Morgan is keen to develop and
retain talented people throughout the Group
to support its long-term sustainable success.
The Committee will commence preparations for
an external search for a new Chair during 2021,
with the search process likely to start in 2022,
and expected to conclude by the end of that year.
The usual process for selection of a non-
executive Director is described below. For 2021
and future years, the Committee will re-evaluate
and update Morgan’s processes for Board and
senior management appointments by reference
to the aims and objectives of the Board Diversity
and Inclusion Policy, as well as report on progress
in future annual reports.
´ 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 three candidates.
´ The Committee makes a recommendation
for the appointment to the Board considering
the views of the Board members.
´ Any new Directors appointed to the Board
must be elected at the next AGM to continue
in office. All existing Directors retire by
rotation every year.
65
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
A statement to shareholders from
the Chair of the Remuneration
Committee.
66
COMMITTEE MEMBERS
Helen Bunch (Chair)
Jane Aikman
Douglas Caster
Laurence Mulliez
Clement Woon
I am pleased to present the Remuneration Report
for the year ended 31 December 2020.
The health, safety and wellbeing of our employees
remains a top priority, and in the light of the
COVID-19 pandemic we have implemented
heightened safety measures to protect our
employees. There has been further focus on the
‘thinkSAFE’ programme, the Morgan Code of
Ethics, as well as the continuation of the global
Sales Effectiveness Programme.
The COVID-19 pandemic has made 2020 an
extremely challenging year, with a significant
impact observed across the global economy.
Morgan has seen an 11.4% decline in organic
revenue* for the 2020 financial year due to the
pandemic, however the order trajectory began
to improve in the second half of the year, with
a return to organic constant currency sales
growth anticipated from the second quarter
of 2021. We have taken appropriate action to
reduce costs, improve cash flow and increase
liquidity, which along with continued further
investment in the wider business to support
sustainable long-term growth, helps to position
Morgan to emerge stronger from the crisis.
Due to the impact of the pandemic on business
results, Morgan, like many companies, has
needed to review, and in many cases make
changes to, remuneration plans and actions to
control costs and cash flow. A key priority has
been to balance the impact on remuneration
equitably across the executives, wider employee
population and other stakeholders. The 2019
final dividend was withdrawn and furloughs
were used (UK government Job Retention
Scheme funding having been reimbursed).
In addition, a global restructuring programme
was implemented. In light of the impact of the
pandemic on employees and shareholders, the
Board agreed that their own salaries should be
reduced by 30% from 1 April to 31 December,
extending beyond the typical salary reduction
period in other companies and also beyond the
date Morgan stopped utilising government job
retention schemes. The Executive Team also
agreed that their salaries should be reduced by
20% from 1 April to 30 September. The 2020
LTIP and DBP grants were also delayed until
later in the year and the personal performance
element of the 2020 bonus was cancelled for
the executive Directors. It is of note, that despite
the personal performance element being
restored for employees, the executive Directors
requested that their personal performance
element not be reinstated. In making our
remuneration decisions, we have therefore
carefully taken into account the impacts across
all stakeholders to ensure equity.
During 2020, we have continued to focus on
the reporting requirements within the 2018
UK Corporate Governance Code. Within this
context, the Committee conducted a review of
the implementation of the current Remuneration
Policy (approved by 97% of shareholders at the
2019 AGM) to ensure it remains fit for purpose.
This review concluded that the current framework
continues to support Group strategy and culture,
as well as providing strong alignment of executive
Director and shareholder interests.
2020 COMMITTEE ACTIVITY
During the year, the Committee met six times
compared to the usual four, the additional
meetings being necessary to review changes
required as a result of the pandemic. Its activities
included:
´ Determination of whether the 2019 bonus
and 2017 LTIP were achieved, and, if so,
to what extent (pre-COVID-19).
´ A review of external benchmarking of
executive Directors’ remuneration packages
(pre-COVID-19).
´ Having reviewed the remuneration of the
wider workforce, determination of the
remuneration packages for the executive
Directors and other senior executives,
applying consistent guiding principles
(pre-COVID-19).
´ Determination of any changes required
to 2020 share grants in response to the
COVID-19 pandemic (post start of
COVID-19).
´ A review of whether the measures and
structure for the bonus and share incentive
schemes remain appropriate (post start
of COVID-19).
Morgan Advanced Materials | Annual Report 2020 ´ Determination of appropriate performance
targets for the 2021 bonus and share incentive
schemes (post start of COVID-19).
´ A review of how we implemented the Group’s
Remuneration Policy, such that it supports the
Group’s business strategy and performance-
based culture (post start of COVID-19).
2020 REMUNERATION OUTCOMES
In reviewing performance in 2020, the
Committee determined that payouts of 9%
of the 2020 annual bonus opportunity for the
Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), were appropriate, reflecting the
impact of the pandemic on financial results
and the voluntary removal of the personal
performance bonus element. The 2018 LTIP
award will partially vest, resulting in a 21.8%
achievement of the maximum. These outcomes
are consistent with the Group’s performance in
the light of the pandemic, details of which are
summarised later in this Report. The Committee
has not felt it appropriate to adjust performance
targets during the year and felt that no discretion
needed to be applied for 2020 remuneration
outcomes.
IMPLEMENTATION OF POLICY
IN 2021
The Remuneration Committee decided that,
taking into account the performance of the
Group in 2020 within the overall economic
context, the improved business trajectory in
the second half, labour market conditions, and
average range of salary increases in the wider
workforce, the appropriate level of salary
increase for the CEO would be 2.5% and for
the CFO it would be 2%. 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, which is consistent with the
approach taken for the entire professional
population. There will also be an increase to
the fees for the Chairman and non-executive
Directors of 2% for 2021 as determined by the
Committee (for the Chairman) and the Chairman
and executive Directors (for the non-executive
Directors).
The Committee also reviewed the structure of
the annual bonus and LTIP plans and concluded
that the existing framework remains appropriately
aligned with our strategic aims and culture,
motivates and rewards management for delivering
sustainable performance, and supports retention.
Accordingly, no changes are proposed to the
performance linkage of the annual bonus or LTIP
for 2021. For the LTIP, it is proposed to increase
the EPS targets from 4% – 11% to 15% – 22%
p.a. to take into account the reduced base level
resulting from the impact of the pandemic on
financials; 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 benchmarks and relative TSR
performance range (median-upper quartile).
It is proposed to modify the ROIC* definition
to include the right-of-use assets arising from
IFRS-16 leases in the invested capital (which is
anticipated to be an addition of around £35m to
the invested capital in 2021) and to maintain the
ROIC* range for that element of the executive
Directors 2021 LTIP (at 17%-20%), to reflect
our latest expectations for performance over
the three-year performance period. For annual
bonus, the target ranges have been widened
from ±4.5% to ±10% of target to reflect the
ongoing uncertainty of the pandemic and
potential impact 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.
I would like to thank the Leadership team not
only for the exceptional contribution they have
made in this challenging period, but also for the
personal remuneration reductions they agreed
to in support of the Business.
This Report is consistent with the current
reporting regulations for executive remuneration
and, as in prior years, includes an ‘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
67
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
REMUNERATION AT A GLANCE
Components of remuneration
Salary
+
Pension and Benefits
Annual Bonus +
LTIP
=
=
Fixed total
+
Variable total
Key features of how our executive remuneration policy will be implemented in 2021
=
Total remuneration
Fixed components
Base salary
Pete Raby (CEO)
£581,175
Peter Turner (CFO) £426,160
Pension and other benefits
Pension
Pete Raby (CEO)
Peter Turner (CFO)
fixed at £104,000
fixed at £80,120
Benefits
Pete Raby (CEO)
£13,885
Peter Turner (CFO) £12,230
Variable components, annual bonuses
Maximum opportunities for 2021
(no change)
150% of salary
Pete Raby (CEO)
Peter Turner (CFO) 150% of salary
Performance measures weighting
Operating profit*
Cash generation*
Strategic personal objectives
40%
40%
20%
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.
Policy
Executive Directors may receive defined contributions (and/or cash in
lieu thereof) up to 20% of salary. Policy change approved at the 2019
AGM aligns pension contribution for new executive Directors with that
available to the wider workforce. Other benefits can include company
car/car allowance, health insurance and, where appropriate, relocation
allowances and other expenses.
Implementation
The monetary value of the pension allowance for the current executive
Directors was fixed at the 2018 value from 2019 onwards, to help
align executive Director pensions with those of the wider workforce
over time. The Company commits to review this as part of the next
Remuneration Policy review in 2021.
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.
LTIP
Maximum opportunities for 2021
(no change)
Pete Raby (CEO)
150% of salary
Peter Turner (CFO) 150% of salary
Performance measures weighting
TSR vs. FTSE All-Share
Industrials Index
TSR vs. peer group
EPS growth
Group ROIC*
1/6
1/6
1/3
1/3
Policy
Maximum award opportunity: 250% 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.
Pay at risk
Fixed 30%
Fixed 30%
Pete Raby
(CEO)
Annual Bonus 35%
LTIP 35%
Peter Turner
(CFO)
Annual Bonus 35%
LTIP 35%
Variable 70%
Variable 70%
Pay scenarios
Stretch 50%
share price incr.
Stretch
Target
25%
30%
52%
30%
35%
32%
45%
35%
16%
Below Threshold
100%
£2,879k
£2,443k
£1,353k
£699k
Stretch 50%
share price incr.
Stretch
Target
25%
30%
52%
Below Threshold
100%
30%
35%
32%
45%
35%
16%
£2,116k
£1,797k
£998k
£518k
0
1,000
2,000
3,000
0
500
1,000
1,500
2,000
Variable
Fixed total (base salary, pension and benefits)
Annual Bonus
LTIP
Shareholding requirements
Pete Raby (CEO) 200% of salary
68
Peter Turner (CFO) 200% of salary
Morgan Advanced Materials | Annual Report 2020
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 2019 AGM and which is
effective for a period of up to three years from
that date. The only amendments to the Policy
Report published in the 2020 annual report are:
´ To update remuneration figures in the pay
for performance scenario analysis.
1. POLICY REPORT
KEY PRINCIPLES OF THE
REMUNERATION POLICY
The Remuneration Committee aims to ensure
that all executive remuneration packages offered
by Morgan are competitive and designed to
promote the long-term success of the Company
by ensuring that Morgan 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.
COMPLIANCE STATEMENT
During the year under review, the Company
has complied with the principles and provisions
relating to Directors’ remuneration in the
UK Corporate Governance Code and 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 439A
of the Companies Act 2006 an advisory
resolution to approve the Annual Report on
Remuneration will be proposed at the Annual
General Meeting (AGM) on 6 May 2021.
This Report covers the period 1 January 2020
to 31 December 2020 and provides details
of the Remuneration Committee and how the
Remuneration Policy, approved by shareholders
at the 2019 AGM, has been implemented
for the year under review. The proposed
implementation of this Policy for the 2021
financial year is summarised in the section
of the Annual Report on Remuneration titled
‘Implementation of Remuneration Policy for 2021’.
REMUNERATION COMMITTEE
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 and Group Head of Reward
as well as our independent advisors 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.
Membership of the Committee is shown
on pages 48 to 49.
69
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
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.
Pension
Provides post-retirement
benefits for participants in
a cost-efficient manner.
Defined contribution scheme
(and/or a cash allowance in lieu thereof).
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.
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.
Not applicable.
Not applicable.
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.
For executive Directors appointed
from 1 January 2019 onwards,
contributions (or cash in lieu thereof)
will be aligned with the level of
contribution available to the wider
workforce at that time.
For current executive Directors
already in role, the Policy limit will
remain up to 20% of salary.
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
(e.g. relocation expenses, expatriate
allowances etc.) or in circumstances
where factors outside the Group’s
control have changed materially
(e.g. market increases in insurance
costs).Benefits in respect of the year
under review are disclosed in the
Annual Report on Remuneration.
70
Morgan Advanced Materials | Annual Report 2020 Purpose and link to strategy
Operation
Opportunity
Performance metrics
Up to 150% of salary.
The payout for threshold
performance may vary year on
year but will not exceed 25%
of the maximum opportunity.
Variable pay
Annual bonus
Provides a direct link between
annual performance and reward.
Incentivises the achievement of
key 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.
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 LTIP provides for a conditional
award of shares up to an annual limit
of 250% of salary.
25% of an award vests for
achievement of the threshold level
of performance.
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 will be
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.
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 66 to 86.
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 and
ROIC* 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 76 to 86.
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.
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GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
Malus and Clawback Policy
Malus and clawback will apply to the annual
bonus and LTIP (as set out on page 71) in cases
of 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 over the vesting
period and clawback from the vesting date 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
(i.e. before 10 May 2019), 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.
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, upwards 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:
72
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 closely
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 2021 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 103 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
Morgan’s 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 Morgan’s
business, the markets in which Morgan operates
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 2021 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)
Share ownership guidelines
In order to encourage alignment with shareholders,
executive Directors are encouraged 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 from
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. However, if it becomes apparent
to the Committee that the guideline is unlikely
to be met within the timeframe, then 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 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 85.
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
pages 76 to 86.
Morgan Advanced Materials | Annual Report 2020 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 2021 packages proposed for executive Directors.
Pete Raby (CEO)
Peter Turner (CFO)
Stretch 50%
share price incr.
Stretch
Target
25%
30%
52%
30%
35%
32%
45%
35%
16%
Below Threshold
100%
£2,879k
£2,443k
£1,353k
£699k
Stretch 50%
share price incr.
Stretch
Target
25%
30%
52%
Below Threshold
100%
30%
35%
32%
45%
35%
16%
£2,116k
£1,797k
£998k
£518k
0
1,000
2,000
3,000
0
500
1,000
1,500
2,000
Fixed total (base salary, pension and benefits)
Annual Bonus
LTIP
Potential reward opportunities illustrated above are based on the Policy, which was approved at the 2019 AGM, applied to the annual base salary in effect
at 1 January 2021. For the annual bonus, the amounts illustrated are those potentially receivable in respect of performance for 2021 (before mandatory
deferral into shares). The LTIP is based on the face value of awards to be granted in 2021 (150% of salary). 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 hypothetical 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.
Stretch
Target
Maximum annual bonus.
On-target annual bonus.
Below threshold
No annual bonus payable.
Performance warrants full vesting
(100% of the award). LTIP award value
has additionally been uplifted by 50%.
Performance warrants full vesting
(100% of the award).
Performance warrants threshold
vesting (25% of the award).
Nil vesting.
Latest disclosed base salary,
pension and benefits.
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
From employer
From employee
Pete Raby
Peter Turner
CEO
CFO
1 August 2015
11 April 2016
30 January 2015
30 March 2016
12 months
12 months
6 months
6 months
Notice period
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.
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
the 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.
73
GovernanceMorgan Advanced Materials | Annual Report 2020
Remuneration report
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 when any payment in lieu of notice will be made. 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
All reasons
Annual bonus
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
(i.e. not pro-rated for time).
Change of control
All other reasons
Injury, disability, death, redundancy, retirement,
or other such event as the Committee determines
Change of control
Awards will normally vest in full (i.e. not
pro-rated for time). Awards may alternatively
be exchanged for equivalent replacement
awards, where appropriate.
Awards normally lapse.
LTIP awards
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).
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.
At the normal vesting date, unless the
Committee decides that awards should
vest earlier (e.g. in the event of death).
On change of control.
Not applicable.
At the normal vesting date, unless the
Committee decides that awards should vest
earlier (e.g. in the event of death).
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.
74
Morgan Advanced Materials | Annual Report 2020
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
Salary
Pension
Benefits
Sharesave
Annual bonus
LTIP
Other
Policy on recruitment
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.
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.
Maximum
–
In line with Policy limits.
As described in the Policy table and may include, but are not limited to, car, medical
insurance, and relocation expenses and/or allowances.
–
New appointees will be eligible to participate on identical terms to all other UK employees.
Up to HMRC limits.
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.
New appointees may be granted awards under the LTIP on similar terms to other executives. Up to 250% of salary.
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 fee1
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.
Annual fees are applied
in line with the outcome
of each periodic review.
None.
Currently paid 100% in cash.
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 election/re-election
Douglas Caster
Helen Bunch
Laurence Mulliez
Jane Aikman
Clement Woon
Chairman
Non-executive Director
Senior Independent Director
Non-executive Director
Non-executive Director
14 February 2014
24 February 2016
6 May 2016
31 July 2017
10 May 2019
15 January 20141
19 January 2016
4 April 2016
27 April 2017
7 May 2019
7 May 2020
7 May 2020
7 May 2020
7 May 2020
7 May 2020
1. Douglas Caster received a subsequent letter of appointment on 18 December 2018.
75
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
CONSIDERATION OF STAKEHOLDER VIEWS
The Group 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. In making decisions, the Committee also considers the pay and employment conditions
elsewhere in the Group, but the Committee does not currently consult with employees specifically on the executive Remuneration Policy and framework.
Prior to the annual salary review, the Remuneration Committee is briefed by the Group Human Resources Director about pay increase data that individual
business units will 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 ‘People section’ pages 18 to 21.
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, in shaping its 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.
2. ANNUAL REPORT ON REMUNERATION
The following section provides details of how the Remuneration Policy was implemented during the year.
REMUNERATION COMMITTEE MEMBERSHIP IN 2020
The Remuneration Committee is currently composed of five non-executive Directors. Each of the non-executive Directors is regarded by the Board as
independent, except the Chairman of the Company who was considered independent upon appointment. The Remuneration Committee met six times
during the year. Attendance at meetings by individual members is detailed in the Corporate Governance Report on page 55.
SUMMARY OF SHAREHOLDER VOTING AT THE 2020 AGM
The following table shows the results of the latest binding vote on the Remuneration Policy (at the 2019 AGM) and advisory vote on the 2019 Annual
Report on Remuneration (at the 2020 AGM).
Resolution
Remuneration Policy (at the 2019 AGM)
Annual Report on Remuneration (at the 2020 AGM)
For
97.17%
96.83%
Against
2.83%
3.17%
Withheld1
100,712
19,187,217
1. Votes ‘withheld’ are not votes in law and, therefore, have not been included in the calculation of the proportion of votes ‘for’ or ‘against’ the resolution.
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS
The auditor is required to report on the information in this table.
The table below sets out a single figure for the total remuneration received by each executive Director for the year ended 31 December 2020 and the prior
year. For 2020, the table reflects the position with and without the 30% salary reduction volunteered by the executive Directors from 1 April to the end
of December, in response to the pandemic.
1. Salary
2. Pension
3. Benefits
Fixed Pay Subtotal
4. Bonus
5. LTIP
6. Other
Variable Pay Subtotal
Total
Pete Raby
Peter Turner
2020
(actual with
reduction)
£439,425
£104,000
£13,711
£557,136
£74,878
£140,111
–
£214,989
£772,125
2019
2020
£545,000
£567,000
£104,000
£104,000
£13,456
£13,711
£662,456
£684,711
£688,989
£74,878
£265,360
£140,111
£1,800
–
£214,989
£956,149
£899,700 £1,618,605
2020
(actual with
reduction)
£323,797
£80,120
£12,168
£416,085
£55,175
£107,939
–
£163,114
£579,199
2019
2020
£408,600
£417,800
£80,120
£80,120
£12,030
£12,168
£500,750
£510,088
£516,552
£55,175
£210,518
£107,939
£1,800
–
£163,114
£728,870
£673,202 £1,229,620
The figures have been calculated as follows:
1. Base salary: amount earned for the year. For 2020, figures in the ‘2020 (actual with reduction)’ columns reflect actual salary earned.
2. Pension: the figure is a cash allowance in lieu of pension.
3. Benefits: the taxable value of benefits received in the year. Includes private medical insurance and a company car (or car allowance).
4. Annual bonus: the total bonus earned on performance during the year (before mandatory deferral into shares).
5. LTIP: the estimated value on 31 December 2020 of 2018 LTIP shares vesting in 2021 subject to performance over the three-year period ended 31 December 2020. Figure
based on the average share price for the three months to 31 December 2020 of 274.69p. The figure for 2019 has been trued up from that disclosed in last year’s
Remuneration Report to reflect the share price on the vesting date (1 April 2020) of 183.37p. The impact of share price movement on the vesting value of the CEO’s 2018
LTIP award is as follows:
Value of awards vesting using share price at award (233,981 shares x 21.8% x 333.36p)
Value of awards vesting using 3 month average share price at 31 December 2020: (233,981 shares x 21.8% x 274.69p)
Impact of share price movements on vesting values
£170,036
£140,111
–£29,925
6. Other: comprises the value 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).
76
Morgan Advanced Materials | Annual Report 2020 INCENTIVE OUTCOMES FOR THE YEAR ENDED 31 DECEMBER 2020
Annual bonus in respect of 2020 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 2020, the bonus targets for the executive Directors were split between Group adjusted operating profit* before restructuring (weighted 40%),
cash generation* (weighted 40%) and individual strategic personal objectives (weighted 20% – subsequently cancelled). 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.
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.
The table that follows sets out retrospectively the assessment of performance relative to the 2020 bonus targets for the executive Directors. Actual bonus
payments are shown in the single total figure of remuneration table on page 76. Bonus outcomes are reflective of the impact of the COVID-19 pandemic
on business results.
Performance measure
Group headline operating profit*
Cash generation*1
Personal objectives
Pete Raby
Peter Turner
Overall outcome
Pete Raby
Peter Turner
Performance range
% of maximum
bonus element
Threshold
(0% payout)
Maximum
(100% payout)
40%
40%
£121.6m
£165.0m
£133.0m
£180.6m
Actual
performance
outcome
£94.0m
£170.8m
20% Please see narrative below for further details
20%
on objectives and performance against these
% of salary earned
% payout of
element
0%
22%
n/a
n/a
% salary
earned
0%
13.2%
n/a
n/a
Maximum bonus
(% salary)
Group adjusted
operating profit
Cash
generation*1
Personal
objectives
150%
150%
0%
0%
13.2%
13.2%
n/a
n/a
Total
outcome
13.2%
13.2%
Total
payable
£74,878
£55,175
1. For the cash generation metric there was a straight-line payout between the threshold and maximum figures. All figures were calculated using 2020 budgeted exchange rates.
Pete Raby’s personal objectives for 2020 were: (1) Develop a safe, ethical and inclusive culture across the business, role modelling our leadership behaviours
and actively engaging our employees, (2) Update the strategy for the group and define the execution commitments for the next 3 years, (3) Develop the
leadership capability across the group driving the empowerment and engagement of employees in the strategy, priorities and progress of the business,
(4) Enhance the IT capability of the group through the execution of the IT strategy, (5) Develop an end-market focused investor narrative. 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. Despite difficult trading conditions, under Pete’s leadership Morgan managed cost and cash, and implemented a
restructuring programme which contained the profit drop-through on the revenue decline to the Company’s goal of 30%, as well as delivering an improved
free cash flow. New technology and product developments were also progressed, with new products in early-stage trials with a number of customers.
Further improvements were made to operational performance and operating costs through the deployment of lean production techniques, and
procurement improvements. Pete has also role modelled the Leadership Behaviours. The personal performance element of the 2020 bonus was cancelled
for the executive Directors in response to the impact of the pandemic on business results, and despite it being restored for employees the CEO requested
that his personal performance element not be reinstated.
Peter Turner’s personal objectives for 2020 were: (1) Develop a safe, ethical and inclusive culture across the business, role modelling our leadership
behaviours and actively engaging our employees, (2) Update the strategy for the group and define the execution commitments for the next 3 years,
(3) Develop the leadership capability across the group driving the empowerment and engagement of employees in the strategy, priorities and progress
of the business, (4) Enhance the IT capability of the group through the execution of the IT strategy, (5) Develop an end-market focused investor narrative.
Peter’s performance has been excellent against these objectives; in this challenging year he has driven cost and cash management programmes to improve
the Company’s cash position, whilst exhibiting the Leadership Behaviours. The personal performance element of the 2020 bonus was cancelled for the
executive Directors in response to the impact of the pandemic on business results, and despite it being restored for employees the CFO requested that
his personal performance element not be reinstated.
Performance against the above objectives is referred to in the Chairman’s statement and elsewhere within the Annual Report.
77
GovernanceMorgan Advanced Materials | Annual Report 2020
Remuneration report
2017 Deferred Bonus Plan vesting
In 2017, 33% of the annual bonus results for Pete Raby and Peter Turner (for performance in the 2016 financial year) were deferred into shares under the
Deferred Bonus Plan (DBP), in line with Morgan’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 the DBP vesting for the executive Directors are set out in the table below:
Director
Pete Raby
Peter Turner
Date of grant
3 March 2017
3 March 2017
Number of DBP
shares granted
Number of
dividend
re-investment shares
Total
number of
DBP shares vested
Market value
at grant
£
Market value
at vesting
£
Date of vesting
21,751
15,173
2,477
1,727
24,228
16,900
3.1588
3.1588
2.8800 3 March 2020
2.8800 3 March 2020
2016 Sharesave options exercise
The following options granted under the Sharesave scheme were exercised by the executive Directors in 2020:
Director
Pete Raby
Date of grant
Number of
options granted
Option price
£
Number of
options exercised
Market value
on date of exercise
£ Date of exercise
26 September 2016
3,862
2.3300
3,862
2.5320 10 March 2020
2018 LTIP award vesting
Awards granted to executive Directors in 2018 were subject to relative TSR performance, EPS growth and Group ROIC* over a three-year period ended
31 December 2020. The EPS target (applying to one-third of each award) required three-year EPS growth of 4% per annum for 25% of that element
to vest, rising to full vesting for EPS growth of 11% pa or higher. Over the period Morgan Advanced Materials plc’s actual EPS growth was -7.2% 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 -6.2%, which was at the 52nd percentile versus the FTSE All-Share Industrials Index and the 88th percentile
versus the tailored comparator group. Accordingly, this results in a 21.8% vesting for the TSR element of the award.
The Group ROIC* target (applying to the remaining one-third of each award) required three-year Group ROIC* of 16% for 25% of that element to vest,
rising to full vesting for Group ROIC* of 19% or higher. Morgan Advanced Materials plc’s Group ROIC* was 12.2%, and accordingly the ROIC* element
of the award will not vest.
This combined performance resulted in a partial vesting of the 2018 awards based on 21.8% achievement of maximum. The vesting outcome is
appropriately reflective of the impact of the COVID-19 pandemic on business results.
Details of the awards to executive Directors are set out in the table below:
Director
Pete Raby
Peter Turner
Maximum
potential
LTIP award
Maximum
potential
LTIP-CSOP award
LTIP award
vested
LTIP-CSOP
award vested
LTIP-CSOP
award
exercised
Date of vesting
233,981
180,255
–
–
51,007
39,295
–
–
–
–
21 March 2021
21 March 2021
For the purposes of the 2018 LTIP award (and consistent with the approach taken in previous years), the financial results were adjusted to neutralise the
effects of divestments and closed businesses in 2018 and 2019.
78
Morgan Advanced Materials | Annual Report 2020 PENSION
The auditor is required to report on this information.
Pete Raby and Peter Turner each receive a cash allowance in lieu of pension, which is fixed at the 2018 values of £104,000 and £80,120 respectively.
NON-EXECUTIVE DIRECTOR FEES
The auditor is required to report on the information in this table.
The table below sets out the fees received by each non-executive Director in respect of the year ended 31 December 2020 and the prior year. The 2020
figures reflect the 30% fee reduction volunteered (in response to the pandemic) from 1 April to 31 December mentioned earlier in this document, with
the pre-reduction salaries shown in brackets.
Fee 1
Fee
Douglas Caster
Helen Bunch
Laurence Mulliez
Jane Aikman
2020
2019
2020
2019
2020
2019
2020
2019
£149,808
(£193,300)
£189,500
£47,448
(£58,900)
£57,900
£47,448
(£58,900)
£57,900
£47,448
(£58,900)
£57,900
Clement Woon
2020
2019
£39,448
(£50,900)
£32,179
1. NEDs do not receive any other fixed/variable pay, or benefits, in addition to their fee. Figures inclusive of £8,000 SID/ Committee Chair fees for Helen Bunch,
Laurence Mulliez and Jane Aikman.
SCHEME INTERESTS AWARDED IN 2020
2020 LTIP awards
In 2020, Pete Raby and Peter Turner were granted awards under the LTIP as shown in the table below. As disclosed above, the 2020 LTIP grant was
delayed in response to the economic impact of the pandemic. The later grant date also allowed for the share price to partially recover, therefore reducing
the risk of windfall gains resulting from a material bounce back in share price when the awards vest. Vesting outcomes will continue to be assessed to ensure
they reflect business performance and will be adjusted as appropriate.
Executive Director
Pete Raby
Peter Turner
Number of
LTIP shares
granted1,2
362,377
254,239
LTIP-CSOP
shares granted1,2
–
12,782
Value of awards at grant
As % of
2020 annualised
salary
Date of vesting
150% 5 October 2023
150% 5 October 2023
£
850,500
626,700
1. Calculated using the award price of £2.3470, being the average share price for the five dealing days prior to the award date.
2. Peter Turner’s LTIP funding award of 12,782 shares: these shares are used to the extent required to pay the exercise price arising on exercise of the CSOP and are therefore
not transferable to Peter Turner.
The Committee discusses and reviews the performance criteria for new three-year LTIP awards before they are granted. For the awards granted in 2020,
the Committee considered the balance of measures in light of the Group’s business plan and shareholder feedback and decided to maintain the equal
(one-third) weighting of the three performance criteria with the TSR element continuing to be split into two parts. One-half of this element will vest
based on Morgan’s TSR performance relative to the constituents of the FTSE All-Share Industrials Index and one-half will vest based on Morgan’s TSR
performance relative to a tailored comparator group of 15 industry comparators.
The table below sets out the targets attaching to the 2020 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*
Upper quartile
Median
Below median
16.67% Upper quartile
4.17% Median
Nil Below median
16.67% 11% pa
4.17% 4% pa
Nil <4% pa
33.33% 20%
8.33% 17%
Nil <17%
% of award
that vests
33.33%
8.33%
Nil
For executive Directors, there is a two-year holding period in relation to the 2020 LTIP. Dividends accrue over this holding period on any shares that vest.
79
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
2020 Deferred Bonus Plan awards
In 2020, 33% of the annual bonus results for Pete Raby and Peter Turner (for performance in the 2019 financial year) were deferred into shares under
the Deferred Bonus Plan (DBP), in line with Morgan’s Remuneration Policy. The 2020 DBP grant was delayed in response to the pandemic as mentioned
earlier. The following DBP awards were granted:
Executive Director
Pete Raby
Peter Turner
Value of awards at grant
Number of DBP
shares granted 1
Value of award
£
116,438
87,296
229,663
172,184
Date of vesting
20 May 2023
20 May 2023
1. Calculated using the award price of £1.9724, being the average share price for the five dealing days prior to the award date.
Exit payments made in year
The auditor is required to report on this information.
No exit payments were made to executive Directors during the 2020 financial year.
Payments to past Directors
The auditor is required to report on this information.
No payments were made to past Directors during the 2020 financial year.
External appointments
Pete Raby was appointed non-executive Director of Hill & Smith Holdings PLC in December 2019. His fee for this position in 2020 was £51,250 which
he retains. No other external appointments were held by either executive Director in the 2020 financial year.
Implementation of Remuneration Policy for 2021
Base salary
In line with the Remuneration Policy, executive Directors’ salaries were reviewed by the Committee and increased for 2021 consistent with the average
range of increases awarded to the wider workforce. The table below shows the base salaries in 2020 (prior to any reduction implemented in response
to the pandemic), and those that took effect from 1 January 2021:
Executive Director
Pete Raby
Peter Turner
Base salary at:
1 January 2021
1 January 2020
£581,175
£426,160
£567,000
£417,800
Increase
2.5%
2%
For the 2020 performance year, the Group maintained the formal link between performance and pay within the senior leadership population. Specifically,
the process considers individual and Group performance, as well as salary relative to the relevant market.
The increases awarded to both Pete Raby and Peter Turner were calibrated in line with this. The Committee considered Pete Raby’s and Peter Turner’s
continued strong performance in their roles as well as the market positioning of their salaries, in determining to increase their salaries in line with the average
range of increases for UK based employees. The rationale for any future increases will be disclosed in the relevant Annual Report on Remuneration.
Pension
While Pete Raby and Peter Turner will continue to receive a cash allowance in lieu of pension, the monetary value remains fixed at the 2018 level disclosed
in the table on page 68. The Company commits to review this as part of the next Remuneration Policy review in 2021.
Annual bonus in respect of 2021 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 2020, as follows:
Adjusted operating profit* – 40%
Cash generation* – 40% (measured against quarterly cumulative targets as well as over the complete financial year. For every quarterly target that
is missed, the payout warranted for full-year performance under this element will be reduced by 10%)
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.
80
Morgan Advanced Materials | Annual Report 2020 2021 LTIP awards
In March 2021, Pete Raby and Peter Turner will be granted awards under the 2021 LTIP with a face value of 150% of their respective base salaries for 2021.
The number of shares allocated are not being reduced as the share price recovery reduces the opportunity for significant windfall gains, however vesting
outcomes will continue to be assessed 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 2021 and will end on 31 December 2023. 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’s 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 will be adjusted to 15%-22% p.a. to take into account the reduced base level resulting from the impact of the pandemic
on financials
´ The ROIC* range will remain unchanged at 17%-20%, but with IFRS-16 lease assets added to the invested capital. The Committee believes these
ranges appropriately support the Group’s strategy for sustainable long-term growth over the next three years whilst continuing to represent suitably
demanding targets.
´ For all three 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 2021 LTIP cycle, executive Directors will be required to hold any vested 2021 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 2020. The table below shows the fees in 2020 (prior to any reduction
volunteered in response to the pandemic), and those that will apply in 2021:
Role
Chairman
Non-executive Director
Committee Chair (additional fee)
Senior Independent Director (additional fee)
2021 fee pa
2020 fee pa
Increase
£197,166
£51,918
£8,000
£8,000
£193,300
£50,900
£8,000
£8,000
2.0%
2.0%
0%
0%
Percentage change in Directors’ remuneration
The table below shows the percentage change in the executive and non-executive Directors’ remuneration in 2020 compared to the average percentage
change in remuneration for other employees of Morgan Advanced Materials plc over the same period, in accordance with the revised guidelines.
Executive Directors
Pete Raby
Peter Turner
Non-Executive Directors4
Douglas Caster
Helen Bunch
Laurence Mulliez
Jane Aikman
Clement Woon2
Average per employee
% Change in
Salary or
Fees1
% Change in
Benefits3
(excluding
pension)
% Change in
Annual
Bonus6
-19.4%
-20.8%
-20.9%
-18.1%
-18.1%
-18.1%
-20.9%
3.0%
1.9%
1.1%
-89.1%
-89.3%
n/a
n/a
n/a
n/a
n/a
-5.81%5
n/a
n/a
n/a
n/a
n/a
-2.11%
1. Percentages reflect the temporary Board salary/fee reductions implemented in response to the pandemic. All figures are based on full time equivalent comparisons.
2. Clement Woon joined in May 2019; his 2019 salary has therefore been annualised within the calculation, to permit appropriate comparison.
3. Benefits figures include private medical insurance and car allowance.
4. Non-Executive Directors do not receive any additional benefits or bonus payments.
5. Decrease reflects change in type of medical cover required by individual employees.
6. Executive Director bonus reflects 2020 bonus paid in 2021. Employee average bonus based on 2019 bonus paid in 2020 (data for 2020 bonus was not available at the time
of publication. 2020 bonus is expected to exhibit a downward trend, but to a lesser extent than the executive Directors based on the personal performance element having
been reinstated for the wider workforce).
81
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
CEO Pay Ratio
Year
2020
2020 (Excluding Variable)
2019
2019 (Excluding Variable)
25th Percentile
Pay Ratio
Median
(50th Percentile)
Pay Ratio
75th Percentile
Pay Ratio
34:11
25:1
74.14
34:1
24:12
20:1
62.15
27:1
20:13
14:1
41:16
19:1
Method
Option B
Option B
Option B
Option B
1. Total 25th percentile employee pay & benefits as at 31/12/20 = £22,464 (salary component = £21,000).
2. Total 50th percentile employee pay & benefits as at 31/12/20 = £31,550 (salary component = £23,960).
3. Total 75th percentile employee pay & benefits as at 31/12/20 = £38,723 (salary component = £36,900).
4. Ratio trued up from that disclosed in last year’s Remuneration Report to reflect final value of LTIP vesting for CEO. Total 25th percentile employee pay & benefits
as at 31/12/19 = £21,958 (salary component = £17,599).
5. Ratio trued up from that disclosed in last year’s Remuneration Report to reflect final value of LTIP vesting for CEO. Total 50th percentile employee pay & benefits
as at 31/12/19 = £25,927 (salary component = £24,300).
6. Ratio trued up from that disclosed in last year’s Remuneration Report to reflect final value of LTIP vesting for CEO. Total 75th percentile employee pay & benefits
as at 31/12/19 = £39,926 (salary component = £30,610).
In line with the CEO pay ratio regulations, the table above shows for 2020 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 has applied Option B, where the most recent gender pay gap reporting data 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 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 stock awards and benefits including car
allowance and private medical. Total remuneration figures used in the calculation for 25th, 50th and 75th percentile employees include annual bonus
relating to 2020 performance in order to be consistent with the methodology used for the CEO’s total remuneration figure.
The 2020 CEO pay ratios are significantly lower than those in 2019 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 therefore
on levels of variable pay). 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 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 (e.g. share awards) the majority of the wider workforce would not typically be eligible for in
the external market. The diversity of different levels and types of roles found in a manufacturing environment such as at Morgan may 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’s data to companies
in similar industries.
Relative importance of spend on pay
The graphs below show shareholder distributions (i.e. dividends and share buybacks) and total employee pay expenditure for the financial years ended
31 December 2019 and 31 December 2020.
Shareholder distributions
(£M)
Total employee pay expenditure
(£M)
2020
5.7
2019
2020
31.4
2019
334.6
366.0
The reduction in shareholder distributions in 2020 reflects the withdrawal of the 2019 final dividend in response to the COVID-19 pandemic, and also
the impact of the pandemic on business results, affecting the 2020 interim dividend. Total employee pay across the Group has decreased by 8.6% to
£334.6 million (2019: £366.0 million), also impacted by measures taken as a result of the pandemic.
82
Morgan Advanced Materials | Annual Report 2020 Advisers
Kepler (now branded Mercer Kepler) was appointed by the Committee in 2010 as its executive remuneration adviser and was retained during the most
recent financial year. In 2020 Mercer Kepler provided independent advice on 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.
Mercer Kepler reports directly to the Chairman of the Remuneration Committee and does not provide any other material non-remuneration-related
services to the Group (nor does Mercer Kepler’s parent company, Mercer), and is considered to be independent.
Mercer Kepler is a signatory to the Remuneration Consultants Group’s voluntary Code of Conduct.
Fees paid during the year to advisers for advice to the Remuneration Committee, charged on a time and materials basis, were as follows:
Adviser
Mercer Kepler
Fees (including expenses,
excluding VAT)
£32,413
On 1 January 2021, the role of executive remuneration advisor transitioned from Mercer to Ellason LLP.
Comparison of Company performance
The graph below shows the value, at 31 December 2020, of £100 invested in Morgan Advanced Materials plc’s shares on 31 December 2010 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.
200
180
160
140
120
100
80
60
40
20
0
2010
£179
£170
Morgan Advanced Materials plc
FTSE 350 Index
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
The table below details the CEO’s ‘single figure’ of remuneration over the ten-year period to 31 December 2020.
CEO
CEO single figure
Annual bonus (% max)
BDSMP vesting
(% max)
LTIP vesting (% max)
2011
M Robertshaw
2012
M Robertshaw
2013
M Robertshaw
2014
M Robertshaw
2015
P Raby
2016
P Raby
2017
P Raby
2018
P Raby
2019
P Raby
2020
P Raby
£3,371,302 £1,285,556
0%
100%
100%
60%
£648,932 £1,001,448 £788,252 £787,492 £1,210,856 £1,479,738 £1,618,605 £772,125
9%
n/a
29.5%1
n/a
71.3%
n/a
67.4%
n/a
84.3%
n/a
65%
0%
50%
n/a
0%
0%
100%
50%
0%
0%
n/a
n/a
15.4%
42.9%
61.3%
21.8%
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.
83
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
Directors’ interests in shares
Shares owned outright
The auditor is required to report on the information in this table.
The following table shows the number of shares held by each person who was a Director of Morgan Advanced Materials plc as at 31 December 2020
(together with shares held by their connected persons) in the Ordinary share capital of the Company:
Executive Directors
Pete Raby
Peter Turner
Non-executive Directors
Douglas Caster
Laurence Mulliez
Helen Bunch
Jane Aikman
Clement Woon
As at
1 January 2020
or date of
joining
As at
31 December
2020
As at
3 March
2021
165,332
194,330
258,945
263,914
258,945
263,914
110,454
6,580
2,028
1,000
45,281
110,454
6,765
2,028
1,000
45,281
110,454
6,765
2,028
1,000
45,281
As at 3 March 2021, the Directors’ interests in shares had not changed since the end of the period under review, with the exception of the vesting of the
2018 Deferred Bonus Plan (DBP) on 21 March 2021, which resulted in the retention of 30,525 shares for Pete Raby and 24,216 for Peter Turner (inclusive
of dividend reinvestment and net of taxes). Full details will be disclosed in the 2021 Annual Report.
Executive Directors’ shareholding guidelines
The table below shows the shareholding of each executive Director against their respective shareholding guideline as at 31 December 2020.
Shareholding
guideline
(% 2020
salary)
Shares
owned
outright
Shares
subject to
performance1
Performance-
tested but
unvested
shares2
Shares
subject
to DBP
deferral3
Options
vested but
unexercised4
Options
granted but
subject to
continued
employment4
Current
shareholding
(% 2020
salary)5
Pete Raby
Peter Turner
200%
200%
258,945
263,914
678,466
508,394
51,007
39,295
124,417
95,217
–
–
4,477
4,477
213%
271%
Guideline
met?
Yes
Yes
1. 2019 and 2020 LTIP and LTIP-CSOP awards. The total shares for Pete Raby and Peter Turner include a funding award of 11,189 and 12,782 shares respectively to be used
to the extent required to pay the exercise price arising on exercise of the CSOP and are therefore not transferable to Pete Raby and Peter Turner.
2. 2018 LTIP awards.
3. Estimated number of shares, net of tax (47%), deferred under the DBP.
4. Options granted under the Sharesave scheme.
5. Based on an executive Director’s 2020 salary (prior to temporary reduction) and the share price at 31 December 2020 of 311.0 pence, comprising shares owned outright
and shares subject to deferral.
Unless otherwise stated, figures given in the tables on pages 84 to 86 are for shares or interests in shares.
84
Morgan Advanced Materials | Annual Report 2020
Pete Raby
The auditor is required to report on the information in this table.
LTIP
Status at 31 December 2020
No further performance
conditions, released
No further performance
conditions, not yet
released
Subject to performance
conditions
Share options
As at
1 January
2020
236,074
Plan
2017
2018
233,981
Allocations
during
the year
Released
during
the year
Lapsed
during
the year
As at
31 December
2020
Market price
at date of
allocation
Market price
at date
of release
Performance period
–
–
144,713
91,361
–
314.52p
183.37p 01.01.17 – 31.12.19
–
–
–
–
–
–
–
–
233,981
333.36p
– 01.01.18 – 31.12.20
293,711
11,189
362,377
268.12p
268.12p
234.70p
– 01.01.19 – 31.12.21
– 01.01.19 – 31.12.21
– 01.01.20 – 31.12.22
2019
2019 funding
2020
293,711
11,189
–
–
–
362,377
Status at 31 December 2020
Plan
Continued service met
Subject to continued
service
Subject to performance
conditions
2016
Sharesave
2019
Sharesave
2019
LTIP-CSOP
Total interests in share plans
As at
1 January
2020
3,862
4,477
11,189
Allocations
during
the year
–
–
–
Released
during
the year
3,862
–
–
Lapsed
during
the year
As at
31 December
2020
Market price
at date of
allocation
Market price
at date
of release
Performance period
–
–
–
–
233.0p
253.20p 01.12.16 – 30.11.19
4,477
201.00p
– 01.12.19 – 30.11.22
11,189
268.12p
– 01.01.19 – 31.12.21
As at 1 January 2020
As at 31 December 2020
934,5471,2,3
1,151,6751,3,4
1. Includes a funding award of 11,189 shares to be used to the extent required to pay the exercise price arising on exercise of the CSOP and therefore not transferable to Pete Raby.
2. Includes 2017 deferred bonus award.
3. Includes 2018 and 2019 deferred bonus award.
4. Includes 2020 deferred bonus award.
Peter Turner
The auditor is required to report on the information in this table.
LTIP
Status at 31 December 2020
Plan
As at
1 January
2020
Allocations
during
the year
Released
during
the year
Lapsed
during
the year
As at
31 December
2020
Market price
at date of
allocation
Market price
at date
of release
Performance period
Subject to performance
conditions, released
No further performance
conditions, not yet
released
Subject to performance
conditions
2017
2018
187,285
180,255
–
–
114,805
–
72,480
–
–
180,255
314.52p
333.36p
183.37p 01.01.17 – 31.12.19
– 01.01.18 – 31.12.20
2019
2020
2020 funding
228,591
–
–
–
254,239
12,782
–
–
–
–
228,591
254,239
12,782
268.12p
234.70p
234.70p
– 01.01.19 – 31.12.21
– 01.01.20 – 31.12.22
01.01.20 – 31.12.22
85
GovernanceMorgan Advanced Materials | Annual Report 2020 Remuneration report
Peter Turner continued
Share options
Status at 31 December 2020
Plan
Subject to continued
service
Subject to performance
conditions
2019
Sharesave
2020
LTIP-CSOP
Total interests in share plans
As at
1 January
2020
4,477
Allocations
during
the year
Released
during
the year
Lapsed
during
the year
As at
31 December
2020
Market price
at date of
allocation
Market price
at date
of release
Performance period
–
–
12,782
–
–
–
–
4,477
201.00p
– 01.12.19 – 30.11.22
12,782
234.70p
– 01.01.20 – 31.12.22
As at 1 January 2020
As at 31 December 2020
708,1431,2
872,7842.3,4
1. Includes 2017 deferred bonus award.
2. Includes 2018 and 2019 deferred bonus award.
3. Includes 2020 deferred bonus award.
4. Includes a funding award of 12,782 shares to be used to the extent required to pay the exercise price arising on exercise of the CSOP and therefore not transferable to Peter Turner.
Details of plans
LTIP
Plan
Details
2018, 2019, 2020
The performance conditions attached to the 2018 awards are set out on page 77 to 78.
The 2019 awards were on the same basis as the 2018 awards except that the ROIC*, range was amended to 17%-20%.
The 2020 awards were on the same basis as the 2019 awards.
Share options
Plan
Details
LTIP – CSOP
LTIP 2018: The awards to the CEO and CFO were structured as LTIP awards in the form of a conditional award of free shares.
LTIP 2019: The award to the CFO was structured as LTIP awards in the form of a conditional award of free shares. The CEO’s
award was structured as an Approved Performance Share Plan (APSP) and comprised three elements: (i) HMRC-approved
options (CSOP) over shares to the value of up to £30,000 with an exercise price of 268.12 pence per share; (ii) an LTIP award in
the form of a conditional award of free shares to the value of the remainder of the award above this limit; and (iii) a funding award,
also in the form of a conditional award of free shares, over such numbers of shares whose value at exercise at the approved
option equals up to £30,000. The award is also subject to malus and clawback provisions.
The provisions of these CSOP options, funding awards and LTIP awards was linked so that the maximum aggregate number
of shares that could be acquired on exercise of LTIP and CSOP awards (the funding award being used to pay the exercise price
arising on exercise of the CSOP) was limited to that number of shares that had a market value on the date of the awards equal
to 150% of Pete Raby’s 2019 annual salary. Vested funding awards were not transferable to the participant.
LTIP 2020: The award to the CEO was structured as LTIP awards in the form of a conditional award of free shares. The CFO’s
award was structured as an Approved Performance Share Plan (APSP) and comprised three elements: (i) HMRC-approved
options (CSOP) over shares to the value of up to £30,000 with an exercise price of 234.70 pence per share; (ii) an LTIP award in
the form of a conditional award of free shares to the value of the remainder of the award above this limit; and (iii) a funding award,
also in the form of a conditional award of free shares, over such numbers of shares whose value at exercise at the approved
option equals up to £30,000. The award is also subject to malus and clawback provisions.
The provisions of these CSOP options, funding awards and LTIP awards was linked so that the maximum aggregate number
of shares that could be acquired on exercise of LTIP and CSOP awards (the funding award being used to pay the exercise price
arising on exercise of the CSOP) was limited to that number of shares that had a market value on the date of the awards equal
to 150% of Peter Turner’s 2020 annual salary. Vested funding awards were not transferable to the participant.
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.
Sharesave
Deferred Bonus Plan
Plan
Details
2018, 2019 and 2020
Mandatory deferral of one–third of gross bonus result relating to the previous year, which is provided as a conditional award
of shares of the 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 43 (Related Parties) to the consolidated financial statements. This Report was approved by the
Board on 3 March 2021.
Signed on behalf of the Board
Helen Bunch
Committee Chair
86
Morgan Advanced Materials | Annual Report 2020 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 46 to 89 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 286773.
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 2021 AGM will be held on
Thursday 6 May 2021, commencing at 10:30am
at York House, Sheet Street, Windsor SL4 1DD.
A circular incorporating the Notice of AGM
accompanies this Annual Report.
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 48 to 49.
RESULTS AND DIVIDENDS
The total loss (attributable to owners of the
parent and non-controlling interests) for the year
ended 31 December 2020 was £18.0 million
(2019: profit £81.3 million). The loss for the
period arises principally as a result of the
impairment of assets of £65.6 million and
restructuring costs of £24.0 million recorded
within specific adjusting items. Loss before
taxation for the same period was £13.1 million
(2019: profit £109.7 million). Revenue was
£910.7 million (2019: £1,049.5 million) and
operating loss was £1.8 million (2019: profit
£126.1 million). Basic loss per share* from
continuing operations was 8.6 pence (2019:
earnings per share 25.2 pence). Capital and
reserves at the end of the year were £240.0
million (2019 restated: £312.2 million). The total
loss of £18.0 million will be transferred to equity.
The Directors recommend the payment of a
final dividend at the rate of 3.5 pence per share
on the Ordinary share capital of the Company,
payable on 21 May 2021 to shareholders on the
register at the close of business on 30 April 2021.
Together with the interim dividend of 2.0 pence
per share paid on 11 December 2020, this final
dividend, if approved by shareholders, brings
the total distribution for the year to 5.5 pence
per share (2019: 4.0 pence).
DIRECTORS
All those who served as Directors at any time
during the year under review are set out on
pages 48 to 49.
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 84.
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 and
suppliers
Details of the Group’s engagement with customers
and suppliers are set out on pages 4 to 5
of the Strategic Report and on page 52 of the
Corporate Governance Report.
Information required by LR 9.8.4R
Apart from the dividend waiver which has been
issued in respect of shares held by the Trust
referred to in note 20 on page 130, there
is no information required to be disclosed under
LR 9.8.4R.
OVERSEAS BRANCHES
As at 31 December 2020, the Company had
branches as follows:
´ Thermal Ceramics Europe (France)
´ Morganite Australia Pty Limited (New
Zealand)
´ Morgan AM&T BV (Sweden and Belgium)
´ Carbo San Luis SA (Peru)
HUMAN RESOURCES
Details of the Group’s human resources policies
and employee involvement are set out on
pages 18 to 21.
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.
87
GovernanceMorgan Advanced Materials | Annual Report 2020 Other disclosures
RESEARCH AND DEVELOPMENT
The Group recognised £28.0 million in
expense in respect of research and development
(2019: £34.0 million). The Group did not
capitalise any development costs in 2020
(2019: £nil).
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.
Employee share and share option schemes
The Company operates a number of employee
share and share option schemes. 85 employees
hold awards under the Morgan Advanced
Materials plc Long-Term Incentive Plan, including
share options held under the Approved
Performance Share Plan, seven employees hold
awards under the Morgan Advanced Materials
Deferred Bonus Plan, 200 employees hold
awards under the Morgan Advanced Materials plc
Restricted Stock Unit Plan and 341 employees
participate in the Company’s UK Sharesave
scheme. Details of outstanding share awards
and share options are given in note 24
on pages 146 to 147.
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 (the 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.
Major shareholdings
As at 31 December 2020, the Company had
been notified of the following, in accordance
with DTR 5, from holders of notifiable interests
representing 3% or more of the issued Ordinary
share capital of the Company:
Number of
Ordinary
shares
Percentage
of issued
share capital
Date of notification
of interest
24,186,489
19,762,544
17,136,885
15,414,047
14,338,459
14,119,504
14,039,985
8,581,132
3 February 2017
8.48
22 October 2019
6.92
22 October 2018
6.01
5 August 2020
5.40
5.03
3 September 2019
4.95 24 November 2017
6 June 2019
4.92
15 June 2020
3.01
Share allotment and repurchase
authorities
The Directors were granted authority at the
2020 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
(a) a nominal amount of £23,780,832 and
(b) a nominal amount of £47,561,664 in
connection with a rights issue (such amount to
be reduced by any shares allotted under (a)).
This authority is scheduled to lapse at the 2021
AGM. At the 2021 AGM, shareholders will be
asked to grant a similar allotment authority.
Two separate special resolutions will also be
proposed to renew the Directors’ powers to
make non-pre-emptive issues for cash up to
an aggregate nominal amount representing
approximately 5% of the issued share capital as
at the last practicable date before the publication
of the 2021 Notice of AGM, and an additional
5% of the issued share capital which would be
for use only in connection with acquisitions and
specified capital investments.
The Directors sought authority at the 2020
AGM to repurchase shares in the capital of the
Company up to a maximum aggregate number
of Ordinary shares of 28,536,998. The Directors
will seek to renew this authority at the 2021 AGM.
Ameriprise Financial Inc., and its group
M&G Plc
Black Creek Investment Management Inc.
FIL Limited
Aberforth Partners LLP
Harris Associates
AXA Investment Managers SA
Norges Bank
As at 3 March 2021, the Company was notified by Norges Bank that its holding had decreased
from 3.01% to below 3%. There are no other changes to the substantial shareholdings shown in the
above table.
GREENHOUSE GAS EMISSIONS
Details of the Group’s annual greenhouse gas
emissions are shown in the Environment section
on page 14.
POLITICAL DONATIONS
No political donations have been made. Morgan
Advanced Materials plc has a policy of not making
donations to any political party, representative
or candidate in any part of the world.
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 22 on pages 132 to 140. 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
2020 is set out in note 41 on page 163. The
Company’s Ordinary shares represent 99.85%
of the total issued share capital, with the 5.5%
Cumulative First Preference shares representing
0.04% and the 5.0% Cumulative Second
Preference shares representing 0.11%. The
rights and obligations attaching to the Company’s
Ordinary shares, and restrictions on the transfer
of shares in the Company, 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.
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 20 on page 131.
88
Morgan Advanced Materials | Annual Report 2020 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 £200 million multi-currency revolving
credit facility agreement, which was signed
on 26 September 2018, and the privately placed
Note Purchase and Guarantee Agreements
signed on 27 October 2016 and 20 March 2017,
for which the aggregate outstanding loan
amounts are US$137 million and €85 million.
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.
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
International Financial Reporting Standards
(IFRSs) adopted pursuant to Regulation (EC)
No1606/2002 as it applies in the European
Union 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 IFRSs as adopted
by the EU.
´ 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 48 to 49, confirm that, to the best of their
knowledge:
´ The Group’s consolidated financial
statements, which have been prepared in
accordance with IFRSs as adopted by the EU,
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 2020.
For the purposes of DTR 4.1.5R(2) and DTR
4.1.8, the Directors’ Report on pages 46 to 89
and the Strategic Report on pages 2 to 45
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 he or she is aware, there is no relevant
audit information of which the Company’s auditor
is unaware, and that he or she has taken all steps
that he or she ought to have taken as a Director
to make himself or herself 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 3 March 2021.
For and on behalf of the Board
Stephanie Mackie
Company Secretary
3 March 2021
Morgan Advanced Materials plc
York House
Sheet Street
Windsor
Berkshire SL4 1DD
Registered in England and Wales, No. 286773
89
GovernanceMorgan Advanced Materials | Annual Report 2020 Independent auditor’s report
to the members of Morgan Advanced Materials plc
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
Parent 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 Parent company for the year
are disclosed in Note 4 to the financial
statements. We confirm that the non-audit
services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent
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
Materiality
Scoping
Significant changes
in our approach
The key audit matters that we identified in the current year were:
´ Inventory valuation;
´ Presentation of restructuring costs as a specific adjusting item; and
´ Impairment of non-financial assets.
The materiality that we used for the Group financial statements was £4.0m
which was determined on the basis of considering a number of different
metrics used by investors and other readers of the financial statements.
These included:
´ profit before tax before specific adjusting items;
´ revenue;
´ earnings before interest, tax, depreciation and amortisation; and
´ net assets.
Full scope audit work was performed on 18 reporting components, and
specified audit procedures were undertaken on a further 14 reporting
components. Our full scope and specified audit procedures covered 74%
of Group revenue and 89% of absolute Group statutory loss.
In the prior year, the predecessor auditor identified provisions for uncertain
tax positions, environmental provisions and the valuation of the defined
benefit obligation in the UK and US as key audit matters.
We considered and concluded as follows:
´ Having assessed provisions for uncertain tax positions and the assumptions
used in valuing the UK and US defined benefit obligation in the current
year, we do not consider the level of judgement involved to be significant
or an area where significant audit effort is required.
´ In relation to environmental provisions, the judgement in the prior year
primarily related to one site where the feasibility study was at an early
stage. The feasibility study for this site is now complete and as a result,
we do not consider the level of judgement involved to be significant
or an area where significant audit effort is required.
In the current year, we have changed the basis for determining materiality.
Refer to section 6 for further details.
REPORT ON THE AUDIT OF THE
FINANCIAL STATEMENTS
1. OPINION
In our opinion:
´ the financial statements of Morgan Advanced
Materials plc (the ‘Parent company’) and its
subsidiaries (the ‘Group’) give a true and fair
view of the state of the Group’s and of the
Parent company’s affairs as at 31 December
2020 and of the Group’s loss for the year
then ended;
´ the Group financial statements have been
properly prepared in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006 and the International
Financial Reporting Standards (IFRSs) as
adopted by the European Union;
´ the Parent 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 and Parent company
balance sheets;
´ the Consolidated and Parent company
statements of changes in equity;
´ the Consolidated statement of cash flows;
and
´ the related Notes 1 to 45.
The financial reporting framework that has been
applied in the preparation of the Group financial
statements is applicable law, international
accounting standards in conformity with the
requirements of the Companies Act 2006,
and IFRSs as adopted by the European Union.
The financial reporting framework that has been
applied in the preparation of the Parent company
financial statements is applicable law and
United Kingdom Accounting Standards, including
FRS 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting
Practice).
90
Morgan Advanced Materials | Annual Report 2020 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.
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.
Our evaluation of the directors’ assessment
of the Group’s and Parent 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;
´ evaluating the linkage to business model and
principal risks as identified on pages 8 to 9
and 26 to 31;
´ 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; and
´ assessing the adequacy of the disclosures
made by management, in light of the
COVID-19 pandemic.
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 Parent company’s ability to continue
as a going concern for a period of at least twelve
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.
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
How the scope of
our audit responded
to the key audit
matter
The Group manufactures thermal, carbon and technical ceramic products
for a diverse range of end markets. The Group had material inventory
balances of £122.4m as at 31 December 2020 (2019: £142.3m). There is a risk
that the Group’s reporting components are not correctly applying the Group
accounting policy to the valuation and provisioning of inventory, due to:
´ System limitations in certain locations, where there is significant manual
intervention required to record and value inventory, which results in
regular manual adjustments to inventory; and
´ The level of management judgement involved in determining whether
a provision should be recognised and how it should be measured.
Following the outbreak of COVID-19, there is also an enhanced risk in
relation to the absorption of fixed cost overheads into inventory where
there are low production volumes.
In the Consolidated Financial Statements, Note 1 sets out the Group’s
accounting policy for inventory valuation and Note 16 provides further
analysis of the account balance.
We have performed the following procedures in respect of this key audit
matter:
´ Obtained an understanding of the relevant controls over the inventory
valuation process;
´ Challenged the basis on which the cost of inventory has been determined,
and tested the allocation of costs to inventory by comparing to actual
overheads incurred;
´ Assessed whether the absorption of fixed cost overheads in inventory
is appropriate, where production volumes are abnormally low during
the year due to COVID-19;
´ Challenged management’s key assumptions in determining inventory
provisions by assessing the accuracy and completeness of the items
included within the provision and also taking into account the impact
of COVID-19 on future usage;
´ Assessed the mathematical accuracy of the inventory provision by
obtaining management’s analysis and performing a recalculation based
on key inputs; and
´ Tested the net realisable value of inventory by comparing to post year-end
sales invoices.
Key observations
Based on our procedures performed, we are satisfied that the valuation
of inventory at 31 December 2020 is appropriate.
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GovernanceMorgan Advanced Materials | Annual Report 2020 Independent auditor’s report
to the members of Morgan Advanced Materials plc
5.2. Presentation of restructuring costs as a specific adjusting item
Key audit matter
description
Following the outbreak of COVID-19, the Group launched a significant restructuring programme to reduce its cost base in certain
areas in response to the economic downturn arising from the pandemic, as communicated in the HY20 announcement. The
restructuring actions are expected to position the business ahead of a period of lower demand across a number of geographies
and industries. The programme is anticipated to incur cash costs of £30m and result in £23m annual savings over a three year
period to December 2022.
There are four types of activity undertaken as part of the project. These include the closure or idling of under-utilised assets,
headcount reductions, full or partial site closures and movement of manufacturing to lower cost locations. The costs recognised in
the year under these programmes have been classified as specific adjusting items within the financial statements. This is in line with
Group accounting policy where in the Directors’ judgement, certain items need to be disclosed separately by virtue of their size
and incidence in order for users of the Consolidated Financial Statements to give an understanding of the financial information and
the underlying performance of the business.
There is a risk that business as usual restructuring activities are incorrectly presented as exceptional within adjusting items.
During FY20 the Group has recognised £24.0m of restructuring costs which have been presented as specific adjusting items.
There is significant judgement in determining whether these items meet the definition of exceptional and therefore this has been
determined to be a key audit matter in the current year.
Refer to Note 1 Critical accounting judgements and Note 6 specific adjusting items in the financial statements for the Group’s
policy on the classification and disclosure of restructuring and other specific adjusting items.
How the scope of
our audit responded
to the key audit
matter
The Audit Committee Report on pages 58 to 62 refers to specific adjusting items as an area considered by the Audit Committee.
We have performed the following procedures in respect of this key audit matter:
´ Obtained an understanding of the relevant key controls relating to the identification and disclosure of restructuring costs as
adjusting items;
´ Obtained an understanding of management’s accounting policy for presenting restructuring costs and the governance structure
in place to oversee the restructuring program; and
´ Challenged the nature of restructuring costs and whether it is appropriate to classify relevant costs as exceptional, based on
the Group accounting policy, ESMA and FRC guidance and relevant accounting standards.
Key observations
Based on our procedures performed, we are satisfied with the presentation of the restructuring costs as a specific adjusting item.
92
Morgan Advanced Materials | Annual Report 2020 5.3.Impairment of non-financial assets
Key audit matter
description
Following the outbreak of COVID-19 and the resulting economic downturn, the Group has made impairments of non-financial
assets of £65.6m. These primarily sit within the Technical Ceramics and Thermal Ceramic global business units.
We have focussed our work on impairment of non-financial assets at the ceramic cores business within Technical Ceramics, where
a significant downturn in Aerospace demand has resulted in a partial impairment of that cash generating unit, with an impairment
loss of £28.8m being recognised.
Management have 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 applied therein. The key judgements in assessing non-financial assets for impairment are the discount rate, long-term
growth rate, and the short-term projected cash flows. 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.
We have focussed this key audit matter to the discount rate and short-term future cash flows and material judgements contained
therein. This is where the highest degree of sensitivity exists in determining the value-in-use. As a result, management have
provided sensitivity disclosures of the reasonable possible changes that could result in an impairment.
The Audit Committee Report on pages 58 to 62 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 and contains further details on the key source of estimation uncertainty.
We have performed the following procedures in respect of this key audit matter:
´ Obtained an understanding of the relevant key controls relating to the impairment process;
´ Assessed the integrity of management’s impairment model through testing of the mechanical accuracy and reviewing 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 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 the potential impact of COVID-19 on the cash flow projections;
´ Assessed reasonable possible changes in assumptions to challenge the appropriateness of management’s assessment
of reasonable possible change scenarios; and
How the scope of
our audit responded
to the key audit
matter
Key observations
´ Involved internal valuation specialists to assess the appropriateness of the discount rates used.
Based on our procedures performed, we consider the key assumptions taken by management to be within an acceptable range
and reasonable and supportable when taken in aggregate.
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GovernanceMorgan Advanced Materials | Annual Report 2020 Independent auditor’s report
to the members of Morgan Advanced Materials plc
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
Parent company financial statements
Materiality
Basis for determining
materiality
Rationale for the
benchmark applied
£4.0m (2019: £4.1m)
The materiality that we used for the Group financial
statements was £4.0m which was determined on the basis of
considering a number of different metrics used by investors
and other readers of the financial statements. These included:
´ Profit before tax before specific adjusting items;
´ revenue;
´ earnings before interest, tax, depreciation and
amortisation; and
´ net assets
As a result, the materiality equates to 5.4% of the final profit
before tax before specific adjusting items, 0.4% of revenue,
3% of EBITDA and 1.7% of net assets.
The predecessor auditor determined materiality based
on 3.7% of profit before tax before specific adjusting items.
Profit before tax before specific adjusting items, revenue,
EBITDA and net assets are key metrics for users of the financial
statements and reflects the manner in which business
performance is reported and assessed by external users
of the financial statements.
£2.0m (2019: £3.8m)
Materiality was determined on the basis of the Parent
company’s net assets (3%). This was then capped at 50%
of Group materiality.
The predecessor auditor determined materiality based
on 0.3% of total assets.
The entity is non-trading and contains investments in all
of the Group’s trading components and as a result, we
have determined net assets for the current year to be the
appropriate basis.
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.
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
Parent company financial statements
£2.4m which is 60% of Group materiality
£1.2m which is 60% of Parent company materiality
In determining performance materiality for the Group and Parent company, we considered the following factors:
´ the quality of the control environment;
´ the degree of centralisation in the Group’s financial reporting processes;
´ the understanding of the business given is a first year audit;
´ the level of corrected and uncorrected misstatements identified in the prior year audit by the predecessor auditor;
´ the changes in key management personnel and internal restructuring of the Group; and
´ the pervasive impact of COVID-19 on the Group.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.2m, 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.
94
Morgan Advanced Materials | Annual Report 2020 ´ Providing direction on enquiries made by
the component auditors through online and
telephone conversations; and
´ A review of the component auditors’
engagement file by a senior member of the
Group engagement team.
In response to the COVID-19 pandemic, which
limited our ability to make component visits,
more frequent calls were held between the
Group and component teams and remote access
to relevant documents was provided. Given the
pandemic, the majority of our year-end audit was
performed in a remote working environment.
As a response to this situation, we increased
the frequency of our online meetings with the
component audit teams and with management.
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.
7. AN OVERVIEW OF THE SCOPE
OF OUR AUDIT
7.1. Identification and scoping
of components
The Group operates and manufactures in
30 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 focussed
our Group audit scope across all five of the
established 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 Parent company
is located in the UK and is audited directly by
the Group audit team.
We have considered reporting components on
the basis of their contribution to Group revenue,
and profit, as well as those that require local
statutory audits in their jurisdiction. Full scope
audit work was completed on 18 components
and specified audit procedures were undertaken
on a further 14 components. Each reporting
component in scope was subject to an audit
materiality level between £1.0 m and £1.2m.
Our full scope and specified audit procedures
covered 74% of Group revenue and 89% of
absolute Group statutory loss.
7.2. Our consideration of the control
environment
The Group uses a number of different IT systems
across the reporting components and we worked
with our IT specialists to obtain an understanding
of the General IT controls for relevant systems.
The control environment is decentralised and
reliant on manual processes with improvements
required to the IT environment in order for us to
adopt a controls reliance approach to our audit.
7.3. Working with other auditors
The audit work on all components was
performed by Deloitte Touche Tohmatsu
Limited member firms with the exception of one
component business in France which continued
to be audited by the predecessor auditor. The
component work was performed under the
direction and supervision of the Group audit
team. At a Group level, further substantive audit
work was performed over the consolidation and
analytical review procedures were performed
over components not in scope.
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 auditor
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 by the Group
engagement team;
Revenue
Absolute Group statutory loss
26%
18%
11%
18%
56%
71%
● Full audit scope
● Specified audit procedures
● Review at group level
● Full audit scope
● Specified audit procedures
● Review at group level
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GovernanceMorgan Advanced Materials | Annual Report 2020
Independent auditor’s report
to the members of Morgan Advanced Materials plc
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
Parent 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 Parent
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 management,
internal audit, and the audit committee about
their own identification and assessment of
the risks of irregularities;
´ 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
– obtaining an understanding of the cases
being reported through the whistleblowing
hotline
– the internal controls established to mitigate
risks of fraud or non-compliance with laws
and regulations
´ 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: presentation of restructuring costs
as adjusting items 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 legislation, 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 presentation of restructuring costs as
a specific adjusting item as a key audit matter
related to the potential risk of fraud. 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. In addition to the above,
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;
´ performing additional audit procedures
where possible risks of fraud or non-
compliance were identified from
understanding and discussing whistleblowing
cases;
´ 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 have obtained an
understanding of relevant controls in the
revenue cycle and tested a sample of sales
recognised during the period by agreeing
to invoice, dispatch note and cash collection
(where appropriate) to assess 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;
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Morgan Advanced Materials | Annual Report 2020
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.
Jane Makrakis, ACA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
3 March 2021
We also communicated relevant identified laws
and regulations and potential fraud risks to all
engagement team members including internal
specialists and significant component audit teams,
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 Parent 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 41;
´ 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 pages 41 to 42;
´ the directors’ statement on fair, balanced
and understandable set out on page 60;
´ the board’s confirmation that it has carried
out a robust assessment of the emerging
and principal risks set out on page 26;
´ the section of the annual report that describes
the review of effectiveness of risk
management and internal control systems
set out on pages 26 to 31; and
´ the section describing the work of the audit
committee is set out on pages 58 to 62.
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 Parent company, or returns
adequate for our audit have not been
received from branches not visited by us; or
´ the Parent 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 one year.
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).
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GovernanceMorgan Advanced Materials | Annual Report 2020 Financial
statements
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Morgan Advanced Materials | Annual Report 2020
FINANCIAL STATEMENTSConsolidated income statement 99Consolidated statement of comprehensive income 100Consolidated balance sheet 101Consolidated statement of changes in equity 102Consolidated statement of cash flows 103Notes to the consolidated financial statements 104Company balance sheet 150Company statement of changes in equity 151Notes to the Company balance sheet 152Group statistical information 169Cautionary statement 170Glossary of terms 170Shareholder information 171 Consolidated income statement
FOR THE YEAR ENDED 31 DECEMBER 2020
Revenue
Operating costs before amortisation of intangible assets
Profit from operations before amortisation
of intangible assets
Amortisation of intangible assets
Operating profit/(loss)
Finance income
Finance expense
Net financing costs
Share of profit of associate (net of income tax)
Profit/(loss) before taxation
Income tax (expense)/credit
Profit/(loss) from continuing operations
Profit from discontinued operations2
Profit/(loss) for the year
Profit/(loss) for the year attributable to:
Shareholders of the Company
Non-controlling interests
Earnings per share
Continuing and discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations
Basic earnings per share
Diluted earnings per share
Dividends3
Interim dividend
– pence
– £m
Proposed final dividend4 – pence
– £m
Note
3
4
3
4
3
7
14
8
9
10
31 December 2020
31 December 2019
Results
before
specific
adjusting
items
£m
910.7
Specific
adjusting
items1
£m
–
Total
£m
910.7
Results
before
specific
adjusting
items
£m
1,049.5
(819.0)
91.7
(87.4)
(87.4)
(906.4)
4.3
(915.3)
134.2
(6.1)
85.6
0.9
(12.8)
(11.9)
0.6
74.3
(20.2)
54.1
–
54.1
48.1
6.0
54.1
–
(87.4)
–
–
–
–
(87.4)
13.3
(74.1)
2.0
(72.1)
(70.6)
(1.5)
(72.1)
(8.1)
126.1
1.9
(18.8)
(16.9)
0.5
109.7
(29.9)
79.8
0.7
80.5
72.3
8.2
80.5
(6.1)
(1.8)
0.9
(12.8)
(11.9)
0.6
(13.1)
(6.9)
(20.0)
2.0
(18.0)
(22.5)
4.5
(18.0)
(7.9)p
(7.9)p
(8.6)p
(8.6)p
2.00p
5.7
3.50p
10.0
Specific
adjusting
items1
£m
–
–
–
–
–
–
–
–
–
–
–
–
0.8
0.8
0.8
–
0.8
Total
£m
1,049.5
(915.3)
134.2
(8.1)
126.1
1.9
(18.8)
(16.9)
0.5
109.7
(29.9)
79.8
1.5
81.3
73.1
8.2
81.3
25.7p
25.5p
25.2p
25.0p
4.00p
11.4
–
1. Details of specific adjusting items are given in note 6 to the consolidated financial statements.
2. Profit 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.
4. 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.
99
Financial statementsMorgan Advanced Materials | Annual Report 2020
Consolidated statement of comprehensive income
FOR THE YEAR ENDED 31 DECEMBER 2020
Loss)/profit for the period
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (loss)/gain on defined benefit plans
Tax effect of components of other comprehensive income not reclassified
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
Cash flow hedges:
Change in fair value
Transferred to profit or loss
Total other comprehensive (expense)/income
Total comprehensive (expense)/income
Attributable to:
Shareholders of the Company
Non-controlling interests
Total comprehensive (expense)/income attributable to shareholders of the Company arising from:
Continuing operations
Discontinued operations
31 December
2020
£m
31 December
2019
£m
Note
(18.0)
81.3
23
8
(33.9)
0.4
(33.5)
20.5
2.2
22.7
(3.2)
(18.3)
0.4
(0.8)
(3.6)
(37.1)
(55.1)
(59.8)
4.7
(55.1)
(61.8)
2.0
(59.8)
0.8
0.2
(17.3)
5.4
86.7
81.1
5.6
86.7
79.6
1.5
81.1
100
Morgan Advanced Materials | Annual Report 2020 Consolidated balance sheet
AS AT 31 DECEMBER 2020
Assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investments
Other receivables
Deferred tax assets
Total non-current assets
Inventories
Derivative financial assets
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Borrowings
Lease liabilities
Employee benefits: pensions
Provisions
Non-trade payables
Deferred tax liabilities
Total non-current liabilities
Borrowings and bank overdrafts
Lease liabilities
Trade and other payables
Current tax payable
Provisions
Derivative financial liabilities
Total current liabilities
Total liabilities
Total net assets
Equity
Share capital
Share premium
Reserves
Retained earnings
Total equity attributable to shareholders of the Company
Non-controlling interests
Total equity
2020
£m
2019
restated1,2
£m
2018
restated1,2
£m
Note
11
12
13
14
17
15
16
17
18
21
21
23
25
19
15
21
21
19
25
20
267.6
35.5
185.4
7.2
4.0
14.4
514.1
122.4
1.0
143.6
1.6
147.8
416.4
930.5
177.5
43.1
176.3
8.5
4.9
0.5
410.8
71.3
11.5
148.4
20.4
27.3
0.8
279.7
690.5
240.0
71.3
111.7
18.7
0.6
202.3
37.7
240.0
317.2
49.1
204.8
6.5
5.7
6.0
589.3
142.3
1.5
181.0
2.3
132.8
459.9
1,049.2
176.7
52.6
156.8
9.2
2.5
4.9
402.7
113.4
11.7
173.3
26.9
8.9
0.6
334.8
737.5
311.7
71.3
111.7
22.5
64.7
270.2
41.5
311.7
314.5
–
215.6
5.9
6.3
6.9
549.2
145.3
0.6
200.5
1.3
138.5
486.2
1,035.4
165.3
–
190.4
10.1
2.5
11.0
379.3
153.5
0.2
190.5
26.0
8.6
0.6
379.4
758.7
276.7
71.3
111.7
37.2
12.1
232.3
44.4
276.7
1. Comparative information has been restated to include the Group’s cumulative preference shares within borrowings. The cumulative preference shares were previously
presented in equity, see note 1 for further details.
2. Cash and cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32 as further described in note 1. This has had no impact
on net assets or net debt*.
The financial statements were approved by the Board of Directors on 3 March 2021 and were signed on its behalf by:
Pete Raby
Chief Executive Officer
Peter Turner
Chief Financial Officer
101
Financial statementsMorgan Advanced Materials | Annual Report 2020
Consolidated statement of changes in equity
FOR THE YEAR ENDED 31 DECEMBER 2020
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
At 1 January 2019 as reported
Impact of change in accounting policy,
net of tax, following the adoption
of IFRS 16
Restatement of prior period1
1 January 2019 restated
Profit for the year
Other comprehensive
income/(expense):
Remeasurement gain on defined
benefit plans and related taxes
Foreign exchange differences
Cash flow hedging fair value changes
and transfers
Total comprehensive
(expense)/income
Transactions with owners:
Dividends
Equity settled share-based payments
Own shares acquired for share
incentive schemes (net)
At 31 December 2019
At 1 January 2020
(Loss)/profit for the year
Other comprehensive
income/(expense):
Remeasurement loss on defined
benefit plans and related taxes
Foreign exchange differences
Cash flow hedging fair value changes
and transfers
Total comprehensive
(expense)/income
Transactions with owners:
Dividends
Purchase of non-controlling interest
Equity settled share-based payments
Own shares acquired for share
incentive schemes (net)
At 31 December 2020
12.1
(12.2)
232.8
(12.2)
44.4
–
Total
equity
£m
277.2
(12.2)
–
(0.1)
73.1
(0.5)
220.1
73.1
–
44.4
8.2
(0.5)
264.5
81.3
22.7
22.7
–
22.7
–
–
(15.7)
1.0
(2.6)
–
(18.3)
1.0
0.6
–
–
0.6
–
–
–
–
–
95.8
81.1
5.6
86.7
–
–
–
(31.3)
2.8
(2.5)
(31.3)
2.8
(2.5)
(8.5)
–
–
(39.8)
2.8
(2.5)
(1.0)
–
–
(1.0)
–
–
–
–
–
–
–
–
35.7
–
–
35.7
–
–
–
–
–
–
–
–
71.8
–
111.7
–
(0.5)
71.3
–
–
111.7
–
2.1
–
–
2.1
–
–
(15.7)
–
–
–
–
–
(15.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.2)
–
–
(0.2)
–
–
–
1.0
1.0
–
–
–
0.8
0.8
–
71.3
111.7
(13.6)
71.3
–
111.7
–
(13.6)
–
(1.0)
35.7
0.6
64.7
270.2
41.5
311.7
(1.0)
–
35.7
–
0.6
–
64.7
(22.5)
270.2
(22.5)
41.5
4.5
311.7
(18.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3.4)
–
–
(0.4)
(3.4)
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(33.5)
(33.5)
–
(33.5)
–
–
(3.4)
(0.4)
0.2
–
(3.2)
(0.4)
(56.0)
(59.8)
4.7
(55.1)
(5.7)
(2.2)
1.2
(1.4)
(5.7)
(2.2)
1.2
(1.4)
(7.9)
(0.6)
–
–
(13.6)
(2.8)
1.2
(1.4)
71.3
111.7
(17.0)
0.4
(1.0)
35.7
0.6
0.6
202.3
37.7
240.0
1. 2019 has been restated to remove the cumulative preference shares previously presented in equity, see note 1 for further details.
Details of the reserves are provided in note 20.
102
Morgan Advanced Materials | Annual Report 2020 Consolidated statement of cash flows
FOR THE YEAR ENDED 31 DECEMBER 2020
Operating activities
(Loss)/profit for the year from continuing operations
Profit for the year from discontinued operations
Adjustments for:
Depreciation – property, plant and equipment
Depreciation – right-of-use assets
Amortisation
Net financing costs
Profit on disposal of business
Non-cash specific adjusting items included in operating profit
Share of profit from associate (net of income tax)
Profit on sale of property, plant and equipment
Income tax expense
Equity settled share-based payment expense
Cash generated from operations before changes in working capital and provisions
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventories
(Decrease)/increase in trade and other payables
Increase/(decrease) in provisions
Payments to defined benefit pension plans (net of IAS 19 pension charges)
Cash generated from operations
Interest paid – borrowings and overdrafts
Interest paid – lease liabilities
Income tax paid
Net cash from operating activities
Investing activities
Purchase of property, plant and equipment and software
Purchase of investments
Proceeds from sale of property, plant and equipment
Interest received
Disposal of subsidiaries, net of cash disposed
Net cash from investing activities
Financing activities
Purchase of own shares for share incentive schemes
Proceeds from exercise of share options
Increase in borrowings
Reduction and repayment of borrowings
Payment of lease liabilities
Dividends paid to shareholders of the Company
Dividends paid to non-controlling interests
Purchase of shares from non-controlling interest
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of the year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at year end
31 December
2020
£m
Note
31 December
2019
restated1
£m
9
7
2,6
6,9
14
8
4
23
20
20
18
18
18
18
(20.0)
2.0
32.7
9.2
6.1
11.9
(2.2)
65.7
(0.6)
(1.0)
6.9
0.7
111.4
36.1
18.4
(19.7)
17.8
(17.9)
146.1
(7.5)
(2.8)
(26.0)
109.8
(30.0)
(1.0)
1.4
0.9
5.3
(23.4)
(1.8)
0.4
7.9
(49.8)
(9.9)
(5.7)
(7.9)
(2.8)
(69.6)
16.8
132.8
(1.8)
147.8
79.8
1.5
32.3
10.1
8.1
16.9
(0.7)
–
(0.5)
(0.7)
29.9
2.4
179.1
9.0
(5.9)
(3.1)
(0.5)
(13.4)
165.2
(11.2)
(3.0)
(28.8)
122.2
(56.4)
(1.1)
1.5
1.9
0.7
(53.4)
(3.3)
0.8
67.1
(85.2)
(9.6)
(31.3)
(8.5)
–
(70.0)
(1.2)
138.5
(4.5)
132.8
1. As disclosed in note 1, the Group’s cash and cash equivalents have been restated to meet the presentational requirements for offsetting in accordance with IAS 32.
Comparative information for the year ended 31 December 2019 has increased from £68.7 million to £132.8 million. This has had no impact on the Group’s net assets.
103
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS
Morgan Advanced Materials plc (the ‘Company’) is a company incorporated in the UK under The Companies Act. The address of the registered office
is given in ‘Shareholder information’ on page 172. 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 45.
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 2020. The Group maintains a 12-month calendar financial year ending
on 31 December.
The Group financial statements have been prepared and approved by the Directors in accordance with the requirements of the Companies Act 2006
and International Financial Reporting Standards adopted pursuant to Regulation (EC) no 1606/2002 as it applies in the European Union. The Company
has elected to prepare its Parent company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework;
these are presented on pages 150 to 168.
Except for the changes set out in the adoption of new and revised standards section, the accounting policies set out below have been applied consistently
to all periods presented in these Group financial statements.
SIGNIFICANT ACCOUNTING POLICIES
Measurement convention
The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial
instruments and financial instruments designated as fair value through other comprehensive income (FVOCI).
Functional and presentation currency
The Group’s financial statements are presented in pounds sterling, which is the Company’s functional currency.
Basis of consolidation
(i) Subsidiaries
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 control ceases.
(ii) Acquisitions
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 and other professional
and consulting fees, are expensed as incurred.
(iii) Associates
Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence
is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Associates are accounted for using the equity
method and are initially recognised at cost.
(iv) 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, but only to the extent that there is no evidence
of impairment.
104
Morgan Advanced Materials | Annual Report 2020 1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
Foreign currency
(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 comprehensive income.
Specific adjusting items
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 information and an indication of the underlying performance of the Group.
Revenue
Revenue is recognised when or as 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. 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 2020, 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 by geography, end market and by
global business unit, which are aligned by product type, in note 3 to the consolidated financial statements.
Research and development
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 that relate to a product or process that is technically and commercially feasible and the Group has sufficient resources to complete
development, use and sale of products or processes. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment
losses.
Finance income and expense
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, 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.
Borrowing costs (interest and other costs) are capitalised when they are incurred on raising specific funds to finance a major capital project which will be
a significant productive asset, or to the extent that funds borrowed generally are used for the purposes of obtaining a qualifying asset.
105
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
Taxation
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.
Deferred tax is provided using the balance sheet liability method, providing for 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 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 can be utilised.
Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Discontinued operations
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 operations is shown as a single line on the
face of the consolidated income statement, separate from the results of the rest of the Group.
Hedge accounting
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 (i.e. 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 (i.e. including the forward elements) as the hedging
instrument for all of its hedging relationships involving forward contracts.
Note 22 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 20.
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.
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 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.
106
Morgan Advanced Materials | Annual Report 2020 1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
Property, plant and equipment
(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’
in the income statement.
(ii) Depreciation of owned assets
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
Plant, equipment and fixtures
50 years
3-20 years
Leasing
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 USD 5,000 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 of 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 at the
commencement date of the lease.
Goodwill
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 and is tested at least annually for impairment. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated
to the unit and then to reduce the carrying amount of the other intangibles and other assets of the unit pro-rata on the basis. An impairment loss recognised
for goodwill is not reversed in a subsequent period.
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Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
Other intangible assets
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
Computer software
Customer relationships
Technology and trademarks
3 years
3-10 years
15-20 years
15-20 years
Impairment of non-financial assets, excluding goodwill
The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment.
If any such indication exists, the asset’s recoverable amount is estimated.
The recoverable amount of other assets 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. 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 carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Investments in equity securities
Investments in equity securities held by the Group are classified as FVOCI and are stated at fair value, with any resultant gain or loss being recognised
directly in other comprehensive income (in the fair value reserve), except for impairment losses. The gains or losses arising from changes in fair value
are recognised in other comprehensive income until the security is disposed of, at which time the cumulative gain or loss previously recognised in other
comprehensive income and accumulated in the FVOCI reserve is transferred to retained earnings.
Inventories
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 appropriate share of overheads based
on normal operating capacity.
Trade and other receivables
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’
model). The Group a 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 the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Short-term deposits include demand deposits and short–term highly liquid investments
with maturities of three months or less 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 Group’s cash management are included as a component of borrowings for
the purpose of the Group statement of cash flows.
Trade and other payables
Trade and other payables are recognised initially at transaction price. Subsequent to initial recognition they are measured at amortised cost using the
effective interest method.
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1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
Borrowings
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 the borrowings on an effective
interest basis.
Financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity (i.e. 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 instruments that
are classified in equity are dividends and are recorded directly in equity.
Pensions and other long-term service benefits
(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.
(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 Group’s obligations.
Share-based payment transactions
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 performance conditions at the vesting date.
109
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
Provisions, contingent liabilities and contingent assets
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.
A contingent asset is not recognised but is disclosed, where significant, if an inflow of economic benefit is probable.
Preference share capital
Preference share capital is classified as a financial liability within borrowings if redeemable and dividends are not discretionary. Dividends on preference share
capital are classified as finance charges within the consolidated income statement.
Share capital
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 General Employee Benefit Trust
(the Trust) are presented as a deduction from total equity.
Dividends
Dividends payable are recognised as a liability in the Company’s financial statements in the period in which the dividends are declared and approved.
Dividends declared after the balance sheet date are not recognised as there is no present obligation at that the balance sheet date.
USE OF JUDGEMENTS AND ESTIMATES
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.
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.
´ 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.
Determining whether an item is part of specific adjusting items requires judgement to determine the nature and the intention of the transaction.
Note 15: Recognition of deferred tax assets
Deferred tax assets are recognised when management judges it probable that future taxable profits will be available against which the temporary differences
can be utilised. This relies on the use of estimates of future taxable profits which may differ from the actual results delivered. In the event future taxable
profits do not materialise this would lead to a write-off of recognised deferred tax assets.
Note 25: 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.
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Morgan Advanced Materials | Annual Report 2020 1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
Assumptions and estimates
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are included in the below notes:
Note 23: Pensions and other post-retirement employee benefits: key actuarial assumptions
The principal actuarial assumptions applied to pensions are shown in note 23, including a sensitivity analysis. 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 included in the
balance sheet.
In 2018, based on the results of a High Court hearing, the Group recognised a liability in relation to Guaranteed Minimum Pensions (GMPs), an initiative
to remove inequalities in scheme benefits that arise from Guaranteed Minimum Pensions being unequal between men and women. As a result of a further
judgement in November 2020 relating to the need to equalise historical transfer payments, a further charge of £0.1 million has been included in these
accounts, refer also to note 23. Legal uncertainty remains in this area in relation to how equalisation will be practically implemented.
Note 25: Environmental provisions and contingent liabilities
Provisions for environmental costs and settlement of litigation are estimated based on current legal and constructive requirements. Actual costs and cash
outflows can differ from current estimates because of changes in laws and regulations, public expectations, prices, more detailed analysis of site conditions
and innovations in clean-up technology.
Amounts provided are the Group’s best estimate of exposure based on currently available information.
Note 6: Impairment of non-financial assets (excluding goodwill)
In addition to the impairment assessment of goodwill, described below, management also monitor the performance of individual assets and where
indicators of impairment exist, perform an impairment review on those assets.
This process relies on the use of estimates of the future profitability and cash flows which may differ from the actual results delivered. Due to the current
COVID-19 global pandemic, there is an increased level of risk and therefore a key source of estimation uncertainty in these assumptions. It is reasonably
possible that a change in these assumptions could lead to a material reversal of impairment, for ceramic cores within Technical Ceramics and Porextherm
within Thermal Ceramics, in the next financial year. See note 6 for a sensitivity analysis for these in respect to the recoverable amount of these assets.
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 15: 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. Whilst 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 13: Impairment of goodwill
The Group tests whether goodwill have suffered any impairment at least annually. This process relies on the use of estimates of the future profitability
and cash flows of its cash-generating units which may differ from the actual results delivered. Note 13 contains information about the assumptions relating
to goodwill impairment tests, including a sensitivity analysis.
Note 22: Credit risk
Note 22 contains information about the Group’s exposure to credit risk, including a sensitivity analysis. The Group establishes a loss allowance for its
estimate of expected credit losses against receivables.
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Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
GOING CONCERN
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 45. The financial position of the Group, its cash flows, liquidity position and borrowing facilities, are described earlier in this Financial Review.
In addition, note 22 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 £200 million unsecured
multi-currency revolving credit facility, which matures in September 2024. As at 31 December 2020 the Group had significant headroom on its covenants
and available liquidity with the Group’s undrawn £200 million multi-currency revolving credit facility and net cash and cash equivalents* of £75.8 million.
The Group applied for the UK Government’s ‘COVID Corporate Financing Facility’ (CCFF) with an issuer limit of £300 million, which was confirmed as
successful in June 2020. As a result of available liquidity and cash preservation measures taken the facility remained undrawn through the period. During
2020 the Group announced a restructuring and efficiency programme to reduce costs by a targeted £23 million per annum by 2022, with an anticipated
cash cost of £30 million to deliver these savings. This has been implemented in 2020 and is expected to complete through 2021. No further restructuring
activities have therefore been modelled into the sensitivity analysis performed. The Group’s forecasts and projections, taking account of reasonably possible
changes in trading performance, exchange rates and plausible downside scenarios as a result of COVID-19 and its impact on the global economy, show the
Group operating within its debt financial covenants for the next 18 months.
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 40% and an increase in net
debt* of 80% would still allow the Group to operate within its financial covenants. The Board has reviewed this with management and is satisfied that this
is appropriate and is supporting the Group as a Going Concern.
The current economic climate continues to have an impact on the Group, its customers and its suppliers. Due to the Group’s broad-end market base,
as a result of the COVID-19, it is anticipated that some markets will continue to see reduced activity but others will continue to grow. The UK’s exit from
the EU may have an impact on the Group if tariffs are subsequently introduced or border controls negatively impact either the profitability of the Group’s
products or the ability to manufacture or distribute products on a timely basis. However, given the current value of the Group’s UK exports to the EU
(ca. £24 million) and imports into the UK from the EU (ca. £17 million), it is not considered that this will have a significant impact on the Group’s overall
liquidity or operations.
The Board and Executive Committee have regular reporting and review processes in place in order to monitor the ongoing operational and financial
performance of the Group closely. These processes include the ongoing review of the impact of COVID-19 on the Group and its stakeholders.
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.
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 on pages 43 to 45, ‘Alternative Performance Measures’.
NEWLY ADOPTED STANDARDS
There were no new standards applicable to the Group in the year.
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 9, IAS 39 and IFRS 7 – interest rate benchmark reform – phase 2
´ Amendments to IFRS 16 – COVID-19 related rent concessions
´ Amendments to IAS 1 – classification of liabilities as current or non-current and disclosure of accounting policies
´ Amendments to IAS 8 – definition of accounting estimates
´ Amendments to IAS 16 – property, plant and equipment – proceeds before intended use
´ 2018-2020 annual improvements cycle
The adoption of the above standards and interpretations 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.
There are no other upcoming accounting standards or amendments that are applicable to the Group.
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Morgan Advanced Materials | Annual Report 2020 1. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS continued
PRIOR PERIOD RESTATEMENT
Cash pooling arrangements
Within the period, it was determined that the Company’s cash and overdrafts within notional cash pooling arrangements did not meet the requirements
for offsetting in accordance with IAS 32 Financial Instruments: Presentation. For presentational purposes, amounts have therefore been restated for the
preceding period ended 31 December 2019 and the beginning of the preceding period being 1 January 2019 in accordance with IAS 8 Accounting Policies,
Change in Accounting Policies and Errors. The impact of this change for the period ended 31 December 2019 is to increase both cash and cash equivalents
and overdrafts within current loans and other borrowings by £64.1 million (2018: £70.9 million).
This has had no impact on net assets as seen on the face of the Consolidated balance sheet.
Preference shares
Within the period, the Group financial statements have also been restated to reclassify the Group’s cumulative preference shares (which were previously
classified as equity) to borrowings. Following a review of the substance of the shares it was determined that the cumulative preference shares do not contain
an equity element. The impact of this change for the period ended 31 December 2019 is an increase in non-current borrowings and a decrease in share
capital of £0.4 million (2018: £0.4 million), this change decreased net assets by the same amount.
There was no impact to the consolidated income statement as the dividends, previously classified as distributions from equity that have been reclassified
to finance charges within the consolidated income statement totalled less than £0.1 million.
2. DISPOSALS
2020
Diamonex, Technical Ceramics
On 31 August 2020, the Group completed the sale of its Diamonex business, based in Allentown, US. The transaction was structured as a sale of the
business and related assets for total consideration of up to £6.5 million. The consideration comprises £5.6 million paid in cash on completion, £0.3 million of
deferred consideration due in 2021 and up to £0.5 million of consideration contingent on the future performance of the disposed business which, if earned,
would also be payable in 2021.
In 2020, Diamonex generated an operating profit of £0.5 million on revenues of £4.3 million in the period prior to their disposal (year ended 31 December
2019: £0.5 million on revenues of £6.4 million).
The disposal of the Diamonex business reduced the Group’s assets and liabilities as follows:
Trading net assets of disposal group
Goodwill of disposal group
Cumulative foreign exchange gains and losses recycled on disposal
Total net assets
Consideration
Transaction costs associated with the disposal
Gain on disposal
The disposal group was included in the Technical Ceramics operating segment.
2019
There were no business disposals in the year ended 31 December 2019.
31 December
2020
£m
2.2
0.9
0.3
3.4
5.9
(0.3)
2.2
113
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
3. SEGMENT REPORTING
The Group reports as two divisions and five (2019: five) global business units, which have been identified as the Group’s reportable operating segments,
as detailed on pages 8, 32 to 37. 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.
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 Ceramics Molten Metal Systems
2020
£m
2019
£m
344.3
418.4
2020
£m
41.2
2019
£m
49.1
Thermal Products
division
Electrical Carbon
Seals and Bearings
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
385.5
467.5
151.4
164.2
146.4
144.3
26.7
52.2
3.2
5.9
29.9
58.1
23.6
21.9
27.5
26.4
(1.9)
24.8
(39.4)
(14.6)
(2.2)
50.0
–
50.0
(0.3)
2.9
(0.9)
2.0
(0.3)
5.6
–
5.6
(2.2)
27.7
(40.3)
(12.6)
(2.5)
55.6
–
55.6
(0.7)
22.9
(3.7)
19.2
(0.7)
21.2
–
21.2
(0.4)
27.1
(0.6)
26.5
(0.4)
26.0
–
26.0
Continuing operations
Revenue from external customers
Segment adjusted operating profit 1
Corporate costs
Group adjusted operating profit/(loss) 1
Amortisation of intangible assets
Operating profit/(loss) before specific
adjusting items
Specific adjusting items included in operating profit 2
Operating profit/(loss)
Finance income
Finance expense
Share of profit of associate (net of income tax)
Profit/(loss) before taxation
Segment assets
315.7
387.5
39.5
42.8
355.2
430.3
141.5
154.8
98.7
101.9
Segment liabilities (2019: restated3)
84.8
96.4
Segment capital expenditure
Segment depreciation – property,
plant and equipment
7.2
12.1
12.5
13.6
7.4
2.9
2.3
9.4
92.2
105.8
31.1
32.2
19.9
22.5
4.2
10.1
16.3
1.8
14.8
15.4
4.8
5.4
8.4
5.2
7.7
10.1
5.7
5.0
Segment depreciation – right-of-use assets
4.1
4.3
0.4
0.4
4.5
4.7
1.2
1.2
0.7
0.7
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
2. Details of specific adjusting items are given in note 6 to the consolidated financial statements.
3. 2019 segment liabilities have been restated to include the Group’s cumulative preference shares within borrowings, see note 1 for further details.
114
Morgan Advanced Materials | Annual Report 2020
3. SEGMENT REPORTING continued
Technical Ceramics
Carbon and Technical
Ceramics division
Segment totals
Corporate costs
Continuing operations
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
Revenue from external customers
227.4
273.5
525.2
582.0
910.7 1,049.5
2020
£m
–
2019
£m
2020
£m
Group
2019
£m
–
910.7 1,049.5
Segment adjusted operating profit 1
Corporate costs
Group adjusted operating profit/(loss) 1
Amortisation of intangible assets
Operating profit/(loss) before specific
adjusting items
Specific adjusting items included in operating profit 2
Operating profit/(loss)
Finance income
Finance expense
Share of profit of associate (net of income tax)
Profit/(loss) before taxation
14.8
33.7
65.9
82.0
95.8
140.1
(2.8)
12.0
(42.3)
(30.3)
(4.5)
29.2
–
29.2
(3.9)
62.0
(46.6)
15.4
(5.6)
76.4
–
76.4
(6.1)
89.7
(8.1)
132.0
(86.9)
2.8
–
132.0
(4.1)
(5.9)
–
(4.1)
(0.5)
(4.6)
–
(5.9)
–
(5.9)
95.8
(4.1)
91.7
(6.1)
85.6
(87.4)
(1.8)
0.9
(12.8)
0.6
(13.1)
140.1
(5.9)
134.2
(8.1)
126.1
–
126.1
1.9
(18.8)
0.5
109.7
Segment assets (2019: restated3)
158.3
209.6
398.5
466.3
753.7
896.6
176.8
152.6
930.5 1,049.2
Segment liabilities (2019: restated3,4)
72.6
78.0
123.6
132.7
215.8
238.5
474.7
499.0
690.5
737.5
Segment capital expenditure
7.4
21.6
19.9
40.1
30.0
56.4
Segment depreciation – property,
plant and equipment
6.8
6.7
17.9
16.9
32.7
32.3
Segment depreciation – right-of-use assets
2.8
3.4
4.7
5.3
9.2
10.0
–
–
–
–
–
30.0
56.4
32.7
32.3
0.1
9.2
10.1
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
2. Details of specific adjusting items are given in note 6 to the consolidated financial statements.
3. Cash and cash equivalents (within segment assets) and borrowings (within segment liabilities) have been restated to meet the presentational requirements of IAS 32 as
further described in note 1. This has had no impact on net assets.
4. 2019 segment liabilities have been restated to include the Group’s cumulative preference shares within borrowings, see note 1 for further details.
115
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
3. SEGMENT REPORTING continued
REVENUE FROM EXTERNAL CUSTOMERS AND NON-CURRENT ASSETS BY GEOGRAPHY
Continuing operations
US
China
Germany
UK (the Group’s country of domicile)
France
Other Asia, Australasia, Middle East and Africa
Other Europe
Other North America
South America
Revenue from
external customers
Non-current assets
(excluding tax and
financial instruments)
2020
£m
359.8
97.1
59.3
37.5
21.4
164.6
120.9
32.9
17.2
910.7
2019
£m
420.0
101.3
68.9
44.5
29.8
195.7
128.2
33.6
27.5
1,049.5
2020
£m
182.3
40.9
36.1
120.0
15.2
71.2
25.1
6.2
2.7
499.7
2019
£m
226.8
60.1
46.9
120.8
17.6
71.6
26.0
9.4
4.1
583.3
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 10% of revenue.
REVENUE FROM EXTERNAL CUSTOMERS BY END MARKET
Continuing operations
Industrial
Transportation
Chemical and petrochemical
Semiconductor and electronics
Energy
Security and defence
Healthcare
2020
£m
390.9
157.0
103.7
57.8
50.5
90.1
60.7
910.7
20191
£m
469.8
218.2
106.0
62.7
57.4
78.1
57.3
1,049.5
1. Revenue from external customers by end market for the year ended 31 December 2019 has been re-presented to better reflect the end-markets of our customers.
INTERCOMPANY SALES TO OTHER SEGMENTS
Thermal
Ceramics
Molten Metal
Systems
Thermal Products
division
Electrical
Carbon
Seals and
Bearings
Technical
Ceramics
Carbon and
Technical
Ceramics
division
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
Intercompany sales
to other segments
0.9
1.0
0.1
0.1
1.0
1.1
0.3
0.3
0.8
1.2
1.0
0.4
2.1
1.9
116
Morgan Advanced Materials | Annual Report 2020 4. OPERATING COSTS BEFORE SPECIFIC ADJUSTING ITEMS
Continuing operations
Change in stocks of finished goods and work in progress
Raw materials and consumables
Other external charges
Employee costs:
Wages and salaries
Equity-settled share-based payments expense
Social security costs and other benefits
Pension costs
Depreciation – property, plant and equipment
Depreciation – right-of-use assets
Short-term leases and leasing of low value assets:
Plant and equipment
Other leases
Other operating charges and income:
Net foreign exchange (gains)/losses
Net other operating charges
Total operating costs before specific adjusting items and amortisation of intangible assets
Amortisation of intangible assets
Total operating costs before specific adjusting items
Note
24
23
11
12
13
2020
£m
9.0
236.2
127.0
372.2
264.2
0.7
54.2
15.4
334.5
32.7
9.2
41.9
0.1
0.4
0.5
(0.1)
70.0
69.9
819.0
6.1
825.1
2019
£m
0.8
265.4
129.5
395.7
292.2
2.4
56.3
15.1
366.0
32.3
10.1
42.4
0.2
0.6
0.8
(0.1)
110.5
110.4
915.3
8.1
923.4
The following costs are included in total operating costs before specific adjusting items in the table above:
1. Research and development
The Group recognised £28.0 million in expense in respect of research and development (2019: £34.0 million). These costs are included in employee
costs and other operating charges in the above table. There are no individually material project costs.
2. Employee costs
Due to the impact of the pandemic on business results, Morgan, like many companies, has needed to review, and in many cases make changes to,
remuneration plans alongside other actions to control costs and cash flow. A key priority has been to balance the impact on remuneration equitably
across the executives, wider employee population and other stakeholders. Furloughs were used (with UK government job retention scheme funding
having been reimbursed). In addition a global restructuring programme was also implemented. In the light of the impact of the pandemic on employees
and shareholders, the Board agreed that their own salaries should be reduced by 30% from 1 April to 31 December as well as other measures outlined
in the Remuneration Report on page 81.
3. Audit and non-audit fees
A summary of the audit and non-audit fees in respect of services provided by the auditor charged to operating profit in the year ended 31 December 2020
is set out below. Fees set out in 2020 relate to Deloitte LLP following their appointment in May 2020, fees in the comparative period relate to the Group’s
previous auditor.
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for other services:
the auditing of accounts of any subsidiaries of the Company
audit-related services
taxation compliance services
other non-audit services
2020
£m
0.7
1.9
0.1
–
–
2.7
2019
£m
0.6
1.6
0.1
0.1
–
2.4
117
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
5. STAFF NUMBERS
The average number of persons employed by the Group (including Directors) during the year, analysed by reporting segment, was as follows:
Reportable operating segments
Thermal Ceramics
Molten Metal Systems
Thermal Products division
Electrical Carbon
Seals and Bearings
Technical Ceramics
Carbon and Technical Ceramics division
Segment total
Corporate (UK and North America)
Continuing operations
Discontinued operations
Group
Average employee numbers have been rounded to the nearest 10.
6. SPECIFIC ADJUSTING ITEMS
Continuing operations
Specific adjusting items:
Impairment of assets
Restructuring costs
Profit on disposal of business
Business closure and exit costs
Release of provisions related to business exits and disposals
Total specific adjusting items before income tax
Income tax credit from specific adjusting items
Total specific adjusting items after income tax
Number of employees
2020
2019
2,540
430
2,970
1,450
1,270
2,270
4,990
7,960
50
8,010
–
8,010
2,680
480
3,160
1,560
1,290
2,560
5,410
8,570
50
8,620
–
8,620
31 December
2020
£m
31 December
2019
£m
Note
2
(65.6)
(24.0)
2.2
–
–
(87.4)
13.3
(74.1)
–
–
–
(0.7)
0.7
–
–
–
Specific adjusting items in relation to discontinued operations are disclosed in note 9.
2020
Impairment of assets
Technical Ceramics, ceramic cores
A significant downturn in aerospace demand has resulted in impairment losses of £28.8 million in the ceramic cores business. The assets relating to these
businesses have been impaired to align their recoverable value to their value in use. The calculation of value in use, which was performed in June 2020,
assumed trends seen in the second quarter of 2020 persisted into the second half of 2020, followed by a gradual recovery of demand. A long-term growth
rate of 1% was used for years beyond 2025 and in calculating the terminal value. A pre-tax discount rate of 11.5% was used to determine the value in use.
The impairment was allocated to customer relationship intangible assets recognised upon the acquisition of the Carpenter business in 2008, right-of-use
assets and property, plant and equipment.
A reasonably possible change in the above assumptions could lead to a material reversal of impairment. An accelerated recovery of demand, with return to
2019 demand levels in the forecast period to 2025, would lead to a full reversal of the above impairment. There is no scenario that would lead to a further,
material impairment of the existing assets.
118
Morgan Advanced Materials | Annual Report 2020 6. SPECIFIC ADJUSTING ITEMS continued
Technical Ceramics, China
On 15 June 2020 the Group announced the closure of its Suzhou manufacturing facility in China and has recognised £1.1 million relating to the impairment
of plant and equipment to its fair value less costs of disposal.
Thermal Ceramics
The continuing reduced demand in the aerospace, automotive and industrial market segments has resulted in impairment losses of £35.7 million in
Thermal Ceramics.
Impairments relating to the closure of sites and under-utilised product lines, totalled £21.7 million relating to property, plant and equipment, land use rights,
right-of-use assets, other debtors and inventory, aligning their recoverable value to their fair value less costs of disposal.
Two further businesses, which remain in operation, have recognised combined impairment losses of £14.0 million after reassessment of their value in use
in the current economic climate. The calculation of value in use, which was performed in June 2020, assumed trends seen in the second quarter of 2020
persisted into the second half of 2020, followed by a gradual recovery of demand. A long-term growth rate of 1% was used for years beyond the forecast
period and in calculating the terminal value. A pre-tax discount rate of 11.6% was used to determine the value in use. The impairment was allocated
to customer relationship and technology and trademark intangible assets recognised upon the acquisition of Porextherm in Germany in 2014 as well as
right-of-use assets and property, plant and equipment across both businesses.
A reasonably possible change in the above assumptions on the Porextherm impairment assessment could lead to a material reversal of impairment.
An accelerated recovery of demand in the forecast period to levels which existed before the decline, which started in 2018, would lead to a full reversal
of the above impairment. There is no scenario that would lead to a further, material impairment of the existing assets.
Restructuring costs
Following the announcement of the Group’s restructuring programme on 5 June 2020 the Group has recognised £24.0 million relating to staff
redundancies, site closure costs, legal and professional fees and the exit of certain multi-employer defined contribution pension plans.
US Electro-ceramics update
In 2017, the Group divested its UK Electro-ceramics business, which was part of the Technical Ceramics operating segment. At the same time it announced
the closure of its US Electro-ceramics business, which formed the remainder of the Group’s Electro-ceramics business, once the delivery of the last time
orders from customers had been completed. In 2020, the US Electro-ceramics business generated an operating profit contribution of £2.8 million on
revenues of £4.6 million.
2019
Business closure and exit costs
China, Technical Ceramics
In 2019, the Group completed the exit of the ceramic cores operations within China, Technical Ceramics initiated in 2018. The Group recognised £0.7 million
of costs relating to staff redundancies and legal and professional fees.
Release of provisions related to previous business exits and disposals
In 2019, certain liabilities relating to previous business exits and disposals lapsed and the Group released £0.7 million of legal and other provisions.
7. FINANCE INCOME AND EXPENSE
Continuing operations
Recognised in profit or loss
Interest on bank balances and cash deposits
Finance income
Interest expense on borrowings and overdrafts
Interest expense on lease liabilities
Net interest on IAS 19 defined benefit pension obligations
Finance expense
Net financing costs recognised in profit or loss
No finance income or expense related to discontinued operations in either the current or preceding year.
2020
£m
0.9
0.9
(7.4)
(2.8)
(2.6)
(12.8)
(11.9)
2019
£m
1.9
1.9
(11.2)
(3.0)
(4.6)
(18.8)
(16.9)
119
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
8. TAXATION – INCOME TAX EXPENSE
Continuing operations
Recognised in profit or loss
Current tax
Current year
Adjustments for prior years
Deferred tax
Current year
Adjustments for prior years
Total income tax expense recognised in profit or loss
Recognised in other comprehensive income
Tax effect on components of other comprehensive income:
Deferred tax associated with defined benefit schemes and share schemes
Total tax recognised in other comprehensive income
RECONCILIATION OF EFFECTIVE TAX RATE
(Loss)/ profit before tax
Income tax (credit)/charge using the domestic corporation tax rate
Effect of different tax rates in other jurisdictions
Local taxes including withholding tax suffered
Permanent differences
Movements related to unrecognised temporary differences
Adjustments in respect of prior years
Statutory effective rate of tax
The effective rate of tax before specific adjusting items is 27.2% (2019: 27.3%).
2020
£m
2019
£m
21.0
(1.3)
19.7
(12.5)
(0.3)
(12.8)
6.9
(0.4)
(0.4)
2019
£m
109.7
20.8
5.8
3.9
3.9
(3.6)
(0.9)
29.9
29.3
0.3
29.6
1.5
(1.2)
0.3
29.9
(2.2)
(2.2)
2019
%
19.0
5.3
3.6
3.6
(3.3)
(0.8)
27.3
2020
£m
(13.1)
(2.5)
(0.8)
2.0
10.2
(0.4)
(1.6)
6.9
2020
%
19.0
6.1
(15.3)
(77.9)
3.1
12.2
(52.7)
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 OECD’s BEPS actions, tax rate and legislation changes, expiry of the statute of limitations and resolution of tax audits
and disputes.
EU State Aid
On 2 April 2019 the European Commission ruled that a Group Financing Exemption under the UK controlled foreign company rules was partly contrary
to EU State Aid rules. The UK government has filed an annulment application with the EU General Court against this decision. HM Revenue & Customs
have been reviewing the position for the Group and concluded in February 2021 that the Group was not the beneficiary of State Aid.
120
Morgan Advanced Materials | Annual Report 2020
9. DISCONTINUED OPERATIONS
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 2020
31 December 2019
Revenue
Operating income
Profit before taxation
Income tax expense
Profit from discontinued operations
Results
before
specific
adjusting
items
£m
Specific
adjusting
items
£m
Note
–
–
–
–
–
–
2.0
2.0
–
2.0
Basic earnings per share from discontinued operations
Diluted earnings per share from discontinued operations
10
10
Results before
specific
adjusting
items
£m
Specific
adjusting
items
£m
–
0.7
0.7
–
0.7
–
0.8
0.8
–
0.8
Total
£m
–
2.0
2.0
–
2.0
0.7p
0.7p
Total
£m
–
1.5
1.5
–
1.5
0.5p
0.5p
In both 2019 and 2020, specific adjusting items relate to the reassessment of certain provisions associated with the disposal. In 2019, operating income
of £0.7 million related to receipts from contingent assets excluded from the disposal.
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:
Net cash (outflow)/inflow from operating activities
Net cash inflow from investing activities
Net cash flow used in financing activities
10. EARNINGS PER SHARE
31 December
2020
£m
31 December
2019
£m
(0.1)
–
–
(0.1)
0.4
0.7
–
1.1
(Loss)/profit for the year attributable to shareholders of the Company
Profit from discontinued operations
(Loss)/profit from continuing operations
Specific adjusting items
Amortisation of intangible assets
Tax effect of the above
Non-controlling interests’ share of the above adjustments
Adjusted profit for the year from continuing operations
as used in adjusted earnings per share1
31 December 2020
31 December 2019
Basic
earnings per
share
pence
Diluted
earnings
per share
pence
Earnings
£m
Basic
earnings per
share
pence
Diluted
earnings
per share
pence
Earnings
£m
(22.5)
(2.0)
(24.5)
87.4
6.1
(13.3)
(1.5)
(7.9)p
(0.7)p
(8.6)p
30.7p
2.1p
(4.7)p
(0.5)p
(7.9)p
(0.7)p
(8.6)p
30.5p
2.1p
(4.6)p
(0.5)p
73.1
(1.5)
71.6
–
8.1
–
–
25.7p
(0.5)p
25.2p
–
2.8p
–
–
25.5p
(0.5)p
25.0p
–
2.8p
–
–
54.2
19.0p
18.9p
79.7
28.0p
27.8p
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
Number of shares (millions)
Weighted average number of Ordinary shares for the purposes of basic earnings per share 1
Effect of dilutive potential Ordinary shares:
Share options
Weighted average number of Ordinary shares for the purposes of diluted earnings per share
2020
284.7
1.4
286.1
2019
284.6
1.6
286.2
1. The calculation of the weighted average number of shares excludes the shares held by The Morgan General Employee Benefit Trust, on which the dividends are waived.
121
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
11. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance at 1 January 2019
Additions
Disposals
Effect of movement in foreign exchange
Balance at 31 December 2019
Balance at 1 January 2020
Additions
Disposals
Sale of business
Transfers between categories
Transfer to intangible assets
Effect of movement in foreign exchange
Balance at 31 December 2020
Depreciation and impairment losses
Balance at 1 January 2019
Depreciation charge for the year
Reversal of impairment
Disposals
Effect of movement in foreign exchange
Balance at 31 December 2019
Balance at 1 January 2020
Depreciation charge for the year
Impairment losses
Disposals
Sale of business
Transfers between categories
Effect of movement in foreign exchange
Balance at 31 December 2020
Carrying amounts
At 1 January 2019
At 31 December 2019
At 31 December 2020
Land and
buildings
£m
Plant,
equipment
and fixtures
£m
Note
218.3
9.2
(2.6)
(9.5)
215.4
215.4
0.9
(1.5)
–
0.3
–
0.1
215.2
95.9
5.4
–
(1.4)
(4.2)
95.7
95.7
5.3
10.1
(0.8)
–
(0.3)
(0.3)
109.7
122.4
119.7
105.5
697.6
41.8
(22.0)
(31.4)
686.0
686.0
22.1
(18.6)
(6.5)
(0.3)
(1.5)
(3.0)
678.2
505.5
26.9
(0.5)
(21.6)
(21.8)
488.5
488.5
27.4
26.9
(18.3)
(5.1)
0.3
(3.6)
516.1
192.1
197.5
162.1
2
6
2
Total
£m
915.9
51.0
(24.6)
(40.9)
901.4
901.4
23.0
(20.1)
(6.5)
–
(1.5)
(2.9)
893.4
601.4
32.3
(0.5)
(23.0)
(26.0)
584.2
584.2
32.7
37.0
(19.1)
(5.1)
–
(3.9)
625.8
314.5
317.2
267.6
In 2020, no assets were pledged as security for liabilities (2019: none). Profit on sale of property, plant and equipment presented in the cash flow includes
£1.2 million (2019: £0.8 million) of insurance proceeds for replacement of assets.
122
Morgan Advanced Materials | Annual Report 2020 12. LEASES
The reconciliation in the movement of the Group’s right-of-use assets is set out in the table below:
Balance at 1 January 2019
Additions
Remeasurements
Depreciation charge for the year
Effect of movement in foreign exchange
Balance at 31 December 2019
Balance at 1 January 2020
Additions
Remeasurements
Depreciation charge for the year
Impairment losses
Effect of movement in foreign exchange
Balance at 31 December 2020
Land and
buildings
£m
Plant and
equipment
£m
Note
40.8
6.4
0.6
(6.1)
(1.7)
40.0
40.0
1.8
(2.0)
(5.5)
(5.0)
(0.1)
29.2
10.3
3.1
0.1
(4.0)
(0.4)
9.1
9.1
2.0
(0.8)
(3.7)
(0.3)
–
6.3
6
Total
£m
51.1
9.5
0.7
(10.1)
(2.1)
49.1
49.1
3.8
(2.8)
(9.2)
(5.3)
(0.1)
35.5
The weighted average lease term is 13.2 years for land and buildings and 3.7 years for plant and equipment (2019: 13.2 years and 3.5 years respectively).
The maturity analysis of lease liabilities is presented in note 22.
Amounts recognised in the consolidated income statement in respect of leasing arrangements are set out in the table below:
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases and leasing of low value assets
Income from leasing owned assets
2020
£m
(9.2)
(2.8)
(0.5)
0.3
(12.2)
The total cash flows from leasing activities in the year ended 31 December 2020 was £12.9 million (2019: £13.1 million) as set out in the table below:
Payment of lease liabilities
Interest expense on lease liabilities
Expense relating to short-term leases and leasing of low value assets
Income from leasing owned assets
2020
£m
(9.9)
(2.8)
(0.5)
0.3
(12.9)
2019
£m
(10.1)
(3.0)
(0.8)
0.3
(13.6)
2019
£m
(9.6)
(3.0)
(0.8)
0.3
(13.1)
At 31 December 2020, the Group is committed to future payments of £0.3 million (2019: £0.7 million) for short-term leases and leasing of low value assets.
At 31 December 2020, the Group had entered into leases which had not yet commenced with future cash flows totalling £0.3 million (2019: £nil).
The total of future minimum lease income under non-cancellable leases, where the Group is a lessor is £0.3 million (2019: £0.3 million).
123
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
13. INTANGIBLE ASSETS
Cost
Balance at 1 January 2019
Additions (externally purchased)
Disposals
Effect of movement in foreign exchange
Balance at 31 December 2019
Balance at 1 January 2020
Additions (externally purchased)
Disposals
Transfers from property, plant & equipment
Effect of movement in foreign exchange
Balance at 31 December 2020
Amortisation and impairment losses
Balance at 1 January 2019
Amortisation charge for the year
Disposals
Effects of movement in foreign exchange
Balance at 31 December 2019
Balance at 1 January 2020
Amortisation charge for the year
Impairment losses
Disposals
Effects of movement in foreign exchange
Balance at 31 December 2020
Carrying amounts
At 1 January 2019
At 31 December 2019
At 31 December 2020
Note
Goodwill
£m
Customer
relationships
£m
Technology
and
trademarks
£m
Capitalised
development
costs
£m
Computer
software
£m
179.4
–
–
(4.3)
175.1
175.1
–
(0.9)
–
(1.0)
173.2
–
–
–
–
–
–
–
–
–
–
–
179.4
175.1
173.2
60.4
–
–
(2.7)
57.7
57.7
–
–
–
(1.5)
56.2
38.1
4.3
–
(2.0)
40.4
40.4
2.5
13.9
–
(2.0)
54.8
22.3
17.3
1.4
3.7
–
–
(0.3)
3.4
3.4
–
–
–
0.2
3.6
0.5
0.2
–
–
0.7
0.7
0.1
2.7
–
0.1
3.6
3.2
2.7
–
0.8
–
–
–
0.8
0.8
–
–
–
(0.1)
0.7
0.8
–
–
–
0.8
0.8
–
–
–
(0.1)
0.7
–
–
–
29.8
2.8
(0.1)
(0.8)
31.7
31.7
7.0
(5.2)
1.5
(0.5)
34.5
19.1
3.6
(0.1)
(0.6)
22.0
22.0
3.5
3.1
(4.5)
(0.4)
23.7
10.7
9.7
10.8
6
Total
£m
274.1
2.8
(0.1)
(8.1)
268.7
268.7
7.0
(6.1)
1.5
(2.9)
268.2
58.5
8.1
(0.1)
(2.6)
63.9
63.9
6.1
19.7
(4.5)
(2.4)
82.8
215.6
204.8
185.4
IMPAIRMENT TEST FOR 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 that are expected to benefit
from the synergies of the business combination that gave rise to the goodwill.
Goodwill is attributed to each cash-generating unit as follows:
Thermal Ceramics
Molten Metal Systems
Electrical Carbon
Seals and Bearings
Technical Ceramics
124
2020
£m
84.6
9.0
29.3
14.9
35.4
173.2
2019
£m
85.2
9.1
29.5
14.9
36.4
175.1
Morgan Advanced Materials | Annual Report 2020 13. INTANGIBLE ASSETS continued
Each cash-generating unit is assessed for impairment annually and whenever there is an indication of impairment.
The economic uncertainty caused by the COVID-19 pandemic, and its impact Group’s financial statements in the six months to 30 June 2020, led
management to perform an impairment assessment on goodwill at 30 June 2020. No impairment was indicated at that time. At 31 December 2020
management has reperformed these impairment tests with updated assumptions.
The carrying value of goodwill has been assessed with reference to its value in use, reflecting the projected discounted cash flows of each cash-generating
unit to which goodwill has been allocated. The key assumptions used in determining value in use relate to 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 and three 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 cash generating unit.
A 1.0% growth rate has been used for years beyond 2023 and to calculate a terminal value. Management has assessed these growth rates, including the
terminal growth rate as reasonable for each cash-generating unit.
In 2020, the Group has used the following pre-tax discount rates for calculating the value in use of each of the cash-generating units: Thermal Ceramics:
11.7%, Molten Metal Systems: 13.7%, Electrical Carbon: 11.9%, Seals and Bearings: 10.7%, Technical Ceramics 10.8%.
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 cash-generating units in any one of the following three circumstances,
which are considered reasonably possible changes:
´ If the pre-tax discount rate was increased to 15%.
´ If no growth was assumed for years two to five and in the calculation of terminal value.
´ If the cash flow projections of all businesses were reduced by 25%.
14. INVESTMENTS
Non-current investments
FVOCI – equity instrument
Investment in associates
2020
£m
0.7
6.5
7.2
2019
£m
0.6
5.9
6.5
FVOCI – EQUITY INSTRUMENT
The equity securities classified as FVOCI represent an investment in a mutual fund. A 10% increase in the unit price would increase the fair value of the
investments by £0.1 million (2019: £nil).
These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term strategic purposes. Accordingly, the
Directors of the Company have elected to designate these investments in equity instruments as at FVOCI as they believe that recognising short-term
fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long-term
purposes and realising their performance potential in the long run.
125
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
14. INVESTMENTS continued
INVESTMENT IN ASSOCIATES
The Group’s share of profit from its associate for the year was £0.6 million (2019: £0.5 million). The Group did not receive a dividend from its associate
during the current or preceding year.
Details of the Group’s material associate at the end of the reporting period are as follows:
Name of associate
Jemmtec Limited
Principal activity
Place of incorporation and
principal place of business
Manufacture of fired refractory shapes
United Kingdom
The above associate has been accounted for using the equity method in these consolidated financial statements.
Proportion of ownership
interest/voting rights
held by the Group
2020
35%
2019
35%
Summarised financial information in respect of the Group’s material associate is set out below. The summarised financial information below has been
prepared in accordance with IFRSs (adjusted by the Group for equity accounting purposes).
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit from continuing operations
Jemmtec Limited
2020
£m
12.0
15.5
4.5
4.9
20.2
1.6
2019
£m
7.8
13.4
2.7
2.1
16.9
1.4
Reconciliation of the above summarised financial information to the carrying amount of the interest recognised in the Group’s consolidated financial
statements:
Net assets of associate
Proportion of the Group’s ownership interest in the associate
Goodwill
Carrying amount of the Group’s interest in the associate
15. RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
Assets
2020
£m
–
3.9
–
13.2
11.4
0.4
–
(14.5)
14.4
Assets
2019
£m
–
3.2
–
13.4
8.1
1.3
–
(20.0)
6.0
Liabilities
2020
£m
Liabilities
2019
£m
(13.1)
–
(1.2)
–
–
–
(0.7)
14.5
(0.5)
(18.9)
–
(4.5)
–
–
–
(1.5)
20.0
(4.9)
Property, plant and equipment
Right-of-use assets and lease liabilities
Intangible assets
Employee benefits
Provisions
Tax value of loss carried forward recognised
Other items
Offset
126
Jemmtec Limited
2020
£m
18.1
6.3
0.2
6.5
Net
2020
£m
(13.1)
3.9
(1.2)
13.2
11.4
0.4
(0.7)
–
13.9
2019
£m
16.4
5.7
0.2
5.9
Net
2019
£m
(18.9)
3.2
(4.5)
13.4
8.1
1.3
(1.5)
–
1.1
Morgan Advanced Materials | Annual Report 2020 15. RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES continued
UNRECOGNISED DEFERRED TAX ASSETS
Deferred tax assets have not been recognised in respect of the following items:
UK pension deficit
Tax losses
Capital losses
Other deductible temporary differences
2020
£m
119.9
98.7
40.3
61.4
320.3
2019
£m
102.9
82.7
39.1
57.4
282.1
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
Property, plant and equipment
Right-of-use assets and lease liabilities
Intangible assets
Employee benefits
Provisions
Tax value of loss carried forward recognised
Others
31 December
2018
£m
Recognised
in profit
or loss
£m
Recognised
directly in
equity
£m
31 December
2019
£m
Recognised
in profit
or loss
£m
Recognised
directly in
equity
£m
31 December
2020
£m
(17.9)
–
(5.4)
11.3
6.1
1.2
0.6
(4.1)
(1.0)
(0.5)
0.9
(0.1)
2.0
0.1
(1.7)
(0.3)
–
3.7
–
2.2
–
–
(0.4)
5.5
(18.9)
3.2
(4.5)
13.4
8.1
1.3
(1.5)
1.1
5.8
0.7
3.3
(0.6)
3.3
(0.9)
1.2
12.8
–
–
–
0.4
–
–
(0.4)
–
(13.1)
3.9
(1.2)
13.2
11.4
0.4
(0.7)
13.9
Deferred income tax of £3.8 million (2019: £3.7 million) is provided on the potential unremitted earnings of overseas subsidiary undertakings.
16. INVENTORIES
Raw materials and consumables
Work in progress
Finished goods
2020
£m
28.8
38.1
55.5
122.4
2019
£m
34.4
44.9
63.0
142.3
The Group holds consignment inventory amounting to £24.0 million (2019: £23.1 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.
In 2020 provisions of £7.0 million were made against inventories and recognised in operating costs (2019: £5.1 million).
127
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
17. TRADE AND OTHER RECEIVABLES
Non-current
Trade and non-trade receivables
Current
Gross trade receivables
Expected credit losses
Net trade receivables
Contract assets
Other non-trade receivables and prepayments1
2020
£m
4.0
132.2
(7.8)
124.4
0.5
18.7
143.6
2019
£m
5.7
170.4
(8.4)
162.0
1.0
18.0
181.0
1. Other non-trade receivables and prepayments in 2019 have been re-presented to disaggregate contract assets from the balance.
The Group’s exposure to credit and currency risks related to trade and other receivables is disclosed in note 22.
Contract assets relate to the Group’s right to consideration for project-based business which was completed but not billed at the end of the year.
18. CASH AND CASH EQUIVALENTS
Bank balances
Cash deposits
Cash and cash equivalents
2020
£m
139.7
8.1
147.8
2019
restated1
£m
123.7
9.1
132.8
1. As disclosed in note 1, the Group’s cash and cash equivalents have been restated to meet the presentational requirements for offsetting in accordance with IAS 32.
Comparative information for the year ended 31 December 2019 has increased from £68.7 million to £132.8 million. This has had no impact on the Group’s net assets.
In 2020, the Group had restricted cash of £0.9 million (2019: £0.6 million) as a result of exchange controls in Argentina.
RECONCILIATION OF CASH AND CASH EQUIVALENTS TO NET DEBT*
Opening borrowings and lease liabilities
Increase in borrowings
Reduction and repayment of borrowings
Payment of lease liabilities
Total changes from cash flows
New leases and lease remeasurement
Effect of movements in foreign exchange
Closing borrowings and lease liabilities
Cash and cash equivalents
Closing net debt 2
2020
£m
(354.4)
(7.9)
49.8
9.9
51.8
(0.9)
0.1
(303.4)
147.8
(155.6)
2019
restated1
£m
(386.4)
(67.1)
85.2
9.6
27.7
(8.8)
13.1
(354.4)
132.8
(221.6)
1. 2019 has been restated to include the Group’s cumulative preference shares within borrowings, this increased net debt* and decreased net assets by £0.4 million. Cash and
cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32. This has had no impact on net assets or net debt*. Further details
of both adjustments are described in note 1.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
128
Morgan Advanced Materials | Annual Report 2020 18. CASH AND CASH EQUIVALENTS continued
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes.
At 1 January 2019 restated2
Cash inflow
Borrowings and lease liability cash flow
Net interest paid
Net cash inflow
Share purchases
New leases and lease remeasurement
Exchange and other movements
At 31 December 2019
At 1 January 2020
Cash inflow
Borrowings and lease liability cash flow
Net interest paid
Net cash inflow/(outflow)
Share purchases
New leases and lease remeasurement
Exchange and other movements
At 31 December 2020
Borrowings
£m
Lease
liabilities
£m
Total
financing
liabilities
£m
Cash and
cash
equivalents
£m
Movement
in net debt 1
£m
(318.8)
–
18.1
–
18.1
–
–
10.6
(290.1)
(290.1)
–
41.9
–
41.9
–
–
(0.6)
(248.8)
(67.6)
–
9.6
–
9.6
–
(8.8)
2.5
(64.3)
(64.3)
–
9.9
–
9.9
–
(0.9)
0.7
(54.6)
(386.4)
–
27.7
–
27.7
–
(8.8)
13.1
(354.4)
(354.4)
–
51.8
–
51.8
–
(0.9)
0.1
(303.4)
138.5
16.3
–
(14.2)
2.1
(3.3)
–
(4.5)
132.8
132.8
28.9
–
(10.3)
18.6
(1.8)
–
(1.8)
147.8
(247.9)
16.3
27.7
(14.2)
29.8
(3.3)
(8.8)
8.6
(221.6)
(221.6)
28.9
51.8
(10.3)
70.4
(1.8)
(0.9)
(1.7)
(155.6)
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
2. 2019 has been restated to include the Group’s cumulative preference shares within borrowings, this increased net debt* and decreased net assets by £0.4 million. Cash and
cash equivalents and borrowings have been restated to meet the presentational requirements of IAS 32. This has had no impact on net assets or net debt*. Further details
of both adjustments are described in note 1.
19. TRADE AND OTHER PAYABLES
Non-current
Trade and non-trade payables
Current
Trade payables due to associate
Other trade payables
Contract liabilities
Non-trade payables and accrued expenses1
2020
£m
2019
£m
4.9
2.5
0.3
62.0
10.0
76.1
148.4
0.3
84.0
6.1
82.9
173.3
1. Non-trade payables and accrued expenses in 2019 have been re-presented to disaggregate contract liabilities 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 £10.0 million of contract liabilities as at 31 December 2020, are expected to be recognised as revenue in 2021. Contract liabilities outstanding
as at 31 December 2019 of £6.1 million were recognised as revenue in 2020.
Included in trade payables are amounts due where extended payment terms have been agreed with the supplier using a supplier financing facility. The total
amount outstanding on such extended payment terms at 31 December 2020 was £nil.
129
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
20. CAPITAL AND RESERVES
TRANSLATION RESERVE
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.
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).
Balance at 1 January
Gain arising on changes in fair value of hedging instruments during the period
(Loss)/gain reclassified to profit or loss
Balance at 31 December
2020
£m
0.8
0.4
(0.8)
0.4
2019
£m
(0.2)
0.8
0.2
0.8
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
The capital redemption reserve arose when the Company redeemed Preference shares wholly out of distributable profits.
RETAINED EARNINGS
The Company has acquired own shares to satisfy the requirements of the various share option incentive schemes. At 31 December 2020, 841,880 shares
(2019: 1,245,133) 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 (2019: 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:
As at 1 January
New shares purchased
Exercise of share options
As at 31 December
2020
2019
Shares
1,245,133
750,000
(1,153,253)
841,880
Cost
£m
3.3
1.8
(3.0)
2.1
Shares
968,287
1,250,000
(973,154)
1,245,133
Cost
£m
2.7
3.3
(2.7)
3.3
Consideration received in respect of shares transferred to participants of employee share schemes was £0.4 million (2019: £0.8 million). The market value
of shares held by the Trust at 31 December 2020 was £2.6 million (2019: £4.0 million).
DIVIDENDS
The following Ordinary dividends were declared and paid by the Company:
2018 final
2019 interim
2019 final1
2020 interim
Per share
2020
pence
–
–
–
2.0
2.0
2019
pence
7.00
4.00
–
–
11.00
Total
2020
£m
–
–
–
5.7
5.7
2019
£m
19.9
11.4
–
–
31.3
1. 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.
After 31 December 2020 the following dividends were proposed by the Directors for 2020. These dividends have not been provided for and there are
no income tax consequences. The proposed 2020 final dividend is based upon the number of shares outstanding at the balance sheet date.
3.5 pence per qualifying Ordinary share
130
£m
10.0
10.0
Morgan Advanced Materials | Annual Report 2020 20. CAPITAL AND RESERVES continued
CALLED-UP SHARE CAPITAL
Equity share capital
Fully paid: 285,369,988 (2019: 285,369,988) issued Ordinary shares of 25 pence each
NUMBER OF ORDINARY SHARES IN ISSUE
In issue at beginning and end of period
As at the date of this Report 285,369,988 Ordinary shares have been issued (2019: 285,369,988).
Details of options outstanding in respect of Ordinary shares are given in note 24.
2020
£m
71.3
71.3
2019
£m
71.3
71.3
2020
2019
285,369,988 285,369,988
Additionally the Company has authorised, issued and fully paid 437,281 (2019: 437,281) cumulative preference shares classified as borrowings totalling
£0.4 million (2019: £0.4 million). The redeemable 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.
Dividends on the cumulative preference shares are presented within finance costs in the Group’s consolidated income statement.
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% pa.
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% pa.
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 up on their
respective holdings of shares in the Company.
131
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
21. BORROWINGS AND LEASE LIABILITIES
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 22.
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.
Non-current liabilities
Senior Notes
Cumulative preference shares
Lease liabilities
Current liabilities
Bank and other borrowings
Lease liabilities
2020
£m
177.1
0.4
43.1
220.6
71.3
11.5
82.8
2019
restated1
£m
176.3
0.4
52.6
229.3
113.4
11.7
125.1
1. As disclosed in note 1, 2019 has been restated to include the Group’s cumulative preference shares within borrowings. The Group’s bank overdrafts have been restated to
meet the presentational requirements for offsetting in accordance with IAS 32. Comparative information for bank and other borrowings for the year ended 31 December 2019
has increased from £49.3 million to £113.4 million.
In 2020, bank and other borrowings did not include any borrowings secured on the assets of the Group (2019: £nil).
As at 31 December 2020 the Group had available headroom under the bank syndication of £200.0 million (2019: £149.8 million).
22. FINANCIAL RISK MANAGEMENT
This note presents information about the Group’s exposure to a variety of financial risks: credit risk, liquidity risk and market risk, and the Group’s
management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
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 centre for 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.
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.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
FVOCI – equity instruments
Trade and other receivables
Cash and cash equivalents
Derivatives
Carrying amount
2020
£m
0.7
124.4
147.8
1.0
273.9
2019
restated1
£m
0.6
162.0
132.8
1.5
296.9
1. As disclosed in note 1, the Group’s cash and cash equivalents have been restated to meet the presentational requirements for offsetting in accordance with IAS 32.
Comparative information for the year ended 31 December 2019 has increased from £68.7 million to £132.8 million. This has had no impact on the Group’s net assets.
132
Morgan Advanced Materials | Annual Report 2020
22. FINANCIAL RISK MANAGEMENTS continued
FVOCI – EQUITY INSTRUMENTS
The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have a sound credit rating. Given these
high credit ratings, management does not expect any counterparty to fail to meet its obligations.
TRADE AND OTHER 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.
The loss allowance for trade receivables by aging category is as follows:
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 90 days
2020
2019
Expected
credit loss
rate
£m
0.4%
1.8%
4.0%
12.0%
100.0%
Gross trade
receivables
£m
Expected
credit losses
£m
Net trade
receivables
£m
109.1
11.3
2.5
2.5
6.8
132.2
(0.4)
(0.2)
(0.1)
(0.3)
(6.8)
(7.8)
108.7
11.1
2.4
2.2
–
124.4
Expected
credit loss
rate
£m
0.2%
1.5%
4.9%
5.3%
98.7%
Gross trade
receivables
£m
Expected
credit losses
£m
Net trade
receivables
£m
137.0
19.8
4.1
1.9
7.6
170.4
(0.3)
(0.3)
(0.2)
(0.1)
(7.5)
(8.4)
136.7
19.5
3.9
1.8
0.1
162.0
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.
Credit risk is managed by investing 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.
OFFSETTING FINANCIAL ASSETS AND LIABILITIES
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, are also presented in the table to show the total net exposure of the Group.
2020
Derivative financial assets
Derivative financial liabilities
Cash and cash equivalents
Bank and other borrowings
2019
Derivative financial assets
Derivative financial liabilities
Cash and cash equivalents
Bank and other borrowings
Gross amounts
of recognised
financial assets/
(liabilities)
£m
Net amounts
presented on
the balance
sheet
£m
Financial
instruments not
set off in the
balance sheet
£m
Amounts
set off
£m
Net
amount
£m
85.4
(85.3)
147.8
(71.3)
107.4
(106.6)
132.8
(113.4)
(84.4)
84.4
–
–
(106.0)
106.0
–
–
1.0
(0.8)
147.8
(71.3)
1.5
(0.6)
132.8
(113.4)
–
–
(69.8)
69.8
–
–
(64.1)
64.1
1.0
(0.8)
78.0
(1.5)
1.5
(0.6)
68.7
(49.3)
133
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
22. FINANCIAL RISK MANAGEMENTS continued
LIQUIDITY AND FUNDING RISK
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
Non-derivative financial liabilities
1.18% Euro Senior Notes 2023
3.17% US Dollar Senior Notes 2023
1.55% Euro Senior Notes 2026
3.37% US Dollar Senior Notes 2026
1.74% Euro Senior Notes 2028
2.89% Euro Senior Notes 2030
4.87% US Dollar Senior Notes 2026
Bank and other borrowings
5.50% Cumulative First Preference shares
5.00% Cumulative Second Preference shares
Lease liabilities
Trade and other payables
Effective
interest
rate
Year of
maturity
Carrying
amount
£m
Contractual
cash flows
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
31 December 2020
1.18%
3.17%
1.55%
3.37%
1.74%
2.89%
4.87%
2023
2023
2026
2026
2028
2030
2026
Up to 2024
5.50%
5.00%
4.68% Up to 2051
22.4
11.0
22.4
71.4
9.0
22.3
18.6
71.3
0.1
0.3
54.6
62.3
365.7
23.1
12.0
24.4
85.3
10.2
28.8
23.2
71.3
–
–
75.5
62.3
416.1
0.3
0.3
0.3
2.4
0.2
0.6
0.9
71.3
–
–
11.5
62.3
150.1
0.3
0.3
0.3
2.4
0.2
0.6
0.9
–
–
–
9.1
–
14.1
22.5
11.4
1.1
7.3
0.6
2.0
2.8
–
–
–
19.9
–
67.6
–
–
22.7
73.2
9.2
25.6
18.6
–
–
–
35.0
–
184.3
Bank and other borrowings include an unsecured multi-currency revolving credit facility set to mature in September 2024.
During the period the Group applied for the UK Government’s ’COVID Corporate Financing Facility’ (CCFF) with an issuer limit of £300 million, which
was confirmed as successful on 10 June 2020. The facility was undrawn at 31 December 2020.
Non-derivative financial liabilities
1.18% Euro Senior Notes 2023
3.17% US Dollar Senior Notes 2023
1.55% Euro Senior Notes 2026
3.37% US Dollar Senior Notes 2026
1.74% Euro Senior Notes 2028
2.89% Euro Senior Notes 2030
4.87% US Dollar Senior Notes 2026
Bank and other borrowings
5.50% Cumulative First Preference shares
5.00% Cumulative Second Preference shares
Lease liabilities
Trade and other payables
31 December 2019 restated1
Effective
interest
rate
Year of
maturity
Carrying
amount
£m
Contractual
cash flows
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
1.18%
3.17%
1.55%
3.37%
1.74%
2.89%
4.87%
2023
2023
2026
2026
2028
2030
2026
Up to 2024
5.50%
5.00%
5.02% Up to 2051
21.2
11.4
21.2
73.6
8.5
21.1
19.2
113.4
0.1
0.3
64.3
84.3
438.6
22.1
12.9
23.4
90.6
9.6
27.8
24.8
113.4
–
–
85.1
84.3
494.0
0.2
0.4
0.3
2.5
0.1
0.6
0.9
113.4
–
–
11.7
84.3
214.4
0.2
0.4
0.3
2.5
0.1
0.6
0.9
–
–
–
9.7
–
14.7
21.7
12.1
1.0
7.4
0.4
1.8
2.8
–
–
–
20.4
–
67.6
–
–
21.8
78.2
9.0
24.8
20.2
–
–
–
43.3
–
197.3
1. As disclosed in note 1, 2019 has been restated to include the Group’s cumulative preference shares within borrowings. The Group’s bank overdrafts have been restated to
meet the presentational requirements for offsetting in accordance with IAS 32. Comparative information for bank and other borrowings for the year ended 31 December 2019
has increased from £49.3 million to £113.4 million.
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Morgan Advanced Materials | Annual Report 2020
22. FINANCIAL RISK MANAGEMENTS continued
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.
2020
Cash flow hedges
Forward exchange contracts – assets
Forward exchange contracts – liabilities
Fair value flow hedges
Forward exchange contracts – assets
Forward exchange contracts – liabilities
2019
Cash flow hedges
Forward exchange contracts – assets
Forward exchange contracts – liabilities
Fair value flow hedges
Forward exchange contracts – assets
Forward exchange contracts – liabilities
Carrying
amount
£m
Contractual
cash flows
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
0.8
(0.7)
0.1
0.2
(0.1)
0.1
0.2
1.4
(0.5)
0.9
–
(0.1)
(0.1)
0.8
64.9
(64.7)
0.2
20.6
(20.6)
–
0.2
89.0
(88.1)
0.9
18.4
(18.5)
(0.1)
0.8
64.9
(64.7)
0.2
20.6
(20.6)
–
0.2
88.8
(87.9)
0.9
18.4
(18.5)
(0.1)
0.8
–
–
–
–
–
–
–
0.2
(0.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
MARKET RISK
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 Audit Committee. Generally the Group seeks to apply hedge accounting
in order to manage volatility in profit or loss.
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:
Financial assets
Financial liabilities
Fixed rate instruments
carrying amount
Variable rate instruments
carrying amount
2020
£m
–
(232.1)
(232.1)
2019
restated1
£m
–
(240.9)
(240.9)
2020
£m
147.8
(71.3)
76.5
2019
restated1
£m
132.8
(113.4)
19.4
1. As disclosed in note 1, 2019 has been restated to include the Group’s cumulative preference shares within borrowings, this increased borrowings and net debt*
by £0.4 million and decreased net assets by £0.4 million. Cash and cash equivalents and borrowings and overdrafts have been restated to meet the presentational
requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt*.
135
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
22. FINANCIAL RISK MANAGEMENTS continued
The fixed rate financial liabilities comprise the currency equivalent of £177.1 million (2019: £176.2 million) of Senior Notes, £0.4 million (2019: £0.4 million)
of cumulative preference shares and lease liabilities of £54.6 million (2019: £64.3 million). The average cost of the Group’s fixed rate instruments is 3.29%
(2019: 3.50%) including lease liabilities and 2.87% (2019: 2.90%) excluding lease liabilities.
The variable rate financial assets include the bank balances and cash deposits detailed in note 18 and the variable rate financial liabilities include bank
borrowings detailed in note 22. Where cash and overdrafts are included in Group cash pool arrangements interest is charged on net bank balances
and borrowings. The average cost of the Group’s variable rate instruments is 1.5% (2019: 2.3%).
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 £0.8 million (2019: £0.2 million). A decrease of 100 basis points would have decreased profit by £0.4 million (2019: £0.1 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.
Functional currency of Group operations
Trade receivables
Trade payables
Net debt1
Net balance sheet exposure
2020
2019
GBP
£m
15.8
(7.1)
(8.2)
0.5
USD
£m
0.3
(0.5)
0.9
0.7
Euro
£m
0.9
(0.1)
0.7
1.5
GBP
£m
1.7
(1.7)
1.1
1.1
USD
£m
7.7
(5.7)
5.2
7.2
Euro
£m
2.0
(6.6)
0.9
(3.7)
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
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 hedging 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 2020 was an asset of £0.1 million (2019: £0.9 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.
136
Morgan Advanced Materials | Annual Report 2020 22. FINANCIAL RISK MANAGEMENTS continued
The Group’s currency split of total borrowings was as follows:
GBP
USD
Euro
Other
2020
£m
71.7
101.0
76.1
–
248.8
2019
restated1
£m
68.6
149.3
72.1
–
290.0
1. As disclosed in note 1, 2019 has been restated to include the Group’s cumulative preference shares within borrowings, this increased borrowings and net debt*
by £0.4 million and decreased net assets by £0.4 million. Cash and cash equivalents and borrowings and overdrafts have been restated to meet the presentational
requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt*.
The Group’s sensitivity to changes in foreign exchange rates on financial assets and liabilities as at 31 December 2020 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 £14.1 million (2019: £17.8 million). Conversely, if GBP had weakened by 10%, reported net financial liabilities would have increased
by £17.3 million (2019: £21.6 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
Maturity date
Notional value:
Local currency
Change in fair value for
recognising hedge
ineffectiveness
Carrying amount of the
hedging instruments
assets/(liabilities)
Cash flow hedges
Highly probable forecast sales
Highly probable forecast purchases
2020
£m
2019
£m
to Dec 2021
to Dec 2021
to March 2021
to March 2021
2020
£m
26.5
8.1
2019
£m
32.3
9.3
2020
£m
0.8
–
2019
£m
(1.4)
0.2
2020
£m
(0.4)
0.1
2019
£m
(1.2)
0.1
Weighted average hedge rates for the year were as follows:
EUR/GBP
AUD/GBP
JPY/GBP
SGD/GBP
USD/GBP
Weighted average
exchange rates
2020
£m
1.10
1.91
–
1.75
1.32
2019
£m
1.12
1.53
149.32
1.75
1.27
137
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
22. FINANCIAL RISK MANAGEMENTS continued
Hedged items
Cash flow hedges
Forecast sales
Forecast purchases
Change in value used for
calculating hedge
ineffectiveness
Balance in cash flow hedge
reserve/foreign currency
translation reserve for
continuing hedges
2020
£m
(0.8)
–
2019
£m
1.4
(0.2)
2020
£m
(0.4)
–
2019
£m
(0.9)
0.1
As at 31 December 2020 there was no balance in cash flow hedge reserve/foreign currency translation reserve arising from hedging relationships for which
hedge accounting is no longer applied (2019: 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 12 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.
As a result of the decline in expected sales resulting from the COVID-19 pandemic and the related site closures, the Group has reviewed the foreign
exchange hedging portfolio to confirm whether the underlying transactions remain highly probable. Any identified instance of over-hedging or
ineffectiveness would result in immediate recycling to the income statement. A change in the timing of a forecast item does not disqualify a hedge
relationship nor the assertion of ‘highly probable’ as there remains an economic relationship between the underlying transaction and the derivative.
There were no instances of over-hedging identified.
All hedging instruments are presented within derivative financial instruments on the group balance sheet.
EXCHANGE RATES
The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:
GBP to:
USD
Euro
2020
2019
Closing rate Average rate Closing rate Average rate
1.37
1.12
1.28
1.13
1.33
1.18
1.28
1.14
For illustrative purposes, the table below provides details of the impact on 2020 revenue, Group adjusted operating profit* and profit before tax if the actual
reported results, calculated using 2020 average exchange rates, were restated for GBP weakening by 10 cents against USD in isolation and 10 cents against
the Euro in isolation:
2020
Group
adjusted
operating
profit1
£m
Revenue
£m
Profit
before tax
£m
Revenue
£m
2019
Group
adjusted
operating
profit1
£m
Profit
before tax
£m
Increase in revenue/Group adjusted operating profit1/profit before tax if:
GBP weakens by 10c against USD in isolation
GBP weakens by 10c against the Euro in isolation
33.9
17.4
4.3
1.8
3.7
1.6
39.7
19.9
6.3
2.9
5.5
2.7
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
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.
138
Morgan Advanced Materials | Annual Report 2020
22. FINANCIAL RISK MANAGEMENTS continued
CAPITAL MANAGEMENT
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 IFRS 16 Leases
as these adjusted measures are more closely aligned to the Group’s covenants.
DEBT TO ADJUSTED CAPITAL
Borrowings and overdrafts
Lease liabilities
Less: cash and cash equivalents
Net debt2
Total equity
Less: amounts accumulated in equity relating to cash flow hedges
Adjusted capital
Net debt2 to adjusted capital ratio
2020
2019 restated1
IFRS 16
impact
£m
Excluding
IFRS 16
£m
–
(54.6)
–
(54.6)
–
–
–
n/a
248.8
–
(147.8)
101.0
240.0
(0.4)
239.6
0.4
As stated
£m
290.1
64.3
(132.8)
221.6
311.7
(0.8)
310.9
0.7
IFRS 16
impact
£m
–
(64.3)
–
(64.3)
–
–
–
n/a
Excluding
IFRS 16
£m
290.1
–
(132.8)
157.3
311.7
(0.8)
310.9
0.5
As stated
£m
248.8
54.6
(147.8)
155.6
240.0
(0.4)
239.6
0.6
1. As disclosed in note 1, 2019 has been restated to include the Group’s cumulative preference shares within borrowings, this increased borrowings and net debt* by
£0.4 million and decreased net assets by £0.4 million. Cash and cash equivalents and borrowings and overdrafts have been restated to meet the presentational
requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt*.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
NET DEBT* TO EBITDA*
Net debt2
Operating profit before specific adjusting items
Depreciation and amortisation
EBITDA1
Net debt2 to EBITDA2 ratio
2020
2019 restated1
IFRS 16
impact
£m
Excluding
IFRS 16
£m
(54.6)
(3.5)
(9.2)
(12.7)
n/a
101.0
82.1
38.8
120.9
0.8x
As stated
£m
221.6
126.1
50.5
176.6
1.3x
IFRS 16
impact
£m
Excluding
IFRS 16
£m
(64.3)
(3.0)
(10.1)
(13.1)
n/a
157.3
123.1
40.4
163.5
1.0x
As stated
£m
155.6
85.6
48.0
133.6
1.2x
1. As disclosed in note 1, 2019 has been restated to include the Group’s cumulative preference shares within borrowings, this increased borrowings and net debt* by
£0.4 million and decreased net assets by £0.4 million. Cash and cash equivalents and borrowings and overdrafts have been restated to meet the presentational
requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt*.
2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
INTEREST COVER
EBITDA1
Net finance costs (excluding IAS 19 pension charge)
Interest cover
2020
IFRS 16
impact
£m
Excluding
IFRS 16
£m
(12.7)
(2.8)
n/a
120.9
6.5
18.6x
2019
IFRS 16
impact
£m
(13.1)
(3.0)
n/a
Excluding
IFRS 16
£m
163.5
9.3
17.6x
As stated
£m
176.6
12.3
14.4x
As stated
£m
133.6
9.3
14.4x
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
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.
139
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the consolidated financial statements
22. FINANCIAL RISK MANAGEMENTS continued
FAIR VALUES
Financial assets and liabilities
held at amortised cost
1.18% Euro Senior Notes 2023
3.17% US Dollar Senior Notes 2023
1.55% Euro Senior Notes 2026
3.37% US Dollar Senior Notes 2026
1.74% Euro Senior Notes 2028
2.89% Euro Senior Notes 2030
4.87% US Dollar Senior Notes 2026
5.50% Cumulative First Preference shares
5.00% Cumulative Second Preference shares
Financial assets held at FVOCI
Derivative financial assets held at fair value
31 December 2020
Fair value
Level 1
£m
Level 2
£m
Total
£m
31 December 2019 restated1
Carrying
amount
£m
Fair value
Level 2
£m
Level 1
£m
Carrying
amount
£m
(22.4)
(11.0)
(22.4)
71.4
(9.0)
(22.3)
(18.6)
(0.1)
(0.3)
(177.5)
0.7
1.0
1.7
–
–
–
–
–
–
–
–
–
–
0.7
–
0.7
(22.6)
(11.4)
(23.2)
(75.1)
(9.4)
(24.3)
(20.7)
(0.1)
(0.3)
(187.1)
–
1.0
1.0
(22.6)
(11.4)
(23.2)
(75.1)
(9.4)
(24.3)
(20.7)
(0.1)
(0.3)
(187.1)
0.7
1.0
1.7
(21.2)
(11.4)
(21.2)
(73.5)
(8.5)
(21.1)
(19.2)
(0.1)
(0.3)
(176.5)
0.6
1.5
2.1
–
–
–
–
–
–
–
–
–
–
0.6
–
0.6
(21.2)
(11.3)
(21.5)
(72.1)
(8.6)
(22.2)
(20.2)
(0.1)
(0.3)
(177.5)
–
1.5
1.5
Total
£m
(21.2)
(11.3)
(21.5)
(72.1)
(8.6)
(22.2)
(20.2)
(0.1)
(0.3)
(177.5)
0.6
–
0.6
Derivative financial liabilities held at fair value
(0.8)
–
(0.8)
(0.8)
(0.6)
–
(0.6)
(0.6)
1. 2019 has been restated to include the Group’s cumulative preference shares within borrowings, see note 1 for further details.
The table above analyses financial instruments carried at fair value, 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 are excluded from
the preceding table as their carrying amount approximates their fair value.
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).
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.
DERIVATIVES
Forward exchange contracts are marked to market either using listed market prices or by discounting the contractual forward price and deducting the
current spot rate.
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 0.9-2.4% (2019: 1.1-3.9%).
There have been no transfers between Level 1 and Level 2 during 2020 and 2019 and there were no Level 3 financial instruments in either 2020 or 2019.
140
Morgan Advanced Materials | Annual Report 2020
23. PENSIONS AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS
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 US.
SUMMARY OF NET DEFINED BENEFIT OBLIGATIONS
Present value of unfunded defined benefit obligations
Present value of funded defined benefit obligations
Fair value of plan assets
AMOUNTS RECOGNISED IN PROFIT OR LOSS
Current service cost
Past service cost
Administrative expenses recognised outside of the pension liability
Curtailments and settlements
Total expense within operating costs relating to defined benefit plans
Defined contribution plans
Total expense within operating costs
Net interest on net defined benefit liability
Total expense recognised in profit or loss
AMOUNTS RECOGNISED IN OTHER COMPREHENSIVE INCOME
Experience gain/(loss) on plan obligations
Changes in financial assumptions underlying the present value of plan obligations – (loss)
Changes in demographic assumptions underlying the present value of plan obligations – gain/(loss)
Actual return on plan assets (excluding amounts included in net interest expense)
Remeasurements recognised in other comprehensive income
Deferred tax associated with the above
Total amount recognised in other comprehensive income
Note
4
7
2020
£m
(52.6)
(754.7)
631.0
(176.3)
2019
£m
(48.2)
(686.7)
578.1
(156.8)
2020
£m
(2.8)
(0.1)
(1.2)
0.3
(3.8)
(11.6)
(15.4)
(2.6)
(18.0)
2020
£m
3.9
(99.4)
1.3
60.3
(33.9)
0.4
(33.5)
2019
£m
(2.6)
–
(1.4)
0.2
(3.8)
(11.3)
(15.1)
(4.6)
(19.7)
2019
£m
6.1
(66.8)
37.0
44.2
20.5
2.2
22.7
DEFINED CONTRIBUTION PLANS
The total expense relating to defined contribution plans in the current year was £11.6 million (2019: £11.3 million). The expense includes contributions to
two US Multi-Employer Plans of £0.3 million (2019: £0.3 million) and a contribution to one German Multi-Employer Plan of £0.3 million (2019: £0.3 million).
The Group expects to contribute £11.9 million to ongoing defined contribution arrangements in 2021.
141
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
23. PENSIONS AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS 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 17 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 Company on 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 Schemes 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 2019 and resulted in combined assessed deficits of
£120.3 million. On the basis of these full valuations, the Trustees of the UK Schemes, having consulted with the Company, agreed past service deficit
recovery payments totaling £16.5 million a year from January 2020, increasing by 2.75% pa from April 2021 until 2025, with further payments to
Morgan Pension Scheme for 2026 and 2027. New full valuations will be due with effective dates of 31 March 2022.
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, were auto-enrolled into The Morgan Group Personal Pension Plan for their future
pension benefits.
In 2018, the High Court ruled that the Trustee of the Lloyds Banking Group pension schemes needed to remove the inequalities in pension scheme
benefits that arise from unequal Guaranteed Minimum Pensions (GMPs). A charge of £1.9 million was recognised during 2018 to reflect the potential
cost of removing the GMP inequalities for the Group’s UK defined benefit pension schemes. As a result of a further judgement in November 2020 relating
to the need to equalise historical transfer payments, further charge of £0.1 million has been included in these accounts.
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.
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 whilst in, payment. Overall,
the US Schemes’ duration is around 10 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 2020 and the Scheme was fully funded this basis.
On the more stringent DBO (Defined Benefit Obligation) basis used for IAS 19 purposes, the deficit as at 31 December 2020 totalled £0.5 million.
No further significant contributions to the MUSE DB Scheme are anticipated in the medium-term.
142
Morgan Advanced Materials | Annual Report 2020 23. PENSIONS AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS continued
European schemes
In Europe, 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.
Summary of net obligations
Present value of unfunded defined benefit obligations
Present value of funded defined benefit obligations
Fair value of plan assets
Movements in present value of defined benefit obligation
At 1 January 2020
Current service cost
Past service cost
Interest cost
Actuarial gain/(loss)
Experience gain/(loss) on plan obligations
Changes in financial assumptions – gain/(loss)
Changes in demographic assumptions – gain/(loss)
Benefits paid
Curtailments and settlements
Contributions by members
Exchange adjustments
At 31 December 2020
Movements in fair value of plan assets
At 1 January 2020
Interest on plan assets
Remeasurement gain/(loss)
Contributions by employer
Contributions by members
Benefits paid
Curtailments and settlements
Exchange adjustments
At 31 December 2020
Actual return on assets
Fair value of plan assets by category
Equities 1
Growth assets 2
Bonds
Liability-driven investments (LDI)3
Matching insurance policies
Other
31 December 2020
UK
£m
US
£m
Europe
£m
Rest of the
World
£m
–
(603.4)
483.1
(120.3)
(534.6)
–
(0.1)
(10.8)
2.2
(82.7)
–
22.6
–
–
–
(603.4)
433.1
8.9
47.2
16.5
–
(22.6)
–
–
483.1
56.1
57.8
99.1
64.1
93.8
164.4
3.9
483.1
(6.9)
(140.6)
140.2
(7.3)
(146.0)
–
–
(4.6)
1.3
(13.8)
1.3
9.2
0.3
–
4.8
(147.5)
135.4
4.3
13.5
0.9
–
(9.2)
–
(4.7)
140.2
17.8
–
8.0
128.9
–
–
3.3
140.2
(43.1)
(2.2)
0.5
(44.8)
(40.0)
(1.1)
–
(0.3)
(0.2)
(3.0)
–
1.6
–
–
(2.3)
(45.3)
0.4
–
–
1.6
–
(1.6)
–
0.1
0.5
–
–
–
–
–
0.5
–
0.5
(2.6)
(8.5)
7.2
(3.9)
(14.3)
(1.7)
–
(0.3)
0.6
0.1
–
4.8
–
–
(0.3)
(11.1)
9.2
0.2
(0.4)
2.7
–
(4.8)
–
0.3
7.2
(0.2)
–
–
–
–
4.5
2.7
7.2
Total
£m
(52.6)
(754.7)
631.0
(176.3)
(734.9)
(2.8)
(0.1)
(16.0)
3.9
(99.4)
1.3
38.2
0.3
–
2.2
(807.3)
578.1
13.4
60.3
21.7
–
(38.2)
–
(4.3)
631.0
73.7
57.8
107.1
193.0
93.8
169.4
9.9
631.0
1. Equity values include both physical equities and the value of equity futures contracts, used to gain leveraged exposure to global equity markets.
2. Growth assets include investment in Global Diversified and Multi-Asset Funds as well as UK Property.
3. 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 c.100% of the invested assets of the UK Schemes.
143
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
23. PENSIONS AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS continued
The Group expects to contribute £20.8 million to these arrangements in 2021.
Estimate of employer contributions to be paid into the plans
during the 12-month period beginning 1 January 2021
Summary of net obligations
Present value of unfunded defined benefit obligations
Present value of funded defined benefit obligations
Fair value of plan assets
Movements in present value of defined benefit obligation
At 1 January 2019
Current service cost
Interest cost
Actuarial gain/(loss)
Experience gain/(loss) on plan obligations
Changes in financial assumptions – gain/(loss)
Changes in demographic assumptions – gain/(loss)
Benefits paid
Curtailments and settlements
Contributions by members
Exchange adjustments
At 31 December 2019
Movements in fair value of plan assets
At 1 January 2019
Interest on plan assets
Remeasurement gain/(loss)
Contributions by employer
Contributions by members
Benefits paid
Curtailments and settlements
Exchange adjustments
At 31 December 2019
Actual return on assets
Fair value of plan assets by category
Equities 1
Growth assets 2
Bonds
Liability-driven investments (LDI)3
Matching insurance policies
Other
UK
£m
16.8
US
£m
0.8
Europe
£m
Rest of the
World
£m
1.7
1.5
31 December 2019
UK
£m
US
£m
Europe
£m
Rest of the
World
£m
–
(534.6)
433.1
(101.5)
(544.4)
–
(14.4)
9.6
(46.4)
35.6
25.4
–
–
–
(534.6)
404.3
10.8
30.8
12.6
–
(25.4)
–
–
433.1
41.6
49.1
97.1
56.1
69.8
160.4
0.6
433.1
(7.6)
(138.4)
135.4
(10.6)
(138.8)
–
(5.9)
(1.3)
(16.6)
1.4
9.3
0.2
–
5.7
(146.0)
130.0
5.4
13.6
0.9
–
(9.3)
–
(5.2)
135.4
19.0
–
7.2
126.0
–
–
2.2
135.4
(37.9)
(2.1)
0.4
(39.6)
(37.3)
(1.0)
(0.6)
(2.0)
(3.4)
–
1.8
–
–
2.5
(40.0)
0.4
–
–
1.8
–
(1.8)
–
–
0.4
–
–
–
–
–
0.4
–
0.4
(2.7)
(11.6)
9.2
(5.1)
(13.6)
(1.6)
(0.1)
(0.2)
(0.4)
–
0.7
–
–
0.9
(14.3)
9.0
0.2
(0.2)
1.7
–
(0.7)
–
(0.8)
9.2
–
–
–
–
–
6.8
2.4
9.2
Total
£m
20.8
Total
£m
(48.2)
(686.7)
578.1
(156.8)
(734.1)
(2.6)
(21.0)
6.1
(66.8)
37.0
37.2
0.2
–
9.1
(734.9)
543.7
16.4
44.2
17.0
–
(37.2)
–
(6.0)
578.1
60.6
49.1
104.3
182.1
69.8
167.6
5.2
578.1
1. Equity values include both physical equities and the value of equity futures contracts, used to gain leveraged exposure to global equity markets.
2. Growth assets include investment in Global Diversified and Multi-Asset Funds as well as UK Property.
3. 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 c.100% of the invested assets of the UK Schemes.
144
Morgan Advanced Materials | Annual Report 2020
23. PENSIONS AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS continued
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, (reflecting the recent announcement
in the UK that RPI will align with CPIH from 2030), life expectancy and several other assumptions. In making these estimates and assumptions, the Directors
consider advice provided by external advisers, 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 US is material to the cost of the promised benefits. In the UK, the CMI2018 mortality
projection tables have been retained, rather than updating for 2019, given the uncertainty caused by the current COVID-19 pandemic. This assumption
will continue to be reviewed at each accounting period. In both the UK and Europe, 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:
2020
Discount rate
Salary increase
Inflation (UK: RPI/CPI)
Pensions increase1
Mortality – post-retirement:
Life expectancy of a male aged 60 in accounting year (years)
Life expectancy of a male aged 60 in accounting year + 20 (years)
2019
Discount rate
Salary increase
Inflation (UK: RPI/CPI)
Pensions increase1
Mortality – post-retirement:
Life expectancy of a male aged 60 in accounting year (years)
Life expectancy of a male aged 60 in accounting year + 20 (years)
UK
%
US
%
Europe
%
Rest of
the World
%
1.23
n/a
2.88/2.03
3.00/2.80/3.56
–
26.3
27.8
2.06
n/a
2.73/1.88
3.00/2.70/3.50
26.2
27.7
2.34
n/a
n/a
n/a
–
24.6
24.7
3.21
n/a
n/a
n/a
24.3
24.4
0.40
2.10
1.60
1.60
–
24.9
27.7
0.90
2.20
1.70
1.70
24.6
26.7
2.40
5.00
n/a
n/a
–
n/a
n/a
2.20
5.00
n/a
n/a
n/a
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.
145
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
23. PENSIONS AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS continued
The sensitivities of the Group’s net balance sheet to the principal assumptions are:
Discount rate
Inflation
Mortality – post-retirement
Exchange rates
Change in assumption
Decrease by 0.1%
Increase by 0.1%
Pensioners live 1 year longer
GBP weakens against USD by 10%
GBP weakens against EUR by 10%
2020
2019
Increase on
defined
benefit
obligation
£m
Increase on
deficit
£m
Increase on
defined
benefit
obligation
£m
Increase on
deficit
£m
12.7
5.1
38.6
16.4
5.0
11.1
4.8
25.8
0.8
5.0
10.7
3.6
32.8
16.2
4.4
9.2
3.4
21.9
1.2
4.4
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 equity shares 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 advisers.
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 some extent by 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 for an amount equal to approximately 100% of the invested assets. 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 a lesser extent in the IAS 19 pension expense in the Group’s
income statement.
24. SHARE-BASED PAYMENTS
The Group operates various share option programmes that allow Group employees to acquire shares in the Company. During 2020, 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 page 71.
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 2020 was £0.7 million (2019: £2.4 million).
146
Morgan Advanced Materials | Annual Report 2020 24. SHARE-BASED PAYMENTS continued
The following options and awards were outstanding at 31 December 2020 in respect of Ordinary shares:
Employees entitled
Vesting conditions
LTIP
Senior employees
Sharesave
DBP
RSU
All UK employees
Senior employees
Select employees
Continued employment plus satisfaction
of performance metrics
Continued employment
Continued employment
Continued employment
Exercise/award
price(s)
Number of shares
outstanding
Exercise dates ranging
from
to
–
4,891,053
21 March 2021
5 October 2023
181.00p–278.00p
–
–
1,223,368 1 December 2020
21 March 2021
31 May 2024
20 May 2023
27 April 2021 14 October 2023
470,750
1,947,582
The numbers and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
2020
2019
Weighted
average
exercise
price
Number of
options
54.22p
7,735,748
34.48p
3,186,419
(816,918)
82.09p
34.37p (1,161,159)
(411,337)
36.62p
8,532,753
28.68p
87,569
207.55p
Weighted
average
exercise
price
52.02p
60.79p
79.81p
80.80p
81.60p
54.22p
205.77p
Number of
options
6,235,388
4,086,171
(798,402)
(961,967)
(825,442)
7,735,748
128,653
The weighted average share price at the date of exercise during the period was 217.14 pence (2019: 265.14 pence).
MEASUREMENT OF FAIR VALUES
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.
Share price at award date
Exercise price
Fair value at measurement date
Fair value measurement method
Fair value model inputs:
Expected volatility (expressed as weighted average
volatility used in the model)
Option life (expressed as weighted average
life used in the model)
Expected dividends
Risk-free interest rate
Awards made in 2020
LTIP
Sharesave
232.50p
n/a
89.00p – 190.00p
210.00p
181.00p
39.00p
Binomial model Modified binomial model
DBP
200.00p
n/a
200.00p
n/a
RSU
200.50p – 243.00p
n/a
200.50p – 243.00p
n/a
30%
3 years
3.5%
(0.1)%
30%
3.3 years
3.7%
(0.1)%
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. The weighted
average fair value of options issued during 2020 was 176.09 pence (2019: 205.60 pence).
147
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the consolidated financial statements
25. PROVISIONS AND CONTINGENT LIABILITIES
Balance at 1 January 2020
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movements in foreign exchange
Balance at 31 December 2020
Current
Non-current
Closure and
restructuring
provisions
£m
Legal and
other
provisions
£m
Environmental
provisions
£m
2.4
20.0
(3.3)
(0.9)
(0.9)
17.3
16.7
0.6
17.3
8.8
3.7
(0.5)
(1.9)
0.1
10.2
6.6
3.6
10.2
6.9
2.7
(0.7)
(0.6)
–
8.3
4.0
4.3
8.3
Total
£m
18.1
26.4
(4.5)
(3.4)
(0.8)
35.8
27.3
8.5
35.8
CLOSURE AND RESTRUCTURING PROVISIONS
Closure and restructuring provisions are based on 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. Due to the nature of the provision for closure and restructuring provisions, the timing of any
potential future outflows in respect of these liabilities is uncertain until the restructuring programme is completed.
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 remote, 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 £9.0 million (2019: £7.4 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. At one site, a remediation feasibility study is currently being conducted in relation to a known
environmental issue, in conjunction with the local Environmental Regulator. Whilst this study has yet to be finalised, sufficient work has been completed to
enable an estimate to be made for the costs of remediating the known environmental issues at this site. This cost has been provided for in the table above.
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. There is
a contingent liability arising from the as yet unknown environmental issues at the site referred to above, pending the completion of the feasibility study.
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. These are disclosed in notes 8 and 15.
148
Morgan Advanced Materials | Annual Report 2020
26. CAPITAL COMMITMENTS
In 2020, commitments for property, plant and equipment and computer software expenditure for which no provision has been made in these accounts
amount to £2.4 million (2019: £2.4 million) for the Group.
27. RELATED PARTIES
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 44), and with its Directors,
executive officers and their close family members.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
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:
Short-term employee benefits
Employer national insurance contributions
Pension and other post-employment costs
Share-based payment (credit)/expense1
Termination payments
Non-executive Directors’ fees and benefits
Total compensation of key management personnel
2020
£m
3.4
0.6
0.3
(0.1)
–
0.4
4.6
2019
£m
5.5
0.6
0.4
1.3
–
0.4
8.2
1. Share-based payment expense represents the net IFRS 2 share-based payment (credit)/charge to the consolidated income statement in the year for the members of the
Executive Committee. In 2020, due to changes in assumptions in non-market based performance conditions, a net credit of £0.1 million was recognised in the consolidated
income statement (2019: charge of £1.3 million).
OTHER RELATED PARTY TRANSACTIONS
Sales to associate
Purchases from associate
Trade receivables due from associate
Trade payables due to associate
2020
£m
–
1.8
–
0.3
2019
£m
–
2.0
–
0.3
The balances with the Group’s associate are shown in note 19. In 2020 the Group does not have any trade receivables owed by associates that have been
fully provided for (2019: £nil).
28. SUBSEQUENT EVENTS
There were no other reportable subsequent events following the balance sheet date.
149
Financial statementsMorgan Advanced Materials | Annual Report 2020 Company balance sheet
AS AT 31 DECEMBER 2020
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments in subsidiary undertakings
Debtors – amounts due after more than one year
Current assets
Debtors – amounts due within one year
Cash and cash equivalents
Note
2020
£m
2019
restated1
£m
31
32
33
34
35
35
4.6
6.5
1.3
629.0
254.3
895.7
46.3
4.5
50.8
2.2
6.2
1.2
666.8
256.8
933.2
71.8
26.4
98.2
Creditors – amounts falling due within one year
36
131.9
85.7
Net current (liabilities)/assets
Total assets less current liabilities
Non-current liabilities
Creditors – amounts falling due after more than one year
Employee benefits: pensions
Provisions
Net assets
Capital and reserves
Equity shareholders’ funds
Share capital
Share premium
Merger reserve
Capital redemption reserve
Retained earnings
Shareholders’ funds
1. See note 29 for details on the restatement of the 2019 balance sheet.
The financial statements were approved by the Board of Directors on 3 March 2021 and were signed on its behalf by:
Pete Raby
Chief Executive Officer
Peter Turner
Chief Financial Officer
37
39
40
41
(81.1)
12.5
814.6
945.7
199.5
34.8
3.6
237.9
576.7
71.3
111.7
17.0
35.7
341.0
576.7
264.2
30.3
0.5
295.0
650.7
71.3
111.7
17.0
35.7
415.0
650.7
150
Morgan Advanced Materials | Annual Report 2020
Company statement of changes in equity
FOR THE YEAR ENDED 31 DECEMBER 2020
Balance at 1 January 2019
Total comprehensive income for the period:
Profit for the year
Other comprehensive income
Transactions with owners:
Dividends
Equity-settled share-based payment transactions
Own shares acquired for share incentive schemes (net)
Balance at 31 December 2019
Balance at 1 January 2020
Total comprehensive income for the period:
Profit for the year
Other comprehensive income
Transactions with owners:
Dividends
Equity-settled share-based payment transactions
Own shares acquired for share incentive schemes (net)
Balance at 31 December 2020
Called-up
share
capital
£m
Share
premium
account
£m
71.3
111.7
Merger
reserve
£m
17.0
Capital
redemption
reserve
£m
Profit and
loss account
£m
Total equity
£m
35.7
413.1
648.8
–
–
–
–
–
71.3
–
–
–
–
–
111.7
–
–
–
–
–
17.0
–
–
–
–
–
35.7
27.3
5.6
(31.3)
2.8
(2.5)
415.0
27.3
5.6
(31.3)
2.8
(2.5)
650.7
71.3
111.7
17.0
35.7
415.0
650.7
–
–
–
–
–
71.3
–
–
–
–
–
111.7
–
–
–
–
–
17.0
–
–
–
–
–
35.7
(58.8)
(9.3)
(5.7)
1.2
(1.4)
341.0
(58.8)
(9.3)
(5.7)
1.2
(1.4)
576.7
151
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
29. ACCOUNTING POLICIES
BASIS OF PREPARATION
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 IFRSs;
´ 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 its functional currency, Pounds Sterling, generally rounded to the nearest million.
The Company’s financial statements are prepared on a going concern basis as set out in note 1 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 financial statements.
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 the 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
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.
152
Morgan Advanced Materials | Annual Report 2020
29. ACCOUNTING POLICIES continued
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, and 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’s 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’ model). The Group measures the loss allowance for trade receivables at an
amount equal to lifetime ECL.
Trade and other creditors
Trade and other creditors are recognised initially at transaction price. 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.
153
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
29. ACCOUNTING POLICIES continued
Impairment of financial assets
The Company recognises provisions for expected credit losses (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. Lifetime 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 a 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 considers amounts due by 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 45.
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 22. 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 39.
154
Morgan Advanced Materials | Annual Report 2020 29. 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 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 24 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.
FINANCIAL GUARANTEE CONTRACTS
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.
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 amounts of assets, liabilities, income and expenses.
In addition to the areas of judgements and estimates outlined in note 1 to the consolidated Group financial statements, the Company also identifies the
assumptions required in investment impairment assessments as a source 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 the current COVID-19 global pandemic, there is an increased level of risk and therefore a key source of estimation
uncertainty in these assumptions, see note 34 for a sensitivity analysis.
155
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
29. ACCOUNTING POLICIES continued
PRIOR PERIOD ADJUSTMENTS
Decrease in investments (loans)
Increase in non-current amounts owed by Group undertakings
Increase in non-current derivative financial assets
Increase in current amounts owed by Group undertakings
Impact on assets
Increase in non-current borrowings
Decrease in non-current amounts owed to Group undertakings
Increase in non-current derivative financial liabilities
Impact on liabilities
Decrease in net assets
Decrease in share capital
Impact on Shareholders’ funds
Adjustments
2019
As reported
Preference
shares
Amounts
owed by
Group
undertakings
2019
total
adjustments
£m
2019
Restated
Derivatives
1,119.4
–
4.9
50.4
1,174.7
176.2
266.9
2.7
445.8
71.7
–
–
–
–
–
0.4
–
–
0.4
(0.4)
(0.4)
(0.4)
(265.1)
247.0
–
18.1
–
–
–
–
–
–
–
–
(187.5)
–
4.9
–
(182.6)
–
(183.2)
0.6
(182.6)
–
–
–
(452.6)
247.0
4.9
18.1
(182.6)
0.4
(183.2)
0.6
(182.2)
(0.4)
(0.4)
(0.4)
666.8
247.0
9.8
68.5
992.1
176.6
83.7
3.3
263.6
–
71.3
PREFERENCE SHARES
The Company financial statements have been restated to reclassify the Company’s cumulative preference shares previously held as equity to borrowings.
Following a review of the substance of the shares it was determined that the cumulative preference shares do not contain an equity element. There was
no impact to the income statement as the dividends, previously classified as distributions from equity that have been reclassified to finance charges within
the income statement totalled less than £0.1 million.
AMOUNTS OWED BY GROUP UNDERTAKINGS
Following a review of the amounts owed by Group undertakings to the Company management have reclassified loans not considered investment-like
in nature from presentation within investments to presentation in current and non-current debtors depending on the term of the loan agreement and
expectation of settlement date.
DERIVATIVES
As a result of the above outlined review, a reclassification between investments and amounts owed to Group undertaking has been recognised to reflect
that the Company has the legal right and intends to settle on a net basis the notional amount of intragroup derivatives. The fair value of the intragroup
derivatives is also now presented along with other derivatives.
30. STAFF NUMBERS AND COSTS
The average number of persons employed by the Company (including Directors) during the year was as follows:
Number of employees
Directors and corporate staff
Full details of the Directors’ remuneration for the period can be found in the Remuneration Report on pages 68 to 86.
Aggregate employee-related costs were as follows:
Wages and salaries
Equity-settled share-based payment expense
Social security costs
Other pension costs
2020
63
2019
54
Note
24
2020
£m
8.0
0.7
1.4
0.7
10.8
2019
£m
9.6
2.4
1.1
0.5
13.6
In 2020, £1.3 million (2019: £1.6 million) of the equity-settled share-based payments amount was recharged to other Morgan Group companies.
156
Morgan Advanced Materials | Annual Report 2020 31. INTANGIBLE ASSETS
Cost
Balance at 1 January 2020
Additions – externally purchased
Disposals
Balance at 31 December 2020
Amortisation
Balance at 1 January 2020
Amortisation for the year
Disposals
Balance at 31 December 2020
Carrying amounts
At 31 December 2019
At 31 December 2020
32. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance at 1 January 2020
Additions
Disposals
Balance at 31 December 2020
Depreciation and impairment losses
Balance at 1 January 2020
Depreciation charge for the year
Disposals
Balance at 31 December 2020
Carrying value
At 31 December 2019
At 31 December 2020
33. LEASING
The reconciliation in the movement of carrying value in of right-of-use assets is set out in the table below:
Balance at 1 January 2020
Additions
Depreciation charge for the year
Balance at 31 December 2020
Plant,
equipment
and fixtures
£m
Land and
buildings
£m
1.6
0.6
(1.1)
1.1
1.1
0.2
(1.1)
0.2
0.5
0.9
12.1
–
–
12.1
6.4
0.1
–
6.5
5.7
5.6
Plant and
equipment
£m
Land and
buildings
£m
1.0
–
(0.4)
0.6
0.2
0.7
(0.2)
0.7
The Company leases several assets including buildings and IT equipment. The average lease term at 31 December 2020 is 3.4 years (2019: 2.4 years).
At 31 December 2020, the Company has not applied any exemptions for short-term leases or leases of low-value assets.
Software
£m
11.1
4.6
(4.8)
10.9
8.9
1.5
(4.1)
6.3
2.2
4.6
Total
£m
13.7
0.6
(1.1)
13.2
7.5
0.3
(1.1)
6.7
6.2
6.5
Total
£m
1.2
0.7
(0.6)
1.3
157
Financial statementsMorgan Advanced Materials | Annual Report 2020
Notes to the Company balance sheet
34. INVESTMENT IN SUBSIDIARY UNDERTAKINGS
Cost
Balance at 1 January 2020 as reported
Correction of prior period1
Balance at 1 January 2020 restated
Additions
Disposals
Loan repayments
Effect of movement in foreign exchange
Balance at 31 December 2020
Provisions
Balance at 1 January 2020 restated
Correction of prior period1
Balance at 1 January 2020 as restated
Provided in the year
Reversal of impairment
Disposals
Effect of movement in foreign exchange
Balance at 31 December 2020
Carrying amounts
At 31 December 2019 restated1
At 31 December 2020
Shares in
Group
undertakings
£m
Loans
£m
Total
£m
449.6
–
449.6
–
(0.2)
–
–
449.4
107.5
–
107.5
48.9
(16.5)
(0.2)
–
139.7
834.2
(454.2)
380.0
11.1
–
(2.1)
(4.1)
384.9
56.9
(1.6)
55.3
9.7
–
–
0.6
65.6
1,283.8
(454.2)
829.6
11.1
(0.2)
(2.1)
(4.1)
834.3
164.4
(1.6)
162.8
58.6
(16.5)
(0.2)
0.6
205.3
342.1
309.7
324.7
319.3
666.8
629.0
1. See note 29 for details on the restatement of the 2019 balances.
During the year management conducted a review of the Company’s investment in subsidiaries undertakings following the economic uncertainty as a result
of COVID-19. Following this review it was necessary to recognise impairment losses of £48.9 million (2019: £nil) and £9.7 million (2019: £0.2 million) against
a number of Shares in Group undertakings and loans respectively which reflected the reduced expectation in future cash flows arising from these investments.
Following the same review management identified the reversal of impairment losses of £16.5 million (2019: £nil) against a number of Shares in Group
undertakings which reflected the increased expectation in future cash flows arising from these investments.
The impairment assessment of shares in Group undertakings uses the Board approved, 2021 budgets in an EBITDA* multiple valuation, which is sensitive
to changes in the principal assumptions. A 2% increase in either EBITDA* or the multiple would increase the carrying value of shares in Group undertakings
by £7.9 million at 31 December 2020. A 2% decrease would decrease the carrying value by £7.9 million. Management consider these changes in assumption
to be reasonably possible.
Note 44 to the financial statements gives details of the Company’s fixed asset investments.
158
Morgan Advanced Materials | Annual Report 2020 35. DEBTORS
Due within one year
Amounts owed by Group undertakings
Other debtors
Derivative financial assets
Prepayments
Due after more than one year
Derivative financial assets
Amounts owed by Group undertakings
1. See note 29 for details on the restatement of the 2019 balances.
36. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank overdrafts
Borrowings
Lease liabilities
Trade creditors
Amounts owed to Group undertakings
Other creditors
Accruals
Derivative financial liabilities
1. See note 29 for details on the restatement of the 2019 balances.
Note
45
45
Note
38
38
45
2020
£m
42.6
1.2
1.4
1.1
46.3
2019
restated1
£m
68.5
1.1
1.7
0.5
71.8
10.1
244.2
254.3
9.8
247.0
256.8
2020
£m
38.9
–
0.5
3.3
77.4
3.1
7.1
1.6
131.9
2019
restated1
£m
12.5
49.3
0.6
2.3
10.7
4.1
4.3
1.9
85.7
159
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
37. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Amounts owed to Group undertakings
Borrowings
Lease liabilities
Derivative financial liabilities
Other creditors
1. See note 29 for details on the restatement of the 2019 balances.
38. BORROWINGS AND LEASE LIABILITIES
TERMS AND DEBT REPAYMENT SCHEDULE
Note
38
45
2020
£m
15.2
176.8
0.8
5.0
1.7
199.5
2019
restated1
£m
83.7
176.6
0.6
3.3
–
264.2
Bank overdrafts
1.18% Euro Senior Notes 2023
3.17% US Dollar Senior Notes 2023
1.55% Euro Senior Notes 2026
3.37% US Dollar Senior Notes 2026
1.74% Euro Senior Notes 2028
2.89% Euro Senior Notes 2030
4.87% US Dollar Senior Notes 2026
Syndicated revolving credit facility
Syndicated revolving credit facility
5.50% Cumulative First Preference Shares
5.00% Cumulative Second Preference Shares
Lease liabilities
Currency
Effective
interest rate
Year of
maturity
2020
2019 restated1
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
Various
EUR
USD
EUR
USD
EUR
EUR
USD
GBP
USD
GBP
GBP
GBP
2023
2023
2026
2026
2028
2030
2026
2024
2024
1.95%
1.18%
3.17%
1.55%
3.37%
1.74%
2.89%
4.87%
0.45%
0.70%
5.50%
5.00%
2.30% 2022 -2025
38.9
22.4
11.0
22.4
71.4
9.0
22.3
18.6
(0.7)
–
0.1
0.3
1.3
217.0
38.9
22.6
11.4
23.2
75.1
9.4
24.3
20.7
(0.7)
–
0.1
0.3
1.3
226.6
12.5
21.2
11.4
21.2
73.5
8.5
21.1
19.2
4.1
45.2
0.1
0.3
1.2
239.5
12.5
21.2
11.3
21.5
72.1
8.6
22.2
20.2
4.1
45.2
0.1
0.3
1.2
240.5
1. See note 29 for details on the restatement of the 2019 balances.
In 2020, no borrowings were secured on the assets of the Company (2019: £nil).
160
Morgan Advanced Materials | Annual Report 2020 39. 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.
Pension plans and employee benefits
Present value of funded defined benefit obligations
Fair value of plan assets
Net obligations
Movements in present value of defined benefit obligation
At 1 January
Interest cost
Remeasurement (losses)/gains:
Changes in financial assumptions
Changes in demographic assumptions
Experience adjustments on benefit obligations
Benefits paid
At 31 December
Movements in fair value of plan assets
At 1 January
Interest on plan assets
Remeasurement gains
Contributions by employer
Benefits paid
At 31 December
Actual return on assets
Expense recognised in the income statement
Administrative expenses (including administration expenses incurred by the Company directly)
Net interest on net defined benefit liability
Total expense recognised in the income statement
The fair values of the plan assets were as follows:
Equities and growth assets
Bonds
Matching insurance policies
Other
Total
2020
£m
2019
£m
(195.5)
160.7
(34.8)
(175.5)
145.2
(30.3)
(175.5)
(3.5)
(25.3)
–
0.8
8.0
(195.5)
145.2
2.8
15.3
5.4
(8.0)
160.7
18.1
2020
£m
(0.8)
(0.7)
(1.5)
2020
£m
44.0
46.9
68.3
1.5
160.7
(178.2)
(4.6)
(14.9)
7.8
6.0
8.4
(175.5)
139.2
3.7
6.7
4.0
(8.4)
145.2
10.4
2019
£m
(0.4)
(0.5)
(0.9)
2019
£m
37.1
36.3
66.7
5.1
145.2
161
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
39. 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:
Assumptions:
Inflation (RPI/CPI)
Discount rate
Pensions increase
Salary increase
Mortality – post-retirement:
Life expectancy of a male aged 60 in accounting year (years)
Life expectancy of a male aged 60 in accounting year + 20 (years)
2020
%
2019
%
2.88/2.03
1.23
2.73/1.88
2.06
3.00/2.80/3.56 3.00/2.70/3.50
n/a
n/a
26.3
27.8
26.2
27.7
Funding
The most recent full actuarial valuations of the Schemes were undertaken as at 31 March 2019 and resulted in combined assessed deficits of £120.3 million.
On the basis of these full valuations, the Trustees of the Schemes, having consulted with the Group, agreed past service deficit recovery payments totalling
£16.5 million a year from January 2020 (Company: £5.4 million), increasing by 2.75% pa from April 2021 until 2025, with further payments to Morgan
Pension Scheme for 2026 and 2027. New full valuations are due with effective dates of 31 March 2022.
Sensitivity analysis
The sensitivities of the Company’s net balance sheet to the principal assumptions are:
Discount rate
Inflation
Mortality – post-retirement
Change in assumption
Decrease by 0.1%
Increase by 0.1%
Pensioners live 1 year longer
2020
Increase
effect
£m
2019
Increase
effect
£m
2.5
1.1
6.0
2.0
0.9
4.4
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 total Company expense relating to defined contribution plans in 2020 was £0.6 million (2019: £0.5 million).
40. PROVISIONS AND CONTINGENT LIABILITIES
Balance at 1 January 2020
Provisions made during the year
Provisions used during the year
Balance at 31 December 2020
Dilapidation
provisions
£m
Other
provisions
£m
0.1
0.2
–
0.3
0.4
3.0
(0.1)
3.3
Total
£m
0.5
3.2
(0.1)
3.6
Other provisions relate to legal claims and are based on the Company’s assessment of the probable cost of these activities.
Contingent liabilities
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.
There are no other contingent liabilities in the Company as at 31 December 2020.
162
Morgan Advanced Materials | Annual Report 2020 41. SHARE CAPITAL
In issue at beginning and end of the period
Allotted, called up and fully paid
Ordinary shares of 25 pence each
Ordinary
Shares
285,369,988
2020
£m
71.3
71.3
2019
£m
71.3
71.3
Refer to note 20 for details of the rights to dividends, voting rights and return of capital relating to the Preference shares.
Additionally the Company has authorised, issued and fully paid 437,281 (2019: 437,281) cumulative preference shares classified as borrowings totalling
£0.4 million (2019: £0.4 million). The redeemable 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 20 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 99.
42. 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 20.
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 2020 was 841,880 (2019: 1,245,133) and at that date had a market value of £2.6 million
(2019: £4.0 million).
In 2020, the amount of reserves of Morgan Advanced Materials plc that may be distributed under Section 831(4) of the Companies Act 2006 was
£148.3 million (2019: £222.4 million). This comprises a portion of the profit and loss account.
43. RELATED PARTIES
The Company has related party relationships with its subsidiaries, its associate, 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:
Transactions with subsidiaries
Income from management services
Net interest income
Dividend income
Loans owed by related parties
Other amounts owed by related parties
Other amounts owed to related parties
2020
£m
2019
£m
2.0
4.3
13.0
–
3.0
1.1
2.7
4.3
12.8
9.8
24.3
3.0
163
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
44. FIXED ASSET INVESTMENTS
In accordance with Section 409 of the Companies Act 2006, a full list of related undertakings as at 31 December 2020 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.
Country of
incorporation
Registered office address
% shareholding
owned by
the Group
Talcahuano 736, 4th Floor, Buenos Aires, C1013AAP, Argentina
4 Redwood Drive, Clayton, VIC 3168, Australia
Unit 4, 92-100 Belmore Road, Riverwood, NSW 2210, Australia
Unit 4, 92-100 Belmore Road, Riverwood, NSW 2210, Australia
Avenida do Taboão 3265, Taboão, São Bernardo do Campo,
São Paulo, CEP 09656-000, Brazil
1185 Walkers Line, Burlington, ON L7M 1L1, Canada
Avenida San Eugenio 12462, Sitio 3, Loteo Estrella del Sur,
Santiago, Chile
No. 931 Xi’nan Road, Shahekou District, Dalian, Liaoning
Province 116200, China
Room 204, No. 10, Dalang north street, Huangpu district,
Guangzhou, China
Gongyuanxi Road, Ding Shu Zhen, Yixing, Jiangsu Province
214221 China
108 Tongsheng Road, Suzhou Industrial Park, Suzhou, Jiangsu
Province, 215126, China
Room #101, Building #4, No. 188 Jialing Jiang Road, Suzhou
New District, Suzhou 215163, Jiangsu Province, China
18 Kang An Road, Kang Qiao Industrial Zone, Pudong, Shanghai
201315, China
18 Kang An Road, Kang Qiao Industrial Zone, Pudong, Shanghai
201315, China
4250 Long Wu Road, Shanghai, 200241, China
2 Liye Road, Economic Development Zone, Wuxi, Jiangsu
Province, 214131, China
6th Floor, building 17, No. A1Chaoqian Road, Changping District,
Beijing 102200, China
4250 Long Wu Road, Shanghai, 200241, China
20-1 Quankou Road, Jingmen City, Hubei Province, 448032,
China
No. 931 Xi’nan Road, Shahekou District, Dalian, Liaoning
Province 116200, China
2 Beidan Road, Taodu Industrial Park, Ding Shu Zhen, Yixing,
Jiangsu, 214222, China
Calle 18 No. 23-31, Bodega 1, Guadalajara de Buga-Valle, AA
5086, Colombia
6 rue du Réservoir, 68420 Eguisheim, France
Centre de Vie BP 75, 3 rue du 18 Juin 1827, 42162 Andrézieux-
Bouthéon, France
5 bis rue Retrou, 92600 Asnières-sur-Seine, France
Centre de Vie BP 75, 3 rue du 18 Juin 1827, 42162 Andrézieux-
Bouthéon, France
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
70.00%
70.00%
70.00%
51.00%
100.00%
100.00%
100.00%
99.88%
100.00%
Name of undertaking
Carbo San Luis S.A.11
Morgan Technical Ceramics Australia Pty Ltd
Morganite Australia Pty Ltd12
Morgan Mechanical Carbon Australasia Pty Ltd1
Morganite Brasil Ltda13
Morgan Advanced Materials Canada Inc.14
Carbo Chile S.A.
Argentina
Australia
Australia
Australia
Brazil
Canada
Chile
Dalian Morgan Ceramics Company Ltd15
China
Morgan Guangzhou Trading Company Limited
China
Morgan Haldenwanger Technical Ceramics (Wuxi)
Co. Ltd15
Morgan Molten Metal Systems (Suzhou) Co. Ltd1, 16 China
100.00%
China
Morgan Technical Ceramics (Suzhou) Co. Ltd
China
Morgan Thermal Ceramics (Shanghai) Co. Ltd1, 15
China
Morgan International Trading (Shanghai) Co. Ltd1, 15 China
Shanghai Morgan Advanced Material and
Technology Co. Ltd1, 16
Jiangsu Morgan Ceramic Core Technology Co. Ltd13 China
China
Beijing Morgan Ceramics Co. Ltd15
(in liquidation)
Morgan AM&T (Shanghai) Co. Ltd5, 13
Morgan Kailong (Jingmen) Thermal Ceramics Co.
Ltd5, 15
Dalian Morgan Refractories Ltd5, 15
China
China
China
China
Yixing Morgan Thermal Ceramics Co. Ltd6, 15
China
Thermal Ceramics de Colombia9
Colombia
Morgan Carbon France S.A.
Thermal Ceramics de France S.A.S.U.16
Marshall Morganite S.A. (in liquidation)
Thermal Ceramics S.A.10, 16
France
France
France
France
164
Morgan Advanced Materials | Annual Report 2020 44. FIXED ASSET INVESTMENTS continued
Name of undertaking
Country of
incorporation
Registered office address
% shareholding
owned by
the Group
Morgan Advanced Materials Haldenwanger GmbH17 Germany
Germany
Morgan Electrical Carbon Deutschland GmbH
Germany
Morgan Thermal Ceramics Deutschland GmbH
Germany
Morgan Molten Metal Systems GmbH
Germany
Morgan Deutschland Holding GmbH
Germany
Porextherm Dämmstoffe GmbH
Germany
Morgan Holding GmbH
Germany
The Morgan Crucible Management GmbH
Germany
Wesgo Ceramics GmbH
Guatemala
Ceramicas Termicas S.A.
Refractarios Multiples S.A.
Refractarios Nacionales S.A.
Morgan AM&T Hong Kong Company Ltd
Morgan Materials Hungary Limited Liability
Company15
Morgan Advanced Materials India Private Ltd
Morganite Crucible (India) Ltd
Ciria India Limited15
Murugappa Morgan Thermal Ceramics Ltd6
Thermal Ceramics Italiana S.R.L.13
Morgan Carbon Italia S.R.L.
Morganite Carbon Kabushiki Kaisha
Shin-Nippon Thermal Ceramics Corporation
Morgan Korea Company Ltd4, 18
Guatemala
Guatemala
Hong Kong
Hungary
India
India
India
India
Italy
Italy
Japan
Japan
Korea
Morganite Luxembourg S.A.
Grafitos y Maquinados S.A. de C.V.1, 19
Luxembourg
Mexico
Grupo Industrial Morgan S.A. de C.V.1, 19
Mexico
Morgan Technical Ceramics S.A. de C.V.19
Mexico
Morgan Holding Netherlands B.V.
Gunac B.V.
Morgan Terrassen B.V.
Morgan AM&T B.V.
Thermal Ceramics Benelux B.V.
Morgan Donald Brown Limited
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
New Zealand
Morgan Carbon Polska Sp.zoo
Thermal Ceramics Polska Sp.zoo
Poland
Poland
Teplitzerstraße 27, 84478 Waldkraiburg, Germany
Zeppelinstraße 26, 53424 Remagen, Germany
Borsigstraße 4-6, 21465 Reinbek, Germany
Noltinastraße 29, 37297 Berkatal-Frankenhain, Germany
Zeppelinstraße 26, 53424 Remagen, Germany
Heisingerstraße 8/10, 87437 Kempten (Allgäu), Germany
Zeppelinstraße 26, 53424 Remagen, Germany
Zeppelinstraße 26, 53424 Remagen, Germany
Willi-Grasser-Straße 11, 91056 Erlangen, Germany
20 Calle 1860, Apartamento 2, Zona 10, Guatemala City,
Guatemala
Km. 34.5, Ruta al Pacífico, Palín, Escuintla, Guatemala
Km. 34.5, Ruta al Pacífico, Palín, Escuintla, Guatemala
Units 4-6, 11/F, Siu Wai Industrial Centre, 29-33 Wing Hong
Street, Cheung Sha Wan, Kowloon, Hong Kong
Csillagvirág utca 7, 1106 Budapest, Hungary
P-11, Pandav Nagar, Mayur Vihar Phase 1, Delhi, 110091 India
B-11, MIDC Industrial Area, Waluj, Aurangabad, 431136,
Maharashtra, India
P-11, Pandav Nagar, Mayur Vihar Phase 1, Delhi, 110091 India
PO Box 1570, Dare House Complex, Old No. 234/New
No. 2, NSC Bose Road, Chennai, 600001 India
Via Delle Rogge 6, Casalpusterlengo, 26841 LODI, Italy
Via Roma 338, Martinsicuro Terni, 64014 d Italy
30-31 Enoki-Cho, Suita City, Osaka 564-0053, Japan
Portus Center Building 12F, 4-45-1 Ebisujimacho, Sakai-ku,
Sakai-shi, Osaka 590-0985, Japan
27 Nongongjoongang-ro 46 gil, Nongong-eup, Dalseong-gun,
Daegu-si, Republic of Korea
BP 15, Capellen, L-8301 Luxembourg
Cerrada de la Paz No. 101, Col. Industrial La Paz, Pachuca
Hidalgo, Mexico
Cerrada de la Paz No. 101, Fraccionamiento Industrial La Paz,
Mineral de la Reforma, 42181 Hidalgo, 42092 Mexico
Av. Fulton No. 20, Fraccionamiento Industrial Valle de Oro, San
Juan del Rio, Queretaro C.P. 76802, Mexico
Oude Veiling 3, 1689 AA Zwaag, The Netherlands
Oude Veiling 3, 1689 AA Zwaag, The Netherlands
Oude Veiling 3, 1689 AA Zwaag, The Netherlands
Oude Veiling 3, 1689 AA Zwaag, The Netherlands
Tramweg 27, 3255 MB Oude Tonge, The Netherlands
KPMG, Chartered Accountants, KPMG Centre, 18 Viaduct
Harbour Avenue, Maritime Square, Auckland, 1010,
New Zealand
ul. Iskry 26, 01-472 Warszawa, Poland
Towarowa 9, 44-100 Gliwice, Poland
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
75.00%
70.00%
51.00%
100.00%
100.00%
100.00%
50.00%
93.19%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
165
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
44. FIXED ASSET INVESTMENTS continued
Name of undertaking
Country of
incorporation
Registered office address
Morgan Thermal Ceramics Sukhoy Log LLC20
Russia
Morgan Ceramics Asia Pte Ltd1
Morganite Ujantshi (Pty) Ltd
Singapore
South Africa
Thermal Ceramics South Africa (Pty) Ltd
South Africa
Morganite South Africa (Pty) Ltd
South Africa
Thermal Ceramics España S.L.
Morganite Española S.A.
Morgan Matroc S.A. (in liquidation)
Morgan Advanced Materials (Taiwan) Co. Ltd
Morganite Thermal Ceramics (Taiwan) Ltd
Spain
Spain
Spain
Taiwan
Taiwan
Morgan Holdings (Thailand) Ltd2
Thailand
Russia 624800, Sverdlovsk District, Sukhoi Log 624800,
Ul. Militseyskaya 2
150 Kampong Ampat, #05-06A, KA Centre, 368324 Singapore
149 South Rand Road, Tulisa Park, Johannesburg 2197,
South Africa
149 South Rand Road, Tulisa Park, Johannesburg 2197,
South Africa
149 South Rand Road, Tulisa Park, Johannesburg 2197,
South Africa
Juan Pablo II, no. 6, 2, Local A, 12003 Castellon, Spain
Juan Pablo II, no 6. 2e Local A, 12003 Castellon, Spain
Roger de Lluria 104 5º-2ª, 08037 Barcelona, Spain
25 Hsin-Yeh Street, Hsiao Kang, Kaohsiung 81208, Taiwan
c/o Baker & McKenzie, 15/f, 168 Tun Hwa North Road, Taipei
105, Taiwan
22nd-25th Floor, No. 990 Rama IV Road, Khwaeng Silom,
Bangrak District, Bangkok 10500, Thailand
Morgan Technical Ceramics (Thailand) Ltd2
Thailand
MKGS Morgan Karbon Grafit Sanayi Anonim Sirketi Turkey
Morgan Advanced Materials Industries Ltd
Morgan Ceramics Middle East FZE
Certech International Limited1
MCCo Limited7
MNA Finance Limited1
Morgan Electro Ceramics Limited1
Morgan Europe Holding Limited1
Morgan European Finance Limited
Morgan Finance Management Limited
Morgan Holdings Limited1
Morgan International Holding Limited
Morgan North America Holding Limited1
Morgan Technical Ceramics Limited
Morgan Trans Limited1
Morganite Carbon Limited1
Morganite Crucible Limited1
Morganite Electrical Carbon Limited
Morganite Special Carbons Limited1
Petty France Investment Nominees Limited1
TCG Guardian 1 Limited
United Arab
Emirates
United Arab
Emirates
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
990, 22nd-25th Floor, Rama IV Road, Khwaeng Silom Sub-
district, Bangrak District, Bangkok, 10500, Thailand
No. 958 On-nuch Road, Khwaeng Suanluang, Khet Suanluang,
Bangkok, 10250, Thailand
Osmangazi Mahallesi 2647, Sokak No. 27/3, Kıraç, Esenyurt,
Istanbul 34522, Turkey
KHIA4–07A, Khalifa Industrial Zone Abu Dhabi (KIZAD), Abu
Dhabi, United Arab Emirates
Post Box 16426, #404B, Business Centre, 4 RAK Economic
Zone, Ras Al Khaimah, United Arab Emirates
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
Morgan Advanced Materials – Technical Ceramics, Morgan Drive,
Stourport-on-Severn, Worcestershire DY13 8DW, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
Upper Fforest Way, Morriston, Swansea, West Glamorgan,
SA6 8PP, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
166
% shareholding
owned by
the Group
51.00%
100.00%
74.90%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
88.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Morgan Advanced Materials | Annual Report 2020 44. FIXED ASSET INVESTMENTS continued
Name of undertaking
TCG Guardian 2 Limited
Terrassen Holdings Limited8
The Morgan Crucible Company Limited1
Thermal Ceramics Europe Limited7
Thermal Ceramics Limited7
Thermal Ceramics UK Limited
Clearpower Ltd3, 21
Jemmtec Ltd22
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Law Debenture MC Senior Pension Trust
Corporation
Morgan Crucible Pension Trustees Limited
United Kingdom
Certech, Inc.23
United States
Graphite Die Mold, Inc.23
United States
Morgan Advanced Ceramics, Inc.23
United States
Morgan Advanced Materials and Technology Inc.23 United States
Morganite Crucible Inc.24
United States
Morganite Industries Inc.25
United States
National Electrical Carbon Products, Inc.14
United States
Thermal Ceramics Inc.23
United States
Thermal Ceramics de Venezuela C.A.15
Venezuela
Registered office address
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
Tebay Road, Bromborough, Wirral, CH62 3PH, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
Magma Ceramics, Low Road, Earlsheaton, Dewsbury,
West Yorkshire WF12 8BU, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
York House, Sheet Street, Windsor, Berkshire, SL4 1DD, UK
1 Park Place West, Wood-Ridge, New Jersey 07075, USA
18 Air Line Park, Durham, Connecticut 06422-1000, USA
2425 Whipple Road, Hayward, California 94544, USA
441 Hall Avenue, St Marys, Pennsylvania 15857, USA
22 N. Plains Industrial Road, Suite 1, Wallingford, Connecticut
06492, USA
4000 West Chase Blvd, Suite 170, Raleigh, North Carolina
27607, USA
PO Box 1056, 251 Forrester Drive, Greenville, South Carolina
29602, USA
PO Box 923, 2102 Old Savannah Road, Augusta, Georgia 30906,
USA
Zona Ind. El Recreo, Av. 87 N°105-121, Flor Amarillo, Valencia
Edo. Carabobo, Venezuela
% shareholding
owned by
the Group
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
99.01%
34.96%
n/a
n/a
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
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. 4% owned by Morgan Advanced Materials plc.
10. 1.98% owned by Morgan Advanced Materials plc.
11. Ownership held in Class A and Class B Common Stock.
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. Subsidiary not included in consolidated accounts as the Company does not exercise management control.
21. Ownership held in Ordinary A, B and C and Preference A and B Shares.
22. Ownership held in Ordinary A and B Shares.
23. Ownership held in Common Stock.
24. Ownership held in Preferred Stock and no par Common Stock.
25. Ownership held in Class A, Class B and Class C Common Stock.
167
Financial statementsMorgan Advanced Materials | Annual Report 2020 Notes to the Company balance sheet
45. DERIVATIVE FINANCIAL ASSETS AND LIABILITIES
Derivative financial assets
Forward foreign exchange contracts non-designated
Derivative financial liabilities
Forward foreign exchange contracts non-designated
1. See note 29 for details on the restatement of the 2019 balances.
2020
£m
2019
restated1
£m
11.5
11.5
(6.6)
(5.2)
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 assets 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.
168
Morgan Advanced Materials | Annual Report 2020 Group statistical information
UNDER ADOPTED IFRSS
Revenue
Profit from operations before restructuring costs,
other items and amortisation of intangible assets
Restructuring costs and other items:
Restructuring costs
Gain on disposal of properties
2016
Results
before
specific
adjusting items
2017
Results
before
specific
adjusting items
restated 1,2
£m
958.8
restated 1,2,3
£m
1,001.4
2018
Results
before
specific
adjusting items
restated2
£m
2019
Results
before
specific
adjusting items
restated2
£m
2020
Results
before
specific
adjusting items
£m
1,033.9
1,049.5
910.7
116.8
120.7
124.8
134.2
91.7
(1.4)
0.5
–
–
–
–
–
–
Profit from operations before amortisation of intangible assets
115.9
120.7
124.8
134.2
Amortisation of intangible assets
Operating profit
Net financing costs
Share of profit of associate (net of income tax)
Profit before taxation
Income tax expense
Profit after taxation before discontinued operations
Discontinued operations
Profit for the period
Assets employed
Property, plant and equipment
Right-of-use assets
Intangible assets
Investments and other receivables
Deferred tax assets
Net current assets
Total assets less current liabilities
Employee benefits: pensions
Non-current provisions and other items
Deferred tax liabilities
Equity
Total equity attributable to equity holders of the Parent company
Non-controlling interests
Total equity
(6.5)
109.4
(20.0)
0.6
90.0
(26.9)
63.1
(0.1)
63.0
303.7
–
240.4
10.7
6.1
91.6
652.5
271.1
208.9
8.3
164.2
120.3
43.9
164.2
(7.3)
113.4
(22.5)
0.2
91.1
(26.9)
64.2
(1.0)
63.2
297.8
–
217.0
11.7
9.1
129.4
665.0
218.0
202.7
10.5
233.8
194.7
39.1
233.8
Ordinary dividends per share4
11.0p
11.0p
(8.0)
(8.1)
116.8
(13.2)
0.8
104.4
(29.0)
75.4
(1.4)
74.0
314.5
–
215.6
12.2
6.9
106.8
656.0
190.4
177.9
11.0
276.7
232.3
44.4
276.7
11.0p
126.1
(16.9)
0.5
109.7
(29.9)
79.8
0.7
80.5
317.2
49.1
204.8
12.2
6.0
125.1
714.4
156.8
241.0
4.9
311.7
270.2
41.5
311.7
4.0p
Earnings per share
Continuing and discontinued operations
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Adjusted earnings per share5
Diluted adjusted earnings per share5
18.4p
18.4p
22.7p
22.7p
37.8p
37.5p
22.8p
22.7p
16.2p
16.1p
26.7p
26.6p
25.7p
25.5p
28.0p
27.8p
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. Figures for 2016-2017 have been restated to reflect these changes.
2. Figures for 2016-2019 have been restated to classify the Group’s cumulative preference shares as borrowings. See note 1 to the consolidated financial statements.
3. 2017 has been restated to reflect the adoption of IFRS 15 Revenue from Contracts with Customers in 2018. Figures for 2016 have not been restated for these changes.
4. 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.
5. Definitions of these non-GAAP measures can be found in the glossary of terms on page 170, reconciliations of the statutory results to the adjusted measures can be found
on pages 43 to 45.
169
–
–
91.7
(6.1)
85.6
(11.9)
0.6
74.3
(20.2)
54.1
–
54.1
267.6
35.5
185.4
11.2
14.4
136.7
650.8
176.3
234.0
0.5
240.0
202.3
37.7
240.0
5.5p
(7.9)p
(7.9)p
19.0p
18.9p
Financial statementsMorgan Advanced Materials | Annual Report 2020 Cautionary statement
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 advisers 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.
Glossary of terms
Constant-currency1
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 dividends1
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 profit1
Operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets.
Group organic1
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 debt1
Borrowings, bank overdrafts and lease liabilities less cash and cash equivalents.
Net cash and cash equivalents1
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.
1. Reconciliations of these non-GAAP measures to GAAP measures can be found on pages 43 to 45.
170
Morgan Advanced Materials | Annual Report 2020 Shareholder information
ANALYSIS OF ORDINARY SHAREHOLDINGS AS AT 31 DECEMBER 2020
Size of holding
Holding classification
KEY DATES
6 May 2021
29 July 2021
1-2,000
2,001-5,000
5,001-10,000
10,001-50,000
50,001-100,000
100,001 and above
Individuals
Nominee companies
Trusts (pension funds etc.)
Others
Number of
holdings
% of total
holdings
Number
of shares
4,284
680
248
199
45
173
5,629
4,958
370
5
296
5,629
2,147,236
76.11%
2,173,926
12.08%
1,747,635
4.41%
4,292,138
3.53%
0.80%
3,296,370
3.07% 271,712,683
285,369,988
100.00
88.08%
7,674,800
6.57% 256,028,965
0.09%
30,689
5.26% 21,635,534
100.00% 285,369,988
% of share
capital
0.75%
0.76%
0.61%
1.50%
1.16%
95.22%
100.00%
2.69%
89.72%
0.01%
7.58%
100.00%
2021 Annual General Meeting (AGM), commencing at 10:30am.
Half-Year results announced via the Regulatory News Service and on the Company’s website.
Since 2015 Half-Year results are available online only.
2020 AND (PROPOSED) 2021 DIVIDEND PAYMENT DATES
1 October 2020
11 December 2020
21 May 2021
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.
Please note this payment included the deferred dividend payment from 1 April 2020.
An interim cash dividend of 2.0 pence per Ordinary share of 25 pence each was paid to shareholders
registered at the close of business on 20 November 2020.
Subject to shareholders’ approval at the 2021 AGM, a final cash dividend of 3.5 pence per Ordinary share
of 25 pence each will be paid to shareholders registered at the close of business on 30 April 2021.
1 April 2021 and 1 October 2021
Dividend payment dates in respect of the 5.5% Cumulative First Preference shares of £1 each and the
5.0% Cumulative Second Preference shares of £1 each.
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 advisers.
The price can be obtained on the Company’s website: www.morganadvancedmaterials.com
GB0006027295
I4K14LL95N2PHDL7EG85
MGAM
Share price
ISIN Code
LEI
Ticker symbol
171
Financial statementsMorgan Advanced Materials | Annual Report 2020 Shareholder information
COMPANY DETAILS
Company name change
Registered office
Website
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).
York House, Sheet Street, Windsor, SL4 1DD
Registered in England and Wales No. 286773
Telephone: +44 (0)1753 837000
www.morganadvancedmaterials.com
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 EHS reports are also available
to view and download.
Company registrars
Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
Telephone: +44 (0)371 384 2412
Website: www.shareview.co.uk
Lines are open between 8.30am and 5.30pm, Monday to Friday (excluding UK public holidays).
Shareholders with queries relating to their shareholding should contact Equiniti directly. Alternatively,
shareholders may find the Investors section of our website useful for general enquiries.
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.
You can choose to receive your dividend in a number of ways. Dividends will automatically be paid to
you by cheque 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 direct 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.
If a shareholder receives two or more sets of AGM documents, 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.
Equiniti offer a service to buy and sell shares in UK listed companies. For more information, visit
www.shareview.co.uk or call 03456 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.
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.
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.
Shareview portfolio
www.shareview.co.uk
Dividend payments
Multiple accounts on the
shareholder register
Buying and selling shares
Donate your shares to charity
Unsolicited telephone calls and mail
172
Morgan Advanced Materials | Annual Report 2020 www.morganadvancedmaterials.com
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