Morgan Advanced Materials Aktie

Hello, everyone, and thank you for joining the Morgan Advanced Materials Full Year Results 2025 Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to Damien Caby, Chief Executive Officer, to begin. Please go ahead.

Thank you, Lucy. Good morning, everyone. I'm Damien Caby, the Chief Executive of Morgan Advanced Materials, and today with me is Richard Armitage, our CFO. I'll kick off today with a summary of our full year results at group level. Richard will then take you through the financial positions and the technical guidance. And I will come back to share progress against the strategy that we unveiled in December last year and our outlook for 2026 before I'll be moving on to Q&A.

So in 2025, we delivered a resilient performance in the backdrop of challenging market conditions. We're executing our strategy, making headway in [ our levers ], and we're well on track to deliver early wins in 2026. We're focused on maximizing our portfolio value with the sale of MMS and the initiation of a strategic review of our Thermal Products division.

Our outlook for 2026 is in line with current market expectations. We're expecting organic constant currency revenue growth of 1% to 2% in end markets, which have broadly stabilized. The 3.3% OCC decline of our revenue last year was driven by the well-publicized downturn of the semiconductor market. In 2025, revenues in this market remained stable at low level.

In the other segments, changes in our sales offset each other. We continue to deliver strong growth in Aerospace and Defense, driven by new engine and MRO orders. Healthcare revenue declined year-on-year due to tariff-related inventory adjustments and lower volumes in some of our customers' mature product lines.

In the process and metal industries, we saw mid-single-digit declines in Europe and in Asia. Petrochemicals and Chemicals held their ground with growth in North America, offsetting declines in Europe. As you can see on the chart to the right, through the past 18 months, group OCC revenue has been stable.

Despite the end market environment, we delivered a resilient headline margin at 9.6%, in line with expectations. The continued positive contributions of pricing and efficiency improvements, the benefits of our simplification program and cost control offset the majority of the impact of volume and mix. Our results announcement released earlier today provides our views on the outlook for 2026. I will come back to that at the end of the presentation.

I'll now hand over to Richard.

Thank you, Damien, and good morning, everyone. I would like to start with an overview of the financial results for the year to the 31st of December 2025. As expected, headline revenue was GBP 1,030 million, reflecting a 3.3% drop on an organic constant currency basis. Following a decline of GBP 5.3% in the first half, revenue in the second half was broadly flat year-on-year, which points to a degree of stabilization in a number of our end markets, allowing for pricing of around 3.5% for the year, the volume decline in the year was around 6.7%.

It is worth noting also that the 3.3% revenue decline equates to the decline in semiconductor revenue of around GBP 33 million, demonstrating the resilience and stability of the rest of the business. Group headline adjusted operating profit, which includes GBP 5.3 million of MMS operating profit predisposal, was GBP 99.1 million, a reduction of GBP 29.3 million, giving an adjusted operating margin of 9.6%. Return on invested capital was 14.1% slightly below our through-cycle range but still delivering an attractive return.

Headline free cash flow was an inflow of GBP 45.4 million, which shows an improvement over last year as we continue to improve our working capital. Adjusted EPS was 15.9p per share, and we have held the total dividend for the year flat at 12.2p. Specific adjusting items amounted to GBP 47.6 million for the year on a continuing basis.

Turning to look at the reporting segments in more detail. We can see that the principal driver of performance carbon revenue was the year-on-year decline in semiconductor, albeit that semiconductor revenue stabilized during the year with the second half broadly flat half-on-half. Aside from semiconductors, the business has shown good stability through the downturn. Aerospace and Defense was slightly down year-on-year due to the timing of some large defense orders, whilst our rail and energy businesses continue to perform well.

On a sequential basis, the decline through to the first half of 2025 and subsequent stabilization is also visible. The impact on operating margin of low volume and a weaker mix was partially mitigated by substantial efficiency and simplification benefits, which limited the margin decline to around 2.6%.

Technical Ceramics has shown very good resilience over the last 2 years and was able to achieve revenue growth during 2025. The main driver has been aerospace and defense with growth of 22% in that sector, driven by the demand for new aircraft, along with robust maintenance revenue, driven by increased fleet utilization.

Technical Ceramics Industrial business also showed low single-digit growth despite the industrial downturn, helped by its focus on a differentiated product range and customer service. Partly offsetting this were health care, which was affected by lower volumes for some mature product lines and semiconductor, which followed the market downturn. Operating margin also remained stable at 11.5%, with a slightly weaker mix being offset by efficiency improvements.

Thermal Products performance was influenced by regional economic dynamics, as you can see here. Europe showed the most marked decline due to lower investments in process industries, whilst weak demand in metals and automotive impacted the business globally. However, we can see from the sequential graph that most of this decline was between the first and second halves of 2024 with revenue having been broadly stable since then.

In the strategic growth area of fire protection, double-digit growth was achieved with strong demand from the Middle East. The principal driver of the 3.3 percentage point decline in margin was volume, given that Thermal Products is a high fixed cost business with a roughly 40% drop-through on revenue movements. We also experienced operational issues in our U.S. business, which negatively impacted margin by 1 percentage point, then FX and hyperinflation accounting in Argentina causing a further 1 percentage point decline.

We would note that we would expect a strong drop-through in thermal reversing this volume effect as markets recover. We're also pressing ahead with a substantial site improvement plan that will benefit the U.S. business.

Turning now to the profit bridge. We can firstly see a negative FX impacts arising from the progressive weakening of the U.S. dollar versus sterling, with total FX reducing margin by 40 basis points. The average U.S. dollar rate was $1.32 in 2025 compared with $1.28 in the prior year. The principal impact on margin, though, was volume and mix, which led to a 4.4 percentage point reduction. This was caused by the volume decline and associated overhead under recovery combined with the mix effect of semiconductor sales being weaker than expected.

We were able partly to offset this with 1.7 percentage points of margin derived from another year of consistent delivery from our simplification and continuous improvement programs. We expect this performance to continue in 2026 and also to benefit from our transform activities with net benefits of circa GBP 11 million expected this year. Pricing of around 3.5% served to offset inflation of around 5% on cost of goods sold.

Our simplification program is nearing completion, GBP 16 million of in-year benefits delivered in 2025 as planned. And it is worth remembering that the work we have done to reduce our manufacturing cost base over the last 3 years, coupled with our planned optimization opportunities, has given us the opportunity to accelerate margin improvement via a healthy drop-through as end markets recover.

We incurred significant specific adjusting items at GBP 47.6 million. The largest item was a noncash impairment of GBP 15.6 million in relation to our semiconductor assets in the U.K. This is part of the previously announced GBP 60 million capacity investment and represents equipment that is devoted to specific product raise for which demand is currently uncertain.

Costs associated with our business simplification program amounted to GBP 13.4 million. Implementation costs to date amount to GBP 35 million, for which we have delivered benefits of GBP 24 million. Once complete, we expect total cumulative savings of GBP 27 million for implementation costs of GBP 40 million, which is in line with our original projection when the program started in 2023. Absent any material adverse developments in our external environment or portfolio changes, this will conclude our restructuring activities for the time being.

Expenditure on our ERP rollout plan has progressed as planned with GBP 13.3 million incurred on design and configuration in the period. We expect to incur around GBP 20 million in 2026 before the program starts to wind down during 2027. We have also recorded a movement in the fair value of our shares in Foseco India Ltd as at the 31st of December of GBP 7.2 million, which values our holding at GBP 47 million. However, the business has recently released a strong set of results for 2025. And if our holding were valued today, it would be approximately GBP 54 million.

Moving on to cash flow. I would firstly note our working capital, which showed a much improved performance over prior year with an inflow of GBP 50.4 million. This comprised an underlying improvement of circa GBP 13 million, resulting from a strong focus on inventory and receivables management, supported by a further GBP 38 million of nonrecourse working capital arrangements.

Net capital expenditure amounted to GBP 65.9 million, lower than the prior year as our investment in semiconductor capacity came to an end. Cash flows relating to exceptional items totaled GBP 22.8 million, comprising simplification costs of GBP 10 million and investments in our ERP rollout of GBP 13 million.

Free cash flow was therefore an inflow of GBP 45 million. We did receive a net GBP 10 million after tax and fees from our sale of MMS with the balance of consideration due to be received later in 2026. We completed the second tranche of our share buyback and as previously announced, paused the program in early January. Net debt finished at GBP 232 million, excluding lease liabilities, in line with our expectations and representing 1.8x EBITDA.

As a reminder of our capital allocation policy, we are fully aware that the decline in our EBITDA has resulted in our leverage moving above our target range of 1 to 1.5x. We're focused on correcting that, and we'll bring leverage to around 1.5x over the next 2 years. Our target leverage, therefore, remains in the 1 to 1.5x range in relation to ongoing operations. And as before, we would consider increasing this in due course into the 1.5x to 2x range in the event of a compelling acquisition.

Whilst capital investment remains a priority to support organic growth opportunities, we foresee limited needs for capacity investment and expect to be able to maintain overall CapEx at around GBP 50 million or 1.2x depreciation for the next 3 years. We will maintain a dividend for now, then grow it in line with adjusted earnings once cover returns to around 2.5x.

Once stabilized, we will consider the need to fund inorganic investment alongside additional returns to shareholders. The Board will review the situation regularly, recognizing the opportunity that additional returns present to return cash to shareholders and enhance earnings.

Finally, I will move on to technical guidance. As noted, we expect capital expenditure of around GBP 50 million. Our net finance charge will be around GBP 24 million, increasing in part due to the expiry of GBP 94 million of fixed debt during the year on which we have been paying an average interest rate of 3%.

Our effective tax rate will increase slightly into the 27% to 29% range due to our mix of profitability shifting slightly towards higher taxation regimes. I would also note that so far, the direct impact of tariffs has been immaterial, although we continue to note the potential for an indirect impact on end market demand. We would expect year-end leverage to be around 1.7x.

Thank you. And I would now like to hand back to Damien.

Thanks, Richard. I'd like now to shift the focus towards the future. I'll start by reminding you of our path forward as a group. We have a clear strategy to unlock our potential. It is founded on 3 levers: transforming operational effectiveness, driving stronger growth and maximizing portfolio value.

In transforming operational effectiveness, we moved beyond continuous improvements by addressing underperforming large sites to reduce cost and enable growth, by leveraging the group's scale for back-office efficiency, and by enhancing business analytics for faster, better informed decision. To drive stronger growth, we pursue more proactive programmatic customer collaborations and expansions in selected markets, focusing where we have the strongest right to win and continually improving it.

To maximize our portfolio value, we are shaping our portfolio to focus on the markets and on the applications where we have or established advantaged and integrated positions. Our goal is to ensure that our resources are focused where we can create the greatest study. One avenue to achieve this is to set up partnerships along attractive value chains where we want to increase our competitive strength. Another avenue which we're pursuing is to actively manage our portfolio of businesses with bolt-on, M&A and divestments where we're not the best owner.

In the near term, our road map will achieve 12% EBITDA margin by 2028. This will be largely driven by the first 2 pillars of the strategy, transforming operational effectiveness and driving stronger growth. We have also initiated the actions which will bring margins further up in the medium term, reinforcing collaborations with key customers, building up and progressing our pipeline of organic and inorganic adjacencies.

Our teams are focused on executing our road map and moving at pace. This chart summarizes the key progress milestones of the past 3 months and some of the next steps. Starting with Transform. In procurement, Michael has to join us on February 1, reporting to me. He brings a strong experience of setting up and leading procurement organizations in specialty industrial companies. He will establish group-led procurement at Morgan, deliver early wins in selected categories during the second half of this year.

Turning our large underperforming sites. In the second part of 2025, we consolidated ceramic fiber manufacturing in the U.S. into one site. Rationalization of our make-to-stock product portfolio is 70% complete. The commercial cross-qualification of our manufacturing lines has started with the objective to further optimize asset utilization in the course of next year and to achieve productivity improvements.

The planning for the other large sites is progressing well, and the implementation will start in Q2 at the second site. We are confident that the procurement and site turnaround initiatives will deliver at least GBP 20 million of margin improvements by 2028.

In back office, since December, we've expanded the scope of our European shared service center to include finance back office activity for our U.K. sites. And in digitalization, our new enterprise-wide ERP was implemented at a pilot site last year, and we are ready to start full deployment this spring in successive waves across our businesses. This will be carried out in a sequence designed to quickly improve costs and margin management and to optimize product flows and working capital across our network.

Turning to driving growth. Dedicated teams have been set to drive stronger growth in selected markets and are acting at pace. I will report on their progress in future earnings calls. I am pleased to see early benefits from initiatives launched in 2025 with projects in low-carbon steel making and improvements in on-time delivery at sites manufacturing replacement parts.

We have decided to deploy capital in selected high-growth areas. These are bite-size customer-backed capacity increases. We're expanding our armor capacity to scale up our supply backed by government contracts. We're increasing capacity for parts used in iron implantation in semiconductor fabrication to support the increasing demand and localization strategy of existing customers.

To maximize our portfolio value, we're pursuing partnerships along our strategic value chains. An early achievement is in fire protection in the Middle East, where we've been teaming up with local duct manufacturers. We have worked with a number of them to design, qualify and certify their fireproof smoked extraction ducts with our fire wrap system to meet more stringent fire ratings, and our revenue has increased by 60% in 2025.

Last but not least, we're announcing today that we have commenced a strategic review of our Thermal Products division. At our Capital Markets event in December, I laid out our clear path for this division to deliver GDP growth and sustain 8% to 10% margins. It consists of the optimization of asset utilization, the turnaround of the performance of the largest side, growth in high-value segments.

The execution of this plan is progressing at pace. A review we're announcing today will assess a full range of options, including a potential disposal to maximize the group's margin and growth profile, and to ensure that our resources are deployed where they can deliver the strongest long-term returns. Further updates will be provided in due course.

Looking forward, our outlook for 2026 is unchanged. With stabilizing end markets, we expected organic constant currency revenue to grow at 1% to 2%. We're seeing continued growth in aviation and defense and positive trends in power and rail. We're seeing slightly improving project activity in petrochemicals and in the processing industries, but continued weakness in Europe, in health care, and in semiconductor sales, where we are benefiting from the rebound in silicon, which starts to offset continuing inventory adjustments in silicon carbide.

Supported by our established track record of efficiency improvements, which contributed 1.7 points in 2025 and the first results of our operational transformation initiatives, adjusted operating profit margin will return to around 10%. Leverage will start to return to our target range. As you can see, we're moving at pace on all our strategic levers, and we remain confident in our financial framework.

Thank you. That ends our formal presentation, and we will now take questions. I will hand back to the operator to coordinate that.

[Operator Instructions] The first question today is from Scott Cagehin of Investec.

Just a few questions for me. First one being, Richard, on working capital, how do you see that playing out through '26 based on your revenue guidance?

The second question is about thermal products, sort of why announce now, given the strategy update was in December. It was sort of obvious that it's lower growth, lower margins, but has that been a catalyst for you to announce that now? Or is it just a case of freeing you up to do something with it? And then the last question is regarding the Foseco stake that you have. I think I remember you tied up to the end of the half year, and I assume you plan to dispose of that holding. Is that the case?

Scott, firstly, on working capital assume flat year-on-year for this year, I think. Secondly on Foseco, we have a lockout period until towards the end of June. We do then intend to sell down our holding over a period of time. That will depend on market conditions, and we are preparing actively a plan to help us do that. I'll ask Damien to comment on the thermal question.

Yes. Thanks, Scott. So as far as the timing of this announcement. So if you remember, in December, we announced that we were going to take a proactive approach to our portfolio, and we laid out a clear plan for thermal. Thermal is delivering on this plan at pace. We've been, in the meantime, very proactive and very -- and moving at pace on making the first steps of assessment of this strategic review. And we've reached the point now given the complexity of this business that it is time to move forward to the next phase. So it's really the result of us following up on our commitment in December and moving at pace. Richard?

Just a quick follow-on. Is that business disposable though? Like is it -- have you separated it clearly? Can you dispose of it? Or is there some work to do there?

Thanks, Scott. We've done some preliminary assessment. We believe if the decision were made to dispose of the business that it is relatively separable, but there is still a considerable amount of investigation to do.

The next question comes from Jonathan Hurn of Barclays.

Just a couple of questions from me, please. Firstly was just on the semiconductor market. I wonder if you could talk a little bit more about that and obviously, the 2 sides of that business. Just maybe firstly just on the silicon side, what kind of sort of rates of growth are you seeing in that business? And what's the opportunity to get further penetration of customers there? And on the silicon carbide, is it still your view that, that market starts to pick up in 2027? That was the first one.

The second one was just sort of following on Scott, in terms of thermal products, like you say, you've done work on it. But can you give us any color on what you think the potential tax leakage of any sale could be? And also, if you do sell it, is there any sort of impact on the wider pension?

Thanks, Jonathan. So I'll start with the semi-silicon over Semicon question and Richard could pick up the second question. So we're definitely seeing a strong rebound in silicon semiconductor, which by now represents approximately, I mean, more than half of our semiconductor business. I mean, the industry is reporting 20% growth rate. The growth rate that we are seeing with our products is lower than this because part of the growth in the market is tied to a mix improvement in the quality of the wafers. And for us, it doesn't make a big difference.

So we're seeing this. We are well placed with customers who are used to buy our products along the manufacturing chain of this. And depending on their inventory positions and their own demand, we're seeing the rebound in this part of the market. As far as silicon carbide is concerned in 2027. I'd say that this is still a very dynamic market in -- especially in the main regions where we're supplying, which are Europe and the United States.

So -- we have -- as Richard mentioned, we've seen some stabilization last year. We're managing this and staying attuned to the market. And as I said as well in the capital market event, looking for ways to expand our position via partnerships in China where this market is really moving big time, at least the early part of the value chain.

Jonathan, regarding potential tax leakage, we have made an estimate, albeit we would like to do more work on it. It points to a number that's fairly middle of the range in the scheme of these things. It is not a number that we think would prevent the sale, if it were to progress being value accretive.

Impact on pension, there is a limited connection between the business and the U.K. pension fund, so not a particularly high exposure. We are going through a process of consultation with the relevant pension funds and other stakeholders as we're required to do.

The next question comes from Harry Philips of Peel Hunt.

Several questions, please. Just trying to get some thoughts around the broader semicon sort of profile in terms of where this year profitability might go in terms of you've written down, obviously, part of the asset. I was just wondering when you -- when you consider this GBP 7 million sort of headwind that you potentially had, how that might reduce on the write-down? And obviously, if you don't commission everything fully, then clearly, just wondering how that sort of profile plays out in '26 and '27?

Similarly, just in terms of the sort of time line, if you like, for the transform process and the timing of those cost savings? And then maybe accompanying that along with the ERP, the sort of restructuring cash you might incur this year? And then very finally, just noticed in the working capital comment, the use of sort of factoring and what have you. Just wondering thoughts behind that? And when you talk about working capital being neutral in the current year, does that assume sort of the factoring is a sort of one-off move in the year just gone? Or is that sort of more actively being pursued, please?

Harry, 4 questions in 1 there. Very good. Thank you. So Semicon, I understand the question. So as Damien has alluded to, the supply chain into what you might call the traditional Semicon market primarily for silicon chips has picked up a little. We are expecting a little bit of an uptick of that during the year. And right now, we would anticipate probably commissioning the remaining assets in our program towards or around the end of the year.

So I'm not going to be specific around what that commissioning costs will be, but it's not GBP 7 million is probably the order of GBP 1 million or GBP 2 million, something like that towards the end of the year. You mentioned ERP and restructuring. So ERP of around GBP 20 million, restructuring a little bit based dependent on timing, but sort of GBP 2 million to GBP 4 million, something like that. So in that range of GBP 22 million to GBP 24 million for the year, I think.

Working capital. So underlying, we would expect to be roughly flat across the year and the factoring balance also to be relatively stable. Now each of those could move by a few million pounds, but broadly neutral. The thinking behind the factoring was that we set out some time ago to establish a number of flexible financing facilities.

So as you know, we have some fixed debt maturing this year. Interest rates are still relatively high. So we wanted flexibility in our financing, and actually, this working capital financing is attractive in terms of pricing. So typically, at a sort of all-in interest rate of 4.5% to 5%, whereas to replace fixed debt at the moment, it could well be above 5.5%. So that was the thinking behind that.

Fantastic. And then just to sort of transform potential benefits to get to that GBP 20 million by '28?

Yes, we're moving at space on this, Harry. So we're going to start to see some benefits in the second half related to procurement and the ramp-up will continue through 2027. We're very confident that we will get to the GBP 20 million by 2028.

[Operator Instructions] The next question comes from Andrew Douglas of Jefferies.

Just a quick one for me following on from Harry's questions. Can you just talk to me about ERP costs post '26, you say that there's a ramp down in '27. Can you just give us a rough indication of what '27 does? And is it fair to assume that there's nothing in '28? Or is it a slow steady measured decline?

The answer for 2027 depends a little bit on the speed of our rollout. So I might write this minute expect GBP 20-ish million to be coming down to maybe GBP 15 million or something like that, but we'll have to come back in due course. 2028 would, if anything, be a tail end few million pounds, I suspect.

The next question comes from Mark Fielding of RBC.

Just a couple of follow-ups to the earlier comments. In terms of the thermal products review. Just can you give us a bit more thoughts around the time line for the next update and what we would be expecting of that? It feels like you've obviously thought about disposal option, but it's relatively early in that planning process. So is it --- is the next update more going to be a fix like this is what we think we're probably going to do? Or could we be further advanced at that point?

And then secondly, in terms of the wider portfolio, obviously, this is a big chunk of the portfolio following out from the Molten Metal Systems. Is that the end of the portfolio streamlining? Or is there more that you are thinking about and reviewing in the business?

Okay. Mark, thank you. Regarding the time line, so as you've noticed, there's been a real concrete rigorous work done before we made this announcement. The thermal business is a complex business. There is 30 subsidiaries. There is a number of JVs. This is the step that we are moving into now is a complex and an important step. As you've seen, we're really moving at pace. On the other hand, we have to remain rigorous and focused. So we'll provide an update in due time.

As far as the wider portfolio is concerned, we will continue to review how to maximize our portfolio value moving forward. As you can imagine, this strategic review is going to be an important effort for us to carry out in the short term.

The next question is from Harry Philips of Peel Hunt.

Sorry to come back again. But just sort of tidying up on various bits and pieces and sort of slightly in keeping with Mark was just saying about possible disposal. But obviously, the central cost line has gone up to GBP 10 million. Is that a sensible number? Is that a sort of annualized number we should run with going forward?

And then clearly, that's quite a step-up from where it was pre the exit of MMS. I'm just thinking about if thermal goes, is that sort of a point in time when -- if it goes rather, there's a sort of material change to that central cost line?

Thanks, Harry. Yes, it's a good question. The increase is driven by IT. And I suppose you could describe it that we're going through a hunt in which the underlying running costs of our new ERP system and other things that we're investing in, bearing in mind that the transform program that we defined in December includes trying to make rapid progress in making use of digital tools, creates a sort of hump in expenditure for a couple of years.

There comes a point where we can then start to remove some of the legacy costs of IT in the business and perhaps that comes down. So I think that's the best way to do it. I'm not going to say what it's going to come down to, but we're going through that period of one, replacing the IP, but also investing heavily in digital tools to help us transform the business. As to what happens should the disposal of thermal go ahead, that's part of what we will investigate in the next phase of work.

Okay. And then just to be -- so for sort of modeling purposes, just running a 10, 11, is that just a sensible assumption or just might it -- given the level of activity you've highlighted through the presentation, might it spike up a fraction this year? I suppose what I'm trying to get at it is the guidance is, as you've laid out, what's sort of central cost line assumption within that?

We wouldn't expect a further increase.

[Operator Instructions] We have no further questions at this time. So I'd like to hand back to Damien for closing remarks.

Thank you. So key messages for today, resilient performance in the backdrop of challenging market conditions, outlook for a revenue growth of 1% and 2% in end markets, which have stabilized. And we're executing our strategy at pace. We're making headway in all the levers and focusing on maximizing our portfolio value with the sale of MMS and the initiation of a strategic review for Thermal Products division. Thank you very much for attending this call, and good rest of your day.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.

Welcome to the Morgan Advanced Materials Strategy Update. My name is Ian Marchant, I'm the Chair, and I'm just literally going to set the scene before I hand over to Damien, our Chief Executive; and Richard, our CFO, who I'm sure you all know. So I believe that we at Morgan have the potential to be a leading force in our chosen markets, and that's within reach. Why do I believe that? Because we've got the capabilities and clear differentiators that have been laid over the last century.

It's not many companies that can look back over that length of time. And they form our strong foundations. I do recognize that the last few years has not been an easy time for the company, but we're going to set out today a clear multiyear strategy to improve operations focusing on our larger sites, improve asset utilization, drive stronger, higher-margin growth and actively manage the value of our portfolio.

And the strategy will be able to enable us to unlock our potential and be a leading force in the markets in which we operate. So I'm confident in our prospects that we've got the right team to help us deliver. But actually, you don't want to hear from me, you want to hear from them. So welcome, and over to you, Damien.

So thank you, Ian, and thank you, everybody, for taking the time in being here today. It's a pleasure to have you. Everything I'm going to be talking about today is about becoming the leading force in our chosen markets. And I'm really excited to share with you our strategy on how to get there. After that, Richard will be covering the financials. We'll have some time for Q&A, and I hope some of you stay with us for informal discussions over drinks.

So there are 4 points that I would like you to take away today. We're setting a clear path to achieve 12% margins by 2028. We're focusing on our right to win to drive above GDP growth at higher margins. We're executing distinctive strategic mandates for each of our divisions, and we're maximizing portfolio value to sustain 12% to 14% margins further out. Many of you are familiar with Morgan, so my introduction will be short about the company. And I won't start with products and markets. We felt it would be good to start with our impact.

[Presentation]

So I hope that gives you an inspiring view on how we impact the world and how we're uniquely positioned to power progress that truly matters. And we're passionate about it. So clearly, this is a fantastic business, and we will make it even better. But before I explain how we do that, I'll just give you a quick snapshot of where we are today.

So we're the global leader in advanced materials with a turnover of GBP 1 billion, a global network of 57 plants and approximately 8,000 employees. Our core capabilities for which we're well known and sought after are material science, deep application expertise and co-design and manufacturing excellence. Our customers trust us for supplying mission-critical solutions.

At the core of our activity, there are technology demanding applications of advanced ceramics, graphite and carbon. These are very versatile materials. So we formulate and we process them to tune their porosity, their hardness, their electrical conductivity, their thermal and their chemical resistance, their mechanical strength and many other physical properties.

And that leads us to supply around 3,000 combinations of minerals and applications. So as you can imagine, in a business like this, agility and customer intimacy are critical factors. And this is why our 3 divisions are the backbone of our operating model. They're set up to have short operational decision-making processes and to be in close proximity with our markets and with our customers.

This organization also drives agility and it drives performance. The divisions have full accountability for their P&L. Let me now bring to life what we do and how we differentiate with 3 examples. Take the first example in aircraft engines, where we turn graphite and carbon into safety critical seals which have to adhere to strict aerospace standards. The simple thing -- seals, they look simple, but they're not. There is a lot of material science and process know-how that goes into them from raw material selection to mixing, pressing, heat treatment, testing and inspection.

Second example is in health care diagnostics. Here, our differentiation is our ability to manufacture specialized ceramics metals assemblies to operate in high voltage and high vacuum environments. The quality of these assemblies is the critical piece to the performance and the precision of the imaging systems. The last example, I'll take a recent innovation in automotive. For combustion engines, when the new European regulations were announced, there was no ceramic fiber available in the market that was able to comply with the new limits.

So within 24 months, we developed a new ceramic material to solve this problem, and we were able to crack this in time for our customers. That's because we have the material science, the rapid prototyping and the capability to test according to the industry standards. So all these 3 examples show how our closeness to our customers, our technology expertise and our ability to solve problems create value for our customers.

And these collaborations create loyalty and trust for years, sometimes for decades. Another strength is that we are diversified across end markets and applications. So today, I'm sharing this breakdown of our business by market. It's a different chart to the one that you've seen before. And my intention here is to provide more clarity taking on board your feedback.

And I'll refer to it in this presentation later when I'll comment on executing our strategic priorities for each of the divisions. A few things to note on this chart. Approximately 40% of our business is exposed to manufacturing investment cycles. That means that during market recovery, we grow faster than GDP.

Conversely, during recession, our growth is more subdued. It's also important to understand that within these markets, there are a range of end market dynamics. If I take the example of industrial components, you have parts for water purification. You have parts for automotive, like I just mentioned.

You have parts for analytical equipment. And each of these have their own market dynamics, and that contributes to our resilience. Now in addition, this diversity of end markets opens a lot of opportunities to grow. So I've talked to you about who we are, how we create value with technology and about our diverse end markets.

You've seen how these key capabilities come into play to create value with the examples and how our market position are underpinned by strong and clear differentiators. I've been with the business 3 years now. And since my appointment as CEO, I've had time with all our senior leadership and our broader teams. And I've been so impressed by our winning culture.

We thrive when it comes to solving tough problems. We embrace challenges, and we are resilient and united as a team. So what has held us back? There is a clear and consistent thread to where we're limiting our own progress. Our supply chains are not sufficiently effective, and they are not efficient enough either.

This hold backs our service levels, constrains our growth, leaves margin on the table and above all, it distracts us from executing. We've positioned ourselves in growth markets, but we have not been sufficiently disciplined and proactive in leveraging our right to win. And we have not been sufficiently upgrading our position in the value chain to grow irrespective of market cycles.

It is my priority together with the executive team and our senior leaders to address these areas and unlock our potential. We can be the leading force in our chosen markets. A successful growth agenda starts with how we can unlock our customers' ambitions and serve their needs.

I had the privilege of meeting several of them, and we've also been listening to their feedback, looking at their feedback. We asked 300 of them what they thought of us and the message was consistent. Our product quality and reliability are excellent. In many cases, they are unsurpassed. However, there is a real opportunity to improve both our lead times and our delivery performance in these areas we're not best-in-class.

Our customers expect better from us. We can and we will do this. As you can see to the right of the chart, the customers we survey also want a more strategic relationship with us. We have the strategic relationship with half of them already, but we have many more opportunities to build more collaborative relationships.

Soin summary, our customers are telling us 2 things: Step up your game in delivery performance and move toward a more extensive, higher-value collaboration. You don't have to take my word for it. Actually, we invite you to take a moment to hear from one of our customers, John Crane. We asked Mike Eisen, their CTO, about his experience of working with us. Let's see what he has to say.

[Presentation]

So what is the way forward for Morgan and how do we unlock our potential? Our strategy is simple, and we have 3 clear levers. First, we want to transform our operational effectiveness. We have a well-established and successful practice of continuous improvement. It has delivered at least GBP 10 million per year of manufacturing efficiency savings. We will now go beyond this. We'll be more holistic, and we will leverage our group scale to transform our operation effectiveness. And we will address the performance of a few large underperforming sites.

These actions will improve our costs, and they will help us grow. But to really drive stronger growth, which is our second lever, we need to be more proactive and programmatic in strategic collaborations with our customers and other stakeholders in the value chain in order to expand our value proposition. And we need to focus our efforts where we have the strongest right to win and consistently upgrade this right to win so that we can grow irrespective of market conditions.

Our third lever is to maximize our portfolio's value. We've carried out a thorough review of our products and applications with a focus on assessing the market attractiveness and the strength of our right to win. We will actively manage our portfolio and pursue bolt-on M&A to support and accelerate a step change in market position where there is a clear opportunity or where we determine that we're not the best owner for the business, we'll seek to divest.

So let's now look at these levers in detail, and I'll start with operational effectiveness. This is all about making more of the group's scale and of its digital transformation. There is a significant opportunity in procurement, which is currently the responsibility of individual sites or business units. In the past few months, we've collected and consolidated data at group level, and we have determined where to focus our efforts. We've also implemented information systems to provide real-time consolidated insights about our spend.

We can now deploy group-led category management. Initially, we will target GBP 170 million of indirect procurement spend. This will deliver significant savings and reinforce the reliability and the efficiency of our supply chain. We're also implementing transformation plans for underperforming larger sites that represents around 20% of the group revenue.

These are structured, comprehensive multiyear programs. They focus on the optimization of the production cycles, the simplification of the asset base and of the product lines. Together, these actions, which are in addition to our existing programs of continuous improvement, will deliver EUR 20 million margin improvement by 2028. We're also investing in the digital transformation of our back office. All administrative activities will be done through standardized processes to ensure consistent service reliability at the optimal cost.

We've already implemented change in selected countries in accounting and in payroll. The pace will accelerate with the deployment of our centralized ERP system. This transformation will enhance our business analytics. Our decisions will be better informed. Margin improvement opportunities will be identified faster, and we will be more agile. I want to be clear, these are not simply cost improvement projects. They support and they enable growth. They make our business more scalable, and they allow us to leverage that scale.

So let's talk now about how we're going to drive stronger growth. Here, it's about leveraging our right to win and constantly upgrading our position in the value chain. We're doing this already, and that's why we know that it works and that it creates value. Our strategy is to do this in a proactive and programmatic way. I'll give you 3 examples. The first is where we can develop the scope of our supply from a single component to a multifunctional subsystem.

Imagine the rail system in North America in winter. You have arctic temperatures, freezing pantographs. If you're the operator, you don't want electric current to be passing through ice. So what you typically do is you purchase a heating system from a specialist engineering company and you bolt it on to the pantograph. We developed a heating system to be integrated into the collector strip for one of our customers, RTD-Denver.

Now the collector has become a higher-value subsystem. It simplifies sourcing and maintenance activities. We've sold it to other operators, and we are developing similar system upgrades for other customers. The second example is our ability to co-develop a technology that enables game-changing advancements of the end product. We're doing that -- we've been doing that in aerospace, where we developed a new process and material solution that allows our customers who are the engine manufacturers, they are specialized casting house to generate complex cooling channels in the turbine blades and veins of a modern jet engine.

These more effective cooling channels are a critical enabler of the higher fuel efficiency of new generation engines like GE's GenX Series, Safran's LEAP engine and Pratt & Whitney's geared turbofan family. A third example is where we established a right to win via structural partnership along the value chain.

We're seeing that in fire protection in the UAE, where the enforcement of a more stringent building fire regulation has created a compelling value for our ceramic fiber technology. We can't sell this ourselves. We don't have the network. So we're joining forces developing, marketing and scaling up this a new compliant DUC system with leading fabricators who are local, well established and operating at scale with building companies, engineering houses, architects.

These are just 3 examples of how we're strengthening strategic relationships to drive stronger growth. We're now being more proactive and more programmatic on these opportunities. Here is how we've decided on our focus as we do this. As I said, we've carried out a thorough review of our products and applications with a focus on establishing the market attractiveness and the strength of our right to win. This systematic approach is new to Morgan and is already driving decisions in our business.

We determined that our crucible business was in an end market that was relatively less attractive to us and that there was not enough potential for us to enhance its right to win. We sold the business. In Semicon, we're making a clear distinction between material growth and wafer fabrication, which are 2 different parts of the value chain with very different dynamics. For material growth, although there is a large and growing market, especially in silicon carbide, the supply chain is experiencing a shift to China.

We remain committed when the market returns to supply our customers in the U.S. and Europe. The highest purity products, which we provide them are critical to the differentiation of their materials, but we have adjusted our growth expectations, and we are redeploying some of the new capacity to other markets. We're focusing on the wafer fabrication part of the value chain. It is dominated by American, European and Japanese OEMs and the barriers to entry are high.

We're supplying most of them, ASML, Applied Materials, [indiscernible] Lam in various parts of their process. Our goal is to deepen our collaboration, working as one enterprise and expand the scope of our supply. You will see other examples of these portfolio choices I come on to talk about our divisional priorities.

So let me recap shortly on our 3 strategic levers. We're taking transformational steps in operational effectiveness by leveraging our scale in supply chain and back office and by focusing on fixing a few large underperforming sites. We will rely less on the underlying growth of our markets. Instead, we will drive margin-enhancing growth through a much stronger alignment with our key customers and channel partners.

We're shaping our right to win and optimizing our position in the value chain to maximize our portfolio value. What I want to do now is to provide some color on the implication of this strategy and its practical implementation for each of our 3 operating divisions.

I'll start with Thermal Products. In Thermal Products, the majority of sales are in process industries, which are mature, more competitive cyclical markets and currently at a trough. We set the benchmark in these markets in installation standards, and we benefit from a large installed base. So the objective for this cash-generative division is to optimize cost, enhance delivery performance and expand in high-value segments.

In transforming operational effectiveness, Thermal Products already has a strong track record in deploying the best manufacturing practices across its global network. An additional focus now is on asset utilization, which is targeted to improve significantly already in 2026. We also have a phased program in progress to turn around the performance at our largest site, where we expect progressive improvements in revenue and margins to continue over the coming 3 years.

To drive stronger growth, we're reinforcing our outreach in the process industries to enable the decarbonization of steel and chemical processes. For example, we've been selected by one of the largest petrochemical plants in North America to supply insulation for the construction of their low-carbon plant.

To maximize value, we have set up structural partnerships in fire protection. This is a very large market, and we're targeting the geographies and the applications where the value proposition is compelling. The mandate for Thermal products is to deliver GDP growth and sustained 8% to 10% margins. In Performance Carbon, our products are critical to pumps, motors, generators. They are essential components that form the backbone of many industrial systems, and we have a large installed base.

We're also in highly regulated markets such as aviation, rail, defense, and this provides a high barrier to entry. Our leadership position across these markets underpins our high margins. The objective here is to constantly renew our differentiation, extend our leadership in mature markets and expand the addressable market. As part of our transformational program, we're improving our lead times and enhancing our ability to serve the aftermarket.

Our teams are already pushing here. To drive stronger growth, we're capitalizing on our reputation and innovation in armor by expanding to other defense systems. We're adding incremental capacity next year to fulfill multiyear contracts. And as we maximize our portfolio values, industrial seals is a significant opportunity. The supply chain is very fragmented and can be optimized for efficiency.

There are new technology demanding applications driven by the decarbonization and digitalization trends, which call for innovation as we've heard from John Crane. And we're exploring ways to move parts from parts to subsystems as we've done in other markets. Remember the pantograph. The mandate for Performance Carbon overall is to deliver GDP plus growth and sustained 14% to 18% margins.

In Technical Ceramics, we're positioned in large, attractive markets like aerospace, defense and health care, and we hold leadership positions in specific niches that can be leveraged for adjacencies. The objective of this division is to optimize the manufacturing network, bolster our leadership positions and grow our market share.

We're transforming operation effectiveness by rebalancing production among sites and optimizing the capacity and capabilities and costs across the networks. Driving stronger growth starts with extending our leadership position in ceramic cores for engines in the aerospace and defense market. We understand our customers and their customers as well, and we're investing in capacity to meet the progressive ramp-up of aircraft deliveries in the midterm.

In maximizing our portfolio value, we're leveraging our expertise in high-value niches to expand into new adjacencies with priorities in industrials and aerospace. Across our divisions, we see the largest revenue growth potential for technical ceramics. The mandate for this division is to target 12% to 16% margins.

Lastly, I want to give you a sense of the time frame. In the near term, we will benefit from the initiatives, which are entirely in our gift to execute, leveraging the group scale and digitalization for cost and efficiency gains, increasing our market share by improving delivery performance and with additional channel partnerships.

Together with the drop-through from a modest market recovery, we target 12% margins by 2028. Beyond that, we will reach 14% through building on leadership positions to expand into adjacencies, deepening our position in the value chain and portfolio management. This strategy provides us with a clear road map to be the leading force in our chosen markets. We have the right structure, the right team to execute this agenda.

I will now hand over to Richard.

Thank you, Damien. In this part of the presentation, I'm going to convey 4 important messages. We have a clear path to a 12% sustainable operating margin by 2028, driven by our focused strategy and self-help actions. We have a clear capital allocation policy with a near-term focus to invest in the businesses outlined, continue to pay our dividend and to reduce leverage within our stated range of 1 to 1.5x.

We have strong conviction that cash conversion will improve as investment normalizes, providing the opportunity for additional investment and returns in due course. And we have updated our financial framework to reflect the opportunity for value creation as well as the reality of our end markets. In thinking about our margin target, we have taken a cautious approach with regard to end market recovery and are not planning for a recovery until late 2026.

We will, therefore, move into our target margin range predominantly through our own improvement actions, which gives us confidence in our financial framework. Of course, if end markets recover faster, the work we have done to reduce our manufacturing cost base over the last 3 years, coupled with our planned optimization opportunities, gives us the opportunity to accelerate that margin improvement via a healthy drop-through.

Taking the consensus expectation for the second half of 2025 of 9% as the starting point, there are 3 drivers of a return to 12% that deliver in approximately equal proportions and which mainly require us to execute action plans that are in our own control. We will firstly build on our track record of continuous improvement, which has, on average, generated net savings of at least GBP 10 million per annum by delivering more substantial benefits from our transformation of supply chain and procurement.

As you can see from Damien's presentation, we do have a lot to go for. We will also, in this period, start to benefit from our investment in digitalization and back-office transformation. Secondly, having nearly completed our rationalization of manufacturing sites for the time being, we will focus on turnaround plans for a number of sites where performance is suboptimal and where there is the opportunity for margin enhancement once performance has been improved. Thirdly, we do anticipate some benefit of sales growth. This will partly be from an element of market recovery, but Damien has also spoken of the opportunity to grow in focus areas where we have a strong right to win.

So growth in the near term will be as much about good execution as about market recovery. Beyond 2028, operational effectiveness will drive further margin expansion with the benefits of digitalization and back-office transformation accelerating through improved planning, forecasting, customer service and transactional efficiency. Then we expect continued growth in the focus areas that we have described, which will be margin accretive.

Finally, Damien has referred to the growth opportunity from proactively managing our business portfolio. This will involve much more precise capital allocation to accelerate organic growth, along with partnerships and bolt-on M&A. And whereas any time we find we have businesses that don't meet the requirements of our financial framework, we will not hesitate to divest them as we did with MMS.

In terms of margin impact, we anticipate the need for some benefit from this activity to get us to 14%. But given the growth potential and accretive margins in a number of our end markets, there is the potential over time for margin to progress even further.

Moving on to capital allocation. We are fully aware that the decline in our EBITDA, combined with the need to complete our investment in semiconductor capacity, albeit cut back, has resulted in our leverage moving above our target range. We are focused on correcting that, and we'll bring leverage to around 1.5x over the next 2 years.

Our target leverage, therefore, remains in the 1 to 1.5x range in relation to ongoing operations. And as before, we would consider increasing this in due course into the 1.5 to 2x range in the event of a compelling acquisition. Whilst organic capital investment remains a priority in support of organic growth opportunities, we foresee limited needs for capacity investment and expect to be able to maintain overall CapEx at around 1.2x depreciation.

We will maintain the dividend for now, then grow it in line with adjusted earnings once cover returns to around 2.5x. However, in the very short term, we will prioritize stabilization of the balance sheet as we go through the current downturn as well as our organic investment and we'll pause our buyback following completion of the current tranche.

Once stabilized, we will consider the need to fund inorganic investment alongside additional returns to shareholders. The Board will review this situation regularly, recognizing the opportunity that additional returns present to return cash to shareholders and enhance earnings. The outcome of these measures can be seen in our cash flow forecast.

On the left-hand side of the chart, you can see the forecast for the next 2 years, reflecting our short-term focus on stabilizing the balance sheet. We have allowed for a modest increase in EBITDA in line with analyst consensus over the next 2 years. We're also allowing for GBP 45 million of receipts from the sale of our shares in Foseco India, mainly during 2026. As well as reducing our capital expenditure, we're coming to the end of our restructuring program, allowing exceptional costs also to wind down in 2026.

We are investing in a digital transformation, firstly, in the form of our ERP, whilst also embracing new data analytics and data management capabilities that are enabling better decision-making and business management. We expect that to continue at around GBP 20 million per annum until the second half of 2027 when we will have completed our ERP program. We will keep dividends stable and pause the buyback.

Taken together, these measures give the opportunity for leverage to come down steadily as EBITDA improves. Then once we've achieved that steady state, we anticipate achieving a good level of free cash flow conversion at around 65%, giving the opportunity for meaningful further investment and/or returns to shareholders.

As noted, we expect our capital expenditure to stabilize at around GBP 50 million to GBP 55 million a year or 1.2x depreciation, having completed our investment in semiconductor capacity. This will allow for investment of around GBP 28 million in new capacity in line for our strategy over the next 3 years, focused on those opportunities where growth is already evident and where we have a strong right to win.

We would then expect maintenance CapEx to remain at around 1x current depreciation. It is worth noting that this does reflect one benefit of having closed 26 factories between 2016 and 2025, and that our need for maintenance capital has diminished over time, leaving scope for future investment in capacity should growth require it.

Finally, I will sum up with our updated financial framework. Damien has spoken of the strategic mandates for our segments with Technical Ceramics and Performance Carbon expected to grow ahead of GDP, whilst Thermal Ceramics will be slightly below. Overall, we expect our growth over the next few years to amount to some 1 to 2 percentage points ahead of GDP.

Our margin target is to achieve 12% to 14%. This is largely based on transformational measures we can undertake ourselves with a cautious element of market recovery also assumed. Our target for return on invested capital remains in the 17% to 20% range. Our target leverage range also remains the same. And once stabilized, we would aim to keep leverage in the 1 to 1.5x range in relation to ongoing operations and would consider increasing this into the 1.5 to 2x range in the event of an acquisition.

Our ambition then is to achieve sustained growth in adjusted EPS through above GDP organic revenue growth, a greater focus on self-help from operational excellence and portfolio optimization, then enhancing returns to shareholders as appropriate.

Thank you, and I'll hand back to Damien for concluding remarks.

Thank you, Richard. I'm going to conclude with our 4 key messages. We're setting a path to achieve 12% margins by 2028. We're focusing on our right to win to drive above GDP growth at higher margins. We're executing 3 distinctive mandates for each of our divisions, and we're maximizing portfolio value to sustain 12% to 14% margins further out. Thank you.

Good morning, or good afternoon all. Welcome to the Morgan Advanced Materials Half Year Results 2025. My name is Adam, and I'll be your operator for today. [Operator Instructions]

I'll now hand the floor to Damien Caby to begin. So Damien, please go ahead when you are ready.

Thank you, Adam. Good morning, everyone. Welcome to our interim results call for the first half of 2025. I'm Damien Caby. I'm the Chief Executive of Morgan Advanced Materials. I was appointed CEO on 1 July from the position of President of our Thermal Products global business unit. And I'm delighted to be presenting to you today. I'm joined by Richard Armitage, our CFO, for this call.

I will start with a summary of the first half and the overall market environment. Richard will then take you through the financial position and the segmental drivers. And I will come back to share my initial thoughts and views, and some of the opportunities that I can see for Morgan. And I will then cover the outlook for the remainder of 2025.

Before that, I would like to thank all my colleagues for their openness and support. Having been in the company for more than 2.5 years, I already had a strong understanding of our operating model and of our empowering culture. I carried out an intense programme of site visits and engagements in the second quarter, discussing strategies, our teams, our customers. I've been impressed with the commitment to business performance, safety and the openness for constructive challenge, and the improvement mindsets of our colleagues.

Pete Raby not only leaves a business which is in good financial shape and aligned with promising markets, but also a very powerful company culture. He and Richard, as well as all our colleagues, have been very supportive in this CEO transition.

Let me move on now to the key points of the first half. As anticipated, we saw continued challenging conditions across most of the end markets we serve. Our revenues were down 5.8% year-on-year at constant currency in line with expectations. Versus H2 of 2024, this is flat. The expected further reduction of semiconductor sales was largely offset by increases in the core markets.

Despite the end market environment, we delivered resilient margins. Group adjusted operating margin was 11.1%, which is down 90 basis points year-over-year, but up from 40 basis points versus H2 2024 on a constant currency basis. This was supported by pricing and continuous improvement, combined with the successful completion of the majority of parts of our current self-help programme.

In reaction to the tough market conditions in silicon carbide semiconductors, we have been proactive in managing our CapEx expenditure. The programme is now substantially complete with a total investment of GBP 55 million against the previously announced reduction to GBP 60 million.

Ramp up of production is expected to start in 2026 and we have the ability to quickly expand capacity further when the market conditions improve. Our results announcement released earlier today provided our views on outlook. I will come back to that topic towards the end of the presentation.

As a reminder, on the rationale around our simplification programme, we are right-sizing the group's manufacturing footprint and capacity. And we are consolidating and optimizing our supply chain and building more manufacturing flexibility. The benefits from this programme are materializing as planned. We expect to have reduced the site footprint to 60 by the end of 2025 versus 85 sites in 2016.

With this, we will deliver the full expected cost savings of GBP 24 million in 2025 and GBP 27 million in 2026 and beyond. We now have a leaner supply chain. We are more agile to provide reliable delivery and quickly respond as market recover. We will not stop there. We will continue to work on possible further areas of simplification and optimization, and I look forward to updating you on these in due course.

Let's now look at our end market performance in more detail. This slide shows the year-over-year organic performance in our major market segments split between our faster growing segments and our core. Outside aerospace, security and defence, the majority of our markets remain challenging, particularly semiconductors. However, we have seen signs of stabilization in the first half.

Semicon was down 35% versus the same period last year. This is a decline that we had expected at full year results. As previously noted, this is mostly driven by overstocking in the silicon carbine supply chain which has only been partially offset by a progressive uptick in demand for silicon semiconductors.

For context, semicon is a single digit percentage of overall sales for the group, but it has double digit structural growth rates and it provides higher margins than the average of our portfolio.

Healthcare is affected this year by the uncertainty of imaging and analytical end markets, which has been driving inventory adjustments, and by changes in some customers product mix. Security and defence has grown strongly at 11%. Aerospace continues to perform well and is offsetting the challenging conditions in automotive.

Industrials and metals was down 5.7% showing continuing market weakness as expected. Overall sales in our core market have increased by 4% sequentially and project activity shows early signs of improvement. Whilst there are no clear trends in any specific market calling for a recovery, we are therefore seeing signs of stabilization.

I will now hand you over to Richard to take you through the financial results and I will return to talk about the opportunities we see ahead, the outlook and our key takeaways.

Thank you Damien, and good morning, everyone.

I would like to start with an overview of the financial results for the half year to the 30 June 2025. As expected, revenue at GBP 522.6 million was 5.8% lower than prior year on an organic constant currency basis. This was caused by the decline in a number of our end markets that we saw during the second half of 2024, albeit that semiconductor is more challenged than expected whilst clean energy and transportation, aerospace, petrochemical and defence have all held up well.

Pricing was around 3% reflecting a calmer inflationary environment, giving a volume decline of around 9%. Revenue in our faster growing markets declined by 17.2% overall with the main driver being semiconductor, which declined by 35%. Group adjusted operating profit was GBP 58 million, a reduction of GBP 13.3 million, giving an adjusted operating margin of 11.1%.

Return on invested capital was 16.2%, slightly below our through-cycle range but still delivering an attractive return. Free cash flow with an inflow of GBP 1.2 million which shows an improvement over last year as we work to improve our working capital. Adjusted earnings per share were 10.08p per share and we have held the interim dividend flat at 5.4p.

Specific adjusted items amounted to GBP 16.3 million for the half year. In the light of continued uncertainty in some of our end markets, we are not assuming any overall improvement in our revenue or profit performance in our second half compared with the first.

Turning now to the profit bridge, we can firstly see a negative FX impact of GBP 4.6 million in the first half which is now likely to be GBP 8.4 million for the full year. This reflects in particular the progressive weakening of the U.S. dollar versus sterling with an average rate of $1.27 in the first half of last year compared to $1.30 this year.

As you would expect, a 9% volume decline and associated overhead under-recovery combined with a mix effect of semiconductor sales being weaker than expected has had a significant impact on our profitability. The combined effect of lower volume and weaker mix is therefore GBP 29 million with approximately 50% due to each.

Pricing of around 3% has served to offset inflation of around 4% of cost of goods sold. We have continued our strong focus on self-help with efficiency savings amounting to GBP 11.4 million and savings from our simplification programme amounting to GBP 7.6 million as expected, both helping to mitigate the impact of the volume decline. At constant currency, the overall profit decline was limited to GBP 8.7 million.

Looking at the segments in more detail, we can see the impact of weaker industrial markets on Thermal Products. This segment has a relatively inflexible fixed cost base, so the impact of lower volumes dropped straight through to adjusted operating profit and margin, albeit partly mitigated by simplification savings of around GBP 2 million.

Performance Carbon was impacted by lower volume and weaker mix being the segment most affected by the weakness in semiconductor demand. However, part of this was mitigated through simplification savings of around GBP 4 million.

Technical Ceramics demonstrated the benefit of its differentiated product portfolio with weakness in semiconductor and healthcare offset by growth in aerospace, security and defence and clean energy. Around GBP 1 million of simplification savings contributed, allowing the segment to achieve a small expansion in margin.

Moving on to cash flow, I would firstly note working capital. This was an outflow of GBP 4.7 million, but was much lower than the outflow seen in previous years due to actions taken to support working capital. Net capital expenditure amounted to GBP 40.5 million driven by investment in semiconductor capacity. This phase of investment is nearly complete and expenditure is expected to tail-off sharply in the second half.

Cash flows relating to exceptional items totaled GBP 15.3 million, reflecting our ongoing simplification programme and investment in our ERP roll-out. For the full year, these are expected to be around GBP 30 million. Free cash flow before dividends was therefore an inflow of GBP 1.2 million.

Net debt finished the half at GBP 249.1 million excluding these liabilities in line with our expectations but representing 1.7x EBITDA given the lower EBITDA. We expect to return this to within our framework range by the end of the year.

Specific adjusting items comprise 2 elements. Expenditure associated with our business simplification programme was GBP 10.7 million in the first half and is expected to be around GBP 9 million in the second. I will provide a progress update on the next chart.

Our ERP programme has progressed to plan with implementation at the pilot site in Italy now substantially completed. Work is progressing to accelerate the rollout during 2026.

Moving on to the simplification programme in more detail, a reminder that the weak market conditions experienced later in 2024 have led us to expand the programme such that we expect to deliver GBP 27 million of savings by 2026.

The GBP 7.6 million delivered in the first half provided a material mitigation to the weak market conditions. Activity centered on the closure of a site in the U.S. as well as back-office restructuring and manufacturing headcount reduction across the group.

The current rate of expenditure will continue in 2025 with around GBP 9 million expected in the second half, followed by a further GBP 5 million in 2026 as we conclude the programme. As previously noted, our manufacturing sites have reduced from 85 to 60 over the last 10 years, a reduction of 29%.

As previously announced, we have scaled back our investment in semiconductor capacity in response to the slower than expected growth in battery electric vehicles. Our latest estimate is that this will amount to GBP 56 million over the 3-years to 2026, with most of that having already been incurred.

This level of investment provides us with the essential services and equipment needed for likely demand requirements in 2026 and 2027, as demand returns. We will then be able to match incremental capacity additions as the pace of recovery becomes clearer.

We therefore expect capital expenditure to amount to around GBP 70 million this year with GBP 40 million having been incurred in the first half, then to be in the range GBP 50 million to GBP 60 million for the next 2 years. This allows for investment in capacity for growth in other markets where we are seeing strong demand.

We will also note likely start-up costs of the order of GBP 7 million that will be incurred in 2026 as the semiconductor investments are commissioned.

Finally, on technical guidance, we would expect net debt to remain within our guidance range of GBP 230 million to GBP 250 million and year-end leverage to be around 1.5x. Our net financing charge will remain in the GBP 18 million to GBP 20 million range and our effective tax rate in the 26% to 28% range.

Our dividend for 2025 will remain in line with that for 2024 and we would intend to return to cover of around 2.5x as markets recover. I would also note that so far the direct impact of tariffs has been immaterial. We continue to note the potential for indirect impact on end market demand.

Thank you. And I would now like to hand back to Damien.

Thank you, Richard.

I am delighted to take the lead at Morgan, a global leader in advanced materials. As I mentioned earlier, my time at the group within Thermal Products has allowed me to understand and experience our operating model and our empowering, candid and growth minded culture. Whilst we continue to have difficult market conditions to navigate, Morgan is a high quality business, well positioned in attractive markets and I see significant opportunity ahead.

There is a common thread emerging from my experience with Thermal Products and my recent exposure to the rest of the group. As the global leader in advanced ceramics in carbon, we are uniquely positioned to design and supply the higher performance, better design, more integrated materials and components with which the industry needs to respond to several globally significant megatrends.

I have spent my entire career in specialty additives, processing aids, materials and I have rarely seen such a quality business, well positioned in attractive markets with significant opportunity ahead.

I would like to touch on some of my observations on the strengths of the group. Our products and solutions portfolio is very well placed for growth and value, driven by 3 mega trends. The first one is carbon reduction. There is a structural shift across multiple industries to higher efficiency equipment, lower carbon processes and electrification. These trends raise considerable material challenges for our customers. And our advanced ceramics and carbons are in many cases well placed to solve these challenges.

For example, we're uniquely capable to manufacture thin and complex shaped casting cores for the manufacture of jet engine blades, allowing them to operate more efficiently at temperatures above their melting points. And we're gaining market share after being selected for several new jet engines precisely because of these capabilities.

The second is advances in healthcare, which also bring material challenges in medical devices and implants, in diagnostics equipment and in drug delivery. Our Technical Ceramics are a material of choice, notably due to their biocompatibility, non-toxicity, their durability, their resistance and their customizability. And we are addressing complex requirements such as the miniaturization of implantable devices.

And the third is the ascent of power electronics, which enables advances in electric vehicles, AI and power storage. The wider adoption of this technology depends on the reduction of its cost, which raises opportunities for Advanced Materials. Our advanced graphite system provides significant efficiency gains in the manufacturing of silicon carbide semiconductor.

To address these material challenges, our technology leadership is a key differentiator. It consists of 3 things. We co-develop with the customer commercially viable manufacturable solutions for their needs. And the level of prowess in design and production engineering, which I have seen our colleagues deploy in complex cases, is truly impressive. Their passion, their creativity, their expertise and collaborative approach create customer loyalty to Morgan.

Second, we apply material science to develop differentiated solutions. Ceramics, carbons and graphite are very versatile materials. Our scientists adjust their physical characteristics within a wide range through formulation and processing parameters. Three months ago we launched a new carbon brush for wind turbines where we have configured our material surface to enhance performance and use significantly less silver than our competitors.

And the third is that across the group, technology development is managed in close commercial alignment with our customers and it is focused on the strategically selected roadmap which are set by each of our businesses.

This leads me to another key strength which is our decentralized model. At Morgan, the business decision-maker is closely connected to the customers, and he and she and she ensures that we are in step with their needs. Financial accountability is decentralized as well and our business leaders have a owner's mindset. They act and react with agility to achieve their financial goals.

Our customers come to us because of their experience of our product quality and collaboration in design. In customer surveys, this is where we score the highest. Together with a thorough and complex qualification or certification process, this creates a loyal and sticky customer base.

And last but not least, our financials are robust. We have double digit margins, we have a strong ROIC which is evident through the cycle, and I'm confident that both would expand quickly when markets return to growth. Our financial performance is underpinned by simplification, agile cost management and our embedded practices of continuous improvement. We maintain a robust and prudent approach to capital allocation helping to deliver strong returns to our shareholders.

Let me now turn to my initial thoughts about where I see opportunities to unlock significant value. We have a well-established and successful practice of simplification. As mentioned before, our current programme is progressing to plan and will complete as expected during 2025. I can see potential for further opportunities to optimize our footprint and our administrative processes.

We have also made investments in data management in the past 2 years which provides more visibility on product flow. With our smaller number, but more agile set of sites, we can further improve operational gearing as we move forward. We are not yet making the most of the scale of the grouping supply chain.

In procurement, our indirect spend of more than GBP 150 million is managed at site level. The opportunity to consolidate the spend and proactively manage the key categories provides scope for material savings.

Another opportunity in supply chain lies in enhancing revenue by improving delivery performance. In my outreach and travel to our site, I was struck by the correlation between profit margin and growth rate on the one hand, and lead time and deliver reliability on the other hand.

There are also high quality growth opportunities within our current field of expertise. And given the simplified manufacturing footprint, we are able to respond to opportunities and bring in new capacity in a modular and disciplined way.

Besides, across the portfolio there are opportunities to expand from component supply to system supply over time. We do this, for example, in fire protection for implantable devices. Our margins are higher where a party or the owner of the certifications and qualifications, and the switching barriers are higher.

And finally, the advanced materials universe in which we operate is ample. There is opportunity to leverage our expertise, our channels to market, our strong customer relationships to move into other high quality, high growth adjacencies organically and inorganically. And conversely, we shall strive that each part of our business portfolio contributes to the progressive improvement of the quality of our business. I will provide further comments on this at a separate event in December.

You will be familiar with this slide. I'm confident that we are well positioned to deliver on the objectives laid out in the financial framework as our markets recover.

Moving on now to the outlook. We are cautious about demand in a number of our end markets as the geopolitical and economic environment remains uncertain. Therefore, revenue guidance for the full year remains unchanged, with organic constant currency revenue expected to decline by a mid-single digit percentage level. This assumes that the market stabilization in the first half continues, but with no expectation of recovery in the second half.

We expect profitability to be around the bottom end of the consensus range, impacted by weak market conditions, by the mix effects previously mentioned and foreign exchange headwinds. We expect free cash flow to normalize during the second half of the year as investment in semiconductor capacity and our simplification programmes are now both nearing completion. And this will assist in a return to a leverage of 1.5x by the end of the year.

Looking towards 2026, we note early signs of stabilization, but we remain cautious about the end market demand given the ongoing external uncertainty. We expect to commission our new semiconductor capacity during 2026 and this will incur one-off startup cost of approximately GBP 7 million as a result.

A few concluding remarks now before we open up to any Q&A you may have. As we have highlighted and as expected, market conditions continue to be challenging. As a team, we continue to actively control what is within our grasp, and we have delivered a leaner and more efficient business.

As I highlighted, we have some fantastic strength and capabilities as a group. These are strong foundations and we have significant opportunities for further enhancements. I believe that we are well positioned to rapidly grow profit when markets come back.

And finally, I would like to thank all the group's employees for their dedication and commitment to our success. Thank you.

I'll end our formal presentation and we will now take questions. And I will hand it back to the operator to coordinate that.

[Operator Instructions] And our first question comes from Scott Cagehin from Investec.

Just a couple of questions from me please. The first being around semiconductor, could you just talk us through some of the drivers behind the large year-on-year revenue declines and how you see that playing out through the rest of the year? And then on top of that, how do you see profitability net the GBP 7 million one-off cost in semiconductor for the group? And the second question is, could you give us any flavor of some of the adjacent areas that you could look to move into overtime?

Okay, thank you, Scott. So I'll take the first one, I'll hand over to Richard for the second and be back for the third one. So semiconductor, as you know our business in semiconductor is really split in 2 areas: the silicon carbide semiconductor, silicon semiconductor. And these have slightly different dynamics.

In silicon semiconductor, there was a slowdown which was not as large as the silicon carbide, and we are now seeing some signs of recovery. It's slow, but it's real. And we've seen increase in demand in the second quarter and that's probably going to continue at a moderate pace.

Silicon carbide, the significant decline that we noticed in the second half of last year and that accelerated in the first half of this year is essentially driven by the fact that the end demand has reduced and that there was a significant buildup of inventory along the supply chain. And that's essentially what's driven the acceleration of the decline in the first half.

There is still inventory in the supply chain. Everybody expects and our customers expect that it's going to take some time to be resolved and then however, the end-markets remain very attractive and demand -- the underlying demand is there -- is continuing to grow at double digit rates.

Scott, so startup costs, firstly GBP 7 million is not a huge amount, that these are known processes. So what we're anticipating is being ready for production out of those new assets during or by the end of 2026.

I think if you go back to when we first started talking about semicon, we had anticipated demand in 2026. So therefore at the time, if you will, the startup costs were simply being swallowed by the gross margin on that demand. We're not calling when the market is going to recover. Damien has just made the point that there are still particularly inventories in the silicon carbide supply chain. So therefore what this is describing is getting ready next year, but not anticipating exactly when that demand is going to pick up.

And coming back to the opportunities to unlock significant value. So as you've seen, I mean, there are different nature. Some are really of operational excellence nature and are really -- we have the systems to activate them. Some of them are going to be more in terms of -- are going to be implemented more and more sequentially in terms of growth in targeted high value areas and extending into system supply.

So this is going to be taking a different time depending on the nature of the initiative. And I'll be coming back in December to share more about the time and the impact of these actions.

The next question is from Jonathan Hurn from Barclays.

Just 2 questions from me. Firstly, just coming back to that sort of semicon CapEx, obviously that has come down. In terms of that sort of revenue opportunity from that CapEx, now how do we think about that? Is kind of GBP 37 million the right number in terms of the revenue opportunity there? And then just sort of linked to that, what are we seeing in terms of customer behavior and sort of filling that capacity that you put in line? Is that still at all okay? Are some customers deferring their sort of orders into you? Are you seeing sort of that sort of expected capacity utilization coming down? That was the first question.

And the second one was just in terms of that -- one of your final slides, just in terms of those sort of upside to the simplification savings. Just thinking about that going forward, does that mean ultimately we probably will see upside to that GBP 27 million number that's currently out there? And if we do, when does that start to come through? Is that more of a '26 type timing or in terms of those incremental savings, does that mean we should get another sort of raft of profit sort of savings coming through in '27? Those are the 2.

Jonathan, thank you for those. Yes, semicon CapEx, so we are still confident that the investment will achieve our target return on capital of 20% or better, that the growth in the business will be at attractive margins. But as Damien has described, we're not calling when the market will start to recover. So we would expect to be achieving those outcomes as the market recovers, but are not at this time making predictions of when that will be.

As far as our customers are concerned, I mean they are depleting their stocks and they are in this phase of reducing the inventory through the supply chain. They are part of their -- one of the steps along the supply chain. We are extending contracts, renegotiating contracts that we had. We are continuing to work with them on the next stages of technology development. Actually when they're down, it's a good time to continue to improve technology and there is a lot of action going on in this area. So the commitment of our customers with our technologies remains. They have the same lack of visibility as we have as far as when the demand is going to come back.

I think then on the simplification, Jonathan, I think your question is a good one. Damien is currently leading a strategy review, has indicated that he will want to talk to the market later in the year. Of course we have ideas about how we may achieve further simplification, but I would prefer to leave it until later in the year to describe what those look like.

So can I just come back to that sort of that revenue opportunity? Sorry, I just want to get more clarity there because I think when we heard from you, last you said there was GBP 40 million. So if we sort of pro rata that on the reduced CapEx. It kind of give us a little decline to that GBP 40 million. Obviously I'm very aware that you don't want to call out a number, but is that kind of the right way of thinking about it, that we should sort of pro ratter it in terms of the CapEx decline?

Not really. I would view it as timing. So we have put in services and infrastructure. We have put in sufficient capacity to meet what we think the demand will be over the next couple of years or so and then left it in a position where as the increase in that demand becomes clearer, we can add in incremental capacity relatively easily. So that says one permutation is we end up with a programme very similar to what we originally envisaged. But that will all depend on timing of recovery in the market.

The next question comes from Harry Philips from Peel Hunt.

Just again 2 or 3 questions please. The first is in the one-off contributions in the first half. In the statement, there's a GBP 5 million gain non-recurring in carbon. Just, one, what exactly was that? And then, what was the sort of variations around one-offs non-recurring in that number.

The second, sort of, I'm afraid to continue on the semicon angle, is to sort of acknowledging that GBP 7 million startup cost sort of basically I'm sort of taking that to mean there's going to be very little volume in '26. What if there's no volume in '27, just hypothetically, does that GBP 7 million remain a GBP 7 million drag or is there any mitigation even in a sort of totally flat market or 0 market? And then -- yes, that's it for now.

Harry, thank you for those. So one-off contribution of GBP 5 million, if you cast your mind back 3 years, there was in the notes to our accounts of one point reference to a dispute with a customer out of the old seals and bearings business. That was a provision of GBP 2 million at the time. We have successfully concluded the claim with that customer. In fact, the payment from them in the end was GBP 3 million. So that was very helpful. And then the balance is just an insurance receipt.

So that is what they are. Clearly we call those out because they're material. Taken together. There's always a degree of one-offs like that in the business. So it doesn't mean you automatically assume that the second half will be GBP 5.5 million worse. But certainly that has had a small beneficial effect on the first half.

I think your question about semicon startup cost is a fair one. Whilst we would not want to call the substantial recovery in that market, I think we'd be a little bit surprised if we weren't seeing some degree of recovery in 2027. I wouldn't necessarily expect that to be a stranded cost.

Next question comes from David Farrell from Jefferies.

Sorry to kind of continue the theme of semiconductors, but I guess kind of clearly market reacting today to that incremental GBP 7 million of dollar costs in semiconductors. If the market isn't there, why not defer commissioning of these assets to a later date when the market has recovered?

Well, I suppose, David, if we -- and by the way, the commissioning is in the second half of next year. So if we get to that period and the market is still not recovering, I suspect we won't incur the costs. So we'll assess it as time goes on.

Okay. And then just kind of follow-up question on semiconductors. Clearly kind of if we go back a couple of years, this was a really strong growth market. You're in a really strong position in terms of lack of supply into the market. We've kind of flip reversed that now. Are these contracts that you're kind of going to enter into going forward going to be lower margin because your customer has a much greater depth of supply available to it?

Yes, it's a very good, very valid question. I mean there's definitely when there is a bit more supply, there is a bit more of price pressure. However, I mean, the nature of what we do is really very core to the cost performance of our customers. And I think the main driver in this industry is that there is a significant drive to reduce the cost of the end products of the silicon carbide semiconductors.

And when the design of your graphite recipients where the semiconductor is being manufactured has a significant impact on yield and on throughput, and on the capability to increase the size of the goals that you make, then the alignment of the customer with the manufacturer is quite strong. And there is honestly very few people in the industry who can achieve the quality that is required to deliver these cost reductions that the industry is seeking. So, I mean, we are very confident that we will be able to deliver good return on the investment that we've made.

The next question comes from Maggie Schooley from Rothschild & Co. Redburn.

I just have a few. On your '26 guidance, I think you well explained the overstocking in [ SiC ] and what you're seeing there and then the knock-on cost. But beyond semiconductor and other markets, is there anything that's driving that caution for '26? I'm thinking particularly of Thermal Products. And can you tell us anything that you're seeing there that we should be thinking through in terms of prolonged weakness in Thermal Products into 2026 or are you starting to see that stabilization towards the upside or any color you can give us on that?

So thanks, Maggie, for the question. So as I mentioned, we have seen an uptick, slight uptick sequentially in the core business in general of 4% and that includes the industrial, petrochemical and metals and mining businesses. So there is clearly signs of stabilization in this market. What we're doing is prudently we don't assume that this market is going to rebound significantly.

In fact, we had some good activity in the U.S. in the first quarter. It's now reversed a bit. We had some good activity in Europe in the second quarter. It's kind of stalling, but however good project activity. So we're basically seeing a stabilization and we think that we don't see signs that this is going to expand and that's why we made the forward-looking statement that we made.

The other markets, I mean, defence, aerospace, are going to continue. Question mark about our automotive supply business which has been impacted by the state of the industry in the first half.

And I think I recognize you've given us a clear understanding on tariffs, but there have been some semiconductor tariff announcement overnight. I don't think they affect you, but could you just comment if there's anything we need to be concerned about? And I understand it's a moving through a system and it was just announced overnight, but anything you should think about there?

I don't think so. We have briefly digested what's come out overnight. So as before, our most significant flows are, for instance, from Mexico into the U.S. Those are -- those products are covered by the previous trade agreements and are not subject to tariffs. There are relatively minor flows from Europe into the U.S. that are now subject to the 15% tariffs. But most of our products are on a factory gate pricing basis So we don't see tariffs on those either. Hence the comment that the direct impact of tariffs is to the material.

Okay. And the last one from me is that you clearly outlined that you think you're going to be down to 1.5x net into EBITDA by the end of the year. I understand the comments on working capital, but are there any other levers that we should be thinking about to ensure that we get back to that 1.5x?

Just really the combination of more steady progress on working capital, lower CapEx, lower simplification costs should get us there.

[Operator Instructions] The next question comes from [ Richard Page from Deutsche Numis ].

And just a couple of add-ons to previous questions. The mix in terms of end markets, I think clean energy and transportation, the growth in the first half, can you just give a bit more detail on that please and visibility into the second half in that market? And then secondly, just not wishing to overstress the questions on semicon, but could you just remind us the lead times you need to bring in capacity when market conditions change, please?

Clean energy and transportation is a small part of the revenue, so it's really evolving depending on order pattern, on the customer demand, etc. So I wouldn't read too much into the evolution. It was significantly high and it moved a lot from half to half.

To be honest with you, the answer to your second question is a little bit it depends. Finishing equipment is actually very quick to procure, sort of 3 to 4 months. The reason why we progressed with the bulk of the investment was it covers furnace commercially, which is it takes quite a long time to build, so something like 18 months. So there is certainly sufficient furnace capacity put in for the time being and we would be able to add in more over time.

No further questions at this time. [Operator Instructions] We have no further questions. So I hand the call back to the management team for any closing comments.

Thank you everybody for good questions. And clearly, as I said, in challenging markets, we're doing all the self-help and taking all the actions that are required. I'm very optimistic about the future of this business and its capability to get into this framework that we've set for ourselves. I look forward to sharing a bit more of this in December.