Strategic Progress

The automotive market, particularly in the United States, has shown major weakness with overstocked manufacturers cutting back on production in order to reduce their inventory levels. Likewise, many of the higher-tech markets, which helped fuel strong organic sales growth for a number of Morgan’s businesses last year, have been adversely impacted. The markets for telecommunications equipment, semiconductor capital equipment and computer data storage have moved rapidly from strong double-digit growth to decline, which in some markets has exceeded 50%.

Morgan has responded to the market challenges with major initiatives to defend market share, cost control and a continuing focus on growth opportunities for the future. Investments in development programmes for fuel cells and multi-layered electro-ceramic actuators have been increased
Carbon

The Carbon Division comprises the Electrical and Engineered Carbon businesses together with the Magnetics business. Total sales for the division were £291.9 million (2000 : £276.8 million), an increase of 5.5% over the same period last year. Sales on a comparable basis before acquisitions, declined by 2.1% for the division as a whole.

The Carbon Division achieved operating profits of £22.6 million (2000 : £27.1 million). On an underlying basis before goodwill amortisation, operating profits were £25.6 million (2000 : £29.8 million), a decrease of 14.1%. Underlying operating margins on the same basis for the division as a whole were 8.8% compared with 10.8% for the same period last year.
Electrical Carbon

Sales in the Electrical Carbon business were £105.9 million (2000 : £97.9 million). Overall sales declined organically by 2.9%. Operating profit before goodwill amortisation was £11.4 million (2000 : £12.1 million) with operating margins at 10.8% (2000 : 12.4%).

Sales to the automotive and consumer market were adversely impacted by the slowdown and severe destocking in the US automotive market, and showed a decline of 10.4% on a comparable basis. This decline was partly compensated by an improved performance from the industrial and rail traction markets, where organic growth of 1.9% was achieved. Increased rail traction brush shipments contributed to this improvement.

The slowdown in the US automotive market, evident from the second half of last year, led to the implementation of a substantial cost reduction programme in January of this year. This helped to mitigate the impact of the sharp reduction in demand experienced in the first half of this year. However, the overall slowdown has had a negative impact on both capacity utilisation and operating margins.
Engineered Carbon

The Engineered Carbon business achieved sales of £68.3 million (2000 : £62.2 million), an increase of 9.8%. After adjusting for acquisitions and movements in foreign exchange, sales were marginally lower. Operating profit before goodwill amortisation was £6.6 million (2000 : £7.6 million) with operating margins at 9.7% (2000 : 12.2%). Within this, the mechanical carbon business performed well, supported by strong demand in Europe for pump seals and bearings.

Specialty graphite sales in the first half were maintained at the same level as last year although the impact of the sharp slowdown in the semiconductor capital equipment market was felt later in the period. An increased level of research and development in the fuel cell programme has reduced operating margins. A fuel cell testing facility will shortly be commissioned at the UK research centre.

Demand for conventionally manufactured bi-polar plate for fuel cell systems remains in line with last year. The group are now in discussions with the leading manufacturers in this market regarding a new patented Electro-Etch ™ rapid manufacturing process, which could lead to a substantial first stage cost-reduction for bi-polar plates.

The coatings business was affected by slowdowns in both the US automotive market and the semi-conductor capital equipment market. Organic sales declined by 12.1% with operating margins also impacted. The coatings business was strengthened with the acquisition of Diamonex earlier in the year. Diamonex brings the Group expertise in producing patented diamond wafers and diamond-like coatings for a range of materials.