Morgan Advanced Materials PLC Earnings - Q2 2025 Analysis & Highlights

Key Takeaways

Morgan Advanced Materials PLC's Q2 2025 earnings call highlighted challenging market conditions, particularly in the semiconductor sector, while emphasizing the company's resilient margin and cost-saving initiatives. The call also introduced the new CEO's strategic priorities, focusing on leveraging the company's strengths in advanced materials and exploring growth opportunities.

Key Financial Results

  • Revenue was down 5.8% year-on-year at constant currency, in line with expectations.
  • Versus H2 of 2024, revenue was flat.
  • Group adjusted operating margin was 11.1%, down 90 basis points year-on-year, but up 40 basis points versus H2 2024 on a constant currency basis.
  • Free cash flow was an inflow of £1.2 million.
  • Adjusted earnings per share were £10.8 per share, and the interim dividend was held flat at £5.4.

    • Business Segment Results

  • Semiconductor market declined by 35%.
  • Security and defense grew strongly at 11%.
  • Industrials and metals were down 5.7%.
  • Core markets have increased by 4% sequentially.
  • Thermal Products was impacted by weaker industrial markets.
  • Performance Carbon was impacted by lower volume and weaker mix, affected by the weakness in semiconductor demand.
  • Technical Ceramics demonstrated growth in aerospace, security and defense, and clean energy, offsetting weakness in semiconductor and healthcare.

    • Capital Allocation

  • The company has been proactive in managing CapEx expenditure in reaction to tough market conditions in silicon carbide semiconductors.
  • The silicon carbide CapEx program is now substantially complete, with a total investment of £55 million against the previously announced reduction to £60 million.
  • Capital expenditure is expected to amount to around £70 million this year, with £40 million having been incurred in the first half, then to be in the range of £50 million to £60 million for the next two years.
  • The company intends to return to dividend cover of around 2.5 times as markets recover.

    • Industry Trends and Dynamics

  • Continued challenging conditions across most end markets.
  • Overstocking in the silicon carbide supply chain has been partially offset by an uptick in demand for silicon semiconductors.
  • Uncertainty in imaging and analytical end markets is affecting healthcare.
  • Structural shift across multiple industries to higher-efficiency equipment, lower carbon processes, and electrification.
  • Advances in healthcare bring material challenges in medical devices and implants, diagnostics equipment, and drug delivery.
  • The ascent of power electronics enables advances in electric vehicles, AI, and power storage.

    • Competitive Landscape

  • The company is gaining market share in jet engine components due to its manufacturing capabilities.
  • The company's technology leadership is a key differentiator.
  • The company co-develops commercially viable, manufacturable solutions with customers.
  • The company applies material science to develop differentiated solutions.
  • The company launched a new carbon brush for wind turbines that enhances performance and uses significantly less silver than competitors.

    • Macroeconomic Environment

  • The geopolitical and economic environment remains uncertain.
  • Foreign exchange headwinds are impacting profitability.
  • The direct impact of tariffs has been immaterial, but there is potential for indirect impact on end market demand.

    • Growth Opportunities and Strategies

  • The company is focused on rightsizing the group's manufacturing footprint and capacity.
  • The company is consolidating and optimizing the supply chain and building more manufacturing flexibility.
  • The company expects to have reduced the site footprint to 60 by the end of 2025 versus 85 sites in 2016.
  • The company sees potential for further opportunities to optimize its footprint and administrative processes.
  • The company aims to consolidate spend and productively manage key categories in procurement and indirect spend.
  • The company intends to enhance revenue by improving delivery performance.
  • The company plans to expand from component supply to system supply over time.
  • The company will leverage its expertise, channels to markets, and customer relationships to move into other high-quality, high-growth adjacencies organically and inorganically.

    • Financial Guidance and Outlook

  • Revenue guidance for the full year remains unchanged, with organic constant currency revenue expected to decline by a mid-single-digit percentage level.
  • Profitability is expected to be around the bottom end of the consensus range, impacted by weak market conditions, mix effects, and foreign exchange headwinds.
  • Free cash flow is expected to normalize during the second half of the year as investments in conductor capacity and simplification programs near completion.
  • The company expects to return to a leverage of 1.5 times by the end of the year.
  • The company expects to commission new semiconductor capacity during 2026, incurring one-off startup costs of approximately £7 million.
  • Net financing charge will remain in the £18 million to £20 million range, and the effective tax rate in the 26% to 28% range.

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