Morgan Advanced Materials plc (MGAM) Earnings Call Transcript & Summary

Welcome to today's Morgan Advanced Materials Financial Results for 2021 Conference Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Pete Raby to begin. Pete, please go ahead.

Thanks so much, indeed. Good morning, everyone. I'm Pete Raby, the Chief Executive of Morgan Advanced Materials. I'm joined on the call by Peter Turner, our CFO. I'm going to say a few words of introduction. Peter will then take you through our preliminary results for 2021. And then I'll talk through the business unit performance and growth drivers, the progress against our ESG priorities, our wider strategic progress and the outlook. Starting with the highlights. The safety of our people is our top priority, and I'm really grateful to our people for how they looked out for each other during the year. They've been keeping each other safe while increasing output rapidly to meet customer demand. We delivered 10.3% organic revenue growth with 22% growth in our faster-growing markets and 7% growth in the core, and that reflects the work that we've been doing to increase our exposure to those faster-growing market segments. Operating margins have expanded 300 basis points to 13.1%, the highest in over 20 years. We've seen inflation increasing during the year, and we passed that on to our customers with higher pricing. The impact of pricing and continuous improvement activity more than offset the cost inflation that we experienced during the year. The strong growth in profitability, together with good management of working capital, has delivered a 20.5% return on invested capital, well in excess of our cost of capital. Earnings per share of 27.2p is up 43% on the prior year. Cash was very good with GBP 66 million of free cash flow, reducing net debt to EBITDA of 0.3x, excluding leases. We also made good progress in reducing our CO2 emissions with a 17% reduction compared to the prior year. This is a good further step towards our goal of reducing emissions by 50% by 2030. I'll now hand you over to Peter to take us through the financial results.

Thank you, Pete, and good morning, everyone. Let me start with the summary financials for the period. Revenue at GBP 950 million was 10.3% higher on an organic constant currency basis. Group adjusted operating profit was GBP 124 million with margins 300 basis points higher at 13.1%. It is pleasing to see the benefits of our restructuring savings and efficiency actions combined with the higher volumes coming through into our margins. Operating cash flow was GBP 135 million and free cash flow at GBP 66 million, and I'll cover more detail on cash in a moment. Adjusted EPS was 43% higher at 27.2p per share, reflecting the higher operating profit. The final dividend proposed is 5.9p per share, bringing the total dividend for the year to 9.1p per share. As a reminder, the Board is looking to grow the ordinary dividend as the group's earnings improve, targeting a dividend cover of around 3x adjusted EPS on average over the medium term. As usual, we've included in the appendix the financial information in statutory format. The only significant adjusting items in the period were a gain on the disposal of our associate and an impairment charge on certain nonfinancial assets. Turning now to the year-on-year movement in our adjusted operating profit, this chart illustrates the key drivers. We have the benefit from higher volumes in the year as our end markets recover from the impact of the pandemic. We've seen significant benefits in the period from the delivery of our restructuring program, which we announced in 2020. We've continued to realize positive pricing, which, together with our ongoing continuous improvement projects, has more than offset cost inflation in the period. We have the reversal of the discretionary cost actions we had in place in 2020 during the uncertain period of the pandemic, such as salary and bonus reductions. And then we have a small headwind from foreign exchange translation and also, as guided, the impact from business exits previously announced in Technical Ceramics. This next slide covers an update on the restructuring program we announced in 2020 which, as a reminder, primarily related to the closure of manufacturing sites across Thermal and Technical Ceramics in response to the lower demand position seen in that year. We have largely completed this program with the last site closed in the second half of 2021. As previously guided, we've delivered savings of GBP 20 million in 2021 with a full run rate savings of GBP 23 million to be attained this year for a total program cost of GBP 24 million. Turning now to our cash flow. On trade working capital, we've seen a modest working capital outflow, which reflects the growth in the business we've seen in the year. Our net capital expenditure was a little lower than we guided as we sold some surplus assets of around GBP 5 million in the year and also saw some longer lead times for some of the capital equipment for our projects. Free cash flow before dividends for the year was GBP 66 million, reflecting the continued focus on cash flow during the period. We also received GBP 15 million from the divestments in the period, primarily from the divestment of our 35% stake in Jemmtec. Jemmtec was our only investment accounted for as an associate with the group. Net debt to EBITDA, excluding leases, the measure which most closely aligns to our covenants, was 0.3x at year-end. And we've included in the appendix our usual summary of our funding profile. The next slide takes a look back at the progress we've made in strengthening the balance sheet of the group over the past 5 years. Net debt, excluding lease liabilities, has reduced by nearly GBP 200 million with a consistent focus on free cash flow generation and the benefits from the divestments we have made to simplify our portfolio. On pensions, we've seen a near GBP 170 million improvement over the 5-year period. We've seen a decrease of GBP 73 million in the deficit in 2021 with the benefits from cash contributions and reductions in the liabilities due to higher discount rates. The U.K. schemes are now slightly ahead of the recovery plans anticipated at the time of the last triennial reviews. Overall, we've made very pleasing progress in building a strong balance sheet for the group. Finally, I've included an update on the financial framework for 2022. As you can see, we expect our adjusted effective tax rate to continue to be around 27% to 28% this year. Based on current exchange rates, we expect our finance charge to be around GBP 9 million, comprising a cash interest charge of around GBP 6 million on our net debt, a noncash pension financing charge of around GBP 1 million and GBP 6 million of -- sorry, and GBP 2 million of interest on our lease liabilities. We expect our cash contributions to the defined benefit pension schemes across the group to be around GBP 20 million, the majority of which is to our U.K. pension schemes, as outlined. As usual, we set out in the appendix sensitivities for revenue and adjusted operating profit the changes in the value of sterling against both the U.S. dollar and the euro. For 2022, we expect capital expenditure to be higher at around GBP 60 million with a carryover of some activity from 2021 and as we invest to support the continued growth in the business, efficiency projects, investment in our infrastructure and ESG projects. That covers the key financial items. So with that, I'll hand you back to Pete.

Thank you, Peter. I'll now take you through the performance of our business units, the growth performance in our faster-growing markets and then an update on progress against our ESG goals, our wider strategic progress and the business outlook. Slide 12 shows the organic performance in our major market segments. Revenues in our industrial segment grew 16% with a broad-based recovery across the industrial economies. Transportation was up 7% with automotive and aerospace starting to recover from the trough in 2020. Chemical and petrochemical revenues declined slightly, as expected, reflecting the later cycle nature of project activity in our Thermal Ceramics business. Revenues in the healthcare segment grew 13%, driven by low temperature insulation products for medical transport and storage and ceramic components for medical imaging. Energy was up 32%, driven by the wider economic recovery and growth in wind and solar energy and energy storage, and includes the impact of some one-off project sales to solar customers during the year. Security and defense revenues declined by 24% with the expected reduction in ceramic armor sales in Seals and Bearings as that product line comes off its peak. Finally, semiconductors grew 28% with demand for all of our ceramic and carbon products very strong across the semiconductor manufacturing process. Moving to our global business units, I'll start with Thermal Ceramics. Thermal Ceramics revenues grew organically by 9.8%, driven by a strong recovery in the industrial and energy segments and growth in healthcare and automotive. Operating margins improved to 11.5%, reflecting the drop-through on the increased revenues and the impact of continuous improvement activities and benefits from our restructuring program. Turning to Molten Metals Systems. Revenues increased organically by 20.8% with strong demand in the aluminum and copper segments, reflecting both the wider recovery and some rebuilding of stock levels in our distribution channels at the start of the year. Margins expanded to 13.2%, reflecting the drop-through on the increased revenues and efficiency actions. In Electrical Carbon, revenues increased 13.1% organically with growth in industrial, energy and semiconductor markets. Margins expanded to 19.9%, reflecting the drop-through on the increased volumes together with pricing and continuous improvement actions that more than offset cost inflation. And I have to say, this is a notable performance by the team. Moving to Seals and Bearings, revenues declined organically by 3.1% with the expected decline in ceramic armor, down GBP 20 million against the prior year, partially offset by growth in transportation, petrochemical and industrial markets. Margins declined to 16.9%, reflecting the drop-through from reduced ceramic armor volumes. Turning to Technical Ceramics, revenues increased organically by 16.1% with growth in industrial, semiconductor, healthcare, energy and aerospace segments. Margins expanded to 11.1%, reflecting the drop-through on the increased revenue and the benefits from restructuring actions. This was partially offset by a GBP 3 million headwind from business exits. Over the last 4 years, we've increased business and product development activity in 4 faster-growing market segments: clean energy, clean transportation, semiconductors and healthcare. These markets have good underlying long-term growth drivers, and we expect them to grow more quickly than our core business over the cycle. In 2021, these markets accounted for 20% of the group's revenues. I'm very pleased with our performance in these segments during the year with organic growth of 22%, considerably ahead of our core markets, which grew 7% during the year, and reflecting the benefits of the investments that we've been making. The semiconductor segment was the standout in the year. Organic growth of 28% was a broad-based success with share gains with existing customers and wins with new customers increasing our exposure to the overall semiconductor manufacturing process. We expect these faster-growing segments to have high single-digit to double-digit growth rates through the cycle. These high growth rates is a result of the enduring global trends that we see today, including digitization, climate change and a growing and aging population. We're continuing to invest in new products and solutions to serve each of these markets. By increasing our exposure, we increase the underlying growth rate of the group to incrementally expand our margins as newer products contribute to the mix and we improve the alignment of our portfolio with our purpose, reinforcing our ESG credentials. I'll now turn to our goals and progress on the environment, social and governance, or ESG, shown here on Slide 19. Our purpose is to use advanced materials to make the world more sustainable and to improve the quality of life. This purpose guides our decision-making and strategy, and we deliver on it through the way we operate and manufacture our products and through the products themselves and the benefits that they bring to our customers. We're constantly investing in our manufacturing processes to reduce the environmental impact of our business. And in parallel, we're investing in new materials and process technologies that improves the performance of our products and deliver bigger environmental and safety benefits to our customers. We have 5 ESG priorities that we'll be working on, and we've set targets for those for 2030. We will reduce our Scope 1 and Scope 2 CO2 emissions by 50% by 2030 from our 2015 baseline as part of our aspiration to be net zero by 2050. We're committing to reduce our water consumption overall and in high and extremely high stress areas by 30% by 2030. We're also determined to provide a safe, fair and inclusive workplace for our people. We've committed to a lost-time accident rate target of 0.1 by 2030 against our goal of zero harm. We want our workforce to reflect the communities in which we operate, and we've set a target of 40% of our leadership population being female by 2030. Finally, we want to welcome an inclusive environment for our employees where they can grow and where they can thrive. We've set a target of achieving a top quartile engagement score by 2030. Slide 20 shows our progress in reducing CO2 emissions since 2015. Our CO2 emissions in 2021 were down 17% on the prior year, a very good performance with the business growing 10% in the year. We have a broad-based improvement program underway covering energy procurement, process improvements and behavioral changes in our plants. In 2021, the biggest contribution has come from procurement where we've transitioned to carbon-free energy for a number of our sites. 33% of our electricity now comes from green or carbon-free sources. Turning to water, safety and diversity on Slide 21. Our water usage is up 15% over 2020 levels, driven by the growth in the business and some shifts in product mix towards more water-intensive products. Similarly, our water usage in high and extremely high stress areas increased 9% in the year, also driven by the growth in volumes. We have projects underway to drive productions in our water use across the business, and those will start to deliver as they complete during 2022. Looking at safety, we've seen an increase in our lost-time accident rate, that's the number of lost-time accidents per 100,000 hours worked. Our rate increased to 0.22, up from 0.18 in 2020. We've undoubtedly, I think, seen an impact from the pandemic here with less of visiting sites and conducting safety tours and with additional distractions for all of our people. We've launched a refresh of our thinkSAFE program during the year, focusing on behavioral safety. Training rollout is underway, and training will be given to every employee. I expect that to complete in 2022. Together with the supporting process changes and our ongoing investment in equipment and infrastructure, we'll make further improvements to our safety culture during the year. For accidents overall, our total accident rate improved slightly in 2021. From a diversity and inclusion perspective, we've set a goal of 40% of our leadership population being female by 2030. Our year-end position is 29%, slightly down on the 30% position at the beginning of the year with some open roles and small changes in the population impacting the figure. We have a broad program of work underway to drive improvements here, and we're making changes in everything from policies to training to recruitment processes. Finally, from an employee engagement perspective, we completed our employee survey in December 2021, and we recorded an engagement score of 50, down slightly from the 55 we scored in our pulse survey in 2019. Our goal here is top quartile position or that would be a score of around 75. And we have clear areas to improve, and we'll be starting the work to address that in the coming months. So overall, I'm pleased with the progress we've made on CO2. We've got more to do to build momentum towards our other targets, executing on the plans we developed, and I expect us to make further progress this year. A comprehensive update on our ESG goals and progress is covered in our sustainability report, which is available on our website. We have fundamentally changed the health and performance of the group over the last 6 years. We've invested in safety and in ESG. Through our sales effectiveness program, we strengthened our sales capabilities and processes and built deeper relationships with key customers. We've increased our investment in R&D and established 2 new centers of excellence focused on carbon and metallizing and joining. Those development teams are working on new technologies and products to accelerate our growth, in particular, in our faster-growing segments. We've completed 5 divestments, allowing us to simplify our portfolio and streamline our structure, and we've completed a number of site closures. We've increased capital investments to support safety and environmental improvements to enable efficiencies and to support our growth. We've improved our operational capabilities, and we strengthened our leadership team. These changes together have improved our performance. Our lost-time accident rate was halved, our CO2 emissions are 33% lower, our water usage is 26% lower. Our business is growing more quickly, and the faster-growing segments now account for 20% of revenues. Our operating margins are at their highest in over 20 years. Our balance sheet is much stronger. Between the pension and our debt position, our liabilities are GBP 360 million lower than they were in 2016. This gives us the headroom to invest in the business both organically and through M&A. We're growing our acquisition pipeline. We're doing the groundwork to qualify prospects that we can pursue, and then we're engaging with those prospects to see if we can progress them. Looking ahead, we've set 3 new execution priorities so we'll deliver the next phase of our capability development as a group. The big positive difference encompasses the work that we're doing to have a positive impact on our people, our communities and the planet. That includes our safety and environmental program, the work we're doing on inclusion and diversity, and the changes we're making to improve employee engagement. With innovate to grow, we're working to accelerate the growth of the group with an increased focus on new business development and new product development, in particular, in our faster-growing segments, the development of new materials and the development of an execution on our M&A pipeline. Finally, delight the customer is the next phase of our evolution as we look to make our business more customer-centric. This builds on the foundation from sales effectiveness and is focused on developing a more granular understanding of customer needs and aligning our organization to deliver those, including enhancing our digital presence. The work on these priorities will deliver the next step change in our capabilities and performance and ensure that our business remains aligned to the trends shaping our world, from climate change and the focus on sustainability, to digitization, to growing demand for healthcare in an aging and more wealthy population. Turning to the outlook. There is considerable geopolitical uncertainty, in particular, with the current Russian conflict in Ukraine. In light of the situation in Ukraine, we stopped trading with Russia. We don't expect a significant impact on our business as a result. Our sales to Russia were around GBP 4 million, less than 0.5% of revenue. Despite these challenges, we have good order momentum coming into the year, and we expect organic growth of 4% to 7% this year. We expect to make more progress in our faster-growing segments and win further in our core. And we will see higher inflation than in 2021, continuing the trends from the second half of last year. We plan to offset this through higher pricing and continuous improvement activity as we did in 2021. We expect our margins to expand further, benefiting from the drop-through on our organic revenue growth and the remaining full year benefits of our restructuring program. So in summary, the safety of our people is our top priority, and we're continuing with our COVID protections as needed to keep them safe. I'd like to thank our people for their commitment, looking out for one another and providing great support to our customers in this challenging time. We delivered 10.3% organic revenue growth with a broad recovery in our markets and through share gain. Together, clean energy, clean transportation, semiconductors and healthcare grew 22% in the year. Operating profit margins increased to 13.1%, their highest in over 20 years. Our pricing actions, together with continuous improvement, more than offset inflation during the year. Return on invested capital increased to 20.5%, and earnings per share was 27.2p, a 43% improvement on the prior year. Cash flows are very good with GBP 66 million of free cash flow, reducing net debt to EBITDA to 0.3x. We reduced our Scope 1 and 2 CO2 emissions by 17% despite the underlying growth in the business. Looking ahead, we expect 4% to 7% organic growth this year with margins expanding further. Thank you. That ends the formal presentation. Just before we turn to questions, I just wanted to take an opportunity to thank Peter. After 15 years as a public company CFO, Peter is retiring in June. And Peter, I wanted to thank you for the really superb work you've done in the 6 years that you've been with Morgan. You've been an outstanding partner to me. You've been a great leader in the business, and you leave the business in much better shape than you found it. So thank you from all of us for everything that you've done.

Thank you, Pete.

And with that, we'll now take questions. The operator will explain the process for Q&A.

[Operator Instructions] Our first question comes from Edward Maravanyika with Citi.

I have 2 questions. My first question, could you please quantify your comments around good order momentum into year-end? How much visibility do you have for full year 2022? And what was the Q4 '21 order growth year-on-year and sequentially as well, please, Q2 versus Q4? And then my second question is just on your comments on the acquisition pipeline, please. Could you help us by maybe talking through the criteria on that pipeline, maybe by business area, by end market or even by size of the prospects you're looking at?

Yes, sure. Yes, so in terms of order momentum, I mean we don't disclose the order book or the details on that sort of separately, Ed. But we saw a sort of high level of order intake really from the middle of last year onwards as the global economy recovered. That led to, I think, a very healthy order book coming into this year. And we've reflected on the size of the order book, the sort of macroeconomic environment, the leading indicators in arriving at our guidance of 4% to 7% for the revenue growth for the full year. Just in terms of visibility, typically, we have roughly half of the quarter ahead in the order book when we start the quarter. So our visibility beyond the first half is relatively limited. And for that, we tend to look at longer-term trends as well as sort of macro indicators. In terms of acquisition pipeline, yes, the criteria, I mean, sort of fundamentally, Ed, sort of strategic fit. So we want things that have, if you like, a differentiated material position. We want things that are in markets where there are sort of good barriers to entry where we can build a scale position and sort of, if you operate at scale, to get the benefits of our sort of global position as a group. And then we want things that are going to be sort of economically attractive, and that for us means attractive gross margins. And ultimately, we want something that's going to be economic profit accretive in year 3.

Our next question comes from Andrew Douglas with Jefferies.

Three questions, please. Can you give us the volume -- or the operational gearing from the volume increases in the year? I appreciate there's restructuring benefits coming through and efficiency gains and all that kind of stuff, but purely the drop-through from volume in '21 and also what you guide therefore on '22? I appreciate that energy costs aren't massive for you, but there must be some inflation in the pipe. And then 2 questions with regards to, one, ESG. I know just that your CO2 net-zero target by 2050 excludes supply chain, distribution network and employee travel. So it's not really net zero. I was just wondering if there is ultimately going to be an aspiration to be net zero, including supply chain, distribution network and employee travel. Just can I get your thoughts on that? And then I was slight surprised by the 50% number you gave us on the survey. Can you just outline as to kind of why that is so low and what needs to be done to get that up towards that 75%, which I think you talked to?

Yes, sure. So look, why don't I take the second, then I'll let Peter comment on sort of volumes and drop-through. So on ESG, Andy, you're absolutely right, the target that we set as it stands is for Scope 1 and 2 only. We are working on being able to measure Scope 3. It's obviously relatively complex and then there are aspects that are easier around travel, but some of the supply chain impacts are quite complex to assess. So we're working on those. We'll be starting to collect that during the back end of this year and really during next year. I think once we've got a handle on that, then we'll look at setting targets then incorporate that as appropriate. In terms of the employee engagement, so yes, the [ funny ] there, I think, we can work on, Andy, there's lots of good stuff that came out. So I think employees were very clear on our focus on safety and ethics. I think there was a lot of alignment with the purpose of the group. But clearly, some things we can do better. I think if people quite consistently are looking for more collaboration across the group, I think things have started to feel a little siloed, in particular, with sort of less travel and less sort of interaction between people across the group. People are keen to just get to a better communication. So again, I think we've lost a bit with some of the virtual communications across the piece. There's absolutely concerns in some parts of the group around just levels of resourcing. It has been a little slower to get staff in as the businesses ramped, in particular, in some parts of the U.S. And then finally, obviously, a little bit of concern around reward just with the inflationary environment. So those are some of the themes that we'll be working on in the coming months to sort of start to move those figures in the right direction. Peter, over to you on Andy's question on volumes.

Yes. So I guess the organic revenue growth in the period, Andy, was just under GBP 90 million. Our organic profit growth in the period was GBP 40 million, of which, obviously, GBP 14 million incrementally came from the restructuring program. So if you sort of back out the GBP 14 million out of the GBP 40 million, you've got GBP 26 million of organic profit growth on just under GBP 90 million of revenue, so about 30% drop-through.

Okay. And that should be the same number going forward?

Yes. I mean I think, clearly, as we start to sort of get closer to sort of capacity utilization, we may need to add some more resources in certain areas, so it may be a little bit lower than that. And then I guess the other factor is with higher inflation, higher pricing. Some of that is just, if you like, a recovery of -- some of the revenue growth we're going to get in 2022 is just a recovery of cost inflation. So just that piece, obviously, won't have some volume drop-through attached to it.

Okay. Perfect. And good luck with your retirement. Enjoy it.

Thank you.

Our next question comes from Harry Philips of Peel Hunt.

Just a couple of questions, please. The first is just I was interested in the positive auto comments around Thermal and just the driver behind that, terrible pun I'm afraid, not intended. The second was just in terms of where we are on armor because it just seems to be holding up a bit better than you might have imagined a couple of years ago. Just where does that go in '22? And then lastly, I mean, a tremendous performance on margins, but ironically or they're achieved despite the reasonably low margins by comparison in your 2 biggest businesses. I suppose, just how do you -- what needs to happen in both Thermal and Technical to really get those motoring along?

Thank you. So auto volumes, yes, we saw -- I think our auto volumes last year were pretty close to 2019 levels, not quite back to that position, but pretty close. I think that was slightly different in the 2 halves. There was a sort of reasonable recovery in the first half. And then, I think as the global supply chain started to stutter, that slowed somewhat. It is very much a global sort of footprint for us. We're supplying into the auto sector really in sort of all of the large industrial geographies and certainly sort of big automakers in Asia, in Europe and in the U.S. So it's really a sort of a recovery that we saw there. I think there had been some destocking in that supply chain, and that obviously benefited, I think, in the first half, as I commented. I'll pick up just a comment on margins and then, Peter, I'll let you respond on armor. So yes, Harry, I think it's sort of slightly different for the 2 businesses. I think for Thermal Ceramics, those margins are sort of lower than we want to see. I think we're confident we can grow those, including this year. The big driver there beyond sort of some of the divestments that we made, which are a little bit of a headwind, is really the aerospace piece of that business. So that has the biggest aerospace exposure. It's where we've done quite a bit of restructuring activity to improve margins and align capacity to the underlying demand position. We're expecting those aerospace volumes to improve, and we've got the sort of final drop-through on those restructuring benefits coming through this year. So that should see Thermal Ceramics margins starting to improve. For Thermal then, that's just very much around overall volume leverage and volumes recovering back to 2019 levels. They're not quite there yet, so there's a bit more to come in that business. We again have taken some restructuring actions in that business unit, but there's sort of more to do there on volume, which we'll see those margins picking up. I expect sort of through the cycle, though, they're probably structurally a little lower than we see in Technical Ceramics. Peter?

Yes. So we saw GBP 29 million of revenue coming from ceramic armor in 2021. We think that will be somewhere between GBP 10 million and GBP 15 million at the moment, Harry, for 2022. So I think probably, as you say, probably it has sustained a little bit longer than we expected from the outset. But obviously, as we've guided the last couple of years, we're sort of in the tail of that [indiscernible] work right now kind of continue to [indiscernible].

Brilliant. Thanks for all your help, Peter, over the last few years.

My pleasure.

Our next question comes from Maggie Schooley of Stifel.

The first one I had is just for a bit more on your next phase of growth, like delight the customer. Over the past few years, I think... [Technical Difficulty]

I think we've lost you, Maggie.

Apologies, Maggie, you appear to have some connection issues there. Our next question comes from Richard Paige of Numis.

I'm afraid I've got the mandatory 3 questions, if I may, please. On the just -- I've had to come up with one, especially, to make the number. But on the -- just on your guidance on the like-for-like 4% to 7%, could you just give us a guide on what you're assuming pricing-wise within that, please? The second one, just in terms of that guidance, again, is there anything unusual we should expect from a first half, second half weighting perspective within that? And then I guess the last one, you obviously noted it, the Electrical Carbon performance. But I mean, obviously, I'm looking at second half margin pushing through 20%. Is that a sustainable level? And just understand a bit more what's going on there, please?

Yes, sure. Richard, nice to speak to you. So I'll just [ cover ] Electrical Carbon, and I'll let Peter comment on the phasing and pricing. I think that's kind of top end of the range for that business. I think I've probably said that last time, and they pushed a little higher. But we are sort of getting back to sort of high levels of capacity utilization there. So there'll be some resources that have to get added in to support the further growth, and that puts a little bit of a cap on the margin position, so I think sort of top end of the range there. Peter?

Yes. So in terms of sort of phasing first half, second half, Richard, that's very balanced as normal, I think. I think as we've discussed previously, there's a very slight skew to the second half in terms of our sort of trading days, et cetera, so sort of probably 49% first half, 51% second half, something in that kind of range. So a very slight sort of second half skew would be a normal balanced year for us, if I can put it that way. And in terms of the sort of moving parts within our sort of 4% to 7% organic revenue growth for the year, clearly, we've got a couple of percentage points headwind from the combination of the decline in ceramic armor and from the exit from Russia. So those acted a bit of a headwind. We've got some organic volume growth. And then we're assuming pricing is going to be higher than we've seen in 2021. So pricing was just under 2% in 2021. We think it's going to be in the sort of 3% to 5% range for this year, something in that kind of range. It will depend still a little bit how commodity prices move from here because we've kept pricing duration with most customers relatively short, so we can continue to respond to changes in cost inflation by continuing to pass that on with additional price increases if we need to. So that's the sort of moving pieces, Richard, within the sort of guidance of 4% to 7%.

I understand. That's very helpful. As always, I mean, congratulations on your retirement, Peter.

Thank you.

[Operator Instructions] Our next question, we'll be connecting to Maggie Schooley of Stifel.

Sorry about that. I'm currently [ outside now ]. Can you hear me now?

Yes, go ahead.

The question I wanted to ask is I'm intrigued by your comments on the next phase of growth, so delight the customer and really have that engagement. And over the past few years, you've had a lot of building blocks in place in terms of new sales team, new account structure and all the work that you've done so far. So I was wondering if you could just expand slightly on the nuts and bolts of how that would work just so we have an idea of how you've been to supercharge that? And then the next question would be about the water projects under ESG because this is an area that most companies do lag on. So I was wondering if you could highlight in more detail as well what projects you're undertaking to try to get that water intensity down as you continue to grow.

Sure, happy to. So on delight the customer, yes, it's very much the next step for us, Maggie, as you intimated. So we've done a lot of work in the sort of 2016 to 2019, '20 period on our sales effectiveness, which involved a whole range of changes, standardizing our sales process, putting in place a CRM tool, looking at our pricing capabilities, looking at routes to market, looking at the capabilities and providing some training to our sales team, adjusting incentives and so on. What we're now looking to do, having sort of got those foundations in place, is to do a better job of delivering to our customers against their needs. So if you like, in general, our segmentation at the moment would really involve sort of scale of customer opportunities. So sort of bigger customers tend to get more time and a more sort of tailored service. We haven't done much across the group systematically to understand customer needs, so which customers are interested in a higher level of service support, are more interested in sort of innovation versus those for whom this is very much a sort of price-only game, and we need to have a sort of different view on some of those factors. So that's one of the things that we're looking at across the group. So we're talking to an awful lot of customers to understand how we're doing, what we can do better. That will provide us with some targeted improvement opportunities, whether that's around turnaround times or customer service or support or those sorts of arrangements, but it will also give us the insight into those customer needs. And then I've mentioned briefly, there's quite a bit we can do on our digital presence. We've been working to sort of upgrade the sort of website position for our various business units so that that's clearer for customers. They can find data more readily. But we don't have a particularly sort of sophisticated interface between us and our customers. If they want to buy sort of electronically, that is more challenging for us at the moment. And we think that, again, is an opportunity for us. So in the round, I think that's the sort of the key pieces that we're trying to work on. In terms of water, we've been doing a whole lot of things. I mean it's been everything from adjusting the settings on sort of pumps and valves, which sounds basic, but in many cases, people just sort of set these things up. 20 years ago, they opened the valve up to maximum to give sort of maximum cooling through a piece of equipment. And we've gone back and said, well, actually what level of flow-through do we need in order to provide the necessary cooling, and that might be 20%, 30%, 40%, 50% less. Or can we put a different cleaning cycle and regimen in for a particular piece of equipment, so the sort of behavioral and process changes like that. We've put in closed-loop recycling systems for water where we were using open loop. We started capturing the exit water, cleaning it and then running it back through the process. So we got examples of that across the group. We're looking at rainwater harvesting for some of the parts of the world where there is sort of periods of drought. For example, parts of India, we're looking at an opportunity there to do some of that. And then beyond that, we're just looking at some other of our underlying production processes where we're using water and saying, is there a way to either use less or not use it at all? Can we come up with a dry alternative? So we've got some R&D investments in our centers of excellence looking at those processes.

Okay. And Peter, thank you from me. I appreciate all your help as well.

Thank you.

Our next question comes from Mark Fielding of RBC.

Just in terms of -- you always very kindly provide the end market progression. And looking into 2022, you've obviously flagged the continued headwind in body armor. Just is there anything else in particular we should think about in terms of your other end market verticals, sort of particularly, how do you think about the recovery in chemical and petrochemical? And is there anything else that particularly stands out as sort of differentiating year-on-year? And maybe linked to that, could you just talk -- you also talked about those faster-growing technologies at 20% of sales. Are they predominantly consolidated in that end market split in the sort of semi, electronics, energy and healthcare bit? Or is there a broader spread to them?

Yes. So on the faster-growing piece, yes, it's sort of -- I mean you've got 2 of them broken out explicitly, which is semiconductors and healthcare, and then clean energy and clean transportation are within energy and transportation there. Those 2 together account for about GBP 55 million of sales in 2021. In terms of market momentum, I don't think there's much I'd call out. So armor headwind, as Peter intimated, so that will drop to probably GBP 10 million to GBP 15 million or so this year. We'll see how that plays out. I think industrial economies, I'm expecting a pretty robust first half. I suspect we'll see things slowing a little in the second half just given the various sort of macro indicators that we're looking at and some of the sort of geopolitical complications, energy prices and so forth. I think that ripples through then into some of the other segments. But for things like aerospace, automotive, I'm assuming good momentum as sort of travel picks up and sort of supply chain strains ease. I think healthcare, semicon, clean energy, clean transportation continue to grow strongly because of the underlying drivers. And then finally, on sort of chemical, petrochem, that is quite sort of project-related for us and can be a little lumpy. I think with higher oil prices, you might see some higher activity levels on the upstream side of things, which may support some of our sort of pump volumes and things. On the sort of project side, I think we've got a reasonable sort of pipeline of activity coming through. So I expect to see some sort of modest growth in that segment in the year.

Great. Thank you very much, Peter, for all your help.

Thanks, Mark.

We have no further questions on the phone lines.

All right. Very good. I think that draws for the close. So just to say thanks very much, everybody, for your participation, and I wish everybody to keep safe and well. Thanks. Bye.