Company Announcements

Changes to operational processes are carefully considered by site, GBU and divisional management before implementation. Operational improvements and savings are monitored against budget by the GBUs and the Executive Committee to ensure that changes deliver the savings promised without disruption to business operations. New capital investments are approved at appropriate levels of the Group and delivery of these is overseen by GBU and Group management.

Organisational changes are assessed by the Chief Executive Officer, the Executive Committee and sometimes the Board before being implemented in line with local employment regulations.

A number of functionalisation initiatives commenced within the GBUs in 2020 to align and standardise data and processes. The rollout of these projects will continue in 2021.

Changes to our sales structures and incentives are reviewed at various levels of the organisation before being launched.

Further detail on our strategy can be found on page 7.

The Board performs regular reviews of the Group's portfolio.

During 2020, the Group launched a COVID-19-related restructuring and efficiency programme. This accelerated existing plans to simplify the Group's portfolio and align capacity with the anticipated demand across the business. The Group has announced closure of Technical Ceramics ceramic cores manufacturing sites (in response to the downturn in aerospace demand) and closure of under-utilised production lines in Thermal Ceramics.

Opportunities to acquire businesses are reviewed on a continuing basis.

The Group's broad market and geographic spread helps to mitigate the effects of political and economic changes.

Budgets and forecasts for Morgan's different businesses are used to monitor delivery against expectations and anticipate potential external risks to performance. These are subject to regular review by the Executive Committee and the Board.

The overall macro-economic environment has weakened compared with the previous year. However, the Group's daily order intake has improved during the second half of 2020. Cost-control measures have been effective, and the Group has sustained a strong balance sheet.

Global issues considered by the Board this year included the continuing impact and uncertainty relating to the trade negotiations between the US and China, as well as Russia/Iran and Korea/Japan trade relations. The impact of the UK's exit from the EU has been reduced by the avoidance of a 'no-deal' Brexit; however, tariffs could be introduced in the future.

Managing its operations safely is the Group's number one priority. The Group has a comprehensive EHS programme managed by the Group H&S Director and the Group Environment & Sustainability Director, with clear EHS standards and a refreshed programme of audits to assess compliance.

The Group H&S Director and the Group Environment & Sustainability Director, working with the Global EHS Leads, set annual priorities for EHS which are approved by the Executive Committee. These form the basis for individual sites' own EHS priorities and plans and complement the Group's 'thinkSAFE' behavioural safety programme.

EHS performance is monitored by the Group Executive Committee and the Board. EHS metrics are regularly assessed. Overall EHS performance deteriorated slightly during 2020.

As at 31 December 2020, the Group was managing projects to remediate legacy contamination at a number of former operational sites in conjunction with external specialists and relevant authorities.

The Group's commitment to protecting and enhancing the environment is set out on pages 12 to 15.

Details of the Group's provisions and contingent liabilities can be found in note 25 to the consolidated financial statements.

In all our manufacturing sites, we have successfully adapted our ways of working to respond to the pandemic - introducing social distancing, hygiene measures and additional PPE - to keep our people safe. Flexible working from home was also introduced for all roles that could do so.

We have continued to supply our key customers operating in essential sectors, including healthcare and power generation.

The Group has provided clear and timely communication to reinforce the importance of following safety measures in every part of the organisation.

Many of the Group's products are designed to customer specifications. Our businesses' quality management systems and training help ensure that all our products meet or exceed customer requirements and national/international standards.

The Group Legal Policy requires that contracts relating to products used in potential high-risk applications are subject to legal review to ensure that appropriate protections are in place for product quality risks.

The Group insurance programme includes product liability insurance; this Group-level insurance is reviewed annually by the Board.

During 2020 we strengthened our information security and compliance function. We are currently operating to a three-year approved security programme and introduced the 'thinkSECURE' internal brand as an awareness programme.

The Group has continued to monitor the regulatory and compliance landscape and is working towards certification against emerging regulations, such as the US Department of Defense's Cybersecurity Maturity Model Certificate (CMMC), and the EU-GDPR and UK Data Protection Act (DPA) 2018.

We will mitigate residual and emerging risks through continuation of our IT strategy and information security programme, including 'thinkSECURE' and implementation of the related cybersecurity projects.

The Group has a diversified manufacturing, customer and geographic base which provides a level of resilience against single-point exposures. Were any site to be unavailable, production in many cases could be switched to other sites. A new Business Continuity Policy has been rolled out to support minimum standards at the Group's most important sites for intercompany supply.

Management of these risks also involves monitoring and reviewing supply chains (internal and external), dual/multiple sourcing of materials or strategic stock, site security and safety mechanisms, business continuity plans, and maintenance of product quality and strong customer relationships.

The Group insurance programme includes business interruption cover and specific cover in relation to the impact of an earthquake in California, US; this Group-level insurance is reviewed annually by the Board.

The Group's treasury function operates on a risk-averse basis. Required controls over selection of banks, cash management and other treasury practices and payments globally are documented in Morgan's Treasury Policy and related procedures. The Group treasury team manages the Group's funding, liquidity, cash management, interest rate, foreign exchange, counterparty credit and other treasury-related risks. Treasury matters are regularly reviewed by the Board and Audit Committee.

In 2020, the Group was confirmed as an eligible issuer under the UK Government's 'COVID-19 Corporate Financing Facility' (CCFF) with an issuer limit of £300 million, providing additional liquidity headroom. The facility was undrawn and expired in March 2021.

As at 31 December 2020, the Group had an undrawn Revolving Credit Facility of £200 million, which matures in September 2024.

Further detail on our Treasury Policy is set out in the Group Financial Review, which can be found on pages 38 to 40.

Morgan's primary means of mitigating pensions funding risk is proactive management of the pension scheme assets and liabilities through an integrated pension strategy focusing on funding, investment and benefit risk. This involves both internal management within the Group and also external management through the Schemes' trustees, corporate actuaries and professional advisers.

In the UK, both Schemes are closed to the future accrual of benefits. In consultation with the Company, the trustees have adopted a proactive approach to the management of risk in the Schemes' investment portfolios, significantly reducing their unhedged interest and inflation rate exposure. Following the most recent Scheme valuations in March 2019, Company contributions increased to £16.5 million pa from 2020 (further increasing by 2.75% pa) for the length of the current recovery plans (2025 and 2027).

The impact of the evolving regulatory environment for UK occupational pensions, and in particular the likely passing of the Pensions Bill in Parliament, will continue to be monitored closely in 2021.

Risk for both of the defined benefit Pension Plans in the US has been reduced. One completed a full legal termination (in June 2016). For the other Scheme, a formal offer of a present-value-equivalent, lump-sum cash payment was made to members. Following a $36 million additional contribution (in December 2017) and a move to a significantly de-risked investment portfolio, this Scheme is now almost fully funded on an accounting basis.

A liability management strategy for one the US multi-employer plans has been agreed and a proposal for withdrawal made to the Trustees of the more severely underfunded arrangement.

No significant funding obligations exist in any other individual country although German legacy defined benefit schemes are unfunded, in accordance with local practice, with benefits being met by the Group as they are due.

The Group's tax function, working in conjunction with external specialists as required, closely monitors fiscal developments and changes such as BEPS to ensure that the Group's tax arrangements and practices continue to comply with the requirements of all relevant jurisdictions, whilst also enabling efficient management of the tax liability. The Group's Head of Tax reports to the Audit Committee on key tax issues and initiatives.

The Group has published its tax strategy on its website in line with UK corporate governance requirements.

The Group has an in-house legal function supplemented by specialist external lawyers.

The Group Legal Policy requires in-house legal review of high-value or high-risk contracts to ensure they contain appropriate protections for the Group. The Policy requires Chief Executive Officer approval before a business can enter into an unlimited liability contract or one where the liability cap exceeds £5 million.

To the extent that risk cannot be mitigated through contractual arrangements, the Group has insurance cover in place, including product liability insurance.

The Group is committed to the highest standards of corporate and individual behaviour. To support this, in 2018 the Group issued the Morgan Code, which has been continuously in force since then. The Code defines the Group's approach to doing business ethically and confirms Morgan's commitments to high standards of ethical behaviour. The Code is supported by a range of documents and mechanisms: policies, standards and guidance; training materials; the provision of a 'Speak Up' hotline for employees; and systems to support effective screening of and due diligence on third parties.

Mandatory ethics training for staff covers topics including anti-bribery and anti-corruption, competition law, harassment and bullying, and trade controls. In-depth face-to-face training has also been held in some of the Group's higher risk regions. The Group's 'Speak Up' methods enable staff to report concerns anonymously.

The Group also has an Export Compliance Director in the US whose role is dedicated to ensuring compliance with export controls.

In addition to Group-level compliance specialists, our businesses are required to establish compliance officer roles, which are responsible for supporting local training and monitoring. Morgan also employs country-specific trade and export compliance specialists in higher-risk businesses and jurisdictions.

Further details on ethics and compliance can be found on page 23.