Mobile Global Esports Inc. Price & Performance (MGAM)

I will start with a summary of the results, Richard will then take you through the financial position and I'll then cover the segmental drivers, non financial metrics and the outlook. In 2024, we delivered and organic revenue growth of 3.7% with 7.6% growth from our faster growing Morgan. In light of the trading conditions, we've accelerated our restructuring program and will now deliver run rate savings of £27,000,000 a year from 2026 for a one off cost of £45,000,000 Group adjusted operating profit was £128,000,000 and operating margin of 11.7% up 90 basis points. Pricing and continuous improvement continued to more than offset and we achieved $8,000,000 of benefits from our restructuring. Cash generated from operations was up 29% Gross capital expenditure was £90,000,000 as we invest in capital sorry, as we invest in capacity for our core and for our faster growing market. Net debt to EBITDA is within our framework range at 1.4 times.

We also reduced scope one and two CO2 emissions by a further 3% during the year. I'll now hand you over to Richard to take you through the financial results. Thank you, Pete. And good morning, everyone. I would like to start with an overview of the financial results [indiscernible] Revenue at £1,100,000,000 was 3.7% higher than prior year on an organic constant currency basis. This was driven by pricing, the discount for around 5% partly offset by a small overall volume decline. As previously announced, we did see further weakening in our industrial end markets during the second half such that having seen volume growth of around 3.5% in the first volume declined by around 6% in the second Revenue growth in our faster growing markets was 7%? Driven by encouraging growth in clean energy, clean transportation and health care. We did also see slight growth in semiconductor for the year as a whole, but would note that revenue declined in the second half by around 10% compared with the same period in 2023, As a consequence of the slower growth in Metairie Electrical, and consequent impact on customer inventories. Group adjusted operating profit was £128,400,000 an improvement of £18,200,000 or 16.5 on an organic constant currency basis.

Adjusted operating margin was 11.7% Morgan return on invested capital was 18.5%. Cash generated from continuing operations was GBP162.9 million, an free cash flow and inflow of £15,000,000 both showing an improvement over last year and benefiting from further working class [indiscernible] Adjusted EPS was $25.05 dollars per share and we have increased the dividend for the year from 12 to 12.2p GBP 23,100,000.0 for the year. Turning now to the profit bridge, we can see the benefit of our restructuring and efficiency savings that have served to more than offset the impact of the volume decline and give us a substantial underlying profit improvement at constant currency. The volume decline led to the profit impact of around GBP 11,000,000 influenced by the second half decline in higher margin semiconductor volume. Pricing of 5% was mostly offset by inflation of 4% and we again delivered substantial efficiency savings This follows the work done by the businesses in 2023 to recover from the cyber incident which effectively gave another £15,000,000 of efficiency improvement in the first half. Incremental restructuring savings amounted to £8,000,000 and I will come on shortly to our forward view of benefits 2025 and 2026. Finally, FX had a £10,100,000 negative impact on adjusted operating profit with a number of currencies having weakened against sterling during the year.

At constant currency, the overall cost improvement was GBP 18,200,000.0. Moving on to cash flow. I would firstly note that the working capital cash inflow of £14,600,000 resulting from continued improvements in all aspects of our working capital Net capital expenditure amounted to £90,200,000 an increase of £31,700,000 compared with 2023 which included £36,000,000 of capacity related investment Lease payments and other items increased by £4,100,000 due to £2,000,000 in non cash movements and £2,000,000 in increased lease payments on interest. Cash flows relating to exceptional items totaled £18,600,000 a reduction of $9,900,000 due to the cost of the cyber incident having been incurred in the prior year. Free cash flow before dividends was therefore an inflow of £15,000,000 Net debt finished the year at $226,200,000.0 excluding these liabilities, representing 1.4x EBITDA We've included our usual summary of our funding profile in the appendix. We announced in November that our simplification program [indiscernible] Such that we expected to deliver £22,000,000 of annualized savings by '20 with exceptional costs of $45,000,000 In response to the weak market conditions experienced later in 2024, we have further expanded the program should we expect to deliver around £27,000,000 of savings by 2026 for the same exceptional costs. [indiscernible] expect those costs to have been substantially incurred by the end of twenty twenty five and the program completed in early There have been a number of site closures contributing this program as we work to improve the efficiency of our manufacturing footprint.

Overall, our manufacturing sites have reduced from 85% to six sixty over the last ten years, a reduction of 29%. As previously announced, we simplified the group structure into three segments and have also carried out back office and other rationalization. We expect the program to deliver £16,000,000 of incremental savings in 2025 which together with our ongoing efficiency improvement activities will underpin a to a 12.5% margin during 2025. On this next chart, I've shown a breakdown of our 2024 specific adjusting items of 23,100,000,000 times. We have chosen to follow established practice in treating the design configuration and implementation costs associated with the rollout our ERP system as adjusting items. These amounted to GBP 5,200,000.0 in 2024 and are expected to amount to around GBP10 million in each of 2025 and 2026, before tapering off during 2027. Restructuring costs associated with our simplification program amounted to 13,100,000.0 Other adjusting items principally comprised an impairment of £4,200,000 in relation to the thermal products business in Europe was particularly affected by the weakening in industrial end markets during the second half of the year. In the launch of slower than expected growth in battery electric vehicles, we have scaled back our investment in semiconductor capacity for the time being compared with our previous projection of £100,000,000 spend 2024 to 2026, We now expect to have spent around £60,000,000 over the same period.

Based on latest market projections, we still expect healthy near term returns with around £40,000,000 of revenue and £12,000,000 of profit in 2027. To give a 20% return on investment. We will then be well placed with infrastructure in place, bedroom available to make further capacity investments in line with demand growth. Our guidance for other capacity remains unchanged at £40,000,000 over the period And we've been able to trim our forecast for maintenance expenditure slightly a consequence of having closed a number of sites. Overall, we expect capital expenditure of around £90,000,000 in 2025 pounds 65,000,000 in 2026 and £60,000,000 in 2027. This reduced level of spend will give us the flexibility to invest in other opportunities in due course. Finally, moving on to technical guidance. Capital expenditure for 2025 will be around £90,000,000 as noted together with this elevated capital expenditure and our ongoing buyback program, we would expect net debt to increase slightly albeit remaining within our guidance range of $230,000,000 to $250,000,000 We would expect year end leverage to be in line with 2024 as around one point As before, we expect our net finance charge to remain in the £18,000,000 to £20,000,000 range, and our adjusted effective tax rate to continue in the 2628% range.

Our dividend policy remains to cover of around 2.5 times. Whilst we have been below this in 2023 and 2024, We have shown FX sensitivity chart at Chart 27. Whilst there has been a favorable movement in sterling versus the U. S. Dollar since the start of the year, sterling has strengthened against a number of other trading currencies such that we do expect a small overall headwind for the year. Thank you. And I'll now like to hand back to Pete. Thank you, Richard. I'll now take you through our segmental performance the performance of our business unit progress on our non financial goals and then the business outlook. Slide 13 shows the organic performance in our major market segments split between our faster growing segments and our core. Our faster growing segments were up 7.6% in the year driven by Healthcare, Clean Energy and Clean Transportation. After a multiyear period of semiconductor market growth, semiconductors was broadly flat for the year. The market declined in the second half as customers in the silicon carbide electronics market canceled orders reflecting slower than expected electric vehicle growth. I'll cover that in a little bit more detail shortly. Healthcare grew 9% driven by feed throughs for implantable medical Clean Energy and Clean Transportation delivered strong growth for the 19% increase over the prior year.

This was driven by ceramic products, the solar panel manufacturer, and carbon products for electrified rail. Moving to the core, transportation grew 4.5% with aerospace the driver and air traffic volumes. Aerospace was up 13%. Hemetal and Patrick Hemetal grew modestly reflecting thermal product activity, sorry, project activity and aftermarket sales. Security and Defense grew 11% with growth in armor, in night vision components and in wider defense applications. Industrial and metal sales declined 0.7% reflecting weak upmarket demand in all regions and in particular in Europe in The Americas. Turning to our business segments. Each of the global business segments made progress on margins during the year, with good cost management in the face of weaker end market demand. Thermal Products declined organically by 0.6% reflecting the higher exposure to industrial and metals markets globally. Industrial and metals markets account for over half of thermal products revenues. Margins improved by 0.8%. Performance Carbon grew 9.3% another strong top line performance. Driven by the faster growing segments [indiscernible] Margins expanded by 0.7% Morgan. Technical Ceramics grew 3.7%, driven by the faster growing and growth in ceramic cores for industrial gas turbines. Margins expanded 0.8% Morgan. Turning to our non financial performance Slide 15 shows our progress in reducing scope one and two COVID emissions since 2015.

Our CO2 emissions in 2023 were down 3% with progress on energy efficiency, and further low carbon electricity usage. 75% of our electricity now comes from green or carbon free sources. We've reduced our Scope one and two CO2 emissions by over 50% twenty fifteen, and we're on track to meet our 02/1930 goal. Even with the growth in the business to come. Our water usage reduced 6% during the year with efficiency measures driving the improvement. Water usage in stressed areas increased by around 1.6% with growth in some stressed regions such as Mexico, and some changes in product mix. Our safety performance improved further a lost time accident rate of 0.13. Compared to 0.19 in the prior year. We continue to have a high degree of focus on safety and we'll continue to work on behavior safety and process safety in 2025. From a diversity perspective, our full year position is 34% of our senior leaders being female.

Further improvement on the prior year. And this is receiving a high level of focus across our leadership teams as we look to make further improvements. In the next few years. And then finally, turning to engagement. We completed our engagement survey during the year and recorded a 52% engagement level. That was a 1% decline on the same population in the prior year. While that's a reasonable result given the challenging backdrop, we have got much to do here and we're working very hard to drive sustainable improvements with a lot of focus across our business.

Turning to semiconductors. 10% of our revenues come from the semiconductor Morgan. And this is a growth market for us. Our semiconductor revenues have almost doubled over the last four years. Around half our sales are driven by silicon carbide power electronics for electric for power management and half are driven by chip production in conventional logic and memory. The majority of our products are consumables used in the chip manufacturing process. In 2024, the growth in electric vehicles the key end market for silicon carbide power electronics was slower than expected by the industry. The graph shows the growth in EVs expected in 2023 and the growth expected today. There's a delay of a year or more getting to the same volumes that were expected eighteen months ago. We've also included here an estimate for the conversion rate from electric vehicle volumes to volumes for our consumables. There are a number of factors that influence this, so that's weight sizes, wafer yields, electric vehicles, with silicon carbide electronics as well as the furnished configuration at our customers. Taken together, these give a conversion rate of 0.4 to 0.7 times. In other words, it's a 10% growth in electric vehicles, we would expect a 4% to 7% growth in demand for our products.

In 2024 and through this year, the overproduction of wafers in the value chain led to a slowdown in sales for our infumables We expect this inventory to be consumed during 2025, with growth returning 2026. And we remain confident about the prospects for the business here. Electric vehicles are continuing to grow Silicon Carbide Power Electronics are an increasingly attractive solution for those vehicles especially as the price of those devices and we will continue to invest here and we expect to reinstate our capacity investment program as the demand grows. Now at our markets overall, our guided growth ranges are unchanged. These are three cycle ranges and while we see declines in some markets in the near term, we don't think the fundamentals have changed. We expect our faster growing markets to grow with a CAGR of 10% to 15%, driven by power electronics and digitalization, growing demand for healthcare and the energy transition. In our core, we expect aerospace and defense, India and fire protection to grow at a 5% to 8% CAGR Our traditional industrial metals oil and gas and transportation markets will grow at 2% to 4%. Broadly in line with industrial GDP.

We have a disciplined approach delivering improving growth and returns and this is captured in our financial framework. Our targets are for three cycle organic revenue growth of 4% to 7% per year 12.5% to 15% EBITDA Morgan, 17% to 20% ROIC, and leverage of one to two times. And one to 1.5 times absence [indiscernible] Taking together, these all contribute to enhanced EPS growth In the member of last year, we announced a £40,000,000 share buyback program reflecting the absence of M and A in the short term and the strong balance sheet. And that buyback is ongoing. Looking ahead to 2025, European and Chinese industrial and metals markets [indiscernible] And we expect those to be a headwind. Partially offset by The U. S. Where we do see some signs of improvement. Semiconductors will also be a headwind given the stronger H1 last year, and the weakness in the silicon carbide power electronics market. Which is expected to continue through 2025. While Clean Energy and Transportation, India, Aerospace and Defense are expected to grow, these segments won't fully offset the declines industrial and semiconductor markets. And as a result, we expect revenues to be down mid single digit compared to the prior year.

With the self help we're pursuing through our restructuring program, we expect margins to be back within the range.

We've not included any impact from tariffs in our guidance. Very fast moving. There are a lot of different jurisdictions being discussed. And without understanding the details of proposals, difficult to assess. The overall impact So just to summarize, we've grown revenue 3.7%, with 7.6% growth our faster growing market. Our margins were 11.7% and we've accelerated restructuring actions expect to deliver £24,000,000 of restructuring savings in 2025. We slowed our investment to the semiconductor Morgan, reflecting weaker near [indiscernible] we remain very confident in the longer term potential here. And we expect to renew capacity expansion once the current oversupply of silicon carbide wafers is eliminated. We have a strong balance sheet enabling us to fund our organic investment and in due course M and A. And our share buyback is progressing well. Our expectation for the full year is revenues mid single digit below 2024 with equal H1 and H2 and margins back in the range. We've done a lot to optimize the cost structure and operational footprint of the business over the last five years. We have a much leaner site footprint with production focused in our more efficient plant. We've also developed attractive growth opportunities for the group and we're very well placed to grow quickly and to expand margins and cash flows.

As volumes recover. Thank you. That ends our formal presentation. I will now take questions and I'll hand you back to the operator coordinate that.

Thank you. We have a question from Jonathan Hern of Barclays.

Jonathan, your line is now open. Please go ahead.

Hey, guys. Good morning. Just a few clarification questions for me, please.

Firstly, just in terms of your clean energy exposure, can you just give us a feel how much of that is into The U. S?

And within that, how much of that is wind, just Just some color there would be helpful. [indiscernible] was just on that new capacity that's coming on from Semicon, that $40,000,000 Can you just update us that about how much of that capacity is currently sold out? Is there options for customers who maybe taken that capacity [indiscernible] And then the third one was just in terms of that £16,000,000 of incremental benefits coming through on the cost savings plan in 2025. Can you just remind us of the of the H1, H2 split in terms of that sort of savings profile, please?

Okay.

Well, good morning, Jonathan. I'll take the first two and I'll ask Richard just to pick up on the phasing So clean energy in The U. S, just over half of our clean energy exposure is in The U. S. About third of clean energy in total. Is in the wind segment. In terms of the semi comm capacity, so we do have forward contracts covering some of that volume. We are in the process of renegotiating those with customers just given the slowdown. So at this point, it's probably a 20% or so level of coverage that we've got 2027, my expectation is that will pick up as we see volumes improving. Richard, on the phasing of the [indiscernible] Fairly easy phased, but with a slight weight in the second half. So of the order of seven in the first, nine in the second.

Great. Very clear. Thank you.

Our next question is from Harry Phillips of Peel Hunt. Harry, your line is now open. Please go ahead.

Good morning, everyone. A couple of questions, please. The just thinking about Thermal and I was just had a very soggy back end of the year running into the current year And obviously, the the definition of thermal changed a little bit, but you can still track it back. It's just What do you think in normal sort of circumstances what is the right sort of level of margin in that business? Because it's sort of it sort of gets to a bit incisive way you think it ought to be? And then something happens within the portfolio to just sort of nudge it away. And I'm just wondering, is there some is it just the sort of mix or is it competition I'm just trying to understand why it never quite sort of makes it over divide, if you like. And then secondly, on the cost saving, probably a self answering question. Obviously, you've added more cost savings for the current year well, to the program as a whole. Is that based on the sort of current outlook assumptions if the outlook were [indiscernible] is there more scope against that environment to respond with more action in that particular area? [indiscernible] Sure.

Good morning, Harry.

Morgan.

So on Thermal, so I'd see the margins for that business sort of 10% to 12% is the right sort of range. You're right, it's been a challenging few years for that business. The primary impact is demand, Harry. I wouldn't say I don't think we would say there's any meaningful difference in competition. [indiscernible] That landscape is pretty stable. Perhaps an exception in China where that is just naturally a bit more competitive But even there, I think we're seeing particular growth in new competitors. So that's just a sort of static position. The big impacts have been some level of deindustrialization in Europe over the last two or three years with high gas prices that impacted certainly the German and to some degree the European industrial base and we support high temperature processes where for the gas and fuel. So that's been a little bit of a headwind in those markets. And then in 2024 Morgan I think into 2025, China is also [indiscernible] $100,000,000 a year in China probably two thirds of that is thermal related activity. And sentiment there has been very weak. So you have a sort of the volume challenge and we've obviously taken cost out to manage that, but that's what's been putting pressure on Morgan.

Over the last sort of [indiscernible] In terms of [indiscernible] on.

So I was just saying, in terms of sort of product lineup within the business, is that has that sort of basically say I mean, I imagine each product sort of evolved, but in terms of has the mix within it sort of changed considerably in recent years? Or it is comes back to that simple demand [indiscernible] So the answer to that is sort of no and yes. So we're still you could still think of it as sort of roughly speaking half the volumes are fiber related products and then the balance is sort of engineered products of one sort to another, fiber, fire shapes, those kinds of things. Of the of that product set though, we've got different fiber chemistries, we've got more sophisticated products for fire protection. So the products are evolving albeit with the same underlying [indiscernible] [indiscernible] On the cost back restructuring, so we have accelerated that As you noted, we've got more costs coming out this year and a higher total for the program. We've got in there what we see as the right set of actions for now. Obviously, we will continue to look carefully at the market and evolution. And if we see that changing, then we'll reflect on whether some further actions are appropriate.

Our next question is from David Farrell of Jefferies.

Thanks. Morning, both. Two questions for me as well. Just in terms of just wondered if market deterioration got worse. I mean, it looked as if you were going to push through the 1.5 times net debt to EBITDA level. Whether or not that would And then my second question, was if I look at kind of the performance in conventional transportation, for the full year, you were up 4.5% At the first half, you were up 19.2%. So that signifies that there's been quite a significant drop off somewhere. Aerosat, I imagine, has been okay. So maybe just kind of go into a bit of detail terms of the half on half moves in conventional transportation, please? Sure. Let me pick that one and I'll let Richard comment on this sort of the buyback. I think, David, you broke up a little bit. I think your question was around sort of leverage and how that plays into our thinking the Board's thinking on a buyback. Is that right? Yes, that's exactly right. If markets got worse and it looked like you would breach 1.5x, would that trigger the buyback being pushed out? Okay. [indiscernible] starting on the conventional transportation.

So yes, the pieces that sit within that you've got effectively sort of like conventional automotive, you've got rail exposure. And you've got aerospace, which is aviation and space. The piece that I think has the biggest impact in the second half of that is space. That's quite lumpy for us. It's just the nature of how those customers buy. So they buy sort of raised materials and ceramic materials, and we see those vary through the year. And so we just saw more of that order intake in [indiscernible] Of last year. There was a little bit of weakness in conventional automotive and rail just reflecting sort of slowing industrial economies as well. That was positive big pieces. Richard on the buyback David. We are, of course, [indiscernible] around cash flow at a time of weak market conditions We expect the second tranche to progress at a slower pace than the first tranche. So you can anticipate about something like 50% of BOE GBP 40,000,000 program will be completed the end of the year. Okay, great. Thanks very much.

Our next question is from Maggie Schooley of Redburn Atlantic. Maggie, your line is now open. Please go ahead. Thank you. Just had one question. Some of your competitors are talking about pricing pressure relatively significant pricing pressure in SIC. Can you just delve a little bit deeper on what gives you the confidence that that circa 20% return return can be achieved on your investment even albeit paired back over the next couple of years? Are you seeing conversely that pricing pressure perhaps opening up other applications for SICDAT. Might have been priced out previously. [indiscernible] So on the So the price pressure point. So Yes, I don't think we're seeing particularly significant price pressure there. What I would say, we enable that process and our products have a sort of significant impact on the yield that our customers get. What we're trying to do is to produce better products that nudge their yield up So if they're getting incremental yield improvements, clearly that drives a massive reduction in the cost per device cost per wafer for them compared to the sort of cost of raw materials. So that's sort of largely how we're managing that. As I've sort of commented when thinking about that sort of conversion factor from EVs to our waces.

So wafer size is an obvious point. So if you go from a six inches wafer to a nine inches wafer, you're sort of 70% more devices for a given run of a furnace. So again, you get a dramatic reduction in cost per unit and you would in principle, while our consumables will be slightly bigger physically, you're getting Morgan pieces out. So I think that's why we are working hard on the sort of differentiation of our products how they play into the furnace. And I think there's a lot of cost down that comes out for our customers and the consequence of what we do for them. So I think that leaves us feeling pretty good about it. I think the new applications point is a really good one. I think one of the things we're we're being told is that already at the lower device prices, you're getting penetration of that sort of 800 volt architecture onto more vehicles because they're becoming more cost effective. And I think if you think about the sort of the overall market for power electronics, silicon carbide would be seen as the sort of premium device, which premium performance and the premium price.

Clearly, as the cost per device comes down, the cost of an inverter, for example, drops, that is going to open up newer applications. You're going to see more of it, I think, in just regular sort of grid power conditioning for solar farms, or even in due course maybe in domestic inverters where people have got to the solar panels plus the battery. Together with obviously things like data centers where you've got higher power demand for some of the newer data centers that are being put out there to support [indiscernible] the power conditioning becomes more important, efficiency and sort of heat management sort of matters more. And obviously, as those prices come down, that will help. That's how we think about it in the round. Does that help, I guess? [indiscernible] Okay. Very much appreciate it.

I think Maggie, just Morgan by the way. One other point, don't forget that the returns on this investment are attractive. Because they're incremental investments on existing sites So in other words, we have two sites with space, most of the infrastructure. And therefore most of the expenditure goes into equipment. Hence why as before, this is the investment has attracted the same. Got it.

Okay.

Excellent. Thank you very much.

We currently have no further questions. So I will hand over to Pete for final remarks.

Very good, Lee. Thanks so much. Well, with that, just so much indeed, everybody. Thanks for your time. Have a good day.