Ladies and gentlemen, welcome to the Morgan Advanced Materials full-year results 2023 conference call. I would like to remind you that all participants will be in the listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Pete Raby, CEO. Please go ahead.
Thanks very much. Well, good morning, everyone. So this is Pete Raby, the Chief Executive of Morgan Advanced Materials. Welcome to our 2023 preliminary results call. I'm joined on the call by Richard Armitage, our CFO. I'll take you through a summary of our results. Richard will then walk you through the key aspects of our financial performance, and I will update you on our business unit and environmental performance, our strategy and growth plans, and the outlook for 2024. We delivered revenues of GBP 1.1 billion and organic revenue growth of 2.5% with 10.4% growth from our faster-growing markets. Group adjusted operating profit was GBP 120 million, with adjusted operating margins of 10.8% and a ROIC of 17.6%. Our financial performance reflects the impact of the cyber incident that we experienced at the beginning of last year.
The impact was most severe in the first half when we were working to restore our network and systems, and the recovery was substantially complete by the end of the year. Cash generated from continuing operations was good at GBP 126 million, with the mid-year outflow in working capital fully recovered by the end of the year. The balance sheet is strong, with net debt to EBITDA excluding lease liabilities at 1.2 times. We've made excellent progress in the year in reducing our Scope 1 and 2 CO2 emissions down 25% on the prior year, and we have now reduced our CO2 emissions by over 50% from our 2015 starting point. We've announced a simplification of the group structure as part of a restructuring program to streamline the business, reduce our costs, and further simplify our manufacturing footprint.
We've also increased our capital program to expand capacity for the semiconductor market, reflecting very high demand for our products. This will drive additional organic growth and is a significant growth opportunity for the group. Our underlying outlook for 2024 is unchanged, but we do expect some foreign exchange headwinds. We expect good growth this year against the weaker 2023 comparator and further outperformance in our faster-growing markets led by semiconductors, where we're increasing our capacity investment. I'll now hand over to Richard to discuss the full-year results in more detail.
Thank you, Pete, and good morning, everyone. I would like to start with an overview of the financial results to the 31st of December, 2023. Revenue at GBP 1,114.7 million was 2.5% higher than prior year on an organic constant-currency basis. This was driven by a volume decline of around 4%, offset by pricing benefit of around 6.5%. As expected, we did see some weakening in our industrial end markets during the second half, although this was offset by an acceleration in the growth of our faster-growing markets to give overall growth in line with our first half. Group adjusted operating profit was GBP 120.3 million. Adjusted operating margin was 10.8% for the year as a whole and had recovered to 12.5% in the second half in line with our financial framework. Return on invested capital was 17.6%.
Cash generated from continuing operations was GBP 126.3 million, and free cash flow was an inflow of GBP 14.6 million, both benefiting from a solid working capital improvement during the second half as we recovered from the cyber incident. The year-on-year improvement was principally due to the non-repeat of the pension contribution made in December 2022. Adjusted EPS was GBP 0.25 per share, reflecting the lower operating profit, and we have held the dividend for the year flat at GBP 0.12 per share. As usual, we have included in the appendix the financial information in statutory format, and there follows at Chart 9 an analysis of specific adjusting items which amounted to GBP 25.1 million for the year. Turning now to the profit bridge, we can firstly see the impact of the cyber incident. As expected, this did continue into our second half as a number of sites were still working to recover their efficiencies.
We estimate the overall impact of the incident to have been around GBP 25 million. Sales volume declined by 4% as noted, and we have attributed roughly 2.5%-3% of this decline to the cyber incident. Inflation continued to impact the year, averaging 6% on cost of goods sold, and was fully offset by pricing measures which averaged 6.5%. We have increased our IT spend by a run rate of around GBP 8 million-GBP 10 million per annum, which includes investment in a more secure infrastructure as well as the rollout of our ERP system. Finally, there was an increase of GBP 7 million in other overheads, mainly in sales and R&D, as we continue to invest in the business's growth.
Moving on to cash flow, I would firstly note that the working capital cash outflow of GBP 45.2 million, which we had reported at the half-year, had almost completely reversed by the end of the year to leave a very small outflow overall. After a slow start, our capital expenditure accelerated in the second half to reach GBP 58.5 million, with increased levels of expenditure on capacity for our faster-growing markets. Free cash flow before dividends was therefore an inflow of GBP 14.6 million and improvement of GBP 61.5 million over the prior year. I would note that we had made pension contributions totaling GBP 86 million in the prior year, whereas this year, as expected, we have made no contributions. Cash flows relating to exceptional items totaled GBP 22.3 million, then those relating to FX interest and other items comprised net interest payments of GBP 11.6 million and FX movements of GBP 9.5 million.
Net debt finished the year at GBP 185.2 million excluding lease liabilities, representing 1.2 times EBITDA. We have included our usual summary of our funding profile in the appendix. We are today announcing a simplification of the group structure and further restructuring plans. Morgan has a successful business model based on the development of leading differentiated positions in attractive growth markets. In order to focus our resources on the most attractive opportunities, we will in future manage the group through three distinct segments. Those are Thermal Products, comprising the current Thermal Ceramics and MMS segments, focusing on growth opportunities in which heat resistance, fire protection, and insulation are principal product attributes. Performance Carbon, comprising the current Electrical Carbon and most of the Seals and Bearings segments, with a clear remit to pursue opportunities for carbon-based components in semiconductor, rail, aerospace, power generation, and other markets.
Technical Ceramics, comprising the current Technical Ceramics and part of the Seals and Bearings segments, focused on development of our advanced ceramic applications in semiconductor, healthcare, aerospace, and industrial equipment. We are also continuing to look for opportunities to improve efficiency by closing inefficient or poorly utilized sites. Four sites have been identified for closure, and we will also implement some back-office and other cost savings. In part, this recognizes the need for us to manage our cost base effectively in the face of weaker short-term demand in some of our industrial end markets. We expect implementation costs to amount to GBP 20 million over three years, with GBP 10 million per annum of savings achieved by 2025. On this next chart, I've shown a breakdown of our 2023 specific adjusting items of GBP 25.1 million.
14.7 million relates to legal, advisory, and impairment charges arising from the cyber incident and is in line with the estimate announced with our interim results. A further GBP 5.8 million relates to the impact of the sharp devaluation in the Argentine peso on the 13th of December. GBP 3.2 million arises from the impairment of inventory and fixed assets, while GBP 2.6 million relates principally to the impact of the currency devaluation on U.S. dollar denominated credit balances. The other main item is restructuring, where the program we are announcing today has led to a GBP 6.5 million charge for projects initiated so far. This is partly offset by a release of GBP 3 million from a previous program, mainly due to the settlement of an employee pension plan with lower-than-expected costs.
Moving on to technical guidance, I would note firstly that the acceleration of our investment in capacity will lead to an increase in our capital expenditure over the next three years. We are now expecting spend in 2024 to be around GBP 120 million, along with expenditure of at least GBP 100 million in each of 2025 and 2026. These will cover the returns profile we expect from this investment. In 2024, the increased CapEx will lead to a net cash outflow of around GBP 40 million-GBP 60 million, with year-end net debt in the range GBP 230 million-GBP 250 million. While good progress was made with recovering working capital during 2023, there is more to do, and we will target working capital reduction as a means of keeping our leverage down to around 1.2 times by the end of the year.
Our net finance charge will increase slightly into the GBP 18 million-GBP 20 million range. We expect our adjusted effective tax rate to continue at around 27%, contributions to non-UK defined benefit pension schemes to be around GBP 3 million-GBP 4 million, and our dividend policy remains to cover of around 2.5 times. Finally, we have seen a weakening in sterling against the US dollar as well as versus several transactional currencies and now expect a currency headwind of approximately GBP 5 million for the year. Finally, I've included here a reminder of our updated financial framework that we introduced in December 2022. We have increased our revenue growth guidance as a result of our capacity investment, with 4%-7% per annum through-cycle growth now expected.
Our operating margin re-range remains at 12.5%-15%, and we expect to sustain return on invested capital between 17%-20%, which is well above our cost of capital. We remain comfortable with leverage excluding IFRS 16 liabilities of around 1x in normal trading conditions. We are continuing actively to examine acquisition opportunities and would be comfortable with leverage nearer to 2x in the event of one or more of those opportunities being realized. Our ambition, therefore, remains to drive enhanced growth in adjusted EPS through accelerated organic revenue growth, a continuous focus on margin, accretive M&A, then enhanced returns to shareholders as appropriate. That covers the key financial items. So with that, I'll hand you back to Pete.
Thank you, Richard. I'll start with the market. So this slide shows the organic performance in our major market segments, split between our faster-growing segments and our core. And the cyber incident reduced growth by between 2.5% and 3% in the year, and that spreads pretty evenly across the segments, you can see here. Faster-growing markets were up 10.4% in the year, driven by semiconductors and healthcare. Semiconductors was up 20% on the prior year, a really strong year reflecting good momentum, in particular in the silicon carbide power electronics segment. Healthcare was up 5.8% , driven by medical feedthroughs and vacuum insulation for medicine transport and storage. Moving to the core, transportation grew 12.6%, with aerospace the driver. Air traffic volumes recovered further. Aerospace was up 16% in the year.
Chemical and petrochemical sales were up 2.9%, with higher thermal project activity and growth in aftermarket sales for Seals and Bearings products. Security and defense grew 6%, with flat armor sales and then growth in wider defense applications. Industrial and metals sales declined 5%, reflecting weak industrial market demand, in particular, in Europe. Turning to our global business units, there are two overall drivers of their performance. First, revenue growth is depressed by 2.5%-3% and margins by around 2.2% as a result of the cyber incident. Cyber impact was greatest in Seals and Bearings and Technical Ceramics, as their systems in North America had to be replaced, and so inefficiencies persisted through the second half, impacting both revenues and margins. Margins in the other GBUs have seen greater improvement in the second half of the year.
The second driver was market weakness, during H2, in particular in European industrial and metals markets. This impacted revenues in all the GBUs, but it was most significant in Thermal Ceramics and Seals and Bearings, and then metals was weak globally for Molten Metal Systems. Overall group margins were 12.5% in the second half, so in our guidance range, and reflecting a low cycle position and then some residual cyber impacts in Seals and Bearings and Technical Ceramics in particular. I'll come onto our simplification in a moment, but note, this is the last time we'll report the GBUs, in this format. Turning to our non-financial performance, so this slide shows our progress in reducing Scope 1 and Scope 2 CO2 emissions since 2015. Our emissions in 2023 were down 25% on the prior year, with volumes, in the business down around 4%.
During the year, we improved energy intensity, price adjusted by about 11%, and we continued the transition to carbon-free energy for a number of our sites. At the end of the year, around 72% of our electricity was coming from green or carbon-free sources. And at this point, we've reduced our absolute CO2 emissions, Scope 1 and 2, by over 50% since 2015. Our water usage reduced 11% during the year, with efficiency measures and the non-repeat of a couple of major leaks driving the improvement. Water usage in stressed areas reduced by 14%, driven by efficiency projects in our plant. And we're on track to meet our 2030 water goals. Pleasingly, our safety performance improved, with a lost-time accident rate of 0.19 compared to 0.28 in the prior year.
We continue to have a high degree of focus on safety, and we will be working further in 2024 to improve process safety and to embed our behavioral safety tools more fully. From a diversity and inclusion perspective, our full-year position was 30% of our senior leaders being female, slightly up on the prior year. This is receiving a high level of focus across our leadership teams as we look to make bigger improvements in the next few years. Finally, turning to engagement, we completed a Pulse engagement survey in December and re-recorded a 54% engagement level. That's a 1% decline for the equivalent population in the prior year. Given the very challenging year for our teams, I was pleased with that result. I'll now turn to our strategy and how we're repositioning our business.
Our strategy is to build distinctive capabilities in three areas: in customer focus, in materials science, and in application engineering. This combination of an intimate understanding of our customers' needs, our deep materials expertise, and the application engineering skills to bring those materials to a manufacturable product allow us to build long-term, trusted relationships with our customers and to develop annuity streams from our products. We apply these skills in markets where it's our expertise and differentiation is valued, where we can grow, and where we can operate at scale. Over the last five years, we've been working hard to develop new markets to increase our underlying growth rate and expand our margins. We use the credibility, expertise, and production capabilities that we've developed in our core to produce new materials and product solutions for our faster-growing markets. Those are semiconductors, healthcare, clean energy, and clean transportation.
In these faster-growing segments, we typically have a smaller share and a more of an emerging position. These markets have a good underlying long-term growth outlook, and we expect them to grow more quickly than our core markets over the cycle. We also expect higher margins in these segments as our products are typically newer and more differentiated. In 2023, these markets represented 21% of our sales, up from 20% in the prior year. Our core, representing 79% of the business, includes more mature markets where we typically enjoy a strong market position, leading or among the leaders. We have a strong global brand, well-established and deep customer relationships, and a global position. We're well-placed in our core, and we expect that to grow 2%-4% through the cycle.
We're continuing to invest in the core to maintain and win share and to introduce new technologies and products that our customers need to become more sustainable. For example, at present, we have additional capacity under construction in India and in North America to support growth in the core. Over the last 4 years, our semiconductor revenues have grown at a compound annual rate of 13% and have supported high overall growth rates in our faster-growing segments. This has been driven by silicon carbide for power electronics as well as conventional microprocessor demand. Our sales to the semiconductor market split roughly 50/50 between power and non-power electronic applications, with the power electronic applications growing very quickly. There are robust long-term drivers of this growth. These power electronic devices, they offer higher performance. They're integral to inverters used in electric vehicles and other, grid power conditioning applications.
We've increased our capital investment to capture this opportunity, and we now expect to invest GBP 100 million in new capacity, which should be mostly installed by the end of 2025, with commissioning and ramp-up through 2026 and 2027. We expect at least GBP 80 million of incremental sales and GBP 25 million of incremental EBITDA by 2027 from this investment. With this investment, we expect our semiconductor revenues to grow 15%-20% per year for the next four years. This will raise our faster-growing market's growth rate to 10%-15%, up from the 7%-12% guidance we gave in 2022. We expect our faster-growing markets to be 25%-30% of the group over the next few years.
With the high growth rates in semiconductors, we now expect faster group revenue growth, and we're increasing our guidance range from 3%-6% to 4%-7% annual growth through the cycle. We're simplifying our business, reducing the number of global business units. Going forward, we'll be managing the group in three distinct segments: Thermal Products, Performance Carbon, and Technical Ceramics. This change delivers a more efficient leadership structure and combines equivalent assets and processes together, splitting Seals and Bearings between Technical Ceramics and Performance Carbon based on the material family. This will enable process and footprint optimization, allowing us to more easily and flexibly utilize capacity in former Seals and Bearings to support growth in Technical Ceramics and Performance Carbon.
In addition to this streamlining of our structure, we'll be completing a further rationalization of our operating footprint, closing 4 sites and integrating their activities into existing, more productive sites. With the completion of this restructuring over the next couple of years, we will have reduced the number of manufacturing sites in the group by a quarter to 66, a much simpler and more efficient operating footprint. For information, this next slide shows the 2023 results presented in the new 3-segment format. And this is the format that we will use going forward. 2023 was a challenging year for the group, with considerable disruption from the cyber incident and a sizable impact on our financial performance. However, we are back on track, and we remain a good investment. We're well-positioned in attractive, growing markets. We have leading, differentiated products.
We're providing sustainable solutions to support the energy transition, and we're resilient, delivering attractive through-cycle returns. As I've just outlined, we have a large organic investment opportunity in semiconductors, and we expect that to increase our organic growth rate for at least the next four years. That reflects our strategy, our differentiated products and good market positioning, ultimately in support of vehicle electrification and grid power management. The organic opportunity, together with the balance sheet capacity to support M&A or returns to shareholders, will enable us to deliver attractive returns in the coming years. In summary, we've grown revenues 2.5%, with 10.4% growth in our faster-growing market. Our margins recovered to 12.5% in the second half, in line with our financial framework. We're increasing investment in capacity for the semiconductor market, and we expect a higher organic growth rate for the next four years.
We're simplifying and restructuring the group to deliver efficiencies to support reinvestment and enhanced margins. We have a strong balance sheet, enable us to fund organic investment and M&A or capital returns to shareholders. Our underlying outlook for 2024 is unchanged, with some FX headwinds. We expect revenues to be slightly second-half weighted as we have new capacity coming online in the second half. Thank you. That ends the formal presentation. We'll now take questions, and I will hand you back to the operator to coordinate that.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Scott Cagehin from Investec. Please go ahead.
Good morning, chaps. Can you hear me okay?
Yeah, morning, Scott.
Morning, Scott.
Good morning. Just wanted to ask a few more questions around the semi-investment. Just, how much of it's customer-sort-of-led, the sort of competitive environment. Is there only a few suppliers? Just what prompted you to increase from 60 to 100 in a short space of time? And then the return on that investment, sort of initial calculations suggest about 25%, but could you just sort of walk me through that as well, Richard, please? Thank you.
Yeah, sure, Scott. I can, I can do that. So, yes, I would characterize that investment as customer-led. We're expanding capacity to supply customers that are manufacturing silicon carbide wafers that then get used to make, you know, power electronic devices. We are putting in place sort of frame contracts to underpin about half the capacity that we're adding into the market, give or take. And then the balance we will sort of sell to the range of customers we have today. We have got a broad range of customers in that market segment, so we're supplying, you know, a number of different people. We're not dependent on any one customer. And all of those customers are placing very high demand on us. We remain sold out through this year, even with some additional capacity coming on in the second half of the year.
In terms of competitive environment, you know, there are several players in that space. You know, we are one of the leaders. It depends a little bit on exactly which product we're talking about, and we do make several that go into there. So, you know, it is competitive, but it is a small number of players. It's a highly differentiated product. It's relatively challenging to make. And so really the driver of the investment is end-market demand. So, you know, electric vehicle demand, grid power conditioning, people using inverters. Silicon carbide offers a more efficient semiconductor solution for that.
And as a consequence, you know, just given the growth in EVs, even with, you know, perhaps more conservative growth assumptions, there's still a heck of a lot of demand out there for these products, and that's ultimately, you know, flowing through to us in the supply chain. In terms of return on capital, Richard, do you want to comment on that?
So Pete commented on our expectation that we'll deliver at least GBP 80 million of incremental revenue and GBP 25 million of EBITDA, full run rate by 2027. Indeed, Scott, that would give you a 25% return on investor capital. So, margin enhancing and ROIC enhancing.
Very helpful, and thanks for the clarification. Thank you.
Thanks, Scott.
Thank you. The next question comes from the line of Maggie Schooley with Redburn Atlantic. Please go ahead.
Sorry to have to cut you off. Can you hear me?
Yeah, morning, Maggie.
Hi. I just was hoping you could give us a little bit more thoughts on the new structure. Clearly, it makes it easier for investors to understand the group, and clear to see how operationally it can be more efficient, but could you just give us some examples or an example of how, in practice, on a day-to-day basis, it will support the sales team to drive sales, but also how it makes it easier to interact with your clients in terms of R&D and driving those client-led R&D processes? And then the second one is, I know you mentioned a full pipeline for bolt-on M&A.
If those are in your faster-growing markets, I know you've indicated you think you can get to target markets being about 25%, but hypothetically speaking, if you were to put your capital to use, where do you possibly think that contribution of faster-growing markets can be within the group?
Sure. Let me pick those up for you. So, in terms of the new structure, yeah, there's a significant streamlining in terms of sort of leadership structures within the group, obviously. You know, we eliminate one GBU, and split it between two others, so we get the benefits of, you know, the focus in those leadership teams. In terms of the wider impact, in effect, you know, much of Seals and Bearings produces carbon-related products. So we've got, you know, if you like, a common center of excellence that was already supporting electrical carbon and Seals and Bearings. So it's a little more efficient for them, operating within a single business unit. But probably the more significant benefit is actually our ability to optimize the production footprint.
So we're already utilizing, and we were before to some degree, sort of, if you like, Seals and Bearings facilities to support some of the growth that we're seeing in electrical carbon in both sort of semiconductors, clean energy, and also in the core business. So we've got a considerable opportunity there to sort of leverage a slightly bigger manufacturing footprint more efficiently. And in terms of our customers, it there are some of the customers overlap, some don't, but for the ones that overlap, obviously, we now give them a sort of single face rather than sort of two faces, if you like, to deal with, or we make that key account management piece of the puzzle simpler.
And then sort of, you know, back to that overarching point on R&D, that allows us then to, I think, have a sort of clearer input, in terms of our R&D prioritization based on sort of a more sort of unified customer voice. So I'm expecting that to give us very significant benefits, you know, if you like, in terms of operational simplification, you know, improvements in cost structure and working capital, but also sort of efficiency and agility for our customers.
In terms of M&A, yeah, we're diligently working that. We've got a, you know, several prospects that we're working through at the moment. If we're able to, you know, achieve what we'd like to in that space, you know, there's no reason why we can't get the faster-growing markets, you know, 30%-35% of the group, over the next several years. I think just the organic piece will get us to in the sort of 25-30 range, and then we've got, you know, scope to go beyond that with M&A.
Excellent. Thank you. Very helpful. Appreciate it.
Thanks.
Thank you. We now have the next question from the line of Mark Fielding from RBC. Please go ahead.
Oh, hi. Yeah, Mark Fielding from RBC. Could I ask, well, a couple of interlinked questions. I suppose when we think about that incremental semiconductor operating profit, just any comments about, you know, more specifically, as obviously out to 2027, the phasing of that, if there's, you know, a pretty straight line or, you know, there's some sort of given there's new capacity coming in, is it going to be slightly lumpy in terms of how it comes in? Maybe, maybe just discuss that first, you know.
Sure. Morning, Mark. So, so it's sort of 2026, 2027 rather than 2025. You know, commissioning starts in 2026, so, you know, it will start to build through that year. But to sort of perhaps be more helpful, we've got a capital markets event coming up in April, and we'll be giving more color on the whole sort of semicond investment piece, at that point.
Perfect. And then I suppose I'm just thinking about, you know, well, actually, I'll ask you a second question, which will lead into the third, which is where I'm getting to in the end, if I'm honest. But the simple one that, you know, obviously at the minute, IT investment is higher I think it's higher year-on-year in 2024. Can you talk about the current level, how much it's increasing year-on-year, and then how we think about that in the long term, i.e., after the current sort of accelerated investment, what is a normal level that it drops back to?
Yeah, sure. So, It's up, as you say. I think we've got about an extra sort of GBP 8 million or so going into IT spend this year. That will, you know, will be at that higher level for, you know, realistically, probably 2025 and 2026, something like that. So once we've sort of finished the deployment of our ERP solution, you know, the sort of the standing army, if you will, of people that are doing supporting that implementation, you know, we'll move back into sort of, you know, business activity. So, the cost will go down at that point. So there's, you know, there's some incremental benefit. I think that, in principle, comes through to margins, comes sort of 2027, something like that.
And is it, I mean, is it would it be that sort of, because I know you were off a bit last year as well. Do we see that sort of GBP 8 million number therefore just drop away in 2027-ish? Is that, is that the sort of quantity? Or is it not that large?
Mark, I think actually, if you look over two years, you can point to something like GBP 16 million-GBP 18 million. Overall, it's gone up by enough amount. We haven't given guidance for how much of that would drop away in 2027, but part but probably not all of that, GBP 16 million.
Yeah. This leads me to where I've, I've been, you know, moving in this in this whole set of questioning, which is actually when I think about, you know, 2027, and it's not exactly somewhere where, you know, every analyst has a forecast, and there's a massive profit bridge out there. But I suppose I'm just putting together that there's, you know, GBP 25 million of incremental semiconductor EBIT, which is predominantly a bit more weighted to 2027. There's a drop in IT costs, which could be therefore, you know, somewhere in, you know, maybe half of that, GBP 16 million-GBP 18 million or something. We've also got the GBP 10 million restructuring benefit, which I know comes in a bit sooner.
But I suppose I'm just putting together all these moving parts and feeling like, you know, there's probably GBP 50 million nearly of EBIT benefit or something when you move out, you know, 3-4 years, which is actually without thinking about organic growth in the rest of the portfolio. Am I, am I being I suppose am I being overly optimistic is what I'm asking, or, you know, are the building blocks right to the future?
Yeah. Look, Mark, I think margins will start to expand quite quickly, you know, sort of 2026, 2027, as this stuff starts to drop through. I mean, I think the semiconductor stuff drops straight in. The restructuring stuff to some degree is, you know, as you say, that ramps a little earlier. And there will be some benefit from IT. So absolutely, we're expecting margins to sort of move up through the range pretty quickly as we get to the, the sort of, you know, 24 months from now.
Perfect. Thank you.
Thanks.
Thank you. As a reminder, if you wish to register for a question, please press star and one on your telephone. We have the next question from the line of Jonathan Hurn from Barclays. Please go ahead.
Hey, guys. Good morning. Just a few short questions for me, please. Firstly, I just wondered if you could talk a little bit about pricing. Obviously, that was a big tailwind for you in 2023. As we kind of looked at 2024, how did that play out? That was the first one. And then the second one was just, obviously, in terms of the portfolio rationalization. Obviously, looking at the portfolio, there's lots of bits within that. I mean, I know immediately there's no sort of plans for divestments of any part of those, but I think maybe looking over the medium term, do you think there's scope under the new structure for maybe a leaner operation in certain areas and maybe divesting some small parts of businesses? That was the second one, please.
Sure. Richard, do you want to pick up pricing, and I'll comment on the portfolio?
Yeah. Morning, Jonathan. Pricing in 2023 was about 6.5%. Inflation was about 6% of cost of goods sold, so clearly one recovered the other. Expectations in 2024 are for pricing of around 3%. Inflation on cost of goods sold towards 4%. So again, pricing will offset inflation.
Okay. And then on just your portfolio question, Jonathan. So yeah, we obviously, the you know, the structure helps us from an operational point, as I commented already. In terms of the sort of overall shape of the group, I think that the bigger divestments, you know, that we sort of were intended, we completed those in sort of, you know, 2016, 2017, 2018. We do sort of constantly look at the overall shape of the portfolio, and, you know, every year, we are sort of, you know, optimizing, if you like, the sort of product mix that might involve us, you know, trimming things on the tail. Maybe we put prices up and do an end-of-life on a product. It may be that we, you know, divest a product line or maybe an individual plant.
You know, we'll continue to do that if we see opportunities in the portfolio to, you know, to streamline and make better use of the capital. So it is an active process for us. You know, we look at it sort of throughout the year and, you know, formally several times a year with our board.
Okay. No, that's very clear. And then maybe just one quick follow-up. Can you just sort of delve and give us a little bit of detail about clean energy, clean transport? Obviously, sales were down in 2023. What's happening there, please?
Yeah, sure. The first point I make is that that's it's the smaller of the sort of three areas we've got in the faster-growing markets. It is a little earlier for us in terms of the sort of growth platforms in there. We've got sort of more things at an earlier stage. That could be, you know, insulation for electric vehicles, thermal protection solutions for energy storage or for fuel cells. There's a range of different sort of product options that we have in there, which at the moment are quite small. I'm expecting the growth in that to strengthen, you know, over the next few years as some of those options start to get a bit more mature.
In terms of the specifics of last year, so, the big pieces that we have in there today would be rail markets, wind markets, and solar. And so the rail markets is sort of European and Asian, in particular, sort of China. And we saw some, you know, pretty sizable destocking in the European rail network where they just got ahead of themselves in terms of, sort of, you know, products for collector strips, basically, for the pantographs going onto, sort of trains going onto the overhead line. So that destocking plus some weakness in China. China was pretty slow, last year, in terms of sort of overall demand in the transport space and also the wind space. So those are the two drivers of that, sort of flat position, for last year.
That's very clear. Thank you, guys.
Okay.
Thank you. We have a follow-up question from the line of Mark Fielding from RBC. Please go ahead.
Hi. Yeah, just a quick follow-up, actually, on the question just from Jonathan a minute ago. In terms of the pricing side and talking about around 3% this year, I suppose, just what is the medium-term pricing assumption within that, group growth guidance? You know, what should we be thinking about as the price contribution to that growth?
Yeah, Mark. Typically, when we are in, sort of, slightly less inflationary environment, we think about pricing of 1%-2% within our forward growth, if that helps.
That's perfect. Thanks.
Thank you. The next question comes from the line of Martin Wilkie from Morgan Stanley. Please go ahead.
Have we had? You changed company?
Yep.
Congratulations, Martin.
Thank you. Good morning to you. Morning, Richard. My question was just on the industry, the sort of core industrial end markets. I can see from the slide, conventional transportation driven by aerospace. Where are we with that going into 2024, and are there any other areas within the sort of core industrial markets that are looking kind of upbeat into 2024?
Yeah, sure. So yeah, aerospace very strong last year. As I said, it was up 16%-odd, I think. We're expecting that to probably be 5%-10% up this year, something like that. The aerospace market remains very, very healthy, in terms of sort of overall demand rates. And I think if anybody's, you know, been on a plane or through an airport lately, you know, you'd sort of be familiar with that. So we're, I think, expecting good growth there. I think defence, for, I think, obvious geopolitical reasons has been strong. That was up something like 6% last year. I think we're expecting that to be continuing to grow also into this year. The other pieces I'd call out in those sort of industrial segments, I think oil and gas, you know, we saw a little bit of growth last year.
I think that will continue into this year. The sort of aftermarket volumes that we're doing for sort of Seals and Bearing products are, you know, very strong. And then thermal projects, I think, will be sort of steady this year. So, some growth in that piece. And then finally, you know, I would call out India as just an overall market that's been growing very, very strongly for us. We're adding capacity into that market, as I referenced, you know, expecting sort of probably, you know, mid to high single-digit growth for that market. That's probably about, you know, 4% or 5% of the group, just to give you a sense of scale on the Indian market. So those would be the areas of, you know, obvious strength this year, Ed.
Okay. Thank you. That's very clear. Thanks, Pete.
Thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the speakers for closing remarks.
Yep. That does. Thanks very much, indeed, everyone. Appreciate your time. Thanks, everyone.
Thank you.