Morgan Advanced Materials Regulatory News (MGAM)

FULL YEAR RESULTS FOR THE PERIOD ENDED 1ST JANUARY 2012

Results summary

·; Record levels of both revenue, up 8.2%, and underlying operating profit, up 39.3%

·; Strong performance in both Divisions, Ceramics and Engineered Materials each achieving margins of over 13%

·; Underlying EPS increased by 59.9% to 29.9 pence per share (2010: 18.7 pence)

·; Net debt at year end of £215.4m (2010: £236.2m), improving net debt to EBITDA ratio to 1.2 times (2010: 1.7 times)

·; Proposed final dividend increased by 20.0% to 6.0 pence (2010: Final 5.0 pence), giving a full year dividend of 9.25 pence (2010: 7.70 pence)

·; Revenue from dynamic growth economies such as China and India increased by 23% and now represents c.25% of total Group revenue

·; Significant progress towards the three-year goals of doubling underlying PBT, achieving mid-teen profit margins and improving Operating ROCE to 35%.

Commenting on the results and strategy for Morgan Crucible, Chief Executive Officer, Mark Robertshaw said:

"The Group's continuing strategy of focusing on the right growth markets and the right growth geographies with innovative, differentiated, added-value products drove revenue and underlying operating profit to record levels in 2011. As one of the world's leading advanced materials companies, innovation and differentiation in our product offerings are the bedrock of our long-term profitable growth ambitions. I am therefore very encouraged by the success we achieved in 2011 in commercialising an increasing number of new products and technologies. Our continued expansion into the dynamic growth economies of the world such as China, India and Latin America also made significant strides in 2011.

Overall, Morgan Crucible's robust levels of top-line growth allied to continuous improvement initiatives on our cost base meant we made significant progress in 2011 against the 2013 financial goals that we announced at the beginning of last year."

Outlook

Whilst the macroeconomic outlook remains uncertain, the Group believes that with its innovative and differentiated technologies and developing businesses in dynamic growth economies, Morgan Crucible remains well placed to make further progress in 2012 against the three-year financial goals that were announced in early 2011.

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Operating Review

Reference is made to Divisional EBITA throughout the operational reviews for each of the Divisions and is shown in the table below:

* Includes plc costs (eg Report & Accounts, AGM, Non-Executives) and Group Management costs (eg Corporate head office rent, utilities, staff etc).

** One-off items include the costs of restructuring activity, gain on disposal of properties and other one-off items.

Morgan Ceramics Division

The Morgan Ceramics Division comprises the Thermal Ceramics and Technical Ceramics Businesses.

Revenue in the Morgan Ceramics Division was £685.2 million (2010: £609.1 million), representing an increase at reported rates of 12.5%. At constant currency the increase in revenue was 13.7%.

Revenue for the Technical Ceramics Business was £285.1 million (2010: £250.1 million), an increase of 14.0% at reported rates. Revenue was up by 16.1% on a constant currency basis with all regions showing strong improvement. Thermal Ceramics' revenue increased by 11.4% to £400.1 million in 2011 (2010: £359.0 million). On a constant currency basis, the year-on-year increase was 12.2%.

Divisional EBITA for Morgan Ceramics was £92.7 million (2010: £68.8 million), a margin of 13.5% (2010: 11.3%). For Technical Ceramics, EBITA was £43.1 million (2010: £34.0 million), reflecting a year-on-year increase of 26.8% at reported rates. Technical Ceramics improved its EBITA margin by 150 basis points, achieving 15.1% for the year (2010: 13.6%). Thermal Ceramics' EBITA also increased in the year to £49.6 million (2010: £34.8 million), an increase of 42.5% at reported rates. The EBITA margin also showed good improvement to 12.4% (2010: 9.7%).

The Technical Ceramics Business continued to deliver strong revenue and profit growth in 2011. Positive mix shift, an increasing number of new products and technologies in higher margin, higher value-added end-markets, continuous operational improvement programmes and emphasis on positive pricing all supported this profit and margin growth.

In North America and South East Asia the Business continued to invest in additional capacity for next generation hard disc drive (HDD) components, a business that has grown 160% in 2011 to c.£15 million. The industrial gas turbine sector and medical device markets continued to be weak in 2011 but these were offset by improvements in demand from other sectors within the market.

The merger of the Technical and Thermal Businesses was completed to time, with the expected benefits being delivered. The Division now has greater resources to establish a significant Technical Ceramics Business in Asia and encouraging progress has been made in 2011 on developing sales to these regions.

The Thermal Ceramics Business delivered strong revenue and profit growth with the majority of end markets returning to pre-recessionary levels and with the dynamic growth economies representing by far the largest region for revenue in 2011. Major investments concentrated on opportunities to develop capacity and capability in the Asian and Latin American markets. Capital was invested in Moti Boyan, India, for a line to produce high performance thin fibre based laminates for thermal insulation, expansion of fibre capacity in Brazil, in the facility in Yixing China for fused silica production and the establishment of a Superwool® fibre line in Kailong, China.

New product development in the Thermal Ceramics Business remains focused in the field of low bio-persistent fibre with the continued roll-out of Superwool® PlusTM and the higher temperature Superwool® HTTM. These products offer significantly improved insulation performance and position the Business as the global technology leader in the production of low bio-persistent products. Growth in global population and the continuing industrialisation of dynamic growth economies, combined with the need to reduce energy expenditure and the increasingly stringent environmental legislation that favours low bio-persistent fibres such as Superwool®, will continue to drive demand for Thermal Ceramics' heat management solutions.

Overall, order books for both Businesses were healthy entering 2012.

Morgan Engineered Materials Division

The Morgan Engineered Materials Division comprises Morgan Advanced Materials & Technology (AM&T), including NP Aerospace (NPA), and Molten Metal Systems (MMS).

Revenue in the Engineered Materials Division was £415.8 million (2010: £408.0 million), representing an increase at reported rates of 1.9%. At constant currency this increase in revenue was 2.8%. The revenue for AM&T, excluding NP Aerospace, was £276.1 million (2010: £246.8 million) representing an increase of 11.9% at reported rates and 13.7% on a constant currency basis. NP Aerospace revenue was £93.0 million (2010: £120.9 million). MMS achieved revenue of £46.7 million (2010: £40.3 million), representing growth of 15.9% at reported rates, 17.6% on a constant currency basis.

Divisional EBITA for Engineered Materials was £55.7 million (2010: £45.5 million), a margin of 13.4% (2010: 11.2%). AM&T EBITA margin was 13.0% (2010: 10.7%), NP Aerospace was 14.0% (2010: 14.1%) and MMS EBITA margin was 16.5% (2010: 15.6%).

The improvement in the AM&T performance reflects strong increases in sales to dynamic growth economies, particularly China, and the successful introduction of new innovative and differentiated products. AM&T continues to benefit from the strong development of its Chinese and Asian businesses, with revenue growing in excess of 35% in 2011. The continued successful development of the high-temperature product line for the solar and LED markets saw revenue increase approximately £15 million, making a significant contribution to overall growth. AM&T's focus on pursuing opportunities in the renewable energy market has also yielded strong growth in the wind sector and the Business is establishing a strengthening opportunity pipeline in the lithium ion anode market through the successful integration of its Chinese lithium ion battery material supplier, Morgan AM&T Hairong, acquired in December 2010.

The Business also continues to see the benefits of the extensive operational efficiency initiatives taken in previous years, with improved margins being achieved from moves to low-cost regions such as Mexico, China and Hungary and from the on-going Operational Excellence programme.

Revenue in NP Aerospace was in line with expectations at £93 million. NP Aerospace continues to pursue a number of additional domestic and international opportunities with existing and new customers, leveraging its strong portfolio of advanced materials, ballistic expertise, and long history of delivering advanced armour solutions to the UK's Ministry of Defence. Following the opening of a dedicated NPA office in Detroit in 2010 the Business has made good progress in establishing relationships with key US military vehicle OEMs, as demonstrated by winning its first small commercial order for the North American vehicle armour market.

MMS continued to see strong revenue growth in particular from China and India. The Business further improved its mid-teen EBITA margins, with the Chinese and Indian low-cost manufacturing bases continuing to enhance margin performance.

For the Division as a whole, the order book at the start of 2012 was at a healthy level with the outlook positive for continued growth in Asia with sustained performance in core markets in Europe and the Americas. Demand for LED high-temperature products is expected to remain strong, while demand from the solar sector has shown signs of softening entering the year. As previously indicated, it is anticipated that NPA revenue from the Ministry of Defence will continue to ramp down in 2012.

Financial Review

Reference is made to 'Underlying operating profit' and 'Underlying EPS' below, both of which are defined at the front of this statement. These measures of earnings are shown because the Directors consider that they give the best indication of underlying performance.

Group revenue in 2011 was £1,101.0 million, an increase of 8.2% compared to 2010. On a constant currency basis, revenue increased by 9.3%, and at constant currency and excluding NP Aerospace, by 13.7%.

Group EBITA (EBITA before restructuring charges and one-off items) was £143.4 million (2010: £109.5 million) representing a margin of 13.0% (2010: 10.8%).

The restructuring costs and other one-off items of £1.9 million charge (2010: £7.9 million charge) included restructuring costs of £5.6 million, a gain on disposal of properties of £2.4 million and a net pension credit of £1.3 million.

Group underlying operating profit (EBITA after restructuring costs and one-off items) for the year was £141.5 million (2010: £101.6 million). Underlying operating profit margins were 12.9%, compared to 10.0% for 2010.

During 2011, the Group has made very good progress towards its three-year goals, with all the main organic building blocks of the strategy contributing to the improving performance of the business. Organic growth in Western markets, rapid expansion in dynamic growth economies and increased revenue from new products and technologies have all contributed to top-line growth and profit and margin enhancement. Good on-going cost management and benefits from the merger of Technical and Thermal Ceramics have also contributed to the profit and margin improvement in this period. The strong top-line growth combined with operating cost efficiencies drove a substantial uplift in Group underlying PBT to £119.7 million (2010: £75.7 million), a 58.1% increase.

The Group amortisation charge for the year was £8.3 million (2010: £8.0 million).

The net finance charge was £21.8 million (2010: £25.9 million). This charge was primarily net bank interest and similar charges of £20.4 million (2010: £24.7 million), a decrease of £4.3 million. The decrease in the net interest charge is due to the continuing reduction in debt levels and improvement in overall bank facility costs as a result of the refinancing in April 2011, in part offset by the write-off of the previous facility fees. The balance of the finance charge under IFRS is the net interest charge on pension scheme net liabilities which was £0.9 million (2010: £2.0 million), and interest expense of £0.5 million (2010: £1.2 million) on the unwinding of the discount on the deferred consideration relating to the NP Aerospace acquisition.

The tax charge for the period was £32.6 million (2010: £19.7 million). The effective tax rate for the year is 29.3% (2010: 29.1%) and the medium term view is that the rate will remain at c.29%.

Underlying EPS was 29.9 pence (2010: 18.7 pence) an increase of 59.9%.

The Group pension deficit has increased by £31.2 million since last year end to £135.1 million on an IAS 19 basis. The main movements were in the US and UK defined benefit pension schemes. The deficit on the UK schemes increased by £20.8 million to £47.4 million (2010: £26.6 million) and on the US schemes by £8.2 million to £58.5 million (2010: £50.3 million), both mainly due to the impact of lower discount rates. The UK defined benefit pension schemes' deficit also includes a reset of the future indexation of current employees' accrued benefits to the Consumer Price Index ('CPI') rather than the Retail Price Index ('RPI'). This resulted in a pension credit of £3.1 million being recognised in the income statement.

The net cash inflow from operating activities was £137.4 million (2010: £148.1 million). There was an outflow from working capital in the year of £29.1 million (2010: inflow £10.5 million). The Group excluding NP Aerospace improved its third party working capital to sales ratio from 20.0% at the end of 2010 to 19.2% at the end of this year. NP Aerospace had a higher level of trade receivables and inventory than expected at the year end which is expected to reduce significantly through the course of 2012.

Net debt at the year end was £215.4 million (2010: £236.2 million). As a result of the significant improvement in operating performance the net debt to EBITDA ratio at the year end was improved to just below 1.2 times (2010: 1.7 times). The Group completed the refinancing of its bank facilities in April 2011 with a new facility of £150 million at reduced margins. At the year end this bank facility was totally undrawn.

Whilst Group underlying operating profit was increased by more than 39%, Operating Capital Employed only increased by c.5%. This effective capital management meant that the Group's Operating ROCE increased to 33.7% (2010: 25.4%), already approaching the three-year target of 35%.

* Net debt is defined as interest-bearing loans and borrowings, bank overdrafts less cash and cash equivalents.

Final Dividend

Given the significant improvement in performance in 2011, the Board has recommended a final dividend of 6.0 pence per Ordinary share (2010: 5.0 pence). The dividend will be paid on 6th July 2012 to Ordinary shareholders on the register of members at the close of business on 25th May 2012.

A scrip alternative to the cash dividend will again be offered as part of this final dividend giving shareholders the opportunity to increase their shareholding without incurring dealing costs or stamp duty.

The financial statements were approved by the Board of Directors on 15 February 2012 and were signed on its behalf by:

Mark Robertshaw, Chief Executive Officer

Kevin Dangerfield, Chief Financial Officer