Morgan Advanced Materials Regulatory News (MGAM)

HALF-YEAR RESULTS FOR THE PERIOD ENDED 30 JUNE 2016

Solid performance and implementation of strategy on track

Results summary

* Definitions of the financial measures can be found in the glossary

Group highlights

· Financial performance in line with management expectations - as anticipated, trading conditions stabilised in the first half of the year and have been similar to the second half of last year.

· Implementation of the new strategy, announced in February, is on track, with the move to the new global organisation complete.

· Group revenue at £475.4 million (H1 2015: £469.2 million) was up 1.3% on a reported basis, down 2.4% on a constant currency basis.

· Group underlying operating profit margin for the first half of the year was 11.6% (H1 2015: 13.0%), reflecting volume deleverage on weaker underlying revenue. Sequential improvement in margin from the second half of last year.

· Overall order intake in the first half was steady with a book-to-bill ratio of 1.01 times.

· Underlying EPS was lower at 10.5 pence (H1 2015: 12.6 pence).

· Net debt at the half-year was £241.6 million (Full-year 2015: £216.0 million). Net debt to EBITDA ratio* at the half-year was 1.7x (Full-year 2015: 1.6x), reflecting recent foreign exchange movements.

· Interim dividend of 4.0 pence per share maintained (2015: Interim 4.0 pence per share).

Divisional highlights

· In Thermal Products reported revenue was up 3.8% compared to the first half of 2015 at £214.5 million (H1 2015: £206.6 million). At constant currency, the increase was 0.4% compared to H1 2015. The Thermal Ceramics business saw growth in Asia and Europe, partially offset by declines in North America. EBITA margins declined to 13.3% (H1 2015: 14.1%), driven by regional mix changes.

· In Carbon and Technical Ceramics reported revenue was marginally down against the first half of 2015 at £245.0 million (H1 2015: £246.0 million). On a constant currency basis, revenue was down 4.5% compared to the first half of 2015 with declines across all the businesses. EBITA margins declined to 12.1% (H1 2015: 13.8%), as a result of the lower activity levels.

· Trading in Composites and Defence Systems business was at a similar level to the first half of 2015.

Commenting on the results for Morgan Advanced Materials, Chief Executive Officer, Pete Raby said:

"As anticipated, trading conditions in the first half of the year have been similar to the second half of last year in many of our markets. Against this backdrop, we have delivered a solid set of results for the first half of the year, in line with the expectations set in November of last year.

The implementation of our strategy is on track, with a new organisation structure in place, plans for our two new technology Centres of Excellence defined and operational improvements underway across the Group.

Looking to the balance of the year, we continue to remain cautious in terms of market outlook and are expecting underlying trading levels to be similar to that achieved in the first half and our guidance for underlying trading for the full year remains unchanged. We have planned prudently for this year and will be focused on the execution of our strategy, improving our efficiency and investing in the business to drive future growth."

For further enquiries:

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* Definitions of the financial measures can be found in the glossary

Thermal Products

Revenue for the first half of the year was £214.5 million (H1 2015: £206.6 million) representing an increase of 3.8% at reported rates. At constant currency there was an increase of 0.4%.

EBITA for the first half of the year was £28.5 million (H1 2015: £29.2 million), with EBITA margin declining to 13.3% in the first half of 2016 compared with 14.1% in H1 2015.

Thermal Ceramics achieved 0.6% revenue growth at constant currency in the first half, with strong growth in Asia, driven in particular by Japan. In Europe, growth was driven by applications in consumer products and medical, as well as projects in iron and steel and ceramics. In North America activity levels were significantly lower in most industrial markets reflecting a continuation of the slowdown in activity that began in H2 2015. EBITA margins declined due to the regional mix changes described above.

Molten Metal Systems saw a 1.4% constant currency decline in the first half, with weaker activity in its non-ferrous metals end markets. EBITA margins improved due to the benefits of productivity enhancements.

Carbon and Technical Ceramics

Revenue for the first half of the year was £245.0 million (H1 2015: £246.0 million) representing a decrease of 0.4% at reported rates. At constant currency there was a decrease of 4.5%.

EBITA for the first half of the year was £29.7 million (H1 2015: £34.0 million), with EBITA margin declining to 12.1% in the first half of 2016 compared with 13.8% in H1 2015.

Electrical Carbon saw a constant currency decline in revenue of 6.0% in the first half, with declines in North America and in Asia on weaker traction, mining and industrial demand, again reflecting a continuation of the slowdown experienced in H2 2015. For Seals and Bearings the constant currency decline in revenue was 4.4% in the first half due to a weaker oil and gas market. Within Technical Ceramics, the 3.6% constant currency decline in revenue was primarily due to lower sales of electro ceramic components, with product sales for hard disc drive applications reducing as expected. Across each of the businesses, EBITA margins declined as a result of the lower activity levels.

Composites and Defence Systems

Revenue for the first half of the year was £15.9 million (H1 2015: £16.6 million) representing a decrease of 4.2% at both reported and constant currency rates.

EBITA for the first half of the year was £1.1 million (H1 2015: £0.4 million), with EBITA margin improving to 6.9% in the first half of 2016 compared with 2.4% in H1 2015. The EBITA progression reflects the mix of contracts delivered in the first half, as well as the benefits from efficiency improvements

Financial review

Reference is made to 'Group underlying operating profit', 'Underlying EPS', 'Cash flow from operations', 'Net debt' and 'Free cash flow before acquisitions and dividends' below, all of which are defined in the glossary at the end of this statement. These measures are shown because the Directors consider that they give the best indication of underlying performance.

Business performance review

Group revenue in the first half of 2016 was £475.4 million, an increase of 1.3% compared to the first half of 2015. On a constant currency, basis revenue decreased by 2.4%.

Group underlying operating profit for the first half of 2016 was £55.1 million (H1 2015: £61.1 million), a margin of 11.6%, compared to 13.0% for the first half of 2015.

Restructuring costs in H1 2016 were £1.5 million (H1 2015: nil). These costs represent the conclusion of the significant rationalisation of the Carbon material footprint and corporate restructuring.

Specific adjusting items were £3.8 million credit (H1 2015: nil). During the first half of 2016 the Group has completed the final termination and payment of all earned benefits for one of its North American defined benefit pension plans. As a result of this termination, the Group has recognised a net pension settlement credit of £3.8 million. No specific adjusting items were incurred in H1 2015. Details of specific adjusting items incurred during the year ended 31 December 2015 are given in note 4 to the condensed consolidated financial statements

The Group amortisation charge for the half-year was £3.3 million (H1 2015: £3.6 million).

The net finance charge was £9.8 million (H1 2015: £8.5 million), comprising the net bank interest and similar charges of £6.4 million (H1 2015: £6.1 million), income derived from financial instruments of £0.2 million (H1 2015: £1.0 million) and the finance charge under IAS 19 (revised), being the interest charge on pension scheme net liabilities, of £3.6 million (H1 2015: £3.4 million).

The Group taxation charge, excluding specific adjusting items, was £12.7 million (H1 2015: £14.5 million). The effective tax rate, excluding specific adjusting items for the half-year is 30.0% (H1 2015: 29.5%).

Underlying EPS is 10.5 pence (H1 2015: 12.6 pence), and basic earnings per share was 10.2 pence (H1 2015: 11.4 pence).

R&D spend increased to 2.9% of sales (H1 2015: 2.7%). Plans for two new technology 'Centres of Excellence' have been defined.

The Return on Operating Capital Employed at 30 June 2016, defined as Group underlying profit for the last 12 months divided by the sum of working capital and the net book value of tangible assets, was 22.8%, compared with 29.7% at 30 June 2015.

Defined benefit pension plans

The Group pension deficit has increased by £66.9 million since last year end to £271.4 million on an IAS 19 basis due to lower discount rates and the weakening of GBP against the US dollar and the Euro:

· The UK schemes deficit increased by £49.3 million to £166.7 million (31 December 2015: £117.4 million), mainly as result of the discount rate reducing to 2.8% (31 December 2015: 3.7%).

· The US schemes deficit increased by £7.2 million to £62.3 million (December 2015: £55.1 million), as changes in assumptions and exchange rate adjustments more than offset investment gains, employer contributions and settlements. The discount rate on US schemes reduced to 3.8% (31 December 2015: 4.5%).

· The European schemes deficit increased by £9.7 million to £38.0 million (December 2015: £28.3 million), with approximately half of deterioration due to changes in assumptions and half due to exchange rate adjustments. The discount rate on European schemes reduced to 1.3% (31 December 2015: 2.3%).

Cash Flow

* Definitions of the financial measures can be found in the glossary

Cash flow from operations was £47.5 million (H1 2015: £59.2 million).

Free cash flow before acquisitions and dividends was £11.1 million (H1 2015: £2.5 million).

Net debt at the half-year end was £241.6 million (2015 year end: £216.0 million) representing a net debt to EBITDA ratio of 1.7x (2015 year end: 1.6x). The net debt to EBITDA ratio is defined in the glossary of terms.

Foreign exchange

The principal exchange rates used in the translation of the results of overseas subsidiaries were as follows:

For illustrative purposes, the table below provides details of the impact on H1 2016 revenue and Group EBITA if the actual reported results, calculated using H1 2016 average exchange rates, were restated for GBP weakening by 10 cents against the US dollar in isolation and 10 cents against the Euro in isolation:

Interim dividend

The Board has declared an interim dividend of 4.0 pence per ordinary share (H1 2015 4.0 pence per ordinary share). The dividend will be paid on 25 November 2016 to Ordinary shareholders on the register of members at the close of business on 4 November 2016.

Principal risks and uncertainties

The Group has in place processes for identifying, evaluating and managing the key risks which could have an impact upon the Group's performance.

The current risks, which the Board considers could have the most serious effect on achieving the Group's strategy, and the approach to managing them, are set out in the 2015 Annual Report, which is available at the Group's website at www.morganadvancedmaterials.com The Group has reviewed these risks and concluded that they adequately represent the current principal risks and uncertainties of the Group and will continue to remain relevant for the second half of the financial year.

The principal risks comprise: technical leadership; people management and development; treasury risks; quality of contracts; IT risks and cyber risks; product quality, safety and liability; single point exposures; environment, health and safety risks; changes to or non-compliance with laws and regulation; a changing political, economic and social environment; taxation; and, pension funding.

Based on the Group's geographical spread and the cross-border transaction flows, the potential direct impact of the recent UK referendum on EU membership is not considered to be a major risk. The greater uncertainty created relates to the potential risk of a weakening global economy and the volatility since the referendum seen in both foreign exchange and bond yields, which in particular impacts pension funding. The Board will continue to monitor developments and implement plans to offset these impacts where practical.

Going Concern

As reported on page 47 of the 2015 Annual Report, the Group meets its day-to-day working capital requirements through local banking arrangements and the committed £200 million unsecured five-year multi-currency revolving credit facility. The headroom on this at the half-year was £116 million.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to operate within the level of its committed facilities. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of 12 months from the date of this Statement. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements for the six months ended 30 June 2016.

Directors' Responsibility Statement

The Directors confirm that to the best of their knowledge:

· the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7 of the Disclosure and Transparency Rules of the Financial Conduct Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8 of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Information on the current directors of Morgan Advanced Materials plc responsible for providing this Statement is maintained on the Company's website at www.morganadvancedmaterials.com.

By order of the Board

Pete Raby

Chief Executive Officer

Peter Turner

Chief Financial Officer

Glossary of terms