Morgan Advanced Materials Regulatory News (MGAM)

HALF YEAR RESULTS FOR THE PERIOD ENDED 30th June 2013

Results summary

^ 2012 results have been restated to reflect the impact of the adoption of IAS 19 (revised) Employee Benefits. Further details are given in the financial review below.

Financial Highlights

·; As expected, revenue at constant currency in the first half of the year was broadly flat compared to the second half of 2012

·; Group EBITA margin for the first half of year was 12.0%, an improvement over the second half of 2012 which was 11.0%

·; Good cash generation from operating activities versus H1 2012

·; Net debt to EBITDA ratio at half year was 1.5 times (2012: full year 1.3 times)

·; Interim dividend increased by 5.6% to 3.8 pence per share (2012: Interim 3.6 pence per share) reflecting the Board's confidence in the business

Operational Highlights

·; New 'One Morgan' model is being successfully implemented and is working well and providing the Group with improved focus on profitable growth opportunities, positive mix change into our target markets and operational cost efficiencies

·; Benefits of restructuring actions started in late 2012 combined with the 'One Morgan' model initiatives are on track to deliver the stated profit improvements of £10 million in 2013 (1/3rd in H1 and 2/3rd in H2) compared to the second half of 2012

·; Reorganisation delivered without any loss of focus on operational performance delivery

·; European revenue up 5.6% at constant currency from H2 2012 and margin at 11.2% (8.0% in H2 2012) reflecting cost cutting measures and improved product mix

·; Resilient performance in North America with mid-teen EBITA margin of 14.8%

·; Tougher trading conditions in Asia/Rest of World, with continued lower activity levels, principally in petrochemical and industrial markets

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

'The market environment has remained challenging in the first six months of the year, with Group revenue broadly flat at constant currency compared to the second half of last year. Our focus has been on improving our performance through operational efficiencies and the organisational changes we have made in the transition to the 'One Morgan' model. This has been achieved whilst continuing to invest strategically for the future, both in growth capex and in increased levels of R&D and application engineering resource.'

Outlook

Our expectation for the second half is that market conditions remain challenging, however, our book-to-bill ratio for the first half of the year has been marginally positive, indicating potential for modest revenue growth in the second half. The focus remains on delivery of the self-help initiatives as part of the 'One Morgan' model driving positive mix change into growth niche markets combined with continued rigorous operational management.

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Operating Review

The results for 2012 as set out below have been restated to reflect the impact of IAS 19 (revised) Employee Benefits.

* 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 property and other one-off items.

Sales by market for H1 2013

The operational reviews below are based on the new 'One Morgan' organisational model, in three geographical regions. Commentary is mainly based on how the businesses have performed against the second half of 2012 as this provides a better and more up to date reference for the Group results at this half year.

Europe

Revenue for the first half of the year was £180.4 million (H1 2012: £197.1 million) representing a decline of 8.5% at reported rates. At constant currency this decline was 10.2%. Compared to the second half of last year (H2 2012: £164.6 million) revenue was up 9.6% and on a constant currency basis up 5.6%.

EBITA for the first half of the year was £20.2 million (H1 2012: £24.4 million). Compared to the second half of last year (H2 2012: £13.1 million) EBITA was significantly improved by £7.1 million. EBITA margins were 11.2% in the first half of 2013 (H1 2012: 12.4%) and significantly improved compared with the 8.0% in the second half of last year.

The trading conditions in Europe were modestly positive overall in the first half compared to the second half of last year. Across our electrical and seals & bearings businesses revenue and profitability improved compared to the second half of last year. In the Technical Ceramics business, strength in aerospace, medical and industrial gas turbines was partially offset by weakness in energy markets. In the Thermal Ceramics business larger engineering project business has been weak as customers delay major investment decisions, but this has been more than compensated for by a steady flow of general base business. Revenue in Composites and Defence Systems (formerly NP Aerospace) is up in the first half compared to the second half of last year, with improving profitability based on a combination of product mix, volume and operational cost reductions.

Operational efficiencies and self-help initiatives have been a major contribution to the performance of the European business. A combination of site closures and headcount reductions, both direct and indirect, with particular emphasis in the electrical and Composites and Defence Systems businesses, has significantly reduced the cost base.

North America

Revenue for the first half of the year was £183.9 million (H1 2012: £197.1 million) representing a decline of 6.7% at reported rates. At constant currency this decline was 8.7%. Compared to the second half of last year (H2 2012: £179.2 million) revenue was up 2.6% and on a constant currency basis marginally down by 0.8%.

EBITA for the first half of the year was £27.3 million (H1 2012: £28.2 million and H2 2012: £27.5 million). The region continues to deliver mid-teen margins.

Trading in the first half has been mixed across end-markets. The overall effect of this was flat revenue, at constant currency, in the first half of 2013 compared to the second half of 2012. Aerospace demand continues to be good in our ceramic core business and improving in the seals & bearings business where we supply into fuel control and power units. Technical Ceramics also achieved increased revenue in medical and oil and gas, though this was offset by weaker semi-conductor and hard disk drive business. The Thermal Ceramics business experienced a drop in larger engineering project business through the period as well as a reduction in Mexican revenue as a result of constraints on government spending. Demand for high-temperature insulation products into the renewables sector and for US body armour remained at the low levels experienced in the second half of last year. The electrical business has been broadly flat in revenue since the second half of 2012.

The region will progressively see the benefits from the removal of overheads under the "One Morgan" organisational change.

Asia & Rest of the World

Revenue for the first half of the year was £121.8 million (H1 2012: £138.8 million) representing a decline of 12.2% at reported rates. At constant currency this decline was 9.1%. Compared to the second half of last year (H2 2012: £130.7 million) revenue was down 6.8% and on a constant currency basis down 6.4%.

EBITA for the first half of the year was £13.1 million (H1 2012: £18.4 million, H2 2012: £14.4 million). EBITA margins of 10.8% were down marginally compared with the second half of last year as operational improvements and cost management largely offset the impact of the revenue decline.

Trading across the region has in general remained weak since the second half of last year. Both China and India continue to remain soft across the industrial sectors. The Thermal Ceramics businesses, in particular, experienced a decline in larger engineering project orders in the iron and steel and chemical industries in China and India but also in the Middle East and Africa and this accounts for the majority of the decline in revenue compared to the second half of 2012. In general the other businesses have had mixed end-market conditions but overall broadly flat compared to the second half of last year. Molten Metal Systems, which has close to 50% of its business in this region, was affected by a slowing in the automotive and aluminium sector, particularly in India, and by the exit of the small furnace assembly business in South America.

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 the first half of 2013 was £486.1 million, a decrease of 8.8% compared to the first half of 2012 and on a constant currency basis, revenue decreased by 9.4%. Compared to the second half of 2012 revenue in the first half was up 2.4% at reported rates and flat on a constant currency basis.

Group EBITA before restructuring charges and one-off items was £58.3 million (H1 2012: £68.5 million) representing a margin of 12.0% (H1 2012: 12.9%). The 12.0% EBITA margin in the first half of this year is a 100 basis points improvement compared to the 11.0% in the second half of 2012.

Group underlying operating profit (EBITA after restructuring costs and one-off items) for the first half of 2013 was £51.6 million (H1 2012: £67.2 million). Underlying operating profit margin was 10.6%, compared to 12.6% for the first half of 2012.

The restructuring costs and other one-off items of £6.7 million (H1 2012: £1.3 million) relate mainly to the actions that the Group has undertaken as a consequence of moving to the 'One Morgan' model and the re-organisation into geographical regions. The full year restructuring charge is estimated to be c.£10 million.

The Group amortisation charge for the half year was £4.0 million (H1 2012: £4.1 million).

The net finance charge was £11.9 million (H1 2012 : £11.8 million), comprising the net bank interest and similar charges of £8.6 million (H1 2012: £8.6 million), which is flat year-on-year, and the finance charge under IAS 19 (revised), being the interest charge on pension scheme net liabilities which was £3.3 million (H1 2012: £3.1 million).

The tax charge for the period was £10.2 million (H1 2012: £15.3 million). The effective tax rate for the half year is 28.5% (H1 2012: 29.8%).

Underlying EPS is 10.0 pence (H1 2012: 13.8 pence).

The Return on Operating Capital Employed at 30 June 2013, 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 21.2%, compared with 26.3% at 31 December 2012 and 30.6% at 30 June 2012.

For the period ended 30 June 2013 the Group is required to adopt IAS 19 (revised) Employee Benefits and the results for the half years ended 30 June 2012 and 31 December 2012 have been restated to reflect this.

The impact of the changes on the half year ended 30 June 2012 is a £2.1 million reduction in profit after taxation, consisting of:

a) a £0.5 million reduction in Group EBITA, Group underlying operating profit and operating profit as a result of the requirement to reclassify pension scheme administration costs from net finance charge to operating costs;

b) a £2.4 million reduction in Underlying PBT and profit before tax due to the new requirement for the expected return on assets to be calculated by applying the corporate bond yield discount rate to the balance sheet pension-related assets;

c) a £0.3 million reduction in taxation charge as a result of the above changes.

The impact of the changes on the half year ended 31 December 2012 is a £2.1 million reduction in profit after taxation, consisting of:

a) a £0.6 million reduction in Group EBITA, Group underlying operating profit and operating profit as a result of the requirement to reclassify pension scheme administration costs from net finance charge to operating costs;

b) a £2.3 million reduction in Underlying PBT and profit before tax due to the new requirement for the expected return on assets to be calculated by applying the corporate bond yield discount rate to the balance sheet pension-related assets;

c) a £0.2 million reduction in taxation charge as a result of the above changes.

The IAS 19 (revised) charges are summarised in the table below.

The Group pension deficit has decreased by £23.4 million since last year end to £143.4 million on an IAS 19 (revised) basis. The main movements were in the US and UK defined benefit pension schemes. The UK deficit reduced by £10.1 million to £61.2 million (December 2012: £71.3 million) and the US deficit decreased by £11.9 million to £50.8 million (December 2012: £62.7 million). This decrease is mainly due to higher discount rates - UK from 4.4% at 31 December 2012 to 4.7% at 30 June 2013 and USA from 4.2% to 5.0%.

Cash Flow

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

The net cash inflow from operating activities was £55.7 million (H1 2012: £49.9 million). Free cash flow before acquisitions and dividends was £13.2 million (H1 2012: £10.0 million).

As a consequence of the decision to bring forward the payment of dividends, in H1 2013 both the 2012 Interim and 2012 final dividends were paid. A scrip alternative for both of these dividends was offered and there was an average take up of this scrip of 43%.

The exchange movement largely reflects the impact of the strengthening of the US$ versus £ sterling.

Net debt at the half year end was £215.6 million (2012 year end: £192.8 million) representing a net debt to EBITDA ratio to 1.5 times (2012 year end: 1.3 times). At the half year all of the Group bank facility of £150 million was undrawn.

Interim Dividend

The Board has declared an interim dividend of 3.8 pence per ordinary share. This is an increase of 5.6% compared to the interim dividend declared in 2012. The dividend will be paid on 29th November 2013 to Ordinary shareholders on the register of members at the close of business on 25th October 2013.

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

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, together with a description of how they relate to the Group's strategy and the approach to managing them, are set out in the 2012 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: obstacles to delivery of strategy; single point exposures; a changing political, economic and social environment; maintaining technology and innovation leadership; treasury risks; supply chain exposure including raw materials; natural or man-made catastrophes impacting operations and business continuity; recruiting, maintaining and motivating high-quality staff; product safety and liability; quality of contracts; IT risks; changes to or non-compliance with laws and regulations; environmental, health and safety risks; and pension funding.

Going Concern

As reported on page 31 of the 2012 financial statements, the Group meets its day-to-day working capital requirements through local banking arrangements that are supported by the flexibility provided by the Group bank facility of £150 million unsecured five-year multi-currency revolving credit facility. The headroom on this at the half year was £150 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 the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements for the six months ended 30th June 2013.

Responsibility Statement

We confirm that to the best of our knowledge:

• the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

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

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, 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 4.2.8R 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.

By order of the Board

Andrew Shilston

Chairman

Mark Robertshaw

Chief Executive Officer

www.morganadvancedmaterials.com

Morgan Advanced Materials plc Registered in England & Wales at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP UK Company No. 286773