Final Results

RNS Number : 4329X

Morgan Crucible Co PLC

15 February 2012

 



FULL YEAR RESULTS FOR THE PERIOD ENDED 1ST JANUARY 2012

Results summary

£ million unless otherwise stated	2011	2010	Change
Revenue	1,101.0	1,017.1	+8.2%
Group EBITA~	143.4	109.5	+31.0%
Group underlying operating profit ++	141.5	101.6	+39.3%
Underlying PBT*	119.7	75.7	+58.1%
Underlying EPS** (pence)	29.9p	18.7p	+59.9%
Full year dividend	9.25p	7.70p	+20.1%
Net cash inflow from operating activities	137.4	148.1	-7.2%
Basic EPS (pence)	26.9p	15.8p	+70.3%
Operating profit	133.2	93.6	+42.3%
Profit before tax	111.4	67.7	+64.5%
Return on Operating Capital Employed^	33.7%	25.4%	+32.7%

·    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.

For further enquiries:

Mark Robertshaw	Morgan Crucible	01753 837000
Kevin Dangerfield	Morgan Crucible	01753 837000
Nina Coad	Brunswick	0207 404 5959

~	Group EBITA is defined as operating profit before restructuring costs, other one-off items and amortisation of intangible assets.
++	Group underlying operating profit is defined as operating profit of £133.2 million (2010: £93.6 million) before amortisation of £8.3 million (2010: £8.0 million).
*	Underlying PBT is defined as operating profit of £133.2 million (2010: £93.6 million) before amortisation of £8.3 million (2010: £8.0 million), less net financing costs of £21.8 million (2010: £25.9 million).
**	Underlying earnings per share ("EPS") is defined as basic earnings per share of 26.9 pence (2010: 15.8 pence) adjusted to exclude amortisation of 3.0 pence (2010: 2.9 pence).
^	Return on Operating Capital Employed is defined as Group underlying operating profit divided by the sum of Working Capital (which excludes pension liability and provisions) and the net book value of tangible assets. Goodwill and other intangible assets are excluded.

Operating Review

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

	Revenue		EBITA			EBITA Margin
	2011 £m	2010 £m	2011 £m	2010 £m		2011 %	2010 %
Technical Ceramics	285.1	250.1	43.1	34.0		15.1	13.6
Thermal Ceramics	400.1	359.0	49.6	34.8		12.4	9.7
Ceramics	685.2	609.1	92.7	68.8		13.5	11.3
AM&T	369.1	367.7	48.0	39.2		13.0	10.7
Molten Metal Systems	46.7	40.3	7.7	6.3		16.5	15.6
Engineered Materials	415.8	408.0	55.7	45.5		13.4	11.2
Unallocated central costs*			(5.0)	(4.8)
EBITA pre one-off items**	1,101.0	1,017.1	143.4	109.5		13.0	10.8
One-off items**			(1.9)	(7.9)
Underlying operating profit			141.5	101.6		12.9	10.0

*   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® Plus^TM and the higher temperature Superwool® HT^TM. 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%.

Cash Flow						2011	2010
						£m	£m
Net cash inflow from operating activities						137.4	148.1
Net capital expenditure						(25.5)	(17.0)
Restructuring costs and other one-off items						(8.1)	(7.8)
Net interest paid						(20.4)	(22.7)
Tax paid						(25.6)	(24.1)
Free cash flow before acquisitions and dividends						57.8	76.5
Cash flows in respect of acquisitions						(10.4)	(32.9)
Dividends paid						(18.4)	(15.4)
Exchange movement and other items						(8.2)	(11.7)
Movement in net debt in period						20.8	16.5
Opening net debt*						236.2	252.7
Closing net debt						215.4	236.2

* 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 6^th July 2012 to Ordinary shareholders on the register of members at the close of business on 25^th 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.

CONSOLIDATED INCOME STATEMENT
for the year ended 1 January 2012
			2011		2010
		Note	£m		£m
Revenue		1	1,101.0		1,017.1
Operating costs before restructuring costs, other one-off items and amortisation of intangible assets			(957.6)		(907.6)
Profit from operations before restructuring costs, other one-off items and amortisation of intangible assets			143.4		109.5
Restructuring costs and other one-off items:		4
	Restructuring costs		(5.6)		(8.5)
	Gain on disposal of properties		2.4		0.6
	Net pension credit		1.3		-
Profit from operations before amortisation of intangible assets		1	141.5		101.6
Amortisation of intangible assets			(8.3)		(8.0)
Operating profit		1	133.2		93.6
Finance income			27.7		29.0
Finance expense			(49.5)		(54.9)
Net financing costs		2	(21.8)		(25.9)
Profit before taxation			111.4		67.7
Income tax expense		3	(32.6)		(19.7)
Profit for the period			78.8		48.0
Profit for period attributable to:
	Owners of the parent		73.0		42.5
	Non-controlling interests		5.8		5.5
			78.8		48.0
Earnings per share		5
Basic			26.9p		15.8p
Diluted			25.7p		15.0p
Dividends
Proposed interim dividend                  - pence			3.25p		2.70p
- £m			8.9		7.3
Proposed final dividend                       - pence			6.00p		5.00p
	- £m		16.4		13.6
The proposed interim and final dividends (2010: actual) are based upon the number of shares outstanding at the balance sheet date.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 1 January 2012
		Translation reserve	Hedging reserve	Fair value reserve	Retained earnings	Total parent comprehensive income	Non-controlling interests	Total comprehensive income
		£m	£m	£m	£m	£m	£m	£m
2010
Profit for the year		-	-	-	42.5	42.5	5.5	48.0
Foreign exchange translation differences		3.5	-	-	-	3.5	2.7	6.2
Actuarial loss on defined benefit plans		-	-	-	(6.1)	(6.1)	-	(6.1)
Net loss on hedge of net investment in foreign subsidiary		(0.6)	-	-	-	(0.6)	-	(0.6)
Cash flow hedges
-       Effective portion of changes in fair value		-	0.6	-	-	0.6	-	0.6
-       Transferred to profit or loss		-	(0.5)	-	-	(0.5)	-	(0.5)
Change in fair value of equity securities available-for-sale		-	-	0.2	-	0.2	-	0.2
Tax effect on componenets of other comprehensive income		-	-	-	2.6	2.6	-	2.6
Total comprehensive income, net of tax		2.9	0.1	0.2	39.0	42.2	8.2	50.4
2011
Profit for the year		-	-	-	73.0	73.0	5.8	78.8
Foreign exchange translation differences		(5.4)	-	-	-	(5.4)	0.2	(5.2)
Actuarial loss on defined benefit plans		-	-	-	(45.5)	(45.5)	-	(45.5)
Net gain on hedge of net investment in foreign subsidiary		1.0	-	-	-	1.0	-	1.0
Cash flow hedges
-       Effective portion of changes in fair value		-	0.3	-	-	0.3	-	0.3
-       Transferred to profit or loss		-	(0.2)	-	-	(0.2)	-	(0.2)
Change in fair value of equity securities available-for-sale		-	-	0.1	-	0.1	-	0.1
Tax effect on componenets of other comprehensive income		-	-	-	5.9	5.9	-	5.9
Total comprehensive income, net of tax		(4.4)	0.1	0.1	33.4	29.2	6.0	35.2

CONSOLIDATED BALANCE SHEET
as at 1 January 2012
		2011		2010
	Note	£m		£m
Assets
Property, plant and equipment		259.8		269.2
Intangible assets		283.3		285.0
Investments		6.1		7.1
Other receivables		4.2		2.0
Deferred tax assets		41.1		38.5
Total non-current assets		594.5		601.8
Inventories		166.6		161.0
Derivative financial assets		1.6		0.7
Trade and other receivables		195.3		184.7
Cash and cash equivalents	6	83.4		85.0
Total current assets		446.9		431.4
Total assets		1,041.4		1,033.2
Liabilities
Interest-bearing loans and borrowings		287.3		310.4
Employee benefits		135.1		103.9
Provisions		7.0		7.6
Non-trade payables		10.5		13.6
Deferred tax liabilities		44.5		45.2
Total non-current liabilities		484.4		480.7
Interest-bearing loans and borrowings and bank overdrafts		11.5		10.8
Trade and other payables		251.3		265.4
Current tax payable		10.8		5.8
Provisions		12.0		12.8
Derivative financial liabilities		1.2		5.6
Total current liabilities		286.8		300.4
Total liabilities		771.2		781.1
Total net assets		270.2		252.1
Equity
Share capital		68.7		68.5
Share premium		90.6		88.3
Reserves		60.4		64.6
Retained earnings		9.7		(6.4)
Total equity attributable to equity holders of parent Company		229.4		215.0
Non-controlling interests		40.8		37.1
Total equity		270.2		252.1

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 1 January 2012
						Fair		Capital			Total	Non-
		Share	Share	Translation	Hedging	value	Special	redemption	Other	Retained	parent	controlling	Total
		capital	premium	reserve	reserve	reserve	reserve	reserve	reserves	earnings	equity	interests	equity
		£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 4 January 2010		67.9	85.3	10.1	0.2	(1.7)	6.0	35.7	11.1	(30.0)	184.6	30.0	214.6
Profit for the year		-	-	-	-	-	-	-	-	42.5	42.5	5.5	48.0
Other comprehensive income		-	-	2.9	0.1	0.2	-	-	-	(3.5)	(0.3)	2.7	2.4
Transactions with owners:
Dividends		0.5	2.9	-	-	-	-	-	-	(18.9)	(15.5)	(1.1)	(16.6)
Equity-settled share-based payment transactions		-	-	-	-	-	-	-	-	3.5	3.5	-	3.5
Issue of shares		0.1	0.1	-	-	-	-	-	-	-	0.2	-	0.2
Balance at 2 January 2011		68.5	88.3	13.0	0.3	(1.5)	6.0	35.7	11.1	(6.4)	215.0	37.1	252.1
Balance at 3 January 2011		68.5	88.3	13.0	0.3	(1.5)	6.0	35.7	11.1	(6.4)	215.0	37.1	252.1
Profit for the year		-	-	-	-	-	-	-	-	73.0	73.0	5.8	78.8
Other comprehensive income		-	-	(4.4)	0.1	0.1	-	-	-	(39.6)	(43.8)	0.2	(43.6)
Transactions with owners:
Dividends		0.2	2.3	-	-	-	-	-	-	(20.9)	(18.4)	(2.3)	(20.7)
Equity-settled share-based payment transactions		-	-	-	-	-	-	-	-	6.8	6.8	-	6.8
Own shares acquired for share incentive schemes		-	-	-	-	-	-	-	-	(3.2)	(3.2)	-	(3.2)
Balance at 1 January 2012		68.7	90.6	8.6	0.4	(1.4)	6.0	35.7	11.1	9.7	229.4	40.8	270.2

CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 1 January 2012
			2011	2010
		Note	£m	£m
Operating activities
Profit for the period			78.8	48.0
Adjustments for:
	Depreciation		31.1	32.3
	Amortisation		8.3	8.0
	Net financing costs	2	21.8	25.9
	Profit on sale of property, plant and equipment		(2.6)	(0.5)
	Income tax expense	3	32.6	19.7
	Equity-settled share-based payment expenses		5.9	3.1
Cash generated from operations before changes in working capital and provisions			175.9	136.5
Increase in trade and other receivables			(12.9)	(13.7)
Increase in inventories			(7.7)	(11.6)
(Decrease)/increase in trade and other payables			(8.5)	35.8
Decrease in provisions and employee benefits			(17.5)	(6.7)
Cash generated from operations			129.3	140.3
Interest paid			(22.0)	(25.7)
Income tax paid			(25.6)	(24.1)
Net cash from operating activities			81.7	90.5
Investing activities
Purchase of property, plant and equipment			(28.7)	(19.1)
Proceeds from sale of property, plant and equipment			3.2	2.1
Sale of investments			0.7	0.3
Interest received			1.6	3.0
Acquisition of subsidiaries and associate, net of cash acquired			(10.4)	(32.9)
Forward contracts used in net investment hedging			(4.8)	(6.0)
Net cash from investing activities			(38.4)	(52.6)
Financing activities
Purchase of own shares for share incentive schemes			(3.2)	-
Increase in borrowings		6	-	54.3
Repayment of borrowings		6	(24.4)	(102.1)
Payment of finance lease liabilities		6	(0.4)	(0.5)
Dividends paid			(18.4)	(15.4)
Net cash from financing activities			(46.4)	(63.7)
Net decrease in cash and cash equivalents			(3.1)	(25.8)
Cash and cash equivalents at start of period			85.0	107.6
Effect of exchange rate fluctuations on cash held			1.5	3.2
Cash and cash equivalents at period end		6	83.4	85.0

Basis of Preparation

The preliminary announcement for the year ended 1 January 2012 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as issued by the International Accounting Standards Board. There has been no significant impact arising from new accounting policies adopted in the year. The Group has considerable financial resources available. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook and as such, the preliminary announcement has been prepared on a Going Concern basis. The financial information set out above does not constitute the Company's statutory accounts for the years ended 1 January 2012 or 2 January 2011. Statutory accounts for the year ended 2 January 2011 have been delivered to the registrar of companies, and those for the year ended 1 January 2012 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2011 and 2010.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.		Segment reporting
		The Group comprises the following four reportable operating segments: ·      Morgan AM&T  - the Morgan AM&T Business delivers highly engineered solutions built from a portfolio of advanced material technologies that includes carbon, silicon carbide, oxide-based ceramics and advanced polymeric composite materials.
		·      Molten Metal Systems - the Molten Metal Systems Business produces crucibles and foundry consumables.
		·      Technical Ceramics - the Technical Ceramics Business is a leading supplier of customer specific, applications-engineered, industrial products with core products manufactured from advanced materials including structural ceramic, electro-ceramic and precious metals.
		·      Thermal Ceramics - the Thermal Ceramics Business provides thermal management solutions for high-temperature applications which benefit technically, financially and environmentally from optimised thermal and energy efficiency management. The information presented below represents the operating segments of the Group.
									Morgan Engineered  Materials											Morgan Ceramics
							Morgan AM&T						Molten Metal Systems				Technical Ceramics					Thermal Ceramics					Consolidated
							2011			2010			2011		2010		2011		2010			2011		2010			2011	2010
							£m			£m			£m		£m		£m		£m			£m		£m			£m	£m
	Revenue from external customers						369.1			367.7			46.7		40.3		285.1		250.1			400.1		359.0			1,101.0	1,017.1
	Divisional EBITA+						48.0			39.2			7.7		6.3		43.1		34.0			49.6		34.8			148.4	114.3
	Unallocated costs																										(5.0)	(4.8)
	Group EBITA~																										143.4	109.5
	Restructuring costs and other one-off items							-			(1.6)		-		0.1		1.1		(1.7)				(3.0)	(4.7)			(1.9)	(7.9)
	Underlying operating profit*																										141.5	101.6
	Amortisation of intangible assets								(4.5)			(4.2)	(0.1)		(0.1)		(2.5)		(2.5)				(1.2)	(1.2)			(8.3)	(8.0)
	Operating profit																										133.2	93.6
	Finance income																										27.7	29.0
	Finance expense																										(49.5)	(54.9)
	Profit before taxation																										111.4	67.7
	+ Segment profit is defined as Divisional EBITA, which is segment operating profit before restructuring costs, other one-off items and amortisation of intangible assets.
	~ Group EBITA is defined as operating profit before restructuring costs, other one-off items and amortisation of intangible assets.
	* Underlying operating profit is defined as operating profit before amortisation of intangible assets.
	The above measures of profit are shown because the Directors use them to measure the underlying performance of the business.
	The Group did not have any significant inter-segment revenue between reportable operating segments in 2011 and 2010.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Segment reporting (continued) Morgan Engineered Materials Morgan Ceramics Morgan AM&T Molten Metal Systems Technical Ceramics Thermal Ceramics Consolidated 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 £m £m £m £m £m £m £m £m £m £m Segment assets 372.0 378.9 31.4 31.3 225.7 224.8 277.7 273.1 906.8 908.1 Unallocated assets 134.6 125.1 Total assets 1,041.4 1,033.2 Segment liabilities 77.4 81.6 8.5 7.6 50.8 43.2 81.6 85.4 218.3 217.8 Unallocated liabilities 552.9 563.3 Total liabilities 771.2 781.1 Segment capital expenditure 11.5 6.8 1.8 1.0 6.2 4.9 8.2 6.3 27.7 19.0 Unallocated capital expenditure 1.0 0.1 Total capital expenditure 28.7 19.1 Segment depreciation 10.1 10.1 1.3 1.4 8.6 9.0 11.1 11.8 31.1 32.3

		Europe		North America		South America		Asia & Rest of World			Consolidated
		2011	2010	2011	2011	2011	2010	2011	2010		2011		2010
		£m	£m	£m	£m	£m	£m	£m	£m		£m		£m
	Revenue from external customers (based on geographical location of selling company)	429.3	422.7	382.5	346.6	45.4	41.9	243.8	205.9		1,101.0		1,017.1
	Non-current assets (excluding deferred tax and financial instruments)	254.4	260.0	196.0	201.6	10.6	11.3	92.4	90.4		553.4		563.3
	Segment assets are based on the geographical location of the assets.
	Revenue from external customers attributed to the United Kingdom (the Group's country of domicile) was £178.7 million (2010: £197.6 million) and non-current assets (excluding deferred tax and financial instruments) attributed to the UK was £176.4 million (2010: £175.0 million).
	Major Customer
	Revenue from a range of products to one customer of the Group's Morgan AM&T Business represent £81.0 million of the Group's total revenue (2010: £106.5 million).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.	Net finance income and expense
						2011		2010
						£m		£m
	Recognised in profit or loss
	Interest income on bank deposits measured at amortised cost					1.3		1.0
	Expected return on IAS 19 scheme assets					26.4		26.0
	Gain on foreign exchange derivatives in respect of financial indebtedness					-		2.0
	Finance income					27.7		29.0
	Interest expense on financial liabilities measured at amortised cost					(21.7)		(25.7)
	Interest on IAS 19 obligations					(27.3)		(28.0)
	Interest expense on unwinding of discount on deferred consideration					(0.5)		(1.2)
	Finance expense					(49.5)		(54.9)
	Net financing costs recognised in profit or loss					(21.8)		(25.9)
	Recognised directly in equity
	Net change in fair value of available-for-sale financial assets					0.1		0.2
	Cash flow hedges:
	Effective portion of changes in fair value of cash flow hedges					0.3		0.6
	Transferred to profit or loss					(0.2)		(0.5)
	Effective portion of change in fair value of net investment hedge					1.0		(0.6)
	Foreign currency translation differences for foreign operations					(5.4)		3.5
						(4.2)		3.2

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.	Taxation - income tax expense
	Recognised in the income statement
					2011	2010
					£m	£m
	Current tax expense
	Current year				30.4	23.3
	Adjustments for prior years				(0.5)	(2.5)
					29.9	20.8
	Deferred tax expense
	Origination and reversal of temporary differences				2.7	(1.1)
	Total income tax expense in income statement				32.6	19.7
	Reconciliation of effective tax rate	2011		2011	2010	2010
		£m		%	£m	%
	Profit before tax	111.4			67.7
	Income tax using the domestic corporation tax rate	29.5		26.5	18.9	28.0
	Non-deductible expenses	3.3		3.0	0.6	0.8
	Temporary differences not equalised in deferred tax	(2.8)		(2.5)	2.8	4.1
	Over-provided in prior years	(0.4)		(0.4)	(2.5)	(3.7)
	Other (including the impact of overseas tax rates)	3.0		2.7	(0.1)	(0.1)
		32.6		29.3	19.7	29.1
	Income tax recognised directly in equity
	Tax effect on components of other comprehensive income:
	- Deferred tax associated with defined benefit schemes	5.9			2.6
	Other	0.1			-
	Total income tax recognised directly in equity	6.0			2.6
4.	Restructuring costs and other one-off costs
	Costs of restructuring were £5.6 million (2010: £8.5 million). Included within restructuring costs and other one-off items is a net pension credit of £1.3 million (2010: nil) arising from the following: -       For the United Kingdom defined benefit pension schemes, future indexation of current employees' accrued benefits will be set by reference to the Consumer Prices Index ('CPI') rather than the Retail Prices Index ('RPI'). This change has resulted in a one-off pension credit (negative past service cost) of £3.1 million. -       In North America, a total charge of £1.8 million arose as a result of a charge of £1.6 million in respect of a provision relating to a USA pension plan and a charge of £0.2 million in respect of the curtailment and settlement loss as a result of closure of three Canadian defined benefit schemes.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.	Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 1 January 2012 was based on the following:
			2011	2010
			£m	£m
Profit attributable to equity holders of the Company			73.0	42.5
Weighted average number of Ordinary shares
Issued Ordinary shares at the beginning of the period			272,166,025	270,206,256
Effect of shares issued in period and treasury shares held by the Company			(479,322)	(378,040)
Weighted average number of Ordinary shares during the period			271,686,703	269,828,216
Basic earnings per share (pence)			26.9p	15.8p
Diluted earnings per share
The calculation of diluted earnings per share at 1 January 2012 was based on the following:
			2011	2010
			£m	£m
Profit attributable to equity holders of the Company			73.0	42.5
Diluted weighted average number of Ordinary shares:
Weighted average number of Ordinary shares during the period			271,686,703	269,828,216
Effect of share options/incentive schemes			12,724,153	13,993,035
Diluted weighted average number of Ordinary shares during the period			284,410,856	283,821,251
Diluted earnings per share (pence)			25.7p	15.0p
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.	Earnings per share (continued)
Underlying earnings per share The calculation of underlying earnings per share at 1 January 2012 was based on the following:
			2011	2010
			£m	£m
Operating profit before amortisation, less net financing costs, income tax expense and non-controlling interests			81.3	50.5
Weighted average number of Ordinary shares during the period (calculated as above)			271,686,703	269,828,216
Earnings per share before amortisation of intangible assets (pence)			29.9p	18.7p
Diluted underlying earnings per share
The calculation of diluted underlying earnings per share at 1 January 2012 was based on the following:
			2011	2010
			£m	£m
Operating profit before amortisation, less net financing costs, income tax expense and non-controlling interests			81.3	50.5
Diluted weighted average number of Ordinary shares during the period (calculated as above)			284,410,856	283,821,251
Diluted earnings per share before amortisation of intangible assets (pence)			28.6p	17.8p

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6.	Cash and cash equivalents
		2011	2010
		£m	£m
	Bank balances	71.7	68.0
	Cash deposits	11.7	17.0
	Cash and cash equivalents	83.4	85.0
	Reconciliation of cash and cash equivalents to net debt*
		2011	2010
		£m	£m
	Opening borrowings	(321.2)	(360.3)
	Net decrease in borrowings	24.4	47.8
	Payment of finance lease liabilities	0.4	0.5
	Effect of movements in foreign exchange on borrowings	(2.4)	(9.2)
	Closing borrowings	(298.8)	(321.2)
	Cash and cash equivalents	83.4	85.0
	Closing net debt	(215.4)	(236.2)
	*Net debt is defined as interest-bearing loans and borrowings, bank overdrafts less cash and cash equivalents.

www.morgancrucible.com

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

 

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