Full year results

RNS Number : 3192H

Morgan Crucible Co PLC

18 February 2010

 



FULL YEAR RESULTS FOR THE PERIOD ENDED 3 JANUARY 2010

Summary

·        Revenue for the full year increased to £942.6 million (2008: £835.0 million) up 12.9% on 2008.

·        Group EBITA before restructuring charges and one-off items was £89.0 million (2008: £108.8 million) delivering a margin of 9.4% (2008: 13.0%). Second half margins were 9.7% (H1 2009: 9.2%), reflecting the benefit of significant cost reductions taken early in the year.

·        NP Aerospace, in which we increased our equity stake from 49% to 60% at the beginning of 2009, performed very strongly with revenues at £186.2 million (2008: £72.0 million), an increase of 159% on the previous year.

·        Net cash flow from operations increased substantially to £134.5 million (2008: £111.2 million) up 21% on the previous year and the free cash inflow before one-off items was £85.9 million (2008: £34.7 million).

·        Net debt reduced by £37.7 million to £252.7 million during 2009 (2008 year end: £290.4 million) and the net debt to EBITDA ratio was maintained at 2.1 times.

·        Final dividend maintained at last year's level at 4.5 pence, giving a full year dividend of 7.0 pence.

£m unless otherwise stated		2009	2008	Change
Revenue		942.6	835.0	+12.9%
Group EBITA~		89.0	108.8	-18.2%
Underlying operating profit++		77.0	98.2	-21.6%
Underlying PBT*		47.7	86.7	-45.0%
Underlying EPS** (pence)		13.2p	23.4p	-43.6%
Net cash inflow from operating activities		134.5	111.2	+21.0%
Basic EPS (pence)		7.1p	22.2p
Operating profit		60.7	95.0
Profit before tax		31.4	82.8

~	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 of £60.7 million (2008: £95.0 million) before amortisation of £16.3 million (2008: £3.2 million).
*	Underlying PBT is defined as operating profit of £60.7 million (2008: £95.0 million) and share of profit of associate of £nil (2008: £1.2 million) before amortisation of £16.3 million (2008: £3.2 million), less net financing costs of £29.3 million (2008: £12.7 million).
**	Underlying earnings per share ("EPS") is defined as basic earnings per share of 7.1 pence (2008: 22.2 pence) adjusted to exclude amortisation of 6.1 pence (2008: 1.2 pence).

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

"I am proud of the results that Morgan Crucible has delivered in the most challenging environment for industrial companies in decades.

Throughout 2009 we maintained a proactive stance of tight operational management and a rigorous focus on cash generation. As a result, our margins held up robustly and operating cash flow was strong, underpinning the Board's decision to maintain the dividend.

Over the last 5 years we have improved the Group's business model. Our portfolio transition toward higher growth, higher margin, less economically cyclical markets, our sustained pricing discipline and our unremitting focus on cost control has changed the game at Morgan Crucible.

In recent months, there have been early signs of improving order intake although I believe it is premature to be calling a recovery just yet. However, Morgan Crucible is well placed to benefit from any economic recovery as and when it occurs."

For further enquiries:

Kevin Dangerfield	Morgan Crucible	01753 837207
Mike Smith / Robin Walker	Finsbury	020 7251 3801

Operating Review

Reference is made to Divisional EBITA throughout the operational reviews for each of our divisions and is shown in the table below.

		Carbon		Technical Ceramics			Insulating Ceramics		Consolidated
		2009	2008	2009	2008		2009	2008	2009	2008
		£m	£m	£m	£m		£m	£m	£m	£m
Revenue		391.4	239.9	206.0	212.2		345.2	382.9	942.6	835.0
Divisional EBITA*
		40.5	36.3	25.1	31.6		27.6	45.6	93.2	113.5
Unallocated central costs									(4.2)	(4.7)
Group EBITA									89.0	108.8
Restructuring costs and other one-off items									(12.0)	(10.6)
Underlying operating profit									77.0	98.2

*   Divisional EBITA is defined as segment operating profit before restructuring costs, other one-off items and amortisation of intangible assets.

Carbon

Revenues for the total Carbon division were up by 63% on a reported basis compared to 2008 at £391.4 million (2008: £239.9 million). This increase reflects the inclusion of NP Aerospace in the division's consolidated results for the first time following the increase in Morgan Crucible's shareholding in NP Aerospace from 49% to 60% on 5^th January 2009. Our like for like revenue increase (ie including NP Aerospace revenues for all of 2008 when they were accounted for as an associate) on a constant currency basis was 13%. This was driven by an exceptionally strong performance from the NP Aerospace business for which revenues were £186.2 million, up 159% on the previous year (2008: £72.0 million).

Revenues for the underlying Carbon business, excluding NP Aerospace, were down approximately 25% on a like for like constant currency basis, reflecting the impact that the economic downturn had on almost all of the markets we serve, combined with a significant reduction in North America body armour revenues in 2009. Second half revenues were broadly flat with the first half, reflecting a seasonally quiet Q3, especially in Europe, followed by some improvement in Q4.

Full year EBITA on a reported basis was £40.5 million, representing a margin of 10.3%, compared to £36.3 million, a margin of 15.1%, for 2008. EBITA margins in 2009 were 15.5% in NP Aerospace and 5.7% in the underlying Carbon business.

Aggressive cost reduction programmes in the underlying Carbon business were initiated in the second half of 2008 in anticipation of weakening demand with total headcount being reduced by nearly 700 (18%).  We also implemented, wherever possible, reduced working weeks at a large number of sites and accelerated the relocation of manufacturing to lower cost regions such as Mexico, China and Hungary.  As a result of these actions, full year total employment costs were reduced by more than £12 million compared with 2008.  Nevertheless, we have maintained our commitment throughout the year to devote resources to new growth opportunities advancing our position in the renewable energy sector, in the global armour market and in China.

The NP Aerospace business had a very strong year, with revenues in each half in excess of £90 million. Demand for Mastiffs, Ridgbacks, and Wolfhounds from the UK military remained strong throughout 2009 and progress was made in the development of new product offerings.   In recognition that 2009 represents an exceptional year our forecast for NP Aerospace revenues in 2010 remains at c£120 million with confidence levels in this forecast increasing as we enter 2010.  NP Aerospace has successfully established itself as a critical supplier to the UK military and is, through the deployment of its technology into combat theatre, gaining global recognition for its highly advanced armour systems.

End-market demand in the underlying Carbon business stabilized during the third quarter and has shown some signs of improvement entering 2010.  Our actions to reduce the cost base in 2009 will deliver further benefits in 2010 and we will continue to advance our strategy to manufacture in low cost regions wherever possible. 

Technical Ceramics

Revenues for 2009 were £206.0 million (2008: £212.2 million), a decrease of 3%.  This included £45.9 million (2008: £41.4 million, for 9 months of ownership) of revenue contributed by the businesses acquired from Carpenter in 2008. The underlying year on year revenue decrease at constant currency (including Carpenter acquisition on a full 12 months basis) was 19.4%.

Despite the unprecedented economic conditions, the Division was in the main able to substantially protect profit margins which were 12.2% for the year (2008: 14.9%). EBITA for the year was £25.1 million (2008: £31.6 million) with the second half performance showing an improved EBITA margin of 13.4% (H1: 2009: 11.1%).

In response to the weaker global market conditions, we took early action to protect our margins. These actions included headcount reductions of 670 employees, compared to June 2008.  These cost control measures continued to deliver benefits in the second half of the year and drove the improved margins seen over the first half.

During the year, Technical Ceramics maintained its focus on positive mix shift moving towards higher margin, higher value added end markets such as medical and aerospace. In parallel, our continuous operational improvement programme, our cost reduction initiatives and our emphasis on positive price pass through all contributed to supporting operating margins in very difficult market conditions.

Although the overall market demand declined in 2009 there are some areas that are now showing positive signs of improvement. The most notable example of this is our initiation of a production ramp-up to meet demand for the next generation of components for Hard Disc Drive (HDD) products which is currently under way.  Our European business had a difficult year in 2009 being consistently challenged by weak market conditions in general industrial markets and construction. This principally affected our business in Germany, which supplies products for thermal processing applications. In both Europe and North America a highlight of 2009 was the continuing strength of our medical business. Increasing our exposure to this sector remains an important focus for the Division.

Work on consolidating our footprint continued in the second half of the year. In July we announced and started the move of business from our Auburn site into the Hayward location in California and expect to see the full year benefits of this coming through during 2010. In October we completed the sale of our small Metal Injection Moulding (MIM) business for £1.1 million cash which was based in our New Bedford site, to make room to expand the medical business there. The Shanghai site, which produced mostly commodity products for domestic applications, was successfully closed on time and to plan during the first half of the year.

As we enter 2010, there is improving momentum in our order book, with certain end markets particularly in the US for growth showing signs of recovery.

Insulating Ceramics

Within the Insulating Ceramics division there are two operating segments: Thermal Ceramics and Molten Metal Systems.

The Insulating Ceramics division revenue decreased by 9.8% to £345.2 million in 2009 (2008: £382.9 million). On a constant currency basis, the year on year decline was 19.7%. Divisional EBITA and margins dropped to £27.6 million and 8.0% from £45.6 million and 11.9% in 2008.

The Thermal Ceramics business' revenue decreased by 9.3% to £315.1 million in 2009 (2008: £347.4 million). On a constant currency basis, the year on year decline was 19.4%.  As indicated at the half year, end market demand was indeed more challenging in the second half of the year and resulted in a revenue decline of 6.6% at constant currency compared to the first half of 2009.

Due to early management action, Thermal Ceramics' profitability showed encouraging resilience to this sales decline with EBITA margins holding up well at 8.5% (2008: 11.9%) and EBITA for the year at £26.7 million (2008: £41.4 million). 

Regionally, our businesses in the developed economies of Europe and North America saw the worst impact of the global downturn. In contrast, Asia and Latin America held up somewhat better and in the latter part of the year started to show some order book recovery. 

Our operational excellence initiatives, including our World Class Manufacturing programme, drove cost improvements. Two small fibre plants, in Erwin, USA and Skawina, Poland, were also closed in the second half of the year.  

Looking forward, Thermal Ceramics' new product development remains concentrated in the field of low bio-persistent fibre with the continued roll-out of Superwool 607^TM as well as the higher temperature Superwool HT^TM. The division is uniquely positioned as the global technology leader in its bio-soluble product range.  

In the MMS business 2009 revenues dropped by 22.5% compared to 2008 at constant currency.  The relocation of the UK production facilities to India and a new green field site in China were completed in 2009.  As demand fell in the first half of 2009, operating costs were reduced at the sites in Germany, Brazil, UK and USA.  While the business traded at just above breakeven in the first half of 2009 it improved in the second half of 2009 as benefits of the cost reduction and manufacturing footprint moves began to take effect.  As we enter 2010, with the order book having improved markedly, all geographic markets are showing signs of recovery.

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 a better indication of underlying performance.

Group revenue in 2009 was £942.6 million, an increase of 12.9% compared to 2008. On a pro forma constant currency basis, revenues declined by 8.7% (the pro forma calculation assumes that NP Aerospace had also been consolidated in 2008 to enable a like for like comparison).

Group EBITA before restructuring charges and one-off items was £89.0 million (2008: £108.8 million) representing a margin of 9.4% (2008: 13.0%).

Group underlying operating profit (EBITA after restructuring costs and one-off items) for the year was £77.0 million (2008: £98.2 million).  Underlying operating profit margins were 8.2%, compared to 11.8% for 2008.

The Group has undertaken extensive cost reduction programmes across its businesses in 2009, the majority of which we completed in the first half of the year.  Our focus, particularly in the first half of the year, was rapidly to resize and adjust our cost base to reflect weakening market demand. Net restructuring costs in the year (including profit on the sale of excess land and buildings) were £12.0 million.

With the purchase of a further 11% stake in NP Aerospace in January 2009, taking Morgan Crucible's stake to a controlling 60% holding, this business has been consolidated into the Group results for the first time in 2009. Please refer to Note 2 of the Consolidated Financial Statements for further details of the accounting in respect of this transaction.

The net finance charge was £29.3 million (2008: £12.7 million). Net bank interest and similar charges were £22.8 million (2008: £14.3 million), an increase of £8.5 million, due mainly to the increases in average net debt following the NP Aerospace and Carpenter business acquisitions. A significant part of the finance charge under IFRSs is the net interest charge on pension scheme net liabilities which was £4.3 million (2008: income £0.1 million). Also included in the finance charge is an 'interest expense on unwinding of discount on deferred consideration' of £2.2 million (2008: £nil) which relates to the NP Aerospace acquisition.

The Group amortisation charge for the year was £16.3 million (2008: £3.2 million). The main reason for the increase in amortisation is based on a fair value assessment of the assets of NP Aerospace at the date of the 11% acquisition at the start of 2009. The amortisation calculation was driven by the NP Aerospace order book which has been 'fair valued' as part of the intangible assets and amortised over the 12 month period over which the orders were delivered. Hence in 2009 the Group had a one-off increase in its amortisation charge for the year. In 2010 the Group amortisation charge will be reduced to c.£7 million per annum which includes the amortisation on the other ongoing intangible assets the Group has booked on the acquisition of NP Aerospace, the Carpenter businesses and other historical acquisitions.

The tax charge for the period was £8.7 million (2008: £20.1 million). The effective tax rate for this year is 28% (2008: 24%). The medium term view is that the effective tax rate continues to trend to c30%.

Underlying EPS was 13.2 pence (2008: 23.4 pence).

The Group pension deficit increased by £4.1 million since last year end to £105.9 million on an IAS 19 basis.  The main movements were in the US and UK pension schemes. The US scheme deficit improved by £15.2m to £46.2 million (2008: £61.4 million), while the UK scheme deficit deteriorated to £34.5 million (2008: £13.1 million) mainly due to an increase in the inflation rate and a lower discount rate.

The net cash inflow from operating activities was £134.5 million (2008: £111.2 million), an increase of 21% over the previous year. Free cash flow before one-off items and dividends was £85.9 million, a substantial increase in cash generation on the previous year (2008: £34.7 million), driven by strong working capital management. Working capital management generated a net inflow of £25.8 million compared to last year's outflow of £21.8 million.

Net debt at the year end was £252.7 million, an improvement of £37.7 million compared to the 2008 year end position. With a good cash generation, the net debt to EBITDA ratio at the year end was maintained at 2.1 times (2008 year end 2.1 times) and the bank facility headroom at the year end increased to c.£170 million.

Cash Flow

						2009	2008
						£m	£m
Net cash inflow from operating activities						134.5	111.2
Net capital expenditure						(13.7)	(31.5)
Net interest paid						(23.2)	(16.9)
Tax paid on ordinary activities						(11.7)	(28.1)
Free cash flow before one-off costs and dividends						85.9	34.7
One-off costs:  -     Restructuring costs and other one-off items						(12.1)	(11.5)
-     Tax settlement						(20.3)	-
Dividends paid						(12.1)	(18.8)
Cash flows from other investing and financing activities						(32.0)	(98.3)
Exchange rate movement						28.3	(76.8)
Opening net debt*						(290.4)	(119.7)
Closing net debt						(252.7)	(290.4)

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

Final Dividend

In view of the resilient performance of the Group in 2009 the Board has recommended a final dividend of 4.5 pence per Ordinary share in line with the previous year's dividend.  The dividend will be paid on 9^th July 2010 to Ordinary shareholders on the register of members at the close of business on 21^st May 2010.

Subject to shareholder approval at this year's AGM a scrip alternative to the cash dividend will be offered and will replace the existing DRIP scheme. This alternative is proposed in order to give shareholders the opportunity to increase their shareholding without incurring dealing costs or stamp duty.

Outlook

As we look ahead, we take confidence from the resilience of performance that the Group's strategy has delivered during this global downturn.  From this stable and resilient platform, we believe that Morgan Crucible is well placed to benefit from any economic recovery as it occurs.

CONSOLIDATED INCOME STATEMENT
for the year ended 3 January 2010
			2009		2008
		Note	£m		£m
Revenue		1	942.6		835.0
Operating costs before restructuring costs, other one-off items and amortisation of intangible assets			(853.6)		(726.2)
Profit from operations before restructuring costs, other one-off items and amortisation of intangible assets			89.0		108.8
Restructuring costs and other one-off items:
	Restructuring costs and costs associated with settlement of prior period anti-trust litigation	5	(14.0)		(11.4)
	Gain on disposal of property		2.0		0.8
Profit from operations before amortisation of intangible assets			77.0		98.2
Amortisation of intangible assets			(16.3)		(3.2)
Operating profit			60.7		95.0
Finance income			24.4		34.3
Finance expense			(53.7)		(47.0)
Net financing costs		3	(29.3)		(12.7)
Loss on disposal of business			-		(0.7)
Share of profit of associate (net of income tax)			-		1.2
Profit before taxation			31.4		82.8
Income tax expense		4	(8.7)		(20.1)
Profit after taxation for the period			22.7		62.7
Profit for period attributable to:
	Equity holders of the parent		19.0		59.2
	Non-controlling interests		3.7		3.5
			22.7		62.7
Earnings per share		6
Basic			7.1p		22.2p
Diluted			6.8p		21.6p
Dividends
Interim dividend                  - pence			2.50p		2.50p
- £m			6.8		6.8
Proposed final dividend      - pence			4.50p		4.50p
	- £m		12.2		12.2
The proposed final dividend is based upon the number of shares outstanding at the balance sheet date.

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the year ended 3 January 2010
				2009		2008
				£m		£m
Profit for the period				22.7		62.7
Foreign exchange translation differences				(17.5)		69.1
Actuarial loss on defined benefit plans				(18.7)		(47.0)
Deferred tax associated with employee benefit schemes				-		5.4
Revaluation on step acquisition (see note 2)				10.8		-
Net gain/(loss) on hedge of net investment in foreign subsidiary				9.1		(42.8)
Cash flow hedges:
	Effective portion of changes in fair value			0.2		(4.6)
	Transferred to profit or loss			4.6		1.2
Change in fair value of equity securities available-for-sale				1.0		(3.8)
Tax effect on components of other comprehensive income				5.5		-
Total comprehensive income for the period				17.7		40.2
Total comprehensive income attributable to:
	Equity holders of the parent			17.1		29.2
	Non-controlling interests			0.6		11.0
Total comprehensive income for the period				17.7		40.2

CONSOLIDATED BALANCE SHEET
as at 3 January 2010
		2009		2008
	Note	£m		£m
Assets
Property, plant and equipment		276.2		319.6
Intangible assets		296.9		177.0
Investment in associates		1.5		6.4
Other investments		5.7		5.2
Other receivables		2.1		39.0
Deferred tax assets		37.2		36.6
Total non-current assets		619.6		583.8
Inventories		146.3		143.9
Derivative financial assets		0.5		0.2
Trade and other receivables		165.8		196.3
Cash and cash equivalents	7	107.6		154.5
Assets classified as held for sale		1.4		-
Total current assets		421.6		494.9
Total assets		1,041.2		1,078.7
Liabilities
Interest-bearing loans and borrowings		346.6		410.9
Employee benefits		105.9		101.8
Grants for capital expenditure		0.2		0.2
Provisions		5.5		7.2
Non-trade payables		31.7		4.0
Derivative financial liabilities		4.1		0.8
Deferred tax liabilities		47.5		40.8
Total non-current liabilities		541.5		565.7
Bank overdraft	7	1.2		17.3
Interest-bearing loans and borrowings		12.5		16.7
Trade and other payables		250.3		220.9
Current tax payable		4.5		22.4
Provisions		10.9		12.5
Derivative financial liabilities		5.7		15.2
Total current liabilities		285.1		305.0
Total liabilities		826.6		870.7
Total net assets		214.6		208.0
Equity
Share capital		67.9		67.9
Share premium		85.3		85.3
Reserves		61.4		45.3
Retained earnings		(30.0)		(20.7)
Total equity attributable to equity holders of parent company		184.6		177.8
Non-controlling interests		30.0		30.2
Total equity		214.6		208.0

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 3 January 2010
						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 5 January 2008		69.5	85.3	(8.9)	(1.2)	1.1	6.0	34.1	1.4	(11.1)	176.2	20.1	196.3
Profit for the period		-	-	-	-	-	-	-	-	59.2	59.2	3.5	62.7
Other comprehensive income		-	-	18.8	(3.4)	(3.8)	-	-	-	(41.6)	(30.0)	7.5	(22.5)
Other movements		-	-	-	-	-	-	-	(0.4)	-	(0.4)	0.6	0.2
Transactions with owners:
Dividends		-	-	-	-	-	-	-	-	(18.7)	(18.7)	(1.5)	(20.2)
Own shares acquired for share buy-back programme		(1.6)	-	-	-	-	-	1.6	-	(12.1)	(12.1)	-	(12.1)
Own shares acquired for share incentive schemes		-	-	-	-	-	-	-	-	0.4	0.4	-	0.4
Equity-settled share-based payment transactions		-	-	-	-	-	-	-	-	3.2	3.2	-	3.2
Balance at 4 January 2009		67.9	85.3	9.9	(4.6)	(2.7)	6.0	35.7	1.0	(20.7)	177.8	30.2	208.0
Balance at 5 January 2009		67.9	85.3	9.9	(4.6)	(2.7)	6.0	35.7	1.0	(20.7)	177.8	30.2	208.0
Profit for the year		-	-	-	-	-	-	-	-	19.0	19.0	3.7	22.7
Other comprehensive income		-	-	0.2	4.8	1.0	-	-	10.8	(18.7)	(1.9)	(3.1)	(5.0)
Other movements		-	-	-	-	-	-	-	(0.7)	0.2	(0.5)	0.5	-
Transactions with owners:
Dividends		-	-	-	-	-	-	-	-	(12.1)	(12.1)	(1.3)	(13.4)
Equity-settled share-based payment transactions		-	-	-	-	-	-	-	-	2.3	2.3	-	2.3
Balance at 3 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

The movement in other reserves in 2009 through other comprehensive income reflects the increase in the fair value of the Group's original 49% interest in Clearpower Limited from the date of its original acquisition to 5 January 2009 excluding goodwill and to the extent not previously recognised as the Group's share of the results of Clearpower Limited. See note 2 for further details.

CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 3 January 2010
			2009	2008
		Note	£m	£m
Operating activities
Profit for the period			22.7	62.7
Adjustments for:
	Depreciation		31.7	27.6
	Amortisation		16.3	3.2
	Net financing costs		29.3	12.7
	Loss on disposal of business		-	0.7
	Share of profit of associate		-	(1.2)
	Profit on sale of property, plant and equipment		(2.1)	(0.7)
	Income tax expense		8.7	20.1
	Equity-settled share based payment expenses		2.0	2.2
Cash generated from operations before changes in working capital and provisions			108.6	127.3
Decrease/(increase) in trade and other receivables			26.5	(8.7)
Decrease/(increase) in inventories			8.1	(11.9)
Decrease in trade and other payables			(8.8)	(1.2)
Non-cash operating costs relating to restructuring			1.5	4.2
Decrease in provisions and employee benefits			(13.5)	(10.0)
Cash generated from operations			122.4	99.7
Interest paid			(25.5)	(21.1)
Income tax paid			(32.0)	(28.1)
Net cash from operating activities			64.9	50.5
Investing activities
Purchase of property, plant and equipment			(18.1)	(33.4)
Proceeds from sale of property, plant and equipment			4.4	1.9
Sale of investments			0.2	1.9
Interest received			2.3	4.2
Acquisition of subsidiaries and associate, net of cash acquired			(31.9)	(79.2)
Forward contracts used in net investment hedging			(0.3)	(8.9)
Net cash from investing activities			(43.4)	(113.5)
Financing activities
Purchase of own shares			-	(12.1)
Increase in borrowings			169.2	127.2
Repayment of borrowings			(204.7)	-
Payment of finance lease liabilities			(0.6)	(0.3)
Dividends paid			(12.1)	(18.8)
Net cash from financing activities			(48.2)	96.0
Net (decrease)/increase in cash and cash equivalents			(26.7)	33.0
Cash and cash equivalents at start of period			139.4	90.1
Effect of exchange rate fluctuations on cash held			(5.1)	16.3
Cash and cash equivalents at period end		7	107.6	139.4

                 Basis of Preparation

The financial information set out above does not constitute the Company's statutory accounts for the years ended 3 January 2010 or 4 January 2009. Statutory accounts for the year ended 4 January 2009 have been delivered to the registrar of companies, and those for the year ended 3 January 2010 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 237(2) or (3) of the Companies Act 1985 in respect of the accounts for 2008 nor a statement under Section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2009.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.	Segment reporting
	This year the Group adopted IFRS 8 Operating Segments which replaces IAS 14 Segment Reporting. The accounting policy for identifying segments is now based on internal management reporting information that is regularly reviewed by the Group's Chief Operating Decision Maker. In contrast, IAS 14 Segment Reporting required the Group to identify two sets of segments (business and geographical) based on the risks and rewards of the operating segments. As a result of the adoption of IFRS 8 Operating Segments, the Directors are of the opinion that the primary business segments, as previously reported under IAS 14 Segment Reporting, should remain unchanged. Hence the Group continues to comprise the following four reportable segments:
	- Carbon - the Carbon division produces a wide variety of technological solutions from carbon, graphite and silicon carbide.
	- Technical Ceramics - the Technical Ceramics division makes an extensive range of industrial ceramics products for a wide variety of applications.
	- Thermal Ceramics - the Thermal Ceramics division designs and manufactures a wide variety of heat insulation products.
	- Molten Metal Systems - the Molten Metal Systems division occupies a leading position in the supply of crucibles and manufactures equipment used in the melting,    holding and processing of metals and alloys.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.	Segment reporting (continued)
																		Insulating Ceramics
					Carbon				Technical Ceramics						Thermal Ceramics					Molten Metal Systems					Consolidated
					2009			2008	2009			2008			2009		2008			2009	2008				2009	2008
					£m			£m	£m			£m			£m		£m			£m	£m				£m	£m
	Revenue from external customers				391.4			239.9	206.0			212.2			315.1		347.4			30.1	35.5				942.6	835.0
	Divisional EBITA+				40.5			36.3	25.1			31.6			26.7		41.4			0.9	4.2				93.2	113.5
	Unallocated costs																								(4.2)	(4.7)
	Group EBITA~																								89.0	108.8
	Restructuring costs and other one-off items																								(12.0)	(10.6)
	Underlying operating profit*																								77.0	98.2
	Amortisation of intangible assets																								(16.3)	(3.2)
	Operating profit																								60.7	95.0
	Finance income																								24.4	34.3
	Finance expense																								(53.7)	(47.0)
	Loss on disposal of business																								-	(0.7)
	Share of profit of associate (net of income tax)																								-	1.2
	Profit before taxation																								31.4	82.8
	+ Divisional EBITA is defined as 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.
	Carbon's segment profit includes impairment losses of £0.3 million for the write down of working capital as a result of the rationalisation of a site in the UK (2008: £nil).
	Technical Ceramics' segment profit in 2008 includes an impairment loss of £0.2 million for the write down of plant and equipment.
	Thermal Ceramics' segment profit includes an impairment loss of £0.9 million for the write down of working capital as a result of the closure and rationalisation of Thermal sites in The Americas and Europe (2008: £nil).
	Molten Metal Systems' segment profit includes impairment losses of £0.3 million for the write down of land to net realisable value following the termination of manufacturing at the UK Molten Metal System site (2008: impairment losses of £1.6 million, £0.2 million and £0.1 million respectively for the write down of land to net realisable value, the write down of plant and equipment and write down of working capital).
	The Group did not have any significant inter-segment revenue between reportable operating segments in 2009 and 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.	Segment reporting (continued)
																Insulating Ceramics
				Carbon						Technical Ceramics						Thermal Ceramics			Molten Metal Systems						Consolidated
				2009			2008			2009			2008			2009	2008		2009		2008				2009		2008
				£m			£m			£m			£m			£m	£m		£m		£m				£m		£m
	Segment assets			384.4			254.6			220.9			274.6			258.2	359.2		31.6		44.1				895.1		932.5
	Unallocated assets																								146.1		146.2
	Total assets																								1,041.2		1,078.7
	Segment liabilities			78.5			60.1			32.9			59.2			64.9	131.4		7.4		16.4				183.7		267.1
	Unallocated liabilities																								642.9		603.6
	Total liabilities																								826.6		870.7
	Investment in associates			1.5			6.4			-			-			-	-		-		-				1.5		6.4
	Segment capital expenditure			5.0			13.0			6.1			6.8			5.9	9.1		0.9		4.0				17.9		32.9
	Unallocated capital expenditure																								0.2		0.5
	Total capital expenditure																								18.1		33.4
																Insulating Ceramics
				Carbon						Technical Ceramics						Thermal Ceramics			Molten Metal Systems						Consolidated
				2009			2008			2009			2008			2009	2008		2009			2008			2009		2008
				£m			£m			£m			£m			£m	£m		£m			£m			£m		£m
	Segment depreciation			9.9			8.0			9.1			8.2			11.5	10.5		1.2			0.9			31.7		27.6
				Europe						Americas						Far East & Australia			Middle East & Africa						Consolidated
				2009			2008			2009			2008			2009	2008		2009			2008			2009		2008
				£m			£m			£m			£m			£m	£m		£m			£m			£m		£m
	Revenue from external customers			453.3			328.0			325.1			359.6			140.1	135.1		24.1			12.3			942.6		835.0
	Non-current assets (excluding deferred tax and financial instruments)			285.0			204.3			216.9			253.6			78.8	86.6		1.7			2.7			582.4		547.2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.	Segment reporting (continued)
	Revenue from external customers attributed to the United Kingdom (the Group's country of domicile) was £252.7 million (2008: £83.6 million).
	Major Customer
	Revenues from one customer of the Group's Carbon division represent £161.1 million of the Group's total revenues (2008: £nil).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.	Acquisitions
	Acquisitions in 2009
	Clearpower
	In 2007 the Group acquired 49% of the Ordinary share capital of Clearpower Limited, a company that, via two intermediary holding companies, owns 100% of NP Aerospace Limited. On 5 January 2009 the Group acquired the remaining 51% of the Ordinary share capital of Clearpower Limited for a total of £56.8 million, an amount contingent on the future performance of Clearpower Limited. This comprised £12.2 million in cash for 11% of the Ordinary share capital and £44.6 million in discounted deferred contingent consideration for 40% of the Ordinary share capital.
	The discounted deferred contingent consideration takes the form of four synthetic forwards each to acquire 10% of the Ordinary share capital of Clearpower Limited at future dates from 2010 onwards, the amount of which is based on a fixed EBITDA multiple of Clearpower Limited.  In accordance with IAS 32 Financial Instruments: Presentation, the Group has recognised a liability representing the estimated present value of the redemption amount in respect of its obligation to acquire these shares and has treated them as if they were acquired by the Group on 5 January 2009.  Since this consideration is contingent on the future performance of Clearpower the liability is re-measured at each reporting date with any adjustments recorded through goodwill, in accordance with IFRS 3 Business Combinations. It is possible that the carrying amount of this liability will increase or decrease if the future performance of Clearpower varies from current expectations. At 3 January 2010 this liability to purchase the remaining 40% of the Ordinary share capital of Clearpower Limited was remeasured and increased to £46.0 million. In addition amounts payable in respect of the acquisition of 11% of the Ordinary share capital were increased by £8.1 million based on the actual performance of Clearpower Limited in 2009. The £8.1 million deferred contingent consideration in respect of the acquisition of 11% of the Ordinary share capital will be paid after the balance sheet date.
	At 3 January 2010 the Group carries a total liability of £54.1 million in respect of deferred consideration. This is included within current and non-current non-trade payables. The unwinding of the discount on this liability of £2.2 million is recorded as a finance expense (see note 3). The adjustment through goodwill since the date of acquisition as a result of the remeasurement is £7.3 million.
	The principal activity of NP Aerospace Limited is the development, manufacture and marketing of ballistic and non ballistic products in the defence and civil sectors. In the 12 months to 3 January 2010 Clearpower Limited and its subsidiaries contributed an operating profit before amortisation of intangible assets of £28.8 million to the consolidated net profit.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	Acquisitions (continued)
	The details of the transaction, result and fair value adjustments arising from the change in ownership are shown below:
					Acquiree's carrying amount			Fair value to the Group
					2009			2009
					£m			£m
	Clearpower
	The figures in the table below represent a 100% interest in Clearpower Limited
	Intangible assets				-			51.5
	Property, plant and equipment				2.9			2.9
	Other working capital				0.1			0.1
	Derivative financial liabilities				(0.8)			(0.8)
	Interest bearing loans and other borrowings				(58.3)			(58.3)
	Non-controlling interest				(1.2)			(1.2)
	Deferred taxation				0.3			(14.1)
	Net liabilities acquired				(57.0)			(19.9)
	Goodwill							96.7
	Fair value of net liabilities acquired and goodwill arising							76.8
	Components of cost of acquisition
	Fair value of consideration for initial 49% shareholding in 2007							0.5
	Fair value of consideration for remaining 51% shareholding in 2009							64.1
	Total cost of acquisition							64.6
	Earnings under equity method of initial 49% shareholding (while Clearpower Limited was an associate)							1.4
	Revaluation surplus arising on step acquisition							10.8
	Fair value of net liabilities acquired and goodwill arising							76.8
	Cash paid on acquisition of 11% of the Ordinary share capital							12.2
	Acquisition costs							0.1
	Net cash out flow to the Group in 2009							12.3
	Provisional fair value adjustments were made to reflect the fair value of the assets/liabilities acquired and principally represent the recognition of the fair value of non-contractual customer relationships, order book and technology and the associated deferred tax on the temporary timing difference created by the fair value adjustments. No adjustments to fair value were made.
	Recognised goodwill comprises £22.5 million arising on the initial purchase of the 49% interest in 2007 and £74.2 million arising on the effective acquisition of the remaining 51% interest on 5 January 2009.
	Excluding goodwill a total of £51.5 million of intangible assets has been recognised comprising £23.9 million of customer relationships, £18.3 million of technology and an order book of £9.3 million. These have been recognised within operating intangibles arising on acquisition.
	Goodwill represents future economic benefits arising from assets that are not capable of being identified individually or recognised as separate assets. This includes acquirer specific synergies such as cross selling opportunities and the enhancement of technologies and processes between existing and acquired sites.
	The fair value of the purchase consideration, which is dependent on future results, represents Management's best estimate of the likely final purchase consideration.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.	Acquisitions (continued)
	The revaluation surplus, recorded in the Statement of Other Comprehensive Income, reflects the increase in the fair value of the Group's original 49% interest in Clearpower Limited from the date of its original acquisition to 5 January 2009 excluding goodwill and to the extent not previously recognised as the Group's share of the results of Clearpower Limited.
	Other acquisitions
	On 6 April 2009, the Group acquired a 50% stake in Integrated Survivability Technologies Limited. The principal activity of Integrated Survivability Technologies Limited is acting as prime contractor for delivery of military vehicles and provision of related support services. This company did not trade prior to the date of acquistion.
	During the year the Company acquired a further 9% of the Ordinary share capital and voting rights of Carbo San Luis S.A. for £1.1 million, resulting in a total shareholding of 84.6% at 3 January 2010.
	Acquisitions in 2008
	On 31 March 2008 the Group acquired 100% of the shares in the Technical Ceramics business of Carpenter Technology Corporation, known as Certech and Carpenter Advanced Ceramics, for £74.6 million. The principal activity of Certech is the manufacture of complex injection moulded ceramic components. The principal activity of Carpenter Advanced Ceramics is the manufacture of engineered ceramic products. In the nine months to 4 January 2009 these subsidiaries contributed an operating profit before amortisation of intangible assets of £6.6 million to the consolidated net profit for the period. The Group revenue and profit from operations before amortisation of intangible assets, had the acquisition taken place at the beginning of the period, is £849.2 million and £100.4 million respectively.
	Effect of acquisitions
	The acquisitions had the following effect on the assets and liabilities of the Group:
							Carrying values		Fair value to the Group
							before acquisition
							2008		2008
							£m		£m
	Certech and Carpenter Advanced Ceramics
	Intangible assets						3.2		32.2
	Property, plant and equipment						8.3		9.0
	Other working capital						11.9		11.3
	Provisions						-		(1.7)
	Deferred taxation						-		(11.3)
	Net identifiable assets and liabilities						23.4		39.5
	Goodwill on acquisition								38.6
	Consideration payable, excluding acquisition costs, satisfied in cash								74.6
	Acquisition costs								3.5
	Net cash out flow								78.1
	Goodwill represents future economic benefits arising from assets that are not capable of being identified individually or recognised as separate assets. This will include acquirer specific synergies such as cross selling opportunities and the enhancement of technologies and processes between existing and acquired sites.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.	Acquisitions (continued)
	Excluding goodwill a total of £32.2 million of intangible assets have been recognised, which comprises of customer relationships. These have been recognised within operating intangibles arising on acquisition.
	During the year the Company acquired a further 6% of the Ordinary share capital and voting rights of Carbo San Luis S.A. for £0.7 million, resulting in a shareholding of 75.6%.

NOTES TO  THE CONSOLIDATED FINANCIAL STATEMENTS
3.	Net finance income and expense
		2009	2008
		£m	£m
	Recognised in profit or loss
	Interest income on bank deposits	2.3	3.0
	Interest income from associate	-	4.1
	Expected return on IAS 19 scheme assets	22.1	25.7
	Foreign exchange gains recognised on net investment hedge	-	1.5
	Finance income	24.4	34.3
	Interest expense on financial liabilities measured at amortised cost	(25.1)	(21.4)
	Interest on IAS 19 obligations	(26.4)	(25.6)
	Interest expense on unwinding of discount on deferred consideration	(2.2)	-
	Finance expense	(53.7)	(47.0)
	Net financing costs recognised in profit or loss	(29.3)	(12.7)
	The above finance income and expense include the following in respect of assets/(liabilities) not at fair value through profit or loss:
	Total interest income on financial assets	2.3	7.1
	Total interest expense on financial liabilities	(25.1)	(21.4)
	Recognised directly in equity
	Net change in fair value of available for sale financial assets	1.0	(3.8)
	Cash flow hedges:
	Effective portion of changes in fair value of cash flow hedges	0.2	(4.6)
	Transferred to profit or loss	4.6	1.2
	Effective portion of change in fair value of net investment hedge	9.1	(42.8)
	Foreign currency translation differences for foreign operations	(8.9)	61.6
		6.0	11.6
	Recognised in:
	Fair value reserve	1.0	(3.8)
	Translation reserve	0.2	18.8
	Hedging reserve	4.8	(3.4)
		6.0	11.6

NOTES TO  THE CONSOLIDATED FINANCIAL STATEMENTS
4.	Taxation - income tax expense
	Recognised in the income statement
				2009	2008
				£m	£m
	Current tax expense
	Current year			17.3	15.7
	Adjustments for prior years			(0.8)	(1.7)
				16.5	14.0
	Deferred tax expense
	Origination and reversal of temporary differences			(7.8)	4.8
	Benefit of losses recognised			-	1.3
				(7.8)	6.1
	Total income tax expense in income statement			8.7	20.1
	Reconciliation of effective tax rate	2009	2009	2008	2008
		£m	%	£m	%
	Profit before tax	31.4		82.8
	Income tax using the domestic corporation tax rate	8.8	28.0	23.2	28.0
	Non-deductible expenses	6.4	20.4	0.8	1.0
	Temporary differences not equalised in deferred tax	(4.3)	(13.7)	(10.6)	(12.8)
	(Over)/under provided in prior years	(0.2)	(0.6)	2.3	2.8
	Other (including the impact of overseas tax rates)	(2.0)	(6.4)	4.4	5.3
		8.7	27.7	20.1	24.3
	Income tax recognised directly in equity
	Actuarial gains and losses	-		5.4
	Tax effect on components of other comprehensive income	5.5		-
	Other	(0.2)		-
	Total income tax recognised directly in equity	5.3		5.4

5.	Restructuring costs and costs associated with settlement of prior period anti-trust litigation
	Costs of restructuring were £14.9 million (2008: £10.5 million). During the period net legal costs of £0.9 million were recovered relating to the settlement of anti-trust litigation (2008: £0.9 million net legal costs charge).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6.	Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 3 January 2010 was based on the profit attributable to equity holders of The Morgan Crucible Company plc of £19.0 million (4 January 2009: £59.2 million) and a weighted average number of Ordinary shares outstanding during the period ended 3 January 2010 of 268,070,252 (4 January 2009: 266,882,370) calculated as follows:
			2009	2008
			£m	£m
Profit attributable to equity holders of The Morgan Crucible Company plc			19.0	59.2
Weighted average number of Ordinary shares
Issued Ordinary shares at the beginning of the period			270,206,256	276,414,074
Effect of shares issued in period and treasury shares held by the Company			(2,136,004)	(9,531,704)
Weighted average number of Ordinary shares during the period			268,070,252	266,882,370
Basic earnings per share (pence)			7.1p	22.2p
Diluted earnings per share
The calculation of diluted earnings per share at 3 January 2010 was based on the profit attributable to equity holders of The Morgan Crucible Company plc of £19.0 million (4 January 2009: £59.2 million) and a weighted average number of Ordinary shares outstanding during the period ended 3 January 2010 of 279,724,482 (4 January 2009: 274,229,467), calculated as follows:
			2009	2008
			£m	£m
Profit attributable to equity holders of The Morgan Crucible Company plc			19.0	59.2
Weighted average number of Ordinary shares:
Weighted average number of Ordinary shares during the period			268,070,252	266,882,370
Effect of share options/incentive schemes			11,654,230	7,347,097
Diluted weighted average number of Ordinary shares			279,724,482	274,229,467
Diluted earnings per share (pence)			6.8p	21.6p
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6.	Earnings per share (continued)
Underlying earnings per share The calculation of underlying earnings per share at 3 January 2010 was based on operating profit and share of profit of associate before amortisation, less net financing costs, loss on disposal of business, income tax expense and non-controlling interests of £35.3 million (4 January 2009: £62.4 million) and a weighted average number of Ordinary shares outstanding during the period ended 3 January 2010 of 268,070,252 (4 January 2009: 266,882,370) calculated as follows:
			2009	2008
			£m	£m
Operating profit and share of profit of associate before amortisation, less net financing costs, loss on disposal of business, income tax expense and non-controlling interests			35.3	62.4
Issued Ordinary shares at the beginning of the period			270,206,256	276,414,074
Effect of shares issued in period and treasury shares held by the Company			(2,136,004)	(9,531,704)
Weighted average number of Ordinary shares during the period			268,070,252	266,882,370
Earnings per share before amortisation of intangible assets (pence)			13.2p	23.4p
Diluted underlying earnings per share
The calculation of diluted underlying earnings per share at 3 January 2010 was based on operating profit and share of profit of associate before amortisation, less net financing costs, loss on disposal of business, income tax expense and non-controlling interests of £35.3 million (4 January 2009: £62.4 million) and a weighted average number of Ordinary shares outstanding during the period ended 3 January 2010 of 279,724,482 (4 January 2009: 274,229,467), calculated as follows:
			2009	2008
			£m	£m
Operating profit and share of profit of associate before amortisation, less net financing costs, loss on disposal of business, income tax expense and non-controlling interests			35.3	62.4
Weighted average number of Ordinary shares during the period			268,070,252	266,882,370
Effect of share options/incentive schemes			11,654,230	7,347,097
Diluted weighted average number of Ordinary shares during the period			279,724,482	274,229,467
Diluted earnings per share before amortisation of intangible assets (pence)			12.6p	22.8p

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7.	Cash and cash equivalents/bank overdrafts
		2009	2008
		£m	£m
	Bank balances	92.9	100.4
	Cash deposits	14.7	54.1
	Cash and cash equivalents per consolidated balance sheet	107.6	154.5
	Bank balances subject to cash pooling arrangements	-	(15.1)
	Cash and cash equivalents per consolidated statement of cash flows	107.6	139.4
	Bank overdrafts subject to cash pooling arrangements	-	(15.1)
	Other bank overdrafts	(1.2)	(2.2)
	Total bank overdrafts	(1.2)	(17.3)

 

END

 

 

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