Half-year results

RNS Number : 7924V

Morgan Advanced Materials PLC

26 July 2018

Half-year results for the six months ended 30 June 2018

£ million unless otherwise stated	1H 2018⁽¹⁾	1H 2017⁽¹⁾	As Reported Change %	Organic Constant Currency⁽²⁾ Change %
Headline results Revenue	521.8	518.8	0.6%	7.8%
Group headline operating profit⁽²⁾	61.5	61.2	0.5%	12.4%
Group headline operating profit margin⁽²⁾	11.8%	11.8%
Headline EPS⁽²⁾	13.1p	11.5p	13.9%
Interim dividend per share	4.0p	4.0p
Cash flow from operations⁽²⁾	53.5	51.6	3.7%
Free cash flow before acquisitions, disposals and dividends⁽²⁾	18.8	16.8

Statutory results⁽³⁾
Operating profit	50.1	103.7
Profit before tax	43.9	91.9
Basic EPS	9.1p	26.9p

1. The six months ended 30 June 2018 have been prepared reflecting the adoption of IFRS 15. The six months ended 30 June 2017 and year ended 31 December 2017 have been restated to reflect the adoption of IFRS 15. Further details are provided in notes 1 and 12 to the financial statements.

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 - 15.

3. On a statutory basis operating profit in 1H 2018 was £50.1 million, this included a charge of £7.6 million for the exit and closure of the Composites and Defence Systems business. In 1H 2017 operating profit was £103.7 million, this included a profit on disposal of £46.1 million for the disposal of the global Rotary Systems and Electro-ceramics businesses.

Group highlights

· Strategy implementation remains firmly on track, with the strategy contributing to growth in the first half.

· Revenue growth* of 7.8% and Group headline operating profit* growth of 12.4% on an organic constant currency basis.

· Group headline operating profit margin* was 11.8%:

- Further incremental investment of £7 million in research and development, sales effectiveness, and wider business infrastructure funded through £7 million of operational efficiency savings.

- Organic volume growth was offset by foreign exchange, dilutive impacts of the 2017 divestments and some adverse mix in Thermal and Technical Ceramics.

· Headline EPS* growth of 13.9% reflected improvement in operating profit, lower financing charges and a lower effective tax rate.

· Continued improvement in cash generation, with net debt:EBITDA* 1.2 times.

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

'We have made good progress with the implementation of our strategy in the first half and we expect to complete our execution priorities to plan during the year.

Trading conditions have been good in the first half of the year in most of our markets. The Group has continued to grow organically reflecting these end market conditions and share wins driven by our strategy implementation. As we progress through the year, we expect the growth rate will moderate slightly as we track against a tougher prior year comparator period.

We are ahead of our plan to drive operational efficiency across the business, and these savings funded investment in research and development and sales effectiveness in the first half as planned.

Our expectations for the full-year are now slightly higher than previously anticipated.'

Strategy implementation firmly on track

We have made good progress with the implementation of our strategy, against the execution priorities defined in February 2016:

1. Move to a global structure. We completed the move to a global business structure in March 2016. The change in structure improved global co-ordination across the Group and sharpened accountability within each of our global business units. This was an important enabler to the wider changes we are making across the Group.

2. Extend our technology leadership. Our objective is to strengthen our technical teams and increase our investment in research and development. We have invested £2 million in the first half compared to the prior year, and expect to have invested an incremental £10 million per year by the end of 2018 compared to 2015.

The four Centres of Excellence (CoE) are focused on driving a range of materials and process developments to improve the differentiation of our materials portfolio and the performance of our products. We have continued to grow the resources in our CoE's, as well as adding test equipment to enhance our capabilities.

3. Improve operational execution. Our objective is to strengthen our operational capabilities, reduce operational costs to fund reinvestment in the business, and improve delivery and quality performance.

We are on track to deliver the planned £8 million of operational improvements in 2018 from improvement projects across each of the global business units focused on lean manufacturing processes including end-to-end waste elimination, smaller scale continuous improvement projects, procurement projects and further use of automation.

4. Drive sales effectiveness and market focus. Our objective is to strengthen our sales capability, and increase the intensity of effort with new customers and in new markets.

Our sales effectiveness programme is a significant change in the way we sell across the Group. We are progressively making changes to the key aspects of our sales approach including sales structures and roles, sales capabilities, route to market, customer segmentation and pricing, performance management and metrics, and sales incentives.

We have moved to wider deployment following the pilot activity completed in 2017. We have started the roll-out of pricing and segmentation tools across the business and continued to change sales structures to get more resources focused on key customers and growing market segments.

We have four sales incentives pilots underway with good progress year to date, and will deploy new sales incentive programmes more widely through the second half, learning from these initial trials.

A comprehensive sales training programme has been designed to upskill our teams in key selling techniques and behaviours and deployment will commence in the second half of 2018.

5. Increase investment in people management and development. Our objective is to strengthen our leadership capability and deepen functional capabilities across the business, including in sales and engineering.

Our new leadership behaviours were launched to our senior leaders during 2017. These are now built into our performance management process and our leaders are measured both on what they achieve and how they achieve it, ensuring we drive the behaviours needed to support the delivery of our strategy. Supporting this, we are redesigning our development programmes for senior leaders and have introduced an e-learning platform for our leadership population to support their overall skills development.

We continue to strengthen our leadership population, and have completed a number of key senior appointments in the first half.

6. Simplify the business. On 23 April 2018, the Group announced the exit of the Composite and Defence Systems business. This exit will take the form of the potential divestment of certain product lines, should a suitable acquirer be found, together with the closure of the remainder of the business lines.

We continue to simplify the Group and review the portfolio for fit with our corporate strategy.

Enquiries


Pete Raby	Morgan Advanced Materials	01753 837 000
Peter Turner	Morgan Advanced Materials
Alison Kay	Brunswick	0207 404 5959

Results presentation today

There will be an analyst and investor presentation at 08.00 (UK time) today at The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.

A live video webcast and slide presentation of this event will be available on www.morganadvancedmaterials.com. We recommend you register by 07.45 (UK time).

Basis of preparation

Non-GAAP measures

Throughout this report adjusted measures are used to describe the Group's financial performance. These are not recognised under IFRS or other generally accepted accounting principles (GAAP).

The Executive Committee and the Board manage and assess the performance of the business on these measures and believe that they are more representative of ongoing trading, facilitate meaningful year-on-year comparisons, and hence provide additional useful information to shareholders.

Throughout this report these non-GAAP measures are clearly identified by an asterisk (*) where they appear in text, and by a footnote when they appear in tables and charts. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

Operating review

	Revenue⁽¹⁾		Divisional EBITA^(1)/(2)			Margin %⁽¹⁾
	1H 2018	1H 2017	1H 2018	1H 2017	1H 2018		1H 2017
	£m	£m	£m	£m	%		%
Thermal Ceramics	217.3	213.4	26.1	28.2	12.0		13.2
Molten Metal Systems	24.5	23.9	3.6	3.6	14.7		15.1
Thermal Products total	241.8	237.3	29.7	31.8	12.3		13.4
Electrical Carbon	82.9	80.9	10.3	8.6	12.4		10.6
Seals and Bearings	65.6	55.9	12.1	9.1	18.4		16.3
Technical Ceramics	124.1	133.2	13.2	15.0	10.6		11.3
Carbon and Technical Ceramics total	272.6	270.0	35.6	32.7	13.1		12.1
Composites and Defence Systems	7.4	11.5	(0.9)	(0.4)	(12.2)		(3.5)
Divisional total	521.8	518.8
Divisional EBITA^(1)/(2)			64.4	64.1
Corporate costs			(2.9)	(2.9)
Group headline operating profit^(1)/(2)			61.5	61.2		11.8		11.8
Amortisation of intangible assets			(3.8)	(3.6)
Operating profit before specific adjusting items			57.7	57.6
Specific adjusting items included in operating profit⁽³⁾			(7.6)	46.1
Operating profit			50.1	103.7
Net financing costs			(6.6)	(11.8)
Share of profit of associate (net of income tax)			0.4	-
Profit before taxation			43.9	91.9

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

3. Details of specific adjusting items can be found in note 4 to the financial statements.

Thermal Products

Revenue for Thermal Products for the first half of the year was £241.8 million (1H 2017: £237.3 million), representing an increase of 1.9% compared with 1H 2017. Organic constant-currency revenue* increased by 7.4% compared to 1H 2017. Thermal Products EBITA* for the half-year was £29.7 million (1H 2017: £31.8 million) with an EBITA* margin of 12.3% (1H 2017: 13.4%).

Revenue for the Thermal Ceramics global business unit for the half-year was £217.3 million (1H 2017: £213.4 million), representing an increase of 1.8% compared with 2017. Organic constant-currency revenue* increased by 7.4% compared with 1H 2017. Continued strong growth in Asia, primarily China, India and South Korea, and a return to growth in Europe was offset by an organic* decline in the US.

Thermal Ceramics EBITA* for the half-year was £26.1 million (1H 2017: £28.2 million) with EBITA margin* decreasing to 12.0% (1H 2017: 13.2%). The margin decline was driven by two factors. First a geographic mix impact, with increased lower margin project volume in Asia and Europe and lower revenue overall in the US. Secondly, the profitability of the South American business declined, reflecting challenges in the Brazilian market.

Revenue for the Molten Metals Systems global business unit for the half-year was £24.5 million (1H 2017: £23.9 million), representing an increase of 2.5% compared with 1H 2017. Organic constant-currency revenue* increased by 7.5%. The core crucibles business grew by c. 6%, led by strong performance in the India region. The strengthening of the global precious metals (gold) market has continued to drive growth in the fire assay equipment and consumables business.

Molten Metal Systems EBITA* for the half-year remained flat at £3.6 million with EBITA margin* of 14.7% (1H 2017: 15.1%), reflecting the planned investment in technology and product development.

Carbon and Technical Ceramics

Revenue for the Carbon and Technical Ceramics Division for the half-year was £272.6 million (1H 2017: £270.0 million), representing an increase of 1.0% compared with 1H 2017. Organic constant-currency revenue* increased by 10.1% compared with 1H 2017.

Carbon and Technical Ceramics EBITA* for the half-year was £35.6 million (1H 2017: £32.7 million) with an EBITA margin* of 13.1% (1H 2017: 12.1%).

Revenue for Electrical Carbon for the half-year was £82.9 million (1H 2017: £80.9 million), an increase of 2.5% compared with 1H 2017. Organic constant-currency revenue* increased by 13.3%, driven by growth in the rail, wind, other renewable energy and semiconductor segments. On a regional basis, Asia saw double digit growth from strong sales of specialty graphite products accompanied by good growth in the wind sector. Strong year-on-year growth in North America was driven primarily by specialty graphite sales in addition to solid growth in the traditional rail and industrial business. Europe saw moderate growth in the wind and rail segments offsetting declines in the industrial market.

Electrical Carbon EBITA* for the half-year was £10.3 million (1H 2017: £8.6 million) with an EBITA margin* of 12.4% (1H 2017: 10.6%). Strong conversion of revenue growth more than offset the dilutive impact of the 2017 divestment of the global Rotary Transfer Systems business. Operational efficiencies funded further investment in sales effectiveness, research and development and wider business infrastructure.

Revenue for the Seals and Bearings global business unit for the half-year was £65.6 million (1H 2017: £55.9 million), an increase of 17.4% compared with 1H 2017. Organic constant-currency revenue* increased by 21.9%. The business experienced a strong year for ceramic armour material. Excluding armour sales, year-on-year organic* revenue growth on the core business was 5%. Organic growth* in the core business was driven by the water market, chemical and process industry pump seal and bearing demand, and growth in medical products. The growth in these markets offset continuing decline in the Korean automotive market during the half-year.

Seals and Bearings EBITA* for the half-year was £12.1 million (1H 2017: £9.1 million) with an EBITA margin* of 18.4% (1H 2017: 16.3%), and reflects increased volume, and good progress on operational improvements.

Revenue for the Technical Ceramics global business unit for the half-year was £124.1 million (1H 2017: £133.2 million), a decrease of 6.8% compared with 1H 2017. Organic constant-currency revenue* increased by 3.0%, primarily driven by moderate demand increases for ceramic cores in the aerospace market and supply of ceramic parts into the semiconductor and medical markets. This demand growth was partially offset by sharp slow-down in the industrial gas turbine (IGT) market.

Technical Ceramics EBITA* for the half-year was £13.2 million (1H 2017: £15.0 million) with an EBITA margin* of 10.6% (1H 2017: 11.3%). Margins at the half-year were impacted by mix effects, notably the significant reduction in higher margin IGT volume, and the dilutive impact of the 2017 divestment of the Electro-ceramics business.

Composites and Defence Systems

Revenue for Composites and Defence Systems for the half-year was £7.4 million (1H 2017: £11.5 million), representing a decrease of 35.7% on a reported basis.

EBITA* for Composites and Defence Systems was a loss of £0.9 million (1H 2017: loss of £0.4 million) with EBITA margin* of (12.2)% (1H 2017: (3.5)%).

Group financial review

Group revenue was £521.8 million (1H 2017: £518.8 million), an increase of 0.6% on a reported basis compared with 1H 2017, driven by improvements in the underlying business. Organic constant-currency revenue* increased by 7.8% in the first half. Excluding the impact of the growth in ceramic armour in Seals and Bearings, the Group organic constant-currency revenue* growth is 5.8%.

Group headline operating profit* was £61.5 million (1H 2017: £61.2 million). Headline operating profit margin* was consistent with 1H 2017 at 11.8%.

Operating profit before specific adjusting items was £57.7 million (1H 2017: £57.6 million) and profit before tax decreased to £43.9 million (1H 2017: £91.9 million). Current period operating profit was reduced by specific adjusting items of £7.6 million (1H 2017: increased by £46.1 million).

The net finance charge was £6.6 million (1H 2017: £11.8 million), primarily comprising of net bank interest and similar charges of £4.2 million (1H 2017: £8.4 million), the finance charge under IAS 19 (revised) of £2.4 million (1H 2017: £3.5 million), being the interest charge on pension scheme net liabilities. There was no gain or loss from financial instruments in the period (1H 2017: £0.1 million gain).

The Group amortisation charge for the half-year was £3.8 million (1H 2017: £3.6 million).

The Group taxation charge, excluding specific adjusting items, was £14.4 million (1H 2017: £13.8 million). The effective tax rate, excluding specific adjusting items, was 28.0% (1H 2017: 29.9%).

Headline earnings per share* was 13.1 pence (1H 2017: 11.5 pence), reflecting the improved operating profit, lower financing charges, and lower effective tax rate of 28.0%. Basic earnings per share was 9.1 pence (1H 2017: 26.9 pence).

Specific adjusting items

	1H 2018 £m	1H 2017 £m
Specific adjusting items
Business closure and exit costs	(7.6)	-
Net profit on disposal of business	-	46.1
Total specific adjusting items	(7.6)	46.1
Income tax credit from specific adjusting items	-	1.3
Total specific adjusting items after income tax	(7.6)	47.4

Specific adjusting items after income tax were £7.6 million (1H 2017: credit of £47.4 million) and consisted of the business closure and impairment costs for the Composites and Defence Systems business.

On 23 April 2018, the Group announced its decision to exit the Composites and Defence Systems business through closure and potential divestments. Discussions with possible acquirers of certain product lines are at a very early stage, and there can be no certainty that any divestments will be made.

As a result of this decision certain business closure and impairment costs have been recognised as specific adjusting items in the six months ended 30 June 2018. A total of £7.6 million has been recognised, of this £5.6 million relates to cash exit costs, comprising site clean-up costs, professional and legal fees, staff redundancies and onerous contracts, and £2.0 million relates to impairment of plant, property and equipment and other assets. Cash exits costs may be partially offset by any proceeds from the divestment of certain product lines. Goodwill in the Composites and Defence Systems business has a £nil net book value.

To the extent product lines in the business are closed, this will be completed when delivery of the last time orders from customers have been completed, currently anticipated to be in 2019.

Cash flow

	1H 2018⁽¹⁾	1H 2017⁽¹⁾
	£m	£m
Cash generated from operations	53.5	51.0
Add back: cash flows from restructuring and other items	-	0.6
Cash flow from operations⁽²⁾	53.5	51.6
Capital expenditure	(23.1)	(13.9)
Net interest	(4.1)	(8.3)
Tax paid	(7.5)	(12.0)
Restructuring costs and other items	-	(0.6)
Free cash flow before acquisitions, disposals and dividends⁽²⁾	18.8	16.8
Dividends paid to external plc shareholders	(20.0)	(20.0)
Net cash flows from other investing and financing activities	(1.3)	75.4
Exchange movement	(4.4)	1.7
Movement in net debt⁽²⁾ in period	(6.9)	73.9
Opening net debt⁽²⁾	(181.3)	(242.5)
Closing net debt⁽²⁾	(188.2)	(168.6)

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

Cash flow from operations* was £53.5 million (1H 2017: £51.6 million), in line with prior year.

Free cash flow before acquisitions, disposals and dividends* was £18.8 million (1H 2017: £16.8 million), with increased capital expenditure driven by growth and efficiency projects, lower interest charges reflecting the revised debt structure and lower tax paid due to the tax offset from the one-off US pension deficit funding payments in December 2017.

Net debt* at 30 June 2018 was £188.2 million (FY 2017: £181.3 million), representing a net debt:EBITDA* ratio of 1.2x (FY 2017: 1.2x).

Defined benefit pension plans

The Group pension deficit has decreased by £26.8 million since last year-end to £191.2 million on an IAS 19 (revised) basis (FY 2017: £218.0 million). The decrease is primarily due to a rise in corporate bond yields and Group contributions in excess of the income statement charge for the period, offset by a fall in asset values (predominantly as a result of increased matching of the Schemes' liabilities).

· The UK schemes' deficit decreased by £25.0 million to £141.0 million (FY 2017: £166.0 million) primarily due to actuarial gains driven by the increase in the discount rate and increased contributions paid by the Group offset by investment losses. The discount rate increased to 2.63% (FY 2017: 2.38%).

· The USA schemes' deficit decreased by £1.7 million to £9.4 million (FY 2017: £11.1 million).The decrease is due to actuarial gains from movements in the discount rates offset by investment losses. The discount rate increased to 4.26% (FY 2017: 3.65%).

· The European schemes' deficit decreased by £0.4 million to £36.3 million (FY 2017: £36.7 million), due to Group contributions in excess of the charge to the income statement for the period. The discount rate remained constant since year-end at 1.60%.

· The Rest of World schemes' deficit increased by £0.3 million to £4.5 million (FY 2017: £4.2 million). The discount rate remained constant since year-end at 3.20%.

Foreign exchange

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

	2018		2017
GBP to:	Closing rate	Average rate	Closing rate	Average rate
US dollar	1.32	1.38	1.35	1.29
Euro	1.13	1.14	1.13	1.14

For illustrative purposes, the table below provides details of the impact on first half 2018 revenue and Group headline operating profit* if the actual reported results, calculated using 2018 average exchange rates for the six months to 30 June 2018 were restated for GBP weakening by 10 cents against USD in isolation and 10 cents against the Euro in isolation:

Increase in first half 2018 revenue and Group headline operating profit⁽¹⁾ if:	Revenue £m	Group headline operating profit⁽¹⁾ £m
GBP weakens by 10c against the US dollar in isolation	16.5	2.5
GBP weakens by 10c against the Euro in isolation	11.0	2.1
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

Interim dividend

The Board has resolved to pay an interim dividend of 4.0 pence per Ordinary share. The dividend will be paid on 23 November 2018 to Ordinary shareholders on the register of members at the close of business on 2 November 2018.

Principal risks and uncertainties

The Group has an established risk management methodology which seeks to identify, prioritise and mitigate risks, underpinned by a 'three lines of defence' model comprising of an internal control framework, monitoring and independent assurance processes. The Board considers that risk management and internal control are fundamental to achieving the Group aim of creating long-term sustainable shareholder value.

The current risks, representing those risks that the Board feels could have the most significant effect on achieving the Group's strategy of building a sustainable business for the long term and delivering strong returns to the Group's shareholders, are set out in the 2017 Annual Report, which is available on 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 following are the Group's principal risks and uncertainties: technical leadership; operational execution, organisational change and sales effectiveness; portfolio management; macro-economic and political environment; environment, health and safety; product quality, safety and liability; IT and cyber security; supply chain and business continuity; treasury and tax; pension funding; contract management; and compliance.

The Board reviews the status of all principal risks with a notable potential impact at Group level throughout the year. Additionally, the Audit Committee carries out focused risk reviews of each Division. These reviews include an analysis of principal risks, together with the controls, monitoring and assurance processes established to mitigate those risks to acceptable levels.

Going Concern

As reported on page 40 of the 2017 Annual Report and Accounts, the Group meets its day-to-day working capital requirements through local banking arrangements and the committed £200 million unsecured five-year multi-currency revolving credit facility.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to operate within the level of its committed facilities. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of 12 months from the date of this Statement. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements for the six months ended 30 June 2018.

Directors' Responsibility Statement

The Directors confirm that to the best of their knowledge:

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

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

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

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

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

By order of the Board

Pete Raby

Chief Executive Officer

Peter Turner

Chief Financial Officer

Definitions and reconciliations of non-GAAP to GAAP measures

Reference is made to the following non-GAAP measures throughout this document. These measures are shown because the Directors consider they provide useful information to shareholders, including additional insight into ongoing trading and year-on-year comparisons. These non-GAAP measures should be viewed as complementary to, not replacements for, the comparable GAAP measures.

Headline profit and earnings measures

Group headline operating profit is stated before specific adjusting items and amortisation of intangible assets. Specific adjusting items are excluded on the basis that they distort trading performance. Amortisation is excluded as the charge arises primarily on externally acquired intangible assets since the adoption of IFRS and does not therefore reflect all intangible assets consistently.

Earnings before interest, tax and amortisation (EBITA) is stated before specific adjusting items, amortisation of intangible assets, restructuring costs and other items. Segment EBITA is stated before unallocated corporate costs.

1H 2018⁽²⁾	Thermal Ceramics £m	Molten Metal Systems £m	Thermal Products Division £m	Electrical Carbon £m	Seals and Bearings £m	Technical Ceramics £m	Carbon and Technical Ceramics Division £m	Composites and Defence Systems £m	Segment total £m	Corporate costs⁽¹⁾ £m	Group £m
Operating profit/(loss)	25.1	3.5	28.6	9.9	11.9	11.1	32.9	(0.9)	60.6	(10.5)	50.1
Add back specific adjusting items included in operating profit	-	-	-	-	-	-	-	-	-	7.6	7.6
Add back amortisation of intangible assets	1.0	0.1	1.1	0.4	0.2	2.1	2.7	-	3.8	-	3.8
Group headline operating profit											61.5
Corporate costs⁽¹⁾										2.9	2.9
Divisional EBITA/global business unit EBITA	26.1	3.6	29.7	10.3	12.1	13.2	35.6	(0.9)	64.4

1. Corporate costs consist of Specific adjusting items and the cost of the central head office.

2. The six months ended 30 June 2018 have been prepared reflecting the adoption of IFRS 15. The six months ended 30 June 2017 and year ended 31 December 2017 have been restated to reflect the adoption of IFRS 15. Further details are provided in notes 1 and 12 to the financial statements.

1H 2017⁽²⁾	Thermal Ceramics £m	Molten Metal Systems £m	Thermal Products Division £m	Electrical Carbon £m	Seals and Bearings £m	Technical Ceramics £m	Carbon and Technical Ceramics Division £m	Composites and Defence Systems £m	Segment total £m	Corporate costs⁽¹⁾ £m	Group £m
Operating profit/(loss)	27.3	3.5	30.8	8.4	9.0	12.7	30.1	(0.4)	60.5	43.2	103.7
Deduct specific adjusting items included in operating profit	-	-	-	-	-	-	-	-	-	(46.1)	(46.1)
Add back amortisation of intangible assets	0.9	0.1	1.0	0.2	0.1	2.3	2.6	-	3.6	-	3.6
Group headline operating profit											61.2
Corporate costs⁽¹⁾										2.9	2.9
Divisional EBITA/global business unit EBITA	28.2	3.6	31.8	8.6	9.1	15.0	32.7	(0.4)	64.1

1. Corporate costs consist of specific adjusting items and the cost of the central head office.

Group Organic Growth

Group organic growth is the growth of the business excluding the impacts of acquisitions, divestments and foreign currency impacts. This measure is used as it allows revenue and EBITA to be compared on a like-for-like basis. Commentary on the underlying business performance is included as part of the Operating review on pages 4 to 6.

Year-on-year movements in Segment Revenue

	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment Total
	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018
	£m	£m	£m	£m	£m	£m	£m	£m	£m

2017 Revenue⁽¹⁾	213.4	23.9	237.3	80.9	55.9	133.2	270.0	11.5	518.8

Impact of foreign currency movements	(11.1)	(1.1)	(12.2)	(3.1)	(2.1)	(7.2)	(12.4)	-	(24.6)
Impacts of disposals	-	-	-	(4.6)	-	(5.5)	(10.1)	-	(10.1)
Impact of underlying business	15.0	1.7	16.7	9.7	11.8	3.6	25.1	(4.1)	37.7
Underlying %	7.4%	7.3%	7.4%	13.2%	21.9%	3.0%	10.1%	(35.4)%	7.8%

2018 Revenue⁽¹⁾	217.3	24.5	241.8	82.9	65.6	124.1	272.6	7.4	521.8

Year-on-year movements in Segment and Group EBITA

	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment Total	Corporate Costs	Group
	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018	2017 versus 2018
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

2017 Segment & Group EBITA⁽¹⁾	28.2	3.6	31.8	8.6	9.1	15.0	32.7	(0.4)	64.1	(2.9)	61.2

Impact of foreign currency movements	(2.3)	(0.1)	(2.4)	(0.3)	(0.5)	(0.9)	(1.7)	-	(4.1)	-	(4.1)
Impacts of disposals	-	-	-	(1.3)	-	(1.1)	(2.4)	-	(2.4)	-	(2.4)
Impact of underlying business	0.2	0.1	0.3	3.3	3.5	0.2	7.0	(0.5)	6.8	-	6.8
Underlying %	0.8%	2.9%	1.0%	46.9%	40.7%	1.6%	24.0%	125%	12.4%	-	12.4%

2018 Segment & Group⁽¹⁾	26.1	3.6	29.7	10.3	12.1	13.2	35.6	(0.9)	64.4	(2.9)	61.5

Group EBITDA

Group EBITDA is defined as operating profit before specific adjusting items, restructuring costs, other items, depreciation and amortisation of intangible assets. The Group uses this measure as it is a key metric in covenants over debt facilities. A reconciliation of operating profit to Group EBITDA is as follows:

	1H 2018⁽¹⁾ £m	1H 2017⁽¹⁾ £m
Operating profit	50.1	103.7
Add back: specific adjusting items included in operating profit	7.6	(46.1)
Add back: depreciation	15.7	15.7
Add back: amortisation of intangible assets	3.8	3.6
Group EBITDA	77.2	76.9

Cash flow from operations and free cash flow before acquisitions, disposals and dividends

Cash flow from operations excludes the cash flows associated with restructuring activities and is shown because it illustrates the timing of the outflows relating to restructuring charges that may be incurred over more than one reporting period.

Free cash flow before acquisitions and disposals is defined as cash generated from operations less capital expenditure, net interest paid and tax paid.

The Group discloses this measure of free cash flow as this provides readers of the financial statements with a measure of the cash flows from the business before corporate level cash flows (acquisitions, disposals and dividends).

A reconciliation of cash generated from operations to cash flow from operations and free cash flow before acquisitions, disposals and dividends is as follows:

	1H 2018 £m	1H 2017 £m
Cash generated from operations	53.5	51.0
Add back: cash flows from restructuring costs and other items	-	0.6
Cash flow from operations	53.5	51.6
Capital expenditure	(23.1)	(13.9)
Net interest	(4.1)	(8.3)
Tax paid	(7.5)	(12.0)
Restructuring costs and other items	-	(0.6)
Free cash flow before acquisitions, disposals and dividends	18.8	16.8

Net debt

Net debt is defined as interest-bearing loans and borrowings and bank overdrafts less cash and cash equivalents. The Group discloses this metric as it is a key metric in covenants over debt facilities.

	1H 2018 £m	1H 2017 £m
Cash and cash equivalents	58.9	164.7
Non-current interest-bearing loans and borrowings	(195.6)	(197.0)
Current interest-bearing loans and borrowings and bank overdrafts	(51.5)	(136.3)
Net debt	(188.2)	(168.6)

Return on invested capital

Return on invested capital (ROIC) is defined as the 12-month Group headline operating profit (operating profit excluding specific adjusting items and amortisation of intangible assets) divided by the 12-month average adjusted net assets (third-party working capital, property, plant and equipment, land and buildings, intangible assets and other balance sheet items).

	1H 2018⁽¹⁾ £m	1H 2017⁽¹⁾ £m
Operating profit	112.4	109.3
Add back: specific adjusting items included in operating profit	8.0	5.6
Add back: amortisation of intangible assets	7.6	8.2
Group headline operating profit (12-month rolling)	128.0	123.1

12-month average adjusted net assets:
Third-party working capital	168.8	174.1
Property, plant and equipment	176.3	181.8
Land and buildings	115.1	112.5
Intangible assets	215.1	236.9
Other assets (net)	9.5	15.2
12-month average adjusted net assets	684.8	720.5

ROIC	18.7%	17.1%

Headline earnings per share

Headline earnings per share is defined as operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets, plus share of profit of associate less net financing costs, income tax expense and non-controlling interests, divided by the weighted average number of Ordinary shares during the period. This measure of earnings is shown because the Directors consider it provides a better indication of headline performance.

Whilst amortisation of intangible assets is a recurring charge it is excluded from these measures on the basis that it primarily arises on externally acquired intangible assets and therefore does not reflect consistently the benefit that all of Morgan's businesses realise from their intangible assets, which may not be recognised separately.

Constant-currency revenue and Group headline operating profit

Constant-currency revenue and Group headline operating profit are derived by translating the prior year results at current year average exchange rates. These measures are used as they allow revenue to be compared excluding the impact of foreign exchange rates. Page 8 provides further information on the principal foreign currency exchange rates used in the translation of the Group's results to constant-currency at average exchange rates.

Interim Results Announcement

Condensed Consolidated Financial Statements

for the six months ended 30 June 2018

Condensed consolidated income statement

		Six months ended 30 June 2018⁽¹⁾			Six months ended 30 June 2017				Year ended 31 December 2017
					restated⁽¹⁾				restated⁽¹⁾
		Results before specific adjusting items	Specific adjusting items⁽²⁾	Total	Results before specific adjusting items	Specific adjusting items⁽²⁾		Total	Results before specific adjusting items	Specific adjusting items⁽²⁾	Total
	Note	£m	£m	£m	£m	£m		£m	£m	£m	£m

Revenue	3	521.8	-	521.8	518.8	-	518.8		1,022.4	-	1,022.4
Operating costs before restructuring costs and other items and amortisation of intangible assets		(460.3)	-	(460.3)	(457.6)	-	(457.6)		(902.7)	-	(902.7)

Profit from operations before restructuring costs and other items and amortisation of intangible assets		61.5	-	61.5	61.2	-	61.2		119.7	-	119.7

Restructuring costs and other items:	4
Net profit on disposal of businesses		-	-	-	-	46.1	46.1		-	45.7	45.7
Business closure and exit costs		-	(7.6)	(7.6)	-	-	-		-	-	-

Profit from operations before amortisation of intangible assets	3	61.5	(7.6)	53.9	61.2	46.1	107.3		119.7	45.7	165.4

Amortisation of intangible assets		(3.8)	-	(3.8)	(3.6)	-	(3.6)		(7.3)	-	(7.3)

Operating profit	3	57.7	(7.6)	50.1	57.6	46.1	103.7		112.4	45.7	158.1

Finance income		0.5	-	0.5	0.9	-	0.9		1.8	-	1.8
Finance expense		(7.1)	-	(7.1)	(12.7)	-	(12.7)		(24.3)	-	(24.3)
Net financing costs	5	(6.6)	-	(6.6)	(11.8)	-	(11.8)		(22.5)	-	(22.5)

Share of profit of associate (net of income tax)		0.4	-	0.4	-	-	-		0.2	-	0.2

Profit before taxation		51.5	(7.6)	43.9	45.8	46.1	91.9		90.1	45.7	135.8

Income tax expense	6	(14.4)	-	(14.4)	(13.8)	1.3	(12.5)		(26.9)	5.0	(21.9)

Profit for the period		37.1	(7.6)	29.5	32.0	47.4	79.4		63.2	50.7	113.9

Profit for the period attributable to:
External plc shareholders		33.5	(7.6)	25.9	29.1	47.4	76.5		56.9	50.7	107.6
Non-controlling interests		3.6	-	3.6	2.9	-	2.9		6.3	-	6.3

		37.1	(7.6)	29.5	32.0	47.4	79.4		63.2	50.7	113.9

Earnings per share from continuing operations	7
Basic				9.1p			26.9p				37.8p
Diluted				9.0p			26.8p				37.5p

Dividends⁽³⁾
Proposed interim dividend - pence				4.0p			4.0p				4.0p
- £m				11.4			11.4				11.4
											7.0p
Final dividend - pence											20.0
- £m

2. Details of specific adjusting items are given in note 4 to the financial statements.

3. The proposed interim and approved final dividends are based upon the number of shares outstanding at the balance sheet date.

Condensed consolidated statement of comprehensive income

	Translation reserve	Hedging reserve	Retained earnings restated⁽¹⁾	Total parent comprehensive income restated⁽¹⁾	Non- controlling interests	Total comprehensive income restated⁽¹⁾
	£m	£m	£m	£m	£m	£m

Six months ended 30 June 2017
Profit for the period	-	-	76.5	76.5	2.9	79.4
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gain on defined benefit plans	-	-	5.3	5.3	-	5.3
Tax effect of components of other comprehensive income not reclassified	-	-	(0.3)	(0.3)	-	(0.3)
	-	-	5.0	5.0	-	5.0
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences	(6.9)	-	-	(6.9)	-	(6.9)
Cash flow hedges:
Change in fair value	-	2.5	-	2.5	-	2.5
Transferred to profit or loss	-	0.1	-	0.1	-	0.1
	(6.9)	2.6	-	(4.3)	-	(4.3)

Total comprehensive income, net of tax	(6.9)	2.6	81.5	77.2	2.9	80.1

Year ended 31 December 2017
Profit for the period	-	-	107.6	107.6	6.3	113.9
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gain on defined benefit plans	-	-	10.0	10.0	-	10.0
Tax effect of components of other comprehensive income not reclassified	-	-	(1.8)	(1.8)	-	(1.8)
	-	-	8.2	8.2	-	8.2
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences	(11.0)	-	-	(11.0)	(1.3)	(12.3)
Cash flow hedges:
Change in fair value	-	2.6	-	2.6	-	2.6
Transferred to profit or loss	-	0.4	-	0.4	-	0.4
	(11.0)	3.0	-	(8.0)	(1.3)	(9.3)

Total comprehensive income, net of tax	(11.0)	3.0	115.8	107.8	5.0	112.8

Condensed consolidated statement of comprehensive income (continued)

	Translation reserve	Hedging reserve	Retained earnings⁽¹⁾	Total parent comprehensive income⁽¹⁾	Non- controlling interests	Total comprehensive income⁽¹⁾
	£m	£m	£m	£m	£m	£m

Six months ended 30 June 2018
Profit for the period	-	-	25.9	25.9	3.6	29.5
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gain on defined benefit plans	-	-	22.8	22.8	-	22.8
Tax effect of components of other comprehensive income not reclassified	-	-	(0.5)	(0.5)	-	(0.5)
	-	-	22.3	22.3	-	22.3
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences	(1.5)	-	-	(1.5)	(0.2)	(1.7)
Cash flow hedges:
Change in fair value	-	(0.2)	-	(0.2)	-	(0.2)
Transferred to profit or loss	-	(0.4)	-	(0.4)	-	(0.4)
	(1.5)	(0.6)	-	(2.1)	(0.2)	(2.3)

Total comprehensive income, net of tax	(1.5)	(0.6)	48.2	46.1	3.4	49.5

Condensed consolidated balance sheet

	Note	30 June 2018⁽¹⁾	30 June 2017 restated⁽¹⁾	31 December 2017 restated⁽¹⁾
		£m	£m	£m
Assets
Property, plant and equipment		296.4	288.3	297.8
Intangible assets		214.8	219.8	217.0
Investments		6.8	7.3	6.3
Other receivables		6.0	4.6	5.4
Deferred tax assets		9.3	4.7	9.1
Derivative financial assets		-	-	0.3
Total non-current assets		533.3	524.7	535.9

Inventories		152.1	145.0	141.6
Derivative financial assets	9	0.9	1.0	0.7
Trade and other receivables		204.9	198.7	194.4
Current tax receivable		2.8	-	6.7
Cash and cash equivalents	8	58.9	164.7	50.4
Total current assets		419.6	509.4	393.8
Total assets		952.9	1,034.1	929.7

Liabilities
Interest-bearing loans and borrowings		195.6	197.0	192.7
Employee benefits: pensions	11	191.2	258.7	218.0
Provisions		11.1	6.7	6.1
Non-trade payables		3.1	1.9	3.4
Derivative financial liabilities	9	-	0.1	-
Deferred tax liabilities		10.9	6.2	10.5
Total non-current liabilities		411.9	470.6	430.7

Interest-bearing loans and borrowings and bank overdrafts		51.5	136.3	39.0
Trade and other payables		190.3	174.0	193.7
Current tax payable		26.6	17.9	23.0
Provisions		7.6	8.4	8.4
Derivative financial liabilities	9	1.1	3.9	0.6
Total current liabilities		277.1	340.5	264.7
Total liabilities		689.0	811.1	695.4
Total net assets		263.9	223.0	234.3

Equity
Share capital		71.8	71.8	71.8
Share premium		111.7	111.7	111.7
Reserves		37.2	42.5	39.2
Retained earnings		1.4	(46.4)	(27.5)
Total equity attributable to external plc shareholders		222.1	179.6	195.2
Non-controlling interests		41.8	43.4	39.1
Total equity		263.9	223.0	234.3

Condensed consolidated statement of changes in equity

	Share capital	Share premium	Translation reserve	Hedging reserve	Fair value reserve	Capital redemption reserve	Other reserves	Retained earnings restated⁽¹⁾	Total parent equity restated⁽¹⁾	Non-controlling interests	Total equity restated⁽¹⁾
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Balance at 1 January 2017	71.8	111.7	3.2	(2.5)	(1.0)	35.7	11.4	(109.5)	120.8	43.9	164.7
Profit for the period	-	-	-	-	-	-		76.5	76.5	2.9	79.4
Other comprehensive income	-	-	(6.9)	2.6	-	-	-	5.0	0.7	(0.9)	(0.2)
Transactions with owners:
Change in ownership of controlled interest without a change in control	-	-	-	-	-	-	-	0.5	0.5	-	0.5
Dividends	-	-	-	-	-	-	-	(20.0)	(20.0)	(2.5)	(22.5)
Equity-settled share-based payment transactions	-	-	-	-	-	-	-	1.0	1.0	-	1.0
Proceeds from exercise of share options	-	-	-	-	-	-	-	0.1	0.1	-	0.1
Balance at 30 June 2017	71.8	111.7	(3.7)	0.1	(1.0)	35.7	11.4	(46.4)	179.6	43.4	223.0

Balance at 1 January 2017	71.8	111.7	3.2	(2.5)	(1.0)	35.7	11.4	(109.5)	120.8	43.9	164.7
Profit for the period	-	-	-	-	-	-	-	107.6	107.6	6.3	113.9
Other comprehensive income	-	-	(11.0)	3.0	-	-	-	8.2	0.2	(1.3)	(1.1)
Transactions with owners:
Change in ownership of controlled interest without a change in control	-	-	-	-	-	-	-	(3.3)	(3.3)	-	(3.3)
Transfer between reserves	-	-	-	-	-	-	0.4	(0.4)	-	-	-
Dividends	-	-	-	-	-	-	-	(31.4)	(31.4)	(9.8)	(41.2)
Equity-settled share-based payment transactions	-	-	-	-	-	-	-	1.7	1.7	-	1.7
Own shares acquired for share incentive schemes	-	-	-	-	-	-	-	(0.4)	(0.4)	-	(0.4)
Balance at 31 December 2017	71.8	111.7	(7.8)	0.5	(1.0)	35.7	11.8	(27.5)	195.2	39.1	234.3

Balance at 1 January 2018	71.8	111.7	(7.8)	0.5	(1.0)	35.7	11.8	(27.5)	195.2	39.1	234.3
Profit for the period	-	-	-	-	-	-	-	25.9	25.9	3.6	29.5
Other comprehensive income	-	-	(1.5)	(0.6)	-	-	-	22.3	20.2	(0.2)	20.0
Transactions with owners:
Transfer between reserves	-	-	-	-	-	-	0.1	(0.1)	-	-	-
Dividends	-	-	-	-	-	-	-	(20.0)	(20.0)	(0.7)	(20.7)
Equity-settled share-based payment transactions	-	-	-	-	-	-	-	1.1	1.1	-	1.1
Own shares acquired for share incentive schemes	-	-	-	-	-	-	-	(0.3)	(0.3)	-	(0.3)
Balance at 30 June 2018	71.8	111.7	(9.3)	(0.1)	(1.0)	35.7	11.9	1.4	222.1	41.8	263.9

Condensed consolidated statement of cash flows

	Note	Six months ended 30 June 2018⁽¹⁾	Six months ended 30 June 2017 restated⁽¹⁾	Year ended 31 December 2017 restated⁽¹⁾
		£m	£m	£m
Operating activities
Profit for the period		29.5	79.4	113.9
Adjustments for:
Depreciation		15.7	15.7	30.6
Amortisation	3	3.8	3.6	7.3
Net financing costs	5	6.6	11.8	22.5
Net profit on disposal of business	4	-	(46.1)	(45.7)
Non-cash business closure and exit costs	4	2.0	-	-
Share of profit from associate (net of income tax)		(0.4)	-	(0.2)
(Profit)/loss on sale of property, plant and equipment		(0.1)	0.1	0.1
Income tax expense	6	14.4	12.5	21.9
Equity-settled share-based payment expenses		0.9	0.9	1.7
Cash generated from operations before changes in working capital and provisions		72.4	77.9	152.1

Increase in trade and other receivables		(9.6)	(1.3)	(0.5)
Increase in inventories		(11.5)	(5.5)	(4.5)
Increase/(decrease) in trade and other payables		4.8	(11.2)	6.3
Increase/(decrease) in provisions		3.9	(2.1)	(3.0)
Payments to defined benefit pension plans		(6.5)	(6.8)	(48.9)
Cash generated from operations		53.5	51.0	101.5

Interest paid		(4.6)	(9.2)	(17.6)
Income tax paid		(7.5)	(12.0)	(24.5)
Net cash from operating activities		41.4	29.8	59.4

Investing activities
Purchase of property, plant and equipment		(23.1)	(15.1)	(34.4)
Forward contracts used in net investment hedging		-	-	(7.7)
Purchase of investments		(0.5)	(0.5)	(1.6)
Loan drawn down by associate	10	(1.0)	-	-
Loan repaid by associate	10	1.0	-	-
Proceeds from sale of property, plant and equipment		0.1	1.2	1.3
Interest received		0.5	0.9	1.0
Disposal of subsidiaries, net of cash disposed		-	78.3	78.1
Purchase of the stake held by non-controlling interests		-	-	(1.5)
Net cash from investing activities		(23.0)	64.8	35.2

Financing activities
Purchase of own shares for share incentive schemes		(0.3)	-	(0.4)
Proceeds from exercise of share options		0.2	0.1	-
Net increase/(decrease) in borrowings	8	13.0	(23.9)	(114.1)
Payment of finance lease liabilities	8	(0.2)	(0.2)	(0.3)
Dividends paid to external plc shareholders		(20.0)	(20.0)	(31.4)
Dividends paid to non-controlling interests		(0.7)	(2.5)	(9.8)
Net cash from financing activities		(8.0)	(46.5)	(156.0)

Net increase/(decrease) in cash and cash equivalents		10.4	48.1	(61.4)
Cash and cash equivalents at start of period		50.4	122.4	122.4
Effect of exchange rate fluctuations on cash held		(1.9)	(5.8)	(10.6)
Cash and cash equivalents at period end⁽²⁾	8	58.9	164.7	50.4

2. A reconciliation of cash and cash equivalents to net borrowings is shown in note 8 to the financial statements.

Notes to the condensed consolidated financial statements

1. Basis of preparation, accounting policies, judgements and estimates

Morgan Advanced Materials plc (the 'Company') is a company incorporated in the UK under the Companies Act.

The unaudited condensed consolidated financial statements of the Company for the six months ended 30 June 2018 comprise the Company and its subsidiaries (together the 'Group') and the Group's interest in associates. The half-year condensed consolidated financial statements have been prepared for the six months ended 30 June 2018.

The unaudited condensed consolidated financial statements for the six months ended 30 June 2018 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34) as adopted by the European Union. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements for the year ended 31 December 2017.

The unaudited condensed consolidated financial statements and the comparative information for the six months ended 30 June 2017 do not comprise statutory accounts for the purpose of section 434 of Companies Act 2006 and should be read in conjunction with the Annual Report for the year ended 31 December 2017. Those accounts have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying his report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The financial statements have been prepared on a going concern basis, refer to page 9 for further details.

The consolidated financial statements of the Group for the year ended 31 December 2017 are available on request from the Company's registered office at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP or at www.morganadvancedmaterials.com.

The condensed consolidated financial statements for the six months ended 30 June 2018 were approved by the Board on 26 July 2018.

Judgements and estimates

Preparing the condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the condensed consolidated financial statements, significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2017.

Accounting policies

Except for the changes set out in the newly adopted standards section below, as required by the Disclosure and Transparency Rules of the Financial Conduct Authority, these condensed consolidated financial statements have been prepared by applying the accounting policies that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2017.

Newly adopted standards

The Group has adopted IFRS 15 Revenue from Contracts with Customers with effect from 1 January 2018. The standard introduces a new revenue recognition model that requires the transaction price receivable from customers to be allocated between the Group's performance obligations under contracts on a relative stand-alone selling price basis. The impact of IFRS 15 was set out in note 1 to the annual financial statements for the year ended 31 December 2017.

The Group has opted to apply the full retrospective method under which comparative information is restated. The impact of the restatement are set out in the summarised, abbreviated primary statements in note 12 to the financial statements.

IFRS 15 requires the disclosure of revenue from contracts with customers disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Group discloses revenue disaggregated by geography, end market and by global business unit, which are aligned by product type, in note 3 to the financial statements.

Under IFRS 15, revenue from contracts with customers is recognised when or as the group satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when the customer obtains control of that good or service. The Group principally satisfies its performance obligations at a point in time and the amounts of revenue recognised relating to performance obligations satisfied over time are not significant.

1. Basis of preparation, accounting policies, judgements and estimates (continued)

The Group has also adopted the following standards and with effect from 1 January 2018. There has been no material impact on the Group on adoption of these standards:

- IFRS 9 Financial Instruments, and

- IFRIC 22 Foreign Currency Transactions and Advance Considerations.

There were no other new accounting standards or amendments to standards that were required to be adopted in the period and the Group did not adopt any of the new accounting standards that could have been adopted early.

Accounting developments and changes

The following accounting standards that are applicable to the Group have been issued by the International Accounting Standards Board, but are not yet effective at 30 June 2018. The Group is continuing to analyse the impact these standards would have on its consolidated results and financial position.

IFRS 16 Leases is effective for periods beginning on or after 1 January 2019 and introduces a single, on-balance sheet accounting model that is similar to current finance lease accounting. Under the new standard, a lessee is required to recognise all lease assets and liabilities (including those currently classified as operating leases) on the balance sheet at the present value of the unavoidable lease payments and an amortisation charge on the leased assets and an interest charge on the leased liabilities.

Although the Group is still evaluating the potential impact of IFRS 16 on the financial statements and performance measures, including an assessment of whether any arrangements the Group enters into will be considered a lease under IFRS 16, it is expected IFRS 16 will increase the Group's recognised assets and liabilities and affect the presentation and timing of related depreciation and interest charges in the consolidated statement of income. Upon adoption of IFRS 16, the most significant impact is likely to be the present value of the operating lease commitments currently disclosed in the Annual Report for the year ended 31 December 2017 in note 23 to the financial statements being shown as a liability on the balance sheet together with an asset representing the right of use.

2. Business exits and disposals

2018

Composites and Defence Systems:

On 23 April 2018, the Group announced its decision to exit the Composites and Defence Systems business through closure and potential divestments. Discussions with potential acquirers of certain product lines are at a very early stage, and there can be no certainty that any divestments will be made.

As a result of this decision certain business closure and impairment costs have been recognised as specific adjusting items in the six months ended 30 June 2018. A total of £7.6 million has been recognised, of this total £5.6 million relates to cash exit costs, comprising site clean-up costs, professional and legal fees, staff redundancies and onerous contracts and £2.0 million relates to impairment of plant, property and equipment and other assets. Cash exits costs may be partially offset by proceeds from the divestment of certain product lines. Goodwill in the Composites and Defence Systems business has a £nil net book value.

To the extent product lines in the business are closed, this will be completed when delivery of the last time orders from customers have been completed, currently anticipated to be in 2019.

2017

Electro-ceramics:

On 31 March 2017, the Group completed the sale of its UK Electro-ceramics business, comprising the two sites at Ruabon and Southampton.

The transaction was structured as a sale of the business, assets and goodwill for a consideration of £46.9 million on a cash-free, debt-free basis, paid in cash on completion and subject to customary working capital adjustments.

The Group also announced the closure of its US Electro-ceramics business, which formed the remainder of the Group's Electro-ceramics business. This latter site will be closed when delivery of the last time orders from customers have been completed, currently anticipated to be in 2019.

2. Business exits and disposals (continued)

The disposal and closure of the Electro-ceramics business reduced the Group's assets and liabilities as follows:

	31 December 2017
	£m
Trading net assets of disposal group	7.4
Goodwill of disposal group	5.8
Transaction costs associated with the disposal	6.9
Total consideration	46.9
Gain on disposal	26.8

The disposal group was included in the Technical Ceramics operating segment.

Global Rotary Transfer Systems Business:

On 31 March 2017, the Group completed the sale of its global Rotary Transfer Systems. The business is principally located at two manufacturing sites; Antweiler, Germany and Chalon, France.

The sale valued the business at €40.0 million on a cash-free, debt-free basis, with consideration paid in cash on completion, subject to customary closing working capital adjustments.

The disposal and closure of the rotary transfer systems business reduced the Group's assets and liabilities as follows:

	31 December 2017
	£m
Trading net assets of disposal group	3.5
Goodwill of disposal group	7.1
Transaction costs associated with the disposal	3.1
Total consideration	32.6
Gain on disposal	18.9

The disposal group was included in the Electrical Carbon operating segment.

3. Segment reporting

The Group reports as two Divisions and six global business units, which have been identified as the Group's reportable operating segments. These have been identified on the basis of internal management reporting information that is regularly reviewed by the Group's Board of Directors (the Chief Operating Decision Maker) in order to allocate resources and assess performance.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments and related income, loans and borrowings and related expenses, corporate assets and head office expenses, and income tax assets and liabilities.

The information presented below represents the operating segments of the Group.

	Six months ended 30 June 2018⁽¹⁾
	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment totals	Corporate costs and specific adjusting items	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	217.3	24.5	241.8	82.9	65.6	124.1	272.6	7.4	521.8	-	521.8

Divisional EBITA⁽²⁾	26.1	3.6	29.7	10.3	12.1	13.2	35.6	(0.9)	64.4	-	64.4
Corporate costs										(2.9)	(2.9)
Group headline operating profit⁽²⁾											61.5
Amortisation of intangible assets	(1.0)	(0.1)	(1.1)	(0.4)	(0.2)	(2.1)	(2.7)	-	(3.8)	-	(3.8)
Operating profit before specific adjusting items											57.7
Specific adjusting items included in operating profit⁽³⁾	-	-	-	-	-	-	-	-	-	(7.6)	(7.6)
Operating profit/(loss)	25.1	3.5	28.6	9.9	11.9	11.1	32.9	(0.9)	60.6	(10.5)	50.1
Finance income											0.5
Finance expense											(7.1)
Share of profit of associate (net of income tax)											0.4
Profit before taxation											43.9


Segment assets	397.0	40.4	437.4	152.1	93.3	183.2	428.6	7.3	873.3	79.6	952.9

Segment liabilities	86.6	7.3	93.9	30.3	20.6	41.6	92.5	9.6	196.0	493.0	689.0

Segment capital expenditure	7.5	0.7	8.2	4.5	4.0	6.4	14.9	-	23.1	-	23.1

Segment depreciation	6.6	0.9	7.5	2.4	2.3	3.2	7.9	0.3	15.7	-	15.7

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

3. Details of specific adjusting items are given in note 4 to the financial statements.

3. Segment reporting (continued)

	Six months ended 30 June 2017 restated⁽¹⁾
	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment totals	Corporate costs and specific adjusting items	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	213.4	23.9	237.3	80.9	55.9	133.2	270.0	11.5	518.8	-	518.8

Divisional EBITA⁽²⁾	28.2	3.6	31.8	8.6	9.1	15.0	32.7	(0.4)	64.1	-	64.1
Corporate costs										(2.9)	(2.9)
Group headline operating profit⁽²⁾											61.2
Amortisation of intangible assets	(0.9)	(0.1)	(1.0)	(0.2)	(0.1)	(2.3)	(2.6)	-	(3.6)	-	(3.6)
Operating profit before specific adjusting items											57.6
Specific adjusting items included in operating profit⁽³⁾	-	-	-	-	-	-	-	-	-	46.1	46.1
Operating profit/(loss)	27.3	3.5	30.8	8.4	9.0	12.7	30.1	(0.4)	60.5	43.2	103.7
Finance income											0.9
Finance expense											(12.7)
Share of profit of associate (net of income tax)											-
Profit before taxation											91.9


Segment assets	398.6	42.0	440.6	143.9	85.2	179.9	409.0	10.5	860.1	174.0	1,034.1

Segment liabilities	81.6	6.8	88.4	26.3	15.0	38.0	79.3	6.1	173.8	637.3	811.1

Segment capital expenditure	4.2	0.7	4.9	3.5	1.9	4.3	9.7	0.5	15.1	-	15.1

Segment depreciation	6.1	1.0	7.1	2.6	2.3	3.4	8.3	0.3	15.7	-	15.7

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

3. Details of specific adjusting items are given in note 4 to the financial statements.

3. Segment reporting (continued)

	Year ended 31 December 2017 restated⁽¹⁾
	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment totals	Corporate costs and specific adjusting items	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	427.3	47.1	474.4	156.9	113.4	256.7	527.0	21.0	1,022.4	-	1,022.4

Divisional EBITA⁽²⁾	56.9	7.0	63.9	16.7	17.5	28.3	62.5	(1.1)	125.3	-	125.3
Corporate costs										(5.6)	(5.6)
Group headline operating profit(²⁾											119.7
Amortisation of intangible assets	(1.8)	(0.2)	(2.0)	(0.5)	(0.3)	(4.5)	(5.3)	-	(7.3)	-	(7.3)
Operating profit before specific adjusting items											112.4
Specific adjusting items included in operating profit⁽³⁾	-	-	-	-	-	-	-	-	-	45.7	45.7
Operating profit/(loss)	55.1	6.8	61.9	16.2	17.2	23.8	57.2	(1.1)	118.0	40.1	158.1
Finance income											1.8
Finance expense											(24.3)
Share of profit of associate (net of income tax)											0.2
Profit before taxation											135.8


Segment assets	392.5	40.0	432.5	147.1	86.6	177.6	411.3	9.8	853.6	76.1	929.7

Segment liabilities	86.7	7.0	93.7	31.3	19.7	43.2	94.2	5.1	193.0	502.4	695.4

Segment capital expenditure	10.5	1.8	12.3	6.9	3.5	11.0	21.4	0.7	34.4	-	34.4

Segment depreciation	12.3	1.9	14.2	4.7	4.5	6.6	15.8	0.6	30.6	-	30.6

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

3. Details of specific adjusting items are given in note 4 to the financial statements.

3. Segment reporting (continued)

Segment revenue from external customers by geography

	Six months ended 30 June 2018⁽¹⁾	Six months ended 30 June 2017 restated⁽¹⁾	Year ended 31 December 2017 restated⁽¹⁾
	£m	£m	£m

USA	186.8	190.8	370.8
China	52.3	46.2	92.8
Germany	37.2	36.2	69.1
UK (the Group's country of domicile)	27.0	30.0	57.9
France	14.6	15.3	29.3
Other Asia, Australasia, Middle East and Africa	96.3	94.8	192.6
Other Europe	75.1	71.2	142.1
Other North America	16.8	16.8	33.7
South America	15.7	17.5	34.1
	521.8	518.8	1,022.4

Segment revenue by end market

	Six months ended 30 June 2018⁽¹⁾	Six months ended 30 June 2017 restated⁽¹⁾	Year ended 31 December 2017 restated⁽¹⁾
	£m	£m	£m

Industrial	250.2	247.7	491.3
Transportation	110.9	113.9	223.6
Petrochemical and chemical	46.5	44.2	85.3
Energy	29.5	33.3	63.3
Security and defence	31.0	25.2	51.5
Semiconductor and electronics	29.5	28.6	57.2
Healthcare	24.2	25.9	50.2
	521.8	518.8	1,022.4

4. Specific adjusting items

In the condensed consolidated income statement the Group presents specific adjusting items separately. In the judgement of the Directors, due to the nature and value of these items they should be disclosed separately from the underlying results of the Group to allow the reader to obtain a proper understanding of the financial information and the best indication of underlying performance of the Group.

	Six months ended 30 June 2018	Six months ended 30 June 2017	Year ended 31 December 2017
	£m	£m	£m
Specific adjusting items:
Net profit on disposal of business	-	46.1	45.7
Business closure and exit costs	(7.6)	-	-
Total specific adjusting items before income tax credit	(7.6)	46.1	45.7
Income tax credit from specific adjusting items	-	1.3	0.9
Income tax credit resulting from US tax reform rate change and mandatory repatriation charge	-	-	4.1
Total specific adjusting items after income tax credit	(7.6)	47.4	50.7

2018

Business closure and exit costs:

On 23 April 2018, the Group announced its decision to exit the Composites and Defence Systems business.

Specific adjusting items of £7.6 million have been recognised, of this total £5.6 million relates to cash exit costs, comprising site clean-up costs, professional and legal fees, staff redundancies and onerous contracts, and £2.0 million relates to impairment of plant, property and equipment and other assets. Goodwill in the Composites and Defence Systems business has a £nil net book value. See also note 2 to these financial statements.

2017

Net profit on disposal of business:

On 31 March 2017, the Group completed the sale of its UK Electro-ceramics business, comprising the two sites at Ruabon and Southampton. The Group also announced the closure of its US Electro-ceramics business, which formed the remainder of the Group's Electro-ceramics business.

The Group reflected a profit on disposal of £26.8 million associated with this transaction in the year ended 31 December 2017 (£27.2 million in the six months ended 30 June 2017). A deferred tax asset of £1.5 million was recognised in connection with the closure of the US business.

On 31 March 2017, the Group completed the sale of its global Rotary Transfer Systems. The business is principally located at two manufacturing sites; Antweiler, Germany and Chalon, France.

The Group reflected a profit on disposal of £18.9 million associated with this transaction in the year ended 31 December 2017 and six months ended 30 June 2017. An income tax charge of £0.6 million was recognised in respect of this disposal.

US Tax Cuts and Jobs Act:

As a consequence of the enactment of H.R.1 commonly referred to as the Tax Cuts and Jobs Act in the US a credit of £4.1 million was recognised in the year ended 31 December 2017 (£nil in the six months ended 30 June 2017). This comprised of the revaluation of tax balances to reflect the reduction in the federal tax rates offset by an income tax charge for mandatory repatriation tax for overseas subsidiaries of US companies.

5. Net finance income and expense

	Six months ended 30 June 2018	Six months ended 30 June 2017	Year ended 31 December 2017
	£m	£m	£m

Amounts derived from financial instruments	-	0.1	0.2
Interest income on bank deposits measured at amortised cost	0.5	0.8	1.6
Finance income	0.5	0.9	1.8

Interest expense on financial liabilities measured at amortised cost	(4.7)	(9.2)	(17.4)
Net interest on IAS 19 obligations	(2.4)	(3.5)	(6.9)
Finance expense	(7.1)	(12.7)	(24.3)
Net financing costs recognised in profit or loss	(6.6)	(11.8)	(22.5)

6. Taxation - income tax expense

	Six months ended 30 June 2018	Six months ended 30 June 2017	Year ended 31 December 2017
	£m	£m	£m
Tax on profit	14.4	12.5	21.9

The Group's consolidated effective tax rate for the six months ended 30 June 2018 is based on the Directors' best estimate of the effective tax rate for the year excluding specific adjusting items.

7. Earnings per share

Headline earnings per ordinary share⁽²⁾ is defined as operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets, plus share of profit of associate less net financing costs, income tax expense and non-controlling interests, divided by the weighted average number of ordinary shares during the period. This measure of earnings is shown because the Directors consider that it gives a better indication of headline performance.

The weighted average number of shares outstanding during the period ended 30 June 2018 was 285.3 million (31 December 2017: 285.0 million, 30 June 2017: 284.9 million).

The diluted earnings per share calculation takes into account the dilutive effect of share incentives. The diluted, weighted average number of shares is 287.1 million (31 December 2017: 286.7 million, 30 June 2017: 285.1 million). Diluted earnings per share is 9.0 pence (31 December 2017: 37.5 pence, 30 June 2017: 26.8 pence both after restatement for IFRS 15, see note 12 to the financial statements).

	Six months ended 30 June 2018⁽¹⁾	Six months ended 30 June 2018 restated⁽¹⁾	Year ended 31 December 2017 restated⁽¹⁾
	£m	£m	£m

Profit for the period attributable to equity shareholders	25.9	76.5	107.6
Specific adjusting items	7.6	(46.1)	(45.7)
Amortisation of intangible assets	3.8	3.6	7.3
Tax effect of the above	-	(1.3)	(5.0)
Adjusted profit for the period	37.3	32.7	64.2


	Six months ended 30 June 2018⁽¹⁾	Six months ended 30 June 2017 Restated⁽¹⁾	Year ended 31 December 2017 Restated⁽¹⁾
	Pence	Pence	Pence

Earnings per ordinary share	9.1p	26.9p	37.8p
Specific adjusting items	2.7p	(16.2)p	(16.0)p
Amortisation of intangible assets	1.3p	1.3p	2.5p
Tax effect of the above	-	(0.5)p	(1.8)p
Headline earnings per share⁽²⁾	13.1p	11.5p	22.5p

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

8. Cash and cash equivalents reconciled to net debt

	At 30 June 2018	At 30 June 2017	At 31 December 2017
	£m	£m	£m

Bank balances	49.5	57.1	44.7
Cash deposits	9.4	107.6	5.7
Cash and cash equivalents	58.9	164.7	50.4

Reconciliation of cash and cash equivalents to net debt⁽¹⁾
	Six months ended 30 June 2018	Six months ended 30 June 2017	Year ended 31 December 2017
	£m	£m	£m

Opening borrowings	(231.7)	(364.9)	(364.9)
(Increase)/decrease in borrowings	(13.0)	23.9	114.1
Payment of finance lease liabilities	0.2	0.2	0.3
Effect of movements in foreign exchange on borrowings	(2.6)	7.5	18.8
Closing borrowings	(247.1)	(333.3)	(231.7)
Cash and cash equivalents	58.9	164.7	50.4
Closing net debt⁽¹⁾	(188.2)	(168.6)	(181.3)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 39, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 15.

9. Financial risk management

Fair values

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:

	At 30 June 2018		At 30 June 2017		At 31 December 2017
	Carrying Amount	Fair value	Carrying Amount	Fair value	Carrying Amount	Fair value
	£m	£m	£m	£m	£m	£m

Financial assets and liabilities at amortised cost
6.12% US Dollar Senior Notes 2017	-	-	(134.5)	(136.2)	-	-
6.26% US Dollar Senior Notes 2019	(56.8)	(58.1)	(57.6)	(61.2)	(55.6)	(57.9)
1.18% Euro Senior Notes 2023	(22.1)	(22.0)	(22.0)	(21.4)	(22.2)	(21.8)
3.17% US Dollar Senior Notes 2023	(11.4)	(10.7)	(11.6)	(11.2)	(11.2)	(10.7)
1.55% Euro Senior Notes 2026	(22.2)	(21.9)	(22.0)	(21.1)	(22.3)	(21.5)
3.37% US Dollar Senior Notes 2026	(73.8)	(67.0)	(74.8)	(70.5)	(72.1)	(67.4)
1.74% Euro Senior Notes 2028	(8.9)	(8.6)	(8.8)	(8.3)	(8.9)	(8.5)
Bank and other loans	(51.5)	(51.5)	(1.3)	(1.3)	(38.8)	(38.8)
Obligations under finance leases	(0.4)	(0.4)	(0.7)	(0.7)	(0.6)	(0.6)
Trade and other payables	(104.2)	(104.2)	(92.7)	(92.7)	(97.9)	(97.9)
Loans and receivables⁽¹⁾	182.7	182.7	179.1	179.1	174.9	174.9
Cash and cash equivalents	58.9	58.9	164.7	164.7	50.4	50.4
	(109.7)	(102.8)	(82.2)	(80.8)	(104.3)	(99.8)

Available-for-sale financial instruments
Available-for-sale financial assets	1.0	1.0	0.4	0.4	0.9	0.9

Derivatives and other items at fair value
Forward exchange contracts used for hedging	(0.2)	(0.2)	(0.7)	(0.7)	0.4	0.4
Cross currency swaps	-	-	(2.3)	(2.3)	-	-
	(108.9)	(102.0)	(84.8)	(83.4)	(103.0)	(98.5)

The 6.12% US Dollar Senior notes were repaid in December 2017.

The following summarises the main methods and assumptions used in estimating the fair values of financial instruments reflected in the preceding table.

Equity securities

Equity securities held by the Group are classified as available-for-sale financial instruments. Fair value is based on quoted market prices at the balance sheet date and as such equity securities are categorised as level 1 financial instruments in the fair value hierarchy.

Derivatives

Forward exchange contracts are marked to market either using prices derived from listed market prices or by discounting the contractual forward price and deducting the current spot rate. Derivatives held by the Group are categorised as level 2 financial instruments.

Interest-bearing loans and borrowings

Fixed rate interest-bearing loans and borrowings are level 2 financial instruments. Fair value is calculated based on discounted expected future principal and interest cash flows. The interest rates used to determine the fair value of loans and borrowings are 1.4-1.7% (30 June 2017: 1.3-2.8%; 31 December 2017: 1.6-4.2%).

At 30 June 2018, the carrying value of fixed-interest rate bearing loans totalled £195.2 million (30 June 2017: £331.3 million and 31 December 2017: £192.3 million) and the fair value approximated £188.3 million (30 June 2017: £329.9 million and 31 December 2017: £187.8 million).

Finance lease liabilities

The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease agreements. The estimated fair values reflect changes in interest rates. Finance lease liabilities are classified as level 2 financial instruments.

9. Financial risk management (continued)

Cash and cash equivalents, trade and other payables and loans and receivables

The Group has disclosed the fair value of cash and cash equivalents, current loans and receivables and current payables at their carrying amount, given their remaining life of less than one year the notional amount is deemed to reflect the fair value. All other receivables/ payables are discounted to determine the fair value.

There have been no transfers between level 1 and level 2 between 2018 and 2017 and there were no level 3 financial instruments in either 2018 or 2017.

10. Related parties

The Company has related party relationships with its subsidiaries and its associates and with its Directors and executive officers.

Transactions with key management personnel

Details of transactions with key management personnel are described in note 25 of the Group's 2017 Annual Report and Accounts.

	Six months ended 30 June 2018	Six months ended 30 June 2017	Year ended 31 December 2017
Transactions with associate:	£m	£m	£m

Purchases from associate	0.8	0.6	1.3
Trade payables due to associate	0.3	0.3	0.3

In addition, during the six months ended 30 June 2018, the Group's associate made a drawdown of £1.0 million on a previously undrawn revolving credit facility. The facility was fully repaid within the period.

At 30 June 2018 the Group does not have any trade receivables owed by associates which have been fully provided for (30 June 2017 and 31 December 2017: £nil).

Except as disclosed in the table above:

- There were no related party transactions during the period that have materially affected the financial position or the performance of the Group during the period; and

- There have been no changes in the nature of related party transactions as described in note 25 to the financial statements of the Group's 2017 Annual Report and Accounts (page 153) which could have a material effect on the financial position or performance of the Group during the period.

11. Employee benefits

	30 June 2018 UK	30 June 2018 USA	30 June 2018 Europe	30 June 2018 Rest of World	30 June 2018 Total
	£m	£m	£m	£m	£m
Pension plans and employee benefits

Present value of unfunded defined benefit obligations	-	(7.9)	(34.9)	(2.7)	(45.5)
Present value of funded defined benefit obligations	(560.0)	(131.2)	(2.0)	(9.6)	(702.8)
Fair value of plan assets	419.0	129.7	0.6	7.8	557.1
Net obligations	(141.0)	(9.4)	(36.3)	(4.5)	(191.2)

Movements in present value of defined benefit obligation

At 1 January 2018	(593.7)	(146.7)	(37.2)	(12.7)	(790.3)
Current service cost	(0.5)	-	(0.4)	(0.8)	(1.7)
Interest cost	(7.1)	(2.6)	(0.3)	(0.1)	(10.1)
Remeasurement gains	29.0	9.0	-	0.2	38.2
Benefits paid	12.5	4.2	0.9	0.6	18.2
Contributions by members	(0.2)	-	-	-	(0.2)
Exchange adjustments	-	(3.0)	0.1	0.5	(2.4)
At 30 June 2018	(560.0)	(139.1)	(36.9)	(12.3)	(748.3)

Movements in fair value of plan assets

At 1 January 2018	427.7	135.6	0.5	8.5	572.3
Interest on plan assets	5.2	2.4	-	0.1	7.7
Remeasurement losses	(8.0)	(7.2)	-	(0.2)	(15.4)
Contributions by employer	6.4	0.4	0.9	0.5	8.2
Contributions by members	0.2	-	-	-	0.2
Benefits paid	(12.5)	(4.2)	(0.9)	(0.6)	(18.2)
Exchange adjustments	-	2.7	0.1	(0.5)	2.3
At 30 June 2018	419.0	129.7	0.6	7.8	557.1

The fair values of the plan assets at 30 June 2018 were as follows:

Equities and growth assets	131.8	6.6	-	-	138.4
Bonds and LDI	105.3	119.2	-	-	224.5
Matching insurance policies	171.2	-	0.6	7.8	179.6
Other	10.7	3.9	-	-	14.6
Total	419.0	129.7	0.6	7.8	557.1

Principal actuarial assumptions at 30 June 2018 were:	%	%	%	%
Discount rate	2.63	4.26	1.60	3.20
Inflation (UK: RPI/CPI)	3.05 / 1.95	n/a	1.70	n/a

11. Employee benefits (continued)

	30 June 2017 UK	30 June 2017 USA	30 June 2017 Europe	30 June 2017 Rest of World	30 June 2017 Total
	£m	£m	£m	£m	£m
Pension plans and employee benefits

Present value of unfunded defined benefit obligations	-	(8.7)	(34.9)	(2.1)	(45.7)
Present value of funded defined benefit obligations	(591.1)	(142.1)	(0.8)	(10.0)	(744.0)
Fair value of plan assets	416.3	106.5	0.5	7.7	531.0
Net obligations	(174.8)	(44.3)	(35.2)	(4.4)	(258.7)

Principal actuarial assumptions at 30 June 2017 were:	%	%	%	%
Discount rate	2.57	3.85	1.90	2.80
Inflation (UK: RPI/CPI)	3.13 / 2.03	n/a	1.70	n/a

	31 December 2017 UK	31 December 2017 USA	31 December 2017 Europe	31 December 2017 Rest of World	31 December 2017 Total
	£m	£m	£m	£m	£m
Pension plans and employee benefits

Present value of unfunded defined benefit obligations	-	(8.3)	(35.2)	(2.7)	(46.2)
Present value of funded defined benefit obligations	(593.7)	(138.4)	(2.0)	(10.0)	(744.1)
Fair value of plan assets	427.7	135.6	0.5	8.5	572.3
Net obligations	(166.0)	(11.1)	(36.7)	(4.2)	(218.0)


Principal actuarial assumptions at 31 December 2017 were:	%	%	%	%
Discount rate	2.38	3.65	1.60	3.20
Inflation (UK: RPI/CPI)	3.12 / 2.02	n/a	1.70	n/a

12. Changes in accounting policy

The following tables summarise the impact of adopting IFRS 15 on the Group's consolidated financial statements. There is no impact on specific adjusting items and so figures presented below show the impact on total results.

Consolidated income statement - restatement under IFRS 15


	Six months ended 30 June 2017			Year ended 31 December 2017
	As reported	Impact of IFRS 15	Restated	As reported	Impact of IFRS 15	Restated
	£m	£m	£m	£m	£m	£m

Revenue	518.9	(0.1)	518.8	1,021.5	0.9	1,022.4
Operating costs before restructuring costs and other items and amortisation of intangible assets	(457.3)	(0.3)	(457.6)	(901.8)	(0.9)	(902.7)

Profit from operations before restructuring costs and other items and amortisation of intangible assets	61.6	(0.4)	61.2	119.7	-	119.7

Operating profit	104.1	(0.4)	103.7	158.1	-	158.1

Profit before taxation	92.3	(0.4)	91.9	135.8	-	135.8

Profit for the period	79.8	(0.4)	79.4	113.9	-	113.9

Profit for the period attributable to:
External plc shareholders	76.9	(0.4)	76.5	107.6	-	107.6
Non-controlling interests	2.9	-	2.9	6.3	-	6.3

	79.8	(0.4)	79.4	113.9	-	113.9

Earnings per share from continuing operations
Basic	27.0p	(0.1)p	26.9p	37.8p	-	37.8p
Diluted	27.0p	(0.2)p	26.8p	37.5p	-	37.5p

Consolidated balance sheet - restatement under IFRS 15

	At 30 June 2017			At 31 December 2017			As at 31 December 2016
	As reported	Impact of IFRS 15	Restated	As reported	Impact of IFRS 15	Restated	As reported	Impact of IFRS 15	Restated
	£m	£m	£m	£m	£m	£m	£m	£m	£m

Assets
Total non-current assets	524.7	-	524.7	535.9	-	535.9	560.9	-	560.9

Inventory	144.8	0.2	145.0	141.8	(0.2)	141.6	148.2	-	148.2
Trade and other receivables	199.3	(0.6)	198.7	194.2	0.2	194.4	205.7	-	205.7
Total current assets	509.8	(0.4)	509.4	393.8	-	393.8	478.4	-	478.4
Total assets	1,034.5	(0.4)	1,034.1	929.7	-	929.7	1,039.3	-	1,039.3

Liabilities
Total liabilities	811.1	-	811.1	695.4	-	695.4	874.6	-	874.6
Total net assets	223.4	(0.4)	223.0	234.3	-	234.3	164.7	-	164.7

Equity
Retained earnings	(46.0)	(0.4)	(46.4)	(27.5)	-	(27.5)	(109.5)	-	(109.5)
Total equity attributable to external plc shareholders	180.0	(0.4)	179.6	195.2	-	195.2	120.8	-	120.8
Non-controlling interests	43.4	-	43.4	39.1	-	39.1	43.9	-	43.9
Total equity	223.4	(0.4)	223.0	234.3	-	234.3	164.7	-	164.7

12. Changes in accounting policy (continued)

Consolidated statement of cashflows - restatement under IFRS 15

There has been no net change in the cash generated on adoption of IFRS 15. No reconciliation of the restatement of the consolidated statement of cash flows has been presented as changes represent only reclassifications following adjustment to the balance sheet and to retained profits as outlined above.

Consolidated statement of changes in equity - restatement under IFRS 15

No reconciliation of the restatement of changes in equity has been presented as the only changes are as follows:

- At 1 January 2017, recognition of the restated retained earnings figure as presented in the restated consolidated balance sheet at this date;

- At 30 June 2017, recognition of the restated profit for the period as presented in the restated consolidated income statement for this period; and

- At 31 December 2017, no change.

Glossary

Cash flow from operations*	Cash generated from operations before cash flows from restructuring costs and other items.
Constant-currency*	Constant-currency revenue and Group headline operating profit are derived by translating the prior year results at current year average exchange rates.
Corporate costs	Corporate costs consist of the costs of the central head office.
Free cash flow before acquisitions and dividends*	Cash generated from operations less capital expenditure, net interest paid and tax paid.
Earnings before interest, tax and amortisation (EBITA) *	EBITA is defined as Group operating profit before specific adjusting items and amortisation of intangible assets. Segment - Divisional and global business unit - EBITA is stated before unallocated corporate costs.
Group earnings before interest, tax, depreciation and amortisation (EBITDA)*	EBITDA is defined as operating profit before specific adjusting items, amortisation of intangible assets, restructuring costs and other items, and depreciation.
Group headline operating profit*	Operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets.
Headline earnings per share (EPS)*	Headline earnings per share is defined as operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets, plus share of profit of associate less net financing costs, income tax expense and non-controlling interests, divided by the weighted average number of ordinary shares during the period.
Net debt*	Interest-bearings loans and borrowings and bank overdrafts less cash and cash equivalents.
Group Organic*	The Group results excluding acquisition and disposal impacts at constant-currency.
Restructuring costs and other items*	Include the costs of restructuring activity and gain on disposal of property.
Return on invested capital (ROIC)*	Group headline operating profit (operating profit excluding specific adjusting items and amortisation of intangible assets) divided by the 12-month average adjusted net assets (excludes long term employee benefits, deferred tax assets and liabilities, current tax payable, provisions, cash and cash equivalents and interest-bearing loans and borrowings.
Revenue growth	Revenue growth is defined as current year revenue translated using current year average exchange rates divided by prior year revenue translated using prior year average exchange rates.
Specific adjusting items*	See note 4 to the financial statements for further details.

*Items marked with an asterisk are non-GAAP Measures, see Definitions and Reconciliations of Non-GAAP Measures to GAAP Measures on pages 11 to 15.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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