Half-Year Results

RNS Number : 5334U

Morgan Advanced Materials PLC

30 July 2020

MORGAN ADVANCED MATERIALS

Half-year results for the period ended 30 June 2020

£ million unless otherwise stated	1H 2020	1H 2019	As reported change	Organic constant- currency¹ change
Headline results Revenue	477.8	525.8	(9.1)%	(8.8)%
Group headline operating profit¹	52.9	67.4	(21.5)%	(19.8)%
Group headline operating profit margin¹	11.1%	12.8%
Headline EPS¹	11.5p	13.8p	(16.7)%
Interim dividend per share	-	4.0p
Cash generated from continuing operations	59.0	61.1
Free cash flow before acquisitions, disposals and dividends^1,2	26.4	8.4

Statutory results
Operating profit/(loss)³	(19.7)	63.3
Profit/(loss) before tax³	(25.5)	54.7
Continuing earnings/(loss) per share⁴	(9.9)p	12.4p
Continuing and discontinued earnings/(loss) per share⁴	(9.6)p	12.4p

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found

on pages 14 to 17. Throughout this report these non-GAAP measures are clearly identified by an asterisk (*) where they appear in text and by a footnote where they appear in tables.

2. Free cash flow before acquisitions, disposals and dividends is re-presented for 1H 2019 to include lease payments and proceeds from the sale of property, plant and equipment within its definition.

3. The statutory loss in the period arises from an impairment charge of £63.4 million. Further details are provided in note 3 to the condensed consolidated financial statements.

4. EPS is presented on a 'continuing' and a combined 'continuing and discontinued' basis for statutory reporting. Further details are provided in note 7 to the condensed consolidated financial statements.

Group highlights

· The safety of our people is our priority and we have measures in place in all our facilities to ensure social distancing and appropriate hygiene and disinfection during the pandemic.

· Trading has been resilient with revenue decline of 8.8% on an organic constant-currency* basis demonstrating the benefits of our diverse end-market segments, with growth in healthcare and defence segments offset by declines in other end-market segments.

· Group headline operating profit* margin held at 11.1%, demonstrating the impact of our rapid cost management actions.

· Free cash flow* improved to £26.4 million to give a net debt* to EBITDA* position of 1.0 times, excluding lease liabilities, reflecting the decisive action we have taken to maintain good liquidity. As at 30 June 2020, the Group has cash and cash equivalents of £122.7 million and undrawn headroom on its revolving credit facility of £116.6 million.

· Restructuring actions accelerated to position the business for a period of lower demand, targeting annual cost savings of £20 million by 2022 for a cash cost of £30 million.

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

"I am very proud of the way our people have responded during this crisis, changing our ways of working to keep everyone safe while looking after our customers. This has been a tremendous effort and I want to thank all of our employees for their support.

Our first half results demonstrate the improvements we have made to the business in the last four years, the rapid action we have taken to manage our costs and the benefits of our diverse end-market segments. While the current market environment is difficult, we are maintaining our long-term investments in research and development, sales and other infrastructure to support the future growth of the business.

We have announced a restructuring and efficiency programme aimed at reducing capacity in parts of the business to reflect the reduced demand outlook, this will allow the business to emerge from this crisis stronger and enable us to expand our margins when volumes return to more normal levels.

We are well positioned to grow quickly as our markets recover."

Outlook

The market outlook for the rest of the year remains uncertain given the ongoing impact of the pandemic and its impact on economic demand. Daily order intake in April and May was down around 30% compared to the prior year. During June and July we have seen this position improve slightly to a 20% decline in order intake year-on-year. Based on these trends we anticipate a continued revenue decline in the third quarter of 2020 versus prior year. We will continue to actively manage the cost base of the business to mitigate the impact of this revenue decline on the Group's profits.

Given the considerable uncertainty around the outlook for the virus, combined with the relatively short-term visibility of our order book, we are not in a position to provide guidance for the full year at this point. The full impact on the Group will depend on the duration of the pandemic and how deeply it impacts our end-market segments.

Update on the impact of Covid-19 on the business to date

The Covid-19 pandemic has led to significant challenges across the world. We continue to work hard to respond to these unprecedented circumstances and actively manage the ongoing risks to our people, our operations and our customers.

We reduced activity and closed sites in geographies where that was required. This included the closure of sites in China, Italy, India, South Africa and Mexico for a period of time. Those plants have now re-opened, however we may experience future plant closures where local outbreaks are identified, and government lockdown restrictions are implemented.

The health, safety and wellbeing of our employees remains our absolute priority. We have introduced heightened safety measures such as social distancing and hygiene measures in all of our plants to ensure the safety of our employees and follow the advice of the relevant local governments.

Short-term action: protecting the business and preserving cash

In the short-term we have taken immediate action to reduce costs, improve cash flow and increase liquidity. These actions include:

· Curtailment of discretionary spend.

· A temporary hiring freeze for all but the most critical roles.

· A significant reduction in the number of contractors engaged within the business.

· Temporary salary reductions for the Executive Committee and the Board.

· Reductions to capital expenditure other than for essential health, safety and environmental matters.

· The Board announced its decision to withdraw the proposed final dividend for the 2019 full year. The Board will continue to review future dividend payments during the second half, page 11 provides further details.

Emerging stronger: Group restructuring and efficiency programme

A Group restructuring and efficiency programme is underway, accelerating our existing plans to further simplify our structure, and drive efficiency in our operations as well as to align our capacity with the anticipated lower demand levels across the business. These plans will allow us to expand our margins, when volumes return to more normal levels.

In response to the significant downturn in aerospace demand, and the anticipated long-tail effect of this, the Group have announced the closure of Technical Ceramics ceramic cores manufacturing sites in the UK and North America. We are also closing sites and closing under-utilised production lines in the Thermal Ceramics business to align our capacity to lower industrial and automotive demand and restructuring other roles across the Group to align our cost base to the lower overall demand position.

Overall, this will result in the closure of eight of our manufacturing sites. We regret that this will lead to around 550 job losses, however this will allow the business to emerge from this crisis stronger.

These actions will further reduce costs by a targeted £20 million per annum by 2022, with an anticipated cash cost of £30 million to deliver these savings:

FY 2020

£m

FY 2021

£m

FY 2022

£m

Total

£m

Headline operating profit¹ benefits (incremental)

Cash cost to specific adjusting items

(15)

(14)

(1)

(30)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

Our purpose and strategy

We have a clear purpose and focused strategy, underpinned by a strong balance sheet. We expect these strengths, combined with the quality of our people and our investment in research and development to enable us to continue to create value for our key stakeholders.

Our purpose

Our purpose is to use advanced materials to help make more efficient use of the world's resources and to improve the quality of life.

Our world is changing at an extraordinary pace and the world needs advanced materials more than ever.

Using advanced materials w e deliver on our purpose through the products that we make, and the way that we make them - w e enable greener electricity generation; we enable the digital world, and all the benefits to the environment and health that brings; we help to keep people safe; we enable electrification for cleaner public transport; we help our customers manage heat, reducing their energy usage; we improve the quality of life through medical applications.

Our strategy: driving long-term value

We are a global diversified business, with a clear strategy. We remain focused on keeping our people safe, serving our customers, containing our costs and preserving our financial position.

We have a strategy to make sure that we are the leaders in our field, with the customer and materials insight to apply our capabilities quickly and effectively.

The Group has four priorities underpinning its strategic execution:

1. Extend our technical leadership. Our objective is to build our technical lead and accelerate new product development, supporting the Group's emphasis on both manufacturing process and materials technology, producing materials which transform our customers' processes.

Our technology teams continue to make good progress with the development of new materials and new products. We have experienced some delays from our customers, as they have responded to the Covid-19 situation, and some delays in our own teams when sites have closed for periods of time. However, we are continuing to work with our customers, providing new materials samples, supporting product qualification and new product introduction. Each of our global business units has new products coming to market in our growth markets in the next 12 months, including in electric vehicles, healthcare, semiconductors and renewable energy. These developments go through our stage gate process to control the development, ensure we address the demanding technical issues early and have a smooth introduction to production. We continue to develop a pipeline of new materials and applications, working with our customers, to support the growth of the business.

2. Drive sales effectiveness and market focus. Our objective is to improve a number of aspects of our sales capabilities: sales processes and their efficiency, the management of key customer accounts and distribution channels, and deeper understanding of end-markets and faster-growing segments.

We continue to focus on the changes we have made over the last three years across the organisation, including embedding and refining our pricing tools; completing the remaining training for sales and customer service people not trained last year; and deploying upgrades to our customer relationship management (CRM) tool to provide a better user experience and functionality, as well as embedding that tool into our review processes.

3. Increase investment in people management and development. Our objective is to strengthen our leadership capability and deepen functional capabilities across the business.

Our teams have switched to remote working seamlessly and have been able to address the many short-term business issues quickly and effectively. We are transitioning our face-to-face learning and development training programmes to virtual. We ran virtual three-day sessions for the final modules in our leadership development programmes and we are taking the approach and lessons from that into our wider learning programmes.

4. 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 continue to make good progress with our operational efficiency programmes and have met our targets for the first half despite the disruption and lower activity levels. The deployment of our standard tools and common approach has continued across the Group and we are seeing the benefits of that in our performance. This supported our profitability and enabled us to perform well for our customers during this period of disruption.

Enquiries


Pete Raby	Morgan Advanced Materials	01753 837 000
Peter Turner	Morgan Advanced Materials
Nina Coad	Brunswick	0207 404 5959

Results presentation today

There will be an analyst and investor presentation at 10:30 (UK time) today via web-conference.

A live audio webcast and slide presentation of this event will be available on www.morganadvancedmaterials.com

We recommend you register by 10:15 (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 they are presented as 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.

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. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

All periods presented in these condensed consolidated financial statements are for continuing operations, with separate disclosure of discontinued operations where appropriate.

Operating review

	Revenue		Operating profit¹		Margin %¹
	1H 2020	1H 2019	1H 2020	1H 2019	1H 2020	1H 2019
	£m	£m	£m	£m	%	%
Thermal Ceramics	175.3	207.8	13.5	25.7	7.7%	12.4%
Molten Metal Systems	20.4	24.7	1.7	2.7	8.3%	10.9%
Thermal Products division	195.7	232.5	15.2	28.4	7.8%	12.2%
Electrical Carbon	77.7	85.4	12.5	11.1	16.1%	13.0%
Seals and Bearings	77.6	71.1	15.5	13.4	20.0%	18.8%
Technical Ceramics	126.8	136.8	12.2	17.5	9.6%	12.8%
Carbon and Technical Ceramics division	282.1	293.3	40.2	42.0	14.3%	14.3%
Divisional total	477.8	525.8	55.4	70.4	11.6%	13.4%
Corporate costs			(2.5)	(3.0)
Group headline operating profit ¹			52.9	67.4	11.1%	12.8%
Amortisation of intangible assets			(3.7)	(4.1)
Operating profit/(loss) before specific adjusting items			49.2	63.3	10.3%	12.0%
Specific adjusting items included in operating profit²			(68.9)	-
Operating profit/(loss)			(19.7)	63.3	(4.1)%	12.0%
Net financing costs			(5.9)	(8.6)
Share of profit of associate (net of income tax)			0.1	-
Profit/(loss) before taxation			(25.5)	54.7

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

2. Details of specific adjusting items can be found in notes 2 and 3 to the condensed consolidated financial statements.

Thermal Products division

Revenue for the Thermal Products division for the six months ended 30 June 2020 was £195.7 million, representing a decrease of 15.8% compared with £232.5 million in 1H 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 14.1%.

Divisional headline operating profit* for the Thermal Products division was £15.2 million (1H 2019: £28.4 million) with a divisional headline operating profit* margin of 7.8% (1H 2019: 12.2%).

Revenue for the Thermal Ceramics global business unit for the six months ended 30 June 2020 was £175.3 million, representing a decrease of 15.6% compared with £207.8 million in 1H 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 13.9%. Thermal Ceramics' end-markets were heavily impacted by the Covid-19 downturn, with declines seen in automotive, metals and industrial market segments, this was partially offset by strong growth in insulation projects for the chemical and petrochemical (CPI) market segment, primarily in Asia and North America. Additionally, performance was negatively affected a number of temporary factory closures responding to the lockdown requirements in some jurisdictions.

Headline operating profit* for the Thermal Ceramics global business unit for the six months ended 30 June 2020 was £13.5 million (1H 2019: £25.7 million) with headline operating profit margin* of 7.7% (1H 2019: 12.4%). Significant reductions in costs have partially mitigated the impact of lower revenue. Margin was also depressed by a £2.5 million charge in anticipation of higher expected credit losses given the economic environment.

The Group completed the buyout of the non-controlling interest of our Thermal Ceramics business in Argentina on 9 June 2020 for £2.8 million.

Revenue for the Molten Metals Systems global business unit for the six months ended 30 June 2020 was £20.4 million, representing a decrease of 17.4% compared with £24.7 million in 1H 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 15.7%. Revenue decline was primarily driven by reduced global demand within the aluminium and precious metals segments and some temporary closures driven by the Covid-19 pandemic.

Headline operating profit* for the Molten Metals Systems global business unit for the six months ended 30 June 2020 was £1.7 million (1H 2019: £2.7 million) with headline operating profit margin* of 8.3% (1H 2019: 10.9%). The impact of reduced sales volumes was partially offset by lower levels of discretionary spend.

Carbon and Technical Ceramics division

Revenue for the Carbon and Technical Ceramics division for the six months ended 30 June 2020 was £282.1 million, representing a decrease of 3.8% compared with £293.3 million in 1H 2019. On an organic constant-currency* basis, year-on-year revenue decreased 4.7%.

Divisional headline operating profit* for the Carbon and Technical Ceramics division for the six months ended 30 June 2020 was £40.2 million (1H 2019: £42.0 million) with a divisional headline operating profit margin* of 14.3% (1H 2019: 14.3%).

Revenue for the Electrical Carbon global business unit for the six months ended 30 June 2020 was £77.7 million, representing a decrease of 9.0% compared with £85.4 million in 1H 2019. On an organic constant-currency* basis, year-on-year revenue decreased by 8.4%.

Performance was negatively affected by Covid-19, including a number of temporary factory closures. The influence of the subsequent downturn was seen particularly in the core industrial and transportation market segments, primarily in North America. Sales into the wind aftermarket contracted as a consequence of the pandemic. The decreases in these market segments was partially offset by strong growth in the semiconductor market segment.

Headline operating profit* for the Electrical Carbon global business unit for the six months ended 30 June 2020 was £12.5 million (1H 2019: £11.1 million) with a headline operating profit margin* of 16.1% (1H 2019: 13.0%). The year-on-year improvement reflects the benefit of strong efficiency and cost reduction actions taken in the first half of 2020 and one-off insurance receipts (£1.5 million) have more than offset the negative impact of volume declines.

Revenue for the Seals and Bearings global business unit for the six months ended 30 June 2020 was £77.6 million, representing an increase of 9.1% compared with £71.1 million in 1H 2019. On an organic constant-currency* basis year-on-year revenue increased by 7.6%.

Growth in the ceramic armour and healthcare market segments more than offset the declines in aerospace, automotive and some industrial market segments. In an extension of the contracts awarded in 2017, sales of ceramic armour increased to £25 million in 1H 2020 (1H 2019: £15 million).

Headline operating profit* for the Seals and Bearings global business unit for the six months ended 30 June 2020 was £15.5 million (1H 2019: £13.4 million) with a headline operating profit margin* of 20.0% (1H 2019: 18.8%). Continuous improvement initiatives, reductions in discretionary costs and benefits of higher revenue supported margin growth.

Revenue for the Technical Ceramics global business unit for the six months ended 30 June 2020 was £126.8 million, a decrease of 7.3% compared with £136.8 million in 1H 2019. On an organic constant-currency* basis, year-on-year revenue decreased 8.9% primarily driven by the downturn in ceramic cores in the commercial aerospace market as well as the lower demand in the renewable energy and industrial market segments. This was partially offset by growth in the healthcare and defence market segments.

Headline operating profit* for the Technical Ceramics global business unit for the six months ended 30 June 2020 was £12.2 million (1H 2019: £17.5 million) with a headline operating profit margin* of 9.6% (1H 2019: 12.8%). Margins were compressed by the decline in revenues, partially offset by cost reductions.

In 2017 the Group divested its UK Electro-ceramics business, which was part of the Technical Ceramics global business unit. At the same time, it announced the closure of its US Electro-ceramics business, which formed the remainder of the Group's Electro-ceramics business. The final delivery of the last-time orders from customers was completed in the first half of 2020, and the site closed on 30 June 2020. The revenues for the US Electro-ceramics business for the period ended 30 June 2020 were £4.7 million with a profit contribution of £2.9 million.

Group financial review

Group revenue for the six months ended 30 June 2020 was £477.8 million (1H 2019: £525.8 million), a decrease of 9.1% on a reported basis compared with 1H 2019, driven by the weak market conditions due to the Covid-19 pandemic. On an organic constant-currency* basis revenue decreased by 8.8%.

Group headline operating profit* for the six months ended 30 June 2020 was £52.9 million (1H 2019: £67.4 million). Headline operating profit margin* was 11.1%, compared to 12.8% for 1H 2019.

Specific adjusting items for the six months ended 30 June 2020 were £68.9 million (1H 2019: £nil). Note 3 to the condensed consolidated financial statements on page 29, provides additional information on the Group's specific adjusting items.

Operating loss for the six months ended 30 June 2020 was £19.7 million (1H 2019: profit £63.3 million) and loss before taxation was £25.5 million (1H 2019: profit £54.7 million).

The Group amortisation charge for the six months ended 30 June 2020 was £3.7 million (1H 2019: £4.1 million).

The net finance charge for the six months ended 30 June 2020 was £5.9 million (1H 2019: £8.6 million) comprising net bank interest and similar charges of £3.3 million (1H 2019: £4.8 million), net interest on IAS 19 pension obligations of £1.2 million (1H 2019: £2.3 million), and interest expense on lease liabilities of £1.4 million (1H 2019: £1.5 million).

Looking forward to the full year, we anticipate that the net finance charge will reduce to around £13.5 million, comprising net bank interest and similar charges of £7.0 million; net interest on IAS 19 pension obligations of £3.0 million; and interest expense on lease liabilities of £3.5 million.

The Group taxation charge for the six months ended 30 June 2020, excluding specific adjusting items, was £11.7 million (1H 2019: £15.3 million), tax on specific adjusting items was a credit of £10.2 million (1H 2019: £nil). The effective tax rate, excluding specific adjusting items, was 27.0% (1H 2019: 28.0%). Note 5 to the condensed consolidated financial statements provides additional information on the Group's tax charge.

Looking forward to the full year, we anticipate that the effective tax rate will remain at around 27%, with cash tax paid slightly higher than the charge to the income statement.

Headline earnings per share* for the six months ended 30 June 2020 was 11.5 pence (1H 2019: 13.8 pence) and basic loss per share from continuing operations was 9.9 pence (1H 2019: earnings per share 12.4 pence). Details of these calculations can be found in note 7 to the condensed consolidated financial statements.

The Group's balance sheet and liquidity remains robust. Net debt* for the six months ended 30 June 2020 was £211.8 million, with net debt* excluding lease liabilities of £148.3 million, with no debt maturities until 2023. The Group has cash and cash equivalents of £122.7 million and undrawn headroom on its revolving credit facility of £116.6 million.

The Group applied for the UK Government's 'Covid Corporate Financing Facility' (CCFF) with an issuer limit of £300 million, which was confirmed as successful on 10 June 2020. The facility was undrawn at 30 June 2020. Additionally, the Group had received £0.5 million from the UK Government under the 'Coronavirus Job Retention Scheme' (CJRS) for employees placed on furlough. The Group is in the process of voluntarily paying this back to the UK Government.

Our key financial covenants are measured on a pre-IFRS 16 Leases basis. As at 30 June, net debt* to EBITDA*, excluding lease liabilities, was 1.0 times compared to a covenant not to exceed 3.0 times, and our interest cover was 19 times, compared to a covenant to exceed 4.0 times.

Specific adjusting items

In the consolidated income statement, the Group presents specific adjusting items separately. In the judgement of the Directors, as a result of 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.

Details of specific adjusting items arising during the year and the comparative period are given in note 3 to the condensed consolidated financial statements.

	1H 2020 £m	1H 2019 £m
Specific adjusting items
Restructuring costs	(5.5)	-
Impairment of assets	(63.4)	-
Total specific adjusting items before income tax	(68.9)	-
Income tax credit from specific adjusting items	10.2	-
Total specific adjusting items after income tax	(58.7)	-

Specific adjusting items for the six months ended 30 June 2020 were £68.9 million (1H 2019: £nil) and comprised the following associated with the Group restructuring and efficiency programme:

Restructuring costs

Following the announcement of the Group's restructuring programme the Group has recognised £5.5 million related to initial staff redundancies and legal and professional fees.

Impairment of assets

Technical Ceramics, ceramic cores

A significant downturn in aerospace demand has resulted in impairment losses of £28.5 million relating to the ceramic cores business. The impaired assets comprise intangible assets recognised upon the acquisition of the Carpenter business in 2008, and property, plant and equipment.

Technical Ceramics, China

On 15 June 2020 the Group announced the closure of its Suzhou manufacturing facility in China and has recognised £1.1 million relating to the termination of lease obligations and the impairment of property, plant and equipment.

Thermal Ceramics

The continuing reduced demand in the aerospace, automotive and industrial market segments has resulted in impairment losses of £33.8 million in Thermal Ceramics, which relates to the closure of sites and under-utilised product lines, as well as the impairment of intangible assets recognised upon the acquisition of Porextherm in Germany in 2014.

Cash flow

	1H 2020 £m	1H 2019¹ £m
Cash generated from continuing operations	59.0	61.1
Net capital expenditure	(15.8)	(27.9)
Net interest	(3.2)	(4.6)
Tax paid	(7.0)	(14.4)
Lease payments	(6.6)	(5.8)
Free cash flow before acquisitions, disposals and dividends²	26.4	8.4
Dividends paid to external plc shareholders	-	(19.9)
Net cash flows from other investing and financing activities	(7.2)	(3.0)
Net cash flows from divestments and discontinued operations	(0.1)	0.3
Exchange movement and other non-cash movements	(10.6)	0.1
Opening net debt¹ excluding lease liabilities	(156.8)	(179.8)
Closing net debt¹ excluding lease liabilities	(148.3)	(193.9)
Closing lease liabilities	(63.5)	(69.0)
Closing net debt²	(211.8)	(262.9)

1. Free cash flow before acquisitions, disposals and dividends is re-presented for 1H 2019 to include lease payments and proceeds from the sale of property, plant and equipment within its definition.

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

Cash generated from continuing operations for the six months ended 30 June 2020 was £59.0 million (1H 2019: £61.1 million).

Free cash flow before acquisitions, disposals and dividends* was £26.4 million (1H 12019: £8.4 million).

Net debt* for the six months ended 30 June 2020 was £211.8 million (1H 2019: £262.9 million), representing a net debt* to EBITDA* ratio of 1.3 times (1H 2019: 1.6 times).

Net debt* for the six months ended 30 June 2020 excluding lease liabilities was £148.3 million (1H 2019: £193.9 million), representing a net debt* to EBITDA* ratio excluding lease liabilities of 1.0 times (1H 2019: 1.2 times).

Further information on the Group's net debt* is provided in note 10 to the condensed consolidated financial statements.

Defined benefit pension plans

The Group pension deficit for the six months ended 30 June 2020 has increased by 8.4 million since 31 December 2019 to £165.2 million on an IAS 19 (revised) basis, with UK and US discount rates reducing as a result of a fall in corporate bond yields primarily in the US and UK, whilst the Eurozone and Rest of World discount rates have remained stable:

· The UK schemes deficit increased by £5.4 million to £106.9 million (FY 2019: £101.5 million; 1H 2019: £140.2 million), (discount rate 1H 2020: 1.47%; FY: 2019: 2.06%; 1H 2019: 2.22%).

· The US schemes deficit increased by £0.7 million to £11.3 million (FY 2019 £10.6 million; 1H 2019: £9.3 million), (discount rate 1H 2020: 2.58%; FY: 2019: 3.21%; 1H 2019: 3.53%).

· The European schemes deficit increased by £1.6 million to £41.2 million (FY 2019 £39.6 million; 1H 2019: £41.1 million), (discount rate 1H 2020: 0.90%; FY: 2019: 0.90%; 1H 2019: 1.00%).

· The Rest of World schemes deficit increased by £0.7 million to £5.8 million (FY 2019 £5.1 million; 1H 2019: £5.0 million), (discount rate 1H 2020: 2.20%; FY: 2019 2.20%; 1H 2019: 2.10%).

Note 12 to the condensed consolidated financial statements provides additional information on the Group's pension schemes.

The most recent full actuarial valuations of the UK Schemes were undertaken as at March 2019 and resulted in combined assessed deficits of £120.3 million. On the basis of these full valuations the Trustees of the UK Schemes, having consulted with the Group, agreed past service deficit recovery payments totaling £16.5 million a year from January 2020, increasing by 2.75% pa until 2025, with further payments to Morgan Pension Scheme for 2026 and 2027. This recovery plan is subject to approval from the UK Pensions Regulator.

Foreign currency impact

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

	1H 2020		1H 2019
GBP to:	Closing rate	Average rate	Closing rate	Average rate
US dollar	1.24	1.26	1.27	1.29
Euro	1.10	1.14	1.12	1.15

For illustrative purposes, the table below provides details of the impact on the first half 2020 revenue and Group headline operating profit* if the actual reported results, calculated using average exchange rates for the period ended 30 June 2020 were restated for GBP weakening by 10 cents against the US dollar in isolation and 10 cents against the Euro in isolation:

Increase in 1H 2020 revenue/headline operating profit ¹ if:

Revenue

£m

Headline operating

profit ¹

£m

GBP weakens by 10c against the US dollar in isolation

19.4

3.0

GBP weakens by 10c against the Euro in isolation

8.6

0.9

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

Interim dividend

The 2019 final dividend was withdrawn in March 2020 due to the financial uncertainty resulting from the Covid-19 pandemic. The Group has seen a significant impact to its revenue during the second quarter of 2020, although the Group continues to trade profitably with the focus on cost actions, and to generate free cash flow* with the focus on liquidity.

The Board recognises that dividends are an important part of the returns for shareholders. At present, the outlook for global economies remains particularly uncertain, and our forward visibility is limited, and so the Board has decided not to resume dividend payments at this stage. The Board will continue to review during the second half of 2020 the potential to resume dividend payments on Ordinary shares, and the timing of the resumption of payments of dividends on the Preference shares. The Board intends to resume dividend payments once we see a sustained improvement in demand compared to the position seen during the second quarter.

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 and emerging risks, representing those risks that the Board feels could have the most significant impact 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 2019 Annual Report and Accounts, which is available on the Group's website at morganadvancedmaterials.com .

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; tax; pension funding; contract management; and compliance.

The current economic climate continues to have an impact on the Group, its customers and its suppliers. The impact of Covid-19 on the Group's principal and emerging risks and uncertainties has been reviewed in depth by the Board together with related mitigations, 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 UK's exit from the European Union (EU) may have an impact on the Group if subsequent tariff changes, or border effects, negatively impact the profitability of the Group's products or the ability to manufacture or distribute products on a timely basis. However, given the current value of the Group's UK exports to the EU (ca. £25 million in 2019) and imports into the UK from the EU (ca. £15 million in 2019), it is not considered that this will have a significant impact overall on the Group's liquidity or operations.

The Board reviews the status of all principal and emerging 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

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the 2019 Annual Report and Accounts on pages 6 to 44. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are reported on pages 30, 38-39, and 119-130 of the 2019 Annual Report and Accounts. Additionally notes 1 and 14 to the condensed consolidated financial statements for the six months ended 30 June 2020 provide details of the Group's policies and processes for managing financial risk; details of its financial instruments and hedging activities; and details of its exposures to credit risk and liquidity risk. The principal risks of the Group are set out on pages 26 to 31 of the 2019 Annual Report and Accounts. The Directors have considered all of these areas and how they may impact going concern.

Net debt* for the six months ended 30 June 2020 was £211.8 million, with net debt* excluding lease liabilities of £148.3 million, with no debt maturities until 2023. The Group had cash and cash equivalents of £122.7 million and undrawn headroom on its revolving credit facility of £116.6 million.

Our key financial covenants are measured on a pre-IFRS 16 Leases basis. As at 30 June, excluding lease liabilities, net debt* to EBITDA*, was 1.0 times compared to a covenant not to exceed 3.0 times, and our interest cover was 19 times, compared to a covenant to exceed 4.0 times.

The current economic climate continues to have an impact on the Group, its customers and its suppliers. Covid-19 has introduced unprecedented uncertainty into global markets, pages 2 and 3 of this Statement details the short- and long-term actions the Group is taking. In response to the current economic climate we have undertaken extensive reviews of our business projections and identified a range of potential economic scenarios, including severe but plausible decreases in revenue of between 20% and 30% compared to 2019, followed by an extended recovery period. We assessed our headroom under each scenario against committed facilities and key banking covenants over the going concern period.

Although not included within our modelled scenarios, the Directors note the additional funding available as an eligible issuer under the UK Government's 'Covid Corporate Financing Facility' (CCFF) with an issuer limit of £300 million.

Under all scenarios the Group has headroom against its available facilities and considers there are sufficient controllable actions it can take, even if the severe downside case were to materialise, to operate within its financial covenants. 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 2020.

Directors' Responsibility Statement

The Directors confirm that to the best of their knowledge:

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

· The interim management report for the six-month period ended 30 June 2020 includes a fair review of the information required by:

(a) DTR 4.2.7R 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 consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure 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 morganadvancedmaterials.com.

By order of the Board

Pete Raby

Chief Executive Officer

Peter Turner

Chief Financial Officer

30 July 2020

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. As defined in the basis of preparation on page 6, these measures are calculated on a continuing basis.

Headline operating profit

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.

1H 2020	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	Corporate costs¹ £m	Group £m
Operating profit/(loss)	(22.4)	1.4	(21.0)	11.0	15.2	(22.3)	3.9	(2.6)	(19.7)
Add back: specific adjusting items included in operating profit	35.0	0.2	35.2	1.2	0.2	32.2	33.6	0.1	68.9
Add back: amortisation of intangible assets	0.9	0.1	1.0	0.3	0.1	2.3	2.7	-	3.7
Group and divisional headline operating profit	13.5	1.7	15.2	12.5	15.5	12.2	40.2	(2.5)	52.9

1. Corporate costs consist of central head office costs.

1H 2019	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	Corporate costs¹ £m	Group £m
Operating profit/(loss)	24.6	2.5	27.1	10.7	13.2	15.3	39.2	(3.0)	63.3
Add back: specific adjusting items included in operating profit	-	-	-	-	-	-	-	-	-
Add back: amortisation of intangible assets	1.1	0.2	1.3	0.4	0.2	2.2	2.8	-	4.1
Group and divisional headline operating profit	25.7	2.7	28.4	11.1	13.4	17.5	42.0	(3.0)	67.4

1. Corporate costs consist of central head office costs.

Organic growth

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 headline operating profit to be compared on a like-for-like basis.

Commentary on the underlying business performance is included as part of the Operational review on pages 6 to 13.

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	Segment total
		£m	£m	£m	£m	£m	£m	£m	£m

1H 2019	207.8		24.7	232.5	85.4	71.1	136.8	293.3	525.8

Impact of foreign currency movements	(4.3)		(0.5)	(4.8)	(0.6)	1.0	2.4	2.8	(2.0)
Impacts of disposals and business exits	-		-	-	-	-	-	-	-
Organic constant-currency change	(28.2)		(3.8)	(32.0)	(7.1)	5.5	(12.4)	(14.0)	(46.0)
Organic constant-currency change %	(13.9)%		(15.7)%	(14.1)%	(8.4)%	7.6%	(8.9)%	(4.7)%	(8.8)%

1H 2020	175.3		20.4	195.7	77.7	77.6	126.8	282.1	477.8

Year-on-year movements in segment and Group headline operating profit

	Thermal Ceramics	Molten Metal Systems	Thermal Products division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics division	Corporate costs¹	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m

1H 2019	25.7	2.7	28.4	11.1	13.4	17.5	42.0	(3.0)	67.4

Impact of foreign currency movements	(1.7)	(0.1)	(1.8)	(0.3)	0.3	0.4	0.4	-	(1.4)
Impact of disposals and business exits	-	-	-	-	-	-	-	-	-
Organic constant-currency change	(10.5)	(0.9)	(11.4)	1.7	1.8	(5.7)	(2.2)	0.5	(13.1)
Organic constant-currency change %	(43.8)%	(34.6)%	(42.9)%	15.7%	13.1%	(31.8)%	(5.2)%	(16.7)%	(19.8)%

1H 2020	13.5	1.7	15.2	12.5	15.5	12.2	40.2	(2.5)	52.9

1. Corporate costs consist of the cost of the central head office.

Group EBITDA

Group EBITDA is defined as operating profit before specific adjusting items, depreciation and amortisation of intangible assets. The Group uses this measure as it is a key metric in covenants over debt facilities, these covenants use EBITDA on a pre-IFRS 16 Leases basis. A reconciliation of operating profit to Group EBITDA is as follows:

	1H 2020 £m	1H 2019 £m
Operating profit/(loss)	(19.7)	63.3
Add back: specific adjusting items included in operating profit/(loss)	68.9	-
Add back: depreciation - property, plant and equipment	17.3	15.9
Add back: depreciation - right-of-use assets	5.1	4.7
Add back: amortisation of intangible assets	3.7	4.1
Group EBITDA	75.3	88.0
Group EBITDA excluding IFRS 16 Leases impact	68.8	81.8

Free cash flow before acquisitions, disposals and dividends

Free cash flow before acquisitions, disposals and dividends is defined as cash generated from operations less net capital expenditure, net interest (interest paid on borrowings, overdrafts and lease liabilities, net of interest received), tax paid and lease payments.

The Group discloses this measure of free cash flow as this provides readers of the condensed consolidated 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 continuing operations to free cash flow before acquisitions, disposals and dividends is as follows:

	1H 2020 £m	1H 2019¹ £m
Cash generated from continuing operations	59.0	61.1
Net capital expenditure	(15.8)	(27.9)
Net interest	(3.2)	(4.6)
Tax paid	(7.0)	(14.4)
Lease payments	(6.6)	(5.8)
Free cash flow before acquisitions, disposals and dividends	26.4	8.4

1. Free cash flow before acquisitions, disposals and dividends is re-presented for 1H 2019 to include lease payments and proceeds from the sale of property, plant and equipment within its definition.

Net debt

Net debt is defined as borrowings, bank overdrafts and lease liabilities, less cash and cash equivalents. The Group also discloses this metric excluding lease liabilities as this is the measure used in the covenants over the Group's debt facilities.

	1H 2020 £m	1H 2019 £m
Cash and cash equivalents	122.7	59.7
Non-current borrowings	(188.4)	(184.9)
Non-current lease liabilities	(51.5)	(57.2)
Current borrowings and bank overdrafts	(82.6)	(68.7)
Current lease liabilities	(12.0)	(11.8)
Closing net debt	(211.8)	(262.9)
Closing net debt excluding IFRS 16 Leases impact	(148.3)	(193.9)

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, plant and equipment, land and buildings, right-of-use assets, intangible assets and other balance sheet items). This measure excludes long-term employee benefits, deferred tax assets and liabilities, current tax payable, provisions, cash and cash equivalents, borrowings and lease liabilities.

	1H 2020 £m	1H 2019 £m
Operating profit before specific adjusting items	112.0	121.4
Add back: amortisation of intangible assets	7.7	8.3
Group headline operating profit	119.7	129.7

12-month average adjusted net assets:
Third-party working capital	180.7	177.3
Plant and equipment	196.8	187.6
Land and buildings	121.4	120.8
Right-of-use assets	49.1	24.7
Intangible assets	209.0	213.7
Other assets (net)	8.3	10.8
12-month average adjusted net assets	765.3	734.9

ROIC	15.6%	17.6%
ROIC excluding IFRS 16 Leases impact	16.5%	18.1%

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. Following the impairment of our customer relationship intangible assets at the interim reporting period, this measure will be adjusted for the full year to include amortisation on our remaining intangible assets, namely software.

A reconciliation from IFRS profit to the profit used to calculate headline earnings per share is included in note 7 to the condensed consolidated financial statements.

Constant-currency revenue and headline operating profit

Constant-currency revenue and 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 11 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 2020

Condensed consolidated income statement

		Six months ended 30 June 2020			Six months ended 30 June 2019			Year ended 31 December 2019
		Results before specific adjusting items	Specific adjusting items¹	Total	Results before specific adjusting items	Specific adjusting items¹	Total	Results before specific adjusting items	Specific adjusting items¹	Total
	Note	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	2	477.8	-	477.8	525.8	-	525.8	1,049.5	-	1,049.5
Operating costs before amortisation of intangible assets		(424.9)	(68.9)	(493.8)	(458.4)	-	(458.4)	(915.3)	-	(915.3)

Profit/(loss) from operations before amortisation of intangible assets	2	52.9	(68.9)	(16.0)	67.4	-	67.4	134.2	-	134.2

Amortisation of intangible assets		(3.7)	-	(3.7)	(4.1)	-	(4.1)	(8.1)	-	(8.1)

Operating profit/(loss)	2	49.2	(68.9)	(19.7)	63.3	-	63.3	126.1	-	126.1

Finance income		0.5	-	0.5	0.6	-	0.6	1.9	-	1.9
Finance expense		(6.4)	-	(6.4)	(9.2)	-	(9.2)	(18.8)	-	(18.8)
Net financing costs	4	(5.9)	-	(5.9)	(8.6)	-	(8.6)	(16.9)	-	(16.9)

Share of profit of associate (net of income tax)		0.1	-	0.1	-	-	-	0.5	-	0.5

Profit/(loss) before taxation		43.4	(68.9)	(25.5)	54.7	-	54.7	109.7	-	109.7

Income tax (charge)/credit	5	(11.7)	10.2	(1.5)	(15.3)	-	(15.3)	(29.9)	-	(29.9)

Profit/(loss) from continuing operations		31.7	(58.7)	(27.0)	39.4	-	39.4	79.8	-	79.8
Profit from discontinued operations	6	-	0.8	0.8	-	-	-	0.7	0.8	1.5
Profit/(loss) for the period		31.7	(57.9)	(26.2)	39.4	-	39.4	80.5	0.8	81.3

Profit/(loss) for the period attributable to:
Shareholders of the Company		29.1	(56.5)	(27.4)	35.3	-	35.3	72.3	0.8	73.1
Non-controlling interests		2.6	(1.4)	1.2	4.1	-	4.1	8.2	-	8.2

Profit/(loss) for the period		31.7	(57.9)	(26.2)	39.4	-	39.4	80.5	0.8	81.3

Earnings per share	7
Continuing and discontinued operations
Basic earnings/(loss) per share				(9.6)p			12.4p			25.7p
Diluted earnings/(loss) per share				(9.6)p			12.3p			25.5p

Continuing operations
Basic earnings/(loss) per share				(9.9)p			12.4p			25.2p
Diluted earnings/(loss) per share				(9.9)p			12.3p			25.0p

Dividends²
Proposed interim dividend - pence				-			4.00p			4.00p
- £m				-			11.4			11.4

Final dividend³ - pence										-
- £m										-

1. Details of specific adjusting items are given in note 3 to the condensed consolidated financial statements.

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

3. On 31 March 2020, the Group announced the Board's decision to withdraw the proposed 2019 final dividend due to the financial uncertainty resulting from the Covid-19 pandemic.

Condensed consolidated statement of comprehensive income

	At 30 June 2020	At 30 June 2019	At 31 December 2019
	£m	£m	£m

Profit/(loss) for the period	(26.2)	39.4	81.3

Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gain/(loss) on defined benefit plans	(12.0)	(9.8)	20.5
Tax effect of components of other comprehensive income not reclassified	(0.3)	1.6	2.2
	(12.3)	(8.2)	22.7
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences	11.9	1.6	(18.3)
Cash flow hedges:
Change in fair value	(0.5)	0.1	0.8
Transferred to profit or loss	(0.6)	0.1	0.2
	10.8	1.8	(17.3)
Total other comprehensive income/(expense)	(1.5)	(6.4)	5.4
Total comprehensive income/(expense)	(27.7)	33.0	86.7

Attributable to:
Shareholders of the Company	(30.4)	28.6	81.1
Non-controlling interests	2.7	4.4	5.6
	(27.7)	33.0	86.7

Total comprehensive income/(expense) attributable to shareholders of the Company arising from:
Continuing operations	(31.3)	28.6	79.6
Discontinued operations	0.8	-	1.5
	(30.5)	28.6	81.1

Condensed consolidated balance sheet

		At 30 June 2020	At 30 June 2019	At 31 December 2019
	Note	£m	£m	£m
Assets
Property, plant and equipment	8	286.8	321.1	317.2
Right-of-use assets		41.0	52.0	49.1
Intangible assets	9	196.3	213.8	204.8
Investments		6.7	5.9	6.5
Other receivables		2.8	5.1	5.7
Deferred tax assets		11.8	12.5	6.0
Total non-current assets		545.4	610.4	589.3

Inventories		149.8	152.7	142.3
Derivative financial assets	11	0.6	0.3	1.5
Trade and other receivables		176.3	208.9	181.0
Current tax receivable		1.8	0.9	2.3
Cash and cash equivalents	10	122.7	59.7	68.7
Total current assets		451.2	422.5	395.8
Total assets		996.6	1,032.9	985.1

Liabilities
Borrowings		188.4	184.9	176.2
Lease liabilities		51.5	57.2	52.6
Employee benefits: pensions	12	165.2	195.6	156.8
Provisions	13	9.6	8.5	9.2
Non-trade payables		2.5	2.5	2.5
Deferred tax liabilities		1.0	10.8	4.9
Total non-current liabilities		418.2	459.5	402.2

Borrowings and bank overdrafts		82.6	68.7	49.3
Lease liabilities		12.0	11.8	11.7
Trade and other payables		160.8	178.7	173.3
Current tax payable		31.6	27.0	26.9
Provisions	13	10.4	9.5	8.9
Derivative financial liabilities	11	1.4	0.5	0.6
Total current liabilities		298.8	296.2	270.7
Total liabilities		717.0	755.7	672.9
Total net assets		279.6	277.2	312.2

Equity
Share capital		71.8	71.8	71.8
Share premium		111.7	111.7	111.7
Reserves		31.6	38.7	22.5
Retained earnings		25.0	9.0	64.7
Total equity attributable to shareholders of the Company		240.1	231.2	270.7
Non-controlling interests		39.5	46.0	41.5
Total equity		279.6	277.2	312.2

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	Total parent equity	Non-controlling interests	Total equity
	£m		£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2019 as reported	71.8		111.7	2.1	(0.2)	(1.0)	35.7	0.6	12.1	232.8	44.4	277.2
Impact of change in accounting policy, net of tax, following the adoption of IFRS 16	-		-	-	-	-	-	-	(12.2)	(12.2)	-	(12.2)
Adjusted 1 January 2019	71.8		111.7	2.1	(0.2)	(1.0)	35.7	0.6	(0.1)	220.6	44.4	265.0
Profit for the period	-		-	-	-	-	-	-	35.3	35.3	4.1	39.4
Other comprehensive income/(expense):
Remeasurement loss on defined benefit plans and related taxes	-		-	-	-	-	-	-	(8.2)	(8.2)	-	(8.2)
Foreign exchange differences	-		-	1.3	-	-	-	-	-	1.3	0.3	1.6
Cash flow hedging fair value changes and transfers	-		-	-	0.2	-	-	-	-	0.2	-	0.2
Total comprehensive income	-		-	1.3	0.2	-	-	-	27.1	28.6	4.4	33.0
Transactions with owners:
Dividends	-		-	-	-	-	-	-	(19.9)	(19.9)	(2.8)	(22.7)
Share-based payments	-		-	-	-	-	-	-	1.6	1.6	-	1.6
Own shares acquired for share incentive schemes (net)	-		-	-	-	-	-	-	0.3	0.3	-	0.3
At 30 June 2019	71.8		111.7	3.4	-	(1.0)	35.7	0.6	9.0	231.2	46.0	277.2

At 1 January 2019 as reported	71.8		111.7	2.1	(0.2)	(1.0)	35.7	0.6	12.1	232.8	44.4	277.2
Impact of change in accounting policy, net of tax, following the adoption of IFRS 16	-		-	-	-	-	-	-	(12.2)	(12.2)	-	(12.2)
Adjusted 1 January 2019	71.8		111.7	2.1	(0.2)	(1.0)	35.7	0.6	(0.1)	220.6	44.4	265.0
Profit for the period	-		-	-	-	-	-	-	73.1	73.1	8.2	81.3
Other comprehensive income/(expense):
Remeasurement gain on defined benefit plans and related taxes	-		-	-	-	-	-	-	22.7	22.7	-	22.7
Foreign exchange differences	-		-	(15.7)	-	-	-	-	-	(15.7)	(2.6)	(18.3)
Cash flow hedging fair value changes and transfers	-		-	-	1.0	-	-	-	-	1.0	-	1.0
Total comprehensive income/(expense)		-	-	(15.7)	1.0	-	-	-	95.8	81.1	5.6	86.7
Transactions with owners:
Dividends	-		-	-	-	-	-	-	(31.3)	(31.3)	(8.5)	(39.8)
Share-based payments	-		-	-	-	-	-	-	2.8	2.8	-	2.8
Own shares acquired for share incentive schemes (net)	-		-	-	-	-	-	-	(2.5)	(2.5)	-	(2.5)
At 31 December 2019	71.8		111.7	(13.6)	0.8	(1.0)	35.7	0.6	64.7	270.7	41.5	312.2

At 1 January 2020	71.8		111.7	(13.6)	0.8	(1.0)	35.7	0.6	64.7	270.7	41.5	312.2
Profit/(loss) for the period	-		-	-	-	-	-	-	(27.4)	(27.4)	1.2	(26.2)
Other comprehensive income/(expense):
Remeasurement loss on defined benefit plans and related taxes	-		-	-	-	-	-	-	(12.3)	(12.3)	-	(12.3)
Foreign exchange differences	-		-	10.4	-	-	-	-	-	10.4	1.5	11.9
Cash flow hedging fair value changes and transfers	-		-	-	(1.1)	-	-	-	-	(1.1)	-	(1.1)
Total comprehensive income/(expense)		-	-	10.4	(1.1)	-	-	-	(39.7)	(30.4)	2.7	(27.7)
Transactions with owners:
Dividends	-		-	-	-	-	-	-	-	-	(4.1)	(4.1)
Purchase of non-controlling interest	-		-	-	-	-	-	-	(2.2)	(2.2)	(0.6)	(2.8)
Share-based payments	-		-	-	-	-	-	-	1.9	1.9	-	1.9
Own shares acquired for share incentive schemes (net)	-		-	-	-	-	-	-	0.1	0.1	-	0.1
At 30 June 2020	71.8		111.7	(3.2)	(0.3)	(1.0)	35.7	0.6	24.8	240.1	39.5	279.6

Condensed consolidated statement of cash flows

		Six months ended 30 June 2020	Six months ended 30 June 2019	Year ended 31 December 2019
	Note	£m	£m	£m
Operating activities
Profit/(loss) for the period from continuing operations		(27.0)	39.4	79.8
Profit for the period from discontinued operations	6	0.8	-	1.5
Adjustments for:
Depreciation - property, plant and equipment		17.3	15.9	32.3
Depreciation - right-of-use assets		5.1	4.7	10.1
Amortisation		3.7	4.1	8.1
Net financing costs	4	5.9	8.6	16.9
(Profit)/loss on disposal of business and business exits	3,6	-	-	(0.7)
Non-cash specific adjusting items included in operating profit	3,6	62.6	-	-
Share of profit from associate (net of income tax)		(0.1)	-	(0.5)
Profit on sale of property, plant and equipment		(1.2)	-	(0.7)
Income tax expense	5	1.5	15.3	29.9
Share-based payment expense		1.4	1.2	2.4
Cash generated from operations before changes in working capital and provisions		70.0	89.2	179.1

(Increase)/decrease in trade and other receivables		14.8	(6.3)	9.0
(Increase)/decrease in inventories		(1.2)	(7.2)	(5.9)
Increase/(decrease) in trade and other payables		(18.0)	(6.7)	(3.1)
Increase/(decrease) in provisions		1.3	(2.1)	(0.5)
Payments to defined benefit pension plans	12	(8.0)	(6.2)	(13.4)
Cash generated from operations		58.9	60.7	165.2

Interest paid - borrowings and overdrafts		(3.6)	(5.3)	(11.2)
Interest paid - lease liabilities		(1.4)	(1.5)	(3.0)
Income tax paid		(7.0)	(14.4)	(28.8)
Net cash from operating activities		46.9	39.5	122.2

Investing activities
Purchase of property, plant and equipment and software		(16.0)	(29.2)	(56.4)
Purchase of investments		(0.4)	(0.5)	(1.1)
Proceeds from sale of property, plant and equipment		0.2	1.3	1.5
Interest received		0.4	0.7	1.9
Disposal of subsidiaries, net of cash disposed		-	0.7	0.7
Net cash from investing activities		(15.8)	(27.0)	(53.4)

Financing activities
Purchase of own shares for share incentive schemes		-	-	(3.3)
Proceeds from exercise of share options		0.1	0.3	0.8
Increase in borrowings		35.6	26.8	67.1
Reduction and repayment of borrowings		(3.3)	(20.7)	(78.4)
Payment of lease liabilities		(5.2)	(4.3)	(9.6)
Dividends paid to shareholders of the Company		-	(19.9)	(31.3)
Dividends paid to non-controlling interests		(4.1)	(2.8)	(8.5)
Purchase of shares from non-controlling interest		(2.8)	-	-
Net cash from financing activities		20.3	(20.6)	(63.2)

Net increase/(decrease) in cash and cash equivalents		51.4	(8.1)	5.6
Cash and cash equivalents at start of period		68.7	67.6	67.6
Effect of exchange rate fluctuations on cash held		2.6	0.2	(4.5)
Cash and cash equivalents at period end	10	122.7	59.7	68.7

Notes to the condensed consolidated financial statements

Note 1. Basis of preparation, accounting policies and judgment and estimates

Morgan Advanced Materials plc (the 'Company') is a company incorporated in the UK under the Companies Act 2006.

The unaudited condensed consolidated financial statements of the Company for the six months ended 30 June 2020 comprise the Company, its subsidiaries and the Group's interest in associates (together the 'Group').

The condensed consolidated financial statements for the six months ended 30 June 2020 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting 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 2019.

The condensed consolidated financial statements and the comparative information for the six months ended 30 June 2020 have neither been audited nor reviewed, 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 and Accounts for the year ended 31 December 2019. 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 condensed consolidated financial statements have been prepared on a going concern basis, refer to page 25 for further details.

The consolidated financial statements of the Group for the year ended 31 December 2019 are available on request from the Company's registered office at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP or at morganadvancedmaterials.com.

The condensed consolidated financial statements for the six months ended 30 June 2020 were approved by the Board on 30 July 2020.

Accounting policies

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 2019.

Use of 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.

Judgements

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements is included in the following notes:

Note 3: Specific adjusting items

The Group separately presents specific adjusting items in the consolidated income statement which, in the Directors' judgement, need to be disclosed separately by virtue of their size and incidence in order for users of the consolidated financial statements to obtain a proper understanding of the financial information and the underlying performance of the business. These items which occur infrequently and include (but are not limited to):

· Individual restructuring projects which are material or relate to the closure of a part of the business and are not expected to recur.

· Gains or losses on disposal or exit of businesses.

· Significant costs incurred as part of the integration of an acquired business.

· Gains or losses arising on significant changes to or closures of defined benefit pension plans.

Deciding whether an item is part of specific adjusting items requires judgement to determine the nature and the intention of the transaction.

Note 5: Recognition of deferred tax assets

Deferred tax assets are recognised when management judges it probable that future taxable profits will be available against which the temporary differences can be utilised.

Note 13: Provisions and contingent liabilities

Due to the nature of its operations, the Group holds provisions for its environmental obligations. Judgement is needed in determining whether a contingent liability has crystallised into a provision. Management assesses whether there is sufficient information to determine that an environmental liability exists and whether it is possible to estimate with sufficient reliability what the cost of remediation is likely to be. For environmental remediation matters, this tends to be at the point in time when a remediation feasibility study has been completed, or sufficient information becomes available through the study to estimate the costs of remediation.

The Group will recognise a legal provision at the point when the outcome of a legal matter can be reliably estimated. Estimates are based on past experience of similar issues, professional advice received and the Group's assessment of the most likely outcome. The timing of the utilisation of these provisions is frequently uncertain, reflecting the complexity of issues and the outcome of various court proceedings and associated negotiations.

Assumptions and estimates

Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the six months ended 30 June 2020 are included in the following notes:

Note 12: Pensions and other post-retirement employee benefits: key actuarial assumptions

The principal actuarial assumptions applied to pensions are shown in note 12. The actuarial evaluation of pension assets and liabilities is based on assumptions in respect of inflation, future salary increases, discount rates, returns on investments and mortality rates. Relatively small changes in the assumptions underlying the actuarial valuations of pension schemes can have a significant impact on the net pension liability included in the balance sheet.

Note 13: Provisions and contingent liabilities

Provisions for environmental costs and settlement of litigation are estimated based on current legal and constructive requirements. Actual costs and cash outflows can differ from current estimates because of changes in laws and regulations, public expectations, prices, more detailed analysis of site conditions and innovations in clean-up technology.

Closure and restructuring costs can be estimated with greater certainty and the carrying value of existing provisions at the balance sheet date is less likely to change materially within the next financial year.

Amounts provided are the Group's best estimate of exposure based on currently available information.

Note 9: Impairment of intangible assets and goodwill

The Group tests at least annually whether goodwill and other intangibles have suffered any impairment. This process relies on the use of estimates of the future profitability and cash flows of its cash-generating units which may differ from the actual results delivered. In addition, the Group reviews whether identified intangible assets have suffered any impairment. Note 9 contains information about the assumptions relating to goodwill impairment tests, including a sensitivity analysis

Other assumptions and estimates which have a lower risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next 12 months include:

Note 5: Taxation

The level of current tax and deferred tax recognised is dependent on the tax rates in effect at the balance sheet date, and on subjective judgments as to the outcome of decisions to be made by the tax authorities in the various tax jurisdictions around the world in which the Group operates.

The Group periodically assesses its liabilities and contingencies for all tax years open to audit based on the latest information available. The Group records its best estimate of these tax liabilities, including related interest charges. Whilst management believes it has adequately provided for the probable outcome of these matters, future results may include adjustments to these estimated tax liabilities and the final outcome of tax examinations may result in a materially different outcome than that assumed in the tax liabilities. Provisions are made against individual exposures taking into account the specific circumstances of each case, including the strengths of technical arguments, past experience with tax authorities, recent case law or rulings on similar issues and external advice received.

Note 11: Credit risk

Note 11 contains information about the Group's exposure to credit risk. The Group establishes allowances for impairment losses against receivables. The allowance represents its estimate of expected credit losses.

Adoption of new and revised accounting standards

There were no 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

There are no upcoming accounting standards or amendments that are applicable to the Group.

Non-GAAP measures

Where non-GAAP measures have been referenced these have been identified by an asterisk (*) where they appear in text and by a footnote where they appear in a table. Definitions of these non-GAAP measures, and their reconciliation to the relevant GAAP measure, are provided on pages 14 to 17.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the 2019 Annual Report and Accounts on pages 6 to 44. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are reported on pages 30, 38-39, and 119-130 of the 2019 Annual Report and Accounts. Additionally this note and note 14 to the condensed consolidated financial statements for the six months ended 30 June 2020 provide details of the Group's policies and processes for managing financial risk; details of its financial instruments and hedging activities; and details of its exposures to credit risk and liquidity risk. The principal risks of the Group are set out on pages 26 to 31 of the 2019 Annual Report and Accounts. The Directors have considered all of these areas and how they may impact going concern.

Our key financial covenants are measured on a pre-IFRS 16 Leases basis. As at 30 June, net debt* to EBITDA* excluding lease liabilities was 1.0 times compared to a covenant not to exceed 3.0 times, and our interest cover was 19 times, compared to a covenant to exceed 4.0 times.

Note 2. Segment reporting

The Group reports as two divisions and five 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, 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 2020
	Thermal Ceramics	Molten Metal Systems	Thermal Products division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics division	Segment totals	Corporate costs	Group
Continuing operations	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	175.3	20.4	195.7	77.7	77.6	126.8	282.1	477.8	-	477.8

Segment headline operating profit¹	13.5	1.7	15.2	12.5	15.5	12.2	40.2	55.4		55.4
Corporate costs									(2.5)	(2.5)
Group headline operating profit¹										52.9
Amortisation of intangible assets	(0.9)	(0.1)	(1.0)	(0.3)	(0.1)	(2.3)	(2.7)	(3.7)	-	(3.7)
Operating profit before specific adjusting items	12.6	1.6	14.2	12.2	15.4	9.9	37.5	51.7	(2.5)	49.2
Specific adjusting items included in operating profit²	(35.0)	(0.2)	(35.2)	(1.2)	(0.2)	(32.2)	(33.6)	(68.8)	(0.1)	(68.9)
Operating profit/(loss)	(22.4)	1.4	(21.0)	11.0	15.2	(22.3)	3.9	(17.1)	(2.6)	(19.7)
Finance income										0.5
Finance expense										(6.4)
Share of profit of associate (net of income tax)										0.1
Loss before taxation										(25.5)

Segment assets	341.6	42.3	383.9	157.1	111.9	200.3	469.3	853.2	143.4	996.6

Segment liabilities	83.8	7.2	91.0	31.8	20.5	76.0	128.3	219.3	497.7	717.0

Segment capital expenditure	4.0	2.0	6.0	1.8	4.1	4.1	10.0	16.0	-	16.0

Segment depreciation - property, plant and equipment	6.8	1.1	7.9	2.8	2.9	3.7	9.4	17.3	-	17.3

Segment depreciation - right-of-use assets	2.2	0.2	2.4	0.6	0.4	1.7	2.7	5.1	-	5.1

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

2. Details of specific adjusting items are given in note 3 to the condensed consolidated financial statements.

	Six months ended 30 June 2019
	Thermal Ceramics	Molten Metal Systems	Thermal Products division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics division	Segment totals	Corporate costs	Group
Continuing operations	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	207.8	24.7	232.5	85.4	71.1	136.8	293.3	525.8	-	525.8

Segment headline operating profit¹	25.7	2.7	28.4	11.1	13.4	17.5	42.0	70.4		70.4
Corporate costs									(3.0)	(3.0)
Group headline operating profit¹										67.4
Amortisation of intangible assets	(1.1)	(0.2)	(1.3)	(0.4)	(0.2)	(2.2)	(2.8)	(4.1)	-	(4.1)
Operating profit before specific adjusting items										63.3
Specific adjusting items included in operating profit²	-	-	-	-	-	-	-	-	-	-
Operating profit/(loss)	24.6	2.5	27.1	10.7	13.2	15.3	39.2	66.3	(3.0)	63.3
Finance income										0.6
Finance expense										(9.2)
Share of profit of associate (net of income tax)										-
Profit before taxation										54.7

Segment assets	415.4	43.4	458.8	163.3	105.6	221.6	490.5	949.3	83.6	1,032.9

Segment liabilities	102.8	8.6	111.4	33.7	21.6	79.7	135.0	246.4	509.3	755.7

Segment capital expenditure	6.0	1.4	7.4	4.2	5.0	12.6	21.8	29.2	-	29.2

Segment depreciation - property, plant and equipment	6.8	0.9	7.7	2.5	2.4	3.3	8.2	15.9	-	15.9

Segment depreciation - right-of-use assets	1.9	0.2	2.1	0.6	0.3	1.7	2.6	4.7	-	4.7

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

2. Details of specific adjusting items are given in note 3 to the condensed consolidated financial statements.

	Year ended 31 December 2019
	Thermal Ceramics	Molten Metal Systems	Thermal Products division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics division	Segment totals	Corporate costs	Group
Continuing operations	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	418.4	49.1	467.5	164.2	144.3	273.5	582.0	1,049.5	-	1,049.5

Segment headline operating profit¹	52.2	5.9	58.1	21.9	26.4	33.7	82.0	140.1	-	140.1
Corporate costs									(5.9)	(5.9)
Group headline operating profit¹										134.2
Amortisation of intangible assets	(2.2)	(0.3)	(2.5)	(0.7)	(0.4)	(4.5)	(5.6)	(8.1)	-	(8.1)
Operating profit before specific adjusting items										126.1
Specific adjusting items included in operating profit²	-	-	-	-	-	-	-	-	-	-
Operating profit/(loss)	50.0	5.6	55.6	21.2	26.0	29.2	76.4	132.0	(5.9)	126.1
Finance income										1.9
Finance expense										(18.8)
Share of profit of associate (net of income tax)										0.5
Profit before taxation										109.7

Segment assets	387.5	42.8	430.3	154.8	101.9	209.6	466.3	896.6	88.5	985.1

Segment liabilities	96.4	9.4	105.8	32.2	22.5	78.0	132.7	238.5	434.4	672.9

Segment capital expenditure	12.1	4.2	16.3	8.4	10.1	21.6	40.1	56.4	-	56.4

Segment depreciation - property, plant and equipment	13.6	1.8	15.4	5.2	5.0	6.7	16.9	32.3	-	32.3

Segment depreciation - right-of-use assets	4.3	0.4	4.7	1.2	0.7	3.4	5.3	10.0	0.1	10.1

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

2. Details of specific adjusting items are given in note 3 to the condensed consolidated financial statements.

Revenue from external customers

Continuing operations	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
US	199.9	209.3	420.0
China	46.7	51.0	101.3
Germany	27.8	35.2	68.9
UK (the Group's country of domicile)	20.3	23.0	44.5
Other Asia, Australasia, Middle East and Africa	83.1	96.1	195.7
Other Europe	74.9	79.8	158.0
Other North America	15.9	16.0	33.6
South America	9.2	15.4	27.5
	477.8	525.8	1,049.5

Revenue from external customers is based on geographic location of the end-customer. Segment assets are based on geographical location of the assets. No customer represents more than 10% of revenue.

Revenue from external customers by end-market

Continuing operations	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
Industrial	196.2	243.6	472.0
Transportation	87.1	107.7	218.3
Chemical and petrochemical	55.4	48.6	106.0
Security and defence	50.3	33.9	73.0
Semiconductor and electronics	32.4	34.5	69.7
Healthcare	30.4	26.7	53.2
Energy	26.0	30.8	57.3
	477.8	525.8	1,049.5

Intercompany sales to other segments

Continuing operations	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
Thermal Ceramics	0.5	0.8	1.0
Molten Metal Systems	0.1	0.1	0.1
Thermal Products division	0.6	0.9	1.1
Electrical Carbon	0.3	0.1	0.3
Seals and Bearings	0.6	0.6	1.2
Technical Ceramics	0.1	0.1	0.4
Carbon and Technical Ceramics division	1.0	0.8	1.9

Note 3. Specific adjusting items

Continuing operations	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
Specific adjusting items:
Business closure and exit costs	-	-	(0.7)
Release of provisions related to business exits and disposals	-	-	0.7
Restructuring costs	(5.5)	-	-
Impairment of assets	(63.4)	-	-
Total specific adjusting items before income tax	(68.9)	-	-
Income tax credit from specific adjusting items	10.2	-	-
Total specific adjusting items after income tax	(58.7)	-	-

Specific adjusting items in relation to discontinued operations are disclosed in note 6.

2020

Restructuring costs

Following the announcement of the Group's restructuring programme on 5 June 2020 the Group has recognised £5.5 million relating to initial staff redundancies and legal and professional fees.

Impairment of assets

Technical Ceramics, ceramic cores

A significant downturn in aerospace demand has resulted in impairment losses of £28.5 million in the ceramic cores businesses. The assets relating to these businesses have been impaired to align their recoverable value to their value in use. To calculate value in use management have prepared cash flow projections to 2023 that assume the trends seen in the second quarter persist for the aerospace industry into 2021, with a gradual recovery of demand. A long-term growth rate of 1% has been used for years beyond 2023 and in calculating the terminal value. A pre-tax discount rate of 11.5% has been used to determine the value in use. The impairment is allocated to customer relationship intangible assets recognised upon the acquisition of the Carpenter business in 2008, right-of-use assets and property, plant and equipment.

Technical Ceramics, China

On 15 June 2020 the Group announced the closure of its Suzhou manufacturing facility in China and has recognised £1.1 million relating to the impairment of plant and equipment to its fair value less costs of disposal.

Thermal Ceramics

The continuing reduced demand in the aerospace, automotive and industrial market segments has resulted in impairment losses of £33.8 million in Thermal Ceramics.

Impairments relating to the closure of sites and under-utilised product lines, totalled £20.2 million relating to property, plant and equipment and right-of-use assets, aligning their recoverable value to their fair value less costs of disposal.

Two further businesses, which remain in operation, have recognised combined impairment losses of £13.6 million after reassessment of their value in use in the current economic climate. To calculate value in use management have prepared cash flow projections that assume the trends seen in the second quarter persist into the second half of 2020, with a gradual recovery of demand. A long-term growth rate of 1% has been used for years beyond 2023 and in calculating the terminal value. A pre-tax discount rate of 11.6% has been used to determine the value in use. The impairment is allocated to customer relationship and technology and trademark intangible assets recognised upon the acquisition of Porextherm in Germany in 2014 as well as right-of-use assets and property, plant and equipment across both businesses.

2019

Business closure and exit costs

China, Technical Ceramics

In 2019, the Group completed the exit of the ceramic cores operations within China, Technical Ceramics initiated in 2018. The Group recognised £0.7 million of costs in relation to this exit for staff redundancies and legal and professional fees.

Release of provisions related to previous business exits and disposals

In 2019, certain liabilities relating to previous business exits and disposals lapsed and the Group released £0.7 million of legal and other provisions.

Note 4. Finance income and expense

Continuing operations	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
Interest on bank balances and cash deposits	0.5	0.6	1.9
Finance income	0.5	0.6	1.9

Interest expense on borrowings and overdrafts	(3.8)	(5.4)	(11.2)
Interest expense on lease liabilities	(1.4)	(1.5)	(3.0)
Net interest on IAS 19 obligations	(1.2)	(2.3)	(4.6)
Finance expense	(6.4)	(9.2)	(18.8)
Net financing costs recognised in profit or loss	(5.9)	(8.6)	(16.9)

No finance income or expense related to discontinued operations in either the current or preceding periods.

Note 5. Taxation

Continuing operations	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
Income tax charge on profit before specific adjusting items	(11.7)	(15.3)	(29.9)
Income tax credit from specific adjusting items	10.2	-	-
Total income tax expense recognised in profit or loss	(1.5)	(15.3)	(29.9)

The Group's consolidated effective tax rate for the six months ended 30 June 2020 is based on the Directors' best estimate of the effective tax rate for the year.

The Group operates in many jurisdictions around the world and is subject to factors that may impact future tax charges including the recently enacted US tax reform, implementation of the OECD's BEPS actions, tax rate and legislation changes, expiry of the statute of limitations and resolution of tax audits and disputes.

EU State Aid

On 2 April 2019 the European Commission ruled that a Group Financing Exemption under the UK controlled foreign company rules was partly contrary to EU State Aid rules. The UK government has filed an annulment application with the EU General Court against this decision. Like many other multinational groups that have acted in accordance with the UK legislation in force at the time, the Group may be affected. The estimated maximum potential unprovided liability for the Group is approximately £2.5 million.

Note 6. Discontinued operations

The results from discontinued operations, which represent the Composites and Defence Systems business disposed in 2018, are set out below:

	Six months ended 30 June 2020			Six months ended 30 June 2019			Year ended 31 December 2019
	Results before specific adjusting items	Specific adjusting items¹	Total	Results before specific adjusting items	Specific adjusting items¹	Total	Results before specific adjusting items	Specific adjusting items¹	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	-	-	-	-	-	-	-	-	-
Operating income	-	0.8	0.8	-	-	-	0.7	0.8	1.5
Profit before taxation	-	0.8	0.8	-	-	-	0.7	0.8	1.5
Income tax expense	-	-	-	-	-	-	-	-	-
Profit from discontinued operations	-	0.8	0.8	-	-	-	0.7	0.8	1.5

Basic profit per share from discontinued operations			0.3p			-			0.5p
Diluted profit per share from discontinued operations			0.3p			-			0.5p

Specific adjusting items in both 2020 and 2019 relate to the reassessment of certain provisions associated with the disposal. In 2019, operating income of £0.7 million relates to receipts from contingent assets excluded from the disposal.

There was no income tax expense in relation to the discontinued operations in either the current or preceding periods.

Cash flows from discontinued operations are set out below:

	Six months ended 30 June 2020	Six months ended 30 June 2019	Year ended 31 December 2019
	£m	£m	£m
Net cash inflow from operating activities	(0.1)	(0.4)	0.4
Net cash inflow from investing activities	-	0.7	0.7
Net cash flow used in financing activities	-	-	-
	(0.1)	0.3	1.1

Note 7. Earnings per share

	Six months ended 30 June 2020			Six months ended 30 June 2019			Year ended 31 December 2019
	Earnings/ (loss)	Basic earnings/ (loss) per share	Diluted earnings/ (loss) per share	Earnings	Basic earnings per share	Diluted earnings per share	Earnings	Basic earnings per share	Diluted earnings per share
	£m	pence	Pence	£m	pence	pence	£m	pence	pence
Profit/(loss) for the period attributable to shareholders of the Company	(27.4)	(9.6)p	(9.6)p	35.3	12.4p	12.3p	73.1	25.7p	25.5p
(Profit)/loss from discontinued operations	(0.8)	(0.3)p	(0.3)p	-	-	-	(1.5)	(0.5)p	(0.5)p
Profit/(loss) from continuing operations	(28.2)	(9.9)p	(9.9)p	35.3	12.4p	12.3p	71.6	25.2p	25.0p
Specific adjusting items	68.9	24.2p	24.1p	-	-	-	-	-	-
Amortisation of intangible assets	3.7	1.3p	1.3p	4.1	1.4p	1.4p	8.1	2.8p	2.8p
Tax effect of the above	(10.2)	(3.6)p	(3.6)p	-	-	-	-	-	-
Non-controlling interests' share of the above adjustments	(1.4)	(0.5)p	(0.5)p	-	-	-	-	-	-
Adjusted profit for the period from continuing operations as used in headline earnings per share¹	32.8	11.5p	11.5p	39.4	13.8p	13.8p	79.7	28.0p	27.8p

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

	Six months ended 30 June 2020 millions	Six months ended 30 June 2019 millions	Year ended 31 December 2019 millions
Number of shares
Weighted average number of Ordinary shares for the purposes of basic earnings per share¹	284.6	284.6	284.6
Effect of dilutive potential Ordinary shares:
Share options	1.2	1.8	1.6
Weighted average number of Ordinary shares for the purposes of diluted earnings per share	285.8	286.4	286.2

1. The calculation of the weighted average number of shares excludes the shares held by The Morgan General Employee Benefit Trust, on which dividends are waived.

Note 8. Property, plant and equipment

	Land and buildings £m	Plant, equipment and fixtures £m	Total £m
Cost
At 1 January 2020	215.4	686.0	901.4
Additions	0.9	9.6	10.5
Disposals	(0.1)	(8.3)	(8.4)
Transfer to intangible assets	-	(2.5)	(2.5)
Effect of movement in foreign exchange	11.2	35.4	46.6
At 30 June 2020	227.4	720.2	947.6

Depreciation and impairment losses
At 1 January 2020	95.7	488.5	584.2
Depreciation charge for the period	2.7	14.6	17.3
Impairment losses¹	9.7	25.7	35.4
Disposals	(0.1)	(8.1)	(8.2)
Effect of movement in foreign exchange	5.8	26.3	32.1
At 30 June 2020	113.8	547.0	660.8

Carrying amounts
At 1 January 2020	119.7	197.5	317.2
At 30 June 2020	113.6	173.2	286.8

1. For more details of impairment losses recognised in the period see note 3.

Profit on sale of property, plant and equipment presented in the cash flow includes £1.2 million of insurance proceeds for replacement assets.

Note 9. Intangible assets

	Goodwill £m	Customer relationships £m	Technology and trademarks £m	Capitalised development costs £m	Computer software £m	Total £m
Cost
At 1 January 2020	175.1	57.7	3.4	0.8	31.7	268.7
Additions (externally purchased)	-	-	-	-	4.4	4.4
Transfers from property, plant and equipment	-	-	-	-	2.5	2.5
Effect of movement in foreign exchange	6.1	3.9	0.3	0.1	1.1	11.5
At 30 June 2020	181.2	61.6	3.7	0.9	39.7	287.1

Amortisation and impairment losses
At 1 January 2020	-	40.4	0.7	0.8	22.0	63.9
Amortisation charge for the period	-	2.1	0.1	-	1.5	3.7
Impairment losses¹	-	14.2	2.7	-	2.5	19.4
Effects of movement in foreign exchange	-	2.9	0.2	0.1	0.6	3.8
At 30 June 2020	-	59.6	3.7	0.9	26.6	90.8

Carrying amounts
At 1 January 2020	175.1	17.3	2.7	-	9.7	204.8
At 30 June 2020	181.2	2.0	-	-	13.1	196.3

1. For more details of impairment losses recognised in the period please see note 3.

Impairment test for cash-generating units containing goodwill

In accordance with the requirements of IAS 36 Impairment of Assets, goodwill is allocated to the Group's cash-generating units that are expected to benefit from the synergies of the business combination that gave rise to the goodwill.

Goodwill is attributed to each cash-generating unit as follows:

	At 30 June 2020 £m	At 30 June 2019 £m	At 31 December 2019 £m
Thermal Ceramics	88.1	87.5	85.2
Molten Metal Systems	9.4	9.3	9.1
Electrical Carbon	30.4	30.2	29.5
Seals and Bearings	15.5	15.4	14.9
Technical Ceramics	37.8	37.5	36.4
	181.2	179.9	175.1

Each cash-generating unit is assessed for impairment annually or more frequently if there are indicators that goodwill might be impaired. Given the impact of the Covid-19 pandemic on the Group's financial statements, management have performed an impairment review as at 30 June 2020.

The carrying value of goodwill has been assessed with reference to its value in use, reflecting the projected discounted cash flows of each cash-generating unit to which goodwill has been allocated. The key assumptions used in determining value in use relate to growth rates and discount rates.

Cash flow projections are based on managements' expectations on how sales and operating margins will develop to 31 December 2023. External data sources have been considered as to the strength and recovery of the Group's end-markets in building an expectation of the future cash flows of each cash generating unit. Management have used conservative cash flow projections that assume the trends seen in the second quarter persist into the second half of 2020, with a gradual recovery of demand back to 2019 levels by either 2022 or 2023. A 1.0% growth rate has been used for years beyond 2023 and to calculate a terminal value. Management has assessed these growth rates, including the terminal growth rate as reasonable for each cash-generating unit. In neither scenario is an impairment of goodwill indicated.

At 30 June 2020, the Group has used the following pre-tax discount rates for calculating the value in use of each of the cash-generating units: Thermal Ceramics: 11.3%, Molten Metal Systems: 11.2%, Electrical Carbon: 11.2%, Seals and Bearings: 10.6%, Technical Ceramics 10.7%.

The Directors have considered the following individual sensitivities and are confident that no impairment would arise for each of the Thermal Ceramics, Molten Metal Systems, Electrical Carbon, Seals and Bearings and Technical Ceramics cash-generating units in any one of the following three circumstances, which are considered reasonably possible changes:

· If the pre-tax discount rate was increased to 15%.

· If no recovery is assumed between 2021 to 2023 and no growth in the calculation of terminal value.

· If the cash flow projections of all businesses were reduced by 25%.

Note 10. Cash and cash equivalents reconciled to net debt*

	At 30 June 2020 £m	At 30 June 2019 £m	At 31 December 2019 £m

Bank balances	71.9	49.6	59.6
Cash deposits	50.8	10.1	9.1
Cash and cash equivalents	122.7	59.7	68.7

Reconciliation of cash and cash equivalents to net debt*

	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
Opening borrowings and lease liabilities as reported	(289.8)	(247.6)	(247.6)
Impact of change in accounting policy following adoption of IFRS 16	-	(67.4)	(67.4)
Adjusted opening borrowings and lease liabilities	(289.8)	(315.0)	(315.0)
Increase in borrowings	(35.6)	(26.8)	(67.1)
Reduction and repayment of borrowings	3.3	20.7	78.4
Payment of lease liabilities	5.2	4.3	9.6
Total changes from cash flows	(27.1)	(1.8)	20.9
New leases and lease remeasurement	(0.8)	(5.6)	(8.8)
Effect of movements in foreign exchange on borrowings	(16.8)	(0.2)	13.1
Closing borrowings and lease liabilities	(334.5)	(322.6)	(289.8)
Cash and cash equivalents	122.7	59.7	68.7
Closing net debt¹	(211.8)	(262.9)	(221.1)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes.

	Borrowings £m	Lease liabilities £m	Total financing liabilities £m	Cash and cash equivalents £m	Movement in net debt¹ £m
At 1 January 2020	(225.5)	(64.3)	(289.8)	68.7	(221.1)
Cash inflow	-	-	-	56.4	56.4
Borrowings and lease liability cash flow	(32.3)	5.2	(27.1)	-	(27.1)
Net interest paid	-	-	-	(5.0)	(5.0)
Net cash inflow/(outflow)	(32.3)	5.2	(27.1)	51.4	24.3
New leases and lease remeasurement	-	(0.8)	(0.8)	-	(0.8)
Exchange and other movements	(13.2)	(3.6)	(16.8)	2.6	(14.2)
At 30 June 2020	(271.0)	(63.5)	(334.5)	122.7	(211.8)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 41, reconciliations of the statutory results to the adjusted measures can be found on pages 14 to 17.

Note 11. Financial risk management

Fair values

	At 30 June 2020				At 30 June 2019				At 31 December 2019
	Carrying amount £m	Fair value			Carrying amount £m	Fair value			Carrying amount £m	Fair value
	Carrying amount £m	Level 1 £m	Level 2 £m	Total £m	Carrying amount £m	Level 1 £m	Level 2 £m	Total £m	Carrying amount £m	Level 1 £m	Level 2 £m	Total £m
Financial assets and liabilities held at amortised cost
6.26% US Dollar Senior Notes 2019	-	-	-	-	(59.2)	-	(59.7)	(59.7)	-	-	-	-
1.18% Euro Senior Notes 2023	(22.7)	-	(22.9)	(22.9)	(22.4)	-	(22.7)	(22.7)	(21.2)	-	(21.2)	(21.2)
3.17% US Dollar Senior Notes 2023	(12.2)	-	(12.7)	(12.7)	(11.9)	-	(11.8)	(11.8)	(11.4)	-	(11.3)	(11.3)
1.55% Euro Senior Notes 2026	(22.7)	-	(23.5)	(23.5)	(22.4)	-	(23.1)	(23.1)	(21.2)	-	(21.5)	(21.5)
3.37% US Dollar Senior Notes 2026	(78.5)	-	(83.7)	(83.7)	(76.7)	-	(74.9)	(74.9)	(73.5)	-	(72.1)	(72.1)
1.74% Euro Senior Notes 2028	(9.1)	-	(9.5)	(9.5)	(9.0)	-	(9.3)	(9.3)	(8.5)	-	(8.6)	(8.6)
2.89% Euro Senior Notes 2030	(22.6)	-	(24.5)	(24.5)	(22.4)	-	(23.7)	(23.7)	(21.1)	-	(22.2)	(22.2)
4.87% US Dollar Senior Notes 2026	(20.6)	-	(23.0)	(23.0)	(20.1)	-	(21.1)	(21.1)	(19.2)	-	(20.2)	(20.2)
	(188.4)	-	(199.8)	(199.8)	(244.1)	-	(246.3)	(246.3)	(176.1)	-	(177.1)	(177.1)

Financial instruments - held at FVOCI¹
Equity securities	0.8	0.8	-	0.8	0.5	0.5	-	0.5	0.6	0.6	-	0.6

Derivatives held at fair value
Derivative financial assets held at fair value	0.6	-	0.6	0.6	0.3	-	0.3	0.3	1.5	-	1.5	1.5
Derivative financial liabilities held at fair value	(1.4)	-	(1.4)	(1.4)	(0.5)	-	(0.5)	(0.5)	(0.6)	-	(0.6)	(0.6)
	(0.8)	-	(0.8)	(0.8)	(0.2)	-	(0.2)	(0.2)	0.9	-	0.9	0.9
	(188.4)	0.8	(200.6)	(199.8)	(243.8)	0.5	(246.5)	(246.0)	(174.6)	0.6	(176.2)	(175.6)

1. Fair value through other comprehensive income.

The table above analyses financial instruments carried at fair value, by valuation method, together with the carrying amounts shown in the balance sheet. The fair value of cash and cash equivalents, current trade and other receivables/ payables and floating-rate bank and other borrowings are excluded from the preceding table as their carrying amount approximates to their fair value.

Fair value hierarchy

The different levels have been defined as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

· Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no transfers between Level 1 and Level 2 during 2020 or 2019 and there were no Level 3 financial instruments in either 2020 or 2019.

The major methods and assumption used in estimating the fair values of financial instruments reflected in the preceding table are as follows:

Fixed-rate borrowings

Fair value is calculated based on discounted expected future principal and interest cash flows. The interest rates used to determine the fair value of borrowings are 0.9-2.5% (30 June 2019: 0.9-4.2%; 31 December 2019: 1.1-3.9%).

Equity securities

Fair value is based on quoted market prices at the balance sheet date.

Derivatives

Derivatives relate to forward exchange contracts and are marked to market either using listed market prices or by discounting the contractual forward price and deducting the current spot rate.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is exposed to credit risk on financial instruments such as liquid assets, derivative assets and trade receivables.

The current economic climate gives rise to an increased credit risk, primarily with respect to trade receivables.

The Group establishes an allowance for impairment that represents its estimate of expected credit losses in respect of trade receivables.

The ageing of trade receivables at the reporting date was:


	At 30 June 2020		At 30 June 2019		At 31 December2019
	Gross £m	Impairment £m	Gross £m	Impairment £m	Gross £m	Impairment £m
Not past due	131.0	(0.3)	154.3	(0.4)	137.0	(0.3)
Past due 0-30 days	16.9	(0.2)	21.6	(0.3)	19.8	(0.3)
Past due 31-60 days	4.4	(0.1)	5.7	(0.1)	4.1	(0.2)
Past due 61-90 days	2.5	(0.2)	2.0	(0.1)	1.9	(0.1)
Past due more than 90 days	10.8	(10.0)	9.1	(8.4)	7.6	(7.5)
	165.6	(10.8)	192.7	(9.3)	170.4	(8.4)

Full details of the Group's policies and processes for managing financial risk are described in note 22 of the Group's 2019 Annual Report and Accounts.

Note 12. Pensions and other post-retirement employee benefits

Defined benefit obligations

Six months ended 30 June 2020
	UK £m	US £m	Europe £m	Rest of World £m	Total £m
Summary of net obligations
Present value of unfunded defined benefit obligations	-	(8.2)	(39.4)	(2.3)	(49.9)
Present value of funded defined benefit obligations	(575.9)	(156.4)	(2.2)	(12.0)	(746.5)
Fair value of plan assets	469.0	153.3	0.4	8.5	631.2
	(106.9)	(11.3)	(41.2)	(5.8)	(165.2)

Movements in present value of defined benefit obligation
At 1 January 2020	(534.6)	(146.0)	(40.0)	(14.3)	(734.9)
Current service cost	-	-	(0.5)	(0.9)	(1.4)
Interest cost	(5.2)	(2.4)	(0.2)	(0.1)	(7.9)
Actuarial gain/(loss):
Experience gain/(loss) on plan obligations	(2.0)	-	-	(0.1)	(2.1)
Changes in financial assumptions - gain/(loss)	(46.2)	(10.6)	1.1	-	(55.7)
Benefits paid	12.1	4.6	0.7	1.1	18.5
Curtailments and settlements	-	-	-	0.3	0.3
Exchange adjustments	-	(10.2)	(2.7)	(0.3)	(13.2)
At 30 June 2020	(575.9)	(164.6)	(41.6)	(14.3)	(796.4)

Movements in fair value of plan assets
At 1 January 2020	433.1	135.4	0.4	9.2	578.1
Interest on plan assets	4.4	2.2	-	0.1	6.7
Remeasurement gain/(loss)	35.3	10.3	-	0.2	45.8
Contributions by employer	8.3	0.4	0.7	0.2	9.6
Benefits paid	(12.1)	(4.6)	(0.7)	(1.1)	(18.5)
Curtailments and settlements	-	-	-	(0.3)	(0.3)
Exchange adjustments	-	9.6	-	0.2	9.8
At 30 June 2020	469.0	153.3	0.4	8.5	631.2
Actual return on assets	39.7	12.5	-	0.3	52.5

Fair value of plan assets by category
Equities	58.0	-	-	-	58.0
Growth assets	96.2	8.7	-	-	104.9
Bonds	59.6	140.3	-	-	199.9
Liability-driven investments (LDI)	88.6	-	-	-	88.6
Matching insurance policies	164.0	-	0.4	6.3	170.7
Other	2.6	4.3	-	2.2	9.1
	469.0	153.3	0.4	8.5	631.2

Principal actuarial assumptions at 30 June 2020 were:	%	%	%	%
Discount rate	1.47	2.58	0.90	2.20
Inflation (UK: RPI/CPI)	2.59/1.74	n/a	1.50	n/a

30 June 2019
	UK £m	US £m	Europe £m	Rest of World £m	Total £m
Summary of net obligations
Present value of unfunded defined benefit obligations	-	(8.0)	(39.2)	(2.0)	(49.2)
Present value of funded defined benefit obligations	(582.4)	(141.3)	(2.4)	(11.5)	(737.6)
Fair value of plan assets	442.2	140.0	0.5	8.5	591.2
	(140.2)	(9.3)	(41.1)	(5.0)	(195.6)

Principal actuarial assumptions at 30 June 2019 were:	%	%	%	%
Discount rate	2.22	3.53	1.00	2.10
Inflation (UK: RPI/CPI)	3.18/2.08	n/a	1.70	n/a

31 December 2019
	UK £m	US £m	Europe £m	Rest of World £m	Total £m
Summary of net obligations
Present value of unfunded defined benefit obligations	-	(7.6)	(37.9)	(2.7)	(48.2)
Present value of funded defined benefit obligations	(534.6)	(138.4)	(2.1)	(11.6)	(686.7)
Fair value of plan assets	433.1	135.4	0.4	9.2	578.1
	(101.5)	(10.6)	(39.6)	(5.1)	(156.8)

Principal actuarial assumptions at 31 December 2019 were:	%	%	%	%
Discount rate	2.06	3.21	0.90	2.20
Inflation (UK: RPI/CPI)	2.73/1.88	n/a	1.70	n/a

Note 13. Provisions and contingent liabilities

	Closure and restructuring provisions £m	Legal and other provisions £m	Environmental provisions £m	Total £m
At 1 January 2020	2.4	8.8	6.9	18.1
Provisions made during the year	2.8	0.8	-	3.6
Provisions used during the year	(1.0)	(0.3)	(0.2)	(1.5)
Provisions reversed during the year	-	(0.8)	-	(0.8)
Effect of movements in foreign exchange	-	0.3	0.3	0.6
At 30 June 2020	4.2	8.8	7.0	20.0

Current	4.2	5.0	1.2	10.4
Non-current	-	3.8	5.8	9.6
At 30 June 2020	4.2	8.8	7.0	20.0

Closure and restructuring provisions

Closure and restructuring provisions are based on the Group's restructuring programmes and represent committed expenditure at the balance sheet date. The amounts provided are based on the costs of terminating relevant contracts, under the contract terms, and management's best estimate of other associated restructuring costs including professional fees. Due to the nature of the provision for closure and restructuring provisions, the timing of any future potential future outflows in respect of these liabilities is uncertain until the restructuring programme is completed.

Legal and other provisions

Legal and other provisions mainly comprise amounts provided against open legal and contractual disputes arising in the normal course of business and long-service costs.

The Company has on occasion been required to take legal or other actions to protect its intellectual property rights, to enforce commercial contracts or otherwise and similarly to defend itself against proceedings brought by other parties. Provisions are made for the expected costs associated with such matters, based on past experience of similar items and other known factors, taking into account professional advice received, and represent management's best estimate of the most likely outcome.

The timing of utilisation of these provisions is frequently uncertain, reflecting the complexity of issues and the outcome of various court proceedings and associated negotiations.

Other provisions represent the best estimate of the cost of settling current obligations although there is a higher degree of judgement involved.

Where obligations are not capable of being reliably estimated, or if a material outflow of economic resources is considered remote, it is classified as a contingent liability. The Group is of the opinion that any associated claims that might be brought can be defeated successfully and, therefore, the possibility of any material outflow in settlement is assessed as remote.

Environmental provisions

Environmental provisions are made for quantifiable environmental liabilities arising from known environmental issues. The amounts provided are based on the best estimate of the costs required to remedy these issues. At one site, a remediation feasibility study is currently being conducted in relation to a known environmental issue, in conjunction with the local Environmental Regulator. Whilst this study has yet to be finalised, sufficient work has been completed to enable an estimate to be made for the costs of remediating the known environmental issues at this site. This cost was provided for in 2019 and is included in the table above.

Environmental contingent liabilities

The Group is subject to local health, safety and environmental laws and regulations concerning its manufacturing operations around the world. These laws and regulations may require the Group to take future action to remediate the impact of historic manufacturing processes on the environment or lead to other economic outflows. Such contingencies may exist for various sites which the Group currently operates or has operated in the past. There is a contingent liability arising from the as yet unknown environmental issues at the site referred to above, pending the completion of the feasibility study.

Tax contingent liabilities

The Group is subject to periodic tax audits by various fiscal authorities covering corporate, employee and sales taxes in the various jurisdictions in which it operates. We have provided for estimates of the Group's likely exposures where these can be reliably estimated.

Note 14. Related parties

Identification of 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 27 of the Group's 2019 Annual Report and Accounts.

Transactions with associate:

	Six months ended 30 June 2020 £m	Six months ended 30 June 2019 £m	Year ended 31 December 2019 £m
Sales to associate	-	-	-
Purchases from associate	1.0	1.1	2.0
Trade receivables due from associate	-	-	-
Trade payables due to associate	0.3	0.3	0.3

At 30 June 2020 the Group does not have any trade receivables owed by associates which have been fully provided for (30 June 2019 and 31 December 2019: £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 perfor mance of the Group during the period; and

· There have been no changes in the nature of related party transactions as described in note 27 to the Group's 2019 Annual Report and Accounts which could have a material effect on the financial position or performance of the Group during the period.

Note 15. Subsequent events

There were no reportable events subsequent to the balance sheet date.

Glossary

Constant-currency¹	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, disposals and dividends¹	Cash generated from continuing operations less net capital expenditure, net interest paid, tax paid and lease payments.
Group earnings before interest, tax, depreciation and amortisation (EBITDA)¹	EBITDA is defined as operating profit before specific adjusting items, amortisation of intangible assets and depreciation.
Group headline operating profit¹	Operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets.
Headline earnings per share (EPS)¹	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 debt¹	Borrowings, bank overdrafts and lease liabilities less cash and cash equivalents.
Group organic¹	The Group results excluding acquisition, disposal and business exit impacts at constant-currency.
Return on invested capital (ROIC)¹	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, borrowings, bank overdrafts and lease liabilities.
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 3 to the condensed consolidated financial statements for further details.

1. See definitions and reconciliations of non-GAAP measures to GAAP measures on page 14 to 17.

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Morgan Advanced Materials (MGAM)

Thursday, 21st November 2024

COMPANIES COVERED:

HLMA JD. ITH

JD Sports tanks after management tighten profit guidance towards the lower end of expectations, Halma finds support from strong earnings and capital return commitment cheers shareholders in Ithica Energy.

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