INTERIM RESULTS FOR THE HALF YEAR ENDED 4 JULY 2008

Summary

• Good results at top end of expectations
  

   

• The first half of 2008 has seen reported revenue increase by 15.4% compared to last year. On an organic^ and constant currency basis revenue growth was 4.9%

• Group underlying operating profit margin++ improved to 11.6% compared to 11.5% in the first half last year and 11.4% for the full year 2007

• Underlying EPS** improved by 11.9% to 11.3 pence (2007: 10.1 pence)

• Interim dividend increased by 11.1% to 2.50 pence per share (2007: 2.25 pence)

• The technical ceramics businesses acquired earlier this year from Carpenter Technology Corporation have performed well and both revenues and profit contribution are ahead of expectations 

• The Group's balance sheet remains robust. In March of this year the UK defined benefit pension scheme risk was substantially reduced following the UK pensioner buy-in

^    excluding the effect of the Carpenter acquisition

+    EBITDA is defined as operating profit of £45.1 million (2007: £39.1 million) before depreciation and amortisation of £14.8 million (2007: £12.8 million).

++  Underlying operating profit is defined as operating profit of £45.1 million (2007: £39.1 million) before amortisation of £1.3 million (2007: £0.8 million).

*     Underlying PBT is defined as operating profit of £45.1 million (2007: £39.1 million) and share of profit of associate of £0.7 million (2007: £nil) before amortisation of £1.3 million (2007: £0.8 million), less net financing costs of £6.3 million (2007: £2.6 million) and loss on disposal of business of £nil (2007: £0.3 million).

**   Underlying EPS defined as basic earnings per share of 10.8 pence (2007: 9.8 pence) adjusted to exclude amortisation of 0.5 pence (2007: 0.3 pence).

Commenting on the results, Chief Executive Officer, Mark Robertshaw said:

'The Group has traded well in the first half of 2008. Current order books are healthy at levels well above the same time last year on a like for like basis. The Carpenter businesses acquired in March 2008 and our 2007 investment in NP Aerospace are each performing well. Both are ahead of our revenue and profit expectations and have strong order books. We expect the Group to deliver further margin progression in the second half of the year and our goal remains mid-teen underlying operating profit margins in good times and double digit margins in bad times. Our strong market positions and healthy order book combined with a robust balance sheet enable us to look forward with confidence'.

For further enquiries:

Stuart Cox                                         Morgan Crucible              01753 837271

Mike Smith / Robin Walker             Finsbury                            020 7251 3801

Strategy

The Group has delivered a 16.3% increase in underlying operating profit in the first six months of 2008. Underlying operating profit margins increased to 11.6% in the first half of 2008 compared to a margin of 11.4% for the full year in 2007. 

Our strategy remains to focus on higher growth, higher margin markets and to reduce the Group's exposure to economically cyclical, more commoditised business. Since 2003, we have increased the proportion of our overall revenues in key target markets such as defence, aerospace and petrochemical sectors while reducing our exposure to the more commoditised automotive, consumer goods and telecommunication markets.

We aim to provide high value-added solutions for our customers and to be number one or two in our chosen market segments. Over 80% of the Group's revenues now come from markets with these number one or number two positions which typically allows us to have a good degree of pricing leverage. This has been reflected in our first half results with price rises once again achieved above increases in raw material and energy costs.

Simultaneously, we continue to focus on managing and reducing our cost base. We continue to migrate production to lower cost manufacturing countries. In 2008, we have progressed the construction of a new greenfield Crucibles plant in Suzhou, China. This is now nearing completion and capacity expansions in a number of other emerging market sites are ongoing. Not only does this provide an enhanced footprint for lower cost manufacturing, it also provides a local platform to serve the higher growth potential of the emerging economic powerhouses of China and India.

We view acquisitions as a means of accelerating the Group's strategy of moving the portfolio to higher growth, higher margin end-markets over time. Within this context, the technical ceramics businesses acquired in the first half of the year from Carpenter Technology Corporation have performed well in the first three months of Morgan ownership and are ahead of expectations on both revenues and profits. The performance of NP Aerospace (investment made in August 2007) has also been very encouraging in the first half with revenues increasing by 45% compared to the first half last year and order books looking strong for the second half of the year.

The Group is in a healthy financial position with a robust balance sheet. The buy-in of the UK pensioner liabilities successfully completed in the first half of this year serves to de-risk our balance sheet for the future. Whilst our primary focus remains on profitable organic growth, our balance sheet strength allows us to pursue suitable bolt-on acquisitions if value enhancing opportunities arise.

In summary we are delivering on our stated strategy. The combination of an increasingly more resilient end-market mix focussed on attractive sectors where we have strong market positions with a geographically diverse and well-balanced manufacturing footprint leaves the Group well placed to continue to succeed and prosper going forward.

Financial Review

Reference is made to 'Underlying operating profit' and 'Underlying EPS' below, both of which are defined at the front of this statement. These measures of earnings are shown because the Directors consider that they give a better indication of underlying performance.

Group revenue in the first half of 2008 was £401.2 million, an increase of 15.4% compared to the first half of 2007. On an organic (i.e. excluding the acquisition of the Carpenter businesses) and constant currency basis revenues grew by 4.9%.

Group underlying operating profit increased by 16.3% to £46.4 million (2007: £39.9 million). Underlying operating profit margins for the six months were 11.6%, compared to 11.5% in the equivalent period in 2007 and 11.4% for the full year 2007.

The Group has continued to undertake ongoing restructuring activity in the first half of 2008. We consider this ongoing restructuring to be part of "business as usual" for the Group. Restructuring costs were £5.5 million (2007: £3.5 million) offset by a gain on land and building disposals of £0.6 million (2007: £0.5 million loss).

The net finance charge was £6.3 million (2007: £2.6 million). Net bank interest and similar charges was £6.1 million (2007: £3.6 million). Part of the finance charge under IFRS is the net interest on pension scheme net liabilities which was £0.2 million expense (2007: £1.0 million income).

The tax charge for the period was £9.3 million (2007: £7.1 million). The effective tax rate at this half year is 24% (2007: 20%) which represents our best estimate for the full year tax rate. Over the medium term we would expect the effective tax rate to trend towards 30%.

Underlying earnings per share were 11.3 pence (2007: 10.1 pence), an increase of 11.9% on the previous year.

The Group pension deficit has improved by £0.4 million since last year end to £47.3 million on an IAS 19 basis. The main movements have been in the UK pension schemes which show a deficit of £0.9 million at the half year on an IAS 19 basis, an improvement of £1.6 million over the period.  The buy-in of UK pensioner liabilities earlier this year significantly de-risked the UK scheme and was a major factor in improving the UK deficit position from where it would otherwise have been given the deterioration in asset markets.

The net cash inflow from operating activities was £2.8 million (2007: £9.8 million) which included a cash cost of £6.3 million (2007: £5.0 million) from restructuring costs and costs associated with anti-trust litigation. Working capital increased by £28.7 million (2007: increase £26.7 million) in the first half of the year. Seasonality in inventory levels, due to stock building for shut down periods in July and August is a large part of this increase, as well as trade debtors being high due to healthy revenue levels. Working capital levels are expected to improve significantly in the second half of the year as this seasonality unwinds.

Interim Dividend

The Board has declared an interim dividend of 2.5 pence per Ordinary share, an increase of 11.1% on the dividend declared for the first six months of 2007. The dividend will be paid on 7th November 2008 to Ordinary shareholders on the register of members at the close of business on 3rd October 2008.

Operating Review

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